Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2024 Earnings Presentation
35 slides from Two Harbors Investment's earnings presentation, Jul 31, 2024
Slide 1: An MSR + Agency REIT: Second Quarter 2024 Earnings Call
An MSR + Agency REIT Second Quarter 2024 Earnings Call JULY 31, 2024
Slide 2: Safe Harbor Statement
Safe Harbor Statement FORWARD-LOOKING STATEMENTS This presentation 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 expectations, estimates and projections and,
Slide 3: Financials Overview
Financials Overview Book Value Common Stock Economic Return per Share Dividend on Book Value(1) $15.19 $0.45 0.0% Comprehensive Investment Quarter-End Economic Income per Share Portfolio(2) Debt-to-Equity(3) $0.00 $16.0b 6.8x Note: Financial data throughout this presentation is as of or for the quar
Slide 4: Markets Overview
Markets Overview • Interest rates rose modestly and volatility increased, primarily owing to conflicting economic data – The 10-year Treasury yield rose by approximately 50 basis points, then fell by approximately 50 basis points, and ultimately ended the quarter 20 basis points higher at 4.40% • Th
Slide 5: RoundPoint Operations Update
RoundPoint Operations Update INCREASING SHAREHOLDER VALUE Cost Efficiencies Additional Income Hedges Portfolio Focused on additional operational Subservicing, direct-to-consumer Protects value of Two Harbors’ MSR efficiencies to deliver lower cost-to- originations, and ancillary products portfolio w
Slide 6: Book Value Summary
Book Value Summary • Reported book value of $15.19 per common share, and declared a second quarter common stock dividend of $0.45 per share, representing a flat quarterly economic return on book value(1) ($ in millions, except per share data) $56.3 $1,618.3 $(44.0) $(11.8) $15.64 per Represents Comp
Slide 7: Comprehensive Income Summary
Comprehensive Income Summary • Generated Comprehensive Income of $0.5 million, or $0.00 per weighted average common share • Performance affected by a small widening of RMBS spreads and an increase in realized volatility relative to the first quarter Lower gains due to a ($ in millions, except per sh
Slide 8: Balance Sheet and Liquidity Position
Balance Sheet and Liquidity Position BALANCE SHEET AS OF JUNE 30, 2024 AGENCY RMBS • $7.8 billion of outstanding repurchase agreements with 18 counterparties • Weighted average days to maturity of 85 days 2020 2021 2022 2023 2024 Average Repo Rate - SOFR (bps) (1) 40 Agency RMBS $8.0 billion Agency
Slide 9: Portfolio Composition and Risk Positioning
Portfolio Composition and Risk Positioning PORTFOLIO COMPOSITION(1) INTEREST RATE EXPOSURE(4) At June 30, 2024, $16.0 billion portfolio —% Includes $11.1 billion settled positions (0.2)% (0.3)% (0.5)% 30 8.0x (0.5)% 6.8x (0.8)% 25 6.3x (1.0)% 6.0x 6.0x Up 25 basis points Down 25 basis points Market
Slide 10: Agency RMBS Investment Landscape
Agency RMBS Investment Landscape AGENCY SPREADS REMAIN RANGE BOUND AND LESS REACTIVE TO HIGHER RATES • Nominal current coupon spreads widened by 8 basis points over the quarter, driven by an increase in rate volatility • Nominal spreads are still wide and possess tightening potential in a lower vola
Slide 11: Agency RMBS
Agency RMBS QUARTERLY HIGHLIGHTS I. SPECIFIED POOL PORTFOLIO(1) • Added approximately $1.6 billion notional 5% - 6% TBAs, to position for expected potential spread tightening and lower Other, 20.0% volatility • Rotated approximately $665 million notional lower coupon 6. 5. Loan Balance, 36.7% 0 5 In
Slide 12: Mortgage Servicing Rights Investment Landscape
Mortgage Servicing Rights Investment Landscape MSR VALUATIONS TIGHTER WITH STRONG BIDS FOR BULK PACKAGES • MSR performed well, with valuations being bolstered by a few large non-bank originators competing on lower supply • Strong bids in market resulted in large MSR buyers turning into sellers • Ser
Slide 13: Mortgage Servicing Rights
Mortgage Servicing Rights QUARTERLY HIGHLIGHTS I. MSR PORTFOLIO CHARACTERISTICS(1) • Settled $327.8 million UPB through flow acquisitions and 6/30/2024 3/31/2024 recapture Fair value ($ millions) $ 3,065 $ 3,085 • Actively managed MSR portfolio through an opportunistic Price multiple 5.8x 5.7x commi
Slide 14: Return Potential and Outlook
Return Potential and Outlook ATTRACTIVE RETURN OPPORTUNITIES FOR UNIQUELY POSITIONED MSR AND AGENCY RMBS STRATEGY PORTFOLIO INVESTED MARKET VALUE CAPITAL STATIC RETURN As of June 30, 2024 ($ millions) ALLOCATED(1) ESTIMATE(2) • Market Presence: Our size allows SERVICING MSR 2,980 us to be nimble and
Slide 15: Appendix
Appendix 15
Slide 16: Effective Coupon Positioning
Effective Coupon Positioning ZV to SOFR TBA Market TBA Specified Pools MSR/Agency IO Spreads for Coupon (%) Price(1) Notional ($m) Par Value ($m)(2) UPB ($m)(3) Combined ($m) Specified Pools(4) 2.5% $ 81.86 $ 250 $ — $ — $ 250 — 3.0% $ 85.25 — 230 — 230 106 3.5% $ 88.66 159 64 — 223 118 4.0% $ 91.67
Slide 17: Risk Positioning
Risk Positioning BOOK VALUE EXPOSURE TO CHANGES IN RATES % Change in Common Book Value 2-Year Rate 10-Year Rate Agency P&I MSR/Agency IO (basis points) (basis points) RMBS/TBA RMBS(1) Other(2) Combined (3) -25 0 Bull Steepener 2.6 % 1.1 % (3.3)% 0.4 % (4) 0 -25 Bull Flattener 6.9 % (3.5)% (4.2)% (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 COMPREHENSIVE (LOSS) INCOME QUARTERLY ECONOMIC RETURN ON BOOK VALUE(1) $150 10% $89.4 5.8% $31.5 $38.9 2.2% 2.0% $0.5 $0 0% —% $(56.8) (3.5)% $-150 -10% Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Q2-2023 Q3-2023 Q4-2023 Q1-2024 Q2-2024 Comprehensive Income ($ in millions) Quarterl
Slide 20: Earnings Available for Distribution
Earnings Available for Distribution ($ millions, except per share data) Q2-2024 Q1-2024 Variance Interest income $ 115.9 $ 117.8 $ (1.9) • Second quarter EAD increase primarily Interest expense 154.2 160.0 5.8 driven by: Net interest expense (38.3) (42.2) 3.9 – Lower interest expense due to lower av
Slide 21: Q2-2024 Portfolio Yields and Financing Costs
Q2-2024 Portfolio Yields and Financing Costs ($ thousands) Average Portfolio Asset Type Measure Amortized Cost Income(1) Average Yield Available-for-sale securities GAAP $ 8,300,435 $ 99,211 4.78% Adjustments to include other portfolio items: Mortgage servicing rights(2)(3) Non-GAAP 1,906,336 55,781
Slide 22: 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) June 30, 2024 March 31, 2024 Comprehensive income attributable to common stockholders $ 479 $ 89,370 Adjustment for other comprehensive loss
Slide 23: Agency RMBS Portfolio
Agency RMBS Portfolio Amortized Weighted Par Value Market Value Weighted % Prepay Cost Basis Gross Weighted Average Age ($ millions) ($ millions) Average CPR(1) Protected(2) ($ millions) Average Coupon (Months) 30-Year Fixed ≤ 2.5% $ — $ — —% —%$ — —% — 3.0% 230 197 3.3 % 85.6 % 204 3.7 % 32 3.5% 64
Slide 24: Mortgage Servicing Rights Portfolio
Mortgage Servicing Rights Portfolio(1) Unpaid Principal Gross Current Loan Net Number of Balance Coupon Size Loan Age Original 60+ Day 3-Month Servicing Loans ($ millions) Rate ($ thousands) (months) FICO(2) Original LTV Delinquencies CPR Fee (bps) 30-Year Fixed < 3.25% 296,456 $ 92,418 2.8% $ 369 4
Slide 25: Mortgage Servicing Rights UPB Roll-Forward
Mortgage Servicing Rights UPB Roll-Forward $ millions Q2-2024 Q1-2024 Q4-2023 Q3-2023 Q2-2023 UPB at beginning of period $ 213,597 $ 215,647 $ 218,662 $ 222,622 $ 212,445 Bulk purchases of mortgage servicing rights — 2,906 — — 14,234 Flow purchases of mortgage servicing rights 328 211 829 472 539 Sa
Slide 26: Financing
Financing $ millions Repurchase Revolving Credit Outstanding Borrowings and Maturities(1) Agreements Facilities Convertible Notes Total Borrowings Percent (%) Within 30 days $ 1,655.9 $ — $ — $ 1,655.9 16.6 % 30 to 59 days 1,483.4 — — 1,483.4 14.9 % 60 to 89 days 1,840.3 — — 1,840.3 18.4 % 90 to 119
Slide 27: Futures
Futures Weighted Average Notional Amount Carrying Value Months to Type & Maturity ($M) ($M)(1) Expiration U.S. Treasury futures 2 year $ (2,249.2) $ — 3.0 5 year (1,375.3) — 3.0 10 year (1,557.5) — 2.7 20 year 173.6 — 2.7 Eris SOFR swap futures - 10 year (30.0) — 122.6 SOFR futures < 1 year (1,083.0
Slide 28: 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 % 5.330 % 0.7 > 1 and ≤ 3 years 2,762.0 4.273 % 5.330 % 1.6 > 3 and ≤ 5 years 2,474.8 3.546 % 5.330 % 3.5 > 5 and ≤ 7 years 173.0 —%
Slide 29: End Notes
End Notes PAGE 3 - 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. Includes
Slide 30: End Notes (continued)
End Notes (continued) PAGE 11 - Agency RMBS 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 collateralized by lo
Slide 31: End Notes (continued)
End Notes (continued) PAGE 14 - Return Potential and Outlook 1. Capital allocated represents management’s internal allocation. Certain financing balances and associated interest expenses are allocated between investments based on management’s assessment of leverage ratios and required capital or liq
Slide 32: End Notes (continued)
End Notes (continued) PAGE 18 - Markets Overview 1. Source: Bloomberg, as of dates noted. 2. Source: Bloomberg, as of dates noted. 3. Source: J.P. Morgan DataQuery. 4. Source: National Association of Realtors via Bloomberg and RiskSpan as of June 30, 2024. PAGE 19 - Financial Performance 1. Economic
Slide 33: End Notes (continued)
End Notes (continued) PAGE 21 - 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 asset yiel
Slide 34: End Notes (continued)
End Notes (continued) PAGE 23 - 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 35: Two Harbors Investment Corp.
Two Harbors Investment — Q2 2024 Earnings Presentation on 6ix