Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2014 Earnings Presentation
23 slides from Two Harbors Investment's earnings presentation, Nov 12, 2014
Slide 1: Third Quarter 2014 Investor Presentation
Third Quarter 2014 Investor Presentation
Slide 2: Safe Harbor Forward-Looking Statements
Safe Harbor 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, estimates and proj
Slide 3: Mission Based Strategy
Mission Based Strategy OUR MISSION IS TO BE RECOGNIZED AS THE INDUSTRY -LEADING MORTGAGE REIT: • Largest hybrid mortgage REIT investing in residential mortgage assets • Market capitalization of approximately $3.5 billion(1) • Provider of permanent capital to the U.S. mortgage market • Thought leader
Slide 4: Executive Summary
Executive Summary ST RO N G T H I R D Q UA RT E R 2 014 R E S U LT S • Reported book value of $11.25 per share; total return on book value 3.8%(1) in Q3-2014, 13.9% year-to-date — Q3-2014 cash dividend of $0.26 per share • Delivered Comprehensive Income of $152.6 million — Return on average equity o
Slide 5: Market Overview
Market Overview M A C R O E C O N O M I C E N V I R O N M E NT & P O L I C Y C O N S I D E R A T I O NS • Federal Housing Finance Agency’s (FHFA) proposed rulemaking on Federal Home Loan Bank (FHLB) membership requirements • Home price appreciation continues – CoreLogic Home Price Index up 5.6% on r
Slide 6: Delivering Total Return
Delivering Total Return 112% total stockholder return since inception; compares favorably to Pine River Mortgage REIT Index(1)(2) (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through September 30, 2014. Total stockholder return is defined as stock price app
Slide 7: Targeted Capital Allocation: Portfolio Composition
TA RG ET E D C A P I TAL A L LO C AT I O N Q 3 - 2 014 H I G H L I G H T S P O RT FO L I O C O M P O S I T I O N Portfolio Composition 7 • 56% capital allocation to Rates — Sold high-LTV and low FICO pools; reinvested in lower loan balance pools — Sold majority of ARM holdings • 44% capital allocati
Slide 8: Hedging Strategy and Financing Profile
Hedging Strategy and Financing Profile (1) 8 H E D G I N G ST R AT E GY • Hedges structured to protect book value in a variety of interest rate environments • Use a variety of hedging tools, including swaps, swaptions, interest- only bonds, inverse interest-only bonds, MSR and To-Be-Announced (TBA)
Slide 9: Mortgage Loan Conduit and Securitization
Mortgage Loan Conduit and Securitization C O N D U I T I N I T I A T I VE G A I N I N G M O M E N T U M • Completed two securitizations during the quarter • Closed ABMT 2014-3 securitization subsequent to quarter-end • Pipeline (interest rate locks and prime jumbo holdings) remains strong, approxima
Slide 10: Business Update
Business Update L AU NC H ED H I G H - LT V A N D N O N - P R I ME S U BS E Q U EN T TO Q UA RT E R - EN D • High-LTV: – Extension of current prime jumbo program – Focused on higher quality borrowers who need or desire to make smaller down payments • Non-prime: – Aimed at borrowers unable to get a l
Slide 11: Appendix
Appendix
Slide 12: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation 12 (In thousands, except for per share data) Three Months Ended June 30, 2014 Three Months Ended September 30, 2014 Reconciliation of GAAP to non-GAAP Information Core Earnings: Net income $39,657 $193,590 Adjustments for non-core earnings: Gain on sale of securi
Slide 13: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 13 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 collateralized by loans of less than or equal to $85K. (3) Agency weighted average 3-month Constant Prepaymen
Slide 14: Rates: Agency RMBS
Rates: Agency RMBS 14 As of September 30, 2014 Par Value (M) Market Value (M) % of Agency Portfolio Amortized Cost Basis (M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed 4.0-4.5% $5,441 $5,838 59.1% $5,859 4.2% 20 ≥ 5.0% $729 $820 8.3% $790 5.5% 68 $6,170 $6,658 67.4% $6,649 4
Slide 15: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 15 As of June 30, 2014 As of September 30, 2014 Fair Value ($M) $500.5 $498.5 Unpaid Principal Balance ($M) $45,629.2 $45,526.8 Weighted Average Coupon 3.9% 3.9% Original FICO Score 740 730 Original LTV 74% 74% 60+ Day Delinquencies 1.2% 1.4% Net Servicing Spread 25
Slide 16: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 16 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 17: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 17 As of September 30, 2014 Senior Bonds Mezzanine Bonds Total P&I Portfolio Characteristics: Carrying Value ($M) $2,473.7 $517.7 $2,991.4 % of Credit Portfolio 82.7% 17.3% 100.0% Average Purchase Price(1) $56.08 $62.52 $57.20 Average Coupon 2.2% 1.8% 2.2% Weighted Average Ma
Slide 18: Repo and FHLB Financing
Repo and FHLB Financing(1) 18 (1) As of September 30, 2014. (2) Repo pledged collateral does not include U.S. Treasuries with repurchase agreements of $2.0 billion outstanding, cash and cash equivalents (restricted and unrestricted) and collateral due from counterparties. (3) Excludes FHLB membershi
Slide 19: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Payers Hedging Repo 2016 $6.1 0.622% 0.234% 1.82 2017 $6.4 1.074% 0.235% 2.87 2018 $1.1 1.314% 0.234% 3.74 2019 and after $2.0 2.268% 0.234% 7.14 $15.6 1.070% 0.234% 3.08 Other Payers 2016 $3.5 0.63
Slide 20: Interest Rate Swaptions
Interest Rate Swaptions(1) 20 (1) As of September 30, 2014. Option Underlying Swap Swaption Expiration Cost ($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 $190.2 $130.3 45.89 $5,21
Slide 21: Overview of Two Harbors Team
EXECUTIVE OFFICERS Overview of Two Harbors Team 21 CHIEF F INANCIAL OFFICER BRAD FARRELL • Most recently served as Two Harbors’ Controller from 2009 to 2011 • Previously Vice President and Executive Director of Financial Reporting at GMAC ResCap from 2007 to 2009 and held financial roles at XL Capit
Slide 22: Overview of Pine River Capital Management
EXPERIENCED, COHESIVE TEAM (3) ESTABLISHED INFRASTRUCTURE GLOBAL ASSET MANAGEMENT F IRM Overview of Pine River Capital Management • Eighteen partners with average of 23 years experience • Approximately 500 total employees, including 129 investment professionals • Historically low attrition • Strong
Slide 23: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Q3 2014 Earnings Presentation on 6ix