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):

November 2, 2016

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))

Item 2.02.Results of Operations and Financial Condition

On November 2, 2016, Western Asset Mortgage Capital Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended September 30, 2016. The text of the press release is furnished as exhibit 99.1 to this Form 8-K.

Item 7.01Regulation FD Disclosure

On November 3, 2016, 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 November 2, 2016, issued by Western Asset Mortgage Capital Corporation
99.2	Presentation, dated November 2, 2016, 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:  November 2, 2016

EX-99.1

Exhibit 99.1

WESTERN ASSET MORTGAGE CAPITAL CORPORATION

ANNOUNCES THIRD QUARTER 2016 RESULTS

Conference Call and Webcast Scheduled for Tomorrow, Thursday, November 3, 2016 at

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

Pasadena, CA, November 2, 2016– Western Asset Mortgage Capital Corporation (the “Company” or "WMC") (NYSE: WMC) today reported its results for the third quarter ended September 30, 2016.

THIRD QUARTER 2016 HIGHLIGHTS

▪ $0.31 per share common dividend declared.

▪ GAAP net income of $32.3 million, or $0.77 per basic and diluted share.

▪ Core earnings plus drop income of $14.8 million, or $0.35 per basic and diluted share.^1,2  

▪ 1.85% annualized net interest spread on our investment portfolio.^1,5 

▪ Constant prepayment rate on the Company’s Agency RMBS portfolio of 11.4% for the quarter.

▪ $11.48 per share net book value as of September 30, 2016, net of third quarter common dividend.

▪ Economic return on book value was 7.1%^1,3for the quarter.

▪ 5.2x leverage as of September 30, 2016 (7.1x leverage when adjusted for net TBA position^1,4).

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 $3.1 million for the three months ended September 30, 2016.

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  As of September 30, 2016, the net long position in TBAs was $890.0 million in notional value.

5  Includes interest-only securities accounted for as derivatives, total return swap and the cost of interest rate swaps.

1

MANAGEMENT COMMENTARY

“I am pleased to report that we delivered another solid performance in the third quarter, generating an economic return on book value of 7.1% and higher sequential core earnings plus drop income of $14.8 million, or $0.35 per share. We remained focused on our long-term goal of generating strong total return for our shareholders through attractive dividends derived from sustainable core earnings and appreciation in the value of our portfolio. In our view, WMC's strategic advantage in pursuing this goal is its ability to draw on the deep investment experience and team at Western Asset Management Company, our Manager, as well as the breadth of its global investment, risk management, and operational infrastructure," said Jennifer Murphy, Chief Executive Officer of the Company. "Our third quarter dividend of $0.31 per share reflects our commitment to paying an attractive dividend based on the sustainable earnings power of the portfolio balanced with our focus on maintaining greater stability in our book value.”

Anup Agarwal, Chief Investment Officer of the Company, commented, “Despite interest rate volatility during the quarter, our portfolio performed well, driven by tightening spreads across all of our sector holdings and a positive contribution from our hedge positions, and as a result, our book value increased sequentially by 4.3%, net of our third quarter dividend. In addition, we increased our Agency RMBS, Whole-Loans and TBA exposure during the third quarter, enabling us to increase our core earnings plus drop income by approximately $2.2 million, or $0.05 per share, when compared to the second quarter 2016."

"We are pleased with our financial results for the quarter and remain optimistic going forward. Our current expectations are for ongoing, yet slow economic growth and a “lower for longer” interest rate environment in the U.S. Given these conditions, we believe that a balanced portfolio consisting of both Agency RMBS and credit-sensitive investments continues to be appropriate. We continually monitor the relative value of opportunities across the broad mortgage universe, in an effort to achieve an optimal risk-adjusted total economic return for our shareholders,” Mr. Agarwal concluded.

2

THIRD QUARTER 2016 RESULTS

The below table reflects a summary of our operating results:

	For the Three Months Ended
GAAP Results	September 30, 2016			June 30, 2016
Net Interest Income	$	21,469		$	21,493
Other Income (Loss):
Realized gain (loss) on sale of investments, net	1,439			(352		)
Other than temporary impairment	(4,978		)	(6,356		)
Unrealized gain (loss), net	15,292			21,510
Gain (loss) on derivative instruments, net	6,121			(14,165		)
Other, net	(60		)	234
Other Income (loss)	17,814			871
Total Expenses	4,762			5,061
Income before income taxes	34,521			17,303
Income tax provision (benefit)	2,239			—
Net income (loss)	$	32,282		$	17,303
Net income (loss) per Common Share – Basic/Diluted	$	0.77		$	0.41
Non-GAAP Results
Core earnings plus drop income(1)	$	14,838		$	12,676
Core earnings plus drop income per Common Share – Basic/Diluted	$	0.35		$	0.30
Weight average yield(2)	4.28		%	4.45		%
Effective cost of funds(3)	2.43		%	2.44		%
Annualized net interest spread(2)(3)	1.85		%	2.01		%
Annualized constant prepayment rate (CPR)(4)	11.4		%	12.1		%

(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, foreign currency swaps and total return swaps.

(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)          Annualized CPR on Agency RMBS.

3

PORTFOLIO COMPOSITION

As of September 30, 2016, the Company owned an aggregate investment portfolio equaling $2.9 billion in market value. The following table sets forth additional information regarding the Company’s portfolio as of September 30, 2016:

Investment Portfolio (dollars in thousands)	Coupon	Principal Balance		Amortized Cost		Fair Value
Agency
30-year fixed rate	3.0%	$	226,157	$	234,817	$	235,260
	3.5%	214,969		226,091		227,788
	4.0%	326,886		354,379		357,758
	4.5%	329,114		351,870		368,843
	5.0%	51,330		57,598		58,461
	5.5%	2,369		2,708		2,669
	6.0%	2,444		2,703		2,861
20-year fixed rate	3.5%	130,342		137,010		139,557
	4.0%	372,681		392,188		404,926
Agency RMBS IOs and IIOs(1)	3.2%	N/A		52,463		53,445
Agency CMBS	4.5%	4,553		4,553		4,283
Agency CMBS IOs and IIOs(2)	1.2%	N/A		9,739		9,455
Total Agency	3.4%	$	1,660,845	$	1,826,119	$	1,865,306
Non-Agency
Non-Agency RMBS	4.0%	$	422,498	$	294,221	$	309,495
Non-Agency RMBS IOs and IIOs(3)	5.7%	N/A		61,304		85,647
Non-Agency CMBS	5.0%	479,405		393,994		368,898
Total Non-Agency	4.0%	$	901,903	$	749,519	$	764,040
Other Securities(4)	7.7%	42,384		64,384		63,326
Residential Whole-Loans	4.8%	198,651		199,832		204,882
Securitized Commercial Loan(5)	9.0%	25,000		25,000		24,138
Total Portfolio	4.0%	$	2,828,783	$	2,864,854	$	2,921,692

(1)  Includes $25,274 of amortized cost and $25,438 of fair value for Agency RMBS IOs and IIOs accounted for as derivatives for GAAP.

(2)  Includes $9,182 of amortized cost and $8,850 of fair value for Agency CMBS IOs and IIOs accounted for as derivatives for GAAP.

(3)  Includes $2,279 of amortized cost and $4,170 of fair value for Non-Agency RMBS IOs and IIOs accounted for as derivatives for GAAP.

(4)  Other securities includes residual interests in asset-backed securities which have no principal balance and an amortized cost of approximately $22.4 million.

(5)  The $25.0 million securitized commercial loan is from a consolidated variable interest entity in which the Company owns a $14.0 million first loss position in a

CMBS Securitized Trust.

4

PORTFOLIO FINANCING AND HEDGING

Financing

At September 30, 2016, the Company financed its portfolio with $2.5 billion of borrowings under master repurchase agreements with 18 of its 28 approved counterparties,bearing fixed interest rates with maturities of six months or less. The following table sets forth additional information regarding the Company’s portfolio financing as of September 30, 2016 (dollars in thousands):

Repurchase Agreements	Balance		Weighted Average Interest Rate (end of period)		Weighted Average Remaining Maturity (days)
Agency RMBS	$	1,784,448	0.75	%	31
Agency CMBS	10,725		1.66	%	31
Non-Agency RMBS	270,060		2.32	%	33
Non-Agency CMBS	256,544		2.36	%	33
Whole-Loans and securitized commercial loan	173,901		2.78	%	15
Other Securities	27,858		3.05	%	22
Total	$	2,523,536	1.25	%	30

Hedging

The Company has entered into $3.7 billion notional value of pay-fixed interest rate swaps, excluding forward starting swaps of $1.8 billion (approximately 7.0 months forward), which have variable maturities between October 2, 2017 and February 12, 2044, and $4.0 billion notional value of pay-variable interest rate swaps, which have variable maturities between February 5, 2020 and February 5, 2045.

The following tables summarize the average pay rate and average maturity for the Company’s interest rate swaps as of September 30, 2016:

Fixed Pay Rate Swap Transactions
(dollars in thousands)
Remaining Term to Maturity	Notional Value		Average Fixed Pay Rate		Average Maturity (Years)
Greater than 1 year and less than 3 years	$	1,098,900	1.1	%	1.6
Greater than 3 years and less than 5 years	2,006,200		1.8	%	4.2
Greater than 5 years	2,358,300		2.6	%	9.9
Total	$	5,463,400	2.0	%	6.1
Variable Pay Rate Swap Transactions
(dollars in thousands)
Remaining Term to Maturity	Notional Value		Average Variable Pay Rate		Average Maturity (Years)
Greater than 3 years and less than 5 years	$	2,036,500	0.7	%	4.1
Greater than 5 years	1,936,500		0.8	%	10.1
Total	$	3,973,000	0.8	%	7.0

5

DIVIDEND

On September 22, 2016, 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 $13.75 per share in a combination of cash and stock.

CONFERENCE CALL

The Company will host a conference call with a live webcast tomorrow, November 3rd, at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to discuss financial results for the Third Quarter 2016.

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/10093817 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 November 17, 2016 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10093817. 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 RMBS, Non-Agency RMBS, CMBS, ABS, Residential and Commercial Whole-Loans and other financial assets. 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’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, an investment advisor registered with the Securities and Exchange Commission and a wholly-owned subsidiary of Legg Mason, Inc. Please visit the Company’s website at www.westernassetmcc.com

FORWARD-LOOKING STATEMENTS

This press release contains statements that constitute “forward-looking statements.”  Operating results are subject to numerous conditions, many of which are beyond the control of the Company, including, without limitation, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability and terms of financing; general economic conditions; market conditions; conditions in the market for mortgage related investments; legislative and regulatory changes that could adversely affect the business of the Company; and other factors, including those set forth in the Risk Factors section of the Company’s annual report on Form 10-K for the period ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”). The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

6

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-

7

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands—except share and per share data)

	September 30, 2016 (Unaudited)			December 31, 2015
Assets:
Cash and cash equivalents	$	30,965		$	24,711
Mortgage-backed securities and other securities, at fair value ($2,660,129 and $2,777,717 pledged as collateral, at fair value, respectively)	2,692,672			2,851,127
Residential Whole-Loans, at fair value ($204,882 and $218,538 pledged as collateral, at fair value, respectively)	204,882			218,538
Securitized commercial loan, at fair value	24,138			25,000
Investment related receivable	12,123			572
Accrued interest receivable	25,285			22,621
Due from counterparties	270,398			249,563
Derivative assets, at fair value	127,862			21,915
Other assets	756			382
Total Assets (1)	$	3,389,081		$	3,414,429
Liabilities and Stockholders’ Equity:
Liabilities:
Borrowings under repurchase agreements, net	$	2,523,480		$	2,585,667
Securitized debt, at fair value	10,621			11,000
Accrued interest payable	18,311			20,431
Investment related payables	—			66,146
Due to counterparties	6,047			9,950
Derivative liability, at fair value	330,799			180,177
Accounts payable and accrued expenses	2,689			2,078
Payable to related party	2,714			3,019
Dividend payable	12,995			24,313
Total Liabilities (2)	2,907,656			2,902,781
Commitments and contingencies
Stockholders’ Equity:
Common stock: $0.01 par value, 500,000,000 shares authorized, 41,919,801 shares issued and outstanding, respectively	419			419
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding	—			—
Additional paid-in capital	764,678			763,283
Retained earnings (accumulated deficit)	(283,672		)	(252,054		)
Total Stockholders’ Equity	481,425			511,648
Total Liabilities and Stockholders’ Equity	$	3,389,081		$	3,414,429

See notes to unaudited consolidated financial statements.

8

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets (Continued)

(in thousands—except share and per share data)

	September 30, 2016 (Unaudited)		December 31, 2015
(1) Assets of consolidated VIEs included in the total assets above:
Residential Whole-Loans, at fair value ($204,882 and $218,538 pledged as collateral, at fair value, respectively)	$	204,882	$	218,538
Securitized commercial loan, at fair value	24,138		25,000
Investment related receivable	3,230		—
Accrued interest receivable	1,745		1,836
Total assets of consolidated VIEs	$	233,995	$	245,374
(2) Liabilities of consolidated VIEs included in the total liabilities above:
Securitized debt, at fair value	$	10,621	$	11,000
Accrued interest payable	82		85
Accounts payable and accrued expenses	2		2
Total liabilities of consolidated VIEs	$	10,705	$	11,087

See notes to unaudited consolidated financial statements.

9

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(in thousands—except share and per share data)

	For the three months ended September 30, 2016			For the three months ended September 30, 2015			For the nine months ended September 30, 2016			For the nine months ended September 30, 2015
Net Interest Income
Interest income	$	29,154		$	35,821		$	87,992		$	117,656
Interest expense	7,685			6,981			23,391			19,960
Net Interest Income	21,469			28,840			64,601			97,696
Other Income (Loss)
Realized gain (loss) on sale of investments, net	1,439			(2,482		)	(4,968		)	9,267
Other than temporary impairment	(4,978		)	(5,917		)	(22,131		)	(14,884		)
Unrealized gain (loss), net	15,292			24,723			47,571			10,284
Gain (loss) on derivative instruments, net	6,121			(41,363		)	(53,214		)	(76,511		)
Other, net	(60		)	(29		)	(158		)	1,744
Other Income (Loss)	17,814			(25,068		)	(32,900		)	(70,100		)
Expenses
Management fee to affiliate	2,604			2,761			7,945			8,133
Other operating expenses	188			799			809			1,472
General and administrative expenses
Compensation expense (including non-cash stock based compensation of $433, $509, $1,351 and $1,969, respectively)	868			857			2,254			3,006
Professional fees	723			882			3,947			3,261
Other general and administrative expenses	379			325			1,226			1,123
Total general and administrative expenses	1,970			2,064			7,427			7,390
Total Expenses	4,762			5,624			16,181			16,995
Income (loss) before income taxes	34,521			(1,852		)	15,520			10,601
Income tax provision (benefit)	2,239			—			2,239			—
Net income (loss)	$	32,282		$	(1,852	)	$	13,281		$	10,601
Net income (loss) per Common Share – Basic	$	0.77		$	(0.05	)	$	0.31		$	0.24
Net income (loss) per Common Share – Diluted	$	0.77		$	(0.05	)	$	0.31		$	0.24
Dividends Declared per Share of Common Stock	$	0.31		$	0.60		$	1.07		$	1.91

10

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 the three and nine months ended September 30, 2016 and September 30, 2015:

(dollars in thousands)	Three months ended September 30, 2016			Three months ended September 30, 2015			Nine months ended September 30, 2016			Nine months ended September 30, 2015
Net Income (loss) – GAAP	$	32,282		$	(1,852	)	$	13,281		10,601
Provision for income tax	2,239			—			2,239			—
Net income (loss) before provision for income tax	34,521			(1,852		)	15,520			10,601
Adjustments:
Investments:
Unrealized (gain) loss on investments and securitized debt	(15,292		)	(24,723		)	(47,571		)	(10,284		)
Other than temporary impairment	4,978			5,917			22,131			14,884
Realized (gain) loss on sale of investments	(1,439		)	2,482			4,968			(9,267		)
Realized (gain) loss on foreign currency transactions	149			275			266			(2,523		)
Unrealized (gain) loss on foreign currency transactions	195			(201		)	639			859
Derivative Instruments:
Net realized (gain) loss on derivatives	14,242			(20,944		)	(11,479		)	(12,829		)
Unrealized (gain) loss on derivatives	(26,054		)	58,546			46,073			82,952
Non-cash stock-based compensation expense	433			509			1,351			1,969
Total adjustments	(22,788		)	21,861			16,378			65,761
Core Earnings – Non-GAAP Financial Measure	$	11,733		$	20,009		$	31,898		$	76,362
Basic Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP Financial Measure	$	0.28		$	0.48		$	0.76		$	1.82
Diluted Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP Financial Measure	$	0.28		$	0.48		$	0.76		$	1.82
Basic weighted average common shares and participating securities	41,970,108			41,946,885			41,959,152			41,896,839
Diluted weighted average common shares and participating securities	41,970,108			41,946,885			41,959,152			41,896,839

11

Reconciliation of Interest Income and Effective Cost of Funds

(Unaudited, in thousands)

The following table reconciles total interest income to interest income including interest income on Agency and Non-Agency Interest-Only Strips classified as derivatives (Non-GAAP financial measure) for the three and nine months ended September 30, 2016 and September 30, 2015:

(dollars in thousands)	Three months ended September 30, 2016			Three months ended September 30, 2015			Nine months ended September 30, 2016			Nine months ended September 30, 2015
Coupon interest income	$	34,944		$	49,287		$	109,514		$	161,835
Premium accretion, discount amortization and amortization of basis, net	(5,790		)	(13,466		)	(21,522		)	(44,179		)
Interest income	$	29,154		$	35,821		$	87,992		$	117,656
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1):
Coupon interest income	$	3,503		5,436			11,113			16,700
Amortization of basis (Non-GAAP Financial Measure)	(2,827		)	(4,163		)	(8,930		)	(12,877		)
Contractual interest income, net on Foreign currency swaps(1)	61			190			268			585
Contractual interest income, net on Total return swaps(1)	308			—			836			—
Subtotal	1,045			1,463			3,287			4,408
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	$	30,199		$	37,284		$	91,279		$	122,064

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

The following tables reconcile the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the three and nine months ended September 30, 2016 and September 30, 2015:

	Three months ended September 30, 2016				Nine months ended September 30, 2016
(dollars in thousands)	Reconciliation		Cost of Funds/Effective Borrowing Costs		Reconciliation		Cost of Funds/Effective Borrowing Costs
Interest expense	$	7,685	1.29	%	$	23,391	1.31	%
Net interest paid - interest rate swaps	6,736		1.14	%	21,907		1.22	%
Effective Borrowing Costs	$	14,421	2.43	%	$	45,298	2.53	%
Weighted average repurchase borrowings	$	2,365,695			$	2,389,321
	Three months ended September 30, 2015				Nine months ended September 30, 2015
(dollars in thousands)	Reconciliation		Cost of Funds/Effective Borrowing Costs		Reconciliation		Cost of Funds/Effective Borrowing Costs
Interest expense	$	6,981	0.90	%	$	19,960	0.75	%
Net interest paid - interest rate swaps	5,224		0.68	%	10,796		0.41	%
Effective Borrowing Costs	$	12,205	1.58	%	$	30,756	1.16	%
Weighted average repurchase borrowings	$	3,064,689			$	3,536,381

12

EX-99.2

Third Quarter 2016 Investor Presentation November 2, 2016

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 Safe Harbor Statement

n Highly experienced WMC Executive Management n Jennifer Murphy, CFA – President and CEO n Anup Agarwal – Chief Investment Officer n Lisa Meyer, CPA – Chief Financial Officer n Elliott Neumayer – Chief Operating Officer n WMC is supported by the deep investment experience of the mortgage and asset backed securities team of Western Asset, as well as its global investment, risk management and operational infrastructure n Western Asset manages approximately $445 billion in fixed income assets with over 800 investment, risk, finance, accounting, legal and compliance, operations and other professionals in nine offices around the world n Western Asset’s depth and breadth of fixed income expertise, comprehensive platform, and global institutional relationships provide WMC a key advantage n WMC corporate goals n Best-in-class risk and portfolio management practices n Operational excellence and efficiencies n Highest standards of financial reporting, disclosure and transparency n Consistent dividend policy 2 Corporate Overview Our long-term objective is to provide shareholders with an attractive dividend that is supported by sustainable core earnings, as well as the potential for higher total returns, while maintaining a relatively stable book value.

n GAAP Net Income of $32.3 million, or $0.77 per share n Quarterly cash dividend of $0.31 per share n $11.48 net book value per share as of September 30, 2016(1) n Economic return on book value was 7.1%(2) n Core earnings plus drop income(3) of $14.8 million, or $0.35 per share, consists of: n Core earnings of $0.28 per share n Net interest income remained constant quarter over quarter n Expenses decreased by $0.01 per share from Q2 2016 as a result of our continued focus to find efficiencies and reduce costs n Core earnings of $0.30 per share, excluding a $0.02 per share retrospective adjustment n Drop income of $0.07 per share n Net portfolio income of $39.3 million (4) n Net interest spread of 1.85%(5) n 4.28% adjusted gross yield(5) n 2.43% fully hedged cost of funds(5) n Agency RMBS CPR of 11.4% for Third Quarter (6) 3 Please refer to page 13 for footnote disclosures. Third Quarter Financial Highlights

Recent Performance Dividend Per Share $0.50 $0.45 $0.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 Q1 2016 Q2 2016 Q3 2016 0.45 0.31 0.31 Economic Return 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 Q1 2016 Q2 2016 Q3 2016 (7.0)% 3.9% 7.1% Book Value Change 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 -12.0 Q1 2016 Q2 2016 Q3 2016 (10.7)% 1.0% 4.3% Core Earnings Plus Drop Income Per Share $0.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 Q1 2016 Q2 2016 Q3 2016 0.23 0.30 0.35 4 (2) (3) Please refer to page 13 for footnote disclosures. Similar to the second quarter of 2016, we experienced positive trends in book value, economic return and core earnings plus drop income in the third quarter of 2016.

5 Book Value Roll Forward Please refer to page 13 for footnote disclosures. Book value increased by 4.3% during the third quarter, primarily due to an increase in the value of our Agency and Non-Agency holdings. Amounts in 000's Per Share Book Value at June 30, 2016 $ 461,706 11.01 Common dividend (12,995) (0.31) 448,711 10.70 Portfolio Income Net interest margin (7) 15,718 0.37 Net realized loss on investments and derivatives (12,804) (0.31) Unrealized gain on investments and derivatives 42,732 1.02 Other than temporary impairment (8) (6,364) (0.15) Net portfolio income 39,281 0.93 Operating expenses and G&A, (excluding non-cash stock based compensation) (4,329) (0.10) Provision for taxes (2,239) (0.05) Book Value at September 30, 2016 $ 481,425 11.48

12/31/2015 3/31/2016 6/30/2016 9/30/2016 70% 60% 50% 40% 30% 20% 10% 0% Agency RMBS Non-Agency RMBS Non-Agency CMBS Whole-Loans Agency CMBS Other Investments 56% 17% 15% 7% 1% 4% 59% 16% 14% 7% 1% 3% 60% 16% 14% 7% 1% 3% 63% 14% 13% 7% 0.5% 3% 6 Investment Portfolio ($ in millions) Asset Class 12/31/2015 3/31/2016 6/30/2016 9/30/2016 Agency RMBS $1,731 $1,669 $1,605 $ 1,852 Agency CMBS $38 $28 $24 $ 14 Non-Agency RMBS $530 $443 $415 $ 395 Non-Agency CMBS $451 $406 $382 $ 369 Residential Whole-Loans $219 $201 $190 $ 205 Other Investments (9) $126 $72 $73 $ 87 Total $3,095 $2,818 $2,688 $ 2,922 Please refer to page 13 for footnote disclosures. Portfolio Composition Sector allocations have remained fairly constant within the portfolio.

20.0 15.0 10.0 5.0 0.0 $ (M illi on s) Agency RMBS (net of hedges) Agency CMBS Non-Agency RMBS Non-Agency CMBS Residential Whole-Loans Other Securities $15.8 $0.2 $10.2 $9.2 $1.4 $2.5 7 Portfolio Income Attribution(10) Please refer to page 13 for footnote disclosures. (15) Third Quarter 2016 Net Portfolio Income Sector (in millions) Agency RMBS (net of hedges) $ 15.8 40% Agency CMBS $ 0.2 1% Non-Agency RMBS $ 10.2 26% Non-Agency CMBS $ 9.2 23% Residential Whole-Loans $ 1.4 4% Other Securities (15) $ 2.5 6% Total $ 39.3 100% Portfolio Income(4) increased from $22.4 million in the quarter ended June 30, 2016 to $39.3 million in the quarter ended September 30, 2016.

n Net Duration of the Agency RMBS portfolio: 1.03 years n Leverage Ratio: 5.2x n Leverage Ratio as adjusted for TBA position is 7.1x n Agency RMBS Weighted Average Loan Age (“WALA”) of 30.7 months n Net interest spread of 1.85% n 4.28% adjusted gross yield n 2.43% fully hedged cost of funds n Net fixed pay interest rate swaps of $1.5 billion (11) 8 (5) Key Portfolio Metrics as of September 30, 2016 Agency Holdings Duration Contribution by Maturity Date Total 6-Months 2-Year 5-Year 10-Year 20-Year 30-Year Agency RMBS Pools 2.50 0.15 0.43 0.76 0.77 0.38 0.01 Swaps and Futures (1.47) 0.07 (0.18) (0.58) (0.70) (0.10) 0.02 Total 1.03 0.22 0.25 0.18 0.07 0.28 0.03 Please refer to page 13 for footnote disclosures. (5) (5)

Portfolio Financing ($ in millions) September 30, 2016 Repurchase Agreements Outstanding Amounts Interest Rate Remaining Days to Maturity Agency RMBS $ 1,784.4 0.75% 31 Agency CMBS 10.7 1.66% 31 Non-Agency RMBS 270.1 2.32% 33 Non-Agency CMBS 256.5 2.36% 33 Whole-Loans and Securitized Commercial Loan 173.9 2.78% 15 Other Securities (12) 27.9 3.05% 22 Total/Wtd Avg $ 2,523.5 1.25% 30 9 n Master repurchase agreements with 28 counterparties n Outstanding borrowings with 18 counterparties n Capacity in excess of our current needs Please refer to page 13 for footnote disclosures. Financing Summary

10 Fixed Pay Interest Rate Swaps ($ in millions – as of September 30, 2016) Maturity Notional Amount Avg. Fixed Pay Rate Avg. Floating Receive Rate Average Maturity (Years) 1 Year to 3 Years $ 1,098.9 1.1% 0.7% 1.6 3 Years to 5 Years 2,006.2 1.8% 0.8% 4.2 >5 Years 2,358.3 2.6% 0.7% 9.9 Total Fixed Pay Rate (13) $ 5,463.4 2.0% 0.7% 6.1 Variable Pay Interest Rate Swaps ($ in millions – as of September 30, 2016) Maturity Notional Amount Average Variable Pay Rate Avg. Fixed Recieve Rate Average Maturity (Years) 3 Years to 5 Years $ 2,036.5 0.7% 1.4% 4.1 >5 Years 1,936.5 0.8% 1.9% 10.1 Total Floating Pay Rate $ 3,973.0 0.8% 1.7% 7.0 Hedging Summary Please refer to page 13 for footnote disclosures. Our net fixed pay interest rate swap(14) positions are about $1.5 billion. (13)

11 n Both U.S. and major global economies will continue to experience slow but sustainable growth n Continued low inflation – U.S. and global n Both U.S. Treasuries and sovereign bonds will be underpinned by accommodative central bank polices in all the major economies n Spread sectors, having rebounded from depressed levels, should continue to offer attractive returns n Consumer and housing fundamentals remain at historically attractive levels n We expect moderate and ongoing volatility in the near-term Macroeconomic Outlook The global recovery remains intact, albeit fragile, despite a tumultuous first quarter and Brexit.

n Lower rated CMBS spreads remain wide and have also lagged the recovery in credit n We believe that junior CMBS spreads will tighten over the next year n Residential Whole-loans continue to perform in line with our expectations n We expect to opportunistically increase our exposure to this sector n Agency mortgages continue to be supported by strong global demand, given their attractive yield and duration relative to sovereign debt n We expect Agency spreads to widen slightly in the short term, but remain supported over the longer term n Legacy Non-Agency RMBS spreads continue to tighten n We see fewer attractive opportunities in this sector n Credit risk transfer spreads, especially equity class, remain attractive on a relative basis and have lagged the broader recovery in the credit sensitive sectors n We see attractive opportunities in GSE credit risk transfer securities Portfolio View Agency RMBS and the credit sensitive mortgage sectors, having rebounded from depressed levels, are expected to offer attractive returns. 12

13 (1) Reflects the $0.31 dividend declared on September 22, 2016 and paid on October 25, 2016. (2) 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. (3) Core earnings is a non-GAAP measures which includes the cost of interest rate swaps, interest income on IOs and IIOs classified as derivatives, net interest income on foreign currency swaps and total return swaps. 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 $3.1 million for the three months ended September 30, 2016. (4) Non-GAAP measure which includes net interest margin (as defined in footnote 7), realized and unrealized gains or losses in the portfolio and other than temporary impairment. We have allocated the net cost of our interest rate swaps, futures, TBAs, options and swaptions to the Agency RMBS sector. (5) 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, foreign currency swaps and total return swap, and are weighted averages for the quarter ended September 30, 2016. (6) Third quarter weighted average Constant Prepayment Rate for the company’s Agency RMBS portfolio on an annualized basis. (7) Non-GAAP measure which includes net interest income, interest income on IO's, IIO's, foreign currency swaps and total return swap classified as derivatives less cash hedging costs. (8) Includes other than temporary impairment on IO's and IIO's accounted for as derivatives. (9) Other investments includes ABS, GSE Credit Risk Transfer securities and a securitized commercial loan. (10) Portfolio income attribution uses total income defined as the sum of net interest income, realized gain, unrealized gain and other than temporary impairment. (11) 5.2x leverage calculation does not reflect net To-Be Announced (“TBA”) mortgage pass-through certificates position. As of the September 30, 2016, the net long position in TBAs was $890 million in notional value. Adjusted leverage is a Non-GAAP measure. (12) Other investments includes ABS and GSE Credit Risk Transfer securities. (13) 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. (14) Includes $1.8 billion of forward starting swaps, starting in 7.0 months. (15) Other investments includes ABS, GSE Credit Risk Transfer securities, total return swap and a securitized commercial loan. Footnotes

Appendix

¹ Other investments includes ABS, GSE Credit Risk Transfer securities and securitized commercial loan. 2 Lower loan balance pools generally consist of loans below $150,000. 3 Other includes low WALA and Investor loans. 4 Commercial Real Estate Mortgage Mezzanine Loans. 15 Portfolio Breakdown Total Investment Portfolio ($ in millions) September 30, 2016 Agency RMBS $ 1,852 Agency CMBS 14 Non-Agency RMBS 395 Non-Agency CMBS 369 Residential Whole-Loans 205 Other Investments1 87 Total $ 2,922 Agency & Non-Agency CMBSAgency RMBS Non-Agency RMBS, Whole-loans &CRT Securities Select Sector Categories Agency RMBS Agency CMBS Non-Agency RMBS Non-Agency CMBS Whole-Loans Other Investments 63.4% 0.5% 13.5% 12.6% 7.0% 3.0% Lower Loan Balance MHA/HARP High LTV Other 53.8% 10.7% 35.5% Non-Agency RMBS Residential Whole-loans CRT Securities 63.0% 32.6% 4.4% Legacy CMBS New Issue CMBS CRE Mezzanine Agency CMBS 56.8% 34.4% 5.2% 3.6%

16 Investment Portfolio ($ in millions) Coupon Principal Balance Amortized Cost Estimated Fair Value Agency 30-year fixed rate 3.0% $ 226.2 $ 234.8 $ 235.2 3.5% 215.0 226.1 227.8 4.0% 326.9 354.4 357.8 4.5% 0.3 351.9 368.8 5.0% 51.3 57.6 58.4 5.5% 2.4 2.7 2.7 6.0% 2.4 2.7 2.9 20-year fixed rate 3.5% 130.3 137.0 139.6 4.0% 372.7 392.2 404.9 Agency RMBS IOs and IIOs(¹) 3.2% N/A 52.5 53.4 Agency CMBS 4.5% 4.6 4.6 4.3 Agency CMBS IOs and IIOs(2) 1.2% N/A 9.7 9.5 Total Agency 3.4% 1,660.8 1,826.2 1,865.5 Non-Agency RMBS 4.0% 422.5 294.2 309.5 Non-Agency RMBS IOs and IIOs(3) 5.7% N/A 61.3 85.6 Non-Agency CMBS 5.0% 479.4 394.0 368.9 Total Non-Agency 4.0% 901.9 749.5 764.0 Other Securities(4) 7.7% 42.4 64.4 63.3 Residential Whole-Loans(5) 4.8% 198.7 199.8 204.9 Securitized Commercial Loan(6) 9.0% 25.0 25.0 24.1 Total Portfolio 4.0% $ 2,828.8 $ 2,864.9 $ 2,921.6 (1) Includes $25.3 million of amortized cost and $25.4 million of fair value for Agency RMBS IOs and IIOs accounted for as derivatives for GAAP. (2) Includes $9.2 million of amortized cost and $8.9 million of fair value for Agency CMBS IOs and IIOs accounted for as derivatives for GAAP. (3) Includes $2.3 million of amortized cost and $4.2 million of fair value for Non-Agency RMBS IOs and IIOs accounted for as derivatives for GAAP. (4) Other securities includes residual interests in asset-backed securities which have no principal balance and an amortized cost of approximately $22.4 million. (5) Residential Whole-Loans are held by a trust whose entire beneficial interest is held by WMC. (6) The $25.0 million securitized commercial loan is from a consolidated variable interest entity in which the Company owns a $14.0 million first loss position in a CMBS Securitized Trust. Portfolio Composition as of September 30, 2016

17 Economic Return(1) Total Stock Return(2) QTD YTD 3 Years Ended 5/5/12 to 9/30/2016 QTD YTD 3 Years Ended 5/5/12 to 9/30/2016 7.1% 2.8% 19.8% 26.2% 14.3% 12.4% 19.3% 20.9% WMC Returns as of September 30, 2016 (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.

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 Contact Information