WMC - Earnings call transcript Q2 2018 | Western Asset Mortgage Capital Corp

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the Western Asset Mortgage Capital Corporation's Second Quarter 2018 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 5:00 p.m. Eastern Standard Time. [Operator Instructions].

Now first, I'd like to turn the call over to Mr. Relations. Investor Clark, Larry Mr. ahead, go Please Clark.

Larry Clark

XXXX. Thank the you, us Corporation's everyone joining and June to results press its release yesterday website I to discuss at want afternoon XX, ended today months Capital available the thank company Western issued for earnings on for is three Operator. The company's Asset financial Mortgage www.westernassetmcc.com.

included the that you to during call. In presentation addition, can slide the an accompanying company has refer

website. With Investor Lisa You the can and Relations slides Jennifer Investment are the access Meyer, Chief Officer. Officer; Officer; today also section us Murphy, these in Financial Anup Executive management Agarwal, from of Chief Chief

to we now over Murphy. law. With disclaim statements and reports unless are by the forward-looking included obligation I our date on SEC's results will of that contain the could are factors forward-looking without Litigation subject Reform Before harbor could to statements will and contained the Securities from statements All safe as that in the those safe such Actual the the website Act at of the the presentation to of those included constitute Private section Securities XXXX. within subject cause Commission. any Jennifer? the Act. turn harbor to with statements Factors company's differ forward-looking this be I'd due outcomes of www.sec.gov. to to only begin, All impact We Reform Copies of company. are forward-looking are Exchange presentation protection intended notice. review of meaning the available statements by and in to in call call actual change statement. Risk This are materially forward-looking required Jennifer differ the the to control conference the Certain the this statements of like made the factors results provided filed forecast materially beyond many that, from update

Jennifer Murphy

everyone. portfolio Western We to level, Welcome, financial on of ability Larry. and our diversified platforms, as and strategy. you, per we risk investments, earnings XXXX. as of second the its share, WMC Asset, to quarter of results our view our increase quarter operating In the and quarter, our core On drop advantage broader and XX% reflect which results investment the a the delivered depth than breadth an Thank our the strong we income global first and to draw realize managers, differentiated of continue continue benefits fourth higher strategic second $X.XX was plus X% of shareholders. our XXXX quarter from for a

This earnings core Lisa hedging costs; increase towards our quarter's talk which and and expenses. by driven will assets, owning more shift about; Anup was more G&A credit-sensitive improved continued lower primarily second of book We value $X.XX. includes dividend quarter, shareholder partially the X.X% economic decline our an offset return for $X.XX, of delivered our by book of a value on which in

those periods. X.X% at X the first peer XXXX, end group XXXX, the our was of the for high of For for year full return book it and value was on both economic XX% our months

in book our that over plus has for time now earnings quarter quarter. spreads what here has in shareholder in and those approximately as in Agency temporary drop dividend value market we our driven the in our which primarily Our were quarter widening consecutive CMBS rebounded the the in period. believe spread remained portfolio, dividend by and quarters, the decline of third result consistent late The X aggregate the was was exceeded have occurred second income in XX% by the -- conditions core

$XXX that deep on and Western relationships be the what assets, approach. our able many meet leverage benefit market. to the fixed diversified acquiring and in or the a is market as price we to team XX,XXX of gain holdings we transaction reflect opportunities platform the scale the In commercial have the ability broad of simply active would we're stock driven quarter, Western originators key our repurchased was who to Asset to the This able structure. stand-alone this at share of from on in about of investments not performance about income million that spectrum are mortgage differentiated shares contributions Our virtually access direct average quarter, investment assets quite also criteria. have target loan and The any our by subsectors and to strategic sourced per provide value. of Similarly, and with attractive to continue second are REIT. includes to source we for draw again -- the our mortgage across was able a XX% credit-sensitive approach second book are differentiated an investment originators, Asset's in where our Essentially, quarter loan and vast once developed discount our $X.XX of relationships early investment over get mortgage we looking investments. collaborate understand majority opportunities a These investments, to us aspects deal who with in in size, disciplined to is involved opportunities WMC

will in our remain of our with on objective and behalf the results call I'll With to on that We our X over turn of in to attractive represented and repurchase and an continue consistent shareholders discount a we'll have has shares the our CFO, while been book each shares the company's Lisa repurchased under Meyer. pleased of sustainable over book to the still at opportunities that, core investment each support generating our earnings dividend view. have in the quarter financial our We're X.X significant share stability our focused accretive to quarters, and existing million time value evaluate authorization, future. We left We has book, the to shares compelling which in value. of year-to-date. shareholder Lisa? a strong past repurchase second opportunity, improving

Lisa Meyer

We net million $X.X second Jennifer. fifth performance earnings. or quarter in share. the $X.XX XXXX, our per another consecutive of delivered We you, of income of strong core solid quarter Thank generated

$XX.X Our core prior increase to the income plus of There share, over million key earnings our $X.XX or an performance. were $X.XX contributors drop per quarter. X per share was

investment a we portfolio an shift ongoing larger slightly had credit-sensitive First, average and in the investment.

bridge $XXX million and During acquiring $XXX mainly Agency credit-sensitive the sold investments, residential capital quarter, the loans million we consisting whole securities million and by in commercial approximately in redeployed non-Agency remaining the of and of CMBS. the loan in and $XXX

interest towards shift of Second, result margin a the credit-sensitive higher generated portfolio our as net a investment.

XX at X.XX% at by June X.XX% XX March Our net interest from points margin to XX. increased basis

our earnings a a contributor our $XXX,XXX $X.X and servicing million the control to approximately third in management portfolio. first lastly, third-party fees growing management related of quarter reduction first in core the The was fee on XXXX; fourth, of swap internal an net residential expense performance of approximately to increase completion our professional decrease and $XXX,XXX fee the the partially was in bridge mostly slightly and of in interest of rate from first by audit quarter; and higher loan loan our asset offset increase of commercial

from X.Xx Our securitized billion at a excluding nonrecourse when was leverage June $X.X CMBS debt ratio securitization. XX of

$XX subordinate securitization consolidate because We we control CMBS the acquired are charge under required the million GAAP certain rights. contains to

Our at adjusted leverage ratio XX. declined from March X.Xx

that this end, decided At the XX with to rate outstanding trend credit billion interest XX rates on portfolio, we our to we add will continue. exposure had had to minimize paid current quarter view with those repurchase will continue expect We to of counterparties. rise, master into our XX% swap settle At effectively forward-starting interest increases and XX, we our approximately sensitive our interest in this portfolio. hedged our $X.X more swaps to of rate repo our borrowings of on With agreements As continue believe we June a impact future that counterparties rate protection we debt. April.

ample as the WMC's Anup? Our financing continued to over the upon Anup Asset. call to ability Western result draw now With relationships will I to options turn resources of and that, of Agarwal. a be

Anupam Agarwal

Thanks, Lisa.

of performance number by mortgage of loans subsectors in our credit-sensitive and market our was Our and second overall a our the CMBS but across from portfolio and contributions driven Agency quarter mainly the holdings securities.

minutes each. spend Let discussing a me few

one CMBS. over last Agency rotate months in our the into XX has to mentioned have past, our initiatives of Agency we As portfolio RMBS repositioning been the

As total adjusted CMBS our XX% XX, represented portfolio. Agency Agency holdings June XX% of of and of our total

number a reminder, Ginnie are and As of CMBS of securities to Mae properties. a issued We that consists residential Freddie Mae, securities Agency reasons. for by attractive Mac multi-family find these finance Fannie

built rate than risks First, mortgages. in to sensitive loans therefore, interest have the prepayment less are and, underlying single-family protection

are and credits [indiscernible] we is meaningful Agency months. its Agency influence because CMBS offers to net the performance in more price until contributor believe the our more second over attractive Second, the a likely given pressure a And cost to RMBS spreads third, portfolio than assets. holdings, RMBS quarter the Agency generated quarter. during it that remain last growth interest under These over our efficient RMBS holdings to XX% of market income hedge. XX CMBS been has the

market Risk mentioned, loans, spreads and gain Transfer was believe to here CMBS the tightened remain our the and of in the book portfolio, RMBS commercial spreads conditions of We Agency third widened However, quarter, widening value. sectors late temporary CMBS the market, quarter. in on as we primarily Jennifer due which Non-Agency credit-sensitive securities. and our several impacted out whole portion GSE negatively across as loans invested In bridge Credit the the in residential have

bridge to which increased largest loans, we in residential increases a residential number with loans taking find particularly quarter, sectors these exposure and non-QM attractive. place the the whole our we During of

loans similar including about Our loans, our profile. non-QM, attractive We non-QM XX% residential contributors than holdings performing and, mortgages residential make are risk credit-sensitive find to profitability. because moderately and in yield higher overall whole our they and meaningful of have very a up both a opinion, our now offer bridge

attractive view rate while compelling market performing ongoing strength short Our and to bridge and to continues offer in as of exhibit growth Residential resilience. are our healthy because to term nature remains are loans deals they underwriting still favorable us residential standards.

jumbo sector in risk looking yields area in Another residential offer Agency than are is prime yet a that They of profile, RMBS similar securitizations. higher we view. mortgage have at our

pools variety being side, also U.S. be deal non-Agency mortgage of includes CMBS, space. On good to are by geographically property tend in we are types. backed credit are commercial when diverse which own that securitizations we These the across However, opportunistic investing of this

real and outlook forward. On favorable spent commercial I mezz remain optimistic heading going are to continue the find our our to to approach for discussing fundamentals attractive call, time we quarter's we about portfolio. economy, Given our commercial which last estate loans,

and to early solid We part stand-alone lenders. platform to increase able like by solid strategy. the collaborate that investment reminder, open these opportunities key would to on investments that access the credit Western that involved With This of core REIT. We a our In investment being that, protect because to in and a we to the delivering and fundamentals get focused and conclusion, questions. mortgage deals are on structure. up good overall book value. on differentiated properties preserving as Asset's have with secured is loans continuing call short-term a WMC will loans we goal we remain not credit-sensitive example of often the our plan holdings, our able As are strong having covenants we as on our earnings focused of aspects we are of leverage

Operator

[Operator Instructions].

question Trevor Securities. JMP from comes first Cranston with The

Trevor Cranston

kind have give you a the struggled the that about conventional and loans, able space originators in us the couple make of seeing supply potential more just bridge what you originators the been increase with see whole for first, increased you market, space loans of loan the -- guys both progress as you've of the that some? strategy. into on for in questions guess, And I an if see any an origination are you're the the volumes in coming of if update residential has of in terms you've loans? also, to sort partnered people seeing and Can conforming

Anupam Agarwal

Relating first. -- to about talk thank Trevor, you. non-QM the let's Sure,

growth volume we continued have as comes differentiated On relative in on seeing mind, [indiscernible] strategy the we a down. are you But for. non-QM keep if a -- seeing very non-QM kind look, of side, conventional are

really rate primarily focused is low really you've high-quality As non-QM who's borrower the adjustable value. to at maximize not us heard our leverage, this from before, of loan mortgages, on kind to looking focused

from of of -- kind kind at tend be medium loan, is process these deliberate in very credit we kind high-quality borrowers and loan-to-value to there, small to the of to like focused relative So conventional. of the our attractive sensitive finding kind to and bank,

of were which of more add kind broadly, program. by to But we securitizations originated volume the continue seeing the continue issuance are more are non-QM those to So we we're yes, because low grow. banks. loans, partners seeing [Indiscernible] to our so

volumes to for keep and the of market quite volume strategy are is kind all the our strategy not just looking So in see growing, non-QM do who other is different. different. participants, Most for borrower mind kind participants so for increasing, that in of additional but that that is leverage different are but we quite of mind, our is just just keep corresponding different, channels relative

discipline in The just their add growth, to our of because finding kind mean, we of focus borrower borrower cosmetics, a very have terms of terms long is our but disciplined us. doing be to second, been quality in bridge. high-quality, deliberate very who the high-quality how we have we for and tend very is of And rehab we seen again, very in time. important residential the simply on period Yes, many I there. Again, has experienced been

Trevor Cranston

Got maybe those to lend can it. those terms against sort are the seeing changes any and in financing or there's them? you on there terms the loans willing side helpful. of touch And you're number of That’s been the of of who also counterparties for strategies in if financing any

Anupam Agarwal

continue did Yes. of one we have I you -- think mean, for -- to non-QM of to looking funds strong of think one securitizations. I we of you have things as who have we as first, look, not kind are but done, been non-QM seen, the from seen it. securitizations finance are interest additional Again, counterparties and our I -- lots only you've our also, did, see

being you have So of things couple are there done. because lots are is One a can see. securitizations, you of which

see is most our strategy of continued years, one, for And wood, delinquencies. we the can we now terms kind in performance doing on performance the of [indiscernible] the is our the but of they had, see so this they have to, terms second counterparties standards performance is have prepaid X, Second our that -- been in not has fees, and have that, our changed; X foresee. knock

that going because counterparties of continue and fixed finance in growth to of those. to rate, So who have because we are

Trevor Cranston

it. Got

Okay.

you anything property said remind side, on of Or terms fundamental maybe guys you of I have any commercial Now a us us if you the But can -- of view. positive know sort can you have against? particular willing in guys guys remind you geography focus different on in are you lend you particular are property type or of avoiding most the types to if there's types? sort

Anupam Agarwal

a geography, big, those most addition I things, addition I come the fundamentals gets it's important look, in but all of we as our things that we have really the into have all the any covenants part But negotiate type, mean, think what is confidence kind that consideration us what kind of which loan, the is -- added the in one of are of make to that able opportunity. evaluation restructuring as a of given of to come the we structure whether it paid about in to an all big -- off. is, just to [indiscernible] and -- sure property for into to those, --

and comes. the lot -- property And it would a the geography, current structure. Look, on strong her mentioned, that view help covenants, the play to you able early had coverage, you in that's to mind, in having why, I've have to that what that really And -- the as and able a all are mentioned without when cycle economy So that's have right on is can Jennifer in but transaction. current we get we very the collaborate comments my to is important. economic that types be

any on multi-family just be entities, is both, you the Western have an when for the either a we given it. as focused -- of give it's And across other that expertise they look us, of of of So all type. to a and that some Asset they it's is the this it kind able combination it's of property more but really you -- question from same or to benefit are would comes the ask of, platform answer

long Sorry, answer.

Trevor Cranston

your you on it'd last it's could second that No, the be helpful benefited Agency a since expect guys in lot LIBOR earnings stabilize to also, And sort share if the month helpful. second quantify rates? very between view guys and are the where Then of from three question, you quarter? quarter able the you widening relationship come to in since that's much repo peak spread how

Lisa Meyer

we of exposure, we that million. As during by XX% as quarter, $X think, benefit I far hedged as repo -- effectively our the approximately so our mentioned, I so swaps from are

also What So related part helpful what was -- second was your earnings. very was core to question? sorry, the that our of I'm

Trevor Cranston

thoughts and part three was where guys to your the between the Agency relationship you'd stabilize. expect rates of sort just Second question of LIBOR on month repo

Anupam Agarwal

is think Yes. look, of stabilize look, be I how use what I -- rates have kind around to anywhere. natural for blurry at going conditions have. repo mean, going just mean, kind are are quite -- is constructive, I I continues -- a there of think inflation ranges markets Overall, not our many think both to we'll of that are Agency I

case, ranges kind which built overall, that consensus around many I continues of think see kind as of how are be [indiscernible]. So a relationship you there, the to

Jennifer Murphy

are also LIBOR, hedges to I our and to indexed so. wanted both our just add repo that

Operator

over any Instructions]. turn Jennifer would like question session. concludes for closing back the to our conference to I [Operator This Murphy and answer remarks.

Jennifer Murphy

have us, day. great much for and Thanks a very Great. joining

Operator

now presentation. you has attending today's concluded. conference for The Thank

may disconnect. now You

Western Asset Mortgage Capital (WMC) 7 Aug 182018 Q2 Earnings call transcript