AG Mortgage Investment Trust, Inc. Aktie

Good day, and thank you for standing by. Welcome to the TPG Mortgage Investment Trust, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. 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 Second Quarter 2026 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 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-K for the year ended December 31, 2025, 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 and the transaction presentation that were posted to our website this morning. To view the slide presentation, turn to our website, www.mitt.tpg.com, and click the link for the Q2 2026 earnings presentation or the transaction presentation as applicable on the home page. 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. Good morning, everyone. I'm very pleased to report another strong quarter for MITT, highlighted by second quarter earnings and the announcement of our definitive agreement to acquire Cherry Hill Mortgage Investment Corporation. We believe this transaction represents a transformational step forward for MITT. The combined scale will benefit from significantly enhanced scale, meaningful G&A synergies and a highly complementary portfolio mix that remains firmly centered on our core focus, the residential mortgage ecosystem. As a reminder, MITT has a proven track record of executing and creating value through strategic acquisitions, including the WMC transaction that closed in December 2023. Since that acquisition, MITT has dramatically outperformed its peers, increasing our dividend 5x for a cumulative growth of 33%, while delivering approximately 140% growth in our quarterly EAD. With the addition of Cherry Hill, the combined company's market capitalization will increase by approximately 36%, materially improving stock liquidity and trading volumes while creating an equity capital base of approximately $750 million. This greater scale will position us to compete more effectively, operate more efficiently and create stronger long-term earnings power for our shareholders. We are also pleased that MITT's manager, TPG, is making a direct cash contribution of approximately $20 million alongside approximately $15 million from MITT's balance sheet, creating an attractive cash to stock consideration mix of approximately 30%. We believe this differentiates the transaction from a traditional REIT acquisition and meaningfully enhances the value proposition for both Cherry Hill and MITT shareholders. Cherry Hill shareholders will also gain access to the full breadth of TPG's platform, capabilities, relationships and operating expertise. In addition, we believe the combination will generate substantial G&A efficiencies with expected annual cost synergies in the range of approximately $7 million to $9 million, further supporting earnings growth and returns over time. We expect to close the strategic acquisition in the fourth quarter. Turning back to the second quarter. The market navigated a challenging interest rate environment driven by renewed inflation concerns and continued uncertainty around Federal Reserve policy. Despite this backdrop, MITT delivered another quarter of stable performance and disciplined execution. Book value increased from $9.97 to $10 per share during the quarter as we maintained a disciplined leverage profile and continued rotating capital into higher returning residential credit strategies. At the same time, Arc Home continued to scale meaningfully with funding volumes reaching multiyear highs. These initiatives helped generate EAD of $0.24 per share for the quarter, fully covering our recently declared dividend of $0.24. Notably, our company has continued to demonstrate earnings growth over the past year despite the ongoing headwind of having a legacy commercial loan exposure on nonaccrual status, which leaves room for significant upside as we continue to wind down this exposure. On the topic of our legacy commercial loans, as we discussed last quarter, the sale process for our retail exposure is progressing well. A buyer has been selected, and we currently expect the transaction to close by year-end. Within the hospitality portfolio, we remain on track to resolve 2 of our remaining exposures by the end of the third quarter. More importantly, we expect all 3 of these resolutions to occur in line with our current carrying values. These resolutions are important catalysts for MITT. As capital from these legacy positions is redeployed into our core residential strategies, we expect it to contribute approximately $0.05 of incremental EAD in the short term. Looking ahead, the remaining 2 hospitality assets are actively being repositioned under new management, and we expect to begin remarketing those assets next year. The eventual recycling of that capital is expected to provide an additional annual EAD benefit in excess of $0.15 per share. So combined, that's $0.20 in aggregate incremental EAD per annum. All in all, we believe MITT is entering a new phase for growth. We have consistently executed on the objectives we laid out over the last several years, strengthening the platform, improving earnings power and positioning the company for higher and more durable returns. As we look towards closing out 2026, 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 4 of the last 7 quarters, reflecting the momentum we are building and the confidence we have in the trajectory of the business. We remain excited about the opportunities ahead and look forward to continuing to share our progress in the quarters to come. With that, I'll turn the call over to Nick.

Thanks, T.J., and thank you, everyone, for joining us today. The company remains active, rotating excess capital into home equity and non-agency credit, where we continue to see attractive risk-adjusted returns and strong demand across the capital stack. MITT is well positioned to continue to benefit from the growth of the non-agency residential mortgage market. As stated previously, home equity remains core to our strategy, and we believe this segment will provide the company with compelling opportunities as this residential housing segment's growth accelerates. It is worth noting that while year-over-year non-agency issuance has increased nearly 50%, the home equity segment has seen annualized growth of almost 150%. We expect our early mover advantage and continued market leadership to pay dividends well into the future as our partnerships deepen with the growth of the overall market. This quarter, the company successfully issued 2 securitizations with an aggregate balance of over $750 million. In the third quarter, we expect to issue over $1.25 billion across 3 home equity securitizations, building on partnerships with leading home equity originators. We expect to be able to continue this growth while maintaining a disciplined leverage profile as demonstrated by the modest increase in leverage quarter-over-quarter of just 0.1 turns, bringing the company's economic leverage to just 1.8 turns. Importantly, at these current levels, we have plenty of dry powder to continue to grow our asset base by using a combination of liquidity on hand or untapped financing, which we expect to be an important driver of additional earnings power. On Page 6, we highlight the second quarter's performance. This quarter, there were modest net mark-to-market gains on our investment and hedge portfolio despite the bear flattener and meaningfully higher nominal yields. Despite a challenging origination backdrop at Arc Home was able to distribute $6.6 million in excess capital to MITT during the quarter while growing origination volumes and making early progress on newly launched home equity offerings. This, combined with the previously mentioned capital rotation, drove the company's earnings power. Following T.J.'s remarks regarding the status of resolving the legacy commercial portfolio, we look forward to quickly rotating that capital into attractive opportunities within our core strategy to drive meaningfully accretion to EAD. To reiterate T.J.'s remarks, we see approximately $0.20 annual EAD pickup in aggregate with this improvement beginning in the third quarter and accelerating through 2027. Before handing off the call to Anthony, I'd like to comment briefly on MITT's strategic acquisition of Cherry Hill Mortgage Investment Corporation. As T.J. noted, this is a highly complementary portfolio. Cherry Hill's mortgage servicing rights will provide MITT with a new revenue stream that delivers additional diversification to the existing portfolio. We are confident that this is another segment of the broader residential mortgage ecosystem that MITT is well suited to leverage in the future to generate attractive risk-adjusted returns and importantly, will contribute to earnings immediately. Additionally, we believe that the combined balance sheet will provide opportunity to free additional capital through opportunistic sales and additional leverage capacity. Over to you, Anthony.

Thank you, Nick, and good morning, everyone. During the second quarter, we continued rotating capital into home equity loans and non-agency securitizations, successfully executing 2 cosponsored deals. We also gained significant momentum toward resolving certain of our legacy WMC commercial loans and delivered continued strength in earnings available for distribution or EAD. During the quarter, book value increased 0.3% to $10 per share, generating 2.7% economic return, inclusive of our $0.24 dividend. GAAP net income was approximately $9.1 million or $0.29 per share. Net income during the quarter was driven by durable EAD across our investment portfolio and Arc Home, hedge adjusted gains on residential investments and unrealized gains on legacy W&C commercial loans, supported by $3.5 million of payments received, which reduced our cost basis and were used to continue delevering these investments. Our investment portfolio continued to generate high-teen ROEs while expenses remain controlled. We recognized EAD of $0.24 per share, fully covering our dividend. Net interest income, inclusive of our hedge portfolio was $0.65 per share, exceeding $0.45 of expenses and preferred dividends to generate net earnings of $0.20 per share. Arc Home contributed an additional $0.04 per share to EAD, consistent with last quarter and driven by origination volume growth. Our investment portfolio stood at $7.7 billion, primarily allocated across high-quality agency-eligible non-QM and home equity loans. While headline assets declined from $8.1 billion in Q1 due to securitized loan paydowns, our Q2 securitizations deployed capital into unconsolidated non-Agency RMBS rather than consolidated loans. During the quarter, we purchased an additional $70 million of HELOCs ahead of a planned Q3 securitization and acquired $38 million of non-Agency RMBS through executing 2 partnership deals without incurring warehouse financing risk. Looking ahead, resolving nonaccrual commercial loans unlocks roughly $30 million of capital for reinvestment into higher-yielding residential investments, further enhancing shareholder returns in 2027. Rounding out a strong quarter, we're excited to execute on our strategic acquisition of Cherry Hill, delivering immediate and long-term benefits to shareholders of both companies. The transaction is expected to drive EAD accretion in 2027 by acquiring a portfolio generating attractive equity returns while realizing significant operating synergies upon combining the platforms. Cherry Hill's Agency RMBS and low WACC MSR portfolios bring durable, predictable cash flows that complement our residential loan strategy, strengthen our net interest margin and provide strong support for our dividend. Importantly, this transaction achieved scale through permanent capital without adding unsecuritized debt, supported by a significant contribution from TPG and an amended manager incentive fee structure that aligns interest with shareholders and TPG's commitment to growth in MITT's pure-play residential strategy. Upon combination, pro forma economic leverage will settle at approximately 2.9 turns, derisking Cherry Hill's historical profile while maintaining our conservative balance sheet relative to peers. As we ended the quarter with $112 million of liquidity, funding this $15 million of cash consideration leaves us with ample post-close flexibility to capitalize on a larger, more liquid platform. I'll now turn the call back to T.J. for closing remarks.

Thank you, Anthony. I'd like to close by addressing Cherry Hill shareholders. We hope you agree that this pending transaction is compelling and should deliver long-term value for you. We look forward to welcoming you to our combined company, and we sincerely hope your ownership continues.

And with that, we'll open up the line for questions. Operator?

[Operator Instructions] I'm showing no questions at this time. I'll now turn the program back to our presenters. Apologies. We do have a question. We'll take our first question from Bose George with KBW.

Actually, first on the acquisition. Is the plan to maintain that portfolio, both the MSR and the agencies as is? Or any thoughts on how that might look as a combined company?

Bose, this is Nick. Thanks for the question. So the -- similar to all of our strategies, we will optimize over time. There is an expectation that there are portions of the portfolio that will be retained and others that will be rotated not dissimilar to sort of our current strategies.

Okay. Great. And then actually in terms of the mix of the different assets, leaving aside the acquisition, what -- like how do you see that evolving? Do you see home equity as being a potentially much larger piece? Or just how do those pieces potentially look a year out from now?

Yes. The expectation is from the prepared remarks that home equity will continue to accelerate. We just currently see one a competitive advantage and more relative value there. So I would expect that to continue to grow.

Okay. And the returns there remain -- have they remained fairly stable? It seems like there's a lot of activity in that space, a lot of production, but the returns are relatively stable?

Yes. Look, I mean, generally, the market has gotten more competitive in non-agencies broadly. This segment itself is not isolated from that, but we do believe it is generally more isolated than other segments for various reasons. And it's our view that we have a strong competitive advantage to drive higher returns there relative to other segments.

I'm showing no additional questions at this time. I'll now turn the program back to our presenters for any additional or closing remarks.

Thank you, everyone, for joining, and we 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.

Good day, and thank you for standing by. Welcome to the TPG Mortgage Investment Trust, Inc. First Quarter 2026 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 First Quarter 2026 Earnings Call for TPG Mortgage Investment Trust. With me on the call today are TJ. Durkin, our CEO and Presiden, Nic Smith, our Chief Investment Officer; and Anthony Rosiello, 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'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, 2025, 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 nonGAAP 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.mit.tpg.com and click on the link for the Q1 2026 earnings presentation on the home page.

Again, welcome to the call, and thank you for joining us today. With that, I'd like to turn the call over to TJ.

Thank you, Jenny, and good morning, everyone. During the first quarter, we experienced a familiar dynamic. In the beginning of the quarter, the company benefited from additional moderation of interest rate volatility, lower rates and strong residential credit fundamentals, along with increased demand for risk across the entire non-agency capital stack from investors. However, these favorable conditions abruptly unwound in March following the escalation of the conflict in the Middle East weighing on asset valuations broadly.

Despite the challenging macro backdrop that put pressure on mitt's book value for the first quarter, declining from $10.48 to $9.97, we maintained a disciplined leverage profile and remain focused on executing our core strategy of rotating capital into higher returning residential credit strategies and scaling profitability at Arc Home. These efforts produced EAD of $0.26 for the first quarter, more than covering our most recently declared dividend of $0.24.

Further, we'd like to note that although it's too early in our process to comment on April book value, we believe we have already recovered at least 50% of the previous quarter's unrealized book value decline.

Before turning the call to Nic to go into more details, I would reiterate that we have consistently executed on our previously stated objectives and believe we have clear line of sight into more powerful ROEs and EAD as we look ahead into 2026. We have been able to raise our dividend in 4 of the last 6 quarters as we continue executing on our stated objectives discussed on our last quarter's call.

We look forward to continuing to share our progress in the coming quarters. I'll now turn the call over to Nic.

Thanks, TJ., and thank you, everyone, for joining us today. We ended the first quarter with an investment portfolio of $8.1 billion. Our activity remains focused on home equity and non-agency credit, where we continue to see attractive risk-adjusted returns and strong structural demand. We securitized approximately $500 million of home equity loans, building on a partnership formed with a market-leading home equity originator a few years ago.

Home equity remains core to our strategy, and we believe this segment will provide the company compelling opportunities as this residential housing segment continues to grow. In addition to this transaction, we executed another securitization subsequent to quarter end, comprised of approximately $430 million non-agency residential mortgage loans.

Importantly, we maintained our disciplined leverage profile. The company's economic leverage stands at a conservative 1.7 turns. While we have been able to grow earnings at these leverage ratios, we believe we can prudently move this up over time to drive additional earnings power. The credit performance of the company's residential portfolio continues to be a core strength. Serious delinquencies in our non-agency portfolio stand at just 1.3%, while our home equity portfolio is even lower at 0.4%.

The portfolio is comprised of high-quality borrowers with significant equity in their homes. On average, the non-agency and home equity portfolios have a low 60% loan to value.

On the commercial side, we are seeing positive momentum as we manage our Legacy WMC commercial holdings to exit. We are focused on derisking these positions, which will further free up equity for redeployment in our core strategies, higher returning residential.

Moving on to Arc Home. Arc Home has reached a clear inflection point. Despite the macroeconomic headwinds this quarter, Arc Home delivered a meaningful contribution to our EAD of approximately $0.04 per share. We continue -- we saw continued strength in lock volumes of $1.3 billion, a 25% increase year-over-year, driven by strong non-agency originations. Our decision to increase ownership stake at 66% is starting to pay off as the platform gains market share and improved gain on sale margins.

Before handing the call over to Anthony, I'd like to close with some thoughts around our strategy and the macro outlook. We entered the second quarter with significant momentum. While market volatility impacted our book value this period, we see a path to recovery. Since quarter end, we observed an improving, though admittedly fragile macroeconomic environment. If this continues, we expect a return to trends we saw in the earlier parts of this year and believe this environment is likely to lead the market to revisit the types of the year, which would reverse much, if not all, of the book value decline we saw in Q1.

As TJ. mentioned in his remarks, at this point, we believe we've already recovered at least 50%. We are well positioned to navigate this volatility and continue to grow earnings while delivering superior risk-adjusted returns. Anthony, over to you.

Thank you, Nic, and good morning, everyone. During the first quarter, we continued to focus on rotating capital into our home equity portfolio. We successfully executed one home equity loan securitization and maintained our momentum in the securitization markets with an additional deal in April.

Most importantly, we realized continued strength in our earnings available for distribution, or EAD. This performance was supported by earnings growth at Arc Home despite a volatile quarter, which resulted in our EAD once again exceeding our increased dividend level. Reflecting this ongoing improvement in earnings, we announced our fourth dividend increase since the beginning of 2025, raising our quarterly dividend to $0.24 per share.

Moving to our financial results. Book value decreased 4.9% to $9.97 per share, resulting in a negative 2.6% economic return when considering our $0.24 dividend. We reported a GAAP net loss of approximately $8.7 million or $0.27 per share, entirely driven by net unrealized losses on our investment portfolio, which were partially offset by gains on our hedge portfolio and investment in Arc Home.

Overall, these unrealized losses reflect the March macroeconomic volatility, which drove rates higher and caused spreads to widen. Despite these unrealized losses, which have begun to retrace in April, the company's operating performance remains strong, delivering durable net interest income, earnings growth at Arc Home and a controlled expense load, all of which supported our increased dividend and demonstrate the embedded value of our strategy.

Specifically, EAD of $0.26 per share increased from the prior quarter and fully covered our $0.24 dividend. Net interest income, including hedge income was $0.67, which exceeded $0.45 of operating expenses and preferred dividends to generate net earnings of $0.22 per share. Arc Home contributed an additional $0.04 to EAD, driven by continued strength in origination volumes and improved gain on sale margins.

While the performance of our investment portfolio and Arc Home delivered a double-digit ROE on book value, we see meaningful upside as we optimize the balance sheet. Specifically, the deployment of liquidity from unlevered home equity loans and the resolution of nonaccrual commercial loans represent clear catalysts to deploy capital into higher-yielding residential investments, further enhancing shareholder returns.

Lastly, we ended the quarter with approximately $100 million in total liquidity, consisting of $49 million in cash, $50 million of committed financing on unlevered home equity loans and $1 million of unencumbered Agency RMBS.

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

[Operator Instructions] We'll take our first question from Doug Harter with BTIG.

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

Yes, Doug, it's TJ. Good to hear from you. I think we're running fairly conservative economic leverage. So in terms of having excess liquidity for margin call risk, I think we've done a good job of alleviating a cash drag.

And then as we think about growing earnings power, continuing to rotate the equity out of the CRE loans, which I'm happy to talk about and then other capital rotation from potentially calling seasoned deals, et cetera. So I mean, I think we see a pretty linear path of how you rotate capital without needing to reserve a ton for other purposes.

Right. But I guess just as you think about that increased earnings power, how do you think about how much of that kind of gets passed through the dividend versus how much of that could be retained for -- to support future growth?

I mean I think we're looking to continue to pass that through to our shareholders in the form of the dividend and then satisfy the retest.

And TJ., if I could take you up on your offer to kind of 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.

Yes. I think big picture, we're making good progress on the remaining assets. It's taking longer than any of us would like. I think this is evidenced -- the progress is evidenced. We've been able to extend our facility with our lender out 6 months. So we have clean financing through September of this year.

From an asset perspective, I would really sort of break it up into 3 distinct situations. The retail asset sale process is moving along nicely. We would hope to have much more detailed information to share with you on next quarter's call. And then two of the four hotel assets have a signed LOI, and we're progressing accordingly, albeit behind probably where the retail asset process is.

And then I think the last two hotel assets are going to be behind that and take a bit longer. And we're working through those locations and hope to have them sort of wrapped up by the end of this year, but it may drift into '27 for the last two.

We'll move next to Marissa Lobo with UBS.

Could you give us some more information on [indiscernible] exercise call, right, [indiscernible] of that remains to be executed? How do you feel about the current [indiscernible]?

Thanks for the question, Marissa. So as we stated in previous prepared remarks and Q&A historically, a lot of that has to do with outright levels of spreads and interest rates. Obviously, over the last quarter, we saw retracement to higher rates, higher volatility, higher spreads. Into the beginning of this quarter, obviously, we've gotten a good amount of that back, maybe not completely in the front end of the curve.

All of these elements play into what the economics on calling transactions. We're not going to hold out for every last penny, but we'll look for stabilization of the market, which is happening pretty quickly.

So hopefully, we have good news in the coming quarters on actually executing on them and then sort of the path forward from there, if that answers your question.

That does. And could you also expand on the opportunity in agency eligible loans? What is your outlook there for volume and [indiscernible] in the near term?

I mean on the agency eligible side, we've done a decent amount of this issuance in previous years, previous quarters. A lot of our focus has really been more on higher returning opportunities in the non-agency and home equity space. There's still compelling opportunities, although less compelling in our view.

There have been market participants that have entered that space with lower cost of capital, which maybe makes it a little bit less interesting to ourselves. That being said, I do expect to see others continue to grow and participate in that marketplace.

We'll move on now to Crispin Love with Piper Sandler.

I have a follow-up on the earnings power and ROEs. You're generating, I think, roughly 10% core ROE today. I'm curious where you think that could trend, what ROE targets are attainable and over what time frame as Arc continues to be a larger contributor to EAB and as you rotate capital into higher return resi investments as the WMC investments mature.

Yes. So if you -- thanks for the question, and thanks for dialing in. So this is Nic. When you think about you're growing the ROE of the company, it's going to be derived from three primary sources, which we've said over previous quarters, really the returning of equity capital in the commercial book, growing ROEs at our home and then the calls.

All of that gives us line of sight into sort of achieving the ROEs that are being achieved across the broader business as we have disclosed in the earnings presentation. And that's really the path forward, is really just taking those pockets and redeploying capital.

Obviously, on the Arc Home side, that's less of a redeployment story, but we believe that there's strong momentum there, and we expect that to continue.

Okay. Great. And then just 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 since -- 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 backdrop. So just curious where you stand right now on Arc Home and trends you're seeing.

Yes. Normalizing for the seasonality, maybe slightly below budget, but it's still early. We're still seeing gains. So maybe that just speaks to the ambition of the budget -- of our ambition of our budget there.

So there has been a lot of healing. The gain on sales have been healthy and the expectation is that the budgeted volumes will normalize and achieve what we originally penciled out. So early signs are good for Q2. And as you alluded to, obviously, seasonally, this is an important part of the year for them.

We'll move next to Bose George with KBW.

This is [Frank Labetti] on for Bose. I just want to start with a follow-up on the commercial discussion. Do you think we could expect additional marks on some of the sales? I know that they continue to be ongoing, but any color there would be great.

Yes. So I think as we continue to go through the sales process, get more information from the market, I think we're generally reflecting that in the current valuation. So barring surprises, I would say the answer is no.

Okay. Great. Then pivoting to the home equity, you scaled it nicely over the past few quarters. Trying to think about how large can that get as a percentage of the portfolio? And then you note 29% ROEs. Is that -- are those returns still available on new production today? And where is the best risk-adjusted returns in that market today?

Yes. Thanks, Frank. So this market has expanded pretty, with a good pace, call it, 25% a year really in earnest since, call it, '23. We expect that pace to continue or to accelerate. We expect it to be the largest non-agency sort of -- or securitized product nonagency sector in this -- at some point this year, if not next.

So we still think there's a lot of runway for the opportunity. From a return standpoint, while there is increased competition, it's not nearly as competitive as other segments of the non-agency market. And that's despite its performance having been a standout versus the broader non-agency market.

So we still continue to see a good amount of opportunity in this segment. And from a deployable capital standpoint, we don't have any concerns on being able to recycle capital into this segment for May.

And we'll take our next question from Trevor Cranston with Citizens.

There's been some reports about increasing delinquency levels in some of the recent vintage non-QM products. Can you guys comment specifically on 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.

Yes. So one, the sort of underperformance of non-QM is less relevant to mitt given our transitioning over to other segments over 2 years ago, most notably really the agency eligible segment and then the home equity segment. Our agency eligible book is performing better than prime jumbo, which is shocking to say out loud, but that's a fact.

And then our home equity segment, the delinquencies are less than 1/4 of the delinquencies of the broader non-QM market, which is where most of the concern is. So mitt as a vehicle is inflated versus sort of the underperformance versus underwrite. We still are constructive broadly in the non-QM space. But I think it's worth noting that generally, our credit selection has been tighter than the broader universe, which is driving some of that outperformance.

So we don't view our book as a comp versus other folks over the years, but there's been some degradation in performance for various reasons. We don't see mitt as being exposed to that.

[Operator Instructions] We'll move on to Jason Weaver with JonesTrading.

I was just curious about the 9.5% notes of '29. Those are obviously the most expensive part of the capital stack right now. It's 3 years out, but I believe they'll become callable relatively shortly. And with your EAD coverage, have you -- tell us how you're thinking about maybe doing a refinancing, tender partial paydown. Any thoughts there?

Yes. No. I mean we're always evaluating the entire capital structure. To your point, they are becoming callable. There's 2 separate notes that were issued not too far away from each other, and they'll be coming up later this year to extent rates in the market, move in the right direction, we'll certainly be looking to explore refinancing or delevering those.

Got it. And then on just 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?

It's a little more complicated than that. So while the portfolio decreased on a GAAP basis, it's really because the structures of the most recent transactions, resulted in the company not consolidating these deals. Had we consolidated those deals, we actually would have had modest growth. So I think there's a little bit of form over substance given those nuances.

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

Thank you to everyone for joining us this morning and for your questions. We appreciate it 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.

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 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-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 2 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 2 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 3 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 5 transactions this year. In Q4, we remained highly active securitizing $1.3 billion. This included partnering with top mortgage originators on 2 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 2 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 4 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 3 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]

We'll take our first question from Crispin Love with 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.

We'll now move on to Doug Harter of 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 that doesn't -- 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?

We'll now move on to Trevor Cranston with 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 2 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.

We'll now move on to Bose George with KBW.

Actually, when we think about the accretion from the WMC as the debt capital rolls off, should we just look at that -- 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 -- 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 headwind -- 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]

We'll move on now to Matthew Erdner with 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 that -- 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.

Good day, and thank you for standing by. Welcome to the AG Mortgage Investment Trust, Inc. Third Quarter 2025 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 Third Quarter 2025 Earnings Call for AG 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 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-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 revise or review 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.agmit.com and click on the link for the Q3 2025 earnings presentation on the home page. Again, welcome to the call, and thank you for joining us today.

With that, I'd like to turn the call over to TJ.

Thank you, Jenny. I'm pleased to report MIT's third quarter results in which the company had one of its most active and successful quarters in recent memory. During the third quarter, we were able to increase our book value from $10.39 to $10.46, inclusive of our previously announced strategic acquisition of an additional 4 -- 21.4% of Arc Home through the issuance of approximately 2 million shares, creating a onetime dilution event of 1.8%, while also fully supporting our $0.21 dividend. The company continues to provide stability in book value performance, navigating both challenging markets and executing on growth initiatives like the one I just mentioned. We continue to believe growing the company's size and float is in the long-term best interest of its shareholders.

Moving on to earnings. We increased our EAD to $0.23 per share, driven by strong earnings from our core investment portfolio. In this first quarter, with our larger ownership percentage of Arc Home, we are happy to report it contributed $0.03 towards EAD as the business continues to execute on its growth and profitability objectives. Lastly, it is important to note, we were able to deliver this growth in EAD despite turning off the accrual of our legacy WMC CRE loans this year as we work through the monetization process. So as we look forward, the ability to rotate this equity capital currently invested in the CRE loans into our residential securitization strategy, combined with Arc Home's profits should enable us to unlock even more earnings power from our portfolio in the coming quarters.

I'll now turn the call over to Nick.

Thanks, T.J. The company had an extremely active quarter. We have made significant progress in rotating equity into core strategies, growing the investment portfolio, derisking and optimizing financing and accelerating growth at our portfolio company, Arc Home, along with other significant steps forward. Getting into specifics, starting with rotation. We monetized close to $55 million market value of legacy WMC securitized non-QM positions after restructuring these holdings and unwinding expensive and under advanced debt that came with the WMC acquisition. I will speak more about this later.

An additional $11 million of equity came back from a legacy WMC's CMBS position that paid off at par. In aggregate, the company freed up nearly $66 million of equity for redeployment. With this capital, we significantly increased the investment portfolio by over 20% this quarter. We acquired over $1.7 billion of residential mortgage loans. Approximately $900 million was allocated to agency-eligible investor loans and over $800 million to home equity loans, including both closed-end seconds and HELOCs.

Most of these acquisitions were immediately financed into 4 separate securitizations. We'd like to point out that this significant growth was achieved without incurring risk to the company through outsized gestation periods or warehouse financing exposure. Likewise, the company's leverage increased modestly from 1.3 to 1.7 turns quarter-over-quarter, which we see as more normal levels. Moving on to the company's financing activity. As alluded to earlier and mentioned briefly in our previous quarter's prepared remarks, we refinanced high-cost, inefficient debt backed by retained interest in WMC issued non-Agency securitization.

This refinancing freed up $55 million of equity to redeploy and materially lowered the cost of capital while significantly increasing the market value advance. This quarter's EAD was boosted by approximately $0.03 by this refinancing, which normalizes to $0.04 to $0.05 for a full quarter looking forward.

Moving on from financing to Arc Home. Simultaneous with the announcement of last quarter's earnings, we acquired an additional 21.4% ownership of Arc Home. We are happy to report earnings of over $2 million this quarter, which contributes approximately $1.2 million to MITT, the highest since the end of 2021. In September, they achieved record [ HELOC ] volumes. We believe this growth and profitability is sustainable as the non-Agency market continues to increase its share.

Before passing the call over to Anthony, I would like to touch upon an item others have been addressing, call rights. Prior to quarter end, we initiated the sale of the underlying collateral to a third party in connection with the termination of a transaction issued in 2022. We see significant value in call rights from transactions issued in 2022 and 2023. We expect the termination of this transaction, along with others in the future to return capital that can be opportunistically redeployed into our core higher returning investment strategies. Over to you, Anthony.

Thank you, Nick, and good morning. The third quarter was a pivotal one for MITT. We rotated a significant amount of capital from legacy WMC assets, boosting our earnings power, executed 4 securitizations, acquired an additional 21.4% interest in Arc Home and delivered EAD in excess of our dividend. During the quarter, book value rose 0.7% to $10.46 per share. Including our dividend of $0.21 per share, we generated a 2.7% economic return for our shareholders.

It's worth noting that our book value grew even after accounting for 1.8% dilution from the shares issued for the additional Arc Home interest, which underscores the strong performance of our investment portfolio. GAAP net income available to common shareholders was $14.6 million or $0.47 per share. Strong asset appreciation driven by spread tightening on residential mortgage loans and non-Agency RMBS offset the dilution from Arc Home and unrealized losses on commercial investments. Residential investments continue to drive earnings with net interest income increasing by $1.7 million or 9% from prior quarter, resulting from refinancing high-cost legacy WMC debt and rotating a significant portion of capital into higher-yielding assets.

EAD increased to $0.23 per share from $0.18 in Q2. Net interest income, including interest from our hedges, was $0.67 per share and exceeded our operating expenses, income taxes and preferred dividends of $0.47, resulting in net earnings of $0.20 per share. In addition to EAD growth from our investment portfolio, Arc Home contributed $0.03 per share to EAD, supported by continued growth in originations and margins. We grew our investment portfolio by 21% to $8.8 billion through securitization activity and continue to operate with a low level of economic leverage at 1.7 turns.

During the quarter, we purchased and simultaneously securitized $764 million of agency eligible loans and $647 million of closed-end second liens. We also securitized $301 million of HELOCs held on warehouse at June 30 and purchased an additional $122 million to continue growing that portfolio. Since expanding into home equity in the fourth quarter of 2024, our investment portfolio includes $1 billion of loans and $52 million of non-agency RMBS collateralized by home equity loans, now representing 30% of our equity allocation. As mentioned earlier, we acquired an additional 21.4% interest in Arc Home for $16 million, bringing our ownership to 66%.

This investment was completed through the issuance of 2 million shares of restricted common stock and as discussed last quarter, will continue to be reported as an equity method investment at fair value.

Lastly, we ended the quarter with total liquidity of approximately $104 million, consisting of $59 million in cash, $44 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 Instructions] Our first question from Doug Harter with UBS.

Hoping, Nick, hoping you could expand a little bit more about the call rights, either kind of the amount of capital that could be freed up or how you think about the return differential on the called deals versus freshly deployed capital?

Certainly. So near term, we see, call it, $15 million to $30 million of equity that can be redeployed, more of an intermediate term, call it, 3 to 4 quarters, that could be $50-plus million. If you think about sort of 2022 and '23, the capital markets were fairly inefficient, spreads were relatively wide. So given sort of where interest rates have retraced along with credit spreads, we see a good amount of upside to be able to unlock that and redeploy.

The equity, obviously, we could just refinance those. But I think our current -- given sort of how those loans have performed well, there's a good chance that we'll look to recycle that equity via the sale of loans, but are open to other alternatives, but either way accretive versus how we currently hold those positions.

Great. And then can you give us an update on the CRE loans, the nonaccrual, what's their status potential for timing of resolution?

Yes, sure. So the hospitality loans are still progressing towards our original resolution plan. At this point, we think it's realistic to have that capital return in the first half of 2026. So that's just kind of going through the original motions. I think the retail property actually just hit its maturity date this quarter. And so we're in the early stage of say, working through the options there. On that note, I would say, Doug, it's important. That note is actually still cash flowing from the underlying properties. So I think we have some more options there as well.

And can you just remind us the amount of capital that could come back on the hospitality.

Well, it's $30 million on the total. I think it's about $23 million on the hospitality. And then $7.5 million on the retail.

And we will move next to Crispin Love with Piper Sandler.

First, can you just talk a little bit about securitizations, just how the receptivity has been, you did 4 in the quarter. And just as you look forward, what do you think a normal cadence could be on the securitization side?

Yes. The expectation going forward is probably not as many as we did this quarter, but it's probably more like 1 to 2 a quarter. The securitization markets themselves are healthy. If anything, we've sort of transitioned into positive net supply. And if anything, the inflows across different investment type vehicles, companies have been robust and have met that supply. We are off of sort of the beginning of the year's tights at the top of the capital stack, but at the bottom of the capital stack is a good amount tighter. We see issuance as a relatively healthy period.

Okay. Perfect. And then just if you could just share your thoughts on credit broadly. And then within that, they're kind of -- there started to be some concerns from banks, albeit some fraud involved, some weakness in the consumer. But curious on your thoughts on credit and then drilling down into MITT, whether it's non-QM or other areas. I know the delinquency metrics are still fairly low, but just want to get your sense there.

Are you focusing on like performance or the fraud issues, Cris.

Performance.

On the performance side, look, we have had a differentiated strategy. Our book has outperformed both on the agency-eligible investor side and non-QM side along with the home equity side. I think it's worth noting, and we've thrown these statistics out in the past that our agency eligible investor book is actually performing better than prime jumbo. And our non-QM continues to outperform the broader market issuance. So I think there's a credit selection story there. We have seen some slight weakness in other people's production, but we feel like that's isolated. And I feel like the housing story is well telegraphed that while there is some weakness geographically, it's in places where supply has mean reverted or have gone through sort of 2018, '19, '20 levels. But we believe that is contained, and we feel strongly about our current position and our current portfolio.

And we will go next to Bose George with KBW.

Just given the timing of the purchase of the Arc, the incremental piece, did you guys get the full quarter of that this quarter? Or is there sort of a catch-up on that as well?

No, the transaction was executed on August 1. So it's really only 2 months of that EAD that you see coming through. So to the extent performance continues, it will have a pickup in out quarters.

Okay. And just your commentary suggested that the EAD there should be -- should be flat to up going forward, just given the trends you've seen there.

That's right.

And then can you give us an update on book value quarter-to-date?

Yes. Bose, just given where we are in the process, we don't have an update for you today.

Okay. That's fair. And then you guys noted that growing the company is in the best interest of shareholders, which definitely makes sense. What are some of the options? And is buying in more of Arc a possibility? Can you just talk about potential options for you guys?

Yes. I mean I think we're very inquisitive on other types of opportunities to build a more robust investment platform for the company. So whether that's working with other originators, other platforms, obviously, being conscious of dilution, et cetera. But I think we're certainly open to other ideas.

[Operator Instructions] We will move next to Trevor Cranston with JMP.

Can you just give us an update on kind of where you guys see the ROE and economics on doing new securitizations given the spread tightening we saw during the third quarter and how it compares to kind of where things were earlier in the year.

So broadly where you can place debt versus the tightening still shakes out to largely similar equity returns. Obviously, that matters on what part of the capital stack you're attaching to and the amount of leverage you take. Given our current leverage profile and the assets that we're trafficking in, we still see comfortably equity returns with modest leverage in the mid- to high teens.

Got it. Okay. And then with the rally we've seen in mortgage rates, have you guys seen any kind of notable increase in prepay speeds on either the non-QM or the agency eligible part of the portfolio? And does that have any sort of meaningful impact on the expected returns on those retained investments?

Yes. So we have seen some uptick in prepayments, albeit modest and albeit relatively early on. From a return standpoint, we feel like the portfolio was well balanced between sort of the derivative portions and then the credit portions and don't expect book value to be materially impacted by large pickups in prepayments. It is worth noting that there are large portions of the portfolio that even into a pretty meaningful rally are still wildly out of the money, which provides a good amount of stability even into a rate rally.

And there are no additional questions at this time. I'd like to turn the program back over to Jenny Neslin for any closing remarks.

Thank you, everyone, for joining us, and very much appreciate your questions. Look forward to speaking to you again next quarter. Have a great day.

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