NEW YORK--(BUSINESS WIRE)--Two Harbors Investment Corp. (NYSE: TWO), a leading hybrid mortgage real estate investment trust (REIT) that invests in residential mortgage-backed securities (RMBS), mortgage servicing rights (MSR) and other financial assets, today announced its financial results for the quarter ended March 31, 2019.
Quarterly Summary
- Grew book value to $13.83 per common share, representing a 9.1% total quarterly return on book value.(1)
- Generated Comprehensive Income of $311.3 million, or $1.23 per weighted average basic common share.
- Reported Core Earnings, including dollar roll income, of $122.7 million, or $0.49 per weighted average basic common share, representing a return on average common equity of 14.3%.(2)
-
Issued approximately 24.4 million shares of common stock through both
an underwritten offering and our at-the-market (ATM) program, for net
proceeds to the company of approximately $335.3 million.
- Deployed capital from share issuances into Agency RMBS and MSR.
- Added $16 billion unpaid principal balance (UPB) of MSR through bulk acquisitions and monthly flow-sale arrangements, bringing total holdings to $174 billion UPB.
- Closed a new $350 million MSR financing facility, bringing total MSR financing capacity to $1.1 billion.
“We had a very strong first quarter, delivering a total return on book value of 9.1%,” stated Thomas Siering, Two Harbors’ President and Chief Executive Officer. “Going forward, we believe the best investment opportunity for long-term returns is in pairing Agency RMBS with MSR, as this combination should result in better returns with lower risk, and help us outperform over market cycles.”
(1) Return on book value for the quarter ended March 31, 2019 is defined as the increase in book value per common share from December 31, 2018 to March 31, 2019 of $0.72, plus dividends declared amounting to $0.47 per common share, divided by December 31, 2018 book value of $13.11 per common share. | ||
(2) Core Earnings, including dollar roll income, is a non-GAAP measure. Please see page 11 for a definition of Core Earnings, including dollar roll income, and a reconciliation of GAAP to non-GAAP financial information. | ||
Operating Performance
The following table summarizes
the company’s GAAP and non-GAAP earnings measurements, and key metrics
for the first quarter of 2019 and fourth quarter 2018:
Two Harbors Investment Corp. Operating Performance (unaudited) | ||||||||||||||||||||
(dollars in thousands, except per common share data) | ||||||||||||||||||||
Three Months Ended March 31, 2019 |
Three Months Ended December 31, 2018 |
|||||||||||||||||||
Earnings attributable to common stockholders |
Earnings |
Per |
Annualized |
Earnings |
Per |
Annualized |
||||||||||||||
Comprehensive Income (Loss) | $ | 311,267 | $ | 1.23 | 36.2 % | $ | (307,939 | ) | $ | (1.24 | ) | (35.2)% | ||||||||
GAAP Net Loss | $ | (44,885 | ) | $ | (0.18 | ) | (5.2)% | $ | (573,485 | ) | $ | (2.31 | ) | (65.5)% | ||||||
Core Earnings, including dollar roll income(1) | $ | 122,683 | $ | 0.49 | 14.3 % | $ | 120,719 | $ | 0.49 | 13.8 % | ||||||||||
Operating Metrics |
||||||||||||||||||||
Dividend per common share | $ | 0.47 | $ | 0.47 | ||||||||||||||||
Annualized dividend yield(2) | 13.9 | % | 14.6 % | |||||||||||||||||
Book value per common share at period end | $ | 13.83 | $ | 13.11 | ||||||||||||||||
Return on book value(3) | 9.1 | % | (8.3 | )% | ||||||||||||||||
Other operating expenses, excluding non-cash LTIP amortization(4) | 13,695 | 12,733 | ||||||||||||||||||
Other operating expenses, excluding non-cash LTIP amortization, as a percentage of average equity(4) | 1.2 | % | 1.1 % | |||||||||||||||||
________________ |
||||||||||||||||||||
(1) Please see page 11 for a definition of Core Earnings, including dollar roll income, and a reconciliation of GAAP to non-GAAP financial information. | ||||||||||||||||||||
(2) Represents dividend yields for the first quarter 2019 and fourth quarter 2018. These yields are calculated based on annualizing the first quarter 2019 dividend of $0.47 divided by the March 29, 2019 closing share price of $13.53, and annualizing the fourth quarter 2018 dividend of $0.47 dividend by the December 31, 2018 closing share price of $12.84. | ||||||||||||||||||||
(3) Return on book value for the quarter ended March 31, 2019 is defined as the increase in book value per common share from December 31, 2018 to March 31, 2019 of $0.72, plus dividends declared amounting to $0.47 per common share, divided by December 31, 2018 book value of $13.11 per common share. Return on book value for the quarter ended December 31, 2018 is defined as the decrease in book value per common share from September 30, 2018 to December 31, 2018 of $1.70, plus dividends declared amounting to $0.47 per common share, divided by September 30, 2018 book value of $14.81 per common share. | ||||||||||||||||||||
(4) Excludes non-cash equity compensation expense of $1.9 million for the first quarter 2019 and $3.2 million for the fourth quarter 2018. | ||||||||||||||||||||
“The first quarter brought a more balanced Fed outlook and stable interest rate environment, both of which bode well for our business,” stated Bill Roth, Two Harbors’ Chief Investment Officer. “We see substantial opportunities going forward to continue growing our MSR portfolio and believe there is a long runway to this strategy, given the robust transfer market for servicing.”
Portfolio Summary
The company’s portfolio is
comprised of a Rates strategy and a Credit strategy. The Rates strategy
consisted of $23.6 billion of Agency RMBS, Agency Derivatives and MSR as
well as their associated notional hedges as of March 31, 2019.
Additionally, the company held $10.2 billion notional of net long
to-be-announced securities (TBAs) as part of the Rates strategy. The
Credit strategy consisted of $3.6 billion of non-Agency securities, as
well as their associated notional hedges as of March 31, 2019.
The following tables summarize the company’s investment portfolio as of March 31, 2019 and December 31, 2018:
Two Harbors Investment Corp. Portfolio | ||||||||||||
(dollars in thousands) | ||||||||||||
Portfolio Composition | As of March 31, 2019 | As of December 31, 2018 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
Rates Strategy | ||||||||||||
Agency | ||||||||||||
Fixed Rate | $ | 21,515,529 | 79.2% | $ | 21,665,960 | 78.5% | ||||||
Other Agency(1) | 89,433 | 0.3% | 89,330 | 0.3% | ||||||||
Total Agency | 21,604,962 | 79.5% | 21,755,290 | 78.8% | ||||||||
Mortgage servicing rights | 2,014,370 | 7.4% | 1,993,440 | 7.2% | ||||||||
Credit Strategy | ||||||||||||
Non-Agency | ||||||||||||
Senior | 2,885,449 | 10.7% | 2,854,731 | 10.3% | ||||||||
Mezzanine | 576,130 | 2.1% | 928,632 | 3.4% | ||||||||
Other | 82,933 | 0.3% | 84,208 | 0.3% | ||||||||
Total Non-Agency | 3,544,512 | 13.1% | 3,867,571 | 14.0% | ||||||||
Aggregate Portfolio | 27,163,844 | 27,616,301 | ||||||||||
Net TBA position | 10,168,000 | 6,484,000 | ||||||||||
Total Portfolio | $ | 37,331,844 | $ | 34,100,301 | ||||||||
Portfolio Metrics |
Three Months Ended |
Three Months Ended December 31, 2018 |
||
(unaudited) | (unaudited) | |||
Annualized portfolio yield during the quarter | 4.25% | 4.14% | ||
Rates Strategy | ||||
Agency RMBS, Agency Derivatives and mortgage servicing rights | 3.89% | 3.61% | ||
Credit Strategy | ||||
Non-Agency securities | 6.72% | 7.70% | ||
Annualized cost of funds on average borrowing balance during the quarter(2) | 2.47% | 2.53% | ||
Annualized interest rate spread for aggregate portfolio during the quarter | 1.78% | 1.61% | ||
________________ |
||||
(1) Other Agency includes hybrid ARMs and Agency derivatives. | ||||
(2) Cost of funds includes interest spread income/expense associated with the portfolio's interest rate swaps and caps. |
Portfolio Metrics Specific to RMBS and Agency Derivatives | As of March 31, 2019 | As of December 31, 2018 | ||||||
(unaudited) | (unaudited) | |||||||
Weighted average cost basis of principal and interest securities | ||||||||
Agency(3) | $ | 104.87 | $ | 105.20 | ||||
Non-Agency(4) | $ | 62.04 | $ | 62.44 | ||||
Weighted average three month CPR | ||||||||
Agency | 6.5 | % | 6.8 | % | ||||
Non-Agency | 4.9 | % | 5.1 | % | ||||
Fixed-rate investments as a percentage of aggregate RMBS and Agency Derivatives portfolio | 86.7 | % | 86.1 | % | ||||
Adjustable-rate investments as a percentage of aggregate RMBS and Agency Derivatives portfolio | 13.3 | % | 13.9 | % | ||||
______________ |
||||||||
(3) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. | ||||||||
(4) Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, the average purchase price for total non-Agency securities excluding the company's non-Agency interest-only portfolio, would be $58.95 at March 31, 2019 and $59.59 at December 31, 2018. | ||||||||
Portfolio Metrics Specific to MSR(1) | As of March 31, 2019 | As of December 31, 2018 | ||||||
(dollars in thousands) | (unaudited) | (unaudited) | ||||||
Unpaid principal balance | $ | 174,147,259 | $ | 163,102,308 | ||||
Fair market value | $ | 2,014,370 | $ | 1,993,440 | ||||
Weighted average coupon | 4.1 | % | 4.1 | % | ||||
Average original FICO score(2) | 751 | 752 | ||||||
Original LTV | 75 | % | 75 | % | ||||
60+ day delinquencies | 0.3 | % | 0.3 | % | ||||
Net servicing spread | 26.1 basis points | 25.9 basis points | ||||||
Three Months Ended |
Three Months Ended |
|||||||
(unaudited) | (unaudited) | |||||||
Fair value (loss) gain | $ | (188,974 | ) | $ | (171,284 | ) | ||
Servicing income | $ | 116,948 | $ | 104,623 | ||||
Servicing expenses | $ | 19,349 | $ | 17,381 | ||||
Servicing reserve expense | $ | 481 | $ | 1,200 | ||||
________________ | ||||||||
Note: The company does not directly service mortgage loans, but instead contracts with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the company’s MSR. | ||||||||
(1) Metrics exclude residential mortgage loans in securitization trusts for which the company is the named servicing administrator. | ||||||||
(2) FICO represents a mortgage industry accepted credit score of a borrower. | ||||||||
Other Investments and Risk Management Metrics | As of March 31, 2019 | As of December 31, 2018 | ||||||
(dollars in thousands) | (unaudited) | (unaudited) | ||||||
Net long TBA notional amount(3) | $ | 10,168,000 | $ | 6,484,000 | ||||
Interest rate swaps and caps notional, utilized to economically hedge interest rate exposure (or duration) | $ | 40,896,277 | $ | 32,023,605 | ||||
Swaptions net notional, utilized as macroeconomic hedges | 5,900,000 | 63,000 | ||||||
Total interest rate swaps, caps and swaptions notional | $ | 46,796,277 | $ | 32,086,605 | ||||
________________ | ||||||||
(3) Accounted for as derivative instruments in accordance with GAAP. | ||||||||
Financing Summary
The following tables summarize the
company’s financing metrics and outstanding repurchase agreements, FHLB
advances, revolving credit facilities and convertible senior notes as of
March 31, 2019 and December 31, 2018:
March 31, 2019 | Balance |
Weighted |
Weighted |
Number of |
|||||||
(dollars in thousands, unaudited) | |||||||||||
Repurchase agreements collateralized by RMBS | $ | 19,429,691 | 2.83% | 2.18 | |||||||
Repurchase agreements collateralized by MSR | 300,000 | 4.25% | 20.09 | ||||||||
Total repurchase agreements | 19,729,691 | 2.85% | 2.46 | 30 | |||||||
FHLB advances collateralized by RMBS(4) | 865,024 | 2.80% | 12.83 | 1 | |||||||
Revolving credit facilities collateralized by MSR | 375,294 | 5.50% | 44.00 | 3 | |||||||
Unsecured convertible senior notes | 284,099 | 6.25% | 33.53 | n/a | |||||||
Total borrowings | $ | 21,254,108 | |||||||||
________________ | |||||||||||
(4) The company’s wholly owned subsidiary, TH Insurance Holdings Company LLC (TH Insurance), is a member of the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. | |||||||||||
December 31, 2018 | Balance |
Weighted |
Weighted |
Number of |
|||||||
(dollars in thousands, unaudited) | |||||||||||
Repurchase agreements collateralized by RMBS | $ | 22,833,476 | 2.65% | 1.90 | |||||||
Repurchase agreements collateralized by MSR | 300,000 | 4.51% | 23.05 | ||||||||
Total repurchase agreements | 23,133,476 | 2.68% | 2.17 | 30 | |||||||
FHLB advances collateralized by RMBS(1) | 865,024 | 2.79% | 15.79 | 1 | |||||||
Revolving credit facilities collateralized by MSR | 310,000 | 5.60% | 51.00 | 2 | |||||||
Unsecured convertible senior notes | 283,856 | 6.25% | 36.53 | n/a | |||||||
Total borrowings | $ | 24,592,356 | |||||||||
________________ | |||||||||||
(1) The company’s wholly owned subsidiary, TH Insurance Holdings Company LLC (TH Insurance), is a member of the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. | |||||||||||
Borrowings by Collateral Type | As of March 31, 2019 | As of December 31, 2018 | ||||||
(dollars in thousands) | (unaudited) | (unaudited) | ||||||
Collateral type: | ||||||||
Agency RMBS and Agency Derivatives | $ | 18,112,621 | $ | 21,001,246 | ||||
Mortgage servicing rights | 675,294 | 610,000 | ||||||
Non-Agency securities | 2,182,094 | 2,697,254 | ||||||
Other(2) | 284,099 | 283,856 | ||||||
Total/Annualized cost of funds on average borrowings during the quarter | $ | 21,254,108 | $ | 24,592,356 | ||||
Debt-to-equity ratio at period-end(3) | 4.5:1.0 | 5.8:1.0 | ||||||
Economic debt-to-equity ratio at period-end(4) | 6.5:1.0 | 7.2:1.0 | ||||||
Cost of Funds Metrics |
Three Months Ended |
Three Months Ended |
||||||
(unaudited) | (unaudited) | |||||||
Annualized cost of funds on average borrowings during the quarter: | 2.9 % | 2.8 % | ||||||
Agency RMBS and Agency Derivatives | 2.6 % | 2.5 % | ||||||
Mortgage servicing rights(5) | 5.5 % | 5.7 % | ||||||
Non-Agency securities | 3.7 % | 3.7 % | ||||||
Other(2)(5) | 6.7 % | 6.8 % | ||||||
________________ | ||||||||
(2) Includes unsecured convertible senior notes. | ||||||||
(3) Defined as total borrowings to fund RMBS, MSR and Agency Derivatives, divided by total equity. | ||||||||
(4) Defined as total borrowings to fund RMBS, MSR and Agency Derivatives, plus the implied debt on net TBA positions, divided by total equity. | ||||||||
(5) Includes amortization of debt issuance costs. | ||||||||
Conference Call
Two Harbors Investment Corp. will host a
conference call on May 8, 2019 at 9:00 a.m. EDT to discuss first quarter
2019 financial results and related information. To participate in the
teleconference, please call toll-free (888) 394-8218, conference code
9013932, approximately 10 minutes prior to the above start time. You may
also listen to the teleconference live via the Internet on the company’s
website at www.twoharborsinvestment.com
in the Investor Relations section under the Events and Presentations
link. For those unable to attend, a telephone playback will be available
beginning at 12:00 p.m. EDT on May 8, 2019, through 12:00 a.m. EDT on
May 15, 2019. The playback can be accessed by calling (888) 203-1112 ,
conference code 9013932. The call will also be archived on the company’s
website in the Investor Relations section under the Events and
Presentations link.
Two Harbors Investment Corp.
Two Harbors Investment Corp., a
Maryland corporation, is a real estate investment trust that invests in
residential mortgage-backed securities, mortgage servicing rights and
other financial assets. Two Harbors is headquartered in New York, New
York, and is externally managed and advised by PRCM Advisers LLC, a
wholly owned subsidiary of Pine River Capital Management L.P. Additional
information is available at www.twoharborsinvestment.com.
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, consequently, readers should not rely on these
forward-looking statements as predictions of future events. Words such
as “expect,” “target,” “assume,” “estimate,” “project,” “budget,”
“forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,”
“should,” “believe,” “predicts,” “potential,” “continue,” and similar
expressions are intended to identify such forward-looking statements.
These forward-looking statements involve significant risks and
uncertainties that could cause actual results to differ materially from
expected results, including, among other things, those described in our
Annual Report on Form 10-K for the year ended December 31, 2018, and any
subsequent Quarterly Reports on Form 10-Q, under the caption “Risk
Factors.” Factors that could cause actual results to differ include, but
are not limited to: the state of credit markets and general economic
conditions; changes in interest rates and the market value of our
assets; changes in prepayment rates of mortgages underlying our target
assets; the rates of default or decreased recovery on the mortgages
underlying our target assets; the occurrence, extent and timing of
credit losses within our portfolio; the concentration of credit risks we
are exposed to; declines in home prices; our ability to establish,
adjust and maintain appropriate hedges for the risks in our portfolio;
the availability and cost of our target assets; the availability and
cost of financing; changes in the competitive landscape within our
industry; our ability to effectively execute and to realize the benefits
of strategic transactions and initiatives we have pursued or may in the
future pursue; our ability to manage various operational risks and costs
associated with our business; interruptions in or impairments to our
communications and information technology systems; our ability to
acquire MSR and successfully operate our seller-servicer subsidiary and
oversee our subservicers; the impact of any deficiencies in the
servicing or foreclosure practices of third parties and related delays
in the foreclosure process; our exposure to legal and regulatory claims;
legislative and regulatory actions affecting our business; the impact of
new or modified government mortgage refinance or principal reduction
programs; our ability to maintain our REIT qualification; and
limitations imposed on our business due to our REIT status and our
exempt status under the Investment Company Act of 1940.
Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Two Harbors does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these and other risk factors is contained in Two Harbors’ most recent filings with the Securities and Exchange Commission (SEC). All subsequent written and oral forward-looking statements concerning Two Harbors or matters attributable to Two Harbors or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.
Non-GAAP Financial Measures
In addition to disclosing
financial results calculated in accordance with United States generally
accepted accounting principles (GAAP), this press release and the
accompanying investor presentation present non-GAAP financial measures,
such as Core Earnings, including dollar roll income and Core Earnings
per basic common share, including dollar roll income, that exclude
certain items. Two Harbors’ management believes that these non-GAAP
measures enable it to perform meaningful comparisons of past, present
and future results of the company’s core business operations, and uses
these measures to gain a comparative understanding of the company’s
operating performance and business trends. The non-GAAP financial
measures presented by the company represent supplemental information to
assist investors in analyzing the results of its operations. However,
because these measures are not calculated in accordance with GAAP, they
should not be considered a substitute for, or superior to, the financial
measures calculated in accordance with GAAP. The company’s GAAP
financial results and the reconciliations from these results should be
carefully evaluated. See the GAAP to non-GAAP reconciliation table on
page 11 of this release.
Additional Information
Stockholders of Two Harbors and other
interested persons may find additional information regarding the company
at the SEC’s Internet site at www.sec.gov
or by directing requests to: Two Harbors Investment Corp., Attn:
Investor Relations, 575 Lexington Avenue, Suite 2930, New York, NY
10022, telephone (612) 629-2500.
TWO HARBORS INVESTMENT CORP. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(dollars in thousands, except share data) | ||||||||
March 31, 2019 |
December 31, 2018 |
|||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Available-for-sale securities, at fair value | $ | 25,077,710 | $ | 25,552,604 | ||||
Mortgage servicing rights, at fair value | 2,014,370 | 1,993,440 | ||||||
Cash and cash equivalents | 512,183 | 409,758 | ||||||
Restricted cash | 266,752 | 688,006 | ||||||
Accrued interest receivable | 77,934 | 86,589 | ||||||
Due from counterparties | 35,816 | 154,626 | ||||||
Derivative assets, at fair value | 336,112 | 319,981 | ||||||
Reverse repurchase agreements | — | 761,815 | ||||||
Other assets | 179,673 | 165,660 | ||||||
Total Assets | $ | 28,500,550 | $ | 30,132,479 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Repurchase agreements | $ | 19,729,691 | $ | 23,133,476 | ||||
Federal Home Loan Bank advances | 865,024 | 865,024 | ||||||
Revolving credit facilities | 375,294 | 310,000 | ||||||
Convertible senior notes | 284,099 | 283,856 | ||||||
Derivative liabilities, at fair value | 231 | 820,590 | ||||||
Due to counterparties | 2,175,221 | 130,210 | ||||||
Dividends payable | 147,179 | 135,551 | ||||||
Accrued interest payable | 109,313 | 160,005 | ||||||
Other liabilities | 40,274 | 39,278 | ||||||
Total Liabilities | 23,726,326 | 25,877,990 | ||||||
Stockholders’ Equity | ||||||||
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 40,050,000 and 40,050,000 shares issued and outstanding, respectively ($1,001,250 and $1,001,250 liquidation preference, respectively) | 977,501 | 977,501 | ||||||
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 272,826,604 and 248,085,721 shares issued and outstanding, respectively | 2,728 | 2,481 | ||||||
Additional paid-in capital | 5,146,508 | 4,809,616 | ||||||
Accumulated other comprehensive income | 466,969 | 110,817 | ||||||
Cumulative earnings | 2,305,994 | 2,332,371 | ||||||
Cumulative distributions to stockholders | (4,125,476 | ) | (3,978,297 | ) | ||||
Total Stockholders’ Equity | 4,774,224 | 4,254,489 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 28,500,550 | $ | 30,132,479 | ||||
TWO HARBORS INVESTMENT CORP. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||||||
(dollars in thousands) | ||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | ||||||||
Three Months Ended |
||||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Interest income: | ||||||||
Available-for-sale securities | $ | 235,886 | $ | 190,716 | ||||
Other | 9,597 | 3,303 | ||||||
Total interest income | 245,483 | 194,019 | ||||||
Interest expense: | ||||||||
Repurchase agreements | 147,560 | 86,580 | ||||||
Federal Home Loan Bank advances | 6,074 | 4,458 | ||||||
Revolving credit facilities | 5,156 | 804 | ||||||
Convertible senior notes | 4,735 | 4,718 | ||||||
Total interest expense | 163,525 | 96,560 | ||||||
Net interest income | 81,958 | 97,459 | ||||||
Other-than-temporary impairment losses | (206 | ) | (94 | ) | ||||
Other (loss) income: | ||||||||
Loss on investment securities | (19,292 | ) | (20,671 | ) | ||||
Servicing income | 116,948 | 71,190 | ||||||
(Loss) gain on servicing asset | (188,974 | ) | 71,807 | |||||
(Loss) gain on interest rate swap, cap and swaption agreements | (83,259 | ) | 150,545 | |||||
Gain on other derivative instruments | 104,278 | 8,053 | ||||||
Other income | 123 | 1,058 | ||||||
Total other (loss) income | (70,176 | ) | 281,982 | |||||
Expenses: | ||||||||
Management fees | 12,082 | 11,708 | ||||||
Servicing expenses | 19,912 | 14,554 | ||||||
Other operating expenses | 15,556 | 14,492 | ||||||
Total expenses | 47,550 | 40,754 | ||||||
(Loss) income before income taxes | (35,974 | ) | 338,593 | |||||
(Benefit from) provision for income taxes | (10,039 | ) | 3,784 | |||||
Net (loss) income | (25,935 | ) | 334,809 | |||||
Dividends on preferred stock | 18,950 | 13,747 | ||||||
Net (loss) income attributable to common stockholders | $ | (44,885 | ) | $ | 321,062 | |||
Basic (loss) earnings per weighted average common share | $ | (0.18 | ) | 1.83 | ||||
Diluted (loss) earnings per weighted average common share | $ | (0.18 | ) | $ | 1.69 | |||
Dividends declared per common share | $ | 0.47 | $ | 0.47 | ||||
Weighted average number of shares of common stock: | ||||||||
Basic | 252,357,878 | 175,145,964 | ||||||
Diluted | 252,357,878 | 192,818,531 | ||||||
TWO HARBORS INVESTMENT CORP. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS), CONTINUED | ||||||||
(dollars in thousands) | ||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | ||||||||
Three Months Ended |
||||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Comprehensive income (loss): | ||||||||
Net (loss) income | $ | (25,935 | ) | $ | 334,809 | |||
Other comprehensive income (loss), net of tax: | ||||||||
Unrealized gain (loss) on available-for-sale securities | 356,152 | (344,777 | ) | |||||
Other comprehensive income (loss) | 356,152 | (344,777 | ) | |||||
Comprehensive income (loss) | 330,217 | (9,968 | ) | |||||
Dividends on preferred stock | 18,950 | 13,747 | ||||||
Comprehensive income (loss) attributable to common stockholders | $ | 311,267 | $ | (23,715 | ) | |||
TWO HARBORS INVESTMENT CORP. | ||||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION | ||||||||
(dollars in thousands, except share data) | ||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | ||||||||
Three Months Ended |
Three Months Ended |
|||||||
2019 | 2018 | |||||||
(unaudited) | (unaudited) | |||||||
Reconciliation of Comprehensive income (loss) to Core Earnings: | ||||||||
Comprehensive income (loss) attributable to common stockholders | $ | 311,267 | $ | (307,939 | ) | |||
Adjustment for other comprehensive income attributable to common stockholders: | ||||||||
Unrealized gains on available-for-sale securities attributable to common stockholders | (356,152 | ) | (265,546 | ) | ||||
Net loss attributable to common stockholders | $ | (44,885 | ) | $ | (573,485 | ) | ||
Adjustments for non-Core Earnings: | ||||||||
Other-than-temporary impairment loss | 206 | 107 | ||||||
Realized losses on securities | 17,457 | 248,844 | ||||||
Unrealized loss (gain) on securities | 1,835 | (3,081 | ) | |||||
Realized and unrealized losses on mortgage servicing rights | 124,569 | 113,523 | ||||||
Realized losses on termination or expiration of swaps, caps and swaptions | 34,499 | 35,757 | ||||||
Unrealized losses on interest rate swaps, caps and swaptions | 72,469 | 219,066 | ||||||
(Gain) loss on other derivative instruments | (75,605 | ) | 68,928 | |||||
Other loss | 439 | 259 | ||||||
Change in servicing reserves | 481 | 1,200 | ||||||
Non-cash equity compensation expense | 1,861 | 3,211 | ||||||
Net (benefit from) provision for income taxes on non-Core Earnings | (10,643 | ) | 6,390 | |||||
Core Earnings attributable to common stockholders, including dollar roll income(1) | 122,683 | 120,719 | ||||||
Weighted average basic common shares | 252,357,878 | 248,081,168 | ||||||
Core Earnings, including dollar roll income, attributable to common stockholders per weighted average basic common share | $ | 0.49 | $ | 0.49 | ||||
_____________ | ||||||||
(1) Core Earnings, including dollar roll income, is a non-U.S. GAAP measure that we define as comprehensive income (loss) attributable to common stockholders, excluding “realized and unrealized gains and losses” (impairment losses, realized and unrealized gains and losses on the aggregate portfolio, reserve expense for representation and warranty obligations on MSR, non-cash compensation expense related to restricted common stock and restructuring charges) and transaction costs associated with the acquisition of CYS. As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments and servicing income, net of estimated amortization on MSR. “Dollar roll income” is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. We believe the presentation of Core Earnings, including dollar roll income, provides investors greater transparency into our period-over-period financial performance and facilitates comparisons to peer REITs. | ||||||||
TWO HARBORS INVESTMENT CORP. | ||||||||||||||||||||
SUMMARY OF QUARTERLY CORE EARNINGS | ||||||||||||||||||||
(dollars in millions, except per share data) | ||||||||||||||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | ||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||
March 31, 2019 |
December 31, 2018 |
September 30, 2018 |
June 30, 2018 |
March 31, 2018 |
||||||||||||||||
(unaudited) | ||||||||||||||||||||
Net Interest Income: | ||||||||||||||||||||
Interest income | $ | 245.5 | $ | 252.0 | $ | 236.7 | $ | 187.3 | $ | 194.0 | ||||||||||
Interest expense | 163.5 | 162.3 | 152.4 | 108.4 | 96.6 | |||||||||||||||
Net interest income | 82.0 | 89.7 | 84.3 | 78.9 | 97.4 | |||||||||||||||
Other income: | ||||||||||||||||||||
Gain on investment securities | — | — | — | 0.7 | 0.6 | |||||||||||||||
Servicing income, net of amortization(1) | 52.5 | 46.9 | 37.1 | 31.7 | 28.3 | |||||||||||||||
Interest spread on interest rate swaps and caps | 23.7 | 15.3 | 16.2 | 13.8 | 3.8 | |||||||||||||||
(Loss) gain on other derivative instruments | 28.7 | 29.8 | 30.2 | 18.2 | 5.9 | |||||||||||||||
Other income | 0.5 | 0.6 | 0.6 | 0.5 | 0.7 | |||||||||||||||
Total other income | 105.4 | 92.6 | 84.1 | 64.9 | 39.3 | |||||||||||||||
Expenses | 45.2 | 42.3 | 42.5 | 35.1 | 38.1 | |||||||||||||||
Core Earnings, including dollar roll income before income taxes | 142.2 | 140.0 | 125.9 | 108.7 | 98.6 | |||||||||||||||
Income tax expense (benefit) | 0.6 | 0.3 | (0.1 | ) | 1.1 | 1.1 | ||||||||||||||
Core Earnings, including dollar roll income | 141.6 | 139.7 | 126.0 | 107.6 | 97.5 | |||||||||||||||
Dividends on preferred stock | 18.9 | 19.0 | 19.0 | 13.7 | 13.7 | |||||||||||||||
Core Earnings, including dollar roll income, attributable to common stockholders(2) | $ | 122.7 | $ | 120.7 | $ | 107.0 | $ | 93.9 | $ | 83.8 | ||||||||||
Weighted average basic Core EPS, including dollar roll income | $ | 0.49 | $ | 0.49 | $ | 0.48 | $ | 0.53 | $ | 0.48 | ||||||||||
Core earnings return on average common equity, including dollar roll income | 14.3 | % | 13.8 | % | 12.4 | % | 13.5 | % | 11.8 | % | ||||||||||
________________ | ||||||||||||||||||||
(1) Amortization refers to the portion of change in fair value of MSR primarily attributed to the realization of expected cash flows (runoff) of the portfolio. This amortization has been deducted from Core Earnings, including dollar roll income. Amortization of MSR is deemed a non-GAAP measure due to the company’s decision to account for MSR at fair value. | ||||||||||||||||||||
(2) Please see page 11 for a definition of Core Earnings, including dollar roll income, and a reconciliation of GAAP to non-GAAP financial information. | ||||||||||||||||||||