Filing Summary: AG Mortgage Investment Trust, Inc. (10-Q)
Issuer identification: The filing identifies the registrant as AG Mortgage Investment Trust, Inc., not TPG Mortgage Investment Trust, Inc. Confirm the issuer against the intended filing. Reporting period ended June 30, 2015; filed August 6, 2015. The company is an externally managed mortgage REIT investing in Agency and Non-Agency mortgage securities, other real estate securities, and mortgage loans.
Financial Results and Position
| Metric | Q2 2015 / June 30, 2015 | Comparable period / prior date |
|---|---|---|
| Interest income | $37.3 million | $36.1 million in Q2 2014 |
| Net interest income | $29.7 million | $29.3 million in Q2 2014 |
| Net income | $1.8 million; common-stockholder loss $1.5 million, or $(0.05) per share | $41.2 million net income; $37.8 million available to common, or $1.33 per share, in Q2 2014 |
| Six-month results | Net income $14.6 million; common income $7.9 million, or $0.28 per share | Net income $72.4 million; common income $65.6 million, or $2.31 per share, in first half 2014 |
| Core earnings, non-GAAP | $18.6 million, or $0.65 per diluted share; first half $36.5 million, or $1.28 per share | Q2 2014 $17.0 million, or $0.60 per share; first half $34.6 million, or $1.22 per share |
| Net interest margin / cost of funds | 2.86% margin; 1.78% total cost of funds (1.14% funding and 0.64% hedging) | 2.70% margin and 1.71% total cost of funds at June 30, 2014 |
| Total assets / equity | $3.392 billion / $706.6 million | $3.458 billion / $732.7 million at December 31, 2014 |
| Debt | $2.513 billion repurchase agreements and $36.0 million securitized debt | $2.645 billion repurchase agreements and $39.8 million securitized debt at December 31, 2014 |
| Cash flow and liquidity | First-half operating cash flow $48.5 million; cash $73.8 million. Management reported $192.9 million of available liquidity, including unpledged Agency securities | First-half 2014 operating cash flow $49.3 million; cash $11.2 million at June 30, 2014 |
| Book value per common share | $19.21 | $20.13 at December 31, 2014; $20.26 at June 30, 2014 |
The reported GAAP results reflect material fair-value swings: Q2 2015 included a $22.3 million unrealized loss on securities and loans, partly offset by $5.8 million in gains on derivatives and other instruments. First-half operating cash flow was positive, while investing and financing cash flows reflected substantial portfolio and short-term repo activity.
Material Changes and Unusual Items
- Common-stockholder GAAP earnings fell sharply year over year, principally as Q2 2015 had unrealized investment losses rather than the substantial unrealized gains reported in Q2 2014. Core earnings increased year over year.
- The portfolio shifted further toward credit assets: these were 47.6% of the reported investment portfolio at June 30, 2015, versus 44.8% at December 31, 2014. Agency RMBS fair value declined to $1.64 billion from $1.81 billion, while Non-Agency RMBS rose to $1.16 billion from $1.14 billion.
- Repurchase-agreement debt declined from year-end, while its weighted-average rate on securities-backed repos increased from 0.93% to 1.02%; weighted-average haircut decreased from 11.5% to 10.3%.
- Adoption of ASU 2014-11 from January 1, 2015 eliminated linked-transaction presentation for these financings and put related securities and borrowings on a gross basis. It did not affect net income or equity, but prior-period presentation is not fully comparable.
- First-half 2015 included $16.4 million of realized losses from derivative settlements and $6.0 million of OTTI charges on securities and loans, including affiliate-held investments. The filing reports $3.9 million of OTTI on securities and $0.4 million on residential loans in the financial statement notes.
Outlook, Commentary, and Risks
- No formal earnings or dividend guidance is provided. Management described an expectation of continued market volatility and potential adjustment of investment, financing, and hedging strategies as conditions evolve.
- Management characterized the U.S. recovery and housing fundamentals as improving but uneven; it noted elevated rate volatility, Agency MBS underperformance in Q2, and relatively flat-to-modestly tighter credit spreads. It remained constructive on selected Non-Agency RMBS and ABS fundamentals.
- Interest-rate sensitivity estimates indicate that a 100-basis-point increase could reduce GAAP equity by 5.0% and projected net interest income by 10.5%; a 100-basis-point decrease was estimated to increase equity by 0.3% and net interest income by 0.5%. These are model-based estimates for a static portfolio, not forecasts.
- Key risks include short-term repo funding against longer-term assets, refinancing and margin-call exposure, counterparty concentration, credit and real-estate collateral risk, prepayment and basis risk, and valuation uncertainty. The company reported 3.64x non-GAAP “at risk” leverage and 3.61x GAAP leverage.
- Subsequent events: on August 4, 2015, the CREL repo facility’s maximum capacity was reduced from $150 million to approximately $42.8 million and became full recourse to the company and its subsidiary; borrowings were approximately $42.8 million after an additional draw. On July 30, its captive insurer obtained FHLB Cincinnati membership, but a proposed federal rule could require termination and prompt repayment of advances.
- The company declared a common dividend of $0.60 per share, payable July 31, 2015. It reported no significant legal proceedings or commitments at June 30. Management concluded disclosure controls were effective and reported no material change in internal controls.
Most Important Facts to Verify
- Confirm that AG Mortgage Investment Trust, Inc. is the intended issuer, given the different company name in the request metadata.
- Review the reconciliation and definition of non-GAAP core earnings, and how it differs from GAAP common earnings.
- Assess repo maturities, collateral haircuts, margin terms, counterparty exposures, and the August 2015 CREL facility amendment and full-recourse change.
- Examine Level 3 valuation exposure: $751.5 million of fair-value assets used Level 3 inputs at June 30, 2015, with significant unobservable assumptions.
- Verify the sustainability of the $0.60 common dividend against taxable income, cash needs, and REIT distribution requirements; the filing reports $1.73 per share of undistributed taxable income.