Participants

Jenny Neslin; General Counsel, Secretary; AG Mortgage Investment Trust Inc

T. Durkin; President, Chief Executive Officer, Director; AG Mortgage Investment Trust Inc

Nicholas Smith; Chief Investment Officer, Director; AG Mortgage Investment Trust Inc

Anthony Rossiello; Chief Financial Officer, Treasurer; AG Mortgage Investment Trust Inc

Bose George; Analyst; KBW

Marissa Lobo; Analyst; UBS

Jake Katsikas; Analyst; BTIG

Brad Capuzzi; Analyst; Piper Sandler

Presentation

Operator

Good day and thank you for standing by. Welcome to the AG Mortgage Investment Trust Inc. fourth-quarter 2024 and full-year earnings conference call. (Operator Instructions)
Please be advised that today's conference is being recorded. (Operator Instructions) I'd now like to turn the call over to Jenny Neslin, General Counsel for the company. Please go ahead.

Jenny Neslin

Thank you. Good morning, everyone, and welcome to the full-year and fourth-quarter 2024 earnings call for AG Mortgage Investment Trust. With me on the call today are TJ 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, 2023, 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 Q4 2024 earnings presentation on the home page. Again, welcome to the call, and thank you for joining us today. With that, I'd like to turn the call over to TJ.

T. Durkin

Thank you, Jenny. I'm pleased to report our fourth-quarter and full-year financials, which shows our continued execution of our core business strategy and industry-leading results. We're able to deliver these strong outcomes amidst a challenging macroeconomic backdrop, proving the company has a more differentiated strategy than the average REIT.
Highlighting MITT's financial performance during the fourth quarter, we saw book value move higher by 0.6% from $10.58 to $10.64 while paying our $0.19 dividend and producing a healthy economic return on equity of 2.4% for the quarter. For the full year 2024, we were able to increase our quarterly dividend by 5.6% earlier in the year and delivered an 11.7% economic return on equity for our shareholders.
Although it is too early in our process to comment on February, book value was flat for the month of January. Now taking a step back, I've been reflecting on where MITT was when I became CEO in October 2022 and where MITT is today. Nearly every quarter we presented earnings to you during this period, I've said the same thing, volatile, challenging, and turbulent market conditions. In spite of this, we are protecting and growing MITT's book value.
This consistent theme is due to our conviction that if we continue to execute on what we do best, while also being unafraid to be dynamic and seize on compelling opportunities for growth, we can not only protect but also grow book value and in turn our earnings profile for our shareholders.
We remain steadfast to our disciplined programmatic securitization strategy. In the quarter right before I became CEO, our economic leverage was 2.7 turns. Now it's 1.4 turns, and that's been relatively steady as we have consistently executed securitizations on a quarterly basis, controlling our outstanding warehouse balances and generating additional capital for reinvestment.
One of the other reasons for our strong financial performance in 2024 is a reflection on MITT's unique positioning. We are able to be nimble in asset allocation, seamlessly rotating in multiple flavors of non-agency credit, starting with non-QM, then being a first mover in securitizing agency eligible non-owner occupied to most recently being a leader in the emergence of home equity or second-lien lending.
Lastly, December marked the one-year anniversary of closing the WMC acquisition, which has been a resounding success to date in terms of gaining scale for our shareholders. Total stockholder returns from the close to the transaction has been more than 50%. This transaction showcases the power of our external manager, TPG, which we believe doesn't get -- the market doesn't fully appreciate.
Our manager gives us not just financial support as evidenced during the WMC transaction, but also scale. Along with MITT, TPG's broader structured credit and specialty finance business manages $18 billion of AUM. So while MITT may be $550 million of equity, our manager's strong market presence allows to source and punch way above MITT's weight class in isolation.
For all these reasons, I'm looking forward to another great year for MITT as we remain committed to our growth initiatives and creating value for our shareholders. I'll now turn the call over to Nick.

Nicholas Smith

Good morning, and thank you, TJ. Today, I want to build upon TJ's remarks and unpack why we believe in the mid advantage, the topic that we have not emphasized enough in the past. We cannot talk about this topic without diving deep into TPG Angelo Gordon's capabilities and more specifically, the capabilities of its structured credit and specialty finance group, which provides unparalleled access expertise and resources to MITT. I'll take these one by one.
Starting with access. TPG Angelo Gordon has an edge in access to capital, ideas, and sourcing. On the capital side, we are an important counterparty to most, if not all, large investment banks, along with many smaller entities that play an important role in shaping the residential finance sector. These relationships are important conduit to some of the best opportunities in this space.
While these relationships are important, we take pride in our connectivity with the broader residential finance ecosystem. This is a critical part of our sourcing advantage. We have deep relationships across this sector, ranging from the largest nonbank originators to niche venture capital types.
Moving on to expertise. Our deep bench of structured credit and mortgage finance professionals includes over four dozen professionals across trading and origination, research and analytics, asset management, banking, finance and operations, along with dedicated legal and software engineering teams. All this allows us to attach to the residential mortgage finance space in ways most cannot.
Our core competencies span multiple sectors of the broader residential mortgage finance segment, including non-QM; [EPLs]; agency eligible loans, specifically cohorts where Fannie and Freddie have punitive credit costs relative to private capital; home equity, including traditional products like closed-end seconds; HELOCs, along with a new and growing niche digital HELOC sector; and credit-sensitive loans, including nonperforming, reperforming, scratch and dent, and bankruptcy.
Tangential to the residential mortgages, we also have the ability to own servicing rights as our vertically integrated portfolio company. Arc Home is fully licensed to own Fannie, Freddie, in Ginnie MSR with in-place subservicing contracts and all the necessary technologies. We also own and operate various types of specialty finance companies, including residential mortgage originators like Arc Home, in which MITT owns 45%.
Lastly, let's move on to resources that make all this possible. Reiterating what TJ said, MITT is part of the much bigger ecosystem through its manager, TPG Angelo Gordon, which has substantial resources to support its more than $90 billion AUM across products, including MITT. To name a few key resources, TPG Angelo Gordon provides MITT access to, one, a custom-built residential mortgage asset manager, Red Creek.
Instead of buying, one, TPG Angelo Gordon invested the time and capital into building this resource so it could be tailored to fit the needs of MITT and other TPG AG products; two, a state-of-the-art data science department that focuses on everything from digesting large data sets to help inform market views, to cutting-edge technology applications; and three, a deep bench of residential mortgage bankers, contract finance experts, traders, financing specialists, and some of the best in-house legal professionals in the business.
And all this is just the tip of iceberg. The recent MITT track record shows how all these key ingredients come together to create and execute the company's strategy. A few notable highlights include, one, the successful acquisition of WMC, which increased MITTs market cap by over 45% and propelled MITT into the Russell 3000 last June; two, the fluid transition of equity deployment from non-QM to agency-owned investable loans to most recently, home equity loans, which was instrumental in its relative outperformance this quarter; three, the disposition of mortgage servicing rights at Arc Home, four the rotation of legacy credit-sensitive loan investments; and five, the launch of new channels and products at Arc Home that are favored -- focused on empowering our clients with best-in-class technology, liquidity, and service with a focus on operational leverage.
Before moving on, a brief comment on Arc Home. For all the reasons that MITT benefits from TPG Angelo Gordon's resources, Arc Home does as well. While it had its challenges, Arc Home has reached a pivotal point in transitioning to profitability. Over the last year, we continue to invest in talent, including a new CEO, COO and Chief Production Officer.
We believe that ease investments to fuel further growth and believe they were an important part of the company having a profitable December and January. So in conclusion, with all these components, the access, the expertise, and the resources, we strive to provide our shareholders with the best risk-adjusted returns in the residential sector. And to make this happen, MITT can be agile in ways that most other residential mortgage REITs can.
We do not want to be another conduit for investors to access liquid agency exposure on a hedged and levered basis. We also do not want to aggregate large operationally in capital-intensive origination businesses if we don't believe they are justified by a primary goal of providing the best risk-adjusted returns. Turning the call over to Anthony.

Anthony Rossiello

Thank you, Nick, and good morning. 2024 was a successful year for the company. Our performance captured strong asset appreciation on our investment portfolio and substantial synergies realized from the WMC acquisition.
We're also very active, growing our investment portfolio by 13% to $6.7 billion; executing six securitizations; incorporating home equity loans into our product mix, which has been impactful to our profitability; and lastly, we successfully raised senior-unsecured notes to pay off the legacy WMC convertible notes.
Overall, book value increased year over year by 4.3% and generating an annual economic return of 11.7% for our shareholders, while earnings available for distribution or EAD of $0.76 per share covered the 2024 dividends declared of $0.75. During the fourth quarter, book value increased by approximately 0.6% to $10.64 per share, producing a 2.4% economic return when considering the $0.19 quarterly dividend.
The increase in value is primarily driven by gains on our investment activity in home equity loans, coupled with gains on portfolio hedges due to rising benchmark rates, offsetting unrealized mark-to-market losses on our investment portfolio. As a result, we recorded GAAP net income available to common shareholders of approximately $8.8 million or $0.30 per share.
We generated EAD of $0.18 per share for the fourth quarter. Net interest income, inclusive of interest earned on our hedge portfolio was $0.66, which exceeded our operating expenses and preferred dividends of $0.46, generating earnings of $0.20 per share. Although Arc Home contributed a loss of $0.02 to EAD, there has been continued strength in volumes and improvement in margins, driving Arc Home to profitability in December.
We remain active during the fourth quarter, acquiring $359 million of agency eligible loans and $153 million of home equity loans. These purchases were offset by the sale of $185 million of home equity loans where we reinvested the capital return from the sale into non-agency RMBS collateralized by home equity.
Our economic leverage ratio at quarter end was 1.4 turns, which slightly declined from 1.5 turns in September and is relatively low on a historical basis. We've continued to prudently manage our leverage exposure on residential mortgage loans through our programmatic securitizations, ending the quarter with only $190 million of warehouse financing outstanding.
Lastly, we ended the quarter with total liquidity of approximately $137 million, consisting of $119 million of cash and $18 million of unencumbered agency RMBS. This concludes our prepared remarks, and we'd now like to open the call for questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Bose George, KBW.

Bose George

Good morning. Actually, how would you characterize your excess capital? You noted the cash and liquidity just when you think about deployable capital, how would you characterize that?

Nicholas Smith

So when we think about our deployable capital, we have CRE positions that will mature later this year, call it, summer-ish time into fall. That represents probably $20 million, $25 million of equity capital returns. In addition, away from rotation, really new found equity.
When we acquired WMC, there were some inefficient financings that will roll off this summer, which will release another sort of 20 -- call it, $25 million, $30 million of equity. Away from that, there's another $30 million to $50 million of equity that can be rotated. So that sort of comes out to a range of, call it, $75 million to $100 million that could be rotated or newly deployed into the coming year.

Bose George

Okay. Great. And then just in terms of the corporate leverage, the level of preferred, et cetera, how are you thinking about that now? Is that -- is this a level we are comfortable with? Any changes you need to make?

T. Durkin

Yeah. I mean, I think we obviously saw the first kind of new preferred deal come out last week, I believe, and it's been a while there. So I mean we're actively monitoring the market. I mean, we've been running the company sort of with these ratios for quite some time now.
So I think we're comfortable, but we're obviously comfortable there. And I think we've sort of shown kind of good performance of managing that overall leverage ratio to the common.

Anthony Rossiello

Okay, great. Thanks.

Operator

Doug Harter, UBS.

Marissa Lobo

Hi, thanks. It's Marissa Lobo on for Doug. I was hoping you could speak to us a little more about the relative attractiveness of non-QM versus home equity today and how the securitization and financing markets compare?

Nicholas Smith

Yeah. Look, I think you have to -- stepping back home equity is relatively new, and we see a very large addressable market. So we think we're in the early innings there. And I think when you think about being in the early innings, oftentimes, there's sort of a first-mover advantage. So we continue to think that that's the case, albeit maybe not as much as a little -- some time ago.
On the non-QM side, it's a market that continues to grow, I think, maybe has grown more than others or maybe most have thought. And we still find relative value there. But as you can see from our prepared remarks are sort of leaning in more on the home equity side.

Marissa Lobo

Okay. And also on the preferred, any thoughts on the preferred given the increased costs from rolling to floating?

T. Durkin

No. I mean we obviously knew that was coming. I think as Nick mentioned, we've got some other financings that we see coming down the pipe this year that I think will also help offset that increased floating rate. So we're looking at it at a corporate level, but we sort of had that floating rate switching in the model. So we're prepared for it.

Marissa Lobo

Okay. Appreciate the answers.

Operator

(Operator Instructions) Eric Hagen, BTIG.

Jake Katsikas

Good morning. This is Jake Katsikas on for Eric. Thanks for taking my questions. On slide 14, you show that the yield on the securitized non-agency loans was 5.7%. I'm curious if you could kind of talk about what would have to happen in order for that yield to increase. Thank you.

T. Durkin

Yeah. So those are really our kind of on-balance sheet GAAP accounting. So that's really the securitization. So you're going to see that's really a function of 2021, 2022 type origination that is effectively term financed out. So that number is not going to move a lot until we either rotate out of the -- call the deals and sell the loans, et cetera.
But the ROE out to the right is probably what I would point to. That's effectively neutralizing a lower coupon on the mortgages with obviously, the cheaper financing that was issued at the time.

Jake Katsikas

Got you. Thank you. And then you expect the cost of funds for the warehouse lines to drop further. And if that were to happen, would that potentially encourage you to get more active in building your pipeline?

T. Durkin

I mean we've definitely seen the larger investment days to get more aggressive on financing terms post the term of the new year. So we're actively taking advantage of that. I think it's really just about the overall kind of A to Z ROEs were not -- the warehouse is only part of the life cycle of the loan coming on to the balance sheet of MITT.
So it's really also about where the securitization markets are pricing, probably more so than just the -- just the Asian warehouse terms.

Jake Katsikas

Great. Thank you so much.

Operator

Brad Capuzzi, Piper Sandler.

Brad Capuzzi

Thank you for taking my questions. Just kind of want to get high-level thoughts on origination volume in Arc Home into 2025. Obviously, industry origination volumes have come down in recent months given the backup in rates. Just kind of want to get your thoughts there as we look into 2025.

Nicholas Smith

Yeah. Look, we continue to think that Arc Home's business model is somewhat immune or more immune than the broader mortgage market, specifically sort of more liquid products like agencies and jumbos and [Govi] origination. I think it's been well publicized that the non-QM and non-agency markets are actually growing at a good amount relative to the other spaces. And we continue to expect that to be the case.
And beyond that, as we mentioned in the prepared remarks, the investment we've made in the growth of that company. And we expect sort of the combination of those two to really pay dividends in the future. So our expectation and what we've mapped out for this year is continued growth no matter what the market is. And obviously, interest rates matter, but we think that the company will be resilient.

Brad Capuzzi

Got you. I appreciate the commentary. And then just last question for me. Can you speak on your current thoughts around the dividend and just what you would need to see and your rate outlook to continue over covering the dividend in EAD?

T. Durkin

Yeah. So I mean I think we've talked about this in the past. When we think about the dividend, we've really been bifurcating the company's portfolio and sort of the -- what we call the investment portfolio and then obviously, the equity interest in Arc Home.
And to Nick's point earlier, we definitely faced a headwind in terms of sort of negative EAD contribution coming from Arc over the past, call it, four to eight quarters. We're seeing that effectively kind of come to neutral now over December, January. So we flip from a negative to a positive.
It's not a huge positive, right? And so I think we're sort of in this transitional phase where -- let's just call it round numbers breakeven. And then I think as we fast forward into '25, we expect that to be more of a positive contributor.
So if you look back at the last year, as an example, performance, I think that is the sort of tailwind that we would need to think about having a composite EAD north of sort of where the dividend is. I hope that answers the question.

Brad Capuzzi

Yeah, that's perfect. I appreciate it.

Operator

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.

Jenny Neslin

Thank you, everyone, for joining us and for your questions. We appreciate it and look forward to speaking with you again next quarter. Have a great day.

Operator

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