Two Harbors Investment Corp. (NYSE:TWO) reported its fourth-quarter 2025 financial results, delivering a mixed performance against analyst expectations. The mortgage-focused real estate investment trust (REIT) posted a narrower-than-expected loss on revenue that surpassed forecasts, while simultaneously announcing a definitive merger agreement that will see the company acquired by UWM Holdings Corporation (UWMC).
Earnings and Revenue Versus Estimates
For the quarter ended December 31, 2025, Two Harbors reported a GAAP net loss of $1.3 million, or $0.02 per share. The company's key non-GAAP metric, Earnings Available for Distribution (EAD), came in at $27.4 million, or $0.26 per weighted average basic common share.
- EPS Performance: The reported EAD of $0.26 per share fell short of the analyst consensus estimate of $0.37 per share.
- Revenue Performance: The company reported total revenue, as represented by net interest income and other income, of negative $15.5 million. This result was better than the analyst estimate of negative $16.8 million, indicating a smaller loss than anticipated.
The divergence between the GAAP net loss and the non-GAAP EAD figure highlights the significant impact of non-cash items, primarily fair value changes on the company's portfolio. Comprehensive income, which includes these unrealized gains and losses, was a positive $50.4 million for the quarter.
Market Reaction and Price Action
The market's immediate reaction to the earnings report and merger news was negative in after-hours trading. This initial decline suggests investors may be weighing the earnings miss against the long-term strategic implications of the merger. The stock's performance over recent weeks has been volatile, with a positive trend over the past month potentially reflecting anticipation or speculation surrounding the quarter-end results and the pending deal.
Strategic Merger Announcement
The dominant headline from the report is the company's entry into a definitive merger agreement with UWM Holdings Corporation (UWMC), the nation's largest wholesale mortgage originator. The all-stock transaction is valued at $11.94 per TWO share based on UWMC's closing price on December 16, 2025, representing a 21% premium to TWO's 30-day volume-weighted average price at that time.
Key terms of the deal include:
- TWO stockholders will receive a fixed exchange ratio of 2.3328 shares of UWMC Class A Common Stock for each share of TWO common stock.
- The transaction is intended to be tax-free to TWO’s stockholders and is expected to close in the second quarter of 2026, pending shareholder and regulatory approvals.
- The merger will create a combined entity with a pro-forma mortgage servicing rights (MSR) portfolio of approximately $400 billion in unpaid principal balance.
CEO Bill Greenberg framed the deal as a "powerful strategic alignment" that positions the combined company for accelerated growth.
Core Operational and Portfolio Summary
Amidst the merger news, the company's core operations showed stability in the fourth quarter.
- Book Value and Dividend: Book value per common share increased to $11.13 from $11.04 in the prior quarter. The company declared a quarterly common dividend of $0.34 per share, representing a 3.9% economic return on book value for the quarter.
- Portfolio Activity: TWO added $399 million in unpaid principal balance (UPB) of MSR through acquisitions and recapture, while selling $9.6 billion UPB of MSR on a subservicing-retained basis. The MSR portfolio exhibited strong credit quality, with a 60+ day delinquency rate of 0.87%.
- Annual Results: For the full year 2025, the company declared $1.52 per share in dividends but reported a negative 12.6% economic return on book value. This result was heavily impacted by a $375 million litigation settlement expense; excluding this charge, the economic return would have been a positive 12.1%.
Looking Ahead
While the press release does not provide specific financial guidance for the coming quarters, the definitive merger agreement with UWMC sets a clear strategic path for the company. The focus for management and investors will now shift toward completing the transaction and realizing the anticipated synergies from combining the two mortgage platforms. Analyst estimates for the upcoming quarters and full year 2026 are available for review.
For a detailed breakdown of historical earnings, future estimates, and analyst projections for TWO, visit the earnings and estimates page on Chartmill.
Disclaimer: This article is for informational purposes only and is not intended as investment advice. The information presented should not be construed as a recommendation to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
