AG Mortgage Investment Trust, Inc. — FY2021 Form 10-K
Entity note: The supplied filing is for AG Mortgage Investment Trust, Inc. (NYSE: MITT), not TPG Mortgage Investment Trust, Inc. It reports the fiscal year ended December 31, 2021; it is an annual filing, not a standalone Q4 report. Financial amounts below are in U.S. dollars.
Business context and reporting period
MITT is an externally managed residential mortgage REIT. In 2021 it shifted toward acquiring and securitizing newly originated non-agency residential loans, especially Non-QM loans, and exited its remaining commercial investments. It sources loans through third parties and Arc Home, in which it holds an approximately 44.6% interest.
The audited financial statements received an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective. The auditor identified valuation of certain residential mortgage loans as a critical audit matter because fair value depends on significant estimates and unobservable assumptions.
Financial and operating highlights
| Metric | FY2021 | FY2020 |
|---|---|---|
| Interest income | $70.7 million | $74.5 million |
| Net interest income | $43.4 million | $37.6 million |
| Net income (loss) | $104.2 million | $(420.9) million |
| Net income (loss) available to common stockholders | $85.9 million | $(430.9) million |
| GAAP diluted earnings (loss) per share | $5.29 | $(36.73) |
| Core earnings, non-GAAP | $18.1 million; $1.11 per diluted share | $22.0 million; $1.88 per diluted share |
| Cash provided by operating activities | $26.3 million | $4.2 million |
FY2021 net income included $62.7 million of unrealized gains and $1.7 million of net realized gains, compared with $169.8 million of unrealized losses and $256.5 million of realized losses in FY2020. Thus, the swing to GAAP profit substantially reflects the reversal of prior-year market losses; core earnings declined year over year. Net interest margin on the investment portfolio was 1.76%, down from 2.27%; management reported portfolio yield of 3.84% and cost of funds of 2.08% at year-end.
At December 31, 2021, total assets were $3.36 billion, stockholders’ equity was $570.4 million, and the investment portfolio had $3.22 billion fair value. Residential investments represented 84.6% of that portfolio; the company had exited commercial investments. Book value per common share was $14.64 and adjusted book value was $14.32, versus $12.40 and $11.81, respectively, a year earlier.
GAAP financing was $2.78 billion, including $1.78 billion of financing arrangements and $999.2 million of securitized debt. Year-end GAAP leverage was 4.9x, compared with 2.4x in 2020; economic leverage was 2.4x versus 1.5x, reflecting its different treatment of non-recourse financing and other items. Year-end cash was $68.1 million, restricted cash was $32.2 million, and management-defined liquidity was $137.3 million, including $69.2 million of unencumbered assets. These measures are not interchangeable.
Common dividends declared totaled $0.81 per share in 2021, versus $0.09 in 2020, when distributions were suspended during the pandemic-related market disruption. The company issued common stock for approximately $93.1 million net proceeds in 2021 and repurchased approximately $3.6 million of common stock.
Material changes versus the prior period
- The investment portfolio grew substantially: $3.22 billion fair value at year-end versus $1.40 billion in 2020. MITT purchased $2.5 billion of Non-QM and GSE non-owner-occupied loans during 2021.
- Five Non-QM securitizations were completed during 2021, including three rated securitizations that securitized $880.9 million of loans. The strategy was to replace recourse, mark-to-market financing with longer-term non-recourse financing where feasible.
- MITT received $148.4 million from repayment or sale of commercial loans and $67.7 million from sale of its remaining CMBS portfolio; no commercial loans remained at year-end.
- Net interest income increased despite lower interest income, as interest expense declined. The reported weighted average yield on the GAAP portfolio fell from 4.61% to 3.61%, while its weighted average financing rate declined from 2.79% to 1.59%.
- The company completed a one-for-three reverse stock split, a public common-stock offering, ATM issuance, and preferred-for-common exchange offers. These actions materially changed the share count and capital structure; historical per-share figures were adjusted for the split.
Outlook, management commentary, and risks
No quantified earnings or dividend guidance is provided. Management said it expected available liquidity, borrowing capacity, operating cash flow, and capital-market proceeds to support anticipated needs, while continuing to grow newly originated residential loan investments and securitizations. Subsequent to year-end, MITT purchased $519.0 million of non-agency loans and participated in securitizations of $474.9 million of GSE non-owner-occupied loans and $301.7 million of Non-QM loans.
Management described 2021 housing fundamentals as favorable, citing rising home prices and lower delinquency and forbearance rates, but emphasized uncertainty from COVID-19 and market conditions. It reported inflation and the prospect of Federal Reserve rate increases and balance-sheet reduction, with potential effects on asset values, funding costs, mortgage supply, and the yield curve.
- Leverage and liquidity: Short-term, generally mark-to-market repurchase funding can create margin calls, refinancing risk, forced asset sales, and counterparty concentration. Five financing counterparties were in place at year-end; MITT reported compliance with financial covenants.
- Credit and valuation: Non-agency loans, particularly Non-QM and non-performing loans, are exposed to borrower defaults, loss severity, servicing and legal risks, and uncertain fair values. Most residential mortgage loan assets were Level 3 fair-value measurements.
- Rate, prepayment, and basis exposure: Rising rates may lower asset values and increase borrowing costs; the company’s sensitivity analysis estimated that a parallel 75-basis-point increase would reduce GAAP equity fair value by 4.3% and projected net interest income by 6.7%. These are model-based estimates, not forecasts.
- Geographic concentration: California represented 35% and Florida 11% of residential mortgage loan fair value at year-end, exposing the portfolio to regional housing and natural-disaster risks.
- Other risks: Execution of the new strategy depends on sourcing loans and completing securitizations; additional risks include reliance on the external manager and Arc Home, related-party conflicts, regulatory and REIT qualification requirements, Investment Company Act exemption, and LIBOR transition.
In 2020, pandemic-related dislocation led to margin calls, alleged defaults, forbearance agreements, asset sales, and significant losses. The company settled lender deficiency claims by August 2020; no counterparty seizures were reported in 2021. No material litigation was reported as of the filing date.
Important facts for investors to verify
- Confirm the issuer identity: this filing is AG Mortgage Investment Trust, Inc. (MITT), not TPG Mortgage Investment Trust, Inc.
- Review the audited statements and notes to distinguish recurring earnings from fair-value gains, realized results, and non-GAAP core earnings.
- Reconcile reported GAAP leverage, economic leverage, securitized debt, and available liquidity; assess near-term financing maturities and margin-call capacity.
- Examine Level 3 loan valuation assumptions, delinquency and foreclosure exposures, and California and Florida collateral concentration.
- Assess whether loan sourcing, securitization execution, and post-year-end activity support the strategy without excessive recourse financing or dilution.
- Check the sustainability of common dividends against taxable income, cash availability, preferred obligations, and the absence of a minimum dividend commitment.