Executive Summary / Key Takeaways

• Differentiated Strategy & Vertical Integration: AG Mortgage Investment Trust ($MITT) is transforming into a vertically integrated residential mortgage REIT, leveraging its strategic partnership with TPG Angelo Gordon (TPG) and its increased ownership in Arc Home to drive a unique, agile business model focused on non-agency and emerging home equity markets.
• Resilient Financial Performance Amidst Volatility: Despite recent market turbulence, including a modest 2.4% book value decline in Q2 2025, MITT demonstrated stability and delivered a near-breakeven economic return on equity, supported by disciplined leverage management and strategic securitizations.
• Strategic Capital Deployment & EAD Growth: The company is actively redeploying capital from maturing commercial loans and refinanced high-cost debt, anticipating a significant lift to future Earnings Available for Distribution (EAD) as it expands its high-ROE home equity portfolio and benefits from Arc Home's expected profitability.
• Technological & Operational Edge: Through TPG Angelo Gordon's robust ecosystem, MITT benefits from a state-of-the-art data science department, a custom-built asset manager (Red Creek), and advanced technology at Arc Home, enhancing sourcing, underwriting, and operational efficiency, thereby strengthening its competitive moat.
• Compelling Outlook: With Arc Home projected to become a meaningful positive EAD contributor in 2026 and a substantial pipeline of deployable capital, MITT is well-positioned for sustained earnings growth and consistent dividend coverage, capitalizing on a growing, underserved residential credit market.

The Evolution of a Residential Credit Powerhouse

AG Mortgage Investment Trust, Inc. ($MITT) is carving out a distinct identity in the residential mortgage REIT landscape. Established in 2011, MITT has evolved from a traditional mortgage REIT into a vertically integrated platform, strategically focused on acquiring and securitizing newly-originated residential mortgage loans within the non-agency segment of the U.S. housing market. This transformation, dubbed "MITT 2.0" by management, is underpinned by a disciplined approach to capital allocation and a unique relationship with its external manager, TPG Angelo Gordon.

The company's strategic journey began with the formation of Arc Home LLC in 2015, a residential mortgage loan originator, marking its initial foray into vertical integration. This was significantly amplified by the acquisition of Western Asset Mortgage Capital Corporation (WMC) in December 2023, which substantially increased MITT's scale and diversified its asset base to include commercial loans and CMBS. Most recently, in August 2025, MITT deepened its commitment to this integrated model by acquiring an additional 21.4% interest in AG Arc (the parent of Arc Home), increasing its total ownership to approximately 66%. This move, executed through the issuance of common stock with minimal 2% dilution to June 30 book value, is considered a logical next step in solidifying its best-in-class residential mortgage origination and securitization platform.

MITT's competitive advantage is profoundly shaped by its affiliation with TPG Angelo Gordon, a diversified credit and real estate investing platform. This relationship provides unparalleled access, expertise, and resources that allow MITT to "punch way above its weight class in isolation." TPG Angelo Gordon offers an edge in capital access, innovative ideas, and sourcing, leveraging deep relationships across the residential finance ecosystem, from large investment banks to niche non-bank originators. This extensive network provides a critical sourcing advantage, enabling MITT to identify and capitalize on attractive investment opportunities.

The technological differentiation stemming from this partnership is a core strength. TPG Angelo Gordon's "state of the art data science department" is instrumental in digesting large datasets, informing market views, and developing "cutting edge technology applications." Furthermore, MITT benefits from a "custom built residential mortgage asset manager, Red Creek," which is tailored to meet the specific needs of MITT and other TPG AG products. At the operational level, Arc Home is focused on "empowering clients with best-in-class technology, liquidity and service," driving operational leverage. These technological capabilities, while specific performance metrics are not readily available, are stated to enhance the company's ability to attack the residential mortgage finance space in ways most cannot, contributing to superior underwriting, asset management, and overall operational efficiency. This integrated technological and operational framework is a key differentiator against competitors, allowing MITT to be "agile in ways that most other residential mortgage REITs can’t."

Strategic Focus and Market Dynamics

MITT's investment strategy is characterized by its nimble asset allocation, allowing it to seamlessly rotate capital into the most attractive non-agency credit sectors. The company has demonstrated this agility by transitioning from non-QM to agency-eligible non-owner occupied loans, and most recently, becoming a leader in the emerging home equity and second lien lending markets. This strategic flexibility contrasts with some peers who may focus more narrowly on levered agency exposure.

The broader market environment presents both challenges and opportunities. While financial markets experienced volatility in Q2 2025, particularly in April due to tariff announcements, MITT's "smarter leverage" strategy, utilizing non-mark-to-market whole loan warehouses, proved resilient, avoiding forced deleveraging. The Federal Reserve's patient, data-dependent approach, with moderating inflation and a softening labor market, suggests potential for rate cuts later in 2025, which could influence market dynamics.

The U.S. housing market continues to exhibit a "lock-in effect," where homeowners with historically low mortgage rates (an effective rate of 4.05% as of Q1 2025) are disincentivized from selling, contributing to limited inventory. Despite regional variations in home price growth, the S&P CoreLogic Case-Shiller U.S. National Home Price Index reached a new peak in May 2025, up 2.3% year-over-year. This backdrop of resilient home prices and tight mortgage credit is favorable for MITT's credit-sensitive portfolio.

A significant growth area for MITT is the home equity market, which is receiving substantial industry focus. Management estimates a "total addressable home equity lending market" of up to $2 trillion, with potential for $200 billion to $300 billion in annual loan originations. MITT views this as an "early innings" opportunity, expecting "ROEs in the 20s" and accretion to EAD in the coming quarters and years. The company is actively pursuing this segment, having partnered with a leading nonbank mortgage originator for a $500 million home equity securitization in Q1 2025 and acquiring an additional $130 million in home equity loans. Subsequent to Q2 2025, MITT further securitized Home Equity Loans totaling $301.3 million and $647.0 million in July 2025. This focus on home equity, primarily sourced from non-banks, leverages MITT's existing mortgage banking and asset management expertise.

Financial Performance and Operational Discipline

MITT's financial performance demonstrates its ability to generate stable returns and protect book value in a dynamic environment. For the full year 2024, the company delivered an 11.7% economic return on equity, with Earnings Available for Distribution (EAD) of $0.76 per share covering the $0.75 dividend declared. In Q2 2025, despite broader market volatility, MITT reported a modest 2.4% book value decline to $10.39 per share, resulting in a near-breakeven economic return of -0.5%. This resilience is a testament to its "differentiated business strategy and disciplined around risk."

Net interest income for the six months ended June 30, 2025, stood at $36.6 million, up from $33.6 million in the prior year period, driven by increased residential mortgage loan and non-agency RMBS purchases and a higher weighted average portfolio yield. However, Q2 2025 EAD experienced a "onetime drop" due to three commercial loans from the WMC acquisition being placed on nonaccrual. Management expects this to be temporary, with resolution anticipated by year-end 2025 and capital redeployed into target assets in the second half of the year.

The company's investment portfolio expanded by 2.3% in Q2 2025 to $7.3 billion. This growth was managed with a low economic leverage ratio, ending Q2 2025 at 1.3 turns, a significant reduction from 2.7 turns in October 2022. This disciplined leverage, coupled with programmatic securitizations, has consistently controlled warehouse balances and generated capital for reinvestment. Notably, subsequent to Q2 2025, MITT refinanced high-cost inefficient debt inherited from the WMC acquisition, reducing the cost of capital by over 500 basis points and generating approximately $40 million in additional cash for redeployment. This capital was immediately reinvested, strengthening the company's earnings profile.

Arc Home, MITT's strategic affiliate, has reached a pivotal point. After strategic investments in talent and process, Arc Home achieved profitability in December 2024 and January 2025, and maintained a breakeven contribution to EAD in Q1 and Q2 2025. With lock volumes increasing 50% year-over-year and improving gain on sale margins, Arc Home is expected to become a "meaningful earnings accretion" driver for MITT in 2026, contributing positively to EAD in late 2025 and "in earnest in 2026."

Risks and Outlook

While MITT's strategy offers resilience, investors should be mindful of inherent risks. Macroeconomic volatility, including sustained inflation and Federal Reserve policy actions, can impact interest rates and credit spreads, affecting asset valuations and borrowing costs. The company is exposed to credit risk from borrower defaults, though its portfolio exhibits strong collateral characteristics (e.g., 59% current LTV, 1.3% serious delinquencies in Q1 2025). Prepayment risk also remains, as changes in prepayment speeds can affect asset yields and hedging effectiveness. Liquidity risk, primarily from financing long-maturity assets with shorter-term arrangements, is managed through prudent leverage, daily liquidity monitoring, and maintaining a cushion of cash and unpledged assets to meet margin calls.

Looking ahead, MITT's outlook is positive. The company anticipates issuing two more securitizations in Q3 2025, further converting recourse financing to non-recourse, non-mark-to-market debt. The resolution of the commercial loan portfolio by year-end 2025 is expected to free up $20 million to $25 million in equity capital, alongside another $25 million to $30 million from rolling off inefficient WMC financings. Combined with $30 million to $50 million from capital rotation, this provides a total of $75 million to $100 million in deployable capital for new investments in the coming year. This capital, coupled with Arc Home's anticipated positive EAD contribution, is expected to enhance MITT's "stable kind of earnings power" and support a consistent dividend for the intermediate term.

Conclusion

AG Mortgage Investment Trust is executing a compelling investment thesis centered on its transformation into a vertically integrated, agile, and technologically advanced residential mortgage REIT. By leveraging its deep relationship with TPG Angelo Gordon, MITT gains unparalleled access, expertise, and resources, enabling it to identify and capitalize on attractive opportunities in the non-agency and burgeoning home equity markets. This differentiated strategy, combined with disciplined leverage management and a robust securitization platform, has allowed MITT to deliver resilient financial performance and book value stability even amidst challenging market conditions.

With Arc Home poised to become a significant positive contributor to EAD in 2026 and a substantial pipeline of deployable capital, MITT is well-positioned for sustained earnings growth. The company's strategic focus on high-ROE home equity loans and its ability to navigate competitive shifts in the residential credit space underscore its potential for long-term value creation. For discerning investors, MITT represents an opportunity to participate in a unique, well-managed REIT that is strategically positioned to unlock value in the evolving U.S. mortgage market.