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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
__________________________________________________

FORM 10-Q
__________________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
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   ý    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 and Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ¨     Accelerated filer ý Non-Accelerated filer ¨ Smaller reporting company   Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yes       No   ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Trading Symbols: Name of each exchange on which registered:
Common Stock, $0.01 par value per share MITT
New York Stock Exchange (NYSE)
8.25% Series A Cumulative Redeemable Preferred Stock MITT PrA
New York Stock Exchange (NYSE)
8.00% Series B Cumulative Redeemable Preferred Stock MITT PrB
New York Stock Exchange (NYSE)
8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock MITT PrC
New York Stock Exchange (NYSE)

As of May 4, 2021, there were 46,522,759 outstanding shares of common stock of AG Mortgage Investment Trust, Inc.



AG MORTGAGE INVESTMENT TRUST, INC.
TABLE OF CONTENTS
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PART I
 
ITEM 1. FINANCIAL STATEMENTS
 
AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
March 31, 2021 December 31, 2020
Assets
Real estate securities, at fair value:
Agency - $915,423 and $460,949 pledged as collateral, respectively
$ 915,423  $ 518,352 
Non-Agency - $14,751 and $28,653 pledged as collateral, respectively
16,371  38,406 
CMBS - $29,439 and $42,669 pledged as collateral, respectively
45,838  56,788 
Residential mortgage loans, at fair value - $257,844 and $46,571 pledged as collateral, respectively (1)
642,959  435,441 
Commercial loans, at fair value 58,209  111,549 
Commercial loans held for sale, at fair value —  13,959 
Investments in debt and equity of affiliates 160,323  150,667 
Excess mortgage servicing rights, at fair value 3,000  3,158 
Cash and cash equivalents 51,637  47,926 
Restricted cash 39,918  14,392 
Other assets 8,922  9,407 
Total Assets $ 1,942,600  $ 1,400,045 
Liabilities
Financing arrangements $ 1,132,200  $ 564,047 
Securitized debt, at fair value (1) 344,429  355,159 
Payable on unsettled trades —  51,136 
Dividend payable 2,791  1,243 
Other liabilities 7,875  18,755 
Total Liabilities 1,487,295  990,340 
Commitments and Contingencies (Note 12)
Stockholders’ Equity
Preferred stock - $0.01 par value; 50,000 shares authorized:
8.25% Series A Cumulative Redeemable Preferred Stock; 1,663 and 1,817 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively ($41,580 and $45,413 aggregate liquidation preference, respectively)
40,110  43,808 
8.00% Series B Cumulative Redeemable Preferred Stock; 3,814 and 4,165 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively ($95,353 and $104,118 aggregate liquidation preference, respectively)
92,279  100,762 
8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 3,883 shares issued and outstanding at March 31, 2021 and December 31, 2020 ($97,079 aggregate liquidation preference)
93,908  93,908 
Common stock, par value $0.01 per share; 450,000 shares of common stock authorized and 46,503 and 41,434 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
465  414 
Additional paid-in capital 710,746  688,871 
Retained earnings/(deficit) (482,203) (518,058)
Total Stockholders’ Equity 455,305  409,705 
Total Liabilities & Stockholders’ Equity $ 1,942,600  $ 1,400,045 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(1)See Note 4 for details related to variable interest entities.
3


AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended
March 31, 2021 March 31, 2020
Net Interest Income
Interest income $ 12,119  $ 40,268 
Interest expense 4,061  19,971 
Total Net Interest Income 8,058  20,297 
Other Income/(Loss)
Net realized gain/(loss) (4,038) (151,143)
Net interest component of interest rate swaps (741) 923 
Unrealized gain/(loss) on real estate securities and loans, net (6,658) (313,897)
Unrealized gain/(loss) on derivative and other instruments, net 26,507  5,686 
Foreign currency gain/(loss), net 14  1,649 
Other income 23 
Total Other Income/(Loss) 15,107  (456,779)
Expenses
Management fee to affiliate 1,654  2,149 
Other operating expenses 3,983  930 
Restructuring related expenses —  1,500 
Excise tax —  (815)
Servicing fees 615  579 
Total Expenses 6,252  4,343 
Income/(loss) before equity in earnings/(loss) from affiliates 16,913  (440,825)
Equity in earnings/(loss) from affiliates 26,336  (44,192)
Net Income/(Loss) 43,249  (485,017)
Gain on Exchange Offers, net (Note 11) 358  — 
Dividends on preferred stock (4,924) (5,667)
Net Income/(Loss) Available to Common Stockholders $ 38,683  $ (490,684)
Earnings/(Loss) Per Share - Basic
Total Earnings/(Loss) Per Share of Common Stock $ 0.91  $ (14.98)
Earnings/(Loss) Per Share - Diluted
Total Earnings/(Loss) Per Share of Common Stock $ 0.91  $ (14.98)
Weighted Average Number of Shares of Common Stock Outstanding
Basic 42,348  32,749 
Diluted 42,348  32,749 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4


AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands)
For the Three Months Ended March 31, 2021 and March 31, 2020
Common Stock
8.25% Series A
Cumulative
Redeemable
Preferred Stock
8.00% Series B
Cumulative
Redeemable
Preferred Stock
8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock
Additional
Paid-in Capital
Retained
Earnings/(Deficit)
Shares Amount Total
Balance at January 1, 2021 41,434  $ 414  $ 43,808  $ 100,762  $ 93,908  $ 688,871  $ (518,058) $ 409,705 
Net proceeds from issuance of common stock 2,235  22  —  —  —  10,011  —  10,033 
Grant of restricted stock 22  —  —  —  —  80  —  80 
Common dividends declared —  —  —  —  —  —  (2,791) (2,791)
Preferred Series A dividends declared —  —  —  —  —  —  (937) (937)
Preferred Series B dividends declared —  —  —  —  —  —  (2,082) (2,082)
Preferred Series C dividends declared —  —  —  —  —  —  (1,942) (1,942)
Exchange Offers (Note 11) 2,812  29  (3,698) (8,483) —  11,784  358  (10)
Net Income/(Loss) —  —  —  —  —  —  43,249  43,249 
Balance at March 31, 2021 46,503  $ 465  $ 40,110  $ 92,279  $ 93,908  $ 710,746  $ (482,203) $ 455,305 

Common Stock 8.25% Series A
Cumulative
Redeemable
Preferred Stock
8.00% Series B
Cumulative
Redeemable
Preferred Stock
8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Additional
Paid-in Capital
Retained
Earnings/(Deficit)
Shares Amount Total
Balance at January 1, 2020 32,742  $ 327  $ 49,921  $ 111,293  $ 111,243  $ 662,183  $ (85,921) $ 849,046 
Grant of restricted stock and amortization of equity based compensation —  —  —  —  303  —  303 
Preferred Series A dividends declared —  —  —  —  —  —  (1,067) (1,067)
Preferred Series B dividends declared —  —  —  —  —  —  (2,300) (2,300)
Preferred Series C dividends declared —  —  —  —  —  —  (2,300) (2,300)
Net Income/(Loss) —  —  —  —  —  —  (485,017) (485,017)
Balance at March 31, 2020 32,749  $ 327  $ 49,921  $ 111,293  $ 111,243  $ 662,486  $ (576,605) $ 358,665 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5


AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended
March 31, 2021 March 31, 2020
Cash Flows from Operating Activities
Net income/(loss) $ 43,249  $ (485,017)
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:
Net amortization of premium/(discount) (802) (2,951)
Net realized (gain)/loss 4,038  151,143 
Unrealized (gain)/loss on real estate securities and loans, net 6,658  313,897 
Unrealized (gain)/loss on derivative and other instruments, net (26,507) (5,686)
Foreign currency (gain)/loss, net (14) (1,649)
Equity based compensation to affiliate —  88 
Equity based compensation expense 80  215 
(Income)/Loss from investments in debt and equity of affiliates in excess of distributions received (20,403) 45,459 
Change in operating assets/liabilities:
Other assets 321  3,489 
Other liabilities (143) (10,831)
Net cash provided by (used in) continuing operating activities 6,477  8,157 
Net cash provided by (used in) discontinued operating activities —  (726)
Net cash provided by (used in) operating activities 6,477  7,431 
Cash Flows from Investing Activities
Purchase of real estate securities (566,731) (29,599)
Purchase of residential mortgage loans (208,927) (481,470)
Origination of commercial loans (1,881) (4,663)
Purchase of commercial loans (1,788) (6,778)
Investments in debt and equity of affiliates (1,122) (28,180)
Proceeds from sales of real estate securities 111,954  2,449,103 
Proceeds from sales of residential mortgage loans —  8,679 
Proceeds from sales of commercial loans 74,579  — 
Principal repayments on real estate securities 14,337  97,694 
Principal repayments on excess MSRs 223  1,065 
Principal repayments on commercial loans 195  — 
Principal repayments on residential mortgage loans 12,294  22,674 
Distributions received in excess of income from investments in debt and equity of affiliates 12,325  19,509 
Net settlement of interest rate swaps and other instruments 27,469  (73,338)
Net settlement of TBAs —  4,218 
Cash flows provided by (used in) other investing activities 619  (2,638)
Net cash provided by (used in) investing activities (526,454) 1,976,276 
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 10,033  — 
Borrowings under financing arrangements 2,852,955  11,470,090 
Repayments of financing arrangements (2,284,802) (13,391,832)
Repayments of secured debt (10,000) — 
Principal repayments on securitized debt (12,777) (5,707)
Net collateral received from (paid to) repurchase counterparty —  (27,444)
Dividends paid on common stock (1,243) (14,734)
Dividends paid on preferred stock (4,961) (5,667)
Net cash provided by continuing financing activities 549,205  (1,975,294)
6


Three Months Ended
March 31, 2021 March 31, 2020
Net change in cash and cash equivalents and restricted cash 29,228  8,413 
Cash and cash equivalents and restricted cash, Beginning of Period 62,318  125,369 
Effect of exchange rate changes on cash (83)
Cash and cash equivalents and restricted cash, End of Period $ 91,555  $ 133,699 
Supplemental disclosure of cash flow information:
Cash paid for interest on financing arrangements $ 3,979  $ 27,253 
Cash paid for excise and income taxes $ —  $ 1,010 
Supplemental disclosure of non-cash financing and investing activities:
Receivable on unsettled trades $ —  $ 12,007 
Common stock dividends declared but not paid $ 2,791  $ — 
Exchange Offer (Note 11) $ 12,181  $ — 
Transfer of real estate securities in satisfaction of repurchase agreements $ —  $ 340,267 
Change in repurchase agreements from transfer of real estate securities $ —  $ 339,898 
Decrease in securitized debt $ —  $ 1,193 
Transfer from residential mortgage loans to other assets $ 571  $ 206 
Transfer from investments in debt and equity of affiliates to CMBS $ —  $ 320 

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
 
March 31, 2021 March 31, 2020
Cash and cash equivalents $ 51,637  $ 92,299 
Restricted cash 39,918  41,400 
Total cash and cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 91,555  $ 133,699 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

7


AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
 
1. Organization

AG Mortgage Investment Trust, Inc. (the "Company") was incorporated in the state of Maryland on March 1, 2011. The Company is a hybrid mortgage REIT that opportunistically invests in a diversified risk adjusted portfolio of credit investments and agency investments, which contains the asset classes further described below.

The Company's investment groups are primarily comprised of the following:
Investment Groups Description
Credit - Residential
Residential mortgage loans
Non-QM Loans are residential mortgage loans that are not deemed "qualified mortgage," or "QM," loans under the rules of the Consumer Finance Protection Bureau.
Performing, re-performing, and non-performing loans are residential mortgage loans collateralized by a first lien mortgage on residential mortgaged property.
Non-Agency Residential Mortgage-Backed Securities ("RMBS")
Non-Agency RMBS represent fixed- and floating-rate RMBS issued by entities other than U.S. government-sponsored entity ("GSE") or agency of the U.S. government. The mortgage loan collateral for Non-Agency RMBS consists of residential mortgage loans that do not generally conform to underwriting guidelines issued by a GSE or agency of the U.S. government.
Credit - Commercial
Commercial Mortgage-Backed Securities ("CMBS")
CMBS represent investments of fixed- and floating-rate CMBS secured by, or evidencing an ownership interest in, a single commercial mortgage loan or a pool of commercial mortgage loans. Single-Asset/Single-Borrower securities are CMBS which securitize a single loan that is backed by a single asset (usually a large commercial property) or by a pool of cross collateralized mortgage obligations to a single borrower or related borrowers. Conduit CMBS are CMBS that are collateralized by commercial mortgage loans to multiple borrowers.
Commercial Loans
Commercial loans are collateralized by an interest in commercial real estate and represent a contractual right to receive money on demand or on fixed or determinable dates.
Agency RMBS
Agency RMBS represent interests in pools of residential mortgage loans guaranteed by a GSE such as Fannie Mae or Freddie Mac, or any agency of the U.S. Government such as Ginnie Mae.
Excess MSRs
Excess MSRs represent the excess servicing spread related to mortgage servicing rights, whose underlying collateral is securitized in a trust held by a GSE or agency of the U.S. government ("Agency Excess MSR").

The Company refers to its residential and commercial mortgage loans as "mortgage loans" or "loans."

The Company refers to Agency RMBS, Non-Agency RMBS, and CMBS asset types as "real estate securities" or "securities."

Credit investments include loans, Non-Agency RMBS, and CMBS and agency investments include Agency RMBS and Agency Excess MSRs.

The Company conducts its business through one reportable segment, Securities and Loans, which reflects how the Company manages its business and analyzes and reports its results of operations. On November 15, 2019, the Company sold its portfolio of single-family rental properties ("SFR portfolio") to a third party, which was previously reported as a separate operating segment. The sale of the Company's SFR portfolio met the criteria for discontinued operations.

The Company is externally managed by AG REIT Management, LLC, a Delaware limited liability company (the "Manager"), a wholly-owned subsidiary of Angelo, Gordon & Co., L.P. ("Angelo Gordon"), a privately-held, SEC-registered investment adviser, pursuant to a management agreement. The Manager has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement.
 
8

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
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.

COVID-19 Impact

The novel coronavirus ("COVID-19") pandemic has caused, and will continue to cause, a significant disruption in the U.S. and world economies. To slow the spread of COVID-19, many countries, including the U.S., have implemented social distancing measures, which have substantially prohibited larger gatherings, including at sporting events, religious services and schools. Further, many regions, including the majority of U.S. states, implemented additional measures, such as shelter-in-place and stay-at-home orders. Many businesses moved to a remote working environment, temporarily suspended operations, laid off a significant percentage of their workforce and/or shut down completely. Moreover, the COVID-19 pandemic and certain of the actions taken to reduce its spread have resulted in lost business revenue, rapid and significant increases in unemployment, changes in consumer behavior and significant reductions in liquidity and the fair value of many assets, including those in which the Company invests. Although many of the government restrictions were relaxed over the summer and early fall of 2020, these conditions, or some level thereof, are expected to continue over the near term and may continue throughout the remainder of 2021, depending on state and local outbreaks and the pace and effectiveness of COVID-19 vaccinations.

Beginning in mid-March 2020, the global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and mortgage-backed securities ("MBS") markets. The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints. Refer to Note 2 "Financing arrangements" for further details related to the impact to the Company as a result of these economic conditions.

The full impact of COVID-19 on the mortgage REIT industry, the credit markets and consequently on the Company’s financial condition and results of operations for future periods is uncertain and cannot be predicted at the current time as it depends on several factors beyond the control of the Company including, but not limited to (i) the uncertainty around the severity, duration and spread of the outbreak, (ii) the effectiveness of the United States and global public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, including the availability of a treatment or the administration of vaccines, (v) the impact of government interventions, and (vi) the negative impact on the Company's borrowers, asset values and cost of capital.

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. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows have been included for the interim period and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.
 
Cash and cash equivalents

Cash is comprised of cash on deposit with financial institutions. The Company classifies highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents. Cash equivalents includes cash invested in money market funds. Cash and cash equivalents are carried at cost, which approximates fair value. The Company places its cash with high credit quality institutions to minimize credit risk exposure. Cash pledged to the Company as collateral is unrestricted in use and, accordingly, is included as a component of "Cash and cash equivalents" on the consolidated balance sheets. Any cash held by the Company as collateral is included in the "Other liabilities" line item on the consolidated balance sheets and in cash flows from financing activities on the consolidated statement of cash flows. Any cash due to the Company in the form of principal payments is included in the "Other assets" line item on the consolidated balance sheets and in cash flows from operating activities on the consolidated statement of cash flows.
 
9

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
Restricted cash
 
Restricted cash includes cash pledged as collateral for clearing and executing trades, derivatives, and financing arrangements, as well as restricted cash deposited into accounts held at certain consolidated trusts. Restricted cash is not available to the Company for general corporate purposes. Restricted cash may be returned to the Company when the related collateral requirements are exceeded or at the maturity of the derivative or financing arrangement. Restricted cash is carried at cost, which approximates fair value.
 
Use of estimates
 
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.
 
Earnings/(Loss) per share
 
In accordance with the provisions of Accounting Standards Codification ("ASC") 260, "Earnings per Share," the Company calculates basic income/(loss) per share by dividing net income/(loss) available to common stockholders for the period by weighted average shares of the Company’s common stock outstanding for that period. Diluted income per share takes into account the effect of dilutive instruments, such as stock options, warrants, unvested restricted stock and unvested restricted stock units but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. In periods in which the Company records a loss, potentially dilutive securities are excluded from the diluted loss per share calculation, as their effect on loss per share is anti-dilutive.
 
Valuation of financial instruments
 
The fair value of the financial instruments that the Company records at fair value is 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 third-party 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.

At the beginning of the first quarter of 2020, the Manager completed a data collection and analysis effort, which supported an update to its Leveling policy under ASC 820. Among the data collected and analyzed were: (i) reports from TRACE, FINRA’s Trade Reporting and Compliance Engine, that reports over-the-counter secondary market transactions in eligible fixed income securities, (ii) information from pricing vendors regarding valuation approaches and observability of market color, (iii) data points collected from discussions with industry sources, including peer firms and audit firms, and (iv) its own data from back testing vendor pricing against its own trades. After analyzing this data, the Manager concluded that there was sufficient observability of market inputs used by its third-party pricing services for certain RMBS and CMBS positions previously categorized as Level 3 to meet the criteria for a Level 2 classification.

Accounting for loans
 
Investments in loans are recorded in accordance with ASC 310-10, "Receivables." The Company has chosen to make a fair
10

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
value election pursuant to ASC 825 for its loan portfolio. 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 loan activities will be recorded in a similar manner. As such, loans are recorded at fair value on the consolidated balance sheets and any periodic change in fair 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." The Company recognizes certain upfront costs and fees relating to loans for which the fair value option has been elected in current period earnings as incurred and does not defer those costs, which is in accordance with ASC 825-10-25. Purchases and sales of loans are recorded on the settlement date, concurrent with the completion of due diligence and the removal of any contingencies. Prior to the settlement date, the Company will include commitments to purchase loans within the Commitments and Contingencies footnote to the financial statements.

The Company amortizes or accretes any premium or discount over the life of the loans utilizing the effective interest method. On at least a quarterly basis, the Company evaluates the collectability of both interest and principal on its loans to determine whether they are impaired. A loan or pool of loans 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. 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 the Manager, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan or pool of loans 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.

Residential Mortgage Loans

At purchase, the Company may aggregate its residential mortgage loans into pools based on common risk characteristics. Once a pool of loans is assembled, its composition is maintained. When the Company purchases mortgage loans with evidence of credit deterioration since origination and it determines that it is probable it will not collect all contractual cash flows on those loans, it will apply the guidance found in ASC 310-30. Mortgage loans that are delinquent 60 or more days are considered non-performing.
 
The Company updates its estimate of the cash flows expected to be collected on at least a quarterly basis for loans accounted for under ASC 310-30. In estimating these cash flows, there are a number of assumptions that will be subject to uncertainties and contingencies including both the rate and timing of principal and interest receipts, and assumptions of prepayments, repurchases, defaults and liquidations. If based on the most current information and events it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected, the Company will recognize these changes prospectively through an adjustment of the loan’s yield over its remaining life. The Company will adjust the amount of accretable yield by reclassification from the nonaccretable difference. The adjustment is accounted for as a change in estimate in conformity with ASC 250, "Accounting Changes and Error Corrections" with the amount of periodic accretion adjusted over the remaining life of the loan.

Commercial Loans

Commercial loans are classified as held for sale upon the Company determining that it intends to sell or liquidate the loan in the short-term and certain criteria have been met. Commercial loans meeting all criteria for reclassification are presented separately on the consolidated balance sheets in the "Commercial Loans Held for Sale" line item. Estimated costs incurred to sell a loan are included within the fair value of the loan.

Accounting for real estate securities
 
Investments in real estate securities are recorded in accordance with ASC 320-10, "Investments – Debt and Equity Securities," ASC 325-40, "Beneficial Interests in Securitized Financial Assets," or ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality." The Company has chosen to make a fair value election pursuant to ASC 825, "Financial Instruments" for its real estate securities portfolio. Real estate securities are recorded at fair value on the consolidated balance sheets and the periodic change in fair 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." Purchases and sales of real estate securities are recorded on the trade date.
 
11

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
These investments meet the requirements to be classified as available for sale under ASC 320-10-25 which requires the securities to be carried at fair value on the consolidated balance sheets with changes in fair value recorded to other comprehensive income, a component of stockholders’ equity. Electing the fair value option allows the Company to record changes in fair value in the consolidated statement of operations, which, in management’s view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner.
 
When the Company purchases securities with evidence of credit deterioration since origination, it will analyze the securities to determine if the guidance found in ASC 310-30 is applicable.
 
In June 2016, FASB issued ASU 2016-13, "Financial Instruments – Credit Losses" ("ASU 2016-13"). This guidance significantly changed how entities measure credit losses for most financial assets, including loans, that are not measured at fair value with changes in fair value recognized through net income. The Company adopted the guidance as of January 1, 2020. The guidance specifically excludes available-for-sale securities and loans measured at fair value, with changes in fair value recognized through net income. Accordingly, the impact of the guidance on accounting for the Company's debt securities and loans is limited to recognition of effective yield which was historically impacted by other than temporary impairment recorded under previous standards. As the guidance eliminates the accounting for other than temporary impairment, this guidance has impacted the Company's unrealized and realized gain/(loss) amounts. As the Company measures its debt securities and loans at fair value with any changes recognized through net income and updates its estimate of the cash flows expected to be collected on these asset classes on at least a quarterly basis recognizing changes in cash flows in interest income prospectively through an adjustment of an asset’s yield over its remaining life, the adoption of the standard did not have a material impact to the Company’s consolidated financial statements.
 
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 ("FIFO") basis. Realized gains and losses are recorded in earnings at the time of disposition.

Investments in debt and equity of affiliates

The Company’s unconsolidated ownership interests in affiliates are accounted for using the equity method. A majority of the Company’s investments held through affiliated entities are comprised of real estate securities, loans and its interest in AG Arc LLC. These types of investments may also be held directly by the Company. Certain entities have chosen to make a fair value election on their financial instruments and certain financing arrangements pursuant to ASC 825; as such, the Company will treat these financial instruments and financing arrangements consistently with this election.
 
Arc Home

On December 9, 2015, the Company, alongside private funds managed by Angelo Gordon, through AG Arc LLC, one of the Company’s indirect subsidiaries ("AG Arc"), formed Arc Home LLC ("Arc Home"). Arc Home originates conforming, Government, Jumbo, Non-QM, and other non-conforming residential mortgage loans and retains the mortgage servicing rights associated with the loans it originates. Arc Home is led by an external management team. The Company has chosen to make a fair value election with respect to its investment in AG Arc pursuant to ASC 825. The Company elected to treat its investment in AG Arc as a taxable REIT subsidiary. As a result, income or losses recognized by the Company from its investment in AG Arc are recorded in "Equity in earnings/(loss) from affiliates" line item on the Company's consolidated statement of operations net of income taxes.

From time to time, the Company acquires newly originated Non-QM Loans from Arc Home with the intent to securitize the assets and obtain non-recourse financing. In connection with the sale of loans from Arc Home to the Company, gains or losses recorded by Arc Home are consolidated into AG Arc. In accordance with ASC 323-10, for loans acquired from Arc Home that remain on the Company's consolidated balance sheet at period end, the Company eliminates any profits or losses typically recognized through the "Equity in earnings/(loss) from affiliates" line item on the Company's consolidated statement of operations and adjusts the cost basis of the underlying loans accordingly. For the three months ended March 31, 2021, the Company eliminated $0.5 million of intra-entity profits recognized by Arc Home and also decreased the cost basis of the underlying loans by the same amount in connection with loan sales to the Company.
 
MATH

On August 29, 2017, the Company, alongside private funds managed by Angelo Gordon, formed Mortgage Acquisition Holding I LLC ("MATH") to conduct a residential mortgage investment strategy. MATH in turn sponsored the formation of an
12

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
entity called Mortgage Acquisition Trust I LLC ("MATT") to purchase predominantly Non-QM Loans. Non-QM Loans are not eligible for delivery to Fannie Mae, Freddie Mac, or Ginnie Mae. MATT made an election to be treated as a real estate investment trust beginning with the 2018 tax year.

LOTS

On May 15, 2019 and November 14, 2019, the Company, alongside private funds managed by Angelo Gordon, formed LOT SP I LLC and LOT SP II LLC, respectively, (collectively, "LOTS"). LOTS were formed to originate first mortgage loans to third-party land developers and home builders for the acquisition and horizontal development of land ("Land Related Financing").

Investments in debt and equity of affiliates
The below tables reconcile the fair value of investments to the "Investments in debt and equity of affiliates" line item on the Company's consolidated balance sheets (in thousands).
March 31, 2021 December 31, 2020
Assets Liabilities Equity Assets Liabilities Equity
Non-QM Loans (1) $ 149,039  $ (100,762) $ 48,277  $ 153,200  $ (111,135) $ 42,065 
Land Related Financing 22,718  —  22,718  22,824  —  22,824 
Other (2) 46,001  (13,236) 32,765  41,940  (5,588) 36,352 
Real Estate Securities and Loans, at fair value $ 217,758  $ (113,998) $ 103,760  $ 217,964  $ (116,723) $ 101,241 
AG Arc, at fair value 52,138  —  52,138  45,341  —  45,341 
Cash and Other assets/(liabilities) 8,260  (3,835) 4,425  5,279  (1,194) 4,085 
Investments in debt and equity of affiliates $ 278,156  $ (117,833) $ 160,323  $ 268,584  $ (117,917) $ 150,667 
(1)As of March 31, 2021 and December 31, 2020, Non-QM Loans excluded loans with an unpaid principal balance of $14.2 million and $17.3 million, respectively, whereby an affiliate of MATT has the right, but not the obligation, to repurchase loans from a trust that are 90 days or more delinquent at its discretion. These loans, which are eligible to be repurchased, would be recorded on the balance sheet of MATT, an unconsolidated equity method investee of the Company, with a corresponding and offsetting liability.
(2)Certain loans held in securitized form are presented net of non-recourse securitized debt.

The below table reconciles the net income/(loss) to the "Equity in earnings/(loss) from affiliates" line item on the Company's consolidated statements of operations (in thousands).
Three Months Ended
March 31, 2021 March 31, 2020
Non-QM Loans $ 14,646  $ (26,729)
AG Arc (1) 6,340  (10,026)
Land Related Financing 710  664 
Other 4,640  (8,101)
Equity in earnings/(loss) from affiliates
$ 26,336  $ (44,192)
(1)The earnings at AG Arc during the three months ended March 31, 2021 were primarily the result of $4.2 million of net income related to Arc Home's lending and servicing operations and $1.5 million related to changes in the fair value of the MSR portfolio held by Arc Home.

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. 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 (i) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, (ii) are unable to direct the entity’s activities or (iii) 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
13

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
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 determines that consolidation is not required, it will then assess whether the transfer of the underlying assets would qualify as a sale, should be accounted for as secured financings under GAAP, or should be accounted for as an equity method investment, depending on the circumstances. See Note 4 for more detail.

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

The Company entered into securitization transactions of certain of its re-performing and non-performing residential mortgage loans, which resulted in the Company consolidating the respective VIEs that were created to facilitate these transactions and to which the underlying assets in connection with these securitizations were transferred (the "August 2019 VIE" and the "September 2020 VIE"). Based on the evaluations of each VIE, the Company concluded that the VIEs should be consolidated and, as a result, transferred assets of these VIEs were determined to be secured borrowings. Upon consolidation, the Company elected the fair value option pursuant to ASC 825 for the assets and liabilities of the August 2019 VIE and September 2020 VIE. 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 activities will be recorded in a similar manner. The Company applied the guidance under ASU 2014-13, "Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity," whereby the Company determines whether the fair value of the assets or liabilities of the August 2019 VIE and September 2020 VIE are more observable as a basis for measuring the less observable financial instruments. The Company has determined that the fair value of the liabilities of the August 2019 VIE and September 2020 VIE are more observable since the prices for these liabilities are more easily determined as similar instruments trade more frequently on a relative basis than the individual assets of the VIEs. See Note 4 for more detail regarding these VIEs. Refer to Note 5 related to the Company's determination of fair value for the assets and liabilities included within these VIEs.

From time to time the Company purchases residual positions where it consolidates the securitization and the positions are recorded on the Company's books as residential mortgage loans. There may be limited data available regarding the underlying collateral of such securitizations.

The Company may periodically enter into transactions in which it transfers assets to a third party. Upon a transfer of financial assets, the Company will sometimes retain or acquire senior or subordinated interests in the related assets. Pursuant to ASC 860-10, a determination must be made as to whether a transferor has surrendered control over transferred financial assets. That determination must consider the transferor’s continuing involvement in the transferred financial asset, including all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of the transfer. The financial components approach under ASC 860-10 limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. It defines the term "participating interest" to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale.
 
Under ASC 860-10, after a transfer of financial assets that meets the criteria for treatment as a sale—legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint and transferred control—an entity recognizes the financial and servicing assets it acquired or retained and the liabilities it has incurred, derecognizes financial assets it has sold and derecognizes liabilities when extinguished. The transferor would then determine the gain or loss on sale of financial assets by allocating the carrying value of the underlying mortgage between securities or loans sold and the interests retained based on
14

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
their fair value. 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 consolidated balance sheets or as a "financing" and will be classified as "residential mortgage loans" on the consolidated balance sheets, depending upon the structure of the securitization transaction. ASC 860-10 is a standard that may require the Company to exercise significant judgment in determining whether a transaction should be recorded as a "sale" or a "financing."

Interest income recognition
 
Interest income on the Company’s real estate securities portfolio and loan portfolio is accrued based on the actual coupon rate and the outstanding principal balance of such securities or loans. The Company has elected to record interest in accordance with ASC 835-30-35-2, "Imputation of Interest," using the effective interest method for all securities and loans accounted for under the fair value option in accordance with ASC 825, "Financial Instruments". As such, premiums and discounts are amortized or accreted into interest income over the lives of the securities or loans in accordance with ASC 310-20, "Nonrefundable Fees and Other Costs," ASC 320-10 or ASC 325-40, as applicable. Total interest income is recorded in the "Interest income" line item on the consolidated statement of operations.
 
For Agency RMBS, exclusive of interest-only securities, prepayments of the underlying collateral are estimated on a quarterly basis, which directly affect the speed at which the Company amortizes premiums on its securities. If actual and anticipated cash flows differ from previous estimates, the Company records an adjustment in the current period to the amortization of premiums for the impact of the cumulative change in the effective yield retrospectively through the reporting date.
  
Similarly, the Company also reassesses the cash flows on at least a quarterly basis for securities and loans, including Non-Agency RMBS, CMBS, interest-only securities, Non-QM Loans, and Excess MSRs. In estimating these cash flows, there are a number of assumptions made that are uncertain and subject to judgments and assumptions based on subjective and objective factors and contingencies. These include the rate and timing of principal and interest receipts (including assumptions of prepayments, repurchases, defaults and liquidations), the pass-through or coupon rate and interest rate fluctuations. In addition, interest payment shortfalls due to delinquencies on the underlying mortgage loans have to be estimated. Differences between previously estimated cash flows and current actual and anticipated cash flows are recognized prospectively through an adjustment of the yield over the remaining life of the security based on the current amortized cost of the investment.
 
For security and loan investments purchased with evidence of deterioration of credit quality for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, the Company will apply the provisions of ASC 310-30. For purposes of income recognition, the Company aggregates loans that have common risk characteristics into pools and uses a composite interest rate and expectation of cash flows expected to be collected for the pool. ASC 310-30 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. ASC 310-30 limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. ASC 310-30 requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual or valuation allowance. Subsequent changes in cash flows expected to be collected generally should be recognized prospectively through an adjustment of the loan’s yield over its remaining life.

Financing arrangements

The Company finances the acquisition of certain assets within its portfolio through the use of financing arrangements. Financing arrangements include repurchase agreements and revolving facilities. Repurchase agreements and revolving facilities are treated as collateralized financing transactions and carried at their contractual amounts, including accrued interest, as specified in the respective agreements. The carrying amount of the Company’s repurchase agreements and revolving facilities approximates fair value.
 
The Company pledges certain securities, loans or properties as collateral under financing arrangements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. The amounts available to be
15

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
borrowed under repurchase agreements and revolving facilities are dependent upon the fair value of the securities or loans pledged as collateral, which can fluctuate with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. If the fair value of pledged assets declines due to changes in market conditions, lenders typically would require the Company to post additional securities as collateral, pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, referred to as margin calls. The fair value of financial instruments pledged as collateral on the Company’s financing arrangements represents the Company’s fair value of such instruments which may differ from the fair value assigned to the collateral by its counterparties. The Company maintains a level of liquidity in order to meet these obligations. If the fair value of pledged assets increases due to changes in market conditions, counterparties may be required to return collateral to us in the form of securities or cash or post additional collateral to us. Financings pursuant to repurchase agreements and revolving facilities are generally recourse to the Company. As of March 31, 2021 and December 31, 2020, the Company had met all margin call requirements. 

Forbearance and Reinstatement Agreements

On March 20, 2020, the Company notified its financing counterparties that it did not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic. Subsequent to March 23, 2020, the Company received notifications of alleged events of default and deficiency notices from several of its financing counterparties. Subject to the terms of the applicable financing arrangement, if the Company had failed to deliver additional collateral or otherwise meet margin calls when due, the financing counterparties may have been able to demand immediate payment by the Company of the aggregate outstanding financing obligations owed to such counterparties, and if such financing obligations were not paid, may have been permitted to sell the financed assets and apply the proceeds to the Company's financing obligations and/or take ownership of the assets securing the Company's financing obligations. During this period of market upheaval, the Company engaged in discussions with its financing counterparties with regard to entering into forbearance agreements pursuant to which each counterparty would agree to forbear from exercising its rights and remedies with respect to an event of default under the applicable financing arrangement for an agreed-upon period. On April 10, 2020, the Company entered into a forbearance agreement for an initial 15 day period, on April 27, 2020, a second forbearance agreement for an extended period ending on June 1, 2020, and a third forbearance agreement on June 1, 2020 for an additional period ending June 15, 2020 (collectively, the "Forbearance Agreement") with certain of its financing counterparties (the "Participating Counterparties"). Pursuant to the terms of the Forbearance Agreement, the Participating Counterparties agreed to forbear from exercising any of their rights and remedies in respect of events of default and any and all other defaults under the applicable financing arrangement with the Company for the duration of the forbearance period specified in the Forbearance Agreement (the "Forbearance Period").

On June 10, 2020, the Company and the Participating Counterparties entered into a Reinstatement Agreement, pursuant to which the parties agreed to terminate the Forbearance Agreement and each Participating Counterparty agreed to permanently waive all existing and prior events of default under its financing agreements with the Company (each, a “Bilateral Agreement”) and to reinstate each Bilateral Agreement, as it may be amended by agreement between the Participating Counterparty and the Company. As a result of the termination of the Forbearance Agreement and entry into the Reinstatement Agreement, default interest on the Company’s outstanding borrowings under each Bilateral Agreements has ceased to accrue as of June 10, 2020 and the interest rate was the non-default rate of interest or pricing rate, as set forth in the applicable Bilateral Agreements, all cash margin has been applied to outstanding balances owed by the Company, and the DTC repo tracker coding for each Bilateral Agreement has been reinstated, thereby allowing principal and interest payments on the underlying collateral to flow to and be used by the Company, just as it was before the prior forbearance agreements were put in place. In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the various forbearance agreements have been terminated and released. The Company also agreed to pay the reasonable fees and out-of-pocket expenses of counsel and other professional advisors for the Participating Counterparties and the collateral agent. Additionally, the Reinstatement Agreement provided a set of financial covenants that override and replace the financial covenants in each Bilateral Agreement and sets forth various reporting requirements from the Company to the Participating Counterparties, releases, certain netting obligations and cross-default provisions. In connection with the negotiation and execution of the Reinstatement Agreement, the Company entered into certain amendments to the Bilateral Agreements with certain of the Participating Counterparties to reflect current market terms. In general, the amendments reflect increased haircuts and higher coupons.

On June 10, 2020, the Company also entered a separate reinstatement agreement with JPMorgan Chase Bank (the "JPM Reinstatement Agreement") on substantially the same terms as those set forth in the Reinstatement Agreement. The Reinstatement Agreement and the JPM Reinstatement Agreement collectively cover all of the Company’s existing financing arrangements as of the date of this report.

16

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
Dividends on Preferred Stock

Holders of the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are entitled to receive cumulative cash dividends at a rate of 8.25%, 8.00% and 8.000% per annum, respectively, of the $25.00 per share liquidation preference for each series. On and after September 17, 2024, dividends on the Series C Preferred Stock will accumulate at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the then three-month LIBOR plus a spread of 6.476% per annum. If the Company’s Board of Directors does not declare a dividend in a given period, an accrual is not recorded on the balance sheet. However, undeclared preferred stock dividends are reflected in earnings per share as discussed in ASC 260-10-45-11. Preferred stock dividends that are not declared accumulate and are added to the liquidation preference as of the scheduled payment date for the respective series of the preferred stock. The undeclared and unpaid dividends on the Company’s preferred stock accrue without interest, and if dividends on the Company's preferred stock are in arrears, the Company cannot pay cash dividends with respect to its common stock. See Note 11 for further detail on the Company’s Preferred Stock.

Accounting for derivative financial instruments

Derivative contracts
 
The Company enters into derivative contracts as a means of mitigating interest rate risk or foreign currency risk rather than to enhance returns. The Company accounts for derivative financial instruments in accordance with ASC 815-10, "Derivatives and Hedging." ASC 815-10 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, if or when hedge accounting is elected, the fair value adjustments will affect either other comprehensive income in stockholders’ equity until the hedged item is recognized in earnings or net income depending on whether the derivative instrument is designated and qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. As of March 31, 2021 and December 31, 2020, the Company did not have any interest rate derivatives designated as hedges. All derivatives have been recorded at fair value in accordance with ASC 820-10, with corresponding changes in value recognized in the consolidated statement of operations. The Company records derivative asset and liability positions on a gross basis with respect to its counterparties. During the period in which the Company unwinds a derivative, it records a realized gain/(loss) in the "Net realized gain/(loss)" line item in the consolidated statement of operations.

To-be-announced securities

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

Variation margin

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

Receivables recognized for the right to reclaim cash initial margin posted in respect of derivative instruments are included in the "Restricted cash" line item in the consolidated balance sheets. The daily exchange of variation margin associated with a CCP instrument is legally characterized as the daily settlement of the derivative instrument itself, as opposed to a pledge of collateral.
17

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
Accordingly, the Company accounts for the daily receipt or payment of variation margin associated with its centrally cleared derivative instruments as a direct reduction to the carrying value of the derivative asset or liability, respectively. The carrying amount of centrally cleared derivative instruments reflected in the Company’s consolidated balance sheets approximates the unsettled fair value of such instruments. As variation margin is exchanged on a one-day lag, the unsettled fair value of such instruments represents the change in fair value that occurred on the last day of the reporting period.

Manager compensation
 
The management agreement provides for payment to the Manager of a management fee as well as a reimbursement of certain expenses incurred by the Manager or its affiliates on behalf of the Company. The management fee and reimbursement are accrued and expensed during the period for which they are earned or for which the expenses are incurred, respectively. The management fee and reimbursement are included in the "Management fee" and "Other operating expenses" line items, respectively, on the consolidated statement of operations. For a more detailed discussion on the fees payable under the management agreement, see Note 10.

Income taxes
 
The Company conducts its operations to qualify and be taxed as a REIT. Accordingly, the Company will generally not be subject to federal or state corporate income tax to the extent that the Company makes qualifying distributions to its stockholders, and provided that it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the four taxable years following the year in which the Company fails to qualify as a REIT.
 
The dividends paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income/(loss) as opposed to net income/(loss) reported on the Company’s GAAP financial statements. Taxable income/(loss), generally, will differ from net income/(loss) reported on the financial statements because the determination of taxable income/(loss) is based on tax principles and not financial accounting principles.

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. 

The Company elected to treat certain domestic subsidiaries as taxable REIT subsidiaries ("TRSs") and may elect to treat other subsidiaries as TRSs. In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.
 
A domestic TRS may declare dividends to the Company which will be included in the Company’s taxable income/(loss) which may necessitate a distribution to stockholders. Conversely, if the Company retains earnings at the domestic TRS level, no distribution is required and the Company can increase book equity of the consolidated entity. A domestic TRS is subject to U.S. federal, state and local corporate income taxes.
 
The Company elected to treat one of its foreign subsidiaries as a TRS and, accordingly, taxable income generated by this foreign TRS may not be subject to local income taxation, but generally will be included in the Company’s taxable 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.
 
As a REIT, if the Company fails to distribute in any calendar year (subject to specific timing rules for certain dividends paid in January) at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its capital gain net income for such year, and (iii) any undistributed taxable income from the prior year, the Company would be subject to a non-deductible 4% excise tax
18

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
on the excess of such required distribution over the sum of (i) the amounts actually distributed and (ii) the amounts of income retained and on which the Company has paid corporate income tax.
 
The Company evaluates uncertain income tax positions, if any, in accordance with ASC 740, "Income Taxes." The Company classifies interest and penalties, if any, related to unrecognized tax benefits as a component of provision for income taxes. See Note 9 for further details.

Deal related performance fees

The Company may incur deal related performance fees, payable to Arc Home and third-party operators, on certain of its CMBS, Excess MSRs, and Land Related Financing. The deal related performance fees are based on these investments meeting certain performance hurdles. The fees are accrued and expensed during the period for which they are incurred and are included in the "Other operating expenses" and "Equity in earnings/(loss) from affiliates" line items on the consolidated statement of operations.

Offering costs
 
The Company has incurred offering costs in connection with common stock offerings, registration statements, preferred stock offerings and exchanges. Where applicable, the offering costs were paid out of the proceeds of the respective offerings. Offering costs in connection with common stock offerings and costs in connection with registration statements have been accounted for as a reduction of additional paid-in capital. Offering costs in connection with preferred stock offerings have been accounted for as a reduction of their respective gross proceeds. Exchange costs in connection with the Company's preferred stock exchanges have been accounted for as a reduction to the Company's retained earnings.

Recent accounting pronouncements

In March 2020, FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides temporary optional guidance intended to ease the burden of reference rate reform on financial reporting. This ASU was effective upon its issuance on March 12, 2020 and applies to all entities that have contracts, hedging relationships and other transactions that reference LIBOR and certain other reference rates that are expected to be discontinued. However, it cannot be applied to contract modifications that occur after December 31, 2022. With certain exceptions, this ASU also cannot be applied to hedging relationships entered into or evaluated after that date. The guidance provides optional expedients and exceptions for applying existing guidance to contract modifications, hedging relationships and other transactions that are expected to be affected by reference rate reform and meet certain scope guidance. The Company is currently evaluating the effect this guidance will have on its consolidated financial statements.

19

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
3. Real Estate Securities
 
The following tables detail the Company’s real estate securities portfolio as of March 31, 2021 and December 31, 2020 ($ in thousands). The gross unrealized gains/(losses) stated in the tables below represent inception to date unrealized gains/(losses). 

March 31, 2021       Gross Unrealized   Weighted Average
  Current Face
Premium /
(Discount)
Amortized Cost Gains Losses Fair Value Coupon (1) Yield
Agency RMBS:                
30 Year Fixed Rate $ 906,892  $ 37,735  $ 944,627  $ —  $ (29,204) $ 915,423  2.15  % 1.62  %
Credit Investments:
Residential Investments
Prime 6,816  (4,629) 2,187  390  —  2,577  3.50  % 14.20  %
Alt-A/Subprime 16,282 (9,379) 6,903  4,542  —  11,445  4.25  % 14.16  %
Credit Risk Transfer 420 —  420  —  427  5.61  % 5.61  %
Non-Agency RMBS Interest Only (2) 142,388 (142,306) 82  242  (43) 281  0.51  % NM
Re/Non-Performing Securities 1,608 (167) 1,441  200  —  1,641  5.25  % 20.92  %
Total Residential Investments: 167,514  (156,481) 11,033  5,381  (43) 16,371  1.36  % 14.38  %
Commercial Investments
Single-Asset/Single-Borrower 35,500  (81) 35,419  —  (5,981) 29,438  4.07  % 4.45  %
Freddie Mac K-Series CMBS 22,327  (11,709) 10,618  1,662  (53) 12,227  3.83  % 9.23  %
CMBS Interest Only (3) 685,961  (681,952) 4,009  270  (106) 4,173  0.10  % 7.02  %
Total Commercial Investments: 743,788  (693,742) 50,046  1,932  (6,140) 45,838  0.33  % 5.96  %
Total Credit Investments: 911,302  (850,223) 61,079  7,313  (6,183) 62,209  0.44  % 8.17  %
Total $ 1,818,194  $ (812,488) $ 1,005,706  $ 7,313  $ (35,387) $ 977,632  1.34  % 2.04  %

December 31, 2020       Gross Unrealized   Weighted Average
  Current Face
Premium /
(Discount)
Amortized Cost Gains Losses Fair Value Coupon (1) Yield
Agency RMBS:                
30 Year Fixed Rate $ 494,307  $ 22,368  $ 516,675  $ 1,794  $ (117) $ 518,352  2.10  % 1.17  %
Credit Investments:
Residential Investments
Prime 15,093  (7,081) 8,012  663  (10) 8,665  3.68  % 8.97  %
Alt-A/Subprime 16,287  (9,377) 6,910  4,586  —  11,496  4.25  % 12.52  %
Credit Risk Transfer 13,880  —  13,880  15  (587) 13,308  4.71  % 4.70  %
Non-U.S. RMBS 2,435  706  3,141  51  (92) 3,100  6.45  % 6.41  %
Non-Agency RMBS Interest Only (2) 157,590  (157,513) 77  207  (48) 236  0.53  % NM
Re/Non-Performing Securities 1,690  (238) 1,452  149  —  1,601  5.25  % 14.05  %
Total Residential Investments: 206,975  (173,503) 33,472  5,671  (737) 38,406  2.01  % 8.50  %
Commercial Investments
Conduit 4,925  (1,024) 3,901  —  (606) 3,295  4.62  % 11.89  %
Single-Asset/Single-Borrower 50,480  (1,494) 48,986  668  (9,464) 40,190  4.15  % 4.81  %
Freddie Mac K-Series CMBS 22,572  (12,062) 10,510  47  (1,557) 9,000  3.83  % 9.00  %
CMBS Interest Only (3) 687,077  (682,961) 4,116  256  (69) 4,303  0.10  % 6.93  %
Total Commercial Investments: 765,054  (697,541) 67,513  971  (11,696) 56,788  0.44  % 6.04  %
Total Credit Investments: 972,029  (871,044) 100,985  6,642  (12,433) 95,194  0.65  % 7.04  %
Total $ 1,466,336  $ (848,676) $ 617,660  $ 8,436  $ (12,550) $ 613,546  1.18  % 2.08  %
(1)Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.
(2)Non-Agency RMBS Interest Only includes only two investments as of March 31, 2021 and December 31, 2020. The overall impact of the investments' yields on the Company's portfolio is not meaningful.
(3)Comprised of Freddie Mac K-Series interest-only bonds.
 
20

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
The following tables detail the weighted average life of our real estate securities as of March 31, 2021 and December 31, 2020 ($ in thousands):

March 31, 2021 Agency RMBS Credit Investments
Weighted Average Life (1) Fair Value Amortized Cost Weighted Average Coupon Fair Value Amortized Cost
Weighted Average
Coupon (2)
Less than or equal to 1 year $ —  $ —  —  % $ 30,891  $ 36,803  4.11  %
Greater than one year and less than or equal to five years —  —  —  2,890  2,543  0.16  %
Greater than five years and less than or equal to ten years 734,069  755,645  2.18  % 12,178  11,303  0.25  %
Greater than ten years 181,354  188,982  2.00  % 16,250  10,430  4.25  %
Total $ 915,423  $ 944,627  2.15  % $ 62,209  $ 61,079  0.44  %

December 31, 2020 Agency RMBS Credit Investments
Weighted Average Life (1) Fair Value Amortized Cost Weighted Average Coupon Fair Value Amortized Cost
Weighted Average
Coupon (2)
Less than or equal to 1 year $ —  $ —  —  % $ 31,166  $ 39,588  1.81  %
Greater than one year and less than or equal to five years 181,947  181,209  2.29  % 20,131  21,634  0.33  %
Greater than five years and less than or equal to ten years 336,405  335,466  2.00  % 20,310  20,808  0.36  %
Greater than ten years —  —  —  23,587  18,955  4.18  %
Total $ 518,352  $ 516,675  2.10  % $ 95,194  $ 100,985  0.65  %
(1)This is based on projected life. Typically, actual maturities are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal.
(2)Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.
 
For the three months ended March 31, 2021, the Company sold 27 real estate securities for total proceeds of $111.8 million, recording realized gains of $2.5 million and realized losses of $3.0 million. For the three months ended March 31, 2020, the Company sold, directly or as a result of financing counterparty seizures, 229 real estate securities for total proceeds of $2.4 billion, with an additional $12.0 million of proceeds on six unsettled security sales, recording realized gains of $44.7 million and realized losses of $131.0 million.
 
4. Loans
 
Residential mortgage loans

For the three months ended March 31, 2021, the Company purchased Non-QM Loans with a gross aggregate unpaid principal balance and a gross acquisition fair value of $198.4 million and $208.5 million, respectively. A portion of these loans was purchased from Arc Home. See Note 10 for more detail.

For the three months ended March 31, 2021, the Company did not sell any residential mortgage loans. For the three months ended March 31, 2020, the Company sold one residential mortgage loan for total proceeds of $8.7 million, recording realized losses of $3.1 million. 
21

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
The table below details information regarding the Company’s residential mortgage loan portfolio as of March 31, 2021 and December 31, 2020 ($ in thousands):
        Gross Unrealized   Weighted Average
As of
Unpaid 
Principal Balance
Premium
(Discount)
Amortized Cost Gains Losses Fair Value Coupon Yield Life 
(Years) (1)
Re- and Non-Performing Loans $ 487,455  $ (66,657) $ 420,798  $ 19,284  $ (6,430) $ 433,652  3.37  % 5.89  % 7.09
Non-QM Loans 198,371  9,493  207,864  1,446  (3) 209,307  5.36  % 4.00  % 4.66
Total at March 31, 2021 (2) $ 685,826  $ (57,164) $ 628,662  $ 20,730  $ (6,433) $ 642,959  3.96  % 5.27  % 6.39
December 31, 2020 (3) $ 500,980  $ (69,007) $ 431,973  $ 13,640  $ (10,172) $ 435,441  3.58  % 5.69  % 6.67
(1)This is based on projected life. Typically, actual maturities are shorter than stated contractual maturities. Maturities are affected by the lives of the underlying mortgages, periodic payments of principal, and prepayments of principal.
(2)As of March 31, 2021, the Company’s residential mortgage loan portfolio was comprised of 3,560 loans with original loan balances between $5.6 thousand and $3.4 million. Additionally, the Company had residential mortgage loans that were in the process of foreclosure with a fair value of $33.7 million.
(3)As of December 31, 2020, the Company’s residential mortgage loan portfolio was comprised of 3,273 conventional loans with original loan balances between $5.6 thousand and $3.4 million. Additionally, the Company had residential mortgage loans that were in the process of foreclosure with a fair value of $37.1 million.
 
The table below details information regarding the Company’s residential mortgage loans as of March 31, 2021 and December 31, 2020 (in thousands):
 
  March 31, 2021 December 31, 2020
  Fair Value Unpaid Principal Balance Fair Value Unpaid Principal Balance
Non-QM Loans $ 209,307  $ 198,371  $ —  $ — 
Re-Performing 311,074  338,880  312,733  347,359 
Non-Performing 114,224  130,067  113,976  134,129 
Other (1) 8,354  18,508  8,732  19,492 
  $ 642,959  $ 685,826  $ 435,441  $ 500,980 
(1)Represents residual positions where the Company consolidates a securitization and the positions are recorded in the Company's consolidated balance sheets as residential mortgage loans. There may be limited data available regarding the underlying collateral of such securitizations.
 
The Company’s residential mortgage loan portfolio consisted of mortgage loans on residential real estate located throughout the United States. The following is a summary of the geographic concentration of credit risk within the Company’s residential mortgage loan portfolio as of March 31, 2021 and December 31, 2020, excluding any loans classified as Other above:
 
Geographic Concentration of Credit Risk March 31, 2021 December 31, 2020
Percentage of fair value of mortgage loans secured by properties in the following states representing 5% or more of fair value:    
California 28  % 17  %
Florida 13  % 11  %
New York 10  % 10  %
New Jersey % %
 
22

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
The following is a summary of the changes in the accretable portion of discounts for the Company’s re-performing and non-performing loan portfolios for the three months ended March 31, 2021 and March 31, 2020, which 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 (in thousands):
  Three Months Ended
  March 31, 2021 March 31, 2020
Beginning Balance $ 170,291  $ 168,877 
Additions —  129,017 
Accretion (6,122) (8,428)
Reclassifications from/(to) non-accretable difference 9,881  (26,012)
Disposals 153  (343)
Ending Balance $ 174,203  $ 263,111 

Variable interest entities
 
The following table details certain information related to the assets and liabilities of the August 2019 VIE and September 2020 VIE as of March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021 December 31, 2020
Assets
Residential mortgage loans, at fair value $ 425,158  $ 426,604 
Restricted cash 2,106  2,110 
Other assets 2,730  3,705 
Total assets $ 429,994  $ 432,419 
Liabilities
Financing arrangements $ 28,004  $ 25,590 
Securitized debt, at fair value 344,429  355,159 
Other liabilities 510  519 
Total liabilities $ 372,943  $ 381,268 

The following table details additional information regarding residential mortgage loans and securitized debt related to the August 2019 VIE and September 2020 VIE as of March 31, 2021 and December 31, 2020 ($ in thousands):
    Weighted Average
As of:   Current Unpaid Principal Balance Fair Value Coupon Yield Life (Years) (1)
March 31, 2021
August 2019 VIE Residential mortgage loans $ 232,384  $ 219,806  3.56  % 5.49  % 7.33
Securitized debt 191,790  191,946  2.98  % 3.02  % 5.13
September 2020 VIE Residential mortgage loans $ 236,422  $ 205,352  4.18  % 4.93  % 5.99
Securitized debt 152,063  152,483  2.98  % 2.98  % 1.33
December 31, 2020
August 2019 VIE Residential mortgage loans $ 238,487  $ 222,282  3.79  % 5.44  % 6.86
Securitized debt 197,955  196,338  2.97  % 3.01  % 5.20
September 2020 VIE Residential mortgage loans $ 242,859  $ 204,322  3.37  % 5.80  % 6.70
Securitized debt 158,676  158,821  2.98  % 2.98  % 2.17
(1)This is based on projected life. Typically, actual maturities are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal.

23

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
The holders of the securitized debt have no recourse to the general credit of the Company. The Company has no obligation to provide any other explicit or implicit support to the August 2019 VIE and September 2020 VIE.

Commercial loans

For the three months ended March 31, 2021, the Company sold two commercial loans for total proceeds of $74.3 million, recording realized losses of $2.9 million. For the three months ended March 31, 2020, the Company did not sell any commercial loans.

During the fourth quarter of 2020, the Company and the borrower of Loan L entered into a modification agreement which, among other things, required the borrower to pay previously deferred interest in full, deferred interest for the 12-month period following the modification, and required funding of capital reserves by the borrower. The loan was placed on non-accrual status upon modification and was on non-accrual status as of March 31, 2021 and December 31, 2020. As a result of the modification, the loan is classified as a troubled debt restructuring under GAAP.

The following tables present detail on the Company’s commercial loan portfolio as of March 31, 2021 and December 31, 2020 ($ in thousands). The gross unrealized gains/(losses) columns in the tables below represent inception to date unrealized gains/(losses).
March 31, 2021     Weighted Average    
Loan (1)(2) Current Face Premium
(Discount)
Amortized Cost Gross Unrealized Losses Fair Value (3) Coupon
(4)
Yield (5) Life 
(Years)
(6)
Extended Maturity 
Date (7)
Location Collateral Type
Loan K (8) $ 17,220  $ —  $ 17,220  $ (500) $ 16,720  10.00  % 10.79  % 1.02 February 22, 2024 NY Hotel, Retail
Loan L (8) 51,000  (337) 50,663  (9,174) 41,489  N/A N/A 3.36 July 22, 2024 IL Hotel, Retail
$ 68,220  $ (337) $ 67,883  $ (9,674) $ 58,209  2.52  % 3.10  % 2.77
(1)The Company has the contractual right to receive a balloon payment for each loan.
(2)Refer to Note 12 "Commitments and Contingencies" for details on the Company's commitments on its Commercial Loans as of March 31, 2021.
(3)Fair value includes the value of unfunded commitments.
(4)Each commercial loan investment has a variable coupon rate.
(5)Yield includes any exit fees.
(6)Actual maturities may be shorter or longer than stated contractual maturities. Maturities are affected by prepayments of principal.
(7)Represents the maturity date of the last possible extension option.
(8)Loan K and Loan L are comprised of first mortgage and mezzanine loans.
December 31, 2020 Weighted Average
Loan (1) Current Face Premium
(Discount)
Amortized Cost Gross Unrealized Losses Fair Value (2) Coupon  (3) Yield (4) Life
(Years) 
(5)
Extended
Maturity 
Date (6)
Location Collateral Type
Commercial Loans, at fair value
Loan G (7) $ 59,451  $ —  $ 59,451  $ (3,940) $ 55,511  5.27  % 5.27  % 1.54 July 9, 2022 CA Condo, Retail, Hotel
Loan K (8) 15,787  —  15,787  (1,100) 14,687  10.00  % 10.83  % 1.27 February 22, 2024 NY Hotel, Retail
Loan L (8) 51,000  (337) 50,663  (9,312) 41,351  N/A N/A 3.61 July 22, 2024 IL Hotel, Retail
126,238  (337) 125,901  (14,352) 111,549  3.73  % 4.05  % 2.34
Commercial Loans Held for Sale, at fair value
Loan I (9) 15,929  (175) 15,754  (1,795) 13,959  11.50  % 12.23  % 2.22 February 9, 2023 MN Office, Retail
Total $ 142,167  $ (512) $ 141,655  $ (16,147) $ 125,508  4.60  % 4.96  % 2.33
(1)The Company has the contractual right to receive a balloon payment for each loan. 
(2)Fair value includes the value of unfunded commitments.
(3)Each commercial loan investment has a variable coupon rate.
(4)Yield includes any exit fees.
(5)Actual maturities may be shorter or longer than stated contractual maturities. Maturities are affected by prepayments of principal.
(6)Represents the maturity date of the last possible extension option.
(7)Loan G is a first mortgage loan.
(8)Loan K and Loan L are comprised of first mortgage and mezzanine loans.
(9)Loan I is a mezzanine loan.

24

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
5. Fair value measurements
 
As described in Note 2, the fair value of financial instruments 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, management determines fair value using third-party data sources. ASC 820 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable. 
 
Values for the Company’s securities, Excess MSRs, and derivatives are based upon prices obtained from third-party pricing services, which are indicative of market activity. The evaluation methodology of the Company’s third-party pricing services incorporates commonly used market pricing methods, including a spread measurement to various indices such as the one-year constant maturity treasury and LIBOR, which are observable inputs. The evaluation also considers the underlying characteristics of each investment, which are also observable inputs, including: coupon; maturity date; loan age; reset date; collateral type; periodic and life cap; geography; and prepayment speeds. The Company collects and considers current market intelligence on all major markets, including benchmark security evaluations and bid-lists from various sources, when available. As part of the Company’s risk management process, the Company reviews and analyzes all prices obtained by comparing prices to recently completed transactions involving the same or similar investments on or near the reporting date. If, in the opinion of the Manager, one or more prices reported to the Company are not reliable or unavailable, the Manager reviews the fair value based on characteristics of the investment it receives from the issuer and available market information.
 
In determining the fair value of the Company's mortgage loans and securitized debt relating to the August 2019 VIE and the September 2020 VIE, the Company 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, prepayment rates, loss severity, loan-to-value ratios, and recovery rates. Projections of default and prepayment rates are impacted by other variables such as reperformance rates and timeline to liquidation. 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 value established for mortgage loans held by the Company may differ from the fair value that would have been established if a ready market existed for these mortgage loans.

Management may also base its valuation on prices obtained from a third-party pricing service provider to assess and corroborate the valuation of a selection of investments in the Company’s loan portfolio and the Company's investment in Arc Home on a periodic basis. These third-party pricing 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. 

25

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2021 (in thousands): 
  Fair Value at March 31, 2021
  Level 1 Level 2 Level 3 Total
Assets:        
Agency RMBS:        
30 Year Fixed Rate $ —  $ 915,423  $ —  $ 915,423 
Credit Investments:
Non-Agency RMBS (1) —  14,449  1,641  16,090 
Non-Agency RMBS Interest Only —  281  —  281 
CMBS (2) —  41,665  —  41,665 
CMBS Interest Only —  4,173  —  4,173 
Residential mortgage loans —  2,220  640,739  642,959 
Commercial loans —  —  58,209  58,209 
Excess mortgage servicing rights —  —  3,000  3,000 
Derivative assets (3) —  28,722  —  28,722 
AG Arc (4) —  —  52,138  52,138 
Total Assets Measured at Fair Value $ —  $ 1,006,933  $ 755,727  $ 1,762,660 
Liabilities:
Securitized debt $ —  $ —  $ (344,429) $ (344,429)
Derivative liabilities (3) —  (22) —  (22)
Total Liabilities Measured at Fair Value $ —  $ (22) $ (344,429) $ (344,451)
(1)Non-Agency RMBS is comprised of Prime, Alt-A/Subprime, Credit Risk Transfer, and Re/Non-Performing Securities.
(2)CMBS is comprised of Single-Asset/Single-Borrower and Freddie Mac K-Series CMBS.
(3)As of March 31, 2021, the Company applied a reduction in fair value of $28.7 million and $21.7 thousand to its interest rate swap assets and liabilities, respectively, related to variation margin with a corresponding increase or decrease in restricted cash, respectively. Refer to Note 2 and Note 7 for more information on the Company's accounting policies with regard to derivatives.
(4)Refer to Note 2 for more information on the Company's accounting policies with regard to cash equivalents, if applicable, and AG Arc. The table above includes the Company's investment in AG Arc, which is included in its "Investments in debt and equity of affiliates" line item on the consolidated balance sheets, as the Company has chosen to elect the fair value option with respect to its investment pursuant to ASC 825.


26

AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2021
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2020 (in thousands):
  Fair value at December 31, 2020
  Level 1 Level 2 Level 3 Total
Assets:        
Agency RMBS:        
30 Year Fixed Rate $ —  $ 518,352  $ —  $ 518,352 
Credit Investments:
Non-Agency RMBS (1) —  35,070  3,100  38,170 
Non-Agency RMBS Interest Only —  236  —  236 
CMBS (2) —  52,485  —  52,485 
CMBS Interest Only —  4,303  —  4,303 
Residential mortgage loans —  2,134  433,307  435,441 
Commercial loans —  —