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Operator: Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust Fourth Quarter 2022 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. Please note, today’s conference is being recorded. I’d like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.

Jenny Neslin: Thank you, Chelsea. Good morning, everyone and welcome to the full year and fourth quarter 2022 earnings call for AG Mortgage Investment Trust. With me on the call today are T.J. Durkin, our CEO and President; Nick Smith, our Chief Investment Officer; and Anthony Rossiello, 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. 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-K for the year ended December 31, 2021 and, our subsequent reports filed 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. 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 fourth quarter 2022 earnings presentation on the home page in the Investor Presentation section.

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: Thank you, Jenny and good morning, everyone. 2022 was an extremely challenging year across markets, but particularly in mortgage markets, where an abrupt pivot by the fed created convexity movements we haven’t seen since the taper tantrum of 2013. Well, MITT did experience mark to market losses on assets it owns coming into the year. The vast majority of these losses are unrealized. And we continue to have confidence in the earnings power of the portfolio, which Nick will walk you through in more detail later in the call. During this volatile year, MITT remain disciplined by programmatically terming out its financing, and avoided taking undue risks by holding loans on warehouse lines, hoping things would simply get better.

As a result of this discipline, we believe MITT is materially de risked with ample liquidity as we head into 2023 in a position to play offense when others may not be. We used a portion of our excess liquidity to repurchase almost 2.7 million shares at a weighted average price of $6.82, creating 7% accretion for shareholders. We ended the year in a strong financial position with approximately $87 million of liquidity, and 1.3 returns of economic leverage. And those numbers have both improved since quarter end, which Nick will walk through. Finishing our 2022-year review on Slide 6. MITT created $67.6 million of NIM during the year while recording a loss of $3.12 in earnings per share. MITT declared $0.81 of dividends per share and created $0.08 of EAD per share.

EAD is the performance metric we’ll be using going forward to replace core, which Anthony will explain in further detail later in the call. Now turning to Slide 7. The fourth quarter opened with continued weakness in the market. But December was the first month almost all year to show signs of life, with a significant reversal in interest rates, lower new issue volumes, creating a catalyst for spreads within the non-agency space to tighten. As such, we saw our adjusted book value improved 3% from $10.68 to $11.03 per share. MITT had $0.33 of earnings per share while generating $0.05 of EAD and declared its newly stated dividend of $0.18. Based on our early preliminary read books value is approximately another 3% to 4% for the month of January.

Now while the markets in January got off to a nice start, we don’t think the path forward is going to be a straight line towards tighter spreads in our market. We believe the company was able to materially deliver and raise liquidity during a challenging 2022 in order to face 2023, with a clean balance sheet and lots of liquidity to deploy into this new, higher interest rate environment. And lastly, before I pass it to Nick, I’ll reiterate what I stated last quarter. The management team is frustrated with our stock price, particularly given what we believe to be a year in which made effectively navigated choppy markets created lots of excess liquidity and return capital to shareholders via its share repurchase program. As a reminder, each of us on the management team and Angelo Gordon the manager have a meaningful ownership in MIIT.

We will continue to work hard in earning the confidence of the market by remaining focused executing our strategy and taking advantage of compelling opportunities, which we believe will translate into the earnings power to generate attractive risk adjusted returns for our shareholders over the long-term. In spite of what they may be another year of challenging market conditions, we and AG are excited about outlook for the year and look forward to sharing our progress in the coming quarters.

Nick Smith: Thanks, T.J. Sticking with Slide 7, as you might recall from our Q3 prepared remarks, we stated that we estimated that our book value was down approximately 5% to 6% for the month of October. As T.J. noted, our book value ultimately recovered 3% in the fourth quarter, and we estimate that it is up another approximately 3% to 4% in January. We have stated previously that although mark-to-market losses have been significant, that most of these losses are unrealized. Consistent with this messaging, this past quarter’s modest recovery represents only a small fraction of these unrealized losses. Our economic leverage ratio has significantly declined due to the tune, additional Non-Agency securitizations executed in the fourth quarter and into the beginning of the year.

Combined, these transactions decreased our warehouse exposure by approximately 600 million significantly outpacing additional Home Loan purchases of approximately 140 million. Turning to Page 8. As you can see, our securitization issuance in the fourth quarter and into the beginning of the first quarter continued to outpace our acquisition of new loans. The table on the right shows the continued growth of our securitized loan portfolio, along with the corresponding reduction in warehouse exposure. In previous quarters, we have emphasized that we believed it prudent to right size our aggregation risk considering both current market volatility and expected future volatility. Although we are still cautious and believe it critical to appropriately size, our aggregation risk based upon current and expected market conditions.

The current positioning likely represents a loaner aggregation pipeline for this year and next. While origination volumes are down considerably given the current economic backdrop. We continue to see opportunity in acquiring high quality assets with attractive risk adjusted returns. Very recently, we’ve seen increased competition as a likely consequence of lower volumes coupled with improvements in broader market conditions. Despite the recent tightening, we still believe we can source new credits around an 8% yield with equity returns in excess of 20% on the retrain tranches, while the point one to two turns of leverage. It is also worth noting that while many other market participants have recently widened their credit box. Some significantly to combat lower origination volumes, we have not followed this trend.

While we remain constructive on residential mortgage credit fundamentals. We do not think this is a prudent time to be relaxing credit standards as home prices are likely to continue to decline and a recession is the more probable scenario. Turning to Page 9. On this page, we provide high level summary statistics of our aggregate loan portfolio. As we have emphasized previously, the weighted average mark-to-market LTV of the underlying residential home loans is approximately 66% and the 60 plus day delinquent population across over 4 billion portfolio is less than 100 bps. Although the forward-looking economic backdrop is likely to remain uncertain, we have not seen any early signs of deterioration in the portfolio’s performance. On Page 10, we summarize the earning power of our portfolio.

In doing so, we strip out the securitized debt components of our consolidated loans to clearly show only our retained interest in our securitizations. Along with the corresponding repo financing held on the retained bonds. The retained interests are a true economic exposure in the securitizations. Notwithstanding the securitized loans that are consolidated on our balance sheet due to gap accounting. In this table, we also break out the sported positions from the interest only excess servicing and net interest margin positions. We’ve stated previously that the combination of these two profiles provide stable cash flows along with mark-to-market upside. The underlying mortgages back in the interest only in excess spreads certificates are substantially out of the money.

This provides significant and predictable cash flows while this morning certificates represent a relatively thick parts of the capital stack at deep discounts. Is worth reiterating that the subordinate certificates are backed by high quality residential mortgages with low mark-to-market LTVs. While we retain the option to refinance much of the debt we’ve issued on or after the third anniversary of each transaction. We expect this option to remain out of the money for the transactions issued prior to the second or third quarter of last year. For the transactions issued in the third and fourth quarter, we believe these options are likely to prove valuable given the historically inverted yield curve and wide spreads at time of issue. As mentioned earlier, we expect the markets to remain volatile consequently, don’t expect the recovery in book value to be a straight line.

However, we are confident in the underlying credits and the capital structure of the debt we issued to provide long-term value. This table demonstrates the portfolio’s current earning power along with its significant total return upside. As you can see, the fair value of this morning certificates is at over a 30-point discount to face representing historically elevated spread and interest rate levels. It’s also worth noting the ROE on the far right of the table is achieved by deploying only a modest amount of recourse leverage. On page 11, we outline our investment portfolio, along with the corresponding size and cost of the securitized debt and repo financing. As a reminder, given our continued involvement in securitizations issued, we consolidate the loans and securitized debt on our balance sheet.

As noted on this slide, our investment portfolio currently contains asset yields of 5.1% with a weighted average cost of financing of 4.3%. Turning to page 12. The top right bar chart outlines our leverage ratio over the past year. Here you can see the loans transitioning from warehouse lines to securitize debt, bringing down the recourse leverage to where it is today. In the last quarter’s prepared remarks, we stated that although we had made substantial progress and renown our recourse leverage ratio from its peak, that it was likely to go lower. Today we are comfortable stating that we do not expect recourse leverage to decrease materially from these levels and believe we can prudently increase this over time as we adjust for market conditions and opportunities.

As you can see, a recourse leverage as of quarter end was approximately 1.3x, which subsequent to quarter end has been reduced further 2.7x. As of quarter end, recourse debt accounted for approximately 16% of the aggregate down from 24% at the end of last quarter. Turning to Page 13. As you can see in the table to the right, origination volumes continue to fall in the fourth quarter contributing to an after-tax loss of $6.1 million for Arc Home. Although there’s still room to become more efficient, most of the cost cutting measures are behind us and we have likely seen the lows and origination volumes. The combination of historic sell off seasonality, the lock and effect in cautious homebuyers, among other factors are here to stay. But we believe we will experience modest volume increases as the impact of these components wear off and expect the company to return to profitability in 2023.

Despite the challenging backdrop, it is important to note Arc Home strong capital position is outlined on this page. As of quarter end, Arc Home has $20.7 million of cash and MSR is validated approximately $92 million with modest leverage of just under $20 million. We continue to believe Arc Home is well positioned relative to many of its competitors expect this challenging period to show its resiliency, while gaining market share. This strong capital position combined with the current origination environment enabled Archon to return capital to the AG investor group in the fourth quarter of which approximately $4.5 million was distributed to me. I will now turn the call over to Anthony.

Anthony Rossiello: Thank you, Nick. Turning to Slide 14, we provide year to date and quarter to date reconciliations of book value per common share. As we mentioned earlier, the financial markets were extremely volatile throughout the year. And our 2022 earnings is reflective of unprecedented increases in benchmark interest rates, coupled with historic credit spread widening. This resulted in mark-to-market losses on our investment portfolio, partially offset by realized gains on our derivative portfolio. In addition, a portion of our book value declined during the year related to upfront securitization expenses, as we were disciplined throughout the year and securitizing our warehouse population executing eight deals during 2022.

During the fourth quarter, we did experience some book value recovery, which increased by approximately 3% as a result of recording GAAP net income available to common shareholders of approximately $7 million or $0.33 per fully diluted share. Income during the fourth quarter was driven by unrealized mark-to-market gains recorded on securitized assets due to credit spread tightening in the latter half of the quarter coupled with realize gains on our interest rate swap portfolio. This was offset by $1.5 million of transaction related expenses, which were associated with the securitization that closed in October. We also remain active and share buybacks during the year, which contributed to book value accretion of approximately 2% for the quarter, and 7% for the year.

During the fourth quarter, we repurchase approximately 850,000 shares at a weighted average price of $5.68 per share. For the full year, we deployed approximately $18 million of capital to repurchase 2.7 million shares at a weighted average price of $6.82 per share. Overall, we repurchase about 11% of our outstanding shares during the year at an approximate 40% discount to our December 31st adjusted book value. As a reminder, we authorized a $15 million repurchase program in August of 2022. And our remaining capacity under this program is $7.3 million as of today As T.J. noted earlier, beginning with the fourth quarter, we’ve decided to change the name of core earnings to earnings available for distribution, or EAD with no changes to the definition.

We continue to believe that EAD provides useful supplemental information for our shareholders. Although as we’ve discussed in prior quarters, it continues to have important limitations, as it does not include certain earnings or losses our management team considers and evaluating our financial performance. On Slides 15 and 16, we provide the components of earnings available for distribution, as well as disclose a reconciliation of GAAP net income to EAD for the full year and the fourth quarter. On Slide 15, you can see that EAD for the full year was $0.08 per share. Overall, our net interest income on our investment portfolio exceeded our hedge cost, expense load and preferred dividends by $0.83, which was offset by losses contributed to EAD from Arc Home of approximately $0.75.

It is important to note that EAD from Arc Home does not include mark-to-market gains on its MSR portfolio, which was a significant portion of its GAAP earnings during 2022. Mid portion of the MSR gain was approximately $8.6 million for the year. Arc Home gain on sale of loans sold to MITT approximated $6 million or $0.26 per share for the year, which you can see is also excluded from EAD. However, as a reminder, these are recorded unrealized gains contributing to GAAP earnings. Turning to Slide 16, we present the fourth quarter EAD, which was $0.05 per share. Net interest income, inclusive of interest earned on our hedge portfolio exceeded operating expenses and preferred dividends, generating earnings at $0.18 per share. We record a net interest income inclusive of hedge interest of approximately $15 million during the quarter.

And our net interest margin at quarter end was 83 basis points. Our expenses impacting EAD decreased during the quarter primarily driven by lower noninvestment related expenses and less purchase activity. This was offset by a loss of $0.13 contributed from Arc Home for the quarter driven by lower volumes and gain on sale margin. Lastly, we ended the quarter with total liquidity of approximately $87 million and as of today, liquidity was approximately $120 million with the increase primarily due to cash generated from our February securitization. This concludes our prepared remarks. And we now like to open the call for questions. Operator?

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Operator: Thank you, sir. And our first question will come from Doug Harter with Credit Suisse. Your line is open.

Doug Harter: Thanks. Just touching on the liquidity point that you made there at the end. Of that 120, how much of that do you think is kind of available for investments as you said you might be able to play some more offense in 2023?

T.J. Durkin: I think we probably think about running the company with $40 million to $50 million of cash. If you look at kind of our historic leverage ratios over the last 12,18 months, so I think we’ve got kind of significant liquidity right now.

Doug Harter: And then you mentioned that the calls on older securitizations are kind of unlikely to be exercised. How would you describe the health of kind of financing subordinates into his market? And as those the lever would you consider kind of adding leverage to some of the subordinates to kind of build equity since you can’t kind of pull it out by resecuritizing?

T.J. Durkin: Yes, certainly. Obviously, as you the underlying securitizations, the lever, the availability additional financing typically increases. Our expectation is over time that we’d be able to take out more liquidity from those securities, although realistically, that’s although maybe some of them are under levered today. I think, broadly speaking, I think you have to see sort of that deleveraging occur before we could take out a ton more cash.

Doug Harter: And what is the timeframe for that? Would that be another year or two years just to help us frame that?

T.J. Durkin: On certain transactions, it could be as soon as 6 to 12 months other transactions that might be two years. And these are these tend to be incremental? It’s not you just take out another 20%. It’s sort of 5% at a time, so.

Doug Harter: Great. Thank you.

Operator: Our next question will come from Bose George with KBW. Your line is open.

Mike Smith: This is actually Mike Smith on for Bose. Can you just get it help us get a sense for the current run rate earnings power of the portfolio? The $0.05 implies a low-single-digit ROE, just kind of wondering how you’re thinking about the timeline for getting to that 16% ROE on slide 10. And then as a follow-up, how are you kind of thinking about that kind of balancing capital deployment versus buying back stock?

T.J. Durkin: So, I think on the earnings power, the reality is are quarter-to-quarter earnings, I think are going to be choppy, because of things like transaction expenses for securitizations, et cetera. So, we’re focusing more on like the long-term earnings power, which were trying to display on page 10 there. That’s obviously, I think showing a portfolio or company that has significant liquidity to invest that those yields, if not higher, in 2023 terms. So, I think that’s how we’re thinking about things. We obviously, just recently restructured dividend. And so that is how we’re thinking about things in terms of the medium long-term, but I do think like the quarter-to-quarter numbers could still be choppy. I think we would obviously hope to take advantage of opportunities to employ to deploy this capital in a timely manner, as we think the opportunity set is probably going to present itself in the near-term.

In terms of buybacks, I think depending on where we are on the stock price, we obviously have good liquidity to continue buying back stock accretively. I think we are conscious of just looking at our volumes and the liquidity in the stock and don’t want to perversely do something damaging over the long-term by reducing investor liquidity.

Mike Smith: Maybe just kind of on that one on the discount of book, appetite for some type of strategic transaction, whether it be rolling it back into the parent company or merging with a smaller company for some scale and operating leverage. We were kind of just be curious to hear your thoughts on how you’re thinking about that given the discount to book?

T.J. Durkin: This I think holistically we think the company is in a very good position, financially from the balance sheets perspective from a leverage perspective. I think we’re always looking for opportunities to grow responsibly. And to the extent the right opportunity came to MITT. I think the manager would be supportive and helping grow MITT with its kind of financial support to the extent the opportunity was compelling.

Mike Smith: Great. Thanks for taking my question.

Operator: Our next question will come from Eric Hagenwith BTIG. Your line is open.

Eric Hagen: Couple questions for me. Can you talk a little bit about the warehouse funding for loans right now? Just how the environment is how readily available that source of funding is? Maybe even what the cost of funds looks like on a new warehouse line today? Even how many counterparties you currently have providing you warehouse funding on the back book? Thanks.

Anthony Rossiello: So maybe address it on the loan side, first. The availability of financing for loans is still far out strips sort of what we need. I think if you think, no warehouse lenders lost money and obviously very volatile year last year and given the short duration of the asset, it’s very desirable lend. I think, we also given sort of the broader pullback in the residential mortgage market. Guys, agency volumes, they’re at decade, multi-decade loan, as well as on certain balances they have out. So, they’re very axed to put on what they can. So, we’ve not seen our cost of financing go up, if anything, I think, it’ll stay the same or get lower, we’ve also not seen advanced rates decrease or given the amount of folk’s sort of looking to still enter this space or grow their warehouse positions for non-agencies.

We expect that to be the same. Similar dynamic on the securities, although, there’s always a little bit less liquidity for, down the stack and securities. But as you go up the stack, it’s fairly comparable to loan liquidity. From the counterparty standpoint, we currently have five. Realistically, that’s more than we need, but we’re not looking to actually trim in and we’re always opportunistically can add.

Eric Hagen: That’s helpful details. Maybe just one more I mean, can you can you say how big of a margin call you sort of modeled for on the retained bonds from securitization, which are funded with repo? And just how you guys think about the approach to cushioning with liquidity?

Nick Smith: Yeah. I mean, I think, generally speaking, we work with our risk department independently. And I mean, the simple answer is I think we’re looking at sort of a March 2020 COVID shock in terms of like credit spreads. And it’s a recent enough event that I think that’s the right shock to look at and having enough cash to meet that kind of a margin call.

Operator: Our next question will come from Matthew Erdner with Jones Trading. Your line is open.

Matthew Erdner: What do you think the best allocation of capital is and where do you guys see opportunities going forward in ’23?

Nick Smith: Yes, certainly. Obviously given the multi decade loan origination values and resi, and sort of this being a transitional period. I think you don’t necessarily have to be creative, but you’d have to be open to changing investment theses and being open to new products. We did sort of conveniently see the implementation, or maybe it hasn’t been implemented yet, but it’s been announced it will be implemented for May deliveries for Fannie and Freddie, new LPAs. Although, net-net, these changes are beneficial to private label execution and competitiveness, there are some places where they actually become more competitive or sort of try to take away from being cherry picked. So, we certainly see that as an interesting place to deploy capital, as the government sort of further makes explicit.

What was implicit the subsidization of better credits, subsidizing lower credit. So, we see opportunity there and given wide spreads, as spreads come in the private label market, the private label market will become increasingly competitive versus that bid. So, we think that’s a longer-term view. We’re also interested in looking at sort of prime second liens, and key locks. Obviously, given sort of the lock in effect of first liens. We think there’s an opportunity, given the cash out market, more or less being shut out for key locks in second lien to take that space. So those are sort of the larger food groups, but always looking at more things.

Matthew Erdner: And then do you think the better opportunity is on a securitized to set product or loan origination?

Nick Smith: So, I think we announced last quarter, we saw opportunities in securities. We were able to deploy a little bit of capital there, I think spreads tightened in December and kind of into January, where that’s probably shifted back to loans. But I think we announced the market, we’re open to taking advantage of those opportunities within call it new resi mortgage credit. We’re certainly not going to buy the loans and make the credit if we can buy it cheaper in the secondary. But I don’t think it’s as obvious as an opportunity as it was a 90 days ago.

Operator: At this time, we have no further questions in the queue. So, I would like to turn it back to management for any additional or closing remarks.

Jenny Neslin: Thank you. And thank you to everyone for joining us this morning and for your questions. We appreciate it and look forward to speaking with you again next quarter. Enjoy the rest of the day.

Operator: Ladies and gentlemen, this does conclude today’s call and we appreciate your participation. You may disconnect at any time.