WMC - Earnings call transcript Q1 2021 | Western Asset Mortgage Capital Corp

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Operator

Hello and welcome to welcome to the Western Asset Mortgage Capital Corporation's First Quarter 2021 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 today’s presentation.

Now first I'd like to turn the conference 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 in first Keith. issued section Asset financial website Mortgage company's

With the us the Financial has and from Lisa during included website on that Co-Chief Interim company presentation to Officer; you Johnson Officers. addition, Sean Jennifer In the Officer; are slide call. today management Executive Handler Murphy, refer can a both Investment and Chief Greg Chief Meyer,

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

Jennifer Murphy

to the today. good from the sheet enabled XXXX continued momentum balance joining The got an mortgages in We mainly thank and as Thanks, securitized economic quarter. portfolio We of value benefit valuations the delivered of by X.X%, of dispensing book for start positive our Clark and you taken and net of driven share all recovery. residential $X.XX further income earnings recorded or first higher have commercial core ongoing a mortgage to protect return our $X GAAP us and market WMC on $X.XX. our per we've shareholders loans. our actions million

dividend. June has for quarter first reflects recovery sustainable paying in attractive increased a consideration core long each quarter value during declared earnings and quarter XX% by value term since in power the factors. XXXX into $X.XX previous committed to and of book we the set increased share, quarter. per dividend view the a GAAP share X.X% our XX, company's taking a liquidity the the other which March, portfolio. In portfolio, remain the and line needs We with We’ve the of of we Our $X.XX dividend partial our see to per cash the in

liquidity focus our the maintaining growth. sheet, to increasing strengthening on positioning low continue leverage, We balance for and relatively company

equity. During at notes par, leverage some convertible to outstanding which the we discount increases reduces and our quarter, repurchase of a senior shareholders our again

investors. assets our attractive core talk We repo. of to going term while is continue our of to improve are extended arrangements bench Western reducing our investment based team renewed financing the terms, we about deep exposure this some rates funding and later. short approach and strength to a term assets, more and as for seasoned What have more at its Lisa's

the benefit Johnson, by the led to protecting reopening from make valued portfolio positioning result and Greg As we of Handler to Sean and efforts growing on it and continue good economy. the a of full their progress

our While assets have number similar estate recoveries yet most seen have experience to full notably many value, a real our our rebound, Whole particularly of a Loan, commercial in near holdings. Residential

their the optimistic more However, value announced our full economy that plans. Therefore, the reopening levels. outlook to we has improved, benefit, pre-COVID the encouraged as commercial by the economic and in cautiously We're we're leads for commercial estate especially have of as states investments progress real will at closer the all WMC. activity see

commercial shareholder going our on some to about our value. go Sean? earnings generating delivering into core portfolio. to Greg and term estate more will sustainable on while holdings, dividend, Sean provide support attractive focus residential long color that continue an on of is real objective We detail our enhancing then

Sean Johnson

quarter In our reopen. higher Thank fully improve businesses value. Equity to economic people book a portfolio our in valuations first slower pace in continue markets and than were half holdings into of a translated more and as continued, you, albeit recovery and second of Jennifer. were credit the in to US the XXXX. of the XXXX, improvements This number vaccinated,

appreciation, continued experience housing from Home benefiting Loan Residential to market. strong Our portfolio a

historically consumer low rates very and tight buy supply favorable You'll and mortgage sentiment.

The of First annual forbearance continues rose delinquency at residential lower Quarter rates. indices again to and market metrics non-agency for improve home national as credit double-digit mortgages. price a result

soft their low making of plan and agency their refinance Our dropping strong at of focus have remain at believe credit our on XX% current quarter Nearly last X% payment. residential represent The of homes, a residential non-QM for it as in a total we all as as this most volumes. and now are from into that well period. origination perform We mortgage end incentive portfolio. on the year. market percentage of repayment borrowers of higher the that fairly and X.X year high loans about last creates mortgage in part loans loans in a continue the confirmation loans early rates on a to that in effectiveness to was see to we year, equity meaningful their the part forbearance those forbearance And originators drove end X% as mortgage of of deliverable aren't were declined, when focused year of this the X.X% May underwriting,

originators the to and refocus modest decline are With rise production. applications, beginning refinance corresponding in rates non-QM on again the in once recent

we quarter, the originators and of in call the engaged to to grow portion with with another to our commercial Greg the existing our the this Greg? near-term, now have both these portfolio portfolio. investments non-QM turn During financing of goal I'll actively new securitization. through over discuss

Greg Handler

Thank you, Sean.

real the impacted and due recovered pandemic loan suboptimal market, and ongoing types property the estate general, as residential in number commercial our residential experience While have to to real demand. our its similar holdings of recovery. lag level commercial a continues many performing a to yet estate value, has by restriction are still In reduce

XX% large by of the still consists While retail, property. improved, the to these the outlook of timing the A properties there number these credit commercial recovery office A has loan concerns, uncertainty in of Within regarding of and performance the mortgage backed holdings non-agency, the down performance high around representing than are loans sponsors. remains mainly Class A extent yet properties. one the quality their operating of have securities, adversely with continue these is of in underlying future current, of occupancy portfolio weighed be and bucket. These portfolio hotel holdings and portion building. seen our and their other equity our metrics, flows impacted COVID an and X% assets by materialize. our this value original all less generally to of strong This but approximate have had properties during recoveries lower to loan cash

trends of exposure, In a we delinquency become flow permanently commercial mix and values or have that impaired. their cash So our mortgage-backed improved believe collateral some as equity not are through conduit loans infusion. have materially been improving current

believe reopen. the moves We continue restrictions that a full challenges these overcome will COVID eventually to as lifted are towards near-term and economy be

current. portfolio loan currently approximate generally monitoring carries we discussed have The all proceedings, process. property to the of of to value and actively these XX% to is one The mortgage are in our which ones expectations, commercial an $XX million hotel Our midst be default. previously loan in but -- bankruptcy we the performing that continues according and original is remains

the there listed interest currently the added Additionally, appears benefit there assets. significant to borrower. the of in and the to And have We sale be value for property. recourse is feel is the strong hotel in we

rights reinforce is the on will that that recovered. be majority to the a of ultimately personal guarantee. our there reasonable the And missed payments we believe likelihood continue We and principal

is no guarantee the that there will case. Although be

a As high entertainment impacted in a our quality with Jersey, $XX we is of on has and loan junior The and last pandemic The also discussed call, hold by mezzanine we retail of a in this the value equity property owned performance prominent underlying sponsors. adversely portfolio. New operating located complex this asset. the face million

year. capacity capacity XX% at operating fourth now is property quarter last versus in XX%. the the of approximately However,

eliminating is July the amusement May and as just loan property significant need value million, while to of a stabilize a the still capital current encouraged are it believe for operating economy property. will believe of before parks. their are to down to time loan over this and We the that We bringing New full equity restaurants capacity value refinance constraints Jersey asset. a still what this for improving being trends $XX at This the happens the there's XX planning on marked we We remains on premier in recognize and able reopening already accelerate all borrower retail, X, back.

designed impacted work help real commercial team borrowers we whether to disruptions achieve by the our As solutions them caused collateral When a the rule, estate them our property closely stabilization near-term customized measures allow with our necessary, investments. pandemic. our protect believe involved probability recovery that and working us eventual becomes in in assisting of to increase the actively these through We and plan. to

to reopen. sufficient significant positioning Lisa and that, could over deteriorate. call appreciation, CFO, and we occur occur for Lisa? In focused stall to our conditions remain to With remain I'll and future on turn portfolio meantime, which challenges Meyer. we the there to expect the maintaining as reopening economy losses continues However, the our financial liquidity the

Lisa Meyer

Thanks. Thank you, Greg.

at results, benefited Western sheet. the our WMC to quarter platform, which leverage our From I our Since end times the have onset X.X daily quarter, times at times X.X strategic broader financing end our with mark-to-market partners proactively work its XX, the want the to the first also declined recourse ability improvements, to improve has of the arrangements high balance at our to financing facilitated XXXX, improve our Before to our we asset December level pandemic, has at on significantly liquidity short to March discuss I of made of review and from X further than lower XXXX. reduce exposure financing. has term

XX, repurchase Just obtained advance improved amended which March this rates was this most RMBS we from lowering our secured outstanding our costs Non-Agency pricing, $XX.X extended attractive the primary to borrowings assets. year. with million. secured of CMBS and of The LIBOR finances value LIBOR plus on week, had We and facility facility, At term assets million, $XXX.X securities one our we by a significantly XXX, borrowing of fair by plus of more XXX. facility

recently we of At March of automatically $XXX.X amended outstanding of Commercial we to converting Loan Additionally, rolled the commercial year now secured million. from one having maturity. earnest $XXX.X our that loans a a days every XX facility Whole with by facility a it value Facility, borrowings million, XX, had fair

During discount XX, was the XX, by average convertible million, At about million to principal at reduced first March debt X.X% in balance additional further we December down our $XXX.X $X.X from convertible at our of outstanding value. XXXX. an $XXX notes senior amounts repurchasing notes million quarter, par the recourse an

provided great we to our first in our press results and quarter release Moving and presentation. have our regarding investor our detail both portfolio earnings,

first So We or items million per $X.X that quarter. earnings on share $X.XX warrant core reported additional explanation. I'm of going to the only focus for some

CMBS value the increased book of the lower mainly for covered overall quarter first residential factors, power share. earnings earnings than based our offset fully of the mortgages, share. improved outlook assets two core and which quarter of for bonds. Economic every our the per by which consolidate retained the X.X%, per value which the gross the evaluate partially by interests. X.X% Non-Agency valuations our by offset value, quarter liabilities, The the by book driven sustainable a our driven the on of including of the on number interest Our to than of was was portfolio. We by reflects dividend securitization in attained more $X.XX decreased level trust, decrease quarter, those for our mainly rather improved dividend Non-Agency valuation CMBS of significantly the GAAP the lower valuations not $X.XX valuations on

our participate accounting As capital Arroyo eliminate debt. we securitization arise and that the the actual will the all the have continue this our enable the mismatch reflects focus metric structure, financial our the economy loans and actions investments, interest fair in in we on us solidify and to post-COVID. discussed past, of not value our In increase non-GAAP may summary, our of liquidity where that from in financial we to reopening meaningfully

healthy, Our a of attractive ahead. by net believe financed significant will now please in selectively results with ahead. objective the your to call well-positioned financing. portfolio interest improved the margin portion we We assets quarters Operator, that our we up and remains open financial are With the go longer our of to with that, term questions. grow

Operator

Yes. Thank you.

session. will question We the Cranston comes [Operator from Instructions] question-and-answer Trevor Securities. first now the with And begin JMP

Trevor Cranston

on look the the focused CRE still X, is on portfolio. you share morning. for under value, a That big investments, discount update Good loan obviously slide I properties when at of helpful. I the fair thank which thanks. And pretty CMBS very I you status portfolio, it. in Hey, the which was in was the where the guess, are

So if trying that about I recoverable You Thanks. within there a CMBS basically how bit see portfolio, and of that size discount talk that. is maybe to ultimately is was like much the a you to could wondering little as you investments? embedded likely loss analysis credit within level? be on guys more run think projected that you And

Greg Handler

of terms security end the the loss, still of commercial outlook. the related very quarter, that mortgage-backed the in assume to negative would portfolio maturity, in is the Thanks of that I say, were challenges is upper we which recoverable. Trevor. is first in the we what on face Yeah, near-term would unrealized market on the some

workout, actively pursuing do of we opportunities properties. rights typically we However, and the and we have security, the maximize loan to have the control those so are effectuate these to ability value

say the I can't on maximize the we an actively I give working end range. security you number, would towards of while, that the upper to So are exact recovery

Trevor Cranston

of for in you facilities quarter. Okay, think got you nice agreements see financing financing, as of structure side get improvements look end quarter, at room you it. as you curious That's in like terms first after at it the sounds profile financing any to place some your then today, have improvements, was made where do or the the further helpful. the you have areas And you the well guys you the in the this financing second point? able to there's and pretty the either guys then away you're or of place in today, that is two in with financing rate squared do improvements the I

Sean Johnson

think to the we of Sean. were facilities source the I its some interest lot on expense opportunity us. Trevor, do of have things two improve a for Those Yes, the margin.

in was longer So, margin them more term extremely making there important changes reducing vulnerability. call to addition our and making

of always to we trying that time side that the a are improve there other that. we of lot on are focus, financing there work can think improve a facilities first That's we're So, and going couple we quarter; this book. spent been to continue especially a to

improve opportunity here. is things some So, from marginal to there

Trevor Cranston

comments. it. Thank the guys. got Okay, you Appreciate

Operator

And nothing like at Thank Instructions] question-and-answer right. is session. for closing to Jennifer back All to the as time, I the conference you. this present concludes [Operator Murphy return there any would comments. our

Jennifer Murphy

Thank day. and with Great. us have today great any us if a all follow-up you please questions have for additional joining you and

Operator

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

You may now disconnect your lines.

Western Asset Mortgage Capital (WMC) 6 May 212021 Q1 Earnings call transcript