Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2019 Earnings Presentation
19 slides from Two Harbors Investment's earnings presentation, Nov 19, 2019
Slide 1: Third Quarter 2019 Investor Presentation
TWO HARBORS INVESTMENT CORP. A Leading Residential Hybrid Mortgage REIT Third Quarter 2019 Investor Presentation 1
Slide 2: 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 3: Two Harbors Investment Corp. Overview
Two Harbors Investment Corp. Overview(1) LEADING RESIDENTIAL HYBRID MORTGAGE REIT $3.9 billion(2) $5.0 billion $30.0 billion hybrid portfolio comprised of Rates market capitalization total stockholders’ equity and Credit strategies(3) 211% 11.4% total stockholder return since book value growth since
Slide 4: Key Reasons to Own Two Harbors Investment Corp.
Key Reasons to Own Two Harbors Investment Corp. Total Return Focused: Our primary goal is to drive attractive risk-adjusted returns for our stockholders. Book value preservation and growth is central to this objective. Dividend Well Supported: Core Earnings is not a proxy for the earnings power
Slide 5: Substantial Total Stockholder Return Outperformance
Substantial Total Stockholder Return Outperformance • Outperformed peer group by 53% since our inception • Delivered total stockholder return of 211% during that time(1) ― Bloomberg REIT Mortgage Index total stockholder return of 158% over the same period of time(2) 250.0% 220.0% 211% 190.0% 160.0%
Slide 6: Book Value Growth Since Inception
Book Value Growth Since Inception(1) • We have grown our book value by 11.4% since our inception in 2009 • Peer average over same time period was (29.3%) BOOK VALUE GROWTH BOOK VALUE OUTPERFORMANCE 140% 11.4% 120% 100% 80% 60% (29.3%) 40% (73.0%) 20% TWO Peer Average Co. A Co. B Co. C Co. D Co. E Co
Slide 7: Markets and Performance Overview - Rates
Markets and Performance Overview - Rates MARKET OVERVIEW • Current coupon widened 8 basis points in Q2 and 27 basis points in Q3 • MSR prices declined in chorus with the mortgage rate change rather than 5-year and 10-year swap rates • Position in higher coupon Agencies benefitted performance • Speci
Slide 8: Markets and Performance Overview - Credit
Markets and Performance Overview - Credit MARKET OVERVIEW • Low mortgage rates have offset steadily increasing HPA, keeping affordability within recent context • This should allow for increased mobility, higher prepayments, and better overall expected returns • Declining losses over time have provid
Slide 9: Portfolio Composition and Quarterly Activity
Portfolio Composition and Quarterly Activity PORTFOLIO ACTIVITY • Moved roughly $7 billion in mortgage risk from higher coupons to lower coupons as mortgages cheapened in August • Increasing interest in flow-sale MSR partnerships; added $5.8 billion UPB of MSR • Entered into agreements to sell all n
Slide 10: Risk Profile
Risk Profile LOW RISK EXPOSURES • Exposure to changes in interest rates and mortgage spreads remain small • Maintain a slightly long duration bias, increasing 1.4% in a down 50 basis point shock and losing 4.8% in an up 50 shock • Mortgage spread sensitivity mitigated by the presence of MSR in the p
Slide 11: Strategic Overview
Strategic Overview GENERATING STRONG ECONOMIC RETURNS WITH LOWER VOLATILITY RATES STRATEGY - Combination of Agency RMBS and MSR • Expect capital allocation to this strategy to continue to increase • Current expected returns in low double digits for Agency RMBS paired with MSR • Believe the combinati
Slide 12: a ail
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Slide 13: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics AGENCY PORTFOLIO PREPAYMENT PROTECTION(1) AGENCY PORTFOLIO AT-A-GLANCE 97.1% 100.0% 88.4% 90.1% 91.5% 80.4% 80.0% % Prepay Market Value ($M) Protected(1) 60.0% 40.0% 30-year fixed $24,469 98.5% 20.0% 0.0% 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 Other P&I(3) 148
Slide 14: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights MSR 60+ DAY DELINQUENCIES MSR PORTFOLIO AT-A-GLANCE(1) 1.0% As of As of June 30, September 2019 30, 2019 0.5% 0.4% 0.3% 0.3% 0.3% 0.3% Fair value ($M) $1,801 $1,652 Unpaid principal balance ($M) $169,644 $165,333 0.0% 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/201
Slide 15: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics NON-AGENCY 60+ DAY DELINQUENCIES NON-AGENCY PORTFOLIO AT-A-GLANCE 25.0% Total P&I Bonds 19.6% 19.2% Portfolio characteristics: 20.0% 18.7% 18.1% 18.3% Carrying value ($M) $3,473.3 15.0% Weighted average purchase price(1) $63.63 Weighted average coupon 3.0% 10.0%
Slide 16: Financing
Financing $ in millions Repurchase Revolving Credit Term Notes Total Outstanding Outstanding Borrowings and Maturities(1) Agreements FHLB Advances Facilities Payable Convertible Notes Borrowings Percent (%) Within 30 days $ 7,154.3 $ — $ — $ — $ — $ 7,154.3 26.9% 30 to 59 days 6,779.4 — — — — 6,779.
Slide 17: Interest Rate Swaps
Interest Rate Swaps INTEREST RATE SWAPS Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity Years Payers 2019 $ 3.6 1.834% 2.204% 0.1 2020 3.6 1.806% 2.186% 1.1 2021 15.7 1.681% 2.177% 1.7 2022 2.6 1.911% 2.185% 3.0 2023 and after 7.5 2.344% 2.212% 7.0 $ 33.
Slide 18: Interest Rate Swaptions
Interest Rate Swaptions INTEREST RATE SWAPTIONS Option Underlying Swap Average Average Cost Fair Value Months to Notional Average Pay Receive Average Term Swaption Expiration ($M) ($M) Expiration Amount ($M) Rate Rate (Years) Purchase Contracts: Payer <6 Months $ 5.4 $ 1.4 4.0 $ 1,250 2.05% 3M LIBOR
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