AG Mortgage Investment Trust, Inc. (MITT) — Q2 2021 Form 10-Q
Entity note: The request metadata names TPG Mortgage Investment Trust, Inc., but the filing identifies the registrant as AG Mortgage Investment Trust, Inc. (NYSE: MITT). The filing covers the quarter and six months ended June 30, 2021; financial statements are unaudited. Per-share amounts reflect a one-for-three reverse stock split completed July 22, 2021.
Business context and reporting period
MITT is an externally managed mortgage REIT investing in residential and commercial credit assets and Agency RMBS. Management’s stated priority was expanding residential credit, particularly Non-QM mortgage loans, and securitizing loans when market conditions allowed. It purchased Non-QM loans, completed two rated securitizations, and sold Agency RMBS, Non-Agency RMBS and commercial investments to reallocate capital.
Financial results and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Interest income | $14.2 million | $13.4 million | $26.3 million | $53.6 million |
| Net interest income | $8.9 million | $4.8 million | $17.0 million | $25.1 million |
| Net income (loss) | $15.5 million | $3.1 million | $58.7 million | $(482.0) million |
| Net income (loss) available to common stockholders | $10.9 million | $(2.6) million | $49.6 million | $(493.3) million |
| Basic and diluted EPS | $0.70 | $(0.24) | $3.34 | $(45.11) |
Q2 net interest income rose 88% year over year as financing costs fell; the weighted average financing rate on the GAAP investment portfolio declined to 1.81% from 6.25%. Six-month net interest income declined 32%, reflecting a smaller average portfolio following 2020 asset sales and seizures. The six-month earnings recovery primarily reflects realized and unrealized valuation gains relative to the severe 2020 losses. Core Earnings, a non-GAAP measure, were only $0.03 million for Q2 and $3.5 million for the first half ($0.24 per diluted share for the first half).
- Balance sheet at June 30: assets of $2.168 billion, liabilities of $1.702 billion and stockholders’ equity of $465.9 million, compared with $1.400 billion, $990.3 million and $409.7 million, respectively, at December 31, 2020.
- Portfolio: fair value of $1.966 billion; residential investments were 59.6%, Agency RMBS 35.6% and commercial investments 4.8%. Residential mortgage loans on the GAAP balance sheet were $1.029 billion.
- Debt and leverage: financing arrangements were $1.207 billion and securitized debt was $482.5 million. GAAP leverage was 3.4x; management-defined economic leverage was 2.2x. Repurchase agreements included $772.5 million contractually due within 30 days, principally Agency RMBS financing.
- Liquidity and cash flow: management reported $70.8 million of liquidity, comprising $64.0 million cash and $6.8 million of unencumbered assets. Cash, cash equivalents and restricted cash totaled $87.7 million at quarter-end. First-half operating cash flow was $9.9 million; investing cash flow was $(742.6) million and financing cash flow was $758.1 million.
- Margins and sensitivity: portfolio net interest margin was 2.66% at June 30, unchanged from a year earlier, although portfolio mix and leverage changed. Management’s model estimated a 75-basis-point rate increase would reduce GAAP equity fair value by 1.9% and projected net interest income by 2.6%; a 75-basis-point decrease was estimated to reduce projected net interest income by 10.7%. These are estimates, not forecasts.
Material changes versus comparable periods
- Q2 common earnings turned positive from a loss a year earlier, while first-half results swung from the exceptional COVID-related 2020 loss to profit. The comparison is heavily affected by 2020 market dislocation, asset seizures and large realized/unrealized losses.
- Residential investments increased to $1.173 billion from $691.5 million at year-end 2020, while commercial investments declined to $93.9 million from $182.3 million. Agency RMBS increased to $699.6 million from $521.8 million.
- Financing arrangements more than doubled from $564.0 million at year-end; securitized debt increased from $355.2 million to $482.5 million. Management reported compliance with all financial covenants and all margin call requirements met at June 30.
- Book value per common share was $15.18, or $14.72 after deducting preferred liquidation preference, versus $12.40 and $11.81, respectively, at year-end.
Outlook, risks, contingencies and unusual items
- No specific earnings or dividend guidance was provided. Management described continued Non-QM loan purchases and securitization activity as its focus, and said it expected Non-QM securitization volumes to continue at the pace observed in Q2. It cautioned that COVID-19, variants, market conditions and future financing availability could materially affect results and liquidity.
- Key exposures include short-term, generally recourse repo financing; collateral haircuts, margin calls and refinancing risk; interest-rate, spread/basis, prepayment, credit and real-estate-value risk; and significant Level 3 valuation inputs. COVID-19 market stress in 2020 had previously led to alleged financing defaults, forbearance agreements and asset sales; prior lender deficiency claims were reported settled.
- Commercial Loan K was in maturity default at quarter-end. Commercial Loan L remained on non-accrual following a modification and was classified as a troubled debt restructuring.
- After quarter-end, MITT sold its remaining CMBS for $33.7 million, purchased $86.1 million of Non-QM loans, agreed to purchase a $114.7 million pool of GSE-eligible investment-property loans, increased Non-QM financing capacity from $800 million to $1.1 billion, and sold its remaining Excess MSR portfolio. These are subsequent events, not June 30 balances.
- MITT declared $0.39 per common share in dividends during the first half, including $0.21 for Q2, and resumed ordinary-course preferred and common dividends in 2021 after suspending dividends in 2020. Preferred shares carry cumulative dividend rights; common dividends cannot be paid while preferred dividends are in arrears. Common and preferred exchange offers issued common shares in exchange for preferred stock.
- The filing reports $32.2 million of remaining commitments, including commitments associated with Commercial Loan K, LOTS and MATH. Management said it believed these commitments, excluding affiliate investments, would not materially affect liquidity or operations. No material litigation was reported; the filing describes an earlier RBC dispute as settled.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for AG Mortgage Investment Trust, Inc. (MITT), notwithstanding the TPG name in the request metadata.
- Review the quality and durability of reported earnings: Q2 GAAP profit included valuation effects, while Q2 Core Earnings were near breakeven.
- Assess near-term repo maturities, counterparty concentration, collateral requirements and the adequacy of reported $70.8 million liquidity.
- Track Non-QM loan purchases, securitization execution, financing capacity and the impact of related-party loan transactions with Arc Home and Angelo Gordon affiliates.
- Monitor resolution of Commercial Loan K’s maturity default, Loan L’s non-accrual status, and funding of remaining commitments.
- Reconcile subsequent transactions and dividends with later-period filings, and distinguish GAAP leverage and results from management’s non-GAAP measures.