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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
Date of Report (Date of earliest event reported):
 
August 6, 2019

399078442_logoa88.gif
 
Western Asset Mortgage Capital Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 DELAWARE
(STATE OF INCORPORATION) 
001-35543
 
27-0298092
(COMMISSION FILE NUMBER)
 
(IRS EMPLOYER ID. NUMBER)
 
385 East Colorado Boulevard
 
91101
Pasadena, California
 
(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
 
                         (626) 844-9400
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
 
WMC
 
New York Stock Exchange






Item 2.02.       Results of Operations and Financial Condition
 
On August 6, 2019, Western Asset Mortgage Capital Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended June 30, 2019. The text of the press release is furnished as exhibit 99.1 to this Form 8-K.
 
Item 7.01.        Regulation FD Disclosure
 
On August 7, 2019, the Company will be holding its quarterly conference call in which it will discuss its financial results.  The presentation for such call is furnished herewith as Exhibit 99.2 to this Form 8-K.
 
Pursuant to the rules and regulations of the Securities and Exchange Commission, Exhibits 99.1 and 99.2 and the information set forth therein and herein are being furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall they be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
 
Item 9.01.       Financial Statements and Exhibits
 
(d)  Exhibits
 
Exhibit No.
Description
99.1
99.2





SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
WESTERN ASSET MORTGAGE CAPITAL CORPORATION
 
 
 
 
 
 
 
By:
/s/ Adam C. E. Wright
 
 
 
Name:
Adam C. E. Wright
 
 
 
Title:
Assistant Secretary
 
 
 
 
Date:  August 6, 2019



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1


399078442_logoa87.gif


WESTERN ASSET MORTGAGE CAPITAL CORPORATION
ANNOUNCES SECOND QUARTER 2019 RESULTS
 
Conference Call and Webcast Scheduled for Tomorrow, Wednesday, August 7, 2019 at
11:00 a.m. Eastern Time/8:00 a.m. Pacific Time
 
Pasadena, CA, August 6, 2019 – Western Asset Mortgage Capital Corporation (the “Company” or "WMC") (NYSE: WMC) today reported its results for the second quarter ended June 30, 2019.
 
SECOND QUARTER 2019 FINANCIAL HIGHLIGHTS

June 30, 2019 book value per share of $10.51, net of second quarter common dividend of $0.31 per share declared on June 20, 2019.
GAAP net income of $10.6 million, or $0.21 per basic and diluted share.
Core earnings of $15.8 million, or $0.31 per basic and diluted share.1 
Economic return on book value was 1.1%1,2 for the quarter.
2.14% annualized net interest margin on our investment portfolio. 1,3,4 
5.6x leverage excluding non-recourse debt as of June 30, 2019 (8.5x leverage including non-recourse debt).

OTHER SECOND QUARTER 2019 HIGHLIGHTS

$49.3 million of common equity raised during the quarter, net of offering costs.
Acquired $1.2 billion of investments, consisting of:
*
$584.0 million in Agency RMBS
*
$500.9 million in Agency CMBS
*
$50.0 million in a Commercial Loan
*
$67.3 million in Non-Agency CMBS
*
$19.8 million in GSE Risk Transfer Securities
Completed a securitization of $945.5 million of our Residential Whole Loan investments involving the issuance of $919.0 million of mortgage-backed notes.








                                                                                                                                                                                                                                                                                             
1  Non – GAAP measure.
2  Economic return is calculated by taking the sum of: (i) the total dividends declared; and (ii) the change in book value during the period and dividing by the beginning book value.
3   Includes interest-only securities accounted for as derivatives and the cost of interest rate swaps.
4 Excludes the consolidation of VIE trusts required under GAAP.


1


MANAGEMENT COMMENTARY

“I am pleased to report that we generated core earnings of $0.31 per share during the second quarter, as we continue to realize the benefits of our diversified portfolio and differentiated investment strategy,” said Jennifer Murphy, Chief Executive Officer of the Company. “Our economic return on book value was 1.1% for the quarter and 6.5% for the first six months of 2019, in a market environment that continues to experience interest rate volatility. We paid a second quarter dividend of $0.31 per share, which has remained consistent for thirteen consecutive quarters.

“We are pleased to have completed two significant capital markets transactions during the quarter. In May, we completed a $49 million equity offering which allowed us to further invest in our target assets, and which we believe will enhance the overall earnings potential of the portfolio. The offering also supports our long term goal of growing the company to achieve better scale, which we believe will benefit shareholders over time.

“In June, we completed a securitization of a portion of our residential whole loans involving the issuance of $919 million of mortgage-backed notes. This transaction represents the Company’s first securitization and enables us to finance our target assets with longer-term fixed rate financing at attractive levels. Our successful execution of this securitization reflects the Company’s ability to leverage the platform of our manager, Western Asset, which we view as a strategic advantage for the Company and its shareholders,” Ms. Murphy concluded.

Harris Trifon, Chief Investment Officer of the Company, commented, “Our strong core earnings and positive performance for the second quarter and year-to-date were driven by contributions across our diverse holdings in a number of subsectors of the mortgage market and reflect our efforts to increase our exposure to credit sensitive investments while also complementing these holdings with exposure to Agency MBS. We invested the proceeds from our May equity offering relatively quickly, acquiring more of our target assets. During the quarter, we acquired $1.2 billion of target assets, including $1.1 billion of Agency MBS and $137 million of credit sensitive investments, consisting primarily of Commercial Whole Loans, Non-Agency CMBS and GSE Risk Transfer Securities, all areas where we continue to see opportunities to achieve attractive risk-adjusted returns.

“Our current expectations are for continued, yet moderate, U.S. economic growth along with subdued inflation expectations and a more accommodative Federal Reserve monetary policy. We believe that credit spread sectors will continue to perform well for the remainder of 2019 and we will continue to focus on where we see the best relative value within our target universe. We remain constructive on both residential and commercial real estate. The U.S. housing market remains healthy, with continued underlying demand driven by ongoing job growth, high consumer confidence and increased household formations. Commercial real estate fundamentals continue to be positive, driven by an ongoing economic expansion. As such, we believe that our strategy of holding a diverse investment portfolio, with our focus on risk management, positions us well to continue generating strong core earnings while preserving our book value, with the overriding goal of providing our shareholders favorable risk-adjusted returns,” concluded Mr. Trifon.



2


OPERATING RESULTS
 
The below table reflects a summary of our operating results:
 
 
 
For the Three Months Ended
GAAP Results
 
June 30, 2019
 
March 31, 2019
 
 
(in thousands-except share and per share data)
 
 
 
 
 
Net Interest Income
 
$
15,860

 
$
15,633

Other Income (Loss):
 
 

 
 

Realized gain (loss) on sale of investments, net
 
(8
)
 
(5,105
)
Other than temporary impairment
 
(3,295
)
 
(1,232
)
Unrealized gain (loss), net
 
74,614

 
50,781

Gain (loss) on derivative instruments, net
 
(71,530
)
 
(27,148
)
Other, net
 
532

 
236

Other Income (loss)
 
313

 
17,532

Total Expenses
 
5,081

 
5,277

Income (loss) before income taxes
 
11,092

 
27,888

Income tax provision (benefit)
 
478

 
12

Net income (loss)
 
$
10,614

 
$
27,876

 
 
 
 
 
Net income (loss) per Common Share – Basic/Diluted
 
$
0.21

 
$
0.58

Non-GAAP Results
 
 

 
 

Core earnings (1)
 
$
15,758

 
$
15,492

Core earnings per Common Share – Basic/Diluted
 
$
0.31

 
$
0.32

Weighted average yield(2)(4)
 
4.94
%
 
5.17
%
Effective cost of funds(3)(4)
 
2.94
%
 
3.25
%
Annualized net interest margin(2)(3)(4)
 
2.14
%
 
2.36
%
 
(1)          For a reconciliation of GAAP Income to Core earnings, please refer to the Reconciliation of Core Earnings at the end of this press release.
(2)          Includes interest-only securities accounted for as derivatives.
(3)          Includes the net amount paid, including accrued amounts for interest rate swaps and premium amortization for MAC interest rate swaps during the periods.
(4) Excludes the consolidation of VIE trusts required under GAAP.




3


Portfolio Composition
 
As of June 30, 2019, the Company owned an aggregate investment portfolio with a fair market value totaling $5.2 billion. The following tables sets forth additional information regarding the Company’s investment portfolio as of June 30, 2019:
 
Portfolio Characteristics

Agency Portfolio

The following table summarizes certain characteristics of our Agency portfolio by investment category as of June 30, 2019 (dollars in thousands): 
 
Principal Balance
 
Amortized Cost
 
Fair Value
 
Net Weighted Average Coupon
Agency CMBS
$
1,772,577

 
$
1,793,383

 
$
1,879,939

 
3.3
%
Agency CMBS Interest-Only Strips, accounted for as derivatives
N/A

 
N/A

 
3,829

 
0.4
%
Total Agency CMBS
1,772,577

 
1,793,383

 
1,883,768

 
3.0
%
 
 
 
 
 
 
 
 
Agency RMBS
570,369

 
580,636

 
585,751

 
3.5
%
Agency RMBS Interest-Only Strips
N/A

 
10,202

 
11,891

 
2.3
%
Agency RMBS Interest-Only Strips, accounted for as derivatives
N/A

 
N/A

 
6,741

 
2.8
%
Total Agency RMBS
570,369

 
590,838

 
604,383

 
3.2
%
 
 
 
 
 
 
 
 
Total
$
2,342,946

 
$
2,384,221

 
$
2,488,151

 
3.1
%
 
Credit Sensitive Portfolio

The following table summarizes certain characteristics of our credit sensitive portfolio by investment category as of June 30, 2019 (dollars in thousands): 

 
Principal Balance
 
Amortized Cost
 
Fair Value
 
 Weighted Average Coupon(1)
Non-Agency RMBS
$
53,458

 
$
37,320

 
$
38,086

 
4.8
%
Non-Agency RMBS IOs and IIOs
N/A

 
9,007

 
9,101

 
0.6
%
Non-Agency CMBS
255,882

 
217,764

 
219,704

 
5.8
%
Residential Whole Loans
1,169,136

 
1,187,222

 
1,206,220

 
5.2
%
Residential Bridge Loans(2)
96,485

 
96,618

 
94,892

 
9.3
%
Securitized Commercial Loans(1)  
799,183

 
802,199

 
804,134

 
5.0
%
Commercial Loans
312,032

 
311,237

 
312,032

 
7.2
%
Other Securities
66,015

 
70,897

 
76,617

 
7.6
%
 
$
2,752,191

 
$
2,732,264

 
$
2,760,786

 
4.4
%
                                                                               
(1) In March 2019, the Company acquired $65.3 million of Non-Agency CMBS securities which resulted in the consolidation of a variable interest entity and the recording of a $904 million securitized commercial loan and $838 million of securitized debt. As of June 30, 2019, the fair value of the securitized loan was $779.8 million and the fair value securitized debt was $779.8 million.
(2) Includes Residential Bridge Loans carried at amortized cost of $7.5 million as of June 30, 2019. The fair value of these loans was $7.4 million as of June 30, 2019. 

4


PORTFOLIO FINANCING AND HEDGING
 
Financing Activity

Repurchase Agreements
 
As of June 30, 2019, the Company had 33 master repurchase agreements with its counterparties.  As of June 30, 2019, the Company had borrowings under 18 of the 33 master repurchase agreements with varying maturities. The following table sets forth additional information regarding the Company’s portfolio financing under the master repurchase agreements, which includes the outstanding balance in our $700 million residential whole loan and $150 million commercial whole financing facilities, as of June 30, 2019 (dollars in thousands):
 
 
 
 
Outstanding Borrowings
 
Weighted Average Interest Rate
 
Weighted Average Remaining Days to Maturity
Short Term Borrowings:
 
 
 
 
 
 
Agency RMBS
 
$
573,771

 
2.65
%
 
40
Agency CMBS
 
1,673,902

 
2.62
%
 
35
Non-Agency RMBS
 
11,488

 
3.86
%
 
23
Non-Agency CMBS
 
146,629

 
3.79
%
 
42
Residential Whole-Loans
 
226,784

 
3.63
%
 
68
Residential Bridge Loans
 
89,241

 
4.59
%
 
29
Commercial Loans
 
137,821

 
4.67
%
 
36
Securitized Commercial Loan
 
19,708

 
3.28
%
 
19
Other Securities
 
53,114

 
3.93
%
 
32
Subtotal
 
2,932,458

 
2.95
%
 
39
Long Term Borrowings
 
 
 
 
 
 
Residential Whole-Loans (1)
 
11,762

 
4.15
%
 
966
Commercial Loans (1)
 
57,000

 
4.60
%
 
727
Subtotal
 
68,762

 
4.52
%
 
768
 
 
 
 
 
 
 
Total
 
$
3,001,220

 
2.99
%
 
55

(1) Certain Residential Whole Loans and Commercial Loans were financed under two longer term financing facilities. These facilities automatically roll until such time as they are terminated or until certain conditions of default. The weighted average remaining maturity days was calculated using expected weighted life of the underlying collateral.

Convertible Senior Unsecured Notes

At June 30, 2019, the Company had $115.0 million aggregate principal amount of 6.75% convertible senior unsecured notes. The notes mature on October 1, 2022, unless earlier converted, redeemed or repurchased by the holders pursuant to their terms, and are not redeemable by the Company except during the final three months prior to maturity. The initial conversion rate was 83.1947 shares of common stock per $1,000 principal amount of notes and represented a conversion price of $12.02 per share of common stock.

Mortgage-Backed Notes

The following table summarizes Arroyo Trust's residential mortgage-backed notes at June 30, 2019 (dollars in thousands):

5


 
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:(1)
 
 
 
 
Class A-1
$
769,825

3.3%
$
769,823

4/25/2049
Class A-2
41,248

3.5%
41,248

4/25/2049
Class A-3
65,350

3.8%
65,348

4/25/2049
Class M-1
25,055

4.8%
25,055

4/25/2049
 
901,478

 
901,474

 
Less: Deferred Financing Cost
N/A

 
5,686

 
Total
$
901,478

 
$
895,788

 
(1) The subordinate notes were retained by the Company. 
 
The securitized debt of the Arroyo Trust can only be settled with the residential loan that serves as collateral for the securitized debt and is non-recourse to the Company.

Hedging Activity
 
At June 30, 2019, the Company had $3.4 billion notional value of pay-fixed interest rate swaps, excluding a forward starting swap of $412.3 million (approximately 2.6 months forward), and $974.4 million notional value of variable pay rate swaps, which have variable maturities between May 2, 2020 and June 13, 2039.


The following tables summarize the average fixed pay rate, average floating receive rate and average maturity for the Company’s fixed pay interest rate swaps as of June 30, 2019 (dollars in thousands):
  
Remaining Interest Rate Swap Term
 
Notional Value
 
Average
Fixed Pay
Rate
 
Average Floating Receive Rate
 
Average
Maturity
(Years)
 
Forward Starting
1 year or less
 
$
200,000

 
1.8
%
 
2.6
%
 
0.9
 
%
Greater than 1 year and less than 3 years
 
738,000

 
2.0
%
 
2.6
%
 
2.8
 
%
Greater than 3 years and less than 5 years
 
828,700

 
2.6
%
 
2.5
%
 
4.6
 
%
Greater than 5 years
 
2,005,700

 
2.4
%
 
2.6
%
 
9.2
 
20.6
%
Total
 
$
3,772,400

 
2.3
%
 
2.5
%
 
6.5
 
10.9
%

The following table summarizes the average variable pay rate, average fixed receive rate and average maturity for the Company’s variable pay interest rate swaps as of June 30, 2019 (dollars in thousands):

Remaining Interest Rate Swap Term
 
Notional Amount

 
Average 
Variable Pay Rate
 
Average Fixed Receive Rate
 
Average Maturity (Years)
Greater than 1 year and less than 3 years
 
$
225,000

 
2.6
%
 
2.4
%
 
1.8
Greater than 3 years and less than 5 years
 
66,000

 
2.4
%
 
2.2
%
 
5.0
Greater than 5 years
 
683,400

 
2.6
%
 
2.3
%
 
8.6
Total
 
$
974,400

 
2.6
%
 
2.4
%
 
6.8


DIVIDEND

6



 
On June 20, 2019, the Company declared a regular cash dividend of $0.31 per share for each common share. Since its inception in May 2012, the Company has declared and paid total dividends of $17.16 per share in a combination of cash and stock.
 
CONFERENCE CALL
 
The Company will host a conference call with a live webcast tomorrow, August 7, 2019 at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to discuss financial results for the second quarter 2019.
 
Individuals interested in participating in the conference call may do so by dialing (866) 235-9914 from the United States, or (412) 902-4115 from outside the United States and referencing “Western Asset Mortgage Capital Corporation.” Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company’s website at www.westernassetmcc.com.
 
The Company is enabling investors to pre-register for the earnings conference call so that they can expedite their entry into the call and avoid the need to wait for a live operator. In order to pre-register for the call, investors can visit http://dpregister.com/10133513 and enter in their contact information. Investors will then be issued a personalized phone number and pin to dial into the live conference call. Individuals can pre-register any time prior to the start of the conference call tomorrow.
 
A telephone replay will be available through August 21 , 2019 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10133513. A webcast replay will be available for 90 days.

ABOUT WESTERN ASSET MORTGAGE CAPITAL CORPORATION
 
Western Asset Mortgage Capital Corporation is a real estate investment trust that invests in, acquires and manages a diverse portfolio assets consisting of Agency CMBS, Agency RMBS, Non-Agency RMBS, Non-Agency CMBS, ABS, GSE Risk Transfer Securities, Residential Whole and Bridge Loans and Commercial Loans. The Company’s investment strategy may change, subject to the Company’s stated investment guidelines, and is based on its manager Western Asset Management Company, LLC's perspective of which mix of portfolio assets it believes provide the Company with the best risk-reward opportunities at any given time. The Company is externally managed and advised by Western Asset Management Company, LLC, an investment advisor registered with the Securities and Exchange Commission and a wholly-owned subsidiary of Legg Mason, Inc. Please visit the Company’s website at www.westernassetmcc.com.





FORWARD-LOOKING STATEMENTS
 
This press release contains statements that constitute “forward-looking statements.”  Operating results are subject to numerous conditions, many of which are beyond the control of the Company, including, without limitation, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability and terms of financing; general economic conditions; market conditions; conditions in the market for mortgage related investments; legislative and regulatory changes that could adversely affect the business of the Company; and other factors, including those set forth in the Risk Factors section of the Company’s annual report on Form 10-K for the period ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”). The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

USE OF NON-GAAP FINANCIAL INFORMATION

7



 
In addition to the results presented in accordance with GAAP, this release includes certain non-GAAP financial information, including core earnings, core earnings per share, drop income and drop income per share and certain financial metrics derived from non-GAAP information, such as weighted average yield, including IO securities; weighted average effective cost of financing, including swaps; weighted average net interest margin, including IO securities and swaps, which constitute non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. We believe that these measures presented in this release, when considered together with GAAP financial measures, provide information that is useful to investors in understanding our borrowing costs and net interest income, as viewed by us.  An analysis of any non-GAAP financial measure should be made in conjunction with results presented in accordance with GAAP.
 
###
 
Investor Relations Contact:
Media Contact:
Larry Clark
Tricia Ross
Financial Profiles, Inc.
Financial Profiles, Inc.
(310) 622-8223
(310) 622-8226
 
-Financial Tables to Follow-


8



Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands—except share and per share data)
(Unaudited)
 
 
June 30, 2019
 
December 31, 2018
Assets:
 
 

 
 

Cash and cash equivalents
 
$
81,761

 
$
21,987

Restricted cash
 
87,139

 
55,808

Agency mortgage-backed securities, at fair value ($2,388,337 and $1,505,979 pledged as collateral, at fair value, respectively)
 
2,488,151

 
1,505,979

Non-Agency mortgage-backed securities, at fair value ($214,946 and $237,107 pledged as collateral, at fair value, respectively)
 
266,891

 
250,856

Other securities, at fair value ($76,483 and $59,780 pledged as collateral, at fair value, respectively)
 
76,617

 
59,906

Residential Whole Loans, at fair value ($1,196,415 and $1,041,885 pledged as collateral, at fair value, respectively)
 
1,206,220

 
1,041,885

Residential Bridge Loans ($87,402 and $211,999 at fair value and $90,606 and $221,486 pledged as collateral, respectively)
 
94,892

 
221,719

Securitized commercial loan, at fair value
 
804,134

 
1,013,511

Commercial Loans, at fair value ($292,032 and $196,123 pledged as collateral, at fair value, respectively)
 
312,032

 
216,123

Investment related receivable
 
35,779

 
42,945

Interest receivable
 
19,413

 
21,959

Due from counterparties
 
55,519

 
39,623

Derivative assets, at fair value
 
3,329

 
2,606

Other assets
 
1,631

 
2,488

Total Assets (1)
 
$
5,533,508

 
$
4,497,395

 
 
 
 
 
Liabilities and Stockholders’ Equity:
 
 

 
 

Liabilities:
 
 

 
 

Repurchase agreements, net
 
$
3,001,220

 
$
2,818,837

Convertible senior unsecured notes, net
 
110,719

 
110,060

Securitized debt, net ($722,026 and $949,626 at fair value and $83,749 and $246,802 held by affiliates, respectively)
 
1,617,813

 
949,626

Interest payable (includes $374 and $816 on securitized debt held by affiliates, respectively)
 
11,982

 
8,532

Investment related payables
 
99,534

 

Due to counterparties
 
22,029

 
17,781

Derivative liability, at fair value
 
1,317

 
10,130

Accounts payable and accrued expenses
 
2,801

 
3,858

Payable to affiliate
 
2,827

 
4,615

Dividend payable
 
16,500

 
14,916

  Other liabilities
 
87,140

 
56,031

Total Liabilities (2)
 
$
4,973,882

 
$
3,994,386

 
 
 
 
 
Commitments and contingencies
 
 

 
 

 
 
 
 
 
Stockholders’ Equity:
 
 

 
 

Common stock: $0.01 par value, 500,000,000 shares authorized, 53,224,379 and 48,116,379 outstanding, respectively
 
532

 
481

Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding
 

 

Additional paid-in capital
 
883,417

 
833,810

Retained earnings (accumulated deficit)
 
(324,323
)
 
(331,282
)
Total Stockholders’ Equity
 
559,626

 
503,009

Total Liabilities and Stockholders’ Equity
 
$
5,533,508

 
$
4,497,395


9



Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets (Continued)
(in thousands—except share and per share data)
(Unaudited)
 
 
 
June 30, 2019
 
December 31, 2018
(1) Assets of consolidated VIEs included in the total assets above:
 
 

 
 

Cash and cash equivalents
 
$
2,874

 
$
674

Restricted Cash
 
87,139

 
55,808

Residential Whole Loans, at fair value ($1,196,415 and $1,041,885 pledged as collateral, at fair value, respectively)
 
1,206,220

 
1,041,885

Residential Bridge Loans ($83,116 and $211,766 at fair value and $90,606 and $221,486 pledged as collateral, respectively)
 
90,606

 
221,486

Securitized commercial loan, at fair value
 
804,134

 
1,013,511

Commercial Loans, at fair value ($292,032 and $196,123 pledged as collateral, at fair value, respectively)
 
212,032

 
196,123

Investment related receivable
 
35,725

 
42,945

Interest receivable
 
10,494

 
15,540

Other assets
 
124

 
178

Total assets of consolidated VIEs
 
$
2,449,348

 
$
2,588,150

 
 
 
 
 
(2) Liabilities of consolidated VIEs included in the total liabilities above:
 
 

 
 

Securitized debt, net ($722,026 and $949,626 at fair value and $83,749 and $246,802 held by affiliates, respectively)
 
$
1,617,813

 
$
949,626

Interest payable (includes $374 and $816 on securitized debt held by affiliates, respectively)
 
4,067

 
2,419

Accounts payable and accrued expenses
 
394

 
708

Other liabilities
 
87,139

 
56,033

Total liabilities of consolidated VIEs
 
$
1,709,413

 
$
1,008,786

 



10



Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands—except share and per share data)
 (Unaudited)
 
 
Three months ended
 
 
June 30, 2019
 
March 31, 2019
Net Interest Income
 
 
 
 
Interest income
 
$
53,818

 
$
52,033

Interest expense (includes $1,106 and $2,338 on securitized debt held by affiliates, respectively)
 
37,958

 
36,400

Net Interest Income
 
15,860

 
15,633

 
 
 
 
 
Other Income (Loss)
 
 
 
 
Realized gain (loss) on sale of investments, net
 
(8
)
 
(5,105
)
Other than temporary impairment
 
(3,295
)
 
(1,232
)
Unrealized gain (loss), net
 
74,614

 
50,781

Gain (loss) on derivative instruments, net
 
(71,530
)
 
(27,148
)
Other, net
 
532

 
236

Other Income (Loss)
 
313

 
17,532

 
 
 
 
 
Expenses
 
 
 
 
Management fee to affiliate
 
1,832

 
1,735

Other operating expenses
 
1,253

 
1,598

General and administrative expenses:
 
 
 
 
  Compensation expense
 
705

 
544

  Professional fees
 
761

 
1,215

  Other general and administrative expenses
 
530

 
185

Total general and administrative expenses
 
1,996

 
1,944

Total Expenses
 
5,081

 
5,277

 
 
 
 
 
Income before income taxes
 
11,092

 
27,888

Income tax provision (benefit)
 
478

 
12

Net income (loss)
 
$
10,614

 
$
27,876

 
 
 
 
 
Net income (loss) per Common Share – Basic
 
$
0.21

 
$
0.58

Net income (loss) per Common Share – Diluted
 
$
0.21

 
$
0.58



11



Reconciliation of GAAP Net Income to Non-GAAP Core Earnings
(in thousands—except share and per share data)
(Unaudited)
 
The table below reconciles Net Income to Core Earnings for the three months ended June 30, 2019 and March 31, 2019:
 
 
Three months ended
(dollars in thousands)
 
June 30, 2019
 
March 31, 2019
Net Income (loss)
 
$
10,614

 
$
27,876

Income tax provision (benefit)
 
478

 
12

Net Income before income taxes
 
11,092

 
27,888

 
 
 
 
 
Adjustments:
 
 

 
 

Investments:
 
 

 
 

Unrealized (gain) loss on investments, securitized debt and other liabilities
 
(74,614
)
 
(50,781
)
Other than temporary impairment
 
3,295

 
1,232

Realized (gain) loss on sale of investments
 
8

 
5,105

One-time transaction costs
 
130

 
269

 
 
 
 
 
Derivative Instruments:
 
 

 
 

Net realized (gain) loss on derivatives
 
65,025

 
42,885

Net unrealized (gain) loss on derivatives
 
10,519

 
(11,313
)
 
 
 
 
 
Amortization of discount on convertible senior unsecured notes
 
138

 
137

Non-cash stock-based compensation
 
165

 
70

Total adjustments
 
4,666

 
(12,396
)
Core Earnings
 
$
15,758

 
$
15,492

Basic and Diluted Core Earnings per Common Share and Participating Securities
 
$
0.31

 
$
0.32

Basic and Diluted Core Earnings plus Drop Income per Common Share and Participating Securities
 
$
0.31

 
$
0.32

Basic weighted average common shares and participating securities
 
50,823,683

 
48,236,647

Diluted weighted average common shares and participating securities
 
50,823,683

 
48,236,647



12



Reconciliation of Interest Income and Effective Cost of Funds
(dollars in thousands)
(Unaudited)
 
The following table reconciles total interest income to adjusted interest income which includes interest income on Agency and Non-Agency Interest-Only Strips classified as derivatives (Non-GAAP financial measure) for the three months ended June 30, 2019 and March 31, 2019:
 
 
 
Three months ended
(dollars in thousands)
 
June 30, 2019
 
March 31, 2019
Coupon interest income
 
$
57,792

 
$
54,771

Premium amortization, discount accretion and amortization of basis, net
 
(3,974
)
 
(2,738
)
Interest income
 
53,818

 
52,033

Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1):
 
 

 
 

Coupon interest income
 
819

 
784

Amortization of basis
 
(655
)
 
(595
)
Subtotal
 
164

 
189

Total adjusted interest income
 
$
53,982

 
$
52,222

 
(1)                Reported in "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations.
 
The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for three months ended June 30, 2019 and March 31, 2019:
 
 
 
Three months ended
 
 
June 30, 2019
 
March 31, 2019
 (dollars in thousands)
 
Reconciliation
 
Cost of Funds/Effective Borrowing Costs
 
Reconciliation
 
Cost of Funds/Effective Borrowing Costs
Interest expense
 
$
37,958

 
3.54
 %
 
$
36,400

 
3.94
 %
Adjustments:
 
 
 
 
 
 
 
 
Interest expense on Securitized debt from consolidated VIEs
 
(8,215
)
 
(4.26
)%
 
(9,157
)
 
(4.22
)%
Net interest (received) paid - interest rate swaps
 
(3,850
)
 
(0.36
)%
 
(4,283
)
 
(0.46
)%
Effective Borrowing Costs
 
$
25,893

 
2.94
 %
 
$
22,960

 
3.25
 %
Weighted average borrowings
 
$
3,527,942

 
 

 
$
2,868,327

 
 



13
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

wmcq2fy19ex992
Second Quarter 2019 Investor Presentation August 6, 2019


 
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


 
Second Quarter 2019 WMC Earnings Call Presenters Jennifer W. Murphy Lisa Meyer Harris Trifon Chief Executive Officer & Chief Financial Officer & Chief Investment Officer President Treasurer 2


 
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 largest U.S. fixed income asset managers with AUM of $450.0 billion(1) • The AUM of the Mortgage and Consumer Credit Group is $76.2 billion(1) • Extensive mortgage and consumer credit investing track record • Publicly traded diversified mortgage REIT positioned to capture attractive current and long-term investment opportunities in the residential and commercial mortgage markets • Completed Initial Public Offering in May 2012 Please refer to page 16 for footnote disclosures. 3


 
Corporate Overview ▪ WMC is a diversified mortgage finance REIT supported by the deep investment experience of the mortgage and consumer credit group and risk management teams of Western Asset, a leading global fixed income manager. ▪ Western Asset's depth and breadth of fixed income expertise, comprehensive platform, and global institutional relationships provide WMC key advantages: * Best-in-class portfolio and risk management capabilities; * Access to investment opportunities and financing relationships and terms reflective of Western Asset's global platform; * Operational excellence and efficiencies; and * Highest standards of financial reporting, disclosure and transparency. ▪ WMC has built a diversified portfolio of residential and commercial assets including Agency CMBS, Agency RMBS, Non-Agency CMBS, Non-Agency RMBS, Residential Whole Loans and Commercial Whole Loans, with the objective of generating strong returns while preserving book value. ▪ WMC has paid a consistent dividend for 13 quarters, reflecting a philosophy of delivering a sustainable dividend that is supported by the core earnings of the portfolio. 4


 
Second Quarter Financial Highlights ▪ June 30, 2019 book value per share of $10.51, net of second quarter common dividend of $0.31 declared on June 20, 2019. ▪ GAAP net income of $10.6 million, or $0.21 per basic and diluted common share. ▪ Core earnings of $15.8 million(4), or $0.31 per basic and diluted common share. ▪ Economic return on book value was 1.1%(3) for the quarter. ▪ 2.14%(6) annualized net interest margin on our investment portfolio. ▪ 5.6x leverage excluding non-recourse debt as of June 30, 2019 (8.5x leverage including non-recourse debt). ▪ $49.3 million of common equity raised during the quarter, net of offering cost. ▪ Acquired $1.2 billion of investments, consisting of: * $584.0 million in Agency RMBS * $500.9 million in Agency CMBS * $50.0 million in a Commercial Loan * $67.3 million in Non-Agency CMBS * $19.8 million in GSE Risk Transfer Securities. ▪ Completed a securitization of $945.5 million of our Residential Whole Loan investments involving the issuance of $919.0 million of mortgage-backed notes. Please refer to page 16 for footnote disclosures. 5


 
Recent Performance (3) Economic Return Book Value $12.00 4% $10.00 5.4% $8.00 2% 3.1% $6.00 $11.13 $10.45 $10.70 $10.51 1.1% 0% $4.00 $2.00 (3.3)% -2% $0.00 Q3 2018 Q4 2018 Q1 2019 Q2 2019 -4% Q3 2018 Q4 2018 Q1 2019 Q2 2019 Dividend Per Share Core Earnings Plus Drop Income Per Share (4) $0.35 $0.40 $0.30 $0.35 $0.25 $0.30 $0.25 $0.20 $0.20 $0.15 $0.31 $0.31 $0.31 $0.31 $0.33 $0.34 $0.15 $0.32 $0.31 $0.10 $0.10 $0.05 $0.05 $0.00 $0.00 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Please refer to page 16 for footnote disclosures. 6


 
Portfolio Composition 0.9% Agency RMBS Total Investment Portfolio ($ in millions) 4.2% June 30, 2019 Agency CMBS Agency CMBS $ 1,884 Non-Agency RMBS 35.9% 23.0% Agency RMBS 604 Non-Agency CMBS Non-Agency CMBS 220 Non-Agency RMBS 47 Residential Whole-Loans Residential Whole-Loans 1,206 Residential Bridge Loans Residential Bridge Loans(12) 95 1.8% Securitized Commercial (2) Securitized Commercial Loans 804 Loans Commercial Loans 312 15.4% 11.5% Commercial Loans Other Securities(10) 77 Other Securities Total $ 5,249 1.5% 5.9% Select Sector Categories Agency Portfolio Credit Sensitive Securities Loan Portfolio 3.9% 64.0% 75.6% 33.3% 0.2% 49.9% 22.3% 23.5% 12.9% 0.7% 2.6% 11.1% Agency CMBS Non-Agency RMBS Residential Whole Loans Agency CMBS IO's accounted for as derivative Non-Agency RMBS IO Residential Bridge Loans Agency RMBS Non-Agency CMBS Securitized Commercial Loans Agency RMBS IO's and IIO's accounted for as derivative ABS and GSE CRT Securities Commercial Loan Please refer to page 16 for footnote disclosures. 7


 
Income Attribution(5) For the Three Months Ended June 30, 2019 (in thousands except per share data) Non- Non- Residential Residential Other Securitized Agency Agency Agency Agency Whole- Bride Investments Commercial Commercial CMBS RMBS CMBS RMBS Loans Loans(12) (10) Loans Loans(14) Total Interest Income(15) $11,860 $ 2,313 $ 4,489 $ 673 $ 14,882 $ 2,145 $ 1,845 $ 6,160 $ 10,148 $ 54,515 Interest expense(7) (9,987) (1,831) (1,462) (405) (11,177) (1,884) (466) (2,313) (8,432) (37,957) Net interest rate swap interest income(8) 3,272 260 123 184 — — 9 — — 3,848 Net Interest Income 5,145 742 3,150 452 3,705 261 1,388 3,847 1,716 20,406 Realized gain/(loss) on investments — — 159 — — (166) — — — (7) Unrealized gain/(loss) on investments(16) 55,426 5,671 2,989 716 9,233 342 416 (59) 572 75,306 Securitized debt unrealized gain/(loss) — — — — — — — — (656) (656) Gain/(loss) on derivative instruments, net (13) (64,236) (5,106) (2,414) (3,620) — — (186) — — (75,562) OTTI(9) (14) (4) (1,952) (936) — — (407) — — (3,313) Portfolio Income (loss) $ (3,679) $ 1,303 $ 1,932 $ (3,388) $ 12,938 $ 437 $ 1,211 $ 3,788 $ 1,632 $ 16,174 BV Per Share Increase (Decrease) $ (0.07) $ 0.02 $ 0.04 $ (0.07) $ 0.24 $ 0.01 $ 0.02 $ 0.07 $ 0.03 $ 0.29 Please refer to page 16 for footnote disclosures. 8


 
Financing Summary Repurchase Agreements ▪ Borrowings under 18 of 33 master repurchase agreements. ▪ Capacity in excess of our current needs. Repurchase Agreement Financing June 30, 2019 ($ in thousands) Weighted Average Weighted Average Outstanding Interest Rate Interest Remaining Days to Borrowings Rate Maturity Short Term Borrowings Agency RMBS $ 573,771 2.65% 40 Agency CMBS 1,673,902 2.62% 35 Non-Agency RMBS 11,488 3.86% 23 Non-Agency CMBS 146,629 3.79% 42 Residential Whole-Loans 226,784 3.63% 68 Residential Bridge Loan 89,241 4.59% 29 Commercial loans 137,821 4.67% 36 Securitized commercial loans 19,708 3.28% 19 Other securities(10) 53,114 3.93% 32 Subtotal 2,932,458 2.95% 39 Long Term Borrowings Residential Whole-Loans(17) 11,762 4.15% 966 Commercial Loans(17) 57,000 4.60% 727 Subtotal 68,762 4.52% 768 Total/Weighted Average $ 3,001,220 2.99% 55 9 Please refer to page 16 for footnote disclosures.


 
Financing Summary Convertible Senior Unsecured Notes ▪ At June 30, 2019, the Company had $115.0 million aggregate principal amount of 6.75% convertible senior unsecured notes. The notes mature on October 1, 2022, unless earlier converted, redeemed or repurchased by the holders pursuant to their terms, and are not redeemable by the Company except during the final three months prior to maturity. The initial conversion rate was 83.1947 shares of common stock per $1,000 principal amount of notes and represented a conversion price of $12.02 per share of common stock. Mortgage-Backed Notes ▪ The following table summarizes Arroyo Trust's residential mortgage-backed notes at June 30, 2019 (dollars in thousands): Principal Contractual Classes Balance Coupon Carrying Value Maturity Offered Notes:(18) Class A-1 769,825 3.3% 769,823 4/25/2049 Class A-2 41,248 3.5% 41,248 4/25/2049 Class A-3 65,350 3.8% 65,348 4/25/2049 Class M-1 25,055 4.8% 25,055 4/25/2049 901,478 901,474 Less: Deferred Financing Cost N/A 5,686 Total 901,478 895,788 The securitized debt of the Arroyo Trust can only be settled with the residential loan that serves as collateral for the securitized debt and is non-recourse to the Company. 10 Please refer to page 16 for footnote disclosures.


 
(11) Hedging Summary Our interest rate swaps are comprised of: ▪ $3.4 billion notional value of pay-fixed interest rate swaps, excluding a forward starting swap of $412 million (approximately 2.6 months forward), and ▪ $974 million notional value of a variable pay interest rate swap. Fixed Pay Interest Rate Swaps ($ in millions – as of June 30, 2019) Notional Average Fixed Average Variable Average Maturity Forward Maturity Amount Pay Rate Receive Rate (Years) Starting Less than 1 Year $ 200 1.8% 2.6% 0.9 —% 1 Year to 3 Years 738 2.0% 2.6% 2.8 —% 3 Years to 5 Years 829 2.6% 2.5% 4.6 —% >5 Years 2,006 2.4% 2.6% 9.2 20.6% Total Fixed Pay Rate $ 3,773 2.3% 2.5% 6.5 10.9% Variable Pay Interest Rate Swaps ($ in millions – as of June 30, 2019) Notional Average  Average Fixed Average Maturity Forward Maturity Amount Variable Pay Rate Receive Rate (Years) Starting 1 Year to 3 Years $ 225 2.6% 2.4% 1.8 0 3 Years to 5 Years 66 2.4% 2.2% 5.0 0 >5 Years 683 2.6% 2.3% 8.6 0 Total Variable Pay Rate $ 974 2.6% 2.4% 6.8 0 11 Please refer to page 16 for footnote disclosures.


 
Duration as of June 30, 2019 Agency Holdings Key Rate Duration Contribution Total 6-months 2-Year 5-Year 10-Year 20-Year 30-Year Agency IO/IIO 0.03 0.01 0.02 0.01 — (0.01) — Agency RMBS 0.47 0.03 0.1 0.15 0.13 0.06 — Agency CMBS 3.97 0.01 0.05 0.73 3.1 0.08 — Swaps and Futures (4.3) 0.06 (0.46) (1.03) (3.1) 0.23 — Repurchase Agreements (0.08) (0.08) — — — — — Total 0.09 0.03 (0.29) (0.14) 0.13 0.36 — 12 Please refer to page 16 for footnote disclosures.


 
2019 Second Half Outlook ▪ Downside risks have risen, but global growth should remain resilient. ▪ U.S. and global inflation rates continue to moderate. ▪ Central bank easing is designed to truncate downside risks. ▪ Central bank focus on core inflation outcomes suggests "low for long". ▪ Trade friction will be an ongoing source of risk. ▪ Spread products should recover relative to government bonds. 13


 
Portfolio View ▪ Credit sensitive mortgage sectors have performed relatively well and are expected to continue to offer attractive returns. We expect to continue investing in credit sensitive mortgages. * We expect to continue to deploy capital in residential whole loans, mainly non-qualifying mortgages in 2019. * Commercial real estate fundamentals continue to be positive. We expect to continue to deploy capital in commercial loans in 2019. * Commercial mezzanine loans opportunities continue to offer attractive risk-reward opportunities. ▪ We remain constructive on agency commercial spreads. We added agency residential mortgages during the second quarter of 2019 as spreads have widened. We believe MBS are attractive at current spread levels, although prepayment risks are elevated. 14


 
Target Investment Opportunities • Strategic partnerships with seasoned originators. Non-Qualifying ▪ Mainly 3/1, 5/1, and 7/1 ARM loans. Mortgages ▪ Coupon between 4% to 6%. ▪ Target loan to value below 80%. ▪ Invest in transactions where our manager has an opportunity to negotiate deal structure and covenants. Commercial Loans ▪ Attractive yields of LIBOR plus 4% to 10% bps. ▪ Target floating rate assets and short term deals. ▪ Multifamily residential loans guaranteed by Fannie Mae and Freddie Mac. ▪ Market size of more than $400 billion with annual issuance in excess of $40 billion. Agency CMBS ▪ Prepayment protection in the form of defeasance, yield maintenance or points. ▪ Interest only securities receive the prepayment penalties. ▪ Principal bearing bonds have soft bullets and tight windows for principal payment. 15


 
Footnotes (1) As of June 30, 2019. (2) In March 2019, the Company acquired a $65.3 million Non-Agency CMBS security which resulted in the consolidation of a variable interest entity and the recording of a $904 million securitized commercial loan and $904 million of securitized debt. (3) 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. (4) Core earnings is a non-GAAP measures which includes the cost of interest rate swaps and interest income on IOs and IIOs classified as derivatives. Drop income is income derived from the use of ‘to-be-announced’ forward contract (“TBA”) dollar roll transactions which is a component of our gain (loss) on derivative instruments on our consolidated statement of operations, but is not included in core earnings. There was no drop income for the three months ended June 30, 2019. (5) Non-GAAP measure which includes net interest margin (as defined in footnote 6), realized and unrealized gains or losses in the portfolio and other than temporary impairment. (6) Non-GAAP measures which include interest income, interest expense, the cost of interest rate swaps and interest income on IOs and IIOs classified as derivatives, and are weighted averages for the quarter ended June 30, 2019. Excludes the net income from the consolidation of VIE Trusts required under GAAP. (7) Convertible senior notes interest expense has been allocated based on deployment of proceeds from October 2017 through May 2018. (8) Net interest rate swaps interest income have been allocated based on average duration contribution. (9) Includes other than temporary impairments on IO's and IIO's accounted for as derivatives. (10) Other investments include ABS and GSE Credit Risk Transfer securities. (11) 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. (12) The bridge loans acquired prior to October 25, 2017 are carried at amortized costs, since we did not elect the fair value option for these loans. For the bridge loans acquired subsequent to October, 25, 2017, we elected the fair value option to be consistent with the accounting of other investments. Accordingly, the carrying amount of the bridge loans as of June 30, 2019 includes $87.4 million of residential bridge loans carried at fair value and $7.5 million of residential bridge loans carried at amortized costs. (13) Gain (loss) on derivative instruments, net, has been allocated based average duration contribution (excluding cost of hedging and gains or losses on IO's and IIO's accounted for as derivatives). (14) The portfolio income attribution for securitized commercial loan is presented on a consolidated basis. (15) Non-GAAP measure which includes interest income on IO's and IIO's accounted for as derivatives and other income and expense. (16) Non-GAAP measure which includes net unrealized losses on IO's and IIO's accounted for as derivatives. (17) Certain Residential Whole Loans and Commercial Loans were financed under two longer term repurchase agreements. The Company entered into a $700.0 million residential and $150.0 million commercial facility. These facilities automatically renew until such time as they are terminated or until certain conditions of default. The weighted average remaining maturity days was calculated using expected weighted life of the underlying collateral. (18) The subordinate notes were retained by the Company. 16


 
Supplemental Information


 
Book Value Roll Forward Amounts in 000's Per Share Book Value at March 31, 2019 $ 516,006 $ 10.70 Issuance of 6,500,000 shares of common stock, including treasury shares 52,800 — Stock issue discount (2,100) (0.04) Underwriter's commissions and offering costs (1,362) (0.03) Common dividend (16,499) (0.31) 548,845 10.32 Portfolio Income Net interest margin (6) 20,301 0.38 Net realized gain (loss) on investments and derivatives (65,031) (1.23) Unrealized gain (loss) on investments and derivatives 64,217 1.20 Other than temporary impairment (9) (3,313) (0.06) Net portfolio income 16,174 0.29 Operating expenses (3,084) (0.06) General and administrative expenses, excluding equity based compensation (1,831) (0.03) Provision for taxes (478) (0.01) Book Value at June 30, 2019 $ 559,626 $ 10.51 17 Please refer to page 16 for footnote disclosures.


 
Adjusted* Portfolio Composition Total Investment Portfolio ($ in millions) June 30, 2019 Consolidated Third Party Company Sponsored Unconsolidated (As Reported) Consolidated Trust Securitization (Non GAAP) Agency CMBS $ 1,884 $ — $ — $ 1,884 Agency RMBS 604 — — 604 Non-Agency CMBS 220 82 — 302 Non-Agency RMBS 47 — 64 111 Residential Whole-Loans 1,206 — (949) 257 Residential Bridge Loans 95 — — 95 Securitized Commercial Loans 804 (804) — — Commercial Loans 312 — — 312 Other Securities 77 — — 77 Total $ 5,249 $ (722) $ (885) $ 3,642 *Excludes consolidation of VIE Trusts required under GAAP 51.7% Agency RMBS Agency CMBS Non-Agency RMBS 3.0% Non-Agency CMBS Residential Whole-Loans 8.3% Residential Bridge Loans Commercial Loans 7.1% 16.6% 2.6% Other Securities(6) 2.1% 8.6% 18


 
Adjusted* Portfolio Income Attribution(5) For the Three Months Ended June 30, 2019 (in thousands except per share data) Non- Non- Residential Residential Other Agency Agency Agency Agency Whole- Bride Investments Commercial CMBS RMBS CMBS RMBS Loans Loans(12) (10) Loans Total Interest Income(15) $ 11,860 $ 2,313 $ 6,318 $ 673 $ 14,882 $ 2,145 $ 1,845 $ 6,160 $ 46,196 Interest expense(7) (9,987) (1,831) (1,680) (405) (11,177) (1,884) (466) (2,313) (29,743) Net interest rate swap interest income(8) 3,272 260 123 184 — — 9 — 3,848 Net Interest Income 5,145 742 4,761 452 3,705 261 1,388 3,847 20,301 Realized gain/(loss) on investments — — 159 — — (166) — — (7) Unrealized gain/ (loss) on investments(16) 55,426 5,671 3,009 716 9,233 342 417 (59) 74,755 Gain (loss) on derivative instruments, net(13) (64,236) (5,106) (2,414) (3,620) — — (186) — (75,562) OTTI(9) (14) (4) (1,952) (936) — — (407) — (3,313) Portfolio Income (loss) $ (3,679) $ 1,303 $ 3,563 $ (3,388) $ 12,938 $ 437 $ 1,212 $ 3,788 $ 16,174 BV Per Share Increase (Decrease) $ (0.07) $ 0.02 $ 0.07 $ (0.07) $ 0.24 $ 0.01 $ 0.02 $ 0.07 $ 0.29 *Excludes the securitized commercial loan and debt from the consolidation of VIE trusts required under GAAP. Reflects only our interest in the Non-Agency CMBS security that was acquired. 19 Please refer to page 16 for footnote disclosures.


 
Adjusted Credit Sensitive Portfolio as of June 30, 2019 Adjusted Credit Sensitive Portfolio* ($ in millions) Principal Balance Amortized Costs Fair Value Net Weighted Net Weighted Average Coupon Average Yield Non-Agency RMBS $ 53.5 $ 37.3 $ 38.1 4.8% 4.8% Non-Agency RMBS IOs and IIOs N/A 9.0 9.1 0.6% 9.5% Non-Agency CMBS 337.9 299.8 301.8 6.5% 9.2% Residential Whole Loans 1,169.1 1,187.2 1,206.2 5.2% 5.5% Residential Bridge Loans 96.5 96.6 94.9 9.3% 9.5% Commercial Loans 312.0 311.2 312.0 7.2% 7.6% Other Securities(1) 66.0 70.9 76.6 7.6% 8.0% $ 2,035.0 $ 2,012.1 $ 2,038.8 4.4% 6.7% (1) Other Securities includes GSE Credit Risk Transfer securities and ABS. Commercial Loans: 15.9% Other Securities: 4.0% Non-Agency RMBS: 2.0% Residential Bridge Loans: 4.9% Non-Agency RMBS IO and IIOs: 0.4% Non-Agency CMBS: 11.2% Residential Whole Loans: 61.6% *Excludes consolidation of VIE Trusts required under GAAP 20


 
Commercial Loans ($ in millions) Acquisition Principal Fair Maturity Extension Loan Date Loan Type Balance Value LTV Interest Rate Date Option Collateral Interest-Only 1-Month LIBOR Three One-Year CRE 1 March 2018 Mezzanine loan $ 20.0 20.0 .71 plus 6.5% 11/15/2019 Extensions Hotel Interest-Only First 1-Month LIBOR One-Year CRE 2 June 2018 Mortgage 30.0 30.0 .65 plus 4.5% 6/9/2020 Extension Hotel Principal & Interest 1-Month LIBOR Two One-Year Nursing CRE 4 June 2019 First Mortgage 50.0 50.0 .75 plus 7.0% 1/11/2022 Extensions Facilities Interest-Only One-Month LIBOR Two One-Year Nursing SBC 1 July 2018 First Mortgage 45.2 45.2 .74 plus 4.25% (1) 7/1/2020 Extensions Facilities Assisted Care September and Interest-Only First One-Month LIBOR One-Year Living SBC 2 October 2018 (4) Mortgage 115.5 115.5 .78 plus 5.3% (2) 9/6/2021 Extension Facilities Interest-Only One-Month LIBOR One-Year Nursing SBC 3 November 2018 First Mortgage 5.7 5.7 .59 plus 5.25% 12/1/2020 Extension Facilities Interest-Only One-Month LIBOR One-Year Apartment SBC 4 January 2019 First Mortgage 13.6 13.6 .84 plus 4.0% (3) 12/1/2021 Extension Complex Interest-Only One-Month LIBOR Nursing SBC 5 January 2019 First Mortgage 32.0 32.0 .49 plus 4.1% 7/1/2021 None Facilities $ 312.0 $ 312.0 (1) Subject to LIBOR floor of 1.25%. (2) Subject to LIBOR floor of of 1.9% and LIBOR cap of 3.5%. (3) Subject to LIBOR floor of 2%. (4) Acquired $49.6 million of the loan in September 2018 and the remaining $65.9 million in October 2018 21


 
WMC Returns as of June 30, 2019 Economic Return(1) Total Stock Return(2) 3 Years 5/5/12 to 3 Years 5/5/12 to QTD YTD Ended 6/30/2019 QTD YTD Ended 6/30/2019 1.1% 6.5% 29.2% 38.4% 23.4% 27.1% 45.9% 35.7% (1) Economic return is calculated by taking the sum of: (i) the total dividends declared; and (ii) the change in book value during the period and dividing by the beginning book value. (2) Total Stock return is calculated by taking the sum of: (i) the total dividends declared; and (ii) the change in stock price during the period and dividing by the beginning stock price. 22


 
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]


 
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