Business context and reporting period
AG Mortgage Investment Trust, Inc. (NYSE: MITT) filed this unaudited Form 10-Q for the quarter ended March 31, 2021. It is an externally managed hybrid mortgage REIT investing in residential and commercial credit assets and Agency RMBS. The filing identifies the registrant as AG Mortgage Investment Trust, Inc.; investors should verify the requested company name, TPG Mortgage Investment Trust, against the filing and ticker.
Financial and operating highlights
| Metric | Q1 2021 | Comparison |
|---|---|---|
| Interest income | $12.1 million | $40.3 million in Q1 2020 |
| Net interest income | $8.1 million | $20.3 million in Q1 2020 |
| Net income (loss) | $43.2 million | $(485.0) million in Q1 2020 |
| Net income (loss) available to common stockholders | $38.7 million; $0.91 per diluted share | $(490.7) million; $(14.98) per diluted share in Q1 2020 |
| Core earnings, non-GAAP | $3.5 million; $0.08 per diluted share | $9.4 million; $0.29 per diluted share in Q1 2020 |
| Operating cash flow | $6.5 million | $7.4 million in Q1 2020 |
| Total assets | $1.94 billion | $1.40 billion at December 31, 2020 |
| Total liabilities | $1.49 billion | $990.3 million at December 31, 2020 |
| Financing arrangements | $1.13 billion | $564.0 million at December 31, 2020 |
| Cash and cash equivalents | $51.6 million | $47.9 million at December 31, 2020 |
| Restricted cash | $39.9 million | $14.4 million at December 31, 2020 |
| Book value per common share | $4.92; adjusted book value $4.76 | $4.13 and $3.94, respectively, at December 31, 2020 |
Net cash from investing activities was an outflow of $526.5 million, largely reflecting investment purchases; financing activities provided $549.2 million, mainly from borrowings net of repayments. Total cash, cash equivalents and restricted cash were $91.6 million at quarter-end. Management separately reported $51.6 million of liquidity, consisting entirely of cash; restricted cash is not available for general corporate purposes.
The reported Q1 2021 net interest margin was 1.48% for the GAAP investment portfolio and 2.67% for the broader investment portfolio, including affiliate investments. These are management portfolio measures, not income-statement margins. Economic leverage was 2.6x and GAAP leverage was 3.2x at March 31, 2021.
Material changes versus comparable periods
- Compared with Q1 2020, the company swung from a substantial loss to a profit, largely reflecting much smaller realized and unrealized losses, a $26.3 million contribution from affiliate earnings versus a $44.2 million affiliate loss, and $26.5 million of unrealized gains on derivatives and other instruments. Q1 2020 included severe pandemic-related market losses and asset sales.
- Net interest income declined $12.2 million year over year. Management attributed lower interest income primarily to a much smaller average portfolio after 2020 sales and seizures and a lower portfolio yield; lower interest expense reflected reduced average financing balances and funding costs.
- Versus year-end 2020, the investment portfolio grew: Agency RMBS fair value increased to $918.8 million from $521.8 million, while residential investments rose to $876.8 million from $691.5 million. Commercial investments declined to $104.0 million from $182.3 million.
- Financing arrangements increased by $568.2 million from year-end, and economic leverage rose to 2.6x from 1.5x. The company issued 2.2 million common shares through its ATM program for about $10.0 million net and exchanged preferred shares for 2.8 million common shares.
- Management resumed ordinary-course common and preferred dividends after the 2020 suspension. Q1 2021 common dividend declared was $0.06 per share; preferred dividends were also declared.
Outlook, commentary, risks and unusual items
Management said it was growing residential credit investments, particularly Non-QM loans, and Agency RMBS, while reallocating capital away from commercial investments and Non-Agency RMBS. It purchased $208.5 million of Non-QM loans during the quarter and, after quarter-end, purchased another $154.2 million. It reported no formal earnings or financial guidance.
Management described improving mortgage and credit markets in Q1 2021, supported by vaccination and reopening developments, stimulus, demand for fixed-income assets and low-rate policy. It also noted that Treasury yields rose during the quarter, pressuring some Agency RMBS specified-pool valuations. Management cautioned that pandemic effects and market conditions remain uncertain.
- Funding and liquidity: Most repurchase borrowings are short-term, generally 30–90 days, and can require margin calls or fail to roll at maturity. The company previously entered COVID-related forbearance agreements after warning it could not meet anticipated margin calls; defaults were waived and financing reinstated in June 2020, with generally higher haircuts and coupons. At March 31, 2021, it reported compliance with financial covenants and satisfaction of margin call requirements.
- Interest-rate exposure: The portfolio is largely fixed-rate and asset values can decline as rates rise. The company had $1.108 billion notional of pay-fixed swaps. Its modeled sensitivity estimated that a 75-basis-point rate increase would reduce fair value by 2.3% of GAAP equity, while a 75-basis-point decrease would reduce projected net interest income by 15.7%; actual outcomes may differ materially.
- Credit and valuation: Borrower defaults, delinquencies, property values, prepayments and credit spreads affect asset values and cash flows. A substantial portion of residential loans and affiliate investments are Level 3 fair-value assets dependent on models and unobservable assumptions. Thirty percent of the Re/Non-Performing loan population had requested COVID-related assistance at quarter-end.
- Commercial loan: Loan L remained on non-accrual and was classified as a troubled debt restructuring. The company sold two commercial loans for $74.3 million proceeds, recording $2.9 million realized losses.
- Commitments and related parties: Remaining disclosed commitments totaled $36.8 million, including commitments to LOTS and MATH. The company is externally managed and has material transactions with affiliates, including purchases of Non-QM loans from Arc Home.
- Subsequent financing and securitization: After quarter-end, the company increased or entered into facilities raising maximum uncommitted Non-QM financing capacity to $800 million. On May 5, 2021, MATT securitized $171.4 million of Non-QM loans, retaining subordinate tranches alongside Angelo Gordon-managed funds.
- Legal matters: The filing reports no material pending legal proceeding. A prior dispute with RBC was settled in 2020; other lender deficiency claims were reported settled by August 2020.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for AG Mortgage Investment Trust, Inc. (MITT), not a registrant named TPG Mortgage Investment Trust.
- Review the composition and terms of short-term repurchase funding, counterparty concentration, margin requirements and the amended Non-QM borrowing facilities.
- Assess the quality and valuation sensitivity of Level 3 loans, affiliate investments and securitized debt, including underlying delinquency, assistance and recovery assumptions.
- Reconcile GAAP net income with non-GAAP Core Earnings and understand that Core Earnings fell to $0.08 per share from $0.29 year over year.
- Evaluate the effect of common and preferred share issuance and exchanges on per-share value, preferred liquidation claims and future dividends.
- Track Loan L’s non-accrual status, remaining commitments, subsequent Non-QM purchases and securitization results, and the company’s ability to sustain liquidity as the portfolio and leverage expand.