Two Harbors Investment Corp (TWO) Q3 2024 Earnings Call Highlights: Navigating Market ...

GuruFocus News
4 min read

In This Article:

  • Book Value: $14.93 per common share as of September 30.

  • Quarterly Economic Return: 1.3% on book value, including a $0.45 per share dividend.

  • Total Economic Return (First Nine Months of 2024): 7.0% on book value.

  • Comprehensive Income: $19.3 million or $0.18 per weighted average common share in Q3.

  • Net Interest Expense: $42 million in Q3.

  • Net Servicing Income: $172 million, with $4 million in third-party sub-servicing fees.

  • Investment Securities Gain and Change in OCI: Favorable by $337 million due to rate rally and spread tightening.

  • Servicing Asset Losses: $133 million in Q3 due to declining rates.

  • Portfolio Size: $16.4 billion as of September 30, including $11.4 billion in settled positions and $4.9 billion in TBAS.

  • MSR Portfolio: $203 billion UPB at September 30.

  • Static Return Projection (Servicing): 12% to 16%.

  • Static Return Projection (Securities): 12% to 14%.

  • Prospective Quarterly Static Return per Share: $0.39 to $0.58.

Release Date: October 29, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Two Harbors Investment Corp (NYSE:TWO) reported a 1.3% quarterly economic return on book value, demonstrating resilience in a volatile market.

  • The company achieved a 7.0% total economic return on book value for the first nine months of 2024, indicating strong performance across varying market conditions.

  • The acquisition of RoundPoint is on track to achieve the anticipated cost savings, enhancing the economics of their MSR investments.

  • Two Harbors Investment Corp (NYSE:TWO) successfully launched a direct-to-consumer loan origination channel, closing and funding $22.4 million UPB of first mortgages in its first full quarter.

  • The company has built a robust investment portfolio with RMBS, reducing exposure to changes in mortgage spreads while preserving upside potential.

Negative Points

  • The book value per share decreased from $15.19 on June 30 to $14.93 on September 30, reflecting a decline in economic return.

  • Net interest expense increased to $42 million in the third quarter due to higher average borrowing balances.

  • Servicing asset losses were $133 million in the quarter, driven by declining rates that decreased the servicing asset value.

  • The company experienced hedging losses of $225 million due to a rally in rates, impacting overall financial performance.

  • Market volatility in October led to a further decline in book value, estimated to be down between 1.5% and 3% as of October 18.

Q & A Highlights

Q: Can you discuss the move lower in the static return for the securities portfolio and how much of that was due to the move lower in coupon? A: Nicholas Letica, Chief Investment Officer, explained that the lower static return was primarily due to tighter spreads over the quarter. The composition of the portfolio, with an increased percentage of capital in servicing and a slight increase in leverage, also impacted the return potential.

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