Second Quarter 2020 Investor Presentation August 5, 2020
Safe Harbor Statement 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. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the U.S. economy and economic activity. 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 the uncertainty and economic impact of pandemics, epidemics or other public health emergencies, such as the recent outbreak of COVID-19. 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 2020 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 world’s leading global fixed income managers, known for team management, proprietary research, robust risk management and a long-term fundamental value approach. • AUM of 468.5 billion (1) ◦ AUM of the Mortgage and Consumer Credit Group is $62.6 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 3 Please refer to page 18 for footnote disclosures.
Corporate Update The Company significantly improved its balance sheet in the second quarter by reducing debt and leverage, increasing liquidity and shareholder equity, and completing new financing arrangements that significantly reduce the Company’s exposure to short-term repurchase agreements. For the quarter ended June 30, 2020, these measures included, but were not limited to, the following: • In April, we closed an 18 month term financing arrangement without margin requirements for the entire unsecuritized Residential Whole Loan portfolio. This financing reduced our exposure to repurchase agreement financing and eliminated associated daily margin requirements. • In May, we closed a 12 month term financing arrangement, with a 12 month extension at the counterparty’s option, for Non-Agency RMBS and Non-Agency CMBS, significantly mitigating exposure to margin volatility. • In June we completed a securitization of $355.8 million of our Residential Whole Loan investments, enabling the Company to secure $341.7 million of of long-term financing at a weighted average interest rate of 2.0%. • In July, the Company retired $5.0 million of its 6.75% Convertible Senior Notes at a 25% discount to par value, in exchange for the issuance of 1.4 million shares of our common stock. • Reduced repurchase agreement financings in the second quarter by 76.2% to $369.1 million. • Raised $22.0 million of equity capital through the sale of 6.0 million shares at a premium to book value through our At-The-Market Program. • Sold approximately $423.2 million of Agency MBS, $42.6 million of Non-Agency MBS, $144.3 million in conforming whole loans, and $18.2 million other securities and repaid associated repurchase agreement financing to significantly reduce margin call exposure. • Our Manager waived management fees for April 2020 and May 2020. 4
Second Quarter Financial Update Second Quarter 2020 Financial Results ▪ GAAP book value per share of $3.17. ▪ GAAP net loss of $15.6 million, or $0.29 per basic and diluted common share ▪ Included in GAAP net loss is an accrual for a premium recapture fee which is payable to the counterparty of our Residential Whole Loan Facility of $20.5 million upon the termination or maturity of the facility. This fee was incurred as a result of refinancing $355.8 million of Residential Whole Loans financed on the facility through the securitization. ▪ Economic book value per share of $4.04(2). Core earnings of $5.8 million, or $0.11 per basic and diluted common share. (3) ▪ Economic return on GAAP book value was negative 7.0% for the quarter. (4) ▪ 1.91% annualized net interest margin on our investment portfolio. (5) ▪ ▪ Reduced recourse leverage to 3.0x leverage down from 9.5x at March 31, 2020. Please refer to page 18 for footnote disclosures . 5
Portfolio Composition Total Investment Portfolio ($ in millions) June 30, 2020 51.1% Agency RMBS $ 2 1.2% Non-Agency CMBS 189 Agency RMBS Non-Agency RMBS 27 Non-Agency RMBS Residential Whole-Loans 1,124 Non-Agency CMBS Residential Whole-Loans Residential Bridge Loans (6) 27 Residential Bridge Loans 21.2% Securitized Commercial Loans Securitized Commercial Loan (7) 466 Commercial Loans Other Securities Commercial Loans 323 Other Securities (8) 40 8.6% Total $ 2,198 1.2% 14.7% 0.1% 1.8% Select Sector Categories Non-Agency MBS and Other Securities Loan Portfolio 1.4% 73.7% 24.0% 57.9% 15.8% 16.7% 8.5% 2.1% Residential Whole Loans RMBS Residential Bridge Loans RMBS IO Securitized Commercial Loans CMBS Commercial Loan ABS and GSE CRT Securities 6 Please refer to page 18 for footnote disclosures.
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