Western Asset Mortgage Capital Corporation

Welcome to Western Asset Mortgage Capital Corporation's second 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 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, Tom. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the second 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. In addition, the company has 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, Greg Handler, Chief Investment Officer, and Sean Johnson, Deputy 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 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?

Thank you, Larry. Welcome, everyone. As you know from our previous quarterly updates, our expectation for the last several quarters has been that the U.S. economy would continue to recover and that our portfolio's credit-oriented holdings were likely to benefit. That was broadly the case in the second quarter, as narrowing credit spreads resulted in improving prices across a number of our portfolio holdings, but with one very notable exception. A commercial junior mezzanine whole loan in our portfolio was very negatively impacted, as its specific operational challenges resulted in it becoming nonperforming, among other issues, contributing to a significant decline in its fair value. This, in turn, negatively affected the company's book value and earnings, as our GAAP book value fell 16.9% from the first quarter to $3.55 per share, and we reported a GAAP net loss of $40.2 million, or 66 cents per share. This commercial junior mezzanine loan is a very meaningful exposure for the company. Our management team is devoting significant time and resources to it with support from the broader Western Asset Platform. We are focused on doing everything we can to improve the potential outcome of this situation for WMC shareholders and continue to make it a very high priority. Greg will discuss more of the details of this situation later in the call. WMC's distributable earnings, which we used to call core, for the second quarter were $2.8 million, or 5 cents per share, and were also impacted by this commercial junior mezzanine loan's move to non-accrual status during the quarter. In addition, we experienced an increased level of prepayments in our residential hold loan portfolio, which resulted in higher loan premium amortization during the quarter, also impacting earnings. Aside from the challenged junior mezzanine loan I've discussed already, the value of our portfolio holdings have continued to steadily improve as the underlying properties are benefiting from the reopening of the economy, which Greg and Sean will discuss. During the quarter, we amended two key financing facilities under more favorable terms and conditions and also extended their maturities. Lisa will have more details on this. Last week, our board of directors appointed Greg Handler to serve as chief investment officer of the company and Shawn Johnson as deputy chief investment officer. As you know, both Greg and Shawn had been serving as interim co-chief investment officers since being appointed to those roles last December. Greg is the head of the Mortgage and Consumer Credit team at Western Asset. He's been investing in the mortgage sector for more than 18 years and is also a member of Western Asset's U.S. Broad Strategy Committee. He has played a key role in shaping investment strategy at both WMC and at Western, and we look forward to his continued leadership in the CIO role. You all know Sean as he's been an integral part of the company's investment team and strategy since our initial public offering in 2012. Sean has more than 31 years of investment experience and has critical roles at WMC and at Western Asset, and we look forward to his continued contributions as Deputy CIO. In June, we declared a cash dividend of $0.06 per share for the second quarter, in line with the previous two quarters. We remain committed to paying sustainable and attractive dividends. While our second quarter results were significantly affected by the decline in fair value of the commercial junior mezzanine home loan, we are encouraged by the progress we see in the economy and at WMC. We continue to focus on delivering on our long-term objective of generating sustainable core earnings that support an attractive dividend while enhancing shareholder value. Now I'll hand it over to Greg and Sean to go into more detail about the investment portfolio. Greg?