Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2017 Earnings Presentation
30 slides from Two Harbors Investment's earnings presentation, Nov 7, 2017
Slide 1: Third Quarter 2017 Earnings Call
NOVEMBER 8, 2017 Third Quarter 2017 Earnings Call
Slide 2: Safe Harbor Statement
Safe Harbor Statement 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,
Slide 3: Quarterly Summary
Quarterly Summary(1) • Total return on book value of 4.6%(2) – Book value of $20.12 per common share and cash dividend of $0.52 per common share • Comprehensive Income of $161.6 million, or $0.93 per basic common share • Core Earnings(3) of $89.2 million, or $0.51 per basic common share • Issued 11,
Slide 4: Strategic Overview
Strategic Overview 4 ü Delivered total stockholder return of 25% in 2017(1) ü Grew Core Earnings to $0.51 per basic common share(2) ü Three dividend increases (1) Two Harbors’ total stockholder return is calculated for the period December 31, 2016 through September 30, 2017. Total stockholder return
Slide 5: Two Harbors Going Forward
Two Harbors Going Forward 5 INDUSTRY LEADING HYBRID MORTGAGE REIT ü Deliver strong results and book value stability through a variety of rate environments Focused business model allows for more efficiencies Opportunistic capital allocation across Rates and Credit strategies Diversify financing profi
Slide 6: Book Value Roll-forward
(Dollars in millions, except per share data) Q3-2017 Book Value Q3-2017 Book Value per share YTD-2017 Book Value YTD-2017 Book Value per share Beginning common stockholders’ equity $3,444.6 $19.74 $3,401.1 $19.56 GAAP Net Income: Core Earnings, net of tax(1) 98.1 294.9 Dividend declaration - preferr
Slide 7: Core Earnings Summary
(Dollars in millions, except per share data) Q2-2017 Q3-2017 Variance ($) Interest income $208.6 $195.6 ($13.0) Interest expense 90.8 99.0 (8.2) Net interest income 117.8 96.6 (21.2) Loss on swaps and swaptions (2.6) (0.4) 2.2 Gain on other derivatives 3.3 2.8 (0.5) Servicing income, net of amortiza
Slide 8: Illustrative Pro Forma Core Earnings
(Dollars in millions) Consolidated Two Harbors Core Earnings Granite Point Mortgage Trust Q3 Dividend Standalone Two Harbors Core Earnings Interest income $ 195.6 — $ 195.6 Interest expense 99.0 — (99.0) Net interest income 96.6 — 96.6 Loss on swaps and swaptions (0.4) — (0.4) Gain on other derivati
Slide 9: Illustrative Pro Forma Balance Sheet as of Sept. 30, 2017
Illustrative Pro Forma Balance Sheet as of Sept. 30, 2017 9 (unaudited, dollars in thousands, except per share data) Consolidated Standalone Two Harbors Granite Point Two Harbors Investment Corp. Mortgage Trust Inc. Investment Corp. ASSETS Available-for-sale securities, at fair value $ 20,199,094 $
Slide 10: Diversified Financing Profile
Diversified Financing Profile 10 OPTIMIZING FINANCING STRUCTURE REPURCHASE AGREEMENTS • Outstanding borrowings of $18.3 billion with 25 active counterparties; 33 total counterparties • Repo markets functioning efficiently for RMBS • Repo balance includes the consolidation of Granite Point financing
Slide 11: Portfolio Composition
HISTORICAL CAPITAL ALLOCATIONPORTFOLIO COMPOSITION(1) Portfolio Composition 11 $23.7 BILLION PORTFOLIO AS OF SEPTEMBER 30, 2017 (1) For additional detail on the portfolio, see Appendix slides 21-26. (2) Commercial consists of the consolidated financial results of Granite Point and its subsidiaries,
Slide 12: Portfolio Performance
Portfolio Performance 12 Q3-2017 PERFORMANCE SUMMARY (1) “Legacy” non-Agency securities includes non-Agency bonds issued up to and including 2009. “New issue” non-Agency securities includes bonds issued after 2009. (2) Commercial consists of the consolidated financial results of Granite Point and it
Slide 13: Rates Update
Rates Update 13 Mortgage Spreads Change in Agency RMBS and Mortgage Derivatives Change in MSR Total Overall Rates Strategy Change(2) 25 basis points wider $ (140) $ 44 $ (96) (2.9%) 15 basis points wider $ (82) $ 27 $ (55) (1.7%) 15 basis points tighter $ 75 $ (31) $ 44 1.3 % 25 basis points tighter
Slide 14: Credit Update
Credit Update 14 • Home prices continue to improve; CoreLogic Home Price Index up 7.0% on a rolling 12-month basis(1) – Supported by affordability, low housing supply and strong demand • Believe future performance will remain strong, driven by increasing prepayments, lower delinquencies, defaults an
Slide 15: Appendix
E oo ——— = Appendix TWO HARBORS: nt Corp.
Slide 16: Return on Book Value
Return on Book Value 16 (1) Return on book value for the three-month period ended September 30, 2017 is defined as the increase in book value per common share from June 30, 2017 to September 30, 2017 of $0.38 per common share, plus dividends declared of $0.52 per common share, divided by June 30, 20
Slide 17: Financial Performance
Book Value ($) Dividend Declared ($) $25.00 $20.00 $15.00 $10.00 Q3-2016 Q4-2016 Q1-2017 Q2-2017 Q3-2017 $20.02 $19.56 $19.82 $19.74 $20.12 $0.46 $0.48 $0.50 $0.52 $0.52 Comp. Income ($M) Comp. Income ROACE (%) $150 $100 $50 $0 -$50 -$100 20% 10% 0% -10% -20% Q3-2016 Q4-2016 Q1-2017 Q2-2017 Q3-2017
Slide 18: Q3-2017 Operating Performance
Q3-2017 Operating Performance Q3-2017 (In millions, except for per common share data) Core Earnings(1) Realized Gains (Losses) Unrealized MTM Controlling Interest in Granite Point Net Income Total Interest income $195.6 $— $— $30.9 $226.5 Interest expense 99.0 — — 12.5 111.5 Net interest income 96.6
Slide 19: Q2-2017 Operating Performance
Q2-2017 Operating Performance 19(1) Core Earnings is a non-GAAP measure. Please see Appendix slide 20 of this presentation for a definition of Core Earnings and a reconciliation of GAAP to non-GAAP financial information. Q2-2017 (In millions, except for per common share data) Core Earnings(1) Realiz
Slide 20: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation(1) Reconciliation of GAAP to non-GAAP Information Three Months Three Months Ended (In thousands, except for per common share data) June 30, 2017 September 30, 2017 Reconciliation of Comprehensive income to Core Earnings: Comprehensive income $85.959 $161.601 Adju
Slide 21: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 21 AGENCY PORTFOLIO YIELDS AND METRICS AGENCY RMBS CPR(1) (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 22: Rates: Agency RMBS
Rates: Agency RMBS 22 As of September 30, 2017 Par Value ($M) Market Value ($M) % Prepay Protected(1) Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 3.0-3.5% $4,466 $4,623 76.1% $4,665 3.5% 12 4.0-4.5% 11,045 11,860 97.6% 11,820 4.2% 17 ≥ 5.0% 552 616 8
Slide 23: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 23 As of June 30, 2017 As of September 30, 2017 Fair value ($M) $898.0 $930.6 Unpaid principal balance ($M) $84,814.2 $88,789.8 Weighted average coupon 3.9% 3.9% Original FICO score(2) 754 753 Original LTV 73% 73% 60+ day delinquencies 0.2% 0.3% Net servicing spre
Slide 24: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics 24 LEGACY NON-AGENCY PORTFOLIO COMPOSITIONNON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes legacy non-Agency principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current
Slide 25: Credit: Legacy Non-Agency Securities
Credit: Legacy Non-Agency Securities 25 As of September 30, 2017 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,558.4 $752.8 $2,311.2 % of non-Agency portfolio 67.4% 32.6% 100.0% Average purchase price(1) $57.38 $65.30 $59.96 Average coupon 2.7% 2.0% 2.5% We
Slide 26: Granite Point's Commercial Real Estate Portfolio
Granite Point’s Commercial Real Estate Portfolio(1) (1) Due to the company’s controlling ownership interest in Granite Point, the company consolidates Granite Point on its financial statements and reflects noncontrolling interest for the portion of equity and comprehensive income not attributable to
Slide 27: Financing
Financing 27 (1) Weighted average of 1.5 years to maturity. (2) Includes FHLB advances of $1.2 billion with original maturities of 20 years. (3) Excludes FHLB membership and activity stock totaling $85.2 million. (4) Revolving credit facilities over-collateralized due to operational considerations.
Slide 28: Interest Rate Swaps
Maturities Notional Amounts ($B)(1) Average Fixed Pay Rate(2) Average Receive Rate(2) Average Maturity Years(2) Payers 2017 $0.9 0.721% 1.322% 0.2 2018 4.3 1.155% 1.314% 0.8 2019 1.0 1.524% 1.313% 1.8 2020 1.6 1.542% 1.311% 3.0 2021 and after 7.8 1.793% 1.321% 5.9 $15.6 1.509% 1.317% 3.6 Maturities
Slide 29: Interest Rate Swaptions
Interest Rate Swaptions 29 Option Underlying Swap Swaption Expiration Cost ($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 $9.3 $6.3 3.9 $3,225 2.25% 3M LIBOR 5.0 Total Payer $9.3 $6
Slide 30: Two Harbors Investment Corp.
TWO HARBORS Investment Corp. AP vr Capa Managed Gonoany
Two Harbors Investment — Q3 2017 Earnings Presentation on 6ix