UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-34506 TWO HARBORS INVESTMENT CORP. (Exact Name of Registrant as Specified in Its Charter) Maryland 27-0312904 (State or Other Jurisdiction of Incorporation or Organization) ...

Financial Performance - The company reported a book value of $729 per common share, representing a (22)% quarterly return on book value[7] - The company generated a Comprehensive Loss of $(485) million, representing an annualized return on average common equity of (93)%[7] - Core Earnings were $458 million, or $017 per weighted average basic common share[7] - A first quarter common stock dividend of $017 per share was declared[7] MSR Portfolio Activity - The company settled $213 billion unpaid principal balance (UPB) of MSR through flow-sale arrangements and closed on an additional $11 billion of UPB of MSR through bulk purchases[7, 25] - Term sheets were executed on an additional $72 billion UPB of MSR through bulk purchases, with a further $61 billion UPB of MSR after the quarter ended[7, 8] - The MSR fair value increased by over 30%, benefiting from higher rates and a steeper curve[44] Financing and Capital Structure - The company issued $2875 million principal amount of 5-year convertible senior notes due 2026[7] - $1437 million principal amount of convertible senior notes due 2022 were repurchased and retired[7] - The company completed the redemption of $75 million Series D and $200 million Series E preferred shares[7] - Funding capacity was expanded with the closing of a $300 million MSR asset financing facility, of which $225 million is committed[7] Portfolio Composition and Strategy - The company sold $21 billion of specified pool positions and added $131 million of interest-only securities (IOs)[25] - The net TBA position declined $460 million during the quarter[25] - Economic debt-to-equity was 64x at March 31, 2021, compared to 68x at December 31, 2020[24]

1 T WO HARBORS INVESTMENT CORP. An Agency+MSR Mortgage REIT Fourth Quarter 2020 Investor Presentation Safe Harbor Statement . FORWARD-LOOKING STATEMENTS This presentation includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-34506 TWO HARBORS INVESTMENT CORP. (Exact Name of Registrant as Specified in Its Charter) Maryland 27-0312904 (State or Other Jurisdiction of Incorporation or Organization) (I.R ...

Financial Data and Key Metrics Changes - The book value increased to $7.63, representing a 5.8% quarterly return on book value, driven by outperformance of lower coupon TBAs and improvements in specified pool payouts [10][25] - Comprehensive income was $113.5 million, or $0.41 per common share, with an annualized return on average common equity of 22.1% [25] - Core earnings rose to $0.30 per share from $0.28 in Q3, while interest income decreased from $89.7 million to $72.5 million due to lower average balances and higher agency amortization [26] Business Line Data and Key Metrics Changes - The MSR purchase program saw a year-over-year growth of over 136%, reflecting the strength of the company's platform [17] - The portfolio yield decreased to 2.26% from 2.42%, primarily due to higher agency RMBS prepayments [28] - The economic debt to equity ratio declined to 6.8 times from 7.7 times, indicating a decrease in risk [32] Market Data and Key Metrics Changes - The company noted that RMBS spreads are at very tight levels, warranting caution, while low funding rates and continued Fed involvement are tailwinds for the market [18] - The company experienced a decline in the 2% coupon roll specialness due to the Fed's focus on forward month purchases [39] Company Strategy and Development Direction - The company is transitioning to self-management, which is expected to deliver significant annual cost savings and enhance returns on future capital growth [21][22] - The strategy focuses on maintaining a portfolio with low exposure to mortgage spreads, leveraging the agency plus MSR portfolio construction to provide stable expected returns [52][53] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the forward outlook, highlighting strong capital and liquidity positions, and the attractiveness of the agency plus MSR strategy in the current tight spread environment [59] - The company anticipates that asset yields will decline over time to market rates, with net portfolio spreads converging to levels consistent with return expectations [30] Other Important Information - The company raised the common stock dividend by 21% to $0.17 per share, reflecting confidence in the forward outlook [11] - The company has built a sizeable liquidity position, with $1.4 billion in unrestricted cash and $215 million in unused committed capacity on MSR asset financing facilities [31] Q&A Session Summary Question: Can you talk about the relative sizing of your MSR and agency portfolio today? - Management noted that the relative sizing of the MSR depends on interest rates and pricing, and there is no specific target for the terminal size of MSR [62][64] Question: How do you think about the current sizing of the flow program relative to the expected run-off? - The flow servicing being acquired is largely offsetting the run-off, and the size is market-dependent [65] Question: Can you provide a book value quarter-to-date? - Management indicated that book value was up a little north of 2% so far in the quarter due to spread tightening [70] Question: Can you help us understand Slide 11 in terms of MSR pricing? - The price multiple of new flow being acquired is slightly above a three multiple, with marginal tightening in MSR spreads having a small impact on pricing [72][74] Question: Can you talk about where subservicing costs are right now? - Sub-servicing costs have been stable, with costs for performing loans in the $6 to $7 per loan per month range [82] Question: Can you give some market color around the competition for bulk transactions? - The competition for bulk packages is competitive, and pricing is situational, with a preference for the flow market due to established relationships [87] Question: Is there any timeline for resolution on the Pine River litigation? - Management stated that the situation is active and cannot provide further details, but believes the suit is without merit [95] Question: Do you think that significant compression of primary secondary spreads is already reflected in MSR valuations? - Management confirmed that compression in primary secondary spreads is reflected in current MSR pricing [100]

Fourth Quarter 2020 Earnings Call FEBRUARY 10, 2021 Safe Harbor Statement FORWARD-LOOKING STATEMENTS This presentation includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," "assume," "estimat ...

Commission File Number 001-34506 TWO HARBORS INVESTMENT CORP. (Exact Name of Registrant as Specified in Its Charter) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Maryland 27-0312904 (State or Other Jurisdiction of Incorporation or Organizat ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) The company reported a **$2.04 billion net loss** for the six months ended June 30, 2020, driven by portfolio de-risking and a **$145.8 million restructuring charge**, significantly impacting assets and book value [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets significantly decreased to **$21.5 billion** from **$35.9 billion**, driven by reduced available-for-sale securities, leading to a decline in stockholders' equity from **$5.0 billion to $2.8 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$21,482,322** | **$35,921,622** | | Available-for-sale securities, at fair value | $17,673,289 | $31,406,328 | | Mortgage servicing rights, at fair value | $1,279,195 | $1,909,444 | | Cash and cash equivalents | $1,615,639 | $558,136 | | **Total Liabilities** | **$18,646,386** | **$30,951,156** | | Repurchase agreements | $16,991,248 | $29,147,463 | | **Total Stockholders' Equity** | **$2,835,936** | **$4,970,466** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a **$2.08 billion net loss** for the six months ended June 30, 2020, primarily due to **$1.03 billion loss on investment securities** and **$825.5 million loss on servicing assets**, resulting in a **$2.09 billion comprehensive loss** Key Income Statement Data (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Interest Income | $45,213 | $133,412 | | Total Other Loss | $(42,658) | $(1,963,399) | | Restructuring Charges | $145,069 | $145,788 | | Net Loss | $(173,564) | $(2,043,220) | | Net Loss Attributable to Common Stockholders | $(192,515) | $(2,081,121) | | Diluted Loss Per Share | $(0.70) | $(7.61) | | Comprehensive Income (Loss) Attributable to Common Stockholders | $279 | $(2,086,397) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased from **$5.0 billion** at year-end 2019 to **$2.8 billion** by June 30, 2020, primarily due to a **$2.04 billion net loss** for the six months Change in Stockholders' Equity (in thousands) | Description | Amount | | :--- | :--- | | **Balance, December 31, 2019** | **$4,970,466** | | Net loss (6 months) | $(2,043,220) | | Other comprehensive loss, net of tax (6 months) | $(5,276) | | Preferred dividends declared (6 months) | $(37,901) | | Common dividends declared (6 months) | $(51,936) | | **Balance, June 30, 2020** | **$2,835,936** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by investing activities was **$12.8 billion**, largely offset by **$12.6 billion** used in financing activities, resulting in a **$433.5 million increase** in cash and equivalents Six Months Ended June 30, 2020 Cash Flow Summary (in thousands) | Cash Flow Category | Amount | | :--- | :--- | | Net cash provided by operating activities | $152,373 | | Net cash provided by investing activities | $12,841,638 | | Net cash used in financing activities | $(12,560,554) | | **Net increase in cash, cash equivalents and restricted cash** | **$433,457** | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail significant events including the **Q1 2020 portfolio de-risking** due to COVID-19, adoption of the **CECL standard**, and the **termination of the management agreement** with PRCM Advisers for 'cause', transitioning to self-management - In Q1 2020, due to the COVID-19 pandemic, the company sold substantially all of its non-Agency securities and about one-third of its Agency RMBS to raise liquidity and de-risk the portfolio[28](index=28&type=chunk)[51](index=51&type=chunk) - The company terminated its Management Agreement with PRCM Advisers for "cause," effective August 14, 2020, and will become self-managed. No termination fee is expected to be paid, though a legal dispute is ongoing[30](index=30&type=chunk)[190](index=190&type=chunk)[247](index=247&type=chunk) - A restructuring charge of **$145.1 million** was recognized in Q2 2020 related to the expected termination fee for the management agreement, prior to the 'for cause' termination notice[189](index=189&type=chunk)[228](index=228&type=chunk) - On January 1, 2020, the company adopted the new credit loss standard (ASU 2016-13, Topic 326), which requires estimating lifetime expected credit losses for financial assets[38](index=38&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=55&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the **Q1 2020 strategic shift** to a rates-focused portfolio, resulting in a **$2.1 billion GAAP net loss** and a decline in book value per share, alongside a transition to self-management - The company's capital allocation shifted to **100%** in its rates strategy (Agency RMBS and MSR) as of March 31, 2020, after selling substantially all of its credit strategy assets (non-Agency securities) in Q1 2020[253](index=253&type=chunk)[255](index=255&type=chunk) - Book value per common share decreased significantly from **$14.54** at year-end 2019 to **$6.70** at June 30, 2020, driven by a comprehensive loss of **$2.1 billion**[295](index=295&type=chunk) - The company maintained a strong liquidity position with **$1.6 billion** in unrestricted cash as of June 30, 2020, and expects to deploy this excess capital into target assets through the rest of 2020[296](index=296&type=chunk)[348](index=348&type=chunk) - The company terminated its management agreement with PRCM Advisers for "cause" and will become a self-managed company effective August 14, 2020. No termination fee is expected to be paid[263](index=263&type=chunk)[327](index=327&type=chunk) [Results of Operations](index=65&type=section&id=Results%20of%20Operations) For the six months ended June 30, 2020, results were dominated by a **$1.03 billion loss on investment securities**, an **$825.5 million loss on servicing assets**, and a **$145.8 million restructuring charge** Comparison of Results (Six Months Ended June 30) | (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Net Interest Income | $133.4 | $150.5 | | Gain (Loss) on Investment Securities | $(1,028.1) | $3.1 | | Loss on Servicing Asset | $(825.5) | $(441.4) | | Loss on Interest Rate Swaps, etc. | $(297.5) | $(172.0) | | Restructuring Charges | $145.8 | $0.0 | | Net Loss Attributable to Common Stockholders | $(2,081.1) | $(154.4) | - The decrease in net interest income was due to lower borrowing balances and a lower rate environment, following the sale of a significant portion of the investment portfolio[301](index=301&type=chunk)[302](index=302&type=chunk) - Servicing expenses increased year-over-year due to a higher cost to service loans in forbearance as a result of the COVID-19 pandemic[324](index=324&type=chunk) [Financial Condition](index=72&type=section&id=Financial%20Condition) As of June 30, 2020, the portfolio was concentrated in **Agency RMBS ($17.7 billion)** and **MSR ($1.3 billion)**, with a **6.3:1.0 debt-to-equity ratio** and compliance with all financial covenants Portfolio Composition (June 30, 2020) | Asset Type | Carrying Value (in billions) | % of Portfolio | | :--- | :--- | :--- | | Agency RMBS | $17.7 | 92.8% | | Mortgage Servicing Rights | $1.3 | 6.7% | | Non-Agency Securities | $0.02 | 0.1% | | Agency Derivatives | $0.07 | 0.4% | | **Total** | **$19.0** | **100.0%** | Leverage Ratios (as of June 30, 2020) | Ratio | Value | | :--- | :--- | | Debt-to-Equity Ratio | 6.3:1.0 | | Economic Debt-to-Equity Ratio (incl. TBAs) | 7.4:1.0 | - The company is subject to financial covenants, including a maximum total indebtedness to tangible net worth of **8.0:1.0** (actual **6.5:1.0**) and minimum liquidity of **$200.0 million** (actual **$1.6 billion**)[360](index=360&type=chunk) [Liquidity and Capital Resources](index=76&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained **$1.6 billion in cash** and significant unused borrowing capacity, actively managing liquidity risk from long-maturity assets financed by shorter-term borrowings and potential servicing advances - As of June 30, 2020, the company held **$1.6 billion** in cash and cash equivalents available to support operations[348](index=348&type=chunk) - The company had master repurchase agreements with **46 counterparties**, with outstanding balances with **20 of them**, diversifying its funding sources[286](index=286&type=chunk)[351](index=351&type=chunk) - The company is managing liquidity risk related to potential servicing advances for loans in forbearance under the CARES Act, and is in advanced stages of securing specific funding facilities for this purpose[292](index=292&type=chunk)[395](index=395&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=82&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company actively manages market risks, primarily **interest rate risk**, using derivatives and MSR, with a **25 bps rate rise** estimated to decrease annualized net interest income by **$25.0 million** - The company uses a variety of derivative and non-derivative instruments, including interest rate swaps, TBAs, and MSR, to hedge its exposure to interest rate risk[371](index=371&type=chunk) Interest Rate Sensitivity Analysis (as of June 30, 2020) | Change in Interest Rates | Change in Annualized Net Interest Income (in millions) | Change in Total Net Assets as a % of Common Equity | | :--- | :--- | :--- | | +50 bps | $(49.99) | 0.4% | | +25 bps | $(25.00) | 0.6% | | -25 bps | $24.63 | (1.3)% | | -50 bps | $48.70 | (3.1)% | - The company faces liquidity risk from financing long-maturity assets with shorter-term borrowings and potential margin calls. It also faces liquidity needs from servicing advance obligations on MSR for loans in forbearance due to the CARES Act[393](index=393&type=chunk)[395](index=395&type=chunk) [Item 4. Controls and Procedures](index=87&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were **effective as of June 30, 2020**, with **no material changes** to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[398](index=398&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[399](index=399&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=88&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a legal dispute with its former manager, PRCM Advisers, following the **termination of the management agreement for cause**, with no contingency liability recognized - PRCM Advisers filed a federal complaint against the company alleging misappropriation of trade secrets, breach of contract, and other claims related to the termination of the management agreement[404](index=404&type=chunk) - The company's board believes the complaint is without merit and intends to transition to self-management in August 2020[404](index=404&type=chunk) - No contingency liability has been recorded as of June 30, 2020, because a loss is not deemed probable or reasonably estimable[405](index=405&type=chunk) [Item 1A. Risk Factors](index=88&type=section&id=Item%201A.%20Risk%20Factors) New material risks include challenges in transitioning to a **self-managed company**, potential disruptions from **litigation with PRCM Advisers**, and the financial impact of the **COVID-19 pandemic** on asset values and servicing advances - Risks related to the transition to a self-managed company include the inability to retain senior management, potential disruptions from litigation with PRCM Advisers, and unforeseen expenses[409](index=409&type=chunk) - Litigation with PRCM Advisers could result in significant damages or interfere with the company's ability to hire its dedicated personnel and use certain intellectual property[410](index=410&type=chunk)[411](index=411&type=chunk) - The COVID-19 pandemic poses risks of declining asset values, increased borrower delinquencies, and a material adverse impact on liquidity due to the requirement to make servicing advances on MSR assets for loans in forbearance[415](index=415&type=chunk)[416](index=416&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=90&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a share repurchase program, but **no common stock shares were repurchased** during the three months ended June 30, 2020 - The company did not repurchase any shares of its common stock during the three months ended June 30, 2020[418](index=418&type=chunk) [Item 6. Exhibits](index=91&type=section&id=Item%206.%20Exhibits) This section lists the **exhibits filed** with the Quarterly Report on Form 10-Q, including corporate documents and **CEO/CFO certifications**

Part I [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Q1 2020 unaudited financial statements report a **$1.87 billion** net loss, primarily from investment and servicing asset losses, and a significant asset reduction [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance sheet shows total assets decreased from **$35.9 billion to $22.2 billion**, with corresponding reductions in liabilities and equity - Total assets decreased by approximately **38%** from **$35.9 billion** to **$22.2 billion**, primarily due to a significant reduction in available-for-sale securities. Total liabilities also decreased, mainly from a reduction in repurchase agreements from **$29.1 billion** to **$17.8 billion**[13](index=13&type=chunk) Balance Sheet Summary (in thousands) | Balance Sheet Items | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$22,202,648** | **$35,921,622** | | Available-for-sale securities, at fair value | $17,733,059 | $31,406,328 | | Mortgage servicing rights, at fair value | $1,505,163 | $1,909,444 | | Cash and cash equivalents | $1,206,889 | $558,136 | | **Total Liabilities** | **$19,298,515** | **$30,951,156** | | Repurchase agreements | $17,795,516 | $29,147,463 | | **Total Stockholders' Equity** | **$2,904,133** | **$4,970,466** | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) The statement shows a significant net loss of **$1.87 billion**, primarily from substantial losses on investment securities and servicing assets - The company reported a staggering net loss of **$1.89 billion** attributable to common stockholders, or **($6.91)** per share, for Q1 2020, compared to a loss of **$44.9 million**, or **($0.18)** per share, in Q1 2019. The loss was driven by over **$1.9 billion** in 'Total other loss', including a **$1.08 billion** loss on investment securities and a **$587 million** loss on servicing assets[14](index=14&type=chunk) Statement of Comprehensive (Loss) Income Summary (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Interest Income | $88,199 | $81,958 | | Total Other Loss | $(1,920,741) | $(70,176) | | Loss on investment securities | $(1,081,607) | $(19,292) | | Loss on servicing asset | $(586,665) | $(188,974) | | **Net Loss** | **$(1,869,656)** | **$(25,935)** | | **Net Loss Attributable to Common Stockholders** | **$(1,888,606)** | **$(44,885)** | | **Basic/Diluted Loss Per Share** | **$(6.91)** | **$(0.18)** | | **Comprehensive (Loss) Income** | **$(2,067,726)** | **$330,217** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statement shows **$10.8 billion** cash provided by investing activities, largely offset by **$10.6 billion** used in financing - Investing activities provided **$10.8 billion** in cash, primarily from **$15.6 billion** in proceeds from sales of AFS securities, which was largely offset by **$10.6 billion** cash used in financing activities, mainly from repaying **$46.1 billion** in repurchase agreements[20](index=20&type=chunk)[21](index=21&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $100,206 | $165,814 | | Net cash provided by investing activities | $10,809,889 | $2,654,121 | | Net cash used in financing activities | $(10,639,637) | $(3,138,764) | | **Net increase (decrease) in cash** | **$270,458** | **$(318,829)** | | Cash, cash equivalents and restricted cash at end of period | $1,887,284 | $778,935 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail **COVID-19's impact** (asset sales for liquidity), **CECL adoption**, and the transition to a **self-managed structure** - In response to unprecedented market conditions from the **COVID-19 pandemic**, the company sold substantially all of its **non-Agency securities** and approximately one-third of its **Agency RMBS** on March 25, 2020, to raise liquidity and de-risk the portfolio[27](index=27&type=chunk) - The company adopted the new credit loss accounting standard (**CECL**, Topic 326) on January 1, 2020, which changed the impairment model for financial assets. An initial allowance for credit losses of **$244.9 million** was established upon adoption[34](index=34&type=chunk)[35](index=35&type=chunk)[39](index=39&type=chunk) - On April 13, 2020, the company elected not to renew its **Management Agreement with PRCM Advisers**, which will terminate on September 19, 2020. The company will become **self-managed** and expects to retain its current senior management team[217](index=217&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2020 market volatility, strategic shift to rates strategy, a **$1.9 billion** GAAP net loss, and the transition to self-management [Business Overview and Strategy](index=46&type=section&id=Business%20Overview%20and%20Strategy) The company responded to **COVID-19 market volatility** by selling assets for liquidity, shifting capital **100%** to its rates strategy - Due to the **COVID-19 pandemic** and significant spread widening, the company sold substantially all of its **non-Agency securities** and about one-third of its **Agency RMBS** on March 25, 2020. This was done to raise liquidity, de-risk the portfolio, and eliminate risks from outsized margin calls[221](index=221&type=chunk) - The company's **debt-to-equity ratio** is correlated with its portfolio mix. Historically ranging from **5.0 to 7.0 times**, a higher allocation to Agency RMBS leads to a higher ratio[229](index=229&type=chunk) Capital Allocation by Strategy | Strategy | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Rates strategy | 100% | 78% | | Credit strategy | 0% | 22% | [Market Conditions and Outlook](index=50&type=section&id=Market%20Conditions%20and%20Outlook) Q1 2020 saw **extreme market volatility**, with **Fed rate cuts and QE4**, and the **CARES Act impacting MSRs** - Q1 2020 was **extremely volatile**. The Fed cut rates by **150 bps** to the **zero bound** and committed to **unlimited purchases** of U.S. Treasuries and Agency RMBS (**QE4**)[245](index=245&type=chunk) - The **CARES Act** provides up to **360 days** of **mortgage forbearance** for borrowers with federally backed loans, which could increase delinquencies and require **MSR owners** like the company to advance payments, potentially impacting liquidity[246](index=246&type=chunk) Investment Portfolio Carrying Value (in thousands) | Asset Type | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Agency | $17,706,659 | $27,778,055 | | Total Non-Agency | $26,400 | $3,628,273 | | Mortgage servicing rights | $1,505,163 | $1,909,444 | | **Total** | **$19,311,498** | **$33,384,697** | [Results of Operations](index=54&type=section&id=Results%20of%20Operations) Operations resulted in a **$1.9 billion** GAAP net loss, a decrease in book value per share, and significant losses on investment securities and servicing assets - GAAP net loss attributable to common stockholders was **$1.9 billion**, or **($6.91)** per share, for Q1 2020, a massive increase from a loss of **$44.9 million**, or **($0.18)** per share, in Q1 2019[260](index=260&type=chunk) - Book value per common share decreased to **$6.96** at March 31, 2020, from **$14.54** at December 31, 2019, driven by a comprehensive loss of **$2.1 billion**[262](index=262&type=chunk) - Loss on investment securities for Q1 2020 was **$1.08 billion**, primarily from **$1.04 billion** in realized losses on sales of AFS securities, compared to a loss of only **$19.3 million** in Q1 2019[285](index=285&type=chunk) - Loss on servicing asset increased to **$586.7 million** in Q1 2020 from **$189.0 million** in Q1 2019, driven by decreases in interest rates and higher prepayment speed assumptions[290](index=290&type=chunk) Key Performance Metrics (Annualized) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Average annualized portfolio yield | 3.52% | 4.25% | | Cost of financing | 2.39% | 2.47% | | **Net portfolio yield** | **1.13%** | **1.78%** | [Financial Condition, Liquidity and Capital Resources](index=63&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$1.2 billion** cash, manages repurchase agreements, and obtained financial covenant waivers - As of March 31, 2020, the company held **$1.2 billion** in cash and cash equivalents available to support operations[323](index=323&type=chunk) - The debt-to-equity ratio funding AFS securities, MSR, and Agency Derivatives was **6.5:1.0** as of March 31, 2020[255](index=255&type=chunk)[314](index=314&type=chunk) - The company has repurchase agreements with **47 counterparties**. As of March 31, 2020, total outstanding repurchase agreements were **$17.8 billion**[255](index=255&type=chunk)[326](index=326&type=chunk) - Due to the decline in stockholders' equity, the company obtained **waivers** from certain counterparties for **financial covenants** based on a percentage decline in total stockholders' equity[335](index=335&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risks, primarily **interest rate risk** via derivatives, with sensitivity analysis showing rate change impacts, and manages liquidity - The company uses a variety of **derivative and non-derivative instruments** (TBAs, swaps, swaptions, futures, MSR) to economically hedge **interest rate risk** and **duration mismatch** between its assets and floating-rate borrowings[344](index=344&type=chunk) - **Liquidity risk** is heightened by financing long-maturity assets with shorter-term borrowings. The **CARES Act forbearance programs** may require the company to advance significant payments for its **MSR portfolio**, creating a potential liquidity strain, which management believes it is well-positioned to handle[367](index=367&type=chunk)[369](index=369&type=chunk) Interest Rate Sensitivity Analysis (as of March 31, 2020) | Change in Interest Rates | Change in Annualized Net Interest Income (in thousands) | % Change | Change in Total Net Assets (in thousands) | % Change of Common Equity | | :--- | :--- | :--- | :--- | :--- | | +50 bps | $(39,800) | (13.7)% | $(23,869) | (1.3)% | | +25 bps | $(19,900) | (6.9)% | $(6,782) | (0.4)% | | -25 bps | $19,883 | 6.8% | $(9,963) | (0.5)% | | -50 bps | $39,819 | 13.7% | $(19,778) | (1.0)% | [Controls and Procedures](index=76&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded **disclosure controls and procedures were effective**, with **no material changes** to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2020[372](index=372&type=chunk) - **No material changes** were made to the company's internal control over financial reporting during the first quarter of 2020[373](index=373&type=chunk) Part II [Legal Proceedings](index=77&type=section&id=Item%201.%20Legal%20Proceedings) The company reports **no material legal proceedings** that would adversely affect its financial condition or operations - The company reports **no material legal proceedings**[376](index=376&type=chunk) [Risk Factors](index=77&type=section&id=Item%201A.%20Risk%20Factors) New risks include **management agreement termination** (self-management transition) and **COVID-19 impacts** on asset values, delinquencies, and MSR liquidity - A new risk factor is the **termination of the management agreement** with PRCM Advisers. The transition to a **self-managed company** involves risks such as failing to retain key personnel, the adverse impact of a **~$144 million termination fee** on liquidity, and unforeseen operational disruptions[378](index=378&type=chunk)[379](index=379&type=chunk) - The **COVID-19 pandemic** poses a **material risk**, potentially causing further **declines in asset values**, **increased borrower delinquencies**, and **higher MSR servicing costs**[382](index=382&type=chunk) - The **CARES Act** requires the company to make **servicing advances** for **MSR assets** on loans in forbearance, which could have **material adverse consequences** on liquidity and financial condition despite some mitigating actions by the FHFA[383](index=383&type=chunk) [Share Repurchases and Use of Proceeds](index=78&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **105,300 shares** in Q1 2020 under its program, with **25.3 million shares** remaining for repurchase - As of March 31, 2020, the company had authorization to repurchase an additional **25,325,700 shares** under its existing program[387](index=387&type=chunk) Share Repurchases in Q1 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2020 | — | $— | | Feb 2020 | — | $— | | Mar 2020 | 105,300 | $10.09 | | **Total** | **105,300** | **$10.09** |

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-34506 TWO HARBORS INVESTMENT CORP. (Exact Name of Registrant as Specified in Its Charter) Maryland 27-0312904 (State or Other Jurisdiction of Incorporation or Organization) 575 ...