Earnings call transcript Q2 2023

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Operator

Welcome to the Western Asset Mortgage Capital Corporation's Second Quarter 2023 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 5:00 p.m. Eastern Standard Time.

Now I'd like to turn the call over to Mr. Jeff Haas of Financial Profiles. Mr. ahead, go Please Haas.

Jeff Haas

company I of discuss thank Corporation's Western second the Yesterday, for Alan. which press us available company's is financial for website today the in the XXXX. of to Asset Relations quarter its want you, earnings everyone release, section to Investor joining results issued the Thank Mortgage www.westernassetmcc.com. Capital at

you a can company the on presentation addition, slide has call. included to refer website In during this that the

with AG agreement addition, Investment company Mortgage the cash jointly announced into company merger In they transaction. that definitive Investment the entered and under Mortgage have a acquire yesterday Trust AG stock in Trust a will which

Relations with management team in us Chief joint are Officer. Officer; Investment Officer; Details of our which transaction Chief the today the Sean Chief company's from Deputy Wongtrakool, Bonnie Handler, press the Robert proposed Officer; website Investment and of Lehman, SEC. section Financial the Johnson, the With filed is Executive Chief contained Investor are release, posted and on Greg

a the review statement. Private regarding conference conducting with Litigation the question-and-answer limit call during contain Securities the we will constitute not will I our XXXX. the call harbor Reform and a announcement result to of MITT, this be prepared of that statements forward-looking session transaction the remarks As safe Act now meaning call. yesterday's will within will This of statements

control and All many are the filed Act. required included results are and due be to forecast differ the our without section in in by made Certain law. reports to Actual impact from cause could presentation of subject intended safe results with the of the the any protection and the Securities the materially are from Risk could statements are Commission. update statements contained to only beyond in that this subject of obligation actual forward-looking We differ of presentation unless forward-looking such Exchange as of outcomes provided disclaim harbor materially company. company's those All by to statements date forward-looking Reform the the to included factors notice. to the statements this factors Factors change forward-looking those

will Bonnie? over the call I that, now Wongtrakool. Bonnie to With turn

Bonnie Wongtrakool

you, everyone. Thank welcome, and Jeff,

quarter MITT. I like I discuss The words joint our release, Before website, Investment our the details well entered as on as of few which now an this that into results, agreement say as touch yesterday's known a AG why transaction on key the Trust, shareholders our to the WMC discusses I with of would benefits second announcement merge its proposed have financial available transaction. will to into to is about also has and entered Mortgage press MITT. we highlights

stock. in will First, WMC consideration MITT to receive shareholders addition cash

and share. This plus a in will per a MITT's premium stock, to be closing consideration share $XX.XX on payment represents consideration owned our cash Monday's price Gordon, The common Angelo shareholders each external MITT's this on comprise made MITT receive in shareholders. Based just $X.XX manager, of will of closing under XX% XXXX. would WMC's price by cash July of merger in XX% to stock for for past total XX, aggregate stock $XX.XX WMC,

reduced company expense general a the structure. optimized will more and Second, capital a combined have and administrative ratio

X within growth company. of for the an to combination the expect we profile result, our year support to and of a attractive closing businesses As be accretive combined

which to X% Gordon as management strategies of residential year focused fees mortgage the Gordon, alternative investment combined MITT both manager be company commitment leading XX% at combined the approximately with external extensive Fourth, from resources billion asset will global loans, credit manager, a will is and expertise valued mortgage in X% residential MITT's Third, and portfolio by of an strong basis. backed residential of investments and future $X.X support Furthermore, portfolio. complementary mortgage of on the closing. best-in-class securitization agreed has first during on total a of after securities proprietary growth $X.X commercial portfolio of company mortgage-backed residential the will waive pro the Angelo consisting platform represent million residential that of investment The credit. WMC investment investments. X% will agency approximately non-agency WMC's other legacy have forma and have Angelo residential

lead company, increased and trading liquidity expect base the combined the the of should to expand, volume. we scale investor to Given which enhanced

A light of we an into effective to to million turn Angelo transaction. joint expect management the is will $X X on With $X prospectus management previously filed I results. of and Gordon's the the taking resetting is proxy annual will fee significant of waiver, proposed that, expected million basis. fellow efficiencies in approve in This and noted. regarding us which encourage the the now you join be our WMC's the fee weeks companies, that Finally, details we to to include amount before shareholders in coming I statement voting synergies the operating to quarterly transaction, and additional between in account as

acquire second assets the our our primarily any strengthening increasing During sheet balance quarter, instead focused on liquidity. we target and and did not

from the our debt or of repayment million investments. reduced we the by Specifically, sale, approximately recourse using $XX.X paydown proceeds

$X.XX income X.X%. share $X.X distributable second the first while sequentially from quarter, income to lower quarter. from net million share strategic earnings lower down a increased positions, the decreased expenses from our increased our or while onetime due rate operating value were to primarily economic We Our margin $XXX,XXX swap lower in quarter, the the XX.X% quarter quarter, per Consequently, from book related and share to our the value driven prior interest interest during net expenses of per prior process. generated per by our interest GAAP book

been by is equity with confident the underwritten expected. our performing per our have $X.XX homeowner credit remain the own diligently residential loans first maintained are We be residential that portfolio dividend we We supported portfolio. as the overall level quality quarter and quarterly consistent share. to in and at of The significant

hand Now more to investment Sean into I'll over it the portfolio. and to about go Greg detail Sean?

Sean Johnson

Bonnie. you, Thank

regarding volatile The quarter, its improved, inflation market than the XX-year estate calm while fared to more remained banking trajectory longer-term of credit refocuses target levels. credit somewhat attention better Similar elevated backdrop the relative future sector many generally rates, bond across classes than remained that to some the on second down upward resumed expectations higher actions. in changing against commercial asset assets Against spreads. spreads the quarter, the and widened with as Fed's impacted spreads last real rate treasury measures events Reserve interest During Federal rates residential others. risk

next mortgages scheduled consists under reset Whole than average than our current weighted X with XX expectations. to homes. the were loan-to-value At Nearly high-quality our X,XXX days ratio on adjustable nearly million perform underwriting origination, mortgages, with of the reset XXX. FICO of which loan rate year focus line non-QM reflecting half average years. borrowers of next to non-QM to this have quarter the mortgages. their over equity just fewer pool XX% was than Our in at Of More more the Loans borrowers X% our million who are standards, of credit delinquent continue end, portfolio our in holdings effectiveness and Residential more than our $XXX in score meaningful for scheduled was $XX loan of

are entirely should almost as with funded securitized these benefit fixed-rate loans NIM Our debt.

X.X compared X.X first in the were quarter CPR year. of prepayments non-QM and CPR the quarter in X.X Second to CPR fourth quarter last

amortization first premium was result, quarter. the $XXX,XXX a in $XXX,XXX in As prepayments from the loan quarter consistent with

acquire weigh liquidity balance focus rates on mortgage We quarter will believe relatively loans prepayments non-QM portfolio recourse keeping our maintaining our sufficient refinancing and did that on debt continue not sheet. higher We was to the in our paying as on down during activity low.

Non-Agency the million proceeds of $X.X the pay CRT monetize to during recourse using debt. did securities We down quarter

housing remains words view Now of overall which the a few our market, on favorable.

also is balanced cooled in a more rates, to modest months. showing higher recent demand While response it's are prices Home growth in market. overall created

do Given relates as widespread strong LTV of market defaults, risk lower portfolio. our across country, significant see the a we not particularly labor it to the

Greg to to our I'll With call commercial discuss that, holdings. Handler Greg? the turn over

Greg Handler

Thanks, Sean.

we As valuations to impacting cap higher equity resulted as property market mortgage the Fed coupons higher hikes costs. commercial the remains in challenged. sentiment estate The adjust overall capital noted rates and for negatively credit quarter, investors last rate real have

concerns office high-profile notable values recent fundamental have The significant market some questions people. viability the given particularly the minds, remained to Additionally, over investors' face at long-term about continues of forefront future properties. office with of lower-quality the uncertain an

levels. see our generally investments. the in commercial building exposure not the do in recovered much industrial, are We exceeding sectors. sectors, now to many flows where and, Notably, non-office Our operating fundamental cases, retail as hospitality cash and CRE multifamily concerns minimal pre-COVID housing, is have to across office

portfolio. commercial our to turning Now

our the continued only widen mortgage sector, During credit commercial second were spreads the modestly quarter, impacted. across holdings to commercial but

value we a At Whole market quarter held Commercial to value. their of end, fair X million $XX combined $XX with million, slight par Loans discount a

All these loans received refinanced. during the at sold mortgage-backed these off either quarter retail consists the and properties at as expectations. loans on single at million primarily line properties partial to hotel and portfolio small of a by leisure and spreads securities, all single performed that par non-agency rates to down beginning Within quarter Class with expect loans have of next asset, our loans, are pay are $XX commercial of or We rose in one is million, as portfolio valued travelers. of paydown A over several these the This borrower backed credit $XX the from X cater which quarters widened.

momentum at collateral or with assets have high-quality sponsors, not to And materially properties see believe number generally been properties. we positive have we of strong values These these impaired. continue permanently operating equity a their so

marked loans However, pay optimizing on but current representing now this all balance, reinvest focused that original of is offer recourse and an proceeds that than the despite million and current. returns. our to level target XX% intend $XX Bob commercial sentiment attractive portfolio remain our opportunistically million less commercial CFO. value loan-to-value those use of portfolio to to the in down the had currently real Lehman, $X I'll the debt assets estate, portfolio and principal continue new call fact turn given the risk-adjusted combined for of to the one remained We negative recovery approximate the to over into XX% at them our

Bob?

Robert Lehman

in warrant or portfolio We and Greg. due release primarily attention. the share lower compared of positions, lower our you, fees. going both was our interest on from reported net quarter higher items detail earnings swap $X.X you from expenses our provided great for in operating -- with million second on to our distributable interest press quarter first only to per $X.XX as to our income rate second earnings from quarter. focus presentation. in $X.XX driven Thank additional I'm We that and The first primarily the increased quarter core modestly or decline quarter-to-quarter, million was distributable $X.X professional by earnings income the while

the our holdings. per book by in rather the from -- of quarter. reflects was retained than associated XX.X% share. quarter of securitization GAAP commercial primarily Economic for across the gross widening value our value to and consolidated or assets $XX.XX share, $X.XX by trust decrease The residential liabilities a for was book driven interest X.X% decrease the the per GAAP first value, increased which the quarter $XX.XX and spread

Turning to leverage.

ratio leverage quarter consistent X.Xx, quarter. with prior recourse at end the Our was

non-mark-to-market the to a we rate existing million. quarter $XX.X Subsequent new an ended cash with longer We liquidity. with million vehicles. to replaced of securitized unrestricted term facility end, fixed $XX repo funding quarter Turning

longer no counterparty. with on any Suisse liquidity. we capital focused solidify our In maintain as result, structure a financing that our As we a will remain actions summary, and have Credit arrangements

turn Bonnie. over I call to that, now Bonnie? the With will

Operator

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

You disconnect. may now

Western Asset Mortgage Capital (WMC) 9 Aug 232023 Q2 Earnings call transcript