Book Value Impacted as Spreads Continued to
Widen Beyond Historical Levels
Two Harbors Investment Corp. (NYSE: TWO), an Agency + MSR
mortgage real estate investment trust (REIT), today announced its
financial results for the quarter ended September 30, 2022.
Quarterly Summary(1)
- Reported book value of $16.42 per common share, representing a
(16.2)% quarterly economic return on book value(2)
- Generated Comprehensive Loss of $287.8 million, or $(3.35) per
weighted average basic common share
- Reported Earnings Available for Distribution (EAD) of $55.2
million, or $0.64 per weighted average basic common share(3)
- Declared a third quarter common stock dividend of $0.68 per
share
- GAAP debt-to-equity increased to 5.5x from 3.8x; economic
debt-to-equity increased to 7.5x from 6.4x as the impact of the
book value decline more than offset a $1.6 billion decline in our
Agency RMBS and TBA position(4)(5)
- Settled on sales of approximately $20 billion unpaid principal
balance (UPB) of mortgage servicing rights (MSR)
Post-Quarter End Update
- Repurchased approximately 2.9 million shares of preferred
stock, contributing $0.26 to book value per common share
- On November 1, 2022, effected the previously announced
one-for-four reverse stock split of outstanding shares of common
stock
“Our portfolio performance reflects one of the most challenging
market environments in decades, and mortgage spreads widened to
levels not seen except in crisis periods,” stated Bill Greenberg,
Two Harbors’ President and Chief Executive Officer. “With the
significant cheapening in RMBS, we are very constructive on
forward-looking return potential, while being mindful of remaining
risks.”
“With the 30-year mortgage rate 400 basis points higher than a
year ago at around 7%, and with the economy softening, we expect
prepayment speeds to be below those from previous discount
environments,” stated Nick Letica, Two Harbors’ Chief Investment
Officer. “We are well-positioned to benefit from slower speeds with
our portfolio of low coupon MSR and high coupon RMBS.”
(1)
On November 1, 2022, the company
completed its previously announced one-for-four reverse stock split
of its outstanding shares of common stock. In accordance with
generally accepted accounting principles, all common share and per
common share amounts presented herein have been adjusted on a
retroactive basis to reflect the reverse stock split.
(2)
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.
(3)
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.
(4)
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.
(5)
Net TBA Position represents the
bond equivalent value of the company’s TBA position. Bond
equivalent value is defined as notional amount multiplied by market
price. Accounted for as derivative instruments in accordance with
GAAP.
Operating Performance
The following table summarizes the company’s GAAP and non-GAAP
earnings measurements and key metrics for the third quarter of 2022
and second quarter of 2022:
Two Harbors Investment Corp.
Operating Performance (unaudited)
(dollars in thousands, except per
common share data)
Three Months Ended
September 30, 2022
Three Months Ended June
30, 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
$
(287,808
)
$
(3.35
)
(67.9
) %
$
(90,379
)
$
(1.05
)
(19.1
)%
GAAP Net Income (Loss)
$
263,865
$
3.04
62.3
%
$
(86,168
)
$
(1.00
)
(18.2
)%
Earnings Available for Distribution(1)
$
55,173
$
0.64
13.0
%
$
75,250
$
0.87
15.9
%
Operating
Metrics
Dividend per common share
$
0.68
$
0.68
Annualized dividend yield(2)
20.5
%
13.7
%
Book value per common share at period
end
$
16.42
$
20.41
Economic return on book value(3)
(16.2
)%
(4.7
)%
Operating expenses, excluding non-cash
LTIP amortization and nonrecurring expenses(4)
$
13,404
$
14,282
Operating expenses, excluding non-cash
LTIP amortization and nonrecurring expenses, as a percentage of
average equity(4)
2.2
%
2.2
%
________________
(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)
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 $2.4 million for the third quarter of 2022
and $3.5 million for the second quarter of 2022 and nonrecurring
expenses of $5.0 million for the third quarter of 2022 and $2.4
million for the second quarter of 2022.
Portfolio Summary
As of September 30, 2022, the company’s portfolio was comprised
of $12.5 billion of Agency residential mortgage-backed securities
(RMBS), Agency Derivatives and MSR as well as their associated
notional debt hedges. Additionally, the company held $4.1 billion
bond equivalent value of net long to-be-announced securities
(TBAs).
The following tables summarize the company’s investment
portfolio as of September 30, 2022 and June 30, 2022:
Two Harbors Investment Corp.
Portfolio
(dollars in thousands)
Portfolio Composition
As of September 30,
2022
As of June 30, 2022
(unaudited)
(unaudited)
Agency
Fixed Rate
$
9,237,881
73.8
%
$
8,694,737
72.2
%
Other Agency(1)
127,612
1.0
%
31,278
0.3
%
Total Agency
9,365,493
74.8
%
8,726,015
72.5
%
Mortgage servicing rights(2)
3,021,790
24.2
%
3,226,191
26.8
%
Other
124,860
1.0
%
87,490
0.7
%
Aggregate Portfolio
12,512,143
12,039,696
Net TBA position(3)
4,047,890
6,397,266
Total Portfolio
$
16,560,033
$
18,436,962
Portfolio Metrics
Three Months Ended
September 30, 2022
Three Months Ended June
30, 2022
(unaudited)
(unaudited)
Average portfolio yield(4)
4.61
%
4.39
%
Average cost of financing(5)
2.84
%
1.69
%
Net spread
1.77
%
2.70
%
________________
Note: Beginning with the third
quarter of 2022, the above presentation of cost of financing and
net spread includes U.S. Treasury futures income, which represents
the economic equivalent to holding and financing a relevant
cheapest-to-deliver U.S. Treasury note or bond using short-term
repurchase agreements. Second quarter 2022 comparative data has
been updated to reflect this change.
(1)
Other Agency includes hybrid ARMs
and inverse interest-only Agency securities classified as “Agency
Derivatives” for purposes of GAAP.
(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, 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
RMBS and Agency Derivatives
As of September 30,
2022
As of June 30, 2022
(unaudited)
(unaudited)
Weighted average cost basis of Agency
principal and interest securities(1)
$
102.84
$
102.24
Weighted average three month CPR on Agency
RMBS
9.1
%
14.2
%
Fixed-rate investments as a percentage of
aggregate RMBS and Agency Derivatives portfolio
97.8
%
98.7
%
Adjustable-rate investments as a
percentage of aggregate RMBS and Agency Derivatives portfolio
2.2
%
1.3
%
______________
(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 September 30,
2022
As of June 30, 2022
(dollars in thousands)
(unaudited)
(unaudited)
Unpaid principal balance
$
206,613,560
$
227,074,413
Gross coupon rate
3.2
%
3.2
%
Current loan size
$
335
$
330
Original FICO(2)
760
760
Original LTV
72
%
71
%
60+ day delinquencies
0.7
%
0.8
%
Net servicing fee
26.4 basis points
26.2 basis points
Three Months Ended
September 30, 2022
Three Months Ended June
30, 2022
(unaudited)
(unaudited)
Fair value (losses) gains
$
(6,720
)
$
85,557
Servicing income
$
148,833
$
157,526
Servicing expenses
$
22,144
$
24,095
Change in servicing reserves
$
(1,005
)
$
(1,119
)
________________
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 September 30,
2022
As of June 30, 2022
(dollars in thousands)
(unaudited)
(unaudited)
Net long TBA notional amount(1)
$
4,154,000
$
6,317,000
Futures notional
$
(15,296,550
)
$
(16,727,160
)
Interest rate swaps notional
$
—
$
14,850,336
Swaptions net notional
—
(1,680,000
)
Total interest rate swaps and swaptions
notional
$
—
$
13,170,336
________________
(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 September 30, 2022
and June 30, 2022:
September 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
$
9,640,018
3.19
%
3.15
21
Repurchase agreements collateralized by
MSR
394,000
6.57
%
4.31
1
Total repurchase agreements
10,034,018
3.32
%
3.19
21
Revolving credit facilities collateralized
by MSR and related servicing advance obligations
1,131,161
6.40
%
16.54
4
Term notes payable collateralized by
MSR
397,697
5.88
%
20.84
n/a
Unsecured convertible senior notes
282,096
6.25
%
39.55
n/a
Total borrowings
$
11,844,972
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
Borrowings by Collateral
Type
As of September 30,
2022
As of June 30, 2022
(dollars in thousands)
(unaudited)
(unaudited)
Agency RMBS and Agency Derivatives
$
9,563,755
$
7,510,313
Mortgage servicing rights and related
servicing advance obligations
1,922,858
1,623,144
Other - secured
76,263
47,934
Other - unsecured(1)
282,096
281,711
Total
11,844,972
9,463,102
TBA cost basis
4,153,582
6,409,396
Total, including TBAs
$
15,998,554
$
15,872,498
Debt-to-equity ratio at period-end(2)
5.5 :1.0
3.8 :1.0
Economic debt-to-equity ratio at
period-end(3)
7.5 :1.0
6.4 :1.0
Cost of Financing by
Collateral Type
Three Months Ended
September 30, 2022
Three Months Ended June
30, 2022
(unaudited)
(unaudited)
Agency RMBS and Agency Derivatives
2.30
%
0.74
%
Mortgage servicing rights and related
servicing advance obligations(4)
6.19
%
4.73
%
Other - secured
4.00
%
2.50
%
Other - unsecured(1)(4)
6.92
%
6.82
%
Annualized cost of financing
3.04
%
1.66
%
Interest rate swaps(5)
(0.01
) %
0.19
%
U.S. Treasury futures(6)
0.61
%
0.92
%
TBAs(7)
1.31
%
—
%
Annualized cost of financing, including
swaps, U.S. Treasury futures and TBAs
2.84
%
1.69
%
____________________
(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 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.
(7)
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
November 9, 2022 at 9:00 a.m. ET to discuss third 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 November 9, 2022, through 12:00 p.m.
ET on November 23, 2022. The playback can be accessed by calling
(877) 660-6853, conference code 13732431. 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, 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
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)
September 30,
2022
December 31,
2021
(unaudited)
ASSETS
Available-for-sale securities, at fair
value (amortized cost $10,228,511 and $7,005,013, respectively;
allowance for credit losses $8,535 and $14,238, respectively)
$
9,473,843
$
7,161,703
Mortgage servicing rights, at fair
value
3,021,790
2,191,578
Cash and cash equivalents
732,482
1,153,856
Restricted cash
842,534
934,814
Accrued interest receivable
37,701
26,266
Due from counterparties
215,473
168,449
Derivative assets, at fair value
18,406
80,134
Reverse repurchase agreements
207,206
134,682
Other assets
146,122
262,823
Total Assets
$
14,695,557
$
12,114,305
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities:
Repurchase agreements
$
10,034,018
$
7,656,445
Revolving credit facilities
1,131,161
420,761
Term notes payable
397,697
396,776
Convertible senior notes
282,096
424,827
Derivative liabilities, at fair value
107,379
53,658
Due to counterparties
348,176
196,627
Dividends payable
72,802
72,412
Accrued interest payable
48,592
18,382
Other liabilities
129,159
130,464
Total Liabilities
12,551,080
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;
175,000,000 shares authorized and 86,371,867 and 85,977,831 shares
issued and outstanding, respectively
864
860
Additional paid-in capital
5,643,493
5,627,758
Accumulated other comprehensive (loss)
income
(701,383
)
186,346
Cumulative earnings
1,703,445
1,212,983
Cumulative distributions to
stockholders
(5,204,492
)
(4,986,544
)
Total Stockholders’ Equity
2,144,477
2,743,953
Total Liabilities and Stockholders’
Equity
$
14,695,557
$
12,114,305
TWO HARBORS INVESTMENT
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(dollars in thousands, except
share data)
Certain prior period amounts have
been reclassified to conform to the current period presentation
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
(unaudited)
(unaudited)
Interest income:
Available-for-sale securities
$
88,472
$
35,837
$
188,518
$
134,581
Other
5,916
203
7,719
1,011
Total interest income
94,388
36,040
196,237
135,592
Interest expense:
Repurchase agreements
57,868
5,761
85,480
21,212
Revolving credit facilities
15,178
5,605
29,960
17,375
Term notes payable
5,427
3,249
12,608
9,685
Convertible senior notes
4,877
7,267
14,720
20,743
Total interest expense
83,350
21,882
142,768
69,015
Net interest income
11,038
14,158
53,469
66,577
Other income:
(Loss) gain on investment securities
(6,426
)
28,642
(256,487
)
119,991
Servicing income
148,833
122,960
442,985
342,895
(Loss) gain on servicing asset
(6,720
)
(42,500
)
489,461
16,887
Gain (loss) on interest rate swap and
swaption agreements
34,806
(3,947
)
29,499
5,102
Gain (loss) on other derivative
instruments
159,044
(15,019
)
(43,991
)
(239,718
)
Other loss
—
—
(117
)
(5,701
)
Total other income
329,537
90,136
661,350
239,456
Expenses:
Servicing expenses
21,152
21,041
68,847
64,668
Compensation and benefits
10,100
9,198
33,312
28,645
Other operating expenses
10,688
7,406
26,465
22,111
Total expenses
41,940
37,645
128,624
115,424
Income before income taxes
298,635
66,649
586,195
190,609
Provision for income taxes
21,023
325
95,733
2,088
Net income
277,612
66,324
490,462
188,521
Dividends on preferred stock
13,747
13,748
41,242
44,711
Net income attributable to common
stockholders
$
263,865
$
52,576
$
449,220
$
143,810
Basic earnings per weighted average common
share
$
3.04
$
0.68
$
5.19
$
2.01
Diluted earnings per weighted average
common share
$
2.78
$
0.66
$
4.80
$
1.95
Dividends declared per common share
$
0.68
$
0.68
$
2.04
$
2.04
Weighted average number of shares of
common stock:
Basic
86,252,104
76,943,355
86,107,979
71,298,088
Diluted
96,132,100
86,682,518
96,120,844
79,991,529
TWO HARBORS INVESTMENT
CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME, CONTINUED
(dollars in thousands)
Certain prior period amounts have
been reclassified to conform to the current period presentation
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
(unaudited)
(unaudited)
Comprehensive (loss) income:
Net income
$
277,612
$
66,324
$
490,462
$
188,521
Other comprehensive loss, net of
tax:
Unrealized loss on available-for-sale
securities
(551,673
)
(7,350
)
(887,729
)
(341,702
)
Other comprehensive loss
(551,673
)
(7,350
)
(887,729
)
(341,702
)
Comprehensive (loss) income
(274,061
)
58,974
(397,267
)
(153,181
)
Dividends on preferred stock
13,747
13,748
41,242
44,711
Comprehensive (loss) income
attributable to common stockholders
$
(287,808
)
$
45,226
$
(438,509
)
$
(197,892
)
TWO HARBORS INVESTMENT
CORP.
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL INFORMATION
(dollars in thousands, except
share data)
Certain prior period amounts have
been reclassified to conform to the current period presentation
Three Months Ended
September 30,
Three Months Ended June
30,
2022
2022
(unaudited)
(unaudited)
Reconciliation of Comprehensive loss to
Earnings Available for Distribution:
Comprehensive loss attributable to common
stockholders
$
(287,808
)
$
(90,379
)
Adjustment for other comprehensive loss
attributable to common stockholders:
Unrealized loss on available-for-sale
securities
551,673
4,211
Net income (loss) attributable to common
stockholders
$
263,865
$
(86,168
)
Adjustments to exclude reported realized
and unrealized (gains) losses:
Realized (gain) loss on securities
(18,265
)
187,542
Unrealized loss on securities
23,294
9,640
Provision for credit losses
1,397
537
Realized and unrealized loss (gain) on
mortgage servicing rights
6,720
(85,557
)
Realized loss (gain) on termination or
expiration of interest rate swaps and swaptions
146,750
(246,211
)
Unrealized (gain) loss on interest rate
swaps and swaptions
(181,378
)
209,210
Realized and unrealized (gain) loss on
other derivative instruments
(158,891
)
101,577
Other realized and unrealized losses
—
73
Other adjustments:
MSR amortization(1)
(75,585
)
(81,452
)
TBA dollar roll income(2)
37,832
57,702
U.S. Treasury futures income(3)
(16,643
)
(20,602
)
Change in servicing reserves
(1,005
)
(1,120
)
Non-cash equity compensation expense
2,355
3,461
Other nonrecurring expenses
5,029
2,428
Net provision for income taxes on
non-EAD
19,698
24,190
Earnings available for distribution to
common stockholders(4)
$
55,173
$
75,250
Weighted average basic common shares
86,252,104
86,069,431
Earnings available for distribution to
common stockholders per weighted average basic common share
$
0.64
$
0.87
_____________
(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) income 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/20221108006151/en/
Paulina Sims, Senior Director, Investor Relations, Two Harbors
Investment Corp., (612)446-5431,
Paulina.Sims@twoharborsinvestment.com
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