Two Harbors Investment (TWO) Q3 2024 earnings summary

Executive summary

• Book value per share declined to $14.93 at September 30, 2024, from $15.19 at June 30, 2024, with a 1.3% quarterly economic return and a $0.45 dividend declared.

• Comprehensive income for Q3 2024 was $19.3 million ($0.18 per share), while GAAP net loss attributable to common stockholders was $250.3 million ($2.42 per share), driven by MSR and derivative losses offset by net servicing income.

• Rebranded as "Tu" to reflect a strategic focus on MSR as a core investment, emphasizing expertise in managing interest rate and prepayment risks.

• RoundPoint acquisition and direct-to-consumer origination platform are delivering cost savings, operational efficiencies, and new income streams.

• Investment portfolio stood at $16.4 billion, with MSR at its core and agency RMBS for balanced risk and return.

Financial highlights

• Net interest expense was $42.3 million for Q3 2024, an improvement from $49.5 million in the prior year, partially offset by higher RMBS interest income.

• Net servicing income rose to $172 million, up from $148.7 million a year ago, offset by sub-servicing fees and costs.

• Investment securities gains improved by $337 million due to rate rally and spread tightening; servicing asset losses were $133 million.

• Dividend yield was 13.0% annualized, with a $0.45 per share dividend paid for the quarter.

• Total assets were $12.89 billion at September 30, 2024, down from $13.14 billion at December 31, 2023.

Outlook and guidance

• Static return estimate for the portfolio is 9.5%-12.7% before leverage; after leverage, potential static return on common equity is 10.5%-15.6%.

• Management expects the MSR market to remain stable and well supported, with prepayment speeds likely to decline modestly in Q4 2024.

• Mortgage spreads have widened, making current mortgage investments more attractive.

• Prospective quarterly static return per basic common share is estimated at $0.39–$0.58.

• Post-quarter, market volatility increased, with book value estimated down 1.5%-3% through October 18th, and further declines since.