Two Harbors Investment Corp. (NYSE:TWO) Q1 2024 Earnings Call Transcript

Two Harbors Investment Corp. (NYSE:TWO) Q1 2024 Earnings Call Transcript April 30, 2024

Two Harbors Investment Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Jennifer and I will be your conference facilitator. At this time, I'd like to welcome everyone to the Two Harbors First Quarter 2024 Financial Results Conference Call. All participants will be in a listen-only mode. After the speaker's remarks, there will be a question-and-answer period. I would now like to turn the call over to Ms. Maggie Karr.

Maggie Karr: Good morning, everyone, and welcome to our call to discuss Two Harbors' first quarter 2024 financial results. With me on the call this morning are Bill Greenberg, our President and Chief Executive Officer; Nick Letica, our Chief Investment Officer and Mary Riskey, our Chief Financial Officer. The earnings press release and presentation associated with today's call have been filed with the SEC and are available on the SEC's website, as well as the investor relations page of our website at twoharborsinvestment.com. In our earnings release and presentation, we have provided reconciliations of GAAP to non-GAAP financial measures, and we urge you to review this information in conjunction with today's call. As a reminder, our comments today will include forward-looking statements which are subject to risks and uncertainties that may cause our results to differ materially from expectations.

These are described on Page 2 of the presentation and in our Form 10-K and subsequent reports filed with the SEC. Except as may be required by law, Two Harbors does not update forward-looking statements and disclaims any obligation to do so. I will now turn the call over to Bill.

William Greenberg: Thank you Maggie. Good morning everyone and welcome to our first quarter earnings call. Today, I'll provide an overview of our quarterly performance, then I will spend a few moments discussing the markets and finish with an update on RoundPoint operations. Mary will cover our financial results in detail and Nick will discuss our investment portfolio and return outlook. Let's begin with Slide 3. Our book value at March 31 increased to $15.64 per share, representing a positive 5.8% total economic return for the quarter. Our results were driven by the performance of our RMBS portfolio in a declining volatility environment and MSR, which experienced slower than expected prepayment speeds. MSR continues to benefit our portfolio with a very attractive yield combined with limited prepayment risk and low-interest rate sensitivities.

As we have previously emphasized, our high capital allocation to MSR acts as a balance to our portfolio when agency spreads fluctuates. I'm confident that our portfolio design and current allocation between MSR and Agency RMBS positions us well for what we expect to be a higher for longer interest rate environment. Please turn to Slide 4 for a brief discussion of the markets. Stronger than expected economic data and sticky inflation readings pushed interest rates higher in the quarter and led the market to the realization that higher for longer rates is the most likely path. The employment report came in stronger than expected in each month of the quarter, averaging gains of 281,000 new jobs per month. Similarly, both consumer and producer price indices surprised higher, with three-month annualized core CPI, a metric closely watched by the market, and the Fed reaching 4.5%, its highest level since June 2023 as seen in Figure 1.

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