Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2016 Earnings Presentation
21 slides from Two Harbors Investment's earnings presentation, Nov 29, 2016
Slide 1: Third Quarter 2016 Investor Presentation
Third Quarter 2016 Investor Presentation
Slide 2: Safe Harbor Statement
Safe Harbor Statement F O R W A R D - L O O K I N G S T A T E M EN T S 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, estimate
Slide 3: Two Harbors Investment Corp. Overview
Two Harbors Investment Corp. Overview (1) LEADING HYBRID MORTGAGE REIT PROVIDING STRONG RISK - ADJUSTED RETURNS 3 (1) Except as otherwise indicated in this presentation, reported data is as of or for the period ended September 30, 2016. OVERVIEW PROVEN STRATEGY • Equity market capitalization of appr
Slide 4: Delivering Results
-20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% 10/29/2009 9/29/2010 8/29/2011 7/29/2012 6/29/2013 5/29/2014 4/29/2015 3/29/2016 TWO BBG REIT MTG Index Delivering Results 4 (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through September 30, 2
Slide 5: Key Areas of Focus
Key Areas of Focus INCREASE EARNINGS POWER AND SIMPLIFY BUSINESS MODEL • Continue to thoughtfully manage Agency portfolio and build out MSR position • Capitalize on tailwinds supporting non-Agency • Increase capital allocated to commercial strategy • Deploy capital to maximize returns ― On track to
Slide 6: Diversified Financing Profile
Diversified Financing Profile 6 REPURCHASE AGREEMENTS • Repo markets functioning without interruption • Outstanding borrowings of $10.6 billion with 22 active counterparties; 31 total counterparties • $441.8 million outstanding with direct lending counterparty FINANCING FOR MSR • Added $30 million r
Slide 7: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 7 $17.0 BILLION PORTFOLIO AS OF SEPTEMBER 30, 2016 (1) For additional detail on the portfolio, see Appendix slides 14-20. (2) Commercial consists of senior and mezzanine commercial real estate debt and related instruments.
Slide 8: Rates Strategy
Rates Strategy 8 • Maintain low interest rate exposure • Focus on preserving book value and income generation • Agency pools combined with MSR provides attractive returns with less risk ― Additional benefits from increased MSR yield and float income in slowing prepayment environment THIRD QUARTER AC
Slide 9: Credit Strategy
Credit Strategy 9 LEGACY NON-AGENCY RMBS • Strong tailwinds for residential credit driving greater long- term opportunity for portfolio ― Employment improving ― Housing prices increasing ― Affordability high • Continue to reduce credit reserve; released over $400 million in the past 3 years ― Expect
Slide 10: Commercial Real Estate Market Overview
SIGNIFICANT OPPORTUNIT Y • Commercial real estate loan market exceeds $3.0 trillion, with over $1.5 trillion maturing in the next several years(1) ― Additional borrowing needs are being driven by increased sale transaction volumes • Strong fundamentals ― Long-term real estate valuations compare favo
Slide 11: Commercial Real Estate Strategy
• Aggregate portfolio carrying value of $1.1 billion at September 30, 2016 ― Twenty-two senior and six mezzanine assets • Weighted average stabilized loan-to-value (LTV) of 65.1%(1); weighted average spread of LIBOR plus 482 basis points • Tremendous opportunity for lending; strong pipeline of loans
Slide 12: Attractive Returns With Lower Risk
11.2% 10.3% 11.3% 11.0% 13.6% 11.9% 13.0% 12.0% 0.0% 6.0% 12.0% 18.0% 2013 2014 2015 2016-YTD 2013 2014 2015 2016-YTD …LESS INTEREST RATE R ISK (3 ) . . . Attractive Returns With Lower Risk 12 AT T R AC T I VE & C O M PA R A BLE D I V I D E ND Y I E L D (1 ) …WITH LOWER LEVERAGE (2 ) . . . SUPERIOR
Slide 13: Appendix
Appendix
Slide 14: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 14 AGENCY PORTFOLIO YIELDS AND METRICS AGENCY RMBS CPR(1) (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 15: Rates: Agency RMBS
Rates: Agency RMBS 15 As of September 30, 2016 Par Value ($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% $7,251 $7,597 49.9 % $7,563 3.1 % 5 4.0-4.5% 3,381 3,731 100.0 % 3,636 4.2 % 39 ≥ 5.0% 484 555
Slide 16: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 16 As of June 30, 2016 As of September 30, 2016 Fair value ($M) $427.8 $455.6 Unpaid principal balance ($M) $55,622.0 $55,080.9 Weighted average coupon 3.9 % 3.9 % Original FICO score(2) 750 757 Original LTV 75 % 72 % 60+ day delinquencies 0.9 % 0.3 % Net servicin
Slide 17: Credit: Non-Agency MBS Metrics
Credit: Non-Agency MBS Metrics 17 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes MBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for wei
Slide 18: Credit: Non-Agency MBS
Credit: Non-Agency MBS 18 As of September 30, 2016 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,193.0 $650.0 $1,843.0 % of non-Agency portfolio 64.7 % 35.3 % 100.0 % Average purchase price(1) $53.96 $68.40 $59.05 Average coupon 2.9 % 2.3 % 2.7 % Weighted a
Slide 19: Commercial Real Estate Assets
Commercial Real Estate Assets (1) Cash coupon does not include origination or exit fees. (2) Yield includes net origination fees and exit fees, but does not include future fundings. (3) Initial LTV considers the original appraisal at the time of origination. (4) Stabilized LTV considers the prospect
Slide 20: Commercial Real Estate Assets
Commercial Real Estate Assets (1) Cash coupon does not include origination or exit fees. (2) Yield includes net origination fees and exit fees, but does not include future fundings. (3) Initial LTV considers the original appraisal at the time of origination. (4) Stabilized LTV considers the prospect
Slide 21: (1) Data as of June 30, 2016, except where noted.
(1) Data as of June 30, 2016, except where noted.
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