Two Harbors Investment Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

Stockholders' Equity

3 Months Ended

Mar. 31, 2020

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 March 31, 2020. 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.

As of March 31, 2020

(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

5,750

138,872

8.125

April 27, 2027

3M LIBOR + 5.660%

Series B

July 19, 2017

11,500

278,094

7.625

July 27, 2027

3M LIBOR + 5.352%

Series C

November 27, 2017

11,800

285,585

7.250

January 27, 2025

3M LIBOR + 5.011%

Fixed Rate

Series D

July 31, 2018

3,000

74,964

7.750

July 31, 2018

N/A

Series E

July 31, 2018

8,000

199,986

7.500

July 31, 2018

N/A

Total

40,050

977,501

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(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 an annual fixed rate of the $25.00 per share liquidation preference from the issuance date up to but not including the transition date disclosed within. Effective the conversion date and onward, dividends will accumulate on a floating rate basis according to the terms disclosed within (3) below.


(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.

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, 2019, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

Distributions to Preferred Stockholders

On March 24, 2020, as a result of the volatile market conditions related to the COVID-19 pandemic, the Company announced that it had suspended its first quarter 2020 preferred stock dividends in order to preserve liquidity and long-term stockholder value. Subsequently, on April 6, 2020, the Company’s board of directors declared its first quarter 2020 preferred stock dividends, which were paid on April 29, 2020 to stockholders of record as of April 16, 2020. Pursuant to their terms, all unpaid dividends on the Company’s preferred stock accrue without interest.

The following table details the aggregate and per-share amounts of arrearages in cumulative preferred dividends as of March 31, 2020:



(in thousands)
Class of Stock	Dividend Per Preferred Share in Arrears		Amount of Preferred Dividends in Arrears
Series A	$	0.507810	$	2,920
Series B	$	0.476560	5,480
Series C	$	0.453130	5,347
Series D	$	0.484375	1,453
Series E	$	0.468750	3,750
			$	18,950

The following table presents cash dividends declared by the Company on its preferred stock stock from December 31, 2018 through March 31, 2020:



Declaration Date	Record Date	Payment Date	Cash Dividend Per Preferred Share
Series A Preferred Stock:
December 17, 2019	January 10, 2020	January 27, 2020	$	0.507810
September 19, 2019	October 11, 2019	October 28, 2019	$	0.507810
June 19, 2019	July 12, 2019	July 29, 2019	$	0.507810
March 19, 2019	April 12, 2019	April 29, 2019	$	0.507810
Series B Preferred Stock:
December 17, 2019	January 10, 2020	January 27, 2020	$	0.476560
September 19, 2019	October 11, 2019	October 28, 2019	$	0.476560
June 19, 2019	July 12, 2019	July 29, 2019	$	0.476560
March 19, 2019	April 12, 2019	April 29, 2019	$	0.476560
Series C Preferred Stock:
December 17, 2019	January 10, 2020	January 27, 2020	$	0.453130
September 19, 2019	October 11, 2019	October 28, 2019	$	0.453130
June 19, 2019	July 12, 2019	July 29, 2019	$	0.453130
March 19, 2019	April 12, 2019	April 29, 2019	$	0.453130



Declaration Date	Record Date	Payment Date	Cash Dividend Per Preferred Share
Series D Preferred Stock:
December 17, 2019	January 1, 2020	January 15, 2020	$	0.484375
September 19, 2019	October 1, 2019	October 15, 2019	$	0.484375
June 19, 2019	July 1, 2019	July 15, 2019	$	0.484375
March 19, 2019	April 1, 2019	April 15, 2019	$	0.484375
Series E Preferred Stock:
December 17, 2019	January 1, 2020	January 15, 2020	$	0.468750
September 19, 2019	October 1, 2019	October 15, 2019	$	0.468750
June 19, 2019	July 1, 2019	July 15, 2019	$	0.468750
March 19, 2019	April 1, 2019	April 15, 2019	$	0.468750

Common Stock

Public Offering

On March 21, 2019, the Company completed a public offering of 18,000,000 shares of its common stock at a price of $13.76 per share. On March 22, 2019, an additional 2,700,000 shares were sold by the Company to the underwriters of the offering pursuant to an overallotment option. The net proceeds to the Company were approximately $284.5 million, after deducting offering expenses of approximately $0.3 million.

As of March 31, 2020, the Company had 273,528,243 shares of common stock outstanding. The following table presents a reconciliation of the common shares outstanding for the three months ended March 31, 2020 and 2019:



	Number of common shares
Common shares outstanding, December 31, 2018	248,085,721
Issuance of common stock	24,377,530
Issuance of restricted stock ⁽¹⁾	363,353
Common shares outstanding, March 31, 2019	272,826,604

Common shares outstanding, December 31, 2019	272,935,731
Issuance of common stock	16,498
Issuance of restricted stock ⁽¹⁾	681,314
Repurchase of common stock	(105,300	)
Common shares outstanding, March 31, 2020	273,528,243

____________________


(1)	Represents shares of restricted stock granted under the Second Restated 2009 Equity Incentive Plan, net of forfeitures, of which 1,242,812 restricted shares remained subject to vesting requirements at March 31, 2020.

Distributions to Common Stockholders

On March 24, 2020, as a result of the volatile market conditions related to the COVID-19 pandemic, the Company announced that it had suspended its first quarter 2020 common stock dividend in order to preserve liquidity and long-term stockholder value. Subsequently, on April 6, 2020, the Company’s board of directors declared an interim common stock dividend of $0.05 per share. The interim dividend was paid on April 29, 2020 to common stockholders of record as of April 16, 2020. The following table presents cash dividends declared by the Company on its common stock from December 31, 2018 through March 31, 2020:



Declaration Date	Record Date	Payment Date	Cash Dividend Per Common Share
December 17, 2019	December 31, 2019	January 24, 2020	$	0.400000
September 19, 2019	September 30, 2019	October 28, 2019	$	0.400000
June 19, 2019	July 1, 2019	July 29, 2019	$	0.400000
March 19, 2019	March 29, 2019	April 29, 2019	$	0.470000

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 March 31, 2020, 286,486 shares have been issued under the plan for total proceeds of approximately $5.1 million, of which 16,498 and 12,230 shares were issued for total proceeds of $0.1 million and $0.2 million during the three months ended March 31, 2020 and 2019, 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 March 31, 2020, a total of 12,174,300 shares had been repurchased by the Company under the program at an aggregate cost of $201.5 million; of these, 105,300 shares were repurchased at a total cost of $1.1 million during the three months ended March 31, 2020. No shares were repurchased during the three months ended March 31, 2019.

At-the-Market Offerings

The Company is party to an equity distribution agreement under which the Company is authorized to sell up to an aggregate of 35,000,000 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 March 31, 2020, 7,490,235 shares of common stock had been sold under the equity distribution agreements for total accumulated net proceeds of approximately $128.6 million, of which 3,665,300 shares were sold for net proceeds of $50.6 million during the three months ended March 31, 2019. No shares were sold during the three months ended March 31, 2020.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income at March 31, 2020 and December 31, 2019 was as follows:



(in thousands)	March 31, 2020			December 31, 2019
Available-for-sale securities
Unrealized gains	$	505,389		$	730,043
Unrealized losses	(14,059		)	(40,643		)
Accumulated other comprehensive income	$	491,330		$	689,400

Reclassifications out of Accumulated Other Comprehensive Income

The Company reclassifies unrealized gains and losses on AFS securities in accumulated other comprehensive income to net loss upon the recognition of any other-than-temporary impairments, realized gains and losses on sales and provision for credit losses, net of income tax effects, as individual securities are impaired, sold or their allowance for credit losses is increased or decreased. The following table summarizes reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2020 and 2019:



	Affected Line Item in the Statements of Comprehensive (Loss) Income	Amount Reclassified out of Accumulated Other Comprehensive Income
		Three Months Ended
(in thousands)		March 31,
		2020			2019
Other-than-temporary impairments on AFS securities	Total other-than-temporary impairment losses	$	—		$	206
Realized (gains) losses on sales of certain AFS securities, net of tax	Loss on investment securities	(432,996		)	28,106
Provision for credit losses on AFS securities	Loss on investment securities	41,390			—
Total		$	(391,606	)	$	28,312