Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q4 2015 Earnings Presentation
29 slides from Two Harbors Investment's earnings presentation, Feb 3, 2016
Slide 1: Fourth Quarter 2015 Earnings Call
Februar y 4 , 2016 Fourth 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 E N 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, estimat
Slide 3: Financial Summary
Financial Summary F U L L Y E A R 2 015 • Total return on book value of 0.5%(1) – Cash dividends totaling $1.04 per share • Comprehensive Loss of $4.5 million, or $0.01 per share • Core Earnings(2) of $325.8 million, or $0.89 per share • Repurchased 13.7 million shares of common stock – Average purc
Slide 4: Business Overview
Business Overview(1) MORTGAGE LOAN CONDUIT • Sponsored seven securitizations totaling $2.0 billion in unpaid principal balance (UPB) – Attained goal of sponsoring six to ten securitizations during 2015 • Expanded originator partner network M O RTG AG E S E RV I C I N G R I G H T S • Added six MSR fl
Slide 5: Market and Policy Update
Market and Policy Update MACRO CONSIDERAT IONS • Volatile market and interest rate environment – Wider Agency and credit asset spreads – Federal Reserve raised interest rates in December 2015 • Continued home price appreciation – CoreLogic Home Price Index up 6.3% on rolling 12-month basis(1) • Mixe
Slide 6: Book Value
(Dollars in millions, except per share data) Q4-2015 Book Value Q4-2015 Book Value per share FY-2015 Book Value FY-2015 Book Value per share Beginning stockholders’ equity $3,772.7 $10.30 $4,068.0 $11.10 Cumulative effect of adoption of new accounting principle (ASU 2014-13) n/a (3.0) Beginning stoc
Slide 7: Tax Characterization of Dividend
$404.8 $376.0 $0 $75 $150 $225 $300 $375 $450 2015 REIT Taxable Income 2015 Dividend Declarations M i l l i o n s Tax Characterization of Dividend • Generated REIT taxable income of $404.8 million in 2015 – Includes net capital gains of approximately $261.1 million • 2015 dividend declarations total
Slide 8: Core Earnings Summary
(Dollars in millions) Q3-2015 Q4-2015 Variance ($) Variance (%) Interest income $152.8 $133.6 ($19.2) (12.6%) Interest expense $37.0 $36.6 $0.4 1.4% Net interest income $115.8 $97.0 ($18.8) (16.2%) Loss on swaps and swaptions ($19.4) ($12.6) $6.8 35.3% Gain on other derivatives $5.6 $6.0 $0.4 6.8% S
Slide 9: Financing Profile
Financing Profile 9 REPURCHASE AGREEMENTS • Focused on diversification and financial stability across repo counterparties • Outstanding borrowings of $5.0 billion with 21 active counterparties; 30 total counterparties • Continued to ladder repo maturities FEDERAL HOME LOAN BANK OF DES MOINES • Outst
Slide 10: Portfolio Performance and Hedging
Portfolio Performance and Hedging 10 Q 4 - 2 015 P E R FO R M A N C E H I G H L I G H T S (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) Cost of funds includes interest spread expense associate
Slide 11: Portfolio Composition
HISTORICAL CAPITAL ALLOCATIONPORTFOLIO COMPOSIT ION (1) Portfolio Composition 11 $11.1 BILLION PORTFOLIO AS OF DECEMBER 31, 2015 ($ billions) (1) For additional detail on the portfolio, see Appendix slides 20-25. (2) Commercial consists of senior and mezzanine commercial real estate debt and related
Slide 12: Conduit and MSR Update
• Sponsored ABMT 2015-7; $332.8 million securitization • Significant issuer in private label securities market – Approximately 16% market share of new prime jumbo issuance in 2015(2) – Broad investor interest and participation; over 50 different investors in program since inception(4) – Agate Bay pr
Slide 13: Commercial Real Estate Update
• Added nine commercial real estate assets during the fourth quarter • Twelve senior and six mezzanine assets at December 31, 2015 ― Secured by a diverse group of properties throughout the United States ― Weighted average initial loan-to-value of 72.3%; weighted average spread of LIBOR plus 507 basi
Slide 14: 2016 Outlook
2016 Outlook 14 O P P O RTU N I ST I C A L LY D E P LOY C A P I TAL TO M A X I MI Z E STO C K H O L D E R VALUE OVE R T H E LON G -TE R M • Diversify asset base to deliver high-quality returns with dampened volatility • Allocate capital to sectors with more attractive returns, including: – Mortgage
Slide 15: Appendix
Appendix
Slide 16: Return on Book Value
Return on Book Value 16 (1) Return on book value for twelve-month period ended December 31, 2015 is defined as the decrease in book value from December 31, 2014 to December 31, 2015 of $0.99 per share, plus dividends declared of $1.04 per share, divided by December 31, 2014 book value of $11.10 per
Slide 17: Financial Performance
DIVIDENDS (1) Financial Performance 17 COMPREHENSIVE INCOME (LOSS) BOOK VALUE AND DIV IDEND PER SHARE (1) GAAP NET (LOSS) INCOME (1) Historical dividends may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share,
Slide 18: Operating Performance
Operating Performance (In millions, except for per share data) Core Earnings(1) Realized Gains Unrealized MTM Q3-2015 Financials Core Earnings(1) Realized Gains Unrealized MTM Q4-2015 Financials Interest income $152.8 $ - $ - $152.8 $133.6 $ - $ - $133.6 Interest expense 37.0 - - 37.0 36.6 - - 36.6
Slide 19: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation(1) Reconciliation of GAAP to non-GAAP Information (In thousands, except for per share data) Three Months Ended September 30, 2015 Three Months Ended December 31, 2015 Reconciliation of net (loss) income to Core Earnings: Net (loss) income ($34,790) $210,706 Adjus
Slide 20: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 20 AGENCY RMBS CPR(1) AGENCY PORTFOLIO YIELDS AND METRICS (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 21: Rates: Agency RMBS
Rates: Agency RMBS 21 As of Dec. 31, 2015 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 4.0-4.5% $3,979 $4,290 70.0% $4,285 4.2% 30 ≥ 5.0% 562 633 10.3% 607 5.5% 84 4,541 4,923 80.3% 4,892 4.4% 37
Slide 22: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 22 As of Mar. 31, 2015 As of June 30, 2015 As of Sept. 30, 2015 As of Dec. 31, 2015 Fair value ($M) $410.2 $437.6 $447.3 $493.7 Unpaid principal balance ($M) $43,974.9 $42,811.3 $48,117.3 $51,386.1 Weighted average coupon 3.9% 3.9% 3.9% 3.9% Original FICO score 748 7
Slide 23: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 23 NON-AGENCY PORTFOLIO COMPOSITIONNON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for we
Slide 24: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 24 As of December 31, 2015 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,313.7 $532.6 $1,846.3 % of non-agency portfolio 71.2% 28.8% 100% Average purchase price(1) $52.88 $79.01 $60.42 Average coupon 2.8% 3.0% 2.9% Weighted average m
Slide 25: 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 26: Repo and FHLB Financing
Repo and FHLB Financing(1) 26 (1) As of December 31, 2015. (2) Excludes FHLB membership and activity stock totaling $156.7 million. (3) Weighted average of 35 days to maturity. (4) Includes advances of $2.3 billion with original maturities of 20 years. Repo and FHLB Collateral(2) Repo FHLB Total ($M
Slide 27: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Payers Hedging Repo and FHLB Advances 2016 $1.7 0.462% 0.481% 0.7 2017 2.4 0.765% 0.510% 1.6 2018 0.8 0.944% 0.384% 2.1 2019 0.4 1.283% 0.340% 3.4 2020 and after 2.6 1.821% 0.371% 8.0 $7.9 1.094% 0.
Slide 28: Interest Rate Swaptions
Interest Rate Swaptions(1) 28(1) As of December 31, 2015. Option Underlying Swap Swaption Expiration Cost ($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 $0.38 $0.17 0.8 $2,000 2.23%
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