Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2012 Earnings Presentation
22 slides from Two Harbors Investment's earnings presentation, May 14, 2012
Slide 1: Two Harbors Investment Corp. First Quarter 2012 Investor Presentation
Two Harbors Investment Corp. First Quarter 2012 Investor Presentation
Slide 2: Safe Harbor Statement
1 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 an
Slide 3: Our Mission Guides Us
2 Our Mission Guides Us Our mission is to be recognized as the industry-leading hybrid mortgage REIT. We’ll accomplish this goal through the following: ▪ Superior portfolio construction and fluid capital allocation through rigorous security selection and credit analysis ▪ Unparalleled risk managemen
Slide 4: Total Stockholder Return Since Inception
85% 95% 105% 115% 125% 135% 145% 155% 10/29/2009 4/29/2010 10/29/2010 4/29/2011 10/29/2011 4/29/2012 TWO Hybrid mREITs SPXT 10/29/09 4/29/10 10/29/10 4/29/11 10/29/11 4/29/12 Total Stockholder Return Since Inception 3 55% 30% 34% (1) The term “return on book value” means (i) the change in Two Harbor
Slide 5: Market Opportunity for Two Harbors
4 Market Opportunity for Two Harbors Two Harbors is well positioned to create value for stockholders: ▪ NYSE-listed hybrid mortgage REIT investing in residential mortgage and housing sectors ▪ Formed in 2009 - new REIT with veteran RMBS team and state-of-the-art analytics ▪ Twenty-fold increase in m
Slide 6: Two Harbors' Competitive Advantages
Two Harbors’ Competitive Advantages Disciplined Asset Selection: We extensively analyze loans underlying the RMBS, including loan size, property type, maturity, prepayment characteristics and borrower credit profiles. Similarly, on residential properties we analyze geographical fit, discount to re
Slide 7: Our Strategic Focus Areas
6 Our Strategic Focus Areas We look for opportunities to deploy capital where the greatest risk-adjusted returns can be derived. ▪ Agency: Well positioned to capitalize on reduced competition for Agency assets − Prepayment protection stories offer value − Hedging costs at historic lows − Policy unce
Slide 8: Diversification into Residential Real Properties
7 Diversification into Residential Real Properties Optimizing Stockholder Value Through Business Diversification ▪ Market opportunity is attractive for residential real properties ― Targeting properties at significant discount to replacement cost ― Working to create scale in selected markets ▪ Lever
Slide 9: Fluid Asset Allocation Drives Performance
Fluid Asset Allocation Drives Performance 8 (1) The first quarter 2012 dividend may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share, not GAAP earnings. The annualized dividend yield on the company’s common
Slide 10: Security Selection Matters
9 Security Selection Matters (1) Home Equity Conversion Mortgage loans (or “HECM”) are loans that allow the homeowner to convert home equity into cash collateralized by the value of their home. (2) Securities collateralized by loans of less than or equal to $175K, but more than $85K. (3) Securities
Slide 11: Sophisticated Risk Management Approach
10 Sophisticated Risk Management Approach Funding and Liquidity Diversified and Extended Non-Agency Strategy Credit Risk Management Agency Strategy Interest Rate Hedging Focus on book value protection Minimal impact to equity for 100bps rises in interest rates Daily monitoring of interest rate
Slide 12: Illustrative Hedging Profile
Illustrative Hedging Profile 11 < 0.5% 0.5% – 1.0% > 1.0% Impact to Portfolio Hedging with “Swaps Only” -$5.9 -$4.4 -$2.9 -$1.5 $0.0 $1.5 $2.9 $4.4 $5.9 -$12.0 -$8.0 -$4.0 $0.0 $4.0 $8.0 -200 -150 -100 -50 0 50 100 150 200 G ain s/ L os se s ($ ) Basis Points Total Hedging Gains/Losses FNMA 4.5 Gene
Slide 13: Attractive Returns With Lower Risk
12 Attractive Returns With Lower Risk Attractive & Comparable Dividend Yield1… … With Lower Leverage2… … Less Interest Rate Exposure 3 … … And Less Prepayment Risk 4 4.5x 7.3x 3.7x 6.2x – 2.0x 4.0x 6.0x 8.0x 5.0% 11.0% 5.0% 16.9% 5.6% 19.4% 5.2% 17.3% – 10.0% 20.0% 30.0% 15.8% 13.9% – 5.0% 10.0% 15.
Slide 14: For further information, please contact
13 For further information, please contact: Christine Battist Investor Relations Two Harbors Investment Corp. 612.629.2507 Christine.Battist@twoharborsinvestment.com Contact Information Anh Huynh Investor Relations Two Harbors Investment Corp. 212.364.3221 Anh.Huynh@twoharborsinvestment.com
Slide 15: Appendix
Appendix
Slide 16: Portfolio Composition as of March 31, 2012
15 Portfolio Composition as of March 31, 2012 Agency: Vintage & Prepayment Protection Q4-2011 Q1-2012 $85K Max Pools1 39% 38% HECM2 19% 17% High LTV3 4% 11% Seasoned (2005 and prior vintages)4 10% 10% Other Low Loan Balance Pools5 16% 10% Prepayment protected 6% 7% Low FICO6 -% 4% 2006 & subsequent
Slide 17: Agency Securities as of March 31, 2012
16 Agency Securities as of March 31, 2012 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed ≤ 4.5% $ 2,917 $ 3,130 41.9% $ 3,118 4.2% 8 5.0-6.0% 1,084 1,201 16.1% 1,177 5.4% 33 ≥ 6.5% 111 128 1.7% 126
Slide 18: Non-Agency Securities as of March 31, 2012
17 Non-Agency Securities as of March 31, 2012 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $1,564 $376 $1,940 % of Non-Agency Portfolio 80.6% 19.4% 100.0% Average Purchase Price $50.89 $56.34 $51.94 Average Coupon 1.9% 1.1% 1.8% Collateral Attributes Ave
Slide 19: Subprime Senior Bond - HEAT 2006-3 2A4
Pays sequentially after the A3 is fully paid, expected to be in early 2014 Receives protection from credit losses from the subordinate bonds and ongoing excess interest Pays a coupon of LIBOR + 0.31% Wells Fargo & SPS as servicers A3 38.6%-100% $27M Current Face 1 Yr WAL1 Discount Subprime S
Slide 20: Financing and Hedging Strategy
March 31, 2012 Option Underlying Swap Swaption Expiration Cost ($M) Fair Value ($M) Average Months to Expiration Notional Amount ($M) Average Fixed Pay Rate Average Receive Rate Average Term (Years) Payer < 6 Months $ 14 $ 1 5.84 $ 1,800 3.06% 3M Libor 4.0 Payer ≥ 6 Months 31 29 16.40 2,500 3.73% 3M
Slide 21: Investment Team
20 William Roth − Also serves as Partner of Pine River Capital Management − 31 years in mortgage securities market, including at Salomon Brothers and Citi; Managing Director in proprietary trading group managing MBS and ABS portfolios Investment Team Brad Farrell − Most recently served as Two Harbor
Slide 22: Overview of Pine River Capital Management
21 Overview of Pine River Capital Management Global multi-strategy asset management firm providing comprehensive portfolio management, transparency and liquidity to institutional and high net worth investors Founded June 2002 with offices in New York, London, Beijing, Hong Kong, San Francisco and
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