Q2 2020 AG Mortgage Investment Trust Inc Earnings Call

Well I can play teamwork investment Trust second quarter 2020 call. My name is Sofia and operator for today's call.

At this time all participants are not the only mode later, well conduct a question and answer session.

The question and answer session. If you happy question. Please press Star then one and you touched on call.

Please note that this cockpit this be recorded.

I'll now turn the call over to Baltimore, I know, that's where I know you may begin.

Thank you Sylvia good morning, everyone.

Welcome to the second quarter 2020 earnings call for AG mortgage investment trusts, Inc.

Before we begin please note that the information discussed on today's conference call may contain forward looking statements.

Any forward looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in the risk factors and mdna sections of our most recent SEC filings.

The Companys actual results may differ materially from these statements.

We encourage you to read the disclosure regarding forward looking statements contained in our earnings release in our earnings presentation and in our SEC filings.

During the call today, we will refer to certain non-GAAP financial measures.

Please refer to our SEC filings for reconciliations to the most comparable GAAP measures.

We will also reference earnings presentation that was posted to our website. This morning.

To view the slide presentation turn to our website Www Dot AG MIT dotcom.

Click on the Q2 2020 earnings presentation link on the home page.

Again, welcome and thank you for joining us today.

With that I would like to turn the call over to our CEO David Roberts.

Thank you Raul good morning to everybody.

As we discussed last quarter, our immediate goals have been to reduce leverage increased liquidity and begin to restore book value.

Im pleased to report that our book value per common share increased to $2.75 as of June thirtyth.

Compared to an estimated range of $1.80 to $1.90 as of April Thirtyth.

In terms of leverage we reduced our mark to market nonrecourse financing.

Two about.

HM 280 million this quarter Im sorry, our mark to market recourse financing.

To about $280 million this quarter from 1.2 billion last quarter. This 900 million dollar reduction came mostly from asset sales and pay downs.

Although we were we also were able to shift about $200 million of financing from mark to market recourse to non mark to market.

Non recourse.

As a quarter and our total investment portfolio was $1 billion, our economic leverage was 0.8 times and we had cash of nearly 70 million on hand.

Our mortgage originator affiliate arc home had by far its best quarter in its history, we continue to see substantial opportunity over the longer term permit in residential origination both through our and our other channels.

In terms of dividends as previously announced we did not pay common or preferred dividends this quarter.

Based on current conditions for our company, we do not anticipate paying dividends on our common or preferred stock for the foreseeable future.

Thank you for listening and I'll now turn the call over to TJ Durkin Chief.

Investment officer.

Thank you, Dave and good morning, everyone.

Turning to our presentation on page five we walk you through a high level activity for the quarter.

Beginning on March 20, Threerd through June Thirtyth, we delever the company by selling approximately $1 billion of various mortgage investments.

We officially exit forbearance on June 10, and we're pleased to report as of August 10th the company resolved and settled any outstanding deficiency claims with lenders.

Our resulting financing profile is now primarily non recourse on mark to market with only a small number of counterparties.

Subsequent to quarter and the company repaid $10 million at a scheduled maturity of the secured debt. The manager issued at their request are participating forbearance lenders.

The remaining and final 10 million is due and payable on March 30, Onest 2021.

As we indicated on last quarter's call that the company was active in securitizing and terming out debt on its residential mortgage whole loan portfolio.

Completing an unrated refinancing re performing and nonperforming loans in June returning over $6 million of cash back to the company.

Subsequent to quarter end.

Also completed its second rated non QM securitization of 2020, along with other Angelo Gordon affiliated funds.

Also subsequent to quarter end, we took advantage of strong secondary markets within CMBS.

And so positions, which resulted in approximately 24.4 million of proceeds.

Turning to slide six.

We want to highlight the strong performance of arc home are fully licensed mortgage originator affiliate.

The team at arc has been able to fully take advantage of the tailwinds in the mortgage banking sector with both record volume and margins within the agency channels.

In July the company was also one of the first originators to re enter the Nonqm.

Business and we expect to see volumes grow as we look ahead in 2020 and beyond.

And just as a reminder, mitt owns approximately 45% of arc home and the remainder is owned by other Angelo Gordon managed funds.

On slide seven where they are portfolio metrics, we had a fair value of approximately 959 million.

As of 630, representing 0.0 returns of economic leverage.

The portfolio was approximately 70% residential securities and loans and 22% commercial securities and loans not inclusive of arc home and the cash on hand within the company.

And lastly, overall market conditions improved for all products during the second quarter with residential credit assets, taking the lead earlier on in the quarter and commercial credit assets firming towards the end of the quarter and continuing that strength, thus far into the third quarter.

With that I'll turn the call over to Brian to review the financial results.

Thanks, CJ overall for the second quarter, we reported net losses available to common stockholders of negative 2.6 million or eight cents per fully diluted share.

Earnings for the quarter include higher than normal interest expenses due to elevated rates during our forbearance period earnings often include $7.8 million restructuring related expenses, which we've separated out on our income statement in order to add clarity to our outsize operating expenses for the quarter.

As we mentioned, we do not declare dividends on preferred stock. However, the 2.6 million net loss does reflect a decrease of $5.7 million preferred dividends in the quarter.

During the quarter, our book value increased to $2.75 at June Thirtyth from an estimated range of $1.80 to $1.90 at April 30 ish and $2.63 at March 31.

Per GAAP and unlike earnings the balance sheet does not include an accrual of the undeclared preferred dividends and therefore book value does not include.

Accumulated on per unpaid preferred dividend.

Consistent with last quarter, we're not currently disclosing core earnings.

Non-GAAP financial measure as we determined that this measure has we have historically calculate it would not have probably capture the maturity up materially negative economic impact of the covert 19 pandemic on our business liquidity results of operations and ability to make distributions to our stockholders.

As financial markets stabilize we will evaluate whether core earnings or other non-GAAP financial measures would help both management and investors evaluate our operating performance for future periods.

Our economic leverage decreased from 3.3 times at March 31.8 times at June Thirtyth as a result of asset sales and then restructuring one of our larger financing agreements, which amended the terms of in ranch meant to be non mark to market with respect to margin calls as well as non recourse to us.

Additionally, we reduced the number of Counterparties, we had debt outstanding with from 18 as of March 31 to six as of June Thirtyth.

We issued approximately 1.4 million shares of common stock for net proceeds of approximately 5 million through our ATM program some of the share settling in July.

Subsequent to quarter end, we sold certain CMBS positions for proceeds of approximately 24.4 million.

We also repaid 10 million of secured debt plus accrued interest our manager as it became too.

Additionally, we participated through our unconsolidated ownership interest and Matt in a rated non QM loan securitization, which non QM loans with a fair value of $221 million were securitize. This turned out our repo financing into lower cross FIS fixed rate long term financing within our subset.

Larry.

That concludes our prepared remarks, and we'd now like to open the call for questions operator.

Thank you we will now begin the question and answer session BP Happy question. Please press Star then one and you touched on.

ABTS Speaker phone you may need to pick up the handset guys before passing the numbers.

Once again you have a question. Please press Star then one.

And our first question, Eric Hagen from KBW.

Thanks, Good morning, I Hope you guys are doing well, which assets, including the assets of your affiliates are now being funded with repo.

And what was the level of unencumbered assets that you carried at the end of June.

On the vast majority of the Eric.

Our regular way repo is just.

She ships are securities.

Versus whole loans, we have more and.

We've transferred more of that into the non mark to market type facilities I don't have the exact numbers in front of me.

Okay, and what was it was the rough level of unencumbered assets, how much could you draw against the securities from from here.

I walked back on that.

Okay did you say, where your book value is currently includes inclusive of the ATM issuance that settled in July.

Can you say where.

Were in the portfolio you had some unrealized losses and the outlook to recover a portion of those from there.

On the.

The book value, we have not done.

Anything beyond June Thirtyth, So, we'll just stick with.

June Thirtyth, obviously, there's more changes than just the.

Just the ATM.

I'll, let my colleagues handle the other question.

Yes on the on recovered I would say that's more geared toward security so the.

Things like CMBS and CRT, probably are further away from call it pre coven levels versus I think.

Residential whole loans have recovered more of that.

So far to throughout August 10th.

Got it okay and can you give any color on how arc home this capitalize including.

Just kind of a rough rough idea of the fair value of MSR and its balance sheet and how that's funded.

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Yes, so we funded that arc home funds that through.

Lending relationships with various banks as well as utilized.

Excess MSR stripping transactions, which.

You know Mitt and other Angelo Gordon funds help fund so to minimize the.

A fair value there I don't have the aggregate fair value of the MSR is in front of us right now but.

We can get back to you on that.

Sure, but just just to get a sense for how much capital is in the business.

Just how much net asset values in the business right now.

Yes.

We disclose it's about $20 million that we have in the presentation Thats fair share of the.

Company.

The value and were about 46% of arc home right.

Okay. So 40, 40 odd 45 million odd.

Dollars.

I'll go into business got it okay. Thank you guys.

No.

Just a reminder, you have your question. Please press star one line item.

Your next question comes from Trevor Cranston JMP Securities.

Hey, thanks.

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Can you talk about how much roughly speaking you expect interest expense to benefit.

One from having.

Ended the forbearance agreements and then secondarily from.

Some of those securitization refinancing you're able to do in June.

So it's.

Unfortunately, it's hard to we don't typically give out that type of guidance and there were just so many kind of moving parts in the quarter in terms of different outstanding finance is that it's hard to kind of take a good shot at what it will be.

Without it just being off to high level.

We don't really have that we obviously, we did I did say that it was increased from the second quarter.

The non mark to market financing.

Did cost us little bit more obviously and secured financings to cost more than three Bose.

But the four bit during the forbearance agreement. We also were at elevated interest rates. So thats come down and now that we're back to kind of regular way refile on their securities and loans.

You will start to see a more normalized run rate in the third quarter.

Okay fair enough. Thanks.

And then I appreciate that you stripped out the restructuring expenses.

Are there any other sort of elevated or onetime items that are within the.

Other operating expenses.

Fortunately.

Not really.

We tried to isolate that in the restructuring.

So not really I mean, obviously with the decrease in size, we do expect some of our operating expenses come down as well.

So that's not something has to be stripped out but is something that should naturally decline given the cash shrinkage of the portfolio.

Okay. Thanks.

And then one more question on or Colm.

Do you heard any color on in terms of what you're seeing with margins there sort of as the second quarter production progressed and first quarter.

It was like they may have peaked for some originators early in second quarter and have been trending a little tighter.

Sort of trying to get a sense will you guys are seeing and.

If we should think about second quarter, because maybe sort of being a.

Peak in the.

Your earnings earnings for the business over the near term. Thanks.

Yes, I mean, I think I think into the third quarter volumes and margins are still fairly robust. We obviously do expect that to dissipate over time.

Whether its.

Next month or Q4.

It's hard for us to predict.

Okay fair enough. Thank you.

Your final question comes from Ryan James from Springhill capital.

Hi, guys is there anything preventing you from.

You anyway.

Okay all right.

Hi, Jim sell more share based on where the stock price like other limitations or if that's what the adjustment call you guys make as to how much though.

Yes.

The limitations.

That we set for ourselves our two typically we don't like to move the market. So.

It's really based on it's really based on volume.

And the length of our the window.

That's open to us but.

Rental I don't know or Brian if you want to comment further.

Yes, Thats right there are some limitations in terms of daily trading.

Activity as well, so and as David mentioned.

You're trying to do it through the market Theres also windows trading windows that we work with lead on in terms of.

When our information as published that can restrict the daily volume, but the days that you can issue.

Okay. Thanks, and would you guys consider hey equity offering below market, a formal equity offering not at the money.

The kind of get scale and rebalance the couple of market.

Look we have a wide range of.

Of options that were that we're all that we're always considering.

And we have to be certainly mindful of book value and.

As I said one of our goals has been to restore.

Book value per share.

And.

That's that's an important criterion for anything that we might we might do in the future.

Okay. Thanks.

We have no further questions.

Okay. Thanks, everyone for joining will speak next quarter.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.