Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Presentation (May 2020)
18 slides from Two Harbors Investment's investor presentation, May 27, 2020
Slide 1: Two Harbors Investment Corp. Investor Presentation
TWO HARBORS INVESTMENT CORP. A Leading Residential Mortgage REIT Investor Presentation May 27, 2020 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: Executive Update – May 27, 2020
Executive Update – May 27, 2020 CONFIDENCE IN LIQUIDITY POSITION AND OPPORTUNITIES GOING FORWARD • As of May 22, 2020, our MSR portfolio has a forbearance rate of 6.9% by loan count, but 44% of those loans have made their full May payments; therefore, approximately 4% of our portfolio is both in for
Slide 4: Financing Profile
Financing Profile ECONOMIC DEBT-TO-EQUITY(1) • 7.0x at March 31, 2020; average leverage of 7.4x in the first quarter • 6.7x at April 30, 2020 FINANCING ARRANGEMENTS(2) AGENCY RMBS • Outstanding repurchase agreements of $17.8 billion with 22 counterparties • Have not experienced any significant issue
Slide 5: Transition to Self-Management
Transition to Self-Management NON-RENEWAL OF MANAGEMENT AGREEMENT • Announced election not to renew the management agreement with PRCM Advisers; agreement will terminate on September 19, 2020 • Decision was a result of diligent, thorough and extensive months-long process led by the independent direc
Slide 6: Portfolio Composition and Activity
Portfolio Composition and Activity PORTFOLIO ACTIVITY • Took the following actions during the first quarter in response to the COVID-19 pandemic liquidity crisis: – De-levered Agency portfolio by selling approximately $18 billion of specified pools and TBAs – Sold substantially all of the non-Agency
Slide 7: Specified Pools
Specified Pools SPECIFIED POOL UPDATES EXAMPLE OF HIGH LOAN BALANCE 3.5(1) • Despite falling rates and theoretically more valuable protection, specified pool payups fell precipitously during the first quarter, at times trading below TBA levels – During the quarter we sold $7.0 billion of TBAs – We a
Slide 8: Coupon Positioning & Performance
Coupon Positioning & Performance FIRST QUARTER REVIEW TBA PERFORMANCE(1) • Despite massive intraday and interday volatility in the Q1-2020 Q2-2020 through May 26 RMBS spreads, quarter-to-date RMBS performed well, 50 As the Fed tapered MBS with the middle of the stack outperforming their hedges 30 pu
Slide 9: Risk Profile
Risk Profile LOW RISK EXPOSURES COMMON BOOK VALUE EXPOSURE TO CHANGES IN SPREADS(1) • Exposure to mortgage spreads and interest rates 6.0% 4.2% remains small 4.0% 3.2% 1.7% • In a 25 bps spread widening, potential book value 2.0% decrease of 1.4% 0.0% (2.0%) • In a 50 bps instantaneous parallel shif
Slide 10: Forbearance and Liquidity Projections
Forbearance and Liquidity Projections COMMENTS CURRENT FORBEARANCE EXPERIENCE • We are currently seeing 6.9% forbearance rate in our 0.80% 8.00% portfolio; 44% of those borrowers have made their full May 0.70% 7.00% payments 0.60% 6.00% • Updated our base, moderate and severe forbearance rate 0.50%
Slide 11: Outlook
Outlook ATTRACTIVE OPPORTUNITY SET IN OUR TARGET ASSETS • There continue to be potential near-term drags on earnings, including but not limited to: – Sub-optimal capital allocation due to high cash balances – Servicing advance facilities costs – Higher sub-servicing costs on delinquent loans • Antic
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Slide 13: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics AGENCY PORTFOLIO PREPAYMENT PROTECTION(1) AGENCY PORTFOLIO AT-A-GLANCE 97.1% 98.4% 98.1% % Prepay (1) 90.1% 91.5% Market Value ($M) Protected 90.0% 30-year fixed $17,453 99.9% Other P&I(3) 132 -% 70.0% IOs and IIOs(4) 195 -% 50.0% Total Agency $17,780 98.1% 3/31/2019 6/30/
Slide 14: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 30-YEAR FIXED COUPON POSITIONING(2) MSR PORTFOLIO AT-A-GLANCE $800 As of As of $600 $531 December March 31, 2019 31, 2020 $400 $344 $273 Fair value ($M) $1,909 $1,505 $200 $157 $50 Unpaid principal balance ($M) $175,882 $179,714 $0 < 3.75% 3.75% 4.25% 4.75% > 5.25
Slide 15: Financing
Financing $ in millions Repurchase Revolving Credit Term Notes Total Outstanding Outstanding Borrowings and Maturities(1) Agreements FHLB Advances Facilities Payable Convertible Notes Borrowings Percent (%) Within 30 days $ 6,138.2 $ — $ — $ — $ — $ 6,138.2 32.7% 30 to 59 days 6,034.5 — — — — 6,034.
Slide 16: Interest Rate Swaps
Interest Rate Swaps INTEREST RATE SWAPS Maturities Notional Amounts ($B) Average Fixed Pay Rate Average Receive Rate Average Maturity Years Payers 2020 3.6 1.806% 1.352% 0.6 2021 15.8 1.681% 1.685% 1.2 2022 2.6 1.911% 1.176% 2.5 2023 0.2 3.057% 1.683% 3.6 2024 and after 8.7 2.224% 1.555% 7.0 $ 30.9
Slide 17: Interest Rate Swaptions
Interest Rate Swaptions INTEREST RATE SWAPTIONS Option Underlying Swap Average Cost Fair Value Months to Notional Average Pay Average Average Term Swaption Expiration ($M) ($M) Expiration Amount ($M) Rate Receive Rate (Years) Purchase Contracts: Payer <6 Months $ 9.0 $ — 0.9 $ 2,550 2.27% 3M LIBOR 1
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