Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2019 Earnings Presentation
17 slides from Two Harbors Investment's earnings presentation, Aug 22, 2019
Slide 1: A Leading Residential Hybrid Mortgage REIT: Second Quarter 2019 Investor Presentation
TWO HARBORS INVESTMENT CORP. A Leading Residential Hybrid Mortgage REIT Second Quarter 2019 Investor Presentation 1
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: Two Harbors Investment Corp. Overview
Two Harbors Investment Corp. Overview(1) LEADING RESIDENTIAL HYBRID MORTGAGE REIT $3.5 billion $4.9 billion $32.1 billion hybrid portfolio comprised of Rates market capitalization total stockholders’ equity and Credit strategies(2) 191% 8.4% 35% lower book value volatility compared to total stockhol
Slide 4: Substantial Total Stockholder Return Outperformance
Substantial Total Stockholder Return Outperformance • Outperformed peer group by over 45% since our inception • Delivered total stockholder return of 191% during that time(1) ― Bloomberg REIT Mortgage Index total stockholder return of 146% over the same period of time(2) 220.0% 191% 190.0% 160.0% 14
Slide 5: Book Value Stability Since Inception
Book Value Stability Since Inception(1) • We have grown our book value by 8.4% since our inception in 2009 • Peer average over same time period was (28.7%) • 35% lower book value volatility since inception compared to mortgage REIT average BOOK VALUE GROWTH BOOK VALUE OUTPERFORMANCE 8.4% 140% 120% 1
Slide 6: Market Landscape and Outlook
Market Landscape and Outlook ECONOMIC UNCERTAINTY AND GLOBAL TRADE CONCERNS FUELED RALLY IN INTEREST RATES IN THE SECOND QUARTER RATES MARKET • Second quarter environment consisted of lower rates, a flatter yield curve and 3-month LIBOR above most long-term rates • Agency basis widened in the quarte
Slide 7: Portfolio Composition and Quarterly Activity
Portfolio Composition and Quarterly Activity PORTFOLIO COMPOSITION(1) PORTFOLIO ACTIVITY $32.1 BILLION PORTFOLIO AS OF JUNE 30, 2019 • Reduced higher coupon/higher payup specified pool position by approximately $950 million, Non-Agency and replaced with lower coupon/lower payup $3.9b specified pools
Slide 8: Risk Profile
Risk Profile HEDGING ACROSS THE CURVE Common book value exposure to changes in rates(1) Net interest income exposure to changes in rates(2) +50 basis points (4.6%) +50 basis points 1.6% +25 basis points (1.4%) +25 basis points 0.8% -25 basis points 0.5% -25 basis points (0.8%) -50 basis points 1.8%
Slide 9: Strategic Overview
Strategic Overview MANAGE PORTFOLIO TO GENERATE STRONG RISK-ADJUSTED RETURNS RATES STRATEGY - Combination of Agency RMBS and MSR • Current expected returns in low double digits for Agency RMBS paired with MSR • Believe the combination of these two assets results in an attractive return with a lower
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Slide 11: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics AGENCY PORTFOLIO PREPAYMENT PROTECTION(1) AGENCY PORTFOLIO AT-A-GLANCE 96.8% 100.0% 88.4% 90.1% 91.5% 80.4% Market Value ($M) % Prepay Protected 50.0% 30-year fixed $25,994 92.9% Other Agencies(3) 155 0.4% 0.0% 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 IOs and IIO
Slide 12: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights MSR 60+ DAY DELINQUENCIES MSR PORTFOLIO AT-A-GLANCE(1) As of March 31, As of June 1.0% 2019 30, 2019 Fair value ($M) $2,014.4 $1,800.8 0.5% 0.4% 0.4% Unpaid principal balance ($M) $174,147.3 $169,643.7 0.3% 0.3% 0.3% Weighted average coupon 4.1 % 4.1 % Weighted avera
Slide 13: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics NON-AGENCY 60+ DAY DELINQUENCIES NON-AGENCY PORTFOLIO AT-A-GLANCE 25.0% Total P&I Bonds Portfolio characteristics: Carrying value ($M) $3,786.3 20.3% 19.6% 20.0% 19.2% % of non-Agency portfolio 100.0% 18.7% 18.1% Weighted average purchase price(1) $61.70 Weighte
Slide 14: Financing
Financing $ in millions Repurchase Revolving Credit Term Notes Total Outstanding Outstanding Borrowings and Maturities(1) Agreements FHLB Advances Facilities Payable Convertible Notes Borrowings Percent (%) Within 30 days $ 5,902.9 $ — $ — $ — $ — $ 5,902.9 20.4% 30 to 59 days 4,412.7 — — — — 4,412.
Slide 15: Interest Rate Swaps
Interest Rate Swaps INTEREST RATE SWAPS Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity Years Payers 2019 $4.2 1.781% 2.569% 0.3 2020 3.6 1.806% 2.502% 1.3 2021 10.5 2.104% 2.484% 1.9 2022 2.5 2.002% 2.430% 3.2 2023 and after 8.5 2.532% 2.536% 6.5 $29.3
Slide 16: Interest Rate Swaptions
Interest Rate Swaptions Option Underlying Swap Average Average Cost Fair Value Months to Notional Average Pay Receive Average Term Swaption Expiration ($M) ($M) Expiration Amount ($M) Rate Rate (Years) Purchase Contracts: Payer <6 Months $1.9 $0.9 4.9 $1,250 2.28% 3M LIBOR 5.2 Total Payer $1.9 $0.9
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