TPG Mortgage Investment Trust Inc Q1 FY2026 earnings call

• Continued strength in earnings available for distribution (EAD) with earnings growth at home despite volatile quarter, leading to fourth dividend increase to $0.24 per share.
• Book value decreased 4.9% to $9.97 per share with a net loss driven by investment portfolio unrealized losses but operating performance strong with durable net interest income, earnings growth at column, and controlled expenses.
• EAD of 26 cents per share covered the dividend, net interest income and column contribution led to net earnings. Investment portfolio and ARC Home had double-digit ROE on book value.
• Catalysts for deploying capital into higher-yielding residential investments include deployment of liquidity from unlevered home equity loans and resolution of non-accrual commercial loans.
• Ended quarter with approximately $100 million in cash, committed financing, and unencumbered agency RMBS.

Book value decreased 4.9% to $9.97 per share. EAD was 26 cents per share, increasing from the prior quarter and fully covering the 24-cent dividend. Net interest income, including hedge income, was 67 cents, exceeding 45 cents of operating expenses and preferred dividends to generate net earnings of 22 cents per share. The column contributed an additional 4 cents to EAD. The investment portfolio and ARC Home had a double-digit ROE on book value. The company ended the quarter with approximately $100 million, consisting of $49 million in cash, $50 million of committed financing on unlevered home equity loans, and $1 million of unencumbered agency RMBS.

• Expect to rotate capital to increase earnings power, continue passing earnings through dividend.
• Progress on CRE loans: retail asset sale process moving along, two hotel assets have signed LOI, last two hotel assets expected to be wrapped up by end of year or into 2027.
• On agency-eligible loans, focus has been on other higher-returning opportunities but expects others to continue growing in the marketplace.
• For ARC Home, early signs in Q2 are good with normalizing seasonally and still seeing gains though slightly below budget initially.

• Reports of increasing delinquency levels in recent vintage non-QM product. However, MIT has transitioned to other segments over two years ago, agency-eligible book performs better than Prime Jumbo, and home equity segment delinquencies are less than a quarter of broader non-QM market, with credit selection tighter than broader universe so MIT not exposed to relevant degradation.

Q: Can you talk about your thoughts on continuing to increase the dividend versus some ability to retain some capital, just given your commentary that you expect further upside in earnings power?

A: T.J. says they're running fairly conservative economic leverage, alleviating cash drag, and see linear path to rotate capital without needing to reserve ton for other purposes, looking to continue passing earnings through dividend.

Q: How do you think about how much of that kind of gets passed through the dividend versus how much of that could be retained to support future growth?

A: Brian says they're looking to continue to pass that through to shareholders in the form of the dividend and then satisfy the retest.

Q: Talk a little bit more about the CRE loans and kind of how we should think about the timing of resolution there and freeing up that capital.

A: T.J. says good progress on remaining CRE assets, extended facility with lender out six months, retail asset sale process moving along, two hotel assets have signed LOI, last two hotel assets expected to be wrapped up by end of year or into 2027.

Q: Give us some more information on the flexibility exercise call ride, how much of that time required remains to be executed? You know, how do you feel about the current rate?

A: Response says a lot to do with outright levels of spreads and interest rates, retracement in recent quarter, expecting stabilization of market and good news in coming quarters on executing.

Q: Expand on the opportunity in agency-eligible loans? You know, what is your outlook there for volume and aggregation in your terms?

A: Response says focus has been on higher returning opportunities in non-agency and home equity space, still compelling opportunities but less so with new market participants entering with lower cost of capital, but expects others to continue growing in the marketplace.

Q: Follow-up on earnings power and ROEs. You're generating, I think, roughly 10 percent core ROEs today. I'm curious where you think that could trend, what ROE targets are attainable, and over what timeframe, as R continues to be a larger contributor to EAD, and as you rotate capital into higher, returning REZI investments as the WMC investments mature?

A: Nick Wigginton says ROE growth derived from returning equity capital in commercial book, growing ROEs at home, and calls, with path towards achieving ROEs across broader business.

Q: On ARC Home, can you discuss a little bit what you've seen so far in the second quarter, just high-level trends, volumes, mortgage rates peaked around quarter end, have improved a bit since then. So getting into a little bit of a seasonally more conducive environment for mortgage, but still a little bit of a challenging factor. So just curious where you stand right now on ARC Home and trends you're seeing.

A: Response says normalizing for seasonality, maybe slightly below budget but still early, seeing gains, expectation is budgeted volumes will normalize and achieve original projections, early signs good for Q2.

Q: Follow-up on the commercial discussion. Do you think we could expect additional marks on some of the sales? I know you said they're continuing to be ongoing, but any color there would be great.

A: Response says generally reflecting current valuation in sales process, barring surprises, no additional marks expected.

Q: Pivoting to the home equity, you know, you scaled it nicely for the past few quarters. Trying to think about how large can that get as a percentage of your portfolio? And then, you know 29% ROEs, Is that – are those returns still available on new production today? And where's the best risk-adjusted returns in that market today?

A: Response says home equity market has expanded nicely, expected to continue or accelerate, largest non-agency securitized product at some point, still good opportunity in segment with increased competition but not as competitive as other non-AC segments, and no concerns on deploying capital into this segment.

Q: There's been some reports about you know, increasing delinquency levels in some of the recent vintage non-QM product. Can you guys comment specifically on, you know, your non-QM segment of the portfolio if you guys are seeing any sort of deterioration in performance or just an update there would be great.

A: Response says underperformance of non-QM less relevant to MIT as transitioned to other segments over two years ago, agency-eligible book performs better than Prime Jumbo, home equity segment delinquencies less than a quarter of broader non-QM market, credit selection tighter than broader universe so MIT not exposed to relevant degradation.

Q: Curious about the 9.5 notes of 29. Those are obviously the most expensive part of the capital stack right now. It's three years out, but I believe they've become callable relatively shortly. And with your EAD coverage, tell us how you're thinking about maybe doing a refinancing, tender, partial pay down. Any thoughts there?

A: Response says always evaluating entire capital structure, notes coming callable later this year, will explore refinancing or delivering if rates move in right direction.

Q: On overall purchase activity, your volume this quarter was well below the fourth quarter, I think $87 million versus $284 million or so. Is that more of a strategic or a timing issue over time? Were you waiting for wider spreads to get involved, or can you talk about that a bit?

A: Response says portfolio decrease was due to non-consolidation of recent transactions, so a bit of form over substance given nuances