AG Mortgage Investment Trust Inc. Q2 2024 Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust Inc. second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. 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 one on your telephone keypad. 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 go ahead.
Unknown Executive: Good day, and thank you for standing by.
Good day, and thank you for standing by.
Unknown Executive: Welcome to the AG Mortgage Investment Trust Inc.
Speaker Change: Welcome to the AG mortgage investment Trust, Inc. Second quarter 2024 earnings Conference call.
Unknown Executive: 2nd quarter, 2024 earnings conference call. At this time, all participants are in a listen-only mode. 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 keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star, then zero.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After management's remarks, there will be a question and answer session.
Speaker Change: In order to ask a question during this session. Please press the star key followed by the number one on your telephone keypad.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: If you require any further assistance. Please press star then zero.
Jenny Neslin: I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.
Speaker Change: I'd now like to turn the call over to Ginny, Netherlands General Counsel for the company. Please go ahead.
Jenny Neslin: Thank you. Good morning, everyone, and welcome to the 2nd quarter 2024 earnings call for the AG Mortgage Investment Trust. With me on the call today, Artijay Durkin, our CEO and President, Nick Smith, our Chief Investment Officer, and Anthony Rossiello, our Chief Financial Officer.
Jenny Neslin: Thank you. Good morning, everyone, and welcome to the second quarter 2024 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's Discussion and Analysis.
Ginny: Thank you.
Ginny: Morning, everyone and welcome to the second quarter 2024 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 Masiello, Our Chief Financial Officer.
Jenny Neslin: Before we could 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 many different 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 to the year ended December 31, 2023, and our subsequent event, subsequent reports filed from time to time with the SEC.
Jenny Neslin: 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, 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.
Speaker Change: Or are we just begin please note that the information discussed on today's call may contain forward looking statements.
Speaker Change: 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 statements regarding forward looking statements risk factors and management's discussion and analysis.
Speaker Change: 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.
Speaker Change: <unk>, our most recently filed Form 10-K for the year ended December 31, 2023, and our subsequent event.
And reports filed from time to time with the SEC.
Jenny Neslin: 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.
Speaker Change: Sept 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.
Jenny Neslin: During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliation to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website this morning. To view the slide presentation, turn to our website www.agmit.com and click on the links for the Q2 2024 earnings presentation on the homepage.
Jenny Neslin: During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website this morning. To view the slide presentation, go to our website, www.agmit.com, and click on the link for the Q2 2024 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...
Speaker Change: The call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website. This morning to view the slide presentation turn to our website Www Dot AG.
T. J.: <unk> dot com and click on the link for the Q2 2024 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 T. J.
Jenny Neslin: Again, welcome to the call, and thank you for joining us today.
Thomas Durkin: With that, I'd like to turn the call over to TJ. Thank you, Jenny. We decided to report our second quarter financials, which show our continued execution of our core business strategy and the June 30th. We saw just a book value move modestly lower from 10 to 1037, producing a roughly break-even economic return on equity for the quarter, with it being too early to give an estimate of July's book value.
Thomas Durkin: I'm excited to report our second quarter financials, which show our continued execution of our core business strategy and the compelling benefits of our recent merger. Walking through MIT's financial position as of June 30th, we saw adjusted book value move modestly lower from $1058 to $1037, producing a roughly break-even economic return on equity for the quarter, with it being too early to give an estimate of July's book value. More notably, on June 13th, the board voted unanimously to increase our dividend 5.6% to $0.19 per share. During the quarter, we earned $17.4 million of net interest income, a negative two cents of earnings per share.
T. J.: Thank you Jenny.
T. J.: I'm excited to report, our second quarter financials, which show our continued execution of our core business strategy and the compelling benefits of our recent merger.
Speaker Change: Welcome to the <unk> financial position as of June 30, we saw adjusted book value was modestly lower from 10 58 to 10 37, producing a roughly breakeven economic return on equity for the quarter.
Speaker Change: With it being too early to give an estimate of July as book value.
Thomas Durkin: More notably, on June 13, the board voted unanimously to increase our dividend 5.6% to 19 cents per share. During the quarter, we are in 17.4 million of net interest income, negative two cents of earnings per share, and 21 cents of EAD per share, covering our newly set dividend previously declared by two cents.
Speaker Change: More notably on June 13, the board voted unanimously to increase our dividend five 6% to <unk> 19 per share.
Speaker Change: During the quarter, we earned $17 4 million of net interest income negative two cents of earnings per share and 21 of <unk> per share covering our newly set dividend previously declared by <unk>.
Thomas Durkin: $0.21 of EAD per share, covering our newly set dividend previously declared by $0.02. One of the key areas of focus for us coming out of the WMC acquisition was efficiently addressing the impending maturity of their $86 million convertible notes due on September 15, 2024. We are happy to report that during the quarter, we successfully issued another $65 million of investment-grade senior unsecured notes to more than cover the upcoming maturity when considering our $34.5 million issuance in Q1 of this year.
Thomas Durkin: One of the key areas of focus for us coming out of the WMC acquisition. was efficiently addressing the impending maturity of their $86 million convertible notes due on September 15, 2024. We were happy to report during the quarter. We successfully issued another 65 million of investment-grade senior unsecured notes to more than cover the upcoming maturity when considering our $34.5 million issuance from Q1 of this year. Effectively replacing the convertible debt with these senior unsecured notes positions met with a materially more advantageous corporate debt structure going forward. As a result of these bond issuances and to avoid holding excess cash, we have invested a portion of these proceeds into agency MBS using only modest leverage in order to generate strong short-term risk-adjusted returns.
Speaker Change: What are the key areas of focus for us coming out of the WMC acquisition.
Speaker Change: Was efficiently addressing the impending maturity of the $86 million.
Speaker Change: Convertible notes due on September 15th 2024.
Speaker Change: Nothing to report during the quarter, we successfully issued another $65 million of investment grade senior unsecured notes to more than cover the upcoming maturity when considering a $34 $5 million issuance from Q1 of this year.
Thomas Durkin: By effectively replacing the convertible debt with these senior unsecured notes, positions are met with a materially more advantageous corporate debt structure going forward. As a result of these bond issuances, and to avoid holding excess cash, we have invested a portion of these proceeds into Agency MBS using only modest leverage in order to generate strong short-term risk adjustment. As a result, the company ended the quarter with $180 million of liquidity and moderately higher than normal leverage of 2.5 times.
Speaker Change: Effectively replacing the convertible debt with these senior unsecured notes.
Speaker Change: <unk> met with a materially more advantageous corporate debt structure going forward.
Speaker Change: As a result of these bond issuances and to avoid holding excess cash we have invested a portion of these proceeds into agency MBS using only modest leverage in order to generate strong short term risk adjusted returns.
Thomas Durkin: As a result, the company ended the quarter with 180 million of liquidity and moderately higher than normal leverage of 2.5 terms. We would anticipate post-repayment of the convertible notes. At maturity in September, we will return to more historical leverage at the company level.
Speaker Change: As a result, the company ended the quarter with $180 million of liquidity and modest moderately higher than normal leverage of two five terms.
Thomas Durkin: We would anticipate post-repayment of the convertible notes at maturity in September. Then, we will return to more historical levels of leverage at the company. Since closing the WMC acquisition on December 6th of last year, through quarter end, approximately 57 million of assets have already been monetized, returning 41 million of equity to be rotated into our core strategy of newly originated residential mortgage. One significant result of the merger is our inclusion in the Russell 2000 as of June 28.
Speaker Change: We would anticipate post repayment of the convertible notes at maturity in September we will return to more historical levels of leverage at the company level.
Thomas Durkin: In closing the WC acquisition on December 6 of last year through quarter end, approximately 57 million of assets have already been monetized, returning 41 million of equity to be rotated into our core strategy of newly originated residential mortgage loans. One significant result of the merger is our inclusion into the Russell 2000 as of June 28th. We believe this is a critical step in both broadening our investor base and improving investor liquidity. Like I stated last quarter, the team and I are very excited to show the market the benefits we see in the power of the combined company.
Speaker Change: Since closing the WMC acquisition on December six of last year through quarter end approximately $57 million of assets have already been monetized returning $41 million of equity to be rotated into our core strategy of newly originated residential mortgage loans.
Speaker Change: One significant result of the merger as our inclusion into the Russell 2000 as of June 28.
Thomas Durkin: We believe this is a critical step in both broadening our investor base and improving investor acquisition. Like I stated last quarter, the team and I are very excited to show the market the benefits we see in the power of the combined company. I'm now turning the call over to... Thanks, TJ.
Speaker Change: We believe this is a critical step in both broadening our investor base and improving investor liquidity.
Like I stated last quarter the team and I are very excited to show the market. The benefits we see in the power of the combined company I will now turn the call over to Nick.
Nicholas Smith: Now turn the call over to Nick. Thanks TJ, this quarter we saw the continuation of various themes from going to now over recent quarters. Elevated levels of interest rate volatility continued out performance of housing, a resilient residential mortgage bar war, and modestly tighter residential credit spreads without performance in the lower rated parts of the capital stack. The delinquency rate of our loan portfolio remains low at approximately 1% with a modest improvement order over quarter in an increase of only 10 basis points since the end of last year. The team executed two securitizations during the quarter.
Nicholas Smith: This quarter, we saw the continuation of various themes we've pointed out over recent quarters, such as elevated levels of interest rate volatility, continued outperformance of housing A Resilient Residential Mortgage Borrower, and modestly tighter residential credit spreads without performance in the lower rated parts of the capital stack. The delinquency rate of our loan portfolio remains low at approximately 1%, with a modest improvement quarter over quarter and an increase of only 10 basis points since the end of last year. The team executed two securitizations during the quarter. The second transaction of the quarter was an inaugural private label securitization backed by Fannie and Freddie eligible investor loans from one of the nation's largest mortgage originators.
Nick: Thanks T. J this quarter, we saw the continuation of various themes pointed out over recent quarters.
Nick: Elevated levels of interest rate volatility.
Nick: Outperformance of have seen.
Nick: A resilient residential mortgage borrower.
Nick: Modestly tighter residential credit spreads with outperformance in lower rated parts of the capital stack.
Nick: The delinquency rate of our loan portfolio remains low at approximately 1% with a modest improvement quarter over quarter and an increase of only 10 basis points since the end of last year.
Nick: The team executed two securitizations during the quarter.
Nicholas Smith: The second transaction of the quarter was an inaugural private label securitization backed by Danny and Freddie eligible investor loans from one of the nation's largest mortgage originators, where we acted as the co-sponsor. For the next quarter and throughout the rest of the year, we expect to remain active and issue at a similar pace to the past two quarters.
The second transaction of the quarter was an inaugural private label securitization.
Nick: <unk> by Fannie and Freddy eligible investor loans from one of the nation's largest mortgage originators, where we acted as a co sponsor.
Nick: Okay.
Nicholas Smith: Over the next quarter and throughout the rest of the year, we expect to remain active and issue new shares at a similar pace to the past two quarters. Moving on to our call.
Nick: For the next quarter and throughout the rest of the year, we expect to remain active and issue at a similar pace to the past few quarters.
Nicholas Smith: Moving on to our home. We are excited to announce that our home opportunistically agreed to sell its MSR portfolio at the end of April. Both to this year's peak interest rates, which settled subsequent to quarter end. This sale generates ample liquidity for continued growth in our homes for business, along with capital that we expect to be deployed in compelling new opportunities developing in the residential mortgage origination market. As you can see on page 9, volumes grew considerably quarter over quarter, adding to the scale needed to be profitable. Additionally, our home has seen modest increases in margins and is optimistic that these gains are not only durable, but likely have room to improve as additional liquidity for non-A&C residential mortgage loans enters the market, has recently become a well publicized pocket of cash.
Nick: Moving on to arc home.
Nicholas Smith: We are excited to announce that Ark Home opportunistically agreed to sell its MSR portfolio at the end of April, although close to this year's peak in interest rates, which settled subsequent to quarter end. This sale generates ample liquidity for continued growth in Ark Home's core business, along with capital that we expect to be deployed in compelling new opportunities developing in the residential mortgage origination market. As you can see on page 9, volumes grew considerably quarter over quarter, adding to the scale needed to be profitable.
Nick: We are excited to announce that arc home Opportunistically agreed to sell its MSR portfolio at the end of April.
Nick: Most of this year's peak in interest rates, which settled subsequent to quarter end.
Nick: This sale generated ample liquidity for continued growth in <unk> core business.
Nick: Along with capital that we expect to be deployed and compelling new opportunities developing in the residential mortgage origination market.
As you can see on page nine volumes grew considerably quarter over quarter, adding to the scale needed to be profitable.
Nicholas Smith: Additionally, ARK Home has seen modest increases in margins and is optimistic that these gains are not only durable, but they likely have room to improve as additional liquidity for non-ANC residential mortgage loans enters the market from what has recently become a well-publicized pocket of capital. Now, I'd like to turn the call over to Anthony.
Speaker Change: Arc home has seen modest increases in margins and is optimistic that these gains are not only durable, but likely have room to improve as additional liquidity for non non agency residential mortgage loans enters the market.
Speaker Change: Recently become a well publicized pocket of capital.
Anthony Rossiello: Now we'd like to turn the call over to Anthony. Thank you, Nick, and good morning. We've continued its positive momentum in the second quarter, growing its investment portfolio, increasing in securitization activity, and positioning ourselves to address the upcoming convertible note maturity, while generating strong earnings available for distribution and increasing the common dividend.
Speaker Change: Now I'd like to turn the call over to Anthony.
Anthony Rossiello: Thank you, Nick, and good morning. It continued its positive momentum in the second quarter, growing its investment portfolio, increasing its securitization activity, and positioning itself to address the upcoming convertible note maturity while generating strong earnings available for distribution and increasing the common denominator. During the quarter, our book value of $10.63 per share and our adjusted book value of $10.37 per share decreased by approximately 2% from March. When considering the $0.19 common dividend, our economic return was roughly $0.08.
Anthony: Thank you Nick and good morning.
Anthony: It continued its positive momentum in the second quarter growing its investment portfolio, increasing in securitization activity.
Anthony: And positioning ourselves to address the upcoming convertible note maturity, while generating strong earnings available for distribution and increasing the common dividend.
Anthony Rossiello: During the quarter, our book value of $10.63 per share. In our adjusted book value of $10.37 per share, decreased by approximately 2% from March. When considering the 19-cent common dividend, our economic return was roughly breakeven. We recorded a gap net loss available to common shareholders of approximately 700,000, or 2 cents per share. The modest book value decline was driven by unrealized market losses on our investment portfolio, partially offset by EAD exceeding our quarterly dividend and gains on our investment in our company. We generated EAD of 21 cents per share for the second quarter. Net interest income, inclusive of interest earned on our hedge portfolio, with 67 cents per share, which exceeded our operating expenses and preferred dividends of 43 cents.
Speaker Change: During the quarter, our book value of $10 63 per share and our adjusted book value of $10 37 per share decreased by approximately 2% from March.
Speaker Change: When considering the 19th common dividend, our economic return was roughly breakeven.
Anthony Rossiello: We recorded a gap net loss available to common shareholders of approximately $700,000, or $0.02 per share. The modest book value decline was driven by unrealized mark-to-market losses on our investment portfolio, partially offset by EAD exceeding our quarterly dividend and gains on our investment in our... We generated EAD of 21 cents per share for the second quarter. Net interest income, inclusive of interest earned on our hedge portfolio, was $0.67 per share, which exceeded our operating expenses and preferred dividends of $0.43, generating earnings of $0.24 per share. This was offset by a loss of three cents contributed from our COMB, which continued to improve quarter over quarter.
Speaker Change: We recorded a GAAP net loss available to common shareholders of approximately 700000 or <unk> <unk> per share.
Speaker Change: The modest book value decline was driven by unrealized mark to market losses on our investment portfolio.
Speaker Change: Partially offset by E D.
Exceeding our quarterly dividend and gains on our investment and our colleagues.
Speaker Change: We generated <unk> 21 per share for the second quarter.
Speaker Change: Net interest income inclusive of interest earned on our hedge portfolio was <unk> 67 per share, which exceeded our operating expenses and preferred dividends of 43.
Anthony Rossiello: Generating earnings of 24 cents per share. This was offset by a loss of 3 cents contributed from our home, which continued to improve quarter over quarter. Our investment portfolio increased by approximately 11% to 6.9 billion, through acquiring 423 million of residential mortgage loans and 428 million of agency RBS. As mentioned earlier, we were active in the securitization markets, managing our exposure to market financing. We ended the quarter with 300 million of loans, finance on warehouse lines, of which 87 million were sold in July, further reducing our risk or file and returning capital for reinvestment. Our economic leverage ratio at quarter end was two and a half turns, with approximately one turn relating to the agency RBS portfolio, which we anticipate will be removed in connection with the funding of the convertible note maturity in September.
Speaker Change: Generating earnings of 24 per share.
Speaker Change: This was offset by a loss of <unk> <unk> contributed from arc home, which continued to improve quarter over quarter.
Anthony Rossiello: Our investment portfolio increased by approximately 11% to $6.9 billion by acquiring $423 million of residential mortgage loans and $428 million of agency RMBS. As mentioned earlier, we were active in the securitization markets, managing our exposure to market-to-market finance. We ended the quarter with $300 million of loans financed on warehouse lines, of which $87 million were sold in July, further reducing our risk profile and returning capital for reinvestment. Our economic leverage ratio at quarter end was two and a half turns, with approximately one turn relating to the agency RBS portfolio, which we anticipate will be removed in connection with the funding of the convertible note maturity in September.
Our investment portfolio increased by approximately 11% to $6 9 billion through acquiring $423 million of residential mortgage loans and $428 million of agency MBS.
Speaker Change: As mentioned earlier, we were active in the securitization markets managing our exposure to mark to market financing.
Speaker Change: We ended the quarter with $300 million of loans financed on warehouse lines of which $87 million were sold in July further, reducing our risk profile and returning capital for reinvestment.
Speaker Change: Our economic leverage ratio at quarter end was two and a half turns with approximately one turn relating to the agency MBS portfolio, which we anticipate will be removed in connection with the funding of the convertible note maturity in September.
Anthony Rossiello: Lastly, we ended the quarter with total liquidity of approximately 180 million, consisting of 120 million of cash and 59 million of unencumbered agency RBS.
Anthony Rossiello: Lastly, we ended the quarter with total liquidity of approximately $180 million, consisting of $120 million of cash and $59 million of unencumbered agency RMVS. This concludes our prepared remarks, and we now like to open the call for questions.
Speaker Change: Lastly, we ended the quarter with total liquidity of approximately $180 million.
Speaker Change: <unk> of $120 million of cash and $59 million of unencumbered agency RBS.
Anthony Rossiello: This concludes our prepared remarks, and we now like to open the call for questions.
Speaker Change: This concludes our prepared remarks, and we'd now like to open the call for questions operator.
Unknown Executive: Operator.
Unknown Executive: The floor is now open for questions. If you would like to ask a question at this time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself by pressing star two. Once again, that is star one to ask a question.
Operator: The floor is now open for questions. If you would like to ask a question at this time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself by pressing star 2. Once again, that is star 1 to ask a question. Our first question will come from Doug Harter with UBS. Please go ahead.
Speaker Change: Floor is now open for questions.
Speaker Change: Would like to ask a question at this time. Please press star one on your telephone keypad.
Speaker Change: If at any point. Your question has been answered you may remove yourself by pressing star two.
Speaker Change: Once again that is star one to ask a question or.
Douglas Harter: Our first question will come from Doug Harder with UBS. Please go ahead. Thanks.
Speaker Change: Our first question will come from Doug Harter with UBS. Please go ahead.
Douglas Harter: Thanks. Can you talk about the time frame you think it'll take to kind of rotate out of agency MBS into your core assets and what you think of the return differential as you make that rotation?
Doug Harter: Thanks can you talk about the timeframe you think it'll take to kind of rotate rotate out of <unk>.
Thomas Durkin: Can you talk about the time frame you think it will take to rotate out of agency MBS into your core assets and what you think of the return differential as you make that rotation? Yeah, I think about it kind of in some sequencing.
Speaker Change: <unk> M B S.
Speaker Change: Into your core assets and what you think of kind of the return differential as you make that rotation.
Speaker Change: Okay.
Thomas Durkin: Yeah, I think I think about it kind of in some sequence. So I think we want to address the convertible note in September, with obviously the liquidity that we have on the balance sheet today, and then I think rotating that kind of excess liquidity will probably take no more than probably two to three quarters post that. We're not using, if you look at the agency rates, we're using probably about half the leverage there, so it's an interim measure.
Speaker Change: Yeah, Doug I think I think about it kind of has some sequencing. So I think we want to address the convertible note.
Thomas Durkin: So I think we want to address the convertible note in September with obviously the liquidity that we have on balance sheet today. And then I think rotating that kind of excess liquidity will probably take no more than two to three quarters, kind of post that. We're not using, you know, if you look at sort of the agency rates, we're using probably about half the leverage there. So it's an interim kind of stopgap to earn some carry. So I think the ROEs are not applicable. I think we're targeting on the new origination side that would call it mid-high teens gross ROEs as part of the plan going forward.
Speaker Change: In September we got.
Speaker Change: Obviously, the liquidity that we have on balance sheet today, and then I think rotating that kind of excess liquidity.
Speaker Change: We'll probably take no more than two two probably two to three quarters kind of post that.
Speaker Change: We're not using.
Speaker Change: You look at sort of the agency rates, we're using probably about half the leverage there. So it's an interim.
Thomas Durkin: Stopgap to earn some carry, so I think the ROEs are not applicable. I think we're targeting, on the new origination side, I would call it, mid-high teens gross ROEs as part of the plan going forward, and that's where we see the market.
Speaker Change: Stopgap to earn some carry so I think the Roes are not applicable I think worse targeting.
Speaker Change:
Speaker Change: On the new origination side I would call it.
Speaker Change: Mid high teens gross Roe's, that's part of the plan going forward and that's where we see the market.
Thomas Durkin: That's where we see the market.
Thomas Durkin: And I guess just with, I mean you are taking lower leverage just how should we think about the book value risk that you're taking kind of on the agencies given kind of the large moves and interest rates, you know, especially on days like today? Yeah, so I mean I think, like I said, we probably got, I mean we're running from a duration perspective, I think a consistent strategy, just less leverage in terms of head ratios, etc. So it should be muted as a fully levered agency rate. Makes sense.
Thomas Durkin: And I guess just with the, I mean, you are taking lower leverage, just how should we think about the book value risk that you're taking, you know, kind of on the agencies given the large moves in interest rates, you know, especially on days like today?
Speaker Change: And I guess, just with I mean, you are taking lower leverage just how should we think about the book value risk that you're taking kind of on the agencies given kind of the large moves in interest.
Speaker Change: Interest rates, especially on days like today.
Thomas Durkin: Yes, I mean, like I said, we probably have, I mean, we're running, from a duration perspective, I think, a consistent strategy, just less leverage, in terms of our hedge ratios, etc., so it should be muted versus a fully levered agency read.
Speaker Change: Yes, I mean, I think like I said, we've probably got I mean, we're running from a duration perspective, I think a consistent strategy just less leverage in terms of hedge ratios et cetera.
Speaker Change: So it should be muted very soon is a fully levered agency REIT.
Nicholas Smith: Makes sense. And then just on the ARC MSR sale, that extra capital, you know, that kind of gets freed up. Does that stay within ARC, or does some of that get distributed to MIT?
Makes sense and then.
Douglas Harter: And then just on the ARC MSR sale, that extra capital, you know, that kind of gets freed up.
Speaker Change: Just on the arc MSR sale.
Speaker Change: That extra capital yeah that kind of gets freed up does that stay within arc or does some of that gets distributed up to up to MIT.
Nicholas Smith: Does that stay within ARC, or does some of that get distributed up to, up to mid?
Nicholas Smith: Morning, Doug. It's Nick. So our management team, along with our Combs management team, has evaluated the appropriate capitalization of the company, and, you know, at the moment, we expect there to be a likely return of capital.
Nicholas Smith: Morning, Doug, it's Nick. So our management team, along with our Combs management team, is evaluated the appropriate capitalization of the company, and you know at the moment we expect there to be a likely return of capital.
Speaker Change: Good morning, Doug It's Nick So our management team along with Arc Home's management team has evaluated the appropriate capitalization of the company and at the moment, we expect there to be a likely return of capital.
Douglas Harter: Great. I appreciate that. Thank you, guys.
Douglas Harter: Great. I appreciate that. Thank you, guys.
Doug Harter: Great I appreciate that thank you guys.
Bose George: Thank you. Our next question will come from Bose George with KBW. Please go ahead. Hey guys, good morning.
Bose George: Thank you. Our next question will come from Bose George with KBW. Please go ahead.
Speaker Change: Thank you. Our next question will come from Bose, George with K B W. Please go ahead.
Bose George: Hey guys, good morning. If you wanted to ask first about the trend in EAD, you know, with the liquidity you'll be holding in the third quarter, could we see a little downward pressure there or, you know, should it continue to trend up as you're deploying cash?
George: Hey, guys. Good morning, Thanks, I wanted to ask a question just about the trend in AAD.
Bose George: If you wanted to ask first and just about the trend in EAD, you know with the liquidity you'll be holding in the third quarter. I mean, could we see a little downward pressure there, or you know, should it continue to trend up as you're deploying capital? Yeah, I mean I guess I think you're thinking about right. This is an interim quarter, if you will, to kind of get through that September maturity. But I mean we're certainly worthy towards avoiding cash drag and creating some Arlene in the interim.
George: With the liquidity, you'll be holding in the third quarter I mean could we see a little downward pressure there or should it continue to trend up as you're deploying capital.
Thomas Durkin: Yeah, I mean, I guess I think you're thinking about right, this is an interim quarter, if you will, to kind of get through that September maturity. But I mean, we're certainly working towards avoiding cash drag and creating some ROE in the interim. But, yeah, I would think, on a prospective basis, it'll look like a more normalized.
Speaker Change: Yeah, I mean, I guess I think youre thinking about right. This is a.
George: Yeah.
Speaker Change: Quarter, if you will to kind of get through that September maturity, but I mean, we're we're we're certainly working towards avoiding cash drag and creating some early in the interim.
Bose George: But you know I would think of a kind of on a prospective basis that it'll look like a more normalized portfolio. So I understand you know the logic of your question. Yeah, yeah. Okay. No, that makes sense.
Yes, I would think of as kind of on a prospective basis. It will look like a more normalized.
Speaker Change: Portfolio.
Speaker Change: Yes.
Speaker Change: Understand I understand.
Speaker Change: The logic of your question.
Thomas Durkin: I understand the logic of your question. Yeah, okay. No, that makes sense. Thanks a lot. And then, actually, can you just give us an update on book value, cordage date, I guess, before the noise of today, but yeah, earlier this week.
Speaker Change: Okay, no that makes sense. Thanks, a lot and then can you just give us an update on book value quarter to date, I guess before the noise of today, but earlier this week.
Bose George: Thanks a lot.
Bose George: And then actually can you just give us an update on book value, cordial data, I guess before the noise of today but yeah earlier this week? We haven't produced a July will value yet; too early. Okay.
Thomas Durkin: We haven't We haven't produced a July book value yet. Too early. Okay.
Speaker Change: We have we haven't we haven't produced.
Speaker Change: Yeah, it's too early.
Bose George: Okay, great. Thank you.
Bose George: Great. Thank you.
Speaker Change: Okay, great. Thank you.
Trevor Cranston: Thank you. Our next question will come from Trevor Cranston with Citizens JMP. Please go ahead.
Trevor Cranston: Our next question will come from Trevor Cranston with Citizens JMP. Please go ahead.
Speaker Change: Thank you. Our next question will come from Trevor Cranston with citizens JMP. Please go ahead.
Trevor Cranston: Okay. Thanks.
Speaker Change: Okay.
Nicholas Smith: I guess, first question: obviously, the securitization activity this quarter was focused on the agency eligible market. Can you give a little bit of color in general on what you guys are seeing in the loan markets and kind of where you're seeing the best opportunities for securitization today? Thanks.
Trevor Cranston: I guess first question obviously the Securization Activity Discoordered was focused on the agency eligible market. Can you give a little bit of color in general on what you guys are seeing in the loan markets and kind of where you're seeing the best opportunities for securitization today. Yes, certainly. So, you know, obviously as a non-A&C focus read, we focus on, you know, every sort of the wider array rather than just, you know, one sort of non-A&C asset. In the non-QM space, we continue to see the lowest-classic capital, being no longer levered credit fires. Obviously, that could change, but, you know, at the moment we believe it's prudent to best X arch-homes origination to those sort of buyers, and deploy midscapital and higher returning opportunities.
Trevor Cranston: I guess first question, obviously, the AR securitization.
Trevor Cranston: <unk> activity this quarter was focused on the agency eligible market.
Trevor Cranston: Can you give a little bit of color in general on what you guys are seeing in below markets.
Speaker Change: Kind of where you are what are you seeing the best opportunities are for securitization today. Thanks.
Nicholas Smith: Yes, certainly. So, obviously, as a non-ANC-focused REIT, we focus on sort of a wider array rather than just one sort of non-ANC asset. In the non-QM space, we continue to see the lowest cost of capital being no longer levered credit buyers. Obviously, that could change, but at the moment, we believe it's prudent to best-ex ARK Homes origination to those sort of buyers and deploy MIPS capital in higher-returning opportunities. Some of those opportunities are actually somewhat counterintuitive, I think.
Speaker Change: Yes, certainly so obviously is not an easy focused REIT.
Speaker Change: We focus on.
Speaker Change: Sort of the wider array rather than just one sort of non agency assets.
Speaker Change: In the non QM space, we continue to see the lowest cost of capital.
Speaker Change: Being no longer Levered credit fires, obviously that could change, but at the moment, we believe it's prudent to best ex arc home's origination.
Speaker Change: Those sort of buyers.
And deploy midst capital and higher returning opportunities some of those opportunities actually are I think somewhat counterintuitively.
Trevor Cranston: Some of those opportunities actually are, I think, somewhat counterintuitively, the agency eligible positions we've added will actually price another one of those transactions later this morning, along with other sort of co-issue opportunities I mentioned in the script in that space. We're also paying close attention to the home equity space and expect to be active there. Okay, got it. That's helpful.
Speaker Change: The agency eligible positions, we've added well actually.
Nicholas Smith: The agency-eligible positions we've added will actually price another one of those transactions later this morning, along with other sort of co-issue opportunities I mentioned in the script in that space. We're also paying close attention to the home equity space and expect to be active there.
Speaker Change: Price another one of those transactions later this morning.
Speaker Change: Along with other sort of co issue opportunities I mentioned in the script in that space.
Speaker Change: We're also paying close attention the home equity space and expect to be.
Speaker Change: Active there.
Trevor Cranston: Okay, got it. That's helpful. And, you know, I appreciate that you don't have a book value update for July. But I guess, when you look at the portfolio as of June 30, can you talk about kind of what you think the overall net duration positioning of the book was?
Speaker Change: Okay got it that's helpful.
Trevor Cranston: Then, you know, I appreciate that you don't have a book value update for July, but I guess when you look at the portfolio as of June 30, can you talk about kind of what you think the overall net duration positioning of the book was? Thanks.
Speaker Change: Yeah.
Speaker Change: Appreciate that you don't have a book value update for July I guess, when you look at the portfolio as of June 30.
Speaker Change: Could you talk about kind of what you think the overall net duration.
Speaker Change: Turning off the book close thanks.
Trevor Cranston: I don't think we have anything sort of published ever.
Nicholas Smith: I don't think we have anything sort of published, Trevor.
Speaker Change: I don't think we have anything sort of published.
Speaker Change: However.
Trevor Cranston: Okay, let's try it out. Thank you.
Trevor Cranston: Okay, that's fair enough. Thank you.
Speaker Change: Okay fair enough. Thank you.
Brad Capuzzi: Thank you. Our next question will come from Brad Capuzzi with Piper Sendler. Please go ahead.
Bradley Capuzzi: Our next question will come from Brad Capuzzi with Piper Sandler. Please go ahead.
Brad <unk>: Thank you. Our next question will come from Brad <unk> with Piper Sandler. Please go ahead.
Bradley Capuzzi: Thanks for taking my question. I appreciate all the commentary.
Nicholas Smith: Thanks for taking my question. I appreciate all the commentary. Can you just talk about the bids for securitizations you're seeing? I know you mentioned on the last call there still tends to be less supply than demand. If you can just shed any light on what you're seeing, that'd be helpful.
Brad <unk>: Thanks for taking my question I appreciate all the commentary can you just talk about the bid for securitization just saying I know you mentioned on last on the last call there still tends to be less supply than demand. If you can just shed any color on what youre seeing that would be helpful.
Bradley Capuzzi: Can you just talk about the bid for securities that you're seeing? I know you mentioned on the last call. There's still tends to be less supply than the man. If you can just shed any color on what you're seeing, that'd be helpful.
Nicholas Smith: Yeah, it's sort of sector by sector. You know, I think I spoke a little bit earlier answering Trevor's question in sort of a non-QM space.
Thomas Durkin: Yeah, it's sort of sector by sector. You know, I think I spoke a little bit earlier answering Trevor's question in sort of non-QM space. If anything, as more loans get sold to real money, there's been less supply in that space. So that debt has done better relative to maybe some of the other sectors. The prime jumbo market as of late has been under pressure. There is no release valve, if you will, to non-securetization outlets today, which is widening out that space. There's just been an increase of issuance. In general, the market has been healthy across residential credit up and down the stack.
Speaker Change: Yes, it's sort of a sector by sector.
Speaker Change: I think I spoke a little bit earlier answering <unk> question in sort of non QM space.
Nicholas Smith: If anything, as more loans get sold for real money, there's been less supply in that space, so that debt has done better relative to maybe some of the other sectors. The prime jumbo market as of late has been under pressure. There is no release valve, if you will, for non-securitization outlets today, which has widened out that space as there's just been an increase in issuance. But in general, the market has been healthy across residential credit, up and down the stack.
Speaker Change: Anything as more loans get sold to real money theres been less supply in that space. So that gap is.
Speaker Change: Done better relative to maybe some of the other sectors. The prime jumbo market as of late has been under pressure. There is no release valve if you will to.
Speaker Change: Securitization outlets today.
Speaker Change: Which is why it out that widen out that space is theres, just been increase of issuance, but in general the.
Speaker Change: The market has been healthy across residential.
Speaker Change: Credit up and down the stack so.
Nicholas Smith: So, you know, any widening in the previously mentioned assets has been truly marginal from a historical standpoint. And if anything, in the non-QM space, you know, we're sitting at a, you know, local type.
Bradley Capuzzi: Any widening that previously mentioned assets have been truly marginal from a historical standpoint. If anything, in the non-QM space, we're sitting at local types. Thanks.
Speaker Change: Any widening in that.
Speaker Change: Previously mentioned assets, you know have been truly marginal from a historical standpoint, it if anything in the non QM space, we're sitting at.
Speaker Change: Local types.
Nicholas Smith: Thanks, I appreciate the color there. And then give a view on where you see volume strengthening for Archon as we exit 2024 and into 2025 after posting a strong quarter in TQ. And, you know, what type of rate scenario would you need to see play out before we see a more normalized origination environment there? Thanks.
Bradley Capuzzi: I appreciate the color there. And then given view on where you see volume strident for our comments, we exit 2024 and in the 2025 after posting a strong quarter into Q.
Speaker Change: Thanks, I appreciate the color there.
Speaker Change: And then given view on where you see volumes trending for our comments, we exit 2024 and into 2025 after posting a strong quarter in <unk> and what type of rate scenario would you need to see play out before we see a more normalized origination environment there.
Thomas Durkin: And, you know, what type of rate scenario would you need to see play out before we see a more normalized origination environment there? Thanks. We've said previously that, you know, and you obviously can look at the MBA forecast. I don't think we're going to deviate a ton from sort of MBA forecast. You know, a lot of our gains have just been from being more competitive and more efficient, you know, rather than sort of market conditions. You know, so I also think there's going to be a lot of seasonality to these businesses, as you would expect given, you know, as much of...
Yes, we've said previously.
Nicholas Smith: previously, that, you know, And obviously, you can look at the NBA forecast. I don't I don't think we're going to deviate a ton from sort of NBA forecast, you know, a lot of our games have just been from being more competitive and more efficient, you know, rather than sort of, you know, market conditions, you know, so I also think there's going to be a lot of seasonality to these businesses, as you as you would expect, given, you know, as much of, how much purchase money our firm is relying upon.
Speaker Change: That.
Speaker Change: And you obviously you can look at the MBA forecast. So I don't I don't think we're going to deviate a ton from sort of MBA forecast you know a lot of our gains have just been from being more competitive and more efficient.
Speaker Change: Rather than sort of.
Speaker Change: Market conditions.
Speaker Change: So I also think there's going to be a lot of seasonality to these businesses as you as you would expect given.
Thomas Durkin: and how much purchase money our comb is relying on. But I think the trends you've seen should be similar. And if you were to see easily adjust sort of where we are today, I think, you know, that's what you would expect.
Speaker Change: As much of.
Speaker Change: How much purchase money.
Speaker Change: Arc home is relying upon.
Nicholas Smith: But I think the trends you've seen should be similar, and if you were to seasonally adjust where we are today, I think, you know, that's what you would expect. So look, we're still in growth mode. We're still trying to be bigger, better, more efficient. So, you know, the trajectory is still up, but you know, conditioning it that it will be highly seasonal.
But I think the trends you've seen.
Speaker Change: Should be similar and if you were to seasonally adjust sort of where we are today I think you know.
Speaker Change: That's what you would expect so look we're still in growth mode, We're still trying to.
Bradley Capuzzi: So look, we're still in growth mode; we're still trying to, you know, be bigger, better, more efficient. So, you know, trajectory is still a lot, but, you know, condition that it will be highly seasonal. Thanks.
Speaker Change: The bigger better more efficient.
Speaker Change: So trajectory still up but yes.
Speaker Change: Condition unit that it will be highly seasonal.
Brad Capuzzi: Thanks. I appreciate you taking my questions.
Bradley Capuzzi: I appreciate you taking my questions. Thank you.
Speaker Change: Thanks, I appreciate you taking my questions.
Eric Hagen: Thank you. Our next question will come from Eric Hagen with BTIG. Please go ahead.
Eric Hagen: Our next question will come from Eric Hagen with BTIG. Please go ahead.
Speaker Change: Thank you. Our next question will come from Eric Hagen with <unk>. Please go ahead.
Jake Ketsuitkas: Good morning. This is Jake Ketsuitkas on Eric Hagen.
Jake Katsikisan: Good morning, this is Jake Katsikisan on behalf of Eric Hagen. Thanks for taking my questions. First one, just going back to leverage in the agency MBS portfolio. I know you talked about it a little, but just hearing some things that would maybe lead you guys to raise leverage in the portfolio, and if you guys kind of have a target range for it, just some color there would be helpful. Thank you.
Speaker Change: Good morning. This is Jay kept secrets on for Eric Hagen. Thanks for taking my questions first one just going back to the leverage in the agency MBS portfolio, you talked about it a little but just hearing some things that would maybe lead you guys to raise leverage in that portfolio and if you guys kind of have a target range for it just some color there would be helpful.
Jake Ketsuitkas: Thanks for taking my questions. First one, just going back to leverage in the agency and BS portfolio.
Thomas Durkin: No, you talked about it a little, but just hearing some things that would maybe lead you guys to raise leverage in the portfolio. And if you guys kind of have a target range for it, just some color there, be helpful. Thank you.
Thomas Durkin: Yeah, I think, I think if you fast forward through next quarter, we would kind of expect to be materially smaller in agencies and kind of returning to, you know, the one handle of economic leverage that we've been running the company at over the past, you know, four, six quarters. So, so this is just an interim stopgap to earn some carry on the cash proceeds we raised from the bond offer. Okay, gosh, thank you.
Speaker Change: Thank you.
Thomas Durkin: Yeah, I think I think if you fast forward through next quarter, we would kind of expect to be materially smaller in agencies and kind of returning to the level of economic leverage that we've been running the company at over the past, you know, four or six quarters. So this is just an interim stopgap to earn some carry on the cash proceeds we raised from the bond offering.
Speaker Change: Yes, I think I think if you fast forward through next quarter.
Speaker Change: We were kind of expect to be.
Speaker Change: Materially smaller than agencies and kind of returning to.
Speaker Change: The one handle of economic leverage that we've been running.
Speaker Change: Company out over the past.
Four to six quarters. So this is just an interim.
Speaker Change: Stop gap or some carry on the cash proceeds we raised from the bond offering.
Jake Katsikisan: Okay, gotcha. Thank you. And then my other question, turning to the non-QM portfolio, do you guys have a sense or estimate for how much prepayment speeds could accelerate? And if they were to increase, how would that translate to earnings or spreads in the portfolio?
Speaker Change: Okay got you. Thank you and then my other one turning to the non QM portfolio, you guys have a sense or estimate for how much prepayment speeds could accelerate and if they were to increase how that would translate to earnings our spreads in the portfolio. Thank you.
Jake Ketsuitkas: And then my other one, turning to the non-QM portfolio.
Nicholas Smith: Thank you.
Thomas Durkin: Do you guys have a sense or estimate for how much prepayment speeds could accelerate? And if they were to increase, how that would translate to earnings or spreads in the portfolio?
Thomas Durkin: Thank you. Yeah, so the vast majority of the loan book, and you can see this in our presentations, is, you know, far out of the money. Like our securitized coupon, if you look at it, is 5-4%, which if you think about even where conforming rates are, it's, you know, way out of the money. So, obviously, we're very focused on prepayment speeds and inverted curve and sort of the efficiencies entering the market. But, you know, the book of this book of business is, you know, fairly well protected from any, any convexity event or expected convexity event.
Nicholas Smith: Yeah, so the vast majority of the loan book, and you can see this in the present in our presentations, is, you know, far out of the money, like our Securitize coupon, which, if you look at it, is 5.4%, which, if you think about even where conforming rates are..., you know, way out of the money. So, obviously, we're very focused on prepayment speeds and the inverted curve and sort of the efficiencies entering the market. But, you know, this book of business is, you know, fairly well protected from any convexity event or expected convexity event.
Speaker Change: Yes, so the vast majority of the loan book and you can see this in the present in our presentations as far out of the money like our securitized coupon. If you look at it is 55, 4%, which if you think about even where conforming rates are.
Speaker Change: Way out of the money so.
Jake Katsikisan: Got you. Thank you for that.
Speaker Change: Obviously, we're very focused on prepayment speeds and the inverted curve and sort of efficiencies entering the market, but yes.
Speaker Change: The book of business book of business as you know.
Speaker Change: Fairly well protected from any any convexity event or expected convexity event.
Jake Ketsuitkas: Gotcha.
Jake Ketsuitkas: Thank you for that.
Speaker Change: Got you thank you for that.
Unknown Executive: Thank you.
Operator: Thank you at this time. I'm showing no further questions in queue. I'll turn the call back to management for any additional or closing remarks.
Unknown Executive: At this time, I'm showing no further questions in Q.
Speaker Change: Thank you at this time I'm showing no further questions in queue I'll turn the call back to management for any additional or closing remarks.
Unknown Executive: I'll turn the call back to management for any additional or closing remarks. Thank you to everyone for joining us and for your questions. We greatly appreciate it and look forward to speaking with you again next quarter.
Thomas Durkin: Thank you to everyone for joining us and for your questions. We greatly appreciate it and look forward to speaking with you again next quarter.
Speaker Change: Well, thank you to everyone for joining us and for your questions. We greatly appreciate it.
Speaker Change: Speaking with you again next quarter.
Unknown Executive: Thank you.
Operator: Thank you. This does conclude the AG Mortgage Investment Trust Inc. second quarter 2024 earnings conference call. You may disconnect your line at this time and have a wonderful day.
Unknown Executive: This does conclude the AG Mortgage Investment Trust in second quarter 2024 earnings conference call. You may disconnect your line at this time and have a wonderful day.
Speaker Change: Thank you. This does conclude the AG mortgage investment Trust, Inc. Second quarter 2024 earnings Conference call. You may disconnect. Your lines at this time and have a wonderful day.
Speaker Change: [music].
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Unknown Executive: ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ Thanks for watching, please subscribe and hit the like button.
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