Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Presentation (September 2012)
22 slides from Two Harbors Investment's investor presentation, Sep 12, 2012
Slide 1: Two Harbors Investment Corp. Second Quarter 2012 Investor Presentation
Two Harbors Investment Corp. Second Quarter 2012 Investor Presentation
Slide 2: Safe Harbor Statement
1 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 an
Slide 3: Total Stockholder Return Since Inception
Total Stockholder Return Since Inception 2 82% 42% (1) The term “return on book value” means (i) the change in Two Harbors' book value per share at June 30, 2012 as compared to March 31, 2012, plus (ii) dividends declared by Two Harbors in the second quarter of 2012, divided by Two Harbors' book val
Slide 4: Two Harbors' Competitive Advantages
Two Harbors’ Competitive Advantages Disciplined Asset Selection: We perform granular analysis of the loans underlying the RMBS, including loan size, property type, maturity, prepayment characteristics and borrower credit profiles. Similarly, on residential properties we analyze geographical fit, d
Slide 5: Opportunity for Two Harbors
4 Opportunity for Two Harbors Market Opportunity Strategy Summary: The U.S. government is reducing its involvement in the U.S. residential mortgage and housing markets. Banks are adjusting portfolios due to new regulatory framework for capital and liquidity requirements. Private capital, such
Slide 6: Single Family Residential Properties
5 Single Family Residential Properties ▪ Two Harbors announced the proposed contribution of its portfolio of single-family rental properties to Silver Bay. The contribution is intended to be part of a larger transaction in which Silver Bay expects to acquire two large portfolios of single-family ren
Slide 7: Portfolio Update
6 Portfolio Update ▪ Completed an accretive public stock offering in mid-July for net proceeds of ~$592 million. ― As of August 31, 2012, approximately 90% of capital has been deployed from this offering. The deployment has been focused primarily on Agency securities, in addition to non-Agencies sec
Slide 8: Fluid Asset Allocation Drives Performance
Fluid Asset Allocation Drives Performance 7 (1) The second quarter 2012 dividend may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share, not GAAP earnings. The annualized dividend yield on the company’s common
Slide 9: Security Selection Matters
8 Security Selection Matters (1) Securities collateralized by loans of less than or equal to $85K. (2) Securities collateralized by loans with greater than or equal to 80% loan-to-value ratio. (3) Home Equity Conversion Mortgage loans (or “HECM”) are loans that allow the homeowner to convert home eq
Slide 10: Sophisticated Risk Management Approach
9 Sophisticated Risk Management Approach Funding and Liquidity Diversified and Extended Non-Agency Strategy Credit Risk Management Agency Strategy Interest Rate Hedging Focus on book value protection. Minimal impact to equity for 100 basis points rise in interest rates. Daily monitoring of inte
Slide 11: Hedging and Financing Strategy
$8.1 $4.2 $0.4 $0 $4 $8 $12 Hedging Tools (Notional Value) Agency Securities (Fair Market Value) Swaps - Notional ($) Swaptions - Notional ($) IOs and IIOs ($) Hedging and Financing Strategy Summary Objective of protecting book value in a rising interest rate environment. Multifaceted hedging appr
Slide 12: Attractive Returns With Lower Risk
11 Attractive Returns With Lower Risk Attractive & Comparable Dividend Yield1… … With Lower Leverage2… … Less Interest Rate Exposure 3 … … And Less Prepayment Risk 4 3.7x 6.6x 4.3x 7.3x – 2x 4x 6x 8x 5.0% 11.4% 5.6% 17.5% 5.2% 15.9% 5.6% 15.9% – 5% 10% 15% 20% 15.4% 13.6% – 5% 10% 15% 20% Note: All
Slide 13: For further information, please contact
12 For further information, please contact: Contact Information Anh Huynh Investor Relations Two Harbors Investment Corp. 212.364.3221 Anh.Huynh@twoharborsinvestment.com July Hugen Investor Relations Two Harbors Investment Corp. 612.629.2514 July.Hugen@twoharborsinvestment.com
Slide 14: Appendix
Appendix
Slide 15: Agency: Vintage & Prepayment Protection
Agency: Vintage & Prepayment Protection Q1-2012 Q2-2012 $85K Max Pools1 38% 31% High LTV2 11% 21% HECM3 17% 17% Other Low Loan Balance Pools4 10% 11% Seasoned (2005 and prior vintages)5 10% 7% Prepayment protected 7% 6% Low FICO6 4% 4% 2006 & subsequent vintages - Discount -% -% 2006 & subsequent vi
Slide 16: Agency Securities as of June 30, 2012
15 Agency Securities as of June 30, 2012 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed ≤ 4.5% $ 4,028 $ 4,381 48.7% $ 4,303 4.1% 9 5.0-6.0% 1,045 1,165 13.0% 1,134 5.4% 35 ≥ 6.5% 106 123 1.4% 121 7
Slide 17: Non-Agency Securities as of June 30, 2012
16 Non-Agency Securities as of June 30, 2012 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $1,592 $416 $2,008 % of Non-Agency Portfolio 79.3% 20.7% 100.0% Average Purchase Price1 $50.55 $57.91 $52.07 Average Coupon 1.9% 1.2% 1.7% Collateral Attributes Ave
Slide 18: Subprime Senior Bond - HEAT 2006-3 2A4
Pays sequentially after the A3 is fully paid, expected to be in early 2014. Receives protection from credit losses from the subordinate bonds and ongoing excess interest. Pays a coupon of LIBOR + 0.31%. Wells Fargo & SPS as servicers. A3 39.3%-100% $22M Current Face 1 Yr WAL1 Discount Subpri
Slide 19: Financing and Hedging Strategy
June 30, 2012 Option Underlying Swap Swaption Expiration Cost ($M) Fair Value ($M) Average Months to Expiration Notional Amount ($M) Average Fixed Pay Rate Average Receive Rate Average Term (Years) Payer < 6 Months $ 9.5 $ 0 3.38 $ 1,000 2.95% 3M Libor 5.4 Payer ≥ 6 Months 60.8 38.2 48.33 3,200 3.70
Slide 20: Illustrative Hedging Profile
Illustrative Hedging Profile 19 < 0.5% 0.5% – 1.0% > 1.0% Impact to Portfolio Hedging with “Swaps Only” -$5.9 -$4.4 -$2.9 -$1.5 $0.0 $1.5 $2.9 $4.4 $5.9 -$12.0 -$8.0 -$4.0 $0.0 $4.0 $8.0 -200 -150 -100 -50 0 50 100 150 200 G ain s/ L os se s ($ ) Basis Points Total Hedging Gains/Losses FNMA 4.5 Gene
Slide 21: Investment Team
20 William Roth − Also serves as Partner of Pine River Capital Management. − 31 years in mortgage securities market, including at Salomon Brothers and Citi; Managing Director in proprietary trading group managing MBS and ABS portfolios. Investment Team Brad Farrell − Most recently served as Two Harb
Slide 22: Overview of Pine River Capital Management
21 Overview of Pine River Capital Management Global multi-strategy asset management firm providing comprehensive portfolio management, transparency and liquidity to institutional and high net worth investors Founded June 2002 with offices in New York, London, Beijing, Hong Kong, San Francisco and
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