Western Asset Mortgage Capital
Western Asset Mortgage Capital — Q2 2023 Earnings Presentation
32 slides from Western Asset Mortgage Capital's earnings presentation, Aug 8, 2023
Slide 1: Second Quarter 2023 Investor Presentation
Second Quarter 2023 Investor Presentation August 8, 2023
Slide 2: Forward-looking statements
We make forward-looking statements in this presentation that are subject to risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. These forward-looking statements include information about possible or assumed future results of our business, f
Slide 3: Second Quarter 2023 WMC Earnings Call Presenters
Robert W. Lehman Chief Financial Officer Bonnie M. Wongtrakool Chief Executive Officer Sean Johnson Deputy Chief Investment Officer Second Quarter 2023 WMC Earnings Call Presenters Greg Handler Chief Investment Officer 2
Slide 4: Overview of Western Asset Mortgage Capital Corporation
Western Asset Mortgage Capital Corporation (“WMC”) is a public REIT that benefits from the leading fixed income management capabilities of Western Asset Management Company, LLC ("Western Asset") • One of the world’s leading global fixed income managers, known for team management, proprietary researc
Slide 5: 2023 Outlook
2023 Outlook Disinflation ongoing but uneven Fed tightening near end Current banking stress extremely complex but not systemic Fixed-income outlook = US growth will slow but should avoid recession = Global growth has downshifted, but with China's reopening will remain resilient = Global inflation wi
Slide 6: Mortgage & Consumer Credit Outlook
Mortgage & Consumer Credit Outlook The aftershocks of the COVID experience have been uneven across parts of the economy, geographically, across demographics, and amongst different asset classes with certain segments of the economy operating above and others below the pre-Covid economy. Additionally,
Slide 7: US Housing Has Seen Historic Numbers Over The Past Few Years
US Housing Has Seen Historic Numbers Over The Past Few Years 6 • US Housing experienced a boom during the COVID Pandemic • Home Price Appreciation topped out at 20% in early 2022 following record lows in mortgage rates ◦ 92% of borrowers have a 3.5% or lower interest rate ("lock-in effect") • Home o
Slide 8: Housing Activity Expected to Slow Down
• Excess new home construction is a concern but is relatively benign from a historical perspective • Construction and purchase activity expected to slow significantly due to higher rates and reduced affordability • Home price growth expected to decelerate but with limited downside risk Housing Activ
Slide 9: Prepayment Risk and Origination Supply Are Low
Prepayment Risk and Origination Supply Are Low 8
Slide 10: US Household Debt Burden Expected to Grow Modestly
As pandemic excess savings are mostly depleted, consumer debt now growing at pre- pandemic levels Debt burden expected to grow modestly from here, but still below pre-GFC levels (below 11.0% average dating back to 1990) US Household Debt Burden Expected to Grow Modestly 9
Slide 11: CMBS OTR Relative Value vs. Investment-Grade Corp & High-Yield
CMBS OTR Relative Value vs. Investment-Grade Corp & High-Yield • CMBS spreads are cheap across the capital stock relative to both IG and HY corporates. 10
Slide 12: Investment Strategy
Investment Strategy Our primary goal is to generate attractive returns while preserving book value. We continue to find value in credit sensitive mortgages. Under current market conditions we expect to continue to focus investments in non-qualified residential mortgages and other mortgage credit inv
Slide 13: Company Business Highlights
Company Business Highlights The Company continues to execute on its business strategy to take actions to strengthen its balance sheet: • For the three months ended June 30, 2023: • the Company received $28.4 million from the sale or repayment of Residential Whole Loans, and Non-Agency RMBS. • the Co
Slide 14: Second Quarter Financial Results
Please refer to page 29 for footnote disclosures. • GAAP book value per share of $14.69. • Economic book value(5) per share of $18.54. • GAAP net loss attributable to common shareholders and participating securities of $8.6 million, or $1.44 per basic and diluted share. • Distributable earnings(2) o
Slide 15: WMC Key Metrics as of June 30, 2023
The following are the Company's key metrics as of December 31, 2021; Share Price June 30, 2023 Market Cap (in millions) Q2 Dividend Q2 Dividend Yield Recourse Leverage Net Interest Margin(4) $8.87 $53.6 $0.35 15.7% 2.6x 1.20% Economic Book Value(5) June 30, 2023 Economic Book Value(5) March 31, 2023
Slide 16: Portfolio Summary
Portfolio Summary ($ in thousands) June 30, 2023 No. of Investments Principal Balance Amortized Cost Fair Value Borrowings Residential Whole Loans 2,824 $ 1,106,551 $ 1,111,461 $ 1,037,381 $ 627,923 Commercial Loans 5 79,955 79,954 78,806 48,032 Non-Agency CMBS, including IOs 11 88,659 86,572 59,322
Slide 17: Residential Whole Loans Overview
Overview ($ in thousands) June 30, 2023 Total number of loans 2,824 Principal $ 1,106,551 Fair value $ 1,037,381 Unrealized loss $ 97,136 Weighted average remaining term in years 26.5 Weighted average coupon rate 4.9 % Weighted average LTV 65.7 % Weighted average original FICO score(13) 749 Loan Per
Slide 18: Commercial Loans Overview
Overview ($ in thousands) June 30, 2023 Number of loans held 5 Principal balance $ 79,955 Fair value $ 78,806 Unrealized loss $ 1,148 Percentage of floating rate loans 100.0 % Percentage of senior loans 100.0 % Percentage of performing loans 100.0 % Weighted average extended life in years 1.88 Weigh
Slide 19: Commercial Loans as of June 30, 2023
Loan Loan Type Principal Balance Fair Value Original LTV Interest Rate Maturity Date Extension Option Collateral Geographic Location CRE 4 Interest-Only First Mortgage 22,204 22,053 63.0% 1-Month SOFR plus 3.38% 8/6/2025(1) None Retail CT CRE 5 Interest-Only First Mortgage 24,535 23,993 62.0% 1-Mont
Slide 20: Non-Agency CMBS Investments
Overview ($ in thousands) Total Conduit SASB Total number of investments 11 3 8 Principal $ 88,659 $ 15,050 $ 73,609 Fair value $ 59,322 $ 10,151 $ 49,171 Unrealized gain(loss) $ (27,250) $ (3,252) $ (23,997) Weighted average expected life in years 2.3 5.5 1.6 Weighted average original LTV 65.5 % 62
Slide 21: Securitized Commercial Loan Portfolio
Overview Total number of investments 1 Principal $ 1,385,591 Fair value $ 1,025,321 Unrealized loss $ (290,407) Weighted average expected life in years 2.2 Weighted average yield 6.88 % Securitized Commercial Loan Portfolio Principal Amortized Cost Fair Value Property Type CSMC Trust 2014 - USA $ 1,
Slide 22: Three Months Ended June 30, 2023 Income by Investment Type
Please refer to page 29 for footnote disclosures. For Three Months Ended June 30, 2023 ($ in thousands - except per share data) Agency RMBS Non- Agency CMBS Non- Agency RMBS Residential Whole Loans Residential Bridge Loans Other Securities Commercial Loans Securitized Commercial Loan Convertible Sen
Slide 23: Adjusted Portfolio Composition
Investment Type 23.8% 19.7% 49.4% 1.3%5.0% 0.8% Commercial Loans Non-Agency CMBS Agency and Non-Agency RMBS Residential Whole-Loans Other Securities Residential Bridge Loans Portfolio Summary ($ in thousands) June 30, 2023 No. of Investments Principal Balance Amortized Cost Fair Value Borrowings Res
Slide 24: Total Investment Portfolio
*Excludes consolidation of VIE Trusts required under GAAP Please refer to page 29 for footnote disclosures. Total Investment Portfolio ($ in thousands) June 30, 2023 Consolidated (As Reported) Investments of Consolidated VIEs Interest in securities of VIEs owned Unconsolidated (Non GAAP) Residential
Slide 25: Repurchase Agreement Financing
Repurchase Agreement Financing June 30, 2023 Repurchase Agreement Borrowings Weighted Average Interest Rate on Borrowings Outstanding at end of period Weighted Average Remaining Maturity (days) Short-Term Borrowings Agency RMBS $ 274 5.84% 32 Non-Agency RMBS 35,105 8.24% 25 Residential Whole Loans —
Slide 26: Long-Term Financing Facilities
Long-Term Financing Facilities Residential Whole Loan Financing Facility • As of June 30, 2023, the outstanding borrowing under this facility was $4.4 million. The borrowings are secured by Non-QM residential whole loans with a fair value of $3.4 million and one REO property with a carrying value of
Slide 27: Non-Recourse Financings
Non-Recourse Financings Residential Mortgage-Backed Notes The residential mortgage-backed notes issued by the Company for the Arroyo Trust 2019-2, the Arroyo Trust 2020-1, the Arroyo Trust 2022-1, and the Arroyo Trust 2022-2 securitizations can only be settled with the residential loans that serve a
Slide 28: Financing (Continued)
Financing (Continued) The following table summarizes the residential mortgage-backed notes issued by the Company's Arroyo Trust 2022-1 securitization at June 30, 2023 (dollars in thousands): Classes Principal Balance Coupon Carrying Value Contractual Maturity Offered Notes:(8) Class A-1A $ 202,556 2
Slide 29: Financing (Continued) Commercial Mortgage backed Notes
Financing (Continued) Commercial Mortgage backed Notes As of June 30, 2023, the Company had one consolidated commercial mortgage-backed variable interest entities that had an aggregate securitized debt balance of $1.0 billion. The securitized debt of the trust can only be settled with the collateral
Slide 30: Footnotes
(1) As of June 30, 2023. (2) Distributable Earnings is a non-GAAP financial measure that is used by us to approximate cash yield or income associated with our portfolio and is defined as GAAP net income (loss) as adjusted, excluding, net realized gain (loss) on investments and termination of derivat
Slide 31: Book Value Roll Forward
Book Value Roll Forward ($ in thousands) Amounts in 000's Per Share GAAP Book Value at March 31, 2023 $ 99,358 $ 16.46 Common dividend (2,113) (0.35) 97,245 16.11 Portfolio Income Net Interest Margin 4,973 0.82 Realized gain (loss), net (916) (0.15) Unrealized gain (loss), net (6,803) (1.13) Net por
Slide 32: Contact Information
Western Asset Mortgage Capital Corporation c/o Financial Profiles, Inc. 11601 Wilshire Blvd., Suite 1920 Los Angeles, CA 90025 www.westernassetmcc.com Investor Relations Contact: Larry Clark Tel: (310) 622-8223 [email protected] Contact Information 31
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