AG Mortgage Investment Trust(MITT) - 2019 Q4 - Annual Report

PART I Item 1. Business The Company is a hybrid mortgage REIT, externally managed, investing in Agency RMBS and Credit Investments to generate risk-adjusted returns and maintain REIT status - The Company is a hybrid mortgage REIT incorporated in Maryland on March 1, 2011, commencing operations in July 2011[17] - The Company opportunistically invests in a diversified risk-adjusted portfolio of Agency RMBS and Credit Investments, including Residential and Commercial Investments[17] - The Company operates to qualify and be taxed as a REIT for U.S. federal income tax purposes, generally avoiding U.S. federal income taxes on distributed taxable income[18] - The Company is externally managed and advised by AG REIT Management, LLC, a subsidiary of Angelo, Gordon & Co., L.P., which provides the management team and support personnel[19] - The investment strategy aims to generate attractive risk-adjusted returns through a combination of dividends and capital appreciation, optimizing capital allocation across target assets and using leverage[37] - As of December 31, 2019, the GAAP and non-GAAP economic debt-to-equity leverage ratios were both 4.1 to 1, a slight decrease from 4.2 to 1 and 4.4 to 1, respectively, in 2018[39] - The Company utilizes derivative instruments like interest rate swaps and swaption agreements to hedge interest rate risk, with $1.8 billion notional amount of interest rate swaps outstanding as of December 31, 2019[43] - The risk management strategy involves disciplined adherence to risk-adjusted returns, focus on multiple sectors, concurrent evaluation of interest rate and credit risk, active hedging and rebalancing, and an opportunistic approach to increased risk[44][45] - The Company's charter prohibits any person from directly or indirectly owning more than 9.8% of its outstanding common stock or capital stock to maintain REIT qualification[63] Item 1A. Risk Factors The Company faces risks from operations, management, financing, hedging, taxation, organization, and U.S. government programs - Defaults, foreclosure timeline extensions, fraud, and price depreciation in residential and commercial mortgage loans and securities could lead to significant losses[71][73][74] - Increases in interest rates could adversely affect investment values, increase interest expense, and reduce earnings or cash available for distribution[76] - The Company is highly dependent on its external Manager and its key personnel; termination of the management agreement would be costly and could materially adversely affect the business[147][162] - Dependence on multiple financing sources, significant debt, and exposure to margin calls under financing arrangements pose substantial risks to liquidity and financial condition[168][174][188] - Hedging strategies, while used to mitigate interest rate and currency risks, can be expensive, may not perfectly correlate with hedged items, and could expose the Company to contingent liabilities[201][203][205] - Failure to qualify as a REIT would result in higher taxes and reduced cash for distributions, and compliance with REIT requirements may limit investment opportunities[212][216][217] - Loss of exemption from regulation under the Investment Company Act would negatively affect stock value and ability to distribute cash[240][245] - Changes in the federal conservatorship of Fannie Mae and Freddie Mac, or repudiation of their guarantees, could adversely affect the value and liquidity of Agency RMBS[255][257][261][263] Item 1B. Unresolved Staff Comments The Company reported no unresolved staff comments from the SEC as of December 31, 2019 - No unresolved staff comments were reported[274] Item 2. Properties As of December 31, 2019, the Company owned no material physical property, with executive offices in New York - As of December 31, 2019, the Company did not own any real estate or other physical property materially important to its operations[275] - The principal executive offices are located at 245 Park Avenue, 26th Floor, New York, New York 10167[275] Item 3. Legal Proceedings No material litigation or legal proceedings are expected to adversely affect the Company's operations or financial condition - The Company is not party to any litigation or legal proceedings, or to its knowledge, any threatened litigation or legal proceedings, which are believed to have a material adverse effect on its results of operations or financial condition[276] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[277] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock trades on NYSE, with 32.7 million shares outstanding, and it aims to pay quarterly dividends to maintain REIT qualification - Common stock is traded on the NYSE under the symbol "MITT"[280] - As of February 14, 2020, there were 32,748,720 shares of common stock outstanding[6] Common Stock Dividends Declared Per Share | Year | Dividend Per Share | | :--- | :--- | | 2019 | $1.90 | | 2018 | $1.975 | - The Company intends to pay quarterly dividends to distribute annual taxable income and maintain REIT qualification[284] Equity Incentive Plan Information (as of December 31, 2019) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column of this Table) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | — | $— | 17,921 | | Equity compensation plans not approved by stockholders | — | — | — | | Total | — | $— | 17,921 | Cumulative Total Return (December 31, 2014 = $100) | Index | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | AG Mortgage Investment Trust, Inc. | $100 | $79 | $120 | $148 | $139 | $151 | | S&P 500 | $100 | $101 | $114 | $138 | $132 | $174 | | FTSE NAREIT Mortgage REITs | $100 | $91 | $112 | $134 | $131 | $158 | Item 6. Selected Financial Data Selected financial data provides a five-year summary of balance sheet and operations, showing increased assets, equity, and improved 2019 net income Selected Financial Data (in thousands) | (in thousands) | December 31, 2019 | December 31, 2018 | December 31, 2017 | December 31, 2016 | December 31, 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Balance Sheet Data: | | | | | | | Total assets | $4,347,817 | $3,548,926 | $3,789,295 | $2,628,645 | $3,164,076 | | Financing arrangements | $3,233,468 | $2,720,488 | $3,004,407 | $1,900,510 | $2,034,963 | | Securitized debt | $224,348 | $10,858 | $16,478 | $21,492 | $30,047 | | Stockholders' equity | $849,046 | $656,011 | $714,259 | $655,876 | $666,945 | | Statement of Operations Data: | | | | | | | Interest income | $171,660 | $156,475 | $128,845 | $123,006 | $141,273 | | Interest expense | $90,108 | $70,502 | $43,722 | $33,785 | $31,230 | | Total Net Interest Income | $81,552 | $85,973 | $85,123 | $89,221 | $110,043 | | Net Income/(Loss) Available to Common Stockholders | $76,800 | $(11,901) | $105,089 | $50,214 | $349 | | Total Earnings/(Loss) Per Common Share - Basic | $2.39 | $(0.42) | $3.77 | $1.80 | $0.01 | | Dividends Declared Per Share of Common Stock | $1.90 | $1.975 | $2.00 | $1.90 | $2.275 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial condition and operations, covering market conditions, investment strategies, performance, financing, hedging, and liquidity management - The Company sold its single-family rental properties portfolio on November 15, 2019, reclassifying its operating results to discontinued operations[295] - Market conditions in Q4 2019 showed a 3.3% increase in national home prices year-over-year, stable-to-improving credit performance, and the Federal Reserve maintaining federal funds interest rates at 1.50%-1.75%[296][297] - Net Income Available to Common Stockholders increased significantly from $(11.9) million in 2018 to $76.8 million in 2019[303] Key Financial Performance (in thousands) | Metric | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | Change (2019 vs 2018) | | :--- | :--- | :--- | :--- | | Interest income | $171,660 | $156,475 | +$15,185 | | Interest expense | $90,108 | $70,502 | +$19,606 | | Total Net Interest Income | $81,552 | $85,973 | $(4,421) | | Net realized gain/(loss) | $(50,822) | $(39,450) | $(11,372) | | Unrealized gain/(loss) on real estate securities and loans, net | $83,832 | $(20,940) | +$104,772 | | Net Income/(Loss) Available to Common Stockholders | $76,800 | $(11,901) | +$88,701 | - Book value per common share increased from $17.21 as of December 31, 2018, to $17.61 as of December 31, 2019[347] Net Interest Margin and Leverage Ratio | Metric | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | :--- | | Weighted Average Yield (Investment Portfolio) | 4.82% | 5.37% | 4.64% | | Cost of Funds (Investment Portfolio) | 2.35% | 2.96% | 2.26% | | Net Interest Margin (Investment Portfolio) | 2.47% | 2.41% | 2.38% | | Leverage Ratio (Economic Leverage) | 4.1x | 4.4x | 4.4x | Core Earnings (in thousands, except per share data) | Metric | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | :--- | | Net Income/(loss) available to common stockholders | $76,800 | $(11,901) | $105,089 | | Core Earnings | $54,893 | $58,806 | $51,783 | | Core Earnings, per Diluted Share | $1.70 | $2.07 | $1.86 | Investment Portfolio Composition (Fair Value in thousands) | Investment Type | Dec 31, 2019 | % of Portfolio | Dec 31, 2018 | % of Portfolio | | :--- | :--- | :--- | :--- | :--- | | Agency RMBS | $2,333,626 | 52.8% | $2,015,586 | 58.9% | | Residential Investments | $1,493,869 | 33.8% | $1,019,116 | 29.8% | | Commercial Investments | $589,709 | 13.4% | $365,052 | 10.7% | | ABS | $— | —% | $21,160 | 0.6% | | Total Investment Portfolio | $4,417,204 | 100.0% | $3,420,914 | 100.0% | - The Company's cost of financing decreased by 62 bps from 3.13% at December 31, 2018, to 2.51% at December 31, 2019, following Fed interest rate cuts[404] Financing Arrangements (in thousands) | Type | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Repurchase agreements | $3,194,409 | $2,650,898 | | Revolving facilities | $296,475 | $209,329 | | Total Non-GAAP Basis | $3,490,884 | $2,860,227 | | Investments in Debt and Equity of Affiliates | $257,416 | $139,739 | | Total GAAP Basis | $3,233,468 | $2,720,488 | Economic Leverage Ratio Reconciliation (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | GAAP Leverage | $3,453,016 | $2,731,346 | | Non-recourse financing arrangements* | $(224,348) | $(10,858) | | Financing arrangements through affiliated entities | $257,416 | $155,888 | | Economic Leverage | $3,486,084 | $2,876,376 | | Stockholders' Equity | $849,046 | $656,011 | | Leverage Ratio | 4.1x | 4.4x | Interest Rate Swaps Notional Amount (in thousands) | Maturity | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | 2020 | $105,000 | $105,000 | | 2021 | — | $58,500 | | 2022 | $837,531 | $478,000 | | 2023 | $5,750 | $403,000 | | 2024 | $650,000 | $230,000 | | 2025 | — | $125,000 | | 2026 | $180,000 | $75,000 | | 2027 | — | $264,000 | | 2028 | — | $225,000 | | 2029 | $165,000 | — | | Total/Wtd Avg: Non-GAAP Basis | $1,943,281 | $1,963,500 | - As of December 31, 2019, the Company had $163.3 million available liquidity, comprising $81.7 million cash, $80.5 million unpledged Agency fixed rate securities and CMOs, and $1.1 million unpledged U.S. Treasury securities[452] Contractual Obligations (in thousands) | Obligation Type | Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Repurchase agreements | $3,194,409 | $3,084,382 | $110,027 | $— | $— | | Revolving facilities | $296,475 | $179,707 | $26,812 | $89,956 | $— | | Securitized debt | $224,348 | $25,410 | $56,979 | $46,453 | $95,506 | | Total | $3,715,232 | $3,289,499 | $193,818 | $136,409 | $95,506 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company manages primary market risks like interest rate, liquidity, prepayment, real estate, credit, basis, and foreign currency through diverse strategies - Primary market risks include interest rates, liquidity, prepayment rates, real estate, credit, basis risk, and foreign currency risk[513] - Interest rate risk is managed by monitoring reset indices, structuring financing, and using derivative instruments[514] Duration Gap (as of December 31, 2019) | Duration (1) | Years | | :--- | :--- | | Agency RMBS | 1.29 | | Residential Loans (2) | 1.00 | | Hedges | (1.71) | | Subtotal | 0.58 | | Credit Investments, excluding Residential Loans (2) | 0.59 | | Duration Gap | 1.17 | Estimated Impact of Interest Rate Changes on GAAP Equity, Assets, and Net Interest Income (as of Dec 31, 2019) | Change in Interest Rates (basis points) | Change in Fair Value as a Percentage of GAAP Equity | Change in Fair Value as a Percentage of Assets | Percentage Change in Projected Net Interest Income | | :--- | :--- | :--- | :--- | | +75 | -3.8 % | -0.7 % | -3.6 % | | +50 | -2.2 % | -0.4 % | -2.2 % | | +25 | -0.9 % | -0.2 % | -0.9 % | | -25 | 0.6 % | 0.1 % | 0.7 % | | -50 | 0.8 % | 0.1 % | 1.0 % | | -75 | 0.7 % | 0.1 % | 1.4 % | - Liquidity risk is mitigated by maintaining a prudent leverage level, daily monitoring of liquidity, and holding a substantial cushion of cash and unpledged real estate securities and loans[527] - Prepayment risk is managed by investing in real estate assets with a variety of prepayment characteristics and maintaining a mix of assets purchased at a premium and at a discount[537] - Credit risk is managed through the Manager's pre-acquisition due diligence process and, where available, the use of non-recourse financing[540] - Foreign currency risk is hedged through a series of forwards to fix the U.S. dollar amount of foreign currency denominated cash flows[543] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and comprehensive notes - The consolidated financial statements include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, and Consolidated Statements of Cash Flows[544] - PricewaterhouseCoopers LLP audited the financial statements and internal control over financial reporting, issuing unqualified opinions for both as of December 31, 2019[548][549] Consolidated Balance Sheets (in thousands) | (in thousands) | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Real estate securities, at fair value | $3,449,832 | $2,896,175 | | Residential mortgage loans, at fair value | $417,785 | $186,096 | | Commercial loans, at fair value | $158,686 | $98,574 | | Investments in debt and equity of affiliates | $156,311 | $84,892 | | Excess mortgage servicing rights, at fair value | $17,775 | $26,650 | | Cash and cash equivalents | $81,692 | $31,579 | | Restricted cash | $43,677 | $49,806 | | Total Assets | $4,347,817 | $3,548,926 | | Liabilities | | | | Financing arrangements | $3,233,468 | $2,720,488 | | Securitized debt, at fair value | $224,348 | $10,858 | | Dividend payable | $14,734 | $14,372 | | Total Liabilities | $3,498,771 | $2,892,915 | | Stockholders' Equity | | | | Total Stockholders' Equity | $849,046 | $656,011 | | Total Liabilities & Stockholders' Equity | $4,347,817 | $3,548,926 | Consolidated Statements of Operations (in thousands, except per share data) | (in thousands, except per share data) | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | :--- | | Interest income | $171,660 | $156,475 | $128,845 | | Interest expense | $90,108 | $70,502 | $43,722 | | Total Net Interest Income | $81,552 | $85,973 | $85,123 | | Net Income/(Loss) from Continuing Operations | $97,338 | $3,504 | $118,558 | | Net Income/(Loss) from Discontinued Operations | $(4,416) | $(1,936) | $— | | Net Income/(Loss) | $92,922 | $1,568 | $118,558 | | Net Income/(Loss) Available to Common Stockholders | $76,800 | $(11,901) | $105,089 | | Total Earnings/(Loss) Per Share of Common Stock - Basic | $2.39 | $(0.42) | $3.77 | | Total Earnings/(Loss) Per Share of Common Stock - Diluted | $2.39 | $(0.42) | $3.77 | Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $65,238 | $78,032 | $58,854 | | Net cash provided by (used in) investing activities | $(746,963) | $161,042 | $(1,126,404) | | Net cash provided by (used in) financing activities | $722,695 | $(207,531) | $1,041,312 | | Net change in cash and cash equivalents, and restricted cash | $40,970 | $31,543 | $(26,238) | | Cash and cash equivalents, and restricted cash, End of Year | $125,369 | $84,358 | $52,815 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company reported no changes or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[896] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - The Company's disclosure controls and procedures were effective as of December 31, 2019[896] - Management concluded that the Company's internal control over financial reporting is effective as of December 31, 2019, based on the COSO framework[898] - There have been no material changes in the Company's internal control over financial reporting during the last fiscal quarter[900] Item 9B. Other Information The Company reported no other information required by this item - No other information was reported[901] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference to the Company's definitive proxy statement relating to its 2020 annual meeting of stockholders[904] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference to the Company's definitive proxy statement relating to its 2020 annual meeting of stockholders[905] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference to the Company's definitive proxy statement relating to its 2020 annual meeting of stockholders[906] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference to the Company's definitive proxy statement relating to its 2020 annual meeting of stockholders[907] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference to the Company's definitive proxy statement relating to its 2020 annual meeting of stockholders[908] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all filed documents, including financial statements and exhibits, noting the omission of certain schedules - All consolidated financial statement schedules have been omitted because they are either inapplicable or not deemed material, or the information required is provided in the Financial Statements and Notes thereto[911] - A comprehensive list of exhibits, including articles of incorporation, bylaws, management agreements, equity incentive plans, and underwriting agreements, is provided[911][912][913][915] Item 16. Form 10-K Summary The Company did not include a Form 10-K Summary - No Form 10-K Summary was provided[916]