Business context and reporting period
AG Mortgage Investment Trust, Inc. (NYSE: MITT) filed this unaudited Form 10-Q for the quarter ended September 30, 2022. The request metadata names TPG Mortgage Investment Trust, but the filing identifies AG Mortgage Investment Trust, Inc. as the registrant. AG MITT is an externally managed residential mortgage REIT focused primarily on acquiring and securitizing U.S. residential mortgage loans.
Key financial metrics
Amounts below are in millions except per-share data and percentages.
| Metric | Q3 / September 30, 2022 | Comparable period / prior date |
|---|---|---|
| Interest income | $50.2 | $19.6 in Q3 2021 |
| Interest expense | $34.7 | $7.2 in Q3 2021 |
| Net interest income | $15.5 | $12.4 in Q3 2021 |
| Net income (loss) | $(2.9) | $34.6 in Q3 2021 |
| Net income (loss) available to common stockholders | $(7.5); $(0.33) per diluted share | $30.0; $1.87 per diluted share in Q3 2021 |
| Core earnings (non-GAAP) | $(0.6); $(0.03) per diluted share | $15.5; $0.96 per diluted share in Q3 2021 |
| Total assets / stockholders’ equity | $4,451.7 / $464.3 | $3,362.7 / $570.4 at December 31, 2021 |
| Debt and leverage | $3,025.1 securitized debt and $935.8 financing arrangements; GAAP leverage 8.5x, economic leverage 2.0x | $999.2 securitized debt and $1,777.7 financing arrangements at December 31, 2021; economic leverage 2.4x |
| Cash and liquidity | $77.6 cash and equivalents; $99.4 including restricted cash. Management-reported available liquidity: $79.7 | $68.1 cash and equivalents at December 31, 2021 |
| Book value per common share | $11.02; adjusted book value $10.68 | $14.64; adjusted book value $14.32 at December 31, 2021 |
For the nine months ended September 30, 2022, net interest income was $49.0 million, net loss was $64.8 million, and loss available to common stockholders was $78.6 million ($3.38 per diluted share). Operating cash flow was $16.8 million; investing activities used $1,491.6 million and financing activities provided $1,474.0 million. The common dividend declared for the first nine months was $0.63 per share.
At September 30, GAAP investment portfolio net interest margin was 1.00%, versus 1.68% a year earlier; the broader investment portfolio measure was 1.13%, versus 2.34%. These are management-defined metrics.
Material changes versus prior periods
- Interest income grew with portfolio expansion and higher yields, but interest expense also rose substantially as borrowing balances and funding costs increased.
- Q3 included $51.0 million of net realized gains, primarily from unwinding interest rate swaps, but $54.3 million of net unrealized losses. The company attributed loan and securitized-debt valuation changes to rising rates and wider credit spreads.
- Residential mortgage loans and securities expanded, with total investment portfolio fair value of $4.31 billion versus $3.22 billion at year-end 2021. Agency RMBS holdings fell to $19.5 million from $495.7 million.
- During Q3 the company completed two securitizations, totaling $415.9 million of Non-Agency loan unpaid principal balance and $422.7 million of Agency-Eligible loan unpaid principal balance. These replaced recourse, mark-to-market financing with non-recourse financing without mark-to-market margin calls.
- Economic leverage declined to 2.0x from 2.4x at year-end, while GAAP leverage rose to 8.5x from 4.9x, reflecting the larger balance of consolidated securitized debt.
- Equity-method affiliate results shifted to a $1.6 million loss in Q3 from $6.9 million of earnings a year earlier; AG Arc recorded a $4.3 million loss for the quarter.
Outlook, risks and unusual items
- No specific earnings or portfolio guidance was provided. Management said higher mortgage rates may create attractive reinvestment opportunities, while describing markets as volatile amid inflation, rising benchmark rates, and widening spreads.
- Management reported $103.8 million of liquidity at October 31, 2022 and stated that current resources and borrowing capacity were expected to meet anticipated liquidity needs. This is not a guarantee; margin calls, higher haircuts, financing rollovers, or asset sales at unfavorable prices could pressure liquidity.
- Subsequent to quarter-end, the company completed another rated Non-Agency securitization of loans with $457.4 million unpaid principal balance, again converting to non-recourse financing without mark-to-market margin calls.
- Interest-rate, credit-spread, prepayment, home-price, counterparty, and funding risks are material. The company’s reported duration gap was 2.23 years; a modeled 75-basis-point rate increase implied a 4.7% decline in GAAP equity fair value and a 0.8% decline in projected net interest income. Actual outcomes may differ materially.
- Fair-value estimates rely heavily on Level 3 inputs and models. The company reported $4.26 billion of Level 3 fair-value assets. Changes in yields, defaults, prepayments, and loss severity could materially affect valuations and reported earnings.
- California, New York, and Florida represented 33%, 16%, and 10% of residential loan exposure, respectively. Management reported compliance with financing covenants and that margin-call requirements had been met as of quarter-end.
- The manager waived incentive fees for 2021 and 2022; an annual fee may first be payable for 2023, subject to the contractual cumulative 8% return hurdle. The company also reported $140.0 million of remaining unfunded commitments.
- Management reported no material legal proceedings, and concluded disclosure controls were effective as of September 30, 2022. The company stated it believed it remained compliant with REIT and Investment Company Act tests.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for AG Mortgage Investment Trust, Inc., not a registrant named TPG Mortgage Investment Trust.
- Assess the drivers and potential persistence of the large unrealized valuation losses, lower book value, and negative quarterly and year-to-date common earnings.
- Review liquidity, recourse financing maturities, collateral and margin requirements, and the terms and performance of recent securitizations.
- Evaluate the sensitivity of Level 3 loan and debt valuations to rate, spread, credit, and home-price assumptions, and distinguish GAAP results from management’s non-GAAP Core Earnings and leverage measures.
- Check the sustainability of common and preferred dividends against taxable income, cash needs, and financing obligations, and review affiliate transactions and manager compensation terms.