Intraday Mover: Two Harbors Investment Corp. (NYSE: TWO)

On Thursday, Shares of Two Harbors Investment Corp. (NYSE: TWO) declined -0.74% to $13.49. The stock traded total volume of 4,390,839 shares higher than the average volume of 2.90M shares.

Two Harbors Investment Corp. (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, recently declared its financial results for the quarter ended December 31, 2018.

Earnings Summary:

Two Harbors incurred a Comprehensive Loss of ($307.90)M, or ($1.24) per weighted average basic common share, for the quarter ended December 31, 2018, as contrast to a Comprehensive Loss of ($102.80)M, or ($0.46) per weighted average basic common share, for the quarter ended September 30, 2018. The company records unrealized fair value gains and losses on the majority of RMBS, classified as available-for-sale, in Other Comprehensive Loss. On a Comprehensive Loss basis, the company recognized an annualized return on average common equity of (35.2%) and (11.9%) for the quarters ended December 31, 2018 and September 30, 2018, respectively.

The company stated a GAAP Net Loss of ($573.50)M, or ($2.31) per weighted average basic common share, for the quarter ended December 31, 2018, as contrast to GAAP Net Income of $17.00M, or $0.08 per weighted average basic common share, for the quarter ended September 30, 2018. On a GAAP Net (Loss) Income basis, the company recognized an annualized return on average common equity of (65.5%) and 2.0% for the quarters ended December 31, 2018 and September 30, 2018, respectively.

For the fourth quarter of 2018, the company recognized non-Core Earnings of:

  • net realized losses on RMBS of $248.90M;
  • net unrealized gains on certain RMBS of $2.90M;
  • other-than-temporary impairment loss of $0.10M;
  • net losses of $35.80M related to swap, cap and swaption terminations and expirations;
  • net unrealized losses of $219.10M associated with interest rate swaps, caps and swaptions economically hedging interest rate exposure (or duration);
  • net realized and unrealized losses on other derivative instruments of $35.00M;
  • net realized and unrealized losses on MSR of $113.50M;
  • servicing reserve expense of $1.20M;
  • non-cash equity compensation expense of $3.20M; and
  • net provision for income taxes on non-Core Earnings of $6.40M.

The company stated Core Earnings, counting dollar roll income, for the quarter ended December 31, 2018 of $120.70M, or $0.49 per weighted average basic common share. The company stated Core Earnings, counting dollar roll income, for the quarter ended September 30, 2018 of $107.00M or $0.48 per weighted average basic common share. On a Core Earnings basis, counting dollar roll income, the company recognized an annualized return on average common equity of 13.8% for the quarter ended December 31, 2018, contrast to 12.4% for the quarter ended September 30, 2018.

Other Key Metrics:

Other operating expenses, excluding non-cash LTIP amortization, for the quarter ended December 31, 2018 were $12.70M. The company’s annualized expense ratio was 1.1% of average equity, contrast to other operating expenses, excluding non-cash LTIP amortization, of $13.80M, or 1.3% of average equity, for the quarter ended September 30, 2018. These exclude non-cash equity compensation expense of $3.20M for both of the quarters ended September 30, 2018 and December 31, 2018.

TWO has the market capitalization of $3.65B and its EPS growth ratio for the past five years was -16.70%. The return on assets ratio of the Company was -0.40% while its return on investment ratio stands at -0.20%. Price to sales ratio was 4.76 while 58.40% of the stock was owned by institutional investors.

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