TWO - Two Harbors Investment Q1 results hurt by higher hedging costs wider spreads

2023-05-01 16:50:32 ET

Two Harbors Investment ( NYSE: TWO ) saw its Q1 2023 earnings available for distribution slide from the prior quarter as hedging costs increased and spreads widened, the company said Monday.

Q1 EPS available for distribution of $0.09 dropped from $0.26 in Q4 2022. Excluding market-driven value changes, the mortgage REIT generated income of $0.59 per share in the most recent quarter, down from $0.73 per share in the prior quarter.

Book value of $16.48 per share at March 31, 2023 fell from $17.72 at Dec. 31, 2022; quarterly economic return on book value of -3.6% vs. +11.6% in the prior quarter.

"In the first quarter, our book value declined as interest rate volatility increased hedging costs and spreads widened rapidly," said President and CEO Bill Greenberg. "Importantly, funding for both RMBS and MSR remains stable and well supported, and we have more than ample liquidity."

The company's portfolio value of $15.74B as of March 31, 2023 rose from $14.68B at Dec. 31, 2022.

Average portfolio yield of 5.09% vs. 4.92% in Q4, and average cost of financing was 4.57% vs. 3.95% in Q4, resulting in net spread of 0.52% in Q1 2023 vs. 0.97% in Q4 2022.

Interest income of $116.6M rose from $99.30M in the prior quarter.

RMBS spreads are likely to stay wider than historical norms due to challenging supply/demand dynamics, said Two Harbors' chief investment officer, Nick Letica said. In addition "prepayments on our MSR remain slow and we don't expect delinquencies to materially increase. Taken together, we believe that these dynamics are a benefit to our paired RMBS + MSR strategy," he added.

Two Harbors ( TWO ) stock gained 0.6% in Monday after-hours trading.

Conference call on May 2 at 9:00 AM ET.

Earlier, Two Harbors Investment income excluding market-driven value changes of $0.59

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