Q4 2024 AG Mortgage Investment Trust Inc Earnings Call
Good day and thank you for standing by welcome to the AG Mortgage Investment Trust, Inc. Fourth quarter 2024, and full year earnings conference call. At this time all participants are in a listen only mode. After management's remarks, there will be a question and answer session in order to ask a question during the session.
Unknown Executive: Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust, Inc. fourth quarter 2024 and full year earnings conference call.
Unknown Executive: 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero.
Speaker Change: Please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to turn the call over to Ginny Naslund General Counsel for the company. Please go ahead.
Jenny Neslin: I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead. Thank you.
Speaker Change: Thank you.
Jenny Neslin: Good morning, everyone. And welcome to the full year and fourth 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: Everyone and welcome to the full year and fourth quarter of 2024 earnings call for AG mortgage investment Trust.
Speaker Change: With me on the call today are T J darken, our CEO and President Nick Smith, our Chief investment Officer, and Anthony Rough CLO, Our Chief Financial Officer before we begin. Please note that the information discussed in today's call may contain forward looking statements.
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 Discussion and Analysis. The company's actual results may differ materially from these statements. We encourage you to read the disclosure regarding forward-looking statements contained in our SEC filings, including our most recently filed Form 10-K for the year ended December 31, 2023, and our subsequent reports filed from time to time with the SEC.
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.
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, 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.
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: 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 Q4 2024 earnings presentation on the home page. 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 of 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 Q4 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.
T.J. Durkin: With that, I'd like to turn the call over to TJ. Thank you, Jenny. I'm pleased to report our fourth quarter and full year financials, which shows our continued execution of our core business strategy and industry leading results. We're able to deliver these strong outcomes amidst a challenging macroeconomic backdrop, proving the company has a more differentiated strategy than the average REIT. Highlighting MIPS financial performance during the fourth quarter, we saw book value move higher by 0.6% from $10.58 to $10.64 while paying our $0.19 dividend and producing a healthy economic return on equity of 2.4% for the quarter.
Speaker Change: Okay.
T.J.: Thank you Jenny I am pleased to report, our fourth quarter and full year financials.
T.J.: Which shows our continued execution of our core business strategy and industry leading results.
T.J.: We were able to deliver these strong outcomes and it's a challenging macroeconomic backdrop proving the company has a more differentiated strategy than the average REIT.
T.J.: How long the midst financial performance during the fourth quarter, we saw book value moved higher by 6% from 10 58 to 10 64, while paying our 19th dividend and producing a healthy economic return on equity of two 4% for the quarter.
T.J. Durkin: For the full year 2024, we were able to increase our quarterly dividend by 5.6% earlier in the year and delivered an 11.7% economic return on equity for our shareholders. Although it is too early in our process to comment on February, book value was flat for the month of January.
T.J.: For the full year 2024, we were able to increase our quarterly dividend by five 6% earlier in the year and delivered an 11, 7% economic return on equity for our shareholders.
Although it is too early in our process to comment on February book value was flat for the month of January.
T.J.: Now, taking a step back I've been reflecting on where it was when I became CEO in October 2022.
T.J. Durkin: Now taking a step back, I've been reflecting on where MIT was when I became CEO in October 2022, and where MIT is today. Nearly every quarter we've presented earnings to you during this period, I've said the same thing. Volatile, challenging and turbulent market condition. Yet in spite of this, we are protecting and growing MITS book value. This consistent theme is due to our conviction that if we continue to execute on what we do best, while also being unafraid to be dynamic and seize on compelling opportunities for growth, we can not only protect but also grow book value, and in turn our earnings profile for our shareholders.
T.J.: And we're mid is today.
T.J.: Nearly every quarter, we presented earnings during this period I've said, the same thing volatile challenging and turbulent market conditions.
T.J.: Yet in spite of this we are protecting and growing midst book value.
T.J.: This consistent theme is due to our conviction that if we continue to execute on what we do best while also being unafraid to be dynamic and seize on compelling opportunities for growth. We can not only protects but also grow book value and in turn our earnings profile for our shareholders.
T.J.: We remain steadfast to our disciplined programmatic securitization strategy in.
T.J. Durkin: We remain steadfast to our disciplined programmatic securitization strategy. In the quarter right before I became CEO, our economic leverage was 2.7 turns. Now it's 1.4 turns, and that's been relatively steady, as we have consistently executed securitizations on a quarterly basis. controlling our outstanding warehouse balances. and generating additional capital for reinvesting.
Speaker Change: In the quarter right before I became CEO, our economic leverage was two seven turns now its 1.4 turns and thats been relatively steady as we have consistently executed securitizations on a quarterly basis.
T.J.: Controlling our outstanding warehouse balances.
Speaker Change: And generating additional capital for reinvestment.
Speaker Change: What are the other reasons for our strong financial performance in 2024 is a reflection unmatched unique positioning.
T.J. Durkin: One of the other reasons for a strong financial performance in 2024 is a reflection on MIT's unique positioning. We are able to be nimble in asset allocation. Seamlessly rotating in multiple flavors of non-agency credit, starting with non-QM, then being a first mover and securitizing agency-eligible non-owner occupied, to most recently being a leader in the emergence of home equity or second lien lending.
Speaker Change: We are able to be nimble and asset allocation seamlessly rotating in multiple flavors of non agency credit starting with non QM than being a first mover and securitizing agency eligible non owner occupied.
Speaker Change: So most recently being a leader in the emergence of home equity or second lien lending.
Speaker Change: Lastly December marked the one year anniversary of closing the WMC acquisition, which has been a resounding success to date in terms of gaining scale for our shareholders.
T.J. Durkin: Lastly, December marked the one-year anniversary of closing the WMC acquisition, which has been a resounding success to date in terms of gaining scale for our shareholders. Total Stockholder Returns. from the close to the transaction has been more than 15 more than 50%. This transaction showcases the power of our external manager, TPG, which we believe the market doesn't fully appreciate. Our manager gives us not just financial support as evidenced during the WMC transaction, but also scale. Along with MIT, TPG's broader structured credit and specialty finance business manages $18 billion of AUM. So while MIT may be $550 million of equity, our manager's strong market presence allows us to source and punch way above MIT's weight class in isolation.
Speaker Change: Total stockholder returns.
Speaker Change: From the close to the transaction has been more than 15 more than 50%.
Speaker Change: This transaction showcases the power of our external manager TPG, which we believe doesn't get the market doesn't fully appreciate.
Speaker Change: Our manager it gives us not just financial support as evidenced during the WMC transaction, but also scale.
Speaker Change: Along with met TPG has brought our structured credit and specialty finance business manages 18 billion of AUM.
Speaker Change: So while it may be $550 million of equity our manager strong market presence allows us to source and punch way above midst weight class in isolation.
Nick: For all these reasons I'm looking forward to another great year for met as we remain committed to our growth initiatives and creating value for our shareholders now I'll turn the call over to Nick.
T.J. Durkin: For all these reasons, I'm looking forward to another great year for MIT as we remain committed to our growth initiatives and creating value for our shareholders.
Nicholas Smith: Now I'll turn the call over to Nick. Good morning, and thank you, TJ. Today, I want to build upon TJ's remarks and unpack why we believe in the mid advantage, a topic that we have not emphasized enough in the past.
Nick: Good morning, and thank you T. J today I wanted to build upon T. Jay's remarks, and unpack why we believe in the med advantage.
Nick: Topic that we have not emphasized enough in the past.
Nicholas Smith: We cannot talk about this topic without diving deep into TPG, Angela Gordon's capabilities and, more specifically, the capabilities of its structured credit and specialty finance group, which provides unparalleled access, expertise, and resources to MIT. I'll take these one by one. starting with access. TPG, Angela Gordon has an edge in access to capital, ideas, and sourcing. On the capital side, we are an important counterparty to most, if not all, large investment banks, along with many smaller entities that play an important role in shaping the residential finance sector. These relationships are important conduit to some of the best opportunities in this space.
Nick: We cannot talk about this topic without diving deep into TPG, Angelo gordons capabilities and more specifically the capabilities of its structured credit, especially finance group, which provides unparalleled access expertise and resources to MIT.
Nick: I'll take these one by one.
Nick: Starting with access cheap.
Nick: TPG Angelo Gordon has an edge and access to capital ideas and sourcing.
Nick: On the capital side, we are an important counterparty to most if not all large investment banks along with many smaller entities that play an important role in shaping the residential finance sector.
Nick: These relationships are important conduit to some of the best opportunities in this space.
Nicholas Smith: While these relationships are important, we take pride in our connectivity with the broader residential finance ecosystem. This is a critical part of our sourcing advantage. We have deep relationships across this sector, ranging from the largest non-bank originators to niche venture capital types.
Nick: While these relationships are important we take pride in our connectivity with the broader residential finance ecosystem.
Nick: This is a critical part of sort our sourcing advantage.
Nick: We have deep relationships across this sector ranging from the largest non bank originators to niche venture capital types.
Nicholas Smith: Moving on to expertise. Our deep bench of structured credit and mortgage finance professionals includes over four dozen professionals across trading and origination, research and analytics, asset management, banking, finance and operations, along with dedicated legal and software engineering teams. All this allows us to attach the residential mortgage finance space in ways most cannot. Our core competencies span multiple sectors of the broader residential mortgage finance segment, including non-QM, BPLs, and non-QM mortgages. Agency Eligible Loans, specifically cohorts where Fannie and Freddie have punitive credit costs relative to private capital. Home Equity, including traditional products like Closed End Seconds, HELOCs, along with a new and growing niche digital HELOC sector, and Credit Sensitive Loans, including non-performing, re-performing, scratch and dent, and bankruptcy.
Nick: Moving onto expertise.
Nick: Our deep bench of structured credit mortgage finance professionals includes over four dozen professionals across trading and origination research and analytics asset management banking finance and operations along with dedicated legal software engineering teams.
Nick: All of this allows us to attach to the residential mortgage finance space in ways most cannot.
Nick: Our core competencies span multiple sectors of the broader residential mortgage finance segment, including non QM.
Nick: Ppl's.
Nick: Agency eligible loans, specifically cohorts, where Fannie and Freddie have punitive credit costs relative to private capital.
Nick: Home equity, including traditional products like closed end seconds, Helocs, along with a new and growing niche digital HELOC sector.
Nick: And credit sensitive loans, including nonperforming re performing scratch and dent in bankruptcy.
Nicholas Smith: Tangential to the residential mortgages, we also have the ability to one own servicing rights as our vertically integrated portfolio company Ark Home is fully licensed to own Fannie, Freddie and Ginnie MSR with in place subservicing contracts and all the necessary technology. We also own and operate various types of specialty finance companies, including residential mortgage originators like Ark Home, in which Mitt owns 45%.
Nick: And gentle to the residential mortgages. We also have the ability to one one servicing rights as a vertically integrated portfolio company arc home is fully licensed stone, Fannie Freddie and Ginnie MSR with in place sub servicing contracts and all the necessary technologies.
We also own and operate various types of specialty finance companies, including residential mortgage originators like arc home and which Mitt owns 45%.
Nick: Lastly, let's move on to resources that make all this possible.
Nicholas Smith: Lastly, let's move on to resources that make all this possible. reiterating what TJ said, MIT is part of the much bigger ecosystem through its manager TPG, Angela Gordon. which has substantial resources to support its more than 90 billion AUM across products including MIT. To name a few key resources, TPG, Angela Gordon provides MIT access to One, a custom built residential mortgage asset manager, Red Creek. Instead of buying one, TPG, Angela Gordon, invested the time and capital into building this resource so it could be tailored to fit the needs of MIT and other TPG AG products.
Nick: Yes.
T J: Reiterating what T J said MIT.
Nick: As part of the.
Much bigger ecosystem through its manager TPG Angela Gordon.
Nick: Which is substantial resources to support its more than 90 billion AUM across products, including MIT.
Nick: To name a few key resources TPG Angelo Gordon provides <unk> access to <unk>.
Nick: One a custom built residential mortgage asset manager Red Creek.
Nick: Instead of buying one TPG Angelo Gordon invested the time and capital into building. This resource. So it can be tailored to fit the needs of Mitt and other TPG AG products.
Nicholas Smith: 2. A state-of-the-art data science department that focuses on everything from digesting large data sets to help inform market views to cutting-edge technology applications. And 3. A deep bench of residential mortgage bankers, contract finance experts, traders, financing specialists, and some of the best in-house legal professionals in the business.
Nick: To a state of the art data Science Department that focus on everything from digesting large datasets sets to help inform market views to cutting edge technology applications and three a deep bench of residential mortgage bankers contract finance experts traders financing specialists and some of the best in house.
Nick: Legal professionals in the business.
Nicholas Smith: And all this is just the tip of the iceberg. The recent MIT track record shows how all these key ingredients come together to create and execute the company's strategy. A few notable highlights include One, the successful acquisition of WMC, which increased MIT's market cap by over 45% and propelled MIT into the Russell 3000 last June. 2. The fluid transition of equity deployment from non-QM to agency-owned devastable loans to, most recently, home equity loans, which was instrumental amidst relative outperformance this quarter. Three, the disposition of mortgage servicing rights at Arcom. Four, the rotation of legacy credit sensitive loan investments.
Nick: And all of this is just the tip of iceberg.
Nick: The recent track record shows how all these key ingredients come together to create and execute the company's strategy.
Nick: A few notable highlights include.
Nick: One the successful acquisition of WMC, which increase Smiths market cap by over 45% and propelled <unk> into the Russell 3000 last June.
Nick: Two the fluid transition of equity deployment from non QM to agency LNG vessel loans to most recently home equity loans, which was instrumental in midst relative outperformance this quarter.
Nick: Three the disposition of mortgage servicing rights at our calm.
Nick: For the rotation of legacy credit sensitive loan investments.
Nicholas Smith: And five, the launch of new channels and products at Arcom that are focused on empowering our clients with best-in-class technology, liquidity, and service with a focus on operational leverage.
Nick: Five the launch of new channels and products at arc home that are favor focused on empowering our clients with best in class technology liquidity and service with a focus on operational leverage.
Nick: Yeah.
Nicholas Smith: Before moving on, a brief comment in our comb. For all the reasons that MIT benefits from TPG Angela Gordon's resources, ArcHome does as well. While it's had its challenges, Arcoma has reached a pivotal point in transitioning to profitability. Over the last year, we continue to invest in talent, including a new CEO, COO, and Chief Production Officer. We believe that these investments to fuel further growth and believe they were an important part of the company having a profitable December and January.
Nick: Before moving on a brief comment and arc home.
Nick: For all the reasons that Mitt benefits from TPG, Angelo Gordons resources arc home does as well.
While it has had its challenges arc home has reached a pivotal point in transitioning to profitability.
Nick: Over the last year, we continued to invest in talent, including a new CEO COO and chief production Officer.
Nick: We believe these investments to fuel further growth and believe they were an important part of the company have any profitable December and January.
Nicholas Smith: So, in conclusion, with all these components, the access, the expertise, and the resources, we strive to provide our shareholders with the best risk-adjusted returns in the residential sector. And to make this happen, MIT can be agile in ways that most other residential mortgage REITs can't. We do not want to be another conduit for investors to access liquid agency exposure on a hedged and levered basis. We also do not want to aggregate large operationally and capital intensive origination businesses if we don't believe they are justified by our primary goal of providing the best risk-adjusted returns.
Nick: So in conclusion with all of these components the access the expertise and the resources, we strive to provide our shareholders with the best risk adjusted returns in the residential sector.
Nick: And to make this happen it can be agile in ways that most of the residential mortgage Reits cant.
Nick: We do not want to be another conduit for investors to access liquid agency exposure on a hedged and levered basis we.
Nick: We also do not want to aggregate large operationally and capital intensive origination businesses. If we don't believe they are justified by primary goal, but providing the best risk adjusted returns.
Anthony Rossiello: Turning the call over to Anthony. Thank you, Nick, and good morning. 2024 was a successful year for the company. Our performance captured strong asset appreciation on our investment portfolio and substantial synergies realized from the WMC acquisition. We're also very active, growing our investment portfolio by 13% to $6.7 billion. executing six securitizations. incorporating home equity loans into our product mix, which has been impactful to our profitability. And lastly, we successfully raised senior unsecured notes to pay off the legacy WMC convertible notes. Overall, book value increased year-over-year by 4.3%, generating an annual economic return of 11.7% for our shareholders, while earnings available for distribution or EAD of $0.76 per share covered the 2024 dividends declared of $0.75.
Anthony: Turning the call over to Anthony.
Anthony: Thank you Nick and good morning.
Speaker Change: 424 was a successful year for the company.
Speaker Change: Our performance captured strong asset appreciation on our investment portfolio and substantial synergies realized from the WMC acquisition.
Speaker Change: We're also very active growing our investment portfolio by 13% to $6 7 billion.
Speaker Change: Executing six securitization.
Speaker Change: Incorporating home equity loans into our product mix, which has been impactful to our profitability and lastly, we successfully raised senior unsecured notes to pay off the legacy WMC convertible notes.
Speaker Change: Overall book value increased year over year by four 3% generating an annual economic return of 11, 7% for our shareholders while earnings available for distribution or <unk> of 76 cents per share cover the 2020 for dividends declared a <unk> 75.
Speaker Change: During the fourth quarter book value increased by approximately <unk>, 6% to $10 64 per share producing a two 4% economic return when considering the 19th <unk> quarterly dividend.
Anthony Rossiello: During the fourth quarter, book value increased by approximately 0.6% to $10.64 per share, producing a 2.4% economic return when considering the $0.19 quarterly dividend. The increase in book value is primarily driven by gains on our investment activity and home equity loans, coupled with gains on portfolio hedges due to rising benchmark rates, offsetting unrealized mark-to-market losses on our investment portfolio. As a result, we recorded gap net income available to common shareholders of approximately $8.8 million or $0.30 per share. We generated EAD of 18 cents per share for the fourth quarter. Net interest income inclusive of interest earned on our hedge portfolio was $0.66, which exceeded our operating expenses and preferred dividends of $0.46.
Speaker Change: The increase in book value was primarily driven by gains on our investment activity and home equity loans.
Speaker Change: Coupled with gains on portfolio of hedges due to rising benchmark rates offsetting unrealized mark to market losses on our investment portfolio.
Speaker Change: As a result, we recorded GAAP net income available to common shareholders of approximately $8 8 million or <unk> 30 per share.
Speaker Change: We generated <unk> of <unk> 18 per share for the fourth quarter.
Speaker Change: Net interest income inclusive of interest earned on our hedge portfolio was 66 cents.
Speaker Change: Which exceeded our operating expenses and preferred dividends of 46 cents generating.
Anthony Rossiello: generating earnings of 20 cents per share. Although ARK Home contributed a loss of $0.02 to EAD, there has been continued strength in volumes and improvement in margins, driving ARK Home to profitability in December. We remain active during the fourth quarter, acquiring $359 million of agency-eligible loans and $153 million of home equity loans. These purchases were offset by the sale of $185 million of home equity loans where we reinvested the capital returned from the sale into non-agency RMBS collateralized by home equity. Our economic leverage ratio at quarter end was 1.4 turns, which slightly declined from 1.5 turns in September, and is relatively low on a historical basis.
Speaker Change: Generation earnings of <unk> 20 per share.
Speaker Change: Although our com contributed a loss of <unk> E D.
Speaker Change: There has been continued strength in volumes and improvement in margins driving arc home to profitability in December.
Speaker Change: We remained active during the fourth quarter acquiring $359 million of agency eligible loans and $153 million of home equity loans.
Speaker Change: These purchases were offset by the sale of $185 million of home equity loans, where we reinvested the capital return from the sale and to non agency MBS collateralized by home equity.
Speaker Change: Our economic leverage ratio at quarter end was one four turns which slightly declined from one five turns in September and is relatively low on a historical basis.
Speaker Change: We have continued to prudently manage our leverage exposure on residential mortgage loans through our programmatic securitizations ending the quarter with only $190 million of warehouse financing outstanding.
Anthony Rossiello: We've continued to prudently manage our leverage exposure on residential mortgage loans through our programmatic securitization. and in the quarter with only $190 million of warehouse financing outstanding. Lastly, we ended the quarter with total liquidity of approximately $137 million. consisting of $119 million of cash and $18 million of unencumbered agency RMBS.
Speaker Change: Lastly, we ended the quarter with total liquidity of approximately $137 million.
Speaker Change: Consisting of $119 million of cash and $18 million of unencumbered agency MBS.
Speaker Change: This concludes our prepared remarks, and we'd now like to open the call for questions operator.
Unknown Executive: This concludes our prepared remarks, and we'd now like to open the call for questions.
Unknown Executive: Operator? And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question.
Speaker Change: Thank you.
Speaker Change: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question Andrew.
Bose George: And we will take our first question from Bose George with KBW. Please go ahead. Hey, guys, good morning. How would you characterize your excess capital? You know, you noted the cash and liquidity. Yeah, just when you think about deployable capital, how would you characterize When we think about our deployable capital, we have CRE positions that will mature later this year, call it summer-ish time into fall. That represents probably 20, 25 million of equity capital returned. In addition, away from rotation, really newfound equity, when we acquired WMC, there were some inefficient financings that will roll off this summer, which will release another sort of 20, call it 25, $30 million of equity.
Speaker Change: And we will take our first question from Bose George with <unk>. Please go ahead.
George Bose: Hey, guys good morning.
George Bose: How would you characterize your excess capital you noted the cash and liquidity.
George Bose: When you think about deployable capital how would you characterize that.
George Bose: So when we think about our deployable capital we have.
George Bose: CRE positions that will mature later this year call. It summer ish time in the fall.
George Bose: That represents probably $20 million to $25 million of equity capital returned.
In addition, <unk>.
George Bose: From rotation really newfound equity.
George Bose: When we acquired WMC there were some inefficient financings.
George Bose: That will roll off this summer.
George Bose: Which will release, another sort of 20 call it 25 $30 million of equity.
Bose George: Away from that, there's another 30 to 50 million of equity that can be rotated. So, you know, that sort of comes out to a range of, call it 75 to 100 million that could be rotated or newly deployed into the coming year.
George Bose: Away from that there's another 30 to 50 million of equity that can be rotated so.
George Bose: That's where it comes out to a range of call it $75 million to $100 million.
George Bose: That could be rotated or newly deployed into the coming year.
Bose George: Okay, great. And then just in terms of the the corporate leverage, the level of preferred, etc. You know, how are you how are you thinking about that now? Is that a level you're comfortable with any changes you need to Yeah, no, I mean, I think we obviously saw the first kind of new preferred deal come out last week, I believe, and it's been a while there. So I mean, we're actively monitoring the market. I mean, we've been running the company. you know, sort of with these ratios for quite some time now, so I think we're comfortable.
Speaker Change: Okay, Great and then just in terms of the corporate leverage the level of preferred et cetera. How do you. How are you thinking about that now as that.
George Bose: A level you're comfortable with any changes you need to make.
Yeah, No I mean, I think we obviously saw the first kind of do preferred deal come out last.
George Bose: A week I believe and it's been a while there so I mean.
George Bose: We're actively monitoring the market I mean, we've been running the company.
George Bose: Sort of what these ratios for quite some time now so I think we're comfortable.
George Bose: But we're obviously comfortable there and I think we've sort of.
Bose George: But we're obviously comfortable there. And I think we've sort of shown kind of good performance of managing that overall leverage ratio to the Okay, great.
George Bose: Showing kind of good performance in managing that overall leverage ratio to the common.
George Bose: Okay, great. Thanks.
Speaker Change: Thank you and we will take our next question from Doug Harter with UBS. Please go ahead.
Bose George: Thank you.
Doug Harter: And we will take our next question from Doug Harter with UBS. Please go ahead. Hi, thanks.
Marisa Logo: Hi, Thanks, It's Marisa logo on for Doug.
Marissa Lobo: It's Marissa Lobo on for Doug. I was hoping you could speak to us a little more about the relative attractiveness of non-QM versus home equity today, and how the securitization and financing markets compare. Yeah, look, I think you have to stepping back home equity is relatively new. And we see a very large, you know, addressable market. So we think we're in the early innings there. And, you know, I think when you think about being in the early innings, oftentimes, there's sort of a first mover advantage. So, you know, we continue to think that that's the case, albeit, maybe not as much as a little, you know, some time ago.
Marisa Logo: Was hoping you could speak to us a little more about the relative attractiveness of non QM versus home equity today, and how the securitization and financing markets compare.
Speaker Change: Yes look I think you have to stepping back home equity is relatively new.
Speaker Change: And we see a very large addressable market. So we think we're in the early innings there.
Speaker Change: I think when you think about being in the early innings.
Speaker Change: Oftentimes, there's sort of a first mover advantage. So we continue to think that thats. The case, albeit maybe not as much as a little you know some time ago.
Marissa Lobo: You know, on the non QM side, it's a market that continues to grow, I think maybe has grown more than others, or maybe most have thought and, you know, we still find, you know, relative value there. But, you know, as you can see, from our prepared remarks are, are sort of leaning in more on on the home equity side.
Speaker Change: On the non QM side, it's a market that continues to grow I think maybe has grown more than others or maybe most of thought.
Speaker Change: We still find.
Speaker Change: Relative value there, but you know as you can see from our prepared remarks are sort of leaning in more on the home equity side.
Speaker Change: Okay. Thank you.
Marissa Lobo: Okay, thank you.
Marissa Lobo: And also on the preferred, any thoughts on the preferred given the increased costs from rolling to floating? No, I mean, we obviously knew that that was coming. I think, you know, as Nick mentioned, we've got some other financings that we see coming down the pike this year that I think will also help offset that increased voting rate. So we're looking at it, you know, at a corporate level. But, you know, we've sort of had that floating rate, you know, switching in the model. So we're prepared. Appreciate the answer. Thank you. And once again, if you would like to ask a question, please press the star and one on your telephone keypad now.
Speaker Change: Also on the preferreds any thoughts on the preferred given the increased costs from willing to floating.
Speaker Change: No I mean, we obviously knew that that was coming I think as Nick mentioned, we've got some other financings that we see coming down the pipe. This year that I think will also help offset.
Speaker Change: That increase floating rate. So so we're looking at it at a corporate level.
Speaker Change: But we sort of had that floating rate.
Speaker Change: Switching in the model.
Speaker Change: We're prepared for it.
Speaker Change: Okay I appreciate the answers.
Speaker Change: Thank you and once again, if you would like to ask a question. Please press the star and one on your telephone keypad now.
Eric Hagen: And we will take our next question from Eric Hagen with BTIG, please go ahead.
Eric Hagen: And we will take our next question from Eric Hagen with BTG. Please go ahead.
Jake: Hey, Good morning, Mitch This is Jake <unk> on for Eric Thanks for taking my questions on.
Jake Katsikis: Hey, good morning, this is Jake Katsikis on for Eric. Thanks for taking my questions. On slide 14, you show that the yield on the securitized non-agency loans was 5.7%. I'm curious if you could kind of talk about what would have to happen in order for that yield to increase. Thank you. Yes, so those are really our, you know, kind of on balance sheet, you know, gap accounting. So that's really the securitization. So you're going to see that's really a function of, you know, 2021 2022 type origination that that is, you know, effectively term financed out.
Jake: On Slide 14, you show that the yield on the securitized non agency loans was five 7%.
Jake: I'm curious if you could kind of talk about what would have to happen in order for that yield to increase thank you.
Jake: Yes.
Jake: Those are really are kind of on balance sheet.
Jake: GAAP accounting, so that's really the securitization so youre going to see.
Jake: That's really a function of.
Jake: 2021 and 2022.
Jake: Type of origination that is effectively term financed out so that number.
Jake Katsikis: So that number is not going to move a lot until we either rotate out of the you know, call the call the deals and sell the loans, etc. The ROE out to the right is probably what I would point to that's you know, effectively neutralizing the lower coupon on the mortgages with the with the obviously the cheaper financing that was issued at the time. Got you. Thank you. And then you expect the cost of funds for the warehouse lines to drop further. And if that were to happen, would that potentially encourage you to get more active in building your pipeline?
Jake: He is not going to move a lot until.
Jake: We either rotate out of the call the call the deals and sell the loans et cetera.
Jake: The Aro <unk> out to the right is probably what I would point to that.
Jake: Effectively neutralizing the lower coupon on the mortgages with the with the obviously the cheaper.
Jake: Financing that was issued at the time.
Speaker Change: Got you. Thank you and then do you expect the cost of funds for the warehouse lines to drop further and.
Speaker Change: If that were to happen would that potentially encourage you to get more active in building your pipeline.
Speaker Change: I mean, we've definitely seen the larger investment banks get more aggressive on financing terms.
Jake Katsikis: I mean, we've definitely seen the larger investment banks get more aggressive on financing terms, you know, post the turn of the new year. So we're actively taking advantage of that. I think it's really just about, you know, the overall kind of A to Z ROEs, like we're not, you know, the warehouse is only part of the life cycle of the loan coming onto the balance sheet of MIT. So it's really also about where the securitization markets are pricing, probably more so than just the, you know, gestation warehouse.
Speaker Change: Posted turn of the new year.
Speaker Change: Actively take.
Speaker Change: Taking advantage of that.
Speaker Change: I think it's really just about.
Speaker Change: The overall.
Speaker Change: Kind of eight zero.
The warehouse is only part of the lifecycle of a law coming onto the balance sheet.
Matt: Matt So it's really it also about where.
Speaker Change: The securitization markets are pricing, probably more so than just the you know.
Speaker Change: Gestation warehouses terms.
Speaker Change: Great. Thank you so much.
Jake Katsikis: Great, thank you so much.
Speaker Change: Thank you Andrew we will take our next question from Brad <unk> with Piper Sandler. Please go ahead.
Unknown Executive: Thank you.
Bradley Capuzzi: And we will take our next question from Brad Capuzzi with Piper Sandler. Please go ahead. Thank you for taking my questions.
Thank you for taking my questions just kind of wanted to get high level thoughts on <unk>.
Bradley Capuzzi: I'm just kind of want to get high level thoughts on origination volume and our comb into 2025. Obviously, industry origination volumes have come down in recent months, given the backup and rates just kind of want to get your thoughts there as we Yeah, look, we continue to think that our business model is, you know, somewhat immune or more immune than the broader mortgage market, you know, specifically sort of, you know, more liquid products like agencies and, and jumbos and govvy origination. I think it's been well publicized that the non QM and non agency markets are actually, you know, growing at a good amount relative to the other spaces.
Speaker Change: Origination volume in <unk> into 2025, obviously industry origination volumes have come down.
Speaker Change: Recent months given the backup in rates just kind of wanted to get your thoughts there as we look into 2025.
Speaker Change: Yes.
Speaker Change: Yes look we continue to think that our <unk> business model is somewhat immune or more immune than the broader mortgage market, specifically sort of more liquid products like agencies and in.
Speaker Change: In jumbos and Gavea origination.
Speaker Change: I think it's been well publicized that the non QM and non agency markets are actually growing at a good amount relative to the other spaces.
Bradley Capuzzi: And we continue to expect that to be the case. And, you know, beyond that, as we mentioned, mentioned in the prepared remarks, you know, the investment we've made in the growth of that company, and we expect, you know, sort of the combination of those two, to really pay dividends in the future. So our expectation and what we've mapped out for this year is continued, continued growth, no matter what the market is. And, you know, obviously, interest rates matter, but you know, we think that the company will be resilient.
Speaker Change: We continue to expect that to be the case.
Speaker Change: And beyond that.
Speaker Change: As we mentioned mentioned in the prepared remarks.
Speaker Change: The investment we've made in the growth of that company and we expect sort of the combination of those two.
Speaker Change: So it really pay dividends in the future so our expectation and what we've mapped out for this year is continued continued growth no matter what the market is and.
Speaker Change: Obviously interest rates matter, but we think that the company will be resilient.
Speaker Change: Got you I appreciate the commentary and then just last question from me can.
Bradley Capuzzi: Gotcha, I appreciate the commentary. And then just last question for me.
Bradley Capuzzi: Can you speak on your current thoughts around the dividend and, you know, just what you would need to see and your rate outlook to continue covering the to covering the dividend and EAD? Yeah, so I mean, I think we've talked about this in the past, when we think about the dividend we've really been bifurcating the company's portfolio and sort of the what we call the investment portfolio and then obviously the the equity interest in our comb and you know, to Nick's point earlier, you know, we definitely faced a headwind in terms of, you know, sort of negative EAD contribution coming from ARK over the past, you know, call it you know, four to eight quarters.
Speaker Change: Can you speak on your current thoughts around the dividend.
Speaker Change: Just what you would need to see in your rate outlook.
Speaker Change: To continue covering the two covering the dividend.
Speaker Change: Yes, so I mean, I think we've talked about in the past when we think about the dividend.
Speaker Change: We've really been bifurcated.
Speaker Change: The company's portfolio and sort of the.
Speaker Change: And what we call the investment portfolio and then obviously the equity interest in our call them and you know to Nick's point earlier.
Speaker Change: We've definitely faced a headwind in terms of sort of negative contribution coming from arc over the past.
Speaker Change: Call it.
Speaker Change: Four to eight quarters.
Speaker Change: Yeah.
Bradley Capuzzi: You know, we're seeing that effectively kind of come to neutral now over December, January. So we flip from a negative to a positive. It's not a huge positive, right? And so I think we're sort of in this transitional phase where, where let's just call it round numbers break even. And then I think as we fast forward into 25, we expect that to be more of a positive contributor. So, you know, if you look back at the last years, as an example of performance, I think that is the sort of tail end that we would need to think about, you know, having a composite EAD north of sort of where the dividend is.
Speaker Change: We're seeing that effectively kind of come to neutral now over December January so we flipped from a negative to a positive it's not a huge positive and so I think we're sort of in this transitional phase where.
Speaker Change: Well, let's just call it round numbers breakeven and then I think as we fast forward and to 'twenty five we expect that to be more of a positive contributor contributor. So if you look back at.
Speaker Change: You know the last years as an example performance I think that is the sort of tail on that we would need to think about having a composite AAD north of sort of where the dividend is.
Bradley Capuzzi: I hope that answers the question. Yeah, that's perfect. I appreciate Thank you.
Speaker Change: I hope that answers the question.
Speaker Change: Yes, that's perfect I appreciate it.
Speaker Change: Thank you.
Unknown Executive: And it appears that we have no further questions at this time.
Speaker Change: And it appears that we have no further questions. At this time I will now turn the program back to our presenters for any additional or closing remarks.
Unknown Executive: I will now turn the program back to our presenters for any additional or closing remarks. Thank you everyone for joining us and for your questions. We appreciate it and look forward to speaking with you again next quarter. Have a great day. Thank you.
Speaker Change: Thank you everyone for joining us and for your questions. We appreciate it and look forward to speaking with you again next quarter have a great day.
Speaker Change: Okay.
Speaker Change: Thank you.
Unknown Executive: This does conclude today's presentation. Thank you for your participation. You may disconnect at any time. alt.com.
Speaker Change: This does concludes today's presentation. Thank you for your participation you may disconnect at any time.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change:
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: [music].
Unknown Executive: Thank you for watching and please Like, Subscribe, & Comment on where to head to next! Hoenigsegg Brothers © The Bulletproof Executive 2013 © The Bulletproof Executive 2013 I don't know. I don't know.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Okay.
Mhm.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Uh-huh.
Speaker Change: [music].
Speaker Change: Uh-huh.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hello, Matt.
Speaker Change: Oh.
Speaker Change: Uh-huh.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: No.
Speaker Change: Oh.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Yeah.
Hum.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Uh-huh.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Uh-huh.
Speaker Change: Oh.
Hum.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: [music].