Two Harbors Investment Corp. (NYSE:TWO) Q3 2023 Earnings Conference Call October 31, 2023 10:00 AM ET Company Participants Maggie Karr - Head of Investor Relations William Greenberg - President and Chief Executive Officer Mary Riskey - Vice President and Chief Financial Officer Nicholas Letica - Vice President and Chief Investment Officer Conference Call Participants Bose George - Keefe, Bruyette, & Woods, Inc. Trevor Cranston - JMP Securities LLC Arren Cyganovich - Citi Eric Hagen - BTIG Operator Greetings ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Two Harbors Investment Corp.'s unaudited condensed consolidated financial statements, including balance sheets, comprehensive loss, equity, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets increased to **$13.92 billion** and liabilities to **$11.80 billion**, while stockholders' equity slightly decreased to **$2.12 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$13,916,729** | **$13,466,160** | | Available-for-sale securities, at fair value | $8,830,726 | $7,778,734 | | Mortgage servicing rights, at fair value | $3,213,113 | $2,984,937 | | Cash and cash equivalents | $644,184 | $683,479 | | **Total Liabilities** | **$11,799,501** | **$11,282,635** | | Repurchase agreements | $9,113,270 | $8,603,011 | | Revolving credit facilities | $1,410,671 | $1,118,831 | | **Total Stockholders' Equity** | **$2,117,228** | **$2,183,525** | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) For Q3 2023, net income attributable to common stockholders was **$294.1 million**, or **$2.81 per diluted share**, but a **$350.9 million** unrealized loss on available-for-sale securities resulted in a **$56.8 million** comprehensive loss Key Performance Indicators (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest (Expense) Income | $(49,486) | $11,038 | $(117,182) | $53,469 | | Total Other Income | $446,547 | $329,537 | $649,629 | $661,350 | | Net Income Attributable to Common Stockholders | $294,077 | $263,865 | $292,688 | $449,220 | | Diluted EPS | $2.81 | $2.78 | $2.91 | $4.80 | | Comprehensive Loss Attributable to Common Stockholders | $(56,845) | $(287,808) | $(88,609) | $(438,509) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased from **$2.18 billion** at year-end 2022 to **$2.12 billion** as of September 30, 2023, primarily due to comprehensive loss and dividends, partially offset by common stock issuance Change in Stockholders' Equity (Nine Months Ended Sep 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2022 | $2,183,525 | | Net Income | $326,829 | | Other Comprehensive Loss | $(381,297) | | Issuance of common stock, net | $177,729 | | Repurchase of common stock | $(7,056) | | Repurchase and retirement of preferred stock | $(9,966) | | Common dividends declared | $(145,501) | | Preferred dividends declared | $(36,595) | | Balance, September 30, 2023 | $2,117,228 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash provided by operating activities was **$233.8 million**, while investing activities used **$973.3 million**, and financing activities provided **$657.9 million**, resulting in an **$81.5 million** net decrease in cash Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Category | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $233,770 | $387,421 | | Net cash used in investing activities | $(973,253) | $(3,633,478) | | Net cash provided by financing activities | $657,939 | $2,732,403 | | **Net decrease in cash, cash equivalents and restricted cash** | **$(81,544)** | **$(513,654)** | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies and activities, including the **$44.7 million** RoundPoint acquisition, portfolio composition of Agency RMBS and MSR, derivative usage, financing, and equity structure - The company invests in Agency residential mortgage-backed securities (Agency RMBS) and mortgage servicing rights (MSR)[29](index=29&type=chunk) - On **September 30, 2023**, the company closed its acquisition of RoundPoint Mortgage Servicing LLC from Freedom Mortgage Corporation. The provisional purchase price was **$44.7 million**, creating **$27.7 million** in goodwill[31](index=31&type=chunk)[47](index=47&type=chunk)[49](index=49&type=chunk) - The company uses various derivative instruments, including TBAs, interest rate swaps, and futures, to mitigate interest rate risk. These are not designated as accounting hedges, leading to earnings volatility[93](index=93&type=chunk)[95](index=95&type=chunk) - During the nine months ended September 30, 2023, the company repurchased **593,453 common shares** for **$7.1 million** and various series of preferred stock for a total cost of **$10.0 million**[199](index=199&type=chunk)[206](index=206&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strategy of pairing Agency RMBS with MSR, noting Q3 2023's higher interest rates, wider mortgage spreads, and the RoundPoint acquisition, while maintaining moderate leverage - The company's objective is to provide attractive risk-adjusted total returns by investing in Agency RMBS and MSR, deploying moderate leverage[235](index=235&type=chunk)[239](index=239&type=chunk) - The acquisition of RoundPoint Mortgage Servicing LLC closed on **September 30, 2023**, with a provisional purchase price of **$44.7 million**. This move is intended to bring servicing in-house, reduce costs, and provide greater control over the MSR portfolio[237](index=237&type=chunk) - Market conditions in **Q3 2023** saw rising interest rates and wider mortgage spreads. The 10-year Treasury yield rose **73 bps** to **4.57%**. Despite challenges, management believes the combination of wide spreads and slow prepayment rates presents an attractive return potential for its paired RMBS and MSR strategy[257](index=257&type=chunk)[258](index=258&type=chunk)[264](index=264&type=chunk) Key Financial Metrics | Metric | September 30, 2023 | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | :--- | | Book Value Per Common Share | $15.36 | $16.39 | $17.72 | | Debt-to-Equity Ratio | 5.2:1.0 | 5.0:1.0 | 4.4:1.0 | | Economic Debt-to-Equity Ratio | 6.3:1.0 | 6.4:1.0 | 6.3:1.0 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks including interest rate, prepayment, market value, and liquidity risks, which are managed through derivatives and non-derivative instruments, with sensitivity analysis performed - The company's primary market risks are interest rate risk, prepayment risk, market value risk, liquidity risk, and credit risk[337](index=337&type=chunk)[356](index=356&type=chunk)[359](index=359&type=chunk)[362](index=362&type=chunk)[364](index=364&type=chunk) - To manage interest rate risk, the company uses derivatives (TBAs, swaps, futures) and non-derivatives (MSR) to hedge its portfolio and adjust the duration of its floating-rate borrowings[341](index=341&type=chunk) Interest Rate Sensitivity Analysis (as of Sep 30, 2023) | Change in Interest Rates | -50 bps | -25 bps | +25 bps | +50 bps | | :--- | :--- | :--- | :--- | :--- | | **Change in Annualized Net Interest Income** | +$11.1M (+7.4%) | +$5.5M (+3.7%) | -$5.6M (-3.7%) | -$11.1M (-7.4%) | | **Change in Total Net Assets (% of common equity)** | -2.8% | -0.9% | 0.0% | -0.7% | - Prepayment risk impacts both Agency RMBS (through premium amortization) and MSR (by shortening the servicing income stream). An increase in prepayment rates generally reduces the value of MSR[356](index=356&type=chunk)[358](index=358&type=chunk) [Item 4. Controls and Procedures](index=71&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of **September 30, 2023**, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of **September 30, 2023**[365](index=365&type=chunk) - No changes occurred during the quarter ended **September 30, 2023**, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[366](index=366&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=72&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ongoing litigation with its former external manager, PRCM Advisers, following a 'for cause' termination, with counterclaims filed and an uncertain outcome - The company is in a legal dispute with its former manager, PRCM Advisers, following a 'for cause' termination of the management agreement in **July 2020**[368](index=368&type=chunk) - The complaint by PRCM Advisers includes allegations of trade secret misappropriation and breach of contract. The company believes the complaint is without merit and has filed counterclaims[368](index=368&type=chunk) [Item 1A. Risk Factors](index=72&type=section&id=Item%201A.%20Risk%20Factors) This section introduces new risk factors related to the RoundPoint Mortgage Servicing LLC acquisition, including the potential failure to realize expected benefits and exposure to new in-house mortgage servicing operational risks - The company may fail to realize the expected benefits of the RoundPoint acquisition, or realization may take longer than anticipated[370](index=370&type=chunk) - The acquisition exposes the company to new and more direct risks associated with in-house mortgage servicing, including compliance with laws and GSE guidelines, impacts of delinquencies, and IT system failures[372](index=372&type=chunk) - Future expansion into new products or services through RoundPoint could expose the company to new or increased risks[373](index=373&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=73&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company provides an update on its share repurchase programs, noting no repurchases of common or preferred stock during the three months ended **September 30, 2023** - The company did not repurchase any common or preferred shares during the three months ended **September 30, 2023**[374](index=374&type=chunk)[375](index=375&type=chunk) Cumulative Share Repurchase Program Status (as of Sep 30, 2023) | Security Type | Shares Repurchased | Total Cost | | :--- | :--- | :--- | | Preferred Stock | 3,471,768 | $61.4 million | | Common Stock | 3,637,028 | $208.5 million | [Item 3. Defaults Upon Senior Securities](index=73&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[376](index=376&type=chunk) [Item 4. Mine Safety Disclosures](index=73&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[377](index=377&type=chunk) [Item 5. Other Information](index=73&type=section&id=Item%205.%20Other%20Information) During the third quarter of 2023, certain directors and executive officers, including Chief Legal Officer Rebecca Sandberg and Chairman Stephen Kasnet, adopted or terminated Rule 10b5-1 trading plans - On **August 3, 2023**, Chief Legal Officer Rebecca Sandberg adopted a Rule 10b5-1 plan to sell shares to cover tax liabilities from future equity vesting[379](index=379&type=chunk) - On **August 10, 2023**, Chairman Stephen Kasnet adopted a Rule 10b5-1 plan to sell **40%** of shares vesting from future equity compensation[380](index=380&type=chunk) [Item 6. Exhibits](index=74&type=section&id=Item%206.%20Exhibits) This section provides a list of all exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO, and the financial statements formatted in Inline XBRL - A list of exhibits filed with the Form 10-Q is provided[383](index=383&type=chunk)

An Agency + MSR REIT Third Quarter 2023 Earnings Call OCTOBER 31, 2023 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, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," ...

Two Harbors Investment Corp. (NYSE:TWO) Q2 2023 Earnings Conference Call August 1, 2023 9:00 AM ET Company Participants Maggie Karr - Head of Investor Relations William Greenberg - President and Chief Executive Officer Mary Riskey - Vice President and Chief Financial Officer Nicholas Letica - Vice President and Chief Investment Officer Conference Call Participants Douglas Harter - Credit Suisse AG Bose George - Keefe, Bruyette, & Woods, Inc. Trevor Cranston - JMP Securities LLC Kenneth Lee - RBC Capital Mar ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-34506 TWO HARBORS INVESTMENT CORP. (Exact Name of Registrant as Specified in Its Charter) Maryland 27-0312904 (State or Other Jurisdiction of Incorporation or Organization) ...

An Agency + MSR REIT Second Quarter 2023 Earnings Call AUGUST 1, 2023 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, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-34506 TWO HARBORS INVESTMENT CORP. (Exact Name of Registrant as Specified in Its Charter) Maryland 27-0312904 (State or Other Jurisdiction of Incorporation or Organization) ...

| --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------------------------------------------------|-----------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | An Agency + MSR | | | | | | | Mortgage REIT | | | | | | | | | | | | | | | | First Quarter 2023 Earnings Call MAY 2, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | Safe Harbor Statement FORWARD-LOOKING STATEMENTS This presentation includes "forward-looking statements" wi ...

Two Harbors Investment Corp. (NYSE:TWO) Q1 2023 Earnings Conference Call May 2, 2023 9:00 AM ET Company Participants Maggie Karr - Head, IR Bill Greenberg - President & CEO Mary Riskey - CFO Nick Letica - Chief Investment Officer Conference Call Participants Doug Harter - Credit Suisse Kenneth Lee - RBC Capital Markets Bose George - KBW Trevor Cranston - JMP Securities Arren Cyganovich - Citi Eric Hagen - BTIG Rick Shane - JPMorgan Operator Good morning. My name is Diego and I will be your conference facili ...

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