Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2016 Earnings Presentation
26 slides from Two Harbors Investment's earnings presentation, May 25, 2016
Slide 1: First Quarter 2016 Investor Presentation
First Quarter 2016 │ 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: Financial Summary
Financial Summary(1) QUARTERLY F INANCIAL RESULTS • Core Earnings(2) of $71.8 million, or $0.21 per share • Comprehensive Loss of $67.6 million, or $0.19 per share • Total return on book value of (1.8%)(3) – Cash dividend of $0.23 per share • Repurchased 8.0 million shares of common stock – Average
Slide 4: Financing Profile
Financing Profile 4 REPURCHASE AGREEMENTS • Focused on diversification and financial stability across repo counterparties • Outstanding borrowings of $6.2 billion with 20 active counterparties; 30 total counterparties • Repo markets functioning normally; continue to ladder repo maturities • Subseque
Slide 5: Portfolio Performance and Hedging
Portfolio Performance and Hedging 5 Q1-2016 PERFORMANCE HIGHLIGHTS (1) “Legacy” non-Agency RMBS includes non-Agency bonds issued up to and including 2009. “New issue” non-Agency RMBS includes bonds issued after 2009. (2) Cost of funds includes interest spread expense associated with the portfolio's
Slide 6: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 6 $12.2 BILLION PORTFOLIO AS OF MARCH 31, 2016 (1) For additional detail on the portfolio, see Appendix slides 16-22. (2) Commercial consists of senior and mezzanine commercial real estate debt and related instruments. (3)
Slide 7: Significant Opportunity (Commercial Real Estate)
S I G N I F ICAN T O P P O RT U N IT Y • Commercial real estate loan market exceeds $3.0 trillion, with over $1.5 trillion maturing in the next several years(2) ― Further borrowing needs arising from increased sale transaction volume • Risk-adjusted returns are attractive – Low-to-mid double digit r
Slide 8: MSR Update
MSR Update 8 MORTGAGE SERVICING RIGHTS • MSR provides positive yield, negative duration and hedges mortgage basis risk ― Expected ROEs in the low double digits when paired with Agency RMBS • Focused on adding new issue MSR primarily through flow sale arrangements, and bulk acquisitions on an opportu
Slide 9: Conduit Update
Conduit Update(1) 9 (1) Data for the three months ended March 31, 2016, except where noted. (2) Total investors considers only new issue buyers. (3) Total capital allocation to the conduit includes mortgage loans held-for-sale and pipeline commitments. • Creating attractive credit assets for portfol
Slide 10: Attractive Returns With Lower Risk
8.1% 7.6% 9.3% 9.2% 15.0% 11.2% 13.5% 11.7% 0.0% 5.0% 10.0% 15.0% 20.0% 2013 2014 2015 2016-YTD 2013 2014 2015 2016-YTD 1.8% -1.0% -3.2% -3.8% -11.7% -8.2% -6.7% -5.1% -15.0% -10.0% -5.0% 0.0% 5.0% 2013 2014 2015 2016-YTD 2013 2014 2015 2016-YTD …LESS INTEREST RATE EXPOSURE ( 3 ) . . . Attractive Re
Slide 11: Appendix
Appendix
Slide 12: Return on Book Value
Return on Book Value 12 (1) Return on book value for three-month period ended March 31, 2016 is defined as the decrease in book value from December 31, 2015 to March 31, 2016 of $0.41 per share, plus dividends declared of $0.23 per share, divided by December 31, 2015 book value of $10.11 per share.
Slide 13: Financial Performance
$88.9 $2.7 ($92.8) ($3.2) ($67.6) 8.7% 0.3% (9.4%) (0.3%) (7.8%) -10% -5% 0% 5% 10% 15% ($150) ($100) ($50) $0 $50 $100 $150 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Comp. Income ($M) Comp. Income ROAE (%) $11.08 $10.81 $10.30 $10.11 $9.70 $0.26 $0.26 $0.26 $0.26 $0.23 $6.00 $9.00 $12.00 Q1-2015 Q2-2
Slide 14: Operating Performance
Operating Performance (In millions, except for per share data) Core Earnings(1) Realized Gains Unrealized MTM Q4-2015 Financials Core Earnings(1) Realized Gains Unrealized MTM Q1-2016 Financials Interest income $133.6 $ - $ - $133.6 $130.8 $- $- $130.8 Interest expense 36.6 - - 36.6 41.4 - - 41.4 Ne
Slide 15: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation (1) Reconciliation of GAAP to non-GAAP Information (In thousands, except for per share data) Three Months Ended December 31, 2015 Three Months Ended March 31, 2016 Reconciliation of net income (loss) to Core Earnings: Net income (loss) $210,706 ($88,930) Adjustme
Slide 16: Rates: Agency RMBS Metrics
30-Year Fixed 3-3.5% 32.4% 30-Year Fixed 5% & above 7.5% IO & Inverse IO 4.6% Other 3.3% Hybrid ARMs 0.5% Rates: Agency RMBS Metrics 16 AGENCY RMBS CPR(1) AGENCY PORTFOLIO YIELDS AND METRICS (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2)
Slide 17: Rates: Agency RMBS
Rates: Agency RMBS 17 As of Mar. 31, 2016 Par Value ($M) Market Value ($M) % Lower Balance/HARP(1) Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 3.0-3.5% $2,529 $2,650 -% $2,639 3.5% 2 4.0-4.5% 3,863 4,220 81.2% 4,157 4.2% 32 ≥ 5.0% 538 610 73.7% 581 5
Slide 18: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 18 As of Dec. 31, 2015 As of Mar. 31, 2016 Fair value ($M) $493.7 $446.2 Unpaid principal balance ($M) $51,386.1 $55,344.3 Weighted average coupon 3.9% 3.9% Original FICO score 751 751 Original LTV 73% 70% 60+ day delinquencies 1.1% 0.9% Net servicing spread 27.4 bas
Slide 19: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 19 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 20: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 20 As of March 31, 2016 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,172.3 $397.5 $1,569.8 % of non-agency portfolio 74.7% 25.3% 100.0% Average purchase price(1) $54.21 $69.98 $58.20 Average coupon 3.1% 2.4% 2.9% Weighted average ma
Slide 21: Commercial Real Estate Assets
Commercial Real Estate Assets (1) Cash coupon does not include origination or exit fees. (2) Yield includes net origination fees and exit fees, but does not include future fundings. (3) Initial LTV considers the original appraisal at the time of origination. (4) Stabilized LTV considers the prospect
Slide 22: Commercial Real Estate Assets (Continued)
Commercial Real Estate Assets (Continued) (1) Cash coupon does not include origination or exit fees. (2) Yield includes net origination fees and exit fees, but does not include future fundings. (3) Initial LTV considers the original appraisal at the time of origination. (4) Stabilized LTV considers
Slide 23: Repo and FHLB Financing
Repo and FHLB Financing(1) 23 (1) As of March 31, 2016. (2) Excludes FHLB membership and activity stock totaling $167.9 million. (3) Weighted average of 35 days to maturity. (4) Includes advances of $2.5 billion with original maturities of 20 years. Repo and FHLB Collateral(2) Repo FHLB Total ($M) A
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 $1.7 0.462% 0.624% 0.5 2017 2.4 0.765% 0.620% 1.3 2018 0.3 0.984% 0.617% 1.8 2019 0.3 1.283% 0.623% 3.2 2020 and after 1.8 1.797% 0.622% 7.5 $6.5 1.013% 0.
Slide 25: Interest Rate Swaptions
Interest Rate Swaptions(1) 25 (1) As of March 31, 2016. Option Underlying Swap Swaption Expiration Cost ($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 $12.0 $3.7 3.7 $1,500 3.25% 3M
Slide 26: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
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