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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Two Harbors Investment Corporation | NYSE:TWO | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.095 | -0.72% | 13.055 | 13.36 | 13.04 | 13.25 | 472,544 | 18:08:15 |
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)
Post-Quarter End Update
“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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