WMC - Earnings call transcript Q2 2020 | Western Asset Mortgage Capital Corp

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Operator

Welcome to Western Asset Mortgage Capital Corporation's Second Quarter 2020 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 5:00 p.m. Eastern Standard time. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation.

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

Larry Clark

company Thank Relations you, us Corporation's everyone joining at available XXXX. to results yesterday press afternoon, www.westernassetmcc.com. and of I to discuss the want it's The of today quarter Capital the the thank its Western earnings for release Investor for on second Kate. issued section Asset financial website Mortgage company's

access you these the Chief has Chief on are And included can that refer Trifon, Harris company presentation call. management to Officer; Investment addition, Financial With In you Executive website. Officer. slide can slides the from Meyer, us the during a and Chief Officer; today Lisa Murphy, Jennifer

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

Jennifer Murphy

Welcome, Larry. you, Thank everyone.

cash the main attractive mortgage milestone the challenging protect flows environment for dividend. XX%, the important loans and We the recorded for securitization, company we weighted home these significantly values meaningfully years realized reducing Our non-QM This come. for oriented portion an the expensed to expected of of improved fee securitization benefits was $XX.X leverage earning loans. share a are still of to ensure repurchase from expense for earning June period that second for be as focus our balance did a accrual and short-term the selling significantly company's underlies times opportunity strengthened shareholders more bolstering by structure get strengthened than asset times credit the non-QM liquidity of at our net the longer an $XX.X will, sustain and reducing over at X%. on levels, to years for power represents X.X common fee XXX% financing include to securitization million on participation premium positioned to of million is profit by the company's incurred our fully of average of our per to that second or the recover $X.XX portfolio. per of the portfolio portfolio the This of In $X.XX from equity shares assets our fixed power they book term loss reliance If and this significant expect our in assets increasing quarter’s our rate to We an a share. related the $XXX loss. home These the Through long financed us of was the and GAAP securing quarter, to sheet rate improved residential we in But XX by or time. future to million the value. capital X attractive of by agreements our we a at results a benefit. quarter new

attractive earnings. Our liquidity the which key portfolio smaller lower reflecting during sustainable resume to put factors continues current needs additional the power an second prices the the by were quarter, meaningful in environment. future we the build mentioned, the and priority second the earnings and We as leverage, to will are position to in improvement and preserve we and subsides a I base. of believe $X.XX the of per when dividends asset earnings core company us in our in liquidity paying The core earnings resumed. dividends of help for supported evaluate will sustainable value pandemic the to potential if retain to company environment. assets the share high It's activity there the a We expect be economic a believe considering in this decided equity, quarter shareholder for portfolio

past the assets, has as our several years, borrowers and on strategy high well approach. For investment focused quality as diversified a investment

more to of what directly path market an XX. retained calculation the and book results as one value, and including to value value of securitizations and This this We book talk liabilities reflected the clarity earnings in This in March what creates this view Lisa and prices. will company of the assessing about securitizations. book company. the second expect non-GAAP more June of assets we're interest recovery, WMC owes. sheet, in three detail. it the $X.XX the potential adds of be fair value. To economic assist get investors From removes aspect Economic significant improved we and in in a the the underlined significant consolidated in this strengthen book value economic fully $X.XX made sheet about the strides perspective, acquired balance our owns potential of economic we our XX, our for As of a back as these more balance recovery provides our of fundamental sustainable the from values quarter of and the in calculation. quarter this

long-term Trifon, I'll resume relative portfolio grow for objectives meaningfully generating in delivering and our protect our on focused We're the earnings to book value a Investment we to recover. and highly over with Harris company and the shareholders, our position on in benefit the core Officer. opportunity in sustainable our value stability that, of call fellow remain the the putting dividend event to shareholders of asset the that to committed value. preserve support With Chief Harris? attractive turn As

Harris Trifon

Thank you, Jennifer.

the virus. proved with a volatile year, another XXXX three be tones. of dominated regarding Also, by of the was first that months started different very quarter like second and period headlines quarter it to the The COVID-XX ended

the The and fiscal did exhibited depressed to end prices end March first improve remained monetary support few at subsequently liquidity stability very marked to sentiment, the begin compared improvement June. speed of saw a more markets by The weeks’ lesser to the prices extent and a measures of the unprecedented we and size levels. mortgage credit conditions, of and in

very and began markets sold As million $XXX loans. to deleverage quarters’ bonds WMC to Agency continue of nearly and quality and residential high by heal, had end we derisk

and help market our reduce do, to portfolio for in ability additional our improving risk an losses realized shareholders. prevent and Our so from

we time all and completed that the three our spent accomplish that end also improve company's amount arrangement goals. and terms we of financing significant effort risk. transactions meaningful believe to a our To We of the of

we The meaningful not during overall to all, provider close residential resulted XX The of to majority the financing loan transaction volatile home our we the term Shortly assets counterparty a margin first build to months risk, were our and and stability. securities financing no the that transaction term. relationship, streamlined the period, to reached and provided of in to very of able an in the structure. lender to transaction avoid on. portfolio a after one of margining problematic It call also portfolio time only also consolidating facility a related of portfolio of move potentially liquidity limited provided and issues. provided of provided residential more that most a features extended loan one amount with us This agreement remove facility, one allowed stability the mark-to-market requirements

quality. to by securitization The improving the financing. investor cost our our sales, we've In reduced over credit funding solidified our asset able and transactions benefit advantage critical quarter. $XXX exposure loans lowered of of under in transaction through success, further from securitization to to the and and improvement the and we were a the and sources million non-QM our markets were WMC, Arroyo. This the first securitization to the issued of second the quarter ability take our half we repo these of dramatically support a in second strong and is market, the of all in XX% year, the securitizations able part Lastly, is issue bond

the the on performing an mortgage of large line to loans the carries All the likelihood and of XX% meaningful portfolios case. in The although a and CMBS original of the balance given the loans mortgage hotel the that performing this will one non-QM portfolio XX% of and performance, for The current. obligation. loans delinquent approximate the the this CMBS portfolio reasonable borrowers return residential loans is to of in in majority current. current. current their that are loans there no XX% in We indication pandemic LTV is the and will our months the all of LTV loan their remain assets under over that being non-agency coming performing see believes CMBS commercial a order that The assurance of remains payments terms strong has the expectations will in in principal The are company remain with non-agency homes with portfolio current despite and modifications. In credit retail is be a delinquent equity background. by negotiations prioritize concentrated severe XX% commercial in status as portfolio loans the forbearance economic well conditions. loans borrowers but there portfolio remain

dependent continued both will expect and recent the continue good weeks, We of improved In will on we the availability news which remain and bad, fiscal monetary and and therapeutics of has and the outlook expect support. path future. COVID-XX, been the there challenging foreseeable vaccines for

in residential remain of growth. to economic believe to and the book be This in Given central and Meyer. will and assets, which the commercial call value. will portfolio over of I'll an for expect chance supportive Lisa? the beneficiaries that, concentrated offer turn accommodative be repositioned Lisa one is banks have With reasons, credit we the we best recovery, extraordinarily shareholders economic uncertainty, of the CFO, recovery our our primary we

Lisa Meyer

regarding and release our both press you, our earnings second quarter amount provided our We've our in portfolio and detail great presentation. a Thank of Harris. results

I'm So focus only on explanation. warrants’ that some items going to additional

to exposure and recourse our During reducing equity. borrowing, increasing shareholders short-term liquidity we the second quarter, focused on improving

both earnings foundation that Jennifer forward. completed Harris number stable and we financing a for capital structure of and going lay discussed, approved As transactions more a created the help

more to a GAAP value, stock. also In July, of done X.XX the measures of equity XXXX at addition average book in for strengthened amounts equity to these base. p financing improved of due sheet our accretive book we opportunistically of $X.XX June, common strengthened million million shares net and par value principal transactions a were to at million In per for and to share. X.XX% undertook exchange a in per $XX retired equity X our convertible we program market XX% our value sold Both transactions, equity. senior million. proceeds at share This shareholders shares of our was in that we price premium notes X total our importantly, balance an In transaction in discount

a of than repurchase $XX XX, agreements As XX% funded of the our less short-term million, with year recourse June borrowing. of or recourse outstanding finance with

leverage the levels future the low. reduce margin of of all borrowings, calls those also We risk remains so against

fees Western May. manager management April and our Finally, its for Asset weighed

Now about share a we $X.XX reported core our or core $X.X discussion turning for to earnings per million the of earnings, quarter. second

core to portfolio sales, higher a net our offset margin. reduce leverage earnings smaller and due asset was partially lower by primarily interest driven Our by

core Since to taking allowed which to securitization closed of step the was experienced Arroyo the the securitization lower its As XX, XXXX-X the this impact in reflected we core earnings. place, home residential we earnings benefit core forward. term the under new any our have interim new now earnings longer discussed not June it on an will and income a that important of With sustainable believe improve facility. an portfolio was quarter loan drag reduce second financing going in positive on us costs financing

useful independently our or acquired economic which GAAP It book non-GAAP were per actual The consolidated Additionally, mentioned, measure primarily reflects the supplemental provides investors retained as to book disclosed we feel metric have with due $X.XX. the value, economic party are a by which financial in service, we solidify value a position. Jennifer share $X.XX than higher priced to we financial our new pricing our three the financial share, we investments loans not that encouraged of the by than where accounting all of fair the is structure. an securitizations, of to book third value is value GAAP per debt. greater in summary, capital the fair value our mismatch interest significantly and In we from book arises Economic resulting equity, eliminates higher securitizations, took value was which being interest Arroyo mismatch. our but $X.XX evaluate in steps

beginning March, significant X.X the X.X of and improvement We the leverage year. at have end lowered our from a three times at the from of times times recourse to

remains our we to improved assets Our by long-term portion net With believe significant are for quarter. ahead. up interest a please Operator, attractive of third the with open questions. we well that, earnings margin positioned in healthy go the your call we financed will financing, and

Operator

Cranston from Please first is Securities. go Our ahead. [Operator Trevor of question Instructions] JMP

Trevor Cranston

recovery you the first your new you is have of In book there much guys you kind disclosure there pre-March the recovery you've about the around economic where significant from know that of lot provide that light around believing opening how specifically those mentioned could were question, the in assets wondering potential versus The value, in assets. was a I Thanks. context still you if is some marked are where marked and they assets? in securitizations today, of potential retained

Jennifer Murphy

- the understand your on Trevor, think you that they want I do Lisa, by to way. where comment question marked were question, you I for Is thank before? the

Lisa Meyer

Sure.

we've - range. on I before I loans recently, non-QM those think loans got probably XX.X to XXX.X. Most at March, most around marked XX.X XXX are the So were think the the

will significant feel the that chime starts up more upside, we Harris back there that we just is recover. to probably a And addition, value loans in probably recognize. is do significant think value par and economy think we that go to there So in is even par. as we beyond There actually can that if the

Jennifer Murphy

Maybe, sorry, recovery provides portion assets. insight the potential Trevor, commercial I'm briefly, measure non-QM of think our could that portfolio to and home loan do just well. book add speak that in assets economic I those on We if is value our really to the there into as

Trevor Cranston

Right. Sure.

for of Okay, guys end thank able you that. you the And were at to what the June. securitization do

as in You know, like securitization. were line June financing could of warrants outside to some XX on included you are the why what there hold point is million comment and of line loans the balance of it plan Can the some securitization sort those on well? the on of it you're looked still for remaining going definitely that financing and that sort loan securitized if at be

Harris Trifon

loans loans that reason in the And intentionally And secure one. the the periods. are that favorable of in we those the made both hold in decision the were borrowers them take many majority securitization reception included to forbearance well more securitization is rating are I'll of from investors Trevor, the not from as treatment, to in Sure the in of as transaction. those agencies, out order

on obtain certainly the the that I able execution validated decision. were deal, at we think to look if that you it

to to forbearance off and performing looking future and/or facility. as of return them our or to monitor them they forward, course status them of a those potentially is another potentially performance transfer period So include in either burns plan or loans the sell securitization the current

Trevor Cranston

it still also part portfolio said did was the I the guess on for single all current? just was specifically comments I XX% in I of something want CMBS I then I what the wasn't asset the within CMBS portfolio. to to types disclose sure you non-agency to first, heard the then prepared you the correctly, that make portfolio? I And caught And clarify property sure were want of it clarify, loans

Harris Trifon

package. disclose, So portfolio industrial XX% on LTV pay is referenced the I property for current did that was XX% concentration portfolio. that and the reporting portfolio we type in not the exact The in that believe that don't I

Trevor Cranston

property comment be to find in are? able on types should that the something would you what Is Can we XX-K?

Harris Trifon

related. lot hospitality assets generically of retail I'll comment a or the either are

we given a the in the You we sort know, did side quarter, sell second the when sold lot just assets non-retail we of that market, securities. the at of did non-agency the of the end on non-hotel and and of dislocation beginning QX

types, classes. shopping of that side, of fair words, dispersion. secured concentration Similarly, amount amount one of portfolios. months. sub concentration other service did to outperform it retail centers that each a in there those number will that certainly is well. the which mall hospitality the going and would power In quite of our foreseeable regional note last are future. I not But throughout property all few is up doing is There up there fair the are centers hotel by held those And asset a in the relatively of within on within So, hospitality, push the assets well actually for continue expectations has limited is sector forward a

Trevor Cranston

question. for that Then, color. Thanks last

some more might if you able or the of you some Can anything July. notes forward? not potentially a were to convertible pursue convertible going whether of notes the about to able opportunity in say think unique You that be you retire was you know or retiring

Lisa Meyer

do we quarter-end. to transaction look at that one as think that for we will we I the did which continue similar in opportunities can

our strengthens add it our anything? you I transactions makes And equity that us sense base it it just for do would to because reduces and Jennifer think liabilities. like that like to

Jennifer Murphy

both holders inbound - that - made two convertible those Just Trevor we we're had initiated continue well hopeful as those discussions as from or ourselves, we've inquiries note we've and one are we've we so cases - transactions. could

Operator

from KBW. go of ahead. Please George question next is The Bose

Eric Hagen

Hi, yield home show on with any finance essentially equity? just the is the loans page the this follow-up the Eric with forward, is retain on is deck. debt Thanks. that of those going those hold XX resi additional them Hagen. you on tranches And the and plan the A yields in structures? What or

Jennifer Murphy

Harris, do you to that on or… want comment

Harris Trifon

particularly break able that accretive, believe out we for that a favorable the don't I securitization would that retain were say the I yields we that I minutes the the quite light to get on on ago. securities few they're of the securitization, referenced in

what plans As along XXXX, far package securities to cost now the I leverage, leverage, the taking our we of think as terms most portfolio, think be everything we have that are, in we're makes about been. ever constantly with that more of where else of trying to sense it's than that what that's the leverage, should the true

basis certainly where daily unlevered that portfolio those And objectives, - leverage So, when are subsector a on strategic basis. think within is order on can our in And and monitoring our portfolio accretive when we're the and to we that that to further on securities the an will. something on portfolio. we overall makes opportunistic sense, income take we to it

Eric Hagen

the capital reinvesting the you raised? you book you what what where runoff capital that you during value are of was your did raise do And economic And guys and quarter? $XX the with million when

Jennifer Murphy

Jennifer. it's Eric,

priorities to position overall comment us the to stability our in which of you financial has - remain on a sure termed so of - is the our in runoff ensuring of plan liquidity that's have healthy would make that build our liquidity helped as company I builds, company. part the also for been current our been all build First, the

off run we those on So priorities. second quarter that in the really focused

earnings. sheet I this third potentially core to think a is those in this given in progress really we the we to made ourselves earnings. the start focus about, sustainable can in position all as said, But and forwardly put more we improve to So strengthen to quarter, think in quarter, the how use balance our quarter

I thought that I I another think question I think had you address. - didn't

Eric Hagen

capital million of during you economic the did what the The capital when value you raise quarter? $XX and with book that

Jennifer Murphy

the raise. at sure. book don't value Yes, time the economic of I know the

So in I'm we guessing or? disclosed, would it's numbers be correct the two between Lisa, that

Lisa Meyer

Yes.

Jennifer Murphy

helpful again In our position. was capital that our Eric, that position. to it strength with priority yes equity of And balance improve Obviously, was very range, exactly. our improve sheet liquidity to the or

in we liquidity to And amounts proceeds build cases virtually we've Lisa relationship our use as so, lowered loan - every have. we us help mentioned, those in some

that. So, in part proceeds went to like parties

Lisa Meyer

just value. to much aftermarket what overall Eric, raised to Jennifer X% said, pretty mean And to about equity accretive the program through the book was add I

Eric Hagen

repo to the previous from - or on bonds question on retain are my now? Going those collateral those recent non-QM back pledged any tranches, from the tranches the right is deals lines

Jennifer Murphy

No.

Harris Trifon

are They not pledged.

Operator

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

Jennifer Murphy

everyone you joining we for us, forward Bye. and look again soon. updating Thanks to

Operator

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

now may You disconnect.

Western Asset Mortgage Capital (WMC) 6 Aug 202020 Q2 Earnings call transcript