AG Mortgage Investment Trust(MITT) - 2021 Q4 - Annual Report

PART I Business AG Mortgage Investment Trust, Inc. is a residential mortgage REIT focused on acquiring and securitizing newly-originated non-agency residential mortgage loans, externally managed by Angelo Gordon, operating to qualify as a REIT and exempt from the Investment Company Act - The company's primary strategic focus is on acquiring and securitizing newly-originated residential mortgage loans, particularly within the non-agency segment[16] Investment Portfolio Composition as of December 31, 2021 | Asset Class | Description | | :--- | :--- | | Residential Investments | | | Non-QM Loans | Residential mortgage loans not deemed "qualified mortgage" loans | | GSE Non-Owner Occupied Loans | Loans underwritten to GSE guidelines, secured by investment properties | | Re/Non-Performing Loans | Residential mortgage loans collateralized by a first lien, primarily held in consolidated trusts | | Land Related Financing | First mortgage loans to land developers and home builders | | Agency RMBS | Interests in pools of residential mortgage loans guaranteed by a GSE (Fannie Mae, Freddie Mac) or a U.S. Government agency (Ginnie Mae) | - The company is externally managed by AG REIT Management, LLC, a subsidiary of Angelo, Gordon & Co., L.P. ("Angelo Gordon"), and has no employees of its own[20][40] - The company's financing strategy involves using short-term financing arrangements (like repurchase agreements) to acquire loans, which are then refinanced into long-term, non-recourse, non-mark-to-market securitizations[24] - The company operates in a manner to qualify as a REIT, which requires distributing at least 90% of its taxable income to stockholders annually, and to maintain an exemption from the Investment Company Act of 1940[19][32][36] Risk Factors The company faces significant risks from the COVID-19 pandemic, dependence on its Manager for non-agency loan strategy, substantial credit risk, interest rate fluctuations, leverage, regulatory compliance, and potential conflicts of interest - The COVID-19 pandemic has had, and may continue to have, a material adverse effect on the business, particularly impacting financing strategy and liquidity, as demonstrated by the significant margin calls and asset value declines experienced in 2020[61][62][63] - The company's business strategy is highly dependent on its Manager's ability to source, acquire, and finance a large volume of non-agency loans and to execute non-recourse securitization transactions, which are subject to market conditions and competition[67][68] - The mortgage loans acquired, particularly Non-QM loans, expose the company to significant credit risk, as they are not guaranteed by the U.S. government and are directly exposed to borrower defaults[69][70][71] - The use of leverage, primarily through repurchase agreements, exposes the company to significant risks, including margin calls that could force asset sales under adverse market conditions[153][167] - The company is dependent on its external Manager, and the management agreement was not negotiated at arm's length, creating potential conflicts of interest and a fee structure that may not perfectly align with stockholder interests[179][184][196] - Failure to maintain qualification as a REIT would result in higher taxes and reduced cash available for distribution, while complying with REIT rules may force asset liquidation or cause the company to forego attractive opportunities[206][211] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[249] Properties The company does not own any real estate or physical property that is materially important to its operations - As of December 31, 2021, the company did not own any material real estate or other physical property[250] Legal Proceedings As of the report date, the company is not party to any litigation or legal proceedings that it believes would have a material adverse effect on its financial condition or results of operations - The company is not currently party to any material litigation or legal proceedings[251] Mine Safety Disclosures This section is not applicable to the company - Not applicable[252] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under "MITT", declared $0.81 per share in dividends in 2021, and has $11.0 million remaining for repurchases under its active program 2021 Common Stock Price and Dividends (Adjusted for 1-for-3 Reverse Split) | Quarter | High Price | Low Price | Dividend Per Share | | :--- | :--- | :--- | :--- | | First | $14.88 | $8.31 | $0.18 | | Second | $14.85 | $10.61 | $0.21 | | Third | $13.05 | $9.81 | $0.21 | | Fourth | $13.49 | $9.94 | $0.21 | | Total | | | $0.81 | - As of February 17, 2022, there were 23,915,293 shares of common stock outstanding[255] - Under its stock repurchase program, the company repurchased 319,859 shares for $3.6 million during 2021. As of December 31, 2021, approximately $11.0 million remained available for future repurchases under the program[259][271] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, the company transitioned to a pure-play residential mortgage REIT, growing its non-agency loan portfolio to $2.7 billion, achieving $85.9 million net income, increasing book value to $14.64, and raising $80.0 million in capital, while economic leverage rose to 2.4x - During 2021, the company focused on becoming a pure-play residential mortgage REIT by exiting all commercial investments, growing its portfolio of newly-originated non-agency loans, and increasing its pace of securitization activity[267] Key Activities in 2021 | Category | Activity | | :--- | :--- | | Investment | Purchased $2.5 billion of Non-QM and GSE Non-Owner Occupied Loans. Exited all remaining commercial investments | | Financing | Executed three rated securitizations of Non-QM loans totaling $880.9 million to convert financing to non-recourse | | Capital | Completed a public offering of common stock for net proceeds of ~$80.0 million and repurchased 0.3 million shares for $3.6 million | Results of Operations Summary (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Net Interest Income | $43,412 | $37,580 | | Total Other Income/(Loss) | $59,572 | $(424,070) | | Net Income/(Loss) | $104,186 | $(420,919) | | Net Income/(Loss) Available to Common Stockholders | $85,873 | $(430,894) | - Book value per common share increased to $14.64 as of December 31, 2021, from $12.40 as of December 31, 2020. Adjusted book value per common share increased to $14.32 from $11.81 over the same period[306] - Core Earnings, a non-GAAP measure, were $18.1 million, or $1.11 per diluted share, for the year ended December 31, 2021, compared to $22.0 million, or $1.88 per diluted share, for 2020[316] - The company's Economic Leverage ratio, a non-GAAP metric, increased to 2.4x at year-end 2021 from 1.5x at year-end 2020, while GAAP leverage increased to 4.9x from 2.4x[348][349] Quantitative and Qualitative Disclosures About Market Risk The company manages primary market risks including interest rate, liquidity, prepayment, real estate value, credit, and basis risk, with interest rate risk hedged to a 1.32-year duration gap and liquidity risk managed by maintaining cash reserves for margin calls - The primary components of market risk are identified as interest rates, liquidity, prepayment rates, real estate value, credit, and basis risk[402] Interest Rate Sensitivity Analysis as of December 31, 2021 | Change in Interest Rates (bps) | Percentage Change in GAAP Equity (%) | Percentage Change in Projected Net Interest Income (%) | | :--- | :--- | :--- | | +75 | (4.3) | (6.7) | | +50 | (2.8) | (4.5) | | +25 | (1.4) | (2.2) | | -25 | 1.3 | 1.5 | | -50 | 2.6 | 1.5 | | -75 | 3.7 | 0.1 | - The company's duration gap as of December 31, 2021 was 1.32 years, reflecting the net interest rate sensitivity after accounting for assets, financing, and hedges[411] - Liquidity risk arises from financing long-maturity assets with shorter-term borrowings and is managed by maintaining a cushion of cash and unpledged assets to meet margin calls. This risk was particularly acute during the March 2020 market disruption[417][418] - Credit risk stems from potential borrower defaults and spread widening on non-agency assets. This risk is managed through pre-acquisition due diligence and the use of non-recourse financing where possible[427] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2020, showing total assets increased to $3.4 billion and net income recovered to $104.2 million, with detailed disclosures in accompanying notes - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[441] - A critical audit matter identified by the auditor was the fair value of investments in certain residential mortgage loans due to the significant management judgment involved in their valuation[448][449] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $3,362,728 | $1,400,045 | | Total Liabilities | $2,792,348 | $990,340 | | Total Stockholders' Equity | $570,380 | $409,705 | Consolidated Statement of Operations Highlights (in thousands) | Account | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Total Net Interest Income | $43,412 | $37,580 | | Net Income/(Loss) | $104,186 | $(420,919) | | Net Income/(Loss) Available to Common Stockholders | $85,873 | $(430,894) | | Diluted EPS | $5.29 | $(36.73) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[747] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[747] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, and this assessment was audited by the independent registered public accounting firm[749][750] Other Information On February 22, 2022, the Board of Directors approved amended bylaws to reflect Maryland corporate law changes, public company governance developments, and clarify corporate procedures - The company's Board of Directors amended and restated the company's bylaws on February 22, 2022[752] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - This section incorporates information by reference from the forthcoming 2022 proxy statement[756] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - This section incorporates information by reference from the forthcoming 2022 proxy statement[757] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 proxy statement, with 1,172,737 securities available for future issuance under equity compensation plans as of December 31, 2021 Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | | Equity compensation plans approved by stockholders | 1,172,737 | | 2020 Equity Incentive Plan | 599,312 | | 2021 Manager Plan | 573,425 | | Equity compensation plans not approved by stockholders | 0 | | Total | 1,172,737 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - This section incorporates information by reference from the forthcoming 2022 proxy statement[763] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - This section incorporates information by reference from the forthcoming 2022 proxy statement[765] PART IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Form 10-K, including financial statements and various exhibits such as articles of incorporation, bylaws, management agreements, and officer certifications - This section lists all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications required by the Sarbanes-Oxley Act[767][769] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[771]