Conference Call and Webcast Scheduled for
Tomorrow, Friday, March 3, 2023 at 11:00 a.m. Eastern Time/8:00
a.m. Pacific Time
Western Asset Mortgage Capital Corporation (the “Company” or
"WMC") (NYSE: WMC) today reported its results for the fourth
quarter and the year ended December 31, 2022.
FULL YEAR HIGHLIGHTS
- The Company continues to execute on its business strategy to
focus on residential real estate investments, completing
securitizations of $834.2 million of Residential Whole Loans in the
first and third quarters of 2022 (Arroyo 2022-1 and Arroyo 2022-2),
which allowed the Company to secure $750.8 million of long-term
fixed rate financing.
- The Company's core assets have performed well in 2022, with
$216.1 million received from the repayment or paydown of
Residential Whole Loans.
- In addition, the Company took a series of actions in 2022 to
deleverage, build liquidity and strengthen its balance sheet,
including the sale of $56.4 million of Non-Agency RMBS and other
securities and the repurchase of its outstanding 2022 Notes in full
at maturity in October for $26.0 million.
- Furthermore, on February 3, 2023, the CRE 3 loan was sold to an
unaffiliated third party for $8.8 million, which was equal to the
fair value of the loan at December 31, 2022.
FOURTH QUARTER FINANCIAL 2022 RESULTS
- GAAP book value per share was $15.70 at December 31, 2022.
- Economic book value1 per share was $17.23 at December 31,
2022.
- GAAP Net loss attributable to common shareholders and
participating securities of $828 thousand, or $0.14 per share.
- Distributable Earnings1 of $2.0 million, or $0.33 per basic and
diluted share.
- Economic return1,2 on book value was a negative 1.0% for the
quarter.
- Economic return1,2 on economic book value was negative 8.4% for
the quarter.
- 1.24% annualized net interest margin1,3,4 on our investment
portfolio.
- 2.9x recourse leverage as of December 31, 2022.
- On December 21, 2022, the Company declared a fourth quarter
common dividend of $0.40 per share.
FULL YEAR 2022 FINANCIAL RESULTS
- GAAP Net loss attributable to common shareholders and
participating securities of $89.1 million, or $14.77 per
share.
- Distributable earnings1 of $7.3 million, or $1.20 per basic and
diluted share.
- Economic return on book value1,2 was negative 46% for the
year.
- 1.16% annualized net interest margin1,3,4 on our investment
portfolio.
- Declared quarterly common dividends for a total annual common
dividend of $1.60 per share, adjusted for the July 2022 1-for-10
reverse stock split.
(1)
Non-GAAP measure. Refer to pages 16
through 21 for reconciliations.
(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.
MANAGEMENT COMMENTARY
“In light of challenging market conditions, we continued to
focus during the fourth quarter on strengthening our balance sheet
and increasing our liquidity,” said Bonnie Wongtrakool, Chief
Executive Officer of the Company. “We received approximately $40.0
million from the sale, repayment or paydowns of investments and
used these proceeds to further reduce recourse debt.
“Our fourth quarter and full-year financial results
reflect the volatility in interest rates and asset prices as well
as higher funding costs. For the fourth quarter, our GAAP book
value per share declined 3.2% from the prior quarter, while
economic book value per share declined 10.5%. We generated lower
net interest income during the quarter on a smaller average
portfolio and higher interest costs, lower prepayments from our
residential portfolio, and stable operating expenses. Consequently,
our distributable earnings of $2.0 million, or $0.33 per share, in
the fourth quarter, were down $300 thousand from the third
quarter.
“We continue to move forward with our strategic review process,
and to analyze alternatives that may involve a sale, merger, or
other transaction involving the Company. The current market
environment for mortgage REITs remains challenging, given the rapid
rise in interest rates and the increased potential for an economic
retrenchment, which has added complexity to our exploration of
strategic partners.”
Greg Handler, Chief Investment Officer of the Company, added,
“We continue to focus on maximizing the value of our portfolio and
increasing our total liquidity. During the quarter, we received
payoffs in our residential whole loan portfolio and sold down some
of our non-agency residential securities. While spread widening put
further pressure on the value of some of our assets, this was more
than offset by spread tightening on our residential whole loans. We
remain focused on monetizing our commercial holdings in a
disciplined manner in order to continue strengthening our balance
sheet and improving our liquidity.”
2022 QUARTERLY OPERATING RESULTS
The below table reflects a summary of our operating results:
For the Three Months
Ended
GAAP Results ($'s in thousands)
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
Net interest income
$
4,771
$
5,699
$
6,235
$
4,283
Other income (loss):
Realized gain (loss), net
(3,118
)
(35
)
(45,661
)
12,145
Unrealized gain (loss), net
2,427
(43,582
)
16,185
(38,903
)
Gain (loss) on derivative instruments,
net
(381
)
4,882
4,781
6,936
Other, net
105
(61
)
(46
)
(145
)
Other Income (loss)
(967
)
(38,796
)
(24,741
)
(19,967
)
Total expenses
4,743
6,645
3,927
6,497
Income (loss) before income taxes
(938
)
(39,742
)
(22,433
)
(22,181
)
Income tax provision (benefit)
(105
)
266
(46
)
56
Net income (loss)
(833
)
(40,008
)
(22,387
)
(22,237
)
Net income attributable to non-controlling
interest
(5
)
2
—
3,616
Net income (loss) attributable to common
stockholders and participating securities
$
(828
)
$
(40,010
)
$
(22,387
)
$
(25,853
)
Net income (loss) per common share –
basic/diluted
$
(0.14
)
$
(6.63
)
$
(3.71
)
$
(4.30
)
Non-GAAP Results
Distributable earnings(1)
$
2,018
$
2,250
$
2,650
$
379
Distributable earnings per Common Share –
Basic/Diluted(2)
$
0.33
$
0.37
$
0.44
$
0.06
Weighted average yield(3)(4)
5.02
%
4.70
%
4.30
%
3.74
%
Effective cost of funds(4)
4.46
%
3.90
%
3.60
%
3.41
%
Annualized net interest margin(3)(4)
1.24
%
1.26
%
1.25
%
0.85
%
(1)
For a reconciliation of GAAP Income to
Distributable Earnings, refer to page 16 of this press release.
(2)
Presentation adjusted for effect of
1-for-10 reverse stock split subsequent to 6/30/2022.
(3)
Includes interest-only securities
accounted for as derivatives.
(4)
Excludes the consolidation of VIE trusts
required under GAAP.
INVESTMENT PORTFOLIO
Investment Activity
As of December 31, 2022, the Company owned an aggregate
investment portfolio with a fair market value totaling $2.4
billion. The following table presents information regarding the
Company’s investment portfolio as of December 31, 2022 (dollars in
thousands):
Investment Type
Balance at December 31,
2021
Purchases
Loan Modification/Capitalized
Interest
Principal Payments and Basis
Recovery
Proceeds from
Sales
Transfers to REO
Realized Gain/(Loss)
Unrealized Gain/(loss)
Premium and discount
amortization, net
Balance at December 31,
2022
Agency RMBS and Agency RMBS IOs
$
1,172
$
—
N/A
$
(103
)
$
—
N/A
$
—
$
(302
)
$
—
$
767
Non-Agency RMBS
27,769
39,952
N/A
(1,011
)
(31,790
)
N/A
(2,396
)
(9,197
)
359
23,686
Non-Agency CMBS
105,358
—
N/A
(6,554
)
(10,152
)
N/A
(43,935
)
40,104
615
85,436
Other securities(1)
51,648
—
N/A
—
(14,485
)
N/A
(2,252
)
(7,923
)
274
27,262
Total MBS and other securities
185,947
39,952
N/A
(7,668
)
(56,427
)
N/A
(48,583
)
22,682
1,248
137,151
Residential Whole Loans
1,023,502
411,919
96
(216,135
)
(11,736
)
(2,256
)
(101
)
(108,207
)
(5,937
)
1,091,145
Residential Bridge Loans
5,428
—
—
(2,670
)
—
—
—
91
—
2,849
Commercial Loans
130,572
—
—
(20,593
)
—
—
—
(19,977
)
—
90,002
Securitized commercial loans
1,355,808
—
—
—
—
—
—
(297,343
)
26,638
1,085,103
REO
$
43,607
$
—
$
—
$
—
$
(55,573
)
$
2,255
$
11,966
$
—
$
—
$
2,255
Total Investments
$
2,744,864
$
451,871
$
96
$
(247,066
)
$
(123,736
)
$
(1
)
$
(36,718
)
$
(402,754
)
$
21,949
$
2,408,505
(1)
At December 31, 2022 other securities
include GSE Credit Risk Transfer securities with an estimated fair
value of $22.3 million and student loans ABS with a fair value of
$4.9 million.
Portfolio Characteristics
Residential Real Estate Investments
The Company's focus on residential real estate related
investments includes but is not limited to non-qualified
residential whole loans ("Non-QM Loans"), non-agency RMBS, and
other related assets. The Company believes this focus allows it to
address attractive market opportunities.
Residential Whole Loans
The Company's Residential Whole Loans generally have low
loan-to-value ratios ("LTV's") and are comprised of 2,938 Non-QM
adjustable rate mortgages and five investor fixed rate mortgages.
The following table presents certain information about our
Residential Whole-Loans investment portfolio as of December 31,
2022 (dollars in thousands):
Weighted Average
Current Coupon Rate
Number of Loans
Principal
Balance
Original LTV
Original FICO
Score(1)
Expected Life
(years)
Contractual
Maturity (years)
Coupon Rate
2.01% - 3.00%
39
$
22,277
66.3
%
758
8.9
28.3
2.9
%
3.01% - 4.00%
402
214,402
66.3
%
759
7.3
28.5
3.7
%
4.01% - 5.00%
1,337
453,811
64.1
%
749
5.5
26.0
4.6
%
5.01% - 6.00%
901
363,197
65.6
%
742
4.7
26.7
5.4
%
6.01% - 7.00%
249
105,933
69.9
%
742
3.6
28.4
6.4
%
7.01% - 8.00%
15
5,681
75.2
%
730
3.0
29.2
7.4
%
Total
2,943
$
1,165,301
65.6
%
748
5.5
27.0
4.8
%
(1)
The original FICO score is not available
for 231 loans with a principal balance of approximately $76.6
million at December 31, 2022. We have excluded these loans from the
weighted average.
The following table presents the aging of the Residential Whole
Loans as of December 31, 2022 (dollars in thousands):
Residential Whole
Loans
No of Loans
Principal
Fair Value
Current
2,910
$
1,147,412
$
1,074,409
1-30 days
14
6,983
6,678
31-60 days
—
—
—
61-90 days
6
2,165
2,032
90+ days
13
8,741
8,026
Total
2,943
$
1,165,301
$
1,091,145
Non-Agency RMBS
The following table presents the fair value and weighted average
purchase price for each of our Non-agency RMBS categories,
including IOs accounted for as derivatives, together with certain
of their respective underlying loan collateral attributes and
current performance metrics as of December 31, 2022 (fair value
dollars in thousands):
Weighted Average
Category
Fair Value
Purchase Price
Life (Years)
Original LTV
Original FICO
60+ Day
Delinquent
6-Month CPR
Prime
$
12,000
$
79.78
11.9
67.8
%
748
1.2
%
17.9
%
Alt-A
11,687
50.30
17.3
81.3
%
661
17.5
%
8.0
%
Total
$
23,687
$
65.24
14.5
74.5
%
705
9.2
%
13.0
%
Commercial Real Estate Investments
Non-Agency CMBS
The following table presents certain characteristics of our
Non-Agency CMBS portfolio as of December 31, 2022 (dollars in
thousands):
Principal
Weighted Average
Type
Vintage
Balance
Fair Value
Life (Years)
Original LTV
Conduit:
2006-2009
$
69
$
67
0.6
88.7
%
2010-2020
14,982
10,414
6.0
62.3
%
15,051
10,481
6.0
62.5
%
Single Asset:
2010-2020
94,215
74,954
1.1
65.3
%
Total
$
109,266
$
85,435
1.7
65.0
%
Commercial Loans
The following table presents our commercial loan investments as
of December 31, 2022 (dollars in thousands):
Loan
Loan Type
Principal Balance
Fair Value
Original LTV
Interest Rate
Maturity Date
Extension Option
Collateral
Geographic Location
CRE 3
Interest-Only Mezzanine loan
$
90,000
$
8,777
58
%
1-Month LIBOR plus 9.25%
6/29/2021
None(1)
Entertainment and Retail
NJ
CRE 4(2)
Interest-Only First Mortgage
22,204
22,050
63
%
1-Month LIBOR plus 3.02%
8/6/2025(2)
None
Retail
CT
CRE 5
Interest-Only First Mortgage
24,535
24,433
62
%
1-Month LIBOR plus 3.75%
11/6/2023 (3)
None
Hotel
NY
CRE 6
Interest-Only First Mortgage
13,207
13,151
62
%
1-Month LIBOR plus 3.75%
11/6/2023 (3)
None
Hotel
CA
CRE 7
Interest-Only First Mortgage
7,259
7,229
62
%
1-Month LIBOR plus 3.75%
11/6/2023 (3)
None
Hotel
IL, FL
SBC 3(4)
Interest-Only First Mortgage
14,362
14,362
49
%
One-Month LIBOR plus 4.35%
1/6/2023
None
Nursing Facilities
CT
$
171,567
$
90,002
(1)
At December 31, 2022, CRE 3 was in default
and was not eligible for extension. On February 3, 2023, it was
sold to an unaffiliated third party for its fair value as of
December 31, 2022.
(2)
CRE 4 was granted a 3 year extension
through August 6, 2025, with a principal pay down of $16.2
million.
(3)
CRE 5, 6, and 7 were each granted a
one-year extension through November 6, 2023.
(4)
During July 2022, the SBC 3 loan was
granted a six month extension through January 6, 2023, with a 25
bps increase in rate and a 25 bps extension fee. Subsequently, in
January 2023, the SBC 3 loan was partially paid down by $750
thousand and was granted another extension through August 4, 2023
with a 50 bps extension fee.
Commercial Loan Payoffs
On September 16, 2022, CRE 8, which had an outstanding principal
balance of $4.4 million collateralized by assisted living
facilities, was paid off in full.
CRE 3 Loan
As of December 31, 2022, the CRE 3 junior mezzanine loan with an
outstanding principal balance of $90.0 million was non-performing
and past its maturity date of June 29, 2021. On October 25, 2022,
the senior mezzanine lender notified the Company that it had
consummated a strict foreclosure under the Uniform Commercial Code
of its equity interest in the mortgage borrower, which had the
effect of foreclosing out the Company’s subordinate pledge of
equity in the retail facility that served as collateral for the
junior mezzanine loan. As a result, as of December 31, 2022, the
Company’s junior mezzanine loan remained outstanding but without
the benefit of the primary collateral supporting the loan.
As a result of the foreclosure noted above, the Company marked
down the value of its investment in the CRE 3 junior mezzanine loan
from $26.9 million at June 30, 2022 to $8.8 million at September
30, 2022. On February 3, 2023, the CRE 3 loan was sold to an
unaffiliated third party for its fair value at December 31, 2022 of
$8.8 million.
Commercial Real Estate Owned
In February 2022, the Company along with other Hotel REO
investors, sold the unencumbered hotel property which was
foreclosed on in the third quarter of 2021 for $55.9 million. The
Company and the other investors fully recovered their aggregate
initial investment of $42.0 million. The Company and other
investors recognized a gain on the sale of approximately $12.2
million.
PORTFOLIO FINANCING AND HEDGING
Financing
The following table sets forth additional information regarding
the Company's portfolio financing arrangements as of December 31,
2022 (dollars in thousands):
Securities Pledged
Repurchase
Agreement Borrowings
Weighted Average
Interest Rate on Borrowings Outstanding at end
of period
Weighted Average
Remaining Maturity (days)
Short Term Borrowings:
Agency RMBS
$
293
4.78
%
32
Non-Agency RMBS(1)
48,237
7.50
%
26
Residential Whole Loans(2)
—
—
%
0
Residential Bridge Loans(2)
—
—
%
0
Commercial Loans(2)
—
—
%
0
Other securities
1,776
7.09
%
17
Total short-term borrowings
50,306
7.47
%
26
Long Term Borrowings:
Non-Agency CMBS and
Non-Agency RMBS Facility
Non-Agency CMBS(1)
55,154
6.30
%
122
Non-Agency RMBS
19,129
6.30
%
122
Other Securities
16,863
6.30
%
122
Subtotal
91,146
6.30
%
122
Residential Whole
Loan Facility
Residential Whole Loans(2)
3,633
6.66
%
298
Commercial Whole
Loan Facility
Commercial Loans
48,032
6.13
%
307
Total long-term borrowings
142,811
6.25
%
189
Repurchase agreements borrowings
$
193,117
6.57
%
146
(1)
Includes repurchase agreement borrowings
on securities eliminated upon VIE consolidation.
(2)
Repurchase agreement borrowings on loans
owned are through trust certificates. The trust certificates are
eliminated in consolidation.
Residential Whole Loan Facility
The facility was recently extended on November 9, 2022 and
matures on October 25, 2023. It bears interest at a rate of SOFR
plus 2.25%, with a SOFR floor of 0.25%. We finance our Non-QM
Residential Whole Loans held in RMI 2015 Trust under this facility.
As of December 31, 2022, the Company has outstanding borrowings of
$3.6 million. The borrowings are secured by $3.2 million in Non-QM
loans and one REO property with a carrying value of $2.3 million as
of December 31, 2022.
Commercial Whole Loan Facility
The facility was recently extended on November 9, 2022 and
matures on November 3, 2023. It bears interest at a rate of SOFR
plus 2.25%. As of December 31, 2022, the outstanding balance under
this facility was $48.0 million. The borrowing is secured by the
performing commercial loans that are held in CRE LLC, with an
estimated fair market value of $66.9 million as of December 31,
2022.
Non-Agency CMBS and Non-Agency RMBS Facility
The facility was extended on May 2, 2022 and matures on May 2,
2023. It bears interest at a rate of SOFR plus 2.00%. As of
December 31, 2022, the outstanding balance under this facility was
$91.1 million. The borrowing is secured by investments with an
estimated fair market value of $129.9 million as of December 31,
2022.
Convertible Senior Unsecured Notes
2022 Notes
As of December 31, 2022, the Company had repaid in full the
aggregate principal amount outstanding of the 2022 Notes upon their
maturity on October 1, 2022.
2024 Notes
As of December 31, 2022, the Company had $86.3 million aggregate
principal amount outstanding of the 2024 Notes. The 2024 Notes
mature on September 15, 2024, unless earlier converted, redeemed by
the holders pursuant to their terms or repurchased by us, and are
not redeemable by us except during the final three months prior to
maturity.
Residential Mortgage-Backed Notes
As of December 31, 2022, the Company had completed four
Residential Whole Loan securitizations. The mortgage-backed notes
are non-recourse to the Company and effectively financed $1.1
billion of Residential Whole Loans as of December 31, 2022.
Arroyo 2019-2
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2019-2 securitization trust at
December 31, 2022 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1
$
168,131
3.3
%
$
168,131
4/25/2049
Class A-2
9,017
3.5
%
9,017
4/25/2049
Class A-3
14,286
3.8
%
14,286
4/25/2049
Class M-1
25,055
4.8
%
25,055
4/25/2049
Subtotal
$
216,489
$
216,489
Less: Unamortized Deferred Financing
Costs
N/A
2,604
Total
$
216,489
$
213,885
The Company retained the subordinate bonds, and these bonds had
a fair market value of $27.0 million on December 31, 2022. The
retained Arroyo 2019-2 subordinate bonds are eliminated in
consolidation.
Arroyo 2020-1
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2020-1 securitization trust at
December 31, 2022 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1A
$
74,425
1.7
%
$
74,425
3/25/2055
Class A-1B
8,831
2.1
%
8,831
3/25/2055
Class A-2
13,518
2.9
%
13,518
3/25/2055
Class A-3
17,963
3.3
%
17,963
3/25/2055
Class M-1
11,739
4.3
%
11,739
3/25/2055
Subtotal
126,476
126,476
Less: Unamortized Deferred Financing
Costs
N/A
1,542
Total
$
126,476
$
124,934
The Company retained the subordinate bonds and these bonds had a
fair market value of $19.3 million at December 31, 2022. The
retained Arroyo 2020-1 subordinate bonds are eliminated in
consolidation.
Arroyo 2022-1
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2022-1 securitization trust at
December 31, 2022 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1A
$
212,307
2.5
%
$
194,438
12/25/2056
Class A-1B
82,942
3.3
%
73,259
12/25/2056
Class A-2
21,168
3.6
%
17,054
12/25/2056
Class A-3
28,079
3.7
%
21,308
12/25/2056
Class M-1
17,928
3.7
%
12,160
12/25/2056
Subtotal
362,424
318,219
Less: Unamortized Deferred Financing
Costs
N/A
—
Total
$
362,424
$
318,219
The Company retained the subordinate bonds and these bonds had a
fair market value of $33.1 million at December 31, 2022. The
retained Arroyo 2022-1 subordinate bonds are eliminated in
consolidation.
Arroyo 2022-2
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2022-2 securitization trust at
December 31, 2022 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1
$
267,533
5.0
%
$
260,217
7/25/2057
Class A-2
22,773
5.0
%
21,983
7/25/2057
Class A-3
27,749
5.0
%
26,619
7/25/2057
Class M-1
17,694
5.0
%
15,216
7/25/2057
Subtotal
335,749
324,035
Less: Unamortized Deferred Financing
Costs
N/A
—
Total
$
335,749
$
324,035
The Company retained the subordinate bonds and these bonds had a
fair market value of $40.2 million at December 31, 2022. The
retained Arroyo 2022-2 subordinate bonds are eliminated in
consolidation.
Commercial Mortgage-Backed Notes
CSMC 2014 USA
The following table summarizes CSMC 2014 USA's commercial
mortgage pass-through certificates at December 31, 2022 (dollars in
thousands), which is non-recourse to the Company:
Classes
Principal Balance
Coupon
Fair Value
Contractual Maturity
Class A-1
$
120,391
3.3
%
$
108,591
9/11/2025
Class A-2
531,700
4.0
%
477,678
9/11/2025
Class B
136,400
4.2
%
115,782
9/11/2025
Class C
94,500
4.3
%
76,304
9/11/2025
Class D
153,950
4.4
%
113,229
9/11/2025
Class E
180,150
4.4
%
99,858
9/11/2025
Class F
153,600
4.4
%
77,242
9/11/2025
Class X-1(1)
n/a
0.7
%
7,430
9/11/2025
Class X-2(1)
n/a
0.2
%
1,497
9/11/2025
$
1,370,691
$
1,077,611
(1)
Class X-1 and X-2 are interest-only
classes with notional balances of $652.1 million and $733.5 million
as of December 31, 2022, respectively.
The above table does not reflect the portion of the class F bond
held by the Company because the bond is eliminated in
consolidation. The Company's ownership interest in the F bonds
represents a controlling financial interest, which resulted in the
consolidation of the trust during the quarter. The bond had a fair
market value of $7.5 million on December 31, 2022. The securitized
debt of the CSMC USA can only be settled with the commercial loan
with an outstanding principal balance of approximately $1.4 billion
at December 31, 2022, that serves as collateral and is non-recourse
to the Company.
Derivatives Activity
The following table summarizes the Company’s other derivative
instruments at December 31, 2022 (dollars in thousands):
Other Derivative Instruments
Notional Amount
Fair Value
Interest rate swaps, asset
$
60,000
$
1
Other derivative instruments, assets
1
Interest rate swaps, liability
98,000
(61
)
Total other derivative instruments,
liabilities
(61
)
Total other derivative instruments,
net
$
(60
)
DIVIDEND
For the year ended December 31, 2022, the Company declared
quarterly dividends for a total annual dividend of $1.60,
generating a dividend yield of approximately 17.6% based on the
closing price of the Company's common stock of $9.11 at December
31, 2022.
CONFERENCE CALL
The Company will host a conference call with a live webcast
tomorrow, March 3, 2023, at 11:00 a.m. Eastern Time/8:00 a.m.
Pacific Time, to discuss financial results for the fourth quarter
and year ended December 31, 2022.
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
https://dpregister.com/sreg/10175707/f5ed520283 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 March 10, 2023 by
dialing (877) 344-7529 from the United States, or (412) 317-0088
from outside the United States, and entering conference ID 1314258.
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, with a focus on residential real estate
related investments, including non-qualified mortgage loans,
non-agency RMBS and other related investments. 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 Franklin Resources, Inc. Please visit
the Company’s website at www.westernassetmcc.com.
FORWARD-LOOKING STATEMENTS
This press release contains statements that 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.
Operating results are subject to numerous conditions, many of
which are beyond the control of the Company, including, without
limitation, changes in interest rates; changes in the yield curve;
changes in prepayment rates; the availability and terms of
financing; general economic conditions; market conditions;
conditions in the market for mortgage related investments; and
legislative and regulatory changes that could adversely affect the
business of the Company.
Other factors are described in Risk Factors section of the
Company’s annual report on Form 10-K for the period ended December
31, 2022 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 Distributable Earnings, Distributable Earnings per share,
Economic return on book/economic value, 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 (dollars
in thousands—except share and per share data)
December 31, 2022
December 31, 2021
Assets:
Cash and cash equivalents
$
18,011
$
40,193
Restricted cash
248
260
Agency mortgage-backed
securities, at fair value ($249 and $1,172 pledged as collateral,
at fair value, respectively)
767
1,172
Non-Agency mortgage-backed
securities, at fair value ($100,115 and $123,947 pledged as
collateral, at fair value, respectively)
109,122
133,127
Other securities, at fair value
($27,262 and $51,648 pledged as collateral, at fair value,
respectively)
27,262
51,648
Residential Whole Loans, at
fair value ($1,089,914 and $1,023,502 pledged as collateral, at
fair value, respectively)
1,091,145
1,023,502
Residential Bridge Loans (None
and $5,207 pledged as collateral, respectively)
2,849
5,428
Securitized commercial loan, at
fair value
1,085,103
1,355,808
Commercial Loans, at fair value
($66,864 and $101,459 pledged as collateral, at fair value,
respectively)
90,002
130,572
Investment related
receivable
5,960
22,133
Interest receivable
11,330
11,823
Due from counterparties
6,574
4,565
Derivative assets, at fair
value
1
105
Other assets
4,860
45,364
Total Assets (1)
$
2,453,234
$
2,825,700
Liabilities and Stockholders’ Equity:
Liabilities:
Repurchase agreements, net
$
193,117
$
617,189
Convertible senior unsecured
notes, net
83,522
119,168
Securitized debt, net
($1,719,865 and $1,344,370 at fair value and $128,217 and $180,116
held by affiliates, respectively)
2,058,684
1,863,488
Interest payable (includes $655
and $699 on securitized debt held by affiliates, respectively)
12,794
10,272
Due to counterparties
300
—
Derivative liability, at fair
value
61
602
Accounts payable and accrued
expenses
3,201
4,842
Payable to affiliate
4,028
1,925
Dividend payable
2,415
3,623
Other liabilities
300
262
Total Liabilities (2)
2,358,422
2,621,371
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value,
50,000,000 shares authorized, and 6,038,012 and 6,038,012
outstanding, respectively
60
60
Preferred stock, $0.01 par
value, 100,000,000 shares authorized and no shares outstanding
—
—
Treasury stock, at cost, 57,981
and 57,981 shares held, respectively
(1,665
)
(1,665
)
Additional paid-in capital
919,238
918,695
Retained earnings (accumulated
deficit)
(822,829
)
(723,981
)
Total Stockholders’ Equity
94,804
193,109
Non-controlling interest
8
11,220
Total Equity
94,812
204,329
Total Liabilities and Stockholders’
Equity
$
2,453,234
$
2,825,700
Western Asset Mortgage Capital
Corporation and Subsidiaries Consolidated Balance Sheets
(Continued) (dollars in thousands—except share and per share
data)
December 31, 2022
December 31, 2021
(1) Assets of consolidated VIEs included
in the total assets above:
Cash and cash equivalents
$
—
$
266
Restricted cash
248
260
Residential Whole Loans, at
fair value ($1,089,914 and $1,023,502 pledged as collateral, at
fair value, respectively)
1,091,145
1,023,502
Residential Bridge Loans (None
and $5,207 pledged as collateral, respectively)
2,849
5,207
Securitized commercial loan, at
fair value
1,085,103
1,355,808
Commercial Loans, at fair value
(None and $14,362 pledged as collateral, respectively)
14,362
14,362
Investment related
receivable
5,914
22,087
Interest receivable
10,182
10,572
Other assets
509
—
Total assets of consolidated VIEs
$
2,210,312
$
2,432,064
(2) Liabilities of consolidated VIEs
included in the total liabilities above:
Securitized debt, net
($1,719,865 and $1,344,370 at fair value and $128,217 and $180,116
held by affiliates, respectively)
$
2,058,684
$
1,863,488
Interest payable (includes $655
and $699 on securitized debt held by affiliates, respectively)
8,303
6,480
Accounts payable and accrued
expenses
43
78
Other liabilities
248
$
260
Total liabilities of consolidated VIEs
$
2,067,278
$
1,870,306
Western Asset Mortgage Capital
Corporation and Subsidiaries Consolidated Statements of Operations
(in thousands—except share and per share data)
Three Months Ended(1)
The Year Ended
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2022
Net Interest Income
Interest income
$
42,094
$
41,406
$
39,577
$
35,642
$
158,719
Interest expense
37,323
35,707
33,342
31,359
137,732
Net Interest Income
4,771
5,699
6,235
4,283
20,987
Other Income (Loss)
Realized gain (loss) on sale of
investments, net
(3,118
)
(35
)
(45,661
)
12,145
(36,669
)
Unrealized gain (loss), net
2,427
(43,582
)
16,185
(38,903
)
(63,874
)
Gain (loss) on derivative instruments,
net
(381
)
4,882
4,781
6,936
16,218
Other, net
105
(61
)
(46
)
(145
)
(147
)
Other Income (Loss)
(967
)
(38,796
)
(24,741
)
(19,967
)
(84,472
)
Expenses
Management fee to affiliate
991
850
1,002
1,100
3,942
Other operating expenses
452
343
262
296
1,353
Transaction costs
721
2,635
344
2,611
6,311
General and administrative expenses:
Compensation expense
507
515
130
498
1,650
Professional fees
1,597
1,626
1,552
1,256
6,031
Other general and administrative
expenses
475
676
637
736
2,523
Total general and
administrative expenses
2,579
2,817
2,319
2,490
10,204
Total Expenses
4,743
6,645
3,927
6,497
21,810
Income (loss) before income
taxes
(938
)
(39,742
)
(22,433
)
(22,181
)
(85,295
)
Income tax provision (benefit)
(105
)
266
(46
)
56
171
Net income (loss)
(833
)
$
(40,008
)
$
(22,387
)
$
(22,237
)
$
(85,466
)
Net income attributable to non-controlling
interest
(5
)
2
—
3,616
3,613
Net income (loss) attributable to
common stockholders and
participating securities
$
(828
)
$
(40,010
)
$
(22,387
)
$
(25,853
)
$
(89,079
)
Net income (loss) per Common Share –
Basic
$
(0.14
)
$
(6.63
)
$
(3.71
)
$
(4.30
)
$
(14.77
)
Net income (loss) per Common Share –
Diluted
$
(0.14
)
$
(6.63
)
$
(3.71
)
$
(4.30
)
$
(14.77
)
Dividends Declared per Share of Common
Stock
$
0.40
$
0.40
$
0.40
$
0.40
$
1.60
(1)
Consolidated Statements of Operations for
each of the three months ended March 31, 2022, June 30, 2022,
September 30, 2022, and December 31, 2022 are unaudited.
Reconciliation of GAAP Net Income to
Non-GAAP Distributable Earnings (Unaudited) (dollars
in thousands—except share and per share data)
The table below reconciles Net Income (Loss) to Distributable
Earnings for each of the three months ended March 31, 2022, June
30, 2022, September 30, 2022, and December 31, 2022, and the year
ended December 31, 2022:
Three Months Ended
The Year Ended
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2022
Net Income (loss) attributable to common
stock holders and participating securities
$
(828
)
$
(40,010
)
$
(22,387
)
$
(25,853
)
$
(89,079
)
Income tax provision (benefit)
(105
)
266
(46
)
56
171
Net income (loss) before income tax
(933
)
(39,744
)
(22,433
)
(25,797
)
(88,908
)
Adjustments:
Investments:
Unrealized (gain) loss on investments,
securitized debt and other liabilities
(2,427
)
43,582
(16,185
)
38,903
63,874
Realized (gain) loss on sale of
investments
4,096
33
45,582
(8,713
)
40,204
One-time transaction costs
716
2,632
336
2,740
6,424
Derivative Instruments:
Net realized (gain) loss on
derivatives
—
(929
)
(6,513
)
(5,540
)
(12,003
)
Unrealized (gain) loss on derivatives
294
(3,636
)
1,498
(1,655
)
(3,499
)
Other:
Realized (gain) loss on extinguishment of
convertible senior unsecured notes
—
2
79
53
(50
)
Amortization of discount on convertible
senior note
172
209
216
223
820
Other non-cash adjustments
—
—
—
—
—
Non-cash stock-based compensation
expense
100
100
70
165
435
Total adjustments
2,951
41,994
25,083
26,176
96,205
Distributable Earnings – Non-GAAP
2,018
2,250
2,650
379
7,297
Basic and Diluted Distributable Earnings
per Common Share and Participating Securities
$
0.33
$
0.37
$
0.44
$
0.06
$
1.20
Basic weighted average common shares and
participating securities
6,038,012
6,038,010
6,038,010
6,038,010
6,038,012
Diluted weighted average common shares and
participating securities
6,038,012
6,038,010
6,038,010
6,038,010
6,038,012
Alternatively, our Distributable 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 to arrive at adjusted net interest income (a Non-GAAP
financial measure). Then subtracting total expenses, adding
non-cash stock-based compensation, adding one-time transaction
costs, adding amortization of discount on convertible senior
unsecured notes, and adding interest income on cash balances and
other income (loss), net:
Three months ended
The Year Ended
(dollars in thousands)
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2022
Net interest income
$
4,771
$
5,699
$
6,235
$
4,283
$
20,987
Interest income from IOs and IIOs
accounted for as derivatives
9
11
12
17
49
Net interest income from interest rate
swaps
882
298
(262
)
(291
)
628
Adjusted net interest income
5,662
6,008
5,985
4,009
21,664
Total expenses
(4,742
)
(6,645
)
(3,927
)
(6,497
)
(21,810
)
Non-cash stock-based compensation
100
100
70
165
435
Non-cash adjustments
—
—
—
—
—
One-time transaction costs
716
2,632
336
2,740
6,424
Amortization of discount on convertible
unsecured senior notes
172
209
216
223
820
Interest income on cash balances and other
income (loss), net
105
(52
)
(30
)
(130
)
(108
)
Income attributable to non-controlling
interest
5
(2
)
—
(131
)
(128
)
Distributable Earnings
$
2,018
$
2,250
$
2,650
$
379
$
7,297
Reconciliation of GAAP Book
Value to Non-GAAP Economic Book Value (dollars in thousands)
(Unaudited)
December 31, 2022
Amount
Per Share
GAAP Book Value at September 30,
2022
$
97,948
$
16.22
Equity portion of the convertible senior
unsecured notes
—
—
Repurchase of common stock
—
N/A
Common dividend
(2,415
)
(0.40
)
95,533
15.82
Portfolio Income
Net Interest Margin
5,769
0.96
Realized gain (loss), net
(4,096
)
(0.68
)
Unrealized gain (loss), net
2,133
0.35
Net portfolio income
3,806
0.63
Operating expenses
(2,162
)
(0.36
)
General and administrative expenses,
excluding equity based compensation
(2,478
)
(0.41
)
Provision for taxes
105
0.02
GAAP Book Value at December 31,
2022
$
94,804
$
15.70
Adjustments to deconsolidate VIEs and
reflect the Company's interest in the securities owned
Arroyo 2019-2
$
906
$
0.15
Arroyo 2020-1
8,496
1.41
Arroyo 2022-1
(117
)
(0.02
)
Arroyo 2022-2
(82
)
(0.01
)
Economic Book Value at December 31,
2022
$
104,007
$
17.23
Adjustments to deconsolidate VIEs and
reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets
$
(2,184,881
)
$
(361.85
)
Deconsolidation VIEs liabilities
2,067,003
342.33
Interest in securities of VIEs owned, at
fair value
127,081
21.05
Economic Book Value at December 31,
2022
$
104,007
$
17.23
"Economic Book value" is a non-GAAP financial measure of our
financial position on an unconsolidated basis. The Company owns
certain securities that represent a controlling variable interest,
which under GAAP requires consolidation; however, the Company's
economic exposure to these variable interests is limited to the
fair value of the individual investments. Economic book value is
calculated by adjusting the GAAP book value by 1) adding the fair
value of the retained interest or acquired security of the VIEs
(CSMC USA, Arroyo 2019-2, Arroyo 2020-1, Arroyo 2022-1, and Arroyo
2022-2) held by the Company, which were priced by independent
third-party pricing services and 2) removing the asset and
liabilities associated with each of consolidated trusts (CSMC 2020,
Arroyo 2019-2, Arroyo 2020-1, Arroyo 2022-1, and Arroyo 2022-2).
Management believes that economic book value provides investors
with a useful supplemental measure to evaluate our financial
position as it reflects the actual financial interest of these
investments irrespective of the variable interest consolidation
model applied for GAAP reporting purposes. Economic book value does
not represent and should not be considered as a substitute for
Stockholders' Equity, as determined in accordance with GAAP, and
our calculation of this measure may not be comparable to similarly
titled measures reported by other companies.
Reconciliation of Effective Cost of
Funds (dollars in thousands) (Unaudited)
The following table reconciles the Effective Cost of Funds
(Non-GAAP financial measure) with interest expense for each of the
three months ended December 31, 2022, September 30, 2022, June 30,
2022 and March 31, 2022:
Three Months Ended
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
Interest
Effective
Borrowing
Costs
Interest
Effective
Borrowing
Costs
Interest
Effective
Borrowing
Costs
Interest
Effective
Borrowing
Costs
Interest expense
$
37,324
5.64
%
$
35,707
5.20
%
$
33,342
5.01
%
$
31,359
4.99
%
Adjustments:
Interest expense on Securitized debt from
consolidated VIEs
(21,279
)
(6.61
) %
(21,132
)
(6.60
) %
(20,979
)
(6.65
) %
(20,829
)
(6.71
) %
Net interest (received) paid - interest
rate swaps
(883
)
(0.13
) %
(298
)
(0.04
) %
262
0.04
%
291
5.00
%
Effective Borrowing Costs
$
15,162
4.46
%
$
14,277
3.90
%
$
12,625
3.60
%
$
10,821
3.41
%
Weighted average borrowings
$
1,347,321
$
1,452,090
$
1,405,317
$
1,288,592
The following table reconciles the Effective Cost of Funds
(Non-GAAP financial measure) with interest expense for the years
ended December 31, 2022 and 2021:
The Year Ended
December 31, 2022
December 31, 2021
Interest
Effective
Borrowing
Costs
Interest
Effective
Borrowing
Costs
Interest expense
$
137,732
5.22
%
$
136,910
5.17
%
Adjustments:
Interest expense on Securitized debt from
consolidated VIEs
(84,219
)
(6.64
) %
(87,635
)
(6.31
) %
Net interest (received) paid - interest
rate swaps
(628
)
(0.02
) %
(109
)
—
%
Effective Borrowing Costs
$
52,885
3.85
%
$
49,166
3.90
%
Weighted average borrowings
$
1,372,019
$
1,259,264
Reconciliation of Net Interest Margin
(dollars in thousands) (Unaudited)
The following table reconciles annualized Net Interest Margin
(Non-GAAP financial measure) for the three months ended December
31, 2022:
Three Months Ended December 31,
2022
Average Amortized Cost
of Assets(1)
Total Interest
Income(2)
Yield on Average
Assets
Investments
Agency RMBS
$
900
$
12
5.29
%
Non-Agency CMBS
106,640
2,308
8.59
%
Non-Agency RMBS
35,734
445
4.94
%
Residential whole loans
1,208,686
13,557
4.45
%
Residential bridge loans
4,403
1,159
104.43
%
Commercial loans
175,783
1,489
3.36
%
Securitized commercial loans
1,294,829
22,214
6.81
%
Other securities
42,935
919
8.49
%
Total investments
2,869,910
42,103
5.82
%
Adjustments:
Securitized commercial loans from
consolidated VIEs
(1,294,829
)
(22,214
)
6.81
%
Investments in consolidated VIEs
eliminated in consolidation
14,137
222
6.23
%
Adjusted total investments
$
1,589,218
$
20,111
5.02
%
Average Carrying Value
Total Interest Expense
Average Effective Cost of
Funds
Borrowings
Repurchase agreements
$
223,008
$
3,888
6.92
%
Convertible senior unsecured notes,
net
83,386
1,865
8.87
%
Securitized debt
2,317,644
31,571
5.40
%
Interest rate swaps
n/a
(883
)
(0.13
) %
Total borrowings
2,624,038
36,441
5.52
%
Adjustments:
Securitized debt from consolidated
VIEs(3)
(1,276,717
)
(21,279
)
6.61
%
Adjusted total borrowings
$
1,347,321
$
15,162
4.46
%
Adjusted net investment income and net
interest margin
$
4,949
1.24
%
(1)
Includes Agency and Non-Agency
Interest-Only Strips accounted for as derivatives.
(2)
Refer to the table in the Non-GAAP
Financial Measures section of the Company's Form 10-K for
components of interest income.
(3)
Includes only the third-party sponsored
securitized debt from CSMC USA.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230301006012/en/
Investor Relations Contact: Larry Clark Financial Profiles, Inc.
(310) 622-8223 lclark@finprofiles.com
Media Contact: Tricia Ross Financial Profiles, Inc. (310)
622-8226 tross@finprofiles.com
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