AG Mortgage Investment Trust, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 11, 2024. This is an annual report, not a standalone fourth-quarter earnings report. The filing identifies the registrant as AG Mortgage Investment Trust, Inc. (NYSE: MITT).
Business context and material developments
MITT is an externally managed residential mortgage REIT focused mainly on acquiring and securitizing newly originated non-agency residential mortgage loans. It also invests in Agency RMBS and has an approximately 44.6% interest in mortgage originator and servicer Arc Home.
- MITT completed its acquisition of Western Asset Mortgage Capital Corporation (WMC) on December 6, 2023. It issued approximately 9.2 million common shares; former WMC holders owned about 31% of MITT’s common equity after closing.
- The acquisition added approximately $1.2 billion of assets, primarily securitized residential loans, and $1.1 billion of liabilities. MITT recorded $81.4 million of net assets acquired and a $30.2 million bargain-purchase gain. The acquisition accounting remained subject to a measurement period of up to one year.
- MITT completed three rated securitizations during 2023, converting some recourse, mark-to-market financing into non-recourse financing without mark-to-market margin calls. In January 2024, it completed another securitization of $377.5 million in unpaid principal balance of Agency-Eligible Loans.
Financial results and key metrics
| Metric | 2023 | 2022 / comparison |
|---|---|---|
| Interest income | $260.3 million | $180.3 million |
| Interest expense | $212.5 million | $118.9 million |
| Net interest income | $47.8 million | $61.4 million |
| Net income (loss) | $53.8 million | $(53.1) million |
| Net income (loss) available to common stockholders | $35.4 million; $1.68 diluted EPS | $(71.4) million; $(3.12) diluted EPS |
| Earnings Available for Distribution (non-GAAP) | $8.3 million; $0.39 per diluted share | $1.9 million; $0.08 per diluted share |
| Common dividends declared | $0.72 per share | $0.81 per share |
Net interest income fell by $13.6 million despite higher interest income: the average GAAP portfolio amortized cost increased to $5.0 billion from $4.0 billion, and average portfolio yield rose to 5.19% from 4.51%, but average financing cost increased to 4.58% from 3.25%. The $30.2 million bargain-purchase gain materially contributed to reported 2023 profit; EAD, a company-defined non-GAAP measure, was substantially lower. Net realized gains were $7.7 million versus $81.4 million in 2022, while net unrealized losses of $137.6 million in 2022 were approximately offset by gains in 2023.
- Portfolio and book value: Investment portfolio fair value was $5.93 billion at year-end, versus $4.22 billion at year-end 2022. Book value per common share was $10.46 and adjusted book value per share was $10.20, down from $11.39 and $11.03, respectively.
- Debt and leverage: Total GAAP financing was $5.56 billion, including $4.71 billion of securitized debt, $767.6 million of financing arrangements, and $85.3 million carrying value of WMC convertible notes. GAAP leverage was 10.5x, compared with 8.4x in 2022; economic leverage, which excludes fully non-recourse financing, was 1.5x versus 1.3x.
- Liquidity: Management reported $112.3 million of available liquidity at December 31, 2023, comprising $111.5 million of cash and $0.8 million of unencumbered Agency RMBS. Cash, cash equivalents, and restricted cash totaled $125.6 million. MITT reported compliance with all financial covenants and that it had met margin-call requirements as of year-end.
- Cash flow: Operating activities provided $28.1 million; investing activities used $433.5 million; financing activities provided $432.1 million. Cash and restricted cash increased $26.8 million during the year.
Outlook, risks, and unusual items
- No company-specific numerical earnings or dividend guidance is provided. Management intends to continue quarterly dividends but gives no assurance as to future amounts. The 2023 common dividend declined from $0.81 to $0.72 per share.
- Management described 2023 as a volatile rate and mortgage-market environment. Long-term Treasury yields rose substantially through October and then fell toward year-end; mortgage rates also retreated from an October peak. Management noted uncertainty over the timing of Federal Reserve rate cuts and the possibility that rates could remain elevated.
- Management cited improving mortgage-credit spreads late in 2023, but residential mortgage-backed securities issuance was $65 billion for 2023, roughly half the $137 billion issued in 2022. The filing cites third-party estimates of $65–$90 billion of industry issuance in 2024; this is not MITT guidance.
- Principal risks include mortgage borrower credit losses, interest-rate and spread changes, prepayment and extension risk, valuation uncertainty in less-liquid assets, margin calls and refinancing access, dependence on securitization markets, and the ability to refinance near-term corporate debt. The residential loan portfolio is geographically concentrated: 38% of its fair value was secured by California properties and 10% by Florida properties.
- The $86.25 million principal amount of WMC’s 6.75% convertible notes was assumed in the acquisition and matures September 15, 2024. After year-end, MITT issued $34.5 million of 9.5% senior notes due 2029 and repurchased $7.1 million principal amount of the convertible notes; the filing states approximately $79.12 million remained outstanding as of the filing date.
- Other notable items: MITT incurred $6.0 million of WMC acquisition transaction expenses and granted management fee and expense-reimbursement concessions in connection with the acquisition. Two WMC merger lawsuits were voluntarily dismissed without prejudice after supplemental disclosures; the company also received related demand letters. It reported no material legal proceeding as of the report date.
- The Series C preferred stock’s rate is scheduled to become floating in September 2024 under its LIBOR cessation fallback terms, potentially affecting financing costs. MITT also depends on its external manager, with related-party fees, allocation conflicts, and integration of TPG Angelo Gordon into TPG among disclosed considerations.
Important facts for investors to verify
- How much of 2023 net income and per-share earnings reflects the one-time WMC bargain-purchase gain, and how EAD reconciles to GAAP results.
- Current convertible-note principal outstanding, refinancing or repayment plans, and the effect of the 2029 senior notes’ 9.5% coupon.
- Post-acquisition portfolio credit performance, delinquencies, collateral valuations, and the final WMC purchase-price allocation.
- Liquidity available for margin calls and near-term financing maturities, including the maturity profile and terms of repurchase facilities.
- The sustainability of the common dividend, the floating-rate reset terms for Series C preferred stock, and the treatment of related-party fees and transactions.
- MITT’s sensitivity analysis estimates that an instantaneous 75-basis-point rate increase would reduce estimated fair value by 5.0% of GAAP equity while increasing projected net interest income by 1.3%; assumptions are model-based and actual outcomes may differ.
Audit and controls: PwC issued an unqualified opinion on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective at year-end. The audit identified critical audit matters concerning fair-value estimates for residential mortgage loans and loans acquired from WMC.