Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Credit Suisse Financial Services Forum 2016
28 slides from Two Harbors Investment's conference presentation, Feb 8, 2016
Slide 1: Credit Suisse Financial Services Forum
Februar y 9 , 2016 Credit Suisse Financial Services Forum
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 FO U RT H Q UA RT E R 2 015 • Total return on book value of 0.7%(1) – Cash dividend of $0.26 per share • Comprehensive Loss of $3.2 million, or $0.01 per share • Core Earnings(2) of $72.1 million, or $0.20 per share • Repurchased 12.3 million shares of common stock – Average purcha
Slide 4: 2015 Accomplishments
2015 Accomplishments(1) M O RTG AG E LOA N C O N D U IT • Sponsored seven securitizations totaling $2.0 billion in unpaid principal balance (UPB) – Attained goal of sponsoring six to ten securitizations during 2015 • Expanded originator partner network M O RTG AG E S E RV I C I N G R I G H T S • Add
Slide 5: Market and Policy Update
Market and Policy Update M AC RO C O N S I D E R AT I O NS • Volatile market and interest rate environment – Wider Agency and credit asset spreads – Federal Reserve raised interest rates in December 2015 • Continued home price appreciation – CoreLogic Home Price Index up 6.3% on rolling 12-month bas
Slide 6: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 6 $11.1 BILLION PORTFOLIO AS OF DECEMBER 31, 2015 ($ billions) (1) For additional detail on the portfolio, see Appendix slides 19-24. (2) Commercial consists of senior and mezzanine commercial real estate debt and related
Slide 7: Portfolio Performance and Hedging
Portfolio Performance and Hedging 7 Q 4 - 2 015 P E R FO R M A NC E H I G H L I G H TS (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 w
Slide 8: Strategy: Illustrative Portfolio Durations
Strategy Total 0-2 years 3-7 years 7+ years Assets Agency Pools $1,858,000 222,529 $796,604 $838,867 HECM Pools $87,996 26,673 $62,783 ($1,460) CMO,IO,IIO $256,504 121,685 $326,576 ($191,757) MSR ($897,766) $55,271 ($143,975) ($809,062) Credit $1,903,300 $100,884 $697,972 $1,104,444 Total Assets $3,
Slide 9: Conduit and MSR
• Creating credit assets for portfolio through ABMT • Significant issuer in private label securities market – Approximately 16% market share of new prime jumbo issuance in 2015(1) – Broad investor interest and participation; over 50 different investors in program since inception(2) – ABMT pricing im
Slide 10: Commercial Real Estate Portfolio Update
P O RT FO L I O U P DATE • Twelve senior and six mezzanine assets at December 31, 2015 ― Aggregate carrying value of $661.0 million ― Secured by a diverse group of properties throughout the United States ― Strong sponsor equity cushion; weighted average initial loan-to-value of 72.3%(2) ― Weighted a
Slide 11: High-Quality Credit Portfolio
• Generating attractive subordinate and IO assets for portfolio High-Quality Credit Portfolio 11 (1) Data as of December 31, 2015. (2) Includes only and all securitizations sponsored under Agate Bay Mortgage Trust issuer program. (3) FICO represents a mortgage industry accepted credit score of a bor
Slide 12: Financing Profile
Financing Profile 12 REPURCHASE AGREEMENTS (1) • Focused on diversification and financial stability across repo counterparties • Outstanding borrowings of $5.0 billion with 21 active counterparties; 30 total counterparties • Continued to ladder repo maturities • Repo markets functioning in normal ma
Slide 13: 2016 Outlook
2016 Outlook 13 O P P O RT U N I ST IC ALLY D E P LOY C A P I TAL TO M A X I M I ZE STO C K H O L DE R VA LUE OV E R T H E LO N G -TE R M • Diversify asset base to deliver high-quality returns with dampened volatility • Allocate capital to sectors with more attractive returns, including: – Mortgage
Slide 14: Appendix
Appendix
Slide 15: Return on Book Value
Return on Book Value 15 (1) Return on book value for twelve-month period ended December 31, 2015 is defined as the decrease in book value from December 31, 2014 to December 31, 2015 of $0.99 per share, plus dividends declared of $1.04 per share, divided by December 31, 2014 book value of $11.10 per
Slide 16: Financial Performance
DIV IDENDS (1) Financial Performance 16 COMPREHENSIVE INCOME (LOSS) BOOK VALUE AND DIV IDEND PER SHARE (1) GAAP NET (LOSS) INCOME (1) Historical dividends may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share
Slide 17: Operating Performance
Operating Performance (In millions, except for per share data) Core Earnings(1) Realized Gains Unrealized MTM Q3-2015 Financials Core Earnings(1) Realized Gains Unrealized MTM Q4-2015 Financials Interest income $152.8 $ - $ - $152.8 $133.6 $ - $ - $133.6 Interest expense 37.0 - - 37.0 36.6 - - 36.6
Slide 18: 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 September 30, 2015 Three Months Ended December 31, 2015 Reconciliation of net (loss) income to Core Earnings: Net (loss) income ($34,790) $210,706 Adju
Slide 19: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 19 AGENCY RMBS CPR(1) AGENCY PORTFOLIO YIELDS AND METRICS (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 20: Rates: Agency RMBS
Rates: Agency RMBS 20 As of Dec. 31, 2015 Par Value ($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% $3,979 $4,290 70.0% $4,285 4.2% 30 ≥ 5.0% 562 633 10.3% 607 5.5% 84 4,541 4,923 80.3% 4,892 4.4% 37
Slide 21: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 21 As of Mar. 31, 2015 As of June 30, 2015 As of Sept. 30, 2015 As of Dec. 31, 2015 Fair value ($M) $410.2 $437.6 $447.3 $493.7 Unpaid principal balance ($M) $43,974.9 $42,811.3 $48,117.3 $51,386.1 Weighted average coupon 3.9% 3.9% 3.9% 3.9% Original FICO score 748 7
Slide 22: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 22 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 23: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 23 As of December 31, 2015 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,313.7 $532.6 $1,846.3 % of non-agency portfolio 71.2% 28.8% 100% Average purchase price(1) $52.88 $79.01 $60.42 Average coupon 2.8% 3.0% 2.9% Weighted average m
Slide 24: 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 25: Repo and FHLB Financing
Repo and FHLB Financing(1) 25 (1) As of December 31, 2015. (2) Excludes FHLB membership and activity stock totaling $156.7 million. (3) Weighted average of 35 days to maturity. (4) Includes advances of $2.3 billion with original maturities of 20 years. Repo and FHLB Collateral(2) Repo FHLB Total ($M
Slide 26: 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% 0.481% 0.7 2017 2.4 0.765% 0.510% 1.6 2018 0.8 0.944% 0.384% 2.1 2019 0.4 1.283% 0.340% 3.4 2020 and after 2.6 1.821% 0.371% 8.0 $7.9 1.094% 0.
Slide 27: Interest Rate Swaptions
Interest Rate Swaptions(1) 27 (1) As of December 31, 2015. Option Underlying Swap Swaption Expiration Cost ($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 $0.38 $0.17 0.8 $2,000 2.23
Slide 28: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
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