Q4 2023 AG Mortgage Investment Trust Inc Earnings Call

Operator: Please stand by; your program is about to begin. Good day and thank you for standing by. Welcome to the AG Mortgage Investment Trust Incorporated fourth quarter 2023 and full year earnings conference call. At this time, all participants are in a listen only mode.

Good day and thank you for standing by welcome to the AG mortgage investment Trust incorporated fourth quarter 2023, and full year earnings conference call. At this time all participants are in a listen only mode. After management's remarks, there will be a question.

Operator: After management's remarks, there will be a question and answer session. In order to ask a question during the session, please press the star key followed by the number 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please do so.

And answer session.

In order to ask a question during this session. Please press the star key followed by the number one on your telephone please.

Please be advised that today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I'd now like to turn the call over to Jenny Meslin General Counsel for the company. Please go ahead.

Jenny Neslin: Thank you. Good morning, everyone, and welcome to the full year and fourth quarter 2023 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 Rossiello, 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 Discussion and Analysis. The company's actual results may differ materially from these statements.

Thank you.

Everyone and welcome to the full year and fourth quarter of 2023 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 rest of 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 managements.

The 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.

Jenny Neslin: 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, our quarterly report on Form 10-Q for the quarter ended June 30, 2023, 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 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 reconciliations to the most comparable gap measures. We will also reference the earnings presentation that was posted on our website this morning. To review the slide presentation, go to our website, www.agmit.com, and click on the link for the Q4 2023 earnings presentation on the homepage. Again, welcome to the call, and thank you for joining us today. With that, I'd like to turn the call over to TJ.

Our quarterly report on Form 10-Q for the quarter ended June 32023, 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 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.

To review the slide presentation turn to our website www Dot AEG.

T Dot com and click on the link for the Q4 2023 earnings presentation on the homepage.

Again, welcome to the call and thank you for joining us today.

That I'd like to turn the call over to T. J.

Yeah.

T.J. Durkin: Thank you, Jenny. I'm very excited to be able to finally discuss with the market the successful acquisition of WMC this past December and the future prospects for NIC going forward. While we believe the WMC acquisition is another substantial step in further positioning MIT as a premier pure-play residential mortgage lender, we all know there is still plenty of work to do as we continue to deliver on strong earnings off the investment portfolio while seeking ways to continue enhancing scale and G&A efficiency. Now turning to page five, before we review the fourth quarter and full year 2023 financials, we thought we'd take a step back to review the scope of the transformation that's already occurred since year-end 2020, when we first set out to shift to a pure play residential mortgage.

Thank you Tony.

I'm very excited to be able to finally discuss with the market. The successful acquisition of WMC. This past December and the future prospects for mix going forward.

While we believe the WMC acquisition is another substantial step in further positioning.

Premier pure play residential mortgage REIT.

We all know Theres still plenty of work to do as we continue to deliver on strong earnings off the investment portfolio, while seeking ways to continue enhancing scale and G&A efficiencies.

Now turning to page five before we review the fourth quarter and full year 2023 financials, we thought we'd take a step back to review the scope of the transformation. That's already occurred since year end 2020, when we first set out to shift to a pure play residential mortgage REIT.

T.J. Durkin: You can see here the equity allocation over time as we successfully exited non-core asset classes without any drag to earnings and while demonstrating the ability to scale into the deployment of capital within our target asset class by acquiring over $7.3 billion of strong credit-quality residential mortgage loans during this time frame, with over one-third of them being sourced from our captive mortgage originator. We actively and prudently executed our securitization strategy, having issued 16 deals into the market.

You can see here the equity allocation over time, as we successfully exited noncore asset classes without any drag to earnings and.

And while demonstrating the ability to scale into deploying capital within our targeted asset class by acquiring over seven 3 billion of strong credit quality residential mortgage loans. During this timeframe with over one third of them being sourced from our captive mortgage originator of our call.

We actively and prudently executed our securitization strategy, having issued 16 deals into the market.

T.J. Durkin: Further bolstering our GCAT shelf recognition for both consistency and credit quality, which our institutional bondholders value. The disciplined approach to risk management via securitization and de-risking of recourse leverage has not only lowered our economic risk during this time frame but also reallocated a significant portion of our equity to higher yield and securitized assets, which is what we set out to do. Building on this successful track record, we will employ the same strategy on the newly onboarded WMC portfolio, and we have already begun that process, which we will get into in more detail. Moving to page 6, we provide a quick recap of the WMC acquisition, with the highlights being an almost 50% increase in MIPS market cap, which should add to our share's trading volume in the... We'd also like to highlight the strong support from our external manager, T Cash contribution of $5.7 million from our manager to WMC shareholders to help secure the deal, resulting in $1.3 million in future reimbursable expense offset. And lastly, an additional $2.4 million in management fee waivers beginning in the fourth quarter of 2023.

Further bolstering our chi catch ups recognition for both consistency and credit quality, which are institutional bondholders value.

This disciplined approach to risk management via securitization and Derisking, our recourse leverage has not only lowered our economic risks during this timeframe and also reallocated a significant portion of our equity to higher yielding securitized assets, which is what we set out to do.

Building on the successful track record, we don't play the same strategy to the newly onboard of WMC portfolio and we've already begun that process, which we will get into in more detail.

Moving to page six we provide a quick recap of the WMC acquisition with the highlights being an almost 50% increase in midst market cap.

Which should add to our shares trading volume and liquidity wed.

We'd also like to highlight the strong support from our external manager CTG Angelo Gordon through three key metrics.

Cash contribution of $5 7 million from a manager to WMC shareholders to help secure the deal.

Resulting in $1 $3 million in future Reimbursable expense offsets.

And lastly, an additional $2 4 million in management fee waivers beginning in the fourth quarter of 2023.

T.J. Durkin: The transaction creates significant long-term annual expense savings to the tune of $5.27 million per annum, and we believe this deal will be accretive to 2024 earnings. Moving to page 7, we provide a walkthrough on book value to show the effects of the WMC transaction. If Mint were to have remained a stand-alone company, we would have seen book value actually improve during the year from $11.39 to $11.51, as you can see on the left side of the page.

The transaction creates significant long term annual expense savings to the 2% to five $5 million to $7 million per annum and we believe this deal will be accretive to 2020 for earnings.

Moving to page seven we provide a walk through on book value to show the effects of the WMC transaction.

If we are to have remained a standalone company, we would've seen book value actually improved during the year from $11 39 to $11 51.

As you can see on the left side of the page.

T.J. Durkin: On the right side of the page, we break out the various components of the WMC transaction which affect book value. You may recall the transaction was structured based on a fixed exchange ratio using June 30th valuations. As we close the books for year-end, we did see some valuation deltas on certain WMC assets since the June 30th fixed exchange ratio date and our closing December 31st mark of approximately $0.44. Transaction expenses, which made up the majority of the impact, approximated $0.39 on the WMC side, which includes their manager termination payment, and $0.20 of transaction expenses from the MID side.

On the right side of the page, we break out the various components of the WMC transaction, which affect book value.

You may recall the transaction was structured based on a fixed exchange ratio using June 30 evaluations.

As we close the books for yearend, we did see some valuation delta is uncertain WMC assets since the June 30, a fixed exchange ratio date and are closing December 31 marks of approximately 44.

Transaction expenses, which made up the majority of the impact approximately 39 on the WMC side, which includes our manager termination payment in 'twenty or transaction expenses from the mid side.

T.J. Durkin: The remaining $0.02 decline represents net losses contributed by WMC from the acquisition date through year-end, offset by the incremental dividend declared associated with the shares issued to acquire WMC, resulting in our final 2023 built value of $10.46 per share. On page 8, we'll move away from the transaction to address MIPS fiscal year performance. As previously stated, we ended the year with a book value of $10.46 and an adjusted book value of $10.20 per share.

The remaining two cent decline represents net losses contributed by WMC from the acquisition date through year end offset by the incremental dividend declared associated with the shares issued to acquire WMC, resulting in our final 2023 book value of $10 46 per share.

On page eight we'll move away from the transaction to address mix mid fiscal year performance.

As previously stated we ended the year with a book value of $10 46.

And then adjusted book value of $10 20 per share.

T.J. Durkin: We have over $528 million of total equity and $112 million of liquidity, resulting in an economic leverage of 1.5 times. Since year-end, our liquidity increased as a result of our inaugural bond issuance, which I'll touch on later, and our economic leverage ratio has declined as we executed a securitization in January, further reducing our warehouse exposure. On page 9, when looking back at MIPS activities across 2023, we have consistently executed on our stated business plan by acquiring $1.2 billion of loans, not including the portfolio acquired from WMC, and, in turn, se Throughout the year, we generated $53 million of net interest income, which drove our $0.39 EAD per share for the year.

We have over $528 million of total equity and a $112 million of liquidity.

Resulting in an economic leverage at one five turns.

Since year end, our liquidity increased as a result of our inaugural bond issuance, which I'll touch on later.

Economic leverage ratio has declined as we execute our securitization in January further reducing our warehouse exposure.

On page nine when looking back at myths activities across 2023, we have consistently executed on our stated business plan by acquiring $1 2 billion of loans not including the portfolio acquired from WMC and in turn securitized securitizing $1 billion of loans during 2023 across.

Three distinct securitizations.

Throughout the year, we generated $53 million of net interest income, which drove our 39.

<unk> per share for the year.

T.J. Durkin: We believe it's also worth noting that all one-time transaction expenses are now behind us as we head into 2024. And when thinking about the current dividend run rate, we will now have the full benefits of the G&A scale we achieved via the acquisition for the up... Moving to page 10, during the quarter, MIT closed the WMC acquisition, effectively raising $81 million of equity for the combined company, which generated $0.17 of EAD and paid its $0.18 dividend. We are reporting a gap net income of $1.35 per share this quarter, which includes a one-time $30 million bargain purchase price gain.

We believe it's also worth noting that all one time transaction expenses are now behind us as we head into 2024.

And when thinking about the current dividend run rate, we will now have the full benefits of the G&A scale, we achieved on the acquisition for the upcoming year.

Yeah.

Moving to page 10 during the quarter net close the WMC acquisition, effectively raising $81 million of equity for the combined entity.

We generated 17 cents of EDI and <unk> 18 dividend, we are reporting GAAP net income of $1 35.

Per share this quarter, which includes a one time $30 million bargain purchase price gain.

T.J. Durkin: While we closed WMC late in the quarter, we have already been successful in taking active, We took advantage of strong credit markets in December and opportunistically sold $20 million of non-agency bonds acquired via WMC at gains and also had one $12.3 million CRE loan payoff at par subsequent to the close, generating over $32 million of cash proceeds in total. Additionally, at subsequent quarter ends, we were able to execute a capital raise of BBB-rated unsecured notes, or baby bonds, in January, raising almost $35 million in gross proceeds. And further, we are able to use a portion of this capital in repurchasing over $7 million of the legacy WMC converts at a slight discount in the open market. We believe these actions put us well ahead of schedule in addressing the September 15th maturity for the WMC convertible notes we've... And lastly, we see January book value up approximately 2% to 3%. Before I pass it to Nick, I want to reiterate that the MIT team is very proud of what we accomplished in 2023 and year-to-date so far.

While we closed <unk> in the quarter, we have already been successful in taking action. We took advantage of strong credit markets in December and Opportunistically sold $20 million non agency bonds acquired via WMC at gains and also had $112 $3 million CRE loan payoff at par subsequent to that.

Close generating over $32 million of cash proceeds in total.

Additionally, and subsequent to quarter end, we were able to execute a capital raise a triple b minus rated unsecured notes or baby bonds in January raising almost $35 million of gross proceeds and further we're able to use a portion of this capital and repurchasing over $7 million for the legacy WMC converts at a <unk>.

Discount in the open market.

We believe these actions put us well ahead of schedule and addressing September 15th maturity for the WMC convertible notes we assumed.

And lastly, we see January book value of approximately 2% to 3% from year end.

Before I pass it to Nick I want to reiterate the mid team is very proud of what we accomplished during 2023 and year to date so far.

T.J. Durkin: And we believe we are taking all the right steps to make MIT a more scalable and profitable investment vehicle for shareholders to access residential mortgages. We have fully acknowledged the work is not done, but we have demonstrated we have the right strategy, skills, and resources to achieve our goal. We will continue to build on this momentum to create a long-term, more profitable nickel. I'll now turn it over to Nick to discuss our investment activities and ARK Home & Mortgage. Thanks, TJ.

And we believe we are taking all the right steps to making it a more scaled and profitable investment vehicle for shareholders to access the residential mortgage ecosystem. We fully acknowledge the work is not done but we have demonstrated we have the right strategy skills and resources to achieve our goals. We will continue to build on this momentum to create a long term more.

<unk> net going forward.

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

P J as outlined earlier in the presentation. The simplification of the balance sheet through the redeployment of capital into securitized residential whole loans continued throughout the year.

Nick Smith: As outlined earlier in the presentation, the simplification of the balance sheet through the redeployment of capital into securitized residential home loans continued throughout the year. Decuritize's loan portfolio grew by over 1.7 billion or approximately 45% this past year. The performance of the portfolio is benefited by the housing sector's continued strong performance, and it passes most market participation expectations despite multi-decade highs in mortgage rates. Delinquency rates remain low and are trending below the original underwrite, and they are broadly outperforming peers based upon age-adjusted comparables.

The securitized loan portfolio grew by over $1 7 billion were approximately 45% this past year.

The performance of the portfolio is benefited by the housing sectors continued strong performance, surpassing most market participations expectations, despite multi decade highs in mortgage rates.

<unk> remains rates remain low and are trending below the original underwrite and are broadly outperforming peers based upon age adjusted comparable.

Nick Smith: As you are all aware, the fourth quarter exhibited the same sort of volatility that fixed income markets have grown accustomed to since the Federal Reserve began its tightening campaign over two years ago. However, while risks remain, the narrative changed considerably from the beginning of the fourth quarter. The markets are now hopeful again that the Fed will be able to manufacture the soft landing many expected at the onset of 2023 but had lost hope as the year progressed. This shift in narrative has been good for risk assets broadly and should be supportive of continued strength in the fundamental performance of the securitized residential home loan portfolio. The Mids Proprietary Origination Channel, or COM, is well positioned to manage through the current origination landscape given its ample liquidity and strong balance sheet. While we have likely seen the lows in the origination market, the first quarter is expected to be slow prior to moving into the spring and summer buying season. The MBA is projecting origination volumes to increase over 20% from last year's cyclical low, and the street is looking for non-AIMC originations to nearly double year over year.

As you are all aware the fourth quarter exhibited the same sort of volatility to the fixed income markets have grown accustomed to since the federal reserve began its tightening campaign over two years ago.

Our risk group well risks remain the narrative changed considerably from the beginning of the fourth quarter.

The markets are not hopeful again, we will be able to manufacture the soft landing many expected at the onset of 2023, but had lost hope as the year progressed.

This shifted narrative has been good for risk assets broadly and should be supportive of continued strength in fundamental performance of the securitized residential whole loan portfolio.

Mitch proprietary origination channel arc home is well positioned to manage through the current origination landscape given its ample liquidity and strong balance sheet.

While we have likely seen the lows in the originate origination market. The first quarter is expected to be slow prior to moving into the spring and summer buying season.

The MBA is projecting origination volumes to increase over 20% from last year's cyclical low in the street is looking for non agency originations to nearly doubled year over year.

Anthony Rossiello: These market dynamics, combined with Arcom's newly appointed executive leadership's focus on profitability, prudent expansion, product development, and operational leverage, make us optimistic about the future. The investment portfolio continues to generate attractive ROEs in the mid- to high-teens with modest economic leverage. There also remains significant liquidity that can be deployed into the core strategies along with equity that can be opportunistically rotated as the portfolio's fundamental performance continues along the current path, in addition to organic recycling of caps. A significant portion of the non-core WMC commercial real estate exposure we expect to pay off at par over the next few years. Now, I'd like to turn the call over to Anthony. Thank you, Nick. Good morning.

These market dynamics combined with <unk> newly appointed executive Leadership's focus on profitability prudent expansion product development and operational leverage make us optimistic in the future.

The investment portfolio continues to generate attractive Roes in the mid to high teens with modest economic leverage. There also remains significant liquidity that can be deployed into the core strategies along with equity that can be opportunistically rotated as the portfolio is fundamental performance continues along the current path.

In addition to organic recycling of capital a significant portion of the noncore WMC commercial real estate exposure, we expect to pay off at par over the next few years.

Now I'd like to turn the call over to Anthony.

Thank you Vic and good morning.

In December we closed the WMC acquisition, helping to grow mitts investment portfolio and equity base, while improving scale for the company.

Anthony Rossiello: In December, we closed the WMC acquisition, helping to grow MIT's investment portfolio and equity base while improving scale for the company. The acquisition was accounted for as a business combination, and in accordance with this accounting treatment, we recognized a bargain purchase gain of approximately $30 million during the quarter. This represents the excess of WMC's $81 million of equity acquired over the fair value of MIT's common stock issued to WMC shareholders at closing of $51 million. As a reminder, we issued approximately 9.2 million shares of common stock, increasing our market cap by approximately 46%. Overall, we recorded a gap net income available to common shareholders of $35.4 million, or $1.68 per share for the full year, and $30.8 million, or $1.35 per share for the quarter.

The acquisition was accounted for as a business combination and in accordance with this accounting treatment, we recognized a bargain purchase gain of approximately $30 million during the quarter.

This represents the excess of Wmc's $81 million of equity acquired over the fair value of <unk> common stock issued to WMC shareholders at closing of $51 million.

As a reminder, we issued approximately $9 2 million shares of common stock increasing our market cap by approximately 46%.

Overall.

GAAP net income available to common shareholders of $35 4 million or $1 68 per share for the full year.

And $30 8 million or $1 35 per share for the quarter.

During the quarter. In addition to the bargain purchase gain I mentioned other notable items included an increase in net interest income, including swaps of $1 1 million or approximately 7% driven by one month of earnings from the acquired WMC portfolio, along with lower operating expenses quarter.

Quarter, driven by certain expense reductions provided by our manager in connection with the WMC transaction.

Anthony Rossiello: During the quarter, in addition to the bargain purchase gain I mentioned, other notable items included an increase in net interest income, including swaps, of $1.1 million, or approximately 7 percent, driven by one month of earnings from the acquired WMC portfolio, along with lower operating expenses quarter over quarter, driven by certain expense reductions provided by our manager in connection with the WMC transaction. Realized and unrealized P&L was relatively neutral this quarter as gains on our investment portfolio were offset by losses on our Securitized Debt and Hedge portfolio, while ARK Home experienced unrealized mark-to-market losses on its MSR portfolio driven by the rate decline towards the end of the quarter. The company recorded a book value of $10.46 per share and adjusted book value to $10.20 per share.

Realized and unrealized P&L was relatively neutral this quarter as gains on our investment portfolio were offset by losses on our securitized debt and hedge portfolio, while arc home experienced unrealized mark to market losses on our MSR portfolio driven by the rate decline towards the end of the quarter.

The company recorded book value of $10 46 per share and adjusted book value is $10 20 per share.

Although adjusted book value declined by seven 2%.

Ultimately 4%.

Susan.

Approximately 4% of the decline related to transaction expenses incurred by WMC prior to the acquisition, which impacts midst book value upon combining the two companies coupled with the final $1 2 million of midst merger related transaction expenses recorded in the fourth quarter, which we highlighted on our last call.

Anthony Rossiello: Although adjusted book value declined by 7.2 percent, approximately 4% of the decline related to transaction expenses incurred by WMC prior to the acquisition, which impacts MITS book value upon combining the two companies, coupled with the final $1.2 million of MIT's merger-related transaction expenses recorded in the fourth quarter, which we highlighted on our last call. The remaining book value declined, is driven by unrealized mark-to-market losses on certain assets acquired from WMC since the acquisition announcement in June, as well as the mark-to-market losses on Arkom's MSR portfolio previously noted. We generated earnings available for distribution, or EAD, of $0.17 per share for the fourth quarter. Net interest income, inclusive of interest earned on our hedge portfolio, was $0.70 per share, which exceeded our operating expenses and preferred dividends of $0.50, generating earnings of $0.20 per share.

The remaining book value decline.

It was driven by unrealized mark to market losses on certain assets acquired from <unk> since the acquisition announcement in June as well as the mark to market losses on arc home's MSR portfolio previously noted.

We generated earnings available for distribution or <unk> of <unk> 17 per share for the fourth quarter.

Anthony Rossiello: This was offset by a loss of $0.03 contributed from our company. In connection with the WMC acquisition, our CEO agreed to waive $2.4 million of management fees beginning in the fourth quarter, as well as $1.3 million of reimbursable expenses over time. EAD, during the fourth quarter, incorporates 600,000 of the management fee and $220,000 of the Expense Reimbursement Waiver, or in aggregate, $0.035 per share. This leaves us with an aggregate $2.9 million of management fee and expense reimbursement reductions to come through in 2025. It's also notable that EAD's fourth-quarter earnings only include one month of earnings from the acquired WNC portfolio.

Quarter over quarter to 5.9 billion driven by the WMC acquisition.

And loan purchases of approximately $280 million.

85% of our financing is currently funded through securitization at a weighted average cost of 4.9% and.

And our economic leverage ratio at quarter end was 1.5 turns which includes the convertible notes assumed from WMC.

In January we executed of securitization further reducing our economic leverage to 1.2 terms.

Anthony Rossiello: Our investment portfolio increased by $1.2 billion, or 26% quarter-over-quarter. $5.9 billion driven by the WMC acquisition and Loan Purchases of approximately $280,000. Eighty-five percent of our financing is currently funded through securitization at a weighted average cost of 4.9 percent, and our economic leverage ratio at quarter end was 1.5 turns, which includes the convertible notes assumed from WMC. In January, we executed a securitization, further reducing our economic leverage to 1.2 terms.

Lastly, we ended the quarter with total liquidity of $112 million, which has since increased and currently approximately $140 million or.

Are increasing liquidity was driven by the recent issuance of our unsecured notes for estimated net proceeds of $32.8 million all.

All set by $7.1 million of convertible notes for purchases.

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

<unk>.

Thank you [laughter] at this time, if you would like to ask a question. Please press the star and one on your touch Tenson.

Operator: Lastly, we ended the quarter with total liquidity of $112 million, which has since increased and currently approximates $140 million. Our increase in liquidity was driven by the recent issuance of our unsecured notes, for estimated net proceeds of $32.8 million, offset by $7.1 million of convertible notes for purchase. This concludes our prepared remarks. We'd now like to open the call for questions.

You may remove yourself from the queue at any time by pressing star too.

Once again that is star in one to ask a question.

We will pause for a moment to allow questions to Q.

And we'll take our first question from Trevor Cranston with Jmp's Securities. Your line is open.

Operator: Thank you. At this time, if you would like to ask a question, please press star and one on your touchtone phone. You may remove yourself from the queue at any time by pressing star two.

Good morning.

Congrats on getting both the room to deal finished.

I.

I guess related to that I mean, you guys have made a lot of effort to transition to a capital base to the pure play residential strategy.

Operator: Once again, that is the star and one to ask a question. We will pause for a moment to allow questions to queue, and we'll take our first question from Trevor Cranston with J&P Securities. Your line is open. Hey, thanks. Good morning.

I guess in that context can you talk about how you were thinking about the legacy CRE portfolio W. M C.

T.J. Durkin: Congratulations on getting the WMC deal finished, and, related to that, I mean, you guys have made a lot of effort to transition your capital base to the pure play residential strategy. Um, in that context, can you talk about how you're thinking about the legacy CRE portfolio of WMC? And, you know, the returns of holding on to that versus, you know, potentially selling and redeploying into their residential assets. Hey Trevor, thank you.

And you know the returns holding onto that person essentially selling in redeploying until the <unk>. Thanks.

Alright, Thank you I think.

We've broken it down.

On page 14 of the deck I think the simplest way to think about it is you've got some serious whole loans were ethnic mentioned I think we we look at them as fairly short duration and.

T.J. Durkin: I think we've broken it down. You know, on page 14 of the deck, I think the simplest way to think about it is you've got some serial loans where, as Nick mentioned, I think we look at them as fairly short duration and..., probably thinking about that more as a holds maturity concept given, you know, bid ask in the series space right now that we feel kind of confident about. The outcomes there, and I think as you think about the CMBS space, will probably be, you know, in the market more observing sort of, you know, where execution could be. And so we'll pay attention, you know, closer to that part of the portfolio, but I mean, this is something we, you know, we've done before. And across the businesses, you know, more broadly, we're active in the CNBS space and other parts of the structured credit business here. So it's a market we're very comfortable with. We're in it on a day-to-day basis.

Probably thinking about that more to Ah hold to maturity concept, given you know asking the CRE space right now.

We feel confident about.

The outcomes are and I think as you think about the C V S space.

Would probably be you know in the market more observing sort of you know where execution could be until someone will pay attention.

You know closer I'm that part of the portfolio, but I mean this is something we we you know we've done before it across the businesses you know more broadly where where were active in the <unk> space and other parts of the of the of the structure credit business here. So it's a market, we're very comfortable with where we're in it on a day to day basis and.

We will opportunistically look to exit to rotate dyke hopital, if the market coverage.

Okay.

T.J. Durkin: And, you know, we'll opportunistically look to exit to rotate that capital if the market cooperates. Yeah, okay. And on the residency side, you guys noted that you've opportunistically sold a little bit of the RMBS portfolio. Is there anything additional you guys are sort of looking to Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES Yeah, they had some kind of, I would say, disparate like asset classes that, you know, we'll definitely look to rotate that capital into as So, you know, the goal is to, over time, prudently rotate really all of that equity into, you know, effectively what we've been focused on for the last few years, which would be acquiring residential home loans and executing a securitization strategy. So, you know, we're not going to force it, but we will look to rotate it. I got it.

And on the rest of the site you. Good noted that you've optimistically sold them a little bit of the RMB S portfolio was there.

Anything. Additionally, you guys are sort of looking too.

You know sell with the market is fairly strong are you reasonably comfortable with the.

So.

They had some kind of when we get that would take disparate like asset classes that will definitely look to rotate that capital into cause I was really just in the markets.

So you know that the goal is to overtime prudently rotate really all of that equity into you know effectively what we what would the focused on for the last few years, which would be the acquiring.

Residential hold out and executing scares Asian strategy. So you know, we're not gonna force it, but but we will look to rotated.

Got it okay I appreciate the call him stinker.

And we'll take our next question from Matthew Earner with Jones trading your line is open.

Anthony Rossiello: Okay. I appreciate the comment. Thank you. And we'll take our next question from Matthew Erdner with Jones Trading. Your line is open. Hey guys, good morning.

Hey, guys. Good morning. Thanks for taking my question you mentioned, the five to 7 million dollar savings and cost synergies amount of expenses, where are you guys expecting to see the most improvement from five to 7 million.

Anthony Rossiello: Thanks for taking the question. You mentioned the $5 to $7 million savings and cost synergies on expenses. Where are you guys expecting to see the most improvement from that $5 to $7 million? And it really comes from just sort of the redundant costs needed to just run a public company, accounting fees, compensation that was typically being recorded on WMC's books, and external professional fees that were recorded.

Yeah and it it really comes from just sort of the redundant costs needed to just run a public company accounting fees compensation that was typically being recorded on Wmc's books external professional fees that were recorded.

So it's really just.

Anthony Rossiello: So it's really just general operating expenses that we see that we would not need to in our company. Gotcha, that's helpful. And then origination volume, non-agency, you mentioned it's going to be up probably 50% year over year, at least that's the forecast. You know, how do you think AHRQ is positioned for this? And then when do you see AHRQ kind of turning to profitability? Is it an X amount of originations that need to be done? Can you just kind of walk through that?

General operating expenses that we see the savings in that.

We would not need to duplicate in our company.

Gotcha. That's helpful. And then origination volume not agency, you mentioned, you're going to be out probably 50% year over year or at least that's a forecast you know how do you think Ark is positioned for this and then when do you see art kind of turning to profitability as an X amount of originations that needs to be done can you just kind of walk through that.

[noise], Yeah look we stay close to the ever changing dynamics in in the rescue market. You know part of that lift has to do with sort of you know having reached lows in.

T.J. Durkin: Yeah, look, we stay close to the ever-changing dynamics in the resi market. You know, part of that lift has to do with sort of, you know, having reached lows in the mortgage market, and part of the other lift or increase in volumes is the expectation of growth in the sector for different reasons. Emphasize certain parts of the sourcing channel at ARK Home, which we're already starting to see gains in, which we think pulls forward profitability. The expectation is for ARK Home to be profitable this year. That's helpful; thanks. And then did you guys provide book value per quarter to date? Through January, we saw book value increase by 2-3%.

The mortgage market and you know part of the other left or increase in in volumes is expectation of growth in the sector for very different reasons.

We have you know.

Emphasize certain parts of the sourcing channel at our calm, which we're already starting to see gains in which we think pulls forward the profitability. The expectation is for our home to be profitable this year.

That's helpful. Thanks, and then did you guys provide book value quarter to date.

Ah Yeah through January we saw a book value up to three per cent.

T.J. Durkin: Thanks. Thanks for taking the questions. And we'll take our next question from Doug Harter with UBS. Your line is open.

Thanks, Thanks for taking the questions.

[laughter].

Oh, we'll take our next question from Doug harder with you B S. Your line is open.

T.J. Durkin: Thanks. Can you talk a little bit about how you're thinking about the payback period from the short-term dilution on the WMC acquisition and just how we should think about the positives to come from that short-term dilution? Yeah, I mean, I think we walk you through that dilution in detail on page seven.

Mhm. Thanks can you talk a little bit about how you're thinking about the payback period from the the short term dilution on on the W. M C acquisition.

You know and just kind of what we should think about about the the positives to come from from that short term solution.

Yeah, I mean, I I think we'd walk you through that delusion in detail on page Saturday and then I think it's in the one and a half to two and a half you know what happened to your type timeframe.

T.J. Durkin: And then I think it's in the one and a half to two and a half year range, you know, the one and a half to two year type timeframes. Okay, thank you. And then, you know, with the new baby bond issuance, how much of your capital structure do you think that could be going forward? Would you expect to kind of be a regular issuer there? You know, just more thoughts about that market? Yeah, I mean, I think we were happy with the execution there.

Okay.

Thank you and then yeah with with the new Baby bond issuance.

You know how how much of your capital structure do you think that could be going forward would you expect to kind of be a regular issuer.

There you know just more thoughts about that market.

Yeah, I mean, I think we we were happy with the execution, there I think like I mentioned, where.

T.J. Durkin: I think, like I mentioned, we're probably ahead of schedule in our own minds of sort of, you know, addressing the September Maturity, so if that market, you know, is open, I think we would definitely utilize that further in addressing that, you know, convert maturity. So I think the windows open, and then they close.

We're probably ahead of schedule in our own minds of sort of you know.

Addressing those September maturity. So if that market is open I think we would definitely.

Utilize that further.

In our dressing.

You know dressing that.

Convert maturity. So I think the Windows open and then close until I think you know now that we're.

T.J. Durkin: And so I think, you know, now that we're sort of in business there, I think we can access that more efficiently going forward. Great, thank you. And we'll take our next question from Boz George with KBW. Your line is open. You guys, good morning.

Sort of in business. There I think we can access that more efficiently going forward.

[noise] great. Thank you.

And we'll take our next question.

Alright with K D. W. Your line is open.

Yeah good morning.

T.J. Durkin: Just sticking to the capital structure, in terms of the Series C preferred that, you know, goes to floating in September, and what are the thoughts there? Is it to just keep that as part of the capital structure as that happens? Well, you know, unlike the convert, I mean, we're not forced to do anything in terms of maturity, a lot to reset to the floating rate, and where spot sofa is today, it would be a move higher.

It just seemed to the capital structure in terms of the series see preferred that goes to floating in September and what does it touch their zip to just to keep that as part of the capital structures that happens.

Well, you know I I would like to convert I mean, we're we're not forced to do.

Do anything in terms of material out to reset to to floating right in where spot surfers today. It would be a move higher so I think we're.

T.J. Durkin: So I think, you know, we're clearly kind of actively monitoring the capital markets based on what we did in January with the Babymon deal, if there is a more creative way to address that. That, you know, we're constantly in touch with the market to address it, but, you know, it's very different than that, you know, hard maturity that we are starting to address in September. So, you know.

We're clearly kind of actively monitoring the capital markets based on what we did in January with the baby mom deal. If there. If you know if there is a more creative way to address.

That you know.

We're we're constantly in touch with the market to address it but you know, it's it's very different than that.

Hard maturity that we are starting to address in September So you know.

T.J. Durkin: We sort of have that on the to-do list, but it'll be obviously market-dependent on where the ability to refinance that would be. Yeah. Yeah. Okay. It makes sense.

We we we sort of have that on the to do list, but it'll be obviously market dependent on where the ability to refinance our yep.

Yep Yep that makes sense I mean, she can you remind us just how much of the cash.

Anthony Rossiello: Thanks. And then, actually, can you remind us just how much of the cash you have at your end is kind of deployable, like how much is sort of the minimum amount that you need to keep and how much you can deploy or could deploy? Yeah, I mean, from like a risk reserve perspective, we probably want to keep $75 to $85 million depending on our leverage, you know, whether we're in between deals or, you know, how big our sort of loan balance on warehouses is, right? So it'll kind of go up and down depending where we are in that securitization pacing, but that's probably a rough range of cash that we'd want to keep around So we have excess liquidity. Okay, great. Thanks. And once again, if you'd like to ask a question, please press star 1. We'll take our next question from Eric Hagen with BTIG. Your line is open. Hey, thanks. Good morning.

You have an ear and his kindness deployable like how much is the minimum amount that you you know you need to keep in how much you deploy could deploy.

Yeah, I mean, I think from a from like a risk reserved perspective, we probably Wanna keep.

75 to 85 million, depending on our leverage you know whether we're in between deals or you know how big are sort of loan balance on warehouses right. So it'll it'll kind of according up and down depending where we are in that securitization basing, but that's probably a rough rain.

[noise] of of cash that we'd want to keep around.

At times.

So we have excess liquidity, okay, great. Thanks.

And once again, if you would like to ask a question. Please press star one.

We'll take our next question from Erik Hagen with P. T. I G. Your line is open.

Hey, Thanks, good morning.

Nick Smith: One follow-up on the new originations and the non-QM. I mean, are all of the loans that are coming into the portfolio originated by ARK Home, or do you see opportunities to buy loans from banks, other brokers, just anywhere across the street? Are you guys sourcing those loans too? Thank you.

One follow up on the new originations in the non QM I mean, our all of the loans that are coming into the portfolio originated by our calm or do you see opportunities to buy loans from banks other brokers just anywhere across the street.

You guys are you guys.

Source of those ones too thank you.

Nick Smith: Thanks for the question, Eric. Yes, as I alluded to in the previous answer for Matt, we've sort of repositioned how we're acquiring some loans given some changing dynamics. We're finding more and more large originators willing to make this product rather than just broker it out. And to the extent that that's the case, we're expanding the delegated or B2B channel through ARK Home. So even though ARK Home will be purchasing these loans and be the intermediary on them, they won't necessarily be funding the borrower. So we see that as an area of growth. With regard to the banking pressure in the regional space, obviously, that's a well-telegraphed narrative. Obviously, with Wells Fargo's exit a good amount of time ago and Chase issuing the first deals post-GFC from the portfolio side, there's obviously, you know. I think it speaks more to the returns that exist in sort of that prime jumbo space where banks tend to trade more. At the moment, we don't see that as particularly attractive, but we are paying very close attention to it.

Thanks for thanks for the questionnaire, yes, I alluded to in the.

Previous answer for Matt, we've we've sort of.

Repositioned, how we're acquiring some loans given some changing dynamics you know, we're finding more and more large originators I'm willing to make this product rather than a broker it out and to the extent that is the case, we're expanding the delegate it or B b channel through our calm so.

Even though our call will be purchasing these loans.

And be the intermediary on them they won't necessarily be you know funding the borrower. So we see that in it as an area of growth with regard to you know the the you know the.

The bank.

Banking pressure in the regional space, obviously, that's a well telegraphed narrative.

Obviously with wells Fargo's exit you know a good amount of time ago <unk>.

And chase issuing the first skills post G F C.

From the portfolio site, there's obviously.

You know flow is to be found I think it speaks more to you know the the returns that that exist in sort of that you know prime crying jumbo space, where banks tend to traffic more you know at the moment, we don't see that as a particularly attractive but are paying very.

Nick Smith: Our expectation is, and what we're seeing from most of the securitization market today, despite the broader narrative of regional banks selling, most of the origination is hitting the securitization market, and a very, very large portion is actually from non-bank originators, which sort of flies in the face of this narrative. I'm not saying that that won't change, but we're paying close attention to it, and if it does change, we'd like to think we'd be in a place to be able to opportunistically take advantage of that dislocation. It was really helpful.

Most attention to it you know our our expectation is and what we're seeing for most of the securitization market today. Despite the broader narrative of you know regional banks selling most of the originations hitting the securitization market and by most is very very large portion is actually from non-bank originators, we sort of flies in the face of.

Of this narrative, not saying that that won't change, but we're paying close attention to it and if it does change we'd like to think we'd be in a place to people opportunistically take advantage of that dislocation.

And I was really helpful. Just one on the just the credit in the portfolio just in general I mean, you guys had been pretty active in non QM and the investor property space [laughter], there's any thoughts any thoughts that are on the credit performance going forward. I mean is there a way to like sensitize, how how sensitive some of the credit could be relative to you know like the agents.

Nick Smith: Just one on the credit in the portfolio just in general. I mean, you guys have been pretty active in the non-QM and the investor property space. Any thoughts there on the credit performance going forward? I mean, is there a way to like sensitize how sensitive some of the credit could be relative to, you know, like the agency space, for example?

Space for example.

Nick Smith: Yes, certainly. So, obviously, we traffic in slightly more credit-sensitive space. That being said, even in my prepared remarks, where we talk about, you know, these strong housing fundamentals, the mark-to-market LTV or HPI-adjusted LTV of the book is very, very low. And the performance, as I stated in my prepared remarks, is very, very low.

[noise], Yeah, certainly so obviously, we traffic and slightly more credit sensitive space that being said even in my prepared remarks. We you know we talk about you know these strong housing fundamentals the the mark to market L. T V or Hvis adjusted L. T V of the bulk is very very low.

And the performance as I stated in the prepared remarks.

Delinquency trends are still below our original underwrite. So you know there has been a modest uptick but that modest uptick is still well below underwriting.

Nick Smith: The Delinquency Trends are still below our original underwrite, so there has been a modest uptick, but that modest uptick is still well below our underwrite. Also, in the prepared remarks, you know, versus the broader non-ANC market. I think it's also worth noting there that, unlike the broader market, on average, we probably don't make 25 to 35% of the loans on the average, you know, issuer's shelf out there, with some issuers being as much as 50%, 50% we wouldn't make.

Also in the prepared remarks, you know versus the broader 19 see market.

R originations the credit Suisse securitize happen outperforming comparable.

Yup.

I think so I think it's also worth noting there that you know unlike the broader market you know on average, we probably don't make 25% to 35% of the the loans in sort of the average you know issuers shelf out there with some issuers being as much as 50, 50% we wouldn't make so we haven't tighter credit.

Nick Smith: So we have a tighter credit box. We've stayed true to, you know, what we've said over the years and expect to do so going forward. Yeah, thanks for the complete response. Thank you. And it appears that 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 to everyone for joining us and for your questions. We very much appreciate it and look forward to speaking to you again next quarter.

Box, we've stayed true to you know what we said.

Over the years and expect to do so going forward.

Yep. Thanks for the <unk> the complete response, thank you.

And it appears that we have no further questions at this time I will now turn the program back over to our presenters for any additional are closing remark.

Thank you to everyone for joining us and for your questions and very much appreciate it.

<unk> next quarter.

Okay.

Operator: ... That concludes today's teleconference. Thank you for your participation. You may now disconnect and have a wonderful day. The Ultimate Parody Site! www.agmortgage.com

That concludes today's teleconference. Thank you for your participation you may now disconnect can have a wonderful day.

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