Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2015 Earnings Presentation
26 slides from Two Harbors Investment's earnings presentation, Aug 4, 2015
Slide 1: Second Quarter 2015 Earnings Call
August 5 , 2015 Second Quarter 2015 Earnings Call
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: Financial Summary and Business Overview
Financial Summary and Business Overview SOLID F INANCIAL RESULTS (1) • Total return on book value of 2.1% through the first six months of 2015(2) – Q2-2015 cash dividend of $0.26 per share • Comprehensive Income of $2.7 million – Return on average equity of 0.3%, or $0.01 per share • Generated Core
Slide 4: Market and Policy Update
Market and Policy Update MACROECONOMIC ENVIRONMENT & POLICY CONSIDERATIONS • Interest rate environment remains volatile – Conservatively positioned with respect to interest rates • Steady improvement in unemployment rates – 5.3% in June 2015 versus 6.1% in June 2014 • Home price appreciation continu
Slide 5: Book Value
(Dollars in millions, except per share data) Q2-2015 Book Value ($M) Q2-2015 Book Value per share YTD-2015 Book Value ($M) YTD-2015 Book Value per share Beginning stockholders’ equity $4,061.5 $11.08 $4,068.0 $11.10 Cumulative effect of adoption of new accounting principle (ASU 2014-13) n/a (3.0) Be
Slide 6: Taxable Income
Taxable Income(1) 6 DIV IDEND REQUIREMENTS ARE BASED ON REIT TAXABLE INCOME • Declared Q2-2015 dividends of $95.5 million, or $0.26 per share • Required to distribute 90% of REIT taxable income • Realized gains support dividend in the near-term – Distributed 76% of REIT taxable income year-to-date –
Slide 7: Core Earnings Summary
Q1-2015 Q2-2015 Variance ($) Variance (%) Interest Income $163.0 $152.5 ($10.5) (6.4%) Interest Expense $33.5 $35.0 ($1.5) (4.6%) Net interest income $129.5 $117.5 ($12.0) (9.2%) Loss on Swaps and Swaptions ($27.5) ($26.2) $1.3 5.0% Gain on other derivatives $7.7 $6.4 ($1.3) (17.0%) Servicing income
Slide 8: Financing Profile
Financing Profile 8 FEDERAL HOME LOAN BANK OF DES MOINES • Outstanding secured advances of $3.0 billion • Average maturity approximately 11.4 years; average borrowing rate 0.35% REPURCHASE AGREEMENTS • Focused on diversification and financial stability across repo counterparties ― Outstanding borrow
Slide 9: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 9 $14.9 BILLION PORTFOLIO AS OF JUNE 30, 2015 ($ billions) (1) For additional detail on the portfolio, see appendix slides 18-22. (2) Commercial consists of senior mezzanine debt. (3) Assets in “Rates” include Agency RMBS,
Slide 10: Portfolio Performance and Hedging
Portfolio Performance and Hedging 10 Q 2 - 2 015 P E R FO R M A NC E H I G H L I G H TS (1) “Legacy” non-Agency RMBS includes non-Agency bonds issued up to and including 2009. “New issue” non-Agency RMBS includes bonds issued after 2009. (2) Represents estimated percentage change in book value and n
Slide 11: Conduit Update
$186 $873 $722 $973 $1,129 $978 $22 $222 $694 $438 $579 $646 $642 $356 $575 $493 $2,499 0 500 1000 1500 2000 2500 3000 $0 $500 $1,000 $1,500 Q1-2014 Q2-2014 Q3-2014 Q4-2014 Q1-2015 Q2-2015 Securitized 2013 Q2-2015 Locked Settled Securitized Conduit Update • Completed two securitizations during the q
Slide 12: MSR and Commercial Real Estate Update
• Subsequent to quarter-end, added MSR through bulk acquisition • On track to add 5-10 new flow relationships by year-end • Personnel and infrastructure requirements to support strategy substantially in place • Healthy pipeline developing • Significant opportunities in marketplace – Returns remain a
Slide 13: Appendix
Appendix
Slide 14: Return on Book Value
Return on Book Value 14 (1) Return on book value for six-month period ended June 30, 2015 is defined as the decrease in book value from December 31, 2014 to June 30, 2015 of $0.29 per share, plus dividends declared of $0.52 per share, divided by December 31, 2014 book value of $11.10 per share. Retu
Slide 15: Financial Performance
DIV IDENDS (1) Financial Performance 15 COMPREHENSIVE INCOME BOOK VALUE AND DIV IDEND PER SHARE (1) GAAP NET INCOME (LOSS) (1) Historical dividends may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share, not G
Slide 16: Operating Performance
Operating Performance 16 (In millions, except for per share data) Core Earnings Realized Gains Unrealized MTM Q1-2015 Financials Core Earnings Realized Gains Unrealized MTM Q2-2015 Financials Interest income $163.0 $ - $ - $163.0 $152.5 $ - $ - $152.5 Interest expense 33.5 - - 33.5 35.0 - - 35.0 Net
Slide 17: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation (In thousands, except for per share data) Three Months Ended March 31, 2015 Three Months Ended June 30, 2015 Reconciliation of GAAP to non-GAAP Information Core Earnings: Net income $94,793 $221,501 Adjustments for non-core earnings: Gain on sale of securities an
Slide 18: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 18 AGENCY RMBS CPR(3) AGENCY PORTFOLIO YIELDS AND METRICS (1) Securities collateralized by loans of less than or equal to $175K, but more than $85K. (2) Securities collateralized by loans of less than or equal to $85K. (3) Agency weighted average 3-month Constant Prepaymen
Slide 19: Rates: Agency RMBS
Rates: Agency RMBS 19 As of June 30, 2015 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed 3.0-3.5% 1,077 1,115 10.9% 1,141 3.5% 6 4.0-4.5% 5,010 5,401 52.5% 5,388 4.2% 22 ≥ 5.0% 628 713 6.9% 680 5.5%
Slide 20: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 20 As of Sept. 30, 2014 As of Dec. 31, 2014 As of Mar. 31, 2015 As of June 30, 2015 Fair Value ($M) $498.5 $452.0 $410.2 $437.6 Unpaid Principal Balance ($M) $45,526.8 $44,949.1 $43,974.9 $42,811.3 Weighted Average Coupon 3.9% 3.9% 3.9% 3.9% Original FICO Score 730 7
Slide 21: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 21 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 22: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 22 As of June 30, 2015 Senior Bonds Mezzanine Bonds Total P&I Portfolio Characteristics: Carrying Value ($M) $1,904.7 $795.1 $2,699.8 % of Non-Agency Portfolio 71% 29% 100% Average Purchase Price(1) $57.24 $76.78 $62.99 Average Coupon 2.65% 2.70% 2.66% Weighted Average Market
Slide 23: Repo and FHLB Financing
Repo and FHLB Financing(1) 23 (1) As of June 30, 2015. (2) Excludes FHLB membership and activity stock totaling $125.3 million as of June 30, 2015. Repo and FHLB Collateral(2) Repo FHLB Total ($M) Available–for-sale securities, at fair value $10,284.5 $2,268.6 $12,553.1 Derivative asset, at fair val
Slide 24: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Payers Hedging Repo and FHLB Advances 2016 $4.2 0.583% 0.282% 1.10 2017 $2.4 0.864% 0.281% 2.09 2018 $0.8 1.165% 0.280% 2.65 2019 $0.3 1.730% 0.278% 3.94 2020 and after $2.8 1.944% 0.279% 7.62 $10.5
Slide 25: Interest Rate Swaptions
Interest Rate Swaptions(1) 25 (1) As of June 30, 2015. Option Underlying Swap Swaption Expiration Cost ($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 $18.0 $14.5 4.36 $5,600 2.75%
Slide 26: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Q2 2015 Earnings Presentation on 6ix