Q2 2025 AG Mortgage Investment Trust Inc Earnings Call

Please stand by your program is about to begin.

Good day, and thank you for standing by, welcome to the AG Mortgage Investment. Trust Inc, second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After Management's remarks, there will be a question and answer session in order to ask a question during the session. Please press the star key followed by the number 1 on your telephone, please be advised that today's conference is being recorded if you require any further assistance, please press star, then zero.

I'd now like to turn the call over to Jenny neslund general counsel for the company. Please go ahead.

Thank you. Good morning everyone and welcome to the second quarter 2025 earnings call for AG Mortgage Investment. Trust with me on the call today. Our TJ Durkin our CEO and President Nick Smith, our chief investment officer and Anthony russolo our Chief Financial Officer

Before we begin, please note that the information discussed in today's call may contain forward-looking statements.

Any forward-looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in our SEC filings including under the headings. Cautionary statement regarding forward-looking statements risk, factors, and Management's, discussion and Analysis.

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, 2024, and our subsequent reports from time to time with the FCC.

Accept is 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.

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.agm.com and click on the link for the Q2 2025 earnings presentation on the homepage.

Again, welcome to the call and thank you for joining us today with that. I'd like to turn the call over to TJ.

Thank you, Jenny. Good morning, everyone.

I'm pleased to report our second quarter earnings which showcases the continued execution of our core business strategy and industry-leading results, particularly around Book value stability.

During the second quarter, we increased our common dividend by 5%, or 1 penny per share.

Focusing on the second quarter Liberation week in April, created volatility. In the broader markets we hadn't seen in some time.

The merits of our core strategy and discipline around terming out warehouses with securities showed in the continued strength of our capital structure.

We entered the Titan period of V with materially less financial leverage, and smarter leverage like our non-market to Market whole loan warehouses.

The setup means we are not as vulnerable to force, delivering, or panic delta hedging.

As a result, we saw a modest Book value decline of 2.4% moving from 1065 to 1039 while supporting and paying our increased 21 cent dividend.

Therefore producing a roughly Break, Even quarterly economic return on equity for our shareholders in, a very difficult quarter for the Emirate space.

We hope our shareholders can appreciate the results, amidst differentiated business strategy, and disciplined around risk, coming out of such a challenge in quarter.

for the second quarter we experienced what we expect to be a 1-time drop in EAD mostly related to 3 of our remaining Siri loans to 1 borrower

from the WMC acquisition hitting their maturity date and therefore we're taking off a cruel as we work towards the ultimate resolution which we believe should be by year end.

On a more positive and longer term note.

Subsequent to quarter end MIT refinanced. The expensive structured repo, we inherited from the WMC acquisition,

Into current market terms, which will have a significant list to go forward EAD, which Nick will give more details on later.

In addition, to our normal activity, during the quarter, we are excited to announce that a strategic transaction for the company.

This morning mitt acquired an additional 21.4% of our home from Original Seed investors in private funds managed by tpg AG.

A total of 2 million. Mid shares were issued for consideration for their interests creating minimal dilution of 2% to June 30th Book value.

While creating meaningful earnings accretion potential.

The sellers are funds that are generally in the later or liquidating stage of their life cycle.

We're obligated to register, register the sheriff's pursuant to a registration rights agreement, which can take a bit of time.

And there are various restrictions in that agreement, governing timing of sales.

Based on that, we don't expect the sellers to be able to sell meaningfully before your end.

When we embarked upon MIT 2.0 in 2021, we set out to be a best-in-class vertically, integrated Residential, Mortgage origination and securitization platform.

We believe this is a logical next step for our company's business strategy.

The transaction will bring many benefits to MIT with meaningful earnings accretion expected in 2026 driven by anticipated growth in the mortgage market and arcs proving capability to be a leader in the non-qm space.

There's also a positive step forward in scaling, the company and enhancing our cap table.

As we said on prior calls, we will continue to seek and pursue opportunities that further this goal, only where we believe the results are to enhance value for shareholders.

Both Nick and Anthony will go into more detail on the transaction later in the call, I'll now hand it over to Nick.

Thank you and good morning during the quarter mitt completed 2 secs gains from these transactions. Partially offset mark-to-market losses. Driven by broad risk asset, weakness, following Liberation day, in early April.

The first was mid-second agency eligible investor securitization of the Year. While the second was a joint venture with a leading HELOC originator,

In addition to its securitization activity, MITT closed two residential mortgage warehouse facilities. These facilities are designed to reduce smart market risk during the gestation period and enhance cash management, which is expected to modestly improve EAD.

After the quarter end, the company refinanced, high cost inefficient debt, backed by retained interests in WMC issued, non- agency securitizations.

Approximately $40 million in additional cash for redeployment.

These proceeds have been redeployed through the home, equity securitization partnership with a leading non-bank, mortgage originator.

We first introduced in the first quarter.

In addition, the company has a strong pipeline of Residential Mortgage Loan, Acquisitions and anticipates. Issuing 2 more secure dacians in the third quarter.

As TJ mentioned MIT increased, its ownership of our home.

In the first quarter's prepared. Remarks, we reiterated our commitment to the business, this business and outlined house strategic investments in it, we're beginning to pay off.

We saw a continuation of these Trends throughout this quarter, which were offset by pipeline, losses, attributable to Liberation day.

The quick reversal in markets positioned Arc to recover most of these pipeline losses and provides insight into more normalized profitability.

As art continues to execute on its plan to contribute to mids earnings available for distribution, should increase and with greater ownership. Share, this is expected to be an important driver of earnings.

We are confident that art can continue to gain share in a growing and increasingly attractive corner of the mortgage Market.

I'll now turn the call over to Anthony.

Thank you, Nick. Good morning, everyone.

Despite April's volatility, we ended the quarter with Book value of $10.39 per share.

Representing a modest. 2.4% decline from prior quarter.

We also increased our quarterly dividend by 5% to 21 cents per share.

Including this dividend, our economic return was essentially flat at negative 5%. Highlighting, our ability to maintain shareholder value in a challenging quarter.

We reported a gap net loss of available to Common shareholders of 1.4 million or 5 cents per share.

We continue to see steady growth in net, interest income from our residential Investments as we deployed additional Capital into core strategies.

However, net interest income was down $1.1 million, or 6%, from the prior quarter due to certain commercial loans that matured in May and were placed on non-accrual.

Our portfolio also recognized net unrealized, losses on securitized loans from April spread widening. Although these were partly offset by unrealized gains recognized on our portfolio in May and June

Additionally, it's important to note that about 1% of Book. Value decline was due to upfront transaction. Expenses related to a home equity, loan securitization completed in early July.

During the quarter, we recognize EAD of 18 cents per share.

Net interest income inclusive of our hedge portfolio was 64 cents, exceeding operating expenses and preferred dividends of 46 cents.

The slight decline in EAD from the prior quarter was largely due to the placement of commercial loans on non-accrual. However, we expect this to be temporary as we work towards recovering and redeploying this capital into target assets during the second half of the year.

EAD also benefited from a slight decline in operating expenses, and our Combs contribution to EAD remained break-even, consistent with the prior quarter.

Our Investment Portfolio grew 2.3% in the quarter to 7.3 billion with additional activity. Continuing into July.

We maintained a low economic leverage ratio, ending the quarter at 1.3 turns.

During the quarter, we purchased and securitized 341 million of agency eligible loans.

And purchase 104, million of home equity, loans securitizing substantially all of our home equity loans in early July.

These deals, not only reduce our warehouse risk but also positioned us well for future growth.

In July we also replaced high cost debt financing securitized loans acquired from WMC significantly reducing our cost and freeing up 39 million of capital that was immediately reinvested to strengthen our earnings profile.

With these proceeds, we sponsored a securitization backed by 647 million of closed and second loans, and continue to expand our home equity portfolio.

As previously mentioned today, we acquired an additional 21.4% interest in our home, taking our ownership to 66%

this represents an incremental investment of 16 million purchased through the issuance of approximately 2 million, comment shares.

The dilution impact on Book value from this acquisition is minimal and we expect the transaction to be accreted for our shareholders in 2026 as our comb, continues to execute on its strategic growth initiatives.

You on our balance sheet, which was valued at 1 times book as of June 30th.

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

Operator.

Yes, thank you as a reminder. Again, if you would like to ask a question, it is the star and 1 on your touchtone telephone. If at any point you find your question has been answered. You may remove yourself from the queue, by pressing star 2.

We'll take our first question from the line of Crispen. Love with Piper Sandler. Please go ahead.

Thank you. Uh,

congrats on the additional Ark home ownership just on our home. Can you talk a little bit about long-term plans? There is it over time owning the whole company who owns the the remaining portion today and then can you just, uh, dig into a little bit of the accretion potential and earnings as you look over the the near end, uh, long term, thank you.

Yeah, good. Good morning, Chris. So I think to answer your first question other. Um,

Funds managed by TB tbg, a g on the, the balance. Um, at this point, there's no other transactions kind of pending or in the pipeline and so, they'll, they'll, you know remain. Um, co-owners with with MIT, um,

I think, you know, as, as Nick mentioned, you know, we're seeing, you know, we've been investing in Ark, both in people and process and you know, we're seeing the results, you see it in the volume kind of growth. And so, you know, assuming that trajectory holds, you know, we're going from call it break, even at ARC, you know to you know, a more profitable company and and we're we're largely hitting those goals. So you know, that's what we see, as the, you know, positive earnings contribution, you know, go forward and late 25 and and really in Earnest in 26. So, you know, strategic long-term hold, um,

And you know, we think just executing the business plan, not having to do anything additional, will be positive to eat in 2026.

Great. Uh, that that makes sense. And then just second question from me on securitization demand from investors. Uh, definitely volatile, uh, second quarter but April, specifically around Liberation day, but curious on recent demand, um, appetite for securitizations and then just recent spread trends

Look, as this is Nick, as the sector has grown. Um, we've seen more and more stability, um, in the in the issuance of the debt, um, had you rewind the clock, not too far back like it would have been more volatile. You know, post Liberation day, the markets returned very, very quickly folks including our sales issued and it was well received and spreads have behaved um very well and in line with a lot of other asset classes,

Store better.

Great uh thank you. I appreciate uh taking my questions.

Thank you. And we'll go next to the line of Doug harder with UBS. Please go ahead.

Uh, thanks. Um, can you just talk about? Um,

You know, kind of the 1- times book that you were able to acquire your additional stake. It seems like there were some other transactions that that went for significant premiums, uh, in in the market. Um, you know, just uh, you know, kind of how you kind of how you got to that price. How you were kind of arriving at the, the current carrying value.

Yeah, so I think, you know, in terms of the transaction

uh, the MIT board engaged. Um,

Uh, KBW actually for fairness opinion and...

The board uh including all the independent directors sort of approved that. So you know we we went to a you know, 3 third party. Um I think you know, all these Originators are a different scale and profitability which I think also factors in to maybe what you've seen in some of the other recent transactions.

Great. Um and I guess now as you have a larger ownership stake, do you envision that uh changing kind of any of the hold strategy for for any of the originations or you know uh like as as you ramp up non-qm? Would you plan on holding any of the

That or you still, you know, kind of want to sell it um, you know, so any change in that strategy?

Yeah, I I think I think from an operating perspective, you know, the management team in Ark is, is sort of business as usual. And continuing, um, there's no change in the in the strategy or um, at at that level.

Uh, talk through your comfort and being able to to to to kind of recognize the capital that is uh, in those loans and kind of a time frame for for when you would expect to receive that. Yeah, of course. So I think you know, as as I'm sure you're following lots of the the commercial rates like the the maturity dates are

Uh flexible um to say the least. And so this borrower um on those 3 properties 1 borrower for the hospitality loans is is working through an asset disposition plan and so we're um, in constant contact and um, you know, working towards a productive solution there.

Got it and and I guess, you know, since they're working on that plan, I guess you feel comfortable, you know, that that that plan should should cover your current carrying basis, for those loans.

Yeah, based on the information we have today. Yes.

Okay.

Appreciate it. Thank you.

Thank you. And

And Weaver with Jones trading, please go ahead.

Hi guys. Good morning. Um, first of all can you come in on your comfort level with at the 89 million, a liquidity here and what sort of approach you're likely to take to adjust that? I know you have some things coming up in Q3, uh, but with the uh, you know, the deferral on the WMC, um, and not having that Capital come back in right away before you're in.

Yeah, we're comfortable with the current cash. Positioning, we've enhanced. Some of the ways that we Finance the balance sheet is alluded to, in the prepared remarks. Um, and think that this is a level that is likely to be, you know, a range that will be in at maybe maybe even slightly lower in in the future.

Got it. Got it. And uh, Nick had mentioned something about uh refinancing the repo and the Legacy WMC. Can you comment on the economics there?

Yeah. Look we as mentioned the prepared remarks. Uh we have 40 million dollars of cash, come back uh as additional proceeds uh through that refinancing and we lowered the costs, uh, considerably.

And have and and have already redeployed that Capital Inn in the third quarter.

Got it. Thanks for the caller.

Thank you. And we'll go next to the line of male Silverman with citizens JMP. Please go ahead.

Hey, good morning gentlemen, thank you for taking the questions. Um if I may just ask about a sort of a big picture view on the housing market. Um what is your view on home prices right now? And

Given some of the news that's coming out from some states, Texas, Florida that prices are starting to sort of uh Flatline if not go down. Um any geographies that you're avoiding. Um and if you're typing any underwriting standards at all? Thank you.

Yeah, good question. So, you know I think our

View is in line with consensus. Obviously, there's been some weakness in some of the markets that have supply has returned to sort of preco levels. Um, the weakness is still relatively modest and then there are certain regions that are, you know, still hanging in tight slash still getting good gains. So, um, from a guideline standpoint like nothing changes because we've always had, uh, adjustments for for, for weaker markets. Um, we think that's, you know, relatively consistent across the whole business, um, but you know, we pay very close attention to the trajectory of that and, um, but still believe that, you know, it's it's more or less Steady As She Goes or some mean reversion.

Great. Thank you. And if I may sneak in a question, um, any update on, uh, current Book value through the quarter?

Uh, hey, Mel. Now, just as of, just give me where we stand in the calendar. I'm still working through our process and update at this time.

Gotcha, thank you.

Thank you. And we'll go next to the line of bozie George with KBW. Please go ahead.

Hey guys. Good morning. Um, actually a couple on the Mortgage Banking. Um, on the at our home, the, you know, the pipeline hedging in volatility in April. Does that impact the EAD or um, yeah, yeah. Does it impact the EAD this question?

Yeah. But was that flows through EAD? Um you can see the impact to EAD from Arkham. This quarter was a loss of 130,000. Um so April was largely offset by um positive earnings and May and June at Arkham.

So, okay, so the setup, given the stability of this quarter suggests that, you know, that should be a positive number.

Okay.

That's great. And then can you just talk about the gain on sale margin, differential between, um, the first lanes and the second lanes and just talk about the outlook for, you know, further growth in the second lead Market, which is already obviously been pretty strong.

So the, the gain on sale order of a quarter for sort of the, the the non-qm market has been somewhat consistent. Um, you know, we expect that to remain the same, um, going forward, um, given sort of the, the demand profile, um, that I think has been fairly fairly well telegraphed, um, out there, um, on the second liens, you know, a lot of the, a lot of the, you know, when we think about that versus the origination business, a lot of that's being acquired by, you know, non-affiliate third parties and, you know, so we don't think about that business as much. But again on sale, we'll look at more of his investors. Although there has been decent gain on sales, driven by um some of the Spread spread tightening and and capital, uh, efficiencies we've been able to achieve

Okay, so the home. So that's more of an investment product essentially. So you look at it, more on the capital that you deploy.

That's right. That could evolve over. Oh, over the the coming quarters to year but at the moment that that's a fair statement.

Okay, great. Thank you.

And once again, if you'd like to ask a question, it is the star in 1 on your touchtone telephone. We'll go next to the line of Eric Kagan with BTIG. Please, go ahead.

Okay, thanks. Good morning, guys. Um, can you say what the return on capital was that you expect from?

Me closed on seconds that you picked up from where we deployed that $40 million, and were those loans originated by our home or by a third party?

Those loans were originated by third parties. We expect returns there, um, to be blended across the different parts we, uh, provided in the mid to high teens.

Got it.

Okay. Uh, go on the record here. I mean, can we get a quick snapshot of what the leverage in the capital structure looks like at our home? Like, how much total equity is in the business? How much certain long-term debt?

There's, there's no long-term debt. Um, they use obviously warehouses for for their own sort of origination gestation, but there there's no long-term.

Debt in the company.

All right, and now are there any securities.

Eric if you if you look at the if you think about the balance sheet of Arkham, it's it's essentially cash and Loans on Warehouse with approximately 70 million of equity, um, at that level.

Okay, got it. So there's no, uh, Securities that are capitalized on the balance sheet or anything. Okay, all right. Thank you guys so much.

Thank you.

And once again, it is the star and 1 for questions, we'll pause briefly for any further questions to queue.

At this time it does not appear. We have any further questions speakers. Do you have any closing remarks you'd like to have

Uh, just thank you to everyone for joining us. And for your questions. We appreciate it and look forward to speaking with you again, next quarter,

Thanks and have a good day.

Thank you. We'd like to thank everybody for joining. Please feel free to disconnect your line at any time.