Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2011 Earnings Presentation
18 slides from Two Harbors Investment's earnings presentation, Nov 2, 2011
Slide 1: 2011 Third Quarter Earnings Call
Two Harbors Investment Corp. 2011 Third Quarter Earnings Call
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: Strong Underlying Performance Despite Macro Environment
Strong Underlying Performance Despite Macro Environment TWO Harbors’ Performance = Strong underlying performance of portfolio. = Managed portfolio well, despite macro conditions = Completed an accretive secondary stock offering of 48.3 million shares for net proceeds of approximately $484 million Ma
Slide 4: Securitization Program On-Track
Securitization Program On-Track We are continuing to make progress on our securitization program in partnership with Barclays. = We believe the securitization program: Provides business diversification; and Leverages our strength of credit expertise. = At this time, we: Continue to build out infrast
Slide 5: SEC Concept Release Update
SEC Concept Release Update = On August 31, 2011, the SEC issued a Concept Release regarding the application of the Investment Company Act of 1940 to mortgage REITs, such as Two Harbors. Among the matters the SEC intends to review is the scope of the exemption that applies to such REITs under section
Slide 6: Financial Summary
Financial Summary Core Earnings! increased by $20 million ona 140 * eect basis to $52 million, or $0.40 per $0000 5 pa fe pa ted h fame fess, BM sows pe weighted average share. . “ 20000 | pa pn — Repositioned portfolio in response to lepraal ea market environment a qi Q32m0 QLaMO QLIO1 QZ201 Qe — H
Slide 7: Operating Performance
Operating Performance Comprehensive Income (Loss) Book Value 0000 407% acon 1200 mn am $0.00 0,000 oO 15.0% 00 es 00 50% noo | e000) © 250% - Qa QHD QLI1 Qra1 gaz. e200 Qe Qt-211 2211 Qs211 mm : G30 (Book Vales per Stace “i Compahensive Incame {Lass} ROAE. (4) foo 40% seam 121% mame 25% 15% 149% pe
Slide 8: Market and Portfolio Summary
Market and Portfolio Summary Portfolio Highlights Annualized Yields by Portfolio! 148% Focused on non-Agency sector forJuly capital raise —bonds purchased have an anticipated yield around 10% = Maintain opportunistic stance towards non-Agency sector = Repositioned Agency portfolio for additional pre
Slide 9: RMBS Portfolio Composition
RMBS Portfolio Composition Portfolio Com position ‘As of September 50, 2011 Agency: Vintage & Prepayment Protection 220 Q5-2011 $6.58 RMBS Postfolia “ oeelioad bdinoed a 7 $ Millions ower loan balances s s GNMA HECM pools 18% 18% Hybid ARMs Impl} saasoead QODS and ptr vntge) Letom Messunine 4239 Eik
Slide 10: Key Portfolio Metrics
Key Portfolio Metrics = Continue to realizelow and stable CPRs = Maintained low interest rate exposure = Decreased non-Agency weighted averagecost basis. "Average pay rate on swaps of only 1.017% from $59.3 to $55.8 "= Optional protection still in place - greatly reduced = Targeted debt-to-equity ra
Slide 11: Interest Rate Hedging Strategy
Interest Rate Hedging Strategy Hedging seeks to preserve book value in the event of significant interest rate movements = Agency — hedge interest rate exposure. Hedging tools include interest rate swaps, swaptions, TBAs, IOs and IOs. = Non-Agency— credit performance exposure. Interest rate hedging i
Slide 12: Non-Agency Opportunity
Non-Agency Opportunity ABXandHYCDX = Double-digitloss adjusted yields = Assumptions continue to be draconian = Technicals outweigh fundamentals Rg CS hg nC OME ONE eo = Underlying loan performance improving = Servicers’ action to ultimately benefit bond holders (AB indexvepresnms AB 062 AAA.
Slide 13: Appendix
Appendix 13
Slide 14: Operating Performance
Operating Performance ‘Operating Performance Core Realized = Unweatixea = QU-2001 Core Realized Unrealized Q5-2001 (Ghinulion, exept forperstar aaa) amingt Gains ‘MTM Financials amings Gains, «MIM Financials, Ievestincome $ 0 $ - $ - $ a8 $07 $ - $ -$ on Inexestexperse a9 g 39 12 3 : 2 Netinnerestin
Slide 15: Change in Stockholders' Equity
Change in Stockholders’ Equity Q2-2011 Book Q5-2011 Book Change in Stockholders’ Equity 22011 Value per Share 3.2011 Value per Share (larnilions, except for per share amounts) BookValue (diluted basis)! © Book Value (diluted basis)* Beginning stockholdees’ equity $ oss § 99 § reg 9.73 [Net proceeds
Slide 16: Portfolio Metrics
Portfolio Metrics Portfolio Yields and Metrics Agency RMBS CPR Ted just Bent ay Portfolio Yield Q2-2011 2011 Q3-2011 2011 bcsaied an Annualized yield 5a 48% 55% aps Soe om | cea 10.0% rn os ee ee om Center ceienne’s 13% 13% 13% 13% min emo QL2H QzIL QazoiL = oeinp aannne we a si ano oun || i Se Agen
Slide 17: Financing and Hedging Strategy
Financing and Hedging Strategy September30, 2011 Repurchase Agmement September30, 2011 Percent RMBS and Agency Desivatives Amount($M)(%) Notional Average Average Average Swaps Amounts Fixed Pay. Receive © Manumiy Within 30 days $582 27% Marusities 6K) Rate Rate (Yeas) 30 0.59 days 1,308 23% 2012 25,
Slide 18: Agency Securities
Agency Securities MarketValue % of Agency Amortized Cost Weighted Average Weighted Avemge ParValue (6K) (8K) Portfolio Basis (SK) Cost Age (Months) 30-Year Mortgages S45% $ 1,360,328 § 1,448,336 27.9% $ 1,445,039 42% 8 506.0% 1,087,362 1,187,283, 22.3% 1,177,874 54% 25 265% 122,013, 138,721 2.6% 137
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