Western Asset Mortgage Capital Corporation

Hello, and welcome to the Western Asset Mortgage Capital Corporation's first quarter of 2021 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 listen-only mode, and the floor will be open for your questions following the presentation. Now I'd like to turn the call over to Mr. Larry Clark, Investor Relations. Please go ahead, Mr. Clark.

Thank you, Keith. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the first quarter of 2021. The company issued its earnings press release yesterday afternoon, and it's available in the investor relations section of the company's website at www.westernassetmcc.com. In addition, the company's included a slide presentation on the website that you can refer to during the call. With us today from our management team are Jennifer Murphy, Chief Executive Officer, Lisa Meyer, Chief Financial Officer, and Greg Handler and Sean Johnson, Interim Co-Chief Investment Officers. 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 factor section of the company's reports filed with the SEC. 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, and thank you all for joining us today. We've had a good start to 2021 as our positive momentum continued in the first quarter. The actions we've taken to strengthen the balance sheet and protect our portfolio have enabled our shareholders to further benefit from the ongoing mortgage market recovery. WMC delivered an economic return on book value of 3.1%, mainly driven by higher valuations of our residential mortgages and securitized commercial loans. We recorded gap net income of $8 million, or 13 cents per share, and core earnings of 10 cents. Our gap of value increased 1.7% during the quarter to $4.27 per share and has increased by 36% since June 30, 2020, which reflects a partial recovery in the value we see in our portfolio. In March, we declared a cash dividend of $0.06 per share for the first quarter, in line with the previous quarter. We remain committed to paying a sustainable and attractive dividend. We assess the dividend each quarter, taking into consideration our view of the long-term core earnings power of the portfolio, the company's liquidity needs, and other factors. We continue to focus on strengthening our balance sheet, maintaining relatively low leverage, increasing liquidity, and positioning the company for growth. During the quarter, we again repurchased some of our outstanding senior convertible notes at a discount to CARV, which reduces our leverage and increases shareholders' equity. We continue to improve the funding terms for our assets as we have renewed and extended some of our financing arrangements at more attractive rates and terms while reducing our exposure to short-term repo. Lise is going to talk more about this later. One of Western Asset's core strengths is its team-based investment approach and its deep bench of seasoned investors. As a result of their efforts led by Greg Handler and Shawn Johnson, we continue to make good progress on protecting and growing the value of the portfolio and positioning it to benefit from the full reopening of the economy. While many of our assets have seen near-full recoveries in value, particularly our residential whole loans, a number have yet to experience a similar rebound, most notably our commercial real estate holdings. However, the outlook for commercial real estate has improved, especially as more states have announced their full reopening plan. Therefore, we're cautiously optimistic that the value of our commercial investments will benefit as economic activity moves closer to pre-COVID levels. We're encouraged by all the progress we see in the economy and at WMC. We continue to focus on delivering on our long-term objectives of generating sustainable core earnings that support an attractive dividend while enhancing shareholder value. Sean's going to go into more detail about our residential holdings, and then Greg will provide some color on our commercial real estate portfolio. Sean?