Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2021 Earnings Presentation
28 slides from Two Harbors Investment's earnings presentation, Nov 9, 2021
Slide 1: An Agency + MSR Mortgage REIT Third Quarter 2021 Earnings Call
An Agency + MSR Mortgage REIT Third Quarter 2021 Earnings Call NOVEMBER 9, 2021
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: Executive Overview
Executive Overview Performance Supported By Spread Tightening in High Coupon RMBS Quarterly Summary • Reported book value of $6.40 per common share, representing a 2.3% quarterly return on book value(1) • Generated Comprehensive Income of $45.2 million, representing an annualized return on average c
Slide 4: Key Market Highlights
Key Market Highlights HEADING INTO A WELL-ANTICIPATED FEDERAL RESERVE TAPER • Federal Reserve will reduce its monthly purchases of I. FEDERAL RESERVE WILL BUY LESS RMBS(1) U.S. Treasury securities by $10 billion and Agency RMBS by $5 billion beginning in November and expects to complete the process
Slide 5: Book Value Summary
Book Value Summary Q3-2021 YTD-2021 Q3-2021 Book Value YTD-2021 Book Value • Book value of $6.40 per (Dollars in millions, except per share data) Book Value per share Book Value per share common share, resulting in a 2.3% quarterly return on Beginning common stockholders’ equity $ 1,757.8 $ 6.42 $ 2
Slide 6: Earnings Available for Distribution and Portfolio Yield
Earnings Available for Distribution(1) and Portfolio Yield Variance Beginning with the third quarter, Core Earnings will be referred to ($ in millions, except per share data) Q2-2021 Q3-2021 ($) as Earnings Available for Distribution (EAD). EAD will also include U.S. Treasury futures income, which r
Slide 7: Financing Profile
Financing Profile BALANCE SHEET AS OF SEPTEMBER 30, 2021 CONSERVATIVE LEVERAGE FOR AGENCY + MSR STRATEGY • Strong capital and liquidity position ◦ Issued 40 million shares of common stock for net proceeds of $256.5 million • $1.1 billion of unrestricted cash • Economic debt-to-equity of 6.1x at Sept
Slide 8: Quarterly Activity and Portfolio Composition
Quarterly Activity and Portfolio Composition PORTFOLIO COMPOSITION(1) PORTFOLIO ACTIVITY At September 30, 2021, $17.9 billion portfolio • Maintained cautious positioning in Agency RMBS while growing MSR portfolio hedged with TBA Includes $8.9 billion settled positions • Reduced specified pool portfo
Slide 9: Specified Pools
Specified Pools SPECIFIED POOL PERFORMANCE I. SPECIFIED POOL PORTFOLIO • High coupon specified pools outperformed during the quarter, recovering some of the spread widening that occurred during the second quarter • Overall, market prepayment speeds continue to trend lower from the peak at the beginn
Slide 10: Mortgage Servicing Rights
Mortgage Servicing Rights MSR PORTFOLIO PERFORMANCE I. MSR PORTFOLIO(1) • Grew portfolio UPB in an active market 6/30/2021 9/30/2021 ◦ Settled on $14.0 billion UPB through flow-sale Fair value ($ millions) $ 2,020 $ 2,213 arrangements and $15.3 billion UPB through bulk Price Multiple 4.0x 4.2x purch
Slide 11: Agency + MSR Advantage
Agency + MSR Advantage LOW EXPOSURE TO CURRENT COUPON SPREAD • The charts below illustrate a point-in-time view of our risk exposure through the lens of: Agency RMBS paired with MSR (RMBS + MSR(1)) and Agency RMBS hedged with Rates (RMBS + RATES(2)) ◦ RMBS + MSR(1): Exposure shifted towards the 2.5%
Slide 12: Risk Positioning
Risk Positioning AGENCY + MSR DELIVERS BOOK VALUE STABILITY • Our interest rate and curve exposure remains low and in line with historical positioning ◦ For an instantaneous parallel shift in rates, the estimated change in book value would be -1.2% for a 25 bps decline, and -0.7% for a 25 bps increa
Slide 13: Two Harbors Outlook
Two Harbors Outlook OPPORTUNITY SET IN OUR TARGET ASSETS REMAINS ATTRACTIVE TODAY • MSR paired with TBA continues to offer low- to mid-teen returns and remains our primary focus for deploying capital • High coupon specified pool spreads tightened in the quarter, bringing expected returns to mid- to
Slide 14: Appendix
Appendix 14
Slide 15: Financial Performance
Financial Performance COMPREHENSIVE INCOME (LOSS) QUARTERLY RETURN ON BOOK VALUE(1) DIVIDEND YIELD(2) BOOK VALUE AND DIVIDEND PER COMMON SHARE(2) 15
Slide 16: Q3-2021 Operating Performance
Q3-2021 Operating Performance Q3-2021 Earnings Available Realized Gains (In millions, except for per common share data) for Distribution(1) (Losses) Unrealized MTM Total Interest income $ 36.0 $ — $ — $ 36.0 Interest expense 21.9 — — 21.9 Net interest income 14.1 — — 14.1 Gain on investment securiti
Slide 17: Q2-2021 Operating Performance
Q2-2021 Operating Performance Q2-2021 Earnings Available Realized Gains (In millions, except for per common share data) for Distribution(1) (Losses) Unrealized MTM Total Interest income $ 43.4 $ — $ — $ 43.4 Interest expense 24.4 — — 24.4 Net interest income 19.0 — — 19.0 Gain (loss) on investment s
Slide 18: GAAP to EAD Reconciliation
GAAP to EAD Reconciliation Reconciliation of GAAP to non-GAAP Information Three Months Ended Three Months Ended (In thousands, except for per common share data) June 30, 2021 September 30, 2021 Comprehensive (loss) income attributable to common stockholders $ (194,606) $ 45,226 Adjustment for other
Slide 19: Portfolio Metrics
Portfolio Metrics AGENCY RMBS CPR(1) AGENCY PORTFOLIO COMPOSITION (2) MSR CPR 19
Slide 20: Agency RMBS Portfolio
Agency RMBS Portfolio Amortized Weighted Par Value Market Value Weighted % Prepay Cost Basis Gross Weighted Average Age ($ millions) ($ millions) Average CPR Protected(1) ($ millions) Average Coupon (Months) 30-Year fixed 2.5% & below $ — $ — —% —% $ — —% — 3.0% 1,196 1,271 23.3 % 100.0 % 1,231 3.7
Slide 21: Mortgage Servicing Rights Portfolio
Mortgage Servicing Rights Portfolio(1) Gross Weighted Weighted Unpaid Principal Weighted Weighted Average Average Average Weighted Number of Balance Average Loan Size(2) Loan Age Original Average 60+ Day Net Servicing Loans ($ in millions) Coupon Rate ($ in thousands) (months) FICO(3) Original LTV D
Slide 22: Financing
Financing $ in millions Repurchase Revolving Credit Total Outstanding Outstanding Borrowings and Maturities(1) Agreements Facilities Term Notes Payable Convertible Notes Borrowings Percent (%) Within 30 days $ 1,737.1 $ — $ — $ — $ 1,737.1 20.8 % 30 to 59 days 79.9 — — — 79.9 0.9 % 60 to 89 days — —
Slide 23: Interest Rate Swaps and Swaptions
Interest Rate Swaps and Swaptions 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 % 0.9 2023 2.6 0.011 % 0.059 % 1.8 2024 — —% —% — 2025 and Thereafter 2.3 0.474 % 0.058 % 6.0 $ 1
Slide 24: End Notes
End Notes PAGE 3 - Executive Overview 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 value as of the beginning of the period. 2. Beginning in the th
Slide 25: End Notes (continued)
End Notes (continued) PAGE 8 - Quarterly Activity and Portfolio Composition 1. For additional detail on the portfolio, see Appendix slides 19-21. 2. Economic debt-to-equity is defined as total borrowings to fund RMBS, MSR and Agency Derivatives, plus the implied debt on net TBA positions, divided by
Slide 26: End Notes (continued)
End Notes (continued) PAGE 13 - Two Harbors Outlook 1. Source: Company’s indicative estimates based on portfolio assumptions and market conditions, for illustrative purposes only. PAGE 15 - Financial Performance 1. Return on book value is defined as the increase (decrease) in book value per common s
Slide 27: End Notes (continued)
End Notes (continued) PAGE 21 - Mortgage Servicing Rights Portfolio 1. MSR portfolio excludes residential mortgage loans for which the company is the named servicing administrator. 2. Weighted average loan size represents the current weighted average loan size. 3. FICO represents a mortgage industry
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