Two Harbors Investment Corp. Reports First Quarter 2019 Financial Results

Two Harbors Investment Corp. (NYSE: TWO), a leading hybrid mortgage real estate investment trust (REIT) that invests in residential mortgage-backed securities (RMBS), mortgage servicing rights (MSR) and other financial assets, today announced its financial results for the quarter ended March 31, 2019.

Quarterly Summary

• Grew book value to $13.83 per common share, representing a 9.1% total quarterly return on book value.⁽¹⁾
• Generated Comprehensive Income of $311.3 million, or $1.23 per weighted average basic common share.
• Reported Core Earnings, including dollar roll income, of $122.7 million, or $0.49 per weighted average basic common share, representing a return on average common equity of 14.3%.⁽²⁾
• Issued approximately 24.4 million shares of common stock through both an underwritten offering and our at-the-market (ATM) program, for net proceeds to the company of approximately $335.3 million.
  • Deployed capital from share issuances into Agency RMBS and MSR.
• Added $16 billion unpaid principal balance (UPB) of MSR through bulk acquisitions and monthly flow-sale arrangements, bringing total holdings to $174 billion UPB.
• Closed a new $350 million MSR financing facility, bringing total MSR financing capacity to $1.1 billion.

“We had a very strong first quarter, delivering a total return on book value of 9.1%,” stated Thomas Siering, Two Harbors’ President and Chief Executive Officer. “Going forward, we believe the best investment opportunity for long-term returns is in pairing Agency RMBS with MSR, as this combination should result in better returns with lower risk, and help us outperform over market cycles.”

Operating Performance
The following table summarizes the company’s GAAP and non-GAAP earnings measurements, and key metrics for the first quarter of 2019 and fourth quarter 2018:

“The first quarter brought a more balanced Fed outlook and stable interest rate environment, both of which bode well for our business,” stated Bill Roth, Two Harbors’ Chief Investment Officer. “We see substantial opportunities going forward to continue growing our MSR portfolio and believe there is a long runway to this strategy, given the robust transfer market for servicing.”

Portfolio Summary
The company’s portfolio is comprised of a Rates strategy and a Credit strategy. The Rates strategy consisted of $23.6 billion of Agency RMBS, Agency Derivatives and MSR as well as their associated notional hedges as of March 31, 2019. Additionally, the company held $10.2 billion notional of net long to-be-announced securities (TBAs) as part of the Rates strategy. The Credit strategy consisted of $3.6 billion of non-Agency securities, as well as their associated notional hedges as of March 31, 2019.

The following tables summarize the company’s investment portfolio as of March 31, 2019 and December 31, 2018:

Financing Summary
The following tables summarize the company’s financing metrics and outstanding repurchase agreements, FHLB advances, revolving credit facilities and convertible senior notes as of March 31, 2019 and December 31, 2018:

Conference Call
Two Harbors Investment Corp. will host a conference call on May 8, 2019 at 9:00 a.m. EDT to discuss first quarter 2019 financial results and related information. To participate in the teleconference, please call toll-free (888) 394-8218, conference code 9013932, 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 Investor Relations 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 May 8, 2019, through 12:00 a.m. EDT on May 15, 2019. The playback can be accessed by calling (888) 203-1112 , conference code 9013932. The call will also be archived on the company’s website in the Investor Relations section under the Events and Presentations link.

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 New York, New York, and is externally managed and advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River Capital Management L.P. 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, 2018, 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; 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; the occurrence, extent and timing of credit losses within our portfolio; the concentration of credit risks we are exposed to; 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 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, including dollar roll income and Core Earnings per basic common share, including dollar roll income, that exclude certain items. Two Harbors’ management believes that these non-GAAP measures enable it to perform meaningful comparisons of past, present and future results of the company’s core business operations, and uses these measures to gain a comparative understanding of the company’s operating performance and business trends. The non-GAAP financial measures presented by the company represent supplemental information to assist investors in analyzing the results of its operations. 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, 575 Lexington Avenue, Suite 2930, New York, NY 10022, telephone (612) 629-2500.

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