Western Asset Mortgage Capital Corporation

Good day and welcome to the Western Asset Mortgage Capital Corporation third 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. Now I'd like to turn the call over to Mr. Larry Clark of Investor Relations. Please go ahead, Mr. Clark.

Thank you, Chuck. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the third 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 at www.westernassetmcc.com. In addition, the company has included a slide presentation on the website that you can refer to during this call. With us today from our management team are Bonnie Wong-Terkul, Chief Executive Officer, Robert Lehman, Chief Financial Officer, Greg Handler, Chief Investment Officer, and Shawn Johnson, Deputy Chief Investment Officer. Before we begin, I'd like to remind you that in August, the company announced its board of directors authorized a review of strategic alternatives aimed at enhancing shareholder value, which may include a sale or merger of the company. No assurance can be given that the review being undertaken will result in a sale, merger, or other transaction involving the company. and the company has not set a timetable for completion of the review process. The company intends to refrain from making comments related to the strategic review process until a definitive agreement has been reached or until the process of exploring strategic alternatives has ended. Therefore, as a result of the ongoing status of this process, we will limit this call to our prepared remarks and will not be conducting a question and answer session during the call. I'll now 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 including 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 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 Bonnie Wantrickle. Bonnie?

Thanks, Larry, and welcome, everyone. Before I discuss our third quarter financial results, I would like to say a few words about our ongoing review of strategic alternatives for the company. As I discussed on last quarter's call, the COVID-19 pandemic negatively impacted a number of our investments, primarily within our commercial holdings. As you are well aware, we have experienced a significant decline both in the value of our portfolio and in our stock price. Therefore, over the past two years, our overarching goal has been to improve and stabilize our future earnings power. Over this period, we have made significant progress by taking actions to improve our liquidity and balance sheet and by shifting our investment focus towards residential real estate. Nonetheless, we have not seen these positive actions reflected in our stock price, and therefore, we decided to embark on a strategic review of our alternatives with the goal of unlocking shareholder values. We continue to move forward in this process and to analyze alternatives that may involve a sale, merger, or other transaction involving the company. We are focused on concluding the strategic review process as quickly as possible and will provide updates as appropriate. In the meantime, we will continue to run the company in a manner that is consistent with our goal of optimizing the value of our assets and maintaining stable earnings, which will in turn support our ability to pay an attractive dividend. We truly appreciate our shareholders who have remained with us through this challenging period. With that, I will now turn to our quarterly results. Our third quarter results continue to reflect the ongoing challenges of interest rate volatility and fluctuating asset values, which again translated into credit spread widening across our holdings. This market volatility, combined with an additional write-down of our non-performing commercial loans, put pressure on our gap book value per share, which declined 30.2% from the prior quarter, while economic book value per share declined 21.7%. We generated stable net interest income during the quarter, after adjusting for income from our interest rate hedges, due to lower prepayments from our residential portfolio. However, this was offset by moderately higher operating expenses. Consequently, our distributable earnings of $2.3 million, or $0.37 per share, in the third quarter were down approximately $400,000 from the second quarter. While our distributable earnings were less than our $0.40 per share dividend for the quarter, our philosophy remains to pay dividends that are supported by the long-term earnings power of the portfolio. During the third quarter, we did not acquire any target assets and instead focused primarily on strengthening our balance sheet and increasing our liquidity. We received approximately $75 million from the sale, repayment, or paydowns of investments and used these proceeds to build our cash balances and to further reduce debt, including the full retirement of our 2022 notes, which occurred on October 3rd. We remain confident that we have sufficient liquidity to retire additional recourse debt and execute our investment strategy as we continue to monetize our non-core commercial assets in an orderly manner. We also remain confident in the overall credit quality of our portfolios. The residential loans that we own have been diligently underwritten and are supported by significant homeowner equity, and our residential portfolio is performing as expected. In summary, we continue to take steps to further strengthen our balance sheet and stabilize the earnings power of the portfolio. As always, we remain committed to building value for our shareholders. Now, I'll hand it over to Sean and Greg to go into more detail about the investment portfolio. Sean?