Two Harbors Announces CFO Change and Book Value of $15.19 Per Share

Two Harbors Investment Corp. Announces Q2 2024 Financial Results

Two Harbors Investment Corp. reported its financial results for the second quarter of 2024, showcasing a stable economic return and a strategic adjustment in its investment portfolio in light of market fluctuations and interest rate changes. The company also announced the retirement of CFO Mary Riskey, with William Dellal stepping in as interim CFO. Despite these executive transitions, Two Harbors remained committed to a hedged investment strategy, concluding the quarter with a book value of $15.19 per share and a total economic return of 0%.

Key Takeaways

• Two Harbors’ book value decreased to $15.19 per share, resulting in a total economic return of 0.0% for the quarter.
• The company’s portfolio was valued at $16 billion, with a leverage ratio of 6.8 times.
• Investment strategy adjustments were made in response to market volatility and rising interest rates.
• The company’s Mortgage Servicing Rights (MSR) portfolio benefited from competitive bids and limited supply.
• Two Harbors has $630 million in unused MSR asset financing capacity and $91 million for servicing advances.
• There was an increase in specified pool prepayment speeds, with the company settling $328 million in MSR through flow sale acquisitions.
• The company anticipates a future decline in market volatility along with potential interest rate cuts.

Company Outlook

• Two Harbors predicts a reduction in market volatility and a potential tightening of spreads in a lower interest rate environment.
• The company maintains an optimistic view on the return potential of its investments.

Bearish Highlights

• Increased market volatility and a modest rise in interest rates were observed during the quarter.
• Specified pool prepayment speeds increased from 5.1 CPR in the first quarter to 7.2 CPR.

Bullish Highlights

• Two Harbors effectively managed its interest rate exposure by adjusting positions between specified pools and TBAs.
• The MSR portfolio demonstrated strong performance due to robust bids and limited supply.

Misses

• Despite strategic management, the company reported a total economic return of 0.0% for the quarter.

Q&A Highlights

• William Greenberg discussed the likelihood of a Federal Reserve rate cut and a lower volatility environment, citing an improved probability compared to the past two years.
• Expectations in the market are pricing in approximately two to three rate cuts for the year.
• The company has strategically favored swaps over Treasury futures in constructing its hedge portfolio, citing better carry and swap spreads.

In summary, Two Harbors’ earnings call for the second quarter illustrates a company navigating a period of strategic transformation and resilience amid challenging market conditions. With a stable economic return, Two Harbors is well-positioned to adapt to upcoming shifts in the interest rate landscape and market volatility. The retirement of CFO Mary Riskey and the appointment of William Dellal as interim CFO herald a new phase in leadership as the company maneuvers through the complexities of the real estate investment market.

Investing Insights

Two Harbors demonstrates substantial resilience despite market volatility, as reflected in its financial results. Key insights include:

• The company’s market capitalization is approximately $1.39 billion.
• With a P/E Ratio of 6.2, Two Harbors appears undervalued relative to its earnings.
• The dividend yield stands impressively at 13.06%, underscoring the company’s dedication to shareholder value, even amidst market challenges.

Investors may find these insights, particularly regarding the low earnings multiple and significant dividend yield, appealing for potential value and income opportunities. The forecasted growth in net income and the company’s consistent history of dividend payments further bolster its investment case.

Conclusion

The earnings call for Two Harbors highlights ongoing strategic adaptation in response to market changes. The company’s stable economic return reflects its preparedness to navigate interest rate fluctuations and evolving market conditions. As it transitions leadership, Two Harbors remains committed to its investment strategy and is optimistic about future return potentials.