Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Presentation (June 2018)
25 slides from Two Harbors Investment's investor presentation, Jun 5, 2018
Slide 1: First Quarter 2018 Investor Presentation
First Quarter 2018 Investor Presentation
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) A LEADING HYBRID MORTGAGE REIT Residentially-focused mortgage REIT formed in 2009 Substantial total stockholder return outperformance since our inception relative to peers Proven stability in book value, especially during volatile periods Sophisticate
Slide 4: Two Harbors Snapshot
Two Harbors Snapshot $2.7 billion $3.5 billion $22.4 billion hybrid portfolio comprised of Rates market capitalization total stockholders’ equity and Credit strategies(1) 201% 16.4% -2.3% difference in book value volatility total stockholder return since substantial book value growth since compared
Slide 5: Substantial Total Stockholder Return Outperformance
Substantial Total Stockholder Return Outperformance • Outperformed peer group by over 75% since our inception • Delivered total stockholder return of 201% during that time(1) ― Bloomberg REIT Mortgage Index total stockholder return of 123% over the same period of time(2) 220.0% 201% 190.0% 160.0% 13
Slide 6: Proven Book Value Stability
Proven Book Value Stability… BOOK VALUE STABILITY AND GROWTH • Book value has grown by 16.4% since our inception through March 31, 2018, when adjusted to include the value of the Granite Point and Silver Bay stock distributions to Two Harbors stockholders(1)(2) • Peer average over same time period i
Slide 7: Particularly Through Volatile Times
…Particularly Through Volatile Times REFLECTS SOPHISTICATED APPROACH TO RISK MANAGEMENT AND HEDGING • Proven stability of book value through times of • Importantly, these results were achieved with less book volatility: in the 2013 “taper tantrum” Two Harbors value volatility than comparable mortgag
Slide 8: Proposed Acquisition of CYS Investments, Inc.
Proposed Acquisition of CYS Investments, Inc. ON APRIL 26, 2018, TWO HARBORS ANNOUNCED THE PROPOSED ACQUISITION OF CYS INVESTMENTS, INC. (NYSE: CYS), A PUBLICLY TRADED MORTGAGE REIT • CYS stockholders will receive Two Harbors shares as well as an aggregate cash consideration of $15 million • Followi
Slide 9: Investment Portfolio Overview
Investment Portfolio Overview PORTFOLIO COMPOSITION(1) HISTORICAL CAPITAL ALLOCATION $22.4 BILLION PORTFOLIO AS OF MARCH 31, 2018 March 31, December 31, March 31, 2017 2017 2018 Non-Agency $3.0b Rates(2) 58 % 68 % 69 % MSR $1.3b Credit(3) 27 % 32 % 31 % (4) Agency Commercial 15 % — % — % $18.1b Rate
Slide 10: Expected Portfolio Strategy into 2019
Expected Portfolio Strategy into 2019 REALLOCATE CAPITAL FROM CYS ACQUISITION INTO TARGET ASSETS • Anticipate reallocating capital from CYS acquisition into Agency RMBS (primarily 30-year fixed and specified pools), MSR and residential credit • Expect approximately 50% of Two Harbors’ total capital
Slide 11: Rates Strategy
Rates Strategy RATES STRATEGY DESIGNED TO GENERATE STRONG RETURNS WITH LOW VOLATILIT Y AND MINIMAL INCOME AND BOOK VALUE EXPOSURE TO RATE CHANGES • Significant MSR platform of over $100 billion in unpaid principal balance pairs well with Agency RMBS holdings ― Pairing MSR with Agency RMBS results in
Slide 12: Protecting Book Value and Income
Protecting Book Value and Income • Utilize a variety of hedging tools including MSR, swaps and swaptions/mortgage options to reduce book value sensitivity to changes in interest rates and mortgage spreads HEDGING ACROSS THE CURVE Book value exposure to changes in rates(1) Net income exposure to chan
Slide 13: Credit Strategy
Credit Strategy UNIQUE NON-AGENCY PORTFOLIO DRIVES ATTRACTIVE TOTAL RETURNS • Non-Agency securities holdings of $3.0 billion; primarily positioned in deeply discounted legacy subprime non-Agency RMBS • Better underlying performance drives: ― Attractive yields ― Book value growth ― Strong total retur
Slide 14: Credit Strategy Opportunity
Credit Strategy Opportunity RESIDENTIAL CREDIT TAILWINDS • Home prices continue to improve; CoreLogic Home Price Index up 7.0% on a rolling 12-month basis(1) ― Home prices expected to increase 4-6% in 2018(1) ― Supported by affordability, low housing supply and strong demand • Continued re-equificat
Slide 15: Optimizing Financing Profile and Capital Structure
Optimizing Financing Profile and Capital Structure DEBT-TO-EQUITY • 5.9x at March 31, 2018, unchanged from December 31, 2017 • Maintain substantial liquidity to opportunistically take advantage of market opportunities PREFERRED STOCK ISSUANCES • $726 million issued with weighted average dividend rat
Slide 16: Appendix
= ST =i Appendix TWO HARBORS Investment Corp.
Slide 17: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics AGENCY PORTFOLIO YIELDS AND METRICS AGENCY PORTFOLIO COMPOSITION Hybrid ARMs and Realized Q4- At December Realized Q1- At March IO & Inverse IO Other Portfolio Yield 2017 31, 2017 2018 31, 2018 30-Year Fixed 1.5% 1.4% Agency yield 3.1% 3.1% 3.1% 3.2% 5% & above Repo and FH
Slide 18: Rates: Agency RMBS
Rates: Agency RMBS As of March 31, % Prepay Amortized Cost Weighted Average Weighted Average 2018 Par Value ($M) Market Value ($M) Protected(1) Basis ($M) Coupon Age (Months) 30-Year fixed 3.0-3.5% $3,983 $4,004 96.7% $4,168 3.5% 15 4.0-4.5% 12,645 13,173 100.0% 13,469 4.2% 18 ≥ 5.0% 378 415 100.0%
Slide 19: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) As of December 31, 2017 As of March 31, 2018 Fair value ($M) $1,086.7 $1,301.0 Unpaid principal balance ($M) $101,344.1 $111,703.2 Weighted average coupon 3.9 % 4.0 % Original FICO score(2) 753 752 Original LTV 74 % 74 % 60+ day delinquencies 0.5 % 0.5 % Net servi
Slide 20: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics NON-AGENCY PORTFOLIO YIELDS AND METRICS LEGACY NON-AGENCY PORTFOLIO COMPOSITION Realized Q4- At December Realized Q1- At March 31, Portfolio Yield 2017 31, 2017 2018 2018 Non-Agency: Loan Type December 31, 2017 March 31, 2018 Non-Agency yield 7.6% 7.5% 8.0% 7.6%
Slide 21: Credit: Legacy Non-Agency Securities
Credit: Legacy Non-Agency Securities As of March 31, 2018 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,860.0 $777.9 $2,637.9 % of non-Agency portfolio 70.5 % 29.5 % 100.0 % Average purchase price(1) $56.99 $65.53 $59.51 Average coupon 2.9 % 2.5 % 2.8 % Wei
Slide 22: Financing
Financing $ in millions Repurchase Revolving Credit Total Outstanding Outstanding Borrowings and Maturities(1) Agreements FHLB Advances Facilities Convertible Notes Borrowings Percent (%) Within 30 days $ 4,027.3 $ — $ — $ — $ 4,027.3 19.8 % 30 to 59 days 3,901.3 — — — 3,901.3 19.2 % 60 to 89 days 3
Slide 23: Interest Rate Swaps
Interest Rate Swaps Average Maturity Maturities Notional Amounts ($B)(1) Average Fixed Pay Rate(2) Average Receive Rate(2) Years(2) Payers 2018 $2.0 1.289 % 1.885% 0.6 2019 4.3 1.769 % 1.802% 1.5 2020 2.9 1.785 % 1.952% 2.6 2021 2.4 1.788 % 2.198% 3.7 2022 and after 5.8 2.200 % 1.936% 7.9 $17.4 1.83
Slide 24: Interest Rate Swaptions
Interest Rate Swaptions Option Underlying Swap Average Notional Average Average Average Cost Fair Value Months to Amount Pay Receive Term Swaption Expiration ($M) ($M) Expiration ($M) Rate Rate (Years) Purchase Contracts: Payer <6 Months $8.5 $10.8 3.7 $4,095 2.98% 3M LIBOR 5.0 Sale Contracts: Payer
Slide 25: Two Harbors Investment Corp.
TWO HARBORS Investment Corp, [Aina Fiver Cantal Managed Company
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