Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2014 Earnings Presentation
23 slides from Two Harbors Investment's earnings presentation, Sep 4, 2014
Slide 1: Second Quarter 2014 Investor Presentation
Second Quarter 2014 Investor Presentation
Slide 2: Safe Harbor: Forward-Looking Statements
Safe Harbor 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, estimates and proj
Slide 3: Mission Based Strategy
Mission Based Strategy OUR MISSION IS TO BE RECOGNIZED AS THE INDUSTRY -LEADING MORTGAGE REIT: • Largest hybrid mortgage REIT investing in residential mortgage assets • Market capitalization of approximately $3.8 billion(1) • Provider of permanent capital to the U.S. mortgage market • Thought leader
Slide 4: Executive Summary
Executive Summary A DVANC I NG ST R AT E G IC I N I T I AT IV E S • Mortgage loan conduit and securitization platform gaining momentum — Completed ABMT 2014-1 securitization; prime jumbo pipeline remains robust — Anticipate completing additional securitizations • Mortgage Servicing Rights — Working
Slide 5: Second Quarter 2014 Market Overview
RATES STRATEGY CREDIT STRATEGY MACROECONOMIC CONSIDERATIONS Second Quarter 2014 Market Overview • Federal Reserve remains the largest buyer in the mortgage market • Federal Reserve tapering can create opportunities • Agency RMBS spreads tightened • Legacy Non-Agency RMBS fundamentals remain strong •
Slide 6: Delivering Total Return
-10% 10% 30% 50% 70% 90% 110% 130% Delivering Total Return 123% total stockholder return since inception; compares favorably to Pine River Mortgage REIT Index(1) (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through June 30, 2014. Total stockholder return is
Slide 7: Portfolio Composition
TA RG ET E D C A P I TAL A L LO C AT I O N Q 2 - 2 014 H I G H L I G H T S P O RT FO L I O C O M P O S I T I O N Portfolio Composition 7 • 57% capital allocation to Rates(4) — Sold approximately half of ARM holdings — Focused on higher coupon, shorter duration assets • 43% capital allocation to Cred
Slide 8: Hedging Strategy and Financing Profile
Hedging Strategy and Financing Profile (1) 8 H E D G I N G ST R AT E GY • Hedges structured to protect book value in a variety of interest rate environments • Use a variety of hedging tools, including swaps, swaptions, interest- only bonds, inverse interest-only bonds, MSR and To-Be-Announced (TBA)
Slide 9: Conduit and MSR Platform
Conduit and MSR Platform S E C O N D Q UA RT E R R E V I E W • Prime jumbo holdings $377 million; pipeline (i.e., interest rate locks) approximately $650 million at June 30, 2014 • Completed Agate Bay Mortgage Trust 2014-1 in August – $268 million prime jumbo securitization; created attractive inves
Slide 10: Attractive Returns With Lower Risk
…LESS INTEREST RATE EXPOSURE ( 3 ) . . . Attractive Returns With Lower Risk 10 A T T R A C T I VE & C O M P A R A B L E D I V I D E N D Y I E L D ( 1 ) …WITH LOWER LEVERAGE ( 2 ) . . . SUPERIOR ASSET SELECTION AND RISK MANAGEMENT DRIVE RETURNS WITH LESS RISK TWO Peer Average TWO Peer Average TWO Pee
Slide 11: Appendix
Appendix 11
Slide 12: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation 12 (In thousands, except for per share data) Three Months Ended March 31, 2014 Three Months Ended June 30, 2014 Reconciliation of GAAP to non-GAAP Information Core Earnings: Net (loss) income attributable to common stockholders $(29,145) $39,657 Adjustments for n
Slide 13: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 13 AGENCY RMBS CPR(5) AGENCY PORTFOLIO YIELDS AND METRICS (1) Agency yield includes impact of Agency Derivatives. Interest income on Agency Derivatives was $7.0 million and $7.9 million for the first and second quarters of 2014, respectively. (2) Cost of financing Agency R
Slide 14: Rates: Agency RMBS
Rates: Agency RMBS 14 As of June 30, 2014 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% $5,328 $5,739 56.0% $5,765 4.2% 24 ≥ 5.0% 764 863 8.4% 829 5.5% 65 $6,092 $6,602 64.4% $6,594 4.4% 30 1
Slide 15: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 15 As of March 31, 2014 As of June 30, 2014 Fair Value ($M) $476.7 $500.5 Unpaid Principal Balance ($M) $41,596.3 $45,629.2 Weighted Average Coupon 3.9% 3.9% Original FICO Score 738 740 Original LTV 75% 74% 60+ Day Delinquencies 1.0% 1.2% Net Servicing Spread 25 basi
Slide 16: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 16 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Cost of financing non-Agency RMBS includes interest spread expense associated with the portfolio’s interest rate swaps of $2.0 million and $3.1 million for the first and second quarters of
Slide 17: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 17 As of June 30, 2014 Senior Bonds Mezzanine Bonds Total P&I Portfolio Characteristics: Carrying Value ($M) $2,579.3 $469.5 $3,048.8 % of Credit Portfolio 84.6% 15.4% 100.0% Average Purchase Price(1) $54.68 $59.30 $55.39 Average Coupon 2.3% 1.7% 2.2% Weighted Average Market
Slide 18: Interest Rate Swaps and Repurchase Agreements
I N T E R E ST R AT E SWA P S (3 ) Repurchase Agreements(1) 18 (1) As of June 30, 2014. (2) Pledged collateral includes RMBS, Agency Derivatives and mortgage loans held-for-sale; does not include U.S. Treasuries with repurchase agreements of $1.0 billion outstanding. (3) Notional amounts do not incl
Slide 19: FHLB Financing
FHLB Financing(1) 19 (1) As of June 30, 2014. (2) Excludes FHLB membership and activity stock totaling $60.0 million as of June 30, 2014 Collateral Amount ($M) Available–for-sale securities, at fair value $1,355.3 Net economic interests in consolidated securitization trusts 181.6 Mortgage loans held
Slide 20: Interest Rate Swaptions
I N T E R E ST R AT E SWA P T I O NS Hedging Strategy(1) 20 (1) As of June 30, 2014. Option Underlying Swap Swaption Expiration Cost ($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
Slide 21: Overview of Two Harbors Team
EXECUTIVE OFFICERS Overview of Two Harbors Team 21 CHIEF F INANCIAL OFFICER BRAD FARRELL • Most recently served as Two Harbors’ Controller from 2009 to 2011 • Previously Vice President and Executive Director of Financial Reporting at GMAC ResCap from 2007 to 2009 and held financial roles at XL Capit
Slide 22: Overview of Pine River Capital Management
EXPERIENCED, COHESIVE TEAM (3) ESTABLISHED INFRASTRUCTURE GLOBAL ASSET MANAGEMENT F IRM Overview of Pine River Capital Management • Eighteen partners with average of 22 years experience • Approximately 490 total employees, including 145 investment professionals • Historically low attrition • Strong
Slide 23: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
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