Q3 2022 AG Mortgage Investment Trust Inc Earnings Call

November 4, 2022

Good day, and thank you for standing by and welcome to the AG Mortgage Trust third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the management's remarks, there will be a question and answer session in order to ask a question. During this session. Please.

The Starkey followed by the number one on your telephone keypad.

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Today's conference is being recorded.

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Vince Please press Star then zero.

I'd like to turn the call over to Ginny Netherlands.

General Counsel for the company. Please go ahead.

Thank you Katie good morning, everyone and welcome to the third quarter 2022 earnings call for AG mortgage investment Trust with me on the call today are T. J Durkin, our CEO and President Nick Smith, our Chief investment Officer, and Anthony Rusty yellow, our Chief Financial Officer.

Before we begin please note that the information discussed in today's 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 our SEC filings, including under the headings cautionary statement regarding forward looking statements risk factors and management's discussion and analysis.

The company's actual results may differ materially from these statements.

We encourage you to read the disclosure regarding forward looking statements contained in our SEC filings, including our most recently filed Form 10-K for the year ended December 31, 2021, and our subsequent reports filed from time to time with the SEC.

As required by law, we are not obligated and do not intend to update or to review or revise any forward looking statements, whether as a result of new information future events or otherwise.

During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for our reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website. This morning.

The slide presentation turn to our website www dot AEG.

<unk> dot com and click on the link for the third quarter 2022 earnings presentation on the homepage and the Investor presentation section.

Welcome to the call and thank you for joining us today with that I'd like to turn the call over to T. J.

Thank you Jeremy and good morning, everyone.

The markets in the third quarter continued to be centered around this year's themes of inflation volatility and uncertainty about the future.

Despite this during the quarter, our adjusted book value per share declined four 2% from 11 $11 15.

To $10 68.

Predominantly due to widening of credit spreads and securitization markets.

We recorded a GAAP loss of <unk> 33 per share and a loss of <unk> of core earnings per share, while maintaining our common dividend of <unk> 21 per share.

Consistent with last quarter, we'd like to remind you that our GAAP loss was predominantly driven by unrealized mark to market losses.

Based on our early preliminary read book value was down approximately 5% to 6% for the month of October .

During the quarter, we continued executing this business strategy of acquiring high quality newly originated non agency mortgage loans and securitizing them.

We have been very disciplined and successful in terming out our warehouse financing into Securitizations and very choppy markets, which we think is a testament to our strong relationships with debt buyers, who look to our shelf versus others due to its strong performance history.

As a result, our economic leverage ratio decreased from two seven to 2.0 times quarter over quarter with a continued decline in October to approximately one four times as a result of our October deal.

In total there has been $3 8 billion of unpaid principal balance securitized across the G catch up in 2022.

Putting it as the fifth most active non QM issuer based on the information made available to us.

This discipline puts midst liquidity on solid footing with approximately $80 million as of September 30, and approximately $104 million as of October 31.

So unlike others in the space, who may need to play defense, our strong liquidity position should allow us to play offense and volatile markets like this and a number of ways.

One.

Looking ahead with lower mortgage volumes expected. We do believe there is less competition in the non agency space at both the aggregator level permit as well as at the origination level for our coal.

Yes.

Two we believe there will be opportunities to acquire high quality performing loans at material discounts that were originated in 2021 or earlier this year and materially lower coupons as originators and aggregators could be forced to do something by their lenders.

And three we will continue to use excess capital to buy back our common stock accretive to book value, while being mindful of our shares trading liquidity.

Since August we have purchased $2 7 million and a $12 $3 million of capacity left under the current program.

Before I pass it to Nick to go into further detail on the portfolio I think it's important to be transparent.

But given the amount of changes that have occurred this year in terms of interest rates and credit spreads we are seeing more compelling opportunities in the secondary markets.

For sellers of recently issued non agency securities.

We are committed to our origination origination to securitize strategy.

However, as markets move and everyday brings different opportunities.

We believe we may be able to complement our strategy by acquiring the credit exposure, we've been making through securitizations over the last few years and a more cost effective manner by buying that risk in the secondary markets.

We believe the credit underwriting and risk profile is very similar to what is in our current portfolio.

And believe we should be opportunistic to drive risk adjusted returns into the portfolio, whether it be from a proprietary <unk> shelf or through other issuers.

And lastly, I want to say, we very much share the frustration of our shareholders with our stock price.

Each of us on the management team and Angelo Gordon the manager all have meaningful ownership in MIT.

While we know we can't change the stock price overnight we.

We have full confidence in our strategy and our ability with the resources and full support of Angelo Gordon to capitalize on compelling opportunities to generate attractive risk adjusted returns for our shareholders over the long term ill now pass it over to Nick.

Thanks C J as T. J mentioned earlier and outlined on page six during the third quarter and into the beginning of the fourth quarter, we reduced risk and raise liquidity through the programmatic issuance of securities on our well established <unk> shelf.

We issued three transactions totaling just under $1 3 billion.

The first two transactions, we marketed and priced in August .

Market conditions were more favorable to.

The third transaction, we marketed and priced in early October in.

In the relatively short period of time between these transaction AAA spreads widened out nearly 100 basis points, while risk free nominal yields increased over 100 basis points. We expect this sort of volatility to persist as the fed continues to combat inflation.

These securitizations were critical in right sizing our aggregation risk taking into account both the current market volatility and expected future volatility.

Ultimately this increased our liquidity relative to previous quarters, while deleveraging the balance sheet.

Although this capital is generally defensive we believe that there is a high likelihood that the market will present compelling investment opportunities in residential credit in the coming quarters.

Aside from these opportunities the current business is expected to generate the same or higher returns with less risk, which is good since each dollar of capital will be more efficient in what we will also be a meaningfully smaller market.

Turning to page seven.

As you can see our securitization issuance through October exceeded the pace of acquisitions in the third quarter.

This graph on the right shows the significant growth of our of our.

Our securitized loan portfolio, along with the corresponding decrease in warehouse exposure.

Which is now the lowest it's been in over a year.

The left of this slide also summarizes our expectations are forward looking business, despite meaningfully lower expected toward origination volumes, we expect to source new credits around an 8% yield with equity returns in the middle to high teens, while on warehouse.

One securitized, we expect equity returns in excess of 20% on retained tranches, while deploying one to two turns of leverage depending upon the collateral composition.

Turning to page eight.

On this page, we provide high level summary, statistics of our aggregate loan portfolio.

When thinking ahead with a slower economy and weaker housing market. It is important to note the current LTV of 60% and.

60 days delinquent loan population across the over 4 billion of loans is less than 100 basis points.

The last takeaway from this page is how out of the money. This portfolio is relative to forward looking originations with 8% yields which sets us up for the next slide.

Turning to page nine.

Although the mark to market losses have been significant wed like to reiterate what we've said in previous quarters.

Most of the losses are unrealized and although we expect market conditions remain volatile we are constructive on residential mortgage credit fundamentals, even as a recession combined with negative home prices becomes the more likely scenario.

It is worth noting that the underlying mortgages backing the interest only in excess spread certificate certificates, we own are substantially out of the money, providing significant cash flow stability, while the slices of subordinate certificates, we own are priced at significant discounts on a relatively thick part of the capital stack.

We believe that the combination of these two profiles provides stable cash flows along with mark to market upside and limited exposure to recourse leverage.

Turning to page 10.

The top right Bar chart outlines our leverage ratio over the past year.

Here, you can see loans transitioning from warehouse lines to securitize debt, bringing down the recourse leverage to where it is today.

Although we have not reached our lowest recourse leverage ratio, we have made substantial progress in the peak.

As you can see our recourse leverage as of quarter end was approximately two X, which subsequent to quarter end has been reduced further to one forex.

Table in the bottom outlines the composition of our aggregate debt, including securitized debt repo on retained securities and whole loan warehouse.

As of quarter end recourse debt accounted for approximately 24% of the aggregate.

Turning to page 11.

In previous quarters, we made it a point to emphasize that we believed that arc home was more insulated than conventional and government originators because of its non agency origination focus.

Although we still believe this is generally true the most recent move to multi decade high mortgage rates has made it less insulated unexpected.

Arc Home's management team has taken significant measures to rightsize costs, while maintaining prudent operating capacity to take advantage of recent market dislocations.

We will continue to closely monitor capacity, while matching it with the most attractive market opportunities.

Despite this fact this challenging backdrop. It is important to note arc home strong capital position as outlined on this page.

As of quarter end arc home had $32 million of cash and MSR was valued at $92 million, which are largely unlevered.

We believe that arc home is well positioned relative to many of its competitors and expect this challenging period to show its resiliency, while gaining market share and ultimately returning to profitability.

I'll now turn the call over to Anthony.

Thank you Nick.

Turning to slide 12, we provide a reconciliation of our book value per common share.

During the third quarter book value declined by approximately 4% as a result of recording a GAAP net loss available to common shareholders of approximately $7 5 million or <unk> 33 per fully diluted share.

The loss was driven by unrealized mark to market losses recorded across asset classes due to credit spread widening.

Partially offset by gains on our securitized debt and interest rate swap portfolio.

In addition, we also recorded $5 3 million of transaction related expenses, which primarily relate to upfront costs associated with the two securitizations that closed during August and a partial accrual for expenses related to the October securitization.

The decline in book value associated with our preferred and common dividends was slightly offset by accretion from our share repurchases.

As you May recall, we fully utilize the remaining capacity on our previous repurchase program and authorized a new program in August with a capacity of $15 million.

During the quarter, we repurchased approximately 400000 shares or 2% of our total outstanding at a weighted average price of $6 eight per share representing a 43% discount to our September 30 adjusted book value.

As previously noted our remaining capacity under this program is $12 3 million.

On slide 13, we disclosed a reconciliation of GAAP net income to core earnings as well as provide the components of core earnings.

During the quarter net interest income exceeded our hedge and operating expenses generating earnings of $4 9 million or <unk> 22 per share.

We recorded net interest income of approximately $17 million.

And our net interest margin at quarter end was 1%.

This was offset by a 25 cent loss contributed to core earnings from our investment in arc home, bringing core to a <unk> loss overall for the quarter.

Arc home generated an after tax loss to MIT of $1 3 million or <unk> <unk> per share driven by reduced volumes and lower gain on sale margins.

Losses from ARX origination business were partially offset by mark to market gains on our MSR portfolio. However, these are excluded from core earnings.

Arc home's gain on the sale of loans sold to mid <unk>.

<unk> $1 8 million or <unk> <unk> per share this quarter, which you can also see are excluded from core earnings.

As a reminder, these gains are recorded as unrealized gains contributing to GAAP earnings.

As of September 30.

Fair value of our investment in arc home approximated $46 million, which we valued using a multiple of <unk> 94 of book.

Lastly, we ended the quarter with total liquidity of approximately $80 million.

And as of October 31 liquidity was.

<unk> was approximately $104 million, which was inclusive of $102 million of cash and $2 million of Unlevered Agency RBS.

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

Thank you at this time and you would like to ask a question. Please press star one on your Touchtone phone.

Remove yourself from the queue at any time by pressing star Q.

Once again that is star one to ask a question, we will pause for a moment to allow questions to queue.

Thank you. Our first question will come from Doug Harter with Credit Suisse. Your line is now open.

Thanks.

Hoping you could talk about.

Kind of how youre viewing the dividend.

Are you viewing that.

The concept of sort of spread income less expenses.

I was kind of a.

Level to think about or.

How should we think about how.

On the sustainability of the dividend, given where kind of earnings have been lately.

Yes, I think Thats right, Doug I think Anthony just walked through.

A couple of non core measures, which.

We factor into setting the dividend and so I think thats, a fair way to look at the available cash flow.

Okay.

And then you talked about the attractiveness of opportunities today, I guess, how much of the available cash that you had as of the end of October that you gave.

Would you be comfortable kind of leveraging and therefore kind of how much more growth do you think you could have in the portfolio.

Yes.

Yes, I mean, I don't know if we give an exact number I mean, I think we've really de risked.

The portfolio.

Year to date in 2022.

I do think it's going to continue to be choppy at least headed into year end and so I think we just wanted to be able to play from a position of strength kind of into year end here.

Across the opportunity set.

I think we've been running the company with.

Much lower economic leverage.

That in previous cycles, and so I think we have kind of room to expand that without.

Being close to a kind of an upper ceiling from where we are today.

Yes, I guess just to clarify I mean, I guess do you view.

Kind of available liquidity or leverage recourse leverage is more of a gating factor for growth.

I would tell you I would say, we're probably more focused on liquidity I think leverages as.

Readily available to us.

Okay.

Yes.

Okay that makes sense. Thank you.

And once again that is star one to join the queue. Our next question will come from Trevor Cranston with JMP Securities. Your line is now open.

Okay. Thanks.

You mentioned that Youre seeing.

More opportunities in the secondary market.

So as a place to potentially add to the portfolio.

Can you comment on kind of where youre seeing.

Yields on bonds in the secondary market and sort of what's your approach to financing of new purchases.

Thanks.

Yes, so I mean, I think just just to be very clear I mean, we're looking at effectively.

Recently issued within the last call it 18 months non QM or other non agency.

Securities.

I think they're being.

Sold in the market.

Basically the same underlying credit that we've been making through G. Cat I mean, we saw I think this week just to give you context probably.

8% eight 5% yield on like single a securities at a material discount to par.

For for our recently issued non QM deal off of a different shelf.

Just being sold in the secondary market so.

<unk>.

A simple turn or two of leverage I mean, you can definitely get into the mid to high.

High teens ROE is.

It's just a it's a much simpler execution of putting that risk gone versus buying loans.

Warehousing them hedging them, and then having to securitize them.

And so I think normally we don't see this much.

Opportunity in the secondary markets from newly created securities, but I think.

There's a lot of outflows from the money managers.

We are seeing.

Seeing opportunities at that.

Just seemed like a better risk reward when you kind of put all that together.

Okay got it.

And then on arc home.

You mentioned that Theres been some some focus on.

Managing expenses there.

I guess with where rates are today and where gain on sales.

Do you guys foresee that.

Or it will be in a position where it can be.

Profitable in this environment or are you sort of thinking about where they're shaping up through the.

Companies through scaled for the for the market as it is today.

Yes.

Obviously theres a lot of factors that go into that we do expect gain on sale margins increase wed.

We'd like to think we are.

Closer to the bottom than not.

And then from sort of a consolidation standpoint, which T J alluded to in the prepared remarks.

We're already starting to see that maybe not as quickly as we had thought so I think sort of that sort of plays into the gain on sale ultimately as you see that consolidation.

What inning, we are I would like to think we are in.

Later innings, just because of how violent sell off has been.

Versus versus previous ones I think not.

And I think as you can see in other companies have right size staffing very aggressively and so hopefully that gets us closer to a return on on healthy gain on sale. So.

Our view is that it should normalize soon and returned to profitably profitability.

Profitability.

But obviously something like everyone else in this space.

And I'm very very closely.

Okay. Okay.

Okay I appreciate the color. Thank you.

Thank you. Our next question will come from Jason Stewart with Jones trading your line is now open.

Hey, guys good morning.

Just wanted to hear your view on what you think of delinquency transition rates and non QM right now maybe relative T cap versus the rest of the market.

Yes.

Look we're in.

We've yet to really see a meaningful impact or really any meaningful increase in delinquencies and our shelf.

Anything you can we can comp it versus other sectors.

In general the non QM space non AC space.

The increase in delinquencies has been benign universally there may be other segments of the mortgage market that we don't think comp.

Two.

The credits, we have generated where you're starting to see upticks in delinquencies.

So, although we think our our credits will outperform relative to peers in the non QM non agency space, we haven't seen cracks it really than anyone else's.

Our credit creation either so.

For now it's still very healthy.

Alright, thank you.

Thank you. Our next question will come from Eric Hagen with BT AIG. Your line is now open.

Hey, Thanks, Good morning, I Hope you guys are doing all right.

I have a couple of questions and the investor property collateral, which was popular in sourcing last year.

How are you feeling about the leverage of the borrowers and the stability of the LTV in that portfolio, maybe just sensitivity to interest rates in general.

And because of their agency eligible does that mean, the financing should be better for those loans that they need to be brought back onto the balance sheet because of the delinquency.

Yes, So first I think we got a distinguished between sort of the.

Full dark underwrite agency eligible cohorts that we've originated versus the non agency component or non QM component.

Versus other peers, we've done a lot less.

Probably.

If the rest of the markets for.

Over the past year call it $45 to 55% PSVR.

There were like 15.

We haven't seen cracks there and quite honestly, we still believe in.

We're still constructive like many others on rent growth.

As long as there is rent growth we.

We expect delinquencies.

All right, particularly in the full dark stuff, where we have the full board.

Sure.

We have a strong belief.

That those properties are all rented in are not speculative credits.

Got it how about the funding for those loans that they need to be brought back on balance sheet. How do you guys feel about that.

I mean, the funding if they need to be brought back on balance sheet. The vast majority of the debt. We have has been termed out so.

There isn't a scenario where they have to be brought back on balance sheet.

Okay.

And then the follow up there is how are you guys hedging a pipeline for non QM forgive me. If you guys discussed this I had to hop on a little late.

And how are you thinking about managing that with I guess, the visibility for sourcing new product being somewhat challenging itself.

On the hedging side, we have.

Internal models that.

Our are run like everyone else is.

That we manage monitor our hedge ratios than we like we stayed close to home on what we think the duration impact now on the credit credit hedge standpoint, we don't actively hedge.

The credit spread component.

That being said versus where credit spreads are today I would hope that we're closer.

To the Wides.

There and if anything we see credit spreads very very attractive on a historical basis.

Okay, great. Thank you guys very much.

Thank you once again, if you would like to ask a question. Please press star one now again as a final reminder, that is star one to join the queue.

It appears we have no further questions at this time I will now turn the program back over to our presenters for any additional or closing remarks.

Thank you everyone for joining us and for your questions. We appreciate it and look forward to speaking with you again next quarter.

Thank you.

Thank you ladies and gentlemen. This concludes today's event you may now disconnect.

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Session. Please press the star key followed by the number one on your telephone keypad. Please.

Please yes.

Today's conference is being recorded.

Sure.

Please press Star then zero.

I'd like to turn the call over to Ginny Netherlands.

General Counsel for the company. Please go ahead.

Thank you Katie good morning, everyone and welcome to the third quarter 2022 earnings call for AG mortgage investment Trust.

With me on the call today are P J, Dr. Ken our CEO and President Nick Smith, our Chief investment Officer, and Anthony <unk>, Our Chief Financial Officer.

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

The company's actual results may differ materially from these statements.

As required by law, we are not obligated and do not intend to update or to review or revise any forward looking statements, whether as a result of new information future events or otherwise.

<unk> dot com and click on the link for the third quarter of 2022 earnings presentation on the homepage and Investor presentations section again welcome to the call and thank you for joining us today with that I'd like to turn the call over to T. J.

Thank you Jenny and good morning, everyone.

The markets in the third quarter continued to be centered around this year's themes of inflation volatility and uncertainty about the future.

Despite this during the quarter, our adjusted book value per share declined four 2% from 11, $11 15 to $10 68.

Predominantly due to widening of credit spreads in the securitization markets.

We recorded a GAAP loss of <unk> 33 per share and a loss of <unk> <unk> of core earnings per share, while maintaining our common dividend of <unk> 21 per share.

Consistent with last quarter, we'd like to remind you that our GAAP loss was predominantly driven by unrealized mark to market losses.

Based on our early preliminary read book value was down approximately 5% to 6% for the month of October .

During the quarter, we continued executing this business strategy of acquiring high quality newly originated non agency mortgage loans and securitizing them.

As a result, our economic leverage ratio decreased from $2 7 million to 2.0 times quarter over quarter with a continued decline in October to approximately one four times as a result of our October deal.

In total there has been $3 8 billion of unpaid principal balance securitized across the G catch up in 2022.

Putting it as the fifth most active non QM make sure based on the information made available to us.

This discipline puts myths liquidity on solid footing with approximately $80 million as of September 30, and approximately $104 million as of October 31.

So unlike others in the space, who may need to play defense, our strong liquidity position should allow us to play offense and volatile markets like this and a number of ways.

One.

And three we will continue to use excess capital to buyback our common stock accretive to book value, while being mindful of our shares trading liquidity.

Since August we have purchased $2 7 million and $12 $3 million of capacity left under the current program.

Before I pass it to Nick to go into further detail on the portfolio I think it's important to be transparent.

But given the amount of changes that have occurred this year in terms of interest rates and credit spreads.

We are seeing more compelling opportunities in the secondary markets from.

From forced sellers of recently issued non agency securities.

We are committed to our origination origination to securitize strategy.

However, as markets move and everyday brings different opportunities.

We believe the credit underwriting and risk profile is very similar to what is in our current portfolio.

And believe we should be opportunistic to drive risk adjusted returns into the portfolio, whether it be from a proprietary <unk> shelf or through other issuers.

And lastly, I want to say we are.

Very much share the frustration of our shareholders with our stock price each of us on the management team and Angelo Gordon the manager all have meaningful ownership in MIT.

While we know we can't change the stock price overnight.

We issued three transactions totaling just under $1 3 billion.

The first two transactions, we marketed and priced in August .

Market conditions were more favorable.

Third transaction, we marketed and priced in early October .

In the relatively short period of time between these transaction AAA spreads widened out nearly a 100 basis points, while risk free nominal yields increased over 100 basis points. We expect this sort of volatility to persist as the fed continues to combat inflation.

These securitizations were critical in right sizing our aggregation risk taking into account both the current market volatility and expected future volatility.

Ultimately this increased our liquidity relative to previous quarters, while deleveraging the balance sheet.

Although this capital is generally defensive we believe that there is a high likelihood that the market will present compelling investment opportunities in residential credit in the coming quarters.

Turning to page seven.

As you can see our securitization issuance through October exceeded the pace of acquisitions in the third quarter.

This graph on the right shows the significant growth of our of our.

Our securitized loan portfolio, along with the corresponding decrease in warehouse exposure.

Which is now the lowest it's been in over a year.

One securitized, we expect equity returns in excess of 20% on retained tranches, while deploying one to two turns of leverage depending upon the collateral composition.

Turning to page eight.

On this page, we provide high level summary, statistics of our aggregate loan portfolio.

When thinking ahead with a slower economy and weaker housing market. It is important to note the current LTV of 60% and 60.

60 days delinquent loan population across the over 4 billion of loans is less than 100 basis points.

The last takeaway from this page is how out of the money. This portfolio is relative to forward looking originations with 8% yields which sets us up for the next slide.

Turning to page nine.

Although the mark to market losses have been significant wed like to reiterate what we said in previous quarters. Most of the losses are unrealized and <unk>.

Though we expect market conditions remain volatile we are constructive on residential mortgage credit fundamentals, even as a recession combined with negative home prices becomes the more likely scenario.

We believe that the combination of these two profiles provides stable cash flows along with mark to market upside and limited exposure to recourse leverage.

Turning to page 10.

The top right Bar chart outlines our leverage ratio over the past year here.

Here, you can see loans transitioning from warehouse lines to securitize debt, bringing down the recourse leverage to where it is today.

Although we have not reached our lowest recourse leverage ratio, we have made substantial progress in the peak.

As you can see our recourse leverage as of quarter end was approximately two X, which subsequent to quarter end has been reduced further to one forex.

Table on the bottom outlines the composition of our aggregate debt, including securitized debt repo on retained securities and whole loan warehouse.

As of quarter end recourse debt accounted for approximately 24% of the aggregate.

Turning to page 11.

In previous quarters, we made it a point to emphasize that we believed that arc home was more insulated than conventional and government originators because of its non agency origination focus.

Although we still believe this is generally true the most recent move to multi decade high mortgage rates has made it less insulated than expected.

Arc Home's management team has taken significant measures to rightsize costs, while maintaining prudent operating capacity to take advantage of recent market dislocations.

We will continue to closely monitor capacity, while matching it with the most attractive market opportunities.

Despite this fact this challenging backdrop. It is important to note arc home's strong capital position as outlined on this page.

As of quarter end arc home had $32 million of cash and MSR was valued at $92 million, which are largely unlevered.

I will now turn the call over to Anthony.

Okay.

Thank you Nick.

Turning to slide 12, we provide a reconciliation of our book value per common share.

The loss was driven by unrealized mark to market losses recorded across asset classes due to credit spread widening.

Partially offset by gains on our securitized debt and interest rate swap portfolio.

The decline in book value associated with our preferred and common dividends was slightly offset by accretion from our share repurchases.

As you May recall, we fully utilize the remaining capacity on our previous repurchase program and authorized a new program in August with a capacity of $15 million.

As previously noted our remaining capacity under this program is $12 3 million.

On slide 13, we disclosed a reconciliation of GAAP net income to core earnings as well as provide the components of core earnings.

During the quarter net interest income exceeded our hedge and operating expenses generating earnings of $4 9 million or 22.

Per share.

We recorded net interest income of approximately $17 million.

And our net interest margin at quarter end was 1%.

This was offset by a 25 cent loss contributed to core earnings from our investment in arc home, bringing core to a <unk> loss overall for the quarter.

Arc home generated an after tax loss to MIT of $1 3 million or <unk> <unk> per share driven by reduced volumes and lower gain on sale margins.

Losses from ARX origination business were partially offset by mark to market gains on our MSR portfolio. However, these are excluded from core earnings.

Arc home's gain on the sale of loans sold to MIT approximated $1 8 million or <unk> <unk> per share this quarter, which you can also see are excluded from core earnings.

As a reminder, these gains are recorded as unrealized gains contributing to GAAP earnings.

As of September 30.

The fair value of our investment in arc home approximated $46 million, which we valued using a multiple of <unk> 94 book.

Lastly, we ended the quarter with total liquidity of approximately $80 million and as of October 31.

Liquidity was approximately $104 million, which.

Which was inclusive of a $102 million of cash and $2 million of Unlevered Agency MBS.

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

Thank you at this time and you would like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing star Q.

Once again that is star one to ask a question.

We'll pause for a moment to allow questions to queue.

Thank you. Our first question will come from Doug Harter with Credit Suisse. Your line is now open.

Thanks.

Hoping you could talk about.

Kind of how youre viewing the dividend.

Are you viewing that that concept of sort of spread income less expenses.

I was kind of a.

A level to think about or.

How should we think about how.

The sustainability of the dividend, given where kind of earnings have been lately.

Yes, I think Thats right, Doug I think Anthony just walked through.

A couple of non core measures, which.

We factor into setting the dividend until I think thats, a fair way to look at the available cash flow.

Okay.

And then you talked about the attractiveness of opportunities today, I guess, how much of the available cash that you had as of the end of October that you gave.

Would you be comfortable kind of leveraging and therefore kind of how much more growth do you think you could have in the portfolio.

Yes.

Yes, I mean, I don't know if we give an exact number I mean, I think we have really derisked the portfolio.

Year to date in 2022.

Do think that's going to continue to be choppy at least headed into year end and so I think we just wanted to be able to play from a position of strength kind of into year end here.

Across the opportunity set.

I think we've been running the company with.

Much lower economic leverage.

That in previous cycles, and so I think we have room to expand that without.

Being close to a kind of an upper ceiling from where we are today.

I guess just to clarify I mean, I guess do you view.

Kind of available liquidity or leverage recourse leverage is more of a gating factor for growth.

I would tell you I would say it probably is more focused on liquidity I think leverages.

Readily available to us.

Okay.

Yes.

Okay that makes sense. Thank you.

And once again that is star one to join the queue. Our next question will come from Trevor Cranston with JMP Securities. Your line is now open.

Okay. Thanks.

You mentioned that Youre seeing.

More opportunities in the secondary market.

As a place to potentially add to the portfolio.

Can you comment on kind of where youre seeing.

Yields on bonds in the secondary market and sort of what's your approach to financing of new purchases.

Thanks.

Yes, so I mean, I think just just to be very clear I mean, we're looking at effectively.

Recently issued within the last call it 18 months non QM or other non agency.

Securities.

I think they're being sold.

Sold in the market.

Basically the same underlying credit that we've been making through G. Cat I mean, we saw I think this week just to give you context probably.

8% eight 5% yield on like single AA securities at a material discount to par.

For for our recently issued non QM deal off of a different shelf that was just being sold in the secondary market. So.

<unk>.

A simple Turner or two of leverage I mean, you can definitely get into the mid to high.

High teens ROE is.

It's just a it's a much simpler execution of putting that risk on versus buying loans weyerhaeuser.

Warehousing them hedging them, and then having to securitize them.

And so I think.

Normally we don't see this much.

Opportunity in the secondary markets from newly created securities, but I think.

There's a lot of outflows from the money managers.

We are seeing.

Seeing opportunities at that.

Just seemed like a better risk reward when you kind of put all that together.

Okay got it.

And then on arc home.

You mentioned that Theres been some some focus on.

Managing expenses there.

I guess with where where rates are today and where sales that.

Do you guys foresee that.

Arc will be in a position where it can be.

Profitable in this environment or how are you sort of thinking about where they shake out after the.

Companies through scaled further.

The market as it is today.

Yes.

Obviously theres a lot of factors that go into that.

We do expect gain on sale margins increase wed.

We'd like to think we are.

Closer to the bottom than not.

And then from sort of a consolidation standpoint, which T J alluded to in the prepared remarks.

We're already starting to see that maybe not as quickly as we had thought so I think sort of that sort of plays into the gain on sale ultimately as you as you see that consolidation.

What inning, we are I'd like to think we're in.

Later innings, just because of how violent sell off has been.

Versus versus previous ones I think not.

And I think as you can see in other companies have right size staffing very aggressively and so hopefully that gets us closer to our return on on healthy gain on sale. So.

Our view is that it should normalize soon and returned to profitably profitability.

Profitability.

But obviously something like everyone else in this space.

And I'm very very closely.

Okay. Okay.

Okay I appreciate the color. Thank you.

Thank you. Our next question will come from Jason Stewart with Jones trading your line is now open.

Hey, guys good morning.

Just wanted to hear your view on what you think of delinquency transition rates and non QM right now maybe relative T cap versus the rest of the market.

Yes so.

Well we're in.

We've yet to really see a meaningful impact or really any meaningful increase in delinquencies and our shelf. If anything you can we can comp it versus other sectors.

In general the non QM space non AC space increase in delinquencies has been benign universally there may be other segments of the mortgage market that we don't think comp.

Two.

The credits, we have generated where you're starting to see upticks in delinquencies.

So, although we think our our credits will outperform relative to peers in the non QM non agency space, we haven't seen cracks it really than anyone else's.

Our credit creation either so.

For now it's still <unk>.

Very healthy.

Alright, thank you.

Thank you. Our next question will come from Eric Hagen with BT AIG. Your line is now open.

Hey, Thanks, Good morning, I Hope you guys are doing all right.

I have a couple of questions and the investor property collateral, which was popular in sourcing last year.

How are you feeling about the leverage of the borrowers and the stability of the LTV in that portfolio, maybe just sensitivity to interest rates in general.

And because of their agency eligible does that mean, the financing should be better for those loans that they need to be brought back onto the balance sheet because of the delinquency.

Yes, So first I think we got to distinguish between sort of the fee.

Full dark underwrite agency eligible cohorts that we've originated versus the non agency component or non QM component.

Versus other peers, we've done a lot less.

Probably.

If the rest of the markets.

For the past year call it $45 to 55% CR.

There were like 15.

We haven't seen cracks there and quite honestly, we still believe in.

We're still constructive like many others on rent growth.

As long as there is rent growth.

We expect delinquencies.

All right, particularly in the full dark stuff, where we have the full.

Sure.

We have a strong belief.

That those properties are all rented in are not speculative credits.

Got it how about the funding for those loans is going to be brought back on balance sheet. How do you guys feel about that.

I mean, the funding if they need to be brought back on balance sheet. The vast majority of the debt. We have has been termed out so.

There isn't a scenario where they have to be brought back on balance sheet.

Okay.

And then the follow up there is how are you guys hedging a pipeline for non QM forgive me. If you guys discussed this I had to hop on a little late.

And how are you thinking about managing that with I guess, the visibility for sourcing new product being so.

Challenging itself.

On the hedging side, we have.

Internal models that.

Our are run like everyone else is.

That we manage and monitor our hedge ratios than we like we stayed close to home on what we think the duration impact now on the credit credit hedge standpoint, we don't actively hedge.

The credit spread component.

That being said versus where credit spreads are today I would hope that we're closer.

To the Wides.

There and if anything we see credit spreads very very attractive on a historical basis.

Okay great.

Great. Thank you guys very much.

Thank you once again, if you would like to ask a question. Please press star one now again as a final reminder, that is star one to join the queue.

It appears we have no further questions at this time I would like now I'll turn the program back over to our presenters for any additional or closing remarks.

Thank you everyone for joining us and for your questions. We appreciate it and look forward to speaking with you again next quarter.

Thank you.

Thank you ladies and gentlemen. This concludes today's event you may now disconnect.

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