Two Harbors Investment Corp

Good morning. My name is Cynthia, and I will be your conference facilitator. At this time, I would like to welcome everyone to TU's third 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 Maggie Carr.

Good morning, everyone, and welcome to our call to discuss TU's third quarter 2024 financial results. With me on the call this morning are Bill Greenberg, our President and Chief Executive Officer, Nick Letica, our Chief Investment Officer, and William DeLauve, our Interim 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 2inv.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 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 third quarter earnings call. Today, I'll start by providing an overview of our performance and strategy, followed by a discussion on the markets, and finish with an update on round-point operations. William will cover our financial results in detail. and Nick will discuss our investment portfolio and return outlook. As you may have noticed in our earnings presentation and on our website, we have recently launched a new brand, referring to ourselves simply as two going forward in all of our investor relations and marketing communications, reflective of our evolution as a company into an MSR-focused REIT. While our core competencies have always been the understanding and managing of interest rate and prepayment risks, This new branding marks, in a very visible way, our commitment to MSR as a core part of our investment strategy. Although we intend to grow our origination and operational capabilities within our Roundpoint subsidiary over time, we are intently focused on providing high-quality investment returns, and our combined strategy is designed to extract the most value that we can from our MSR asset for the benefit of our shareholders. I'll tell you about some of those things in a few moments. Please turn to slide three. Our book value at September 30th was $14.93 per common share, and which, including the third quarter common stock dividend of 45 cents per share, represented a 1.3% quarterly economic return on book value. For the first nine months of 2024, we generated a 7.0% total economic return on book value, which demonstrates that our strategy is designed to produce strong returns across market environments. Please turn to slide four. Figure one shows market expectations over the past year for the Fed funds rate. As you can see by looking at the green line, at the end of the second quarter, market expectations were for a total of 50 basis points and cuts in 2024. However, forecasts rapidly changed for the short end of the yield curve following the Fed's 50 basis point cut in September, such that by the end of the quarter, the market was pricing in almost 200 basis points of cuts over the next 15 months, bottoming out at around 3%, referenced by the blue line. Recent data, including inflation, jobs, and retail sales, have all come in hotter than expected, and ambiguous statements from several Fed governors have resulted in the market tempering its enthusiasm, so that as of October 21st, two cuts have been taken out of the market, and the terminal rate is projected to to be around 3.4%, which you can see in the purple line on this chart. Moving to Figure 2, ultimately the 10-year Treasury yield finished the quarter 62 basis points lower at 3.78%, while the 2-year Treasury yield fell by 111 basis points to 3.64%, which you can see in the blue line. The curve steepened by 50 basis points, resulting in the first positively sloped yield curve between two and 10-year Treasury notes since 2022. However, the change in Fed expectations took their toll on the long end of the curve and rates increased in the month of October. As of October 21st, which is the purple line in this chart, 10-year rates had given back approximately two-thirds of the third quarter's rate declines, rising 42 basis points to 4.20%, while the two-year rate rose 39 basis points to 4.03% during the same period. steepening the curve by three basis points. Please turn to slide five. The acquisition of Roundpoint was almost exactly one year ago, and we are on track to achieve the cost savings that we initially set out and improving the economics for our investments in the MSR asset. Additionally, the direct-to-consumer loan origination channel that we started from scratch in December is starting to bear fruit. Once at scale, We imagine this effort to provide significant hedge benefits to our MSR portfolio and to protect our asset from significantly faster than expected repayment speeds should interest rates drop precipitously. In our first full quarter of GTC originations, we closed and funded $22.4 million UPB of first mortgages and have approximately another $35 million of UPB in the pipeline. While not a large number, Keep in mind that only about 1% of our MSR portfolio is considered in the money, meaning that the customer has 50 basis points or more of rate incentive to refinance. We also kicked off a partnership with a large originator of second liens, and we acted as a broker on $7.5 million UPB in a combination of both open-ended and closed-ended loans. We continue to observe a great deal of interest in this product, with mortgage rates hovering in the low sixes. Although these numbers are small, these results show the proof of concept. It also must be noted that these numbers that I just quoted were achieved by a very small team of only three to five loan officers during the quarter. And by year end, we expect to have about 30 loan officers. As a reminder, we built our DTC originations from scratch with no legacy risk. We spent a de minimis amount of money getting it to this stage, and it is now essentially breakeven. we are confident that we are building a strong platform and brand for our customers to turn to for their mortgage and home equity needs. We are thoughtfully augmenting our investment portfolio with additional revenue and hedging opportunities in order to further enhance a strategy that we expect will deliver attractive returns for our shareholders through a variety of market environments. With MSR at our core, we have built an investment portfolio with RMBS that has less exposure to changes in mortgage spreads than portfolios without MSR, while still preserving upside to decreasing volatility and spread tightening. By investing in two, our shareholders are able to take part in the mortgage market and benefit from our team's deep expertise in investing in and managing MSR and agency RMBS. With that, I'd like to hand the call over to William to discuss our financial results.