Two Harbors Investment Stock Earnings Reports

TWO reported Q3 2025 results dominated by a $375 million one-time settlement with its former external manager (recorded as a $175.1 million incremental litigation expense in Q3), which reduced book value and temporarily increased the company’s expense ratio. Management funded the payment with portfolio sales, cash, and available borrowings and ended the quarter with approximately $770.5 million of cash and ample liquidity. They sold MSR positions (roughly $19.1B UPB in Q3 plus ~ $10B settling in Q4) on a servicing-retained basis to seed a large subservicing relationship, bringing third‑party subservicing UPB to ~ $40B and reinforcing RoundPoint as a growing subservicer. The company will redeem $262M UPB of convertible notes at maturity in January 2026, reducing structural leverage; they plan to fund the redemption from cash and MSR facilities. Portfolio adjustments were made pro rata to reflect the lower capital base; despite some increase in economic leverage, spread sensitivity and other risk measures were reduced. Core business highlights include record DTC locks in September, $49M funded from DTC originations in the quarter (plus $52M pipeline), strong RMBS performance in Q3, and MSR portfolio characteristics that remain largely out‑of‑the‑money at current rates. Management reiterated confidence in the MSR + agency RMBS strategy, sees attractive prospective static returns (securities: ~15–19%; servicing: ~11–14%; prospective common equity static return range after capital structure ~9.5–15.2%), and believes the stock is materially undervalued versus book value once litigation is behind them. Cost-reduction and technology/AI initiatives are underway to offset the higher expense ratio from the settlement, with more detail to come.