Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2015 Earnings Presentation
27 slides from Two Harbors Investment's earnings presentation, Sep 1, 2015
Slide 1: Second Quarter 2015 Investor Presentation
Second Quarter 2015 │ 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: Two Harbors' Mission-Based Strategy
Two Harbors’ Mission-Based Strategy O U R M I S S I O N I S TO BE R E C O G N I Z E D A S T H E I N D U STRY - LE ADING M O RTG AG E R E I T: • Largest hybrid mortgage REIT investing in mortgage assets • Market capitalization of approximately $3.6 billion(1) • Provider of permanent capital to the U.
Slide 4: Financial Summary and Business Overview
Financial Summary and Business Overview SOLID F INANCIAL RESULTS (1) • Total return on book value of 2.1% through the first six months of 2015(2) – Q2-2015 cash dividend of $0.26 per share • Comprehensive Income of $2.7 million – Return on average equity of 0.3%, or $0.01 per share • Generated Core
Slide 5: Market and Policy Update
Market and Policy Update MACROECONOMIC ENVIRONMENT & POLICY CONSIDERATIONS • Interest rate environment remains volatile – Conservatively positioned with respect to interest rates • Steady improvement in unemployment rates – 5.3% in June 2015 versus 6.1% in June 2014 • Home price appreciation continu
Slide 6: Delivering Total Return
-10% 10% 30% 50% 70% 90% 110% 130% 150% TWO Pine River Mortgage REIT Index TOTA L STO C K H O L DE R R E T U R N O F 13 0 % S I N C E I N C E P T I O N (1 ) D R I V E N BY S U P E R I O R S E C U R I T Y S E L E C T I O N A N D S O P H I ST I C AT ED R I S K M I T I G AT IO N ST R AT E GI ES Deliver
Slide 7: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 7 $14.9 BILLION PORTFOLIO AS OF JUNE 30, 2015 ($ billions) (1) For additional detail on the portfolio, see appendix slides 18-22. (2) Commercial consists of senior mezzanine debt. (3) Assets in “Rates” include Agency RMBS,
Slide 8: Portfolio Performance and Hedging
Portfolio Performance and Hedging 8 Q 2 - 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) Represents estimated percentage change in book value and ne
Slide 9: Conduit Update
$186 $873 $722 $973 $1,129 $978 $22 $222 $694 $438 $579 $646 $642 $356 $575 $493 $2,499 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $0 $500 $1,000 $1,500 Q1-2014 Q2-2014 Q3-2014 Q4-2014 Q1-2015 Q2-2015 Securitized 2013 Q2-2015 Locked Settled Securitized Conduit Update • Completed two securitizations
Slide 10: MSR and Commercial Real Estate Update
• Subsequent to quarter-end, added MSR through bulk acquisition • On track to add 5-10 new flow relationships by year-end • Personnel and infrastructure requirements to support strategy substantially in place • Healthy pipeline developing • Significant opportunities in marketplace – Returns remain a
Slide 11: Attractive Returns With Lower Risk
3.8x 3.2x 3.0x 3.3x 6.8x 6.9x 6.4x 6.5x 0.0x 2.0x 4.0x 6.0x 8.0x 2012 2013 2014 2015-YTD 2012 2013 2014 2015-YTD 6.1% 8.1% 7.6% 8.6% 16.9% 15.0% 11.2% 13.1% 0.0% 5.0% 10.0% 15.0% 20.0% 2012 2013 2014 2015-YTD 2012 2013 2014 2015-YTD -1.7% 1.8% -1.0% -1.7% -9.4% -11.7% -8.2% -7.4% -15.0% -10.0% -5.0%
Slide 12: Appendix
Appendix
Slide 13: Return on Book Value
Return on Book Value 13 (1) Return on book value for six-month period ended June 30, 2015 is defined as the decrease in book value from December 31, 2014 to June 30, 2015 of $0.29 per share, plus dividends declared of $0.52 per share, divided by December 31, 2014 book value of $11.10 per share. Retu
Slide 14: Financial Performance
DIV IDENDS (1) Financial Performance 14 COMPREHENSIVE INCOME BOOK VALUE AND DIV IDEND PER SHARE (1) GAAP NET INCOME (LOSS) (1) Historical dividends may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share, not G
Slide 15: Operating Performance
Operating Performance 15 (In millions, except for per share data) Core Earnings Realized Gains Unrealized MTM Q1-2015 Financials Core Earnings Realized Gains Unrealized MTM Q2-2015 Financials Interest income $163.0 $ - $ - $163.0 $152.5 $ - $ - $152.5 Interest expense 33.5 - - 33.5 35.0 - - 35.0 Net
Slide 16: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation (In thousands, except for per share data) Three Months Ended March 31, 2015 Three Months Ended June 30, 2015 Reconciliation of GAAP to non-GAAP Information Core Earnings: Net income $94,793 $221,501 Adjustments for non-core earnings: Gain on sale of securities an
Slide 17: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 17 AGENCY RMBS CPR(3) AGENCY PORTFOLIO YIELDS AND METRICS (1) Securities collateralized by loans of less than or equal to $175K, but more than $85K. (2) Securities collateralized by loans of less than or equal to $85K. (3) Agency weighted average 3-month Constant Prepaymen
Slide 18: Rates: Agency RMBS
Rates: Agency RMBS 18 As of June 30, 2015 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed 3.0-3.5% 1,077 1,115 10.9% 1,141 3.5% 6 4.0-4.5% 5,010 5,401 52.5% 5,388 4.2% 22 ≥ 5.0% 628 713 6.9% 680 5.5%
Slide 19: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 19 As of Sept. 30, 2014 As of Dec. 31, 2014 As of Mar. 31, 2015 As of June 30, 2015 Fair Value ($M) $498.5 $452.0 $410.2 $437.6 Unpaid Principal Balance ($M) $45,526.8 $44,949.1 $43,974.9 $42,811.3 Weighted Average Coupon 3.9% 3.9% 3.9% 3.9% Original FICO Score 730 7
Slide 20: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 20 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 21: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 21 As of June 30, 2015 Senior Bonds Mezzanine Bonds Total P&I Portfolio Characteristics: Carrying Value ($M) $1,904.7 $795.1 $2,699.8 % of Non-Agency Portfolio 71% 29% 100% Average Purchase Price(1) $57.24 $76.78 $62.99 Average Coupon 2.65% 2.70% 2.66% Weighted Average Market
Slide 22: Repo and FHLB Financing
Repo and FHLB Financing(1) 22 (1) As of June 30, 2015. (2) Excludes FHLB membership and activity stock totaling $125.3 million as of June 30, 2015. Repo and FHLB Collateral(2) Repo FHLB Total ($M) Available–for-sale securities, at fair value $10,284.5 $2,268.6 $12,553.1 Derivative asset, at fair val
Slide 23: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Payers Hedging Repo and FHLB Advances 2016 $4.2 0.583% 0.282% 1.10 2017 $2.4 0.864% 0.281% 2.09 2018 $0.8 1.165% 0.280% 2.65 2019 $0.3 1.730% 0.278% 3.94 2020 and after $2.8 1.944% 0.279% 7.62 $10.5
Slide 24: Interest Rate Swaptions
Interest Rate Swaptions(1) 24 (1) As of June 30, 2015. Option Underlying Swap Swaption Expiration Cost ($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 $18.0 $14.5 4.36 $5,600 2.75%
Slide 25: Overview of Two Harbors Team
EXECUTIVE OFFICERS Overview of Two Harbors Team 25 CHIEF F INANCIAL OFFICER BRAD FARRELL • Most recently served as Two Harbors’ Controller from 2009 to 2011 • Previously Vice President and Executive Director of Financial Reporting at GMAC ResCap from 2007 to 2009 and held financial roles at XL Capit
Slide 26: Overview of Pine River Capital Management
EXPERIENCED, COHESIVE TEAM (3) ESTABLISHED INFRASTRUCTURE GLOBAL ASSET MANAGEMENT F IRM Overview of Pine River Capital Management • Eighteen partners with average of 23 years experience • Approximately 500 total employees, including 114 investment professionals • Historically low attrition • Strong
Slide 27: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Q2 2015 Earnings Presentation on 6ix