Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Presentation (March 2020)
21 slides from Two Harbors Investment's investor presentation, Mar 13, 2020
Slide 1: A Leading Residential Hybrid Mortgage REIT
TWO HARBORS INVESTMENT CORP. A Leading Residential Hybrid Mortgage REIT Investor Presentation March 13, 2020 1
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: First Quarter 2020 Executive Update
First Quarter 2020 Executive Update GLOBAL HEALTH PANDEMIC AND OTHER FACTORS CREATE CHALLENGING MARKET ENVIRONMENT • In response to very rapid and dramatic developments in the market, we have been focused on: ― Reducing our at-risk leverage; ― Raising our excess liquidity significantly; and ― Contin
Slide 4: Two Harbors Investment Corp. Overview
Two Harbors Investment Corp. Overview(1) LEADING RESIDENTIAL HYBRID MORTGAGE REIT $4.0 billion $5.0 billion $41.0 billion hybrid portfolio comprised of Rates market capitalization total stockholders’ equity and Credit strategies(2) 256% 10.4% total stockholder return since book value growth since ou
Slide 5: Key Reasons to Own Two Harbors Investment Corp.
Key Reasons to Own Two Harbors Investment Corp. Total Return Focused: Our primary goal is to drive attractive risk-adjusted returns for our stockholders. Book value preservation and growth is central to this objective. Dividend Considerations: Core Earnings is not a proxy for the earnings power
Slide 6: Book Value Growth Since Inception
Book Value Growth Since Inception(1) • We have grown our book value by 10.4% since our inception in 2009, compared to peer average of (28.3%) BOOK VALUE GROWTH BOOK VALUE OUTPERFORMANCE 20.0% 140% 10.4% 10.0% 120% 0.0% 100% (10.0%) 80% (20.0%) 60% (30.0%) (28.3%) (40.0%) 40% (72.0%) 20% Two Harbors
Slide 7: 2019 Total Return Outperformance
2019 Total Return Outperformance GENERATED STRONG BOOK VALUE APPRECIATION IN 2019 • Delivered 23.6% total annual return on book value(1) ― Change in book value of 10.9%, from $13.11 as of December 31, 2018 to $14.54 as of December 31, 2019(2) ― Annual dividend return of 12.7%(3) TOTAL RETURN ON BOOK
Slide 8: Portfolio Composition and Quarterly Activity
Portfolio Composition and Quarterly Activity PORTFOLIO COMPOSITION(1) PORTFOLIO ACTIVITY $41.0B PORTFOLIO AS OF DECEMBER 31, 2019 • Capital allocation was 78% Rates(3), 22% Credit(4) at December 31, 2019(5) Includes $33.4B settled positions in portfolio • Continued to rotate exposure out of higher c
Slide 9: Portfolio Coupon Positioning
Portfolio Coupon Positioning COMMENTARY HEDGED MORTGAGE PERFORMANCE(1) • Large position in 3% specified pools and TBAs 48 32 • MSR has the same risk characteristics as a short position in the current coupon, in this case 2.5% and 3.0% 16 coupons Ticks 0 -16 • The net position is short 2.5’s and long
Slide 10: Specified Pools and Prepayment Speeds
Specified Pools and Prepayment Speeds COMMENTARY 3-MONTH TBA SPEEDS VS. TWO CPR(2) 60 • Majority of specified pool positions in lower loan balances (including LLB, MLB and HLB), New York loans, and higher 50 loan-to-value (LTV)(1) 40 30 • Specified pool prepayments are typically much lower than (%)
Slide 11: Markets and Performance Overview - Credit
Markets and Performance Overview - Credit MARKET OVERVIEW NON-AGENCY UNIVERSE(2) 5.0% 2,400 Always Performing • Home price appreciation remains solid and Non-Performing 2,100 expectations are for slowly increasing home prices Re-Performing 1,800 MoM Change (3m Avg) 2.5% • Supply of single family hom
Slide 12: Risk Profile
Risk Profile LOW RISK EXPOSURES COMMON BOOK VALUE EXPOSURE TO CHANGES IN SPREADS(1) • Exposure to mortgage spreads and interest rates 6.0% 4.4% remains small 4.0% 2.4% 1.9% • Potential impact of (2.7%) of book value in 25 basis 2.0% point spread widening 0.0% • Potential impact of (2.4%) of book val
Slide 13: Outlook
Outlook GENERATING STRONG ECONOMIC RETURNS WITH LOWER VOLATILITY RATES STRATEGY - Combination of Agency RMBS and MSR • Expect capital allocation to this strategy to continue to increase • Current expected returns in low to mid double digits for Agency RMBS paired with MSR • Believe the combination o
Slide 14: a ail
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Slide 15: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics AGENCY PORTFOLIO PREPAYMENT PROTECTION(1) AGENCY PORTFOLIO AT-A-GLANCE 97.1% 98.4% % Prepay 100.0% 91.5% 88.4% 90.1% Market Value ($M) Protected(1) 80.0% 30-year fixed $27,509 99.6% 60.0% Other P&I(3) 133 0.3% 40.0% (4) 20.0% IOs and IIOs 205 -% 0.0% Total Agency $27,847 9
Slide 16: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 30-YEAR FIXED COUPON POSITIONING(2) MSR PORTFOLIO AT-A-GLANCE $800 $672 As of As of September December $600 30, 2019 31, 2019 $455 $400 $330 Fair value ($M) $1,652 $1,909 $207 $200 $61 Unpaid principal balance ($M) $165,333 $175,882 - < 3.75% 3.75% 4.25% 4.75% > 5
Slide 17: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics NON-AGENCY 60+ DAY DELINQUENCIES NON-AGENCY PORTFOLIO AT-A-GLANCE 25.0% Total P&I Bonds 19.2% Portfolio characteristics: 20.0% 18.7% 18.1% 18.3% 17.9% Carrying value ($M) $3,553.9 (2) 15.0% Weighted average purchase price $63.86 Weighted average coupon 2.8% 10.0
Slide 18: Financing
Financing $ in millions Repurchase Revolving Credit Term Notes Total Outstanding Outstanding Borrowings and Maturities(1) Agreements FHLB Advances Facilities Payable Convertible Notes Borrowings Percent (%) Within 30 days $ 5,305.9 $ 160.0 $ — $ — $ — $ 5,465.9 18.0% 30 to 59 days 6,300.4 — — — — 6,
Slide 19: Interest Rate Swaps
Interest Rate Swaps INTEREST RATE SWAPS Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity Years Payers 2020 3.6 1.806% 1.937% 0.8 2021 15.8 1.681% 1.910% 1.5 2022 2.6 1.911% 1.901% 2.7 2023 0.2 3.057% 1.910% 3.9 2024 and after 8.7 2.224% 1.935% 7.2 $ 30.9
Slide 20: Interest Rate Swaptions
Interest Rate Swaptions INTEREST RATE SWAPTIONS Option Underlying Swap Average Cost Fair Value Months to Notional Average Pay Average Average Term Swaption Expiration ($M) ($M) Expiration Amount ($M) Rate Receive Rate (Years) Purchase Contracts: Payer <6 Months $ 24.7 $ 16.1 3.2 $ 7,525 2.27% 3M LIB
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