Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q4 2013 Earnings Presentation
23 slides from Two Harbors Investment's earnings presentation, Mar 18, 2014
Slide 1: Fourth Quarter 2013 Investor Presentation
Fourth Quarter 2013 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: Mission Based Strategy
Mission Based Strategy OUR MISSION IS TO BE RECOGNIZED AS THE INDUSTRY-LEADING MORTGAGE REIT: Largest hybrid mortgage REIT investing in residential mortgage assets Market capitalization of approximately $3.8 billion(1) Provider of permanent capital to the U.S. mortgage market over the long-term BENE
Slide 4: 2013 In Review
2013 In Review 4 ADVANCING STRATEGIC INITIATIVES First Quarter 2013 Completed accretive public offering of common stock for net proceeds of approximately $762.9 million Second Quarter 2013 Acquired Matrix Financial Services Corporation, which has seller-servicer approvals Repurchased 1 million share
Slide 5: Fourth Quarter 2013 Market Overview
AGENCY RMBS NON-AGENCY RMBS MACROECONOMIC & POLICY CONSIDERATIONS Fourth Quarter 2013 Market Overview Federal Reserve remains the largest buyer in the mortgage market Federal Reserve tapering can create opportunities; uncertainty remains on timing Non-Agency fundamental performance is strong Continu
Slide 6: Delivering Total Return
Delivering Total Return Since inception, we have generated total stockholder return of 111%,(1) which compares favorably to the Pine River Mortgage REIT Index. (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through February 28, 2014. Total stockholder return
Slide 7: Portfolio Composition
TARGETED CAPITAL ALLOCATION HIGHLIGHTS – DECEMBER 31, 2013 PORTFOLIO COMPOSITION Portfolio Composition 7 Capital allocation was 57% Rates(3) and 43% Credit(4) Agencies declined to 44% of capital allocation while MSR increased to 13% Expect capital allocation to MSR to increase going forward as opera
Slide 8: MSR in a Portfolio Context
MSR in a Portfolio Context 8 Amount ($) Yield (%)(1) 10bps Rate Increase (%) 10bps Basis Increase (%) Agency RMBS $800 3.40% (6.00%) (6.00%) Agency Repo $700 (0.40%) 5-year Swap Cost $1,200 (1.45%) 6.00% --% MSR $-- --% --% --% Total 7.00% --% (6.00%) ROE: 7.00% Debt-to-equity: 7.0x Impact to Book V
Slide 9: Mortgage Loan Conduit & Securitization
Mortgage Loan Conduit & Securitization EXPANDING TWO HARBORS’ CONDUIT PROGRAM IS A KEY A FOCUS IN 2014 Diversifying business model by building an operational business structure Aim to generate attractive credit investments for portfolio while providing capital to the U.S. mortgage market Control and
Slide 10: Two Harbors' Infrastructure
Two Harbors’ Infrastructure SUBSTANTIAL PROGRESS BUILDING AN EFFICIENT AND SCALABLE CORE PLATFORM THAT ALLOWS TWO HARBORS TO RESPOND QUICKLY TO A BROAD ARRAY OF MARKET OPPORTUNITIES Our external manager hired over 30 full-time employees who are dedicated to Two Harbors and serve in key leadership an
Slide 11: Federal Home Loan Bank of Des Moines
Federal Home Loan Bank of Des Moines Facility provides current funding capacity up to $ 1 billion; may increase or decrease at the FHLB’s sole discretion because it is uncommitted Collateral posted at an asset level versus blanket lien (i.e., each advance will require approval by the FHLB) Eligible
Slide 12: Attractive Returns With Lower Risk
LESS INTEREST RATE EXPOSURE(3) Attractive Returns With Lower Risk 12 ATTRACTIVE & COMPARABLE DIVIDEND YIELD(1) WITH LOWER LEVERAGE(2) SUPERIOR ASSET SELECTION AND RISK MANAGEMENT DRIVE RETURNS WHILE WE TAKE ON LESS RISK TWO Peer Average TWO Peer Average TWO Peer Average AND LESS PREPAYMENT RISK(4) T
Slide 13: Appendix
Appendix 13
Slide 14: Agency Securities as of December 31, 2013
Agency Securities as of December 31, 2013 14 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% $719 $715 7.4% $765 3.5% 19 4.0-4.5% 3,855 4,008 41.3% 4,185 4.1% 19 > 5.0% 837 926 9.5% 909 5.5% 60
Slide 15: Mortgage Servicing Rights
Mortgage Servicing Rights BULK ACQUISITION FROM FLAGSTAR BANK MSR on residential mortgage loans Underlying pool of mortgage loans is comprised of Fannie Mae and Ginnie Mae loans; originated primarily after 2010 Subservicing agreement with Flagstar Bank FLOW AGREEMENT WITH PHH MORTGAGE CORP. (PHH) Tw
Slide 16: Non-Agency Securities as of December 31, 2013
Non-Agency Securities as of December 31, 2013 16 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $2,282 $469 $2,751 % of Non-Agency Portfolio 83.0% 17.0% 100.0% Average Purchase Price(1) $52.58 $59.09 $53.69 Average Coupon 2.5% 1.6% 2.3% Weighted Average Ma
Slide 17: Financing Profile
DIVERSE COUNTERPARTIES(2) HIGH-QUALITY COUNTERPARTIES(3) Financing Profile(1) 17 Laddered repo maturities; averaged 72 days to maturity with 20 counterparties at year-end Agency and non-Agency repo held with counterparties having credit default swap (CDS) spreads lower than 150 bps; implies low over
Slide 18: Hedging Strategy
BV EXPOSURE TO +100 BPS CHANGE IN RATES(1) SWAPS, SWAPTIONS AND IO(2) HEDGING Hedging Strategy 18 HEDGING STRATEGY Protect book value regardless of interest rate environment Use a variety of hedging tools to protect book value, including swaps, swaptions, interest-only bonds and short To Be Announce
Slide 19: Financing and Hedging Strategy: Interest Rate Swaps
INTEREST RATE SWAPS(2) FINANCING Financing and Hedging Strategy(1) 19 As of December 31, 2013. Notional amounts do not include $1.0 billion of notional interest rate swaps economically hedging our trading securities, $3.1 billion of notional interest rate swaps hedging our available-for-sale securit
Slide 20: Financing and Hedging Strategy: Interest Rate Swaptions
INTEREST RATE SWAPTIONS Financing and Hedging Strategy(1) 20 As of December 31, 2013. Option Underlying Swap Swaption Expiration Cost ($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
Slide 21: Overview of Two Harbors Team
EXECUTIVE OFFICERS Overview of Two Harbors Team 21 CHIEF FINANCIAL OFFICER BRAD FARRELL Most recently served as Two Harbors’ Controller from 2009 to 2011 Previously Vice President and Executive Director of Financial Reporting at GMAC ResCap from 2007 to 2009 and held financial roles at XL Capital Lt
Slide 22: Overview of Pine River Capital Management
EXPERIENCED, COHESIVE TEAM(3) ESTABLISHED INFRASTRUCTURE GLOBAL ASSET MANAGEMENT FIRM Overview of Pine River Capital Management Sixteen partners with average of 22 years experience Approximately 420 total employees, 140 investment professionals Historically low attrition Strong corporate governance
Slide 23: Two Harbors Investment Corp.
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