AG Mortgage Investment Trust Inc (MITT) (Q1 2024) Earnings Call Transcript Highlights: Key ...

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Sat, May 4, 2024, 1:03 AM 4 min read

Adjusted Book Value: Increased from $10.20 to $10.58.
Dividend: Paid $0.18 per share.
Economic Return on Equity: 5.5% for the quarter.
Equity Base: $540 million.
Liquidity: $140 million.
Economic Leverage: 1.4x by quarter end.
Net Interest Income: $18.2 million.
Earnings Per Share (EPS): $0.55.
Earnings Distribution (ED) Per Share: $0.21, covering the dividend.
Investment Portfolio Growth: Increased by 4.8%.
Book Value Increase: 3.7%, driven by credit curve flattening and risk asset performance.
Securitized: $377 million of residential whole loans.
Acquired Home Loans: $285 million.
GAAP Net Income: $16.3 million available to common shareholders.
Book Value Per Share: $10.84.
Adjusted Book Value Per Share: $10.58.
Net Interest Income Per Share: $0.69, including swaps.
Operating Expenses and Preferred Dividends: $0.44 per share.
Operating Expense Savings: Annual savings trending toward $5-7 million.

Warning! GuruFocus has detected 5 Warning Sign with MITT.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

AG Mortgage Investment Trust Inc reported a growth in adjusted book value from $10.20 to $10.58, alongside a 5.5% economic return on equity for the quarter.
The company successfully completed a merger with WMC, enhancing its financial position and equity base, now standing at $540 million with $140 million in liquidity.
Net interest income for the quarter was $18.2 million, with earnings per share at $0.55 and earnings available for distribution per share at $0.21, covering the dividend.
AG Mortgage Investment Trust Inc completed one GSE eligible securitization and issued approximately $35 million of investment grade unsecured bonds, effectively managing legacy debts.
The investment portfolio grew by 4.8%, driven by strong performance in risk assets and favorable housing market conditions.

Negative Points

The company noted that the market expectation for rate cuts tempered the first quarter results, indicating sensitivity to interest rate changes.
There was a loss of $0.04 per share contributed from ArCom during the quarter, impacting overall profitability.
Despite overall growth, the origination landscape remains challenging, which could affect future growth and investment opportunities.
The company is facing an upcoming maturity of convertible notes in September, necessitating careful cash management and potentially limiting available capital for new investments.
While there are synergies from the WMC acquisition, integrating such large-scale transactions can involve unforeseen costs and complexities that might affect short-term performance.

Q & A Highlights

Q: Can you talk about your outlook for incremental new investments and how you plan to fund these? A: (Nick Smith, Chief Investment Officer) We plan to recycle capital, especially given the flattening of the credit curve which provides an opportunity to sell down positions that have performed well and reinvest. There is plenty of opportunity in the market, particularly through growth in both channels at Arc Home.

Q: How are you thinking about the return differential between the legacy WMC assets you are selling and where you think you can put that money to work today? A: (Anthony Rossiello, Chief Financial Officer, Treasurer) The paper from WMC has seasoned as the credit curve flattened. We're selling at high 100 to low 200 spreads, but we can potentially double those spreads through recycling. With modest deployment of leverage, it can yield mid to high teens returns.

Q: Can you discuss the origination capacity at Arc Home and how you are preparing for more volume if rates decline in the back half of the year? A: (Anthony Rossiello, Chief Financial Officer, Treasurer) We believe our staffing is well-positioned for the current environment. We focus more on seasonality than rate rallies for volume adjustments. We've made the company more efficient to handle potential increases.

Q: Given the volatility starting in April, has the bid for securitization been materially affected? A: (Anthony Rossiello, Chief Financial Officer, Treasurer) The bid for securitization hasn't been materially affected. Bond fund inflows and supply-demand technicals continue to support ongoing issuance, with demand generally exceeding supply.

Q: Can you talk about the sustainability of the current level of EAD reported this quarter? A: (Anthony Rossiello, Chief Financial Officer, Treasurer) We've protected book value well since rates began moving in 2022, capturing higher ROEs. The negative contribution from Arc Home is gradually improving towards breakeven, with a goal of turning positive in the back half of this year.

Q: How are you thinking about potential future acquisitions to enhance the scale of the company? A: (T. Durkin, President, Chief Executive Officer, Director) We are open to other acquisitions to enhance the scale of the company. The management is supportive of growth, and we are actively fielding calls about opportunities, viewing WMC not as a one-off but as a building block for future growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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