Western Asset Mortgage Capital Corporation

Welcome to the Western Asset Mortgage Capital Corporation's second 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. Jeff Haas of Financial Profiles. Please go ahead, Mr. Haas.

Thank you, Alan. I want to thank everyone for joining us today to discuss Western Asset Mortgage Capital Corporation's financial results for the second quarter of 2023. Yesterday, the company issued its earnings press release, which is 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. In addition, the company yesterday jointly announced with AG Mortgage Investment Trust that they have entered into a definitive merger agreement under which AG Mortgage Investment Trust will acquire the company in a stock and cash transaction. Details of the proposed transaction are contained in the joint press release, which is posted on the investor relations section of the company's website and filed with the SEC. With us today from our management team are Bonnie Wong-Tricoll, Chief Executive Officer, Robert Lehman, Chief Financial Officer, Greg Handler, Chief Investment Officer, and Sean Johnson, Deputy Chief Investment Officer. As a result of yesterday's announcement regarding the transaction with MITT, we will limit this call to our prepared remarks and will not be conducting a question and answer session during the call. I will 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 forward-looking statements are included in the risk factors section of the company's report filed with the Securities and Exchange Commission. We disclaim any obligation to update our forward-looking statements unless required by law. With that, I will now turn the call over to Bonnie Wonker-Cole. Bonnie?

Thank you, Jeff, and welcome, everyone. Before I discuss our second quarter financial results, I would like to say a few words about yesterday's announcement that WMC has entered into an agreement to merge with AG Mortgage Investment Trust, also known as MITT. The joint press release, which is available on our website, discusses the details of the proposed transaction and its benefits to our shareholders, as well as MITT's. I will now touch on the key highlights of why we have entered into this transaction. First, WMC shareholders will receive cash consideration in addition to MITT stock. The cash payment will be made by MITT's external manager, Angelo Gordon, and will comprise just under 10% of aggregate merger consideration to shareholders. Based on this past Monday's closing stock price of MITT's common stock, for each share owned in WMC, Our shareholders would receive $10.11 in MITT stock plus $1.12 in cash for a total consideration of $11.23 per share. This represents a 34% premium to WMC's closing price on July 12, 2023. Second, the combined company will have a reduced general and administrative expense ratio and a more optimized capital structure. As a result, we expect the combination of our businesses to be accretive within one year of closing and to support an attractive growth profile for the combined company. Third, the combined company will be backed by strong commitment and resources from Angelo Gordon, MITT's external manager, which is a leading global alternative asset manager with extensive expertise in residential credit and a proprietary best-in-class securitization platform that will support future growth of the residential mortgage portfolio. Furthermore, Angela Gordon has agreed to waive $2.4 million of management fees during the first year after closing. Fourth, WMC and MITT have complementary investment strategies, as both focus on residential mortgage credit. The combined company will have an investment portfolio valued at $5.7 billion, consisting of approximately 86% of non-agency residential mortgage loans, 5% of agency residential mortgage-backed securities, and 6% of other residential investments. WMC's legacy commercial investments will represent approximately 3% of the total investment portfolio on a pro forma basis. Given the increased scale of the combined company, we expect the investor base to expand, which should lead to enhanced trading liquidity and volume. Finally, in light of the synergies between the two companies, We expect significant operating efficiencies in the amount of $5 to $7 million on an annual basis. This is before taking into account the effective resetting of WMC's management fee and Angelo Gordon's management fee waiver, which I previously noted. A joint proxy statement and prospectus is expected to be filed in the coming weeks that will include additional details regarding the transactions. and we encourage you to join us as fellow shareholders in voting to approve the proposed transaction. With that, I will now turn to our quarterly results. During the second quarter, we did not acquire any target assets and instead focused primarily on strengthening our balance sheet and increasing our liquidity. Specifically, we reduced our recourse debt by approximately $24.3 million using the proceeds from the sale, repayment, or paydowns of investments. Our GAAP book value per share decreased 10.8% from the prior quarter, while economic book value per share increased 5.7%. We generated lower net interest income during the quarter, driven by a lower net interest margin and lower income from our interest rate swap positions, while our operating expenses increased sequentially from the prior quarter, primarily due to one-time expenses related to our strategic process. Consequently, our distributable earnings of $1.3 million, or 22 cents per share, in the second quarter were down $846,000 from the first quarter. We maintained our quarterly dividends to be consistent with the first quarter level at 35 cents per share. We remain confident in the overall credit quality of our portfolio. 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. Now, I'll hand it over to Sean and Greg to go into more detail about the investment portfolio. Sean?