Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q4 2011 Earnings Presentation
19 slides from Two Harbors Investment's earnings presentation, Feb 7, 2012
Slide 1: 2011 Fourth Quarter Earnings Call
Two Harbors Investment Corp. February 8, 2012 2011 Fourth Quarter Earnings Call
Slide 2: Forward-Looking Statements
2 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, reade
Slide 3: Our Mission Guides Us
Our Mission Guides Us Return on book value of 12.6%1 in 2011 Our mission is to be recognized as the “best in class” mortgage REIT We’ll accomplish this goal through the following: ― Superior portfolio construction ― Unparalleled risk management ― Leading governance and disclosure practices A
Slide 4: Strategic Priorities: Focus on Diversification
Strategic Priorities Focus on Diversification We look for opportunities to put capital to work where the greatest value can be derived. We are taking a measured approach to diversify our business, keeping true to our strategic long-term plans and our core strengths. ▪ Asset securitization ― Leverage
Slide 5: Diversification into Single Family Residential Properties
Diversification into Single Family Residential Properties Recent dynamics in the housing and mortgage markets have created an attractive entry point for us to deploy capital in a dislocated residential market to acquire single family homes and rent them at attractive yields. ▪ Single family real est
Slide 6: Financial Summary
6 110 Financial Summary 110 Drivers of Core Earnings1 ― Portfolio size ― Investment spread ― Expense management Core Earnings increased to $55.6 million, or $0.40 per weighted average share ― Represents proxy for earnings power of portfolio $9,883 $14,767 $31,411 $51,801 $55,559 $0.36 $0.32 $0.4
Slide 7: Book Value Rollforward
7 Book Value Rollforward Change in Stockholders’ Equity (In millions, except for per share amounts) Q3-2011 Book Value Q3-2011 Book Value per Share (diluted basis)1 Q4-2011 Book Value Q4-2011 Book Value per Share (diluted basis)1 Beginning stockholders’ equity $ 897.6 $ 9.73 $ 1,307.1 $ 9.30 Net pro
Slide 8: Distribution of 92.0% of Taxable Earnings in 2011
8 Distribution of 92.0%1 of Taxable Earnings in 2011 GAAP to Taxable Income, Year Ended December 31, 2011 (In millions) TRS REIT Consolidated GAAP net income (loss), pre-tax $ (3.3) $ 129.6 $ 126.3 Permanent differences Capitol dividend of E&P - 8.0 8.0 Non-deductible expenses - 0.3 0.3 Temporary di
Slide 9: Market and Portfolio Summary
Market and Portfolio Summary 9 110 110 Fully deployed July capital raise by start of fourth quarter resulting in an asset base of $6.4 billion. Weighted July deployment towards non-Agency sector. Yields in line with expectations. Sequential decline in Agency yield due to lower yields on new in
Slide 10: RMBS Portfolio Composition
Implicit or Explicit Pre- payment Protection RMBS Portfolio Composition 10 Portfolio Composition (1) Includes Agency Derivatives of $155 million as of December 31, 2011. (2) Home Equity Conversion Mortgage (or “HECM”) are loans that allow the homeowner to convert home equity into cash collateralized
Slide 11: Key Portfolio Metrics
11 110 Key Portfolio Metrics 110 Continue to realize low and stable CPRs Decreased non-Agency weighted average cost basis to $55.7 from $55.8 Targeted debt-to-equity ratios: ― Agency: 6-7x ― Non-Agency: 1.0-1.5x (1) Represents range of the percentage change in equity value for +100bps change i
Slide 12: Appendix
Appendix "TWO HARBORS
Slide 13: 2011 Return on Book Value of 12.6%
13 2011 Return on Book Value of 12.6% Return on book value (Per diluted share amounts, except for percentage) Book value at December 31, 2011 $ 9.03 Book value at December 31, 2010 9.44 Decline in book value (0.41) Dividends declared in 2011 1.60 Return on book value $ 1.19 Return on book value 12.6
Slide 14: Operating Performance
110 Operating Performance 110 $9.44 $9.90 $9.73 $9.30 $9.03 $- $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Book Value per Share $23,028 $31,492 $13,530 $-17,964 19,039 35.2% 27.9% 7.0% -5.6% 6.0% -25.0% -5.0% 15.0% 35.0% $(20,000) $- $20,000 $40,000 Q4-2010 Q1-2011
Slide 15: Operating Performance
15 Operating Performance Operating Performance (In millions, except for per share amounts) Core Earnings Realized Gains Unrealized MTM Q3-2011 Financials Core Earnings Realized Gains Unrealized MTM Q4-2011 Financials Interest income $ 67.7 $ - $ - $ 67.7 $ 73.2 $ - $ - $ 73.2 Interest expense 7.2 -
Slide 16: Portfolio Metrics
16 110 Portfolio Metrics Portfolio Yield Realized Q3-2011 At Sept. 30, 2011 Realized Q4-2011 At Dec. 31, 2011 Annualized yield1 5.5% 4.7% 4.8% 4.7% Agency 4.3% 3.4% 3.5% 3.3% Non-Agency 9.8% 9.6% 9.7% 9.7% Cost of financing2 1.3% 1.3% 1.0% 1.0% Net interest spread 4.2% 3.4% 3.8% 3.7% Portfolio Metri
Slide 17: Financing and Hedging Strategy
December 31, 2011 Option Underlying Swap Swaption Expiration Cost ($K) Fair Value ($K) Average Months to Expiration Notional Amount ($K) Average Fixed Pay Rate Average Receive Rate Average Term (Years) Payer < 6 Months $16,147 $4 4.97 1,600,000 3.22% 3M Libor 3.688 Payer ≥ 6 Months 13,523 5,631 12.2
Slide 18: Agency Securities as of December 31, 2011
18 Agency Securities as of December 31, 2011 Par Value ($K) Market Value ($K) % of Agency Portfolio Amortized Cost Basis ($K) Weighted Average Coupon Weighted Average Age (Months) 30-Year Mortgages ≤ 4.5% $ 1,358,296 $ 1,452,920 27.9% $ 1,441,645 4.2% 11 5.0-6.0% 1,021,033 1,123,660 21.6% 1,105,365
Slide 19: Non-Agency Securities as of December 31, 2011
19 Non-Agency Securities as of December 31, 2011 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($K) $932,867 $262,633 $1,195,500 % of Non-Agency Portfolio 78.0% 22.0% 100.0% Average Purchase Price $55.05 $58.19 $55.74 Average Coupon 2.3% 1.3% 2.0% Collateral A
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