Business context and reporting period
This is AG Mortgage Investment Trust, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The filing identifies AG Mortgage Investment Trust, Inc. as the registrant; this differs from the company name in the request metadata. AG MIT is an externally managed mortgage REIT investing in mortgage securities, residential and commercial loans, and mortgage servicing-related assets.
Financial results and position
Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Interest income | $13.4m | $40.9m | $53.6m | $82.4m |
| Net interest income | $4.8m | $17.9m | $25.1m | $37.3m |
| Net income/(loss) | $3.1m | $18.7m | $(482.0)m | $47.8m |
| Net income/(loss) available to common stockholders | $(2.6)m | $15.3m | $(493.3)m | $41.1m |
| Basic and diluted EPS | $(0.08) | $0.47 | $(15.04) | $1.30 |
- Q2 net realized loss was $91.6m, including losses on securities and related collateral and loan sales. Unrealized gains on securities and loans were $109.6m, including $88.1m of reversals associated with assets sold; remaining mark-to-market gains were $21.5m.
- Six-month net realized losses were $242.8m, including $181.4m on securities, loans and related collateral and $61.4m on derivative settlements. Net unrealized losses on securities and loans were $204.3m.
- Total assets fell to $855.6m from $4.35bn at December 31, 2019. Stockholders’ equity was $365.4m, down from $849.0m. Book value per common share dropped to $2.75 from $17.61.
- GAAP financing arrangements were $251.1m, versus $3.23bn at year-end; securitized debt was $199.0m. GAAP leverage was 1.3x versus 4.1x year-end; economic leverage was 0.8x. The company reported a 2.21% GAAP net interest margin and 2.66% portfolio net interest margin at June 30.
- Cash and cash equivalents were $68.2m; cash, cash equivalents and restricted cash totaled $69.2m. Six-month operating cash flow was $0.8m, investing cash flow was $2.63bn, and financing cash flow was $(2.69)bn, resulting in a $56.2m decrease in cash and restricted cash.
Material changes versus comparable periods
- COVID-19 market disruption drove margin calls, distressed asset sales and financing counterparty seizures. The investment portfolio contracted from $4.0bn to $652.3m on a GAAP basis; the company sold its 30-year fixed-rate Agency securities and had no Agency RMBS other than Excess MSRs at quarter-end.
- Interest income and net interest income declined sharply year over year as the portfolio and financing balances shrank. Management expects interest income and overall earnings to be materially lower than in comparable prior periods because of the smaller portfolio.
- The company terminated its pay-fixed interest-rate swaps, recognizing $65.4m in GAAP realized losses; it held no interest-rate swaps at June 30.
- Common and preferred dividends were suspended. Preferred dividend arrears totaled $5.7m at June 30.
Outlook, risks and unusual items
- Management says the full effects of COVID-19 remain uncertain and expects elevated uncertainty around asset values, credit performance, financing availability and costs. It states that current cash resources, expected operating cash flows, remaining asset equity and access to financing should support operations for more than a year after issuance, while acknowledging actual conditions could materially differ.
- The company entered forbearance arrangements after reporting inability to meet anticipated margin calls and receiving alleged default and deficiency notices. On June 10, 2020, counterparties waived existing and prior defaults and reinstated financing agreements, generally with higher haircuts and coupons. The company reported meeting all margin calls at quarter-end. It later reported resolving lender deficiency claims; $2.2m accrued deficiencies were paid after quarter-end.
- The company no longer satisfied the Investment Company Act 40% test after asset sales and is relying on the Rule 3a-2 temporary safe harbor while working to restore compliance. The stated one-year grace period ends in March 2021; failure to regain an exemption could require registration or restructuring.
- Management does not anticipate common or preferred dividends for the foreseeable future. Unpaid preferred dividends continue to accumulate, and common cash dividends cannot be paid while preferred dividends are in arrears.
- Unfunded commitments totaled $81.4m, principally commercial loan and land-related financing commitments. Commercial Loan G, with a $52.5m fair value at quarter-end, matured July 9, 2020; discussions on extension or restructuring were ongoing, with no assurance of agreement.
- After quarter-end, the company sold CMBS for approximately $24.4m, sold 0.4m common shares for approximately $1.2m net proceeds, repaid a $10m Manager loan, and participated in a non-QM securitization. It reported no material litigation beyond the settled RBC matter.
Most important facts for investors to verify
- Confirm the registrant identity: the filing is for AG Mortgage Investment Trust, Inc., not the TPG name supplied in the request metadata.
- Track progress toward regaining Investment Company Act compliance before the March 2021 safe-harbor deadline.
- Review liquidity, financing terms, margin-call exposure and covenant compliance following the reinstatement agreements.
- Assess whether the much smaller, predominantly credit-focused portfolio can generate sustainable earnings and whether management’s liquidity outlook remains valid.
- Monitor preferred-dividend arrears, any dividend reinstatement, the Loan G outcome, unfunded commitments and COVID-related borrower delinquencies or losses.