TPG Mortgage Investment Trust (NYSE:MITT) Q3 2026 Earnings Call

0:00 Good day and thank you for standing by. Welcome to the TPG Mortgage Investment Trust, Inc. Third Quarter 2026 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 press the star key followed by the number one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I'd now like to turn the call over to Jenny Neslin, General Counsel for the company.

0:32 Please go ahead. Thank you. Good morning, everyone, and welcome to the third quarter 2026 earnings call for TPG 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 discussion and analysis. The company's actual results may differ materially from these statements.

1:20 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, 2025, our Form 10-Q for the quarter ended June 30, 2026, 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.

2:07 View this live presentation turn to our website www.mitt.tpg.com and click on the link for the Q3 2026 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 TJ.

2:26 Thank you, Jenny. Good morning, everyone. I'm pleased to report mid-third quarter earnings. First, we are making a lot of progress on the potential merger with Cherry Hill, including filing our joint proxy statement and prospectus back in October and we are marching towards stockholder meetings for both Mint and Cherry Hill in December. Turning back to the third quarter, we experienced two different market environments. July and August continued the second quarter's trend of calm, functional markets. However, September inflationary fears took hold of the interest rate market, which put massive pressure on the agency basis and spilt over into non-agency spreads. Our portfolio was well-positioned with low leverage, and we were able to navigate these markets without any uncomfortable decisions around delta hedging or delevering.

3:15 Book value decreased from $10 to $9.27 per share during the quarter, with the entire decline in book value occurring completely in September. Because we entered the period of volatility with a very defensive leverage position, we were able to remain invested and continued rotating capital into higher returning residential credit strategies. At the same time, Arc Home was not immune to September's volatility and reversed July and August profitability to break even, and therefore not contributing to EAD this quarter. In total, MIT generated EAD of 21 cents per share for the quarter, coming in just shy of our recently declared dividend of 24 cents. We continue to make tangible progress resolving our legacy commercial loans.

4:00 Within the hospitality portfolio, a buyer's deposit has gone hard since quarter end and should close by year end. remain on track to resolve another one of the hospitality loans in the coming quarter or two. Separately, the sale process for our retail exposure is still progressing well. A buyer has been selected, and we are guiding the transaction to close in the coming months ahead. These resolutions are important catalysts for MIT. As capital from these legacy positions is redeployed into our core residential strategies, we expect it to contribute approximately 15 to 20 cents of incremental annual EAD for 2027 depending on the timing of these resolutions. As we look toward closing out the year into 2027, we believe we have a clear line of sight to stronger ROEs, higher EAD, and continued dividend growth. We have already raised the dividend in four of the last eight quarters, and we believe this quarter's results are not reflective of our long-term trend.

4:56 We have confidence in the trajectory of the business. We remain excited about the opportunities ahead and look forward to continuing to share our progress with you in the quarters ahead. With that, I'll turn it over to Nick.

5:08 Thanks, T.J., and thank you everyone for joining us today. The third quarter presented a challenging macro environment. Interest rate moves meaningfully higher, volatility was elevated, and geopolitical uncertainty drove volatility in energy, equity, fixed income, and credit markets. Despite this backdrop, the company had an extremely active quarter. issuing approximately one and a quarter billion across three home equity securitizations, building on our strong partnerships with leading home equity originators. Importantly, this significant investment activity increased our economic leverage only modestly from 1.8 to approximately two times, well within the range we have been operating. As stated in previous quarters, we have ample dry powder to continue to grow our asset base by using a combination of liquidity on hand and untapped financing.

5:59 It's worth repeating a point we made regularly on prior calls. This growth came without taking outside gestation risk on mark-to-market warehouse lines. Today, we use only non-mark-to-market warehouse facilities until loans are permanently financed through securitization. Similarly, the company is also mitigating warehouse risk by partnering with originators that bear the market risk for securitized debt that is ultimately syndicated. These strategies are allowing the company to prudently grow our investments in higher-returning residential credit strategies as the portfolio delevers organically over time, which will be an important driver for further expansion of the company's net interest income. While the third quarter's move higher in rates possesses certain challenges, it makes the case for home equity stronger. About half of all outstanding mortgages are below 4%, and nearly 8% and 10% are below 6%. While homeowners hold historically high levels of tapable equity, Extracting home equity through a new first lien cash out refinance means trading a 2%, 3%, or 4% mortgage for one above seven.

7:03 Instead, homeowners are going to continue to turn to the home equity market, allowing them to keep their low 30-year fixed rate mortgages with a combined rate much lower than the alternatives. Every move higher in rates widens this financing advantage, and it would take a material decline in mortgage rates to slow growth in the second lien origination market. Moving on to Arc Home. Our home originated approximately $1 billion this quarter, an approximately 19% increase versus last year. However, as TJ mentioned, its contribution to MIT's EAD was roughly break-even after the volatility in September reversed the previous two months' profitability. On a more positive note, we are starting to ramp home equity originations at our home, which we expect to offset some of the pullback in first-lane originations in our base case. and a more bullish scenario could be an impetus to getting back to more recent quarters contribution to EAD or higher over time.

7:59 Before handing the call over to Anthony, I'll summarize. Despite the challenging macro environment, we remain extremely active deploying excess liquidity, growing the investment portfolio and consequentially net interest income while only modestly increasing leverage. Anthony, over to you.

8:17 Thank you, Nick. Good morning, everyone. During the third quarter, we remained focused on rotating capital into our home equity strategy while maintaining a prudent financing profile. We acquired $317 million of home equity loans and sponsored three home equity securitizations. We also continued to make progress resolving certain legacy WMC commercial loans. Importantly, our investment portfolio continued to generate strong earnings available for distribution. Moving to our financial results, The sharp increase in benchmark rates and widening of credit spreads in September pressured valuations across the mortgage rate sector. Our bulk value declined by 7.3% during the third quarter to $9.27 per share. Including our 24-cent common dividend, we generated a negative 4.9% economic return.

9:09 We reported a gap net loss available to common shareholders of approximately 15.7 million, or 49 cents per share, Thank you for joining us. Net interest income, inclusive of interest earned on our hedge portfolio, was 66 cents per share, exceeding operating expenses and preferred dividends of 45 cents per share.

9:59 Our home was breakeven for EAD, as positive operating performance in July and August was offset by the September volatility. Our investment portfolio continued to generate ROEs of approximately 20%, supported by reinvestment into home equity and net interest margin expansion. In addition, we continue to see meaningful upside from the resolution of our non-accrual commercial loans. This would allow us to redeploy approximately $28 million of capital into higher yielding residential investments, further enhancing our earnings power and shareholder returns. Turning to the investment portfolio, we ended the quarter with approximately $7.6 billion of investments allocated across high quality loans and securities supported by low LTV and delinquency profiles.

10:48 We continue to reinvest into home equity, which represented 37% of our equity allocation at quarter end. Of the three securitizations sponsored during the quarter, we consolidated one transaction backed by $327 million of HELOCs, and for two transactions backed by $895 million of closed-end seconds, we retained $46 million of non-agency RMBS without assuming the associated warehouse financing risk. At approximately two turns, Our low economic leverage reflects the benefits of our securitization strategy. Lastly, we ended the quarter with total liquidity of approximately $85 million, consisting of $57 million in cash and $28 million of committed financing available on residential mortgage loans. This concludes our prepared remarks, and we now like to open the call for questions.

11:41 Thank you. We will now begin the question and answer session. To ask a question, simply press star then the number one on your telephone keypad. Our first question will come from the line of Marissa Lobo with UBS. Please go ahead.

11:55 Good morning and thank you. On the Cherry Hill portfolio, given the higher for longer rate environment and the spread environment, how are you thinking about the relative value of the agency and MSR assets? relative to the opportunity you're seeing in non-agency credit. And does that influence how much you ultimately retain versus rotate post the close?

12:21 Yeah, I mean, when we look at their quarter versus the industry, I mean, I think it was fairly in line. They were down about 13%, only 11% if you stripped out the deal expenses. The majority of it was unrealized. So I don't think there's anything out of line there. I would say we're probably pretty focused on trying to get the deal closed before we think about sort of rotation or relative value. But we're obviously doing this for a much longer time horizon than just, you know, a pretty volatile third quarter.

12:52 And maybe on the policy environment, you know, with the change in Congress following midterms, how does that change the opportunity set for housing finance for you guys? And anything specifically about the GSEs or mortgage credit that could be meaningful from it?

13:08 Look, we don't think the changes, you know, overnight today and going forward change really the landscape or what we think is bipartisan initiative and agreement on finding ways to make housing more affordable and, you know, potential deregulation around housing finance. So we think that the environment will remain positive and, if anything, will continue to trend in the right direction.

13:39 Great. And if I could just ask how, if you could give us a sense of how book value has trended quarter to date?

13:47 Hey, Marissa, this is Anthony. Just given where we are in the calendar, we don't have a book value update at this time. Okay. Thank you for taking my questions.

13:57 Thanks. Our next question will come from the line of Crispin Love with Piper Sandler. Please go ahead.

14:04 Thank you. Good morning, everyone. On ARC, can you discuss the third quarter in a little bit more detail, just from an EAD contribution perspective? If you could give a little bit of detail of what ARC contributed in the first two months versus the drag in September. Looking at the presentation, loss seemed pretty solid, being flat sequentially relative to outperformer versus most. So just curious on some of the drivers of the breakeven. EAD was a competition, margin-related. And then also, just if you have any early read for the fourth quarter, big picture for ARC. Thank you.

14:42 Yeah, so if you, you know, as both TJ and I mentioned, you know, the trajectory of the business in the first two months was on track, call that, you know, slightly below the four cents of contribution in previous quarters, so call it two to three cents. from a from a charity standpoint. Look, it's relatively early. I think we're all paying attention to the screens and have seen sort of the pretty meaningful reversal in rates. So, you know, my my prepared remarks around the home equity is, you know, maybe not an export thing. That's, you know, over a longer period of time, although we would like to think we'll start seeing contribution sooner than that.

15:30 but given given the broader volatility it's it's probably too early to comment on exactly how that's going to shake out all right no perfect that's that's fair and then um

15:43 Just on where you're most interested in investing incremental capital today, I was looking at slide nine, that pie chart there, home equity, non-QM, agency eligible, re and non-performing. Just where are you most interested in adding today? Seems you're bullish on home equity, definitely longer term, just on the rate backdrop. But just curious, your focus today, and then if there's any pockets in there where you're more cautious or stepping back a little bit.

16:13 Yeah, look, I think our prepared remarks sort of pound the table a lot on home equity. You know, hopefully that comes through as I think it's been obvious over the past so many quarters years. We have not been, you know, investing as much in non-QM because we see the relative value in home equity. We would like to think that that premise has been positive relative to other guys, you know, taking different strategies. and it's our view that this strategy still has legs.

16:52 And then any other areas where you're more cautious or stepping back?

17:00 Look, I mean, we've sort of been deploying capital in somewhat of a monoline fashion in home equity for a decent amount of time. So, you know, pulling back would be pulling back on that one strategy. And, you know, we're communicating that we expect to keep doing that. So I'm not going to, you know, I don't want to comment on things we're cautious on that we're not doing.

17:22 Perfect. Makes sense. I appreciate you taking my questions.

17:27 Thank you. Our next question will come from the line of Bose George with KBW. Please go ahead.

17:35 Hey, good morning, guys. This is Frankie Lovetti on for Bose. I just wanted to start with the – you mentioned the $0.03 EAD benefit from repaying the commercial piece. What is the expected timing of that benefit? And you mentioned that redeploying the $28 million of equity there. What's the – can you give some color on the additional benefits? You see there. Yeah, we have we have five.

18:04 So we have five specific assets that we've gone through. We have the one retail property. We have four hospitality. You know, it looks like one of the hospitality assets, you know, like I said, is the deposit's gone hard. We expect that to close this year. We're pushing on the retail asset. So it's going to be staggered, not sort of one cliff event. We're delivering that financing as we get proceeds. So, I mean, the goal would be this is sort of wrapped up in totality at some point during 27 with some probably tail of the hospitality assets. And as we generate excess cash, we're, you know, from both pay downs and CRE assets, we're redeploying that into, like Nick mentioned, home equity, you know, call it 20% ROEs.

18:56 I mean, I think as you know, right, the CRE market, you know, selling these assets is an adventure, and, you know, we're trying to keep buyers, you know, focused, disciplined, and getting to closings, but I don't think that's unique to these assets at all.

19:13 Yeah, and just a follow-up on that is the expected proceeds still consistent with the current carrying values given the changing macro environment? Correct.

19:23 Correct.

19:27 Awesome. And then just on, you know, you mentioned in the prepared remarks, the bridge from the current 21 cents of EAD to the 24 cent dividend. Can you just talk about kind of run rate in the current environment where you see that? Do you think you need to cover the dividend in 4Q or is maybe a little longer than that?

19:52 Yeah, I mean, I think we'll, you know, the ARC home kind of breakeven obviously contributed to the current quarters missed. We'll see how the sort of mortgage banking environment emerges in Q4 coming out of a pretty volatile September, October, I would say. I think the portfolio continues, the portfolio XCRE, I think, continues to do its job, and as we can rotate more capital into there, that'll just drive kind of more natural run rate EAD. So that's the That is kind of the moving scale of capital as we can get more capital into home equity. That obviously drives more consistent EAD and, you know, ARC Home, we are somewhat at the whims of sort of like the mortgage banking, you know, cyclicality or there's just the spread volatility that we've seen, you know, in September, October.

20:52 Great, thank you. And then just last follow-up, just on current leverage, expectations going forward, you know, been pretty consistent for the past few quarters. Just, yeah, where do you see leverage going from here?

21:07 Yeah, I think, listen, we've run the business really conservatively, both from a nominal economic leverage perspective, and then I think, as Nick mentioned, like, you know, there's a lot of Thank you so much.

21:44 being able to be offensive, not defensive in a quarter like Q3. Very helpful. Thank you, guys. Our next question will come from the line of Trevor Cranston with Citizens. Please go ahead.

22:02 Hey, thanks. On the moving book value in 3Q, are you guys able to kind of disaggregate how much of the change was due to Thank you very much. Thank you.

22:38 You know, deconstructing, you know, how much was actually driven by our core business. You know, the decline is much more modest than sort of the headline number. So, you know, I welcome you to take a look at that. Deconstructing sort of the spread move versus interest rate move, I would say they're, you know, relatively, I would call it 50-ish, 50. You know, we tend to run a small duration gap. but, you know, oftentimes that's, you know, offset by sort of, you know, spreads, you know, theoretically tightening into a sell-off and vice versa. Obviously, that didn't happen this quarter. We're hopeful that given the moves early on in the most recent quarter, you know, claw some of that back.

23:31 Okay. That's helpful.

23:32 Thank you. Again, for any questions, please press star 1, and our next question will come from the line of Jason Weaver with Jones Trading. Please go ahead.

23:44 Hey, guys. Good morning. I was wondering, according to your prepared remarks with the growth in the home equity side of the portfolio, how are you thinking about the changing – how are you thinking about the new way to manage the credit exposure and duration exposure going forward that get more challenging and Any specifics you can give around that, I'd appreciate.

24:09 I mean, taking each of those one at a time, on the credit exposure, you know, we're lending money to folks that have been in their house on average well over a decade with high FICO scores and relatively low CLTBs on average. The portfolio has, you know, call it a range of 30% to 40% of equity in the house where that second lien detaches. The delinquencies have been modest. We have a couple, three years of good performance data to benchmark to. So now it's no longer hypothetical. So we feel good about the credit. We have a decent amount of experience relative to peers already.

24:54 So the managing the credit, we're very comfortable with. If anything, when you talk about the convexity, the nice part about second liens is there's There's a lot of spec to use sort of an agency term. You know, there shouldn't be a tremendous amount of convexity. So managing the interest rate risk is actually far more straightforward than sort of the broader mortgage universe, given, you know, the lower average balances and the high cost of producing a second should not have, you know, a ton of convexity.

25:32 Got it. Thank you for that. And that will conclude our question and answer session today. I'll hand the call back to Jenny Neslin for any concluding remarks.

25:46 Thank you to everyone for joining us and for your questions. We greatly appreciate it and look forward to speaking with you again next quarter. Have a great day. This concludes today's call. Thank you all for joining. You may now disconnect.