TPG Mortgage Investment Trust Inc (MITT) 2025 Q4 法說會逐字稿

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. (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.

Thank you. Good morning, everyone, and welcome to the full-year and fourth-quarter 2025 earnings call for TPG 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 heading, 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, 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. 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.mitt.tpg.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'd like to turn the call over to T.J.

Thank you, Jenny. I'm 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 the 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 dividend, we produced a healthy economic return on equity of 2.4% for the quarter. Although it's too early to comment on our process for February, book value was approximately flat for the month of January.

Taking a step back and looking at the year as a whole, I believe it's hard to argue with the results driven by the hard work of the MITT team. We remain steadfast to our disciplined programmatic securitization strategy issuing 10x throughout the year, allowing us to keep our economic leverage low versus our peers at just 1.6x to end the year. For the full-year 2025, we were able to increase our quarterly dividend 3x by a total of over 21% and delivered a 6.5% economic return on equity.

Most important, 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're 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 million of equity proceeds to be reinvested in our core securitization strategy. Equally as important is to continued 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've 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 million of equity remaining in these assets, which when we invested, will only further bolster MITT's earnings 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. Secondly, work with Arc Home's management team to continue and build upon the earnings momentum we were able to achieve in the second half of 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 clear line of sight into more powerful ROEs and EAD as we look ahead into 2026. While I recognize there are some headwinds on 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'll now turn the call over to Nick.

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 $8.5 billion. This growth was driven by over $3 billion in total loan purchases throughout the year.

In the fourth quarter alone, we securitized over $1.3 billion of residential mortgage loans across three transactions. Our strategy remains focused on rotating capital out of 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 $4.2 billion in total. We have become a programmatic issuer in the home equity space securitizing $2.4 billion across five transactions this year. In Q4, we remained highly active securitizing $1.3 billion. This included partnering with top mortgage originators on two home equity securitizations totaling $960 million where we retained $55 million of securities.

We achieved this growth while maintaining a disciplined leverage profile with our economic leverage standing at just 1.6x. 2025 highlights the rapid success of our expansion into home equity space since late 2024. Today, our home equity portfolio includes $1.1 billion of loans and $107 million of non-agency RMBS representing 35% of our total equity allocation, which includes approximately $70 million 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 strategy -- strategic investment payoff. During 2025, Arc Home remained focused on growing origination volumes and improving profitability, resulting in what we describe as a tale of two halves.

While the company overcame a turbulent April marked by tariff-related 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 Q4 of 2024, or an increase of over 79% year-over-year.

In total, Arc Home originated over $3.4 billion 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 million. We believe this growth is sustainable as Arc Home continues to gain share in this increasingly attractive corner of the mortgage market and non-agency originations expand their share of the aggregate mortgage market.

Touching upon 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 million in UPB, subsequently selling approximately $277 million of collateral.

Looking forward to 2026, 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 million 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 extensive capabilities of its manager, TPG, which provides MITT with unparalleled access to capital, sourcing and expertise within the residential mortgage finance sector. This provides an edge through its vast network of relationships with investment banks and nonbank 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 effectively rotating capital across various sectors, including but not limited to non-QM home equity and agency eligible credits, to name a few, allowing MIT to deliver superior risk-adjusted returns compared to traditional mortgage REITs.

Before passing the call over to Anthony, I'll summarize by saying we enter 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 at Arc Home and its focus market, non-QM. Anthony, over to you.

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 continue 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 million 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 were 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 $0.02 per share, supported by continued strength in origination volumes.

For the full-year 2025, EAD of $0.86 per share covered our annual dividends of $0.85. On a year-over-year basis, EAD increased by 17% to $26.3 million, driven by a 6% increase in net interest and hedge income alongside a meaningful turnaround in Arc Home. Specifically, Arc Home contributed $1.9 million to EAD in 2025, all of which is recognized in the second half of the year as compared to a loss of $3.3 million 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 cost recovery status into residential investments during 2026. Lastly, we ended the quarter with total liquidity of approximately $109 million, consisting of $58 million in cash, $50 million of committed financing available on unlevered home equity loans, and $1 million of unencumbered agency RMBS.

This concludes our prepared remarks, and we now like to open the call for questions. Operator?

(Operator Instructions)

Crispin Love, Piper Sandler.

First, on Arc Home. Originations increased in the fourth quarter, and you called out momentum in the second half of '25 and also early '26. But can you just give a little more detail on what you're 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 million in EAD in January? Or was that something different?

That was their individual profitability. So you have to take into consideration Arc Home's ownership of Arc.

Commenting on the volumes. They continue to gain market share. There has been tailwinds from a margin standpoint in so far as you have a steepening yield curve and tighter credit spreads and more liquidity. So as a niche originator in a space where there's a lot of demand, margins have been healthy, and we've been able to pass that on to our lending partners or origination partners, and that is really driving future growth. Hopefully, looking forward, as the company continues to scale, we can take in more margin. But volumes have been continuing to increase sequentially month-over-month, quarter-over-quarter as the company grows.

Perfect. Appreciate the color there. And then can you discuss where you're most interested in investing incremental capital today? Just looking at slide 9 in the pie chart as of 4Q, 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're more cautious or stepping back at all?

Yes. So the focus has been home equity. We started this in earnest, call it, a year plus ago. The performance has continued to be very, very good relative to other asset classes out there from sort of a delinquency standpoint, which speaks to just it being a very open credit borrower. We have not seen any degradation of that relative to other sort of 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'll be -- we'll continue that thematically through this year and likely into the next.

Doug Harter, UBS.

Hoping you could touch on -- it seems like spreads and securitized financing markets have tightened a lot. Can you just talk about kind of how or why that hasn't 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?

Yes. So maybe taking -- well, first of all, good morning, Doug. Maybe taking each of those in their components. The calls definitely benefit from lower nominal yields and tighter and a flatter credit curve, which is given where we are locally that looks more and more attractive from a loan execution standpoint and a potential re-lever standpoint.

Regarding book value, there has been some drag on IOs from, call it, some of the acquisitions in the past. So residuals just faster speeds into the slightly lower nominal yields and much tighter credit spreads. If you think about when some of this book was originated, you're talking about credit spreads that were -- and loan spreads or nominal loan spreads that were 100 wider than today?

Got it. And I guess that has impacted, I guess, the liability side as much as kind of your residual piece? Just trying to understand why the benefit doesn't improve kind of your residual piece?

So the credit spread benefit in [SOFR] as it could potentially favorably impact execution on the calls at a future date. But the faster speeds means that there'll be less collateral call at that point, which is offsetting. That makes sense?

Trevor Cranston, Citizens.

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

Yes, perfectly. So in the prepared remarks, we mentioned that there were two transactions we were focused on, which free up, call it, $35-ish 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.

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 which is the unlevered home equity loans? Just curious what those are?

So they're exactly what it sounds like, loans that we hold unlevered as a cash substitute against favorable financing that is not being utilized to help offset some of the cash drag.

Bose George, KBW.

Actually, when we think about the accretion from the WMC as the debt capital rolls off, should we just look at the $50-odd million and use kind of a mid-teens ROE or is there any sort of like impairment risk as that runs off or essentially, should we just flat to mid-teens return as that capital is freed up?

On the CRE loans, Bose?

Yes, on the legacy.

So yes, we have $28 million of equity, right? We still have very modest financing on those loans. And so I think to your point, yes, we're basically showing you kind of a minus 6% ROE there by paying that financing and the nonaccrual. So I think converting them to whether it's 15% or 20% ROE is, we think, is worth approximately $0.20 on an annualized basis as we're able to rotate that $28 million in full.

Okay. Great. 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?

Yes, that's a great question. We talk about this a lot. So in both the sort of increased visibility and increased competition is both the headwind and tailwind as a primarily wholesale lender. Arc Home leverages the broker community. As more and more brokers get familiarity with this product, we see the pie growing.

So as the pie grows because these products are meeting most consumers in the United States where they would traditionally meet, it's making the access to that customer easier, which is growing the pie. We don't see any supply issues. We still think it's a modest portion of the overall aggregate -- or the aggregate mortgage market as the supply has continued to increase, it has been well absorbed by both the loan securitization as well as light company or insurance companies' balance sheets. So hopefully, that answers your question.

(Operator Instructions)

Matthew Erdner, Jonestrading.

I'd like to kind of turn to securitizations and the ROEs that you're 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.

Yes. So breaking those in their components. Some of the pace will be dependent upon the equity capital that we get back, maybe breaking those in their components. We do think that there's a decent amount of organic equity capital that can be rotated, call that, $10 million to $20 million throughout the year. There's the commercial T.J. just alluded to. And then there's the calls of $35 million of equity. So in aggregate, we 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, I think a lot of our competitors and maybe some of the more mainstream and more commoditized products are quoting ROEs, call it, in the low mid-teens, mid-teens. Our ROEs on securitizations, we believe we are clocking in a decent amount higher than that, call it anywhere from 5% to 10% given sort of the unique way we're catching the marketplace.

Right. That makes sense. So kind of in line with historically where you guys have been at?

That's right.

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

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.

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