TWO Two Harbors Investment Corporation

Delivered Stable Results Amidst Heightened Volatility

Two Harbors Investment Corp. (NYSE: TWO), an MSR + Agency RMBS real estate investment trust (REIT), today announced its financial results for the quarter ended June 30, 2024.

Quarterly Summary

• Reported book value of $15.19 per common share, and declared a second quarter common stock dividend of $0.45 per share, representing a flat quarterly economic return on book value. For the first six months of 2024, generated a 5.8% total economic return on book value.(1)
• Generated Comprehensive Income of $0.5 million, or $0.00 per weighted average basic common share.
• Repurchased $10.0 million principal amount of convertible senior notes due 2026.
• Launched direct-to-consumer recapture originations platform.
• Actively managed MSR portfolio through an opportunistic commitment to sell $6.4 billion unpaid principal balance (UPB).
• Settled $327.8 million UPB of MSR through flow-sale acquisitions.
• Post quarter-end, settled an MSR bulk acquisition of $1.6 billion UPB and committed to purchase an additional $1.0 billion UPB through a bulk acquisition.
• Post quarter-end, increased at-the-market common stock offering program by 11.2 million shares, bringing total authorization to 15.0 million shares of common stock.

“This quarter again demonstrates the benefits of our unique portfolio construction of MSR paired with Agency RMBS,” stated Bill Greenberg, Two Harbors’ President and CEO. “We have strategically allocated more than 60% of our capital to MSR, which in this environment carries low duration and low spread volatility. At our operating mortgage company, RoundPoint, we completed the transfer of all our servicing, and RoundPoint now services over 900,000 loans. We also successfully launched our direct-to-consumer recapture originations platform, and we intend to begin offering a suite of ancillary and home equity products to our customers, including second lien loans, in the third quarter.”

“MSR performed well in the second quarter, with valuations being bolstered by the current dynamics of lower supply and high demand. Given the strong bids in the market, we saw some of the largest MSR buyers of the past several years turn into sellers, and we actively managed our MSR portfolio by being both a seller and a buyer of servicing in the quarter,” stated Nick Letica, Two Harbors’ Chief Investment Officer. “Nominal spreads for Agency RMBS are still wide on a historical basis, and possess tightening potential in a lower volatility environment, which we expect will be associated with the beginning of a Fed cutting cycle.”

________________

(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.

Operating Performance

The following table summarizes the company’s GAAP and non-GAAP earnings measurements and key metrics for the second quarter of 2024 and first quarter of 2024:

Two Harbors Investment Corp. Operating Performance (unaudited)

(dollars in thousands, except per common share data)

 

Three Months Ended June 30, 2024

 

Three Months Ended March 31, 2024

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

$

479

 

 

$

—

 

0.1

%

 

$

89,370

 

 

$

0.85

 

22.4

%

GAAP Net Income

$

44,552

 

 

$

0.43

 

11.1

%

 

$

192,448

 

 

$

1.85

 

48.2

%

Earnings Available for Distribution(1)

$

17,516

 

 

$

0.17

 

4.4

%

 

$

4,725

 

 

$

0.05

 

1.2

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Metrics

 

 

 

 

 

 

 

 

 

 

 

Dividend per common share

$

0.45

 

 

 

 

 

 

$

0.45

 

 

 

 

 

Annualized dividend yield(2)

 

13.6

%

 

 

 

 

 

 

13.6

%

 

 

 

 

Book value per common share at period end

$

15.19

 

 

 

 

 

 

$

15.64

 

 

 

 

 

Economic return on book value(3)

 

—

%

 

 

 

 

 

 

5.8

%

 

 

 

 

Operating expenses, excluding non-cash LTIP amortization and certain operating expenses(4)

$

37,924

 

 

 

 

 

 

$

40,300

 

 

 

 

 

Operating expenses, excluding non-cash LTIP amortization and certain operating expenses, as a percentage of average equity(4)

 

6.8

%

 

 

 

 

 

 

7.2

%

 

 

 

 

___________________

(1)

Earnings Available for Distribution, or EAD, is a non-GAAP measure. Please see page 11 for a definition of EAD 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)

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 the book value as of the beginning of the period.

(4)

Excludes non-cash equity compensation expense of $1.6 million for the second quarter of 2024 and $6.1 million for the first quarter of 2024 and certain operating credits of $0.6 million for the second quarter of 2024 and expenses of $1.2 million for the first quarter of 2024. Certain operating expenses predominantly consists of expenses incurred in connection with the company’s ongoing litigation with PRCM Advisers LLC. It also includes certain transaction expenses incurred/reversed in connection with the company’s acquisition of RoundPoint Mortgage Servicing LLC.

Portfolio Summary

As of June 30, 2024, the company’s portfolio was comprised of $11.1 billion of Agency RMBS, MSR and other investment securities as well as their associated notional debt hedges. Additionally, the company held $4.9 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, 2024 and March 31, 2024:

Two Harbors Investment Corp. Portfolio

(dollars in thousands)

 

Portfolio Composition

 

As of June 30, 2024

 

As of March 31, 2024

 

 

(unaudited)

 

(unaudited)

Agency RMBS

 

$

8,035,395

 

72.4

%

 

$

8,188,432

 

72.6

%

Mortgage servicing rights(1)

 

 

3,065,415

 

27.6

%

 

 

3,084,879

 

27.4

%

Other

 

 

3,942

 

—

%

 

 

3,953

 

—

%

Aggregate Portfolio

 

 

11,104,752

 

 

 

 

11,277,264

 

 

Net TBA position(2)

 

 

4,940,593

 

 

 

 

3,433,417

 

 

Total Portfolio

 

$

16,045,345

 

 

 

$

14,710,681

 

 

__________________

(1)

Based on the prior month-end’s principal balance of the loans underlying the company’s MSR, increased 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

Portfolio Metrics Specific to Agency RMBS

 

As of June 30, 2024

 

As of March 31, 2024

 

 

(unaudited)

 

(unaudited)

Weighted average cost basis(1)

 

$

101.28

 

 

$

100.70

 

Weighted average experienced three-month CPR

 

 

7.3

%

 

 

4.8

%

Gross weighted average coupon rate

 

 

5.8

%

 

 

5.6

%

Weighted average loan age (months)

 

 

31

 

 

 

30

__________________

(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, 2024

 

As of March 31, 2024

(dollars in thousands)

 

(unaudited)

 

(unaudited)

Unpaid principal balance

 

$

209,389,409

 

 

$

213,596,880

 

Gross coupon rate

 

 

3.5

%

 

 

3.5

%

Current loan size

 

$

333

 

 

$

335

 

Original FICO(2)

 

 

759

 

 

 

759

 

Original LTV

 

 

71

%

 

 

72

%

60+ day delinquencies

 

 

0.7

%

 

 

0.7

%

Net servicing fee

 

25.3 basis points

 

25.3 basis points

 

 

 

 

 

 

 

Three Months Ended June 30, 2024

 

Three Months Ended March 31, 2024

 

 

(unaudited)

 

(unaudited)

Fair value (losses) gains

 

$

(22,857

)

 

$

11,012

 

Servicing income

 

$

169,882

 

 

$

160,928

 

Servicing costs

 

$

5,214

 

 

$

6,904

 

Change in servicing reserves

 

$

(739

)

 

$

215

 

________________

(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, 2024

 

As of March 31, 2024

(dollars in thousands)

 

(unaudited)

 

(unaudited)

Net long TBA notional(1)

 

$

4,983,000

 

 

$

3,450,000

 

Futures notional

 

$

(6,308,900

)

 

$

(5,638,800

)

Interest rate swaps notional

 

$

11,739,471

 

 

$

9,822,112

 

__________________

(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, 2024 and March 31, 2024:

June 30, 2024

 

Balance

 

Weighted Average Borrowing Rate

 

Weighted Average Months to Maturity

 

Number of Distinct Counterparties

(dollars in thousands, unaudited)

 

 

 

 

 

 

 

 

Repurchase agreements collateralized by securities

 

$

7,834,910

 

5.48

%

 

2.78

 

18

Repurchase agreements collateralized by MSR

 

 

600,000

 

8.49

%

 

22.72

 

1

Total repurchase agreements

 

 

8,434,910

 

5.69

%

 

4.20

 

19

Revolving credit facilities collateralized by MSR and related servicing advance obligations

 

 

1,279,271

 

8.45

%

 

20.25

 

4

Term notes payable collateralized by MSR

 

 

—

 

—

%

 

—

 

n/a

Unsecured convertible senior notes

 

 

259,412

 

6.25

%

 

18.54

 

n/a

Total borrowings

 

$

9,973,593

 

 

 

 

 

 

March 31, 2024

 

Balance

 

Weighted Average Borrowing Rate

 

Weighted Average Months to Maturity

 

Number of Distinct Counterparties

(dollars in thousands, unaudited)

 

 

 

 

 

 

 

 

Repurchase agreements collateralized by securities

 

$

8,102,661

 

5.52

%

 

2.91

 

18

Repurchase agreements collateralized by MSR

 

 

258,977

 

6.92

%

 

5.28

 

3

Total repurchase agreements

 

 

8,361,638

 

5.61

%

 

2.98

 

19

Revolving credit facilities collateralized by MSR and related servicing advance obligations

 

 

1,357,671

 

8.56

%

 

15.32

 

4

Term notes payable collateralized by MSR

 

 

295,520

 

8.24

%

 

2.83

 

n/a

Unsecured convertible senior notes

 

 

268,953

 

6.25

%

 

21.53

 

n/a

Total borrowings

 

$

10,283,782

 

 

 

 

 

 

Borrowings by Collateral Type

 

As of June 30, 2024

 

As of March 31, 2024

(dollars in thousands)

 

(unaudited)

 

(unaudited)

Agency RMBS

 

$

7,834,693

 

 

$

8,102,444

 

Mortgage servicing rights and related servicing advance obligations

 

 

1,879,271

 

 

 

1,912,168

 

Other - secured

 

 

217

 

 

 

217

 

Other - unsecured(1)

 

 

259,412

 

 

 

268,953

 

Total

 

 

9,973,593

 

 

 

10,283,782

 

TBA cost basis

 

 

4,950,762

 

 

 

3,421,932

 

Net payable (receivable) for unsettled RMBS

 

 

—

 

 

 

(213,264

)

Total, including TBAs and net payable (receivable) for unsettled RMBS

 

$

14,924,355

 

 

$

13,492,450

 

 

 

 

 

 

Debt-to-equity ratio at period-end(2)

 

4.5 :1.0

 

4.6 :1.0

Economic debt-to-equity ratio at period-end(3)

 

6.8 :1.0

 

6.0 :1.0

 

 

 

 

 

Cost of Financing by Collateral Type(4)

 

Three Months Ended June 30, 2024

 

Three Months Ended March 31, 2024

 

 

(unaudited)

 

(unaudited)

Agency RMBS

 

 

5.54

%

 

 

5.63

%

Mortgage servicing rights and related servicing advance obligations(5)

 

 

8.99

%

 

 

9.08

%

Other - secured

 

 

5.53

%

 

 

6.99

%

Other - unsecured(1)(5)

 

 

6.89

%

 

 

6.87

%

Annualized cost of financing

 

 

6.23

%

 

 

6.30

%

Interest rate swaps(6)

 

 

(0.61

)%

 

 

(0.56

)%

U.S. Treasury futures(7)

 

 

(0.29

)%

 

 

(0.30

)%

TBAs(8)

 

 

3.44

%

 

 

3.57

%

Annualized cost of financing, including swaps, U.S. Treasury futures and TBAs

 

 

4.76

%

 

 

5.02

%

___________________

(1)

Unsecured convertible senior notes.

(2)

Defined as total borrowings to fund Agency and non-Agency investment securities and MSR, divided by total equity.

(3)

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.

(4)

Excludes any repurchase agreements collateralized by U.S. Treasuries.

(5)

Includes amortization of debt issuance costs.

(6)

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.

(7)

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.

(8)

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 July 31, 2024 at 9:00 a.m. ET to discuss its second quarter 2024 financial results and related information. To participate in the teleconference, please call toll-free (888) 394-8218 approximately 10 minutes prior to the above start time and provide the Conference Code 1669717. The conference call will also be webcast live and accessible online in the News & Events section of the company’s website at www.twoharborsinvestment.com. For those unable to attend, a replay of the webcast will be available on the company’s website approximately four hours after the live call ends.

Two Harbors Investment Corp.

Two Harbors Investment Corp., a Maryland corporation, is a real estate investment trust that invests in mortgage servicing rights, residential mortgage-backed securities, 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, 2023, 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 acquisition of RoundPoint Mortgage Servicing LLC and to manage the risks associated with operating a mortgage loan servicer and originator; 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 to maintain our MSR portfolio; our exposure to legal and regulatory claims; legislative and regulatory actions affecting our business; 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 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 table on page 11 of this release.

Additional Information

Stockholders of Two Harbors and other interested persons may find additional information regarding the company at 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, (612) 453-4100.

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

 

June 30, 2024

 

December 31, 2023

 

(unaudited)

 

 

ASSETS

 

 

 

Available-for-sale securities, at fair value (amortized cost $8,359,346 and $8,509,383, respectively; allowance for credit losses $3,340 and $3,943, respectively)

$

8,029,955

 

 

$

8,327,149

 

Mortgage servicing rights, at fair value

 

3,065,415

 

 

 

3,052,016

 

Cash and cash equivalents

 

624,199

 

 

 

729,732

 

Restricted cash

 

162,623

 

 

 

65,101

 

Accrued interest receivable

 

35,993

 

 

 

35,339

 

Due from counterparties

 

372,192

 

 

 

323,224

 

Derivative assets, at fair value

 

13,519

 

 

 

85,291

 

Reverse repurchase agreements

 

349,660

 

 

 

284,091

 

Other assets

 

196,161

 

 

 

236,857

 

Total Assets

$

12,849,717

 

 

$

13,138,800

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Liabilities:

 

 

 

Repurchase agreements

$

8,434,910

 

 

$

8,020,207

 

Revolving credit facilities

 

1,279,271

 

 

 

1,329,171

 

Term notes payable

 

—

 

 

 

295,271

 

Convertible senior notes

 

259,412

 

 

 

268,582

 

Derivative liabilities, at fair value

 

14,264

 

 

 

21,506

 

Due to counterparties

 

352,117

 

 

 

574,735

 

Dividends payable

 

58,729

 

 

 

58,731

 

Accrued interest payable

 

85,680

 

 

 

141,773

 

Other liabilities

 

170,037

 

 

 

225,434

 

Total Liabilities

 

10,654,420

 

 

 

10,935,410

 

Stockholders’ Equity:

 

 

 

Preferred stock, par value $0.01 per share; 100,000,000 shares authorized and 24,870,817 and 25,356,426 shares issued and outstanding, respectively ($621,770 and $633,911 liquidation preference, respectively)

 

601,467

 

 

 

613,213

 

Common stock, par value $0.01 per share; 175,000,000 shares authorized and 103,622,239 and 103,206,457 shares issued and outstanding, respectively

 

1,036

 

 

 

1,032

 

Additional paid-in capital

 

5,933,250

 

 

 

5,925,424

 

Accumulated other comprehensive loss

 

(323,580

)

 

 

(176,429

)

Cumulative earnings

 

1,610,541

 

 

 

1,349,973

 

Cumulative distributions to stockholders

 

(5,627,417

)

 

 

(5,509,823

)

Total Stockholders’ Equity

 

2,195,297

 

 

 

2,203,390

 

Total Liabilities and Stockholders’ Equity

$

12,849,717

 

 

$

13,138,800

 

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

 

Six Months Ended

 

June 30,

 

June 30,

 

2024

 

2023

 

2024

 

2023

 

(unaudited)

 

(unaudited)

Net interest income (expense):

 

 

 

 

 

Interest income

$

115,953

 

 

$

117,762

 

 

$

233,736

 

 

$

234,355

 

Interest expense

 

154,207

 

 

 

159,561

 

 

 

314,207

 

 

 

302,051

 

Net interest expense

 

(38,254

)

 

 

(41,799

)

 

 

(80,471

)

 

 

(67,696

)

Net servicing income:

 

 

 

 

 

 

 

Servicing income

 

176,015

 

 

 

175,223

 

 

 

342,348

 

 

 

328,543

 

Servicing costs

 

4,475

 

 

 

25,190

 

 

 

11,594

 

 

 

53,556

 

Net servicing income

 

171,540

 

 

 

150,033

 

 

 

330,754

 

 

 

274,987

 

Other (loss) income:

 

 

 

 

 

 

 

(Loss) gain on investment securities

 

(22,437

)

 

 

2,172

 

 

 

(33,412

)

 

 

12,970

 

(Loss) gain on servicing asset

 

(22,857

)

 

 

21,679

 

 

 

(11,845

)

 

 

(6,400

)

Gain (loss) on interest rate swap and swaption agreements

 

22,012

 

 

 

56,533

 

 

 

120,522

 

 

 

(25,621

)

(Loss) gain on other derivative instruments

 

(750

)

 

 

47,161

 

 

 

46,849

 

 

 

(108,610

)

Other income

 

226

 

 

 

2,200

 

 

 

223

 

 

 

2,200

 

Total other (loss) income

 

(23,806

)

 

 

129,745

 

 

 

122,337

 

 

 

(125,461

)

Expenses:

 

 

 

 

 

 

 

Compensation and benefits

 

21,244

 

 

 

8,868

 

 

 

47,773

 

 

 

22,951

 

Other operating expenses

 

17,699

 

 

 

11,886

 

 

 

38,751

 

 

 

22,370

 

Total expenses

 

38,943

 

 

 

20,754

 

 

 

86,524

 

 

 

45,321

 

Income before income taxes

 

70,537

 

 

 

217,225

 

 

 

286,096

 

 

 

36,509

 

Provision for income taxes

 

14,201

 

 

 

19,780

 

 

 

26,172

 

 

 

15,872

 

Net income

 

56,336

 

 

 

197,445

 

 

 

259,924

 

 

 

20,637

 

Dividends on preferred stock

 

(11,784

)

 

 

(12,115

)

 

 

(23,568

)

 

 

(24,480

)

Gain on repurchase and retirement of preferred stock

 

—

 

 

 

2,454

 

 

 

644

 

 

 

2,454

 

Net income (loss) attributable to common stockholders

$

44,552

 

 

$

187,784

 

 

$

237,000

 

 

$

(1,389

)

Basic earnings (loss) per weighted average common share

$

0.43

 

 

$

1.94

 

 

$

2.27

 

 

$

(0.02

)

Diluted earnings (loss) per weighted average common share

$

0.43

 

 

$

1.80

 

 

$

2.16

 

 

$

(0.02

)

Dividends declared per common share

$

0.45

 

 

$

0.45

 

 

$

0.90

 

 

$

1.05

 

Weighted average number of shares of common stock:

 

 

 

 

 

 

 

Basic

 

103,555,755

 

 

 

96,387,877

 

 

 

103,478,847

 

 

 

94,492,389

 

Diluted

 

103,910,812

 

 

 

106,062,378

 

 

 

113,136,629

 

 

 

94,492,389

 

Comprehensive income (loss):

 

 

 

 

 

 

 

Net income

$

56,336

 

 

$

197,445

 

 

$

259,924

 

 

$

20,637

 

Other comprehensive loss:

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

(44,073

)

 

 

(156,306

)

 

 

(147,151

)

 

 

(30,375

)

Other comprehensive loss

 

(44,073

)

 

 

(156,306

)

 

 

(147,151

)

 

 

(30,375

)

Comprehensive income (loss)

 

12,263

 

 

 

41,139

 

 

 

112,773

 

 

 

(9,738

)

Dividends on preferred stock

 

(11,784

)

 

 

(12,115

)

 

 

(23,568

)

 

 

(24,480

)

Gain on repurchase and retirement of preferred stock

 

—

 

 

 

2,454

 

 

 

644

 

 

 

2,454

 

Comprehensive income (loss) attributable to common stockholders

$

479

 

 

$

31,478

 

 

$

89,849

 

 

$

(31,764

)

TWO HARBORS INVESTMENT CORP.

INTEREST INCOME AND INTEREST EXPENSE

(dollars in thousands, except share data)

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2024

 

2023

 

2024

 

2023

 

(unaudited)

 

(unaudited)

Interest income:

 

 

 

 

 

Available-for-sale securities

$

99,211

 

 

$

104,195

 

 

$

199,816

 

 

$

201,233

 

Other

 

16,742

 

 

 

13,567

 

 

 

33,920

 

 

 

33,122

 

Total interest income

 

115,953

 

 

 

117,762

 

 

 

233,736

 

 

 

234,355

 

Interest expense:

 

 

 

 

 

 

 

Repurchase agreements

 

113,714

 

 

 

116,946

 

 

 

232,430

 

 

 

221,301

 

Revolving credit facilities

 

29,906

 

 

 

29,684

 

 

 

60,153

 

 

 

55,340

 

Term notes payable

 

6,008

 

 

 

8,239

 

 

 

12,426

 

 

 

15,882

 

Convertible senior notes

 

4,579

 

 

 

4,692

 

 

 

9,198

 

 

 

9,528

 

Total interest expense

 

154,207

 

 

 

159,561

 

 

 

314,207

 

 

 

302,051

 

Net interest expense

$

(38,254

)

 

$

(41,799

)

 

$

(80,471

)

 

$

(67,696

)

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, 2024

 

March 31, 2024

 

(unaudited)

 

(unaudited)

Reconciliation of comprehensive income to Earnings Available for Distribution:

 

 

 

Comprehensive income attributable to common stockholders

$

479

 

 

$

89,370

 

Adjustment for other comprehensive loss attributable to common stockholders:

 

 

 

Unrealized loss on available-for-sale securities

 

44,073

 

 

 

103,078

 

Net income attributable to common stockholders

$

44,552

 

 

$

192,448

 

Adjustments to exclude reported realized and unrealized (gains) losses:

 

 

 

Realized loss on securities

 

22,149

 

 

 

10,915

 

Unrealized loss (gain) on securities

 

117

 

 

 

(20

)

Provision for credit losses

 

171

 

 

 

80

 

Realized and unrealized loss (gain) on mortgage servicing rights

 

22,857

 

 

 

(11,012

)

Realized gain on termination or expiration of interest rate swaps and swaptions

 

(2,388

)

 

 

(13,890

)

Unrealized gain on interest rate swaps and swaptions

 

(4,609

)

 

 

(70,325

)

Realized and unrealized loss (gain) on other derivative instruments

 

852

 

 

 

(47,489

)

Gain on repurchase and retirement of preferred stock

 

—

 

 

 

(644

)

Other realized and unrealized (gains) losses

 

(226

)

 

 

3

 

Other adjustments:

 

 

 

MSR amortization(1)

 

(89,058

)

 

 

(78,704

)

TBA dollar roll income (losses)(2)

 

4,019

 

 

 

(1,905

)

U.S. Treasury futures income(3)

 

7,211

 

 

 

7,694

 

Change in servicing reserves

 

(739

)

 

 

215

 

Non-cash equity compensation expense

 

1,643

 

 

 

6,083

 

Certain operating expenses(4)

 

(624

)

 

 

1,198

 

Net provision for income taxes on non-EAD

 

11,589

 

 

 

10,078

 

Earnings available for distribution to common stockholders(5)

$

17,516

 

 

$

4,725

 

Weighted average basic common shares

 

103,555,755

 

 

 

103,401,940

 

Earnings available for distribution to common stockholders per weighted average basic common share

$

0.17

 

 

$

0.05

 

________________

(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)

Certain operating expenses predominantly consists of expenses incurred in connection with the company’s ongoing litigation with PRCM Advisers LLC. It also includes certain transaction expenses incurred/reversed in connection with the company’s acquisition of RoundPoint Mortgage Servicing LLC.

(5)

EAD is a non-GAAP measure that we define as comprehensive income 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 certain operating 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 certain 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/20240730617547/en/

Margaret Karr, Head of Investor Relations, Two Harbors Investment Corp., (612)-453-4080, Margaret.Karr@twoharborsinvestment.com