Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2015 Earnings Presentation
26 slides from Two Harbors Investment's earnings presentation, Jun 1, 2015
Slide 1: First Quarter 2015 Investor Presentation
First Quarter 2015 │ Investor Presentation
Slide 2: Safe Harbor Statement
Safe Harbor Statement F O R W A R D - L O O K I N G S T A T E M EN T S 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, estimate
Slide 3: Two Harbors' Mission-Based Strategy
Two Harbors’ Mission-Based Strategy O U R M I S S I O N I S TO BE R E C O G N I Z E D A S T H E I N D U STRY - LE ADING M O RTG AG E R E I T: • Largest hybrid mortgage REIT investing in mortgage assets • Market capitalization of approximately $3.9 billion(1) • Provider of permanent capital to the U.
Slide 4: Financial Summary and Business Overview
Financial Summary and Business Overview SOLID Q1 -2015 FINANCIAL RESULTS • Total return on book value of 2.2%(1) — Q1-2015 cash dividend of $0.26 per share • Comprehensive Income of $88.9 million — Return on average equity of 8.7%, or $0.24 per share • Generated Core Earnings of $94.1 million, or $0
Slide 5: Market and Policy Update
Market and Policy Update MACROECONOMIC ENVIRONMENT & POLICY CONSIDERATIONS • Low, but volatile, interest rate environment – Roughly 60% probability the Federal Reserve will raise rates by at least 25 basis points by December; expected value of 35 basis points(1) • Home price appreciation continues –
Slide 6: Delivering Total Return
-10% 15% 40% 65% 90% 115% 140% TWO Pine River Mortgage REIT Index TOTA L STO C K H O L DE R R E T U R N O F 14 4 % S I N C E I N C E P T I O N (1 ) D R I V E N BY S U P E R I O R S E C U R I T Y S E L E C T I O N A N D S O P H I ST I C AT ED R I S K M I T I G AT IO N ST R AT E GI ES Delivering Total
Slide 7: Market Valuations
Market Valuations 7 GROW TH OF OPERATING BUSINESSES CAN DRIVE MULTIPLE EXPANSION • Conduit • MSR • Commercial real estate (1) Valuation multiple calculated by dividing closing common stock market price by book value per common share, as of March 31, 2015. (2) Represents the average multiple of each
Slide 8: Targeted Capital Allocation
TARGETED CAPITAL ALLOCATION Q1-2015 ALLOCATION HIGHLIGHTS PORTFOLIO COMPOSITION Portfolio Composition 8 • Capital allocation to operational businesses increased • 55% capital allocation to Rates — Added specified pools • 45% capital allocation to Credit — Continued sales of legacy non-Agency RMBS(8)
Slide 9: Portfolio Performance and Hedging
Portfolio Performance and Hedging 9 Q 1 - 2 015 P E R FO R M A NC E H I G H L I G H TS (1) Assets in “Rates” include Agency RMBS, IIOs (or Agency Derivatives), MSR and Ginnie Mae buyout residential mortgage loans. (2) Assets in “Credit” include non-Agency RMBS, prime jumbo residential mortgage loans
Slide 10: Conduit Update
Conduit Update • Completed two securitizations during the first quarter, totaling approximately $575 million unpaid principal balance (UPB) – Completed three securitizations YTD; approximately $815 million in unpaid principal balance (UPB) • Pipeline (interest rate locks and prime jumbo residential
Slide 11: MSR and Commercial Real Estate Update
• Opportunity has recently become more attractive • Aim to develop high-quality flow seller network • View MSR as an attractive asset for portfolio • Closed first Commercial Real Estate investment – Acquired a $46 million senior mezzanine real estate loan • Building out personnel and infrastructure
Slide 12: Attractive Returns With Lower Risk
-1.7% 1.8% -1.0% -2.6% -9.4% -11.7% -8.2% -6.2% -15.0% -10.0% -5.0% 0.0% 5.0% 2012 2013 2014 2015-YTD 2012 2013 2014 2015-YTD …LESS INTEREST RATE EXPOSURE ( 3 ) . . . Attractive Returns With Lower Risk 12 A T T R A C T I VE & C O M P A R A B L E D I V I D E N D Y I E L D ( 1 ) …WITH LOWER LEVERAGE (
Slide 13: Appendix
Appendix
Slide 14: Return on Book Value
Return on Book Value 14 Return on book value Q1-2015 (Per share amounts, except for percentage) Book value at December 31, 2014 $11.10 Book value at March 31, 2015 $11.08 Decrease in book value ($0.02) Dividend declared in Q1-2015 $0.26 Return on book value Q1-2015 $0.24 Return on book value Q1-2015
Slide 15: Financial Performance
DIV IDENDS (1) Financial Performance 15 COMPREHENSIVE INCOME BOOK VALUE AND DIV IDEND PER SHARE (1) GAAP NET INCOME (LOSS) (1) Historical dividends may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share, not G
Slide 16: Operating Performance
Operating Performance 16 (In millions, except for per share data) Core Earnings Realized Gains Unrealized MTM Q4-2014 Financials Core Earnings Realized Gains Unrealized MTM Q1-2015 Financials Interest income $156.2 $ - $ - $156.2 $163.0 $ - $ - $163.0 Interest expense 31.7 - - 31.7 33.5 - - 33.5 Net
Slide 17: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation (In thousands, except for per share data) Three Months Ended December 31, 2014 Three Months Ended March 31, 2015 Reconciliation of GAAP to non-GAAP Information Core Earnings: Net (loss) income $(36,963) $94,793 Adjustments for non-core earnings: Gain on sale of s
Slide 18: Rates: Agency RMBS Metrics
6.4% 8.5% 7.9% 7.5% 8.2% 0.0% 5.0% 10.0% 15.0% Q1-2014 Q2-2014 Q3-2014 Q4-2014 Q1-2015 Agency RMBS CPR Rates: Agency RMBS Metrics 18 AGENCY RMBS CPR(3) AGENCY PORTFOLIO YIELDS AND METRICS (1) Securities collateralized by loans of less than or equal to $175K, but more than $85K. (2) Securities collat
Slide 19: Rates: Agency RMBS
Rates: Agency RMBS 19 As of March 31, 2015 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed 3.0-3.5% $852 $902 7.7% $905 3.5% 3 4.0-4.5% $6,309 $6,898 58.9% $6,775 4.2% 22 ≥ 5.0% $664 $756 6.5% $719 5
Slide 20: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 20 As of Jun. 30, 2014 As of Sept. 30, 2014 As of Dec. 31, 2014 As of Mar. 31, 2015 Fair Value ($M) $500.5 $498.5 $452.0 $410.2 Unpaid Principal Balance ($M) $45,629.2 $45,526.8 $44,949.1 $43,974.9 Weighted Average Coupon 3.9% 3.9% 3.9% 3.9% Original FICO Score 740 7
Slide 21: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 21 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 22: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 22 As of March 31, 2015 Senior Bonds Mezzanine Bonds Total P&I Portfolio Characteristics: Carrying Value ($M) $2,086.2 $722.2 $2,808.4 % of Credit Portfolio 74% 26% 100% Average Purchase Price(1) $57.63 $74.46 $61.96 Average Coupon 2.5% 2.6% 2.6% Weighted Average Market Price
Slide 23: Repo and FHLB Financing
Repo and FHLB Financing(1) 23 (1) As of March 31, 2015. (2) Repo pledged collateral does not include U.S. Treasuries with repurchase agreements of $2.0 billion outstanding, cash and cash equivalents (restricted and unrestricted) and collateral due from counterparties. (3) Excludes FHLB membership an
Slide 24: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Payers Hedging Repo and FHLB Advances 2016 $3.4 0.644% 0.268% 1.37 2017 $4.3 1.075% 0.266% 2.35 2018 $2.8 1.145% 0.266% 2.93 2019 and after $1.7 2.350% 0.260% 7.80 $12.2 1.152% 0.266% 2.98 Other Pay
Slide 25: Interest Rate Swaptions
Interest Rate Swaptions(1) 25 (1) As of March 31, 2015. Option Underlying Swap Swaption Expiration Cost ($M) Fair Value ($M) Average Months to Expiration Notional Amount ($M) Average Pay Rate Average Receive Rate Average Term (Years) Purchase Contracts: Payer ≥ 6 Months $259.3 $112.1 53.14 $9,210 4.
Slide 26: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Q1 2015 Earnings Presentation on 6ix