Continued Spread Widening Impacted Book Value
but Results in Attractive Opportunities
Two Harbors Investment Corp. (NYSE: TWO), an Agency + MSR
mortgage real estate investment trust (REIT), today announced its
financial results for the quarter ended June 30, 2022.
Quarterly Summary
- Reported book value of $5.10 per common share, representing a
(4.7)% quarterly return on book value(1)
- Generated Comprehensive Loss of $90.4 million, representing an
annualized return on average common equity of (19.1)%
- Reported Earnings Available for Distribution (EAD) of $75.3
million, or $0.22 per weighted average basic common share(2)
- Declared a second quarter common stock dividend of $0.17 per
share
- Grew RMBS portfolio, including TBA, by $3.4 billion, increasing
economic debt-to-equity from 5.3x to 6.4x, as spreads widened out
to attractive levels(3)
Quarterly Summary
- Matrix Financial Services Corporation, a wholly owned
subsidiary of Two Harbors, agreed to acquire all equity interests
in RoundPoint Mortgage Servicing Corporation
“Our performance demonstrated the benefits of the paired Agency
+ MSR strategy during another quarter marked by elevated market
volatility and an overall risk-off sentiment. As mortgage spreads
continued to widen to historically attractive levels, we deployed
capital into RMBS and took advantage of relative value
opportunities across the stack,” stated Bill Greenberg, Two
Harbors’ President, Chief Executive Officer and Chief Investment
Officer. “We are also very excited for our acquisition of
RoundPoint Mortgage Servicing Corporation, which we announced
today, and the opportunity it affords us to enhance our MSR
strategy.”
(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 book value as of the beginning of the
period.
(2)
Earnings Available for Distribution is a
non-GAAP measure. Please see page 11 for a definition of Earnings
Available for Distribution and a reconciliation of GAAP to non-GAAP
financial information.
(3)
Economic debt-to-equity is defined as
total borrowings to fund RMBS, MSR and Agency Derivatives, plus the
implied debt on net TBA cost basis, divided by total equity.
Operating Performance
The following table summarizes the company’s GAAP and non-GAAP
earnings measurements and key metrics for the second quarter of
2022 and first quarter of 2022:
Two Harbors Investment Corp.
Operating Performance (unaudited)
(dollars in thousands, except per
common share data)
Three Months Ended
June 30, 2022
Three Months Ended
March 31, 2022
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 Loss
$
(90,379
)
$
(0.26
)
(19.1
)%
$
(60,322
)
$
(0.18
)
(12.2
)%
GAAP Net (Loss) Income
$
(86,168
)
$
(0.25
)
(18.2
)%
$
271,523
$
0.79
54.9
%
Earnings Available for Distribution(1)
$
75,250
$
0.22
15.9
%
$
61,746
$
0.18
12.5
%
Operating
Metrics
Dividend per common share
$
0.17
$
0.17
Annualized dividend yield(2)
13.7
%
12.3
%
Book value per common share at period
end
$
5.10
$
5.53
Return on book value(3)
(4.7
)%
(2.9
)%
Operating expenses, excluding non-cash
LTIP amortization and nonrecurring expenses(4)
$
14,282
$
13,968
Operating expenses, excluding non-cash
LTIP amortization and nonrecurring expenses, as a percentage of
average equity(4)
2.2
%
2.1
%
________________
(1)
Earnings Available for Distribution, or
EAD, is a non-GAAP measure. Please see page 11 for a definition of
Earnings Available for Distribution 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 $3.5 million for the second quarter of 2022 and $4.2
million for the first quarter of 2022 and nonrecurring expenses of
$2.4 million for the second quarter of 2022 and $0.7 million for
the first quarter of 2022.
Portfolio Summary
As of June 30, 2022, the company’s portfolio was comprised of
$12.0 billion of Agency residential mortgage-backed securities
(RMBS), Agency Derivatives and MSR as well as their associated
notional debt hedges. Additionally, the company held $6.4 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, 2022 and March 31, 2022:
Two Harbors Investment Corp.
Portfolio
(dollars in thousands)
Portfolio Composition
As of June 30, 2022
As of March 31, 2022
(unaudited)
(unaudited)
Agency
Fixed Rate
$ 8,694,737
72.2%
$ 6,950,536
68.9%
Other Agency(1)
31,278
0.3%
37,868
0.4%
Total Agency
8,726,015
72.5%
6,988,404
69.3%
Mortgage servicing rights(2)
3,226,191
26.8%
3,089,963
30.6%
Other
87,490
0.7%
12,530
0.1%
Aggregate Portfolio
12,039,696
10,090,897
Net TBA position(3)
6,397,266
4,730,645
Total Portfolio
$ 18,436,962
$ 14,821,542
Portfolio Metrics
Three Months Ended
June 30, 2022
Three Months Ended
March 31, 2022
(unaudited)
(unaudited)
Average portfolio yield(4)
4.39
%
3.45
%
Average cost of financing(5)
1.13
%
0.70
%
Net spread
3.26
%
2.75
%
________________
Note:
Beginning with the second quarter of 2022, the above presentation
of portfolio yield, cost of financing and net spread includes the
implied asset yield and financing benefit/cost of TBAs. First
quarter 2022 comparative data has been updated to reflect this
change.
(1)
Other Agency includes hybrid ARMs and
Agency derivatives.
(2)
Based on the loans underlying the MSR
reported by subservicers on a month lag, adjusted for current month
purchases.
(3)
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.
(4)
Average portfolio yield includes interest
income on Agency RMBS and non-Agency 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.
(5)
Average cost of financing includes
interest expense and amortization of deferred debt issuance costs
on borrowings, interest spread income/expense and amortization of
upfront payments made or received upon entering into interest rate
swap agreements, 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.
Portfolio Metrics Specific to
RMBS and Agency Derivatives
As of June 30, 2022
As of March 31, 2022
(unaudited)
(unaudited)
Weighted average cost basis of Agency
principal and interest securities(1)
$
102.24
$
104.77
Weighted average three month CPR on Agency
RMBS
14.2
%
17.3
%
Fixed-rate investments as a percentage of
aggregate RMBS and Agency Derivatives portfolio
98.7
%
99.3
%
Adjustable-rate investments as a
percentage of aggregate RMBS and Agency Derivatives portfolio
1.3
%
0.7
%
______________
(1)
Weighted average cost basis includes RMBS
principal and interest securities only. Average purchase price
utilized carrying value for weighting purposes.
Portfolio Metrics Specific to
MSR(1)
As of June 30, 2022
As of March 31, 2022
(dollars in thousands)
(unaudited)
(unaudited)
Unpaid principal balance
$
227,074,413
$
229,415,913
Gross coupon rate
3.2
%
3.2
%
Current loan size
$
330
$
330
Original FICO(2)
760
760
Original LTV
71
%
71
%
60+ day delinquencies
0.8
%
1.0
%
Net servicing fee
26.2 basis points
26.3 basis points
Three Months Ended June
30, 2022
Three Months Ended
March 31, 2022
(unaudited)
(unaudited)
Fair value gains
$
85,557
$
410,624
Servicing income
$
157,526
$
136,626
Servicing expenses
$
24,095
$
24,061
Change in servicing reserves
$
(1,119
)
$
608
________________
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, 2022
As of March 31, 2022
(dollars in thousands)
(unaudited)
(unaudited)
Net long TBA notional amount(1)
$
6,317,000
$
4,622,000
Interest rate swaps notional, utilized to
economically hedge interest rate exposure (or duration)
$
14,850,336
$
24,299,647
Swaptions net notional, utilized as
macroeconomic hedges
(1,680,000
)
(2,761,000
)
Total interest rate swaps and swaptions
notional
$
13,170,336
$
21,538,647
Futures notional
$
(16,727,160
)
$
(7,516,650
)
Options on futures notional
—
2,000
Total futures and options on futures
notional
$
(16,727,160
)
$
(7,514,650
)
________________
(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, 2022 and
March 31, 2022:
June 30, 2022
Balance
Weighted Average Borrowing
Rate
Weighted Average Months to
Maturity
Number of Distinct
Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by
RMBS
$
7,558,247
1.28
%
2.53
21
Repurchase agreements collateralized by
MSR
400,000
5.12
%
7.33
1
Total repurchase agreements
7,958,247
1.48
%
2.77
21
Revolving credit facilities collateralized
by MSR and related servicing advance obligations
825,761
4.93
%
19.76
4
Term notes payable collateralized by
MSR
397,383
4.42
%
23.87
n/a
Unsecured convertible senior notes
281,711
6.25
%
42.58
n/a
Total borrowings
$
9,463,102
March 31, 2022
Balance
Weighted Average Borrowing
Rate
Weighted
Average Months to
Maturity
Number of Distinct
Counterparties
(dollars in thousands, unaudited)
Repurchase agreements collateralized by
RMBS
$
7,472,656
0.40
%
2.22
19
Repurchase agreements collateralized by
MSR
400,000
3.88
%
10.32
1
Total repurchase agreements
7,872,656
0.58
%
2.63
20
Revolving credit facilities collateralized
by MSR and related servicing advance obligations
570,761
3.78
%
9.83
4
Term notes payable collateralized by
MSR
397,074
3.26
%
26.86
n/a
Unsecured convertible senior notes
281,403
6.25
%
45.57
n/a
Total borrowings
$
9,121,894
Borrowings by Collateral
Type
As of June 30, 2022
As of March 31, 2022
(dollars in thousands)
(unaudited)
(unaudited)
Agency RMBS and Agency Derivatives
$
7,510,313
$
7,472,437
Mortgage servicing rights and related
servicing advance obligations
1,623,144
1,367,835
Other - secured
47,934
219
Other - unsecured(1)
281,711
281,403
Total
9,463,102
9,121,894
TBA cost basis
6,409,396
4,737,226
Total, including TBAs
$
15,872,498
$
13,859,120
Debt-to-equity ratio at period-end(2)
3.8 :1.0
3.5 :1.0
Economic debt-to-equity ratio at
period-end(3)
6.4 :1.0
5.3 :1.0
Cost of Financing by
Collateral Type
Three Months Ended
June 30, 2022
Three Months Ended
March 31, 2022
(unaudited)
(unaudited)
Agency RMBS and Agency Derivatives
0.74
%
0.25
%
Mortgage servicing rights and related
servicing advance obligations(4)
4.73
%
4.11
%
Other - secured
2.50
%
2.20
%
Other - unsecured(1)(4)
6.82
%
6.64
%
Annualized cost of financing
1.66
%
0.98
%
Interest rate swaps(5)
0.19
%
0.03
%
TBAs(6)
—
%
(0.06
)%
Annualized cost of financing, including
swaps and TBAs
1.13
%
0.70
%
____________________
(1)
Unsecured convertible senior notes.
(2)
Defined as total borrowings to fund RMBS,
MSR and Agency Derivatives, divided by total equity.
(3)
Defined as total borrowings to fund RMBS,
MSR and Agency Derivatives, plus the implied debt on net TBA cost
basis, divided by total equity.
(4)
Includes amortization of debt issuance
costs.
(5)
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.
(6)
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 4, 2022 at 9:00 a.m. ET to discuss second quarter 2022
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 4, 2022, through 12:00 p.m. ET
on August 18, 2022. The playback can be accessed by calling (877)
660-6853, conference code 13730385. 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 an
internally managed 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. 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, 2021, 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; the
ongoing impact of the COVID-19 pandemic, and the actions taken by
federal and state governmental authorities and GSEs in response, on
the U.S. economy, financial markets and our target assets; 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
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 earnings
available for distribution and earnings available for distribution
per basic common share 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 11 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, 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, 2022
December 31,
2021
(unaudited)
ASSETS
Available-for-sale securities, at fair
value (amortized cost $8,969,612 and $7,005,013, respectively;
allowance for credit losses $9,663 and $14,238, respectively)
$
8,789,437
$
7,161,703
Mortgage servicing rights, at fair
value
3,226,191
2,191,578
Cash and cash equivalents
511,889
1,153,856
Restricted cash
627,725
934,814
Accrued interest receivable
30,254
26,266
Due from counterparties
186,156
168,449
Derivative assets, at fair value
29,330
80,134
Reverse repurchase agreements
158,971
134,682
Other assets
177,497
262,823
Total Assets
$
13,737,450
$
12,114,305
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities:
Repurchase agreements
$
7,958,247
$
7,656,445
Revolving credit facilities
825,761
420,761
Term notes payable
397,383
396,776
Convertible senior notes
281,711
424,827
Derivative liabilities, at fair value
110,764
53,658
Due to counterparties
1,460,561
196,627
Dividends payable
72,591
72,412
Accrued interest payable
21,826
18,382
Other liabilities
124,982
130,464
Total Liabilities
11,253,826
9,370,352
Stockholders’ Equity:
Preferred stock, par value $0.01 per
share; 100,000,000 shares authorized and 29,050,000 shares issued
and outstanding ($726,250 liquidation preference)
702,550
702,550
Common stock, par value $0.01 per share;
700,000,000 shares authorized and 344,433,109 and 343,911,324
shares issued and outstanding, respectively
3,444
3,439
Additional paid-in capital
5,633,201
5,625,179
Accumulated other comprehensive (loss)
income
(149,710
)
186,346
Cumulative earnings
1,425,833
1,212,983
Cumulative distributions to
stockholders
(5,131,694
)
(4,986,544
)
Total Stockholders’ Equity
2,483,624
2,743,953
Total Liabilities and Stockholders’
Equity
$
13,737,450
$
12,114,305
TWO HARBORS INVESTMENT
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(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,
2022
2021
2022
2021
(unaudited)
(unaudited)
Interest income:
Available-for-sale securities
$
55,399
$
43,092
$
100,046
$
98,744
Other
1,604
351
1,803
808
Total interest income
57,003
43,443
101,849
99,552
Interest expense:
Repurchase agreements
19,269
6,981
27,612
15,451
Revolving credit facilities
9,106
7,075
14,782
11,770
Term notes payable
3,925
3,225
7,181
6,436
Convertible senior notes
4,801
7,126
9,843
13,476
Total interest expense
37,101
24,407
59,418
47,133
Net interest income
19,902
19,036
42,431
52,419
Other (loss) income:
(Loss) gain on investment securities
(197,719
)
(41,519
)
(250,061
)
91,349
Servicing income
157,526
112,816
294,152
219,935
Gain (loss) on servicing asset
85,557
(268,051
)
496,181
59,387
Gain (loss) on interest rate swap and
swaption agreements
32,734
24,648
(5,307
)
9,049
(Loss) gain on other derivative
instruments
(101,273
)
51,312
(203,035
)
(224,699
)
Other (loss) income
(73
)
41
(117
)
(5,701
)
Total other (loss) income
(23,248
)
(120,753
)
331,813
149,320
Expenses:
Servicing expenses
22,991
18,680
47,695
43,627
Compensation and benefits
11,019
11,259
23,212
19,447
Other operating expenses
9,152
7,218
15,777
14,705
Total expenses
43,162
37,157
86,684
77,779
(Loss) income before income
taxes
(46,508
)
(138,874
)
287,560
123,960
Provision for (benefit from) income
taxes
25,912
(20,914
)
74,710
1,763
Net (loss) income
(72,420
)
(117,960
)
212,850
122,197
Dividends on preferred stock
13,748
13,747
27,495
30,963
Net (loss) income attributable to
common stockholders
$
(86,168
)
$
(131,707
)
$
185,355
$
91,234
Basic (loss) earnings per weighted average
common share
$
(0.25
)
$
(0.48
)
$
0.54
$
0.33
Diluted (loss) earnings per weighted
average common share
$
(0.25
)
$
(0.48
)
$
0.51
$
0.32
Dividends declared per common share
$
0.17
$
0.17
$
0.34
$
0.34
Weighted average number of shares of
common stock:
Basic
344,277,723
273,718,561
344,138,889
273,714,684
Diluted
344,277,723
273,718,561
384,341,891
305,999,203
TWO HARBORS INVESTMENT
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE 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,
2022
2021
2022
2021
(unaudited)
(unaudited)
Comprehensive loss:
Net (loss) income
$
(72,420
)
$
(117,960
)
$
212,850
$
122,197
Other comprehensive loss, net of
tax:
Unrealized loss on available-for-sale
securities
(4,211
)
(62,899
)
(336,056
)
(334,352
)
Other comprehensive loss
(4,211
)
(62,899
)
(336,056
)
(334,352
)
Comprehensive loss
(76,631
)
(180,859
)
(123,206
)
(212,155
)
Dividends on preferred stock
13,748
13,747
27,495
30,963
Comprehensive loss attributable to
common stockholders
$
(90,379
)
$
(194,606
)
$
(150,701
)
$
(243,118
)
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,
Three Months Ended
March 31,
2022
2022
(unaudited)
(unaudited)
Reconciliation of Comprehensive loss to
Earnings Available for Distribution:
Comprehensive loss attributable to common
stockholders
$
(90,379
)
$
(60,322
)
Adjustment for other comprehensive loss
attributable to common stockholders:
Unrealized loss on available-for-sale
securities
4,211
331,845
Net (loss) income attributable to common
stockholders
$
(86,168
)
$
271,523
Adjustments to exclude reported realized
and unrealized (gains) losses:
Realized loss on securities
187,542
52,394
Unrealized loss (gain) on securities
9,640
(1,166
)
Provision for credit losses
537
1,114
Realized and unrealized gain on mortgage
servicing rights
(85,557
)
(410,624
)
Realized (gain) loss on termination or
expiration of interest rate swaps and swaptions
(246,211
)
56,264
Unrealized loss (gain) on interest rate
swaps and swaptions
209,210
(18,964
)
Realized and unrealized loss on other
derivative instruments
101,577
102,615
Other realized and unrealized losses
73
44
Other adjustments:
MSR amortization(1)
(81,452
)
(67,179
)
TBA dollar roll income(2)
57,702
22,405
U.S. Treasury futures income(3)
(20,602
)
(329
)
Change in servicing reserves
(1,120
)
608
Non-cash equity compensation expense
3,461
4,161
Other nonrecurring expenses
2,428
689
Net provision for income taxes on
non-EAD
24,190
48,191
Earnings available for distribution to
common stockholders(4)
$
75,250
$
61,746
Weighted average basic common shares
344,277,723
343,998,511
Earnings available for distribution to
common stockholders per weighted average basic common share
$
0.22
$
0.18
_____________
(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 loss attributable to common stockholders,
excluding realized and unrealized gains and losses on the aggregate
portfolio, 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/20220803005897/en/
Paulina Sims, Senior Director, Investor Relations, Two Harbors
Investment Corp., (612)446-5431,
Paulina.Sims@twoharborsinvestment.com
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