Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2024 Earnings Presentation
33 slides from Two Harbors Investment's earnings presentation, Oct 29, 2024
Slide 1: An MSR-Focused REIT: Third Quarter 2024 Earnings Call Presentation
An MSR-Focused REIT Third Quarter 2024 Earnings Call Presentation October 29, 2024
Slide 2: Safe Harbor Statement
Safe Harbor Statement FORWARD-LOOKING STATEMENTS This presentation of Two Harbors Investment Corp., or TWO, includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from exp
Slide 3: Quarterly Financials Overview
Quarterly Financials Overview Book Value Common Stock Economic Return per Share Dividend on Book Value(1) $14.93 $0.45 1.3% Comprehensive Investment Quarter-End Economic Income per Share Portfolio(2) Debt-to-Equity(3) $0.18 $16.4b 7.0x Note: Financial data throughout this presentation is as of or fo
Slide 4: Markets Overview
Markets Overview MARKET SENTIMENT CONTINUES TO RAPIDLY EVOLVE • The Federal Reserve (Fed) cut the federal funds target rate by 50 basis points at its September meeting and updated their projections to another 50 basis points in cuts for 2024, followed by another 100 basis points of cuts in 2025 • In
Slide 5: RoundPoint Operations Update
RoundPoint Operations Update TWO + RoundPoint Cost Efficiencies Additional Income Hedges Portfolio Focused on additional operational Subservicing, direct-to-consumer Protects value of TWO’s MSR portfolio Benefits efficiencies to deliver lower cost-to- originations, and ancillary products when intere
Slide 6: Book Value Summary
Book Value Summary ($ in millions, except per share data) Represents Comprehensive Income of $19.3 million, or $0.18 per common share 1.3% quarterly economic $269.6 return on book value(1) $1,573.5 $(11.8) $1.7 $1,547.6 $15.19 $(46.9) per Declared common $14.93 common stock dividend of per share $0.
Slide 7: Comprehensive Income Summary
Comprehensive Income Summary ($ in millions, except per share data) $271.0 $167.8 $171.5 Increased RMBS Higher net interest gains due to rally in expense in Q3 on rates and spread higher average Hedging losses due to Q3 Comprehensive Income of tightening in Q3, rally in rates in Q3 vs. $0.18 per wei
Slide 8: Financing Profile
Financing Profile BALANCE SHEET AS OF SEPTEMBER 30, 2024 AGENCY RMBS • $8.1 billion of outstanding repurchase agreements with 18 counterparties • Weighted average days to maturity of 78 days 2020 2021 2022 2023 2024 (1) 30 Average Repo Rate - SOFR (bps) Agency RMBS $8.5 billion Agency RMBS repurchas
Slide 9: Portfolio Composition and Risk Positioning
Portfolio Composition and Risk Positioning I. PORTFOLIO COMPOSITION(1) II. INTEREST RATE EXPOSURE(4) At September 30, 2024, $16.4 billion portfolio —% Includes $11.4 billion settled positions (0.5)% (0.3)% 30 8.0x (0.5)% 7.0x (1.0)% (0.8)% 6.8x (1.0)% 25 (1.5)% 6.0x Market Value Equivalents ($ billi
Slide 10: Agency RMBS Investment Landscape
Agency RMBS Investment Landscape AGENCY SPREADS TIGHTEN AS THE FED CUTS AND VOLATILITY DECLINES • Nominal current coupon spreads tightened by 20 basis points, tracking the decline in implied volatility, to the low end of the range for 2024 • Nominal spreads and implied volatility remain above the av
Slide 11: Agency RMBS Portfolio
Agency RMBS Portfolio QUARTERLY HIGHLIGHTS • Hedged performance varied across coupons with lower, longer-duration coupons outperforming and higher, shorter-duration coupons underperforming • Overall specified pools outperformed TBAs, with better performance from higher coupons as prepayment risk inc
Slide 12: MSR Investment Landscape
MSR Investment Landscape MSR SPREADS STABLE AS BULK SUPPLY FOR 2024 EASES • MSR performed well with continued strong demand for bulk packages, as supply normalizes to longer-term levels; 2024 volume of approximately $305 billion UPB is about 70% of the pace of 2023 • Demand for MSR continues to come
Slide 13: MSR Portfolio
MSR Portfolio QUARTERLY HIGHLIGHTS • Price multiple decreased slightly to 5.6x from 5.8x, reflecting the decline in rates • Completed the sale of $6.2 billion UPB of higher coupon MSR in the third quarter, as previously disclosed • Settled $3.3 billion UPB through bulk and flow acquisitions and reca
Slide 14: Return Potential and Outlook
Return Potential and Outlook ATTRACTIVE RETURN OPPORTUNITIES FOR UNIQUELY POSITIONED PORTFOLIO Why TWO? PORTFOLIO MARKET VALUE INVESTED CAPITAL STATIC RETURN As of September 30, 2024 ($ millions) ALLOCATED(1) ESTIMATE(2) • Market Presence: Our size allows us to be SERVICING nimble and actively alloc
Slide 15: Appendix
Appendix
Slide 16: Effective Coupon Positioning
Effective Coupon Positioning TBA Specified Pools MSR/Agency IO ZV to SOFR Spreads for Coupon (%) TBA Market Price(1) Notional ($m) Par Value ($m)(2) UPB ($m)(3) Combined ($m) Specified Pools(4) 3.0% $ 89.66 $ — $ 225 $ — $ 225 108 3.5% $ 93.07 66 62 — 128 117 4.0% $ 95.97 230 598 — 828 113 4.5% $ 98
Slide 17: Risk Positioning
Risk Positioning Book Value Exposure to Changes in Rates % Change in Common Book Value 2-Year Rate 10-Year Rate (basis points) (basis points) Agency P&I RMBS/TBA MSR/Agency IO RMBS(1) Other(2) Combined (3) -25 0 Bull Steepener 2.8 % 0.5 % (3.1)% 0.2 % (4) 0 -25 Bull Flattener 5.9 % (5.2)% (1.3)% (0.
Slide 18: Markets Overview
Markets Overview I. 2-YEAR AND 10-YEAR INTEREST RATE YIELDS(1) II. ACTUAL VS. IMPLIED VOLATILITY(2) III. MORTGAGE SPREAD VOLATILITY(3) IV. TWO MSR SPEEDS AND EXISTING HOME SALES(4) 18
Slide 19: Financial Performance
Financial Performance I. COMPREHENSIVE (LOSS) INCOME II. QUARTERLY ECONOMIC RETURN ON BOOK VALUE(1) $125 10% $89.4 5.8% $38.8 $19.3 2.0% 1.3% $0.5 $0 0% —% (3.5)% $(56.8) $-125 -10% Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Comprehensive Income ($ in millions) Q
Slide 20: Q3-2024 Portfolio Yields and Financing Costs
Q3-2024 Portfolio Yields and Financing Costs ($ thousands) Average Amortized Portfolio Asset Type Measure Cost Income(1) Average Yield Available-for-sale securities GAAP $ 8,394,436 $ 101,067 4.82% Adjustments to include other portfolio items: Mortgage servicing rights(2)(3) Non-GAAP 1,832,388 53,81
Slide 21: GAAP to EAD Reconciliation
GAAP to EAD Reconciliation Reconciliation of GAAP to non-GAAP Information Three Months Ended Three Months Ended ($ thousands, except for per common share data) September 30, 2024 June 30, 2024 Comprehensive income attributable to common stockholders $ 19,352 $ 479 Adjustment for other comprehensive
Slide 22: Agency RMBS Portfolio
Agency RMBS Portfolio Weighted Par Value Market Value Weighted Average % Prepay Amortized Cost Basis Gross Weighted Average Age ($ millions) ($ millions) CPR(1) Protected(2) ($ millions) Average Coupon (Months) 30-Year Fixed 3.0% $ 225 $ 203 6.3 % 85.6 % $ 200 3.7 % 35 3.5% 62 58 3.4 % 71.8 % 55 4.2
Slide 23: Mortgage Servicing Rights Portfolio
Mortgage Servicing Rights Portfolio(1) Unpaid Principal Number of Balance Gross Coupon Current Loan Size Loan Age Original 60+ Day Net Servicing Loans ($ millions) Rate ($ thousands) (months) FICO(2) Original LTV Delinquencies 3-Month CPR Fee (bps) 30-Year Fixed < 3.25% 293,608 $ 90,892 2.8% $ 366 4
Slide 24: Mortgage Servicing Rights UPB Roll-forward
Mortgage Servicing Rights UPB Roll-forward $ millions Q3-2024 Q2-2024 Q1-2024 Q4-2023 Q3-2023 UPB at beginning of period $ 209,390 $ 213,597 $ 215,647 $ 218,662 $ 222,622 Bulk purchases of mortgage servicing rights 2,573 — 2,906 — — Flow purchases of mortgage servicing rights 715 328 211 829 472 Ori
Slide 25: Financing
Financing $ millions Repurchase Revolving Credit Outstanding Borrowings and Maturities(1) Agreements Facilities Warehouse Facilities Convertible Notes Total Borrowings Percent (%) Within 30 days $ 2,403.2 $ — $ — $ — $ 2,403.2 24.0 % 30 to 59 days 2,180.5 — — — 2,180.5 21.8 % 60 to 89 days — — 3.0 —
Slide 26: Futures
Futures Weighted Average Type & Maturity Notional Amount ($M) Carrying Value ($M)(1) Months to Expiration U.S. Treasury futures 2 year $ (2,028.2) $ — 3.0 5 year (749.4) — 3.0 10 year (561.9) — 2.6 20 year 425.6 — 2.6 Eris SOFR swap futures - 10 year (30.0) — 122.7 SOFR futures < 1 year (750.0) — 7.
Slide 27: Interest Rate Swaps
Interest Rate Swaps(1) Maturities Notional Amount ($M)(2) Average Fixed Pay Rate(3) Average Receive Rate(3) Average Maturity (Years)(3) Payers ≤ 1 year $ 2,647.7 4.730 % 4.960 % 0.5 > 1 and ≤ 3 years 4,506.0 3.929 % 4.960 % 1.7 > 3 and ≤ 5 years 2,718.8 3.546 % 4.960 % 3.3 > 5 and ≤ 7 years 450.8 —%
Slide 28: End Notes
End Notes PAGE 3 - Quarterly Financials Overview 1. Economic return on book value is defined as the increase (decrease) in book value per common share from the beginning to the end of the given period, plus dividends declared in the period, divided by book value as of the beginning of the period. 2.
Slide 29: End Notes (continued)
End Notes (continued) PAGE 11 - Agency RMBS Portfolio 1. Specified pools include securities with implicit or explicit prepayment protection, including lower loan balances (securities collateralized by loans less than or equal to $300K of initial principal balance), higher LTVs (securities collateral
Slide 30: End Notes (continued)
End Notes (continued) PAGE 16 - Effective Coupon Positioning 1. Represents UMBS TBA market prices as of September 30, 2024. 2. Specified pools include securities with implicit or explicit prepayment protection, including lower loan balances (securities collateralized by loans less than or equal to $
Slide 31: End Notes (continued)
End Notes (continued) PAGE 20 - Q3-2024 Portfolio Yields and Financing Costs 1. Includes interest income, net of premium amortization/discount accretion, on Agency and non-Agency investment securities, servicing income, net of estimated amortization and servicing expenses, on MSR, and the implied as
Slide 32: End Notes (continued)
End Notes (continued) PAGE 22 - Agency RMBS Portfolio 1. Weighted average actual one-month CPR released at the beginning of the following month based on RMBS held as of the preceding month-end. 2. Determination of the percentage of prepay protected 30-year fixed Agency RMBS includes securities with
Slide 33: Slide 33
Two Harbors Investment — Q3 2024 Earnings Presentation on 6ix