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Two Harbors Investment Corp. Reports First Quarter 2022 Financial Results

Hedge Benefits of MSR Offset Historic Spread Widening in RMBS During Volatile Quarter

Two Harbors Investment Corp. (NYSE: TWO), an Agency + MSR mortgage real estate investment trust (REIT), today announced its financial results for the quarter ended March 31, 2022.

Quarterly Summary

  • Reported book value of $5.53 per common share, representing a (2.9)% quarterly return on book value(1)
  • Generated Comprehensive Loss of $60.3 million, representing an annualized return on average common equity of (12.2)%
  • Reported Earnings Available for Distribution (EAD) of $61.7 million, or $0.18 per weighted average basic common share(2)
  • Declared a first quarter common stock dividend of $0.17 per share
  • Grew MSR portfolio with the acquisition of $37.2 billion unpaid principal balance (UPB) through the bulk channel and $7.9 billion UPB through the flow channel

“The first quarter was marked by historic repricing across the rates complex as market expectations converged with the Federal Reserve’s accelerated timeline to higher rates and quantitative tightening. Our portfolio performance in this challenging environment highlights the benefits of the paired Agency + MSR strategy and our active portfolio management,” stated Bill Greenberg, Two Harbors’ President, Chief Executive Officer and Chief Investment Officer. “After the significant spread widening in the quarter, we are poised to allocate capital to RMBS at fundamentally attractive valuations.”

(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)

Earnings Available for Distribution is a non-GAAP measure. Please see page 12 for a definition of Earnings Available for Distribution 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 first quarter of 2022 and fourth quarter of 2021:

Two Harbors Investment Corp. Operating Performance (unaudited)

(dollars in thousands, except per common share data)

 

Three Months Ended

March 31, 2022

 

Three Months Ended

December 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

$

(60,322

)

 

$

(0.18

)

 

(12.2

) %

 

$

(128,594

)

 

$

(0.38

)

 

(24.7

) %

GAAP Net Income (Loss)

$

271,523

 

 

$

0.79

 

 

54.9

%

 

$

(15,041

)

 

$

(0.05

)

 

(2.9

) %

Earnings Available for Distribution(1)

$

61,746

 

 

$

0.18

 

 

12.5

%

 

$

73,276

 

 

$

0.22

 

 

14.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Metrics

 

 

 

 

 

 

 

 

 

 

 

Dividend per common share

$

0.17

 

 

 

 

 

 

$

0.17

 

 

 

 

 

Annualized dividend yield(2)

 

12.3

%

 

 

 

 

 

 

11.8

%

 

 

 

 

Book value per common share at period end

$

5.53

 

 

 

 

 

 

$

5.87

 

 

 

 

 

Return on book value(3)

(2.9

)%

 

 

 

 

 

(5.6

)%

 

 

 

 

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

$

13,968

 

 

 

 

 

 

$

9,854

 

 

 

 

 

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

 

2.1

%

 

 

 

 

 

 

1.4

%

 

 

 

 

________________

(1)

Earnings Available for Distribution, or EAD, is a non-GAAP measure. Please see page 12 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)

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 $4.2 million for the first quarter of 2022 and $2.5 million for the fourth quarter of 2021 and nonrecurring expenses of $0.7 million for the first quarter of 2022 and $0.7 million for the fourth quarter of 2021.

Portfolio Summary

As of March 31, 2022, the company’s portfolio was comprised of $10.1 billion of Agency residential mortgage-backed securities (RMBS), Agency Derivatives and MSR as well as their associated notional hedges. Additionally, the company held $4.7 billion bond equivalent value of net long to-be-announced securities (TBAs).

The following tables summarize the company’s investment portfolio as of March 31, 2022 and December 31, 2021:

Two Harbors Investment Corp. Portfolio

(dollars in thousands)

 

Portfolio Composition

 

As of March 31, 2022

 

As of December 31, 2021

 

 

(unaudited)

 

(unaudited)

Agency

 

 

 

 

 

 

 

 

Fixed Rate

 

$

6,950,536

 

68.9

%

 

$

7,140,913

 

76.0

%

Other Agency(1)

 

 

37,868

 

0.4

%

 

 

49,397

 

0.6

%

Total Agency

 

 

6,988,404

 

69.3

%

 

 

7,190,310

 

76.6

%

Mortgage servicing rights(2)

 

 

3,089,963

 

30.6

%

 

 

2,191,578

 

23.3

%

Other

 

 

12,530

 

0.1

%

 

 

12,304

 

0.1

%

Aggregate Portfolio

 

 

10,090,897

 

 

 

 

9,394,192

 

 

Net TBA position(3)

 

 

4,730,645

 

 

 

 

4,240,371

 

 

Total Portfolio

 

$

14,821,542

 

 

 

$

13,634,563

 

 

 

Portfolio Metrics

 

Three Months Ended

March 31, 2022

 

Three Months Ended

December 31, 2021

 

 

(unaudited)

 

(unaudited)

Average portfolio yield(4)

 

 

3.90

%

 

 

3.72

%

Average cost of financing(5)

 

 

1.01

%

 

 

0.73

%

Net spread

 

 

2.89

%

 

 

2.99

%

________________

(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)

Average portfolio yield includes interest income on Agency RMBS and non-Agency securities and MSR servicing income, net of estimated amortization, and servicing expenses.

(5)

Average cost of financing includes swap interest rate spread and amortization of upfront payments made or received upon entering.

 

Portfolio Metrics Specific to RMBS and Agency Derivatives

 

As of March 31, 2022

 

As of December 31, 2021

 

 

(unaudited)

 

(unaudited)

Weighted average cost basis of Agency principal and interest securities(1)

 

$

104.77

 

 

$

104.66

 

Weighted average three month CPR on Agency RMBS

 

 

17.3

%

 

 

27.7

%

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

 

 

99.3

%

 

 

99.1

%

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

 

 

0.7

%

 

 

0.9

%

______________

(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 March 31, 2022

 

As of December 31, 2021

(dollars in thousands)

 

(unaudited)

 

(unaudited)

Unpaid principal balance

 

$

229,415,913

 

 

$

193,770,566

 

Gross coupon rate

 

 

3.2

%

 

 

3.3

%

Current loan size

 

$

330

 

 

$

322

 

Original FICO(2)

 

 

760

 

 

 

758

 

Original LTV

 

 

71

%

 

 

72

%

60+ day delinquencies

 

 

1.0

%

 

 

1.3

%

Net servicing fee

 

26.3 basis points

 

26.3 basis points

 

 

 

 

 

 

 

Three Months Ended

March 31, 2022

 

Three Months Ended

December 31, 2021

 

 

(unaudited)

 

(unaudited)

Fair value gains (losses)

 

$

410,624

 

 

$

(131,828

)

Servicing income

 

$

136,626

 

 

$

125,511

 

Servicing expenses

 

$

24,061

 

 

$

21,605

 

Change in servicing reserves

 

$

608

 

 

$

(23

)

________________

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 March 31, 2022

 

As of December 31, 2021

(dollars in thousands)

 

(unaudited)

 

(unaudited)

Net long TBA notional amount(1)

 

$

4,622,000

 

 

$

4,116,000

 

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

 

$

24,299,647

 

 

$

20,387,300

 

Swaptions net notional, utilized as macroeconomic hedges

 

 

(2,761,000

)

 

 

(1,761,000

)

Total interest rate swaps and swaptions notional

 

$

21,538,647

 

 

$

18,626,300

 

________________

(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 March 31, 2022 and December 31, 2021:

March 31, 2022

 

Balance

 

Weighted

Average

Borrowing Rate

 

Weighted

Average Months

to Maturity

 

Number of

Distinct

Counterparties

(dollars in thousands, unaudited)

 

 

 

 

 

 

 

 

Repurchase agreements collateralized by RMBS

 

$

7,472,656

 

0.40

%

 

2.22

 

19

Repurchase agreements collateralized by MSR

 

 

400,000

 

3.88

%

 

10.32

 

 

1

 

Total repurchase agreements

 

 

7,872,656

 

0.58

%

 

2.63

 

 

20

 

Revolving credit facilities collateralized by MSR and related servicing advance obligations

 

 

570,761

 

3.78

%

 

9.83

 

 

4

 

Term notes payable collateralized by MSR

 

 

397,074

 

3.26

%

 

26.86

 

 

n/a

 

Unsecured convertible senior notes

 

 

281,403

 

6.25

%

 

45.57

 

 

n/a

 

Total borrowings

 

$

9,121,894

 

 

 

 

 

 

 

December 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

 

$

7,531,445

 

0.17

%

 

2.15

 

 

19

 

Repurchase agreements collateralized by MSR

 

 

125,000

 

4.00

%

 

5.95

 

 

1

 

Total repurchase agreements

 

 

7,656,445

 

0.24

%

 

2.21

 

 

20

 

Revolving credit facilities collateralized by MSR and related servicing advance obligations

 

 

420,761

 

3.46

%

 

14.50

 

 

4

 

Term notes payable collateralized by MSR

 

 

396,776

 

2.90

%

 

29.82

 

 

n/a

 

Unsecured convertible senior notes

 

 

424,827

 

6.25

%

 

32.34

 

 

n/a

 

Total borrowings

 

$

8,898,809

 

 

 

 

 

 

 
Borrowings by Collateral Type

 

As of March 31, 2022

 

As of December 31, 2021

(dollars in thousands)

 

(unaudited)

 

(unaudited)

Collateral type:

 

 

 

 

Agency RMBS and Agency Derivatives

 

$

7,472,437

 

 

$

7,531,274

 

Mortgage servicing rights and related servicing advance obligations

 

 

1,367,835

 

 

 

942,537

 

Other - secured

 

 

219

 

 

 

171

 

Other - unsecured(1)

 

 

281,403

 

 

 

424,827

 

Total

 

$

9,121,894

 

 

$

8,898,809

 

 

 

 

 

 

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

 

3.5 :1.0

 

3.2 :1.0

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

 

5.1 :1.0

 

4.7 :1.0

 

 

 

 

 

Cost of Funds Metrics

 

Three Months Ended

March 31, 2022

 

Three Months Ended

December 31, 2021

 

 

(unaudited)

 

(unaudited)

Annualized cost of funds on average borrowings during the quarter:

 

 

1.0

%

 

 

1.0

%

Agency RMBS and Agency Derivatives

 

 

0.3

%

 

 

0.2

%

Mortgage servicing rights and related servicing advance obligations(4)

 

 

4.1

%

 

 

4.2

%

Other - secured

 

 

2.2

%

 

 

1.8

%

Other - unsecured(1)(4)

 

 

6.6

%

 

 

6.9

%

____________________

(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 May 5, 2022 at 9:00 a.m. ET to discuss first 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 May 5, 2022, through 12:00 p.m. ET on May 19, 2022. The playback can be accessed by calling (877) 660-6853, conference code 13727886. 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 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 St. Louis Park, 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, 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 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 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 12 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, 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)

 

March 31,

2022

 

December 31,

2021

 

(unaudited)

 

 

ASSETS

 

 

 

Available-for-sale securities, at fair value (amortized cost $7,139,506 and $7,005,013, respectively; allowance for credit losses $11,573 and $14,238, respectively)

$

6,970,718

 

 

$

7,161,703

 

Mortgage servicing rights, at fair value

 

3,089,963

 

 

 

2,191,578

 

Cash and cash equivalents

 

620,214

 

 

 

1,153,856

 

Restricted cash

 

855,930

 

 

 

934,814

 

Accrued interest receivable

 

25,160

 

 

 

26,266

 

Due from counterparties

 

302,302

 

 

 

168,449

 

Derivative assets, at fair value

 

58,496

 

 

 

80,134

 

Reverse repurchase agreements

 

138,625

 

 

 

134,682

 

Other assets

 

212,400

 

 

 

262,823

 

Total Assets

$

12,273,808

 

 

$

12,114,305

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Liabilities:

 

 

 

Repurchase agreements

$

7,872,656

 

 

$

7,656,445

 

Revolving credit facilities

 

570,761

 

 

 

420,761

 

Term notes payable

 

397,074

 

 

 

396,776

 

Convertible senior notes

 

281,403

 

 

 

424,827

 

Derivative liabilities, at fair value

 

127,529

 

 

 

53,658

 

Due to counterparties

 

187,891

 

 

 

196,627

 

Dividends payable

 

72,558

 

 

 

72,412

 

Accrued interest payable

 

9,991

 

 

 

18,382

 

Other liabilities

 

124,641

 

 

 

130,464

 

Total Liabilities

 

9,644,504

 

 

 

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; 700,000,000 shares authorized and 344,132,215 and 343,911,324 shares issued and outstanding, respectively

 

3,441

 

 

 

3,439

 

Additional paid-in capital

 

5,629,661

 

 

 

5,625,179

 

Accumulated other comprehensive (loss) income

 

(145,499

)

 

 

186,346

 

Cumulative earnings

 

1,498,253

 

 

 

1,212,983

 

Cumulative distributions to stockholders

 

(5,059,102

)

 

 

(4,986,544

)

Total Stockholders’ Equity

 

2,629,304

 

 

 

2,743,953

 

Total Liabilities and Stockholders’ Equity

$

12,273,808

 

 

$

12,114,305

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(dollars in thousands)

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

 

Three Months Ended

March 31,

 

2022

 

2021

 

(unaudited)

Interest income:

 

Available-for-sale securities

$

44,647

 

 

$

55,652

 

Other

 

199

 

 

 

457

 

Total interest income

 

44,846

 

 

 

56,109

 

Interest expense:

 

 

 

Repurchase agreements

 

8,343

 

 

 

8,470

 

Revolving credit facilities

 

5,676

 

 

 

4,695

 

Term notes payable

 

3,256

 

 

 

3,211

 

Convertible senior notes

 

5,042

 

 

 

6,350

 

Total interest expense

 

22,317

 

 

 

22,726

 

Net interest income

 

22,529

 

 

 

33,383

 

Other income:

 

 

 

(Loss) gain on investment securities

 

(52,342

)

 

 

132,868

 

Servicing income

 

136,626

 

 

 

107,119

 

Gain on servicing asset

 

410,624

 

 

 

327,438

 

Loss on interest rate swap and swaption agreements

 

(38,041

)

 

 

(15,599

)

Loss on other derivative instruments

 

(101,762

)

 

 

(276,011

)

Other loss

 

(44

)

 

 

(5,742

)

Total other income

 

355,061

 

 

 

270,073

 

Expenses:

 

 

 

Servicing expenses

 

24,704

 

 

 

24,947

 

Compensation and benefits

 

12,193

 

 

 

8,188

 

Other operating expenses

 

6,625

 

 

 

7,487

 

Total expenses

 

43,522

 

 

 

40,622

 

Income before income taxes

 

334,068

 

 

 

262,834

 

Provision for income taxes

 

48,798

 

 

 

22,677

 

Net income

 

285,270

 

 

 

240,157

 

Dividends on preferred stock

 

13,747

 

 

 

17,216

 

Net income attributable to common stockholders

$

271,523

 

 

$

222,941

 

Basic earnings per weighted average common share

$

0.79

 

 

$

0.81

 

Diluted earnings per weighted average common share

$

0.72

 

 

$

0.74

 

Dividends declared per common share

$

0.17

 

 

$

0.17

 

Weighted average number of shares of common stock:

 

 

 

Basic

 

343,998,511

 

 

 

273,710,765

 

Diluted

 

384,822,202

 

 

 

311,465,060

 

 

 

 

 

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS, CONTINUED

(dollars in thousands)

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

 

Three Months Ended

March 31,

 

2022

 

2021

 

(unaudited)

Comprehensive loss:

 

 

 

Net income

$

285,270

 

 

$

240,157

 

Other comprehensive loss, net of tax:

 

 

 

Unrealized loss on available-for-sale securities

 

(331,845

)

 

 

(271,453

)

Other comprehensive loss

 

(331,845

)

 

 

(271,453

)

Comprehensive loss

 

(46,575

)

 

 

(31,296

)

Dividends on preferred stock

 

13,747

 

 

 

17,216

 

Comprehensive loss attributable to common stockholders

$

(60,322

)

 

$

(48,512

)

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

March 31,

 

Three Months Ended

December 31,

 

2022

 

2021

 

(unaudited)

 

(unaudited)

Reconciliation of Comprehensive loss to Earnings Available for Distribution:

 

 

 

Comprehensive loss attributable to common stockholders

$

(60,322

)

 

$

(128,594

)

Adjustment for other comprehensive loss attributable to common stockholders:

 

 

 

Unrealized loss on available-for-sale securities

 

331,845

 

 

 

113,553

 

Net income (loss) attributable to common stockholders

$

271,523

 

 

$

(15,041

)

 

 

 

 

Adjustments to exclude reported realized and unrealized (gains) losses:

 

 

 

Realized loss (gain) on securities

 

52,394

 

 

 

(28,912

)

Unrealized (gain) loss on securities

 

(1,166

)

 

 

23,939

 

Provision for credit losses

 

1,114

 

 

 

3,347

 

Realized and unrealized (gain) loss on mortgage servicing rights

 

(410,624

)

 

 

131,828

 

Realized loss on termination or expiration of interest rate swaps and swaptions

 

56,264

 

 

 

5,143

 

Unrealized gain on interest rate swaps and swaptions

 

(18,964

)

 

 

(36,360

)

Realized and unrealized loss on other derivative instruments

 

102,615

 

 

 

12,624

 

Other realized and unrealized losses (gains)

 

44

 

 

 

(1,856

)

Other adjustments:

 

 

 

MSR amortization(1)

 

(67,179

)

 

 

(64,631

)

TBA dollar roll income(2)

 

22,405

 

 

 

34,781

 

U.S. Treasury futures income(3)

 

(329

)

 

 

3,711

 

Change in servicing reserves

 

608

 

 

 

(22

)

Non-cash equity compensation expense

 

4,161

 

 

 

2,525

 

Other nonrecurring expenses

 

689

 

 

 

665

 

Net provision for income taxes on non-EAD

 

48,191

 

 

 

1,535

 

Earnings available for distribution to common stockholders(4)

$

61,746

 

 

$

73,276

 

 

 

 

 

Weighted average basic common shares

 

343,998,511

 

 

 

335,100,737

 

Earnings available for distribution to common stockholders per weighted average basic common share

$

0.18

 

 

$

0.22

 

_____________

(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 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.

 

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