TWO-PA Q1 2026 Earnings Call Summary

1Key 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 economic return of 2.0% for the quarter.

Comprehensive Loss: Recorded a loss of $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.

2Strategic Updates and Business Highlights

Merger Agreement: TWO has entered into a revised merger agreement with CrossCountry Mortgage (CCM), increasing the cash consideration to $11.30 per share from the previous $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, maintaining similar levels to the previous quarter despite rising interest rates.

MSR Market Activity: High demand for MSR with servicing transfers reaching $93 billion UPB, although below prior quarters.

3Forward Guidance and Outlook

Portfolio Returns: Estimated static returns for the portfolio between 8% to 11.4% before leverage, with potential returns on common equity projected between 7.3% to 12.9%.

Market Conditions: The geopolitical situation in the Middle East is expected to influence market sentiment and economic outlook, with a focus on interest rate volatility and RMBS market support from government actions.

4Bad News, Challenges, or Points of Concern

Market Performance: The outbreak of conflict in the Middle East negatively impacted risk assets, including RMBS, leading to wider spreads and increased volatility.

Economic Indicators: Unemployment rose to 4.4%, and the Federal Reserve's outlook for interest rates has shifted, with expectations for no cuts in 2026.

Book Value Decline: The decrease in book value and economic return reflects challenges in the current market environment, particularly with rising interest rates and macroeconomic uncertainties.

5Notable Q&A Insights

Book Value Performance: The hedged MSR strategy performed well, while the hedged securities strategy faced challenges due to increased volatility and hedging costs.

Merger Status: The situation with UWM is considered resolved with the new agreement with CCM, although there remains a shareholder vote scheduled for May 19.

Financing for Merger: Details regarding the financing package for the merger were not disclosed, with references made to the public merger agreement for specifics. Overall, the call highlighted a challenging quarter for TWO, with strategic moves towards a merger that could enhance future performance, despite current market headwinds impacting financial results.