Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2025 Earnings Presentation
34 slides from Two Harbors Investment's earnings presentation, Apr 29, 2025
Slide 1: An MSR-Focused REIT: First Quarter 2025 Earnings Call Presentation
An MSR-Focused REIT First Quarter 2025 Earnings Call Presentation April 29, 2025
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) $14.66 $0.45 4.4% Comprehensive Investment Quarter-End Economic Income per Share Portfolio(2) Debt-to-Equity(3) $0.62 $14.6b 6.2x Note: Financial data throughout this presentation is as of or fo
Slide 4: Markets Overview
Markets Overview INTEREST RATES ACROSS THE YIELD CURVE MODESTLY LOWER • Interest rates initially rose in January on the heels of stronger-than-expected employment data; subsequent data on employment and inflation was overshadowed by growing economic uncertainty and at quarter-end, U.S. Treasury yiel
Slide 5: RoundPoint Operations Update
RoundPoint Operations Update TWO + RoundPoint Cost Efficiencies Additional Income Hedges Portfolio Focused on additional operational Subservicing, direct-to-consumer Protects value of TWO’s MSR portfolio Benefits efficiencies to deliver lower cost-to- originations, and ancillary products when intere
Slide 6: Book Value Summary
Book Value Summary ($ in millions, except per share data) Represents Comprehensive Income of 4.4% $64.9 million, or $0.62 per common share quarterly economic return on book value(1) $157.2 $14.66 per $14.47 per common share common share $(13.2) $6.6 $1,525.0 $1,500.7 $(47.2) Declared common stock di
Slide 7: Comprehensive Income (Loss) Summary
Comprehensive Income (Loss) Summary Increase in net interest expense and servicing ($ in millions, except per share data) income driven by portfolio shifts into higher coupon Agency RMBS and lower borrowing rates, partially offset slightly by lower float income due to seasonality and lower rates, an
Slide 8: Financing Profile
Financing Profile BALANCE SHEET AS OF MARCH 31, 2025 AGENCY RMBS • $9.0 billion of outstanding repurchase agreements with 18 counterparties • Weighted average days to maturity of 68 days 2021 2022 2023 2024 2025 (1) 40 Average Repo Rate - SOFR (bps) Agency RMBS $8.6 billion Agency RMBS repurchase ag
Slide 9: Portfolio Composition and Risk Positioning
Portfolio Composition and Risk Positioning I. PORTFOLIO COMPOSITION(1) II. INTEREST RATE EXPOSURE(4) At March 31, 2025, $14.6 billion portfolio —% Change in common Includes $11.6 billion settled positions book value 30 8.0x (0.5)% 7.0x (0.6)% (0.6)% (0.6)% 6.8x (0.7)% 6.5x 25 6.2x (1.0)% Market Valu
Slide 10: Agency RMBS Investment Landscape
Agency RMBS Investment Landscape NET POSITIVE QUARTER FOR AGENCY RMBS • Agency RMBS outperformed interest rate hedges in January and February, but underperformed in March as financial assets priced in greater amounts of uncertainty • Nominal and option-adjusted spread (OAS), and implied volatility,
Slide 11: Agency RMBS Portfolio
Agency RMBS Portfolio QUARTERLY HIGHLIGHTS • Performance across the coupon stack was uneven, with higher coupon TBA and specified pools outperforming longer duration lower coupons • Current coupon performance aided by (1) bull steepening of the swap curve and (2) record amounts of CMO issuance, whic
Slide 12: MSR Investment Landscape
MSR Investment Landscape MSR MARKET WELL SUPPORTED • MSR market remains well supported given the high demand for the asset class, which continues to come from bank and non-bank portfolios • Expect ample opportunities to add MSR at attractive spreads, even as transfer volume continues to normalize to
Slide 13: MSR Portfolio
MSR Portfolio QUARTERLY HIGHLIGHTS • Weighted average 3-month CPR decreased slightly to 4.2% CPR from 4.9% in Q4, due to slower seasonal factors • Price multiple unchanged quarter-over-quarter at 5.9x, reflecting slightly tighter spreads • 60+ day delinquencies remain low at 0.9% • Settled $174.9 mi
Slide 14: Return Potential and Outlook
Return Potential and Outlook ATTRACTIVE RETURN OPPORTUNITIES FOR UNIQUELY POSITIONED PORTFOLIO PORTFOLIO MARKET VALUE INVESTED CAPITAL As of March 31, 2025 ($ millions) ALLOCATED(1) STATIC RETURN ESTIMATE(2) SERVICING MSR 2,986 RMBS(3) 5,514 Total 8,500 65% 12% - 14% SECURITIES RMBS(3) 5,412 Other S
Slide 15: The TWO Advantage
The TWO Advantage Our size, expertise, and investment strategy differentiate us from other mREIT peers and investors in MSR. Market Presence: Financing and Liquidity: Our scale, expertise and We have a strong balance ability to leverage our own sheet and diversified servicer allows us to find financ
Slide 16: Appendix
Appendix
Slide 17: Effective Coupon Positioning
Effective Coupon Positioning I. EFFECTIVE COUPON POSITIONING II. QUARTER-OVER-QUARTER CHANGE IN POSITIONING Combined TBA, Specified Pool and MSR positioning by coupon Specified ZV to SOFR TBA Pools MSR/ Spreads for Agency IO 3.0 TBA Market Notional Par Value Combined Specified Coupon (%) Price(1) ($
Slide 18: 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 2.4 % 2.8 % (2.7)% 2.5 % (4) 0 -25 Bull Flattener 5.5 % (5.7)% (2.9)% (3.
Slide 19: Markets Overview
Markets Overview I. QUARTERLY MORTGAGE PERFORMANCE(1) II. ACTUAL VS. IMPLIED VOLATILITY(2) III. MORTGAGE SPREAD VOLATILITY(3) IV. TWO MSR SPEEDS AND EXISTING HOME SALES(4) 19
Slide 20: Financial Performance
Financial Performance I. COMPREHENSIVE INCOME (LOSS) II. QUARTERLY ECONOMIC RETURN ON BOOK VALUE(1) $125 10% $89.4 $64.9 5.8% 4.4% $19.3 1.3% $0.5 —% $0 0% $(1.6) —% $-125 -10% Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q1-2025 Comprehensive Income ($ in millions) Quarte
Slide 21: Net Interest, Servicing and Mark-to-Market Detail
Net Interest, Servicing and Mark-to-Market Detail ($ in millions, except per share data) Mark-to-Market $163.0 $153.6 $144.5 $124.5 $82.5 $(20.3) $(34.9) $(36.2) $(97.4) Net Interest and Servicing Income Decrease in net mark-to-market losses due to favorable market movement on RMBS driven by Increas
Slide 22: Q1-2025 Portfolio Yields and Financing Costs
Q1-2025 Portfolio Yields and Financing Costs ($ thousands) Average Amortized Portfolio Asset Type Measure Cost Income(1) Average Yield Available-for-sale securities GAAP $ 8,321,221 $ 100,418 4.83% Mortgage loans held-for-sale GAAP 3,371 53 6.29% Adjustments to include other portfolio items: Mortgag
Slide 23: 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% $ — $ — —% —%$ — —% — 3.5% 48 44 6.0 % 100.0 % 44 4.0 % 72 4.0% 455 42
Slide 24: 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% 288,800 $ 88,127 2.8% $ 361 5
Slide 25: Mortgage Servicing Rights UPB Roll-forward
Mortgage Servicing Rights UPB Roll-forward $ millions Q1-2025 Q4-2024 Q3-2024 Q2-2024 Q1-2024 UPB at beginning of period $ 200,317 $ 202,052 $ 209,390 $ 213,597 $ 215,647 Bulk purchases of mortgage servicing rights — 2,063 2,573 — 2,906 Flow purchases of mortgage servicing rights 155 376 715 328 211
Slide 26: Financing
Financing $ millions Repurchase Revolving Credit Outstanding Borrowings and Maturities(1) Agreements Facilities Warehouse Facilities Convertible Notes Total Borrowings Percent (%) Within 30 days $ 3,858.0 $ — $ 0.5 $ — $ 3,858.5 35.3 % 30 to 59 days 1,107.7 — 1.1 — 1,108.8 10.1 % 60 to 89 days 899.0
Slide 27: Futures
Futures Weighted Average Type & Maturity Notional Amount ($M) Carrying Value ($M)(1) Months to Expiration U.S. Treasury futures 2 year $ (2,065.4) $ — 3.0 5 year (502.1) 3.0 10 year (165.4) — 2.6 20 year 182.3 — 2.6 Federal Funds futures - 30 day 125.0 — 2.0 Eris SOFR swap futures - 10 year (130.0)
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 $ 1,968.9 4.087 % 4.410 % 0.8 > 1 and ≤ 3 years 3,713.0 3.739 % 4.410 % 2.0 > 3 and ≤ 5 years 2,091.9 3.669 % 4.410 % 4.6 > 5 and ≤ 7 years 1,867.6
Slide 29: End Notes
End Notes PAGE 3 - Quarterly Financials Overview 1. Economic return on book value is defined as the increase (decrease) in common book value from the beginning to the end of the given period, plus dividends declared to common stockholders in the period, divided by common book value as of the beginni
Slide 30: 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 31: End Notes (continued)
End Notes (continued) PAGE 17 - Effective Coupon Positioning 1. Represents UMBS TBA market prices as of March 31, 2025. 2. Specified pools include securities with implicit or explicit prepayment protection, including lower loan balances (securities collateralized by loans less than or equal to $300K
Slide 32: End Notes (continued)
End Notes (continued) PAGE 22 - Q1-2025 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 33: End Notes (continued)
End Notes (continued) PAGE 26 - Financing 1. As of March 31, 2025, outstanding borrowings had a weighted average of 4.4 months to maturity. 2. Repurchase agreements and revolving credit facilities secured by MSR and/or other assets may be over-collateralized due to operational considerations. PAGE 2
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Two Harbors Investment — Q1 2025 Earnings Presentation on 6ix