Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q1 2012 Earnings Presentation
19 slides from Two Harbors Investment's earnings presentation, May 2, 2012
Slide 1: 2012 First Quarter Earnings Call
Two Harbors Investment Corp. May 3, 2012 2012 First Quarter Earnings Call
Slide 2: Forward-Looking Statements
2 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, consequently, reade
Slide 3: Executive Summary
3 Executive Summary Delivered Exceptional Results, Raised Capital and Advanced Strategic Initiatives Total return on book value of 11.5%1 for the quarter Comprehensive income of $1.05 per share Total stockholder return of 57.0%2 since we commenced operations in October 2009 Book value increa
Slide 4: Macro Environment Creates Opportunity
4 Macro Environment Creates Opportunity Key Macroeconomic Factors that Impact our Business Employment ― Employment trends are positive but erratic ― Meaningful determinant of probability of default on a mortgage loan Interest rates ― Influence funding costs as well as Agency prepayment speeds ―
Slide 5: Business Diversification Opportunity
5 Business Diversification Opportunity Optimizing Stockholder Value Through Business Diversification Leverages Two Harbors’ strength in credit and data analysis Residential Properties ― Infrastructure in place ― Purchased $6.1 million in the first quarter ― Quadrupled holdings, subject to closin
Slide 6: Financial Summary
6 110 Financial Summary 110 Core Earnings1 increased to $63.7 million, or $0.34 per weighted average share Drivers of Core Earnings ― Portfolio size ― Investment spread ― Expense management ― Impacted by capital deployment from two accretive public offerings during the quarter $9.9 $14.8 $31.4 $
Slide 7: Book Value Rollforward
7 Book Value Rollforward Change in Stockholders’ Equity (In millions, except for per share amounts) Q4-2011 Book Value Q4-2011 Book Value per Share (diluted basis)1 Q1-2012 Book Value Q1-2012 Book Value per Share (diluted basis)1 Beginning stockholders’ equity $ 1,307.1 $ 9.30 $ 1,270.1 $ 9.03 Net p
Slide 8: Portfolio Performance Summary
Portfolio Performance Summary 8 110 110 Achieved total return on book value of 11.5%1 for Q1-2012. Strong underlying Agency and non-Agency yields. Net interest spread increased 10 bps on a quarterly basis. January and February 2012 capital raises fully deployed by late April, resulting in an i
Slide 9: RMBS Portfolio Composition
RMBS Portfolio Composition 9 Portfolio Composition (1) Includes Agency Derivatives (“IIOs”) of $243 million as of March 31, 2012. (2) Home Equity Conversion Mortgage loans (or “HECM”) are loans that allow the homeowner to convert home equity into cash collateralized by the value of their home. As of
Slide 10: Key Portfolio Metrics
10 110 Key Portfolio Metrics 110 Continued to realize low and stable CPRs Less than 1% impact to equity for 100bps rise in interest rates Targeted debt-to-equity ratios: ― Agency: 6-7x ― Non-Agency: 1.0-1.5x (1) Represents range of the percentage change in equity value for +100bps change in in
Slide 11: Appendix
Appendix "TWO HARBORS
Slide 12: Q1-2012 Return on Book Value of 11.5%
12 Q1-2012 Return on Book Value of 11.5% Return on book value (Per diluted share amounts, except for percentage) Book value at March 31, 2012 $ 9.67 Book value at December 31, 2011 9.03 Increase in book value 0.64 Dividend declared in Q1-2012 0.40 Return on book value ($) $ 1.04 Return on book value
Slide 13: Operating Performance
110 Operating Performance 110 $9.44 $9.90 $9.73 $9.30 $9.03 $9.67 $- $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Book Value per Share $23.0 $31.5 $13.5 $-18.0 $19.0 $195.7 35.2% 27.9% 7.0% -5.6% 6.0% 44.5% -25.0% -5.0% 15.0% 35.0% ($20.0) $30.0 $80.0 $130.0
Slide 14: Operating Performance
14 Operating Performance Operating Performance (In millions, except for per share amounts) Core Earnings Realized Gains Unrealized MTM Q4-2011 Financials Core Earnings Realized Gains Unrealized MTM Q1-2012 Financials Interest income $ 73.2 $ - $ - $ 73.2 $ 85.5 $ - $ - $ 85.5 Interest expense 9.1 -
Slide 15: Portfolio Metrics
15 110 Portfolio Metrics Portfolio Yield Realized Q4-2011 At Dec. 31, 2011 Realized Q1-2012 At Mar. 31, 2012 Annualized yield1 4.8% 4.7% 4.9% 4.7% Agency 3.5% 3.3% 3.5% 3.5% Non-Agency 9.7% 9.7% 9.7% 9.7% Cost of financing2 1.0% 1.0% 1.0% 1.0% Net interest spread 3.8% 3.7% 3.9% 3.7% Portfolio Metric
Slide 16: Financing and Hedging Strategy
March 31, 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 $ 14 $ 1 5.84 $ 1,800 3.06% 3M Libor 4.0 Payer ≥ 6 Months 31 29 16.40 2,500 3.73% 3M
Slide 17: Agency Securities as of March 31, 2012
17 Agency Securities as of March 31, 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% $ 2,917 $ 3,130 41.9% $ 3,118 4.2% 8 5.0-6.0% 1,084 1,201 16.1% 1,177 5.4% 33 ≥ 6.5% 111 128 1.7% 126
Slide 18: Non-Agency Securities as of March 31, 2012
18 Non-Agency Securities as of March 31, 2012 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $1,564 $376 $1,940 % of Non-Agency Portfolio 80.6% 19.4% 100.0% Average Purchase Price $50.89 $56.34 $51.94 Average Coupon 1.9% 1.1% 1.8% Collateral Attributes Ave
Slide 19: Agency: Vintage & Prepayment Protection
Agency: Vintage & Prepayment Protection Q4-2011 Q1-2012 $85K Max Pools1 39% 38% HECM2 19% 17% High LTV3 4% 11% Seasoned (2005 and prior vintages) 10% 10% Other Low Loan Balance Pools4 16% 10% Prepayment protected 6% 7% Low FICO5 -% 4% 2006 & subsequent vintages - Discount 3% -% 2006 & subsequent vin
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