AG Mortgage Investment Trust, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2012. The filing identifies the registrant as AG Mortgage Investment Trust, Inc.; the supplied company metadata names TPG Mortgage Investment Trust, Inc. The filing provides no prior-year comparable-quarter results, so year-over-year comparisons are unavailable.
Business context and portfolio
The externally managed mortgage REIT invests primarily in Agency residential mortgage-backed securities (RMBS), alongside smaller Non-Agency RMBS, asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), and linked transactions. Management said the portfolio remained substantially concentrated in Agency RMBS, with plans to allocate more capital opportunistically to other asset types when attractive opportunities arise.
Financial performance and position
| Metric | Quarter ended March 31, 2012 / period-end |
|---|---|
| Interest income | $14.0 million |
| Interest expense | $1.8 million |
| Net interest income | $12.2 million |
| Net income | $11.0 million |
| Basic and diluted EPS | $0.77 |
| Dividend declared per share | $0.70; payable in April |
| Annualized average asset yield / repo borrowing rate | 3.22% / 0.49%; swap cost was 0.33% of average repo borrowings |
| Total assets | $2.476 billion, versus $1.394 billion at December 31, 2011 |
| GAAP real estate securities, at fair value | $2.327 billion; Agency RMBS accounted for $2.223 billion |
| Repurchase agreements | $2.087 billion, versus $1.150 billion at December 31, 2011 |
| Stockholders’ equity | $310.2 million, versus $206.3 million at December 31, 2011 |
| Book value per common share | $19.63 |
| Cash and cash equivalents | $20.8 million; management also reported $153.3 million of unpledged Agency RMBS |
| Leverage | 6.65x on a GAAP basis; 7.12x including linked transactions, as calculated in the filing |
Cash flow from operating activities was $11.5 million; investing activities used $1.169 billion, principally for securities purchases; financing activities provided $1.142 billion, including repo borrowings and equity proceeds. Cash declined by $15.0 million during the quarter.
Changes and unusual items
- A January follow-on offering of 5.75 million shares generated approximately $104.0 million in net proceeds. Outstanding shares rose to 15.76 million from 10.01 million at year-end.
- Repo borrowings increased substantially as the portfolio expanded. The reported quarter-end weighted-average repo rate was 0.42%, with a 5.29% weighted-average haircut; most borrowings matured within 90 days.
- Other income included a $3.4 million gain on linked transactions and $2.4 million in net realized gains. These were partly offset by $2.8 million of unrealized derivative losses, $1.5 million of realized swap settlement losses, and $0.8 million of unrealized securities losses.
- The manager waived approximately $0.9 million of reimbursable expenses for the quarter. The company incurred approximately $1.0 million in management fees.
The filing does not provide a prior comparable-quarter income statement; accordingly, changes in quarterly revenue and earnings versus the prior year cannot be assessed from this filing.
Outlook, risks, and contingencies
- Management expected available offering proceeds, operating cash flow, and borrowing capacity to cover anticipated short-term liquidity needs. Longer-term liquidity depends on obtaining additional debt or equity financing; the company cautioned that inability to renew or replace financing could adversely affect results.
- Key exposures include interest-rate and spread changes, short-term repo refinancing and margin calls, prepayments, credit losses on Non-Agency assets, and the valuation of securities. A modeled parallel 100-basis-point rate increase was associated with an estimated 3.17% decline in portfolio value and 10.90% decline in projected net interest income; management cautioned that actual outcomes could differ materially.
- Management reported that all margin-call requirements had been met at March 31. It also noted that repo counterparties can demand additional collateral, and that most financing matures in the near term.
- On April 9, 2012, a subsidiary entered a Wells Fargo repo facility with maximum borrowing capacity of $75 million, guaranteed by the company. The facility includes covenants, including minimum adjusted tangible net worth of $185 million, minimum liquidity of $20 million, and minimum unrestricted cash of $5 million.
- Management reported no significant contingencies and no legal proceedings at quarter-end, and said there were no material changes to previously disclosed risk factors. Disclosure controls were considered effective.
Important facts for investors to verify
- Confirm the registrant’s identity: the filing is for AG Mortgage Investment Trust, Inc., despite the supplied metadata naming TPG Mortgage Investment Trust, Inc.
- Review repo maturity, renewal, haircut, counterparty, and margin-call exposure, including the distinction between GAAP leverage and leverage inclusive of linked transactions.
- Assess the assumptions behind fair values, especially Level 3 Non-Agency RMBS, ABS, and linked-transaction valuations, which rely on estimates of yields, prepayments, defaults, and loss severity.
- Track whether dividend levels remain supported by taxable income and cash generation, and whether liquidity remains adequate as short-term financing rolls over.
- Evaluate the Wells Fargo facility’s covenant compliance and the implications of the company’s guarantee.