(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.

Operating Performance (unaudited)

(dollars in thousands, except per common share data)

Three Months Ended March 31, 2025

Three Months Ended December 31, 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 Income (Loss)

$

64,931

$

0.62

16.8

%

$

(1,620

)

$

(0.03

)

(0.4

)%

GAAP Net (Loss) Income

$

(92,241

)

$

(0.89

)

(23.8

)%

$

264,945

$

2.54

70.6

%

Earnings Available for Distribution⁽¹⁾

$

25,092

$

0.24

6.5

%

$

21,181

$

0.20

5.6

%

Operating Metrics

Dividend per common share

$

0.45

$

0.45

Annualized dividend yield⁽²⁾

13.5

%

15.2

%

Book value per common share at period end

$

14.66

$

14.47

Economic return on book value⁽³⁾

4.4

%

—

%

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

$

40,465

$

39,236

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

7.5

%

7.4

%

(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 $6.5 million for the first quarter of 2025 and $1.6 million for the fourth quarter of 2024 and certain operating expenses of $106 thousand for the first quarter of 2025 and $39 thousand for the fourth 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 March 31, 2025

As of December 31, 2024

(unaudited)

(unaudited)

Agency RMBS

$

8,627,708

74.4

%

$

7,376,965

71.1

%

Mortgage servicing rights⁽¹⁾

2,959,773

25.6

%

2,994,271

28.9

%

Other

3,613

—

%

3,734

—

%

Aggregate Portfolio

11,591,094

10,374,970

Net TBA position⁽²⁾

3,001,064

4,468,904

Total Portfolio

$

14,592,158

$

14,843,874

(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 March 31, 2025

As of December 31, 2024

(unaudited)

(unaudited)

Weighted average cost basis⁽¹⁾

$

101.50

$

101.17

Weighted average experienced three-month CPR

7.0

%

7.5

%

Gross weighted average coupon rate

6.1

%

5.7

%

Weighted average loan age (months)

28

36

(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 March 31, 2025

As of December 31, 2024

(dollars in thousands)

(unaudited)

(unaudited)

Unpaid principal balance

$

196,773,345

$

200,317,008

Gross coupon rate

3.5

%

3.5

%

Current loan size

$

330

$

331

Original FICO⁽²⁾

760

760

Original LTV

72

%

72

%

60+ day delinquencies

0.8

%

0.9

%

Net servicing fee

25.3 basis points

25.3 basis points

Three Months Ended
March 31, 2025

Three Months Ended
December 31, 2024

(unaudited)

(unaudited)

Fair value (losses) gains

$

(36,221

)

$

82,520

Servicing income

$

146,870

$

157,475

Servicing costs

$

3,302

$

3,965

Change in servicing reserves

$

(105

)

$

610

(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 March 31, 2025

As of December 31, 2024

(dollars in thousands)

(unaudited)

(unaudited)

Net long TBA notional⁽¹⁾

$

3,070,552

$

4,497,800

Futures notional

$

(2,930,590

)

$

(3,973,400

)

Interest rate swaps notional

$

14,755,568

$

16,594,467

(1)

Accounted for as derivative instruments in accordance with GAAP.

March 31, 2025

Balance

Weighted
Average
Borrowing Rate

Weighted
Average Months
to Maturity

Number of
Distinct
Counterparties

(dollars in thousands, unaudited)

Repurchase agreements collateralized by securities

$

8,970,830

4.50

%

2.23

18

Repurchase agreements collateralized by MSR

770,000

7.38

%

13.88

3

Total repurchase agreements

9,740,830

4.73

%

3.16

19

Revolving credit facilities collateralized by MSR and related servicing advance obligations

933,171

7.45

%

15.91

3

Warehouse facilities collateralized by mortgage loans

7,971

6.36

%

2.50

1

Unsecured convertible senior notes

260,591

6.25

%

9.53

n/a

Total borrowings

$

10,942,563

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

3

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

Borrowings by Collateral Type

As of March 31, 2025

As of December 31, 2024

(dollars in thousands)

(unaudited)

(unaudited)

Agency RMBS

$

8,970,635

$

7,049,850

Mortgage servicing rights and related servicing advance obligations

1,703,171

1,775,171

Other - secured

8,166

2,239

Other - unsecured⁽¹⁾

260,591

260,229

Total

10,942,563

9,087,489

TBA cost basis

3,001,672

4,493,055

Net payable (receivable) for unsettled RMBS

(643,896

)

269,370

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

$

13,300,339

$

13,849,914

Debt-to-equity ratio at period-end⁽²⁾

5.1 :1.0

4.3 :1.0

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

6.2 :1.0

6.5 :1.0

Cost of Financing by Collateral Type⁽⁴⁾

Three Months Ended
March 31, 2025

Three Months Ended
December 31, 2024

(unaudited)

(unaudited)

Agency RMBS

4.62

%

5.14

%

Mortgage servicing rights and related servicing advance obligations⁽⁵⁾

7.81

%

8.34

%

Other - secured

6.93

%

8.13

%

Other - unsecured⁽¹⁾⁽⁵⁾

6.84

%

6.93

%

Annualized cost of financing

5.27

%

5.79

%

Interest rate swaps⁽⁶⁾

(0.18

)%

(0.34

)%

U.S. Treasury futures⁽⁷⁾

(0.04

)%

(0.17

)%

TBAs⁽⁸⁾

2.89

%

3.67

%

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

4.49

%

4.58

%

(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)

March 31,
2025

December 31,
2024

(unaudited)

ASSETS

Available-for-sale securities, at fair value (amortized cost $8,773,987 and $7,697,027, respectively; allowance for credit losses $2,680 and $2,866, respectively)

$

8,606,870

$

7,371,711

Mortgage servicing rights, at fair value

2,959,773

2,994,271

Mortgage loans held-for-sale

8,406

2,334

Cash and cash equivalents

573,882

504,613

Restricted cash

123,843

313,028

Accrued interest receivable

39,277

33,331

Due from counterparties

920,391

386,464

Derivative assets, at fair value

27,550

10,114

Reverse repurchase agreements

227,818

355,975

Other assets

195,503

232,478

Total Assets

$

13,683,313

$

12,204,319

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Repurchase agreements

$

9,740,830

$

7,805,057

Revolving credit facilities

933,171

1,020,171

Warehouse facilities

7,971

2,032

Convertible senior notes

260,591

260,229

Derivative liabilities, at fair value

3,097

24,897

Due to counterparties

289,457

648,643

Dividends payable

60,402

58,725

Accrued interest payable

75,354

85,994

Other liabilities

165,651

176,062

Total Liabilities

11,536,524

10,081,810

Stockholders’ Equity:

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

601,467

601,467

Common stock, par value $0.01 per share; 175,000,000 shares authorized and 104,025,096 and 103,680,321 shares issued and outstanding, respectively

1,040

1,037

Additional paid-in capital

5,943,211

5,936,609

Accumulated other comprehensive loss

(163,352

)

(320,524

)

Cumulative earnings

1,569,730

1,648,785

Cumulative distributions to stockholders

(5,805,307

)

(5,744,865

)

Total Stockholders’ Equity

2,146,789

2,122,509

Total Liabilities and Stockholders’ Equity

$

13,683,313

$

12,204,319

TWO HARBORS INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands, except share data)

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

Three Months Ended

March 31,

2025

2024

(unaudited)

Net interest income (expense):

Interest income

$

111,382

$

117,783

Interest expense

131,714

160,000

Net interest expense

(20,332

)

(42,217

)

Net servicing income:

Servicing income

156,859

166,333

Servicing costs

3,197

7,119

Net servicing income

153,662

159,214

Other (loss) income:

Loss on investment securities

(32,729

)

(10,975

)

(Loss) gain on servicing asset

(36,221

)

11,012

(Loss) gain on interest rate swap and swaption agreements

(98,788

)

98,510

Gain on other derivative instruments

1,448

47,599

Gain (loss) on mortgage loans held-for-sale

669

(3

)

Other income

761

—

Total other (loss) income

(164,860

)

146,143

Expenses:

Compensation and benefits

26,589

26,529

Other operating expenses

20,505

21,052

Total expenses

47,094

47,581

(Loss) income before income taxes

(78,624

)

215,559

Provision for income taxes

431

11,971

Net (loss) income

(79,055

)

203,588

Dividends on preferred stock

(13,186

)

(11,784

)

Gain on repurchase and retirement of preferred stock

—

644

Net (loss) income attributable to common stockholders

$

(92,241

)

$

192,448

Basic (loss) earnings per weighted average common share

$

(0.89

)

$

1.85

Diluted (loss) earnings per weighted average common share

$

(0.89

)

$

1.73

Comprehensive income:

Net (loss) income

$

(79,055

)

$

203,588

Other comprehensive income (loss):

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

157,172

(103,078

)

Other comprehensive income (loss)

157,172

(103,078

)

Comprehensive income

78,117

100,510

Dividends on preferred stock

(13,186

)

(11,784

)

Gain on repurchase and retirement of preferred stock

—

644

Comprehensive income attributable to common stockholders

$

64,931

$

89,370

TWO HARBORS INVESTMENT CORP.

INTEREST INCOME AND INTEREST EXPENSE

(dollars in thousands, except share data)

Three Months Ended

March 31,

2025

2024

(unaudited)

Interest income:

Available-for-sale securities

$

100,418

$

100,605

Mortgage loans held-for-sale

53

1

Other

10,911

17,177

Total interest income

111,382

117,783

Interest expense:

Repurchase agreements

107,078

118,716

Revolving credit facilities

20,126

30,247

Warehouse facilities

55

—

Term notes payable

—

6,418

Convertible senior notes

4,455

4,619

Total interest expense

131,714

160,000

Net interest expense

$

(20,332

)

$

(42,217

)

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

March 31,
2025

December 31,
2024

(unaudited)

(unaudited)

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

Comprehensive income (loss) attributable to common stockholders

$

64,931

$

(1,620

)

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

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

(157,172

)

266,565

Net (loss) income attributable to common stockholders

$

(92,241

)

$

264,945

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

Realized loss on securities

33,661

7,001

Unrealized (gain) loss on securities

(1,026

)

725

Provision for credit losses

94

283

Realized and unrealized loss (gain) on mortgage servicing rights

36,221

(82,520

)

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

(26,587

)

(66,033

)

Unrealized loss (gain) on interest rate swaps and swaptions

131,350

(121,421

)

Realized and unrealized (gain) loss on other derivative instruments

(1,329

)

55,241

Other realized and unrealized gains

—

(46

)

Other adjustments:

MSR amortization⁽¹⁾

(70,303

)

(80,476

)

TBA dollar roll income (losses)⁽²⁾

8,178

4,195

U.S. Treasury futures income⁽³⁾

1,272

6,133

Change in servicing reserves

(105

)

610

Non-cash equity compensation expense

6,523

1,610

Certain operating expenses⁽⁴⁾

106

39

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

(722

)

30,895

Earnings available for distribution to common stockholders⁽⁵⁾

$

25,092

$

21,181

Weighted average basic common shares

103,976,437

103,656,321

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

$

0.24

$

0.20

(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 income (loss) 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.