TWO — Two Harbors Investment Corp.

TWO Q1 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Book Value: Decreased to $10.57 per share from $11.13 per share at the end of Q4 2025.
• Economic Return: Reported a negative 2.0% for the quarter.
• Comprehensive Loss: $24.7 million or $0.24 per share.
• Net Interest and Servicing Income: Decreased due to lower float earnings rates and servicing fee collections.
• Cash Position: Ended the quarter with over $500 million in cash and $977 million in unused MSR asset financing capacity.

2. Strategic Updates and Business Highlights

• Merger Agreement: TWO entered into a new merger agreement with CrossCountry Mortgage (CCM) for $11.30 per share, up from the initial $10.80. The merger is expected to close in the second half of 2026.
• DTC Platform Progress: Funded $92 million in first and second liens, with an additional $57 million in the pipeline, despite rising interest rates.
• MSR Market Activity: High demand for MSR, with servicing transfers topping $93 billion UPB, although below the prior two quarters.

3. Forward Guidance and Outlook

• Economic Conditions: The outlook remains uncertain due to geopolitical tensions, particularly in the Middle East, which could impact market sentiment and economic forecasts.
• Portfolio Returns: Estimated static return projections for the portfolio range from 8% to 11.4%, with common equity returns projected between 7.3% to 12.9%.
• Housing Market: Anticipated to see single-digit annualized price increases, but housing affordability may worsen due to rising mortgage rates.

4. Bad News, Challenges, or Points of Concern

• Market Volatility: The conflict in the Middle East has led to increased volatility and wider spreads for RMBS, negatively impacting performance.
• Economic Indicators: Mixed economic statistics, including a rise in unemployment to 4.4%, and uncertainty surrounding inflation and interest rates.
• Book Value Decline: The decrease in book value and economic return reflects challenges in the current market environment.

5. Notable Q&A Insights

• Book Value Performance: The hedged MSR strategy performed well, while the hedged securities portfolio faced challenges due to increased volatility and hedging costs.
• Merger Status: The merger with UWM is effectively terminated, and the focus is on completing the transaction with CCM, with a shareholder vote scheduled for May 19.
• Financing for Merger: Details regarding the financing package for the merger were not disclosed, with references to the public merger agreement for further information.

Overall, while TWO is navigating a challenging market environment with strategic initiatives like the merger with CCM, concerns about market volatility and economic conditions remain prevalent.