AG Mortgage Investment Trust, Inc. (MITT) — Q1 2024 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. MITT is an externally managed residential mortgage REIT focused primarily on acquiring and securitizing U.S. residential mortgage loans. It also holds Agency RMBS and commercial investments acquired in its December 2023 acquisition of Western Asset Mortgage Capital Corporation (WMC). Year-over-year results are affected by the WMC acquisition and the larger share base.
Key financial results and position
| Metric | Q1 2024 | Comparable / prior balance |
|---|---|---|
| Interest income | $95.6 million | $57.8 million in Q1 2023 |
| Interest expense | $78.4 million | $46.2 million in Q1 2023 |
| Net interest income | $17.2 million | $11.6 million in Q1 2023 |
| Net income | $20.9 million | $12.5 million in Q1 2023 |
| Net income available to common stockholders; diluted EPS | $16.3 million; $0.55 | $8.0 million; $0.38 in Q1 2023 |
| Earnings Available for Distribution (EAD), non-GAAP | $6.1 million; $0.21 per diluted share | $0.6 million; $0.03 per diluted share in Q1 2023 |
| Book value per common share; adjusted book value | $10.84; $10.58 | $10.46; $10.20 at Dec. 31, 2023 |
| Total assets; stockholders’ equity | $6.40 billion; $539.6 million | $6.13 billion; $528.4 million at Dec. 31, 2023 |
At quarter-end, GAAP net interest margin was 0.81% and the company-reported investment portfolio net interest margin was 0.92%; economic leverage was 1.4x versus GAAP leverage of 10.8x. These leverage measures use different definitions: economic leverage excludes fully non-recourse financing.
Reported financing included $4.98 billion of securitized debt, generally non-recourse, and $734.0 million of financing arrangements. The company also had $78.5 million carrying value of WMC convertible notes, due September 2024, and $32.8 million carrying value of 9.5% senior notes due 2029. Financing arrangements had a 7.09% weighted-average funding cost and 0.38-year weighted-average life. Cash and cash equivalents were $100.3 million; reported liquidity, including $40.0 million of unencumbered Agency RMBS, was $140.3 million.
Operating cash flow was $12.0 million, investing cash outflow was $248.2 million, and financing cash inflow was $227.3 million. Cash, cash equivalents and restricted cash declined $8.9 million to $116.6 million. MITT declared a $0.18 common dividend per share for the quarter.
Material changes versus Q1 2023 and prior quarter
- Net interest income rose $5.6 million year over year. Management attributed higher interest income mainly to the larger portfolio following WMC, additional loan purchases, and higher portfolio yield. Higher financing balances and financing rates also increased interest expense.
- Net income available to common stockholders increased to $16.3 million from $8.0 million; diluted weighted-average shares rose to 29.5 million from 21.1 million, reflecting the WMC transaction. The acquisition makes per-share and dollar comparisons less like-for-like.
- Net unrealized gains were $10.0 million, including gains on residential mortgage loans and derivatives partly offset by losses on securitized debt. Net realized loss was $1.1 million, mainly from unwinding pay-fixed swaps, partly offset by securities-sale and commitment-settlement gains. EAD excludes specified realized and unrealized items and is not a substitute for GAAP earnings.
- Compared with December 31, 2023, residential mortgage loans and securities purchases expanded the portfolio; financing and securitized debt balances also increased. The company executed a rated securitization of Agency-Eligible Loans with $377.5 million unpaid principal balance, replacing recourse, mark-to-market financing with non-recourse financing without mark-to-market margin calls.
Outlook, risks, and other notable items
- No quantified company earnings or dividend guidance is provided. Management said it believes available liquidity, operating cash flow, financing capacity, and capital-market proceeds should be sufficient for anticipated needs; this is forward-looking and not assured.
- Management described Q1 as a volatile market environment: inflation and employment data pushed Treasury and mortgage rates higher and delayed market expectations for rate cuts. It noted tighter RMBS credit spreads and strong investor demand, while longer-term rates could remain elevated.
- Principal risks include interest-rate and spread movements, asset fair-value changes, margin calls, short-term financing renewal and refinancing, borrower delinquencies/defaults, prepayment and basis risk, and access to debt and equity markets. At March 31, MITT reported $52.2 million fair value of loans 90+ days delinquent and $52.6 million in foreclosure. Residential loan exposure is concentrated in California (37%), New York (13%), and Florida (10%).
- Financing agreements include liquidity, equity and leverage covenants and some cross-default provisions; MITT reported compliance with all financial covenants. $109.7 million of loan purchase commitments, made with affiliate Arc Home, remained unfunded at quarter-end. The company reported no material legal proceedings.
- Valuation is a notable judgment area: most securitized residential loans and securitized debt are Level 3 fair-value measurements. The filing’s model estimates indicate a parallel 75-basis-point rate increase could reduce estimated GAAP equity by 5.1%, while projected net interest income increases 0.4%; actual outcomes may differ.
- MITT issued $34.5 million principal amount of 9.5% senior notes in January and repurchased $7.1 million principal of WMC convertible notes. A new shelf registration for up to $1.0 billion of securities became effective April 9, 2024. The Series C preferred shares’ fixed 8.0% rate is scheduled to convert to a floating rate after September 17, 2024; review the stated LIBOR fallback terms.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- How MITT will address the $79.1 million face amount of convertible notes due September 2024 and the short maturities of financing arrangements.
- Whether reported $140.3 million liquidity remains adequate under adverse asset-price moves, higher haircuts, or derivative and repo margin calls.
- Key Level 3 valuation assumptions and sensitivity of loan and securitized-debt marks to defaults, losses, prepayments, and discount rates.
- Loan delinquency and foreclosure trends, geographic concentration, and performance of the acquired WMC commercial portfolio.
- Dividend sustainability relative to EAD, taxable income and cash needs; EAD is non-GAAP and differed from GAAP earnings this quarter.