Q3 2024 AG Mortgage Investment Trust Inc Earnings Call

Okay.

Good day, and thank you for standing by.

Unknown Executive: Good day and thank you for standing by.

Welcome to the AG mortgage investment Trust, Inc. Third quarter 2024 earnings Conference call.

Unknown Executive: Welcome to the AG Mortgage Investment Trust Inc third 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.

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

After management's remarks, there will be a question and answer session and.

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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 Naslund General Counsel for the company. Please go ahead.

Thank you good morning, everyone and welcome to the third quarter 'twenty 'twenty four earnings call for AG mortgage investment Trust with me on the call today are TJ Durkin, our CEO and president.

Jenny Neslin: Thank you. Good morning, everyone, and welcome to the third 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.

Speaker Change: Smith, our Chief investment Officer, and Anthony Rusty Allo, our Chief Financial Officer before.

Jenny Neslin: Before we begin, please note that the information discussed in today's call may contain forward-looking statements. Any forward-looking statements made during today's call are subject to certain risks and uncertainties which are outlined in our SEC filings, including under the headings Cautionary Statement Regarding Forward-Looking Statements, Risk Factors, and Management's Discussion and Analysis. The company's actual results may differ materially from these statements. We encourage you to read the disclosure regarding forward-looking statements contained in our SEC filings, including our most recently filed Form 10-K for the year ended December 31st, 2023, and our subsequent reports filed from time to time with the SEC.

Speaker Change: 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.

Speaker Change: 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.

<unk>, 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.

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: 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.

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, turn to our website, www.agmit.com, and click on the link for the Q3 2024 earnings presentation on the. Again, welcome to the call and thank you for joining us today.

Speaker Change: During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website. This morning to view the slide presentation turn to our website www dot a G M I T dot com.

Speaker Change: And click on the link for the Q3 'twenty 'twenty four 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.

T.J. Durkin: With that, I'd like to turn the call over to TJ. Thank you, Jenny. I'm pleased to report our third quarter financials, which shows our continued execution of the core business strategy. Walking through MIT's financial position as of September 30, we saw book value move higher from 1037 to 1058. While paying our 19 cent dividend and producing a healthy economic return on equity of 3.9% for the quarter, with it being too early to give an estimate of October book value. During the quarter, we earned $15.8 million of net interest income, 40 cents of earnings per share, and 17 cents of EAD per share.

T. J.: Thank you Jenny I'm pleased to report our third quarter financials, which shows our continued execution of the core business strategy.

Walking through midst financial position as of September 30th we saw book value move higher from 10 37 to 10 58.

T. J.: Well paying our 19 cent dividend and producing a healthy economic return on equity of three 9% for the quarter would.

Speaker Change: With it being too early to give an estimate of October book value.

During the quarter, we earned $15 8 million of net interest income 40 cents of earnings per share and 17 cents of EAA deeper sure.

T.J. Durkin: The level of EAD for this quarter is largely driven by model assumptions of increased future prepayment speeds on our loan portfolio, given the large rate rally that occurred during the quarter. These prepayments have not been realized yet. And given both the non-agency emphasis of our portfolio and the reverse loan rates that has occurred in October, these may be conservative in terms of EAD. With regards to the balance sheet, we reduced leverage back to 1.5 turns during the quarter. As previously discussed, we issued approximately 100 million of investment grade unsecured bonds earlier this year in anticipation of the $86 million WMC convertible note maturity date on September 16th, which is now fully retired.

The level of E. D. For this quarter is largely driven by model assumptions of increased future prepayment speeds on our loan portfolio given the large rate rally that occurred during the quarter.

Speaker Change: These prepayments have not been realized yet and given both the non agency emphasis of our portfolio and the reversal in rates that has occurred in October. These may be conservative in terms of E D.

With regards to the balance sheet, we reduced leverage back to one five turns during the quarter.

Speaker Change: As previously discussed we issued approximately 100 million of investment grade unsecured bonds earlier this year in anticipation of the $86 million W. M. C. Convertible note maturity date on September 16th which is now fully retired.

T.J. Durkin: But which also came down as we sold temporary holdings of agency MBS to offset cash drag heading into the convertible note maturity. After accounting for this deleveraging, we ended the quarter with ample liquidity of approximately $120 million. Midhead another active quarter issuing two agency eligible non owner occupied securitizations totaling approximately 750 We are sourcing this collateral from both Ark Home and some of the largest mortgage originators in the country. This quarter's issuance further strengthened our market leading position in this compelling space where we are seeing credit outperform even prime jumbo this year. Another area we are excited about is the home equity space.

Speaker Change: But which also came down as we sold temporary holdings of agency MBS to offset cash drag heading into the convertible note maturity.

After accounting for this deleveraging we ended the quarter with ample liquidity of approximately $120 million.

[laughter] mid had another active quarter issuing two agency eligible non owner occupied securitizations totaling approximately $750 million.

T. J.: We are sourcing this cloud collateral from both arc home and some of the largest mortgage originators in the country.

This quarter's issuance further strengthened our market leading position in this compelling space, where we are seeing credit outperform even prime jumbo this year.

Yeah.

T. J.: Another area. We are excited about is the home equity space as.

T.J. Durkin: As borrowers look to tap their growing home equity amounts while preserving their low 30-year fixed-rate mortgage, we believe we are in the very early innings of this product becoming more mainstream for U.S.

As borrowers look to tap there, they're growing home equity amounts while preserving their low 30 year fixed rate mortgage. We believe we are in the very early innings of this product becoming more mainstream for U S consumers.

T.J. Durkin: consumers, and Nick will go into further detail later in the call.

Nick will go into further detail later in the call.

Okay.

T.J. Durkin: Wrapping up, we normally stay away from macro and certainly politics, but given it's election day, I'll make a few brief comments. Housing supply and affordability remain hot topics that all politicians like to pontificate on. Unfortunately, we see no silver bullet to solve the affordability or supply constraints facing the nation. On the positive side, tight mortgage credit and resilient home prices are positive for MIT's credit book, and we believe the market is coalescing around this fact. With regards to the macro, as displayed by this quarter's book value performance, we believe MIT is fundamentally less exposed to interest rate volatility than the average mortgage rate.

T. J.: Wrapping up we normally stay away from macro and certainly politics, but given it's election day I'll make a few brief comments housed.

T. J.: Housing supply and affordability remain hot topics that all politicians liked to pontificate on.

Unfortunately, we see no silver bullet to solve the affordability or supply constraints facing the nation.

T. J.: On the positive side tight mortgage credit and resilient home prices are positive for Mitch credit book and we believe the market is coalescing around this fact.

With regards to the macro as displayed by this quarter's book value performance. We believe Mitt is fundamentally less exposed to interest rate volatility than the average mortgage REIT.

T. J.: While the steeper positively sloped yield curve would be supportive of earnings power. We believe Mick can still deliver strong results in this flat curve environment as we all wait to see how the fed handles the soft landing economic scenario.

T.J. Durkin: While a steeper, positively sloped yield curve would be supportive of earnings power, we believe MIT can still deliver strong results in this flat curve environment as we all wait to see how the Fed handles this soft landing economic scenario.

T. J.: I'll turn the call over to Nick.

Nicholas Smith: Thank you. As TJ just described, we had an active quarter, which I will unpack in more detail and provide background on how we are thinking about future capital deployment. We issued two more securitizations backed by agency-eligible investor loans, totaling approximately $750 million. We are currently the largest issuer in this space and expect to issue one or two more transactions before the end of the year. Recently, other REITs have announced that they intend to or have already entered this space. While we agree this sector is still attractive, we likely will commit less capital to it over the next few quarters.

Thank you as T. J just described we had an active quarter, which I will unpack in more detail and provide background on how we are thinking about future capital deployment.

Nick: We issued two more securitizations backed by agency eligible investor loans totaling approximately $750 million.

T. J.: We are currently the largest issuer in this space and expect to issue one or two more transactions before the end of the year.

Recently, other Reits have announced that they intend to or have already entered this space well.

T. J.: While we agree this sector is still attractive we likely will commit less capital to it over the next few quarters. There are three primary reasons for this shift.

Nicholas Smith: There are three primary reasons for this shift. First, Fannie and Freddie's mortgage hold-on conduits, often referred to as their cash windows, are increasingly bidding through MBS execution. Second, mortgage servicing rights, valuations, and third-party origination channels are increasingly stretching. And lastly, we have seen increased competition from insurance companies and others in this space. We closely watch these and other factors and will continue to commit capital accordingly. It is worth noting that none of this is necessarily new, but is more a function of magnitude. That being said, MIT's securitized agency eligible investor book has less delinquencies on a percentage basis basis than similar vintage non-agency prime jumbo transactions.

T. J.: First Fannie and Freddie mortgage whole loan conduits, often referred to as their cash windows are increasingly bidding through MBS execution.

T. J.: Second mortgage servicing rights valuations and third party origination channels are increasingly stretching.

T. J.: And lastly, we have seen increased competition from insurance companies and others in this space.

We closely watch these and other factors and we'll continue to commit capital Accordingly, It is worth noting that none of this is necessarily new but it's more a function of the magnitude.

T. J.: That being said <unk>.

T. J.: Securitize agency eligible Investor book has less delinquencies on a percentage basis basis than similar vintage non AMC prime jumbo transactions.

Nicholas Smith: To put this in context, the major rating agency's expected losses in corresponding credit enhancement is on average two to two and a half times more for agency-eligible investor loans relative to the non-agency prime jumbo sector. Said differently, MIT's retained investor credit positions had more than doubled the credit protection of comparably rated and more delinquent prime jumbo deals. And while this probably goes without saying, MIT's agency investor book has far superior convexity than Prime Jumbo.

To put this in context, the major rating agencies expected losses, and a corresponding credit enhancement is on average two to two five times more for agency eligible investor loans relative to the non AMC prime jumbo sector.

T. J.: Said differently, Mitch retained investor credit positions had more than doubled the credit protection of comparably rated and more delinquent prime jumbo deals.

T. J.: And while there's probably goes without saying Mitch agency Investor book is far superior convexity than prime jumbo.

T. J.: Moving on to an exciting and attractive new opportunity that Mitt began deploying capital into <unk>.

Nicholas Smith: Moving on to an exciting and attractive new opportunity that MIT began to coin capital in. Home Equity Law. In the third quarter, we acquired approximately $150 million of home equity loans and have committed to purchase another $200 million. This rapidly growing segment of the residential mortgage market has attracted a lot of press. This segment provides loans to homeowners that have accumulated equity in their properties for over the years who are looking to borrow against it to fund home improvement and debt consolidation, among many other uses. Over the past 15 years, this segment was dominated by banks that use their low cost of capital to subsidize client acquisition for only the wealthiest households.

T. J.: Home equity loans.

Third quarter, we acquired approximately $150 million of home equity loans and have committed to purchase another 200.

This rapidly growing segment of the residential mortgage market has attracted a lot of press. This segment provides loans to homeowners that have accumulated equity in their properties for over the years, we're looking to borrow against it to fund home improvement and debt consolidation among many other uses over.

T. J.: Over the past 15 years. This segment was dominated by banks that use their low cost of capital to sub advised client acquisition for only the wealthiest households, and.

Nicholas Smith: In contrast, today the demand for home equity lending is much larger. potentially interested borrowers made up of well-qualified homeowners with significant equity and a sub 4.5% first lien mortgage. Most borrowers in the US have COVID stimulus era 30 or fixed rate mortgages. There are two to 4% lower than today's prevailing rate. We expect this cheap and long dated financing combined with historic home price appreciation to be the primary drivers of demand in this segment. We estimate the total addressable home equity lending market to be as much as $2 trillion, which we believe should result in annual loan originations of $200 to $300 billion.

T. J.: In contrast today the demand for home equity lending is much larger with.

T. J.: With potentially interested borrowers made up of well qualified homeowners with significant equity and a sub four 5% first lien mortgage.

T. J.: Most borrowers in the U S had COVID-19 stimulus era 30 year fixed rate mortgages, there are 2% to 4% lower than today's prevailing rates.

T. J.: We expect this cheap and long dated financing combined with historic home price appreciation to be the primary drivers of demand in this segment.

T. J.: We estimate estimate the total addressable home equity lending market to be as much as two trillion, which we believe should result in annual loan originations of 200 to 300 billion.

T. J.: Well this is a new and exciting opportunity. It is worth emphasizing that meets mortgage banking investment and asset management teams are leveraging the same technologies principals and expertise used over the years.

Nicholas Smith: While this is a new and exciting opportunity, it is worth emphasizing that MIT's mortgage banking, investment and asset management teams are leveraging the same technologies, principles and expertise used over the years. It is also worth highlighting the strong collateral characteristics of the current and target portfolio. These loans have been extended to well-qualified borrowers with average credit scores in the mid-700s and have an average combined loan-to-value in the mid to high 60s. We believe this segment offers a long term opportunity and that we will enjoy the benefits of being a early mover. We see ROEs in the 20s and expect this to be creative to EAD over the coming quarters and years.

It is also worth highlighting the strong collateral characteristics of the current and target portfolio.

T. J.: These loans had been extended to well qualified borrowers with average credit scores in the mid seven hundreds and have an average combined loan to value in the mid to high sixties.

We believe this segment offers a long term opportunity and that we will enjoy the benefits of being a early mover.

T. J.: We see roe's in the Twenty's and expect this to be accretive to a D over the coming quarters and years.

Turning to arc home.

Nicholas Smith: Attorney D'Arco. In conjunction with Industry Trends, ARK Home was profitable in September. While this is a move in the right direction, there remains a lot of room for improvement. And, given the recent retracement in rates, along with seasonality, there is reason to be cautious. While AHRQ cannot control the path of rates, the executive leadership team continues to focus on scale, efficiency, and providing innovative products to the market. One potential significant area of growth for AHRQ Home lies in home equity lending.

T. J.: In conjunction with industry trends arc home was profitable in September.

T. J.: While this is a move in the right direction. There remains a lot of room for improvement and given the recent retracement in rates along with seasonality. There is reason to be cautious.

While our cannot control the path of rates the executive leadership team continues to focus on scale efficiency and providing innovative products to the market.

One potential significant area of growth for arc home lies in home equity lending.

Anthony: Turning the call over to Anthony.

Anthony Rossiello: Turning the call over to Anthony. Thank you, Nick, and good morning. During the third quarter, MIT grew its book value through strong gap earnings, remain active in acquiring and securitizing agency eligible loans, expanded our product set into home equity loans, and paid off the convertible notes assumed from WMC.

Thank you Nick and good morning.

Speaker Change: During the third quarter grew its book value through strong GAAP earnings remain active in acquiring and Securitizing agency eligible loans expanded.

Speaker Change: <unk> expanded our product set into home equity loans and paid off the convertible notes assumed from WMC.

Speaker Change: One point of note, we've historically disclosed our book value, both with and without the impact of the liquidation preference on our preferred stock and to simplify our reporting this this quarter and going forward. We plan to solely report book value that has been adjusted for the liquidation preference.

Anthony Rossiello: One point of note, we've historically disclosed our book value both with and without the impact of the liquidation preference on our preferred stock. And to simplify our reporting this this quarter and going forward, we plan to solely report book value that has been adjusted for the liquidation preference. book value increased by approximately 2% this quarter to $10.58 per share, producing a 3.9% economic return for our shareholders when considering the 19 cent quarterly dividend. The increase in book value was primarily driven by hedge-adjusted mark-to-market gains on our securitized loan and non-agency RMBS portfolios, given the decline in benchmark rates and credit spread tightening experienced this quarter.

Anthony: Book value increased by approximately 2% this quarter to $10 58 per share producing a three 9% economic return for our shareholders when considering the 19th <unk> quarterly dividend.

Anthony: The increase in book value was primarily driven by hedge adjusted Mark to market gains on our securitized loan and non agency MBS portfolios, given the decline in benchmark rates and credit spread tightening experienced this quarter.

Anthony: As a result, we recorded GAAP net income available to common shareholders of approximately $11 9 million or <unk> 40 per share.

Anthony Rossiello: As a result, we recorded GAAP net income available to common shareholders of approximately $11.9 million or $0.40 per share. We generated EAD of $0.17 per share for the third quarter. Net interest income inclusive of our interest earned on our hedge portfolio was 61 cents. which exceeded our operating expenses and preferred dividends of $0.42, generating earnings of $0.19 per share. This is offset by a two cent loss contributed from Arcom, which continued to improve quarter over quarter. As a reminder, we record interest income based on effective yields derived from projected cash flows. And as TJ mentioned earlier, net interest income decreased from prior quarter due to projecting an assumed increase in prepayment speeds on our residential loan portfolio given the rate move.

Anthony: We generated E D. A <unk> 17 per share for the third quarter.

Anthony: Net interest income inclusive of our interest earned on our hedge portfolio was 61 cents.

Anthony: Which exceeded our operating expenses and preferred dividends of 42 cents generating earnings of <unk> 19 per share.

Anthony: This is offset by a two cent loss contributed from arc home, which continue to improve quarter over quarter.

Anthony: And as a reminder, we record interest income based on effective yields derived from projected cash flows and as T. J mentioned earlier net interest income decreased from prior quarter due to projecting an assumed increase in prepayment speeds on our residential loan portfolio given the rate move.

Anthony: Our investment portfolio decreased slightly by approximately one 4% to $6 8 billion.

Anthony Rossiello: Our investment portfolio decreased slightly by approximately 1.4% to $6.8 billion. We remain active, acquiring approximately $525 million of residential mortgage loans and $51 million of non-agency RMBS. However, this growth was offset by the sale of $543 million of agency RMBS and $160 million of loans.

Anthony: We remain active acquiring approximately $525 million of residential mortgage loans and $51 million of non agency. MBS. However, this growth was offset by the sale of $543 million of agency RMB S and $160 million of loans.

Anthony Rossiello: Our economic leverage ratio at quarter end was 1.5 turns, which declined from 2.5 turns in June. As discussed last quarter, we invested excess cash from our bond issuances earlier in the year into agency RMBS on a short-term basis. This portfolio was liquidated in September in connection with paying off the WMC convertible notes at maturity, decreasing our leverage by one turn. In addition, we've continued to prudently manage our leverage exposure on residential mortgage loans through our programmatic securitizations, ending the quarter with only $226 million of warehouse financing outstanding. Lastly, we ended the quarter with total liquidity of approximately $120 million, consisting of $103 million of cash and $17 million of unencumbered agency RBS.

Anthony: Our economic leverage ratio at quarter end was one five turns which declined from two five turns in June.

Anthony: As discussed last quarter, we invested excess cash from our bond issuances earlier in the year into agency RMB as on a short term basis.

Anthony: This portfolio was liquidated in September in connection with paying off the WMC convertible notes at maturity decreasing our leverage by one turn.

Anthony: In addition, we've continued to prudently manage our leverage exposure on residential mortgage loans through our programmatic securitizations ending the quarter with only $226 million of warehouse financing outstanding.

Anthony: Lastly, we ended the quarter with total liquidity of approximately $120 million, consisting of $103 million of cash and $17 million of unencumbered agency RBS.

Unknown Executive: This concludes our prepared remarks, and we now like to open the call for questions. Operator. The floor is now open for questions.

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

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Speaker Change: Our first question will come from Bose George with <unk>. Please go ahead.

Bose George: Our first question will come from Bose George with KBW, please go ahead. Hey, guys, good morning. I wanted to ask just about the home equity opportunity. You know, it certainly is very attractive, but how, you know, meaningful do you think it could be in terms of your, you know, your equity allocation? I think when we think about our equity allocation going forward, you know, given given the attractiveness of the underlying asset, we would expect a high portion of any rotation and future deployment to be in this sector. As I mentioned earlier on the call, you know, we expect to do some of the things we've been doing in the past.

Bose George: Hey, guys good morning.

Bose George: Did you ask just about the home equity opportunity is very attractive, but how meaningful do you think it could be in terms of your your equity allocation.

Speaker Change: I think when we think about our equity allocation going forward.

Speaker Change: Given given the attractiveness of the underlying asset we would expect a high portion of any rotation and future deployment to be in this sector.

Speaker Change: As I mentioned earlier on the call we expect to do some of the things you've been doing in the past.

Speaker Change: But think that dramatically this will be something that will sort of dominate.

Bose George: But think that thematically, this will be something that will sort of dominate the next quarters and years.

Bose George: And the next quarters and years.

Bose George: Okay, great. And then just in terms of, you know, drivers of taking your earnings up, you know, sort of closer to your dividend, like when I look at slide 12, you know, can the ROEs go up in some of the individual buckets, and then, you know, you noted that the slower prepays quarter date should benefit, I guess, the returns in some of those buckets as well.

Speaker Change: Okay, Great and then just in terms of drivers of taking your earnings up.

Speaker Change: That's sort of closer to your dividends like when I look at slide 12.

Speaker Change: Can the ROE go up in some of the individual buckets and then you noted that the slower prepays quarter to date should benefit.

Speaker Change: I guess the returns in some of those buckets as well. So can you just talk about the returns going forward.

Bose George: So can you just talk about, you know, the returns going forward? Yeah, so from a return standpoint, there's certainly room as these assets mature. And, you know, so the credit plays out how we expect to take out additional leverage and redeploy the equity taken that additional leverage to drive ROEs higher. Obviously, if you look at our aggregate economic leverage, it's it's fairly modest, particularly relative to certain, you know, certain pair peers. Okay. So there's certainly room to, to increase ROEs. And I think that also plays into, you know, you see the line item for home equity loans you know, I think that's a component of it.

Speaker Change: Yes, so from a return standpoint.

Speaker Change: There is certainly room.

Speaker Change: As these assets mature and so the credit plays out how we expect to take out additional leverage and sort of redo.

Bose George: Redeploy.

Bose George: The equity taken them that additional leverage to drive ROE is higher obviously, if you look at our aggregate economic leverage its fairly modest.

Bose George: Particularly relative to certain peers.

Bose George: So there is certainly room to to increase ROE and I think that also plays into you see the line item for home equity loans.

Bose George: I think thats a component of it as well.

Speaker Change: Okay, great. Thanks.

Bose George: Okay, great. Thanks.

Speaker Change: Thank you. Our next question will come from Brad <unk> with Piper Sandler. Please go ahead.

Bradley Capuzzi: Thank you. Our next question will come from Brad Capuzzi with Piper Sandler. Please go ahead. Thank you for taking my question. I appreciate all the commentary.

Brad: Thank you for taking my question I appreciate all the commentary.

Bradley Capuzzi: Can you just speak on your current thoughts on the dividend? Obviously, operating earnings dipped a bit this quarter, which, you know, was expected as you positioned to address the convert. I wanted to get your thoughts when you look at the rate outlook and what you need to see to continue covering the dividend. Yeah, so I think, you know, we kind of moved through this transitionary period, but with some of the capital raising and obviously the debt repayments. I think we probably look at The page 12 that we were just referencing, I think there's probably 40 to 50 million of capital that we would love to rotate into higher ROE opportunities when they present themselves and we're building that pipeline.

Speaker Change: Can you just speak on returns thoughts on the dividend, obviously operating earnings dipped a bit this quarter, which was expected as you're positioned to address the convert.

Bose George: To get your thoughts when you look at the rate outlook and what you need to see to continue covering the dividend with J D.

Speaker Change: Yes, so I think we kind of move through this transition period, but with.

Bose George: Some of the capital raising and obviously the debt repayments I think we'd probably look at.

Bose George:

Bose George: The the page 12 that we were just referencing I think theres probably.

Bose George: $40 million to $50 million of capital that we would look to rotate into higher ROE opportunities when when they present themselves and we're building that pipeline and then obviously the other headwind that we've talked about in terms of the dividend has been.

Bradley Capuzzi: And then obviously the other headwind that we've talked about in terms of the dividend has been on page 10, we kind of break out the ARK Home EAD per share, and that's trending in the right direction. Obviously, we'd love it to be going faster, but it is. you know, moving towards, you know, sort of break even before we obviously hope it flips into into a positive contributor.

Bose George: On page 10, we kind of break out the arc home 80 per share and that's trending in the right direction, obviously, we would love it to be going faster, but but it is.

Bose George:

Bose George: You don't moving towards sort of breakeven before we obviously hope it flips into into a positive contributor. So those are probably the two drivers that when you when you flip the profitability you get some of that kind of capital turned into what Nick mentioned would be.

Bradley Capuzzi: So those are probably the two drivers that, you know, when you when you flip the profitability, you get some of that kind of capital turned into what Nick mentioned would be, you know, round numbers 20% ROE, that should kind of even us out to something along the lines of our new dividend, which, you know, we would think we'd remain consistent on for the intermediate.

Bose George: Round numbers, 20% Roe.

Bose George: That should kind of even us out to something along the lines of.

Bose George: Our new dividend, which we would think we would remain consistent on for the intermediate term.

Speaker Change: Thanks, I appreciate the color there and then I know it was discussed during the prepared remarks, but just was wondering if you could expand on how the team is thinking about the elections and implications for met we can see rate moves potential volatility housing in BRCA agents et cetera, just curious how youre thinking about it.

Bradley Capuzzi: And then I know it was disgusting prepared remarks, but, you know, just was wondering if you could expand on how the team is thinking about the elections and implications from it. You know, we can see rate moves, potential volatility, housing impact. etc. I was just curious in how you're thinking about it and positioning both near and in Yeah, I mean, listen, in terms of like near term volatility, I mean, listen, we're we're we have you know, more credit type products, we don't have a lot of leverage, most of most of it is turned out for securitization leverage.

Bose George: Hi.

Bose George: And intermediate.

Speaker Change: Yes, I mean listen in terms of like near term volatility I mean listen we're where we have.

More credit type products, we don't have a lot of leverage most of most of it is termed out for securitization leverage.

Bradley Capuzzi: There isn't a ton of volatility that could really affect the portfolio in terms of, you know, I could see a lot of, you know, whipsawing and rates over the next, you know, week or two, I think. I think generally speaking, you know, away from the election, I think just the continued, I would say, bank retrenchment, nothing to do with the election, but more capital and regulatory, I think are tailwinds for sort of specialty finance and non-bank origination engines. So I don't think whoever wins the election will change that sort of motion or direction.

Speaker Change: There isn't a ton of that.

Speaker Change: The volatility that could really affect our portfolio in terms of you know I can see a lot of whipsaw in rates over the next week or two I think.

Speaker Change: I think generally speaking you know away from the election I think just the continued I would say bank retrenchment nothing to do with the election, but more capital and regulatory I think our tailwind for sort of specialty finance and non bank origination engines. So I don't think whoever wins.

Speaker Change: The election will will change that sort of.

Speaker Change: Motion of direction.

Speaker Change: Thank you that's it from me I appreciate it.

Unknown Executive: Thank you.

Speaker Change: Thank you. Our next question will come from Doug Harter with UBS. Please go ahead.

Douglas Harter: Our next question will come from Doug Harder with UBS. Please go ahead. Thanks, Anthony, I was hoping you could size the impact of the prepay assumption in the current quarter. I don't have an exact number offhand, but I would say it was the majority of the driver, just when you think about quarter over quarter, from $0.21 down to $0.17.

Doug Harter: Thanks, Anthony I was hoping you could size the impact of the prepay assumption.

Doug Harter: The current quarter.

Bose George:

Bose George: Uh huh.

Bose George: I don't have an exact number off hand, but I would say it was.

Bose George: The majority of the driver just when you think about quarter over quarter from 21 cents down two to 17.

Speaker Change: Okay I appreciate that.

Douglas Harter: Okay, I appreciate that.

Douglas Harter: And then as you think about the home equity opportunity and financing that, do you view securitization as kind of the likely takeout for that financing? And if so, kind of how do you think about the, you know, the size you need to execute a securitization? Yeah, so we've predominantly been executing in the securitization space, there are alternative ways to finance it, that are also attractive. But the appropriate sizes have ranged, typically called 275 to 500 million, probably on average, right in between.

Speaker Change: And and.

Speaker Change: And then as you think about the home equity opportunity and financing that do you view securitization as kind of a likely.

Bose George: Take out for that financing.

Bose George: And if so kind of how do you think about the.

Speaker Change: Yeah, the size you need to execute a securitization.

Speaker Change: Yes, so we've predominantly been executing in the securitization space there are alternative ways to finance it there.

Speaker Change: There are also attractive.

Speaker Change: But the appropriate sizes of ranged typically call it $275 million to $500 million, probably on average right in between.

Speaker Change: Great and then.

Douglas Harter: Great.

Douglas Harter: And then with within the home equity space, you know, some people are looking at, you know, kind of closed end seconds, some are looking at, you know, home equity interest or appreciation, you know, kind of how are you thinking about what are the attractive ways? play and to help consumers tap into that. Yeah, so maybe addressing the products we're playing in specifically the home equity appreciation.

Speaker Change: With with within the home equity space you know some people are looking at kind of closed end seconds somewhere looking at.

Speaker Change: Home equity interest or appreciation.

Speaker Change: Kind of how are you thinking about what are the attractive ways to play.

Speaker Change: Play in to help consumers tap into that equity.

Speaker Change: Yes, so maybe addressing the products were plain and specifically the home equity appreciation.

Douglas Harter: You know, that's not what we're doing. We're staying to more traditional type lending, either being, you know, closed end second, or, or he locked. Um, if that answers your question.

Speaker Change: That's <unk>.

Speaker Change: What we're doing we're saying to a more traditional type lending either being closed end second or where he locks.

Speaker Change: If that answers your question.

Douglas Harter: It does. Thank you.

Speaker Change: Thank you.

Bose George: Yeah.

Speaker Change: Thank you. Our next question will come from Jason Weaver with Jones trading. Please go ahead.

Jason Weaver: Our next question will come from Jason Weaver with Jones Trading. Please go ahead. Hey, good morning. Thanks for taking my question. Not to belabor on the subject, but on the home equity product, can you talk a little bit more about where you're sourcing that? And if possibly, Ark Home could be a source of that in the future? Yeah, certainly.

Jason Weaver: Hey, good morning, Thanks for taking my question not to belabor on the subject, but on the home equity product can you talk a little bit more about where you're sourcing that and it possibly arc home could be a source of that in the future.

Speaker Change: Yes, certainly so.

Jason Weaver: So It's still relatively early, as we stated multiple times in our prepared remarks. That being said, you know, the closed end second space is somewhat a cut copy paste of, you know, Fannie and Freddie's automated underwriting system. So you can source that from a very wide range of entrants. The HELOC space is a little more niche, but, you know, we think growing and going to grow bigger than the closed end second space and we are buying from everyone in basically everyone who is active in that space at the moment. Got it. So it's pretty even mix of both banking institutions and non-bank lenders, you would say.

Speaker Change: It's still relatively early as we stated multiple times in our prepared remarks that being said the closed end second space is somewhat a cut copy paste of Fannie and Freddie is automated underwriting system. So you can source that from a very wide range of entrance the HELOC spaces, a little more niche.

Jason Weaver: But we think growing and going to grow bigger than the closed end second space in.

Bose George: We are buying from.

Bose George: Everyone and basically everyone, who is active in that space at the moment.

Speaker Change: Got it so it was pretty even mix of both banking institutions and non bank lenders you would say.

Jason Weaver: We would expect going forward, the vast majority of this to be come from non- Fair enough. Okay.

Bose George: We would expect going forward the vast majority of this to be.

Speaker Change: Come from Nonbanks fair enough, Okay, and then one more I was curious how you feel where your comfort zone is around the current level of cash and unencumbered liquidity you have around $120 million.

Jason Weaver: And then one more. I was curious how you feel what your comfort zone is around the current level of cash and unencumbered liquidity you have around 120 million. We feel comfortable around that level, there's certainly room to draw that down and sort of enhance sort of the leverage profile of the firm. Got it. Okay.

Speaker Change: We feel comfortable around that level, there's certainly room to draw that down and sort of enhance our enhanced.

Bose George: Enhanced sort of the leverage profile of the firm.

Speaker Change: Got it okay. Thank you.

Speaker Change: 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. Great, thanks.

Trevor Cranston: Alright. Thanks.

Trevor Cranston: One more question on the prepaid projections that impacted third quarter. Can you maybe give us a sense of how much of the portfolio you would say was in the money when when kind of rates were at their recent lows versus how much of the portfolio is actually in the money or recent today? Yeah, so I don't have specific numbers. I think the answer to that is the vast majority of the portfolio is out of the money today. And I think that speaks to sort of the resilience of pretty decent rate rallies and actually increasing increasing speed Okay, got it.

Trevor Cranston: One more question on the.

Trevor Cranston: Prepaid projections that impacted third quarter.

Trevor Cranston: Could you maybe give us a sense.

Bose George: How much of the portfolio you would say it was in the money you win win kind of.

Bose George: Throughout their recent lows versus.

Bose George: How much of the portfolio was actually in the money, where we sit today.

Bose George: Yeah.

Speaker Change: Yes, so I don't have specific numbers.

Speaker Change: I think the answer to that is the vast majority.

Bose George: Of the portfolio is out of the money today, and I think that speaks to the resilience of pretty decent.

Bose George: Rate rallies and actually increasing.

Bose George: Increasing speeds.

Speaker Change: Okay got it.

Trevor Cranston: And then one more on the home equity loans.

Speaker Change: And then one more on the home equity loans.

Speaker Change: Can you talk a little bit about.

Trevor Cranston: Can you talk a little bit about, you know, what you're seeing in terms of securitization structures and how much equity you would expect to have invested once a pool of loans is securitized? Yeah, so very high level. If anything, the securitization is given sort of the up in credit nature of the product can be more efficient than even, even non QM from sort of a proceeds standpoint or leverage you can take out. Obviously, that that's compensating for the expected losses. So they're relatively efficient. Obviously, that is is product dependent, but somewhat comparable to to other sort of asset classes out there.

Speaker Change: What youre seeing in terms of securitization structures and how much.

Speaker Change: Equity you would expect to have invested.

Bose George: Once a pool of loans and securitize.

Speaker Change: Yeah, so very high level.

Speaker Change: If anything the securitizations, given sort of the up and credit nature of the product can be more efficient than even even non QM from sort of a proceeds standpoint of leverage you can take out obviously that that's.

Speaker Change: Compensating for the expected losses.

Bose George: So they're relatively efficient obviously that is product dependent.

Bose George: But somewhat comparable to two other sort of asset classes out there.

Speaker Change: Got it okay I appreciate the color. Thank you.

Trevor Cranston: Got it. Okay.

Trevor Cranston: Appreciate the comments. Thank you.

Bose George: Okay.

Speaker Change: Thank you as a reminder to ask a question. Please press star one our next question will come from Eric Hagen with <unk>. Please go ahead.

Eric Hagen: As a reminder, to ask a question, please press star one. Our next question will come from Eric Hagen with BTIG. Please go ahead. Hey, thanks. Good morning, guys.

Eric Hagen: Hey, Thanks, good morning, guys.

Eric Hagen: Okay, so when you think about the discounted price and the valuation for non-QM, I mean, how much do you attribute to interest rates versus maybe concerns around weaker credit performance? And do you see there being risks to valuation? in the capital structure, if the narrative around a recession or borrow, sorry, borrow a credit, you know, kind of intensifies from here.

Bose George: Okay. So when you think about the discounted price and the valuation for non QM I mean, how much do you attribute to interest rates versus maybe concerns around weaker credit performance and do you see there being risk devaluation.

Bose George: And the capital structure, if the narrative around a recession or borrow.

Bose George: Alright, borrower credit kind of intensifies from here.

Eric Hagen: When you're talking about, Eric, we're talking about like a retained book in the company or like new origination going forward. both, but really referring more to the back. Yeah, I mean, the back book is better fitted from You know, massive home appreciation. You know, the delinquency pipeline is I mean, the GCAT shelf is, if you look at sort of sell side research, you know, top quartile in terms of performance, we're not seeing any sort of deterioration. And to the extent there was delinquencies, there's multiple sort of loss remediation tactics in terms of, you know, the borrower selling their house, getting the equity out.

Bose George: When you were talking about Eric are you talking about like our retained book in the company are like new origination going forward.

Eric Hagen: Both but really referring more to the back book.

Bose George: Yes, I mean, the back book is better fit it from.

Bose George: Massive home appreciation.

Bose George: Yes, the delinquency pipeline is I mean, the <unk> shelf is.

Bose George: If you look at sort of sell side research top quartile and towards a performance, we're not seeing any sort of deterioration and to the extent there.

Bose George: There was delinquencies.

Bose George: Multiple.

Bose George: Multiple sort of loss.

Bose George: Remediation tactics in terms of.

Bose George: The borrowers selling their house getting the equity out.

Bose George: Et cetera, so we're not seeing.

Eric Hagen: et cetera. So I mean, we're not seeing or we're not concerned about any sort of recession led, you know, spike in losses by any means. Yeah.

Bose George: We're not concerned about any sort of recession led spike in losses by any means and I think we would refer you to page eight where it shows that our current portfolio as delinquency is 1% 90 plus.

Eric Hagen: And I think we would refer you to page eight, where it shows that our current portfolio's delinquency is 1%, 90 plus. and a sub 60, you know, market to market LTV. So obviously, there's plenty of room for degradation for the portfolio to stand up. Yep, okay, that's helpful.

Bose George: And a sub 60 mark to market LTV.

Bose George: So obviously there is plenty of room for degradation for the portfolio to standup.

Speaker Change: Yes, Okay. That's helpful.

Eric Hagen: Do you guys feel like there are any scenarios of dislocation where you might look to raise capital, even if it's below book value, maybe at the expense of some upfront dilution, but the forward returns could be really attractive? Are there scenarios where you could look to? Maybe tap into that. How do you guys think about that from here? I mean, the short answer is probably no, Eric. I mean, I think the market's fairly orderly, despite sort of a lot of noise in the headlines. I don't think we're looking to entertain that. All right.

Speaker Change: Do you guys feel like there are any scenarios of dislocation, where you might look to raise capital even if it's below book value and maybe at the expense of some upfront dilution with the four returns could be really attractive are there scenarios, where you could look to.

Bose George: Maybe you tap into that how do you guys think about that from here.

Speaker Change: I mean, the short answer is probably no Eric I mean, I think the market's fairly orderly despite sort of a lot of noise in the headlines.

Speaker Change: I don't think were I don't think we are looking to entertain that.

Bose George: Okay.

Speaker Change: Alright, Thank you guys.

Unknown Executive: Thank you guys. Thank you.

Speaker Change: Thank you and at this time. It appears there are no further questions in queue I will turn the call back to management for closing remarks.

Unknown Executive: And at this time, it appears there are no further questions in queue.

Unknown Executive: I will turn the call back to management for closing remarks. Thank you, everyone, for joining us this morning and for your questions, we appreciate it, and we will look forward to speaking with you again next quarter. Thanks, everyone.

Speaker Change: Thank you everyone for joining us this morning and for your questions. We appreciate it and we will look forward to speaking with you again next quarter. Thanks, everyone.

Speaker Change: This does conclude the AG mortgage investment Trust, Inc. Third quarter 2024 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.

Unknown Executive: This does conclude the AG Mortgage Investment Trust Inc. 3rd Quarter 2024 Earnings Conference Call.

Unknown Executive: Please disconnect your line at this time and have a wonderful day.

Bose George: [music].

Speaker Change: Uh huh.

Bose George: Mhm.

Bose George: Hum.

Bose George: Uh-huh.

Bose George: [music].

Bose George: Okay.

Bose George: Okay.

Bose George: Hum.

Bose George: Hello.

Bose George: Oh.

Bose George: Uh-huh.

Bose George: No.

Bose George: [music].

Bose George: Okay.

Bose George: Okay.

Bose George: Yes.

Bose George: Oh.

Bose George: Hello.

Bose George: [music].

Bose George:

Bose George: Yes.

Bose George: Okay.