Western Asset Mortgage Capital Corp [WMC] Filings

10-Q 1 wmc-20230331.htm 10-Q wmc-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


			ý			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023


			☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____.

Commission File Number: 001-35543

Western Asset Mortgage Capital Corporation

(Exact Name of Registrant as Specified in Its Charter)


Delaware						27-0298092
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification Number)

Western Asset Mortgage Capital Corporation

385 East Colorado Boulevard,

Pasadena, California 91101

(Address of Registrant’s principal executive offices)

(626) 844-9400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Securities Exchange Act of 1934).Yes ☐ No ý

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

WMC

New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

As of May 8, 2023 there were 6,038,012 shares, par value $0.01, of the registrant’s common stock outstanding.

TABLE OF CONTENTS


		Page

	P ART I — FINANCIAL INFORMATION

ITEM 1.	Financial Statements	2

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	74

ITEM 4.	Controls and Procedures	80

	P ART II — OTHER INFORMATION	81

ITEM 1.	Legal Proceedings	81

ITEM 1A.	Risk Factors	81

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81

ITEM 3.	Defaults Upon Senior Securities	81

ITEM 4.	Mine Safety Disclosures	81

ITEM 5.	Other Information	82

ITEM 6.	Exhibits	83

Signatures		84

Part I

ITEM I. FINANCIAL STATEMENTS

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands—except share and per share data)

(Unaudited)


	March 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents	$	16,149	$	18,011
Restricted cash	—		248
Agency mortgage-backed securities, at fair value ($271 and $249 pledged as collateral, at fair value, respectively)	837		767
Non-Agency mortgage-backed securities, at fair value ($78,093 and $100,115 pledged as collateral, at fair value, respectively)	87,133		109,122
Other securities, at fair value ($23,623 and $27,262 pledged as collateral, at fair value, respectively)	24,857		27,262
Residential Whole Loans, at fair value ($1,073,257 and $1,089,914 pledged as collateral, at fair value, respectively)	1,074,417		1,091,145
Residential Bridge Loans, at fair value	2,782		2,849
Securitized Commercial Loan, at fair value	1,088,224		1,085,103
Commercial Loans, at fair value ($65,692 and $66,864 pledged as collateral, at fair value, respectively)	79,182		90,002

Investment related receivable	8,980		5,960
Interest receivable	11,185		11,330
Due from counterparties	17,283		6,574
Derivative assets, at fair value	—		1
Other assets	3,366		4,860
Total Assets (1)	$	2,414,395	$	2,453,234

Liabilities and Equity:
Liabilities:
Repurchase agreements, net	$	171,290	$	193,117
Convertible senior unsecured notes, net	83,932		83,522
Securitized debt, net ($1,713,455 and $1,719,865 at fair value and $126,313 and $128,217 held by affiliates, respectively)	2,039,353		2,058,684
Interest payable (includes $652 and $655 on securitized debt held by affiliates, respectively)	12,139		12,794

Due to counterparties	—		300
Derivative liability, at fair value	121		61
Accounts payable and accrued expenses	3,140		3,201
Payable to affiliate	2,920		4,028
Dividend payable	2,113		2,415
Other liabilities	22		300
Total Liabilities(2)	2,315,030		2,358,422

Commitments and contingencies (Note 15)

Stockholders’ Equity:
Common stock: $0.01 par value, 50,000,000 shares authorized, 6,038,012 and 6,038,012 outstanding, respectively	60		60
Preferred stock, $0.01 par value, 10,000,000 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	919,368		919,238
Retained earnings (accumulated deficit)	(818,405)		(822,829)
Total Stockholders’ Equity	99,358		94,804
Non-controlling interest	7		8
Total Equity	99,365		94,812
Total Liabilities and Equity	$	2,414,395	$	2,453,234

See notes to unaudited consolidated financial statements.

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets (Continued)

(in thousands — except share and per share data)

(Unaudited)


	March 31, 2023		December 31, 2022
(1) Assets of consolidated VIEs included in the total assets above:

Restricted cash	$	—	$	248
Residential Whole Loans, at fair value ($1,073,257 and $1,089,914 pledged as collateral, at fair value, respectively)	1,074,417		1,091,145
Residential Bridge Loans, at fair value	2,782		2,849
Securitized Commercial Loan, at fair value	1,088,224		1,085,103
Commercial Loans, at fair value	13,490		14,362
Investment related receivable	8,934		5,914
Interest receivable	10,099		10,182
Other assets	—		509
Total assets of consolidated VIEs	$	2,197,946	$	2,210,312

(2) Liabilities of consolidated VIEs included in the total liabilities above:
Securitized debt, net ($1,713,455 and $1,719,865 at fair value and $126,313 and $128,217 held by affiliates, respectively)	$	2,039,353	$	2,058,684
Interest payable (includes $652 and $655 on securitized debt held by affiliates, respectively)	8,227		8,303
Accounts payable and accrued expenses	60		43
Other liabilities	—		248
Total liabilities of consolidated VIEs	$	2,047,640	$	2,067,278

See notes to unaudited consolidated financial statements.

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands—except share and per share data)

(Unaudited)


	For the three months ended March 31, 2023		For the three months ended March 31, 2022
Net Interest Income
Interest income	$	40,857	$	35,642
Interest expense (includes $3,318 and $3,443 on securitized debt held by affiliates, respectively)	36,502		31,359
Net Interest Income	4,355		4,283

Other Income (Loss)
Realized gain (loss), net	(82,818)		12,145

Unrealized gain (loss), net	90,316		(38,903)
Gain (loss) on derivative instruments, net	(950)		6,936
Other, net	57		(145)
Other Income (Loss)	6,605		(19,967)

Expenses
Management fee to affiliate	976		1,100

Other operating expenses	286		296
Transaction costs	643		2,611
General and administrative expenses:
Compensation expense	511		498
Professional fees	1,415		1,256
Other general and administrative expenses	549		736
Total general and administrative expenses	2,475		2,490
Total Expenses	4,380		6,497

Income (loss) before income taxes	6,580		(22,181)
Income tax provision	12		56
Net income (loss)	6,568		(22,237)
Net income attributable to non-controlling interest	1		3,616
Net income (loss) attributable to common stockholders and participating securities	$	6,567	$	(25,853)

Net income (loss) per Common Share — Basic(1)	$	1.07	$	(4.29)
Net income (loss) per Common Share — Diluted(1)	$	1.07	$	(4.29)

(1) Amounts have been adjusted to reflect the one-for-ten reverse stock split effected July 11, 2022. See Note 2,"Basis of Presentation and Summary of Significant Accounting Policies" and Note 12, "Stockholders' Equity" to the consolidated financial statements contained in this Quarterly Report on Form 10-Q for additional details.

See notes to unaudited consolidated financial statements.

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Equity

(in thousands—except shares and share data)

(Unaudited)


	Three Months Ended March 31, 2023
	Common Stock Outstanding			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
	Shares	Par
Balance at December 31, 2022	6,038,012	$	60	$	919,238	$	(822,829)	$	(1,665)	$	94,804	$	8	$	94,812







Vesting of restricted stock	—	—		100		—		—		100		—		100

Net income (loss)	—	—		—		6,567		—		6,567		1		6,568
Dividends declared on non-controlling interest	—	—		—		—		—		—		(2)		(2)
Dividends declared on common stock	—	—		30		(2,143)		—		(2,113)		—		(2,113)
Balance at March 31, 2023	6,038,012	$	60	$	919,368	$	(818,405)	$	(1,665)	$	99,358	$	7	$	99,365


	Three Months Ended March 31, 2022
	Common Stock Outstanding			Additional Paid-In Capital(1)		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
	Shares(1)	Par
Balance at December 31, 2021	6,038,012	$	60	$	918,695	$	(723,981)	$	(1,665)	$	193,109	$	11,220	$	204,329


Equity distribution	—	—		—		—		—		—		(14,690)		(14,690)




Vesting of restricted stock	—	—		165		—		—		165		—		165

Net income (loss)	—	—		—		(25,853)		—		(25,853)		3,616		(22,237)
Dividends declared on non-controlling interest	—	—		—		—		—		—		(2)		(2)
Dividends declared on common stock	—	—		14		(2,429)		—		(2,415)		—		(2,415)
Balance at March 31, 2022	6,038,012	60		918,874		(752,263)		(1,665)		165,006		144		165,150

See notes to unaudited consolidated financial statements.

Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)


	For the three months ended March 31, 2023		For the three months ended March 31, 2022
Cash flows from operating activities:
Net income (loss)	$	6,568	$	(22,237)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Premium amortization and (discount accretion), net	260		2,228
Interest income earned added to principal of investments	(7)		(64)
Amortization of deferred financing costs	579		653
Amortization of discount on convertible senior unsecured notes	172		223
Restricted stock amortization	100		165


Premium on purchase of Residential Whole Loans	—		(2,139)


Unrealized (gain) loss, net	(90,316)		38,903
Realized loss on extinguishment of convertible senior notes	—		53
Realized (gain) loss on sale of real estate owned ("REO")	—		(12,198)
Unrealized gain on derivative instruments, net	(3)		(1,655)

Realized loss on investments, net	82,790		—


Changes in operating assets and liabilities:
Interest receivable	145		863

Other assets	1,494		616
Interest payable	(655)		(2,031)
Accounts payable and accrued expenses	(61)		(2,563)
Payable to affiliate	(1,108)		766
Other liabilities	(32)		30
Net cash (used in) provided by operating activities	(74)		1,613

Cash flows from investing activities:
Purchase of securities	(4,714)		(39,952)
Proceeds from sale of securities	6,630		—
Proceeds from sale of REO	—		54,681
Principal repayments and basis recovered on securities	20,379		907
Purchase of Residential Whole Loans	—		(116,954)

Principal repayments on Residential Whole Loans	26,199		96,808

Proceeds from sale of Commercial Loans	8,776		—
Principal repayments on Commercial Loans	930		4



Principal repayments on Residential Bridge Loans	1,370		117








Due from counterparties	—		100




Net cash provided by (used in) investing activities	59,570		(4,289)

Cash flows from financing activities:

Payment of offering costs	—		(2)



Payments on extinguishment of convertible senior unsecured notes	—		(3,408)

Proceeds from repurchase agreement borrowings	381,970		1,000,942
Repayments of repurchase agreement borrowings	(403,797)		(1,275,751)

Proceeds from securitized debt	—

Western Asset Mortgage Capital Corp [WMC] Filings
10-Q	[2023-05-08]
10-K	[2023-03-13]
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-09]
10-K	[2022-03-08]
10-Q	[2021-11-05]
10-Q	[2021-08-04]
10-Q	[2021-05-06]
10-K	[2021-03-08]
10-Q	[2020-11-06]
10-Q	[2020-08-10]
10-Q	[2020-05-11]
10-K	[2020-03-06]
10-Q	[2019-11-07]
10-Q	[2019-08-07]
10-Q	[2019-05-07]
10-K	[2019-03-06]
10-Q	[2018-11-07]
10-Q	[2018-08-07]
10-Q	[2018-05-08]
10-K	[2018-03-29]
10-Q	[2017-11-07]
10-Q	[2017-08-08]
10-Q	[2017-05-04]
10-K	[2017-03-07]
10-Q	[2016-11-04]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-03-11]
10-Q	[2015-11-09]
10-Q	[2015-08-06]
10-Q	[2015-05-08]
10-K	[2015-03-16]
10-Q	[2014-11-07]
10-Q	[2014-08-11]
10-Q	[2014-05-12]
10-K	[2014-03-17]
10-Q	[2013-11-14]
10-Q	[2013-08-13]
10-Q	[2013-05-15]
10-K	[2013-04-09]
10-Q	[2012-11-14]
10-Q	[2012-08-14]