Executive Summary

Q1 2025 delivered positive comprehensive income per share of $0.62 and a 4.4% economic return on book value, with both Agency RMBS and MSR contributing; book value per share rose to $14.66 from $14.47 in Q4 .
Non-GAAP EAD per share was $0.24, below S&P Global consensus of ~$0.40; GAAP EPS was $(0.89), reflecting mark-to-market losses on MSR, swaps and futures offset by RMBS gains . Values retrieved from S&P Global.
Management highlighted wider Agency RMBS spreads increasing levered returns, maintained high liquidity, and expressed comfort with the dividend; they disclosed book value was down ~3.5% through April amid volatility .
Post quarter-end, TWO committed to purchase $1.7B UPB of MSR (expected to settle in Q2), expanding servicing assets; financing remained stable with Agency RMBS repo at ~68 days to maturity and SOFR+~20 bps spreads .

What Went Well and What Went Wrong

What Went Well
- “We delivered a strong first quarter, with both our securities and MSR contributing to positive performance,” said CEO Bill Greenberg .
- Net interest and servicing income improved by $5.2M QoQ due to shifts into higher coupon Agency RMBS and lower borrowing rates; RMBS unrealized gains tightened mark-to-market losses .
- Wider RMBS spreads increased prospective levered returns; MSR portfolio showed low prepayment speeds (3‑month CPR 4.2%) and stable cash flows .
What Went Wrong
- GAAP EPS of $(0.89) reflected mark-to-market losses on MSR, swaps and futures despite RMBS gains; MSR fair value change was $(36.2)M in Q1 .
- Street EAD EPS miss vs consensus (~$0.40 vs $0.24 actual), implying downward estimate revisions near term. Values retrieved from S&P Global.
- Management noted continued volatility and policy uncertainty (tariffs/trade/Fed), with book value down ~3.5% through April; convexity costs elevated for hedged mortgage portfolios .

Financial Results

Earnings and Capital Metrics

Metric	Q3 2024	Q4 2024	Q1 2025
Book Value per Common Share ($)	$14.93	$14.47	$14.66
Comprehensive Income per Share ($)	$0.18	$(0.03)	$0.62
GAAP Net Income to Common ($MM)	$(250.3)	$264.9	$(92.2)
GAAP Basic EPS ($)	$(2.42)	$2.54	$(0.89)
EAD per Basic Common Share ($)	$0.13	$0.20	$0.24
Dividend per Common Share ($)	$0.45	$0.45	$0.45

Operating Revenue Proxies and Financing “Margins”

Metric ($000s unless noted)	Q3 2024	Q4 2024	Q1 2025
Interest Income	$112,642	$103,774	$111,382
Net Servicing Income	$167,832	$162,993	$153,662
Annualized Cost of Financing (%)	6.17%	5.79%	5.27%
Annualized Cost incl. Swaps/Futures/TBAs (%)	4.73%	4.58%	4.49%

Portfolio Composition and Risk Positioning

Metric	Q3 2024	Q4 2024	Q1 2025
Agency RMBS ($MM, %)	$8,514.0 (74.7%)	$7,377.0 (71.1%)	$8,627.7 (74.4%)
MSR ($MM, %)	$2,884.3 (25.3%)	$2,994.3 (28.9%)	$2,959.8 (25.6%)
Net Long TBA Notional ($MM)	$5,064.0	$4,497.8	$3,070.6
Economic Debt-to-Equity (x)	7.0x	6.5x	6.2x

KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
MSR 3‑Month CPR (%)	—	4.93	4.2
MSR 60+ Day Delinquencies (%)	0.8	0.9	0.8 (press release table) / 0.85 (summary)
RMBS Weighted Avg 3‑Month CPR (%)	7.2	7.5	7.0

Note: The press release summary cites Q1 MSR 60+ day delinquency at 0.85% vs 0.69% at Dec 31; detailed table shows 0.8% and 0.9%, respectively .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per Common Share ($)	Q1 2025	$0.45 (Q4 2024 dividend)	$0.45 declared	Maintained
Prospective Quarterly Static Return per Share ($)	Medium-term	Prior framework (varied prepay/funding)	$0.33–$0.54; widened by adding leverage range; management estimates +$0.03 with wider spreads (as of late April)	Raised range methodology
Economic Debt-to-Equity (operating stance)	Q2 2025 setup	~6.2x exiting Q1	Lowered into low-5x in early April, then raised back toward ~6x; maintaining muted risk until more clarity	Tactical lowering, then partial restoration
MSR Acquisitions (UPB)	Q2 2025	N/A	Committed $1.7B UPB via two bulk acquisitions (expected to settle in Q2)	Added pipeline
Repo/Financing Context	Q2 2025	Stable	RMBS repo ~68 days WAM; spreads ~SOFR+20 bps; liquidity normal	Maintained

No formal numerical revenue/margin guidance provided; management emphasized portfolio risk discipline and dividend comfort .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 & Q4 2024)	Current Period (Q1 2025)	Trend
Macro/Policy Volatility & Tariffs	Mortgage spread volatility decreased; hedged MSR strategy resilient	Elevated volatility; tariff/trade/Fed uncertainty; implied vol spiked; wider RMBS spreads since April	Volatility up; spreads wider
RoundPoint DTC & Second Liens	Launched DTC; Q3 funded $22.4M first lien, brokered $7.5M second lien	Focus to scale DTC, expand second liens; AI/technology to lower servicing cost-to-serve	Scaling operations
MSR Demand & Acquisitions	Strong demand; bulk sales normalizing; Q4 MSR fair value gain $82.5M	Commit $1.7B UPB post quarter; MSR CPR down to 4.2%; price multiple ~5.9x	Continued accumulation
Financing/Liquidity	Repo spreads normalizing; economic D/E 6.5x Q4	RMBS repo ~68 days; SOFR+~20 bps; economic D/E 6.2x; high liquidity maintained	Stable, cautious
Dividend	$0.45 declared Q3/Q4	Management “comfortable” supporting dividend at current portfolio spreads	Maintained
Spread Sensitivity/Hedging	Up-in-coupon bias; adjusted TBA coupons lower with rates	Reduced net mortgage exposure; moved MSR hedging down-in-coupon; up-in-coupon remains preferred	Lower risk; tactical shifts

Management Commentary

CEO Bill Greenberg: “We delivered a strong first quarter, with both our securities and MSR contributing to positive performance...RoundPoint provides additional benefits...allows us to impact our results through our own actions in ways that portfolios without operating platforms cannot” .
CIO Nick Letica: “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” .
CFO William Dellal: “Net interest and servicing income...was higher in the first quarter by $5.2 million, driven by portfolio shifts into higher coupon Agency RMBS and lower borrowing rates...Operating expenses increased due primarily to higher noncash equity compensation” .

Q&A Highlights

Book value update: “Through last Friday, we were down about 3.5%,” reflecting April volatility; leverage modulated from ~6.2x to low‑5x, then back toward ~6x .
Return potential: Wider spreads add roughly $0.03 to the static return per share range at both ends, per management .
Dividend: Management “comfortable” supporting the dividend at current spreads and portfolio composition .
Competitive landscape (Rocket/Mr. Cooper): Combined demand for MSRs broadly consistent with prior; some impact on prepayment speed assumptions but not market‑changing .
Hedging and spread sensitivity: Net mortgage exposure and coupon positioning drive spread sensitivity; intentional up‑in‑coupon bias maintained amid technical trading dynamics in lower coupons .
Strategic expansion: Exploring participation in Ginnie Mae market to broaden servicing platform and opportunities .

Estimates Context

Q1 2025 vs Street (S&P Global):
- Primary EPS (EAD proxy): Actual $0.24 vs consensus ~$0.40 → miss; prior quarters actuals: Q4 $0.20, Q3 $0.13. Values retrieved from S&P Global.
- “Revenue” consensus (S&P construct for REITs) showed mismatches to reported interest/servicing lines; use caution interpreting. Values retrieved from S&P Global.
Implications: Consensus likely to adjust lower for EAD given April volatility and disclosed book value move; however, management points to wider RMBS spreads supporting forward levered returns and dividend sustainability .

Key Takeaways for Investors

Q1 comprehensive income and economic return were solid, but EAD missed consensus; near‑term estimate revisions likely despite supportive spread backdrop . Values retrieved from S&P Global.
Wider RMBS spreads and low MSR CPRs enhance forward return potential; static return range widened and could improve further if spreads remain elevated .
Risk posture remains disciplined: leverage tactically lowered in April and re‑raised toward ~6x; liquidity high; financing markets stable at SOFR+~20 bps .
Dividend maintained at $0.45; management expressed comfort supporting current level under prevailing spreads—positive for income‑focused holders .
MSR growth continues with $1.7B UPB committed post quarter; RoundPoint DTC and second‑lien expansion add optionality to earnings mix .
Watch policy risks (tariffs/trade/Fed) and volatility’s impact on convexity costs and book value; management transparency on BV progression is helpful for trading setups .
Trading angle: Wider spreads and management’s opportunistic posture could be a catalyst for RMBS asset additions; dividend comfort and static return range support a carry‑plus‑optionality thesis in medium term .

Footnote: Values retrieved from S&P Global for consensus estimates and any financials marked with an asterisk.

TWO HARBORS INVESTMENT CORP. (TWO)·Q1 2025 Earnings Summary