Strong Economic Return of 6.7% in Volatile
Environment(1)
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 September 30, 2019.
Quarterly Summary
- Grew book value to $14.72 per common share, representing a 6.7%
quarterly total return on book value and bringing total return on
book value for the first nine months of 2019 to 22.0%.(1)
- Generated Comprehensive Income of $257.6 million, or $0.94 per
weighted average basic common share, representing an annualized
return on average common equity of 25.7%.
- Reported Core Earnings, including dollar roll income, of $65.0
million, or $0.24 per weighted average basic common share.(2)
- Added $5.8 billion in unpaid principal balance (UPB) of MSR
through flow sale arrangements. Post quarter-end, closed on two
bulk MSR acquisitions for a total of $11.1 billion UPB.
“We are very proud of our strong economic return during the
third quarter,” stated Thomas Siering, Two Harbors’ President and
Chief Executive Officer. “Preserving book value has always been our
primary goal. This quarter demonstrates how our portfolio can
deliver strong total returns even when interest rates are volatile
and mortgage spreads widen. This is largely driven by our strategy
of pairing Agency RMBS with MSR.”
(1) Economic return is defined as the return on book value.
Return on book value is defined as the increase (decrease) in book
value per common share from the beginning to the end of the given
period, plus dividends declared in the period, divided by the book
value as of the beginning of the period. (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 second and third quarters of 2019:
Two Harbors Investment Corp. Operating
Performance (unaudited)
(dollars in thousands, except per common
share data)
Three Months Ended September
30, 2019
Three Months Ended June 30,
2019
Earnings
attributable to common stockholders
Earnings
Per weighted average basic
common share
Annualized return on average
common equity
Earnings
Per weighted average basic
common share
Annualized return on average
common equity
Comprehensive Income
$
257,585
$
0.94
25.7
%
$
201,042
$
0.74
21.0
%
GAAP Net Income (Loss)
$
286,749
$
1.05
28.6
%
$
(109,507
)
$
(0.40
)
(11.4
)%
Core Earnings, including dollar roll
income(1)
$
64,979
$
0.24
6.5
%
$
106,034
$
0.39
11.1
%
Operating
Metrics
Dividend per common share
$
0.40
$
0.40
Annualized dividend yield(2)
12.2
%
12.6
%
Book value per common share at period
end
$
14.72
$
14.17
Return on book value(3)
6.7
%
5.4
%
Other operating expenses, excluding
non-cash LTIP amortization(4)
$
11,364
$
11,617
Other operating expenses, excluding
non-cash LTIP amortization, as a percentage of average
equity(4)
0.9
%
1.0
%
(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) Dividend yield is calculated
based on annualizing the dividends declared in the given period,
divided by the closing share price as of the end of the period. (3)
Return on book value is defined as the increase (decrease) in book
value per common share from the beginning to the end of the given
period, plus dividends declared in the period, divided by the book
value as of the beginning of the period. (4) Excludes non-cash
equity compensation expense of $2.0 million for the third quarter
2019 and $2.4 million for the second quarter 2019.
“Our book value outperformance in the quarter can be primarily
attributed to our portfolio positioning and composition. Our long
position in higher coupons significantly outperformed,” stated Matt
Koeppen, Two Harbors’ Co-Deputy Chief Investment Officer. “In
August, as current coupon mortgages widened, we benefitted through
our holdings in MSR, which acts as a short position in the
basis.”
“This quarter highlighted that our strategy of hedging Agency
RMBS with MSR works: we can provide strong economic returns with
lower exposure to mortgage spreads,” stated Bill Greenberg, Two
Harbors’ Co-Deputy Chief Investment Officer. “Though our portfolio
strategy resulted in lower Core Earnings, it drove book value
higher and improved the expected economic return profile of our
business. Currently, we view the best investment opportunities to
be in pairing Agency RMBS with MSR, and we expect to continue to
grow capital allocated to our Rates strategy.”
Portfolio Summary The company’s portfolio is comprised of
a Rates strategy and a Credit strategy. The Rates strategy
consisted of $26.5 billion of Agency RMBS, Agency Derivatives and
MSR as well as their associated notional hedges as of September 30,
2019. Additionally, the company held $9.9 billion notional of net
long to-be-announced securities (TBAs) as part of the Rates
strategy. The Credit strategy consisted of $3.5 billion of
non-Agency securities, as well as their associated notional hedges
as of September 30, 2019.
The following tables summarize the company’s investment
portfolio as of September 30, 2019 and June 30, 2019:
Two Harbors Investment Corp.
Portfolio
(dollars in thousands)
Portfolio Composition
As of September 30,
2019
As of June 30, 2019
(unaudited)
(unaudited)
Rates Strategy
Agency
Fixed Rate
$
24,750,521
82.4
%
$
26,291,937
82.0
%
Other Agency(1)
91,554
0.3
%
92,712
0.3
%
Total Agency
24,842,075
82.7
%
26,384,649
82.3
%
Mortgage servicing rights
1,651,556
5.5
%
1,800,826
5.6
%
Credit Strategy
Non-Agency
Senior
2,990,274
10.0
%
3,211,099
10.0
%
Mezzanine
483,009
1.6
%
575,246
1.8
%
Other
79,092
0.3
%
91,291
0.3
%
Total Non-Agency
3,552,375
11.9
%
3,877,636
12.1
%
Aggregate Portfolio
30,046,006
32,063,111
Net TBA position
9,863,000
9,422,000
Total Portfolio
$
39,909,006
$
41,485,111
Portfolio Metrics
Three Months Ended September
30, 2019
Three Months Ended June 30,
2019
(unaudited)
(unaudited)
Annualized portfolio yield during the
quarter
3.67
%
3.93
%
Rates Strategy
Agency RMBS, Agency Derivatives and
mortgage servicing rights
3.47
%
3.67
%
Credit Strategy
Non-Agency securities
5.26
%
6.00
%
Annualized cost of funds on average
borrowing balance during the quarter(2)
2.51
%
2.55
%
Annualized interest rate spread for
aggregate portfolio during the quarter
1.16
%
1.38
%
(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 September 30,
2019
As of June 30, 2019
(unaudited)
(unaudited)
Weighted average cost basis of principal
and interest securities
Agency(3)
$
104.23
$
104.31
Non-Agency(4)
$
63.63
$
61.70
Weighted average three month CPR
Agency
13.4
%
10.1
%
Non-Agency
5.9
%
5.3
%
Fixed-rate investments as a percentage of
aggregate RMBS and Agency Derivatives portfolio
88.2
%
87.8
%
Adjustable-rate investments as a
percentage of aggregate RMBS and Agency Derivatives portfolio
11.8
%
12.2
%
(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 $59.41 at September 30, 2019 and
$58.50 at June 30, 2019.
Portfolio Metrics Specific to
MSR(1)
As of September 30,
2019
As of June 30, 2019
(dollars in thousands)
(unaudited)
(unaudited)
Unpaid principal balance
$
165,332,533
$
169,643,681
Fair market value
$
1,651,556
$
1,800,826
Gross weighted average coupon
4.1
%
4.1
%
Weighted average original FICO
score(2)
752
751
Weighted average original LTV
75
%
75
%
60+ day delinquencies
0.3
%
0.3
%
Net servicing spread
26.5 basis points
26.3 basis points
Three Months Ended September
30, 2019
Three Months Ended June 30,
2019
(unaudited)
(unaudited)
Fair value losses
$
(234,514
)
$
(252,432
)
Servicing income
$
126,025
$
130,949
Servicing expenses
$
17,962
$
17,629
Servicing reserve (income) expense
$
(300
)
$
(910
)
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 September 30,
2019
As of June 30, 2019
(dollars in thousands)
(unaudited)
(unaudited)
Net long TBA notional amount(3)
$
9,863,000
$
9,422,000
Interest rate swaps and caps notional,
utilized to economically hedge interest rate exposure (or
duration)
$
41,833,495
$
40,470,277
Swaptions net notional, utilized as
macroeconomic hedges
1,750,000
3,875,000
Total interest rate swaps, caps and
swaptions notional
$
43,583,495
$
44,345,277
(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, term notes and
convertible senior notes as of September 30, 2019 and June 30,
2019:
September 30, 2019
Balance
Weighted Average Borrowing
Rate
Weighted Average Months to
Maturity
Number of Distinct
Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by
RMBS
$
25,304,275
2.46
%
2.54
Repurchase agreements collateralized by
MSR
262,861
3.77
%
14.07
Total repurchase agreements
25,567,136
2.47
%
2.65
25
FHLB advances collateralized by
RMBS(4)
50,000
2.99
%
180.66
1
Revolving credit facilities collateralized
by MSR
300,000
4.52
%
17.39
—
Term notes payable collateralized by
MSR
394,235
4.82
%
56.88
n/a
Unsecured convertible senior notes
284,635
6.25
%
27.53
n/a
Total borrowings
$
26,596,006
(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.
June 30, 2019
Balance
Weighted Average Borrowing
Rate
Weighted Average Months to
Maturity
Number of Distinct
Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by
RMBS
$
27,868,044
2.70
%
2.76
Repurchase agreements collateralized by
MSR
300,000
4.15
%
17.10
Total repurchase agreements
28,168,044
2.70
%
2.90
26
FHLB advances collateralized by
RMBS(1)
50,000
3.20
%
183.68
1
Revolving credit facilities collateralized
by MSR
—
—
%
—
—
Term notes payable collateralized by
MSR
394,061
5.20
%
59.90
n/a
Unsecured convertible senior notes
284,331
6.25
%
30.53
n/a
Total borrowings
$
28,896,436
(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 September 30,
2019
As of June 30, 2019
(dollars in thousands)
(unaudited)
(unaudited)
Collateral type:
Agency RMBS and Agency Derivatives
$
24,133,606
$
25,854,494
Mortgage servicing rights
957,096
694,061
Non-Agency securities
1,220,669
2,063,550
Other(2)
284,635
284,331
Total/Annualized cost of funds on average
borrowings during the quarter
$
26,596,006
$
28,896,436
Debt-to-equity ratio at period-end(3)
5.3
:1.0
5.9
:1.0
Economic debt-to-equity ratio at
period-end(4)
7.2
:1.0
7.8
:1.0
Cost of Funds Metrics
Three Months Ended September
30, 2019
Three Months Ended June 30,
2019
(unaudited)
(unaudited)
Annualized cost of funds on average
borrowings during the quarter:
2.8
%
2.9
%
Agency RMBS and Agency Derivatives
2.6
%
2.7
%
Mortgage servicing rights(5)
5.2
%
5.5
%
Non-Agency securities
3.5
%
3.7
%
Other(2)(5)
6.7
%
6.6
%
(1) Includes unsecured convertible senior notes. (2) Defined as
total borrowings to fund RMBS, MSR and Agency Derivatives, divided
by total equity. (3) Defined as total borrowings to fund RMBS, MSR
and Agency Derivatives, plus the implied debt on net TBA positions,
divided by total equity. (4) Includes amortization of debt issuance
costs.
Conference Call Two Harbors Investment Corp. will host a
conference call on November 6, 2019 at 9:00 a.m. EST to discuss
third quarter 2019 financial results and related information. To
participate in the teleconference, please call toll-free (800)
289-0438, conference code 4439802, 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. EST on November 6, 2019, through 12:00 a.m.
EST on November 20, 2019. The playback can be accessed by calling
(888) 203-1112 , conference code 4439802. 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 12 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)
September 30, 2019
December 31, 2018
(unaudited)
ASSETS
Available-for-sale securities, at fair
value
$
28,318,558
$
25,552,604
Mortgage servicing rights, at fair
value
1,651,556
1,993,440
Cash and cash equivalents
740,698
409,758
Restricted cash
509,689
688,006
Accrued interest receivable
87,321
86,589
Due from counterparties
314,871
154,626
Derivative assets, at fair value
230,620
319,981
Reverse repurchase agreements
180,575
761,815
Other assets
130,339
165,660
Total Assets
$
32,164,227
$
30,132,479
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities
Repurchase agreements
$
25,567,136
$
23,133,476
Federal Home Loan Bank advances
50,000
865,024
Revolving credit facilities
300,000
310,000
Term notes payable
394,235
—
Convertible senior notes
284,635
283,856
Derivative liabilities, at fair value
17,201
820,590
Due to counterparties
231,021
130,210
Dividends payable
128,109
135,551
Accrued interest payable
122,793
160,005
Other liabilities
49,517
39,278
Total Liabilities
27,144,647
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 272,895,402 and 248,085,721
shares issued and outstanding, respectively
2,729
2,481
Additional paid-in capital
5,151,554
4,809,616
Accumulated other comprehensive income
748,354
110,817
Cumulative earnings
2,521,137
2,332,371
Cumulative distributions to
stockholders
(4,381,695
)
(3,978,297
)
Total Stockholders’ Equity
5,019,580
4,254,489
Total Liabilities and Stockholders’
Equity
$
32,164,227
$
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 September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
(unaudited)
(unaudited)
Interest income:
Available-for-sale securities
$
242,023
$
230,607
$
731,716
$
604,790
Other
7,717
6,091
24,536
13,287
Total interest income
249,740
236,698
756,252
618,077
Interest expense:
Repurchase agreements
176,450
138,343
501,361
322,735
Federal Home Loan Bank advances
391
5,301
10,406
14,655
Revolving credit facilities
3,964
3,973
15,316
5,776
Term notes payable
5,475
—
5,706
—
Convertible senior notes
4,797
4,779
14,256
14,204
Total interest expense
191,077
152,396
547,045
357,370
Net interest income
58,663
84,302
209,207
260,707
Other-than-temporary impairment losses
(5,950
)
(95
)
(11,004
)
(363
)
Other income:
Gain (loss) on investment securities
248,828
(42,996
)
251,977
(95,549
)
Servicing income
126,025
89,618
373,922
238,473
(Loss) gain on servicing asset
(234,514
)
20,591
(675,920
)
102,251
Gain (loss) on interest rate swap, cap and
swaption agreements
70,620
75,857
(101,414
)
255,535
Gain (loss) on other derivative
instruments
85,856
(31,463
)
270,798
(15,735
)
Other income
495
907
277
2,695
Total other income
297,310
112,514
119,640
487,670
Expenses:
Management fees
16,839
(5,041
)
42,556
18,120
Servicing expenses
17,696
16,433
54,354
42,526
Other operating expenses
13,344
17,033
42,913
47,040
Acquisition transaction costs
—
86,703
—
86,703
Restructuring charges
—
8,238
—
8,238
Total expenses
47,879
123,366
139,823
202,627
Income before income taxes
302,144
73,355
178,020
545,387
(Benefit from) provision for income
taxes
(3,556
)
37,409
(11,188
)
35,142
Net income
305,700
35,946
189,208
510,245
Dividends on preferred stock
18,951
18,951
56,851
46,445
Net income attributable to common
stockholders
$
286,749
$
16,995
$
132,357
$
463,800
Basic earnings per weighted average common
share
$
1.05
$
0.08
$
0.50
$
2.42
Diluted earnings per weighted average
common share
$
1.00
$
0.08
$
0.50
$
2.28
Dividends declared per common share
$
0.40
$
0.47
$
1.27
$
1.41
Weighted average number of shares of
common stock:
Basic
272,897,575
224,399,436
266,114,772
191,846,212
Diluted
291,053,718
224,399,436
266,114,772
209,607,146
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 September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
(unaudited)
(unaudited)
Comprehensive income (loss):
Net income
$
305,700
$
35,946
$
189,208
$
510,245
Other comprehensive (loss) income, net
of tax:
Unrealized (loss) gain on
available-for-sale securities
(29,164
)
(119,796
)
637,537
(499,460
)
Other comprehensive (loss) income
(29,164
)
(119,796
)
637,537
(499,460
)
Comprehensive income (loss)
276,536
(83,850
)
826,745
10,785
Dividends on preferred stock
18,951
18,951
56,851
46,445
Comprehensive income (loss)
attributable to common stockholders
$
257,585
$
(102,801
)
$
769,894
$
(35,660
)
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 September
30,
Three Months Ended June
30,
2019
2019
(unaudited)
(unaudited)
Reconciliation of Comprehensive income to
Core Earnings:
Comprehensive income attributable to
common stockholders
$
257,585
$
201,042
Adjustment for other comprehensive loss
(income) attributable to common stockholders:
Unrealized loss (gain) on
available-for-sale securities attributable to common
stockholders
29,164
(310,549
)
Net income (loss) attributable to common
stockholders
$
286,749
$
(109,507
)
Adjustments for non-Core Earnings:
Other-than-temporary impairments and loss
recovery adjustments
7,275
12,895
Realized gains on securities
(250,267
)
(23,589
)
Unrealized losses on securities
1,439
1,148
Realized and unrealized losses on mortgage
servicing rights
161,214
174,212
Realized gains on termination or
expiration of swaps, caps and swaptions
(75,409
)
(55,513
)
Unrealized losses on interest rate swaps,
caps and swaptions
23,940
167,174
Gains on other derivative instruments
(85,916
)
(63,953
)
Other (income) loss
(114
)
899
Change in servicing reserves
(300
)
(910
)
Non-cash equity compensation expense
1,980
2,396
Net (benefit from) provision for income
taxes on non-Core Earnings
(5,612
)
782
Core Earnings attributable to common
stockholders, including dollar roll income(1)(2)
$
64,979
$
106,034
Weighted average basic common shares
272,897,575
272,863,153
Core Earnings, including dollar roll
income, attributable to common stockholders per weighted average
basic common share
$
0.24
$
0.39
(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. (2) Beginning with the June 30, 2019
reporting period, the company refined the MSR amortization method
utilized in the calculation of Core Earnings, including dollar roll
income. The new method includes an adjustment for any gain or loss
on the capital used to purchase the MSR and allows Core Earnings to
better reflect how the carry earned on MSR varies as a function of
prepayment rates.
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
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
(unaudited)
Net Interest Income:
Interest income
$
251.1
$
269.1
$
245.5
$
252.0
$
236.7
Interest expense
191.1
192.4
163.5
162.3
152.4
Net interest income
60.0
76.7
82.0
89.7
84.3
Other income:
Servicing income, net of
amortization(1)
52.7
52.7
52.5
46.9
37.1
Interest spread on interest rate swaps and
caps
19.1
22.9
23.7
15.3
16.2
Gain on other derivative instruments
—
16.7
28.7
29.8
30.2
Other income
0.4
0.5
0.5
0.6
0.6
Total other income
72.2
92.8
105.4
92.6
84.1
Expenses
46.2
42.9
45.2
42.3
42.5
Core Earnings, including dollar roll
income before income taxes
86.0
126.6
142.2
140.0
125.9
Income tax expense (benefit)
2.0
1.6
0.6
0.3
(0.1
)
Core Earnings, including dollar roll
income
84.0
125.0
141.6
139.7
126.0
Dividends on preferred stock
19.0
19.0
18.9
19.0
19.0
Core Earnings attributable to common
stockholders, including dollar roll income(2)
$
65.0
$
106.0
$
122.7
$
120.7
$
107.0
Weighted average basic Core EPS, including
dollar roll income
$
0.24
$
0.39
$
0.49
$
0.49
$
0.48
Core earnings return on average common
equity, including dollar roll income
6.5
%
11.1
%
14.3
%
13.8
%
12.4
%
(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. As discussed
on page 11, the company has refined the MSR amortization method
utilized in the calculation of Core Earnings beginning with the
period ended June 30, 2019. MSR amortization amounts for periods
ending prior to June 30, 2019 have not be adjusted. (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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191105006155/en/
Margaret Field, Investor Relations, Two Harbors Investment
Corp., (212) 364-3663 or
margaret.field@twoharborsinvestment.com
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