Two Harbors Investment Corp · NYSE:TWO

Two Harbors Investment — Investor Presentation (June 2013)

25 slides from Two Harbors Investment's investor presentation, Jun 4, 2013

  1. Slide 1: Two Harbors Investment Corp. First Quarter 2013 Investor Presentation

    Two Harbors Investment Corp. First Quarter 2013 Investor Presentation

  2. 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,

  3. Slide 3: Market and Portfolio Performance Update

    1 1.5 2 2.5 -20 0 20 40 60 80 Market and Portfolio Performance Update 2 (1) Source: Bloomberg, as of May 31, 2013 (2) Source: JP Morgan Data Query, as of May 31, 2013. Represents the spread of FN 30-year current coupon mortgage rate over the swap curve. (3) Excludes notional TBA positions of $2.2 bi

  4. Slide 4: Two Harbors Today

    Two Harbors Today 3  Largest hybrid mortgage REIT focused on investing in residential mortgage assets  $4.5 billion market capitalization1  Total portfolio of $15.5 billion as of March 31, 2013  Talented and deep bench in Minnesota and New York ― Experienced investment and administrative teams ―

  5. Slide 5: Mission-Based Strategy

    Mission-Based Strategy 4 RMBS Investment Universe  Flexibility as a hybrid REIT to take advantage of opportunities in both Agency and non- Agency securities, residential mortgage loans and other residential assets Mission  To be recognized as the industry-leading hybrid mortgage REIT Objectives 

  6. Slide 6: Delivering Total Return

    -10% 10% 30% 50% 70% 90% 110% 130% Delivering Total Return 5 (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through May 8, 2013. Total stockholder return is defined as capital gains on stock price including dividends. Source: Bloomberg. (2) Pine River Mortgag

  7. Slide 7: Book Value & Dividend History

    Book Value & Dividend History 6 (1) Historical dividends may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share, not GAAP earnings. The annualized dividend yield on the company’s common stock is calculated bas

  8. Slide 8: Benefit of Hybrid Model

    Benefit of Hybrid Model Multi-Faceted Approach  We continue to pursue opportunities in the Agency and non-Agency markets.  We reported progress on several new opportunities during the first quarter, including Mortgage Servicing Rights (MSRs), Securitization and Credit Sensitive Loans (CSLs).  Our

  9. Slide 9: Market Update

    Market Update 8 Non-Agency RMBS  Home prices improving, CoreLogic Home Price Index +10%1 on a rolling 12-month basis  Low rate environment expected to persist; continue to hedge against an increase in rates  Unemployment stubbornly high  Policy considerations include: ― HARP extension through 20

  10. Slide 10: Portfolio Composition Highlights

    110 110 Portfolio Composition 9 Highlights Targeted Capital Allocation  Raised capital in March, for net proceeds of approximately $763 million  As of April 30, 2013, we have deployed about 75% of the capital raised  Investments in CSLs, prime jumbo loans and securitization during the first quart

  11. Slide 11: Agency Portfolio with Prepayment Protection

    Agency Portfolio with Prepayment Protection Agency RMBS Portfolio Agency Strategy Agency Portfolio: $12.3B1 As of March 31, 2013 Other Low Loan Balance Pools4 15% Low FICO5 7% Post 2006 - Discount 2% Prepayment Protected 5% Seasoned6 5% HECM 15% High LTV (Predominately MHA)2 27% $85K Max Pools3 22%

  12. Slide 12: Non-Agency Portfolio with Sub-Prime Focus

    Non-Agency Portfolio with Sub-Prime Focus 11 Sub-Prime Exposure Non-Agency Strategy Non-Agency Portfolio Non-Agency Portfolio: $3.0B As of March 31, 2013 Option-ARM 7% Alt-A 4% Prime 2% Sub-Prime 87%  Non-Agency underlying performance continues to improve; declining delinquencies, rising home price

  13. Slide 13: Hedging Strategy

    $15.7 $5.8 $0.5 $- $5 $10 $15 $20 Hedging Tools (Notional Value) Agency Securities (Fair Market Value) Swaps - Notional ($) Swaptions - Notional ($) IOs and IIOs ($) Hedging Strategy 12 Swaps, Swaptions and IOs BV Exposure to +100 bps Change in Rates1 Hedging  Hedging Strategy: ― Objective of prote

  14. Slide 14: Financing Profile

    13 Financing Profile High-Quality Non-Agency Counterparties3 Diverse Agency Counterparties2  We continue to ladder repo maturities, and average 821 days to maturity. We currently have 24 counterparties.  The majority of repo is held with counterparties having a CDS spread of <1501, indicating low

  15. Slide 15: Hybrid Model Opportunity Set

    14 Hybrid Model Opportunity Set Prime Jumbo Securitization  Opportunity to create attractive mortgage credit investment is beneficial to shareholders  Participated in a prime jumbo securitization in 1Q13  Continue building aggregation capabilities Credit Sensitive Loans (CSLs)  Very similar to t

  16. Slide 16: Attractive Returns With Lower Risk

    4.3x 3.8x 3.4x 3.1x 7.6x 7.0x 7.1x 7.1x – 2x 4x 6x 8x Attractive Returns With Lower Risk Attractive & Comparable Dividend Yield1… … With Lower Leverage4… … Less Interest Rate Exposure 5 … … And Less Prepayment Risk 6 6.0% 15.9% 6.0% 18.7% 6.6% 19.0% 7.0% 18.0% – 5% 10% 15% 20% 15.4% 13.6% 12.3% 11.9

  17. Slide 17: Appendix

    Appendix 16

  18. Slide 18: Q1-2013 Return on Book Value of 8.5%

    17 Q1-2013 Return on Book Value of 8.5% Return on book value1 (Per diluted share amounts, except for percentage) Book value at March 31, 2013 $ 11.19 Book value at December 31, 2012 11.54 Decrease in book value (0.35) Dividend declared in 1Q132 1.33 Return on book value ($) $ 0.98 Return on book val

  19. Slide 19: Agency: Vintage & Prepayment Protection

    Agency: Vintage & Prepayment Protection Q4-2012 Q1-2013 High LTV (predominately MHA)1 27% 27% $85K Max Pools2 20% 22% HECM3 17% 15% Other Low Loan Balance Pools4 16% 15% Low FICO5 7% 7% Prepayment protected 5% 5% Seasoned (2005 and prior vintages) 4% 5% 2006 & subsequent vintages - Discount 2% 2% 20

  20. Slide 20: Agency Securities as of March 31, 2013

    19 Agency Securities as of March 31, 2013 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed 3.0-3.5% $ 3,811 $ 3,960 32.4% $ 4,018 3.1% 6 4.0-4.5% 3,489 3,821 31.2% 3,786 4.2% 12 ≥ 5.0% 989 1,106 9.0%

  21. Slide 21: Non-Agency Securities as of March 31, 2013

    20 Non-Agency Securities as of March 31, 2013 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $2,451 $576 $3,027 % of Non-Agency Portfolio 81.0% 19.0% 100.0% Average Purchase Price1 $51.05 $57.35 $52.25 Average Coupon 1.8% 1.3% 1.7% Collateral Attributes Av

  22. Slide 22:  Pays sequentially after the A3 is fully paid, expected to be in early

     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 coupon of LIBOR + 0.31%.  Wells Fargo & SPS as servicers. A3 39.9%-100% $13M Current Face 0.6 Yr WAL1 SUBORDINATED

  23. Slide 23: Financing and Hedging Strategy

    110 110 March 31, 2013 Swaps Maturities Notional Amounts ($M) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) 2013 $ 500 0.523% 0.288% 0.40 2014 900 0.316% 0.304% 0.79 2015 4,000 0.386% 0.305% 1.78 2016 2,550 0.583% 0.298% 2.92 2017 and after 7,735 0.975% 0.294% 4.81 $ 15,685 0.

  24. Slide 24: Pine River Capital Management Partners

    23  Pine River Capital Management Partner  32 years in mortgage securities market, including at Salomon Brothers and Citi; Managing Director in proprietary trading group managing MBS and ABS portfolios  Most recently served as Two Harbors’ Controller from 2009 to 2011  Previously Vice President

  25. Slide 25: Overview of Pine River Capital Management

    24 Overview of Pine River Capital Management  Global multi-strategy asset management firm providing comprehensive portfolio management, transparency and liquidity to institutional and high net worth investors  Founded 2002 with approximately $14.0 billion assets under management today, of which $1

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