Exhibit 99.2
| First Quarter 2015 Investor Presentation May 6, 2015 |
| Safe Harbor Statement We make forward-looking statements in this presentation that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: our business and investment strategy; our projected operating results; our ability to obtain financing arrangements; financing and advance rates for MBS and our potential target assets; our expected leverage; general volatility of the securities markets in which we invest and the market price of our common stock; our expected investments; interest rate mismatches between MBS and our potential target assets and our borrowings used to fund such investments; changes in interest rates and the market value of MBS and our potential target assets; changes in prepayment rates on Agency MBS and Non-Agency MBS; effects of hedging instruments on MBS and our potential target assets; rates of default or decreased recovery rates on our potential target assets; the degree to which any hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; our ability to maintain our qualification as a REIT; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; availability of investment opportunities in mortgage-related, real estate-related and other securities; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition; and market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy. The forward-looking statements in this presentation are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described in our filings with the SEC under the headings "Summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations" and "Business." If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation is not an offer to sell securities nor a solicitation of an offer to buy securities in any jurisdiction where the offer and sale is not permitted. 1 |
| First Quarter Financial Highlights GAAP Net Income of $14.1 million, or $0.34 per share Core earnings plus drop income of $34.4 million, or $0.82 per share, consists of: Core earnings of $0.71 per share Drop income of $0.11 per share $14.55 net book value per share as of March 31, 2015 versus $14.94 per share as of December 31, 2014 Quarterly cash dividend of $0.67 per share Generated positive economic return on book value of 1.9% Total economic return on book value since IPO of 27.1% Net Interest Income of $34.4 million Net interest spread of 3.16% 3.97% adjusted gross yield 0.81% fully hedged cost of funds CPR on Agency RMBS of 7.6% for the quarter 2 Non-GAAP measures which include Agency and Non-Agency MBS, other securities and Whole-Loans (including the cost of interest rate swaps), and interest income on IOs and IIOs classified as derivatives. Reflects the $0.67 dividend declared on March 26, 2015 and paid on April 28, 2015. Economic return, for any period, is calculated by taking the sum of (i) the total dividends declared and (ii) the change in net book value during the period and dividing by the beginning book value. Includes all dividends declared during the period from May 15, 2012, the date of WMC’s commencement of initial operations, through March 31, 2015, which amounts to $10.86 per share in total. Non-GAAP measures which include Agency and Non-Agency MBS, other securities and Whole-Loans (including the cost of interest rate swaps) and interest income on IOs and IIOs classified as derivatives, and are weighted averages for the quarter ended March 31, 2015. First quarter weighted average Constant Prepayment Rate for the Company’s Agency RMBS portfolio on an annualized basis. (5) (3) (5) (1) (5) (2) (5) (4) (6) |
| 2015: A Volatile Market for Mortgage Assets 3 Agency spreads widened over the course of the first quarter while Credit Sensitive bonds generally appreciated in value Source: IDC & Citigroup Indices: For Prime, AltA and Subprime – Citigroup Legacy Non-Agency Cash Price Index. For CMBS – 2007 AJ Source: Bloomberg Index: CMM-SW7 YTD: +0.1% YTD: +0.9% YTD: +0.6% YTD: -0.2% 65.0 70.0 75.0 80.0 85.0 90.0 95.0 100.0 105.0 9/30/14 10/31/14 11/30/14 12/31/14 1/31/15 2/28/15 3/31/15 Non - Agency RMBS and CMBS Index Prices Prime AltA Subprime CMBS (2007 - AJ) 70 75 80 85 90 95 |
| Interest Rate Volatility has Continued into 2015 1 yr. x 10 yr. Swap Volatility 4 Source: Bloomberg 10-Year Treasury Yield Source: Bloomberg 1.6 1.8 2 2.2 2.4 2.6 70 75 80 85 90 95 |
| Portfolio Breakdown as of March 31, 2015 ¹Lower loan balance pools generally consist of loans below $150,000. ²Other includes low WALA and Investor loans. ³Commercial Real Estate Mortgage Mezzanine Loans. Agency RMBS Non-Agency RMBS (By U.S. Dollar Price) Agency, Non-Agency CMBS and Other ¹ ² Total Investment Portfolio ($ in millions) Agency RMBS $2,955 Non-Agency RMBS $594 Agency & Non-Agency CMBS $480 Whole-Loans $27 Other $126 ³ 5 37.1% 39.8% 23.2% <65 65-85 85+ 56.6% 17.7% 14.9% 9.0% 1.8% Legacy CMBS CRE Mezzanine New Issue CMBS Agency CMBS Whole-Loans 68.2% 14.5% 17.3% Lower Loan Balance MHA/HARP High LTV Other 70.7% 14.2% 11.5% 0.6% 3.0% Agency RMBS Non-Agency RMBS CMBS Whole-Loans Other |
| 6 Portfolio Composition as of March 31, 2015 Portfolio ($ in millions) Agency Coupon Principal Balance Amortized Cost Estimated Fair Value 30-year fixed rate 3.5% $247.4 $265.5 $261.9 4.0% $457.5 $494.7 $497.3 4.5% $555.2 $595.9 $619.6 5.5% $64.7 $72.7 $74.2 6.0% $7.5 $8.4 $8.6 20-year fixed rate 3.0% $312.8 $326.9 $325.6 3.5% $274.4 $290.2 $290.9 4.0% $588.7 $621.4 $637.1 Agency RMBS IOs and IIOs¹ 3.9% N/A $232.1 $239.9 Agency CMBS 4.9% $25.0 $25.0 $25.2 Agency CMBS IOs and IIOs² 1.3% N/A $17.8 $18.0 Total Agency 3.7% $2,950.6 $2,998.3 Non-Agency RMBS 3.9% $653.7 $491.9 $500.2 Non-Agency IOs and IIOs3 6.1% N/A $79.8 $94.0 Non-Agency CMBS 5.4% $472.9 $436.3 $437.0 Total Non-Agency 4.9% $1,008.0 $1,031.2 Other Securities 5.2% $118.9 $125.7 $125.6 Residential Whole-Loans4 5.2% $17.2 $17.5 $17.9 Commercial Whole-Loans 8.3% $8.8 $8.8 $8.9 Total Portfolio 4.1% $4,110.6 $4,181.9 (1) Includes $62.7 million of amortized cost and $62.9 million of fair value for Agency RMBS IOs and IIOs accounted for as derivatives for GAAP. (2) Includes $14.3 million of amortized cost and $14.3 million of fair value for Agency CMBS IOs and IIOs accounted for as derivatives for GAAP. (3) Includes $3.4 million of amortized cost and $4.2 million of fair value for Non-Agency RMBS IOs and IIOs accounted for as derivatives for GAAP. (4) Residential Whole-Loans are held by a trust whose entire beneficial interest is held by WMC. |
| 6.0x leverage calculation does not reflect net To-Be Announced (“TBA”) mortgage pass-through certificates position. As of March 31, 2015, the net long position in TBAs was $737 million in notional value. Adjusted leverage is a Non-GAAP measure. Non-GAAP measures which include Agency and Non-Agency MBS, other securities and Whole-Loans (including the cost of interest rate swaps), and interest income on IOs and IIOs classified as derivatives, and are weighted averages for the quarter ended March 31, 2015. Includes net interest component related to interest rate swaps. First quarter weighted average Constant Prepayment Rate for the company’s Agency RMBS portfolio on an annualized basis. Estimated impact of liability hedges on the duration of net assets. Leverage Ratio: 6.0x Leverage Ratio adjusted for TBA position of 7.2x Net Duration of the Agency RMBS portfolio: Negative 1.7 months Agency RMBS Weighted Average Loan Age (“WALA”) of 24.6 months Portfolio Gross Yield: 3.97% Hedge Adjusted Cost of Financing: 0.81% Net Interest Spread: 3.16% Agency RMBS CPR of 7.6% for Q1 Duration Contribution by Maturity Date Key Portfolio Metrics as of March 31, 2015 (3) (2) (2) 7 (1) (5) (4) 2.52 0.21 0.70 0.88 0.67 0.13 -0.07 0.69 0.03 0.11 0.16 0.20 0.15 0.02 0.28 0.02 0.07 0.10 0.06 0.00 0.00 -2.66 -0.04 -0.33 -1.10 -0.99 -0.19 0.01 0.83 0.22 0.55 0.04 -0.06 0.09 -0.04 |
| Financing Summary Portfolio Financing ($ in millions – as of March 31, 2015) Repurchase Agreements Repo Outstanding Interest Rate Remaining Days to Maturity Agency RMBS $2,793.3 0.41% 38 Non-Agency RMBS $413.5 1.60% 39 Agency and Non-Agency CMBS $345.9 1.57% 36 Other Securities $96.2 1.64% 62 Total/Wtd Avg $3,648.9 0.68% 39 8 Master repurchase agreements with 25 counterparties Outstanding borrowing with 20 counterparties Internal credit review Capacity in excess of our current needs |
| Hedging Summary 9 Includes $2.4 billion of forward starting swaps, starting in 6.6 months. Includes $265 million of forward starting swaps, starting in 20.4 months. While we use hedging strategies as part of our overall portfolio management, these strategies are not designed to eliminate all risks in the portfolio. There can be no assurance as to the level or effectiveness of these strategies. Fixed Pay Interest Rate Swaps ($ in millions – as of March 31, 2015) Maturity Notional Amount Avg. Fixed Pay Rate Avg. Floating Receive Rate Average Maturity (Years) 1 Year or Less $639.3 0.5% 0.2% 0.9 1 Year to 3 Years $1,422.3 0.9% 0.2% 1.8 3 Years to 5 Years $1,126.5 1.7% 0.2% 4.4 >5 Years $3,685.5 2.7% 0.2% 9.5 Total Fixed Pay Rate (1) $6,873.6 2.0% 0.2% 6.3 Other Instruments with Hedging Attributes (3) $655 million of net notional value of pay-fixed interest rate swaptions $352 million of IO’s and inverse IO’s $1.1 billion of Non-Agency RMBS and CMBS and Other Securities Variable Pay Interest Rate Swaps ($ in millions – as of March 31, 2015) Maturity Notional Amount Avg. Fixed Receive Rate Avg. Floating Pay Rate Average Maturity (Years) 1 Year to 3 Years $220.0 0.8% 0.3% 1.8 3 Years to 5 Years $1,251.8 1.7% 0.3% 4.6 >5 Years $1,854.1 2.6% 0.2% 11.9 Total Floating Pay Rate(2) $3,325.9 2.1% 0.3% 8.5 |
| Portfolio Strategy and Dynamics Continue to manage both the assets and liabilities of the portfolio to capture relative value opportunities Continue to leverage Western Asset’s comprehensive platform to access a broad set of investment opportunities across the entire mortgage sector Portfolio activity during the first quarter: Increased exposure to Residential Mortgage Whole-Loans Added initial exposure to Commercial Mortgage Whole-Loans Reduced exposure to TBA securities early in the quarter, then increased by quarter-end Maintained a slightly negative to neutral net duration on the Agency portfolio Continue to expand our sourcing capabilities for both Residential and Commercial Mortgage Whole-Loans 10 Our long-term objective is to generate strong core earnings to support an attractive dividend, while also maintaining a stable book value |
| Investment Highlights Western Asset is one of the largest fixed income managers in the world with extensive experience in managing mortgage assets since 1974 Differentiated investment approach to managing prepayment, interest rate risk, and credit risk Flexibility to invest across the mortgage sector positions us well to seek our objective of superior risk-adjusted returns Well developed and highly sophisticated operational infrastructure Key strategic relationships provides superior market access and ample funding capacity 11 |
| Contact Information 12 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 lclark@finprofiles.com |
