AG Mortgage Investment Trust (MITT) 30 Jul 212021 Q2 Earnings call transcript

Welcome to AG Mortgage Investment Trust Second Quarter 2021 Earnings Call. My name is Sylvia, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Jenny Neslin. Jenny, you may begin.

Sylvia. you, Thank and Call everyone, the Quarter Second Good AG welcome Mortgage Earnings for Investment XXXX morning, to Trust. With me Chairman T.J. our David are on the and call CEO; today Roberts, and Anthony our Investment Smith, Officer. Nick President; Chief Financial our Officer; Durkin, and Rossiello, our Chief

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

we new not and whether events any Except as review a or are revise otherwise. obligated or intend future required of do result to forward-looking as or statements, to update information, law, by not

the our refer filings the refer today, Please non-GAAP for to GAAP comparable During financial call reconciliations measures. certain to measures. will we to most SEC

David. With and earnings on our Investor that I'd view page to home for www.agmit.com, the the the Presentation welcome the today. on to in to the thank will To also presentation We link reference turn the call like call, that, earnings you this click to quarter website section. Again, turn second website, XXXX joining us to over the presentation our and morning. was posted the presentation, for slide

call, focused Since Investment and to residential everybody. AG company mortgage has our and a great transition very good made on much, our Jenny, Thank in progress Mortgage origination securitization. you to Trust morning last

nonrecourse third second of affiliate parties. non-QM Home as in purchased loans of as On quarter, business, of well Arc assets. completed non-QM $XXX on we the buy a the our raising these from side securitization we financing non-mark-to-market, In our June, $XXX million million,

doubled Arc this its during loans to Home million. non-QM Additionally, $XXX production of quarter

business quarterly Going fueled frequent by a more non-QM model basis. to for followed and forward, securitizations we residential other by or on origination intend primarily our be

side On our have and the certain our sell of end, our the all continued quarter quarter of transition. supporting we positions sold subsequent business, RMBS to CMBS and throughout

commercial subsequent have have CMBS remaining also to X loans. The reason we towards paid estate favorable commercial good progressing being resulted We sales second believe the be loans off liquidity end, on These expected are to to to and model. real business of quarter payoffs during continued and in are gains our sales favorable go-forward potential of our ample completed to expansion and anticipated fund our quarter provide remarks.

increased $X.XX were for of second dividend driven of earnings by earnings share. value our our accounting on by of terms This financial share. book for per approximately per quarter, In post-split basis. Core are per the a share is declared quarter Both breakeven. numbers $X.XX after the the quarter results X%, for

elements of important go-forward we core our capture earnings definition does strategy. the However, business for not use

purchased Specifically, core MITT that when include Arc when the share include sells parties. securitize earnings it recognizes third that of we to it earnings nor does Home MITT the gain not does both us, Home loans loans Arc and recognizes from

strategy, shareholders. continue But to short-term our margin. in Mortgage we origination offers term, to interest a commercial Investment us risk of a securitization reduced at continue its Trust longer growing this enable superior This of sales the before, cost mentioned liquidity assets AG the reward strategy, believe, will to importantly, and to comes and liquidity. increase I the our have As are more expected net

strategy. we very outlook our Durkin. that, And term. And for policy, reflect over For closely earnings looking at I not that accurately with our only always earnings in the those we Thanks will most the intermediate T.J. most but be over will as dividend metrics much. business to we do policy quarter our dividend evolution going our current will forward, of the consider turn it

to and XX% bit morning, asset David, production. everyone. pacing CMBS and securitizations Home, where of the good securities our repositioning to MITT $XXX we the million quarter, the X affiliate, To originators, during active you, assets with strategy contributed loans were quarter, any other purchasing during deeper our noncore Thank the our warehouse quarter activity the and Arc quarter other to in whole to from into a have the $XXX loans. X with securitizations derisk lines. In forward-looking we selling don't originated to dispose and which continue loans control regards of to of dig classes, including or during we purchasing that of by RMBS underlying MITT intend disciplined MITT's be non-QM access very prudently million approximately we into mortgage the company's during

quarter quarter, the shares basis to a activity from of was reduced during split. we million the the of equity an $XX.XX also QX we raise to generating $XX issuing marks, utilized fresh thought per a program quarter, the MBS exposure on million capital our $X.X unlikely. Subsequent $XX proceeds XXX,XXX approximately price as sold reached by we CMBS average gain our tightening slight share proceeds. remaining or at the And of of During further adjusting gross end, to ATM to moving and Agency successfully for we capital million had where point our positions

common. XXX,XXX We fifth at XXX,XXX This which shares the with preferred we of And July goal approximately X-for-X stock brings went effective $XX cumulative the our exchanging completed with our exchange holder, also lastly, price completed ultimate million value. XX to a notional reverse exchange volatility preferred of common the future. shares preferred stock a in par of of reducing split, for into

X. Now Slide turning to

CMBS MBS non-QM loans. grew based Agency the Our on portfolio the whole out and investment into over mentioned previously I of slightly quarter rotation

land-related the nearly made progress X. strength to allocation seeing non-QM of housing Turning Also, a with to we the are in value over XX exposure. earn fair our quarter. Slide performance as coming by to financing, to market, yield. On XX XX% we this run our percentage organically CMBS while takedowns a XX% portfolio to from asset Slide to given and healthy We present the we investment our commercial we estate X, regard lot doubling class increasing solid months the this expect off real and our

wanted interest single fully to productive subsequent is is left estate a opened today. Commercial was MITT consortium borrower construction payments Square. first term. COVID, under detail the we and original provide more some mentioned, only loans single proceeds loan and securities part The with has a commercial towards previously we to As maturity loan commercial date group larger resolution a is recently designation, continued $XX.X CMBS on million. real during asset, of end, year. loan in the our Times gross in in completed for the K making but near of actively X remaining quarter lender due exited lien MITT's May engaged exposure of Currently, to its and destination hotel a this working loan

such However, resolution will we occur. guarantee can't

the fully of a XXXX, modification coupon a located we basis the cash Chicago. are following Downtown comfortable in initial finished off the September off Magnificent the Immediately and L interest We loan with sponsor Mile product. Commercial in our completed the turning a drawn to in is COVID accumulate. the with loan letting very hotel shutdown, deferred

reopening. On to selectiveness We create this did Agency in on to million not continue an A accrue purchasing and operating X, was based our to close we $X.X on However, size and based exchange prepayment during see larger interest relative additional during when deferral, seen remain specified able metrics MBS income quarter into pools. received this be equity. for due can of not an interest -- with in with period. the value, sponsor we contact the the book improve In better performance we Slide reduction you performance. agencies continue solely to have

excess agreement continue tests. all the to 'XX excess to will June, and to With we'll use meet which that, remaining Nick. quarter. valuations sell third in we lastly, call I'll Agency over entered our to during prudent when We at absorb the liquidity an into settle our to Act And MSRs, MBS turn

T.J., and morning, Thank you, everyone. good

acquired XX. million of million over over affiliate In $XXX Home. capacity acquired Arc July, to to simultaneously we've acquisitions to of $X.X million billion $XXX non-QM from we nonrecourse future Year-to-date, accommodate approximately warehouse and uncommitted loans $XXX with while our out Turning debt. Slide our increased terming non-mark-to-market

continued funds are acquire prior our we primarily page $XXX also alongside Angelo of we for securitizations. The current within show entered quarter retained base. year GSE-eligible an joint In or this also of non-QM non-QM We delinquency prior tables our -- agreements with other held venture past interest remaining venture. specifically loans. into Gordon in from added connection unconsolidated of with the the joint along assets capacity nonowner-occupied Subsequent acquisitions, other portfolio, these characteristics collateral The to for from curing warehouse this pools. GSE-eligible $XXX uncommitted to end, approximately securitized on million borrower million over loans

offer We and attractive additional to to credits risk-adjusted expect returns these continue adding forward sellers to capacity. look and

the Slide of positions provides months. our to high-level past XX. summary loan of credit-sensitive on over a performance This the Moving page XX

a that contractually has or increased this rates. Prepayment you approximately current are received mitigation assistance plan. XX% tailwinds on from significantly making strong have historically portfolio and and see, loss either benefited mortgage borrowers speeds the As low payments can housing of COVID-related

Over prepayments. portfolio the of past voluntary year, loan of and the combination opportunistic sales, has been involuntary a through XX% approximately liquidated

Slide to Turning XX.

being agency non-QM quarters, during $X.X below of over investments was not business. As of MSR Anthony. by origination to million quarter. Mark-to-market Home, and connection the benefit loan in $X.X to mortgage from sales losses shows reenter compression in Home non-QM losses pretax to volumes portfolio the generated benefit Home's the recognized its The Home's of in mentioned Arc Arc of yields nominal to from declines in early previous these originators turn of affiliate, mortgage MITT. full first and our MITT, to tables offset resulting include margin able the the does gains curve volumes $X.X with as which licensed Arc by mitigate I'll that, in flattening Arc clearly driven continues losses million a of With net million lower it one

good you, and Thank Nick, morning.

which became the update from outstanding reverse on approximately wanted quarter, post that million effective to XX. our on quarter This split XX.X an second end, I a shares we to common completed July X-for-X XX.X reiterate million. reduced stock providing Before

commercial and available share you mentioned sales were per portfolio, assets fully to rates $X.XX were portfolio see CMBS. These per we swap adjusted Arc Home, release, all a in or within the Earnings Operating our quarter the that $XX.X residential driven XX-Q offset and along all basis on slightly during presented. With during press as will interest reported share XX% equity resulting in being our common the from the mark-to-market for retroactive that MSR million increased reflect mark-to-market of we first result, certain within on realized reverse to by said, diluted gains split as from rate gains net interest well and the our metrics common within periods by a first quarter its expenses investment our previously As portfolio. income quarter, loss presentation quarter. gains losses of the decline from share. approximately losses method the by driven stockholders the on during from and with earnings RMBS mark-to-market

reconciliation $X during Slide you'll to proceeds quarter. common transaction a common issuing offset common which stock during by from and attributable our current second XX, And June. On during the declared exchange to the our This our as related was $X.XX expenses also to see preferred book stock of increases non-QM related the value program this by a the per increase as ATM approximating reflects share, net in the that securitization quarter transaction through we increased earnings quarter. the entered preferred well into provide However, raised quarter dividends million. occurred

our discussed our is equity per on preferred entire also of stock. computed disclosed liquidation the which share total As on previous common based of value $XX.XX, we less earnings adjusted book call, preference

We for Arc second to where us. quarter is include the recognized a breakeven was to GAAP for disclosed does will gains to earnings earnings quarter. the you note during Turning income earnings core the million core sold that to of not reconciliation One Slide $X.X Home on loans XX. net of see quarter, item core

call activity of on Lastly, by remarks, the cash now total to our liquidity the which inclusive like the securitizations non-QM questions. from million with of This grow to proceeds $XX Operator? sale a improvement purchase quarter million of the along million, of MBS we the we prepared in X mentioned concludes quarter $X ended open liquidity portfolio first Agency RMBS. result our $XX the transacted is our offset portfolio. This for with of and and was would non-QM previously unlevered

first [Operator Harter our Suisse. Instructions] from And Doug question comes Crédit from

Can returns movers? still competition kind you just of the level the look how versus that about QM of days -- of kind today the was early and where first talk Arc market of the in how one today

certainly changing market see agency to has plenty stuff the others levels. that these still There more attractive and said, buy runoff, don't sort refis the have at capacity returned course. we is future. we Of off of That near competition. assets has to see as run or and of opportunity in being And

a versus is just nonowner-occupied more the opportunity then and could of you today? of of And compare attractive kind of relative attractiveness which Got loans non-QM returns it. kind

comparable. in side, already fairly similarly If the non-QM they're positions them lot are We properties a priced. see anything, investor those and fairly of

we On and in and one side, that value out, sort to years, the interesting keep be X products obviously and in the those opportunity the things we'll come we just coming mind. of Agency between and we it's to relative the of pricing -- expect expect to for opportunistic where be

kind Got it. of question. just one And then accounting

And looked You What Homes. negative MSR the there if Arc the was was Arc how mark have you of MSR I the mentioned net that? size that at guess mark? profitability would the excluded of

MSR mark the down net about for The $X was million quarter.

$X plus $X markdown. -- MSR to quarter million you'd think about you million the $X probably around during if that the from be million out earnings, So without pulling

guess, And so versus guess, or closer loss positive million I to the $X.X out then closer if versus -- to contribution to Great. even X-point I slightly mentioned? breakeven the stripped to would you of gains, you the be, you the

mark-to-market the pre of that clarification One mentioned correct. share. I our was That's loss XX%

only would XX% of we million, get that. $X that So

Bose Next KBW. question comes from George from

Actually, just a first, just clarification.

include to You mentioned just Arc of sales remind that the in Homes the core the Arc from me the you doesn't Can what mid-quarter included earnings is earnings? MITT.

gain on in us is not business, non-QM to their core. are the that are operating on which and included Their sale the agencies sold

in percentage it hurt them, of going won't it if right, And because that count? buy what remain is there -- you because like kind like you your of is to it from seems income, almost terms increases, stable core

-- We it stable. Yes, remained that's correct. has

thinking from from XX% correct. We non-QM of bought have approximately the production your them, but is

get then And need number? core of forward, I looking focus feel but you on are return, normalized guess a of just returns core. I if good, are more economic of Great. obviously, kind -- a things sort people I what like Okay. the from that to to lot an happen mean, whatever your to

think what's just of kind way So about that? the best to

This is Robert David answering that.

about we're the business and business this likelihood, to this I say, the quarter think to the few the I model. new way best model think go quarters, is forward, next to a in transition or that should all in

of origination mix business, we're time. first to cash X. securitization some and assets our into that's rotating then a that the take legacy going into it's So and We've got

Trevor Our Securities. next question Cranston comes from from JMP

the construction loans? to the the for something and more wanted both a wanted on that I in comment comments, be the you that loan In detail you on towards I in those loans, clarify think just directed that near Or thanks were could to of was additional clarify, the related hopeful maybe commercial that payoff there the to prepared term. made on those. I all particular? was the comment

the it's say obviously, it's mean more working the on Yes. issue in with borrower that on I particular. we're maturity would -- loan I

loan, contractually financing will other that they point. remain and the of pursue that we modification at other the coming could it out on fully current period, obviously think options anticipate I

can And -- remind you period the us Okay. when that when ends?

September. Yes. modification last September, a this from It it so X-year was will end

it. of Got sort is help more GSE non-owner us opportunity you loans, -- GSE-eligible maybe about occupied think what and Okay. potential non-QM size traditional then opportunity? talk there to more on bit And the of that of relative nonowner market can little a the kind the

Yes, certainly.

properties GSEs the to not impacts. Fannie of origination year. It's So the doesn't had or have $XX a from Freddie -- nearly and investor sort the of $XX has or ranged billion supply it billion cyclical sort same of via approximately historically, -- of

comes essentially, assets. anything, if acquired nonowner if other lowering of So denominator this off, you're refi your

So will and normalize that sort as denominator higher. will latest lower, be X% that's goes cap in that PSPA excess Freddie, that that with is that, been or the amendment instituted assumption and the of Fannie

So if if portion and loans originators to this number this, actually the have with good selling like ourselves. prior to of -- excess that of space X%. And get investors for obviously, Freddie said, for goes solve best a being to grow. and the could that That markets to more even private away as you GSE offered returns is Fannie attractive our [indiscernible] expectation from familiar XX%,

Now overall it's But exactly that how sized sort lot of market, into decent much we'll go ultimately see, least a factors a of notional. at the it. there's of

Got it.

into very then still Okay. a you and guys helpful. position the And in That's position noted you're if had is TBA thing, you large how that that third I that say last the you quarter? carrying second quarter. short think Can

position on went is at end. TBA the $XXX that million on quarter The size notional

from comes JonesTrading. question Jason next Our from Stewart

the reflective your of mark couple follow-ups. of at the A loan, payoffs? XX% of in the On ] or [ coupon at confidence commercial is X/XX part

to determine mark third-party the Well, the us vendors help -- we mark. use

par, a which million is $XX XX% it's of notional. So

when payoff updated September over? a thinking par XX modification is that get your is at period So to full you're the going

these what to pricing expire, see will, are of no, And in their of to vendors, think that point you turn how coupon XX, the kind a September We're if will calendar getting at on. starting from that right? year ago. view they modifications we'll sort I Well, all back

So the cash our don't will they'll come but that any start that, would how on we have loan expect certainty paying I based at into look conversations that QX.

Okay.

will not So but turned a payoff, be back it on. necessarily

Okay, quarter-to-date, got if don't if on it. us value update can And you book mind. you then

up as during and commercial Yes. that some realized mentioned we about some we've resi as approximately, driven X%, that gains the Book quarter-to-date in been gains talking of through mark-to-market value the portfolio was was and that the primarily quarter. the by sales the well of

that was your your Or we're Was quarter now? third looking was sorry, third this quarter? the back question in -- I'm about to it

latest Yes, point available. David, to the

-- just to what with reported. not we're stick going we're Yes, we've

MSR, then move at portfolio, can And market Okay. on looks of looks detail valuation you the Arc in terms look SATO a we XXX of when the rates in or for plus that like or MSR? XX us like that give maybe what what any like the

Well, to just the sold so third-party MSR. be purchased we clear,

So is the will I have really and And lower. SATO reduce say not, we're point, going this the goal like really shifts. really forward focused business volatility them origination would that in volatility that side. or The to be reporting at on

I Okay, space, carry the And understand to going okay. position the of rationale of sort fit forward? hedging strategy? your guess propensity Last TBA does overall for for in valuations but that me the how sort I given what's then. one the into that

Nick. This is

off that TBA GSE of is part And we'll debt, TBA. you of it's benchmarked the selling you versus So recently that the the sell short when when positions. acquired about contemplation think debt be

loans by the backed third that debt collateral. So to your you're because actually agency selling market, sell parties go is benchmark when in TBA you

So just on put similar hedge it's to non-QM other loans. hedges a really we against

then will yes, AAA I swaps. for benchmarked basically eligible, is for agency the So it the TBAs. traditional debt off on of off non-QM seniors And be Jason, convention pricing mean

Eric from comes question Hagen BTIG. next from Our

what of Arc can looks you Within like equity sheet a including give amount at and sitting the snapshot balance of capital Home? debt the that's affiliates, the there, of

million In non-QM. Sure. historically line $XX is $XX we that and then Home also investment Arc in joint equity a approximately acquired item, that million venture we balance have in where of approximately

non-QM approximately recall, is mentioned in directly REIT. there the earlier. the into And million we're T.J. acquiring land-related the financing other of then now you the $XX that If asset

Got it.

non-QM to to return get on the outlined then the leverage And retained That's much to in guys you applying Okay. helpful. tranches are how securitizations, deck? that profile the the you

to X.X between Somewhere X.X turns.

Okay. And are refi? those mark-to-market,

Correct.

Canyon from Our [ next DeLisle from ] comes Seven Jim [ ]. question

presuming on The Arc that portfolio. carry I'm MSI, some its self-generated to MSR continues

Yes, that's correct.

in just you be or the that item line $XX Eric And would referenced million so to Hagen.

-- sheet asset own -- the net show bring the way we don't of our be we within balance through the but within that up net we for equity. flowing financials, equity It's that is account into it Arc into embedded we would look Arc, that we Home's

Right. their the understanding what value of is of give $XX your some self-generated MSR us percentage to by that you of as million Arc of portfolio? carrying Can represented holding

front Jim, into that. have number that in can but we don't of we us, look

time. turn I'll We now have questions host no our remarks. further call the closing for at over this to

Thank of you, for -- the Sylvia, today. call thank you to weekend. your everyone rest for Enjoy and joining the

ladies you, gentlemen. you and Thank This conference. concludes for Thank today's participating.

may You disconnect. now