Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2016 Earnings Presentation
20 slides from Two Harbors Investment's earnings presentation, Sep 12, 2016
Slide 1: Second Quarter 2016 Investor Presentation
Second 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) Data as of June 30, 2016. OVERVIEW PROVEN STRATEGY • Equity market capitalization of approximately $3.0 billion • Portfolio of $16.1 billion • Target assets include Agency and non-Ag
Slide 4: Delivering Results
Delivering Results 4 (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through June 30, 2016. Total stockholder return is defined as stock price appreciation including dividends. Source: Bloomberg. (2) Bloomberg REIT Mortgage Index total stockholder return for t
Slide 5: Positioned to Drive Future Returns
Positioned to Drive Future Returns RATES STRATEGY • MSR complements Agency RMBS – MSR exhibits positive yield, negative duration and hedges mortgage basis risk • Agency RMBS sized to drive returns • Expect near-term flow MSR volume of over $2.0 billion UPB per month CREDIT STRATEGY • Strong tailwind
Slide 6: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 6 $16.1 BILLION PORTFOLIO AS OF JUNE 30, 2016 (1) For additional detail on the portfolio, see Appendix slides 13-19. (2) Commercial consists of senior and mezzanine commercial real estate debt and related instruments. (3)
Slide 7: Rates Strategy
Rates Strategy 7 COMBINATION OF AGENCY AND MSR DRIVES BETTER RETURNS WITH LESS RI SK • MSR is an attractive asset class and natural hedge for Agency RMBS ― Exhibits positive yield compared to paying fixed rates on swaps ― MSR values move with mortgage rates, hedging both interest rate and RMBS sprea
Slide 8: Credit Strategy
Credit Strategy 8 LONG-TERM OPPORTUNITY IN LEGACY NON-AGENCY RMBS • Favorable tailwinds ― Low interest rates and continued economic growth are positive for residential credit ― Positive home price appreciation (HPA) expected; CoreLogic HPI forecasts that prices will rise 5.4% year-over-year(1) • Por
Slide 9: 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 10: Commercial Real Estate Strategy
• Aggregate portfolio carrying value of $926.4 million at June 30, 2016, up from $744.3 million at March 31, 2016 ― Eighteen senior and six mezzanine assets ― Closed an additional $172.4 million in four senior loans since quarter-end • High quality loan portfolio ― Weighted average stabilized loan-t
Slide 11: Attractive Returns With Lower Risk
…LESS INTEREST RATE EXPOSURE (3 ) . . . Attractive Returns With Lower Risk 11 AT T R AC T I VE & C O M PA R A BLE D I V I D E ND Y I E L D (1 ) …WITH LOWER LEVERAGE (2 ) . . . SUPERIOR ASSET SELECTION AND RISK MANAGEMENT DRIVE RETURNS WITH LESS RISK TWO Peer Average TWO Peer Average TWO Peer Average
Slide 12: Appendix
Appendix
Slide 13: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 13 AGENCY PORTFOLIO YIELDS AND METRICS AGENCY RMBS CPR(1) (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 14: Rates: Agency RMBS
Rates: Agency RMBS 14 As of June 30, 2016 Par Value ($M) Market Value ($M) % Lower Balance/HARP(1) Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 3.0-3.5% $6,684 $6,991 — % $6,928 3.2 % 3 4.0-4.5% 3,536 3,901 85.4 % 3,805 4.2 % 36 ≥ 5.0% 513 585 73.7 %
Slide 15: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 15 (1) Excludes residential mortgage loans held-for-investment in securitization trusts for which the company is the named servicing administrator. (2) FICO represents a mortgage industry accepted credit score of a borrower. As of March 31, 2016 As of June 30, 201
Slide 16: Credit: Non-Agency MBS Metrics
Credit: Non-Agency MBS Metrics 16 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes MBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for wei
Slide 17: Credit: Non-Agency MBS
Credit: Non-Agency MBS 17 As of June 30, 2016 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,138.8 $503.2 $1,642.0 % of non-Agency portfolio 69.4 % 30.6 % 100.0 % Average purchase price(1) $54.07 $68.89 $58.61 Average coupon 3.0 % 2.3 % 2.8 % Weighted averag
Slide 18: Commercial Real Estate Assets
Commercial Real Estate Assets as of June 30, 2016 (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 co
Slide 19: Commercial Real Estate Assets
Commercial Real Estate Assets as of June 30, 2016 (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 co
Slide 20: (1) Data as 2016, except where noted.
(1) Data as of June 30, 2016, except where noted.
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