TWO Reports Second Quarter 2025 Financial Results

Business Wire

28-07-2025

NEW YORK--(BUSINESS WIRE)--TWO (Two Harbors Investment Corp., NYSE: TWO), an MSR-focused real estate investment trust (REIT), today announced its financial results for the quarter ended June 30, 2025.
'Given the strength of our platform and the depth of expertise across our team, we are confident in our ability to navigate through changing market cycles, creating long-term value for our stockholders, customers, and business partners.'
Share
Quarterly Summary
Reported book value of $12.14 per common share, and declared a second quarter common stock dividend of $0.39 per share, representing a (14.5)% quarterly economic return on book value. For the first six months of 2025, generated a (10.3)% total economic return on book value. (1)
Incurred a Comprehensive Loss of $(221.8) million, or $(2.13) per weighted average basic common share.
Recorded a contingency liability and related expense of $199.9 million, or $1.92 per weighted average basic common share, related to the company's ongoing litigation with PRCM Advisers LLC. (2)
Excluding the loss contingency accrual recognized during the quarter:
Generated a (1.4)% quarterly economic return on book value. For the first six months of 2025, generated a 2.9% total economic return on book value. (1)
Incurred a Comprehensive Loss of $(21.9) million, or $(0.21) per weighted average basic common share.
Issued $115.0 million aggregate principal amount of 9.375% Senior Notes due 2030 through an underwritten offering for net proceeds of $110.8 million.
Settled $6.6 billion in unpaid principal balance (UPB) of MSR through two bulk purchases, flow-sale acquisitions and recapture.
As of June 30, 2025, MSR portfolio had a weighted average gross coupon rate of 3.53% and a 60+ day delinquency rate of 0.82%, compared to 0.85% as of March 31, 2025. For the second quarter of 2025, MSR portfolio experienced a 3-month CPR of 5.8%, compared to 5.3% for the second quarter of 2024.
Funded $48.6 million UPB in first lien loans and brokered $44.0 million UPB in second lien loans.
'The combination of our investment portfolio and operating company allows us to be dynamic and responsive as opportunities emerge across the mortgage finance space,' said Bill Greenberg, TWO's President and Chief Executive Officer. 'Given the strength of our platform and the depth of expertise across our team, we are confident in our ability to navigate through changing market cycles, creating long-term value for our stockholders, customers, and business partners.'
________________
(1)
Economic return on book value is defined as the increase (decrease) in common book value from the beginning to the end of the given period, plus dividends declared to common stockholders in the period, divided by common book value as of the beginning of the period.
(2)
The contingency liability is reflective of the $139.8 million termination fee that the Company believes would have been payable to PRCM Advisers for termination on the basis of unfair compensation pursuant to Section 13(a)(ii) of the Management Agreement, plus applicable pre-judgment interest on such amount accrued at the statutory rate of 9% through June 30, 2025. Estimated loss contingencies are required to be recorded under ASC 450, Contingencies, when a company determines a contingency liability is both probable and estimable.
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'Fixed-income and equity markets proved resilient in the second quarter,' stated Nick Letica, TWO's Chief Investment Officer. 'While we will continue to be mindful of the many sources of volatility that can impact our portfolio, we believe there is also opportunity in this environment. Spreads for Agency RMBS remain historically wide, and offer good relative value to other high quality spread assets. Our core strategy of low coupon MSR paired with Agency RMBS is well positioned to benefit from both stable prepayments and wide Agency RMBS spreads.'
Operating Performance
The following table summarizes the company's GAAP and non-GAAP earnings measurements and key metrics for the second quarter of 2025 and first quarter of 2025:
_______________
(1)
Earnings Available for Distribution, or EAD, is a non-GAAP measure. Please see page 11 for a definition of EAD and a reconciliation of GAAP to non-GAAP financial information.
(2)
Dividend yield is calculated based on annualizing the dividends declared in the given period, divided by the closing share price as of the end of the period.
(3)
Economic return on book value is defined as the increase (decrease) in common book value from the beginning to the end of the given period, plus dividends declared to common stockholders in the period, divided by the common book value as of the beginning of the period.
(4)
Excludes non-cash equity compensation expense of $1.9 million for the second quarter of 2025 and $6.5 million for the first quarter of 2025 and certain operating expenses of $2.8 million for the second quarter of 2025 and $0.1 million for the first quarter of 2025. Certain operating expenses predominantly consists of expenses incurred in connection with the company's ongoing litigation with PRCM Advisers LLC.
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Portfolio Summary
As of June 30, 2025, the company's portfolio was comprised of $11.4 billion of Agency RMBS, MSR and other investment securities as well as their associated notional debt hedges. Additionally, the company held $3.0 billion bond equivalent value of net long to-be-announced securities (TBAs).
The following tables summarize the company's investment portfolio as of June 30, 2025 and March 31, 2025:
________________
(1)
Based on the prior month-end's principal balance of the loans underlying the company's MSR, increased for current month purchases.
(2)
Represents bond equivalent value of TBA position. Bond equivalent value is defined as notional amount multiplied by market price. Accounted for as derivative instruments in accordance with GAAP.
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______________
(1)
Weighted average cost basis includes Agency principal and interest RMBS only and utilizes carrying value for weighting purposes.
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Portfolio Metrics Specific to MSR (1)
As of June 30, 2025
As of March 31, 2025
(dollars in thousands)
(unaudited)
(unaudited)
Unpaid principal balance
$
198,822,611
$
196,773,345
Gross coupon rate
3.5
%
3.5
%
Current loan size
$
330
$
330
Original FICO (2)
760
760
Original LTV
73
%
72
%
60+ day delinquencies
0.8
%
0.8
%
Net servicing fee
25.4 basis points
25.3 basis points
Three Months Ended
June 30, 2025
Three Months Ended
March 31, 2025
(unaudited)
(unaudited)
Fair value losses
$
(35,902
)
$
(36,221
)
Servicing income
$
147,961
$
146,870
Servicing costs
$
2,322
$
3,302
Change in servicing reserves
$
64
$
(105
)
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________________
(1)
Metrics exclude residential mortgage loans in securitization trusts for which the company is the named servicing administrator. Portfolio metrics, other than UPB, represent averages weighted by UPB.
(2)
FICO represents a mortgage industry accepted credit score of a borrower.
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________________
(1)
Accounted for as derivative instruments in accordance with GAAP.
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Financing Summary
The following tables summarize the company's financing metrics and outstanding repurchase agreements, revolving credit facilities, warehouse lines of credit, senior notes and convertible senior notes as of June 30, 2025 and March 31, 2025:
June 30, 2025
Balance
Weighted Average Borrowing Rate
Weighted Average Months to Maturity
Number of Distinct Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by securities
$
7,992,622
4.48
%
1.96
18
Repurchase agreements collateralized by MSR
790,000
7.39
%
10.54
3
Total repurchase agreements
8,782,622
4.74
%
2.73
19
Revolving credit facilities collateralized by MSR and related servicing advance obligations
1,011,871
7.36
%
19.96
3
Warehouse lines of credit collateralized by mortgage loans
9,275
6.31
%
2.47
1
Unsecured senior notes
110,867
9.38
%
61.55
n/a
Unsecured convertible senior notes
260,944
6.25
%
6.54
n/a
Total borrowings
$
10,175,579
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March 31, 2025
Balance
Weighted Average Borrowing Rate
Weighted Average Months to Maturity
Number of Distinct Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by securities
$
8,970,830
4.50
%
2.23
18
Repurchase agreements collateralized by MSR
770,000
7.38
%
13.88
3
Total repurchase agreements
9,740,830
4.73
%
3.16
19
Revolving credit facilities collateralized by MSR and related servicing advance obligations
933,171
7.45
%
15.91
3
Warehouse lines of credit collateralized by mortgage loans
7,971
6.36
%
2.50
1
Unsecured senior notes
—
—
%
—
n/a
Unsecured convertible senior notes
260,591
6.25
%
9.53
n/a
Total borrowings
$
10,942,563
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Borrowings by Collateral Type
As of June 30, 2025
As of March 31, 2025
(dollars in thousands)
(unaudited)
(unaudited)
Agency RMBS
$
7,992,427
$
8,970,635
Mortgage servicing rights and related servicing advance obligations
1,801,871
1,703,171
Other - secured
9,470
8,166
Other - unsecured (1)
371,811
260,591
Total
10,175,579
10,942,563
TBA cost basis
3,009,819
3,001,672
Net payable (receivable) for unsettled RMBS
108,474
(643,896
)
Total, including TBAs and net payable (receivable) for unsettled RMBS
$
13,293,872
$
13,300,339
Debt-to-equity ratio at period-end (2)
5.4 :1.0
5.1 :1.0
Economic debt-to-equity ratio at period-end (3)
7.0 :1.0
6.2 :1.0
Cost of Financing by Collateral Type (4)
Three Months Ended
June 30, 2025
Three Months Ended
March 31, 2025
(unaudited)
(unaudited)
Agency RMBS
4.54
%
4.62
%
Mortgage servicing rights and related servicing advance obligations (5)
7.87
%
7.81
%
Other - secured
6.68
%
6.93
%
Other - unsecured (1)(5)
7.44
%
6.84
%
Annualized cost of financing
5.18
%
5.27
%
Interest rate swaps (6)
(0.20
)%
(0.18
)%
U.S. Treasury futures (7)
(0.10
)%
(0.04
)%
TBAs (8)
2.65
%
2.89
%
Annualized cost of financing, including swaps, U.S. Treasury futures and TBAs
4.43
%
4.49
%
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____________________
(1)
Unsecured borrowings under senior notes and convertible senior notes.
(2)
Defined as total borrowings to fund Agency and non-Agency investment securities, MSR and related servicing advances and mortgage loans held-for-sale, divided by total equity.
(3)
Defined as total borrowings to fund Agency and non-Agency investment securities, MSR and related servicing advances and mortgage loans held-for-sale, plus the implied debt on net TBA cost basis and net payable (receivable) for unsettled RMBS, divided by total equity.
(4)
Excludes any repurchase agreements collateralized by U.S. Treasuries.
(5)
Includes amortization of debt issuance costs.
(6)
The cost of financing on interest rate swaps held to mitigate interest rate risk associated with the company's outstanding borrowings includes interest spread income/expense and amortization of upfront payments made or received upon entering into interest rate swap agreements and is calculated using average borrowings balance as the denominator.
(7)
The cost of financing on U.S. Treasury futures held to mitigate interest rate risk associated with the company's outstanding borrowings is calculated using average borrowings balance as the denominator. U.S. Treasury futures income is the economic equivalent to holding and financing a relevant cheapest-to-deliver U.S. Treasury note or bond using short-term repurchase agreements.
(8)
The implied financing benefit/cost of dollar roll income on TBAs is calculated using the average cost basis of TBAs as the denominator. TBA dollar roll income is the non-GAAP economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. TBAs are accounted for as derivative instruments in accordance with GAAP.
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Conference Call
TWO will host a conference call on July 29, 2025 at 9:00 a.m. ET to discuss its second quarter 2025 financial results and related information. To participate in the teleconference, please call toll-free [phone] approximately 10 minutes prior to the above start time and provide the Conference Code 3889089. The conference call will also be webcast live and accessible online in the News & Events section of the company's website at www.twoinv.com. For those unable to attend, a replay of the webcast will be available on the company's website approximately four hours after the live call ends.
About TWO
Two Harbors Investment Corp., or TWO, a Maryland corporation, is a real estate investment trust that invests in mortgage servicing rights, residential mortgage-backed securities, and other financial assets. TWO is headquartered in St. Louis Park, MN.
Forward-Looking Statements
This release includes 'forward-looking statements' within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as 'expect,' 'target,' 'assume,' 'estimate,' 'project,' 'budget,' 'forecast,' 'anticipate,' 'intend,' 'plan,' 'may,' 'will,' 'could,' 'should,' 'believe,' 'predicts,' 'potential,' 'continue,' and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2024, and any subsequent Quarterly Reports on Form 10-Q, under the caption 'Risk Factors.' Factors that could cause actual results to differ include, but are not limited to: the state of credit markets and general economic conditions; changes in interest rates and the market value of our assets; changes in prepayment rates of mortgages underlying our target assets; the rates of default or decreased recovery on the mortgages underlying our target assets; declines in home prices; our ability to establish, adjust and maintain appropriate hedges for the risks in our portfolio; the availability and cost of our target assets; the availability and cost of financing; changes in the competitive landscape within our industry; our ability to effectively execute and to realize the benefits of strategic transactions and initiatives we have pursued or may in the future pursue; our decision to terminate our management agreement with PRCM Advisers LLC and the ongoing litigation related to such termination; our ability to manage various operational risks and costs associated with our business, including the risks associated with operating a mortgage loan servicer and originator; interruptions in or impairments to our communications and information technology systems; our ability to acquire MSR and to maintain our MSR portfolio; our exposure to legal and regulatory claims; legislative and regulatory actions affecting our business; our ability to maintain our REIT qualification; and limitations imposed on our business due to our REIT status and our exempt status under the Investment Company Act of 1940.
Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. TWO does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these and other risk factors is contained in TWO's most recent filings with the Securities and Exchange Commission (SEC). All subsequent written and oral forward-looking statements concerning TWO or matters attributable to TWO or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.
Non-GAAP Financial Measures
In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), this press release and the accompanying investor presentation present non-GAAP financial measures, such as earnings available for distribution and related per basic common share measures. The non-GAAP financial measures presented by the company provide supplemental information to assist investors in analyzing the company's results of operations and help facilitate comparisons to industry peers. However, because these measures are not calculated in accordance with GAAP, they should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. The company's GAAP financial results and the reconciliations from these results should be carefully evaluated. See the GAAP to non-GAAP reconciliation table on page 11 of this release.
Additional Information
Stockholders of TWO and other interested persons may find additional information regarding the company at www.twoinv.com, at the Securities and Exchange Commission's internet site at www.sec.gov or by directing requests to: TWO, Attn: Investor Relations, 1601 Utica Avenue South, Suite 900, St. Louis Park, MN, 55416, [phone].
TWO HARBORS INVESTMENT CORP.
(dollars in thousands, except share data)
Certain prior period amounts have been reclassified to conform to the current period presentation
Three Months Ended
Six Months Ended
June 30,
June 30,
2025
2024
2025
2024
(unaudited)
(unaudited)
Net interest expense:
Interest income
$
117,082
$
115,953
$
228,464
$
233,736
Interest expense
135,205
154,207
266,919
314,207
Net interest expense
(18,123
)
(38,254
)
(38,455
)
(80,471
)
Net servicing income:
Servicing income
158,354
176,015
315,213
342,348
Servicing costs
2,386
4,475
5,583
11,594
Net servicing income
155,968
171,540
309,630
330,754
Other (loss) income:
Loss on investment securities
(32,830
)
(22,437
)
(65,559
)
(33,412
)
Loss on servicing asset
(35,902
)
(22,857
)
(72,123
)
(11,845
)
(Loss) gain on interest rate swap and swaption agreements
(52,950
)
22,012
(151,738
)
120,522
(Loss) gain on other derivative instruments
(31,257
)
(750
)
(29,809
)
46,849
Gain (loss) on mortgage loans held-for-sale
883
—
1,552
(3
)
Other income
1,038
226
1,799
226
Total other (loss) income
(151,018
)
(23,806
)
(315,878
)
122,337
Expenses:
Compensation and benefits
21,469
21,244
48,058
47,773
Other operating expenses
21,307
17,699
41,812
38,751
Loss contingency accrual
199,935
—
199,935
—
Total expenses
242,711
38,943
289,805
86,524
(Loss) income before income taxes
(255,884
)
70,537
(334,508
)
286,096
Provision for income taxes
1,661
14,201
2,092
26,172
Net (loss) income
(257,545
)
56,336
(336,600
)
259,924
Dividends on preferred stock
(13,239
)
(11,784
)
(26,425
)
(23,568
)
Gain on repurchase and retirement of preferred stock
—
—
—
644
Net (loss) income attributable to common stockholders
$
(270,784
)
$
44,552
$
(363,025
)
$
237,000
Basic (loss) earnings per weighted average common share
$
(2.62
)
$
0.43
$
(3.51
)
$
2.27
Diluted (loss) earnings per weighted average common share
$
(2.62
)
$
0.43
$
(3.51
)
$
2.16
Comprehensive (loss) income:
Net (loss) income
$
(259,041
)
$
56,336
$
(338,096
)
$
259,924
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities
50,473
(44,073
)
207,645
(147,151
)
Other comprehensive income (loss)
50,473
(44,073
)
207,645
(147,151
)
Comprehensive (loss) income
(208,568
)
12,263
(130,451
)
112,773
Dividends on preferred stock
(13,239
)
(11,784
)
(26,425
)
(23,568
)
Gain on repurchase and retirement of preferred stock
—
—
—
644
Comprehensive (loss) income attributable to common stockholders
$
(221,807
)
$
479
$
(156,876
)
$
89,849
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TWO HARBORS INVESTMENT CORP.
(dollars in thousands, except share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2025
2024
2025
2024
(unaudited)
(unaudited)
Interest income:
Available-for-sale securities
$
108,842
$
99,211
$
209,260
$
199,816
Mortgage loans held-for-sale
145
3
198
4
Other
8,095
16,739
19,006
33,916
Total interest income
117,082
115,953
228,464
233,736
Interest expense:
Repurchase agreements
110,288
113,714
217,366
232,430
Revolving credit facilities
20,343
29,906
40,469
60,153
Warehouse lines of credit
129
—
184
—
Term notes payable
—
6,008
—
12,426
Senior notes
1,496
—
1,496
—
Convertible senior notes
4,445
4,579
8,900
9,198
Total interest expense
136,701
154,207
268,415
314,207
Net interest expense
$
(19,619
)
$
(38,254
)
$
(39,951
)
$
(80,471
)
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TWO HARBORS INVESTMENT CORP.
(dollars in thousands, except share data)
Certain prior period amounts have been reclassified to conform to the current period presentation
Three Months Ended
June 30,
2025
March 31,
2025
(unaudited)
(unaudited)
Reconciliation of comprehensive (loss) income to Earnings Available for Distribution:
Comprehensive (loss) income attributable to common stockholders
$
(221,807
)
$
64,931
Adjustment for other comprehensive income attributable to common stockholders:
Unrealized gain on available-for-sale securities
(50,473
)
(157,172
)
Net loss attributable to common stockholders
$
(272,280
)
$
(92,241
)
Adjustments to exclude reported realized and unrealized (gains) losses:
Realized loss on securities
32,599
33,661
Unrealized loss (gain) on securities
347
(1,026
)
(Reversal of) provision for credit losses
(116
)
94
Realized and unrealized loss on mortgage servicing rights
35,902
36,221
Realized loss (gain) on termination or expiration of interest rate swaps and swaptions
30,298
(26,587
)
Unrealized loss on interest rate swaps and swaptions
29,034
131,350
Realized and unrealized loss (gain) on other derivative instruments
32,606
(1,329
)
Other adjustments:
MSR amortization (1)
(73,983
)
(70,303
)
TBA dollar roll income (losses) (2)
6,181
8,178
U.S. Treasury futures income (3)
3,358
1,272
Change in servicing reserves
64
(105
)
Non-cash equity compensation expense
1,932
6,523
Certain operating expenses (4)
2,754
106
Loss contingency accrual
199,935
—
Net provision for (benefit from) income taxes on non-EAD
914
(722
)
Earnings available for distribution to common stockholders (5)
$
29,545
$
25,092
Weighted average basic common shares
104,084,326
103,976,437
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_____________
(1)
MSR amortization refers to the portion of change in fair value of MSR primarily attributed to the realization of expected cash flows (runoff) of the portfolio, which is deemed a non-GAAP measure due to the company's decision to account for MSR at fair value.
(2)
TBA dollar roll income is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements.
(3)
U.S. Treasury futures income is the economic equivalent to holding and financing a relevant cheapest-to-deliver U.S. Treasury note or bond using short-term repurchase agreements.
(4)
Certain operating expenses predominantly consists of expenses incurred in connection with the company's ongoing litigation with PRCM Advisers LLC.
(5)
EAD is a non-GAAP measure that we define as comprehensive (loss) income attributable to common stockholders, excluding realized and unrealized gains and losses on the aggregate investment portfolio, gains and losses on repurchases of preferred stock, provision for (reversal of) credit losses, reserve expense for representation and warranty obligations on MSR, non-cash compensation expense related to restricted common stock, certain operating expenses and loss contingency accrual. As defined, EAD includes net interest income, accrual and settlement of interest on derivatives, dollar roll income on TBAs, U.S. Treasury futures income, servicing income, net of estimated amortization on MSR and certain cash related operating expenses. EAD provides supplemental information to assist investors in analyzing the company's results of operations and helps facilitate comparisons to industry peers. EAD is one of several measures our board of directors considers to determine the amount of dividends to declare on our common stock and should not be considered an indication of our taxable income or as a proxy for the amount of dividends we may declare.
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