Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2014 Earnings Presentation
26 slides from Two Harbors Investment's earnings presentation, Nov 4, 2014
Slide 1: Third Quarter 2014 Earnings Call
November 5 , 2014 Third Quarter 2014 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: Executive Summary
Executive Summary ST RO N G T H I R D Q UA RT E R 2 014 R E S U LT S • Reported book value of $11.25 per share; total return on book value 3.8%(1) — Q3-2014 cash dividend of $0.26 per share • Delivered Comprehensive Income of $152.6 million — Return on average equity of 14.9%, or $0.42 per share • G
Slide 4: Market Overview
Market Overview M AC RO E C O NO M IC E N V I RO N ME NT & P O L I C Y C O N S I D E R AT IO NS • FHFA proposed rulemaking on FHLB membership requirements • Home price appreciation continues – CoreLogic Home Price Index up 6.4% on rolling 12-month basis(1) • Unemployment – Steady improvement • End o
Slide 5: Book Value
Book Value 5 (Dollars in thousands, except per share data) Q3-2014 Book Value ($M) Q3-2014 Book Value per share YTD-2014 Book Value ($M) YTD-2014 Book Value per share Beginning stockholders’ equity – basic $4,058.5 $11.09 $3,855.0 $10.56 GAAP Net Income: Core Earnings, net of tax 82.8 260.7 Realized
Slide 6: Financial Summary
E X P E N S E R AT I O Financial Summary 6 Q 3 - 2 014 F I N A NC IAL H I G H L I G H TS C O R E E A R N I NGS (1 ) (1) See footnote 2 on slide 3 for Core Earnings definition. For a reconciliation of GAAP to non-GAAP financials, refer to Appendix slide 17. • Core Earnings of $0.23 per share; annuali
Slide 7: Financing Profile
Financing Profile(1) 7 R E P U RC H A SE AG R E E M E NTS • Repo markets functioning in normal manner; no meaningful shifts in financing haircuts or repo rates • Outstanding borrowings of $12.3 billion with 25 active counterparties • Focused on diversification and financial stability across repo cou
Slide 8: Portfolio Performance Summary
Portfolio Performance Summary 8 Q 3 - 2 014 TOTA L R E T U R N O N BV O F 3 . 8 % (1 ) Q 3 - 2 014 N E T I N T E R E ST Y I E L D A N N UAL I ZE D Y I E L D S BY R M BS P O RT FO L I O (1) See Appendix page 14 for calculation of third quarter return on book value. (2) Assets in “Rates” include Agenc
Slide 9: Targeted Capital Allocation
TA RG ET E D C A P I TAL A L LO C AT I O N Q 3 - 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 9 • 56% capital allocation to Rates — Sold high-LTV and low FICO pools; reinvested in lower loan balance pools — Sold majority of ARM holdings • 44% capital allocati
Slide 10: Key Portfolio Metrics
BV E X P O S U R E TO + 100BP S C H A N G E I N R AT E S (2 ) Q 3 - 2 014 H E D G I N G ST R AT E GY Q 3 - 2 014 P O RT FO L I O M E T R I C S Key Portfolio Metrics 10 • Low implied debt-to-equity ratio of 2.7x versus 3.0x at June 30, 2014(1) • Agency prepayments stable • Non-Agency prepayment speed
Slide 11: Mortgage Loan Conduit and Securitization
Mortgage Loan Conduit and Securitization C O N D U I T I N I T I A T I VE G A I N I N G M O M E N T U M • Completed two securitizations during the quarter • Pipeline (interest rate locks and prime jumbo holdings) remains strong, approximately $750 million at quarter-end; intend to complete future se
Slide 12: Business Update
Business Update L AU NC H ED H I G H - LT V A N D N O N - P R I ME S U BS E Q U EN T TO Q UA RT E R - EN D • High-LTV: – Extension of current prime jumbo program – Focused on higher quality borrowers who need or desire to make smaller down payments • Non-prime: – Aimed at borrowers unable to get a l
Slide 13: Appendix
Appendix
Slide 14: Return on Book Value
Return on Book Value 14 Return on book value Q3-2014 (Per diluted share amounts, except for percentage) Book value at September 30, 2014 $11.25 Book value at June 30, 2014 11.09 Increase in book value 0.16 Dividend declared in Q3-2014 0.26 Return on book value Q3-2014 $0.42 Return on book value Q3-2
Slide 15: Financial Performance
D I V I D E NDS (2 ) Financial Performance 15 C O M P R E H E N S I V E I N C O M E BO O K VA LU E A N D D I V I DE ND P E R S H A R E (1 ) G A A P N E T I N C O M E ( LO S S ) (1) Diluted shares outstanding at end of period, which includes the effect of dilutive outstanding warrants (Q3 and Q4-2013
Slide 16: Operating Performance
Operating Performance 16 (In millions, except for per share data) Core Earnings Realized Gains Unrealized MTM Q2-2014 Financials Core Earnings Realized Gains Unrealized MTM Q3-2014 Financials Interest income $140.1 $ - $ - $140.1 $142.3 $ - $ - $142.3 Interest expense 24.9 - - 24.9 24.7 - - 24.7 Net
Slide 17: GAAP to Core Earnings Reconciliation
GAAP to Core Earnings Reconciliation 17 (In thousands, except for per share data) Three Months Ended June 30, 2014 Three Months Ended September 30, 2014 Reconciliation of GAAP to non-GAAP Information Core Earnings: Net income $39,657 $193,590 Adjustments for non-core earnings: Gain on sale of securi
Slide 18: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 18 AGENCY RMBS CPR(3) AGENCY PORTFOLIO YIELDS AND METRICS (1) Securities collateralized by loans of less than or equal to $175K, but more than $85K. (2) Securities collateralized by loans of less than or equal to $85K. (3) Agency weighted average 3-month Constant Prepaymen
Slide 19: Rates: Agency RMBS
Rates: Agency RMBS 19 As of September 30, 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% $5,441 $5,838 59.1% $5,859 4.2% 20 ≥ 5.0% $729 $820 8.3% $790 5.5% 68 $6,170 $6,658 67.4% $6,649 4
Slide 20: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights 20 As of June 30, 2014 As of September 30, 2014 Fair Value ($M) $500.5 $498.5 Unpaid Principal Balance ($M) $45,629.2 $45,526.8 Weighted Average Coupon 3.9% 3.9% Original FICO Score 740 730 Original LTV 74% 74% 60+ Day Delinquencies 1.2% 1.4% Net Servicing Spread 25
Slide 21: Credit: Non-Agency RMBS Metrics
Credit: Non-Agency RMBS Metrics 21 NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for w
Slide 22: Credit: Non-Agency RMBS
Credit: Non-Agency RMBS 22 As of September 30, 2014 Senior Bonds Mezzanine Bonds Total P&I Portfolio Characteristics: Carrying Value ($M) $2,473.7 $517.7 $2,991.4 % of Credit Portfolio 82.7% 17.3% 100.0% Average Purchase Price(1) $56.08 $62.52 $57.20 Average Coupon 2.2% 1.8% 2.2% Weighted Average Ma
Slide 23: Repo and FHLB Financing
Repo and FHLB Financing(1) 23 (1) As of September 30, 2014. (2) Repo pledged collateral does not include U.S. Treasuries with repurchase agreements of $2.0 billion outstanding, cash and cash equivalents (restricted and unrestricted) and collateral due from counterparties. (3) Excludes FHLB membershi
Slide 24: Interest Rate Swaps
Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Payers Hedging Repo 2016 $6.1 0.622% 0.234% 1.82 2017 $6.4 1.074% 0.235% 2.87 2018 $1.1 1.314% 0.234% 3.74 2019 and after $2.0 2.268% 0.234% 7.14 $15.6 1.070% 0.234% 3.08 Other Payers 2016 $3.5 0.63
Slide 25: Interest Rate Swaptions
Interest Rate Swaptions(1) 25 (1) As of September 30, 2014. Option Underlying Swap Swaption Expiration Cost ($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 $190.2 $130.3 45.89 $5,21
Slide 26: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
Two Harbors Investment — Q3 2014 Earnings Presentation on 6ix