Harmony Biosciences Holdings, Inc.

Good day, everyone, and thank you for standing by. Welcome to the AG Mortgage Investment Trust, Inc. First 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. You may submit a question at any time via the webcast. Please be advised that today's conference is being recorded, and if you require any audio assistance, you can press star and zero on your telephone keypad. I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.

Jenny Neslin, General Counsel for the Company Thank you. Good morning, everyone, and welcome to the first 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 statements regarding forward-looking statements, risk factors and management 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 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 Q1 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. T.J.

Thank you, Jenny. I'm pleased to report our first quarter earnings, which showcases the continued execution of our core business strategy and industry leading results, particularly around book value stability. I won't go into a monologue about tariffs. The first quarter was clearly a tale of two distinct parts. The first two months saw a continuation of positive investor sentiment and very functional capital markets. Securitization discipline from the team and control around leverage led to mid-strong financial performance during the first quarter. We saw book value largely unchanged, moving higher by one penny from 1064 to 1065, while supporting and paying our newly increased 20-cent dividend. therefore producing a healthy quarterly economic return on equity of 2% for our shareholders. Volatility that began in March continued through the majority of April. We have widened out spreads on our retained securities to reflect these market conditions and would estimate book value through April to be down approximately 3%. We're in a strong liquidity position to take advantage of any continued volatility. With that being said, we saw very little trading or forced capital markets activity during the peak volatility of early April, which we think bodes well for a potential quick rebound in spreads. Lastly, I wanted to share our views on the impacts and opportunities around potential GSE reforms. While we have no knowledge of massive reform coming imminently, we do see clear signs of reduced footprint from the entities they manage. We believe that MIT is uniquely positioned to take advantage of these potential opportunities, given our vertical integration with ARCOM, along with our well-established securitization shelf GCAT. When you add all this together, we believe MIT is extremely undervalued at today's price. I'll now turn the call over to Nick. Thanks, TJ, and good morning. The portfolio continues to perform well, delivering a 2% economic return while fully supporting the 5.3% increase in our dividends. We maintained a strong focus on protecting book value while growing the investment portfolio. Leverage increased modestly, yet remains well below peer averages, providing flexibility for rotation and growth into target asset classes. During the quarter, we increased our capital allocation to the home equity sector, a trend we expect to continue. This quarter, we partnered with a leading non-bank mortgage originator to issue a $500 million home equity securitization. We acquired approximately $130 million of additional home equity loans from various non-bank originators, and we established a new partnership to aggregate home equity exposure while collaborating on programmatic securitizations. Our team remains focused on expanding partnerships in this space, turning to the macro landscape, the current positioning, and the portfolio. The global market is undergoing a significant transformation as the U.S. redefines its role in an evolving global order. While the worst of the recent volatility appears to be behind us, we are well positioned to navigate and capitalize on future market shifts. We have exercised prudence in leverage and discipline in capital allocation. We avoided chasing levered agency basis trades despite their popularity and, as a result, preserved book value. We've remained constructive on residential mortgage credit. As previously mentioned, we increased our capital allocation to home equity mortgages. We believe this sector is in the early stages of development and is set to outperform other residential mortgage credit sectors. We are lending exclusively to borrowers that have demonstrated the ability to service their debts over a long period of time and who also are the beneficiaries of large increases in home prices along with historically low interest rates. We believe this aligns with the goal of providing the best risk-adjusted returns in the residential sector. At a national level, housing continues to appear stable, which is supported by familiar narratives. Existing home sales have increased modestly from their lows a few years ago, but remain historically very low, and the supply of newly constructed homes is slowly narrowing shortages in certain markets. Regionally, there are signs of pullback in markets that have seen some of the most significant increases in the recent past, but we believe these are contained. Similarly, we are seeing an uptick in delinquencies in certain cohorts of recent origination. In aggregate, underwriting standards remain historically tight. However, the past few years, we have seen expansion among certain participants, which is driving some of these recent increases. Despite the recent volatility and indications of modest weakness in certain housing markets and mortgage originations, it's important to note the strength of our portfolio. At the end of the quarter, our current loan-to-value was approximately 59% and serious delinquencies were only 1.3%. When you put all these ingredients together, our low economic leverage, our disciplined capital allocation, and our strong portfolio performance We are confident in our ability to continue to deliver results through broader macro-driven volatility. Before handing the call over to Anthony, I'd like to reiterate some of the key messaging around MIT's originator, ArcHome. Strategic investments in a high-caliber management team and talent have delivered meaningful results in a short period. ArcHome has demonstrated strong performance with lock volumes increasing 50% year-over-year. Gain on sale margins also improved during the quarter, supporting the company's achievement of break-even. We expect Arc Home to remain committed to driving growth across origination channels, enhancing the customer experience, and expanding market share. As Arc Home continues to innovate and diversify its product offering, we anticipate growing contribution to our earnings available for distribution. Our ability to generate assets through ArcHome is a key differentiator, providing flexibility and a compelling value proposition for our shareholders. With that, I'd like to turn the call over to Anthony. Thank you, Nick, and good morning, everyone. MIT maintained positive momentum during the first quarter. We increased our investment portfolio by continuing to acquire agency eligible and home equity loans. Additionally, we remain active in the securitization market, executing two deals during the quarter. Importantly, despite the market volatility that began in March, we protected our book value, grew our earnings available for distribution, and increased our quarterly dividend by 5.3 percent to 20 cents per share. During the quarter, our book value remained stable, with a slight increase of 0.1 percent to $10.65 per share. Including our common dividend of $0.20 per share, we generate a 2% economic return for our shareholders. Gap net income available to common shareholders was $6.2 million or $0.21 per share. Net interest income earned on our investment and swap portfolios increased by $1 million or 5% from prior quarter, primarily driven by continued capital deployment into target assets. Our investment portfolio recognized modest net realized and unrealized gains on a hedge-adjusted basis, reflecting continued strength in home equity assets and our securitized loan portfolio. In addition, our earnings from equity method investments was $1.2 million during the quarter, which includes gains in our investment in our comb valued at one times book. These gains were partially offset by $1.1 million of transaction expenses primarily related to securitization activities. We recorded EAD of 20 cents per share, which increased from 18 cents in the prior quarter and covered our first quarter common dividend. Net interest income, including interest earned on our swap portfolio, totaled 68 cents per share. After accounting for operating expenses and preferred dividends of 48 cents, this resulted in net earnings of 20 cents per share. ARC Home's contribution to EAD improved by two cents compared to last quarter and was breakeven in Q1, bolstered by continued strength in volumes and improving gain on sale margins. During the quarter, we grew our investment portfolio by 6.2% to $7.1 billion and maintained focus on expanding our presence in the home equity space. Specifically, we purchased 367 million of agency-eligible loans and subsequently securitized 423 million of UPV. We also purchased 128 million of home equity loans, increasing our portfolio to 228 million as of quarter end, while continuing to build in April, acquiring an additional 52 million. Further, expanding on home equity, we cosponsored a securitization of 492 million UPV at close in seconds, retaining 26 million of non-agency RMBS securities. From a financing perspective, we continue to operate with a low economic leverage ratio, which is 1.6 turns at quarter end. We have prudently managed our leverage exposure through our programmatic securitizations, ending the quarter with only $223 million of warehouse financing, primarily related to home equity loans. And lastly, we ended the quarter with total liquidity of approximately $133 million, consisting of $116 million of cash and $17 million of unencumbered agency RMBS. This concludes our prepared remarks, and we now like to open the call for questions. Operator?