AG Mortgage Investment Trust, Inc. Reports Second Quarter 2017 Results

NEW YORK–(BUSINESS WIRE)–AG Mortgage Investment Trust, Inc. (“MITT” or the “Company”) (NYSE:MITT)
today reported financial results for the quarter-ended June 30, 2017. AG
Mortgage Investment Trust, Inc. is a hybrid mortgage REIT that
opportunistically invests in a diversified risk-adjusted portfolio of
Agency RMBS and Credit Investments, which include our Residential
Investments, Commercial Investments and ABS Investments.

SECOND QUARTER 2017 FINANCIAL HIGHLIGHTS

  • $1.07 of Net Income/(Loss) per diluted common share(1)
  • $0.47 of Core Earnings per diluted common share(1)

    • Includes ($0.01) retrospective adjustment
    • Includes $0.03 of dollar roll income associated with our net TBA
      position
    • Increase in core earnings from the prior quarter due to the
      redeployment of excess liquidity into Agency RMBS
  • 5.9% economic return on equity for the quarter, 23.6% annualized(4)
  • $18.77 book value per share(1) as of June 30, 2017,
    inclusive of our current quarter common dividend

    • Book value increased $0.60 or 3.3% from last quarter, inclusive of:

      • $0.85 or 4.7% due to our Credit Investments

        • Strong demand and stable fundamentals in the mortgage and
          asset-backed markets continue to drive credit spreads to
          tighter levels
      • $(0.26) or (1.4)% due to our investments in Agency RMBS and
        associated derivative hedges

        • Spreads on shorter duration hybrid ARMs and post-reset
          interest-only securities widened in response to further
          flattening of the yield curve
      Q1 2017       Q2 2017
Summary of Operating Results:
GAAP Net Income/(Loss) Available to Common Stockholders $ 21.8mm $ 29.8mm

GAAP Net Income/(Loss) Available to Common Stockholders, per
diluted
common share (1)

$ 0.78 $ 1.07
 
 
Non-GAAP-Results:
Core Earnings $ 11.5mm $ 12.9mm
Core Earnings, per diluted common share (1) $ 0.41 $ 0.47

* For a reconciliation of GAAP Net Income/(Loss) to Core
Earnings, refer to the Reconciliation of Core Earnings at the end
of this press release.

 

INVESTMENT HIGHLIGHTS

  • $3.4 billion investment portfolio as of June 30, 2017as
    compared to the $2.6 billion investment portfolio as of March 31, 2017(2)(3)

    • Net purchased $744.9 million of Agency and TBA securities,
      inclusive of unsettled trades
  • 2.48% Net Interest Margin as of June 30, 2017(7)

    • Decrease in yield primarily related to the addition of Agency
      securities
    • Increase in cost of funds primarily due to an increase of 25 bps
      in the federal-funds rate in June
  • 4.2x “At Risk” Leverage as of June 30, 2017(3)(6)

    • Increase in leverage due to rotation into Agency and TBA securities
  • 8.7% constant prepayment rate (“CPR”) on the Agency RMBS investment
    portfolio for the second quarter, excluding net TBA position(5)

SECOND QUARTER ACTIVITY

  ($ in millions)            
Description     Net Purchased / (Sold/Payoff)     Net Repo (Added) / Removed*     Net Equity Invested / (Returned)
 
30-Year Fixed Rate $ 238.3 $ (214.5) $ 23.8
Interest Only and Excess MSRs 15.3 (7.9) 7.4
Total Agency RMBS 253.6 (222.4) 31.2
 
Prime 8.0 (5.5) 2.5
Alt-A 0.7 (0.5) 0.2
Subprime (32.5) 27.3 (5.2)
Credit Risk Transfer 75.8 (57.5) 18.3
RPL/NPL 70.7 (60.5) 10.2
Residential Whole Loans (9.4) 4.7 (4.7)
Total Residential Investments 113.3 (92.0) 21.3
 
CMBS 24.9 (12.9) 12.0
Freddie Mac K-Series CMBS 6.0 6.0
CMBS Interest Only 3.4 3.4
Total Commercial Investments 34.3 (12.9) 21.4
Total ABS 27.2 (4.2) 23.0
Total Q2 Activity Prior to TBA 428.4 (331.5) 96.9
Fixed Rate 30 Year TBA 241.0 N/A 7.2**
Total Q2 Activity including TBA $ 669.4 N/A $ 104.1
 
*Timing and size of repo added may differ from that of repo removed.
**Net equity on TBA represents initial margin on TBA purchases.
 
  • At quarter end, there were $250.2 mm of unsettled Agency purchases
    which settled in July with $237.7 mm of repo financing.
  • Deployed net equity of $104.1 mm during the quarter

    • Increased our sector allocation to Agency RMBS on a hedged basis
      during the quarter
    • Increased our sector allocation to CRT as spreads lagged the
      broader rally that the legacy non-agency sector experienced
    • Participated, along with other Angelo, Gordon funds, in purchasing
      two single borrower subordinate securities backed by hotels
    • Participated, along with other Angelo, Gordon funds, in a credit
      card ABS bridge securitization
  • MITT, along with other Angelo, Gordon funds, participated in a term
    securitization in April which refinanced previously securitized
    non-performing mortgage loans into a new lower cost, fixed rate
    long-term financing

    • The Company maintained exposure to the securitization through an
      interest in the subordinated tranches as well as through its
      ownership of the vertical risk retention portion of the
      securitization
  • On May 5, 2017, the Company announced an “At the Market” Offering
    Program of Common Stock to sell up to $100 million of its outstanding
    common stock

    • In Q2, MITT issued 99,932 of its common stock for net proceeds of
      $1.8 mm

MANAGEMENT REMARKS

“We are pleased with MITT’s performance during the second quarter,” said
Chief Executive Officer and Chief Investment Officer, David Roberts. “We
increased core earnings by redeploying excess liquidity into Agency RMBS
and increased book value per share. Going forward, we believe MITT is
well positioned to produce sustainable returns and to leverage the
expertise and experience of the Angelo, Gordon platform to invest in a
wide range of assets.”

“The second quarter theme for mortgage and asset-backed markets was
mostly unchanged from the start of the year, as credit spreads continued
to rally due to strong demand and stable fundamentals,” said
Co-Portfolio Manager, TJ Durkin. “Agency MBS spreads were relatively
stable during the second quarter despite increased discussion of the
Federal Reserve slowing the pace of its balance sheet reinvestment
program. The growing likelihood of this event commencing later this year
resulted in Agency MBS underperforming most other structured products.
However, the favorable backdrop of a range bound interest rate
environment and falling implied interest rate volatility supported the
team’s deployment of capital into the sector at attractive returns.”

KEY STATISTICS

 
($ in millions)

 

June 30, 2017
Investment portfolio(2)(3) $ 3,433.8

 

Repurchase agreements(3) 2,265.2

 

Total Financing(6) 2,844.8

 

Stockholders’ equity 683.1

 

 
GAAP Leverage 3.7x

 

“At Risk” Leverage(6) 4.2x

 

Yield on investment portfolio(8) 4.75%

 

Cost of funds(9) 2.27%

 

Net interest margin(7) 2.48%

 

 
Management fees(10)

1.43%

 

Other operating expenses(11)

1.67%

 

 
Book value, per share(1) $ 18.77
Undistributed taxable income, per common share(1)(12) 1.74
Dividend, per share(1) 0.475
 

INVESTMENT PORTFOLIO

The following summarizes the Company’s investment portfolio as of June
30, 2017 (2) (3)

($ in millions)

                             

Amortized
Cost

      Fair Value      

Allocated
Equity(15)

    WA Yield(8)      

Funding
Cost*

   

Net
Interest
Margin*

   

Leverage
Ratio*

 
Agency RMBS: $ 1,906.2 $ 1,913.9 $ 221.6 3.2% 1.3% 1.9% 7.9x
Residential Investments 1,090.2 1,139.7 272.0 5.8% 2.6% 3.2% 3.3x
Commercial Investments 328.3 332.3 161.0 8.0% 2.7% 5.3% 1.1x
ABS 47.6 47.9 28.5 8.8% 3.1% 5.7% 0.7x
Total $ 3,372.3 $ 3,433.8 $ 683.1 4.8% 2.3% 2.5% 4.2x
 

*Total funding cost and NIM includes cost of interest rate hedges.
Total leverage ratio includes any
net receivables on TBA and
the leverage ratio by type is calculated based on allocated equity.

 

Premiums and discounts associated with purchases of the Company’s
securities are amortized or accreted into interest income over the
estimated life of such securities, using the effective yield method. The
Company recorded a $0.2 million, or $(0.01) per share, retrospective
adjustment due to the change in projected cash flows on its Agency RMBS,
excluding interest-only securities and TBAs. Since the cost basis of the
Company’s Agency RMBS securities, excluding interest-only securities and
TBAs, exceeds the underlying principal balance by 3.9% as of June 30,
2017, slower actual and projected prepayments can have a meaningful
positive impact, while faster actual or projected prepayments can have a
meaningful negative impact on the Company’s asset yields.

FINANCING AND HEDGING ACTIVITIES

The Company, either directly or through its equity method investments in
affiliates, had master repurchase agreements with 39 counterparties,
under which it had debt outstanding with 26 counterparties as of June
30, 2017. The weighted average funding cost was 1.3% for Agency RMBS and
2.6% for Credit Investments. The investment portfolio is financed with
repurchase agreements as of June 30, 2017 as summarized below:

     
($ in millions)
Agency   Credit
Maturing Within:*

Amount
Outstanding

WA Funding Cost

Amount
Outstanding

WA Funding Cost
Overnight $ 79.4 1.4% $ –
30 Days or Less 344.3 1.3% 928.3 2.5%
31-60 Days 398.1 1.2% 55.6 2.6%
61-90 Days 194.8 1.3% 36.0 2.8%
91-180 Days 70.7 1.2% 15.3 3.9%
Greater than 180 Days 100.0 1.4% 42.7 3.5%
Total / Weighted Average** $ 1,187.3 1.3% $ 1,077.9 2.6%

*Numbers in table above do not include securitized debt of $18.8
million.

**Our weighted average days to maturity is 48 days and our
weighted average original days to maturity is 127 days.

 

The Company’s hedge portfolio as of June 30, 2017 is summarized as
follows:

($ in millions)          
Notional Duration
Interest Rate Swaps $1,494.0 (1.81)
Treasury Futures, net 70.0 (0.16)
Total $1,564.0 (1.97)
 

The Company’s interest rate swaps as of June 30, 2017 are summarized as
follows:

($ in millions)                    
Maturity Notional Amount

Weighted Average
Pay-Fixed Rate

Weighted Average
Receive-Variable
Rate*

Weighted
Average Years to
Maturity

2017 $ 36.0 0.88% 1.17% 0.34
2019 170.0 1.36% 1.19% 2.38
2020 570.0 1.63% 1.22% 2.86
2022 363.0 1.80% 1.25% 5.00
2024 150.0 2.04% 1.23% 6.89
2026 75.0 2.12% 1.19% 9.39
2027 130.0 2.30% 1.20% 9.80
Total/Wtd Avg $ 1,494.0 1.75% 1.22% 4.60
* 100% of our receive variable interest rate swap notional reset
quarterly based on three-month LIBOR.
 

TAXABLE INCOME

The primary differences between taxable income and GAAP net income
include (i) unrealized gains and losses associated with investment and
derivative portfolios which are marked-to-market in current income for
GAAP purposes, but excluded from taxable income until realized or
settled, (ii) temporary differences related to amortization of premiums
and discounts paid on investments, (iii) the timing and amount of
deductions related to stock-based compensation, (iv) temporary
differences related to the recognition of certain terminated derivatives
and (v) taxes. As of June 30, 2017, the Company had estimated
undistributed taxable income of approximately $1.74 per share.(1)(12)

DIVIDEND

On June 8, 2017, the Company’s board of directors declared the second
quarter dividend of $0.475 per share of common stock that was paid on
July 31, 2017 to stockholders of record as of June 19, 2017.

On May 15, 2017, the Company’s board of directors declared a quarterly
dividend of $0.51563 per share on its 8.25% Series A Cumulative
Redeemable Preferred Stock and a quarterly dividend on its $0.50 per
share of 8.00% Series B Cumulative Redeemable Preferred Stock. The
preferred distributions were paid on June 19, 2017 to stockholders of
record as of May 31, 2017.

STOCKHOLDER CALL

The Company invites stockholders, prospective stockholders and analysts
to participate in MITT’s second quarter earnings conference call on
August 9, 2017 at 9:30 am Eastern Time. The stockholder call can be
accessed by dialing (888) 424-8151 (U.S. domestic) or (847) 585-4422
(international). Please enter code number 6106747.

A presentation will accompany the conference call and will be available
on the Company’s website at www.agmit.com.
Select the Q2 2017 Earnings Presentation link to download and print the
presentation in advance of the stockholder call.

An audio replay of the stockholder call combined with the presentation
will be made available on our website after the call. The replay will be
available until September 8, 2017. If you are interested in hearing the
replay, please dial (888) 843-7419 (U.S. domestic) or (630) 652-3042
(international). The conference ID number is 6106747.

For further information or questions, please e-mail ir@agmit.com.

ABOUT AG MORTGAGE INVESTMENT TRUST, INC.

AG Mortgage Investment Trust, Inc. is a real estate investment trust
that invests in, acquires and manages a diversified portfolio of
residential and commercial mortgage assets, other real estate-related
securities and financial assets. AG Mortgage Investment Trust, Inc. is
externally managed and advised by AG REIT Management, LLC, a subsidiary
of Angelo, Gordon & Co., L.P., an SEC-registered investment adviser that
specializes in alternative investment activities.

Additional information can be found on the Company’s website at www.agmit.com.

ABOUT ANGELO, GORDON & CO.

Angelo, Gordon & Co., L.P. is a privately held limited partnership
founded in November 1988. The firm currently manages approximately $28
billion with a primary focus on credit and real estate strategies.
Angelo, Gordon has over 420 employees, including more than 160
investment professionals, and is headquartered in New York, with offices
in the US, Europe and Asia. For more information, visit www.angelogordon.com.

FORWARD LOOKING STATEMENTS

This press release includes “forward-looking statements” within the
meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995 related to dividends, our
strategy related to our investments and portfolio, taxes, liquidity and
our assets. Forward-looking statements are based on estimates,
projections, beliefs and assumptions of management of the Company at the
time of such statements and are not guarantees of future performance.
Forward-looking statements involve risks and uncertainties in predicting
future results and conditions. Actual results could differ materially
from those projected in these forward-looking statements due to a
variety of factors, including, without limitation, changes in interest
rates, changes in the yield curve, changes in prepayment rates, the
availability and terms of financing, changes in the market value of our
assets, general economic conditions, conditions in the market for Agency
RMBS, Non-Agency RMBS, ABS and CMBS securities and loans, and
legislative and regulatory changes that could adversely affect the
business of the Company. Additional information concerning these and
other risk factors are contained in the Company’s filings with the
Securities and Exchange Commission (“SEC”). Copies are available free of
charge on the SEC’s website, http://www.sec.gov/,
including its most recent Annual Report on Form 10-K and subsequent
filings. All information in this press release is as of August 8, 2017.
The Company undertakes no duty to update any forward-looking statements
to reflect any change in its expectations or any change in events,
conditions or circumstances on which any such statement is based.

 
AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
         
June 30, 2017 December 31, 2016
 
Assets
Real estate securities, at fair value:
Agency – $1,266,254,543 and $972,232,174 pledged as collateral,
respectively
$ 1,601,265,257 $ 1,057,663,726
Non-Agency – $1,078,998,578 and $990,985,143 pledged as collateral,
respectively
1,106,818,817 1,043,017,308
ABS – $26,777,004 and $21,231,956 pledged as collateral, respectively 47,917,356 21,231,956
CMBS – $203,968,254 and $201,464,058 pledged as collateral,
respectively
212,183,426 211,652,660
Residential mortgage loans, at fair value – $20,943,195 and
$31,031,107 pledged as collateral, respectively
23,455,233 38,195,576
Commercial loans, at fair value – $32,800,000 pledged as collateral 57,294,106 60,068,800
Investments in debt and equity of affiliates 84,711,002 72,215,919
Excess mortgage servicing rights, at fair value 2,786,501 412,648
Cash and cash equivalents 29,150,477 52,469,891
Restricted cash 48,109,840 26,583,527
Interest receivable 10,164,621 8,570,383
Receivable on unsettled trades – $0 and $3,057,814 pledged as
collateral, respectively
3,633,161
Receivable under reverse repurchase agreements 22,680,000
Derivative assets, at fair value 3,129,277 3,703,366
Other assets 3,295,079 5,600,341
Due from broker   4,233,927     945,304  
Total Assets $ 3,234,514,919   $ 2,628,644,566  
 
Liabilities
Repurchase agreements $ 2,256,742,388 $ 1,900,509,806
Securitized debt, at fair value 18,778,169 21,491,710
Loan participation payable, at fair value 1,800,000
Obligation to return securities borrowed under reverse repurchase
agreements, at fair value
22,365,000
Payable on unsettled trades 250,732,846
Interest payable 3,585,468 2,570,854
Derivative liabilities, at fair value 1,769,032 2,907,255
Dividend payable 13,205,483 13,157,573
Due to affiliates 4,300,944 3,967,622
Accrued expenses 1,007,454 1,068,779
Taxes payable 801,883 1,717,883
Due to broker   459,557     1,211,694  
Total Liabilities 2,551,383,224 1,972,768,176
 
Stockholders’ Equity
Preferred stock – $0.01 par value; 50,000,000 shares authorized:

8.25% Series A Cumulative Redeemable Preferred Stock, 2,070,000
shares issued and outstanding
($51,750,000 aggregate
liquidation preference)

49,920,772 49,920,772

8.00% Series B Cumulative Redeemable Preferred Stock, 4,600,000
shares issued and outstanding
($115,000,000 aggregate
liquidation preference)

111,293,233 111,293,233

Common stock, par value $0.01 per share; 450,000,000 shares of
common stock authorized and
27,805,162 and 27,700,154 shares
issued and outstanding at June 30, 2017 and December 31, 2016,
respectively

278,053 277,002
Additional paid-in capital 578,340,378 576,276,322
Retained earnings/(deficit)   (56,700,741 )   (81,890,939 )
Total Stockholders’ Equity 683,131,695 655,876,390
   
Total Liabilities & Stockholders’ Equity $ 3,234,514,919   $ 2,628,644,566  
 

AG Mortgage Investment Trust, Inc. and Subsidiaries

 Consolidated Statements of Operations

 (Unaudited)

 
    Three Months Ended   Three Months Ended
June 30, 2017 June 30, 2016
Net Interest Income
Interest income $ 31,220,535 $ 30,200,296
Interest expense   10,201,393     8,396,997  
  21,019,142     21,803,299  
 
Other Income
Net realized gain/(loss) (10,121,477 ) (5,317,085 )
Realized loss on periodic interest settlements of derivative
instruments, net
(1,857,542 ) (1,607,539 )
Unrealized gain/(loss) on real estate securities and loans, net 25,546,552 10,958,117
Unrealized gain/(loss) on derivative and other instruments, net 1,927,169 202,572
Other income   3,845     1,995  
  15,498,547     4,238,060  
 
Expenses
Management fee to affiliate 2,443,780 2,420,782
Other operating expenses 2,851,353 2,664,252
Servicing fees 86,001 106,974
Equity based compensation to affiliate 87,540 87,183
Excise tax   375,000     375,000  
  5,843,674     5,654,191  
 
Income/(loss) before equity in earnings/(loss) from affiliates 30,674,015 20,387,168
Equity in earnings/(loss) from affiliates   2,497,116     689,973  
Net Income/(Loss)   33,171,131     21,077,141  
 
Dividends on preferred stock 3,367,354 3,367,354
   
Net Income/(Loss) Available to Common Stockholders $ 29,803,777   $ 17,709,787  
 
Earnings/(Loss) Per Share of Common Stock
Basic $ 1.08 $ 0.63
Diluted $ 1.07 $ 0.63
 
Weighted Average Number of Shares of Common Stock Outstanding
Basic 27,724,183 28,038,953
Diluted 27,731,325 28,054,454
 

NON-GAAP FINANCIAL MEASURE

This press release contains Core Earnings, a non-GAAP financial measure.
AG Mortgage Investment Trust, Inc.’s management believes that this
non-GAAP measure, when considered with the Company’s GAAP financials,
provides supplemental information useful for investors in evaluating the
results of the Company’s operations. The Company’s presentation of Core
Earnings may not be comparable to similarly-titled measures of other
companies, who may use different calculations. This non-GAAP measure
should not be considered a substitute for, or superior to, the financial
measures calculated in accordance with GAAP. Our GAAP financial results
and the reconciliations from these results should be carefully evaluated.

We define Core Earnings, a non-GAAP financial measure, as net income
available to common stockholders excluding both unrealized and realized
gains/(losses) on the sale or termination of securities and the related
tax expense/benefit or disposition expense, if any, on such sale or
termination including (i) investments held in affiliated entities and
(ii) derivatives. As defined, Core Earnings include the net interest and
other income earned on our investments on a yield adjusted basis,
including credit derivatives, investments in debt and equity of
affiliates, inverse Agency Interest-Only securities, interest rate
derivatives, TBA drop income or any other investment activity that may
earn or pay net interest or its economic equivalent. One of our
objectives is to generate net income from net interest margin on the
portfolio, and management uses Core Earnings to measure this objective.
Management believes that this non-GAAP measure, when considered with the
Company’s GAAP financials, provides supplemental information useful for
investors in evaluating our results of operations. This metric, in
conjunction with related GAAP measures, provides greater transparency
into the information used by our management in its financial and
operational decision-making.

A reconciliation of GAAP net income to Core Earnings for the three
months ended June 30, 2017 and the three months ended June 30, 2016 is
set forth below:

($ in thousands)
    Three Months Ended   Three Months Ended
June 30, 2017 June 30, 2016
 
Net Income/(loss) available to common stockholders $ 29,804 $ 17,710
Add (Deduct):
Net realized (gain)/loss 10,121 5,317
Drop income 746 8
Equity in (earnings)/loss from affiliates (2,497 ) (690 )

Net interest income and expenses from equity method investments*

2,201 742
Unrealized (gain)/loss on real estate securities and loans, net (25,547 ) (10,958 )
Unrealized (gain)/loss on derivative and other instruments, net   (1,927 )     (203 )
Core Earnings $ 12,901 $ 11,926
 
Core Earnings, per Diluted Share $ 0.47 $ 0.43

*

For the three months ended June 30, 2017, we recognized $0.2
million or $0.01 per share of net income/(loss) attributed to our
investment in AG Arc. For the three months ended June 30, 2016, we
recognized $(0.3) million or $(0.01) per share of net
income/(loss) attributed to our investment in AG Arc.(14)

 

Footnotes

(1) Diluted per share figures are calculated using weighted average
outstanding shares in accordance with GAAP. Per share figures are
calculated using a denominator of all outstanding common shares
including all shares granted to our Manager and our independent
directors under our equity incentive plans as of quarter-end. Book value
uses stockholders’ equity less net proceeds of the Company’s 8.25%
Series A and 8.00% Series B Cumulative Redeemable Preferred Stock as the
numerator.

(2) The investment portfolio at period end is calculated by summing the
fair market value of our Agency RMBS, any long positions in TBAs,
Residential Investments, Commercial Investments, and ABS, including
securities and mortgage loans owned through investments in affiliates,
exclusive of AG Arc LLC. Refer to footnote (3) for more information on
the GAAP accounting for certain items included in our investment
portfolio.

(3) Generally, when we purchase a security and employ leverage, the
security is included in our assets and the leverage is reflected in our
liabilities on the balance sheet as either Repurchase agreements or
Securitized debt. Throughout this press release where we disclose our
investment portfolio and the related repurchase agreements that finance
it, we have presented this information inclusive of (i) unconsolidated
ownership interests in affiliates that are accounted for under GAAP
using the equity method and (ii) long positions in TBAs, which are
accounted for as derivatives under GAAP. This press release excludes
investments through AG Arc LLC unless otherwise noted. This presentation
of our investment portfolio is consistent with how our management
evaluates the business, and we believe this presentation, when
considered with the GAAP presentation, provides supplemental information
useful for investors in evaluating our investment portfolio and
financial condition. See footnote (14) for further details on AG Arc LLC.

(4) The economic return on equity for the quarter represents the change
in book value per share from March 31, 2017 to June 30, 2017, plus the
dividends declared over that period, divided by book value per share as
of March 31, 2017. The annualized economic return on equity is the
quarterly return on equity multiplied by four.

(5) This represents the weighted average monthly CPRs published during
the quarter for our in-place portfolio during the same period. Any net
TBA position is excluded from the CPR calculation.

(6) “At Risk” Leverage was calculated by dividing total financing
including any net TBA position by our GAAP stockholders’ equity at
quarter-end as of June 30, 2017. Total financing at quarter-end includes
repurchase agreements inclusive of repurchase agreements through
affiliated entities, exclusive of any financing utilized through AG Arc
LLC, plus the payable on all unsettled buys less the financing on all
unsettled sells, securitized debt and any net TBA position (at cost).
Total financing excludes repurchase agreements and unsettled trades on
U.S. Treasuries.

(7) Net interest margin is calculated by subtracting the weighted
average cost of funds from the weighted average yield for the Company’s
investment portfolio, which excludes cash held by the Company. See
footnotes (8) and (9) for further detail. Net interest margin also
excludes any net TBA position.

(8) The yield on our investment portfolio represents an effective
interest rate, which utilizes all estimates of future cash flows and
adjusts for actual prepayment and cash flow activity as of quarter-end.
This calculation excludes cash held by the Company and excludes any net
TBA position. The calculation of weighted average yield is weighted
based on fair value.

(9) The cost of funds at quarter-end was calculated as the sum of the
weighted average funding costs on total financing outstanding at
quarter-end and the weighted average of the net pay rate on our interest
rate swaps, the net receive/pay rate on our Treasury long and short
positions, respectively, and the net receivable rate on our IO index
derivatives, if any. Both elements of the cost of funds at quarter-end
were weighted by the outstanding repurchase agreements and securitized
debt outstanding at quarter-end, excluding repurchase agreements
associated with U.S. Treasury positions. The cost of funds excludes any
net TBA position.

(10) The management fee percentage at quarter-end was calculated by
annualizing management fees recorded during the quarter and dividing by
quarter-end stockholders’ equity.

(11) The other operating expenses percentage at quarter-end was
calculated by annualizing other operating expenses recorded during the
quarter and dividing by quarter-end stockholders’ equity.

(12) This estimate of undistributed taxable income per common share
represents the total estimated undistributed taxable income as of
quarter-end. Undistributed taxable income is based on current estimates
and projections. As a result, the actual amount is not finalized until
we file our annual tax return, typically in September of the following
year.

(13) Equity residuals, excess MSRs and principal only securities with a
zero coupon rate are excluded from this calculation.

(14) The Company invests in Arc Home LLC through AG Arc LLC, one of its
indirect subsidiaries.

(15) The Company allocates its equity by investment using the fair
market value of its investment portfolio, less any associated leverage,
inclusive of any long TBA position (at cost). The Company allocates all
non-investment portfolio related items based on their respective
characteristics in order to sum to the Company’s stockholders’ equity
per the consolidated balance sheets. The Company’s equity allocation
method is a non-GAAP methodology and may not be comparable to similarly
titled measures or concepts of other companies, who may use different
calculations.

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