Business context and reporting period
This summary covers the unaudited Form 10-Q for the quarter ended September 30, 2021. The filing is for AG Mortgage Investment Trust, Inc. (NYSE: MITT), a mortgage REIT—not the TPG Mortgage Investment Trust named in the request metadata. MITT invests in residential mortgage credit and Agency RMBS and is externally managed by an Angelo Gordon affiliate.
Management focused on expanding residential credit investments, including Non-QM and GSE non-owner-occupied mortgage loans. During the quarter, the company completed a Non-QM securitization, sold its remaining CMBS, and received repayment of its remaining commercial loans, exiting commercial investments.
Financial results and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Interest income | $19.6 million | $9.7 million | $46.0 million | $63.4 million |
| Net interest income | $12.4 million | $5.4 million | $29.4 million | $30.4 million |
| Net income/(loss) | $34.6 million | $20.0 million | $93.3 million | $(461.9) million |
| Net income/(loss) available to common stockholders | $30.0 million | $15.0 million | $79.6 million | $(478.3) million |
| Basic and diluted EPS | $1.87 | $1.31 | $5.21 | $(43.03) |
Amounts are reported in U.S. dollars; EPS and share amounts reflect the one-for-three reverse stock split. Q3 total other income was $22.8 million, including $29.5 million of net unrealized gains and $5.5 million of net realized losses. Nine-month other income was $50.4 million, versus a $441.4 million loss in the prior-year period. Nine-month 2021 results included $59.0 million of net unrealized gains and $5.1 million of net realized losses.
Management reported Q3 investment-portfolio net interest margins of 2.34% on its broader investment portfolio and 1.68% on its GAAP investment portfolio. The corresponding Q3 2020 figures were 2.30% and 1.64%. Management’s non-GAAP Core Earnings were $15.5 million, or $0.96 per diluted share, in Q3 2021 and $19.0 million, or $1.24 per diluted share, for the first nine months.
At September 30, total assets were $2.37 billion, including $1.61 billion of residential mortgage loans and $510.0 million of real estate securities. Total liabilities were $1.88 billion and stockholders’ equity was $489.7 million. Financing arrangements were $1.16 billion and securitized debt was $708.4 million. GAAP leverage was 3.8x; management’s non-GAAP economic leverage was 1.8x. The filing reports $143.6 million of liquidity, comprising $101.7 million of cash and $41.9 million of unencumbered assets. Cash and restricted cash together totaled $128.8 million.
For the nine months, operating activities provided $19.8 million of cash, investing activities used $878.7 million, and financing activities provided $925.4 million. The company declared common dividends totaling $0.60 per share and paid preferred dividends during the period.
Material changes versus comparable periods
- Q3 net interest income more than doubled year over year, primarily as the investment portfolio grew; interest income rose while interest expense also increased.
- For the first nine months, net interest income was slightly lower year over year. Management attributed lower interest income principally to a 1.16 percentage-point decline in weighted-average GAAP portfolio yield, partly offset by lower financing balances and financing rates.
- Net income shifted sharply from a large prior-year loss to profit, reflecting improved realized and unrealized investment results after the exceptional 2020 market disruption.
- Residential mortgage loans increased from $435.4 million at December 31, 2020 to $1.61 billion at September 30, 2021. The company began buying Non-QM loans directly in 2021 and added GSE non-owner-occupied loans; it also completed its exit from commercial investments.
- Equity increased to $489.7 million from $409.7 million at year-end 2020. Book value per common share was $16.92, and adjusted book value was $16.45, compared with $12.40 and $11.81, respectively, at year-end.
Outlook, risks, contingencies, and unusual items
No specific earnings or distribution guidance is provided. Management described mortgage and housing markets as well-supported in Q3, citing declining delinquency and forbearance rates, strong demand, and high home prices. It cautioned that the outlook remains uncertain, including as COVID-19 and new variants continue and relief programs expire. Management noted possible near-term headwinds from the end of mortgage-payment forbearance, while expecting strong labor demand, rising collateral prices, and tight underwriting to provide support.
- Key exposures include interest-rate and spread movements, mortgage prepayments, borrower defaults and recoveries, collateral values, counterparty funding, margin calls, and the availability and cost of short-term financing. The filing’s sensitivity analysis estimates that a 75-basis-point rate increase would reduce GAAP equity fair value by 2.5% without forward purchase commitments, or 3.9% including them; projected net interest income declines in the scenarios shown.
- Financing arrangements are generally recourse and may include margin-call, covenant, and cross-default provisions. MITT said it met all margin-call requirements and was in compliance with financial covenants at quarter-end. Five financing counterparties were in use.
- At quarter-end, remaining commitments totaled $196.0 million, of which $153.3 million was unfunded, primarily for GSE non-owner-occupied loans, LOTS, and MATH. The company also reported $641.3 million of remaining capacity on Non-QM financing and $302.6 million on GSE non-owner-occupied loan financing; these capacities are uncommitted.
- Fair values depend significantly on models and unobservable inputs for mortgage loans and securitized debt, including discount yields, defaults, prepayments, loss severity, and recoveries. Actual results may differ from estimates.
- MITT repurchased 258,755 common shares for $2.8 million during Q3. Subsequent to quarter-end it repurchased 61,104 shares for $0.7 million. The company also issued common shares through its equity distribution program during the first nine months and exchanged preferred shares for common shares.
- Subsequent to quarter-end, MITT purchased $281.3 million of Non-QM loans and $105.1 million of GSE non-owner-occupied loans. It announced Q4 2021 preferred dividends on November 5, 2021.
- The filing describes related-party activity, including purchases of loans from Arc Home, an affiliate in which MITT holds an approximate 44.6% interest, and securities sales to Manager affiliates under the company’s affiliated-transactions policy.
- The company reported no material legal proceedings apart from the matters described in the filing; the RBC dispute and other lender deficiency claims disclosed from 2020 had been settled. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: this filing is for AG Mortgage Investment Trust, Inc. (MITT), notwithstanding the TPG company name in the request metadata.
- Review the quality and sustainability of earnings: GAAP profit includes substantial unrealized fair-value gains, while Core Earnings is a non-GAAP measure with stated limitations.
- Track leverage, liquidity, collateral availability, and refinancing needs, particularly given recourse short-term financing and potential margin calls.
- Assess credit and valuation assumptions for the rapidly expanded residential loan portfolio, including geographic concentration; California represented 35% of residential mortgage loan fair value.
- Monitor unfunded commitments, uncommitted borrowing capacity, and the terms and execution of subsequent loan purchases and securitizations.
- Review preferred dividend obligations, common dividend capacity, share repurchases and issuance, and the potential effects of related-party transactions.