AG Mortgage Investment Trust, Inc. (MITT) — 2022 Form 10-K
Entity and period: The supplied filing identifies the registrant as AG Mortgage Investment Trust, Inc., not TPG Mortgage Investment Trust, Inc. It is an annual report for the fiscal year ended December 31, 2022, with comparisons to 2021; it is not a standalone fourth-quarter report.
Business context
MITT is an externally managed residential mortgage REIT focused mainly on acquiring and securitizing newly originated non-agency residential loans and agency-eligible loans. It also holds Agency RMBS and owns an approximately 44.6% interest in mortgage originator and servicer Arc Home. Its stated objective is long-term risk-adjusted returns through dividends and capital appreciation.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Interest income | $180.3 million | $70.7 million |
| Interest expense | $118.9 million | $27.3 million |
| Net interest income | $61.4 million | $43.4 million |
| Net income (loss) | $(53.1) million | $104.2 million |
| Net income (loss) available to common stockholders | $(71.4) million | $85.9 million |
| Diluted EPS | $(3.12) | $5.29 |
| Operating cash flow | $22.5 million | $26.3 million |
| Common dividends declared per share | $0.81 | $0.81 |
Interest income rose with portfolio growth, while interest expense increased as financing balances and rates rose. Net realized gains were $81.4 million, principally from settling interest-rate swaps; net unrealized losses were $137.6 million, mainly reflecting loan valuation declines as rates rose and credit spreads widened. Equity in affiliate results shifted to a $10.3 million loss from $31.9 million of earnings, including losses associated with Arc Home.
At year-end, total assets were $4.37 billion and stockholders’ equity was $462.8 million, down from $3.36 billion and $570.4 million, respectively, at December 31, 2021. Book value per common share fell to $11.39 from $14.64; adjusted book value was $11.03 versus $14.32. GAAP net interest margin decreased to 0.68% from 1.66%; the company’s non-GAAP investment-portfolio margin was 0.83% versus 1.76%.
Year-end financing included $3.26 billion of securitized debt and $621.2 million of financing arrangements, for $3.88 billion of GAAP financing. GAAP leverage was 8.4x, compared with 4.9x a year earlier; the company’s non-GAAP economic leverage was 1.3x versus 2.4x, reflecting its exclusion of fully non-recourse financing. Liquidity was $86.7 million: $84.6 million cash and $2.1 million of unencumbered Agency RMBS. Restricted cash of $14.2 million was not included in that liquidity figure.
Material changes and notable activity
- Residential mortgage loans and related investments expanded: the investment portfolio’s fair value was $4.22 billion, compared with $3.22 billion in 2021. The company purchased loans with approximately $2.58 billion fair value, including $1.6 billion of non-agency loans and $1.0 billion of agency-eligible loans.
- MITT completed eight securitizations in 2022, converting some recourse, mark-to-market financing into non-recourse financing without mark-to-market margin calls. It issued approximately $3.05 billion of securitized debt during the year.
- Agency RMBS exposure contracted substantially, with net sales of $428.2 million; year-end Agency RMBS fair value was $19.1 million versus $495.7 million in 2021.
- The company repurchased 2.7 million common shares for $18.2 million during 2022. Approximately $7.8 million remained authorized under its $15 million 2022 repurchase program at year-end.
- Common dividends totaled $0.81 per share, but the fourth-quarter declaration was reduced to $0.18 from $0.21 in each of the first three quarters.
Outlook, risks and unusual items
The filing provides no numerical earnings, margin, portfolio-growth or dividend guidance. Management described 2022 as a volatile market environment marked by inflation, rapidly rising rates, wider credit spreads and reduced mortgage origination and securitization activity. Spreads improved late in the fourth quarter and into January 2023, but remained wider year over year; management cautioned that market conditions could worsen.
Key risks include mortgage credit losses and declining home prices; interest-rate, spread and prepayment risk; short-term financing availability, haircuts and margin calls; securitization-market access; valuation uncertainty in largely Level 3 loan assets; geographic concentration (33% of residential loan fair value in California and 11% in Florida); and reliance on the external manager, affiliates and Arc Home. The company had six financing counterparties at year-end and reported compliance with all financial covenants. Remaining commitments were $26.7 million.
The manager waived its incentive fee for 2021 and 2022; an incentive fee may first be payable for 2023 under a formula based on cumulative adjusted net income and an 8% cumulative, non-compounding hurdle. Subsequent to year-end, MITT completed a securitization backed by $271.2 million unpaid principal balance of non-agency loans and sold year-end held-for-sale loans for gross proceeds of $65.4 million. The auditor issued an unqualified opinion on the financial statements and internal controls; valuation of certain residential mortgage loans was identified as a critical audit matter.
Investor verification points
- Confirm the intended issuer: this filing is for AG Mortgage Investment Trust, Inc. (MITT), despite the request metadata naming TPG Mortgage Investment Trust, Inc.
- Review the audited financial statements and fair-value disclosures, particularly the assumptions and sensitivity of Level 3 residential loan valuations.
- Reconcile GAAP leverage of 8.4x with economic leverage of 1.3x, including which securitized obligations are excluded from the latter measure.
- Assess near-term liquidity and refinancing needs against the $621.2 million of financing arrangements, their maturities, and potential margin calls.
- Evaluate dividend sustainability against the 2022 GAAP loss, $0.08 per-share earnings available for distribution, preferred dividends and REIT distribution requirements.
- Check the 2023 incentive-fee calculation, subsequent securitization execution and the ongoing performance of Arc Home and loan credit quality.