Western Asset Mortgage Capital Corporation

Welcome to the Western Asset Mortgage Capital Corporation first quarter 2023 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, Investor Relations. Please go ahead, Mr. Clark.

Thank you, Sarah. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the first quarter of 2023. 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 this call. With us today from our management team are Bonnie Monticolle, Chief Executive Officer, Robert Lehman, Chief Financial Officer, Ray 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's 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. To avoid speculation, the company intends to refrain from making comments related to this strategic review process until definitive agreement has been reached or until the process of exploring strategic alternatives has ended. 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 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 forelooking statements are included in the risk factor section of the company's reports filed with the SEC. We disclaim any obligation to update our forelooking statements unless required by law. With that, I'll now turn the call over to Bonnie Wondricol. Bonnie?

Thank you, Larry, and welcome, everyone. Before I discuss our first quarter financial results, I would like to say a few words about our ongoing review of strategic alternatives for the company. Last August, we embarked upon a process to review strategic alternatives for the company as the best path forward towards unlocking shareholder value. The market environment for mortgage REITs over the last several quarters has been remarkably challenging, with record levels of interest rate volatility and increasing risks to economic growth. This has added complexity to our exploration of strategic partners. As fellow shareholders, we are committed to concluding this process as quickly and responsibly as we can, and we will provide an update at the appropriate time. Meanwhile, we 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 in turn should 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. During the first quarter, we remained focused on strengthening our balance sheet and increasing our liquidity as the volatility in the equity and fixed income markets continued and was further punctuated by the news of two high-profile bank failures. Despite this, our first quarter results improved sequentially from the fourth quarter, driven by higher earnings and improved asset prices across most of our portfolios. We also received approximately $67 million from the sale, repayment, or paydowns of investments, and used these proceeds to further reduce our recourse debt. Our GAAP book value per share increased 4.8% from the prior quarter, while economic book value per share increased 1.8%. We generated higher net interest income during the quarter, driven by a higher net interest margin and higher income from our interest rate swap positions, while our operating expenses declined from the prior quarter. Consequently, our distributable earnings of $2.2 million, or $0.36 per share in the first quarter, were up $200,000, or 7.7% from the fourth quarter, and exceeded the $0.35 per share dividend that we declared for the quarter. In March, we made a decision to reset our quarterly dividends to better reflect our earnings power as we continue to reposition the portfolio. Consistent with our dividend philosophy, we will reassess the level of the dividend based on a number of factors, including the future earnings power of the portfolio and the level of any taxable income that we anticipate for the calendar year. During the first quarter, with the exception of a small amount of rotation within our non-agency residential securities holdings, We did not acquire any target assets and instead focused primarily on strengthening our balance sheet through further debt reduction and increasing our liquidity. We remain confident that we have sufficient liquidity to 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 maintain the earnings power of the portfolio with the overarching goal of 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?