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 4, 2020

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

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 March 4, 2020, Western Asset Mortgage Capital Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter and year ended December 31, 2019. The text of the press release is furnished as exhibit 99.1 to this Form 8-K.

Item 7.01Regulation FD Disclosure

On March 5, 2020, 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 4, 2020, issued by Western Asset Mortgage Capital Corporation
99.2	Investor Presentation, dated  March 4, 2020, 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 4, 2020

EX-99.1

Exhibit 99.1

WESTERN ASSET MORTGAGE CAPITAL CORPORATION

ANNOUNCES FOURTH QUARTER AND FULL YEAR 2019 RESULTS

Conference Call and Webcast Scheduled for Tomorrow, Thursday, March 5, 2020 at

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

Pasadena, CA, March 4, 2020 – 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, 2019.

FOURTH QUARTER 2019 FINANCIAL HIGHLIGHTS

▪ December 31, 2019 book value per share of $10.55, net of fourth quarter common dividend of $0.31 per share declared on December 19, 2019.

▪ GAAP net income of $12.5 million, or $0.23 per basic and diluted share.

▪ Core earnings plus drop income of $15.8 million, or $0.30 per basic and diluted share.^1,2  

▪ Economic return on book value was a 2.5%^1,3 for the quarter.

▪ 1.72% annualized net interest margin on our investment portfolio. ^1,4,5 

▪ 5.4x leverage excluding non-recourse debt as of December 31, 2019 (8.0x leverage including non-recourse debt).

OTHER FOURTH QUARTER 2019 HIGHLIGHTS

▪ Issued $50.0 million aggregate principal amount of 6.75% convertible senior unsecured notes.

▪ Acquired $479.0 million in credit sensitive investments, consisting of:

* $180.5 million million in Non-Agency CMBS

* $249.2 million in Residential Whole Loans, and

* $49.3 million in Commercial Whole Loans.

 FULL YEAR 2019 FINANCIAL HIGHLIGHTS

▪ Maintained a consistent $0.31 per share quarterly common dividend throughout 2019 for total annual common dividends of $1.24 per share.

▪ GAAP net income of $70.7 million, or $1.37 per basic and diluted share.

▪ Core earnings plus drop income of $62.1 million, or $1.21 per basic and diluted share.^1,2  

▪ Economic return on book value was 12.8%^1,3 for the year.

▪ 1.95% annualized net interest margin on our investment portfolio. ^1,4,5 

OTHER FULL YEAR HIGHLIGHTS

▪ $49.3 million of common equity raised in secondary offering, net of offering costs.

▪ Completed a securitization of $945.5 million of our Residential Whole Loan investments involving the issuance of $919.0 million of mortgage-backed notes.

▪ Issued $90.0 million aggregate principal amount of 6.75% convertible senior unsecured notes.

▪ Obtained two new longer term financing facilities, consisting of $200.0 million commercial whole loan financing facility and $700.0 million residential whole loan financing facility.

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 $986 thousand for the three months and year ended December 31, 2019, 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.

1

MANAGEMENT COMMENTARY

“We delivered strong 2019 results for our shareholders, as the scale and scope of Western Asset’s capabilities continue to provide us with strategic benefits,” said Jennifer Murphy, Chief Executive Officer of the Company. “Total shareholder return for the year was 38.7%, driven by strong investment portfolio performance and consistent dividends, which we have maintained for 15 consecutive quarters. We generated an economic return on book value of  2.5% for the fourth quarter and 12.8% for the full year, reflecting our focus on active portfolio positioning and risk management. We continue to be committed to our primary objective of generating attractive total returns for our shareholders, while also providing for greater book value stability.” 

“We completed several significant capital markets transactions during the year. In May, we completed a $50 million equity offering, and in August and December, we issued an additional $90 million in total of our 6.75% convertible senior unsecured notes due in 2022, all enabling us to further invest in attractive assets. We believe this additional capital allowed us to enhance the overall earnings potential of the portfolio and supports our long-term goal of growing the company to gain better scale, which we believe will benefit our shareholders.

“In May, we completed a securitization of a portion of our residential whole loans involving the issuance of $919 million in mortgage-backed notes. This transaction represented the Company’s first securitization and enabled us to finance assets with longer-term fixed rate financing at attractive levels. Our successful execution of this securitization reflected the Company’s ability to leverage Western Asset’s investment and operating platform, a strategic advantage for the Company and our shareholders,” Ms. Murphy concluded.

Harris Trifon, Chief Investment Officer of the Company, commented, “Our positive performance for the fourth quarter and full year were driven by contributions across our diverse holdings in a number of subsectors of the mortgage market and reflects our efforts to increase our exposure to credit sensitive investments. During the quarter, we acquired $479 million of credit sensitive assets, including $49 million of Commercial Whole Loans , $249 million of Residential Whole Loans and $181 million of Non-Agency CMBS, 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 an ongoing accommodative Federal Reserve monetary policy. We believe that credit spread sectors will continue to perform well in 2020, and we will maintain our focus on areas where we see the best relative value within our target universe. We believe that the current moderate growth environment is accretive for real estate and consumers, and we remain constructive on both residential and commercial real estate. The U.S. housing sector continues to advance with demand driven by ongoing job growth, high consumer confidence and increased household formations, all against a backdrop of a very tight supply of entry-level homes. Commercial real estate fundamentals, meanwhile, remain positive, driven by the ongoing economic expansion. As such, we believe that our strategically diverse investment portfolio, focused 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

2019 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, 2019			September 30, 2019			June 30, 2019			March 31, 2019
Net Interest Income	$	18,927		$	16,570		$	15,860		$	15,633
Other Income (Loss):
Realized gain (loss) on sale of investments, net	11,992			21,399			(8		)	(5,105		)
Other than temporary impairment	(2,228		)	(1,819		)	(3,295		)	(1,232		)
Unrealized gain (loss), net	(52,896		)	35,030			74,614			50,781
Gain (loss) on derivative instruments, net	42,007			(47,056		)	(71,530		)	(27,148		)
Other, net	518			918			532			236
Other Income (loss)	(607		)	8,472			313			17,532
Total Expenses	5,209			5,377			5,081			5,277
Income (loss) before income taxes	13,111			19,665			11,092			27,888
Income tax provision (benefit)	622			(55		)	478			12
Net income (loss)	$	12,489		$	19,720		$	10,614		$	27,876
Net income (loss) per Common Share – Basic/Diluted	$	0.23		$	0.37		$	0.21		$	0.58
Non-GAAP Results
Core earnings plus drop income(1)	$	15,790		$	15,014		$	15,758		$	15,492
Core earnings plus drop income per Common Share – Basic/Diluted	$	0.30		$	0.28		$	0.31		$	0.32
Weighted average yield(2)(4)	4.60		%	4.53		%	4.94		%	5.17		%
Effective cost of funds(3)(4)	3.09		%	3.05		%	2.94		%	3.25		%
Annualized net interest margin(2)(3)(4)	1.72		%	1.69		%	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 December 31, 2019, the Company owned an aggregate investment portfolio with a fair market value totaling $4.9 billion. The following tables set forth additional information regarding the Company’s investment portfolio as of December 31, 2019:

Portfolio Characteristics

Agency Portfolio

The following table summarizes certain characteristics of our Agency portfolio by investment category as of December 31, 2019 (dollars in thousands): 

	Principal Balance		Amortized Cost		Fair Value		Net Weighted Average Coupon
Agency CMBS	$	1,347,929	$	1,374,443	$	1,435,477	3.4	%
Agency CMBS Interest-Only Strips, accounted for as derivatives	N/A		N/A		3,092		0.4	%
Total Agency CMBS	1,347,929		1,374,443		1,438,569		3.1	%
Agency RMBS	327,814		333,287		340,771		3.5	%
Agency RMBS Interest-Only Strips	N/A		8,661		10,343		2.8	%
Agency RMBS Interest-Only Strips, accounted for as derivatives	N/A		N/A		5,572		3.0	%
Total Agency RMBS	327,814		341,948		356,686		3.3	%
Total	$	1,675,743	$	1,716,391	$	1,795,255	3.1	%

Credit Sensitive Portfolio

The following table summarizes certain characteristics of our credit sensitive portfolio by investment category as of December 31, 2019 (dollars in thousands): 

	Principal Balance		Amortized Cost		Fair Value		Weighted Average Coupon(1)
Non-Agency RMBS	$	52,767	$	37,003	$	38,131	4.8	%
Non-Agency RMBS IOs and IIOs	N/A		7,705		7,683		0.6	%
Non-Agency CMBS	354,458		314,533		316,019		5.1	%
Residential Whole Loans	1,325,443		1,351,192		1,375,860		5.2	%
Residential Bridge Loans	37,196		37,257		36,419		9.5	%
Securitized Commercial Loans(1)	943,379		910,096		909,040		3.4	%
Commercial Loans	370,213		369,704		370,213		7.2	%
Other Securities	71,896		73,975		80,161		6.7	%
	$	3,155,352	$	3,101,465	$	3,133,526	4.3	%

(1) The Company acquired Non-Agency CMBS securities with certain control rights, which resulted in the consolidation of three variable interest entities and the recording $909.0 million in securitized commercial loans.

4

Portfolio Financing and Hedging

Financing

Repurchase Agreements

As of December 31, 2019, the Company had borrowings under 21 of its 34 master repurchase agreements. The following table sets forth additional information regarding the Company’s portfolio financing under the master repurchase agreements, which includes the outstanding balance under its $700.0 million residential whole loan and $200.0 million commercial whole loan financing facilities, as of December 31, 2019 (dollars in thousands):

Repurchase Agreements	Balance		Weighted Average Interest Rate (end of period)		Weighted Average Remaining Maturity (days)
Short Term Borrowings:
Agency RMBS	$	348,274	1.99	%	52
Agency CMBS	1,352,248		2.05	%	26
Non-Agency RMBS	30,481		3.56	%	9
Non-Agency CMBS	190,390		3.05	%	35
Residential Whole Loans	102,029		3.51	%	27
Residential Bridge Loans	29,869		3.93	%	28
Commercial Loans	62,746		4.04	%	28
Securitized commercial loans	116,087		3.93	%	49
Other Securities	56,762		3.23	%	34
Subtotal	$	2,288,886	2.41	%	32
Long Term Borrowings:
Residential Whole Loans (1)	$	374,143	3.27	%	898
Commercial Loans (1)	161,848		3.88	%	590
Subtotal	$	535,991	3.45	%	805
Repurchase agreements borrowings	$	2,824,877	2.61	%	179
Less unamortized debt issuance costs	76		N/A		N/A
Repurchase agreements borrowings, net	$	2,824,801	2.61	%	179

(1) Certain Residential Whole Loans and Commercial Loans were financed under two longer 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 December 31, 2019, the Company had $205.0 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 the residential mortgage-backed notes issued by the Company's securitization trust (the "Arroyo Trust") at December 31, 2019 (dollars in thousands):

5

Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:(1)
Class A-1	$	681,668	3.3%	$	681,666	4/25/2049
Class A-2	36,525		3.5%	36,524		4/25/2049
Class A-3	57,866		3.8%	57,864		4/25/2049
Class M-1	25,055		4.8%	25,055		4/25/2049
Subtotal	$	801,114		$	801,109
Less: Unamortized Deferred Financing Costs	N/A			5,298
Total	$	801,114		$	795,811

^{(1) The subordinate notes were retained by the Company.} 

The securitized debt of the Arroyo Trust can only be settled with the residential loans that serve as collateral for the securitized debt and are non-recourse to the Company.

As of December 31, 2019, the Company had three consolidated variable interest entities that had an aggregate securitized debt balance of $681.7 million. The securitized debt of these trusts can only be settled with the collateral held by the trusts and is non-recourse to the Company.

Hedging

Interest Rates Swaps

As of December 31, 2019, the Company had $2.6 billion notional value of pay-fixed interest rate swaps and $1.4 billion notional value of variable pay rate swaps, which have variable maturities between May 2, 2020 and June 13, 2039.

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, 2019 (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	$	200,000	1.8	%	1.9	%	0.4
Greater than 3 years and less than 5 years	622,400		2.6	%	1.9	%	4.1
Greater than 5 years	1,728,600		2.1	%	2.0	%	8.9
Total	$	2,551,000	2.2	%	2.0	%	7.1

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, 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	810,000		2.0	%	2.0	%	1.6
Greater than 3 years and less than 5 years	550,000		1.9	%	1.6	%	5.0
Greater than 5 years	45,000		1.9	%	2.3	%	19.5
Total	$	1,405,000	2.0	%	1.9	%	3.5

6

Other Derivatives Instruments

The following table summarizes the Company’s other derivative instruments at December 31, 2019 (dollars in thousands):

Other Derivative Instruments	Notional Amount		Fair Value
Credit default swaps, asset	$	60,100	$	948
TBA securities, asset	1,000,000		1,146
Other derivative instruments, assets			2,094
Credit default swaps, liability	$	90,900	$	(3,795	)
TBA securities, liability	1,000,000		(2,074		)
Total other derivative instruments, liabilities			(5,869		)
Total other derivative instruments, net			$	(3,775	)

Dividend

On December 19, 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 $17.78 per share in a combination of cash and stock.

Conference Call

The Company will host a conference call with a live webcast tomorrow, March 5, 2020, 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, 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/10138813 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 19, 2020 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10138813. 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 LLC, an investment advisor registered with the Securities and Exchange Commission and a wholly-owned subsidiary of Legg Mason, Inc ("LeggMason").

7

On February 18, 2020, Franklin Resources, Inc. (“Franklin”) and Legg Mason announced that they had entered into an agreement under which Franklin would acquire Legg Mason and its affiliates, including Western Asset Management Company, LLC.   The transaction is expected to close in the third quarter of 2020 and is subject to customary closing conditions.  Upon completion of the transaction Western Asset Management Company, LLC would become a wholly owned subsidiary of Franklin.

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.

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-

8

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands—except share and per share data)

	December 31, 2019			December 31, 2018
Assets:
Cash and cash equivalents	$	31,331		$	21,987
Restricted cash	52,948			55,808
Agency mortgage-backed securities, at fair value ($1,756,917 and $1,505,979 pledged as collateral, at fair value, respectively)	1,795,255			1,505,979
Non-Agency mortgage-backed securities, at fair value ($292,613 and $237,107 pledged as collateral, at fair value, respectively)	361,833			250,856
Other securities, at fair value ($80,031 and $59,780 pledged as collateral, at fair value, respectively)	80,161			59,906
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively)	1,375,860			1,041,885
Residential Bridge Loans ($33,269 and $211,999 at fair value and $34,897 and $221,486 pledged as collateral, respectively)	36,419			221,719
Securitized commercial loan, at fair value	909,040			1,013,511
Commercial Loans, at fair value ($350,213 and $196,123 pledged as collateral, at fair value, respectively)	370,213			216,123
Investment related receivable	19,931			42,945
Interest receivable	19,413			21,959
Due from counterparties	98,947			39,623
Derivative assets, at fair value	5,111			2,606
Other assets	4,509			2,488
Total Assets (1)	$	5,160,971		$	4,497,395
Liabilities and Stockholders’ Equity:
Liabilities:
Repurchase agreements, net	$	2,824,801		$	2,818,837
Convertible senior unsecured notes, net	197,299			110,060
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively)	1,477,454			949,626
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively)	15,001			8,532
Due to counterparties	709			17,781
Derivative liability, at fair value	6,370			10,130
Accounts payable and accrued expenses	3,188			3,858
Payable to affiliate	2,148			4,615
Dividend payable	16,592			14,916
Other liabilities	52,948			56,031
Total Liabilities (2)	4,596,510			3,994,386
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, and 53,523,876 and 48,116,379 outstanding, respectively	535			481
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding	—			—
Additional paid-in capital	889,227			833,810
Retained earnings (accumulated deficit)	(325,301		)	(331,282		)
Total Stockholders’ Equity	564,461			503,009
Total Liabilities and Stockholders’ Equity	$	5,160,971		$	4,497,395

9

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets (Continued)

(in thousands—except share and per share data)

	December 31, 2019		December 31, 2018
(1) Assets of consolidated VIEs included in the total assets above:
Cash and cash equivalents	$	7,589	$	674
Restricted cash	52,948		55,808
Residential Whole-Loans, at fair value ($1,375,860 and $1,041,885 pledged as collateral, at fair value, respectively)	1,375,860		1,041,885
Residential Bridge Loans ($31,748 and $211,766 at fair value and $34,897 and $221,486 pledged as collateral, respectively)	34,897		221,486
Securitized commercial loan, at fair value	909,040		1,013,511
Commercial Loans, at fair value ($90,788 and $196,123 pledged as collateral, respectively)	90,788		196,123
Investment related receivable	19,138		42,945
Interest receivable	10,829		15,540
Other assets	90		178
Total assets of consolidated VIEs	$	2,501,179	$	2,588,150
(2) Liabilities of consolidated VIEs included in the total liabilities above:
Securitized debt, net ($681,643 and $949,626 at fair value and $142,905 and $246,802 held by affiliates, respectively)	$	1,477,454	$	949,626
Interest payable (includes $647 and $816 on securitized debt held by affiliates, respectively)	3,886		2,419
Accounts payable and accrued expenses	185		708
Other liabilities	52,948		$	56,033
Total liabilities of consolidated VIEs	$	1,534,473	$	1,008,786

10

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, 2019			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2019
Net Interest Income
Interest income	$	55,761		$	55,652		$	53,818		$	52,033		$	217,264
Interest expense	36,834			39,082			37,958			36,400			150,274
Net Interest Income	18,927			16,570			15,860			15,633			66,990
Other Income (Loss)
Realized gain (loss) on sale of investments, net	11,992			21,399			(8		)	(5,105		)	28,278
Other than temporary impairment	(2,228		)	(1,819		)	(3,295		)	(1,232		)	(8,574		)
Unrealized gain (loss), net	(52,896		)	35,030			74,614			50,781			107,529
Gain (loss) on derivative instruments, net	42,007			(47,056		)	(71,530		)	(27,148		)	(103,727		)
Other, net	518			918			532			236			2,204
Other Income (Loss)	(607		)	8,472			313			17,532			25,710
Expenses
Management fee to affiliate	1,987			1,800			1,832			1,735			7,354
Other operating expenses	1,079			1,589			1,253			1,598			5,519
General and administrative expenses:
Compensation expense	671			671			705			544			2,591
Professional fees	1,031			973			761			1,215			3,980
Other general and administrative expenses	441			344			530			185			1,500
Total general and administrative expenses	2,143			1,988			1,996			1,944			8,071
Total Expenses	5,209			5,377			5,081			5,277			20,944
Income (loss) before income taxes	13,111			19,665			11,092			27,888			71,756
Income tax provision (benefit)	622			(55		)	478			12			1,057
Net income (loss)	$	12,489		$	19,720		$	10,614		$	27,876		$	70,699
Net income (loss) per Common Share – Basic	$	0.23		$	0.37		$	0.21		$	0.58		$	1.37
Net income (loss) per Common Share – Diluted	$	0.23		$	0.37		$	0.21		$	0.58		$	1.37
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, 2019, June 30, 2019 September 30, 2019 and December 31, 2019 are unaudited.

11

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, 2019, June 30, 2019, September 30, 2019 and December 31, 2019 and the year ended December 31, 2019:

	Three Months Ended												The Year Ended
(dollars in thousands)	December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2019
Net Income (loss) – GAAP	$	12,489		$	19,720		$	10,614		$	27,876		$	70,699
Income tax provision	622			(55		)	478			12			1,057
Net income (loss) before income tax	13,111			19,665			11,092			27,888			71,756
Adjustments:
Investments:
Unrealized (gain) loss on investments, securitized debt and other liabilities	52,896			(35,030		)	(74,614		)	(50,781		)	(107,529		)
Other than temporary impairment	2,228			1,819			3,295			1,232			8,574
Realized (gain) loss on sale of investments	(11,992		)	(21,399		)	8			5,105			(28,278		)
One-time transaction costs	154			531			130			269			1,084
Derivative Instruments:
Net realized (gain) loss on derivatives	(35,918		)	51,577			65,025			42,885			123,569
Unrealized (gain) loss on derivatives	(6,097		)	(2,499		)	10,519			(11,313		)	(9,390		)
Amortization of discount on convertible senior note	257			186			138			137			718
Non-cash stock-based compensation expense	165			164			165			70			564
Total adjustments	1,693			(4,651		)	4,666			(12,396		)	(10,688		)
Core Earnings – Non-GAAP	$	14,804		$	15,014		$	15,758		$	15,492		$	61,068
Basic and Diluted Core Earnings per Common Share and Participating Securities	$	0.28		$	0.28		$	0.31		$	0.32		$	1.19
Basic and Diluted Core Earnings plus Drop Income per Common Share and Participating Securities	$	0.30		$	0.28		$	0.31		$	0.32		$	1.21
Basic weighted average common shares and participating securities	53,482,765			53,376,531			50,823,683			48,236,647			51,499,871
Diluted weighted average common shares and participating securities	53,482,765			53,376,531			50,823,683			48,236,647			51,499,871

12

Alternatively, our Core Earnings can also be derived as presented in the table below by starting net interest income adding interest income on Interest-Only Strips accounted for as derivatives and other derivatives, and net interest expense incurred on interest rate swaps and foreign currency swaps and forwards (a Non-GAAP financial measure) to arrive at adjusted net interest income. Then subtracting total expenses, adding non-cash stock based compensation, adding one-time transaction costs, adding amortization of discount on convertible senior notes and adding interest income on cash balances and other income (loss), net:

	Three months ended
(dollars in thousands)	December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019
Net interest income	$	18,927		$	16,570		$	15,860		$	15,633
Interest income from IOs and IIOs accounted for as derivatives	103			133			164			189
Net interest income from interest rate swaps	(347		)	1,715			3,850			4,283
Adjusted net interest income	18,683			18,418			19,874			20,105
Total expenses	(5,209		)	(5,377		)	(5,081		)	(5,277		)
Non-cash stock-based compensation	165			164			165			70
One-time transaction costs	154			531			130			269
Amortization of discount on convertible unsecured senior notes	257			186			138			137
Interest income on cash balances and other income (loss), net	754			1,092			532			188
Core Earnings	$	14,804		$	15,014		$	15,758		$	15,492

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, 2019, September 30, 2019, June 30, 2019 and March 31, 2019:

	Three Months Ended												The Year Ended
(dollars in thousands)	December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2019
Coupon interest income	$	59,586		$	60,411		$	57,792		$	54,771		$	232,560
Premium amortization, discount accretion and amortization of basis, net	(3,825		)	(4,759		)	(3,974		)	(2,738		)	(15,296		)
Interest income	$	55,761		$	55,652		$	53,818		$	52,033		$	217,264
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1):
Coupon interest income	951			723			819			784			3,277
Amortization of basis (Non-GAAP Financial Measure)	(848		)	(590		)	(655		)	(595		)	(2,688		)
Subtotal	103			133			164			189			589
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	$	55,864		$	55,785		$	53,982		$	52,222		$	217,853

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

13

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, 2019, September 30, 2019, June 30, 2019 and March 31, 2019:

	Three Months Ended
	December 31, 2019					September 30, 2019					June 30, 2019					March 31, 2019
(dollars in thousands)	Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs
Interest expense	$	36,834		3.18	%	$	39,082		3.35	%	$	37,958		3.54	%	$	36,400		3.94	%
Adjustments:
Interest expense on Securitized debt from consolidated VIEs	(6,283		)	(3.95	)%	(6,657		)	4.18	%	(8,215		)	(4.62	)%	(9,157		)	(4.22	)%
Net interest (received) paid - interest rate swaps	347			0.03	%	(1,715		)	(0.15	)%	(3,850		)	(0.36	)%	(4,283		)	(0.46	)%
Effective Borrowing Costs	$	30,898		3.09	%	$	30,710		3.05	%	$	25,893		2.17	%	$	22,960		3.25	%
Weighted average borrowings	$	3,971,551				$	4,000,534				$	3,527,942				$	2,868,327

The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the years ended December 31, 2019 and 2018:

	The Year Ended
	December 31, 2019					December 31, 2018
(dollars in thousands)	Interest			Effective Borrowing Costs		Interest			Effective Borrowing Costs
Interest expense	$	150,274		3.48	%	$	138,240		3.19	%
Adjustments:
Interest expense on Securitized debt from consolidated VIEs	(30,312		)	(4.15	)%	(42,440		)	(4.43	)%
Net interest (received) paid - interest rate swaps	(9,501		)	(0.22	)%	(6,158		)	(0.14	)%
Effective Borrowing Costs	$	110,461		3.07	%	$	89,642		2.65	%
Weighted average borrowings	$	3,594,021				$	3,376,557

14

EX-99.2

Fourth Quarter 2019 Investor Presentation March 4, 2020

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 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 $460.1 billion(1) ◦ The AUM of the Mortgage and Consumer Credit Group is $83.7 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 20 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 paid a consistent dividend for 15 quarters, reflecting a philosophy of delivering a sustainable dividend that is supported by the core earnings of the portfolio. ▪ WMC has built a barbell investment strategy pairing Agency commercial mortgage- backed securities ("Agency CMBS") and opportunistic Agency residential mortgage- backed securities ("Agency RMBS") with credit investments, which include residential and commercial loan exposure. 4

Barbell Investment Strategy • An investment strategy designed to balance our interest rate investments with residential and commercial credit investments. • Primary goal of generating attractive returns while preserving book value. $5.0 Billion Hybrid Portfolio Comprised of Interest Rate and Credit Investments Interest Rate Investments Credit Investments • Agency CMBS • Residential Mortgages • Agency RMBS • Commercial Loans ◦ Opportunistic Exposure • Non-Agency Securities 5

Target Investment Opportunities Interest Rate Investments ▪ Multifamily residential loans guaranteed by Fannie Mae and Freddie Mac. ▪ Market size of more than $700 billion with annual issuance in excess of $100 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. Credit Investments ▪ Generally invest in transactions where our manager has an opportunity to Commercial Loans negotiate deal structure and covenants. ▪ Attractive yields of LIBOR plus 4% to 10%. ▪ Target floating rate assets and short term loans. • Strategic partnerships with seasoned originators. Non-Qualifying ▪ Mainly 3/1, 5/1, and 7/1 ARM loans. Residential Mortgages ▪ Coupon between 4.0% to 5.5%. ▪ Target loan to value below 70%. 6

2020 Global Outlook Western Asset Long-Term Themes ▪ Coronavirus-related growth setbacks have delayed pick-up of the global recovery ▪ US and global inflation rates will continue to be subdued ▪ Central bank focus on core inflation outcomes suggests “low for long” ▪ Spread products should outperform government bonds ▪ Selectivity in credit will be key 7

Portfolio View Credit investments have performed relatively well and are expected to continue to offer attractive returns. During the forth quarter we added credit sensitive mortgages and expect to continue to invest in this asset class in 2020 ▪ Commercial real estate fundamentals continue to be positive. We expect to continue to deploy capital in commercial loans and CMBS. ▪ We expect to continue to deploy capital in residential mortgages, mainly non-qualifying mortgages. ▪ Opportunistically deploy capital into agency mortgages, both residential and commercial. 8

Fourth Quarter Financial Highlights ▪ December 31, 2019 book value per share of $10.55, net of fourth quarter common dividend of $0.31 per share declared on December 19, 2019. ▪ GAAP net income of $12.5 million, or $0.23 per basic and diluted share. ▪ Core earnings plus drop income of $15.8 million(4), or $0.30 per basic and diluted share. ▪ Economic return on book value was 2.5%(3) for the quarter. ▪ 1.72%(6) annualized net interest margin on our investment portfolio. ▪ 5.4x leverage excluding non-recourse debt as of December 31, 2019 (8.0x including non-recourse debt). ▪ Issued $50.0 million aggregate principal amount of 6.75% convertible senior unsecured notes ▪ Acquired $479.0 million in credit sensitive investments, consisting of: * $180.5 million million in Non-Agency CMBS, * $249.2 million in Residential Whole Loans, * $49.3 million in Commercial Whole Loans. Please refer to page 20 for footnote disclosures. 9

Full Year 2019 Financial Highlights ▪ Maintained a consistent $0.31 per share quarterly common dividend throughout 2019 for total annual common dividends of $1.24 per share. ▪ GAAP net income of $70.7 million, or $1.37 per basic and diluted share. ▪ Core earnings plus drop income of $62.1 million(4), or $1.21 per basic and diluted share. ▪ Economic return on book value was 12.8%(3) for the year. ▪ 1.95%(6) annualized net interest margin on our investment portfolio. ▪ $49.3 million of common equity raised in secondary offering, net of offering costs. ▪ Completed a securitization of $945.5 million of our Residential Whole Loan investments involving the issuance of $919.0 million of mortgage-backed notes. ▪ Issued $90.0 million aggregate principal amount of 6.75% convertible senior unsecured notes. ▪ Obtained two new longer term financing facilities, consisting of $200.0 million commercial whole loan financing facility and $700.0 million residential whole loan financing facility. Please refer to page 20 for footnote disclosures. 10

Recent Performance (3) Book Value Per Share Economic Return $12.0 4.0 $10.0 5.4% $8.0 2.0 3.8% 2.5% $6.0 1.1% 10.70 10.51 10.60 10.55 0.0 $4.0 -2.0 $2.0 $0.0 -4.0 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2019 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 0.31 0.31 0.31 0.31 0.32 0.31 $0.15 $0.15 0.28 0.30 $0.10 $0.10 $0.05 $0.05 $0.00 $0.00 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Please refer to page 20 for footnote disclosures. 11

WMC Returns as of December 31, 2019 Economic Return(3) Total Stock Return(17) 3 Years 5/5/12 to 3 Years 5/5/12 to QTD YTD Ended 12/31/2019 QTD YTD Ended 12/31/2019 2.5% 12.8% 38.9% 41.7% 10.3% 38.7% 39.5% 40.6% 12

Portfolio Composition Agency RMBS Total Investment Portfolio, at fair value 6.4% ($ in millions) 0.9% 28.0% Agency CMBS 12/31/2019 Agency RMBS $ 357 Non-Agency RMBS Agency CMBS 1,439 Non-Agency CMBS 46 Non-Agency RMBS 29.2% 0.7% Residential Whole-Loans Non-Agency CMBS 316 Residential Whole-Loans 1,376 Residential Bridge Loans (12) 36 Residential Bridge Loans Securitized Loans Securitized Loans(2) 909 18.5% Commercial Loans Commercial Loans 370 7.2% 7.5% Other Investments(10) 80 1.6% Other Investments Total $ 4,929 Select Sector Categories Credit Sensitive Securities Agency Portfolio Loans Portfolio 1.4% 79.9% 33.8% 8.6% 71.5% 1.8% 0.9% 51.1% 19.0% 18.1% 13.7% 0.2% Agency CMBS Non-Agency CMBS Residential Whole-Loans Agency RMBS IO & IIO Non-Agency RMBS Residential Bridge Loans Agency RMBS Non-Agency RMBS IO & IIO Securitized Commercial Loans Agency CMBS IO & IIO ABS and GSE CRT Securities Please refer to page 20 for footnote disclosures. 13 Commercial Loans

Fourth Quarter Portfolio Income Attribution(5) For Three Months Ended December 31, 2019 (In thousands except per share data) Non- Non- Residential Securitized Agency Agency Agency Agency Residential Bridge Other Commercial Commercial CMBS RMBS CMBS RMBS Whole-Loans Loans(12) Securities(10) Loans Loans(14) Total Interest Income(15) $ 12,430 $ 3,079 $ 4,926 508 $ 14,415 $ 947 $ 1,263 $ 9,164 $ 9,132 $ 55,864 Interest expense(7) (9,972) (2,258) (2,278) (317) (11,203) (491) (546) (3,096) (6,674) (36,835) Net interest rate swap interest income(8) (285) (23) (21) (17) — — — — — (346) Miscellaneous interest income(18) 152 38 33 5 144 4 9 39 95 519 Net Interest Income 2,325 836 2,660 179 3,356 460 726 6,107 2,553 19,202 Realized gain (loss) on investments 12,524 — (560) — — 29 — — — 11,993 Unrealized gain (loss) on investments(16) (51,196) 715 (3,861) (722) 3,531 317 (68) (421) (2,146) (53,851) Securitized debt unrealized gain (loss) — — — — — — — — 1,012 1,012 Gain (loss) on derivative instruments, net(13) 33,972 2,762 2,532 1,979 — — 1,053 — — 42,298 OTTI(9) (106) — (2,059) (127) — — (42) — — (2,334) Portfolio Income (Loss) $ (2,481) $ 4,313 $ (1,288) $ 1,309 $ 6,887 $ 806 $ 1,669 $ 5,686 $ 1,419 $ 18,320 BV Per Share Increase (Decrease) (0.05) 0.08 (0.02) 0.02 0.13 0.02 0.03 0.11 0.03 0.35 Please refer to page 20 for footnote disclosures. 14

Financing Summary Repurchase Agreements n Borrowings under 21 of our 34 master repurchase agreements. n Capacity in excess of our current needs. Portfolio Financing ($ in thousands) 12/31/2019 Outstanding Weighted Average Interest Weighted Average Repurchase Agreements Amounts Rate Interest Rate Remaining Days to Maturity Short Term Borrowings: Agency RMBS $ 348,274 1.99% 52 Agency CMBS 1,352,248 2.05% 26 Non-Agency RMBS 30,481 3.56% 9 Non-Agency CMBS 190,390 3.05% 35 Residential Whole Loans 102,029 3.51% 27 Residential Bridge Loans 29,869 3.93% 28 Commercial Loans 62,746 4.04% 28 Securitized commercial loans 116,087 3.93% 49 Other Securities(10) 56,762 3.23% 34 Subtotal 2,288,886 2.41% 32 Long Term Borrowings: Residential Whole Loans(19) 374,143 3.27% 898 Commercial Loans(19) 161,848 3.88% 590 Subtotal 535,991 3.45% 805 Repurchase agreements borrowings $ 2,824,877 2.61% 179 Less unamortized debt issuance costs 76 N/A N/A Repurchase agreements borrowings, net $ 2,824,801 2.61% 179 Please refer to page 20 for footnote disclosures. 15

Financing Summary Convertible Senior Unsecured Notes ▪ At December 31, 2019, the Company had $205.0 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 the residential mortgage-backed notes issued by the Company's securitization trust (the "Arroyo Trust") at December 31, 2019 (dollars in thousands): Principal Contractual Classes Balance Coupon Carrying Value Maturity Offered Notes:(20) Class A-1 $ 681,668 3.3% $ 681,666 4/25/2049 Class A-2 36,525 3.5% 36,524 4/25/2049 Class A-3 57,866 3.8% 57,864 4/25/2049 Class M-1 25,055 4.8% 25,055 4/25/2049 Subtotal $ 801,114 $ 801,109 Less: Unamortized Deferred Financing Costs N/A 5,298 Total $ 801,114 $ 795,811 The securitized debt of the Arroyo Trust can only be settled with the residential loans that serve as collateral for the securitized debt and are non-recourse to the Company. ▪ As of December 31, 2019, the Company had three consolidated variable interest entities that had an aggregate securitized debt balance of $681.7 million. The securitized debt of these trusts can only be settled with the collateral held by the trusts and is non- recourse to the Company. Please refer to page 20 for footnote disclosures. 16

Hedging Summary(11) The following tables provide additional information on our fixed pay interest rate swaps and the variable pay interest rate swap as of December 31, 2019 ($ in thousands): Fixed Pay Interest Rate Swaps Avg. Fixed Pay Avg. Floating Average Maturity Maturity Notional Amount Rate Receive Rate (Years) 1 year or less $ 200,000 1.8% 1.9% 0.4 Greater than 3 years and less than 5 years 622,400 2.6% 1.9% 4.1 Greater than 5 years 1,728,600 2.1% 2.0% 8.9 Total $ 2,551,000 2.2% 2.0% 7.1 Variable Pay Interest Rate Swaps Avg. Variable Pay Avg. Fixed Average Maturity Maturity Notional Amount Rate Receive Rate (Years) Greater than 1 year and less than 3 years $ 810,000 2.0% 2.0% 1.6 Greater than 3 years and less than 5 years 550,000 1.9% 1.6% 5.0 Greater than 5 years 45,000 1.9% 2.3% 19.5 Total $ 1,405,000 2.0% 1.9% 3.5 Please refer to page 20 for footnote disclosures. 17

Hedging Summary(11) The following tables provide information on other derivative instruments as of December 31, 2019 ($ in thousands): Other Derivative Instruments Notional Amount Fair Value Credit default swaps, asset $ 60,100 $ 948 TBA securities, asset 1,000,000 1,146 Other derivative instruments, assets 2,094 Credit default swaps, liability $ 90,900 (3,795) TBA securities, liability 1,000,000 (2,074) Total other derivative instruments, liabilities (5,869) Total other derivative instruments, net $ (3,775) Please refer to page 20 for footnote disclosures. 18

Duration as of December 31, 2019 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 0.01 — — Agency RMBS 0.30 0.02 0.06 0.09 0.09 0.04 — Agency CMBS 3.35 0.01 0.05 0.60 2.48 0.21 Swaps and Futures (3.55) 0.07 0.06 (0.64) (3.24) 0.20 Repurchase Agreements (0.07) (0.07) — — — — — Total 0.07 0.04 0.19 0.06 (0.67) 0.45 19

Footnotes (1) As of December 31, 2019. (2) The Company acquired Non-Agency CMBS securities with certain control rights, which resulted in the consolidation of three variable interest entities and the recording $909.0 million in securitized commercial loans. (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. Drop income was approximately $986 thousand for the three months ended and the year ended December 31, 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 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 Convertible senior notes interest expense has been allocated based on based on fair value of investments at December 31, 2019. (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, 2019 includes $33.3 million of residential bridge loans carried at fair value and $3.2 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. (16) Non-GAAP measure which includes net unrealized gains on IO's and IIO's accounted for as derivatives (17) 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. (18) Miscellaneous interest income on cash investments has been allocated based on based on fair value of investments at December 31, 2019 (19) 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 $200.0 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. (20) The subordinate notes were retained by the Company. 20

Supplemental Information

Book Value Roll Forward Q4 2019 FY 2019 Amounts Amounts ($ in thousands) Per Share ($ in thousands) Per Share Beginning Book Value $ 564,360 $ 10.60 $ 503,009 $ 10.45 Proceeds from public offerings of common stock, net 3,013 — 52,355 (0.05) Equity portion of our convertible senior unsecured notes, net 1,026 0.02 2,374 0.04 Common Dividend (16,592) (0.31) (64,540) (1.21) 551,807 10.31 493,198 9.23 Portfolio Income (Loss) Net Interest Margin(6) 18,267 0.34 77,377 1.45 Net realized gain (loss) on investments and derivatives 48,145 0.91 (94,930) (1.78) Net unrealized gain (loss) on investments and derivatives (45,758) (0.86) 119,192 2.22 Other than temporary impairment(9) (2,334) (0.04) (8,939) (0.17) Net Portfolio Income (Loss) 18,320 0.35 92,700 1.72 Operating expense (3,066) (0.06) (12,873) (0.24) General and administrative (excludes stock-based compensation) (1,978) (0.04) (7,507) (0.14) Income tax benefit (provision) (622) (0.01) (1,057) (0.02) Book Value at December 31, 2019 $ 564,461 $ 10.55 $ 564,461 $ 10.55 Please refer to page 20 for footnote disclosures. 21

Adjusted* Portfolio Composition Total Investment Portfolio ($ in millions) 12/31/2019 Consolidated Third Party Company Sponsored Unconsolidated (As Reported) Consolidated Trust Securitization (Non GAAP) Agency RMBS $ 357 $ — $ — $ 357 Agency CMBS 1,439 — — 1,439 Non-Agency RMBS 46 227 — 273 Non-Agency CMBS 316 — 60 376 Residential Whole-Loans 1,376 — (846) 530 Residential Bridge Loans 36 — — 36 Securitized Commercial Loans 909 (909) — — Commercial Loans 370 — — 370 Other Securities(7) 80 — — 80 Total $ 4,929 $ (682) $ (786) $ 3,461 *Excludes consolidation of VIE Trusts required under GAAP 7.9% Agency RMBS 41.6% Agency CMBS 10.9% Non-Agency RMBS Non-Agency CMBS Residential Whole-Loans 15.3% Residential Bridge Loans Commercial Loans 10.3% 1.0% Other Securities 2.3% 10.7% Please refer to page 20 for footnote disclosures. 22

Adjusted* Portfolio Income Attribution(5) For Three Months Ended December 31, 2019 (In millions except per share data) Non- Non- Residential Residential Agency Agency Agency Agency Whole- Bridge Loans Other Commercial CMBS RMBS CMBS RMBS Loans (12) Securities(10) Loan Total Interest Income(15) $ 12,430 $ 3,079 $ 6,840 508 $ 14,415 $ 947 $ 1,263 $ 9,164 $ 48,646 Interest expense(7) (9,972) (2,258) (2,669) (317) (11,203) (491) (546) (3,096) (30,552) Net interest rate swap interest income(8) (285) (23) (21) (17) — — — — (346) Miscellaneous interest income(18) 176 44 66 6 168 4 10 45 519 Net Interest Income 2,349 842 4,216 180 3,380 460 727 6,113 18,267 Realized gain (loss) on investments 12,524 — (560) — — 29 — — 11,993 Unrealized gain (loss) on investments(16) (51,196) 715 (4,061) (722) 3,531 317 (68) (420) (51,904) Gain (loss) on derivative instruments, net(13) 33,972 2,762 2,532 1,979 — — 1,053 — 42,298 OTTI(9) (106) — (2,059) (127) — — (42) — (2,334) Portfolio Income (loss) (2,457) 4,319 68 1,310 6,911 806 1,670 5,693 18,320 BV Per Share Increase (Decrease) $ (0.05) $ 0.08 $ — $ 0.03 $ 0.13 $ 0.02 $ 0.03 $ 0.11 $ 0.35 * 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. 23 Please refer to page 20 for footnote disclosures.

Portfolio Composition as of December 31, 2019 (Continued) Adjusted Credit Sensitive Portfolio* ($ in millions) Principal Balance Amortized Costs Fair Value Net Weighted Net Weighted Average Coupon Average Yield Non-Agency RMBS $ 52.8 $ 37.0 $ 38.1 4.8% 4.9% Non-Agency RMBS IOs and IIOs N/A 7.7 7.7 0.6% 3.4% Non-Agency CMBS 580.4 517.2 517.9 5.7% 7.0% Residential Whole Loans 1,325.4 1,351.2 1,375.9 5.2% 5.5% Residential Bridge Loans 37.2 37.3 36.4 9.5% 7.9% Commercial Loans 370.2 369.7 370.2 7.2% 7.7% Other Securities 71.9 74.0 80.2 6.7% 6.8% $ 2,438.0 $ 2,394.0 $ 2,426.3 4.8% 6.2% Non-Agency RMBS1.6% Other Securities3.3% Non-Agency RMBS IOs and IIOs0.3% Commercial Loan15.3% Non-Agency CMBS21.3% Residential Bridge Loans1.5% Residential Whole Loans56.7% *Excludes consolidation of VIE Trusts required under GAAP 24

Commercial Loans as of December 31, 2019 ($ in millions) Acquisition Principal Fair Maturity Extension Loan Date Loan Type Balance Value LTV Interest Rate Date Option Collateral Interest-Only 1-Month LIBOR plus Two One-Year CRE 1 March 2018 Mezzanine loan $ 20.0 $ 20.0 71.0% 6.50% 12/9/2020 Extensions Hotel Interest-Only First 1-Month LIBOR plus One-Year CRE 2 June 2018 Mortgage 30.0 30.0 65.0% 4.50% 6/9/2020 Extension Hotel Principal & Interest 1-Month LIBOR plus Two One-Year Nursing CRE 4 June 2019 First Mortgage 50.0 50.0 75.0% 4.75% 1/11/2022 Extensions Facilities Interest-Only 1-Month LIBOR plus Two-Year First Entertainment CRE 5 August 2019 Mezzanine loan 90.0 90.0 57.9% 9.25% 6/29/2021 Extension and and Retail Interest-Only First 1-Month LIBOR plus One-YearTwo One-Year Second CRE 6 September 2019 Mortgage 40.0 40.0 63.0% 3.02% 8/6/2021 Extensions Retail Interest-Only First 1-Month LIBOR plus Three One-Year CRE 7 December 2019 Mortgage 24.5 24.5 61.8% 3.75% 11/6/2021 Extensions Hotel Interest-Only First 1-Month LIBOR plus Three One-Year CRE 8 December 2019 Mortgage 13.2 13.2 61.8% 3.75% 11/6/2021 Extensions Hotel Interest-Only First 1-Month LIBOR plus Three One-Year CRE 9 December 2019 Mortgage 7.3 7.3 61.8% 3.75% 11/6/2021 Extensions Hotel Interest-Only First 1-Month LIBOR plus CRE 10 December 2019 Mortgage 4.4 4.4 79.0% 4.85% 12/6/2022 None Assisted Living Interest-Only One-Month LIBOR Two One-Year Nursing SBC 1 July 2018 First Mortgage 45.2 45.2 74.0% plus 4.25% (1) 7/1/2020 Extensions Facilities Interest-Only One-Month LIBOR One-Year Apartment SBC 4 January 2019 First Mortgage 13.6 13.6 84.0% plus 4.00%(2) 12/1/2021 Extension Complex Interest-Only One-Month LIBOR Nursing SBC 5 January 2019 First Mortgage 32.0 32.0 49.0% plus 4.10% 7/1/2021 None Facilities $ 370.2 $ 370.2 Footnotes (1) Subject to LIBOR floor of 1.25%. (2) Subject to LIBOR floor of 2.0%. 25

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