January 30, 2025 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 expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," "assume," "e ...

Two Harbors Investment (TWO) Q4 2024 Earnings Call January 30, 2025 09:00 AM ET Company Participants Margaret Karr - Head of IR & CommunicationWilliam Greenberg - President and Chief Executive OfficerWilliam Dellal - VP & Interim CFONicholas Letica - VP & Chief Investment OfficerMikhail Goberman - VP - Equity ResearchFrancesco Labetti - Equity Research Associate Conference Call Participants Marissa Lobo - AnalystJake Katsikas - Equity Research Analyst Operator Good morning. My name is Maddie, and I will be ...

Core Insights - Two Harbors Investments (TWO) reported a revenue of $-34.89 million for the quarter ended December 2024, indicating a year-over-year decline of 23.6% [1] - The earnings per share (EPS) for the same period was $0.20, a significant improvement compared to -$0.11 a year ago [1]

Financial Performance - Reported book value of $14.47 per common share, with a fourth quarter common stock dividend of $0.45 per share, resulting in a flat quarterly economic return on book value[5] - Incurred a comprehensive loss of $(1.6) million, or $(0.03) per weighted average basic common share, for the fourth quarter of 2024[5] - Generated a total economic return on book value of 7.0% for the year 2024[5] - Net income attributable to common stockholders for Q4 2024 was $264,945 thousand, a turnaround from a loss of $(444,693) thousand in Q4 2023, with basic earnings per share at $2.54 compared to $(4.56) in the prior year[33] - Comprehensive income attributable to common stockholders for Q4 2024 was $(1,620) thousand, a decrease from $38,886 thousand in Q4 2023, while the year-end comprehensive income was $107,581 thousand compared to a loss of $(49,723) thousand in 2023[33] Mortgage Servicing Rights - Settled $9.2 billion in unpaid principal balance (UPB) of mortgage servicing rights (MSR), comprising 28,093 loans, through acquisitions and recapture[5] - The MSR portfolio had a 3-month CPR of 4.93%, a weighted average gross coupon rate of 3.46%, and a 60+ day delinquency rate of 0.90%[5] - The company reported a mortgage servicing rights fair value of $2,994,271 thousand as of December 31, 2024, down from $3,052,016 thousand in 2023[32] Capital Management - The company actively managed its capital structure by repurchasing 485,609 shares of preferred stock and $10.0 million principal amount of convertible senior notes due 2026[5] - Total borrowings as of December 31, 2024, amounted to $9.09 billion, with a weighted average borrowing rate of 5.15%[16] - Total borrowings decreased from $15,171,186 thousand as of September 30, 2024, to $13,849,914 thousand as of December 31, 2024, representing a reduction of approximately 8.7%[17] - The debt-to-equity ratio improved from 4.6:1.0 in Q3 2024 to 4.3:1.0 in Q4 2024, indicating a stronger equity position relative to debt[17] - The annualized cost of financing decreased from 6.17% in Q3 2024 to 5.79% in Q4 2024, reflecting improved financing conditions[17] Asset and Liability Management - Total assets decreased from $13,138,800 thousand in 2023 to $12,204,319 thousand in 2024, a reduction of about 7.1%[32] - The total liabilities decreased from $10,935,410 thousand in 2023 to $10,081,810 thousand in 2024, a decline of approximately 7.8%[32] - The fair value of available-for-sale securities decreased from $8,327,149 thousand in 2023 to $7,371,711 thousand in 2024, a decline of approximately 11.5%[32] - Cash and cash equivalents decreased from $729,732 thousand in 2023 to $504,613 thousand in 2024, a decline of approximately 30.9%[32] Income and Expenses - Net interest income for Q4 2024 was $(34,894) thousand, a decrease from $(45,679) thousand in Q4 2023, while net interest expense for the year ended 2024 was $(157,654) thousand compared to $(162,861) thousand in 2023[33] - Net servicing income for Q4 2024 was $162,993 thousand, slightly down from $166,580 thousand in Q4 2023, with total servicing income for the year at $661,579 thousand, up from $590,289 thousand in 2023[33] - Total other income for Q4 2024 was $220,387 thousand, a significant recovery from a loss of $(538,104) thousand in Q4 2023, while the year-end total other income was $6,823 thousand compared to a loss of $(395,643) thousand in 2023[33] - Dividends declared per common share remained stable at $0.45 for both Q4 2024 and Q4 2023, with total dividends for the year at $1.80, down from $1.95 in 2023[33] - Interest income for Q4 2024 was $103,774 thousand, down from $122,401 thousand in Q4 2023, while total interest income for the year was $450,152 thousand compared to $480,364 thousand in 2023[35] - Interest expense for Q4 2024 was $138,668 thousand, a decrease from $168,080 thousand in Q4 2023, with total interest expense for the year at $607,806 thousand compared to $643,225 thousand in 2023[35] Future Outlook - The company will host a conference call on January 30, 2025, to discuss its fourth quarter 2024 financial results[23] - Earnings available for distribution to common stockholders for Q4 2024 was $21,181 thousand, an increase from $13,186 thousand in Q3 2024, with earnings per share available for distribution at $0.20 compared to $0.13[37] - The company reported a significant unrealized loss on available-for-sale securities of $(266,565) thousand in Q4 2024, contrasting with a gain of $483,579 thousand in Q4 2023[37] Portfolio Overview - Total portfolio value as of December 31, 2024, was $14.84 billion, down from $16.45 billion as of September 30, 2024[10] - The weighted average cost basis for Agency RMBS was $101.17 as of December 31, 2024, compared to $101.39 as of September 30, 2024[12] - The company launched a direct-to-consumer recapture originations platform, funding $64.3 million UPB in first lien loans and brokering $40.2 million UPB in second lien loans[5]

Company Overview - Two Harbors Investment Corp. (NYSE:TWO) benefits from the current housing market gridlock, which has resulted in low transaction volumes and increased stability from longer duration assets [2][3] - The company operates primarily in two lines of business: Agency RMBS and mortgage servicing rights (MSRs), which constitute the majority of its balance sheet [5] Market Conditions - The housing market is experiencing a gridlock as potential sellers are reluctant to sell due to low existing mortgage rates, leading to frustration among homebuyers [1] - Mortgage rates have risen to around 7%, but existing mortgages are predominantly at lower rates (2%-5%), causing borrowers to hold onto their mortgages longer [8][10] Financial Performance - Two Harbors has a series of fixed-to-floating preferreds that, upon conversion, would yield between 9.6% and 10.5% based on current SOFR [3] - The company has extended the duration of its assets, providing greater visibility into future cash flows, which are sufficient to cover preferred dividends [3][14] Preferred Shares Analysis - The preferred shares of Two Harbors are trading at discounts to par, allowing for potential capital appreciation in addition to high yields [4][20] - The preferreds are seen as stable investments despite the high leverage of the company, which typically implies higher risk [3][4] Prepayment Sources - Prepayment sources such as voluntary early payment, refinancing, and defaults are currently at abnormally low levels, extending the duration of 30-year mortgages [9][12] - The low prepayment rates benefit MSRs, as the company collects fees for a longer duration on serviced mortgages [13] Preferreds Details - The preferreds include TWO-A, TWO-B, and TWO-C, each with different characteristics regarding yield and conversion dates [15][19] - TWO-A has the largest adjustment over SOFR, making it the most incentivized for redemption, while TWO-B offers significant capital appreciation potential due to its large discount to par [17][18] - TWO-C has an earlier conversion date, providing a competitive yield and likely larger dividends in the near term [19]

Core Viewpoint - T2 Metals Corp. has reported promising initial assay results from its Q4 2024 drill program at the Sherridon VMS Project in Manitoba, highlighting high-grade copper and other metals, indicating potential for further discoveries in the area [2][3][8]. Drilling Program Highlights - The first two holes of a nine-hole drilling program have been completed, with SHN24014 intersecting high-grade copper over a significant interval, including 3.56 meters grading 2.50% Cu, 5.31% Zn, 1.00 g/t Au, and 21.8 g/t Ag [2][5][8]. - The second hole, SHN24013, did not intersect the target horizon, while SHN24014 was drilled southeast of the Lost Lake Historical Mineral Resource [5][6]. - The 2024 drill program aims to test and extend known mineralization and VTEM anomalies in geologically prospective locations [6][12]. Future Plans - Planning is underway for a Q1 2025 drilling program, which will commence when winter conditions permit, and the company is fully funded for this initiative [4][12]. - Additional results from the 2024 drilling program are expected in early 2025 as the company progresses towards its next drilling phase [8]. Historical Context - The Sherridon VMS Project is located in a historically significant mining area with known copper-rich resources, having a mining history that includes the extraction of 7.74 million tonnes at an average grade of 2.46% Cu, 2.84% Zn, 0.6 g/t Au, and 33 g/t Ag from 1931 to 1951 [9][10]. - The Lost Lake and Cold Lake zones comprise a continuously mineralized horizon over a known strike length of approximately 1.8 km, previously explored by HudBay Minerals [10][11]. Technical Details - The drill program included a total of 1,584 meters across six holes, testing a strike length exceeding 1.4 km at the Cold Lake and Lost Lake prospects [9]. - Assay results confirmed the presence of semi and massive sulphide in core logging, delineating shallow-dipping and plunging massive sulphide lenses [11][12]. Company Overview - T2 Metals Corp. is focused on enhancing shareholder value through exploration and discovery, with a primary focus on the Sherridon Project in Manitoba, as well as projects in Nevada and Arizona [29].

Core Insights - T2 Metals Corp announced high-grade rock chip results from its Copper Eagle copper-gold project in Nevada, indicating significant potential for copper and silver mineralization [3][4][7]. Company Overview - T2 Metals Corp is focused on enhancing shareholder value through exploration and discovery in under-explored areas, including the Copper Eagle project [17]. - The company is well-positioned to benefit from the rising demand for copper, silver, and gold [8]. Project Details - The Copper Eagle project is located in Douglas County, Nevada, near several historic copper mines and development projects [3][11]. - The fall 2024 sampling program involved collecting 21 representative rock chip and channel samples, revealing copper grades ranging from 0.11% to 2.07%, with an average of 0.78%, and silver grades from 0.17 g/t to 6.05 g/t, averaging 1.82 g/t [4][6]. Exploration Insights - The assay results suggest the presence of an oxidized zone associated with porphyry copper mineralization, similar to the nearby Yerington deposit [4][6]. - Historical records indicate that Copper Eagle has the potential to host a porphyry copper deposit, and the company plans to conduct geophysical studies to delineate targets [7][12]. Technical Analysis - Samples were analyzed using advanced techniques, including a TerraSpec multispectral scanner, to assess the prospectivity of the mineralized area [5][14]. - The project is secured by six granted BLM lode mining claims and is easily accessible [11].

Core Viewpoint - T2 Metals Corp has successfully closed a flow-through private placement financing, raising $527,000 to fund an expanded drilling program at the Sherridon project in 2025 [2][3]. Financing Details - The financing raised gross proceeds of $527,000 by issuing 1,550,000 flow-through units at a price of $0.34 per unit [2]. - Each flow-through unit consists of one flow-through common share and one-half of a non-flow-through common share purchase warrant, with each whole warrant allowing the purchase of a non-flow-through common share at $0.50 for two years [2]. Project Development - The proceeds will enable an expanded drilling program at the Sherridon copper-gold-zinc project in Manitoba, following the recently completed 2024 program [3]. - T2 Metals is fully permitted for drilling at Sherridon until July 2027, targeting both historical mineral resources and untested regional targets [3][5]. Project Location and Access - Sherridon is located in the Flin Flon – Snow Lake Greenstone Belt of Manitoba, known for its significant mining and exploration history [4]. - The project has year-round road access and is situated 70 km from the mining center of Flin Flon, with access to an operational train line [4]. Insider Participation - Certain insiders participated in the offering, purchasing a total of 64,700 flow-through units, which was classified as a "related party transaction" but exempt from formal valuation and minority shareholder approval requirements [5]. Additional Financial Information - A finder's fee of $30,000 was paid on a portion of the financing, and all securities issued are subject to a four-month hold period and regulatory approvals [6].

Core Viewpoint - Two Harbors Investment Corp. (TWO) has experienced a significant decline in share price, losing 10.9% over the past month, which is notably worse than the industry's decline of 2.8% [1] Price Performance - TWO is a Real Estate Investment Trust (REIT) that invests in residential mortgage-backed securities (RMBS) and mortgage loans, offering attractive long-term returns with a high dividend yield of 15.50%, compared to the industry average of 10.13% [2][9] Financial Impact of Interest Rates - The company's financials have been negatively affected by high interest rates, leading to increased borrowing costs and a net interest loss for the nine months ending September 30, 2024 [4] - The book value per share decreased from $15.06 in 2023 to $14.93 in 2024 due to spread risk associated with high rates [5] Rate Cuts and Market Conditions - The Federal Reserve's recent interest rate cuts, including a 25 basis point reduction, are expected to lower mortgage rates, which could improve housing affordability and increase demand in the mortgage market [5][6][7] - More interest rate cuts are anticipated in 2025, which should enhance TWO's net interest spread and portfolio book value [8] Investment Portfolio - TWO's investment portfolio is primarily composed of RMBS with mortgage servicing rights (MSR), providing less exposure to mortgage spread changes while benefiting from spread tightening [12] - The company focuses on maximizing value from MSR assets and is enhancing its portfolio with additional revenue and hedging options [13] Valuation Metrics - From a valuation perspective, TWO's stock is trading at a 12-month trailing price-to-book (P/B) ratio of 0.77, which is below the industry average of 0.86 and lower than peers NLY and AGNC [16] Dividend Considerations - The company has a history of reducing dividends during challenging times, with a 13.33% decline in payouts over the past five years [18]

Core Viewpoint - T2 Metals Corp has received a new drill permit for the Sherridon copper-gold-zinc project, allowing for expanded drilling activities until July 2027, which supports the company's exploration strategy and aligns with Manitoba's Critical Minerals Strategy [2][5]. Group 1: Drill Permit and Project Overview - The new drill permit enables T2 Metals to conduct drilling over a broader area compared to the previous permit granted in 2023, facilitating the proposed 2025 drill program and future programs until July 2027 [2][4]. - The Sherridon project is located in the Flin Flon - Snow Lake Greenstone Belt of Manitoba, known for its significant mining and exploration history, with year-round road access and proximity to the mining center of Flin Flon [3]. Group 2: Recent Drilling Activities - T2 Metals completed a fall 2024 drilling program that tested high-grade copper and gold mineralization at the Cold and Lost prospects, with plans to include the Bob and Park prospects in future drilling [4][5]. - The company aims to follow up on historic mineral resources and explore regional targets that have not been previously drilled [5]. Group 3: Historical Mineral Resource Estimates - An NI 43-101 Technical Report released on November 1, 2024, summarizes historical mineral resource estimates from five unmined deposits within 8 km of each other, including the Park, Jungle, Bob, Cold, and Lost prospects [8]. - The total indicated historical mineral resources amount to approximately 6,552,800 tonnes with an average copper grade of 0.85%, zinc grade of 1.22%, and gold grade of 0.37 g/t [9]. Group 4: Community and Industry Engagement - T2 Metals has expressed gratitude to the Kiciwapa Cree and Mathias Colomb Cree Nations for their support in obtaining permits, highlighting the importance of community relationships in the exploration process [5]. - The company participated in the Central Canada Mineral Exploration Convention (CCMEC), where discussions focused on sustainable mining and the importance of critical minerals like copper, zinc, and nickel for Manitoba's economy [7].