Edgar Filing: AG Mortgage Investment Trust, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

¨	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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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 31, 2014, there were 28,386,015 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	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Stockholders' Equity	3
	Consolidated Statements of Cash Flows	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60

Item 4.	Controls and Procedures	63

PART II. OTHER INFORMATION		63

Item 1.	Legal Proceedings	63

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 3.	Defaults Upon Senior Securities	63

Item 4.	Mine Safety Disclosures	63

Item 5.	Other Information	64

Item 6.	Exhibits	64

PART I

ITEM 1. FINANCIAL STATEMENTS

AG Mortgage Investment Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	September 30, 2014			December 31, 2013
Assets
Real estate securities, at fair value:
Agency - $1,678,146,728 and $2,242,322,869 pledged as collateral, respectively	$	1,820,154,251		$	2,423,002,768
Non-Agency - $1,104,701,107 and $844,217,568 pledged as collateral, respectively		1,116,631,253			844,217,568
ABS - $19,960,090 and $71,344,784 pledged as collateral, respectively		76,035,121			71,344,784
CMBS - $80,481,612 and $93,251,470 pledged as collateral, respectively		88,949,822			93,251,470
Residential mortgage loans, at fair value - $73,028,954 and $0 pledged as collateral, respectively		83,710,984			-
Commercial loans, at fair value - $62,800,000 and $0 pledged as collateral, respectively		72,800,000			-
Investment in affiliates		13,689,143			16,411,314
Excess mortgage servicing rights, at fair value		679,752			-
Linked transactions, net, at fair value		28,346,802			49,501,897
Cash and cash equivalents		43,711,925			86,190,011
Restricted cash		40,723,796			3,575,006
Interest receivable		11,633,053			12,018,919
Receivable on unsettled trades - $138,516,386 and $0 pledged as collateral, respectively		151,919,857			-
Receivable under reverse repurchase agreements		28,245,000			27,475,000
Derivative assets, at fair value		24,810,271			55,060,075
Other assets		12,909,703			1,246,842
Due from broker		3,502,094			1,410,720
Total Assets	$	3,618,452,827		$	3,684,706,374

Liabilities
Repurchase agreements	$	2,740,346,694		$	2,891,634,416
Obligation to return securities borrowed under reverse repurchase agreements, at fair value		28,045,938			27,477,188
Payable on unsettled trades		61,461,544			-
Interest payable		2,607,427			3,839,045
Derivative liabilities, at fair value		4,947,317			2,206,289
Dividend payable		17,030,608			17,020,893
Due to affiliates		4,738,480			4,645,297
Accrued expenses		3,334,506			1,395,183
Taxes payable		1,368,516			1,490,329
Due to broker		16,260,255			30,567,000
Total Liabilities		2,880,141,285			2,980,275,640

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 28,384,347 and 28,365,655 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively		283,844			283,657
Additional paid-in capital		585,943,635			585,619,488
Retained earnings/(deficit)		(9,129,942	)		(42,686,416	)
Total Stockholders' Equity		738,311,542			704,430,734

Total Liabilities & Stockholders' Equity	$	3,618,452,827		$	3,684,706,374

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, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Net Interest Income
Interest income	$	36,197,633		$	33,278,284		$	106,419,808		$	114,163,747
Interest expense		6,819,731			5,584,419			19,750,086			19,749,592
		29,377,902			27,693,865			86,669,722			94,414,155

Other Income
Net realized gain/(loss)		10,539,221			(42,667,835	)		9,261,721			(112,226,897	)
Income/(loss) from linked transactions, net		3,481,936			(519,785	)		11,018,043			2,296,541
Realized loss on periodic interest settlements of derivative instruments, net		(5,260,449	)		(9,123,233	)		(17,341,950	)		(21,205,353	)
Unrealized gain/(loss) on real estate securities and loans, net		(19,457,277	)		40,136,126			52,563,595			(60,668,593	)
Unrealized gain/(loss) on derivative and other instruments, net		9,459,244			(5,779,945	)		(33,639,291	)		67,348,314
		(1,237,325	)		(17,954,672	)		21,862,118			(124,455,988	)

Expenses
Management fee to affiliate		2,548,601			2,523,547			7,556,613			8,195,890
Other operating expenses		3,140,272			2,819,431			8,523,178			7,780,385
Servicing fees		157,016			-			319,733			-
Equity based compensation to affiliate		67,562			55,105			222,221			186,983
Excise tax		533,539			373,083			1,408,539			1,391,942
		6,446,990			5,771,166			18,030,284			17,555,200

Income/(loss) before income tax benefit/(expense) and equity in earnings from affiliates		21,693,587			3,968,027			90,501,556			(47,597,033	)
Income tax benefit/(expense)		172,709			(122,979	)		79,914			(2,778,758	)
Equity in earnings from affiliates		523,316			2,155,471			4,159,667			1,911,830
Net Income/(Loss)		22,389,612			6,000,519			94,741,137			(48,463,961	)

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

Net Income/(Loss) Available to Common Stockholders	$	19,022,258		$	2,633,165		$	84,639,075		$	(58,566,023	)

Earnings/(Loss) Per Share of Common Stock
Basic	$	0.67		$	0.09		$	2.98		$	(2.10	)
Diluted	$	0.67		$	0.09		$	2.98		$	(2.10	)

Weighted Average Number of Shares of Common Stock Outstanding
Basic		28,384,238			28,359,937			28,377,681			27,906,946
Diluted		28,405,069			28,359,943			28,396,797			27,906,946

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 December 31, 2012		26,961,936	$	269,620	$	49,920,772	$	111,293,233	$	552,067,681	$	81,070,475		$	794,621,781
Net proceeds from issuance of common stock		1,381,739		13,817		-		-		33,162,471		-			33,176,288
Grant of restricted stock and amortization of equity based compensation		16,371		164		-		-		281,352		-			281,516
Common dividends declared		-		-		-		-		-		(61,687,946	)		(61,687,946	)
Preferred Series A dividends declared		-		-		-		-		-		(3,202,062	)		(3,202,062	)
Preferred Series B dividends declared		-		-		-		-		-		(6,900,000	)		(6,900,000	)
Net loss		-		-		-		-		-		(48,463,961	)		(48,463,961	)
Balance at September 30, 2013		28,360,046	$	283,601	$	49,920,772	$	111,293,233	$	585,511,504	$	(39,183,494	)	$	707,825,616

Balance at December 31, 2013		28,365,655	$	283,657	$	49,920,772	$	111,293,233	$	585,619,488	$	(42,686,416	)	$	704,430,734
Grant of restricted stock and amortization of equity based compensation		18,692		187		-		-		324,147		-			324,334
Common dividends declared		-		-		-		-		-		(51,082,601	)		(51,082,601	)
Preferred Series A dividends declared		-		-		-		-		-		(3,202,062	)		(3,202,062	)
Preferred Series B dividends declared		-		-		-		-		-		(6,900,000	)		(6,900,000	)
Net income		-		-		-		-		-		94,741,137			94,741,137
Balance at September 30, 2014		28,384,347	$	283,844	$	49,920,772	$	111,293,233	$	585,943,635	$	(9,129,942	)	$	738,311,542

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, 2014			September 30, 2013
Cash Flows from Operating Activities
Net income/(loss)	$	94,741,137		$	(48,463,961	)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Net realized (gain)/loss		(9,261,721	)		112,226,897
Net realized and unrealized (gains)/losses on securities underlying linked transactions		(3,503,633	)		8,161,223
Net amortization of premium		13,736,544			36,501,617
Unrealized (gains)/losses on real estate securities and loans, net		(52,563,595	)		60,668,593
Unrealized (gains)/losses on derivative and other instruments, net		33,639,291			(67,348,314	)
Equity based compensation to affiliate		222,221			186,983
Equity based compensation expense		108,147			132,103
Income from investment in affiliates in excess of distributions received		(583,442	)		(1,286,037	)
Change in operating assets/liabilities:
Interest receivable		352,904			1,884,612
Other assets		(3,342,267	)		(399,473	)
Due from broker		(2,091,374	)		(499,213	)
Interest payable		(1,079,037	)		3,080,028
Due to affiliates		93,183			258,691
Accrued expenses		1,939,323			293,190
Taxes payable		(121,813	)		(358,058	)
Net cash provided by operating activities		72,285,868			105,038,881

Cash Flows from Investing Activities
Purchase of real estate securities		(731,253,700	)		(2,679,895,866	)
Purchase of residential mortgage loans		(84,482,849	)		-
Purchase of commercial loans		(72,084,833	)		(30,017,825	)
Investment in affiliates		(24,087,845	)		(14,357,976	)
Purchase of excess mortgage servicing rights		(730,146	)		-
Purchase of securities underlying linked transactions		(32,170,974	)		(218,804,843	)
Proceeds from sale of real estate securities		674,416,942			3,143,631,407
Proceeds from sale of securities underlying linked transactions		26,056,464			131,400,523
Distribution received from investments in affiliates		27,364,027			-
Principal repayments on real estate securities		421,911,718			417,502,447
Principal repayments on residential mortgage loans		642,946			-
Principal repayments on securities underlying linked transactions		43,017,323			68,647,086
Receipt of premium for interest rate swaptions		433,750			-
Payment of premium for interest rate swaptions		(745,500	)		-
Net payment made on reverse repurchase agreements		(775,216	)		(50,133,363	)
Net proceeds/(payment) from sales of securities borrowed under reverse repurchase agreements		(395,472	)		49,024,920
Net settlement of interest rate swaps		109,276			(9,346,968	)
Net settlement of TBAs		2,663,476			(374,861	)
Net settlement of IO Indexes		(569,230	)		-
Cash flows used in other investing activities		(8,426,524	)		-
Restricted cash used in investment activities		(10,287,254	)		(3,908,000	)
Net cash provided by investing activities		230,606,379			803,366,681

Cash Flows from Financing Activities
Net proceeds from issuance of common stock		-			33,176,288
Borrowings under repurchase agreements		16,715,523,064			20,325,114,240
Borrowings under repurchase agreements underlying linked transactions		1,437,647,348			2,899,553,903
Repayments of repurchase agreements		(16,866,810,786	)		(21,271,438,649	)
Repayments of repurchase agreements underlying linked transactions		(1,529,386,730	)		(2,952,632,359	)
Collateral received from (held by) derivative counterparty		(15,671,180	)		15,211,121
Collateral received from (held by) repurchase counterparty		(25,497,101	)		1,417,291
Dividends paid on common stock		(51,072,886	)		(63,211,085	)
Dividends paid on preferred stock		(10,102,062	)		(10,102,062	)
Net cash used in financing activities		(345,370,333	)		(1,022,911,312	)

Net change in cash and cash equivalents		(42,478,086	)		(114,505,750	)
Cash and cash equivalents, Beginning of Period		86,190,011			149,594,782
Cash and cash equivalents, End of Period	$	43,711,925		$	35,089,032

Supplemental disclosure of cash flow information:
Cash paid for interest on repurchase agreements	$	21,017,503		$	19,994,933
Cash paid for income tax	$	1,579,928		$	4,528,945
Real estate securities recorded upon unlinking of Linked Transactions	$	87,154,830		$	43,415,283
Repurchase agreements recorded upon unlinking of Linked Transactions	$	73,501,051		$	35,674,382
Transfer from residential mortgage loans to other assets	$	1,022,903		$	-
Supplemental disclosure of non-cash financing activities:
Common stock dividends declared but not paid	$	17,030,608		$	17,017,528

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, 2014

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 enterprise such as Fannie Mae or Freddie Mac, 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 enterprise 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 residential 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.”

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 commercial and residential mortgage loans as “mortgage loans” or “loans.”

The Company is externally managed by AG REIT Management, LLC (the “Manager”), a wholly-owned subsidiary of Angelo, Gordon & Co., L.P. (“Angelo, Gordon”), a privately-held, SEC-registered investment adviser. The Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo, Gordon the overall responsibility with respect to the Manager’s 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 presentation 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.

Previously the Company classified gains and losses related to linked transactions in the “Net realized gain/(loss)” line item, however the Company now includes such gains and losses in the “Income/(loss) from linked transactions, net” line item as the Company believes this presentation is most consistent with the accounting for other components of net income on linked transactions captured within that line.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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, 2014 and December 31, 2013, the Company had no cash equivalents. The Company places its cash with high credit quality institutions to minimize credit risk exposure. Any cash held by the Company as collateral would be included in a due to broker line item on the consolidated balance sheet and in cash flows from financing activities on the consolidated statement of cash flows.

Restricted cash

Restricted cash includes cash pledged as collateral for clearing and executing trades, derivatives and repurchase agreements. Restricted cash is carried at cost, which approximates fair value.

Offering costs

The Company incurred costs in connection with common stock offerings and issuances of preferred stock. 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 and offering costs in connection with preferred stock offerings have been accounted for as a reduction of their respective gross proceeds.

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 per share

In accordance with the provisions of Accounting Standards Codification (“ASC”) 260, “Earnings per Share,” the Company calculates basic income per share by dividing net income 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.

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.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Accounting for real estate securities

Investments in real estate securities are recorded in accordance with ASC 320, ASC 325 or ASC 310-30. The Company has chosen to make a fair value election pursuant to ASC 825 for its real estate securities portfolio. Real estate securities are recorded at fair market value on the consolidated balance sheet 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.

These investments generally meet the requirements to be classified as available for sale under ASC 320-10-25, “Debt and Equity Securities,” which requires the securities to be carried at fair value on the consolidated balance sheet 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, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” is applicable.

The Company evaluates securities accounted for under ASC 310 and ASC 325 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, “Beneficial Interests in Securitized Financial Assets,” 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 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 if the performance of such security subsequently improves.

Securities in an unrealized loss position at September 30, 2014 are not considered other than temporarily impaired 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. See Note 3 for a summary of OTTI 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.

Accounting for mortgage loans

Investments in mortgage loans are recorded in accordance with ASC 310-10. 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 sheet 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.”

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” 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 sheet 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 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 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.

Investment in affiliates

The Company’s unconsolidated ownership interests in affiliates are accounted for using the equity method. The underlying entities have chosen to make a fair value election pursuant to ASC 825; as such the Company will treat its investment in affiliates consistently with this election. The investment in affiliates is recorded at fair market value on the consolidated balance sheet and periodic changes in fair market value will be recorded in current period earnings on the consolidated statement of operation as a component of “Equity in earnings from affiliates.” Capital contributions, distributions and profits and losses of such entities are allocated in accordance with the terms of the applicable agreements.

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. If the Company were to treat securitizations as sales in the future, the Company will analyze the transactions under the guidelines of ASC 810-10 for consolidation.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The Company may periodically enter into transactions in which it sells assets. 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.

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 balance sheet or as a “financing” and will be classified as “real estate securities” on the consolidated balance sheet, depending upon the structure of the securitization transaction. ASC 860-10 is a complex 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, “Investments—Debt and Equity Securities” or ASC 325-40, “Beneficial Interests in Securitized Financial Assets,” 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), prepayments of the underlying collateral must be estimated, which directly affect the speed at which the Company amortizes such 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 judgmentally 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.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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 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 and premium for U.S. federal and other tax purposes differs from the financial accounting treatment of these items as described above.

Repurchase agreements

The Company finances the acquisition of certain assets within its portfolio through the use of repurchase agreements. Repurchase agreements are treated as collateralized financing transactions and are carried at primarily their contractual amounts, including accrued interest, as specified in the respective agreements. The carrying amount of the Company’s repurchase agreements approximates fair value as the debt is short-term in nature.

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, 2014 and December 31, 2013, the Company has met all margin call requirements.

In instances where the Company acquires assets through repurchase agreements with the same counterparty from whom the assets were purchased, the Company evaluates such transactions in accordance with ASC 860-10. This standard requires the initial transfer of a financial asset and repurchase financing that are entered into contemporaneously with, or in contemplation of, one another to be considered linked unless all of the criteria found in ASC 860-10 are met at the inception of the transaction. If the transaction meets all of the conditions, the initial transfer shall be accounted for separately from the repurchase financing, and the Company will record the assets and the related financing on a gross basis on its balance sheet with the corresponding interest income and interest expense recorded on a gross basis in the consolidated statement of operations. If the transaction is determined to be linked, the Company will record the initial transfer and repurchase financing on a net basis and record a forward commitment to purchase assets as a derivative instrument with changes in market value being recorded on the consolidated statement of operations. Such forward commitments are recorded at fair value with subsequent changes in fair value recognized in income. The Company refers to these transactions as Linked Transactions. The Company records interest income, interest expense, and gains and losses related to linked transactions in the “Income/(loss) from linked transactions, net” line item on the consolidated statement of operations. When or if a transaction is no longer considered to be linked, the real estate asset and related repurchase financing will be reported on a gross basis. The unlinking of a transaction causes a realized event in which the fair value of the real estate asset as of the date of unlinking will become the cost basis of the real estate asset. The difference between the fair value on the unlinking date and the existing cost basis of the security will be the realized gain or loss. Recognition of effective yield for such security will be calculated prospectively using the new cost basis.

Accounting for derivative financial instruments

The Company enters into derivative contracts as a means of mitigating its interest rate risk. The Company uses interest rate derivative instruments to mitigate 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, 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, 2014 and December 31, 2013, 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.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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, and 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.”

TBAs are exempt from ASC 815 and are accounted for under ASC 320 if there is no other way to purchase or sell that security, if delivery or receipt of that security and settlement will occur within the shortest period possible for that type of security and if it is probable at inception and throughout the term of the individual contract that physical delivery or receipt of the security will occur (referred to as the “regular-way” exception). Unrealized gains and losses associated with TBA contracts not subject to the regular-way exception or 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.”

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 sheet 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 remains sufficient to protect the Company in the event of default by the 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 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.

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

The Company has elected to treat certain 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.

While a domestic TRS will generate net income, a domestic TRS can declare dividends to the Company which will be included in the Company’s taxable income 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.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The Company elected to treat one of its consolidated subsidiaries as a foreign 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 at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its net capital gain income for such year, and (iii) any undistributed taxable income from the prior year, the Company would be subject to a nondeductible 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 Topic 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. The Company has elected to use the straight-line method to amortize compensation expense for the restricted common shares and restricted stock units granted to the Manager.

Recent accounting pronouncements

In January 2014, the FASB issued ASU 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure” (“ASU 2014-04”). ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU 2014-04 does not have a material impact on the Company’s financial statements.

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). ASU 2014-08 changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The standard states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation. A business or nonprofit activity that upon acquisition qualifies as held for sale will also be a discontinued operation. The standard no longer precludes presentation as a discontinued operation if (i) there are operations and cash flows of the component that have not been eliminated from the reporting entity’s ongoing operations, or (ii) there is significant continuing involvement with a component after its disposal. The standard introduces several new disclosures, including a requirement to present in the consolidated statement of cash flows or disclose in a note either (i) total operating and investing cash flows for discontinued operations, or (ii) depreciation, amortization, capital expenditures, and significant operating and investing noncash items related to discontinued operations. An entity must also reclassify the assets and liabilities of a discontinued operation that are classified as held for sale or disposed of in the current period for the comparative periods presented in the balance sheets. The Company chose to early adopt this standard in the quarter ended March 31, 2014. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations.

In June 2014, the FASB issued ASU 2014-11, “Transfers and Servicing: Repurchase-to-Maturity Transaction, Repurchase Financings, and Disclosures” (“ASU 2014-11”). This guidance requires repurchase-to-maturity transactions to be accounted for as secured borrowings as if the transferor retains effective control, even though the transferred financial assets are not returned to the transferor at settlement. ASU 2014-11 also eliminates existing guidance for repurchase financings and requires instead that entities consider the initial transfer and the related repurchase agreement separately when applying the derecognition requirements of ASC 860-10. New disclosures will be required for (1) certain transactions accounted for as secured borrowings and (2) transfers accounted for as sales when the transferor also retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. This guidance will take effect for periods beginning after December 15, 2014, and early adoption is prohibited. Certain disclosures under this guidance do not take effect until the first period beginning after March 15, 2015. The Company is currently assessing the impact of this guidance.

3. Real Estate Securities

The following tables present the current principal balance, premium or discount, amortized cost, gross unrealized gain, gross unrealized loss, fair market value, weighted average coupon rate and weighted average effective yield of the Company’s real estate securities portfolio at September 30, 2014 and December 31, 2013. The Company’s Agency RMBS are mortgage pass-through certificates or collateralized mortgage obligations representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed by Fannie Mae or Freddie Mac. 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 enterprise. Real estate securities that are accounted for as a component of linked transactions are not reflected in the tables set forth in this note. See Note 7 for further details on linked transactions.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following table details the Company’s real estate securities portfolio as of September 30, 2014:

			Premium /					Gross Unrealized (1)							Weighted Average
	Current Face		(Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon (2)			Yield
Agency RMBS:
20 Year Fixed Rate	$	130,938,057	$	6,412,840		$	137,350,897	$	1,358,220	$	(1,085,852	)	$	137,623,265		3.72	%		2.83	%
30 Year Fixed Rate		971,568,294		49,271,726			1,020,840,020		6,641,223		(6,231,864	)		1,021,249,379		3.93	%		3.20	%
Fixed Rate CMO		90,676,332		930,426			91,606,758		883,101		-			92,489,859		3.00	%		2.81	%
ARM		434,439,072		(728,938	)		433,710,134		3,580,922		(562,702	)		436,728,354		2.42	%		2.76	%
Interest Only		807,823,148		(679,000,762	)		128,822,386		6,893,365		(3,652,357	)		132,063,394		4.57	%		7.97	%
Credit Investments:
Non-Agency RMBS		1,275,450,910		(180,916,996	)		1,094,533,914		26,362,689		(4,265,350	)		1,116,631,253		3.97	%		5.66	%
ABS		76,981,884		(645,408	)		76,336,476		406,971		(708,326	)		76,035,121		4.99	%		5.59	%
CMBS		81,080,619		(1,326,630	)		79,753,989		2,841,408		-			82,595,397		5.10	%		6.60	%
Interest Only		52,357,700		(46,263,595	)		6,094,105		260,320		-			6,354,425		1.92	%		5.72	%
Total	$	3,921,316,016	$	(852,267,337	)	$	3,069,048,679	$	49,228,219	$	(16,506,451	)	$	3,101,770,447		3.90	%		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. 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, 2013:

			Premium /					Gross Unrealized (1)							Weighted Average
	Current Face		(Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon			Yield
Agency RMBS:
15 Year Fixed Rate	$	435,843,408	$	12,909,886		$	448,753,294	$	1,509,418	$	(2,662,880	)	$	447,599,832		3.13	%		2.50	%
20 Year Fixed Rate		142,296,219		7,316,644			149,612,863		610,806		(3,166,423	)		147,057,246		3.73	%		2.89	%
30 Year Fixed Rate		1,191,781,474		68,531,950			1,260,313,424		60,020		(30,868,697	)		1,229,504,747		4.03	%		3.28	%
ARM		466,047,819		(1,583,428	)		464,464,391		187,111		(2,864,107	)		461,787,395		2.43	%		2.78	%
Interest Only		736,263,003		(601,525,564	)		134,737,439		5,083,736		(2,767,627	)		137,053,548		4.92	%		6.49	%
Credit Investments:
Non-Agency RMBS		962,852,550		(132,283,547	)		830,569,003		20,615,586		(6,967,021	)		844,217,568		4.19	%		5.79	%
ABS		71,326,847		(315,657	)		71,011,190		333,594		-			71,344,784		3.82	%		4.07	%
CMBS		88,828,774		(2,269,882	)		86,558,892		1,270,629		(902,786	)		86,926,735		5.16	%		6.53	%
Interest Only		52,357,700		(45,794,824	)		6,562,876		-		(238,141	)		6,324,735		1.85	%		5.71	%
Total	$	4,147,597,794	$	(695,014,422	)	$	3,452,583,372	$	29,670,900	$	(50,437,682	)	$	3,431,816,590		3.94	%		3.94	%

(1) We have 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. The gross unrealized stated above represents inception to date unrealized gains/(losses).

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 at September 30, 2014 and December 31, 2013.

	Less than 12 months					Greater than 12 months
As of	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2014	$	460,583,404	$	(5,204,176	)	$	476,019,057	$	(11,302,275	)
December 31, 2013		2,330,415,740		(43,557,831	)		112,253,956		(6,879,851	)

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.”

For the three months ended September 30, 2014 the Company recognized $0.4 million of OTTI on certain securities, 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 on certain securities, where the fair values of the securities were less than their carrying amounts. For the nine months ended September 30, 2014 the Company recognized $1.7 million of OTTI on certain securities, due to an adverse change in cash flows on certain securities, where the fair values of the securities were less than their carrying amounts, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. For the three months ended September 30, 2013 the Company recognized an OTTI charge of $7.9 million, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. Of this amount, $6.7 million was recognized on certain securities in an unrealized loss position which the Company demonstrated intent to sell, and the charge represents a write-down to fair value as of the reporting date. Additionally, the Company recorded $1.2 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. For the nine months ended September 30, 2013, the Company recognized an OTTI charge of $51.1 million, which is included in the “Net realized gain/(loss)” line item on the consolidated statement of operations. Of this amount, $48.0 million was the result of certain securities in an unrealized loss position which the Company demonstrated intent to sell, and the charge represents a write-down to fair value as of the reporting date. Additionally, the Company recorded $3.1 million of OTTI as a result of an adverse change in cash flows on certain securities.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The decline in value of the remaining real estate securities is solely due to market conditions and not the quality of the assets. The real estate securities in 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 for regulatory or other reasons.

All of the principal and interest payments on the Agency RMBS have an explicit guarantee by either an agency of the U.S. government or a U.S. government-sponsored enterprise.

The following table details weighted average life by Agency RMBS, Agency Interest-Only (“IO”) and Credit Investments as of September 30, 2014:

	Agency RMBS (1)							Agency IO							Credit Investments (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	$	-	$	-		-		$	-	$	-		-		$	53,293,063	$	53,043,888		3.47	%
Greater than one year and less than or equal to five years		65,542,306		65,178,822		2.62	%		82,167,787		79,343,292		4.33	%		502,137,254		490,058,341		3.83	%
Greater than five years and less than or equal to ten years		1,542,908,512		1,538,341,141		3.49	%		49,895,607		49,479,094		5.06	%		652,502,483		639,985,146		4.14	%
Greater than ten years		79,640,039		79,987,846		3.50	%		-		-		-			73,683,396		73,631,109		4.47	%
Total	$	1,688,090,857	$	1,683,507,809		3.46	%	$	132,063,394	$	128,822,386		4.57	%	$	1,281,616,196	$	1,256,718,484		4.01	%

(1) For purposes of this table, Agency RMBS represent securities backed by Fixed Rate 20 Year, Fixed Rate 30 Year mortgages, ARMs and Fixed Rate CMOs.

(2) For purposes of this table, Credit Investments represent Non-Agency RMBS, ABS, CMBS and Credit Interest Only 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 by Agency RMBS, Agency IO and Credit Investments as of December 31, 2013:

	Agency RMBS (1)							Agency IO							Credit Investments (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
Less than or equal to 1 year	$	-	$	-		-		$	5,406,120	$	4,739,053		-		$	5,227,857	$	5,355,113		0.67	%
Greater than one year and less than or equal to five years		292,921,980		292,010,291		3.12	%		109,110,653		107,278,916		5.11	%		367,316,237		359,557,150		4.29	%
Greater than five years and less than or equal to ten years		1,514,649,739		1,534,246,672		3.50	%		22,536,775		22,719,470		4.48	%		513,581,646		504,612,828		3.74	%
Greater than ten years		478,377,501		496,887,009		3.73	%		-		-		-			122,688,082		125,176,870		5.56	%
Total	$	2,285,949,220	$	2,323,143,972		3.50	%	$	137,053,548	$	134,737,439		4.92	%	$	1,008,813,822	$	994,701,961		4.14	%

(1) For purposes of this table, Agency RMBS represent securities backed by Fixed Rate 15 Year, Fixed Rate 20 Year, Fixed Rate 30 Year mortgages, ARMs and Fixed Rate CMOs.

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

For the three months ended September 30, 2014, the Company sold 15 securities for total proceeds of $324.5 million, with an additional $151.9 million of proceeds on 10 unsettled security sales as of quarter end, recording realized gains of $11.7 million and realized losses of $0.8 million, respectively. For the nine months ended September 30, 2014, the Company sold 44 securities for total proceeds of $674.4 million, with additional proceeds on the aforementioned unsettled security sales as of September 30, 2014, recording realized gains of $13.7 million and realized losses of $4.8 million, inclusive of related tax provisions.

For the nine months ended September 30, 2014, 12 securities held within affiliated entities of the Company were sold for total gross proceeds of $31.0 million, recording realized gains of $3.6 million. There were no sales for the three months ended September 30, 2014 or the three and nine months ended September 30, 2013.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

For the three months ended September 30, 2013, the Company sold 90 securities for total proceeds of $1.6 billion, with an additional $106.2 million of proceeds on 3 unsettled security sales as of quarter end, recording realized gains of $4.3 million and realized losses of $39.2 million, respectively. For the nine months ended September 30, 2013, the Company sold 155 securities for total proceeds of $3.0 billion, with additional proceeds on aforementioned unsettled security sales as of September 30, 2013, recording realized gains of $17.1 million and realized losses of $73.4 million, inclusive of related tax provisions. During the nine months ended September 30, 2013, the Company received $96.3 million for the sale of three securities that were unsettled as of December 31, 2012.

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

The Company invests in credit sensitive commercial real estate assets through affiliated entities, and applies the equity method of accounting for such investments. As of September 30, 2014, the underlying investments have a fair market value of $13.9 million and a weighted average yield of 14.27%. As of September 30, 2013, the investments had a fair market value of $16.1 million and a weighted average yield of 12.43%. The Company has presented these investments separately on the consolidated balance sheet as part of the “Investment in affiliates” line item, and consolidated statement of operations as a component of “Equity in earnings from affiliates.”

4. Loans

Residential Mortgage Loans

On February 28, 2014, the Company acquired a residential mortgage loan portfolio with an aggregate unpaid principal balance and acquisition fair value of $59.0 million and $34.9 million, respectively. The Company refers to this loan pool acquisition as Pool A. On February 18, 2014, the Company entered into a Master Repurchase Agreement and Securities Contract (“Repurchase facility”) to finance acquisitions of residential mortgage loans. See Note 6 for further detail on the Company’s loan repurchase facility. Pool A was financed by drawing $19.0 million on its repurchase facility.

On July 31, 2014, the Company acquired a residential mortgage loan portfolio with an aggregate unpaid principal balance and acquisition fair value of $13.7 million and $5.7 million, respectively. The Company refers to this loan pool acquisition as Pool B.

On September 30, 2014, the Company acquired a residential mortgage loan portfolio with an aggregate unpaid principal balance and acquisition fair value of $50.5 million and $44.0 million, respectively, which was financed by drawing $30.3 million on its repurchase facility. The Company refers to this loan pool acquisition as Pool C.

The table below details certain information regarding the Company’s residential mortgage loan portfolio as of September 30, 2014:

	Unpaid Principal		Premium					Gross Unrealized (1)							Weighted Average
	Balance (2)		(Discount)			Amortized Cost		Gains		Losses (3)			Fair Value		Coupon			Yield			Life
Pool A	$	56,291,825	$	(21,561,694	)	$	34,730,131	$	-	$	(538,622	)	$	34,191,509		4.95	%		8.97	%		5.01
Pool B		13,659,018		(7,892,354	)		5,766,664		-		(143,097	)		5,623,567		5.05	%		13.68	%		4.79
Pool C		50,547,369		(6,576,461	)		43,970,908		-		(75,000	)		43,895,908		6.30	%		5.60	%		6.67
	$	120,498,212	$	(36,030,509	)	$	84,467,703	$	-	$	(756,719	)	$	83,710,984		5.53	%		7.52	%		5.68

(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 stated above represents inception to date unrealized gains (losses).

(2)

Pool A is comprised of re-performing and non-performing loans with unpaid principal balances of $32.9 million and $23.4 million, and fair market values of $21.7 million and $12.5 million, respectively.

Pool B is comprised of re-performing and non-performing loans with unpaid principal balances of $6.3 million and $7.4 million, and fair market values of $2.8 million and $2.8 million, respectively.

Pool C is comprised of re-performing loans with an unpaid principal balance of $50.5 million.

(3)

Unrealized losses resulted primarily from capitalized costs.

The Company did not hold any residential mortgage loans as of December 31, 2013.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

As of September 30, 2014, 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 in the mortgage loan portfolio:

Concentration of Credit Risk	September 30, 2014			December 31, 2013
Percentage of fair value of mortgage loans with unpaid principal balance to current property value in excess of 100%		99	%		-
Percentage of fair value of mortgage loans secured by properties in the following states:
Representing 5% or more of fair value:
New York		16	%		-
California		11	%		-
Florida		7	%		-
Maryland		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 and nine months ended September 30, 2014:

	Three Months Ended					Nine Months Ended
	September 30, 2014			September 30, 2013		September 30, 2014			September 30, 2013
Beginning Balance	$	16,456,567		$	-	$	-		$	-
Additions		21,135,814			-		38,295,030			-
Accretion		(694,427	)		-		(982,312	)		-
Reclassifications from/(to) non-accretable difference		(431,066	)		-		(431,066	)		-
Disposals		(294,910	)		-		(709,674	)		-
Ending Balance	$	36,171,978		$	-	$	36,171,978		$	-

The Company did not hold any residential mortgage loans for the three and nine months ended September 30, 2013.

Commercial Loans

The following tables present the current principal balance, premium or discount, amortized cost, gross unrealized gain, gross unrealized loss, fair market value, coupon rate and effective yield of the Company’s commercial loan portfolio at September 30, 2014. The Company did not hold any commercial loans as of December 31, 2013.

			Premium					Gross Unrealized (1)							Weighted Average
	Current Face		(Discount)			Amortized Cost		Gains		Losses			Fair Value		Coupon			Yield			Life
Commercial Loans	$	72,800,000	$	(353,482	)	$	72,446,518	$	380,525	$	(27,043	)	$	72,800,000		6.79	%		8.40	%		2.27

(1) We have chosen to make a fair value election pursuant to ASC 825 for our 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 stated above represents inception to date unrealized gains (losses).

During the year ended December 31, 2013, the Company received $37.0 million of proceeds from sale and pay-off of certain commercial loans, recording realized gains of $0.1 million and realized losses of $0.2 million. The Company did not have any commercial loan sales or pay-offs during the nine months ended September 30, 2014.

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. 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.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Values for the Company’s securities, derivatives and loan portfolios 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.

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 Clearing Counterparty (“CCP”) now stands between the Company and its over-the-counter derivative counterparties. In order to access clearing, the Company has entered into clearing agreements with Futures Commission Merchants (“FCMs”). The Company records its derivative asset and liability positions on a gross basis.

The fair value of the Company's mortgage loans 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.

The securities underlying the Company’s linked transactions are valued using similar techniques to those used for the Company’s securities portfolio. The value of the underlying security is then netted against the carrying amount (which approximates fair value) of the repurchase agreement at the valuation date. Additionally, TBA instruments are similar in form to the Company’s Agency RMBS portfolio, and the Company therefore estimates fair value based on similar methods.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2014:

	Fair Value at September 30, 2014
	Level 1			Level 2			Level 3		Total
Assets:
Agency RMBS:
20 Year Fixed Rate	$	-		$	137,623,265		$	-	$	137,623,265
30 Year Fixed Rate		-			1,021,249,379			-		1,021,249,379
Fixed Rate CMO		-			92,489,859			-		92,489,859
ARM		-			436,728,354			-		436,728,354
Interest Only		-			132,063,394			-		132,063,394
Credit Investments:
Non-Agency RMBS		-			653,168,050			463,463,203		1,116,631,253
ABS		-			-			76,035,121		76,035,121
CMBS		-			55,329,089			27,266,308		82,595,397
Interest Only		-			-			6,354,425		6,354,425
Residential mortgage loans		-			-			83,710,984		83,710,984
Commercial loans		-			-			72,800,000		72,800,000
Excess mortgage servicing rights		-			-			679,752		679,752
Linked transactions		-			21,820,825			6,525,977		28,346,802
Derivative assets		-			24,810,271			-		24,810,271
Total Assets Carried at Fair Value	$	-		$	2,575,282,486		$	736,835,770	$	3,312,118,256

Liabilities:
Obligation to return securities borrowed under reverse repurchase agreements, at fair value	$	(28,045,938	)	$	-		$	-	$	(28,045,938	)
Derivative liabilities		-			(4,947,317	)		-		(4,947,317	)
Total Liabilities Carried at Fair Value	$	(28,045,938	)	$	(4,947,317	)	$	-	$	(32,993,255	)

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2013.

	Fair Value at December 31, 2013
	Level 1			Level 2			Level 3		Total
Assets:
Agency RMBS:
15 Year Fixed Rate	$	-		$	447,599,832		$	-	$	447,599,832
20 Year Fixed Rate		-			147,057,246			-		147,057,246
30 Year Fixed Rate		-			1,229,504,747			-		1,229,504,747
ARM		-			461,787,395			-		461,787,395
Interest Only		-			137,053,548			-		137,053,548
Credit Investments:
Non-Agency RMBS		-			534,377,006			309,840,562		844,217,568
ABS		-			-			71,344,784		71,344,784
CMBS		-			62,954,692			23,972,043		86,926,735
Interest Only		-			-			6,324,735		6,324,735
Commercial loans		-			-			-		-
Linked transactions		-			34,778,728			14,723,169		49,501,897
Derivative assets		-			53,060,528			-		53,060,528
Total Assets Carried at Fair Value	$	-		$	3,108,173,722		$	426,205,293	$	3,534,379,015

Liabilities:
Obligation to return securities borrowed under reverse repurchase agreements, at fair value	$	(27,477,188	)	$	-		$	-	$	(27,477,188	)
Derivative liabilities		-			(206,743	)		-		(206,743	)
Total Liabilities Carried at Fair Value	$	(27,477,188	)	$	(206,743	)	$	-	$	(27,683,931	)

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, 2014 and September 30, 2013.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following tables present additional information about the Company’s investments 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, 2014

	Non-Agency RMBS			ABS			CMBS			Interest Only			Residential Mortgage Loans			Commercial Loans		Excess Mortgage Servicing Rights			Linked Transactions
Beginning balance	$	548,337,038		$	43,095,198		$	19,289,905		$	6,629,380		$	34,841,048		$	72,800,000	$	730,146		$	8,547,625
Transfers (1):
Transfers into level 3		-			-			-			-			-			-		-			-
Transfers out of level 3		-			-			-			-			-			-		-			-
Purchases		126,990,580			56,736,048			8,468,211			-			49,407,678			-		-			1,856,434
Reclassification of security type (2)		-			-			-			-			-			-		-			-
Proceeds from sales		(75,994,907	)		(21,617,858	)		88,283			-			-			-		-			(16,308,660	)
Proceeds from settlement		(134,372,644	)		(2,008,936	)		(354,761	)		-			(154,506	)		-		(50,394	)		12,241,898
Total net gains/(losses) (3)
Included in net income		(1,496,864	)		(169,331	)		(225,330	)		(274,955	)		(383,236	)		-		-			188,680
Included in other comprehensive income (loss)		-			-			-			-			-			-		-			-
Ending Balance	$	463,463,203		$	76,035,121		$	27,266,308		$	6,354,425		$	83,710,984		$	72,800,000	$	679,752		$	6,525,977

Change in unrealized appreciation/(depreciation) for level 3 assets still held as of September 30, 2014 (4)	$	(3,417,387	)	$	(240,323	)	$	(225,331	)	$	(274,954	)	$	(444,083	)	$	27,579	$	-		$	(834,215	)

(1) Transfers are assumed to occur at the beginning of the period.

(2) Represents an accounting reclassification between a linked transaction and a real estate security.

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

Income/(loss) from linked transactions, net	$	188,680
Unrealized gain/(loss) on real estate securities and loans, net		(6,348,850	)
Net realized gain/(loss)		3,799,134
Total	$	(2,361,036	)

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

Income/(loss) from linked transactions, net	$	(834,215	)
Unrealized gain/(loss) on real estate securities and loans, net		(4,574,499	)
Total	$	(5,408,714	)

Three Months Ended
September 30, 2013

	Non-Agency RMBS			ABS			CMBS		Interest Only			Commercial Loans		Linked Transactions
Beginning balance	$	217,503,196		$	97,916,107		$	22,779,730	$	6,592,026		$	30,000,000	$	6,089,083
Transfers (1):
Transfers into level 3		-			-			-		-			-		-
Transfers out of level 3		-			-			-		-			-		-
Purchases		14,967,242			11,610,000			4,462,500		-			-		2,674,853
Reclassification of security type (2)		-			-			-		-			-		-
Proceeds from sales		(57,972,354	)		-			-		-			-		(567,000	)
Proceeds from settlement		(2,427,774	)		(11,487,436	)		-		-			-		(1,116,717	)
Total net gains/ (losses) (3)
Included in net income		(2,997,362	)		1,305,652			101,669		(95,605	)		-		31,534
Included in other comprehensive income (loss)		-			-			-		-			-		-
Ending Balance	$	169,072,948		$	99,344,323		$	27,343,899	$	6,496,421		$	30,000,000	$	7,111,753

Change in unrealized appreciation/(depreciation) for level 3 assets still held as of September 30, 2013 (4)	$	(1,972,852	)	$	1,305,652		$	93,343	$	47,010		$	-	$	50,778

(1) Transfers are assumed to occur at the beginning of the period.

(2) Represents an accounting reclassification between a linked transaction and a real estate security.

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

Income/(loss) from linked transactions, net	$	152,946
Unrealized gain/(loss) on real estate securities and loans, net		(530,032	)
Interest income		37,573
Net realized loss		(1,314,599	)
Total	$	(1,654,112	)

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

Income/(loss) from linked transactions, net	$	50,778
Unrealized gain/(loss) on real estate securities and loans, net		(526,847	)
Total	$	(476,069	)

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Nine Months Ended
September 30, 2014

	Non-Agency RMBS			ABS			CMBS			Interest Only		Residential Mortgage Loans			Commercial Loans		Excess Mortgage Servicing Rights			Linked Transactions
Beginning balance	$	309,840,562		$	71,344,784		$	23,972,043		$	6,324,735	$	-		$	-	$	-		$	14,723,169
Transfers (1):
Transfers into level 3		-			-			-			-		-			-					-
Transfers out of level 3		-			-			-			-		-			-					-
Purchases		376,356,600			66,320,548			8,468,211			-		84,482,849			72,084,833		730,146			1,856,434
Reclassification of security type (2)		26,752,862			-			-			-		-			-					(4,219,811	)
Proceeds from sales		(91,759,940	)		(45,409,687	)		(5,586,445	)		-					-		-			(16,308,660	)
Proceeds from settlement		(163,379,361	)		(16,254,316	)		(919,156	)				(608,604	)		-		(50,394	)		8,627,536
Total net gains/(losses) (3)
Included in net income		5,652,480			33,792			1,331,655			29,690		(163,261	)		715,167		-			1,847,309
Included in other comprehensive income (loss)		-			-			-			-		-			-		-			-
Ending Balance	$	463,463,203		$	76,035,121		$	27,266,308		$	6,354,425	$	83,710,984		$	72,800,000	$	679,752		$	6,525,977

Change in unrealized appreciation/(depreciation) for level 3 assets still held as of September 30, 2014 (4)	$	3,528,920		$	(178,003	)	$	496,313		$	29,691	$	(163,261	)	$	742,746	$	-		$	821,929

(1) Transfers are assumed to occur at the beginning of the period.

(2) Represents an accounting reclassification between a linked transaction and a real estate security.

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

Income/(loss) from linked transactions, net	$	1,847,309
Unrealized gain/(loss) on real estate securities and loans, net		3,419,516
Net realized gain/(loss)		4,180,007
Total	$	9,446,832

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

Income/(loss) from linked transactions, net	$	821,929
Unrealized gain/(loss) on real estate securities and loans, net		4,456,406
Total	$	5,278,335

Nine Months Ended
September 30, 2013

	Non-Agency RMBS			ABS			CMBS			Interest Only			Commercial Loans			Linked Transactions
Beginning balance	$	255,043,557		$	33,937,097		$	34,066,710		$	-		$	-		$	6,425,683
Transfers (1):
Transfers into level 3		-			-			-			-			-			-
Transfers out of level 3		-			-			-			-			-			-
Purchases		112,712,253			139,603,404			4,462,500			7,048,720			30,017,825			5,333,022
Reclassification of security type (2)		-			-			-			-			-			-
Proceeds from sales		(185,283,901	)		(41,105,832	)		(10,041,297	)		-			-			(567,000	)
Proceeds from settlement		(14,815,085	)		(32,076,184	)		(58,631	)		-			-			(3,512,076	)
Total net gains/ (losses) (3)
Included in net income		1,416,124			(1,014,162	)		(1,085,383	)		(552,299	)		(17,825	)		(567,876	)
Included in other comprehensive income (loss)		-			-			-			-			-			-
Ending Balance	$	169,072,948		$	99,344,323		$	27,343,899		$	6,496,421		$	30,000,000		$	7,111,753

Change in unrealized appreciation/(depreciation) for level 3 assets still held as of September 30, 2013 (4)	$	(1,206,175	)	$	(782,493	)	$	(730,024	)	$	(213,915	)	$	(17,825	)	$	(664,102	)

(1) Transfers are assumed to occur at the beginning of the period.

(2) Represents an accounting reclassification between a linked transaction and a real estate security.

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

Income/(loss) from linked transactions, net	$	(489,068	)
Unrealized gain/(loss) on real estate securities and loans, net		(4,713,939	)
Interest income		475,040
Net realized loss		2,906,546
Total	$	(1,821,421	)

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

Income/(loss) from linked transactions, net	$	(664,102	)
Unrealized gain/(loss) on real estate securities and loans, net		(2,950,432	)
Total	$	(3,614,534	)

The Company did not have any transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy during the three and nine months ended September 30, 2014 and September 30, 2013.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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, 2014		Valuation Technique	Unobservable Input	Range (Weighted Average)
				Yield	1.95% - 34.34% (5.22%)
Non-Agency RMBS	$	463,463,203	Discounted Cash Flow	Projected Collateral Prepayments	0.00% - 12.00% (2.42%)
				Projected Collateral Losses	0.00% - 30.00% (17.01%)
				Projected Collateral Severities	0.00% - 80.00% (47.23%)
				Yield	4.67% - 7.95% (5.59%)
ABS	$	76,035,121	Discounted Cash Flow	Projected Collateral Prepayments	20.00% - 20.00% (20.00%)
				Yield	5.07% - 6.54% (5.99%)
CMBS	$	27,266,308	Discounted Cash Flow	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%)
				Yield	5.72% - 5.73% (5.72%)
Interest Only	$	6,354,425	Discounted Cash Flow	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	$	83,710,984	Market Comparable	Yield	5.60% - 13.68% (7.52%)
Commercial Loans	$	72,800,000	Market Comparable	Yield	6.25% - 15.22% (8.40%)
Excess Mortgage Servicing Rights	$	679,752	Discounted Cash Flow	Yield	5.71% - 7.81% (7.38%)
				Yield	4.41% - 6.14% (5.30%)
Linked	$	6,525,977	Discounted Cash Flow	Projected Collateral Prepayments	0.00% - 12.00% (5.40%)
Transactions*				Projected Collateral Losses	4.00% - 30.00% (12.81%)
				Projected Collateral Severities	30.00% - 60.00% (48.03%)

*Linked Transactions are comprised of unobservable inputs from Non-Agency RMBS investments.

Asset Class	Fair Value at December 31, 2013		Valuation Technique	Unobservable Input	Range (Weighted Average)
				Yield	3.35% - 13.99% (5.13%)
Non-Agency RMBS	$	309,840,562	Discounted Cash Flow	Projected Collateral Prepayments	0.00% - 12.00% (3.51%)
				Projected Collateral Losses	0.00% - 30.00% (7.93%)
				Projected Collateral Severities	0.00% - 80.00% (60.40%)
ABS	$	71,344,784	Discounted Cash Flow	Yield	3.78% - 5.39% (4.07%)
				Yield	4.88% - 5.75% (5.51%)
CMBS	$	23,972,043	Discounted Cash Flow	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%)
				Yield	5.70% - 5.72% (5.71%)
Interest Only	$	6,324,735	Discounted Cash Flow	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%)
				Yield	3.85% - 9.01% (4.71%)
Linked	$	14,723,169	Discounted Cash Flow	Projected Collateral Prepayments	0.00% - 12.00% (2.43%)
Transactions*				Projected Collateral Losses	0.00% - 30.00% (12.83%)
				Projected Collateral Severities	0.00% - 80.00% (41.37%)

*Linked Transactions are comprised of unobservable inputs from Non-Agency RMBS and CMBS investments.

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 Non-Agency RMBS and CMBS investments classified as a component of Linked Transactions 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, reperformance 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, 2014

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.” 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. The carrying amount of the Company’s repurchase agreements approximates fair value. The Company maintains the beneficial interest in the specific assets pledged during the term of the repurchase agreement and receives the related principal and interest payments. 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 repurchase agreement at which time the Company may enter into a new repurchase agreement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty. In response to declines in fair value of pledged assets due to changes in market conditions or the publishing of monthly security paydown factors, lenders typically 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. 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 information regarding the Company’s repurchase agreements secured by real estate securities as of September 30, 2014:

Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Haircut
30 days or less	$	1,196,667,081		0.81	%		10.56	%
31-60 days		623,875,000		0.61	%		4.28	%
61-90 days		291,055,398		0.39	%		6.39	%
Greater than 90 days		555,204,642		1.72	%		14.05	%
Total / Weighted Average	$	2,666,802,121		0.91	%		9.36	%

The following table presents certain information regarding the Company’s repurchase agreements secured by real estate securities as of December 31, 2013:

Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Haircut
30 days or less	$	1,357,768,314		0.85	%		7.97	%
31-60 days		903,866,190		0.54	%		4.46	%
61-90 days		250,387,000		0.49	%		5.65	%
Greater than 90 days		379,612,912		1.53	%		16.37	%
Total / Weighted Average	$	2,891,634,416		0.81	%		7.77	%

The following table presents certain information regarding the Company’s repurchase agreements secured by interests in residential mortgage loans as of September 30, 2014:

Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Funding Cost			Weighted Average Haircut
30 days or less	$	-		-			-			-
31-60 days		-		-			-			-
61-90 days		-		-			-			-
Greater than 90 days		51,044,573		2.97	%		3.24	%		30.10	%
Total / Weighted Average	$	51,044,573		2.97	%		3.24	%		30.10	%

The following table presents certain information regarding the Company’s repurchase agreements secured by interests in commercial mortgage loans as of September 30, 2014:

Repurchase Agreements Maturing Within:	Balance		Weighted Average Rate			Weighted Average Funding Cost			Weighted Average Haircut
30 days or less	$	-		-			-			-
31-60 days		-		-			-			-
61-90 days		-		-			-			-
Greater than 90 days		22,500,000		2.50	%		2.72	%		64.17	%
Total / Weighted Average	$	22,500,000		2.50	%		2.72	%		64.17	%

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The Company did not hold any residential or commercial mortgage loans or related repurchase agreements as of December 31, 2013.

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. The following table presents information with respect to the Company’s posting of collateral under repurchase agreements at September 30, 2014 and December 31, 2013:

	September 30, 2014		December 31, 2013
Repurchase agreements secured by Agency RMBS	$	1,703,213,999	$	2,104,691,819
Fair Value of Agency RMBS pledged as collateral under repurchase agreements		1,810,225,767		2,235,331,133
Repurchase agreements secured by Non-Agency RMBS, ABS and CMBS		963,588,122		786,942,597
Fair Value of Non-Agency RMBS, ABS and CMBS pledged as collateral under repurchase agreements		1,205,142,809		1,008,813,822
Repurchase agreements secured by Residential Mortgage Loans		51,044,573		-
Fair Value of Residential Mortgage Loans pledged as collateral under repurchase agreements		73,028,954		-
Repurchase agreements secured by Commercial Mortgage Loans		22,500,000		-
Fair Value of Commercial Mortgage Loans pledged as collateral under repurchase agreements		62,800,000		-
Cash pledged (i.e., restricted cash) under repurchase agreements		26,459,148		962,047

The following table presents both gross information and net information about repurchase agreements eligible for offset in the consolidated balance sheet as of September 30, 2014:

	Gross Amounts of		Gross Amounts Offset		Net Amounts of Liabilities		Gross Amounts Not Offset in the Statement of Financial Position
Description	Recognized Liabilities		in the Statement of Financial Position		Presented in the Statement of Financial Position		Financial Instruments Posted		Cash Collateral Posted		Net Amount
Repurchase Agreements	$	2,740,346,694	$	-	$	2,740,346,694	$	2,740,346,694	$	-	$	-

The following table presents both gross information and net information about repurchase agreements eligible for offset in the consolidated balance sheet as of December 31, 2013:

	Gross Amounts of		Gross Amounts Offset		Net Amounts of Liabilities		Gross Amounts Not Offset in the Statement of Financial Position
Description	Recognized Liabilities		in the Statement of Financial Position		Presented in the Statement of Financial Position		Financial Instruments Posted		Cash Collateral Posted		Net Amount
Repurchase Agreements	$	2,891,634,416	$	-	$	2,891,634,416	$	2,891,634,416	$	-	$	-

The Company seeks to transact with several different counterparties in order to reduce the exposure to any single counterparty. The Company has entered into master repurchase agreements (“MRAs”) with 33 and 30 counterparties, under which it had outstanding debt with 24 and 24 counterparties at September 30, 2014 and December 31, 2013, respectively, on a GAAP basis.

At September 30, 2014 the following table reflects amounts at risk under its repurchase agreements greater than 5% of the Company’s equity with any counterparty, excluding linked transactions.

Counterparty	Amount at Risk		Weighted Average Maturity (days)		Percentage of Stockholders' Equity
Wells Fargo Bank, N.A.	$	93,266,083		580		12.6	%
Credit Suisse Securities, LLC		72,489,644		151		9.8	%
The Royal Bank of Canada		42,201,982		37		5.7	%
The Royal Bank of Scotland, PLC		38,680,781		143		5.2	%
JP Morgan Securities, LLC		36,629,521		249		5.0	%

In addition to the amounts at risk in the table above, at September 30, 2014, the Company had repurchase agreements with Credit Suisse Securities, LLC, and JP Morgan Securities, LLC determined to be linked. The amounts at risk including linked transactions are $75.3 million and $37.2 million, respectively, with weighted average maturities of 159 and 248 days, respectively, representing approximately 10.2% and 5% of stockholders’ equity, respectively.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

At December 31, 2013, the following table reflects amounts at risk under the Company’s repurchase agreements greater than 5% of its equity with any counterparty, excluding linked transactions.

Counterparty	Amount at Risk		Weighted Average Maturity (days)		Percentage of Stockholders' Equity
Credit Suisse Securities, LLC	$	62,749,069		35		8.9	%
Merrill Lynch, Pierce, Fenner & Smith Incorporated		51,047,394		34		7.2	%
Wells Fargo Bank, N.A		39,399,377		101		5.6	%

In addition to the amount at risk in the table above, at December 31, 2013, the Company had repurchase agreements with Credit Suisse Securities, LLC determined to be linked. The amount at risk including linked transactions to Credit Suisse Securities, LLC is $72.1 million, with a weighted average maturity of 30 days, representing approximately 10.2% of stockholders’ equity.

In April 2014, the Company, AG MIT LLC and AG MIT CMO, LLC, each a direct, wholly-owned subsidiary of the Company, entered into a Second Amended and Restated Master Repurchase and Securities Contract (the “Second Renewal Agreement”) with Wells Fargo Bank, National Association to finance AG MIT’s or AG MIT CMO’s acquisition of certain consumer asset-backed securities and commercial mortgage-backed securities as well as residential, non-Agency Securities. The Second Renewal Agreement amended similar repurchase agreements entered into by the Company and AG MIT with Wells Fargo Bank, National Association, in 2012 and 2013. Each transaction under the Second Renewal Agreement will have its own specific terms, such as identification of the assets subject to the transaction, sale price, repurchase price and rate. The Second Renewal Agreement increased the aggregate maximum borrowing capacity to $165 million, and extended the maturity date to April 13, 2015. It contains representations, warranties, covenants, events of default and indemnities that are substantially identical to those in the previous repurchase agreements and are customary for agreements of this type. The Second Renewal Agreement also contains amended financial covenants that require, as of the last business day of each quarter and on any funding date, the Company to maintain (i) its Total Indebtedness to its Adjusted Tangible Net Worth (as such terms are defined in the Second Renewal Agreement) at a ratio less than the Leverage Ratio; (ii) an Adjusted Tangible Net Worth of not less than $430 million; and (iii) at all times, liquidity of not less than $30 million and unrestricted cash of not less than $5 million. As of September 30, 2014, the Company had $96.0 million of debt outstanding under this facility.

On February 18, 2014, AG MIT WFB1 2014 LLC, (“AG MIT WFB1”), a direct, wholly-owned subsidiary of the Company, entered into a Master Repurchase Agreement and Securities Contract, dated as of February 11, 2014 and effective as of February 18, 2014, (the “WFB1 Repurchase Agreement”) with Wells Fargo Bank, National Association, (“Wells Fargo”) to finance the 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 will have 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 10, 2015 and a facility termination date of February 9, 2016. The maximum aggregate borrowing capacity available under the WFB1 Repurchase Agreement is $100.0 million. At the request of the Company, Wells Fargo may grant a one year extension of the facility termination date. The WFB1 Repurchase Agreement contains representations, warranties, covenants, events of default and indemnities that are customary for agreements of this type. The WFB1 Repurchase Agreement also contains financial covenants that are the same as the financial covenants in the Second Renewal Agreement. As of September 30, 2014, the Company had $51.0 million of debt outstanding under the WFB1 Repurchase Agreement.

On September 17, 2014, AG MIT CREL, LLC (“AG MIT CREL”), an indirect, wholly-owned subsidiary of the Company, entered into a Master Repurchase Agreement and Securities Contract, dated as of September 17, 2014 (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 provides for a funding period ending September 17, 2016 and an initial facility termination date of September 17, 2016 (the “Initial Termination Date”). AG MIT CREL has 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 shall be the next succeeding Business Day. Each option shall be 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. The maximum aggregate borrowing capacity available under the CREL Repurchase Agreement is $150.0 million. As of September 30, 2014, the Company had $22.5 million of debt outstanding under this facility.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The CREL Repurchase Agreement contains representations, warranties, covenants, events of default and indemnities that are customary for agreements of this type. It also contains financial covenants that are the same as the financial covenants in the Second Renewal Agreement

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.

As discussed in Note 2, for any transactions determined to be linked, the initial transfer and repurchase financing will be recorded as a forward commitment to purchase assets. At September 30, 2014 and December 31, 2013, the Company had repurchase agreements of $131.1 million and $222.8 million, respectively, that were accounted for as linked. These linked repurchase agreements are not included in the above tables. See Note 7 for details.

7. Derivatives

The Company's derivatives currently include interest rate swaps (“swaps”), swaptions, to-be-announced forward contracts on Agency pools (“TBAs”), short positions on U.S. treasury securities, MBS options, IO Indexes and linked transactions. Derivatives have not been designated as hedging instruments. The Company has also entered into non-derivative instruments to manage interest rate risk, including Agency IO securities.

The following table presents the fair value of the Company's derivative instruments and their balance sheet location at September 30, 2014 and December 31, 2013.

Derivative Instrument	Designation	Balance Sheet Location	September 30, 2014			December 31, 2013
Interest rate swaps	Non-Hedge	Derivative liabilities, at fair value	$	(4,602,316	)	$	(1,439,688	)
Interest rate swaps	Non-Hedge	Derivative assets, at fair value		24,392,607			54,418,115
Swaptions	Non-Hedge	Derivative liabilities, at fair value		-			(559,858	)
Swaptions	Non-Hedge	Derivative assets, at fair value		107,527			641,960
TBAs	Non-Hedge	Derivative liabilities, at fair value		(345,001	)		-
TBAs	Non-Hedge	Derivative assets, at fair value		142,652			-
IO Index	Non-Hedge	Derivative assets, at fair value		167,485			-
MBS Options	Non-Hedge	Derivative liabilities, at fair value		-			(206,743	)
Linked transactions	Non-Hedge	Linked transactions, net, at fair value		28,346,802			49,501,897

The following table summarizes information related to derivatives:

	September 30, 2014		December 31, 2013
Non-hedge derivatives:
Notional amount of Interest Rate Swap Agreements (1)	$	1,481,000,000	$	2,145,000,000
Net notional amount of Swaptions		105,000,000		115,000,000
Net notional amount of IO Index		38,434,785		-
Net notional amount of TBAs		200,000,000		-
Notional amount of Linked Transactions (2)		168,230,815		291,734,071

(1) Includes forward starting swaps with a notional of $100.0 million as of December 31, 2013.

(2) Represents the current face of the securities comprising linked transactions.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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

		Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
Non-hedge derivatives gain (loss):	Statement of Operations Location	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013

Interest rate swaps, at fair value	Unrealized gain/(loss) on derivative and other instruments, net	$	10,991,593		$	(5,700,547	)	$	(32,567,949	)	$	69,649,295
Interest rate swaps, at fair value	Net realized gain/(loss)		(1,787,879	)		(2,207,074	)		109,277			(9,294,517	)
Swaptions, at fair value	Unrealized gain/(loss) on derivative and other instruments, net		176,087			-			(405,077	)		-
Swaptions, at fair value	Net realized loss		(250,000	)		-			(116,250	)		-
TBAs (1)	Unrealized gain/(loss) on derivative and other instruments, net		(2,292,387	)		1,022,755			(202,349	)		(1,198,828	)
TBAs	Net realized gain/(loss)		2,889,453			153,578			2,663,476			(423,571	)
IO Index, at fair value	Unrealized gain/(loss) on derivative and other instruments, net		28,071			-			66,060			-
IO Index, at fair value	Net realized loss		(131,368	)		-			(454,257	)		-
MBS Options, at fair value	Unrealized gain/(loss) on derivative and other instruments, net		-			-			38,774			-
MBS Options, at fair value	Net realized gain		-			-			19,531			-
Linked transactions	Income/(loss) from linked transactions, net		3,481,936			(519,785	)		11,018,043			2,296,541
Short positions in U.S. Treasuries	Unrealized gain/(loss) on derivative and other instruments, net		555,880			(1,102,153	)		(568,750	)		(1,102,153	)
Short positions in U.S. Treasuries	Net realized gain/(loss)		(634,826	)		48,710			(69,287	)		48,710

(1) For the three and nine months ended September 30, 2014, gains and losses from purchases and sales of TBAs consisted of $1.2 million and $1.5 million, respectively, of net TBA dollar roll net interest income, and net losses of $3.5 million and $1.7 million, respectively, due to price changes. The Company did not have any TBA dollar roll transactions for the three and nine months ended September 30, 2013.

The following table presents both gross information and net information about derivative and other instruments eligible for offset in the consolidated balance sheet as of September 30, 2014:

										Gross Amounts Not Offset in the Consolidated Balance Sheet
Description	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Consolidated Balance Sheet			Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheet			Financial Instruments (Posted)/Received			Cash Collateral (Posted)/Received			Net Amount
Linked Transactions (1)	$	159,107,735		$	(131,106,935	)	$	28,000,800		$	(28,000,800	)	$	-		$	-

Receivable Under Reverse Repurchase Agreements	$	28,245,000		$	-		$	28,245,000		$	28,045,938		$	-		$	199,062

Derivative Assets (2)
Interest Rate Swaps	$	28,820,214		$	-		$	28,820,214		$	-		$	15,517,001		$	13,303,213
Interest Rate Swaptions		107,526			-			107,526			-			-			107,526
TBAs		142,652			-			142,652			-			-			142,652
IO Index		66,062			-			66,062			-			-			66,062
Total Derivative Assets	$	29,136,454		$	-		$	29,136,454		$	-		$	15,517,001		$	13,619,453

Derivative Liabilities (3)
Interest Rate Swaps	$	(2,910,064	)	$	-		$	(2,910,064	)	$	-		$	(2,910,064	)	$	-
TBAs		(345,001	)		-			(345,001	)		-			(345,001	)		-
Total Derivative Liabilities	$	(3,255,065	)	$	-		$	(3,255,065	)	$	-		$	(3,255,065	)	$	-

(1) Included in Linked Transactions on the consolidated balance sheet is security fair market value of $159,107,735, less repurchase agreements of $(131,106,935), plus net accrued interest of $346,002 for a total of $28,346,802.

(2) Included in Derivative Assets on the consolidated balance sheet is $29,136,454 less accrued interest of $(4,326,183) for a total of $24,810,271.

(3) Included in Derivative Liabilities on the consolidated balance sheet is $(3,255,065) plus accrued interest of $(1,692,252) for a total of $(4,947,317).

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following table presents both gross information and net information about derivative instruments eligible for offset in the consolidated balance sheet as of December 31, 2013:

										Gross Amounts Not Offset in the Consolidated Balance Sheet
Description	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Consolidated Balance Sheet			Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheet			Financial Instruments (Posted)			Cash Collateral (Posted)/Received			Net Amount
Linked Transactions (1)	$	272,261,350		$	(222,846,315	)	$	49,415,035		$	(49,415,035	)	$	-		$	-

Receivable Under Reverse Repurchase Agreements	$	27,475,000		$	-		$	27,475,000		$	27,475,000		$	-		$	-

Derivative Assets (2)
Interest Rate Swaps	$	59,588,167		$	-		$	59,588,167		$	-		$	30,567,000		$	29,021,167
Interest Rate Swaptions		641,960			-			641,960			-			-			641,960
Total Derivative Assets	$	60,230,127		$	-		$	60,230,127		$	-		$	30,567,000		$	29,663,127

Derivative Liabilities (3)
Interest Rate Swaps	$	(1,110,065	)	$	-		$	(1,110,065	)	$	-		$	(1,110,065	)	$	-
Interest Rate Swaptions		(559,858	)		-			(559,858	)		-			-			(559,858	)
MBS Options		(206,743	)		-			(206,743	)		-			-			(206,743	)
Total Derivative Liabilities	$	(1,876,666	)	$	-		$	(1,876,666	)	$	-		$	(1,110,065	)	$	(766,601	)

(1) Included in Linked Transactions on the consolidated balance sheet is security fair market value of $272,261,350, less repurchase agreements of $(222,846,315), plus net accrued interest of $86,862 for a total of $49,501,897.

(2) Included in Derivative Assets on the consolidated balance sheet is $60,230,127 less accrued interest of $(5,170,052) for a total of $55,060,075.

(3) Included in Derivative Liabilities on the consolidated balance sheet is $(1,876,666) plus accrued interest of $(329,623) for a total of $(2,206,289).

Interest Rate Swaps

To help mitigate exposure to higher short-term interest rates, the Company uses currently-paying and may use forward-starting, one- and three-month LIBOR-indexed, pay-fixed, receive-variable, interest rate swap agreements. This arrangement establishes a relatively stable fixed rate on related borrowings because the variable-rate payments received on the swap agreements largely offset interest accruing on the related borrowings, leaving the fixed-rate payments to be paid on the swap agreements as the Company’s effective borrowing rate, subject to certain adjustments including changes in spreads between variable rates on the swap agreements and actual borrowing rates.

The following table presents information about the Company’s interest rate swaps as of September 30, 2014:

Maturity		Notional Amount		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
	2017		80,000,000		0.86	%		0.28	%		2.93
	2018		210,000,000		1.05	%		0.23	%		3.51
	2019		306,000,000		1.34	%		0.23	%		4.86
	2020		440,000,000		1.61	%		0.23	%		5.49
	2022		50,000,000		1.69	%		0.23	%		7.93
	2023		328,000,000		2.49	%		0.23	%		8.81
	2024		67,000,000		2.74	%		0.23	%		9.48
	Total/Wtd Avg	$	1,481,000,000		1.68	%		0.24	%		5.94

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following table presents information about the Company’s interest rate swaps as of December 31, 2013:

Maturity			Notional Amount		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
	2016	*	$	260,000,000		0.62	%		0.71	%		2.63
	2017			275,000,000		1.02	%		0.24	%		3.83
	2018			490,000,000		1.15	%		0.24	%		4.43
	2019			260,000,000		1.27	%		0.25	%		5.64
	2020			450,000,000		1.62	%		0.24	%		6.25
	2022			50,000,000		1.69	%		0.24	%		8.68
	2023			340,000,000		2.49	%		0.24	%		9.56
	2028			20,000,000		3.47	%		0.25	%		14.97
	Total/Wtd Avg		$	2,145,000,000		1.43	%		0.30	%		5.67

* This figure includes a forward starting swap with a total notional of $100.0 million and a start date of December 23, 2015. Weighted average rates shown are inclusive of rates corresponding to the terms of the swap as if the swap were effective as of December 31, 2013.

TBAs

The Company has entered into TBA positions to facilitate the future purchase or sale of Agency RMBS. Pursuant to these TBAs, the Company agrees to purchase or sell, for future delivery, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to be delivered or received would not be identified until shortly (generally two days) before the TBA settlement date. 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, and 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 securities purchased or sold for a forward settlement date are typically priced at a discount to agency securities 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 securities over the roll period (interest income less implied financing cost) and is commonly referred to as dollar roll income/(loss). The Company presents the purchase or sale of TBAs net of the corresponding payable or receivable until the settlement date of the transaction. Contracts for the purchase or sale of Agency RMBS are accounted for as derivatives if the delivery of the Agency security and settlement extends beyond the shortest period possible for that type of security.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following table presents information about the Company’s TBAs for the three and nine months ended September 30, 2014 and September 30, 2013:

For the Three Months Ended September 30, 2014
	Beginning Notional Amount		Buys or Covers		Sales or Shorts			Ending Net Notional Amount		Net Fair Value as of Period End		Net Receivable/(Payable) to Broker			Derivative Asset		Derivative Liability
TBAs - Long	$	85,000,000	$	375,000,000	$	(260,000,000	)	$	200,000,000	$	210,640,620	$	(210,843,359	)	$	-	$	(202,739	)
TBAs - Short	$	-	$	493,000,000	$	(493,000,000	)	$	-	$	-	$	390		$	142,652	$	(142,262	)

For the Three Months Ended September 30, 2013
	Beginning Notional Amount			Buys or Covers		Sales or Shorts			Ending Net Notional Amount			Net Fair Value as of Period End			Net Receivable from Broker		Derivative Asset		Derivative Liability
TBAs - Long	$	-		$	100,000,000	$	(100,000,000	)	$	-		$	-		$	869,531	$	1,177,734	$	(308,203	)
TBAs - Short	$	(150,000,000	)	$	523,000,000	$	(398,000,000	)	$	(25,000,000	)	$	(24,431,640	)	$	22,225,586	$	1,015,625	$	(3,221,679	)

For the Nine Months Ended September 30, 2014
	Beginning Notional Amount		Buys or Covers		Sales or Shorts			Ending Net Notional Amount		Net Fair Value as of Period End		Net Receivable/(Payable) to Broker			Derivative Asset		Derivative Liability
TBAs - Long	$	-	$	535,000,000	$	(335,000,000	)	$	200,000,000	$	210,640,620	$	(210,843,359	)	$	-	$	(202,739	)
TBAs - Short	$	-	$	740,000,000	$	(740,000,000	)	$	-	$	-	$	390		$	142,652	$	(142,262	)

For the Nine Months Ended September 30, 2013
	Beginning Notional Amount		Buys or Covers		Sales or Shorts			Ending Net Notional Amount			Net Fair Value as of Period End			Net Receivable from Broker		Derivative Asset		Derivative Liability
TBAs - Long	$	40,000,000	$	445,000,000	$	(485,000,000	)	$	-		$	-		$	869,531	$	1,177,734	$	(308,203	)
TBAs - Short	$	-	$	1,098,000,000	$	(1,123,000,000	)	$	(25,000,000	)	$	(24,431,640	)	$	22,225,586	$	1,015,625	$	(3,221,679	)

Linked Transactions

As discussed in Note 2, when the initial transfer of a financial asset and repurchase financing are entered into contemporaneously with, or in contemplation of, one another, the transaction will be considered linked unless all of the criteria found in ASC 860-10 are met at the inception of the transaction. If the transaction is determined to be linked, the Company will record the initial transfer and repurchase financing on a net basis and record a forward commitment to purchase assets as a derivative instrument. Gains and losses are recorded together with net interest income in the “Income/(loss) from linked transactions, net” line item on the consolidated statement of operations. When, or if a transaction is no longer considered linked, the security and related repurchase agreement will be recorded on a gross basis. The fair value of linked transactions reflects the value of the underlying security’s fair market value netted with the respective linked repurchase agreement borrowings and net accrued interest. Also as discussed in Note 2, in June 2014, the FASB issued ASU 2014-11, which eliminates existing guidance for repurchase financings and requires instead that entities consider the initial transfer and the related repurchase agreement separately when applying the derecognition requirements of ASC 860-10. This effectively changes the accounting for linked financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. This guidance will take effect for periods beginning after December 15, 2014.

Certain of the Company’s Linked Transactions became unlinked during the periods presented. For the three months ended September 30, 2014 two Non-Agency RMBS securities with a total fair value of $15.6 million and the related repurchase agreement borrowing of $12.1 million became unlinked, and the Company recorded a net realized gain of $0.2 million from the unlinking of the Linked Transaction. For the nine months ended September 30, 2014 four Non-Agency RMBS with fair value of $87.2 million and related repurchase agreement borrowings of $73.5 million became unlinked, and the Company recorded a net realized loss of $2.0 million from the unlinking of the Linked Transactions.

For the three months ended September 30, 2013 a Non-Agency RMBS with a fair value of $30.2 million and a related repurchase agreement borrowing of $24.1 million unlinked, and the Company recorded net realized losses of $0.4 million from the unlinking of the Linked Transaction. For the nine months ended September 30, 2013, two Non-Agency RMBS with fair values of $43.4 million and related repurchase agreement borrowings of $35.7 million unlinked, and the Company recorded net realized losses of $0.1 million from the unlinking of the Linked Transactions.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following table presents certain information related to the securities accounted for as a part of linked transactions during the three and nine months ended September 30, 2014:

									For the Three Months Ended September 30, 2014									For the Nine Months Ended September 30, 2014
Instrument	Current Face		Amortized Cost		Fair Value		Net Accrued Interest		Net Interest Income		Unrealized Loss			Net Realized Gain		Amount Included in Statement of Operations		Net Interest Income		Unrealized Loss			Net Realized Gain		Amount Included in Statement of Operations		Weighted Average Coupon			Weighted Average Life
Non-Agency RMBS	$	153,230,815	$	141,726,229	$	144,288,301	$	325,379	$	1,611,819	$	(1,365,000	)	$	3,217,466	$	3,464,285	$	6,689,534	$	(4,656,329	)	$	7,580,176	$	9,613,381		3.82	%		6.08
CMBS		15,000,000		14,420,341		14,819,434		20,623		348,835		(1,050,471	)		719,287		17,651		824,876		(240,251	)		820,037		1,404,662		2.12	%		1.02
Total	$	168,230,815	$	156,146,570	$	159,107,735	$	346,002	$	1,960,654	$	(2,415,471	)	$	3,936,753	$	3,481,936	$	7,514,410	$	(4,896,580	)	$	8,400,213	$	11,018,043		3.67	%		5.63

The following table presents certain information related to the repurchase agreements accounted for as a part of linked transactions as of September 30, 2014:

Instrument	Repurchase Agreement		Weighted Average Interest Rate			Weighted Average Years to Maturity
Non-Agency RMBS	$	120,431,603		1.60	%		0.05
CMBS		10,675,332		1.68	%		0.08
	$	131,106,935		1.61	%		0.06

The following table presents certain information related to the securities accounted for as a part of linked transactions for the three and nine months ended September 30, 2013:

									For the Three Months Ended September 30, 2013											For the Nine Months Ended September 30, 2013
Instrument	Current Face		Amortized Cost		Fair Value		Net Accrued Interest		Net Interest Income		Unrealized Gain/(Loss)			Net Realized Loss			Amount Included in Statement of Operations			Net Interest Income		Unrealized Loss			Net Realized Loss			Amount Included in Statement of Operations			Weighted Average Coupon			Weighted Average Life
Non-Agency RMBS	$	287,806,369	$	253,545,104	$	258,164,346	$	657,323	$	2,750,860	$	(1,095,697	)	$	(2,458,643	)	$	(803,480	)	$	9,969,921	$	(3,592,194	)	$	(4,060,548	)	$	2,317,179			4.09	%		4.85
CMBS		23,870,000		21,871,211		21,491,153		38,090		162,082		243,025			(121,412	)		283,695			487,843		(306,691	)		(201,790	)		(20,638	)		2.32	%		4.12
Total	$	311,676,369	$	275,416,315	$	279,655,499	$	695,413	$	2,912,942	$	(852,672	)	$	(2,580,055	)	$	(519,785	)	$	10,457,764	$	(3,898,885	)	$	(4,262,338	)	$	2,296,541			3.95	%		4.79

The following table presents certain information related to the repurchase agreements accounted for as a part of linked transactions as of September 30, 2013:

Instrument	Repurchase Agreement		Weighted Average Interest Rate			Weighted Average Years to Maturity
Non-Agency RMBS	$	213,681,000		1.91	%		0.07
CMBS		15,584,000		1.34	%		0.06
	$	229,265,000		1.87	%		0.07

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

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

The Company has also sold short U.S. Treasury securities to help mitigate the potential impact of changes in interest rates. As of September 30, 2014 and December 31, 2013 the Company had obligations to return U.S. Treasury securities borrowed under reverse repurchase agreements accounted for as securities borrowing transactions with a fair value of $28.0 million and $27.5 million, respectively and a notional amount of $28.0 and $28.0 million, respectively. This liability is presented as “Obligation to return securities borrowed under reverse repurchase agreements, at fair value” on the consolidated balance sheet. As of September 30, 2014 and December 31, 2013, the U.S. Treasury securities had a weighted average maturity of 5.8 years and 6.6 years, respectively. The borrowed securities were collateralized by cash loaned under reverse repurchase agreements of $28.2 million and $27.5 million at September 30, 2014 and December 31, 2013, respectively, which is presented as “Receivable under reverse repurchase agreements” on the consolidated balance sheet. As of September 30, 2014 and December 31, 2013, the reverse repurchase agreements had a weighted average maturity of October 1, 2014 and January 3, 2014, respectively.

During the three months ended September 30, 2014, the Company recorded unrealized gains of $0.6 million on the borrowed securities. During the nine months ended September 30, 2014, the Company recorded unrealized losses of $0.6 million on the borrowed securities. During the three and nine months ended September 30, 2013, the Company recorded unrealized losses of $1.1 million on the borrowed securities. Realized gains and losses are recorded on the “Net realized gain/(loss)” line item in our consolidated statements of operations. During the three and nine months ended September 30, 2014, the Company recorded realized losses of $0.6 million and $0.1 million, respectively, on the borrowed securities. During the three and nine months ended September 30, 2013, the Company recorded realized losses of $0.0 million on the borrowed securities. Refer to the table above for detail on realized and unrealized gains and losses recognized for the three and nine months ended September 30, 2014 and September 30, 2013.

At September 30, 2014, the Company had real estate securities with a fair value of $6.4 million pledged as collateral against its derivatives and had $1.6 million of net cash received as collateral for its derivatives. The Company pledged assets accounted for within linked transactions with a fair value of $159.1 million as collateral against the related linked repurchase agreements.

At December 31, 2013, the Company had real estate securities with a fair value of $7.0 million and $2.6 million of cash pledged as collateral against certain derivatives. The Company had $30.6 million of cash received as collateral against certain derivatives. The Company pledged assets accounted for within linked transactions with a fair value of $272.3 million as collateral against the related linked repurchase agreements.

8. Earnings per Share

Basic earnings per share (“EPS”) is calculated by dividing net income/(loss) available to common stockholders for the period by the weighted- average shares of the Company’s common stock outstanding for that period that participate in dividends. Diluted EPS 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.

As of September 30, 2014 and September 30, 2013, the Company’s outstanding warrants, unvested shares of restricted common stock and restricted stock units were as follows:

	September 30, 2014		September 30, 2013
Warrants		1,007,500		1,007,500
Restricted stock granted to the Manager		-		13,418
Restricted stock units granted to the Manager		60,000		-
Restricted stock granted to the independent directors		-		2,500

Each warrant entitles the holder to purchase half a share of the Company’s common stock at a fixed price upon exercise of the warrant. During the three and nine months ended September 30, 2014 and September 30, 2013, the Company excluded the effects of such from the computation of diluted earnings per share because their effect would be anti-dilutive. Shares of restricted stock held by the Manager and independent directors accrue dividends, but are not paid until vested and are therefore not considered to be participating shares. 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. The dilutive effects of these shares and restricted stock units are only included in diluted weighted average shares outstanding.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS for the three and nine months ended September 30, 2014 and September 30, 2013:

	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Numerator:
Net income/(loss) available to common stockholders for basic and diluted earnings per share	$	19,022,258	$	2,633,165	$	84,639,075	$	(58,566,023	)

Denominator:
Basic weighted average common shares outstanding		28,384,238		28,359,937		28,377,681		27,906,946
Dilutive effect of manager and director restricted stock, restricted stock units and warrants		20,831		6		19,116		-
Dilutive weighted average common shares outstanding		28,405,069		28,359,943		28,396,797		27,906,946

Basic Earnings/(Loss) Per Share of Common Stock:	$	0.67	$	0.09	$	2.98	$	(2.10	)
Diluted Earnings/(Loss) Per Share of Common Stock:	$	0.67	$	0.09	$	2.98	$	(2.10	)

9. Income Taxes

As a REIT, the Company is not subject to Federal income tax to the extent that it makes qualifying distributions to its stockholders, and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. Most states follow U.S. federal income tax treatment of REITs.

The Company files tax returns in several U.S jurisdictions. There are no ongoing U.S. federal, state and local tax examinations.

The Company has elected to treat certain subsidiaries as 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.

Cash distributions declared by the Company that do not exceed its current or accumulated earnings and profits will be considered ordinary income to stockholders for income tax purposes unless all or a portion of a distribution is designated by the Company as a capital gain dividend. Distributions in excess of the Company’s current and accumulated earnings and profits will be characterized as return of capital or capital gains.

Based on the Company’s analysis of any potential uncertain income tax positions, the Company concluded it did not have any uncertain tax positions that meet the recognition or measurement criteria of ASC 740 as of September 30, 2014 and December 31, 2013. The Company’s federal income tax return for the 2013, 2012 and 2011 tax years are open to examination by the Internal Revenue Service. In the event that the Company incurs income tax related interest and penalties, its policy is to classify them as a component of provision for income taxes.

10. Related Party Transactions

The Company has entered into a management agreement with the Manager, which provides for an initial term through June 30, 2014, and will be deemed renewed automatically each year for an additional one-year period, subject to certain termination rights. At its regular quarterly meeting in April 2014, the Board of Directors approved the renewal of the management agreement for an additional one-year period ending June 30, 2015. The Company is externally managed and advised by the Manager. Pursuant to the terms of the management agreement, which became effective July 6, 2011 (upon the consummation of the Company’s IPO), the Manager provides the Company with its management team, including its officers, along with appropriate support personnel. Each of the Company’s officers is an employee of Angelo, Gordon. The Company does not have any employees. The Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo, Gordon the overall responsibility its day-to-day duties and obligations arising under the Company’s management agreement.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

Management fee

The Manager is entitled to a management fee equal to 1.50% per annum, calculated and paid quarterly, of the Company’s Stockholders’ Equity. For purposes of calculating the management fee, “Stockholders’ Equity” means the sum of the net proceeds from any issuances of equity securities (including preferred securities) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance, and excluding any future equity issuance to the Manager), plus the Company’s retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense or other non-cash items described below incurred in current or prior periods), less any amount that the Company pays for repurchases of its common stock, excluding any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in the Company’s financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP, and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors. Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on the Company’s financial statements.

For the three and nine months ended September 30, 2014, the Company incurred management fees of approximately $2.6 million and $7.6 million, respectively. For the three and nine months ended September 30, 2013, the Company incurred management fees of approximately $2.5 million and $8.2 million, respectively.

Termination fee

The termination fee, payable for the Company’s termination of the management agreement without cause or the Manager’s termination of the management agreement upon a default in the performance of any material term of the management agreement, will be equal to three times the average annual management fee during the 24-month period prior to such termination, calculated as of the end of the most recently completed fiscal quarter. As of September 30, 2014 and December 31, 2013, no event of termination of the management agreement had occurred.

Expense reimbursement

The Company is required to reimburse the Manager for operating expenses related to the Company that are incurred by the Manager, including expenses relating to legal, accounting, due diligence and other services. The Company’s reimbursement obligation is not subject to any dollar limitation. The Company will not reimburse the Manager for the salaries and other compensation of its personnel except that the Company will be responsible for expenses incurred by the Manager in employing the Company’s chief financial officer, general counsel and other employees as further described below.

The Company will reimburse the Manager or its affiliates for the allocable share of the compensation, including, without limitation, annual base salary, bonus, any related withholding taxes and employee benefits paid to (i) the Company’s chief financial officer based on the percentage of his time spent on Company affairs, (ii) the Company’s general counsel based on the percentage of his time spent on the Company’s affairs, and (iii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and its affiliates who spend all or a portion of their time managing the Company’s affairs based upon the percentage of time devoted by such personnel to the Company’s affairs. In their capacities as officers or personnel of the Manager or its affiliates, they will devote such portion of their time to the Company’s affairs as is necessary to enable the Company to operate its business. For the three and nine months ended September 30, 2014, the Company has expensed into Other operating expenses $1.7 million and $5.0 million, respectively, of reimbursable expenses payable to the Manager. For the three and nine months ended September 30, 2013, the Company expensed into Other operating expenses $1.6 million and $4.4 million, respectively, of reimbursable expenses payable to the Manager. The Manager did not waive any expense reimbursements for the three and nine months ended September 30, 2013 and September 30, 2014.

Restricted stock grants

On July 6, 2011 (the date of consummation of the IPO), the Company entered into (i) a restricted stock award agreement with the Manager under the Manager Equity Incentive Plan, pursuant to which the Manager received 40,250 shares of the Company’s common stock, which vest ratably on a quarterly basis over a three-year period that began on October 1, 2011 and (ii) restricted stock award agreements with the Company’s four initial independent directors under the Equity Incentive Plan, pursuant to which each of the four initial independent directors received 1,500 shares of the Company’s common stock that vest in equal installments over three years on each annual anniversary of the grant date. Following the election of Arthur Ainsberg as an independent director at the 2013 Annual Meeting of Stockholders, 500 shares of the Company’s common stock that vested on July 6, 2014 were granted to Mr. Ainsberg under the Equity Incentive Plan. As of July 6, 2014, an aggregate of 46,750 shares awarded to the Manager and the independent directors were fully vested.

Pursuant to the Manager Equity Incentive Plan and the Equity Incentive Plan, 277,500 shares of common stock were available to be awarded. As of September 30, 2014, 150,810 shares of common stock are available to award under the plan. Awards under the equity incentive plans are forfeitable until they become vested. An award will become vested only if the vesting conditions set forth in the award agreement (as determined by the board of directors or the compensation committee, as applicable) are satisfied. The vesting conditions may include performance of services for a specified period, achievement of performance goal, or a combination of both. The board of directors or the compensation committee, as applicable, also has authority to provide for accelerated vesting upon the occurrence of certain events.

AG Mortgage Investment Trust Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2014

During the quarter ended September 30, 2014, the Company granted 60,000 restricted stock units to the Manager that represent the right to receive an equivalent number of shares of the Company’s common stock to be issued if and when such units vest. Annual vesting of 20,000 units will occur on each of July 1, 2015, July 1, 2016, and July 1, 2017. The units do not entitle the participant the rights of a holder of the Company’s common stock, such as dividend and voting rights, until shares are issued in settlement of the vested units. As of September 30, 2014, all of these units remained outstanding.

The Company also pays a $90,000 annual base director’s fee to each independent director. Base director’s fees are paid two-thirds in cash and one-third in restricted common stock. The number of shares of restricted common stock to be issued each quarter to each independent director is determined based on the average of the high and low prices of the Company’s common stock on the New York Stock Exchange on the last trading day of each fiscal quarter. To the extent that any fractional shares would otherwise be issuable and payable to each independent director, a cash payment is made to each independent director in lieu of any fractional shares. All directors’ fees are paid pro rata (and restricted stock grants determined) on a quarterly basis in arrears, and shares issued are fully vested and non-forfeitable. These shares may not be sold or transferred during the time of service as an independent member of the Company’s board.

11. Equity

On January 24, 2012, the Company completed a follow-on offering of 5,000,000 shares of its common stock and subsequently issued an additional 750,000 shares of common stock pursuant to the underwriters’ over-allotment option at a price of $19.00 per share, for aggregate gross proceeds of approximately $109.3 million. Net proceeds to the Company from the offering were approximately $104.0 million, net of issuance costs of approximately $5.3 million.

On July 13, 2012, the Company filed a shelf registration statement on Form S-3 with the SEC, offering up to $1.0 billion of our securities, including capital stock. The registration statement was declared effective on July 20, 2012. At September 30, 2014, approximately $549.5 million of our securities, including capital stock was available for issuance under the registration statement.