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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2018
Commission File Number 001-34506
______________________________
TWO HARBORS INVESTMENT CORP.
(Exact Name of Registrant as Specified in Its Charter)
|
| | |
Maryland | | 27-0312904 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
|
| | |
575 Lexington Avenue, Suite 2930 New York, New York | | 10022 |
(Address of Principal Executive Offices) | | (Zip Code) |
(612) 629-2500
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | |
Large accelerated filer x | | Accelerated filer o |
Non-accelerated filer o | | Smaller reporting company o |
| | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 6, 2018 there were 248,081,058 shares of outstanding common stock, par value $.01 per share, issued and outstanding.
TWO HARBORS INVESTMENT CORP.
INDEX
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| PART I - FINANCIAL INFORMATION | |
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| | |
| | |
| | |
| | |
| | |
| | |
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| PART II - OTHER INFORMATION | |
| | |
| | |
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| |
| |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)
|
| | | | | | | |
ASSETS | September 30, 2018 | | December 31, 2017 |
Available-for-sale securities, at fair value | $ | 25,938,916 |
| | $ | 21,220,819 |
|
Mortgage servicing rights, at fair value | 1,664,024 |
| | 1,086,717 |
|
Residential mortgage loans held-for-sale, at fair value | 27,537 |
| | 30,414 |
|
Cash and cash equivalents | 422,851 |
| | 419,159 |
|
Restricted cash | 888,632 |
| | 635,836 |
|
Accrued interest receivable | 85,257 |
| | 68,309 |
|
Due from counterparties | 1,217,828 |
| | 842,303 |
|
Derivative assets, at fair value | 403,231 |
| | 309,918 |
|
Reverse repurchase agreements | 759,375 |
| | — |
|
Other assets | 122,428 |
| | 175,838 |
|
Total Assets | $ | 31,530,079 |
| | $ | 24,789,313 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Liabilities | | | |
Repurchase agreements | $ | 23,806,631 |
| | $ | 19,451,207 |
|
Federal Home Loan Bank advances | 865,024 |
| | 1,215,024 |
|
Revolving credit facilities | 310,000 |
| | 20,000 |
|
Convertible senior notes | 283,555 |
| | 282,827 |
|
Derivative liabilities, at fair value | 797,504 |
| | 31,903 |
|
Due to counterparties | 556,992 |
| | 88,898 |
|
Dividends payable | 96,259 |
| | 12,552 |
|
Accrued interest payable | 117,008 |
| | 87,698 |
|
Other liabilities | 21,124 |
| | 27,780 |
|
Total Liabilities | 26,854,097 |
| | 21,217,889 |
|
Stockholders’ Equity | | | |
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 40,050,000 and 29,050,000 shares issued and outstanding, respectively ($1,001,250 and $726,250 liquidation preference, respectively) | 977,550 |
| | 702,537 |
|
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 248,078,170 and 174,496,587 shares issued and outstanding, respectively | 2,481 |
| | 1,745 |
|
Additional paid-in capital | 4,806,520 |
| | 3,672,003 |
|
Accumulated other comprehensive (loss) income | (154,729 | ) | | 334,813 |
|
Cumulative earnings | 2,886,906 |
| | 2,386,604 |
|
Cumulative distributions to stockholders | (3,842,746 | ) | | (3,526,278 | ) |
Total Stockholders’ Equity | 4,675,982 |
| | 3,571,424 |
|
Total Liabilities and Stockholders’ Equity | $ | 31,530,079 |
| | $ | 24,789,313 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited)
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Interest income: | | | | | |
Available-for-sale securities | $ | 230,607 |
| | $ | 163,904 |
| | $ | 604,790 |
| | $ | 449,141 |
|
Residential mortgage loans held-for-investment in securitization trusts | — |
| | 29,865 |
| | — |
| | 92,319 |
|
Residential mortgage loans held-for-sale | 332 |
| | 479 |
| | 988 |
| | 1,380 |
|
Other | 5,759 |
| | 1,841 |
| | 12,299 |
| | 7,144 |
|
Total interest income | 236,698 |
| | 196,089 |
| | 618,077 |
| | 549,984 |
|
Interest expense: | | | | | | | |
Repurchase agreements | 138,343 |
| | 59,694 |
| | 322,735 |
| | 135,756 |
|
Collateralized borrowings in securitization trusts | — |
| | 23,970 |
| | — |
| | 74,199 |
|
Federal Home Loan Bank advances | 5,301 |
| | 10,317 |
| | 14,655 |
| | 30,554 |
|
Revolving credit facilities | 3,973 |
| | 701 |
| | 5,776 |
| | 1,727 |
|
Convertible senior notes | 4,779 |
| | 4,745 |
| | 14,204 |
| | 13,157 |
|
Total interest expense | 152,396 |
| | 99,427 |
| | 357,370 |
| | 255,393 |
|
Net interest income | 84,302 |
| | 96,662 |
| | 260,707 |
| | 294,591 |
|
Other-than-temporary impairments: | | | | |
| |
|
Total other-than-temporary impairment losses | (95 | ) | | — |
| | (363 | ) | | (429 | ) |
Other income (loss): | | | | | | | |
(Loss) gain on investment securities | (42,996 | ) | | 5,618 |
| | (95,549 | ) | | (15,485 | ) |
Servicing income | 89,618 |
| | 57,387 |
| | 238,473 |
| | 148,468 |
|
Gain (loss) on servicing asset | 20,591 |
| | (29,245 | ) | | 102,251 |
| | (90,440 | ) |
Gain (loss) on interest rate swap, cap and swaption agreements | 75,857 |
| | (207 | ) | | 255,535 |
| | (66,990 | ) |
Loss on other derivative instruments | (31,463 | ) | | (18,924 | ) | | (15,735 | ) | | (66,328 | ) |
Other income | 907 |
| | 8,431 |
| | 2,695 |
| | 21,053 |
|
Total other income (loss) | 112,514 |
| | 23,060 |
| | 487,670 |
| | (69,722 | ) |
Expenses: | | | | | | | |
Management fees | (5,041 | ) | | 10,146 |
| | 18,120 |
| | 29,801 |
|
Servicing expenses | 16,433 |
| | 8,560 |
| | 42,526 |
| | 25,154 |
|
Other operating expenses | 17,033 |
| | 13,138 |
| | 47,040 |
| | 44,373 |
|
Acquisition transaction costs | 86,703 |
| | — |
| | 86,703 |
| | — |
|
Restructuring charges | 8,238 |
| | — |
| | 8,238 |
| | — |
|
Total expenses | 123,366 |
| | 31,844 |
| | 202,627 |
| | 99,328 |
|
Income from continuing operations before income taxes | 73,355 |
| | 87,878 |
| | 545,387 |
| | 125,112 |
|
Provision for (benefit from) income taxes | 37,409 |
| | (5,342 | ) | | 35,142 |
| | (21,100 | ) |
Net income from continuing operations | 35,946 |
| | 93,220 |
| | 510,245 |
| | 146,212 |
|
Income from discontinued operations, net of tax | — |
| | 11,518 |
| | — |
| | 39,169 |
|
Net income | 35,946 |
| | 104,738 |
| | 510,245 |
| | 185,381 |
|
Income from discontinued operations attributable to noncontrolling interest | — |
| | 2,674 |
| | — |
| | 2,714 |
|
Net income attributable to Two Harbors Investment Corp. | 35,946 |
| | 102,064 |
| | 510,245 |
| | 182,667 |
|
Dividends on preferred stock | 18,951 |
| | 8,888 |
| | 46,445 |
| | 13,173 |
|
Net income attributable to common stockholders | $ | 16,995 |
| | $ | 93,176 |
| | $ | 463,800 |
| | $ | 169,494 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited), continued
(in thousands, except share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Basic earnings per weighted average common share: | | | | | | | |
Continuing operations | $ | 0.08 |
| | $ | 0.48 |
| | $ | 2.42 |
| | $ | 0.76 |
|
Discontinued operations | — |
| | 0.05 |
| | — |
| | 0.21 |
|
Net income | $ | 0.08 |
| | $ | 0.53 |
| | $ | 2.42 |
| | $ | 0.97 |
|
Diluted earnings per weighted average common share: | | | | | | | |
Continuing operations | $ | 0.08 |
| | $ | 0.47 |
| | $ | 2.28 |
| | $ | 0.76 |
|
Discontinued operations | — |
| | 0.05 |
| | — |
| | 0.21 |
|
Net income | $ | 0.08 |
| | $ | 0.52 |
| | $ | 2.28 |
| | $ | 0.97 |
|
Dividends declared per common share | $ | 0.47 |
| | $ | 0.52 |
| | $ | 1.41 |
| | $ | 1.54 |
|
Weighted average number of shares of common stock: | | | | | | | |
Basic | 224,399,436 |
| | 174,488,296 |
| | 191,846,212 |
| | 174,415,232 |
|
Diluted | 224,399,436 |
| | 188,907,356 |
| | 209,607,146 |
| | 174,415,232 |
|
Comprehensive (loss) income: | | | | | | | |
Net income | $ | 35,946 |
| | $ | 104,738 |
| | $ | 510,245 |
| | $ | 185,381 |
|
Other comprehensive (loss) income, net of tax: | | | | | | | |
Unrealized (loss) gain on available-for-sale securities | (119,796 | ) | | 68,433 |
| | (499,460 | ) | | 223,823 |
|
Other comprehensive (loss) income | (119,796 | ) | | 68,433 |
| | (499,460 | ) | | 223,823 |
|
Comprehensive (loss) income | (83,850 | ) | | 173,171 |
| | 10,785 |
| | 409,204 |
|
Comprehensive income attributable to noncontrolling interest | — |
| | 2,682 |
| | — |
| | 2,724 |
|
Comprehensive (loss) income attributable to Two Harbors Investment Corp. | (83,850 | ) | | 170,489 |
| | 10,785 |
| | 406,480 |
|
Dividends on preferred stock | 18,951 |
| | 8,888 |
| | 46,445 |
| | 13,173 |
|
Comprehensive (loss) income attributable to common stockholders | $ | (102,801 | ) | | $ | 161,601 |
| | $ | (35,660 | ) | | $ | 393,307 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock Par Value | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Cumulative Earnings | | Cumulative Distributions to Stockholders | | Total Stockholders’ Equity | | Non- controlling Interest | | Total Equity |
Balance, December 31, 2016 | $ | — |
| | $ | 1,738 |
| | $ | 3,661,712 |
| | $ | 199,227 |
| | $ | 2,038,033 |
| | $ | (2,499,599 | ) | | $ | 3,401,111 |
| | $ | — |
| | $ | 3,401,111 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 182,667 |
| | — |
| | 182,667 |
| | 2,714 |
| | 185,381 |
|
Other comprehensive income before reclassifications, net of tax expense of $35,708 | — |
| | — |
| | — |
| | 215,994 |
| | — |
| | — |
| | 215,994 |
| | 10 |
| | 216,004 |
|
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $2,722 | — |
| | — |
| | — |
| | 7,815 |
| | — |
| | — |
| | 7,815 |
| | — |
| | 7,815 |
|
Other comprehensive income, net of tax expense of $32,986 | — |
| | — |
| | — |
| | 223,809 |
| | — |
| | — |
| | 223,809 |
| | 10 |
| | 223,819 |
|
Contribution of TH Commercial Holdings LLC to Granite Point | — |
| | — |
| | (13,777 | ) | | 6 |
| | — |
| | — |
| | (13,771 | ) | | 195,646 |
| | 181,875 |
|
Acquisition of noncontrolling interests | — |
| | — |
| | (69 | ) | | — |
| | — |
| | — |
| | (69 | ) | | (5,376 | ) | | (5,445 | ) |
Issuance of preferred stock, net of offering costs | 416,966 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 416,966 |
| | — |
| | 416,966 |
|
Issuance of common stock, net of offering costs | — |
| | — |
| | 332 |
| | — |
| | — |
| | — |
| | 332 |
| | — |
| | 332 |
|
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (13,173 | ) | | (13,173 | ) | | — |
| | (13,173 | ) |
Common dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (268,697 | ) | | (268,697 | ) | | (3,177 | ) | | (271,874 | ) |
Non-cash equity award compensation | — |
| | 7 |
| | 12,382 |
| | — |
| | — |
| | — |
| | 12,389 |
| | — |
| | 12,389 |
|
Balance, September 30, 2017 | $ | 416,966 |
| | $ | 1,745 |
| | $ | 3,660,580 |
| | $ | 423,042 |
| | $ | 2,220,700 |
| | $ | (2,781,469 | ) | | $ | 3,941,564 |
| | $ | 189,817 |
| | $ | 4,131,381 |
|
| | | | | | | | | | | | |
|
| | | | |
Balance, December 31, 2017 | $ | 702,537 |
| | $ | 1,745 |
| | $ | 3,672,003 |
| | $ | 334,813 |
| | $ | 2,386,604 |
| | $ | (3,526,278 | ) | | $ | 3,571,424 |
| | $ | — |
| | $ | 3,571,424 |
|
Cumulative effect of adoption of new accounting principles | — |
| | — |
| | 25 |
| | 9,918 |
| | (9,943 | ) | | — |
| | — |
| | — |
| | — |
|
Adjusted balance, January 1, 2018 | 702,537 |
| | 1,745 |
| | 3,672,028 |
| | 344,731 |
| | 2,376,661 |
| | (3,526,278 | ) | | 3,571,424 |
| | — |
| | 3,571,424 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 510,245 |
| | — |
| | 510,245 |
| | — |
| | 510,245 |
|
Other comprehensive loss before reclassifications, net of tax benefit of $14,890 | — |
| | — |
| | — |
| | (552,477 | ) | | — |
| | — |
| | (552,477 | ) | | — |
| | (552,477 | ) |
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $0 | — |
| | — |
| | — |
| | 53,017 |
| | — |
| | — |
| | 53,017 |
| | — |
| | 53,017 |
|
Other comprehensive loss, net of tax benefit of $14,890 | — |
| | — |
| | — |
| | (499,460 | ) | | — |
| | — |
| | (499,460 | ) | | — |
| | (499,460 | ) |
Acquisition of CYS Investments, Inc. | 275,000 |
| | 726 |
| | 1,124,388 |
| | — |
| | — |
| | — |
| | 1,400,114 |
| | — |
| | 1,400,114 |
|
Issuance of preferred stock, net of offering costs | 13 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
Issuance of common stock, net of offering costs | — |
| | — |
| | 329 |
| | — |
| | — |
| | — |
| | 329 |
| | — |
| | 329 |
|
Preferred dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | (46,445 | ) | | (46,445 | ) | | — |
|