Two Harbors Investment Corp (NYSE:TWO) Reports Q3 2025 Results Impacted by Litigation Charge

Two Harbors Investment Corp (NYSE:TWO) has released its financial results for the third quarter of 2025, presenting a complex picture marked by a significant one-time litigation charge that heavily impacted its GAAP earnings, while its core operational performance, when adjusted, showed notable strength.

Earnings and Revenue Versus Estimates

The company's performance against analyst expectations reveals a mixed but fundamentally solid operational quarter when excluding extraordinary items.

• Earnings Per Share (EPS): TWO reported Earnings Available for Distribution, a key non-GAAP metric, of $0.36 per share. This figure came in slightly below the analyst consensus estimate of $0.3661 per share.
• Revenue/Sales: The company reported comprehensive income, excluding the litigation settlement, of $94.9 million. On a sales/revenue basis, the reported figure of -$23.51 million surpassed the analyst estimate of -$24.81 million.

The minor miss on the bottom-line EPS appears to have been largely anticipated or overshadowed by the underlying operational performance and strategic developments announced alongside the earnings.

Market Reaction

The market's initial reaction to the earnings report has been moderately negative. In after-market trading following the release, TWO's stock price declined approximately 1.02%. This suggests that investors are weighing the headline GAAP losses against the positive adjusted figures and future guidance. The stock had been relatively flat in the weeks leading up to the report, with a 2.08% gain over the past week and minimal movement over the past month.

Quarterly Performance Summary

The third quarter was defined by a major one-time event that distorts the company's GAAP results. The key takeaways from the press release are structured below.

Core Operational Performance (Excluding Litigation Settlement)

• Generated a 7.6% quarterly economic return on book value.
• Reported comprehensive income of $94.9 million, or $0.91 per weighted average basic common share.
• Declared a common stock dividend of $0.34 per share.
• Increased the subservicing business significantly by selling approximately $30 billion in unpaid principal balance (UPB) of mortgage servicing rights (MSR) to a new client.

Impact of Litigation Settlement

• Incurred a one-time litigation settlement expense of $175.1 million related to a resolved dispute with its former external manager.
• This charge resulted in a GAAP comprehensive loss of $(80.2) million, or $(0.77) per share.
• The reported book value per common share decreased to $11.04 from $12.14 in the prior quarter, heavily influenced by this settlement.

Portfolio and Business Highlights

• Settled $698.2 million in UPB of MSR through acquisitions and recapture.
• The MSR portfolio maintained a high credit quality with a weighted average gross coupon of 3.58% and a 60+ day delinquency rate of 0.87%.
• The company's aggregate portfolio totaled $13.5 billion, including a sizable net long TBA position.

Management Outlook and Analyst Comparison

CEO Bill Greenberg stated that excluding the litigation expense, the company had "a strong quarter of performance." Looking ahead, management expressed confidence in its core strategy of pairing low-rate MSR with Agency residential mortgage-backed securities (RMBS), anticipating attractive risk-adjusted returns, especially in an environment with expectations of further interest rate cuts by the Federal Reserve.

This forward-looking optimism will now be measured against analyst estimates for the coming periods. For the full year 2025, analysts are estimating an EPS of $1.26. For the next quarter (Q4 2025), the consensus EPS estimate stands at $0.37.

For a detailed breakdown of future earnings estimates and historical performance, review the TWO earnings and estimates page.

Disclaimer: This article is for informational purposes only and does not constitute investment advice, nor does it recommend buying or selling any securities. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.