Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2015 Earnings Presentation
26 slides from Two Harbors Investment's earnings presentation, Nov 4, 2015
Slide 1: Third Quarter 2015 Earnings Call
November 5 , 2015 Third Quarter 2015 Earnings Call
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: Financial Summary and Macroeconomic Overview
Financial Summary and Macroeconomic Overview FINANCIAL RESULTS (1) • Total return of (0.2%) through first nine months of 2015(2) – Q3-2015 cash dividend of $0.26 per share • Comprehensive Loss of $92.8 million – Return on average equity of (9.4%), or ($0.25) per share • Core Earnings of $79.4 millio
Slide 4: Operational Business Update
Operational Business Update SIGNIF ICANT GROW TH ACROSS OPERAT IONAL BUSINESSES DURING THIRD QU ARTER 2015 4 Sponsored two prime jumbo securitizations; total UPB of $606 million Retained AAA and credit pieces from each deal Pipeline (interest rate locks and prime jumbo residential mortgage loan hold
Slide 5: Strategic Update
Strategic Update 5 PROVIDING CAPITAL SOLUTIONS TO THE U.S . REAL ESTATE MARKET MORTGAGE LOAN CONDUIT AND MSR COMMERCIAL REAL ESTATE • Expand originator network and product offerings while continuing to be a regular issuer • Active MSR participant through bulk purchases and flow agreements • Continue
Slide 6: Book Value
(Dollars in millions, except per share data) Q3-2015 Book Value ($M) Q3-2015 Book Value per share YTD-2015 Book Value ($M) YTD-2015 Book Value per share Beginning stockholders’ equity $3,971.6 $10.81 $4,068.0 $11.10 Cumulative effect of adoption of new accounting principle (ASU 2014-13) n/a (3.0) Be
Slide 7: Core Earnings Summary
Q2-2015 Q3-2015 Variance ($) Variance (%) Interest income $152.5 $152.8 $0.3 0.2% Interest expense $35.0 $37.0 ($2.0) (5.9%) Net interest income $117.5 $115.8 ($1.7) (1.5%) Loss on swaps and swaptions ($26.2) ($19.4) $6.8 25.8% Gain on other derivatives $6.4 $5.6 ($0.8) (11.2%) Servicing income, net
Slide 8: Financing Profile
Financing Profile 8 REPURCHASE AGREEMENTS • Focused on diversification and financial stability across repo counterparties • Outstanding borrowings of $8.0 billion with 21 active counterparties • Continued to ladder repo maturities; average 57 days to maturity FEDERAL HOME LOAN BANK OF DES MOINES • O
Slide 9: Portfolio Performance and Hedging
Portfolio Performance and Hedging 9 Q 3 - 2 015 P E R FO R M A NC E H I G H L I G H TS (1) “Legacy” non-Agency RMBS includes non-Agency bonds issued up to and including 2009. “New issue” non-Agency RMBS includes bonds issued after 2009. (2) Cost of funds includes interest spread expense associated w
Slide 10: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION (1) Portfolio Composition 10 $14.1 BILLION PORTFOLIO AS OF SEPTEMBER 30, 2015 ($ billions) (1) For additional detail on the portfolio, see appendix slides 18-22. (2) Commercial consists of senior and mezzanine commercial real estate debt and relate
Slide 11: Prime Jumbo Securitizations and MSR Update
• Sponsored two securitizations, totaling approximately $606 million unpaid principal balance (UPB) – Retained approximately $250 million in AAAs; subordinates and IOs of approximately $32 million – Sponsored seven securitizations year-to-date(1) • Pipeline (interest rate locks and prime jumbo resid
Slide 12: Commercial Real Estate Update
• Capital allocation increased to 4%; total loan carrying value of $291 million • Added eight loans during the quarter ― Four senior and four mezzanine ― Diverse group of properties throughout the United States • One investment financed at September 30, 2015; securing additional financing for senior
Slide 13: Appendix
Appendix
Slide 14: Return on Book Value
Return on Book Value 14 (1) Return on book value for nine-month period ended September 30, 2015 is defined as the decrease in book value from December 31, 2014 to September 30, 2015 of $0.80 per share, plus dividends declared of $0.78 per share, divided by December 31, 2014 book value of $11.10 per
Slide 15: Financial Performance
DIV IDENDS (1) Financial Performance 15 COMPREHENSIVE INCOME BOOK VALUE AND DIV IDEND PER SHARE (1) GAAP NET INCOME (LOSS) (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 G
Slide 16: Operating Performance
Operating Performance 16 (In millions, except for per share data) Core Earnings Realized Gains Unrealized MTM Q2-2015 Financials Core Earnings Realized Gains Unrealized MTM Q3-2015 Financials Interest income $152.5 $ - $ - $152.5 $152.8 $ - $ - $152.8 Interest expense 35.0 - - 35.0 37.0 - - 37.0 Net
Slide 17: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation (1) Reconciliation of GAAP to non-GAAP Information (In thousands, except for per share data) Three Months Ended June 30, 2015 Three Months Ended September 30, 2015 Reconciliation of net income (loss) to Core Earnings: Net income (loss) $221,501 ($34,790) Adjustme
Slide 18: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 18 AGENCY RMBS CPR(1) AGENCY PORTFOLIO YIELDS AND METRICS (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 19: Rates: Agency RMBS
Rates: Agency RMBS 19 As of Sept. 30, 2015 Par Value ($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% 647 677 7.4% 684 3.5% 9 4.0-4.5% 4,850 5,272 57.3% 5,213 4.2% 25 ≥ 5.0% 595 673 7.3% 643 5.5% 81 6,
Slide 20: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 20 As of Dec. 31, 2014 As of Mar. 31, 2015 As of June 30, 2015 As of Sept. 30, 2015 Fair value ($M) $452.0 $410.2 $437.6 $447.3 Unpaid principal balance ($M) $44,949.1 $43,974.9 $42,811.3 $48,117.3 Weighted average coupon 3.9% 3.9% 3.9% 3.9% Original FICO score 748 7
Slide 21: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 21 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 22: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 22 As of September 30, 2015 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,655.8 $744.8 $2,400.6 % of non-agency portfolio 69% 31% 100% Average purchase price(1) $57.93 $76.41 $63.66 Average coupon 2.8% 2.7% 2.8% Weighted average mark
Slide 23: Repo and FHLB Financing
Repo and FHLB Financing(1) 23 (1) As of September 30, 2015. (2) Excludes FHLB membership and activity stock totaling $153.7 million as of September 30, 2015. Repo and FHLB Collateral(2) Repo FHLB Total ($M) Available-for-sale securities, at fair value $8,532.5 $2,867.1 $11,399.6 Derivative asset, at
Slide 24: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Payers Hedging Repo and FHLB Advances 2016 $1.7 0.698% 0.324% 1.0 2017 $2.4 0.864% 0.312% 1.8 2018 $0.8 0.944% 0.318% 2.4 2019 $0.3 1.730% 0.303% 3.7 2020 and after $2.8 1.845% 0.305% 7.4 $8.0 1.216
Slide 25: Interest Rate Swaptions
Interest Rate Swaptions(1) 25 (1) As of September 30, 2015. Option Underlying Swap Swaption Expiration Cost ($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 $14.6 $0.1 1.7 $3,600 2.6
Slide 26: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
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