What happened

Shares of Two Harbors Investment (NYSE:TWO) fell 12.6% today after the company reported earnings results for the first quarter of the year.

So what

Two Harbors, a mortgage servicing real estate investment trust (REIT), reported a nearly $223 million profit in the first quarter, or $0.81 earnings per share (EPS), up from $192.2 million in the first quarter of 2020.

Core earnings of $0.17 EPS, however, which excludes realized and unrealized gains and losses, declined from the first quarter of 2020 and missed analysts' expectations. The book value, or equity, of the company ended the quarter at $7.29 per share, down 2.2% from the previous quarter.

Person with marker drawing downward squiggly line.

Image source: Getty Images.

"With mortgage spreads at historically tight levels, our Agency + MSR [mortgage servicing rights] strategy, with its lower exposure to mortgage spreads, is especially attractive," Bill Greenberg, Two Harbors president and CEO, said in a statement. "As spreads normalize, we expect to increase leverage and deploy excess capital at more attractive levels. In the meantime, we are committed to growing our MSR portfolio and have expanded our funding capacity to execute on that strategy."

Now what

Two Harbors' stock was volatile during the pandemic and still has not recovered from pre-pandemic levels. While some fear the mortgage market may have peaked, Two Harbors has a portfolio of agency residential mortgage-backed securities and a mortgage servicing portfolio that should help it offset the impact of rising interest rates if they come.

The REIT, like others, also pays an attractive dividend yield. Trading below book value, there is upside for Two Harbors, but the ride may be a little bumpy.

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