Western Asset Mortgage Capital Corporation

to the Western Asset Mortgage Capital Corporation's fourth quarter and full year 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 the 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, Marlies. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the fourth quarter and full year 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 also included a slide presentation on the website that you can refer to during this call. With us today from our management team are Bonnie Juan-Tracul, Chief Executive Officer, Robert Lehman, Chief Financial Officer, Greg Handler, Chief Investment Officer, and Sean Johnson, Deputy Chief Investment Officer. Before we begin, I'd like to remind you that last August, the company announced that 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 specific timetable for completion of the review process. To avoid speculation, the company intends to refrain from making comments related to this 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 not comment further on the process during the Q&A session following the company's prepared remarks. I'd now 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 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 Wondercool. Bonnie?

Thanks, Larry, and welcome, everyone. During 2022, we continued executing upon our plan to focus on residential real estate investment, a strategy that we had previously announced in December 2021. We achieved a number of accomplishments over the course of 2022, including completing two securitizations totaling $834 million of residential whole loans in the first and third quarters of 2022. These securitizations enabled us to secure $751 million of long-term fixed-rate financing, which is essential to our strategy, particularly in light of the Fed's aggressive hiking cycle and the rapid rise in interest rates last year. We also undertook a series of actions in 2022 to deleverage, build liquidity, and strengthen our balance sheet, which included selling $56 million of non-agency residential mortgage-backed securities and other securities and repurchasing our outstanding 2022 notes in full at maturity in October for $26 million. Furthermore, we received $216 million from the repayment or pay down of our core assets, residential whole loans, and the remaining $1.2 billion portfolio has continued to perform well. Less than 1% of the principal balance of this portfolio was 60 days or more delinquent at the end of 2022. which is approximately 50 basis points lower than the end of 2021. And subsequent to year end, we fully exited our ownership position in the CRE3 Junior Mezzanine Loan, selling it to an unaffiliated third party for $8.8 million, which was equal to the fair value of the loan at December 31st, 2022. We were able to execute these actions despite a very challenging market backdrop, with record high interest rate volatility, fluctuating asset values, and wider credit spreads. Our fourth quarter and full-year financial results reflect these negative market conditions, as well as higher funding costs. For the fourth quarter, our GAAP book value per share declined 3.2% from the prior quarter, while economic book value per share declined 10.5%. We generated lower net interest income during the fourth quarter on a smaller average portfolio and higher interest costs, partially offset by lower prepayment amortization costs and interest rate hedges. Consequently, our distributable earnings of $2 million, or $0.33 per share in the quarter, were down $232,000 from the third quarter. While this was another challenging quarter, we remained committed to optimizing the value of our investments and protecting shareholder value. We are confident that we are taking the necessary steps to strengthen our balance sheet and stabilize the earnings power of the portfolio in order to generate sustainable earnings that support an attractive dividend. We continue to move forward with our strategic review process and to analyze various alternatives for the company. However, the current market environment for mortgage rates remains challenging, given the rapid rise in interest rates and the increased potential for an economic retrenchment. which has added complexity to our exploration of strategic partners. As fellow shareholders, we are committed to concluding this process in a satisfactory manner, and we will provide an update at the appropriate time. 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 dividends. We continue to appreciate our shareholders who have remained with us through this challenging period. Now, I'll hand it over to Sean and Greg to go into more detail about the investment portfolio. Sean?