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
|
|
Balance at
|
|
Purchases |
|
Loan
|
|
Principal Payments
|
|
Proceeds from
|
|
Transfers
|
|
Realized
|
|
Unrealized
|
|
Premium
|
|
Balance at
|
||||||||||||||||
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
|
|
Original LTV |
|
Original
|
|
Expected
|
|
Contractual
|
|
Coupon
|
|||
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
|
|
Life (Years) |
|
Original LTV |
|
Original
|
|
60+ Day
|
|
6-Month
|
|||||
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
|
Fair Value |
Original
|
Interest Rate |
Maturity
|
Extension
|
Collateral |
Geographic
|
|||
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
|
|
Weighted Average
|
|
Weighted Average
|
||
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
|
|||
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
|
|||
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
|
|||
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
|
|||
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
|
||||||||
|
|
December 31,
|
|
December 31,
|
||||
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
|
||||||
|
|
December 31,
|
|
December 31,
|
||
(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
|
||||||||||||||||||||
|
|
Three Months Ended(1) |
|
The Year
|
||||||||||||||||
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
||||||||||
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,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
||||||||||
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,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
||||||||||
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
|
|||||||
|
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
|
|
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
|
|||||
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/
Contacts
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
