Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2019 Earnings Presentation
19 slides from Two Harbors Investment's earnings presentation, May 16, 2019
Slide 1: A Leading Residential Hybrid Mortgage REIT: First Quarter 2019 Investor Presentation
T WO HA RBORS IN V E ST ME NT C ORP. A Leading Residential Hybrid Mortgage REIT First Quarter 2019 Investor Presentation 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: Two Harbors Investment Corp. Overview
Two Harbors Investment Corp. Overview(1) LEADING RESIDENTIAL HYBRID MORTGAGE REIT $3.7 billion $4.8 billion $27.2 billion hybrid portfolio comprised of Rates market capitalization total stockholders’ equity and Credit strategies(2) 201% 6.5% 33% lower book value volatility compared to total stockhol
Slide 4: Substantial Total Stockholder Return Outperformance
Substantial Total Stockholder Return Outperformance • Outperformed peer group by over 50% since our inception • Delivered total stockholder return of 201% during that time(1) ― Bloomberg REIT Mortgage Index total stockholder return of 148% over the same period of time(2) 220.0% 201% 190.0% 160.0% 14
Slide 5: Book Value Stability Since Inception
Book Value Stability Since Inception(1) • We have grown our book value by 6.5% since our inception in 2009 • Peer average over same time period was (27.1%) • 33% lower book value volatility since inception compared to mortgage REIT average BOOK VALUE GROWTH BOOK VALUE OUTPERFORMANCE 6.5% 140% 120% 1
Slide 6: Market Landscape and Outlook
Market Landscape and Outlook EXPECT STABILITY IN RATES AND FLATTER CURVE TO PERSIST RATES MARKET • More balanced Fed outlook; market shift from expecting rate increases to projecting stable-to-lower rates • Agency spreads tightened modestly; higher coupon Agencies and specified pools outperformed •
Slide 7: Portfolio Composition and Quarterly Activity
Portfolio Composition and Quarterly Activity PORTFOLIO COMPOSITION(1) PORTFOLIO ACTIVITY $27.2 BILLION PORTFOLIO AS OF MARCH 31, 2019 • Deployed capital raised in the quarter to MSR Non-Agency and Agencies, both in pool and TBA form $3.6b 30-year coupon breakdown • Expect TBA position to decrease in
Slide 8: Risk Profile
Risk Profile HEDGING ACROSS THE CURVE Common book value exposure to changes in rates(1) Net interest income exposure to changes in rates(2) +25 basis points (1.9 %) +25 basis points 2.3 % +50 basis points (5.1 %) +50 basis points 4.7 % -50 basis points — % -50 basis points (4.7 %) -25 basis points (
Slide 9: Strategic Overview
Strategic Overview ATTRACTIVE SCALABLE INVESTMENT OPPORTUNITY IN PAIRING AGENCY RMBS WITH MSR RATES STRATEGY - Combination of Agency RMBS and MSR • Expect returns in mid-double digits for Agency RMBS paired with MSR • Believe the combination of these two assets results in a higher return with a lowe
Slide 10: a all
a all _ is ae ST ee ee ——— theta i — Fen Te as } — b me — The as TWO HARBORS —— —— > = =
Slide 11: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics AGENCY PORTFOLIO YIELDS AND METRICS AGENCY PORTFOLIO COMPOSITION Hybrid ARMs and Realized Q4- At December Realized Q1- At March 31, IO & Inverse IO Other Portfolio Yield 2018 31, 2018 2019 2019 30-Year Fixed 1.1% 0.8% 5% & above Agency yield 3.3% 3.5% 3.6% 3.4% 8.8% Repo a
Slide 12: Rates: Agency RMBS
Rates: Agency RMBS As of March 31, % Prepay Amortized Cost Weighted Average Weighted Average 2019 Par Value ($M) Market Value ($M) Protected(1) Basis ($M) Coupon Age (Months) 30-Year fixed 3.0-3.5% $3 $3 100.0% $3 3.0% 50 4.0% 9,911 10,305 87.3% 10,317 4.0% 21 4.5% 8,499 8,998 100.0% 8,907 4.5% 16 ≥
Slide 13: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) As of December 31, 2018 As of March 31, 2019 Fair value ($M) $1,993.4 $2,014.4 Unpaid principal balance ($M) $163,102.3 $174,147.3 Weighted average coupon 4.1 % 4.1 % Average original FICO score(2) 752 751 Average original LTV 75 % 75 % 60+ day delinquencies 0.3 %
Slide 14: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics NON-AGENCY PORTFOLIO YIELDS AND METRICS NON-AGENCY PORTFOLIO COMPOSITION Realized Q4- At December Realized Q1- At March 31, Portfolio Yield 2018 31, 2018 2019 2019 Non-Agency: Loan Type December 31, 2018 March 31, 2019 Non-Agency yield 7.7% 7.0% 6.7% 6.6% Sub-pr
Slide 15: Credit: Non-Agency Securities
Credit: Non-Agency Securities As of March 31, 2019 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $2,885.5 $576.1 3,461.6 % of non-Agency portfolio 83.4 % 16.6 % 100.0 % Average purchase price(1) $61.46 $64.97 $62.04 Average coupon 3.3 % 3.2 % 3.3 % Weighted av
Slide 16: Financing
Financing $ in millions Repurchase Revolving Credit Total Outstanding Outstanding Borrowings and Maturities(1) Agreements FHLB Advances Facilities Convertible Notes Borrowings Percent (%) Within 30 days $ 4,852.5 $ — $ — $ — $ 4,852.5 22.8 % 30 to 59 days 3,996.9 312.5 — — 4,309.4 20.3 % 60 to 89 da
Slide 17: Interest Rate Swaps and Caps
Interest Rate Swaps and Caps INTEREST RATE SWAPS Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity Years Payers 2019 $4.2 1.781 % 2.716% 0.6 2020 3.6 1.806 % 2.674% 1.6 2021 9.2 2.138 % 2.683% 2.1 2022 2.5 2.002 % 2.654% 3.5 2023 and after 8.4 2.533 % 2.71
Slide 18: Interest Rate Swaptions
Interest Rate Swaptions Option Underlying Swap Average Average Cost Fair Value Months to Notional Average Pay Receive Average Swaption Expiration ($M) ($M) Expiration Amount ($M) Rate Rate Term (Years) Purchase Contracts: Payer <6 Months $2.1 $0.6 5.3 $700 3.09% 3M LIBOR 10.0 Total Payer $2.1 $0.6 5
Slide 19: Slide 19
Two Harbors Investment — Q1 2019 Earnings Presentation on 6ix