TPG Mortgage Investment Trust, Inc.

Good day and thank you for standing by. Welcome to the AG Mortgage Trust Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the 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 keypad. Please be aware that today's conference is being recorded. If you require assistance, please press Star, then zero. I'd like to turn the call over to Ginny Neslin, General Counsel for the company. Please go ahead.

Thank you, Katie. Good morning, everyone, and welcome to the third 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 Russiello, 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 31st, 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 links to the third quarter 2022 earnings presentation on the homepage 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 TJ.

Thank you, Jenny. Good morning, everyone. The markets in the third quarter continue to be centered around this year's themes of inflation, volatility, and uncertainty about the future. Despite this, during the quarter, our adjusted book value per share declined 4.2%, from $11.15 to $10.68. predominantly due to widening of credit spreads and securitization markets. We recorded a GAAP loss of $0.33 per share and a loss of $0.03 of core earnings per share, while maintaining our common dividend of $0.21 per share. Consistent with last quarter, we'd like to remind you that our GAAP loss was predominantly driven by unrealized mark-to-market losses. Based on our early preliminary read, Oak value was down approximately 5% to 6% for the month of October. During the quarter, we continued executing this business strategy of acquiring high quality, newly originated non-agency mortgage loans and securitizing them. We have been very disciplined and successful in turning out our warehouse financing into securitizations in very choppy markets, which we think is a testament to our strong relationships with debt buyers who look to our shelf versus others due to its strong performance history. As a result, Our economic leverage ratio decreased from 2.7 to 2.0 times quarter over quarter, with a continued decline in October to approximately 1.4 times as a result of our October deal. In total, there has been $3.8 billion of unpaid principal balance securitized across the GCAT shelf in 2022, putting it as the fifth most active non-QM issuer based on the information made available to us. This discipline puts MIPS liquidity on solid footing with approximately $80 million as of September 30th and approximately $104 million as of October 31st. So unlike others in the space who may need to play defense, our strong liquidity position should allow us to play offense in volatile markets like this in a number of ways. One, Looking ahead with lower mortgage volumes expected, we do believe there is less competition in the non-agency space at both the aggregator level for MIT as well as at the origination level for ArcHome. Two, we believe there will be opportunities to acquire high-quality performing loans at material discounts that were originated in 2021 or earlier this year at materially lower coupons as originators and aggregators could be forced to do something by their lenders. And three, we will continue to use excess capital to buy back our common stock, accretive to book value, while being mindful of our shares trading liquidity. Since August, we have purchased 2.7 million and have 12.3 million of capacity left under the current program. Before I pass it to Nick to go into further detail on the portfolio, I think it's important to be transparent that given the amount of changes that have occurred this year in terms of interest rates and credit spreads, we are seeing more compelling opportunities in the secondary markets from four sellers of recently issued non-agency securities. We are committed to our origination to securitize strategy. However, as markets move and every day brings different opportunities, we believe we may be able to complement our strategy by acquiring the credit exposure we've been making through securitizations over the last few years in a more cost-effective manner by buying that risk in the secondary markets. We believe that credit underwriting and risk profile is very similar to what is in our current portfolio and believe we should be opportunistic to drive risk-adjusted returns into the portfolio, whether it be from our proprietary GCAT shelf or through other issuers. And lastly, I want to say we very much share the frustration of our shareholders with our stock price. Each of us on the management team and Angelo Gordon, the manager, all have meaningful ownership in MIT. While we know we can't change the stock price overnight, we have full confidence in our strategy and our ability, with the resources and full support of Angelo Gordon, to capitalize on compelling opportunities to generate attractive risk-adjusted returns for our shareholders over the long term. I'll now pass it over to Nick. Thanks, TJ. As TJ mentioned earlier and outlined on page six, During the third quarter and into the beginning of the fourth quarter, we reduced risk and raised liquidity through the programmatic issuance of securities on our well-established GCAT shelf. We issued three transactions totaling just under $1.3 billion. The first two transactions we marketed and priced in August when market conditions were more favorable. The third transaction we marketed and priced in early October. In the relatively short period of time between these transactions, AAA spreads widened out nearly 100 basis points, while risk-free nominal yields increased over 100 basis points. We expect this sort of volatility to persist as the Fed continues to combat inflation. These securitizations were critical in right-sizing our aggregation risk, taking into account both the current market volatility and expected future volatility. Ultimately, this increased our liquidity relative to previous quarters while deleveraging the balance sheet. Although this capital is generally defensive, we believe that there is a high likelihood that the market will present compelling investment opportunities in residential credit in the coming quarters. Aside from these opportunities, the current business is expected to generate the same or higher returns with less risk, which is good since each dollar of capital will be more efficient in what will also be a meaningfully smaller market. Turning to page seven. As you can see, our securitization issuance through October exceeded the pace of acquisitions in the third quarter. This graph on the right shows the significant growth of our securitized loan portfolio, along with the corresponding decrease in warehouse exposure, which is now the lowest it's been in over a year. The left of this slide also summarizes our expectations of forward-looking business. Despite meaningfully lower expected forward origination volumes, we expect to source new credits around an 8% yield with equity returns in the middle to high teens while on warehouse. Once securitized, we expect equity returns in excess of 20% on retained tranches while deploying one to two turns of leverage depending upon the collateral composition. Turning to page eight. On this page, we provide high-level summary statistics of our aggregate loan portfolio. When thinking ahead with a slower economy and weaker housing market, it's important to note the current LTV is 60%, and the 60-day delinquent loan population across the over $4 billion of loans is less than 100 basis points. The last takeaway from this page is how out of the money this portfolio is relative to forward-looking originations with 8% yields, which sets us up for the next slide. Turning to page 9. Although the mark-to-market losses have been significant, we'd like to reiterate what we said in previous quarters. Most of the losses are unrealized. And although we expect market conditions remain volatile, we are constructive on residential mortgage credit fundamentals even as a recession combined with negative home prices becomes the more likely scenario. It is worth noting that the underlying mortgages backing the interest-only and excess spread certificates we own are substantially out of the money providing significant cash flow stability, while the slices of supported certificates we own are priced at significant discounts on a relatively thick part of the capital stack. We believe that the combination of these two profiles provide stable cash flows along with mark-to-market upside and limited exposure to recourse leverage. Turning to page 10, the top right bar chart outlines our leverage ratio over the past year. Here you can see loans transitioning from warehouse lines to securitized debt, bringing down the recourse leverage to where it is today. Although we have not reached our lowest recourse leverage ratio, we have made substantial progress from the peak. As you can see, our recourse leverage as of quarter end was approximately 2x, which, subsequent to quarter end, has been reduced further to 1.4x. The table on the bottom outlines the composition of our aggregate debt, including securitized debt. repo and retained securities, and home loan warehouse. As of quarter end, recourse debt accounted for approximately 24% of the aggregate. Turning to page 11. In previous quarters, we made it a point to emphasize that we believed that Arc Home was more insulated than conventional and government originators because of its non-agency origination focus. Although we still believe this is generally true, the most recent move to multi-decade high mortgage rates has made it less insulated than expected. ARC Home's management team has taken significant measures to right-size costs while maintaining prudent operating capacity to take advantage of recent market dislocations. We will continue to closely monitor capacity while matching it with the most attractive market opportunities. Despite this challenging backdrop, it is important to note ARK Home's strong capital position as outlined on this page. As of quarter end, ARK Home had $32 million of cash and MSRs valued at $92 million, which are largely unlevered. We believe that ARK Home is well positioned relative to many of its competitors and expect this challenging period to show its resiliency while gaining market share and ultimately returning to profitability. I will now turn the call over to Anthony.