AG Mortgage Investment Trust, Inc. — Q1 2013 Form 10-Q
Entity and period: The supplied filing is for AG Mortgage Investment Trust, Inc. (not TPG Mortgage Investment Trust, Inc.) and covers the unaudited quarter ended March 31, 2013. The company is an externally managed mortgage REIT investing mainly in Agency RMBS, with additional credit securities, commercial loans and related assets.
Financial performance and position
| Metric | Q1 2013 / March 31, 2013 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $38.6 million | $14.0 million in Q1 2012 |
| Net interest income | $31.7 million | $12.2 million in Q1 2012 |
| Net income | $16.8 million | $11.0 million in Q1 2012 |
| Net income available to common stockholders | $13.4 million | $11.0 million in Q1 2012 |
| Basic and diluted EPS | $0.49 | $0.77 in Q1 2012 |
| Common dividend declared per share | $0.80 | $0.70 in Q1 2012 |
| Total assets / stockholders’ equity | $4.93 billion / $801.0 million | $4.86 billion / $794.6 million at December 31, 2012 |
| Repurchase agreements (GAAP) | $3.98 billion | $3.91 billion at December 31, 2012 |
| Cash and cash equivalents | $40.7 million | $149.6 million at December 31, 2012 |
| Operating / investing / financing cash flow | $36.4 million / $(306.4) million / $161.1 million | Q1 2012: $11.5 million / $(1,169.0) million / $1,142.4 million |
- Q1 2013 net interest income increased about 161% year over year and net income about 53%. Common EPS fell despite higher net income, as weighted-average common shares rose from 14.2 million to 27.3 million; preferred dividends also reduced income attributable to common shareholders.
- Management reported an annualized average asset yield of 3.45%, an average repurchase-agreement rate of 0.77%, and annualized swap costs equal to 0.49% of average repo balances. The filing does not present a single formal net interest margin measure.
- Cash declined by $108.9 million during the quarter. Management reported $228.2 million of unpledged Agency RMBS in addition to cash as liquidity resources.
- GAAP leverage was 4.91x equity; including linked transactions, management reported leverage of 5.38x. Total repurchase financing including linked transactions was $4.36 billion.
Portfolio changes and notable items
- Fair-value real estate securities totaled $4.60 billion, up from $4.54 billion at year-end. Non-Agency RMBS increased to $639.5 million from $568.9 million, while Agency RMBS declined to $3.76 billion from $3.79 billion. The company also reported $30.0 million of commercial loans, versus $2.5 million at year-end.
- The company sold 20 securities for $537.1 million of proceeds and recorded $5.3 million of net realized gains in the income statement. It also recorded $17.7 million of net unrealized losses on real estate securities and loans, and a $1.1 million other-than-temporary impairment charge on one security.
- It raised $14.8 million net through common-stock issuance during the quarter. Common shares outstanding rose to 27.6 million from 27.0 million at year-end.
- Preferred dividends were $3.4 million. A $2.6 million income-tax provision related to investments held in taxable REIT subsidiaries; the company otherwise expects to operate as a REIT.
- Common dividends of $0.80 per share were declared for the quarter and paid April 26, 2013. This exceeded reported Q1 EPS of $0.49; taxable income and GAAP income may differ.
Outlook, risks and contingencies
- Management expected Federal Reserve Agency-MBS purchases under QE3 to continue in the near term and described an intention to allocate capital gradually and opportunistically toward Non-Agency RMBS, ABS, CMBS and mortgage loans, subject to available yields and market conditions. No earnings or dividend guidance was provided.
- Management cited low rates and Federal Reserve purchases as supporting Agency RMBS prices, while warning that market conditions could change and affect investment and financing strategy. It anticipated continued opportunities in housing and credit markets, but noted home-price gains could moderate without income growth.
- Short-term repo financing creates refinancing and margin-call risk. At quarter-end the weighted-average repo rate was 0.66%, the weighted-average haircut 6.68%, and the weighted-average maturity about 41 days on GAAP repo balances. Management said it had met all margin calls through March 31.
- Interest-rate sensitivity estimates for a static portfolio indicated that a 100-basis-point increase could reduce GAAP equity by 11% and projected net interest income by 10%; a 50-basis-point increase implied declines of 4.8% and 5.0%, respectively. Management cautioned that actual outcomes could differ materially from model estimates.
- Key additional exposures include prepayment and credit risk in non-Agency assets, fair-value estimation risk (including Level 3 assets), counterparty risk, and the possibility that repo lenders may not renew financing. The filing reported no significant legal contingencies and no material changes to previously disclosed risk factors.
- After quarter-end, the company amended and renewed a Wells Fargo repo facility: maximum borrowing capacity increased from $75 million to $125 million and maturity was extended to April 11, 2014. Covenants include minimum adjusted tangible net worth of $430 million, liquidity of $30 million and unrestricted cash of $5 million.
Important facts for investors to verify
- Confirm the issuer: this document identifies AG Mortgage Investment Trust, Inc., despite the request metadata naming TPG Mortgage Investment Trust, Inc.
- Review the drivers of the $17.7 million unrealized loss, the $1.1 million impairment, and the sensitivity of reported earnings and equity to market pricing and Level 3 assumptions.
- Assess liquidity against short repo maturities and potential collateral calls, including the $40.7 million cash balance and reported unpledged Agency securities.
- Reconcile the $0.80 common dividend with GAAP earnings, taxable income, preferred distributions and REIT distribution requirements.
- Track leverage and funding on both GAAP and linked-transaction-inclusive bases, and monitor compliance with the amended Wells Fargo facility covenants.