MITT - Earnings call transcript Q3 2019 | AG Mortgage Investment Trust, Inc.

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Operator

Welcome to the AG Mortgage Investment Trust's Third Quarter 2019 Earnings Call. My name is Hilda, and I will be your operator for today. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Mr. Moreno. Raul Mr. begin. may you Moreno,

Raul Moreno

you, Hilda. third Investment welcome the everyone, Inc. Good XXXX earnings morning, quarter Mortgage and call to Thank for Trust, AG

Before statements. release, and differ We statements section made quarterly discussed today's and call Risk the filings. may note Company's Factors materially SEC the to in from may regarding forward-looking in are in these earnings during we you most certain outlined subject conference statements the recent risks contain forward-looking annual and today's which call information Any statements. are begin, disclosure please encourage uncertainties, our actual The SEC read in to contained on results filings. that presentation our forward-looking our our earnings in

will certain Please to call During most non-GAAP filings reconciliations we the to refer GAAP to today, measures. comparable for the SEC our financial measures. refer

We the home our joining will after QX presentation welcome closed website today. earnings on the click presentation market yesterday. XXXX thank you was and presentation, Again, us our to the earnings slide link that posted reference www.agmit.com, and the on To page. turn view the for website, to

would to call turn to CEO, David our Roberts. I the that, With like over

David Roberts

good to and Raul, Thanks, morning everyone.

share, near over briefly better like intention earnings We per term. discussed $X.XX reflect on to to core reviewing then, our intermediate for the recalibrate begin I'd to to last by $X.XX from our comments expectations our quarter's call. to our dividend

asset that of our funding Fed We versus lowered the we experiencing stickiness yields. yield relative costs, cited were the curve our and compression as the rates

said rate quarter, still $X.XX reflect earnings did view continues say of the medium that quarterly the As what dividend and declare dividend term. we to we near a we over core our to $X.XX can last we expected,

was the quarter. down book $XX.XX quarter X.X% after third from per retrospective $X.XX share for third a the prior value about was per adjustment. share $X.XX share, GAAP per negative for the earnings Core quarter

the during on. of successful Brian book securitization transactions more Some expenses detail includes which of quarter, provide the value declines, will

discuss several investment highlights, activities. In credit in MITT growing. set comments, that quarters and and particular, he'll for And diverse T.J.'s the is underscoring view, opportunity broad, the our he'll share

in value being set the our opportunity mentioned proposition Angelo we've prior of Gordon the broader part reflects also As of quarters, platform.

during example, the non-U.S. MITT the of investment quarter, For team added expansion Europe. exposure, our into leveraging

We pleased during net that are RMBS. into proceeds through quarter, of million Agency proceeds practice with the been we into raised raises, historical as to $XXX But over Finally, we offering. intend proceeds rotate of our we fully the a capital preferred time. much approximately invested stock has credit those

I call T.J. that, will turn to over With the

T.J. Durkin

David. Thank morning, Good you, everyone.

indexed the third basis as and As the XX - XX or cuts overnight third Fed to points of basis the negative David points swap to quarter. basis continued points, mentioned, quarter swap spread three challenge the another month late investors, during before between second by XX the XXX rates the August, out just tightened OIS, bottom year levered XX in at

to finish third Feds cut, quarter minus has interest note, And basis end, improved the XX post this Fed into territory, widened points. after year. with rate positive again the at spread a unchanged, cut On the positive second quarter the approximately once

X.X% the months produce for nine first equity generating resulting undepreciated difficult, did While annualized this economic year-to-date. an we decrease positive value, X.X%, period the economic year a quarter proved in and on of return $X.XX in during our book XX.X% a of return the

to during quarter end, face MBS all prepayment the mortgages, of in carry of TBA elevated the funding agency such and Agency as, in low supply, disruption underperformance speeds, for spreads liquid MBS the contributed market Agency Increased assets, quarter. near

in and the was by was various our our portfolios. portfolio pools credit specified strong Agency of performance quality underperformance in by percentage high minimized partially This offset

Book value given earnings our the losses negatively between rates, rallying well impacted dividends. as and mortgage our exposure, was shortfall marked-to-market on our the also as core servicing by

I'd like a to presentation. highlight few our slides in

to third activity. of Turning earnings our quarter presentation, Slide our X

MBS have into September settlements. we temporarily continue quarter agency proceeds investments as Agency with from source while our increased the exposure overall deployed into mortgages, to credit end, capital Our we longer raise

We also as residential reperforming newly in well increased originated loans. loan and as our exposure non-performing loans, non-QM

and on non-U.S. first prime mortgages. RMBS added acquisition Additionally, by plus mezzanine through seasoned our the U.K. we of the credit collateral dollar exposures recently XX-year side, backed originated

full. one commercial in originated the one fund new on our loan and loan, side, existing to CRE we continued loans, CRE had Finally, payoff construction CRE

Turning to markets activity. our capital

announce reperforming as rated clean to over loans, swaps. well MITT We settled newly third securitize that to are able B and a the AAA quarter, loan duration by XXX securitization, existing collateralized pay reperforming We're as first during sell of pleased on pool. a issued to related spread its debtat inventory

were funds In of cost at addition, points lock completed in to spread able MITT, basis We along second the with Gordon other from weighted securitization in rated September. Angelo its swaps. a over BB duration to non-QM XXX average funds, of AAA

last we of in quarterly comparison based non-QM to of loans issuer and the being volumes lines. current via GCAT envision with a our termed warehouse funds on out on materially securitizations cheaper origination quarter's MITT Both a stated we As provided shelf. loan call, cost we these see,

quarter. composition Slide X investment lays the for our portfolio out

value On the of at the composed net our agency, And quarter single-family end portfolio quarter. and to XX% for of capital billion $X the the carrying approximately XX% X% heels raise, was increased rental. billion of credit $X.X aggregate from

the address comments his page, For those in of concept column looking of leverage economic at who will later. you are most the the right Brian on

break our Focusing product on our We agency current type. at Slide XX. exposure portfolio on by

immediately preferred majority of equity the from raise Agency we our a into MBS. deployed mentioned, capital As

pools year-to-date. we I of have large benefited mentioned, greatly outperformed specified As a TBA that previously from percentage higher quality holding

book third Fannie XX.X Mae for the And X.X allows Our prepayment disciplined versus the [indiscernible] position was XX agency overall MBS CPR pools. of for deliver prepayment The us upwards XX-year a our the selection portfolio universe. asset constant Agency for variety to for of process for CPR environments. rate quarter

anticipated of MBS with outperform Agency prepayment We to next overall the the expect speeds to portfolio continue peak universe month. to

XX. Slide to Turning

During the of $X estate mortgages commitments in approximately we existing loans the equity remaining senior real positions These structures. construction and construction the and to equity $XX quarter, during million commitments. capital of approximately are have first existing million commercial our top quarter, funded primarily loans respective at their related

million one in $XX we mentioned, CRE payoff loan, had loan I originated and full. $XXX As new also million

investor operating family and rental we end single quarter Subsequent rental in family XX anticipate and We a entire single this an On impact with this report de margins to transaction to institutional stable entered for a into portfolio. Slide purchase on remain agreement quarter close value. have for the minimis we quarter-over-quarter. book metrics quarter’s and Both sale the fourth occupancy our portfolio. have

down Slide which overall agency of in at increased XX shows of quarter. the book X.XX hedge our second X.XX the our is end increase book. in from the current years with years our duration gap We concert

time While of I highlighted due duration portfolio at same our declined loan residential earlier. to the the the securitizations

were the down from book. fixed During able swap rate of lower through recession pay weighted our average to our to X.X% X.X% the quarter, we

subdued quarter, taking We million swaptions during and implied of advantage volatility. absolute XXX rates also added payer the low both notional

pipeline via Angelo continue to at Gordon's Looking sourced opportunities large credit returns see ahead, platform. favorable a adjusted we of risk

successfully securitizations markets complete we the We access preferred equity rated two that the third are to capital and are able during excited quarter.

we Looking to our loan whole active and remain fund utilizing intend markets forward, to various securitization activities.

that financial our I’ll turn the results. Brian over to With call to review

Brian Sigman

T.J. Thanks

the stockholders to versus versus we third $X.XX diluted net the quarter adjustment in a common quarter available XX.X third million There million the for reported negative of earnings share XX income third quarter quarter. $X.XX $X.XX in per or the fully per share quarter. per Core was Overall million or $X.XX retrospective prior a or second is X.X was $X.XX negative retrospective in adjustments share.

net offset agency as decreased As by of relatively Page margin the result remained we was in our cost at X%. prepayments funds of by by total of described comprised X.X%. The X costs on X.X% an our financing mostly yield Feds on presentation, of yield as a declining the previously quarter offset of This for driven asset portfolio, rates. was mentioned, unchanged interest increase reduction of

into lower preferred of they financing also deployment carry proceeds to and our portfolio. The decrease contributed costs as lower the yields agencies to raise from than the our credit

securitizations three to affiliated retain with most quarter. including As the to where executed One, assets two on the MITT tranches during conscious subordinate other sell sheet, the liabilities first and rate and tranches. and deal T.J. MITT on its Gordon, and mentioned, funds JV were Angelo we third-parties our is consolidating senior balance another

the expensed value fair per directly cost not transactions As to X.X capitalize this upfront as we option quarter fees. David elect this these of therefore two share, and alluded book these into was do million value or $X.XX had

portion excluded are the G&A do the core occurred equity from flow JV. and These statement, through However, of in a item earnings. our securitizations a one fees in fees portion and remaining given these in the earnings, line income

better We costs. will by be reduced long-term offset more the benefits transaction expect than securitizations and the that upfront leverage these costs of through funding

business. excludes leverage, consolidation, we metric this this number metric identify and we track investors enables non-recourse leverage leverage leverage that this financing. believe quarter. Given to calling it We're use to the We new leverage a economic and evaluate and economic operate introduced new the non-GAAP

The as increase times compared to our at primarily equity a is agency economic during result XX, XX. X.X Our times preferred purchases in leverage the ratio June X.X of at raise. conjunction with was period September

counter investments plentiful the of XX, be general agency had space. As we of and September XX% In new financing entrants them. our with continues and in XX our both to funding credit with parties, financing

rates million quarter from to securities. our cash addition, unlevered financing of end pool prior effects of approximately At we been agency the whole as ill XX of have and quarter saw XXX spike. rolled we no in had spike of liquidity million over most XXX comprised funding of QX, million the overnight and In

XX.X Additionally, million, undistributed our estimated end at or taxable was per income share. $X.XX quarter

we're redistribution make requirements. with We this evaluate in a our continue that basis quarterly compliance on to to sure

questions. the now That and our prepared Operator? remarks concludes we call to like open for

Operator

Doug have from Suisse. question from Harter [Operator Credit a Instructions] We

Josh Bolton

raised assets? on Doug. deploy might This asset for Can take about a that to target preferred is the long fully actually equity bit you pace of just how you and more talk little for Thanks. that into expect the Josh rotation

T.J. Durkin

mortgage originations pools days probably we're days. taking side, the typically are once on say think, trade whether that XX its re-performing, awarded XX non Sure out to pools inside that, if using I at XX is probably residential new the I looking they seasons, and settle I would be in within to market, on they're mean, performing date

process settlement I within when side. I should think capital amount about of fair a So on get rotated you loan we call to credit the it by just two think able think, the assets, that some quarters, be into

On the handicap commercial more new side, it’s bit harder of book, on in how it's a terms getting little so we're assets episodic to a little the bit that.

Josh Bolton

current to additional that serial then around securitizations, the Thanks. How to and or makes QM you that capital, given piece need market thanks, the first of be just up current scale sense. T.J. think the Great, any you support the to do any non- you then And just issuers the did run opportunity portfolio? the opportunity. thoughts rate and non-QM plan RPL if the of much

T.J. Durkin

the defined I terms roadmap non-QM scaling. have think I more side, on we well of - Yes, a think we're in

a trying we're a in rotate warehouse that of post issuers get the that be securitization. and I to that's amount in the, aim lets that us fair think we and what capital effectively equity quarterly - we

So we go fund will of securitize, warehouse there retain that constant on new capital credit as the books kind see be effectively we and the in you'll that origination. the equity

fund coming capital and plenty rotate have the So, over next, we I of of that think business to sort years.

Operator

The from comes from KBW. question Hagen Eric next

Eric Hagen

what the right you sale this Just just and cap rate the now the on some drove light is on where that to announcement portfolio. morning SFR sell shine portfolio? the Can

T.J. Durkin

Yes, sure.

year position affordable housing I'll we So, in the as there's bigger agree in Eric this this hoped make better today the to when a quarter we ways comments next still into discuss are, a the of We're macro U.S. the scale haven't found in be we guess investment. that stock a of the original meaningful details a And part we this. entered like few will to way thesis a portfolio had with I shortage post-closing.

credit, to So, prudent I capital thought classes, that producing would the basically XX say all months asset think and was shareholders. into target have higher agency the redeploy given been ROEs the last other it for I we the both which over

Eric Hagen

that million $XX million I'm like up it if sale? it get And from at freed to looking looks of about correctly, capital $XX

T.J. Durkin

Yes, exactly.

Eric Hagen

then And note are switching agency on the guys ROEs segment deck, XX% residential between X% X% and just and the credit. over that to actually agency and there residential where and just agency wide you each on fairly in the a those you credit. us a the can that's XX% give currently ROEs that are I specific I buckets range. mean, mean, of falling? sense for In

T.J. Durkin

the much how on use. agency so leverage side, Yes, really you to on want it depends

I probably when the double with biggest around it's it XX. current carries the as running in that something at, look just low think we're we the and to non-QM that's the warehouse the where probably when in digits, And example, an is XX. today taking book XX differentiator leverage call like - probably

ROE credit pieces securitization, those post perspective. probably think retain from I mid-teens are an the in

Eric Hagen

realized into going organic about could irrespective I How about guys you maybe thinking pick mix. leverage in you way overall of that? the agency basis, or but decreasing thinking which leverage, on near-term, some mean, a are over kind up think the How are going about I be to of guys transition book guys the you the leverage increasing there's forward?

T.J. Durkin

end I that end we Sure. probably We're leverage. start you over of at near next focused on of would the I quarter know, deploy leverage at the we're require to given quarters. the down yielding agencies assets I the of coming that quarter, and end come did think getting capital that expect the our the less range raised to, into or generally higher the higher mean,

leverage at been perspective from a the what we've bound running So of basis. portfolio a I think on probably we're higher

Operator

Instructions] The question [Operator from comes Cranston. Trevor next

Trevor Cranston

core a question between the first in gap this Just quarter. number the the earnings on dividend

comment intermediate term. near your the had the the earnings You release reflects in in the that still press for dividend term, expectations core

drivers So it if I the you be you but things driving close forward. of commentary wondering, there's capital, on primary I expected to kind I the are wondering on thanks? was going think little provide know the should key around any other there maybe of what preferred that, was earnings, could obviously, we gap a if the there's that focused bit

David Roberts

Well, it's David Roberts.

as funding As our reflected. be time there's a and costs takes T.J. noted, commented, some to to I that stickiness

is. commented what that positive. expectation And into - just that part So that's and well, of we as we is to expect rotate credit, our as on, as find a T.J. be

anything? your want you would I I question two T.J., those know in don't highlight So factors I and, answering if guess to add

T.J. Durkin

know, - through think, bit You a us three gotten know, I I we're you Fed investor, think I now levered the that that just easier. is cuts, just for profile as any has other

and it of So I based looks think of than we August. part through And rate earnings. or calendar are market Fed where was in that at the we now just earnings least XXXX cuts better stressful part on where profile did are the in most the the

Trevor Cranston

guys that opportunities. a additional that you might that if U.S. going was non-U.S. And you're a add then or around if dollar that deployed enough some expect bit one finding was bit the guys found to Thanks. you some also wondering where of sort you could little you into if noted context little grow I off opportunities outside to, thing forward. you a

T.J. Durkin

Yes.

in I So in particularly of larger seen have U.K. and a portfolios. we an some activity securitization activity Europe, think whole, and uptick the out

We refinanced. are being

capital one was capital think to was say on risk of adjusted the this there to if quarter, that compelling. the past continue we just it's off so that wouldn't And look would where basis we majority deployed, a we we deploy

the the a capital there themselves of little smaller. the securitizations the be competition less to on part and downside, of probably There's credit tend some structure

to had office, full a a starting London various the Europe. employee, of June in to access in So is us this put But out capital we out work. it jurisdictions be helping investments time year, in more harder which bit can coming of

Operator

no show do [Operator remarks? Instructions] At you have Mr. this any we Moreno, questions. final moment, further

Raul Moreno

forward everyone everyone. to Look Thanks, quarter. with speaking next

Operator

you Ladies and We for thank participating. you. conference. Thank this today's concludes gentlemen,

disconnect. now You may

AG Mortgage Investment Trust (MITT) 5 Nov 192019 Q3 Earnings call transcript