Q1 2025 AG Mortgage Investment Trust Inc Earnings Call
And strong.
Strong portfolio performance, we are confident in our ability to continue to deliver results through broader macro driven volatility.
Before handing the call over to Anthony I'd like to reiterate some of the key messaging around myths originator arc home.
Strategic investments and a high caliber management team and talent have delivered meaningful results in a short period.
Anthony: Arc home has demonstrated strong performance with lock volumes, increasing 50% year over year.
Anthony: Gain on sale margins also improved during the quarter supporting the Companys achievement of breakeven.
Anthony: We expect arc home to remain committed to driving growth across origination channels, enhancing the customer experience and expanding market share.
Anthony: As arc home continues to innovate and diversify its product offering we anticipate growing contribution to our earnings available for distribution or.
Anthony: Ability to generate assets through our calm is a key differentiator, providing flexibility and a compelling value proposition for our shareholders.
Anthony: With that I'd like to turn the call over to Anthony.
Anthony: Thank you Nick and good morning, everyone.
Anthony: <unk> maintained positive momentum during the first quarter.
Anthony: We increased our investment portfolio by continuing to acquire agency eligible and home equity loans.
Anthony: Additionally, we remain active in the securitization market executing two deals during the quarter.
Anthony: Importantly, despite the market volatility that began in March we protected our book value grew our earnings available for distribution.
Anthony: <unk> increased our quarterly dividend by five 3%.
Anthony: To <unk> 20 per share.
Anthony: During the quarter, our book value remained stable with a slight increase of <unk>, 1% to $10 65 per share.
Anthony: Including our common dividend of <unk> 20 per share we generated a 2% economic return for our shareholders.
Anthony: GAAP net income available to common shareholders was $6 2 million or <unk> 21 per share.
Anthony: Net interest income earned on our investment in swap portfolios increased by $1 million or 5% from prior quarter, primarily driven by continued capital deployment and to target assets.
Anthony: Our investment portfolio recognized modest net realized and unrealized gains on a hedge adjusted basis, reflecting continued strength in home equity assets and our securitized loan portfolio.
Anthony: In addition, our earnings from equity method investments was $1 $2 million during the quarter, which includes gains on our investment in the Arkoma valued at one times book.
Anthony: These gains were partially offset by $1 1 million of transaction expenses, primarily related to securitization activity.
Anthony: We recorded <unk> of <unk> 20 per share, which increased from <unk> 18 in the prior quarter and covered our first quarter common dividend.
Anthony: Net interest income, including interest earned on our swap portfolio totaled <unk> 68 per share.
Anthony: After accounting for operating expenses and preferred dividends of <unk> 48.
Anthony: This resulted in net earnings of <unk> 20 per share.
Anthony: Arc home's contribution to <unk> improved by <unk> <unk> compared to last quarter and was breakeven in Q1 bolstered by continued strength in volumes and improving gain on sale margins.
Anthony: During the quarter, we grew our investment portfolio by six 2% to $7 1 billion.
Anthony: And maintain focus on expanding our presence in the home equity space.
Anthony: Specifically, we purchased $367 million of agency eligible loans and subsequently securitized $423 million of NPV.
Anthony: We also purchased $128 million of home equity loans, increasing our portfolio to $228 million as of quarter end, while continuing to build in April acquiring an additional $52 million.
Anthony: Further expanding on home equity co sponsored a securitization of $492 million UTV at closing seconds, retaining $26 million of non agency <unk> securities.
Anthony: From a financing perspective, we continue to operate with a low economic leverage ratio, which is one six turns at quarter end.
Anthony: We are prudently manage our leverage exposure through our programmatic securitizations ending the quarter with only $223 million of warehouse financing primarily related to home equity loans.
Anthony: And lastly, we ended the quarter with total liquidity of approximately $130 million.
Anthony: Consisting of $160 million of cash and $17 million of unencumbered agency RBS.
Anthony: This concludes our prepared remarks, and we'd now like to open the call for questions.
Anthony: Later.
Anthony: At this time, if you'd like to ask a question you may submit it via the webcast.
Anthony: You May also submit your question over the phone by pressing the star one key on your telephone keypad keep.
Anthony: Keep in mind, you may remove yourself from the phone question in queue by pressing star and two <unk>.
Anthony: Again to ask a question you may submit it via the webcast or by pressing star and one on your telephone keypad.
Anthony: We can pause for a moment to allow questions to queue.
Speaker Change: We'll take our first question over the phone from Doug Harter with UBS. Please.
Anthony: Go ahead your line is open.
Doug Harter: Thanks, and good morning.
Doug Harter: You have one of the legacy commercial mortgage loans.
Speaker Change: To mature this month, just hoping you could give us an update on that and how much capital that would free up for investing.
Speaker Change: Yes. So we have one of the go to loans legacy from EWC acquisition maturing this month.
Speaker Change: We expect that to go into.
Speaker Change: Kind of Prenegotiated forbearance, so we've been actively in dialogue with the borrower and the rest of the lender group.
Speaker Change: And we feel reasonably confident that we'll get to a positive outcome there and in the short term and then ultimately within a realistic timeframe kind of culminate in a full payoff.
Speaker Change: Probably within 2025.
Speaker Change: And it's about $16 million of equity capital.
Speaker Change: Got it and then I guess away from that how do you think about your current capacity to to continue to fund.
Speaker Change: New new loan acquisitions like the <unk>.
Speaker Change: $50 million of home equity that you did in April.
Speaker Change: Good morning, Doug This is Nick.
Speaker Change: We alluded to in prepared in the prepared remarks sort of our ability to increase leverage.
Speaker Change: We've also commented in the past on some inefficient financings that are rolling off from.
Speaker Change: From the WMC acquisition.
Speaker Change: Along with sort of the combination of the commercials. So we actually think we have a good amount of runway over the next call. It two to three quarters too.
Speaker Change: One rotate capital and then too.
Speaker Change: Take some of that additional leverage into into the home equity space.
Speaker Change: Alright, great I appreciate your answers thank you.
Speaker Change: We'll take our next question over the phone from Christian Love with Piper Sandler. Please go ahead. Your line is open.
Christian Love: Thank you and good morning, everyone can you talk about the halt of the securitization markets over the last several months, especially I made that the recent volatility and how they might be performing today.
Speaker Change: Yes, so I think we saw weaker markets performed fairly well through March despite maybe broader sort of equity turbulence.
Speaker Change: You got to Liberation day called the first two weeks of April we saw them effectively.
Speaker Change: Close.
Speaker Change: And I think that was in our.
Speaker Change: Glass half full way it was no one was forced to issue people sat out the volatility by the end of the month.
Speaker Change: You saw.
Speaker Change: Deals coming back to market and.
Speaker Change: Quite a decent amount of them by the last two weeks of April and into the beginning of May and I would say there capital markets are fully open I think.
Speaker Change: Spreads are wider right. So I think if you look at where we're retaining securities I think there may be 50 to 75 wider based on.
Speaker Change: Where we're seeing pricing today, and so I think that's how we're thinking about.
Speaker Change: Book value in April.
Speaker Change: But I would say the markets are back open.
Speaker Change: Perfect. Thank you Mike.
Speaker Change: It makes sense and I appreciate the color there and then you expand and share your views on the home equity market.
Speaker Change: Good chunk of your prepared remarks, just the attractiveness opportunities that a double derrick so in the quarter.
Speaker Change: A relatively small base remained active in April but curious on your longer term views there, especially if the if the rate outlook changes meaningfully from current levels. Thank you.
Speaker Change: Yes, we get the question a lot about the rate outlook is taking that part first like we do believe that this is a durable place for us to commit capital in the future.
Speaker Change: Cause rates can rally a tremendous amount.
Speaker Change: Whether it be the front end belly no matter wherever it is.
Speaker Change: The lock and lock in effect from the stimulus areas during COVID-19.
Speaker Change: And for there to be any sort of degradation of the addressable market you need a very very significant rate rally.
Speaker Change: So we remain confident in our ability to of this being a relatively early stages of emerging asset class.
Speaker Change:
Speaker Change: To that to that end, we're seeing more and more originators ramp up this production.
Speaker Change: And folks that were originating.
Speaker Change: These amount of production call it a year back.
Speaker Change: We're seeing a near doubling sort of sequentially year over year.
Speaker Change: And we expect that momentum to continue.
Speaker Change: Okay. Thank you appreciate you taking my questions.
Speaker Change: We'll take our niche with <unk>. Please go ahead your line is open.
Speaker Change: Hey, guys. Good morning, just wanted to continue on.
Speaker Change: Arc can you just talk about volume trends in the second quarter. The spread widening you noted in the securitization markets has that been able to can you pass that on to consumers is that impacting.
Speaker Change: The demand there just color on that.
Speaker Change: Yes, so I think it's been widely publicized in the NBA and we will see if the trend continues but the consumer has pulled back slightly on home purchases. Obviously its early in sort of the purchasing cycle. So.
Speaker Change: We would expect the overall market.
Speaker Change: Be down, but we do think arc is somewhat insulated given where it attaches itself.
Speaker Change: So the market as far as.
Speaker Change: Gain on sale margins.
Speaker Change: We do expect them to new marginal.
Speaker Change: To normalize slash, maybe gain a little bit into this volatility.
Speaker Change: Certain segments have been better bid versus others, if anything maybe creating a little bit of opportunity.
Speaker Change: But we're still optimistic coming into this part of the the buying season.
Speaker Change: Okay great.
Speaker Change: Then in terms of earnings.
Speaker Change: So you've reached breakeven can you just talk about the expectations there for AAV neither.
Speaker Change: Assuming volumes remain kind of subdued this year.
Speaker Change: I think I think.
Speaker Change: We said in the past we bifurcate.
Speaker Change: Sort of how our equity is allocated right you've got <unk>.
Speaker Change: A large chunk of it in what we call the investment portfolio I think that's largely been doing its job both from a book value perspective, as well as an earnings perspective, and then we.
Speaker Change: We had the.
Speaker Change: Headwind of kind of negative coming out of arc, we've now hit breakeven and we think sort of.
Speaker Change: $182 three pennies from arc as you know.
Speaker Change: Secondly, adding to what that stable kind of earnings power has been on the investment side. So I think that's how we build forward earnings growth.
Speaker Change: Effectively keep doing what we're doing on the investment side and now we're seeing.
Speaker Change: Some positive contribution from arc and that should directly kind of increase what has been our kind of steady state AAD rage.
Speaker Change: Okay, great. Thank you.
Speaker Change: We will take our next question from Jason Weaver with Jones trading. Please go ahead. Your line is open.
Jason Weaver: Hey, good morning, Thanks for taking my question.
Jason Weaver: First on the home equity securitization can you talk a little bit more about that what advance rates and.
Jason Weaver: Sort of execution levels, you were able to achieve there.
Jason Weaver: Yeah, so the advance.
Jason Weaver: I'm wondering maybe just starting with the collateral we're talking mid 700, FICO high <unk> low 70 type.
Jason Weaver: LTV.
Jason Weaver: The advances to nine <unk> to the non <unk> part of the stack, which what we retain.
Jason Weaver: Generally is call it 95 ish percent of market value.
Jason Weaver: From sort of a from sort of where you are funding that that's changed a little bit.
Speaker Change: And C J alluded to earlier slightly wider but youre funding that you know call. It 200 ish context, plus or minus 10 15 basis points.
Jason Weaver: Today.
Speaker Change: Got it thank you for that and maybe just two.
Speaker Change: Hone in a little bit more on <unk> question is there a level of originations that you need to see within arc to maintain that sort of like.
Speaker Change: One to one to <unk> profitability for the rest of the year.
Speaker Change: So.
Speaker Change: One I think.
Speaker Change: Right.
Speaker Change: One I think we're focused more on growing the topline there to be to.
Speaker Change: Exceed that so obviously there is there is a breakeven in volumes oil volumes and outright levels of margins will impact it.
Speaker Change:
Speaker Change: As as as we've shown in the past quarter.
Speaker Change: Obviously, we broke even there's been some volatility, but we think that we're sort of at that at those origination volumes today.
Speaker Change: But to make it more profitable obviously, we have to continue to grow that that the top line.
Speaker Change: Alright Thats helpful. Thank you guys.
Speaker Change: And as a reminder, if you'd like to ask a question over the phone. Please press the star and one keys, we will take our next question from Eric Hagen with BTG. Please go ahead. Your line is open.
Eric Hagen: Hey, Thanks, good morning, guys.
Eric Hagen: I wanted to dive in a little bit more on.
Eric Hagen: Like responding to volatility and such and when mortgage spreads are wider and I mean do you see that as an opportunity to maybe add risk and like to add leverage and do you see some of the typical non QM originators retrench from the market when mortgage spreads are widening or just like what's the behavior in the market right now thank you.
Eric Hagen: Yes, I mean, I think Eric the volatility in early April was was I would say more in like the macro spaces. So you saw it in rates and equities and the closest.
Eric Hagen: Derivative of B.
Eric Hagen: The basis on the agency side and I think we.
Eric Hagen: No.
Eric Hagen: We thank our shareholders are expecting us to kind of operate in the non agency space and not try and time tactical trades. There. So so we've been disciplined and not taken the bait there at.
Eric Hagen: At the end of the day, there wasn't that much for selling of.
Eric Hagen: Whether it be home equity loans, or non QM loans or even securities backed by those products. So it was.
Eric Hagen: From our opinion and it's probably in the rearview mirror at this point and so it's kind of back to business as usual.
Eric Hagen: Got you okay.
Eric Hagen: On the securitized non QM loans on so you guys show on slide 11.
Speaker Change: It looks like the yields your cost basis is five 7%, but how should we think about like a market yield for that portfolio at this point because it looks like the cost of funds that you're showing is probably a market cost of funds. So how should we think about like the economic spread that you're earning on that portfolio right now.
Speaker Change: I mean, I think we would probably point to the ROE.
Speaker Change: On the on the right side Okay.
Speaker Change: So that ROE is more like a market Roe and not a.
Speaker Change: And ROE, you're using a cost basis.
Speaker Change: That's right.
Speaker Change: Okay. Thank you guys appreciate it.
Speaker Change: Yeah.
Speaker Change: And there are no further questions on the line at this time I'll turn the program to our speakers for any additional or closing remarks.
Speaker Change: Thank you to everyone for joining us and for your questions.
Speaker Change: Very much appreciate it and look forward to speaking again next quarter have a great day.
Speaker Change: This does conclude today's program. Thank you for your participation.
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hum.
[music].
Speaker Change:
Speaker Change:
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Hum.
Speaker Change: Uh huh.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change:
Speaker Change: Uh-huh.
Speaker Change: Uh huh.
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: I don't know.
Speaker Change: [music].
Speaker Change: No.
Speaker Change: Sure.
Speaker Change: Oh.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Oh.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: No no no.
Speaker Change: Well.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: No.
Speaker Change: Oh no no no.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: Hello.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: Mhm.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Mhm.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: Okay.
Speaker Change: Hello.
Speaker Change: I don't know that.
Speaker Change: Uh huh.
Speaker Change: Got it.
Speaker Change: Robert.
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Perfect.
Speaker Change: No.
Speaker Change: [music].
Speaker Change: No no no no.
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Uh huh.
[music].