Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2017 Earnings Presentation
26 slides from Two Harbors Investment's earnings presentation, Dec 4, 2017
Slide 1: Third Quarter 2017 Investor Presentation
Third Quarter 2017 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) LEADING HYBRID MORTGAGE REAL ESTATE INVESTMENT TRUST 3 1) Except as otherwise indicated in this presentation, reported data is as of or for the period ended September 30, 2017. On November 1, 2017, the company completed its previously announced one-for-two r
Slide 4: Strategic Overview
Strategic Overview 4 Delivered total stockholder return of 25% in 2017(2) Grew Core Earnings to $0.51 per basic common share(3) Three dividend increases (1) Includes offering of 7.25% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock in November 2017. (2) Two Harbors’ total
Slide 5: Book Value Stability Drives Dividend Sustainability
Book Value Stability Drives Dividend Sustainability 5 • Book value has grown by 10.6% since inception; peer median over same time period is (21.8%)(1) • Book value volatility of 7.5% since inception; significantly less than hybrid mREITs (14.8%) and Agency mREITs (13.2%)(2) BOOK VALUE STABILITY AND
Slide 6: Delivering Results
-20.0% 10.0% 40.0% 70.0% 100.0% 130.0% 160.0% 190.0% 220.0% 10/29/2009 10/29/2010 10/29/2011 10/29/2012 10/29/2013 10/29/2014 10/29/2015 10/29/2016 TWO BBG REIT MTG Index Delivering Results 6 1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through September 30,
Slide 7: Attractive Returns With Lower Risk
…LESS INTEREST RATE R ISK (3 ) . . . Attractive Returns With Lower Risk 7 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 …AN
Slide 8: Optimizing Financing Profile and Capital Structure
Optimizing Financing Profile and Capital Structure 8 RATES – RMBS • Outstanding borrowings of $14.9 billion with 21 active counterparties • Outstanding secured FHLB advances of $2.0 billion with weighted average borrowing rate of 1.56% • Repo markets functioning efficiently for RMBS; new counterpart
Slide 9: Portfolio Composition
HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION(1) Portfolio Composition 9 $23.7 BILLION PORTFOLIO AS OF SEPTEMBER 30, 2017 (1) For additional detail on the portfolio, see Appendix slides 17-22. (2) Commercial consists of the consolidated financial results of Granite Point and its subsidiaries,
Slide 10: Rates Strategy Update
Mortgage Spreads Change in Agency RMBS and Mortgage Derivatives Change in MSR Total Overall Rates Strategy Change(2) 25 basis points wider ($140) $44 ($96) (2.9%) 15 basis points wider ($82) $27 ($55) (1.7%) 15 basis points tighter $75 ($31) $44 1.3% 25 basis points tighter $120 ($53) $67 2.0% Rates
Slide 11: Credit Strategy: Tailwinds
Credit Strategy: Tailwinds 11 • Home prices continue to improve; CoreLogic Home Price Index up 7.0% on a rolling 12-month basis(1) ― Home prices are expected to increase 4-6% in 2018(2) ― Supported by affordability, low housing supply and strong demand • Continued re-equification can drive strong pe
Slide 12: Credit Strategy: Attractive Return Expectancy
Credit Strategy: Attractive Return Expectancy 12 ILLUSTRATIVE LEGACY NON- AGENCY BOND EXAMPLE • Bond characteristics(1): ― Purchase price in Q1-2017: $52.25 ― Total 60+ day delinquencies: 17.4% ― 12-month CPR: 4.6% ― 12-month loss severities: 57.5% YIELD ANALYSIS – ACE 2007 -WM2 A2D (1) Base Case Up
Slide 13: Pro-Forma Net Income Exposure
-100 bps -50 bps +50 bps +100 bps Change in annualized net interest income (in thousands) $16, 229 $8,110 ($7,974) ($15,947) % Change in net interest income 4.9% 2.5% (2.4%) (4.8%) Pro-Forma Net Income Exposure 13 PRO-FORMA NET INTEREST INCOME EXPOSURE TO CHANGE IN RATES(1)(2) HEDGE ACROSS ALL POINT
Slide 14: Appendix
a —— Appendix rent Corp. TWO HARBORS Ir
Slide 15: Illustrative Pro Forma Balance Sheet and Core Earnings
Illustrative Pro Forma Balance Sheet and Core Earnings as of Sept. 30, 2017 15 (unaudited, dollars in thousands, except per share data) Consolidated Two Harbors Investment Corp. Granite Point Mortgage Trust Inc. Standalone Two Harbors Investment Corp. Total Assets $ 27,803,774 $ 2,356,727 $ 25,474,5
Slide 16: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation(1) Reconciliation of GAAP to non-GAAP Information Three Months Ended Three Months Ended (In thousands, except for per common share data) June 30, 2017 September 30, 2017 Reconciliation of Comprehensive income to Core Earnings: Comprehensive income $85,959 $161,60
Slide 17: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 17 AGENCY PORTFOLIO YIELDS AND METRICS AGENCY RMBS CPR(1) (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 18: Rates: Agency RMBS
Rates: Agency RMBS 18 As of September 30, 2017 Par Value ($M) Market Value ($M) % Prepay Protected(1) Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 3.0-3.5% $4,466 $4,623 76.1 % $4,665 3.5 % 12 4.0-4.5% 11,045 11,860 97.6 % 11,820 4.2 % 17 ≥ 5.0% 552 6
Slide 19: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 19 As of June 30, 2017 As of September 30, 2017 Fair value ($M) $898.0 $930.6 Unpaid principal balance ($M) $84,814.2 $88,789.8 Weighted average coupon 3.9 % 3.9 % Original FICO score(2) 754 753 Original LTV 73 % 73 % 60+ day delinquencies 0.2 % 0.3 % Net servicin
Slide 20: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics 20 LEGACY NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes legacy non-Agency principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If curren
Slide 21: Credit: Legacy Non-Agency Securities
Credit: Legacy Non-Agency Securities 21 As of September 30, 2017 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,558.4 $752.8 $2,311.2 % of non-Agency portfolio 67.4 % 32.6 % 100.0 % Average purchase price(1) $57.38 $65.30 $59.96 Average coupon 2.7 % 2.0 % 2.
Slide 22: Granite Point's Commercial Real Estate Portfolio
Granite Point’s Commercial Real Estate Portfolio(1) (1) Due to the company’s controlling ownership interest in Granite Point, the company consolidates Granite Point on its financial statements and reflects noncontrolling interest for the portion of equity and comprehensive income not attributable to
Slide 23: Financing
Financing 23 (1) Weighted average of 1.5 years to maturity. (2) Includes FHLB advances of $1.2 billion with original maturities of 20 years. (3) Excludes FHLB membership and activity stock totaling $85.2 million. (4) Revolving credit facilities over-collateralized due to operational considerations.
Slide 24: Interest Rate Swaps
Maturities Notional Amounts ($B)(1) Average Fixed Pay Rate(2) Average Receive Rate(2) Average Maturity Years(2) Payers 2017 $0.9 0.721 % 1.322 % 0.2 2018 4.3 1.155 % 1.314 % 0.8 2019 1.0 1.524 % 1.313 % 1.8 2020 1.6 1.542 % 1.311 % 3.0 2021 and after 7.8 1.793 % 1.321 % 5.9 $15.6 1.509 % 1.317 % 3.6
Slide 25: Interest Rate Swaptions
Interest Rate Swaptions 25 Option Underlying Swap Swaption Expiration Cost ($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 $9.3 $6.3 3.9 $3,225 2.25 % 3M LIBOR 5.0 Total Payer $9.3 $
Slide 26: Two Harbors Investment Corp.
TWO HARBORS. Investment Corp.
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