8-K

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):

March 5, 2019

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 o

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.o

Item 2.02.Results of Operations and Financial Condition

On March 5, 2019, Western Asset Mortgage Capital Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter and year ended December 31, 2018. The text of the press release is furnished as exhibit 99.1 to this Form 8-K.

Item 7.01Regulation FD Disclosure

On March 6, 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	Press Release, dated March 5, 2018, issued by Western Asset Mortgage Capital Corporation
99.2	Investor Presentation, dated  March 5, 2018, issued by Western Asset Mortgage Capital Corporation

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:  March 5, 2019

EX-99.1

Exhibit 99.1

WESTERN ASSET MORTGAGE CAPITAL CORPORATION

ANNOUNCES FOURTH QUARTER AND FULL YEAR 2018 RESULTS

Conference Call and Webcast Scheduled for Tomorrow, Wednesday, March 6, 2019 at

11:00 a.m. Eastern Time/8:00 a.m. Pacific Time

Pasadena, CA, March 5, 2019 – Western Asset Mortgage Capital Corporation (the “Company” or "WMC") (NYSE: WMC) today reported its results for the fourth quarter and the year ended December 31, 2018.

FOURTH QUARTER 2018 HIGHLIGHTS

▪ December 31, 2018 book value per share of $10.45, net of fourth quarter common dividend of $0.31 per share declared on December 19, 2018.

▪ GAAP net loss of $17.7 million, or $0.37 per basic and diluted share.

▪ Core earnings plus drop income of $16.2 million, or $0.34 per basic and diluted share.^1,2  

▪ Economic return on book value was a negative 3.3%^1,3 for the quarter.

▪ 2.25% annualized net interest margin on our investment portfolio. ^1,4,5 

▪ 5.8x leverage excluding securitized debt as of December 31, 2018 (7.7x with securitized debt).

OTHER FOURTH QUARTER 2018 HIGHLIGHTS

▪ Acquired $521.9 million in credit sensitive investments, consisting of:

* $387.5 million in Residential Whole Loans,

* $71.3 million in Commercial Whole Loans, and

* $63.1 million in Residential Bridge Loans.

 FULL YEAR 2018 HIGHLIGHTS

▪ Maintained a consistent $0.31 per share quarterly common dividend throughout 2018 for total annual common dividends of $1.24 per share.

▪ GAAP net income of $26.4 million, or $0.61 per basic and diluted share.

▪ Core earnings plus drop income of $59.4 million, or $1.36 per basic and diluted share.^1,2  

▪ Economic return on book value was 4.8%^1,3 for the year.

▪ 2.08% annualized net interest margin. ^1,4,5 

▪ $67.7 million of common equity raised, net of offering cost.

1  Non – GAAP measure.

2  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. Drop income was approximately $273 thousand and $2.7 million for the three months and the year ended December 31, 2018, respectively.

3  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.

4  Includes interest-only securities accounted for as derivatives and the cost of interest rate swaps.

5  Excludes the consolidation of VIE trusts required under GAAP.

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MANAGEMENT COMMENTARY

“2018 was another positive year for WMC, despite a backdrop of year-end equity market volatility that spilled into the fixed income markets and pressured all spread sectors,” said Jennifer Murphy, Chief Executive Officer of the Company. “Notwithstanding the challenging conditions, we generated core earnings plus drop income of $0.34 per share for the fourth quarter and $1.36 for the year, more than covering our dividends, which have been consistent at $0.31 per share for the last eleven quarters.”

“The generally wider spreads on our investments in the fourth quarter translated into a negative economic return on book value of 3.3% for the quarter,” Murphy continued. “However, our diversified portfolio and differentiated investment strategy enabled us to generate a positive economic return on book value of approximately 4.8% for the full year, which put us at the high end of the range of our mortgage REIT peers. In addition, the overall market sentiment for risk assets turned positive in the first two months of 2019, and as a result, we have experienced a partial recovery in our book value.”

Sean Johnson, Interim Co-Chief Investment Officer of the Company, commented, “Our strong core earnings and positive performance for 2018 were driven by contributions across our diverse holdings in a number of subsectors of the mortgage market and reflects our ongoing shift out of Agency RMBS investments into credit sensitive investments and Agency CMBS. During the year, we acquired $2.7 billion of target assets, including $1.8 billion of credit sensitive investments, particularly in Residential Whole and Bridge Loans, and Commercial Whole Loans, all where we saw 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 neutral Federal Reserve monetary policy. We remain constructive on both residential and commercial real estate. The U.S. housing market is entering a more normalized phase as home price appreciation is expected to remain modest. Commercial real estate fundamentals generally continue to be positive, driven by an ongoing economic expansion and job growth. As such, we believe that our strategy of holding a diverse investment portfolio, with an emphasis on credit sensitive investments, and 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. Johnson.

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2018 Quarterly Results

The below table reflects a summary of our operating results (dollars in thousands, except per share data):

	For the Three Months Ended
GAAP Results	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018
Net Interest Income	$	17,128		$	15,944		$	19,020		$	19,030
Other Income (Loss):
Realized gain (loss) on sale of investments, net	(33,995		)	(24,229		)	(5,608		)	575
Other than temporary impairment	(2,757		)	(2,533		)	(2,974		)	(2,916		)
Unrealized gain (loss), net	62,855			13,128			(31,693		)	(68,961		)
Gain (loss) on derivative instruments, net	(54,728		)	24,625			28,490			79,582
Other, net	(89		)	(2		)	(145		)	47
Other Income (loss)	(28,714		)	10,989			(11,930		)	8,327
Total Expenses	5,915			5,845			5,601			5,315
Income (loss) before income taxes	(17,501		)	21,088			1,489			22,042
Income tax provision (benefit)	154			206			36			313
Net income (loss)	$	(17,655	)	$	20,882		$	1,453		$	21,729
Net income (loss) per Common Share – Basic/Diluted	$	(0.37	)	$	0.50		$	0.03		$	0.52
Non-GAAP Results
Core earnings plus drop income(1)	$	16,222		$	13,837		$	15,155		$	14,149
Core earnings plus drop income per Common Share – Basic/Diluted	$	0.34		$	0.33		$	0.36		$	0.34
Weighted average yield(2)(4)	4.71		%	4.53		%	4.36		%	4.14		%
Effective cost of funds(3)(4)	2.84		%	2.78		%	2.58		%	2.44		%
Annualized net interest margin(2)(3)(4)	2.25		%	2.06		%	2.05		%	1.94		%

(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.

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Portfolio Composition

As of December 31, 2018, the Company owned an aggregate investment portfolio with a fair market value totaling $4.3 billion. The following tables sets forth additional information regarding the Company’s investment portfolio as of December 31, 2018:

Portfolio Characteristics

Agency Portfolio

The following table summarizes certain characteristics of our Agency portfolio by investment category as of December 31, 2018 (dollars in thousands): 

	Principal Balance		Amortized Cost		Fair Value		Net Weighted Average Coupon
Agency CMBS	$	1,493,675	$	1,499,495	$	1,481,984	3.3	%
Agency CMBS Interest-Only Strips, accounted for as derivatives	N/A		N/A		4,158		0.4	%
Agency CMBS	1,493,675		1,499,495		1,486,142		3.0	%
Agency RMBS Interest-Only Strips	N/A		11,480		12,135		2.2	%
Agency RMBS Interest-Only Strips, accounted for as derivatives	N/A		N/A		7,702		2.9	%
Total Agency RMBS	—		11,480		19,837		2.5	%
Total	$	1,493,675	$	1,510,975	$	1,505,979	2.9	%

Credit Sensitive Portfolio

The following table summarizes certain characteristics of our credit sensitive portfolio by investment category as of December 31, 2018 (dollars in thousands): 

	Principal Balance		Amortized Cost		Fair Value		Weighted Average Coupon(1)
Non-Agency RMBS	$	54,887	$	38,065	$	39,026	4.8	%
Non-Agency RMBS IOs and IIOs	N/A		11,154		11,529		0.6	%
Non-Agency CMBS	240,431		197,925		200,301		5.9	%
Residential Whole Loans	1,023,524		1,038,008		1,041,885		5.1	%
Residential Bridge Loans	222,257		223,059		221,602		9.1	%
Securitized Commercial Loans(1)	1,013,065		1,013,496		1,013,511		5.8	%
Commercial Loans	216,432		215,491		216,123		7.6	%
Other Securities	47,042		55,284		59,906		9.0	%
	$	2,817,638	$	2,792,482	$	2,803,883	5.1	%

^{(1) In March 2018, the Company acquired a $67.8 million Non-Agency CMBS security which resulted in the consolidation of a variable interest entity and the recording of a $1.4 billion securitized commercial loan and $1.3 billion of securitized debt. As of December 31, 2018, the fair value of the securitized loan was $989.1 million and the securitized debt was $938.9 million after principal paydown.}  

4

Portfolio Financing and Hedging

Financing Activity

Repurchase Agreements

As of December 31, 2018, the Company had $2.8 billion of borrowings under 15 of our 29 master repurchase agreements with maturities of twelve months or less. The following table sets forth additional information regarding the Company’s portfolio financing under the master repurchase agreements as of December 31, 2018 (dollars in thousands):

Repurchase Agreements	Balance		Weighted Average Interest Rate (end of period)		Weighted Average Remaining Maturity (days)
Agency RMBS	$	14,650	3.09	%	21
Agency CMBS	1,392,649		2.71	%	40
Non-Agency RMBS	30,922		4.06	%	18
Non-Agency CMBS	134,814		4.05	%	48
Residential Whole Loans	863,356		4.08	%	93
Residential Bridge Loans	204,754		4.50	%	25
Commercial Loans	131,788		4.55	%	26
Securitized commercial loans	7,543		4.30	%	15
Other Securities	38,361		4.18	%	26
Total	$	2,818,837	3.45	%	54

Convertible Senior Unsecured Notes

At December 31, 2018, 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.

Hedging

As of December 31, 2018, the Company had $3.1 billion notional value of pay-fixed interest rate swaps, which have variable maturities between June 14, 2019 and April 27, 2037. The following table summarizes the average fixed pay rate, average floating receive rate and average maturity for the Company’s fixed pay interest rate swaps as of December 31, 2018 (dollars in thousands):

Remaining Interest Rate Swap Term	Notional Value		Average Fixed Pay Rate		Average Floating Receive Rate		Average Maturity (Years)
1 year or less	$	400,000	1.5	%	2.8	%	0.5
Greater than 1 year and less than 3 years	200,000		1.8	%	2.6	%	1.4
Greater than 3 years and less than 5 years	1,104,700		2.3	%	2.5	%	3.8
Greater than 5 years	1,423,100		2.5	%	2.5	%	9.9
Total	$	3,127,800	2.3	%	2.6	%	6.0

5

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 December 31, 2018 (dollars in thousands):

Remaining Interest Rate Swap Term	Notional Amount		Average  Variable Pay Rate		Average Fixed Receive Rate		Average Maturity (Years)
Greater than 5 years	$	728,400	2.5	%	2.4	%	8.3
Total	$	728,400	2.5	%	2.4	%	8.3

Dividend

On December 19, 2018, 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 $16.54 per share in a combination of cash and stock.

Conference Call

The Company will host a conference call with a live webcast tomorrow, March 6^th, at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to discuss financial results for the fourth quarter and year ended December 31, 2018.

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/10128577 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 March 20, 2019 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10128577. 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 Credit Risk Transfer Securities and Residential Whole, 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

6

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; and legislative and regulatory changes that could adversely affect the business of the Company. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

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Use of Non-GAAP Financial Information

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 spread, 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
lclark@finprofiles.com	tross@finprofiles.com

-Financial Tables to Follow-

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Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands—except share and per share data)

	December 31, 2018			December 31, 2017
Assets:
Cash and cash equivalents	$	21,987		$	48,024
Restricted cash	55,808			—
Agency mortgage-backed securities, at fair value ($1,505,979 and $2,833,595 pledged as collateral, at fair value, respectively)	1,505,979			2,858,600
Non-Agency mortgage-backed securities, at fair value ($237,107 and $266,189 pledged as collateral, at fair value, respectively)	250,856			378,158
Other securities, at fair value ($59,780 and $89,823 pledged as collateral, at fair value, respectively)	59,906			122,065
Residential Whole-Loans, at fair value ($1,041,885 and $237,423 pledged as collateral, at fair value, respectively)	1,041,885			237,423
Residential Bridge Loans ($211,999 and $64,526 at fair value and $221,486 and $106,673 pledged as collateral, respectively)	221,719			106,673
Securitized commercial loan, at fair value	1,013,511			24,876
Commercial Loans, at fair value ($196,123 and $0 pledged as collateral, at fair value, respectively)	216,123			—
Investment related receivable ($0 and $0 pledged as collateral, respectively)	42,945			7,665
Accrued interest receivable	21,959			13,603
Due from counterparties	39,623			86,930
Derivative assets, at fair value	2,606			728
Other assets	2,488			2,161
Total Assets (1)	$	4,497,395		$	3,886,906
Liabilities and Stockholders’ Equity:
Liabilities:
Borrowings under repurchase agreements, net	$	2,818,837		$	3,251,686
Convertible senior unsecured notes, net	110,060			108,743
Securitized debt, at fair value (includes $246,802 and $10,945 held by affiliates, respectively)	949,626			10,945
Interest payable (includes $816 and $70 on securitized debt held by affiliates, respectively)	8,532			8,322
Investment related payables	—			17,217
Due to counterparties	17,781			1,490
Derivative liability, at fair value	10,130			4,346
Accounts payable and accrued expenses	3,858			3,118
Payable to affiliate	4,615			2,041
Dividend payable	14,916			12,960
Other liabilities	56,031			—
Total Liabilities (2)	3,994,386			3,420,868
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, and 48,116,379 and 41,794,079 outstanding, respectively	481			419
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding	—			—
Treasury stock, at cost 0 and 125,722 shares held, respectively	—			(1,232		)
Additional paid-in capital	833,810			768,763
Retained earnings (accumulated deficit)	(331,282		)	(301,912		)
Total Stockholders’ Equity	503,009			466,038
Total Liabilities and Stockholders’ Equity	$	4,497,395		$	3,886,906

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10

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets (Continued)

(in thousands—except share and per share data)

	December 31, 2018		December 31, 2017
(1) Assets of consolidated VIEs included in the total assets above:
Cash and cash equivalents	$	674	$	—
Restricted cash	55,808		—
Residential Whole-Loans, at fair value ($1,041,885 and $237,423 pledged as collateral, at fair value, respectively)	1,041,885		237,423
Residential Bridge Loans ($211,999 and $64,526 at fair value and $221,486 and $106,673 pledged as collateral, respectively)	221,486		106,673
Securitized commercial loan, at fair value	1,013,511		24,876
Commercial Loans, at fair value ($196,123 and $0 pledged as collateral, at fair value, respectively)	196,123		—
Investment related receivable	42,945		7,665
Accrued interest receivable	15,540		3,358
Other assets	178		—
Total assets of consolidated VIEs	$	2,588,150	$	379,995
(2) Liabilities of consolidated VIEs included in the total liabilities above:
Securitized debt, at fair value (includes $246,802 and $10,945 held by affiliates, respectively)	$	949,626	$	10,945
Interest payable (includes $816 and $70 on securitized debt held by affiliates, respectively)	2,419		70
Accounts payable and accrued expenses	708		189
Other liabilities	$	56,033	$	—
Total liabilities of consolidated VIEs	$	1,008,786	$	11,204

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Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands—except share and per share data)

	Three Months Ended(1)												The Year Ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2018
Net Interest Income
Interest income	$	58,020		$	54,461		$	57,154		$	39,727		$	209,362
Interest expense	40,892			38,517			38,134			20,697			138,240
Net Interest Income	17,128			15,944			19,020			19,030			71,122
Other Income (Loss)
Realized gain (loss) on sale of investments, net	(33,995		)	(24,229		)	(5,608		)	575			(63,257		)
Other than temporary impairment	(2,757		)	(2,533		)	(2,974		)	(2,916		)	(11,180		)
Unrealized gain (loss), net	62,855			13,128			(31,693		)	(68,961		)	(24,671		)
Gain (loss) on derivative instruments, net	(54,728		)	24,625			28,490			79,582			77,969
Other, net	(89		)	(2		)	(145		)	47			(189		)
Other Income (Loss)	(28,714		)	10,989			(11,930		)	8,327			(21,328		)
Expenses
Management fee to affiliate	1,950			2,284			2,259			2,180			8,673
Other operating expenses	1,943			1,609			1,555			969			6,076
General and administrative expenses
Compensation expense	552			552			572			510			2,186
Professional fees	1,121			1,065			818			1,295			4,299
Other general and administrative expenses	349			335			397			361			1,442
Total general and administrative expenses	2,022			1,952			1,787			2,166			7,927
Total Expenses	5,915			5,845			5,601			5,315			22,676
Income (loss) before income taxes	(17,501		)	21,088			1,489			22,042			27,118
Income tax provision (benefit)	154			206			36			313			709
Net income (loss)	$	(17,655	)	$	20,882		$	1,453		$	21,729		$	26,409
Net income (loss) per Common Share – Basic	$	(0.37	)	$	0.50		$	0.03		$	0.52		$	0.61
Net income (loss) per Common Share – Diluted	$	(0.37	)	$	0.50		$	0.03		$	0.52		$	0.61
Dividends Declared per Share of Common Stock	$	0.31		$	0.31		$	0.31		$	0.31		$	1.24

⁽¹⁾ Consolidated Statements of Operations for each of the three months ended March 31, 2018, June 30, 2018 September 30, 2018 and December 31, 2018 are unaudited.

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Reconciliation of GAAP Net Income to Non-GAAP Core Earnings

(Unaudited)

(in thousands—except share and per share data)

The table below reconciles Net Income (Loss) to Core Earnings for each of the three months ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018 and the year ended December 31, 2018:

	Three Months Ended												The Year Ended
(dollars in thousands)	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2018
Net Income (loss) – GAAP	$	(17,655	)	$	20,882		$	1,453		$	21,729		$	26,409
Income tax provision	154			206			36			313			709
Net income (loss) before income tax	(17,501		)	21,088			1,489			22,042			27,118
Adjustments:
Investments:
Unrealized (gain) loss on investments, securitized debt and other liabilities	(62,855		)	(13,128		)	31,693			68,961			24,671
Other than temporary impairment	2,757			2,533			2,974			2,916			11,180
Realized (gain) loss on sale of investments	33,995			24,229			5,608			(575		)	63,257
One-time transaction costs	298			310			163			41			812
Derivative Instruments:
Net realized (gain) loss on derivatives	50,126			(29,569		)	(22,973		)	(79,118		)	(81,534		)
Unrealized (gain) loss on derivatives	8,921			7,036			(4,268		)	(1,308		)	10,381
Amortization of discount on convertible senior note	138			137			138			137			550
Non-cash stock-based compensation expense	70			70			50			75			265
Total adjustments	33,450			(8,382		)	13,385			(8,871		)	29,582
Core Earnings – Non-GAAP	$	15,949		$	12,706		$	14,874		$	13,171		$	56,700
Basic and Diluted Core Earnings per Common Share and Participating Securities	$	0.33		$	0.30		$	0.35		$	0.32		$	1.30
Basic and Diluted Core Earnings plus Drop Income per Common Share and Participating Securities	$	0.34		$	0.33		$	0.36		$	0.34		$	1.36
Basic weighted average common shares and participating securities	48,228,236			42,168,806			41,707,291			41,844,798			43,496,387
Diluted weighted average common shares and participating securities	48,228,236			42,168,806			41,707,291			41,844,798			43,496,387

13

Reconciliation of Interest Income and Effective Cost of Funds

(Unaudited, in thousands)

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 December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018:

	Three Months Ended												The Year Ended
(dollars in thousands)	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2018
Coupon interest income	$	62,225		$	59,045		$	60,043		$	40,557		$	221,870
Premium amortization, discount accretion and amortization of basis, net	(4,205		)	(4,584		)	(2,889		)	(830		)	(12,508		)
Interest income	$	58,020		$	54,461		$	57,154		$	39,727		$	209,362
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1):
Coupon interest income	869			1,209			1,011			1,422			4,511
Amortization of basis (Non-GAAP Financial Measure)	(691		)	(996		)	(783		)	(1,191		)	(3,661		)
Subtotal	178			213			228			231			850
Total interest income, including interest income on Agency and Non-Agency Interest-Only Strips, classified as derivatives and other derivative instruments - Non-GAAP Financial Measure	$	58,198		$	54,674		$	57,382		$	39,958		$	210,212

(1)Reported in gain (loss) on derivative instruments in the Consolidated Statement of Operations.

The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for each of the three months ended December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018:

	Three Months Ended
	December 31, 2018					September 30, 2018					June 30, 2018					March 31, 2018
(dollars in thousands)	Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs
Interest expense	$	40,892		3.76	%	$	38,517		3.50	%	$	38,134		3.20	%	$	20,697		2.38	%
Adjustments:
Interest expense on Securitized debt from consolidated VIEs	(13,065		)	(5.17	)%	(13,975		)	(4.85	)%	(14,340		)	(4.62	)%	(1,060		)	(5.23	)%
Net interest (received) paid - interest rate swaps	(4,208		)	(0.39	)%	(1,962		)	(0.18	)%	(1,044		)	(0.09	)%	1,056			0.12	%
Effective Borrowing Costs	$	23,619		2.84	%	$	22,580		2.78	%	$	22,750		2.58	%	$	20,693		2.44	%
Weighted average borrowings	$	3,304,271				$	3,224,915				$	3,535,268				$	3,444,171

14

The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the years ended December 31, 2018 and 2017:

	The Year Ended
	December 31, 2018					December 31, 2017
(dollars in thousands)	Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs
Interest expense	$	138,240		3.19	%	$	48,373		1.94	%
Adjustments:
Interest expense on Securitized debt from consolidated VIEs	(42,440		)	(4.43	)%	(981		)	(8.93	)%
Net interest (received) paid - interest rate swaps	(6,158		)	(0.14	)%	14,082			0.51	%
Effective Borrowing Costs	$	89,642		2.65	%	$	61,474		2.18	%
Weighted average borrowings	$	3,376,557				$	2,821,942

15

EX-99.2

Fourth Quarter 2018 Investor Presentation March 5, 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

Fourth Quarter 2018 WMC Earnings Call Presenters Jennifer W. Murphy Lisa Meyer Sean Johnson Chief Executive Officer & Chief Financial Officer & Interim Co-Chief Investment President Treasurer Officer 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 ("Western Asset") One of the largest U.S. fixed income asset managers with AUM of $429.1 billion(1) Structured Product AUM of $71.9 billion, of which $38.0 billion is invested in Agency RMBS and $33.9 billion in Non-Agency RMBS, CMBS, and ABS (1) Senior investment team members have worked together for approximately 13 years Extensive mortgage investing track record Publicly traded diversified mortgage REIT positioned to capture attractive current and long-term investment opportunities in the mortgage market Completed Initial Public Offering in May 2012 3 Please refer to page 20 for footnote disclosures.

Corporate Overview ▪ ▪ WMC is a diversified mortgage finance REIT supported by the deep investment experience of the mortgage and asset-backed investment 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 with over $400 billion AUM; * 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, Non-Agency MBS and Residential and Commercial Whole Loans, with the objective of generating strong returns while preserving book value. WMC has paid a consistent dividend for 11 quarters, reflecting a philosophy of delivering a sustainable dividend that is supported by the core earnings of our portfolio. 4

Fourth Quarter Financial Highlights ▪ December 31, 2018 book value per share of $10.45, net of fourth quarter common dividend of $0.31 per share declared on December 19, 2018. ▪ GAAP net loss of $17.7 million, or $0.37 per basic and diluted share. ▪ Core earnings plus drop income of $16.2 million(4), or $0.34 per basic and diluted share. ▪ Economic return on book value was a negative 3.3%(3) for the quarter. ▪ 2.25%(6) annualized net interest margin on our investment portfolio. ▪ 5.8x leverage excluding securitized debt as of December 31, 2018 (7.7x with securitized debt). ▪ Acquired $521.9 million in credit sensitive investments, consisting of: * $387.5 million in Residential Whole Loans, * $71.3 million in Commercial Whole Loans, and * $63.1 million in Residential Bridge Loans. 5 Please refer to page 20 for footnote disclosures.

Full Year 2018 Financial Highlights ▪ Maintained a consistent $0.31 per share quarterly common dividend throughout 2018 for total annual common dividends of $1.24 per share. ▪ GAAP net income of $26.4 million, or $0.61 per basic and diluted share. ▪ Core earnings plus drop income of $59.4 million (4), or $1.36 per basic and diluted share. ▪ Economic return on book value was 4.8%(3) for the year. ▪ 2.08%(6) annualized net interest margin. ▪ $67.7 million of common equity raised, net of offering cost. 6

Recent Performance (3) Book Value Per Share Economic Return 12.0 4.0 10.0 4.8% 8.0 2.0 3.1% 6.0 $11.37 $11.10 $11.13 $10.45 0.0 0.4% 4.0 (3.3)% -2.0 2.0 0.0 -4.0 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Dividend Per Share Core Earnings Plus Drop Income Per Share (4) $0.35 $0.40 $0.30 $0.35 $0.30 $0.25 $0.25 $0.20 $0.20 0.36 0.34 0.33 0.34 $0.15 0.31 0.31 0.31 0.31 $0.15 $0.10 $0.10 $0.05 $0.05 $0.00 $0.00 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2018 7 Please refer to page 20 for footnote disclosures.

Portfolio Composition Agency RMBS Total Investment Portfolio, at fair value 4.6% 24.2% ($ in millions) 1.2% Agency CMBS December 31, 2018 Agency RMBS $ 20 Non-Agency RMBS Agency CMBS 1,486 5.1% Non-Agency CMBS Non-Agency RMBS 50 Residential Whole-Loans Non-Agency CMBS 200 Residential Whole-Loans 1,042 34.5% Residential Bridge Loans (12) 222 Residential Bridge Loans Securitized Loans Securitized Loans(2) 1,014 23.5% Commercial Loans Commercial Loans 216 0.5% 5.0% Other Investments(10) 60 1.4% Other Investments Total $ 4,310 Select Sector Categories Non-Agency Portfolio & Other Agency Portfolio Loan Portfolio Securities 8.9% 98.4% 12.6% 40.6% 3.7% 64.4% 19.3% 41.8% 8.7% 1.3% 0.3% Non-Agency CMBS Residential Whole-Loans Agency CMBS Non-Agency RMBS Residential Bridge Loans Agency RMBS IO & IIO Non-Agency RMBS IO & IIO Securitized Commercial Loans Agency CMBS IO & IIO ABS and GSE CRT Securities Commercial Loans Please refer to page 20 for footnote disclosures. 8

Fourth Quarter Portfolio Income Attribution(5) For Three Months Ended December 31, 2018 (In thousands except per share data) Residential Securitized Agency Agency Non-Agency Non-Agency Residential Bridge Other Commercial Commercial CMBS RMBS CMBS RMBS Whole-Loans Loans(12) Securities(10) Loans Loans(14) Total Interest Income(15) $ 14,051 $ 1,199 $ 5,190 1,116 $ 11,844 $ 4,562 $ 1,560 $ 3,723 $ 14,867 $ 58,111 Interest expense(7) (10,879) (1,234) (1,853) (584) (8,377) (3,077) (535) (1,207) (13,145) (40,892) Net interest rate swap interest income(8) 3,317 460 129 292 — — 10 — — 4,208 Net Interest Income 6,488 426 3,465 824 3,467 1,485 1,035 2,516 1,722 21,427 Realized gain (loss) on investments (20,388) (19,466) (2,438) 3,416 — (48) 4,931 — — (33,995) Unrealized gain (loss) on investments(16) 46,441 18,912 3,794 (2,259) 2,271 (480) (5,557) 789 (11,167) 52,744 Securitized debt unrealized gain (loss) — — — — — — — — 10,430 10,430 Gain (loss) on derivative instruments, net(13) (47,403) (6,580) (1,840) (4,174) — — 577 — — (59,420) OTTI(9) (15) (145) (1,169) (727) — — (718) — — (2,773) Portfolio Income (Loss) $ (14,877) $ (6,853) $ 1,813 $ (2,921) $ 5,738 $ 957 $ 267 $ 3,305 $ 984 $ (11,587) BV Per Share Increase (Decrease) (0.31) (0.14) 0.03 (0.06) 0.12 0.02 0.01 0.07 0.02 (0.24) Per Share Beginning book value $ 11.13 Portfolio income (loss)(5) (0.24) Operating expenses and G&A (0.12) Dividend (0.31) Provision for Taxes (0.01) Ending book value $ 10.45 9 Please refer to page 20 for footnote disclosures.

Full Year Portfolio Income Attribution(5) For Year Ended December 31, 2018 (In thousands except per share data) Residential Securitized Agency Agency Non-Agency Non-Agency Residential Bridge Other Commercial Commercial CMBS RMBS CMBS RMBS Whole-Loans Loans(12) Securities(10) Loans Loans(14) Total Interest Income(17) $ 59,698 $ 15,069 $ 26,425 6,047 $ 23,331 $ 15,889 $ 8,245 $ 6,898 $ 48,422 $ 210,024 Interest expense(7) (41,292) (10,083) (8,567) (2,753) (17,337) (11,046) (2,501) (1,988) (42,674) (138,240) Net interest rate swap interest income(8) 4,933 755 245 206 — — 19 — — 6,159 Net Interest Income 23,339 5,741 18,104 3,500 5,995 4,843 5,763 4,910 5,748 77,942 Realized gain (loss) on investments (51,045) (23,978) (3,115) 6,530 — (48) 8,400 — — (63,257) Unrealized gain (loss) on investments(18) (25,014) (2,670) 15,805 (3,960) (444) (2,121) (7,352) 631 (16) (25,141) Securitized debt unrealized gain (loss) — — — — — — — — 116 116 Gain (loss) on derivative instruments, net(13) 57,243 8,755 2,843 2,394 — — 380 — — 71,615 OTTI(9) (232) (877) (8,660) (996) — — (717) — — (11,481) Portfolio Income (Loss) $ 4,290 $ (13,029) $ 24,977 $ 7,470 $ 5,551 $ 2,674 $ 6,474 $ 5,540 $ 5,848 $ 49,794 BV Per Share Increase (Decrease) 0.09 (0.27) 0.52 0.16 0.11 0.06 0.13 0.12 0.12 1.04 Per Share Beginning book value $ 11.15 Portfolio income (loss)(5) 1.04 Operating expenses and G&A (0.47) Dividend (1.16) Provision for Taxes (0.02) Offering cost (0.09) Ending book value $ 10.45 10 Please refer to page 20 for footnote disclosures.

Adjusted* Portfolio Composition 1.5% Total Investment Portfolio, at fair value 7.9% ($ in millions) Agency RMBS December 31, 2018 Agency CMBS Agency RMBS $ 20 Non-Agency RMBS Agency CMBS 1,486 Non-Agency RMBS 50 44.2% 31.0% Non-Agency CMBS Non-Agency CMBS 264 Residential Whole-Loans Residential Whole-Loans 1,042 Residential Bridge Loans Residential Bridge Loans(12) 222 Commercial Loans 216 Commercial Loans Other Investments(10) 60 0.6% 6.4% 6.6% Other Investments Total $ 3,360 1.8% Select Sector Categories Non-Agency Portfolio & Other Loan Portfolio Agency Portfolio Securities 98.4% 10.4% 70.4% 70.5% 3.1% 15.0% 16.0% 14.6% 1.3% 0.3% Non-Agency CMBS Agency CMBS Residential Whole-Loans Non-Agency RMBS Agency RMBS IO & IIO Non-Agency RMBS IO & IIO Residential Bridge Loans Agency CMBS IO & IIO ABS and GSE CRT Securities Commercial Loans *Excludes consolidation of VIE Trusts required under GAAP 11 Please refer to page 20 for footnote disclosures.

Adjusted* Portfolio Income Attribution(5) For Three Months Ended December 31, 2018 (In millions except per share data) Residential Residential Agency Agency Non-Agency Non-Agency Whole- Bridge Loans Other Commercial CMBS RMBS CMBS RMBS Loans (12) Securities(10) Loan Total Interest Income(15) $ 14,051 $ 1,199 $ 7,151 1,116 $ 11,844 $ 4,562 $ 1,560 $ 3,723 $ 45,205 Interest expense(7) (10,879) (1,234) (1,934) (584) (8,377) (3,077) (535) (1,207) (27,827) Net interest rate swap interest income(8) 3,317 460 129 292 — — 10 — 4,208 Net Interest Income 6,488 426 5,346 824 3,467 1,485 1,035 2,516 21,586 Realized gain (loss) (20,388) (19,466) (2,438) 3,416 — (48) 4,931 — (33,995) Unrealized gain (loss)(16) 46,441 18,912 2,898 (2,259) 2,271 (480) (5,557) 789 63,016 Gain (loss) on derivative instruments, net(13) (47,403) (6,580) (1,840) (4,174) — — 577 — (59,420) OTTI(9) (15) (145) (1,169) (727) — — (718) — (2,773) Portfolio Income (loss) $ (14,877) $ (6,853) $ 2,798 $ (2,921) $ 5,738 $ 957 $ 267 $ 3,305 $ (11,587) BV Per Share Increase (Decrease) $ (0.31) $ (0.14) $ 0.05 $ (0.06) $ 0.12 $ 0.02 $ 0.01 $ 0.07 $ (0.24) Per Share Beginning book value $ 11.13 Portfolio income (loss)(5) (0.24) Operating expenses and G&A (0.12) Dividend (0.31) Provision for Taxes (0.01) Ending book value $ 10.45 * 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. 12 Please refer to page 20 for footnote disclosures.

Adjusted* Portfolio Income Attribution(5) For Year Ended December 31, 2018 (In millions except per share data) Residential Residential Agency Agency Non-Agency Non-Agency Whole- Bridge Loans Other Commercial CMBS RMBS CMBS RMBS Loans (12) Securities(10) Loan Total Interest Income(17) $ 59,698 $ 15,069 $ 33,184 6,047 $ 23,331 $ 15,889 $ 8,245 $ 6,898 $ 168,360 Interest expense(7) (41,292) (10,083) (8,801) (2,753) (17,337) (11,046) (2,501) (1,988) (95,800) Net interest rate swap interest income(8) 4,933 755 245 206 — — 19 — 6,159 Net Interest Income 23,339 5,741 24,628 3,500 5,995 4,843 5,763 4,910 78,719 Realized gain (loss) (51,045) (23,978) (3,115) 6,530 — (48) 8,400 — (63,257) Unrealized gain (loss)(18) (25,014) (2,670) 15,128 (3,960) (444) (2,121) (7,352) 631 (25,802) Gain (loss) on derivative instruments, net(13) 57,243 8,755 2,843 2,394 — — 380 — 71,615 OTTI(9) (232) (877) (8,660) (996) — — (717) — (11,481) Portfolio Income (Loss) $ 4,290 $ (13,029) $ 30,824 $ 7,470 $ 5,551 $ 2,674 $ 6,474 $ 5,540 $ 49,794 BV Per Share Increase (Decrease) $ 0.09 $ (0.27) $ 0.64 $ 0.16 $ 0.11 $ 0.06 $ 0.13 $ 0.12 $ 1.04 Per Share Beginning book value $ 11.15 Portfolio income (loss)(5) 1.04 Operating expenses and G&A (0.47) Dividend (1.16) Provision for Taxes (0.02) Offering cost (0.09) Ending book value $ 10.45 * 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. 13 Please refer to page 20 for footnote disclosures.

Financing Summary n 29 master repurchase agreements. n Outstanding borrowings under 15 of our 29 master repurchase agreements. n Capacity in excess of our current needs. Portfolio Financing ($ in millions) December 31, 2018 Outstanding Remaining Days to Repurchase Agreements Amounts Interest Rate Maturity Agency RMBS $ 14.7 3.09% 21 Agency CMBS 1,392.6 2.71% 40 Non-Agency RMBS 30.9 4.06% 18 Non-Agency CMBS 134.8 4.05% 48 Residential Whole-Loans 863.4 4.08% 93 Residential Bridge Loans 204.8 4.5% 25 Residential Whole-Loans 131.8 4.55% 26 Residential Bridge Loans 7.5 4.3% 15 Other Securities (10) 38.4 4.18% 26 Total $ 2,818.8 3.45% 54 14 Please refer to page 20 for footnote disclosures.

(11) Hedging Summary Our interest rate swaps are comprised of: n $3.1 billion notional value of pay-fixed interest rate swaps, and n $728.4 million notional value of variable pay interest rate swaps. Fixed Pay Interest Rate Swaps ($ in millions – as of December 31, 2018) Avg. Fixed Pay Avg. Floating Average Maturity Maturity Notional Amount Rate Receive Rate (Years) 1 year or less $ 400.0 1.5% 2.8% 0.5 Greater than 1 year and less than 3 years 200.0 1.8% 2.6% 1.4 Greater than 3 years and less than 5 years 1,104.7 2.3% 2.5% 3.8 Greater than 5 years 1,423.1 2.5% 2.5% 9.9 Total $ 3,127.8 2.3% 2.6% 6.0 Variable Pay Interest Rate Swaps ($ in millions – as of December 31, 2018) Avg. Variable Pay Avg. Fixed Average Maturity Maturity Notional Amount Rate Receive Rate (Years) Greater than 5 years 728.4 2.5% 2.4% 8.3 Total 728.4 2.5% 2.4% 8.3 15 Please refer to page 20 for footnote disclosures.

Duration as of December 31, 2018 Agency Holdings Key Rate Duration Contribution Total 6-Months 2-Year 5-Year 10-Year 20-Year Agency IO/IIO 0.04 0.01 0.02 0.02 — (0.01) Agency CMBS 3.32 — 0.03 0.65 2.60 0.04 Swaps and Futures (3.61) 0.06 (0.86) (0.65) (1.84) (0.32) Total (0.25) 0.07 (0.81) 0.02 0.76 (0.29) n Net Duration of Agency IO/IIO and Agency CMBS portfolio is a negative 0.25 years 16 Please refer to page 20 for footnote disclosures.

2019 Macroeconomic Outlook ▪ Global growth has downshifted but should remain sturdy. ▪ U.S. growth and inflation will moderate. ▪ Central bank policy normalization will slow to a crawl. ▪ Trade policy poses substantial risks. ▪ Spread products should recover relative to Treasuries and sovereign bonds. ▪ Emerging markets, though volatile, should outperform. 17

Portfolio View Credit sensitive mortgage sectors have performed relatively well and are expected to continue to offer attractive returns. We expect to continue increasing credit sensitive mortgages. We remain constructive for agency commercial spreads. ▪ Residential Whole Loans continue to perform in-line with our expectations. * We expect residential whole loans, mainly non-qualifying mortgages and commercial loans to be the largest growth areas. ▪ Commercial mezzanine loans opportunities continue to offer attractive risk-reward opportunities. 18

Target Investment Opportunities Non-Qualifying • Strategic partnerships with seasoned originators. ▪ Mainly 3/1, 5/1, and 7/1 ARM loans. Mortgages ▪ Coupon between 4%-6%. ▪ Target loan to value below 80%. • Single asset single borrower commercial loans. ▪ Invest in deals where our manager has an opportunity to negotiate deal structure and covenants. Commercial Loans ▪ Attractive yields of Libor plus 600-900 bps. ▪ Target floating rate assets and short term deals. ▪ Multifamily residential loans guaranteed by Fannie Mae and Freddie Mac. ▪ Outstanding balance 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. 19

Footnotes (1) As of December 31, 2018. (2) In March 2018, the Company acquired a $67.8 million Non-Agency CMBS security which resulted in the consolidation of a variable interest entity and the recording of a $1.4 billion securitized commercial loan and $1.3 billion 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)  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. Drop income was approximately $273 thousand and $2.7 million for the three months and the year ended December 31, 2018, respectively. (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 period. 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 December 31, 2018 includes $212.0 million of residential bridge loans carried at fair value and $9.7 million of residential bridge loans carried at amortized costs. (13) Gain (loss) on derivative instruments, net, has been allocated based average duration contribution (excludes 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 of $90 thousand. (16) Non-GAAP measure which includes net unrealized gains of $319 thousand for the quarter ended December 31, 2018 on IO's and IIO's accounted for as derivatives (17) Non-GAAP measure which includes interest income on IO's and IIO's accounted for as derivatives and other income and expense of $661 thousand. (18) Non-GAAP measure which includes net unrealized losses of $355 thousand for the year ended December 31, 2018 on IO's and IIO's accounted for as derivatives. 20

Appendix

Book Value Roll Forward Q4 2018 FY 2018 Amounts Amounts ($ in thousands) Per Share ($ in thousands) Per Share Beginning Book Value $ 535,645 $ 11.13 $ 466,038 $ 11.15 Issuance of 6,500,000 shares of common stock, including treasury shares — — 72,150 — Stock issue discount (1,625) (0.03) Underwriter's commissions and offering costs (134) — (2,841) (0.06) Repurchase of common stock — N/A (1,733) N/A Common Dividend (14,916) (0.31) (55,654) (1.16) 520,595 10.82 476,335 9.90 Portfolio Income (Loss) Net Interest Margin(6) 21,586 0.45 78,719 1.64 Net realized gain (loss) on investments and derivatives (84,189) (1.75) 18,085 0.38 Net unrealized gain (loss) on investments and derivatives 53,788 1.12 (35,529) (0.74) Other than temporary impairment(9) (2,772) (0.06) (11,481) (0.24) Net Portfolio Income (Loss) (11,587) (0.24) 49,794 1.04 Operating expense (3,893) (0.08) (14,749) (0.31) General and administrative (excludes stock- based compensation) (1,952) (0.04) (7,662) (0.16) Income tax benefit (provision) (154) (0.01) (709) (0.02) Book Value at December 31, 2018 $ 503,009 $ 10.45 $ 503,009 $ 10.45 22 Please refer to page 20 for footnote disclosures.

Portfolio Composition as of December 31, 2018 (Continued) Adjusted Credit Sensitive Portfolio* ($ in millions) Principal Balance Amortized Costs Fair Value Net Weighted Net Weighted Average Coupon Average Yield Non-Agency RMBS $ 54.9 $ 38.1 $ 39.0 4.8% 5.3% Non-Agency RMBS IOs and IIOs — 11.2 11.5 0.6% 13.0% Non-Agency CMBS 305.0 262.5 264.2 7.0% 9.9% Residential Whole Loans 1,023.5 1,038.0 1,041.9 5.1% 5.4% Residential Bridge Loans 222.3 223.1 221.6 9.1% 8.3% Commercial Loans 216.4 215.5 216.1 7.6% 7.4% Other Securities 47.0 55.3 59.9 9.0% 10.1% $ 1,869.1 $ 1,843.5 $ 1,854.3 5.0% 6.8% Non-Agency RMBS2.1% Other Securities3.2% Non-Agency RMBS IOs and IIOs0.6% Commercial Loan11.7% Non-Agency CMBS14.2% Residential Bridge Loans12.0% Residential Whole Loans56.2% *Excludes consolidation of VIE Trusts required under GAAP 23

WMC Returns as of December 31, 2018 Economic Return(1) Total Stock Return(2) 3 Years 5/5/12 to 3 Years 5/5/12 to QTD YTD Ended 12/31/2018 QTD YTD Ended 12/31/2018 (3.3)% 4.8% 17.2% 35.0% (13.7)% (3.7)% 19.4% 24.4% (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. 24

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 lclark@finprofiles.com