AG Mortgage Investment Trust, Inc. — 2014 Form 10-K
Entity and period: The filing is for the year ended December 31, 2014, with fourth-quarter results included. The request metadata names TPG Mortgage Investment Trust, Inc., but the filing identifies the registrant as AG Mortgage Investment Trust, Inc. (NYSE: MITT); confirm the intended company.
Business context
The externally managed mortgage REIT invests primarily in residential mortgage-backed securities, alongside credit investments including non-Agency RMBS, ABS, CMBS, residential and commercial mortgage loans, and excess mortgage servicing rights. At year-end, the GAAP portfolio was about $3.3 billion; on the company’s broader non-GAAP basis, including TBAs and specified affiliated and linked positions, it was about $3.7 billion.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Interest income | $141.6 million | $151.0 million |
| Net interest income | $115.1 million | $125.4 million |
| Net income (loss) | $109.4 million | $(31.6) million |
| Net income (loss) available to common | $95.9 million | $(45.0) million |
| Diluted EPS | $3.37 | $(1.61) |
| Core earnings per diluted share (non-GAAP) | $2.45 | $2.70 |
| Common dividends declared per share | $2.40 | $2.80 |
- Fourth-quarter net income was $14.7 million; income available to common stockholders was $11.3 million, or $0.40 per diluted share.
- Net cash provided by operating activities was $93.8 million, versus $130.8 million in 2013. Investing activities provided $326.6 million; financing activities used $442.2 million. Cash declined $21.8 million to $64.4 million.
- At year-end, total assets were $3.46 billion, GAAP stockholders’ equity $732.7 million, repurchase agreements $2.645 billion, and securitized debt $39.8 million. Unrestricted cash plus unpledged Agency securities was reported as $181.5 million of available liquidity.
- GAAP debt-to-equity leverage was 3.66x; non-GAAP “at-risk” leverage was 4.17x. Year-end weighted-average portfolio yield was 4.67%, funding cost 1.78%, and net interest margin 2.89%, compared with 4.13%, 1.67%, and 2.46%, respectively, in 2013.
- Book value per common share was $20.13, up from $19.14 in 2013. Common dividends were reduced from $0.80 per share in the first two quarters of 2013 to $0.60 in each 2014 quarter.
Material changes versus 2013
- The credit portfolio grew to about 44.6% of the broader portfolio from 34.6% in 2013; Agency RMBS declined to 55.4% from 65.4%. The company added residential and commercial loan holdings and initiated TBA exposure.
- Repurchase-agreement borrowings on a non-GAAP basis declined to $2.8 billion from $3.1 billion, while GAAP leverage also decreased. The company attributed lower leverage and higher funding costs in part to the larger credit allocation, whose assets generally require greater haircuts and more costly financing.
- GAAP net income recovered from a 2013 loss, but core earnings per diluted share fell. 2014 included $72.5 million of unrealized gains on real estate securities and loans, partly offset by $51.3 million of unrealized losses on derivatives and other instruments. The filing reports $4.8 million of other-than-temporary impairment charges, versus $52.7 million in 2013.
Outlook, risks, and unusual items
- Management said it intended to continue shifting capital toward attractive credit investments, including whole loans, and expected market conditions to drive adjustments to investment, financing, and hedging strategies. No numerical earnings or dividend guidance is provided.
- Management described housing and credit fundamentals as generally improving, but noted uncertainty from interest-rate movements, global growth and inflation, mortgage-market volatility, and housing-finance reform. The Federal Reserve ended QE3 purchases in October 2014; later testimony indicated it intended eventually to reduce reinvestment of Agency RMBS principal, with timing unspecified.
- Key risks include short-term repo financing and refinancing needs, collateral margin calls, spread widening and fair-value losses, interest-rate/prepayment mismatch, credit losses in non-Agency assets and loans, counterparty concentration, and reliance on the external manager. These risks may affect liquidity, book value, earnings, and dividends.
- The portfolio is substantially measured at fair value; $731.0 million of year-end fair-value assets were classified as Level 3, requiring significant unobservable inputs. Management considered remaining unrealized-loss positions temporary and stated it had the ability and intent to hold them.
- The company completed a resecuritization accounted for as a secured borrowing, recording $39.8 million of securitized debt at a 3.75% weighted-average rate. It reported no material litigation or significant commitments and contingencies. The auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: the supplied metadata says TPG Mortgage Investment Trust, while the filing is for AG Mortgage Investment Trust, Inc.
- Review the full audited statements and notes, especially the drivers of the 2014 GAAP earnings rebound versus declining core earnings and the treatment of fair-value gains, derivatives, and impairment.
- Assess liquidity against near-term repo maturities, collateral haircuts and margin-call exposure; distinguish the reported $181.5 million liquidity measure from cash alone.
- Check credit-portfolio performance, loan-level collateral and valuation assumptions, including the large below-B-rated and unrated portions of credit securities.
- Evaluate dividend coverage and sustainability: common dividends were $2.40 per share against $2.45 of non-GAAP core earnings per diluted share, a measure that may not be comparable with other issuers.