AG Mortgage Investment Trust Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2025

Key Takeaways

  • Positive Sentiment: AG Mortgage raised its common dividend by 5% to $0.21 per share, underscoring confidence in its cash flow and core strategy.
  • Neutral Sentiment: Book value dipped 2.4% to $10.39 in Q2 amid market volatility, yet the firm delivered roughly breakeven economic return on equity.
  • Positive Sentiment: The company refinanced high-cost WMC structured repo, cutting its cost of capital by over 500 basis points and freeing up ~$40 million for redeployment.
  • Positive Sentiment: AG Mortgage acquired an additional 21.4% stake in Arc Home with minimal 2% book value dilution, expecting meaningful earnings accretion in 2026.
  • Negative Sentiment: Q2 experienced a one-time EAD drop as three matured CRE loans to a single borrower were placed on non-accrual pending resolution by year-end.
AI Generated. May Contain Errors.
Earnings Conference Call
AG Mortgage Investment Trust Q2 2025
00:00 / 00:00

Transcript Sections

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Operator

Good day and thank you for standing by. Welcome to the AG Mortgage Investment Trust Inc. Second Quarter twenty twenty five 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.

Operator

Please be advised that today's conference is being recorded. I'd now like to turn the call over to Jenny Nesland, General Counsel for the company. Please go ahead.

Jenny Neslin
Jenny Neslin
General Counsel & Secretary at AG Mortgage Investment Trust

Thank you. Good morning, everyone, and welcome to the second quarter twenty twenty five earnings call for AG Mortgage Investment Trust. With me on the call today are TJ Durkin, our CEO and President Nick Smith, our Chief Investment Officer and Anthony Rossello, 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.

Jenny Neslin
Jenny Neslin
General Counsel & Secretary at AG Mortgage Investment Trust

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 ks for the year ended 12/31/2024, and our subsequent reports 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.

Jenny Neslin
Jenny Neslin
General Counsel & Secretary at AG Mortgage Investment Trust

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 Q2 twenty twenty five earnings presentation on the homepage. 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
President, CEO & Director at AG Mortgage Investment Trust

Thank you, Jenny. Good morning, everyone. I'm pleased to report our second quarter earnings, which showcases the continued execution of our core business strategy and industry leading results, particularly around book value stability. During the second quarter, we increased our common dividend by 5% or $01 per share. Focusing on the second quarter, liberation week in April created volatility in the broader markets we hadn't seen in some time.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

The merits of our core strategy and discipline around terming out warehouses with securitization showed in the continued strength of our capital structure. We entered this heightened period of vol with materially less financial leverage and smarter leverage like our non mark to market whole loan warehouses. This setup means we are not as vulnerable to forced delevering or panic delta hedging. As a result, we saw a modest book value decline of 2.4%, moving from $10.65 to 10.39 while supporting and paying our increased $0.21 dividend. Therefore, producing a roughly breakeven quarterly economic return on equity for our shareholders in a very difficult quarter for the MREIT space.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

We hope our shareholders can appreciate the results of MIT's differentiated business strategy and discipline around risk coming out of such a challenging quarter. For the second quarter, we experienced what we expect to be a onetime drop in EAD, mostly related to three of our remaining CRE loans to one borrower from the WMC acquisition hitting their maturity date. And therefore, we're taking off accrual as we work towards the ultimate resolution, which we believe should be by year end. On a more positive and longer term note, subsequent to quarter end, MITT refinanced the expensive structured repo we inherited from the WMC acquisition into current market terms, which will have a significant lift to go forward EAD, which Nick will give more details on later. In addition to our normal activity during the quarter, we are excited to announce a strategic transaction for the company.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

This morning, MITT acquired an additional 21.4% of Arc Home from original seed investors in private funds managed by TPG AG. A total of 2,000,000 MITT shares were issued for consideration for their interests, creating minimal dilution of 2% to June 30 book value, while creating meaningful earnings accretion potential. The sellers are funds that are generally in the later or liquidating stage of their life cycle. We're obligated to register the shares pursuant to a registration rights agreement, which can take a bit of time, and there are various restrictions in that agreement governing timing of sales. Based on that, we don't expect the sellers to be able to sell meaningfully before year end.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

When we embarked upon MITT two point zero in 2021, we set out to be a best in class vertically integrated residential mortgage origination and securitization platform. We believe this is a logical next step for our company's business strategy. The transaction will bring many benefits to MITT with meaningful earnings accretion expected in 2026, driven by anticipated growth in the mortgage market and ARC's proven capability to be a leader in the non QM space. There's also a positive step forward in scaling the company and enhancing our cap table. As we said on prior calls, we will continue to seek and pursue opportunities that further this goal only where we believe the results are to enhance value for shareholders.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Both Nick and Anthony will go into more detail on the transaction later in the call. I'll now hand it over to Nick.

Nicholas Smith
Nicholas Smith
Chief Investment Officer & Director at AG Mortgage Investment Trust

Thank you, and good morning. During the quarter, Nick completed two securitizations. Gains from these transactions partially offset mark to market losses driven by broad risk asset weakness following Liberation Day in early April.

Nicholas Smith
Nicholas Smith
Chief Investment Officer & Director at AG Mortgage Investment Trust

The first was MITT's second agency eligible investor securitization of the year, while the second was a joint venture with a leading HELOC originator. In addition to its securitization activity, MITT closed two residential mortgage warehouse facilities. These facilities are designed to reduce mark to market risk during the gestation period and enhance cash management, which is expected to modestly improve BAD. After the quarter end, the company refinanced high cost inefficient debt backed by retained interest in WMC issued non agency securitizations. The refinancing reduced the cost of capital by over 500 basis points and generated approximately $40,000,000 of additional cash for redeployment.

Nicholas Smith
Nicholas Smith
Chief Investment Officer & Director at AG Mortgage Investment Trust

These proceeds have been redeployed through the home equity securitization partnership with a leading non bank mortgage originator we first introduced in the first quarter. In addition, the company has a strong pipeline of residential mortgage loan acquisitions and anticipates issuing two more securitizations in the third quarter. As T. J. Mentioned, MITT increased its ownership of Arc Home.

Nicholas Smith
Nicholas Smith
Chief Investment Officer & Director at AG Mortgage Investment Trust

In the first quarter's prepared remarks, we reiterated our commitment to this business and outlined how strategic investments in it were beginning to pay off. We saw a continuation of these trends throughout this quarter, which were offset by pipeline losses attributable to Liberation Day. The quick reversal in markets positioned ARC to recover most of these pipeline losses and provides insight into more normalized profitability. As ART continues to execute on its plan to contribute to MIT's earnings available for distribution should increase and with greater ownership share, this is expected to be an important driver of earnings. We are confident that ART can continue to gain share in a growing and increasingly attractive corner of the mortgage market. I'll now turn the call over to Anthony.

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

Thank you, Nick. Good morning, everyone. Despite April's volatility, we ended the quarter with book value of $10.39 per share, representing a modest 2.4% decline from prior quarter. We also increased our quarterly dividend by 5% to zero two one dollars per share. Including this dividend, our economic return was essentially flat at negative 0.5%, highlighting our ability to maintain shareholder value in a challenging quarter.

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

We reported a GAAP net loss available to common shareholders of $1,400,000 or $05 per share. We continue to see steady growth in net interest income from our residential investments as we deployed additional capital into core strategies. However, net interest income was down $1,100,000 or 6% from prior quarter due to certain commercial loans that matured in May and were placed on non accrual. Our portfolio also recognized net unrealized losses on securitized loans from April spread widening, although these were partly offset by unrealized gains recognized on our portfolio in May and June. Additionally, it's important to note that about 1% of book value decline was due to up upfront transaction expenses related to a home equity loan securitization completed in early July.

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

During the quarter, we recognized EAD of $0.18 per share. Net interest income inclusive of our hedge portfolio was $0.64 exceeding operating expenses and preferred dividends of $0.46 The slight decline in EAD from prior quarter was largely due to placing commercial loans on non accrual. However, we expect this to be temporary as we work towards recovering and redeploying this capital into target assets during the second half of the year. EAD also benefited from a slight decline in operating expenses and ARC Home's contribution to EAD remained breakeven consistent with prior quarter. Our investment portfolio grew 2.3% in the quarter to $7,300,000,000 with additional activity continuing into July. We maintained a low economic leverage ratio, ending the quarter at 1.3 turns.

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

During the quarter, we purchased and securitized $341,000,000 of agency eligible loans and purchased $104,000,000 of home equity loans, securitizing substantially all of our home equity loans in early July. These deals not only reduce our warehouse risk, but also positioned us well for future growth. In July, we also replaced high cost debt financing securitized loans acquired from WMC, significantly reducing our cost and freeing up $39,000,000 of capital that was immediately reinvested to strengthen our earnings profile. With these proceeds, we sponsored a securitization backed by $647,000,000 of closed end second loans and continue to expand our home equity portfolio. As previously mentioned, today we acquired an additional 21.4% interest in Arc Home, taking our ownership to 66%.

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

This represents an incremental investment of $16,000,000 purchased through the issuance of approximately 2,000,000 common shares. The dilution impact on book value from this acquisition is minimal, and we expect the transaction to be accretive for our shareholders in 2026 as Ark Home continues to execute on its strategic growth initiatives. Our increased ownership interest will continue to be reported as an equity method investment at fair value on our balance sheet, which was valued at one times book as of June 30. This concludes our prepared remarks and we now like to open the call for questions. Operator?

Operator

Yes, thank you. We'll take our first question from the line of Crispin Love with Piper Sandler. Please go ahead.

Crispin Love
Crispin Love
Director - Equity Research at Piper Sandler Companies

Thank you. Good morning. Congrats on the additional Arc Home ownership. Just on Arc Home, can you talk a little bit about long term plans there? Is it over time owning the whole company? Who owns the remaining portion today? And then can you just dig into a little bit of the accretion potential in earnings as you look over the near and long term? Thank you.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Good morning, Krista. So I think to answer your first question, other funds managed by TBG AG own the balance. At this point, there's no other transactions kind of pending or in the pipeline. And so they'll remain co owners with MITT. I think as Nick mentioned, we're seeing we've been investing in ARC, both in people and process, and we're seeing the results.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

You see it in the volume kind of growth. And so assuming that trajectory holds, we're going from, call it, breakeven at ARC to a more profitable company, and we're largely hitting those goals. So that's what we see as the positive earnings contribution go forward in late twenty twenty five and really in earnest in 2026. So strategic long term hold and we think just execute the business plan, not having to do anything additional will be positive to EAD in 2026.

Crispin Love
Crispin Love
Director - Equity Research at Piper Sandler Companies

Great. That makes sense. And then just second question from me on securitization demand from investors, definitely a volatile second quarter, April, specifically around Liberation Day. But curious on recent demand, appetite for securitizations and then just recent spread trends.

Nicholas Smith
Nicholas Smith
Chief Investment Officer & Director at AG Mortgage Investment Trust

Look, as this is Nick. As the sector has grown, we've seen more and more stability in the issuance of the debt. Had you rewind the clock not too far back, like it would have been more volatile. Post Liberation Day, the markets returned very, very quickly. Folks, including ourselves, issued, and it was well received, and spreads have behaved very well and in line with a lot of other asset classes or better.

Crispin Love
Crispin Love
Director - Equity Research at Piper Sandler Companies

Great. Thank you. Appreciate taking my questions.

Operator

Thank you. And we'll go next to the line of Doug Harter with UBS. Please go ahead.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Thanks. Can you just talk about kind of the one times book that you were able to acquire your additional stake, it seems like there were some other transactions that went for significant premiums in the market. Just kind of how you got to that price, how you're kind of arriving at the current carrying value?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Yes. So I think in terms of the transaction, the MITT Board engaged KBW actually for a fairness opinion, and the Board, including all the independent directors, sort of approved that. So we led to a true third party. I think all these originators are at different scale and profitability, which I think also factors into maybe what you've seen in some of the other recent transactions.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Great. And I guess now as you had a larger ownership stake, do you envision that changing kind of any of the hold strategy for any of the originations? Or like as you ramp up non QM, would you plan on holding any of that? Or are you still kind of want to sell it? So any change in that strategy?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Yes. I think from an operating perspective, the management team at ARC is sort of business as usual and continuing. There's no change in the strategy at that level.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Great. And then lastly, just can you give us some more detail on those commercial loans? Kind of, I guess, what change that led them to be put on nonaccrual? Can you kind of help talk through your comfort in being able to kind of recognize the capital that is in those loans and kind of a time frame for when you would expect to receive that?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Yes, of course. So I think as I'm sure you're following lots of the commercial REITs, like the maturity dates are flexible, to say the least. And so this borrower on those three properties, one borrower for the hospitality loans is working through an asset disposition plan. And so we're in constant contact and working towards a productive solution there.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Got it. And I guess, since they're working on that plan, I guess you feel comfortable that, that plan should cover your current carrying basis for those loans?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Yes. Based on the information we have today, yes.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Okay. Appreciate it. Thank you.

Operator

Thank you. And we'll go next to the line of Jason Weaver with Jones Trading. Please go ahead.

Jason Weaver
Jason Weaver
MD - Head Specialty Finance & Real Estate Research at Jones Trading

Hi, guys. Good morning. First of all, can you comment on your comfort level with at the 89000000 of liquidity here and what sort of approach you're likely to take to adjust that? I know you have some things coming up in Q3, but with the deferral on the WMC and not having that capital come back in right away before year end?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Yes. We're comfortable with current cash positioning. We've enhanced some of the ways that we finance the balance sheet as alluded to in the prepared remarks and think that this is a level that is likely to be a range that will be in and maybe even slightly lower in the future.

Jason Weaver
Jason Weaver
MD - Head Specialty Finance & Real Estate Research at Jones Trading

Got it. Got it. And Nick had mentioned something about refinancing the repo in the legacy WMC. Can you comment on the economics there?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Yes. Look, we as mentioned in the prepared remarks, we had $40,000,000 of cash come back as additional proceeds through that refinancing, and we lowered the costs considerably and have already redeployed that capital in the third quarter.

Jason Weaver
Jason Weaver
MD - Head Specialty Finance & Real Estate Research at Jones Trading

Got it. Thanks for the color.

Operator

Thank you. And we'll go next to the line of Mikhail Silberman with Citizens JMP. Please go ahead.

Mikhail Goberman
VP - Equity Research at Citizen JMP

Hey, good morning, gentlemen. Thank you for taking the questions. If I may just ask about sort of a big picture view on the housing market. What is your view on home prices right now? And given some of the news that's coming out from some states, Texas, Florida, that prices are starting to sort of flat line, if not go down. Any geographies that you're avoiding?

Mikhail Goberman
VP - Equity Research at Citizen JMP

And if you're tightening any underwriting standards at all? Thank you.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Yes, good question. So I think our view is in line with consensus. Obviously, there's been some weakness in some of the markets that supply has returned to pre COVID levels.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

The weakness is still relatively modest. And then there are certain regions that are still hanging in tight, still getting good gains. So from a guideline standpoint, nothing changes because we've always had adjustments for weaker markets. We think that's relatively consistent across the whole business. But we pay very close attention to the trajectory of that, but still believe that it's more or less steady as she goes or some mean reversion.

Mikhail Goberman
VP - Equity Research at Citizen JMP

Great. Thank you. And if I may sneak in a question, any update on current book value through the quarter?

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

Hey, MacDonald. No, just as of just given where we stand in the calendar, still working through our process and update at this time.

Mikhail Goberman
VP - Equity Research at Citizen JMP

Got you. Thank you.

Operator

Thank you. And we'll go next to the line of Bose George with KBW. Please go ahead.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Hey, guys. Good morning. Actually, couple on the mortgage banking. Ark Home, the pipeline hedging in volatility in April, does that impact the EAD or does it impact the EAD?

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

Yes,

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

Bose, that flows through EAD. You can see the impact to EAD from Ark Home this quarter was a loss of 130,000 So April was largely offset by positive earnings in May and June at Arkon.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

So, okay. So the setup given the stability this quarter suggests that it should be a positive number?

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

Yes.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

That's accurate.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

That's great. And then can you just talk about the gain on sale margin differential between the first liens and the second liens and just talk about the outlook for further growth in the second lead market, which has already obviously been pretty strong.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

So the gain on sale quarter over quarter for sort of the non QM market has been somewhat consistent. We expect that to remain the same going forward given sort of the demand profile that I think has been fairly well telegraphed out there. On the second liens, a lot of the when we think about that versus origination business, a lot of that's being acquired by non affiliate third parties. And so we don't think about that business as much, but again, on sale, we look at more investors, although there has been decent gain on sales driven by some of the spread tightening and capital efficiencies we've been able to achieve.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay. So the so that's more of an investment product essentially, so you look at it more on the capital that you deploy?

Nicholas Smith
Nicholas Smith
Chief Investment Officer & Director at AG Mortgage Investment Trust

That's right. That could evolve over the coming quarters to year, but at the moment, that's a fair statement.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay, great. Thank

Operator

We'll go next to the line of Eric Hagen with BTIG. Please go ahead.

Eric Hagen
Eric Hagen
MD, BTIG Mortgage & Specialty Finance Analyst at BTIG

Hey, thanks. Good morning, guys. Can you say what the return on capital was that you expect from the close end second that you picked up from redeploying that $40,000,000 And were those loans originated by Arkham or by a third party?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Those loans were originated by third parties. We expect returns there to be blended across the different parts we provided in the mid to high teens.

Eric Hagen
Eric Hagen
MD, BTIG Mortgage & Specialty Finance Analyst at BTIG

Got it. Okay. Going to Arkham here, mean, we give a quick snapshot for what the leverage and the capital structure looks like at Arkham? Like how much total equity is in the business? How much sort of long term debt?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

There's no long term debt. They use obviously warehouses for their own sort of origination gestation, but there's no long term debt in the company.

Eric Hagen
Eric Hagen
MD, BTIG Mortgage & Specialty Finance Analyst at BTIG

Are there any security?

Anthony Rossiello
Anthony Rossiello
CFO & Treasurer at AG Mortgage Investment Trust

Eric, if you look at the if you think about the balance sheet of Arkham, it's essentially cash and loans on warehouse with approximately $70,000,000 of equity at that level.

Eric Hagen
Eric Hagen
MD, BTIG Mortgage & Specialty Finance Analyst at BTIG

Okay, got it. So there's no securities that are capitalized on the balance sheet?

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

No.

Eric Hagen
Eric Hagen
MD, BTIG Mortgage & Specialty Finance Analyst at BTIG

Securities or anything? Okay. Thank you guys so much.

T.J. Durkin
T.J. Durkin
President, CEO & Director at AG Mortgage Investment Trust

Thank you.

Operator

At this time, it does not appear we have any further questions. Speakers, do have any closing remarks you'd like to give?

Jenny Neslin
Jenny Neslin
General Counsel & Secretary at AG Mortgage Investment Trust

Just thank you to everyone for joining us and for your questions. We appreciate it and look forward to speaking with you again next quarter. Thanks and have a good day.

Operator

Thank you. We'd like to thank everybody for joining. Please feel free to disconnect your line at any time.

Executives
    • Jenny Neslin
      Jenny Neslin
      General Counsel & Secretary
    • T.J. Durkin
      T.J. Durkin
      President, CEO & Director
    • Nicholas Smith
      Nicholas Smith
      Chief Investment Officer & Director
    • Anthony Rossiello
      Anthony Rossiello
      CFO & Treasurer
Analysts
    • Crispin Love
      Director - Equity Research at Piper Sandler Companies
    • Douglas Harter
      Equity Research Analyst at UBS Group
    • Jason Weaver
      MD - Head Specialty Finance & Real Estate Research at Jones Trading
    • Mikhail Goberman
      VP - Equity Research at Citizen JMP
    • Bose George
      Managing Director at Keefe, Bruyette & Woods (KBW)
    • Eric Hagen
      MD, BTIG Mortgage & Specialty Finance Analyst at BTIG
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