Karen Werbel - IR David Roberts - Chief Executive Officer Brian Sigman - Chief Financial Officer Jonathan Lieberman - Chief Investment Officer.

Joel Houck - Wells Fargo Eric Hagen - KBW Douglas Harter - Credit Suisse Trevor Cranston - JMP Securities.

Welcome to the AG Mortgage Investment Trust Third Quarter 2016 Earnings Call. My name is Sophia, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded. And I will now turn it over to Karen Werbel.

Karen, you may begin..

Thanks Sophia. Good morning everyone. We appreciate you joining us for today's conference call to review AG Mortgage Investment Trust's third quarter results and recent developments. Joining me on today's call are David Roberts, our Chief Executive Officer; Jonathan Lieberman, our Chief Investment Officer; and Brian Sigman, our Chief Financial Officer.

Before we begin, I'd like to review our Safe Harbor statements. Today's conference call and the corresponding slide presentations contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are intended to be subject to the safe harbor protection provided by the Reform Act.

Statements regarding the following subjects are forward-looking statements by their nature. Our business and investment strategy, market trends and risks, assumptions regarding interest rates and prepayments, changes in the yield curve, and changes in government programs or regulations affecting our market.

The company's actual results may differ materially from those projected due to the impact of these factors and others beyond its control. All forward-looking statements included in this conference call and slide presentation are based on our beliefs and expectations as of today, November 4, 2016.

We disclaim any obligation to update our forward-looking statements unless required by law. Additional information concerning the factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the company's periodic reports filed with the SEC.

Copies of the reports are available on SEC's Web site at www.sec.gov. At this time, I would like to turn the call over to David Roberts..

Thanks, Karen, and good morning everyone. Our book value per share increased during the quarter by 6.1% to $18.49 at quarter's end. The increase in book value was driven primarily by the credit portion of our portfolio as strong demand drove credit space to the tightest levels in over a year.

Additionally a Re-REMIC securitization and residential loan sales contributed to the book value increase. Our core earnings for the quarter was $0.50 per share inclusive of de minimis retro adjustment. We declared a dividend of $0.475 per share for the fourth quarter in a row.

To date we have funded initial capital of $13.4 million to our mortgage origination affiliate Arc Home. We are very pleased with the progress Arc Home has made thus far. Arc Home is originating mortgages in 44 states to both the retail and correspondent channels.

In addition to retaining mortgage servicing rights on its originated production, Arc Home purchased mortgage servicing rights on $2.4 billion of notional principal balance during the quarter. We expect this substantial portion of Arc Home’s capital will continue to be deploy to purchase and retain MSRs.

Arc Home anticipates launching its retention strategy with respect to its MSR portfolios in the fourth quarter of 2016 and then beginning in 2017 we anticipate that AG mortgage investment trust will be acquiring mortgage related products originated and source by Arc Home.

With that, I will turn the call over to our Chief Investor Officer, Jonathan Lieberman..

Thank you, David. Good morning all. During the third quarter, mortgage credit spreads benefited from both rally in the broader credit market as well as continued strong demand for non-agency MBS. Specifically we saw spreads tightening credit risk transfer securities, legacy and non-agency securities and NPL and RPL backed securities.

Capital markets from the third quarter were characterized by relatively low volatility, as there was no Brexit type event and risk markets were generally firm across the Board.

Net demand in the third quarter was particularly unique, because RMBS investors also received approximately $8 billion in cash distributions related to Bank of America countrywide settle. We think this was largely reinvested back in our residential space.

Further we also believe the significant amount of under invested capital remains on the sidelines waiting for dislocation or interesting invest in opportunity at this time.

Despite the overall increase in prepayments from the quarter in response to July lows in benchmark yields, spreads on agency RMBS performed better than expected intends and finished the quarter on a strong note given higher benchmark interest rates and continue strong market technicals.

Domestic banks increased their already robust purchasing activity during the quarter. Overseas investors continue to deploy capital in our products, money managers increased their allocation to the agency sector and the Feds reinvestment activity rose in response to larger pay downs of existing holdings.

While historically low interest rates did retrace some of their post Brexit rally, during the quarter as global economic conditions and the outlook improved marginally and the efficacy of sustained use of accommodative monitored policy has been called into question. We do not believe however that the retracement is the start of a longer term trend.

Accordingly, we continue to maintain a benign outlook on interest rates and the duration of our book over the coming quarters. We do anticipated that the Fed will raise Fed funds by 25 basis points probably in December and I also anticipate an additional one or two movements of rates in 2017.

Moving to the fundamental side, fundamental collateral performance of legacy mortgages continues to remain steady and in some cases is improving, this is due to the continued stability of the job market, continued home price appreciation in parts of our country and credit quality [ph].

Housing affordability, including first time homebuyers remains above historical averages. Consumer confidence is pretty stable to close -- approaching highs. We remain constructive generally on housing although it is much more markets specific and believe home price stability is durable at this time.

Furthermore we favorable net supply technicals, and strong reinvestment demand, support price outperformance of RMBS non-agency RMBS versus other spread asset classes.

As David previously mentioned, in the third quarter Arc Home purchase MSRs backed by 2.4 billion notional principal balances and retained servicing also on $213 million of notional principal balance on loans originated by the platform.

Arc is actively building infrastructure and hiring mortgage banking professionals to permit further investments by MITT and AG private funds. The investment team is very pleased with the progress Arc has made and remains focused on capitalizing on the current interest rate environment to increase originations volume at Arc going forward.

For the quarter, as David mentioned, MITT reported net income of $1.54 per diluted share and core earnings of $0.50 per diluted share. The increase in net income from last quarter was supported primarily by the credit size of our portfolio.

Book value increase to $18.49 which represents an increase of $1.07 inclusive of the impact of our dividend paid to shareholders on October 31st. The aggregate portfolio size decreased modestly to approximately 2.7 billion, at risk leverage decreased to 3.2 from 3.4x last quarter. Quarter ending net interest margins decreased to 2.97%.

Changes in our NIM were primarily due to portfolio yield declines attributable to monetization or pay downs of several higher yielding investments. We do anticipate recycling monetized equity capital during the fourth quarter and following the conclusion of U.S. national elections.

On Slide 9 of our quarterly earnings presentation we laid out the investment portfolio composition for the quarter, the fair value of our agency book was approximately 1.2 billion and the fair value of our credit book was approximately 1.5 billion.

Focusing first on our agency portfolio, the constant prepayment rate for our agency book was 11.7% for the third quarter. Prepayment speed for our portfolio remained benign and stable, notwithstanding the recent interest rate rally for the retracement in the last several weeks.

Owing to favorable prepayment characteristics of our holdings we did adjust our agency asset mix on the margin by monetizing Reichhold [ph] protected specified holdings and higher coupon versus buying lower coupons, new production MBS had minimal premiums to TBA.

This was done to help reduce losses associated with premium amortization during the period of elevated prepayments on all MBS. During the third quarter we further diversified our credit portfolio, and increased our allocation to floating rates and short duration fixed rate securities.

We continue to participate in floating rate tranches and new issue transactions including credit risk transfer deals where we believe historically tight underwriting standards provides superior loss protection.

In legacy mortgage credit we opportunistically added securities as well as rotated out of asset backed and legacy non-agency securities that we believe had reached their intrinsic value. Specifically we did purchase non-agency RMBS Freddie Mac K-series CMBS, CMBS IO and then legacy CMBS securities are detailed on Slide 6.

Turning to Slide 13, we provided an update on our finances, we currently have 38 financing counterparties and are financing investments with 22 of these counterparties. In general funding continues to be robust, plentiful and stable for the company. On Slide 15, we lay out hedging tables.

We continue to adjust our hedge positions in responses to changes in our portfolio, U.S. economic conditions, the elections, interest rates and potential normalization of U.S. monitory policy.

The overall duration gap of the portfolio increased modestly from the prior quarter, from 1.63 to 1.81 years primarily due to the unwinding of Euro-Dollar hedges we added in the second quarter.

These hedges were put into place in response to market overreactions during the Brexit vote and will remove as the markets imply profitability of spread tightening of monetary policies by year end reach more reasonable levels during the third quarter.

But another way it was a very opportunistic trade on the interest rate side that we put in place in the second quarter that we monetized during the third quarter. Our Swap position also declined as we unwound the majority of our long swap spread positions as swap spreads widen further.

Despite marginally higher rates at quarter end, the impact of our positive direction gap on book value is minimal due to our short positioning at the frontend of the yield curve and the tighten of agency RMBS versus the swap bases.

We believe that through the rest of 2016 and into 2017, MITT will be well positioned to take advantage of a wider range of credit market opportunities and increasing favorable returns. MITT is well position to capitalize on any post-election dislocations or any year end buying opportunities.

With that I'll turn the call over to Brian to walk through our financial results..

Thanks, Jonathan. Overall to the third quarter we reported net income available to current stockholders of $42.8 million or $1.54 per fully diluted shares, core earnings for the quarter was $14 million or $0.50 per fully diluted share versus $11.9 million or $0.43 per share in the prior quarter.

We added de minimis retrospective adjustments in current quarter versus a negative $0.03 retrospective adjustment in prior quarter to our premium amortization on our agency portfolio.

The $0.50 of core was coupled with $0.97 of net realized and unrealized gains relate to our credit portfolio and $0.07 of net realized and unrealized gains related to the agency and derivatives portfolio.

Core earnings increase $0.01 attributable to Arc Home and included a $0.01, one-time time nonrecurring item related to increased fees we received on one of our residential mortgage loan pools. At September 30th, our book out value was $18.49, an increase of $1.07 or 6.1% from last quarter.

This increase is mostly attributable to the gains I previously mentioned. Additionally, we repurchased 181,000 shares or $3 million common stock during the quarter for net accretion to book value after repurchase of $0.01 per share. To give you a better sense of our current 2.7 billion portfolio, I would like to highlight a few more specifics.

As described on Page 5 of our presentation, the portfolio at September 30, had a net interest margin of 2.97%. This was comprised of an asset yield of 4.73%, offset by rebuild and hedging cost of 1.55% and 0.21% respectively for a total cost of funds of 1.76%.

The decline in yield this quarter was primarily due to the amortization of some of our higher yielding investments. Our liquidity remains strong at quarter end as we had total liquidity of 143 million comprised of 46 million of cash, 66 million of unlevered agency portfolio [ph] securities and 31 million of unlevered agency IO securities.

Our liquidity included is 10 million form the payoff of a large commercial real estate loan in the quarter. That concludes our prepared remarks. And we would now like to open the call for questions.

Operator?.

Thank you. [Operator Instruction] And our first question comes from Joel Houck from Wells Fargo..

So I guess the question is, if you had to rank order to the opportunities set and the credit side, what was that look like on a risk-reward basis as we head into 2017?.

Currently I think, subordinated CMBS is one of the most interesting spaces. But it is -- once again it's not a beta type of investment environment today. It’s really trade-by-trade, asset-by-asset type of analysis which is really well suited toward the Angelo, Gordon platform. Non-QM MSR would follow behind..

And so CRT and legacy RMBS would necessarily be behind those two?.

I would say that specific non-agency securities or interest rank. It's case-by-case and we will see potentially some sales. We’ve seen some sales this week and we anticipate there may be some additional sales for the balance of the year.

CRT has tightening pretty materially throughout this year following the first quarter and I think we are in a kind of wait and see. Since that asset class tends to trade more consistent with the market. And so you have to have a view potentially on the election to have a vision of whether it’s right now cheap or expensive..

Okay, and one more if I may so when you look at the composition of book value increase in the third quarter was primarily credit that’s understandable. And on the agency side you mentioned here in your commentary that the hedge book was positioned to benefit from higher short-term rates.

We have seen the expectations of higher short-term rates creep up, but we’ve also seen longer term rates move up here early in the fourth quarter. So I am wondering what your commentary or view is in terms of how the agency book is fairing in this environment where the curve seems to be steeping a bit here, at least early in the fourth quarter..

Good question. I think we’ve been pleased the way that the agency book has performed in the last week or so, certainly there is a little bit of noise associated with pushback on the efficacy of monetary policy. Some of this also maybe seasonality.

We still are holding to the view that economic growth although favorable is not going to accelerate dramatically and that we really wish not to overreact in either direction to a slowdown in growth and/or potentially do an acceleration here for a very short period of time.

We still hold to the pieces that basically were pretty much range bound here, we are part of a global economy and that it would be very difficult potentially for the Fed to really move the grades up dramatically here and that it just certainly would not be warranted..

And the following question comes from Eric Hagen from KBW..

I want to confirm that the nickel and equity earnings over the quarter was a $0.01 from Arc and the remainder was from the existing equity method investments that had been in the portfolio before..

Yes and what we do with our security equity method, the core, we look through and we back out the unrealized mark-to-market for realized gains to come up with a core earnings that's similar to the rest of the portfolio. So out of the $0.50 of core $0.01 was -- Arc Home was positive $0.01.

Last quarter and I think we have talked about it, it was negative $0.01. So that was about pick up from last quarter. Away from that there wasn’t much change in the composition of our equity investments. Typically, the equity -- the other equity investments are really just JV structures with other AG funds that hold regular way credit security.

And there wasn’t too much change on any of those. So it’s really more of a $0.02 or about $500,000-$600,000 pickup in swing of Arc Home from negative to positive..

And regarding the MSR that you are looking at for next quarter how quickly do you think you can bring that into the portfolio, I mean what should we expect for either a run rate or a comfortable portfolio size on that segment of portfolio?.

I think it's -- we really can't give you sufficient guidance at this moment in time. We are building infrastructure, we’re hiring a staffing, texting pipes effectively and we are going to do this in a disciplined and prudent manner.

And then we will ramp the MSR side of the portfolio, but we do not have a number in mind and we don’t pre-suppose a number until we’re ready and we see an opportunities set..

So you are not comfortable giving a number right now, or do you simply don’t have a number?.

Simply not comfortable giving a number at this point for your modeling purposes.

I think you can see what we -- we’ve been originating, we gave you an origination number from the company, where they are retaining MSR, theoretically that’s available to transfer over to either the funds or to admit it some point in the time, should we choose to do so, or it's stays in our comp.

But third party acquisition will really be subject to a combination market conditions, although there is ample MSR available for sale, and it would be subject to -- when we are comfortable at the infrastructure is in place including retention capability..

Okay. Well on the origination front for Arc, I assume that you have a -- you definitely have a number there and curious if you’d be willing to share that? This is a material part of your business, a major investment yours, I assumed that you have to -- have some estimate for what the portfolio can do on the origination front..

It's David Roberts speaking. We are just not in the practice of giving forward guidance. So you can see what we have originated as Jonathan said, the plan is to increase overtime based on market conditions and based on ensuring that we feel we have the sufficient infrastructure in place..

And we -- as is directed at Page 7 of our slide presentation, it plays out the originations, we’re approximately $250 million for the quarter. And also the MSR acquisition during the quarter and that’s as far as we can take it given our general approach to being more conservative in terms of expectation managements..

All right. And my last question if you don’t mind, I think I probably expand on some of the Joel's question. If we do get into the next year and the market expectations for both inflation and Fed tightening get walks back a bit, similar to what they did this past year.

Would you say that you are well prepared to take advantage of that now and is there something you could do specifically to double down so to speak if that effect gets realized? Of if it looks like it's going to get realized?.

If they have to walk back inflation and rates? Is that the -- was that the --?.

Yes, I think in your commentary you said that, the market is currently expecting one to two increases next year and if that gets walked to one increase to zero, potentially.

Would you say that you are well positioned to take advantage of that now and is there something you could do to double down so to speak?.

Look I think that we are -- the portfolio is just very well positioned should they chose not to increase in 2017. The portfolio is -- the markets are already priced in to a large extent to December -- a December increase.

But any sort of walking down of potential rate rises will only benefit the current positioning and the current duration of the book both on the credit side as well as on the agency side. The agency side will certainly benefit vary materially. In terms of doubling down, we are very materially investing.

So it's not like there is not the ability to theoretically even double down. We do have a good deal of capital because of the GAAP and monetization events and pay downs or several investments.

We have several investments in pipeline and we are really well situated in the event that there was a dislocation in connection with the election or in connection with yearend events, or following a monetary event potentially in December.

We certainly have capacity to take advantage of any opportunity plus we have I think some very good securities that we could rotate as well..

Our next question comes from Douglas Harter from Credit Suisse..

You talked about hoping to be able to add some non-QM loans from Arc next year, can you just talk about what -- where Arc is in that process and what else needs to be done for those loans to start showing up?.

We are certainly very early in the as rolling out non-QM products at Arc. Product utilization has been to focus on retail correspondent and then adding wholesale on the acquisition channels. Certainly focus on conforming product initially, then move into MSR and then non-QM is behind that.

But we do anticipate that by the first quarter we will start to layer in Arc non-agency oriented products into their menu or suite of products at the company..

Thank you, and then as you started taking delivery of MSRs can you talk about how -- what changes that you might make to your hedge portfolio as those come in?.

We will certainly look at our IO strips that are in the portfolio, our agency IOs as well as our swap book and determine what we think is the optable mix between MSR and these two existing types of position that are in the portfolio, as well as the balance of fixed and floating securities in the portfolio.

And then determine some combination of those positions along with cash movement on mark-to market basis of the assets to optimize returns..

Great thank you..

Our following question comes from Trevor Cranston from JMP Securities..

A follow up question on the non-QM opportunity at Arc Home, do you have an ideas at this point, what the non-agency, non-QM products are going to look like when they are rolled out next year? And then the second part, when those loan are originated, can you say if Arc Home will have the ability to sell those to any investor or does the REIT sort of have like a right -- a first right to look at them and buy them? Thanks..

So answering the second question first, Arc Home has the ability to sell all mortgage products to third party investors, if they find an attractive alternative outlet towards the product. There is no in place rights of first refusal by any vehicle currently in place with respect to the mortgage company.

With respect to what the product would look like, the investment team both in Angelo as well as Arc are working on appropriate guidelines procedures, policies, controls and there are several non-QM products in the market place today, you should probably anticipate or envision that the product will not deviate materially from existing products that are in the market place that have demonstrated liquidity, as well as market acceptance from the borrowers..

All right. Okay that’s helpful thank you..

We have no further questions at this time. .

Thank you everyone, we look forward to speaking with you next quarter..

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect..