8-K: Two Harbors Investment Corp. Reports Positive First Quarter 2025 Financial Results Driven by Strong Portfolio Performance

Two Harbors Investment Corp. announces positive first quarter 2025 financial results, driven by positive returns across its portfolio, with a book value of $14.66 per common share and a dividend of $0.45 per share.

Summary

• Two Harbors Investment Corp. (TWO) reported its financial results for the quarter ended March 31, 2025.
• The company's book value was $14.66 per common share, and a first quarter common stock dividend of $0.45 per share was declared.
• This represents a 4.4% quarterly economic return on book value.
• Comprehensive Income was $64.9 million, or $0.62 per weighted average basic common share.
• The company settled $174.9 million in unpaid principal balance (UPB) of MSR through flow-sale acquisitions and recapture.
• Post quarter-end, TWO committed to purchase $1.7 billion UPB of MSR through two bulk acquisitions.
• As of March 31, 2025, the MSR portfolio had a weighted average gross coupon rate of 3.46% and a 60+ day delinquency rate of 0.85%, compared to 0.69% as of December 31, 2024.
• The MSR portfolio experienced a 3-month CPR of 4.2% for the first quarter of 2025, compared to 3.9% for the first quarter of 2024.
• The company funded $28.9 million UPB in first lien loans and brokered $36.1 million UPB in second lien loans.
• As of March 31, 2025, the company's portfolio was comprised of $11.6 billion of Agency RMBS, MSR and other investment securities as well as their associated notional debt hedges.
• The company held $3.0 billion bond equivalent value of net long to-be-announced securities (TBAs).

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook, highlighting strong portfolio performance and strategic positioning in the market. While acknowledging macroeconomic uncertainties, management expresses confidence in the company's ability to generate attractive returns.

Positives

• The company reported positive returns across the portfolio.
• The company's book value increased to $14.66 per common share.
• The company declared a dividend of $0.45 per share, representing a 4.4% quarterly economic return on book value.
• Comprehensive income was positive at $64.9 million.
• The company is actively acquiring MSRs, with $174.9 million settled in Q1 and a commitment to purchase $1.7 billion post quarter-end.
• The company's MSR portfolio has a relatively low delinquency rate of 0.85%.

Negatives

• The 60+ day delinquency rate of the MSR portfolio increased from 0.69% as of December 31, 2024, to 0.85% as of March 31, 2025.
• The fair value of MSR decreased by $36.221 million.

Risks

• The uncertain macroeconomic environment could impact the company's performance.
• Changes in interest rates and market value of assets could affect results.
• Prepayment rates of mortgages underlying target assets could impact performance.
• Defaults or decreased recovery on mortgages underlying target assets could affect results.
• Declines in home prices could impact the company.
• The company faces risks related to hedging, availability and cost of target assets and financing, and competition.
• Ongoing litigation related to the termination of the management agreement with PRCM Advisers LLC poses a risk.
• Operational risks associated with managing a mortgage loan servicer and originator could impact the company.
• Legal and regulatory claims could pose a risk.
• The company's ability to maintain its REIT qualification is a risk factor.

Future Outlook

Management is focused on keeping risk exposures low given the uncertain macroeconomic environment, while also seeking opportunities arising from market dislocations; they expect ample opportunities to add MSR at attractive spreads.

Management Comments

• We delivered a strong first quarter, with both our securities and MSR contributing to positive performance, said Bill Greenberg, TWOs President and Chief Executive Officer.
• These results are a testament to our thoughtful and intentional portfolio construction with MSR at its core, which is designed to deliver attractive risk-adjusted returns across a variety of market environments.
• Moreover, our mortgage operating company, RoundPoint, provides additional benefits to our shareholders and allows us to impact our results through our own actions in ways that portfolios without operating platforms cannot.
• Im very excited about the opportunities ahead for TWO.
• Given the uncertain macroeconomic environment that we are currently in, we are focused on keeping our risk exposures low, stated Nick Letica, TWOs Chief Investment Officer.
• You can see evidence of this in various dimensions across our portfolio at quarter-end, including lower notional mortgage exposure and lower spread exposure.
• We are also maintaining high levels of excess liquidity, even as the funding markets have remained liquid and well supported.
• But from dislocation, there is also opportunity.
• Agency RMBS spreads have widened in response to the pickup in volatility, increasing the levered returns available on that asset, while the low weighted average coupon rate of our MSR should continue to generate stable cashflows.

Industry Context

The report highlights the continued demand for MSR assets in the market, with opportunities for attractive spreads even as transfer volume normalizes; the company's focus on MSR aligns with a broader trend of REITs seeking stable cash flows in a volatile interest rate environment.

Comparison to Industry Standards

• While specific competitor data isn't provided, the report's focus on economic return on book value and dividend yield are standard metrics for REITs like Annaly Capital Management (NLY) and AGNC Investment Corp. (AGNC).
• The MSR portfolio metrics, such as delinquency rates and CPR, are comparable to those reported by other mortgage REITs with significant MSR holdings, such as New Residential Investment Corp. (NRZ).
• The economic debt-to-equity ratio of 6.2x is within the typical range for mortgage REITs, but it's important to compare this to peers with similar portfolio compositions.

Legal Proceedings

• The company is involved in ongoing litigation with PRCM Advisers LLC related to the termination of their management agreement.

Stakeholder Impact

• Shareholders benefit from the declared dividend and the positive economic return on book value.
• Employees are impacted by the company's overall performance and strategic decisions.
• Customers of RoundPoint, the mortgage operating company, are affected by the company's servicing and origination activities.
• Suppliers and creditors are impacted by the company's financial stability and operational decisions.

Next Steps

• The company will host a conference call on April 29, 2025, to discuss the financial results.
• The company will continue to manage its portfolio and seek opportunities in the market.
• The company will integrate the $1.7 billion UPB of MSR acquired post quarter-end.

Key Dates

Keywords

MSR, Agency RMBS, REIT, Mortgage Servicing Rights, Two Harbors Investment Corp, Financial Results, Dividends, Book Value, Comprehensive Income