On this page of StockholderLetter.com we present the latest annual shareholder letter from TWO HARBORS INVESTMENT CORP. — ticker symbol TWO. Reading current and past TWO letters to shareholders can bring important insights into the investment thesis.
TWO HARBORS INVESTMENT CORP.
Annual Report
23
Founded in 2009, TWO HARBORS INVESTMENT CORP.
(NYSE: TWO) is a leading MSR + Agency RMBS REIT
and through our operational platform, RoundPoint Mortgage
Servicing LLC, is one of the largest servicers of conventional
loans in the country. We leverage our core competencies
of understanding and managing interest rate and prepayment
risks to invest our portfolio of mortgage servicing rights
and mortgage-backed securities.
TWO HARBORS at a Glance
Common Stock:
NYSE: TWO
Preferred Shares:
NYSE: TWO-PRA, TWO-PRB, TWO-PRC
2023
2022
$1.4b
$1.4b
-3.2%
-13.3%
$1.95
$2.64
14%
14%
$14.6b
$14.7b
MSR
62%
53%
Rates
38%
47%
dollars in billions except per share amounts
Market Capitalization
Total Economic Return
(1)
Dividends Paid Per Common Share
Average Dividend Yield
(2)
Portfolio Size(3)
Portfolio Allocation
(4)
(1) Total economic return on book value is defined as the increase (decrease) in book value per common share from the beginning
to the end of the given period, plus dividends declared in the period, divided by book value as of the beginning of the period.
(2) Average dividend yield per common share is calculated based on the dividends declared during the given period, divided
by the average daily closing price during the given period.
(3) 2023 portfolio includes $11.4 billion market value in settled securities and MSR and $3.2 billion in bond-equivalent value of
TBA contracts. 2022 portfolio includes $10.8 billion in settled securities and MSR and $3.9 billion in bond-equivalent value of TBA
contracts. Bond equivalent value is defined as notional amount multiplied by market price. TBA contracts accounted for as
derivative instruments in accordance with GAAP.
(4) Capital allocated represents management   s internal allocation. Certain financing balances and associated interest expenses
are allocated between investments based on management   s assessment of leverage ratios and capital or liquidity to support
the investment.
e m p loy e e s
466
as of 12/31/23
offices
MN
NY
SC
TX
KEY Differentiating Factors
1
2
market presence
i n v e s t m e n t s t r at e gy
o u r s i z e a l low s u s to b e
o u r p o r t f o l i o i s u n i q u e ly
n i m b l e a n d to ac t i v e ly
constructed with msr and
a l lo c at e c a p i ta l to m s r
ag e n c y r m b s , a s w e l l a s
a n d ag e n c y r m b s .
a n o p e r at i o n a l p l at f o r m ,
r o u n d p o i n t m o r tg ag e
s e r v i c i n g l lc .
3
market environment
ag e n c y r m b s s p r e a d s
4
a r e h i s to r i c a l ly w i d e i n
financing and liquidity
nominal terms and can
w e h av e a s t r o n g ba l a n c e
b e e x p e c t e d to t i g h t e n
sheet and diversified
should implied interest
f i n a n c i n g f o r b ot h m s r
r at e vo l at i l i t y r e t u r n
a n d ag e n c y r m b s .
m s r i s s ta b l e , w i t h
v e ry l i t t l e d u r at i o n
and convexity risks.
to h i s to r i c a l n o r m s .
Dear Fellow STOCKHOLDERS
interest rate and mortgage spread volatility remained elevated throughout
2023 ,
impacted by geopolitic al tensions , stress in the regional banking
sector , and shifting expectations around the fed     s policy responses , making
it yet another one of the most challenging market environments in dec ades .
We navigated this environment by actively
managing our investment portfolio of MSR and
Agency RMBS. We increased our capital allocation
to MSR early in the year, which proved to be
beneficial as Agency RMBS underperformed for
much of 2023. We also completed the acquisition
of RoundPoint Mortgage Servicing LLC, reinforcing
our commitment to MSR as a core and essential part
of our business.
MARKETS REVIEW
After beginning 2023 with relative calm, the financial
markets were roiled in early March by the seizure of
Silicon Valley Bank and Signature Bank by banking
regulators, which sent tremors throughout the
banking system. Interest rates on the front end of the
yield curve plunged, culminating in the largest-ever
one day move in interest rates on March 13, 2023.
Mortgage spreads widened in response, not just
because of elevated interest rate volatility, but also
as a result of the Fed   s announcement of the sale of
more than $100 billion of Agency RMBS that were
held by those banks. Spreads remained wide through
the end of May, when sentiment shifted following
the passing of bipartisan legislation to raise the
debt ceiling. With increased confidence that the
worst of the bank stress was over, both equities and
fixed income saw positive performance through the
end of June. In the third quarter, the fixed income
markets fluctuated as participants grappled with
trying to anticipate future actions by the Fed.
The CPI readings in August and September
increased to 3.7% from 3.0% in June, leading to
interest rates generally rising on the expectation
that    higher-for-longer    was the new reality. Rates
rose and mortgage spreads widened dramatically
in October on the back of a stronger-than-expected
jobs report and geopolitical tensions, only to
reverse course and tighten back in November and
December with the Fed strongly signaling that the
period of rate hikes was over. Mortgage spreads
at year-end remained at historically attractive
levels, though at the tighter end of their recent
ranges. Although Fed cuts are priced in the market
for 2024, there is still the possibility of resurgent
inflation, and so we expect interest rate and spread
volatility could remain elevated until the Fed   s path
forward becomes clearer.
 • shareholder letter icon 4/3/2024 Letter Continued (Full PDF)
 • stockholder letter icon 4/4/2023 TWO Stockholder Letter
 • stockholder letter icon More "REITs" Category Stockholder Letters
 • Benford's Law Stocks icon TWO Benford's Law Stock Score = 62


TWO Shareholder/Stockholder Letter Transcript:

TWO HARBORS INVESTMENT CORP.
Annual Report
23

Founded in 2009, TWO HARBORS INVESTMENT CORP.
(NYSE: TWO) is a leading MSR + Agency RMBS REIT
and through our operational platform, RoundPoint Mortgage
Servicing LLC, is one of the largest servicers of conventional
loans in the country. We leverage our core competencies
of understanding and managing interest rate and prepayment
risks to invest our portfolio of mortgage servicing rights
and mortgage-backed securities.

TWO HARBORS at a Glance
Common Stock:
NYSE: TWO
Preferred Shares:
NYSE: TWO-PRA, TWO-PRB, TWO-PRC
2023
2022
$1.4b
$1.4b
-3.2%
-13.3%
$1.95
$2.64
14%
14%
$14.6b
$14.7b
MSR
62%
53%
Rates
38%
47%
dollars in billions except per share amounts
Market Capitalization
Total Economic Return
(1)
Dividends Paid Per Common Share
Average Dividend Yield
(2)
Portfolio Size(3)
Portfolio Allocation
(4)
(1) Total economic return on book value is defined as the increase (decrease) in book value per common share from the beginning
to the end of the given period, plus dividends declared in the period, divided by book value as of the beginning of the period.
(2) Average dividend yield per common share is calculated based on the dividends declared during the given period, divided
by the average daily closing price during the given period.
(3) 2023 portfolio includes $11.4 billion market value in settled securities and MSR and $3.2 billion in bond-equivalent value of
TBA contracts. 2022 portfolio includes $10.8 billion in settled securities and MSR and $3.9 billion in bond-equivalent value of TBA
contracts. Bond equivalent value is defined as notional amount multiplied by market price. TBA contracts accounted for as
derivative instruments in accordance with GAAP.
(4) Capital allocated represents management   s internal allocation. Certain financing balances and associated interest expenses
are allocated between investments based on management   s assessment of leverage ratios and capital or liquidity to support
the investment.
e m p loy e e s
466
as of 12/31/23
offices
MN
NY
SC
TX

KEY Differentiating Factors
1
2
market presence
i n v e s t m e n t s t r at e gy
o u r s i z e a l low s u s to b e
o u r p o r t f o l i o i s u n i q u e ly
n i m b l e a n d to ac t i v e ly
constructed with msr and
a l lo c at e c a p i ta l to m s r
ag e n c y r m b s , a s w e l l a s
a n d ag e n c y r m b s .
a n o p e r at i o n a l p l at f o r m ,
r o u n d p o i n t m o r tg ag e
s e r v i c i n g l lc .
3
market environment
ag e n c y r m b s s p r e a d s
4
a r e h i s to r i c a l ly w i d e i n
financing and liquidity
nominal terms and can
w e h av e a s t r o n g ba l a n c e
b e e x p e c t e d to t i g h t e n
sheet and diversified
should implied interest
f i n a n c i n g f o r b ot h m s r
r at e vo l at i l i t y r e t u r n
a n d ag e n c y r m b s .
m s r i s s ta b l e , w i t h
v e ry l i t t l e d u r at i o n
and convexity risks.
to h i s to r i c a l n o r m s .

Dear Fellow STOCKHOLDERS
interest rate and mortgage spread volatility remained elevated throughout
2023 ,
impacted by geopolitic al tensions , stress in the regional banking
sector , and shifting expectations around the fed     s policy responses , making
it yet another one of the most challenging market environments in dec ades .
We navigated this environment by actively
managing our investment portfolio of MSR and
Agency RMBS. We increased our capital allocation
to MSR early in the year, which proved to be
beneficial as Agency RMBS underperformed for
much of 2023. We also completed the acquisition
of RoundPoint Mortgage Servicing LLC, reinforcing
our commitment to MSR as a core and essential part
of our business.
MARKETS REVIEW
After beginning 2023 with relative calm, the financial
markets were roiled in early March by the seizure of
Silicon Valley Bank and Signature Bank by banking
regulators, which sent tremors throughout the
banking system. Interest rates on the front end of the
yield curve plunged, culminating in the largest-ever
one day move in interest rates on March 13, 2023.
Mortgage spreads widened in response, not just
because of elevated interest rate volatility, but also
as a result of the Fed   s announcement of the sale of
more than $100 billion of Agency RMBS that were
held by those banks. Spreads remained wide through
the end of May, when sentiment shifted following
the passing of bipartisan legislation to raise the
debt ceiling. With increased confidence that the
worst of the bank stress was over, both equities and
fixed income saw positive performance through the
end of June. In the third quarter, the fixed income
markets fluctuated as participants grappled with
trying to anticipate future actions by the Fed.
The CPI readings in August and September
increased to 3.7% from 3.0% in June, leading to
interest rates generally rising on the expectation
that    higher-for-longer    was the new reality. Rates
rose and mortgage spreads widened dramatically
in October on the back of a stronger-than-expected
jobs report and geopolitical tensions, only to
reverse course and tighten back in November and
December with the Fed strongly signaling that the
period of rate hikes was over. Mortgage spreads
at year-end remained at historically attractive
levels, though at the tighter end of their recent
ranges. Although Fed cuts are priced in the market
for 2024, there is still the possibility of resurgent
inflation, and so we expect interest rate and spread
volatility could remain elevated until the Fed   s path
forward becomes clearer.



shareholder letter icon 4/3/2024 Letter Continued (Full PDF)
 

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