AG Mortgage Investment Trust, Inc. (NYSE:MITT) Q1 2024 Earnings Call Transcript

AG Mortgage Investment Trust, Inc. (NYSE:MITT) Q1 2024 Earnings Call Transcript May 3, 2024

AG Mortgage Investment Trust, Inc. beats earnings expectations. Reported EPS is $0.709, expectations were $0.15. AG Mortgage Investment Trust, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the AG Mortgage Investment Trust First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements' remarks, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.

Jenny Neslin: Thank you. Good morning, everyone, and welcome to the first 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.

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 review the slide presentation, turn to our website, www.agmit.com and click on the link for the Q1 2024 earnings presentation on the home page.

Again, welcome to the call, and thank you all for joining us today. With that, I'd like to turn the call over to T.J.

T.J. Durkin: Thank you, Jenny, and good morning, everyone. Last quarter, we were able to walk you through the merits of the WMC transaction, but with only less than a month of true financial impact. I'm excited to report our first full quarter post merger, which we believe gives a clear picture of the compelling benefits walking through immense financial position. As of March 31, we grew adjusted book value from $10.20 to $10.58 while paying our $0.18 dividend, producing a 5.5% economic return on equity for the quarter. While still preliminary, we see estimated book value per month for the end of month April to be roughly flat from quarter end. The Company now has an equity base of $540 million and $140 million of liquidity.

It's only 1.4 times of economic leverage to end the quarter. With market expectation for rate cuts in the near-term tempered, our first quarter results demonstrate our ability to grow earnings power in this higher for longer interest rate environment while protecting book value. During the quarter, we earned $18.2 million of net interest income, $0.55 of earnings per share and $0.21 of EAD&D per share covering our dividend by more than $0.03. In closing WMC transaction on December 6 and through quarter end, approximately $50 million of assets have already been monetized to be rotated into our core strategy of newly originated residential mortgage loans. In terms of capital markets activity, we completed one GSE eligible securitization and we notably issued approximately $35 million of investment grade unsecured bonds, addressing the sizable portion of the legacy WMC convertible notes, which are due this coming September.

And like I said last quarter, the team and I are very excited to be able to finally discuss with the market the successful acquisition of WMC this past December and the future prospects for MITT going forward. We believe the WMC acquisition was another substantial step further positioning that as a premier pure-play residential mortgage REIT. And we have confidence in our ability to continue to deliver on strong earnings of the investment portfolio while seeking ways to continue enhancing scale and G&A efficiencies. Demonstrating my confidence, I was pleased to personally purchase another 50,000 shares in that following last quarter's earnings release, strengthen the alignment of interests with our shareholders as we continue to execute on our mission.

Aerial view of a thriving real estate investment property surrounded by lush green vegetation.

I'll now turn the call over to Nick.

Nick Smith: Thanks, T.J. In the first quarter, the company grew the investment portfolio by 4.8% and delivered an economic return of 5.5% and reduced economic leverage. The 3.7% book value increase was driven by continued flattening of the credit curve, underpinned by strong performance in risk assets, continued strength in housing fundamentals, and limited supply of residential credit. The company securitized $377 million of residential home loans, acquired another $285 million of home loans, and built a current pipeline of additional $284 million from Arc Home and other third-party originators. In addition to the activity in loans, we properly rotated additional assets acquired from WMC, bringing the aggregate equity return to approximately $36 million.

We anticipate being in the market with our second securitization of this year in the coming weeks. While credit spends have tightened into the end of last year and throughout this past quarter, equity returns in the mid to high teens post-securitization remain. While the origination landscape continues to be challenging, Arc Homes' Q1 lock volumes were $687 million with continued strength in April of approximately $300 million. Notably, funding volumes increased over 40% from the first quarter of the previous year. While this increase is over 2.5 times the increase in originations seen for the industry over the same period, we expect these increases to keep pace with increase over the next year as we continue growing our footprint in both wholesale and correspondent channels.

Now, I'd like to turn the call over to Anthony.

Anthony Rossiello: Thank you, Nick and good morning. In December, we closed the WMC acquisition, helping to grow MITT's investment portfolio and equity base, while improving scale for the company. Further, MITT immediately began to benefit from the substantial synergies we previously highlighted in our announcement of the transaction, which is evident through our performance this quarter. During the quarter, we recorded GAAP net income available to common shareholders of $16.3 million or $0.55 per share. Our book value of $10.84 per share and adjusted book value of $10.58 per share increased by approximately 3.7% from December. The book value increase was driven by mark-to-market gains on our investment portfolio from credit spread tightening, gains on our hedge portfolio from rising rates, and improvement in our earnings available for distribution or EAD.

Arc Home had a neutral impact on book value this quarter as mark-to-market gains on its MSR portfolio, driven by rising interest rates, all set losses from EAD. We generated EAD of $0.21 per share for the first quarter. Net interest income, inclusive of interest earned on our hedge portfolio, was $0.69 per share, which exceeded our operating expenses and preferred dividends of $0.44, generating earnings of $0.25 per share. This was offset by a loss of $0.04 contributor from Arc Home. During the quarter, net interest income, including swaps, increased by $4.1 million, resulting from a full quarter of earnings from the acquired WMC portfolio, while operating expenses only increased by $1.4 million. As discussed on our previous earnings call, we estimated that approximately $5 million to $7 million of operating expenses would be removed on an annual basis upon combining MITT and WMC.

These synergies are now being realized with annual operating expense savings trending toward the higher end of our estimated range. Lastly, we ended the quarter with total liquidity of approximately $140 million. This concludes our prepared remarks, and we'd now like to open the call for questions. Operator?

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