Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2021 Earnings Presentation
25 slides from Two Harbors Investment's earnings presentation, May 5, 2021
Slide 1: First Quarter 2021 Earnings Call
MAY 6, 2021 First Quarter 2021 Earnings Call
Slide 2: Safe Harbor Statement
Safe Harbor Statement 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 an
Slide 3: Executive Overview: Hedge Benefits of MSR Result in Stable Performance
Hedge Benefits of MSR Result in Stable Performance During Volatile Quarter Executive Overview 3 (1) 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 valu
Slide 4: Special Topic: First Quarter Key Market Highlights
Special Topic: First Quarter Key Market Highlights EXPECTATIONS FOR A FAST AND ROBUST RECOVERY LED TO SHARPLY HIGHER RATES AND VOLATILITY • Combination of a rapid vaccine rollout, the steep drop in COVID cases, fiscal stimulus and supportive monetary policy helped drive long-term interest rates high
Slide 5: Book Value Summary
Book Value Summary (Dollars in millions, except per share data) Q1-2021 Book Value Q1-2021 Book Value per share Beginning common stockholders’ equity $ 2,087.7 $ 7.63 GAAP Net Income: Core Earnings, net of tax(1) 63.0 Dividend declaration - preferred (17.2) Core Earnings attributable to common stock
Slide 6: Core Earnings Review
($ in millions, except per share data) Q4-2020 Q1-2021 Variance ($) Interest income $ 72.5 $ 56.1 $ (16.4) Interest expense 22.6 22.7 0.1 Net interest income 49.9 33.4 (16.5) Servicing income, net of amortization on MSR 41.1 43.8 2.7 Gain on swaps and swaptions 2.0 1.7 (0.3) Gain on other derivative
Slide 7: Financing Profile
AGENCY RMBS • Outstanding repurchase agreements of $11.7 billion with 19 counterparties • Attractive funding available through repo markets: term structure is flat, rates are low MORTGAGE SERVICING RIGHTS • $423 million of outstanding borrowings under bilateral MSR financing facilities • $400 millio
Slide 8: Quarterly Activity and Portfolio Composition
Quarterly Activity and Portfolio Composition 8 At March 31, 2021, $18.6 billion portfolio Includes $13.6 billion settled positions (1) For additional detail on the portfolio, see Appendix slides 21-22. (2) Represents bond equivalent value of TBA position. Bond equivalent value is defined as notional
Slide 9: Special Topic: Current Coupon Volatility-Adjusted Returns
(1) Reported figures are based on the company’s internal assessment of market prepayment rates, interest rates, leverage, mortgage prices and other factors. • DURATION-HEDGED CARRY: This chart shows how carry has evolved for TBA 2.0 and 2.5. 2.0’s in particular have declined due to a decrease in rol
Slide 10: Specified Pool Portfolio
(1) Securities collateralized by loans less than or equal to $200 thousand of initial principal balance. (2) Securities collateralized by loans from certain geographic concentrations. (3) Securities collateralized by loans with greater than or equal to 80% LTV. (4) J.P. Morgan Beta MBS Pricing and A
Slide 11: Mortgage Servicing Rights Update
• MSR fair value increased by over 30%, benefiting from higher rates and steeper curve • Maintained portfolio UPB balance despite fast prepayment speeds • Settled $21.3 billion UPB of MSR through flow-sale arrangements and $1.1 billion UPB through bulk purchases • Forbearance rates continue to decli
Slide 12: Agency + MSR Advantage
• MSR and Agency IO RMBS have similar risks to a short pools/TBA position in 2.0 and 2.5 coupons • Portfolio long in 3.0 through 5.0 coupons, short current coupon • In a 25 basis point spread widening scenario, estimated book value decrease of (4.2)% Agency + MSR Advantage 12 Agency P&I RMBS/TBA MSR
Slide 13: Book Value Exposure to Interest Rates and Yield Curve
Note: Sensitivity data as of March 31, 2021. The above scenarios are provided for illustration purposes only and is not necessarily indicative of Two Harbors’ financial condition and operating results, nor is it necessarily indicative of the financial condition or results of operations that may be e
Slide 14: Two Harbors Outlook
Two Harbors Outlook 14 MARKET OUTLOOK P or tfo lio Expected Annualized Returns (%) RMBS (TBA) / MSR RMBS (Pools) / MSR RMBS (TBA) / Swaps RMBS (Pools) / Swaps 0 5 10 15 Source: Company’s indicative estimates based on portfolio assumptions and market conditions, for illustrative purposes only. • Esti
Slide 15: — «fs oe DT ee
_— = — 7 oo — «fs oe DT ee —= ~~ _ > " - — — lee ete f wae ee a | * : — af : " “5 — es TWO-HARBORS = Investment Corp. = = = = os “ he
Slide 16: Financial Performance
DIVIDEND YIELD(2) Financial Performance 16 COMPREHENSIVE INCOME (LOSS) QUARTERLY RETURN ON BOOK VALUE(1) BOOK VALUE AND DIVIDEND PER COMMON SHARE(2) (1) 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 d
Slide 17: Q1-2021 Operating Performance
Q1-2021 Operating Performance Q1-2021 (In millions, except for per common share data) Core Earnings(1) Realized Gains (Losses) Unrealized MTM Total Interest income $ 56.1 $ — $ — $ 56.1 Interest expense 22.7 — — 22.7 Net interest income 33.4 — — 33.4 Gain (loss) on investment securities — 70.3 62.5
Slide 18: Q4-2020 Operating Performance
Q4-2020 Operating Performance 18 Q4-2020 (In millions, except for per common share data) Core Earnings(1) Realized Gains (Losses) Unrealized MTM Total Interest income $ 72.5 $ — $ — $ 72.5 Interest expense 22.6 — — 22.6 Net interest income 49.9 — — 49.9 Gain (loss) on investment securities — 47.6 (1
Slide 19: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation(1) Reconciliation of GAAP to non-GAAP Information Three Months Ended Three Months Ended (In thousands, except for per common share data) December 31, 2020 March 31, 2021 Reconciliation of Comprehensive income to Core Earnings: Comprehensive income (loss) attribut
Slide 20: Portfolio Metrics
Portfolio Metrics 20 AGENCY RMBS CPR(1) MSR CPR (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Includes 15-year fixed, Hybrid ARMs, CMO and DUS pools. AGENCY PORTFOLIO COMPOSITION 30-Year Fixed 4.0% 22.1% 30-Year Fixed 3.0% 19.1% 30-Year
Slide 21: Agency RMBS Portfolio
(1) Includes securities with implicit or explicit protection including lower loan balances (securities collateralized by loans less than or equal to $200K of initial principal balance), higher LTVs (securities collateralized by loans with greater than or equal to 80% LTV), certain geographic concent
Slide 22: Mortgage Servicing Rights Portfolio
Mortgage Servicing Rights Portfolio(1) 22 Number of Loans Unpaid Principal Balance ($ in millions) % Fannie Mae Gross Weighted Average Coupon Rate Weighted Average Loan Age (months) Weighted Average Original FICO(2) Weighted Average Original LTV 60+ Day Delinquencies 3-Month CPR Net Servicing Fee (b
Slide 23: Financing
Financing 23 (1) Weighted average of 5.9 months to maturity. (2) Revolving credit facilities secured by MSR and other assets may be over-collateralized due to operational considerations. $ in millions Outstanding Borrowings and Maturities(1)(3) Repurchase Agreements Revolving Credit Facilities Term
Slide 24: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity Years Payers 2021 $ — — % — % — 2022 7.4 0.042 % 0.060 % 1.4 2023 2.3 0.023 % 0.060 % 2.2 2024 — — % — % — 2025 and after 1.7 0.358 % 0.079 % 6.7 $ 11.4 0.085 % 0.063 % 2.4 Maturities Notional Amounts ($B)
Slide 25: Slide 25
Two Harbors Investment — Q1 2021 Earnings Presentation on 6ix