AG Mortgage Investment Trust(MITT) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted book value decreased from $10.58 to$10.37, resulting in a break-even economic return on equity for the quarter [5][10] - Net interest income for the quarter was $17.4 million, with a GAAP net loss available to common shareholders of approximately$700,000 or $0.02 per share [6][10] - Earnings available for distribution (EAD) per share was$0.21, covering the newly set dividend of $0.19 per share by$0.02 [6][10] Business Line Data and Key Metrics Changes - The investment portfolio increased by approximately 11% to $6.9 billion, with acquisitions of$423 million in residential mortgage loans and $428 million in agency RMBS [11] - The delinquency rate of the loan portfolio remained low at approximately 1$180 million, consisting of $120 million in cash and$59 million in unencumbered agency RMBS [12] - Economic leverage ratio at quarter end was 2.5 turns, with expectations to return to historical levels post-maturity of convertible notes [12] Company Strategy and Development Direction - The company is focused on efficiently addressing the impending maturity of $86 million convertible notes due on September 15, 2024, by issuing$65 million of investment-grade senior unsecured notes [6][10] - The merger with WMC has resulted in the company being included in the Russell 2000, which is expected to broaden the investor base and improve liquidity [7] Management's Comments on Operating Environment and Future Outlook - Management noted elevated levels of interest rate volatility and a resilient residential mortgage borrower environment, with expectations to remain active in securitization markets [8][9] - The company anticipates a return to more normalized leverage levels after addressing the convertible note maturity [31] Other Important Information - The company executed two securitizations during the quarter, including a private label securitization backed by Fannie and Freddie eligible investor loans [8] - Arc Home's sale of its MSR portfolio is expected to generate liquidity for growth in its core business and capitalize on new opportunities in residential mortgage origination [9] Q&A Session Summary Question: Timeframe for rotating out of agency MBS into core assets - Management indicated that the rotation of excess liquidity will likely take two to three quarters post-convertible note maturity in September [13] Question: Book value risk related to agency investments - Management stated that the strategy involves running a consistent duration perspective with less leverage, which should mitigate risks compared to fully leveraged agency rates [14] Question: Update on EAD trends with upcoming liquidity - Management acknowledged that the current quarter is interim, aiming to avoid cash drag while creating ROE, with expectations for a more normalized portfolio [16] Question: Securitization activity and loan market opportunities - Management highlighted that the non-QM space continues to present the lowest cost of capital opportunities, with plans to remain active in the agency eligible positions [20][21] Question: Volume projections for Arc Home - Management expects growth to continue, with a highly seasonal origination environment, aligning with MBA forecasts [27] Question: Leverage targets for agency RMBS portfolio - Management anticipates returning to a lower leverage target after addressing the convertible note maturity, with current leverage being a temporary measure [30][31] Question: Prepayment speeds and their impact on earnings - Management noted that the majority of the loan block is well protected from prepayment risks, with a focus on maintaining efficiency in the market [32]