Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AG Mortgage Investment Trust Inc (MITT, Financial) reported a successful issuance of $65 million in investment-grade senior unsecured notes, effectively replacing $86 million in convertible debt, improving their corporate debt structure.
- The company increased its dividend by 5.6% to $0.19 per share, reflecting confidence in its financial stability.
- MITT's delinquency rate on its loan portfolio remains low at approximately 1%, showing strong credit performance.
- The company ended the quarter with $180 million in liquidity, providing a strong buffer for future investments and obligations.
- MITT's inclusion in the Russell 2000 index is expected to broaden its investor base and improve liquidity.
Negative Points
- Adjusted book value decreased from $10.58 to $10.37 per share, indicating a slight decline in asset value.
- The company recorded a GAAP net loss available to common shareholders of approximately $700,000 or $0.02 per share.
- Economic return was roughly breakeven for the quarter, showing limited profitability.
- The investment portfolio faced unrealized mark-to-market losses, impacting overall financial performance.
- Leverage was moderately higher than normal at 2.5 times, which could pose risks if market conditions worsen.
Q & A Highlights
Q: Can you talk about the timeframe, you think it'll take to kind of rotate out of Agency RMBS into your core assets and what you think of kind of the return differential as you make that rotation?
A: Yes, I think about it kind of is some sequencing. So I think we want to address the convertible note in September with obviously the liquidity that we have on balance sheet today. And then I think rotating that kind of excess liquidity will probably take no more than two quarters to three quarters kind of post that we're not using the if you look at sort of the agency rates we're using probably about half of the leverage there. So it's an interim kind of stopgap to earn some carry. So I think the ROEs are not applicable. I think worse targeting on the new origination side, I would call it mid-high-teens gross ROEs as part of the plan going forward, that's where we see the market.
Q: And I guess just with I mean, you are taking lower leverage. Just how should we think about the book value risk that you're taking now kind of on the agencies given kind of the large moves in interest rates here, especially on days like today?
A: Yes. I mean, I think, like I said, we probably got. I mean, we're running from a duration perspective. I think a consistent strategy, just less leverage in terms of our hedge ratios, et cetera. It should be muted virtually on a fully levered basis period.
Q: And then just on the Arc MSR sale and that extra capital that kind of gets freed up, does that stay within Arc or does some of that get distributed up to ultimate?
A: Morning, Doug, it's Nick. So our management team, along with Arc Homes management team, has evaluated the appropriate capitalization of the company. And at the moment, we expect there would be a likely return of capital.
Q: Can you just give us an update on book value quarter-to-date? I guess before the noise of today. But yes, we're here this week.
A: We haven't produced a lot of clarity yet too early for conclude.
Q: Can you give a little bit of color in general on what you guys are seeing in the loan markets and kind of where your where you're seeing the best opportunities are for securitization today?
A: Thanks. Yes, certainly. So obviously, as a non-agency focused three bombs, we focus on sort of the wider array rather than just steal one sort of non-agency asset. And in the Non-QM space, we continue to see the lowest cost of capital on being no longer levered credit buyers. Obviously, that could change. But at the moment, we believe it's prudent, best Arc Homes origination arm to those sort of buyers on deployment of capital and higher returning opportunities. Some of those opportunities actually are, I think, somewhat counterintuitively from the agency eligible positions. We've added -- will actually price another one of those transactions later this morning come along with other sort of co-issue opportunities I mentioned in the script in that space. Some we're also paying close attention to home equity space and expect to be Arc, there.
Q: Can you just talk about the bid for securitizations you're seeing? I know you mentioned on last on the last dollar still tends to be less supply than demand. If you can just shed any color on what you're seeing there would be helpful.
A: It's sort of sector by sector on I think I spoke a little bit earlier on answering Trevor's question in sort of Non-QM space. If anything, as more loans get sold to real money, there's been less supply in that space on so that debt has done better relative to maybe some of the other sectors. The prime jumbo market as of late has been under pressure. There is no release valve if you will, to non-securitization outlets today, which is why any doubt that widen out that space has which has been increase of issuance. But in general, the market has been healthy across residential credit up and down the stack. So any widening in that previously mentioned assets, but have been truly marginal from an historical standpoint, if anything, in the Non-QM space we're sitting at that local.
Q: Giving you a view on where you see volumes trending for Arc Home's as we exit 2024 and into 2025 after posting a strong quarter in 2Q? And what type of rate scenario would you need to see play out before we see a more normalized origination environment there?
A: We've said previously on that scale and you obviously can look at the MBA forecast. So I don't I don't think we're going to deviate a ton from sort of RMBA forecast, a lot of our gains we've just been from being more competitive and more efficient on rather than sort of market conditions on US. I also think there's going to be a lot of seasonality to these businesses as you as you would expect, given much of how much for purchase money at home is reliant Arc Home, but I think the trends you've seen should be similar and if you were to seasonally adjust sort of where we are today, I think that's what you would expect. So look, we're still in growth mode. We're still trying to grow. Is it bigger, better, more efficient? So yes, trajectory still up, but yes, condition and that it will be highly seasonal.
Q: Just going back to leverage in the agency RMBS portfolio. I know you talked about it a little, but just hearing some things that would maybe lead you guys to raise leverage in the portfolio and if you guys kind of have a target range for just some color there would be helpful. Thank you.
A: I think if we fast forward through next quarter, because we were kind of expect to be materially smaller agencies and kind of returning to the old one hand, all of economic leverage that we've had running the company at over the past, four or six quarters. So this is just an interim I'm stock absent some carry on the cash proceeds. We raised from the bond offering.
Q: Turning to the Non-QM portfolio, do you guys have a sense or estimate for how much prepayment speeds could accelerate and if they were to increase how that would translate to earnings or spreads in the portfolio? Thank you.
A: Yes, it would be the vast majority of the loan book and you can see this -- in our presentations is yield far out of the money like our securitized coupon. If you look at it is 5% to 4%, which if you think about even where conforming rates are, it's way out of the money. So obviously, we're very focused on prepayment speeds and the inverted curve and sort
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
