PASADENA, Calif., March 4, 2020 /PRNewswire/ -- Western Asset Mortgage Capital Corporation (the "Company" or "WMC") WMC today reported its results for the fourth quarter and the year ended December 31, 2019.
FOURTH QUARTER 2019 FINANCIAL HIGHLIGHTS
- December 31, 2019 book value per share of $10.55, net of fourth quarter common dividend of $0.31 per share declared on December 19, 2019.
- GAAP net income of $12.5 million, or $0.23 per basic and diluted share.
- Core earnings plus drop income of $15.8 million, or $0.30 per basic and diluted share.1,2
- Economic return on book value was a 2.5%1,3 for the quarter.
- 1.72% annualized net interest margin on our investment portfolio. 1,4,5
- 5.4x leverage excluding non-recourse debt as of December 31, 2019 (8.0x leverage including non-recourse debt).
OTHER FOURTH QUARTER 2019 HIGHLIGHTS
- Issued $50.0 million aggregate principal amount of 6.75% convertible senior unsecured notes.
- Acquired $479.0 million in credit sensitive investments, consisting of:
- $180.5 million million in Non-Agency CMBS
- $249.2 million in Residential Whole Loans, and
- $49.3 million in Commercial Whole Loans.
FULL YEAR 2019 FINANCIAL HIGHLIGHTS
- Maintained a consistent $0.31 per share quarterly common dividend throughout 2019 for total annual common dividends of $1.24 per share.
- GAAP net income of $70.7 million, or $1.37 per basic and diluted share.
- Core earnings plus drop income of $62.1 million, or $1.21 per basic and diluted share.1,2
- Economic return on book value was 12.8%1,3 for the year.
- 1.95% annualized net interest margin on our investment portfolio. 1,4,5
OTHER FULL YEAR HIGHLIGHTS
- $49.3 million of common equity raised in secondary offering, net of offering costs.
- Completed a securitization of $945.5 million of our Residential Whole Loan investments involving the issuance of $919.0 million of mortgage-backed notes.
- Issued $90.0 million aggregate principal amount of 6.75% convertible senior unsecured notes.
- Obtained two new longer term financing facilities, consisting of $200.0 million commercial whole loan financing facility and $700.0 million residential whole loan financing facility.
1 | Non – GAAP measure. |
2 | 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 $986 thousand for the three months and year ended December 31, 2019, respectively. |
3 | 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. |
4 | Includes interest-only securities accounted for as derivatives and the cost of interest rate swaps. |
5 | Excludes the consolidation of VIE trusts required under GAAP. |
MANAGEMENT COMMENTARY
"We delivered strong 2019 results for our shareholders, as the scale and scope of Western Asset's capabilities continue to provide us with strategic benefits," said Jennifer Murphy, Chief Executive Officer of the Company. "Total shareholder return for the year was 38.7%, driven by strong investment portfolio performance and consistent dividends, which we have maintained for 15 consecutive quarters. We generated an economic return on book value of 2.5% for the fourth quarter and 12.8% for the full year, reflecting our focus on active portfolio positioning and risk management. We continue to be committed to our primary objective of generating attractive total returns for our shareholders, while also providing for greater book value stability."
"We completed several significant capital markets transactions during the year. In May, we completed a $50 million equity offering, and in August and December, we issued an additional $90 million in total of our 6.75% convertible senior unsecured notes due in 2022, all enabling us to further invest in attractive assets. We believe this additional capital allowed us to enhance the overall earnings potential of the portfolio and supports our long-term goal of growing the company to gain better scale, which we believe will benefit our shareholders.
"In May, we completed a securitization of a portion of our residential whole loans involving the issuance of $919 million in mortgage-backed notes. This transaction represented the Company's first securitization and enabled us to finance assets with longer-term fixed rate financing at attractive levels. Our successful execution of this securitization reflected the Company's ability to leverage Western Asset's investment and operating platform, a strategic advantage for the Company and our shareholders," Ms. Murphy concluded.
Harris Trifon, Chief Investment Officer of the Company, commented, "Our positive performance for the fourth quarter and full year were driven by contributions across our diverse holdings in a number of subsectors of the mortgage market and reflects our efforts to increase our exposure to credit sensitive investments. During the quarter, we acquired $479 million of credit sensitive assets, including $49 million of Commercial Whole Loans, $249 million of Residential Whole Loans and $181 million of Non-Agency CMBS, all areas where we continue to see opportunities to achieve attractive risk-adjusted returns."
"Our current expectations are for continued, yet moderate, U.S. economic growth along with subdued inflation expectations and an ongoing accommodative Federal Reserve monetary policy. We believe that credit spread sectors will continue to perform well in 2020, and we will maintain our focus on areas where we see the best relative value within our target universe. We believe that the current moderate growth environment is accretive for real estate and consumers, and we remain constructive on both residential and commercial real estate. The U.S. housing sector continues to advance with demand driven by ongoing job growth, high consumer confidence and increased household formations, all against a backdrop of a very tight supply of entry-level homes. Commercial real estate fundamentals, meanwhile, remain positive, driven by the ongoing economic expansion. As such, we believe that our strategically diverse investment portfolio, focused on risk management, positions us well to continue generating strong core earnings while preserving our book value, with the overriding goal of providing our shareholders favorable risk-adjusted returns," concluded Mr. Trifon.
2019 Quarterly Results
The below table reflects a summary of our operating results (dollars in thousands, except per share data):
For the Three Months Ended | |||||||||||||||
GAAP Results | December 31, 2019 | September 30, 2019 | June 30, 2019 | March 31, 2019 | |||||||||||
Net Interest Income | $ | 18,927 | $ | 16,570 | $ | 15,860 | $ | 15,633 | |||||||
Other Income (Loss): | |||||||||||||||
Realized gain (loss) on sale of investments, net | 11,992 | 21,399 | (8) | (5,105) | |||||||||||
Other than temporary impairment | (2,228) | (1,819) | (3,295) | (1,232) | |||||||||||
Unrealized gain (loss), net | (52,896) | 35,030 | 74,614 | 50,781 | |||||||||||
Gain (loss) on derivative instruments, net | 42,007 | (47,056) | (71,530) | (27,148) | |||||||||||
Other, net | 518 | 918 | 532 | 236 | |||||||||||
Other Income (loss) | (607) | 8,472 | 313 | 17,532 | |||||||||||
Total Expenses | 5,209 | 5,377 | 5,081 | 5,277 | |||||||||||
Income (loss) before income taxes | 13,111 | 19,665 | 11,092 | 27,888 | |||||||||||
Income tax provision (benefit) | 622 | (55) | 478 | 12 | |||||||||||
Net income (loss) | $ | 12,489 | $ | 19,720 | $ | 10,614 | $ | 27,876 | |||||||
Net income (loss) per Common Share – Basic/Diluted | $ | 0.23 | $ | 0.37 | $ | 0.21 | $ | 0.58 | |||||||
Non-GAAP Results | |||||||||||||||
Core earnings plus drop income(1) | $ | 15,790 | $ | 15,014 | $ | 15,758 | $ | 15,492 | |||||||
Core earnings plus drop income per Common Share – Basic/Diluted | $ | 0.30 | $ | 0.28 | $ | 0.31 | $ | 0.32 | |||||||
Weighted average yield(2)(4) | 4.60 | % | 4.53 | % | 4.94 | % | 5.17 | % | |||||||
Effective cost of funds(3)(4) | 3.09 | % | 3.05 | % | 2.94 | % | 3.25 | % | |||||||
Annualized net interest margin(2)(3)(4) | 1.72 | % | 1.69 | % | 2.14 | % | 2.36 | % | |||||||
(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 December 31, 2019, the Company owned an aggregate investment portfolio with a fair market value totaling $4.9 billion. The following tables set forth additional information regarding the Company's investment portfolio as of December 31, 2019:
Portfolio Characteristics
Agency Portfolio
The following table summarizes certain characteristics of our Agency portfolio by investment category as of December 31, 2019 (dollars in thousands):
Principal Balance | Amortized Cost | Fair Value | Net Weighted | |||||||||||
Agency CMBS | $ | 1,347,929 | $ | 1,374,443 | $ | 1,435,477 | 3.4 | % | ||||||
Agency CMBS Interest-Only Strips, accounted for as derivatives | N/A | N/A | 3,092 | 0.4 | % | |||||||||
Total Agency CMBS | 1,347,929 | 1,374,443 | 1,438,569 | 3.1 | % | |||||||||
Agency RMBS | 327,814 | 333,287 | 340,771 | 3.5 | % | |||||||||
Agency RMBS Interest-Only Strips | N/A | 8,661 | 10,343 | 2.8 | % | |||||||||
Agency RMBS Interest-Only Strips, accounted for as derivatives | N/A | N/A | 5,572 | 3.0 | % | |||||||||
Total Agency RMBS | 327,814 | 341,948 | 356,686 | 3.3 | % | |||||||||
Total | $ | 1,675,743 | $ | 1,716,391 | $ | 1,795,255 | 3.1 | % | ||||||
Credit Sensitive Portfolio
The following table summarizes certain characteristics of our credit sensitive portfolio by investment category as of December 31, 2019 (dollars in thousands):
Principal Balance | Amortized Cost | Fair Value | Weighted | |||||||||||
Non-Agency RMBS | $ | 52,767 | $ | 37,003 | $ | 38,131 | 4.8 | % | ||||||
Non-Agency RMBS IOs and IIOs | N/A | 7,705 | 7,683 | 0.6 | % | |||||||||
Non-Agency CMBS | 354,458 | 314,533 | 316,019 | 5.1 | % | |||||||||
Residential Whole Loans | 1,325,443 | 1,351,192 | 1,375,860 | 5.2 | % | |||||||||
Residential Bridge Loans | 37,196 | 37,257 | 36,419 | 9.5 | % | |||||||||
Securitized Commercial Loans(1) | 943,379 | 910,096 | 909,040 | 3.4 | % | |||||||||
Commercial Loans | 370,213 | 369,704 | 370,213 | 7.2 | % | |||||||||
Other Securities | 71,896 | 73,975 | 80,161 | 6.7 | % | |||||||||
$ | 3,155,352 | $ | 3,101,465 | $ | 3,133,526 | 4.3 | % | |||||||
(1) | The Company acquired Non-Agency CMBS securities with certain control rights, which resulted in the consolidation of three variable interest entities and the recording $909.0 million in securitized commercial loans. |
Portfolio Financing and Hedging
Financing
Repurchase Agreements
As of December 31, 2019, the Company had borrowings under 21 of its 34 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 its $700.0 million residential whole loan and $200.0 million commercial whole loan financing facilities, as of December 31, 2019 (dollars in thousands):
Repurchase Agreements | Balance | Weighted Average | Weighted Average | |||||||
Short Term Borrowings: | ||||||||||
Agency RMBS | $ | 348,274 | 1.99 | % | 52 | |||||
Agency CMBS | 1,352,248 | 2.05 | % | 26 | ||||||
Non-Agency RMBS | 30,481 | 3.56 | % | 9 | ||||||
Non-Agency CMBS | 190,390 | 3.05 | % | 35 | ||||||
Residential Whole Loans | 102,029 | 3.51 | % | 27 | ||||||
Residential Bridge Loans | 29,869 | 3.93 | % | 28 | ||||||
Commercial Loans | 62,746 | 4.04 | % | 28 | ||||||
Securitized commercial loans | 116,087 | 3.93 | % | 49 | ||||||
Other Securities | 56,762 | 3.23 | % | 34 | ||||||
Subtotal | $ | 2,288,886 | 2.41 | % | 32 | |||||
Long Term Borrowings: | ||||||||||
Residential Whole Loans (1) | $ | 374,143 | 3.27 | % | 898 | |||||
Commercial Loans (1) | 161,848 | 3.88 | % | 590 | ||||||
Subtotal | $ | 535,991 | 3.45 | % | 805 | |||||
Repurchase agreements borrowings | $ | 2,824,877 | 2.61 | % | 179 | |||||
Less unamortized debt issuance costs | 76 | N/A | N/A | |||||||
Repurchase agreements borrowings, net | $ | 2,824,801 | 2.61 | % | 179 | |||||
(1) | Certain Residential Whole Loans and Commercial Loans were financed under two longer 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. |
Convertible Senior Unsecured Notes
At December 31, 2019, the Company had $205.0 million aggregate principal amount of 6.75% convertible senior unsecured notes. 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 December 31, 2019 (dollars in thousands):
Classes | Principal Balance | Coupon | Carrying Value | Contractual | ||||
Offered Notes:(1) | ||||||||
Class A-1 | $ | 681,668 | 3.3% | $ | 681,666 | 4/25/2049 | ||
Class A-2 | 36,525 | 3.5% | 36,524 | 4/25/2049 | ||||
Class A-3 | 57,866 | 3.8% | 57,864 | 4/25/2049 | ||||
Class M-1 | 25,055 | 4.8% | 25,055 | 4/25/2049 | ||||
Subtotal | $ | 801,114 | $ | 801,109 | ||||
Less: Unamortized Deferred Financing Costs | N/A | 5,298 | ||||||
Total | $ | 801,114 | $ | 795,811 | ||||
(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.
As of December 31, 2019, the Company had three consolidated variable interest entities that had an aggregate securitized debt balance of $681.7 million. The securitized debt of these trusts can only be settled with the collateral held by the trusts and is non-recourse to the Company.
Hedging
Interest Rates Swaps
As of December 31, 2019, the Company had $2.6 billion notional value of pay-fixed interest rate swaps and $1.4 billion notional value of variable pay rate swaps, which have variable maturities between May 2, 2020 and June 13, 2039.
The following table summarizes the average fixed pay rate, average floating receive rate and average maturity for the Company's fixed pay interest rate swaps as of December 31, 2019 (dollars in thousands):
Remaining Interest Rate Swap Term | Notional Value | Average | Average | Average | ||||||||
1 year or less | $ | 200,000 | 1.8 | % | 1.9 | % | 0.4 | |||||
Greater than 3 years and less than 5 years | 622,400 | 2.6 | % | 1.9 | % | 4.1 | ||||||
Greater than 5 years | 1,728,600 | 2.1 | % | 2.0 | % | 8.9 | ||||||
Total | $ | 2,551,000 | 2.2 | % | 2.0 | % | 7.1 | |||||
The following table summarizes the average variable pay rate, average fixed receive rate and average maturity for the Company's variable pay interest rate swaps as of December 31, 2019 (dollars in thousands):
Remaining Interest Rate Swap Term | Notional Amount | Average | Average Fixed | Average | ||||||||
Greater than 1 year and less than 3 years | 810,000 | 2.0 | % | 2.0 | % | 1.6 | ||||||
Greater than 3 years and less than 5 years | 550,000 | 1.9 | % | 1.6 | % | 5.0 | ||||||
Greater than 5 years | 45,000 | 1.9 | % | 2.3 | % | 19.5 | ||||||
Total | $ | 1,405,000 | 2.0 | % | 1.9 | % | 3.5 | |||||
Other Derivatives Instruments
The following table summarizes the Company's other derivative instruments at December 31, 2019 (dollars in thousands):
Other Derivative Instruments | Notional Amount | Fair Value | ||||||
Credit default swaps, asset | $ | 60,100 | $ | 948 | ||||
TBA securities, asset | 1,000,000 | 1,146 | ||||||
Other derivative instruments, assets | 2,094 | |||||||
Credit default swaps, liability | $ | 90,900 | $ | (3,795) | ||||
TBA securities, liability | 1,000,000 | (2,074) | ||||||
Total other derivative instruments, liabilities | (5,869) | |||||||
Total other derivative instruments, net | $ | (3,775) | ||||||
Dividend
On December 19, 2019, the Company declared a regular cash dividend of $0.31 per share for each common share. Since its inception in May 2012, the Company has declared and paid total dividends of $17.78 per share in a combination of cash and stock.
Conference Call
The Company will host a conference call with a live webcast tomorrow, March 5, 2020, 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, 2019.
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/10138813 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 19, 2020 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10138813. 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 assets consisting of Agency CMBS, Agency RMBS, Non-Agency RMBS, Non-Agency CMBS, ABS, GSE Credit Risk Transfer Securities and Residential Whole, 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 ("LeggMason").
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
This press release contains statements that constitute "forward-looking statements." 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. 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 spread, 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 | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 31,331 | $ | 21,987 | ||||
Restricted cash | 52,948 | 55,808 | ||||||
Agency mortgage-backed securities, at fair value ($1,756,917 and $1,505,979 pledged as collateral, at fair value, respectively) | 1,795,255 | 1,505,979 | ||||||
Non-Agency mortgage-backed securities, at fair value ($292,613 and $237,107 pledged as collateral, at fair value, respectively) | 361,833 | 250,856 | ||||||
Other securities, at fair value ($80,031 and $59,780 pledged as collateral, at fair value, respectively) | 80,161 | 59,906 | ||||||
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively) | 1,375,860 | 1,041,885 | ||||||
Residential Bridge Loans ($33,269 and $211,999 at fair value and $34,897 and $221,486 pledged as collateral, respectively) | 36,419 | 221,719 | ||||||
Securitized commercial loan, at fair value | 909,040 | 1,013,511 | ||||||
Commercial Loans, at fair value ($350,213 and $196,123 pledged as collateral, at fair value, respectively) | 370,213 | 216,123 | ||||||
Investment related receivable | 19,931 | 42,945 | ||||||
Interest receivable | 19,413 | 21,959 | ||||||
Due from counterparties | 98,947 | 39,623 | ||||||
Derivative assets, at fair value | 5,111 | 2,606 | ||||||
Other assets | 4,509 | 2,488 | ||||||
Total Assets (1) | $ | 5,160,971 | $ | 4,497,395 | ||||
Liabilities and Stockholders' Equity: | ||||||||
Liabilities: | ||||||||
Repurchase agreements, net | $ | 2,824,801 | $ | 2,818,837 | ||||
Convertible senior unsecured notes, net | 197,299 | 110,060 | ||||||
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) | 1,477,454 | 949,626 | ||||||
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) | 15,001 | 8,532 | ||||||
Due to counterparties | 709 | 17,781 | ||||||
Derivative liability, at fair value | 6,370 | 10,130 | ||||||
Accounts payable and accrued expenses | 3,188 | 3,858 | ||||||
Payable to affiliate | 2,148 | 4,615 | ||||||
Dividend payable | 16,592 | 14,916 | ||||||
Other liabilities | 52,948 | 56,031 | ||||||
Total Liabilities (2) | 4,596,510 | 3,994,386 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Common stock, $0.01 par value, 500,000,000 shares authorized, and 53,523,876 and 48,116,379 outstanding, respectively | 535 | 481 | ||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding | — | — | ||||||
Additional paid-in capital | 889,227 | 833,810 | ||||||
Retained earnings (accumulated deficit) | (325,301) | (331,282) | ||||||
Total Stockholders' Equity | 564,461 | 503,009 | ||||||
Total Liabilities and Stockholders' Equity | $ | 5,160,971 | $ | 4,497,395 | ||||
Western Asset Mortgage Capital Corporation and Subsidiaries (in thousands—except share and per share data) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
(1) Assets of consolidated VIEs included in the total assets above: | ||||||||
Cash and cash equivalents | $ | 7,589 | $ | 674 | ||||
Restricted cash | 52,948 | 55,808 | ||||||
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively) | 1,375,860 | 1,041,885 | ||||||
Residential Bridge Loans ($31,748 and $211,766 at fair value and $34,897 and $221,486 pledged as collateral, respectively) | 34,897 | 221,486 | ||||||
Securitized commercial loan, at fair value | 909,040 | 1,013,511 | ||||||
Commercial Loans, at fair value ($90,788 and $196,123 pledged as collateral, respectively) | 90,788 | 196,123 | ||||||
Investment related receivable | 19,138 | 42,945 | ||||||
Interest receivable | 10,829 | 15,540 | ||||||
Other assets | 90 | 178 | ||||||
Total assets of consolidated VIEs | $ | 2,501,179 | $ | 2,588,150 | ||||
(2) Liabilities of consolidated VIEs included in the total liabilities above: | ||||||||
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively) | $ | 1,477,454 | $ | 949,626 | ||||
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively) | 3,886 | 2,419 | ||||||
Accounts payable and accrued expenses | 185 | 708 | ||||||
Other liabilities | 52,948 | $ | 56,033 | |||||
Total liabilities of consolidated VIEs | $ | 1,534,473 | $ | 1,008,786 | ||||
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 | |||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | ||||||||||||||||
Net Interest Income | ||||||||||||||||||||
Interest income | $ | 55,761 | $ | 55,652 | $ | 53,818 | $ | 52,033 | $ | 217,264 | ||||||||||
Interest expense | 36,834 | 39,082 | 37,958 | 36,400 | 150,274 | |||||||||||||||
Net Interest Income | 18,927 | 16,570 | 15,860 | 15,633 | 66,990 | |||||||||||||||
Other Income (Loss) | ||||||||||||||||||||
Realized gain (loss) on sale of investments, net | 11,992 | 21,399 | (8) | (5,105) | 28,278 | |||||||||||||||
Other than temporary impairment | (2,228) | (1,819) | (3,295) | (1,232) | (8,574) | |||||||||||||||
Unrealized gain (loss), net | (52,896) | 35,030 | 74,614 | 50,781 | 107,529 | |||||||||||||||
Gain (loss) on derivative instruments, net | 42,007 | (47,056) | (71,530) | (27,148) | (103,727) | |||||||||||||||
Other, net | 518 | 918 | 532 | 236 | 2,204 | |||||||||||||||
Other Income (Loss) | (607) | 8,472 | 313 | 17,532 | 25,710 | |||||||||||||||
Expenses | ||||||||||||||||||||
Management fee to affiliate | 1,987 | 1,800 | 1,832 | 1,735 | 7,354 | |||||||||||||||
Other operating expenses | 1,079 | 1,589 | 1,253 | 1,598 | 5,519 | |||||||||||||||
General and administrative expenses: | ||||||||||||||||||||
Compensation expense | 671 | 671 | 705 | 544 | 2,591 | |||||||||||||||
Professional fees | 1,031 | 973 | 761 | 1,215 | 3,980 | |||||||||||||||
Other general and administrative expenses | 441 | 344 | 530 | 185 | 1,500 | |||||||||||||||
Total general and administrative expenses | 2,143 | 1,988 | 1,996 | 1,944 | 8,071 | |||||||||||||||
Total Expenses | 5,209 | 5,377 | 5,081 | 5,277 | 20,944 | |||||||||||||||
Income (loss) before income taxes | 13,111 | 19,665 | 11,092 | 27,888 | 71,756 | |||||||||||||||
Income tax provision (benefit) | 622 | (55) | 478 | 12 | 1,057 | |||||||||||||||
Net income (loss) | $ | 12,489 | $ | 19,720 | $ | 10,614 | $ | 27,876 | $ | 70,699 | ||||||||||
Net income (loss) per Common Share – Basic | $ | 0.23 | $ | 0.37 | $ | 0.21 | $ | 0.58 | $ | 1.37 | ||||||||||
Net income (loss) per Common Share – Diluted | $ | 0.23 | $ | 0.37 | $ | 0.21 | $ | 0.58 | $ | 1.37 | ||||||||||
Dividends Declared per Share of Common Stock | $ | 0.31 | $ | 0.31 | $ | 0.31 | $ | 0.31 | $ | 1.24 | ||||||||||
(1) Consolidated Statements of Operations for each of the three months ended March 31, 2019, June 30, 2019 September 30, 2019 and December 31, 2019 are unaudited. |
Reconciliation of GAAP Net Income to Non-GAAP Core Earnings (Unaudited) (in thousands—except share and per share data) | ||||||||||||||||||||
The table below reconciles Net Income (Loss) to Core Earnings for each of the three months ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 and the year ended December 31, 2019: | ||||||||||||||||||||
Three Months Ended | The Year Ended | |||||||||||||||||||
(dollars in thousands) | December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||
Net Income (loss) – GAAP | $ | 12,489 | $ | 19,720 | $ | 10,614 | $ | 27,876 | $ | 70,699 | ||||||||||
Income tax provision | 622 | (55) | 478 | 12 | 1,057 | |||||||||||||||
Net income (loss) before income tax | 13,111 | 19,665 | 11,092 | 27,888 | 71,756 | |||||||||||||||
Adjustments: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Unrealized (gain) loss on investments, securitized debt and other liabilities | 52,896 | (35,030) | (74,614) | (50,781) | (107,529) | |||||||||||||||
Other than temporary impairment | 2,228 | 1,819 | 3,295 | 1,232 | 8,574 | |||||||||||||||
Realized (gain) loss on sale of investments | (11,992) | (21,399) | 8 | 5,105 | (28,278) | |||||||||||||||
One-time transaction costs | 154 | 531 | 130 | 269 | 1,084 | |||||||||||||||
Derivative Instruments: | ||||||||||||||||||||
Net realized (gain) loss on derivatives | (35,918) | 51,577 | 65,025 | 42,885 | 123,569 | |||||||||||||||
Unrealized (gain) loss on derivatives | (6,097) | (2,499) | 10,519 | (11,313) | (9,390) | |||||||||||||||
Amortization of discount on convertible senior note | 257 | 186 | 138 | 137 | 718 | |||||||||||||||
Non-cash stock-based compensation expense | 165 | 164 | 165 | 70 | 564 | |||||||||||||||
Total adjustments | 1,693 | (4,651) | 4,666 | (12,396) | (10,688) | |||||||||||||||
Core Earnings – Non-GAAP | $ | 14,804 | $ | 15,014 | $ | 15,758 | $ | 15,492 | $ | 61,068 | ||||||||||
Basic and Diluted Core Earnings per Common Share and Participating Securities | $ | 0.28 | $ | 0.28 | $ | 0.31 | $ | 0.32 | $ | 1.19 | ||||||||||
Basic and Diluted Core Earnings plus Drop Income per Common Share and Participating Securities | $ | 0.30 | $ | 0.28 | $ | 0.31 | $ | 0.32 | $ | 1.21 | ||||||||||
Basic weighted average common shares and participating securities | 53,482,765 | 53,376,531 | 50,823,683 | 48,236,647 | 51,499,871 | |||||||||||||||
Diluted weighted average common shares and participating securities | 53,482,765 | 53,376,531 | 50,823,683 | 48,236,647 | 51,499,871 | |||||||||||||||
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) | December 31, | September 30, | June 30, | March 31, | ||||||||||||
Net interest income | $ | 18,927 | $ | 16,570 | $ | 15,860 | $ | 15,633 | ||||||||
Interest income from IOs and IIOs accounted for as derivatives | 103 | 133 | 164 | 189 | ||||||||||||
Net interest income from interest rate swaps | (347) | 1,715 | 3,850 | 4,283 | ||||||||||||
Adjusted net interest income | 18,683 | 18,418 | 19,874 | 20,105 | ||||||||||||
Total expenses | (5,209) | (5,377) | (5,081) | (5,277) | ||||||||||||
Non-cash stock-based compensation | 165 | 164 | 165 | 70 | ||||||||||||
One-time transaction costs | 154 | 531 | 130 | 269 | ||||||||||||
Amortization of discount on convertible unsecured senior notes | 257 | 186 | 138 | 137 | ||||||||||||
Interest income on cash balances and other income (loss), net | 754 | 1,092 | 532 | 188 | ||||||||||||
Core Earnings | $ | 14,804 | $ | 15,014 | $ | 15,758 | $ | 15,492 | ||||||||
Reconciliation of Interest Income and Effective Cost of Funds (Unaudited, in thousands) | ||||||||||||||||||||
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 December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019: | ||||||||||||||||||||
Three Months Ended | The Year | |||||||||||||||||||
(dollars in thousands) | December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||
Coupon interest income | $ | 59,586 | $ | 60,411 | $ | 57,792 | $ | 54,771 | $ | 232,560 | ||||||||||
Premium amortization, discount accretion and amortization of basis, net | (3,825) | (4,759) | (3,974) | (2,738) | (15,296) | |||||||||||||||
Interest income | $ | 55,761 | $ | 55,652 | $ | 53,818 | $ | 52,033 | $ | 217,264 | ||||||||||
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1): | ||||||||||||||||||||
Coupon interest income | 951 | 723 | 819 | 784 | 3,277 | |||||||||||||||
Amortization of basis (Non-GAAP Financial Measure) | (848) | (590) | (655) | (595) | (2,688) | |||||||||||||||
Subtotal | 103 | 133 | 164 | 189 | 589 | |||||||||||||||
Total interest income, including interest income on Agency and Non-Agency Interest-Only Strips, classified as derivatives and other derivative instruments - Non-GAAP Financial Measure | $ | 55,864 | $ | 55,785 | $ | 53,982 | $ | 52,222 | $ | 217,853 | ||||||||||
(1) | Reported in gain (loss) on derivative instruments in the Consolidated Statement of Operations. |
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, 2019, September 30, 2019, June 30, 2019 and March 31, 2019: | ||||||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||
December 31, 2019 | September 30, 2019 | June 30, 2019 | March 31, 2019 | |||||||||||||||||||||||||
(dollars in thousands) | Interest | Effective Costs | Interest | Effective Borrowing Costs | Interest | Effective Borrowing Costs | Interest | Effective Borrowing Costs | ||||||||||||||||||||
Interest expense | $ | 36,834 | 3.18 | % | $ | 39,082 | 3.35 | % | $ | 37,958 | 3.54 | % | $ | 36,400 | 3.94 | % | ||||||||||||
Adjustments: | ||||||||||||||||||||||||||||
Interest expense on Securitized debt from consolidated VIEs | (6,283) | (3.95) | % | (6,657) | 4.18 | % | (8,215) | (4.62) | % | (9,157) | (4.22) | % | ||||||||||||||||
Net interest (received) paid - interest rate swaps | 347 | 0.03 | % | (1,715) | (0.15) | % | (3,850) | (0.36) | % | (4,283) | (0.46) | % | ||||||||||||||||
Effective Borrowing Costs | $ | 30,898 | 3.09 | % | $ | 30,710 | 3.05 | % | $ | 25,893 | 2.17 | % | $ | 22,960 | 3.25 | % | ||||||||||||
Weighted average borrowings | $ | 3,971,551 | $ | 4,000,534 | $ | 3,527,942 | $ | 2,868,327 | ||||||||||||||||||||
The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the years ended December 31, 2019 and 2018: | ||||||||||||||
The Year Ended | ||||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||
(dollars in thousands) | Interest | Effective Borrowing Costs | Interest | Effective Borrowing Costs | ||||||||||
Interest expense | $ | 150,274 | 3.48 | % | $ | 138,240 | 3.19 | % | ||||||
Adjustments: | ||||||||||||||
Interest expense on Securitized debt from consolidated VIEs | (30,312) | (4.15) | % | (42,440) | (4.43) | % | ||||||||
Net interest (received) paid - interest rate swaps | (9,501) | (0.22) | % | (6,158) | (0.14) | % | ||||||||
Effective Borrowing Costs | $ | 110,461 | 3.07 | % | $ | 89,642 | 2.65 | % | ||||||
Weighted average borrowings | $ | 3,594,021 | $ | 3,376,557 | ||||||||||
View original content:http://www.prnewswire.com/news-releases/western-asset-mortgage-capital-corporation-announces-fourth-quarter-and-full-year-2019-results-301016757.html
SOURCE Western Asset Mortgage Capital Corporation
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