AG Mortgage Investment Trust, Inc. (NYSE: MITT) — Q1 2022 Form 10-Q
Entity note: The filing identifies the registrant as AG Mortgage Investment Trust, Inc.; the request metadata names TPG Mortgage Investment Trust, Inc. This summary follows the filing.
Business context and reporting period
Unaudited results cover the three months ended March 31, 2022, with balance-sheet comparisons to December 31, 2021. MITT is an externally managed residential mortgage REIT focused on acquiring and securitizing residential mortgage loans, particularly newly originated non-agency and agency-eligible loans. It also holds Agency RMBS and has an approximately 44.6% interest in Arc Home, a mortgage originator and servicer.
Financial and operating performance
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $33.4 million | $12.1 million in Q1 2021 |
| Interest expense | $16.1 million | $4.1 million in Q1 2021 |
| Net interest income | $17.3 million | $8.1 million in Q1 2021 |
| Net income/(loss) | $(13.2) million | $43.2 million in Q1 2021 |
| Net income/(loss) available to common stockholders | $(17.8) million; $(0.74) per diluted share | $38.7 million; $2.74 per diluted share in Q1 2021 |
| Core earnings, non-GAAP | $(0.5) million; $(0.02) per diluted share | $3.5 million; $0.25 per diluted share in Q1 2021 |
| Total assets | $3.84 billion | $3.36 billion at December 31, 2021 |
| Stockholders’ equity | $547.7 million | $570.4 million at December 31, 2021 |
| Book value per common share | $13.68; adjusted book value $13.37 | $14.64 and $14.32, respectively, at December 31, 2021 |
| Financing arrangements / securitized debt | $1.41 billion / $1.86 billion | $1.78 billion / $999.2 million at December 31, 2021 |
| Cash and restricted cash | $96.2 million at quarter-end | $91.6 million at March 31, 2021 |
| Liquidity, as defined by management | $137.9 million | Includes cash and unencumbered Agency RMBS, including securities sold before quarter-end but settled in April |
Net interest margin was 1.37% on the GAAP investment portfolio and 1.42% on the broader investment portfolio; the latter is a non-GAAP measure. GAAP leverage was 5.8x, up from 4.9x at year-end, while economic leverage was 2.7x, up from 2.4x. Operating cash flow was $4.5 million; investing cash outflow was $624.2 million and financing cash inflow was $615.6 million.
Material changes versus comparable periods
- Net interest income more than doubled year over year as the weighted average amortized cost of the GAAP investment portfolio increased to $3.4 billion from $1.4 billion. Funding costs also rose: management reported the portfolio’s weighted average financing rate, including securitized debt, increased to 2.11% from 1.37%.
- The company reported a net loss compared with substantial net income in Q1 2021. The main reported fair-value driver was a $158.1 million unrealized loss on residential mortgage loans, partly offset by $97.2 million of unrealized gains on securitized debt and $49.9 million of derivative gains. Total net unrealized loss was $22.4 million.
- Equity in earnings/(loss) from affiliates shifted to a $2.1 million loss from $26.3 million of earnings in Q1 2021. The company attributed the 2022 affiliate result in part to losses in Arc Home lending and servicing operations.
- Transaction-related expenses rose to $5.9 million from a $(0.2) million credit in Q1 2021, primarily reflecting upfront costs for three first-quarter securitizations.
- MITT bought $604.6 million of non-agency loans and $343.3 million of agency-eligible loans at fair value. It reduced Agency RMBS exposure; portfolio fair value was $227.2 million at quarter-end versus $495.7 million at year-end.
- Three rated securitizations converted financing on non-agency and agency-eligible loans from recourse, mark-to-market financing to non-recourse financing without mark-to-market margin calls. The reported securitized debt balance increased accordingly.
Outlook, risks, and unusual items
- No numerical earnings or return guidance is provided. Management said it believed available liquidity, borrowing capacity, capital proceeds, and operating cash flow would be sufficient for anticipated liquidity needs, but this is a forward-looking statement, not a guarantee.
- Management described Q1 markets as volatile amid Federal Reserve tightening expectations, high inflation, the Russia-Ukraine war, wider credit spreads, and uncertainty about a possible recession. It noted rising mortgage rates and spread widening were headwinds, while housing fundamentals remained supportive.
- Key exposures include interest-rate and spread movements, collateral value declines and margin calls, short-term financing rollover and counterparty risk, borrower delinquencies and defaults, prepayment risk, and potentially less favorable securitization or funding markets. At March 31, the reported duration gap was 0.71 years; modeled parallel rate shocks showed estimated equity-value declines as rates rose, but the filing cautions that actual results could differ materially.
- Most loans and securitized debt were Level 3 fair-value measurements relying on significant unobservable assumptions, including yields, prepayments, defaults, and loss severity. Actual realized values may differ from estimates.
- Residential loan exposure was geographically concentrated, including California (34%), New York (17%), and Florida (10%) of the specified portfolio. Management reported all financing covenants were met and all margin-call requirements satisfied at quarter-end.
- Unfunded commitments totaled $33.2 million, of which $19.7 million remained unfunded. The company reported no material legal proceedings and no material change in internal control over financial reporting.
- Subsequent to quarter-end, MITT completed an agency-eligible securitization with loans reported at $398.7 million fair value; management also described the transaction as $425.5 million unpaid principal balance. The transaction further converted recourse, mark-to-market financing to non-recourse financing without mark-to-market margin calls.
Most important facts for investors to verify
- Whether reported liquidity remains available after settlement of the $38.9 million of Agency RMBS sold before quarter-end, and how much is unencumbered and immediately usable.
- How loan and securitized-debt fair values respond to higher rates, wider spreads, changing prepayments, and credit deterioration, given the large Level 3 portfolio and Q1 unrealized loss.
- Funding maturities, counterparty concentration, covenant headroom, and potential collateral calls; recourse financing was $1.42 billion at quarter-end.
- Whether growth in securitizations and loan purchases can restore positive core earnings while managing higher financing costs and transaction expenses.
- The sustainability of common and preferred dividends relative to taxable income, cash needs, and REIT distribution requirements. Q1 common dividends declared were $0.21 per share; preferred dividends are cumulative.
- The basis for management’s forward-looking liquidity assessment and the actual performance and financing terms of the subsequent agency-eligible securitization.