(1)

Economic return on book value is defined as the increase (decrease) in common book value from the beginning to the end of the given period, plus dividends declared to common stockholders in the period, divided by common book value as of the beginning of the period.

(2)

Includes 35,047 Series A, 280,060 Series B and 170,502 Series C preferred shares for the year ended December 31, 2024.

Operating Performance (unaudited)

(dollars in thousands, except per common share data)

Three Months Ended December 31, 2024

Three Months Ended September 30, 2024

Earnings attributable to common stockholders

Earnings

Per
weighted
average
basic
common
share

Annualized
return on
average
common
equity

Earnings

Per
weighted
average
basic
common
share

Annualized
return on
average
common
equity

Comprehensive (Loss) Income

$

(1,620

)

$

(0.03

)

(0.4

)%

$

19,352

$

0.18

4.9

%

GAAP Net Income (Loss)

$

264,945

$

2.54

70.6

%

$

(250,269

)

$

(2.42

)

(63.1

)%

Earnings Available for Distribution⁽¹⁾

$

21,181

$

0.20

5.6

%

$

13,186

$

0.13

3.3

%

Operating Metrics

Dividend per common share

$

0.45

$

0.45

Annualized dividend yield⁽²⁾

15.2

%

13.0

%

Book value per common share at period end

$

14.47

$

14.93

Economic return on book value⁽³⁾

—

%

1.3

%

Operating expenses, excluding non-cash LTIP amortization and certain operating expenses⁽⁴⁾

$

39,236

$

36,874

Operating expenses, excluding non-cash LTIP amortization and certain operating expenses, as a percentage of average equity⁽⁴⁾

7.4

%

6.7

%

(1)

Earnings Available for Distribution, or EAD, is a non-GAAP measure. Please see page 11 for a definition of EAD and a reconciliation of GAAP to non-GAAP financial information.

(2)

Dividend yield is calculated based on annualizing the dividends declared in the given period, divided by the closing share price as of the end of the period.

(3)

Economic return on book value is defined as the increase (decrease) in common book value from the beginning to the end of the given period, plus dividends declared to common stockholders in the period, divided by the common book value as of the beginning of the period.

(4)

Excludes non-cash equity compensation expense of $1.6 million for the fourth quarter of 2024 and $1.6 million for the third quarter of 2024 and certain operating expenses of $39 thousand for the fourth quarter of 2024 and $0.1 million for the third quarter of 2024. Certain operating expenses predominantly consists of expenses incurred in connection with the company’s ongoing litigation with PRCM Advisers LLC.

Investment Portfolio

(dollars in thousands)

Portfolio Composition

As of December 31, 2024

As of September 30, 2024

(unaudited)

(unaudited)

Agency RMBS

$

7,376,965

71.1

%

$

8,514,041

74.7

%

Mortgage servicing rights⁽¹⁾

2,994,271

28.9

%

2,884,304

25.3

%

Other

3,734

—

%

3,859

—

%

Aggregate Portfolio

10,374,970

11,402,204

Net TBA position⁽²⁾

4,468,904

5,043,877

Total Portfolio

$

14,843,874

$

16,446,081

(1)

Based on the prior month-end’s principal balance of the loans underlying the company’s MSR, increased for current month purchases.

(2)

Represents bond equivalent value of TBA position. Bond equivalent value is defined as notional amount multiplied by market price. Accounted for as derivative instruments in accordance with GAAP.

Portfolio Metrics Specific to Agency RMBS

As of December 31, 2024

As of September 30, 2024

(unaudited)

(unaudited)

Weighted average cost basis⁽¹⁾

$

101.17

$

101.39

Weighted average experienced three-month CPR

7.5

%

7.2

%

Gross weighted average coupon rate

5.7

%

5.8

%

Weighted average loan age (months)

36

32

(1)

Weighted average cost basis includes Agency principal and interest RMBS only and utilizes carrying value for weighting purposes.

Portfolio Metrics Specific to MSR⁽¹⁾

As of December 31, 2024

As of September 30, 2024

(dollars in thousands)

(unaudited)

(unaudited)

Unpaid principal balance

$

200,317,008

$

202,052,184

Gross coupon rate

3.5

%

3.4

%

Current loan size

$

331

$

333

Original FICO⁽²⁾

760

760

Original LTV

72

%

71

%

60+ day delinquencies

0.9

%

0.8

%

Net servicing fee

25.3 basis points

25.3 basis points

Three Months Ended
December 31, 2024

Three Months Ended
September 30, 2024

(unaudited)

(unaudited)

Fair value gains (losses)

$

82,520

$

(133,349

)

Servicing income

$

153,686

$

161,608

Servicing costs

$

3,965

$

4,401

Change in servicing reserves

$

610

$

(501

)

(1)

Metrics exclude residential mortgage loans in securitization trusts for which the company is the named servicing administrator. Portfolio metrics, other than UPB, represent averages weighted by UPB.

(2)

FICO represents a mortgage industry accepted credit score of a borrower.

Other Investments and Risk Management Metrics

As of December 31, 2024

As of September 30, 2024

(dollars in thousands)

(unaudited)

(unaudited)

Net long TBA notional⁽¹⁾

$

4,497,800

$

5,064,000

Futures notional

$

(3,973,400

)

$

(3,693,900

)

Interest rate swaps notional

$

16,594,467

$

14,197,205

(1)

Accounted for as derivative instruments in accordance with GAAP.

December 31, 2024

Balance

Weighted
Average
Borrowing Rate

Weighted
Average Months
to Maturity

Number of
Distinct
Counterparties

(dollars in thousands, unaudited)

Repurchase agreements collateralized by securities

$

7,050,057

4.90

%

1.60

18

Repurchase agreements collateralized by MSR

755,000

7.44

%

17.10

3

Total repurchase agreements

7,805,057

5.15

%

3.10

19

Revolving credit facilities collateralized by MSR and related servicing advance obligations

1,020,171

7.56

%

18.84

6

Warehouse facilities collateralized by mortgage loans

2,032

6.64

%

2.86

1

Unsecured convertible senior notes

260,229

6.25

%

12.49

n/a

Total borrowings

$

9,087,489

September 30, 2024

Balance

Weighted
Average
Borrowing Rate

Weighted
Average Months
to Maturity

Number of
Distinct
Counterparties

(dollars in thousands, unaudited)

Repurchase agreements collateralized by securities

$

8,113,400

5.20

%

2.55

18

Repurchase agreements collateralized by MSR

650,000

7.99

%

19.69

1

Total repurchase agreements

8,763,400

5.40

%

3.83

19

Revolving credit facilities collateralized by MSR and related servicing advance obligations

999,171

8.11

%

21.40

3

Warehouse facilities collateralized by mortgage loans

3,017

7.34

%

2.86

1

Unsecured convertible senior notes

259,815

6.25

%

15.52

n/a

Total borrowings

$

10,025,403

Borrowings by Collateral Type

As of December 31, 2024

As of September 30, 2024

(dollars in thousands)

(unaudited)

(unaudited)

Agency RMBS

$

7,049,850

$

8,113,193

Mortgage servicing rights and related servicing advance obligations

1,775,171

1,649,171

Other - secured

2,239

3,224

Other - unsecured⁽¹⁾

260,229

259,815

Total

9,087,489

10,025,403

TBA cost basis

4,493,055

5,060,417

Net payable (receivable) for unsettled RMBS

269,370

85,366

Total, including TBAs and net payable (receivable) for unsettled RMBS

$

13,849,914

$

15,171,186

Debt-to-equity ratio at period-end⁽²⁾

4.3 :1.0

4.6 :1.0

Economic debt-to-equity ratio at period-end⁽³⁾

6.5 :1.0

7.0 :1.0

Cost of Financing by Collateral Type⁽⁴⁾

Three Months Ended
December 31, 2024

Three Months Ended
September 30, 2024

(unaudited)

(unaudited)

Agency RMBS

5.14

%

5.53

%

Mortgage servicing rights and related servicing advance obligations⁽⁵⁾

8.34

%

8.93

%

Other - secured

5.80

%

5.61

%

Other - unsecured⁽¹⁾⁽⁵⁾

6.93

%

6.92

%

Annualized cost of financing

5.79

%

6.17

%

Interest rate swaps⁽⁶⁾

(0.34

)%

(0.46

)%

U.S. Treasury futures⁽⁷⁾

(0.17

)%

(0.14

)%

TBAs⁽⁸⁾

3.67

%

3.56

%

Annualized cost of financing, including swaps, U.S. Treasury futures and TBAs

4.58

%

4.73

%

(1)

Unsecured convertible senior notes.

(2)

Defined as total borrowings to fund Agency and non-Agency investment securities, MSR and related servicing advances and mortgage loans held-for-sale, divided by total equity.

(3)

Defined as total borrowings to fund Agency and non-Agency investment securities, MSR and related servicing advances and mortgage loans held-for-sale, plus the implied debt on net TBA cost basis and net payable (receivable) for unsettled RMBS, divided by total equity.

(4)

Excludes any repurchase agreements collateralized by U.S. Treasuries.

(5)

Includes amortization of debt issuance costs.

(6)

The cost of financing on interest rate swaps held to mitigate interest rate risk associated with the company’s outstanding borrowings includes interest spread income/expense and amortization of upfront payments made or received upon entering into interest rate swap agreements and is calculated using average borrowings balance as the denominator.

(7)

The cost of financing on U.S. Treasury futures held to mitigate interest rate risk associated with the company’s outstanding borrowings is calculated using average borrowings balance as the denominator. U.S. Treasury futures income is the economic equivalent to holding and financing a relevant cheapest-to-deliver U.S. Treasury note or bond using short-term repurchase agreements.

(8)

The implied financing benefit/cost of dollar roll income on TBAs is calculated using the average cost basis of TBAs as the denominator. TBA dollar roll income is the non-GAAP economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. TBAs are accounted for as derivative instruments in accordance with GAAP.

TWO HARBORS INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

December 31,
2024

December 31,
2023

(unaudited)

ASSETS

Available-for-sale securities, at fair value (amortized cost $7,697,027 and $8,509,383, respectively; allowance for credit losses $2,866 and $3,943, respectively)

$

7,371,711

$

8,327,149

Mortgage servicing rights, at fair value

2,994,271

3,052,016

Mortgage loans held-for-sale

2,334

332

Cash and cash equivalents

504,613

729,732

Restricted cash

313,028

65,101

Accrued interest receivable

33,331

35,339

Due from counterparties

386,464

323,224

Derivative assets, at fair value

10,114

85,291

Reverse repurchase agreements

355,975

284,091

Other assets

232,478

236,525

Total Assets

$

12,204,319

$

13,138,800

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Repurchase agreements

$

7,805,057

$

8,020,207

Revolving credit facilities

1,020,171

1,329,171

Warehouse facilities

2,032

—

Term notes payable

—

295,271

Convertible senior notes

260,229

268,582

Derivative liabilities, at fair value

24,897

21,506

Due to counterparties

648,643

574,735

Dividends payable

58,725

58,731

Accrued interest payable

85,994

141,773

Other liabilities

176,062

225,434

Total Liabilities

10,081,810

10,935,410

Stockholders’ Equity:

Preferred stock, par value $0.01 per share; 100,000,000 shares authorized and 24,870,817 and 25,356,426 shares issued and outstanding, respectively ($621,770 and $633,911 liquidation preference, respectively)

601,467

613,213

Common stock, par value $0.01 per share; 175,000,000 shares authorized and 103,680,321 and 103,206,457 shares issued and outstanding, respectively

1,037

1,032

Additional paid-in capital

5,936,609

5,925,424

Accumulated other comprehensive loss

(320,524

)

(176,429

)

Cumulative earnings

1,648,785

1,349,973

Cumulative distributions to stockholders

(5,744,865

)

(5,509,823

)

Total Stockholders’ Equity

2,122,509

2,203,390

Total Liabilities and Stockholders’ Equity

$

12,204,319

$

13,138,800

TWO HARBORS INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except share data)

Certain prior period amounts have been reclassified to conform to the current period presentation

Three Months Ended

Year Ended

December 31,

December 31,

2024

2023

2024

2023

(unaudited)

(unaudited)

Net interest income (expense):

Interest income

$

103,774

$

122,401

$

450,152

$

480,364

Interest expense

138,668

168,080

607,806

643,225

Net interest expense

(34,894

)

(45,679

)

(157,654

)

(162,861

)

Net servicing income:

Servicing income

167,568

178,609

681,648

685,777

Servicing costs

4,575

12,029

20,069

95,488

Net servicing income

162,993

166,580

661,579

590,289

Other income (loss):

Loss on investment securities

(8,009

)

(82,469

)

(40,038

)

(69,970

)

Gain (loss) on servicing asset

82,520

(172,589

)

(62,674

)

(111,620

)

Gain (loss) on interest rate swap and swaption agreements

199,612

(139,234

)

147,871

(52,946

)

Loss on other derivative instruments

(55,144

)

(143,812

)

(41,017

)

(166,210

)

Gain on mortgage loans held-for-sale

558

—

1,482

—

Other income

850

—

1,199

5,103

Total other income (loss)

220,387

(538,104

)

6,823

(395,643

)

Expenses:

Compensation and benefits

21,800

21,297

89,753

52,865

Other operating expenses

19,085

23,959

76,241

62,313

Total expenses

40,885

45,256

165,994

115,178

Income (loss) before income taxes

307,601

(462,459

)

344,754

(83,393

)

Provision for (benefit from) income taxes

30,872

(29,259

)

46,586

22,978

Net income (loss)

276,729

(433,200

)

298,168

(106,371

)

Dividends on preferred stock

(11,784

)

(12,012

)

(47,136

)

(48,607

)

Gain on repurchase and retirement of preferred stock

—

519

644

2,973

Net income (loss) attributable to common stockholders

$

264,945

$

(444,693

)

$

251,676

$

(152,005

)

Basic earnings (loss) per weighted average common share

$

2.54

$

(4.56

)

$

2.41

$

(1.60

)

Diluted earnings (loss) per weighted average common share

$

2.37

$

(4.56

)

$

2.37

$

(1.60

)

Dividends declared per common share

$

0.45

$

0.45

$

1.80

$

1.95

Comprehensive income (loss):

Net income (loss)

$

276,729

$

(433,200

)

$

298,168

$

(106,371

)

Other comprehensive (loss) income:

Unrealized (loss) gain on available-for-sale securities

(266,565

)

483,579

(144,095

)

102,282

Other comprehensive (loss) income

(266,565

)

483,579

(144,095

)

102,282

Comprehensive income (loss)

10,164

50,379

154,073

(4,089

)

Dividends on preferred stock

(11,784

)

(12,012

)

(47,136

)

(48,607

)

Gain on repurchase and retirement of preferred stock

—

519

644

2,973

Comprehensive (loss) income attributable to common stockholders

$

(1,620

)

$

38,886

$

107,581

$

(49,723

)

TWO HARBORS INVESTMENT CORP.

INTEREST INCOME AND INTEREST EXPENSE

(dollars in thousands, except share data)

Three Months Ended

Year Ended

December 31,

December 31,

2024

2023

2024

2023

(unaudited)

(unaudited)

Interest income:

Available-for-sale securities

$

92,644

$

103,250

$

393,527

$

412,310

Mortgage loans held-for-sale

49

2

78

9

Other

11,081

19,149

56,547

68,045

Total interest income

103,774

122,401

450,152

480,364

Interest expense:

Repurchase agreements

112,510

123,693

468,492

474,292

Revolving credit facilities

21,597

33,258

108,623

121,124

Warehouse facilities

55

—

66

—

Term notes payable

—

6,478

12,426

28,994

Convertible senior notes

4,506

4,651

18,199

18,815

Total interest expense

138,668

168,080

607,806

643,225

Net interest expense

$

(34,894

)

$

(45,679

)

$

(157,654

)

$

(162,861

)

TWO HARBORS INVESTMENT CORP.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(dollars in thousands, except share data)

Certain prior period amounts have been reclassified to conform to the current period presentation

Three Months Ended

December 31,
2024

September 30,
2024

(unaudited)

(unaudited)

Reconciliation of comprehensive (loss) income to Earnings Available for Distribution:

Comprehensive (loss) income attributable to common stockholders

$

(1,620

)

$

19,352

Adjustment for other comprehensive loss (income) attributable to common stockholders:

Unrealized loss (gain) on available-for-sale securities

266,565

(269,621

)

Net income (loss) attributable to common stockholders

$

264,945

$

(250,269

)

Adjustments to exclude reported realized and unrealized (gains) losses:

Realized loss (gain) on securities

7,001

(312

)

Unrealized loss (gain) on securities

725

(795

)

Provision (reversal of provision) for credit losses

283

(276

)

Realized and unrealized (gain) loss on mortgage servicing rights

(82,520

)

133,349

Realized (gain) loss on termination or expiration of interest rate swaps and swaptions

(66,033

)

86,310

Unrealized (gain) loss on interest rate swaps and swaptions

(121,421

)

103,012

Realized and unrealized loss on other derivative instruments

55,241

32,821

Other realized and unrealized gains

(46

)

—

Other adjustments:

MSR amortization⁽¹⁾

(80,476

)

(83,619

)

TBA dollar roll income (losses)⁽²⁾

4,195

(1,156

)

U.S. Treasury futures income⁽³⁾

6,133

5,247

Change in servicing reserves

610

(501

)

Non-cash equity compensation expense

1,610

1,610

Certain operating expenses⁽⁴⁾

39

101

Net provision for (benefit from) income taxes on non-EAD

30,895

(12,336

)

Earnings available for distribution to common stockholders⁽⁵⁾

$

21,181

$

13,186

Weighted average basic common shares

103,656,321

103,635,455

Earnings available for distribution to common stockholders per weighted average basic common share

$

0.20

$

0.13

(1)

MSR amortization refers to the portion of change in fair value of MSR primarily attributed to the realization of expected cash flows (runoff) of the portfolio, which is deemed a non-GAAP measure due to the company’s decision to account for MSR at fair value.

(2)

TBA dollar roll income is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements.

(3)

U.S. Treasury futures income is the economic equivalent to holding and financing a relevant cheapest-to-deliver U.S. Treasury note or bond using short-term repurchase agreements.

(4)

Certain operating expenses predominantly consists of expenses incurred in connection with the company’s ongoing litigation with PRCM Advisers LLC.

(5)

EAD is a non-GAAP measure that we define as comprehensive (loss) income attributable to common stockholders, excluding realized and unrealized gains and losses on the aggregate investment portfolio, gains and losses on repurchases of preferred stock, provision for (reversal of) credit losses, reserve expense for representation and warranty obligations on MSR, non-cash compensation expense related to restricted common stock and certain operating expenses. As defined, EAD includes net interest income, accrual and settlement of interest on derivatives, dollar roll income on TBAs, U.S. Treasury futures income, servicing income, net of estimated amortization on MSR and certain cash related operating expenses. EAD provides supplemental information to assist investors in analyzing the company’s results of operations and helps facilitate comparisons to industry peers. EAD is one of several measures our board of directors considers to determine the amount of dividends to declare on our common stock and should not be considered an indication of our taxable income or as a proxy for the amount of dividends we may declare.