Welcome to AG Mortgage Investment Trust Second Quarter 2020 Earnings Call. My name is Sylvia and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note, this conference is being recorded.

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

Thank you, Sylvia. Good morning everyone and welcome to the second quarter 2020 earnings call for AG Mortgage Investment Trust, Inc. Before we begin, please note that the information discussed on today's conference 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 the Risk Factors and MD&A section of our most recent SEC filings. 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 earnings release, in our earnings presentation, and in our SEC filings. 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 Q2 2020 Earnings Presentation link on the home page. Again, welcome and thank you for joining us today.

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

Thank you, Raul. Good morning to everybody. As we discussed last quarter, our immediate goals have been to reduce leverage, increase liquidity, and begin to restore book value. I am pleased to report that our book value per common share increased to $2.75 as of June 30th compared to an estimated range of $1.80 to $1.90 as of April 30th.

In terms of leverage, we reduced our mark-to-market non-recourse financing to about $280 million this quarter -- I'm sorry, our mark-to-market recourse financing to about $280 million this quarter from $1.2 billion last quarter.

This $900 million reduction came mostly from asset sales and pay downs, although we were -- we also were able to shift about $200 million financing from mark-to-market recourse to non-mark-to-market non-recourse. As of quarter end, our total investment portfolio was $1 billion.

Our economic leverage was 0.8 times and we had cash of nearly $70 million on hand. Our mortgage originator affiliates Arc Home had by far its best quarter in its history. We continue to see substantial opportunity over the longer term for MITT in residential origination, both through Arc and our other channels.

In terms of dividends, as previously announced, we did not pay common or preferred dividends this quarter. Based on current conditions for our company, we do not anticipate paying dividends on our common or preferred stock for the foreseeable future. Thank you for listening and I'll now turn the call over T.J. Durkin, Chief Investment Officer..

Thank you, Dave and good morning, everyone. Turning to our presentation on page five, we walk you through a high level activity for the quarter. Beginning on March 23rd through June 30th, we delevered the company by selling approximately $1 billion of various mortgage investments.

We officially exited forbearance on June 10th and we are pleased to report as of August 10th, the company resolved and settled any outstanding deficiency claims with lenders. Our resulting financing profile is now primarily non-recourse on mark-to-market with only a small number of counterparties.

Subsequent to quarter end, the company repaid $10 million at a scheduled maturity of the secured debt the manager issued at the request of participating forbearance lenders. There remaining and final $10 million is due and payable on March 31st, 2021.

As we indicated on last quarter's call, the company was active in securitizing and terming out debt on its residential mortgage home loan portfolio, completing an unrated refinancing -- reperforming and non-performing loans in June, returning over $6 million of cash back to the company.

And subsequent to quarter end, also completed its second rated non-QM securitization of 2020, along with other Angelo Gordon affiliated bonds. Also, subsequent quarter end, we took advantage of strong secondary markets within CMBS and sold positions which resulted in approximately $24.4 million of proceeds.

Turning to slide six, we want to highlight the strong performance of Arc Home, our fully licensed mortgage originator affiliate. The team at Arc has been able to fully take advantage of the talents in the mortgage banking sector with both record volume and margins within the agency channels.

In July, the company was also one of the first originators to reenter the non-QM business and we expect to see volumes grow as we look ahead in 2020 and beyond. And just as a reminder, MITT owns approximately 45% of Arc Home and the remainder is owned by other Angelo Gordon managed funds.

On slide seven, we lay our portfolio metrics; we had a fair value of approximately $959 million as of $630 million, representing 0.0 returns of economic leverage. The portfolio was approximately 78% residential securities and loans and 22% commercial securities and loans, not inclusive of Arc Home and the cash on hand within the company.

And lastly, overall market conditions improved for all products during the second quarter with residential credit assets taking the lead earlier on in the quarter and commercial credit assets firming towards the end of the quarter and continuing that strength thus far into the third quarter.

With that, I'll turn the call over to Brian to review the financial results..

Thanks, T.J. Overall, for the second quarter, we reported net losses available to common stockholders of negative $2.6 million, or $008 per fully diluted share. Earnings for the quarter include higher than normal interest expenses, due to elevated rates during our forbearance period.

Earnings also include $7.8 million of restructuring related expenses, which we have separated out on our income statement in order to add clarity to our outsize operating expenses for the quarter. As we mentioned, we did not declare dividends on a preferred stock.

However, the $2.6 million net loss does reflect a decrease of $5.7 million and preferred dividends in the quarter. During the quarter our book value increased to $2.75 at June 30th from an estimated range of $1.80 to $1.90 at April 30th and $2.63 cents at March 31st.

Per GAAP and unlike earnings, the balance sheet does not include an accrual of the undeclared preferred dividends and therefore, book value does not include the accumulated unpaid preferred dividend.

Consistent with last quarter, we are not currently disclosing core earnings, a non-GAAP financial measure as we determined that this measure, as we have historically calculated it, would not appropriately capture materially negative economic impact of the COVID-19 pandemic on our business, liquidity, results of operations, and ability to make distributions for our stockholders.

As financial markets stabilize, we will evaluate whether core earnings or other non-GAAP financial measures would help both management and investors evaluate our operating performance for future periods.

Our economic leverage decreased from 3.3 times at March 31st to 0.8 times at June 30th, as a result of asset sales and a restructuring one of our larger financial agreements, which amended the terms of the arrangement to the non-mark-to-market with respect to margin calls, as well as non-recourse to us.

Additionally, we reduced the number of counterparties we had debt outstanding with from 18 as of March 31st to six as of June 30th. We issued approximately 1.4 million shares of common stock for net proceeds of approximately 5 million through our ATM program with some of the shares settling in July.

Subsequent to quarter end, we sold certain CMBS positions for proceeds of approximately $24.4 million. We also repaid $10 million of secured debt plus accrued interest to our manager as it became due.

Additionally, we participated through our unconsolidated ownership interest in [Indiscernible] in the rated non-QM loan securitizations in which non-QM loans with fair value of $221 million were securitized. This termed at our repo financing into lower costs, fixed rate long-term financing within our subsidiary.

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

Operator?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Eric Hagen from KBW..

Thanks. Good morning. I hope you guys are doing well.

Which assets including the assets of your affiliates are now being funded with repo? And what was the level of unencumbered assets that you carried at the end of June?.

On the vast majority of the -- Eric -- by the way repo is just securities versus have more and we've transferred more of that into the non-mark to market type facilities. I don't have the exact numbers in front of me..

Okay.

And what was the rough level of unencumbered assets like how much could you draw against those securities from here?.

[indiscernible] on that as well..

Okay.

Did you say where your book value is currently inclusive of the ATM issuance that settled in July? And can you say where in the portfolio you had some unrealized losses and the outlook to recover a portion of those from here?.

On the book value, we have not done anything beyond June 30. So we'll just stick with June 30th, obviously there's more changes than just the -- just the ATM. But I'll let my colleagues handle the other question..

On the unrecovered, I would say that's more geared towards security. So the things like CBMS and CRT probably, are further away from call it pre-COVID levels versus I think the residential hall loans have recovered more of that. So far throughout, August 10..

Got it. Okay.

And can you give any color on how Arc Home capitalized including just kind of a rough, rough idea of the fair value of MSR and its balance sheet and how that's funded?.

Yeah. So we funded that Arc Home funds that through they have lending relationships with various banks as well as utilize excess MSR stripping transactions which, you know, MITT and other Angelo Gordon funds help fund.

So to minimize the fair value there, I don't have the aggregate fair value of the MSR in front of us right now, but we can get back to you on that..

Sure. But just to get a sense for how much capital is in the business.

Just how much net asset value is in the business right now?.

Yeah. We disclose, it's about $20 million that we have in the presentation, that fair share of the company value and we're about 46% of Arc Home..

Great. Okay, so we're $40 million odd to $45 million odd worth of book value in the business. Got it. Okay. Thank you, guys..

[Operator Instructions] Our next question comes from Trevor Cranston from JMP Securities..

Hey, thanks. Can you talk about how much roughly speaking you expect interest expense to benefit.

One from having, ended the forbearance agreements? And then secondarily from -- some of those securitization refinancing you're able to do in June?.

So it's, unfortunately, it's hard to we don't typically give out that type of guidance. And there were just so many kind of moving parts in the quarter in terms of different outstanding finances that it's hard to kind of take a good shot at what it will be without it just being too high level. So no, we don't really have that.

We obviously we did -- I did say that, it was increased in the second quarter. The non-mark-to-market financing did cost us a little bit more obviously and secured financing into these costs more than repos. But before forbearance agreement, we also were at elevated interest rates, so that's come down.

And now that we're back to kind of regular way repo on our securities and loans, you'll start to see a more normalized run rate in the third quarter..

Okay. Fair enough. Thanks. And then I appreciate that you stripped out the restructuring expenses.

Are there any other sort of elevated or one-time items that are within the other operating expense line item out $4.5 million?.

Not really. We tried to isolate that in the restructuring. So not really. I mean, obviously with the decrease in size, we do expect some of our operating expenses come down as well. So that's not -- something that should be stripped out, but it is something that shouldn't actually decline given the shrinkage of the portfolio..

Okay. Thanks. And then one more question on Arc Home, can you provide any color on in terms of what you're seeing with margins, they're sort of as the second quarter progressed and into the third quarter.

It seems like they may have peaked for some originators early in the second quarter and have been trending a little tighter, just sort of trying to get a sense what you guys are seeing and if we should think about second quarter being as maybe sort of being a peak in the -- in earning for that business over the near term? Thanks..

Yes, I mean, I think into the third quarter volumes and margins are still fairly robust. We obviously do expect that to dissipate over time, whether it's next month or Q4, it's hard for us to predict..

Okay. Fair enough. Thank you..

The following question comes from Ryan James from [Indiscernible] Capital..

Hi, guys.

Is there anything preventing you from -- do [technical difficulty] surprised in sell more shares based on where the stock price was? Are there limitations or is that just a judgment call you guys make it to how much to sell?.

The limitations that we set for ourselves are two. Typically, we don't like to move the market. So it's really based on volume and the length of our the window that's open to us, but Raul I don't know or Brian if you want to comment further..

Yes, that's right. There are some limitations in terms of daily trading activity as well. So -- and as David mentioned, you try to do it through the market. There's also windows -- trading windows that we work with legal on in terms of when our information is published that can restrict the not daily volume, but the days that you can issue..

Okay. Thanks.

Would you guys consider an equity offering below market, a formal equity offering not at the money, just to kind of get scale and rebalance the capital structure?.

Look, we have a wide range of options that we're always considering. And we have to be certainly mindful of book value. And as I said, one of our goals has been to restore book value per share. And that's an important criterion for anything that we might do in the future..

Okay. Thanks..

We have no further questions..

Okay. Thanks everyone for joining. We'll speak next quarter..

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect..