Group 1 - The article discusses the preferred stock and baby bond market activity, providing both bottom-up analysis of individual news and events, and top-down overview of the broader market [1] - ADS Analytics is a team of analysts with experience in research and trading at leading global investment banks, focusing on generating income ideas from various security types including CEFs, ETFs, mutual funds, BDCs, and individual preferred stocks and baby bonds [1]

Financial Data and Key Metrics Changes - The company generated a total economic return of 4.4% for Q1 2025, with both RMBS and MSR contributing positively to the results [4] - Book value increased to $14.66 per share at March 31, compared to $14.47 at December 31, including a $0.45 common stock dividend [10] - Comprehensive income for the first quarter was $64.9 million, or $0.62 per weighted average common share [11] - Economic debt to equity decreased to 6.2 times [15] Business Line Data and Key Metrics Changes - Net interest and servicing income increased by $5.2 million due to portfolio shifts into higher coupon agency RMBS and lower borrowing rates [11] - The company decreased its mortgage exposure by 30% and reduced leverage during the first quarter [15] - The MSR portfolio's prepayment speed was 4.2 CPR for Q1, down 0.7% quarter over quarter [24] Market Data and Key Metrics Changes - Interest rates across the US treasury yield curve ended the first quarter lower than at the end of 2024, with two-year and ten-year notes both decreasing by 36 basis points [5] - Prepayment rates for the thirty-year agency RMBS universe decreased by 1.4 percentage points quarter over quarter to 5.6% CPR [20] Company Strategy and Development Direction - The company aims to scale its direct-to-consumer originations platform, increase offerings of second liens, and explore opportunities in the Ginnie Mae market [6][7] - The focus is on growing the presence in third-party subservicing and generating cost efficiencies through technology and AI applications [7] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about economic uncertainty driven by proposals on tariffs and trade policy, which could impact the dollar's status as the world's reserve currency [6] - The company is managing its portfolio for long-term stability while keeping leverage and risk at muted levels until there is more clarity on the economic path forward [29] Other Important Information - The company has maintained high liquidity levels, with $950 million in unused MSR asset financing capacity and $47 million in unused capacity for service and advances [13] - The MSR market remains well supported, with transfer volume normalizing to pre-COVID levels [22] Q&A Session Summary Question: Update on book value through April and portfolio adjustments - Management indicated a 3.5% decline in book value through early April and noted further risk reduction in the portfolio due to increased volatility [33][34] Question: Impact of Rocket and Mr. Cooper merger on the servicing market - Management believes the merger's impact on demand for MSR will be muted, with combined demand likely equal to the sum of individual demands [41][42] Question: Comfort level with the dividend - Management expressed confidence in supporting the dividend given the current portfolio composition and wider spreads [50] Question: Sensitivity of book value to spread changes - Management explained that the sensitivity to spread changes is lower due to the allocation of capital between MSR and securities [52][56] Question: Liquidity levels and recapture efforts - Management confirmed high liquidity levels and noted that organic recapture from the direct-to-consumer channel remains low but is expected to improve as the platform scales [81][84] Question: Interest in the Ginnie Mae market - Management is exploring the Ginnie Mae market for potential opportunities and to enhance their service offerings [86]

Financial Data and Key Metrics Changes - The company generated a total economic return of 4.4% for Q1 2025, with both RMBS and MSR contributing positively [5] - Book value increased to $14.66 per share at March 31, compared to $14.47 at December 31 [10] - Comprehensive income for the first quarter was $64.9 million, or $0.62 per weighted average common share [11] Business Line Data and Key Metrics Changes - Net interest and servicing income increased by $5.2 million due to portfolio shifts into higher coupon agency RMBS and lower borrowing rates [11] - The company’s economic debt to equity decreased to 6.2 times, with a 30% reduction in mortgage exposure [16] - The MSR portfolio's prepayment speed was 4.2 CPR for Q1, down 0.7% quarter over quarter [25] Market Data and Key Metrics Changes - Interest rates across the US treasury yield curve ended the first quarter lower than at the end of 2024, with two-year and ten-year notes decreasing by 36 basis points [6] - Prepayment rates for the thirty-year agency RMBS universe decreased by 1.4 percentage points quarter over quarter to 5.6% CPR [21] Company Strategy and Development Direction - The company aims to scale its direct-to-consumer originations platform, increase offerings of second liens, and grow its presence in third-party subservicing [7][8] - The company is exploring opportunities in the Ginnie Mae market and diversifying its portfolio in response to the evolving mortgage finance landscape [8] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about economic uncertainty driven by trade policies and the Fed's response, indicating a cautious approach to portfolio risk [7][28] - The company sees attractive levered returns on Agency RMBS and expects stable cash flows from its low weighted average mortgage rate MSR portfolio [29] Other Important Information - The company maintained high liquidity levels with $950 million in unused MSR asset financing capacity [13] - The company is actively managing its portfolio to take advantage of market dislocations and attractive return opportunities [5][29] Q&A Session Summary Question: Update on book value through April and portfolio changes - Management reported a 3.5% decline in book value through early April and noted further risk reduction in the portfolio due to increased volatility [33][35] Question: Impact of Rocket and Mr. Cooper merger on competitive landscape - Management indicated that the merger may lead to slightly better bidding for MSR but does not represent a wholesale change in market dynamics [42][46] Question: Comfort level with the dividend - Management expressed confidence in supporting the dividend given the current portfolio composition and wider spreads [51] Question: Sensitivity of book value to spread changes - Management explained that the sensitivity to spread changes is lower due to the allocation of capital between servicing and securities [56][58] Question: Volatility and hedging activity impact on static return estimates - Management acknowledged higher convexity costs due to realized volatility but noted that wider spreads could mitigate some of these costs [67][68]

Financial Instruments and Assets - As of March 31, 2025, approximately 84.8% of the company's total assets, or $11.6 billion, consisted of financial instruments recorded at fair value[221] - At March 31, 2025, 21.7% of the company's total assets were classified as Level 3 fair value assets, indicating significant judgment in valuation[228] - The carrying value of the investment portfolio as of March 31, 2025, was $11,591,094 thousand, up from $10,374,970 thousand as of December 31, 2024[238] - The total carrying value of the Agency RMBS portfolio was $8,627,708 thousand as of March 31, 2025, an increase from $7,376,965 thousand as of December 31, 2024[241] - The company held $11.6 billion in available-for-sale securities, mortgage servicing rights, mortgage loans held-for-sale, and derivative assets at fair value as of March 31, 2025[288] - Available-for-sale securities at fair value rose to $8.607 billion as of March 31, 2025, compared to $7.372 billion as of December 31, 2024[274] Interest Rates and Income - The company's net interest income is influenced by changes in market interest rates, financing costs, and prepayment speeds on its assets[220] - Interest rates for 2-year and 10-year U.S. Treasury notes decreased by 36 basis points to 3.88% and 4.21%, respectively, compared to year-end 2024[231] - Net interest income decreased from $117.8 million in Q1 2024 to $111.4 million in Q1 2025, primarily due to a decrease in the Agency RMBS portfolio size and lower average cash balances[250] - Interest expense decreased from $160.0 million in Q1 2024 to $131.7 million in Q1 2025, attributed to lower interest rates and reduced borrowing balances[251] - The average net asset yield for interest-earning assets was 5.1% for Q1 2025, down from 5.3% in Q1 2024, reflecting changes in the interest rate environment[252] - The interest rate sensitivity table indicates that a +25 bps change in interest rates would result in a decrease of $1,055,000 in annualized net interest income, representing a -0.7% change[320] - A +50 bps change in interest rates would lead to a decrease of $2,226,000 in annualized net interest income, representing a -1.5% change[320] Mortgage Servicing Rights (MSR) - The company's MSR business leverages core competencies in prepayment and interest rate risk analytics, providing offsetting risks to its Agency RMBS[213] - The MSR portfolio experienced an aggregate speed of 4.2% CPR for Q1 2025, down 0.7 percentage points compared to Q4 2024[235] - The MSR market remains well supported with limited bulk acquisition opportunities, indicating a stable market environment[235] - As of March 31, 2025, the fair market value of the Mortgage Servicing Rights (MSR) was $3.0 billion[277] - The MSR portfolio included 794,466 loans with an unpaid principal balance of approximately $196.8 billion[278] - The weighted average coupon rate for the total MSR portfolio was 3.5%[278] - An increase in prepayment rates on the mortgage loans underlying MSR would likely result in a decline in the value of MSR, cutting short the anticipated life of the servicing income stream[327] Financial Performance - Comprehensive income attributable to common stockholders for the three months ended March 31, 2025, was $64.9 million, compared to $89.4 million for the same period in 2024, indicating a decline of approximately 27.5%[248] - The net (loss) income attributable to common stockholders for the three months ended March 31, 2025, was $(92.2) million, compared to $192.4 million in the same period of 2024[249] - Other comprehensive income increased to $157.172 million in Q1 2025 from $(103.078) million in Q1 2024, driven by unrealized gains on available-for-sale securities[273] - The book value per common share increased to $14.66 at March 31, 2025, up from $14.47 at December 31, 2024, driven by unrealized gains on AFS securities and net servicing income[248] Leverage and Debt - The debt-to-equity ratio as of March 31, 2025, was 5.1:1.0, indicating a significant leverage position in funding investment securities and mortgage loans[245] - The debt-to-equity ratio increased from 4.3:1.0 to 5.1:1.0 during the three months ended March 31, 2025, primarily due to increased financing on Agency RMBS[288] - Total borrowings as of March 31, 2025, amounted to $10,942,563, with a weighted average borrowing rate of 4.99%[280] - Total outstanding debt as of March 31, 2025, was $10.9 billion, with significant amounts maturing within 30 days[302] - Total indebtedness to tangible net worth was 5.3:1.0 as of March 31, 2025, below the covenant limit of 8.0:1.0[298] Cash Flow and Liquidity - Cash and cash equivalents available to support operations amounted to $573.9 million as of March 31, 2025[288] - For the three months ended March 31, 2025, cash flows from operating activities increased cash balances by approximately $111.9 million, primarily driven by financial results for the quarter[304] - Cash flows from investing activities decreased cash balances by approximately $2.0 billion, primarily due to net purchases of AFS securities and MSR, and an increase in amounts due from counterparties[304] - Cash flows from financing activities increased cash balances by approximately $1.8 billion, primarily driven by increases in repurchase agreement and warehouse facility financing[304] Market Conditions and Risks - Forward-looking statements indicate potential risks including changes in interest rates, prepayment rates, and economic conditions that could affect actual results[218] - The Fed revised lower real GDP growth expectations for 2025 from 2.1% to 1.7% and increased the core personal consumption expenditures index from 2.5% to 2.8%[232] - The implementation of tariffs is expected to further depress home sales, impacting the housing market negatively[234] - Liquidity risk is associated with financing long-maturity assets with shorter-term borrowings, which may not always be matched[332] - A sudden decrease in asset value could lead to increased lender margin calls, adversely affecting liquidity[333] - The portfolio construction of MSR and RMBS may lead to variation margin calls in certain market scenarios[333] Investment Strategy - The company aims to maintain moderate leverage through financing strategies including repurchase agreements and revolving credit facilities[216] - The company plans to maintain muted portfolio leverage and risk levels until there is more clarity on the economic outlook[237] - The investment strategy aims to maintain low to moderate credit loss risk, particularly on mortgage loans held-for-sale[334] - The company believes it can reinvest proceeds from scheduled principal payments and prepayments at acceptable yields, although no assurances can be given regarding market conditions[326]

Financial Performance - The company's book value per share was $14.66 as of March 31, 2025[6] - The common stock dividend was $0.45 per share[6] - The economic return on book value was 4.4% for the quarter[6] - Comprehensive income per share was $0.62[6] - The investment portfolio totaled $14.6 billion[6] - The economic debt-to-equity ratio was 6.2x[6] Portfolio Composition - The total portfolio market value was $14.6 billion as of March 31, 2025, including $11.6 billion in settled positions[22] - Agency RMBS represented $8.6 billion of the balance sheet as of March 31, 2025[19] - Mortgage Servicing Rights (MSR) represented $3.0 billion of the balance sheet as of March 31, 2025[19] RoundPoint Operations - RoundPoint serviced a total Unpaid Principal Balance (UPB) of $208 billion[12] - Direct-to-consumer originations included over $38.8 million UPB in originations pipeline[12]

Group 1 - Two Harbors Investments reported a revenue of $-20.33 million for the quarter ended March 2025, representing a decline of 51.8% compared to the same period last year [1] - The company's earnings per share (EPS) for the quarter was $0.24, an increase from $0.05 in the year-ago quarter [1]

Financial Performance - Generated comprehensive income of $64.9 million, or $0.62 per weighted average basic common share, compared to a loss of $1.6 million in the previous quarter[5] - The company reported a net loss attributable to common stockholders of $(92,241) thousand in Q1 2025, a decline from net income of $192,448 thousand in Q1 2024[31] - Comprehensive income attributable to common stockholders was $64,931 thousand in Q1 2025, down from $89,370 thousand in Q1 2024[31] - Basic loss per share was $(0.89) in Q1 2025, compared to earnings of $1.85 per share in Q1 2024[31] - Net interest income decreased to $(20,332) thousand in Q1 2025 from $(42,217) thousand in Q1 2024, reflecting a significant improvement[31] - Total interest income fell to $111,382 thousand in Q1 2025, down 5.9% from $117,783 thousand in Q1 2024[33] - Net servicing income decreased slightly to $153,662 thousand in Q1 2025 compared to $159,214 thousand in Q1 2024[31] - The unrealized loss on available-for-sale securities was $(157,172) thousand in Q1 2025, compared to an unrealized gain of $(103,078) thousand in Q1 2024[36] - Earnings available for distribution to common stockholders increased to $25,092 thousand in Q1 2025 from $21,181 thousand in Q4 2024[36] - The company’s total expenses remained relatively stable at $47,094 thousand in Q1 2025, compared to $47,581 thousand in Q1 2024[31] Balance Sheet and Assets - Reported book value of $14.66 per common share, with a declared dividend of $0.45 per share, resulting in a 4.4% quarterly economic return on book value[4] - The company's total portfolio was valued at $14.59 billion, with $11.6 billion in Agency RMBS, MSR, and other investment securities[8] - The Agency RMBS portfolio comprised $8.63 billion, representing 74.4% of the total portfolio, with a weighted average coupon rate of 6.1%[9] - Available-for-sale securities at fair value increased to $8,606,870 thousand as of March 31, 2025, compared to $7,371,711 thousand as of December 31, 2024, a growth of 16.7%[30] - Total assets grew to $13,683,313 thousand as of March 31, 2025, from $12,204,319 thousand as of December 31, 2024, reflecting an increase of 12.1%[30] - Total liabilities increased to $11,536,524 thousand as of March 31, 2025, from $10,081,810 thousand as of December 31, 2024, a rise of 14.4%[30] - The company reported a cumulative earnings of $1,569,730 thousand as of March 31, 2025, down from $1,648,785 thousand as of December 31, 2024[30] - The cash and cash equivalents increased to $573,882 thousand as of March 31, 2025, compared to $504,613 thousand as of December 31, 2024, an increase of 13.7%[30] Borrowings and Leverage - Total borrowings increased to $10.94 billion, with a weighted average borrowing rate of 4.73%[15] - Total borrowings increased to $10,942,563 thousand as of March 31, 2025, from $9,087,489 thousand as of December 31, 2024, representing an increase of 20.4%[16] - The debt-to-equity ratio at period-end rose to 5.1:1.0 from 4.3:1.0, indicating increased leverage[16] - The annualized cost of financing decreased to 5.27% for the three months ended March 31, 2025, down from 5.79% for the previous quarter[16] Mortgage Servicing Rights (MSR) - Settled $174.9 million in unpaid principal balance (UPB) of mortgage servicing rights (MSR) and committed to purchase $1.7 billion UPB of MSR through two bulk acquisitions post quarter-end[4] - As of March 31, 2025, the MSR portfolio had a weighted average gross coupon rate of 3.46% and a 60+ day delinquency rate of 0.85%, up from 0.69% as of December 31, 2024[4] - The company reported a net servicing fee of 25.3 basis points for the MSR portfolio, with 60+ day delinquencies at 0.8%[12] Company Overview and Future Plans - The company is a real estate investment trust focused on mortgage servicing rights and residential mortgage-backed securities[23] - The company plans to host a conference call on April 29, 2025, to discuss its first quarter 2025 financial results[22] - The company maintained high levels of excess liquidity while keeping risk exposures low amid a volatile macroeconomic environment[3]

Core Insights - T2 Metals Corp. has completed its winter core drilling program at the Sherridon copper-gold project, achieving a total of 1,120 meters drilled in four holes [1][4] - The drilling program has allowed T2 Metals to fulfill expenditure milestones to achieve 90% ownership of the Sherridon project under an Option Agreement with Halo Resources Ltd [3][4] - The project is characterized by high-grade volcanogenic massive sulphide (VMS) deposits and has a significant mining history, with multiple copper-rich occurrences [4] Drilling Program Details - The winter 2025 drilling program utilized frozen ground for easier access and reduced environmental impact, focusing on new near-surface areas away from historical resources [1][2] - The program tested combined geophysical (VTEM) and geochemical targets, with three holes exploring new areas [2] - Previous drilling in 2023 and 2024 intersected high-grade copper and gold, with notable results including 6.49 meters at 1.82% Cu and 0.74 g/t Au [4] Ownership and Financial Aspects - Completion of the drilling program fulfills the requirements for T2 Metals to own 90% of the Sherridon project, with no further expenditure commitments under the Option Agreement [3] - Halo Resources Ltd has the option to fund pro-rata or convert to a 1.5% net smelter royalty, which T2 Metals can purchase for C$2,000,000 at any time [3] Support and Collaboration - The winter drilling program was supported by the Kiciwapa Cree First Nation and co-funded by the Manitoba Mineral Development Fund [5]

Core Insights - The article focuses on Two Harbors Investment Corp. (TWO) and its three exchange-traded preferred stocks, aiming to identify which preferred stock offers the best value [1]. Group 1 - The article discusses the features of the investment service Trade With Beta, which includes frequent picks for mispriced preferred stocks and baby bonds, weekly reviews of over 1200 equities, IPO previews, hedging strategies, and an actively managed portfolio [1]. - The author has a beneficial long position in the shares of TWO.PR.A, indicating a personal investment interest in this specific preferred stock [1].

Core Points - T2 Metals Corp has commenced core drilling at the Sherridon copper-gold project in Manitoba, which is fully funded and includes drilling at the Bob Lake deposit and new regional target areas [1][2] - The winter drilling program will consist of up to five holes, utilizing frozen lakes for access to previously undrilled areas while minimizing environmental impact [2][3] - The drill targets include the main Bob Lake host horizon, the sparsely tested footwall horizon, and a major fold hinge structure to the southeast of the Bob Lake deposit [3] Community and Support - The drilling program has strong support from the local First Nations community, highlighted by an Exploration Agreement with the Kiciwapa Cree Nation and an award for reconciliation efforts received in 2024 [4] - The program also serves as a platform for local training and employment opportunities within the Sherridon community [4] Company Overview - T2 Metals Corp is focused on enhancing shareholder value through exploration and discovery, targeting under-explored areas including Sherridon, Lida, Cora, and Copper Eagle projects [7]