Q2 2023 AG Mortgage Investment Trust Inc Earnings Call

Thank you Nader.

On your conference today please.

Please press Star zero.

Good day, and thank you for standing by.

Welcome to the AG mortgage investment Trust second quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode.

I'd like to turn the call over to Ginny Naslund General Counsel for the company. Please go ahead.

Thank you good morning, everyone and welcome to the second quarter 2023 earnings call for AG mortgage investment Trust with me on the call today are TJ Durkin, our CEO and President Nick Smith, our Chief investment Officer, and Anthony Rusedski 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.

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, 2022, and our subsequent reports filed from time to time with the SEC.

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

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 supposed to to our website. This morning to view the slide presentation turn to our website Www Dot AG Int Dot com.

And click on the link for the Q.

Q2, 2023 earnings presentation on the homepage further. Please note that we are not going to comment on or discuss the terms or status of our proposed transaction with western asset mortgage capital Corporation at this time.

As a result, we will not be taking Q&A after our prepared remarks.

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, Jamie and good morning, everyone.

We entered the second quarter on the heels of the turbulence from the regional banking crisis in March.

Sure where the market was headed.

The policy actions taken to stem for their broad based deposit runs on markets in the second quarter to determine the regional banking crisis was largely contained and.

And then subsequently with the suspension of the debt ceiling in early June we've seen the markets improve.

That said interest rates continue to rise throughout the quarter, bringing the higher for longer inverted yield curve back to the forefront and leaving the mortgage origination market challenges.

Despite these challenges our hardware continues to serve to protect our book value.

Book value grew by 23% per share to 11, 89, and 11, 52, unadjusted and adjusted basis, respectively. While we maintained ample liquidity of $80 million and only one six turns of economic leverage.

During the quarter Mitt had 17 cents of earnings per share will generate eight cents at the AAD and paint is 18% dividend.

As we've discussed on prior calls our prudent and disciplined securitization strategy is beginning to evidence itself in our earnings power.

The AAD improvement quarter over quarter reflects a combination of higher NIM off our investment portfolio and related hedging strategy as well as the improving fundamentals in our call.

Based on our early preliminary read book values were approximately flat for the month of July .

During the second quarter, we saw strong demand from balance sheet players, namely insurance companies, who are looking for residential whole loan exposure without the intend to securitize.

We took advantage of this opportunity to sell both newly originated loans at a gain and to sell legacy Rps loans out of the 2020 securitization.

Further reducing our legacy exposure there.

The pending sale of Rps is expected to settle this month, bringing in approximately 30 million in additional liquidity available to deploy and generate and the higher roe's that we're targeting today.

As I stated last quarter, we continue to see an environment with higher Roe's based on both some competition retreating and opportunities that we believe are in the early innings are presenting themselves given the lingering effects of the disruption amongst the regional banks balance sheets.

Putting this altogether, we are very pleased with mixed performance year to date and importantly, I believe we are well positioned to drive higher results for both GAAP and ESG metrics per share looking forward.

We remain focused on continuing to build on this positive momentum and look forward to updating you on our progress in the coming quarters.

I'll now turn it over to Nick to discuss our investment activities and our comp in more detail.

Thanks P J.

Utility normalize across credit and interest rate markets and took advantage of the increased liquidity created and sold credit sensitive loans raising equity that can be deployed into heart higher Roe in the coming quarters.

We also built a strong pipeline of newly originated loans and expect to issue two securitizations before the end of the third quarter.

Fred's unknowns tightened throughout the quarter lagged more liquid cohorts of structured credit and mortgage market setting the stage for potential upside on where we saw that on the upcoming securitizations.

We continue to see attractive roe's across the non agency market and are beginning to see early signs of regional and mid sized banks pulling back.

Although still in the early stages. We expect this now widely accepted narrative to lead to opportunities to deploy equity capital in our targeted asset classes.

Throughout the quarter arc home built on the momentum from previous quarters, even as nominal yields retraced close to the highest in the past year.

While there remains significant progress we've made in a difficult origination market. The changes we outlined in previous quarters are beginning to show through improved volumes and benefits from operational efficiencies.

In this quarter's earnings presentation, we provided additional information on page eight outlining the retained non agency securities.

As outlined in previous quarters, the debt we issue offer non QM securitizations is called the Warner after the third anniversary of each transaction.

Extreme yields carbon version, coupled with historically widespread make this options very valuable by providing a potential path forward. These deep discounts in the coming years.

Pie chart shows that over a third of the fair market value of these retained positions our mezzanine or subordinate securities from 2002, and Securitizations held at deep discounts to par.

As the fed approaches the end of this tightening cycle home prices have been much more resilient than projected and mortgage credit continues to perform well.

In line with this trend credit spreads flattened throughout the quarter supported by these strong fundamentals along with significant supply technicals.

Our portfolio continues to perform in line or better than originally underwritten as delinquencies remained low and home prices stabilized nationally.

All financing costs have increased considerably since the beginning of this tightening cycle, we are constructive on being able to deploy current excess liquidity and rotate equity into attractive rois in the mid to high teens with modest mark to market leverage.

I will now turn the call over to Anthony.

Thank you Nick and good morning.

During the second quarter. The company recorded book value of $11 89 per share and adjusted book value of $11 52 per share.

Presenting an increase of <unk>, 3% from prior quarter.

This increase coupled with our dividend generating a quarterly economic return of one 9% for our shareholders.

Our book value performance. This quarter is attributable to improvement in earnings available for distribution.

Gains on our investment portfolio.

And accretive share repurchases, which exceeded our crude common dividend.

During the quarter, we recognized GAAP net income available to common shareholders of approximately $3 5 million or <unk> 17 per fully diluted share.

Net interest income inclusive of our hedge entrust increased quarter over quarter by approximately 500000, while expenses declined $1 3 million less of transaction related expenses.

Although benchmark rates increased during the quarter.

<unk> on our interest rate swap portfolio more than offset mark to market losses on our investment portfolio, resulting in $1 7 million of realized and unrealized earnings.

We continue to utilize our share repurchase program, returning $1 $1 billion of capital to our shareholders.

We repurchased 187000 shares or 1% of our total outstanding shares at the start of the quarter, resulting in 4% of book value accretion as our purchase price was approximately 50% of our adjusted book value.

Year to date, we've deployed $6 4 million of capital than repurchasing our common stock as of quarter end.

And our remaining repurchase authorization was approximately $16 5 million.

Our investment portfolio was flat quarter over quarter at $4 5 million as loan purchases of 220 million were offset by Paydowns and loan sales.

Our financing profile was also relatively consistent with 82% of our financing funded through securitization at a weighted average cost of four 2%.

As a result, our economic leverage ratio at quarter end was one six turns of which one turn related to our credit portfolio and six turns to our agency MBS portfolio.

In addition, we ended the quarter with approximately $2 billion of borrowing capacity to support continued growth in our portfolio.

We generated earnings available for distribution or E D.

<unk> per share for the second quarter.

Net interest income inclusive of interest earned on our hedge portfolio was <unk> 73 per share, which was <unk> <unk> higher than prior quarter.

Net interest income exceeded the operating expenses and preferred dividends generating earnings of <unk> 15 per share.

This was offset by a loss of seven cents contributed from arc home.

For arc home's contribution to <unk> improved by <unk> <unk> quarter over quarter, when excluding the impact of gains recorded by our on loan sold to met.

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

And expect to generate additional capital from the loan sales and securitization as mentioned earlier.

I'll now turn the call back to T J.

Thanks Anthony.

We want to thank everyone again for joining us this morning, and as Jenny mentioned at the top of the call we won't be taking Q&A. This quarter. We appreciate your understanding and we look forward to speaking again next quarter.

Okay.

That concludes today's teleconference. Thank you for your participation you may now disconnect.

Okay.

[music].

Okay.

[music].