Welcome to the AG Mortgage Investment Trust Third Quarter 2020 Earnings Call. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note, the conference is being recorded. And I will now turn the call over to Raul Moreno. .

Thank you, John. Good morning, everyone, and welcome to the Third 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 sections of our 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 Q3 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, and good morning to everyone. The focus of AG Mortgage Investment Trust continues to be creating earnings power for the company while maintaining adequate liquidity and increasing book value.

I'm pleased to report that our GAAP book value per common share increased to $3.34 as of September 30, compared and up -- up from $2.75 as of June 30. After taking into account the accumulated and unpaid dividends on our preferred stock, that same comparison of book value per share is $3.03 as of September 30, up from $2.58 as of June 30. .

During the quarter, we continued to make progress in reducing our mark-to-market leverage and in maintaining our overall leverage ratio below 1:1. Our liquidity at September 30 increased to $82.4 million, up from $68.2 million as of June 30. T.J. will touch upon a number of the activities that led to our improved liquidity this quarter. .

I'd like to highlight the performance of our mortgage originator affiliate, Arc Home. In the third quarter, Arc set another record for earnings, exceeding their record earnings in the second quarter. During the third quarter, Arc also sold its legacy Ginnie Mae servicing portfolio.

Both that sale and Arc's record profits significantly increased Arc's liquidity. We continue to see substantial opportunities over the longer term for MITT in residential origination both through Arc and our other origination channels. .

Finally, given our improved liquidity position, we have decided to declare the accumulated and unpaid dividends from the second and third quarters on our preferred shares and to declare the fourth quarter dividend on our preferred shares. All dividends will be paid on December 17 of this year. .

With that, I will turn the call over to T.J. Durkin, Chief Investment Officer. .

Thank you, David, and good morning, everyone. Turning to our presentation on Page 5, we walk you through our high level activity for the quarter. .

We sold various investments, including our Ginnie Mae MSRs, a CRE loan with future funding commitments and certain CMBS positions. In August, we also settled our second rated non-QM securitization of 2020, along with other Angelo Gordon affiliate funds. .

To complement NPLs and RPLs we had on an existing warehouse line, we acquired an additional $60.2 million of like assets and subsequently securitized those, terming out our debt further and reducing our mark-to-market in favor of nonrecourse debt. .

Lastly, we purchased approximately $250 million of agency whole pools, bringing the company back into compliance with its ability to qualify for an exemption from the registration under the '40 Act. .

Turning to Slide 6. Again, we want to highlight the strong performance of Arc Home, our fully licensed mortgage originator. The team at Arc continues to take advantage of the tailwinds in the mortgage banking sector with another new quarter of record volume and margins within the agency channels. .

As we stated on last quarter's call, the company was also one of the first originators to reenter the non-QM origination space, and we are seeing the pipeline for that product to continue to grow at a healthy pace.

And just as a reminder, MITT owns approximately 45% of Arc Home, and the remainder is owned and controlled by other Angelo Gordon-managed funds. .

Turning to Slide 7, we lay out our portfolio metrics. Our investment portfolio had a fair value of approximately $1.12 billion as of 9/30, representing 0.9 turns of economic leverage. The portfolio was approximately 62% residential credit securities and loans, 23% agency and 15% commercial securities and loans.

This is all not inclusive of Arc Home and the cash on hand within the company. The increase in the size of our investment portfolio was largely driven by the previously mentioned purchase of agency securities. .

And lastly, overall market conditions improved for most credit products during the third quarter, albeit at a less dramatic fashion than the improvement we saw in the second quarter, which was to be expected. .

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

Thanks, T.J. Overall for the third quarter, we reported net earnings available to common stockholders of $15 million or $0.44 per fully diluted share. During the quarter, our equity earnings pickup from Arc Home was $13.4 million due to their record performance.

Our earnings this quarter were offset by $1.3 million of restructuring-related expenses, which we've separated out on our income statement in order to add clarity to our outsized operating expenses for the quarter. .

During the quarter, our book value increased to $3.34 at September 30. Book value would be $0.31 lower after deducting the accumulated and unpaid preferred dividends outstanding at September 30. As the Board has declared the repayment of all accumulated preferred dividends, the book value per share will decrease by the amount paid in Q4. .

Consistent with last quarter, we are not currently disclosing core earnings, a non-GAAP financial measure. But we will evaluate whether core earnings or other non-GAAP financial measures would help with management investors evaluate our operating performance next quarter. .

On the financing side, we had an active quarter and executed 2 securitizations on our residential loan portfolios that termed out our financing and lowered our funding costs. Our economic leverage remains under 1x, and we continue to have debt outstanding with 6 counterparties as of September 30.

We ended the quarter with total liquidity of $82 million, consisting of $45 million of cash and $37 million of unencumbered agency securities. .

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

Operator?.

[Operator Instructions] And our first question is from Doug Harter from Crédit Suisse. .

First, can you talk about what your plans are for the portfolio, how you kind of think about what the right mix is going forward?.

T.J?.

Yes, sure, Doug. I mean we've spent the last quarter or so, I think, optimizing and enhancing our sort of liability profile. I mean, we're obviously in the market. We were successful in acquiring some legacy whole loans. And that's where we spent some of the last, call it, 90 days looking at investments.

But the market out there is pretty competitive, and we're sort of canvassing where there's the best relative value. .

Okay. And then just on that, you just said kind of improving the liability structure.

I guess as you look forward into the fourth quarter in '21, how much of an improvement do you think you can make in your cost of funds relative to kind of where you were kind of during the third quarter?.

Yes. So I think -- sorry, about that. .

Do you want to take it?.

Yes. I think it's probably answered in 2 parts. One, we've taken advantage of, I would say, the term markets and taking assets we had on warehouses and terming them out, both in terms of getting non-mark-to-market, nonrecourse debt, but also the cost of funds can improve pretty dramatically.

And then on just the regular way repo, we continue to see those levels come. Not -- probably not quite to pre-COVID levels, but we're grinding towards that sort of closer and closer every month. So we do think there's probably improvement there still to come for our portfolio. .

Our next question is from Trevor Cranston from JMP Securities. .

All right. A follow-up on the question about portfolio composition.

I guess in light of the continued spread tightening we've seen in a lot of credit products, can you say if there's any particular sectors or areas of the portfolio where you think there might not be a lot of remaining upside and might be areas where you would potentially look for opportunistic sales from the portfolio? And to the extent that there are additional sales, can you comment on where you think new capital deployment would be likely to occur?.

Trevor, I don't think there's any one sector in particular that we feel, at least within our own portfolio, is a better sale than another. It's -- when you get into the commercial side, it's very security or asset-specific. And on the residential side, it's a little bit more broad-based. But we're obviously managing the book accordingly. .

Okay. Got it.

And then at Arc Home, can you disclose what the gain-on-sale margin was for 3Q? And as you're looking forward, can you say where you're seeing margins today versus 3Q? And sort of what your outlook is on that front as we head into 2021?.

Yes. We haven't disclosed the exact number on gain on sale for Q3. What I can tell you is through Q4 to date, I would say it's remained largely unchanged. We do expect it to drift lower over the quarter.

So I think we would assume that the highest margins are behind us, but it seems to be lasting longer than most people would have thought, say, 3, 4 months ago. But we do expect, as we head into 2021, margins will start to come down. .

[Operator Instructions] And I am seeing no further questions at this time. .

Great. Thanks. I think we can end the call. Thanks, everyone, for joining. We'll speak to you next quarter. .

Have a good day, everyone. .

Thank you, ladies and gentlemen. That concludes today's call. Thank you for participating, and you may now disconnect..