Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q4 2017 Earnings Presentation
24 slides from Two Harbors Investment's earnings presentation, Mar 21, 2018
Slide 1: Fourth Quarter 2017 Investor Presentation
Fourth Quarter 2017 Investor Presentation
Slide 2: Safe Harbor Statement
Safe Harbor Statement 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 an
Slide 3: Two Harbors Investment Corp. Overview
Two Harbors Investment Corp. Overview (1) 3 1) On November 1, 2017, the company distributed to its common stockholders the 33,071,000 shares of Granite Point Mortgage Trust Inc. (“Granite Point”) (NYSE: GPMT) common stock it had acquired in connection with the contribution of its commercial real est
Slide 4: Two Harbors Snapshot
Two Harbors Snapshot 4 1) Assets in “Rates” include Agency RMBS, MSR and other interest rate sensitive assets. Assets in “Credit” include non-Agency securities and other credit sensitive assets. 2) Two Harbors’ total stockholder return calculated for the period October 29, 2009 through December 31,
Slide 5: Substantial Total Stockholder Return Outperformance
-20.0% 10.0% 40.0% 70.0% 100.0% 130.0% 160.0% 190.0% 220.0% 10/29/2009 12/29/2010 2/29/2012 4/30/2013 6/30/2014 8/31/2015 10/31/2016 TWO BBG REIT MTG Index Substantial Total Stockholder Return Outperformance 5 1) Two Harbors’ total stockholder return is calculated for the period October 29, 2009 thr
Slide 6: Proven Book Value Stability…
Proven Book Value Stability… 6 • Book value has grown by 20.1% since our inception through December 31 2017, 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 period is (23.3%)(1)(3) BOOK VALUE S
Slide 7: …Particularly Through Volatile Times
…Particularly Through Volatile Times 7 REFLECTS SOPHISTICATED APPROACH TO RISK MANAGEMENT AND HEDGING 1) Return on book value for 2013 measured from 12/31/2012 to 12/31/2013. 2) Peer average represents comparable mortgage REIT peers. Peer average book value figures are based on publicly reported dat
Slide 8: Investment Portfolio Overview
Investment Portfolio Overview 8 HISTORICAL CAPITAL ALLOCATION PORTFOLIO COMPOSITION(1) $22.4 BILLION PORTFOLIO AS OF DECEMBER 31, 2017 (1) For additional detail on the portfolio, see Appendix slides 16-20. (2) Assets in “Rates” include Agency RMBS, MSR and other interest rate sensitive assets. (3) A
Slide 9: Rates Strategy
Rates Strategy 9 RATES STRATEGY DESIGNED TO GENERATE STRONG RETURNS WITH LOW VOLATIL IT Y AND MINIMAL INCOME AND BOOK VALUE EXPOSURE TO RATE CHANGES • Significant MSR platform of over $100 billion in unpaid principal balance pairs well with Agency RMBS holdings ― Pairing MSR with Agency RMBS results
Slide 10: Protecting Book Value and Income: Interest Rates
Curve Exposures Short end of the curve - income effect Long end of the curve - book value effect Income change to increasing rates Market value change to increasing rates Repo Fixed rate Agency RMBS LIBOR received on swaps MSR Non-Agency floating-rate MBS Swaps Float income from MSR Swaptions/mortga
Slide 11: Protecting Book Value and Income: Mortgage Spreads
Protecting Book Value and Income: Mortgage Spreads 11 Mortgage Spreads Change in Agency RMBS and Mortgage Derivatives Change in MSR Total Overall Rates Strategy Change 25 basis points wider ($161) $52 ($109) (3.1%) 15 basis points wider ($88) $32 ($56) (1.6%) 15 basis points tighter $113 ($35) $78 2
Slide 12: Credit Strategy
Credit Strategy 12 (1) Weighted average market price utilized current face for weighting purposes. Please see slide 20 in the Appendix for more information on our legacy non-Agency securities portfolio. (2) “Non-QM” stands for non-qualified mortgage. (3) Source: CoreLogic Home Price Index rolling 12
Slide 13: Credit Strategy
Credit Strategy 13 (1) Legacy non-Agency portfolio assumptions scenario is provided for illustration purposes only. Actual results of the portfolio may differ materially. Metrics associated with legacy non-Agency P&I portfolio only. (2) Yield-to-maturity is based on projected assumptions and the act
Slide 14: Optimizing Financing Profile and Capital Structure
Optimizing Financing Profile and Capital Structure 14 (1) Excludes non-usage, commitment and other fees associated with facility. DEBT-TO-EQUITY • 5.9x at December 31, 2017; excluding the consolidation of Granite Point, the company’s debt-to-equity ratio would have been 5.8x at September 30, 2017 •
Slide 15: Appendix
a —— Appendix rent Corp. TWO HARBORS Ir
Slide 16: Rates: Agency RMBS Metrics
Rates: Agency RMBS Metrics 16 AGENCY PORTFOLIO YIELDS AND METRICS AGENCY RMBS CPR(1) (1) Agency weighted average 3-month Constant Prepayment Rate (CPR) includes IIOs (or Agency Derivatives). (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price
Slide 17: Rates: Agency RMBS
Rates: Agency RMBS 17 As of December 31, 2017 Par Value ($M) Market Value ($M) % Prepay Protected(1) Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year fixed 3.0-3.5% $4,371 $4,510 95.9 % $4,570 3.5 % 13 4.0-4.5% 11,991 12,765 99.1 % 12,812 4.2 % 17 ≥ 5.0% 453 50
Slide 18: Rates: Mortgage Servicing Rights
Rates: Mortgage Servicing Rights(1) 18 As of September 30, 2017 As of December 31, 2017 Fair value ($M) $930.6 $1,086.7 Unpaid principal balance ($M) $88,789.8 $101,344.1 Weighted average coupon 3.9 % 3.9 % Original FICO score(2) 753 753 Original LTV 73 % 74 % 60+ day delinquencies 0.3 % 0.5 % Net s
Slide 19: Credit: Non-Agency Securities Metrics
Credit: Non-Agency Securities Metrics 19 LEGACY NON-AGENCY PORTFOLIO COMPOSITION NON-AGENCY PORTFOLIO YIELDS AND METRICS (1) Weighted average cost basis includes legacy non-Agency principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If curren
Slide 20: Credit: Legacy Non-Agency Securities
Credit: Legacy Non-Agency Securities 20 As of December 31, 2017 Senior Bonds Mezzanine Bonds Total P&I Portfolio characteristics: Carrying value ($M) $1,790.5 $762.3 $2,552.8 % of non-Agency portfolio 70.1 % 29.9 % 100.0 % Average purchase price(1) $57.57 $65.36 $59.89 Average coupon 2.8 % 2.3 % 2.6
Slide 21: Financing
Financing 21 (1) Weighted average of 7.8 months to maturity. (2) Includes FHLB advances of $0.4 billion with original maturities of 20 years. (3) Excludes FHLB membership and activity stock totaling $53.8 million. (4) Includes unsettled sales of available-for-sale securities included in due from cou
Slide 22: Interest Rate Swaps
Maturities Notional Amounts ($B)(1) Average Fixed Pay Rate(2) Average Receive Rate(2) Average Maturity Years(2) Payers 2018 $4.3 1.155 % 1.508 % 0.5 2019 5.5 1.767 % 1.386 % 1.8 2020 5.5 1.945 % 1.509 % 2.9 2021 2.4 1.788 % 1.628 % 3.9 2022 and after 5.2 1.764 % 1.516 % 6.4 $22.9 1.694 % 1.493 % 3.0
Slide 23: Interest Rate Swaptions
Interest Rate Swaptions 23 Option Underlying Swap Swaption Expiration Cost ($M) Fair Value ($M) Average Months to Expiration Notional Amount ($M) Average Pay Rate Average Receive Rate Average Term (Years) Purchase Contracts: Payer <6 Months $21.4 $17.7 4.0 $7,200 2.27 % 3M LIBOR 3.8 Receiver <6 Mont
Slide 24: Two Harbors Investment Corp.
TWO HARBORS. Investment Corp.
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