Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q4 2011 Earnings Presentation
20 slides from Two Harbors Investment's earnings presentation, Mar 5, 2012
Slide 1: Two Harbors Investment Corp. Updated Fourth Quarter 2011 Investor Presentation
Two Harbors Investment Corp. Updated Fourth Quarter 2011 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: Two Harbors is Well-Positioned
2 Two Harbors is Well-Positioned NYSE-listed hybrid mortgage REIT investing in residential mortgage and housing sectors ▪ Formed in 2009 - new REIT with veteran RMBS team ▪ Our mission is to be recognized as the 'best in class' mortgage REIT ▪ Total shareholder return since inception of 50%1 ▪ Fifte
Slide 4: Market Opportunity for Two Harbors
3 Market Opportunity for Two Harbors The shifting landscape in the U.S. housing and mortgage markets creates opportunity: ▪ U.S. government is reducing its involvement in sector ▪ Banks adjusting portfolios due to new regulatory framework for capital and liquidity requirements ▪ Private capital, suc
Slide 5: Our Strategic Priorities
4 Our Strategic Priorities 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 uncer
Slide 6: Current RMBS Opportunity
5 Current RMBS Opportunity Source: Two Harbors estimates and the Federal Reserve. $0 $400 $800 $1,200 2012 2014 2016 2018 2020 US D $B GSE - FNMA and FHLMC Projected GSE Portfolio Run-off Macro Trends Continued “supply” will likely keep Agency spreads attractive. ― Fannie Mae and Freddie Mac are m
Slide 7: TWO's Competitive Advantages Drive Returns
TWO’s Competitive Advantages Drive Returns Core Strengths Capture Benefits of Hybrid Model: We seek out opportunities in Agency and non-Agency RMBS and believe this diversification allows us to better mitigate risks, including volatility in interest rates, prepayments, and credit risk. Opportuni
Slide 8: Fluid Asset Allocation Drives Performance
Fluid Asset Allocation Drives Performance 7 (1) ABX index represents ABX 06-2 AAA. (2) 2011 dividends 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
Slide 9: Investment Portfolio
Investment Portfolio 8 (1) Includes interest-only securities (“IOs”) and IIOs of $155 million as of December 31, 2011. (2) 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. Agency Bonds $5.
Slide 10: Security Selection Matters
9 Security Selection Matters (1) All figures and data on this slide are as of December 31, 2011. (2) Securities collateralized by loans with greater than or equal to 80% loan-to-value ratio. (3) Securities collateralized by loans of less than or equal to $175K, but more than $85K. (4) Securities col
Slide 11: 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 38.4%-100% $31M Current Face 1.1 Yr WAL1 Discount Subprime
Slide 12: Sophisticated Risk Management Approach
Sophisticated Risk Management Approach Hedging Funding and Liquidity Portfolio reflects low interest rate exposure Swaps/swaptions complement IO strategy Optional protection still in place – reduced premium at risk 11 Long-dated repos and non-Agency facility provide stability Maturities ov
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 4.4x 7.2x 4.5x 7.3x – 2.0x 4.0x 6.0x 8.0x 6.3% 17.4% 5.0% 11.0% 5.0% 16.9% 5.6% 19.4% – 10.0% 20.0% 30.0% 17.3% 15.2% – 5.0% 10.0% 15.
Slide 14: Contact Information
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: Agency Securities as of December 31, 2011
15 (1) Market value of IOs of $84 million and Agency Derivatives of $155 million as of December 31, 2011. Agency Securities as of December 31, 2011 Par Value ($K) Market Value ($K) % of Agency Portfolio Amortized Cost Basis ($K) Weighted Average Coupon Weighted Average Age (Months) 30-Year Mortgages
Slide 17: Non-Agency Securities as of December 31, 2011
Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($K) $932,867 $262,633 $1,195,500 % of Non-Agency Portfolio 78.0% 22.0% 100.0% Average Purchase Price $55.05 $58.19 $55.74 Average Coupon 2.3% 1.3% 2.0% Collateral Attributes Average Loan Age (months) 65 83 69 Aver
Slide 18: Financing and Hedging Strategy
December 31, 2011 Option Underlying Swap Swaption Expiration Cost ($K) Fair Value ($K) Average Months to Expiration Notional Amount ($K) Average Fixed Pay Rate Average Receive Rate Average Term (Years) Payer < 6 Months $16,147 $4 4.97 $ 1,600,000 3.22% 3M Libor 3.688 Payer ≥ 6 Months 13,523 5,631 12
Slide 19: Investment Team
18 William Roth − Also serves as Fixed Income Portfolio Manager for Pine River − 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 H
Slide 20: Overview of Pine River Capital Management
19 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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