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Two Harbors Investment Corp. Reports Fourth Quarter 2012 Financial Results

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. 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 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 Two Harbors' operations; however, as these measures are not in accordance with GAAP, they should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated. See the GAAP to Non-GAAP reconciliation table on page 10 of this release.

Additional Information

Stockholders and warrant holders 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, 601 Carlson Parkway, Suite 1400, Minnetonka, MN 55305, telephone 612-629-2500.

TWO HARBORS INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
   
December 31, 2012 December 31, 2011
(unaudited)
ASSETS
Available-for-sale securities, at fair value $ 13,666,954 $ 6,249,252
Trading securities, at fair value 1,002,062 1,003,301
Equity securities, at fair value 335,638
Mortgage loans held-for-sale, at fair value 58,607 5,782
Cash and cash equivalents 821,108 360,016
Restricted cash 302,322 166,587
Accrued interest receivable 42,613 23,437
Due from counterparties 39,974 32,587
Derivative assets, at fair value 462,080 251,856
Other assets 82,586   7,566  
Total Assets $ 16,813,944   $ 8,100,384  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Repurchase agreements $ 12,624,510 $ 6,660,148
Derivative liabilities, at fair value 129,294 49,080
Accrued interest payable 19,060 6,456
Due to counterparties 412,861 45,565
Accrued expenses 13,295 8,912
Dividends payable 164,347 56,239
Income taxes payable   3,898  
Total liabilities $ 13,363,367 $ 6,830,298
 
Stockholders’ Equity

Preferred stock, par value $0.01 per share; 50,000,000 sharesauthorized; no shares issued and outstanding

Common stock, par value $0.01 per share; 900,000,000 sharesauthorized and 298,813,258 and 140,596,708 shares issued andoutstanding, respectively
2,988 1,406
Additional paid-in capital 2,948,345 1,373,099
Accumulated other comprehensive income (loss) 696,458 (58,716 )
Cumulative earnings 449,358 157,452
Cumulative distributions to stockholders (646,572 ) (203,155 )
Total stockholders’ equity 3,450,577   1,270,086  
Total Liabilities and Stockholders’ Equity $ 16,813,944   $ 8,100,384  
 
TWO HARBORS INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
Certain prior period amounts have been reclassified to conform to the current period presentation
 

 
             

Three Months EndedDecember 31,
 

Year EndedDecember 31,
2012   2011 2012   2011
(unaudited)

(unaudited)
Interest income:
Available-for-sale securities $ 135,466 $ 71,713 $ 448,620 $ 197,126
Trading securities 1,295 1,376 4,873 4,159
Mortgage loans held-for-sale 247 2 609 2
Cash and cash equivalents 324   106   944   347  
Total interest income 137,332 73,197 455,046 201,634
Interest expense 24,369   9,129   72,106   22,709  
Net interest income 112,963 64,068 382,940 178,925
Other-than-temporary impairment losses (1,642 ) (1,437 ) (10,952 ) (5,102 )
Other income:
Gain on investment securities, net 108,219 360 122,466 36,520
(Loss) gain on interest rate swap and swaption agreements (6,096 ) 1,411 (159,775 ) (86,769 )
(Loss) gain on other derivative instruments (27,276 ) (10,719 ) (40,906 ) 26,755
Gain on mortgage loans 1,679     2,270    
Total other income (loss) 76,526 (8,948 ) (75,945 ) (23,494 )
Expenses:
Management fees 9,886 5,178 33,168 14,241
Other operating expenses 6,255   3,156   17,678   9,673  
Total expenses 16,141   8,334   50,846   23,914  
Income from continuing operations before income taxes 171,706 45,349 245,197 126,415
Benefit from income taxes (10,203 ) (6,170 ) (42,219 ) (1,106 )
Net income from continuing operations $ 181,909   $ 51,519   $ 287,416   $ 127,521  
Income (loss) from discontinued operations $ 7,391   $ (89 ) $ 4,490   $ (89 )
Net income attributable to common stockholders $ 189,300   $ 51,430   $ 291,906   $ 127,432  
 
Basic earnings (loss) per weighted average common share
Continuing operations $ 0.62 $ 0.37 $ 1.19 $ 1.29
Discontinued operations 0.02     0.02    
Net income $ 0.64   $ 0.37   $ 1.21   $ 1.29  
 
Diluted earnings (loss) per weighted average common share
Continuing operations $ 0.61 $ 0.37 $ 1.18 $ 1.29
Discontinued operations 0.03     0.02    
Net income $ 0.64   $ 0.37   $ 1.20   $ 1.29  
Dividends declared per common share $ 0.55   $ 0.40   $ 1.71   $ 1.60  
 
Weighted average shares outstanding - Basic 295,492,372 140,592,941 242,014,751 98,826,868
Weighted average shares outstanding - Diluted 296,229,245 140,592,941 242,432,156 98,826,868
 
Comprehensive income:
Net income $ 189,300 $ 51,430 $ 291,906 $ 127,432
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale securities, net (3,938 ) (32,391 ) 755,174   (81,335 )
Other comprehensive (loss) income (3,938 ) (32,391 ) 755,174   (81,335 )
Comprehensive income $ 185,362   $ 19,039   $ 1,047,080   $ 46,097  

TWO HARBORS INVESTMENT CORP.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)
(dollars in thousands, except per share data)
Certain prior period amounts have been reclassified to conform to the current period presentation
       

Three Months Ended

Year Ended

December 31,

December 31,
 
2012 2011 2012 2011
 
Reconciliation of net income attributable to common stockholders to
Core Earnings:
 
Net income attributable to common stockholders $ 189,300 $ 51,430 $ 291,906 $ 127,432
 
Adjustments for non-core earnings:
(Gain) loss on sale of securities and mortgage loans, net of tax (104,452 ) (2,035 ) (115,338 ) (31,619 )
Other-than-temporary impairment loss (gain), net of tax 1,642 1,437 10,952 5,102

Unrealized (gain) loss on trading securities, equity securitiesand mortgage loans, net of tax
(5,128 ) 1,624 (7,372 ) (2,329 )

Unrealized (loss) gain, net of tax, on interest rate swap andswaptions economically hedging repurchase agreements andavailable-for-sale securities
(12,180 ) (6,046 ) 73,830 43,141

Unrealized (gain) loss, net of tax, on interest rate swapeconomically hedging trading securities
(552 ) (669 ) 9,959 (4,099 )

Realized loss (gain) on termination or expiration of swapsand swaptions, net of tax
2,307 (728 ) 21,931 19,255
Loss (gain) on other derivative instruments, net of tax 20,428 10,546 29,707 (3,345 )
(Income) loss from discontinued operations (7,391 ) 89 (4,490 ) 89
       
Core Earnings $ 83,974   $ 55,648   $ 311,085   $ 153,627  
 
Weighted average shares outstanding - Basic 295,492,372 140,592,941 242,014,751 98,826,868
Weighted average shares outstanding - Diluted 296,229,245 140,592,941 242,432,156 98,826,868
 
Core Earnings per weighted average share outstanding - diluted $ 0.28 $ 0.40 $ 1.28 $ 1.55

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