Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2017 Earnings Presentation
28 slides from Two Harbors Investment's earnings presentation, Aug 7, 2017
Slide 1: Second Quarter 2017 Earnings Call
AUGUST 8, 2017 Second Quarter 2017 Earnings Call
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: Quarterly Summary
Quarterly Summary(1) • Comprehensive Income of $85.9 million, or $0.25 per common share • Core Earnings(3) of $97.5 million, or $0.28 per common share • Formed Granite Point Mortgage Trust Inc. (“Granite Point”) and contributed portfolio of commercial real estate assets to Granite Point, concurrent
Slide 4: Strategic Overview
Strategic Overview 4 COMMITTED TO MAXIMIZING STOCKHOLDER RETURN Attractive investment opportunities in target assetsMore efficient business model Sophisticated approach to risk management Opportunistic use of capital structure ü POSITIONED TO DELIVER STRONG RETURNS AND STABLE BOOK VALUE THROUGH A VA
Slide 5: Book Value Rollforward
(Dollars in millions, except per share data) Q2-2017 Book Value Q2-2017 Book Value per share YTD-2017 Book Value YTD-2017 Book Value per share Beginning common stockholders’ equity $3,458.8 $9.91 $3,401.1 $9.78 GAAP Net Income: Core Earnings, net of tax 101.8 196.8 Dividend declaration - preferred (
Slide 6: Core Earnings Summary
(Dollars in millions) Q1-2017 Q2-2017 Variance ($) Interest income $191.6 $208.6 $17.0 Interest expense 75.4 90.8 (15.4) Net interest income 116.2 117.8 1.6 Loss on swaps and swaptions (7.9) (2.6) 5.3 Gain on other derivatives 3.8 3.3 (0.5) Servicing income, net of amortization on MSR 13.2 19.4 6.2
Slide 7: Illustrative Pro Forma Balance Sheet as of June 30, 2017
Illustrative Pro Forma Balance Sheet as of June 30, 2017 7 (unaudited, in thousands) Consolidated Standalone Two Harbors Granite Point Two Harbors Investment Corp. Mortgage Trust Inc. Investment Corp. ASSETS Available-for-sale securities, at fair value $ 16,427,710 $ 12,782 $ 16,414,928 Commercial r
Slide 8: Tax Considerations for Distribution of Granite Point Shares
Tax Considerations for Distribution of Granite Point Shares 8 INTEND TO DISTRIBUTE GRANITE POINT STOCK VIA A SPECIAL DIVIDEND • Goal is to distribute cash dividends that equal Two Harbors’ earnings and profit in 2017; may result in special cash dividend later in the year, but expect amount to be rel
Slide 9: Diversified Financing Profile
Diversified Financing Profile 9 OPTIMIZING FINANCING STRUCTURE REPURCHASE AGREEMENTS • Outstanding borrowings of $13.3 billion with 25 active counterparties; 32 total counterparties • Repo markets functioning efficiently for RMBS • Repo balance includes the consolidation of Granite Point financing f
Slide 10: Portfolio Composition
HISTORICAL CAPITAL ALLOCATIONPORTFOLIO COMPOSITION(1) Portfolio Composition 10 $19.5 BILLION PORTFOLIO AS OF JUNE 30, 2017 (1) For additional detail on the portfolio, see Appendix slides 19-24. (2) Commercial consists of the consolidated financial results of Granite Point and its subsidiaries, which
Slide 11: Portfolio Performance Q2-2017
Portfolio Performance 11 Q2-2017 PERFORMANCE SUMMARY (1) “Legacy” non-Agency RMBS includes non-Agency bonds issued up to and including 2009. “New issue” non-Agency MBS includes bonds issued after 2009. (2) Cost of funds includes interest spread expense associated with the portfolio’s interest rate s
Slide 12: Rates Update
Rates Update 12 PORTFOLIO SUMMARY DELIVERING RESULTS THROUGH VARIETY OF RATE ENVIRONMENTS • Pairing MSR with Agency RMBS results in a portfolio that has higher return potential with lower mortgage spread risk and lower overall leverage – Mitigates impact to book value in spread widening scenario • U
Slide 13: Credit Update
Credit Update 13 • Home prices continue to improve; CoreLogic Home Price Index up 6.7% on a rolling 12-month basis(1) – Supported by affordability, low housing supply and strong demand • Believe future performance will continue to be strong, driven by increasing prepayments, lower delinquencies, def
Slide 14: Appendix
E oo ——— = Appendix TWO HARBORS: nt Corp.
Slide 15: Return on Book Value
Return on Book Value 15 (1) Return on book value for the three-month period ended June 30, 2017 is defined as the decrease in book value per common share from March 31, 2017 to June 30, 2017 of $0.04 per common share, plus dividends declared of $0.26 per common share, divided by March 31, 2017 book
Slide 16: Financial Performance
Book Value ($) Dividend Declared ($) $12.00 $10.00 $8.00 $6.00 Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 $9.83 $10.01 $9.78 $9.91 $9.87 $0.23 $0.23 $0.24 $0.25 $0.26 Comp. Income ($M) Comp. Income ROACE (%) $150 $100 $50 $0 -$50 -$100 20% 10% 0% -10% -20% Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 $122.3
Slide 17: Operating Performance
Operating Performance Q1-2017 Q2-2017 (In millions, except for per common share data) Core Earnings(1) Realized Gains (Losses) Unrealized MTM Total Core Earnings(1) Realized Gains (Losses) Unrealized MTM Total Interest income $191.6 $— $— $191.6 $208.6 $— $— $208.6 Interest expense 75.4 — — 75.4 90.
Slide 18: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation(1) Reconciliation of GAAP to non-GAAP Information Three Months Ended Three Months Ended (In thousands, except for per common share data) March 31, 2017 June 30, 2017 Reconciliation of Comprehensive income to Core Earnings: Comprehensive income $145,747 $85.959 Ad
Slide 19: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 19 AGENCY PORTFOLIO YIELDS AND METRICS AGENCY RMBS CPR(1) (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 20: Rates: Agency RMBS
Rates: Agency RMBS 20 As of June 30, 2017 Par Value ($M) Market Value ($M) % Prepay Protected(1) Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 3.0-3.5% $4,343 $4,477 74.8% $4,538 3.5% 10 4.0-4.5% 8,097 8,674 92.9% 8,670 4.2% 21 ≥ 5.0% 491 548 84.2% 531
Slide 21: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 21 As of March 31, 2017 As of June 30, 2017 Fair value ($M) $747.6 $898.0 Unpaid principal balance ($M) $68,128.0 $84,814.2 Weighted average coupon 3.9% 3.9% Original FICO score(2) 755 754 Original LTV 73% 73% 60+ day delinquencies 0.2% 0.2% Net servicing spread 2
Slide 22: Credit: Non-Agency MBS Metrics
Credit: Non-Agency MBS Metrics 22 NON-AGENCY PORTFOLIO COMPOSITIONNON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes MBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weig
Slide 23: Credit: Non-Agency MBS
Credit: Non-Agency MBS 23 As of June 30, 2017 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,418.4 $832.2 $2,250.6 % of non-Agency portfolio 63.0% 37.0% 100.0% Average purchase price(1) $57.23 $66.12 $60.52 Average coupon 2.9% 2.2% 2.6% Weighted average mark
Slide 24: Granite Point's Commercial Real Estate Portfolio
Granite Point’s Commercial Real Estate Portfolio(1) (1) Due to the company’s controlling ownership interest in Granite Point, the company consolidates Granite Point on its financial statements and reflects noncontrolling interest for the portion of equity and comprehensive income not attributable to
Slide 25: Financing
Financing 25 (1) Weighted average of 2.9 years to maturity. (2) Includes FHLB advances of $2.4 billion with original maturities of 20 years. (3) Excludes FHLB membership and activity stock totaling $134.8 million. (4) Revolving credit facilities over-collateralized due to operational considerations.
Slide 26: Interest Rate Swaps
Maturities Notional Amounts ($B)(1) Average Fixed Pay Rate(2) Average Receive Rate(2) Average Maturity Years(2) Payers 2017 $1.5 0.771% 1.220% 0.3 2018 4.3 1.155% 1.223% 1.0 2019 0.4 1.283% 1.165% 1.9 2020 1.2 1.463% 1.209% 3.3 2021 and after 4.5 1.699% 1.235% 5.6 $11.9 1.322% 1.224% 2.7 Maturities
Slide 27: Interest Rate Swaptions
Interest Rate Swaptions 27 Option Underlying Swap Swaption Expiration Cost ($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 $43.7 $7.7 2.9 $5,025 2.35% 3M LIBOR 6.2 Total Payer $43.7
Slide 28: Two Harbors Investment Corp.
TWO HARBORS Investment Corp. AP vr Capa Managed Gonoany
Two Harbors Investment — Q2 2017 Earnings Presentation on 6ix