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1. Company Snapshot

1.a. Company Description

Two Harbors Investment Corp.operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS), non-agency securities, mortgage servicing rights, and other financial assets in the United States.Its target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, and hybrid adjustable-rate mortgage (ARMs); and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions.


The company qualifies as a REIT for federal income tax purposes.As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders.Two Harbors Investment Corp.


was incorporated in 2009 and is headquartered in Minnetonka, Minnesota.

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1.b. Last Insights on TWO

Two Harbors Investment Corp.'s recent performance was negatively impacted by a severe 17.2% book value decrease in Q2 2025, primarily due to a negative legal ruling and hedging decisions. A major legal loss in May resulted in a $199 million liability from a manager dispute, creating near-term uncertainty. Weak dividend coverage, with recurring earnings unable to fully support payouts, raises concerns about potential further cuts. High operating costs and expensive new debt also weigh on returns, despite stable core portfolio performance. (Source: Assessing Two Harbors' Performance For Q2 2025)

1.c. Company Highlights

2. TWO's Q3 2025 Earnings: A Closer Look

The company's financial performance in Q3 2025 was marked by a total economic return of negative 6.3% and a positive 7.6% without the litigation settlement expense of $1.68 per share. The actual EPS came out at -$0.04, relative to estimates of $0.29. Revenue adjustments were made to address the lower capital base and higher structural leverage. The company's portfolio at September 30 was $13.5 billion, including $9.1 billion in settled positions and $4.4 billion in TBAs.

Publication Date: Oct -29

📋 Highlights
  • Litigation Settlement:: Agreed to a $375M one-time payment to resolve litigation with former external manager, funded via portfolio sales, cash reserves, and borrowing capacity, maintaining ample liquidity.
  • Portfolio Adjustments:: Sold $19.1B UPB of MSR and $10B UPB (pending settlement), reducing RMBS portfolio to $10.9B from $11.4B to align with lower capital base and manage leverage.
  • Convertible Note Redemption:: Plans to redeem $262M UPB of convertible notes in 2026, leveraging $500M+ cash reserves to lower structural leverage to historical levels.
  • Originations Growth:: Recorded $49M UPB in funded loans and $60M UPB in brokered second liens for Q3, up from $44M in Q2, signaling increased origination activity.
  • Economic Returns:: Total economic return of -6.3% (with litigation expense) vs. +7.6% (excluding), and YTD returns of -15.6% (inclusive) vs. +9.3% (exclusive), highlighting litigation’s material impact.

Financial Highlights

The company's adjusted portfolio resulted in a slight increase in economic debt to equity to 7.2 times. The reduction in portfolio sensitivity to spread changes from 4.2% to 2.3% of common book value indicates a managed risk approach. The static return estimate for the portfolio after expenses is between 9.1% to 12.6%, and after applying capital structure leverage, the potential static return on common equity falls in the range of 9.5% to 15.2%.

Valuation Metrics

With a Price-to-Book Ratio of 0.58, the stock appears to be undervalued, as the company mentioned it was trading at an 11% discount to book. The Dividend Yield is 16.6%, which is attractive for income-seeking investors. The ROE is -10.82%, indicating a challenging period for the company, but the ROIC is 8.08%, suggesting that the company's investments are generating returns.

MSR Portfolio Performance

The MSR portfolio experienced a de minimis pickup in prepayment rates to 6%, and prepay expectations remained below projections for the majority of the portfolio. The company sold $19.1 billion UPB of MSR and another $10 billion UPB that will settle at the end of the month, both slightly above marks. The MSR market benefits from historically high levels of interest and participation from bank and nonbank originators and investors.

Outlook and Strategy

The company is optimistic about the additional value that RoundPoint can bring to shareholders and expects the direct-to-consumer origination platform to provide a hedge to MSRs. The company is managing its risk metrics, including leverage, liquidity, and drawdown risk, and is comfortable with its current leverage level. As William Greenberg stated, the company's gross WACC of 3.60% is still out of the money, even at 50-100 bps lower mortgage rates, indicating a managed risk approach.

3. NewsRoom

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T2 Metals Increases Private Placement to $1.468 Million

Dec -03

Source: newsfilecorp.com

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Advisors Asset Management Inc. Trims Position in Two Harbors Investments Corp $TWO

Nov -26

Source: defenseworld.net

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Brokerages Set Two Harbors Investments Corp (NYSE:TWO) PT at $12.36

Nov -22

Source: defenseworld.net

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T2 Metals Announces Private Placement to Raise up to $1.1 Million

Nov -12

Source: newsfilecorp.com

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Y Intercept Hong Kong Ltd Acquires 117,825 Shares of Two Harbors Investments Corp $TWO

Nov -03

Source: defenseworld.net

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T2 Metals Completes First Field Program at the Shanghai Gold-Silver Project, Yukon

Oct -30

Source: newsfilecorp.com

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Two Harbors Investment Corp. (TWO) Q3 2025 Earnings Call Transcript

Oct -28

Source: seekingalpha.com

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TWO Reports Third Quarter 2025 Financial Results

Oct -27

Source: businesswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.03%)

6. Segments

Real Estate Investment Trust

Expected Growth: 7.03%

Two Harbors Investment Corp.'s 7.03% growth is driven by its diversified portfolio of mortgage-backed securities, strategic acquisitions, and effective risk management. The REIT's ability to capitalize on interest rate fluctuations, coupled with its strong balance sheet and access to capital, has enabled it to navigate the current market environment and deliver consistent returns to shareholders.

7. Detailed Products

Mortgage-backed Securities

Two Harbors Investment Corp. invests in mortgage-backed securities, which are debt obligations that represent an interest in, and are collateralized by, mortgage loans.

Agency Residential Mortgage-backed Securities

These securities are guaranteed by government-sponsored entities such as Fannie Mae and Freddie Mac, and are backed by residential mortgage loans.

Non-Agency Residential Mortgage-backed Securities

These securities are not guaranteed by government-sponsored entities and are backed by residential mortgage loans.

Commercial Mortgage-backed Securities

These securities are backed by commercial mortgage loans and represent an interest in a pool of commercial mortgages.

Other Mortgage-related Assets

Includes other mortgage-related assets such as mortgage servicing rights, mortgage loans, and other mortgage-related investments.

8. Two Harbors Investment Corp.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Two Harbors Investment Corp. is medium, as there are alternative investment options available to investors, but the company's diversified portfolio and strong financial performance make it an attractive option.

Bargaining Power Of Customers

The bargaining power of customers is low, as individual investors have limited negotiating power, and the company's investment products are designed to cater to a wide range of investors.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium, as the company relies on a diverse range of suppliers for its investment products, but has some negotiating power due to its scale and reputation.

Threat Of New Entrants

The threat of new entrants is high, as the investment industry is highly competitive, and new companies can easily enter the market, posing a threat to Two Harbors Investment Corp.'s market share.

Intensity Of Rivalry

The intensity of rivalry is high, as the investment industry is highly competitive, and companies like Two Harbors Investment Corp. must constantly innovate and improve their products to stay ahead of the competition.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 46.21%
Debt Cost 13.12%
Equity Weight 53.79%
Equity Cost 13.12%
WACC 13.12%
Leverage 85.91%

11. Quality Control: Two Harbors Investment Corp. passed 1 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Two Harbors Investment

A-Score: 6.6/10

Value: 9.2

Growth: 4.2

Quality: 6.6

Yield: 10.0

Momentum: 2.0

Volatility: 7.7

1-Year Total Return ->

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Redwood Trust

A-Score: 6.0/10

Value: 6.8

Growth: 4.0

Quality: 6.0

Yield: 10.0

Momentum: 2.0

Volatility: 7.0

1-Year Total Return ->

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Stock-Card
Ellington Residential Mortgage REIT

A-Score: 5.7/10

Value: 4.5

Growth: 2.8

Quality: 5.2

Yield: 10.0

Momentum: 2.5

Volatility: 9.3

1-Year Total Return ->

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Cherry Hill Mortgage

A-Score: 5.5/10

Value: 8.9

Growth: 3.1

Quality: 4.5

Yield: 10.0

Momentum: 0.5

Volatility: 5.7

1-Year Total Return ->

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Ready Capital

A-Score: 5.2/10

Value: 7.4

Growth: 5.4

Quality: 2.9

Yield: 10.0

Momentum: 0.5

Volatility: 5.0

1-Year Total Return ->

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ACRES Commercial Realty

A-Score: 4.7/10

Value: 6.6

Growth: 4.1

Quality: 3.1

Yield: 0.0

Momentum: 7.5

Volatility: 7.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

10.22$

Current Price

10.22$

Potential

-0.00%

Expected Cash-Flows