Quarterly report pursuant to Section 13 or 15(d)

Equity

v3.8.0.1
Equity
 9 Months Ended
Sep. 30, 2017
Equity [Abstract]  
Equity
Equity
Preferred Stock
On March 14, 2017, the Company issued 5,000,000 shares of 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, in a public offering at a price of $25.00 per share. On March 21, 2017, an additional 750,000 shares were sold by the Company to the underwriters of the offering pursuant to an overallotment option. Holders of the preferred stock are entitled to receive, when and as declared, a dividend at a fixed rate of 8.125% per annum of the $25.00 liquidation preference. On and after April 27, 2027, dividends will accumulate and be payable at a floating rate of three-month LIBOR plus a spread of 5.66% per annum of the $25.00 liquidation preference. The preferred stock ranks senior to the Company’s common stock and on parity with our 7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock with respect to the payment of dividends and the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company. Under certain circumstances upon a change of control, the preferred stock is convertible into shares of the Company’s common stock. The preferred stock will not be redeemable before April 27, 2027, except under certain limited circumstances. On or after April 27, 2027, the Company may, at its option, redeem, in whole or in part, at any time or from time to time, the preferred stock at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon (whether or not authorized or declared) up to, but excluding, the redemption date. The net proceeds from the offering were approximately $138.9 million, after deducting underwriting discounts and estimated offering expenses payable by the Company.
On July 19, 2017, the Company issued 11,500,000 shares of 7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, in a public offering at a price of $25.00 per share, which included 1,500,000 shares sold to the underwriters of the offering pursuant to an overallotment option. Holders of the preferred stock are entitled to receive, when and as declared, a dividend at a fixed rate of 7.625% per annum of the $25.00 liquidation preference. On and after July 27, 2027, dividends will accumulate and be payable at a floating rate of three-month LIBOR plus a spread of 5.352% per annum of the $25.00 liquidation preference. The preferred stock ranks senior to the Company’s common stock and on parity with the Company’s 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock with respect to the payment of dividends and the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company. Under certain circumstances upon a change of control, the preferred stock is convertible into shares of the Company’s common stock. The preferred stock will not be redeemable before July 27, 2027, except under certain limited circumstances. On or after July 27, 2027, the Company may, at its option, redeem, in whole or in part, at any time or from time to time, the preferred stock at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon (whether or not authorized or declared) up to, but excluding, the redemption date. The net proceeds from the offering were approximately $278.1 million, after deducting underwriting discounts and estimated offering expenses payable by the Company.
Distributions to Preferred Stockholders
The following table presents cash dividends declared by the Company on its preferred stock during the three and nine months ended September 30, 2017:
Declaration Date
 
Record Date
 
Payment Date
 
Cash Dividend Per Preferred Share
Series A Preferred Stock:
 
 
 
 
 
 
September 14, 2017
 
October 12, 2017
 
October 27, 2017
 
$
0.50781

June 15, 2017
 
July 12, 2017
 
July 27, 2017
 
$
0.75043

Series B Preferred Stock:
 
 
 
 
 
 
September 14, 2017
 
October 12, 2017
 
October 27, 2017
 
$
0.51892


Common Stock
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.
Distributions to Common Stockholders
The following table presents cash dividends declared by the Company on its common stock during the three months ended September 30, 2017, and the four immediately preceding quarters:
Declaration Date
 
Record Date
 
Payment Date
 
Cash Dividend Per Common Share
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



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 during the periods presented, the Company consolidates Granite Point on its financial statements and does not recognize the dividend declaration until November 1, 2017, the date the Company no longer held a controlling interest in Granite Point.
On September 18, 2017, Granite Point’s board of directors declared a quarterly cash dividend on its common stock of $0.32 per share. The dividend was payable on October 18, 2017 to common stockholders of record at the close of business on September 29, 2017.
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 September 30, 2017, 191,635 shares have been issued under the plan for total proceeds of approximately $3.8 million, of which 6,469 and 19,688 shares were issued for total proceeds of $0.1 million and $0.4 million during the three and nine months ended September 30, 2017, respectively. During the three and nine months ended September 30, 2016, 7,310 and 21,882 shares were issued for total proceeds of $0.1 million and $0.4 million, 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 September 30, 2017, 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 nine months ended September 30, 2016. No shares were repurchased during the three months ended September 30, 2016, or the three and nine months ended September 30, 2017.
At-the-Market Offering
The Company has entered into an equity distribution agreement under which the Company may 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 September 30, 2017, 3,792,935 shares of common stock have been sold under the equity distribution agreement for total accumulated net proceeds of approximately $77.6 million; however, no shares were sold during the three and nine months ended September 30, 2017 and 2016.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income at September 30, 2017 and December 31, 2016 was as follows:
(in thousands)
September 30,
2017
 
December 31,
2016
Available-for-sale securities
 
 
 
Unrealized gains
$
508,607

 
$
393,555

Unrealized losses
(85,565
)
 
(194,328
)
Accumulated other comprehensive income
$
423,042

 
$
199,227



Reclassifications out of Accumulated Other Comprehensive Income
The following table summarizes reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2017 and 2016:
 
 
Affected Line Item in the Condensed Consolidated Statements of Comprehensive Income
 
Amount Reclassified out of Accumulated Other Comprehensive Income
(in thousands)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
 
2017
 
2016
 
2017
 
2016
Other-than-temporary impairments on AFS securities
 
Total other-than-temporary impairment losses
 
$
—

 
$
1,015

 
$
429

 
$
1,822

Realized gains on sales of certain AFS securities, net of tax
 
Gain (loss) on investment securities
 
4,220

 
(30,396
)
 
7,386

 
(54,652
)
Total
 
 
 
$
4,220

 
$
(29,381
)
 
$
7,815

 
$
(52,830
)


Noncontrolling Interest
On June 28, 2017, 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, representing approximately 76.5% of the outstanding stock of Granite Point upon completion of the IPO of its common stock on June 28, 2017. Granite Point issued 10,000,000 shares of its common stock in the IPO at a price of $19.50 per share, for gross proceeds of $195.0 million. Net proceeds were approximately $181.9 million, net of issuance costs of approximately $13.1 million.
In connection with the Granite Point IPO, the Company agreed, subject to certain conditions, to purchase up to $20 million of Granite Point common stock in the open market at designated prices below Granite Point’s publicly reported book value pursuant to a share purchase program that ended on November 1, 2017. During the three and nine months ended September 30, 2017, the Company purchased 285,662 shares of Granite Point common stock under the program for a total cost of $5.4 million.
Due to its controlling ownership interest in Granite Point during the periods presented, the Company consolidates Granite Point on its financial statements and reflects noncontrolling interest for the portion of equity and comprehensive income not attributable to the Company. During the three and nine months ended September 30, 2017, in accordance with ASC 810, Consolidation, the carrying amount of noncontrolling interest was adjusted to reflect (i) changes in its ownership interest in Granite Point as a result of the purchases of Granite Point common stock discussed above and (ii) the portion of comprehensive income and dividends declared by Granite Point that are not attributable to the Company, with the offset to equity.