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
Average Coupon
|
|
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
Average Coupon(1)
|
|
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
Borrowings
|
|
Weighted Average
Interest
Rate
|
|
Weighted Average
Remaining Days to
Maturity
|
|
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
Funds/Effective
Borrowing
Costs
|
|
Reconciliation
|
|
Cost of
Funds/Effective
Borrowing
Costs
|
|
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.
|
View original
content:http://www.prnewswire.com/news-releases/western-asset-mortgage-capital-corporation-announces-first-quarter-2020-results-301054547.html
SOURCE Western Asset Mortgage Capital Corporation