Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2016 Earnings Presentation
28 slides from Two Harbors Investment's earnings presentation, May 4, 2016
Slide 1: First Quarter 2016 Earnings Call
May 5 , 2016 First Quarter 2016 Earnings Call
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(1) QUARTERLY F INANCIAL RESULTS • Core Earnings(2) of $71.8 million, or $0.21 per share • Comprehensive Loss of $67.6 million, or $0.19 per share • Total return on book value of (1.8%)(3) – Cash dividend of $0.23 per share • Repurchased 8.0 million shares of common stock – Average
Slide 4: Business Overview
Business Overview COMMERCIAL REAL ESTATE • Closed on three assets with an aggregate carrying value of $98.3 million • Opportunity attractive MORTGAGE SERVIC ING RIGHTS • Portfolio of $55.3 billion in unpaid principal balance (UPB) • Added four MSR flow sellers • Closed bulk MSR acquisition MORTGAGE
Slide 5: Market and Policy Update
Market and Policy Update MACRO CONSIDERATIONS • Interest rates fell as Fed commentary expressed caution • Home price appreciation continued – CoreLogic Home Price Index up 6.7% on rolling 12-month basis(1) • Stable employment data – Unemployment rate remained low; 5.0% in March 2016(2) – Labor force
Slide 6: Book Value
(Dollars in millions, except per share data) Q4-2015 Book Value Q4-2015 Book Value per share Q1-2016 Book Value Q1-2016 Book Value per share Beginning stockholders’ equity $3,772.7 $10.30 $3,576.6 $10.11 GAAP Net Income: Core Earnings, net of tax 72.1 71.8 Realized gains, net of tax 15.1 25.5 Unreal
Slide 7: Core Earnings Summary
(Dollars in millions) Q4-2015 Q1-2016 Variance ($) Variance (%) Interest income $133.6 $130.8 ($2.8) (2.1%) Interest expense $36.6 $41.4 ($4.8) (13.1%) Net interest income $97.0 $89.4 ($7.6) (7.9%) Loss on swaps and swaptions ($12.6) ($6.2) $6.4 50.7% Gain on other derivatives $6.0 $5.4 ($0.6) (10.9
Slide 8: Financing Profile
Financing Profile 8 FINANCING FOR COMMERCIAL REAL ESTATE ASSETS • Increased financing capabilities and flexibility • Two $250 million financing facilities currently in place; one facility added in the first quarter • Debt-to-equity of 1.3x(1) FEDERAL HOME LOAN BANK OF DES MOINES • Outstanding secure
Slide 9: Portfolio Performance and Hedging
Portfolio Performance and Hedging 9 Q1-2016 PERFORMANCE HIGHLIGHTS (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 with the portfolio's
Slide 10: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 10 $12.2 BILLION PORTFOLIO AS OF MARCH 31, 2016 (1) For additional detail on the portfolio, see Appendix slides 18-24. (2) Commercial consists of senior and mezzanine commercial real estate debt and related instruments. (3
Slide 11: Commercial Real Estate Update
• Aggregate portfolio carrying value of $744.3 million at March 31, 2016 ― Fourteen senior and six mezzanine assets • Weighted average initial loan-to-value (LTV) of 72.9%; weighted average spread of LIBOR plus 496 basis points • Anticipate capital allocation in 2016 to exceed initial target of $500
Slide 12: MSR and Conduit Update
MSR and Conduit Update(1) 12 (1) Data for the three months ended March 31, 2016, except where noted. (2) Gross yield includes servicing income, net of sub-servicing expense and amortization. (3) Total investors considers only new issue buyers. MORTGAGE SERVICING RIGHTS • 10 active flow sale relation
Slide 13: Appendix
Appendix
Slide 14: Return on Book Value
Return on Book Value 14 (1) Return on book value for three-month period ended March 31, 2016 is defined as the decrease in book value from December 31, 2015 to March 31, 2016 of $0.41 per share, plus dividends declared of $0.23 per share, divided by December 31, 2015 book value of $10.11 per share.
Slide 15: Financial Performance
$88.9 $2.7 ($92.8) ($3.2) ($67.6) 8.7% 0.3% (9.4%) (0.3%) (7.8%) -10% -5% 0% 5% 10% 15% ($150) ($100) ($50) $0 $50 $100 $150 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Comp. Income ($M) Comp. Income ROAE (%) $11.08 $10.81 $10.30 $10.11 $9.70 $0.26 $0.26 $0.26 $0.26 $0.23 $6.00 $9.00 $12.00 Q1-2015 Q2-2
Slide 16: Operating Performance
Operating Performance (In millions, except for per share data) Core Earnings(1) Realized Gains Unrealized MTM Q4-2015 Financials Core Earnings(1) Realized Gains Unrealized MTM Q1-2016 Financials Interest income $133.6 $ - $ - $133.6 $130.8 $- $- $130.8 Interest expense 36.6 - - 36.6 41.4 - - 41.4 Ne
Slide 17: 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 December 31, 2015 Three Months Ended March 31, 2016 Reconciliation of net income (loss) to Core Earnings: Net income (loss) $210,706 ($88,930) Adjustme
Slide 18: Rates: Agency RMBS Metrics
30-Year Fixed 3-3.5% 32.4% 30-Year Fixed 5% & above 7.5% IO & Inverse IO 4.6% Other 3.3% Hybrid ARMs 0.5% Rates: Agency RMBS Metrics 18 AGENCY RMBS CPR(1) AGENCY PORTFOLIO YIELDS AND METRICS (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2)
Slide 19: Rates: Agency RMBS
Rates: Agency RMBS 19 As of Mar. 31, 2016 Par Value ($M) Market Value ($M) % Lower Balance/HARP(1) Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 3.0-3.5% $2,529 $2,650 -% $2,639 3.5% 2 4.0-4.5% 3,863 4,220 81.2% 4,157 4.2% 32 ≥ 5.0% 538 610 73.7% 581 5
Slide 20: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 20 As of Dec. 31, 2015 As of Mar. 31, 2016 Fair value ($M) $493.7 $446.2 Unpaid principal balance ($M) $51,386.1 $55,344.3 Weighted average coupon 3.9% 3.9% Original FICO score 751 751 Original LTV 73% 70% 60+ day delinquencies 1.1% 0.9% Net servicing spread 27.4 bas
Slide 21: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 21 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 22: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 22 As of March 31, 2016 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,172.3 $397.5 $1,569.8 % of non-agency portfolio 74.7% 25.3% 100.0% Average purchase price(1) $54.21 $69.98 $58.20 Average coupon 3.1% 2.4% 2.9% Weighted average ma
Slide 23: 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 24: Commercial Real Estate Assets (Continued)
Commercial Real Estate Assets (Continued) (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
Slide 25: Repo and FHLB Financing
Repo and FHLB Financing(1) 25 (1) As of March 31, 2016. (2) Excludes FHLB membership and activity stock totaling $167.9 million. (3) Weighted average of 35 days to maturity. (4) Includes advances of $2.5 billion with original maturities of 20 years. Repo and FHLB Collateral(2) Repo FHLB Total ($M) A
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% 0.624% 0.5 2017 2.4 0.765% 0.620% 1.3 2018 0.3 0.984% 0.617% 1.8 2019 0.3 1.283% 0.623% 3.2 2020 and after 1.8 1.797% 0.622% 7.5 $6.5 1.013% 0.
Slide 27: Interest Rate Swaptions
Interest Rate Swaptions(1) 27 (1) As of March 31, 2016. Option Underlying Swap Swaption Expiration Cost ($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 $12.0 $3.7 3.7 $1,500 3.25% 3M
Slide 28: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Q1 2016 Earnings Presentation on 6ix