Generated 23.6% Total Annual Return on Book
Value(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 December 31, 2019.
Quarterly Summary
- Reported book value of $14.54 per common share, representing a
1.5% total quarterly return on book value.(1)
- Generated Comprehensive Income of $56.8 million, or $0.21 per
weighted average basic common share, representing an annualized
return on average common equity of 5.7%.
- Added $22.3 billion in unpaid principal balance (UPB) of MSR,
through both bulk acquisitions and monthly flow-sale arrangements,
bringing total holdings to $175.9 billion UPB.
- Reported Core Earnings, including dollar roll income, of $67.7
million, or $0.25 per weighted average basic common share.(2)
2019 Summary
- Grew book value to $14.54 per common share from $13.11 per
common share at December 31, 2018, representing a 23.6% total
annual return on book value.(1)
- Generated Comprehensive Income of $826.7 million, or $3.09 per
weighted average basic common share, representing an annualized
return on average common equity of 21.7%.
- Generated total stockholder return of 28.7% .(3)
- Enhanced financing for MSR through $400 million securitization
of 5-year term notes.
“We are quite proud of the returns that we generated in 2019.
Notably, we drove a total stockholder return of 28.7%(3) and a
return on book value of 23.6%(1) for the year,” stated Thomas
Siering, Two Harbors’ President and Chief Executive Officer. “Book
value preservation is our primary goal and the foundation for
long-term stockholder returns.”
(1) 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. (3) Two Harbors’ total stockholder return is
calculated for the period December 31, 2018 through December 31,
2019. Total stockholder return is defined as stock price
appreciation including dividends. Source: Bloomberg.
Operating Performance The following table summarizes the
company’s GAAP and non-GAAP earnings measurements and key metrics
for the third and fourth quarters of 2019:
Two Harbors Investment Corp. Operating
Performance (unaudited)
(dollars in thousands, except per common
share data)
Three Months Ended December
31, 2019
Three Months Ended September
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
$
56,850
$
0.21
5.7
%
$
257,585
$
0.94
25.7
%
GAAP Net Income
$
115,804
$
0.42
11.6
%
$
286,749
$
1.05
28.6
%
Core Earnings, including dollar roll
income(1)
$
67,671
$
0.25
6.8
%
$
64,979
$
0.24
6.5
%
Operating
Metrics
Dividend per common share
$
0.40
$
0.40
Annualized dividend yield(2)
10.9
%
12.2
%
Book value per common share at period
end
$
14.54
$
14.72
Return on book value(3)
1.5
%
6.7
%
Other operating expenses, excluding
non-cash LTIP amortization(4)
$
11,719
$
11,364
Other operating expenses, excluding
non-cash LTIP amortization, as a percentage of average
equity(4)
0.9
%
0.9
%
________________ (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 $2.4 million for
the fourth quarter 2019 and $2.0 million for the third quarter
2019.
“Our results in 2019 highlighted the effectiveness of our MSR
portfolio construction, as we dynamically and successfully managed
the portfolio through a volatile environment in rates and mortgage
spreads,” stated Matt Koeppen, Two Harbors’ Co-Chief Investment
Officer. “The actions we took this year were intended to preserve
or increase book value, preserve or increase return expectancy, and
to reduce risk. We believe that we were very successful in this
regard.”
“We are very satisfied with our performance this quarter, as our
active portfolio management resulted in positive total return
despite market trends that were the opposite of those that
prevailed through the first three quarters,” stated Bill Greenberg,
Two Harbors’ Co-Chief Investment Officer. “Our Rates and Credit
strategies complement each other and each have contributed to our
success.”
Portfolio Summary The company’s portfolio is comprised of
a Rates strategy and a Credit strategy. The Rates strategy
consisted of $29.8 billion of Agency RMBS, Agency Derivatives and
MSR as well as their associated notional hedges as of December 31,
2019. Additionally, the company held $7.7 billion bond equivalent
value 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 December 31, 2019.
The following tables summarize the company’s investment
portfolio as of December 31, 2019 and September 30, 2019:
Two Harbors Investment Corp.
Portfolio
(dollars in thousands)
Portfolio Composition
As of December 31,
2019
As of September 30,
2019
(unaudited)
(unaudited)
Rates Strategy
Agency
Fixed Rate
$
27,763,471
83.2%
$
24,750,521
82.4%
Other Agency(1)
83,509
0.2%
91,554
0.3%
Total Agency
27,846,980
83.4%
24,842,075
82.7%
Mortgage servicing rights
1,909,444
5.7%
1,651,556
5.5%
Credit Strategy
Non-Agency
Senior
3,073,098
9.2%
2,990,274
10.0%
Mezzanine
480,765
1.5%
483,009
1.6%
Other
74,410
0.2%
79,092
0.3%
Total Non-Agency
3,628,273
10.9%
3,552,375
11.9%
Aggregate Portfolio
33,384,697
30,046,006
Net TBA position(2)
7,656,187
10,264,428
Total Portfolio
$
41,040,884
$
40,310,434
Portfolio Metrics
Three Months Ended December
31, 2019
Three Months Ended September
30, 2019
(unaudited)
(unaudited)
Annualized portfolio yield during the
quarter(3)
3.54%
3.67%
Rates Strategy
Agency RMBS, Agency Derivatives and
mortgage servicing rights
3.20%
3.47%
Credit Strategy
Non-Agency securities
6.29%
5.26%
Annualized cost of funds on average
borrowing balance during the quarter(4)
2.35%
2.51%
Annualized net yield for aggregate
portfolio during the quarter
1.19%
1.16%
________________ (1) Other Agency includes hybrid ARMs and
Agency derivatives. (2) Represents bond equivalent value of TBA
position. Bond equivalent value is defined as notional amount
multiplied by market price. Accounted for as derivative instruments
in accordance with GAAP. (3) Includes interest income on RMBS and
servicing income net of servicing expenses and amortization on MSR.
(4) 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 December 31,
2019
As of September 30,
2019
(unaudited)
(unaudited)
Weighted average cost basis of principal
and interest securities
Agency(5)
$
103.96
$
104.23
Non-Agency(6)
$
63.86
$
63.63
Weighted average three month CPR
Agency
14.3
%
13.4
%
Non-Agency
6.4
%
5.9
%
Fixed-rate investments as a percentage of
aggregate RMBS and Agency Derivatives portfolio
89.1
%
88.2
%
Adjustable-rate investments as a
percentage of aggregate RMBS and Agency Derivatives portfolio
10.9
%
11.8
%
______________ (5) Weighted average cost
basis includes RMBS principal and interest securities only. Average
purchase price utilized carrying value for weighting purposes. (6)
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 $59.60
at December 31, 2019 and $59.41 at September 30, 2019.
Portfolio Metrics Specific to
MSR(1)
As of December 31,
2019
As of September 30,
2019
(dollars in thousands)
(unaudited)
(unaudited)
Unpaid principal balance
$
175,882,142
$
165,332,533
Fair market value
$
1,909,444
$
1,651,556
Gross weighted average coupon
4.1
%
4.1
%
Weighted average original FICO
score(2)
754
752
Weighted average original LTV
75
%
75
%
60+ day delinquencies
0.3
%
0.3
%
Net servicing spread
27.0 basis points
26.5 basis points
Three Months Ended December
31, 2019
Three Months Ended September
30, 2019
(unaudited)
(unaudited)
Fair value losses
$
(21,739
)
$
(234,514
)
Servicing income
$
127,690
$
126,025
Servicing expenses
$
20,149
$
17,962
Change in servicing reserves
$
72
$
(300
)
________________ 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 December 31,
2019
As of September 30,
2019
(dollars in thousands)
(unaudited)
(unaudited)
Net long TBA notional amount(3)
$
7,427,000
$
9,863,000
Interest rate swaps and caps notional,
utilized to economically hedge interest rate exposure (or
duration)
$
39,702,470
$
41,833,495
Swaptions net notional, utilized as
macroeconomic hedges
1,257,000
1,750,000
Total interest rate swaps, caps and
swaptions notional
$
40,959,470
$
43,583,495
________________ (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 December 31, 2019 and September 30,
2019:
December 31, 2019
Balance
Weighted Average Borrowing
Rate
Weighted Average Months
to Maturity
Number of Distinct
Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by
RMBS
$
28,884,848
2.12%
2.44
Repurchase agreements collateralized by
MSR
262,615
3.51%
11.05
Total repurchase agreements
29,147,463
2.14%
2.52
24
FHLB advances collateralized by
RMBS(4)
210,000
2.00%
42.56
1
Revolving credit facilities collateralized
by MSR
300,000
4.26%
14.37
1
Term notes payable collateralized by
MSR
394,502
4.59%
53.85
n/a
Unsecured convertible senior notes
284,954
6.25%
24.53
n/a
Total borrowings
$
30,336,919
________________ (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.
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(1)
50,000
2.99%
180.66
1
Revolving credit facilities collateralized
by MSR
300,000
4.52%
17.39
1
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
________________ (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 December 31,
2019
As of September 30,
2019
(dollars in thousands)
(unaudited)
(unaudited)
Collateral type:
Agency RMBS and Agency Derivatives
$
27,563,240
$
24,133,606
Mortgage servicing rights
957,117
957,096
Non-Agency securities
1,531,608
1,220,669
Other(2)
284,954
284,635
Total/Annualized cost of funds on average
borrowings during the quarter
$
30,336,919
$
26,596,006
Debt-to-equity ratio at period-end(3)
6.1
:1.0
5.3
:1.0
Economic debt-to-equity ratio at
period-end(4)
7.5
:1.0
7.2
:1.0
Cost of Funds Metrics
Three Months Ended December
31, 2019
Three Months Ended September
30, 2019
(unaudited)
(unaudited)
Annualized cost of funds on average
borrowings during the quarter:
2.4
%
2.8
%
Agency RMBS and Agency Derivatives
2.2
%
2.6
%
Mortgage servicing rights(5)
5.0
%
5.2
%
Non-Agency securities
3.0
%
3.5
%
Other(2)(5)
6.8
%
6.7
%
____________________ (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.
Dividends and Taxable Income The company declared
dividends totaling $483.6 million for the 2019 taxable year. The
company is required to distribute at least 90% of its taxable
income to maintain its REIT status, and must distribute 100% of its
taxable income to avoid federal income tax. The company distributed
94.7% of its 2019 taxable income to stockholders during 2019, and
intends to distribute the remaining 5.3% during the 2020 calendar
year. In addition, the tax characterization of each cash
distribution made during 2019 will be treated as ordinary income to
stockholders.
Conference Call Two Harbors Investment Corp. will host a
conference call on February 6, 2020 at 9:00 a.m. EST to discuss
fourth quarter 2019 financial results and related information. To
participate in the teleconference, please call toll-free (866)
548-4713, conference code 5688261, 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 February 6, 2020, through 12:00 a.m. EST on March 7,
2020. The playback can be accessed by calling (888) 203-1112 ,
conference code 5688261. 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. The non-GAAP financial
measures presented by the company provide supplemental information
to assist investors in analyzing the company’s results of
operations and help facilitate comparisons to industry peers.
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)
December 31, 2019
December 31, 2018
(unaudited)
ASSETS
Available-for-sale securities, at fair
value
$
31,406,328
$
25,552,604
Mortgage servicing rights, at fair
value
1,909,444
1,993,440
Cash and cash equivalents
558,136
409,758
Restricted cash
1,058,690
688,006
Accrued interest receivable
92,634
86,589
Due from counterparties
318,963
154,626
Derivative assets, at fair value
188,051
319,981
Reverse repurchase agreements
220,000
761,815
Other assets
169,376
165,660
Total Assets
$
35,921,622
$
30,132,479
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities
Repurchase agreements
$
29,147,463
$
23,133,476
Federal Home Loan Bank advances
210,000
865,024
Revolving credit facilities
300,000
310,000
Term notes payable
394,502
—
Convertible senior notes
284,954
283,856
Derivative liabilities, at fair value
6,740
820,590
Due to counterparties
259,447
130,210
Dividends payable
128,125
135,551
Accrued interest payable
149,626
160,005
Other liabilities
70,299
39,278
Total Liabilities
30,951,156
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 272,935,731 and 248,085,721
shares issued and outstanding, respectively
2,729
2,481
Additional paid-in capital
5,154,764
4,809,616
Accumulated other comprehensive income
689,400
110,817
Cumulative earnings
2,655,891
2,332,371
Cumulative distributions to
stockholders
(4,509,819
)
(3,978,297
)
Total Stockholders’ Equity
4,970,466
4,254,489
Total Liabilities and Stockholders’
Equity
$
35,921,622
$
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 December
31,
Year Ended December
31,
2019
2018
2019
2018
(unaudited)
(unaudited)
Interest income:
Available-for-sale securities
$
230,567
$
242,535
$
962,283
$
847,325
Other
7,871
9,420
32,407
22,707
Total interest income
238,438
251,955
994,690
870,032
Interest expense:
Repurchase agreements
152,919
146,702
654,280
469,437
Federal Home Loan Bank advances
514
5,762
10,920
20,417
Revolving credit facilities
4,038
5,044
19,354
10,820
Term notes payable
5,002
—
10,708
—
Convertible senior notes
4,811
4,793
19,067
18,997
Total interest expense
167,284
162,301
714,329
519,671
Net interest income
71,154
89,654
280,361
350,361
Other-than-temporary impairment losses
(3,308
)
(107
)
(14,312
)
(470
)
Other income (loss):
Gain (loss) on investment securities
28,141
(245,763
)
280,118
(341,312
)
Servicing income
127,690
104,623
501,612
343,096
Loss on servicing asset
(21,739
)
(171,284
)
(697,659
)
(69,033
)
(Loss) gain on interest rate swap, cap and
swaption agreements
(6,875
)
(239,492
)
(108,289
)
16,043
(Loss) gain on other derivative
instruments
(10,800
)
(39,122
)
259,998
(54,857
)
Other income
60
342
337
3,037
Total other income (loss)
116,477
(590,696
)
236,117
(103,026
)
Expenses:
Management fees
17,546
12,152
60,102
30,272
Servicing expenses
20,253
18,610
74,607
61,136
Other operating expenses
14,142
15,943
57,055
62,983
Acquisition transaction costs
—
—
—
86,703
Restructuring charges
—
—
—
8,238
Total expenses
51,941
46,705
191,764
249,332
Income (loss) before income
taxes
132,382
(547,854
)
310,402
(2,467
)
(Benefit from) provision for income
taxes
(2,372
)
6,681
(13,560
)
41,823
Net income (loss)
134,754
(554,535
)
323,962
(44,290
)
Dividends on preferred stock
18,950
18,950
75,801
65,395
Net income (loss) attributable to
common stockholders
$
115,804
$
(573,485
)
$
248,161
$
(109,685
)
Basic earnings (loss) per weighted average
common share
$
0.42
$
(2.31
)
$
0.93
$
(0.53
)
Diluted earnings (loss) per weighted
average common share
$
0.41
$
(2.31
)
$
0.93
$
(0.53
)
Dividends declared per common share
$
0.40
$
0.47
$
1.67
$
1.88
Weighted average number of shares of
common stock:
Basic
272,906,815
248,081,168
267,826,739
206,020,502
Diluted
291,070,864
248,081,168
267,826,739
206,020,502
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 December
31,
Year Ended December
31,
2019
2018
2019
2018
(unaudited)
(unaudited)
Comprehensive income (loss):
Net income (loss)
$
134,754
$
(554,535
)
$
323,962
$
(44,290
)
Other comprehensive (loss) income, net
of tax:
Unrealized (loss) gain on
available-for-sale securities
(58,954
)
265,546
578,583
(233,914
)
Other comprehensive (loss) income
(58,954
)
265,546
578,583
(233,914
)
Comprehensive income (loss)
75,800
(288,989
)
902,545
(278,204
)
Dividends on preferred stock
18,950
18,950
75,801
65,395
Comprehensive income (loss)
attributable to common stockholders
$
56,850
$
(307,939
)
$
826,744
$
(343,599
)
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 December
31,
Three Months Ended September
30,
2019
2019
(unaudited)
(unaudited)
Reconciliation of Comprehensive income to
Core Earnings:
Comprehensive income attributable to
common stockholders
$
56,850
$
257,585
Adjustment for other comprehensive loss
attributable to common stockholders:
Unrealized loss on available-for-sale
securities attributable to common stockholders
58,954
29,164
Net income attributable to common
stockholders
$
115,804
$
286,749
Adjustments for non-Core Earnings:
Other-than-temporary impairments and loss
recovery adjustments
2,198
7,275
Realized gains on securities
(27,615
)
(250,267
)
Unrealized (gain) loss on securities
(526
)
1,439
Realized and unrealized (gain) loss on
mortgage servicing rights
(51,387
)
161,214
Realized loss (gain) on termination or
expiration of swaps, caps and swaptions
1,495
(75,409
)
Unrealized losses on interest rate swaps,
caps and swaptions
10,148
23,940
Loss (gain) on other derivative
instruments
19,833
(85,916
)
Other loss (income)
73
(114
)
Change in servicing reserves
72
(300
)
Non-cash equity compensation expense
2,423
1,980
Net benefit from income taxes on non-Core
Earnings
(4,847
)
(5,612
)
Core Earnings attributable to common
stockholders, including dollar roll income(1)
$
67,671
$
64,979
Weighted average basic common shares
272,906,815
272,897,575
Core Earnings, including dollar roll
income, attributable to common stockholders per weighted average
basic common share
$
0.25
$
0.24
_____________ (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. Core Earnings, including dollar roll income,
provides supplemental information to assist investors in analyzing
the company’s results of operations and helps facilitate
comparisons to industry peers.
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
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
(unaudited)
Net Interest Income:
Interest income
$
237.3
$
251.1
$
269.1
$
245.5
$
252.0
Interest expense
167.3
191.1
192.4
163.5
162.3
Net interest income
70.0
60.0
76.7
82.0
89.7
Other income:
Servicing income, net of
amortization(1)
54.6
52.7
52.7
52.5
46.9
Interest spread on interest rate swaps and
caps
4.8
19.1
22.9
23.7
15.3
Gain on other derivative instruments
9.0
—
16.7
28.7
29.8
Other income
0.1
0.4
0.5
0.5
0.6
Total other income
68.5
72.2
92.8
105.4
92.6
Expenses
49.4
46.2
42.9
45.2
42.3
Core Earnings, including dollar roll
income before income taxes
89.1
86.0
126.6
142.2
140.0
Income tax expense
2.5
2.0
1.6
0.6
0.3
Core Earnings, including dollar roll
income
86.6
84.0
125.0
141.6
139.7
Dividends on preferred stock
18.9
19.0
19.0
18.9
19.0
Core Earnings attributable to common
stockholders, including dollar roll income(2)
$
67.7
$
65.0
$
106.0
$
122.7
$
120.7
Weighted average basic Core EPS, including
dollar roll income
$
0.25
$
0.24
$
0.39
$
0.49
$
0.49
Core earnings return on average common
equity, including dollar roll income
6.8
%
6.5
%
11.1
%
14.3
%
13.8
%
________________ (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. 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/20200205005845/en/
Margaret Karr, Investor Relations, Two Harbors Investment Corp.,
(212) 364-3663 or margaret.field@twoharborsinvestment.com
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