Strong Performance from Normalization of Implied Volatility and Spread Stability
TWO ((Two Harbors Investment Corp., NYSE:TWO), an MSR-focused real estate investment trust (REIT), today announced its financial results for the quarter ended September 30, 2025.
This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20251027743382/en/
Summary of TWO Q3-2025 Earnings
Quarterly Summary
- Reported book value of $11.04 per common share, and declared a third quarter common stock dividend of $0.34 per share, representing a (6.3)% quarterly economic return on book value. For the first nine months of 2025, generated a (15.6)% total economic return on book value.(1)
- Incurred a comprehensive loss of $(80.2) million, or $(0.77) per weighted average basic common share.
- Entered into a settlement agreement, dated as of August 20, 2025, with the company's former external manager to resolve all claims alleged in previously disclosed lawsuits between the parties, and recorded litigation settlement expense of $175.1 million, or $1.68 per weighted average basic common share, for the third quarter.(2)
-
Excluding the litigation settlement expense, during the quarter the company:
- Generated a 7.6% quarterly economic return on book value. For the first nine months of 2025, generated a 9.3% total economic return on book value.(1)
- Generated comprehensive income of $94.9 million, or $0.91 per weighted average basic common share.
- Settled $698.2 million in unpaid principal balance (UPB) of MSR through flow-sale acquisitions and recapture.
- Successfully boarded a new subservicing client, seeded by the sale of approximately $30 billion UPB of MSR on a servicing-retained basis, $19.1 billion of which settled in the quarter.
- As of September 30, 2025, MSR portfolio had a weighted average gross coupon rate of 3.58% and a 60+ day delinquency rate of 0.87%, compared to 0.82% as of June 30, 2025. For the third quarter of 2025, MSR portfolio experienced a 3-month CPR of 6.0%, compared to 5.8% for the second quarter of 2025.
- Funded $49.8 million UPB in loans and brokered an additional $60.1 million UPB in second lien loans.
"Excluding the litigation settlement expense, we had a strong quarter of performance, generating an adjusted total economic return of 7.6%," said Bill Greenberg, TWO's President and Chief Executive Officer. "We also significantly increased our subservicing business at RoundPoint, selling a total of $30 billion UPB of MSR on a retained basis to a new subservicing client. We are also encouraged by the robust growth in our direct-to-consumer originations platform and emerging effectiveness of our recapture effort. Looking ahead, we now have a clean slate to capitalize on opportunities in the MSR and RMBS, and to further drive growth in our servicing and originations businesses."
| ____________________ | |
(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 $175.1 million litigation settlement expense recorded for the third quarter is the difference between the $375.0 million cash payment made to pursuant to the settlement agreement with the company's former external manager, less the related loss contingency accrual recorded in the second quarter of $199.9 million. |
"Prospective returns on our core strategy of low rate MSR paired with Agency RMBS remain attractive, despite recent spread tightening," stated Nick Letica, TWO's Chief Investment Officer. "Looking ahead, in an environment with diminished interest rate and spread volatility and a high likelihood of further interest rate cuts by the Federal Reserve, we are confident that our portfolio construction of MSR paired with Agency RMBS should generate attractive risk-adjusted returns."
Operating Performance
The following table summarizes the company's GAAP and non-GAAP earnings measurements and key metrics for the third quarter of 2025 and second quarter of 2025:
Operating Performance (unaudited) |
|||||||||||||||||||||
(dollars in thousands, except per common share data) |
|||||||||||||||||||||
|
Three Months Ended September 30, 2025 |
|
Three Months Ended June 30, 2025 |
||||||||||||||||||
Earnings attributable to common stockholders |
Earnings |
|
Per weighted average basic common share |
|
Annualized return on average common equity |
|
Earnings |
|
Per weighted average basic common share |
|
Annualized return on average common equity |
||||||||||
Comprehensive Loss |
$ |
(80,207 |
) |
|
$ |
(0.77 |
) |
|
(26.5 |
)% |
|
$ |
(221,807 |
) |
|
$ |
(2.13 |
) |
|
(64.3 |
)% |
GAAP Net Loss |
$ |
(141,245 |
) |
|
$ |
(1.36 |
) |
|
(46.6 |
)% |
|
$ |
(272,280 |
) |
|
$ |
(2.62 |
) |
|
(79.0 |
)% |
Earnings Available for Distribution(1) |
$ |
37,154 |
|
|
$ |
0.36 |
|
|
12.3 |
% |
|
$ |
29,545 |
|
|
$ |
0.28 |
|
|
8.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating Metrics |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Dividend per common share |
$ |
0.34 |
|
|
|
|
|
|
$ |
0.39 |
|
|
|
|
|
||||||
Annualized dividend yield(2) |
|
13.8 |
% |
|
|
|
|
|
|
14.5 |
% |
|
|
|
|
||||||
Book value per common share at period end |
$ |
11.04 |
|
|
|
|
|
|
$ |
12.14 |
|
|
|
|
|
||||||
Economic return on book value(3) |
|
(6.3 |
)% |
|
|
|
|
|
|
(14.5 |
)% |
|
|
|
|
||||||
Operating expenses, excluding non-cash LTIP amortization and certain operating expenses(4) |
$ |
38,748 |
|
|
|
|
|
|
$ |
38,090 |
|
|
|
|
|
||||||
Operating expenses, excluding non-cash LTIP amortization and certain operating expenses, as a percentage of average equity(4) |
|
8.5 |
% |
|
|
|
|
|
|
7.6 |
% |
|
|
|
|
||||||
| ____________________ | |
(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 $1.5 million for the third quarter of 2025 and $1.9 million for the second quarter of 2025 and certain operating expenses of $4.1 million for the third quarter of 2025 and $2.8 million for the second quarter of 2025. Certain operating expenses predominantly consists of expenses incurred in connection with the company's litigation with its former external manager. |
Portfolio Summary
As of September 30, 2025, the company's portfolio was comprised of $9.1 billion of Agency RMBS, MSR and other investment securities as well as their associated notional debt hedges. Additionally, the company held $4.4 billion bond equivalent value of net long to-be-announced securities (TBAs).
The following tables summarize the company's investment portfolio as of September 30, 2025 and June 30, 2025:
Investment Portfolio |
||||||||||||
(dollars in thousands) |
||||||||||||
|
||||||||||||
Portfolio Composition |
|
As of September 30, 2025 |
|
As of June 30, 2025 |
||||||||
|
|
(unaudited) |
|
(unaudited) |
||||||||
Agency RMBS |
|
$ |
6,477,694 |
|
71.1 |
% |
|
$ |
8,387,068 |
|
73.5 |
% |
Mortgage servicing rights(1) |
|
|
2,626,706 |
|
28.9 |
% |
|
|
3,015,643 |
|
26.5 |
% |
Other |
|
|
3,284 |
|
— |
% |
|
|
3,449 |
|
— |
% |
Aggregate Portfolio |
|
|
9,107,684 |
|
|
|
|
11,406,160 |
|
|
||
Net TBA position(2) |
|
|
4,384,749 |
|
|
|
|
3,025,099 |
|
|
||
Total Portfolio |
|
$ |
13,492,433 |
|
|
|
$ |
14,431,259 |
|
|
||
| ____________________ | |
(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. |
Portfolio Metrics Specific to Agency RMBS |
|
As of September 30, 2025 |
|
As of June 30, 2025 |
||||
|
|
(unaudited) |
|
(unaudited) |
||||
Weighted average cost basis(1) |
|
$ |
101.68 |
|
|
$ |
101.24 |
|
Weighted average experienced three-month CPR |
|
|
8.0 |
% |
|
|
8.4 |
% |
Gross weighted average coupon rate |
|
|
6.1 |
% |
|
|
6.1 |
% |
Weighted average loan age (months) |
|
|
28 |
|
|
|
27 |
|
| ____________________ | |
(1) |
Weighted average cost basis includes Agency principal and interest RMBS only and utilizes carrying value for weighting purposes. |
Portfolio Metrics Specific to MSR(1) |
|
As of September 30, 2025 |
|
As of June 30, 2025 |
||||
(dollars in thousands) |
|
(unaudited) |
|
(unaudited) |
||||
Unpaid principal balance |
|
$ |
175,820,641 |
|
|
$ |
198,822,611 |
|
Gross coupon rate |
|
|
3.6 |
% |
|
|
3.5 |
% |
Current loan size |
|
$ |
328 |
|
|
$ |
330 |
|
Original FICO(2) |
|
|
759 |
|
|
|
760 |
|
Original LTV |
|
|
73 |
% |
|
|
73 |
% |
60+ day delinquencies |
|
|
0.9 |
% |
|
|
0.8 |
% |
Net servicing fee |
|
25.4 basis points |
|
25.4 basis points |
||||
|
|
|
|
|
||||
|
|
Three Months Ended September 30, 2025 |
|
Three Months Ended June 30, 2025 |
||||
|
|
(unaudited) |
|
(unaudited) |
||||
Fair value losses |
|
$ |
(104,896 |
) |
|
$ |
(35,902 |
) |
Servicing income |
|
$ |
155,713 |
|
|
$ |
147,961 |
|
Servicing costs |
|
$ |
4,270 |
|
|
$ |
2,322 |
|
Change in servicing reserves |
|
$ |
(508 |
) |
|
$ |
64 |
|
| ____________________ | |
| (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. |
|
|
September 30, 2025 |
|
June 30, 2025 |
||||||
Serviced Mortgage Assets |
|
Number of Loans |
|
Unpaid Principal Balance |
|
Number of Loans |
|
Unpaid Principal Balance |
||
(dollars in thousands) |
|
(unaudited) |
|
(unaudited) |
||||||
Mortgage servicing rights |
|
720,038 |
|
$ |
175,820,641 |
|
805,261 |
|
$ |
198,822,611 |
Subservicing(1) |
|
135,706 |
|
|
30,203,608 |
|
59,361 |
|
|
11,106,331 |
Servicing administrator(2) |
|
519 |
|
|
278,371 |
|
529 |
|
|
286,526 |
Mortgage loans held-for-sale(3) |
|
41 |
|
|
12,300 |
|
32 |
|
|
9,660 |
Other assets |
|
— |
|
|
— |
|
1 |
|
|
50 |
Total serviced mortgage assets |
|
856,304 |
|
$ |
206,314,920 |
|
865,184 |
|
$ |
210,225,178 |
| ____________________ | |
(1) |
Off-balance sheet mortgage loans owned by third parties and subserviced by the company. |
(2) |
Off-balance sheet mortgage loans owned by third parties for which the company acts as servicing administrator (subserviced by appropriately licensed third-party subservicers). |
(3) |
Originated or purchased mortgage loans held-for-sale at period-end. |
Other Investments and Risk Management Metrics |
|
As of September 30, 2025 |
|
As of June 30, 2025 |
||||
(dollars in thousands) |
|
(unaudited) |
|
(unaudited) |
||||
Net long TBA notional(1) |
|
$ |
4,407,629 |
|
|
$ |
3,040,382 |
|
Futures notional |
|
$ |
(5,048,200 |
) |
|
$ |
(3,398,092 |
) |
Interest rate swaps notional |
|
$ |
24,881,904 |
|
|
$ |
19,526,559 |
|
| ____________________ | |
(1) |
Accounted for as derivative instruments in accordance with GAAP. |
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 September 30, 2025 and June 30, 2025:
September 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 |
|
$ |
6,363,146 |
|
4.29 |
% |
|
2.90 |
|
16 |
Repurchase agreements collateralized by MSR |
|
|
738,000 |
|
7.35 |
% |
|
9.40 |
|
3 |
Repurchase agreements collateralized by mortgage loans |
|
|
3,504 |
|
6.28 |
% |
|
2.83 |
|
1 |
Total repurchase agreements |
|
|
7,104,650 |
|
4.61 |
% |
|
3.58 |
|
18 |
Revolving credit facilities collateralized by MSR and related servicing advance obligations |
|
|
945,371 |
|
7.23 |
% |
|
17.03 |
|
3 |
Warehouse lines of credit collateralized by mortgage loans |
|
|
8,452 |
|
6.38 |
% |
|
2.70 |
|
1 |
Unsecured senior notes |
|
|
110,866 |
|
9.38 |
% |
|
58.52 |
|
n/a |
Unsecured convertible senior notes |
|
|
261,370 |
|
6.25 |
% |
|
3.52 |
|
n/a |
Total borrowings |
|
$ |
8,430,709 |
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
Borrowings by Collateral Type |
|
As of September 30, 2025 |
|
As of June 30, 2025 |
||||
(dollars in thousands) |
|
(unaudited) |
|
(unaudited) |
||||
Agency RMBS |
|
$ |
6,363,146 |
|
|
$ |
7,992,427 |
|
Mortgage servicing rights and related servicing advance obligations |
|
|
1,683,371 |
|
|
|
1,801,871 |
|
Other - secured |
|
|
11,956 |
|
|
|
9,470 |
|
Other - unsecured(1) |
|
|
372,236 |
|
|
|
371,811 |
|
Total |
|
|
8,430,709 |
|
|
|
10,175,579 |
|
TBA cost basis |
|
|
4,391,419 |
|
|
|
3,009,819 |
|
Net payable (receivable) for unsettled RMBS |
|
|
(133,405 |
) |
|
|
108,474 |
|
Total, including TBAs and net payable (receivable) for unsettled RMBS |
|
$ |
12,688,723 |
|
|
$ |
13,293,872 |
|
|
|
|
|
|
||||
Debt-to-equity ratio at period-end(2) |
|
4.8 :1.0 |
|
5.4 :1.0 |
||||
Economic debt-to-equity ratio at period-end(3) |
|
7.2 :1.0 |
|
7.0 :1.0 |
||||
|
|
|
|
|
||||
Cost of Financing by Collateral Type(4) |
|
Three Months Ended September 30, 2025 |
|
Three Months Ended June 30, 2025 |
||||
|
|
(unaudited) |
|
(unaudited) |
||||
Agency RMBS |
|
|
4.55 |
% |
|
|
4.54 |
% |
Mortgage servicing rights and related servicing advance obligations(5) |
|
|
7.90 |
% |
|
|
7.87 |
% |
Other - secured |
|
|
6.91 |
% |
|
|
6.68 |
% |
Other - unsecured(1)(5) |
|
|
7.96 |
% |
|
|
7.44 |
% |
Annualized cost of financing |
|
|
5.38 |
% |
|
|
5.18 |
% |
Interest rate swaps(6) |
|
|
(0.24 |
)% |
|
|
(0.20 |
)% |
U.S. Treasury futures(7) |
|
|
(0.15 |
)% |
|
|
(0.10 |
)% |
TBAs(8) |
|
|
2.39 |
% |
|
|
2.65 |
% |
Annualized cost of financing, including swaps, U.S. Treasury futures and TBAs |
|
|
3.94 |
% |
|
|
4.43 |
% |
| ____________________ | |
(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. |
Conference Call
TWO will host a conference call on October 28, 2025 at 9:00 a.m. ET to discuss its third quarter 2025 financial results and related information. To participate in the teleconference, please call toll-free (800) 330-6710 approximately 10 minutes prior to the above start time and provide the Conference Code 2449958. 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 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, (612) 453-4100.
TWO HARBORS INVESTMENT CORP. |
|||||||
CONSOLIDATED BALANCE SHEETS |
|||||||
(dollars in thousands, except share data) |
|||||||
|
September 30,
|
|
December 31,
|
||||
|
(unaudited) |
|
|
||||
ASSETS |
|
|
|
||||
Available-for-sale securities, at fair value (amortized cost $6,403,114 and $7,697,027, respectively; allowance for credit losses $1,854 and $2,866, respectively) |
$ |
6,348,157 |
|
|
$ |
7,371,711 |
|
Mortgage servicing rights, at fair value |
|
2,626,706 |
|
|
|
2,994,271 |
|
Mortgage loans held-for-sale, at fair value |
|
12,635 |
|
|
|
2,334 |
|
Cash and cash equivalents |
|
770,533 |
|
|
|
504,613 |
|
Restricted cash |
|
116,388 |
|
|
|
313,028 |
|
Accrued interest receivable |
|
28,325 |
|
|
|
33,331 |
|
Due from counterparties |
|
505,353 |
|
|
|
386,464 |
|
Derivative assets, at fair value |
|
135,431 |
|
|
|
10,114 |
|
Reverse repurchase agreements |
|
158,135 |
|
|
|
355,975 |
|
Other assets |
|
164,744 |
|
|
|
232,478 |
|
Total Assets |
$ |
10,866,407 |
|
|
$ |
12,204,319 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
||||
Liabilities: |
|
|
|
||||
Repurchase agreements |
$ |
7,104,650 |
|
|
$ |
7,805,057 |
|
Revolving credit facilities |
|
945,371 |
|
|
|
1,020,171 |
|
Warehouse lines of credit |
|
8,452 |
|
|
|
2,032 |
|
Senior notes |
|
110,866 |
|
|
|
— |
|
Convertible senior notes |
|
261,370 |
|
|
|
260,229 |
|
Derivative liabilities, at fair value |
|
7,720 |
|
|
|
24,897 |
|
Due to counterparties |
|
390,599 |
|
|
|
648,643 |
|
Dividends payable |
|
49,030 |
|
|
|
58,725 |
|
Accrued interest payable |
|
45,226 |
|
|
|
85,994 |
|
Other liabilities |
|
171,406 |
|
|
|
176,062 |
|
Total Liabilities |
|
9,094,690 |
|
|
|
10,081,810 |
|
Stockholders' Equity: |
|
|
|
||||
Preferred stock, par value $0.01 per share; 100,000,000 shares authorized and 24,870,817 shares issued and outstanding ($621,770 liquidation preference) |
|
601,467 |
|
|
|
601,467 |
|
Common stock, par value $0.01 per share; 175,000,000 shares authorized and 104,155,818 and 103,680,321 shares issued and outstanding, respectively |
|
1,041 |
|
|
|
1,037 |
|
Additional paid-in capital |
|
5,946,814 |
|
|
|
5,936,609 |
|
Accumulated other comprehensive loss |
|
(51,841 |
) |
|
|
(320,524 |
) |
Cumulative earnings |
|
1,182,768 |
|
|
|
1,648,785 |
|
Cumulative distributions to stockholders |
|
(5,908,532 |
) |
|
|
(5,744,865 |
) |
Total Stockholders' Equity |
|
1,771,717 |
|
|
|
2,122,509 |
|
Total Liabilities and Stockholders' Equity |
$ |
10,866,407 |
|
|
$ |
12,204,319 |
|
TWO HARBORS INVESTMENT CORP. |
|||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME |
|||||||||||||||
(dollars in thousands, except per share amounts) |
|||||||||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation |
|||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
September 30, |
|
September 30, |
||||||||||||
|
2025 |
|
2024 |
|
2025 |
|
2024 |
||||||||
|
(unaudited) |
|
(unaudited) |
||||||||||||
Net interest expense: |
|
|
|
|
|
||||||||||
Interest income |
$ |
93,615 |
|
|
$ |
112,642 |
|
|
$ |
322,079 |
|
|
$ |
346,378 |
|
Interest expense |
|
117,120 |
|
|
|
154,931 |
|
|
|
385,535 |
|
|
|
469,138 |
|
Net interest expense |
|
(23,505 |
) |
|
|
(42,289 |
) |
|
|
(63,456 |
) |
|
|
(122,760 |
) |
Net servicing income: |
|
|
|
|
|
|
|
||||||||
Servicing income |
|
166,448 |
|
|
|
171,732 |
|
|
|
481,661 |
|
|
|
514,080 |
|
Servicing costs |
|
3,762 |
|
|
|
3,900 |
|
|
|
9,345 |
|
|
|
15,494 |
|
Net servicing income |
|
162,686 |
|
|
|
167,832 |
|
|
|
472,316 |
|
|
|
498,586 |
|
Other income (loss): |
|
|
|
|
|
|
|
||||||||
(Loss) gain on investment securities |
|
(16,187 |
) |
|
|
1,383 |
|
|
|
(81,746 |
) |
|
|
(32,029 |
) |
Loss on servicing asset |
|
(104,896 |
) |
|
|
(133,349 |
) |
|
|
(177,019 |
) |
|
|
(145,194 |
) |
Gain (loss) on interest rate swap and swaption agreements |
|
4,302 |
|
|
|
(172,263 |
) |
|
|
(147,436 |
) |
|
|
(51,741 |
) |
Gain (loss) on other derivative instruments |
|
64,596 |
|
|
|
(32,722 |
) |
|
|
34,787 |
|
|
|
14,127 |
|
Gain on mortgage loans held-for-sale |
|
1,596 |
|
|
|
927 |
|
|
|
3,148 |
|
|
|
924 |
|
Other income |
|
4,114 |
|
|
|
123 |
|
|
|
5,913 |
|
|
|
349 |
|
Total other loss |
|
(46,475 |
) |
|
|
(335,901 |
) |
|
|
(362,353 |
) |
|
|
(213,564 |
) |
Expenses: |
|
|
|
|
|
|
|
||||||||
Compensation and benefits |
|
21,307 |
|
|
|
20,180 |
|
|
|
69,365 |
|
|
|
67,953 |
|
Other operating expenses |
|
23,051 |
|
|
|
18,405 |
|
|
|
64,863 |
|
|
|
57,156 |
|
Litigation settlement expense |
|
175,065 |
|
|
|
— |
|
|
|
375,000 |
|
|
|
— |
|
Total expenses |
|
219,423 |
|
|
|
38,585 |
|
|
|
509,228 |
|
|
|
125,109 |
|
(Loss) income before income taxes |
|
(126,717 |
) |
|
|
(248,943 |
) |
|
|
(462,721 |
) |
|
|
37,153 |
|
Provision for (benefit from) income taxes |
|
1,204 |
|
|
|
(10,458 |
) |
|
|
3,296 |
|
|
|
15,714 |
|
Net (loss) income |
|
(127,921 |
) |
|
|
(238,485 |
) |
|
|
(466,017 |
) |
|
|
21,439 |
|
Dividends on preferred stock |
|
(13,324 |
) |
|
|
(11,784 |
) |
|
|
(39,749 |
) |
|
|
(35,352 |
) |
Gain on repurchase and retirement of preferred stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
644 |
|
Net loss attributable to common stockholders |
$ |
(141,245 |
) |
|
$ |
(250,269 |
) |
|
$ |
(505,766 |
) |
|
$ |
(13,269 |
) |
Basic loss per weighted average common share |
$ |
(1.36 |
) |
|
$ |
(2.42 |
) |
|
$ |
(4.87 |
) |
|
$ |
(0.14 |
) |
Diluted loss per weighted average common share |
$ |
(1.36 |
) |
|
$ |
(2.42 |
) |
|
$ |
(4.87 |
) |
|
$ |
(0.14 |
) |
Comprehensive (loss) income: |
|
|
|
|
|
|
|
||||||||
Net (loss) income |
$ |
(127,921 |
) |
|
$ |
(238,485 |
) |
|
$ |
(466,017 |
) |
|
$ |
21,439 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
||||||||
Unrealized gain on available-for-sale securities |
|
61,038 |
|
|
|
269,621 |
|
|
|
268,683 |
|
|
|
122,470 |
|
Other comprehensive income |
|
61,038 |
|
|
|
269,621 |
|
|
|
268,683 |
|
|
|
122,470 |
|
Comprehensive (loss) income |
|
(66,883 |
) |
|
|
31,136 |
|
|
|
(197,334 |
) |
|
|
143,909 |
|
Dividends on preferred stock |
|
(13,324 |
) |
|
|
(11,784 |
) |
|
|
(39,749 |
) |
|
|
(35,352 |
) |
Gain on repurchase and retirement of preferred stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
644 |
|
Comprehensive (loss) income attributable to common stockholders |
$ |
(80,207 |
) |
|
$ |
19,352 |
|
|
$ |
(237,083 |
) |
|
$ |
109,201 |
|
TWO HARBORS INVESTMENT CORP. |
|||||||||||||||
INTEREST INCOME AND INTEREST EXPENSE |
|||||||||||||||
(in thousands) |
|||||||||||||||
|
|||||||||||||||
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
September 30, |
|
September 30, |
||||||||||||
|
2025 |
|
2024 |
|
2025 |
|
2024 |
||||||||
|
(unaudited) |
|
(unaudited) |
||||||||||||
Interest income: |
|
|
|
|
|
||||||||||
Available-for-sale securities |
$ |
83,763 |
|
|
$ |
101,067 |
|
|
$ |
293,023 |
|
|
$ |
300,883 |
|
Mortgage loans held-for-sale |
|
125 |
|
|
|
25 |
|
|
|
323 |
|
|
|
29 |
|
Other |
|
9,727 |
|
|
|
11,550 |
|
|
|
28,733 |
|
|
|
45,466 |
|
Total interest income |
|
93,615 |
|
|
|
112,642 |
|
|
|
322,079 |
|
|
|
346,378 |
|
Interest expense: |
|
|
|
|
|
|
|
||||||||
Repurchase agreements |
|
89,891 |
|
|
|
123,552 |
|
|
|
307,257 |
|
|
|
355,982 |
|
Revolving credit facilities |
|
19,142 |
|
|
|
26,873 |
|
|
|
59,611 |
|
|
|
87,026 |
|
Warehouse lines of credit |
|
111 |
|
|
|
11 |
|
|
|
295 |
|
|
|
11 |
|
Term notes payable |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,426 |
|
Senior notes |
|
2,884 |
|
|
|
— |
|
|
|
4,380 |
|
|
|
— |
|
Convertible senior notes |
|
4,517 |
|
|
|
4,495 |
|
|
|
13,417 |
|
|
|
13,693 |
|
Other |
|
575 |
|
|
|
— |
|
|
|
575 |
|
|
|
— |
|
Total interest expense |
|
117,120 |
|
|
|
154,931 |
|
|
|
385,535 |
|
|
|
469,138 |
|
Net interest expense |
$ |
(23,505 |
) |
|
$ |
(42,289 |
) |
|
$ |
(63,456 |
) |
|
$ |
(122,760 |
) |
TWO HARBORS INVESTMENT CORP. |
|||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION |
|||||||
(dollars in thousands, except share data) |
|||||||
Certain prior period amounts have been reclassified to conform to the current period presentation |
|||||||
|
|
|
|
||||
|
Three Months Ended |
||||||
|
September 30,
|
|
June 30,
|
||||
|
(unaudited) |
|
(unaudited) |
||||
Reconciliation of comprehensive loss to Earnings Available for Distribution: |
|
|
|
||||
Comprehensive loss attributable to common stockholders |
$ |
(80,207 |
) |
|
$ |
(221,807 |
) |
Adjustment for other comprehensive income attributable to common stockholders: |
|
|
|
||||
Unrealized gain on available-for-sale securities |
|
(61,038 |
) |
|
|
(50,473 |
) |
Net loss attributable to common stockholders |
$ |
(141,245 |
) |
|
$ |
(272,280 |
) |
Adjustments to exclude reported realized and unrealized (gains) losses: |
|
|
|
||||
Realized loss on securities |
|
16,012 |
|
|
|
32,599 |
|
Unrealized loss on securities |
|
266 |
|
|
|
347 |
|
Reversal of provision for credit losses |
|
(91 |
) |
|
|
(116 |
) |
Realized and unrealized loss on mortgage servicing rights |
|
104,896 |
|
|
|
35,902 |
|
Realized loss on termination or expiration of interest rate swaps and swaptions |
|
701 |
|
|
|
30,298 |
|
Unrealized loss on interest rate swaps and swaptions |
|
3,124 |
|
|
|
29,034 |
|
Realized and unrealized (gain) loss on other derivative instruments |
|
(59,517 |
) |
|
|
32,606 |
|
Other gains |
|
(2,304 |
) |
|
|
— |
|
Other adjustments: |
|
|
|
||||
MSR amortization(1) |
|
(78,902 |
) |
|
|
(73,983 |
) |
TBA dollar roll income (losses)(2) |
|
10,371 |
|
|
|
6,181 |
|
U.S. Treasury futures income(3) |
|
5,006 |
|
|
|
3,358 |
|
Change in servicing reserves |
|
(508 |
) |
|
|
64 |
|
Non-cash equity compensation expense |
|
1,544 |
|
|
|
1,932 |
|
Certain operating expenses(4) |
|
4,066 |
|
|
|
2,754 |
|
Litigation settlement expense |
|
175,065 |
|
|
|
199,935 |
|
Net (benefit from) provision for income taxes on non-EAD |
|
(1,330 |
) |
|
|
914 |
|
Earnings available for distribution to common stockholders(5) |
$ |
37,154 |
|
|
$ |
29,545 |
|
Weighted average basic common shares |
|
104,144,560 |
|
|
|
104,084,326 |
|
Earnings available for distribution to common stockholders per weighted average basic common share |
$ |
0.36 |
|
|
$ |
0.28 |
|
| ____________________ | |
(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 litigation with its former external manager. |
(5) |
EAD is a non-GAAP measure that we define as comprehensive loss 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 litigation settlement expense. 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. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20251027743382/en/
Margaret Karr, Head of Investor Relations, TWO, (612) 453-4080, [email protected]