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8-K - 8-K - JAVELIN MORTGAGE INVESTMENT CORP.jmiform8-kmonthlycompanyup.htm
JAVELIN Mortgage Investment Corp. Company Update October 16, 2014


 
PLEASE READ: Important Regulatory and Yield Risk Disclosures Certain statements made in this presentation regarding JAVELIN Mortgage Investment Corporation (“JAVELIN” or the “Company”), and any other statements regarding JAVELIN’s future expectations, beliefs, goals or prospects constitute forward-looking statements made within the meaning of Section 21E of the Securities Exchange Act of 1934. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates” and similar expressions) should also be considered forward-looking statements. Forward-looking statements include but are not limited to statements regarding the projections for JAVELIN’s business and plans for future growth and operational improvements. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements. JAVELIN assumes no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This material is for information purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation for any securities, financial instruments, or common or privately issued stock. The statements, information and estimates contained herein are based on information that the presenter believes to be reliable as of today's date, but cannot be represented that such statements, information or estimates are complete or accurate. Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be predicted with certainty. Estimated yields do not reflect any of the costs of operation of JAVELIN. THE INFORMATION PRESENTED HEREIN IS UNAUDITED AND UNREVIEWED. 2


 
JAVELIN Portfolio & Hedge Update 3 JAVELIN sold approximately $100 million of 15yr MBS securities in the first ten days of September. These transactions will settle in December 2014. Therefore, these assets have been removed from the portfolio in this presentation. However, since these transactions were done on a forward settle basis and the bonds will remain on repo until they settle, they are still included in all the repo reporting herein. The swaptions previously detailed in our Monthly Company Update have expired. The results of these sales upon settlement and the expiration of the swaptions will effectively: • Lower our net balance sheet duration to -1.27. • Lower our estimated year end leverage ratio to approximately 7.0 x vs Q2 2014 shareholder’s equity. • Change our hedge ratio against assets to 66.2%. • Change our hedge ratio against repo to 71.6%.


 
JAVELIN Capitalization, Dividend Policy, Transparency and Manager • Portfolio and liability details are updated monthly at www.javelinreit.com. • Agency premium amortization is expensed monthly as it occurs. • Hedge positions are marked-to-market daily (GAAP/Tax differences). • Non-Executive Board Chairman and Lead Independent Director. Transparency and Governance 4 JAVELIN REIT Manager • JAVELIN is externally managed by ARMOUR Residential Management LLC. Common Stock Dividend Policy and Taxable REIT Income Market Capitalization • 12,002,705 shares of common stock outstanding (NYSE: “JMI”). • Market capitalization of $147.5 million. • JAVELIN pays common stock dividends monthly. • Dividends are announced based on estimates of future taxable REIT income. • The 2014 dividend rate is $0.15 per month. • Dividend schedule can be found at www.javelinreit.com. Information as of 10/15/2014.


 
JAVELIN Balance Sheet Targets JAVELIN invests in Agency and Non-Agency mortgage securities. Balance sheet target of 1.5 or less. • 3.39 gross asset duration of Agency and non-Agency securities. • -4.66 hedge duration. • -1.27 net balance sheet duration. Hedge a minimum of 40% of fixed rate assets and funding rate risk. • $801.3 million in hedges (swaps). • 66.2% of assets hedged after effect of recent sales. • 71.6% of repurchase agreements hedged after effect of recent sales. Hold 40% of unlevered equity in cash between prepayment periods. • $35.9 million in total liquidity. • $14.7 million in true cash. • $8.8 million in unlevered securities. • $12.4 in short term Agency P&I. Long term debt to equity target of 7.5x - 8.0x. • $1,215.2 million in net REPO borrowings. • 7.6 x Q2 2014 shareholders’ equity (today). Expected 7.0 after sales settle. 5 Assets Duration Hedging Liquidity Leverage Information as of 10/15/2014.


 
JAVELIN Investment Equity Allocation 6 Estimates as of 10/15/2014. Equity allocation is based on market value of unlevered securities plus haircut on repurchase agreements. Allocation does not include equity invested in cash and hedges.


 
JAVELIN Portfolio Strategy and Investment Methodology  JAVELIN will utilize ARRM’s proprietary analytical approach as well as Intex, Bloomberg, BlackRock Solutions and other third- party systems to analyze mortgage investment opportunities both for Agency and non-Agency mortgage securities.  Strong bias toward a “buy and hold” strategy, with occasional sales made as market conditions change.  The investment team considers an array of factors, both bottom up and top down: Non-Agency Structure Analysis o Seniority, subordination model. o Model completeness and accuracy. o Litigation and policy risks. Agency & Non-Agency Class Analysis o Prepayment history. o Prepayment expectations. o Premium/discount. o Liquidity. Agency & Non-Agency Loan Analysis o Original and current loan balance. o Year of origination. o Originating company, third-party originators. o Loan seasoning. o Principal amortization schedule. o Original loan-to-value ratio. o Geography. o 78% of JMI’s 15yr MBS are between 85k – 175k loan balances Agency Pool Analysis o NO TBA pools – Only specified pools. o Only “pass-through” securities. No CMO’s. o Prepayment history and expectations. o Premium over par. o “Hedgability.” o Liquidity. o Diversify broadly to limit idiosyncratic pool risk. 7


 
JAVELIN Agency & Non-Agency Portfolio Duration 8 Information and pricing as of 10/15/2014. Some totals may not foot due to rounding. Agency Multifamily Ballooning in 120 Months or Less 57.1$ 103.3% 107.5% 3.50/4.91 7.49 Fixed Rates Maturing Between 121 and 180 Months 815.7$ 104.4% 105.5% 3.27/3.75 3.38 Fixed Rates aturing Between 181 and 240 onths 46.8$ 106.0% 105.7% 3.43/3.92 3.24 Total or Weighted Average 919.6$ 104.4% 105.6% 3.29/3.83 3.63 Current Value (millions) Estimated Effective Duration Using Current Values Weighted Average Current Market Price Agency Asset Class Weighted Average Purchase Price Weighted Average Net/Gross Coupon Legacy Prim Fixed 32.1 83.9 85.6 6.01 5.65 0.73 Legacy Prime Hybrid 6 5 74.8 85.8 2 31 2 74 0 78 Legacy Alt-A Fixed 86.9$ 78.7% 83.1% 5.90/5.45 0.69 Legacy Alt-A Hybrid 8.5$ 79.2% 83.5% 2.50/2.80 0.00 New Issue Prime Fixed 134.0$ 95.5% 99.6% 3.15/3.81 5.11 New Issue Prime Floater 12.9$ 97.1% 97.2% 3.93/4.01 0.00 Total or Weighted Average 290.8$ 87.6% 91.8% 4.26/4.42 2.69 r ti i Current Values r Purchase Price r rr t arket Price i et/ ross Coupon Non-Agency Securities l ( illions)


 
JAVELIN Hedge Portfolio 9 Counterparties include: Citibank, N.A., Nomura Global Financial Products Inc. and Wells Fargo Bank, N.A. Information as of 10/15/2014. Some totals may not foot due to rounding. Derivative Type Remaining Term Weighted Average Remaining Term (Months) Notional Amount (millions) Weighted Average Rate Interest Rate Swap 37-48 Months 40 100.0$ 0.73 Interest Rate Swap 49-60 Months 0 -$ 0.00 Interest Rate Swap 61-120 Months 101 701.3$ 1.80 Total or Weighted Average 94 $ 801.3 1.67


 
JAVELIN Balance Sheet Hedge Metrics 10 Information and pricing as of 10/15/2014. Some totals may not foot due to rounding. Note: The table above shows the effect of sales upon settlement. Agency Assets 2.75 Non-Agency Legacy Assets 0.08 Non-Agency New Issue Assets 0.56 Interest Rate Swaps -4.66 Net Balance Sheet Duration -1.27 Duration Contribution to Balance Sheet Agency & Non-Agency Assets 1,210.4$ 66.2% Net Agency & Non-Agency Repo Balance 1,119.4$ 71.6% Amount (millions) % Hedged


 
JAVELIN Agency Portfolio Constant Prepayment Rates (“CPR”) 11 JAVELIN expenses premium amortization monthly as it occurs. Constant Prepayment Rate (“CPR”) is the annualized equivalent of single monthly mortality (“SMM”). CPR attempts to predict the percentage of principal that will prepay over the next twelve months based on historical principal pay downs. CPR is reported on the 4th business day of the month for the previous month's prepayment activity.


 
JAVELIN Agency & Non-Agency Repo Composition 12 (1) JAVELIN has signed MRAs with 29 counterparties. Information as of 10/15/2014. Some totals may not foot due to rounding. Weighted Average Repo Rate 0.57% Weighted Average Haircut 7.88% October Paydowns (8.7) Net REPO after Paydowns 1,215.2 Debt to Quarter End Shareholders' Equity Ratio 7.6 1 Credit Suisse Securities (USA) LLC 112.9$ 9.2% 90 64 69 2 Barclays Capital Inc. 107.0$ 8.7% 92 20 28 3 Mitsubishi UFJ Securities (USA), Inc. 86.1$ 7.0% 70 48 62 4 BNP Paribas Securities Corp. 85.5$ 7.0% 30 25 30 5 Merrill Lynch, Pierce, Fenner & Smith Inc. 84.7$ 6.9% 87 10 47 6 Morgan Stanley & Co. LLC 81.7$ 6.7% 92 2 2 7 J.P. Morgan Securities LLC 71.1$ 5.8% 140 26 47 8 Nomura Securities International, Inc. 66.0$ 5.4% 91 68 89 9 Daiwa Securities America Inc. 64.7$ 5.3% 66 51 55 10 Citigroup Global Markets Inc. 64.2$ 5.2% 91 34 89 11 Wells Fargo Bank, N.A. 58.3$ 4.8% 29 2 14 12 CRT Capital Group LLC 53.7$ 4.4% 38 25 40 13 UBS Securities LLC 50.0$ 4.1% 918 783 922 14 RBS Securities Inc. 47.0$ 3.8% 90 27 63 15 Royal Bank of Canada 44.5$ 3.6% 104 27 69 16 Mizuho Securities USA Inc. 44.5$ 3.6% 60 55 55 17 South Street Securities LLC 39.7$ 3.2% 31 26 26 18 ICBC Financial Services LLC 35.1$ 2.9% 134 43 51 19 KGS-Alpha Capital Markets, L.P. 18.9$ 1.5% 137 21 23 20 E D & F Man Capital Markets Inc. 5.5$ 0.4% 90 29 29 21 Guggenheim Securities, LLC 2.6$ 0.2% 91 61 61 Total or Weighted Average 1,223.8$ 100.0% 114 63 REPO Counter-Party(1) Principal Borrowed (millions) Percentage of REPO Positions with JAVELIN Weighted Average Original Term in Days Longest Remaining Term in Days Weighted Average Remaining Term in Days


 
3001 Ocean Drive Suite 201 Vero Beach, FL 32963 772-617-4340 13