Maryland | 27-0312904 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
575 Lexington Avenue, Suite 2930 New York, New York | 10022 | |
(Address of Principal Executive Offices) | (Zip Code) |
Title of Each Class: | Name of Exchange on Which Registered: | |
Common Stock, par value $0.01 per share | New York Stock Exchange | |
8.125% Series A Cumulative Redeemable Preferred Stock | New York Stock Exchange | |
7.625% Series B Cumulative Redeemable Preferred Stock | New York Stock Exchange | |
7.25% Series C Cumulative Redeemable Preferred Stock | New York Stock Exchange | |
7.75% Series D Cumulative Redeemable Preferred Stock | New York Stock Exchange | |
7.50% Series E Cumulative Redeemable Preferred Stock | New York Stock Exchange |
Large accelerated filer x | Accelerated filer o | ||
Non-accelerated filer o | Smaller reporting company o | ||
Emerging growth company o |
Page | ||
PART I | ||
PART II | ||
PART III | ||
PART IV | ||
• | Agency RMBS, meaning RMBS whose principal and interest payments are guaranteed by the Government National Mortgage Association (or Ginnie Mae), the Federal National Mortgage Association (or Fannie Mae), or the Federal Home Loan Mortgage Corporation (or Freddie Mac); |
• | Non-Agency securities that are not issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac; |
• | MSR; and |
• | Other financial assets comprising approximately 5% to 10% of the portfolio. |
• | changes in interest rates and the market value of our target assets; |
• | changes in prepayment rates of mortgages underlying our target assets; |
• | the occurrence, extent and timing of credit losses within our portfolio; |
• | our exposure to adjustable-rate and negative amortization mortgage loans underlying our target assets; |
• | the state of the credit markets and other general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; |
• | the concentration of the credit risks to which we are exposed; |
• | legislative and regulatory actions affecting our business; |
• | the availability and cost of our target assets; |
• | the availability and cost of financing for our target assets, including repurchase agreement financing, lines of credit, revolving credit facilities and financing through the FHLB; |
• | declines in home prices; |
• | increases in payment delinquencies and defaults on the mortgages comprising and underlying our target assets; |
• | changes in liquidity in the market for real estate securities, the re-pricing of credit risk in the capital markets, inaccurate ratings of securities by rating agencies, rating agency downgrades of securities, and increases in the supply of real estate securities available-for-sale; |
• | changes in the values of securities we own and the impact of adjustments reflecting those changes on our consolidated statements of comprehensive (loss) income and balance sheets, including our stockholders’ equity; |
• | our ability to generate cash flow from our target assets; |
• | our ability to effectively execute and realize the benefits of strategic transactions and initiatives we have pursued or may in the future pursue; |
• | changes in the competitive landscape within our industry, including changes that may affect our ability to attract and retain personnel; |
• | our exposure to legal and regulatory claims, penalties or enforcement activities, including those arising from our ownership and management of MSR and prior securitization transactions; |
• | our exposure to counterparties involved in our MSR business and prior securitization transactions and our ability to enforce representations and warranties made by them; |
• | our ability to acquire MSR and successfully operate our seller-servicer subsidiary and oversee the activities of our subservicers; |
• | our ability to successfully diversify our business into new asset classes, and manage the new risks to which they may expose us; |
• | our ability to manage various operational and regulatory risks associated with our business; |
• | interruptions in or impairments to our communications and information technology systems; |
• | our ability to maintain appropriate internal controls over financial reporting; |
• | our ability to establish, adjust and maintain appropriate hedges for the risks in our portfolio; |
• | our ability to maintain our REIT qualification for U.S. federal income tax purposes; and |
• | limitations imposed on our business due to our REIT status and our status as exempt from registration under the 1940 Act. |
• | Rates Strategy - Includes Agency RMBS, MSR and related hedging transactions. The performance of this strategy is most affected by changes in interest rates, prepayments and mortgage spreads. These assets have minimal exposure to the underlying credit performance of the investments. |
Agency RMBS | Agency RMBS collateralized by fixed rate mortgage loans, adjustable-rate mortgage (or ARM) loans or hybrid mortgage loans, or derivatives thereof, including: | |
• | mortgage pass-through certificates; | |
• | collateralized mortgage obligations; | |
• | Freddie Mac gold certificates; | |
• | Fannie Mae certificates; | |
• | Ginnie Mae certificates; | |
• | “to-be-announced” forward contracts, or TBAs, which are pools of mortgages with specific investment terms to be issued by government sponsored entities, or GSEs, at a future date; and | |
• | interest-only and inverse interest-only securities. | |
MSR | The right to control the servicing of mortgage loans and receive the servicing income therefrom; the actual servicing functions are outsourced to appropriately licensed third-party subservicers, which service the loans in their own names. |
• | Credit Strategy - Includes non-Agency securities and related hedging transactions. The performance of this strategy is most affected by changes in credit performance of the underlying collateral. These assets have interest rate and mortgage spread exposure, although such exposures are not viewed to be the main drivers of performance. |
Non-Agency securities | Non-Agency securities collateralized by prime mortgage loans, Alt-A mortgage loans, pay-option ARM loans and subprime mortgage loans, which may have fixed rate, adjustable rate or hybrid rate terms. | |
Non-Agency securities includes both senior and mezzanine securities. Senior refers to non-Agency securities that represent the senior-most tranches (that is, the tranches which have the highest priority claim to cash flows from the related collateral pool) within the securities’ structure. Mezzanine refers to subordinated tranches within the collateral pool. The non-Agency securities we purchase may include investment-grade and non-investment grade classes, including non-rated securities. | ||
Hybrid mortgage loans have terms with interest rates that are fixed for a specified period of time and, thereafter, generally adjust annually to an increment over a specified interest rate index. ARMs refer to hybrid and adjustable-rate mortgage loans which typically have interest rates that adjust annually to an increment over a specified interest rate index. |
• | no investment shall be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; |
• | no investment shall be made that would cause us to be regulated as an investment company under the 1940 Act; |
• | we will primarily invest within our target assets, consisting primarily of Agency RMBS, non-Agency securities, residential mortgage loans, MSR and commercial real estate assets, inclusive of commercial real estate loans, commercial real property, CMBS, commercial corporate debt and loans and other commercial real estate related investments in the U.S; approximately 5% to 10% of our portfolio may include other financial assets; and |
• | until appropriate investments can be identified, we will invest available cash in interest-bearing and short-term investments that are consistent with (i) our intention to qualify as a REIT and (ii) our exemption from investment company status under the 1940 Act. |
• | build an investment portfolio consisting of Agency RMBS, non-Agency securities, MSR and other financial assets that will generate attractive returns while having a moderate risk profile; |
• | manage financing, interest, prepayment rate, credit and similar risks; |
• | capitalize on discrepancies in the relative valuations in the mortgage and housing markets; and |
• | provide regular quarterly dividend distributions to stockholders. |
• | hedging can be expensive, particularly during periods of volatile or rapidly changing interest rates; |
• | available hedges may not correspond directly with the risks for which protection is sought; |
• | the duration of the hedge may not match the duration of the related liability; |
• | the amount of income that a REIT may earn from certain hedging transactions (other than through our TRSs) is limited by U.S. federal income tax provisions; |
• | the credit quality of a hedging counterparty may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and |
• | the hedging counterparty may default on its obligations. |
• | We may purchase securities that have a higher interest rate than the market interest rate at the time. In exchange for this higher interest rate, we may pay a premium over the par value to acquire the security. In accordance with U.S. GAAP, we may amortize this premium over the estimated term of the security. If the security is prepaid in whole or in part prior to its maturity date, however, we may be required to expense the premium that was prepaid at the time of the prepayment. |
• | A substantial portion of our adjustable-rate Agency RMBS and non-Agency securities may bear interest rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin. If an adjustable-rate security is prepaid prior to or soon after the time of adjustment to a fully-indexed rate, we will have held that security while it was least profitable and lost the opportunity to receive interest at the fully indexed rate over the remainder of its expected life. |
• | If we are unable to acquire new Agency RMBS and non-Agency securities similar to the prepaid security, our financial condition, results of operations and cash flows would suffer. |
• | actual receipt of an improper benefit or profit in money, property or services; or |
• | a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated. |
• | changes in financial estimates by analysts; |
• | fluctuations in our results of operations or financial condition or the results of operations or financial condition of companies perceived to be similar to us; |
• | general economic and financial and real estate market conditions; |
• | changes in market valuations of similar companies; |
• | monetary policy and regulatory developments in the U.S.; and |
• | additions or departures of key personnel at Pine River. |
Quarter Ended | Common Stock | |||||||
2018 | High | Low | ||||||
December 31 | $ | 15.06 | $ | 12.63 | ||||
September 30 | $ | 16.23 | $ | 14.48 | ||||
June 30 | $ | 16.27 | $ | 15.02 | ||||
March 31 | $ | 16.30 | $ | 13.85 | ||||
2017 | ||||||||
December 31 | $ | 20.42 | $ | 15.21 | ||||
September 30 | $ | 20.51 | $ | 19.16 | ||||
June 30 | $ | 21.08 | $ | 19.10 | ||||
March 31 | $ | 19.64 | $ | 17.02 |
Declaration Date | Record Date | Payment Date | Cash Dividend Per Share | |||||
December 18, 2018 | December 31, 2018 | January 28, 2019 | $ | 0.47000 | ||||
September 20, 2018 | October 1, 2018 | October 29, 2018 | $ | 0.31163 | ||||
July 13, 2018 | July 25, 2018 | July 30, 2018 | $ | 0.15837 | ||||
June 19, 2018 | June 29, 2018 | July 27, 2018 | $ | 0.47000 | ||||
March 20, 2018 | April 2, 2018 | April 27, 2018 | $ | 0.47000 | ||||
December 14, 2017 | December 26, 2017 | December 29, 2017 | $ | 0.47000 | ||||
September 14, 2017 | September 29, 2017 | October 27, 2017 | $ | 0.52000 | ||||
June 15, 2017 | June 30, 2017 | July 27, 2017 | $ | 0.52000 | ||||
March 14, 2017 | March 31, 2017 | April 27, 2017 | $ | 0.50000 |
December 31, 2018 | ||||||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column of this table) | |||||||
Equity compensation plans approved by stockholders (1) | — | $ | — | 2,125,725 | ||||||
Equity compensation plans not approved by stockholders | — | — | — | |||||||
Total | — | $ | — | 2,125,725 |
(1) | For a detailed description of the Plan, see Note 17 - Equity Incentive Plan of the consolidated financial statements included under Item 8 of this Annual Report on Form 10-K. |
December 31, | ||||||||||||||||||||
Index | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Two Harbors Investment Corp. | $ | 146.62 | $ | 163.79 | $ | 129.51 | $ | 107.80 | $ | 119.47 | ||||||||||
S&P 500 | $ | 150.27 | $ | 157.17 | $ | 129.02 | $ | 115.24 | $ | 113.68 | ||||||||||
Bloomberg REIT Mortgage Index | $ | 153.65 | $ | 158.25 | $ | 131.58 | $ | 107.61 | $ | 119.43 |
(in thousands) | For the Years Ended December 31, | ||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Interest income: | |||||||||||||||||||
Available-for-sale securities (1) | $ | 847,325 | $ | 631,853 | $ | 414,050 | $ | 458,515 | $ | 506,268 | |||||||||
Residential mortgage loans held-for-investment in securitization trusts | — | 102,886 | 133,993 | 95,740 | 41,220 | ||||||||||||||
Other (1) | 22,707 | 10,350 | 27,037 | 38,624 | 29,719 | ||||||||||||||
Total interest income | 870,032 | 745,089 | 575,080 | 592,879 | 577,207 | ||||||||||||||
Interest expense: | |||||||||||||||||||
Repurchase agreements (1) | 469,437 | 210,430 | 88,850 | 72,653 | 76,177 | ||||||||||||||
Collateralized borrowings in securitization trusts | — | 82,573 | 97,729 | 57,216 | 26,760 | ||||||||||||||
Federal Home Loan Bank advances | 20,417 | 36,911 | 26,101 | 11,921 | 4,513 | ||||||||||||||
Revolving credit facilities | 10,820 | 2,341 | 604 | — | — | ||||||||||||||
Convertible senior notes | 18,997 | 17,933 | — | — | — | ||||||||||||||
Total interest expense | 519,671 | 350,188 | 213,284 | 141,790 | 107,450 | ||||||||||||||
Net interest income | 350,361 | 394,901 | 361,796 | 451,089 | 469,757 | ||||||||||||||
Other-than-temporary impairment losses | (470 | ) | (789 | ) | (1,822 | ) | (535 | ) | (392 | ) | |||||||||
Other (loss) income: | |||||||||||||||||||
(Loss) gain on investment securities (1) | (341,312 | ) | (34,695 | ) | (107,374 | ) | 363,379 | 87,201 | |||||||||||
Servicing income | 343,096 | 209,065 | 143,579 | 127,398 | 128,160 | ||||||||||||||
Loss on servicing asset | (69,033 | ) | (91,033 | ) | (83,531 | ) | (99,584 | ) | (128,388 | ) | |||||||||
Gain (loss) on interest rate swap, cap and swaption agreements | 16,043 | (9,753 | ) | 45,371 | (210,621 | ) | (345,647 | ) | |||||||||||
(Loss) gain on other derivative instruments | (54,857 | ) | (70,159 | ) | 99,379 | (5,049 | ) | (17,529 | ) | ||||||||||
Other income (loss) | 3,037 | 30,141 | 9,964 | (7,686 | ) | 35,836 | |||||||||||||
Total other (loss) income | (103,026 | ) | 33,566 | 107,388 | 167,837 | (240,367 | ) | ||||||||||||
Expenses: | |||||||||||||||||||
Management fees | 30,272 | 40,472 | 39,261 | 49,116 | 48,803 | ||||||||||||||
Servicing expenses | 61,136 | 35,289 | 32,119 | 28,028 | 25,925 | ||||||||||||||
Securitization deal costs | — | — | 6,152 | 8,971 | 4,638 | ||||||||||||||
Other operating expenses | 62,983 | 54,160 | 56,605 | 56,764 | 56,231 | ||||||||||||||
Merger transaction costs (1) | 86,703 | — | — | — | — | ||||||||||||||
Restructuring charges (1) | 8,238 | — | 2,990 | — | — | ||||||||||||||
Total expenses | 249,332 | 129,921 | 137,127 | 142,879 | 135,597 | ||||||||||||||
(Loss) income from continuing operations before income taxes | (2,467 | ) | 297,757 | 330,235 | 475,512 | 93,401 | |||||||||||||
Provision for (benefit from) income taxes | 41,823 | (10,482 | ) | 12,314 | (16,560 | ) | (73,738 | ) | |||||||||||
Net (loss) income from continuing operations | (44,290 | ) | 308,239 | 317,921 | 492,072 | 167,139 | |||||||||||||
Income from discontinued operations, net of tax | — | 44,146 | 35,357 | 138 | — | ||||||||||||||
Net (loss) income | (44,290 | ) | 352,385 | 353,278 | 492,210 | 167,139 | |||||||||||||
Income from discontinued operations attributable to noncontrolling interest | — | 3,814 | — | — | — | ||||||||||||||
Net (loss) income attributable to Two Harbors Investment Corp. | (44,290 | ) | 348,571 | 353,278 | 492,210 | 167,139 | |||||||||||||
Dividends on preferred stock | 65,395 | 25,122 | — | — | — | ||||||||||||||
Net (loss) income attributable to common stockholders | $ | (109,685 | ) | $ | 323,449 | $ | 353,278 | $ | 492,210 | $ | 167,139 |
(1) | During the year-ended December 31, 2018, the activity disclosed within was impacted by the acquisition of CYS, on July 31, 2018. Refer to Note 3 - Acquisition of CYS Investments, Inc. for further information. |
(in thousands, except share data) | For the Years Ended December 31, | ||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Basic (loss) earnings per weighted average share: | |||||||||||||||||||
Continuing operations | $ | (0.53 | ) | $ | 1.62 | $ | 1.83 | $ | 2.70 | $ | 0.91 | ||||||||
Discontinued operations | — | 0.23 | 0.20 | — | — | ||||||||||||||
Net (loss) income | $ | (0.53 | ) | $ | 1.85 | $ | 2.03 | $ | 2.70 | $ | 0.91 | ||||||||
Diluted (loss) earnings per weighted average share: | |||||||||||||||||||
Continuing operations | $ | (0.53 | ) | $ | 1.60 | $ | 1.83 | $ | 2.70 | $ | 0.91 | ||||||||
Discontinued operations | — | 0.21 | 0.20 | — | — | ||||||||||||||
Net (loss) income | $ | (0.53 | ) | $ | 1.81 | $ | 2.03 | $ | 2.70 | $ | 0.91 | ||||||||
Dividends declared per common share | $ | 1.88 | $ | 2.01 | $ | 1.86 | $ | 2.08 | $ | 2.08 | |||||||||
Weighted average number of shares of common stock: | |||||||||||||||||||
Basic | 206,020,502 | 174,433,999 | 174,036,852 | 182,623,869 | 183,005,928 | ||||||||||||||
Diluted | 206,020,502 | 188,133,341 | 174,036,852 | 182,623,869 | 183,005,928 | ||||||||||||||
Comprehensive (loss) income: | |||||||||||||||||||
Net (loss) income | $ | (44,290 | ) | $ | 352,385 | $ | 353,278 | $ | 492,210 | $ | 167,139 | ||||||||
Other comprehensive (loss) income, net of tax: | |||||||||||||||||||
Unrealized (loss) gain on available-for-sale securities, net | (233,914 | ) | 135,586 | (159,834 | ) | (496,728 | ) | 411,054 | |||||||||||
Other comprehensive (loss) income | (233,914 | ) | 135,586 | (159,834 | ) | (496,728 | ) | 411,054 | |||||||||||
Comprehensive (loss) income | (278,204 | ) | 487,971 | 193,444 | (4,518 | ) | 578,193 | ||||||||||||
Comprehensive income attributable to noncontrolling interest | — | 3,814 | — | — | — | ||||||||||||||
Comprehensive (loss) income attributable to Two Harbors Investment Corp. | (278,204 | ) | 484,157 | 193,444 | (4,518 | ) | 578,193 | ||||||||||||
Dividends on preferred stock | 65,395 | 25,122 | — | — | — | ||||||||||||||
Comprehensive (loss) income attributable to common stockholders | $ | (343,599 | ) | $ | 459,035 | $ | 193,444 | $ | (4,518 | ) | $ | 578,193 |
At December 31, | |||||||||||||||||||
(in thousands) | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||
Available-for-sale securities | $ | 25,552,604 | $ | 21,220,819 | $ | 13,116,171 | $ | 7,825,320 | $ | 14,341,102 | |||||||||
Mortgage servicing rights | $ | 1,993,440 | $ | 1,086,717 | $ | 693,815 | $ | 493,688 | $ | 452,006 | |||||||||
Total assets | $ | 30,132,479 | $ | 24,789,313 | $ | 20,112,056 | $ | 14,575,772 | $ | 21,084,309 | |||||||||
Repurchase agreements | $ | 23,133,476 | $ | 19,451,207 | $ | 8,865,184 | $ | 4,948,926 | $ | 12,932,463 | |||||||||
Federal Home Loan Bank advances | $ | 865,024 | $ | 1,215,024 | $ | 4,000,000 | $ | 3,785,000 | $ | 2,500,000 | |||||||||
Total stockholders’ equity | $ | 4,254,489 | $ | 3,571,424 | $ | 3,401,112 | $ | 3,576,561 | $ | 4,068,042 |
• | Agency RMBS (which includes inverse interest-only Agency securities classified as “Agency Derivatives” for purposes of U.S. generally accepted accounting principles, or U.S. GAAP), meaning RMBS whose principal and interest payments are guaranteed by the Government National Mortgage Association (or Ginnie Mae), the Federal National Mortgage Association (or Fannie Mae), or the Federal Home Loan Mortgage Corporation (or Freddie Mac), or collectively, the government sponsored entities, or GSEs; |
• | Non-Agency securities, meaning securities that are not issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac; |
• | MSR; and |
• | Other financial assets comprising approximately 5% to 10% of the portfolio. |
As of | |||||||||
December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | |||||
Rates strategy | 74% | 76% | 68% | 69% | 68% | ||||
Credit strategy | 26% | 24% | 32% | 31% | 32% |
Three Months Ended | |||||||||
December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | |||||
Average annualized portfolio yield (1) | 4.14% | 3.76% | 3.91% | 3.77% | 3.69% | ||||
Cost of financing (2) | 2.53% | 2.28% | 1.98% | 1.84% | 1.72% | ||||
Net portfolio yield | 1.61% | 1.48% | 1.93% | 1.93% | 1.97% |
(1) | Average annualized yield incorporates future prepayment, credit loss and other assumptions, all of which are estimates and subject to change. |
(2) | Cost of financing includes swap and cap interest rate spread. |
• | Managing an investment portfolio to generate attractive returns with balanced risks. We operate a hybrid REIT model, diversifying our portfolio across Agency RMBS and non-Agency securities in combination with MSR and derivative hedging instruments. We manage to an overall low level of interest rate exposure and leverage relative to our peers. We believe effectively managing an appropriate balance of risks within our portfolio is critical to providing attractive risk-adjusted returns to our stockholders and our ability to adjust our allocations and deploy capital across sectors allows us to optimize portfolio results over time. |
• | Continuing to grow shareholder base and market capitalization. In 2018, we completed the acquisition of CYS, growing the company’s market capitalization and shareholder base, increasing the liquidity of the company’s stock and driving expense lower. |
• | Maintaining “best in class” corporate governance, investor relations and disclosure practices. |
(dollars in thousands) | December 31, 2018 | December 31, 2017 | |||||||||||
Agency | |||||||||||||
Fixed Rate | $ | 21,665,960 | 84.6 | % | 18,215,505 | 85.5 | % | ||||||
Hybrid ARM | 19,073 | 0.1 | % | 23,220 | 0.1 | % | |||||||
Total Agency | 21,685,033 | 84.7 | % | 18,238,725 | 85.6 | % | |||||||
Agency Derivatives | 70,257 | 0.3 | % | 90,975 | 0.4 | % | |||||||
Non-Agency | |||||||||||||
Senior | 2,854,731 | 11.1 | % | 1,956,145 | 9.2 | % | |||||||
Mezzanine | 928,632 | 3.6 | % | 960,865 | 4.5 | % | |||||||
Interest-only securities | 84,208 | 0.3 | % | 65,084 | 0.3 | % | |||||||
Total Non-Agency | 3,867,571 | 15.0 | % | 2,982,094 | 14.0 | % | |||||||
Total | $ | 25,622,861 | $ | 21,311,794 |
Three Months Ended | |||||||||||||||
Agency RMBS | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | ||||||||||
Weighted Average CPR | 6.8 | % | 8.1 | % | 9.2 | % | 7.0 | % | 7.6 | % |
December 31, 2018 | |||||||||||||||||||||||
(dollars in thousands) | Principal/ Current Face | Carrying Value | % of Agency Portfolio | % Prepayment Protected | Weighted Average Coupon Rate | Amortized Cost | Weighted Average Loan Age (months) | ||||||||||||||||
Agency RMBS AFS: | |||||||||||||||||||||||
30-Year Fixed | |||||||||||||||||||||||
3.0-3.5% | $ | 234,323 | $ | 234,521 | 1.1 | % | 100.0 | % | 3.5 | % | $ | 235,514 | 19 | ||||||||||
4.0-4.5% | 18,877,967 | 19,533,066 | 89.8 | % | 91.8 | % | 4.3 | % | 19,812,426 | 19 | |||||||||||||
≥ 5% | 1,367,700 | 1,452,170 | 6.7 | % | 74.4 | % | 5.1 | % | 1,449,256 | 24 | |||||||||||||
20,479,990 | 21,219,757 | 97.6 | % | 90.7 | % | 4.3 | % | 21,497,196 | 19 | ||||||||||||||
15-Year & Other Fixed | 277,860 | 270,787 | 1.2 | % | 0.3 | % | 4.7 | % | 272,435 | 149 | |||||||||||||
Hybrid ARM | 17,940 | 19,073 | 0.1 | % | — | % | 5.1 | % | 18,855 | 177 | |||||||||||||
Interest-only | 3,115,967 | 175,416 | 0.8 | % | — | % | 2.0 | % | 209,901 | 92 | |||||||||||||
Agency Derivatives | 476,299 | 70,257 | 0.3 | % | — | % | 4.0 | % | 69,496 | 173 | |||||||||||||
Total Agency RMBS | $ | 24,368,056 | $ | 21,755,290 | 100.0 | % | 88.4 | % | $ | 22,067,883 |
December 31, 2017 | |||||||||||||||||||||||
(dollars in thousands) | Principal/ Current Face | Carrying Value | % of Agency Portfolio | % Prepayment Protected | Weighted Average Coupon Rate | Amortized Cost | Weighted Average Loan Age (months) | ||||||||||||||||
Agency RMBS AFS: | |||||||||||||||||||||||
30-Year Fixed | |||||||||||||||||||||||
3.0-3.5% | $ | 4,370,847 | $ | 4,509,743 | 24.6 | % | 95.9 | % | 3.5 | % | $ | 4,569,946 | 13 | ||||||||||
4.0-4.5% | 11,990,911 | 12,764,960 | 69.7 | % | 99.1 | % | 4.2 | % | 12,812,335 | 17 | |||||||||||||
≥ 5% | 453,054 | 500,880 | 2.7 | % | 100.0 | % | 5.4 | % | 489,312 | 90 | |||||||||||||
16,814,812 | 17,775,583 | 97.0 | % | 98.3 | % | 4.1 | % | 17,871,593 | 18 | ||||||||||||||
15-Year & Other Fixed | 245,383 | 244,834 | 1.3 | % | 0.6 | % | 4.9 | % | 242,033 | 153 | |||||||||||||
Hybrid ARM | 21,654 | 23,220 | 0.1 | % | —% | 5.0 | % | 22,831 | 166 | ||||||||||||||
Interest-only | 2,941,772 | 195,088 | 1.1 | % | —% | 2.2 | % | 223,289 | 77 | ||||||||||||||
Agency Derivatives | 588,246 | 90,975 | 0.5 | % | —% | 4.9 | % | 86,734 | 163 | ||||||||||||||
Total Agency RMBS | $ | 20,611,867 | $ | 18,329,700 | 100.0 | % | 95.4 | % | $ | 18,446,480 |
December 31, 2018 | |||||||||||||||||||
(in thousands) | Principal/ Current Face | Un-amortized Premium | Accretable Purchase Discount | Credit Reserve Purchase Discount | Amortized Cost | ||||||||||||||
Principal and interest securities | |||||||||||||||||||
Senior | $ | 4,227,631 | $ | 5,381 | $ | (477,682 | ) | $ | (1,204,325 | ) | $ | 2,551,005 | |||||||
Mezzanine | 1,132,493 | 1,301 | (216,437 | ) | (118,437 | ) | 798,920 | ||||||||||||
Total P&I securities | 5,360,124 | 6,682 | (694,119 | ) | (1,322,762 | ) | 3,349,925 | ||||||||||||
Interest-only | 5,137,169 | 83,846 | — | — | 83,846 | ||||||||||||||
Total Non-Agency | $ | 10,497,293 | $ | 90,528 | $ | (694,119 | ) | $ | (1,322,762 | ) | $ | 3,433,771 |
December 31, 2017 | |||||||||||||||||||
(in thousands) | Principal/ Current Face | Un-amortized Premium | Accretable Purchase Discount | Credit Reserve Purchase Discount | Amortized Cost | ||||||||||||||
Principal and interest securities | |||||||||||||||||||
Senior | $ | 2,552,972 | $ | 2,435 | $ | (424,580 | ) | $ | (534,160 | ) | $ | 1,596,667 | |||||||
Mezzanine | 1,205,162 | 322 | (251,453 | ) | (119,453 | ) | 834,578 | ||||||||||||
Total P&I securities | 3,758,134 | 2,757 | (676,033 | ) | (653,613 | ) | 2,431,245 | ||||||||||||
Interest-only | 5,614,925 | 65,667 | — | — | 65,667 | ||||||||||||||
Total Non-Agency | $ | 9,373,059 | $ | 68,424 | $ | (676,033 | ) | $ | (653,613 | ) | $ | 2,496,912 |
(in thousands, except share data) | Three Months Ended | Year Ended | ||||||||||||||||||
Income Statement Data: | December 31, | December 31, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2016 | ||||||||||||||||
Interest income: | ||||||||||||||||||||
Available-for-sale securities | $ | 242,535 | $ | 182,712 | $ | 847,325 | $ | 631,853 | $ | 414,050 | ||||||||||
Residential mortgage loans held-for-investment in securitization trusts | — | 10,567 | — | 102,886 | 133,993 | |||||||||||||||
Other | 9,420 | 1,826 | 22,707 | 10,350 | 27,037 | |||||||||||||||
Total interest income | 251,955 | 195,105 | 870,032 | 745,089 | 575,080 | |||||||||||||||
Interest expense: | ||||||||||||||||||||
Repurchase agreements | 146,702 | 74,674 | 469,437 | 210,430 | 88,850 | |||||||||||||||
Collateralized borrowings in securitization trusts | — | 8,374 | — | 82,573 | 97,729 | |||||||||||||||
Federal Home Loan Bank advances | 5,762 | 6,357 | 20,417 | 36,911 | 26,101 | |||||||||||||||
Revolving credit facilities | 5,044 | 614 | 10,820 | 2,341 | 604 | |||||||||||||||
Convertible senior notes | 4,793 | 4,776 | 18,997 | 17,933 | — | |||||||||||||||
Total interest expense | 162,301 | 94,795 | 519,671 | 350,188 | 213,284 | |||||||||||||||
Net interest income | 89,654 | 100,310 | 350,361 | 394,901 | 361,796 | |||||||||||||||
Other-than-temporary impairment losses | (107 | ) | (360 | ) | (470 | ) | (789 | ) | (1,822 | ) | ||||||||||
Other (loss) income: | ||||||||||||||||||||
Loss on investment securities | (245,763 | ) | (19,210 | ) | (341,312 | ) | (34,695 | ) | (107,374 | ) | ||||||||||
Servicing income | 104,623 | 60,597 | 343,096 | 209,065 | 143,579 | |||||||||||||||
Loss on servicing asset | (171,284 | ) | (593 | ) | (69,033 | ) | (91,033 | ) | (83,531 | ) | ||||||||||
(Loss) gain on interest rate swap, cap and swaption agreements | (239,492 | ) | 57,237 | 16,043 | (9,753 | ) | 45,371 | |||||||||||||
(Loss) gain on other derivative instruments | (39,122 | ) | (3,831 | ) | (54,857 | ) | (70,159 | ) | 99,379 | |||||||||||
Other income | 342 | 9,088 | 3,037 | 30,141 | 9,964 | |||||||||||||||
Total other (loss) income | (590,696 | ) | 103,288 | (103,026 | ) | 33,566 | 107,388 | |||||||||||||
Expenses: | ||||||||||||||||||||
Management fees | 12,152 | 10,671 | 30,272 | 40,472 | 39,261 | |||||||||||||||
Servicing expenses | 18,610 | 10,135 | 61,136 | 35,289 | 32,119 | |||||||||||||||
Securitization deal costs | — | — | — | — | 6,152 | |||||||||||||||
Other operating expenses | 15,943 | 9,787 | 62,983 | 54,160 | 56,605 | |||||||||||||||
Acquisition transaction costs | — | — | 86,703 | — | ||||||||||||||||
Restructuring charges | — | — | 8,238 | — | 2,990 | |||||||||||||||
Total expenses | 46,705 | 30,593 | 249,332 | 129,921 | 137,127 | |||||||||||||||
(Loss) income from continuing operations before income taxes | (547,854 | ) | 172,645 | (2,467 | ) | 297,757 | 330,235 | |||||||||||||
Provision for (benefit from) income taxes | 6,681 | 10,618 | 41,823 | (10,482 | ) | 12,314 | ||||||||||||||
Net (loss) income from continuing operations | (554,535 | ) | 162,027 | (44,290 | ) | 308,239 | 317,921 | |||||||||||||
Income from discontinued operations, net of tax | — | 4,977 | — | 44,146 | 35,357 | |||||||||||||||
Net (loss) income | (554,535 | ) | 167,004 | (44,290 | ) | 352,385 | 353,278 | |||||||||||||
Income from discontinued operations attributable to noncontrolling interest | — | 1,100 | — | 3,814 | — | |||||||||||||||
Net (loss) income attributable to Two Harbors Investment Corp. | (554,535 | ) | 165,904 | (44,290 | ) | 348,571 | 353,278 | |||||||||||||
Dividends on preferred stock | 18,950 | 11,949 | 65,395 | 25,122 | — | |||||||||||||||
Net (loss) income attributable to common stockholders | $ | (573,485 | ) | $ | 153,955 | $ | (109,685 | ) | $ | 323,449 | $ | 353,278 |
(in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||
Income Statement Data: | December 31, | December 31, | ||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2016 | ||||||||||||||||
Basic (loss) earnings per weighted average share: | (unaudited) | |||||||||||||||||||
Continuing operations | $ | (2.31 | ) | $ | 0.86 | $ | (0.53 | ) | $ | 1.62 | $ | 1.83 | ||||||||
Discontinued operations | — | 0.02 | — | 0.23 | 0.20 | |||||||||||||||
Net (loss) income | $ | (2.31 | ) | $ | 0.88 | $ | (0.53 | ) | $ | 1.85 | $ | 2.03 | ||||||||
Diluted (loss) earnings per weighted average share: | ||||||||||||||||||||
Continuing operations | $ | (2.31 | ) | $ | 0.82 | $ | (0.53 | ) | $ | 1.60 | $ | 1.83 | ||||||||
Discontinued operations | — | 0.02 | — | 0.21 | 0.20 | |||||||||||||||
Net (loss) income | $ | (2.31 | ) | $ | 0.84 | $ | (0.53 | ) | $ | 1.81 | $ | 2.03 | ||||||||
Dividends declared per common share | $ | 0.47 | $ | 0.47 | $ | 1.88 | $ | 2.01 | $ | 1.86 | ||||||||||
Weighted average number of shares of common stock: | ||||||||||||||||||||
Basic | 248,081,168 | 174,490,106 | 206,020,502 | 174,433,999 | 174,036,852 | |||||||||||||||
Diluted | 248,081,168 | 188,938,030 | 206,020,502 | 188,133,341 | 174,036,852 | |||||||||||||||
Comprehensive (loss) income: | ||||||||||||||||||||
Net (loss) income | $ | (554,535 | ) | $ | 167,004 | $ | (44,290 | ) | $ | 352,385 | $ | 353,278 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
Unrealized gain (loss) on available-for-sale securities | 265,546 | (88,227 | ) | (233,914 | ) | 135,586 | (159,834 | ) | ||||||||||||
Other comprehensive income (loss) | 265,546 | (88,227 | ) | (233,914 | ) | 135,586 | (159,834 | ) | ||||||||||||
Comprehensive (loss) income | (288,989 | ) | 78,777 | (278,204 | ) | 487,971 | $ | 193,444 | ||||||||||||
Comprehensive income attributable to noncontrolling interest | — | 1,100 | — | 3,814 | — | |||||||||||||||
Comprehensive (loss) income attributable to Two Harbors Investment Corp. | (288,989 | ) | 77,677 | (278,204 | ) | 484,157 | 193,444 | |||||||||||||
Dividends on preferred stock | 18,950 | 11,949 | 65,395 | 25,122 | — | |||||||||||||||
Comprehensive (loss) income attributable to common stockholders | $ | (307,939 | ) | $ | 65,728 | $ | (343,599 | ) | $ | 459,035 | $ | 193,444 |
(in thousands) | December 31, 2018 | December 31, 2017 | ||||||
Balance Sheet Data: | ||||||||
(unaudited) | ||||||||
Available-for-sale securities | $ | 25,552,604 | $ | 21,220,819 | ||||
Mortgage servicing rights | $ | 1,993,440 | $ | 1,086,717 | ||||
Total assets | $ | 30,132,479 | $ | 24,789,313 | ||||
Repurchase agreements | $ | 23,133,476 | $ | 19,451,207 | ||||
Federal Home Loan Bank advances | $ | 865,024 | $ | 1,215,024 | ||||
Total stockholders’ equity | $ | 4,254,489 | $ | 3,571,424 |
Three Months Ended December 31, 2018 | Year Ended December 31, 2018 | ||||||||||||||||||||
(dollars in thousands) | Average Balance (1) | Interest Income/Expense | Net Yield/Cost of Funds (2) | Average Balance (1) | Interest Income/Expense | Net Yield/Cost of Funds (2) | |||||||||||||||
Interest-earning assets | |||||||||||||||||||||
Agency available-for-sale securities | $ | 21,401,757 | $ | 176,997 | 3.3 | % | $ | 19,782,775 | $ | 620,582 | 3.1 | % | |||||||||
Non-Agency available-for-sale securities | 3,405,550 | 65,538 | 7.7 | % | 2,935,601 | 226,743 | 7.7 | % | |||||||||||||
Other | 28,551 | 9,420 | 4.1 | % | 30,148 | 22,707 | 4.2 | % | |||||||||||||
Total interest income/net asset yield | $ | 24,835,858 | $ | 251,955 | 4.1 | % | $ | 22,748,524 | $ | 870,032 | 3.8 | % | |||||||||
Interest-bearing liabilities | |||||||||||||||||||||
Repurchase agreements, FHLB advances, revolving credit facilities and borrowings in securitization trusts collateralized by: | |||||||||||||||||||||
Agency available-for-sale securities | $ | 19,796,348 | $ | 125,014 | 2.5 | % | $ | 18,603,631 | $ | 396,786 | 2.1 | % | |||||||||
Non-Agency available-for-sale securities | 2,569,298 | 23,802 | 3.7 | % | 2,278,651 | 79,772 | 3.5 | % | |||||||||||||
Agency derivatives (3) | 48,018 | 404 | 3.4 | % | 56,393 | 1,650 | 2.9 | % | |||||||||||||
Mortgage servicing rights (4) | 579,348 | 8,288 | 5.7 | % | 407,085 | 22,466 | 5.5 | % | |||||||||||||
Other unassignable | |||||||||||||||||||||
Convertible senior notes | 283,755 | 4,793 | 6.8 | % | 283,347 | 18,997 | 6.7 | % | |||||||||||||
Total interest expense/cost of funds | $ | 23,276,767 | 162,301 | 2.8 | % | $ | 21,629,107 | 519,671 | 2.4 | % | |||||||||||
Net interest income/spread (5) | $ | 89,654 | 1.3 | % | $ | 350,361 | 1.4 | % |
Three Months Ended December 31, 2017 | Year Ended December 31, 2017 | ||||||||||||||||||||
(dollars in thousands) | Average Balance (1) | Interest Income/Expense | Net Yield/Cost of Funds (2) | Average Balance (1) | Interest Income/Expense | Net Yield/Cost of Funds (2) | |||||||||||||||
Interest-earning assets | |||||||||||||||||||||
Agency available-for-sale securities | $ | 17,842,609 | $ | 137,331 | 3.1 | % | $ | 15,561,985 | $ | 470,619 | 3.0 | % | |||||||||
Non-Agency available-for-sale securities | 2,381,956 | 45,381 | 7.6 | % | 1,970,055 | 161,234 | 8.2 | % | |||||||||||||
Residential mortgage loans held-for-investment in securitization trusts | 1,103,946 | 10,567 | 3.8 | % | 2,641,277 | 102,886 | 3.9 | % | |||||||||||||
Other | 33,124 | 1,826 | 3.9 | % | 35,517 | 10,350 | 4.8 | % | |||||||||||||
Total interest income/net asset yield | $ | 21,361,635 | $ | 195,105 | 3.7 | % | $ | 20,208,834 | $ | 745,089 | 3.7 | % | |||||||||
Interest-bearing liabilities | |||||||||||||||||||||
Repurchase agreements, FHLB advances, revolving credit facilities and borrowings in securitization trusts collateralized by: | |||||||||||||||||||||
Agency available-for-sale securities | $ | 17,254,668 | $ | 65,788 | 1.5 | % | $ | 14,877,129 | $ | 193,283 | 1.3 | % | |||||||||
Non-Agency available-for-sale securities | 1,876,009 | 14,169 | 3.0 | % | 1,522,437 | 44,691 | 2.9 | % | |||||||||||||
Residential mortgage loans held-for-investment in securitization trusts | 1,084,285 | 8,774 | 3.2 | % | 2,593,750 | 85,940 | 3.3 | % | |||||||||||||
Agency derivatives (3) | 73,545 | 401 | 2.2 | % | 82,387 | 1,661 | 2.0 | % | |||||||||||||
Mortgage servicing rights (4) | 58,071 | 856 | 5.9 | % | 43,033 | 2,582 | 6.0 | % | |||||||||||||
Other unassignable | |||||||||||||||||||||
Convertible senior notes | 282,733 | 4,776 | 6.8 | % | 272,376 | 17,933 | 6.6 | % | |||||||||||||
Other | 31 | 4,098 | |||||||||||||||||||
Total interest expense/cost of funds | $ | 20,629,311 | 94,795 | 1.8 | % | $ | 19,391,112 | 350,188 | 1.8 | % | |||||||||||
Net interest income/spread (5) | $ | 100,310 | 1.9 | % | $ | 394,901 | 1.9 | % |
(1) | Average asset balance represents average amortized cost on AFS securities and Agency Derivatives and average unpaid principal balance, adjusted for purchase price changes, on residential mortgage loans held-for-investment in securitization trusts. |
(2) | Cost of funds does not include the accrual and settlement of interest associated with interest rate swaps and caps. In accordance with U.S. GAAP, those costs are included in (loss) gain on interest rate swap, cap and swaption agreements in the consolidated statements of comprehensive (loss) income. For the three and twelve months ended December 31, 2018, our total average cost of funds on the assets assigned as collateral for borrowings shown in the table above, including interest spread expense associated with interest rate swaps and caps, was 2.8% and 2.3%, respectively, compared to 1.9% and 1.9% for the same periods in 2017. |
(3) | Yields on Agency Derivatives not shown as interest income is included in (loss) gain on other derivative instruments in the consolidated statements of comprehensive (loss) income. |
(4) | Yields on mortgage servicing rights not shown as these assets do not earn interest. |
(5) | Net interest spread does not include the accrual and settlement of interest associated with interest rate swaps and caps. In accordance with U.S. GAAP, those costs are included in (loss) gain on interest rate swap, cap and swaption agreements in the consolidated statements of comprehensive (loss) income. For the three and twelve months ended December 31, 2018, our total average net interest rate spread on the assets and liabilities shown in the table above, including interest spread expense associated with interest rate swaps and caps, was 1.1% and 1.5%, respectively, compared to 1.8% and 1.8% for the same periods in 2017. |
Three Months Ended December 31, 2018 | Year Ended December 31, 2018 | ||||||||||||||||
Agency (1) | Non-Agency | Total | Agency (1) | Non-Agency | Total | ||||||||||||
Gross yield/stated coupon | 4.1 | % | 4.8 | % | 4.2 | % | 4.1 | % | 4.7 | % | 4.1 | % | |||||
Net (premium amortization) discount accretion | (0.8 | )% | 2.9 | % | (0.3 | )% | (1.0 | )% | 3.0 | % | (0.4 | )% | |||||
Net yield (2) | 3.3 | % | 7.7 | % | 3.9 | % | 3.1 | % | 7.7 | % | 3.7 | % |
Three Months Ended December 31, 2017 | Year Ended December 31, 2017 | ||||||||||||||||
Agency (1) | Non-Agency | Total | Agency (1) | Non-Agency | Total | ||||||||||||
Gross yield/stated coupon | 4.0 | % | 4.1 | % | 4.1 | % | 4.0 | % | 3.7 | % | 4.0 | % | |||||
Net (premium amortization) discount accretion | (0.9 | )% | 3.5 | % | (0.5 | )% | (1.0 | )% | 4.5 | % | (0.4 | )% | |||||
Net yield (2) | 3.1 | % | 7.6 | % | 3.6 | % | 3.0 | % | 8.2 | % | 3.6 | % |
(1) | Excludes Agency Derivatives. For the three and twelve months ended December 31, 2018, the average annualized net yield on total Agency RMBS, including Agency Derivatives, was 3.3% and 3.2%, respectively, compared to 3.1% and 3.1% for the same periods in 2017. |
(2) | These yields have not been adjusted for cost of delay and cost to carry purchase premiums. |
Three Months Ended | Year Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net interest spread | $ | 15,331 | $ | 2,044 | $ | 49,217 | $ | (8,823 | ) | ||||||
Early termination, agreement maturation and option expiration (losses) gains | (35,757 | ) | (5,685 | ) | (3,593 | ) | 63,169 | ||||||||
Change in unrealized (loss) gain on interest rate swap, cap and swaption agreements, at fair value | (219,066 | ) | 60,878 | (29,581 | ) | (64,099 | ) | ||||||||
(Loss) gain on interest rate swap, cap and swaption agreements | $ | (239,492 | ) | $ | 57,237 | $ | 16,043 | $ | (9,753 | ) |
Year Ended December 31, 2017 | Year Ended December 31, 2016 | ||||||||||||||||||||
(dollars in thousands) | Average Balance (1) | Interest Income/Expense | Net Yield/Cost of Funds (2) | Average Balance (1) | Interest Income/Expense | Net Yield/Cost of Funds (2) | |||||||||||||||
Interest-earning assets | |||||||||||||||||||||
Agency available-for-sale securities | $ | 15,561,985 | $ | 470,619 | 3.0 | % | $ | 10,341,218 | $ | 293,498 | 2.8 | % | |||||||||
Non-Agency available-for-sale securities | 1,970,055 | 161,234 | 8.2 | % | 1,436,769 | 120,552 | 8.4 | % | |||||||||||||
Residential mortgage loans held-for-investment in securitization trusts | 2,641,277 | 102,886 | 3.9 | % | 3,470,272 | 133,993 | 3.9 | % | |||||||||||||
Other | 35,517 | 10,350 | 4.8 | % | 566,239 | 27,037 | 4.8 | % | |||||||||||||
Total interest income/net asset yield | $ | 20,208,834 | $ | 745,089 | 3.7 | % | $ | 15,814,498 | $ | 575,080 | 3.6 | % | |||||||||
Interest-bearing liabilities | |||||||||||||||||||||
Repurchase agreements, FHLB advances, revolving credit facilities and borrowings in securitization trusts collateralized by: | |||||||||||||||||||||
Agency available-for-sale securities | $ | 14,877,129 | $ | 193,283 | 1.3 | % | $ | 9,834,224 | $ | 73,864 | 0.8 | % | |||||||||
Non-Agency available-for-sale securities | 1,522,437 | 44,691 | 2.9 | % | 1,165,498 | 28,897 | 2.5 | % | |||||||||||||
Residential mortgage loans held-for-investment in securitization trusts | 2,593,750 | 85,940 | 3.3 | % | 3,377,687 | 103,039 | 3.1 | % | |||||||||||||
Agency derivatives (3) | 82,387 | 1,661 | 2.0 | % | 111,770 | 1,729 | 1.5 | % | |||||||||||||
Mortgage servicing rights (4) | 43,033 | 2,582 | 6.0 | % | 11,311 | 604 | 5.3 | % | |||||||||||||
Convertible senior notes | 272,376 | 17,933 | 6.6 | % | — | — | — | % | |||||||||||||
Other | 4,098 | 376,513 | 5,151 | 1.4 | % | ||||||||||||||||
Total interest expense/cost of funds | $ | 19,391,112 | $ | 350,188 | 1.8 | % | $ | 14,877,003 | $ | 213,284 | 1.4 | % | |||||||||
Net interest income/spread (5) | $ | 394,901 | 1.9 | % | $ | 361,796 | 2.2 | % |
(1) | Average asset balance represents average amortized cost on AFS securities and Agency Derivatives and average unpaid principal balance, adjusted for purchase price changes, on residential mortgage loans held-for-investment in securitization trusts. |
(2) | Cost of funds does not include the accrual and settlement of interest associated with interest rate swaps. In accordance with U.S. GAAP, those costs are included in gain (loss) on interest rate swap, cap and swaption agreements in the consolidated statements of comprehensive (loss) income. For the years ended December 31, 2017 and 2016, our total average cost of funds on the assets assigned as collateral for borrowings shown in the table above, including interest spread expense associated with interest rate swaps, was 1.9% and 1.6%, respectively. |
(3) | Yields on Agency Derivatives not shown as interest income is included in (loss) gain on other derivative instruments in the consolidated statements of comprehensive (loss) income. |
(4) | Yields on mortgage servicing rights not shown as these assets do not earn interest. |
(5) | Net interest spread does not include the accrual and settlement of interest associated with interest rate swaps. In accordance with U.S. GAAP, those costs are included in (loss) gain on interest rate swap, cap and swaption agreements in the consolidated statements of comprehensive (loss) income. For the years ended December 31, 2017 and 2016, our total average net interest rate spread on the assets and liabilities shown in the table above, including interest spread expense associated with interest rate swaps, was 1.8% and 2.1%, respectively. |
Year Ended December 31, 2017 | Year Ended December 31, 2016 | ||||||||||||||||
Agency (1) | Non-Agency | Total | Agency (1) | Non-Agency | Total | ||||||||||||
Gross yield/stated coupon | 4.0 | % | 3.7 | % | 4.0 | % | 3.9 | % | 3.5 | % | 3.9 | % | |||||
Net (premium amortization) discount accretion | (1.0 | )% | 4.5 | % | (0.4 | )% | (1.1 | )% | 4.9 | % | (0.4 | )% | |||||
Net yield (2) | 3.0 | % | 8.2 | % | 3.6 | % | 2.8 | % | 8.4 | % | 3.5 | % |
(1) | Excludes Agency Derivatives. For the years ended December 31, 2017 and 2016, the average annualized net yield on total Agency RMBS, including Agency Derivatives, was 3.1% and 3.0%, respectively. |
(2) | These yields have not been adjusted for cost of delay and cost to carry purchase premiums. |
Year Ended | |||||||
December 31, | |||||||
(in thousands) | 2017 | 2016 | |||||
Net interest spread | $ | (8,823 | ) | $ | (21,074 | ) | |
Early termination, agreement maturation and option expiration gains (losses) | 63,169 | (81,984 | ) | ||||
Change in unrealized (loss) gain on interest rate swap and swaption agreements, at fair value | (64,099 | ) | 148,429 | ||||
(Loss) gain on interest rate swap and swaption agreements | $ | (9,753 | ) | $ | 45,371 |
December 31, 2018 | ||||||||||||||||||||||||||||||
(dollars in thousands, except purchase price) | Principal/ Current Face | Net (Discount) Premium | Amortized Cost | Unrealized Gain | Unrealized Loss | Carrying Value | Weighted Average Coupon Rate | Weighted Average Purchase Price | ||||||||||||||||||||||
P&I securities | ||||||||||||||||||||||||||||||
Fixed | $ | 20,757,850 | $ | 1,011,781 | $ | 21,769,631 | $ | 60,819 | $ | (339,906 | ) | $ | 21,490,544 | 4.33 | % | $ | 105.19 | |||||||||||||
Hybrid ARM | 17,940 | 915 | 18,855 | 309 | (91 | ) | 19,073 | 5.12 | % | $ | 107.63 | |||||||||||||||||||
Total P&I securities | 20,775,790 | 1,012,696 | 21,788,486 | 61,128 | (339,997 | ) | 21,509,617 | 4.33 | % | $ | 105.20 | |||||||||||||||||||
Interest-only securities | ||||||||||||||||||||||||||||||
Fixed | 794,144 | 58,886 | 58,886 | 4,880 | (403 | ) | 63,363 | 2.84 | % | $ | 33.15 | |||||||||||||||||||
Fixed Other (1) | 2,321,823 | 151,015 | 151,015 | 9,290 | (48,252 | ) | 112,053 | 1.55 | % | $ | 8.82 | |||||||||||||||||||
Total | $ | 23,891,757 | $ | 1,222,597 | $ | 21,998,387 | $ | 75,298 | $ | (388,652 | ) | $ | 21,685,033 |
December 31, 2017 | ||||||||||||||||||||||||||||||
(dollars in thousands, except purchase price) | Principal/ Current Face | Net (Discount) Premium | Amortized Cost | Unrealized Gain | Unrealized Loss | Carrying Value | Weighted Average Coupon Rate | Weighted Average Purchase Price | ||||||||||||||||||||||
Principal and interest securities: | ||||||||||||||||||||||||||||||
Fixed | $ | 17,060,195 | $ | 1,053,431 | $ | 18,113,626 | $ | 41,705 | $ | (134,914 | ) | $ | 18,020,417 | 4.06 | % | $ | 106.56 | |||||||||||||
Hybrid ARM | 21,654 | 1,177 | 22,831 | 444 | (55 | ) | 23,220 | 4.97 | % | $ | 108.20 | |||||||||||||||||||
Total P&I Securities | 17,081,849 | 1,054,608 | 18,136,457 | 42,149 | (134,969 | ) | 18,043,637 | 4.06 | % | $ | 106.56 | |||||||||||||||||||
Interest-only securities | ||||||||||||||||||||||||||||||
Fixed | 332,772 | 50,981 | 50,981 | 2,410 | (648 | ) | 52,743 | 3.81 | % | $ | 17.56 | |||||||||||||||||||
Fixed Other (1) | 2,609,000 | 172,308 | 172,308 | 8,545 | (38,508 | ) | 142,345 | 1.57 | % | $ | 8.84 | |||||||||||||||||||
Total | $ | 20,023,621 | $ | 1,277,897 | $ | 18,359,746 | $ | 53,104 | $ | (174,125 | ) | $ | 18,238,725 |
(1) | Fixed Other represents weighted-average coupon interest-only securities that are not generally used for our interest-rate risk management purposes. These securities pay variable coupon interest based on the weighted average of the fixed rates of the underlying loans of the security, less the weighted average rates of the applicable issued P&I securities. |
December 31, 2018 | |||||||||||||||||||||||||||||||
(in thousands) | Principal/Current Face | Un-amortized Premium | Accretable Purchase Discount | Credit Reserve Purchase Discount | Amortized Cost | Unrealized Gain | Unrealized Loss | Carrying Value | |||||||||||||||||||||||
P&I securities | |||||||||||||||||||||||||||||||
Senior | $ | 4,227,631 | $ | 5,381 | $ | (477,682 | ) | $ | (1,204,325 | ) | $ | 2,551,005 | $ | 343,358 | $ | (39,632 | ) | $ | 2,854,731 | ||||||||||||
Mezzanine | 1,132,493 | 1,301 | (216,437 | ) | (118,437 | ) | 798,920 | 134,737 | (5,025 | ) | 928,632 | ||||||||||||||||||||
Total P&I | 5,360,124 | 6,682 | (694,119 | ) | (1,322,762 | ) | 3,349,925 | 478,095 | (44,657 | ) | 3,783,363 | ||||||||||||||||||||
Interest-only securities | 5,137,169 | 83,846 | — | — | 83,846 | 3,655 | (3,293 | ) | 84,208 | ||||||||||||||||||||||
Total | $ | 10,497,293 | $ | 90,528 | $ | (694,119 | ) | $ | (1,322,762 | ) | $ | 3,433,771 | $ | 481,750 | $ | (47,950 | ) | $ | 3,867,571 |
December 31, 2017 | |||||||||||||||||||||||||||||||
(in thousands) | Principal/Current Face | Un-amortized Premium | Accretable Purchase Discount | Credit Reserve Purchase Discount | Amortized Cost | Unrealized Gain | Unrealized Loss | Carrying Value | |||||||||||||||||||||||
Principal and interest securities: | |||||||||||||||||||||||||||||||
Senior | $ | 2,552,972 | $ | 2,435 | $ | (424,580 | ) | $ | (534,160 | ) | $ | 1,596,667 | $ | 361,561 | $ | (2,083 | ) | $ | 1,956,145 | ||||||||||||
Mezzanine | 1,205,162 | 322 | (251,453 | ) | (119,453 | ) | 834,578 | 127,370 | (1,083 | ) | 960,865 | ||||||||||||||||||||
Total P&I | 3,758,134 | 2,757 | (676,033 | ) | (653,613 | ) | 2,431,245 | 488,931 | (3,166 | ) | 2,917,010 | ||||||||||||||||||||
Interest-only securities | 5,614,925 | 65,667 | — | — | 65,667 | 2,163 | (2,746 | ) | 65,084 | ||||||||||||||||||||||
Total | $ | 9,373,059 | $ | 68,424 | $ | (676,033 | ) | $ | (653,613 | ) | $ | 2,496,912 | $ | 491,094 | $ | (5,912 | ) | $ | 2,982,094 |
December 31, 2018 | December 31, 2017 | ||||
AAA | 0.5 | % | 0.8 | % | |
AA | — | % | — | % | |
A | 0.1 | % | — | % | |
BBB | 2.1 | % | 2.8 | % | |
BB | 0.6 | % | 1.4 | % | |
B | 5.3 | % | 4.2 | % | |
Below B | 73.3 | % | 71.5 | % | |
Not rated | 18.1 | % | 19.3 | % | |
Total | 100.0 | % | 100.0 | % |
December 31, 2018 | December 31, 2017 | ||||||||||||
(dollars in thousands) | Carrying Value | % of Total Non-Agency Portfolio | Carrying Value | % of Total Non-Agency Portfolio | |||||||||
“Legacy” non-Agency P&I securities | $ | 3,642,651 | 94.2 | % | $ | 2,552,833 | 85.6 | % | |||||
“Legacy” non-Agency interest-only securities | 28,305 | 0.7 | % | 7,426 | 0.3 | % | |||||||
“New issue” non-Agency securities | 196,615 | 5.1 | % | 421,835 | 14.1 | % | |||||||
Total | $ | 3,867,571 | 100.0 | % | $ | 2,982,094 | 100.0 | % |
December 31, 2018 | ||||||||||||
“Legacy” Non-Agency P&I Securities | Senior | Mezzanine | Total | |||||||||
Carrying value (in thousands) | $ | 2,842,712 | $ | 799,939 | $ | 3,642,651 | ||||||
% of total | 78.0 | % | 22.0 | % | 100.0 | % | ||||||
Average purchase price (1) | $ | 60.72 | $ | 65.96 | $ | 61.87 | ||||||
Average coupon | 3.4 | % | 3.2 | % | 3.3 | % | ||||||
Average fixed coupon | 5.8 | % | 5.5 | % | 5.8 | % | ||||||
Average floating coupon | 3.1 | % | 3.1 | % | 3.1 | % | ||||||
Average hybrid coupon | 4.6 | % | — | % | 4.6 | % | ||||||
Collateral attributes | ||||||||||||
Average loan age (months) | 148 | 157 | 150 | |||||||||
Average loan size (in thousands) | $ | 373 | $ | 385 | $ | 376 | ||||||
Average original loan-to-value | 67.3 | % | 66.9 | % | 67.2 | % | ||||||
Average original FICO (2) | 608 | 574 | 601 | |||||||||
Current performance | ||||||||||||
60+ day delinquencies | 19.6 | % | 17.7 | % | 19.2 | % | ||||||
Average credit enhancement (3) | 5.1 | % | 15.8 | % | 7.5 | % | ||||||
3-month CPR (4) | 4.9 | % | 6.4 | % | 5.2 | % |
December 31, 2017 | ||||||||||||
“Legacy” Non-Agency P&I Securities | Senior | Mezzanine | Total P&I | |||||||||
Carrying Value (in thousands) | $ | 1,790,481 | $ | 762,352 | $ | 2,552,833 | ||||||
% of Total | 70.1 | % | 29.9 | % | 100.0 | % | ||||||
Average Purchase Price (1) | $ | 57.57 | $ | 65.36 | $ | 59.89 | ||||||
Average Coupon | 2.8 | % | 2.3 | % | 2.6 | % | ||||||
Average Fixed Coupon | 5.9 | % | 5.6 | % | 5.8 | % | ||||||
Average Floating Coupon | 2.5 | % | 2.2 | % | 2.4 | % | ||||||
Average Hybrid Coupon | 3.2 | % | — | % | 3.2 | % | ||||||
Collateral Attributes | ||||||||||||
Average Loan Age (months) | 137 | 145 | 139 | |||||||||
Average Loan Size (in thousands) | $ | 370 | $ | 356 | $ | 366 | ||||||
Average Original Loan-to-Value | 69.3 | % | 68.8 | % | 69.1 | % | ||||||
Average Original FICO (2) | 636 | 573 | 617 | |||||||||
Current Performance | ||||||||||||
60+ day delinquencies | 22.9 | % | 20.3 | % | 22.1 | % | ||||||
Average Credit Enhancement (3) | 7.5 | % | 16.1 | % | 10.0 | % | ||||||
3-Month CPR (4) | 6.1 | % | 7.1 | % | 6.4 | % |
(1) | Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, the average purchase price for senior, mezzanine, and total “legacy” non-Agency securities, excluding our non-Agency interest-only portfolio, would be $58.12, $63.19 and $59.07, respectively, at December 31, 2018 and $55.07, $62.73 and $57.27, respectively at December 31, 2017. |
(2) | FICO represents a mortgage industry accepted credit score of a borrower, which was developed by Fair Isaac Corporation. |
(3) | Average credit enhancement remaining on our “legacy” non-Agency securities portfolio, which is the average amount of protection available to absorb future credit losses due to defaults on the underlying collateral. |
(4) | Three-month CPR is reflective of the prepayment speed on the underlying securitization; however, it does not necessarily indicate the proceeds received on our investment tranche. Proceeds received for each security are dependent on the position of the individual security within the structure of each deal. |
December 31, 2018 | ||||||||||||||||||||
“Legacy” Non-Agency P&I Securities | ||||||||||||||||||||
(dollars in thousands) | Senior | Mezzanine | Total | |||||||||||||||||
Collateral Type | Carrying Value | % of Senior | Carrying Value | % of Mezzanine | Carrying Value | % of Total | ||||||||||||||
Prime | $ | 27,878 | 1.0 | % | $ | 13,797 | 1.7 | % | $ | 41,675 | 1.1 | % | ||||||||
Alt-A | 367,985 | 12.9 | % | 89,785 | 11.3 | % | 457,770 | 12.6 | % | |||||||||||
POA | 214,683 | 7.6 | % | 171,348 | 21.4 | % | 386,031 | 10.6 | % | |||||||||||
Subprime | 2,232,166 | 78.5 | % | 525,009 | 65.6 | % | 2,757,175 | 75.7 | % | |||||||||||
Total | $ | 2,842,712 | 100.0 | % | $ | 799,939 | 100.0 | % | $ | 3,642,651 | 100.0 | % |
December 31, 2017 | ||||||||||||||||||||
“Legacy” Non-Agency P&I Securities | ||||||||||||||||||||
(dollars in thousands) | Senior | Mezzanine | Total | |||||||||||||||||
Collateral Type | Carrying Value | % of Senior | Carrying Value | % of Mezzanine | Carrying Value | % of Total | ||||||||||||||
Prime | $ | 21,181 | 1.2 | % | $ | 13,829 | 1.8 | % | $ | 35,010 | 1.4 | % | ||||||||
Alt-A | 133,357 | 7.4 | % | 92,399 | 12.1 | % | 225,756 | 8.8 | % | |||||||||||
POA | 87,054 | 4.9 | % | 141,834 | 18.6 | % | 228,888 | 9.0 | % | |||||||||||
Subprime | 1,548,889 | 86.5 | % | 514,290 | 67.5 | % | 2,063,179 | 80.8 | % | |||||||||||
Total | $ | 1,790,481 | 100.0 | % | $ | 762,352 | 100.0 | % | $ | 2,552,833 | 100.0 | % |
December 31, 2018 | ||||||||||||||||||||
“Legacy” Non-Agency P&I Securities | ||||||||||||||||||||
(dollars in thousands) | Senior | Mezzanine | Total | |||||||||||||||||
Coupon Type | Carrying Value | % of Senior | Carrying Value | % of Mezzanine | Carrying Value | % of Total | ||||||||||||||
Fixed rate | $ | 219,245 | 7.7 | % | $ | 20,396 | 2.5 | % | $ | 239,641 | 6.6 | % | ||||||||
Hybrid or floating | 2,623,467 | 92.3 | % | 779,543 | 97.5 | % | 3,403,010 | 93.4 | % | |||||||||||
Total | $ | 2,842,712 | 100.0 | % | $ | 799,939 | 100.0 | % | $ | 3,642,651 | 100.0 | % |
December 31, 2017 | ||||||||||||||||||||
“Legacy” Non-Agency P&I Securities | ||||||||||||||||||||
(dollars in thousands) | Senior | Mezzanine | Total | |||||||||||||||||
Coupon Type | Carrying Value | % of Senior | Carrying Value | % of Mezzanine | Carrying Value | % of Total | ||||||||||||||
Fixed Rate | $ | 147,883 | 8.3 | % | $ | 19,957 | 2.6 | % | $ | 167,840 | 6.6 | % | ||||||||
Hybrid or Floating | 1,642,598 | 91.7 | % | 742,395 | 97.4 | % | 2,384,993 | 93.4 | % | |||||||||||
Total | $ | 1,790,481 | 100.0 | % | $ | 762,352 | 100.0 | % | $ | 2,552,833 | 100.0 | % |
December 31, 2018 | ||||||||||||||||||||
“Legacy” Non-Agency P&I Securities | ||||||||||||||||||||
(dollars in thousands) | Senior | Mezzanine | Total | |||||||||||||||||
Origination Year | Carrying Value | % of Senior | Carrying Value | % of Mezzanine | Carrying Value | % of Total | ||||||||||||||
2006 and thereafter | $ | 2,618,076 | 92.1 | % | $ | 315,314 | 39.4 | % | $ | 2,933,390 | 80.5 | % | ||||||||
2002-2005 | 219,183 | 7.7 | % | 483,061 | 60.4 | % | 702,244 | 19.3 | % | |||||||||||
Pre-2002 | 5,453 | 0.2 | % | 1,564 | 0.2 | % | 7,017 | 0.2 | % | |||||||||||
Total | $ | 2,842,712 | 100.0 | % | $ | 799,939 | 100.0 | % | $ | 3,642,651 | 100.0 | % |
December 31, 2017 | ||||||||||||||||||||
“Legacy” Non-Agency P&I Securities | ||||||||||||||||||||
(dollars in thousands) | Senior | Mezzanine | Total | |||||||||||||||||
Origination Year | Carrying Value | % of Senior | Carrying Value | % of Mezzanine | Carrying Value | % of Total | ||||||||||||||
2006 and Thereafter | $ | 1,594,088 | 89.0 | % | $ | 293,916 | 38.6 | % | $ | 1,888,004 | 73.9 | % | ||||||||
2002-2005 | 191,288 | 10.7 | % | 466,923 | 61.2 | % | 658,211 | 25.8 | % | |||||||||||
Pre-2002 | 5,105 | 0.3 | % | 1,513 | 0.2 | % | 6,618 | 0.3 | % | |||||||||||
Total | $ | 1,790,481 | 100.0 | % | $ | 762,352 | 100.0 | % | $ | 2,552,833 | 100.0 | % |
December 31, 2018 | December 31, 2017 | ||||||||||||
(dollars in thousands) | Carrying Value | % of Total Non-Agency Securities | Carrying Value | % of Total Non-Agency Securities | |||||||||
California | $ | 1,041,464 | 26.9 | % | $ | 694,757 | 23.8 | % | |||||
New York | 529,738 | 13.7 | % | 367,353 | 12.6 | % | |||||||
Florida | 393,936 | 10.2 | % | 266,329 | 9.1 | % | |||||||
New Jersey | 176,265 | 4.6 | % | 125,794 | 4.3 | % | |||||||
Texas | 153,687 | 4.0 | % | 101,606 | 3.5 | % | |||||||
Total | $ | 2,295,090 | 59.4 | % | $ | 1,555,839 | 53.3 | % |
December 31, 2018 | December 31, 2017 | ||||||
Unpaid principal balance (in thousands) | $ | 163,102,308 | $ | 101,344,054 | |||
Number of loans | 717,167 | 454,028 | |||||
Average coupon | 4.1 | % | 3.9 | % | |||
Average loan age (months) | 28 | 26 | |||||
Average loan size (in thousands) | $ | 227 | $ | 223 | |||
Average original loan-to-value | 75.0 | % | 73.8 | % | |||
Average original FICO | 752 | 753 | |||||
60+ day delinquencies | 0.3 | % | 0.5 | % | |||
3-month CPR | 7.3 | % | 10.0 | % |
(dollars in thousands) | December 31, 2018 | December 31, 2017 | ||||||||||||||||||
Collateral Type | Amount Outstanding | Weighted Average Borrowing Rate | Weighted Average Haircut on Collateral Value | Amount Outstanding | Weighted Average Borrowing Rate | Weighted Average Haircut on Collateral Value | ||||||||||||||
Agency RMBS | $ | 20,954,730 | 2.53 | % | 4.6 | % | $ | 18,538,953 | 1.55 | % | 4.8 | % | ||||||||
Non-Agency securities | 2,697,254 | 3.65 | % | 24.2 | % | 1,943,535 | 2.98 | % | 27.1 | % | ||||||||||
Agency Derivatives | 46,516 | 3.34 | % | 26.4 | % | 71,243 | 2.15 | % | 26.7 | % | ||||||||||
Mortgage servicing rights | 610,000 | 5.06 | % | 40.6 | % | 132,500 | 3.99 | % | 48.8 | % | ||||||||||
Other (1) | 283,856 | 6.25 | % | NA | 282,827 | 6.25 | % | NA | ||||||||||||
Total | $ | 24,592,356 | 2.76 | % | 7.6 | % | $ | 20,969,058 | 1.76 | % | 7.1 | % |
(1) | Includes unsecured convertible senior notes paying interest semiannually at a rate of 6.25% per annum on the aggregate principal amount of $287.5 million. |
(dollars in thousands) | ||||||||||||||||||||||
For the Three Months Ended | Quarterly Average (1) | End of Period Balance (1) | Maximum Balance of Any Month-End (1) | End of Period Total Borrowings to Equity Ratio | End of Period Net Long (Short) TBA Notional | End of Period Economic Debt-to-Equity Ratio (2) | ||||||||||||||||
December 31, 2018 | $ | 23,276,768 | $ | 24,592,356 | $ | 24,592,356 | 5.8:1.0 | $ | 6,484,000 | 7.2:1.0 | ||||||||||||
September 30, 2018 | $ | 23,921,989 | $ | 25,265,210 | $ | 27,528,323 | 5.4:1.0 | $ | 9,324,000 | 7.3:1.0 | ||||||||||||
June 30, 2018 | $ | 19,123,370 | $ | 18,524,115 | $ | 19,237,474 | 5.3:1.0 | $ | 3,049,000 | 6.2:1.0 | ||||||||||||
March 31, 2018 | $ | 20,194,305 | $ | 20,316,757 | $ | 20,466,930 | 5.9:1.0 | $ | 445,000 | 6.0:1.0 | ||||||||||||
December 31, 2017 | $ | 19,270,237 | $ | 20,969,058 | $ | 20,969,058 | 5.9:1.0 | (3) | $ | (573,000 | ) | 5.7:1.0 |
(1) | Includes borrowings under repurchase agreements, FHLB advances, revolving credit facilities and convertible senior notes and excludes collateralized borrowings in securitization trusts. |
(2) | Defined as total borrowings under repurchase agreements, FHLB advances, revolving credit facilities and convertible senior notes, plus implied debt on net TBA notional, divided by total equity. |
(dollars in millions, except per share amounts) | Book Value | Common Shares Outstanding | Common Book Value Per Share | |||||||
Common stockholders' equity at December 31, 2017 | $ | 2,845.1 | 174.5 | $ | 16.31 | |||||
Reconciliation of non-GAAP measures to GAAP net loss and Comprehensive loss: | ||||||||||
Core Earnings, net of tax expense of $2.4 million (1) | 384.0 | |||||||||
Dividends on preferred stock | (65.4 | ) | ||||||||
Core Earnings attributable to common stockholders (1) | 318.6 | |||||||||
Dollar roll income | 86.9 | |||||||||
Core Earnings attributable to common stockholders, including dollar roll income (1) | 405.5 | |||||||||
Realized and unrealized gains and losses, net of tax expense of $39.4 million | (428.4 | ) | ||||||||
Transaction expenses and purchase premium associated with the acquisition of CYS Investments, Inc. | (86.7 | ) | ||||||||
Other comprehensive loss, net of tax | (233.9 | ) | ||||||||
Dividend declaration | (386.6 | ) | ||||||||
Other | 12.9 | 1.0 | ||||||||
Acquisition of CYS Investments, Inc. | 1,125.1 | 72.6 | ||||||||
Issuance of common stock, net of offering costs | 0.2 | — | ||||||||
Common stockholders' equity at December 31, 2018 | $ | 3,253.2 | 248.1 | $ | 13.11 | |||||
Total preferred stock liquidation preference | 1,001.3 | |||||||||
Total stockholders' equity at December 31, 2018 | $ | 4,254.5 |
(1) | Core Earnings is a non-U.S. GAAP measure that we define as comprehensive (loss) income attributable to common stockholders, excluding “realized and unrealized gains and losses” (impairment losses, realized and unrealized gains and losses on the aggregate portfolio, reserve expense for representation and warranty obligations on MSR, non-cash compensation expense related to restricted common stock and restructuring charges) and transaction costs associated with the acquisition of CYS. As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments and servicing income, net of estimated amortization on MSR. “Dollar roll income” is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. We believe the presentation of Core Earnings, including dollar roll income, provides investors greater transparency into our period-over-period financial performance and facilitates comparisons to peer REITs. |
Year Ended | |||
(in millions) | December 31, 2018 | ||
Comprehensive loss attributable to common stockholders | $ | (343.6 | ) |
Adjustment for other comprehensive loss attributable to common stockholders: | |||
Unrealized losses on available-for-sale securities | 233.9 | ||
Net loss attributable to common stockholders | (109.7 | ) | |
Adjustments for non-Core Earnings: | |||
Realized loss on investment securities | 348.4 | ||
Unrealized loss on investment securities | (6.4 | ) | |
Other-than-temporary impairment loss | 0.5 | ||
Realized loss on termination or expiration of interest rate swaps, caps and swaptions | 3.6 | ||
Unrealized loss on interest rate swaps, caps and swaptions | 29.6 | ||
Loss on other derivative instruments | 52.0 | ||
Realized and unrealized gains on mortgage servicing rights | (130.1 | ) | |
Change in servicing reserves | 1.5 | ||
Non-cash equity compensation expense | 12.3 | ||
Management fee reduction associated with the acquisition of CYS Investments, Inc. | (17.5 | ) | |
Transaction expenses and purchase premium associated with the acquisition of CYS Investments, Inc. | 86.7 | ||
Restructuring charges | 8.2 | ||
Net provision for income taxes on non-Core Earnings | 39.4 | ||
Core Earnings attributable to common stockholders (1) | 318.5 | ||
Dollar roll income | 86.9 | ||
Core Earnings attributable to common stockholders, including dollar roll income (1) | $ | 405.4 |
(1) | Core Earnings is a non-U.S. GAAP measure that we define as comprehensive (loss) income attributable to common stockholders, excluding “realized and unrealized gains and losses” (impairment losses, realized and unrealized gains and losses on the aggregate portfolio, reserve expense for representation and warranty obligations on MSR, non-cash compensation expense related to restricted common stock and restructuring charges) and transaction costs associated with the acquisition of CYS. As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments and servicing income, net of estimated amortization on MSR. Dollar roll income is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. We believe the presentation of Core Earnings, including dollar roll income, provides investors greater transparency into our period-over-period financial performance and facilitates comparisons to peer REITs. |
Year Ended December 31, 2018 | |||||||||||||||
(dollars in millions) | TRS | REIT | Securitization Trusts & Eliminations | Consolidated | |||||||||||
GAAP net income (loss), pre-tax | $ | 114.2 | $ | (59.4 | ) | $ | (57.3 | ) | $ | (2.5 | ) | ||||
State taxes | — | — | — | — | |||||||||||
Adjusted GAAP net income (loss), pre-tax | 114.2 | (59.4 | ) | (57.3 | ) | (2.5 | ) | ||||||||
Permanent differences | |||||||||||||||
Intercompany RMBS sales | — | — | 57.3 | 57.3 | |||||||||||
Other permanent differences | — | (0.8 | ) | — | (0.8 | ) | |||||||||
Temporary differences | |||||||||||||||
CYS transaction costs | — | 82.4 | — | 82.4 | |||||||||||
Net accretion of OID and market discount | 0.1 | 76.3 | — | 76.4 | |||||||||||
Net unrealized gains and losses on derivatives | (68.0 | ) | (1.3 | ) | — | (69.3 | ) | ||||||||
Other temporary differences | (13.3 | ) | (0.6 | ) | — | (13.9 | ) | ||||||||
Capital loss carryforward (utilized) deferral | (8.0 | ) | 393.7 | — | 385.7 | ||||||||||
Net operating loss carryforward (utilized) deferral | (15.3 | ) | — | — | (15.3 | ) | |||||||||
Estimated taxable income | 9.7 | 490.3 | — | 500.0 | |||||||||||
Dividend declaration deduction | — | (490.3 | ) | — | (490.3 | ) | |||||||||
Estimated taxable income post-dividend deduction | $ | 9.7 | $ | — | $ | — | $ | 9.7 |
Year Ended December 31, 2017 | |||||||||||||||
(dollars in millions) | TRS | REIT | Securitization Trusts & Eliminations | Consolidated | |||||||||||
GAAP net (loss) income, pre-tax | $ | (72.0 | ) | $ | 409.4 | $ | 4.5 | $ | 341.9 | ||||||
State taxes | (0.1 | ) | — | — | (0.1 | ) | |||||||||
Adjusted GAAP net (loss) income, pre-tax | (72.1 | ) | 409.4 | 4.5 | 341.8 | ||||||||||
Permanent differences | |||||||||||||||
Granite Point stock distribution and dividends | (26.6 | ) | (26.6 | ) | |||||||||||
Securitization trusts consolidated for U.S. GAAP purposes only | — | — | (4.5 | ) | (4.5 | ) | |||||||||
Other permanent differences | — | (7.4 | ) | — | (7.4 | ) | |||||||||
Temporary differences | |||||||||||||||
Net accretion of OID and market discount | 0.1 | 36.2 | — | 36.3 | |||||||||||
Net unrealized gains and losses on derivatives | 129.5 | (57.1 | ) | — | 72.4 | ||||||||||
Other temporary differences | (8.1 | ) | (7.1 | ) | — | (15.2 | ) | ||||||||
Capital loss carryforward (utilized) deferral | (33.3 | ) | (17.0 | ) | — | (50.3 | ) | ||||||||
Net operating loss carryforward (utilized) deferral | (24.1 | ) | — | — | (24.1 | ) | |||||||||
Estimated taxable (loss) income | (8.0 | ) | 330.4 | — | 322.4 | ||||||||||
Dividend declaration deduction | — | (330.4 | ) | — | (330.4 | ) | |||||||||
Estimated taxable loss post-dividend deduction | $ | (8.0 | ) | $ | — | $ | — | $ | (8.0 | ) |
Declaration Date | Record Date | Payment Date | Cash Dividend Per Share | |||||
December 18, 2018 | December 31, 2018 | January 28, 2019 | $ | 0.47 | ||||
September 20, 2018 | October 1, 2018 | October 29, 2018 | $ | 0.31 | ||||
July 13, 2018 | July 25, 2018 | July 30, 2018 | $ | 0.16 | ||||
June 19, 2018 | June 29, 2018 | July 27, 2018 | $ | 0.47 | ||||
March 20, 2018 | April 2, 2018 | April 27, 2018 | $ | 0.47 | ||||
December 14, 2017 | December 26, 2017 | December 29, 2017 | $ | 0.47 | ||||
September 14, 2017 | September 29, 2017 | October 27, 2017 | $ | 0.52 | ||||
June 15, 2017 | June 30, 2017 | July 27, 2017 | $ | 0.52 | ||||
March 14, 2017 | March 31, 2017 | April 27, 2017 | $ | 0.50 | ||||
December 15, 2016 | December 30, 2016 | January 27, 2017 | $ | 0.48 | ||||
September 15, 2016 | September 30, 2016 | October 20, 2016 | $ | 0.46 | ||||
June 16, 2016 | June 30, 2016 | July 20, 2016 | $ | 0.46 | ||||
March 15, 2016 | March 31, 2016 | April 21, 2016 | $ | 0.46 |
Tax Characterization | ||||||||||||||||||||
Year Ended December 31, | Dividends Declared Per Common Share | Ordinary Dividends (Non-Qualified) | Qualified Ordinary Dividends | Capital Gain Distribution | Nondividend Distribution | |||||||||||||||
2018 | $ | 1.88 | $ | 1.88 | $ | — | $ | — | $ | — | ||||||||||
2017 | $ | 5.57 | $ | 2.02 | $ | — | $ | — | $ | 3.55 | ||||||||||
2016 | $ | 1.86 | $ | 1.86 | $ | — | $ | — | $ | — |
December 31, 2018 | December 31, 2017 | ||||||||||||||||||||
(dollars in thousands) | Amount Outstanding | Net Counterparty Exposure(1) | Percent of Funding | Amount Outstanding | Net Counterparty Exposure(1) | Percent of Funding | |||||||||||||||
North America | $ | 12,061,693 | $ | 1,120,101 | 55.4 | % | $ | 10,746,447 | $ | 993,279 | 57.0 | % | |||||||||
Europe (2) | 6,728,245 | 646,000 | 31.9 | % | 6,109,169 | 615,150 | 35.3 | % | |||||||||||||
Asia (2) | 4,343,538 | 255,973 | 12.7 | % | 2,595,591 | 134,694 | 7.7 | % | |||||||||||||
Total | $ | 23,133,476 | $ | 2,022,074 | 100.0 | % | $ | 19,451,207 | $ | 1,743,123 | 100.0 | % |
(1) | Represents the net carrying value of the assets sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest. Payables due to broker counterparties for unsettled securities purchased are not included in the amounts presented above. We did not have any such payables at December 31, 2018 or December 31, 2017. |
(2) | Exposure to European and Asian domiciled banks and their U.S. subsidiaries. |
(dollars in thousands) | ||||||||||||||||
December 31, 2018 | ||||||||||||||||
Expiration Date (1) | Committed | Amount Outstanding | Unused Capacity | Total Capacity | Eligible Collateral | |||||||||||
December 1, 2019 | Yes (2) | $ | 300,000 | $ | 100,000 | $ | 400,000 | Mortgage servicing rights (3) | ||||||||
June 22, 2023 | Yes (2) | $ | 290,000 | $ | 40,000 | $ | 330,000 | Mortgage servicing rights | ||||||||
December 16, 2019 | No | $ | 20,000 | $ | 20,000 | $ | 40,000 | Mortgage servicing rights |
(1) | The facilities are set to mature on the stated expiration date, unless extended pursuant to their terms. |
(2) | Commitment fee charged on unused capacity. |
(3) | This repurchase facility is secured by MSR notes, which are collateralized by our MSR. |
• | Total indebtedness to net worth must be less than a specified threshold ratio in a repurchase agreement. As of December 31, 2018, our debt to net worth, as defined, was 5.9:1.0 while our threshold ratio, as defined, was 6.5:1.0. |
• | Cash liquidity must be greater than $100.0 million. As of December 31, 2018, our liquidity, as defined, was $409.8 million. |
• | Net worth must be greater than $1.75 billion. As of December 31, 2018, our net worth, as defined, was $4.3 billion. |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Available-for-sale securities, at fair value | $ | 25,157,999 | $ | 20,990,890 | |||
Mortgage servicing rights, at fair value | 1,143,918 | 584,247 | |||||
Cash and cash equivalents | — | 15,000 | |||||
Restricted cash | 416,696 | 417,018 | |||||
Due from counterparties | 110,695 | 836,381 | |||||
Derivative assets, at fair value | 70,191 | 90,895 | |||||
U.S. Treasuries, at fair value | $ | 6,457 | $ | — | |||
Total | $ | 26,905,956 | $ | 22,934,431 |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Within 30 days | $ | 7,488,869 | $ | 4,269,464 | |||
30 to 59 days | 5,077,598 | 3,831,111 | |||||
60 to 89 days | 5,655,060 | 3,458,940 | |||||
90 to 119 days | 1,938,859 | 2,452,426 | |||||
120 to 364 days | 3,508,114 | 5,346,766 | |||||
One to three years | 300,000 | 927,524 | |||||
Three to five years | 573,856 | 282,827 | |||||
Five to ten years | — | — | |||||
Ten years and over | 50,000 | 400,000 | |||||
Total | $ | 24,592,356 | $ | 20,969,058 |
• | Cash flows from operating activities. For the year ended December 31, 2018, operating activities increased our cash balances by approximately $702.9 million, primarily driven by our financial results for the year. |
• | Cash flows from investing activities. For the year ended December 31, 2018, investing activities increased our cash balances by approximately $4.8 billion, primarily driven by sales of AFS securities. |
• | Cash flows from financing activities. For the year ended December 31, 2018, financing activities decreased our cash balance by approximately $5.5 billion, primarily driven by repayment of repurchase agreements as a result of sales of AFS securities. |
Due During the Year Ended December 31, | |||||||||||||||||||||||||||
(in thousands) | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | ||||||||||||||||||||
Repurchase agreements | $ | 22,833,476 | $ | 300,000 | $ | — | $ | — | $ | — | $ | — | $ | 23,133,476 | |||||||||||||
Federal Home Loan Bank advances | 815,024 | — | — | — | — | 50,000 | 865,024 | ||||||||||||||||||||
Revolving credit facilities | 20,000 | — | — | — | 290,000 | — | 310,000 | ||||||||||||||||||||
Convertible senior notes | — | — | — | 283,856 | — | — | 283,856 | ||||||||||||||||||||
Interest expense on borrowings (1) | 160,734 | 48,953 | 36,228 | 18,979 | 9,571 | 19,008 | 293,473 | ||||||||||||||||||||
Long-term operating lease obligations | 1,564 | 1,595 | 1,513 | 1,122 | 501 | — | 6,295 | ||||||||||||||||||||
Management fee - PRCM Advisers (2) | 156,600 | — | — | — | — | — | 156,600 | ||||||||||||||||||||
Total | $ | 23,987,398 | $ | 350,548 | $ | 37,741 | $ | 303,957 | $ | 300,072 | $ | 69,008 | $ | 25,048,724 |
(1) | Interest expense on repurchase agreements, FHLB advances, revolving credit facilities and convertible senior notes calculated based on rates at December 31, 2018. |
(2) | Contractual obligation for the management fee is estimated through the contract expiration date of October 28, 2019, inclusive of the termination fee as defined in the management agreement between us and PRCM Advisers. Disclosure assumes agreement not renewed or terminated without cause. |
December 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
Index Type | Floating | Hybrid (1) | Total | Index % | Floating | Hybrid (1) | Total | Index % | ||||||||||||||||||||||
CMT | $ | 9,502 | $ | 15,423 | $ | 24,925 | 1 | % | $ | 11,832 | $ | 18,497 | $ | 30,329 | 1 | % | ||||||||||||||
LIBOR | 3,374,141 | 9,278 | 3,383,419 | 93 | % | 2,563,850 | 13,284 | 2,577,134 | 92 | % | ||||||||||||||||||||
Other (2) | 50,597 | 165,054 | 215,651 | 6 | % | 48,894 | 142,502 | 191,396 | 7 | % | ||||||||||||||||||||
Total | $ | 3,434,240 | $ | 189,755 | $ | 3,623,995 | 100 | % | $ | 2,624,576 | $ | 174,283 | $ | 2,798,859 | 100 | % |
(1) | “Hybrid” amounts reflect those assets with greater than twelve months to reset. |
(2) | “Other” includes COFI, MTA and other indices. |
Changes in Interest Rates | |||||||||||||||
(dollars in thousands) | -50 bps | -25 bps | +25 bps | +50 bps | |||||||||||
Change in annualized net interest income (1): | $ | 15,381 | $ | 7,655 | $ | (7,678 | ) | $ | (15,356 | ) | |||||
% change in net interest income (1) | 3.6 | % | 1.8 | % | (1.8 | )% | (3.6 | )% | |||||||
Change in value of financial position: | |||||||||||||||
Available-for-sale securities | $ | 396,470 | $ | 187,053 | $ | (213,050 | ) | $ | (488,672 | ) | |||||
As a % of common equity | 12.2 | % | 5.7 | % | (6.5 | )% | (15.0 | )% | |||||||
Mortgage servicing rights | $ | (235,667 | ) | $ | (112,245 | ) | $ | 99,487 | $ | 187,023 | |||||
As a % of common equity | (7.2 | )% | (3.5 | )% | 3.1 | % | 5.7 | % | |||||||
Residential mortgage loans held-for-sale | $ | 137 | $ | 38 | $ | (70 | ) | $ | (263 | ) | |||||
As a % of common equity | — | % | — | % | — | % | — | % | |||||||
Derivatives, net | $ | (274,909 | ) | $ | (136,316 | ) | $ | 100,208 | $ | 196,999 | |||||
As a % of common equity | (8.5 | )% | (4.2 | )% | 3.1 | % | 6.1 | % | |||||||
Reverse repurchase agreements | $ | 159 | $ | 79 | $ | (79 | ) | $ | (159 | ) | |||||
As a % of common equity | — | % | — | % | — | % | — | % | |||||||
Repurchase agreements | $ | (17,537 | ) | $ | (8,769 | ) | $ | 8,769 | $ | 17,537 | |||||
As a % of common equity | (0.5 | )% | (0.3 | )% | 0.3 | % | 0.5 | % | |||||||
Federal Home Loan Bank advances | $ | (180 | ) | $ | (90 | ) | $ | 90 | $ | 180 | |||||
As a % of common equity | — | % | — | % | — | % | — | % | |||||||
Revolving credit facilities | $ | (129 | ) | $ | (65 | ) | $ | 65 | $ | 129 | |||||
As a % of common equity | — | % | — | % | — | % | — | % | |||||||
Convertible senior notes | $ | (3,537 | ) | $ | (1,761 | ) | $ | 1,746 | $ | 3,478 | |||||
As a % of common equity | (0.1 | )% | (0.1 | )% | 0.1 | % | 0.1 | % | |||||||
Total Net Assets | $ | (135,193 | ) | $ | (72,076 | ) | $ | (2,834 | ) | $ | (83,748 | ) | |||
As a % of total assets | (0.4 | )% | (0.2 | )% | — | % | (0.3 | )% | |||||||
As a % of common equity | (4.2 | )% | (2.2 | )% | (0.1 | )% | (2.6 | )% |
(1) | Amounts include the effect of interest spread from our interest rate swaps and caps and float income from custodial accounts associated with our MSR, but do not reflect any potential changes to dollar roll income associated with our TBA positions, which are accounted for as derivative instruments in accordance with U.S. GAAP. |
Page | ||
ASSETS | December 31, 2018 | December 31, 2017 | |||||
Available-for-sale securities, at fair value | $ | $ | |||||
Mortgage servicing rights, at fair value | |||||||
Cash and cash equivalents | |||||||
Restricted cash | |||||||
Accrued interest receivable | |||||||
Due from counterparties | |||||||
Derivative assets, at fair value | |||||||
Reverse repurchase agreements | |||||||
Other assets | |||||||
Total Assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Liabilities | |||||||
Repurchase agreements | $ | $ | |||||
Federal Home Loan Bank advances | |||||||
Revolving credit facilities | |||||||
Convertible senior notes | |||||||
Derivative liabilities, at fair value | |||||||
Due to counterparties | |||||||
Dividends payable | |||||||
Accrued interest payable | |||||||
Other liabilities | |||||||
Total Liabilities | |||||||
Stockholders’ Equity | |||||||
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 40,050,000 and 29,050,000 shares issued and outstanding, respectively ($1,001,250 and $726,250 liquidation preference, respectively) | |||||||
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 248,085,721 and 174,496,587 shares issued and outstanding, respectively | |||||||
Additional paid-in capital | |||||||
Accumulated other comprehensive income | |||||||
Cumulative earnings | |||||||
Cumulative distributions to stockholders | ( | ) | ( | ) | |||
Total Stockholders’ Equity | |||||||
Total Liabilities and Stockholders’ Equity | $ | $ |
Year Ended | |||||||||||
December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Interest income: | |||||||||||
Available-for-sale securities | $ | $ | $ | ||||||||
Residential mortgage loans held-for-investment in securitization trusts | |||||||||||
Other | |||||||||||
Total interest income | |||||||||||
Interest expense: | |||||||||||
Repurchase agreements | |||||||||||
Collateralized borrowings in securitization trusts | |||||||||||
Federal Home Loan Bank advances | |||||||||||
Revolving credit facilities | |||||||||||
Convertible senior notes | |||||||||||
Total interest expense | |||||||||||
Net interest income | |||||||||||
Other-than-temporary impairments: | |||||||||||
Total other-than-temporary impairment losses | ( | ) | ( | ) | ( | ) | |||||
Other (loss) income: | |||||||||||
Loss on investment securities | ( | ) | ( | ) | ( | ) | |||||
Servicing income | |||||||||||
Loss on servicing asset | ( | ) | ( | ) | ( | ) | |||||
Gain (loss) on interest rate swap, cap and swaption agreements | ( | ) | |||||||||
(Loss) gain on other derivative instruments | ( | ) | ( | ) | |||||||
Other income | |||||||||||
Total other (loss) income | ( | ) | |||||||||
Expenses: | |||||||||||
Management fees | |||||||||||
Servicing expenses | |||||||||||
Securitization deal costs | |||||||||||
Other operating expenses | |||||||||||
Acquisition transaction costs | |||||||||||
Restructuring charges | |||||||||||
Total expenses | |||||||||||
(Loss) income from continuing operations before income taxes | ( | ) | |||||||||
Provision for (benefit from) income taxes | ( | ) | |||||||||
Net (loss) income from continuing operations | ( | ) | |||||||||
Income from discontinued operations, net of tax | |||||||||||
Net (loss) income | ( | ) | |||||||||
Income from discontinued operations attributable to noncontrolling interest | |||||||||||
Net (loss) income attributable to Two Harbors Investment Corp. | ( | ) | |||||||||
Dividends on preferred stock | |||||||||||
Net (loss) income attributable to common stockholders | $ | ( | ) | $ | $ |
Year Ended | |||||||||||
December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Basic (loss) earnings per weighted average common share: | |||||||||||
Continuing operations | $ | ( | ) | $ | $ | ||||||
Discontinued operations | |||||||||||
Net (loss) income | $ | ( | ) | $ | $ | ||||||
Diluted (loss) earnings per weighted average common share: | |||||||||||
Continuing operations | $ | ( | ) | $ | $ | ||||||
Discontinued operations | |||||||||||
Net (loss) income | $ | ( | ) | $ | $ | ||||||
Weighted average number of shares of common stock: | |||||||||||
Basic | |||||||||||
Diluted | |||||||||||
Comprehensive (loss) income: | |||||||||||
Net (loss) income | $ | ( | ) | $ | $ | ||||||
Other comprehensive (loss) income, net of tax: | |||||||||||
Unrealized (loss) gain on available-for-sale securities | ( | ) | ( | ) | |||||||
Other comprehensive (loss) income | ( | ) | ( | ) | |||||||
Comprehensive (loss) income | ( | ) | |||||||||
Comprehensive income attributable to noncontrolling interest | |||||||||||
Comprehensive (loss) income attributable to Two Harbors Investment Corp. | ( | ) | |||||||||
Dividends on preferred stock | |||||||||||
Comprehensive (loss) income attributable to common stockholders | $ | ( | ) | $ | $ |
Preferred Stock | Common Stock Par Value | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Cumulative Earnings | Cumulative Distributions to Stockholders | Total Stockholders’ Equity | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||||
Balance, December 31, 2015 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Other comprehensive loss before reclassifications, net of tax benefit of $20,435 | — | — | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $6,373 | — | — | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Other comprehensive loss, net of tax benefit of $26,809 | — | — | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Issuance of common stock, net of offering costs | — | — | — | — | — | ||||||||||||||||||||||||||||||
Repurchase of common stock | — | ( | ) | ( | ) | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||
Common dividends declared | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||
Non-cash equity award compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||
Balance, December 31, 2016 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||
Other comprehensive income before reclassifications, net of tax expense of $45,157 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $2,722 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax expense of $42,435 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Contribution of TH Commercial Holdings LLC to Granite Point Mortgage Trust Inc. | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||||||||||||
Acquisition of noncontrolling interests | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
Issuance of preferred stock, net of offering costs | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock, net of offering costs | — | — | — | — | — | ||||||||||||||||||||||||||||||
Preferred dividends declared | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||
Common dividends declared | — | — | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Special dividend of Granite Point Mortgage Trust Inc. common stock | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
Non-cash equity award compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||
Balance, December 31, 2017 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
Cumulative effect of adoption of new accounting principles | — | — | ( | ) | — | — | — | ||||||||||||||||||||||||||||
Adjusted balance, January 1, 2018 | ( | ) | |||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Other comprehensive loss before reclassifications, net of tax benefit of $14,890 | — | — | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax benefit of $0 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Other comprehensive loss, net of tax benefit of $14,890 | — | — | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Acquisition of CYS Investments, Inc. | — | — | — | — | |||||||||||||||||||||||||||||||
Issuance of preferred stock, net of offering costs | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock, net of offering costs | — | — | — | — | — | ||||||||||||||||||||||||||||||
Preferred dividends declared | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||
Common dividends declared | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||
Non-cash equity award compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||
Balance, December 31, 2018 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ |
Year Ended | |||||||||||
December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Cash Flows From Operating Activities: | |||||||||||
Net (loss) income from continuing operations | $ | ( | ) | $ | $ | ||||||
Adjustments to reconcile net (loss) income from continuing operations to net cash provided by operating activities: | |||||||||||
Amortization of premiums and discounts on investment securities, net | |||||||||||
Amortization of deferred debt issuance costs on convertible senior notes | |||||||||||
Other-than-temporary impairment losses | |||||||||||
Realized and unrealized losses on investment securities | |||||||||||
Loss on servicing asset | |||||||||||
(Gain) loss on residential mortgage loans held-for-investment and collateralized borrowings in securitization trusts | ( | ) | |||||||||
Realized and unrealized losses (gains) on interest rate swaps, caps and swaptions | ( | ) | |||||||||
Unrealized loss (gain) on other derivative instruments | ( | ) | |||||||||
Equity based compensation | |||||||||||
Excess consideration in the acquisition of CYS Investments, Inc. | |||||||||||
Net change in assets and liabilities: | |||||||||||
Decrease (increase) in accrued interest receivable | ( | ) | ( | ) | |||||||
Decrease (increase) in deferred income taxes, net | ( | ) | |||||||||
Increase in accrued interest payable | |||||||||||
Increase (decrease) in other, net | ( | ) | ( | ) | ( | ) | |||||
Net cash provided by operating activities from discontinued operations | |||||||||||
Net cash provided by operating activities | $ | $ |
Year Ended | |||||||||||
December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Cash Flows From Investing Activities: | |||||||||||
Purchases of available-for-sale securities | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
Proceeds from sales of available-for-sale securities | |||||||||||
Principal payments on available-for-sale securities | |||||||||||
Purchases of mortgage servicing rights, net of purchase price adjustments | ( | ) | ( | ) | ( | ) | |||||
Proceeds from sales of mortgage servicing rights | |||||||||||
(Purchases) short sales of derivative instruments, net | ( | ) | ( | ) | ( | ) | |||||
Proceeds from sales and settlement (payments for termination and settlement) of derivative instruments, net | |||||||||||
Proceeds from reverse repurchase agreements | |||||||||||
Repayments of reverse repurchase agreements | ( | ) | |||||||||
Proceeds from sales of beneficial interests in securitization trusts | |||||||||||
Proceeds from repayment of residential mortgage loans held-for-investment in securitization trusts | |||||||||||
Net cash paid for the acquisition of CYS Investments, Inc. | ( | ) | |||||||||
Increase (decrease) in due to counterparties, net | ( | ) | |||||||||
Increase (decrease) in other, net | ( | ) | |||||||||
Net cash used in investing activities from discontinued operations | ( | ) | ( | ) | |||||||
Net cash provided by (used in) investing activities | ( | ) | $ | ( | ) | ||||||
Cash Flows From Financing Activities: | |||||||||||
Proceeds from repurchase agreements | $ | ||||||||||
Principal payments on repurchase agreements | ( | ) | ( | ) | ( | ) | |||||
Proceeds from issuance of collateralized borrowings in securitization trusts | |||||||||||
Principal payments on collateralized borrowings in securitization trusts | ( | ) | ( | ) | |||||||
Proceeds from Federal Home Loan Bank advances | |||||||||||
Principal payments on Federal Home Loan Bank advances | ( | ) | ( | ) | |||||||
Proceeds from revolving credit facilities | |||||||||||
Principal payments on revolving credit facilities | ( | ) | ( | ) | |||||||
Proceeds from convertible senior notes | |||||||||||
Proceeds from issuance of preferred stock, net of offering costs | ( | ) | |||||||||
Proceeds from issuance of common stock, net of offering costs | |||||||||||
Repurchase of common stock | ( | ) | |||||||||
Dividends paid on preferred stock | ( | ) | ( | ) | |||||||
Dividends paid on common stock | ( | ) | ( | ) | ( | ) | |||||
Net cash provided by financing activities from discontinued operations | |||||||||||
Net cash (used in) provided by financing activities | ( | ) | |||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | |||||||||
Cash, cash equivalents and restricted cash of continuing operations at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash of discontinued operations at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | $ |
Year Ended | |||||||||||
December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||
Cash paid for interest | $ | $ | $ | ||||||||
Cash paid (received) for taxes | $ | $ | ( | ) | $ | ( | ) | ||||
Noncash Activities: | |||||||||||
Acquisition of the assets and liabilities of CYS Investments, Inc. | |||||||||||
Available-for-sale securities | $ | $ | $ | ||||||||
Cash and cash equivalents | $ | $ | $ | ||||||||
Restricted cash | $ | $ | $ | ||||||||
Accrued interest receivable | $ | $ | $ | ||||||||
Reverse repurchase agreements | $ | $ | $ | ||||||||
Other assets | $ | $ | $ | ||||||||
Repurchase agreements | $ | ( | ) | $ | $ | ||||||
Derivative liabilities, net | $ | ( | ) | $ | $ | ||||||
Due to counterparties, net | $ | ( | ) | $ | $ | ||||||
Accrued interest payable | $ | ( | ) | $ | $ | ||||||
Other liabilities | $ | ( | ) | $ | $ | ||||||
Issuance of preferred stock in connection with the acquisition of CYS Investments, Inc. | $ | $ | $ | ||||||||
Issuance of common stock in connection with the acquisition of CYS Investments, Inc. | $ | $ | $ | ||||||||
Deconsolidation of the assets and liabilities of variable interest entities | |||||||||||
Residential mortgage loans held-for-investment in securitization trusts | $ | $ | $ | ||||||||
Accrued interest receivable | $ | $ | $ | ||||||||
Collateralized borrowings in securitization trusts | $ | $ | $ | ||||||||
Accrued interest payable | $ | $ | $ | ||||||||
Accrued expenses and other liabilities | $ | $ | $ | ||||||||
Recognition of beneficial interests in securitization trusts | $ | $ | $ | ||||||||
Distribution of TH Commercial Holdings LLC to Granite Point Mortgage Trust Inc. in exchange for common shares | $ | $ | $ | ||||||||
Distribution of Granite Point Mortgage Trust Inc. common stock | $ | $ | $ | ||||||||
Transfers of residential mortgage loans held-for-sale to residential mortgage loans held-for-investment in securitization trusts | $ | $ | $ | ||||||||
Cumulative-effect adjustment to equity for adoption of new accounting principle | $ | $ | $ | ||||||||
Dividends declared but not paid at end of period | $ | $ | $ |
(dollars in thousands, except per share prices) | July 31, 2018 | ||||||
Common Stock Exchange: | |||||||
CYS common stock outstanding | |||||||
Common exchange ratio | |||||||
Two Harbors common stock to be issued | |||||||
Less: fractional shares | |||||||
Two Harbors common stock issued | |||||||
Two Harbors share price | $ | ||||||
$ | |||||||
Cash in Lieu of Common Stock: | |||||||
Fractional shares | |||||||
Cash in lieu rate | $ | ||||||
$ | |||||||
Per Share Cash Consideration: | |||||||
CYS common stock outstanding | |||||||
Per share cash consideration | |||||||
$ | |||||||
Preferred Stock Exchange: | Shares | ||||||
Series D preferred stock | $ | ||||||
Series E preferred stock | $ | ||||||
Total Purchase Price | $ |
(in thousands) | July 31, 2018 | ||
Assets: | |||
Available-for-sale securities, at fair value | $ | ||
Cash and cash equivalents | |||
Restricted cash | |||
Accrued interest receivable | |||
Due from counterparties | |||
Derivative assets, at fair value | |||
Reverse repurchase agreements | |||
Other assets | |||
Total Assets | $ | ||
Liabilities: | |||
Repurchase agreements | $ | ||
Derivative liabilities, at fair value | |||
Due to counterparties | |||
Accrued interest payable | |||
Other liabilities | |||
Total Liabilities | |||
Stockholders’ Equity | |||
Cumulative deficit (acquisition transaction costs) | ( | ) | |
Total Stockholders’ Equity | $ | ( | ) |
Total Purchase Price | $ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Agency | |||||||
Federal National Mortgage Association | $ | $ | |||||
Federal Home Loan Mortgage Corporation | |||||||
Government National Mortgage Association | |||||||
Non-Agency | |||||||
Total available-for-sale securities | $ | $ |
December 31, 2018 | |||||||||||||||||||||||||||||||
(in thousands) | Principal/ Current Face | Un-amortized Premium | Accretable Purchase Discount | Credit Reserve Purchase Discount | Amortized Cost | Unrealized Gain | Unrealized Loss | Carrying Value | |||||||||||||||||||||||
Agency | |||||||||||||||||||||||||||||||
Principal and interest | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
Interest-only | ( | ) | |||||||||||||||||||||||||||||
Total Agency | ( | ) | ( | ) | |||||||||||||||||||||||||||
Non-Agency | |||||||||||||||||||||||||||||||
Principal and interest | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
Interest-only | ( | ) | |||||||||||||||||||||||||||||
Total Non-Agency | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ |
December 31, 2017 | |||||||||||||||||||||||||||||||
(in thousands) | Principal/ Current Face | Un-amortized Premium | Accretable Purchase Discount | Credit Reserve Purchase Discount | Amortized Cost | Unrealized Gain | Unrealized Loss | Carrying Value | |||||||||||||||||||||||
Agency | |||||||||||||||||||||||||||||||
Principal and interest | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
Interest-only | ( | ) | |||||||||||||||||||||||||||||
Total Agency | ( | ) | ( | ) | |||||||||||||||||||||||||||
Non-Agency | |||||||||||||||||||||||||||||||
Principal and interest | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
Interest-only | ( | ) | |||||||||||||||||||||||||||||
Total Non-Agency | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ |
December 31, 2018 | |||||||||||
(in thousands) | Agency | Non-Agency | Total | ||||||||
Adjustable Rate | $ | $ | $ | ||||||||
Fixed Rate | |||||||||||
Total | $ | $ | $ |
December 31, 2017 | |||||||||||
(in thousands) | Agency | Non-Agency | Total | ||||||||
Adjustable Rate | $ | $ | $ | ||||||||
Fixed Rate | |||||||||||
Total | $ | $ | $ |
December 31, 2018 | |||||||||||
(in thousands) | Agency | Non-Agency | Total | ||||||||
≤ 1 year | $ | $ | $ | ||||||||
> 1 and ≤ 3 years | |||||||||||
> 3 and ≤ 5 years | |||||||||||
> 5 and ≤ 10 years | |||||||||||
> 10 years | |||||||||||
Total | $ | $ | $ |
Year Ended December 31, | |||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
(in thousands) | Designated Credit Reserve | Net Unamortized Discount/Premium | Total | Designated Credit Reserve | Net Unamortized Discount/Premium | Total | |||||||||||||||||
Beginning balance at January 1 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
Acquisitions | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
Accretion of net discount | |||||||||||||||||||||||
Realized credit losses | |||||||||||||||||||||||
Reclassification adjustment for other-than-temporary impairments | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||
Transfers from (to) | ( | ) | ( | ) | |||||||||||||||||||
Sales, calls, other | |||||||||||||||||||||||
Ending balance at December 31 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Unrealized Loss Position for | |||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
(in thousands) | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||
December 31, 2018 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
December 31, 2017 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) |
Year Ended | |||||||||||
December 31, | |||||||||||
(in thousands) | 2018 | 2017 | 2016 | ||||||||
Cumulative credit loss at beginning of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
Additions: | |||||||||||
Other-than-temporary impairments not previously recognized | ( | ) | ( | ) | ( | ) | |||||
Increases related to other-than-temporary impairments on securities with previously recognized other-than-temporary impairments | ( | ) | ( | ) | ( | ) | |||||
Reductions: | |||||||||||
Decreases related to other-than-temporary impairments on securities paid down | |||||||||||
Decreases related to other-than-temporary impairments on securities sold | |||||||||||
Cumulative credit loss at end of period | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Year Ended | |||||||||||
December 31, | |||||||||||
(in thousands) | 2018 | 2017 | 2016 | ||||||||
Gross realized gains | $ | $ | $ | ||||||||
Gross realized losses | ( | ) | ( | ) | ( | ) | |||||
Total realized losses on sales, net | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Year Ended | |||||||||||
December 31, | |||||||||||
(in thousands) | 2018 | 2017 | 2016 | ||||||||
Balance at beginning of period | $ | $ | $ | ||||||||
Additions from purchases of mortgage servicing rights | |||||||||||
Additions from sales of residential mortgage loans | |||||||||||
Subtractions from sales of mortgage servicing rights | ( | ) | ( | ) | |||||||
Changes in fair value due to: | |||||||||||
Changes in valuation inputs or assumptions used in the valuation model | |||||||||||
Other changes in fair value (1) | ( | ) | ( | ) | ( | ) | |||||
Other changes (2) | ( | ) | ( | ) | |||||||
Balance at end of period | $ | $ | $ |
(1) | Other changes in fair value primarily represents changes due to the realization of expected cash flows. |
(2) | Other changes includes purchase price adjustments, contractual prepayment protection, and changes due to the Company’s purchase of the underlying collateral. |
(dollars in thousands) | December 31, 2018 | December 31, 2017 | |||||
Weighted average prepayment speed: | % | % | |||||
Impact on fair value of 10% adverse change | $ | ( | ) | $ | ( | ) | |
Impact on fair value of 20% adverse change | $ | ( | ) | $ | ( | ) | |
Weighted average delinquency: | % | % | |||||
Impact on fair value of 10% adverse change | $ | ( | ) | $ | ( | ) | |
Impact on fair value of 20% adverse change | $ | ( | ) | $ | ( | ) | |
Weighted average discount rate: | % | % | |||||
Impact on fair value of 10% adverse change | $ | ( | ) | $ | ( | ) | |
Impact on fair value of 20% adverse change | $ | ( | ) | $ | ( | ) |
Year Ended | |||||||||||
December 31, | |||||||||||
(in thousands) | 2018 | 2017 | 2016 | ||||||||
Servicing fee income | $ | $ | $ | ||||||||
Ancillary and other fee income | |||||||||||
Float income | |||||||||||
Total | $ | $ | $ |
December 31, 2018 | December 31, 2017 | ||||||||||||
(dollars in thousands) | Number of Loans | Unpaid Principal Balance | Number of Loans | Unpaid Principal Balance | |||||||||
Mortgage servicing rights | $ | $ | |||||||||||
Residential mortgage loans in securitization trusts | |||||||||||||
Other assets | |||||||||||||
Total serviced mortgage assets | $ | $ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Restricted cash balances held by trading counterparties: | |||||||
For securities and loan trading activity | $ | $ | |||||
For derivatives trading activity | |||||||
As restricted collateral for repurchase agreements and Federal Home Loan Bank advances | |||||||
Total restricted cash balances held by trading counterparties | |||||||
Restricted cash balance pursuant to letter of credit on office lease | |||||||
Total | $ | $ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Cash and cash equivalents | $ | $ | |||||
Restricted cash | |||||||
Total cash, cash equivalents and restricted cash | $ | $ |
December 31, 2018 | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
(in thousands) | Fair Value | Notional | Fair Value | Notional | ||||||||||||
Inverse interest-only securities | $ | $ | $ | $ | ||||||||||||
Interest rate swap agreements | ||||||||||||||||
Interest rate cap contracts | ||||||||||||||||
Swaptions, net | ( | ) | ||||||||||||||
TBAs | ||||||||||||||||
Put and call options for TBAs, net | ( | ) | ||||||||||||||
Markit IOS total return swaps | ( | ) | ||||||||||||||
Short U.S. Treasuries | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ |
December 31, 2017 | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
(in thousands) | Fair Value | Notional | Fair Value | Notional | ||||||||||||
Inverse interest-only securities | $ | $ | $ | $ | ||||||||||||
Interest rate swap agreements | ( | ) | ||||||||||||||
Swaptions, net | ||||||||||||||||
TBAs | ( | ) | ||||||||||||||
Markit IOS total return swaps | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ |
Derivative Instruments | Location of Gain (Loss) Recognized in Income on Derivatives | Amount of Gain (Loss) Recognized in Income on Derivatives | ||||||||||||
Year Ended | ||||||||||||||
(in thousands) | December 31, | |||||||||||||
2018 | 2017 | 2016 | ||||||||||||
Interest rate risk management | ||||||||||||||
TBAs | (Loss) gain on other derivative instruments | $ | ( | ) | $ | ( | ) | $ | ||||||
Short U.S. Treasuries | (Loss) gain on other derivative instruments | ( | ) | |||||||||||
Put and call options for TBAs | (Loss) gain on other derivative instruments | ( | ) | ( | ) | |||||||||
Interest rate swaps - Payers | Gain (loss) on interest rate swap, cap and swaption agreements | ( | ) | |||||||||||
Interest rate swaps - Receivers | Gain (loss) on interest rate swap, cap and swaption agreements | ( | ) | ( | ) | |||||||||
Swaptions | Gain (loss) on interest rate swap, cap and swaption agreements | ( | ) | |||||||||||
Interest rate caps | Gain (loss) on interest rate swap, cap and swaption agreements | ( | ) | |||||||||||
Markit IOS total return swaps | (Loss) gain on other derivative instruments | ( | ) | ( | ) | |||||||||
Credit risk management | ||||||||||||||
Credit default swaps - Receive protection | (Loss) gain on other derivative instruments | |||||||||||||
Non-risk management | ||||||||||||||
Inverse interest-only securities | (Loss) gain on other derivative instruments | |||||||||||||
Forward purchase commmitments | (Loss) gain on other derivative instruments | |||||||||||||
Total | $ | ( | ) | $ | ( | ) | $ |
Year Ended December 31, 2018 | |||||||||||||||||||||||
(in thousands) | Beginning of Period Notional Amount | Additions | Settlement, Termination, Expiration or Exercise | End of Period Notional Amount | Average Notional Amount | Realized Gain (Loss), net (1) | |||||||||||||||||
Inverse interest-only securities | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||
Interest rate swap agreements | ( | ) | ( | ) | |||||||||||||||||||
Interest rate cap contracts | |||||||||||||||||||||||
Swaptions, net | ( | ) | ( | ) | ( | ) | |||||||||||||||||
TBAs, net | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Short U.S. Treasuries | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Put and call options for TBAs, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||
Markit IOS total return swaps | ( | ) | ( | ) | |||||||||||||||||||
Total | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) |
Year Ended December 31, 2017 | |||||||||||||||||||||||
(in thousands) | Beginning of Period Notional Amount | Additions | Settlement, Termination, Expiration or Exercise | End of Period Notional Amount | Average Notional Amount | Realized Gain (Loss), net (1) | |||||||||||||||||
Inverse interest-only securities | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||
Interest rate swap agreements | ( | ) | |||||||||||||||||||||
Swaptions, net | ( | ) | |||||||||||||||||||||
TBAs, net | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||
Put and call options for TBAs, net | ( | ) | ( | ) | |||||||||||||||||||
Markit IOS total return swaps | ( | ) | ( | ) | |||||||||||||||||||
Total | $ | $ | $ | ( | ) | $ | $ | $ |
(1) |
December 31, 2018 | |||||||||||||||||||
Net Carrying Value (4) | |||||||||||||||||||
(in thousands) | Notional Amount (1) | Cost Basis (2) | Market Value (3) | Derivative Assets | Derivative Liabilities | ||||||||||||||
Purchase contracts | $ | $ | $ | $ | $ | ||||||||||||||
Sale contracts | |||||||||||||||||||
TBAs, net | $ | $ | $ | $ | $ |
December 31, 2017 | |||||||||||||||||||
Net Carrying Value (4) | |||||||||||||||||||
(in thousands) | Notional Amount (1) | Cost Basis (2) | Market Value (3) | Derivative Assets | Derivative Liabilities | ||||||||||||||
Purchase contracts | $ | $ | $ | $ | $ | ||||||||||||||
Sale contracts | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
TBAs, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) |
(1) | Notional amount represents the face amount of the underlying Agency RMBS. |
(2) | Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS. |
(3) | Market value represents the current market value of the TBA (or of the underlying Agency RMBS) as of period-end. |
(4) |
(notional in thousands) | ||||||||||||
December 31, 2018 | ||||||||||||
Swaps Maturities | Notional Amount (1) | Weighted Average Fixed Pay Rate (2) | Weighted Average Receive Rate (2) | Weighted Average Maturity (Years) (2) | ||||||||
2019 | $ | % | % | |||||||||
2020 | % | % | ||||||||||
2021 | % | % | ||||||||||
2022 | % | % | ||||||||||
2023 and Thereafter | % | % | ||||||||||
Total | $ | % | % |
(notional in thousands) | ||||||||||||
December 31, 2017 | ||||||||||||
Swaps Maturities | Notional Amount (1) | Weighted Average Fixed Pay Rate (2) | Weighted Average Receive Rate (2) | Weighted Average Maturity (Years) (2) | ||||||||
2018 | $ | % | % | |||||||||
2019 | % | % | ||||||||||
2020 | % | % | ||||||||||
2021 | % | % | ||||||||||
2022 and Thereafter | % | % | ||||||||||
Total | $ | % | % |
(1) | Notional amount includes $ |
(2) | Weighted averages exclude forward starting interest rate swaps. As of December 31, 2018 and December 31, 2017, the weighted average fixed pay rate on forward starting interest rate swaps was |
(notional in thousands) | ||||||||||||
December 31, 2018 | ||||||||||||
Swaps Maturities | Notional Amounts | Weighted Average Pay Rate | Weighted Average Fixed Receive Rate | Weighted Average Maturity (Years) | ||||||||
2020 | $ | % | % | |||||||||
2021 | $ | % | % | |||||||||
2022 | % | % | ||||||||||
2023 and Thereafter | % | % | ||||||||||
Total | $ | % | % |
(notional in thousands) | ||||||||||||
December 31, 2017 | ||||||||||||
Swaps Maturities | Notional Amounts | Weighted Average Pay Rate | Weighted Average Fixed Receive Rate | Weighted Average Maturity (Years) | ||||||||
2020 | $ | % | % | |||||||||
2021 | % | % | ||||||||||
2022 and Thereafter | % | % | ||||||||||
Total | $ | % | % |
December 31, 2018 | |||||||||||||||||||||||||
(notional and dollars in thousands) | Option | Underlying Swap | |||||||||||||||||||||||
Swaption | Expiration | Cost Basis | Fair Value | Average Months to Expiration | Notional Amount | Average Pay Rate | Average Receive Rate | Average Term (Years) | |||||||||||||||||
Purchase contracts: | |||||||||||||||||||||||||
Payer | < 6 Months | $ | $ | 5.13 | $ | % | 3M Libor | ||||||||||||||||||
Payer | ≥ 6 Months | 8.60 | % | 3M Libor | |||||||||||||||||||||
Total Payer | $ | $ | 7.92 | $ | % | 3M Libor | |||||||||||||||||||
Sale contracts: | |||||||||||||||||||||||||
Receiver | < 6 Months | $ | ( | ) | $ | ( | ) | 4.74 | $ | ( | ) | 3M Libor | % | ||||||||||||
Receiver | ≥ 6 Months | $ | ( | ) | $ | ( | ) | 8.60 | $ | ( | ) | 3M Libor | % | ||||||||||||
Total Receiver | $ | ( | ) | $ | ( | ) | 7.52 | $ | ( | ) | 3M Libor | % |
December 31, 2017 | |||||||||||||||||||||||||
(notional and dollars in thousands) | Option | Underlying Swap | |||||||||||||||||||||||
Swaption | Expiration | Cost | Fair Value | Average Months to Expiration | Notional Amount | Average Fixed Pay Rate | Average Receive Rate | Average Term (Years) | |||||||||||||||||
Purchase contracts: | |||||||||||||||||||||||||
Payer | < 6 Months | $ | $ | 4.03 | $ | % | 3M Libor | ||||||||||||||||||
Receiver | < 6 Months | $ | $ | 3.72 | $ | 3M Libor | % | ||||||||||||||||||
Sale contracts: | |||||||||||||||||||||||||
Payer | < 6 Months | $ | ( | ) | $ | ( | ) | 4.66 | $ | ( | ) | % | 3M Libor | ||||||||||||
Receiver | < 6 Months | $ | ( | ) | $ | ( | ) | 5.17 | $ | ( | ) | 3M Libor | % |
(notional in thousands) | ||||||||||||
December 31, 2018 | ||||||||||||
Caps Maturities | Notional Amount | Weighted Average Cap Rate | Weighted Average Receive Rate | Weighted Average Maturity (Years) | ||||||||
2019 | $ | % | % | |||||||||
2020 | $ | % | % | |||||||||
Total | $ | % | % |
(notional and dollars in thousands) | ||||||||||||||||
December 31, 2018 | ||||||||||||||||
Maturity Date | Current Notional Amount | Fair Value | Cost Basis | Unrealized Gain (Loss) | ||||||||||||
January 12, 2043 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
January 12, 2044 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
(notional and dollars in thousands) | ||||||||||||||||
December 31, 2017 | ||||||||||||||||
Maturity Date | Current Notional Amount | Fair Value | Cost Basis | Unrealized Gain (Loss) | ||||||||||||
January 12, 2043 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
January 12, 2044 | ( | ) | ( | ) | ( | ) | ||||||||||
Total | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) |
December 31, 2018 | |||||||||||||||||||||||
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Consolidated Balance Sheets (1) | |||||||||||||||||||||||
(in thousands) | Gross Amounts of Recognized Assets (Liabilities) | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral (Received) Pledged | Net Amount | |||||||||||||||||
Assets | |||||||||||||||||||||||
Derivative assets | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||
Reverse repurchase agreements | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Total Assets | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||
Liabilities | |||||||||||||||||||||||
Repurchase agreements | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
Derivative liabilities | ( | ) | ( | ) | |||||||||||||||||||
Total Liabilities | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ |
December 31, 2017 | |||||||||||||||||||||||
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Consolidated Balance Sheets (1) | |||||||||||||||||||||||
(in thousands) | Gross Amounts of Recognized Assets (Liabilities) | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral (Received) Pledged | Net Amount | |||||||||||||||||
Assets | |||||||||||||||||||||||
Derivative assets | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||
Total Assets | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||
Liabilities | |||||||||||||||||||||||
Repurchase agreements | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
Derivative liabilities | ( | ) | ( | ) | |||||||||||||||||||
Total Liabilities | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ |
(1) |
Level 1 | Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity. |
Level 2 | Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities. |
Level 3 | Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation. |
Recurring Fair Value Measurements | |||||||||||||||
December 31, 2018 | |||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Available-for-sale securities | $ | $ | $ | $ | |||||||||||
Mortgage servicing rights | |||||||||||||||
Derivative assets | |||||||||||||||
Total assets | $ | $ | $ | $ | |||||||||||
Liabilities | |||||||||||||||
Derivative liabilities | $ | $ | $ | $ | |||||||||||
Total liabilities | $ | $ | $ | $ |
Recurring Fair Value Measurements | |||||||||||||||
December 31, 2017 | |||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Available-for-sale securities | $ | $ | $ | $ | |||||||||||
Mortgage servicing rights | |||||||||||||||
Derivative assets | |||||||||||||||
Other assets | |||||||||||||||
Total assets | $ | $ | $ | $ | |||||||||||
Liabilities | |||||||||||||||
Derivative liabilities | |||||||||||||||
Total liabilities | $ | $ | $ | $ |
Year Ended | |||||||
December 31, 2018 | |||||||
(in thousands) | Available-For-Sale Securities | Mortgage Servicing Rights | |||||
Beginning of period level 3 fair value | $ | $ | |||||
Gains (losses) included in net (loss) income: | |||||||
Realized gains and losses, net | ( | ) | ( | ) | |||
Unrealized gains and losses, net | |||||||
Net gains (losses) included in net (loss) income | ( | ) | ( | ) | |||
Other comprehensive (loss) income | ( | ) | |||||
Purchases | |||||||
Sales | ( | ) | |||||
Settlements | ( | ) | ( | ) | |||
Gross transfers into level 3 | |||||||
Gross transfers out of level 3 | |||||||
End of period level 3 fair value | $ | $ | |||||
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | — | $ | |||||
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period | ( | ) | $ |
Year Ended | |||||||
December 31, 2017 | |||||||
(in thousands) | Available-For-Sale Securities | Mortgage Servicing Rights | |||||
Beginning of period level 3 fair value | $ | $ | |||||
Gains (losses) included in net (loss) income: | |||||||
Realized gains and (losses), net | ( | ) | |||||
Unrealized gains and (losses), net | |||||||
Net gains (losses) included in net (loss) income | ( | ) | |||||
Other comprehensive (loss) income | |||||||
Purchases | |||||||
Sales | ( | ) | |||||
Settlements | ( | ) | |||||
Gross transfers into level 3 | |||||||
Gross transfers out of level 3 | |||||||
End of period level 3 fair value | $ | $ | |||||
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | $ | $ | |||||
Change in unrealized gains or losses for the period included in other comprehensive (loss) income for assets held at the end of the reporting period | $ |
(1) | The change in unrealized gains or losses on MSR was recorded in loss on servicing asset on the consolidated statements of comprehensive (loss) income. |
(2) |
December 31, 2018 | |||||||||
Valuation Technique | Unobservable Input (1) | Range | Weighted Average (2) | ||||||
Discounted cash flow | Constant prepayment speed | - | % | ||||||
Delinquency | - | % | |||||||
Discount rate | - | % |
December 31, 2017 | |||||||||
Valuation Technique | Unobservable Input (1) | Range | Weighted Average (2) | ||||||
Discounted cash flow | Constant prepayment speed | - | % | ||||||
Delinquency | - | % | |||||||
Discount rate | - | % |
(1) | Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement. A change in the assumption used for discount rates may be accompanied by a directionally similar change in the assumption used for the probability of delinquency and a directionally opposite change in the assumption used for prepayment rates. |
(2) |
Year Ended December 31, 2017 | |||||||||||||||||
(in thousands) | Interest income (expense) | Other income | Total included in net (loss) income | Change in fair value due to credit risk | |||||||||||||
Assets | |||||||||||||||||
Residential mortgage loans held-for-investment in securitization trusts | (1) | $ | (2) | ||||||||||||||
Liabilities | |||||||||||||||||
Collateralized borrowings in securitization trusts | ( | ) | ( | ) | ( | ) | (2) | ||||||||||
Total | $ | $ | $ | $ |
Year Ended December 31, 2016 | |||||||||||||||||
(in thousands) | Interest income (expense) | Other income | Total included in net (loss) income | Change in fair value due to credit risk | |||||||||||||
Assets | |||||||||||||||||
Residential mortgage loans held-for-investment in securitization trusts | (1) | ( | ) | (2) | |||||||||||||
Liabilities | |||||||||||||||||
Collateralized borrowings in securitization trusts | ( | ) | ( | ) | (2) | ||||||||||||
Total | $ | $ | ( | ) | $ | $ |
(1) | Interest income on residential mortgage loans held-for-investment in securitization trusts is measured by multiplying the unpaid principal balance on the loans by the coupon rate and the number of days of interest due. |
(2) |
• | AFS securities, MSR, and derivative assets and liabilities are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this Note 9. |
• | Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1. |
• | Reverse repurchase agreements have a carrying value which approximates fair value due to their short-term nature. The Company categorizes the fair value measurement of these assets as Level 2. |
• | The carrying value of repurchase agreements, FHLB advances and revolving credit facilities that mature in less than one year generally approximates fair value due to the short maturities. As of December 31, 2018, the Company held $ |
• | Convertible senior notes are carried at their unpaid principal balance, net of any unamortized deferred issuance costs. The Company estimates the fair value of its convertible senior notes using the market transaction price nearest to December 31, 2018. The Company categorizes the fair value measurement of these assets as Level 2. |
December 31, 2018 | December 31, 2017 | ||||||||||||||
(in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||
Assets | |||||||||||||||
Available-for-sale securities | $ | $ | $ | $ | |||||||||||
Mortgage servicing rights | $ | $ | $ | $ | |||||||||||
Cash and cash equivalents | $ | $ | $ | $ | |||||||||||
Restricted cash | $ | $ | $ | $ | |||||||||||
Derivative assets | $ | $ | $ | $ | |||||||||||
Reverse repurchase agreements | $ | $ | $ | $ | |||||||||||
Other assets | $ | $ | |||||||||||||
Liabilities | |||||||||||||||
Repurchase agreements | $ | $ | $ | $ | |||||||||||
Federal Home Loan Bank advances | $ | $ | $ | $ | |||||||||||
Revolving credit facilities | $ | $ | $ | $ | |||||||||||
Convertible senior notes | $ | $ | $ | $ | |||||||||||
Derivative liabilities | $ | $ | $ | $ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Short-term | $ | $ | |||||
Long-term | |||||||
Total | $ | $ |
December 31, 2018 | |||||||||||||||||||
Collateral Type | |||||||||||||||||||
(in thousands) | Agency RMBS | Non-Agency Securities | Agency Derivatives | Mortgage Servicing Rights | Total Amount Outstanding | ||||||||||||||
Within 30 days | $ | $ | $ | $ | $ | ||||||||||||||
30 to 59 days | |||||||||||||||||||
60 to 89 days | |||||||||||||||||||
90 to 119 days | |||||||||||||||||||
120 to 364 days | |||||||||||||||||||
One year and over | |||||||||||||||||||
Total | $ | $ | $ | $ | $ | ||||||||||||||
Weighted average borrowing rate | % | % | % | % | % |
December 31, 2017 | |||||||||||||||||||
Collateral Type | |||||||||||||||||||
(in thousands) | Agency RMBS | Non-Agency Securities | Agency Derivatives | Mortgage Servicing Rights | Total Amount Outstanding | ||||||||||||||
Within 30 days | $ | $ | $ | $ | $ | ||||||||||||||
30 to 59 days | |||||||||||||||||||
60 to 89 days | |||||||||||||||||||
90 to 119 days | |||||||||||||||||||
120 to 364 days | |||||||||||||||||||
One year and over | |||||||||||||||||||
Total | $ | $ | $ | $ | $ | ||||||||||||||
Weighted average borrowing rate | % | % | % | % | % |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Available-for-sale securities, at fair value | $ | $ | |||||
Mortgage servicing rights, at fair value | |||||||
Cash and cash equivalents | |||||||
Restricted cash | |||||||
Due from counterparties | |||||||
Derivative assets, at fair value | |||||||
U.S. Treasuries (1) | |||||||
Total | $ | $ |
(1) |
December 31, 2018 | December 31, 2017 | ||||||||||||||||||||||||
(dollars in thousands) | Amount Outstanding | Net Counterparty Exposure (1) | Percent of Equity | Weighted Average Days to Maturity | Amount Outstanding | Net Counterparty Exposure (1) | Percent of Equity | Weighted Average Days to Maturity | |||||||||||||||||
Royal Bank of Canada | $ | $ | % | $ | $ | % | |||||||||||||||||||
All other counterparties (2) | % | % | |||||||||||||||||||||||
Total | $ | $ | $ | $ |
(1) | Represents the net carrying value of the assets sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest. The Company did not have any such payables at December 31, 2018 nor December 31, 2017. |
(2) |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
≤ 1 year | $ | $ | |||||
> 1 and ≤ 3 years | |||||||
> 3 and ≤ 5 years | |||||||
> 5 and ≤ 10 years | |||||||
> 10 years | |||||||
Total | $ | $ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Available-for-sale securities, at fair value | $ | $ | |||||
Due from counterparties | |||||||
Total | $ | $ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Within 30 days | $ | $ | |||||
30 to 59 days | |||||||
60 to 89 days | |||||||
90 to 119 days | |||||||
120 to 364 days | |||||||
One year and over | |||||||
Total | $ | $ |
As of December 31, 2018 | |||||||||||||||||
(in thousands) | |||||||||||||||||
Class of Stock | Issuance Date | Shares issued and outstanding | Carrying Value | Contractual rate | Redemption date (1) | Fixed to floating rate conversion date (2) | Floating annual rate (3) | ||||||||||
Fixed-to-Floating rate | |||||||||||||||||
Series A | March 14, 2017 | % | April 27, 2027 | April 27, 2027 | 3M LIBOR + 5.660% | ||||||||||||
Series B | July 19, 2017 | % | July 27, 2027 | July 27, 2027 | 3M LIBOR + 5.352% | ||||||||||||
Series C | November 27, 2017 | % | January 27, 2025 | January 27, 2025 | 3M LIBOR + 5.011% | ||||||||||||
Fixed Rate | |||||||||||||||||
Series D | July 31, 2018 | % | July 31, 2018 | N/A | N/A | ||||||||||||
Series E | July 31, 2018 | % | July 31, 2018 | N/A | N/A | ||||||||||||
Total | $ |
(1) | Subject to the Company's right under limited circumstances to redeem the preferred stock earlier than the redemption date disclosed in order to preserve its qualification as a REIT or following a change in control of the Company. |
(2) | For the fixed-to-floating rate redeemable preferred stock, the dividend rate will remain at a annual fixed rate of the $ |
(3) |
Declaration Date | Record Date | Payment Date | Cash Dividend Per Preferred Share | |||||
Series A Preferred Stock: | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
Series B Preferred Stock: | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
Series C Preferred Stock: | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
Series D Preferred Stock: | ||||||||
$ | ||||||||
$ | ||||||||
Series E Preferred Stock: | ||||||||
$ | ||||||||
$ |
Number of common shares | ||
Common shares outstanding, December 31, 2015 | ||
Issuance of common stock | ||
Issuance of restricted stock (1) | ||
Repurchase of common stock | ( | ) |
Common shares outstanding, December 31, 2016 | ||
Issuance of common stock | ||
Issuance of restricted stock (1) | ||
Common shares outstanding, December 31, 2017 | ||
Issuance of common stock | ||
Issuance of restricted stock (1) | ||
Common shares outstanding, December 31, 2018 |
(1) |
Declaration Date | Record Date | Payment Date | Cash Dividend Per Common Share | |||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ | ||||||||
$ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Available-for-sale securities | |||||||
Unrealized gains | $ | $ | |||||
Unrealized losses | ( | ) | ( | ) | |||
Accumulated other comprehensive (loss) income | $ | $ |
Affected Line Item in the Consolidated Statements of Comprehensive (Loss) Income | Amount Reclassified out of Accumulated Other Comprehensive (Loss) Income | |||||||||||||
Year Ended | ||||||||||||||
(in thousands) | December 31, | |||||||||||||
2018 | 2017 | 2016 | ||||||||||||
Other-than-temporary impairments on AFS securities | Total other-than-temporary impairment losses | $ | $ | $ | ||||||||||
Realized losses (gains) on sales of certain AFS securities, net of tax | Loss on investment securities | ( | ) | |||||||||||
Total | $ | $ | $ | ( | ) |
Year Ended December 31, | |||||||||||||
2018 | 2017 | ||||||||||||
Shares | Weighted Average Grant Date Fair Market Value | Shares | Weighted Average Grant Date Fair Market Value | ||||||||||
Outstanding at Beginning of Period | $ | $ | |||||||||||
Granted | |||||||||||||
Vested | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Forfeited | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Outstanding at End of Period | $ | $ |
Year Ended | |||||||||||
December 31, | |||||||||||
(in thousands) | 2018 | 2017 | 2016 | ||||||||
Current tax (benefit) provision: | |||||||||||
Federal | $ | $ | $ | ( | ) | ||||||
State | |||||||||||
Total current tax (benefit) provision | ( | ) | |||||||||
Deferred tax (benefit) provision | ( | ) | |||||||||
Total (benefit from) provision for income taxes | $ | $ | ( | ) | $ |
Year Ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||||
(dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||
Computed income tax expense at federal rate | $ | ( | ) | % | $ | % | $ | % | ||||||||||||
State taxes, net of federal benefit, if applicable | % | % | % | |||||||||||||||||
Permanent differences in taxable income from GAAP net income (1) | ( | )% | % | % | ||||||||||||||||
Dividends paid deduction | ( | )% | ( | ) | ( | )% | ( | ) | ( | )% | ||||||||||
(Benefit from) provision for income taxes/ Effective Tax Rate(2) | $ | ( | )% | $ | ( | ) | ( | )% | $ | % |
(1) | For the year ended December 31, 2018, permanent differences include a provision of |
(2) |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Income taxes receivable | |||||||
Federal income taxes receivable | $ | $ | |||||
State and local income taxes receivable | |||||||
Income taxes receivable, net | |||||||
Deferred tax assets (liabilities) | |||||||
Deferred tax asset | |||||||
Deferred tax liability | ( | ) | ( | ) | |||
Total net deferred tax (liabilities) assets | ( | ) | |||||
Total tax assets (liabilities), net | $ | ( | ) | $ |
(in thousands) | December 31, 2018 | December 31, 2017 | |||||
Available-for-sale securities | $ | $ | ( | ) | |||
Mortgage servicing rights | ( | ) | ( | ) | |||
Derivative assets and liabilities | |||||||
Other assets | |||||||
Other liabilities | |||||||
Intangibles | |||||||
Alternative minimum tax credit | |||||||
Net operating loss carryforward | |||||||
Capital loss carryforward | |||||||
Total deferred tax (liabilities) assets | ( | ) | |||||
Valuation allowance | ( | ) | |||||
Total net deferred tax (liabilities) assets | $ | ( | ) | $ |
Year Ended | |||||||||||
December 31, | |||||||||||
(in thousands, except share data) | 2018 | 2017 | 2016 | ||||||||
Numerator: | |||||||||||
Net (loss) income from continuing operations | $ | ( | ) | $ | $ | ||||||
Income from discontinued operations, net of tax | |||||||||||
Net (loss) income | ( | ) | |||||||||
Income from discontinued operations attributable to noncontrolling interest | |||||||||||
Net (loss) income attributable to Two Harbors Investment Corp. | ( | ) | |||||||||
Dividends on preferred stock | |||||||||||
Net (loss) income attributable to common stockholders - basic | ( | ) | |||||||||
Interest expense attributable to convertible notes (1) | |||||||||||
Net (loss) income attributable to common stockholders - diluted | $ | ( | ) | $ | |||||||
Denominator: | |||||||||||
Weighted average common shares outstanding | |||||||||||
Weighted average restricted stock shares | |||||||||||
Basic weighted average shares outstanding | |||||||||||
Effect of dilutive shares issued in an assumed conversion | |||||||||||
Diluted weighted average shares outstanding | |||||||||||
Basic (Loss) Earnings Per Share: | |||||||||||
Net (loss) income | $ | ( | ) | $ | $ | ||||||
Diluted (Loss) Earnings Per Share: | |||||||||||
Net (loss) income | $ | ( | ) | $ | $ |
(1) |
2018 Quarter Ended | |||||||||||||||
(in thousands, except share data) | March 31 | June 30 | September 30 | December 31 | |||||||||||
Total interest income | $ | $ | $ | $ | |||||||||||
Total interest expense | |||||||||||||||
Net interest income | |||||||||||||||
Other-than-temporary impairment losses | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total other income (loss) | ( | ) | |||||||||||||
Total expenses | |||||||||||||||
Provision for (benefit from) income taxes | ( | ) | |||||||||||||
Dividends on preferred stock | |||||||||||||||
Net income (loss) attributable to common stockholders | $ | $ | $ | $ | ( | ) | |||||||||
Basic earnings per share: | |||||||||||||||
Continuing operations | $ | $ | $ | $ | ( | ) | |||||||||
Net income (loss) | $ | $ | $ | $ | ( | ) | |||||||||
Diluted earnings per share: | |||||||||||||||
Continuing operations | $ | $ | $ | $ | ( | ) | |||||||||
Net income (loss) | $ | $ | $ | $ | ( | ) |
2017 Quarter Ended | |||||||||||||||
(in thousands, except share data) | March 31 | June 30 | September 30 | December 31 | |||||||||||
Total interest income | $ | $ | $ | $ | |||||||||||
Total interest expense | |||||||||||||||
Net interest income | |||||||||||||||
Other-than-temporary impairment losses | ( | ) | ( | ) | |||||||||||
Total other (loss) income | ( | ) | ( | ) | |||||||||||
Total expenses | |||||||||||||||
(Benefit from) provision for income taxes | ( | ) | ( | ) | |||||||||||
Income from discontinued operations (net of noncontrolling), net of tax | |||||||||||||||
Dividends on preferred stock | |||||||||||||||
Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||
Basic earnings per share: | |||||||||||||||
Continuing operations | $ | $ | ( | ) | $ | $ | |||||||||
Discontinued operations | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Diluted earnings per share: | |||||||||||||||
Continuing operations | $ | $ | ( | ) | $ | $ | |||||||||
Discontinued operations | |||||||||||||||
Net income | $ | $ | $ | $ |
• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Year Ended | |||||||
December 31, | |||||||
2018 | 2017 | ||||||
Audit fees (1) | $ | 1,301,476 | $ | 1,753,745 | |||
Audit-related fees (2) | 56,144 | 47,300 | |||||
Tax fees (3) | 536,267 | 381,908 | |||||
Total principal accountant fees | $ | 1,893,887 | $ | 2,182,953 |
(1) | Audit fees pertain to the audit of our annual Consolidated Financial Statements, including review of the interim financial statements contained in our Quarterly Reports on Form 10-Q, comfort letters to underwriters in connection with our registration statements and common stock offerings, attest services, consents to the incorporation of the EY audit report in publicly filed documents and assistance with and review of documents filed with the SEC. |
(2) | Audit-related fees pertain to assurance and related services that are traditionally performed by the principal accountant, including accounting consultations and audits in connection with proposed or consummated acquisitions, internal control reviews and consultation concerning financial accounting and reporting standards. |
(3) | Tax fees pertain to services performed for tax compliance, including REIT compliance, tax planning and tax advice, including preparation of tax returns and claims for refund and tax-payment planning services. Tax planning and advice also includes assistance with tax audits and appeals, and tax advice related to specific transactions. |
Exhibit Number | Exhibit Index | |
1.1 | ||
2.1 | ||
2.2 | ||
2.3 | ||
2.4 | Agreement and Plan of Merger, by and among Two Harbors Investment Corp., Eiger Merger Subsidiary LLC and CYS Investments, Inc., dated as of April 25, 2018 (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 26, 2018). | |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
3.7 | ||
3.8 | ||
3.9 | ||
3.10 | ||
4.1 | ||
4.2 | ||
4.3 |
Exhibit Number | Exhibit Index | |
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7* | ||
10.8* | ||
10.9* | ||
10.10 | ||
21.1 | ||
23.1 | ||
24.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | Financial statements from the Annual Report on Form 10-K of Two Harbors Investment Corp. for the year ended December 31, 2018, formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive (Loss) Income, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements. (filed herewith) |
* | Management or compensatory agreement |
TWO HARBORS INVESTMENT CORP. | |||
Dated: | April 4, 2019 | By: | /s/ Thomas E. Siering |
Thomas E. Siering Chief Executive Officer, President and Director (principal executive officer) |
Name | State of Organization | Percent Ownership |
Agate Bay Residential Mortgage Securities LLC | Delaware | 100% |
Area RE Partners Columbus LLC | Delaware | 20% |
Capitol Acquisition Corp. | Delaware | 100% |
CYS/Area LP | Delaware | 99% |
CYS Condo GP LLC | Delaware | 100% |
CYS Investments LLC | Delaware | 100% |
Eiger Holdings Company LLC | Delaware | 100% |
Eiger Partnership LLC | Delaware | 100% |
Matrix Financial Services Corporation | Arizona | 100% |
North Shore Assets LLC | Delaware | 100% |
North Shore Mortgage Opportunity LLC | Delaware | 100% |
TH Asset Holdings LLC | Delaware | 100% |
TH Asset Investment Corp. | Delaware | 100% |
TH Insurance Holdings Company LLC | Missouri | 100% |
TH TRS Corp. | Delaware | 100% |
Two Harbors Asset I, LLC | Delaware | 100% |
Two Harbors Asset II, LLC | Delaware | 100% |
Two Harbors Operating Company LLC | Delaware | 100% |
• | Registration Statements (Form S-8 No. 333-204220 and 333-188875) pertaining to the Second Restated 2009 Equity Incentive Plan of Two Harbors Investment Corp., |
• | Registration Statement (Form S-4 No. 333-225242) pertaining to the registration of common stock and preferred stock of Two Harbors Investment Corp., |
• | Registration Statement (Form S-3 No. 333-215177) pertaining to the Dividend Reinvestment and Direct Stock Purchase Plan of Two Harbors Investment Corp., and |
• | Registration Statement (Form S-3 No. 333-223311) pertaining to the registration of common stock, preferred stock, debt securities, and depositary shares of Two Harbors Investment Corp.; |
Date: | April 4, 2019 | /s/ Thomas E. Siering | ||
Thomas E. Siering | ||||
Chief Executive Officer and President |
Date: | April 4, 2019 | /s/ Mary Riskey | ||
Mary Riskey | ||||
Chief Financial Officer |
Date: | April 4, 2019 | /s/ Thomas E. Siering | ||
Thomas E. Siering | ||||
Chief Executive Officer and President |
Date: | April 4, 2019 | /s/ Mary Riskey | ||
Mary Riskey | ||||
Chief Financial Officer |
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Document and Entity Information - USD ($) $ in Billions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Feb. 22, 2019 |
Jun. 30, 2018 |
|
Entity Information [Line Items] | |||
Document Type | 10-K/A | ||
Amendment Flag | true | ||
Document Period End Date | Dec. 31, 2018 | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | FY | ||
Entity Registrant Name | TWO HARBORS INVESTMENT CORP. | ||
Entity Central Index Key | 0001465740 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | false | ||
Entity Shell Company | false | ||
Entity Public Float | $ 2.7 | ||
Entity Common Stock, Shares Outstanding | 251,080,610 | ||
Amendment Description | This Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) to the Annual Report on Form 10-K of Two Harbors Investment Corp. (“the Company”) for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019 (the “Original Filing”), is being filed solely to correct certain typographical errors in the certifications filed as Exhibits 31.1, 31.2, 32.1 and 32.2 to the Original Filing. The certifications by the Company’s Chief Executive Officer and Chief Financial Officer included in the Original Filing inadvertently referred to a quarterly report on Form 10-Q rather than the annual report on Form 10-K. Except for the foregoing amended information, this Amendment does not alter or update any other information contained in the Original Filing. |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Stockholders' Equity | ||
Preferred stock par value per share (in usd per share) | $ 0.01 | $ 0.01 |
Preferred shares authorized (in shares) | 50,000,000 | 50,000,000 |
Preferred shares issued (in shares) | 40,050,000 | 29,050,000 |
Shares issued and outstanding | 40,050,000 | 29,050,000 |
Preferred stock liquidation preference | $ 1,001,250 | $ 726,250 |
Common stock par value per share (in usd per share) | $ 0.01 | $ 0.01 |
Common shares authorized (in shares) | 450,000,000 | 450,000,000 |
Common shares issued (in shares) | 248,085,721 | 174,496,587 |
Common shares outstanding (in shares) | 248,085,721 | 174,496,587 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Statement of Stockholders' Equity [Abstract] | |||
Tax benefit from (expense on) other comprehensive income before reclassifications | $ 14,890 | $ (45,157) | $ 20,435 |
Tax benefit from (expense on) on amounts reclassified from accumulated other comprehensive income | 0 | 2,722 | 6,373 |
Tax benefit from (expense on) other comprehensive income | $ 14,890 | $ (42,435) | $ 26,808 |
Organization and Operations |
12 Months Ended |
---|---|
Dec. 31, 2018 | |
Organization and Operations [Abstract] | |
Organization and Operations | Organization and Operations Two Harbors Investment Corp., or the Company, is a Maryland corporation investing in, financing and managing Agency residential mortgage-backed securities, or Agency RMBS, non-Agency securities, mortgage servicing rights, or MSR, and other financial assets. The Company’s Chief Investment Officer manages the investment portfolio as a whole and resources are allocated and financial performance is assessed on a consolidated basis. The Company is externally managed and advised by PRCM Advisers LLC, or PRCM Advisers, which is a subsidiary of Pine River Capital Management L.P., or Pine River. The Company’s common stock is listed on the NYSE under the symbol “TWO”. The Company was incorporated on May 21, 2009, and commenced operations as a publicly traded company on October 28, 2009, upon completion of a merger with Capitol Acquisition Corp., or Capitol, which became a wholly owned indirect subsidiary of the Company as a result of the merger. The Company has elected to be treated as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated certain of its subsidiaries as taxable REIT subsidiaries, or TRSs, as defined in the Code, to engage in such activities. On June 28, 2017, the Company completed the contribution of its portfolio of commercial real estate assets to Granite Point Mortgage Trust Inc., or Granite Point, a newly formed Maryland corporation intended to qualify as a REIT, externally managed and advised by Pine River, and focused on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. The Company contributed its equity interests in its wholly owned subsidiary, TH Commercial Holdings LLC, to Granite Point and, in exchange for its contribution, received approximately 33.1 million shares of common stock of Granite Point, which represented approximately 76.5% of the outstanding stock of Granite Point upon completion of the initial public offering, or IPO, of its common stock on June 28, 2017. On November 1, 2017, the Company distributed, on a pro rata basis, the 33.1 million shares of Granite Point common stock that it acquired in connection with the contribution to stockholders holding shares of Two Harbors common stock outstanding as of the close of business on October 20, 2017. On April 26, 2018, the Company announced that it had entered into a definitive merger agreement pursuant to which the Company would acquire CYS Investments, Inc., or CYS, a Maryland corporation investing in primarily Agency RMBS and treated as a REIT for U.S. federal income tax purposes. The transaction was approved by the stockholders of both the Company and CYS on July 27, 2018, and the merger was completed on July 31, 2018, at which time CYS became a wholly owned subsidiary of the Company. In exchange for all of the shares of CYS common stock outstanding immediately prior to the effective time of the merger, the Company issued approximately 72.6 million new shares of common stock, as well as aggregate cash consideration of $15.0 million, to CYS common stockholders. In addition, the Company issued 3 million shares of newly classified Series D cumulative redeemable preferred stock and 8 million shares of newly classified Series E cumulative redeemable preferred stock in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger.
|
Basis of Presentation and Significant Accounting Policies |
12 Months Ended |
---|---|
Dec. 31, 2018 | |
Basis of Presentation and Significant Accounting Policies [Abstract] | |
Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles, or U.S. GAAP. Certain prior period amounts have been reclassified to conform to the current period presentation. All per share amounts, common shares outstanding and restricted shares for all prior periods presented have been adjusted on a retroactive basis to reflect the Company’s one-for-two reverse stock split effected on November 1, 2017 (refer to Note 16 - Stockholders’ Equity for additional information). Due to its controlling ownership interest in Granite Point through November 1, 2017, the Company consolidated Granite Point on its financial statements. Effective November 1, 2017 (the date the 33.1 million shares of Granite Point common stock were distributed to the Company’s common stockholders), the Company no longer had a controlling interest in Granite Point and, therefore, deconsolidated Granite Point and its subsidiaries from its financial statements and reclassified all of Granite Point’s prior period assets, liabilities and results of operations to discontinued operations. The Company retains debt securities and excess servicing rights purchased from securitization trusts sponsored by either third parties or the Company’s subsidiaries. The securitization trusts are considered variable interest entities, or VIEs, for financial reporting purposes and, thus, are reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of a trust that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the trust. During the majority of 2017, the Company retained the most subordinate security in each of the securitization trusts, which gave the Company the power to direct the activities of the trusts that most significantly impact the trusts’ performance and the obligation to absorb losses or the right to receive benefits of the securitization trusts that could be significant. As a result, the Company consolidated all of the securitization trusts, including the underlying mortgage loans held by the trusts (residential mortgage loans held-for-investment) and the associated debt (collateralized borrowings), on its consolidated balance sheet. During the fourth quarter of 2017, the Company sold all of the retained subordinated securities thereby removing the Company’s power to direct the activities of the trusts and the obligation to absorb losses or the right to receive benefits of the securitization trusts. As a result, the securitization trusts are no longer consolidated on the Company’s consolidated balance sheet and the remaining retained securities are included within non-Agency available-for-sale, or AFS, securities. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material. Significant Accounting Policies Available-for-Sale Securities, at Fair Value The Company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations and other residential mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans (collectively “Agency RMBS”) issued by the Federal National Mortgage Association, or Fannie Mae, the Federal Home Loan Mortgage Corporation, or Freddie Mac, and the Government National Mortgage Association, or Ginnie Mae, or collectively, the government sponsored entities, or GSEs. The Company also invests in securities that are not issued by the GSEs, or non-Agency securities, and, from time to time, U.S. Treasuries. The Company classifies its Agency RMBS and non-Agency securities, excluding inverse interest-only Agency securities classified as derivatives for purposes of U.S. GAAP, as AFS, investments. Although the Company generally intends to hold most of its investment securities until maturity, it may, from time to time, sell any of its investment securities as part of its overall management of its portfolio. Accordingly, the Company classifies all of its securities as AFS, including its interest-only strips, which represent the Company’s right to receive a specified portion of the contractual interest flows of specific Agency or non-Agency securities. All assets classified as AFS, excluding Agency interest-only mortgage-backed securities, are reported at estimated fair value with unrealized gains and losses, excluding other than temporary impairments, included in accumulated other comprehensive income, on an after-tax basis. On July 1, 2015, the Company elected the fair value option for Agency interest-only securities acquired on or after such date. All Agency interest-only securities acquired on or after July 1, 2015 are carried at estimated fair value with changes in fair value, excluding other than temporary impairments, recorded as a component of loss on investment securities in the consolidated statements of comprehensive (loss) income. Fair value is determined under the guidance of Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, or ASC 820. The Company determines the fair value of its RMBS that are issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. government, such as Ginnie Mae (collectively, “Agency RMBS”), based upon prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity. In determining the fair value of its non-Agency securities, management judgment is used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If listed price data is not available or insufficient, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs. See Note 9 - Fair Value of these notes to the consolidated financial statements for details on fair value measurement. Investment securities transactions are recorded on the trade date. The cost basis for realized gains and losses on sales of investment securities are determined on the first-in, first-out, or FIFO, method. Interest income on securities is accrued based on the outstanding principal balance and their contractual terms. Premiums and discounts associated with Agency RMBS and non-Agency securities rated AA and higher at the time of purchase, are amortized into interest income over the life of such securities using the effective yield method. Adjustments to premium amortization are made for actual prepayment activity. The Company estimates prepayments for its Agency interest-only securities, which represent the Company’s right to receive a specified portion of the contractual interest flows of specific Agency securities. As a result, if prepayments increase (or are expected to increase), the Company will accelerate the rate of amortization on the premiums. Interest income on the non-Agency securities that were purchased at a discount to par value and were rated below AA at the time of purchase is recognized based on the security’s effective interest rate. The effective interest rate on these securities is based on the projected cash flows from each security, which are estimated based on the Company’s observation of current information and events and include assumptions related to interest rates, prepayment rates, and the timing and amount of credit losses. On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield/interest income recognized on such securities. Actual maturities of the AFS securities are affected by the contractual lives of the associated mortgage collateral, periodic payments of principal, and prepayments of principal. Therefore actual maturities of AFS securities are generally shorter than stated contractual maturities. Stated contractual maturities are generally greater than ten years. Based on the projected cash flows from the Company’s non-Agency securities purchased at a discount to par value, a portion of the purchase discount may be designated as credit protection against future credit losses and, therefore, not accreted into interest income. The amount designated as credit discount may be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions, and other factors. If the performance of a security with a credit discount is more favorable than forecasted, a portion of the amount designated as credit discount may be accreted into interest income prospectively. Conversely, if the performance of a security with a credit discount is less favorable than forecasted, an impairment charge and write-down of such security to a new cost basis results. The Company evaluates its investment securities, on a quarterly basis, to assess whether a decline in the fair value of an AFS security below the Company’s amortized cost basis is an other-than-temporary impairment, or OTTI. The presence of OTTI is based upon a fair value decline below a security’s amortized cost basis and a corresponding adverse change in expected cash flows due to credit related factors as well as non-credit factors, such as changes in interest rates and market spreads. Impairment is considered other-than-temporary if an entity (i) intends to sell the security, (ii) will more likely than not be required to sell the security before it recovers in value, or (iii) does not expect to recover the security’s amortized cost basis, even if the entity does not intend to sell the security. Under these scenarios, the impairment is other-than-temporary and the full amount of impairment should be recognized currently in earnings and the cost basis of the investment security is adjusted. However, if an entity does not intend to sell the impaired debt security and it is more likely than not that it will not be required to sell before recovery, the OTTI is separated into (i) the estimated amount relating to credit loss, or credit component, and (ii) the amount relating to all other factors, or non-credit component. Only the estimated credit loss amount is recognized currently in earnings, with the remainder of the loss amount recognized in other comprehensive (loss) income. The difference between the new amortized cost basis and the cash flows expected to be collected is accreted as interest income in accordance with the effective interest method. Mortgage Servicing Rights, at Fair Value The Company’s MSR represent the right to service mortgage loans. The Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the Company’s MSR. However, as an owner and manager of MSR, the Company may be obligated to fund advances of principal and interest payments due to third-party owners of the loans, but not yet received from the individual borrowers. These advances are reported as servicing advances within the other assets line item on the consolidated balance sheets. MSR are reported at fair value on the consolidated balance sheets. Although MSR transactions are observable in the marketplace, the valuation includes unobservable market data inputs (prepayment speeds, delinquency levels and discount rates). Changes in the fair value of MSR as well as servicing fee income and servicing expenses are reported on the consolidated statements of comprehensive (loss) income. Cash and Cash Equivalents Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis. Restricted Cash Restricted cash represents the Company’s cash held by counterparties as collateral against the Company’s securities, certain derivative instruments and/or repurchase agreements. Also included is the cash balance held pursuant to a letter of credit on the New York office lease. Cash held by counterparties as collateral, which resides in non-interest bearing accounts, is not available to the Company for general corporate purposes, but may be applied against amounts due to security, derivative or repurchase counterparties or returned to the Company when the collateral requirements are exceeded or, at the maturity of the derivative or repurchase agreement. Accrued Interest Receivable Accrued interest receivable represents interest that is due and payable to the Company. Cash interest is generally received within 30 days of recording the receivable. Due from/to Counterparties, net Due from counterparties includes cash held by counterparties for payment of principal and interest as well as cash held by counterparties as collateral against certain of the Company’s derivatives and/or repurchase agreements but represents excess capacity and deemed unrestricted and a receivable from the counterparty as of the balance sheet date. Due from counterparties also includes cash receivable from counterparties for sales of MSR pending final transfer and settlement. Due to counterparties includes cash payable by the Company upon settlement of trade positions as well as cash deposited to and held by the Company as collateral against certain of the Company’s derivatives and/or repurchase agreements but represents a payable to the counterparty as of the balance sheet date. Due to counterparties also includes purchase price holdbacks on MSR acquisitions for early prepayment or default provisions, collateral exceptions and other contractual terms. Derivative Financial Instruments, at Fair Value In accordance with ASC 815, Derivatives and Hedging, as amended and interpreted, or ASC 815, all derivative financial instruments, whether designated for hedging relationships or not, are recorded on the consolidated balance sheets as assets or liabilities and carried at fair value. At the inception of a derivative contract, the Company determines whether the instrument will be part of a qualifying hedge accounting relationship or whether the Company will account for the contract as a trading instrument. Due to the volatility of the credit markets and difficulty in effectively matching pricing or cash flows, the Company has elected to treat all current derivative contracts as trading instruments. Changes in fair value as well as the accrual and settlement of interest associated with derivatives accounted for as trading instruments are reported in the consolidated statements of comprehensive (loss) income as gain (loss) on interest rate swap, cap and swaption agreements or (loss) gain on other derivative instruments depending on the type of derivative instrument. The Company enters into interest rate derivative contracts for a variety of reasons, including minimizing fluctuations in earnings or market values on certain assets or liabilities that may be caused by changes in interest rates. The Company may, at times, enter into various forward contracts including short securities, Agency to-be-announced securities, or TBAs, options, futures, swaps, and caps. Due to the nature of these instruments, they may be in a receivable/asset position or a payable/liability position at the end of an accounting period. Amounts payable to and receivable from the same party under contracts may be offset as long as the following conditions are met: (a) each of the two parties owes the other determinable amounts; (b) the reporting party has the right to offset the amount owed with the amount owed by the other party; (c) the reporting party intends to offset; and (d) the right of offset is enforceable by law. If the aforementioned conditions are not met, amounts payable to and receivable from are presented by the Company on a gross basis in its consolidated balance sheets. The Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018 and in subsequent periods, the Company accounts for the receipt or payment of variation margin on interest rate swaps as a direct reduction to the carrying value of the interest rate swap asset or liability. As of December 31, 2018 and December 31, 2017, variation margin pledged or received is netted on a counterparty basis and classified within restricted cash, due from counterparties, or due to counterparties on the Company’s consolidated balance sheets. The Company has provided specific disclosure regarding the location and amounts of derivative instruments in the consolidated financial statements and how derivative instruments and related hedged items are accounted for. See Note 7 - Derivative Instruments and Hedging Activities of these notes to the consolidated financial statements. Reverse Repurchase Agreements The Company may borrow U.S. Treasury securities through reverse repurchase transactions under its master repurchase agreements to cover short sales. The Company accounts for these reverse repurchase agreements as securities borrowing transactions and records them at amortized cost, which approximates fair value due to their short-term nature, on its consolidated balance sheets. Commercial Real Estate Assets (of Discontinued Operations) Due to the Company’s controlling ownership interest in Granite Point through November 1, 2017, its financial condition and results of operations through such date reflect Granite Point’s commercial strategy, which includes as target assets first mortgages, mezzanine loans, B-notes and preferred equity. These commercial real estate assets have been reclassified to assets of discontinued operations on the consolidated balance sheets. Interest income on commercial real estate assets has been reclassified to income from discontinued operations on the consolidated statements of comprehensive (loss) income. The Company’s commercial real estate assets were reported at cost, net of any unamortized acquisition premiums or discounts, loan fees and origination costs as applicable, unless the assets were deemed impaired. No impairments were recorded while these loans were held by the Company. Interest income on commercial real estate assets was recognized at the loan coupon rate. Any premiums or discounts, loan fees and origination costs were amortized or accreted into interest income over the lives of the loans using the effective interest method. Loans were considered past due when they are 30 days past their contractual due date. Interest income recognition was suspended when loans are placed on nonaccrual status. Generally, commercial real estate loans were placed on nonaccrual status when delinquent for more than 60 days or when determined not to be probable of full collection. Interest accrued, but not collected, at the date loans were placed on nonaccrual is reversed and subsequently recognized only to the extent it was received in cash or until it qualified for return to accrual status. However, where there was doubt regarding the ultimate collectability of loan principal, all cash received was applied to reduce the carrying value of such loans. Commercial real estate loans were restored to accrual status only when contractually current or the collection of future payments was reasonably assured. Repurchase Agreements The Company finances certain of its investment securities and MSR through the use of repurchase agreements. These repurchase agreements are generally short-term debt, which expire within one year. As of December 31, 2018, certain of the Company’s repurchase agreements had contractual terms of greater than one year, and were considered long-term debt. Borrowings under repurchase agreements generally bear interest rates of a specified margin over one-month LIBOR and are generally uncommitted. The repurchase agreements are treated as collateralized financing transactions and are carried at their contractual amounts, as specified in the respective agreements. Federal Home Loan Bank of Des Moines Advances and Stock Holdings The Company’s wholly owned subsidiary, TH Insurance Holdings Company LLC, or TH Insurance, is a member of the Federal Home Loan Bank of Des Moines, or the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. The Company’s secured advances from the FHLB may have both short-term and long-term maturities. The advances with less than five year terms generally bear interest rates of a spread over one- or three-month LIBOR and the advances with 20-year terms generally bear interest rates of or one- or three-month MOVR, or the FHLB member option variable-rate. FHLB advances are treated as secured financing transactions and are carried at their contractual amounts. As a condition to membership in the FHLB, the Company is required to purchase and hold a certain amount of FHLB stock, which is based, in part, upon the outstanding principal balance of advances from the FHLB. FHLB stock is considered a nonmarketable, long-term investment, is carried at cost and is subject to recoverability testing under applicable accounting standards. This stock can only be redeemed or sold at its par value, and only to the FHLB. Accordingly, when evaluating FHLB stock for impairment, the Company considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. At its discretion, the FHLB may declare dividends on its stock. Revolving Credit Facilities To finance MSR, the Company enters into revolving credit facilities collateralized by pledged MSR. Borrowings under these revolving credit facilities that expire within one year are considered short-term debt. As of December 31, 2018, the Company’s revolving credit facilities that had contractual terms of greater than one year were considered long-term debt. The Company’s revolving credit facilities generally bear interest rates of a specified margin over one-month LIBOR. Borrowings under revolving credit facilities are treated as collateralized financing transactions and are carried at contractual amounts, as specified in the respective agreements. Convertible Senior Notes Convertible senior notes include unsecured convertible debt that are carried at their unpaid principal balance, net of any unamortized deferred issuance costs, on the Company’s consolidated balance sheet. Interest on the notes is payable semiannually until such time the notes mature or are converted into shares of the Company’s common stock. Accrued Interest Payable Accrued interest payable represents interest that is due and payable to third parties. Interest is generally paid within 30 days to three months of recording the payable, based upon the Company’s remittance requirements. Deferred Tax Assets and Liabilities Income recognition for U.S. GAAP and tax differ in certain respects. These differences often reflect differing accounting treatments for tax and U.S. GAAP, such as accounting for discount and premium amortization, credit losses, asset impairments, recognition of certain operating expenses and certain valuation estimates. Some of these differences are temporary in nature and create timing mismatches between when taxable income is earned and the tax is paid versus when the earnings (losses) for U.S. GAAP purposes, or GAAP net (loss) income, are recognized and the tax provision is recorded. Some of these differences are permanent since certain income (or expense) may be recorded for tax purposes but not for U.S. GAAP purposes (or vice-versa). One such significant permanent difference is the Company’s ability as a REIT to deduct dividends paid to stockholders as an expense for tax purposes, but not for U.S. GAAP purposes. As a result of these temporary differences, the Company’s TRSs may recognize taxable income in periods prior or subsequent to when it recognizes income for U.S. GAAP purposes. When this occurs, the TRSs pay or defer the tax liability and establish deferred tax assets or deferred tax liabilities, respectively, for U.S. GAAP purposes. As the income is subsequently realized in future periods under U.S. GAAP, the deferred tax asset is recognized as an expense. Alternatively, as the TRSs realize the deferred taxable income, the deferred tax liability is recognized as a reduction to taxable income. The Company’s deferred tax assets and/or liabilities are generated solely by differences in GAAP net (loss) income and taxable income (loss) at our taxable subsidiaries. U.S. GAAP and tax differences in the REIT may create additional deferred tax assets and/or liabilities to the extent the Company does not distribute all of its taxable income. Income Taxes The Company has elected to be taxed as a REIT under the Code and the corresponding provisions of state law. To qualify as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to stockholders (not including taxable income retained in its taxable subsidiaries) within the time frame set forth in the tax Code and the Company must also meet certain other requirements. In addition, because certain activities, if performed by the Company, may cause the Company to earn income which is not qualifying for the REIT gross income tests, the Company has formed TRSs, as defined in the Code, to engage in such activities. These TRSs’ activities are subject to income taxes as well as any REIT taxable income not distributed to stockholders. The Company assesses its tax positions for all open tax years and determines whether the Company has any material unrecognized liabilities in accordance with ASC 740, Income Taxes. The Company records these liabilities to the extent the Company deems them more likely than not to be incurred. The Company classifies interest and penalties on material uncertain tax positions as interest expense and operating expense, respectively, in its consolidated statements of comprehensive (loss) income. The SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Cuts and Jobs Act of 2017 (“TCJA”), which was signed into law on December 22, 2017. SAB 118 provided a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA were incomplete but it was able to determine a reasonable estimate, it was required to record a provisional estimate to be included in the financial statements. . If a company could not determine a provisional estimate to be included in the financial statements, it continued to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the TCJA. The TCJA significantly revised the U.S. corporate income tax by, among other things, lowering the federal income tax rate applicable to corporations from 35% to 21% and repealing the corporate alternative minimum tax. In addition, the deduction of net interest expense is limited for all businesses; provided that certain businesses, including real estate businesses, may elect not to be subject to such limitations and instead to depreciate their real property related assets over longer depreciable lives. This limitation could adversely affect our TRSs. The Company recorded a provisional tax provision of $17.5 million in the 2017 financial statements, which was included as a component of income tax expense from continuing operations. This amount represents the remeasurement of federal net deferred tax assets resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%. The provisional amount was finalized in 2018 without any changes and there is no additional impact to the 2018 financial statements. Technical corrections or other amendments to the TCJA or administrative guidance interpreting the TCJA may be forthcoming at any time. While the Company does not anticipate a material effect on its operations, the Company will continue to analyze and monitor the application of the TCJA to its businesses, its peers and the economic environment. Other Comprehensive Income (Loss) Current period net unrealized gains and losses on AFS securities, excluding Agency interest-only securities, are reported as components of accumulated other comprehensive income on the consolidated statements of stockholders’ equity and in the consolidated statements of comprehensive (loss) income. Net unrealized gains and losses on securities held by our taxable subsidiaries that are reported in accumulated other comprehensive income are adjusted for the effects of taxation and may create deferred tax assets or liabilities. Earnings Per Share Basic and diluted (loss) earnings per share are computed by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares and potential common shares outstanding during the period. For both basic and diluted per share calculations, potential common shares represents issued and unvested shares of restricted stock, which have full rights to the common stock dividend declarations of the Company. If the assumed conversion of convertible notes into common shares is dilutive, diluted (loss) earnings per share is adjusted by adding back the periodic interest expense (net of any tax effects) associated with dilutive convertible notes to net (loss) income attributable to common stockholders and adding the shares issued in an assumed conversion to the diluted weighted average share count. All per share amounts, common shares outstanding and restricted shares for all periods presented reflect the Company’s one-for-two reverse stock split effected on November 1, 2017 (refer to Note 16 - Stockholders’ Equity for additional information). Equity Incentive Plan The Company’s Second Restated 2009 Equity Incentive Plan, or the Plan, provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers and its affiliates. The Plan is administered by the compensation committee of the Company’s board of directors. The Plan permits the granting of restricted shares of common stock, phantom shares, dividend equivalent rights and other equity-based awards. See Note 17 - Equity Incentive Plan for further details regarding the Plan. The cost of equity-based compensation awarded to employees provided by our manager is measured on and fixed at the grant date, based on the price of the Company’s stock as of period end in accordance with ASU No. 2018-07, and amortized over the vesting term. Asset Acquisition In accordance with U.S. GAAP, the acquirer in a merger transaction is to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of acquired assets and associated activities is not deemed a business and is required to be accounted for as an asset acquisition. Upon completion of the merger with CYS on July 31, 2018, approximately 89% of the CYS assets acquired were Agency RMBS. The Company concluded that they were similar identifiable assets to be grouped to evaluate whether the “substantially all” threshold was met as the Agency RMBS are financial assets with similar risk characteristics associated with managing these assets. Given the concentration of the fair value of the Agency RMBS of the gross assets acquired, the Company concluded that the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets and, therefore, the merger was accounted for as an asset acquisition. The financial results of CYS since the closing date of the acquisition have been included in the Company’s consolidated financial statements. Asset acquisitions are generally accounted for by allocating the cost of the acquisition plus direct transaction costs to the individual assets acquired, including identified intangible assets, and liabilities assumed on a relative fair value basis. This allocation may cause identified assets to be recognized at amounts that are greater than their fair values. However, “non-qualifying” assets, which include financial assets and other current assets, should not be assigned an amount greater than their fair value. The gross assets acquired in the merger consisted most significantly of financial assets and other current assets. The cost of the acquisition of CYS plus direct transaction costs exceeded gross assets acquired less liabilities assumed in the merger. As there were no meaningful nonfinancial assets and non-current assets in this transaction and no identified intangible assets to assign value, the excess consideration and transaction costs were recognized in the consolidated statements of comprehensive (loss) income as an expense and an associated reduction in stockholders’ equity. Recently Issued and/or Adopted Accounting Standards Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board, or FASB, issued ASU No. 2014-09, which is a comprehensive revenue recognition standard that supersedes virtually all existing revenue guidance under U.S. GAAP. The standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. As a result of the issuance of ASU No. 2015-14 in August 2015 deferring the effective date of ASU No. 2014-09 by one year, the ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2017, with early adoption prohibited. The Company has evaluated the new guidance and determined that interest income, gains and losses on financial instruments and income from servicing residential mortgage loans are outside the scope of ASC 606, Revenues from Contracts with Customers, or ASC 606. For income from servicing residential mortgage loans, the Company considered that the FASB Transition Resource Group members generally agreed that an entity should look to ASC 860, Transfers and Servicing, to determine the appropriate accounting for these fees and ASC 606 contains a scope exception for contracts that fall under ASC 860. As a result, the adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures. Lease Classification and Accounting In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company has determined this ASU will not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures. Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued ASU No. 2016-13, which changes the impairment model for most financial assets and certain other instruments. Valuation allowances for credit losses on AFS debt securities will be recognized, rather than direct reductions in the amortized cost of the investments, regardless of whether the impairment is considered to be other-than-temporary. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, held-to-maturity debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. The Company is evaluating the adoption of this ASU to determine the impact it may have on its consolidated financial statements, which at the date of adoption, will establish an allowance for credit losses on AFS securities which will be derived from the current designated credit reserve with a resulting increase to amortized cost on the securities. The Company also expects adoption of this ASU to impact the recording for the purchase of certain non-Agency securities with purchased credit deterioration by recording an allowance for credit losses with an increase in amortized cost above the purchase price of the same amount. Subsequent changes in expected credit losses will be recognized immediately in earnings as a provision for credit losses until the allowance is reduced to zero. Further favorable changes will result in prospective yield adjustments. Clarifying the Definition of a Business In January 2017, the FASB issued ASU No. 2017-01, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2017, with early adoption permitted. The Company’s adoption of this ASU impacted how the Company accounted for the acquisition of CYS (see discussion above). Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income In February 2018, the FASB issued ASU No. 2018-02, which permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act, or TCJA, to retained earnings and requires entities to disclose whether or not they elected to reclassify the tax effects related to the TCJA as well as their policy for releasing income tax effects from accumulated other comprehensive income. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. Early adoption of this ASU was elected and applied by recording a cumulative-effect adjustment of $9.9 million to retained earnings, with the offsetting impact to accumulated other comprehensive income as of January 1, 2018. Accounting for Share-Based Payments to Nonemployees In June 2018, the FASB issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, equity-classified nonemployee awards will be measured on and fixed at the grant date, rather than measured at fair value at each reporting date until the date at which the nonemployee’s performance is complete. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. Early adoption of this ASU was elected on July 1, 2018 and applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2018, which did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures. Fair Value Measurement Disclosure Requirements In August 2018, the FASB issued ASU No. 2018-13, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and (2) the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted. Early adoption of this ASU did not have an impact on the Company’s financial condition or results of operations but resulted in some modified financial statement disclosures. SEC Disclosure Update and Simplification In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equity for each period for which an income statement is required (both year-to-date and quarterly periods). The final rule is effective for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result, the Company plans to adopt the new interim disclosure requirement in its Form 10-Q for the three months ended March 31, 2019. The Company has determined this final rule will not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.
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Acquisition of CYS Investments, Inc. |
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Acquisition of CYS Investments, Inc. | Acquisition of CYS Investments, Inc. On July 31, 2018, the Company completed the acquisition of CYS, through a merger of CYS with and into a wholly owned subsidiary of the Company, in exchange for approximately 72.6 million shares of Two Harbors common stock as well as aggregate cash consideration of $15.0 million. In accordance with the merger agreement, the number of shares of Two Harbors common stock issued was based on an exchange ratio of 0.4680 per share and the cash consideration received by CYS common stockholders was $0.0965 per share. In addition, the Company issued 3 million shares of newly classified Series D cumulative redeemable preferred stock and 8 million shares of newly classified Series E cumulative redeemable preferred stock in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger. The total purchase price for the merger of $1.4 billion consists primarily of Two Harbors common stock issued in exchange for shares of CYS common stock and was calculated based on the $15.50 closing price of Two Harbors common stock on July 31, 2018.
As discussed in Note 2 - Basis of Presentation and Significant Accounting Policies, the merger was accounted for as an asset acquisition. The total purchase price for the merger including direct transaction costs, which exceeded gross assets acquired less liabilities assumed in the merger, was allocated to the individual assets acquired and liabilities assumed on a relative fair value basis, as shown below:
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Available-for-Sale Securities, at Fair Value |
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Debt Securities, Available-for-sale [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-Sale Securities, at Fair Value | Available-for-Sale Securities, at Fair Value The Company holds AFS investment securities which are carried at fair value on the consolidated balance sheets. The following table presents the Company’s AFS investment securities by collateral type as of December 31, 2018 and December 31, 2017:
At December 31, 2018 and December 31, 2017, the Company pledged AFS securities with a carrying value of $25.2 billion and $21.0 billion, respectively, as collateral for repurchase agreements and advances from the Federal Home Loan Bank of Des Moines, or the FHLB. See Note 10 - Repurchase Agreements and Note 12 - Federal Home Loan Bank of Des Moines Advances. At December 31, 2018 and December 31, 2017, the Company did not have any securities purchased from and financed with the same counterparty that did not meet the conditions of ASC 860, to be considered linked transactions and, therefore, classified as derivatives. The Company is not required to consolidate VIEs for which it has concluded it does not have both the power to direct the activities of the VIEs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant. The Company’s investments in these unconsolidated VIEs include all non-Agency securities, which are classified within available-for-sale securities, at fair value on the consolidated balance sheets. As of December 31, 2018 and December 31, 2017, the carrying value, which also represents the maximum exposure to loss, of all non-Agency securities in unconsolidated VIEs was $3.9 billion and $3.0 billion, respectively. The following tables present the amortized cost and carrying value of AFS securities by collateral type as of December 31, 2018 and December 31, 2017:
The following tables present the carrying value of the Company’s AFS securities by rate type as of December 31, 2018 and December 31, 2017:
The following table presents the Company’s AFS securities according to their estimated weighted average life classifications as of December 31, 2018:
When the Company purchases a credit-sensitive AFS security at a significant discount to its face value, the Company often does not amortize into income a significant portion of this discount that the Company is entitled to earn because the Company does not expect to collect the entire discount due to the inherent credit risk of the security. The Company may also record an other-than-temporary impairment, or OTTI, for a portion of its investment in the security to the extent the Company believes that the amortized cost will exceed the present value of expected future cash flows. The amount of principal that the Company does not amortize into income is designated as a credit reserve on the security, with unamortized net discounts or premiums amortized into income over time to the extent realizable. The following table presents the changes for the years ended December 31, 2018 and 2017 of the net unamortized discount/premium and designated credit reserves on non-Agency AFS securities.
The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time that the securities had an unrealized loss position as of December 31, 2018 and December 31, 2017. At December 31, 2018, the Company held 1,550 AFS securities, of which 290 were in an unrealized loss position for less than twelve consecutive months and 489 were in an unrealized loss position for more than twelve consecutive months. At December 31, 2017, the Company held 1,435 AFS securities, of which 253 were in an unrealized loss position for less than twelve consecutive months and 234 were in an unrealized loss position for more than twelve consecutive months. Of the $4.4 billion and $12.2 billion of AFS securities in an unrealized loss position for less than twelve consecutive months as of December 31, 2018 and December 31, 2017, $3.1 billion, or 71.1%, and $12.0 billion, or 98.5%, respectively, were Agency AFS securities, whose principal and interest are guaranteed by the GSEs.
Evaluating AFS Securities for Other-Than-Temporary Impairments In evaluating AFS securities for OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and will not be more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in either other comprehensive (loss) income, net of tax, or loss on investment securities, depending on the accounting treatment. If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings. During the years ended December 31, 2018, 2017 and 2016, the Company recorded $0.5 million, $0.8 million and $1.8 million in other-than-temporary credit impairments on a total of three, two and four non-Agency securities, respectively, where the future expected cash flows for each security were less than its amortized cost. As of December 31, 2018, impaired securities with a carrying value of $135.5 million had actual weighted average cumulative losses of 8.8%, weighted average three-month prepayment speed of 5.8%, weighted average 60+ day delinquency of 18.6% of the pool balance, and weighted average FICO score of 667. At December 31, 2018, the Company did not intend to sell the securities and determined that it was not more likely than not that the Company will be required to sell the securities; therefore, only the projected credit loss was recognized in earnings. The following table presents the changes in OTTI included in earnings for the years ended December 31, 2018, 2017 and 2016:
Cumulative credit losses related to OTTI may be reduced for securities sold as well as for securities that mature, are paid down, or are prepaid such that the outstanding principal balance is reduced to zero. Additionally, increases in cash flows expected to be collected over the remaining life of the security cause a reduction in the cumulative credit loss. Gross Realized Gains and Losses Gains and losses from the sale of AFS securities are recorded as realized gains (losses) within loss on investment securities in the Company’s consolidated statements of comprehensive (loss) income. For the years ended December 31, 2018, 2017 and 2016, the Company sold AFS securities for $15.2 billion, $8.7 billion and $14.4 billion with an amortized cost of $15.6 billion, $8.7 billion and $14.5 billion for net realized losses of $349.6 million, $32.5 million and $126.2 million, respectively. The following table presents the gross realized gains and losses on sales of AFS securities for the years ended December 31, 2018, 2017 and 2016:
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Servicing Activities |
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Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Servicing Activities | Servicing Activities Mortgage Servicing Rights, at Fair Value One of the Company’s wholly owned subsidiaries has approvals from Fannie Mae and Freddie Mac to own and manage MSR, which represent the right to control the servicing of mortgage loans. The Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the Company’s MSR. The following table summarizes activity related to MSR for the years ended December 31, 2018, 2017 and 2016.
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At December 31, 2018 and December 31, 2017, the Company pledged MSR with a carrying value of $1.1 billion and $0.6 billion, respectively, as collateral for repurchase agreements and revolving credit facilities. See Note 10 - Repurchase Agreements and Note 13 - Revolving Credit Facilities. As of December 31, 2018 and December 31, 2017, the key economic assumptions and sensitivity of the fair value of MSR to immediate 10% and 20% adverse changes in these assumptions were as follows:
These assumptions and sensitivities are hypothetical and should be considered with caution. Changes in fair value based on 10% and 20% variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSR is calculated without changing any other assumptions. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets. Risk Mitigation Activities The primary risk associated with the Company’s MSR is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments that could reduce the value of the MSR. The Company economically hedges the impact of these risks with its Agency RMBS portfolio. Mortgage Servicing Income The following table presents the components of servicing income recorded on the Company’s consolidated statements of comprehensive (loss) income for the years ended December 31, 2018, 2017 and 2016:
Mortgage Servicing Advances In connection with the servicing of loans, the Company’s subservicers make certain payments for property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from individual borrowers. Servicing advances, including contractual interest, are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances, which are funded by the Company, totaled $39.7 million and $31.1 million and were included in other assets on the consolidated balance sheets as of December 31, 2018 and December 31, 2017, respectively. Serviced Mortgage Assets The Company’s total serviced mortgage assets consist of residential mortgage loans underlying MSR, residential mortgage loans held in previous on-balance sheet securitization trusts for which the Company is the named servicing administrator and and other assets. The following table presents the number of loans and unpaid principal balance of the mortgage assets for which the Company manages the servicing as of December 31, 2018 and December 31, 2017:
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Cash, Cash Equivalents and Restricted Cash |
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Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Restricted Cash | Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis. The Company is required to maintain certain cash balances with counterparties for securities and derivatives trading activity and collateral for the Company’s repurchase agreements and FHLB advances in restricted accounts. The Company has also placed cash in a restricted account pursuant to a letter of credit on an office space lease. The following table presents the Company’s restricted cash balances as of December 31, 2018 and December 31, 2017:
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Company’s consolidated balance sheets as of December 31, 2018 and December 31, 2017 that sum to the total of the same such amounts shown in the statements of cash flows:
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Derivative Instruments and Hedging Activities |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities The Company enters into a variety of derivative and non-derivative instruments in connection with its risk management activities. The primary objective for executing these derivative and non-derivative instruments is to mitigate the Company’s economic exposure to future events that are outside its control, principally market risk and cash flow volatility associated with interest rate risk (including associated prepayment risk). Specifically, the Company enters into derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of its floating-rate borrowings into fixed-rate borrowings to more closely match the duration of its assets. This particularly applies to floating-rate borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (i.e., LIBOR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration. To help manage the adverse impact of interest rate changes on the value of the Company’s portfolio as well as its cash flows, the Company may, at times, enter into various forward contracts, including short securities, Agency to-be-announced securities, or TBAs, options, futures, swaps, caps and total return swaps. In executing on the Company’s current risk management strategy, the Company has entered into interest rate swap, cap and swaption agreements, TBAs, put and call options for TBAs and total return swaps (based on the Markit IOS Index). The Company has also entered into a number of non-derivative instruments to manage interest rate risk, principally MSR and Agency interest-only securities (see discussion below). The following summarizes the Company’s significant asset and liability classes, the risk exposure for these classes, and the Company’s risk management activities used to mitigate these risks. The discussion includes both derivative and non-derivative instruments used as part of these risk management activities. Any of the Company’s derivative and non-derivative instruments may be entered into in conjunction with one another in order to mitigate risks. As a result, the following discussions of each type of instrument should be read as a collective representation of the Company’s risk mitigation efforts and should not be considered independent of one another. While the Company uses derivative and non-derivative instruments to achieve the Company’s risk management activities, it is possible that these instruments will not effectively mitigate all or a substantial portion of the Company’s market rate risk. In addition, the Company might elect, at times, not to enter into certain hedging arrangements in order to maintain compliance with REIT requirements. Balance Sheet Presentation In accordance with ASC 815, Derivatives and Hedging, or ASC 815, the Company records derivative financial instruments on its consolidated balance sheets as assets or liabilities at fair value. Changes in fair value are accounted for depending on the use of the derivative instruments and whether they are designated or qualifying as hedge instruments. Due to the volatility of the credit markets and difficulty in effectively matching pricing or cash flows, the Company has not designated any current derivatives as hedging instruments. The following tables present the gross fair value and notional amounts of the Company’s derivative financial instruments treated as trading derivatives as of December 31, 2018 and December 31, 2017.
Comprehensive (Loss) Income Statement Presentation The Company has not applied hedge accounting to its current derivative portfolio held to mitigate interest rate risk and credit risk. As a result, the Company is subject to volatility in its earnings due to movement in the unrealized gains and losses associated with its derivative instruments. The following table summarizes the location and amount of gains and losses on derivative instruments reported in the consolidated statements of comprehensive (loss) income:
For the years ended December 31, 2018, 2017 and 2016, the Company recognized $49.2 million of income and $8.8 million, and $21.1 million of expenses, respectively, for the accrual and/or settlement of the net interest expense associated with its interest rate swaps and caps. The income/expenses result from receiving either LIBOR interest or a fixed interest rate and paying either a fixed interest rate or LIBOR interest on an average $29.4 billion, $19.4 billion and $15.5 billion notional, respectively. The following tables present information with respect to the volume of activity in the Company’s derivative instruments during the years ended December 31, 2018 and 2017:
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Cash flow activity related to derivative instruments is reflected within the operating activities and investing activities sections of the consolidated statements of cash flows. Realized gains and losses and derivative fair value adjustments are reflected within the realized and unrealized losses (gains) on interest rate swaps, caps and swaptions and unrealized loss (gain) on other derivative instruments line items within the operating activities section of the consolidated statements of cash flows. The remaining cash flow activity related to derivative instruments is reflected within the (purchases) short sales of other derivative instruments, proceeds from sales (payments for termination) of other derivative instruments, net and increase (decrease) in due to counterparties, net line items within the investing activities section of the consolidated statements of cash flows. Interest Rate Sensitive Assets/Liabilities The Company’s Agency RMBS portfolio is generally subject to change in value when mortgage rates decline or increase, depending on the type of investment. Rising mortgage rates generally result in a slowing of refinancing activity, which slows prepayments and results in a decline in the value of the Company’s fixed-rate Agency pools. To mitigate the impact of this risk on the Company’s fixed-rate Agency pool portfolio, the Company maintains a portfolio of fixed-rate interest-only securities and MSR, which increase in value when interest rates increase. As of December 31, 2018 and December 31, 2017, the Company had $147.6 million and $117.8 million, respectively, of interest-only securities, and $2.0 billion and $1.1 billion, respectively, of MSR in place to economically hedge its Agency RMBS. Interest-only securities are included in AFS securities, at fair value, in the consolidated balance sheets. The Company monitors its borrowings under repurchase agreements, FHLB advances and revolving credit facilities, which are generally floating-rate debt, in relation to the rate profile of its portfolio. In connection with its risk management activities, the Company enters into a variety of derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of its floating-rate borrowings into fixed-rate borrowings to more closely match the duration of its assets. This particularly applies to borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (i.e., LIBOR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration. To help manage the adverse impact of interest rate changes on the value of the Company’s portfolio as well as its cash flows, the Company may, at times, enter into various forward contracts, including short securities, TBAs, options, futures, swaps, caps, credit default swaps and total return swaps. In executing on the Company’s current interest rate risk management strategy, the Company has entered into TBAs, put and call options for TBAs, interest rate swap, cap and swaption agreements and Markit IOS total return swaps. TBAs. At times, the Company may use TBAs as a means of deploying capital until targeted investments are available or to take advantage of temporary displacements, funding advantages or valuation differentials in the marketplace. Additionally, the Company may use TBAs independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. TBAs are forward contracts for the purchase (long notional positions) or sale (short notional positions) of Agency RMBS. The issuer, coupon and stated maturity of the Agency RMBS are predetermined as well as the trade price, face amount and future settle date (published each month by the Securities Industry and Financial Markets Association). However, the specific Agency RMBS to be delivered upon settlement is not known at the time of the TBA transaction. As a result, and because physical delivery of the Agency RMBS upon settlement cannot be assured, the Company accounts for TBAs as derivative instruments. The Company may hold both long and short notional TBA positions, which are disclosed on a gross basis according to the unrealized gain or loss position of each TBA contract regardless of long or short notional position. The following tables present the notional amount, cost basis, market value and carrying value (which approximates fair value) of the Company’s TBA positions as of December 31, 2018 and December 31, 2017:
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Short U.S. Treasuries. The Company may use short U.S. Treasury securities independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company had short sold U.S. Treasuries with a notional amount of $800.0 million with a fair market value of $781.5 million included in derivative liabilities, at fair value, on the consolidated balance sheet as of December 31, 2018. The Company did not hold any short U.S. Treasuries as of December 31, 2017. Put and Call Options for TBAs. The Company may use put and call options for TBAs independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company had purchased put and call options for TBAs with a notional amount of $5.4 billion and short sold put and call options for TBAs with a notional amount of $7.2 billion. The put and call options had a fair market value of $25.3 million included in derivative liabilities, at fair value, on the consolidated balance sheet as of December 31, 2018. The Company did not hold any put and call options for TBAs as of December 31, 2017. Interest Rate Swap Agreements. The Company may use interest rate swaps independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018 and December 31, 2017, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate:
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Additionally, as of December 31, 2018 and December 31, 2017, the Company held the following interest rate swaps in order to mitigate mortgage interest rate exposure (or duration) risk whereby the Company pays interest at a three-month LIBOR rate:
Interest Rate Swaptions. The Company may use interest rate swaptions (agreements to enter into interest rate swaps in the future for which the Company would either pay or receive a fixed rate) independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018 and December 31, 2017, the Company had the following outstanding interest rate swaptions that were utilized as macro-economic hedges:
Interest Rate Cap Contracts. The Company may use interest rate caps independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. As of December 31, 2018, the Company held the following interest rate caps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate, net of a fixed cap rate:
The Company did not hold any interest rate caps as of December 31, 2017. Markit IOS Total Return Swaps. The Company may use total return swaps (agreements whereby the Company receives or makes payments based on the total return of an underlying instrument or index, such as the Markit IOS Index, in exchange for fixed or floating rate interest payments) independently, or in conjunction with other derivative and non-derivative instruments, in order to mitigate risks. The Company enters into total return swaps to help mitigate the potential impact of larger increases or decreases in interest rates on the performance of our portfolio (referred to as “convexity risk”). Total return swaps based on the Markit IOS Index are intended to synthetically replicate the performance of interest-only securities. The Company had the following total return swap agreements in place at December 31, 2018 and December 31, 2017:
Credit Risk The Company’s exposure to credit losses on its Agency RMBS portfolio is limited due to implicit or explicit backing from the GSEs. The payment of principal and interest on the Freddie Mac and Fannie Mae mortgage-backed securities are guaranteed by those respective agencies, and the payment of principal and interest on the Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. government. For non-Agency investment securities and residential mortgage loans, the Company may enter into credit default swaps to hedge credit risk. In future periods, the Company could enhance its credit risk protection, enter into further paired derivative positions, including both long and short credit default swaps, and/or seek opportunistic trades in the event of a market disruption (see discussion under “Non-Risk Management Activities” below). The Company also has processes and controls in place to monitor, analyze, manage and mitigate its credit risk with respect to non-Agency securities and residential mortgage loans. Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe the Company under such contracts completely fail to perform under the terms of these contracts, assuming there are no recoveries of underlying collateral, as measured by the market value of the derivative financial instruments. As of December 31, 2018, the fair value of derivative financial instruments as an asset and liability position was $320.0 million and $820.6 million, respectively. The Company attempts to mitigate its credit risk exposure on derivative financial instruments by limiting its counterparties to banks and financial institutions that meet established credit guidelines. The Company also seeks to spread its credit risk exposure across multiple counterparties in order to reduce its exposure to any single counterparty. Additionally, the Company reduces credit risk on the majority of its derivative instruments by entering into agreements that permit the closeout and netting of transactions with the same counterparty or clearing agency, in the case of centrally cleared interest rate swaps, upon the occurrence of certain events. To further mitigate the risk of counterparty default, the Company maintains collateral agreements with certain of its counterparties and clearing agencies, which require both parties to maintain cash deposits in the event the fair values of the derivative financial instruments exceed established thresholds. The Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is considered a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018 and in subsequent periods, the Company accounts for the receipt or payment of variation margin as a direct reduction to the carrying value of the interest rate swap asset or liability. As of December 31, 2017, variation margin pledged or received was netted on a counterparty basis and classified within restricted cash, due from counterparties, or due to counterparties on the Company’s consolidated balance sheets.
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Offsetting Assets and Liabilities Offsetting Assets and Liabilities |
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Offsetting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Offsetting Assets and Liabilities | Offsetting Assets and Liabilities Certain of the Company’s repurchase agreements are governed by underlying agreements that provide for a right of setoff in the event of default by either party to the agreement. The Company also has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by the International Swap and Derivatives Association, or ISDA, or central clearing exchange agreements, in the case of centrally cleared interest rate swaps. The Company and the counterparty or clearing agency are required to post cash collateral based upon the net underlying market value of the Company’s open positions with the counterparty. Additionally, the Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. Under U.S. GAAP, if the Company has a valid right of setoff, it may offset the related asset and liability and report the net amount. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is considered a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018 and in subsequent periods, the Company accounts for the receipt or payment of variation margin on CME and LCH cleared positions as a direct reduction to the carrying value of the interest rate swap asset or liability. The receipt or payment of initial margin will continue to be accounted for separate from the interest rate swap asset or liability. As of December 31, 2017, variation margin pledged or received was netted on a counterparty basis and classified within restricted cash, due from counterparties, or due to counterparties on the Company’s consolidated balance sheets. The Company presents repurchase agreements subject to master netting arrangements or similar agreements on a gross basis and derivative assets and liabilities (other than centrally cleared interest rate swaps) subject to such arrangements on a net basis, based on derivative type and counterparty, in its consolidated balance sheets. Separately, the Company presents cash collateral subject to such arrangements (other than variation margin on centrally cleared interest rate swaps) on a net basis, based on counterparty, in its consolidated balance sheets. However, the Company does not offset repurchase agreements or derivative assets and liabilities (other than centrally cleared interest rate swaps) with the associated cash collateral on its consolidated balance sheets. The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s consolidated balance sheets as of December 31, 2018 and December 31, 2017:
____________________ (1) Amounts presented are limited in total to the net amount of assets or liabilities presented in the consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company’s consolidated balance sheets.
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Fair Value |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value | Fair Value Fair Value Measurements ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability. ASC 820 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels:
The following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized. Available-for-sale securities. The Company holds a portfolio of AFS securities that are carried at fair value in the consolidated balance sheets and primarily comprised of Agency RMBS and non-Agency securities. The Company determines the fair value of its Agency RMBS based upon prices obtained from third-party pricing providers received using bid price, which are deemed indicative of market activity. The third-party pricing providers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. In determining the fair value of its non-Agency securities, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company classified 99.6% and 0.4% of its AFS securities as Level 2 and Level 3 fair value assets, respectively, at December 31, 2018. AFS securities account for 91.7% of all assets reported at fair value at December 31, 2018. Mortgage servicing rights. The Company holds a portfolio of MSR that are carried at fair value on the consolidated balance sheets. The Company determines fair value of its MSR based on prices obtained from third-party pricing providers. Although MSR transactions are observable in the marketplace, the valuation is based upon cash flow models that include unobservable market data inputs (including prepayment speeds, delinquency levels and discount rates). As a result, the Company classified 100% of its MSR as Level 3 fair value assets at December 31, 2018. Derivative instruments. The Company may enter into a variety of derivative financial instruments as part of its hedging strategies. The Company principally executes over-the-counter, or OTC, derivative contracts, such as interest rate swaps, caps, swaptions, put and call options for TBAs and Markit IOS total return swaps. The Company utilizes third-party pricing providers to value its financial derivative instruments. The Company classified 100% of the interest rate swaps, caps, swaptions, put and call options for TBAs and Markit IOS total return swaps reported at fair value as Level 2 at December 31, 2018. The Company may also enter into certain other derivative financial instruments, such as TBAs, short U.S. Treasuries and inverse interest-only securities. These instruments are similar in form to the Company’s AFS securities and the Company utilizes a pricing service to value TBAs, short U.S. Treasuries and inverse interest-only securities. The Company classified 100% of its short U.S. Treasuries and inverse interest-only securities at fair value as Level 2 at December 31, 2018. The Company reported 100% of its TBAs as Level 1 as of December 31, 2018. The Company’s risk management committee governs trading activity relating to derivative instruments. The Company’s policy is to minimize credit exposure related to financial derivatives used for hedging by limiting the hedge counterparties to major banks, financial institutions, exchanges, and private investors who meet established capital and credit guidelines as well as by limiting the amount of exposure to any individual counterparty. The Company has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by ISDA, or central clearing exchange agreements, in the case of centrally cleared interest rate swaps. Additionally, both the Company and the counterparty or clearing agency are required to post cash collateral based upon the net underlying market value of the Company’s open positions with the counterparty. Posting of cash collateral typically occurs daily, subject to certain dollar thresholds. Due to the existence of netting arrangements, as well as frequent cash collateral posting at low posting thresholds, credit exposure to the Company and/or to the counterparty or clearing agency is considered materially mitigated. Based on the Company’s assessment, there is no requirement for any additional adjustment to derivative valuations specifically for credit. Equity securities. The Company’s equity securities are carried at fair value and reported in other assets on the consolidated balance sheets. Changes in fair value are recorded as a component of loss on investment securities in the consolidated statements of comprehensive (loss) income. The Company determines fair value of its equity securities based on the closing market price of the securities at period end. The Company did not hold any equity securities at December 31, 2018. The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities.
The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under U.S. GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of December 31, 2018, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented. The valuation of Level 3 instruments requires significant judgment by the third-party pricing providers and/or management. The third-party pricing providers and/or management rely on inputs such as market price quotations from market makers (either market or indicative levels), original transaction price, recent transactions in the same or similar instruments, and changes in financial ratios or cash flows to determine fair value. Level 3 instruments may also be discounted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the third-party pricing providers in the absence of market information. Assumptions used by the third-party pricing providers due to lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s consolidated financial statements. The Company’s valuation committee reviews all valuations that are based on pricing information received from third-party pricing providers. As part of this review, prices are compared against other pricing or input data points in the marketplace, along with internal valuation expertise, to ensure the pricing is reasonable. In addition, the Company performs back-testing of pricing information to validate price information and identify any pricing trends of a third-party price provider. In determining fair value, third-party pricing providers use various valuation approaches, including market and income approaches. Inputs that are used in determining fair value of an instrument may include pricing information, credit data, volatility statistics, and other factors. In addition, inputs can be either observable or unobservable. The availability of observable inputs can vary by instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace and other characteristics particular to the instrument. The third-party pricing provider uses prices and inputs that are current as of the measurement date, including during periods of market dislocations. In periods of market dislocation, the availability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified to or from various levels within the fair value hierarchy. Securities for which market quotations are readily available are valued at the bid price (in the case of long positions) or the ask price (in the case of short positions) at the close of trading on the date as of which value is determined. Exchange-traded securities for which no bid or ask price is available are valued at the last traded price. OTC derivative contracts, including interest rate swaps, caps and swaption agreements, put and call options for TBAs and U.S. Treasuries, constant maturity swaps, credit default swaps and Markit IOS total return swaps, are valued by the Company using observable inputs, specifically quotations received from third-party pricing providers, and are therefore classified within Level 2. The following tables present the reconciliation for all of the Company’s Level 3 assets measured at fair value on a recurring basis:
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The Company transferred certain AFS from Level 2 to Level 3 based the observability of inputs during the year ended December 31, 2018. No additional AFS transfers between Level 1, Level 2 or Level 3 were made during the year ended December 31, 2018. The Company did not transfer AFS between Level 1, Level 2 or Level 3 during the year ended December 31, 2017. Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. The Company used third-party pricing providers in the fair value measurement of its Level 3 available-for-sale securities. The significant unobservable inputs used by the third-party pricing provider included expected default, severity and discount rate. Significant increases (decreases) in any of the inputs in isolation may result in significantly lower (higher) fair value measurement. The Company also used multiple third-party pricing providers in the fair value measurement of its Level 3 MSR. The table below presents information about the significant unobservable inputs used by the third-party pricing providers in the fair value measurement of the Company’s MSR classified as Level 3 fair value assets at December 31, 2018:
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Fair Value Option for Financial Assets and Financial Liabilities The Company elected the fair value option for its previously held residential mortgage loans held-for-investment in securitization trusts and the collateralized borrowings in securitization trusts. The fair value option was elected to better reflect the economics of the Company’s retained interests. The Company’s policy was to separately record interest income on the fair value elected loans and interest expense on the fair value elected borrowings. Upfront fees and costs were not deferred or capitalized. Fair value adjustments were reported in other income on the consolidated statements of comprehensive (loss) income. During the fourth quarter of 2017, the Company sold all of these retained subordinated securities thereby causing the deconsolidation of the securitization trusts from the Company’s consolidated balance sheet. The remaining retained securities are included within non-Agency AFS securities. The following tables summarize the fair value option elections and information regarding the line items and amounts recognized in the consolidated statements of comprehensive (loss) income for each fair value option-elected item.
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Fair Value of Financial Instruments In accordance with ASC 820, the Company is required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the consolidated balance sheets, for which fair value can be estimated. The following describes the Company’s methods for estimating the fair value for financial instruments.
The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at December 31, 2018 and December 31, 2017.
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Repurchase Agreements |
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Disclosure of Repurchase Agreements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase Agreements | Repurchase Agreements As of December 31, 2018 and December 31, 2017, the Company had outstanding $23.1 billion and $19.5 billion, respectively, of repurchase agreements. Excluding the effect of the Company’s interest rate swaps and caps, the repurchase agreements had a weighted average borrowing rate of 2.68% and 1.69% and weighted average remaining maturities of 66 and 83 days as of December 31, 2018 and December 31, 2017, respectively. At December 31, 2018 and December 31, 2017, the repurchase agreement balances were as follows:
At December 31, 2018 and December 31, 2017, the repurchase agreements had the following characteristics and remaining maturities:
The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations of repurchase agreements and derivative instruments:
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Although the transactions under repurchase agreements represent committed borrowings until maturity, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls. The following table summarizes certain characteristics of the Company’s repurchase agreements and counterparty concentration at December 31, 2018 and December 31, 2017:
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Reverse Repurchase Agreements Reverse Repurchase Agreements |
12 Months Ended |
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Dec. 31, 2018 | |
Reverse Repurchase Agreements [Abstract] | |
Reverse Repurchase Agreements | Reverse Repurchase AgreementsAs of December 31, 2018, the Company held securities, consisting of U.S Treasury securities, with a fair value of $781.5 million as collateral for reverse repurchase agreements that could be pledged, delivered or otherwise used, with a fair value of $761.8 million. The Company did not have any reverse repurchase agreements as of December 31, 2017. |
Federal Home Loan Bank of Des Moines Advances |
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Advances from Federal Home Loan Banks [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Federal Home Loan Bank of Des Moines Advances | Federal Home Loan Bank of Des Moines Advances The Company’s wholly owned subsidiary, TH Insurance Holdings Company LLC, or TH Insurance, is a member of the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. As of December 31, 2018 and December 31, 2017, TH Insurance had $0.9 billion and $1.2 billion in outstanding secured advances with a weighted average borrowing rate of 2.79% and 1.79%, respectively. As of December 31, 2018 and December 31, 2017, TH Insurance had an additional $2.7 billion and $2.2 billion of available uncommitted capacity for borrowings, respectively, insofar as TH Insurance holds adequate total assets to support a new advance. To the extent TH Insurance has uncommitted capacity, it may be adjusted at the sole discretion of the FHLB. The ability to borrow from the FHLB is subject to the Company’s continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with the FHLB. Each advance requires approval by the FHLB and is secured by collateral in accordance with the FHLB’s credit and collateral guidelines, as may be revised from time to time by the FHLB. Eligible collateral may include conventional 1-4 family residential mortgage loans, Agency RMBS and certain non-Agency securities with a rating of A and above. On January 11, 2016, the Federal Housing Finance Agency, or FHFA, released a final rule regarding membership in the Federal Home Loan Bank system. Among other effects, the final rule excludes captive insurers from membership eligibility, including the Company’s subsidiary member, TH Insurance. Since TH Insurance was admitted as a member in 2013, it is eligible for a membership grace period that runs through February 19, 2021, during which new advances or renewals that mature beyond the grace period will be prohibited; however, any existing advances that mature beyond this grace period will be permitted to remain in place subject to their terms insofar as the Company maintains good standing with the FHLB. If any new advances or renewals occur, TH Insurance’s outstanding advances will be limited to 40% of its total assets. At December 31, 2018 and December 31, 2017, FHLB advances had the following remaining maturities:
The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations of FHLB advances:
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Revolving Credit Facilities |
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Revolving Credit Facilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revolving Credit Facilities | Revolving Credit Facilities To finance MSR, the Company has entered into revolving credit facilities collateralized by the value of the MSR pledged. As of December 31, 2018 and December 31, 2017, the Company had outstanding short- and long-term borrowings under revolving credit facilities of $310.0 million and $20.0 million with a weighted average borrowing rate of 5.60% and 5.14% and weighted average remaining maturities of 4.25 and 0.96 years, respectively. At December 31, 2018 and December 31, 2017, borrowings under revolving credit facilities had the following remaining maturities:
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Convertible Senior Notes |
12 Months Ended |
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Dec. 31, 2018 | |
Debt Disclosure [Abstract] | |
Convertible Senior Notes | Convertible Senior NotesIn January 2017, the Company closed an underwritten public offering of $287.5 million aggregate principal amount of convertible senior notes due 2022. The net proceeds from the offering were approximately $282.2 million after deducting underwriting discounts and estimated offering expenses payable by the Company. The notes are unsecured, pay interest semiannually at a rate of 6.25% per annum and are convertible at the option of the holder into shares of the Company’s common stock. The notes will mature in January 2022, unless earlier converted or repurchased in accordance with their terms. The Company does not have the right to redeem the notes prior to maturity, but may be required to repurchase the notes from holders under certain circumstances. As of December 31, 2018 and December 31, 2017, the notes had a conversion rate of 62.4003 and 61.4698 shares of common stock per $1,000 principal amount of the notes, respectively. The outstanding amount due on the convertible senior notes as of December 31, 2018 and December 31, 2017 was $283.9 million and $282.8 million, respectively, net of deferred issuance costs. |
Commitments and Contingencies (Notes) |
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Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies Disclosure | Commitments and Contingencies The following represent the material commitments and contingencies of the Company as of December 31, 2018: Management agreement. The Company pays PRCM Advisers a management fee equal to 1.5% per annum, calculated and payable quarterly in arrears, of the Company’s stockholders’ equity. For purposes of calculating the management fee, the Company’s stockholders’ equity means the sum of the net proceeds from all issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus the Company’s retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less the consolidated stockholders’ equity of Granite Point and its subsidiaries during the time Granite Point was consolidated on the Company’s balance sheet, the weighted average cost basis of Granite Point common stock purchased, the outstanding principal balance of the promissory note due from the sale of Granite Point preferred stock and any amount that the Company has paid for repurchases of its common stock since inception, and excluding any unrealized gains, losses or other items that do not affect realized net income (regardless of whether such items are included in other comprehensive income or loss, or in net income). In connection with the acquisition of CYS, the Management Agreement was amended to (i) reduce PRCM Advisers’ base management fee with respect to the additional equity under management resulting from the merger to 0.75% from the effective time through the first anniversary of the effective time and (ii) for the fiscal quarter in which closing of the merger occured, to make a one-time downward adjustment of Pine River’s management fees payable by Two Harbors for such quarter by $15.0 million to offset the cash consideration payable to stockholders of CYS, plus an additional downward adjustment of up to $3.3 million for certain transaction-related expenses. This amount will be adjusted to exclude one-time events pursuant to changes in U.S. GAAP, and certain non-cash items after discussions between PRCM Advisers and the Company’s independent directors and approval by a majority of the Company’s independent directors. To the extent asset impairment reduces the Company’s retained earnings at the end of any completed calendar quarter; it will reduce the management fee for such quarter. The Company’s stockholders’ equity for the purposes of calculating the management fee could be greater than the amount of stockholders’ equity shown on the consolidated financial statements. The current term of the management agreement expires on October 28, 2019, and automatically renews for successive one-year terms annually until terminated in accordance with the terms of the agreement. The Company reimburses PRCM Advisers for (i) the Company’s allocable share of the compensation paid by PRCM Advisers to its personnel serving as the Company’s principal financial officer and general counsel and personnel employed by PRCM Advisers as in-house legal, tax, accounting, consulting, auditing, administrative, information technology, valuation, computer programming and development and back-office resources to the Company, and (ii) any amounts for personnel of PRCM Adviser’s affiliates arising under a shared facilities and services agreement. Upon termination of the management agreement by the Company without cause or by PRCM Advisers due to the Company’s material breach of the management agreement, the Company is required to pay a termination fee equal to three times the sum of the average annual base management fee earned by PRCM Advisers during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. Employment contracts. The Company does not directly employ any personnel. Instead, the Company relies on the resources of PRCM Advisers to conduct the Company’s operations. Expense reimbursements to PRCM Advisers are made in cash on a quarterly basis following the end of each quarter. Legal and regulatory. From time to time, the Company may be subject to liability under laws and government regulations and various claims and legal actions arising in the ordinary course of business. Liabilities are established for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established for those claims. Based on information currently available, management is not aware of any legal or regulatory claims that would have a material effect on the Company’s consolidated financial statements and therefore no accrual is required as of December 31, 2018.
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Stockholders' Equity |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | Equity Redeemable Preferred Stock The following is a summary of the Company's series of cumulative redeemable preferred stock issued and outstanding as of December 31, 2018. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, each series of preferred stock will rank on parity with one another and rank senior to the Company's common stock with respect to the payment of the dividends and the distribution of assets.
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On July 31, 2018, upon the closing of the merger with CYS, the Company issued 3,000,000 shares of newly classified 7.75% Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, and 8,000,000 shares of newly classified 7.50% Series E Cumulative Redeemable Preferred Stock, par value $0.01 per share, in exchange for all shares of CYS’s Series A and Series B cumulative redeemable preferred stock outstanding prior to the effective time of the merger. Pursuant to the terms of the merger agreement with CYS, the terms of the Company’s Series D and Series E Cumulative Redeemable Preferred Stock are substantially similar to the terms of CYS’s Series A and Series B Cumulative Redeemable Preferred Stock. For each series of preferred stock, the Company may redeem the stock on or after the redemption date in whole or in part, at any time or from time to time. Each series of preferred stock has a par value of $0.01 per share and a liquidation and redemption price of $25.00, plus any accumulated and unpaid dividends thereon up to, but excluding, the redemption date. Through December 31, 2018, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock. Distributions to Preferred Stockholders The following table presents cash dividends declared by the Company on its preferred stock since their issuances:
Common Stock Issuance of Common Stock in Connection with Acquisition of CYS Investments, Inc. On July 31, 2018, in exchange for all of the shares of CYS common stock outstanding immediately prior to the effective time of the merger, the Company issued approximately 72.6 million new shares of common stock, as well as aggregate cash consideration of $15.0 million, to CYS common stockholders. Reverse Stock Split On September 14, 2017, the Company’s board of directors approved a one-for-two reverse stock split of its outstanding shares of common stock. The reverse stock split was effected on November 1, 2017 at 5:01 p.m. Eastern Time, following the special dividend of Granite Point common stock. At the effective time, every two issued and outstanding shares of the Company’s common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split; instead, each stockholder holding fractional shares was entitled to receive, in lieu of such fractional shares, cash in an amount determined on the basis of the volume weighted average price of the Company’s common stock on the NYSE on November 1, 2017. In connection with the reverse stock split, the number of authorized shares of the Company’s common stock was also reduced on a one-for-two basis, from 900 million to 450 million. The par value of each share of common stock remained unchanged. All per share amounts, common shares outstanding and restricted shares for all periods presented have been adjusted on a retroactive basis to reflect the reverse stock split. As of December 31, 2018, the Company had 248,085,721 shares of common stock outstanding. The following table presents a reconciliation of the common shares outstanding for the years ended December 31, 2018, 2017 and 2016:
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Distributions to Common Stockholders The following table presents cash dividends declared by the Company on its common stock during the he years ended December 31, 2018, 2017 and 2016:
On September 14, 2017, the Company’s board of directors declared a special dividend pursuant to which the 33.1 million shares of Granite Point common stock acquired by the Company in exchange for the contribution of its equity interests in TH Commercial Holdings LLC to Granite Point on June 28, 2017 would be distributed, on a pro rata basis, to the holders of Two Harbors common stock outstanding at the close of business on October 20, 2017. The Granite Point common stock was distributed on November 1, 2017. Due to its controlling ownership interest in Granite Point through November 1, 2017, the Company consolidated Granite Point on its financial statements. Effective November 1, 2017 (the date the 33.1 million shares of Granite Point common stock were distributed to the Company’s common stockholders), the Company no longer had a controlling interest in Granite Point and, therefore, deconsolidated Granite Point and its subsidiaries from its financial statements and reclassified all of Granite Point’s prior period assets, liabilities and results of operations to discontinued operations. Dividend Reinvestment and Direct Stock Purchase Plan The Company sponsors a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the Company’s common stock by reinvesting some or all of the cash dividends received on shares of the Company’s common stock. Stockholders may also make optional cash purchases of shares of the Company’s common stock subject to certain limitations detailed in the plan prospectus. The plan allows for the issuance of up to an aggregate of 3,750,000 shares of the Company’s common stock. As of December 31, 2018, 227,852 shares have been issued under the plan for total proceeds of approximately $4.4 million, of which 28,711, 27,194 and 30,301 shares were issued for total proceeds of $0.4 million, $0.5 million and $0.5 million during the years ended December 31, 2018, 2017 and 2016, respectively. Share Repurchase Program The Company’s share repurchase program allows for the repurchase of up to an aggregate of 37,500,000 shares of the Company’s common stock. Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or by any combination of such methods. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The share repurchase program does not require the purchase of any minimum number of shares, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. The share repurchase program does not have an expiration date. As of December 31, 2018, a total of 12,067,500 shares had been repurchased by the Company under the program for an aggregate cost of $200.4 million; of these, 4,010,000 shares were repurchased for a total cost of $61.3 million during the year ended December 31, 2016. No shares were repurchased during the years ended December 31, 2018 and 2017. At-the-Market Offering As of December 31, 2018, the Company was party to an equity distribution agreement under which the Company was authorized to sell up to an aggregate of 10,000,000 shares of its common stock from time to time in any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act. As of December 31, 2018, 3,792,935 shares of common stock had been sold under the equity distribution agreement for total accumulated net proceeds of approximately $77.6 million. No shares were sold during the years ended December 31, 2018, 2017 and 2016. Subsequent to year-end, the Company terminated its prior equity distribution agreement and entered into a new equity distribution agreement with a total of 35,000,000 shares authorized for issuance. Refer to Note 21-Subsequent Events for further discussion. Accumulated Other Comprehensive (Loss) Income Accumulated other comprehensive (loss) income at December 31, 2018 and December 31, 2017 was as follows:
Reclassifications out of Accumulated Other Comprehensive (Loss) Income The Company reclassifies unrealized gains and losses on AFS securities in accumulated other comprehensive income to net (loss) income upon the recognition of any other-than-temporary impairments and realized gains and losses on sales, net of income tax effects, as individual securities are impaired or sold. The following table summarizes reclassifications out of accumulated other comprehensive income for the years ended December 31, 2018, 2017 and 2016:
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Equity Incentive Plan |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Incentive Plan | Equity Incentive Plan The Company’s Plan provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers and affiliates and employees of PRCM Advisers and its affiliates, and any joint venture affiliates of the Company. The Plan is administered by the compensation committee of the Company’s board of directors. The compensation committee has the full authority to administer and interpret the Plan, to authorize the granting of awards, to determine the eligibility of directors, officers, advisors, consultants and other personnel, including PRCM Advisers and affiliates and personnel of PRCM Advisers and its affiliates, and any joint venture affiliates of the Company, to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the Plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the Plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the Plan or the administration or interpretation thereof. In connection with this authority, the compensation committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. The Company’s Plan provides for grants of restricted common stock, phantom shares, dividend equivalent rights and other equity-based awards, subject to a ceiling of 6,500,000 shares available for issuance under the Plan. The Plan allows for the Company’s board of directors to expand the types of awards available under the Plan to include long-term incentive plan units in the future. If an award granted under the Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Unless earlier terminated by the Company’s board of directors, no new award may be granted under the Plan after the tenth anniversary of the date that such Plan was initially approved by the Company’s board of directors. No award may be granted under the Plan to any person who, assuming payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of the Company’s common stock. All per share amounts, common shares outstanding and restricted shares for all periods presented reflect the Company’s one-for-two reverse stock split effected on November 1, 2017 (refer to Note 16 - Stockholders’ Equity for additional information). During the years ended December 31, 2018, 2017 and 2016, the Company granted 55,553, 34,559 and 40,869 shares of common stock, respectively, to its independent directors pursuant to the Plan. The estimated fair value of these awards was $15.48, $19.82 and $16.86 per share on grant date, based on the adjusted closing price of the Company’s common stock on the NYSE on such date. The grants vested immediately. Additionally, during the years ended December 31, 2018, 2017 and 2016, the Company granted 941,371, 637,286 and 968,761 shares of restricted common stock, respectively, to key employees of PRCM Advisers pursuant to the terms of the Plan and the associated award agreements. The estimated fair value of these awards was $15.12, $17.48 and $15.04 per share on grant date, based on the adjusted closing market price of the Company’s common stock on the NYSE on such date. The shares underlying the grants vest in three equal annual installments commencing on the first anniversary of the grant date, as long as such grantee complies with the terms and conditions of his or her applicable restricted stock award agreement. During the year ended December 31, 2016, in connection with the restructuring activities, certain agreements were forfeited and re-granted with accelerated vesting terms, in accordance with ASC 718, Compensation - Stock Compensation. The following table summarizes the activity related to restricted common stock for the year ended December 31, 2018 and 2017:
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Income Taxes |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes For the years ended December 31, 2018, 2017 and 2016, the Company qualified to be taxed as a REIT under the Code for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes its net taxable income to stockholders, and does not engage in prohibited transactions. The Company intends to distribute 100% of its REIT taxable income and comply with all requirements to continue to qualify as a REIT. The majority of states also recognize the Company’s REIT status. The Company’s TRSs file separate tax returns and are fully taxed as standalone U.S. C-corporations. The tables below reflect the net taxes accrued at the TRS level and the tax attributes included in the consolidated financial statements. It is assumed that the Company will retain its REIT status and will incur no REIT level taxation as it intends to comply with the REIT regulations and annual distribution requirements. Certain activities the Company performs may produce income that will not be qualifying income for REIT purposes. These activities include the designated portion of MSR treated as normal mortgage servicing, residential mortgage loans, certain derivative financial instruments and other risk-management instruments. The Company has designated its TRSs to engage in these activities. The following table summarizes the tax (benefit) provision from continuing operations recorded at the taxable subsidiary level for the years ended December 31, 2018, 2017 and 2016:
During the year ended December 31, 2018, the Company’s TRSs recognized a provision for income taxes of $41.8 million, which was primarily due to realized gains on sales of AFS securities and gains recognized on MSR held in the TRSs as well as the write-down of net deferred tax assets resulting from the deemed liquidation of one of the Company’s TRSs due to its TRS election revocation, offset by net losses incurred on derivative instruments held in the TRS. During the year ended December 31, 2017, the Company’s TRSs recognized a benefit from income taxes of $10.5 million, which was primarily due to the remeasurement of federal net deferred tax assets resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%, realized losses on sales of AFS securities and net losses incurred on derivative instruments held in the Company’s TRSs. The Company’s taxable income before dividend distributions differs from its pre-tax net income for U.S. GAAP purposes primarily due to unrealized gains and losses, the recognition of credit losses for U.S. GAAP purposes but not tax purposes, differences in timing of income recognition due to market discount, and original issue discount and the calculations surrounding each. These book to tax differences in the REIT are not reflected in the consolidated financial statements as the Company intends to retain its REIT status. The following is a reconciliation of the statutory federal and state rates to the effective rates, for the years ended December 31, 2018, 2017 and 2016:
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The Company’s permanent differences in taxable income from GAAP net (loss) income in the year ended December 31, 2018 was primarily due to the intercompany sale of RMBS between the Company’s TRS and the REIT, as well as the write-down of net deferred tax assets resulting from the deemed liquidation of three of the Company’s TRSs due to their TRS election revocation, offset by the reversal of the valuation allowance upon TRS revocation. Additionally, the Company’s recurring permanent differences in taxable income from GAAP net (loss) income in the years ended December 31, 2018, 2017 and 2016 were due to a difference in the dividends paid deduction for tax, compensation expense related to restricted stock dividends and, for the years ended December 31, 2017 and 2016, net losses incurred by consolidated securitization trusts that are not subject to federal taxes. The Company’s consolidated balance sheets, as of December 31, 2018 and December 31, 2017 contain the following current and deferred tax liabilities and assets, which are included in other assets, and are recorded at the taxable subsidiary level:
Deferred Tax Assets and Liabilities Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes at the TRS level. Components of the Company’s deferred tax liabilities and assets as of December 31, 2018 and December 31, 2017 were as follows:
As of December 31, 2018, the Company has not recorded a valuation allowance for any portion of its deferred tax assets as it does not believe, at a more likely than not level, that any portion of its deferred tax assets will not be realized. At December 31, 2017, a $2.7 million valuation allowance was recorded because the Company determined that it was more likely than not that the associated deferred tax assets would not be realized. Of the TRS net operating loss deferred tax asset carryforward of $16.4 million, $2.4 million is scheduled to expire December 31, 2035, $12.3 million is scheduled to expire December 31, 2036, $1.7 million is scheduled to expire December 31, 2037. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements of a contingent tax liability for uncertain tax positions. Additionally, there were no amounts accrued for penalties or interest as of or during the periods presented in these consolidated financial statements.
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share The following table presents a reconciliation of the (loss) earnings and shares used in calculating basic and diluted (loss) earnings per share for the years ended December 31, 2018 and 2017. All per share amounts, common shares outstanding and restricted shares for all periods presented reflect the Company’s one-for-two reverse stock split effected on November 1, 2017 (refer to Note 16 - Stockholders’ Equity for additional information).
___________________ (1) Includes a nondiscretionary adjustment for the assumed change in the management fee calculation.
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Related Party Transactions |
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Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Related Party Transactions The following summary provides disclosure of the material transactions with affiliates of the Company. In accordance with the Management Agreement between the Company and PRCM Advisers dated as of October 28, 2009 and subsequently amended, the Company incurred $47.8 million, $40.5 million and $39.3 million as a management fee to PRCM Advisers for the years ended December 31, 2018, 2017 and 2016, which represents approximately 1.5% of stockholders’ equity on an annualized basis as defined by the Management Agreement. For purposes of calculating the management fee, stockholders’ equity is adjusted as discussed below, and to exclude the consolidated stockholders’ equity of Granite Point and its subsidiaries previously included in the Company’s consolidated balance sheet and any common stock repurchases, as well as any unrealized gains, losses or other items that do not affect realized net (loss) income, among other adjustments, in accordance with the Management Agreement. In connection with the acquisition of CYS, the Management Agreement was amended to (i) reduce PRCM Advisers’ base management fee with respect to the additional equity under management resulting from the merger to 0.75% from the effective time through the first anniversary of the effective time and (ii) for the fiscal quarter in which closing of the merger occurred, to make a one-time downward adjustment of Pine River’s management fees payable by Two Harbors for such quarter by $15.0 million to offset the cash consideration payable to stockholders of CYS, plus an additional downward adjustment of up to $3.3 million for certain transaction-related expenses. For the year ended December 31, 2018, the total downward adjustment to management fees was $17.5 million. The Company does not anticipate any further downward adjustments to management fees for transaction-related expenses. In addition, the Company reimbursed PRCM Advisers for direct and allocated costs incurred by PRCM Advisers on behalf of the Company. These direct and allocated costs totaled approximately $26.3 million, $27.9 million and $28.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company has direct relationships with the majority of its third-party vendors. The Company will continue to have certain costs allocated to it by PRCM Advisers for compensation, data services, technology and certain office lease payments, but most direct expenses with third-party vendors are paid directly by the Company. The Company recognized $13.0 million, $11.3 million and $15.2 million of compensation during the years ended December 31, 2018, 2017 and 2016, respectively, related to restricted common stock issued to employees of PRCM Advisers and the Company’s independent directors pursuant to the Plan. During the year ended December 31, 2017, the Company purchased 1,658,008 shares of Granite Point common stock in the open market for a cost of $30.0 million. These equity securities were carried at fair value and reported in other assets on the consolidated balance sheets. As of December 31, 2017, the carrying value of the equity securities was $29.4 million, which included $0.6 million in unrealized losses. During the year ended December 31, 2018, the Company sold all of the Granite Point common stock it held for $31.2 million, resulting in a realized gain of $1.2 million.
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Subsequent Events |
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Dec. 31, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On February 8, 2019, the Company entered into an equity distribution agreement with Credit Suisse Securities (USA) LLC, or Credit Suisse, pursuant to which the Company may offer and sell up to 35,000,000 shares of its common stock from time to time through Credit Suisse. Sales of common stock pursuant to the equity distribution agreement may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange. Credit Suisse shall be entitled to total compensation of up to 2% of the gross proceeds from the sale of common stock sold under the equity distribution agreement. On February 8, 2019, the Company provided notice of termination to JMP Securities LLC and Keefe, Bruyette & Woods, Inc. related to the equity distribution agreement dated May 25, 2012, as amended. The Company had previously offered and sold 3,792,935 shares of common stock pursuant to such equity distribution agreement (as adjusted for the one-for-two reverse stock split on November 1, 2017). Events subsequent to December 31, 2018 were evaluated through the date these consolidated financial statements were issued and no other additional events were identified requiring further disclosure in these consolidated financial statements.
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Quarterly Financial Data |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information | Quarterly Financial Data - Unaudited
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Basis of Presentation and Significant Accounting Policies (Policies) |
12 Months Ended |
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Dec. 31, 2018 | |
Basis of Presentation and Significant Accounting Policies [Abstract] | |
Consolidation and Basis of Presentation | Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles, or U.S. GAAP. Certain prior period amounts have been reclassified to conform to the current period presentation. All per share amounts, common shares outstanding and restricted shares for all prior periods presented have been adjusted on a retroactive basis to reflect the Company’s one-for-two reverse stock split effected on November 1, 2017 (refer to Note 16 - Stockholders’ Equity for additional information). Due to its controlling ownership interest in Granite Point through November 1, 2017, the Company consolidated Granite Point on its financial statements. Effective November 1, 2017 (the date the 33.1 million shares of Granite Point common stock were distributed to the Company’s common stockholders), the Company no longer had a controlling interest in Granite Point and, therefore, deconsolidated Granite Point and its subsidiaries from its financial statements and reclassified all of Granite Point’s prior period assets, liabilities and results of operations to discontinued operations. The Company retains debt securities and excess servicing rights purchased from securitization trusts sponsored by either third parties or the Company’s subsidiaries. The securitization trusts are considered variable interest entities, or VIEs, for financial reporting purposes and, thus, are reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of a trust that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the trust. During the majority of 2017, the Company retained the most subordinate security in each of the securitization trusts, which gave the Company the power to direct the activities of the trusts that most significantly impact the trusts’ performance and the obligation to absorb losses or the right to receive benefits of the securitization trusts that could be significant. As a result, the Company consolidated all of the securitization trusts, including the underlying mortgage loans held by the trusts (residential mortgage loans held-for-investment) and the associated debt (collateralized borrowings), on its consolidated balance sheet. During the fourth quarter of 2017, the Company sold all of the retained subordinated securities thereby removing the Company’s power to direct the activities of the trusts and the obligation to absorb losses or the right to receive benefits of the securitization trusts. As a result, the securitization trusts are no longer consolidated on the Company’s consolidated balance sheet and the remaining retained securities are included within non-Agency available-for-sale, or AFS, securities.
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Use of Estimates | Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material. |
Available-for-Sale Securities, at Fair Value | Available-for-Sale Securities, at Fair Value The Company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations and other residential mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans (collectively “Agency RMBS”) issued by the Federal National Mortgage Association, or Fannie Mae, the Federal Home Loan Mortgage Corporation, or Freddie Mac, and the Government National Mortgage Association, or Ginnie Mae, or collectively, the government sponsored entities, or GSEs. The Company also invests in securities that are not issued by the GSEs, or non-Agency securities, and, from time to time, U.S. Treasuries. The Company classifies its Agency RMBS and non-Agency securities, excluding inverse interest-only Agency securities classified as derivatives for purposes of U.S. GAAP, as AFS, investments. Although the Company generally intends to hold most of its investment securities until maturity, it may, from time to time, sell any of its investment securities as part of its overall management of its portfolio. Accordingly, the Company classifies all of its securities as AFS, including its interest-only strips, which represent the Company’s right to receive a specified portion of the contractual interest flows of specific Agency or non-Agency securities. All assets classified as AFS, excluding Agency interest-only mortgage-backed securities, are reported at estimated fair value with unrealized gains and losses, excluding other than temporary impairments, included in accumulated other comprehensive income, on an after-tax basis. On July 1, 2015, the Company elected the fair value option for Agency interest-only securities acquired on or after such date. All Agency interest-only securities acquired on or after July 1, 2015 are carried at estimated fair value with changes in fair value, excluding other than temporary impairments, recorded as a component of loss on investment securities in the consolidated statements of comprehensive (loss) income. Fair value is determined under the guidance of Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, or ASC 820. The Company determines the fair value of its RMBS that are issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. government, such as Ginnie Mae (collectively, “Agency RMBS”), based upon prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity. In determining the fair value of its non-Agency securities, management judgment is used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If listed price data is not available or insufficient, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs. See Note 9 - Fair Value of these notes to the consolidated financial statements for details on fair value measurement. Investment securities transactions are recorded on the trade date. The cost basis for realized gains and losses on sales of investment securities are determined on the first-in, first-out, or FIFO, method. Interest income on securities is accrued based on the outstanding principal balance and their contractual terms. Premiums and discounts associated with Agency RMBS and non-Agency securities rated AA and higher at the time of purchase, are amortized into interest income over the life of such securities using the effective yield method. Adjustments to premium amortization are made for actual prepayment activity. The Company estimates prepayments for its Agency interest-only securities, which represent the Company’s right to receive a specified portion of the contractual interest flows of specific Agency securities. As a result, if prepayments increase (or are expected to increase), the Company will accelerate the rate of amortization on the premiums. Interest income on the non-Agency securities that were purchased at a discount to par value and were rated below AA at the time of purchase is recognized based on the security’s effective interest rate. The effective interest rate on these securities is based on the projected cash flows from each security, which are estimated based on the Company’s observation of current information and events and include assumptions related to interest rates, prepayment rates, and the timing and amount of credit losses. On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield/interest income recognized on such securities. Actual maturities of the AFS securities are affected by the contractual lives of the associated mortgage collateral, periodic payments of principal, and prepayments of principal. Therefore actual maturities of AFS securities are generally shorter than stated contractual maturities. Stated contractual maturities are generally greater than ten years. Based on the projected cash flows from the Company’s non-Agency securities purchased at a discount to par value, a portion of the purchase discount may be designated as credit protection against future credit losses and, therefore, not accreted into interest income. The amount designated as credit discount may be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions, and other factors. If the performance of a security with a credit discount is more favorable than forecasted, a portion of the amount designated as credit discount may be accreted into interest income prospectively. Conversely, if the performance of a security with a credit discount is less favorable than forecasted, an impairment charge and write-down of such security to a new cost basis results. The Company evaluates its investment securities, on a quarterly basis, to assess whether a decline in the fair value of an AFS security below the Company’s amortized cost basis is an other-than-temporary impairment, or OTTI. The presence of OTTI is based upon a fair value decline below a security’s amortized cost basis and a corresponding adverse change in expected cash flows due to credit related factors as well as non-credit factors, such as changes in interest rates and market spreads. Impairment is considered other-than-temporary if an entity (i) intends to sell the security, (ii) will more likely than not be required to sell the security before it recovers in value, or (iii) does not expect to recover the security’s amortized cost basis, even if the entity does not intend to sell the security. Under these scenarios, the impairment is other-than-temporary and the full amount of impairment should be recognized currently in earnings and the cost basis of the investment security is adjusted. However, if an entity does not intend to sell the impaired debt security and it is more likely than not that it will not be required to sell before recovery, the OTTI is separated into (i) the estimated amount relating to credit loss, or credit component, and (ii) the amount relating to all other factors, or non-credit component. Only the estimated credit loss amount is recognized currently in earnings, with the remainder of the loss amount recognized in other comprehensive (loss) income. The difference between the new amortized cost basis and the cash flows expected to be collected is accreted as interest income in accordance with the effective interest method.
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Mortgage Servicing Rights, at Fair Value | Mortgage Servicing Rights, at Fair Value The Company’s MSR represent the right to service mortgage loans. The Company and its subsidiaries do not originate or directly service mortgage loans, and instead contract with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the Company’s MSR. However, as an owner and manager of MSR, the Company may be obligated to fund advances of principal and interest payments due to third-party owners of the loans, but not yet received from the individual borrowers. These advances are reported as servicing advances within the other assets line item on the consolidated balance sheets. MSR are reported at fair value on the consolidated balance sheets. Although MSR transactions are observable in the marketplace, the valuation includes unobservable market data inputs (prepayment speeds, delinquency levels and discount rates). Changes in the fair value of MSR as well as servicing fee income and servicing expenses are reported on the consolidated statements of comprehensive (loss) income.
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Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis. |
Restricted Cash | Restricted Cash Restricted cash represents the Company’s cash held by counterparties as collateral against the Company’s securities, certain derivative instruments and/or repurchase agreements. Also included is the cash balance held pursuant to a letter of credit on the New York office lease. Cash held by counterparties as collateral, which resides in non-interest bearing accounts, is not available to the Company for general corporate purposes, but may be applied against amounts due to security, derivative or repurchase counterparties or returned to the Company when the collateral requirements are exceeded or, at the maturity of the derivative or repurchase agreement. |
Accrued Interest Receivable | Accrued Interest Receivable Accrued interest receivable represents interest that is due and payable to the Company. Cash interest is generally received within 30 days of recording the receivable. |
Due from/to Counterparties, net | Due from/to Counterparties, net Due from counterparties includes cash held by counterparties for payment of principal and interest as well as cash held by counterparties as collateral against certain of the Company’s derivatives and/or repurchase agreements but represents excess capacity and deemed unrestricted and a receivable from the counterparty as of the balance sheet date. Due from counterparties also includes cash receivable from counterparties for sales of MSR pending final transfer and settlement. Due to counterparties includes cash payable by the Company upon settlement of trade positions as well as cash deposited to and held by the Company as collateral against certain of the Company’s derivatives and/or repurchase agreements but represents a payable to the counterparty as of the balance sheet date. Due to counterparties also includes purchase price holdbacks on MSR acquisitions for early prepayment or default provisions, collateral exceptions and other contractual terms. |
Derivative Financial Instruments, at Fair Value | Derivative Financial Instruments, at Fair Value In accordance with ASC 815, Derivatives and Hedging, as amended and interpreted, or ASC 815, all derivative financial instruments, whether designated for hedging relationships or not, are recorded on the consolidated balance sheets as assets or liabilities and carried at fair value. At the inception of a derivative contract, the Company determines whether the instrument will be part of a qualifying hedge accounting relationship or whether the Company will account for the contract as a trading instrument. Due to the volatility of the credit markets and difficulty in effectively matching pricing or cash flows, the Company has elected to treat all current derivative contracts as trading instruments. Changes in fair value as well as the accrual and settlement of interest associated with derivatives accounted for as trading instruments are reported in the consolidated statements of comprehensive (loss) income as gain (loss) on interest rate swap, cap and swaption agreements or (loss) gain on other derivative instruments depending on the type of derivative instrument. The Company enters into interest rate derivative contracts for a variety of reasons, including minimizing fluctuations in earnings or market values on certain assets or liabilities that may be caused by changes in interest rates. The Company may, at times, enter into various forward contracts including short securities, Agency to-be-announced securities, or TBAs, options, futures, swaps, and caps. Due to the nature of these instruments, they may be in a receivable/asset position or a payable/liability position at the end of an accounting period. Amounts payable to and receivable from the same party under contracts may be offset as long as the following conditions are met: (a) each of the two parties owes the other determinable amounts; (b) the reporting party has the right to offset the amount owed with the amount owed by the other party; (c) the reporting party intends to offset; and (d) the right of offset is enforceable by law. If the aforementioned conditions are not met, amounts payable to and receivable from are presented by the Company on a gross basis in its consolidated balance sheets. The Company’s centrally cleared interest rate swaps require that the Company posts an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the interest rate swap’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is a settlement of the interest rate swap, as opposed to pledged collateral. Accordingly, beginning in the first quarter of 2018 and in subsequent periods, the Company accounts for the receipt or payment of variation margin on interest rate swaps as a direct reduction to the carrying value of the interest rate swap asset or liability. As of December 31, 2018 and December 31, 2017, variation margin pledged or received is netted on a counterparty basis and classified within restricted cash, due from counterparties, or due to counterparties on the Company’s consolidated balance sheets. The Company has provided specific disclosure regarding the location and amounts of derivative instruments in the consolidated financial statements and how derivative instruments and related hedged items are accounted for. See Note 7 - Derivative Instruments and Hedging Activities of these notes to the consolidated financial statements.
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Repurchase Agreements and Reverse Repurchase Agreements | Repurchase Agreements The Company finances certain of its investment securities and MSR through the use of repurchase agreements. These repurchase agreements are generally short-term debt, which expire within one year. As of December 31, 2018, certain of the Company’s repurchase agreements had contractual terms of greater than one year, and were considered long-term debt. Borrowings under repurchase agreements generally bear interest rates of a specified margin over one-month LIBOR and are generally uncommitted. The repurchase agreements are treated as collateralized financing transactions and are carried at their contractual amounts, as specified in the respective agreements. Reverse Repurchase AgreementsThe Company may borrow U.S. Treasury securities through reverse repurchase transactions under its master repurchase agreements to cover short sales. The Company accounts for these reverse repurchase agreements as securities borrowing transactions and records them at amortized cost, which approximates fair value due to their short-term nature, on its consolidated balance sheets. |
Commercial Real Estate Assets (of Discontinued Operations) | Commercial Real Estate Assets (of Discontinued Operations) Due to the Company’s controlling ownership interest in Granite Point through November 1, 2017, its financial condition and results of operations through such date reflect Granite Point’s commercial strategy, which includes as target assets first mortgages, mezzanine loans, B-notes and preferred equity. These commercial real estate assets have been reclassified to assets of discontinued operations on the consolidated balance sheets. Interest income on commercial real estate assets has been reclassified to income from discontinued operations on the consolidated statements of comprehensive (loss) income. The Company’s commercial real estate assets were reported at cost, net of any unamortized acquisition premiums or discounts, loan fees and origination costs as applicable, unless the assets were deemed impaired. No impairments were recorded while these loans were held by the Company. Interest income on commercial real estate assets was recognized at the loan coupon rate. Any premiums or discounts, loan fees and origination costs were amortized or accreted into interest income over the lives of the loans using the effective interest method. Loans were considered past due when they are 30 days past their contractual due date. Interest income recognition was suspended when loans are placed on nonaccrual status. Generally, commercial real estate loans were placed on nonaccrual status when delinquent for more than 60 days or when determined not to be probable of full collection. Interest accrued, but not collected, at the date loans were placed on nonaccrual is reversed and subsequently recognized only to the extent it was received in cash or until it qualified for return to accrual status. However, where there was doubt regarding the ultimate collectability of loan principal, all cash received was applied to reduce the carrying value of such loans. Commercial real estate loans were restored to accrual status only when contractually current or the collection of future payments was reasonably assured.
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Federal Home Loan Bank of Des Moines Advances and Stock Holdings | Federal Home Loan Bank of Des Moines Advances and Stock Holdings The Company’s wholly owned subsidiary, TH Insurance Holdings Company LLC, or TH Insurance, is a member of the Federal Home Loan Bank of Des Moines, or the FHLB. As a member of the FHLB, TH Insurance has access to a variety of products and services offered by the FHLB, including secured advances. The Company’s secured advances from the FHLB may have both short-term and long-term maturities. The advances with less than five year terms generally bear interest rates of a spread over one- or three-month LIBOR and the advances with 20-year terms generally bear interest rates of or one- or three-month MOVR, or the FHLB member option variable-rate. FHLB advances are treated as secured financing transactions and are carried at their contractual amounts. As a condition to membership in the FHLB, the Company is required to purchase and hold a certain amount of FHLB stock, which is based, in part, upon the outstanding principal balance of advances from the FHLB. FHLB stock is considered a nonmarketable, long-term investment, is carried at cost and is subject to recoverability testing under applicable accounting standards. This stock can only be redeemed or sold at its par value, and only to the FHLB. Accordingly, when evaluating FHLB stock for impairment, the Company considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. At its discretion, the FHLB may declare dividends on its stock.
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Revolving Credit Facilities | Revolving Credit FacilitiesTo finance MSR, the Company enters into revolving credit facilities collateralized by pledged MSR. Borrowings under these revolving credit facilities that expire within one year are considered short-term debt. As of December 31, 2018, the Company’s revolving credit facilities that had contractual terms of greater than one year were considered long-term debt. The Company’s revolving credit facilities generally bear interest rates of a specified margin over one-month LIBOR. Borrowings under revolving credit facilities are treated as collateralized financing transactions and are carried at contractual amounts, as specified in the respective agreements. |
Convertible Senior Notes | Convertible Senior NotesConvertible senior notes include unsecured convertible debt that are carried at their unpaid principal balance, net of any unamortized deferred issuance costs, on the Company’s consolidated balance sheet. Interest on the notes is payable semiannually until such time the notes mature or are converted into shares of the Company’s common stock. |
Accrued Interest Payable | Accrued Interest Payable Accrued interest payable represents interest that is due and payable to third parties. Interest is generally paid within 30 days to three months of recording the payable, based upon the Company’s remittance requirements. |
Deferred Tax Assets and Liabilities and Income Taxes | Deferred Tax Assets and Liabilities Income recognition for U.S. GAAP and tax differ in certain respects. These differences often reflect differing accounting treatments for tax and U.S. GAAP, such as accounting for discount and premium amortization, credit losses, asset impairments, recognition of certain operating expenses and certain valuation estimates. Some of these differences are temporary in nature and create timing mismatches between when taxable income is earned and the tax is paid versus when the earnings (losses) for U.S. GAAP purposes, or GAAP net (loss) income, are recognized and the tax provision is recorded. Some of these differences are permanent since certain income (or expense) may be recorded for tax purposes but not for U.S. GAAP purposes (or vice-versa). One such significant permanent difference is the Company’s ability as a REIT to deduct dividends paid to stockholders as an expense for tax purposes, but not for U.S. GAAP purposes. As a result of these temporary differences, the Company’s TRSs may recognize taxable income in periods prior or subsequent to when it recognizes income for U.S. GAAP purposes. When this occurs, the TRSs pay or defer the tax liability and establish deferred tax assets or deferred tax liabilities, respectively, for U.S. GAAP purposes. As the income is subsequently realized in future periods under U.S. GAAP, the deferred tax asset is recognized as an expense. Alternatively, as the TRSs realize the deferred taxable income, the deferred tax liability is recognized as a reduction to taxable income. The Company’s deferred tax assets and/or liabilities are generated solely by differences in GAAP net (loss) income and taxable income (loss) at our taxable subsidiaries. U.S. GAAP and tax differences in the REIT may create additional deferred tax assets and/or liabilities to the extent the Company does not distribute all of its taxable income. Income Taxes The Company has elected to be taxed as a REIT under the Code and the corresponding provisions of state law. To qualify as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to stockholders (not including taxable income retained in its taxable subsidiaries) within the time frame set forth in the tax Code and the Company must also meet certain other requirements. In addition, because certain activities, if performed by the Company, may cause the Company to earn income which is not qualifying for the REIT gross income tests, the Company has formed TRSs, as defined in the Code, to engage in such activities. These TRSs’ activities are subject to income taxes as well as any REIT taxable income not distributed to stockholders. The Company assesses its tax positions for all open tax years and determines whether the Company has any material unrecognized liabilities in accordance with ASC 740, Income Taxes. The Company records these liabilities to the extent the Company deems them more likely than not to be incurred. The Company classifies interest and penalties on material uncertain tax positions as interest expense and operating expense, respectively, in its consolidated statements of comprehensive (loss) income. The SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Cuts and Jobs Act of 2017 (“TCJA”), which was signed into law on December 22, 2017. SAB 118 provided a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA were incomplete but it was able to determine a reasonable estimate, it was required to record a provisional estimate to be included in the financial statements. . If a company could not determine a provisional estimate to be included in the financial statements, it continued to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the TCJA. The TCJA significantly revised the U.S. corporate income tax by, among other things, lowering the federal income tax rate applicable to corporations from 35% to 21% and repealing the corporate alternative minimum tax. In addition, the deduction of net interest expense is limited for all businesses; provided that certain businesses, including real estate businesses, may elect not to be subject to such limitations and instead to depreciate their real property related assets over longer depreciable lives. This limitation could adversely affect our TRSs. The Company recorded a provisional tax provision of $17.5 million in the 2017 financial statements, which was included as a component of income tax expense from continuing operations. This amount represents the remeasurement of federal net deferred tax assets resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%. The provisional amount was finalized in 2018 without any changes and there is no additional impact to the 2018 financial statements. Technical corrections or other amendments to the TCJA or administrative guidance interpreting the TCJA may be forthcoming at any time. While the Company does not anticipate a material effect on its operations, the Company will continue to analyze and monitor the application of the TCJA to its businesses, its peers and the economic environment.
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Other Comprehensive Income (Loss) | Other Comprehensive Income (Loss)Current period net unrealized gains and losses on AFS securities, excluding Agency interest-only securities, are reported as components of accumulated other comprehensive income on the consolidated statements of stockholders’ equity and in the consolidated statements of comprehensive (loss) income. Net unrealized gains and losses on securities held by our taxable subsidiaries that are reported in accumulated other comprehensive income are adjusted for the effects of taxation and may create deferred tax assets or liabilities. |
Earnings Per Share | Earnings Per ShareBasic and diluted (loss) earnings per share are computed by dividing net (loss) income attributable to common stockholders by the weighted average number of common shares and potential common shares outstanding during the period. For both basic and diluted per share calculations, potential common shares represents issued and unvested shares of restricted stock, which have full rights to the common stock dividend declarations of the Company. If the assumed conversion of convertible notes into common shares is dilutive, diluted (loss) earnings per share is adjusted by adding back the periodic interest expense (net of any tax effects) associated with dilutive convertible notes to net (loss) income attributable to common stockholders and adding the shares issued in an assumed conversion to the diluted weighted average share count. All per share amounts, common shares outstanding and restricted shares for all periods presented reflect the Company’s one-for-two reverse stock split effected on November 1, 2017 (refer to Note 16 - Stockholders’ Equity for additional information). |
Equity Incentive Plan | Equity Incentive Plan The Company’s Second Restated 2009 Equity Incentive Plan, or the Plan, provides incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including PRCM Advisers and its affiliates. The Plan is administered by the compensation committee of the Company’s board of directors. The Plan permits the granting of restricted shares of common stock, phantom shares, dividend equivalent rights and other equity-based awards. See Note 17 - Equity Incentive Plan for further details regarding the Plan. The cost of equity-based compensation awarded to employees provided by our manager is measured on and fixed at the grant date, based on the price of the Company’s stock as of period end in accordance with ASU No. 2018-07, and amortized over the vesting term.
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Asset Acquisition | Asset Acquisition In accordance with U.S. GAAP, the acquirer in a merger transaction is to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of acquired assets and associated activities is not deemed a business and is required to be accounted for as an asset acquisition. Upon completion of the merger with CYS on July 31, 2018, approximately 89% of the CYS assets acquired were Agency RMBS. The Company concluded that they were similar identifiable assets to be grouped to evaluate whether the “substantially all” threshold was met as the Agency RMBS are financial assets with similar risk characteristics associated with managing these assets. Given the concentration of the fair value of the Agency RMBS of the gross assets acquired, the Company concluded that the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets and, therefore, the merger was accounted for as an asset acquisition. The financial results of CYS since the closing date of the acquisition have been included in the Company’s consolidated financial statements. Asset acquisitions are generally accounted for by allocating the cost of the acquisition plus direct transaction costs to the individual assets acquired, including identified intangible assets, and liabilities assumed on a relative fair value basis. This allocation may cause identified assets to be recognized at amounts that are greater than their fair values. However, “non-qualifying” assets, which include financial assets and other current assets, should not be assigned an amount greater than their fair value. The gross assets acquired in the merger consisted most significantly of financial assets and other current assets. The cost of the acquisition of CYS plus direct transaction costs exceeded gross assets acquired less liabilities assumed in the merger. As there were no meaningful nonfinancial assets and non-current assets in this transaction and no identified intangible assets to assign value, the excess consideration and transaction costs were recognized in the consolidated statements of comprehensive (loss) income as an expense and an associated reduction in stockholders’ equity.
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Recently Issued and/or Adopted Accounting Standards | Recently Issued and/or Adopted Accounting Standards Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board, or FASB, issued ASU No. 2014-09, which is a comprehensive revenue recognition standard that supersedes virtually all existing revenue guidance under U.S. GAAP. The standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. As a result of the issuance of ASU No. 2015-14 in August 2015 deferring the effective date of ASU No. 2014-09 by one year, the ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2017, with early adoption prohibited. The Company has evaluated the new guidance and determined that interest income, gains and losses on financial instruments and income from servicing residential mortgage loans are outside the scope of ASC 606, Revenues from Contracts with Customers, or ASC 606. For income from servicing residential mortgage loans, the Company considered that the FASB Transition Resource Group members generally agreed that an entity should look to ASC 860, Transfers and Servicing, to determine the appropriate accounting for these fees and ASC 606 contains a scope exception for contracts that fall under ASC 860. As a result, the adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures. Lease Classification and Accounting In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company has determined this ASU will not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures. Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued ASU No. 2016-13, which changes the impairment model for most financial assets and certain other instruments. Valuation allowances for credit losses on AFS debt securities will be recognized, rather than direct reductions in the amortized cost of the investments, regardless of whether the impairment is considered to be other-than-temporary. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, held-to-maturity debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. The Company is evaluating the adoption of this ASU to determine the impact it may have on its consolidated financial statements, which at the date of adoption, will establish an allowance for credit losses on AFS securities which will be derived from the current designated credit reserve with a resulting increase to amortized cost on the securities. The Company also expects adoption of this ASU to impact the recording for the purchase of certain non-Agency securities with purchased credit deterioration by recording an allowance for credit losses with an increase in amortized cost above the purchase price of the same amount. Subsequent changes in expected credit losses will be recognized immediately in earnings as a provision for credit losses until the allowance is reduced to zero. Further favorable changes will result in prospective yield adjustments. Clarifying the Definition of a Business In January 2017, the FASB issued ASU No. 2017-01, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2017, with early adoption permitted. The Company’s adoption of this ASU impacted how the Company accounted for the acquisition of CYS (see discussion above). Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income In February 2018, the FASB issued ASU No. 2018-02, which permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act, or TCJA, to retained earnings and requires entities to disclose whether or not they elected to reclassify the tax effects related to the TCJA as well as their policy for releasing income tax effects from accumulated other comprehensive income. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. Early adoption of this ASU was elected and applied by recording a cumulative-effect adjustment of $9.9 million to retained earnings, with the offsetting impact to accumulated other comprehensive income as of January 1, 2018. Accounting for Share-Based Payments to Nonemployees In June 2018, the FASB issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, equity-classified nonemployee awards will be measured on and fixed at the grant date, rather than measured at fair value at each reporting date until the date at which the nonemployee’s performance is complete. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. Early adoption of this ASU was elected on July 1, 2018 and applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2018, which did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures. Fair Value Measurement Disclosure Requirements In August 2018, the FASB issued ASU No. 2018-13, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and (2) the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted. Early adoption of this ASU did not have an impact on the Company’s financial condition or results of operations but resulted in some modified financial statement disclosures. SEC Disclosure Update and Simplification In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equity for each period for which an income statement is required (both year-to-date and quarterly periods). The final rule is effective for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result, the Company plans to adopt the new interim disclosure requirement in its Form 10-Q for the three months ended March 31, 2019. The Company has determined this final rule will not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.
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Acquisition of CYS Investments, Inc. (Tables) |
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Acquisition of CYS Investments, Inc. [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the calculation of the purchase price of CYS Investments, Inc. | The total purchase price for the merger of $1.4 billion consists primarily of Two Harbors common stock issued in exchange for shares of CYS common stock and was calculated based on the $15.50 closing price of Two Harbors common stock on July 31, 2018.
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Schedule of recognized identified assets acquired and liabilities assumed in acquisition of CYS Investments, Inc. | The total purchase price for the merger including direct transaction costs, which exceeded gross assets acquired less liabilities assumed in the merger, was allocated to the individual assets acquired and liabilities assumed on a relative fair value basis, as shown below:
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Available-for-Sale Securities, at Fair Value (Tables) |
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Debt Securities, Available-for-sale | The following table presents the Company’s AFS investment securities by collateral type as of December 31, 2018 and December 31, 2017:
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Schedule of Available-for-sale Securities Reconciliation | The following tables present the amortized cost and carrying value of AFS securities by collateral type as of December 31, 2018 and December 31, 2017:
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Debt Securities, Available-for-sale, Classified by Rate Type | The following tables present the carrying value of the Company’s AFS securities by rate type as of December 31, 2018 and December 31, 2017:
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Debt Securities, Available-for-sale, Weighted Average Life Classifications | The following table presents the Company’s AFS securities according to their estimated weighted average life classifications as of December 31, 2018:
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Schedule of Available-for-sale Securities Reconciliation, Non-Agency Unamortized Net Discount and Designated Credit Reserves | The following table presents the changes for the years ended December 31, 2018 and 2017 of the net unamortized discount/premium and designated credit reserves on non-Agency AFS securities.
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Schedule of Unrealized Loss on Investments | The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time that the securities had an unrealized loss position as of December 31, 2018 and December 31, 2017. At December 31, 2018, the Company held 1,550 AFS securities, of which 290 were in an unrealized loss position for less than twelve consecutive months and 489 were in an unrealized loss position for more than twelve consecutive months. At December 31, 2017, the Company held 1,435 AFS securities, of which 253 were in an unrealized loss position for less than twelve consecutive months and 234 were in an unrealized loss position for more than twelve consecutive months. Of the $4.4 billion and $12.2 billion of AFS securities in an unrealized loss position for less than twelve consecutive months as of December 31, 2018 and December 31, 2017, $3.1 billion, or 71.1%, and $12.0 billion, or 98.5%, respectively, were Agency AFS securities, whose principal and interest are guaranteed by the GSEs.
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Other than Temporary Impairment, Credit Losses Recognized in Earnings | The following table presents the changes in OTTI included in earnings for the years ended December 31, 2018, 2017 and 2016:
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Schedule of Realized Gain (Loss) | The following table presents the gross realized gains and losses on sales of AFS securities for the years ended December 31, 2018, 2017 and 2016:
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Servicing Activities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Servicing Assets at Fair Value | The following table summarizes activity related to MSR for the years ended December 31, 2018, 2017 and 2016.
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Schedule of Sensitivity Analysis of Fair Value, Transferor's Interests in Transferred Financial Assets | As of December 31, 2018 and December 31, 2017, the key economic assumptions and sensitivity of the fair value of MSR to immediate 10% and 20% adverse changes in these assumptions were as follows:
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Components of Servicing Revenue | The following table presents the components of servicing income recorded on the Company’s consolidated statements of comprehensive (loss) income for the years ended December 31, 2018, 2017 and 2016:
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Schedule of Total Serviced Mortgage Assets | The following table presents the number of loans and unpaid principal balance of the mortgage assets for which the Company manages the servicing as of December 31, 2018 and December 31, 2017:
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Cash, Cash Equivalents and Restricted Cash (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Restricted Cash and Cash Equivalents | The following table presents the Company’s restricted cash balances as of December 31, 2018 and December 31, 2017:
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Schedule of Cash, Cash Equivalents and Restricted Cash | The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Company’s consolidated balance sheets as of December 31, 2018 and December 31, 2017 that sum to the total of the same such amounts shown in the statements of cash flows:
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Derivative Instruments and Hedging Activities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | The following tables present the gross fair value and notional amounts of the Company’s derivative financial instruments treated as trading derivatives as of December 31, 2018 and December 31, 2017.
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Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance | The following table summarizes the location and amount of gains and losses on derivative instruments reported in the consolidated statements of comprehensive (loss) income:
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Schedule of Notional Amounts of Outstanding Derivative Positions | The following tables present information with respect to the volume of activity in the Company’s derivative instruments during the years ended December 31, 2018 and 2017:
____________________ (1) Excludes net interest paid or received in full settlement of the net interest spread liability.
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Schedule of TBA Positions | The following tables present the notional amount, cost basis, market value and carrying value (which approximates fair value) of the Company’s TBA positions as of December 31, 2018 and December 31, 2017:
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(4) Net carrying value represents the difference between the market value of the TBA as of period-end and its cost basis, and is reported in derivative assets / (liabilities), at fair value, in the consolidated balance sheets.
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Schedule of Interest Rate Swap Payers | As of December 31, 2018 and December 31, 2017, the Company held the following interest rate swaps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate:
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Schedule of Interest Rate Swap Receivers | Additionally, as of December 31, 2018 and December 31, 2017, the Company held the following interest rate swaps in order to mitigate mortgage interest rate exposure (or duration) risk whereby the Company pays interest at a three-month LIBOR rate:
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Schedule of Interest Rate Swaptions | As of December 31, 2018 and December 31, 2017, the Company had the following outstanding interest rate swaptions that were utilized as macro-economic hedges:
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Schedule of Interest Rate Caps [Table Text Block] | As of December 31, 2018, the Company held the following interest rate caps that were utilized as economic hedges of interest rate exposure (or duration) whereby the Company receives interest at a three-month LIBOR rate, net of a fixed cap rate:
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Schedule of Total Return Swaps | The Company had the following total return swap agreements in place at December 31, 2018 and December 31, 2017:
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Offsetting Assets and Liabilities Offsetting Assets and Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Offsetting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Offsetting Assets | The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s consolidated balance sheets as of December 31, 2018 and December 31, 2017:
____________________ (1) Amounts presented are limited in total to the net amount of assets or liabilities presented in the consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company’s consolidated balance sheets.
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Offsetting Liabilities | The following tables present information about the Company’s assets and liabilities that are subject to master netting arrangements or similar agreements and can potentially be offset on the Company’s consolidated balance sheets as of December 31, 2018 and December 31, 2017:
____________________ (1) Amounts presented are limited in total to the net amount of assets or liabilities presented in the consolidated balance sheets by instrument. Excess cash collateral or financial assets that are pledged to counterparties may exceed the financial liabilities subject to a master netting arrangement or similar agreement, or counterparties may have pledged excess cash collateral to the Company that exceed the corresponding financial assets. These excess amounts are excluded from the table above, although separately reported within restricted cash, due from counterparties, or due to counterparties in the Company’s consolidated balance sheets.
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Fair Value (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis | The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities.
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Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation | The following tables present the reconciliation for all of the Company’s Level 3 assets measured at fair value on a recurring basis:
____________________
(2) The change in unrealized gains or losses on MSR that were held at the end of the reporting period was recorded in loss on servicing asset on the consolidated statements of comprehensive (loss) income.
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Fair Value Inputs, Assets, Quantitative Information | The table below presents information about the significant unobservable inputs used by the third-party pricing providers in the fair value measurement of the Company’s MSR classified as Level 3 fair value assets at December 31, 2018:
___________________
(2) Calculated by averaging the weighted average significant unobservable inputs used by the multiple third-party pricing providers in the fair value measurement of MSR
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Fair Value, Option, Quantitative Disclosures | The following tables summarize the fair value option elections and information regarding the line items and amounts recognized in the consolidated statements of comprehensive (loss) income for each fair value option-elected item.
____________________
(2) The change in fair value on residential mortgage loans held-for-investment in securitization trusts and collateralized borrowings in securitization trusts was due entirely to changes in market interest rates
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Fair Value, by Balance Sheet Grouping | The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at December 31, 2018 and December 31, 2017.
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Repurchase Agreements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Repurchase Agreements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Repurchase Agreements By Term, Short or Long | At December 31, 2018 and December 31, 2017, the repurchase agreement balances were as follows:
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Schedule of Repurchase Agreements by Maturity | At December 31, 2018 and December 31, 2017, the repurchase agreements had the following characteristics and remaining maturities:
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Schedule of Underlying Assets of Repurchase Agreements when Amount of Repurchase Agreements Exceeds 10 Percent of Assets | The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations of repurchase agreements and derivative instruments:
____________________ (1) U.S. Treasuries received as collateral and re-pledge
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Schedule of Repurchase Agreement Counterparties with Whom Repurchase Agreements Exceed 10 Percent of Stockholders' Equity | . The following table summarizes certain characteristics of the Company’s repurchase agreements and counterparty concentration at December 31, 2018 and December 31, 2017:
____________________
(2) Represents amounts outstanding with 29 and 26 counterparties at December 31, 2018 and December 31, 2017, respectivel
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Federal Home Loan Bank of Des Moines Advances (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Advances from Federal Home Loan Banks [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Maturities of Federal Home Loan Bank Advances | At December 31, 2018 and December 31, 2017, FHLB advances had the following remaining maturities:
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Schedule of Underlying Assets of Federal Home Loan Bank Advances | The following table summarizes assets at carrying values that are pledged or restricted as collateral for the future payment obligations of FHLB advances:
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Revolving Credit Facilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revolving Credit Facilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Line of Credit Facilities | At December 31, 2018 and December 31, 2017, borrowings under revolving credit facilities had the following remaining maturities:
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Stockholders' Equity (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | The following is a summary of the Company's series of cumulative redeemable preferred stock issued and outstanding as of December 31, 2018. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, each series of preferred stock will rank on parity with one another and rank senior to the Company's common stock with respect to the payment of the dividends and the distribution of assets.
____________________
(3) On and after the fixed to floating rate conversion date, the dividend will accumulate and be payable quarterly at a percentage of the $25.00 per share liquidation preference equal to an annual floating rate of three-month LIBOR plus the spread indicated within each preferred class.
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Preferred Dividends Declared | The following table presents cash dividends declared by the Company on its preferred stock since their issuances:
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Schedule of Stock by Class | The following table presents a reconciliation of the common shares outstanding for the years ended December 31, 2018, 2017 and 2016:
____________________ (1) Represents shares of restricted stock granted under the Second Restated 2009 Equity Incentive Plan, net of forfeitures, of which 1,593,701 restricted shares remained subject to vesting requirements at December 31, 2018
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Common Dividends Declared | The following table presents cash dividends declared by the Company on its common stock during the he years ended December 31, 2018, 2017 and 2016:
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Schedule of Accumulated Other Comprehensive Income (Loss) | Accumulated other comprehensive (loss) income at December 31, 2018 and December 31, 2017 was as follows:
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Reclassification out of Accumulated Other Comprehensive Income | The following table summarizes reclassifications out of accumulated other comprehensive income for the years ended December 31, 2018, 2017 and 2016:
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Equity Incentive Plan (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity | The following table summarizes the activity related to restricted common stock for the year ended December 31, 2018 and 2017:
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Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Income Tax Expense (Benefit) | The following table summarizes the tax (benefit) provision from continuing operations recorded at the taxable subsidiary level for the years ended December 31, 2018, 2017 and 2016:
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Schedule of Effective Income Tax Rate Reconciliation | The following is a reconciliation of the statutory federal and state rates to the effective rates, for the years ended December 31, 2018, 2017 and 2016:
____________________
(2) The provision for (benefit from) income taxes is recorded at the taxable subsidiary level.
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Schedule Of Current And Deferred Tax Assets And Liabilities | The Company’s consolidated balance sheets, as of December 31, 2018 and December 31, 2017 contain the following current and deferred tax liabilities and assets, which are included in other assets, and are recorded at the taxable subsidiary level:
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Schedule of Deferred Tax Assets and Liabilities | Components of the Company’s deferred tax liabilities and assets as of December 31, 2018 and December 31, 2017 were as follows:
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Earnings Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | The following table presents a reconciliation of the (loss) earnings and shares used in calculating basic and diluted (loss) earnings per share for the years ended December 31, 2018 and 2017. All per share amounts, common shares outstanding and restricted shares for all periods presented reflect the Company’s one-for-two reverse stock split effected on November 1, 2017 (refer to Note 16 - Stockholders’ Equity for additional information).
___________________ (1) Includes a nondiscretionary adjustment for the assumed change in the management fee calculation.
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Quarterly Financial Data (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information |
|
Organization and Operations (Details) |
Jun. 28, 2017
shares
|
---|---|
Organization and Operations [Abstract] | |
Shares of Granite Point Mortgage Trust Inc. common stock received in exchange for contribution (in shares) | 33,100,000 |
Ownership percentage in Granite Point Mortgage Trust Inc. | 76.50% |
Organization and Operations Special Dividend (Details) |
Nov. 01, 2017
shares
|
---|---|
Organization and Operations [Abstract] | |
Number of shares of common stock of Granite Point Mortgage Trust Inc distributed via special dividend (in shares) | 33,100,000 |
Organization and Operations Acquisition of CYS Investments, Inc. (Details) - USD ($) $ in Thousands |
1 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2018 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 30,301 | |||
Aggregate cash consideration exchanged for shares of CYS common stock | $ 14,967 | |||
Common Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 72,587,772 | 72,616,483 | 26,950 | |
Series D Preferred Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 3,000,000 | |||
Series E Preferred Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 8,000,000 |
Basis of Presentation and Significant Accounting Policies Consolidation and Basis of Presentation (Details) |
Nov. 01, 2017
shares
|
---|---|
Basis of Presentation and Significant Accounting Policies [Abstract] | |
Reverse stock split, conversion ratio | 0.50 |
Number of shares of common stock of Granite Point Mortgage Trust Inc distributed via special dividend (in shares) | 33,100,000 |
Basis of Presentation and Significant Accounting Policies Income Taxes (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Basis of Presentation and Significant Accounting Policies [Abstract] | |||
Percent of REIT taxable income the company is required to distribute | 90.00% | ||
Federal income tax rate applicable to corporations | 21.00% | 35.00% | 35.00% |
Tax provision related to the decrease in the federal income tax rate applicable to corporations | $ 17.8 | $ 17.5 |
Basis of Presentation and Significant Accounting Policies Asset Acquisition (Details) |
Jul. 31, 2018 |
---|---|
Basis of Presentation and Significant Accounting Policies [Abstract] | |
Agency RMBS, as a percentage of gross assets, acquired in connection with the acquisition of CYS Investments, Inc. | 89.00% |
Basis of Presentation and Significant Accounting Policies Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Details) $ in Thousands |
Dec. 31, 2017
USD ($)
|
---|---|
Cumulative effect of adoption of new accounting principles | $ 0 |
Cumulative Earnings | |
Cumulative effect of adoption of new accounting principles | $ (9,943) |
Acquisition of CYS Investments, Inc. (Details) $ / shares in Units, $ in Thousands |
1 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2018
USD ($)
$ / shares
shares
|
Dec. 31, 2018
shares
|
Dec. 31, 2017
shares
|
Dec. 31, 2016
shares
|
|
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 30,301 | |||
Aggregate cash consideration exchanged for shares of CYS common stock | $ | $ 14,967 | |||
Cash consideration provided to CYS common stockholders (in usd per share) | $ / shares | $ 0.0965 | |||
Exchange ratio for number of shares of Two Harbors common stock issued | 0.4680 | |||
Common Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 72,587,772 | 72,616,483 | 26,950 | |
Series D Preferred Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 3,000,000 | |||
Series E Preferred Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 8,000,000 |
Acquisition of CYS Investments, Inc. Allocation of Purchase Price to Assets Acquired and LIabilities Assumed (Details) $ in Thousands |
Jul. 31, 2018
USD ($)
|
---|---|
Acquisition of CYS Investments, Inc. [Abstract] | |
Available-for-sale securities, at fair value | $ 10,034,557 |
Cash and cash equivalents | 386 |
Restricted cash | 1,062 |
Accrued interest receivable | 30,646 |
Due from counterparties | 21,572 |
Derivative assets, at fair value | 314,811 |
Reverse repurchase agreements | 761,460 |
Other assets | 11,947 |
Total Assets | 11,176,441 |
Repurchase agreements | 8,743,527 |
Derivative liabilities, at fair value | 765,837 |
Due to counterparties | 301,287 |
Accrued interest payable | 27,487 |
Other liabilities | 821 |
Total Liabilities | 9,838,959 |
Cumulative deficit (acquisition transaction costs) | (77,602) |
Total Purchase Price | $ 1,415,084 |
Available-for-Sale Securities, at Fair Value Nonconsolidated Variable Interest Entities (Details) - Mortgage-backed Securities, Issued by Private Enterprises [Member] - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Variable Interest Entity [Line Items] | ||
Assets of nonconsolidated Variable Interest Entities | $ 3,900,000 | $ 3,000,000 |
Maximum exposure to loss of nonconsolidated Variable Interest Entities | $ 3,867,572 | $ 2,982,094 |
Available-for-sale Securities Classified by Rate Type (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Debt Securities, Available-for-sale [Line Items] | ||
Adjustable Rate | $ 3,494,244 | $ 2,645,930 |
Fixed Rate | 22,058,360 | 18,574,889 |
Available-for-sale securities, at fair value | 25,552,604 | 21,220,819 |
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | ||
Debt Securities, Available-for-sale [Line Items] | ||
Adjustable Rate | 19,073 | 23,220 |
Fixed Rate | 21,665,960 | 18,215,505 |
Available-for-sale securities, at fair value | 21,685,033 | 18,238,725 |
Mortgage-backed Securities, Issued by Private Enterprises [Member] | ||
Debt Securities, Available-for-sale [Line Items] | ||
Adjustable Rate | 3,475,171 | 2,622,710 |
Fixed Rate | 392,400 | 359,384 |
Available-for-sale securities, at fair value | $ 3,867,571 | $ 2,982,094 |
Available-for-Sale Securities, at Fair Value Schedule of Realized Gain (Loss) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Debt Securities, Available-for-sale [Abstract] | |||
Proceeds from sales of available-for-sale securities | $ 15,202,406 | $ 8,708,941 | $ 14,404,458 |
Amortized cost of available-for-sale securities sold | 15,600,000 | 8,700,000 | 14,500,000 |
Gross realized gains | 70,076 | 67,764 | 97,049 |
Gross realized losses | (419,638) | (100,255) | (223,277) |
Total realized losses on sales, net | $ (349,562) | $ (32,491) | $ (126,228) |
Rollforward of Mortgage Servicing Rights, at Fair Value (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Servicing Asset at Fair Value, Amount [Roll Forward] | |||
Mortgage servicing rights, at fair value, at beginning of period | $ 1,086,717 | $ 693,815 | $ 493,688 |
Additions from purchases of mortgage servicing rights | 988,283 | 499,866 | 312,580 |
Additions from sales of residential mortgage loans | 0 | 20 | 924 |
Subtractions from sales of mortgage servicing rights | 0 | (946) | (61,511) |
Changes in valuation inputs or assumptions used in the valuation model | 80,209 | 6,339 | 16,572 |
Other changes in fair value | (149,879) | (96,781) | (78,729) |
Other changes | (11,890) | (15,596) | 10,291 |
Mortgage servicing rights, at fair value, at end of period | 1,993,440 | 1,086,717 | $ 693,815 |
Mortgage servicing rights, at fair value, pledged as collateral for borrowings | $ 1,100,000 | $ 600,000 |
Components of Servicing Revenue (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Disclosures Pertaining to Servicing Assets and Servicing Liabilities [Abstract] | |||
Servicing fee income | $ 312,100 | $ 197,902 | $ 138,430 |
Ancillary and other fee income | 1,280 | 1,009 | 1,631 |
Float income | 29,716 | 10,154 | 3,518 |
Servicing income | 343,096 | 209,065 | $ 143,579 |
Servicing advances | $ 39,700 | $ 31,100 |
Schedule of Total Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|---|
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract] | ||||
Cash and cash equivalents | $ 409,758 | $ 419,159 | ||
Restricted cash | 688,006 | 635,836 | ||
Total cash, cash equivalents and restricted cash | $ 1,097,764 | $ 1,054,995 | $ 815,195 | $ 1,000,393 |
Derivative Instruments and Hedging Activities Interest Spread on Interest Rate Swaps and Caps (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Derivative Instruments, Gain (Loss) [Line Items] | |||
Average Notional Amount | $ 31,823,176,000 | $ 19,953,655,000 | |
Interest Rate Contract [Member] | |||
Derivative Instruments, Gain (Loss) [Line Items] | |||
Net interest expense (income) on interest rate swaps and caps | 49,200,000 | (8,800,000) | $ (21,100,000) |
Net Long Position [Member] | Interest Rate Contract [Member] | |||
Derivative Instruments, Gain (Loss) [Line Items] | |||
Average Notional Amount | $ 29,400,000,000 | $ 19,400,000,000 | $ 15,500,000,000 |
Derivative Instruments and Hedging Activities Interest Rate Sensitive Assets/Liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|---|
Derivatives, Fair Value [Line Items] | ||||
Available-for-sale securities, at fair value | $ 25,552,604 | $ 21,220,819 | ||
Mortgage servicing rights, at fair value | 1,993,440 | 1,086,717 | $ 693,815 | $ 493,688 |
Interest-Only-Strip [Member] | ||||
Derivatives, Fair Value [Line Items] | ||||
Available-for-sale securities, at fair value | $ 147,600 | $ 117,800 |
Derivative Instruments and Hedging Activities Short U.S. Treasury Securities (Details) - USD ($) |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Derivative [Line Items] | |||
Notional | $ 36,528,169,000 | $ 31,226,878,000 | $ 18,802,500,000 |
Derivative Financial Instruments, Liabilities [Member] | |||
Derivative [Line Items] | |||
Notional | 5,403,265,000 | 8,335,507,000 | |
Fair Value | (820,590,000) | (31,903,000) | |
Short US Treasury Securities [Member] | |||
Derivative [Line Items] | |||
Fair Value | (781,500,000) | 0 | |
Short US Treasury Securities [Member] | Derivative Financial Instruments, Liabilities [Member] | |||
Derivative [Line Items] | |||
Fair Value | (781,455,000) | 0 | |
Short US Treasury Securities [Member] | Short [Member] | |||
Derivative [Line Items] | |||
Notional | $ 800,000,000 | $ 0 |
Derivative Instruments and Hedging Activities Put and Call Options for TBAs (Details) - USD ($) |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Derivative [Line Items] | |||
Notional | $ 36,528,169,000 | $ 31,226,878,000 | $ 18,802,500,000 |
Derivative Financial Instruments, Assets [Member] | |||
Derivative [Line Items] | |||
Notional | 36,258,904,000 | 25,503,371,000 | |
Fair Value | 319,981,000 | 309,918,000 | |
Derivative Financial Instruments, Liabilities [Member] | |||
Derivative [Line Items] | |||
Notional | 5,403,265,000 | 8,335,507,000 | |
Fair Value | (820,590,000) | (31,903,000) | |
Options Held [Member] | Derivative Financial Instruments, Assets [Member] | |||
Derivative [Line Items] | |||
Notional | 0 | ||
Fair Value | 0 | 0 | |
Options Held [Member] | Derivative Financial Instruments, Liabilities [Member] | |||
Derivative [Line Items] | |||
Notional | 1,767,000,000 | ||
Fair Value | (25,296,000) | 0 | |
Options Held [Member] | Long [Member] | |||
Derivative [Line Items] | |||
Notional | 5,400,000,000 | 0 | |
Options Held [Member] | Short [Member] | |||
Derivative [Line Items] | |||
Notional | $ 7,200,000,000 | $ 0 |
Derivative Instruments and Hedging Activities Schedule of Total Return Swaps (Details) - USD ($) |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Derivative [Line Items] | |||
Notional | $ 36,528,169,000 | $ 31,226,878,000 | $ 18,802,500,000 |
Total Return Swap [Member] | |||
Derivative [Line Items] | |||
Notional | 48,265,000 | 63,507,000 | |
Fair Value | (383,000) | (106,000) | |
Cost Basis | (59,000) | 567,000 | |
Derivative, Unrealized Gains (Losses) | (324,000) | (673,000) | |
Total Return Swap [Member] | Maturity Date, 1/12/2043 [Member] | |||
Derivative [Line Items] | |||
Notional | 21,395,000 | 24,362,000 | |
Fair Value | (153,000) | (24,000) | |
Cost Basis | (30,000) | 201,000 | |
Derivative, Unrealized Gains (Losses) | (123,000) | (225,000) | |
Total Return Swap [Member] | Maturity Date, 1/12/2044 [Member] | |||
Derivative [Line Items] | |||
Notional | 26,870,000 | 39,145,000 | |
Fair Value | (230,000) | (82,000) | |
Cost Basis | (29,000) | 366,000 | |
Derivative, Unrealized Gains (Losses) | $ (201,000) | $ (448,000) |
Derivative Instruments and Hedging Activities Credit Risk - Counterparty Exposure (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
Derivative assets, at fair value | $ 319,981 | $ 309,918 |
Derivative liabilities, at fair value | $ (820,590) | $ (31,903) |
Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Repurchase agreements | $ 23,133,476 | $ 19,451,207 |
Long-term Federal Home Loan Bank Advances | 50,000 | |
Revolving credit facilities | 310,000 | 20,000 |
Maturity Over One Year [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Revolving credit facilities | 290,000 | 0 |
Maturity Over One Year [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Repurchase agreements | $ 300,000 | $ 112,500 |
Repurchase Agreements (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Disclosure of Repurchase Agreements [Abstract] | ||
Repurchase agreements | $ 23,133,476 | $ 19,451,207 |
Weighted average borrowing rate | 2.68% | 1.69% |
Weighted average remaining maturity | 66 days | 83 days |
Schedule of Repurchase Agreements by Term, Short or Long (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Assets Sold under Agreements to Repurchase [Line Items] | ||
Repurchase agreements | $ 23,133,476 | $ 19,451,207 |
Maturity up to One Year [Member] | ||
Assets Sold under Agreements to Repurchase [Line Items] | ||
Repurchase agreements | 22,833,476 | 19,338,707 |
Maturity Over One Year [Member] | ||
Assets Sold under Agreements to Repurchase [Line Items] | ||
Repurchase agreements | $ 300,000 | $ 112,500 |
Reverse Repurchase Agreements Reverse Repurchase Agreements (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Derivative [Line Items] | ||
Reverse repurchase agreements | $ 761,815 | $ 0 |
Short US Treasury Securities [Member] | ||
Derivative [Line Items] | ||
Fair Value | $ (781,500) | $ 0 |
Federal Home Loan Bank of Des Moines Advances (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items] | ||
Federal Home Loan Bank advances | $ 865,024 | $ 1,215,024 |
Maximum percent of FHLB advances to total assets | 40.00% | |
Federal Home Loan Bank of Des Moines [Member] | ||
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items] | ||
Federal Home Loan Bank advances | $ 900,000 | $ 1,200,000 |
Weighted average borrowing rate | 2.79% | 1.79% |
Available uncommitted capacity for borrowings | $ 2,700,000 | $ 2,200,000 |
Schedule of Maturities of Federal Home Loan Bank Advances (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items] | ||
Federal Home Loan Bank advances | $ 865,024 | $ 1,215,024 |
Maturity Within One Year [Member] | ||
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items] | ||
Federal Home Loan Bank advances | 815,024 | 0 |
Maturity One to Three Years [Member] | ||
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items] | ||
Federal Home Loan Bank advances | 0 | 815,024 |
Maturity Three to Five Years [Member] | ||
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items] | ||
Federal Home Loan Bank advances | 0 | 0 |
Maturity Five to Ten Years [Member] | ||
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items] | ||
Federal Home Loan Bank advances | 0 | 0 |
Maturity Over Ten Years [Member] | ||
Schedule of Maturities of Federal Home Loan Bank Advances [Line Items] | ||
Federal Home Loan Bank advances | $ 50,000 | $ 400,000 |
Schedule of Underlying Assets of Federal Home Loan Bank Advances (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Schedule of Assets Underlying Federal Home Loan Bank Advances [Line Items] | ||
Assets pledged as collateral for Federal Home Loan Bank advances | $ 917,492 | $ 1,273,674 |
Federal Home Loan Bank of Des Moines [Member] | ||
Schedule of Assets Underlying Federal Home Loan Bank Advances [Line Items] | ||
Federal Home Loan Bank stock | 40,800 | 53,800 |
Available-for-sale Securities [Member] | ||
Schedule of Assets Underlying Federal Home Loan Bank Advances [Line Items] | ||
Assets pledged as collateral for Federal Home Loan Bank advances | 917,492 | 1,210,715 |
Due From Correspondent Brokers [Member] | ||
Schedule of Assets Underlying Federal Home Loan Bank Advances [Line Items] | ||
Assets pledged as collateral for Federal Home Loan Bank advances | $ 0 | $ 62,959 |
Revolving Credit Facilities (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Short-term Debt [Line Items] | ||
Revolving credit facilities | $ 310,000 | $ 20,000 |
Weighted average borrowing rate | 5.60% | 5.14% |
Weighted average remaining maturity | 4 years 3 months | 11 months 15 days |
Mortgage servicing rights, at fair value, pledged as collateral for borrowings | $ 1,100,000 | $ 600,000 |
Short-term Debt [Member] | ||
Short-term Debt [Line Items] | ||
Mortgage servicing rights, at fair value, pledged as collateral for borrowings | $ 458,200 | $ 159,500 |
Schedule of Revolving Credit Facilities by Maturity (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Line of Credit Facility [Line Items] | ||
Revolving credit facilities | $ 310,000 | $ 20,000 |
Maturity up to 30 days [Member] | ||
Line of Credit Facility [Line Items] | ||
Revolving credit facilities | 0 | 0 |
Maturity 30 to 59 Days [Member] | ||
Line of Credit Facility [Line Items] | ||
Revolving credit facilities | 0 | 0 |
Maturity 60 to 89 Days [Member] | ||
Line of Credit Facility [Line Items] | ||
Revolving credit facilities | 0 | 0 |
Maturity 90 to 119 Days [Member] | ||
Line of Credit Facility [Line Items] | ||
Revolving credit facilities | 0 | 0 |
Maturity 120 to 364 days [Member] | ||
Line of Credit Facility [Line Items] | ||
Revolving credit facilities | 20,000 | 20,000 |
Maturity Over One Year [Member] | ||
Line of Credit Facility [Line Items] | ||
Revolving credit facilities | $ 290,000 | $ 0 |
Convertible Senior Notes (Details) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2018
USD ($)
|
Dec. 31, 2017
USD ($)
|
|
Debt Instrument, Redemption [Line Items] | ||
Proceeds from convertible senior notes | $ 282,200 | |
Convertible senior notes conversion ratio | 0.0624003 | 0.0614698 |
Convertible senior notes | $ 283,856 | $ 282,827 |
Convertible Debt [Member] | ||
Debt Instrument, Redemption [Line Items] | ||
Convertible senior notes aggregate principal amount | $ 287,500 | |
Convertible senior notes interest rate per annum | 6.25% |
Commitments and Contingencies Management Agreement (Details) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2018 |
|
Commitments and Contingencies Disclosure [Abstract] | ||
Percent per annum of equity used to calculate management fees | 1.50% | |
Percent per annum of additional equity used to calculate management fees | 0.75% | |
One Time Downward Adjustment of Management Fees Payable | $ 15,000 | |
Maximum Additional One Time Downward Adjustment of Management Fees Payable | $ 3,300 |
Stockholders' Equity Schedule of Preferred Dividends Declared (Details) - $ / shares |
3 Months Ended | ||||||
---|---|---|---|---|---|---|---|
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
|
Series A Preferred Stock [Member] | |||||||
Class of Stock [Line Items] | |||||||
Declaration Date | Dec. 18, 2018 | Sep. 20, 2018 | Jun. 19, 2018 | Mar. 20, 2018 | Dec. 14, 2017 | Sep. 14, 2017 | Jun. 15, 2017 |
Record Date | Dec. 31, 2018 | Oct. 12, 2018 | Jul. 12, 2018 | Apr. 12, 2018 | Jan. 12, 2018 | Oct. 12, 2017 | Jul. 12, 2017 |
Payment Date | Jan. 28, 2019 | Oct. 29, 2018 | Jul. 27, 2018 | Apr. 27, 2018 | Jan. 29, 2018 | Oct. 27, 2017 | Jul. 27, 2017 |
Dividends declared per preferred share (in usd per share) | $ 0.507810 | $ 0.507810 | $ 0.507810 | $ 0.507810 | $ 0.507810 | $ 0.507810 | $ 0.750430 |
Series B Preferred Stock [Member] | |||||||
Class of Stock [Line Items] | |||||||
Declaration Date | Dec. 18, 2018 | Sep. 20, 2018 | Jun. 19, 2018 | Mar. 20, 2018 | Dec. 14, 2017 | Sep. 14, 2017 | |
Record Date | Dec. 31, 2018 | Oct. 12, 2018 | Jul. 12, 2018 | Apr. 12, 2018 | Jan. 12, 2018 | Oct. 12, 2017 | |
Payment Date | Jan. 28, 2019 | Oct. 29, 2018 | Jul. 27, 2018 | Apr. 27, 2018 | Jan. 29, 2018 | Oct. 27, 2017 | |
Dividends declared per preferred share (in usd per share) | $ 0.476560 | $ 0.476560 | $ 0.476560 | $ 0.476560 | $ 0.476560 | $ 0.518920 | |
Series C Preferred Stock [Member] | |||||||
Class of Stock [Line Items] | |||||||
Declaration Date | Dec. 18, 2018 | Sep. 20, 2018 | Jun. 19, 2018 | Mar. 20, 2018 | Dec. 14, 2017 | ||
Record Date | Dec. 31, 2018 | Oct. 12, 2018 | Jul. 12, 2018 | Apr. 12, 2018 | Jan. 12, 2018 | ||
Payment Date | Jan. 28, 2019 | Oct. 29, 2018 | Jul. 27, 2018 | Apr. 27, 2018 | Jan. 29, 2018 | ||
Dividends declared per preferred share (in usd per share) | $ 0.453130 | $ 0.453130 | $ 0.453130 | $ 0.453130 | $ 0.302080 | ||
Series D Preferred Stock [Member] | |||||||
Class of Stock [Line Items] | |||||||
Declaration Date | Dec. 18, 2018 | Sep. 20, 2018 | |||||
Record Date | Dec. 31, 2018 | Oct. 01, 2018 | |||||
Payment Date | Jan. 28, 2019 | Oct. 15, 2018 | |||||
Dividends declared per preferred share (in usd per share) | $ 0.484375 | $ 0.484375 | |||||
Series E Preferred Stock [Member] | |||||||
Class of Stock [Line Items] | |||||||
Declaration Date | Dec. 18, 2018 | Sep. 20, 2018 | |||||
Record Date | Dec. 31, 2018 | Oct. 01, 2018 | |||||
Payment Date | Jan. 28, 2019 | Oct. 15, 2018 | |||||
Dividends declared per preferred share (in usd per share) | $ 0.468750 | $ 0.468750 |
Stockholders' Equity Issuance of Common Stock in Connection with Acquisition of CYS Investments, Inc. (Details) - USD ($) $ in Thousands |
1 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2018 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 30,301 | |||
Aggregate cash consideration exchanged for shares of CYS common stock | $ 14,967 | |||
Common Stock [Member] | ||||
Class of Stock [Line Items] | ||||
Number of shares of stock issued during period (in shares) | 72,587,772 | 72,616,483 | 26,950 |
Stockholders' Equity Schedule of Common Dividends Declared (Details) - $ / shares |
1 Months Ended | 2 Months Ended | 3 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 01, 2017 |
Jul. 31, 2018 |
Sep. 30, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
|
Class of Stock [Line Items] | ||||||||||||||
Number of shares of common stock of Granite Point Mortgage Trust Inc distributed via special dividend (in shares) | 33,100,000 | |||||||||||||
Common Stock [Member] | ||||||||||||||
Class of Stock [Line Items] | ||||||||||||||
Declaration Date | Jul. 13, 2018 | Dec. 18, 2018 | Sep. 20, 2018 | Jun. 19, 2018 | Mar. 20, 2018 | Dec. 14, 2017 | Sep. 14, 2017 | Jun. 15, 2017 | Mar. 14, 2017 | Dec. 15, 2016 | Sep. 15, 2016 | Jun. 16, 2016 | Mar. 15, 2016 | |
Record Date | Jul. 25, 2018 | Dec. 31, 2018 | Oct. 01, 2018 | Jun. 29, 2018 | Apr. 02, 2018 | Dec. 26, 2017 | Sep. 29, 2017 | Jun. 30, 2017 | Mar. 31, 2017 | Dec. 30, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | |
Payment Date | Jul. 30, 2018 | Jan. 28, 2019 | Oct. 29, 2018 | Jul. 27, 2018 | Apr. 27, 2018 | Dec. 29, 2017 | Oct. 27, 2017 | Jul. 27, 2017 | Apr. 27, 2017 | Jan. 27, 2017 | Oct. 20, 2016 | Jul. 20, 2016 | Apr. 21, 2016 | |
Dividends declared per common share (in usd per share) | $ 0.158370 | $ 0.470000 | $ 0.311630 | $ 0.470000 | $ 0.470000 | $ 0.470000 | $ 0.520000 | $ 0.520000 | $ 0.500000 | $ 0.480000 | $ 0.460000 | $ 0.460000 | $ 0.460000 |
Stockholders' Equity Dividend Reinvestment and Direct Stock Purchase Plan (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Equity [Abstract] | |||
Number of common shares reserved for issuance under dividend reinvestment plan (in shares) | 3,750,000 | ||
Number of common shares issued from dividend reinvestment plan and outstanding as of period-end (in shares) | 227,852 | ||
Accumulated proceeds from issuance of common shares from dividend reinvestment plan | $ 4,400 | ||
Number of common shares issued during period from dividend reinvestment plan (in shares) | 28,711 | 27,194 | 30,301 |
Proceeds from issuance of common shares during period from dividend reinvestment plan | $ 400 | $ 500 | $ 500 |
Stockholders' Equity Share Repurchase Program (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Equity [Abstract] | |||
Number of shares authorized to be repurchased under stock repurchase program (in shares) | 37,500,000 | ||
Number of shares repurchased and retired to date (in shares) | 12,067,500 | ||
Cost of shares repurchased and retired to date | $ 200,400 | ||
Repurchase of common stock (in shares) | 0 | 0 | 4,010,000 |
Repurchase of common stock | $ 0 | $ 0 | $ 61,307 |
Stockholders' Equity At-the-Market Offering (Details) - USD ($) $ in Thousands |
Feb. 08, 2019 |
Dec. 31, 2018 |
---|---|---|
Subsequent Event [Line Items] | ||
Number of shares authorized to be sold under equity distribution agreement (in shares) | 10,000,000 | |
Number of common shares issued under equity distribution agreement and outstanding as of period-end (in shares) | 3,792,935 | |
Accumulated proceeds from issuance of common shares under equity distribution agreement | $ 77,600 | |
Subsequent Event [Member] | ||
Subsequent Event [Line Items] | ||
Number of shares authorized to be sold under equity distribution agreement (in shares) | 35,000,000 |
Stockholders' Equity Schedule of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Equity [Abstract] | ||
Unrealized gains | $ 498,744 | $ 475,694 |
Unrealized losses | (387,927) | (140,881) |
Accumulated other comprehensive (loss) income | $ 110,817 | $ 334,813 |
Stockholders' Equity Reclassifications out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||
Realized losses (gains) on sales of certain AFS securities, net of tax | $ 341,312 | $ 34,695 | $ 107,374 |
Amounts reclassified from accumulated other comprehensive income (loss) | (254,339) | 5,996 | (101,030) |
Reclassification out of Accumulated Other Comprehensive Income [Member] | |||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||
Other-than-temporary impairments on AFS securities | 470 | 789 | 1,822 |
Realized losses (gains) on sales of certain AFS securities, net of tax | $ 253,869 | $ 5,207 | $ (102,852) |
Income Taxes (Details) |
Dec. 31, 2018 |
---|---|
Income Tax Disclosure [Abstract] | |
Percent of REIT taxable income the entity intends to distribute | 100.00% |
Components of Income Tax Expense (Benefit) (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Income Tax Disclosure [Abstract] | |||||||||||
Current Federal Tax Expense (Benefit) | $ 52 | $ 492 | $ (1,616) | ||||||||
Current state tax provision (benefit) | 1 | 57 | 164 | ||||||||
Total current tax provision (benefit) | 53 | 549 | (1,452) | ||||||||
Deferred tax (benefit) provision | 41,770 | (11,031) | 13,766 | ||||||||
Provision for (benefit from) income taxes | $ 6,681 | $ 37,409 | $ (6,051) | $ 3,784 | $ 10,618 | $ (5,342) | $ 8,759 | $ (24,517) | $ 41,823 | $ (10,482) | $ 12,314 |
Federal income tax rate applicable to corporations | 21.00% | 35.00% | 35.00% |
Current and Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Income Tax Disclosure [Abstract] | ||
Federal income taxes receivable | $ 690 | $ 130 |
State and local income taxes receivable | 0 | 0 |
Income taxes receivable, net | 690 | 130 |
Deferred tax asset | 17,196 | 50,419 |
Deferred tax liability | (18,333) | (24,463) |
Total net deferred tax liabilities | (1,137) | |
Total net deferred tax assets | 25,956 | |
Total tax liabilities, net | $ (447) | |
Total tax assets, net | $ 26,086 |
Earnings Per Share (Details) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 01, 2017 |
Dec. 31, 2018
USD ($)
$ / shares
|
Sep. 30, 2018
USD ($)
$ / shares
|
Jun. 30, 2018
USD ($)
$ / shares
|
Mar. 31, 2018
USD ($)
$ / shares
|
Dec. 31, 2017
USD ($)
$ / shares
|
Sep. 30, 2017
USD ($)
$ / shares
|
Jun. 30, 2017
USD ($)
$ / shares
|
Mar. 31, 2017
USD ($)
$ / shares
|
Dec. 31, 2018
USD ($)
$ / shares
shares
|
Dec. 31, 2017
USD ($)
$ / shares
shares
|
Dec. 31, 2016
USD ($)
$ / shares
shares
|
|
Earnings Per Share [Abstract] | ||||||||||||
Reverse stock split, conversion ratio | 0.50 | |||||||||||
Net (loss) income from continuing operations | $ (44,290) | $ 308,239 | $ 317,921 | |||||||||
Income from discontinued operations, net of tax | $ 3,877 | $ 8,844 | $ 14,157 | $ 13,454 | 0 | 44,146 | 35,357 | |||||
Net (loss) income | (44,290) | 352,385 | 353,278 | |||||||||
Income from discontinued operations attributable to noncontrolling interest | 0 | 3,814 | 0 | |||||||||
Net income attributable to Two Harbors Investment Corp. | (44,290) | 348,571 | 353,278 | |||||||||
Dividends on preferred stock | $ 18,950 | $ 18,951 | $ 13,747 | $ 13,747 | 11,949 | 8,888 | 4,285 | 0 | 65,395 | 25,122 | 0 | |
Net income attributable to common stockholders | $ (573,485) | $ 16,995 | $ 125,743 | $ 321,062 | $ 153,955 | $ 93,176 | $ 4,333 | $ 71,985 | (109,685) | 323,449 | 353,278 | |
Interest expense attributable to convertible notes | 0 | 17,867 | 0 | |||||||||
Net (loss) income attributable to common stockholders - diluted | $ (109,685) | $ 341,316 | $ 353,278 | |||||||||
Weighted average common shares outstanding (in shares) | shares | 204,409,853 | 173,063,178 | 172,523,497 | |||||||||
Weighted average restricted stock shares (in shares) | shares | 1,610,649 | 1,370,821 | 1,513,355 | |||||||||
Weighted average basic common shares outstanding (in shares) | shares | 206,020,502 | 174,433,999 | 174,036,852 | |||||||||
Effect of dilutive shares issued in an assumed conversion (in shares) | shares | 0 | 13,699,342 | 0 | |||||||||
Weighted average diluted common shares outstanding (in shares) | shares | 206,020,502 | 188,133,341 | 174,036,852 | |||||||||
Basic earnings per weighted average common share (in usd per share) | $ / shares | $ (2.31) | $ 0.08 | $ 0.72 | $ 1.83 | $ 0.88 | $ 0.53 | $ 0.02 | $ 0.41 | $ (0.53) | $ 1.85 | $ 2.03 | |
Diluted earnings per weighted average common share (in usd per share) | $ / shares | $ (2.31) | $ 0.08 | $ 0.68 | $ 1.69 | $ 0.84 | $ 0.52 | $ 0.02 | $ 0.41 | $ (0.53) | $ 1.81 | $ 2.03 |
Subsequent Events Subsequent Events (Details) |
3 Months Ended | |||
---|---|---|---|---|
Nov. 01, 2017 |
Mar. 31, 2019 |
Feb. 08, 2019
shares
|
Dec. 31, 2018
shares
|
|
Subsequent Event [Line Items] | ||||
Number of shares authorized to be sold under equity distribution agreement (in shares) | 10,000,000 | |||
Number of common shares issued under equity distribution agreement and outstanding as of period-end (in shares) | 3,792,935 | |||
Reverse stock split, conversion ratio | 0.50 | |||
Subsequent Event [Member] | ||||
Subsequent Event [Line Items] | ||||
Number of shares authorized to be sold under equity distribution agreement (in shares) | 35,000,000 | |||
Percentage of gross proceeds compensated to sales agent | 2.00% |
Quarterly Financial Data (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Total interest income | $ 251,955 | $ 236,698 | $ 187,360 | $ 194,019 | $ 195,105 | $ 196,089 | $ 184,741 | $ 169,154 | $ 870,032 | $ 745,089 | $ 575,080 |
Total interest expense | 162,301 | 152,396 | 108,414 | 96,560 | 94,795 | 99,427 | 85,281 | 70,685 | 519,671 | 350,188 | 213,284 |
Net interest income | 89,654 | 84,302 | 78,946 | 97,459 | 100,310 | 96,662 | 99,460 | 98,469 | 350,361 | 394,901 | 361,796 |
Other-than-temporary impairment losses | (107) | (95) | (174) | (94) | (360) | 0 | (429) | 0 | (470) | (789) | (1,822) |
Total other income | (590,696) | 112,514 | 93,174 | 281,982 | 103,288 | 23,060 | (57,197) | (35,585) | (103,026) | 33,566 | 107,388 |
Total expenses | 46,705 | 123,366 | 38,507 | 40,754 | 30,593 | 31,844 | 38,614 | 28,870 | 249,332 | 129,921 | 137,127 |
Provision for (benefit from) income taxes | 6,681 | 37,409 | (6,051) | 3,784 | 10,618 | (5,342) | 8,759 | (24,517) | 41,823 | (10,482) | 12,314 |
Income from discontinued operations, net of tax | 3,877 | 8,844 | 14,157 | 13,454 | 0 | 44,146 | 35,357 | ||||
Dividends on preferred stock | 18,950 | 18,951 | 13,747 | 13,747 | 11,949 | 8,888 | 4,285 | 0 | 65,395 | 25,122 | 0 |
Net income attributable to common stockholders | $ (573,485) | $ 16,995 | $ 125,743 | $ 321,062 | $ 153,955 | $ 93,176 | $ 4,333 | $ 71,985 | $ (109,685) | $ 323,449 | $ 353,278 |
Basic earnings per weighted average common share: | |||||||||||
Basic earnings from continuing operations per weighted average common share (in usd per share) | $ (2.31) | $ 0.08 | $ 0.72 | $ 1.83 | $ 0.86 | $ 0.48 | $ (0.06) | $ 0.33 | $ (0.53) | $ 1.62 | $ 1.83 |
Basic earnings from discontinued operations per weighted average common share (in usd per share) | 0.02 | 0.05 | 0.08 | 0.08 | 0 | 0.23 | 0.20 | ||||
Basic earnings per weighted average common share (in usd per share) | (2.31) | 0.08 | 0.72 | 1.83 | 0.88 | 0.53 | 0.02 | 0.41 | (0.53) | 1.85 | 2.03 |
Diluted earnings per weighted average common share: | |||||||||||
Diluted earnings from continuing operations per weighted average common share (in usd per share) | (2.31) | 0.08 | 0.68 | 1.69 | 0.82 | 0.47 | (0.06) | 0.33 | (0.53) | 1.60 | 1.83 |
Diluted earnings from discontinued operations per weighted average common share (in usd per share) | 0.02 | 0.05 | 0.08 | 0.08 | 0 | 0.21 | 0.20 | ||||
Diluted earnings per weighted average common share (in usd per share) | $ (2.31) | $ 0.08 | $ 0.68 | $ 1.69 | $ 0.84 | $ 0.52 | $ 0.02 | $ 0.41 | $ (0.53) | $ 1.81 | $ 2.03 |
Label | Element | Value |
---|---|---|
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Disposal Group, Including Discontinued Operations | us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsDisposalGroupIncludingDiscontinuedOperations | $ 56,338,000 |
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