On April 28, 2025, Two Harbors Investment Corp (TWO, Financial) released its 8-K filing detailing its financial performance for the first quarter of 2025. As a real estate investment trust (REIT), Two Harbors focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS), residential mortgage loans, mortgage servicing rights (MSR), and commercial real estate. The company reported a comprehensive income of $64.9 million, or $0.62 per weighted average basic common share, exceeding the analyst estimate of $0.44 per share.
Performance and Challenges
Two Harbors Investment Corp (TWO, Financial) faced a challenging quarter with a GAAP net loss of $92.2 million, or $0.89 per share, which is significantly below the analyst estimate of $0.44 per share. Despite this, the company achieved a 4.4% quarterly economic return on book value, driven by positive returns across its securities and MSR portfolio. The company's strategic focus on MSR and agency RMBS has been pivotal in navigating the uncertain macroeconomic environment.
Financial Achievements
The company declared a first-quarter common stock dividend of $0.45 per share, maintaining a strong annualized dividend yield of 13.5%. The book value per common share increased to $14.66 from $14.47 at the end of the previous quarter. These achievements are crucial for REITs like Two Harbors, as they highlight the company's ability to generate stable returns and maintain shareholder value.
Key Financial Metrics
Two Harbors reported earnings available for distribution (EAD) of $25.1 million, or $0.24 per share, reflecting a 6.5% annualized return on average common equity. The company's MSR portfolio, with a weighted average gross coupon rate of 3.46%, experienced a slight increase in the 60+ day delinquency rate to 0.85% from 0.69% in the previous quarter. The MSR portfolio's three-month CPR was 4.2%, compared to 3.9% in the first quarter of 2024.
We delivered a strong first quarter, with both our securities and MSR contributing to positive performance," said Bill Greenberg, TWO’s 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."
Investment Portfolio and Risk Management
As of March 31, 2025, Two Harbors' investment portfolio comprised $11.6 billion in agency RMBS, MSR, and other investment securities, along with $3.0 billion in net long to-be-announced securities (TBAs). The company maintained high levels of excess liquidity and reduced notional mortgage and spread exposure to mitigate risks in the volatile market environment.
| Portfolio Composition | As of March 31, 2025 | As of December 31, 2024 |
|---|---|---|
| Agency RMBS | $8,627,708 (74.4%) | $7,376,965 (71.1%) |
| Mortgage Servicing Rights | $2,959,773 (25.6%) | $2,994,271 (28.9%) |
| Other | $3,613 | $3,734 |
| Aggregate Portfolio | $11,591,094 | $10,374,970 |
| Net TBA Position | $3,001,064 | $4,468,904 |
| Total Portfolio | $14,592,158 | $14,843,874 |
Analysis and Outlook
Two Harbors Investment Corp (TWO, Financial) demonstrated resilience in the first quarter of 2025, with its comprehensive income surpassing analyst expectations. The company's strategic focus on MSR and agency RMBS, coupled with prudent risk management, positions it well to navigate the current economic uncertainties. However, the GAAP net loss highlights the challenges faced in the volatile market environment. Investors will be keen to see how the company leverages its portfolio strategy to sustain returns and manage risks in the coming quarters.
Explore the complete 8-K earnings release (here) from Two Harbors Investment Corp for further details.
