Two Harbors Investment Corp

Good morning. My name is Jennifer, and I will be your conference facilitator. At this time, I'd like to welcome everyone to the Two Harbors First Quarter 2024 Financial Results Conference Call. All participants will be in a listen-only mode. After the speaker's remarks, there will be a question-and-answer period. I would now like to turn the call over to Ms. Maggie Carr.

Good morning, everyone, and welcome to our call to discuss Two Harbors First Quarter 2024 Financial Results. With me on the call this morning are Bill Greenberg, our President and Chief Executive Officer, Nick Ledica, our Chief Investment Officer, and Mary Riske, our Chief Financial Officer. The earnings press release and presentation associated with today's call have been filed with the SEC and are available on the SEC's website, as well as the investor relations page of our website at twoharborsinvestment.com. In our earnings release and presentation, we have provided reconciliations of GAAP to non-GAAP financial measures, and we urge you to review this information in conjunction with today's call. As a reminder, our comments today will include forward-looking statements which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are described on page two of the presentation and in our form 10-K and subsequent reports filed with the SEC. Except as may be required by law, Two Harbors does not update forward-looking statements and disclaims any obligation to do so. I will now turn the call over to Bill.

Thank you, Maggie. Good morning, everyone, and welcome to our first quarter earnings call. Today, I'll provide an overview of our quarterly performance. Then, I will spend a few moments discussing the markets and finish with an update on round-point operations. Mary will cover our financial results in detail. and Nick will discuss our investment portfolio and return outlook. Let's begin with slide three. Our book value at March 31st increased to $15.64 per share, representing a positive 5.8% total economic return for the quarter. Our results were driven by the performance of our RMBS portfolio in a declining volatility environment and MSR, which experienced slower-than-expected prepayment speeds. MSR continues to benefit our portfolio with a very attractive yield combined with limited prepayment risk and low interest rate sensitivities. As we have previously emphasized, our high capital allocation to MSR acts as a ballast to our portfolio when agency spreads fluctuate. I'm confident that our portfolio design and current allocation between MSR and agency RMBS positions us well for what we expect to be a higher-for-longer interest rate environment. Please turn to slide four for a brief discussion of the markets. Stronger than expected economic data and sticky inflation readings pushed interest rates higher in the quarter and led the market to the realization that higher for longer rates is the most likely path. Employment report came in stronger than expected in each month of the quarter, averaging gains of 281,000 new jobs per month. Similarly, both consumer and producer price indices surprised higher, with three-month annualized core CPI, a metric closely watched by the market and the Fed, reaching 4.5%, its highest level since June 2023, as seen in Figure 1. At the start of the year, Fed funds futures implied more than six interest rate cuts in 2024, though by quarter end, that number had fallen to just under three, as you can see in Figure 2. Sentiment continues to evolve, and following the Fed's mid-April meeting, those expectations had fallen to about 1.3 interest rate cuts for 2024. Please turn to slide five for a brief discussion on RoundPoint's operations. We completed the 10th transfer of our servicing to RoundPoint's platform on February 1st, and we have one final transfer of approximately 52,000 loans in early June, as shown in figure one. We are still in the early stages of building our subservicing platform, and in the quarter, we added one new subservicing client. We expect to transfer in approximately 17,000 loans from this client in the near term. We are continuing to build out the team and supporting infrastructure for our direct-to-consumer recapture originations channel, and we still expect to begin taking locks in the second quarter. This direct-to-consumer portfolio retention business should be thought of as a way to hedge faster than expected prepayment speeds in a refinance environment. Though that may seem distant, we intend to offer ancillary products, including second lien loans, to our customers in the meantime. The ability to build this critical piece of our servicing business from scratch without any legacy issues or risks is exciting and something that few companies have the opportunity to do. Institutional demand remains high for investors who are looking to participate in the MSR market, given the never-before-seen risk profile of the current servicing universe. with the majority of outstanding MSR being hundreds of basis points away from an economic incentive to refinance. Given our deep expertise as an MSR investor, we believe that we are the ideal partner to service MSR for this new capital, and we are actively working on the ability to support various structures. With over 60% of our capital allocated to servicing and the remaining 40% to securities, we believe that we are positioned to benefit in the current market environment and beyond. Our high allocation to MSR means that our portfolio is less exposed to fluctuations in mortgage spreads than portfolios without MSR, and we believe that this is an attractive position, particularly amid uncertainty over the future paths of Fed actions or inactions, interest rate volatility, and mortgage spread performance. In addition, Owning an operating company allows us to significantly impact our results through our own actions in a way that's not possible when only owning a portfolio of securities. Our future success will be determined by remaining disciplined and sticking to our areas of expertise, managing interest rates and prepayment risks. With that, I'd like to hand the call over to Mary to discuss our financial results.