Two
Harbors Investment Corp.
Reports
Fourth Quarter 2009 Financial Results
NEW YORK, February 24, 2010 –
Two Harbors Investment
Corp. (“Two Harbors” or the “Company”) (NYSE Amex: TWO;
TWO.WS), a real estate investment trust that focuses on investing in residential
mortgage-backed securities, today announced its financial results for the
quarter ended December 31, 2009.
The
Company reported Adjusted Core Earnings for the quarter ended December 31, 2009,
of $1.1 million or $0.08 per share outstanding. “Adjusted Core
Earnings” represent a non-GAAP measure and is defined as net income (loss)
excluding impairment losses, gains or losses on sales of securities and
termination of interest rate swaps, unrealized gains or losses on interest rate
swaps, and certain non-recurring expenses. Two Harbors’ fourth
quarter 2009 Adjusted Core Earnings reflect an approximate $8.0 million
adjustment for expenses incurred as a result of the October 28, 2009 merger
transaction with Capitol Acquisition Corp. (“Capitol Acquisition”), an
approximate $0.2 million adjustment for operating expenses associated with
Capitol Acquisition prior to the completion of the transaction, and an estimated
$0.1 million net reduction in tax benefits. On a GAAP basis, the
Company reported net loss for the quarter of ($6.4) million or ($0.38) per basic
and diluted share.
Given Two
Harbors’ commencement date of October 28, 2009, financial results for the fourth
quarter of 2009 reflect approximately two months of
operations. During the quarter, the Company sold $2.5 million of
securities which resulted in a realized gain of $0.3 million. In
addition, the Company recognized an unrealized gain of $0.4 million associated
with its interest rate swaps. Two Harbors declared a quarterly
dividend of $0.26 per share in December 2009, which represented the Company’s
taxable income for the year ending December 31, 2009.
The
Company’s book value per share as of December 31, 2009 was $9.08 compared to
$9.30 as of October 28, 2009. The decrease arose principally from $0.26 per
share in dividends declared in the fourth quarter and a decline of approximately
$0.07 per share in the value of the investment portfolio. This diminution of
portfolio value can largely be attributed to initial portfolio construction
costs in the form of “bid-offer” spreads. These adjustments were offset by
post-merger GAAP earnings within the REIT of $0.13 per share.
“Two
Harbors’ first quarter as a public company highlights a number of significant
accomplishments achieved by our firm,” said Thomas Siering, Two Harbors’
President and Chief Executive Officer. “In addition to commencing our
operations as a REIT, Two Harbors was successful in substantially deploying its
capital and building a portfolio that we feel is uniquely positioned to optimize
the current opportunity set within the RMBS market. We are pleased to
report solid Adjusted Core Earnings in light of an abbreviated operating and
investment period. With the Capitol Acquisition transaction and its
financial impacts behind us, we look forward to focusing on Two Harbors’ future
success.”
Portfolio
Summary
For the
quarter ended December 31, 2009, the annualized yield on average
available-for-sale securities was 6.2% and the annualized cost of funds on the
average repurchase balance was 0.4%, which resulted in an average net interest
rate spread of 5.8%. The Company reported debt-to-equity of 3.4:1.0
at December 31, 2009.
-1-
During
the fourth quarter of 2009, the Company substantially completed deployment of
its capital available for investment which resulted in a portfolio as of
December 31, 2009 with a total value of $495 million, comprised of $418 million
Agency RMBS and $77 million non-Agency RMBS. As of December 31, 2009,
fixed-rate securities comprised 31% of the Company’s portfolio and
adjustable-rate securities comprised 69% of the Company’s
portfolio. Two Harbors was a party to interest rate swaps as of
December 31, 2009 with an aggregate notional amount of $100 million, or 24% of
the Company’s outstanding borrowings. Interest rate swaps are used to
hedge against increases in interest rates on a portion of the Company’s
LIBOR-based repurchase agreements.
“We are
very pleased with our initial portfolio,” said William Roth, Two Harbors’
Co-Chief Investment Officer. “Two Harbors’ Agency and non-Agency
portfolios realized strong annualized yields during the fourth quarter while
attaining a low cost of capital. More noteworthy is our ability to
achieve these returns while managing a portfolio of balanced risks, especially
in respect to interest rates, prepayments, mortgage spreads and financing.”
The
following table summarizes portfolio information for the Company:
|
Two
Harbors Portfolio
|
||||||||
|
For
the Quarter Ended
|
||||||||
|
December 31, 2009
|
||||||||
|
(dollars
in thousands)
|
||||||||
|
Portfolio
Composition
|
||||||||
|
Agency
Bonds
|
||||||||
|
Fixed
Rate Bonds
|
$ | 112,379 | 22.7 | % | ||||
|
Hybrid
ARMS
|
305,441 | 61.8 | % | |||||
|
Total
Agency
|
$ | 417,820 | 84.5 | % | ||||
|
Non-Agency
Bonds
|
||||||||
|
Senior
Bonds
|
54,092 | 10.9 | % | |||||
|
Mezzanine
Bonds
|
22,553 | 4.6 | % | |||||
|
Total
Non-Agency
|
$ | 76,645 | 15.5 | % | ||||
|
Aggregate
Portfolio
|
$ | 494,465 | ||||||
|
For
the Quarter Ended
|
||||||||
|
Portfolio
Metrics
|
December 31, 2009
|
|||||||
|
Fixed-rate
investment securities as a percentage of portfolio
|
31.2 | % | ||||||
|
Adjustable-rate
investment securities as a percentage of portfolio
|
68.8 | % | ||||||
|
Annualized
yield on average available-for-sale securities during the
quarter
|
||||||||
|
Agency
securities
|
4.4 | % | ||||||
|
Non-Agency
securities
|
16.2 | % | ||||||
|
Aggregate
Portfolio
|
6.2 | % | ||||||
|
Annualized
cost of funds on average repurchase balance during the
quarter
|
0.4 | % | ||||||
|
Annualized
interest rate spread during the quarter
|
5.8 | % | ||||||
|
Weighted
average cost basis of principal and interest securities as a percent of
par
|
||||||||
|
Agency
|
104.9 | % | ||||||
|
Non-Agency
|
49.8 | % | ||||||
|
Weighted
average three-month CPR for our portfolio
|
||||||||
|
Agency
|
12.0 | % | ||||||
|
Non-Agency
|
15.1 | % | ||||||
|
Total
Aggregate Portfolio
|
12.5 | % | ||||||
|
Debt-to-equity
ratio at period-end
|
3.4
to 1.0
|
|||||||
Agency
securities owned by Two Harbors at December 31, 2009 experienced a three-month
average Constant Prepayment Rate during the fourth quarter of 2009 of
12.0%. The weighted average cost basis of the Agency portfolio was
104.9% of par, and the net premium amortization was $1.2 million for the three
months ended December 31, 2009.
Non-Agency
securities owned by Two Harbors at December 31, 2009 experienced a three-month
average Constant Prepayment Rate during the fourth quarter of 2009 of
15.1%. The weighted average cost basis of the non-Agency portfolio
was 49.8% of par, and the discount accretion was $0.6 million for the three
months ended December 31, 2009. The total net discount remaining was
$91.2 million as of December 31, 2009.
-2-
Conference
Call
Two
Harbors Investment Corp. will host a conference call tomorrow, February 25,
2010, to discuss fourth quarter 2009 financial results and related information
at 9:00 a.m. EST. To participate in the teleconference, please call
toll-free 877-868-1835 (or 914-495-8581 for international callers) approximately
10 minutes prior to the above start time. You may also listen to the
teleconference live via the Internet at www.twoharborsinvestment.com
under the Webcast link. For those unable to attend, the Company’s
website will host an archive of the call.
Two
Harbors Investment Corp.
Two
Harbors Investment Corp., a Maryland corporation, is a real estate investment
trust that focuses on investing in residential mortgage-backed
securities. Two Harbors is headquartered in Minnetonka, Minnesota,
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
press release 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,”
“believes,” “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. Factors that could cause actual results to differ include
higher than expected operation costs, changes in prepayment speeds, failure to
recover certain losses that are expected to be temporary, changes in interest
rates or the regulatory environment, and unanticipated changes in overall market
and economic conditions.
Two
Harbors cautions readers 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.
-3-
Additional
Information
Stockholders
and warrant holders of Two Harbors, and other interested persons, may find
additional information regarding the company at the Securities and Exchange
Commission’s Internet site at www.sec.gov or by
directing requests to: Two Harbors Investment Corp., 601 Carlson
Parkway, Suite 330, Minnetonka, MN 55305, telephone
612-238-3300.
Contact
Investors:
Anh Huynh, Investor Relations, Two Harbors Investment Corp.,
612-238-3348.
Media:
Patrick Clifford or Pen Pendleton, The Abernathy MacGregor Group,
212-371-5999.
# #
#
-4-
|
TWO
HARBORS INVESTMENT CORP.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(UNAUDITED)
|
|
(dollars
in thousands, except per share
data)
|
|
Three
Months Ended December 31,
|
Years
Ended December 31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Interest
income
|
|
|
|
|
||||||||||||
|
Available-for-sale
securities
|
$ | 2,796 | $ | - | $ | 2,796 | $ | - | ||||||||
|
Cash
and cash equivalents
|
13 | 381 | 70 | 4,442 | ||||||||||||
|
Total
interest income
|
2,809 | 381 | 2,866 | 4,442 | ||||||||||||
|
Interest
expense
|
131 | - | 131 | - | ||||||||||||
|
Net
interest income
|
2,678 | 381 | 2,735 | 4,442 | ||||||||||||
|
Other
income
|
||||||||||||||||
|
Gain
on sale of investment securities, net
|
336 | - | 336 | - | ||||||||||||
|
Unrealized
gain on interest rate swap agreements
|
364 | - | 364 | - | ||||||||||||
|
Total
other income
|
700 | - | 700 | - | ||||||||||||
|
Expenses
|
||||||||||||||||
|
Management
fees
|
326 | - | 326 | - | ||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Costs
associated with business combination
|
7,966 | - | 9,572 | - | ||||||||||||
|
Costs
associated with Capitol as a development
|
||||||||||||||||
|
stage
company
|
207 | 283 | 1,347 | 1,059 | ||||||||||||
|
Other
operating expenses
|
1,252 | - | 1,252 | - | ||||||||||||
|
Total
expenses:
|
9,751 | 283 | 12,497 | 1,059 | ||||||||||||
|
Net
(loss) income before provision for income taxes
|
(6,373 | ) | 98 | (9,062 | ) | 3,383 | ||||||||||
|
(Provision
for) benefit from income taxes
|
(48 | ) | (35 | ) | 318 | (1,088 | ) | |||||||||
|
Net
(loss) income
|
(6,421 | ) | 63 | (8,744 | ) | 2,295 | ||||||||||
|
Accretion
of Trust Account income relating to common stock
|
||||||||||||||||
|
subject
to possible conversion
|
- | (92 | ) | (93 | ) | (236 | ) | |||||||||
|
Net
(loss) income attributable to other common stockholders
|
$ | (6,421 | ) | $ | (29 | ) | $ | (8,837 | ) | $ | 2,059 | |||||
|
Net
(loss) income (related) available per share to
|
||||||||||||||||
|
common
shareholders, basic and diluted:
|
$ | (0.38 | ) | $ | - | $ | (0.39 | ) | $ | 0.08 | ||||||
|
Weighted
average shares outstanding, basic and diluted:
|
16,935,316 | 24,936,558 | 22,941,728 | 24,936,558 | ||||||||||||
|
Comprehensive
(loss) income:
|
||||||||||||||||
|
Net
(loss) income
|
$ | (6,421 | ) | $ | 63 | $ | (8,744 | ) | $ | 2,295 | ||||||
|
Other
comprehensive loss
|
||||||||||||||||
|
Net
unrealized loss on available-for-sale securities
|
(950 | ) | - | (950 | ) | - | ||||||||||
|
Other
comprehensive loss
|
(950 | ) | - | (950 | ) | - | ||||||||||
|
Comprehensive
loss
|
$ | (7,371 | ) | $ | 63 | $ | (9,694 | ) | $ | 2,295 | ||||||
|
Reconciliation
of net (loss) income attributable to other common
|
||||||||||||||||
|
shareholders
to adjusted core earnings:
|
||||||||||||||||
|
Net
(loss) income attributable to other common stockholders
|
$ | (6,421 | ) | $ | (29 | ) | $ | (8,837 | ) | $ | 2,059 | |||||
|
Adjustments
for non-core earnings:
|
||||||||||||||||
|
Gain
on sales of securities, net
|
(336 | ) | - | (336 | ) | - | ||||||||||
|
Unrealized
gain on interest rate swap agreements
|
(364 | ) | - | (364 | ) | - | ||||||||||
|
Eliminate
tax charge for unrealized gain on interest rate swap
|
||||||||||||||||
|
agreemenrts
|
124 | - | 124 | - | ||||||||||||
|
Core
earnings
|
$ | (6,997 | ) | $ | (29 | ) | $ | (9,413 | ) | $ | 2,059 | |||||
|
Adjustments
for non-recurring expenses:
|
||||||||||||||||
|
Costs
associated with business combination
|
7,966 | - | 9,572 | - | ||||||||||||
|
Costs
associated with Capitol (pre-merger)
|
207 | 283 | 1,347 | 1,059 | ||||||||||||
|
Eliminate
tax benefits driven by costs associated with Capitol
|
(76 | ) | (91 | ) | (442 | ) | (339 | ) | ||||||||
|
Adjusted
core earnings
|
$ | 1,100 | $ | 163 | $ | 1,064 | $ | 2,779 | ||||||||
|
Shares
outstanding as of period end
|
13,379,209 | |||||||||||||||
|
Adjusted
core earnings per share outstanding
|
$ | 0.08 |
NM
|
NM
|
NM
|
|||||||||||
NM = not
meaningful
-5-
|
TWO
HARBORS INVESTMENT CORP.
|
|||||||
|
CONSOLIDATED
BALANCE SHEETS
|
|||||||
|
(dollars
in thousands, except per share
data)
|
|
ASSETS
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
(Unaudited)
|
|
|||||||
|
Available-for-sale
securities, at fair value
|
$ | 494,465 | $ | - | ||||
|
Cash
and cash equivalents
|
26,105 | 2,778 | ||||||
|
Cash
held in Trust Account
|
- | 86 | ||||||
|
Restricted
cash
|
8,913 | 259,132 | ||||||
|
Accrued
interest receivable
|
2,580 | - | ||||||
|
Due
from counterparties
|
4,877 | - | ||||||
|
Derivative
assets, at fair value
|
364 | - | ||||||
|
Prepaid
expenses
|
572 | 51 | ||||||
|
Prepaid
tax asset
|
490 | 48 | ||||||
|
Total
Assets
|
$ | 538,366 | $ | 262,095 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Liabilities
|
||||||||
|
Repurchase
agreements
|
$ | 411,893 | $ | - | ||||
|
Accrued
interest payable
|
114 | - | ||||||
|
Deferred
tax liabilities
|
124 | - | ||||||
|
Accrued
expenses and other liabilities
|
1,030 | 194 | ||||||
|
Dividends
payable
|
3,484 | - | ||||||
|
Total
liabilities
|
416,645 | 194 | ||||||
|
Common
stock, subject to possible conversion
|
- | 77,740 | ||||||
|
Stockholders’
Equity
|
||||||||
|
Common
stock, par value $0.0001 per share;
|
||||||||
|
450,000,000
and 75,000,000 shares authorized,
|
||||||||
|
respectively;
13,379,209 and 32,811,257 issued
|
||||||||
|
and
outstanding, respectively
|
1 | 2 | ||||||
|
Additional
paid-in capital
|
131,889 | 181,150 | ||||||
|
Accumulated
other comprehensive loss
|
(950 | ) | - | |||||
|
Cumulative
(losses) earnings
|
(5,735 | ) | 3,009 | |||||
|
Cumulative
distributions to stockholders
|
(3,484 | ) | - | |||||
|
Total
stockholders’ equity
|
121,721 | 184,161 | ||||||
|
Total
Liabilities and Stockholders’ Equity
|
$ | 538,366 | $ | 262,095 | ||||
-6-