AG Mortgage Investment Trust, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The filing identifies the registrant as AG Mortgage Investment Trust, Inc. (NYSE: MITT), a residential mortgage REIT focused on residential mortgage loans and securities. The company is externally managed and has an approximately 44.6% interest in Arc Home.
Financial performance and position
- Income: Interest income was $57.8 million, up from $33.4 million a year earlier; interest expense rose to $46.2 million from $16.1 million. Net interest income therefore declined to $11.6 million from $17.3 million.
- Earnings: Net income was $12.5 million, versus a $13.2 million net loss in Q1 2022. Net income available to common stockholders was $8.0 million, or $0.38 per diluted share, versus a $17.8 million loss, or $0.74 per share. The improvement primarily reflected an $8.7 million unrealized gain, compared with a $22.4 million unrealized loss a year earlier. Earnings Available for Distribution, a non-GAAP measure, was $0.03 per diluted share.
- Margins and funding costs: Management-reported GAAP investment portfolio net interest margin was 0.66%, down from 1.37% at March 31, 2022; the broader investment portfolio margin was 0.81%, versus 1.42%. For the quarter, weighted-average GAAP portfolio yield increased to 4.93% from 3.98%, while weighted-average financing rate increased to 4.31% from 2.11%.
- Cash flow and liquidity: Operating cash flow was $6.5 million, investing cash outflow was $157.2 million, and financing cash inflow was $154.3 million. Quarter-end cash and cash equivalents were $87.9 million; including restricted cash, the balance was $102.4 million. Management described $87.9 million as available liquidity.
- Assets, debt, and equity: Total assets were $4.62 billion and total liabilities were $4.16 billion; stockholders’ equity was $461.9 million. Securitized debt at fair value was $3.51 billion and financing arrangements were $629.5 million. GAAP leverage was 8.9x equity; management’s economic leverage measure, which excludes fully non-recourse financing, was 1.4x.
- Per-share and distributions: Book value per common share was $11.85, up from $11.39 at year-end; adjusted book value was $11.48, up from $11.03. The declared common dividend was $0.18 per share, versus $0.21 in Q1 2022. Preferred dividends remained at the stated quarterly rates.
Material changes from the comparable period
- Higher portfolio size and yield lifted interest income, but the increase in funding balances and rates more than offset that benefit, reducing net interest income.
- Other income improved substantially, with total other income of $9.8 million versus a $15.9 million loss, mainly reflecting the swing in unrealized marks and the net interest component of swaps.
- Transaction-related expenses fell to $1.7 million from $5.9 million, which management attributed primarily to fewer securitizations than in Q1 2022.
- The company purchased $264.8 million of Agency RMBS; Agency RMBS fair value increased to $287.2 million from $19.1 million at year-end. It also completed a rated securitization backed by loans with $271.2 million unpaid principal balance, shifting that financing from recourse, mark-to-market funding to non-recourse financing without mark-to-market margin calls.
- The company repurchased 923,261 common shares for $5.2 million during the quarter, at a weighted-average $5.68 per share. It reported approximately 2% accretion to December 31, 2022 book value per share from these repurchases.
Outlook, risks, and notable items
- No specific earnings or portfolio guidance was provided. Management stated that, based on the current portfolio, leverage, and borrowing arrangements, it believes available funding and cash flows will meet anticipated liquidity needs.
- Management cited volatility from inflation, interest-rate and monetary-policy uncertainty, regional bank failures, geopolitical risks, and uncertain economic growth. It noted that mortgage rates, home affordability, housing activity, and securitized credit spreads remain relevant market factors.
- Key risks include short-term, recourse financing and potential margin calls; inability to roll or refinance funding; interest-rate, spread, basis, prepayment, and credit risks; borrower delinquencies and defaults; and declines in residential property values. The filing reports $72.0 million of unpaid principal balance in loans 90 or more days delinquent at quarter-end, compared with $71.7 million at year-end.
- Valuation uncertainty is significant: most mortgage loans and securitized debt are Level 3 fair-value measurements using unobservable assumptions, including yields, prepayments, defaults, and loss severity. Management cautions that realized values may differ from estimates.
- At March 31, the company was in compliance with its financing covenants and reported no material legal proceedings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
- Subsequent events included authorization of a new $15 million common-stock repurchase program on May 4, 2023, in addition to remaining capacity under the 2022 program. The filing also reports that LIBOR-based financing arrangements and derivatives had transitioned to alternative rates; Series C preferred stock retains its existing LIBOR cessation fallback terms ahead of its September 2024 floating-rate transition.
Important facts for investors to verify
- How higher financing costs and short-term funding maturities may affect net interest income, refinancing capacity, and margin-call liquidity.
- The assumptions and sensitivity of Level 3 asset and securitized-debt valuations, particularly under changing rates, spreads, defaults, and home prices.
- Whether loan delinquency and loss trends, including concentrated state exposures, are changing materially.
- The sustainability of common dividends in light of non-GAAP EAD, REIT distribution requirements, and available liquidity.
- The extent of future repurchases and their effect on liquidity, leverage, and per-share book value; also review related-party management fees and expense reimbursements.