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, 2018.
Summary
- Reported book value of $15.63 per common share, representing a (1.3%) total quarterly return on book value.(1)
- Incurred a Comprehensive Loss of ($23.7) million, or ($0.14) per weighted average basic common share.
-
Reported Core Earnings including dollar roll income of $83.8 million,
or $0.48 per weighted average basic common share, representing a
return on average common equity of 11.8%.(2)
- Dollar roll income of $3.4 million, or $0.02 per weighted average basic common share.
- Added $13.6 billion unpaid principal balance (UPB) of MSR through both a bulk purchase and monthly flow-sale arrangements, bringing total holdings to $111.7 billion UPB.
- Increased the capacity of an MSR financing facility by $100 million, to a total of $400 million, and continued to advance discussions with other potential MSR financing counterparties.
- Post quarter end, announced proposed acquisition of CYS Investments, Inc. (NYSE: CYS).
“We delivered strong Core Earnings in the first quarter, driven primarily by growth in our MSR portfolio and additional servicing income,” stated Thomas Siering, Two Harbors’ President and Chief Executive Officer. “Additionally, post quarter end, we were excited to announce our proposed acquisition of CYS Investments, Inc., which we believe represents a unique opportunity to create value for our stockholders.”
(1) Return on book value for the quarter ended March 31, 2018 is defined
as the decrease in book value per common share from December 31, 2017 to
March 31, 2018 of $0.68, plus the dividend declared of $0.47 per common
share, divided by December 31, 2017 book value of $16.31 per common
share.
(2) Core Earnings and Core Earnings including dollar roll
income are non-GAAP measures. Please see page 13 for a definition of
Core Earnings and a reconciliation of GAAP to non-GAAP financial
information.
Beginning with this reporting period, certain of the company’s non-GAAP earnings metrics will include to-be-announced (TBA) dollar roll income. TBA dollar roll income is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. For various liquidity, hedging and leverage benefits, the company’s investment team may choose to invest in TBAs versus Agency pools. The ability to invest in more meaningful TBA exposure benefitted from the recent receipt of a tax opinion that will allow the company to hold these investments in the REIT. The company believes that the presentation of Core Earnings including dollar roll income is a meaningful indicator of its earnings power and provides investors with greater transparency into the company’s period-over-period financial performance.
Operating Performance
The following table summarizes
the company’s GAAP and non-GAAP earnings measurements and key metrics
for the first quarter of 2018:
Two Harbors Investment Corp. Operating Performance (unaudited) | |||||||||||
(dollars in thousands, except per common share data) | |||||||||||
Three Months Ended March 31, 2018 |
|||||||||||
Earnings attributable to common stockholders |
Earnings |
Per weighted |
Annualized |
||||||||
Comprehensive Loss | $ | (23,715 | ) | $ | (0.14 | ) | (3.3 | )% | |||
GAAP Net Income | $ | 321,062 | $ | 1.83 | 45.2 | % | |||||
Core Earnings(1) | $ | 80,371 | $ | 0.46 | 11.3 | % | |||||
Core Earnings, including dollar roll income(1) | $ | 83,825 | $ | 0.48 | 11.8 | % | |||||
Operating Metrics |
|||||||||||
Dividend per common share | $ | 0.47 | |||||||||
Dividend per Series A preferred share | $ | 0.50781 | |||||||||
Dividend per Series B preferred share | $ | 0.47656 | |||||||||
Dividend per Series C preferred share | $ | 0.45313 | |||||||||
Book value per common share at period end | $ | 15.63 | |||||||||
Other operating expenses as a percentage of average equity(2) | 1.6 | % | |||||||||
________________ |
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(1) Please see page 13 for a definition of Core Earnings and Core Earnings including dollar roll income, and a reconciliation of GAAP to non-GAAP financial information. (2) Includes non-cash equity compensation expense of $2.3 million |
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Earnings Summary
Two Harbors incurred
a Comprehensive Loss of ($23.7) million, or ($0.14) per weighted average
basic common share, for the quarter ended March 31, 2018, as compared to
Comprehensive Income of $65.7 million, or $0.38 per weighted average
basic common share, for the quarter ended December 31, 2017. The company
records unrealized fair value gains and losses on the majority of RMBS,
classified as available-for-sale, in Other Comprehensive Income. On a
Comprehensive Income basis, the company recognized an annualized return
on average common equity of (3.3%) and 8.5% for the quarters ended
March 31, 2018 and December 31, 2017, respectively.
The company reported GAAP Net Income of $321.1 million, or $1.83 per weighted average basic common share, for the quarter ended March 31, 2018, as compared to GAAP Net Income of $154.0 million, or $0.88 per weighted average basic common share, for the quarter ended December 31, 2017. On a GAAP Net Income basis, the company recognized an annualized return on average common equity of 45.2% and 20.0% for the quarters ended March 31, 2018 and December 31, 2017, respectively.
For the first quarter of 2018, the company recognized non-Core Earnings of:
- net realized losses on RMBS and mortgage loans held-for-sale of $19.7 million;
- net unrealized losses on certain RMBS, equity securities and mortgage loans held-for-sale of $1.3 million;
- other-than-temporary impairment loss of $0.1 million;
- net gains of $92.5 million related to swap and swaption terminations and expirations;
- net unrealized gains of $54.3 million associated with interest rate swaps and swaptions economically hedging interest rate exposure (or duration);
- net realized and unrealized gains on other derivative instruments of $5.6 million;
- net realized and unrealized gains on MSR of $114.7 million(1);
- servicing reserve expense of $0.3 million;
- non-cash equity compensation expense of $2.3 million;
- net provision for income taxes on non-Core Earnings of 2.7 million; and
- dollar roll income of $3.4 million.
The company reported Core Earnings for the quarter ended March 31, 2018 of $80.4 million, or $0.46 per weighted average basic common share outstanding. The company reported Core Earnings for the quarter ended December 31, 2017 of $81.3 million, or $0.47 per weighted average basic common share outstanding. On a Core Earnings basis, the company recognized an annualized return on average common equity of 11.3% for both of the quarters ended March 31, 2018 and December 31, 2017. The company reported Core Earnings including dollar roll income for the quarter ended March 31, 2018 of $83.8 million, or $0.48 per weighted average basic common share outstanding. On a Core Earnings including dollar roll income basis, the company recognized an annualized return on average common equity of 11.8% for the quarter ended March 31, 2018.
Other Key Metrics
Two Harbors declared
a quarterly cash dividend of $0.47 per common share for the quarter
ended March 31, 2018. The annualized dividend yield on the company’s
common stock for the quarter, based on the March 31, 2018 closing price
of $15.37, was 12.2%.
Two Harbors declared quarterly dividends of $0.50781 per share on its 8.125% Series A fixed-to-floating rate cumulative redeemable preferred stock, $0.47656 per share on its 7.625% Series B fixed-to-floating rate cumulative redeemable preferred stock and a dividend of $0.45313 per share of the 7.25% Series C fixed-to-floating rate cumulative redeemable preferred stock. Each of the foregoing preferred dividends were paid on April 27, 2018 to the applicable preferred stockholders of record at the close of business on April 12, 2018.
The company’s book value per common share, after taking into account the first quarter 2018 common and preferred stock dividends, was $15.63 as of March 31, 2018, compared to $16.31 as of December 31, 2017, which represented a total return on book value for the quarter of (1.3%).(2)
Other operating expenses for the quarter ended March 31, 2018 were approximately $14.5 million. The company’s annualized expense ratio was 1.6% of average equity, compared to expenses from continuing operations of approximately $9.8 million, or 1.1% of average equity, for the quarter ended December 31, 2017. These include non-cash equity compensation expense of $2.3 million and non-cash equity compensation income (negative amortization) of $0.4 million, respectively.
(1) Excludes estimated amortization of $42.9 million included in Core
Earnings.
(2) Return on book value for the quarter ended March 31,
2018 is defined as the decrease in book value per common share from
December 31, 2017 to March 31, 2018 of $0.68, plus the dividend declared
of $0.47 per common share, divided by December 31, 2017 book value of
$16.31 per common share.
Portfolio Summary
The company’s aggregate portfolio
is principally comprised of RMBS available-for-sale securities, inverse
interest-only securities (Agency Derivatives) and MSR. As of March 31,
2018, the total value of the company’s portfolio was $22.4 billion.
The company’s portfolio includes rates and credit strategies. The rates strategy consisted of $19.4 billion of Agency RMBS, Agency Derivatives and MSR as well as their associated notional hedges as of March 31, 2018. The credit strategy consisted of $3.0 billion of non-Agency securities, as well as their associated notional hedges as of March 31, 2018.
For the quarter ended March 31, 2018, the annualized yield on the company’s average aggregate portfolio was 3.77% and the annualized cost of funds on the associated average borrowings, which includes net interest rate spread on interest rate swaps, was 1.84%. This resulted in a net interest rate spread of 1.93%.
RMBS and Agency Derivatives
For the
quarter ended March 31, 2018, the annualized yield on average RMBS and
Agency Derivatives was 3.7%, consisting of an annualized yield of 3.1%
in Agency RMBS and Agency Derivatives and 8.0% in non-Agency securities.
The company experienced a three-month average constant prepayment rate (CPR) of 7.0% for Agency RMBS and Agency Derivatives held as of March 31, 2018, compared to 7.6% as of December 31, 2017. The weighted average cost basis of the principal and interest Agency portfolio was 106.4% of par and 106.6% of par as of March 31, 2018 and December 31, 2017, respectively. The net premium amortization was $44.2 million and $43.0 million for the quarters ended March 31, 2018 and December 31, 2017, respectively.
The company experienced a three-month average CPR of 5.7% for legacy non-Agency securities held as of March 31, 2018, compared to 6.4% as of December 31, 2017. The weighted average cost basis of the legacy non-Agency securities was 59.5% of par as of March 31, 2018, compared to 59.9% of par as of December 31, 2017. The discount accretion was $22.2 million for the quarter ended March 31, 2018, compared to $20.8 million for the quarter ended December 31, 2017. The total net discount remaining was $1.3 billion as of both March 31, 2018 and December 31, 2017, with $712.0 million designated as credit reserve as of March 31, 2018.
As of March 31, 2018, fixed-rate investments composed 86.8% and adjustable-rate investments composed 13.2% of the company’s RMBS and Agency Derivatives portfolio.
Mortgage Servicing Rights
As of
March 31, 2018, the company held MSR on mortgage loans with UPB totaling
$111.7 billion.(1) The MSR had a fair market value of $1.3
billion, as of March 31, 2018, and the company recognized fair value
gains of $71.8 million during the quarter ended March 31, 2018.
The company does not directly service mortgage loans, but instead contracts with fully licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the company’s MSR. The company recognized $71.2 million of servicing income, $14.3 million(1) of servicing expenses and $0.3 million in servicing reserve expense during the quarter ended March 31, 2018.
(1) Excludes residential mortgage loans in securitization trusts for which the company is the named servicing administrator.
Other Investments and Risk Management Derivatives
The
company held $0.4 billion notional of net long TBAs as of March 31,
2018, which are accounted for as derivative instruments in accordance
with GAAP.
As of March 31, 2018, the company was a party to interest rate swaps and swaptions with a notional amount of $29.8 billion. Of this amount, $23.6 billion notional in swaps were utilized to economically hedge interest rate exposure (or duration), and $6.2 billion net notional in swaptions were utilized as macroeconomic hedges.
The following tables summarize the company’s investment portfolio as of March 31, 2018 and December 31, 2017:
Two Harbors Investment Corp. Portfolio | ||||||||||||
(dollars in thousands) | ||||||||||||
Portfolio Composition | As of March 31, 2018 | As of December 31, 2017 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
Rates Strategy | ||||||||||||
Agency | ||||||||||||
Fixed Rate | $ | 18,020,641 | 80.2% | $ | 18,215,505 | 81.2% | ||||||
Hybrid ARMs | 21,523 | 0.1% | 23,220 | 0.1% | ||||||||
Total Agency | 18,042,164 | 80.3% | 18,238,725 | 81.3% | ||||||||
Agency Derivatives | 81,628 | 0.4% | 90,975 | 0.4% | ||||||||
Mortgage servicing rights | 1,301,023 | 5.8% | 1,086,717 | 4.8% | ||||||||
Residential mortgage loans held-for-sale | 19,679 | 0.1% | 20,766 | 0.1% | ||||||||
Credit Strategy | ||||||||||||
Non-Agency | ||||||||||||
Senior | 2,026,035 | 9.0% | 1,956,145 | 8.7% | ||||||||
Mezzanine | 916,877 | 4.1% | 960,865 | 4.3% | ||||||||
Other | 74,301 | 0.3% | 65,084 | 0.3% | ||||||||
Total Non-Agency | 3,017,213 | 13.4% | 2,982,094 | 13.3% | ||||||||
Residential mortgage loans held-for-sale | 9,749 | —% | 9,648 | 0.1% | ||||||||
Aggregate Portfolio | $ | 22,471,456 | $ | 22,428,925 | ||||||||
Portfolio Metrics |
Three Months Ended |
Three Months Ended December 31, 2017 |
||||||
(unaudited) | (unaudited) | |||||||
Annualized portfolio yield from continuing operations during the quarter | 3.77 | % | 3.69 | % | ||||
Rates Strategy | ||||||||
Agency RMBS, Agency Derivatives and mortgage servicing rights | 3.2 | % | 3.2 | % | ||||
Credit Strategy | ||||||||
Non-Agency securities, Legacy(1) | 7.5 | % | 7.8 | % | ||||
Non-Agency securities, New issue(1) | 10.9 | % | 6.6 | % | ||||
Net economic interest in securitizations | — | % | 11.2 | % | ||||
Residential mortgage loans held-for-sale | 4.7 | % | 3.9 | % | ||||
Annualized cost of funds from continuing operations on average borrowing balance during the quarter(2) | 1.84 | % | 1.72 | % | ||||
Annualized interest rate spread for aggregate portfolio during the quarter | 1.93 | % | 1.97 | % | ||||
Debt-to-equity ratio at period-end(3) | 5.9:1.0 | 5.9:1.0 | ||||||
Portfolio Metrics Specific to RMBS and Agency Derivatives | As of March 31, 2018 | As of December 31, 2017 | ||||||
(unaudited) | (unaudited) | |||||||
Weighted average cost basis of principal and interest securities | ||||||||
Agency(4) | $ | 106.41 | $ | 106.56 | ||||
Non-Agency(5) | $ | 59.51 | $ | 59.89 | ||||
Weighted average three month CPR | ||||||||
Agency | 7.0 | % | 7.6 | % | ||||
Non-Agency | 5.7 | % | 6.4 | % | ||||
Fixed-rate investments as a percentage of aggregate RMBS and Agency Derivatives portfolio | 86.8 | % | 87.2 | % | ||||
Adjustable-rate investments as a percentage of aggregate RMBS and Agency Derivatives portfolio | 13.2 | % | 12.8 | % | ||||
________________ |
||||||||
(1) Legacy non-Agency securities includes non-Agency bonds issued
up to and including 2009. New issue non-Agency securities includes
bonds issued after 2009. |
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“We are excited about the opportunity to redeploy capital from the proposed acquisition of CYS into our target assets,” stated Bill Roth, Two Harbors’ Chief Investment Officer. “We continue to see abundant opportunity to add MSR and believe that pairing MSR with our Agency RMBS better hedges our interest rate exposure and spread risk. Over time, we expect that approximately 50% of our capital will be allocated to MSR and credit.”
Financing Summary
The company reported a
debt-to-equity ratio, defined as total borrowings under repurchase
agreements, FHLB advances, revolving credit facilities and convertible
senior notes to fund RMBS, Agency Derivatives and MSR divided by total
equity, of 5.9:1.0 as of March 31, 2018.
As of March 31, 2018, the company had outstanding $18.9 billion of repurchase agreements funding RMBS and Agency Derivatives with 28 different counterparties. Excluding the effect of the company’s interest rate swaps, the repurchase agreements funding RMBS and Agency Derivatives had a weighted average borrowing rate of 1.94% as of March 31, 2018.
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. As of March 31, 2018, TH Insurance had $0.9 billion in outstanding secured advances funding RMBS, with a weighted average borrowing rate of 2.13%.
As of March 31, 2018, the company had outstanding $20.0 million of short-term borrowings secured by MSR collateral under revolving credit facilities with a weighted average borrowing rate of 5.67% and remaining maturities of 261 days. Additionally, the company had outstanding $250.0 million of long-term repurchase agreements for MSR, with a weighted average borrowing rate of 3.94%, with additional available capacity of $150.0 million.
As of March 31, 2018, the company’s aggregate repurchase agreements, FHLB advances, revolving credit facilities and convertible senior notes funding RMBS, Agency Derivatives and MSR had a weighted average of 4.7 months to maturity.
The following table summarizes the company’s borrowings by collateral type under repurchase agreements, FHLB advances, revolving credit facilities and convertible senior notes outstanding as of March 31, 2018 and December 31, 2017, and the related cost of funds for the three months ended March 31, 2018 and December 31, 2017:
As of March 31, 2018 | As of December 31, 2017 | |||||||
(in thousands) | (unaudited) | (unaudited) | ||||||
Collateral type: | ||||||||
Agency RMBS and Agency Derivatives | $ | 17,731,102 | $ | 18,610,196 | ||||
Mortgage servicing rights | 270,000 | 132,500 | ||||||
Non-Agency securities | 2,032,601 | 1,943,535 | ||||||
Other(1) | 283,054 | 282,827 | ||||||
$ | 20,316,757 | $ | 20,969,058 | |||||
Cost of Funds Metrics |
Three Months Ended |
Three Months Ended |
||||||
(unaudited) | (unaudited) | |||||||
Annualized cost of funds from continuing operations on average borrowings during the quarter: | 1.9 | % | 1.8 | % | ||||
Agency RMBS and Agency Derivatives | 1.7 | % | 1.5 | % | ||||
Mortgage servicing rights(2) | 5.2 | % | 5.9 | % | ||||
Non-Agency securities | 3.1 | % | 3.0 | % | ||||
Net economic interests in consolidated securitization trusts(3) | — | % | 2.7 | % | ||||
Other(1)(2) | 6.7 | % | 6.8 | % | ||||
________________ |
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(1) Includes unsecured convertible senior notes. |
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Conference Call
Two Harbors Investment Corp. will host a
conference call on May 9, 2018 at 9:00 a.m. EDT to discuss first quarter
2018 financial results and related information. To participate in the
teleconference, please call toll-free (877) 868-1835 (or (914) 495-8581
for international callers), conference code 3599717, 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 9, 2018, through 12:00 a.m. EDT on
May 16, 2018. The playback can be accessed by calling (855) 859-2056 (or
(404) 537-3406 for international callers), conference code 3599717. 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, 2017, 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 proposed acquisition of CYS and our ability to
realize the benefits related thereto; 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, Core Earnings including dollar roll income, Core
Earnings per basic common share 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 13 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, |
December 31, |
|||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Available-for-sale securities, at fair value | $ | 21,059,377 | $ | 21,220,819 | ||||
Mortgage servicing rights, at fair value | 1,301,023 | 1,086,717 | ||||||
Residential mortgage loans held-for-sale, at fair value | 29,428 | 30,414 | ||||||
Cash and cash equivalents | 388,450 | 419,159 | ||||||
Restricted cash | 712,791 | 635,836 | ||||||
Accrued interest receivable | 67,370 | 68,309 | ||||||
Due from counterparties | 85,319 | 842,303 | ||||||
Derivative assets, at fair value | 274,048 | 309,918 | ||||||
Other assets | 159,359 | 175,838 | ||||||
Total Assets | $ | 24,077,165 | $ | 24,789,313 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Repurchase agreements | $ | 19,148,679 | $ | 19,451,207 | ||||
Federal Home Loan Bank advances | 865,024 | 1,215,024 | ||||||
Revolving credit facilities | 20,000 | 20,000 | ||||||
Convertible senior notes | 283,054 | 282,827 | ||||||
Derivative liabilities, at fair value | 46,074 | 31,903 | ||||||
Due to counterparties | 39,809 | 88,898 | ||||||
Dividends payable | 96,201 | 12,552 | ||||||
Accrued interest payable | 85,405 | 87,698 | ||||||
Other liabilities | 25,234 | 27,780 | ||||||
Total Liabilities | 20,609,480 | 21,217,889 | ||||||
Stockholders’ Equity | ||||||||
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized: | ||||||||
8.125% Series A cumulative redeemable: 5,750,000 and 5,750,000 shares issued and outstanding, respectively ($143,750 liquidation preference) | 138,872 | 138,872 | ||||||
7.625% Series B cumulative redeemable: 11,500,000 and 11,500,000 shares issued and outstanding, respectively ($287,500 liquidation preference) | 278,094 | 278,094 | ||||||
7.25% Series C cumulative redeemable: 11,800,000 and 11,800,000 shares issued and outstanding, respectively ($295,000 liquidation preference) | 285,584 | 285,571 | ||||||
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 175,434,778 and 174,496,587 shares issued and outstanding, respectively | 1,754 | 1,745 | ||||||
Additional paid-in capital | 3,674,411 | 3,672,003 | ||||||
Accumulated other comprehensive (loss) income | (46 | ) | 334,813 | |||||
Cumulative earnings | 2,711,495 | 2,386,604 | ||||||
Cumulative distributions to stockholders | (3,622,479 | ) | (3,526,278 | ) | ||||
Total Stockholders’ Equity | 3,467,685 | 3,571,424 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 24,077,165 | $ | 24,789,313 | ||||
TWO HARBORS INVESTMENT CORP. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME | ||||||||
(dollars in thousands) | ||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | ||||||||
Three Months Ended |
||||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
Interest income: | ||||||||
Available-for-sale securities | $ | 190,716 | $ | 135,327 | ||||
Residential mortgage loans held-for-investment in securitization trusts | — | 31,628 | ||||||
Residential mortgage loans held-for-sale | 307 | 398 | ||||||
Other | 2,996 | 1,801 | ||||||
Total interest income | 194,019 | 169,154 | ||||||
Interest expense: | ||||||||
Repurchase agreements | 86,580 | 32,256 | ||||||
Collateralized borrowings in securitization trusts | — | 25,386 | ||||||
Federal Home Loan Bank advances | 4,458 | 8,793 | ||||||
Revolving credit facilities | 804 | 429 | ||||||
Convertible senior notes | 4,718 | 3,821 | ||||||
Total interest expense | 96,560 | 70,685 | ||||||
Net interest income | 97,459 | 98,469 | ||||||
Other-than-temporary impairment losses | (94 | ) | — | |||||
Other income (loss): | ||||||||
Loss on investment securities | (20,671 | ) | (52,352 | ) | ||||
Servicing income | 71,190 | 39,773 | ||||||
Gain (loss) on servicing asset | 71,807 | (14,565 | ) | |||||
Gain on interest rate swap and swaption agreements | 150,545 | 9,927 | ||||||
Gain (loss) on other derivative instruments | 8,053 | (27,864 | ) | |||||
Other income | 1,058 | 9,496 | ||||||
Total other income (loss) | 281,982 | (35,585 | ) | |||||
Expenses: | ||||||||
Management fees | 11,708 | 9,808 | ||||||
Servicing expenses | 14,554 | 5,298 | ||||||
Other operating expenses | 14,492 | 13,764 | ||||||
Total expenses | 40,754 | 28,870 | ||||||
Income from continuing operations before income taxes | 338,593 | 34,014 | ||||||
Provision for (benefit from) income taxes | 3,784 | (24,517 | ) | |||||
Net income from continuing operations | 334,809 | 58,531 | ||||||
Income from discontinued operations, net of tax | — | 13,454 | ||||||
Net income | 334,809 | 71,985 | ||||||
Dividends on preferred stock | 13,747 | — | ||||||
Net income attributable to common stockholders | $ | 321,062 | $ | 71,985 | ||||
TWO HARBORS INVESTMENT CORP. | ||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME, continued | ||||||||
(dollars in thousands) | ||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | ||||||||
Three Months Ended March 31, |
||||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
Basic earnings per weighted average common share: | ||||||||
Continuing operations | $ | 1.83 | $ | 0.33 | ||||
Discontinued operations | — | 0.08 | ||||||
Net income | $ | 1.83 | $ | 0.41 | ||||
Diluted earnings per weighted average common share: | ||||||||
Continuing operations | $ | 1.69 | $ | 0.33 | ||||
Discontinued operations | — | 0.08 | ||||||
Net income | $ | 1.69 | $ | 0.41 | ||||
Dividends declared per common share | $ | 0.47 | $ | 0.50 | ||||
Weighted average number of shares of common stock: | ||||||||
Basic | 175,145,964 | 174,281,965 | ||||||
Diluted | 192,818,531 | 174,281,965 | ||||||
Comprehensive (loss) income: | ||||||||
Net income | $ | 334,809 | $ | 71,985 | ||||
Other comprehensive (loss) income, net of tax: | ||||||||
Unrealized (loss) gain on available-for-sale securities | (344,777 | ) | 73,762 | |||||
Other comprehensive (loss) income | (344,777 | ) | 73,762 | |||||
Comprehensive (loss) income | (9,968 | ) | 145,747 | |||||
Dividends on preferred stock | 13,747 | — | ||||||
Comprehensive (loss) income attributable to common stockholders | $ | (23,715 | ) | $ | 145,747 | |||
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 March 31, |
||||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
Reconciliation of Comprehensive (loss) income to Core Earnings: | ||||||||
Comprehensive (loss) income attributable to common stockholders | $ | (23,715 | ) | $ | 145,747 | |||
Adjustment for other comprehensive loss (income) attributable to common stockholders: | ||||||||
Unrealized loss (gain) on available-for-sale securities attributable to common stockholders | 344,777 | (73,762 | ) | |||||
Net income attributable to common stockholders | $ | 321,062 | $ | 71,985 | ||||
Adjustments for non-Core Earnings: | ||||||||
Realized losses on securities and residential mortgage loans held-for-sale | 19,731 | 49,049 | ||||||
Unrealized losses on securities and residential mortgage loans held-for-sale | 1,253 | 1,842 | ||||||
Other-than-temporary impairment loss | 94 | — | ||||||
Realized gains on termination or expiration of swaps and swaptions | (92,479 | ) | (66,031 | ) | ||||
Unrealized (gain) loss on interest rate swaps and swaptions economically hedging interest rate exposure (or duration) | (54,257 | ) | 48,200 | |||||
(Gain) loss on other derivative instruments | (5,599 | ) | 31,689 | |||||
Realized and unrealized gains on financing securitizations | — | (6,577 | ) | |||||
Realized and unrealized gains on mortgage servicing rights | (114,692 | ) | (11,996 | ) | ||||
Change in servicing reserves | 265 | (2,823 | ) | |||||
Non-cash equity compensation expense | 2,341 | 3,955 | ||||||
Net provision for (benefit from) income taxes on non-Core Earnings | 2,652 | (24,335 | ) | |||||
Core Earnings attributable to common stockholders(1) | 80,371 | $ | 94,958 | |||||
Dollar roll income | 3,454 | |||||||
Core Earnings attributable to common stockholders, including dollar roll income(1) | $ | 83,825 | ||||||
Weighted average basic common shares outstanding | 175,145,964 | 174,281,965 | ||||||
Core Earnings attributable to common stockholders per weighted average basic common share outstanding | $ | 0.46 | $ | 0.54 | ||||
Dollar roll income per weighted average basic common share outstanding | 0.02 | |||||||
Core Earnings, including dollar roll income, attributable to common stockholders per weighted average basic common share outstanding | $ | 0.48 | ||||||
_______________ |
||||||||
(1) Core Earnings is a non-U.S. GAAP measure that we define as comprehensive (loss) income 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 and non-cash compensation expense related to restricted common stock). 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, |
December 31, 2017 |
September 30, 2017 |
June 30, 2017 |
March 31, 2017 |
||||||||||||||||
(unaudited) | ||||||||||||||||||||
Net Interest Income: | ||||||||||||||||||||
Interest income | $ | 194.0 | $ | 195.1 | $ | 195.6 | $ | 184.7 | $ | 169.2 | ||||||||||
Interest expense | 96.6 | 94.8 | 99.0 | 85.3 | 70.7 | |||||||||||||||
Net interest income | 97.4 | 100.3 | 96.6 | 99.4 | 98.5 | |||||||||||||||
Other income: | ||||||||||||||||||||
Gain on investment securities | 0.6 | 0.7 | — | — | — | |||||||||||||||
Servicing income, net of amortization(1) | 28.3 | 19.8 | 18.0 | 19.4 | 13.2 | |||||||||||||||
Interest spread on interest rate swaps | 3.8 | 2.0 | (0.4 | ) | (2.6 | ) | (7.9 | ) | ||||||||||||
Gain on other derivative instruments | 2.5 | 2.8 | 2.8 | 3.3 | 3.8 | |||||||||||||||
Other income | 0.7 | 1.1 | 1.2 | 1.4 | 1.4 | |||||||||||||||
Total other income | 35.9 | 26.4 | 21.6 | 21.5 | 10.5 | |||||||||||||||
Expenses | 38.1 | 31.1 | 28.8 | 32.7 | 27.7 | |||||||||||||||
Core Earnings before income taxes | 95.2 | 95.6 | 89.4 | 88.2 | 81.3 | |||||||||||||||
Income tax expense (benefit) | 1.1 | 2.4 | 2.0 | 0.6 | (0.2 | ) | ||||||||||||||
Core Earnings from continuing operations | 94.1 | 93.2 | 87.4 | 87.6 | 81.5 | |||||||||||||||
Core Earnings attributable to discontinued operations(2) | — | — | 10.7 | 14.2 | 13.5 | |||||||||||||||
Core Earnings | 94.1 | 93.2 | 98.1 | 101.8 | 95.0 | |||||||||||||||
Dividends on preferred stock | 13.7 | 11.9 | 8.9 | 4.3 | — | |||||||||||||||
Core Earnings attributable to common stockholders(3) | 80.4 | $ | 81.3 | $ | 89.2 | $ | 97.5 | $ | 95.0 | |||||||||||
Dollar roll income | 3.4 | |||||||||||||||||||
Core Earnings, including dollar roll income, attributable to common stockholders(3) | $ | 83.8 | ||||||||||||||||||
Weighted average basic Core EPS | $ | 0.46 | $ | 0.47 | $ | 0.51 | $ | 0.56 | $ | 0.54 | ||||||||||
Weighted average basic Core EPS, including dollar roll income | $ | 0.48 | ||||||||||||||||||
Core earnings return on average common equity | 11.3 | % | 11.3 | % |
(4) |
10.2 | % | 11.2 | % | 11.0 | % | |||||||||
Core earnings return on average common equity, including dollar roll income | 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. Amortization of MSR is deemed a non-GAAP
measure due to the company’s decision to account for MSR at fair
value. |
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