Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2014 Earnings Presentation
22 slides from Two Harbors Investment's earnings presentation, May 15, 2014
Slide 1: First Quarter 2014 Investor Presentation
First Quarter 2014 Investor Presentation
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: 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 te
Slide 4: First Quarter 2014 Market Overview
AGENCY RMBS NON- AGENCY RMBS MACROECONOMIC & POLICY CONSIDERATIONS First Quarter 2014 Market Overview • Federal Reserve remains the largest buyer in the mortgage market • Federal Reserve tapering can create opportunities • Non-Agency RMBS fundamentals remain strong • Improving housing metrics contin
Slide 5: Delivering Total Return
Delivering Total Return Total stockholder return of 113%(1) since inception; compares favorably to the Pine River Mortgage REIT Index. (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 through March 31, 2014. Total stockholder return is defined as stock price ap
Slide 6: Portfolio Composition
TA RG ET E D C A P I TAL A L LO C AT I O N Q 1 - 2 014 H I G H L I G H T S P O RT FO L I O C O M P O S I T I O N Portfolio Composition 6 • 58% capital allocation to Rates(4) — MSR capital allocation of 13%; expect allocation to increase over time — Focused on higher coupon, shorter duration assets •
Slide 7: Mortgage Servicing Rights
Mortgage Servicing Rights Q1-2014 REVIEW • Added $121 million in UPB from PHH Corp. pursuant to flow purchase arrangement ― Underlying pool of mortgages are production from late 2013 • Completed $5.0 billion UPB bulk purchase from Flagstar Bank in April 2014 ― Underlying pool of mortgages are Fannie
Slide 8: Mortgage Loan Conduit and Securitization
Mortgage Loan Conduit and Securitization PRIME JUMBO INITIATIVE EXPANDING • Prime Jumbo holdings of $141 million at March 31, 2014 – Pipeline (i.e. interest rate locks) of approximately $154 million; was $12 million at December 31, 2013 • Potential to securitize if market conditions warrant • Focus
Slide 9: Hedging Strategy
BV E X P O S U R E TO C H A N G ES I N R AT E S (1 ) Hedging Strategy 9 • Price of volatility near historic lows • Added cheap out-of-the-money swaptions in Q1-2014 ― Net notional of swaption position increased to $9.5 billion at March 31, 2014, versus $5.1 billion at December 31, 2013 • Hedges are
Slide 10: Attractive Returns With Lower Risk
…LESS INTEREST RATE EXPOSURE ( 3 ) . . . Attractive Returns With Lower Risk 10 A T T R A C T I VE & C O M P A R A B L E D I V I D E N D Y I E L D ( 1 ) …WITH LOWER LEVERAGE ( 2 ) . . . SUPERIOR ASSET SELECTION AND RISK MANAGEMENT DRIVE RETURNS WHILE WE TAKE ON LESS RISK TWO Peer Average TWO Peer Ave
Slide 11: Appendix
Appendix 11
Slide 12: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 12 AGENCY RMBS CPR(7) AGENCY PORTFOLIO YIELDS AND METRICS (1) Agency yield includes impact of Agency Derivatives. Interest income on Agency Derivatives was $7.0 million and $5.8 million for the first quarter of 2014 and fourth quarter of 2013, respectively. (2) Cost of fin
Slide 13: Rates: Agency RMBS
Rates: Agency RMBS 13 As of March 31, 2014 Par Value (M) Market Value (M) % of Agency Portfolio Amortized Cost Basis (M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed 4.0-4.5% 4,877 5,149 51.3% 5,286 4.2% 18 ≥ 5.0% 801 889 8.9% 869 5.5% 63 $5,678 $6,038 60.2% $6,155 4.4% 24 15-
Slide 14: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 14 As of Dec. 31, 2013 As of Mar. 31, 2014 Fair Value ($M) $514.4 $476.7 Unpaid Principal Balance ($M) $42,324.3 $41,596.3 Weighted Average Coupon 3.9% 3.9% Original FICO Score 734 738 Original LTV 76% 75% 60+ Day Delinquencies 0.9% 1.0% Net Servicing Spread 25 basis
Slide 15: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 15 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Cost of financing non-Agency RMBS includes interest spread expense associated with the portfolio’s interest rate swaps of $2.0 million and $1.9 million for the first quarter of 2014 and fo
Slide 16: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 16 As of March 31, 2014 Senior Bonds Mezzanine Bonds Total P&I Portfolio Characteristics Carrying Value ($M) $2,328 $474 $2,802 % of Credit Portfolio 83.1% 16.9% 100.0% Average Purchase Price(1) $52.06 $59.20 $53.27 Average Coupon 2.3% 1.7% 2.2% Weighted Average Market Price(
Slide 17: Financing
Financing(1) 17 (1) As of March 31, 2014. (2) Does not include repurchase agreements collateralized by U.S. Treasuries of $1.0 billion and mortgage loans held-for-sale of $96.2 million. (3) Pledged collateral includes RMBS and Agency Derivatives (4) Excludes purchase of FHLB membership and activity
Slide 18: Interest Rate Swaps: Hedging Strategy
I N T E R E ST R AT E SWA P S (2 ) Hedging Strategy(1) 18 (1) As of March 31, 2014. (2) Notional amounts do not include $1.0 billion of notional interest rate swaps economically hedging our trading securities, $3.4 billion of notional interest rate swaps hedging our available-for-sale securities, an
Slide 19: Interest Rate Swaptions: Hedging Strategy
I N T E R E ST R AT E SWA P T I O NS Hedging Strategy(1) 19 (1) As of March 31, 2014. Option Underlying Swap Swaption Expiration Cost ($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 20: Overview of Two Harbors Team
EXECUTIVE OFFICERS Overview of Two Harbors Team 20 CHIEF F INANCIAL 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 Capit
Slide 21: Overview of Pine River Capital Management
EXPERIENCED, COHESIVE TEAM (3) ESTABLISHED INFRASTRUCTURE GLOBAL ASSET MANAGEMENT FIRM Overview of Pine River Capital Management • Eighteen partners with average of 22 years experience • Approximately 460 total employees, 130 investment professionals • Historically low attrition • Strong corporate g
Slide 22: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Q1 2014 Earnings Presentation on 6ix