Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust Fourth Quarter 2022 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. [Operator Instructions] Please note, today's conference is being recorded. [Operator Instructions] I'd like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.

Thank you, Chelsea. Good morning, everyone and welcome to the full year and fourth 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 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, 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 link for the fourth quarter 2022 earnings presentation on the home page 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 T.J.

Thank you, Jenny and good morning, everyone. 2022 was an extremely challenging year across markets, but particularly in mortgage markets, where an abrupt pivot by the fed created convexity movements we haven't seen since the taper tantrum of 2013. Well, MITT did experience mark to market losses on assets it owns coming into the year. The vast majority of these losses are unrealized. And we continue to have confidence in the earnings power of the portfolio, which Nick will walk you through in more detail later in the call. During this volatile year, MITT remain disciplined by programmatically terming out its financing, and avoided taking undue risks by holding loans on warehouse lines, hoping things would simply get better. As a result of this discipline, we believe MITT is materially de risked with ample liquidity as we head into 2023 in a position to play offense when others may not be. We used a portion of our excess liquidity to repurchase almost 2.7 million shares at a weighted average price of $6.82, creating 7% accretion for shareholders. We ended the year in a strong financial position with approximately $87 million of liquidity, and 1.3 returns of economic leverage. And those numbers have both improved since quarter end, which Nick will walk through. Finishing our 2022-year review on Slide 6. MITT created $67.6 million of NIM during the year while recording a loss of $3.12 in earnings per share. MITT declared $0.81 of dividends per share and created $0.08 of EAD per share. EAD is the performance metric we'll be using going forward to replace core, which Anthony will explain in further detail later in the call. Now turning to Slide 7. The fourth quarter opened with continued weakness in the market. But December was the first month almost all year…

Thanks, T.J. Sticking with Slide 7, as you might recall from our Q3 prepared remarks, we stated that we estimated that our book value was down approximately 5% to 6% for the month of October. As T.J. noted, our book value ultimately recovered 3% in the fourth quarter, and we estimate that it is up another approximately 3% to 4% in January. We have stated previously that although mark-to-market losses have been significant, that most of these losses are unrealized. Consistent with this messaging, this past quarter's modest recovery represents only a small fraction of these unrealized losses. Our economic leverage ratio has significantly declined due to the tune, additional Non-Agency securitizations executed in the fourth quarter and into the beginning of the year. Combined, these transactions decreased our warehouse exposure by approximately 600 million significantly outpacing additional Home Loan purchases of approximately 140 million. Turning to Page 8. As you can see, our securitization issuance in the fourth quarter and into the beginning of the first quarter continued to outpace our acquisition of new loans. The table on the right shows the continued growth of our securitized loan portfolio, along with the corresponding reduction in warehouse exposure. In previous quarters, we have emphasized that we believed it prudent to right size our aggregation risk considering both current market volatility and expected future volatility. Although we are still cautious and believe it critical to appropriately size, our aggregation risk based upon current and expected market conditions. The current positioning likely represents a loaner aggregation pipeline for this year and next. While origination volumes are down considerably given the current economic backdrop. We continue to see opportunity in acquiring high quality assets with attractive risk adjusted returns. Very recently, we've seen increased competition as a likely consequence of lower volumes coupled…

Thank you, Nick. Turning to Slide 14, we provide year to date and quarter to date reconciliations of book value per common share. As we mentioned earlier, the financial markets were extremely volatile throughout the year. And our 2022 earnings is reflective of unprecedented increases in benchmark interest rates, coupled with historic credit spread widening. This resulted in mark-to-market losses on our investment portfolio, partially offset by realized gains on our derivative portfolio. In addition, a portion of our book value declined during the year related to upfront securitization expenses, as we were disciplined throughout the year and securitizing our warehouse population executing eight deals during 2022. During the fourth quarter, we did experience some book value recovery, which increased by approximately 3% as a result of recording GAAP net income available to common shareholders of approximately $7 million or $0.33 per fully diluted share. Income during the fourth quarter was driven by unrealized mark-to-market gains recorded on securitized assets due to credit spread tightening in the latter half of the quarter coupled with realize gains on our interest rate swap portfolio. This was offset by $1.5 million of transaction related expenses, which were associated with the securitization that closed in October. We also remain active and share buybacks during the year, which contributed to book value accretion of approximately 2% for the quarter, and 7% for the year. During the fourth quarter, we repurchase approximately 850,000 shares at a weighted average price of $5.68 per share. For the full year, we deployed approximately $18 million of capital to repurchase 2.7 million shares at a weighted average price of $6.82 per share. Overall, we repurchase about 11% of our outstanding shares during the year at an approximate 40% discount to our December 31st adjusted book value. As a reminder, we…

Thank you, sir. [Operator Instructions] And our first question will come from Doug Harter with Credit Suisse. Your line is open.

Thanks. Just touching on the liquidity point that you made there at the end. Of that 120, how much of that do you think is kind of available for investments as you said you might be able to play some more offense in 2023?

I think we probably think about running the company with $40 million to $50 million of cash. If you look at kind of our historic leverage ratios over the last 12,18 months, so I think we've got kind of significant liquidity right now.

And then you mentioned that the calls on older securitizations are kind of unlikely to be exercised. How would you describe the health of kind of financing subordinates into his market? And as those the lever would you consider kind of adding leverage to some of the subordinates to kind of build equity since you can't kind of pull it out by resecuritizing?

Yes, certainly. Obviously, as you the underlying securitizations, the lever, the availability additional financing typically increases. Our expectation is over time that we'd be able to take out more liquidity from those securities, although realistically, that's although maybe some of them are under levered today. I think, broadly speaking, I think you have to see sort of that deleveraging occur before we could take out a ton more cash.

And what is the timeframe for that? Would that be another year or two years just to help us frame that?

On certain transactions, it could be as soon as 6 to 12 months other transactions that might be two years. And these are these tend to be incremental? It's not you just take out another 20%. It's sort of 5% at a time, so.

Great. Thank you.

Our next question will come from Bose George with KBW. Your line is open.

This is actually Mike Smith on for Bose. Can you just get it help us get a sense for the current run rate earnings power of the portfolio? The $0.05 implies a low-single-digit ROE, just kind of wondering how you're thinking about the timeline for getting to that 16% ROE on slide 10. And then as a follow-up, how are you kind of thinking about that kind of balancing capital deployment versus buying back stock?

So, I think on the earnings power, the reality is are quarter-to-quarter earnings, I think are going to be choppy, because of things like transaction expenses for securitizations, et cetera. So, we're focusing more on like the long-term earnings power, which were trying to display on page 10 there. That's obviously, I think showing a portfolio or company that has significant liquidity to invest that those yields, if not higher, in 2023 terms. So, I think that's how we're thinking about things. We obviously, just recently restructured dividend. And so that is how we're thinking about things in terms of the medium long-term, but I do think like the quarter-to-quarter numbers could still be choppy. I think we would obviously hope to take advantage of opportunities to employ to deploy this capital in a timely manner, as we think the opportunity set is probably going to present itself in the near-term. In terms of buybacks, I think depending on where we are on the stock price, we obviously have good liquidity to continue buying back stock accretively. I think we are conscious of just looking at our volumes and the liquidity in the stock and don't want to perversely do something damaging over the long-term by reducing investor liquidity.

Maybe just kind of on that one on the discount of book, appetite for some type of strategic transaction, whether it be rolling it back into the parent company or merging with a smaller company for some scale and operating leverage. We were kind of just be curious to hear your thoughts on how you're thinking about that given the discount to book?

This I think holistically we think the company is in a very good position, financially from the balance sheets perspective from a leverage perspective. I think we're always looking for opportunities to grow responsibly. And to the extent the right opportunity came to MITT. I think the manager would be supportive and helping grow MITT with its kind of financial support to the extent the opportunity was compelling.

Great. Thanks for taking my question.

[Operator Instructions] Our next question will come from Eric Hagenwith BTIG. Your line is open.

Couple questions for me. Can you talk a little bit about the warehouse funding for loans right now? Just how the environment is how readily available that source of funding is? Maybe even what the cost of funds looks like on a new warehouse line today? Even how many counterparties you currently have providing you warehouse funding on the back book? Thanks.

So maybe address it on the loan side, first. The availability of financing for loans is still far out strips sort of what we need. I think if you think, no warehouse lenders lost money and obviously very volatile year last year and given the short duration of the asset, it's very desirable lend. I think, we also given sort of the broader pullback in the residential mortgage market. Guys, agency volumes, they're at decade, multi-decade loan, as well as on certain balances they have out. So, they're very axed to put on what they can. So, we've not seen our cost of financing go up, if anything, I think, it'll stay the same or get lower, we've also not seen advanced rates decrease or given the amount of folk’s sort of looking to still enter this space or grow their warehouse positions for non-agencies. We expect that to be the same. Similar dynamic on the securities, although, there's always a little bit less liquidity for, down the stack and securities. But as you go up the stack, it's fairly comparable to loan liquidity. From the counterparty standpoint, we currently have five. Realistically, that's more than we need, but we're not looking to actually trim in and we're always opportunistically can add.

That's helpful details. Maybe just one more I mean, can you can you say how big of a margin call you sort of modeled for on the retained bonds from securitization, which are funded with repo? And just how you guys think about the approach to cushioning with liquidity?

Yeah. I mean, I think, generally speaking, we work with our risk department independently. And I mean, the simple answer is I think we're looking at sort of a March 2020 COVID shock in terms of like credit spreads. And it's a recent enough event that I think that's the right shock to look at and having enough cash to meet that kind of a margin call.

Our next question will come from Matthew Erdner with Jones Trading. Your line is open.

What do you think the best allocation of capital is and where do you guys see opportunities going forward in '23?

Yes, certainly. Obviously given the multi decade loan origination values and resi, and sort of this being a transitional period. I think you don't necessarily have to be creative, but you'd have to be open to changing investment theses and being open to new products. We did sort of conveniently see the implementation, or maybe it hasn't been implemented yet, but it's been announced it will be implemented for May deliveries for Fannie and Freddie, new LPAs. Although, net-net, these changes are beneficial to private label execution and competitiveness, there are some places where they actually become more competitive or sort of try to take away from being cherry picked. So, we certainly see that as an interesting place to deploy capital, as the government sort of further makes explicit. What was implicit the subsidization of better credits, subsidizing lower credit. So, we see opportunity there and given wide spreads, as spreads come in the private label market, the private label market will become increasingly competitive versus that bid. So, we think that's a longer-term view. We're also interested in looking at sort of prime second liens, and key locks. Obviously, given sort of the lock in effect of first liens. We think there's an opportunity, given the cash out market, more or less being shut out for key locks in second lien to take that space. So those are sort of the larger food groups, but always looking at more things.

And then do you think the better opportunity is on a securitized to set product or loan origination?

So, I think we announced last quarter, we saw opportunities in securities. We were able to deploy a little bit of capital there, I think spreads tightened in December and kind of into January, where that's probably shifted back to loans. But I think we announced the market, we're open to taking advantage of those opportunities within call it new resi mortgage credit. We're certainly not going to buy the loans and make the credit if we can buy it cheaper in the secondary. But I don't think it's as obvious as an opportunity as it was a 90 days ago.

[Operator Instructions] At this time, we have no further questions in the queue. So, I would like to turn it back to management for any additional or closing remarks.

Thank you. And thank you to everyone for joining us this morning and for your questions. We appreciate it and look forward to speaking with you again next quarter. Enjoy the rest of the day.

Ladies and gentlemen, this does conclude today's call and we appreciate your participation. You may disconnect at any time.