Western Asset Mortgage Capital Corporation Announces First Quarter 2020 Results
Conference Call and Webcast Scheduled for Tomorrow, Thursday, May 7, 2020 at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time
PASADENA, Calif., May 6, 2020 /PRNewswire/ -- Western Asset Mortgage Capital Corporation (the "Company" or "WMC") (NYSE: WMC) today reported its results for the first quarter ended March 31, 2020.
FIRST QUARTER 2020 FINANCIAL RESULTS
- Book value per share of $3.41.
- GAAP net loss of $381.9 million, or $7.15 per basic and diluted share.
- Core earnings plus drop income of $15.8 million, or $0.29 per basic and diluted share.1,5
- Economic return on book value was a negative 67.7% for the quarter.1,2
- 1.84% annualized net interest margin on our investment portfolio. 1,3,4
- 9.5x leverage excluding non-recourse debt6
OTHER FIRST QUARTER 2020 UPDATES
In response to the unprecedented market volatility at the end of the first quarter of 2020, the Company implemented measures to increase liquidity, reduce debt, and seek financing arrangements as an alternative to short term repurchase agreements with daily margin requirements. In March, these measures included, but were not limited to, the following:
- Sold approximately $1.5 billion of Agency MBS and $142.4 million of Non-Agency MBS.
- Reduced repurchase agreement financings by 48.0% to $1.6 billion.
- Terminated all interest rate hedges and further reduced margin call volatility.
- Suspended our first quarter common dividend to preserve liquidity.
ADDITIONAL BUSINESS UPDATES
- Our Manager waived management fees for March 2020 and April 2020.
- In April, we closed an 18 month term financing arrangement without margin requirements for our entire non-QM loan portfolio. The impact of this financing was to reduce our exposure to repurchase agreement financing by approximately $385 million and eliminate associated margin calls.
- In April, we further reduced repurchase agreement financings by selling approximately $370.3 million of Agency MBS, $65.3 million of Non-Agency MBS, $148.6 million in conforming whole loans, and $18.2 million other securities.
- In May, we closed a 12 month term financing arrangement for Non-Agency RMBS and Non-Agency CMBS, significantly mitigating exposure to margin volatility.
1 |
Non – GAAP measure. |
2 |
Economic return is calculated by taking the sum of: (i) the total dividends declared; and (ii) the change in book value during the period and dividing by the beginning book value. |
3 |
Includes interest-only securities accounted for as derivatives and the cost of interest rate swaps. |
4 |
Excludes the consolidation of VIE trusts required under GAAP. |
5 |
Drop income is income derived from the use of 'to-be-announced' forward contract ("TBA") dollar roll transactions which is a component of our gain (loss) on derivative instruments on our consolidated statement of operations, but is not included in core earnings. Drop income was approximately $1.1 million for the three months ended March 31, 2020. |
6 |
The debt amount used in the calculation of leverage is net of receivable under reverse repurchase agreements. |
MANAGEMENT COMMENTARY
"The first quarter was an extremely challenging environment for global equity and fixed income markets as the COVID-19 pandemic created unprecedented economic disruption, severe illiquidity, volatility and uncertainty," said Jennifer Murphy, Chief Executive Officer of the Company. "These conditions were very prominent in U.S. mortgage markets, causing an extreme lack of liquidity combined with forced selling, resulting in swift and dramatic price declines. Our portfolio, despite its diversity and focus on high-quality mortgage investments, was negatively impacted by these extraordinary market pressures. Our results at quarter-end reflect these market conditions, as we experienced a 67.7% decline in our book value per share and a GAAP net loss of $381.9 million, or $7.15 per share. While we generated core earnings plus drop income of $0.29 per share during the first quarter, relatively consistent with the previous quarter, we made the decision to retain those earnings and suspend the first quarter dividend to maintain additional liquidity and help protect the value of shareholder assets in this environment."
Ms. Murphy continued, "We believe our focus on high quality borrowers and assets as well as our diversified approach will provide an opportunity for our assets to recover significantly as economic activity resumes. We are committed to taking the necessary steps to protect assets and preserve the opportunity for our shareholders to benefit meaningfully in the recovery. To this end, we have been actively seeking new and more stable sources of financing. Subsequent to quarter-end, we successfully secured two term financing facilities, one on a portion of our residential whole-loan portfolio and the second on a portion of our Non-Agency CMBS and RMBS portfolio. Our focus on behalf of shareholders is to protect the value of the portfolio, enable shareholders to benefit from recovery, and reposition the company to resume delivering on our long term objectives," Ms. Murphy concluded.
Harris Trifon, Chief Investment Officer of the Company, commented, "While the broader market volatility resulting from the COVID-19 pandemic led to extreme price declines on our assets in March, we have experienced some recovery in their prices through the end of April. We believe that current prices in the credit sector of the U.S. residential and commercial real estate mortgage markets envisage severe economic scenarios last seen during the Global Financial Crisis. While assessing the longer-term economic damage of this crisis remains challenging given its unique nature and unprecedented scale, our view is the extraordinary amount of fiscal and monetary support that the U.S. government is providing our financial system and the broader economy will dampen the economic impact of the quarantine period and support liquidity conditions in the fixed income markets."
"We believe valuations in mortgage credit assets are particularly favorable relative to fundamentals even given the increased uncertainty in the near term. We also believe that the current recession will eventually pass and give way to an economic recovery, although the timing and strength of the recovery will be dependent on the spread of the virus and availability of therapeutics and a potential vaccine. Looking ahead, we believe mortgages secured by real estate assets with meaningful equity in the properties and higher quality credit will continue to perform well over the longer term. While many sectors of the mortgage market currently offer historically attractive valuations, our primary focus is on maintaining sufficient liquidity and reducing our overall debt while consolidating our financial relationships in order to protect against further book value erosion and position the portfolio for potential future appreciation. We feel that our current stance is the best way to put us back on course towards our long-term objectives of generating sustainable core earnings that can support an attractive dividend, with the overall goal of enhancing stockholder value," concluded Mr. Trifon.
OPERATING RESULTS |
||||||||
The below table reflects a summary of our operating results: |
||||||||
For the Three Months Ended |
||||||||
GAAP Results |
March 31, 2020 |
December 31, 2019 |
||||||
(in thousands-except share and per share data) |
||||||||
Net Interest Income |
$ |
18,741 |
$ |
18,927 |
||||
Other Income (Loss): |
||||||||
Realized gain (loss) on sale of investments, net |
89,186 |
11,992 |
||||||
Other than temporary impairment |
— |
(2,228) |
||||||
Unrealized gain (loss), net |
(296,111) |
(52,896) |
||||||
Gain (loss) on derivative instruments, net |
(189,691) |
42,007 |
||||||
Other, net |
461 |
518 |
||||||
Other Income (loss) |
(396,155) |
(607) |
||||||
Total Expenses |
4,534 |
5,209 |
||||||
Income (loss) before income taxes |
(381,948) |
13,111 |
||||||
Income tax provision (benefit) |
(93) |
622 |
||||||
Net income (loss) |
$ |
(381,855) |
$ |
12,489 |
||||
Net income attributable to non-controlling interest |
2 |
— |
||||||
Net income (loss) attributable to common stockholders and participating securities |
$ |
(381,857) |
$ |
12,489 |
||||
Net income (loss) per Common Share – Basic/Diluted |
$ |
(7.15) |
$ |
0.23 |
||||
Non-GAAP Results |
||||||||
Core earnings plus drop income (1) |
$ |
15,779 |
$ |
15,790 |
||||
Core earnings plus drop income per Common Share – Basic/Diluted |
$ |
0.29 |
$ |
0.30 |
||||
Weighted average yield(2)(4) |
4.90 |
% |
4.60 |
% |
||||
Effective cost of funds(3)(4) |
3.28 |
% |
3.09 |
% |
||||
Annualized net interest margin(2)(3)(4) |
1.84 |
% |
1.72 |
% |
||||
(1) |
For a reconciliation of GAAP Income to Core earnings, please refer to the Reconciliation of Core Earnings at the end of this press release. |
(2) |
Includes interest-only securities accounted for as derivatives. |
(3) |
Includes the net amount paid, including accrued amounts for interest rate swaps and premium amortization for MAC interest rate swaps during the periods. |
(4) |
Excludes the consolidation of VIE trusts required under GAAP. |
Portfolio Composition
As of March 31, 2020, the Company owned an aggregate investment portfolio with a fair market value totaling $2.9 billion. The following tables sets forth additional information regarding the Company's investment portfolio as of March 31, 2020:
Portfolio Characteristics
Agency Portfolio
The following table summarizes certain characteristics of our Agency portfolio by investment category as of March 31, 2020 (dollars in thousands):
Principal Balance |
Amortized Cost |
Fair Value |
Net Weighted |
|||||||||||
Agency CMBS |
$ |
369,843 |
$ |
387,166 |
$ |
413,394 |
3.1 |
% |
||||||
Agency CMBS Interest-Only Strips, accounted for as derivatives |
N/A |
N/A |
2,792 |
0.4 |
% |
|||||||||
Total Agency CMBS |
369,843 |
387,166 |
416,186 |
2.3 |
% |
|||||||||
Agency RMBS Interest-Only Strips |
N/A |
8,102 |
9,952 |
3.1 |
% |
|||||||||
Agency RMBS Interest-Only Strips, accounted for as derivatives |
N/A |
N/A |
4,490 |
2.9 |
% |
|||||||||
Total Agency RMBS |
— |
8,102 |
14,442 |
3.0 |
% |
|||||||||
Total |
$ |
369,843 |
$ |
395,268 |
$ |
430,628 |
2.5 |
% |
||||||
Credit Sensitive Portfolio
The following table summarizes certain characteristics of our credit sensitive portfolio by investment category as of March 31, 2020 (dollars in thousands):
Principal Balance |
Amortized Cost |
Fair Value |
Weighted |
|||||||||||
Non-Agency RMBS |
$ |
39,261 |
$ |
23,799 |
$ |
21,123 |
4.6 |
% |
||||||
Non-Agency RMBS IOs and IIOs |
N/A |
7,229 |
5,174 |
0.5 |
% |
|||||||||
Non-Agency CMBS |
336,816 |
304,131 |
250,309 |
5.3 |
% |
|||||||||
Residential Whole Loans |
1,352,778 |
1,381,099 |
1,309,795 |
5.1 |
% |
|||||||||
Residential Bridge Loans(2) |
29,650 |
29,688 |
28,634 |
9.5 |
% |
|||||||||
Securitized Commercial Loans(1) |
543,678 |
544,867 |
477,131 |
4.6 |
% |
|||||||||
Commercial Loans |
332,576 |
332,263 |
320,308 |
7.1 |
% |
|||||||||
Other Securities |
76,482 |
77,258 |
47,411 |
6.5 |
% |
|||||||||
$ |
2,711,241 |
$ |
2,700,334 |
$ |
2,459,885 |
4.2 |
% |
|||||||
(1) |
Includes Residential Bridge Loans carried at amortized cost of $2.6 million as of March 31, 2020. The fair value of these loans was $2.6 million as of March 31, 2020. |
PORTFOLIO FINANCING AND HEDGING
Financing Activity
Repurchase Agreements
As of March 31, 2020, the Company had borrowings under 19 master repurchase agreements. The following table sets forth additional information regarding the Company's portfolio financing under the master repurchase agreements, which includes the outstanding balance under our $700 million residential whole loan and $200 million commercial whole financing facilities, as of March 31, 2020 (dollars in thousands):
Outstanding |
Weighted Average |
Weighted Average |
|||||||
Short Term Borrowings: |
|||||||||
Agency CMBS |
$ |
437,577 |
1.38 |
% |
27 |
||||
Agency RMBS |
11,852 |
2.35 |
% |
21 |
|||||
Non-Agency CMBS |
214,972 |
3.04 |
% |
24 |
|||||
Non-Agency RMBS |
20,148 |
3.09 |
% |
8 |
|||||
Residential Whole-Loans |
272,458 |
2.99 |
% |
129 |
|||||
Residential Bridge Loans |
24,222 |
3.79 |
% |
28 |
|||||
Commercial Loans |
47,547 |
3.90 |
% |
28 |
|||||
Securitized Commercial Loan |
32,803 |
2.76 |
% |
29 |
|||||
Other Securities |
53,244 |
3.15 |
% |
28 |
|||||
Subtotal |
1,114,823 |
2.42 |
% |
51 |
|||||
Long Term Borrowings |
|||||||||
Residential Whole-Loans (1) |
285,409 |
2.67 |
% |
1004 |
|||||
Commercial Loans (1) |
153,549 |
2.73 |
% |
503 |
|||||
Subtotal |
438,958 |
2.70 |
% |
829 |
|||||
Repurchase agreements borrowings |
$ |
1,553,781 |
2.50 |
% |
271 |
||||
Less unamortized debt issuance costs |
66 |
N/A |
N/A |
||||||
Repurchase agreements borrowings, net |
$ |
1,553,715 |
2.50 |
% |
271 |
||||
(1) |
Certain Residential Whole Loans and Commercial Loans were financed under two longer term financing facilities. These facilities automatically roll until such time as they are terminated or until certain conditions of default. The weighted average remaining maturity days was calculated using expected weighted life of the underlying collateral. |
For the reporting period ended March 31, 2020, we breached certain financial statement covenants in repurchase agreements with two counterparties with borrowings outstanding as of May 5, 2020. Both counterparties have waived the breaches until August 1, 2020. In addition we would have been in breach of certain covenants in another seven repurchase agreements with borrowings outstanding as of March 31, 2020 but with respect to those seven agreements we have either modified the covenants or paid off the repurchase agreement borrowings in full.
Convertible Senior Unsecured Notes
At March 31, 2020, the Company had $205 million aggregate principal amount of 6.75% convertible senior unsecured notes outstanding. The notes mature on October 1, 2022, unless earlier converted, redeemed or repurchased by the holders pursuant to their terms, and are not redeemable by the Company except during the final three months prior to maturity. The initial conversion rate was 83.1947 shares of common stock per $1,000 principal amount of notes and represented a conversion price of $12.02 per share of common stock.
Mortgage-Backed Notes
The following table summarizes the residential mortgage-backed notes issued by the Company's securitization trust (the "Arroyo Trust") at March 31, 2020 (dollars in thousands):
Classes |
Principal Balance |
Coupon |
Carrying Value |
Contractual Maturity |
||||
Offered Notes:(1) |
||||||||
Class A-1 |
$ |
634,467 |
3.3% |
$ |
634,464 |
4/25/2049 |
||
Class A-2 |
33,996 |
3.5% |
33,995 |
4/25/2049 |
||||
Class A-3 |
53,859 |
3.8% |
53,857 |
4/25/2049 |
||||
Class M-1 |
25,055 |
4.8% |
25,055 |
4/25/2049 |
||||
747,377 |
747,371 |
|||||||
Less: Unamortized Deferred Financing Cost |
N/A |
5,074 |
||||||
Total |
$ |
747,377 |
$ |
742,297 |
||||
(1) |
The subordinate notes were retained by the Company. |
|||||||
The securitized debt of the Arroyo Trust can only be settled with the residential loans that serve as collateral for the securitized debt and are non-recourse to the Company.
Derivatives Activity
On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak caused volatility in interest rates. As a result, we received significant margin calls on our interest rate swaps. In this very low interest rate environment the Company's interest rate swaps were no longer effective. In March 2020, the Company terminated fixed-pay interest rate swaps with a notional value of approximately $3.1 billion and variable-pay interest rate with a notional value of approximately $1.9 billion to reduce hedging costs and associated margin volatility.
The following table summarizes the Company's derivative instruments at March 31, 2020 (dollars in thousands):
Other Derivative Instruments |
Notional Amount |
Fair Value |
||||||
Swaptions, asset |
$ |
50,000 |
$ |
195 |
||||
Credit default swaps, asset |
47,260 |
15,557 |
||||||
TBA securities, asset |
778,200 |
17,923 |
||||||
Total derivative instruments, assets |
33,675 |
|||||||
Swaptions, liability |
$ |
255,000 |
$ |
(14) |
||||
Credit default swaps, liability |
97,260 |
(22,106) |
||||||
TBA securities, liability |
778,200 |
(21,847) |
||||||
Total derivative instruments, liabilities |
(43,967) |
|||||||
Total derivative instruments, net |
$ |
(10,292) |
||||||
DIVIDEND
As previously announced, due to the turmoil in the financial markets resulting from the COVID-19 pandemic, we suspended the first quarter dividend to preserve liquidity.
CONFERENCE CALL
The Company will host a conference call with a live webcast tomorrow, May 7, 2020 at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to discuss financial results for the first quarter 2020.
Individuals interested in participating in the conference call may do so by dialing (866) 235-9914 from the United States, or (412) 902-4115 from outside the United States and referencing "Western Asset Mortgage Capital Corporation." Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's website at www.westernassetmcc.com.
The Company is enabling investors to pre-register for the earnings conference call so that they can expedite their entry into the call and avoid the need to wait for a live operator. In order to pre-register for the call, investors can visit http://dpregister.com/10143381 and enter in their contact information. Investors will then be issued a personalized phone number and pin to dial into the live conference call. Individuals can pre-register any time prior to the start of the conference call tomorrow.
A telephone replay will be available through May 21, 2020 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10143381. A webcast replay will be available for 90 days.
ABOUT WESTERN ASSET MORTGAGE CAPITAL CORPORATION
Western Asset Mortgage Capital Corporation is a real estate investment trust that invests in, acquires and manages a diverse portfolio of assets consisting of Agency CMBS, Agency RMBS, Non-Agency RMBS, Non-Agency CMBS, ABS, GSE Risk Transfer Securities, Residential Whole and Bridge Loans and Commercial Loans. The Company's investment strategy may change, subject to the Company's stated investment guidelines, and is based on its manager Western Asset Management Company, LLC's perspective of which mix of portfolio assets it believes provide the Company with the best risk-reward opportunities at any given time. The Company is externally managed and advised by Western Asset Management Company, LLC, an investment advisor registered with the Securities and Exchange Commission and a wholly-owned subsidiary of Legg Mason, Inc. On February 18, 2020, Franklin Resources, Inc. ("Franklin") and Legg Mason announced that they had entered into an agreement under which Franklin would acquire Legg Mason and its affiliates, including Western Asset Management Company, LLC. The transaction is expected to close in the third quarter of 2020 and is subject to customary closing conditions. Upon completion of the transaction Western Asset Management Company, LLC would become a wholly owned subsidiary of Franklin. Please visit the Company's website at www.westernassetmcc.com.
FORWARD-LOOKING STATEMENTS
The press release contains statements that may constitute "forward-looking statements" For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in such sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local governments' efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the U.S. economy and economic activity. Other factors are described in Risk Factors section of the Company's annual report on Form 10-K for the period ended December 31, 2019 filed with the Securities and Exchange Commission ("SEC"). The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.
USE OF NON-GAAP FINANCIAL INFORMATION
In addition to the results presented in accordance with GAAP, this release includes certain non-GAAP financial information, including core earnings, core earnings per share, drop income and drop income per share and certain financial metrics derived from non-GAAP information, such as weighted average yield, including IO securities; weighted average effective cost of financing, including swaps; weighted average net interest margin, including IO securities and swaps, which constitute non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. We believe that these measures presented in this release, when considered together with GAAP financial measures, provide information that is useful to investors in understanding our borrowing costs and net interest income, as viewed by us. An analysis of any non-GAAP financial measure should be made in conjunction with results presented in accordance with GAAP.
-Financial Tables to Follow-
Western Asset Mortgage Capital Corporation and Subsidiaries Consolidated Balance Sheets (in thousands—except share and per share data) (Unaudited) |
||||||||
March 31, 2020 |
December 31, 2019 |
|||||||
Assets: |
||||||||
Cash and cash equivalents |
$ |
10,342 |
$ |
31,331 |
||||
Restricted cash |
33,229 |
52,948 |
||||||
Agency mortgage-backed securities, at fair value ($430,628 and $1,756,917 pledged as collateral, at fair value, respectively) |
430,628 |
1,795,255 |
||||||
Non-Agency mortgage-backed securities, at fair value ($265,647 and $292,613 pledged as collateral, at fair value, respectively) |
276,606 |
361,833 |
||||||
Other securities, at fair value ($47,307 and $80,031 pledged as collateral, at fair value, respectively) |
47,411 |
80,161 |
||||||
Residential Whole Loans, at fair value ($1,309,795 and $1,375,860 pledged as collateral, at fair value, respectively) |
1,309,795 |
1,375,860 |
||||||
Residential Bridge Loans ($26,050 and $33,269 at fair value and $27,571 and $34,897 pledged as collateral, respectively) |
28,634 |
36,419 |
||||||
Securitized commercial loans, at fair value |
477,131 |
909,040 |
||||||
Commercial Loans, at fair value ($320,308 and $350,213 pledged as collateral, at fair value, respectively) |
320,308 |
370,213 |
||||||
Receivable under reverse repurchase agreements |
24,826 |
— |
||||||
Investment related receivable ($41,214 and $0 pledged as collateral, respectively) |
72,826 |
19,931 |
||||||
Interest receivable |
14,805 |
19,413 |
||||||
Due from counterparties |
117,670 |
98,947 |
||||||
Derivative assets, at fair value |
33,675 |
5,111 |
||||||
Other assets |
5,697 |
4,509 |
||||||
Total Assets (1) |
$ |
3,203,583 |
$ |
5,160,971 |
||||
Liabilities and Stockholders' Equity: |
||||||||
Liabilities: |
||||||||
Repurchase agreements, net |
$ |
1,553,715 |
$ |
2,824,801 |
||||
Convertible senior unsecured notes, net |
197,984 |
197,299 |
||||||
Securitized debt, net ($396,824 and $681,643 at fair value and $53,527 and $142,905 held by affiliates, respectively) |
1,139,121 |
1,477,454 |
||||||
Interest payable (includes $536 and $647 on securitized debt held by affiliates, respectively) |
6,429 |
15,001 |
||||||
Due to counterparties |
24,811 |
709 |
||||||
Derivative liability, at fair value |
43,967 |
6,370 |
||||||
Accounts payable and accrued expenses |
6,307 |
3,188 |
||||||
Payable to affiliate |
3,237 |
2,148 |
||||||
Dividend payable |
— |
16,592 |
||||||
Other liabilities |
45,779 |
52,948 |
||||||
Total Liabilities (2) |
$ |
3,021,350 |
$ |
4,596,510 |
||||
Commitments and contingencies |
||||||||
Stockholders' Equity: |
||||||||
Common stock: $0.01 par value, 500,000,000 shares authorized, 53,423,876 and 53,523,876 outstanding, respectively |
535 |
535 |
||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding |
— |
— |
||||||
Treasury stock, at cost, 100,000 and 0 shares held, respectively |
(578) |
— |
||||||
Additional paid-in capital |
889,392 |
889,227 |
||||||
Retained earnings (accumulated deficit) |
(707,158) |
(325,301) |
||||||
Total Stockholders' Equity |
182,191 |
564,461 |
||||||
Non-controlling interest |
42 |
— |
||||||
Total Equity |
182,233 |
564,461 |
||||||
Total Liabilities and Equity |
$ |
3,203,583 |
$ |
5,160,971 |
||||
Western Asset Mortgage Capital Corporation and Subsidiaries Consolidated Balance Sheets (Continued) (in thousands—except share and per share data) (Unaudited) |
||||||||
March 31, 2020 |
December 31, 2019 |
|||||||
(1) Assets of consolidated VIEs included in the total assets above: |
||||||||
Cash and cash equivalents |
$ |
4,542 |
$ |
7,589 |
||||
Restricted Cash |
33,229 |
52,948 |
||||||
Residential Whole Loans, at fair value ($1,309,795 and $1,375,860 pledged as collateral, at fair value, respectively) |
1,309,795 |
1,375,860 |
||||||
Residential Bridge Loans ($24,987 and $31,748 at fair value and $27,571 and $34,897 pledged as collateral, respectively) |
27,571 |
34,897 |
||||||
Securitized commercial loan, at fair value |
477,131 |
909,040 |
||||||
Commercial Loans, at fair value ($71,684 and $90,788 pledged as collateral, at fair value, respectively) |
71,684 |
90,788 |
||||||
Investment related receivable |
24,738 |
19,138 |
||||||
Interest receivable |
10,226 |
10,829 |
||||||
Other assets |
101 |
90 |
||||||
Total assets of consolidated VIEs |
$ |
1,959,017 |
$ |
2,501,179 |
||||
(2) Liabilities of consolidated VIEs included in the total liabilities above: |
||||||||
Securitized debt, net ($396,824 and $681,643 at fair value and $53,527 and $142,905 held by affiliates, respectively) |
$ |
1,139,121 |
$ |
1,477,454 |
||||
Interest payable (includes $536 and $647 on securitized debt held by affiliates, respectively) |
3,215 |
3,886 |
||||||
Accounts payable and accrued expenses |
128 |
185 |
||||||
Other liabilities |
33,229 |
52,948 |
||||||
Total liabilities of consolidated VIEs |
$ |
1,175,693 |
$ |
1,534,473 |
||||
Western Asset Mortgage Capital Corporation and Subsidiaries Consolidated Statements of Operations (in thousands—except share and per share data) (Unaudited) |
||||||||
Three months ended |
||||||||
March 31, 2020 |
December 31, 2019 |
|||||||
Net Interest Income |
||||||||
Interest income |
$ |
54,846 |
$ |
55,761 |
||||
Interest expense |
36,105 |
36,834 |
||||||
Net Interest Income |
18,741 |
18,927 |
||||||
Other Income (Loss) |
||||||||
Realized gain (loss) on sale of investments, net |
89,186 |
11,992 |
||||||
Other than temporary impairment |
— |
(2,228) |
||||||
Unrealized gain (loss), net |
(296,111) |
(52,896) |
||||||
Gain (loss) on derivative instruments, net |
(189,691) |
42,007 |
||||||
Other, net |
461 |
518 |
||||||
Other Income (Loss) |
(396,155) |
(607) |
||||||
Expenses |
||||||||
Management fee to affiliate |
1,039 |
1,987 |
||||||
Other operating expenses |
1,000 |
1,079 |
||||||
General and administrative expenses: |
||||||||
Compensation expense |
662 |
671 |
||||||
Professional fees |
1,480 |
1,031 |
||||||
Other general and administrative expenses |
353 |
441 |
||||||
Total general and administrative expenses |
2,495 |
2,143 |
||||||
Total Expenses |
4,534 |
5,209 |
||||||
Income before income taxes |
(381,948) |
13,111 |
||||||
Income tax provision (benefit) |
(93) |
622 |
||||||
Net income (loss) |
$ |
(381,855) |
$ |
12,489 |
||||
Net income attributable to non-controlling interest |
2 |
— |
||||||
Net income (loss) attributable to common stockholders and participating securities |
$ |
(381,857) |
$ |
12,489 |
||||
Net income (loss) per Common Share – Basic |
$ |
(7.15) |
$ |
0.23 |
||||
Net income (loss) per Common Share – Diluted |
$ |
(7.15) |
$ |
0.23 |
||||
Reconciliation of GAAP Net Income to Non-GAAP Core Earnings (in thousands—except share and per share data) (Unaudited) |
||||||||
The table below reconciles Net Income to Core Earnings for the three months ended March 31, 2020 and December 31, 2019: |
||||||||
Three months ended |
||||||||
(dollars in thousands) |
March 31, 2020 |
December 31, 2019 |
||||||
Net Income (loss) |
$ |
(381,855) |
$ |
12,489 |
||||
Income tax provision (benefit) |
(93) |
622 |
||||||
Net Income before income taxes |
(381,950) |
13,111 |
||||||
Adjustments: |
||||||||
Investments: |
||||||||
Unrealized (gain) loss on investments, securitized debt and other liabilities |
296,111 |
52,896 |
||||||
Other than temporary impairment |
— |
2,228 |
||||||
Realized (gain) loss on sale of investments |
(89,186) |
(11,992) |
||||||
One-time transaction costs |
280 |
154 |
||||||
Derivative Instruments: |
||||||||
Net realized (gain) loss on derivatives |
180,156 |
(35,918) |
||||||
Net unrealized (gain) loss on derivatives |
8,807 |
(6,097) |
||||||
Amortization of discount on convertible senior unsecured notes |
273 |
257 |
||||||
Non-cash stock-based compensation |
165 |
165 |
||||||
Total adjustments |
396,606 |
1,693 |
||||||
Core Earnings |
$ |
14,656 |
$ |
14,804 |
||||
Basic and Diluted Core Earnings per Common Share and Participating Securities |
$ |
0.27 |
$ |
0.28 |
||||
Basic and Diluted Core Earnings plus Drop Income per Common Share and Participating Securities |
$ |
0.29 |
$ |
0.30 |
||||
Basic weighted average common shares and participating securities |
53,670,550 |
53,482,765 |
||||||
Diluted weighted average common shares and participating securities |
53,670,550 |
53,482,765 |
||||||
Alternatively, our Core Earnings can also be derived as presented in the table below by starting net interest income adding interest income on Interest-Only Strips accounted for as derivatives and other derivatives, and net interest expense incurred on interest rate swaps and foreign currency swaps and forwards (a Non-GAAP financial measure) to arrive at adjusted net interest income. Then subtracting total expenses, adding non-cash stock based compensation, adding one-time transaction costs, adding amortization of discount on convertible senior notes and adding interest income on cash balances and other income (loss), net:
Three months ended |
||||||||
(dollars in thousands) |
March 31, 2020 |
December 31, 2019 |
||||||
Net interest income |
$ |
18,741 |
$ |
18,927 |
||||
Interest income from IOs and IIOs accounted for as derivatives |
91 |
103 |
||||||
Net interest income from interest rate swaps |
(1,133) |
(347) |
||||||
Adjusted net interest income |
17,699 |
18,683 |
||||||
Total expenses |
(4,534) |
(5,209) |
||||||
Non-cash stock-based compensation |
165 |
165 |
||||||
One-time transaction costs |
280 |
154 |
||||||
Amortization of discount on convertible unsecured senior notes |
273 |
257 |
||||||
Interest income on cash balances and other income (loss), net |
775 |
754 |
||||||
Income attributable to non-controlling interest |
(2) |
— |
||||||
Core Earnings |
$ |
14,656 |
$ |
14,804 |
||||
Reconciliation of Interest Income and Effective Cost of Funds (dollars in thousands) (Unaudited) |
||||||||
The following table reconciles total interest income to adjusted interest income which includes interest income on Agency and Non-Agency Interest-Only Strips classified as derivatives (Non-GAAP financial measure) for the three months ended March 31, 2020 and December 31, 2019: |
||||||||
Three months ended |
||||||||
(dollars in thousands) |
March 31, 2020 |
December 31, 2019 |
||||||
Coupon interest income |
$ |
57,761 |
$ |
59,586 |
||||
Premium amortization, discount accretion and amortization of basis, net |
(2,915) |
(3,825) |
||||||
Interest income |
54,846 |
55,761 |
||||||
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1): |
||||||||
Coupon interest income |
636 |
951 |
||||||
Amortization of basis |
(545) |
(848) |
||||||
Subtotal |
91 |
103 |
||||||
Total adjusted interest income |
$ |
54,937 |
$ |
55,864 |
||||
(1) |
Reported in "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations. |
The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for three months ended March 31, 2020 and December 31, 2019: |
||||||||||||||
Three months ended |
||||||||||||||
March 31, 2020 |
December 31, 2019 |
|||||||||||||
(dollars in thousands) |
Reconciliation |
Cost of |
Reconciliation |
Cost of |
||||||||||
Interest expense |
$ |
36,105 |
3.34 |
% |
$ |
36,834 |
3.18 |
% |
||||||
Adjustments: |
||||||||||||||
Interest expense on Securitized debt from consolidated VIEs1 |
(6,754) |
(4.42) |
% |
(6,283) |
(3.95) |
% |
||||||||
Net interest (received) paid - interest rate swaps |
1,133 |
0.10 |
% |
347 |
0.03 |
% |
||||||||
Effective Borrowing Costs |
$ |
30,484 |
3.28 |
% |
$ |
30,898 |
3.09 |
% |
||||||
Weighted average borrowings |
$ |
3,733,045 |
$ |
3,971,551 |
||||||||||
(1) |
Excludes third-party sponsored securitized debt interest expense. |
SOURCE Western Asset Mortgage Capital Corporation
Related Links
http://www.westernassetmcc.com
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