AG Mortgage Investment Trust - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered a clean beat on Street EAD EPS and revenue as MITT executed four securitizations, tightened credit spreads, increased book value to $10.46, and expanded Arc Home ownership to 66%; EAD per diluted share was $0.23 vs consensus $0.20 and revenue was $30.2M vs consensus $20.0M, driven by stronger net interest income and other income from spread tightening.
• GAAP diluted EPS rose to $0.47 (YoY +18%) on higher other income and stable expense control; quarterly economic ROE was 2.7%, and total liquidity stood at $104.2M.
• Dividend was maintained at $0.21/share, while leverage remained largely non-mark-to-market; GAAP leverage 14.9x and Economic leverage 1.7x, consistent with the securitization-centric financing mix.
• Catalysts: accelerating Arc Home contribution ($0.03 EAD/share), ongoing programmatic securitizations, rotation out of legacy WMC assets, and credit spread tailwinds; watch the commercial legacy resolution timeline (hotel sale now targeted 1H 2026).

What Went Well and What Went Wrong

What Went Well

• “We increased book value, supported our dividend, and furthered our strategic growth with an expanded stake in Arc Home. Our core portfolio and operational efficiencies drove strong earnings, with Arc Home now contributing meaningfully to EAD.” — T.J. Durkin, CEO.
• Strong securitization and equity rotation: four securitizations executed; replacing high-cost legacy WMC financing returned ~$55M for reinvestment; unrealized gains from credit spread tightening boosted results.
• Arc Home contribution stepped up: record non-agency lock volumes, improved gain-on-sale margins, and $0.03 EAD/share contribution to MITT; ownership increased to 66%.

What Went Wrong

• Legacy WMC commercial headwinds persisted: retail property loan recorded an unrealized loss of $7.1M in Q3 and placed on cost recovery; hotel loans are on non-accrual with resolution deferred to 1H 2026.
• Elevated GAAP leverage remains a structural feature of securitized financing (14.9x), though Economic leverage is low (1.7x); funding cost blended at ~5.4% leaves limited NIM (0.7%).
• Q2 context: EAD missed consensus and was impacted by legacy WMC commercial loans; highlights sensitivity to legacy asset marks and timing of resolutions.

Transcript

Operator (participant)

Today, and thank you for standing by. Welcome to the AG Mortgage Investment Trust third quarter 2025 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. In order to ask a question during the session, please press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star, then zero. I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.

Jenny Neslin (General Counsel)

Thank you. Good morning, everyone, and welcome to the third quarter 2025 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, 2024, 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 revise or review 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 reconciliation 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 links to the Q3 2025 earnings presentation on the homepage. 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.

Thomas Durkin (CEO and President)

Thank you, Jenny. I'm pleased to report amidst third-quarter results in which the company had one of its most active and successful quarters in recent memory. During the third quarter, we were able to increase our book value from $10.39 to $10.46, inclusive of our previously announced strategic acquisition of an additional 21.4% of Arc Home through the issuance of approximately 2 million shares, creating a one-time dilution event of 1.8%, while also fully supporting our $0.21 dividend. The company continues to provide stability in book value performance, navigating both challenging markets and executing on growth initiatives like the one I just mentioned. We continue to believe growing the company's size and flow is in the long-term best interest of its shareholders. Moving on to earnings, we increased our EAD to $0.23 per share, driven by strong earnings from our core investment portfolio.

In this first quarter, with our larger ownership percentage of Arc Home, we are happy to report it contributed $0.03 towards EAD as the business continues to execute on its growth and profitability objectives. Lastly, it is important to note we were able to deliver this growth in EAD despite turning off the accrual of our legacy WMC CRE loans this year as we work through the monetization process. As we look forward, the ability to rotate this equity capital currently invested in the CRE loans into our residential securitization strategy, combined with Arc Home's profits, should enable us to unlock even more earnings power from our portfolio in the coming quarters. I'll now turn the call over to Nick.

Nick Smith (Chief Investment Officer)

Thanks, T.J. The company had an extremely active quarter. We have made significant progress in rotating equity into core strategies, growing the investment portfolio, de-risking and optimizing financing, and accelerating growth at our portfolio company, Arc Home, along with other significant steps forward. Getting into specifics. Starting with rotation, we monetized close to $55 million market value of legacy WMC securitized non-QM positions after restructuring these holdings and unwinding expensive and under-advanced debt that came with the WMC acquisition. I will speak more about this later. An additional $11 million of equity came back from a legacy WMC CMBS position that paid off at par. In aggregate, the company freed up nearly $66 million of equity for redeployment. With this capital, we significantly increased the investment portfolio by over 20% this quarter. We acquired over $1.7 billion of residential mortgage loans.

Approximately $900 million was allocated to agency-eligible investor loans and over $800 million to home equity loans, including both closed-end seconds and HELOCs. Most of these acquisitions were immediately financed into four separate securitizations. We'd like to point out that this significant growth was achieved without incurring risk to the company through outsized gestation periods or warehouse financing exposure. Likewise, the company's leverage increased modestly from 1.3 to 1.7 turns quarter over quarter, which we see as more normal levels. Moving on to the company's financing activity. As alluded to earlier and mentioned briefly in our previous quarter's prepared remarks, we refinanced high-cost, inefficient debt backed by retained interest in WMC-issued non-agency securitizations. This refinancing freed up $55 million of equity to redeploy and materially lowered the cost of capital while significantly increasing the market value advance.

This quarter's EAD was boosted by approximately $0.03 by this refinancing, which normalizes to $0.04-$0.05 for a full quarter looking forward. Moving on from financing to Arc Home. Simultaneous with the announcement of last quarter's earnings, we acquired an additional 21.4% ownership of Arc Home. We are happy to report earnings of over $2 million this quarter, which contributes approximately $1.2 million to MITT, the highest since the end of 2021. In September, they achieved record lock volumes. We believe this growth and profitability is sustainable as the non-agency market continues to increase its share. Before passing the call over to Anthony, I would like to touch upon an item others have been addressing: call rights. Prior to quarter end, we initiated the sale of the underlying collateral to a third party in connection with the termination of a transaction issued in 2022.

We see significant value in call rights from transactions issued in 2022 and 2023. We expect the termination of this transaction, along with others in the future, to return capital that can be opportunistically redeployed into our core higher-returning investment strategies. Over to you, Anthony.

Anthony Rossiello (CFO)

Thank you, Nick, and good morning. The third quarter was a pivotal one for MITT. We rotated a significant amount of capital from legacy WMC assets, boosting our earnings power, executed four securitizations, acquired an additional 21.4% interest in Arc Home, and delivered EAD in excess of our dividend. During the quarter, book value rose 0.7% to $10.46 per share. Including our dividend of $0.21 per share, we generated a 2.7% economic return for our shareholders. It's worth noting that our book value grew even after accounting for a 1.8% dilution from the shares issued for the additional Arc Home interest, which underscores the strong performance of our investment portfolio. GAAP net income available to common shareholders was $14.6 million, or $0.47 per share. Strong asset appreciation driven by spread tightening on residential mortgage loans and non-agency RMBS offset the dilution from Arc Home and unrealized losses on commercial investments.

Residential investments continue to drive earnings, with net interest income increasing by $1.7 million, or 9%, from prior quarter, resulting from refinancing high-cost legacy WMC debt and rotating a significant portion of capital into higher-yielding assets. EAD increased to $0.23 per share from $0.18 in Q2. Net interest income, including interest from our hedges, was $0.67 per share and exceeded our operating expenses, income taxes, and preferred dividends of $0.47, resulting in net earnings of $0.20 per share. In addition to EAD growth from our investment portfolio, Arc Home contributed $0.03 per share to EAD, supported by continued growth in originations and margins. We grew our investment portfolio by 21% to $8.8 billion through securitization activity and continue to operate with a low level of economic leverage at 1.7 turns. During the quarter, we purchased and simultaneously securitized $764 million of agency-eligible loans and $647 million of closed-end second liens.

We also securitized $301 million of HELOCs held on warehouse at June 30 and purchased an additional $122 million to continue growing that portfolio. Since expanding into home equity in the fourth quarter of 2024, our investment portfolio includes $1 billion of loans and $52 million of non-agency RMBS collateralized by home equity loans, now representing 30% of our equity allocation. As mentioned earlier, we acquired an additional 21.4% interest in Arc Home for $16 million, bringing our ownership to 66%. This investment was completed through the issuance of 2 million shares of restricted common stock and, as discussed last quarter, will continue to be reported as an equity method investment at fair value. Lastly, we ended the quarter with total liquidity of approximately $104 million, consisting of $59 million in cash, $44 million of committed financing available on unlevered home equity loans, and $1 million of unencumbered agency RMBS.

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

Operator (participant)

Certainly. At this time, if you would like to ask a question, please press the star then one on your telephone keypad. You may withdraw your question at any time by pressing star then two. Again, it is star then one to ask a question. Take our first question from Doug Harter with UBS. Your line is open.

Doug Harter (Equity Research Analyst)

Thanks. Hoping, Nick, hoping you could expand a little bit more about the call rights, either kind of the amount of capital that could be freed up or how you think about the return differential on the called deals versus freshly deployed capital.

Nick Smith (Chief Investment Officer)

Certainly. Near term, we see, call it $15 million-$30 million of equity that can be redeployed. More of an intermediate term, call it three to four quarters, that could be $50 million-plus. If you think about sort of 2022 and 2023, the capital markets were fairly inefficient, spreads were relatively wide. Given sort of where interest rates have retraced along with credit spreads, we see a good amount of upside to be able to unlock that and redeploy. The equity, obviously, we could just refinance those, but I think our current strategy, given sort of how those loans have performed well, there's a good chance that we'll look to recycle that equity via the sale of loans, but are open to other alternatives. Either way, accretive versus how we currently hold those positions.

Doug Harter (Equity Research Analyst)

Great. Can you give us an update on the CRE loans, the non-accrual? What's their status, potential for timing of resolution?

Nick Smith (Chief Investment Officer)

Yeah, sure. The hospitality loans are still progressing towards our original resolution plan. At this point, we think it's realistic to have that capital return in the first half of 2026. That's just kind of going through the original motions. I think the retail property actually just hit its maturity date this quarter, and we're in the early stage of, say, working through the options there. On that note, I would say, Doug, it's important that that note is actually still cash flowing from the underlying property. I think we have some more options there as well.

Doug Harter (Equity Research Analyst)

Can you just remind us the amount of capital that could come back on the hospitality?

Nick Smith (Chief Investment Officer)

It's $30 million on the total. I think it's about $23 million on the hospitality and then $7.5 million on the retail.

Anthony Rossiello (CFO)

Great. Appreciate it. Thank you.

Operator (participant)

We will move next to Crispin Love with Piper Sandler. Your line is open.

Crispin Love (Senior Research Analyst)

Thank you. Good morning, everyone. First, can you just talk a little bit about securitization, just how the receptivity has been? You did four in the quarter. And just as you look forward, what do you think a normal cadence could be on the securitization side? Yeah. The expectation going forward is probably not as many as we did this quarter, but it's probably more of like one to two a quarter. The securitization markets themselves are healthy. If anything, we've sort of transitioned into positive net supply. And if anything, the inflows across different investment-type vehicles companies have been robust and have met that supply. We are off of sort of the beginning of the year's tights at the top of the capital stack, but the bottom of the capital stack is a good amount tighter. We see issuance as a relatively healthy period. Okay. Perfect.

Nick Smith (Chief Investment Officer)

And then, just if you could just share your thoughts on credit broadly. And then within MITT, there started to be some concerns from banks, albeit some fraud involved, some weakness in the consumer. But curious on your thoughts on credit and then drilling down into MITT, whether it's non-QM or other areas. I know the delinquency metrics are still fairly low, but just want to get your sense there. Are you focusing on performance or the fraud issues, Kristen? Performance. On the performance side, look, we've had a differentiated strategy. Our book has outperformed both on the agency-eligible investor side and non-QM side, along with the home equity side. I think it's worth noting, and we've thrown these statistics out in the past, that our agency-eligible investor book is actually performing better than Prime Jumbo. And our non-QM continues to outperform the broader market's issuance.

So, I think there's a credit selection story there. We have seen some slight weakness in other people's production, but we feel like that's isolated. I feel like the housing story is well telegraphed that while there is some weakness geographically, it's in places where supply has mean reverted or gone through sort of 2018, 2019, 2020 levels. But we believe that is contained, and we feel strongly about our current position and our current portfolio.

Crispin Love (Senior Research Analyst)

Great. Thank you. I appreciate taking my questions.

Operator (participant)

We will go next to Bose George with KBW. Your line is open.

Bose George (Managing Director)

Hey, guys. Good morning. Just given the timing of the purchase of the Arc, the incremental piece, did you guys get the full quarter of this quarter, or is there sort of a catch-up on that as well?

Anthony Rossiello (CFO)

No. The transaction was executed on August 1st, so it's really only two months of that EAD that you see coming through. To the extent performance continues, you'll have a pickup in our quarters.

Bose George (Managing Director)

Okay. Your commentary suggested that the EAD there should be flat up going forward, just given the trends you've seen there.

Nick Smith (Chief Investment Officer)

That's right.

Bose George (Managing Director)

Okay. Great. Can you give us an update on book value quarter to date?

Anthony Rossiello (CFO)

Yeah. Bose, just given where we are in the process, we don't have an update for you today.

Bose George (Managing Director)

Okay. That's fair. You guys noted that growing the company is in the best interest of shareholders, which definitely makes sense. What are some of the options? Is buying in more of Arc Home a possibility? Can you just talk about potential options for you guys?

Nick Smith (Chief Investment Officer)

Yeah. I mean, I think we're very inquisitive on other types of opportunities to build a more robust investment platform for the company. So, whether that's working with other originators, other platforms, obviously being conscious of dilution, etc. But I think we're certainly open to other ideas.

Bose George (Managing Director)

Okay. Great. Thank you.

Operator (participant)

As a reminder, it is star then one to register for a question today. We will move next to Trevor Cranston with JMP. Your line is open.

Trevor Cranston (Equity Research Analyst)

Hey. Thanks. Good morning. Can you just give us an update on kind of where you guys see the ROE and economics on doing new securitizations, given the spread tightening we saw during the third quarter and how it compares to kind of where things were earlier in the year? Thanks.

Nick Smith (Chief Investment Officer)

Broadly, where you can place debt versus the tightening still shakes out to largely similar equity returns. Obviously, that matters on what part of the capital stack you're attaching to and the amount of leverage you take. Given our current leverage profile and the assets that we're trafficking in, we still see comfortably equity returns with modest leverage in the mid to high teens.

Trevor Cranston (Equity Research Analyst)

Got it. Okay. With the rally we've seen in mortgage rates, have you guys seen any kind of notable increase in prepaid speeds on either the non-QM or the agency-eligible part of the portfolio? Does that have any sort of meaningful impact on the expected returns on those retained investments?

Nick Smith (Chief Investment Officer)

Yeah. We have seen some uptick in prepayments, albeit modest and albeit relatively early on. From a return standpoint, we feel like the portfolio was well balanced between sort of the derivative portions and then the credit portions. We do not expect book value to be materially impacted by large pickups in prepayments. It is worth noting that there are large portions of the portfolio that, even into a pretty meaningful rally, are still wildly out of the money, which provides a good amount of stability even into a rate rally.

Trevor Cranston (Equity Research Analyst)

Yeah. Okay. That makes sense. Thank you.

Operator (participant)

There are no additional questions at this time. I'd like to turn the program back over to Jenny Neslin for any closing remarks.

Jenny Neslin (General Counsel)

Thank you, everyone, for joining us, and very much appreciate your questions. Look forward to speaking to you again next quarter. Have a great day.

Operator (participant)

Thank you for your participation. This does conclude today's program. You may disconnect at any time.