10-Q: AG Mortgage Reports Q2 2025 Results

AG Mortgage Investment Trust, Inc. reports a net loss available to common stockholders of $(0.05) per diluted share for Q2 2025, alongside strategic securitization activities and an increased common dividend.

Summary

• Net Income Available to Common Stockholders was $(1,376) thousand for Q2 2025, compared to $(661) thousand for Q2 2024, and $4,797 thousand for the six months ended June 30, 2025, compared to $15,643 thousand for the same period in 2024.
• Diluted Earnings Per Share was $(0.05) for Q2 2025, compared to $(0.02) for Q2 2024, and $0.16 for the six months ended June 30, 2025, compared to $0.53 for the same period in 2024.
• Book Value per common share decreased to $10.39 as of June 30, 2025, from $10.64 as of December 31, 2024.
• Earnings Available for Distribution (EAD) per diluted common share was $0.18 for Q2 2025, down from $0.21 for Q2 2024, and $0.38 for the six months ended June 30, 2025, down from $0.42 for the same period in 2024.
• A common dividend of $0.21 per share was declared for Q2 2025, representing a 5.0% increase from the $0.20 per share declared in Q1 2025.
• Net Interest Income increased to $17,752 thousand for Q2 2025 from $16,381 thousand for Q2 2024, and to $36,601 thousand for the six months ended June 30, 2025, from $33,560 thousand for the same period in 2024.
• Total Assets increased to $7,462,425 thousand as of June 30, 2025, from $6,913,609 thousand as of December 31, 2024.
• Total Liabilities increased to $6,926,018 thousand as of June 30, 2025, from $6,370,186 thousand as of December 31, 2024.
• Cash and cash equivalents decreased to $88,746 thousand as of June 30, 2025, from $118,662 thousand as of December 31, 2024.
• The GAAP Leverage Ratio was 12.8x and the Economic Leverage Ratio was 1.3x as of June 30, 2025.
• Investment purchases totaled $444,936 thousand and sales proceeds were $39,850 thousand during Q2 2025.
• Subsequent to quarter-end, an additional 21.4% interest in AG Arc LLC was acquired on August 1, 2025, increasing total ownership to approximately 66.0%.

Sentiment

Score: 4

Explanation: While net interest income increased and the common dividend was raised, overall profitability (Net Income, EPS, EAD) declined significantly, and book value per share decreased. There are also specific concerns regarding defaulted commercial loans and the associated uncertainty of recovery. The strategic securitization activities and increased stake in Arc Home are positive, but the financial performance for the period is weak.

Positives

• Increased the quarterly common dividend to $0.21 per share for Q2 2025, a 5.0% increase from the prior quarter.
• Successfully executed rated Non-Agency securitizations, converting recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls.
• Net interest income increased for both the three and six months ended June 30, 2025, compared to the prior year periods, driven by residential mortgage loan and non-agency RMBS purchases and an increase in weighted average yield.
• Weighted average yield on the GAAP investment portfolio increased to 6.02% for Q2 2025 and 6.04% for the six months ended June 30, 2025.
• Maintained compliance with all financial covenants as of June 30, 2025.
• Acquired an additional 21.4% interest in AG Arc LLC on August 1, 2025, increasing total ownership to 66.0%, which could enhance future earnings from mortgage banking activities.
• The S&P CoreLogic Case-Shiller U.S. National Home Price Index was 2.3% higher year-over-year in May 2025, establishing a new national peak.

Negatives

• Net Income Available to Common Stockholders decreased significantly to $(1,376) thousand for Q2 2025 from $(661) thousand for Q2 2024, and to $4,797 thousand for the six months ended June 30, 2025, from $15,643 thousand for the same period in 2024.
• Diluted Earnings Per Share decreased to $(0.05) for Q2 2025 from $(0.02) for Q2 2024, and to $0.16 for the six months ended June 30, 2025, from $0.53 for the same period in 2024.
• Book Value per common share declined to $10.39 as of June 30, 2025, from $10.64 as of December 31, 2024.
• Earnings Available for Distribution (EAD) per diluted common share decreased to $0.18 for Q2 2025 from $0.21 for Q2 2024, and to $0.38 for the six months ended June 30, 2025, from $0.42 for the same period in 2024.
• Recorded a net realized loss of $(3,494) thousand for Q2 2025, primarily due to unwinding certain pay-fix, receive-float interest rate swap agreements.
• Experienced a net unrealized loss of $(40) thousand for Q2 2025, driven by unrealized losses on residential mortgage loans, commercial loans, and interest rate swaps.
• Legacy WMC Commercial Loans A, B, and C, collateralized by hotels, are in default and were placed on non-accrual status for Q2 2025.
• Legacy WMC CMBS with an unpaid principal balance of $23.5 million and a fair value of $7.0 million are on non-accrual or cost recovery status.
• Cash and cash equivalents decreased by $29,916 thousand from December 31, 2024, to June 30, 2025.
• Transaction related expenses significantly increased to $3,018 thousand for Q2 2025 from $481 thousand for Q2 2024, primarily due to increased securitization expenses.
• Net interest component of interest rate swaps decreased to $821 thousand for Q2 2025 from $2,367 thousand for Q2 2024.

Risks

• Interest Rate Risk: Highly sensitive to governmental monetary, fiscal, and tax policies, and economic conditions, which can adversely affect the fair value of investments and the effectiveness of hedging strategies.
• Liquidity Risk: Arises from financing long-maturity assets with shorter-term financings, leading to potential margin calls if collateral fair value decreases, and the risk of not being able to roll financing arrangements at maturity.
• Real Estate Value Risk: Residential property values are subject to volatility from economic conditions, local real estate conditions, natural disasters, climate change, and construction quality, which can lead to losses and reduced collateral value.
• Credit Risk: Exposure to potential credit losses from unanticipated increases in borrower defaults and general credit spread widening on non-agency assets, exacerbated by sustained inflation and elevated mortgage rates.
• Prepayment Risk: Changes in prepayment rates can accelerate the amortization of purchase premiums (reducing yield) or accretion of purchase discounts (increasing yield), and can reduce the effectiveness of hedging strategies.
• Basis Risk: Risk of decline in book value due to widening market spreads between Agency RMBS yields and comparable duration Treasury securities, which is generally not protected by interest rate swaps.
• Capital Market Risk: Exposure to risks in equity and debt capital markets, affecting the ability to raise capital, especially given REIT distribution requirements that limit cash accumulation.
• Manager Dependence: Reliance on the external Manager (AG REIT Management, LLC) and TPG Angelo Gordon for day-to-day operations and investment decisions.
• Fair Value Measurement Uncertainty: Valuation of certain assets and liabilities relies on estimates and assumptions that may differ from actual results due to market conditions and other factors.
• Net Operating Loss (NOL) and Net Capital Loss (NCL) Carryforward Limitations: Use of NOL and NCL carryforwards obtained from the WMC acquisition is limited under Sections 382 and 383 of the Internal Revenue Code.
• Taxable REIT Subsidiary (TRS) Taxation: Income earned by domestic TRSs is subject to corporate income taxation.

Future Outlook

The Federal Reserve has indicated openness to rate cuts later in 2025, with a median expectation for two rate cuts totaling 50 basis points, assuming continued disinflation and no major re-acceleration in growth. The company expects to either hold its Legacy WMC Commercial Investments until maturity or opportunistically exit them. It also does not expect Mortgage Acquisition Trust I LLC (MATT) to acquire additional investments. The company believes its current liquidity and available borrowing capacity will be sufficient to meet anticipated liquidity requirements, including funding investment activities, paying fees, distributions, and general corporate expenses. However, it anticipates that initial margin required on centrally-cleared trades will increase in times of rising interest rates or increasing rate volatility.

Management Comments

• Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term, primarily through dividends and capital appreciation.
• We are able to leverage our Manager, along with our ownership interest in Arc Home, a vertically integrated origination platform, to access investment opportunities in the non-agency residential mortgage loan market.
• This strategic advantage has enabled us to grow our investment portfolio and remain active in the securitization markets, utilizing TPG Angelo Gordon's proprietary securitization platform to deliver non-agency investments to a diverse mix of investors.
• We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.
• Management believes that this non-GAAP measure [EAD], when considered with our GAAP financial statements, provides supplemental information useful for investors to help evaluate our financial performance.
• Management considers the transaction related expenses to be similar to realized losses incurred at the acquisition, disposition, or securitization of an asset and does not view them as being part of its core operations.
• We intend to maintain a level of liquidity in relation to our borrowings that enables us to meet reasonably anticipated margin calls but that also allows us to be substantially invested in the residential mortgage market.
• We believe the net proceeds of our common equity offerings, preferred equity offerings, senior unsecured note issuances, and private placements, combined with cash flow from operating activities, financing activities, and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders, funding financing maturities, and paying general corporate expenses.

Industry Context

In the second quarter of 2025, financial markets generally delivered positive performance, with equities rising modestly and bond prices increasing, particularly at the short end of the curve, despite persistent uncertainty around inflation, fiscal, and monetary policy. The 2-year U.S. Treasury yield declined by 17 basis points to 3.72%, while the 10-year U.S. Treasury ended relatively flat at 4.23%, leading to a steepening of the yield spread. Market volatility in April, triggered by U.S. tariff announcements, caused sharp declines in risk assets, though credit spreads tightened and asset prices partially recovered later in the quarter. The Federal Reserve maintained the federal funds rate at 4.25%-4.50%, emphasizing a data-dependent approach as inflation moderated (CPI at 2.7%, core CPI near 2.9%) and labor market conditions softened. RMBS spreads were mixed, with Non-QM senior and mezzanine tranches slightly wider, subordinate Non-QM wider by 35 basis points, and senior prime jumbo wider by 5 basis points, while CRT tranches tightened. Primary RMBS market activity increased by 6% year-over-year to $35 billion in Q2 2025, with Non-QM activity rising 57%. The home equity sector is gaining focus due to an estimated $17 trillion in tappable home equity. The U.S. National Home Price Index reached a new peak, up 2.3% year-over-year in May 2025, though regional variations exist. Prevailing mortgage rates remained steady in the high-6% area, ending the quarter at 6.77%, contributing to a 'lock-in effect' for existing homeowners. Total existing home inventory grew to 1.54 million units, the largest since June 2020, but still below historical levels, indicating limited supply.

Management Changes

Corporate Governance

Related Party Transactions

• Management agreement with AG REIT Management, LLC (Manager), a wholly-owned subsidiary of TPG Angelo Gordon, covering management fees, incentive fees, and expense reimbursements.
• Manager waived $0.6 million in base management fees for Q2 2024 and $1.2 million for the six months ended June 30, 2024, as well as expense reimbursements of $0.3 million for Q2 2024 and $0.6 million for the six months ended June 30, 2024, pursuant to the MITT Management Agreement Amendment related to the WMC acquisition.
• Investments in debt and equity of affiliates, including an approximate 44.6% interest in Arc Home, LLC (increased to 66.0% on August 1, 2025, through acquisition from TPG Angelo Gordon-managed funds), and an approximate 47.0% interest in Mortgage Acquisition Holding I LLC (MATH).
• Engaged Red Creek Asset Management LLC, a related party of the Manager, as asset manager for certain residential mortgage loans, paying fees of $533 thousand for Q2 2025 and $1,173 thousand for the six months ended June 30, 2025.
• Arc Home sold residential mortgage loans to the Company, with intra-entity profits of $0 for Q2 2025 and $88 thousand for the six months ended June 30, 2025, eliminated.
• Entered into forward purchase commitments with Arc Home for residential mortgage loans.
• Purchased $0.1 million of Re/Non-Performing Securities from an affiliate of the Manager in June 2025.

Stakeholder Impact

• Shareholders (Common): Experienced lower net income and EPS, and a decrease in book value per share, but received an increased quarterly common dividend. Strategic acquisitions and securitization activities may offer future capital appreciation potential.
• Shareholders (Preferred): Received consistent preferred dividends.
• Employees: The company has no direct employees; officers are employees of TPG Angelo Gordon or its affiliates.
• Customers (Borrowers): Impacted by prevailing mortgage rates and regional home price trends.
• Creditors/Lenders: The company remains in compliance with all financial covenants. Securitization activities convert recourse financing to non-recourse, potentially reducing direct recourse exposure for some debt. However, the default of certain commercial loans poses a specific risk to lenders on those assets.

Next Steps

• Expects to either hold Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.
• Will file a resale shelf registration statement on Form S-3 for the 2,027,676 restricted shares issued in the AG Arc acquisition within 60 days of August 1, 2025.
• Will use reasonable best efforts to maintain the effectiveness of the resale shelf registration statement continuously.
• Will continue to monitor debt and equity capital markets to inform decisions on capital raising.

Key Dates

Recommendation

While the company demonstrates a commitment to shareholder returns through an increased dividend and is actively managing its portfolio through strategic securitizations and the acquisition of an increased stake in AG Arc, the significant decline in net income, EPS, and book value per share is a notable concern. The presence of defaulted commercial loans adds an element of uncertainty regarding asset quality and recovery. The mixed financial results and ongoing market volatility suggest a 'hold' position, advising investors to monitor the company's ability to stabilize profitability and resolve asset quality issues before considering further investment.

Keywords

Mortgage REIT, Residential Mortgage Loans, Securitization, Non-Agency Loans, Real Estate Securities, Interest Rate Risk, Credit Risk, REIT, Financial Performance, Dividends, Leverage, Fair Value, SEC Filing, 10-Q, AG Arc LLC