Edgar Filing: AG Mortgage Investment Trust, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-35151

AG MORTGAGE INVESTMENT TRUST, INC.

Maryland	27-5254382
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

245 Park Avenue, 26th Floor New York, New York	10167
(Address of Principal Executive Offices)	(Zip Code)

(212) 692-2000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer ¨ Accelerated filer x Non-Accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨ (Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of October 23, 2017, there were 28,192,541 outstanding shares of common stock of AG Mortgage Investment Trust, Inc.

AG MORTGAGE INVESTMENT TRUST, INC.

TABLE OF CONTENTS

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2017, and September 30, 2016	2
	Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2017, and September 30, 2016	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2017, and September 30, 2016	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70

Item 4.	Controls and Procedures	74

PART II. OTHER INFORMATION		74

Item 1.	Legal Proceedings	74

Item 1A.	Risk Factors	74

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 3.	Defaults Upon Senior Securities	74

Item 4.	Mine Safety Disclosures	74

Item 5.	Other Information	75

Item 6.	Exhibits	75

PART I

ITEM 1. FINANCIAL STATEMENTS

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	September 30, 2017			December 31, 2016

Assets
Real estate securities, at fair value:
Agency - $1,857,336,576 and $972,232,174 pledged as collateral, respectively	$	2,057,208,953		$	1,057,663,726
Non-Agency - $905,878,564 and $990,985,143 pledged as collateral, respectively		929,893,801			1,043,017,308
ABS - $35,918,646 and $21,231,956 pledged as collateral, respectively		53,223,788			21,231,956
CMBS - $208,535,553 and $201,464,058 pledged as collateral, respectively		211,835,559			211,652,660
Residential mortgage loans, at fair value - $20,767,883 and $31,031,107 pledged as collateral, respectively		23,867,531			38,195,576
Commercial loans, at fair value - $32,800,000 pledged as collateral		57,398,663			60,068,800
Investments in debt and equity of affiliates		89,081,520			72,215,919
Excess mortgage servicing rights, at fair value		2,680,564			412,648
Cash and cash equivalents		61,716,545			52,469,891
Restricted cash		40,853,714			26,583,527
Interest receivable		11,798,960			8,570,383
Receivable on unsettled trades - $0 and $3,057,814 pledged as collateral, respectively		-			3,633,161
Receivable under reverse repurchase agreements		-			22,680,000
Derivative assets, at fair value		1,027,846			3,703,366
Other assets		3,347,648			5,600,341
Due from broker		538,842			945,304
Total Assets	$	3,544,473,934		$	2,628,644,566

Liabilities
Repurchase agreements	$	2,694,551,824		$	1,900,509,806
Securitized debt, at fair value		17,221,071			21,491,710
Loan participation payable, at fair value		-			1,800,000
Obligation to return securities borrowed under reverse repurchase agreements, at fair value		-			22,365,000
Payable on unsettled trades		95,429,430			-
Interest payable		5,342,257			2,570,854
Derivative liabilities, at fair value		2,124,550			2,907,255
Dividend payable		16,208,929			13,157,573
Due to affiliates		4,377,194			3,967,622
Accrued expenses		799,895			1,068,779
Taxes payable		1,176,883			1,717,883
Due to broker		616,020			1,211,694
Total Liabilities		2,837,848,053			1,972,768,176
Commitments and Contingencies (Note 12)
Stockholders’ Equity
Preferred stock - $0.01 par value; 50,000,000 shares authorized:
8.25% Series A Cumulative Redeemable Preferred Stock, 2,070,000 shares issued and outstanding ($51,750,000 aggregate liquidation preference)		49,920,772			49,920,772
8.00% Series B Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding ($115,000,000 aggregate liquidation preference)		111,293,233			111,293,233
Common stock, par value $0.01 per share; 450,000,000 shares of common stock authorized and 28,189,441 and 27,700,154 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		281,896			277,002
Additional paid-in capital		585,395,566			576,276,322
Retained earnings/(deficit)		(40,265,586	)		(81,890,939	)
Total Stockholders’ Equity		706,625,881			655,876,390

Total Liabilities & Stockholders’ Equity	$	3,544,473,934		$	2,628,644,566

The accompanying notes are an integral part of these consolidated financial statements.

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net Interest Income
Interest income	$	33,592,587		$	30,573,134		$	92,773,014		$	91,470,588
Interest expense		11,959,225			8,525,365			30,322,030			25,482,661
		21,633,362			22,047,769			62,450,984			65,987,927

Other Income
Net realized gain/(loss)		22,286			9,578,488			(12,527,278	)		(8,725,255	)
Realized loss on periodic interest settlements of derivative instruments, net		(2,147,452	)		(1,034,251	)		(5,614,971	)		(5,019,565	)
Unrealized gain/(loss) on real estate securities and loans, net		14,892,809			13,461,216			53,189,925			33,260,103
Unrealized gain/(loss) on derivative and other instruments, net		2,422,713			6,961,061			4,224,010			(4,792,369	)
Other income		2,325			341,345			34,207			368,731
		15,192,681			29,307,859			39,305,893			15,091,645

Expenses
Management fee to affiliate		2,454,083			2,451,387			7,373,679			7,322,312
Other operating expenses		2,602,473			2,870,662			8,247,060			8,581,726
Servicing fees		22,991			121,806			184,993			359,150
Equity based compensation to affiliate		60,859			75,774			225,877			217,928
Excise tax		375,000			238,167			1,125,000			988,167
		5,515,406			5,757,796			17,156,609			17,469,283

Income/(loss) before equity in earnings/(loss) from affiliates		31,310,637			45,597,832			84,600,268			63,610,289
Equity in earnings/(loss) from affiliates		4,700,800			534,133			9,699,962			1,154,390
Net Income/(Loss)		36,011,437			46,131,965			94,300,230			64,764,679

Dividends on preferred stock		3,367,354			3,367,354			10,102,062			10,102,062

Net Income/(Loss) Available to Common Stockholders	$	32,644,083		$	42,764,611		$	84,198,168		$	54,662,617

Earnings/(Loss) Per Share of Common Stock
Basic	$	1.17		$	1.54		$	3.03		$	1.95
Diluted	$	1.17		$	1.54		$	3.03		$	1.95

Weighted Average Number of Shares of Common Stock Outstanding
Basic		27,841,452			27,802,124			27,756,357			28,036,809
Diluted		27,856,765			27,804,154			27,770,299			28,036,809

The accompanying notes are an integral part of these consolidated financial statements.

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Unaudited)

							8.25 % Series A		8.00 % Series B
							Cumulative		Cumulative
	Common Stock						Redeemable		Redeemable		Additional			Retained
	Shares			Amount			Preferred Stock		Preferred Stock		Paid-in Capital			Earnings/(Deficit)			Total
Balance at January 1, 2016		28,286,210		$	282,863		$	49,920,772	$	111,293,233	$	584,581,995		$	(79,134,150	)	$	666,944,713
Repurchase of common stock		(614,695	)		(6,147	)		-		-		(8,723,881	)		-			(8,730,028	)
Grant of restricted stock and amortization of equity based compensation		26,735			267			-		-		307,567			-			307,834
Common dividends declared		-			-			-		-		-			(39,812,571	)		(39,812,571	)
Preferred Series A dividends declared		-			-			-		-		-			(3,202,062	)		(3,202,062	)
Preferred Series B dividends declared		-			-			-		-		-			(6,900,000	)		(6,900,000	)
Net Income/(Loss)		-			-			-		-		-			64,764,679			64,764,679
Balance at September 30, 2016		27,698,250		$	276,983		$	49,920,772	$	111,293,233	$	576,165,681		$	(64,284,104	)	$	673,372,565

Balance at January 1, 2017		27,700,154		$	277,002		$	49,920,772	$	111,293,233	$	576,276,322		$	(81,890,939	)	$	655,876,390
Net proceeds from issuance of common stock		460,932			4,610			-		-		8,713,545			-			8,718,155
Grant of restricted stock and amortization of equity based compensation		28,355			284			-		-		405,699			-			405,983
Common dividends declared		-			-			-		-		-			(42,572,815	)		(42,572,815	)
Preferred Series A dividends declared		-			-			-		-		-			(3,202,062	)		(3,202,062	)
Preferred Series B dividends declared		-			-			-		-		-			(6,900,000	)		(6,900,000	)
Net Income/(Loss)		-			-			-		-		-			94,300,230			94,300,230
Balance at September 30, 2017		28,189,441		$	281,896		$	49,920,772	$	111,293,233	$	585,395,566		$	(40,265,586	)	$	706,625,881

The accompanying notes are an integral part of these consolidated financial statements.

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended			Nine Months Ended
	September 30, 2017			September 30, 2016
Cash Flows from Operating Activities
Net income/(loss)	$	94,300,230		$	64,764,679
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:
Net amortization of premium		6,264,375			5,671,320
Net realized (gain)/loss		12,527,278			8,725,255
Unrealized (gains)/losses on real estate securities and loans, net		(53,189,925	)		(33,260,103	)
Unrealized (gains)/losses on derivative and other instruments, net		(4,224,010	)		4,792,369
Equity based compensation to affiliate		225,877			217,928
Equity based compensation expense		180,106			89,906
Income from investments in debt and equity of affiliates in excess of distributions received		(1,935,439	)		-
Change in operating assets/liabilities:
Interest receivable		(3,230,086	)		2,284,296
Other assets		69,909			334,590
Due from broker		(6,084	)		273,654
Interest payable		7,729,867			(1,200,911	)
Due to affiliates		409,572			180,446
Accrued expenses		(256,610	)		(633,420	)
Taxes payable		(541,000	)		(521,833	)
Net cash provided by (used in) operating activities		58,324,060			51,718,176

Cash Flows from Investing Activities
Purchase of real estate securities		(1,572,649,795	)		(523,078,732	)
Origination of commercial loans		-			(10,428,437	)
Purchase of commercial loans		(10,270,833	)		-
Purchase of U.S. Treasury securities		-			(358,417,649	)
Purchase of excess mortgage servicing rights		(2,435,617	)		-
Investments in debt and equity of affiliates		(14,861,310	)		(21,170,503	)
Proceeds from sales of real estate securities		467,285,986			278,119,764
Proceeds from sales of residential mortgage loans		13,760,936			35,606,480
Proceeds from sales of U.S. treasury securities		-			487,081,984
Distribution received from investments in debt and equity of affiliates		-			315,983
Principal repayments on real estate securities		319,138,675			291,000,339
Principal repayments on commercial loans		13,478,194			40,000,000
Principal repayments on residential mortgage loans		5,871,829			2,476,335
Net proceeds from/(payments made) on reverse repurchase agreements		22,680,932			(45,942,668	)
Net proceeds from/(payments made) on sales of securities borrowed under reverse repurchase agreements		(22,413,242	)		45,281,749
Net settlement of interest rate swaps and other instruments		(13,728,973	)		(10,613,258	)
Net settlement of TBAs		3,002,891			445,586
Proceeds from redemption of FHLBC Stock		-			8,013,900
Cash flows provided by/(used in) other investing activities		3,366,843			1,271,471
Restricted cash provided by/(used in) investing activities		(21,212,643	)		(669,691	)
Net cash provided by/(used in) investing activities		(808,986,127	)		219,292,653

Cash Flows from Financing Activities
Repurchase of common stock		-			(9,928,615	)
Net proceeds from issuance of common stock		8,730,428			-
Borrowings under repurchase agreements		26,155,914,394			64,813,220,211
Borrowings under FHLBC advances		-			147,215,991
Repayments of repurchase agreements		(25,362,642,476	)		(64,621,819,962	)
Repayments of FHLBC advances		-			(544,109,991	)
Proceeds from transfer of loan participation		-			1,564,266
Repayments of loan participation		(1,800,000	)		-
Net collateral received from/(paid to) derivative counterparty		3,358,258			(4,324,597	)
Net collateral received from/(paid to) repurchase counterparty		5,971,639			(2,787,829	)
Dividends paid on common stock		(39,521,460	)		(40,152,041	)
Dividends paid on preferred stock		(10,102,062	)		(10,102,062	)
Net cash provided by/(used in) financing activities		759,908,721			(271,224,629	)

Net change in cash and cash equivalents		9,246,654			(213,800	)
Cash and cash equivalents, Beginning of Period		52,469,891			46,253,291
Cash and cash equivalents, End of Period	$	61,716,545		$	46,039,491

Supplemental disclosure of cash flow information:
Cash paid for interest on repurchase agreements and FHLBC advances	$	26,763,198		$	24,187,601
Cash paid for income tax	$	1,732,709		$	1,580,020
Supplemental disclosure of non-cash financing and investing activities:
Principal repayments on real estate securities not yet received	$	479,994		$	2,137,131
Common stock dividends declared but not paid	$	16,208,929		$	13,156,669
Decrease in securitized debt	$	4,310,904		$	5,706,520
Transfer from residential mortgage loans to other assets	$	2,305,814		$	1,793,761
Transfer from investments in debt and equity of affiliates to CMBS	$	-		$	3,103,111

The accompanying notes are an integral part of these consolidated financial statements.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

1. Organization

AG Mortgage Investment Trust, Inc. (the “Company”) was incorporated in the state of Maryland on March 1, 2011. The Company is focused on investing in, acquiring and managing a diversified portfolio of residential mortgage-backed securities, or RMBS, issued or guaranteed by a government-sponsored entity such as Fannie Mae or Freddie Mac (collectively, “GSEs”), or any agency of the U.S. Government such as Ginnie Mae (collectively, “Agency RMBS”), and other real estate-related securities and financial assets, including Non-Agency RMBS, ABS, CMBS and loans (as defined below).

Non-Agency RMBS represent fixed- and floating-rate RMBS issued by entities or organizations other than a U.S. government-sponsored entity or agency of the U.S. government, including investment grade (AAA through BBB) and non-investment grade classes (BB and below). The mortgage loan collateral for Non-Agency RMBS consists of residential mortgage loans that do not generally conform to underwriting guidelines issued by U.S. government agencies or U.S. government-sponsored entities.

Asset Backed Securities (“ABS”) are securitized investments similar to the aforementioned investments except the underlying assets are diverse, not only representing real estate related assets.

Commercial Mortgage Backed Securities (“CMBS”) represent investments of fixed- and floating-rate CMBS, including investment grade (AAA through BBB) and non-investment grade classes (BB and below) secured by, or evidence an ownership interest in, a single commercial mortgage loan or a pool of commercial mortgage loans.

Collectively, the Company refers to Agency RMBS, Non-Agency RMBS, ABS and CMBS asset types as “real estate securities” or “securities”.

Commercial loans are secured by an interest in commercial real estate and represent a contractual right to receive money on demand or on fixed or determinable dates. Residential mortgage loans refer to performing, re-performing and non-performing loans secured by a first lien mortgage on residential mortgaged property located in any of the 50 states of the United States or in the District of Columbia. The Company refers to its residential and commercial mortgage loans as “mortgage loans” or “loans.”

The Company is externally managed by AG REIT Management, LLC, a Delaware limited liability company (the “Manager”), a wholly-owned subsidiary of Angelo, Gordon & Co., L.P. (“Angelo, Gordon”), a privately-held, SEC-registered investment adviser, pursuant to a management agreement. The Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo, Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement.

The Company conducts its operations to qualify and be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”).

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

2. Summary of significant accounting policies

The accompanying unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain prior period amounts have been reclassified to conform to the current period’s presentation. In the opinion of management, all adjustments considered necessary for a fair statement for the interim period of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.

Cash and cash equivalents

Cash is comprised of cash on deposit with financial institutions. The Company classifies highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents. As of September 30, 2017 and December 31, 2016, the Company held no cash equivalents. The Company places its cash with high credit quality institutions to minimize credit risk exposure. Cash pledged to the Company as collateral is unrestricted in use and, accordingly, is included as a component of “Cash and cash equivalents” on the consolidated balance sheets. Any cash held by the Company as collateral is included in the “Due to broker” line item on the consolidated balance sheets and in cash flows from financing activities on the consolidated statement of cash flows. Any cash due to the Company in the form of principal payments is included in the “Due from broker” line item on the consolidated balance sheets and in cash flows from operating activities on the consolidated statement of cash flows.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

Restricted cash

Restricted cash includes cash pledged as collateral for clearing and executing trades, derivatives and repurchase agreements and is not available to the Company for general corporate purposes. Restricted cash may be returned to the Company when the related collateral requirements are exceeded or at the maturity of the derivative or repurchase agreement. Restricted cash is carried at cost, which approximates fair value. Restricted cash does not include variation margin on centrally cleared derivatives. See Note 7 for more detail.

Offering costs

The Company incurred offering costs in connection with common stock offerings. The offering costs were paid out of the proceeds of the respective offerings. Offering costs in connection with common stock offerings have been accounted for as a reduction of additional paid-in capital.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Earnings/(Loss) per share

In accordance with the provisions of Accounting Standards Codification (“ASC”) 260, “Earnings per Share,” the Company calculates basic income/(loss) per share by dividing net income/(loss) available to common stockholders for the period by weighted-average shares of the Company’s common stock outstanding for that period. Diluted income per share takes into account the effect of dilutive instruments, such as stock options, warrants, unvested restricted stock and unvested restricted stock units but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. In periods in which the Company records a loss, potentially dilutive securities are excluded from the diluted loss per share calculation, as their effect on loss per share is anti-dilutive.

Valuation of financial instruments

The fair value of the financial instruments that the Company records at fair value will be determined by the Manager, subject to oversight of the Company’s board of directors, and in accordance with ASC 820, “Fair Value Measurements and Disclosures.” When possible, the Company determines fair value using independent data sources. ASC 820 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable.

The three levels of the hierarchy under ASC 820 are described below:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities.

•

Level 2 – Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.

•

Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability, and would be based on the best information available.

Transfers between levels are assumed to occur at the beginning of the reporting period.

Accounting for real estate securities

Investments in real estate securities are recorded in accordance with ASC 320-10, “Investments – Debt and Equity Securities”, ASC 325-40, “Beneficial Interests in Securitized Financial Assets”, or ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The Company has chosen to make a fair value election pursuant to ASC 825, “Financial Instruments” for its real estate securities portfolio. Real estate securities are recorded at fair market value on the consolidated balance sheets and the periodic change in fair market value is recorded in current period earnings on the consolidated statement of operations as a component of “Unrealized gain/(loss) on real estate securities and loans, net.” Real estate securities acquired through securitizations are shown in the line item “Purchase of real estate securities” on the consolidated statement of cash flows.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

These investments meet the requirements to be classified as available for sale under ASC 320-10-25 which requires the securities to be carried at fair value on the consolidated balance sheets with changes in fair value recorded to other comprehensive income, a component of stockholders’ equity. Electing the fair value option allows the Company to record changes in fair value in the consolidated statement of operations, which, in management’s view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner.

When the Company purchases securities with evidence of credit deterioration since origination, it will analyze to determine if the guidance found in ASC 310-30 is applicable.

The Company accounts for its securities under ASC 310 and ASC 325 and evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis. The determination of whether a security is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective factors. When the fair value of a real estate security is less than its amortized cost at the balance sheet date, the security is considered impaired, and the impairment is designated as either “temporary” or “other-than-temporary.”

When a real estate security is impaired, an OTTI is considered to have occurred if (i) the Company intends to sell the security (i.e., a decision has been made as of the reporting date) or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell the security or if it is more likely than not that the Company will be required to sell the real estate security before recovery of its amortized cost basis, the entire amount of the impairment loss, if any, is recognized in earnings as a realized loss and the cost basis of the security is adjusted to its fair value. Additionally for securities accounted for under ASC 325-40 an OTTI is deemed to have occurred when there is an adverse change in the expected cash flows to be received and the fair value of the security is less than its carrying amount. In determining whether an adverse change in cash flows occurred, the present value of the remaining cash flows, as estimated at the initial transaction date (or the last date previously revised), is compared to the present value of the expected cash flows at the current reporting date. The estimated cash flows reflect those a “market participant” would use and include observations of current information and events, and assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of potential credit losses. Cash flows are discounted at a rate equal to the current yield used to accrete interest income. Any resulting OTTI adjustments are reflected in the “Net realized gain/(loss)” line item on the consolidated statement of operations.

The determination as to whether an OTTI exists is subjective, given that such determination is based on information available at the time of assessment as well as the Company’s estimate of the future performance and cash flow projections for the individual security. As a result, the timing and amount of an OTTI constitutes an accounting estimate that may change materially over time.

Increases in interest income may be recognized on a security on which the Company previously recorded an OTTI charge if the performance of such security subsequently improves.

Any remaining unrealized losses on securities at September 30, 2017 do not represent other than temporary impairment as the Company has the ability and intent to hold the securities to maturity or for a period of time sufficient for a forecasted market price recovery up to or above the amortized cost of the investment, and the Company is not required to sell the security for regulatory or other reasons. In addition, any unrealized losses on the Company’s Agency RMBS accounted for under ASC 320 are not due to credit losses given their explicit guarantee of principal and interest by the GSEs, but rather are due to changes in interest rates and prepayment expectations. See Note 3 for a summary of OTTI charges recorded.

Sales of securities

Sales of securities are driven by the Manager’s portfolio management process. The Manager seeks to mitigate risks including those associated with prepayments, defaults, severities, amongst others and will opportunistically rotate the portfolio into securities with more favorable attributes. Strategies may also be employed to manage net capital gains, which need to be distributed for tax purposes.

Realized gains or losses on sales of securities, loans and derivatives are included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. The cost of positions sold is calculated using a first in, first out, or FIFO, basis. Realized gains and losses are recorded in earnings at the time of disposition.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

Accounting for mortgage loans

Investments in mortgage loans are recorded in accordance with ASC 310-10. At purchase, the Company aggregates its mortgage loans into pools based on common risk characteristics. Once a pool of loans is assembled, its composition is maintained. The Company has chosen to make a fair value election pursuant to ASC 825 for its mortgage loan portfolio. Loans are recorded at fair market value on the consolidated balance sheets and any periodic change in fair market value will be recorded in current period earnings on the consolidated statement of operations as a component of “Unrealized gain/(loss) on real estate securities and loans, net.”

The Company amortizes or accretes any premium or discount over the life of the related loan utilizing the effective interest method. On at least a quarterly basis, the Company evaluates the collectability of both interest and principal of each loan, if circumstances warrant, to determine whether they are impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated and recorded accordingly. Income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.

When the Company purchases mortgage loans with evidence of credit deterioration since origination and it determines that it is probable it will not collect all contractual cash flows on those loans, it will apply the guidance found in ASC 310-30. Mortgage loans that are delinquent 60 or more days are considered non-performing.

The Company updates its estimate of the cash flows expected to be collected on at least a quarterly basis for loans accounted for under ASC 310-30. In estimating these cash flows, there are a number of assumptions that will be subject to uncertainties and contingencies including both the rate and timing of principal and interest receipts, and assumptions of prepayments, repurchases, defaults and liquidations. If based on the most current information and events it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected, the Company will recognize these changes prospectively through an adjustment of the loan’s yield over its remaining life. The Company will adjust the amount of accretable yield by reclassification from the nonaccretable difference. The adjustment is accounted for as a change in estimate in conformity with ASC 250, “Accounting Changes and Error Corrections” with the amount of periodic accretion adjusted over the remaining life of the loan. Decreases in cash flows expected to be collected from previously projected cash flows, which includes all cash flows originally expected to be collected by the investor plus any additional cash flows expected to be collected arising from changes in estimate after acquisition, are recognized as impairment. Increases in interest income may be recognized on a loan on which the Company previously recorded an OTTI charge if the performance of such loan subsequently improves.

Investments in debt and equity of affiliates

The Company’s unconsolidated ownership interests in affiliates are accounted for using the equity method. A majority of the Company’s investments held through affiliated entities are comprised of real estate securities and loans. These underlying entities have chosen to make a fair value election on their financial instruments pursuant to ASC 825; as such, the Company will treat these investments consistently with this election. As of September 30, 2017 and December 31, 2016, these investments had a fair market value of $79.8 million and $69.0 million, respectively.

In December 2015, the Company, alongside private funds under the management of Angelo, Gordon, through AG Arc LLC, one of the Company’s indirect subsidiaries (“AG Arc”), formed Arc Home LLC (“Arc Home”). The Company has chosen to make a fair value election with respect to its investment in AG Arc pursuant to ASC 825. As of September 30, 2017 and December 31, 2016, the Company’s interest in AG Arc had a fair market value of $17.8 million and $12.9 million, respectively. See Note 10 for additional detail.

In August 2017, the Company, alongside private funds under the management of Angelo, Gordon, formed Mortgage Acquisition Holding I LLC (“MATH”) to conduct a residential mortgage investment strategy. MATH in turn sponsored the formation of an entity called Mortgage Acquisition Trust I LLC (“MATT”), which is expected to make an election to be treated as a Real Estate Investment Trust beginning with the 2018 tax year. MATT intends to purchase residential mortgage loans that are not eligible for delivery to Fannie Mae, Freddie Mac or Ginnie Mae. In furtherance of this business, MATH’s sponsoring funds, which include the Company, have agreed to provide up to $75.0 million of capital to MATH for use in this mortgage investment business. The Company’s share of MATH’s total capital commitment to MATT is $33.4 million. The Company will invest in MATT through MATH, and these indirect subsidiaries have chosen to make a fair value election on their respective financial instruments pursuant to ASC 825. As such, the Company will treat this investment consistently with this election. As of September 30, 2017, the Company had not funded any of its commitment to MATH.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The Company’s investments in debt and equity of affiliates are recorded at fair market value on the consolidated balance sheets in the “Investments in debt and equity of affiliates” line item and periodic changes in fair market value are recorded in current period earnings on the consolidated statement of operations as a component of “Equity in earnings/(loss) from affiliates.” Capital contributions, distributions and profits and losses of such entities are allocated in accordance with the terms of the applicable agreements.

Excess mortgage servicing rights

The Company has acquired the right to receive the excess servicing spread related to excess mortgage servicing rights (“Excess MSRs”). The Company has chosen to make a fair value election pursuant to ASC 825 for Excess MSRs. Excess MSRs are recorded at fair market value on the consolidated balance sheets and any periodic change in fair market value is recorded in current period earnings on the consolidated statement of operations as a component of “Unrealized gain/(loss) on derivative and other instruments, net.”

Investment consolidation and transfers of financial assets

For each investment made, the Company evaluates the underlying entity that issued the securities acquired or to which the Company makes a loan to determine the appropriate accounting. A similar analysis will be performed for each entity with which the Company enters into an agreement for management, servicing or related services. In performing the analysis, the Company refers to guidance in ASC 810-10, “Consolidation.” In situations where the Company is the transferor of financial assets, the Company refers to the guidance in ASC 860-10 “Transfers and Servicing.”

In variable interest entities (“VIEs”), an entity is subject to consolidation under ASC 810-10 if the equity investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities or are not exposed to the entity’s losses or entitled to its residual returns. VIEs within the scope of ASC 810-10 are required to be consolidated by their primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This determination can sometimes involve complex and subjective analyses. Further, ASC 810-10 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. In accordance with ASC 810-10, all transferees, including variable interest entities, must be evaluated for consolidation. See Note 3 for more detail.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The company adopted ASU 2015-02 on January 1, 2016 using the modified retrospective approach, which did not require the restatement of prior periods to conform to the post-adoption presentation. The Company concluded the adoption of this guidance did not have a material impact on its financial statements.

The Company has entered into resecuritization transactions which result in the Company consolidating the VIEs that were created to facilitate the transactions and to which the underlying assets in connection with the resecuritization were transferred. In determining the accounting treatment to be applied to these resecuritization transactions, the Company evaluated whether the entities used to facilitate these transactions were VIEs and, if so, whether they should be consolidated. Based on its evaluation, the Company concluded that the VIEs should be consolidated. If the Company had determined that consolidation was not required, it would have then assessed whether the transfer of the underlying assets would qualify as a sale or should be accounted for as secured financings under GAAP.

The Company may periodically enter into transactions in which it transfers assets to a third party. Upon a transfer of financial assets, the Company will sometimes retain or acquire senior or subordinated interests in the related assets. Pursuant to ASC 860-10, a determination must be made as to whether a transferor has surrendered control over transferred financial assets. That determination must consider the transferor’s continuing involvement in the transferred financial asset, including all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of the transfer. The financial components approach under ASC 860-10 limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. It defines the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale.

Under ASC 860-10, after a transfer of financial assets that meets the criteria for treatment as a sale—legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint and transferred control—an entity recognizes the financial and servicing assets it acquired or retained and the liabilities it has incurred, derecognizes financial assets it has sold and derecognizes liabilities when extinguished. The transferor would then determine the gain or loss on sale of financial assets by allocating the carrying value of the underlying mortgage between securities or loans sold and the interests retained based on their fair values. The gain or loss on sale is the difference between the cash proceeds from the sale and the amount allocated to the securities or loans sold. When a transfer of financial assets does not qualify for sale accounting, ASC 860-10 requires the transfer to be accounted for as a secured borrowing with a pledge of collateral.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

On February 12, 2016, the Company originated a $12.0 million commercial loan and at closing, transferred a 15% or $1.8 million interest in the loan to an unaffiliated third party. The Company, as transferor, evaluated the transfer under ASC 860-10, and concluded the transferred participation interest should be accounted for as a secured borrowing. The Company has recorded the $12.0 million commercial loan on its consolidated balance sheets as an asset in the “Commercial loans, at fair value” line item. The Company has recorded a $1.8 million liability in the “Loan participation payable, at fair value” line item representing the transfer of the participation interest. The Company has chosen to make a fair value election on the consolidated interest pursuant to ASC 825. The holder of the participation interest has no recourse to the general credit of the Company. The commercial loan was paid off in full in February 2017. The principal and interest due on the loan participation was paid from these proceeds. See Note 4 for more detail.

From time to time, the Company may securitize mortgage loans it holds if such financing is available. These transactions will be recorded in accordance with ASC 860-10 and will be accounted for as either a “sale” and the loans will be removed from the consolidated balance sheets or as a “financing” and will be classified as “real estate securities” on the consolidated balance sheets, depending upon the structure of the securitization transaction. ASC 860-10 is a standard that may require the Company to exercise significant judgment in determining whether a transaction should be recorded as a “sale” or a “financing.”

Interest income recognition

Interest income on the Company’s real estate securities portfolio is accrued based on the actual coupon rate and the outstanding principal balance of such securities. The Company has elected to record interest in accordance with ASC 835-30-35-2 using the effective interest method for all securities accounted for under the fair value option (ASC 825). As such, premiums and discounts are amortized or accreted into interest income over the lives of the securities in accordance with ASC 310-20, “Nonrefundable Fees and Other Costs,” ASC 320-10 or ASC 325-40 as applicable. Total interest income is recorded in the “Interest income” line item on the consolidated statement of operations.

On at least a quarterly basis for securities accounted for under ASC 320-10 and ASC 310-20 (generally Agency RMBS, exclusive of interest-only securities), prepayments of the underlying collateral must be estimated, which directly affect the speed at which the Company amortizes premiums on its securities. If actual and anticipated cash flows differ from previous estimates, the Company recognizes a “catch-up” adjustment in the current period to the amortization of premiums for the impact of the cumulative change in the effective yield through the reporting date.

Similarly, the Company also reassesses the cash flows on at least a quarterly basis for securities accounted for under ASC 325-40 (generally Non-Agency RMBS, ABS, CMBS and interest-only securities). In estimating these cash flows, there are a number of assumptions that will be subject to uncertainties and contingencies. These include the rate and timing of principal and interest receipts (including assumptions of prepayments, repurchases, defaults and liquidations), the pass-through or coupon rate and interest rate fluctuations. In addition, interest payment shortfalls due to delinquencies on the underlying mortgage loans have to be estimated. Differences between previously estimated cash flows and current actual and anticipated cash flows are recognized prospectively through an adjustment of the yield over the remaining life of the security based on the current amortized cost of the investment as adjusted for credit impairment, if any.

Interest income on the Company’s loan portfolio is accrued based on the actual coupon rate and the outstanding principal balance of such loans. The Company has elected to record interest in accordance with ASC 835-30-35-2 using the effective interest method for all loans accounted for under the fair value option (ASC 825). Any amortization will be reflected as an adjustment to interest income in the consolidated statement of operations.

For security and loan investments purchased with evidence of deterioration of credit quality for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, the Company will apply the provisions of ASC 310-30. For purposes of income recognition, the Company aggregates loans that have common risk characteristics into pools and uses a composite interest rate and expectation of cash flows expected to be collected for the pool. ASC 310-30 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. ASC 310-30 limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. ASC 310-30 requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual or valuation allowance. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through an adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment.

The Company’s accrual of interest, discount accretion and premium amortization for U.S. federal and other tax purposes differs from the financial accounting treatment of these items as described above.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

Repurchase agreements and FHLBC Advances

The Company finances the acquisition of certain assets within its portfolio through the use of repurchase agreements. Prior to March 31, 2016, the Company also financed its Agency RMBS portfolio with advances from the Federal Home Loan Bank of Cincinnati (“FHLBC Advances”) (see the following paragraph regarding the current status of the FHLBC Advances). Repurchase agreements are, and while the Company had them, FHLBC Advances were treated as collateralized financing transactions and carried at primarily their contractual amounts, including accrued interest, as specified in the respective agreements. The carrying amount of the Company’s repurchase agreements and FHLBC Advances approximates fair value.

In July 2015, the Company’s wholly-owned captive insurance subsidiary, MITT Insurance Company LLC (“MITT Insurance”), was granted membership in the Federal Home Loan Bank (“FHLB”) system, specifically in the FHLB of Cincinnati (“FHLBC”). However, in January 2016, the Federal Housing Finance Agency, the FHFA, issued RIN 2590-AA39, Members of Federal Home Loan Banks (“the Final Rule”), which expressly excludes captive insurance companies, such as MITT Insurance (“Excluded Captives”), from being eligible for membership in the FHLBC. The Final Rule prevents the FHLBC from making any new advances or extending any existing advances to Excluded Captives, subject to a defined grace period. Upon the termination of membership, the FHLB must liquidate all outstanding advances to Excluded Captives and settle all other business transactions in accordance with the Final Rule. In addition, all FHLB stock held by the terminated Excluded Captive will be repurchased or redeemed at the FHLB’s discretion. Therefore, MITT Insurance must completely wind down all business relationships with the FHLBC, including the repayment of all outstanding advances, prior to or simultaneously with the termination of MITT Insurance’s membership with the FHLBC. As a result of the Final Rule, MITT Insurance exited all FHLBC Advances and as of September 30, 2017, the Company had no outstanding advances with the FHLBC. See the “Other investments” section below for a discussion on FHLBC stock.

The Company pledges certain securities or loans as collateral under repurchase agreements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. The amounts available to be borrowed are dependent upon the fair value of the securities or loans pledged as collateral, which fluctuates with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. In response to declines in fair value of pledged assets, lenders may require the Company to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as margin calls. As of September 30, 2017 and December 31, 2016, the Company has met all margin call requirements.

Other investments

At September 30, 2017 and December 31, 2016 the Company owned FHLBC stock totaling $2,000. The Company has chosen to make a fair value election pursuant to ASC 825 for its stock investment in FHLBC which is recorded in the “Other assets” line item on the Company’s consolidated balance sheets. When evaluating FHLBC stock for impairment, the Company considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of September 30, 2017, the Company had not recognized an impairment charge related to its FHLBC stock. The Company is entitled to a quarterly dividend on the weighted average shares of stock it holds during the period and records the dividend in “Interest income” on its consolidated statement of operations. For the three and nine months ended September 30, 2017, the Company recorded an immaterial amount of dividend income on its FHLBC stock. For the three and nine months ended September 30, 2016, the Company recorded dividend income on its FHLBC stock of approximately $0.0 million and $0.1 million, respectively.

Accounting for derivative financial instruments

The Company enters into derivative contracts as a means of mitigating interest rate risk rather than to enhance returns. The Company accounts for derivative financial instruments in accordance with ASC 815-10, “Derivatives and Hedging.” ASC 815-10 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, if or when hedge accounting is elected, the fair value adjustments will affect either other comprehensive income in stockholders’ equity until the hedged item is recognized in earnings or net income depending on whether the derivative instrument is designated and qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. As of September 30, 2017 and December 31, 2016, the Company did not have any interest rate derivatives designated as hedges. All derivatives have been recorded at fair value in accordance with ASC 820-10, with corresponding changes in value recognized in the consolidated statement of operations. The Company records derivative asset and liability positions on a gross basis with respect to its counterparties. The Company records the daily receipt or payment of variation margin associated with the Company’s centrally cleared derivative instruments on a net basis. Refer to Note 7 for a discussion of this accounting treatment. During the period in which the Company unwinds a derivative, it records a realized gain/(loss) in the “Net realized gain/(loss)” line item in the consolidated statement of operations.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

To-be-announced securities

A to-be-announced security (“TBA”) is a forward contract for the purchase or sale of Agency RMBS at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency RMBS delivered into or received from the contract upon the settlement date, published each month by the Securities Industry and Financial Markets Association, are not known at the time of the transaction. The Company may also choose, prior to settlement, to move the settlement of these securities out to a later date by entering into an offsetting short or long position (referred to as a pair off), net settling the paired off positions for cash, simultaneously purchasing or selling a similar TBA contract for a later settlement date. This transaction is commonly referred to as a dollar roll. The Agency RMBS purchased or sold for a forward settlement date are typically priced at a discount to Agency RMBS for settlement in the current month. This difference, or discount, is referred to as the price drop. The price drop is the economic equivalent of net interest carry income on the underlying Agency RMBS over the roll period (interest income less implied financing cost) and is commonly referred to as dollar roll income/(loss). Consequently, forward purchases of Agency RMBS and dollar roll transactions represent a form of off-balance sheet financing. Dollar roll income is recognized in the consolidated statement of operations in the line item “Unrealized gain/(loss) on derivative and other instruments, net.”

The Company presents the purchase or sale of TBAs net of the corresponding payable or receivable, respectively, until the settlement date of the transaction. Contracts for the purchase or sale of Agency RMBS are accounted for as derivatives if they do not qualify for the “regular way” security trade scope exception found in ASC 815-10. To be eligible for this scope exception, the contract must meet the following conditions: (1) there is no other way to purchase or sell that security, (2) delivery of that security and settlement will occur within the shortest period possible for that type of security, and (3) it is probable at inception and throughout the term of the individual contract that the contract will not settle net and will result in physical delivery of a security when it is issued. Unrealized gains and losses associated with TBA contracts not meeting the regular-way exception and not designated as hedging instruments are recognized in the consolidated statement of operations in the line item “Unrealized gain/(loss) on derivative and other instruments, net.”

U.S. Treasury securities

The Company may purchase long or sell short U.S. Treasury securities to help mitigate the potential impact of changes in interest rates. The Company may finance its purchase of U.S. Treasury securities with overnight repurchase agreements. The Company may borrow securities to cover short sales of U.S. Treasury securities through overnight reverse repurchase agreements, which are accounted for as borrowing transactions, and the Company recognizes an obligation to return the borrowed securities at fair value on its consolidated balance sheets based on the value of the underlying borrowed securities as of the reporting date. Interest income and expense associated with purchases and short sales of U.S. Treasury securities are recognized in “Interest income” and “Interest expense”, respectively, on the consolidated statement of operations. Realized and unrealized gains and losses associated with purchases and short sales of U.S. Treasury securities are recognized in “Net realized gain/(loss)” and “Unrealized gain/(loss) on derivative and other instruments, net,” respectively, on the consolidated statement of operations. As of September 30, 2017, and December 31, 2016, the Company had no positions in U.S. Treasury securities.

Short positions in U.S. Treasury securities through reverse repurchase agreements

The Company may sell short U.S. Treasury securities to help mitigate the potential impact of changes in interest rates. The Company may borrow securities to cover short sales of U.S. Treasury securities under reverse repurchase agreements, which are accounted for as borrowing transactions, and the Company recognizes an obligation to return the borrowed securities at fair value on its consolidated balance sheets based on the value of the underlying borrowed securities as of the reporting date. The Company establishes haircuts to ensure the market value of the underlying assets remain sufficient to protect the Company in the event of a default by a counterparty. Realized and unrealized gains and losses associated with purchases and short sales of U.S. Treasury securities are recognized in “Net realized gain/(loss)” and “Unrealized gain/(loss) on derivative and other instruments, net,” respectively, on the consolidated statement of operations.

Manager compensation

The management agreement provides for payment to the Manager of a management fee. The management fee is accrued and expensed during the period for which it is calculated and earned. For a more detailed discussion on the fees payable under the management agreement, see Note 10.

Income taxes

The Company conducts its operations to qualify and be taxed as a REIT. Accordingly, the Company will generally not be subject to federal or state corporate income tax to the extent that the Company makes qualifying distributions to its stockholders, and provided that it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the four taxable years following the year in which the Company fails to qualify as a REIT.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The dividends paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income/(loss) as opposed to net income/(loss) reported on the Company’s GAAP financial statements. Taxable income/(loss), generally, will differ from net income/(loss) reported on the financial statements because the determination of taxable income/(loss) is based on tax principles and not financial accounting principles.

The Company elected to treat certain domestic subsidiaries as taxable REIT subsidiaries (“TRSs”) and may elect to treat other subsidiaries as TRSs. In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.

A domestic TRS may declare dividends to the Company which will be included in the Company’s taxable income/(loss) and necessitate a distribution to stockholders. Conversely, if the Company retains earnings at the domestic TRS level, no distribution is required and the Company can increase book equity of the consolidated entity. A domestic TRS is subject to U.S. federal, state and local corporate income taxes.

The Company elected to treat one of its foreign subsidiaries as a TRS and, accordingly, taxable income generated by this foreign TRS may not be subject to local income taxation, but generally will be included in the Company’s income on a current basis as Subpart F income, whether or not distributed.

The Company’s financial results are generally not expected to reflect provisions for current or deferred income taxes, except for any activities conducted through one or more TRSs that are subject to corporate income taxation. The Company believes that it will operate in a manner that will allow it to qualify for taxation as a REIT. As a result of the Company’s expected REIT qualification, it does not generally expect to pay federal or state corporate income tax. Many of the REIT requirements, however, are highly technical and complex. If the Company were to fail to meet the REIT requirements, it would be subject to federal income taxes and applicable state and local taxes.

As a REIT, if the Company fails to distribute in any calendar year (subject to specific timing rules for certain dividends paid in January) at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its capital gain net income for such year, and (iii) any undistributed taxable income from the prior year, the Company would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (i) the amounts actually distributed and (ii) the amounts of income retained and on which the Company has paid corporate income tax.

The Company evaluates uncertain income tax positions, if any, in accordance with ASC 740, “Income Taxes.” The Company classifies interest and penalties, if any, related to unrecognized tax benefits as a component of provision for income taxes. See Note 9 for further details.

Stock-based compensation

The Company applies the provisions of ASC 718, “Compensation—Stock Compensation” with regard to its equity incentive plans. ASC 718 covers a wide range of share-based compensation arrangements including stock options, restricted stock plans, performance-based awards, stock appreciation rights and employee stock purchase plans. ASC 718 requires that compensation cost relating to stock-based payment transactions be recognized in financial statements. Compensation cost is measured based on the fair value of the equity or liability instruments issued.

Compensation cost related to restricted common shares issued to the Company’s directors is measured at its estimated fair value at the grant date, and is amortized and expensed over the vesting period on a straight-line basis. Compensation cost related to restricted common shares and restricted stock units issued to the Manager is initially measured at estimated fair value at the grant date, and is remeasured on subsequent dates to the extent the awards are unvested. Restricted stock units granted to the Manager do not entitle the participant the rights of a shareholder of the Company’s common stock, such as dividend and voting rights, until shares are issued in settlement of the vested units. The restricted stock units are not considered to be participating shares. Restricted stock units are measured at fair value reduced by the present value of the dividends expected to be paid on the underlying shares during the requisite service period, discounted at an assumed risk free rate. The Company has elected to use the straight-line method to amortize compensation expense for restricted stock units.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

Recent accounting pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB deferred the effective date of the new revenue recognition standard by one year. The new standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company has concluded the guidance will not have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The amendments in this ASU affect all entities that hold financial assets or owe financial liabilities, and address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The classification and measurement guidance of investments in debt securities and loans are not affected by the amendments in this ASU. ASU 2016-01 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for public business entities, except for a provision related to financial statements of fiscal years or interim periods that have not yet been issued, to recognize in other comprehensive income, the change in fair value of a liability resulting from a change in the instrument-specific credit risk measured using the fair value option. Entities should apply the amendments in this ASU by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses,” (“ASU 2016-13”). ASU 2016-13 introduces a new model related to the accounting for credit losses on instruments, specifically, financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. ASU 2016-13 amends the current guidance, requiring an OTTI charge only when fair value is below the amortized cost of an asset. The length of time the fair value of an available-for-sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists. As such, it is no longer an other-than-temporary model. In addition, credit losses on available-for-sale debt securities will now be limited to the difference between the security’s amortized cost basis and its fair value. The new debt security model will also require the use of an allowance to record estimated credit losses. The new guidance also expands the disclosure requirements regarding an entity’s assumptions, and models. In addition, public entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year). ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating its method of adoption and the impact this ASU will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”, (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing existing diversity of how certain cash receipts and cash payments are presented. These specific issues include debt prepayment and debt extinguishment costs, settlement of zero-coupon debt, proceeds from the settlement of insurance claims, and beneficial interests in securitization transactions, among others. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently assessing the impact this guidance will have on its consolidated financial statements. Adoption of this standard may reclassify certain items on the consolidated statement of cash flows but does not affect the consolidated statement of operations or consolidated balance sheets.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The ASU is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements. Adoption of this standard will require the Company to reconcile changes in cash, cash equivalents, and restricted cash on the consolidated statement of cash flows but does not affect the consolidated statement of operations or consolidated balance sheets.

In March 2017, the FASB issued ASU 2017-08, “Premium Amortization of Purchased Callable Debt Securities” (“ASU 2017-08”). The amendments in this update require purchase premiums for investments in debt securities that are noncontingently callable by the issuer (at a fixed price and preset date) to be amortized to the earliest call date. Previously, purchase premiums for such investments were permitted to be amortized to the instrument’s maturity date. ASU 2017-08 is effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those years. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The ASU is effective fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact of this guidance.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

3. Real Estate Securities

The following tables detail the Company’s real estate securities portfolio as of September 30, 2017 and December 31, 2016. The Company’s Agency RMBS are mortgage pass-through certificates or collateralized mortgage obligations (“CMOs”) representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The Company’s Non-Agency RMBS, ABS and CMBS portfolios are primarily not issued or guaranteed by Fannie Mae, Freddie Mac or any agency of the U.S. Government and are therefore subject to credit risk. The principal and interest payments on Agency RMBS securities have an explicit guarantee by either an agency of the U.S. government or a U.S government-sponsored entity.

The following table details the Company’s real estate securities portfolio as of September 30, 2017:

			Premium /					Gross Unrealized (1)							Weighted Average
	Current Face		(Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon (2)			Yield
Agency RMBS:
30 Year Fixed Rate	$	1,676,807,359	$	74,022,732		$	1,750,830,091	$	11,807,760	$	(2,255,633	)	$	1,760,382,218		3.77	%		3.11	%
Fixed Rate CMO		54,267,762		427,733			54,695,495		904,953		-			55,600,448		3.00	%		2.79	%
ARM		183,361,500		(1,019,214	)		182,342,286		3,918,224		-			186,260,510		2.35	%		2.83	%
Interest Only		493,398,549		(438,168,547	)		55,230,002		2,065,371		(2,329,596	)		54,965,777		2.85	%		6.51	%
Credit Securities:
Non-Agency RMBS		1,090,004,702		(220,692,385	)		869,312,317		59,663,549		(1,944,549	)		927,031,317		4.55	%		6.27	%
Non-Agency RMBS Interest Only		384,799,372		(381,467,836	)		3,331,536		151,223		(620,275	)		2,862,484		0.21	%		8.62	%
ABS		53,497,625		(264,964	)		53,232,661		234,954		(243,827	)		53,223,788		8.34	%		8.73	%
CMBS		209,691,239		(49,523,424	)		160,167,815		1,055,860		(1,359,640	)		159,864,035		5.52	%		6.11	%
CMBS Interest Only		1,948,722,955		(1,900,990,296	)		47,732,659		4,249,838		(10,973	)		51,971,524		0.43	%		6.66	%
Total	$	6,094,551,063	$	(2,917,676,201	)	$	3,176,874,862	$	84,051,732	$	(8,764,493	)	$	3,252,162,101		2.54	%		4.35	%

(1) The Company has chosen to make a fair value election pursuant to ASC 825 for our real estate securities portfolio. Unrealized gains and losses are recognized in current period earnings in the unrealized gain/(loss) on real estate securities and loans, net line item in the consolidated statement of operations. The gross unrealized stated above represents inception to date unrealized gains/(losses).

(2) Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.

The following table details the Company’s real estate securities portfolio as of December 31, 2016:

			Premium /					Gross Unrealized (1)							Weighted Average
	Current Face		(Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon (2)			Yield
Agency RMBS:
30 Year Fixed Rate	$	713,234,586	$	28,338,222		$	741,572,808	$	3,672,057	$	(5,517,144	)	$	739,727,721		3.64	%		2.99	%
Fixed Rate CMO		62,570,005		531,431			63,101,436		595,962		-			63,697,398		3.00	%		2.80	%
ARM		208,592,111		(1,633,175	)		206,958,936		4,385,116		-			211,344,052		2.35	%		2.84	%
Interest Only		416,902,327		(375,843,483	)		41,058,844		3,033,926		(1,198,215	)		42,894,555		2.70	%		8.26	%
Credit Securities:
Non-Agency RMBS		1,255,224,713		(235,346,323	)		1,019,878,390		28,705,591		(9,328,119	)		1,039,255,862		4.31	%		6.03	%
Non-Agency RMBS Interest Only		449,759,113		(446,027,313	)		3,731,800		33,512		(3,866	)		3,761,446		0.25	%		12.47	%
ABS		22,025,000		(357,022	)		21,667,978		100,247		(536,269	)		21,231,956		5.43	%		6.32	%
CMBS		217,935,976		(56,549,776	)		161,386,200		959,842		(2,830,108	)		159,515,934		5.15	%		6.16	%
CMBS Interest Only		1,967,685,636		(1,916,198,928	)		51,486,708		1,001,503		(351,485	)		52,136,726		0.41	%		6.48	%
Total	$	5,313,929,467	$	(3,003,086,367	)	$	2,310,843,100	$	42,487,756	$	(19,765,206	)	$	2,333,565,650		2.18	%		4.76	%

(2) Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.

The following table presents the gross unrealized losses and fair value of the Company’s real estate securities by length of time that such securities have been in a continuous unrealized loss position on September 30, 2017 and December 31, 2016:

	Less than 12 months					Greater than 12 months
As of	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2017	$	449,405,332	$	(5,631,244	)	$	143,555,637	$	(3,133,249	)
December 31, 2016		756,302,518		(12,017,743	)		203,287,535		(7,747,463	)

As described in Note 2, the Company evaluates securities for OTTI on at least a quarterly basis. The determination of whether a security is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective factors. When the fair value of a real estate security is less than its amortized cost at the balance sheet date, the security is considered impaired, and the impairment is designated as either “temporary” or “other-than-temporary.”

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

For the three months ended September 30, 2017 the Company recognized an OTTI charge of $2.0 million on its securities, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. The Company recorded $2.0 million of OTTI due to an adverse change in cash flows on certain securities where the fair values of the securities were less than their carrying amounts. Of the $2.0 million of OTTI recorded, $0.7 million related to securities where OTTI was not recognized in a prior year.

For the nine months ended September 30, 2017 the Company recognized an OTTI charge of $6.5 million on its securities, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. Of this amount, $1.9 million was recognized on three securities in an unrealized loss position which the Company demonstrated intent to sell, and the charge represents a write-down of cost to fair value as of the reporting date. The Company recorded $4.6 million of OTTI due to an adverse change in cash flows on certain securities where the fair values of the securities were less than their carrying amounts. Of the $4.6 million of OTTI recorded, $1.8 million related to securities where OTTI was not recognized in a prior year.

For the three months ended September 30, 2016 the Company recognized an OTTI charge of $1.0 million on its securities, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. The Company recorded $1.0 million of OTTI due to an adverse change in cash flows on certain securities where the fair values of the securities were less than their carrying amounts. Of the $1.0 million of OTTI recorded, $0.4 million related to securities where OTTI was not recognized in a prior year.

For the nine months ended September 30, 2016 the Company recognized an OTTI charge of $13.4 million on its securities, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. The Company recorded $13.4 million of OTTI due to an adverse change in cash flows on certain securities where the fair values of the securities were less than their carrying amounts. Of the $13.4 million of OTTI recorded, $6.0 million related to securities where OTTI was not recognized in a prior year.

The decline in value of the remaining real estate securities is solely due to market conditions and not the credit quality of the assets. The investments in any remaining unrealized loss positions are not considered other than temporarily impaired because the Company currently has the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments and the Company is not required to sell the investments for regulatory or other reasons.

The following table details weighted average life broken out by Agency RMBS, Agency Interest-Only (“IO”) and Credit Securities as of September 30, 2017:

	Agency RMBS (1)							Agency IO							Credit Securities (2)
Weighted Average Life (3)	Fair Value		Amortized Cost		Weighted Average Coupon			Fair Value		Amortized Cost		Weighted Average Coupon			Fair Value		Amortized Cost		Weighted Average Coupon (4)
Less than or equal to 1 year	$	-	$	-		-		$	-	$	-		-		$	93,754,194	$	93,920,244		1.62	%
Greater than one year and less than or equal to five years		241,860,958		237,037,781		2.50	%		30,432,477		31,393,317		2.38	%		435,916,455		420,829,214		1.09	%
Greater than five years and less than or equal to ten years		1,709,144,728		1,699,698,089		3.77	%		24,533,300		23,836,685		4.28	%		455,084,524		428,855,357		2.83	%
Greater than ten years		51,237,490		51,132,002		3.50	%		-		-		-			210,197,975		190,172,173		5.80	%
Total	$	2,002,243,176	$	1,987,867,872		3.61	%	$	54,965,777	$	55,230,002		2.85	%	$	1,194,953,148	$	1,133,776,988		1.92	%

(1) For purposes of this table, Agency RMBS represent securities backed by Fixed Rate 30 Year mortgages, ARMs and Fixed Rate CMOs.

(2) For purposes of this table, Credit Securities represent Non-Agency RMBS, ABS, CMBS and Interest Only credit securities.

(3) Actual maturities of mortgage-backed securities are generally shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.

(4) Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.

The following table details weighted average life broken out by Agency RMBS, Agency IO and Credit Securities as of December 31, 2016:

	Agency RMBS (1)							Agency IO							Credit Securities (2)
Weighted Average Life (3)	Fair Value		Amortized Cost		Weighted Average Coupon			Fair Value		Amortized Cost		Weighted Average Coupon			Fair Value		Amortized Cost		Weighted Average Coupon (4)
Less than or equal to 1 year	$	-	$	-		-		$	-	$	-		-		$	169,483,329	$	170,533,908		2.09	%
Greater than one year and less than or equal to five years		124,913,463		123,021,262		2.73	%		28,514,942		27,995,835		2.23	%		430,525,739		430,108,024		0.94	%
Greater than five years and less than or equal to ten years		808,271,767		806,474,038		3.44	%		14,379,613		13,063,009		5.14	%		425,043,315		418,094,774		2.30	%
Greater than ten years		81,583,941		82,137,880		3.10	%		-		-		-			250,849,541		239,414,370		5.88	%
Total	$	1,014,769,171	$	1,011,633,180		3.32	%	$	42,894,555	$	41,058,844		2.70	%	$	1,275,901,924	$	1,258,151,076		1.82	%

(1) For purposes of this table, Agency RMBS represent securities backed by Fixed Rate 30 Year mortgages, ARMs and Fixed Rate CMOs.

(2) For purposes of this table, Credit Securities represent Non-Agency RMBS, ABS, CMBS and Interest Only credit securities.

(4) Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.

For the three months ended September 30, 2017, the Company sold 22 securities for total proceeds of $206.4 million, recording realized gains of $2.5 million and realized losses of $0.1 million. For the nine months ended September 30, 2017, the Company sold 52 securities for total proceeds of $467.3 million, recording realized gains of $3.5 million and realized losses of $2.2 million.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

For the three months ended September 30, 2016, the Company sold 11 securities for total proceeds of $147.1 million, with an additional $0.3 million of proceeds on 1 unsettled security sale as of quarter end, recording realized gains of $9.8 million. For the nine months ended September 30, 2016, the Company sold 21 securities for total proceeds of $278.1 million, with an additional $0.3 million of proceeds on 1 unsettled security sale as of quarter end, recording realized gains of $10.6 million and realized losses of $1.6 million.

See Notes 4 and 7 for amounts realized on sales of loans and the settlement of certain derivatives, respectively.

A Special Purpose Entity (“SPE”) is an entity designed to fulfill a specific limited need of the company that organized it. SPEs are often used to facilitate transactions that involve securitizing financial assets or resecuritizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to a SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement. See Note 2 for more detail.

The Company previously entered into a resecuritization transaction that resulted in the Company consolidating the VIE created with the SPE which was used to facilitate the transaction. The Company concluded that the entity created to facilitate this transaction was a VIE. The Company also determined that the VIE created to facilitate the resecuritization transaction should be consolidated by the Company and treated as a secured borrowing, based on the Company’s involvement in the VIE, including the design and purpose of the SPE, and whether the Company’s involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of the VIE. As of September 30, 2017 and December 31, 2016, the resecuritized asset had an aggregate principal balance of $26.5 million and $31.5 million, respectively. As of September 30, 2017 and December 31, 2016, the resecuritized asset had an aggregate fair value of $23.7 million and $27.4 million, respectively. As of September 30, 2017 and December 31, 2016, the principal balance of the consolidated tranche was $17.3 million and $21.6 million, respectively. As of September 30, 2017 and December 31, 2016, the fair market value of the consolidated tranche was $17.2 million and $21.5 million, respectively, which is included in the Company’s consolidated balance sheets as “Non-Agency RMBS.” As of September 30, 2017 and December 31, 2016, the aggregate security has a weighted average coupon of 3.49% and 3.15%, respectively, and a weighted average yield of 7.29% and 6.73%, respectively. As of September 30, 2017 and December 31, 2016, the Company has recorded secured financing of $17.2 million and $21.5 million, respectively, on the consolidated balance sheets in the “Securitized debt, at fair value” line item. The Company recorded the proceeds from the issuance of the secured financing in the “Cash Flows from Financing Activities” section of the consolidated statement of cash flows at the time of securitization. As of September 30, 2017 and December 31, 2016, the consolidated tranche had a weighted average life of 2.92 years and 3.27 years, respectively, and a weighted average yield of 3.72% and 3.87%, respectively. The holders of the consolidated tranche have no recourse to the general credit of the Company. The Company has no obligation to provide any other explicit or implicit support to any VIE.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

4. Loans

Residential mortgage loans

The table below details certain information regarding the Company’s residential mortgage loan portfolio as of September 30, 2017:

								Gross Unrealized (1)							Weighted Average
	Unpaid Principal Balance		Premium (Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon			Yield			Weighted Average Life (Years) (2)
Residential mortgage loans	$	31,855,577	$	(9,399,640	)	$	22,455,937	$	1,445,123	$	(33,529	)	$	23,867,531		6.00	%		10.87	%		5.90

(1) The Company has chosen to make a fair value election pursuant to ASC 825 for its loan portfolio. Unrealized gains and losses are recognized in current period earnings in the unrealized gain/(loss) on real estate securities and loans, net line item. The gross unrealized columns above represent inception to date unrealized gains (losses).

(2) Actual maturities of residential mortgage loans are generally shorter than stated contractual maturities. Actual maturities are affected by the lives of the underlying mortgages, periodic payments of principal and prepayments of principal.

The table below details certain information regarding the Company’s residential mortgage loan portfolio as of December 31, 2016:

								Gross Unrealized (1)							Weighted Average
	Unpaid Principal Balance		Premium (Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon			Yield			Weighted Average Life (Years) (2)
Residential mortgage loans	$	53,827,336	$	(16,491,472	)	$	37,335,864	$	1,262,223	$	(402,511	)	$	38,195,576		5.60	%		8.74	%		6.71

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The table below summarizes certain aggregate pool level information pertaining to the Company’s residential mortgage loans:

	September 30, 2017				December 31, 2016
Loan Pool	Fair Value		Unpaid Principal Balance		Fair Value		Unpaid Principal Balance
Re-Performing	$	15,866,356	$	20,364,085	$	26,665,750	$	35,645,382
Non-Performing		8,001,175		11,491,492		11,529,826		18,181,954
	$	23,867,531	$	31,855,577	$	38,195,576	$	53,827,336

As described in Note 2, the Company evaluates loans for OTTI on at least a quarterly basis. The determination of whether a loan is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective factors. When the fair value of a loan is less than its amortized cost at the balance sheet date, the loan is considered impaired, and the impairment is designated as either “temporary” or “other-than-temporary.” No OTTI was recorded on loans for the three months ended September 30, 2017. For the nine months ended September 30, 2017 the Company recognized $0.4 million of OTTI on certain loan pools, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. The Company recorded the $0.4 million of OTTI due to an adverse change in cash flows where the fair values of the securities were less than their carrying amounts. The $0.4 million related to non-performing loan pools with an unpaid principal balance of $9.4 million and an average fair market value of $6.6 million and $8.2 million for the three and nine months ended September 30, 2017, respectively. No OTTI was recorded on loans for the three months or nine months ended September 30, 2016.

As of September 30, 2017 and December 31, 2016 the Company had residential mortgage loans that were in the process of foreclosure with a fair value of $9.1 million and $11.0 million, respectively.

The Company’s mortgage loan portfolio consisted of mortgage loans on residential real estate located throughout the U.S. The following is a summary of certain concentrations of credit risk within the Company’s mortgage loan portfolio:

Concentration of Credit Risk	September 30, 2017			December 31, 2016
Percentage of fair value of mortgage loans with unpaid principal balance to current property value in excess of 100%		91	%		98	%
Percentage of fair value of mortgage loans secured by properties in the following states:
Representing 5% or more of fair value:
New York		31	%		25	%
California		10	%		9	%
Maryland		6	%		6	%
New Jersey		5	%		4	%
Texas		5	%		4	%
Florida		3	%		5	%

The Company records interest income on a level-yield basis. The accretable discount is determined by the excess of the Company’s estimate of undiscounted principal, interest, and other cash flows expected to be collected over its initial investment in the mortgage loan. The following is a summary of the changes in the accretable portion of discounts for the three months and nine months ended September 30, 2017 and September 30, 2016, respectively:

	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Beginning Balance	$	10,341,476		$	22,547,949		$	18,281,517		$	24,216,638
Additions		-			-			-			-
Accretion		(505,632	)		(1,051,965	)		(1,968,026	)		(3,296,603	)
Reclassifications from/(to) non-accretable difference		1,476,386			4,968,753			4,858,094			5,755,350
Disposals		-			(6,522,022	)		(9,859,355	)		(6,732,670	)
Ending Balance	$	11,312,230		$	19,942,715		$	11,312,230		$	19,942,715

As of September 30, 2017, the Company’s residential mortgage loan portfolio is comprised of 163 conventional loans with original loan balances between $9,000 and $1.1 million.

As of December 31, 2016, the Company’s residential mortgage loan portfolio is comprised of 277 conventional loans with original loan balances between $9,000 and $1.1 million.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

Commercial loans

The following table presents detail on the Company’s commercial loan portfolio on September 30, 2017.

								Gross Unrealized (1)						Weighted Average
Loan (3) (7)	Current Face		Premium (Discount)			Amortized Cost		Gains		Losses		Fair Value		Coupon (5)			Yield			Weighted Average Life (Years) (6)		Initial Stated Maturity Date	Extended Maturity Date (8)	Location
Loan B (2)		32,800,000		-			32,800,000		-		-		32,800,000		5.98	%		6.36	%		1.79	July 1, 2016	July 1, 2019	TX
Loan E (4)		14,521,806		(1,096,214	)		13,425,592		756,405		-		14,181,997		9.58	%		12.37	%		3.24	April 9, 2017	April 9, 2021	Various
Loan F (4)		10,416,666		(90,387	)		10,326,279		90,387		-		10,416,666		11.74	%		13.55	%		0.96	September 9, 2018	September 9, 2019	MN
		57,738,472		(1,186,601	)		56,551,871		846,792		-		57,398,663		7.93	%		9.15	%		2.00

(2) Loan B is comprised of a first mortgage and mezzanine loan of $31.8 million and $1.0 million, respectively. As of September 30, 2017, Loan B has been extended to the extended maturity date shown above.

(3) Loan D paid off at par in Q1 2017.

(4) Loan E and Loan F are mezzanine loans. As of September 30, 2017, Loan E has been extended for one year.

(5) Each commercial loan investment has a variable coupon rate.

(6) Actual maturities of commercial mortgage loans may be shorter than stated contractual maturities. Maturities are affected by prepayments of principal.

(7) The Company has the contractual right to receive a balloon payment.

(8) Represents the maturity date of the last possible extension option.

The following table presents detail on the Company’s commercial loan portfolio on December 31, 2016.

								Gross Unrealized (1)							Weighted Average
Loan (2) (4) (9)	Current Face		Premium (Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon (7)			Yield			Weighted Average Life (Years) (8)		Initial Stated Maturity Date	Extended Maturity Date (10)	Location
Loan B (3)	$	32,800,000	$	(1,294	)	$	32,798,706	$	1,294	$	-		$	32,800,000		5.40	%		5.65	%		0.52	July 1, 2016	July 1, 2019	TX
Loan D (5) (11)		12,000,000		(211,692	)		11,788,308		296,278		(84,586	)		12,000,000		10.62	%		14.33	%		0.62	February 11, 2017	August 11, 2017	NY
Loan E (6)		16,000,000		(1,291,648	)		14,708,352		560,448		-			15,268,800		9.05	%		12.76	%		4.33	April 9, 2017	April 9, 2021	Various
	$	60,800,000	$	(1,504,634	)	$	59,295,366	$	858,020	$	(84,586	)	$	60,068,800		7.39	%		9.19	%		1.54

(2) Loan A paid off in Q2 2016, with the Company receiving $30.0 million of principal proceeds.

(3) Loan B is comprised of a first mortgage and mezzanine loan of $31.8 million and $1.0 million, respectively.

(4) Loan C paid off in Q3 2016, with the Company receiving $10.0 million of principal proceeds.

(5) Loan D is a first mortgage loan. See below for further information. As of the stated maturity date, Loan D has been extended for an additional 6 months.

(6) Loan E is a mezzanine loan.

(7) Each commercial loan investment has a variable coupon rate.

(8) Actual maturities of commercial mortgage loans may be shorter than stated contractual maturities. Maturities are affected by prepayments of principal.

(9) The Company has the contractual right to receive a balloon payment.

(10) Represents the maturity date of the last possible extension option.

(11) Loan D paid off in Q1 2017.

In February 2016, the Company originated a $12.0 million commercial loan and, at closing, transferred a 15.0%, or $1.8 million, participation interest in the loan (the “Participation Interest”) to an unaffiliated third party. The Participation Interest did not meet the sales criteria established under ASC 860; therefore, the entire commercial loan has been recorded as an asset in the “Commercial loans, at fair value” line item on the Company’s consolidated balance sheets, referred to in the above table as “Loan D.” The weighted average coupon and yield on the commercial loan was 10.62% and 14.33%, respectively, at December 31, 2016. A $1.8 million liability was recorded in the “Loan participation payable, at fair value” line item on the Company’s consolidated balance sheets representing the transfer of the Participation Interest. The Company recorded the origination of the commercial loan in the “Cash Flows from Investing Activities” section and the proceeds from the transfer in the “Cash Flows from Financing Activities” section of the consolidated statement of cash flows. The weighted average coupon and yield on the Participation Interest was 10.62% and 21.70%, respectively, at December 31, 2016. In February 2017, the Company received $12.0 million of proceeds from the pay-off of Loan D. The principal and interest due on the Participation Interest was paid from these proceeds.

During the three and nine months ended September 30, 2017, the Company recorded $0.1 million and $0.3 million of discount accretion, respectively, on its commercial loans. During the three months and nine months ended September 30, 2016 the Company recorded $0.1 million and $0.3 million of discount accretion, respectively, on its commercial loans.

5. Fair value measurements

As described in Note 2, the fair value of financial instruments that are recorded at fair value will be determined by the Manager, subject to oversight of the Company’s board of directors, and in accordance with ASC 820, “Fair Value Measurements and Disclosures.” When possible, the Company determines fair value using independent data sources. ASC 820 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable.

Values for the Company’s securities, Excess MSRs, securitized debt, and derivatives are based upon prices obtained from third party pricing services, which are indicative of market activity. The evaluation methodology of the Company’s third-party pricing services incorporates commonly used market pricing methods, including a spread measurement to various indices such as the one-year constant maturity treasury and LIBOR, which are observable inputs. The evaluation also considers the underlying characteristics of each investment, which are also observable inputs, including: coupon; maturity date; loan age; reset date; collateral type; periodic and life cap; geography; and prepayment speeds. The Company collects and considers current market intelligence on all major markets, including benchmark security evaluations and bid-lists from various sources, when available. As part of the Company’s risk management process, the Company reviews and analyzes all prices obtained by comparing prices to recently completed transactions involving the same or similar investments on or near the reporting date. If, in the opinion of the Manager, one or more prices reported to the Company are not reliable or unavailable, the Manager reviews the fair value based on characteristics of the investment it receives from the issuer and available market information.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

In valuing its derivatives, the Company considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement, from the perspective of both the Company and its counterparties. All of the Company’s derivatives are either subject to bilateral collateral arrangements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd Frank Act”). For swaps cleared under the Dodd Frank Act, a Central Counterparty Clearing House (“CCP”) now stands between the Company and the over-the-counter derivative counterparties. In order to access clearing, the Company has entered into clearing agreements with Futures Commissions Merchants (“FCMs”).

The fair value of the Company’s mortgage loans and loan participation considers data such as loan origination information, additional updated borrower information, loan servicing data, as available, forward interest rates, general economic conditions, home price index forecasts and valuations of the underlying properties. The variables considered most significant to the determination of the fair value of the Company’s mortgage loans include market-implied discount rates, projections of default rates, delinquency rates, reperformance rates, loss severity (considering mortgage insurance) and prepayment rates. The Company uses loan level data and macro-economic inputs to generate loss adjusted cash flows and other information in determining the fair value of its mortgage loans. Because of the inherent uncertainty of such valuation, the fair values established for mortgage loans held by the Company may differ from the fair values that would have been established if a ready market existed for these mortgage loans. Accordingly, mortgage loans are classified as Level 3 in the fair value hierarchy.

The Manager may also engage specialized third party valuation service providers to assess and corroborate the valuation of a selection of investments in the Company’s loan portfolio on a periodic basis. These specialized third party valuation service providers conduct independent valuation analyses based on a review of source documents, available market data, and comparable investments. The analyses provided by valuation service providers are reviewed and considered by the Manager.

TBA instruments are similar in form to the Company’s Agency RMBS portfolio, and the Company therefore estimates fair value based on similar methods.

U.S. Treasury securities are valued using quoted prices for identical instruments in active markets. The fair value of the Company’s obligation to return securities borrowed under reverse repurchase agreements is based upon the value of the underlying borrowed U.S. Treasury securities as of the reporting date.

The Company entered into a resecuritization transaction that resulted in the Company consolidating a VIE created with the SPE which was used to facilitate the transaction. The Company categorizes the fair value measurement of the consolidated tranche as Level 3.

In December 2015, the Company, alongside private funds under the management of Angelo, Gordon, through AG Arc, formed Arc Home. The Company invests in Arc Home through AG Arc. In June 2016, Arc Home closed on the acquisition of a Fannie Mae, Freddie Mac, FHA, VA and Ginnie Mae seller/servicer of residential mortgages. Through this subsidiary, Arc Home originates conforming, Government, Jumbo and other non-conforming residential mortgage loans, retains the mortgage servicing rights associated with the loans it originates, and purchases additional mortgage servicing rights from third-party sellers. As a result of this acquisition, the Company transferred its investment in AG Arc from Level 1 into Level 3.

In February 2016, the Company originated a $12.0 million commercial loan and transferred a 15% participation interest in the loan to an unaffiliated third party. The Company categorizes the fair value measurement of the commercial loan and consolidated participation interest as Level 3. The commercial loan was paid off in full as in February 2017.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The following table presents the Company’s financial instruments measured at fair value as of September 30, 2017:

	Fair Value at September 30, 2017
	Level 1		Level 2			Level 3			Total
Assets:
Agency RMBS:
30 Year Fixed Rate	$	-	$	1,760,382,218		$	-		$	1,760,382,218
Fixed Rate CMO		-		55,600,448			-			55,600,448
ARM		-		186,260,510			-			186,260,510
Interest Only		-		54,965,777			-			54,965,777
Credit Investments:
Non-Agency RMBS		-		152,800,460			774,230,857			927,031,317
Non-Agency RMBS Interest Only		-		-			2,862,484			2,862,484
ABS		-		-			53,223,788			53,223,788
CMBS		-		13,996,904			145,867,131			159,864,035
CMBS Interest Only		-		-			51,971,524			51,971,524
Residential mortgage loans		-		-			23,867,531			23,867,531
Commercial loans		-		-			57,398,663			57,398,663
Excess mortgage servicing rights		-		-			2,680,564			2,680,564
Derivative assets		94,531		933,315			-			1,027,846
AG Arc		-		-			17,824,219			17,824,219
Total Assets Carried at Fair Value	$	94,531	$	2,224,939,632		$	1,129,926,761		$	3,354,960,924

Liabilities:
Securitized debt	$	-	$	-		$	(17,221,071	)	$	(17,221,071	)
Derivative liabilities		-		(2,124,550	)		-			(2,124,550	)
Total Liabilities Carried at Fair Value	$	-	$	(2,124,550	)	$	(17,221,071	)	$	(19,345,621	)

The following table presents the Company’s financial instruments measured at fair value as of December 31, 2016:

	Fair Value at December 31, 2016
	Level 1			Level 2			Level 3			Total
Assets:
Agency RMBS:
30 Year Fixed Rate	$	-		$	739,727,721		$	-		$	739,727,721
Fixed Rate CMO		-			63,697,398			-			63,697,398
ARM		-			211,344,052			-			211,344,052
Interest Only		-			42,894,555			-			42,894,555
Credit Investments:
Non-Agency RMBS		-			321,495,328			717,760,534			1,039,255,862
Non-Agency RMBS Interest Only		-			-			3,761,446			3,761,446
ABS		-			-			21,231,956			21,231,956
CMBS		-			28,726,319			130,789,615			159,515,934
CMBS Interest Only		-			-			52,136,726			52,136,726
Residential mortgage loans		-			-			38,195,576			38,195,576
Commercial loans		-			-			60,068,800			60,068,800
Excess mortgage servicing rights		-			-			412,648			412,648
Derivative assets		-			3,703,366			-			3,703,366
AG Arc		-			-			12,894,819			12,894,819
Total Assets Carried at Fair Value	$	-		$	1,411,588,739		$	1,037,252,120		$	2,448,840,859

Liabilities:
Securitized debt	$	-		$	-		$	(21,491,710	)	$	(21,491,710	)
Loan participation payable		-			-			(1,800,000	)		(1,800,000	)
Securities borrowed under reverse repurchase agreements		(22,365,000	)		-			-			(22,365,000	)
Derivative liabilities		(636,211	)		(2,271,044	)		-			(2,907,255	)
Total Liabilities Carried at Fair Value	$	(23,001,211	)	$	(2,271,044	)	$	(23,291,710	)	$	(48,563,965	)

The Company did not have any transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy during the three and nine months ended September 30, 2017 and September 30, 2016.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The following tables present additional information about the Company’s assets and liabilities which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:

Three Months Ended
September 30, 2017
	Non-Agency RMBS			Non-Agency RMBS Interest Only			ABS			CMBS			CMBS Interest Only			Residential Mortgage Loans			Commercial Loans		Excess Mortgage Servicing Rights			AG Arc		Securitized debt
Beginning balance	$	863,020,902		$	3,213,397		$	47,917,356		$	137,658,327		$	52,805,639		$	23,455,233		$	57,294,106	$	2,786,501		$	17,712,557	$	(18,778,169	)
Transfers (1):
Transfers into level 3		83,490,535			-			-			8,460,348			-			-			-		-			-		-
Purchases/Transfers		137,744,335			-			5,601,252			20,191,250			-			-			-		12,812			-		-
Proceeds from sales/redemptions		(297,784,142	)		-			-			-			-			-			-		-			-		-
Proceeds from settlement		(26,789,302	)		-			(211,551	)		(20,512,436	)		-			(272,933	)		-		(126,749	)		-		1,563,429
Total net gains/(losses) (2)
Included in net income		14,548,529			(350,913	)		(83,269	)		69,642			(834,115	)		685,231			104,557		8,000			111,662		(6,331	)
Included in other comprehensive income (loss)		-			-			-			-			-			-			-		-			-		-
Ending Balance	$	774,230,857		$	2,862,484		$	53,223,788		$	145,867,131		$	51,971,524		$	23,867,531		$	57,398,663	$	2,680,564		$	17,824,219	$	(17,221,071	)

Change in unrealized appreciation/(depreciation) for level 3 assets/liabilities still held as of September 30, 2017 (3)	$	12,110,525		$	(83,718	)	$	(83,269	)	$	(153,096	)	$	(834,115	)	$	825,963		$	104,557	$	8,000		$	111,662	$	(6,331	)

(1) Transfers are assumed to occur at the beginning of the period. During the three months ended September 30, 2017, the Company transferred 9 Non-Agency RMBS securities and 1 CMBS security into the Level 3 category from the Level 2 category under the fair value hierarchy of ASC 820.

(2) Gains/(losses) are recorded in the following line items in the consolidated statement of operations:

Unrealized gain/(loss) on real estate securities and loans, net	$	13,630,181
Unrealized gain/(loss) on derivative and other instruments, net		(6,331	)
Net realized gain/(loss)		517,481
Equity in earnings/(loss) from affiliates		111,662
Total	$	14,252,993

(3) Unrealized gains/(losses) are recorded in the following line items in the consolidated statement of operations:


Unrealized gain/(loss) on real estate securities and loans, net	$	11,894,849
Unrealized gain/(loss) on derivative and other instruments, net		(6,331	)
Equity in earnings/(loss) from affiliates		111,660
Total	$	12,000,178

Three Months Ended
September 30, 2016
	Non-Agency RMBS			Non-Agency RMBS Interest Only		ABS			CMBS			CMBS Interest Only		Residential Mortgage Loans			Commercial Loans			Excess Mortgage Servicing Rights			AG Arc		Securitized debt			Loan Participation payable
Beginning balance	$	814,005,282		$	2,400,732	$	75,473,169		$	86,762,706		$	43,305,493	$	55,636,606		$	54,800,000		$	346,507		$	4,488,281	$	(25,788,283	)	$	(1,800,000	)
Transfers (1):
Transfers into level 3		56,221,422			-		-			-			-		-			-			-			-		-			-
Transfers out of level 3		(150,671,465	)		-		-			-			-		-			-			-			-		-			-
Purchases/Transfers		113,707,564			-		-			40,491,482			6,981,795		-			-			-			-		-			-
Capital contributions		-			-		-			-			-		-			-			-			8,263,963		-			-
Proceeds from sales/redemptions		(53,290,104	)		-		(5,698,248	)		-			-		-			-			-			-		-			-
Proceeds from settlement		(26,378,566	)		-		(511,323	)		(8,145,244	)		-		(13,751,112	)		(10,000,000	)		(37,426	)		-		1,512,199			-
Total net gains/(losses) (2)
Included in net income		21,910,120			256,638		1,224,038			2,497,245			221,342		762,493			-			-			170,324		(74,431	)		-
Included in other comprehensive income (loss)		-			-		-			-			-		-			-			-			-		-			-
Ending Balance	$	775,504,253		$	2,657,370	$	70,487,636		$	121,606,189		$	50,508,630	$	42,647,987		$	44,800,000		$	309,081		$	12,922,568	$	(24,350,515	)	$	(1,800,000	)

Change in unrealized appreciation/(depreciation) for level 3 assets still held as of September 30, 2016 (3)	$	14,590,173		$	256,638	$	1,099,827		$	2,488,766		$	221,342	$	(2,922,597	)	$	-		$	-			170,324	$	(74,431	)	$	-

(1) Transfers are assumed to occur at the beginning of the period. During the three months ended September 30, 2016, the Company transferred 4 Non-Agency RMBS securities into the Level 3 category from the Level 2 category and 14 Non-Agency RMBS securities into the Level 2 category from the Level 3 category under the fair value hierarchy of ASC 820.

(2) Gains/(losses) are recorded in the following line items in the consolidated statement of operations:

Unrealized gain/(loss) on real estate securities and loans, net	$	16,577,429
Unrealized gain/(loss) on derivative and other instruments, net		(74,431	)
Net realized gain/(loss)		10,294,447
Equity in earnings/(loss) from affiliates		170,324
Total	$	26,967,769

(3) Gains/(losses) are recorded in the following line items in the consolidated statement of operations:

Unrealized gain/(loss) on real estate securities and loans, net	$	15,734,149
Unrealized gain/(loss) on derivative and other instruments, net		(74,431	)
Equity in earnings/(loss) from affiliates		170,324
Total	$	15,830,042

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

Nine Months Ended
September 30, 2017
	Non-Agency RMBS			Non-Agency RMBS Interest Only			ABS			CMBS			CMBS Interest Only			Residential Mortgage Loans			Commercial Loans			Excess Mortgage Servicing Rights			AG Arc		Securitized debt			Loan Participation payable
Beginning balance	$	717,760,534		$	3,761,446		$	21,231,956		$	130,789,615		$	52,136,726		$	38,195,576		$	60,068,800		$	412,648		$	12,894,819	$	(21,491,710	)	$	(1,800,000	)
Transfers (1):
Transfers into level 3		203,851,482			-			-			8,460,348			-			-			-			-			-		-			-
Transfers out of level 3		(51,307,381	)		-			-			-			-			-			-			-			-		-			-
Purchases/Transfers		395,021,146			-			52,048,919			38,760,000			-			-			10,270,833			2,578,156			-		-			-
Capital contributions		-			-			-			-			-			-			-			-			4,459,000		-			-
Proceeds from sales/redemptions		(382,543,723	)		-			(16,977,157	)		(4,533,594	)		-			(10,102,590	)		-			-			-		-			-
Proceeds from settlement		(142,165,747	)		-			(4,195,705	)		(29,106,491	)		-			(5,570,282	)		(13,534,402	)		(314,036	)		-		4,310,904			1,954,927
Total net gains/(losses) (2)
Included in net income		33,614,546			(898,962	)		1,115,775			1,497,253			(165,202	)		1,344,827			593,432			3,796			470,400		(40,265	)		(154,927	)
Included in other comprehensive income (loss)		-			-			-			-			-			-			-			-			-		-			-
Ending Balance	$	774,230,857		$	2,862,484		$	53,223,788		$	145,867,131		$	51,971,524		$	23,867,531		$	57,398,663		$	2,680,564		$	17,824,219	$	(17,221,071	)	$	-

Change in unrealized appreciation/(depreciation) for level 3 assets/liabilities still held as of September 30, 2017 (3)	$	32,502,634		$	(631,767	)	$	660,461		$	1,704,666		$	(165,202	)	$	(575,728	)	$	537,223		$	3,796		$	470,400	$	(40,265	)	$	-

(1) Transfers are assumed to occur at the beginning of the period. During the nine months ended September 30, 2017, the Company transferred 18 Non-Agency RMBS securities and 1 CMBS security into the Level 3 category from the Level 2 category and 5 Non-Agency RMBS securities into the Level 2 category from the Level 3 category under the fair value hierarchy of ASC 820.

(2) Gains/(losses) are recorded in the following line items in the consolidated statement of operations:

Unrealized gain/(loss) on real estate securities and loans, net	$	37,249,857
Unrealized gain/(loss) on derivative and other instruments, net		(195,192	)
Net realized gain/(loss)		(144,392	)
Equity in earnings/(loss) from affiliates		470,400
Total	$	37,380,673

(3) Unrealized gains/(losses) are recorded in the following line items in the consolidated statement of operations:

Unrealized gain/(loss) on real estate securities and loans, net	$	34,036,085
Unrealized gain/(loss) on derivative and other instruments, net		(40,265	)
Equity in earnings/(loss) from affiliates		470,398
Total	$	34,466,218

Nine Months Ended
September 30, 2016
	Non-Agency RMBS			Non-Agency RMBS IO			ABS			CMBS			CMBS Interest Only			Residential Mortgage Loans			Commercial Loans			Excess Mortgage Servicing Rights			AG Arc			Securitized debt			Loan Participation payable
Beginning balance	$	451,677,960		$	5,553,734		$	54,761,837		$	91,024,418		$	14,077,716		$	57,080,227		$	72,800,000		$	425,311		$	-		$	-		$	-
Transfers (1):
Transfers into level 3		371,564,212			-			-			-			-			-			-			-			(316,580	)		(30,046,861	)		-
Transfers out of level 3		-			-			-			-			-			-			-			-			-			-			-
Purchases/Transfers (2)		125,425,376			-			23,698,802			42,491,482			33,330,554			-			10,428,437			-			-			-			(1,564,266	)
Capital contributions		-			-			-			-			-			-			-			-			13,570,173			-			-
Reclassification of security type (3)		-			-			-			-			3,103,111			-			-						-			-			-
Proceeds from sales/redemptions		(82,462,238	)		-			(7,209,752	)		(2,100,960	)		-			-			-			-			-			-			-
Proceeds from settlement		(102,932,160	)		-			(1,698,431	)		(9,248,447	)		-			(14,815,122	)		(40,000,000	)		(116,230	)		-			5,706,520			-
Total net gains/(losses) (4)
Included in net income		12,231,103			(2,896,364	)		935,180			(560,304	)		(2,751	)		382,882			1,571,563			-			(331,025	)		(10,174	)		(235,734	)
Included in other comprehensive income (loss)		-			-			-			-			-			-			-			-			-			-			-
Ending Balance	$	775,504,253		$	2,657,370		$	70,487,636		$	121,606,189		$	50,508,630		$	42,647,987		$	44,800,000		$	309,081		$	12,922,568		$	(24,350,515	)	$	(1,800,000	)

Change in unrealized appreciation/(depreciation) for level 3 assets still held as of September 30, 2016 (4)	$	11,019,033		$	(1,272,687	)	$	939,673		$	(250,607	)	$	(2,751	)	$	(3,302,208	)	$	1,571,563		$	-		$	(331,025	)	$	(10,174	)	$	(235,734	)

(1) Transfers are assumed to occur at the beginning of the period. During the nine months ended September 30, 2016, the Company transferred 26 Non-Agency RMBS securities and its securitized debt investment into the Level 3 category from the Level 2 category and its investment in AG Arc into the Level 3 category from the Level 1 category under the fair value hierarchy of ASC 820.

(2) Transfers represent proceeds from transfer of loan participation.

(3) Represents a reclassification from investments in debt and equity of affiliates.

(4) Gains/(losses) are recorded in the following line items in the consolidated statement of operations:

Unrealized gain/(loss) on real estate securities and loans, net	$	9,761,156
Unrealized gain/(loss) on derivative and other instruments, net		(245,908	)
Net realized gain/(loss)		1,900,153
Equity in earnings/(loss) from affiliates		(331,025	)
Total	$	11,084,376

(5) Gains/(losses) are recorded in the following line items in the consolidated statement of operations:

Unrealized gain/(loss) on real estate securities and loans, net	$	8,702,016
Unrealized gain/(loss) on derivative and other instruments, net		(245,908	)
Equity in earnings/(loss) from affiliates		(331,025	)
Total	$	8,125,083

Refer to the tables above for details on transfers between the Level 3 and Level 2 categories under ASC 820. Transfers into the Level 3 category of the fair value hierarchy occur due to instruments exhibiting indications of reduced levels of market transparency. Transfers out of the Level 3 category of the fair value hierarchy occur due to instruments exhibiting indications of increased levels of market transparency. Indications of increases or decreases in levels of market transparency include a change in observable transactions or executable quotes involving these instruments or similar instruments. Changes in these indications could impact price transparency, and thereby cause a change in level designations in future periods.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The following tables present a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of investments for which the Company has utilized Level 3 inputs to determine fair value.

Asset Class	Fair Value at September 30, 2017		Valuation Technique	Unobservable Input	Range (Weighted Average)
Non-Agency RMBS	$	751,813,956	Discounted Cash Flow	Yield	1.80% - 11.63% (4.37%)
				Projected Collateral Prepayments	0.00% - 35.00% (9.80%)
				Projected Collateral Losses	0.00% - 30.00% (3.07%)
				Projected Reperforming Rates	24.64% - 56.76% (41.33%)
				Projected Collateral Severities	0.00% - 100.00% (34.83%)
				Projected Timeline to Liquidation (Months)	18.80 - 22.99 (21.23)
	$	22,416,901	Consensus Pricing	Offered Quotes	21.50 - 102.73 (82.82)
Non-Agency RMBS Interest Only	$	2,456,181	Discounted Cash Flow	Yield	21.00% - 21.00% (21.00%)
				Projected Collateral Prepayments	17.25% - 17.25% (17.25%)
				Projected Collateral Losses	0.50% - 0.50% (0.50%)
				Projected Collateral Severities	10.00% - 10.00% (10.00%)
	$	406,303	Consensus Pricing	Offered Quotes	0.80 - 0.80 (0.80)
ABS	$	32,719,493	Discounted Cash Flow	Yield	5.63% - 9.26% (7.72%)
				Projected Collateral Prepayments	20.00% - 40.00% (22.49%)
				Projected Collateral Losses	0.00% - 2.00% (1.75%)
				Projected Collateral Severities	0.00% - 50.00% (43.78%)
	$	20,504,295	Consensus Pricing	Offered Quotes	100.00 - 100.00 (100.00)
CMBS	$	142,567,125	Discounted Cash Flow	Yield	-4.24% - 8.32% (5.74%)
				Projected Collateral Prepayments	0.00% - 0.00% (0.00%)
				Projected Collateral Losses	0.00% - 0.00% (0.00%)
				Projected Collateral Severities	0.00% - 0.00% (0.00%)
	$	3,300,006	Consensus Pricing	Offered Quotes	5.90 - 7.41 (6.88)
CMBS Interest Only	$	51,971,524	Discounted Cash Flow	Yield	2.56% - 5.85% (4.28%)
				Projected Collateral Prepayments	100.00% - 100.00% (100.00%)
				Projected Collateral Losses	0.00% - 0.00% (0.00%)
				Projected Collateral Severities	0.00% - 0.00% (0.00%)
Residential Mortgage Loans	$	23,867,531	Discounted Cash Flow	Yield	6.25% - 9.00% (7.56%)
				Projected Collateral Prepayments	3.46% - 6.91% (4.66%)
				Projected Collateral Losses	5.21% - 7.02% (5.40%)
				Projected Reperforming Rates	8.67% - 43.58% (22.59%)
				Projected Collateral Severities	19.73% - 43.24% (35.85%)
				Projected Timeline to Liquidation (Months)	14.64 - 29.81 (17.31)
Commercial Loans	$	32,800,000	Discounted Cash Flow	Yield	6.36% - 6.36% (6.36%)
				Credit Spread	4.75 bps - 4.75 bps (4.75 bps)
				Recovery Percentage (1)	100.00% - 100.00% (100.00%)
	$	24,598,663	Consensus Pricing	Offered Quotes	97.66 - 100.00 (98.65)
Excess Mortgage Servicing Rights	$	2,400,760	Discounted Cash Flow	Yield	9.34% - 11.65% (10.01%)
	$	2,400,760	Discounted Cash Flow	Projected Collateral Prepayments	8.07% - 12.91% (10.13%)
	$	279,804	Consensus Pricing	Offered Quotes	0.05 - 0.52 (0.48)
AG Arc	$	17,824,219	Comparable Multiple	Book Value Multiple	1.0x

Liability Class	Fair Value at September 30, 2017			Valuation Technique	Unobservable Input	Range (Weighted Average)
Securitized debt					Yield	3.49% - 3.49% (3.49%)
					Projected Collateral Prepayments	14.00% - 14.00% (14.00%)
	$	(17,221,071	)	Discounted Cash Flow	Projected Collateral Losses	7.00% - 7.00% (7.00%)
					Projected Collateral Severities	40.00% - 40.00% (40.00%)

(1) Represents the proportion of the principal expected to be collected relative to the loan balances as of September 30, 2017.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

Asset Class	Fair Value at December 31, 2016		Valuation Technique	Unobservable Input	Range (Weighted Average)
Non-Agency RMBS	$	694,948,644	Discounted Cash Flow	Yield	1.70% - 18.56% (5.11%)
				Projected Collateral Prepayments	0.00% - 35.00% (9.84%)
				Projected Collateral Losses	0.00% - 38.00% (5.22%)
				Projected Reperforming Rates	18.53% - 46.77% (33.39%)
				Projected Collateral Severities	0.00% - 100.00% (38.57%)
				Projected Timeline to Liquidation (Months)	16.13 - 23.09 (20.72)
	$	22,811,890	Consensus Pricing	Offered Quotes	21.50 - 100.07 (78.89)
Non-Agency RMBS Interest Only	$	3,761,446	Discounted Cash Flow	Yield	17.50% - 17.50% (17.50%)
				Projected Collateral Prepayments	18.00% - 18.00% (18.00%)
				Projected Collateral Losses	0.50% - 0.50% (0.50%)
				Projected Collateral Severities	10.00% - 10.00% (10.00%)
ABS	$	21,231,956	Discounted Cash Flow	Yield	4.16% - 6.47% (4.98%)
				Projected Collateral Prepayments	1.50% - 40.00% (22.31%)
				Projected Collateral Losses	0.00% - 2.00% (0.88%)
				Projected Collateral Severities	0.00% - 50.00% (9.81%)
CMBS	$	121,056,008	Discounted Cash Flow	Yield	3.32% - 9.16% (6.13%)
				Projected Collateral Prepayments	0.00% - 0.00% (0.00%)
				Projected Collateral Losses	0.00% - 0.00% (0.00%)
				Projected Collateral Severities	0.00% - 0.00% (0.00%)
	$	9,733,607	Consensus Pricing	Offered Quotes	5.03 - 99.81 (68.64)
CMBS Interest Only	$	52,136,726	Discounted Cash Flow	Yield	2.51% - 9.49% (5.85%)
				Projected Collateral Prepayments	100.00% - 100.00% (100.00%)
				Projected Collateral Losses	0.00% - 0.00% (0.00%)
				Projected Collateral Severities	0.00% - 0.00% (0.00%)
Residential Mortgage Loans	$	38,195,576	Discounted Cash Flow	Yield	6.50% - 8.00% (7.42%)
				Projected Collateral Prepayments	3.18% - 5.82% (4.51%)
				Projected Collateral Losses	5.16% - 5.32% (5.18%)
				Projected Reperforming Rates	9.59% - 34.53% (22.91%)
				Projected Collateral Severities	25.19% - 84.80% (45.34%)
				Projected Timeline to Liquidation (Months)	12.32 - 29.85 (14.33)
Commercial Loans	$	44,800,000	Discounted Cash Flow	Yield	5.65% - 21.70% (7.98%)
				Credit Spread	4.75 bps - 10 bps (6.16 bps)
				Recovery Percentage (1)	100.00% - 100.00% (100.00%)
	$	15,268,800	Consensus Pricing	Offered Quotes	95.43 - 95.43 (95.43)
Excess Mortgage Servicing Rights	$	412,648	Consensus Pricing	Offered Quotes	0.09 - 0.62 (0.55)
AG Arc	$	12,894,819	Comparable Multiple	Book Value Multiple	1.0x

Liability Class	Fair Value at December 31, 2016			Valuation Technique	Unobservable Input	Range (Weighted Average)
Securitized debt	$	(21,491,710	)	Discounted Cash Flow	Yield	3.36% - 3.36% (3.36%)
					Projected Collateral Prepayments	14.00% - 14.00% (14.00%)
					Projected Collateral Losses	7.00% - 7.00% (7.00%)
					Projected Collateral Severities	40.00% - 40.00% (40.00%)
Loan participation payable	$	(1,800,000	)	Discounted Cash Flow	Yield	21.70% - 21.70% (21.70%)
					Credit Spread	10 bps - 10 bps (10 bps)
					Recovery Percentage*	100.00% - 100.00% (100.00%)

(1) Represents the proportion of the principal expected to be collected relative to the loan balances as of December 31, 2016.

As further described above, values for the Company’s securities portfolio are based upon prices obtained from third party pricing services. Broker quotations may also be used. The significant unobservable inputs used in the fair value measurement of the Company’s securities are prepayment rates, probability of default, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

Also, as described above, valuation of the Company’s loan portfolio is determined by the Manager using third-party pricing services where available, specialized third party valuation service providers, or model-based pricing. The evaluation considers the underlying characteristics of each loan, which are observable inputs, including: coupon, maturity date, loan age, reset date, collateral type, periodic and life cap, geography, and prepayment speeds. These valuations also require significant judgments, which include assumptions regarding capitalization rates, re-performance rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by management. Changes in the market environment and other events that may occur over the life of our investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently estimated. If applicable, analyses provided by valuation service providers are reviewed and considered by the Manager.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

6. Repurchase agreements

The Company pledges certain real estate securities and loans as collateral under repurchase agreements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date. The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a “haircut.” The Company calculates haircuts disclosed in the tables below by dividing allocated capital on each borrowing by the current fair market value of each investment. Repurchase agreements entered into by the Company are accounted for as financings and require the repurchase of the transferred assets at the end of each agreement’s term, typically 30 to 90 days. The carrying amount of the Company’s repurchase agreements approximates fair value due to their short-term maturities or floating rate coupons. If the Company maintains the beneficial interest in the specific assets pledged during the term of the borrowing, it receives the related principal and interest payments. If the Company does not maintain the beneficial interest in the specific assets pledged during the term of the borrowing, it will have the related principal and interest payments remitted to it by the lender. Interest rates on these borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the borrowing at which time the Company may enter into a new borrowing arrangement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty. If the fair value of pledged assets declines due to changes in market conditions or the publishing of monthly security paydown factors, lenders typically would require the Company to post additional securities as collateral, pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, referred to as margin calls. The fair value of financial instruments pledged as collateral on the Company’s repurchase agreements disclosed in the tables below represent the Company’s fair value of such instruments which may differ from the fair value assigned to the collateral by its counterparties. The Company maintains a level of liquidity in the form of cash and unpledged Agency RMBS and Agency Interest-Only securities in order to meet these obligations. Under the terms of the Company’s master repurchase agreements, the counterparties may, in certain cases, sell or re-hypothecate the pledged collateral.

The following table presents certain financial information regarding the Company’s repurchase agreements secured by real estate securities as of September 30, 2017:

	Repurchase Agreements								Collateral Pledged
Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Haircut			Fair Value Pledged		Amortized Cost		Accrued Interest
Overnight	$	107,066,000		1.26	%		3.0	%	$	110,372,484	$	109,526,493	$	313,586
30 days or less		2,039,853,000		1.77	%		9.6	%		2,297,649,801		2,231,098,823		7,932,198
31-60 days		369,334,000		1.87	%		10.3	%		425,787,109		419,340,738		1,349,706
61-90 days		19,965,000		2.79	%		26.2	%		27,056,415		26,820,517		106,417
91-180 days		111,027,000		1.55	%		10.0	%		124,326,562		124,458,675		341,221
Greater than 180 days		12,105,000		2.89	%		17.9	%		14,804,895		14,808,920		19,952
Total / Weighted Average	$	2,659,350,000		1.76	%		9.6	%	$	2,999,997,266	$	2,926,054,166	$	10,063,080

The following table presents certain financial information regarding the Company’s repurchase agreements secured by real estate securities as of December 31, 2016:

	Repurchase Agreements								Collateral Pledged
Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Haircut			Fair Value Pledged		Amortized Cost		Accrued Interest
Overnight	$	70,899,000		0.66	%		3.5	%	$	73,485,225	$	73,170,802	$	191,554
30 days or less		961,185,000		1.79	%		14.7	%		1,164,241,469		1,152,472,020		3,851,520
31-60 days		465,776,000		1.23	%		8.6	%		514,624,485		512,633,509		1,607,435
61-90 days		129,119,000		1.69	%		13.2	%		151,989,415		151,567,289		399,702
91-180 days		16,897,000		2.81	%		21.6	%		21,554,174		21,892,108		17,056
Greater than 180 days		209,293,104		1.93	%		4.7	%		252,940,437		244,734,715		948,975
Total / Weighted Average	$	1,853,169,104		1.63	%		11.5	%	$	2,178,835,205	$	2,156,470,443	$	7,016,242

The following table presents certain financial information regarding the Company’s repurchase agreements secured by interests in residential mortgage loans as of September 30, 2017:

	Repurchase Agreements											Collateral Pledged
Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Funding Cost			Weighted Average Haircut			Fair Value Pledged		Amortized Cost		Accrued Interest
Greater than 180 days	$	13,405,824		3.74	%		3.97	%		35.2	%	$	20,767,883	$	19,352,254	$	26,553

The following table presents certain financial information regarding the Company’s repurchase agreements secured by interests in residential mortgage loans as of December 31, 2016:

	Repurchase Agreements											Collateral Pledged
Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Funding Cost			Weighted Average Haircut			Fair Value Pledged		Amortized Cost		Accrued Interest
Greater than 180 days	$	25,544,702		3.27	%		3.79	%		30.3	%	$	34,088,921	$	32,849,686	$	45,068

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The following table presents certain financial information regarding the Company’s repurchase agreements secured by interests in commercial loans as of September 30, 2017:

	Repurchase Agreements											Collateral Pledged
Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Funding Cost			Weighted Average Haircut			Fair Value Pledged		Amortized Cost		Accrued Interest
Greater than 180 days	$	21,796,000		3.39	%		3.39	%		33.5	%	$	32,800,000	$	32,800,000	$	206,986

The following table presents certain financial information regarding the Company’s repurchase agreements secured by commercial loans as of December 31, 2016:

	Repurchase Agreements											Collateral Pledged
Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Funding Cost			Weighted Average Haircut			Fair Value Pledged		Amortized Cost		Accrued Interest
Greater than 180 days	$	21,796,000		2.91	%		3.13	%		33.5	%	$	32,800,000	$	32,798,706	$	125,314

Although repurchase agreements are committed borrowings until maturity, the lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets resulting from changes in market conditions or factor changes would require the Company to provide additional collateral or cash to fund margin calls. See Note 7 for details on collateral posted/received against certain derivatives. The following table presents information with respect to the Company’s posting of collateral under repurchase agreements on September 30, 2017 and December 31, 2016, broken out by investment type:

	September 30, 2017		December 31, 2016
Fair Value of investments pledged as collateral under repurchase agreements
Agency RMBS	$	1,849,664,503	$	965,154,048
Non-Agency RMBS		905,878,564		990,985,143
ABS		35,918,646		21,231,956
CMBS		208,535,553		201,464,058
Residential Mortgage Loans		20,767,883		31,031,107
Commercial Mortgage Loans		32,800,000		32,800,000
Cash pledged (i.e., restricted cash) under repurchase agreements		10,855,418		17,149,022
Fair Value of unsettled trades pledged as collateral under repurchase agreements:		-		3,057,814
Total collateral pledged under Repurchase agreements	$	3,064,420,567	$	2,262,873,148

The following table presents information with respect to the Company’s total borrowings under repurchase agreements on September 30, 2017 and December 31, 2016, broken out by investment type:

	September 30, 2017		December 31, 2016
Repurchase agreements secured by investments:
Agency RMBS	$	1,752,725,000	$	907,041,000
Non-Agency RMBS		721,638,000		776,459,104
ABS		26,248,000		15,283,000
CMBS		158,739,000		154,386,000
Residential Mortgage Loans		13,405,824		25,544,702
Commercial Mortgage Loans		21,796,000		21,796,000
Gross Liability for Repurchase agreements	$	2,694,551,824	$	1,900,509,806

The following table presents both gross information and net information about repurchase agreements eligible for offset in the consolidated balance sheets as of September 30, 2017:

							Gross Amounts Not Offset in the Consolidated Balance Sheets
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Financial Instruments Posted		Cash Collateral Posted		Net Amount
Repurchase Agreements	$	2,694,551,824	$	-	$	2,694,551,824	$	2,694,551,824	$	-	$	-

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The following table presents both gross information and net information about repurchase agreements eligible for offset in the consolidated balance sheets as of December 31, 2016:

							Gross Amounts Not Offset in the Consolidated Balance Sheets
Description	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Financial Instruments Posted		Cash Collateral Posted		Net Amount
Repurchase Agreements	$	1,900,509,806	$	-	$	1,900,509,806	$	1,900,509,806	$	-	$	-

The Company seeks to obtain financing from several different counterparties in order to reduce the financing risk related to any single counterparty. The Company has entered into master repurchase agreements (“MRAs”) or loan agreements with such financing counterparties. As of September 30, 2017 and December 31, 2016 the Company had 39 and 37 financing counterparties, respectively, under which it had outstanding debt with 28 and 23 counterparties, respectively.

The following table presents information at September 30, 2017 with respect to each counterparty that provides the Company with financing for which the Company had greater than 5% of its stockholders’ equity at risk, excluding stockholders’ equity at risk under financing through affiliated entities.

Counterparty	Stockholders’ Equity at Risk		Weighted Average Maturity (days)		Percentage of Stockholders’ Equity
RBC (Barbados) Trading Bank Corporation	$	40,066,058		22		6	%
Barclays Capital Inc		37,669,214		11		5	%

The following table presents information at December 31, 2016 with respect to each counterparty that provides the Company with financing for which the Company had greater than 5% of its stockholders’ equity at risk, excluding stockholders’ equity at risk under financing through affiliated entities.

Counterparty	Stockholders’ Equity at Risk		Weighted Average Maturity (days)		Percentage of Stockholders’ Equity
Wells Fargo Bank, N.A.	$	50,917,158		357		8	%
JP Morgan Securities, LLC		34,885,263		160		5	%

On April 13, 2015, the Company, AG MIT, LLC (“AG MIT”) and AG MIT CMO, LLC (“AG MIT CMO”), each a subsidiary of the Company, entered into Amendment Number 2 to the Master Repurchase and Securities Contract (the “Second Renewal”) with Wells Fargo Bank, National Association (“Wells Fargo”). The Company elected not to renew the Second Renewal as of September 30, 2017, and the securities that were financed under this facility have since been financed with different counterparties. As of December 31, 2016, the Company had $93.4 million of debt outstanding under this facility.

On February 23, 2017, AG MIT WFB1 2014 LLC (“AG MIT WFB1”), a subsidiary of the Company, entered into Amendment Number Five of the Master Repurchase Agreement and Securities Contract (as amended, the “WFB1 Repurchase Agreement”) with Wells Fargo to finance the ownership and acquisition of certain beneficial interests in trusts owning participation interests in one or more pools of residential mortgage loans. Each transaction under the WFB1 Repurchase Agreement has its own specific terms, such as identification of the assets subject to the transaction, sale price, repurchase price and rate. The WFB1 Repurchase Agreement provides for a funding period ending February 23, 2018 and a facility termination date of February 22, 2019. The maximum aggregate borrowing capacity available under the WFB1 Repurchase Agreement is $50.0 million. The WFB1 Repurchase Agreement contains representations, warranties, covenants, including financial covenants, events of default and indemnities that are customary for agreements of this type. As of September 30, 2017, the Company had $13.4 million of debt outstanding under the WFB1 Repurchase Agreement. As of December 31, 2016, the Company had $25.5 million of debt outstanding under Amendment Number Four of the WFB1 Repurchase Agreement.

On September 17, 2014, AG MIT CREL, LLC (“AG MIT CREL”), a subsidiary of the Company, entered into a Master Repurchase Agreement and Securities Contract (the “CREL Repurchase Agreement”) with Wells Fargo to finance AG MIT CREL’s acquisition of certain beneficial interests in one or more commercial mortgage loans. Each transaction under the CREL Repurchase Agreement will have its own specific terms, such as identification of the assets subject to the transaction, sale price, repurchase price and rate. The CREL Repurchase Agreement provided for a funding period ending September 17, 2016 and an initial facility termination date of September 17, 2016 (the “Initial Termination Date”), subject to the satisfaction of certain terms of the extensions described below. AG MIT CREL had three (3) one-year options to extend the term of the CREL Repurchase Agreement: (i) the first for an additional one year period (the “First Extension Period”) ending September 17, 2017 (the “First Extended Termination Date”), (ii) the second for an additional one year period (the “Second Extension Period”) ending September 17, 2018 (the “Second Extended Termination Date”) and (iii) the third for an additional one year period ending September 17, 2019 (the “Third Extended Termination Date”). For each of the Initial Termination Date, the First Extended Termination Date, the Second Extended Termination Date and the Third Extended Termination Date, if such day is not a Business Day, such date would be the next succeeding Business Day. Each option was exercisable in each case no more than ninety (90) days and no fewer than thirty (30) days prior to the initial facility termination date, the First Extended Termination Date or the Second Extended Termination Date, as the case may be.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

On August 4, 2015, the Company, AG MIT CREL and AG MIT entered into an Omnibus Amendment No. 1 to Master Repurchase and Securities Contract, Guarantee Agreement and Fee and Pricing Letter (the “First Amendment”) with Wells Fargo. The First Amendment amended certain terms in the CREL Repurchase Agreement, the Guarantee, dated as of September 17, 2014, delivered by the Company and AG MIT to Wells Fargo and the Fee and Pricing Letter, dated as of September 17, 2014, between AG MIT CREL and Wells Fargo. The First Amendment lowered the maximum aggregate borrowing capacity available under the CREL Repurchase Agreement from $150 million to approximately $42.8 million. The First Amendment also provided that the CREL Repurchase Agreement become full recourse to the Company and AG MIT, LLC. By amending the recourse of the CREL Repurchase Agreement to the Company and AG MIT, the Company was able to remove certain financial covenants on AG MIT CREL that limited the amount that AG MIT CREL could borrow under the CREL Repurchase Agreement. The First Amendment also eliminated the fee for the portion of the repurchase facility that was unused. The CREL Repurchase Agreement contains representations, warranties, covenants, including financial covenants, events of default and indemnities that are customary for agreements of this type. As of September 30, 2017 and December 31, 2016, the Company had $21.8 million of debt outstanding under this facility.

In September 2016, the Company exercised its option to extend the term of the CREL Repurchase Agreement to the First Extended Termination Date. In June 2017, the Company, AG MIT CREL and AG MIT entered into an Omnibus Amendment No. 2 to Master Repurchase and Securities Contract, Guarantee Agreement and Fee and Pricing Letter (the “Second Amendment”) with Wells Fargo. The Second Amendment amended the CREL Repurchase Agreement to extend the facility termination date to July 1, 2019 and remove the second and third extension options.

The Company’s MRAs generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions. Although specific to each MRA, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios.

7. Derivatives

The Company’s derivatives may include interest rate swaps (“swaps”), TBAs, and Eurodollar Futures and U.S. Treasury Futures, (collectively, “Futures”). Derivatives have not been designated as hedging instruments. The Company may also utilize other instruments to manage interest rate risk, including long and short positions in U.S. Treasury securities.

The Company exchanges cash “variation margin” with the counterparties to its derivative instruments at least on a daily basis based upon daily changes in fair value as measured by the Chicago Mercantile Exchange (“CME”), the central clearinghouse through which those derivatives are cleared. In addition, the CME requires market participants to deposit and maintain an “initial margin” amount which is determined by the CME and is generally intended to be set at a level sufficient to protect the CME from the maximum estimated single-day price movement in that market participant’s contracts.

Receivables recognized for the right to reclaim cash initial margin posted in respect of derivative instruments are included in the “Restricted cash” line item in the consolidated balance sheets. Prior to the first quarter of 2017, the daily exchange of variation margin associated with centrally cleared derivative instruments was considered a pledge of collateral. For these prior periods, receivables recognized for the right to reclaim cash variation margin posted in respect of derivative instruments are included in the “Restricted cash” line item in the consolidated balance sheets. The Company elected to offset any payables recognized for the obligation to return cash variation margin received from a derivative instrument counterparty against receivables recognized for the right to reclaim cash initial margin posted by the Company to that same counterparty.

Beginning in the first quarter of 2017, as a result of a CME amendment to their rule book which governs their central clearing activities, the daily exchange of variation margin associated with a centrally cleared derivative instrument is legally characterized as the daily settlement of the derivative instrument itself, as opposed to a pledge of collateral. Accordingly, beginning in 2017, the Company accounts for the daily receipt or payment of variation margin associated with its centrally cleared derivative instruments as a direct reduction to the carrying value of the derivative asset or liability, respectively. Beginning in 2017, the carrying amount of centrally cleared derivative instruments reflected in the Company’s consolidated balance sheets approximates the unsettled fair value of such instruments; because variation margin is exchanged on a one-day lag, the unsettled fair value of such instruments represents the change in fair value that occurred on the last day of the reporting period. Non-exchange traded derivatives were not affected by these legal interpretations and continue to be reported at fair value including accrued interest.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The following table presents the fair value of the Company’s derivative and other instruments and their balance sheet location at September 30, 2017 and December 31, 2016.

Derivatives and Other Instruments	Designation	Balance Sheet Location	September 30, 2017			December 31, 2016
Interest rate swaps	Non-Hedge	Derivative liabilities, at fair value	$	(587,383	)	$	(1,847,219	)
Interest rate swaps	Non-Hedge	Derivative assets, at fair value		815,622			3,703,366
TBAs	Non-Hedge	Derivative liabilities, at fair value		(1,537,167	)		(423,825	)
TBAs	Non-Hedge	Derivative assets, at fair value		117,693			-
Short positions on Eurodollar Futures	Non-Hedge	Derivative assets, at fair value		75,000			-
Short positions on U.S. Treasury Futures	Non-Hedge	Derivative liabilities, at fair value		-			(636,211	)
Short positions on U.S. Treasury Futures	Non-Hedge	Derivative assets, at fair value		19,531			-
Short positions on U.S. Treasuries	Non-Hedge	Obligation to return securities borrowed under reverse repurchase agreements, at fair value (1)		-			(22,365,000	)

(1) The Company’s obligation to return securities borrowed under reverse repurchase agreements as of December 31, 2016 relates to securities borrowed to cover short sales of U.S. Treasury securities. The change in fair value of the borrowed securities is recorded in the “Unrealized gain/(loss) on derivatives and other instruments, net” line item in the Company’s consolidated statement of operations.

The following table summarizes information related to derivatives and other instruments:

Non-hedge derivatives and other instruments held long/(short):	September 30, 2017			December 31, 2016
Notional amount of Pay Fix/Receive Float Interest Rate Swap Agreements	$	1,862,000,000		$	644,000,000
Notional amount of TBAs		116,000,000			(25,000,000	)
Notional amount of short positions on Eurodollar Futures (1)		(150,000,000	)		-
Notional amount of short positions on U.S. Treasury Futures (2)		(25,000,000	)		(141,500,000	)
Notional amount of short positions on U.S. Treasuries		-			(24,000,000	)

(1) Each Eurodollar Future contract embodies $1.0 million of notional value.

(2) Each U.S. Treasury Future contract embodies $100,000 of notional value.

The following table summarizes gains/(losses) related to derivatives and other instruments:

		Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
Non-hedge derivatives and other instruments gain/(loss):	Statement of Operations Location	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Interest rate swaps, at fair value	Unrealized gain/(loss) on derivative and other instruments, net	$	2,954,860		$	9,700,438		$	6,213,709		$	(9,816,031	)
Interest rate swaps, at fair value	Net realized gain/(loss)		(1,813,293	)		(5,205,405	)		(9,896,031	)		(10,938,839	)
Long positions on Eurodollar Futures	Unrealized gain/(loss) on derivative and other instruments, net		-			2,997			-			2,997
Short positions on Eurodollar Futures	Unrealized gain/(loss) on derivative and other instruments, net		74,624			146,044			74,624			(4,503	)
Short positions on Eurodollar Futures	Net realized gain/(loss)		323,059			242,006			323,059			242,006
Long positions on U.S. Treasury Futures	Unrealized gain/(loss) on derivative and other instruments, net		-			126,468			-			106,094
Long positions on U.S. Treasury Futures	Net realized gain/(loss)		-			(351,329	)		-			(224,410	)
Short positions on U.S. Treasury Futures	Unrealized gain/(loss) on derivative and other instruments, net		(721,752	)		(21,123	)		658,059			-
Short positions on U.S. Treasury Futures	Net realized gain/(loss)		(223,953	)		292,930			(4,054,532	)		307,986
TBAs (1)	Unrealized gain/(loss) on derivative and other instruments, net		53,913			(409,021	)		(995,626	)		32,225
TBAs (1)	Net realized gain/(loss)		1,671,836			420,547			3,002,891			445,586
Long positions on U.S. Treasuries	Unrealized gain/(loss) on derivative and other instruments, net		-			(3,081,289	)		-			4,498,750
Long positions on U.S. Treasuries	Net realized gain/(loss)		-			1,412,695			-			1,836,523
Short positions on U.S. Treasuries	Unrealized gain/(loss) on derivative and other instruments, net		-			415,782			(1,724,922	)		215,391
Short positions on U.S. Treasuries	Net realized gain		-			-			1,730,547			-

(1) For the three months ended September 30, 2017, gains and losses from purchases and sales of TBAs consisted of $1.5 million of net TBA dollar roll net interest income and net gains of $0.2 million due to price changes. For the nine months ended September 30, 2017, gains and losses from purchases and sales of TBAs consisted of $2.6 million of net TBA dollar roll net interest income and net losses of $(0.6) million due to price changes. For the three months ended September 30, 2016, gains and losses from purchases and sales of TBAs consisted of $0.1 million of net TBA dollar roll net interest income and net losses of $(0.1) million due to price changes. For the nine months ended September 30, 2016, gains and losses from purchases and sales of TBAs consisted of $0.2 million of net TBA dollar roll net interest income and net gains of $0.3 million due to price changes.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2017

The following table presents both gross information and net information about derivative and other instruments eligible for offset in the consolidated balance sheets as of September 30, 2017: