Business context and reporting period
This is AG Mortgage Investment Trust, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2014. The request names TPG Mortgage Investment Trust, but the filing identifies the registrant as AG Mortgage Investment Trust, Inc. It is an externally managed mortgage REIT investing in Agency and non-Agency mortgage securities, loans, and related assets.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net interest income | $29.4 million | $27.7 million | $86.7 million | $94.4 million |
| Net income (loss) | $22.4 million | $6.0 million | $94.7 million | $(48.5) million |
| Net income (loss) available to common | $19.0 million | $2.6 million | $84.6 million | $(58.6) million |
| Basic and diluted EPS | $0.67 | $0.09 | $2.98 | $(2.10) |
| Core earnings per diluted share (non-GAAP) | $0.63 | $0.45 | $1.81 | $2.02 |
- At September 30, assets were $3.62 billion, liabilities $2.88 billion, and stockholders’ equity $738.3 million. Repurchase-agreement debt was $2.74 billion, down from $2.89 billion at December 31, 2013.
- GAAP leverage was 3.59x equity; management’s non-GAAP leverage was 3.77x and “at risk” leverage was 4.05x. Period-end weighted average portfolio yield was 4.63%, cost of funds 1.71%, and net interest margin 2.92%.
- Cash and cash equivalents were $43.7 million, with $40.7 million of restricted cash. Management reported $198.9 million of available liquidity, including unpledged Agency securities.
- Operating cash flow for the first nine months was $72.3 million versus $105.0 million in 2013. Cash and cash equivalents declined $42.5 million during the period.
- The portfolio mix shifted toward credit assets: credit investments were 44% of the reported investment portfolio versus 29% a year earlier. The company held $83.7 million of residential loans and $72.8 million of commercial loans, both newly introduced in 2014.
Changes, outlook, and risks
- Q3 net income improved year over year, supported by higher net interest income and a $10.5 million net realized gain versus a $42.7 million realized loss in Q3 2013. However, securities and loan marks produced a $19.5 million unrealized loss in Q3 2014, compared with a $40.1 million gain a year earlier.
- For the nine-month comparison, the return to GAAP profitability principally reflects much smaller realized losses and positive unrealized gains on securities and loans; core earnings per share fell from $2.02 to $1.81.
- Management described Q3 credit markets as generally positive and remained cautiously optimistic about housing recovery and credit opportunities. It expected the Federal Reserve to end new QE3 purchases while continuing reinvestments and to keep rates low for a considerable time. No numerical earnings or portfolio guidance was provided; management said investment and financing strategies may change with market conditions.
- Key exposures include short-term repo refinancing, collateral haircuts and margin calls, interest-rate and basis risk, prepayments, credit losses, and valuation uncertainty. Some credit assets and loans rely on Level 3 inputs. The filing notes that 99% of residential-loan fair value had unpaid principal balances exceeding current property values.
- Repurchase facilities include financial covenants; certain Wells Fargo facilities require minimum liquidity of $30 million and unrestricted cash of $5 million. The company said it had met margin-call requirements. Management reported no significant contingencies or legal proceedings and concluded disclosure controls were effective.
- The common dividend was $0.60 per share for Q3, unchanged from Q3 2013. The filing states approximately $1.89 per share of undistributed taxable income at September 30, 2014. Future distributions remain subject to board authorization, operating needs, and debt service.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for AG Mortgage Investment Trust, Inc., not the company named in the request.
- Review the quality, collateral and valuation assumptions of the growing credit and loan portfolio, including Level 3 positions and the high loan-to-property-value exposure.
- Assess repo maturity, counterparty concentration, covenant headroom, available unencumbered collateral, and the company’s ability to withstand higher haircuts or margin calls.
- Reconcile GAAP earnings with core earnings and cash flows, and evaluate whether taxable income supports the dividend; the filing cautions that core earnings are non-GAAP.
- Monitor the effects of interest-rate changes, credit spreads, prepayments and forthcoming repurchase-accounting guidance on earnings, liquidity and reported leverage.