Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q4 2024 Earnings Presentation
34 slides from Two Harbors Investment's earnings presentation, Jan 30, 2025
Slide 1: An MSR-Focused REIT: Fourth Quarter 2024 Earnings Call Presentation
An MSR-Focused REIT Fourth Quarter 2024 Earnings Call Presentation January 30, 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) $14.47 $0.45 0.0% Comprehensive Investment Quarter-End Economic Loss per Share Portfolio(2) Debt-to-Equity(3) $(0.03) $14.8b 6.5x Note: Financial data throughout this presentation is as of or fo
Slide 4: Markets Overview
Markets Overview THE FED AND MARKET REMAIN KEENLY FOCUSED ON INFLATION DATA • The Federal Reserve (Fed) cut the federal funds target rate by 50 basis points in the quarter, bringing the total to 100 basis points of rate cuts in 2024 • Hawkish comments at the Fed’s December meeting tempered rate expe
Slide 5: Quarterly RoundPoint Operations Update
Quarterly RoundPoint Operations Update TWO + RoundPoint Cost Efficiencies Additional Income Hedges Portfolio Focused on additional operational Subservicing, direct-to-consumer Protects value of TWO’s MSR portfolio Benefits efficiencies to deliver lower cost-to- originations, and ancillary products w
Slide 6: Book Value Summary
Book Value Summary ($ in millions, except per share data) Represents Comprehensive Loss of $(1.6) million, or $(0.03) per common share 0.0% quarterly economic return on book value(1) $276.7 $14.93 per $14.47 common per share common Declared common stock dividend of share $1,547.6 $0.45 per share $(2
Slide 7: Comprehensive (Loss) Income Summary
Comprehensive (Loss) Income Summary Favorable market movement on swaps ($ in millions, except per share data) $271.0 and futures, offset by unfavorable market movement on TBAs Lower RMBS borrowing and slightly lower balances as a result of interest spread sales of RMBS; shifted $163.0 $167.8 income
Slide 8: Financing Profile
Financing Profile BALANCE SHEET AS OF DECEMBER 31, 2024 AGENCY RMBS • $7.0 billion of outstanding repurchase agreements with 18 counterparties • Weighted average days to maturity of 49 days 2020 2021 2022 2023 2024 (1) 40 Average Repo Rate - SOFR (bps) Agency RMBS $7.4 billion Agency RMBS repurchase
Slide 9: Portfolio Composition and Risk Positioning
Portfolio Composition and Risk Positioning I. PORTFOLIO COMPOSITION(1) II. INTEREST RATE EXPOSURE(4) At December 31, 2024, $14.8 billion portfolio —% Includes $10.4 billion settled positions (0.5)% (0.3)% 30 8.0x (0.6)% (0.7)% 7.0x (1.0)% 6.8x (1.0)% 6.5x 25 (1.5)% Market Value Equivalents ($ billio
Slide 10: Agency RMBS Investment Landscape
Agency RMBS Investment Landscape VOLATILE QUARTER FOR MORTGAGE SPREAD PERFORMANCE • Mortgage performance varied widely month-to-month with spreads widening significantly in October, recovering post-election in November, and widening slightly in December on strengthening economic data and a more hawk
Slide 11: Agency RMBS Portfolio
Agency RMBS Portfolio QUARTERLY HIGHLIGHTS • The bear steepening of the rates curve and uptick in implied volatility led to underperformance of lower coupons, and outperformance of higher coupons • Higher coupon specified pools were the best performer, outperforming TBAs by at least a quarter point
Slide 12: MSR Investment Landscape
MSR Investment Landscape MSR SPREADS STABLE AND WELL SUPPORTED • Several large scale bids and acquisitions lifted 2024 transfers to $662 billion UPB • Bulk bid opportunities dropped by 25% year-over-year • Demand for MSR continues to come from bank and non-bank portfolios • Expect ample opportunitie
Slide 13: MSR Portfolio
MSR Portfolio QUARTERLY HIGHLIGHTS • Quarterly prepayment speeds decreased slightly quarter-over-quarter to 4.9% CPR from 5.32% in Q3, due to slower seasonal factors • Price multiple increased slightly to 5.9x from 5.6x, reflecting the decline in rates • 60+ day delinquencies remain low at 0.8% • Se
Slide 14: Return Potential and Outlook
Return Potential and Outlook ATTRACTIVE RETURN OPPORTUNITIES FOR UNIQUELY POSITIONED PORTFOLIO Why TWO? PORTFOLIO MARKET VALUE INVESTED CAPITAL STATIC RETURN As of December 31, 2024 ($ millions) ALLOCATED(1) ESTIMATE(2) • Market Presence: Our scale, expertise and SERVICING MSR 2,994 ability to lever
Slide 15: Appendix
Appendix
Slide 16: 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 TBA Market Notional Par Value Agency IO Combined Specified 3.0 Coupon (%) Price(1) ($
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 2.6 % 2.1 % (3.4)% 1.3 % (4) 0 -25 Bull Flattener 6.6 % (4.2)% (4.3)% (1.
Slide 18: 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) 18
Slide 19: Financial Performance
Financial Performance I. COMPREHENSIVE INCOME (LOSS) 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% $(1.6) —% $-125 -10% Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Q4-2023 Q1-2024 Q2-2024 Q3-2024 Q4-2024 Comprehensive Income ($ in millions) Quarte
Slide 20: Q4-2024 Portfolio Yields and Financing Costs
Q4-2024 Portfolio Yields and Financing Costs ($ thousands) Average Amortized Portfolio Asset Type Measure Cost Income(1) Average Yield Available-for-sale securities GAAP $ 7,818,127 $ 92,644 4.74% Adjustments to include other portfolio items: Mortgage servicing rights(2)(3) Non-GAAP 1,824,679 52,878
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) December 31, 2024 September 30, 2024 Comprehensive (loss) income attributable to common stockholders $ (1,620) $ 19,352 Adjustment for other
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% $ 220 $ 188 4.9 % 85.7 % $ 196 3.7 % 38 3.5% 109 97 3.1 % 84.3 % 98 4.
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% 290,943 $ 89,430 2.8% $ 364 4
Slide 24: Mortgage Servicing Rights UPB Roll-forward
Mortgage Servicing Rights UPB Roll-forward $ millions Q4-2024 Q3-2024 Q2-2024 Q1-2024 Q4-2023 UPB at beginning of period $ 202,052 $ 209,390 $ 213,597 $ 215,647 $ 218,662 Bulk purchases of mortgage servicing rights 2,063 2,573 — 2,906 — Flow purchases of mortgage servicing rights 376 715 328 211 829
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 $ 2,377.8 $ — $ — $ — $ 2,377.8 26.2 % 30 to 59 days 2,316.3 — — — 2,316.3 25.5 % 60 to 89 days 1,305.1 —
Slide 26: Futures
Futures Weighted Average Type & Maturity Notional Amount ($M) Carrying Value ($M)(1) Months to Expiration U.S. Treasury futures 2 year $ (2,027.8) $ — 3.0 5 year (713.8) — 3.0 10 year (907.6) — 2.6 20 year 318.3 — 2.6 Eris SOFR swap futures - 10 year (80.0) — 122.6 SOFR futures - < 1 year (562.5) —
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 $ 2,647.6 4.730 % 4.490 % 0.2 > 1 and ≤ 3 years 4,506.0 3.929 % 4.490 % 1.5 > 3 and ≤ 5 years 3,073.4 3.579 % 4.490 % 3.5 > 5 and ≤ 7 years 1,885.3
Slide 28: Tax Characterization of Dividends in 2024
Tax Characterization of Dividends in 2024 Full Year 2024 Distribution Summary • Generated REIT taxable income, before dividend distributions and net operating loss deductions of $171.7 million • No net operating loss carryover utilized during 2024 • 2024 distributions for tax purposes totaled $233.7
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 16 - Effective Coupon Positioning 1. Represents UMBS TBA market prices as of December 31, 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 $3
Slide 32: End Notes (continued)
End Notes (continued) PAGE 20 - Q4-2024 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 33: 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
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