AG Mortgage Investment Trust(MITT) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for AG Mortgage Investment Trust, Inc. as of March 31, 2022, and for the three months then ended, including balance sheets, statements of operations, stockholders' equity, and cash flows with detailed notes Consolidated Balance Sheets As of March 31, 2022, total assets increased to $3.84 billion from $3.36 billion at year-end 2021, primarily driven by a significant rise in securitized residential mortgage loans, while total liabilities also grew, leading to a slight decrease in total stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,838,956 | $3,362,728 | | Securitized residential mortgage loans, at fair value | $2,105,572 | $1,158,134 | | Residential mortgage loans, at fair value | $1,167,061 | $1,476,972 | | Total Liabilities | $3,291,306 | $2,792,348 | | Securitized debt, at fair value | $1,859,917 | $999,215 | | Financing arrangements | $1,411,493 | $1,777,743 | | Total Stockholders' Equity | $547,650 | $570,380 | Consolidated Statements of Operations For the three months ended March 31, 2022, the company reported a net loss of $(13.2) million, a significant downturn from a net income of $43.2 million in the same period of 2021, primarily due to a net unrealized loss and higher transaction expenses, despite doubled net interest income Quarterly Performance Comparison (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total Net Interest Income | $17,295 | $8,058 | | Total Other Income/(Loss) | $(15,907) | $15,107 | | Total Expenses | $12,536 | $6,252 | | Net Income/(Loss) | $(13,202) | $43,249 | | Net Income/(Loss) Available to Common Stockholders | $(17,788) | $38,683 | | Basic Earnings/(Loss) Per Share | $(0.74) | $2.74 | Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $570.4 million at the beginning of 2022 to $547.7 million at the end of Q1 2022, primarily due to a net loss of $(13.2) million and the declaration of common and preferred dividends totaling $(9.6) million Changes in Stockholders' Equity (Q1 2022, in thousands) | Description | Amount | | :--- | :--- | | Balance at January 1, 2022 | $570,380 | | Net Income/(Loss) | $(13,202) | | Common dividends declared | $(5,022) | | Preferred dividends declared | $(4,586) | | Grant of restricted stock | $80 | | Balance at March 31, 2022 | $547,650 | Consolidated Statements of Cash Flows For Q1 2022, net cash used in investing activities was $(624.2) million, largely offset by net cash provided by financing activities of $615.6 million, resulting in a $4.1 million decrease in total cash and restricted cash to $96.2 million Cash Flow Summary (in thousands) | Cash Flow Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,528 | $6,477 | | Net cash provided by (used in) investing activities | $(624,197) | $(526,454) | | Net cash provided by (used in) financing activities | $615,611 | $549,205 | | Net change in cash and restricted cash | $(4,058) | $29,228 | Notes to Consolidated Financial Statements (unaudited) The notes provide detailed explanations of the company's accounting policies and financial activities, including its organization as a residential mortgage REIT, investment portfolio composition, fair value measurement, financing arrangements, derivative usage, and extensive related-party transactions - The Company is a residential mortgage REIT focused on acquiring and securitizing newly-originated residential mortgage loans, sourced through its affiliate Arc Home (approx. 44.6% ownership) and other third parties[28] - The Company has elected the fair value option for its loan and real estate securities portfolios, recording changes in fair value in the consolidated statement of operations[41][47] - The Company consolidates various Variable Interest Entities (VIEs) created for securitization transactions where it is determined to be the primary beneficiary[54][58] - A one-for-three reverse stock split was effected on July 22, 2021, and all per share amounts and common shares outstanding have been retroactively adjusted[93][95] - The Company is assessing the impact of the LIBOR transition, with primary exposure in certain financing arrangements, interest rate swaps, and its Series C Preferred Stock. It does not expect a material impact[99][101] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2022 performance, highlighting the strategy of growing its portfolio of newly-originated residential mortgage loans and increasing securitization activity to secure long-term, non-recourse financing amidst a challenging market environment - In Q1 2022, the company purchased $604.6 million of Non-Agency Loans and $343.3 million of Agency-Eligible Loans[263] - Executed three rated securitizations in Q1 2022, converting recourse financing to non-recourse financing for $681.8 million of Non-Agency Loans and $464.3 million of Agency-Eligible Loans[263] - Total liquidity at quarter-end was $137.9 million, consisting of cash and unencumbered Agency RMBS[260][355] Core Earnings Reconciliation (Q1 2022 vs Q1 2021, in thousands) | Description | March 31, 2022 | March 31, 2021 | | :--- | :--- | :--- | | Net Income/(loss) available to common stockholders | $(17,788) | $38,683 | | Adjustments (Net) | $17,296 | $(35,209) | | Core Earnings | $(492) | $3,474 | | Core Earnings, per Diluted Share | $(0.02) | $0.25 | Results of Operations Comparing Q1 2022 to Q1 2021, net interest income increased due to a larger portfolio, but a significant net unrealized loss and higher transaction-related expenses from securitization activities drove a net loss of $(13.2) million - Interest income increased by $21.3 million YoY, driven by a $2.0 billion increase in the weighted average amortized cost of the GAAP investment portfolio[283] - Interest expense rose by $12.1 million YoY due to a $1.9 billion increase in the weighted average financing balance and a 0.74% increase in the financing rate[285] - Net unrealized losses of $(22.4) million in Q1 2022 were primarily due to a $(158.1) million loss on residential mortgage loans, partially offset by a $97.2 million gain on securitized debt and a $49.9 million gain on derivatives[291] - Transaction-related expenses increased to $5.9 million from near zero, mainly due to upfront costs on three securitizations in Q1 2022[295] Investment activities As of March 31, 2022, the company's investment portfolio had a fair value of $3.73 billion, with 89.9% allocated to Residential Investments, and the equity allocation shifted more towards Residential Investments, which comprised 85.3% of total equity Investment Portfolio Fair Value (in thousands) | Asset Class | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Residential Investments | $3,354,298 | $2,725,889 | | Agency RMBS | $377,493 | $495,713 | | Total Investment Portfolio | $3,731,791 | $3,221,602 | Allocated Equity by Investment Type | Asset Class | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Residential Investments | 85.3% | 80.5% | | Agency RMBS | 14.7% | 19.5% | | Total | 100.0% | 100.0% | Financing activities The company utilizes repurchase agreements and securitized debt for financing, with total financing increasing to $3.3 billion, driven by a rise in non-recourse securitized debt, while the Economic Leverage ratio remained relatively stable at 2.7x Leverage Ratio Reconciliation (March 31, 2022) | Metric | Amount (in thousands) | Ratio | | :--- | :--- | :--- | | GAAP Leverage | $3,199,659 | 5.8x | | Adjustments for Economic Leverage | $(1,700,079) | N/A | | Economic Leverage | $1,499,580 | 2.7x | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate, liquidity, prepayment, real estate, credit, and basis risk, with interest rate risk managed through hedging and liquidity risk mitigated by maintaining a cushion of cash and unpledged assets - The company's duration gap as of March 31, 2022 was 0.71 years, indicating a moderate sensitivity to interest rate changes[397][398] Interest Rate Sensitivity Analysis (as of March 31, 2022) | Change in Interest Rates (bps) | 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 | (2.1) | (0.3) | 1.1 | | 50 | (1.3) | (0.2) | 0.7 | | 25 | (0.6) | (0.1) | 0.4 | | (25) | 0.6 | 0.1 | (0.4) | | (50) | 1.0 | 0.1 | (0.7) | | (75) | 1.4 | 0.2 | (1.4) | - Liquidity risk is significant due to potential margin calls on financing arrangements and derivative instruments, especially in a rising rate environment. This is mitigated by holding cash and unpledged assets[401][402][403] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, at a reasonable assurance level, with no material changes to internal control over financial reporting identified during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[417] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[418] PART II. OTHER INFORMATION Item 1. 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 results of operations or financial condition - The company is not involved in any material legal proceedings as of the filing date[420] Item 1A. Risk Factors This section refers readers to the risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, and other subsequent filings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information This section discloses the results of the 2022 annual meeting of stockholders, where directors were elected, the auditor was ratified, and executive compensation was approved, along with new indemnification agreements for directors and officers - At the 2022 annual meeting, stockholders elected six directors, ratified the appointment of PricewaterhouseCoopers LLP as the independent auditor, and approved executive compensation on an advisory basis[426] - On May 2, 2022, the company entered into amended and restated indemnification agreements with its directors and officers[427] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and interactive data files (XBRL)