Benefitted From Attractive Spreads and
Volatility Trending Lower
Two Harbors Investment Corp. (NYSE: TWO), an Agency RMBS + MSR
real estate investment trust (REIT), today announced its financial
results for the quarter ended June 30, 2023.
Quarterly Summary
- Reported book value of $16.39 per common share, and declared a
second quarter common stock dividend of $0.45 per share,
representing a 2.2% quarterly economic return on book
value.(1)
- Generated Comprehensive Income of $31.5 million, or $0.31 per
weighted average basic common share.
- Generated Income Excluding Market-Driven Value Changes (IXM) of
$0.60 per weighted average basic common share.(2)
- Reported Earnings Available for Distribution (EAD) of $(3.7)
million, or $(0.04) per weighted average basic common
share.(3)
- Repurchased 593,453 shares of common stock at an average price
of $11.89 per share.
- Repurchased 513,818 shares of preferred stock at an average
price of $19.39 per share.(4)
- Settled $14.8 billion unpaid principal balance (UPB) of MSR
through flow-sale acquisitions and three bulk purchases.
“In the second quarter, many of the unknown variables in the
market were resolved. Congress passed a resolution on the debt
ceiling, inflation expectations and the Fed path of rate hikes
appeared well contained, and the market readily absorbed the supply
of RMBS being auctioned by the FDIC,” stated Bill Greenberg, Two
Harbors’ President and CEO. “This led to lower volatility, which
supported positive performance in our portfolio, while spreads
remained at historically attractive levels. Further, with mortgage
rates still around 7%, prepayment speeds should remain slow which
is very accretive to our MSR asset. We believe that this is a
terrific environment for investing in our Agency and MSR
strategy.”
“After an initial bout of spread widening in the beginning of
the quarter, volatility subsided and spreads tightened across the
coupon stack leading to positive returns for RMBS. Low realized
volatility in June improved hedge-adjusted returns for RMBS. We
opportunistically added lower coupon RMBS to our portfolio mix
early in the quarter which performed well as the fear of supply
from FDIC sales diminished,” stated Nick Letica, Two Harbors’ Chief
Investment Officer. “MSR packages remain well bid with notable
strong demand, even with historically high supply this year. We
settled $14.7 billion UPB of MSR in the quarter. Our investments in
MSR also positively contributed to our performance as prepayment
speeds remained slow.”
________________
(1)
Economic 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 book value as of the beginning of the
period.
(2)
Income Excluding Market-Driven Value
Changes, or IXM, is a non-GAAP measure. Please see page 11 for a
definition of IXM and a reconciliation of GAAP to non-GAAP
financial information.
(3)
Earnings Available for Distribution, or
EAD, is a non-GAAP measure. Please see page 12 for a definition of
EAD and a reconciliation of GAAP to non-GAAP financial
information.
(4)
Includes 225,886 Series A, 215,072 Series B and 72,860 Series C
preferred shares.
Operating Performance
The following table summarizes the company’s GAAP and non-GAAP
earnings measurements and key metrics for the second quarter of
2023 and first quarter of 2023:
Two Harbors Investment Corp.
Operating Performance (unaudited)
(dollars in thousands, except per
common share data)
Three Months Ended
June 30, 2023
Three Months Ended
March 31, 2023
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 (Loss)
$
31,478
$
0.31
8.1
%
$
(63,242
)
$
(0.69
)
(15.5
)%
GAAP Net Income (Loss)
$
187,784
$
1.94
48.3
%
$
(189,173
)
$
(2.05
)
(46.3
)%
Income Excluding Market-Driven Value
Changes(1)
$
57,501
$
0.60
14.8
%
$
54,393
$
0.59
13.3
%
Earnings Available for Distribution(2)
$
(3,716
)
$
(0.04
)
(1.0
)%
$
8,273
$
0.09
2.0
%
Operating
Metrics
Dividend per common share
$
0.45
$
0.60
Annualized dividend yield(3)
13.0
%
16.3
%
Book value per common share at period
end
$
16.39
$
16.48
Economic return on book value(4)
2.2
%
(3.6
)%
Operating expenses, excluding non-cash
LTIP amortization and nonrecurring expenses(5)
$
11,885
$
13,097
Operating expenses, excluding non-cash
LTIP amortization and nonrecurring expenses, as a percentage of
average equity(5)
2.2
%
2.3
%
________________
(1)
Income Excluding Market-Driven Value
Changes, or IXM, is a non-GAAP measure. Please see page 11 for a
definition of IXM and a reconciliation of GAAP to non-GAAP
financial information.
(2)
Earnings Available for Distribution, or
EAD, is a non-GAAP measure. Please see page 12 for a definition of
EAD and a reconciliation of GAAP to non-GAAP financial
information.
(3)
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.
(4)
Economic return on book value is defined
as the (decrease) increase 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.
(5)
Excludes non-cash equity compensation
expense of $1.7 million for the second quarter of 2023 and $6.1
million for the first quarter of 2023 and nonrecurring expenses of
$7.1 million for the second quarter of 2023 and $5.4 million for
the first quarter of 2023.
Portfolio Summary
As of June 30, 2023, the company’s portfolio was comprised of
$12.3 billion of Agency RMBS, MSR and other investment securities
as well as their associated notional debt hedges. Additionally, the
company held $2.9 billion bond equivalent value of net long
to-be-announced securities (TBAs).
The following tables summarize the company’s investment
portfolio as of June 30, 2023 and March 31, 2023:
Two Harbors Investment Corp.
Portfolio
(dollars in thousands)
Portfolio Composition
As of June 30, 2023
As of March 31, 2023
(unaudited)
(unaudited)
Agency RMBS
$
8,887,839
72.6
%
$
8,676,453
72.0
%
Mortgage servicing rights(1)
3,273,956
26.7
%
3,072,445
25.5
%
Other
87,808
0.7
%
300,126
2.5
%
Aggregate Portfolio
12,249,603
12,049,024
Net TBA position(2)
2,894,560
3,692,956
Total Portfolio
$
15,144,163
$
15,741,980
Portfolio Metrics
Three Months Ended
June 30, 2023
Three Months Ended
March 31, 2023
(unaudited)
(unaudited)
Average portfolio yield(3)
5.24
%
5.09
%
Average cost of financing(4)
5.08
%
4.57
%
Net spread
0.16
%
0.52
%
_______________
(1)
Based on the loans underlying the MSR
reported by subservicers on a month lag, adjusted for current month
purchases.
(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)
Average portfolio yield includes interest
income on Agency and non-Agency investment securities, MSR
servicing income, net of estimated amortization, and servicing
expenses, and the implied asset yield portion of TBA dollar roll
income on TBAs. MSR estimated 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, which is deemed a
non-GAAP measure due to the company’s decision to account for MSR
at fair value. TBA dollar roll income is the non-GAAP economic
equivalent to holding and financing Agency RMBS using short-term
repurchase agreements.
(4)
Average cost of financing includes
interest expense and amortization of deferred debt issuance costs
on borrowings under repurchase agreements (excluding those
collateralized by U.S. Treasuries), revolving credit facilities,
term notes payable and convertible senior notes, interest spread
income/expense and amortization of upfront payments made or
received upon entering into interest rate swap agreements, U.S.
Treasury futures income, and the implied financing benefit/cost
portion of dollar roll income on TBAs. TBA dollar roll income is
the non-GAAP economic equivalent to holding and financing Agency
RMBS using short-term repurchase agreements. U.S. Treasury futures
income is the economic equivalent to holding and financing a
relevant cheapest-to-deliver U.S. Treasury note or bond using
short-term repurchase agreements.
Portfolio Metrics Specific to
Agency RMBS
As of June 30, 2023
As of March 31, 2023
(unaudited)
(unaudited)
Weighted average cost basis(1)
$
101.41
$
102.05
Weighted average experienced three-month
CPR
6.5
%
5.3
%
Gross weighted average coupon rate
5.6
%
5.7
%
Weighted average loan age (months)
22
19
________________
(1)
Weighted average cost basis
includes Agency principal and interest RMBS only and utilizes
carrying value for weighting purposes.
Portfolio Metrics Specific to
MSR(1)
As of June 30, 2023
As of March 31, 2023
(dollars in thousands)
(unaudited)
(unaudited)
Unpaid principal balance
$
222,622,177
$
212,444,503
Gross coupon rate
3.4
%
3.4
%
Current loan size
$
340
$
337
Original FICO(2)
759
760
Original LTV
72
%
72
%
60+ day delinquencies
0.6
%
0.7
%
Net servicing fee
26.4 basis points
26.5 basis points
Three Months Ended June
30, 2023
Three Months Ended
March 31, 2023
(unaudited)
(unaudited)
Fair value gains (losses)
$
21,679
$
(28,079
)
Servicing income
$
175,223
$
153,320
Servicing expenses
$
25,477
$
26,772
Change in servicing reserves
$
(301
)
$
1,564
________________
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. Portfolio metrics, other than UPB,
represent averages weighted by UPB.
(2)
FICO represents a mortgage industry
accepted credit score of a borrower.
Other Investments and Risk
Management Metrics
As of June 30, 2023
As of March 31, 2023
(dollars in thousands)
(unaudited)
(unaudited)
Net long TBA notional amount(1)
$
3,051,000
$
3,718,000
Futures notional
$
(6,624,550
)
$
(6,945,550
)
Interest rate swaps notional
$
8,977,714
$
8,404,872
Swaptions net notional
$
(200,000
)
$
(200,000
)
________________
(1)
Accounted for as derivative instruments in
accordance with GAAP.
Financing Summary
The following tables summarize the company’s financing metrics
and outstanding repurchase agreements, revolving credit facilities,
term notes and convertible senior notes as of June 30, 2023 and
March 31, 2023:
June 30, 2023
Balance
Weighted
Average
Borrowing Rate
Weighted
Average Months
to Maturity
Number of
Distinct
Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by
securities
$
8,807,824
5.23
%
2.19
18
Repurchase agreements collateralized by
MSR
260,000
8.67
%
5.98
1
Repurchase agreements collateralized by
U.S. Treasuries(1)
—
—
%
—
—
Total repurchase agreements
9,067,824
5.33
%
2.30
19
Revolving credit facilities collateralized
by MSR and related servicing advance obligations
1,455,421
8.46
%
18.71
4
Term notes payable collateralized by
MSR
398,653
8.00
%
11.87
n/a
Unsecured convertible senior notes
267,791
6.25
%
30.58
n/a
Total borrowings
$
11,189,689
March 31, 2023
Balance
Weighted
Average
Borrowing Rate
Weighted
Average Months
to Maturity
Number of
Distinct
Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by
securities
$
8,633,946
5.01
%
2.67
19
Repurchase agreements collateralized by
MSR
250,000
8.43
%
8.98
1
Repurchase agreements collateralized by
U.S. Treasuries(1)
200,766
4.68
%
0.10
2
Total repurchase agreements
9,084,712
5.11
%
2.84
20
Revolving credit facilities collateralized
by MSR and related servicing advance obligations
1,292,831
8.09
%
18.35
4
Term notes payable collateralized by
MSR
398,326
7.65
%
14.86
n/a
Unsecured convertible senior notes
282,840
6.25
%
33.57
n/a
Total borrowings
$
11,058,709
Borrowings by Collateral
Type(2)
As of June 30, 2023
As of March 31, 2023
(dollars in thousands)
(unaudited)
(unaudited)
Agency RMBS
$
8,760,221
$
8,394,999
Mortgage servicing rights and related
servicing advance obligations
2,114,074
1,941,157
Other - secured
47,603
238,947
Other - unsecured(3)
267,791
282,840
Total
11,189,689
10,857,943
TBA cost basis
2,905,852
3,644,540
Net payable (receivable) for unsettled
RMBS
54,739
—
Total, including TBAs and net payable
(receivable) for unsettled RMBS
$
14,150,280
$
14,502,483
Debt-to-equity ratio at period-end(4)
5.0 :1.0
4.8 :1.0
Economic debt-to-equity ratio at
period-end(5)
6.4 :1.0
6.5 :1.0
Cost of Financing by
Collateral Type(2)
Three Months Ended
June 30, 2023
Three Months Ended
March 31, 2023
(unaudited)
(unaudited)
Agency RMBS
5.20
%
4.49
%
Mortgage servicing rights and related
servicing advance obligations(6)
8.70
%
8.28
%
Other - secured
5.89
%
5.02
%
Other - unsecured(3)(6)
6.88
%
6.84
%
Annualized cost of financing
5.89
%
5.21
%
Interest rate swaps(7)
(0.13
)%
(0.13
)%
U.S. Treasury futures(8)
(0.21
)%
(0.01
)%
TBAs(9)
3.49
%
3.23
%
Annualized cost of financing, including
swaps, U.S. Treasury futures and TBAs
5.08
%
4.57
%
____________________
(1)
U.S. Treasury securities effectively
borrowed under reverse repurchase agreements.
(2)
Excludes repurchase agreements
collateralized by U.S. Treasuries.
(3)
Unsecured convertible senior notes.
(4)
Defined as total borrowings to fund Agency
and non-Agency investment securities and MSR, divided by total
equity.
(5)
Defined as total borrowings to fund Agency
and non-Agency investment securities and MSR, plus the implied debt
on net TBA cost basis and net payable (receivable) for unsettled
RMBS, divided by total equity.
(6)
Includes amortization of debt issuance
costs.
(7)
The cost of financing on interest rate
swaps held to mitigate interest rate risk associated with the
company’s outstanding borrowings includes interest spread
income/expense and amortization of upfront payments made or
received upon entering into interest rate swap agreements and is
calculated using average borrowings balance as the denominator.
(8)
The cost of financing on U.S. Treasury
futures held to mitigate interest rate risk associated with the
company’s outstanding borrowings is calculated using average
borrowings balance as the denominator. U.S. Treasury futures income
is the economic equivalent to holding and financing a relevant
cheapest-to-deliver U.S. Treasury note or bond using short-term
repurchase agreements.
(9)
The implied financing benefit/cost of
dollar roll income on TBAs is calculated using the average cost
basis of TBAs as the denominator. TBA dollar roll income is the
non-GAAP economic equivalent to holding and financing Agency RMBS
using short-term repurchase agreements. TBAs are accounted for as
derivative instruments in accordance with GAAP.
Conference Call
Two Harbors Investment Corp. will host a conference call on
August 1, 2023 at 9:00 a.m. ET to discuss second quarter 2023
financial results and related information. The conference call will
be webcast live and accessible in the Investors section of the
company’s website at www.twoharborsinvestment.com/investors. To
participate in the teleconference, please call toll-free (877)
502-7185, approximately 10 minutes prior to the above start time.
For those unable to attend, a telephone playback will be available
beginning at 12:00 p.m. ET on August 1, 2023, through 12:00 p.m. ET
on August 15, 2023. The playback can be accessed by calling (877)
660-6853, conference code 13737269. The call will also be archived
on the company’s website in the News & Events section.
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 St. Louis Park, MN.
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, 2022, 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; 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 recognize the benefits of our pending acquisition of
RoundPoint Mortgage Servicing LLC; our decision to terminate our
management agreement with PRCM Advisers LLC and the ongoing
litigation related to such termination; 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 income
excluding market-driven value changes, earnings available for
distribution and related per basic common share measures. 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 tables on pages 11 and 12
of this release.
Additional Information
Stockholders of Two Harbors and other interested persons may
find additional information regarding the company at
www.twoharborsinvestment.com, at the Securities and Exchange
Commission’s Internet site at www.sec.gov or by directing requests
to: Two Harbors Investment Corp., Attn: Investor Relations, 1601
Utica Avenue South, Suite 900, St. Louis Park, MN, 55416, telephone
(612) 453-4100.
TWO HARBORS INVESTMENT
CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(dollars in thousands, except
share data)
June 30, 2023
December 31,
2022
(unaudited)
ASSETS
Available-for-sale securities, at fair
value (amortized cost $9,278,950 and $8,114,627, respectively;
allowance for credit losses $5,360 and $6,958, respectively)
$
8,963,203
$
7,778,734
Mortgage servicing rights, at fair
value
3,273,956
2,984,937
Cash and cash equivalents
699,081
683,479
Restricted cash
322,603
443,026
Accrued interest receivable
39,700
36,018
Due from counterparties
248,607
253,374
Derivative assets, at fair value
16,469
26,438
Reverse repurchase agreements
289,288
1,066,935
Other assets
157,092
193,219
Total Assets
$
14,009,999
$
13,466,160
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities:
Repurchase agreements
$
9,067,824
$
8,603,011
Revolving credit facilities
1,455,421
1,118,831
Term notes payable
398,653
398,011
Convertible senior notes
267,791
282,496
Derivative liabilities, at fair value
14,976
34,048
Due to counterparties
267,050
541,709
Dividends payable
55,675
64,504
Accrued interest payable
120,504
94,034
Other liabilities
146,096
145,991
Total Liabilities
11,793,990
11,282,635
Stockholders’ Equity:
Preferred stock, par value $0.01 per
share; 100,000,000 shares authorized and 25,578,232 and 26,092,050
shares issued and outstanding, respectively ($639,456 and $652,301
liquidation preference, respectively)
618,579
630,999
Common stock, par value $0.01 per share;
175,000,000 shares authorized and 96,165,535 and 86,428,845 shares
issued and outstanding, respectively
962
864
Additional paid-in capital
5,824,509
5,645,998
Accumulated other comprehensive loss
(309,086
)
(278,711
)
Cumulative earnings
1,476,462
1,453,371
Cumulative distributions to
stockholders
(5,395,417
)
(5,268,996
)
Total Stockholders’ Equity
2,216,009
2,183,525
Total Liabilities and Stockholders’
Equity
$
14,009,999
$
13,466,160
TWO HARBORS INVESTMENT
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except
share data)
Certain prior period amounts have
been reclassified to conform to the current period presentation
Three Months Ended
June 30,
Six Months Ended
June 30,
2023
2022
2023
2022
(unaudited)
(unaudited)
Interest income:
Available-for-sale securities
$
104,195
$
55,399
$
201,233
$
100,046
Other
13,567
1,604
33,122
1,803
Total interest income
117,762
57,003
234,355
101,849
Interest expense:
Repurchase agreements
116,946
19,269
221,301
27,612
Revolving credit facilities
29,684
9,106
55,340
14,782
Term notes payable
8,239
3,925
15,882
7,181
Convertible senior notes
4,692
4,801
9,528
9,843
Total interest expense
159,561
37,101
302,051
59,418
Net interest (expense) income
(41,799
)
19,902
(67,696
)
42,431
Other income (loss):
Gain (loss) on investment securities
2,172
(197,719
)
12,970
(250,061
)
Servicing income
175,223
157,526
328,543
294,152
Gain (loss) on servicing asset
21,679
85,557
(6,400
)
496,181
Gain (loss) on interest rate swap and
swaption agreements
56,533
32,734
(25,621
)
(5,307
)
Gain (loss) on other derivative
instruments
47,161
(101,273
)
(108,610
)
(203,035
)
Other income (loss)
2,200
(73
)
2,200
(117
)
Total other income (loss)
304,968
(23,248
)
203,082
331,813
Expenses:
Servicing expenses
25,190
22,991
53,556
47,695
Compensation and benefits
8,868
11,019
22,951
23,212
Other operating expenses
11,886
9,152
22,370
15,777
Total expenses
45,944
43,162
98,877
86,684
Income (loss) before income
taxes
217,225
(46,508
)
36,509
287,560
Provision for income taxes
19,780
25,912
15,872
74,710
Net income (loss)
197,445
(72,420
)
20,637
212,850
Dividends on preferred stock
(12,115
)
(13,748
)
(24,480
)
(27,495
)
Gain on repurchase and retirement of
preferred stock
2,454
—
2,454
—
Net income (loss) attributable to
common stockholders
$
187,784
$
(86,168
)
$
(1,389
)
$
185,355
Basic earnings (loss) per weighted average
common share
$
1.94
$
(1.00
)
$
(0.02
)
$
2.14
Diluted earnings (loss) per weighted
average common share
$
1.80
$
(1.00
)
$
(0.02
)
$
2.02
Dividends declared per common share
$
0.45
$
0.68
$
1.05
$
1.36
Weighted average number of shares of
common stock:
Basic
96,387,877
86,069,431
94,492,389
86,034,722
Diluted
106,062,378
86,069,431
94,492,389
96,085,473
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
June 30,
Six Months Ended
June 30,
2023
2022
2023
2022
(unaudited)
(unaudited)
Comprehensive income (loss):
Net income (loss)
$
197,445
$
(72,420
)
$
20,637
$
212,850
Other comprehensive loss:
Unrealized loss on available-for-sale
securities
(156,306
)
(4,211
)
(30,375
)
(336,056
)
Other comprehensive loss
(156,306
)
(4,211
)
(30,375
)
(336,056
)
Comprehensive income (loss)
41,139
(76,631
)
(9,738
)
(123,206
)
Dividends on preferred stock
(12,115
)
(13,748
)
(24,480
)
(27,495
)
Gain on repurchase and retirement of
preferred stock
2,454
—
2,454
—
Comprehensive income (loss)
attributable to common stockholders
$
31,478
$
(90,379
)
$
(31,764
)
$
(150,701
)
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
June 30, 2023
March 31, 2023
(unaudited)
(unaudited)
Reconciliation of Comprehensive income
(loss) to Income Excluding Market-Driven Value Changes:
Comprehensive income (loss) attributable
to common stockholders
$
31,478
$
(63,242
)
Adjustments to exclude market-driven value
changes and nonrecurring operating expenses:
RMBS and other Agency securities
market-driven value changes(1)
195,343
(107,556
)
MSR market-driven value changes(2)
(94,172
)
(34,469
)
Swap and swaption market-driven value
changes(3)
(57,085
)
82,174
TBA market-driven value changes(4)
87,800
33,764
Realized and unrealized (gains) losses on
futures
(126,923
)
140,087
Other realized gains
(2,201
)
—
Change in servicing reserves
(301
)
1,564
Nonrecurring deboarding fees(5)
2,368
2,582
Other nonrecurring expenses
7,134
5,418
Gain on repurchase and retirement of
preferred stock
(2,454
)
—
Net provision for (benefit from) income
taxes associated with market-driven value changes
16,514
(5,929
)
Income Excluding Market-Driven Value
Changes(6)
$
57,501
$
54,393
Weighted average basic common shares
96,387,877
92,575,840
Income Excluding Market-Driven Value
Changes per weighted average basic common share
$
0.60
$
0.59
_____________
(1)
RMBS and other Agency securities
market-driven value changes refers to the sum of interest income,
realized and unrealized gains and losses on RMBS and other Agency
securities, less the sum of the realization of RMBS and other
Agency securities cash flows which incorporates actual prepayments,
changes in RMBS and other Agency securities accrued interest, and
modeled price changes. Modeled price changes are measured daily
based on a “Realized Forwards” methodology, which includes the
assumption that spreads, forward interest rates and volatility
factored into the previous day ending fair value are unchanged.
RMBS and other Agency securities includes inverse interest-only
Agency RMBS which are accounted for as derivative instruments in
accordance with GAAP.
(2)
MSR market-driven value changes refers to
the sum of servicing income, servicing expenses, realized and
unrealized gains and losses on MSR, less the sum of the realization
of MSR cash flows which incorporates actual prepayments, recurring
servicing income and servicing expenses, and modeled price changes.
Modeled price changes are measured daily based on a “Realized
Forwards” methodology, which includes the assumption that spreads,
forward interest rates and volatility factored into the previous
day ending fair value are unchanged.
(3)
Swap and swaption market-driven value
changes refers to the net interest spread and realized and
unrealized gains and losses on interest rate swap and swaption
agreements, less the swaps daily IXM that is equal to the previous
day ending fair value multiplied by the overnight SOFR and
swaptions daily IXM that is equal to the previous day ending fair
value multiplied by the realized forward rate.
(4)
TBA market-driven value changes refers to
the total realized and unrealized gains and losses, less the daily
zero-volatility OAS less the implied repo spread, multiplied by the
previous day ending fair value.
(5)
Nonrecurring deboarding fees are
associated with one-time transfers of MSR.
(6)
Income Excluding Market-Driven Value
Changes, or IXM, is a non-GAAP measure defined as total
comprehensive income attributable to common stockholders, excluding
market-driven value changes on the aggregate portfolio, provision
for income taxes associated with market-driven value changes,
nonrecurring operating expenses and gains on the repurchase and
retirement of preferred stock and convertible senior notes. As
defined, IXM includes the realization of portfolio cash flows which
incorporates actual prepayments, changes in portfolio accrued
interest, recurring servicing income and servicing expenses, and
certain modeled price changes. These modeled price changes are
measured daily based on a “Realized Forwards” methodology, which
includes the assumption that spreads, forward interest rates and
volatility factored into the previous day ending fair value are
unchanged. Assumptions for spreads, forward interest rates,
volatility and the previous day ending fair value include
applicable market data, data from third-party brokers and pricing
vendors and management’s assessment. This applies to RMBS, MSR and
derivatives, as applicable, and is net of all recurring operating
expenses and provision for income taxes associated with IXM. IXM
provides supplemental information to assist investors in analyzing
the company’s results of operations and helps facilitate
comparisons to industry peers. IXM is one of several measures the
company’s board of directors considers to determine the amount of
dividends to declare on the company’s common stock and should not
be considered an indication of taxable income or as a proxy for the
amount of dividends the company may declare.
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
June 30, 2023
March 31, 2023
(unaudited)
(unaudited)
Reconciliation of Comprehensive income
(loss) to Earnings Available for Distribution:
Comprehensive income (loss) attributable
to common stockholders
$
31,478
$
(63,242
)
Adjustment for other comprehensive loss
(income) attributable to common stockholders:
Unrealized loss (gain) on
available-for-sale securities
156,306
(125,931
)
Net income (loss) attributable to common
stockholders
$
187,784
$
(189,173
)
Adjustments to exclude reported realized
and unrealized (gains) losses:
Realized loss on securities
2,640
31,909
Unrealized gain on securities
(4,834
)
(42,565
)
Provision (reversal of provision) for
credit losses
22
(142
)
Realized and unrealized (gain) loss on
mortgage servicing rights
(21,679
)
28,079
Realized loss on termination or expiration
of interest rate swaps and swaptions
—
18,580
Unrealized (gain) loss on interest rate
swaps and swaptions
(53,080
)
67,184
Realized and unrealized (gain) loss on
other derivative instruments
(47,063
)
155,836
Gain on repurchase and retirement of
preferred stock
(2,454
)
—
Other realized and unrealized gains
(2,200
)
—
Other adjustments:
MSR amortization(1)
(91,836
)
(76,558
)
TBA dollar roll (losses) income(2)
(3,526
)
6,341
U.S. Treasury futures income(3)
5,652
403
Change in servicing reserves
(301
)
1,564
Non-cash equity compensation expense
1,735
6,052
Other nonrecurring expenses
7,134
5,418
Net provision for (benefit from) income
taxes on non-EAD
18,290
(4,655
)
Earnings available for distribution to
common stockholders(4)
$
(3,716
)
$
8,273
Weighted average basic common shares
96,387,877
92,575,840
Earnings available for distribution to
common stockholders per weighted average basic common share
$
(0.04
)
$
0.09
_____________
(1)
MSR 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, which is deemed a
non-GAAP measure due to the company’s decision to account for MSR
at fair value.
(2)
TBA dollar roll income is the economic
equivalent to holding and financing Agency RMBS using short-term
repurchase agreements.
(3)
U.S. Treasury futures income is the
economic equivalent to holding and financing a relevant
cheapest-to-deliver U.S. Treasury note or bond using short-term
repurchase agreements.
(4)
EAD is a non-GAAP measure that we define
as comprehensive income (loss) attributable to common stockholders,
excluding realized and unrealized gains and losses on the aggregate
portfolio, gains and losses on repurchases of preferred stock,
provision for (reversal of) credit losses, reserve expense for
representation and warranty obligations on MSR, non-cash
compensation expense related to restricted common stock and other
nonrecurring expenses. As defined, EAD includes net interest
income, accrual and settlement of interest on derivatives, dollar
roll income on TBAs, U.S. Treasury futures income, servicing
income, net of estimated amortization on MSR and recurring cash
related operating expenses. EAD provides supplemental information
to assist investors in analyzing the Company’s results of
operations and helps facilitate comparisons to industry peers. EAD
is one of several measures our board of directors considers to
determine the amount of dividends to declare on our common stock
and should not be considered an indication of our taxable income or
as a proxy for the amount of dividends we may declare.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230731027508/en/
Margaret Karr, Head of Investor Relations, Two Harbors
Investment Corp., (612)-453-4080,
Margaret.Karr@twoharborsinvestment.com
Two Harbors Investment (NYSE:TWO)
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