Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Day (February 2014)
77 slides from Two Harbors Investment's investor day presentation, Feb 19, 2014
Slide 1: Analyst & Investor Day Presentation
New York Stock Exchange Februar y 20, 2014 Analyst & Investor Day Presentation
Slide 2: Agenda
Agenda 2 Time Schedule 11:00 a.m. ET Registration 11:30 a.m. ET Opening Remarks 11:35 a.m. ET James Grant, Guest Speaker 12:20 p.m. ET Luncheon 1:00 p.m. ET Management Presentations and Q&A 3:00 p.m. ET Closing Remarks
Slide 3: Special Guest Speaker – James Grant
Special Guest Speaker – James Grant A KIND WORD FOR THE INVISIBLE HAND 3 James Grant is the founder and editor of Grant’s Interest Rate Observer and the author of seven books. His new history of the self-healing depression of 1920-21 will be published next year by Simon & Schuster. Mr. Grant’s telev
Slide 4: 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 5: Executive Overview – Tom Siering
Executive Overview – Tom Siering
Slide 6: Two Harbors Today
Two Harbors Today 6 OVERVIEW • Two Harbors started with $124 million in October 2009; we are celebrating our fifth year since inception • Today we are the largest hybrid mortgage REIT with a market cap of approximately $3.6 billion(1) • Delivered total return of 88% to stockholders since inception •
Slide 7: Two Harbors Market Capitalization
Two Harbors Market Capitalization 7 Source: Bloomberg (1) 2012 market value calculated as 298.8 million shares outstanding as of December 31, 2012 multiplied by December 31, 2012 stock price of $11.08 per share, less $345.8 million, which represents the tax value of the distribution of Silver Bay co
Slide 8: Talented and Deep Bench
Talented and Deep Bench 8 SOLID FOUNDATION FOR MANAGING BUSINESS OPERATIONS AND RISK • Investment team with significant RMBS experience ― Strong RMBS team focused on trading, investment analysis and research ― Rigorous security selection; goal is to drive alpha ― Leverage proprietary analytical syst
Slide 9: Introducing our Team – Rebecca B. Sandberg
Introducing our Team 9 REBECCA B. SANDBERG – GENERAL COUNSEL & SECRETARY Rebecca B. Sandberg has served as General Counsel and Secretary at Two Harbors since March 2013. Ms. Sandberg previously served as Deputy General Counsel and Secretary of Two Harbors from May 2012 until March of 2013, and from
Slide 10: Introducing our Team – Matthew Koeppen
Introducing our Team 10 MATTHEW KOEPPEN – MANAGING DIRECTOR Matthew Koeppen joined Two Harbors in 2010, and has served as a Managing Director since 2012. Prior to joining Two Harbors in 2010, Mr. Koeppen held a variety of positions with Black River Asset Management, which is a division of Cargill, I
Slide 11: William Greenberg – Managing Director
11 WILLIAM GREENBERG– MANAGING DIRECTOR William Greenberg has served as a Managing Director at Two Harbors since 2012. Prior to joining Two Harbors, Mr. Greenberg was a Managing Director and the Head of Investment Bank Risk Control Strategy at UBS AG, where he was responsible for issues of strategic
Slide 12: Introducing our Team – Victor Baev
Introducing our Team 12 VICTOR BAEV – MANAGING DIRECTOR Prior to joining the residential mortgage-backed securities team at Pine River in 2009, Mr. Baev was a Vice President in the Residential Mortgage Backed Securities Group at Credit Suisse from 2004 to 2009, where he held positions as a trader in
Slide 13: Introducing our Team – Nicholas Smith
Introducing our Team 13 NICHOLAS SMITH – MANAGING DIRECTOR Nicholas Smith has served as a Managing Director at Two Harbors since 2012. Prior to joining Two Harbors, Mr. Smith was the Chief Investment Officer of Capital Markets at Green Tree Investment Management where he was responsible for the resi
Slide 14: Dan Koch – Managing Director
14 DAN KOCH – MANAGING DIRECTOR Dan Koch has served as a Managing Director at Two Harbors since 2012. Prior to joining Two Harbors, Mr. Koch was a Managing Director at Redwood Trust where he was responsible for sourcing jumbo prime loan acquisitions and the development of new loan origination busine
Slide 15: Introducing our Team – Diane Wold
Introducing our Team 15 DIANE WOLD – MANAGING DIRECTOR Diane Wold has served as a Managing Director at Two Harbors since 2011. Prior to joining Two Harbors, Ms. Wold was at GMAC Residential Capital Corporation where she served in a variety of roles advancing to Senior Vice President and Managing Dir
Slide 16: Introducing our Team – Robert Rush
Introducing our Team 16 ROBERT RUSH – MANAGING DIRECTOR Robert Rush has served as a Managing Director at Two Harbors since 2013. Prior to joining Two Harbors, Mr. Rush held a variety of positions at UBS AG in New York. During 2013, Mr. Rush was a Managing Director and Director of Risk Strategy for t
Slide 17: Introducing our Team – Marcin Urbaszek
Introducing our Team 17 MARCIN URBASZEK – MANAGING DIRECTOR Marcin Urbaszek has served as a Managing Director at Two Harbors since 2013. Prior to joining Two Harbors, Mr. Urbaszek was a Director in the Financial Institutions Group at Credit Suisse, where he was responsible for sourcing and executing
Slide 18: Introducing our Team – July Hugen
Introducing our Team 18 JULY HUGEN – D IRECTOR July Hugen has served as Director of Investor Relations at Two Harbors since 2012. In this role, she is responsible for both investor and media relations. Prior to joining Two Harbors, Ms. Hugen served in marketing and investor relations at Pine River C
Slide 19: 2013 In Review
2013 In Review 19 ADVANCING STRATEGIC IN IT IATIVES First Quarter 2013 Completed accretive public offering of common stock for net proceeds of approximately $769.2 million Second Quarter 2013 Acquired Matrix Financial Services Corporation, which has seller-servicer approvals Repurchased 1 million sh
Slide 20: Historic Alpha Generation
Historic Alpha Generation STRONG RETURN ON BOOK VALUE • In 2013, delivered total return on book value of 10.4%(1) versus the Pine River Mortgage REIT Index performance estimated at negative 5.9%(2) • Protected book value to preserve dividend generation for the long term • Focused on opportunistic ca
Slide 21: Delivering Attractive Total Return
Delivering Attractive Total Return 21 -10% 10% 30% 50% 70% 90% 110% 130% (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through December 31, 2013. Total stockholder return is defined as capital gains on stock price including dividends. Source: Bloomberg. (2)
Slide 22: 10-Year Treasury Total Return
10-Year Treasury Total Return THE 10 -YEAR TREASURY HAD A NEGATIVE 7.7% TOTAL RETURN IN 2013 (1 ) 22 Source: Bloomberg (1) The F08210YR (FMC Curve # 82 Zero Coupon Yields 10 Par Return) index is the par return on the zero coupon yields of the 10-Year Treasury.
Slide 23: Financial Update – Brad Farrell
Financial Update – Brad Farrell 23
Slide 24: Financial Stewardship
Financial Stewardship • Deliver considerations for dividend declaration • Oversee financial planning and expense management • Mitigate financial and counterparty risks • Maintain compliant accounting standards and controls • Achieve reporting transparency through comprehensive disclosure • Maintain
Slide 25: Financial Performance Create Stockholder Wealth
Financial Performance 25 Create Stockholder Wealth OPERATING METRICS Portfolio Risk Metrics Comprehensive Income Taxable Income Book Value Performance FINANCIAL OBJECTIVE SUCCESSFUL FINANCIAL EXECUTION Dividend Distributions and Return on Book Value • Our primary objective is to provide attractive r
Slide 26: Financial Performance Summary
TA X ABL E I N C O M E V S . D I ST R I BUT IO N S Financial Performance Summary 26 C O M P R E H E N S I V E I N C O M E C U M U L AT I VE P E R FO R M AN CE V. D I ST R I BUT I O NS BO O K VA LU E A N D D I V I DE ND P E R S H A R E (2 ) (1) Does not include Silver Bay common stock distribution. (
Slide 27: REIT Taxable Income to Core Earnings
REIT Taxable Income to Core Earnings 27 (In thousands, except for per share data) Year Ended December 31, 2012 Year Ended December 31, 2013 Reconciliation of REIT taxable income to Core Earnings Core Earnings(1) $ 311,085 $ 311,829 Adjustments : Tax short-term and long-term capital gains/losses 123,
Slide 28: 2013 Taxable Income and Distributions
2013 Taxable Income and Distributions (1) 28 Distributions, Year Ended December 31, 2013 (in millions, except per share data) Q1 Q2 Q3 Q4 Total REIT 2013 taxable income plus prior year undistributed taxable income of $10.7 million $425.6 Cash distributions $116.8 $113.4 $102.0 $94.9 $427.1 Silver Ba
Slide 29: Operating Expense Management
Operating Expense Management 29 • Upward trend in expense ratio (as a percentage of average equity) over the past 6 quarters has been driven by new business opportunities related to MSR acquisitions, our Conduit program and other initiatives, which we expect to drive stockholder returns over time •
Slide 30: Capitalization and Financing
Capitalization and Financing Rate Strategy • Consists of Agency RMBS and MSR • 57%, or $2.2 billion, of capital allocation Credit Strategy • Consists of Non-Agency RMBS and Residential Mortgage Loans (Prime Jumbo and Credit Sensitive) • 43%, or $1.6 billion, of capital allocation TARGET CAPITAL ALLO
Slide 31: RMBS Financing Profile
RMBS Financing Profile 31 • As of Dec. 31, 2013, we had 20 repo counterparties providing $11.1 billion of financing • We continue to ladder repo maturities, and average 71 days to maturity at year-end • Daily margin and excess liquidity management FINANCING RMBS COUNTERPARTIES VS. TOTAL DEBT Repurch
Slide 32: RMBS Counterparty Risk Management
D I V E R S E AG E N C Y C O U N T E R PART IE S (2 ) H I G H - Q UAL IT Y N O N - AGE NC Y C O U N T E R PART IE S (3 ) RMBS Counterparty Risk Management (1) 32 • All non-Agency repo is with counterparties having credit default swap (CDS) spreads lower than 150 bps, implying low overall counterpart
Slide 33: RMBS Counterparty Risk Management
RMBS Counterparty Risk Management 33 COUNTERPARTY RISK MANAGEMENT FOCUS ALLOWS US TO PROACTIVELY ADDRESS MARKET AND COMPANY SPECIFIC EVENTS • Team focused solely on counterparty risk management across Pine River and Two Harbors • Dashboards across key metrics evaluate the health and solvency of our
Slide 34: Federal Home Loan Bank of Des Moines
Federal Home Loan Bank of Des Moines • Facility provides current funding capacity up to $ 1 billion; may increase or decrease at the FHLB’s sole discretion because it is uncommitted • Collateral posted at an asset level versus blanket lien (i.e., each advance will require approval by the FHLB) • Eli
Slide 35: Federal Home Loan Bank
Federal Home Loan Bank(1) 35 REPO TERMS FHLB TERMS ADVANCE RATES COST: 1M LIBOR+ ADVANCE RATES(2) COST: 1M LIBOR+(3) Agency Pools (generic) 30-60 Days 89% 12 - 15 bps 95% - 97% 17 - 19 bps 1 Year 89% 15 bps 3-5 Year n/a n/a 89% 22 - 34 bps Other Agencies 30-60 Days 86%-91% 12 - 15 bps 90% - 95% 20 -
Slide 36: Accounting for Mortgage Servicing Rights
Accounting for Mortgage Servicing Rights 36 • Separate recognition of MSR using the guidelines of ASC 860 (Transfers and Servicing) • Two valuation methods: ― Amortization Method • Amortize each MSR over period of income • Record valuation allowance and impairment ― Fair Value Method • Measure at ea
Slide 37: On-Balance Sheet Securitizations
On-Balance Sheet Securitizations 37 • Accounted for using the guidelines of ASC 860 (Transfers and Servicing) • Primary accounting paths: ― Sale ― Financing (consolidation) • We account for mortgage loans held-for-investment in securitization trusts at fair value ― Prices are obtained from third-par
Slide 38: Strategy Update – Bill Roth
Strategy Update – Bill Roth
Slide 39: Strategy – Overall Philosophy
Strategy – Overall Philosophy 39 OBJECTIVE TO DELIVER ATTRACTIVE RISK - ADJUSTED TOTAL RETURN • Opportunistic capital allocation aims to take advantage of evolving residential finance landscape • Comprehensive rates and credit strategies allow for fluid capital allocation and drive stockholder perfo
Slide 40: Strategy – Driving Stockholder Value
Strategy – Driving Stockholder Value 40 RATES STRATEGY • Extract value from the Agency RMBS market, focusing on all asset types and sectors • Apply sophisticated security selection and hedging techniques • Utilize MSR platform to enhance returns and reduce risk • Protect book value exposure, especia
Slide 41: Strategy Update
Strategy Update 41 RATES • Portfolio & Market Summary • Agency RMBS • Mortgage Servicing Rights CREDIT • Portfolio & Market Summary • Non-Agency RMBS • Conduit Platform: creating attractive investments for the portfolio T WO HARBORS – LOOKING FORWARD • Illustrative Future Capital Allocation • Potent
Slide 42: Targeted Capital Allocation
TA RG ET E D C A P I TAL A L LO C AT I O N H I G H L I G H TS P O RT FO L I O C O M P O S I T I O N Portfolio Composition 42 • Capital allocation at December 31, 2013 was 57% Rates(3) and 43% Credit(4) • Agencies declined to 44% of capital allocation while MSR increased to 13% at December 31st • Goi
Slide 43: Portfolio Update
Portfolio Update 43 RATES • Portfolio & Market Summary • Agency RMBS • Mortgage Servicing Rights CREDIT • Portfolio & Market Summary • Non-Agency RMBS • Conduit Platform: Sourcing a Variety of Products T WO HARBORS – LOOKING FORWARD • Illustrative Future Capital Allocation • Potential Future ROEs
Slide 44: Rates: Summary and Outlook
S U M M A RY O U T LO O K P O RT FO L I O C O M P O S I T I O N Rates: Summary and Outlook 44 (1) Home Equity Conversion Mortgage loans (HECMs) are loans that allow the homeowner to convert home equity into cash collateralized by the value of their home. (2) Includes Agency Derivatives (IIOs) of $21
Slide 45: Rates: Agency Market Update
1.9% 2.7% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 12/31/11 4/30/12 8/31/12 12/31/12 4/30/13 8/31/13 12/31/13 Yi el d ( % ) 10 year note Current Mid Yield -50.0 0.0 50.0 100.0 150.0 200.0 250.0 12/31/2003 12/31/2005 12/31/2007 12/31/2009 12/31/2011 12/31/2013 FN CC Z-Spread FN CC OAS FN CC Z-Spread Average FN
Slide 46: Rates: Agency RMBS Update
-300 -200 -100 0 100 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 MBS LUCIPLUS Yield Difference Pre-Crisis Average 50 100 150 200 250 300 Jan-03 Jan-06 Jan-09 Jan-12 FNCC Spread to 5s/10s Blend Rates: Agency RMBS Update 46 CURRENT COUPON SPREADS COULD WIDEN IN 2014 • Current coupon spread to 5s/10s ble
Slide 47: Rates: Historical Agency Return on Equity
Rates: Historical Agency Return on Equity 47 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 ROE (no Rolldown) (1) Assumes 7x debt-to-equity, L+10bp funding, hedging duration with 10s and convexity. Source: Bank of America research as of February
Slide 48: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 48 MSR EXHIBIT POSIT IVE Y IELD, NEGATIVE DURATION AND HEDGE MORTGAGE BASIS R ISK • There are two types of MSR: Legacy MSR and New Issue MSR • Understanding and managing prepayment risk is one of our core competencies LEGACY MSR NEW ISSUE MSR CHARACTERIST ICS: • Orig
Slide 49: Rates: MSR
Rates: MSR 49 HISTORY OF TWO HARBORS’ MSR INVESTMENTS First Quarter 2013 Approved by Freddie Mac to invest in MSR Second Quarter 2013 Acquired Matrix Financial Services Corporation, adding $2 million in MSR to portfolio Third Quarter 2013 Acquired two small MSR portfolios In negotiations with potent
Slide 50: Rates: MSR in a Portfolio Context
Rates: MSR in a Portfolio Context 50 Amount ($) Yield (%)(1) 10bps Rate Increase (%) 10bps Basis Increase (%) Agency MBS $800 3.40% (6.00%) (6.00%) Agency Repo $700 (0.40%) 5-year Swap Cost $1,200 (1.45%) 6.00% --% MSR $-- --% --% --% Total 7.00% --% (6.00%) ROE: 7.00% Debt-to-equity: 7.0x Impact to
Slide 51: Rates: Future for MSR
Rates: Future for MSR 51 MSR HAS THE POTENTIAL TO BECOME A MEANINGFUL PART OF TWO HARBORS’ PORTFOLIO Note: The above scenario is intended to be illustrative. The numbers used in the scenarios are not projections of Two Harbors’ results. The above scenarios are provided for illustration purposes only
Slide 52: Rates: Two Harbors Positioning
ILLUSTRATIVE RATE AND BASIS EXPOSURE – JANUARY 2014 Rates: Two Harbors Positioning 52 Market Value(1) ($B) Dv01(2) Expected book value change to 10bps rate change(3) RATES 30-year Fixed 3.0-3.5% (0.7) (427,000) -% 4.0-4.5% 4.7 2,514,000 0.2% > 5.0% 0.8 138,000 -% MSR 0.5 (613,000) -% Hybrid ARMs 1.0
Slide 53: Strategy Update
Strategy Update 53 RATES • Portfolio & Market Summary • Agency RMBS • Mortgage Servicing Rights CREDIT • Portfolio & Market Summary • Non-Agency RMBS • Conduit Platform: Sourcing a Variety of Products T WO HARBORS – LOOKING FORWARD • Illustrative Future Capital Allocation • Potential Future ROEs
Slide 54: Credit: Summary and Outlook
S U M M A RY O U T LO O K P O RT FO L I O C O M P O S I T I O N Credit: Summary and Outlook 54 (1) Assets in the “Rates” category include Agency securities and MSR. (2) Assets in the “Credit” category include non-Agency securities, prime jumbo loans, net economic interest in securitization trusts an
Slide 55: Credit: Market Overview
60 70 80 90 100 12/31/12 4/30/13 8/31/13 12/31/13 Spre a d DJ CDX.NA.IG Main On the run (5Yr) 250 300 350 400 450 500 12/31/12 4/30/13 8/31/13 12/31/13 Spre a d DJ CDX.NA.HY 100 On the run (5Yr) Credit: Market Overview 55 ABX INDEX(1) INVESTMENT GRADE (IG) INDEX(1) HIGH-YIELD (HY) INDEX(1) (1) Sourc
Slide 56: Credit: U.S. Non-Agency MBS Still Attractive
0 2 4 6 8 10 2 .7 2 .7 2 .8 4 .1 4 .5 4 .5 4 .7 4 .8 5 .5 5 .5 5 .5 5 .6 5 .9 6 .0 6 .4 6 .5 6 .8 6 .9 8 .0 8 .0 9 .2 9 .4 Y ie ld Modified Duration Median Dirty Prime Clean Alt-A Dirty Alt-A POA Duper Clean Prime US Agency MBS Current Coupon High Yield BB (Yield to Worst) High Yield B (Yield to Wor
Slide 57: Credit: Non-Agency Performance
Credit: Non-Agency Performance THE MAJORIT Y OF OUR NON - AGENCY LOANS ARE HELD IN AREAS WITH STRO NG HOUSING RECOVERY METRICS • In 2013, the national average housing price appreciate (HPA) was +11.0%(1) ― In predominantly “subprime” areas, HPA exceeded the national average by several hundred basis
Slide 58: Credit: 2011 Discount Bond Example
SECURIT Y INFO COLLATERAL SUMMARY DISCOUNT SUB-PRIME SENIOR BOND – HEAT 2006-3 2A4 Credit: 2011 Discount Bond Example • 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
Slide 59: Credit: 2013 Discount Bond Example
SECURIT Y INFO COLLATERAL SUMMARY DISCOUNT SUB-PRIME SENIOR BOND – HEAT 2006-3 2A4 Credit: 2013 Discount Bond Example • 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
Slide 60: Non-Agency Opportunity Today
Non-Agency Opportunity Today (1) 60 (1) Values as of February 13, 2014 SIGNIFICANT UPSIDE REMAINS • Prepay and default assumptions remain very conservative • Additional upside optionality remains to higher prepays, better borrower performance and servicer actions that help borrowers YIELD ANALYSIS -
Slide 61: Non-Agency Securities as of December 31, 2013
Non-Agency Securities as of December 31, 2013 61 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $2,282 $469 $2,751 % of Non-Agency Portfolio 83.0% 17.0% 100.0% Average Purchase Price(1) $52.58 $59.09 $53.69 Average Coupon 2.5% 1.6% 2.3% Weighted Average Ma
Slide 62: Credit: Two Harbors Positioning
Credit: Two Harbors Positioning 62 Interest Rate Profile Market Value ($B) Dv01(1) Non-Agency Securities 2.9 1,151,343 Prime Jumbo/Loans 0.3 122,000 CSL 0.4 170,403 Swaps ($1 billion notional in 3-years) - (370,000) Swaptions ($1 billion notional in 3-years) - (430,000) Total 3.5 643,747 MAINTAIN EX
Slide 63: Driving Credit Going Forward
Driving Credit Going Forward EXPANDING TWO HARBORS’ CONDUIT PROGRAM IS A KEY A FOCUS IN 2014 • Diversifying our business model by building an operational business structure • Our goal is to generate attractive credit investments for our portfolio while providing capital to the U.S. mortgage market •
Slide 64: Credit: Prime Jumbo Securitization
Credit: Prime Jumbo Securitization TWO HARBORS’ GOAL IS TO CAPITALIZE ON A REDUCED GOVERNMENT FOOTPRINT IN HOUSING FINANCE • Completed two securitizations in 2013, including the first using our own depositor ― Both deals enabled us to invest in attractive credit and IO bonds • Expect that securitiza
Slide 65: Credit: Non-QM
Credit: Non-QM NON-QM LOANS REPRESENT A LARGE PORTION OF THE MORTGAGE MARKET POTENTIAL MARKET • Prime and nonprime non-QM loans • Of the $6.3 trillion Agency & non-Agency mortgage market, the GSEs and Ginnie Mae service almost $5.5 trillion • This leaves over $800 billion that needs to be funded by
Slide 66: Two Harbors' Infrastructure
Two Harbors’ Infrastructure SUBSTANTIAL PROGRESS BUILDING AN EFFIC IENT AND SCALABLE CORE PLATFORM THAT ALLOWS T WO HARBORS TO RESPOND QUICKLY TO A BROAD ARRAY OF MARKET OPPORTUNITIES • Our external manager hired over 30 full-time employees who are dedicated to Two Harbors and serve in key leadershi
Slide 67: Strategy Update
Strategy Update 67 RATES • Portfolio & Market Summary • Agency RMBS • Mortgage Servicing Rights CREDIT • Portfolio & Market Summary • Non-Agency RMBS • Conduit Platform: Sourcing a Variety of Products TWO HARBORS – LOOKING FORWARD • Illustrative Future Capital Allocation • Potential Future ROEs
Slide 68: Two Harbors: Looking Forward
Two Harbors: Looking Forward OPPORTUNISTICALLY ALLOCATE CAPITAL IN THE RESIDENTIAL F INANCE SP ACE 68 Assets Capital Allocation 2012 Capital Allocation 2013 Capital Allocation 2014 Capital Allocation 2015 Rates 53% 57% 45-65% Agency RMBS 53% 44% 25-35% MSR - 13% 20-30% Credit 47% 43% 35-55% Legacy C
Slide 69: Two Harbors: Looking Forward
Two Harbors: Looking Forward DEMONSTRATED BENEFIT OF DIVERSIFIED PORTFOLIO RESULTING IN STRON G RETURNS • Allocate capital to best market opportunities • Overall goal to deliver attractive risk-adjusted returns 69 POTENTIAL FUTURE ROEs Assets Capital Allocation 2015 (%) Capital Allocation 2015 ($b)
Slide 70: 2014 & Beyond – Tom Siering
2014 & Beyond– Tom Siering
Slide 71: Key Policy Considerations
Key Policy Considerations 71 POLICY CONSIDERATIONS ARE INCREASINGLY IMPORTANT TO THE PERFORMA NCE OF THE MARKET • New Federal Reserve Chair Janet Yellen • New Federal Housing Finance Agency Director Mel Watt • Future of Federal Reserve’s Quantitative Easing plan • Government Sponsored Entity Reform
Slide 72: 2014 and Beyond
2014 and Beyond FAVORABLE MARKET DYNAMICS • The Federal Reserve remains the largest buyer in the mortgage market today; although it has started to taper its purchases of MBS – Treasury and mortgage rates rose at the end of the year but have recently retraced • The U.S. government has indicated its i
Slide 73: Mission Based Strategy
Mission Based Strategy OUR MISSION IS TO BE RECOGNIZED AS THE INDUSTRY -LEADING MORTGAGE REIT: • We are the largest hybrid mortgage REIT investing in residential mortgage assets, with a market capitalization of approximately $3.6 billion(1) • We have the opportunity to provide capital to the U.S. mo
Slide 74: Advancing Key Strategic Initiatives
Advancing Key Strategic Initiatives MORTGAGE SERVIC ING RIGHTS • MSR is a nice complement to our existing RMBS portfolio providing negative yield and positive duration • Leverages core competencies in prepayment and credit risk analytics • Establish long-lasting flow relationships with high quality
Slide 75: Benefits of our Diversified Business Model
Benefits of our Diversified Business Model ENHANCING FRANCHISE VALUE • Ability to capitalize on compelling investment opportunities • Allows dynamic capital allocation based on shifts in the market • Maximizes the risk/return profile of our total portfolio • Dampens overall portfolio volatility • Op
Slide 76: Question & Answer
Question & Answer
Slide 77: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Investor Day (February 2014) on 6ix