TWO-PB Q3 2025 Earnings Call Summary

1Key Financial Results and Metrics

Litigation Settlement: Recorded a $175.1 million litigation settlement expense, impacting earnings by $1.68 per share. The total economic return for Q3 was -6.3%, but +7.6% when excluding the settlement expense. Year-to-date returns were -15.6% and +9.3%, respectively.

Comprehensive Loss: Reported a comprehensive loss of $80.2 million, or $0.77 per share, which would have been a comprehensive income of $94.9 million, or $0.91 per share, excluding the settlement.

Cash Position: Ended the quarter with $770.5 million in cash after the settlement payment and portfolio adjustments.

Portfolio Adjustments: Reduced RMBS portfolio from $11.4 billion to $10.9 billion and sold $19.1 billion UPB of MSR, with another $10 billion to settle shortly.

2Strategic Updates and Business Highlights

Subservicing Growth: Established a significant relationship with a new subservicing client, bringing total subservicing UPB to approximately $40 billion. RoundPoint is set to service Ginnie Mae loans, further expanding growth potential.

Direct-to-Consumer (DTC) Originations: Achieved record locks in September, with $49 million UPB funded in first and second liens, indicating strong performance and confidence in the DTC strategy.

Cost Management: Plans to redeem $262 million of convertible notes in January 2026 to reduce structural leverage. Ongoing efforts to improve cost efficiency in light of the litigation settlement.

3Forward Guidance and Outlook

Market Conditions: Anticipates continued attractive investment opportunities in the MSR and MBS markets, supported by Fed rate cuts and stable funding markets.

Return Projections: Estimated static returns on the portfolio between 9.1% to 12.6%, with common equity returns projected at 9.5% to 15.2% per share.

Optimism on MSR Portfolio: Despite current low refinanceability, the company expects to benefit from improved recapture rates through its DTC platform.

4Bad News, Challenges, or Points of Concern

Litigation Impact: The significant settlement expense has negatively impacted short-term financial results and book value.

Increased Expense Ratio: The reduction in capital base has led to a higher expense ratio, which the company is actively working to mitigate.

Market Volatility: Although spreads are currently attractive, the company acknowledges potential risks associated with market fluctuations and interest rate changes.

Refinancing Risks: Only 3% of the MSR portfolio is currently refinanceable, which could limit growth if rates do not drop further.

5Notable Q&A Insights

EAD Drivers: The increase in economic asset debt (EAD) was attributed to lower financing costs rather than a trend, as the mix of liabilities changed.

Cost Savings Potential: The projected returns do not currently factor in potential cost savings, indicating upside potential as efficiencies are realized.

MSR Valuation: The valuation of originated MSRs is based on market prices, with recapture rates embedded in cash flow assumptions rather than explicitly stated.

Subservicing Opportunities: The company sees potential for growth in subservicing, particularly as market consolidation creates opportunities to attract dissatisfied clients from competitors. Overall, while TWO-PB faces challenges from litigation expenses and market volatility, it remains optimistic about its strategic initiatives, particularly in subservicing and DTC originations, which are expected to drive future growth.