AG Mortgage Investment Trust Q4 2024 Earnings Call Transcript

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March 3, 2025

Key Takeaways

  • Our book value rose 0.6% to $10.64 in Q4, delivering a $0.19 dividend and a 2.4% economic ROE, while the full-year ROE reached 11.7% alongside a 5.6% dividend increase.
  • We lowered economic leverage from 2.7x to 1.4x through programmatic securitizations, maintaining stable leverage and strengthening capital flexibility.
  • The portfolio diversified into non-QM, agency-eligible non-owner and home equity loans, and the WMC acquisition anniversary delivered over 50% total shareholder return since closing.
  • Q4 GAAP net income was $8.8 million ($0.30/share) with EAD of $0.18/share covering dividends, led by home equity loan gains and hedge profits offsetting mark-to-market losses.
  • Quarter-end liquidity stood at $137 million with $190 million of warehouse financing, providing an estimated $75 million–$100 million of deployable equity as positions mature or financing rolls off.
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Earnings Conference Call
AG Mortgage Investment Trust Q4 2024
00:00 / 00:00

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Operator

Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust 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, 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'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.

Jenny Neslin
Jenny Neslin
General Counsel and Corporate Secretary at AG Mortgage Investment Trust, Inc.

Thank you. 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. 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.

Jenny Neslin
Jenny Neslin
General Counsel and Corporate Secretary at AG Mortgage Investment Trust, Inc.

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, 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. 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 homepage.

Jenny Neslin
Jenny Neslin
General Counsel and Corporate Secretary at AG Mortgage Investment Trust, Inc.

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
T.J. Durkin
CEO and President at AG Mortgage Investment Trust, Inc.

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 were able to deliver these strong outcomes amidst a challenging macroeconomic backdrop, proving the company has a more differentiated strategy than the average REIT. 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. For the full year of 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. Durkin
T.J. Durkin
CEO and President at AG Mortgage Investment Trust, Inc.

Now, taking a step back, I've been reflecting on where MITT was when I became CEO in October 2022 and where MITT 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 conditions. Yet, in spite of this, we are protecting and growing MITT's 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. We remain steadfast to our disciplined programmatic securitization strategy. In the quarter right before I became CEO, our economic leverage was 2.7 turns.

T.J. Durkin
T.J. Durkin
CEO and President at AG Mortgage Investment Trust, Inc.

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 reinvestment. One of the other reasons for our strong financial performance in 2024 is a reflection on MITT's unique positioning. We are able to be nimble in asset allocation: multiple flavors of non-agency credit, starting with non-QM, then being a first mover in securitizing agency-eligible, non-owner-occupied, to most recently being a leader in the emergence of home equity or second-lien lending. 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 have been more than 50%. This transaction showcases the power of our external manager, TPG, which we believe the market doesn't fully appreciate.

T.J. Durkin
T.J. Durkin
CEO and President at AG Mortgage Investment Trust, Inc.

Our manager gives us not just financial support, as evidenced during the WMC transaction, but also scale. Along with MITT, TPG's broader structured credit and specialty finance business manages $18 billion of AUM. While MITT may be $550 million of equity, our manager's strong market presence allows us to source and punch way above MITT's weight class in isolation. For all these reasons, I'm looking forward to another great year for MITT as we remain committed to our growth initiatives and creating value for our shareholders. I'll now turn the call over to Nick.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

Good morning, and thank you, T.J. Today, I want to build upon T.J.'s remarks and unpack why we believe in the MITT advantage, a topic that we have not emphasized enough in the past. We cannot talk about this topic without diving deep into TPG Angelo Gordon's capabilities, and more specifically, the capabilities of its structured credit, especially Finance Group, which provides unparalleled access, expertise, and resources to MITT. I'll take these one by one, starting with access. TPG Angelo 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 an important conduit to some of the best opportunities in the space.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

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. 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 to the residential mortgage finance space in ways most cannot.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

Our core competencies span multiple sectors of the broader residential mortgage finance segment, including non-QM, EPLs, 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. Tangential to the residential mortgages, we also have the ability to integrate a portfolio company, Arc Home, as fully licensed to own 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, in which MITT owns 45%. Lastly, let's move on to resources that make all this possible.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

Reiterating what T.J. said, MITT is part of a much bigger ecosystem through its manager, TPG Angelo Gordon, which has substantial resources to support its more than $90 billion AUM across products, including MITT. To name a few key resources, TPG Angelo Gordon provides MITT access to: one, a custom-built residential mortgage asset manager, Red Creek. Instead of buying one, TPG Angelo Gordon invested the time and capital into building this resource so it could be tailored to fit the needs of MITT and other TPG Angelo Gordon products; two, 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 three, 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. All this is just the tip of the iceberg.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

The recent MITT 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 MITT's market cap by over 45% and propelled MITT into the Russell 3000 last June. Two, the fluid transition of equity deployment from non-QM to agency-eligible investor loans. Two, most recently, home equity loans, which was instrumental in MITT's relative outperformance this quarter. Three, the disposition of mortgage servicing rights at Arc Home. Four, the rotation of legacy credit-sensitive loan investments. Five, the launch of new channels and products at Arc Home that are focused on the technology, liquidity, and service with a focus on operational leverage. Before moving on, a brief comment on Arc Home. For all the reasons that MITT benefits from TPG Angelo Gordon's resources, Arc Home does as well.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

While it's had its challenges, Arc Home has reached a pivotal point in transitioning to profitability. Over the last year, we continued to invest in talent, including a new CEO, COO, and Chief Production Officer. We believe that these investments fuel further growth and believe they were an important part of the company having a profitable December and January. 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. To make this happen, MITT 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.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

We also do not want to aggregate large operationally and capital-intensive origination businesses if we don't believe they are justified by a primary goal of providing the best risk-adjusted returns. Turning the call over to Anthony.

Anthony Rossiello
Anthony Rossiello
CFO and Treasurer at AG Mortgage Investment Trust, Inc.

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 were 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. 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 dividend declared of $0.75. 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.

Anthony Rossiello
Anthony Rossiello
CFO and Treasurer at AG Mortgage Investment Trust, Inc.

The increase in book value is primarily driven by gains on our investment activity in 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 GAAP net income available to common shareholders of approximately $8.8 million, or $0.30 per share. We generated EAD of $0.18 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, generating earnings of $0.20 per share. Although Arc Home contributed a loss of $0.02 to EAD, there has been continued strength in volumes and improvement in margins, driving Arc Home to profitability in December. We remained active during the fourth quarter, acquiring $300 million and $153 million of home equity loans.

Anthony Rossiello
Anthony Rossiello
CFO and Treasurer at AG Mortgage Investment Trust, Inc.

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. We've 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. 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. This concludes our prepared remarks, and we'd now like to open the call for questions. Operator?

Operator

Thank you. 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. We will take our first question from Bose George with KBW. Please go ahead.

Bose George
Managing Director and Senior Equity Analyst at Keefe, Bruyette & Woods, Inc.

Hey, guys. Good morning. Actually, how would you characterize your excess capital? You noted the cash and liquidity. Just when you think about deployable capital, how would you characterize that?

Anthony Rossiello
Anthony Rossiello
CFO and Treasurer at AG Mortgage Investment Trust, Inc.

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 returns. In addition, away from rotation, a really newfound equity, when we acquired WMC, there were some inefficient financings that will roll off this summer, which will release another sort of, call it $25-$30 million of equity. Away from that, there's another $30-$50 million of equity that can be rotated. That sort of comes out to a range of, call it $75-$100 million that could be rotated or newly deployed into the coming year.

Bose George
Managing Director and Senior Equity Analyst at Keefe, Bruyette & Woods, Inc.

Okay. Great. Just in terms of the corporate leverage, the level of preferred, etc., how are you thinking about that now? Is this a level you're comfortable with? Any changes you need to make?

Anthony Rossiello
Anthony Rossiello
CFO and Treasurer at AG Mortgage Investment Trust, Inc.

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. I mean, we're actively monitoring the market. I mean, we've been running the company sort of with these ratios for quite some time now. I think we're obviously comfortable there, and I think we've sort of shown kind of good performance in managing that overall leverage ratio to the common.

Bose George
Managing Director and Senior Equity Analyst at Keefe, Bruyette & Woods, Inc.

Okay. Great. Thanks.

Operator

Thank you. We will take our next question from Doug Harter with UBS. Please go ahead.

Marissa Lobo
Equity Research Analyst at UBS Securities LLC

Hi. Thanks. 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.

Anthony Rossiello
Anthony Rossiello
CFO and Treasurer at AG Mortgage Investment Trust, Inc.

Yeah. Look, I think you have to step back. Home equity is relatively new, and we see a very large addressable market. We think we're in the early innings there. I think when you think about being in the early innings, oftentimes there's sort of a first-mover advantage. We continue to think that that's the case, albeit maybe not as much as a little some time ago. 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. We still find relative value there. As you can see from our prepared remarks, we are sort of leaning in more on the home equity side.

Marissa Lobo
Equity Research Analyst at UBS Securities LLC

Okay. Thank you. Also on the preferred, any thoughts on the preferred given the increased cost from rolling to floating?

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

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 pike this year that I think will also help offset that increased floating rate. We are looking at it at a corporate level. We have sort of had that floating rate switching in the model. We are prepared for it.

Marissa Lobo
Equity Research Analyst at UBS Securities LLC

Thanks. Appreciate the answers.

Operator

Thank you. Once again, if you would like to ask a question, please press the star and one on your telephone keypad now. We will take our next question from Eric Hagan with BTIG. Please go ahead.

Jake Katsikas
Equity Research Analyst at BTIG, LLC

Hey, good morning. This is Jake Katsikas 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.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

Yes. So those are really our kind of on-balance sheet GAAP accounting. So that's really the securitization. So you're going to see that's really a function of 2021, 2022 type origination that is effectively term-financed out. So that number is not going to move a lot until we either rotate out of the call the deals and sell the loans, etc. But the ROE out to the right is probably what I would point to. That's effectively neutralizing a lower coupon on the mortgages with obviously the cheaper financing that was issued at the time.

Jake Katsikas
Equity Research Analyst at BTIG, LLC

Gotcha. Thank you. Do you expect the cost of funds for the warehouse lines to drop further? If that were to happen, would that potentially encourage you to get more active in building your pipeline?

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

I mean, we've definitely seen the larger investment banks get more aggressive on financing terms post the turn of the new year. We're actively taking advantage of that. I think it's really just about the overall kind of A to Z ROEs. The warehouse is only part of the life cycle of the loan coming onto the balance sheet of MITT. It's really also about where the securitization markets are pricing, probably more so than just the gestation warehouse terms.

Jake Katsikas
Equity Research Analyst at BTIG, LLC

Great. Thank you so much.

Operator

Thank you. We will take our next question from Brad Capuzzi with Piper Sandler. Please go ahead.

Brad Capuzzi
Equity Research Analyst at Piper Sandler & Co.

Thank you for taking my questions. Just kind of wanted to get high-level thoughts on origination volume in Arc Home into 2025. Obviously, industry origination volumes have come down in recent months given the backup in rates. Just kind of wanted to get your thoughts there as we look into 2025. Thanks.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

Yeah. Look, we continue to think that Arc Home's business model is somewhat immune or more immune than the broader mortgage market, specifically sort of more liquid products like agencies and jumbos and Govvy origination. I think it's been well publicized that the non-QM and non-AG markets are actually growing at a good amount relative to the other spaces. We continue to expect that to be the case. Beyond that, as we mentioned in the prepared remarks, the investment we've made in the growth of that company. We expect sort of the combination of those two to really pay dividends in the future. Our expectation and what we've mapped out for this year is continued growth no matter what the market is. Obviously, interest rates matter, but we think that the company will be resilient.

Brad Capuzzi
Equity Research Analyst at Piper Sandler & Co.

Gotcha. I appreciate the commentary. Just last question for me. Can you speak on your current thoughts around the dividend and just what you would need to see and your rate outlook to continue covering the dividend and EAD?

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

Yeah. 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 in sort of what we call the investment portfolio and then obviously the equity interest in Arc Home. To Nick's point earlier, we've definitely faced a headwind in terms of a sort of negative EAD contribution coming from Arc over the past, call it, four to eight quarters. We're seeing that effectively kind of come to neutral now over December, January. We flip from a negative to a positive. It's not a huge positive, right? I think we're sort of in this transitional phase where let's just call it round numbers break even. I think as we fast forward into 2025, we expect that to be more of a positive contributor.

Nicholas Smith
Nicholas Smith
CIO at AG Mortgage Investment Trust, Inc.

If you look back at the last year's, as an example, performance, I think that is the sort of tailwind that we would need to think about having a composite EAD north of sort of where the dividend is. I hope that answers the question.

Brad Capuzzi
Equity Research Analyst at Piper Sandler & Co.

Yeah. That's perfect. I appreciate it.

Operator

Thank you. 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.

Marissa Lobo
Equity Research Analyst at UBS Securities LLC

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.

Operator

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.

Executives
    • Nicholas Smith
      Nicholas Smith
      CIO
    • T.J. Durkin
      T.J. Durkin
      CEO and President
    • Anthony Rossiello
      Anthony Rossiello
      CFO and Treasurer
    • Jenny Neslin
      Jenny Neslin
      General Counsel and Corporate Secretary
Analysts
    • Jake Katsikas
      Equity Research Analyst at BTIG, LLC
    • Brad Capuzzi
      Equity Research Analyst at Piper Sandler & Co.
    • Marissa Lobo
      Equity Research Analyst at UBS Securities LLC
    • Bose George
      Managing Director and Senior Equity Analyst at Keefe, Bruyette & Woods, Inc.
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