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Two Harbors Investment Corp. Reports Second Quarter 2021 Financial Results

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, 2021.

Quarterly Summary

  • Reported book value of $6.42 per common share, representing a (9.6)% quarterly return on book value(1)
  • Generated Comprehensive Loss of $194.6 million, representing an annualized return on average common equity of (40.7)%
  • Reported Core Earnings of $51.5 million, or $0.19 per weighted average basic common share(2)
  • Declared a second quarter common stock dividend of $0.17 per share
  • Continued to grow mortgage servicing rights (MSR) portfolio
    • Settled $16.4 billion unpaid principal balance (UPB) generated through flow-sale program
    • Closed on $6.5 billion UPB through bulk transactions

Post Quarter End Update

  • Issued 40 million shares of common stock through an underwritten offering for net proceeds of approximately $256.5 million
  • Expect to settle on outstanding commitments of $17.5 billion UPB of MSR through bulk transactions

“The second quarter saw significant spread widening in high coupon RMBS, which impacted the performance of our portfolio,” stated Bill Greenberg, Two Harbors’ President, Chief Executive Officer and Chief Investment Officer. “While the investing environment in RMBS was challenging, our MSR portfolio has continued to deliver attractive returns. Our recent capital issuance together with our available cash positions the company to deploy capital in MSR, and in RMBS when spreads normalize.”

(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)

Core Earnings is a non-GAAP measure. Please see page 11 for a definition of Core Earnings and a reconciliation of GAAP to non-GAAP financial information.

Operating Performance

The following table summarizes the company’s GAAP and non-GAAP earnings measurements and key metrics for the second quarter of 2021 and first quarter of 2021:

Two Harbors Investment Corp. Operating Performance (unaudited)

(dollars in thousands, except per common share data)

Three Months Ended
June 30, 2021

Three Months Ended
March 31, 2021

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

$

(194,606

)

$

(0.71

)

(40.7

)%

$

(48,512

)

$

(0.18

)

(9.3

)%

GAAP Net (Loss) Income

$

(131,707

)

$

(0.48

)

(27.5

)%

$

222,941

$

0.81

42.8

%

Core Earnings(1)

$

51,519

$

0.19

10.8

%

$

45,830

$

0.17

8.8

%

Operating Metrics

Dividend per common share

$

0.17

$

0.17

Annualized dividend yield(2)

9.0

%

9.3

%

Book value per common share at period end

$

6.42

$

7.29

Return on book value(3)

(9.6

)%

(2.2

)%

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

$

12,469

$

11,914

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

1.9

%

1.6

%

___________

(1)

Please see page 11 for a definition of Core Earnings 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 $4.6 million for the second quarter of 2021 and $1.8 million for the first quarter of 2021 and nonrecurring expenses of $1.4 million for the second quarter of 2021 and $2.0 million for the first quarter of 2021.

Portfolio Summary

The company’s portfolio was comprised of $9.9 billion of Agency residential mortgage-backed securities (RMBS), Agency Derivatives and MSR as well as their associated notional hedges as of June 30, 2021. Additionally, the company held $7.2 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, 2021 and March 31, 2021:

Two Harbors Investment Corp. Portfolio

(dollars in thousands)

Portfolio Composition

As of June 30, 2021

As of March 31, 2021

(unaudited)

(unaudited)

Agency

Fixed Rate

$

7,824,889

78.9

%

$

11,453,989

84.1

%

Other Agency(1)

60,061

0.6

%

64,011

0.4

%

Total Agency

7,884,950

79.5

%

11,518,000

84.5

%

Mortgage servicing rights(2)

2,020,106

20.4

%

2,091,761

15.4

%

Other

5,559

0.1

%

9,219

0.1

%

Aggregate Portfolio

$

9,910,615

$

13,618,980

Net TBA position(3)

7,164,835

5,024,575

Total Portfolio

$

17,075,450

$

18,643,555

Portfolio Metrics

Three Months Ended
June 30, 2021

Three Months Ended
March 31, 2021

(unaudited)

(unaudited)

Annualized portfolio yield during the quarter(4)

2.72

%

2.25

%

Annualized cost of funds on average borrowing balance during the quarter(5)

0.79

%

0.60

%

Annualized net yield for aggregate portfolio during the quarter

1.93

%

1.65

%

________________

(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)

Includes interest income on RMBS and servicing income, net of servicing expenses and amortization on MSR.

(5)

Cost of funds includes interest spread income/expense associated with the portfolio's interest rate swaps.

Portfolio Metrics Specific to RMBS and Agency Derivatives

As of June 30, 2021

As of March 31, 2021

(unaudited)

(unaudited)

Weighted average cost basis of Agency principal and interest securities(6)

$

105.03

$

104.90

Weighted average three month CPR on Agency RMBS

32.3

%

30.8

%

Fixed-rate investments as a percentage of aggregate RMBS and Agency Derivatives portfolio

99.2

%

99.4

%

Adjustable-rate investments as a percentage of aggregate RMBS and Agency Derivatives portfolio

0.8

%

0.6

%

______________

(6)

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, 2021

As of March 31, 2021

(dollars in thousands)

(unaudited)

(unaudited)

Unpaid principal balance

$

185,209,738

$

179,014,244

Gross weighted average coupon

3.5

%

3.6

%

Weighted average original FICO score(2)

758

757

Weighted average original LTV

72

%

73

%

60+ day delinquencies

2.2

%

2.9

%

Net servicing fee

26.5 basis points

26.5 basis points

Three Months Ended
June 30, 2021

Three Months Ended
March 31, 2021

(unaudited)

(unaudited)

Fair value gains

$

(268,051

)

$

327,438

Servicing income

$

112,816

$

107,119

Servicing expenses

$

18,503

$

24,221

Change in servicing reserves

$

163

$

661

________________

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.

(2)

FICO represents a mortgage industry accepted credit score of a borrower.

Other Investments and Risk Management Metrics

As of June 30, 2021

As of March 31, 2021

(dollars in thousands)

(unaudited)

(unaudited)

Net long TBA notional amount(3)

$

6,854,000

$

4,800,000

Interest rate swaps notional, utilized to economically hedge interest rate exposure (or duration)

15,646,953

15,221,597

Swaptions net notional, utilized as macroeconomic hedges

(201,000

)

Total interest rate swaps and swaptions notional

$

15,847,953

$

15,221,597

________________

(3)

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, 2021 and March 31, 2021:

June 30, 2021

Balance

Weighted
Average
Borrowing Rate

Weighted
Average Months
to Maturity

Number of
Distinct
Counterparties

(dollars in thousands, unaudited)

Repurchase agreements collateralized by RMBS

$

8,225,622

0.22

%

2.47

15

Repurchase agreements collateralized by MSR

125,000

4.00

%

9.01

1

Total repurchase agreements

8,350,622

0.28

%

2.56

16

Revolving credit facilities collateralized by MSR and related servicing advance obligations

533,519

3.68

%

13.94

4

Term notes payable collateralized by MSR

396,183

2.89

%

35.87

n/a

Unsecured convertible senior notes

423,742

6.25

%

38.32

n/a

Total borrowings

$

9,704,066

March 31, 2021

Balance

Weighted
Average
Borrowing Rate

Weighted
Average Months
to Maturity

Number of
Distinct
Counterparties

(dollars in thousands, unaudited)

Repurchase agreements collateralized by RMBS

$

11,676,062

0.24

%

3.29

19

Revolving credit facilities collateralized by MSR and related servicing advance obligations

443,458

3.70

%

10.39

4

Term notes payable collateralized by MSR

395,891

2.91

%

38.86

n/a

Unsecured convertible senior notes

423,337

6.25

%

41.31

n/a

Total borrowings

$

12,938,748

Borrowings by Collateral Type

As of June 30, 2021

As of March 31, 2021

(dollars in thousands)

(unaudited)

(unaudited)

Collateral type:

Agency RMBS and Agency Derivatives

$

8,224,426

$

11,674,486

Mortgage servicing rights and related servicing advance obligations

1,054,702

839,349

Other - secured

1,196

1,576

Other - unsecured(1)

423,742

423,337

Total

$

9,704,066

$

12,938,748

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

3.9

:1.0

4.8

:1.0

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

6.5

:1.0

6.4

:1.0

Cost of Funds Metrics

Three Months Ended
June 30, 2021

Three Months Ended
March 31, 2021

(unaudited)

(unaudited)

Annualized cost of funds on average borrowings during the quarter:

0.9

%

0.6

%

Agency RMBS and Agency Derivatives

0.2

%

0.3

%

Mortgage servicing rights and related servicing advance obligations(4)

4.5

%

3.9

%

Other - secured

1.9

%

2.1

%

Other - unsecured(1)(4)

6.7

%

6.8

%

____________________

(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 positions, divided by total equity.

(4)

Includes amortization of debt issuance costs.

Conference Call

Two Harbors Investment Corp. will host a conference call on August 5, 2021 at 9:00 a.m. EDT to discuss second quarter 2021 financial results and related information. To participate in the teleconference, please call toll-free (877) 502-7185, approximately 10 minutes prior to the above start time. You may also listen to the teleconference live via the Internet on the company’s website at www.twoharborsinvestment.com in the Investors section under the Events and Presentations link. For those unable to attend, a telephone playback will be available beginning at 12:00 p.m. EDT on August 5, 2021, through 12:00 p.m. EDT on August 19, 2021. The playback can be accessed by calling (877) 660-6853, conference code 13721255. The call will also be archived on the company’s website in the Investors section under the Events and Presentations link.

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 Minnetonka, 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, 2020, 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 with PRCM Advisers 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 Core Earnings and Core Earnings 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, 601 Carlson Parkway, Suite 1400, Minnetonka, MN, 55305, telephone (612) 453-4100.

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

June 30,
2021

December 31,
2020

(unaudited)

ASSETS

Available-for-sale securities, at fair value (amortized cost $7,547,709 and $14,043,175, respectively; allowance for credit losses $17,765 and $22,528, respectively)

$

7,840,046

$

14,650,922

Mortgage servicing rights, at fair value

2,020,106

1,596,153

Cash and cash equivalents

1,281,230

1,384,764

Restricted cash

866,547

1,261,667

Accrued interest receivable

31,571

47,174

Due from counterparties

85,177

146,433

Derivative assets, at fair value

60,376

95,937

Reverse repurchase agreements

70,000

91,525

Other assets

247,059

241,346

Total Assets

$

12,502,112

$

19,515,921

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Repurchase agreements

$

8,350,622

$

15,143,898

Revolving credit facilities

533,519

283,830

Term notes payable

396,183

395,609

Convertible senior notes

423,742

286,183

Derivative liabilities, at fair value

14,208

11,058

Due to counterparties

119,472

135,838

Dividends payable

60,507

65,480

Accrued interest payable

17,956

21,666

Other liabilities

101,848

83,433

Total Liabilities

10,018,057

16,426,995

Stockholders’ Equity:

Preferred stock, par value $0.01 per share; 100,000,000 shares authorized and 29,050,000 and 40,050,000 shares issued and outstanding, respectively ($726,250 and $1,001,250 liquidation preference, respectively)

702,550

977,501

Common stock, par value $0.01 per share; 700,000,000 shares authorized and 273,718,311 and 273,703,882 shares issued and outstanding, respectively

2,737

2,737

Additional paid-in capital

5,170,387

5,163,794

Accumulated other comprehensive income

307,249

641,601

Cumulative earnings

1,147,953

1,025,756

Cumulative distributions to stockholders

(4,846,821

)

(4,722,463

)

Total Stockholders’ Equity

2,484,055

3,088,926

Total Liabilities and Stockholders’ Equity

$

12,502,112

$

19,515,921

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(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,

2021

2020

2021

2020

(unaudited)

(unaudited)

Interest income:

Available-for-sale securities

$

43,092

$

105,730

$

98,744

$

354,414

Other

351

1,597

808

8,420

Total interest income

43,443

107,327

99,552

362,834

Interest expense:

Repurchase agreements

6,981

50,811

15,451

203,416

Revolving credit facilities

7,075

2,826

11,770

6,357

Term notes payable

3,225

3,553

6,436

8,357

Convertible senior notes

7,126

4,769

13,476

9,545

Federal Home Loan Bank advances

155

1,747

Total interest expense

24,407

62,114

47,133

229,422

Net interest income

19,036

45,213

52,419

133,412

Other (loss) income:

(Loss) gain on investment securities

(41,519

)

53,492

91,349

(1,028,115

)

Servicing income

112,816

112,891

219,935

243,688

(Loss) gain on servicing asset

(268,051

)

(238,791

)

59,387

(825,456

)

Gain (loss) on interest rate swap and swaption agreements

24,648

(46,922

)

9,049

(297,518

)

Gain (loss) on other derivative instruments

51,312

76,606

(224,699

)

(56,862

)

Other income (loss)

41

66

(5,701

)

864

Total other (loss) income

(120,753

)

(42,658

)

149,320

(1,963,399

)

Expenses:

Management fees

11,429

25,979

Servicing expenses

18,680

23,947

43,627

43,852

Compensation and benefits

11,259

8,127

19,447

16,404

Other operating expenses

7,218

5,711

14,705

12,512

Restructuring charges

145,069

145,788

Total expenses

37,157

194,283

77,779

244,535

(Loss) income before income taxes

(138,874

)

(191,728

)

123,960

(2,074,522

)

(Benefit from) provision for income taxes

(20,914

)

(18,164

)

1,763

(31,302

)

Net (loss) income

(117,960

)

(173,564

)

122,197

(2,043,220

)

Dividends on preferred stock

13,747

18,951

30,963

37,901

Net (loss) income attributable to common stockholders

$

(131,707

)

$

(192,515

)

$

91,234

$

(2,081,121

)

Basic (loss) earnings per weighted average common share

$

(0.48

)

$

(0.70

)

$

0.33

$

(7.61

)

Diluted (loss) earnings per weighted average common share

$

(0.48

)

$

(0.70

)

$

0.32

$

(7.61

)

Dividends declared per common share

$

0.17

$

0.19

$

0.34

$

0.19

Weighted average number of shares of common stock:

Basic

273,718,561

273,604,079

273,714,684

273,498,347

Diluted

273,718,561

273,604,079

305,999,203

273,498,347

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
June 30,

Six Months Ended
June 30,

2021

2020

2021

2020

(unaudited)

(unaudited)

Comprehensive (loss) income:

Net (loss) income

$

(117,960

)

$

(173,564

)

$

122,197

$

(2,043,220

)

Other comprehensive (loss) income, net of tax:

Unrealized (loss) gain on available-for-sale securities

(62,899

)

192,794

(334,352

)

(5,276

)

Other comprehensive (loss) income

(62,899

)

192,794

(334,352

)

(5,276

)

Comprehensive (loss) income

(180,859

)

19,230

(212,155

)

(2,048,496

)

Dividends on preferred stock

13,747

18,951

30,963

37,901

Comprehensive (loss) income attributable to common stockholders

$

(194,606

)

$

279

$

(243,118

)

$

(2,086,397

)

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,

2021

2020

(unaudited)

(unaudited)

Reconciliation of Comprehensive loss to Core Earnings:

Comprehensive loss attributable to common stockholders

$

(194,606

)

$

(48,512

)

Adjustment for other comprehensive loss attributable to common stockholders:

Unrealized loss on available-for-sale securities

62,899

271,453

Net (loss) income attributable to common stockholders

$

(131,707

)

$

222,941

Adjustments for non-Core Earnings:

Realized gain on securities

(15,493

)

(69,194

)

Unrealized loss (gain) on securities

49,620

(62,539

)

Provision (reversal of provision) for credit losses

7,392

(1,135

)

Realized and unrealized loss (gain) on mortgage servicing rights

202,651

(390,704

)

Realized (gain) loss on termination or expiration of swaps and swaptions

(8,642

)

6,350

Unrealized (gain) loss on interest rate swaps and swaptions

(13,607

)

10,899

(Gain) loss on other derivative instruments

(24,721

)

294,952

Other loss

5,817

Change in servicing reserves

163

661

Non-cash equity compensation expense

4,611

1,790

Other nonrecurring expenses

1,397

1,971

Net (benefit from) provision for income taxes on non-Core Earnings

(20,145

)

24,021

Core Earnings attributable to common stockholders(1)

$

51,519

$

45,830

Weighted average basic common shares

273,718,561

273,710,765

Core Earnings attributable to common stockholders per weighted average basic common share

$

0.19

$

0.17

_____________

(1)

Core Earnings is a non-U.S. GAAP measure that we define as comprehensive (loss) income attributable to common stockholders, excluding “realized and unrealized gains and losses” (impairment losses, provision for credit losses, realized and unrealized gains and losses on the aggregate portfolio, reserve expense for representation and warranty obligations on MSR, non-cash compensation expense related to restricted common stock, other nonrecurring expenses and restructuring charges). As defined, Core Earnings includes net interest income, accrual and settlement of interest on derivatives, dollar roll income on TBAs, servicing income, net of estimated amortization on MSR, management fees and recurring cash related operating expenses. Dollar roll income is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. Core Earnings provides supplemental information to assist investors in analyzing the Company’s results of operations and helps facilitate comparisons to industry peers.

TWO HARBORS INVESTMENT CORP.

SUMMARY OF QUARTERLY CORE EARNINGS

(dollars in millions, except per share data)

Certain prior period amounts have been reclassified to conform to the current period presentation

Three Months Ended

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

(unaudited)

Net Interest Income:

Interest income

$

43.4

$

56.1

$

72.5

$

89.7

$

107.3

Interest expense

24.4

22.7

22.6

29.2

62.1

Net interest income

19.0

33.4

49.9

60.5

45.2

Other income:

Servicing income, net of amortization(1)

47.4

43.8

41.1

42.2

51.0

Interest spread on interest rate swaps

2.4

1.7

2.0

0.8

(56.3

)

Gain on other derivative instruments

26.6

18.9

43.5

32.9

11.9

Other income

0.1

0.1

0.1

0.1

Total other income

76.4

64.5

86.7

76.0

6.7

Expenses

31.0

36.2

37.3

43.5

46.8

Core Earnings before income taxes

64.4

61.7

99.3

93.0

5.1

Income tax (benefit) expense

(0.8

)

(1.3

)

(1.7

)

(1.5

)

0.6

Core Earnings

65.2

63.0

101.0

94.5

4.5

Dividends on preferred stock

13.7

17.2

19.0

18.9

19.0

Core Earnings attributable to common stockholders(2)

$

51.5

$

45.8

$

82.0

$

75.6

$

(14.5

)

Weighted average basic Core EPS

$

0.19

$

0.17

$

0.30

$

0.28

$

(0.05

)

Core earnings return on average common equity

10.8

%

8.8

%

15.9

%

15.7

%

(3.1

)%

________________

(1)

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. This amortization has been deducted from Core Earnings. Amortization of MSR is deemed a non-GAAP measure due to the company’s decision to account for MSR at fair value.

(2)

Please see page 11 for a definition of Core Earnings and a reconciliation of GAAP to non-GAAP financial information.

Contacts:

Paulina Sims, Senior Director, Investor Relations, Two Harbors Investment Corp., (612) 446-5431, Paulina.Sims@twoharborsinvestment.com

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