Western Asset Mortgage Capital Corporation

Welcome to Western Asset Mortgage Capital Corporation's first quarter 2022 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 of Investor Relations. Please go ahead, Mr. Clark.

Thank you, Jason. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the first quarter of 2022. 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's included a slide presentation on the website that you can refer to during the call. With us today for management are Bonnie Wantricle, Chief Executive Officer, Lisa Meyer, President and 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 factors section of the company's reports filed with its Securities and Exchange Commission. We just claim any obligation to update our forward-looking statements unless required by law. With that, I'll now turn the call over to Bonnie Wantacool. Bonnie?

Thank you, Larry, and welcome, everyone. As you may recall, we announced last December our plan to focus on residential real estate-related investments and to transition out of the commercial investments in our portfolio. We will be making this transition over the course of the coming quarters by seeking to maximize the value of our commercial assets and strategically focusing our resources on the residential market. We believe that this strategic shift will allow us to address attractive market opportunities and will ultimately result in a more stable and improved earnings profile. During the first quarter, we continued to implement this strategic portfolio shift while working proactively to strengthen our balance sheet. As we discussed on last quarter's call, we sold the unencumbered hotel property that we foreclosed on in 2021 and received $36 million in net proceeds, while recording an $8.7 million gain on the sale of the property. We used the proceeds from the sale, along with cash on hand, to reinvest into approximately $160 million of our target assets and to repurchase an additional $3.4 million of our 2022 convertible notes. We also reduced our recourse leverage and increased our interest rate hedge positions during the quarter to protect the portfolio, in light of the ongoing interest rate and spread volatility. We are confident that we have sufficient liquidity in this market environment to continue executing on our investment strategy. In February, we completed our third securitization of approximately $400 million, backed by $432 million of residential whole loans. This securitization enabled us to secure long-term fixed-rate financing at a weighted average interest rate of 3.1%. which we view as a favorable level given the rising interest rate environment. We were able to lock in an attractive net interest spread on this pool of residential mortgages through this financing. However, the quarter was not without its challenges. In particular, the rapid rise in interest rates and the concurrent spread widened across all fixed income sectors. Our portfolio was not immune to these pressures. and our GAAP book value per share declined 14.7% from the prior quarter, while economic book value per share declined 7.3%. We had previously expected that transitioning and repositioning our portfolio could create timing issues that would impact our near-term earnings power, and this was the case again in the first quarter. Our financial results were negatively impacted by the combination of lower net interest incomes and elevated prepayments on our residential whole loan portfolio. Consequently, our distributable earnings were $379,000, or one cent per share, in the first quarter, down $529,000 from the fourth quarter. While the first quarter was no doubt a difficult one, we are confident that we are taking the right steps to resolve our challenged investments, strengthen our balance sheet, and improve the earnings power of the portfolio. We believe our progress on these steps will be reflected in our stock price over time and remain committed to building value for shareholders. Before turning the call to Sean and Greg, I want to highlight that we recently published our 2021 Annual Report to Shareholders and we encourage you to visit our Investor Relations website to read through it. In addition, we recently filed our proxy statement and are in the process of mailing out the materials to shareholders. And finally, we will be holding our virtual annual meeting on Friday, June 24th, and welcome your participation. Now, I'll hand it over to Sean and Greg to go into more detail about the investment portfolio. Sean?