ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements and should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in this report.
Our company
We are a hybrid mortgage REIT that opportunistically invests in a diversified risk adjusted portfolio of Credit Investments and Agency RMBS. Our Credit Investments include Residential Investments and Commercial Investments. We are a Maryland corporation and are externally managed by our Manager, a wholly-owned subsidiary of Angelo Gordon, pursuant to a management agreement. Our Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement. We conduct our operations to qualify and be taxed as a REIT, for U.S. federal income tax purposes. Accordingly, we generally will not be subject to U.S. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a REIT. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act.
Prior to December 31, 2019, we conducted our business through the following segments; (i) Securities and Loans and (ii) Single-Family Rental Properties. On November 15, 2019, we sold our portfolio of single-family rental properties and no longer separate our business into segments. We reclassified the operating results of our Single-Family Rental Properties segment to discontinued operations and excluded the income associated with the portfolio from continuing operations for all periods presented. See Note 13 to the "Notes to Consolidated Financial Statements" for additional financial information regarding our discontinued operations.
COVID-19 Impact
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. On March 13, 2020, the U.S. declared a national emergency concerning the COVID-19 pandemic, and several states and municipalities have subsequently declared public health emergencies. These conditions have caused, and continue to cause, a significant disruption in the U.S. and world economies. To slow the spread of COVID-19, many countries, including the U.S., have implemented social distancing measures, which have substantially prohibited large gatherings, including at sporting events, religious services and schools. Further, many regions, including the majority of U.S. states, implemented additional measures, such as shelter-in-place and stay-at-home orders. Many businesses moved to a remote working environment, temporarily suspended operations, laid off a significant percentage of their workforce and/or shut down completely. Moreover, the COVID-19 pandemic and certain of the actions taken to reduce its spread have resulted in lost business revenue, rapid and significant increases in unemployment, changes in consumer behavior and significant reductions in liquidity and the fair value of many assets, including those in which the Company invests. Although many of the government restrictions were relaxed over the summer and early fall of 2020, these conditions, or some level thereof, are expected to continue over the near term and may continue throughout 2021, depending on state and local outbreaks and the success of availability of an effective vaccine.
Beginning in mid-March 2020, the global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints. These events, in turn, resulted in falling prices of our assets and increased margin calls from our repurchase agreement counterparties. To conserve capital, protect assets and to pause the escalating negative impacts caused by the market dislocation and allow the markets for many of our assets to stabilize, on March 20, 2020, we notified our repurchase agreement counterparties that we did not expect to fund the existing and anticipated future margin calls under our repurchase agreements and commenced discussions with our counterparties with regard to entering into forbearance agreements. We entered into three consecutive forbearance agreements, pursuant to which the forbearing counterparties agreed not to exercise any of their rights or remedies under their applicable financing arrangement with us through June 15, 2020. On June 10, 2020, we exited forbearance, terminating the last remaining forbearance agreement, and entered into a reinstatement agreement, pursuant to which each Participating Counterparty agreed to permanently waive all existing and prior events of default under our financing agreements and reinstate our financing arrangements described in more detail below under the "Financing arrangements" heading of this Part II, Item 7.
In an effort to manage our portfolio through this unprecedented turmoil in the financial markets, to improve liquidity, and preserve capital, we executed the following during the year ended December 31, 2020.
•Reduced GAAP investment portfolio from $4.0 billion at December 31, 2019 to $1.2 billion at December 31, 2020 and investment portfolio on a non-GAAP basis from $4.4 billion at December 31, 2019 to $1.4 billion at December 31, 2020 through sales, directly or as a result of financing counterparty seizures.
•Reduced financing arrangement balance on a GAAP basis from $3.2 billion at December 31, 2019 to $564.0 million at December 31, 2020 and financing arrangements on a non-GAAP basis from $3.5 billion at December 31, 2019 to $680.8 million at December 31, 2020.
•Reduced mark-to-market recourse financing from $3.5 billion at December 31, 2019 to $580.1 million at December 31, 2020.
◦Increased non mark-to-market non-recourse financing from $224.3 million at December 31, 2019 to $466.3 million at December 31, 2020.
•Reduced our GAAP leverage ratio and Economic Leverage Ratio from 4.1x and 4.1x at December 31, 2019, respectively, to 2.4x and 1.5x at December 31, 2020, respectively.
•Unwound entire portfolio of pay-fixed, receive-variable interest rate swaps held directly and through investments in debt and equity of affiliates during the first quarter, recognizing net realized losses of $(65.4) million on a GAAP basis as a result of the market disruption caused by the pandemic.
We also executed the following during the year ended December 31, 2020:
•We purchased $0.5 billion of Agency RMBS and $60.2 million of Residential Mortgage Loans.
•We participated in a non-rated securitization, in which Residential Mortgage Loans with a fair value of $199.6 million were securitized, converting financing from recourse financing that was mark-to-market with respect to margin calls to non-recourse financing that is no longer mark-to-market with respect to margin calls.
•We, alongside private funds under the management of Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $226.0 million were securitized. Certain senior tranches in the securitization were sold to third-parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $24.3 million as of September 30, 2020. We have a 44.6% interest in the retained subordinate tranches.
Reconciliations of GAAP and non-GAAP financial measures appear below.
The full impact of COVID-19 on the mortgage REIT industry, the credit markets and, consequently, our financial condition and results of operations for future periods is uncertain and cannot be predicted at the current time as it depends on several factors beyond our control including, but not limited to (i) the uncertainty around the severity, duration and spread of the outbreak, (ii) the effectiveness of the United States and global public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, including the availability of a treatment or vaccination for COVID-19, (v) the impact of government interventions, and (vi) the negative impact on our borrowers, asset values and cost of capital.
Market conditions
While 2020 began with an improved interest rate environment for our business and industry as a whole, the impact of the global response to the COVID-19 pandemic on the financial markets resulted in unprecedented market disruption in the first two quarters of the year. Beginning in the middle of the first quarter of 2020 and continuing into the second quarter, financial and mortgage-related asset markets experienced significant volatility as a result of the spread of COVID-19. That caused, among other things, credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. These conditions put significant pressure on the mortgage REIT industry, including financing operations, mortgage asset pricing and liquidity demands. After a series of rate cuts in 2019, the U.S. Federal Reserve responded to the effects of the COVID-19 pandemic with a series of large-scale actions, including cutting the Fed Funds target rate by 150 basis points, back to the zero bound. The Fed also committed in March 2020 to unlimited purchases of U.S. Treasuries and Agency RMBS, in a round of quantitative easing known as QE4. Combined with significant fiscal stimulus enacted by Congress, these actions seemed to stabilize broader market conditions by late in the second quarter. Subsequently, risk assets generally rallied through the balance of the year as fundamentals became more clear and risk appetite amongst market participants returned.
During the fourth quarter of 2020, the financial markets continued a cautious recovery from the unprecedented dislocation caused by the COVID-19 outbreak and the resultant economic shutdown across much of the U.S. economy. We believe several
factors have contributed to this recovery, including support from the U.S. Federal Reserve, capital flows into fixed income assets and generally improving economic data. The Federal Reserve has expressed continued commitment to the broad array of programs it implemented in the immediate wake of the COVID-19 crisis, which are all designed to support the financial markets and facilitate economic recovery, including unlimited purchases of Agency RMBS and U.S. Treasuries, as well as purchases in certain segments of the corporate credit market. The Federal Reserve signaled that it intends to maintain low interest rates for the foreseeable future. Additionally, continuing bond fund inflows throughout the quarter have provided further technical support to the credit markets.
We believe that risks for the mortgage- and asset-backed sectors have been balanced against collateral fundamentals that have generally exceeded the market’s expectations since March and April 2020, as markets conditions improve. The latest survey of home price indices in the fourth quarter point to an annual increase of around 9% for 2020, as limited supply of new and existing homes and strong demand continued to drive price appreciation. We expect that the mortgage and consumer sectors will continue to benefit from the unemployment support and stimulus disbursements, which were included in the Bipartisan-Bicameral Omnibus COVID Relief Deal bill, which was passed by Congress in December 2020.
Credit Assets. Overall, the factors discussed above contributed to increasingly tighter spreads over the course of the quarter, particularly the lower tranches of credit-related assets. For example, Credit Risk Transfer ("CRT") mezzanine spreads were around 15 basis points tighter while subordinate spreads tightened around 100 basis points. Benchmark new-issue triple-A spreads mostly tightened around 10 basis points, except for Non-QM triple-A rated tranches which were roughly 40 basis points tighter. As a result, primary spreads are approaching pre-pandemic levels for several sectors, including Non-QM RMBS, which ended the year around five basis points tighter than February 2020 spreads. Limited supply contributed to the strong oversubscription levels for newly issued RMBS, which fell 26% compared to the prior quarter as the election likely sidelined some issuers. Overall, issuance in the fourth quarter brought full-year 2020 RMBS volumes to around $95 billion, which was around 25% lower compared to 2019.
Agency MBS. Agency MBS continued their strong performance in the fourth quarter, with generic current coupon MBS spreads versus the 10-year Treasury rate tightening 29 basis points on the quarter and tightening 37 basis points over the full year, to spreads not seen since the third round of quantitative easing from the Federal Reserve in 2012. Specified pools have also continued to perform well as demand for protection from refinancing-driven prepayments remains elevated given historically low mortgage rates. Federal Reserve buying, strong bank deposit growth, broad demand for yield and low interest rate volatility continue to result in a supportive backdrop for valuations despite elevated gross issuance. While structured credit spreads have rallied from their March extremes, spreads for most RMBS and some ABS sub-sectors remain wide of pre-pandemic levels as ongoing risks over the implications of high unemployment due to COVID-19 hang over the market.
CMBS. With respect to the CMBS market, markets conditions varied throughout the year. In September and October of 2020 the significant rally in CMBS prices experienced earlier in the year seemed to be losing momentum, likely due to concerns regarding COVID-19 infections and political uncertainties. Conditions improved in November of 2020, likely due to positive news regarding a COVID-19 vaccine and the broad election results. Later in the month, the CMBS market experience significant pressure based on guidance provided by the National Association of Insurance Commissioners. However, there was significant demand to absorb these sales, permitting the CMBS market to end the year on a positive note.
Regarding CMBS valuations over the course of 2020, we estimate that CMBS conduit AAA bonds started the year at approximately swaps plus 95 basis points, tightened to the mid-80s by February 2020 before widening into the mid-300s at the height of the pandemic-related panic, and subsequently tightened back to around swaps plus 80 to end the year. The moves in BBB- bonds were even more dramatic, starting the year in the mid-300s, tightening to the low 300s before gapping out to well over swaps plus 1,000 basis points, and then ending the year in the low 400s range. Delinquency data by property type also provides an interesting perspective on this difficult year. The industrial sector fared best, with delinquencies rising from 1.4% to a peak of just 1.8% and then falling to 1.2% at year-end. Office and multifamily properties largely followed similar patterns, with delinquencies ending the year around 2.2% and 2.9%, respectively. Retail was negatively affected, with delinquencies rising from 4.4% to as high as 18% and ending the year at 13%. Hotels were most impacted, with delinquencies rising from 1.5% to 24% and ending the year at 20%. Notably, when hotel loans in special servicing or on servicer watchlists are included in this metric, approximately 70% of all securitized loans in that space showed some level of distress at their peak in 2020.
In light of various market uncertainties, in particular the pervasive uncertainties of the COVID-19 pandemic for the U.S. and global economy, there can be no assurance that the trends and conditions described above will not change in a manner materially adverse to the mortgage REIT industry and/or our Company.
Results of Operations for the Fiscal Year 2020 and 2019
Our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio, the level of our net interest income, the fair value of our assets and the supply of, and demand for, our target assets in the marketplace, among other things, which can be impacted by unanticipated credit events, such as defaults, liquidations or delinquencies, experienced by borrowers whose mortgage loans are included in our investment portfolio and other unanticipated events in our markets. Our primary source of net income or loss available to common stockholders is our net interest income, less our cost of hedging, which represents the difference between the interest earned on our investment portfolio and the costs of financing and hedging our investment portfolio, as well as any income or losses from our equity investments in affiliates.
In particular, our results of operations for 2020 were significantly impacted by the conditions created by the COVID-19 pandemic. Prior to the pandemic, our net interest income varied primarily as a result of changes in market interest rates, prepayment speeds, as measured by the Constant Prepayment Rate ("CPR") on the Agency RMBS in our investment portfolio, and our funding and hedging costs. However, we sold our 30 Year Fixed Rate Agency RMBS portfolio in March 2020 to raise liquidity. As a result, we incurred large realized losses in 2020 and a sharp decline in book value. Additionally, we believe the significant reduction in the size of our investment portfolio will materially limit our earnings going forward.
Year Ended December 31, 2020 compared to the Year Ended December 31, 2019
The table below presents certain information from our consolidated statements of operations for the years ended December 31, 2020 and December 31, 2019 (in thousands):
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|
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|
|
|
|
|
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Year Ended
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|
Increase/(Decrease)
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|
December 31, 2020
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|
December 31, 2019
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|
Statement of Operations Data:
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|
|
|
|
|
Net Interest Income
|
|
|
|
|
|
Interest income
|
$
|
74,525
|
|
|
$
|
171,660
|
|
|
$
|
(97,135)
|
|
Interest expense
|
36,945
|
|
|
90,108
|
|
|
(53,163)
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|
Total Net Interest Income
|
37,580
|
|
|
81,552
|
|
|
(43,972)
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|
|
|
|
|
|
|
Other Income/(Loss)
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|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
(256,522)
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|
|
(50,822)
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|
|
(205,700)
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|
Net interest component of interest rate swaps
|
731
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|
|
7,736
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|
|
(7,005)
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
(159,466)
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|
|
83,832
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|
|
(243,298)
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(10,347)
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|
|
(312)
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|
|
(10,035)
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|
Foreign currency gain/(loss), net
|
1,528
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|
|
(2,512)
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|
|
4,040
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|
Other income
|
6
|
|
|
1,182
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|
|
(1,176)
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|
Total Other Income/(Loss)
|
(424,070)
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|
|
39,104
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|
|
(463,174)
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|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Management fee to affiliate
|
7,181
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|
|
9,825
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|
|
(2,644)
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|
Other operating expenses
|
14,513
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|
|
18,638
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|
|
(4,125)
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|
Restructuring related expenses
|
10,200
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|
|
—
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|
|
10,200
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|
Equity based compensation to affiliate
|
163
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|
|
349
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|
|
(186)
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|
Excise tax
|
(815)
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|
|
531
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|
|
(1,346)
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|
Servicing fees
|
2,224
|
|
|
1,619
|
|
|
605
|
|
Total Expenses
|
33,466
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|
|
30,962
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|
|
2,504
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|
|
|
|
|
|
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Income/(loss) before equity in earnings/(loss) from affiliates
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(419,956)
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|
|
89,694
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|
|
(509,650)
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|
|
|
|
|
|
|
Equity in earnings/(loss) from affiliates
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(1,629)
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|
|
7,644
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|
|
(9,273)
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|
Net Income/(Loss) from Continuing Operations
|
(421,585)
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|
|
97,338
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|
|
(518,923)
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|
Net Income/(Loss) from Discontinued Operations
|
666
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|
|
(4,416)
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|
|
5,082
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|
Net Income/(Loss)
|
(420,919)
|
|
|
92,922
|
|
|
(513,841)
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|
|
|
|
|
|
|
Gain on Exchange Offers, net
|
10,574
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|
—
|
|
|
10,574
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|
|
|
|
|
|
|
Dividends on preferred stock
|
(20,549)
|
|
|
(16,122)
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|
|
(4,427)
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|
|
|
|
|
|
|
Net Income/(Loss) Available to Common Stockholders
|
$
|
(430,894)
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|
|
$
|
76,800
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|
|
$
|
(507,694)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
Interest income is calculated using the effective interest method for our GAAP investment portfolio and calculated based on the actual coupon rate.
Interest income decreased from December 31, 2019 to December 31, 2020 primarily due to the significant reduction in the size of our investment portfolio as a result of the global COVID-19 pandemic. The weighted average cost of our GAAP investment portfolio decreased by $2.0 billion from $3.6 billion for the year ended December 31, 2019 to $1.6 billion for the year ended December 31, 2020. We expect our interest income going forward to be materially lower compared to comparable prior periods as a result of the changes in our investment portfolio set forth in the tables of the "Investment activities" section below as a result of the COVID-19 pandemic.
Interest expense
Interest expense is calculated based on the actual financing rate and the outstanding financing balance of our GAAP investment portfolio.
Interest expense decreased from December 31, 2019 to December 31, 2020 primarily due to the significant reduction in the size of our investment portfolio and related financing as a result of the global COVID-19 pandemic. The weighted average financing balance on our GAAP investment portfolio during the period decreased by $2.0 billion from $3.1 billion for the year ended December 31, 2019 to $1.1 billion for the year ended December 31, 2020. Refer to the "Financing activities" section below for a discussion of the material changes in our cost of funds. We do not expect our interest expense, set forth in the consolidated statements of operations table above, to be indicative of our future interest expense due to the changes in our financing arrangements described in the "Financing activities" section below.
Net realized gain/(loss)
Net realized gain/(loss) represents the net gain or loss recognized on any (i) sales and seizure, of real estate securities out of our GAAP investment portfolio, including any associated deficiency recognized, (ii) sale of loans out of our GAAP investment portfolio, transfer of loans from our GAAP investment portfolio to real estate owned, which is included within our Other assets line item on our consolidated balance sheets, and sale of Other assets, (iii) settlement of derivatives and other instruments, and (iv) prior to the adoption of ASU 2016-13, other-than-temporary-impairment ("OTTI") charges recorded during the period. See Note 2, Note 3, and Note 4 to the "Notes to Consolidated Financial Statements" for further discussion on OTTI. The following table presents a summary of Net realized gain/(loss) for the years ended December 31, 2020 and December 31, 2019 (in thousands):
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|
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|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
Sales/Seizures of real estate securities
|
$
|
(130,567)
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|
|
$
|
29,858
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|
Sales of loans and loans transferred to or sold from Other assets
|
(63,285)
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|
|
1,042
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|
|
|
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Settlement of derivatives and other instruments
|
(62,670)
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|
|
(64,181)
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OTTI
|
—
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|
|
(17,541)
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Total Net realized gain/(loss)
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$
|
(256,522)
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|
|
$
|
(50,822)
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|
As previously discussed, in order to preserve liquidity and meet margin calls, we sold approximately $3.2 billion of securities and loans during the year ended December 31, 2020, a majority of which were sold due to the unprecedented market conditions experienced as a result of the global COVID-19 pandemic, which is the primary driver of the variances presented in the table above.
Net interest component of interest rate swaps
Net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps.
Net interest component of interest rate swaps decreased from December 31, 2019 to December 31, 2020, primarily due to the significant reduction in the size of our investment portfolio and related financing as a result of the global COVID-19 pandemic.
Unrealized gain/(loss) on real estate securities and loans, net
For the year ended December 31, 2020, the loss of $159.5 million consisted of unrealized losses on securities of $136.8 million and unrealized losses on loans of $22.7 million during the year.
Unrealized gain/(loss) on derivative and other instruments, net
For the year ended December 31, 2020, the $10.3 million loss consisted of unrealized losses on certain derivatives and securitized debt, offset by unrealized gains on Excess MSRs.
Foreign currency gain/(loss), net
Foreign currency gain/(loss), net pertains to the effects of remeasuring the monetary assets and liabilities of our foreign
investments into U.S. dollars using foreign currency exchange rates at the end of the reporting period.
During the year ended December 31, 2020, our liabilities held in foreign currencies generated gains as the result of a decrease in the value of GBP relative to USD.
Other income
Other income currently includes certain fees we receive on our loans and CMBS portfolios. Other income decreased from December 31, 2019 to December 31, 2020 as a result of origination fees received on our loans during 2019 and a premium received on a credit default swap during 2019 that we did not receive in 2020.
Management fee to affiliate
Our management fee is based upon a percentage of our Stockholders’ Equity. See the "Contractual obligations" section of this Part II, Item 7 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity. Management fees decreased from December 31, 2020 to December 31, 2019 primarily due to an decrease in our Stockholders’ Equity as calculated pursuant to our Management Agreement.
On April 6, 2020, we executed an amendment to our Management Agreement pursuant to which our Manager agreed to defer our payment of the management fee and reimbursement of expenses beginning with the first quarter 2020 through September 30, 2020, or such other time as we and the Manager agreed. As of December 31, 2020, we have paid all deferred management fees related to earlier periods and settled $4.3 million of management fees through the issuance of common stock to the Manager. See Note 10 to the "Notes to Consolidated Financial Statements" and the "Liquidity and capital resources" section of this Item 7 below for a further discussion on management fees.
Other operating expenses
These amounts primarily comprise professional fees, directors’ and officers’ ("D&O") insurance and directors’ fees, as well as certain expenses reimbursable to the Manager. We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain salary expenses and other expenses relating to legal, accounting, due diligence, and other services. Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to the Manager. The following table presents a summary of expenses within Other operating expenses broken out between non-investment related expenses and investment related expenses for the years ended December 31, 2020 and December 31, 2019 (in thousands):
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|
|
|
|
|
|
|
|
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Year Ended
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Non Investment Related Expenses
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|
|
|
|
|
|
Affiliate reimbursement - Operating expenses
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|
$
|
6,320
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|
|
$
|
6,873
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|
|
|
Professional Fees
|
|
2,472
|
|
|
1,982
|
|
|
|
D&O insurance
|
|
1,063
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|
|
697
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|
|
|
Directors' compensation
|
|
680
|
|
|
880
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|
|
|
Other
|
|
711
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|
|
1,034
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|
|
|
Total Corporate Expenses
|
|
11,246
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|
|
11,466
|
|
|
|
|
|
|
|
|
|
|
Investment Related Expenses (1)
|
|
|
|
|
|
|
Affiliate expense reimbursement - Deal related expenses
|
|
1,116
|
|
|
609
|
|
|
|
Affiliate expense reimbursement - Transaction related expenses and deal related performance fees (2)
|
|
—
|
|
|
42
|
|
|
|
Professional fees
|
|
188
|
|
|
186
|
|
|
|
Residential mortgage loan related expenses
|
|
2,876
|
|
|
1,312
|
|
|
|
Transaction related expenses and deal related performance fees (2)
|
|
(1,235)
|
|
|
4,491
|
|
|
|
Other
|
|
322
|
|
|
532
|
|
|
|
Total Investment Expenses
|
|
3,267
|
|
|
7,172
|
|
|
|
Total Other operating expenses
|
|
$
|
14,513
|
|
|
$
|
18,638
|
|
|
|
(1)We recognize certain upfront costs and fees relating to investments for which the fair value option has been elected in current period earnings as incurred and do not defer those costs. Refer to Note 2 to the "Notes to Consolidated Financial Statements" for more information regarding this policy.
(2)For the years ended December 31, 2020 and December 31, 2019, total transaction related expenses and deal related performance fees were $(0.6) million and $4.5 million, respectively. For the year ended December 31, 2020, the $(0.6) million was comprised of $(1.2) million per the chart above as well as $0.6 million of deferred financing costs that are included within interest expense. For the year ended December 31, 2019, the $4.5 million consisted of $42.0 thousand and $4.5 million per the chart above as well as a de minimis amount of deferred financing costs that are included within interest expense. The decrease in Transaction related expenses and deal related performance fees from the year ended December 31, 2019 to the year ended December 31, 2020 is primarily a result of accrued deal-related performance fees being reversed in the current period due to a decline in the price of the related assets, as well as the seizure of such assets by financing counterparties.
Restructuring related expenses
Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement. Refer to the "Financing activities" section below for more information regarding the Forbearance Agreement and the Reinstatement Agreement.
Equity based compensation to affiliate
Equity based compensation to affiliate represents amortization of the fair value of our restricted stock units issued to our Manager, less the present value of dividends expected to be paid on the underlying shares through the requisite period.
For the years ended December 31, 2020 and December 31, 2019, our equity based compensation to affiliate decreased as a result of the remaining restricted stock units vesting during 2020.
Excise tax
Excise tax represents a four percent tax on the required amount of any ordinary income and net capital gains not distributed during the year. The expense is calculated in accordance with applicable tax regulations.
For the years ended December 31, 2020 and December 31, 2019 our excise tax decreased primarily due to losses associated with COVID-19.
Servicing fees
We incur servicing fee expenses in connection with the servicing of our Residential mortgage loans. As of December 31, 2020, and December 31, 2019, we owned Residential mortgage loans with a fair value of $435.4 million and $417.8 million, respectively. This increase in the fair value of the Residential mortgage loans we own pertains to the net purchases of Residential mortgage loan pools in 2019 and 2020.
For the years ended December 31, 2020 and December 31, 2019, our servicing fees increased primarily due to our net purchases of residential mortgage loans described above.
Equity in earnings/(loss) from affiliates
Equity in earnings/(loss) from affiliates represents our share of earnings and profits of investments held within affiliated entities. A majority of these investments comprise real estate securities, loans and our investment in AG Arc. The decrease from the year ended December 31, 2020 to the year ended December 31, 2019 primarily pertains to unrealized losses on investments held within affiliated entities, offset by our share of income generated by Arc Home. During the year ended December 31, 2020, we recognized $23.3 million of equity in earnings from affiliates related to our investment in AG Arc. The increase in earnings within AG Arc was the result of elevated origination volumes and the related lending revenues experienced at Arc Home. See Note 2 to the "Notes to Consolidated Financial Statements" for additional information on equity in earnings/(loss) from affiliates.
Discontinued operations
On November 15, 2019, we sold our portfolio of single-family rental properties to a third-party at a price of approximately $137 million. We recognized a gain of $0.2 million as a result of the transaction. We reclassified the operating results of the single-family rental properties segment to discontinued operations and excluded the income from continuing operations for all periods presented.
Gain on Exchange Offers, net
We completed a public exchange offer and two privately negotiated exchange offers (collectively, the "Exchange Offers") during the the year ended December 31, 2020. As a result of the Exchange Offers, we exchanged a total of 253,482 shares of our 8.25% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), 435,272 shares of our 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") and 716,822 shares of our and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") for a total of 5,095,934 shares of common stock and cash consideration of $8.0 million. We recognized a gain of $10.6 million in connection with the Exchange Offers, which is net of related expenses. Refer to the "Liquidity and capital resources" section below for more information on the Exchange Offers.
Results of Operations for Fiscal Year 2019 and 2018
For a comparison of our results of operations for the fiscal years ended December 31, 2019 and December 31, 2018, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.
Book value per share
Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP, including all vested shares issued to our Manager, and our independent directors under our equity incentive plans as of quarter-end. As of December 31, 2020, the net proceeds for the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock is $43.8 million, $100.8 million and $93.9 million, respectively. As of December 31, 2020, the liquidation preference for the issued and outstanding Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock is $45.4 million, $104.1 million and $97.1 million, respectively.
As of December 31, 2020 and December 31, 2019, our book value per common share calculated using stockholders’ equity less net proceeds on our preferred stock as the numerator was $4.13 and $17.61, respectively. As of December 31, 2020 and December 31, 2019, our adjusted book value per common share calculated using stockholders’ equity less the liquidation preference of our preferred stock as the numerator was $3.94 and $17.33, respectively.
Presentation of investment, financing and hedging activities
In the "Investment activities," "Financing activities," "Hedging activities" and "Liquidity and capital resources" sections of this Part II, Item 7, where we disclose our investment portfolio and the related financing arrangements, we have presented this information inclusive of (i) unconsolidated ownership interests in affiliates that are accounted for under GAAP using the equity method and (ii) TBAs, which are accounted for as derivatives under GAAP. Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP. This presentation of our investment portfolio is consistent with how our management team evaluates the business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition. See Note 2 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates.
Net interest margin and leverage ratio
GAAP net interest margin and non-GAAP net interest margin, a non-GAAP financial measure, are calculated by subtracting the weighted average cost of funds from the weighted average yield for our GAAP investment portfolio or our investment portfolio, respectively, both of which exclude cash held by us and any net TBA position. The weighted average yield on our Agency RMBS portfolio and our credit portfolio represents an effective interest rate, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of year-end. The calculation of weighted average yield is weighted on fair value at year-end. The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at year-end, including all non-recourse financing arrangements, and our weighted average hedging cost, which is the weighted average of the net pay rate on our interest rate swaps. Both elements of cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio or our investment portfolio and securitized debt at year-end.
As our capital allocation shifts, our weighted average yields and weighted average cost of funds will also shift. Our Agency Investments, given their liquidity and high credit quality, are eligible for higher levels of leverage, while our Credit
Investments, with less liquidity and/or more exposure to credit risk and prepayment, utilize lower levels of leverage. As a result, our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the diversification of our counterparties and their available capacity to finance our assets, and anticipated regulatory developments. Prior to March 2020, we generally maintained a leverage ratio range of 4.0 to 5.0 times to finance our investment portfolio, on a fully deployed capital basis. Our debt-to-equity ratio is directly correlated to the composition of our portfolio; specifically, the higher percentage of Agency Investments we hold, the higher our leverage ratio is, while the higher percentage of Credit Investments we hold, the lower our leverage ratio is. As previously mentioned, in an effort to prudently manage our portfolio through unprecedented market volatility and to preserve long-term stockholder value, we completed the sale of our 30 Year Fixed Rate Agency securities during the first quarter of 2020. We believe the resulting capital allocation impacts the weighted average yield, weighted average cost of funds and leverage ratio as illustrated below.
Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio. See the "Financing activities" section below for more detail on our leverage ratio.
The chart below sets forth the net interest margin and leverage ratio from our investment portfolio as of December 31, 2020 and December 31, 2019 and a reconciliation to our GAAP investment portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Weighted Average
|
|
GAAP Investment
Portfolio
|
|
Investments in Debt and Equity of Affiliates
|
|
Investment Portfolio (a)
|
Yield
|
|
3.73
|
%
|
|
7.78
|
%
|
|
4.36
|
%
|
Cost of Funds (b)
|
|
1.82
|
%
|
|
4.87
|
%
|
|
2.09
|
%
|
Net Interest Margin
|
|
1.91
|
%
|
|
2.91
|
%
|
|
2.27
|
%
|
Leverage Ratio (c)
|
|
2.4x
|
|
(d)
|
|
1.5x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Weighted Average
|
|
GAAP Investment
Portfolio
|
|
Investments in Debt and Equity of Affiliates
|
|
Investment Portfolio (a)
|
Yield
|
|
4.57
|
%
|
|
6.75
|
%
|
|
4.82
|
%
|
Cost of Funds (b)
|
|
2.23
|
%
|
|
3.94
|
%
|
|
2.35
|
%
|
Net Interest Margin
|
|
2.34
|
%
|
|
2.81
|
%
|
|
2.47
|
%
|
Leverage Ratio (c)
|
|
4.1x
|
|
(d)
|
|
4.1x
|
(a)Excludes any net TBA position.
(b)Includes cost of non-recourse financing arrangements. Non-recourse financing arrangements include securitized debt.
(c)The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage. The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section.
(d)Refer to the "Financing activities" section below for an aggregate breakout of leverage.
Core Earnings
We define Core Earnings, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on real estate securities, loans, derivatives and other investments, inclusive of our investment in AG Arc, (b) net realized gains/(losses) on the sale or termination of such instruments, and (c) any OTTI, (ii) any transaction related expenses incurred in connection with the acquisition or disposition of our investments, (iii) accrued deal-related performance fees payable to Arc Home and third party operators to the extent the primary component of the accrual relates to items that are excluded from Core Earnings, such as unrealized and realized gains/(losses), (iv) realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and the derivatives intended to offset changes in the fair value of those net mortgage servicing rights, (v) deferred taxes recognized at our taxable REIT subsidiaries, if any, (vi) beginning with the third quarter of 2019, concurrent with a change in our business, any foreign currency gain/(loss) relating to monetary assets and liabilities, (vii) beginning with the fourth quarter of 2019 and applied retrospectively, concurrent with a change in our business, income from discontinued operations, and (viii) any gains/(losses) associated with exchange transactions on our common and preferred stock. Items (i) through (viii) above include any amount related to those items held in affiliated entities. Management considers the transaction related expenses referenced in (ii) above to be similar to realized losses incurred at the acquisition or disposition of an asset and does not view them as being part of its core operations. Management views the exclusion described in (iv) above to be consistent with how it calculates Core Earnings on the remainder of its portfolio. Management excludes all deferred taxes because it believes deferred taxes are not representative of current operations.
As defined, Core Earnings include the net interest income and other income earned on our investments on a yield adjusted basis, including TBA dollar roll income or any other investment activity that may earn or pay net interest or its economic equivalent. One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Core Earnings to help measure our performance against this objective. Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors as it enables them to evaluate our current core performance using the same methodology that management uses to operate the business. This metric, in conjunction with related GAAP measures, provides greater transparency into the information used by our management team in its financial and operational decision-making. Our presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. This non-GAAP measure should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated. Refer to the "Results of Operations" section above for a detailed discussion of our GAAP financial results.
A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the years ended December 31, 2020 and December 31, 2019 is set forth below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
Net Income/(loss) available to common stockholders
|
$
|
(430,894)
|
|
|
$
|
76,800
|
|
Add (Deduct):
|
|
|
|
Net realized (gain)/loss
|
256,522
|
|
|
50,822
|
|
Unrealized (gain)/loss on real estate securities and loans, net
|
159,466
|
|
|
(83,832)
|
|
Unrealized (gain)/loss on derivative and other instruments, net
|
10,347
|
|
|
312
|
|
Transaction related expenses and deal related performance fees (1)
|
(613)
|
|
|
4,517
|
|
Equity in (earnings)/loss from affiliates
|
1,629
|
|
|
(7,644)
|
|
Net interest income and expenses from equity method investments (2)
|
38,025
|
|
|
6,005
|
|
Foreign currency (gain)/loss, net
|
(1,528)
|
|
|
2,512
|
|
Net (income)/loss from discontinued operations
|
(666)
|
|
|
4,416
|
|
(Gains) from Exchange Offers, net
|
(10,574)
|
|
|
—
|
|
Dollar roll income
|
322
|
|
|
1,012
|
|
Other income
|
—
|
|
|
(27)
|
|
Core Earnings
|
$
|
22,036
|
|
|
$
|
54,893
|
|
|
|
|
|
Core Earnings, per Diluted Share
|
$
|
0.63
|
|
|
$
|
1.70
|
|
(1)Refer to changes in Interest expense and Other operating expenses in our "Results of Operations" section above for a breakout of transaction related expenses and deal related performance fees for the years ended December 31, 2020 and December 31, 2019.
(2)For the years ended December 31, 2020 and December 31, 2019, $(3.9 million) or $(0.11) per share and $(8.5 million) or $(0.26) per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives were excluded from Core Earnings per diluted share.
We did not disclose Core Earnings during the first three quarters of 2020 as we determined that this measure, as we have historically calculated it, did not appropriately capture our business, liquidity, results of operations, financial condition, or our ability to make distributions to our stockholders. During the fourth quarter of 2020 we began disclosing Core Earnings in conjunction with the reinstatement of our dividends on our common stock and preferred stock.
Investment activities
Overall, our intention is to allocate capital to investment opportunities with attractive risk/return profiles in our target asset classes. Historically, our investment portfolio has consisted of Agency RMBS, Residential Investments and Commercial Investments. Our capital allocation to each of these investments is set forth in more detail below. Our investment and capital allocation decisions depend on prevailing market conditions and compliance with Investment Company Act and REIT tests, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. The risk-reward profile of our investment opportunities changes continuously with the market, with labor, housing and economic fundamentals, and with U.S. monetary policy, among others. As a result, in reacting to market conditions
and taking into account a variety of other factors, including liquidity, duration, interest rate expectations and hedging, the mix of our assets changes over time as we opportunistically deploy capital.
During the year ended December 31, 2020, we reduced the size of our GAAP investment portfolio from $4.0 billion to $1.2 billion, and at December 31, 2020, our equity capital allocation was 19.7% to Agency RMBS and 80.3% to credit investments. We have expertise in Agency RMBS, and may choose to allocate additional capital in those assets should the opportunity arise; however, in the near term we expect our capital to be almost entirely allocated to Credit Investments.
We evaluate investments in Agency RMBS using factors including, among others, expected future prepayment trends, supply of and demand for Agency RMBS, costs of financing, costs of hedging, liquidity, expected future interest rate volatility and the overall shape of the U.S. Treasury and interest rate swap yield curves. Prepayment speeds, as reflected by the CPR, and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds on our Agency RMBS portfolio increase, the related purchase premium amortization increases, thereby reducing the net yield on such assets.
Our credit investments are subject to risk of loss with regard to principal and interest payments. We evaluate each investment in our credit portfolio based on the characteristics of the underlying collateral, the securitization structure, expected return, geography, collateral type, and the cost and availability of financing, among others. We maintain a comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management team and a quarterly credit review process for each investment that examines the need for a potential reduction in accretable yield, missed or late contractual payments, significant declines in collateral performance, prepayments, projected defaults, loss severities and other data that may indicate a potential issue in our ability to recover our capital from the investment. These processes are designed to enable our Manager to evaluate and proactively to manage asset-specific credit issues and identify credit trends on a portfolio-wide basis. Nevertheless, we cannot be certain that our review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets. Therefore, potential future losses may also stem from issues with our investments that are not identified by our credit reviews.
The following table presents a detailed break-down of our investment portfolio as of December 31, 2020 and December 31, 2019 and a reconciliation to our GAAP Investment Portfolio ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Percent of Investment Portfolio Fair Value
|
|
Leverage Ratio (a)
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2020
|
|
December 31, 2019
|
Agency RMBS
|
|
|
|
|
$
|
521,843
|
|
|
$
|
2,333,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.4
|
%
|
|
52.8
|
%
|
|
6.1x
|
|
7.1x
|
Residential Investments
|
|
|
|
|
691,478
|
|
|
1,493,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.5
|
%
|
|
33.8
|
%
|
|
0.2x
|
|
2.7x
|
Commercial Investments
|
|
|
|
|
182,296
|
|
|
589,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.1
|
%
|
|
13.4
|
%
|
|
0.9x
|
|
2.1x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: Investment Portfolio
|
|
|
|
|
$
|
1,395,617
|
|
|
$
|
4,417,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
1.5x
|
|
4.1x
|
Investments in Debt and Equity of Affiliates (b)
|
|
|
|
|
$
|
217,964
|
|
|
$
|
373,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
N/A
|
|
(c)
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: GAAP Investment Portfolio
|
|
|
|
|
$
|
1,177,653
|
|
|
$
|
4,044,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
N/A
|
|
2.4x
|
|
4.1x
|
(a)The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section and is calculated by dividing each investment type's total recourse financing arrangements by its allocated equity (described in the chart below). Cash posted as collateral has been allocated pro-rata by each respective asset class's Economic Leverage amount. The Economic Leverage Ratio excludes any fully non-recourse financing arrangements. The leverage ratio on our Agency RMBS includes any net receivables on TBA. The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage.
(b)Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt.
(c)Refer to the "Financing activities" section below for an aggregate breakout of leverage.
We allocate our equity by investment using the fair value of our investment portfolio, less any associated leverage, inclusive of any long TBA position (at cost). We allocate all non-investment portfolio related assets and liabilities to our investment portfolio based on the characteristics of such assets and liabilities in order to sum to stockholders' equity per the consolidated balance sheets. Our equity allocation method is a non-GAAP methodology and may not be comparable to the similarly titled measure or concepts of other companies, who may use different calculations and allocation methodologies.
The following table presents a summary of the allocated equity of our investment portfolio as of December 31, 2020 and December 31, 2019 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated Equity
|
|
Percent of Equity
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2020
|
|
December 31, 2019
|
Agency RMBS
|
|
$
|
80,854
|
|
|
$
|
295,358
|
|
|
19.7
|
%
|
|
34.8
|
%
|
Residential Investments
|
|
229,183
|
|
|
359,923
|
|
|
56.0
|
%
|
|
42.4
|
%
|
Commercial Investments
|
|
99,668
|
|
|
193,765
|
|
|
24.3
|
%
|
|
22.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
409,705
|
|
|
$
|
849,046
|
|
|
100.0
|
%
|
|
100.0
|
%
|
The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
Instrument
|
|
Current Face
|
|
Amortized Cost
|
|
Unrealized Mark-to-Market
|
|
Fair Value (1)
|
|
Coupon (2)
|
|
Yield
|
|
Life (Years) (3)
|
Agency RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 Year Fixed Rate
|
|
$
|
494,307
|
|
|
$
|
516,675
|
|
|
$
|
1,677
|
|
|
$
|
518,352
|
|
|
2.10
|
%
|
|
1.17
|
%
|
|
5.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess MSR (4)
|
|
642,377
|
|
|
4,986
|
|
|
(1,495)
|
|
|
3,491
|
|
|
N/A
|
|
3.80
|
%
|
|
6.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Agency RMBS
|
|
1,136,684
|
|
|
521,661
|
|
|
182
|
|
|
521,843
|
|
|
2.10
|
%
|
|
1.19
|
%
|
|
5.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (5)
|
|
15,093
|
|
|
8,012
|
|
|
653
|
|
|
8,665
|
|
|
3.68
|
%
|
|
8.97
|
%
|
|
12.99
|
Alt-A/Subprime (5)
|
|
16,287
|
|
|
6,910
|
|
|
4,586
|
|
|
11,496
|
|
|
4.25
|
%
|
|
12.52
|
%
|
|
9.70
|
Credit Risk Transfer
|
|
13,880
|
|
|
13,880
|
|
|
(572)
|
|
|
13,308
|
|
|
4.71
|
%
|
|
4.70
|
%
|
|
5.86
|
Non-U.S.RMBS
|
|
2,435
|
|
|
3,141
|
|
|
(41)
|
|
|
3,100
|
|
|
6.45
|
%
|
|
6.41
|
%
|
|
4.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Only and Excess MSR (4)
|
|
191,362
|
|
|
265
|
|
|
55
|
|
|
320
|
|
|
0.53
|
%
|
|
3.44
|
%
|
|
0.70
|
Re/Non-Performing Loans
|
|
582,329
|
|
|
470,440
|
|
|
8,125
|
|
|
478,565
|
|
|
3.62
|
%
|
|
6.49
|
%
|
|
6.17
|
Non-QM Loans
|
|
1,271,998
|
|
|
156,109
|
|
|
(2,909)
|
|
|
153,200
|
|
|
1.08
|
%
|
|
4.95
|
%
|
|
1.29
|
Land Related Financing
|
|
22,824
|
|
|
22,824
|
|
|
—
|
|
|
22,824
|
|
|
14.59
|
%
|
|
14.59
|
%
|
|
0.84
|
Total Residential Investments
|
|
2,116,208
|
|
|
681,581
|
|
|
9,897
|
|
|
691,478
|
|
|
2.37
|
%
|
|
6.51
|
%
|
|
2.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit
|
|
4,925
|
|
|
3,901
|
|
|
(606)
|
|
|
3,295
|
|
|
4.62
|
%
|
|
11.89
|
%
|
|
3.51
|
Single-Asset/Single-Borrower
|
|
50,480
|
|
|
48,986
|
|
|
(8,796)
|
|
|
40,190
|
|
|
4.15
|
%
|
|
4.81
|
%
|
|
2.27
|
Freddie Mac K-Series
|
|
22,572
|
|
|
10,510
|
|
|
(1,510)
|
|
|
9,000
|
|
|
3.83
|
%
|
|
9.00
|
%
|
|
10.32
|
CMBS Interest Only (6)
|
|
687,077
|
|
|
4,116
|
|
|
187
|
|
|
4,303
|
|
|
0.10
|
%
|
|
6.93
|
%
|
|
4.12
|
Commercial Real Estate Loans (7)
|
|
142,167
|
|
|
141,655
|
|
|
(16,147)
|
|
|
125,508
|
|
|
4.60
|
%
|
|
4.96
|
%
|
|
2.33
|
Total Commercial Investments
|
|
907,221
|
|
|
209,168
|
|
|
(26,872)
|
|
|
182,296
|
|
|
1.10
|
%
|
|
5.30
|
%
|
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Investments
|
|
3,023,429
|
|
|
890,749
|
|
|
(16,975)
|
|
|
873,774
|
|
|
1.87
|
%
|
|
6.26
|
%
|
|
3.10
|
Total: Investment Portfolio
|
|
$
|
4,160,113
|
|
|
$
|
1,412,410
|
|
|
$
|
(16,793)
|
|
|
$
|
1,395,617
|
|
|
1.91
|
%
|
|
4.36
|
%
|
|
3.85
|
Investments in Debt and Equity of Affiliates
|
|
$
|
1,466,453
|
|
|
$
|
216,450
|
|
|
$
|
1,514
|
|
|
$
|
217,964
|
|
|
1.67
|
%
|
|
7.78
|
%
|
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: GAAP Investment Portfolio
|
|
$
|
2,693,660
|
|
|
$
|
1,195,960
|
|
|
$
|
(18,307)
|
|
|
$
|
1,177,653
|
|
|
2.01
|
%
|
|
3.73
|
%
|
|
5.03
|
(1)Refer to "Off-balance sheet arrangements" section below and Note 2 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheet and a discussion of Investments in debt and equity of affiliates.
(2)Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation.
(3)Weighted average life is based on projected life. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
(4)Excess MSRs whose underlying collateral is securitized in a trust held by a U.S. government agency or GSE are included within Agency RMBS. Excess MSRs whose underlying collateral is securitized in a trust not held by a U.S. government agency or GSE are included within Residential Investments.
(5)Non-Agency RMBS with credit scores above 700, between 700 and 620 and below 620 at origination are classified as Prime, Alt-A, and Subprime, respectively. The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency RMBS were 739 and 687, respectively.
(6)Comprised of Freddie Mac K-Series interest-only bonds.
(7)Yield on Commercial Real Estate Loans includes any exit fees. Refer to Note 4 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Commercial Loans" line item on our consolidated balance sheet.
The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
Instrument
|
|
Current Face
|
|
Amortized Cost
|
|
Unrealized Mark-to-Market
|
|
Fair Value (1)
|
|
Coupon (2)
|
|
Yield
|
|
Life (Years) (3)
|
Agency RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 Year Fixed Rate
|
|
$
|
2,125,067
|
|
|
$
|
2,184,190
|
|
|
$
|
57,108
|
|
|
$
|
2,241,298
|
|
|
3.73
|
%
|
|
3.17
|
%
|
|
5.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inverse Interest Only
|
|
217,031
|
|
|
37,611
|
|
|
627
|
|
|
38,238
|
|
|
4.37
|
%
|
|
6.66
|
%
|
|
4.97
|
Interest Only
|
|
259,161
|
|
|
35,333
|
|
|
570
|
|
|
35,903
|
|
|
3.56
|
%
|
|
5.02
|
%
|
|
4.01
|
Excess MSR (4)
|
|
3,042,841
|
|
|
20,188
|
|
|
(2,001)
|
|
|
18,187
|
|
|
N/A
|
|
8.33
|
%
|
|
5.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Agency RMBS
|
|
5,644,100
|
|
|
2,277,322
|
|
|
56,304
|
|
|
2,333,626
|
|
|
3.77
|
%
|
|
3.30
|
%
|
|
5.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (5)
|
|
297,932
|
|
|
213,056
|
|
|
28,831
|
|
|
241,887
|
|
|
4.92
|
%
|
|
7.44
|
%
|
|
11.63
|
Alt-A/Subprime (5)
|
|
141,464
|
|
|
110,605
|
|
|
12,107
|
|
|
122,712
|
|
|
4.40
|
%
|
|
6.89
|
%
|
|
8.23
|
Credit Risk Transfer
|
|
270,397
|
|
|
270,988
|
|
|
8,967
|
|
|
279,955
|
|
|
5.17
|
%
|
|
5.27
|
%
|
|
5.66
|
Non-U.S. RMBS
|
|
44,867
|
|
|
54,340
|
|
|
3,391
|
|
|
57,731
|
|
|
3.21
|
%
|
|
3.58
|
%
|
|
2.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Only and Excess MSR (4)
|
|
244,115
|
|
|
1,592
|
|
|
(376)
|
|
|
1,216
|
|
|
0.77
|
%
|
|
7.73
|
%
|
|
6.34
|
Re/Non-Performing Loans
|
|
605,844
|
|
|
493,734
|
|
|
16,449
|
|
|
510,183
|
|
|
4.14
|
%
|
|
6.48
|
%
|
|
6.56
|
Non-QM Loans
|
|
1,141,131
|
|
|
250,087
|
|
|
4,189
|
|
|
254,276
|
|
|
1.69
|
%
|
|
5.35
|
%
|
|
1.71
|
Land Related Financing
|
|
25,607
|
|
|
25,395
|
|
|
514
|
|
|
25,909
|
|
|
12.27
|
%
|
|
12.40
|
%
|
|
3.00
|
Total Residential Investments
|
|
2,771,357
|
|
|
1,419,797
|
|
|
74,072
|
|
|
1,493,869
|
|
|
3.53
|
%
|
|
6.24
|
%
|
|
4.99
|
Commercial Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit
|
|
72,318
|
|
|
63,137
|
|
|
209
|
|
|
63,346
|
|
|
4.24
|
%
|
|
5.57
|
%
|
|
7.72
|
Single-Asset/Single-Borrower
|
|
204,702
|
|
|
199,096
|
|
|
575
|
|
|
199,671
|
|
|
5.09
|
%
|
|
5.57
|
%
|
|
2.78
|
Freddie Mac K-Series
|
|
235,810
|
|
|
100,427
|
|
|
17,723
|
|
|
118,150
|
|
|
5.01
|
%
|
|
11.34
|
%
|
|
8.34
|
CMBS Interest Only (6)
|
|
3,650,693
|
|
|
46,606
|
|
|
3,250
|
|
|
49,856
|
|
|
0.23
|
%
|
|
6.64
|
%
|
|
3.02
|
Commercial Real Estate Loans (7)
|
|
158,686
|
|
|
158,000
|
|
|
686
|
|
|
158,686
|
|
|
6.82
|
%
|
|
7.17
|
%
|
|
1.92
|
Total Commercial Investments
|
|
4,322,209
|
|
|
567,266
|
|
|
22,443
|
|
|
589,709
|
|
|
0.82
|
%
|
|
7.25
|
%
|
|
3.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Investments
|
|
7,093,566
|
|
|
1,987,063
|
|
|
96,515
|
|
|
2,083,578
|
|
|
1.74
|
%
|
|
6.53
|
%
|
|
3.98
|
Total: Investment Portfolio
|
|
$
|
12,737,666
|
|
|
$
|
4,264,385
|
|
|
$
|
152,819
|
|
|
$
|
4,417,204
|
|
|
2.34
|
%
|
|
4.82
|
%
|
|
4.69
|
Investments in Debt and Equity of Affiliates
|
|
$
|
1,676,838
|
|
|
$
|
361,992
|
|
|
$
|
11,134
|
|
|
$
|
373,126
|
|
|
1.82
|
%
|
|
6.75
|
%
|
|
2.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: GAAP Investment Portfolio
|
|
$
|
11,060,828
|
|
|
$
|
3,902,393
|
|
|
$
|
141,685
|
|
|
$
|
4,044,078
|
|
|
2.41
|
%
|
|
4.57
|
%
|
|
4.94
|
(1)Refer to "Off-balance sheet arrangements" section below and Note 2 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheet and a discussion of Investments in debt and equity of affiliates.
(2)Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation.
(3)Weighted average life is based on projected life. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
(4)Excess MSRs whose underlying collateral is securitized in a trust held by a U.S. government agency or GSE are included within Agency RMBS. Excess MSRs whose underlying collateral is securitized in a trust not held by a U.S. government agency or GSE are included within Residential Investments
(5)Non-Agency RMBS with credit scores above 700, between 700 and 620 and below 620 at origination are classified as Prime, Alt-A, and Subprime, respectively. The weighted average credit scores of our Prime and Alt-A/Subprime Non-Agency RMBS were 719 and 674, respectively.
(6)Comprised of Freddie Mac K-Series interest-only bonds.
(7)Yield on Commercial Real Estate Loans includes any exit fees. Refer to Note 4 to the "Notes of the Consolidated Financial Statements" section for more detail on what is included in our "Commercial Loans" line item on our consolidated balance sheet.
The following table presents the fair value ($ in thousands) and the CPR experienced on our GAAP Agency RMBS portfolio for the year ends presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
CPR (1)(2)
|
Agency RMBS
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2020
|
|
December 31, 2019
|
30 Year Fixed Rate
|
|
$
|
518,352
|
|
|
$
|
2,241,298
|
|
|
2.7
|
%
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inverse Interest Only (3)
|
|
—
|
|
|
38,238
|
|
|
—
|
%
|
|
11.7
|
%
|
Interest Only (3)
|
|
—
|
|
|
35,903
|
|
|
—
|
%
|
|
10.3
|
%
|
Total/Weighted Average
|
|
$
|
518,352
|
|
|
$
|
2,315,439
|
|
|
2.7
|
%
|
|
8.2
|
%
|
(1)Represents the weighted average monthly CPRs published during the year for our in-place portfolio during the same period.
(2)Source: Bloomberg.
(3)CPRs are shown only for securities with fair values as of period end.
The following table presents the fair value of the securities and loans in our credit portfolio, and a reconciliation to our GAAP credit portfolio (in thousands) for the year ends presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Non-Agency RMBS (1)
|
|
$
|
128,131
|
|
|
$
|
835,325
|
CMBS (2)
|
|
56,788
|
|
|
431,023
|
|
|
|
|
|
|
Total Credit securities
|
|
184,919
|
|
|
1,266,348
|
|
|
|
|
|
|
Residential loans (3)
|
|
563,347
|
|
|
658,544
|
|
Commercial real estate loans
|
|
125,508
|
|
|
158,686
|
|
Total loans
|
|
688,855
|
|
|
817,230
|
|
|
|
|
|
|
Total Credit Investments
|
|
$
|
873,774
|
|
|
$
|
2,083,578
|
|
Less: Investments in Debt and Equity of Affiliates
|
|
$
|
217,547
|
|
|
$
|
372,571
|
|
Total GAAP Credit Portfolio
|
|
$
|
656,227
|
|
|
$
|
1,711,007
|
|
(1)Includes Prime, Alt-A/Subprime, Credit Risk Transfer, Non-U.S RMBS, Interest-Only and Excess MSR, Re/Non-Performing Loans, Non-QM Loans, and Land Related Financing held in securitized form.
(2)Includes Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments.
(3)Includes Re/Non-Performing Loans, Non-QM Loans, and Land Related Financing not held in securitized form.
The following table presents the fair value of our credit securities portfolio by credit rating as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Rating - Credit Securities (1)
|
|
December 31, 2020 (2)
|
|
December 31, 2019 (2)
|
AAA
|
|
$
|
630
|
|
|
$
|
4,975
|
|
A
|
|
—
|
|
|
13,792
|
|
BBB
|
|
—
|
|
|
65,454
|
|
BB
|
|
9,037
|
|
|
106,311
|
|
B
|
|
25,318
|
|
|
226,083
|
|
Below B
|
|
17,046
|
|
|
103,985
|
|
Not Rated
|
|
132,888
|
|
|
745,748
|
|
Total: Credit Securities
|
|
$
|
184,919
|
|
|
$
|
1,266,348
|
|
Less: Investments in Debt and Equity of Affiliates
|
|
$
|
89,725
|
|
|
$
|
131,955
|
|
Total: GAAP Basis
|
|
$
|
95,194
|
|
|
$
|
1,134,393
|
|
(1)Represents the minimum rating for rated assets of S&P, Moody and Fitch credit ratings, stated in terms of the S&P equivalent.
(2)Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt.
The following tables present the geographic concentration of the underlying collateral for our Non-Agency RMBS and CMBS portfolios ($ in thousands). The geographic markets that we invest in have been and continue to be severely impacted by the ongoing COVID-19 pandemic.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Non-Agency RMBS
|
|
|
|
|
|
CMBS
|
|
|
|
|
State
|
|
Fair Value (1)
|
|
Percentage (1)
|
|
State
|
|
Fair Value
|
|
Percentage
|
California
|
|
$
|
40,593
|
|
|
32.5
|
%
|
|
Texas
|
|
$
|
6,454
|
|
|
11.4
|
%
|
New York
|
|
17,742
|
|
14.2
|
%
|
|
New York
|
|
6,264
|
|
11.0
|
%
|
Florida
|
|
10,982
|
|
8.8
|
%
|
|
California
|
|
4,801
|
|
8.5
|
%
|
Texas
|
|
4,216
|
|
3.4
|
%
|
|
Florida
|
|
4,014
|
|
7.1
|
%
|
New Jersey
|
|
4,028
|
|
3.2
|
%
|
|
Missouri
|
|
2,753
|
|
4.8
|
%
|
Other
|
|
50,570
|
|
37.9
|
%
|
|
Other
|
|
32,502
|
|
57.2
|
%
|
Total
|
|
$
|
128,131
|
|
|
100.0
|
%
|
|
Total
|
|
$
|
56,788
|
|
|
100.0
|
%
|
(1)Non-Agency RMBS fair value includes $3.1 million of investments where there were no data regarding the underlying collateral. These positions were excluded from the percent calculation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Non-Agency RMBS
|
|
|
|
|
|
CMBS
|
|
|
|
|
State
|
|
Fair Value (1)
|
|
Percentage (1)
|
|
State
|
|
Fair Value
|
|
Percentage
|
California
|
|
$
|
174,569
|
|
|
24.5
|
%
|
|
California
|
|
$
|
52,647
|
|
|
12.2
|
%
|
Florida
|
|
62,796
|
|
|
8.8
|
%
|
|
New York
|
|
46,317
|
|
|
10.7
|
%
|
New York
|
|
57,931
|
|
|
8.1
|
%
|
|
Texas
|
|
45,619
|
|
|
10.6
|
%
|
Texas
|
|
33,890
|
|
|
4.8
|
%
|
|
Florida
|
|
45,032
|
|
|
10.4
|
%
|
New Jersey
|
|
23,736
|
|
|
3.3
|
%
|
|
New Jersey
|
|
31,396
|
|
|
7.3
|
%
|
Other
|
|
482,403
|
|
|
50.5
|
%
|
|
Other
|
|
210,012
|
|
|
48.8
|
%
|
Total
|
|
$
|
835,325
|
|
|
100.0
|
%
|
|
Total
|
|
$
|
431,023
|
|
|
100.0
|
%
|
(1)Non-Agency RMBS fair value includes $123.0 million of investments where there were no data regarding the underlying collateral. These positions were excluded from the percent calculation.
See Note 4 to the "Notes to Consolidated Financial Statements" for a breakout of geographic concentration of credit risk within loans we include in the "Residential mortgage loans, at fair value" line item on our consolidated balance sheets.
The following tables present certain information regarding credit quality for certain categories within our Non-Agency RMBS and CMBS portfolios ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Non-Agency RMBS*
|
Category
|
|
Fair Value
|
|
Weighted Average 60+
Days Delinquent
|
|
Weighted Average
Loan Age (Months)
|
|
Weighted Average
Credit Enhancement
|
Prime
|
|
$
|
8,665
|
|
|
4.0
|
%
|
|
26.4
|
|
|
2.9
|
%
|
Alt-A/Subprime
|
|
11,496
|
|
|
9.5
|
%
|
|
95.0
|
|
|
0.1
|
%
|
Credit Risk Transfer
|
|
13,308
|
|
|
6.8
|
%
|
|
5.3
|
|
|
0.4
|
%
|
Non-U.S. RMBS
|
|
3,100
|
|
|
2.4
|
%
|
|
41.4
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS*
|
Category
|
|
Fair Value
|
|
Weighted Average 60+
Days Delinquent
|
|
Weighted Average
Loan Age (Months)
|
|
Weighted Average
Credit Enhancement
|
Conduit
|
|
$
|
3,295
|
|
|
10.6
|
%
|
|
81.0
|
|
|
8.7
|
%
|
Single-Asset/Single-Borrower
|
|
40,190
|
|
|
—
|
%
|
|
29.2
|
|
|
6.1
|
%
|
Freddie Mac K Series
|
|
9,000
|
|
|
0.2
|
%
|
|
25.9
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Non-Agency RMBS*
|
Category
|
|
Fair Value
|
|
Weighted Average 60+
Days Delinquent
|
|
Weighted Average
Loan Age (Months)
|
|
Weighted Average
Credit Enhancement
|
Prime
|
|
$
|
241,887
|
|
|
10.6
|
%
|
|
136.7
|
|
|
9.8
|
%
|
Alt-A/Subprime
|
|
122,712
|
|
|
12.8
|
%
|
|
162.3
|
|
|
17.7
|
%
|
Credit Risk Transfer
|
|
279,955
|
|
|
0.4
|
%
|
|
24.5
|
|
|
1.8
|
%
|
Non-U.S. RMBS
|
|
57,731
|
|
|
7.3
|
%
|
|
147.8
|
|
|
15.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS*
|
Category
|
|
Fair Value
|
|
Weighted Average 60+
Days Delinquent
|
|
Weighted Average
Loan Age (Months)
|
|
Weighted Average
Credit Enhancement
|
Conduit
|
|
$
|
63,346
|
|
|
0.9
|
%
|
|
39.0
|
|
|
16.2
|
%
|
Single-Asset/Single-Borrower
|
|
199,671
|
|
|
—
|
%
|
|
16.8
|
|
|
7.2
|
%
|
Freddie Mac K Series
|
|
118,150
|
|
|
0.6
|
%
|
|
45.3
|
|
|
0.4
|
%
|
*Sources: Intex, Trepp
In our Re/Non-Performing Loan portfolio, 28% of the overall population has requested COVID-19-related assistance as of December 31, 2020; approximately 48% of the population requesting assistance is being reported as contractually current as of year end as this population no longer owes any past due payments.
At the end of the initial forbearance period, those borrowers who can make their regular monthly scheduled payment will do so and the payment terms of the forbearance amounts will be negotiated (reinstatement, repayment or deferral). For those borrowers who cannot make their scheduled payment, the servicer will initiate phone contact with such borrowers to determine income status and ability to make future mortgage payments. The servicer will collect documents (where allowed by state laws) to initiate further forbearance or loss mitigation strategies for those borrowers who cannot make their regularly scheduled mortgage payments at the end of the initial forbearance period. On February 9, 2021, the FHFA announced that it was extending the maximum time a borrower can be in COVID-19 forbearance to 15 months, up from 12 months previously. The FHFA also announced that it had extended its moratorium on foreclosure on single-family homes through March 31, 2021. As guidelines continue to evolve, the servicers will adapt their practices accordingly.
Prior to March 2020, the three month average monthly default rate, or rate at which a borrower moved from current to 30 days delinquent, was 6.4%. The default rate for the fourth quarter of 2020 was 4.8%. COVID-19 related delinquencies made up approximately 33% of those defaults in the fourth quarter of 2020.
Our Re/Non-Performing Loan valuation process in 2020 has incorporated increased defaults and extended liquidation timelines.
In our Non-QM Loan portfolio, 34% of the overall population has requested COVID-19 related assistance as of December 31, 2020; approximately 67% of the population requesting assistance is being reported as contractually current as of year end as this population no longer owes any past due payments.
At the end of the forbearance period, the servicer will complete the same steps as described above with regards to Re/Non-Performing Loans.
Prior to March 2020, the three month average monthly default rate was 1.3%. The default rate for the fourth quarter of 2020 was 0.8%. COVID-19 related delinquencies made up approximately 38% of those defaults in the fourth quarter of 2020.
Financing activities
We use leverage to finance the purchase of our target assets. In 2020 and 2019, our leverage has primarily been in the form of repurchase agreements, credit facilities, and securitized debt. Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date. The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset. Haircuts may change as our financing arrangements mature or roll and are sensitive to governmental regulations. We experienced fluctuations in our haircuts that caused us to alter our business and financing strategies for the year ended December 31, 2020. As previously described, this resulted in us raising liquidity and de-risking our portfolio. Through asset sales and related debt pay-offs, we have reduced the aggregate number of our financing counterparties, bringing the counterparties we have debt outstanding with down from 30 as of December 31, 2019 to 5 as of December 31, 2020.
Our repurchase agreements are accounted for as financings and require the repurchase of the transferred securities or loans or repayment of the advance at the end of each agreement’s term, typically 30 to 90 days. If we maintain the beneficial interest in the specific assets pledged during the term of the borrowing, we receive the related principal and interest payments. If we do not maintain the beneficial interest in the specific assets pledged during the term of the borrowing, the lender will remit to us the related principal and interest payments. Interest rates on borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the borrowing at which time we may enter into a new borrowing arrangement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty.
We have also entered into revolving facilities to purchase certain loans in our investment portfolio. These facilities typically have longer stated maturities than repurchase agreements. Interest rates on these facilities are based on prevailing rates corresponding to the terms of the borrowings, and interest is paid on a monthly basis. Additionally, these facilities contain representations, warranties, covenant, including financial covenant, events of default and indemnities that are customary for agreements of these types.
In response to declines in fair value of pledged assets due to changes in market conditions or the publishing of monthly security paydown factors, lenders typically require us to post additional assets as collateral, pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, referred to as margin calls.
The balance on our financing arrangements can reasonably be expected to (i) increase as the size of our investment portfolio increases primarily through equity capital raises and as we increase our investment allocation to Agency RMBS and (ii) decrease as the size of our portfolio decreases through asset sales, principal paydowns, and as we increase our investment allocation to credit investments. Credit investments due to their risk profile, have lower leverage ratios than Agency RMBS, which restricts our financing counterparties from providing as much financing to us and lowers the balance of our total financing.
Forbearance and Reinstatement Agreements
Prior to the recent turmoil in the financial markets, we sought to achieve a balanced and diverse funding mix to finance our assets and operations, which included a combination of short-term borrowings, such as repurchase agreements with terms typically of 30-90 days, longer term repurchase agreement borrowings, and longer term financings, such as securitizations and revolving facilities, with terms longer than one year. We have explored, and will continue to explore, additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, issuances of equity or debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing or the size, timing or terms thereof.
In 2020, in response to the unprecedented illiquidity and drop in demand for MBS due to the COVID-19 pandemic, which resulted in a significant decline in the value of our assets and, in turn, an unusually high number of margin calls from our financing counterparties, we reduced our overall exposure to our financing counterparties by selling a significant portion of our investment portfolio and reducing the amount of our financing arrangements. As previously described, we sold our entire portfolio of 30 Year Fixed Rate Agency RMBS in March of 2020.
On March 20, 2020, we notified our financing counterparties that we did not expect to be in a position to fund the anticipated volume of future margin calls under our financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic. During this period of market upheaval, we engaged in discussions with our financing counterparties with regard to entering into forbearance agreements pursuant to which each counterparty would agree to forbear from exercising its rights and remedies with respect to an event of default under the applicable financing arrangement for an agreed-upon period. On April 10, 2020, we entered into a forbearance agreement for an initial 15 day period, a second forbearance agreement on April 27, 2020, for an extended period ending on June 1, 2020, and a third forbearance agreement on June 1, 2020 for an additional period ending June 15, 2020 (collectively, the "Forbearance Agreement") with certain of our financing counterparties (the "Participating Counterparties"). Pursuant to the terms of the Forbearance Agreement, the Participating Counterparties agreed to forbear from exercising any of their right and remedies in respect of events of default and any and all other defaults under the applicable financing arrangement with us for the duration of the forbearance period specified in the Forbearance Agreement (the "Forbearance Period").
On June 10, 2020, we entered into a Reinstatement Agreement with the Participating Counterparties, pursuant to which the parties agreed to terminate the Forbearance Agreement, and each Participating Counterparty agreed to permanently waive all existing and prior events of default under our financing agreements (each, a "Bilateral Agreement") and to reinstate each Bilateral Agreement, as it may be amended by agreement between the Participating Counterparty and the Company. As a result of the termination of the Forbearance Agreement and entry into the Reinstatement Agreement, default interest on our outstanding borrowings under each Bilateral Agreement has ceased to accrue as of June 10, 2020 and the interest rate was the non-default rate of interest or pricing rate, as set forth in the applicable Bilateral Agreements; all cash margin has been applied to outstanding balances we owe, and the DTC repo tracker coding for each Bilateral Agreement has been reinstated, thereby allowing principal and interest payments on the underlying collateral to flow to and be used by us, just as it was before the prior forbearance agreements were put in place. In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the various forbearance agreements have been terminated and released. We also agreed to pay the reasonable fees and out-of-pocket expenses of counsel and other professional advisors for the Participating Counterparties and the collateral agent. Additionally, the Reinstatement Agreement provides a set of financial covenants that override and replace the financial covenants in each Bilateral Agreement and sets forth various reporting requirements from the Company to the Participating Counterparties, releases, certain netting obligations and cross-default provisions. In connection with the negotiation and execution of the Reinstatement Agreement, we entered into certain amendments to the Bilateral Agreements with certain of the Participating Counterparties to reflect current market terms. In general, the amendments reflect increased haircuts and higher coupons.
On June 10, 2020, we also entered a separate reinstatement agreement with JPMorgan Chase Bank (the "JPM Reinstatement Agreement") on substantially the same terms as those set forth in the Reinstatement Agreement. The Reinstatement Agreement and the JPM Reinstatement Agreement collectively cover all of our existing financing arrangements as of the date of this report.
Refer to Note 12 in the "Notes to Consolidated Financial Statements" for more information on deficiencies that are now settled.
Recourse and non-recourse financing
We utilize both recourse and non-recourse debt to finance our portfolio. Non-recourse financing includes securitized debt and other non-recourse financing. Recourse financing includes the secured debt from our Manager, as further described in the "Contractual obligations–Secured debt" section below, and other recourse financing. The below table provides detail on the breakout between recourse and non-recourse financing as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Recourse financing
|
|
$
|
580,037
|
|
|
$
|
3,490,884
|
|
Non-recourse financing
|
|
466,294
|
|
|
224,348
|
|
Total (1)
|
|
$
|
1,046,331
|
|
|
$
|
3,715,232
|
|
|
|
|
|
|
Recourse financing - Investments in Debt and Equity of Affiliates
|
|
5,597
|
|
|
257,416
|
|
Non-recourse financing - Investments in Debt and Equity of Affiliates (2)
|
|
111,135
|
|
|
—
|
|
Total Investments in Debt and Equity of Affiliates
|
|
116,732
|
|
|
257,416
|
|
|
|
|
|
|
Total: GAAP Basis
|
|
$
|
929,599
|
|
|
$
|
3,457,816
|
|
(1)As of December 31, 2020, total financing includes $680.8 million of financing arrangements, collateralized by various asset types in our investment portfolio; $355.2 million of securitized debt, collateralized by Re/Non-Performing Loans; and $10.4 million of secured debt. As of December 31, 2019, total financing includes $3.5 billion of financing arrangements and $224.3 million of securitized debt.
(2)On January 29, 2021, we and private funds under the management of Angelo Gordon entered into an amendment with respect to our Restructured Financing Arrangement in MATT. The amendment serves to convert the existing financing to a mark-to-market facility that is recourse to us and the private funds managed by Angelo Gordon that invest in MATT.
Financing arrangements on our investment portfolio
The following table presents a summary of the financing arrangements on our investment portfolio as of December 31, 2020 and December 31, 2019 ($ in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Weighted Average
|
|
Collateral (1)
|
|
|
|
Carrying Value
|
|
Stated Maturity
|
|
Funding Cost
|
|
Life (Years)
|
|
Amortized Cost Basis
|
|
Fair Value
|
|
Carrying Value
|
Repurchase Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements on Agency RMBS
|
30 Year Fixed Rate
|
$
|
435,893
|
|
|
Jan 2021
|
|
0.21
|
%
|
|
0.04
|
|
|
$
|
459,684
|
|
|
$
|
460,949
|
|
|
$
|
2,047,739
|
|
Inverse Interest Only
|
—
|
|
|
N/A
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,761
|
|
Interest Only
|
—
|
|
|
N/A
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,778
|
|
|
435,893
|
|
|
|
|
0.21
|
%
|
|
0.04
|
|
|
459,684
|
|
|
460,949
|
|
|
2,109,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements on Credit Investments
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS (2)
|
37,744
|
|
|
Jan 2021 - Oct 2021
|
|
3.72
|
%
|
|
0.43
|
|
|
87,607
|
|
|
92,111
|
|
|
637,893
|
|
Residential Loans (3)
|
25,590
|
|
|
Mar 2021
|
|
2.38
|
%
|
|
0.21
|
|
|
44,520
|
|
|
46,571
|
|
|
131,594
|
|
|
63,334
|
|
|
|
|
3.18
|
%
|
|
0.34
|
|
|
132,127
|
|
|
138,682
|
|
|
769,487
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS (4)
|
24,881
|
|
|
Jan 2021 - Feb 2021
|
|
2.66
|
%
|
|
0.04
|
|
|
51,961
|
|
|
42,669
|
|
|
312,627
|
|
Commercial Real Estate Loans
|
—
|
|
N/A
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,017
|
|
|
24,881
|
|
|
|
|
2.66
|
%
|
|
0.04
|
|
|
51,961
|
|
|
42,669
|
|
|
315,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Repurchase Agreements
|
524,108
|
|
|
|
|
0.69
|
%
|
|
0.07
|
|
|
643,772
|
|
|
642,300
|
|
|
3,194,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Facilities (5)(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans (8)(9)
|
63,133
|
|
|
Aug 2023
|
|
2.79
|
%
|
|
2.60
|
|
110,114
|
|
|
96,862
|
|
|
89,956
|
|
Residential Loans (10)(11)
|
93,529
|
|
|
July 2021-Oct 2021
|
|
4.94
|
%
|
|
0.74
|
|
|
105,957
|
|
|
104,383
|
|
|
204,751
|
|
Real Estate Owned (12)
|
9
|
|
|
July 2021
|
|
1.94
|
%
|
|
0.56
|
|
|
22
|
|
|
22
|
|
|
1,768
|
|
Total Revolving Facilities
|
156,671
|
|
|
|
|
4.07
|
%
|
|
1.49
|
|
|
216,093
|
|
|
201,267
|
|
|
296,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: Non-GAAP Basis
|
$
|
680,779
|
|
|
|
|
1.47
|
%
|
|
0.40
|
|
|
$
|
859,865
|
|
|
$
|
843,567
|
|
|
$
|
3,490,884
|
|
Investments in Debt and Equity of Affiliates
|
$
|
116,732
|
|
|
|
|
4.87
|
%
|
|
0.73
|
|
|
$
|
169,577
|
|
|
$
|
167,863
|
|
|
$
|
257,416
|
|
Total: GAAP Basis
|
$
|
564,047
|
|
|
|
|
0.76
|
%
|
|
0.33
|
|
|
$
|
690,288
|
|
|
$
|
675,704
|
|
|
$
|
3,233,468
|
|
(1)We also had $1.5 million of cash pledged under repurchase agreements as of December 31, 2020, which included $45.0 thousand pledged under repurchase agreements held at Investments in Debt and Equity of Affiliates.
(2)Includes repurchase agreements on Prime, Alt-A/Subprime, Credit Risk Transfer, Non-U.S RMBS, Interest-Only and Excess MSR, Re/Non-Performing Loans, Non-QM Loans, and Land Related Financing held in securitized form.
(3)These amounts represent certain of our retained interests in securitizations. Refer to "Other financing transactions" below for more information on the August 2019 VIE and September 2020 VIE.
(4)Includes repurchase agreements on Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments.
(5)All revolving facilities listed above are interest only until maturity.
(6)Under the terms of our financing agreements, our financial counterparties may, in certain cases, sell or re-hypothecate the pledged collateral.
(7)Increasing the Company's borrowing capacity under these facilities requires consent of the lender.
(8)The funding cost on this facility is inclusive of the impact of deferred financing costs. The stated rate was 2.30% as of December 31, 2020.
(9)The borrowing capacity on the commercial loan revolving facility is $100 million.
(10)Includes financing on Re/Non-Performing Loans and Non-QM Loans not held in securitized form.
(11)As of December 31, 2020, there are two revolving facilities used to finance residential loans, including one which is also used to finance Real Estate Owned. As of December 31, 2019, there were four revolving facilities used to finance residential loans, two of which were also used to finance real estate owned. Two of these facilities paid off during 2020.
Through asset sales and related debt pay offs, we have reduced our exposure to various counterparties, bringing the counterparties with debt outstanding down from 30 as of December 31, 2019 to 5 as of December 31, 2020. See Note 6 to the "Notes to Consolidated Financial Statements" for a description of our material financing arrangements as of December 31, 2020.
Our financing arrangements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions. Although specific to each repurchase agreement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios.
Other financing transactions
In addition to our financing arrangements, we also finance our Re/Non-performing loans with securitized debt. From time to time, we enter into securitization transactions of certain Re/Non-performing loans where special purpose entities ("SPEs") are created to facilities the transactions. These SPEs are considered variable interest entities ("VIEs"), which should be consolidated under ASC 810-10. As of December 31, 2020 and December 31, 2019, we have recorded secured financing in connection with these VIEs of $355.2 million and $224.4 million, respectively, on the consolidated balance sheets in the "Securitized debt, at fair value" line item. See Note 2, Note 3, and Note 4 to the "Notes to Consolidated Financial Statements" for more detail on securitized debt and our consolidated VIEs.
Leverage
We define GAAP leverage as the sum of (1) our GAAP financing arrangements, net of any restricted cash posted on such financing arrangements, (2) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled, and (3) securitized debt, at fair value. We define Economic Leverage, a non-GAAP metric, as the sum of: (i) our GAAP leverage, exclusive of any fully non-recourse financing arrangements, (ii) financing arrangements held through affiliated entities, net of any restricted cash posted on such financing arrangements, exclusive of any financing utilized through AG Arc, any adjustment related to unsettled trades as described in (2) in the previous sentence, and any fully non-recourse financing arrangements and (iii) our net TBA position (at cost). Our calculations of GAAP leverage and Economic Leverage exclude financing arrangements and net receivables/payables on unsettled trades pertaining to U.S. Treasury securities due to the highly liquid and temporary nature of these investments.
The calculations in the tables below divide GAAP leverage and Economic Leverage by our GAAP stockholders’ equity to derive our leverage ratios. The following tables present a reconciliation of our Economic Leverage ratio back to GAAP ($ in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Leverage
|
|
Stockholders' Equity
|
|
Leverage Ratio
|
GAAP Leverage
|
|
$
|
979,303
|
|
|
$
|
409,705
|
|
|
2.4x
|
Financing arrangements through affiliated entities
|
|
116,688
|
|
|
|
|
|
Non-recourse financing arrangements (1)
|
|
(466,294)
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Leverage
|
|
$
|
629,697
|
|
|
$
|
409,705
|
|
|
1.5x
|
(1) Non-recourse financing arrangements include securitized debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Leverage
|
|
Stockholders' Equity
|
|
Leverage Ratio
|
GAAP Leverage
|
|
$
|
3,441,451
|
|
|
$
|
849,046
|
|
|
4.1x
|
Financing arrangements through affiliated entities
|
|
257,416
|
|
|
|
|
|
Non-recourse financing arrangements (1)
|
|
(224,348)
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Leverage
|
|
$
|
3,474,519
|
|
|
$
|
849,046
|
|
|
4.1x
|
(1) Non-recourse financing arrangements include securitized debt.
The amount of leverage, or debt, we may deploy for particular assets depends upon our Manager’s assessment of the credit and other risks of those assets, and also depends on any limitation placed upon us through covenants contained in our financing arrangements. We generate income principally from the yields earned on our investments and, to the extent that leverage is deployed, on the difference between the yields earned on our investments and our cost of borrowing and the cost of any hedging activities. Subject to maintaining both our qualification as a REIT for U.S. federal income tax purposes and our Investment Company Act exemption, to the extent leverage is deployed, we may use a number of sources to finance our investments.
As previously described, due to market volatility caused by the COVID-19 pandemic, we executed on various asset sales in an effort to create additional liquidity and de-risk our portfolio. As a result of these asset sales and related debt pay-offs, we have reduced the number of financing counterparties we have, bringing the overall number of counterparties with debt outstanding down from thirty (30) as of December 31, 2019 to five (5) as of December 31, 2020 with debt outstanding of $0.7 billion, inclusive of financing arrangements through affiliated entities. These agreements generally include customary representations, warranties, and covenants but may also contain more restrictive supplemental terms and conditions. Although specific to each lending agreement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios.
Under our financing arrangements, we may be required to pledge additional assets to our lenders in the event the estimated fair value of the existing pledged collateral under such agreements declines and such lenders demand additional collateral, which may take the form of additional securities or cash. Certain securities that are pledged as collateral under our financing arrangements are in unrealized loss positions.
During the second quarter of 2020, we entered into the Forbearance Agreement pursuant to which the consent of the Participating Counterparties was required in order for us to increase our leverage. As described above, upon entering in to the Reinstatement Agreement, we are no longer subject to the restrictive covenants set forth in the Forbearance Agreement, though the Reinstatement Agreement limits our Recourse Indebtedness to Stockholder's Equity (both as defined therein) leverage ratio to no greater than 3:1.
The following table presents information at December 31, 2020 with respect to each counterparty that provides us with financing for which we had greater than 5% of our stockholders’ equity at risk ($ in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Stockholders' Equity
at Risk
|
|
Weighted Average
Maturity (days)
|
|
Percentage of
Stockholders' Equity
|
Credit Suisse AG, Cayman Islands Branch - Non-GAAP
|
|
$
|
67,704
|
|
|
130
|
|
16.5
|
%
|
Non-GAAP Adjustments (a)
|
|
(41,399)
|
|
|
(95)
|
|
|
(10.1)
|
%
|
Credit Suisse AG, Cayman Islands Branch - GAAP
|
|
$
|
26,305
|
|
|
35
|
|
6.4
|
%
|
|
|
|
|
|
|
|
BofA Securities, Inc.
|
|
$
|
28,091
|
|
|
19
|
|
6.9
|
%
|
Barclays Capital Inc.
|
|
24,890
|
|
|
15
|
|
6.1
|
%
|
(a)Represents stockholders' equity at risk, weighted average maturity and percentage of stockholders' equity from financing arrangements held in investments in debt and equity of affiliates.
Hedging activities
Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, to the extent leverage is deployed, we may utilize derivative instruments in an effort to hedge the interest rate risk associated with the financing of our portfolio. Specifically, we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates. We may utilize interest rate swaps, swaption agreements, and other financial instruments such as short positions in U.S. Treasury securities. In addition, we may utilize Eurodollar Futures, U.S. Treasury Futures, British Pound Futures and Euro Futures (collectively, "Futures"). In utilizing leverage and interest rate derivatives, our objectives are to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a spread between the yield on our assets and the costs of our financing and hedging. Derivatives have not been designated as hedging instruments for GAAP. See Note 7 in the "Notes to Consolidated Financial Statements" for more information.
Dividends
Federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT ordinary taxable income, without regard to the deduction for dividends paid and excluding net capital gains and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our financing arrangements and other debt payable. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make required cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
As described above, our distribution requirements are based on taxable income rather than GAAP net income. Differences
between taxable income and GAAP net income include (i) unrealized gains and losses associated with investment and derivative portfolios which are marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of premiums and discounts paid on investments, (iii) the timing and amount of deductions related to stock-based compensation, (iv) temporary differences related to the recognition of realized gains and losses on sold investments and certain terminated derivatives, (v) taxes and (vi) methods of depreciation. Undistributed taxable income is based on current estimates and is not finalized until we file our annual tax return for that tax year, typically in October of the following year. We did not have any undistributed taxable income as of December 31, 2020. Refer to the "Results of operations" section above for more detail.
On March 27, 2020, we announced that our Board of Directors approved a suspension of our quarterly dividends on our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, beginning with the preferred dividend that would have been declared in May 2020, in order to conserve capital and improve its liquidity position during the market volatility due to the COVID-19 pandemic, as well as a suspension of the quarterly dividend on the common stock, beginning with the dividend that normally would have been declared in March 2020. Under the terms of the Articles Supplementary governing our series of preferred stock, we cannot pay cash dividends with respect to our common stock if dividends on our preferred stock are in arrears.
On December 17, 2020, we paid our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock dividends that were in arrears as well as the full dividends payable on the preferred stock for the fourth quarter of 2020 in the amount of $1.54689, $1.50 and $1.50 per share, respectively. On December 22, 2020, our Board of Directors declared a dividend of $0.03 per common share for the fourth quarter 2020. The dividend was paid on January 29, 2021 to shareholders of record at the close of business on December 31, 2020.
The following tables detail the Company's common stock dividends during the years ended December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/22/2020
|
|
12/31/2020
|
|
1/29/2021
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend Per Share
|
3/15/2019
|
|
3/29/2019
|
|
4/30/2019
|
|
$
|
0.50
|
|
6/14/2019
|
|
6/28/2019
|
|
7/31/2019
|
|
0.50
|
|
9/6/2019
|
|
9/30/2019
|
|
10/31/2019
|
|
0.45
|
|
12/13/2019
|
|
12/31/2019
|
|
1/31/2020
|
|
0.45
|
|
Total
|
|
|
|
|
|
$
|
1.90
|
|
The following tables detail our preferred stock dividends during the years ended December 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
Cash Dividend Per Share
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
8.25% Series A
|
|
8.00% Series B
|
|
8.000% Series C
|
|
|
2/14/2020
|
|
2/28/2020
|
|
3/17/2020
|
|
$
|
0.51563
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
11/6/2020
|
|
11/30/2020
|
|
12/17/2020
|
|
1.54689
|
|
|
1.50
|
|
|
1.50
|
|
|
|
Total
|
|
|
|
|
|
$
|
2.06252
|
|
|
$
|
2.00
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
Cash Dividend Per Share
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
8.25% Series A
|
|
8.00% Series B
|
|
8.000% Series C
|
|
|
2/15/2019
|
|
2/28/2019
|
|
3/18/2019
|
|
$
|
0.51563
|
|
|
$
|
0.50
|
|
|
$
|
—
|
|
|
|
5/17/2019
|
|
5/31/2019
|
|
6/17/2019
|
|
0.51563
|
|
|
0.50
|
|
|
—
|
|
|
|
8/16/2019
|
|
8/30/2019
|
|
9/17/2019
|
|
0.51563
|
|
|
0.50
|
|
|
—
|
|
|
|
11/15/2019
|
|
11/29/2019
|
|
12/17/2019
|
|
0.51563
|
|
|
0.50
|
|
|
0.50
|
|
|
|
Total
|
|
|
|
|
|
$
|
2.06252
|
|
|
$
|
2.00
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Liquidity and capital resources
Our liquidity determines our ability to meet our cash obligations, including distributions to our stockholders, payment of our expenses, financing our investments and satisfying other general business needs. Our principal sources of cash as of December 31, 2020 consisted of proceeds from sales of assets in an effort to prudently manage our portfolio through unprecedented market volatility resulting from the COVID-19 global pandemic, borrowings under financing arrangements, principal and interest payments we receive on our investment portfolio, and proceeds from capital market transactions. We typically use cash to repay principal and interest on our financing arrangements, to purchase real estate securities, loans and other real estate related assets, to make dividend payments on our capital stock, and to fund our operations. At December 31, 2020, we had $54.2 million of liquidity, which consisted of $47.9 million of cash and $6.3 million of unencumbered assets available to support our liquidity needs. Refer to the "Contractual obligations" section of this Part II, Item 7 for additional obligations that could impact our liquidity.
As previously discussed, on June 1, 2020, we entered into a third forbearance agreement with the Participating Counterparties, providing for a forbearance period ending on June 15, 2020. We exited forbrearance on June 10, 2020. Pursuant to the terms of the Forbearance Agreement, we were obligated to comply with a set of restrictive covenants set forth in the Forbearance Agreement, including restrictions on the use of our cash, restrictions on our incurrence of additional debt, and restrictions on the sale of our assets. We also granted to the Participating Counterparties a lien and security interest in all of our unencumbered assets. Upon entering into the Reinstatement Agreement with the Participating Counterparties, we are no longer subject to the restrictive covenants set forth in the Forbearance Agreement and the lien and security interest granted to the Participating Counterparties on all of our unencumbered assets were terminated and released.
Margin requirements
The fair value of our real estate securities and loans fluctuate according to market conditions. When the fair value of the assets pledged as collateral to secure a financing arrangement decreases to the point where the difference between the collateral fair value and the financing arrangement amount is less than the haircut, our lenders may issue a "margin call," which requires us to post additional collateral to the lender in the form of additional assets or cash. Under our repurchase facilities, our lenders have full discretion to determine the fair value of the securities we pledge to them. Our lenders typically value assets based on recent trades in the market. Lenders also issue margin calls as the published current principal balance factors change on the pool of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly. We experience margin calls in the ordinary course of our business. In seeking to manage effectively the margin requirements established by our lenders, we maintain a position of cash and, when owned, unpledged Agency RMBS. We refer to this position as our "liquidity." The level of liquidity we have available to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our securities. Typically, if interest rates increase or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will need to use our liquidity to meet the margin calls. There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls. If our haircuts increase, our liquidity will proportionately decrease. In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness. We intend to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated margin calls but that also allows us to be substantially invested in our target assets. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which may force us to liquidate assets into potentially unfavorable market conditions and harm our results of operations and financial condition. Further, an unexpected rise in interest rates and a corresponding fall in the fair value of our securities may also force us to liquidate assets under difficult market conditions, thereby harming our results of operations and financial condition, in an effort to maintain sufficient liquidity to meet increased margin calls.
Similar to the margin calls that we receive on our borrowing agreements, we may also receive margin calls on our derivative instruments when their fair values decline. This typically occurs when prevailing market rates change adversely, with the severity of the change also dependent on the terms of the derivatives involved. We may also receive margin calls on our derivatives based on the implied volatility of interest rates. Our posting of collateral with our counterparties can be done in cash or securities, and is generally bilateral, which means that if the fair value of our interest rate hedges increases, our counterparty will be required to post collateral with us. Refer to the "Liquidity risk – derivatives" section of Part II, Item 7A of this Annual Report on Form 10-K for a further discussion on margin.
On March 20, 2020, we notified our financing counterparties that we did not expect to be in a position to fund the anticipated volume of future margin calls under our financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic. Subsequent to March 23, 2020, we received notifications of alleged events of default and deficiency
notices from several of our financing counterparties. Subject to the terms of the applicable financing arrangement, if we had failed to deliver additional collateral or otherwise meet margin calls when due, the financing counterparties may have been able to demand immediate payment by us of the aggregate outstanding financing obligations owed to such counterparties, and if such financing obligations were not paid, may have been permitted to sell the financed assets and apply the proceeds to our financing obligations and/or take ownership of the assets securing our financing obligations. During this period of market upheaval, we engaged in discussions with our financing counterparties and entered into the Forbearance Agreement. During the Forbearance Period, we did not have any obligation to make any margin payments as it related to the Participating Counterparties. As described above, on June 10, 2020, we entered into a Reinstatement Agreement with the Participating Counterparties and the JPM Reinstatement Agreement which reinstates each Bilateral Agreement. As a result, we will be responsible for making any future margin payments with respect to any financing arrangements relating to these agreements.
As of December 31, 2020, we have met all margin calls. Refer to Note 12 in the "Notes to Consolidated Financial Statements" for more information on deficiencies which have since been settled.
Cash Flows
The below details changes to our cash, cash equivalents, and restricted cash for the years ended December 31, 2020 and December 31, 2019 (in thousands).
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Years Ended
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December 31, 2020
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December 31, 2019
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Change
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Cash, cash equivalents, and restricted cash, Beginning of Period
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|
$
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125,369
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|
|
$
|
84,358
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|
|
$
|
41,011
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|
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|
|
Net cash provided by (used in) operating activities (1)
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|
4,156
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|
|
65,238
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|
|
(61,082)
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|
Net cash provided by (used in) investing activities (2)
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|
2,193,455
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|
|
(746,963)
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|
|
2,940,418
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|
Net cash provided by (used in) financing activities (3)
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|
(2,260,500)
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|
|
722,695
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|
|
(2,983,195)
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|
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
|
|
(62,889)
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|
|
40,970
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|
|
(103,859)
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|
Effect of exchange rate changes on cash
|
|
(162)
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|
|
41
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|
|
(203)
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|
Cash, cash equivalents, and restricted cash, End of Period
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|
$
|
62,318
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|
|
$
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125,369
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|
$
|
(63,051)
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(1)Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the years ended December 31, 2020 and December 31, 2019, respectively. There was a significant reduction in our investment portfolio size in 2020 as a result of the global COVID-19 pandemic and increased expenses primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement.
(2)Cash provided by investing activities for the year ended December 31, 2020 was primarily attributable to sales of investments and principal repayments of investments less purchases of investments. Cash used by investing activities for the year ended December 31, 2019 was primarily attributable to purchases of investments less sales of investments and principal repayments of investments. The difference period over period is primarily due to significant sales in 2020 as a result of the global COVID-19 pandemic.
(3)Cash used in financing activities for the year ended December 31, 2020 was primarily attributable to repayments of financing arrangements and dividend payments offset by borrowings under financing arrangements. Cash provided by financing activities for the year ended December 31, 2019 was primarily attributable to borrowing of financing arrangements offset by offset by repayment of borrowings under financing arrangements and dividend payments. The difference period over period is primarily due to a reduction in financing arrangements as a result of significant sales in 2020 due to the global COVID-19 pandemic.
Equity distribution agreement
On May 5, 2017, we entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933. The Equity Distribution Agreements were amended on May 2, 2018 in conjunction with the filing of our shelf registration statement registering up to $750.0 million of our securities, including capital stock (the "2018 Registration Statement"). For the year ended December 31, 2020, we sold 2.1 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $7.1 million. For the year ended December 31, 2019, we sold 503.7 thousand shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $8.6 million. Since inception of the program, the Company has sold approximately 3.6 million shares of common stock under
the Equity Distribution Agreements for gross proceeds of $34.7 million.
Common stock offering
On February 14, 2019, we completed a public offering of 3,000,000 shares of our common stock and subsequently issued an additional 450,000 shares pursuant to the underwriters' exercise of their over-allotment option at a price of $16.70 per share. Net proceeds to us from the offering were approximately $57.4 million, after deducting estimated offering expenses.
Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock issuance
On September 17, 2019, we completed a public offering of 4,000,000 shares of Series C Preferred Stock and subsequently issued 600,000 shares of Series C Preferred Stock pursuant to the underwriters' over-allotment option with a liquidation preference of $25.00 per share. We received total gross proceeds of $115.0 million and net proceeds of approximately $111.2 million, net of underwriting discounts, commissions and expenses. The Series C Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption. Under certain circumstances upon a change of control, the Series C Preferred Stock is convertible to shares of our common stock. Holders of Series C Preferred Stock have no voting rights, except under limited conditions, and holders are entitled to receive cumulative cash dividends before holders of our common stock are entitled to receive any dividends. The initial dividend rate for the Series C Preferred Stock, from and including the date of original issue to, but not including, September 17, 2024, will be equal to 8.000% per annum of the $25.00 per share liquidation preference. On and after September 17, 2024, dividends on the Series C Preferred Stock will accumulate at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the three-month LIBOR plus a spread of 6.476% per annum. Shares of our Series C Preferred Stock are redeemable at $25.00 per share plus accumulated and unpaid dividends (whether or not declared) exclusively at our option commencing on September 17, 2024, or earlier under certain circumstances intended to preserve our qualification as a REIT for Federal income tax purposes. Dividends are payable quarterly in arrears on the 17th day of each March, June, September and December.
Exchange Offers
On August 14, 2020, we announced the commencement of an offer to exchange newly issued shares of common stock for up to 250,470 shares of our Series A Preferred Stock, up to 556,600 shares of our Series B Preferred Stock, and up to 556,600 shares of our Series C Preferred Stock. The Exchange Offer expired on September 11, 2020. Based on the final count provided by the Exchange Agent, American Stock Transfer & Trust Company, LLC, a total of 42,820 shares of Series A Preferred Stock, 31,085 Series B Preferred Stock and 29,355 Series C Preferred Stock were validly tendered and not properly withdrawn prior to the expiration of the Exchange Offer. We accepted all such 103,260 validly tendered shares of preferred stock, and issued in exchange a total of 516,300 shares of common stock in reliance upon the exemption from registration provided under Section 3(a)(9) of the Securities Act of 1933, as amended. After settlement, we had outstanding 2,027,180 shares of Series A Preferred Stock, 4,568,915 shares of Series B Preferred Stock and 4,570,645 shares of Series C Preferred Stock.
On September 30, 2020, we agreed to issue an aggregate of 3,679,634 shares of our common stock and agreed to pay aggregate cash consideration of $6.3 million in exchange for 210,662 shares of Series A Preferred Stock, 404,187 shares of Series B Preferred Stock, and 427,467 shares of Series C Preferred Stock, pursuant to a privately negotiated exchange agreement entered into on September 30, 2020 with existing holders of the preferred stock. After the transaction closed, the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock exchanged pursuant to the exchange agreement were reclassified as authorized but unissued shares of preferred stock without designation as to class or series.
On October 2, 2020, we agreed to issue an aggregate of 900,000 shares of our common stock and agreed to pay aggregate cash consideration of $1.7 million in exchange for 260,000 shares of Series C Preferred Stock, pursuant to a privately negotiated exchange agreement entered into on October 2, 2020 with existing holders of the Series C Preferred Stock. After the transaction closed, the Series C Preferred Stock exchanged pursuant to the exchange agreement were reclassified as authorized but unissued shares of preferred stock without designation as to class or series. After the settlement of all three exchanges, we had outstanding 1,816,518 shares of Series A Preferred Stock, 4,164,728 shares of Series B Preferred Stock and 3,883,178 shares of Series C Preferred Stock.
We subsequently determined that, pursuant to the Articles Supplementary establishing the terms of the Preferred Stock, we were not permitted to pay cash as partial consideration to acquire such Preferred Stock unless full cumulative dividends on the Preferred Stock had been declared and paid or declared and a sum sufficient for the payment thereof set apart for payment covering all past dividend periods. Upon review and consideration of the above exchange transactions, certain provisions of our charter, and the declaration and payment of the Preferred Stock dividends on December 17, 2020, the Board decided to ratify the above exchange transactions.
Common Stock Issuance to the Manager
On September 24, 2020, we issued (i) 1,215,370 shares of common stock to the Manager in full satisfaction of the deferred base management fee of $3.8 million payable by us in respect to the first and second quarters 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by us in respect to the third quarter 2020. The shares of common stock issued to the Manager were valued at $3.15 per share based on the midpoint of the estimated range of our book value per share as of August 31, 2020. The remaining third quarter management fee was paid in the normal course of business. Refer to "Contractual obligations - Management agreement" section below for more information on this transaction.
Forward-looking statements regarding liquidity
Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operations and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses.
Contractual obligations
Management agreement
On June 29, 2011, we entered into an agreement with our Manager pursuant to which our Manager is entitled to receive a management fee and the reimbursement of certain expenses. The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our Stockholders’ Equity, per annum.
For purposes of calculating the management fee, "Stockholders’ Equity" means the sum of the net proceeds from any issuances of equity securities (including preferred securities) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance, and excluding any future equity issuance to the Manager), plus our retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense or other non-cash items described below incurred in current or prior periods), less any amount that we pay for repurchases of our common stock, excluding any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in our financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP, and certain other non-cash charges after discussions between the Manager and our independent directors and after approval by a majority of our independent directors. Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements. For the years ended December 31, 2020 and December 31, 2019, we have incurred management fees of $7.2 million and $9.8 million, respectively.
Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel, who, notwithstanding that certain of them also are our officers, receive no compensation directly from us. We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain salary expenses and other expenses relating to legal, accounting, due diligence and other services. Our reimbursement obligation is not subject to any dollar limitation; however, the reimbursement is subject to an annual budget process which combines guidelines from the Management Agreement with oversight by our Board of Directors and discussions with our Manager. Of the $14.5 million and $18.6 million of Other operating expenses for the years ended December 31, 2020 and December 31, 2019, respectively, we have accrued $7.4 million and $7.5 million, respectively, representing a reimbursement of expenses. As of December 31, 2020 and December 31, 2019, we recorded a reimbursement payable to the Manager of $1.8 million and $2.5 million, respectively.
On April 6, 2020, we executed an amendment to the management agreement with the Manager pursuant to which the Manager agreed to defer our payment of the management fee and reimbursement of expenses, effective the first quarter of 2020 through September 30, 2020, or such other time as we and the Manager agreed. As of December 31, 2020, the Company has reimbursed the Manager for expenses through the fourth quarter of 2020.
On September 24, 2020, we executed an amendment with the Manager (the "Second Management Agreement Amendment") to the management agreement, pursuant to which the Manager agreed to receive a portion of the accrued base management fee in shares of common stock. Pursuant to the Second Management Agreement Amendment, the Manager agreed to purchase (i) 1,215,370 shares of common stock in full satisfaction of the deferred base management fee of $3.8 million payable by us in
respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by us in respect to the third quarter of 2020. The shares of common stock issued to the Manager were valued at $3.15 per share based on the midpoint of the estimated range of our book value per share as of August 31, 2020. The remaining third quarter 2020 management fee was paid in the normal course of business.
Secured debt
On April 10, 2020, in connection with the first Forbearance Agreement, we issued a secured promissory note (the "Note") to the Manager evidencing a $10 million loan made by the Manager to us. Additionally, on April 27, 2020, in connection with the second Forbearance Agreement, we entered into an amendment to the Note to reflect an additional $10 million loan by the Manager to us. The $10 million loan made by the Manager on April 10, 2020 is payable on March 31, 2021, and the $10 million loan made on April 27, 2020 was repaid in full with interest when it matured on July 27, 2020. The unpaid balance of the Note accrues interest at a rate of 6.0% per annum. Interest on the Note is payable monthly in kind through the addition of such accrued monthly interest to the outstanding principal balance of the Note.
Share-based compensation
Effective on April 15, 2020 upon the approval of our stockholders at our Annual Meeting, the 2020 Equity Incentive Plan provides for 2,000,000 shares of common stock to be issued. The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during any fiscal year, shall not exceed $300,000 in total value (calculating the value of any such awards based on the grant date fair value). As of December 31, 2020, 1,879,680 shares of common stock were available to be awarded under the Equity Incentive Plan.
Since our IPO, we have granted an aggregate of 226,114 and 120,320 shares of restricted common stock to our independent directors under our equity incentive plans, dated July 6, 2011 (the "2011 Equity Incentive Plans") and our 2020 Equity Incentive Plan, respectively. As of December 31, 2020, all the shares of restricted common stock granted to our independent directors have vested. Further, since our IPO, we have issued 40,250 shares of restricted common stock to our Manager and 120,000 restricted stock units to our Manager under our 2011 Equity Incentive Plans.
Unfunded commitments
See Note 12 of the "Notes to Consolidated Financial Statements" for details on our commitments as of December 31, 2020.
MATT Financing Arrangement Restructuring
On April 3, 2020, we, alongside private funds under the management of Angelo Gordon, restructured our financing arrangements in MATT ("Restructured Financing Arrangement"). The Restructured Financing Arrangement requires all principal and interest on the underlying assets in MATT be used to pay down principal and interest on the outstanding financing arrangement. As of April 3, 2020, the Restructured Financing Arrangement is not a mark-to-market facility and is non-recourse to us. The Restructured Financing Arrangement provides for a termination date of October 1, 2021. At the earlier of the termination date or the securitization or sale by us of the remaining assets subject to the Restructured Financing Arrangement, the financing counterparty will be entitled to 35% of the remaining equity in the assets. We evaluated this restructuring and concluded it was an extinguishment of debt. MATT has chosen to make a fair value election on the new financing arrangement, and we will treat this arrangement consistently with this election. The Restructured Financing Arrangement was amended subsequent to quarter end. Refer to Note 16 of the "Notes to Consolidated Financial Statements" for further details.
Other
As of December 31, 2020 and December 31, 2019, we are obligated to pay accrued interest on our financing arrangements in the amount of $1.3 million and $10.8 million, respectively, inclusive of accrued interest accounted for through investments in debt and equity of affiliates, and exclusive of accrued interest on any financing utilized through AG Arc. The change in accrued interest on our financing arrangements was due primarily to the repayment of financing arrangements in conjunction with the sales of various assets by us and the seizures of various assets by financing counterparties in 2020.
Off-balance sheet arrangements
We may enter into long TBA positions to facilitate the future purchase or sale of Agency RMBS. We may also enter into short TBA positions to hedge Agency RMBS. We record TBA purchases/shorts and sales/covers on the trade date and present the
amount net of the corresponding payable or receivable until the settlement date of the transaction. As of December 31, 2020, we had no TBA positions.
Our investments in debt and equity of affiliates primarily consist of real estate securities, loans, and our interest in AG Arc. Investments in debt and equity of affiliates are accounted for using the equity method of accounting. See Note 2 to the "Notes to Consolidated Financial Statements" for a discussion of investments in debt and equity of affiliates. The below table details our investments in debt and equity of affiliates as of December 31, 2020 and December 31, 2019 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Assets
|
|
Liabilities
|
|
Equity
|
|
Assets
|
|
Liabilities
|
|
Equity
|
Agency Excess MSR
|
|
$
|
417
|
|
|
$
|
—
|
|
|
$
|
417
|
|
|
$
|
555
|
|
|
$
|
—
|
|
|
$
|
555
|
|
Total Agency RMBS
|
|
417
|
|
|
—
|
|
|
417
|
|
|
555
|
|
|
—
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re/Non-Performing Loans (1)
|
|
41,523
|
|
|
(5,588)
|
|
|
35,935
|
|
|
87,216
|
|
|
(56,811)
|
|
|
30,405
|
|
Non-QM Loans (2)
|
|
153,200
|
|
|
(111,135)
|
|
|
42,065
|
|
|
254,276
|
|
|
(200,257)
|
|
|
54,019
|
|
Land Related Financing
|
|
22,824
|
|
|
—
|
|
|
22,824
|
|
|
16,979
|
|
|
—
|
|
|
16,979
|
|
Total Residential Investments
|
|
217,547
|
|
|
(116,723)
|
|
|
100,824
|
|
|
358,471
|
|
|
(257,068)
|
|
|
101,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac K-Series
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,237
|
|
|
—
|
|
|
12,237
|
|
CMBS Interest Only
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,863
|
|
|
—
|
|
|
1,863
|
|
Total Commercial Investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,100
|
|
|
—
|
|
|
14,100
|
|
Total Credit Investments
|
|
217,547
|
|
|
(116,723)
|
|
|
100,824
|
|
|
372,571
|
|
|
(257,068)
|
|
|
115,503
|
|
Total Investments excluding AG Arc
|
|
217,964
|
|
|
(116,723)
|
|
|
101,241
|
|
|
373,126
|
|
|
(257,068)
|
|
|
116,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AG Arc, at fair value
|
|
45,341
|
|
|
—
|
|
|
45,341
|
|
|
28,546
|
|
|
—
|
|
|
28,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Other assets/(liabilities) (3)
|
|
5,279
|
|
|
(1,194)
|
|
|
4,085
|
|
|
12,953
|
|
|
(1,246)
|
|
|
11,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in debt and equity of affiliates
|
|
$
|
268,584
|
|
|
$
|
(117,917)
|
|
|
$
|
150,667
|
|
|
$
|
414,625
|
|
|
$
|
(258,314)
|
|
|
$
|
156,311
|
|
(1)Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt.
(2)Certain Non-QM Loans as well as positions held in securitized form are presented net of non-recourse securitized debt. As of December 31, 2020, Non-QM Loans excludes loans with an unpaid principal balance of $17.3 million whereby an affiliate of MATT has the right, but not the obligation, to repurchase loans from the trust that are 90 days or more delinquent. These loans, which are eligible to be repurchased, would be recorded on the balance sheet of MATT, an unconsolidated equity method investee of the Company, with a corresponding and offsetting liability.
(3)Includes financing arrangements on real estate owned as of December 31, 2020 and December 31, 2019 of $(9.4) thousand and $(0.3) million, respectively.
For additional information on our commitments as of December 31, 2020, refer to Note 12 of the "Notes to Consolidated Financial Statements."
Management views our TBA position and our investments in debt and equity of affiliates as part of our investment portfolio. Exclusive of our TBAs and our investments in debt and equity of affiliates described above, we do not expect these off-balance sheet arrangements, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations, given our ability to finance such arrangements.
Certain related person transactions
Our Board of Directors has adopted a policy regarding the approval of any "related person transaction," which is any transaction or series of transactions in which (i) we or any of our subsidiaries is or are to be a participant, (ii) the amount involved exceeds $120,000, and (iii) a "related person" (as defined under SEC rules) has a direct or indirect material interest. Under the policy, a related person would need to promptly disclose to our Secretary or Assistant Secretary any related person transaction and all material facts about the transaction. Our Secretary or Assistant Secretary, in consultation with outside counsel, to the extent appropriate, would then assess and promptly communicate that information to the audit committee of our
Board of Directors. Based on its consideration of all of the relevant facts and circumstances, the audit committee will review, approve or ratify such transactions as appropriate. The audit committee will not approve or ratify a related person transaction unless it shall have determined that such transaction is in, or is not inconsistent with, our best interests and does not represent a conflict of interest. If we become aware of an existing related person transaction that has not been approved under this policy, the transaction will be referred to the audit committee which will evaluate all options available, including ratification, revision or termination of such transaction. Our policy requires any director who may be interested in a related person transaction to recuse himself or herself from any consideration of such related person transaction.
Grants of restricted common stock
See "Share-based compensation" section above for detail on our grants of restricted common stock and restricted stock units.
Red Creek
In connection with our investments in Re/Non-Performing Loans and Non-QM Loans, we engage asset managers to provide advisory, consultation, asset management and other services. Beginning in November 2015, we engaged Red Creek Asset Management LLC ("Asset Manager"), an affiliate of the Manager and direct subsidiary of Angelo Gordon, as the asset manager for certain of our Re/Non-Performing Loans. Beginning in September 2019, we engaged the Asset Manager as the asset manager for our Non-QM Loans. We pay the Asset Manager separate arm’s-length asset management fees as assessed and confirmed periodically by a third-party valuation firm for our Re/Non-Performing Loans and Non-QM Loans. In the third quarter of 2019, the third-party assessment of asset management fees resulted in our updating the fee amount for our Re/Non-Performing Loans. We also utilized the third-party valuation firm to establish the fee level for Non-QM Loans in the third quarter of 2019. For the years ended December 31, 2020 and December 31, 2019, the fees paid by us to the Asset Manager, totaled $2.7 million and $0.9 million, respectively. These fees include amounts paid directly by us and amounts paid by trustees in securitizations in which we own residual interests.
Arc Home
On December 9, 2015, we, alongside private funds under the management of Angelo Gordon, through AG Arc, formed Arc Home, a Delaware limited liability company. Arc Home originates conforming, Government, Jumbo, Non-QM and other non-conforming residential mortgage loans and retains the mortgage servicing rights associated with the loans it originates.
Our investment in Arc Home, which is conducted through AG Arc, one of our indirect subsidiaries, is reflected on the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets. See "Off-balance sheet arrangements" section above for the fair value of AG Arc as of December 31, 2020 and December 31, 2019.
Arc Home may sell loans to us or to affiliates of our Manager. Arc Home may also enter into agreements with us, third-parties, or affiliates of our Manager to sell Excess MSRs on the mortgage loans that it either purchases from third-parties or originates. We, directly or through our subsidiaries, have entered into agreements with Arc Home to purchase rights to receive the excess servicing spread related to certain of its MSRs and as of December 31, 2020 and December 31, 2019, these Excess MSRs had fair values of approximately $3.5 million and $18.2 million, respectively. See below "Other Transactions with affiliates" and Note 10 to the "Notes to Consolidated Financial Statements" for details regarding the sale of a portion of Excess MSRs during the third quarter of 2020.
In connection with our investments in Excess MSRs purchased through Arc Home, we paid an administrative fee to Arc Home. For the years ended December 31, 2020 and December 31, 2019, the administrative fees paid by us to Arc Home totaled $0.2 million and $0.3 million, respectively.
During 2020, Arc Home began selling Non-QM Loans to a private fund under the management of Angelo Gordon. Arc Home sold $57.4 million of unpaid principal balance of Non-QM Loans to this affiliate of the Manager during 2020.
Mortgage Acquisition Trust I LLC
See our "MATT Financing Arrangement Restructuring" section above.
LOT SP I LLC and LOT SP II LLC
Refer to Note 12 of the "Notes to Consolidated Financial Statements."
Management agreement
On June 29, 2011 we entered into a management agreement with our Manager, which governs the relationship between us and our Manager and describes the services to be provided by our Manager and its compensation for those services. The terms of our management agreement, including the fees payable by us to Angelo Gordon, were not negotiated at arm’s length, and its terms may not be as favorable to us as if they had been negotiated with an unaffiliated party. Our Manager, pursuant to the delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under our management agreement. For further detail on the Management Agreement, see the "Contractual obligations–Management agreement" section of this Part II, Item 7.
Secured debt
See our "Contractual obligations–Secured debt" section above.
Other transactions with affiliates
Our Board of Directors has adopted a policy regarding the approval of any "affiliated transaction," which is any transaction or series of transactions in which Angelo Gordon arranges for the purchase and sale of a security or other investment between or among us, on the one hand, and an entity or entities under Angelo Gordon’s management, on the other hand (an "Affiliated Transaction"). In order for us to enter into an Affiliated Transaction, the Affiliated Transaction must be approved by our Chief Risk Officer and the Chief Compliance Officer of Angelo Gordon. For most instruments, if market bids are available, the trading desk will request external bids from the market while simultaneously submitting an internal bid to Compliance and/or Risk. If the highest bid is an external bid, the security or other instrument will be sold to the external bidder and no affiliated transaction will take place. If the highest bid is the internal bid, the price will be the midpoint between the internal bid and the highest external bid. If market bids are not available or prove to be impracticable in Angelo Gordon's reasonable judgment, appropriate pricing will generally be based on a valuation analysis prepared by a third-party. Our Affiliated Transactions are reviewed by our Audit Committee on a quarterly basis to confirm compliance with the policy.
In March 2019, in accordance with our Affiliated Transactions Policy, we executed one trade whereby we acquired a real estate security from an affiliate of the Manager (the "March 2019 Selling Affiliate"). As of the date of the trade, the security acquired from the March 2019 Selling Affiliate had a total fair value of $0.9 million. The March 2019 Selling Affiliate sold the real estate security through a BWIC. Prior to the submission of the BWIC by the March 2019 Selling Affiliate, we submitted our bid for the real estate security to the March 2019 Selling Affiliate. The pre-submission of our bid allowed us to confirm third-party market pricing and best execution.
In June 2019, we, alongside private funds under the management of Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $408.0 million were securitized. Certain senior tranches in the securitization were sold to third-parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $42.9 million as of June 30, 2019. We have a 44.6% interest in the retained subordinate tranches.
In July 2019, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities from an affiliate of the Manager (the "July 2019 Selling Affiliate"). As of the date of the trade, the real estate securities acquired from the July 2019 Selling Affiliate had a total fair value of $2.0 million. As procuring market bids for the real estate securities was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by third-party pricing vendors. The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.
In September 2019, we, alongside private funds managed by Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $415.1 million were securitized. Certain senior tranches in the securitization were sold to third-parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $28.7 million as of September 30, 2019. We have a 44.6% interest in the retained subordinate tranches.
In October 2019, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities from an affiliate of the Manager (the "October 2019 Selling Affiliate"). As of the date of the trade, the real estate securities acquired from the October 2019 Selling Affiliate had a total fair value of $2.2 million. The October 2019 Selling Affiliate sold the real estate securities through a BWIC. Prior to our submission of the BWIC by the October 2019 Selling Affiliate, we submitted our
bid for the real estate securities to the October 2019 Selling Affiliate. The pre-submission of our bid allowed us to confirm third-party market pricing and best execution.
In November 2019, we, alongside private funds managed by Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $322.1 million were securitized. Certain senior tranches in the securitization were sold to third-parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $21.4 million as of December 31, 2019. We have a 44.6% interest in the retained subordinate tranches.
In February 2020, we, alongside private funds managed by Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $348.2 million were securitized. Certain senior tranches in the securitization were sold to third-parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $26.6 million as of March 31, 2020. We have a 44.6% interest in the retained subordinate tranches.
In July 2020, in accordance with our Affiliated Transactions Policy, we sold certain real estate securities to an affiliate of the Manager (the "July 2020 Acquiring Affiliate"). As of the date of the trade, the real estate securities sold to the July 2020 Acquiring Affiliate had a total fair value of $1.9 million. The July 2020 Acquiring Affiliate purchased the real estate securities through a BWIC. Prior to our submission of the BWIC, the July 2020 Acquiring Affiliate submitted its bid for the real estate securities to us. The July 2020 Acquiring Affiliate’s pre-submission of its bid allowed us to confirm third-party market pricing and best execution.
In August 2020, we, alongside private funds under the management of Angelo Gordon, participated through our unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $226.0 million were securitized. Certain senior tranches in the securitization were sold to third-parties with us and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $24.3 million as of September 30, 2020. We have a 44.6% interest in the retained subordinate tranches.
In August 2020, we, alongside private funds under the management of Angelo Gordon, sold our Ginnie Mae Excess MSR portfolio to Arc Home for total proceeds of $18.9 million. The portfolio had a total unpaid principal balance of $3.5 billion. Our share of the total proceeds approximated $8.5 million, representing our approximate 45% ownership interest. Arc Home subsequently sold its Ginnie Mae MSR portfolio to a third-party.
In October 2020, in accordance with our Affiliated Transactions Policy, we acquired certain real estate securities and Excess MSRs from an affiliate of the Manager (the "October 2020 Selling Affiliate"). As of the date of the trade, the real estate securities and Excess MSRs acquired from the October 2020 Selling Affiliate had a total fair value of $0.5 million and $20.0 thousand, respectively. As procuring market bids for the real estate securities was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by third-party pricing vendors. The third-party pricing vendors allowed us to confirm third-party market pricing and best execution.
Critical accounting policies
We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting. We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable. Although our estimates contemplate conditions as of December 31, 2020 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in arriving at those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented. Moreover, the uncertainty over the ultimate impact that that the COVID-19 pandemic will have on the global economy generally, and on our business in particular, makes any estimate and assumption inherently less certain than would be the case absent the current and potential impacts of the COVID-19 pandemic.
Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties. Our most critical accounting policies are believed to include (i) Valuation of financial instruments, (ii) Accounting for real estate securities, (iii) Accounting for loans,
(iv) Interest income recognition, and (v) Financing arrangements.
See Note 2 to the "Notes to Consolidated Financial Statements" for more detail on these critical accounting policies. These policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments upon which our consolidated financial statements are based are reasonable at the time made and based upon information available to us at that time. We rely upon third-party pricing of our assets at each-quarter end to arrive at what we believe to be reasonable estimates of fair value, whenever available. For more information on our fair value measurements, see Note 5 to the "Notes to Consolidated Financial Statements". For a review of our significant accounting policies and the recent accounting pronouncements that may impact our results of operations, see Note 2 to the "Notes to Consolidated Financial Statements."
Inflation
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates.
Compliance with Investment Company Act and REIT tests
We intend to conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes of, the Investment Company Act. If we failed to maintain our exempt status under the Investment Company Act and became regulated as an investment company, our ability to, among other things, use leverage would be substantially reduced and, as a result, we would be unable to conduct our business as described in this report. Accordingly, we monitor our compliance with each of the 40% test, the 55% test, and the 80% test of the Investment Company Act in order to maintain our exempt status. As of December 31, 2020, we determined that we maintained compliance with each of the 40% test, the 55% test, and the 80% test requirements.
We calculate that at least 75% of our assets were real estate assets, cash and cash items and government securities for the year ended December 31, 2020. We also calculate that a sufficient portion of our revenue qualifies for the 75% gross income test and for the 95% gross income test rules for the year ended December 31, 2020. Overall, we believe that we met the REIT income and asset tests. We also believe that we met all other REIT requirements, including the ownership of our stock and the distribution of our taxable income. Therefore, for the year ended December 31, 2020, we believe that we qualified as a REIT under the Code.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
All financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements and the notes thereto.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of AG Mortgage Investment Trust, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of AG Mortgage Investment Trust, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair Value of Investments in Certain Residential Mortgage Loans, Commercial Loans, and Non-QM Loans
As described in Notes 2 and 5 to the consolidated financial statements, the Company’s investments in residential mortgage loans, commercial loans, and non-qualified mortgage (Non-QM) loans are measured at fair value. The Company’s consolidated balances as of December 31, 2020 for residential mortgage loans and commercial loans were $435.4 million and $125.5 million, respectively. The Company’s consolidated balances in residential mortgage (referred to as Re/Non-Performing) loans and Non-QM loans held through their investment in debt and equity of affiliates were $41.5 million and $153.2 million, respectively, as of December 31, 2020. When possible, management determines fair value using third-party data sources. Management may also base its valuation on prices obtained from a third-party pricing service to assess and corroborate the valuation of a selection of investments in the Company’s loan portfolio on a periodic basis. Management uses loan level data and macro-economic inputs to generate loss adjusted cash flows and other information in determining the fair value of its mortgage loans. The variables considered most significant to the determination of the fair value of the Company's mortgage loans include market-implied discount rates, projections of default rates, delinquency rates, prepayment rates, loss severity, recovery rates, and, for commercial loans, loan-to-value ratios.
The principal considerations for our determination that performing procedures relating to the fair value of investments in certain residential mortgage loans, commercial loans, and Non-QM loans is a critical audit matter are (i) the significant judgment by management to develop the fair value measurements of residential mortgage loans, commercial loans, and Non-QM loans, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the significant assumptions related to market-implied discount rates, projections of default rates, delinquency rates, prepayment rates, loss severity, and, for commercial loans, loan-to-value ratios, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the residential mortgage loans, commercial loans, and Non-QM loans, including controls over the prices received from an independent third-party pricing service, data inputs, and significant assumptions. These procedures also included, among others (i) developing an independent estimate of the value for certain investments by obtaining independent pricing from third party vendors and comparing those prices to prices used by management and (ii) the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of residential mortgage loans, commercial loans, and Non-QM loans and comparing the independent estimate to management’s estimate to evaluate the reasonableness of management’s estimate. Developing the independent estimate involved (i) testing the data provided by management and (ii) independently developing the assumptions related to market-implied discount rates, projections of default rates, delinquency rates, prepayment rates, loss severity, and, for commercial loans, loan-to-value ratios by utilizing data obtained from market sources and observable transactions under a variety of macroeconomic scenarios.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 22, 2021
We have served as the Company’s auditor since 2011.
AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
Real estate securities, at fair value:
|
|
|
|
Agency - $460,949 and $2,234,921 pledged as collateral, respectively
|
$
|
518,352
|
|
|
$
|
2,315,439
|
|
Non-Agency - $28,653 and $682,828 pledged as collateral, respectively (1)
|
38,406
|
|
|
717,470
|
|
|
|
|
|
CMBS - $42,669 and $413,922 pledged as collateral, respectively
|
56,788
|
|
|
416,923
|
|
Residential mortgage loans, at fair value - $46,571 and $171,224 pledged as collateral, respectively (1)
|
435,441
|
|
|
417,785
|
|
Commercial loans, at fair value - $0 and $4,674 pledged as collateral, respectively
|
111,549
|
|
|
158,686
|
|
|
|
|
|
Commercial loans held for sale, at fair value
|
13,959
|
|
|
—
|
|
Investments in debt and equity of affiliates
|
150,667
|
|
|
156,311
|
|
Excess mortgage servicing rights, at fair value
|
3,158
|
|
|
17,775
|
|
Cash and cash equivalents
|
47,926
|
|
|
81,692
|
|
Restricted cash
|
14,392
|
|
|
43,677
|
|
Other assets
|
9,407
|
|
|
21,905
|
|
Assets held for sale - Single-family rental properties, net
|
—
|
|
|
154
|
|
Total Assets
|
$
|
1,400,045
|
|
|
$
|
4,347,817
|
|
|
|
|
|
Liabilities
|
|
|
|
Financing arrangements
|
$
|
564,047
|
|
|
$
|
3,233,468
|
|
Securitized debt, at fair value (1)
|
355,159
|
|
|
224,348
|
|
Dividend payable
|
1,243
|
|
|
14,734
|
|
Payable on unsettled trades
|
51,136
|
|
|
—
|
|
Other liabilities
|
18,755
|
|
|
24,675
|
|
Liabilities held for sale - Single-family rental properties, net
|
—
|
|
|
1,546
|
|
Total Liabilities
|
990,340
|
|
|
3,498,771
|
|
Commitments and Contingencies (Note 12)
|
|
|
|
Stockholders' Equity
|
|
|
|
Preferred stock - $0.01 par value; 50,000 shares authorized:
|
|
|
|
8.25% Series A Cumulative Redeemable Preferred Stock, 1,817 and 2,070 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively ($45,413 and $51,750 aggregate liquidation preference, respectively)
|
43,808
|
|
|
49,921
|
|
8.00% Series B Cumulative Redeemable Preferred Stock, 4,165 and 4,600 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively ($104,118 and $115,000 aggregate liquidation preference, respectively)
|
100,762
|
|
|
111,293
|
|
8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 3,883 and 4,600 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively ($97,079 and $115,000 aggregate liquidation preference, respectively)
|
93,908
|
|
|
111,243
|
|
Common stock, par value $0.01 per share; 450,000 shares of common stock authorized and 41,434 and 32,742 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively
|
414
|
|
|
327
|
|
Additional paid-in capital
|
688,871
|
|
|
662,183
|
|
Retained earnings/(deficit)
|
(518,058)
|
|
|
(85,921)
|
|
Total Stockholders' Equity
|
409,705
|
|
|
849,046
|
|
|
|
|
|
Total Liabilities & Stockholders' Equity
|
$
|
1,400,045
|
|
|
$
|
4,347,817
|
|
The accompanying notes are an integral part of these consolidated financial statements.
(1)See Notes 3 and 4 for details related to variable interest entities.
AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Net Interest Income
|
|
|
|
|
Interest income
|
$
|
74,525
|
|
|
$
|
171,660
|
|
|
Interest expense
|
36,945
|
|
|
90,108
|
|
|
Total Net Interest Income
|
37,580
|
|
|
81,552
|
|
|
|
|
|
|
|
Other Income/(Loss)
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
(256,522)
|
|
|
(50,822)
|
|
|
Net interest component of interest rate swaps
|
731
|
|
|
7,736
|
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
(159,466)
|
|
|
83,832
|
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(10,347)
|
|
|
(312)
|
|
|
Foreign currency gain/(loss), net
|
1,528
|
|
|
(2,512)
|
|
|
Other income
|
6
|
|
|
1,182
|
|
|
Total Other Income/(Loss)
|
(424,070)
|
|
|
39,104
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management fee to affiliate
|
7,181
|
|
|
9,825
|
|
|
Other operating expenses
|
14,513
|
|
|
18,638
|
|
|
Restructuring related expenses
|
10,200
|
|
—
|
|
|
Equity based compensation to affiliate
|
163
|
|
|
349
|
|
|
Excise tax
|
(815)
|
|
|
531
|
|
|
Servicing fees
|
2,224
|
|
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
33,466
|
|
|
30,962
|
|
|
|
|
|
|
|
Income/(loss) before equity in earnings/(loss) from affiliates
|
(419,956)
|
|
|
89,694
|
|
|
|
|
|
|
|
Equity in earnings/(loss) from affiliates
|
(1,629)
|
|
|
7,644
|
|
|
Net Income/(Loss) from Continuing Operations
|
(421,585)
|
|
|
97,338
|
|
|
Net Income/(Loss) from Discontinued Operations
|
666
|
|
|
(4,416)
|
|
|
Net Income/(Loss)
|
(420,919)
|
|
|
92,922
|
|
|
|
|
|
|
|
Gain on Exchange Offers, net (Note 11)
|
10,574
|
|
|
—
|
|
|
|
|
|
|
|
Dividends on preferred stock (1)
|
(20,549)
|
|
|
(16,122)
|
|
|
|
|
|
|
|
Net Income/(Loss) Available to Common Stockholders
|
$
|
(430,894)
|
|
|
$
|
76,800
|
|
|
|
|
|
|
|
Earnings/(Loss) Per Share - Basic
|
|
|
|
|
Continuing Operations
|
$
|
(12.26)
|
|
|
$
|
2.52
|
|
|
Discontinued Operations
|
0.02
|
|
|
(0.13)
|
|
|
Total Earnings/(Loss) Per Share of Common Stock
|
$
|
(12.24)
|
|
|
$
|
2.39
|
|
|
|
|
|
|
|
Earnings/(Loss) Per Share - Diluted
|
|
|
|
|
Continuing Operations
|
$
|
(12.26)
|
|
|
$
|
2.52
|
|
|
Discontinued Operations
|
0.02
|
|
|
(0.13)
|
|
|
Total Earnings/(Loss) Per Share of Common Stock
|
$
|
(12.24)
|
|
|
$
|
2.39
|
|
|
|
|
|
|
|
Weighted Average Number of Shares of Common Stock Outstanding
|
|
|
|
|
Basic
|
35,191
|
|
|
32,192
|
|
|
Diluted
|
35,191
|
|
|
32,203
|
|
|
(1) The year ended December 31, 2019 includes cumulative and undeclared dividends of $0.4 million on the Company's 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock as of December 31, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
8.25% Series A
Cumulative
Redeemable
Preferred Stock
|
|
8.00% Series B
Cumulative
Redeemable
Preferred Stock
|
|
8.000% Series C Fixed-to-Floating Rate Cumulative
Redeemable
Preferred Stock
|
|
Additional
Paid-in Capital
|
|
Retained
Earnings/(Deficit)
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
28,744
|
|
|
$
|
287
|
|
|
$
|
49,921
|
|
|
$
|
111,293
|
|
|
$
|
—
|
|
|
$
|
595,412
|
|
|
$
|
(100,902)
|
|
|
$
|
656,011
|
|
Net proceeds from issuance of common stock
|
3,953
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66,023
|
|
|
—
|
|
|
66,063
|
|
Net proceeds from issuance of preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111,243
|
|
|
—
|
|
|
—
|
|
|
111,243
|
|
Grant of restricted stock and amortization of equity based compensation
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
748
|
|
|
—
|
|
|
748
|
|
Common dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(62,172)
|
|
|
(62,172)
|
|
Preferred Series A dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,269)
|
|
|
(4,269)
|
|
Preferred Series B dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,200)
|
|
|
(9,200)
|
|
Preferred Series C dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,300)
|
|
|
(2,300)
|
|
Net Income/(Loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
92,922
|
|
|
92,922
|
|
Balance at December 31, 2019
|
32,742
|
|
|
$
|
327
|
|
|
$
|
49,921
|
|
|
$
|
111,293
|
|
|
$
|
111,243
|
|
|
$
|
662,183
|
|
|
$
|
(85,921)
|
|
|
$
|
849,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
32,742
|
|
|
$
|
327
|
|
|
$
|
49,921
|
|
|
$
|
111,293
|
|
|
$
|
111,243
|
|
|
$
|
662,183
|
|
|
$
|
(85,921)
|
|
|
$
|
849,046
|
|
Net proceeds from issuance of common stock
|
3,449
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,298
|
|
|
—
|
|
|
11,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of restricted stock and amortization of equity based compensation
|
147
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
581
|
|
|
—
|
|
|
582
|
|
Common dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,243)
|
|
|
(1,243)
|
|
Preferred Series A dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,877)
|
|
|
(3,877)
|
|
Preferred Series B dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,547)
|
|
|
(8,547)
|
|
Preferred Series C dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,125)
|
|
|
(8,125)
|
|
Exchange Offers (Note 11)
|
5,096
|
|
|
51
|
|
|
(6,113)
|
|
|
(10,531)
|
|
|
(17,335)
|
|
|
14,809
|
|
|
10,574
|
|
|
(8,545)
|
|
Net Income/(Loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(420,919)
|
|
|
(420,919)
|
|
Balance at December 31, 2020
|
41,434
|
|
|
$
|
414
|
|
|
$
|
43,808
|
|
|
$
|
100,762
|
|
|
$
|
93,908
|
|
|
$
|
688,871
|
|
|
$
|
(518,058)
|
|
|
$
|
409,705
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AG Mortgage Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
Net income/(loss)
|
$
|
(420,919)
|
|
|
$
|
92,922
|
|
|
|
Net (income)/loss from discontinued operations
|
(666)
|
|
|
4,416
|
|
|
|
Net income/(loss) from continuing operations
|
$
|
(421,585)
|
|
|
$
|
97,338
|
|
|
|
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Net amortization of premium
|
(5,212)
|
|
|
(4,673)
|
|
|
|
Net realized (gain)/loss
|
256,522
|
|
|
50,822
|
|
|
|
Unrealized (gain)/loss on real estate securities and loans, net
|
159,466
|
|
|
(83,832)
|
|
|
|
Unrealized (gain)/loss on derivative and other instruments, net
|
10,347
|
|
|
312
|
|
|
|
Foreign currency (loss) gain, net
|
(1,528)
|
|
|
2,512
|
|
|
|
Equity based compensation to affiliate
|
163
|
|
|
349
|
|
|
|
Equity based compensation expense
|
419
|
|
|
399
|
|
|
|
(Income) loss from equity method investments, net of distributions received
|
11,057
|
|
|
6,045
|
|
|
|
Change in operating assets/liabilities:
|
|
|
|
|
|
Other assets
|
8,872
|
|
|
(1,886)
|
|
|
|
Other liabilities
|
(13,639)
|
|
|
87
|
|
|
|
Net cash provided by (used in) continuing operating activities
|
4,882
|
|
|
67,473
|
|
|
|
Net cash provided by (used in) discontinued operating activities
|
(726)
|
|
|
(2,235)
|
|
|
|
Net cash provided by (used in) operating activities
|
4,156
|
|
|
65,238
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
Purchase of real estate securities
|
(502,801)
|
|
|
(2,090,705)
|
|
|
|
Purchase of residential mortgage loans
|
(541,823)
|
|
|
(263,997)
|
|
|
|
Purchase of commercial loans
|
(10,560)
|
|
|
(31,173)
|
|
|
|
Origination of commercial loans
|
(22,694)
|
|
|
(71,446)
|
|
|
|
Purchase of U.S. treasury securities
|
—
|
|
|
(81,917)
|
|
|
|
Investments in debt and equity of affiliates
|
(46,363)
|
|
|
(93,606)
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of real estate securities
|
2,731,163
|
|
|
1,240,701
|
|
|
|
Proceeds from sale of residential mortgage loans
|
393,950
|
|
|
12,780
|
|
|
|
Proceeds from sale of commercial loans
|
36,935
|
|
|
—
|
|
|
|
Proceeds from sale of excess mortgage servicing rights
|
8,038
|
|
|
—
|
|
|
|
Proceeds from sales of U.S. treasury securities
|
—
|
|
|
82,048
|
|
|
|
Distributions received in excess of income from investments in debt and equity of affiliates
|
30,614
|
|
|
16,143
|
|
|
|
Principal repayments on real estate securities
|
111,703
|
|
|
385,865
|
|
|
|
Principal repayments on excess mortgage servicing rights
|
2,818
|
|
|
4,015
|
|
|
|
Principal repayments on residential mortgage loans
|
63,882
|
|
|
29,370
|
|
|
|
Principal repayments on commercial loans
|
6,369
|
|
|
43,217
|
|
|
|
Net proceeds from (payment made on) reverse repurchase agreements
|
—
|
|
|
11,499
|
|
|
|
Net proceeds from (payment made on) sales of securities borrowed under reverse repurchase agreements
|
30
|
|
|
(11,479)
|
|
|
|
Net settlement of interest rate swaps and other instruments
|
(72,484)
|
|
|
(63,996)
|
|
|
|
Net settlement of TBAs
|
4,610
|
|
|
1,261
|
|
|
|
Cash flows provided by (used in) other investing activities
|
68
|
|
|
(1,027)
|
|
|
|
Net cash provided by (used in) continuing investing activities
|
2,193,455
|
|
|
(882,447)
|
|
|
|
Net cash provided by (used in) discontinued investing activities
|
—
|
|
|
135,484
|
|
|
|
Net cash provided by (used in) investing activities
|
2,193,455
|
|
|
(746,963)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
7,018
|
|
|
66,063
|
|
|
|
Net proceeds from issuance of preferred stock
|
—
|
|
|
111,243
|
|
|
|
Cash paid on Exchange Offers
|
(8,007)
|
|
|
—
|
|
|
|
Borrowings under financing arrangements
|
14,689,972
|
|
|
47,397,506
|
|
|
|
Repayments of financing arrangements
|
(17,014,635)
|
|
|
(46,887,803)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Borrowings under secured debt
|
20,000
|
|
|
—
|
|
|
|
Repayments of secured debt
|
(10,000)
|
|
|
—
|
|
|
|
Proceeds from issuance of securitized debt
|
166,487
|
|
|
224,923
|
|
|
|
Principal repayments on securitized debt
|
(29,312)
|
|
|
(6,901)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net collateral received from (paid to) derivative counterparty
|
—
|
|
|
(1,465)
|
|
|
|
Net collateral received from (paid to) repurchase counterparty
|
(46,740)
|
|
|
(293)
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
(14,734)
|
|
|
(61,809)
|
|
|
|
Dividends paid on preferred stock
|
(20,549)
|
|
|
(15,769)
|
|
|
|
Net cash provided by continuing financing activities
|
(2,260,500)
|
|
|
825,695
|
|
|
|
Net cash provided by discontinued financing activities
|
—
|
|
|
(103,000)
|
|
|
|
Net cash provided by (used in) financing activities
|
(2,260,500)
|
|
|
722,695
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents, and restricted cash
|
(62,889)
|
|
|
40,970
|
|
|
|
Cash and cash equivalents, and restricted cash, Beginning of Year
|
125,369
|
|
|
84,358
|
|
|
|
Effect of exchange rate changes on cash
|
(162)
|
|
|
41
|
|
|
|
Cash and cash equivalents, and restricted cash, End of Year
|
$
|
62,318
|
|
|
$
|
125,369
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid for interest on financing arrangements
|
$
|
46,322
|
|
|
$
|
94,989
|
|
|
|
Cash paid for income tax
|
$
|
1,051
|
|
|
$
|
1,483
|
|
|
|
Supplemental disclosure of non-cash financing and investing activities:
|
|
|
|
|
|
Payable on unsettled trades
|
$
|
51,136
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends declared but not paid
|
$
|
1,243
|
|
|
$
|
14,734
|
|
|
|
Exchange Offers (Note 11)
|
$
|
33,979
|
|
|
$
|
—
|
|
|
|
Holdback receivable on sale of excess MSRs
|
$
|
422
|
|
|
$
|
—
|
|
|
|
Management fees paid using Common Stock in lieu of cash
|
$
|
4,315
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Decrease of securitized debt
|
$
|
7,091
|
|
|
$
|
3,617
|
|
|
|
Transfer of real estate securities in satisfaction of repurchase agreements
|
$
|
345,066
|
|
|
$
|
—
|
|
|
|
Change in repurchase agreements from transfer of real estate securities
|
$
|
344,685
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Transfer from residential mortgage loans to other assets
|
$
|
3,856
|
|
|
$
|
2,883
|
|
|
|
Transfer from investments in debt and equity of affiliates to CMBS
|
$
|
11,769
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Cash and cash equivalents
|
$
|
47,926
|
|
|
$
|
81,692
|
|
|
|
Restricted cash
|
14,392
|
|
|
43,677
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
|
$
|
62,318
|
|
|
$
|
125,369
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
AG Mortgage Investment Trust, Inc. (the "Company") was incorporated in the state of Maryland on March 1, 2011. The Company is a hybrid mortgage REIT that opportunistically invests in a diversified risk adjusted portfolio of agency investments and credit investments, which contain the asset classes further described below.
Residential mortgage-backed securities ("RMBS") include mortgage pass-through certificates or collateralized mortgage obligations ("CMOs") representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed by a U.S. government-sponsored entity such as Fannie Mae or Freddie Mac (collectively, "GSEs"), or any agency of the U.S. Government such as Ginnie Mae (collectively, "Agency RMBS"). The principal and interest payments on Agency RMBS securities have an explicit guarantee by either an agency of the U.S. government or a U.S. government-sponsored entity.
Non-Agency RMBS represent fixed- and floating-rate RMBS issued by entities or organizations other than a GSE or agency of the U.S. government, or that are collateralized by non-U.S. mortgages, including investment grade (AAA through BBB) and non-investment grade classes (BB and below). The mortgage loan collateral for Non-Agency RMBS consists of residential mortgage loans that do not generally conform to underwriting guidelines issued by U.S. government agencies or U.S. government-sponsored entities or are non-U.S. mortgages. Non-Agency RMBS also includes securities issued by companies whose primary assets are land and real estate.
Commercial Mortgage Backed Securities ("CMBS") represent investments of fixed- and floating-rate CMBS, including investment grade (AAA through BBB) and non-investment grade classes (BB and below), secured by, or evidencing an ownership interest in, a single commercial mortgage loan or a pool of commercial mortgage loans. Single-Asset/Single-Borrower securities are CMBS which securitize a single loan that is backed by a single asset (usually a large commercial property) or by a pool of cross collateralized mortgage obligations to a single borrower or related borrowers. Conduit CMBS are CMBS that are collateralized by multiple commercial loans and multiple borrowers.
The Company’s Non-Agency RMBS and CMBS portfolios are generally not issued or guaranteed by Fannie Mae, Freddie Mac or any agency of the U.S. Government, or are collateralized by non-U.S. mortgages and are therefore subject to credit risk.
Collectively, the Company refers to Agency RMBS, Non-Agency RMBS, CMBS asset types as "real estate securities" or "securities."
Residential mortgage loans refer to performing, re-performing and non-performing loans collateralized by a first lien mortgage on residential mortgaged property located in any of the 50 states of the United States or in the District of Columbia. Commercial loans are collateralized by an interest in commercial real estate and represent a contractual right to receive money on demand or on fixed or determinable dates. The Company refers to its residential and commercial mortgage loans as "mortgage loans" or "loans."
Excess MSRs refer to the excess servicing spread related to mortgage servicing rights, whose underlying collateral is securitized in a trust held by a U.S. government agency or GSE ("Agency Excess MSR").
Agency investments include Agency RMBS and Agency Excess MSRs, and credit investments include Non-Agency RMBS, CMBS, and loans.
Prior to December 31, 2019, the Company conducted its business through the following segments; (i) Securities and Loans and (ii) Single-Family Rental Properties. On November 15, 2019, the Company sold its portfolio of single-family rental properties ("SFR portfolio") to a third-party and no longer separated its business into segments. The sale of the Company's SFR portfolio has met the criteria for discontinued operations. Accordingly, for all current and prior periods presented, the related assets and liabilities are presented as assets and liabilities held for sale on the consolidated balance sheets and the related operating results are presented as income/(loss) from discontinued operations on the consolidated statement of operations. See Note 13 for further details.
The Company is externally managed by AG REIT Management, LLC, a Delaware limited liability company (the "Manager"), a wholly-owned subsidiary of Angelo, Gordon & Co., L.P. ("Angelo Gordon"), a privately-held, SEC-registered investment adviser, pursuant to a management agreement. The Manager, pursuant to a delegation agreement dated as of June 29, 2011, has
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement.
The Company conducts its operations to qualify and be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
COVID-19 Impact
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. On March 13, 2020, the U.S. declared a national emergency concerning the COVID-19 pandemic, and several states and municipalities have subsequently declared public health emergencies. These conditions have caused, and continue to cause, a significant disruption in the U.S. and world economies. To slow the spread of COVID-19, many countries, including the U.S., have implemented social distancing measures, which have substantially prohibited large gatherings, including at sporting events, religious services and schools. Further, many regions, including the majority of U.S. states, implemented additional measures, such as shelter-in-place and stay-at-home orders. Many businesses moved to a remote working environment, temporarily suspended operations, laid off a significant percentage of their workforce and/or shut down completely. Moreover, the COVID-19 pandemic and certain of the actions taken to reduce its spread have resulted in lost business revenue, rapid and significant increases in unemployment, changes in consumer behavior and significant reductions in liquidity and the fair value of many assets, including those in which the Company invests. Although many of the government restrictions were relaxed over the summer and early fall of 2020, these conditions, or some level thereof, are expected to continue over the near term and may continue throughout 2021, depending on state and local outbreaks and the success of availability of an effective vaccine.
Beginning in mid-March 2020, the global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints. Refer to Note 2 "Financing arrangements" for further details related to the impact to the Company as a result of these economic conditions.
The full impact of COVID-19 on the mortgage REIT industry, the credit markets and, consequently, our financial condition and results of operations for future periods is uncertain and cannot be predicted at the current time as it depends on several factors beyond our control including, but not limited to (i) the uncertainty around the severity, duration and spread of the outbreak, (ii) the effectiveness of the United States and global public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, including the availability of a treatment or vaccination for COVID-19, (v) the impact of government interventions, and (vi) the negative impact on our borrowers, asset values and cost of capital.
2. Summary of significant accounting policies
The accompanying consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current period presentation, primarily the inclusion of additional detail on certain asset classes within the real estate securities portfolio given the Company's reduction in portfolio size. In the opinion of management, all adjustments considered necessary for a fair presentation for the annual period of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature.
Cash and cash equivalents
Cash is comprised of cash on deposit with financial institutions. The Company classifies highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents. Cash equivalents includes cash invested in money market funds. Cash and cash equivalents are carried at cost, which approximates fair value. As of December 31, 2020, the Company held $47.9 million of cash and cash equivalents, none of which were cash equivalents. As of December 31, 2019, the Company held $81.7 million of cash and cash equivalents, of which $53.2 million were cash equivalents. The Company places its cash with high credit quality institutions to minimize credit risk exposure. Cash pledged to the Company as collateral is unrestricted in use and, accordingly, is included as a component of "Cash and cash equivalents" on the consolidated balance sheets. Any cash held by the Company as collateral is included in the "Other liabilities" line item on the consolidated balance
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
sheets and in cash flows from financing activities on the consolidated statement of cash flows. Any cash due to the Company in the form of principal payments is included in the "Other assets" line item on the consolidated balance sheets and in cash flows from operating activities on the consolidated statement of cash flows.
Restricted cash
Restricted cash includes cash pledged as collateral for clearing and executing trades, derivatives, and financing arrangements, as well as restricted cash deposited into accounts held at certain consolidated trusts. Restricted cash is not available to the Company for general corporate purposes. Restricted cash may be returned to the Company when the related collateral requirements are exceeded or at the maturity of the derivative or financing arrangement. Restricted cash is carried at cost, which approximates fair value.
Offering costs
The Company has incurred offering costs in connection with common stock offerings, registration statements, preferred stock offerings and exchanges. Where applicable, the offering costs were paid out of the proceeds of the respective offerings. Offering costs in connection with common stock offerings and costs in connection with registration statements have been accounted for as a reduction of additional paid-in capital. Offering costs in connection with preferred stock offerings have been accounted for as a reduction of their respective gross proceeds. Exchange costs in connection with the Company's preferred stock exchanges have been accounted for as a reduction to the Company's retained earnings.
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. See Note 1 under "COVID-19 Impact" for more detail.
Earnings/(Loss) per share
In accordance with the provisions of Accounting Standards Codification ("ASC") 260, "Earnings per Share," the Company calculates basic income/(loss) per share by dividing net income/(loss) available to common stockholders for the period by weighted-average shares of the Company’s common stock outstanding for that period. Diluted income per share takes into account the effect of dilutive instruments, such as stock options, warrants, unvested restricted stock and unvested restricted stock units but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. In periods in which the Company records a loss, potentially dilutive securities are excluded from the diluted loss per share calculation, as their effect on loss per share is anti-dilutive.
Valuation of financial instruments
The fair value of the financial instruments that the Company records at fair value is determined by the Manager, subject to oversight of the Company’s Board of Directors, and in accordance with ASC 820, "Fair Value Measurements and Disclosures." When possible, the Company determines fair value using third-party data sources. ASC 820 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable.
The three levels of the hierarchy under ASC 820 are described below:
•Level 1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
•Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability, and would be based on the best information available.
Transfers between levels are assumed to occur at the beginning of the reporting period.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
At the beginning of the first quarter of 2020, the Manager completed a data collection and analysis effort, which supported an update to its Leveling policy under ASC 820. Among the data collected and analyzed were: (i) reports from TRACE, FINRA’s Trade Reporting and Compliance Engine, that reports over-the-counter secondary market transactions in eligible fixed income securities, (ii) information from pricing vendors regarding valuation approaches and observability of market color, (iii) data points collected from discussions with industry sources, including peer firms and audit firms, and (iv) its own data from back testing vendor pricing against its own trades. After analyzing this data, the Manager concluded that there was sufficient observability of market inputs used by its third-party pricing services for certain RMBS and CMBS positions previously categorized as Level 3 to meet the criteria for a Level 2 classification.
The Company considered whether the volatile market conditions related to the COVID-19 pandemic would have an impact on its Leveling policy under ASC 820, as amended on January 1, 2020. Based on due diligence, there have been no significant changes in any of the pricing services’ fair value methodologies or processes as a result of COVID-19. The Company does not believe the pricing services’ ability to determine fair values has been adversely impacted. As a result, the Company concluded there was no migration from Level 2 to Level 3 as a result of COVID-19.
Accounting for real estate securities
Investments in real estate securities are recorded in accordance with ASC 320-10, "Investments – Debt and Equity Securities," ASC 325-40, "Beneficial Interests in Securitized Financial Assets," or ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality." The Company has chosen to make a fair value election pursuant to ASC 825, "Financial Instruments" for its real estate securities portfolio. Real estate securities are recorded at fair value on the consolidated balance sheets and the periodic change in fair value is recorded in current period earnings on the consolidated statement of operations as a component of "Unrealized gain/(loss) on real estate securities and loans, net." Purchases and sales of real estate securities are recorded on the trade date.
These investments meet the requirements to be classified as available for sale under ASC 320-10-25 which requires the securities to be carried at fair value on the consolidated balance sheets with changes in fair value recorded to other comprehensive income, a component of stockholders’ equity. Electing the fair value option allows the Company to record changes in fair value in the consolidated statement of operations, which, in management’s view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner.
When the Company purchases securities with evidence of credit deterioration since origination, it will analyze the securities to determine if the guidance found in ASC 310-30 is applicable.
In June 2016, FASB issued ASU 2016-13, "Financial Instruments – Credit Losses". This new guidance significantly changes how entities will measure credit losses for most financial assets, including loans, that are not measured at fair value with changes in fair value recognized through net income. The Company adopted the new guidance as of January 1, 2020. The new guidance specifically excludes available-for-sale securities and loans measured at fair value, with changes in fair value recognized through net income. Accordingly, the impact of the new guidance on accounting for the Company's debt securities and loans is limited to recognition of effective yield which was historically impacted by other than temporary impairment recorded under previous standards. As the new guidance eliminates the accounting for other than temporary impairment, this guidance has impacted the Company's unrealized and realized gain/(loss) amounts. As the Company measures its debt securities and loans at fair value with any changes recognized through net income and updates its estimate of the cash flows expected to be collected on these asset classes on at least a quarterly basis recognizing changes in cash flows in interest income prospectively through an adjustment of an asset’s yield over its remaining life, the adoption of the standard did not have a material impact to the Company’s consolidated financial statements.
Prior to the adoption of ASU 2016-13, the Company accounted for its securities under ASC 310 and ASC 325 and evaluated securities for other-than-temporary impairment ("OTTI") on at least a quarterly basis. The determination of whether a security was other-than-temporarily impaired involved judgments and assumptions based on subjective and objective factors. When the fair value of a real estate security was less than its amortized cost at the balance sheet date, the security was considered impaired, and the impairment was designated as either "temporary" or "other-than-temporary."
When a real estate security was impaired, an OTTI was considered to have occurred if (i) the Company intended to sell the security (i.e., a decision has been made as of the reporting date) or (ii) it was more likely than not that the Company was required to sell the security before recovery of its amortized cost basis. If the Company intended to sell the security or if it was more likely than not that the Company was required to sell the real estate security before recovery of its amortized cost basis, the entire amount of the impairment loss, if any, was recognized in earnings as a realized loss and the cost basis of the security was adjusted to its fair value. Additionally, for securities accounted for under ASC 325-40 an OTTI was deemed to have
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
occurred when there was an adverse change in the expected cash flows to be received and the fair value of the security was less than its carrying amount. In determining whether an adverse change in cash flows occurred, the present value of the remaining cash flows, as estimated at the initial transaction date (or the last date previously revised), was compared to the present value of the expected cash flows at the current reporting date. The estimated cash flows reflected those a "market participant" would use and included observations of current information and events, and assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of potential credit losses. Cash flows were discounted at a rate equal to the current yield used to accrete interest income. Any resulting OTTI adjustments were reflected in the "Net realized gain/(loss)" line item on the consolidated statement of operations.
The determination as to whether an OTTI existed was subjective, given that such determination was based on information available at the time of assessment as well as the Company’s estimate of the future performance and cash flow projections for the individual security. As a result, the timing and amount of an OTTI constituted an accounting estimate that could change materially over time. Increases in interest income could have been recognized on a security on which the Company previously recorded an OTTI charge if the performance of such security subsequently improved.
Sales of securities are driven by the Manager’s portfolio management process. The Manager seeks to mitigate risks including those associated with prepayments, defaults, severities, amongst others and will opportunistically rotate the portfolio into securities with more favorable attributes. Strategies may also be employed to manage net capital gains, which need to be distributed for tax purposes.
Realized gains or losses on sales of securities, loans and derivatives are included in the "Net realized gain/(loss)" line item on the consolidated statement of operations. The cost of positions sold is calculated using a first in, first out ("FIFO") basis. Realized gains and losses are recorded in earnings at the time of disposition.
Accounting for loans
Investments in loans are recorded in accordance with ASC 310-10, "Receivables." The Company has chosen to make a fair value election pursuant to ASC 825 for its loan portfolio. Electing the fair value option allows the Company to record changes in fair value in the consolidated statement of operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all loan activities will be recorded in a similar manner. As such, loans are recorded at fair value on the consolidated balance sheets and any periodic change in fair value is recorded in current period earnings on the consolidated statement of operations as a component of "Unrealized gain/(loss) on real estate securities and loans, net." The Company recognizes certain upfront costs and fees relating to loans for which the fair value option has been elected in current period earnings as incurred and does not defer those costs, which is in accordance with ASC 825-10-25. Purchases and sales of loans are recorded on the settlement date, concurrent with the completion of due diligence and the removal of any contingencies. Prior to the settlement date, the Company will include commitments to purchase loans within the Commitments and Contingencies footnote to the financial statements.
The Company amortizes or accretes any premium or discount over the life of the loans utilizing the effective interest method. On at least a quarterly basis, the Company evaluates the collectability of both interest and principal on its loans to determine whether they are impaired. A loan or pool of loans is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. Income recognition is suspended for loans at the earlier of the date at which payments become 90-days past due or when, in the opinion of the Manager, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan or pool of loans is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.
Residential Mortgage Loans
At purchase, the Company may aggregate its residential mortgage loans into pools based on common risk characteristics. Once a pool of loans is assembled, its composition is maintained. When the Company purchases mortgage loans with evidence of credit deterioration since origination and it determines that it is probable it will not collect all contractual cash flows on those loans, it will apply the guidance found in ASC 310-30. Mortgage loans that are delinquent 60 or more days are considered non-performing.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company updates its estimate of the cash flows expected to be collected on at least a quarterly basis for loans accounted for under ASC 310-30. In estimating these cash flows, there are a number of assumptions that will be subject to uncertainties and contingencies including both the rate and timing of principal and interest receipts, and assumptions of prepayments, repurchases, defaults and liquidations. If based on the most current information and events it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected, the Company will recognize these changes prospectively through an adjustment of the loan’s yield over its remaining life. The Company will adjust the amount of accretable yield by reclassification from the nonaccretable difference. The adjustment is accounted for as a change in estimate in conformity with ASC 250, "Accounting Changes and Error Corrections" with the amount of periodic accretion adjusted over the remaining life of the loan. Refer to the "Recent Accounting Pronouncements" section below for more information on impairment recognition prior to the adoption of ASU 2016-13.
Commercial Loans
Commercial loans are classified as held for sale upon the Company determining that it intends to sell or liquidate the loan in the short-term and certain criteria have been met. Commercial loans meeting all criteria for reclassification are presented separately on the consolidated balance sheets in the "Commercial Loans Held for Sale" line item. Estimated costs incurred to sell a loan are included within the fair value of the loan.
Investments in debt and equity of affiliates
The Company’s unconsolidated ownership interests in affiliates are accounted for using the equity method. A majority of the Company’s investments held through affiliated entities are comprised of real estate securities, loans and its interest in AG Arc LLC. These types of investments may also be held directly by the Company. These entities have chosen to make a fair value election on their financial instruments and certain financing arrangements pursuant to ASC 825; as such, the Company will treat these financial instruments and financing arrangements consistently with this election.
On December 9, 2015, the Company, alongside private funds managed by Angelo Gordon, through AG Arc LLC, one of the Company’s indirect subsidiaries ("AG Arc"), formed Arc Home LLC ("Arc Home"). In June 2016, Arc Home closed on the acquisition of a Fannie Mae, Freddie Mac, FHA, VA and Ginnie Mae seller/servicer of residential mortgages. Through this subsidiary, Arc Home originates conforming, Government, Jumbo, Non-QM, and other non-conforming residential mortgage loans and retains the mortgage servicing rights associated with the loans it originates. Arc Home is led by an external management team. The Company has chosen to make a fair value election with respect to its investment in AG Arc pursuant to ASC 825. The Company elected to treat its investment in AG Arc as a taxable REIT subsidiary. As a result, income or losses recognized by the Company from its investment in AG Arc are recorded in "Equity in earnings/(loss) from affiliates" line item on the Company's consolidated statement of operations net of income taxes.
On August 29, 2017, the Company, alongside private funds managed by Angelo Gordon, formed Mortgage Acquisition Holding I LLC ("MATH") to conduct a residential mortgage investment strategy. MATH in turn sponsored the formation of an entity called Mortgage Acquisition Trust I LLC ("MATT") to purchase predominantly "Non-QM" loans, which are residential mortgage loans that are not deemed "qualified mortgage," or "QM," loans under the rules of the Consumer Finance Protection Bureau. Non-QM Loans are not eligible for delivery to Fannie Mae, Freddie Mac, or Ginnie Mae. MATT made an election to be treated as a real estate investment trust beginning with the 2018 tax year.
On May 15, 2019 and November 14, 2019, the Company, alongside private funds managed by Angelo Gordon, formed LOT SP I LLC and LOT SP II LLC, respectively, (collectively, "LOTS"). LOTS were formed to originate first mortgage loans to third-party land developers and home builders for the acquisition and horizontal development of land ("Land Related Financing").
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The below table reconciles the fair value of investments to the "Investments in debt and equity of affiliates" line item on the Company's consolidated balance sheet and the net income/(loss) to the "Equity in earnings/(loss) from affiliates" line item on the Company's consolidated statement of operations (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Assets
|
|
Liabilities
|
|
Equity
|
|
Net Income/(Loss)
|
|
Assets
|
|
Liabilities
|
|
Equity
|
|
Net Income/(Loss)
|
Non-QM Loans (1)
|
|
$
|
153,200
|
|
|
$
|
(111,135)
|
|
|
$
|
42,065
|
|
|
$
|
(26,511)
|
|
|
$
|
254,276
|
|
|
$
|
(200,257)
|
|
|
$
|
54,019
|
|
|
$
|
6,024
|
|
Land Related Financing
|
|
22,824
|
|
|
—
|
|
|
22,824
|
|
|
2,620
|
|
|
16,979
|
|
|
—
|
|
|
16,979
|
|
|
844
|
|
Other (2)
|
|
41,940
|
|
|
(5,588)
|
|
|
36,352
|
|
|
(998)
|
|
|
101,871
|
|
|
(56,811)
|
|
|
45,060
|
|
|
10,426
|
|
Real Estate Securities and Loans, at fair value
|
|
$
|
217,964
|
|
|
$
|
(116,723)
|
|
|
$
|
101,241
|
|
|
$
|
(24,889)
|
|
|
$
|
373,126
|
|
|
$
|
(257,068)
|
|
|
$
|
116,058
|
|
|
$
|
17,294
|
|
AG Arc, at fair value
|
|
45,341
|
|
|
—
|
|
|
45,341
|
|
|
23,260
|
|
|
28,546
|
|
|
—
|
|
|
28,546
|
|
|
(9,650)
|
|
Cash and Other assets/(liabilities)
|
|
5,279
|
|
|
(1,194)
|
|
|
4,085
|
|
|
—
|
|
|
12,953
|
|
|
(1,246)
|
|
|
11,707
|
|
|
—
|
|
Investments in debt and equity of affiliates
|
|
$
|
268,584
|
|
|
$
|
(117,917)
|
|
|
$
|
150,667
|
|
|
$
|
(1,629)
|
|
|
$
|
414,625
|
|
|
$
|
(258,314)
|
|
|
$
|
156,311
|
|
|
$
|
7,644
|
|
(1)As of December 31, 2020, Non-QM Loans excluded loans with an unpaid principal balance of $17.3 million whereby an affiliate of MATT has the right, but not the obligation, to repurchase loans from a trust that are 90 days or more delinquent at its discretion. These loans, which are eligible to be repurchased, would be recorded on the balance sheet of MATT, an unconsolidated equity method investee of the Company, with a corresponding and offsetting liability.
(2)Certain loans held in securitized form are presented net of non-recourse securitized debt.
The Company’s investments in debt and equity of affiliates are recorded at fair value on the consolidated balance sheets in the "Investments in debt and equity of affiliates" line item and periodic changes in fair value are recorded in current period earnings on the consolidated statement of operations as a component of "Equity in earnings/(loss) from affiliates." Capital contributions, distributions and profits and losses of such entities are allocated in accordance with the terms of the applicable agreements.
Investment consolidation and transfers of financial assets
For each investment made, the Company evaluates the underlying entity that issued the securities acquired or to which the Company makes a loan to determine the appropriate accounting. In performing the analysis, the Company refers to guidance in ASC 810-10, "Consolidation." In situations where the Company is the transferor of financial assets, the Company refers to the guidance in ASC 860-10 "Transfers and Servicing."
In variable interest entities ("VIEs"), an entity is subject to consolidation under ASC 810-10 if the equity investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities or are not exposed to the entity’s losses or entitled to its residual returns. VIEs within the scope of ASC 810-10 are required to be consolidated by their primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This determination can sometimes involve complex and subjective analyses. Further, ASC 810-10 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. In accordance with ASC 810-10, all transferees, including variable interest entities, must be evaluated for consolidation. If the Company determines that consolidation is not required, it will then assess whether the transfer of the underlying assets would qualify as a sale, should be accounted for as secured financings under GAAP, or should be accounted for as an equity method investment, depending on the circumstances. See Note 3 and Note 4 for more detail.
A Special Purpose Entity ("SPE") is an entity designed to fulfill a specific limited need of the company that organized it. SPEs are often used to facilitate transactions that involve securitizing financial assets or resecuritizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company entered into a resecuritization transaction in 2014 (the "December 2014 VIE") which resulted in the Company consolidating the VIE that was created to facilitate the transaction and to which the underlying assets in connection with the resecuritization were transferred. The transferred assets were recorded as a secured borrowing. The Company has chosen to make a fair value election pursuant to ASC 825 for its secured borrowings. As of December 31, 2020, the Company did not hold any interest in the December 2014 VIE. In connection with the deconsolidation that occurred during the current period, the Company recorded a realized gain of $2.1 million. See Note 3 below for more detail.
The Company transferred certain of its CMBS in the third quarter of 2018 from certain of its non-wholly owned subsidiaries into a newly formed wholly owned entity so the Company could obtain financing on these real estate securities (the "August 2018 VIE"). The Company determined that the August 2018 VIE should be consolidated. As of December 31, 2020, the Company did not hold any interest in the August 2018 VIE. In connection with the deconsolidation that occurred during the current period the Company recorded a loss of $8.3 million. See Note 3 below as well as the "Investments in debt and equity of affiliates" section above for more detail.
The Company entered into securitization transactions of certain of its re-performing residential mortgage loans, which resulted in the Company consolidating the respective VIEs that were created to facilitate these transactions and to which the underlying assets in connection with these securitizations were transferred (the "August 2019 VIE" and the "September 2020 VIE"). Based on the evaluations of each VIE, the Company concluded that the VIEs should be consolidated and, as a result, transferred assets of these VIEs were determined to be secured borrowings. Upon consolidation, the Company elected the fair value option pursuant to ASC 825 for the assets and liabilities of the August 2019 VIE and September 2020 VIE. Electing the fair value option allows the Company to record changes in fair value in the consolidated statement of operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all activities will be recorded in a similar manner. The Company applied the guidance under ASU 2014-13, "Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity," whereby the Company determines whether the fair value of the assets or liabilities of the August 2019 VIE and September 2020 VIE are more observable as a basis for measuring the less observable financial instruments. The Company has determined that the fair value of the liabilities of the August 2019 VIE and September 2020 VIE are more observable since the prices for these liabilities are more easily determined as similar instruments trade more frequently on a relative basis than the individual assets of the VIEs. See Note 4 for more detail regarding these VIEs. Refer to Note 5 related to the Company's determination of fair value for the assets and liabilities included within these VIEs.
From time to time the Company purchases residual positions where it consolidates the securitization and the positions are recorded on the Company's books as residential mortgage loans. There may be limited data available regarding the underlying collateral of such securitizations.
The Company may periodically enter into transactions in which it transfers assets to a third-party. Upon a transfer of financial assets, the Company will sometimes retain or acquire senior or subordinated interests in the related assets. Pursuant to ASC 860-10, a determination must be made as to whether a transferor has surrendered control over transferred financial assets. That determination must consider the transferor’s continuing involvement in the transferred financial asset, including all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of the transfer. The financial components approach under ASC 860-10 limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. It defines the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale.
Under ASC 860-10, after a transfer of financial assets that meets the criteria for treatment as a sale—legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint and transferred control—an entity recognizes the financial and servicing assets it acquired or retained and the liabilities it has incurred, derecognizes financial assets it has sold and derecognizes liabilities when extinguished. The transferor would then determine the gain or loss on sale of financial assets by allocating the carrying value of the underlying mortgage between securities or loans sold and the interests retained based on their fair values. The gain or loss on sale is the difference between the cash proceeds from the sale and the amount allocated to the securities or loans sold. When a transfer of financial assets does not qualify for sale accounting, ASC 860-10 requires the transfer to be accounted for as a secured borrowing with a pledge of collateral.
From time to time, the Company may securitize mortgage loans it holds if such financing is available. These transactions will be recorded in accordance with ASC 860-10 and will be accounted for as either a "sale" and the loans will be removed from the consolidated balance sheets or as a "financing" and will be classified as "residential mortgage loans" on the consolidated balance sheets, depending upon the structure of the securitization transaction. ASC 860-10 is a standard that may require the Company to exercise significant judgment in determining whether a transaction should be recorded as a "sale" or a "financing."
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Interest income recognition
Interest income on the Company’s real estate securities portfolio and loan portfolio is accrued based on the actual coupon rate and the outstanding principal balance of such securities or loans. The Company has elected to record interest in accordance with ASC 835-30-35-2, "Imputation of Interest," using the effective interest method for all securities and loans accounted for under the fair value option in accordance with ASC 825, "Financial Instruments". As such, premiums and discounts are amortized or accreted into interest income over the lives of the securities or loans in accordance with ASC 310-20, "Nonrefundable Fees and Other Costs," ASC 320-10 or ASC 325-40, as applicable. Total interest income is recorded in the "Interest income" line item on the consolidated statement of operations.
On at least a quarterly basis for securities accounted for under ASC 320-10 and ASC 310-20 (generally Agency RMBS, exclusive of interest-only securities), prepayments of the underlying collateral must be estimated, which directly affect the speed at which the Company amortizes premiums on its securities. If actual and anticipated cash flows differ from previous estimates, the Company records an adjustment in the current period to the amortization of premiums for the impact of the cumulative change in the effective yield retrospectively through the reporting date.
Similarly, the Company also reassesses the cash flows on at least a quarterly basis for securities accounted for under ASC 325-40 (generally Non-Agency RMBS, CMBS, interest-only securities and Excess MSRs). In estimating these cash flows, there are a number of assumptions made that are uncertain and subject to judgments and assumptions based on subjective and objective factors and contingencies. These include the rate and timing of principal and interest receipts (including assumptions of prepayments, repurchases, defaults and liquidations), the pass-through or coupon rate and interest rate fluctuations. In addition, interest payment shortfalls due to delinquencies on the underlying mortgage loans have to be estimated. Differences between previously estimated cash flows and current actual and anticipated cash flows are recognized prospectively through an adjustment of the yield over the remaining life of the security based on the current amortized cost of the investment.
For security and loan investments purchased with evidence of deterioration of credit quality for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, the Company will apply the provisions of ASC 310-30. For purposes of income recognition, the Company aggregates loans that have common risk characteristics into pools and uses a composite interest rate and expectation of cash flows expected to be collected for the pool. ASC 310-30 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. ASC 310-30 limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. ASC 310-30 requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual or valuation allowance. Subsequent changes in cash flows expected to be collected generally should be recognized prospectively through an adjustment of the loan’s yield over its remaining life.
Financing arrangements
The Company finances the acquisition of certain assets within its portfolio through the use of financing arrangements. Financing arrangements include repurchase agreements and revolving facilities. Repurchase agreements and revolving facilities are treated as collateralized financing transactions and carried at their contractual amounts, including accrued interest, as specified in the respective agreements. The carrying amount of the Company’s repurchase agreements and revolving facilities approximates fair value.
The Company pledges certain securities, loans or properties as collateral under financing arrangements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. The amounts available to be borrowed under repurchase agreements and revolving facilities are dependent upon the fair value of the securities or loans pledged as collateral, which can fluctuate with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. In response to declines in fair value of assets pledged under repurchase agreements and revolving facilities, lenders may require the Company to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as margin calls. As of December 31, 2020 and December 31, 2019, the Company had met all margin call requirements.
On March 20, 2020, the Company notified its financing counterparties that it did not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic. During this period of market upheaval, the Company engaged in discussions with its
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
financing counterparties with regard to entering into forbearance agreements pursuant to which each counterparty would agree to forbear from exercising its rights and remedies with respect to an event of default under the applicable financing arrangement for an agreed-upon period. On April 10, 2020, the Company entered into a forbearance agreement for an initial 15 day period, on April 27, 2020, a second forbearance agreement for an extended period ending on June 1, 2020, and a third forbearance agreement on June 1, 2020 for an additional period ending June 15, 2020 (collectively, the "Forbearance Agreement") with certain of its financing counterparties (the "Participating Counterparties"). Pursuant to the terms of the Forbearance Agreement, the Participating Counterparties agreed to forbear from exercising any of their rights and remedies in respect of events of default and any and all other defaults under the applicable financing arrangement with the Company for the duration of the forbearance period specified in the Forbearance Agreement (the "Forbearance Period").
On June 10, 2020, the Company and the Participating Counterparties entered into a Reinstatement Agreement, pursuant to which the parties agreed to terminate the Forbearance Agreement and each Participating Counterparty agreed to permanently waive all existing and prior events of default under its financing agreements with the Company (each, a “Bilateral Agreement”) and to reinstate each Bilateral Agreement, as it may be amended by agreement between the Participating Counterparty and the Company. As a result of the termination of the Forbearance Agreement and entry into the Reinstatement Agreement, default interest on the Company’s outstanding borrowings under each Bilateral Agreements has ceased to accrue as of June 10, 2020 and the interest rate was the non-default rate of interest or pricing rate, as set forth in the applicable Bilateral Agreements, all cash margin has been applied to outstanding balances owed by the Company, and the DTC repo tracker coding for each Bilateral Agreement has been reinstated, thereby allowing principal and interest payments on the underlying collateral to flow to and be used by the Company, just as it was before the prior forbearance agreements were put in place. In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the various forbearance agreements have been terminated and released. The Company also agreed to pay the reasonable fees and out-of-pocket expenses of counsel and other professional advisors for the Participating Counterparties and the collateral agent. Additionally, the Reinstatement Agreement provided a set of financial covenants that override and replace the financial covenants in each Bilateral Agreement and sets forth various reporting requirements from the Company to the Participating Counterparties, releases, certain netting obligations and cross-default provisions. In connection with the negotiation and execution of the Reinstatement Agreement, the Company entered into certain amendments to the Bilateral Agreements with certain of the Participating Counterparties to reflect current market terms. In general, the amendments reflect increased haircuts and higher coupons.
On June 10, 2020, the Company also entered a separate reinstatement agreement with JPMorgan Chase Bank (the "JPM Reinstatement Agreement") on substantially the same terms as those set forth in the Reinstatement Agreement. The Reinstatement Agreement and the JPM Reinstatement Agreement collectively cover all of the Company’s existing financing arrangements as of the date of this report.
Refer to Note 12 for more information on deficiencies, all of which have been settled.
Dividends on Preferred Stock
Holders of the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are entitled to receive cumulative cash dividends at a rate of 8.25%, 8.00% and 8.000% per annum, respectively, of the $25.00 per share liquidation preference for each series. On and after September 17, 2024, dividends on the Series C Preferred Stock will accumulate at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the then three-month LIBOR plus a spread of 6.476% per annum. If the Company’s Board of Directors does not declare a dividend in a given period, an accrual is not recorded on the balance sheet. However, undeclared preferred stock dividends are reflected in earnings per share as discussed in ASC 260-10-45-11. Preferred stock dividends that are not declared accumulate and are added to the liquidation preference as of the scheduled payment date for the respective series of the preferred stock. The undeclared and unpaid dividends on the Company’s preferred stock accrue without interest, and if dividends on the Company's preferred stock are in arrears, the Company cannot pay cash dividends with respect to its common stock. See Note 11 for further detail on the Company’s Preferred Stock.
Accounting for derivative financial instruments
The Company enters into derivative contracts as a means of mitigating interest rate risk or foreign currency risk rather than to enhance returns. The Company accounts for derivative financial instruments in accordance with ASC 815-10, "Derivatives and Hedging." ASC 815-10 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, if or when hedge accounting is elected, the fair value adjustments will affect either other comprehensive income in stockholders’ equity until the hedged item is recognized in earnings or net income depending on whether the derivative instrument is designated and qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. As of December 31, 2020 and December 31, 2019, the Company did not have any interest rate
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
derivatives designated as hedges. All derivatives have been recorded at fair value in accordance with ASC 820-10, with corresponding changes in value recognized in the consolidated statement of operations. The Company records derivative asset and liability positions on a gross basis with respect to its counterparties. During the period in which the Company unwinds a derivative, it records a realized gain/(loss) in the "Net realized gain/(loss)" line item in the consolidated statement of operations.
The Company may exchange cash "variation margin" with the counterparties to its derivative instruments on a daily basis based upon changes in the fair value of such derivative instruments as measured by the Chicago Mercantile Exchange ("CME") and the London Clearing House ("LCH"), the central clearinghouses ("CCPs") through which those derivatives are cleared. In addition, the CCPs require market participants to deposit and maintain an "initial margin" amount which is determined by the CCPs and is generally intended to be set at a level sufficient to protect the CCPs from the maximum estimated single-day price movement in that market participant’s contracts.
Receivables recognized for the right to reclaim cash initial margin posted in respect of derivative instruments are included in the "Restricted cash" line item in the consolidated balance sheets. The daily exchange of variation margin associated with a CCP instrument is legally characterized as the daily settlement of the derivative instrument itself, as opposed to a pledge of collateral. Accordingly, the Company accounts for the daily receipt or payment of variation margin associated with its centrally cleared derivative instruments as a direct reduction to the carrying value of the derivative asset or liability, respectively. The carrying amount of centrally cleared derivative instruments reflected in the Company’s consolidated balance sheets approximates the unsettled fair value of such instruments. As variation margin is exchanged on a one-day lag, the unsettled fair value of such instruments represents the change in fair value that occurred on the last day of the reporting period. Non-exchange traded derivatives were not affected by these legal interpretations and continue to be reported at fair value including accrued interest.
Manager compensation
The management agreement provides for payment to the Manager of a management fee. The management fee is accrued and expensed during the period for which it is earned. For a more detailed discussion on the fees payable under the management agreement, see Note 10.
Income taxes
The Company conducts its operations to qualify and be taxed as a REIT. Accordingly, the Company will generally not be subject to federal or state corporate income tax to the extent that the Company makes qualifying distributions to its stockholders, and provided that it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the four taxable years following the year in which the Company fails to qualify as a REIT.
The dividends paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income/(loss) as opposed to net income/(loss) reported on the Company’s GAAP financial statements. Taxable income/(loss), generally, will differ from net income/(loss) reported on the financial statements because the determination of taxable income/(loss) is based on tax principles and not financial accounting principles.
The Company elected to treat certain domestic subsidiaries as taxable REIT subsidiaries ("TRSs") and may elect to treat other subsidiaries as TRSs. In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.
A domestic TRS may declare dividends to the Company which will be included in the Company’s taxable income/(loss) and necessitate a distribution to stockholders. Conversely, if the Company retains earnings at the domestic TRS level, no distribution is required and the Company can increase book equity of the consolidated entity. A domestic TRS is subject to U.S. federal, state and local corporate income taxes.
The Company elected to treat one of its foreign subsidiaries as a TRS and, accordingly, taxable income generated by this foreign TRS may not be subject to local income taxation, but generally will be included in the Company’s taxable income on a current basis as Subpart F income, whether or not distributed.
The Company’s financial results are generally not expected to reflect provisions for current or deferred income taxes, except for any activities conducted through one or more TRSs that are subject to corporate income taxation. The Company believes that it will operate in a manner that will allow it to qualify for taxation as a REIT. As a result of the Company’s expected REIT
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
qualification, it does not generally expect to pay federal or state corporate income tax. Many of the REIT requirements, however, are highly technical and complex.
As a REIT, if the Company fails to distribute in any calendar year (subject to specific timing rules for certain dividends paid in January) at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its capital gain net income for such year, and (iii) any undistributed taxable income from the prior year, the Company would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (i) the amounts actually distributed and (ii) the amounts of income retained and on which the Company has paid corporate income tax.
The Company evaluates uncertain income tax positions, if any, in accordance with ASC 740, "Income Taxes." The Company classifies interest and penalties, if any, related to unrecognized tax benefits as a component of provision for income taxes. See Note 9 for further details.
Deal related performance fees
The Company may incur deal related performance fees, payable to Arc Home and third-party operators, on certain of its CMBS, Excess MSRs, and Land Related Financing. The deal related performance fees are based on these investments meeting certain performance hurdles. The fees are accrued and expensed during the period for which they are incurred and are included in the "Other operating expenses" and "Equity in earnings/(loss) from affiliates" line items on the consolidated statement of operations.
Stock-based compensation
The Company applies the provisions of ASC 718, "Compensation—Stock Compensation" with regard to its equity incentive plans. ASC 718 covers a wide range of share-based compensation arrangements including stock options, restricted stock plans, performance-based awards, stock appreciation rights and employee stock purchase plans. ASC 718 requires that compensation cost relating to stock-based payment transactions be recognized in the financial statements.
Compensation cost related to restricted common shares and restricted stock units issued to the Company’s directors and the Manager are measured at its estimated fair value at the grant date, and is amortized and expensed over the vesting period on a straight-line basis. Restricted stock units issued to the Manager do not entitle the participant the rights of a shareholder of the Company’s common stock, such as dividend and voting rights, until shares are issued in settlement of the vested units. The restricted stock units are not considered to be participating shares. Restricted stock units are measured at fair value reduced by the present value of the dividends expected to be paid on the underlying shares during the requisite service period, discounted at an assumed risk free rate.
Recent accounting pronouncements
In June 2016, FASB issued ASU 2016-13, "Financial Instruments – Credit Losses". This guidance significantly changes how entities will measure credit losses for most financial assets, including loans, that are not measured at fair value with changes in fair value recognized through net income. The guidance replaces the existing “incurred loss” model with an “expected loss” model for instruments measured at amortized cost. It requires entities to record credit allowances for available-for-sale debt securities rather than reduce the carrying amount, as it currently is under the other-than temporary impairment model. The new guidance also simplifies the accounting model for purchased credit-impaired debt securities and loans. The Company adopted the new guidance as of January 1, 2020. The new guidance specifically excludes available-for-sale securities and loans measured at fair value with changes in fair value recognized through net income. Accordingly, the impact of the new guidance on accounting for the Company's debt securities and loans is limited to recognition of effective yield which was historically impacted by other than temporary impairment recorded under previously existing standards. As the new guidance eliminates the accounting for other than temporary impairment, this guidance had an impact on the Company's unrealized and realized gain/(loss) amounts. As the Company measures its debt securities and loans at fair value with any changes recognized through net income and updates its estimate of the cash flows expected to be collected on these asset classes on at least a quarterly basis recognizing changes in cash flows in interest income prospectively through an adjustment of an asset’s yield over its remaining life, the adoption of the standard did not have a material impact to the Company’s consolidated financial statements. See the "Accounting for real estate securities" and "Interest income recognition" sections above for more detail.
In March 2020, FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides temporary optional guidance intended to ease the burden of reference rate reform on financial reporting. This ASU was effective upon its issuance on March 12, 2020 and applies to all entities that have contracts, hedging relationships and other transactions that reference LIBOR and certain other reference rates that are expected
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
to be discontinued. However, it cannot be applied to contract modifications that occur after December 31, 2022. With certain exceptions, this ASU also cannot be applied to hedging relationships entered into or evaluated after that date. The guidance provides optional expedients and exceptions for applying existing guidance to contract modifications, hedging relationships and other transactions that are expected to be affected by reference rate reform and meet certain scope guidance. The Company is currently evaluating the effect this guidance will have on its consolidated financial statements.
3. Real Estate Securities
The following tables detail the Company’s real estate securities portfolio as of December 31, 2020 and December 31, 2019 ($ in thousands). The gross unrealized gains/(losses) stated in the tables below represent inception to date unrealized gains/(losses).
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December 31, 2020
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Gross Unrealized
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Weighted Average
|
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Current Face
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Premium /
(Discount)
|
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Amortized
Cost
|
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Gains
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Losses
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Fair Value
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Coupon (1)
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Yield
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Agency RMBS:
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30 Year Fixed Rate
|
$
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494,307
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|
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$
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22,368
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|
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$
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516,675
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$
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1,794
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|
$
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(117)
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|
|
$
|
518,352
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2.10
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%
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1.17
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%
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Credit Investments:
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Residential Investments
|
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Prime
|
15,093
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|
|
(7,081)
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|
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8,012
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|
|
663
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|
|
(10)
|
|
|
8,665
|
|
|
3.68
|
%
|
|
8.97
|
%
|
Alt-A/Subprime
|
16,287
|
|
|
(9,377)
|
|
|
6,910
|
|
|
4,586
|
|
|
—
|
|
|
11,496
|
|
|
4.25
|
%
|
|
12.52
|
%
|
Credit Risk Transfer
|
13,880
|
|
|
—
|
|
|
13,880
|
|
|
15
|
|
|
(587)
|
|
|
13,308
|
|
|
4.71
|
%
|
|
4.70
|
%
|
Non-U.S. RMBS
|
2,435
|
|
|
706
|
|
|
3,141
|
|
|
51
|
|
|
(92)
|
|
|
3,100
|
|
|
6.45
|
%
|
|
6.41
|
%
|
Non-Agency RMBS Interest Only (2)
|
157,590
|
|
|
(157,513)
|
|
|
77
|
|
|
207
|
|
|
(48)
|
|
|
236
|
|
|
0.53
|
%
|
|
NM
|
Re/Non-Performing Securities
|
1,690
|
|
|
(238)
|
|
|
1,452
|
|
|
149
|
|
|
—
|
|
|
1,601
|
|
|
5.25
|
%
|
|
14.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Residential Investments:
|
206,975
|
|
|
(173,503)
|
|
|
33,472
|
|
|
5,671
|
|
|
(737)
|
|
|
38,406
|
|
|
2.01
|
%
|
|
8.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit
|
4,925
|
|
|
(1,024)
|
|
|
3,901
|
|
|
—
|
|
|
(606)
|
|
|
3,295
|
|
|
4.62
|
%
|
|
11.89
|
%
|
Single-Asset/Single-Borrower
|
50,480
|
|
|
(1,494)
|
|
|
48,986
|
|
|
668
|
|
|
(9,464)
|
|
|
40,190
|
|
|
4.15
|
%
|
|
4.81
|
%
|
Freddie Mac K-Series CMBS
|
22,572
|
|
|
(12,062)
|
|
|
10,510
|
|
|
47
|
|
|
(1,557)
|
|
|
9,000
|
|
|
3.83
|
%
|
|
9.00
|
%
|
CMBS Interest Only (3)
|
687,077
|
|
|
(682,961)
|
|
|
4,116
|
|
|
256
|
|
|
(69)
|
|
|
4,303
|
|
|
0.10
|
%
|
|
6.93
|
%
|
Total Commercial Investments:
|
765,054
|
|
|
(697,541)
|
|
|
67,513
|
|
|
971
|
|
|
(11,696)
|
|
|
56,788
|
|
|
0.44
|
%
|
|
6.04
|
%
|
Total Credit Investments:
|
972,029
|
|
|
(871,044)
|
|
|
100,985
|
|
|
6,642
|
|
|
(12,433)
|
|
|
95,194
|
|
|
0.65
|
%
|
|
7.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,466,336
|
|
|
$
|
(848,676)
|
|
|
$
|
617,660
|
|
|
$
|
8,436
|
|
|
$
|
(12,550)
|
|
|
$
|
613,546
|
|
|
1.18
|
%
|
|
2.08
|
%
|
(1)Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.
(2)Non-Agency RMBS Interest Only includes only two investments. The overall impact of the investments' yields on the Company's portfolio is immaterial.
(3)Comprised of Freddie Mac K-Series interest-only bonds.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
Weighted Average
|
|
Current Face
|
|
Premium /
(Discount)
|
|
Amortized
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Coupon (1)
|
|
Yield
|
Agency RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 Year Fixed Rate
|
$
|
2,125,067
|
|
|
$
|
59,123
|
|
|
$
|
2,184,190
|
|
|
$
|
57,404
|
|
|
$
|
(296)
|
|
|
$
|
2,241,298
|
|
|
3.73
|
%
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Only
|
476,192
|
|
|
(403,248)
|
|
|
72,944
|
|
|
2,330
|
|
|
(1,133)
|
|
|
74,141
|
|
|
3.93
|
%
|
|
5.87
|
%
|
Total Agency RMBS:
|
2,601,259
|
|
|
(344,125)
|
|
|
2,257,134
|
|
|
59,734
|
|
|
(1,429)
|
|
|
2,315,439
|
|
|
3.77
|
%
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime
|
297,932
|
|
|
(84,876)
|
|
|
213,056
|
|
|
29,052
|
|
|
(221)
|
|
|
241,887
|
|
|
4.92
|
%
|
|
7.44
|
%
|
Alt-A/Subprime
|
141,464
|
|
|
(30,859)
|
|
|
110,605
|
|
|
12,234
|
|
|
(127)
|
|
|
122,712
|
|
|
4.40
|
%
|
|
6.89
|
%
|
Credit Risk Transfer
|
270,397
|
|
|
591
|
|
|
270,988
|
|
|
8,972
|
|
|
(5)
|
|
|
279,955
|
|
|
5.17
|
%
|
|
5.27
|
%
|
Non-U.S. RMBS
|
44,867
|
|
|
9,473
|
|
|
54,340
|
|
|
3,391
|
|
|
—
|
|
|
57,731
|
|
|
3.21
|
%
|
|
3.58
|
%
|
Non-Agency RMBS Interest Only
|
209,362
|
|
|
(207,948)
|
|
|
1,414
|
|
|
—
|
|
|
(340)
|
|
|
1,074
|
|
|
0.77
|
%
|
|
5.96
|
%
|
Re/Non-Performing Securities
|
5,966
|
|
|
(1,965)
|
|
|
4,001
|
|
|
1,180
|
|
|
—
|
|
|
5,181
|
|
|
5.18
|
%
|
|
19.20
|
%
|
Land Related Financing
|
8,628
|
|
|
(212)
|
|
|
8,416
|
|
|
514
|
|
|
—
|
|
|
8,930
|
|
|
7.75
|
%
|
|
8.26
|
%
|
Total Residential Investments:
|
978,616
|
|
|
(315,796)
|
|
|
662,820
|
|
|
55,343
|
|
|
(693)
|
|
|
717,470
|
|
|
4.40
|
%
|
|
6.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit
|
72,318
|
|
|
(9,181)
|
|
|
63,137
|
|
|
811
|
|
|
(602)
|
|
|
63,346
|
|
|
4.24
|
%
|
|
5.57
|
%
|
Single-Asset/Single-Borrower
|
204,702
|
|
|
(5,606)
|
|
|
199,096
|
|
|
879
|
|
|
(304)
|
|
|
199,671
|
|
|
5.09
|
%
|
|
5.57
|
%
|
Freddie Mac K-Series CMBS
|
208,693
|
|
|
(119,809)
|
|
|
88,884
|
|
|
17,030
|
|
|
—
|
|
|
105,914
|
|
|
5.70
|
%
|
|
11.54
|
%
|
CMBS Interest Only (2)
|
3,427,025
|
|
|
(3,382,273)
|
|
|
44,752
|
|
|
3,486
|
|
|
(246)
|
|
|
47,992
|
|
|
0.24
|
%
|
|
6.68
|
%
|
Total Commercial Investments:
|
3,912,738
|
|
|
(3,516,869)
|
|
|
395,869
|
|
|
22,206
|
|
|
(1,152)
|
|
|
416,923
|
|
|
0.60
|
%
|
|
7.21
|
%
|
Total Credit Investments:
|
4,891,354
|
|
|
(3,832,665)
|
|
|
1,058,689
|
|
|
77,549
|
|
|
(1,845)
|
|
|
1,134,393
|
|
|
1.31
|
%
|
|
6.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
7,492,613
|
|
|
$
|
(4,176,790)
|
|
|
$
|
3,315,823
|
|
|
$
|
137,283
|
|
|
$
|
(3,274)
|
|
|
$
|
3,449,832
|
|
|
2.20
|
%
|
|
4.37
|
%
|
(1)Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.
(2)Comprised of Freddie Mac K-Series interest-only bonds.
As described in Note 2, prior to the adoption of ASU 2016-13, the Company evaluated loans for OTTI on at least a quarterly basis. For the year ended December 31, 2019, the Company recognized an OTTI charge of $14.6 million on its securities, which is included in the "Net realized gain/(loss)" line item on the consolidated statement of operations. None of this amount was recognized on securities in which the Company demonstrated an intent to sell. The Company recorded $14.6 million of OTTI due to an adverse change in cash flows on certain securities, where the fair values of the securities were less than their carrying amounts. Of the $14.6 million of OTTI recorded, $3.4 million related to securities where OTTI was not recognized in a prior year.
The following tables detail the weighted average life of our real estate securities as of December 31, 2020 and December 31, 2019 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Agency RMBS
|
|
Credit Investments
|
Weighted Average Life (1)
|
|
Fair Value
|
|
Amortized
Cost
|
|
Weighted
Average
Coupon
|
|
Fair Value
|
|
Amortized
Cost
|
|
Weighted
Average
Coupon (2)
|
Less than or equal to 1 year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
31,166
|
|
|
$
|
39,588
|
|
|
1.81
|
%
|
Greater than one year and less than or equal to five years
|
|
181,947
|
|
|
181,209
|
|
|
2.29
|
%
|
|
20,131
|
|
|
21,634
|
|
|
0.33
|
%
|
Greater than five years and less than or equal to ten years
|
|
336,405
|
|
|
335,466
|
|
|
2.00
|
%
|
|
20,310
|
|
|
20,808
|
|
|
0.36
|
%
|
Greater than ten years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,587
|
|
|
18,955
|
|
|
4.18
|
%
|
Total
|
|
$
|
518,352
|
|
|
$
|
516,675
|
|
|
2.10
|
%
|
|
$
|
95,194
|
|
|
$
|
100,985
|
|
|
0.65
|
%
|
(1)This is based on projected life. Typically, actual maturities of mortgage-backed securities are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
(2)Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Agency RMBS
|
|
Credit Investments
|
Weighted Average Life (1)
|
|
Fair Value
|
|
Amortized Cost
|
|
Weighted
Average
Coupon
|
|
Fair Value
|
|
Amortized Cost
|
|
Weighted
Average
Coupon (2)
|
Less than or equal to 1 year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
82,474
|
|
|
$
|
82,273
|
|
|
0.56
|
%
|
Greater than one year and less than or equal to five years
|
|
313,855
|
|
|
302,520
|
|
|
4.01
|
%
|
|
525,192
|
|
|
508,038
|
|
|
1.29
|
%
|
Greater than five years and less than or equal to ten years
|
|
2,001,584
|
|
|
1,954,614
|
|
|
3.71
|
%
|
|
296,665
|
|
|
263,300
|
|
|
1.06
|
%
|
Greater than ten years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
230,062
|
|
|
205,078
|
|
|
5.46
|
%
|
Total
|
|
$
|
2,315,439
|
|
|
$
|
2,257,134
|
|
|
3.77
|
%
|
|
$
|
1,134,393
|
|
|
$
|
1,058,689
|
|
|
1.31
|
%
|
(1)This is based on projected life. Typically, actual maturities of mortgage-backed securities are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
(2)Equity residual investments and principal only securities with a zero coupon rate are excluded from this calculation.
For the year ended December 31, 2020, the Company sold 343 securities for total proceeds of $2.7 billion, recording realized gains of $54.5 million and realized losses of $180.4 million. For the year ended December 31, 2019, the Company sold 90 securities for total proceeds of $1.2 billion, recording realized gains of $34.6 million and realized losses of $4.7 million.
Variable interest entities
The following table details certain information related to the December 2014 VIE and August 2018 VIE as further described in Note 2 as of December 31, 2019 (in thousands). As of December 31, 2020, the Company did not hold any interest in these VIEs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Assets
|
|
|
|
|
Real estate securities, at fair value:
|
|
|
|
|
Non-Agency
|
|
|
|
$
|
13,838
|
|
CMBS
|
|
|
|
94,500
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
808
|
|
Total assets
|
|
|
|
$
|
109,146
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Financing arrangements
|
|
|
|
$
|
70,712
|
|
Securitized debt, at fair value
|
|
|
|
7,230
|
|
Other liabilities
|
|
|
|
3,553
|
|
Total liabilities
|
|
|
|
$
|
81,495
|
|
The holders of the consolidated tranche of the December 2014 VIE, shown within the Non-Agency line item above, had no recourse to the general credit of the Company and the Company had no obligation to provide any other explicit or implicit support to the December 2014 VIE. Except for restricted cash, shown within the Other assets line item above, assets held by the August 2018 VIE were not restricted and could have been used to settle any obligations of the Company as of December 31, 2019. The liabilities of the August 2018 VIE were recourse to the Company and could be satisfied with assets of the Company as of December 31, 2019. As the Company does not hold any interest in the August 2018 VIE as of December 31, 2020, the liabilities of the August 2018 VIE are no longer recourse to the Company.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table details certain information related to the December 2014 VIE as of December 31, 2019 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Current Face
|
|
Fair Value
|
|
Coupon
|
|
Yield
|
|
Life (Years) (1)
|
Consolidated tranche (2)
|
$
|
7,204
|
|
|
$
|
7,230
|
|
|
3.46
|
%
|
|
4.11
|
%
|
|
1.96
|
Retained tranche
|
7,851
|
|
|
6,608
|
|
|
5.37
|
%
|
|
18.14
|
%
|
|
7.64
|
Total resecuritized asset (3)
|
$
|
15,055
|
|
|
$
|
13,838
|
|
|
4.46
|
%
|
|
10.81
|
%
|
|
4.92
|
(1)This is based on projected life. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
(2)As of December 31, 2019, the Company has recorded secured financing of $7.2 million on the consolidated balance sheets in the "Securitized debt, at fair value" line item. The Company recorded the proceeds from the issuance of the secured financing in the "Cash Flows from Financing Activities" section of the consolidated statement of cash flows at the time of securitization.
(3)As of December 31, 2019, the fair market value of the total resecuritized asset is included in the Company's consolidated balance sheets as "Non-Agency."
4. Loans
Residential mortgage loans
In January 2020, the Company purchased a residential mortgage loan portfolio with a gross aggregate unpaid principal balance and a gross acquisition fair value of $481.7 million and $450.3 million, respectively.
In September 2020, the Company purchased a residential mortgage loan portfolio with a gross aggregate unpaid principal balance and a gross acquisition fair value of $71.7 million and $60.2 million, respectively. This loan portfolio was simultaneously securitized and is included within the September 2020 VIE.
For the year ended December 31, 2020, the Company sold 2,412 loans for total proceeds of $397.9 million, recording realized gains of $1.9 million and realized losses of $59.3 million. For the year ended December 31, 2019, the Company sold 79 loans for total proceeds of $12.8 million, recording realized gains of $1.0 million and realized losses of $0.2 million.
The table below details information regarding the Company’s residential mortgage loan portfolio as of December 31, 2020 and December 31, 2019 ($ in thousands). The gross unrealized gains/(losses) stated in the tables below represents inception to date unrealized gains/(losses).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
Weighted Average
|
As of
|
Unpaid Principal
Balance
|
|
Premium
(Discount)
|
|
Amortized Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Coupon
|
|
Yield
|
|
Life
(Years) (1)
|
December 31, 2020 (2)
|
$
|
500,980
|
|
|
$
|
(69,007)
|
|
|
$
|
431,973
|
|
|
$
|
13,640
|
|
|
$
|
(10,172)
|
|
|
$
|
435,441
|
|
|
3.58
|
%
|
|
5.69
|
%
|
|
6.67
|
December 31, 2019 (3)
|
464,041
|
|
|
(55,219)
|
|
|
408,822
|
|
|
9,065
|
|
|
(102)
|
|
|
417,785
|
|
|
4.09
|
%
|
|
5.72
|
%
|
|
7.36
|
(1)This is based on projected life. Typically, actual maturities of residential mortgage loans are shorter than stated contractual maturities. Maturities are affected by the lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
(2)As of December 31, 2020, the Company’s residential mortgage loan portfolio was comprised of 3,273 conventional loans with original loan balances between $5.6 thousand and $3.4 million. Additionally, the Company had residential mortgage loans that were in the process of foreclosure with a fair value of $37.1 million.
(3)As of December 31, 2019, the Company’s residential mortgage loan portfolio was comprised of 3,413 conventional loans with original loan balances between $3.8 thousand and $3.4 million. Additionally, the Company had residential mortgage loans that were in the process of foreclosure with a fair value of $35.6 million.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The table below details information regarding the Company’s re-performing and non-performing residential mortgage loans as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Fair Value
|
|
Unpaid Principal
Balance
|
|
Fair Value
|
|
Unpaid Principal
Balance
|
Re-Performing
|
$
|
312,733
|
|
|
$
|
347,359
|
|
|
$
|
330,234
|
|
|
$
|
357,678
|
|
Non-Performing
|
113,976
|
|
|
134,129
|
|
|
87,551
|
|
|
106,363
|
|
Other (1)
|
8,732
|
|
|
19,492
|
|
|
—
|
|
|
—
|
|
|
$
|
435,441
|
|
|
$
|
500,980
|
|
|
$
|
417,785
|
|
|
$
|
464,041
|
|
(1)Represents residual positions where the Company consolidates a securitization and the positions are recorded on the Company's books as residential mortgage loans. There may be limited data available regarding the underlying collateral of such securitizations.
As described in Note 2, prior to the adoption of ASU 2016-13, the Company evaluated loans for OTTI on at least a quarterly basis. Please refer to Note 2 for the Company's treatment of OTTI. For the year ended December 31, 2019, the Company recognized $0.2 million of OTTI on certain loan pools, which is included in the "Net realized gain/(loss)" line item on the consolidated statement of operations. The Company recorded the $0.2 million of OTTI where the fair values of the loan pools were less than their carrying amounts. The $0.2 million related to a loan pool with an unpaid principal balance of $153.2 million, a fair value of $144.8 million and an average fair value of $74.8 million for the year ended December 31, 2019. The Company recognized $1.5 million of interest income on the loan pools where OTTI was taken during the year ended December 31, 2019.
The Company’s mortgage loan portfolio consisted of mortgage loans on residential real estate located throughout the United States. The following is a summary of the geographic concentration of credit risk within the Company’s mortgage loan portfolio as of December 31, 2020 and December 31, 2019, excluding any loans classified as Other above:
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Concentration of Credit Risk
|
December 31, 2020
|
|
December 31, 2019
|
Percentage of fair value of mortgage loans secured by properties in the following states representing 5% or more of fair value:
|
|
|
|
|
|
|
|
California
|
17
|
%
|
|
19
|
%
|
Florida
|
11
|
%
|
|
11
|
%
|
|
|
|
|
New York
|
10
|
%
|
|
9
|
%
|
|
|
|
|
New Jersey
|
6
|
%
|
|
6
|
%
|
|
|
|
|
The Company records interest income on an effective interest basis. The accretable discount is determined by the excess of the Company’s estimate of undiscounted principal, interest, and other cash flows expected to be collected over its initial investment in the mortgage loan. The following is a summary of the changes in the accretable portion of discounts for the years ended December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Beginning Balance
|
$
|
168,877
|
|
|
$
|
79,610
|
|
|
|
Additions
|
160,132
|
|
|
108,275
|
|
|
|
Accretion
|
(27,683)
|
|
|
(16,169)
|
|
|
|
Reclassifications from/(to) non-accretable difference
|
(10,295)
|
|
|
2,411
|
|
|
|
Disposals
|
(120,740)
|
|
|
(5,250)
|
|
|
|
Ending Balance
|
$
|
170,291
|
|
|
$
|
168,877
|
|
|
|
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Variable interest entities
The following table details certain information related to the assets and liabilities of the August 2019 VIE and September 2020 VIE, as further described in Note 2, as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
|
Residential mortgage loans, at fair value
|
|
$
|
426,604
|
|
|
$
|
255,171
|
|
Restricted cash
|
|
2,110
|
|
|
—
|
|
Other assets
|
|
3,705
|
|
|
898
|
|
Total assets
|
|
$
|
432,419
|
|
|
$
|
256,069
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Financing arrangements
|
|
$
|
25,590
|
|
|
$
|
24,584
|
|
Securitized debt, at fair value
|
|
355,159
|
|
|
217,118
|
|
Other liabilities
|
|
519
|
|
|
596
|
|
Total liabilities
|
|
$
|
381,268
|
|
|
$
|
242,298
|
|
The following table details additional information regarding loans and securitized debt related to the August 2019 VIE and September 2020 VIE as of December 31, 2020 and December 31, 2019 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
As of:
|
|
Current Unpaid Principal Balance
|
|
Fair Value
|
|
Coupon
|
|
Yield
|
|
Life (Years) (1)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
August 2019 VIE
|
Residential mortgage loans
|
$
|
238,487
|
|
|
$
|
222,282
|
|
|
3.79
|
%
|
|
5.44
|
%
|
|
6.86
|
|
Securitized debt
|
197,955
|
|
|
196,338
|
|
|
2.97
|
%
|
|
3.01
|
%
|
|
5.20
|
September 2020 VIE
|
Residential mortgage loans
|
$
|
242,859
|
|
|
$
|
204,322
|
|
|
3.37
|
%
|
|
5.80
|
%
|
|
6.70
|
|
Securitized debt
|
158,676
|
|
|
158,821
|
|
|
2.98
|
%
|
|
2.98
|
%
|
|
2.17
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
August 2019 VIE
|
Residential mortgage loans
|
$
|
263,956
|
|
|
$
|
255,171
|
|
|
3.96
|
%
|
|
5.11
|
%
|
|
7.66
|
|
Securitized debt
|
217,455
|
|
|
217,118
|
|
|
2.92
|
%
|
|
2.86
|
%
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
(1)This is based on projected life. Typically, actual maturities of investments and loans are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
The holders of the securitized debt have no recourse to the general credit of the Company. The Company has no obligation to provide any other explicit or implicit support to the August 2019 VIE and September 2020 VIE.
Commercial loans
For the year ended December 31, 2020, the Company sold two commercial loans, for total proceeds of $36.9 million, recording realized losses of $6.5 million. For the year ended December 31, 2019, the Company did not sell any commercial loans. Refer to Note 16 for more information on sales subsequent to year end.
During the fourth quarter of 2020, the Company and the borrower of Loan L entered into a modification agreement to, among other things, require the borrower to pay previously deferred interest in full, defer interest for the following 12-month period and require funding of capital reserves by the borrower. The loan was placed on non-accrual status upon modification. As a result of the modification, the loan is classified as a troubled debt restructuring under GAAP.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following tables present detail on the Company’s commercial loan portfolio as of December 31, 2020 and December 31, 2019 ($ in thousands). The gross unrealized gains/(losses) columns in the tables below represent inception to date unrealized gains/(losses).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Loan (1)(2)
|
|
Current Face
|
|
Premium
(Discount)
|
|
Amortized Cost
|
|
|
|
Gross Unrealized Losses
|
|
Fair Value (3)
|
|
Coupon (4)
|
|
Yield (5)
|
|
Life
(Years)
(6)
|
|
|
Extended
Maturity
Date (7)
|
|
Location
|
|
Collateral Type
|
Commercial Loans, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan G (8)(9)
|
|
$
|
59,451
|
|
|
$
|
—
|
|
|
$
|
59,451
|
|
|
|
|
$
|
(3,940)
|
|
|
$
|
55,511
|
|
|
5.27
|
%
|
|
5.27
|
%
|
|
1.54
|
|
|
July 9, 2022
|
|
CA
|
|
Condo, Retail, Hotel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan K (10)
|
|
15,787
|
|
|
—
|
|
|
15,787
|
|
|
|
|
(1,100)
|
|
|
14,687
|
|
|
10.00
|
%
|
|
10.83
|
%
|
|
1.27
|
|
|
February 9, 2024
|
|
NY
|
|
Hotel, Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan L (10)
|
|
51,000
|
|
|
(337)
|
|
|
50,663
|
|
|
|
|
(9,312)
|
|
|
41,351
|
|
|
N/A
|
|
N/A
|
|
3.61
|
|
|
July 22, 2024
|
|
IL
|
|
Hotel, Retail
|
|
|
126,238
|
|
|
(337)
|
|
|
125,901
|
|
|
|
|
(14,352)
|
|
|
111,549
|
|
|
3.73
|
%
|
|
4.05
|
%
|
|
2.34
|
|
|
|
|
|
|
|
Commercial Loans Held for Sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan I (11)(12)
|
|
15,929
|
|
|
(175)
|
|
|
15,754
|
|
|
|
|
(1,795)
|
|
|
13,959
|
|
|
11.50
|
%
|
|
12.23
|
%
|
|
2.22
|
|
|
February 9, 2023
|
|
MN
|
|
Office, Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
142,167
|
|
|
$
|
(512)
|
|
|
$
|
141,655
|
|
|
|
|
$
|
(16,147)
|
|
|
$
|
125,508
|
|
|
4.60
|
%
|
|
4.96
|
%
|
|
2.33
|
|
|
|
|
|
|
|
(1)The Company has the contractual right to receive a balloon payment for each loan.
(2)Refer to Note 12 "Commitments and Contingencies" for details on the Company's commitments on its Commercial Loans as of December 31, 2020.
(3)Pricing is reflective of marks on unfunded commitments.
(4)Each commercial loan investment has a variable coupon rate.
(5)Yield includes any exit fees.
(6)Actual maturities of commercial mortgage loans may be shorter or longer than stated contractual maturities. Maturities are affected by prepayments of principal.
(7)Represents the maturity date of the last possible extension option.
(8)Loan G is a first mortgage loan.
(9)Loan G has been amended and has been extended to its extended maturity date upon reaching its initial maturity of July 9, 2020. Subsequent to year end, the Company sold Loan G. Refer to Note 16 for more information.
(10)Loan K and Loan L are comprised of first mortgage and mezzanine loans.
(11)Loan I is a mezzanine loan.
(12)During the fourth quarter, the Company and the borrower of Loan I entered into a modification agreement to, among other things, extend the term of the Loan, allow for a portion of the interest to be deferred and increase the capital commitment amount by $6.0 million. This loan was classified as held for sale during the fourth quarter in accordance with the Company's accounting policy as detailed in Note 2. Subsequent to year end, the Company sold Loan I. Refer to Note 16 for more information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Loan (1)
|
|
Current Face
|
|
Premium
(Discount)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
|
Fair Value
|
|
Coupon (2)
|
|
Yield (3)
|
|
Life
(Years) (4)
|
|
|
Extended
Maturity
Date (5)
|
|
Location
|
|
Collateral Type
|
Loan G (6)
|
|
$
|
45,856
|
|
|
$
|
—
|
|
|
$
|
45,856
|
|
|
$
|
—
|
|
|
|
$
|
45,856
|
|
|
6.46
|
%
|
|
6.46
|
%
|
|
0.53
|
|
|
July 9, 2022
|
|
CA
|
|
Condo, Retail, Hotel
|
Loan H (6)
|
|
36,000
|
|
|
—
|
|
|
36,000
|
|
|
—
|
|
|
|
36,000
|
|
|
5.49
|
%
|
|
5.49
|
%
|
|
0.19
|
|
|
June 9, 2020
|
|
AZ
|
|
Office
|
Loan I (7)
|
|
11,992
|
|
|
(184)
|
|
|
11,808
|
|
|
184
|
|
|
|
11,992
|
|
|
12.21
|
%
|
|
14.51
|
%
|
|
1.04
|
|
|
February 9, 2023
|
|
MN
|
|
Office, Retail
|
Loan J (6)
|
|
4,674
|
|
|
—
|
|
|
4,674
|
|
|
—
|
|
|
|
4,674
|
|
|
6.36
|
%
|
|
6.36
|
%
|
|
2.12
|
|
|
January 1, 2024
|
|
NY
|
|
Hotel, Retail
|
Loan K (8)
|
|
9,164
|
|
|
—
|
|
|
9,164
|
|
|
—
|
|
|
|
9,164
|
|
|
10.71
|
%
|
|
11.86
|
%
|
|
1.72
|
|
|
February 22, 2024
|
|
NY
|
|
Hotel, Retail
|
Loan L (8)
|
|
51,000
|
|
|
(502)
|
|
|
50,498
|
|
|
502
|
|
|
|
51,000
|
|
|
6.16
|
%
|
|
6.50
|
%
|
|
4.63
|
|
|
July 22, 2024
|
|
IL
|
|
Hotel, Retail
|
|
|
$
|
158,686
|
|
|
$
|
(686)
|
|
|
$
|
158,000
|
|
|
$
|
686
|
|
|
|
$
|
158,686
|
|
|
6.82
|
%
|
|
7.17
|
%
|
|
1.92
|
|
|
|
|
|
|
|
(1)The Company has the contractual right to receive a balloon payment for each loan.
(2)Each commercial loan investment has a variable coupon rate.
(3)Yield includes any exit fees.
(4)Actual maturities of commercial mortgage loans may be shorter or longer than stated contractual maturities. Maturities are affected by prepayments of principal.
(5)Represents the maturity date of the last possible extension option.
(6)Loan G, Loan H, and Loan J are first mortgage loans.
(7)Loan I is a mezzanine loan.
(8)Loan K and Loan L are comprised of first mortgage and mezzanine loans.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Fair value measurements
As described in Note 2, the fair value of financial instruments that are recorded at fair value is determined by the Manager, subject to oversight of the Company’s Board of Directors, and in accordance with ASC 820, "Fair Value Measurements and Disclosures." When possible, management determines fair value using third-party data sources. ASC 820 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable.
Values for the Company’s securities, Excess MSRs, securitized debt of the December 2014 VIE and derivatives are based upon prices obtained from third-party pricing services, which are indicative of market activity. The evaluation methodology of the Company’s third-party pricing services incorporates commonly used market pricing methods, including a spread measurement to various indices such as the one-year constant maturity treasury and LIBOR, which are observable inputs. The evaluation also considers the underlying characteristics of each investment, which are also observable inputs, including: coupon; maturity date; loan age; reset date; collateral type; periodic and life cap; geography; and prepayment speeds. The Company collects and considers current market intelligence on all major markets, including benchmark security evaluations and bid-lists from various sources, when available. As part of the Company’s risk management process, the Company reviews and analyzes all prices obtained by comparing prices to recently completed transactions involving the same or similar investments on or near the reporting date. If, in the opinion of the Manager, one or more prices reported to the Company are not reliable or unavailable, the Manager reviews the fair value based on characteristics of the investment it receives from the issuer and available market information.
In valuing its derivatives, the Company considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement, from the perspective of both the Company and its counterparties. All of the Company’s derivatives are either subject to bilateral collateral arrangements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd Frank Act"). For swaps cleared under the Dodd Frank Act, a Central Counterparty Clearing House ("CCCH") now stands between the Company and the over-the-counter derivative counterparties. In order to access clearing, the Company has entered into clearing agreements with Futures Commissions Merchants ("FCMs").
The daily exchange of variation margin associated with a CCCH centrally cleared derivative instrument is legally characterized as the daily settlement of the derivative instrument itself. Accordingly, the Company accounts for the daily receipt or payment of variation margin associated with its centrally cleared interest rate swaps and futures as a direct reduction to the carrying value of the interest rate swap and future derivative asset or liability, respectively. The carrying amount of centrally cleared interest rate swaps and futures reflected in the Company’s consolidated balance sheets is equal to the unsettled fair value of such instruments. See Note 7 for more information.
In determining the fair value of the Company's mortgage loans and securitized debt relating to the August 2019 VIE and the September 2020 VIE, the Company considers data such as loan origination information, additional updated borrower information, loan servicing data, as available, forward interest rates, general economic conditions, home price index forecasts and valuations of the underlying properties. The variables considered most significant to the determination of the fair value of the Company's mortgage loans include market-implied discount rates, projections of default rates, delinquency rates, prepayment rates, loss severity, loan-to-value ratios, and recovery rates. Projections of default and prepayment rates are impacted by other variables such as reperformance rates and timeline to liquidation. The Company uses loan level data and macro-economic inputs to generate loss adjusted cash flows and other information in determining the fair value of its mortgage loans. Because of the inherent uncertainty of such valuation, the fair values established for mortgage loans held by the Company may differ from the fair values that would have been established if a ready market existed for these mortgage loans.
Management may also base its valuation on prices obtained from a third-party pricing service provider to assess and corroborate the valuation of a selection of investments in the Company’s loan portfolio and the Company's investment in Arc Home on a periodic basis. These third-party pricing service providers conduct independent valuation analyses based on a review of source documents, available market data, and comparable investments. The analyses provided by valuation service providers are reviewed and considered by the Manager.
TBA instruments are similar in form to the Company’s Agency RMBS portfolio, and the Company therefore estimates fair value based on similar methods.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Cash equivalents may include investments in money market funds that invest primarily in short term U.S. Treasury and Agency securities. These cash equivalent instruments are valued at their market quoted prices, which generally approximate cost plus accrued interest.
Refer to Note 2 for more information on changes regarding the Company's leveling policy.
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Agency RMBS:
|
|
|
|
|
|
|
|
30 Year Fixed Rate
|
$
|
—
|
|
|
$
|
518,352
|
|
|
$
|
—
|
|
|
$
|
518,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Investments:
|
|
|
|
|
|
|
|
Non-Agency RMBS (1)
|
—
|
|
|
35,070
|
|
|
3,100
|
|
|
38,170
|
|
Non-Agency RMBS Interest Only
|
—
|
|
|
236
|
|
|
—
|
|
|
236
|
|
|
|
|
|
|
|
|
|
CMBS (2)
|
—
|
|
|
52,485
|
|
|
—
|
|
|
52,485
|
|
CMBS Interest Only
|
—
|
|
|
4,303
|
|
|
—
|
|
|
4,303
|
|
Residential mortgage loans
|
—
|
|
|
2,134
|
|
|
433,307
|
|
|
435,441
|
|
Commercial loans
|
—
|
|
|
—
|
|
|
125,508
|
|
|
125,508
|
|
Excess mortgage servicing rights
|
—
|
|
|
—
|
|
|
3,158
|
|
|
3,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AG Arc (3)
|
—
|
|
|
—
|
|
|
45,341
|
|
|
45,341
|
|
Total Assets Measured at Fair Value
|
$
|
—
|
|
|
$
|
612,580
|
|
|
$
|
610,414
|
|
|
$
|
1,222,994
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Securitized debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(355,159)
|
|
|
$
|
(355,159)
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
—
|
|
|
(68)
|
|
|
—
|
|
|
(68)
|
|
Total Liabilities Measured at Fair Value
|
$
|
—
|
|
|
$
|
(68)
|
|
|
$
|
(355,159)
|
|
|
$
|
(355,227)
|
|
(1)Non-Agency RMBS is comprised of Prime, Alt-A/Subprime, Non-US RMBS, and Re/Non-Performing Securities.
(2)CMBS is comprised of Conduit, Single-Asset/Single-Borrower and Freddie Mac K-Series CMBS.
(3)Refer to Note 2 for more information on the Company's accounting policies with regard to cash equivalents, if applicable, and AG Arc. The table above includes the Company's investment in AG Arc, which is included in its Investments in Debt and Equity of Affiliates line item on the consolidated balance sheets, as the Company has chosen to elect the fair value option with respect to its investment pursuant to ASC 825.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Agency RMBS:
|
|
|
|
|
|
|
|
30 Year Fixed Rate
|
$
|
—
|
|
|
$
|
2,241,298
|
|
|
$
|
—
|
|
|
$
|
2,241,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Only
|
—
|
|
|
74,141
|
|
|
—
|
|
|
74,141
|
|
Credit Investments:
|
|
|
|
|
|
|
|
Non-Agency RMBS (1)
|
—
|
|
|
86,281
|
|
|
630,115
|
|
|
716,396
|
|
Non-Agency RMBS Interest Only
|
—
|
|
|
—
|
|
|
1,074
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
CMBS (2)
|
—
|
|
|
2,365
|
|
|
366,566
|
|
|
368,931
|
|
CMBS Interest Only
|
—
|
|
|
—
|
|
|
47,992
|
|
|
47,992
|
|
Residential mortgage loans
|
—
|
|
|
—
|
|
|
417,785
|
|
|
417,785
|
|
Commercial loans
|
—
|
|
|
—
|
|
|
158,686
|
|
|
158,686
|
|
Excess mortgage servicing rights
|
—
|
|
|
—
|
|
|
17,775
|
|
|
17,775
|
|
Cash equivalents (3)
|
53,243
|
|
|
—
|
|
|
—
|
|
|
53,243
|
|
Derivative assets
|
—
|
|
|
2,282
|
|
|
—
|
|
|
2,282
|
|
AG Arc (3)
|
—
|
|
|
—
|
|
|
28,546
|
|
|
28,546
|
|
Total Assets Measured at Fair Value
|
$
|
53,243
|
|
|
$
|
2,406,367
|
|
|
$
|
1,668,539
|
|
|
$
|
4,128,149
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Securitized debt
|
$
|
—
|
|
|
$
|
(151,933)
|
|
|
$
|
(72,415)
|
|
|
$
|
(224,348)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
(122)
|
|
|
(289)
|
|
|
—
|
|
|
(411)
|
|
Total Liabilities Measured at Fair Value
|
$
|
(122)
|
|
|
$
|
(152,222)
|
|
|
$
|
(72,415)
|
|
|
$
|
(224,759)
|
|
(1)Non-Agency RMBS is comprised of Prime, Alt-A/Subprime, Non-US RMBS, Re/Non-Performing Securities and Land Related Financing.
(2)CMBS is comprised of Conduit, Single-Asset/Single-Borrower and Freddie Mac K-Series CMBS.
(3)Refer to Note 2 for more information on the Company's accounting policies with regard to cash equivalents, if applicable, and AG Arc. The table above includes the Company's investment in AG Arc, which is included in its Investments in Debt and Equity of Affiliates line item on the consolidated balance sheets, as the Company has chosen to elect the fair value option with respect to its investment pursuant to ASC 825.
The Company did not have any transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy during the years ended December 31, 2020 and December 31, 2019.
Refer to the tables below for details on transfers between the Level 3 and Level 2 categories under ASC 820. Transfers into the Level 3 category of the fair value hierarchy occur due to instruments exhibiting indications of reduced levels of market transparency. Transfers out of the Level 3 category of the fair value hierarchy occur due to instruments exhibiting indications of increased levels of market transparency, which are detailed in Note 2. Indications of increases or decreases in levels of market transparency include a change in observable transactions or executable quotes involving these instruments or similar instruments. Changes in these indications could impact price transparency, and thereby cause a change in level designations in future periods.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following tables present additional information about the Company’s assets and liabilities which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020 (in thousands)
|
|
Non-Agency
RMBS
|
|
Non-Agency
RMBS Interest Only
|
|
|
|
CMBS
|
|
CMBS
Interest
Only
|
|
Residential
Mortgage
Loans
|
|
Commercial
Loans
|
|
Excess
Mortgage
Servicing
Rights
|
|
AG Arc
|
|
Securitized
debt
|
Beginning balance
|
$
|
630,115
|
|
|
$
|
1,074
|
|
|
|
|
$
|
366,566
|
|
|
$
|
47,992
|
|
|
$
|
417,785
|
|
|
$
|
158,686
|
|
|
$
|
17,775
|
|
|
$
|
28,546
|
|
|
$
|
(72,415)
|
|
Transfers (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into level 3
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(151,933)
|
|
Transfers out of level 3
|
(210,709)
|
|
|
(1,074)
|
|
|
|
|
(170,816)
|
|
|
(22,055)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,230
|
|
Purchases/Reclassifications
|
1,559
|
|
|
—
|
|
|
|
|
3,540
|
|
|
—
|
|
|
536,710
|
|
|
33,254
|
|
|
20
|
|
|
—
|
|
|
—
|
|
Issuances of Securitized Debt
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(166,487)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital distributions
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,466)
|
|
|
—
|
|
Proceeds from sales/redemptions
|
(362,199)
|
|
|
—
|
|
|
|
|
(148,111)
|
|
|
(21,995)
|
|
|
(393,876)
|
|
|
(36,924)
|
|
|
(8,460)
|
|
|
—
|
|
|
—
|
|
Proceeds from settlement
|
(12,636)
|
|
|
—
|
|
|
|
|
(9,367)
|
|
|
—
|
|
|
(63,882)
|
|
|
(6,369)
|
|
|
—
|
|
|
—
|
|
|
29,312
|
|
Total net gains/(losses) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income
|
(43,030)
|
|
|
—
|
|
|
|
|
(41,812)
|
|
|
(3,942)
|
|
|
(63,430)
|
|
|
(23,139)
|
|
|
(6,177)
|
|
|
23,261
|
|
|
(866)
|
|
Ending Balance
|
$
|
3,100
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
433,307
|
|
|
$
|
125,508
|
|
|
$
|
3,158
|
|
|
$
|
45,341
|
|
|
$
|
(355,159)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized appreciation/(depreciation) for level 3 assets/liabilities still held as of December 31, 2020 (3)
|
$
|
(106)
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,593)
|
|
|
$
|
(16,669)
|
|
|
$
|
(2,564)
|
|
|
$
|
23,261
|
|
|
$
|
(866)
|
|
(1)Transfers are assumed to occur at the beginning of the period. For the year ended December 31, 2020, the Company transferred 50 Non-Agency RMBS securities, 2 Non-Agency Interest Only securities, 32 CMBS securities, 15 CMBS Interest Only securities and 1 Securitized Debt security into the Level 2 category from the Level 3 category under the fair value hierarchy of ASC 820. For the year ended December 31, 2020, the Company transferred 1 securitized debt security into the Level 3 category from the Level 2 category under the fair value hierarchy of ASC 820. Refer to Note 2 for more information on changes regarding the Company's leveling policy.
(2)Gains/(losses) are recorded in the following line items in the consolidated statement of operations:
|
|
|
|
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
$
|
(59,812)
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(3,254)
|
|
Net realized gain/(loss)
|
(119,330)
|
|
Equity in earnings/(loss) from affiliates
|
23,261
|
|
Total
|
$
|
(159,135)
|
|
(3)Unrealized gains/(losses) are recorded in the following line items in the consolidated statement of operations:
|
|
|
|
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
$
|
(23,368)
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(3,430)
|
|
Equity in earnings/(loss) from affiliates
|
23,261
|
|
Total
|
$
|
(3,537)
|
|
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019 (in thousands)
|
|
Non-Agency
RMBS
|
|
Non-Agency
RMBS Interest Only
|
|
ABS
|
|
CMBS
|
|
CMBS Interest
Only
|
|
Residential
Mortgage
Loans
|
|
Commercial
Loans
|
|
Excess
Mortgage
Servicing
Rights
|
|
AG Arc
|
|
Securitized
debt
|
Beginning balance
|
$
|
491,554
|
|
|
$
|
3,099
|
|
|
$
|
21,160
|
|
|
$
|
211,054
|
|
|
$
|
50,331
|
|
|
$
|
186,096
|
|
|
$
|
98,574
|
|
|
$
|
26,650
|
|
|
$
|
20,360
|
|
|
$
|
(10,858)
|
|
Transfers (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into level 3
|
87,070
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfers out of level 3
|
(57,140)
|
|
|
—
|
|
|
—
|
|
|
(5,280)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchases/Reclassifications
|
261,847
|
|
|
—
|
|
|
1,632
|
|
|
208,871
|
|
|
5,123
|
|
|
263,110
|
|
|
102,619
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuances of Securitized Debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65,171)
|
|
Capital contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,836
|
|
|
—
|
|
Proceeds from sales/redemptions
|
(115,616)
|
|
|
—
|
|
|
(14,183)
|
|
|
(25,792)
|
|
|
(2,632)
|
|
|
(12,780)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Proceeds from settlement
|
(59,274)
|
|
|
—
|
|
|
(9,446)
|
|
|
(38,162)
|
|
|
—
|
|
|
(30,422)
|
|
|
(43,217)
|
|
|
—
|
|
|
—
|
|
|
3,618
|
|
Total net gains/(losses) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income
|
21,674
|
|
|
(2,025)
|
|
|
837
|
|
|
15,875
|
|
|
(4,830)
|
|
|
11,781
|
|
|
710
|
|
|
(8,875)
|
|
|
(9,650)
|
|
|
(4)
|
|
Ending Balance
|
$
|
630,115
|
|
|
$
|
1,074
|
|
|
$
|
—
|
|
|
$
|
366,566
|
|
|
$
|
47,992
|
|
|
$
|
417,785
|
|
|
$
|
158,686
|
|
|
$
|
17,775
|
|
|
$
|
28,546
|
|
|
$
|
(72,415)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized appreciation/(depreciation) for level 3 assets still held as of December 31, 2019 (3)
|
$
|
11,984
|
|
|
$
|
(529)
|
|
|
$
|
—
|
|
|
$
|
12,430
|
|
|
$
|
(4,704)
|
|
|
$
|
10,689
|
|
|
$
|
710
|
|
|
$
|
(6,240)
|
|
|
$
|
(9,650)
|
|
|
$
|
(4)
|
|
(1)Transfers are assumed to occur at the beginning of the period. For the year ended December 31, 2019, the Company transferred 14 Non-Agency RMBS securities into the Level 3 category from the Level 2 category and 6 Non-Agency RMBS securities and 2 CMBS security into the Level 2 category from the Level 3 category under the fair value hierarchy of ASC 820.
(2)Gains/(losses) are recorded in the following line items in the consolidated statement of operations:
|
|
|
|
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
$
|
33,256
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(8,879)
|
|
Net realized gain/(loss)
|
10,766
|
|
Equity in earnings/(loss) from affiliates
|
(9,650)
|
|
Total
|
$
|
25,493
|
|
(3)Unrealized gains/(losses) are recorded in the following line items in the consolidated statement of operations:
|
|
|
|
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
$
|
30,580
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(6,244)
|
|
Equity in earnings/(loss) from affiliates
|
(9,650)
|
|
Total
|
$
|
14,686
|
|
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following tables present a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of investments for which the Company has utilized Level 3 inputs to determine fair value.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class
|
|
Fair Value at December 31, 2020 (in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted Average) (1)
|
|
|
|
|
|
|
Yield
|
|
8.05% - 8.05% (8.05%)
|
Non-Agency RMBS
|
|
$
|
1,601
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
5.46% - 5.46% (5.46%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
5.37% - 5.37% (5.37%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
'-20.89% - -20.89% (-20.89%)
|
|
|
$
|
1,499
|
|
|
Consensus Pricing
|
|
Offered Quotes
|
|
91.59 - 91.59 (91.59)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
|
|
4.50% - 10.00% (5.01%)
|
Residential Mortgage Loans
|
|
$
|
426,709
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
4.30% - 9.31% (7.28%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
1.66% - 5.75% (2.58%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
-9.29% - 49.43% (15.68%)
|
|
|
$
|
6,598
|
|
|
Consensus Pricing
|
|
Offered Quotes
|
|
82.03 - 106.29 (99.96)
|
|
|
|
|
|
|
Yield
|
|
10.95% - 39.54% (14.09%)
|
Commercial Loans
|
|
$
|
125,508
|
|
|
Discounted Cash Flow
|
|
Credit Spread
|
|
1001 bps - 3304 bps (1279 bps)
|
|
|
|
|
|
|
Recovery Percentage (2)
|
|
100.00% - 100.00% (100.00%)
|
|
|
|
|
|
|
Loan-to-Value
|
|
43.60% - 97.50% (62.04%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
|
|
9.00% - 9.70% (9.08%)
|
Excess Mortgage Servicing Rights
|
|
$
|
3,073
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
11.11% - 15.51% (12.49%)
|
|
$
|
85
|
|
|
Consensus Pricing
|
|
Offered Quotes
|
|
0.25 - 0.25 (0.25)
|
AG Arc
|
|
$
|
45,341
|
|
|
Comparable Multiple
|
|
Book Value Multiple
|
|
1.05x - 1.05x (1.05x)
|
|
|
|
|
|
|
|
|
|
Liability Class
|
|
Fair Value at December 31, 2020 (in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
|
|
|
|
|
Yield
|
|
2.45% - 5.50% (2.98%)
|
Securitized debt
|
|
$
|
(355,159)
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
5.90% - 8.20% (7.17%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
1.94% - 3.46% (2.62%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
12.70% - 20.03% (16.75%)
|
(1)Amounts are weighted based on fair values.
(2)Represents the proportion of the principal expected to be collected relative to the loan balances as of December 31, 2020.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class
|
|
Fair Value at December 31, 2019 (in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted Average) (1)
|
|
|
|
|
|
|
Yield
|
|
1.71% - 100.00% (5.99%)
|
Non-Agency RMBS
|
|
$
|
625,537
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
0.00% - 100.00% (14.60%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
0.00% - 100.00% (2.93%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
0.00% - 100.00% (21.37%)
|
|
|
$
|
4,578
|
|
|
Consensus Pricing
|
|
Offered Quotes
|
|
100.00 - 100.00 (100.00)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
|
|
27.50% - 27.50% (27.50%)
|
Non-Agency RMBS Interest Only
|
|
$
|
1,074
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
18.00% - 18.00% (18.00%)
|
|
|
|
|
|
Projected Collateral Losses
|
|
2.00% - 2.00% (2.00%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
35.00% - 35.00% (35.00%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
|
|
0.00% - 13.89% (6.33%)
|
CMBS
|
|
$
|
366,566
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
0.00% - 0.00% (0.00%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
0.00% - 0.00% (0.00%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
0.00% - 0.00% (0.00%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
|
|
'-2.57% - 9.86% (4.19%)
|
CMBS Interest Only
|
|
$
|
47,992
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
99.00% - 100.00% (99.93%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
0.00% - 0.00% (0.00%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
0.00% - 0.00% (0.00%)
|
|
|
|
|
|
|
Yield
|
|
4.00% - 8.25% (4.81%)
|
Residential Mortgage Loans
|
|
$
|
364,107
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
4.81% - 9.04% (7.78%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
1.64% - 4.94% (2.36%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
'-7.32% - 36.91% (23.15%)
|
|
|
$
|
53,678
|
|
|
Recent Transaction
|
|
Cost
|
|
N/A
|
|
|
|
|
|
|
Yield
|
|
6.16% - 10.76% (6.86%)
|
Commercial Loans
|
|
$
|
60,164
|
|
|
Discounted Cash Flow
|
|
Credit Spread
|
|
440 bps - 900 bps (510 bps)
|
|
|
|
|
|
|
Recovery Percentage (2)
|
|
100.00% - 100.00% (100.00%)
|
|
|
$
|
98,522
|
|
|
Consensus Pricing
|
|
Offered Quotes
|
|
100.00 - 100.00 (100.00)
|
Excess Mortgage Servicing Rights
|
|
|
|
|
|
Yield
|
|
8.50% - 11.60% (9.20%)
|
|
$
|
17,633
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
9.35% - 16.90% (12.36%)
|
|
|
$
|
142
|
|
|
Consensus Pricing
|
|
Offered Quotes
|
|
0.01 - 0.40 (0.40)
|
AG Arc
|
|
$
|
28,546
|
|
|
Comparable Multiple
|
|
Book Value Multiple
|
|
1.0x - 1.0x (1.0x)
|
|
|
|
|
|
|
|
|
|
Liability Class
|
|
Fair Value at December 31, 2019 (in thousands)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
|
|
|
|
|
Yield
|
|
2.98% - 4.70% (3.54%)
|
Securitized debt
|
|
$
|
(72,415)
|
|
|
Discounted Cash Flow
|
|
Projected Collateral Prepayments
|
|
10.00% - 10.04% (10.04%)
|
|
|
|
|
|
|
Projected Collateral Losses
|
|
2.04% - 3.50% (2.19%)
|
|
|
|
|
|
|
Projected Collateral Severities
|
|
20.13% - 45.00% (22.61%)
|
(1)Amounts are weighted based on fair values.
(2)Represents the proportion of the principal expected to be collected relative to the loan balances as of December 31, 2019.
As further described above, fair values for the Company’s securities portfolio are based upon prices obtained from third-party pricing services. Broker quotations may also be used. The significant unobservable inputs used in the fair value measurement of the Company’s securities are yields, prepayment rates, probability of default, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.
Also, as described above, valuation of the Company’s loan portfolio is determined by the Manager using third-party pricing services where available, valuation analyses from third-party pricing service providers, or model-based pricing. The evaluation considers the underlying characteristics of each loan, which are observable inputs, including: coupon, maturity date, loan age, reset date, collateral type, periodic and life cap, geography, and prepayment speeds. The valuations of commercial loans also require significant judgments, which include assumptions regarding capitalization rates, re-performance rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
lenders and other factors deemed necessary by management. Changes in the market environment and other events that may occur over the life of our investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently estimated. If applicable, analyses provided by valuation service providers are reviewed and considered by the Manager.
6. Financing arrangements
The following table presents a summary of the Company's financing arrangements as of December 31, 2020 and December 31, 2019 ($ in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Weighted Average
|
|
Collateral (1)(2)
|
|
|
|
Carrying Value
|
|
Stated Maturity
|
|
Funding Cost
|
|
Life (Years)
|
|
Amortized Cost Basis
|
|
Fair Value
|
|
Carrying Value
|
Repurchase Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS
|
$
|
435,893
|
|
|
Jan 2021
|
|
0.21
|
%
|
|
0.04
|
|
$
|
459,684
|
|
|
$
|
460,949
|
|
|
$
|
2,109,278
|
|
Non-Agency RMBS
|
14,550
|
|
|
Jan 2021 - Apr 2021
|
|
2.34
|
%
|
|
0.08
|
|
24,009
|
|
|
28,653
|
|
|
565,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
24,881
|
|
|
Jan 2021 - Feb 2021
|
|
2.66
|
%
|
|
0.04
|
|
51,961
|
|
|
42,669
|
|
|
312,627
|
|
Residential Mortgage Loans
|
25,590
|
|
|
Mar 2021
|
|
2.38
|
%
|
|
0.21
|
|
44,520
|
|
|
46,571
|
|
|
131,594
|
|
Commercial Loans
|
—
|
|
|
N/A
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,017
|
|
Total Repurchase Agreements
|
$
|
500,914
|
|
|
|
|
0.51
|
%
|
|
0.05
|
|
$
|
580,174
|
|
|
$
|
578,842
|
|
|
$
|
3,121,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Facilities (3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans (5)(6)(7)
|
$
|
63,133
|
|
|
Aug 2023
|
|
2.79
|
%
|
|
2.60
|
|
$
|
110,114
|
|
|
$
|
96,862
|
|
|
$
|
89,956
|
|
Residential Mortgage Loans (8)
|
—
|
|
|
N/A
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,546
|
|
Total Revolving Facilities
|
$
|
63,133
|
|
|
|
|
2.79
|
%
|
|
2.60
|
|
$
|
110,114
|
|
|
$
|
96,862
|
|
|
111,502
|
|
Total Financing Arrangements
|
$
|
564,047
|
|
|
|
|
0.76
|
%
|
|
0.33
|
|
$
|
690,288
|
|
|
$
|
675,704
|
|
|
$
|
3,233,468
|
|
(1)The Company also had $1.4 million of cash pledged under repurchase agreements as of December 31, 2020.
(2)The amounts pledged as collateral under Residential Mortgage Loans represent certain of the Company's retained interests in securitizations. Refer to Note 4 for more information on the August 2019 VIE and September 2020 VIE.
(3)All revolving facilities listed above are interest only until maturity.
(4)Under the terms of the Company’s financing agreements, the Company's financial counterparties may, in certain cases, sell or re-hypothecate the pledged collateral.
(5)Increasing the Company's borrowing capacity under this facility requires consent of the lender.
(6)The funding cost on this facility is inclusive of the impact of deferred financing costs. The stated rate was 2.30% as of December 31, 2020.
(7)The borrowing capacity on the commercial loan revolving facility is $100 million.
(8)During the second quarter of 2020, this facility was paid off.
The following table presents contractual maturity information about the Company's borrowings under repurchase agreements and revolving facilities at December 31, 2020 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 30 Days
|
|
Over 30 Days to 3 Months
|
|
Over 3 Months to 12 Months
|
|
Over 12 Months
|
|
Total
|
Repurchase Agreements
|
|
|
|
|
|
|
|
|
|
Agency RMBS
|
$
|
435,893
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
435,893
|
|
Non-Agency RMBS
|
9,166
|
|
|
4,340
|
|
|
1,044
|
|
|
—
|
|
|
14,550
|
|
CMBS
|
18,534
|
|
|
6,347
|
|
|
—
|
|
|
—
|
|
|
24,881
|
|
Residential Mortgage Loans
|
—
|
|
|
25,590
|
|
|
—
|
|
|
—
|
|
|
25,590
|
|
Total Repurchase Agreements
|
$
|
463,593
|
|
|
$
|
36,277
|
|
|
$
|
1,044
|
|
|
$
|
—
|
|
|
$
|
500,914
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Facilities
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
63,133
|
|
|
$
|
63,133
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing Arrangements
|
$
|
463,593
|
|
|
$
|
36,277
|
|
|
$
|
1,044
|
|
|
$
|
63,133
|
|
|
$
|
564,047
|
|
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Repurchase agreements
A vast majority of the Company's financing arrangements have historically been effectuated through repurchase agreements. The Company pledges certain real estate securities and loans as collateral under repurchase agreements with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date. The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The Company calculates haircuts on its financing arrangements by dividing the equity on each borrowing by the current fair value of each investment. Repurchase agreements are accounted for as financings and require the repurchase of the transferred assets at the end of each agreement’s term, typically 30 to 90 days. The carrying amount of the Company’s repurchase agreements approximates fair value due to their short-term maturities or floating rate coupons. If the Company maintains the beneficial interest in the specific assets pledged during the term of the borrowing, it receives the related principal and interest payments. If the Company does not maintain the beneficial interest in the specific assets pledged during the term of the borrowing, it will have the related principal and interest payments remitted to it by the lender. Interest rates on these borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the borrowing at which time the Company may enter into a new borrowing arrangement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty. If the fair value of pledged assets declines due to changes in market conditions or the publishing of monthly security paydown factors, lenders typically would require the Company to post additional securities as collateral, pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, referred to as margin calls. The fair value of financial instruments pledged as collateral on the Company’s repurchase agreements disclosed in the tables below represent the Company’s fair value of such instruments which may differ from the fair value assigned to the collateral by its counterparties. The Company maintains a level of liquidity in order to meet these obligations. Under the terms of the Company’s master repurchase agreements, the counterparties may, in certain cases, sell or re-hypothecate the pledged collateral. If the fair value of pledged assets increases due to changes in market conditions, counterparties may be required to return collateral to us in the form of securities or cash or post additional collateral to us.
Counterparties
The Company has reduced its exposure to various counterparties, bringing the total number of counterparties with debt outstanding down from 30 as of December 31, 2019 to 5 as of December 31, 2020.
The following tables present information at December 31, 2020 and December 31, 2019 with respect to each counterparty that provides the Company with financing for which the Company had greater than 5% of its stockholders’ equity at risk, excluding stockholders’ equity at risk under financing through affiliated entities ($ in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Counterparty
|
|
Stockholders' Equity
at Risk
|
|
Weighted Average
Maturity (days)
|
|
Percentage of
Stockholders' Equity
|
BofA Securities, Inc.
|
|
$
|
28,091
|
|
|
19
|
|
6.9
|
%
|
Credit Suisse AG, Cayman Islands Branch
|
|
26,305
|
|
|
35
|
|
6.4
|
%
|
Barclays Capital Inc.
|
|
24,890
|
|
|
15
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Counterparty
|
|
Stockholders' Equity
at Risk
|
|
Weighted Average
Maturity (days)
|
|
Percentage of
Stockholders' Equity
|
|
|
|
|
|
|
|
Barclays Capital Inc
|
|
$
|
77,334
|
|
|
277
|
|
9.1
|
%
|
Citigroup Global Markets Inc.
|
|
50,263
|
|
|
22
|
|
5.9
|
%
|
Financial Covenants
The Company’s financing arrangements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions. Although specific to each financing arrangement, typical supplemental terms include requirements of minimum equity, leverage ratios, performance triggers or other financial ratios. As of December 31, 2020, the Company is in compliance with all of its financial covenants.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Other assets and liabilities
The following table details certain information related to the Company's "Other assets" and "Other liabilities" line items on its consolidated balance sheet as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Other assets
|
|
|
|
|
Interest receivable
|
|
$
|
2,962
|
|
|
$
|
13,548
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets, at fair value
|
|
—
|
|
|
2,282
|
|
Other assets
|
|
5,538
|
|
|
4,378
|
|
Due from broker
|
|
907
|
|
|
1,697
|
|
Total Other assets
|
|
$
|
9,407
|
|
|
$
|
21,905
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payable
|
|
$
|
853
|
|
|
$
|
10,941
|
|
Derivative liabilities, at fair value
|
|
68
|
|
|
411
|
|
Due to affiliates (1)
|
|
14,041
|
|
|
5,226
|
|
Accrued expenses
|
|
2,521
|
|
|
6,175
|
|
Taxes payable
|
|
—
|
|
|
815
|
|
Due to broker
|
|
1,272
|
|
|
1,107
|
|
Total Other liabilities
|
|
$
|
18,755
|
|
|
$
|
24,675
|
|
(1)Refer to Note 10 for more information related to the secured debt and other outstanding payables to affiliates.
Derivative assets and liabilities
The Company’s derivatives may include interest rate swaps ("swaps"), TBAs, and swaption contracts. They may also include Eurodollar Futures, U.S. Treasury Futures, British Pound Futures, and Euro Futures (collectively, "Futures"). Derivatives have not been designated as hedging instruments. The Company uses these derivatives and may also utilize other instruments to manage interest rate risk, including long and short positions in U.S. Treasury securities. The Company uses foreign currency forward contracts to manage foreign currency risk and to protect the value or to fix the amount of certain investments or cash flows in terms of U.S. dollars.
The following table presents the fair value of the Company's derivatives and other instruments and their balance sheet location at December 31, 2020 and December 31, 2019 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives and Other Instruments
|
|
Designation
|
|
Balance Sheet Location
|
|
December 31, 2020
|
|
December 31, 2019
|
Pay Fix/Receive Float Interest Rate Swap Agreements (1)
|
|
Non-Hedge
|
|
Other assets
|
|
$
|
—
|
|
|
$
|
199
|
|
Pay Fix/Receive Float Interest Rate Swap Agreements (1)
|
|
Non-Hedge
|
|
Other liabilities
|
|
(68)
|
|
|
(411)
|
|
|
|
|
|
|
|
|
|
|
Payer Swaptions
|
|
Non-Hedge
|
|
Other assets
|
|
—
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)As of December 31, 2020, the Company applied a reduction in fair value of $1.4 million and $0.2 million to its interest rate swap assets and liabilities, respectively, related to variation margin with a corresponding increase or decrease in restricted cash, respectively. As of December 31, 2019, the Company applied a reduction in fair value of $10.8 million and $2.2 million to its interest rate swap assets and liabilities, respectively, related to variation margin with a corresponding increase or decrease in restricted cash, respectively.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table summarizes information related to derivatives and other instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount of non-hedge derivatives and other instruments:
|
|
Notional Currency
|
|
December 31, 2020
|
|
December 31, 2019
|
Pay Fix/Receive Float Interest Rate Swap Agreements
|
|
USD
|
|
$
|
417,000
|
|
|
$
|
1,848,750
|
|
Payer Swaptions
|
|
USD
|
|
—
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short positions on British Pound Futures (1)
|
|
GBP
|
|
3,313
|
|
|
6,563
|
|
Short positions on Euro Futures (2)
|
|
EUR
|
|
—
|
|
|
1,500
|
|
|
|
|
|
|
|
|
(1)Each British Pound Future contract embodies £62,500 of notional value.
(2)Each Euro Future contract embodies €125,000 of notional value.
Derivative and other instruments eligible for offset are presented gross on the consolidated balance sheets as of December 31, 2020 and December 31, 2019. The Company has not offset or netted any derivatives or other instruments with any financial instruments or cash collateral posted or received.
The Company must post cash or securities as collateral on its derivative instruments when their fair value declines. This typically occurs when prevailing market rates change adversely, with the severity of the change also dependent on the term of the derivatives involved. The posting of collateral is generally bilateral, meaning that if the fair value of the Company’s derivatives increases, its counterparty will post collateral to it. As of December 31, 2020, the Company pledged cash of $10.8 million as collateral against certain derivatives. Of the $10.8 million of cash pledged as collateral against certain derivatives, $1.1 million represents amounts related to variation margin. As of December 31, 2019, the Company pledged real estate securities with a fair value of $3.0 million and cash of $32.1 million as collateral against certain derivatives. Of the $32.1 million of cash pledged as collateral against certain derivatives, $8.5 million represents amounts related to variation margin. The Company’s counterparties posted a de minimis amount of cash as collateral against certain derivatives as of December 31, 2019.
Interest rate swaps
To help mitigate exposure to increases in interest rates, the Company may use currently-paying and forward-starting, one- or three-month LIBOR-indexed, pay-fixed, receive-variable, interest rate swap agreements. This arrangement hedges the Company's exposure to higher interest rates because the variable-rate payments received on the swap agreements largely offset additional interest accruing on the related borrowings due to the higher interest rate, leaving the fixed-rate payments to be paid on the swap agreements as the Company’s effective borrowing rate, subject to certain adjustments including changes in spreads between variable rates on the swap agreements and actual borrowing rates.
As of December 31, 2020, the Company’s interest rate swap positions consisted of pay-fixed interest rate swaps. The following table presents information about the Company’s interest rate swaps as of December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Notional Amount
|
|
Weighted Average
Pay-Fixed Rate
|
|
Weighted Average
Receive-Variable Rate
|
|
Weighted Average
Years to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2025
|
|
$
|
296,000
|
|
|
0.39
|
%
|
|
0.23
|
%
|
|
4.76
|
2026
|
|
20,000
|
|
|
0.45
|
%
|
|
0.24
|
%
|
|
5.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2030
|
|
86,000
|
|
|
0.76
|
%
|
|
0.23
|
%
|
|
9.77
|
2031
|
|
15,000
|
|
|
0.95
|
%
|
|
0.24
|
%
|
|
10.01
|
|
|
|
|
|
|
|
|
|
Total/Wtd Avg
|
|
$
|
417,000
|
|
|
0.49
|
%
|
|
0.23
|
%
|
|
5.99
|
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 2019, the Company’s interest rate swap positions consisted of pay-fixed interest rate swaps. The following table presents information about the Company’s interest rate swaps as of December 31, 2019 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Notional Amount
|
|
Weighted Average
Pay-Fixed Rate
|
|
Weighted Average
Receive-Variable Rate
|
|
Weighted Average
Years to Maturity
|
2020
|
|
$
|
105,000
|
|
|
1.54
|
%
|
|
1.91
|
%
|
|
0.20
|
|
|
|
|
|
|
|
|
|
2022
|
|
743,000
|
|
|
1.64
|
%
|
|
1.91
|
%
|
|
2.68
|
2023
|
|
5,750
|
|
|
3.19
|
%
|
|
1.91
|
%
|
|
3.85
|
2024
|
|
650,000
|
|
|
1.52
|
%
|
|
1.90
|
%
|
|
4.80
|
|
|
|
|
|
|
|
|
|
2026
|
|
180,000
|
|
|
1.50
|
%
|
|
1.89
|
%
|
|
6.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2029
|
|
165,000
|
|
|
1.77
|
%
|
|
1.94
|
%
|
|
9.85
|
Total/Wtd Avg
|
|
$
|
1,848,750
|
|
|
1.60
|
%
|
|
1.91
|
%
|
|
4.32
|
TBAs
A to-be-announced security ("TBA") is a forward contract for the purchase or sale of Agency RMBS at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency RMBS delivered into or received from the contract upon the settlement date, published each month by the Securities Industry and Financial Markets Association, are not known at the time of the transaction. The Company may also choose, prior to settlement, to move the settlement of these securities out to a later date by entering into an offsetting short or long position (referred to as a pair off), net settling the paired off positions for cash, simultaneously purchasing or selling a similar TBA contract for a later settlement date. This transaction is commonly referred to as a dollar roll. The Agency RMBS purchased or sold for a forward settlement date are typically priced at a discount to Agency RMBS for settlement in the current month. This difference, or discount, is referred to as the price drop. The price drop is the economic equivalent of net interest carry income on the underlying Agency RMBS over the roll period (interest income less implied financing cost) and is commonly referred to as dollar roll income/(loss). Consequently, forward purchases of Agency RMBS and dollar roll transactions represent a form of off-balance sheet financing. Dollar roll income is recognized in the consolidated statement of operations in the line item "Unrealized gain/(loss) on derivative and other instruments, net."
The following tables present information about the Company’s TBAs for the years ended December 31, 2020 and December 31, 2019 (in thousands):
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For the Year Ended December 31, 2020
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Beginning
Notional
Amount
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Buys or Covers
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Sales or Shorts
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Ending Net
Notional
Amount
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Net Fair Value
as of Year End
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Net Receivable/(Payable)
from/to Broker
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Derivative
Asset
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Derivative
Liability
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TBAs - Long
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$
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—
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$
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728,000
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$
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(728,000)
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$
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—
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$
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—
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$
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—
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$
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—
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$
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—
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For the Year Ended December 31, 2019
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Beginning
Notional
Amount
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Buys or Covers
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Sales or Shorts
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Ending Net
Notional
Amount
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Net Fair Value
as of Year End
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Net Receivable/(Payable)
from/to Broker
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Derivative
Asset
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Derivative
Liability
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TBAs - Long
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$
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—
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$
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1,994,500
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$
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(1,994,500)
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$
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—
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$
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—
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$
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—
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$
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—
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$
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—
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TBAs - Short
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$
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—
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$
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485,000
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$
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(485,000)
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$
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—
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$
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—
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$
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—
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$
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—
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$
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—
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AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Gains/(losses) related to derivatives and other instruments
The following table summarizes gains/(losses) related to derivatives and other instruments (in thousands):
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Year Ended
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December 31, 2020
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December 31, 2019
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Included within Unrealized gain/(loss) on derivative and other instruments, net
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Interest Rate Swaps
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$
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(10,276)
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$
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(641)
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Eurodollar Futures
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—
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1,001
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Swaptions
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354
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1,325
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U.S. Treasury Futures
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—
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(145)
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British Pound Futures
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38
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(102)
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Euro Futures
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20
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(20)
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U.S. Treasuries
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—
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82
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(9,864)
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1,500
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Included within Net realized gain/(loss)
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Interest Rate Swaps
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(65,368)
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(62,147)
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Eurodollar Futures
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—
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(1,122)
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Swaptions
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(2,437)
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(1,514)
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U.S. Treasury Futures
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—
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(31)
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British Pound Futures
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259
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(605)
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Euro Futures
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68
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(7)
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TBAs (1)
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4,610
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1,262
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U.S. Treasuries
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31
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(18)
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(62,837)
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(64,182)
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Total income/(loss)
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$
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(72,701)
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$
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(62,682)
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(1)For the year ended December 31, 2020, gains and losses from purchases and sales of TBAs consisted of $0.3 million of net TBA dollar roll net interest income and net gains of $4.3 million due to price changes. For the year ended December 31, 2019, gains and losses from purchases and sales of TBAs consisted of $1.0 million of net TBA dollar roll net interest income and net gains of $0.3 million due to price changes.
8. Earnings per share
Basic earnings per share ("EPS") is calculated by dividing net income/(loss) available to common stockholders for the period by the weighted- average shares of the Company’s common stock outstanding for that period that participate in the Company’s common dividends. Diluted EPS takes into account the effect of dilutive instruments, such as stock options, warrants, unvested restricted stock and unvested restricted stock units but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS for the years ended December 31, 2020 and December 31, 2019 (in thousands, except per share data):
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Year Ended December 31, 2020
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Year Ended December 31, 2019
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Numerator:
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Net Income/(Loss) from Continuing Operations
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$
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(421,585)
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$
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97,338
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Gain on Exchange Offers, net (Note 11)
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10,574
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—
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Dividends on preferred stock
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(20,549)
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(16,122)
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Net income/(loss) from continuing operations available to common stockholders
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(431,560)
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81,216
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Net Income/(Loss) from Discontinued Operations
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666
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(4,416)
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Net Income/(Loss) available to common stockholders
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$
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(430,894)
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$
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76,800
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Denominator:
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Basic weighted average common shares outstanding
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35,191
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32,192
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Dilutive effect of restricted stock units
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—
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11
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Diluted weighted average common shares outstanding
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35,191
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32,203
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Earnings/(Loss) Per Share - Basic
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Continuing Operations
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$
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(12.26)
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$
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2.52
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Discontinued Operations
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0.02
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(0.13)
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Basic Earnings/(Loss) Per Share of Common Stock:
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$
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(12.24)
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$
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2.39
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Earnings/(Loss) Per Share - Diluted
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Continuing Operations
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$
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(12.26)
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$
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2.52
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Discontinued Operations
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0.02
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(0.13)
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Diluted Earnings/(Loss) Per Share of Common Stock:
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$
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(12.24)
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$
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2.39
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The Company had no unvested restricted stock units as of December 31, 2020 and 20 thousand unvested restricted outstanding stock units as of December 31, 2019.
Restricted stock units issued to the Manager do not entitle the participant the rights of a shareholder of the Company’s common stock, such as dividend and voting rights, until shares are issued in settlement of the vested units. The restricted stock units are not considered to be participating shares. The dilutive effects of the restricted stock units are only included in diluted weighted average common shares outstanding.
The following tables detail the Company's common stock dividends during the years ended December 31, 2020 and December 31, 2019:
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2020
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Declaration Date
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Record Date
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Payment Date
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Dividend Per Share
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12/22/2020
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12/31/2020
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1/29/2021
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$
|
0.03
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2019
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Declaration Date
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Record Date
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Payment Date
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Dividend Per Share
|
3/15/2019
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3/29/2019
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4/30/2019
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$
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0.50
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6/14/2019
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6/28/2019
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7/31/2019
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0.50
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9/6/2019
|
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9/30/2019
|
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10/31/2019
|
|
0.45
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12/13/2019
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12/31/2019
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1/31/2020
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0.45
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Total
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$
|
1.90
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AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following tables detail our preferred stock dividends during the years ended December 31, 2020 and December 31, 2019:
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2020
|
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Cash Dividend Per Share
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Declaration Date
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Record Date
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Payment Date
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8.25% Series A
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8.00% Series B
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8.000% Series C
|
|
|
2/14/2020
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2/28/2020
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3/17/2020
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|
$
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0.51563
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|
$
|
0.50
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$
|
0.50
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11/6/2020
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11/30/2020
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12/17/2020
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|
1.54689
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|
|
1.50
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|
|
1.50
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Total
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$
|
2.06252
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|
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$
|
2.00
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$
|
2.00
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|
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2019
|
|
|
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|
Cash Dividend Per Share
|
|
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Declaration Date
|
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Record Date
|
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Payment Date
|
|
8.25% Series A
|
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8.00% Series B
|
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8.000% Series C
|
|
|
2/15/2019
|
|
2/28/2019
|
|
3/18/2019
|
|
$
|
0.51563
|
|
|
$
|
0.50
|
|
|
$
|
—
|
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|
|
5/17/2019
|
|
5/31/2019
|
|
6/17/2019
|
|
0.51563
|
|
|
0.50
|
|
|
—
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|
8/16/2019
|
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8/30/2019
|
|
9/17/2019
|
|
0.51563
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|
|
0.50
|
|
|
—
|
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|
|
11/15/2019
|
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11/29/2019
|
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12/17/2019
|
|
0.51563
|
|
|
0.50
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|
|
0.50
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Total
|
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|
|
|
$
|
2.06252
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|
|
$
|
2.00
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|
|
$
|
0.50
|
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9. Income taxes
As a REIT, the Company is not subject to federal income tax to the extent that it makes qualifying distributions to its stockholders, and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. Most states follow U.S. federal income tax treatment of REITs.
For the year ended December 31, 2019, the Company elected to satisfy the REIT distribution requirements in part with a dividend paid in 2020. Excise tax represents a four percent tax on the required amount of the Company’s ordinary income and net capital gains not distributed during the year. The expense is calculated in accordance with applicable tax regulations. For the years ended December 31, 2020 and December 31, 2019, the Company recorded excise tax expense of $(0.8) million and $0.5 million, respectively. The reversal of the previously accrued excise tax expense during the current year is a result of losses resulting from market conditions associated with the COVID-19 pandemic. In conjunction with the payment due as of December 31, 2019, the Company accrued an excise tax payable of $0.8 million, which as included in the "Other liabilities" line item on the consolidated balance sheet.
The Company files tax returns in several U.S. jurisdictions. There are no ongoing U.S. federal, state or local tax examinations related to the Company.
Cash distributions declared by the Company that do not exceed its current or accumulated earnings and profits will be considered ordinary income to stockholders for income tax purposes unless all or a portion of a distribution is designated by the Company as a capital gain dividend. Distributions in excess of the Company’s current and accumulated earnings and profits will be characterized as return of capital or capital gains. For the year ended December 31, 2020, all distributions were in the form of preferred dividends and were characterized as return of capital. For the year ended December 31, 2019, all income distributed was in the form of common and preferred dividends and was characterized as ordinary income.
Based on its analysis of any potential uncertain income tax positions, the Company concluded it did not have any uncertain tax positions that meet the recognition or measurement criteria of ASC 740 as of December 31, 2020 and December 31, 2019. The Company’s federal income tax returns for the last three tax years are open to examination by the Internal Revenue Service. In the event that the Company incurs income tax related interest and penalties, its policy is to classify them as a component of provision for income taxes.
10. Related party transactions
The Company has entered into a management agreement with the Manager, which provided for an initial term and will be deemed renewed automatically each year for an additional one-year period, subject to certain termination rights. As of December 31, 2020 and December 31, 2019, no event of termination had occurred. The Company is externally managed and advised by the Manager. Pursuant to the terms of the management agreement, which became effective July 6, 2011 (upon the consummation of the Company’s initial public offering (the "IPO")), the Manager provides the Company with its management
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
team, including its officers, along with appropriate support personnel. Each of the Company’s officers is an employee of Angelo Gordon. The Company does not have any employees. The Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the Company’s management agreement.
Management fee
The Manager is entitled to a management fee equal to 1.50% per annum, calculated and paid quarterly, of the Company’s Stockholders’ Equity. For purposes of calculating the management fee, "Stockholders’ Equity" means the sum of the net proceeds from any issuances of equity securities (including preferred securities) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance, and excluding any future equity issuance to the Manager), plus the Company’s retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense or other non-cash items described below incurred in current or prior periods), less any amount that the Company pays for repurchases of its common stock, excluding any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in the Company’s financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP, and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors. Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on the Company’s financial statements.
For the years ended December 31, 2020 and December 31, 2019, the Company incurred management fees of $7.2 million and $9.8 million, respectively.
On April 6, 2020, the Company and the Manager executed an amendment to the management agreement pursuant to which the Manager agreed to defer the Company's payment of the management fee effective the first quarter of 2020 through September 30, 2020.
On September 24, 2020, the Company and the Manager executed another amendment (the "Second Management Agreement Amendment") to the management agreement, pursuant to which the Manager agreed to receive a portion of the accrued base management fee owed to it in shares of common stock. Pursuant to the Second Management Agreement Amendment, the Manager agreed to accept (i) 1,215,370 shares of common stock in full satisfaction of the deferred base management fee of $3.8 million payable by the Company in respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by the Company in respect to the third quarter of 2020. The shares of common stock issued to the Manager were valued at $3.15 per share based on the midpoint of the estimated range of the Company’s book value per share as of August 31, 2020. The remaining third quarter 2020 management fee was paid in the normal course of business.
Termination fee
The termination fee, payable upon the occurrence of (i) the Company’s termination of the management agreement without cause or (ii) the Manager’s termination of the management agreement upon a breach by the Company of any material term of the management agreement, will be equal to three times the average annual management fee during the 24-month period prior to such termination, calculated as of the end of the most recently completed fiscal quarter. As of December 31, 2020 and December 31, 2019, no event of termination of the management agreement had occurred.
Expense reimbursement
The Company is required to reimburse the Manager or its affiliates for operating expenses which are incurred by the Manager or its affiliates on behalf of the Company, including expenses relating to legal, accounting, due diligence and other services. The Company’s reimbursement obligation is not subject to any dollar limitation; however, the reimbursement is subject to an annual budget process which combines guidelines from the Management Agreement with oversight by the Company’s Board of Directors.
The Company reimburses the Manager or its affiliates for the Company’s allocable share of the compensation, including, without limitation, annual base salary, bonus, any related withholding taxes and employee benefits paid to (i) the Company’s chief financial officer based on the percentage of time spent on Company affairs, (ii) the Company’s general counsel based on the percentage of time spent on the Company’s affairs, and (iii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and its affiliates who spend all or
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
a portion of their time managing the Company’s affairs based upon the percentage of time devoted by such personnel to the Company’s affairs. In their capacities as officers or personnel of the Manager or its affiliates, they devote such portion of their time to the Company’s affairs as is necessary to enable the Company to operate its business.
Of the $14.5 million and $18.6 million of Other operating expenses for years ended December 31, 2020 and December 31, 2019, the Company has incurred $7.4 million and $7.5 million, respectively, representing a reimbursement of expenses. The Manager did not waive any expense reimbursements for the years ended December 31, 2020 and December 31, 2019.
Secured debt
On April 10, 2020, in connection with the first Forbearance Agreement, the Company issued a secured promissory note (the "Note") to the Manager evidencing a $10 million loan made by the Manager to the Company. Additionally, on April 27, 2020, in connection with the second Forbearance Agreement, the Company and the Manager entered into an amendment to the Note to reflect an additional $10 million loan by the Manager to the Company. The $10 million loan made by the Manager on April 10, 2020 is payable on March 31, 2021, and the $10 million loan made on April 27, 2020 was repaid in full with interest when it matured on July 27, 2020. The unpaid balance of the Note accrues interest at a rate of 6.0% per annum. Interest on the Note is payable monthly in kind through the addition of such accrued monthly interest to the outstanding principal balance of the Note. The Note and accrued interest on the Note are included within the due to affiliates amount, which is included within the "Other Liabilities" line item in the consolidated balance sheets. See Note 7 for a breakout of the "Other liabilities" line item.
Restricted stock grants
Effective on April 15, 2020 upon the approval of the Company's stockholders at its Annual Meeting, the 2020 Equity Incentive Plan provides for 2,000,000 shares of common stock to be issued. The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during any fiscal year, shall not exceed $300,000 in total value (calculating the value of any such awards based on the grant date fair value). As of December 31, 2020, 1,879,680 shares of common stock were available to be awarded under the Equity Incentive Plan.
Since its IPO, the Company has granted an aggregate of 226,114 and 120,320 shares of restricted common stock to its independent directors under its equity incentive plans, dated July 6, 2011 (the "2011 Equity Incentive Plans") and its 2020 Equity Incentive Plan, respectively. As of December 31, 2020, all the shares of restricted common stock granted to its independent directors have vested. Further, since its IPO, the Company has issued 40,250 shares of restricted common stock and 120,000 restricted stock units to its Manager under its 2011 equity incentive plans.
The following table presents information with respect to the Company’s restricted stock and restricted stock units for the years ended December 31, 2020 and December 31, 2019:
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Year Ended December 31, 2020
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Year Ended December 31, 2019
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Shares of Restricted Stock and Restricted Stock Units
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Weighted Average Grant Date Fair Value
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Shares of Restricted Stock and Restricted Stock Units
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Weighted Average Grant Date Fair Value
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Outstanding at beginning of year
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113,656
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|
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$
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18.91
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108,624
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|
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$
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19.52
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Granted (1)
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126,785
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3.56
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25,030
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15.97
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Canceled/forfeited
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—
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—
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|
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—
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|
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—
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Unrestricted
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(20,009)
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18.53
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(19,998)
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18.53
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Outstanding at end of year
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220,432
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$
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10.85
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113,656
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$
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18.91
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Unvested at end of year
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—
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$
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—
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20,009
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$
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18.53
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(1)The grant date fair value of restricted stock awards was established as the average of the high and low prices of the Company's common stock at the grant date. The grant date fair value of restricted stock units is based on the closing market price of the Company's common stock at the grant date.
During the years ended December 31, 2020 and December 31, 2019, 146,794 and 45,028 shares of total restricted stock and restricted stock units vested, respectively.
On December 31, 2020, the Company had no unrecognized compensation expense related to restricted stock units. The total fair value of restricted shares and units vested was approximately $0.8 million for the years ended December 31, 2020 and December 31, 2019 based on the closing price of the stock on the vesting date and grant date, respectively.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Equity based compensation expense of $0.6 million and $0.7 million was capitalized during the years ended December 31, 2020 and December 31, 2019, respectively, associated with the amortization of restricted stock and restricted stock units.
Director compensation
The Company pays a $160,000 annual base director’s fee to each independent director. Base director’s fees are paid 50% in cash and 50% in restricted common stock. Beginning January 1, 2021, the annual base director's fee for each independent director decreased to $150,000, $70,000 of which is payable on a quarterly basis in cash and $80,000 of which is payable on a quarterly basis in shares of restricted common stock. The number of shares of restricted common stock to be issued each quarter to each independent director is determined based on the average of the high and low prices of the Company’s common stock on the New York Stock Exchange on the last trading day of each fiscal quarter. To the extent that any fractional shares would otherwise be issuable and payable to each independent director, a cash payment is made to each independent director in lieu of any fractional shares. All directors’ fees are paid pro rata (and restricted stock grants determined) on a quarterly basis in arrears, and shares issued are fully vested and non-forfeitable. These shares may not be sold or transferred by such director during the time of his service as an independent member of the Company’s board. Beginning in 2019, the Company increased the annual fee paid to the lead independent director from $15,000 to $25,000. On March 25, 2020 and June 19, 2020, the Company's Board of Directors decreased from 5 independent directors to 4 independent directors and from 4 independent directors to 3 independent directors, respectively. On December 1, 2020, the Company's Board of Directors increased from 3 independent directors to 4 independent directors.
Pursuant to the Forbearance Agreement previously discussed, the Company, among other things, agreed to compensate its independent directors solely with common stock for the quarter ended March 31, 2020.
Investments in debt and equity of affiliates
The Company invests in credit sensitive residential and commercial real estate assets through affiliated entities which hold an ownership interest in the assets. The Company is one investor, amongst other investors managed by affiliates of Angelo Gordon, in such entities and has applied the equity method of accounting for such investments. See Note 2 for the gross fair value of the Company's share of these investments as of December 31, 2020 and December 31, 2019.
The Company’s investment in AG Arc is reflected on the "Investments in debt and equity of affiliates" line item on its consolidated balance sheets. The Company has an approximate 44.6% interest in AG Arc. See Note 2 for the fair value of AG Arc as of December 31, 2020 and December 31, 2019.
Arc Home may sell loans to the Company, to third-parties, or to affiliates of the Manager. Arc Home may also enter into agreements with third-parties or affiliates of the Manager to sell rights to receive the excess servicing spread related to MSRs that it either purchases from third-parties or originates. The Company, directly or through its subsidiaries, has entered into agreements with Arc Home to purchase rights to receive the excess servicing spread related to certain of Arc Home's MSRs. As of December 31, 2020 and December 31, 2019, these Excess MSRs had fair value of approximately $3.5 million and $18.2 million, respectively. See below "Transactions with affiliates" for details regarding the sale of a portion of the Company's Excess MSRs during the third quarter of 2020.
During 2020, Arc Home began selling Non-QM Loans to a private fund under the management of Angelo Gordon. Arc Home sold $57.4 million of unpaid principal balance of Non-QM Loans to this affiliate of the Manager during 2020.
On August 29, 2017, the Company, alongside private funds under the management of Angelo Gordon, entered into the MATH LLC Agreement, which requires that MATH fund a capital commitment of $75.0 million to MATT. This commitment was increased by $25.0 million to $100.0 million on March 28, 2019 and by $5.0 million to $105.0 million on August 23, 2019 with amendments to the MATH LLC Agreement. On April 3, 2020, the financing arrangements within MATT were restructured as described below and the previously mentioned commitment was removed. The Company has an approximate 44.6% interest in MATH.
On April 3, 2020, the Company, alongside private funds under the management of Angelo Gordon, restructured its financing arrangements in MATT ("Restructured Financing Arrangement"). The Restructured Financing Arrangement requires all principal and interest on the underlying assets in MATT be used to pay down principal and interest on the outstanding financing arrangement. As of April 3, 2020, the Restructured Financing Arrangement is no longer a mark-to-market facility with respect to margin calls and is non-recourse to the Company. The Restructured Financing Arrangement provides for a termination date of October 1, 2021. At the earlier of the termination date or the securitization or sale by the Company of the remaining assets subject to the Restructured Financing Arrangement, the financing counterparty (which is a non-affiliate) will be entitled to 35%
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
of the remaining equity in the assets. The Company evaluated this restructuring and concluded it was an extinguishment of debt. MATT has chosen to make a fair value election on this financing arrangement and the Company will treat this arrangement consistently with this election. The Restructured Financing Arrangement was amended subsequent to quarter end. Refer to Note 16 for further details.
The Company's investment in LOTS require it to fund various commitments in connection with the origination of Land Related Financing. Refer to Note 12 for additional information. The Company has an approximate 47.5% and 50% interest in LOTS I and LOTS II, respectively.
Transactions with affiliates
In connection with the Company’s investments in residential mortgage loans, residential mortgage loans in securitized form which are issued by an entity in which the Company holds an equity interest in and which are held alongside other private funds under the management of Angelo Gordon (the "Re/Non-Performing Loans") and Non-QM Loans, the Company engages asset managers to provide advisory, consultation, asset management and other services. Beginning in November 2015, the Company also engaged Red Creek Asset Management LLC ("Asset Manager"), a related party of the Manager and direct subsidiary of Angelo Gordon, as the asset manager for certain of its Re/Non-Performing Loans. Beginning in September 2019, the Company engaged the Asset Manager as the asset manager for its Non-QM Loans. The Company pays the Asset Manager separate arm’s-length asset management fees as assessed and confirmed periodically by a third-party valuation firm for its Re/Non-Performing Loans and Non-QM Loans. In the third quarter of 2019, the third-party assessment of asset management fees resulted in the Company updating the fee amount for its Re/Non-Performing Loans. The Company also utilized the third-party valuation firm to establish the fee level for Non-QM Loans in the third quarter of 2019. For the years ended December 31, 2020 and December 31, 2019, the fees paid by the Company to the Asset Manager totaled $2.7 million and $0.9 million, respectively.
In connection with the Company’s investments in Excess MSRs purchased through Arc Home, the Company pays an administrative fee to Arc Home. For years ended December 31, 2020 and December 31, 2019, the administrative fees paid by the Company to Arc Home totaled $0.2 million and $0.3 million, respectively.
In March 2019, in accordance with the Company’s Affiliated Transactions Policy, the Company executed one trade whereby the Company acquired a real estate security from an affiliate of the Manager (the "March 2019 Selling Affiliate"). As of the date of the trade, the security acquired from the March 2019 Selling Affiliate had a total fair value of $0.9 million. The March 2019 Selling Affiliate sold the real estate security through a BWIC (Bids Wanted in Competition). Prior to the submission of the BWIC by the March 2019 Selling Affiliate, the Company submitted its bid for the real estate security to the March 2019 Selling Affiliate. The pre-submission of the Company's bid allowed the Company to confirm third-party market pricing and best execution.
In June 2019, the Company, alongside private funds under the management of Angelo Gordon, participated, through its unconsolidated ownership interest in MATT, in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $408.0 million were securitized. Certain senior tranches in the securitization were sold to third-parties with the Company and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $42.9 million as of June 30, 2019. The Company has a 44.6% interest in the retained subordinate tranches.
In July 2019, in accordance with the Company’s Affiliated Transactions Policy, the Company acquired certain real estate securities from an affiliate of the Manager (the "July 2019 Selling Affiliate"). As of the date of the trade, the real estate securities acquired from the July 2019 Selling Affiliate had a total fair value of $2.0 million. As procuring market bids for the real estate securities was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by third-party pricing vendors. The third-party pricing vendors allowed the Company to confirm third-party market pricing and best execution.
In September 2019, the Company, alongside private funds under the management of Angelo Gordon, participated, through its unconsolidated ownership interest in MATT, in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair market value of $415.1 million were securitized. Certain senior tranches in the securitization were sold to third-parties with the Company and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair market value of $28.7 million as of September 30, 2019. The Company has a 44.6% interest in the retained subordinate tranches.
In October 2019, in accordance with the Company’s Affiliated Transactions Policy, the Company acquired certain real estate securities from an affiliate of the Manager (the "October 2019 Selling Affiliate"). As of the date of the trade, the real estate securities acquired from the October 2019 Selling Affiliate had a total fair value of $2.2 million. The October 2019 Selling
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Affiliate sold the real estate securities through a BWIC. Prior to the submission of the BWIC by the October 2019 Selling Affiliate, the Company submitted its bid for real estate securities to the October 2019 Selling Affiliate. The Company’s pre-submission of its bid allowed the Company to confirm third-party market pricing and best execution.
In November 2019, the Company, alongside private funds under the management of Angelo Gordon, participated through its unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $322.1 million were securitized. Certain senior tranches in the securitization were sold to third-parties with the Company and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $21.4 million as of December 31, 2019. The Company has a 44.6% interest in the retained subordinate tranches.
In February 2020, the Company, alongside private funds under the management of Angelo Gordon, participated through its unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $348.2 million were securitized. Certain senior tranches in the securitization were sold to third-parties with the Company and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $26.6 million as of March 31, 2020. The Company has a 44.6% interest in the retained subordinate tranches.
In July 2020, in accordance with the Company’s Affiliated Transactions Policy, the Company sold certain real estate securities to an affiliate of the Manager (the "July 2020 Acquiring Affiliate"). As of the date of the trade, the real estate securities sold to the July 2020 Acquiring Affiliate had a total fair value of $1.9 million. The July 2020 Acquiring Affiliate purchased the real estate securities through a BWIC. Prior to the submission of the BWIC by the Company, the July 2020 Acquiring Affiliate submitted its bid for real estate securities to the Company. The July 2020 Acquiring Affiliate’s pre-submission of its bid allowed the Company to confirm third-party market pricing and best execution.
In August 2020, the Company, alongside private funds under the management of Angelo Gordon, participated through its unconsolidated ownership interest in MATT in a rated Non-QM Loan securitization, in which Non-QM Loans with a fair value of $226.0 million were securitized. Certain senior tranches in the securitization were sold to third-parties with the Company and private funds under the management of Angelo Gordon retaining the subordinate tranches, which had a fair value of $24.3 million as of September 30, 2020. The Company has a 44.6% interest in the retained subordinate tranches.
In August 2020, the Company, alongside private funds under the management of Angelo Gordon, sold its Ginnie Mae Excess MSR portfolio to Arc Home for total proceeds of $18.9 million. The portfolio had a total unpaid principal balance of $3.5 billion. The Company's share of the total proceeds approximated $8.5 million, representing its approximate 45% ownership interest. Arc Home subsequently sold its Ginnie Mae MSR portfolio to a third-party.
In October 2020, in accordance with the Company’s Affiliated Transactions Policy, the Company acquired certain real estate securities and Excess MSRs from an affiliate of the Manager (the "October 2020 Selling Affiliate"). As of the date of the trade, the real estate securities and Excess MSRs acquired from the October 2020 Selling Affiliate had a total fair value of $0.5 million and $20.0 thousand, respectively. As procuring market bids for the real estate securities was determined to be impracticable in the Manager’s reasonable judgment, appropriate pricing was based on a valuation prepared by third-party pricing vendors. The third-party pricing vendors allowed the Company to confirm third-party market pricing and best execution.
11. Equity
Stock repurchase program
On November 3, 2015, the Company’s Board of Directors authorized a stock repurchase program ("Repurchase Program") to repurchase up to $25.0 million of the Company's outstanding common stock. Such authorization does not have an expiration date. As part of the Repurchase Program, shares may be purchased in open market transactions, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. Open market repurchases will be made in accordance with Exchange Act Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of open market stock repurchases. Subject to applicable securities laws, the timing, manner, price and amount of any repurchases of common stock under the Repurchase Program may be determined by the Company in its discretion, using available cash resources. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be cancelled and, until reissued by the Company, will be deemed to be authorized but unissued shares of its common stock as required by Maryland law. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice and the authorization does not obligate the Company to acquire any particular amount of common stock. The cost of the acquisition by the Company of shares of its own stock in excess of the aggregate par value of the shares first reduces additional paid-in capital, to the extent available, with any residual
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
cost applied against retained earnings. No shares were repurchased under the Repurchase Program during the years ended December 31, 2020 and December 31, 2019 and approximately $14.6 million of common stock remained authorized for future share repurchases under the Repurchase Program.
Equity distribution agreements
On May 5, 2017, the Company entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which the Company refers to as the "Equity Distribution Agreements," pursuant to which the Company may sell up to $100.0 million aggregate offering price of shares of its common stock from time to time through the Sales Agents under the Securities Act of 1933. The Equity Distribution Agreements were amended on May 22, 2018 in conjunction with the filing of the Company’s 2018 Registration Statement, described below. For the year ended December 31, 2020, the Company sold 2.1 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $7.1 million. For the year ended December 31, 2019, the Company sold 503.7 thousand shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $8.6 million. Since inception of the program, the Company has sold approximately 3.6 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $34.7 million.
Shelf registration statement
On May 2, 2018, the Company filed a shelf registration statement, registering up to $750.0 million of its securities, including capital stock (the "2018 Registration Statement"). The 2018 Registration Statement became effective on May 18, 2018 and will expire on May 18, 2021.
Common stock offering
On February 14, 2019, the Company completed a public offering of 3,000,000 shares of its common stock and subsequently issued an additional 450,000 shares pursuant to the underwriters' exercise of their over-allotment option at a price of $16.70 per share. Net proceeds to the Company from the offering were approximately $57.4 million, after deducting estimated offering expenses.
Preferred stock
The Company completed a public offering of 4,000,000 shares of 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock with a liquidation preference of $25.00 per share (the "Series C Preferred Stock") on September 17, 2019. The Company subsequently issued 600,000 shares of Series C Preferred Stock pursuant to the underwriters' exercise of their over-allotment option. The Company received total gross proceeds of $115.0 million and net proceeds of approximately $111.2 million, net of underwriting discounts, commissions and expenses. The Company’s Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock have no stated maturity and are not subject to any sinking fund or mandatory redemption. Under certain circumstances upon a change of control, the Company’s Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock are convertible to shares of the Company’s common stock. Holders of the Company’s Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock have no voting rights, except under limited conditions, and holders are entitled to receive cumulative cash dividends at the respective stated rate per annum before holders of the common stock are entitled to receive any cash dividends. The dividend rate of the Series A Preferred Stock and Series B Preferred Stock is 8.25% and 8.00% per annum, respectively, of the $25.00 per share liquidation preference. The initial dividend rate for the Series C Preferred Stock, from and including the date of original issue to, but not including, September 17, 2024, is 8.000% per annum of the $25.00 per share liquidation preference. On and after September 17, 2024, dividends on the Series C Preferred Stock will accumulate at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the then three-month LIBOR plus a spread of 6.476% per annum. Shares of the Company’s Series A Preferred Stock and Series B Preferred Stock are currently redeemable at $25.00 per share plus accumulated and unpaid dividends (whether or not declared) exclusively at the Company’s option. Shares of the Company's Series C Preferred Stock are redeemable at $25.00 per share plus accumulated and unpaid dividends (whether or not declared) exclusively at the Company’s option commencing on September 17, 2024, or earlier under certain circumstances intended to preserve its qualification as a REIT for Federal income tax purposes. Dividends are payable quarterly in arrears on the 17th day of each March, June, September and December. The Company's Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock generally do not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive). Under such circumstances, holders of the Company's Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock voting together as a single class with the holders of all other classes or series of its preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Company's Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock will be entitled to vote to elect two additional directors to the Company’s Board of Directors until all unpaid dividends have been paid or declared and set
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
apart for payment. In addition, certain material and adverse changes to the terms of any series of the Company's Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock cannot be made without the affirmative vote of holders of at least two-thirds of the outstanding shares of the series of the Company's Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock whose terms are being changed.
Dividends
On March 27, 2020, the Company announced that its Board of Directors approved a suspension of the Company's quarterly dividends on its 8.25% Series A Cumulative Redeemable Preferred Stock, 8.00% Series B Cumulative Redeemable Preferred Stock and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, beginning with the preferred dividend that would have been declared in May 2020, in order to conserve capital and improve its liquidity position during the market volatility due to the COVID-19 pandemic as well as a suspension of the quarterly dividend on the common stock, beginning with the dividend that normally would have been declared in March 2020. Under the terms of the Company's charter governing its series of preferred stock, the Company cannot pay cash dividends with respect to its common stock if dividends on its preferred stock are in arrears.
On December 17, 2020, the Company paid its Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock dividends that were in arrears as well as the full dividends payable on the preferred stock for the fourth quarter of 2020 in the amount of $1.54689, $1.50 and $1.50 per share, respectively. On December 22, 2020, the Company's Board of Directors declared a dividend of $0.03 per common share for the fourth quarter 2020. The dividend is payable on January 29, 2021 to shareholders of record at the close of business on December 31, 2020. Refer to Note 8 for more information on dividends paid during the period.
Exchange offers
On August 14, 2020, the Company announced the commencement of an offer to exchange newly issued shares of common stock for up to 250,470 shares of its Series A Preferred Stock, up to 556,600 shares of its Series B Preferred Stock, and up to 556,600 shares of its Series C Preferred Stock. This offer had an expiration date of September 11, 2020. Based on the final count provided by the Exchange Agent, American Stock Transfer & Trust Company, LLC, a total of 42,820 shares of Series A Preferred Stock, 31,085 Series B Preferred Stock and 29,355 Series C Preferred Stock were validly tendered and not properly withdrawn prior to the expiration of the offer. The Company accepted all such 103,260 validly tendered shares of preferred stock, and issued in exchange a total of 516,300 shares of common stock in reliance upon the exemption from registration provided under Section 3(a)(9) of the Securities Act of 1933, as amended. After settlement, the company had outstanding 2,027,180 shares of Series A Preferred Stock, 4,568,915 shares of Series B Preferred Stock, and 4,570,645 shares of Series C Preferred Stock.
On September 30, 2020, the Company agreed to issue an aggregate of 3,679,634 shares of its common stock and agreed to pay aggregate cash consideration of $6.3 million in exchange for 210,662 shares of Series A Preferred Stock, 404,187 shares of Series B Preferred Stock, and 427,467 shares of Series C Preferred Stock, pursuant to a privately negotiated exchange agreement entered into on September 30, 2020 with existing holders of the preferred stock. After the transaction closed, the Series C Preferred Stock exchanged pursuant to the exchange agreement were reclassified as authorized but unissued shares of preferred stock without designation as to class or series.
On October 2, 2020, the Company agreed to issue an aggregate of 900,000 shares of its common stock and agreed to pay aggregate cash consideration of $1.7 million in exchange for 260,000 shares of Series C Preferred Stock, pursuant to a privately negotiated exchange agreement entered into on October 2, 2020 with existing holders of the Series C Preferred Stock. After the transaction closed, the Series C Preferred Stock exchanged pursuant to the exchange agreement were reclassified as authorized but unissued shares of preferred stock without designation as to class or series. After the settlement of all three exchanges, the Company had outstanding 1,816,518 shares of Series A Preferred Stock, 4,164,728 shares of Series B Preferred Stock and 3,883,178 shares of Series C Preferred Stock.
Common stock issuance to the Manager
On September 24, 2020, the Company issued (i) 1,215,370 shares of common stock to the Manager in full satisfaction of the deferred base management fee of $3.8 million payable by the Company in respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by the Company in respect to the third quarter of 2020. The shares of common stock issued to the Manager were valued at $3.15 per share based on the midpoint of the estimated range of the Company’s book value per share as of August 31, 2020. The remaining third quarter 2020 management fee was paid in the normal course of business. Refer to Note 10 for more information on this transaction.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
12. Commitments and Contingencies
From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. As of December 31, 2020, other than as set forth below, the Company was not involved in any material legal proceedings.
On March 25, 2020, certain of the Company's subsidiaries filed a suit in federal district court in New York seeking to enjoin Royal Bank of Canada and one of its affiliates ("RBC") from selling certain assets that the Company had on repo with RBC and seeking damages (AG MIT CMO et al. v. RBC (Barbados) Trading Corp. et al., 20-cv-2547, U.S. District Court, Southern District of New York). On March 31, 2020, the Company withdrew, as moot, its request for injunctive relief in the complaint based on the court's ruling on March 25, 2020 relating to the sale at issue. As previously disclosed in a Form 8-K filed with the SEC on June 2, 2020, the Company entered into a settlement agreement with RBC on May 28, 2020, pursuant to which the Company and RBC mutually released each other from further claims related to the repurchase agreements at issue. As part of the settlement, and to resolve all claims by either party under the repurchase agreements, the Company paid RBC $5.0 million in cash and issued to RBC a secured promissory note in the principal amount of $2.0 million. On June 11, 2020, the Company repaid the secured promissory note due to RBC in full. The Company has recognized this settlement in the "Net realized gain/(loss)" line item on the consolidated statement of operations. As a result, as of December 31, 2020, the Company has satisfied all of its payment obligations to RBC under the settlement agreement and promissory note, and, as previously reported, the federal lawsuit has been voluntarily dismissed with prejudice.
As of December 31, 2020, the Company has also recorded a loss of $11.6 million related to deficiencies asserted by other counterparties. The Company has recognized these losses in the "Net realized gain/(loss)" line item on the consolidated statement of operations. As of August 2020, the Company resolved and settled all deficiency claims with lenders.
The below table details the Company's outstanding commitments as of December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment type
|
|
Date of Commitment
|
|
Total Commitment
|
|
Funded Commitment
|
|
Remaining Commitment
|
|
|
|
|
|
|
|
|
|
Commercial loan G (a)(b)
|
|
July 26, 2018
|
|
$
|
78,806
|
|
|
$
|
60,111
|
|
|
$
|
18,695
|
|
Commercial loan I (a)(c)
|
|
January 23, 2019
|
|
26,000
|
|
|
15,929
|
|
|
10,071
|
|
|
|
|
|
|
|
|
|
|
Commercial loan K (a)
|
|
February 22, 2019
|
|
20,000
|
|
|
15,787
|
|
|
4,213
|
|
LOTS (d)
|
|
Various
|
|
34,153
|
|
|
21,247
|
|
|
12,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
158,959
|
|
|
$
|
113,074
|
|
|
$
|
45,885
|
|
(a)The Company entered into commitments on commercial loans relating to construction projects. See Note 4 for further details.
(b)Paydowns of $5.7 million on Commercial loan G during the year decreased the total commitment from $84.5 million to $78.8 million. Subsequent to year end, the Company sold Commercial loan G to an unrelated third-party. See Note 16 for additional information.
(c)During the fourth quarter, the Company and the borrower of Commercial loan I entered into a modification agreement to, among other things, extend the term of the Loan, allow for a portion of the interest to be deferred and increase the capital commitment amount by $6.0 million. Subsequent to year end, the Company sold Commercial loan I to an unrelated third-party. See Note 16 for additional information.
(d)Refer to Note 10 "Related Party Transactions" for more information regarding LOTS.
13. Discontinued Operations and Assets and Liabilities Held for Sale
In November 2019, the Company signed a purchase and sale agreement whereby it agreed to sell its portfolio of single-family rental properties to a third-party at a price of approximately $137 million as the portfolio was under-performing. The Company recognized a gain of $0.2 million as a result of the transaction. The Company reclassified the operating results of its single-family rental properties segment as discontinued operations and excluded it from continuing operations for all periods presented.
The Company held assets of $0.2 million and liabilities of $1.5 million related to discontinued operations as of December 31, 2019. The Company did not hold any assets or liabilities related to discontinued operations as of December 31, 2020.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The table below presents the Company's results of operations for the years ended December 31, 2020 and December 31, 2019, respectively, for the single-family rental properties segment's discontinued operations as reported separately as net income (loss) from discontinued operations, net of tax (in thousands). In 2020, the Company reversed certain previously accrued expenses related to discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Interest expense
|
|
$
|
—
|
|
|
$
|
5,187
|
|
|
|
|
|
|
Other Income/(Loss)
|
|
|
|
|
Rental income
|
|
—
|
|
|
11,209
|
|
Net realized gain/(loss)
|
|
—
|
|
|
150
|
|
Other income
|
|
—
|
|
|
258
|
|
Total Other Income/(Loss)
|
|
—
|
|
|
11,617
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Other operating expenses
|
|
(80)
|
|
|
180
|
|
Property depreciation and amortization
|
|
—
|
|
|
4,110
|
|
Property operating expenses
|
|
(586)
|
|
|
6,556
|
|
Total Expenses
|
|
(666)
|
|
|
10,846
|
|
|
|
|
|
|
Net Income/(Loss) from Discontinued Operations
|
|
$
|
666
|
|
|
$
|
(4,416)
|
|
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
14. Investments in unconsolidated equity method affiliates
The Company has determined that AG Arc and MATH are significant subsidiaries as a result of having met certain thresholds on an individual basis during the year ended December 31, 2020. The Company has provided a summary of financial information on its unconsolidated equity method affiliates, including separate financial information related to these significant subsidiaries, as detailed below.
The following table details the summarized balance sheets for the Company’s unconsolidated ownership interests in affiliates accounted for using the equity method as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Arc Home (1)
|
|
MATH (2)
|
|
Other
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Real estate securities and loans, at fair value
|
$
|
293,710
|
|
|
$
|
343,576
|
|
|
$
|
294,357
|
|
|
$
|
931,643
|
|
|
$
|
1,539,217
|
|
Mortgage servicing rights and excess mortgage servicing rights, at fair value
|
56,481
|
|
|
—
|
|
|
933
|
|
|
57,414
|
|
|
113,155
|
|
Cash and cash equivalents
|
41,781
|
|
|
754
|
|
|
11,438
|
|
|
53,973
|
|
|
39,390
|
|
Other assets (3)
|
86,687
|
|
|
3,838
|
|
|
3,112
|
|
|
93,637
|
|
|
192,477
|
|
Total Assets
|
$
|
478,659
|
|
|
$
|
348,168
|
|
|
$
|
309,840
|
|
|
$
|
1,136,667
|
|
|
$
|
1,884,239
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Financing arrangements
|
$
|
290,009
|
|
|
$
|
249,237
|
|
|
$
|
35,774
|
|
|
$
|
575,020
|
|
|
$
|
807,902
|
|
Securitized debt, at fair value
|
—
|
|
|
—
|
|
|
96,579
|
|
|
96,579
|
|
|
144,810
|
|
Other liabilities (3)
|
88,650
|
|
|
1,109
|
|
|
301
|
|
|
90,060
|
|
|
217,301
|
|
Total Liabilities
|
378,659
|
|
|
250,346
|
|
|
132,654
|
|
|
761,659
|
|
|
1,170,013
|
|
|
|
|
|
|
|
|
|
|
|
Total Members' Equity
|
|
|
|
|
|
|
|
|
|
Members' equity (1)
|
97,938
|
|
|
97,822
|
|
|
177,186
|
|
|
372,946
|
|
|
711,285
|
|
Noncontrolling preferred interests
|
2,062
|
|
|
—
|
|
|
—
|
|
|
2,062
|
|
|
2,941
|
|
Total Member's equity
|
100,000
|
|
|
97,822
|
|
|
177,186
|
|
|
375,008
|
|
|
714,226
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Members' Equity
|
$
|
478,659
|
|
|
$
|
348,168
|
|
|
$
|
309,840
|
|
|
$
|
1,136,667
|
|
|
$
|
1,884,239
|
|
|
|
|
|
|
|
|
|
|
|
The Company's Investments in debt and equity of affiliates
|
$
|
45,341
|
|
|
$
|
43,619
|
|
|
$
|
61,707
|
|
|
$
|
150,667
|
|
|
$
|
156,311
|
|
(1)The Company has an approximate 44.6% interest in AG Arc. Arc Home is a wholly owned subsidiary of AG Arc. The Company's investment in AG Arc of $45.3 million includes its pro-rata allocation of Members' equity disclosed in the table above and additional net assets held at AG Arc of $3.7 million.
(2)The Company has an approximate 44.6% interest in MATH.
(3)Arc Home, as an issuer, has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold or loans in pools it acquired in an MSR purchase (generally loans that are more than 90 days past due). When Arc Home determines there is more than a trivial benefit to repurchase the loans, it records the loans on its consolidated balance sheets as an asset and a corresponding liability. As of December 31, 2020, $58.7 million of loans eligible to be repurchased are recorded with Other assets and Other liabilities.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table details the summarized statements of operations for the Company’s unconsolidated ownership interests in affiliates accounted for using the equity method as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
Arc Home (1)
|
|
MATH (2)
|
|
Other
|
|
Total
|
|
|
|
Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
6,550
|
|
|
$
|
30,113
|
|
|
$
|
36,504
|
|
|
$
|
73,167
|
|
|
$
|
82,810
|
|
|
|
Interest expense
|
16,779
|
|
|
24,442
|
|
|
7,969
|
|
|
49,190
|
|
|
51,455
|
|
|
|
Total Net Interest Income
|
(10,229)
|
|
|
5,671
|
|
|
28,535
|
|
|
23,977
|
|
|
31,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
119,786
|
|
|
(21,858)
|
|
|
(2,660)
|
|
|
95,268
|
|
|
25,478
|
|
|
|
Net interest component of interest rate swaps
|
—
|
|
|
101
|
|
|
—
|
|
|
101
|
|
|
(872)
|
|
|
|
Unrealized gain (loss) on real estate securities and loans, net
|
(13,171)
|
|
|
(15,959)
|
|
|
(73,003)
|
|
|
(102,133)
|
|
|
30,645
|
|
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(26,003)
|
|
|
(25,326)
|
|
|
1,948
|
|
|
(49,381)
|
|
|
264
|
|
|
|
Other income
|
40,022
|
|
|
1
|
|
|
12,042
|
|
|
52,065
|
|
|
40,928
|
|
|
|
Total Other Income
|
120,634
|
|
|
(63,041)
|
|
|
(61,673)
|
|
|
(4,080)
|
|
|
96,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
|
61,494
|
|
|
2,118
|
|
|
15,804
|
|
|
79,416
|
|
|
66,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss)
|
48,911
|
|
|
(59,488)
|
|
|
(48,942)
|
|
|
(59,519)
|
|
|
61,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss) Attributable to Noncontrolling Preferred Interests
|
248
|
|
|
—
|
|
|
—
|
|
|
248
|
|
|
(263)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss) Attributable to Controlling Interest of Unconsolidated Equity Method Investments
|
$
|
49,159
|
|
|
$
|
(59,488)
|
|
|
$
|
(48,942)
|
|
|
$
|
(59,271)
|
|
|
$
|
60,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company's Equity in earnings/(loss) from affiliates
|
$
|
23,260
|
|
|
$
|
(26,511)
|
|
|
$
|
1,622
|
|
|
$
|
(1,629)
|
|
|
$
|
7,644
|
|
|
|
(1)The Company has an approximate 44.6% interest in AG Arc. Arc Home is a wholly owned subsidiary of AG Arc. The Company's equity in earnings/(loss) from AG Arc includes its pro-rata share of Net Income/(Loss) disclosed in the table above and additional net income recorded at AG Arc of $3.0 million.
(2)The Company has an approximate 44.6% interest in MATH.
Refer to Note 2 for more detail on the Company’s investments in unconsolidated equity method affiliates.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
15. Quarterly results (Unaudited)
Summarized quarterly results of operations were as follows (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2020
|
|
June 30, 2020
|
|
September 30, 2020
|
|
December 31, 2020
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
|
|
|
Interest income
|
$
|
40,268
|
|
|
$
|
13,369
|
|
|
$
|
9,717
|
|
|
$
|
11,171
|
|
Interest expense
|
19,971
|
|
|
8,613
|
|
|
4,357
|
|
|
4,004
|
|
Total Net Interest Income
|
20,297
|
|
|
4,756
|
|
|
5,360
|
|
|
7,167
|
|
|
|
|
|
|
|
|
|
Other Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
(151,143)
|
|
|
(91,609)
|
|
|
(14,431)
|
|
|
661
|
|
Net interest component of interest rate swaps
|
923
|
|
|
—
|
|
|
(13)
|
|
|
(179)
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
(313,897)
|
|
|
109,632
|
|
|
19,495
|
|
|
25,304
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
5,686
|
|
|
(9,453)
|
|
|
1,970
|
|
|
(8,550)
|
|
Foreign currency gain/(loss), net
|
1,649
|
|
|
(156)
|
|
|
(10)
|
|
|
45
|
|
Other income
|
3
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Total Other Income/(Loss)
|
(456,779)
|
|
|
8,415
|
|
|
7,011
|
|
|
17,283
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Management fee to affiliate
|
2,149
|
|
|
1,678
|
|
|
1,698
|
|
|
1,656
|
|
Other operating expenses
|
842
|
|
|
4,482
|
|
|
5,929
|
|
|
3,260
|
|
Restructuring Related Expenses
|
1,500
|
|
|
7,104
|
|
|
1,345
|
|
|
251
|
|
Equity based compensation to affiliate
|
88
|
|
|
75
|
|
|
—
|
|
|
—
|
|
Excise tax
|
(815)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Servicing fees
|
579
|
|
|
566
|
|
|
540
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
4,343
|
|
|
13,905
|
|
|
9,512
|
|
|
5,706
|
|
|
|
|
|
|
|
|
|
Income/(loss) before equity in earnings/(loss) from affiliates
|
(440,825)
|
|
|
(734)
|
|
|
2,859
|
|
|
18,744
|
|
Equity in earnings/(loss) from affiliates
|
(44,192)
|
|
|
3,434
|
|
|
17,187
|
|
|
21,942
|
|
Net Income/(Loss) from Continuing Operations
|
(485,017)
|
|
|
2,700
|
|
|
20,046
|
|
|
40,686
|
|
Net Income/(Loss) from Discontinued Operations
|
—
|
|
|
361
|
|
|
—
|
|
|
305
|
|
Net Income/(Loss)
|
(485,017)
|
|
|
3,061
|
|
|
20,046
|
|
|
40,991
|
|
|
|
|
|
|
|
|
|
Gain on Exchange Offers, net (Note 11)
|
—
|
|
|
—
|
|
|
539
|
|
|
10,035
|
|
Dividends on preferred stock (1)
|
(5,667)
|
|
|
(5,667)
|
|
|
(5,563)
|
|
|
(3,652)
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss) Available to Common Stockholders
|
$
|
(490,684)
|
|
|
$
|
(2,606)
|
|
|
$
|
15,022
|
|
|
$
|
47,374
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss) Per Share - Basic
|
|
|
|
|
|
|
|
Continuing Operations
|
$
|
(14.98)
|
|
|
$
|
(0.09)
|
|
|
$
|
0.44
|
|
|
$
|
1.15
|
|
Discontinued Operations
|
—
|
|
|
0.01
|
|
|
—
|
|
|
0.01
|
|
Total Earnings/(Loss) Per Share of Common Stock
|
$
|
(14.98)
|
|
|
$
|
(0.08)
|
|
|
$
|
0.44
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss) Per Share - Diluted
|
|
|
|
|
|
|
|
Continuing Operations
|
$
|
(14.98)
|
|
|
$
|
(0.09)
|
|
|
$
|
0.44
|
|
|
$
|
1.15
|
|
Discontinued Operations
|
—
|
|
|
0.01
|
|
|
—
|
|
|
0.01
|
|
Total Earnings/(Loss) Per Share of Common Stock
|
$
|
(14.98)
|
|
|
$
|
(0.08)
|
|
|
$
|
0.44
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The three months ended September 30, 2020 and June 30, 2020 include cumulative and undeclared dividends of $5.6 million and $5.7 million on the Company's preferred stock as of September 30, 2020 and June 30, 2020, respectively.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2019
|
|
June 30, 2019
|
|
September 30, 2019
|
|
December 31, 2019
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
|
|
|
Interest income
|
$
|
41,490
|
|
|
$
|
40,901
|
|
|
$
|
40,735
|
|
|
$
|
48,534
|
|
Interest expense
|
22,094
|
|
|
23,030
|
|
|
21,887
|
|
|
23,097
|
|
Total Net Interest Income
|
19,396
|
|
|
17,871
|
|
|
18,848
|
|
|
25,437
|
|
|
|
|
|
|
|
|
|
Other Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain/(loss)
|
(20,583)
|
|
|
(27,510)
|
|
|
(16,132)
|
|
|
13,403
|
|
Net interest component of interest rate swaps
|
1,781
|
|
|
1,800
|
|
|
2,179
|
|
|
1,976
|
|
Unrealized gain/(loss) on real estate securities and loans, net
|
46,753
|
|
|
43,165
|
|
|
11,726
|
|
|
(17,812)
|
|
Unrealized gain/(loss) on derivative and other instruments, net
|
(10,086)
|
|
|
(10,839)
|
|
|
3,258
|
|
|
17,355
|
|
Foreign currency gain/(loss), net
|
—
|
|
|
—
|
|
|
667
|
|
|
(3,179)
|
|
Other income
|
414
|
|
|
216
|
|
|
210
|
|
|
342
|
|
Total Other Income/(Loss)
|
18,279
|
|
|
6,832
|
|
|
1,908
|
|
|
12,085
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Management fee to affiliate
|
2,345
|
|
|
2,400
|
|
|
2,346
|
|
|
2,734
|
|
Other operating expenses
|
3,781
|
|
|
3,807
|
|
|
6,062
|
|
|
4,988
|
|
|
|
|
|
|
|
|
|
Equity based compensation to affiliate
|
126
|
|
|
73
|
|
|
76
|
|
|
74
|
|
Excise tax
|
92
|
|
|
186
|
|
|
186
|
|
|
67
|
|
Servicing fees
|
371
|
|
|
416
|
|
|
416
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
6,715
|
|
|
6,882
|
|
|
9,086
|
|
|
8,279
|
|
|
|
|
|
|
|
|
|
Income/(loss) before equity in earnings/(loss) from affiliates
|
30,960
|
|
|
17,821
|
|
|
11,670
|
|
|
29,243
|
|
Equity in earnings/(loss) from affiliates
|
(771)
|
|
|
2,050
|
|
|
(564)
|
|
|
6,929
|
|
Net Income/(Loss) from Continuing Operations
|
30,189
|
|
|
19,871
|
|
|
11,106
|
|
|
36,172
|
|
Net Income/(Loss) from Discontinued Operations
|
(1,034)
|
|
|
(1,193)
|
|
|
(1,057)
|
|
|
(1,132)
|
|
Net Income/(loss)
|
29,155
|
|
|
18,678
|
|
|
10,049
|
|
|
35,040
|
|
|
|
|
|
|
|
|
|
Dividends on preferred stock (1)
|
(3,367)
|
|
|
(3,367)
|
|
|
(3,720)
|
|
|
(5,667)
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss) Available to Common Stockholders
|
$
|
25,788
|
|
|
$
|
15,311
|
|
|
$
|
6,329
|
|
|
$
|
29,373
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss) Per Share - Basic
|
|
|
|
|
|
|
|
Continuing Operations
|
$
|
0.87
|
|
|
$
|
0.50
|
|
|
$
|
0.22
|
|
|
$
|
0.93
|
|
Discontinued Operations
|
(0.03)
|
|
|
(0.03)
|
|
|
(0.03)
|
|
|
(0.03)
|
|
Total Earnings/(Loss) Per Share - Basic
|
$
|
0.84
|
|
|
$
|
0.47
|
|
|
$
|
0.19
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss) Per Share - Diluted
|
|
|
|
|
|
|
|
Continuing Operations
|
$
|
0.87
|
|
|
$
|
0.50
|
|
|
$
|
0.22
|
|
|
$
|
0.93
|
|
Discontinued Operations
|
(0.03)
|
|
|
(0.03)
|
|
|
(0.03)
|
|
|
(0.03)
|
|
Total Earnings/(Loss) Per Share - Diluted
|
$
|
0.84
|
|
|
$
|
0.47
|
|
|
$
|
0.19
|
|
|
$
|
0.90
|
|
(1) The three months ended September 30, 2019 and December 31, 2019 include cumulative and undeclared dividends of $0.4 million on the Company's 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock as of September 30, 2019 and December 31, 2019, respectively.
AG Mortgage Investment Trust Inc. and Subsidiaries
Notes to Consolidated Financial Statements
16. Subsequent Events
On January 29, 2021, the Company, alongside private funds under the management of Angelo Gordon, entered into an amendment with respect to its Restructured Financing Arrangement in MATT. The amendment serves to convert the existing financing to a mark-to-market facility that is recourse to the Company and the private funds managed by Angelo Gordon that invest in MATT. Upon amending the agreement, the Company settled the premium recapture fee with the financing counterparty.
On February 4, 2021, the Company sold Commercial Loan G for proceeds of $58.8 million, eliminating future funding commitments of $18.7 million outstanding as of December 31, 2020.
On February 12, 2021, the Company sold Commercial Loan I for proceeds of $15.7 million, eliminating future funding commitments of $10.1 million outstanding as of December 31, 2020.
Subsequent to quarter end, the Company purchased or, subject to certain conditions, agreed to purchase Non-QM Loans of $73.4 million, of which $27.8 million was sourced from Arc Home. The Company expects to finance these purchases under an existing financing arrangement at an advance rate of approximately 85%.