Q3 2020 AG Mortgage Investment Trust Inc Earnings Call
[music].
Welcome to the AG mortgage investment Trust third quarter 2020 earnings call. My name is John I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you do have a question press Star then one on your question.
Please note the conference is being recorded no one I'll turn the call over to enroll right now.
Thank you John good.
Good morning, everyone.
And welcome to the third quarter 2020 earnings call for AG mortgage investment Trust. Thank you.
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 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.
Please refer to our SEC filings for reconciliations to the most comparable GAAP measures.
We will also reference the earnings presentation that was posted to our web site. This morning.
To view the slide presentation turn to our website Www Dot AG MIT dotcom.
Click on the Q3 2020 earnings presentation link on the homepage.
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 and good morning to everyone.
The focus of AG mortgage investment trust continues to be creating earnings power for the company, while maintaining adequate liquidity and increasing book value.
Pleased to report that our GAAP book value per common share increased to $3.34 as of September.
Thirtyth.
Compared and up.
Up from $2.75 as of June Thirtyth.
After taking into account the accumulated an unpaid dividends on our preferred stock.
At the same comparison to book value per share is $3.03 as of as of September thirtyth up from $2.58 as of June Thirtyth.
During the quarter, we continued to make progress in reducing our mark to market leverage and then maintaining our overall leverage ratio below one to one.
Our liquidity at September Thirtyth increased to 82.4 million.
Up from 68.2 million.
As of June Thirtyth.
TJ will touch upon a number of the activities that led to our improved liquidity this quarter.
I'd like to highlight the performance of our mortgage originator affiliate arc home.
In the third quarter arc set another record for earnings exceeding their record earnings in the second quarter.
During the third quarter arc also sold its legacy Ginnie Mae servicing portfolio both.
Both that sale and ARX record profit significantly increased our liquidity.
We continue to see substantial opportunities over the longer term permit to in residential origination both through arc and our other origination channels.
Finally, given our improved liquidity position, we have decided to declare the accumulated unpaid dividends from the second and third quarters on our preferred shares and to declare the to declare a fourth quarter dividend on our preferred shares all dividends will be paid.
On December 17th of this year with.
With that I will turn the call over to TJ Durkin Chief investment Officer.
Thank you David and good morning, everyone.
Turning to our presentation on page five we walk you through our high level activity for the quarter.
We sold various investments, including our Ginnie Mae MSR is a CRD loan with future funding commitments and certain CMBS positions.
In August we also settled our second rated non QM securitization of 2020, along with other Angelo Gordon affiliated funds.
To complement Npls and Rpls, we had on an existing warehouse line, we acquired an additional $60.2 million of like asset like assets and subsequently securitize those terming out our debt further and reducing our mark to market in favor of non recourse debt.
Lastly, we purchased approximately $250 million of agency whole pools, bringing the company back into compliance with its ability to qualify for an exemption from registration under the 40 Act.
Turning to slide six again, we want to highlight the strong performance of our call fully licensed mortgage originator.
The team at our continued to take advantage of the Tailwinds in the mortgage banking sector with another new quarter, a record volume and margins within the agency channels. As we stated on last quarter's call. The company. It was also one of the first originators to re enter the non QM origination space and we are seeing the pipeline for that product you can continue to grow at a healthy pace.
Just as a reminder, mitt owns approximately 45% of arc home and the remainder is owned or controlled by other Angelo Gordon managed funds.
Turning to slide seven we lay out our portfolio metrics.
Our investment portfolio had a fair value of approximately 1.12 billion as of 930.
Representing 0.9 turns of economic leverage the portfolio was approximately 62% residential credit securities and loans, 23% agency and 16% commercial securities and loans. This is all non inclusive of arc home and the cash on hand within the company.
The increase in the size of our investment portfolio was largely driven by the previously mentioned purchase of agency Securities.
And lastly, overall market conditions improved for most credit products during the third quarter, albeit at a less dramatic fashion than the improvement we saw in the second quarter, which was to be expected.
With that I'll turn the call over to Brian to review the financial results.
Thanks, TJ overall for the third quarter, we reported net earnings available to common stockholders of $15 million or 44 cents per fully diluted share.
During the quarter, our equity earnings pickup from arc home was $13.4 million due to their record performance.
Our earnings this quarter were offset by 1.3 million of restructuring related expenses, which weve separated out on our income statement in order to add clarity to our outsized operating expenses for the quarter.
During the quarter, our book value increased to $3.34 at September Thirtyth.
Book value would be 31 cents lower after deducting the accumulated unpaid preferred dividends outstanding at September Thirtyth.
As the board has declared the repayment of all accumulated preferred dividends book value per share will decrease by the amounts paid in Q4.
Consistent with last quarter, we are not currently disclosing core earnings a non-GAAP financial measure, but we will evaluate whether core earnings or other non-GAAP financial measures would help with management investors evaluate our operating performance next quarter.
On the financing side, we had an active quarter and executed two securitizations on a residential loan portfolios that termed out our financing and lowered our funding costs.
Our economic leverage remains under one times and we continue to have that outstanding with six counterparties as of September Thirtyth.
We ended the quarter with total liquidity of 82 million, consisting of 45 million of cash and $37 million of unencumbered Agency securities.
That concludes our prepared remarks, and we would now like to open the call for questions operator.
Thank you we will now begin the question and answer session. If you do have a question press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key.
Once again, if you have a question press Star then one on your Touchtone phone.
And our first question is from Doug Harter from Credit Suisse.
Thanks.
First can can you talk about what your plans are for the portfolio. How you kind of think about what the right. The mix is going forward.
TJ.
Yes sure Doug.
I mean, you know we spent the last quarter or so I think optimizing.
Enhancing our sort of liability profile I mean, we're obviously in the market.
We were successful in acquiring some legacy whole loans.
And that's that's where we spend some of the last call. It 90 days look investments but.
You know the market out there is pretty competitive and we're sort of canvassing, where there's the best relative value.
Yes.
Okay and then just on that you just said you know kind of improving the liability structure I guess as you look forward.
And into the fourth quarter and 21, you know how much of an improvement do you think you can make in your cost of funds relative to kind of where you were kind of during the third quarter.
Yeah, So I think Oh, sorry.
Yeah, I think I think you know, it's probably answered in two parts one we.
Taking advantage of our to the term markets and taking assets, we had on warehouses and terming them out both in terms of getting non non.
Mark to market non recourse debt, but also the cost of funds.
Can improve pretty dramatically.
And then on just the regular way repo, we continue to see.
Those levels come up.
Not not probably not quite to pre cobot doubles, but were grinding towards that sort of closer and closer every month. So we do think there's probably improvement there.
I'm still to come for our portfolio.
Great. Thank you.
Our next question is from Trevor Cranston from JMP Securities.
All right. Thanks.
[music].
Well follow up on the question about the portfolio composition.
[music].
I guess in light of the continued spread tightening we've seen a lot of credit products.
Can you say, if there's any particular sectors or areas of the portfolio, where you think there might not be a lot of remaining upside and and might be areas, where you would.
Potentially look for opportunistic sales from the portfolio.
And to the extent that there are no additional sales can you comment.
Comment on on where you think new capital deployment would be likely to occur. Thanks.
You know Trevor I don't think there's any one sector in particular that we feel at least within our own portfolio is.
A better sell that another its.
When you get into the commercial side, it's very security or asset specific.
And on the residential side, so it's a little bit more broad based but where we're obviously managing the book Accordingly.
Okay got it.
And then at Arc home could you disclose what the gain on sale margin was for Threeq you.
And you know as you're looking forward can you say you know where you are seeing margin today versus Threeq, you and sort of what drove because I'm not sure I missed it.
21 thanks.
Yes, we haven't really disclosed the exact number on gain on sale for Q3.
What I can tell you is through Q4 to date I would say it's remain largely unchanged. We do expect it to you.
Drift lower.
Over the quarter. So that so I think we would assume that the the highest margins are behind us, but it seems to be.
Lasting longer than than most people would have thought say three four months ago.
But we do expect as we have your 2021 margins will will start to come down.
Okay got it thank you.
Once again, if you do have a question press Star then one on your Touchtone phone.
And I'm seeing no further questions at this time.
Great. Thanks, I think we can end the call. Thanks, everyone for joining I will speak to you next quarter.
Have a good day everyone.
Thank you, ladies and gentlemen that concludes today's call. Thank you for participating and you may now disconnect.
[music].
[music].
[music].
Welcome to the AG mortgage investment Trust third quarter 2020 earnings call. My name is John I'll be your operator for today's call at this.
I'm all participants only mode.
That's a question and answer session. During the question and answer session. If you do have a question press Star then one on your first one.
Please note the conference is being recorded no one I'll turn the call over to grow right now.
Thank you John.
Good morning, everyone and.
Welcome to the third quarter 2020 earnings call for AG mortgage investment Trust Inc. before.
Before we begin please note that the information discussed on today's conference call may contain forward looking statements.
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 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 and 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 the earnings presentation that was posted to our website. This morning.
To view the slide presentation turn to our website www Dot Agee MIT Dot com.
Click on the Q3 2020 earnings presentation link on the homepage.
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, Rob Doyle and good morning to everyone.
The focus of AG mortgage investment trust continues to be creating earnings power for the company, while maintaining adequate liquidity and increasing book value.
Please to report that our GAAP book value per common share increased to $3.34 as of September.
30, yes.
Compared and hop up from $2.75 as of June Thirtyth.
After taking into account the accumulated unpaid dividends on our preferred stock.
Same comparison, a book value per share is $3.03 as <unk> as of September thirtyth up from $2.58 as of June Thirtyth.
During the quarter, we continued to make progress in reducing our mark to market leverage and in maintaining our overall leverage ratio below one to one.
Our liquidity at September Thirtyth increased to 82.4 million.
Up from 68.2 million.
As of June Thirtyth.
TJ will touch upon a number of the activities that led to our improved liquidity this quarter.
I'd like to highlight the performance of our mortgage originator affiliate arc home.
In the third quarter arc set another record for earnings exceeding their record earnings in the second quarter.
During the third quarter are also sold its legacy Ginnie Mae servicing portfolio both.
Both that sale and ARX record profit significantly increased our liquidity.
We continue to see substantial opportunities over the longer term permit to in residential origination both through arc and our other origination channels.
Finally, given our improved liquidity position, we have decided to declare the accumulated unpaid dividends from the second and third quarters on our preferred shares and to declare the to declare the fourth quarter dividend on our preferred shares all dividends will be paid.
On December 17th of this year with.
With that I will turn the call over to TJ Durkin Chief investment Officer.
Thank you David and good morning, everyone.
Turning to our presentation on page five we walk you through our high level activity for the quarter.
We sold the areas of investment, including our Ginnie Mae MSR scenery loan with future funding commitments and certain CMBS positions.
In August we also settled our second rated non QM securitization of 2020, along with other Angelo Gordon affiliated funds.
Complement npls and Rpls, we had on an existing warehouse line, we acquired an additional $60.2 million of like asset like assets and subsequently securitize those terming out our debt further and reducing our mark to market in favor of non recourse debt.
Lastly, we purchased approximately 250 million of agency whole pools, bringing the company backup appliances with its ability to qualify for an exemption from registration under the 40 Act.
Turning to slide six again, we want to highlight the strong performance of our call fully licensed mortgage originator.
The team at ARCC continues to take advantage of the Tailwinds in the mortgage banking sector with another new quarter, a record volume and margins within the agency channels as we stated on last quarter's call.
I think it was also one of the first originators to re enter the non QM origination space and we are seeing the pipeline for that product you can continue to grow at a healthy pace.
Just as a reminder, mitt owns approximately 45% of arc home and the remainder is owned or controlled by other Angelo Gordon managed funds.
Turning to slide seven we lay out our portfolio metrics.
Our investment portfolio had a fair value of approximately 1.12 billion as a 930.
Representing 0.9 turns of economic leverage the portfolio with approximately 62% residential credit securities and loans, 23% agency and 16% commercial securities and loans. This is all not inclusive of our call and the cash on hand within the company.
Increasing the size of our investment portfolio was largely driven by the previously mentioned purchases of agency securities.
And lastly, overall market conditions improve for most credit products during the third quarter, albeit at a less dramatic fashion than the improvement we saw in the second quarter, which was to be expected.
With that I'll turn the call over to Brian to review the financial results.
Thanks, TJ overall for the third quarter, we reported net earnings available to common stockholders of 15 million or 44 cents per fully diluted share.
During the quarter, our equity earnings pickup from arc home was $13.4 million due to their record performance.
Earnings this quarter were offset by 1.3 million of restructuring related expenses, which weve separated out on our income statement in order to add clarity to our outsized operating expenses for the quarter.
During the quarter, our book value increased to $3.34 at September Thirtyth book.
Book value would be 31 cents lower after deducting the accumulated unpaid preferred dividends outstanding at September Thirtyth.
Has the board has declared the repayment of all accumulated preferred dividends book value per share will decrease by the amounts paid in Q4.
Consistent with last quarter, we are not currently disclosing core earnings.
Non-GAAP financial measure, but we will evaluate whether core earnings or other non-GAAP financial measures would help both management and investors evaluate operating performance next quarter.
On the financing side, we had an active quarter and executed two securitizations on our residential loan portfolios that termed out our financing and lowered our funding costs.
Our economic leverage remains under one times and we continue to have debt outstanding with six Counterparties as of September Thirtyth.
We ended the quarter with total liquidity of 82 million consisting of 45 million of cash and 37 million of unencumbered Agency Securities.
That concludes our prepared remarks, and we would now like to open the call for questions operator.
Thank you well now begin the question and answer session. If you do have a question press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key once.
Once again, if you have a question press Star then one on your Touchtone phone.
And our first question is from Doug Harter from Credit Suisse.
Thanks.
First can can you talk about.
What your plans are for the portfolio, how you kind of think about what the right. The mix is going forward.
TJ.
Yes sure Doug.
I mean, we spent the last quarter or so I think optimizing.
And enhancing our sort of liability profile, where we're obviously in the market.
We were successful in acquiring some.
Legacy whole loans.
And that's that's where we spend some of the last call. It 90 days looking at investments but.
You know the market out there is pretty competitive and we're sort of canvassing, where there's the best relative value.
Okay and then just on that you just said you know kind of improving the liability structure I guess as you look forward.
And into the fourth quarter and 21.
How much of an improvement do you think you can make it in your cost of funds relative to kind of where you were kind of during the third quarter.
Yeah, So I think.
You want to.
Good.
Yeah, I think I think you know, it's probably answer it in two parts one we've taken.
Taking advantage of I would say that the term markets and taking assets, we had on warehouses and terming them out both in terms of getting non non mark.
Mark to market non recourse debt, but also the cost of funds.
Can improve pretty dramatically.
And then on just the regular way repo, we continue to see.
Those levels.
Not not probably not quite to pre cobot doubles, but were grinding towards that sort of closer and closer every month. So we do think there's probably improvement there.
I'm still to come for our portfolio.
Great. Thank you.
Our next question.
Washington is from Trevor Cranston from JMP Securities.
All right. Thanks.
Well follow up on the question about portfolio composition.
I guess in light of the continued spread tightening we're seeing a lot of credit products.
Can you say, if there's any particular sectors or areas of the portfolio, where you think there.
There might not be a lot of remaining upside and then might be areas, where you would.
Potentially look for opportunistic sales from the portfolio.
And to the extent that there are no additional sales can you comment.
Comment on on where you think your capital deployment would be likely to occur. Thanks.
You know however, I don't think there's any one sector in particular that we feel at least within our own portfolio is.
A better sell that another its.
When you get into the commercial side, it's very security or asset specific.
And on the residential side, so it's a little bit.
More broad based but where we're obviously.
Managing the book Accordingly.
Okay got it.
And then at Arc home could you disclose what the gain on sale margin was for Threeq you.
And as you're looking forward can you say.
Where you are seeing margin today versus threeq revenue sort of what your outlook is on that shrunk.
21 thanks.
[music].
Yes, we haven't disclosed the exact number on gain on sale for Q3.
What I can tell you is through Q4 to date I would say it's remain largely unchanged, we do expect it to.
Drift lower.
Over the quarter.
So I think we would assume that the the highest margins are behind us, but it seems to be.
Lasting longer than than most people would have thought say three four months ago.
So we do expect as we have your 2021 margins will.
We will start to come down.
Okay got it thank you.
Once again, if you do have a question press Star then one on your Touchtone phone.
Im seeing no further questions at this time.
Great. Thanks, I think we can end the call. Thanks, everyone for joining I will speak to you next quarter.
Have a good day everyone.
Thank you, ladies and gentlemen that concludes today's call. Thank you for participating and you may now disconnect.