Maryland | 001-34506 | 27-0312904 | |||||||||
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
|||||||||
1601 Utica Avenue South, Suite 900 | St. Louis Park, | MN |
55416 |
||||||||
(Address of Principal Executive Offices) |
(Zip Code) |
Title of Each Class: | Trading Symbol(s) | Name of Exchange on Which Registered: | ||||||||||||
Common Stock, par value $0.01 per share | TWO | New York Stock Exchange | ||||||||||||
8.125% Series A Cumulative Redeemable Preferred Stock | TWO PRA | New York Stock Exchange | ||||||||||||
7.625% Series B Cumulative Redeemable Preferred Stock | TWO PRB | New York Stock Exchange | ||||||||||||
7.25% Series C Cumulative Redeemable Preferred Stock | TWO PRC | New York Stock Exchange |
Item 9.01 | Financial Statements and Exhibits. |
Exhibit No. | Description | |||||||
99.1 | ||||||||
99.2 | ||||||||
104 | Cover Page Interactive Data File, formatted in Inline XBRL. |
TWO HARBORS INVESTMENT CORP. | ||||||||
By: | /s/ REBECCA B. SANDBERG | |||||||
Rebecca B. Sandberg | ||||||||
General Counsel and Secretary | ||||||||
Date: July 30, 2024 |
Two Harbors Investment Corp. Operating Performance (unaudited) | |||||||||||||||||||||||||||||||||||
(dollars in thousands, except per common share data) | |||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2024 | Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||||
Earnings attributable to common stockholders |
Earnings |
Per weighted average basic common share |
Annualized return on average common equity |
Earnings |
Per weighted average basic common share |
Annualized return on average common equity |
|||||||||||||||||||||||||||||
Comprehensive Income | $ | 479 | $ | — | 0.1 | % | $ | 89,370 | $ | 0.85 | 22.4 | % | |||||||||||||||||||||||
GAAP Net Income | $ | 44,552 | $ | 0.43 | 11.1 | % | $ | 192,448 | $ | 1.85 | 48.2 | % | |||||||||||||||||||||||
Earnings Available for Distribution(1) |
$ | 17,516 | $ | 0.17 | 4.4 | % | $ | 4,725 | $ | 0.05 | 1.2 | % | |||||||||||||||||||||||
Operating Metrics |
|||||||||||||||||||||||||||||||||||
Dividend per common share | $ | 0.45 | $ | 0.45 | |||||||||||||||||||||||||||||||
Annualized dividend yield(2) |
13.6 | % | 13.6 | % | |||||||||||||||||||||||||||||||
Book value per common share at period end | $ | 15.19 | $ | 15.64 | |||||||||||||||||||||||||||||||
Economic return on book value(3) |
— | % | 5.8 | % | |||||||||||||||||||||||||||||||
Operating expenses, excluding non-cash LTIP amortization and certain operating expenses(4) |
$ | 37,924 | $ | 40,300 | |||||||||||||||||||||||||||||||
Operating expenses, excluding non-cash LTIP amortization and certain operating expenses, as a percentage of average equity(4) |
6.8 | % | 7.2 | % |
Two Harbors Investment Corp. Portfolio | ||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||
Portfolio Composition | As of June 30, 2024 | As of March 31, 2024 | ||||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||
Agency RMBS | $ | 8,035,395 | 72.4 | % | $ | 8,188,432 | 72.6 | % | ||||||||||||||||||
Mortgage servicing rights(1) |
3,065,415 | 27.6 | % | 3,084,879 | 27.4 | % | ||||||||||||||||||||
Other | 3,942 | — | % | 3,953 | — | % | ||||||||||||||||||||
Aggregate Portfolio | 11,104,752 | 11,277,264 | ||||||||||||||||||||||||
Net TBA position(2) |
4,940,593 | 3,433,417 | ||||||||||||||||||||||||
Total Portfolio | $ | 16,045,345 | $ | 14,710,681 |
Portfolio Metrics Specific to Agency RMBS | As of June 30, 2024 | As of March 31, 2024 | ||||||||||||
(unaudited) |
(unaudited) |
|||||||||||||
Weighted average cost basis(1) |
$ | 101.28 | $ | 100.70 | ||||||||||
Weighted average experienced three-month CPR | 7.3 | % | 4.8 | % | ||||||||||
Gross weighted average coupon rate | 5.8 | % | 5.6 | % | ||||||||||
Weighted average loan age (months) | 31 | 30 |
Portfolio Metrics Specific to MSR(1) |
As of June 30, 2024 | As of March 31, 2024 | ||||||||||||
(dollars in thousands) |
(unaudited) | (unaudited) |
||||||||||||
Unpaid principal balance | $ | 209,389,409 | $ | 213,596,880 | ||||||||||
Gross coupon rate | 3.5 | % | 3.5 | % | ||||||||||
Current loan size | $ | 333 | $ | 335 | ||||||||||
Original FICO(2) |
759 | 759 | ||||||||||||
Original LTV | 71 | % | 72 | % | ||||||||||
60+ day delinquencies | 0.7 | % | 0.7 | % | ||||||||||
Net servicing fee | 25.3 basis points | 25.3 basis points | ||||||||||||
Three Months Ended June 30, 2024 | Three Months Ended March 31, 2024 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||
Fair value (losses) gains | $ | (22,857) | $ | 11,012 | ||||||||||
Servicing income | $ | 169,882 | $ | 160,928 | ||||||||||
Servicing costs | $ | 5,214 | $ | 6,904 | ||||||||||
Change in servicing reserves | $ | (739) | $ | 215 |
Other Investments and Risk Management Metrics |
As of June 30, 2024 | As of March 31, 2024 | ||||||||||||
(dollars in thousands) |
(unaudited) |
(unaudited) |
||||||||||||
Net long TBA notional(1) |
$ | 4,983,000 | $ | 3,450,000 | ||||||||||
Futures notional |
$ | (6,308,900) | $ | (5,638,800) | ||||||||||
Interest rate swaps notional |
$ | 11,739,471 | $ | 9,822,112 | ||||||||||
June 30, 2024 | Balance |
Weighted Average Borrowing Rate |
Weighted Average Months to Maturity |
Number of Distinct Counterparties |
||||||||||||||||||||||
(dollars in thousands, unaudited) | ||||||||||||||||||||||||||
Repurchase agreements collateralized by securities | $ | 7,834,910 | 5.48 | % | 2.78 | 18 | ||||||||||||||||||||
Repurchase agreements collateralized by MSR | 600,000 | 8.49 | % | 22.72 | 1 | |||||||||||||||||||||
Total repurchase agreements | 8,434,910 | 5.69 | % | 4.20 | 19 | |||||||||||||||||||||
Revolving credit facilities collateralized by MSR and related servicing advance obligations |
1,279,271 | 8.45 | % | 20.25 | 4 | |||||||||||||||||||||
Term notes payable collateralized by MSR | — | — | % | — | n/a | |||||||||||||||||||||
Unsecured convertible senior notes | 259,412 | 6.25 | % | 18.54 | n/a | |||||||||||||||||||||
Total borrowings | $ | 9,973,593 |
March 31, 2024 | Balance |
Weighted Average Borrowing Rate |
Weighted Average Months to Maturity |
Number of Distinct Counterparties |
||||||||||||||||||||||
(dollars in thousands, unaudited) | ||||||||||||||||||||||||||
Repurchase agreements collateralized by securities | $ | 8,102,661 | 5.52 | % | 2.91 | 18 | ||||||||||||||||||||
Repurchase agreements collateralized by MSR | 258,977 | 6.92 | % | 5.28 | 3 | |||||||||||||||||||||
Total repurchase agreements | 8,361,638 | 5.61 | % | 2.98 | 19 | |||||||||||||||||||||
Revolving credit facilities collateralized by MSR and related servicing advance obligations |
1,357,671 | 8.56 | % | 15.32 | 4 | |||||||||||||||||||||
Term notes payable collateralized by MSR | 295,520 | 8.24 | % | 2.83 | n/a | |||||||||||||||||||||
Unsecured convertible senior notes | 268,953 | 6.25 | % | 21.53 | n/a | |||||||||||||||||||||
Total borrowings | $ | 10,283,782 |
Borrowings by Collateral Type | As of June 30, 2024 | As of March 31, 2024 | ||||||||||||
(dollars in thousands) | (unaudited) | (unaudited) | ||||||||||||
Agency RMBS | $ | 7,834,693 | $ | 8,102,444 | ||||||||||
Mortgage servicing rights and related servicing advance obligations | 1,879,271 | 1,912,168 | ||||||||||||
Other - secured | 217 | 217 | ||||||||||||
Other - unsecured(1) |
259,412 | 268,953 | ||||||||||||
Total | 9,973,593 | 10,283,782 | ||||||||||||
TBA cost basis | 4,950,762 | 3,421,932 | ||||||||||||
Net payable (receivable) for unsettled RMBS | — | (213,264) | ||||||||||||
Total, including TBAs and net payable (receivable) for unsettled RMBS | $ | 14,924,355 | $ | 13,492,450 | ||||||||||
Debt-to-equity ratio at period-end(2) |
4.5 | :1.0 | 4.6 | :1.0 | ||||||||||
Economic debt-to-equity ratio at period-end(3) |
6.8 | :1.0 | 6.0 | :1.0 | ||||||||||
Cost of Financing by Collateral Type(4) |
Three Months Ended June 30, 2024 | Three Months Ended March 31, 2024 | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||
Agency RMBS | 5.54 | % | 5.63 | % | ||||||||||
Mortgage servicing rights and related servicing advance obligations(5) |
8.99 | % | 9.08 | % | ||||||||||
Other - secured | 5.53 | % | 6.99 | % | ||||||||||
Other - unsecured(1)(5) |
6.89 | % | 6.87 | % | ||||||||||
Annualized cost of financing | 6.23 | % | 6.30 | % | ||||||||||
Interest rate swaps(6) |
(0.61) | % | (0.56) | % | ||||||||||
U.S. Treasury futures(7) |
(0.29) | % | (0.30) | % | ||||||||||
TBAs(8) |
3.44 | % | 3.57 | % | ||||||||||
Annualized cost of financing, including swaps, U.S. Treasury futures and TBAs |
4.76 | % | 5.02 | % |
TWO HARBORS INVESTMENT CORP. | |||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
(dollars in thousands, except share data) | |||||||||||
June 30, 2024 |
December 31, 2023 |
||||||||||
(unaudited) | |||||||||||
ASSETS | |||||||||||
Available-for-sale securities, at fair value (amortized cost $8,359,346 and $8,509,383, respectively; allowance for credit losses $3,340 and $3,943, respectively) |
$ | 8,029,955 | $ | 8,327,149 | |||||||
Mortgage servicing rights, at fair value | 3,065,415 | 3,052,016 | |||||||||
Cash and cash equivalents | 624,199 | 729,732 | |||||||||
Restricted cash | 162,623 | 65,101 | |||||||||
Accrued interest receivable | 35,993 | 35,339 | |||||||||
Due from counterparties | 372,192 | 323,224 | |||||||||
Derivative assets, at fair value | 13,519 | 85,291 | |||||||||
Reverse repurchase agreements | 349,660 | 284,091 | |||||||||
Other assets | 196,161 | 236,857 | |||||||||
Total Assets | $ | 12,849,717 | $ | 13,138,800 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Liabilities: | |||||||||||
Repurchase agreements | $ | 8,434,910 | $ | 8,020,207 | |||||||
Revolving credit facilities | 1,279,271 | 1,329,171 | |||||||||
Term notes payable | — | 295,271 | |||||||||
Convertible senior notes | 259,412 | 268,582 | |||||||||
Derivative liabilities, at fair value | 14,264 | 21,506 | |||||||||
Due to counterparties | 352,117 | 574,735 | |||||||||
Dividends payable | 58,729 | 58,731 | |||||||||
Accrued interest payable | 85,680 | 141,773 | |||||||||
Other liabilities | 170,037 | 225,434 | |||||||||
Total Liabilities | 10,654,420 | 10,935,410 | |||||||||
Stockholders’ Equity: | |||||||||||
Preferred stock, par value $0.01 per share; 100,000,000 shares authorized and 24,870,817 and 25,356,426 shares issued and outstanding, respectively ($621,770 and $633,911 liquidation preference, respectively) | 601,467 | 613,213 | |||||||||
Common stock, par value $0.01 per share; 175,000,000 shares authorized and 103,622,239 and 103,206,457 shares issued and outstanding, respectively | 1,036 | 1,032 | |||||||||
Additional paid-in capital | 5,933,250 | 5,925,424 | |||||||||
Accumulated other comprehensive loss | (323,580) | (176,429) | |||||||||
Cumulative earnings | 1,610,541 | 1,349,973 | |||||||||
Cumulative distributions to stockholders | (5,627,417) | (5,509,823) | |||||||||
Total Stockholders’ Equity | 2,195,297 | 2,203,390 | |||||||||
Total Liabilities and Stockholders’ Equity | $ | 12,849,717 | $ | 13,138,800 |
TWO HARBORS INVESTMENT CORP. | |||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||||||||
(dollars in thousands, except share data) | |||||||||||||||||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | |||||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||
Net interest income (expense): | |||||||||||||||||||||||
Interest income | $ | 115,953 | $ | 117,762 | $ | 233,736 | $ | 234,355 | |||||||||||||||
Interest expense | 154,207 | 159,561 | 314,207 | 302,051 | |||||||||||||||||||
Net interest expense | (38,254) | (41,799) | (80,471) | (67,696) | |||||||||||||||||||
Net servicing income: | |||||||||||||||||||||||
Servicing income | 176,015 | 175,223 | 342,348 | 328,543 | |||||||||||||||||||
Servicing costs | 4,475 | 25,190 | 11,594 | 53,556 | |||||||||||||||||||
Net servicing income | 171,540 | 150,033 | 330,754 | 274,987 | |||||||||||||||||||
Other (loss) income: | |||||||||||||||||||||||
(Loss) gain on investment securities | (22,437) | 2,172 | (33,412) | 12,970 | |||||||||||||||||||
(Loss) gain on servicing asset | (22,857) | 21,679 | (11,845) | (6,400) | |||||||||||||||||||
Gain (loss) on interest rate swap and swaption agreements | 22,012 | 56,533 | 120,522 | (25,621) | |||||||||||||||||||
(Loss) gain on other derivative instruments | (750) | 47,161 | 46,849 | (108,610) | |||||||||||||||||||
Other income | 226 | 2,200 | 223 | 2,200 | |||||||||||||||||||
Total other (loss) income | (23,806) | 129,745 | 122,337 | (125,461) | |||||||||||||||||||
Expenses: | |||||||||||||||||||||||
Compensation and benefits | 21,244 | 8,868 | 47,773 | 22,951 | |||||||||||||||||||
Other operating expenses | 17,699 | 11,886 | 38,751 | 22,370 | |||||||||||||||||||
Total expenses | 38,943 | 20,754 | 86,524 | 45,321 | |||||||||||||||||||
Income before income taxes | 70,537 | 217,225 | 286,096 | 36,509 | |||||||||||||||||||
Provision for income taxes | 14,201 | 19,780 | 26,172 | 15,872 | |||||||||||||||||||
Net income | 56,336 | 197,445 | 259,924 | 20,637 | |||||||||||||||||||
Dividends on preferred stock | (11,784) | (12,115) | (23,568) | (24,480) | |||||||||||||||||||
Gain on repurchase and retirement of preferred stock | — | 2,454 | 644 | 2,454 | |||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | 44,552 | $ | 187,784 | $ | 237,000 | $ | (1,389) | |||||||||||||||
Basic earnings (loss) per weighted average common share | $ | 0.43 | $ | 1.94 | $ | 2.27 | $ | (0.02) | |||||||||||||||
Diluted earnings (loss) per weighted average common share | $ | 0.43 | $ | 1.80 | $ | 2.16 | $ | (0.02) | |||||||||||||||
Dividends declared per common share | $ | 0.45 | $ | 0.45 | $ | 0.90 | $ | 1.05 | |||||||||||||||
Weighted average number of shares of common stock: | |||||||||||||||||||||||
Basic | 103,555,755 | 96,387,877 | 103,478,847 | 94,492,389 | |||||||||||||||||||
Diluted | 103,910,812 | 106,062,378 | 113,136,629 | 94,492,389 | |||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||
Net income | $ | 56,336 | $ | 197,445 | $ | 259,924 | $ | 20,637 | |||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Unrealized loss on available-for-sale securities | (44,073) | (156,306) | (147,151) | (30,375) | |||||||||||||||||||
Other comprehensive loss | (44,073) | (156,306) | (147,151) | (30,375) | |||||||||||||||||||
Comprehensive income (loss) | 12,263 | 41,139 | 112,773 | (9,738) | |||||||||||||||||||
Dividends on preferred stock | (11,784) | (12,115) | (23,568) | (24,480) | |||||||||||||||||||
Gain on repurchase and retirement of preferred stock | — | 2,454 | 644 | 2,454 | |||||||||||||||||||
Comprehensive income (loss) attributable to common stockholders |
$ | 479 | $ | 31,478 | $ | 89,849 | $ | (31,764) | |||||||||||||||
TWO HARBORS INVESTMENT CORP. | |||||||||||||||||||||||
INTEREST INCOME AND INTEREST EXPENSE | |||||||||||||||||||||||
(dollars in thousands, except share data) | |||||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||
Interest income: | |||||||||||||||||||||||
Available-for-sale securities | $ | 99,211 | $ | 104,195 | $ | 199,816 | $ | 201,233 | |||||||||||||||
Other | 16,742 | 13,567 | 33,920 | 33,122 | |||||||||||||||||||
Total interest income | 115,953 | 117,762 | 233,736 | 234,355 | |||||||||||||||||||
Interest expense: | |||||||||||||||||||||||
Repurchase agreements | 113,714 | 116,946 | 232,430 | 221,301 | |||||||||||||||||||
Revolving credit facilities | 29,906 | 29,684 | 60,153 | 55,340 | |||||||||||||||||||
Term notes payable | 6,008 | 8,239 | 12,426 | 15,882 | |||||||||||||||||||
Convertible senior notes | 4,579 | 4,692 | 9,198 | 9,528 | |||||||||||||||||||
Total interest expense | 154,207 | 159,561 | 314,207 | 302,051 | |||||||||||||||||||
Net interest expense | $ | (38,254) | $ | (41,799) | $ | (80,471) | $ | (67,696) |
TWO HARBORS INVESTMENT CORP. | |||||||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION | |||||||||||
(dollars in thousands, except share data) | |||||||||||
Certain prior period amounts have been reclassified to conform to the current period presentation | |||||||||||
Three Months Ended | |||||||||||
June 30, 2024 |
March 31, 2024 |
||||||||||
(unaudited) |
(unaudited) |
||||||||||
Reconciliation of comprehensive income to Earnings Available for Distribution: | |||||||||||
Comprehensive income attributable to common stockholders | $ | 479 | $ | 89,370 | |||||||
Adjustment for other comprehensive loss attributable to common stockholders: | |||||||||||
Unrealized loss on available-for-sale securities | 44,073 | 103,078 | |||||||||
Net income attributable to common stockholders | $ | 44,552 | $ | 192,448 | |||||||
Adjustments to exclude reported realized and unrealized (gains) losses: | |||||||||||
Realized loss on securities | 22,149 | 10,915 | |||||||||
Unrealized loss (gain) on securities | 117 | (20) | |||||||||
Provision for credit losses | 171 | 80 | |||||||||
Realized and unrealized loss (gain) on mortgage servicing rights | 22,857 | (11,012) | |||||||||
Realized gain on termination or expiration of interest rate swaps and swaptions | (2,388) | (13,890) | |||||||||
Unrealized gain on interest rate swaps and swaptions | (4,609) | (70,325) | |||||||||
Realized and unrealized loss (gain) on other derivative instruments | 852 | (47,489) | |||||||||
Gain on repurchase and retirement of preferred stock | — | (644) | |||||||||
Other realized and unrealized (gains) losses | (226) | 3 | |||||||||
Other adjustments: | |||||||||||
MSR amortization(1) |
(89,058) | (78,704) | |||||||||
TBA dollar roll income (losses)(2) |
4,019 | (1,905) | |||||||||
U.S. Treasury futures income(3) |
7,211 | 7,694 | |||||||||
Change in servicing reserves |
(739) | 215 | |||||||||
Non-cash equity compensation expense |
1,643 | 6,083 | |||||||||
Certain operating expenses(4) |
(624) | 1,198 | |||||||||
Net provision for income taxes on non-EAD | 11,589 | 10,078 | |||||||||
Earnings available for distribution to common stockholders(5) |
$ | 17,516 | $ | 4,725 | |||||||
Weighted average basic common shares |
103,555,755 | 103,401,940 | |||||||||
Earnings available for distribution to common stockholders per weighted average basic common share |
$ | 0.17 | $ | 0.05 |