Western Asset Mortgage Capital Corporation

Welcome to the Western Asset Morgans Capital Corporation third quarter 2020 earnings conference call. Today's call is being recorded and will be available for replay beginning at 5 p.m. Eastern Standard Time. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. Now, first, I'd like to turn the call over to Mr. Larry Clark, Investor Relations. Please go ahead, Mr. Clark.

Thank you, Operator. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the third quarter of 2020. The company issued its earnings press release yesterday afternoon, and it's available in the investor relations section of the company's website. In addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website. With us today for management are Jennifer Murphy, Chief Executive Officer, Lisa Meyer, Chief Financial Officer, and Harris Trefon, Chief Investment Officer. Before we begin, I'd like to review the Safe Harbor Statement. This conference call will contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the Safe Harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of the company. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the risk factors section of the company's reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website. We disclaim any obligation to update our forward-looking statements unless required by law. With that, I'll now turn the call over to Jennifer Murphy. Jennifer?

Thanks, Larry. Welcome, everyone. As mortgage credit markets rallied in the third quarter, valuations on Western Asset Mortgage's residential and commercial credit assets benefited meaningfully. WMC's GAAP book value increased 29.2% in the quarter to $4.07 per share. GAAP net income was $59.8 million or $0.98 per share, and core earnings were $6.4 million or $0.10 per share in the quarter. Our net interest margin improved to 2.27%, which, together with the underlying performance of the portfolio, contributed to solid core earnings despite a significant reduction in recourse leverage from three times as of June 30th to 2.2 times as of September 30th. Over the last two quarters, we fortified the company's balance sheet, improved funding terms, increased liquidity and equity, and reduced recourse leverage to ensure that our shareholders could benefit from the performance of the underlying assets of our portfolio. In light of our results this quarter, including the strengthening of our balance sheet, improved liquidity, and solid core earnings, the company declared a cash dividend of $0.05 in the quarter. The payment of an attractive dividend is an important priority for our shareholders, and the resumption of the dividend was a key milestone for the company. The recovery in asset prices across the portfolio and the resumption of our dividend contributed to an economic return on book value of 30.8% for shareholders this quarter. We remain highly focused on our long-term objectives of generating sustainable core earnings that support an attractive dividend with relative stability in our book value. We believe our portfolio's earnings power is likely to provide a solid underpinning for future dividends. And while we have seen substantial recovery in asset values across our portfolio this quarter, we believe there's the potential for additional improvement, particularly in our commercial mortgage investments. Much of this will be dependent on the path of the virus as well as the pace of recovery and economic activity. In our view, our diversified investment strategy focused on high-quality commercial and residential borrowers is well-positioned for the uncertainties of this environment. To talk more about our investment strategy and outlets, I'll turn the call over to our Chief Investment Officer, Harris Trefon.