Earnings Call Transcript - MITT Q4 2025

Operator, Operator

Thank you for your continued. Your meeting will begin shortly. Star zero, and a member of our team will be happy to help you. Please standby, your meeting is about to begin. Good day and thank you for standing by. Welcome to the TPG Mortgage Investment Trust Inc Fourth Quarter 2025 and Full Year 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. In order to ask a question during the session, please be advised that today's conference is being recorded. If you require any. I would now like to turn the call to counsel for the company. Please go ahead.

Jenny B. Neslin, Counsel

Thank you. Good morning, everyone, and welcome to the full year and fourth quarter 2025 earnings call for TPG Mortgage Investment Trust Inc. With me on the call today are T.J. Durkin, our CEO and President, Nick Smith, our Chief Investment Officer, and Anthony W. Rossiello, our Chief Financial Officer. Before we begin, please note that the information 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-Ks for the year ended 12/31/2024, 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. 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. Return to our website, www.mittpg.com, and click on the link for the Q4 2025 earnings presentation on the homepage. Again, welcome to the call, and thank you for joining us today. With that, I would like to turn the call over to T.J.

T.J. Durkin, CEO

Thank you, Jenny. I am pleased to report our fourth quarter and full year financials, which show our continued execution of our core business strategy and industry leading results for the second year in a row. We were 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 remain stable, increasing from $10.46 to $10.48, and we produced an EAD of $0.25, covering our most recently declared dividend of $0.23. When including our newly declared $0.23 in equity of 2.4% for the quarter, although it is too early to comment on our process for February, value is approximately flat for the month of January. Taking a step back and looking at the year as a whole, I believe it is hard to argue with the results driven by the hard work of the MITT team. We have remained steadfast to our disciplined programmatic securitization strategy, issuing 10 times throughout the year, allowing us to keep our economic leverage low versus our peers at just 1.6 turns to end the year. For the full year 2025, we were able to increase our quarterly dividend 3 times by a total of over 21%, delivering a 6.5% economic return on equity. Most importantly, MITT’s total return to shareholders, including dividends and stock price appreciation, through today is a standout 42%, meaning the market is starting to understand both MITT’s story and future potential. We were able to raise our dividend due to executing on a few key action items, which we have been transparent to the market about dating back almost two years since the close of the WMC acquisition. First was optimizing legacy WMC financings, which we did by refinancing the 11.5% structured repo in July and unlocking $55,000,000 of equity proceeds to be reinvested in our core securitization strategy. Equally as important is continuing to return to profitability at Arc Home, where it was a tale of two halves this year, and we are excited about where the company is heading in 2026. We have also maintained good discipline on G&A and cost controls, which Anthony will touch on later. Lastly, we have been able to deliver all the positive results while still carrying the legacy WMC CRE loans on nonaccrual status as we work with the lender groups towards successful dispositions of the assets. We have approximately $28,000,000 of equity remaining in these assets, which, when reinvested, will only further bolster MITT’s earning power. As I reflect on those key themes that drove 2025 success, and turn the page to 2026, let me be clear on the team’s objectives. First, resolve the legacy WMC CRE loans in the first half of the year and quickly reinvest into our core higher ROE strategies. Second, work with Arc Home’s management team to continue and build upon the earnings momentum we were able to achieve in the 2025. Third, drive further earnings power and capital rotation through focusing on our legacy deals, which become callable in 2026. Now before I turn the call over to Nick to go into more details, I would reiterate that we have consistently executed on our stated objectives and believe we have a clear line of sight into more powerful ROEs and EAD as we look ahead into 2026. While I recognize there are some headwinds of being a smaller cap company, I think those are outweighed by the meaningful impact our stated objectives have on driving earnings for our common shareholders. For all those reasons, I am looking forward to another great year for MITT as we remain committed to our growth initiatives and creating greater value for our shareholders. I will now turn the call over to Nick.

Nick Smith, CIO

Thanks, T.J. The company had an extremely active fourth quarter and a milestone year in 2025. We have made significant progress in rotating equity into our core strategies, growing the investment portfolio and scaling profitability of our portfolio company Arc Home. These steps have allowed us to increase our dividend by over 21% this year and 9.5% this quarter, supported by a clear growth in earnings power. Getting into specifics. Starting with rotation and investment growth. For the full year 2025, we grew our investment portfolio 27% compared to 2024, ending the year at $8,500,000,000. This growth was driven by over $3,000,000,000 in total loan purchases throughout the year. In the fourth quarter alone, we securitized over $1,300,000,000 of residential mortgage loans across three transactions; our strategy remains focused on rotating capital from legacy WMC residential and commercial exposures into higher yielding home equity and agency eligible strategies. This disciplined rotation was a primary driver of our earnings growth. Moving on to our securitization activity. We executed a total of 10 securitizations in 2025, representing $4,200,000,000 in total. We have become a programmatic issuer in the home equity space, securitizing $2,400,000,000 across five transactions this year. In Q4, we remained highly active, securitizing $1,300,000,000. This included partnering with top mortgage originators totaling $960,000,000, where we retained $55,000,000 of securities. We achieved this growth while maintaining a disciplined leverage profile, with our economic leverage standing at just 1.6. 2025 highlights the rapid success of our expansion into the home equity space since late 2024. Today, our home equity portfolio includes $1,100,000,000 of loans, $107,000,000 of non-Agency RMBS, representing 35% of our total equity allocation, which includes approximately $70,000,000 of HELOCs we currently hold unlevered. Moving on from financing and investment activity to Arc Home. We are reiterating our commitment to this business as we begin to see our strategic investments pay off. During 2025, Arc Home remained focused on growing origination volumes and improving profitability, resulting in what we describe as a tale of two apps. While the company overcame a turbulent April, marked by market volatility, it reached a clear inflection point in the second quarter when it achieved breakeven earnings. This set the stage for a very consistent second half of the year, where the platform generated a 10% annualized ROE. Our confidence in the business was further signaled by our acquisition of an additional 21.4% ownership interest in August. Following this, the company achieved record lock volumes with 34% year-over-year growth. This growth was primarily driven by a 42% increase in non-QM mortgage fundings versus 2024, which was an increase of over 79% year over year. In total, Arc Home originated over $3,400,000,000 for the year 2025. The strong earnings at Arc Home, driven by steady gain on sale margins and high lock volumes, have positively contributed to our earnings available for distribution. As Arc Home continues to execute its plan, its contribution to EAD should rise. And with our increased ownership, this will be an important driver of future earnings. We are encouraged by the start of 2026, with January marking Arc Home’s strongest month since returning to profitability, generating monthly earnings in excess of $1,000,000. We believe this growth is sustainable as Arc Home continues to gain share in this increasingly attractive corner of the mortgage market, where non-Agency originations expand their share of the aggregate mortgage market. Touching upon our call rights and future strategy. As alluded to in our previous remarks, we see significant embedded value in our 2022 and 2023 vintage issuances. In Q4, we acted on this by exercising the optional redemption of a 2022 vintage non-QM securitization with $316,000,000 in UPB. Subsequently selling approximately $277,000,000 of it. We intend to remain aggressive in exercising call rights on in-the-money securitizations to return capital that can be opportunistically redeployed in our core, higher-returning investment strategies. We see significant EAD upside in rotating approximately $35,000,000 of equity this year. This time last year, we spoke in-depth about the MITT advantage. The past year’s results are evidence of this advantage playing out, and we believe it is as relevant today as it was then. To summarize this advantage briefly, the MITT advantage is driven by the extensive capabilities of its manager, TPG, which provides MITT with unparalleled access to capital and sourcing expertise within the residential mortgage finance sector. This provides MITT with an edge through its vast network of relationships with investment banks and non-bank originators, alongside the support of over four dozen specialized professionals and a state-of-the-art data science and technology department. Furthermore, TPG provides dedicated resources like Red Creek, a custom-built asset manager, along with expert support for portfolio companies like Arc Home. All this allows MITT to be uniquely agile and effectively rotate capital, not limited to non-QM home equity and agency eligible credits, to name a few, allowing MITT to deliver superior risk-adjusted returns compared to traditional mortgage REITs. Before passing the call over to Anthony, I will summarize by saying we entered 2026 with strong momentum in earnings growth. This growth will be fueled by exiting legacy residential and commercial holdings, executing call rights, and rotating this capital into the company’s higher-returning strategies along with the tailwinds that Arc Home and its focused market, Non-QM.

Anthony W. Rossiello, CFO

Thank you, Nick, and good morning, everyone. MITT finished 2025 with strong momentum, maintaining book value stability and raising our quarterly dividend for the third time this year by over 21% to $0.23 per share. During the quarter, we sponsored three securitizations and continued deploying capital into our home equity portfolio. This investment activity, coupled with sustained strength in origination volumes at Arc Home, delivered a strong economic return and earnings available for distribution that exceeded our increased dividend level. Moving to our financial results. Book value increased by 0.2% during the fourth quarter to $10.48 per share. Including our $0.23 dividend, we generated a 2.4% economic return for our shareholders. GAAP net income available to common shareholders was $8,000,000 or $0.25 per share, primarily driven by EAD, as net unrealized gains on our investment portfolio were partially offset by transaction related expenses, which are mainly associated with securitization activity. During the fourth quarter, we recognized EAD of $0.25 per share, up from $0.23 in the prior quarter and fully supporting our newly increased dividend. Our investment portfolio continued to produce strong results, with net interest income increasing by 4% this quarter. This growth is driven by our ongoing rotation of capital into higher earning target assets, and a full quarter of benefit from the legacy WMC debt refinancing completed in Q3. Overall, net interest income, inclusive of interest earned on our hedge portfolio, was $0.68, which exceeded $0.45 of operating expenses and preferred dividends to generate net earnings of $0.23 per share. To round out EAD, Arc Home contributed an additional $0.2 per share supported by continued strength in origination volumes. For the full year 2025, EAD of $0.86 per share gained $0.85. On a year-over-year basis, EAD increased by 17% to $26,300,000, driven by a 6% increase in net interest and hedge income, alongside a meaningful turnaround in our home. Specifically, Arc Home contributed $1,900,000 to EAD in 2025, all of which is recognized in the second half of the year, as compared to a loss of $3,300,000 in 2024. This was further supported by non-investment related expenses remaining flat year over year, highlighting a large portion of our expense load being fixed. Lastly, income earned from our strategic capital deployment throughout 2025 was well in excess of the added investment related expenses. Looking ahead, our earnings power will be further enhanced as we execute our call strategy and redeploy capital from legacy WMC commercial loans currently on nonaccrual or cost recovery status into residential investments during 2026. Lastly, we ended the quarter with total liquidity of approximately $109,000,000 consisting of $58,000,000 in cash, $50,000,000 of committed financing available on unlevered home equity loans, and $1,000,000 of unencumbered agency RMBS. This concludes our prepared remarks, and we now would like to open the call for questions.

Operator, Operator

Thank you. To leave the queue at any time, press 2. Once again, that is 1 to ask a question. And we will pause for just a moment to allow everyone a chance to join the queue. Thank you.

Crispin Elliot Love, Analyst

Thank you, and good morning, everyone. First on Arc Home, originations increased in the fourth quarter and you called out momentum in 2025 and also early 2026. But can you just give a little more detail on what you are seeing so far in the first quarter as it pertains to Arc Home volumes and gain on sale margins relative to the fourth quarter? And then I just want to make sure I heard you right. Did you say Arc Home generated $1,000,000 in EAD in January? Or was that something different?

Nick Smith, CIO

That was their individual profitability. Arc Home’s ownership of. So you have to take into consideration of Arc. Commenting on the volumes they continue to gain market share. There have been tailwinds from a margin standpoint insofar as you have a curve steepening yield curve and tighter credit spreads with increased liquidity. So as a niche originator in a space where there is a lot of demand, margins have been healthy, and we have been able to pass that on to our lending partners and origination partners, and that is really driving future growth. Hopefully, looking forward, as we continue to scale, we can take in more margin. But volumes have been continuing to increase sequentially month over month and quarter over quarter as the company grows.

Crispin Elliot Love, Analyst

Perfect. Appreciate the color there. And then can you discuss where you are most interested in investing incremental capital today? Just looking at Slide nine and the pie chart as of Q4. Just home equity non-QM, agency eligible, which areas are you most interested in adding? And then are there any areas or pockets within those or other areas that you are more cautious or stepping back at all?

Nick Smith, CIO

Yes. So the focus has been home equity. We started this in earnest about a year ago. The performance has continued to be very good relative to other asset classes out there from a delinquency standpoint. This speaks to just it being a very good credit borrower profile. We have not seen any degradation of that relative to other portfolio segments. Similarly, we’ve been very focused on agency eligible credits. That continues to be an outstanding performer relative to other segments in the non-Agency space. So our expectation is that we will continue thematically through this year and likely into the next.

Douglas Michael Harter, Analyst

Hoping you could touch on, it seems like spreads in securitized financing markets have tightened a lot. Can you just talk about kind of how or why that has not resulted in kind of increases in book value and then also, is that kind of a key factor in the attractiveness of the ability to call legacy deals?

Nick Smith, CIO

Yes. So maybe taking each of those in their components. First of all, good morning, Doug. The calls definitely benefit from lower nominal yields and tighter and flatter credit curves. Given where we are currently, that looks more and more attractive from a loan execution standpoint and a potential relever standpoint. Regarding book value, there has been some drag on IOs from some of the acquisitions in the past. The residuals' faster speeds lead to slightly lower nominal yields and much tighter credit spreads. If you think about when some of this book was originated, we are talking about credit spreads and loan spreads or nominal yield loan spreads that were 100 basis points wider than today.

Douglas Michael Harter, Analyst

Got it. And I guess that has impacted, I guess, the liability side as much as your residual piece? Just trying to understand why that benefit has not improved to your residual piece?

Nick Smith, CIO

So the credit spreads benefit insofar as it could potentially favorably impact the execution on the calls at a future date. But the faster speeds mean that there will be less collateral to call at that point, which offsets that benefit.

Trevor Cranston, Analyst

Hey. Thanks. Good morning. You guys talked about the equity you can free up through the exercise of call rights this year. Can you give us a little more detail on how you are thinking about the pace of executing call rights over the course of the year and whether you expect to do any in the first quarter?

Nick Smith, CIO

Yes, perfectly. So in the prepared remarks, we mentioned that there were two transactions that we are focused on, which free up about $35 million of equity. We think that those are focused deals. A lot of that will come through sort of in this quarter, and then the rest will come through in subsequent quarters, whether it be Q2 or Q3.

Trevor Cranston, Analyst

Got it. Okay. That helps. And then looking at Page 12 in the slide deck, I think there is a new line item there. I was curious if you could help us understand what that is regarding the unlevered home equity loans? Just curious to see what those are.

Nick Smith, CIO

So they are exactly what it sounds like. Loans that we hold unlevered as a cash substitute against favorable financing that is not being utilized. It helps offset some of the cash drag.

Bose Thomas George, Analyst

Hey guys, good morning. Prishan from the WMC. As the debt capital rolls up, should we just look at that the $50 million and use kind of a mid-teens ROE? Or is there any sort of impairment risk as that runs off, or essentially, should we just expect flat to mid-teens return as that capital is freed up?

Nick Smith, CIO

Yes, on the legacy. So we have $28 million of equity, right? We still have some very modest financing on those loans. I think to your point, yeah, we are basically showing you kind of a minus six ROE there by paying that financing, and they are on non-accrual. I think converting them to whether it is 15% or 20% ROE is worth approximately $0.20 on an annualized basis, as we are able to rotate that $28 million in full.

Bose Thomas George, Analyst

Great. Thanks. And then actually, switching over to Arc, can you just talk about the competitive dynamics in the non-QM space? Obviously, demand is very high, but we see more supply as companies come in as well. So just can you talk about that balance?

Nick Smith, CIO

Yes. That is a great question. We talk about this a lot. So both the headwind and increased visibility and increased competition is both a headwind primarily for wholesale lender, Arc Home leverages the broker community. As more brokers become familiar with this product, we see the pie growing. So as the pie grows because these products are meeting most consumers in the United States, it is making access to that customer easier, which is growing the pie. We do not see any supply issues. We still think it is a modest portion of the overall aggregate mortgage market. As the supply has continued to increase, it has been well absorbed by loan securitization as well as companies' or insurance companies' balance sheets. Hopefully, that answers your question.

Matthew Erdner, Analyst

Hey. Good morning, guys. Thanks for taking the question. I would like to kind of turn to securitizations and the ROEs that you are seeing in the environment today compared to where they were in the fourth quarter. And then as a follow-up to that, kind of the expected pace that you guys are going to have throughout the first half of the year?

Nick Smith, CIO

Yes. So breaking those into their components, some of the pace will be dependent upon the equity capital that we get back. Overall, we think that there is a decent amount of organic equity capital that can be rotated, calling it around $20 million throughout the year as mentioned. Then there are the calls of approximately $35 million of equity. So in aggregate, we will have a decent amount of dry powder this year, all of which we can rotate at meaningfully higher ROEs. I think generically to address the ROEs, a lot of our competitors and maybe some of the more main-stream more commoditized products have low to mid-teens to mid-teens ROEs. In contrast, our ROEs on securitizations, we believe are capable of clocking in a decent amount higher than that, anywhere from 5% to 10%, given the unique way we are attaching to the marketplace.

Operator, Operator

At this time, there are no further questions in queue. I will now turn the meeting back over to our host for any closing comments.

Jenny B. Neslin, Counsel

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

Operator, Operator

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.