Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q3 2013 Earnings Presentation
20 slides from Two Harbors Investment's earnings presentation, Dec 16, 2013
Slide 1: Third Quarter 2013 Investor Presentation
Third Quarter 2013 Investor Presentation
Slide 2: Safe Harbor Statement
CONFIDENTIAL Safe Harbor Statement F O R W A R D - L O O K I N G S T A T E M E N T S 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 expectat
Slide 3: Mission-Based Strategy
Mission-Based Strategy OUR MISSION IS TO BE RECOGNIZED AS AN INDUSTRY -LEADING MORTGAGE REIT: • We are the largest hybrid mortgage REIT focused on investing in residential mortgage assets, with a market capitalization of $3.3 billion.(1) BENEFITS OF OUR HYBRID MORTGAGE REIT MODEL: • As a hybrid mort
Slide 4: Book Value and Dividend History
Book Value and Dividend History STRONG RETURN ON BOOK VALUE • Our focus is on delivering total return. • Protecting book value is critical to dividend generation over time. • Opportunistic capital allocation and security selection drives long-term performance. • Since inception, we have delivered an
Slide 5: Delivering Total Return
-10% 10% 30% 50% 70% 90% 110% 130% Delivering Total Return Since inception, we have generated total stockholder return of 92%(1), which compares favorably to REIT industry indices and the S&P 500 Total Return Index. (1) Two Harbors’ total stockholder return is calculated for the period October 29, 2
Slide 6: Attractive Returns With Lower Risk
…LESS INTEREST RATE EXPOSURE ( 5 ) . . . Attractive Returns With Lower Risk 6 A T T R A C T I VE & C O M P A R A B L E D I V I D E N D Y I E L D ( 1 ) …WITH LOWER LEVERAGE ( 4 ) . . . SUPERIOR ASSET SELECTION AND RISK MANAGEMENT DRIVE RETURNS WHILE TAKING ON LESS RISK. 19.9%(2) 10.2%(3) 12.1% 11.5%
Slide 7: Third Quarter 2013 Market Update
AGENCY RMBS NON- AGENCY RMBS MACROECONOMIC & POLICY CONSIDERATIONS Third Quarter 2013 Market Update • The Fed is the largest buyer in the mortgage market today • Fed tapering can create opportunities for investors like Two Harbors; uncertainty remains on timing • Non-Agency fundamental performance i
Slide 8: Portfolio Composition
TARGETED CAPITAL ALLOCATION HIGHLIGHTS PORTFOLIO COMPOSITION Portfolio Composition 8 50% 60% 60% 55% 55% 52% 52% 57% 53% 52% 54% 54% 40% 40% 45% 45% 48% 44% 36% 37% 38% 46% 46% 4% 7% 10% 10% 0% 10% 20% 30% 40% 50% 60% 70% 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Rates Credit Resid
Slide 9: Hedging Strategy
BV E X P O S U R E TO + BP S C H A N GE I N R AT E S (1 ) SWA P S , SWA P T IO N S A N D I O s (2 ) H E D G I N G Hedging Strategy 9 • Hedging Strategy: – Objective of protecting book value in a rising interest rate environment – Daily monitoring of interest rate exposures • Variety of hedging tools
Slide 10: Financing Profile
74.6% 14.0% 8.0% 3.4% 11.9% 11.5% 9.5% 8.3% 8.2% 6.7% 6.6% 5.9% 5.7% 5.6% 4.7% 2.8% 2.1% 2.0% 1.9% 1.8% 1.5% 1.3% 1.1% 0.9% D I V E R S E C O U N T E R P A R T I E S ( 2 ) H I G H - Q U A L I T Y C O U N T E R P A R T I E S ( 3 ) Financing Profile (1) 10 • We continue to ladder repo maturities, and
Slide 11: Mortgage Servicing Rights (MSRs)
Mortgage Servicing Rights (MSRs) RECENT DEVELOPMENTS • Flow sale agreement with PHH Mortgage Corporation to acquire MSRs – Right to acquire MSRs on at least 50% of eligible new Fannie Mae and Ginnie Mae mortgage loans, subject to quarterly pricing – Subservicing agreement with PHH Mortgage Corporati
Slide 12: Mortgage Loan Conduit & Securitization
Mortgage Loan Conduit & Securitization RECENT DEVELOPMENTS • During the third quarter, we completed Agate Bay Mortgage Trust 2013-1, a $434 million securitization of prime jumbo loans, using our own depositor ― Generated attractive subordinate and IO bonds for our portfolio • Ongoing progress buildi
Slide 13: Appendix
Appendix 13
Slide 14: Return on Book Value
Return on Book Value 14 Return on book value Q3-2013(1) (Per diluted share amounts, except for percentage) Book value at September 30, 2013 ($) $10.35 Book value at June 30, 2013 10.47 Decrease in book value (0.12) Dividend declared in Q3-2013 0.28 Return on book value Q3-2013 ($) $0.16 Return on bo
Slide 15: Agency Securities as of September 30, 2013
Agency Securities as of September 30, 2013 15 Par Value (M) Market Value (M) % of Agency Portfolio Amortized Cost Basis (M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed 3.0-3.5% $736 $749 7.5% $783 3.5% 16 4.0-4.5% 3,942 4,166 41.9% 4,281 4.1% 16 ≥ 5.0% 877 969 9.8% 953 5.6% 5
Slide 16: Non-Agency Securities as of September 30, 2013
Non-Agency Securities as of September 30, 2013 16 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $2,421 $525 $2,946 % of Non-Agency Portfolio 82.2% 17.8% 100.0% Average Purchase Price(1) $51.20 $59.21 $52.63 Average Coupon 1.8% 1.6% 1.7% Weighted Average M
Slide 17: Financing and Hedging Strategy
I N T E R E S T R A T E S W A P S ( 2 ) F I N A N C I N G I N T E R E S T R A T E S W A P T I O N S Financing and Hedging Strategy(1) 17 (1) As of September 30, 2013. (2) Notional amounts do not include $1.0 billion of notional interest rate swaps economically hedging our trading securities and $2.5
Slide 18: Overview of Two Harbors Team
EXECUTIVE OFFICERS Overview of Two Harbors Team 18 CHIEF INVESTMENT OFFICER WILL IAM ROTH • Pine River Capital Management Partner • 32 years in mortgage securities market, including at Salomon Brothers and Citi; Managing Director in proprietary trading group managing MBS and ABS portfolios CHIEF EXE
Slide 19: Overview of Pine River Capital Management
EXPERIENCED, COHESIVE TEAM (2) ESTABLISHED INFRASTRUCTURE GLOBAL ASSET MANAGEMENT FIRM Overview of Pine River Capital Management • Sixteen partners with average of 21 years experience • 420 employees, 144 investment professionals • Historically low attrition • Strong corporate governance • Registrat
Slide 20: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
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