Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2018 Earnings Presentation
19 slides from Two Harbors Investment's earnings presentation, Nov 20, 2018
Slide 1: A Leading Residential Hybrid Mortgage REIT: Third Quarter 2018 Investor Presentation
T WO HA RBORS IN V E ST ME NT C ORP. A Leading Residential Hybrid Mortgage REIT Third Quarter 2018 Investor Presentation 1
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: Two Harbors Investment Corp. Overview
Two Harbors Investment Corp. Overview(1) A LEADING RESIDENTIALLY-FOCUSED HYBRID MORTGAGE REIT Proven stability in book value, especially during volatile periods Sophisticated and differentiated approach to risk management and hedging $3.7 billion $4.7 billion $27.7 billion hybrid portfolio compr
Slide 4: Substantial Total Stockholder Return Outperformance
Substantial Total Stockholder Return Outperformance • Outperformed peer group by over 70% since our inception • Delivered total stockholder return of 210% during that time(1) ― Bloomberg REIT Mortgage Index total stockholder return of 139% over the same period of time(2) 220.0% 210% 190.0% 160.0% 13
Slide 5: Proven Book Value Stability…
Proven Book Value Stability… BOOK VALUE STABILITY AND GROWTH • Book value has grown by 11.9% since our inception through September 30, 2018, when adjusted to include the value of the Granite Point and Silver Bay stock distributions to Two Harbors stockholders(1)(2) • Peer average over same time peri
Slide 6: …Particularly Through Volatile Times
…Particularly Through Volatile Times REFLECTS SOPHISTICATED APPROACH TO RISK MANAGEMENT AND HEDGING • Proven stability of book value through times of • Importantly, these results were achieved with significantly volatility: in the 2013 “taper tantrum” Two Harbors less book value volatility than comp
Slide 7: Driving Stockholder Value
Driving Stockholder Value GENERATING INCOME FOR STOCKHOLDERS(1) 13.0% Dividend to Book Value Two Harbors Cohort Average 12.0% Dividend to Dividend to Book Value Book Value Quarter Ended Ratio Ratio Difference 11.0% 9/30/2018 12.7 % 10.7 % 2.0 % 10.0% 6/30/2018 12.0 % 10.8 % 1.2 % 3/31/2018 12.0 % 10
Slide 8: CYS Portfolio Reallocation Momentum
CYS Portfolio Reallocation Momentum TREMENDOUS PROGRESS ON DEPLOYING CAPITAL FROM CYS ACQUISITION • Reallocating capital from Agencies to MSR and non-Agency securities ― Post quarter-end, closed two substantial bulk MSR transactions totaling approximately $25 billion unpaid principal balance (UPB) ―
Slide 9: Protecting Book Value and Income
Protecting Book Value and Income • Active management of risk positioning drives stability through periods of market volatility HEDGING ACROSS THE CURVE Book value exposure to changes in rates 1) Net interest income exposure to changes in rates at (2) +25 basis points (1.0 %) +25 basis points 3.2 % +
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Slide 11: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics AGENCY PORTFOLIO YIELDS AND METRICS AGENCY PORTFOLIO COMPOSITION At Hybrid ARMs and Realized Q2- At June 30, Realized Q3- September IO & Inverse IO Other Portfolio Yield 2018 2018 2018 30, 2018 30-Year Fixed 1.1% 1.4% Agency yield 3.0% 3.1% 3.1% 3.4% 5% & above Repo and FH
Slide 12: Rates: Agency RMBS
Rates: Agency RMBS As of September 30, % Prepay Amortized Cost Weighted Average Weighted Average 2018 Par Value ($M) Market Value ($M) Protected(1) Basis ($M) Coupon Age (Months) 30-Year fixed 3.0-3.5% $4,164 $4,108 72.1% $4,270 3.5% 21 4.0-4.5% 16,559 16,954 84.4% 17,445 4.2% 21 ≥ 5.0% 531 570 100.
Slide 13: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) As of June 30, 2018 As of September 30, 2018 Fair value ($M) $1,450.3 $1,664.0 Unpaid principal balance ($M) $119,531.6 $131,114.5 Weighted average coupon 4.0 % 4.1 % Original FICO score(2) 752 751 Original LTV 74 % 74 % 60+ day delinquencies 0.4 % 0.4 % Net servi
Slide 14: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics NON-AGENCY PORTFOLIO YIELDS AND METRICS LEGACY NON-AGENCY PORTFOLIO COMPOSITION At Realized Q2- At June 30, Realized Q3- September Portfolio Yield 2018 2018 2018 30, 2018 Non-Agency: Loan Type June 30, 2018 September 30, 2018 Non-Agency yield 8.1% 7.5% 7.4% 7.2%
Slide 15: Credit: Legacy Non-Agency Securities
Credit: Legacy Non-Agency Securities As of September 30, 2018 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $2,719.6 $844.9 $3,564.5 % of non-Agency portfolio 76.3 % 23.7 % 100.0 % Average purchase price(1) $60.53 $65.35 $61.68 Average coupon 3.1 % 2.9 % 3.1 %
Slide 16: Financing
Financing $ in millions Repurchase Revolving Credit Total Outstanding Outstanding Borrowings and Maturities(1) Agreements FHLB Advances Facilities Convertible Notes Borrowings Percent (%) Within 30 days $ 6,910.6 $ — $ — $ — $ 6,910.6 27.3 % 30 to 59 days 2,465.3 — — — 2,465.3 9.8 % 60 to 89 days 5.
Slide 17: Interest Rate Swaps and Caps
Interest Rate Swaps and Caps INTEREST RATE SWAPS Average Maturity Maturities Notional Amounts ($B)(1) Average Fixed Pay Rate(2) Average Receive Rate(2) Years(2) Payers 2018 $1.0 1.008 % 2.336% 0.0 2019 4.3 1.769 % 2.336% 1.0 2020 5.2 1.705 % 2.334% 2.1 2021 4.1 1.550 % 2.362% 2.9 2022 and after 8.8
Slide 18: Interest Rate Swaptions
Interest Rate Swaptions Option Underlying Swap Average Average Cost Fair Value Months to Notional Average Pay Receive Average Swaption Expiration ($M) ($M) Expiration Amount ($M) Rate Rate Term (Years) Purchase Contracts: Payer <6 Months $9.4 $30.6 3.6 $5,225 3.20% 3M LIBOR 7.6 Sale Contracts: Recei
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