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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, 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)
 (I.R.S. Employer
Identification No.)
1601 Utica Avenue South, Suite 900 
St. Louis Park,Minnesota55416
(Address of Principal Executive Offices) (Zip Code)
(612) 453-4100
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class:Trading Symbol(s)Name of Exchange on Which Registered:
Common Stock, par value $0.01 per shareTWONew York Stock Exchange
8.125% Series A Cumulative Redeemable Preferred StockTWO PRANew York Stock Exchange
7.625% Series B Cumulative Redeemable Preferred StockTWO PRBNew York Stock Exchange
7.25% Series C Cumulative Redeemable Preferred StockTWO PRCNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of November 8, 2021, there were 343,905,127 shares of outstanding common stock, par value $0.01 per share, issued and outstanding.


Table of Contents

TWO HARBORS INVESTMENT CORP.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
PART II - OTHER INFORMATION

i

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30,
2021
December 31,
2020
ASSETS(unaudited)
Available-for-sale securities, at fair value (amortized cost $6,369,038 and $14,043,175, respectively; allowance for credit losses $15,429 and $22,528, respectively)
$6,664,744 $14,650,922 
Mortgage servicing rights, at fair value2,213,312 1,596,153 
Cash and cash equivalents1,076,216 1,384,764 
Restricted cash783,974 1,261,667 
Accrued interest receivable27,676 47,174 
Due from counterparties336,554 146,433 
Derivative assets, at fair value53,044 95,937 
Reverse repurchase agreements85,000 91,525 
Other assets244,028 241,346 
Total Assets (1)
$11,484,548 $19,515,921 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Repurchase agreements$7,123,701 $15,143,898 
Revolving credit facilities420,761 283,830 
Term notes payable396,479 395,609 
Convertible senior notes424,270 286,183 
Derivative liabilities, at fair value82,895 11,058 
Due to counterparties112,255 135,838 
Dividends payable67,311 65,480 
Accrued interest payable10,523 21,666 
Commitments and contingencies (see Note 15)
  
Other liabilities111,465 83,433 
Total Liabilities (1)
8,749,660 16,426,995 
Stockholders’ Equity:
Preferred stock, par value $0.01 per share; 100,000,000 shares authorized and 29,050,000 and 40,050,000 shares issued and outstanding, respectively ($726,250 and $1,001,250 liquidation preference, respectively)
702,550 977,501 
Common stock, par value $0.01 per share; 700,000,000 shares authorized and 313,900,227 and 273,703,882 shares issued and outstanding, respectively
3,139 2,737 
Additional paid-in capital5,429,155 5,163,794 
Accumulated other comprehensive income299,899 641,601 
Cumulative earnings1,214,277 1,025,756 
Cumulative distributions to stockholders(4,914,132)(4,722,463)
Total Stockholders’ Equity2,734,888 3,088,926 
Total Liabilities and Stockholders’ Equity$11,484,548 $19,515,921 
____________________
(1)The condensed consolidated balance sheets include assets and liabilities of consolidated variable interest entities, or VIEs. At September 30, 2021 and December 31, 2020, assets of the VIEs totaled $435,434 and $496,810, and liabilities of the VIEs totaled $426,647 and $477,270, respectively. See Note 3 - Variable Interest Entities for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.
1

Table of Contents

TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
(in thousands, except share data)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Interest income:
Available-for-sale securities$35,837 $89,200 $134,581 $443,614 
Other203 516 1,011 8,936 
Total interest income36,040 89,716 135,592 452,550 
Interest expense:
Repurchase agreements5,761 18,652 21,212 222,068 
Revolving credit facilities5,605 2,391 17,375 8,748 
Term notes payable3,249 3,321 9,685 11,678 
Convertible senior notes7,267 4,821 20,743 14,366 
Federal Home Loan Bank advances   1,747 
Total interest expense21,882 29,185 69,015 258,607 
Net interest income14,158 60,531 66,577 193,943 
Other income (loss):
Gain (loss) on investment securities
28,642 (9,107)119,991 (1,037,222)
Servicing income122,960 99,114 342,895 342,802 
(Loss) gain on servicing asset
(42,500)(112,763)16,887 (938,219)
(Loss) gain on interest rate swap and swaption agreements
(3,947)1,401 5,102 (296,117)
(Loss) gain on other derivative instruments
(15,019)65,596 (239,718)8,734 
Other income (loss) 84 (5,701)948 
Total other income (loss)90,136 44,325 239,456 (1,919,074)
Expenses:
Management fees 5,759  31,738 
Servicing expenses21,041 26,197 64,668 70,049 
Compensation and benefits9,198 10,099 28,645 26,503 
Other operating expenses7,406 8,877 22,111 21,389 
Restructuring charges (139,788) 6,000 
Total expenses37,645 (88,856)115,424 155,679 
Income (loss) before income taxes
66,649 193,712 190,609 (1,880,810)
Provision for (benefit from) income taxes325 (8,202)2,088 (39,504)
Net income (loss)66,324 201,914 188,521 (1,841,306)
Dividends on preferred stock13,748 18,950 44,711 56,851 
Net income (loss) attributable to common stockholders
$52,576 $182,964 $143,810 $(1,898,157)
Basic earnings (loss) per weighted average common share
$0.17 $0.67 $0.50 $(6.94)
Diluted earnings (loss) per weighted average common share
$0.17 $0.64 $0.49 $(6.94)
Dividends declared per common share$0.17 $0.14 $0.51 $0.33 
Weighted average number of shares of common stock:
Basic
307,773,420 273,705,785 285,192,353 273,567,998 
Diluted
346,730,073 291,876,935 319,966,115 273,567,998 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited), continued
(in thousands, except share data)
Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Comprehensive income (loss):
Net income (loss)$66,324 $201,914 $188,521 $(1,841,306)
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities
(7,350)36,216 (341,702)30,940 
Other comprehensive (loss) income
(7,350)36,216 (341,702)30,940 
Comprehensive income (loss)
58,974 238,130 (153,181)(1,810,366)
Dividends on preferred stock13,748 18,950 44,711 56,851 
Comprehensive income (loss) attributable to common stockholders
$45,226 $219,180 $(197,892)$(1,867,217)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TWO HARBORS INVESTMENT CORP. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands)
Preferred StockCommon Stock Par ValueAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Cumulative EarningsCumulative Distributions to StockholdersTotal Stockholders’ Equity
Balance, December 31, 2019$977,501 $2,729 $5,154,764 $689,400 $2,655,891 $(4,509,819)$4,970,466 
Net loss— — — — (1,869,656)— (1,869,656)
Other comprehensive income before reclassifications, net of tax
— — — 234,926 — — 234,926 
Amounts reclassified from accumulated other comprehensive income, net of tax
— — — (432,996)— — (432,996)
Other comprehensive loss, net of tax
— — — (198,070)— — (198,070)
Issuance of common stock, net of offering costs
—  142 — — — 142 
Repurchase of common stock
— (1)(1,063)— — — (1,064)
Non-cash equity award compensation
— 7 2,308 — — — 2,315 
Balance, March 31, 2020977,501 2,735 5,156,151 491,330 786,235 (4,509,819)2,904,133 
Net loss— — — — (173,564)— (173,564)
Other comprehensive income before reclassifications, net of tax
— — — 231,099 — — 231,099 
Amounts reclassified from accumulated other comprehensive income, net of tax
— — — (38,305)— — (38,305)
Other comprehensive income, net of tax
— — — 192,794 — — 192,794 
Issuance of common stock, net of offering costs
—  95 — — — 95 
Preferred dividends declared
— — — — — (37,901)(37,901)
Common dividends declared
— — — — — (51,936)(51,936)
Non-cash equity award compensation
— 2 2,313 — — — 2,315 
Balance, June 30, 2020977,501 2,737 5,158,559 684,124 612,671 (4,599,656)2,835,936 
Net income— — — — 201,914 — 201,914 
Other comprehensive income before reclassifications, net of tax
— — — 36,216 — — 36,216 
Amounts reclassified from accumulated other comprehensive income, net of tax
— — —  — —  
Other comprehensive income, net of tax
— — — 36,216 — — 36,216 
Issuance of common stock, net of offering costs
—  75 — — — 75 
Preferred dividends declared
— — — — — (18,950)(18,950)
Common dividends declared
— — — — — (38,376)(38,376)
Non-cash equity award compensation
—  2,857 — — — 2,857 
Balance, September 30, 2020$977,501 $2,737 $5,161,491 $720,340 $814,585 $(4,656,982)$3,019,672 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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TWO HARBORS INVESTMENT CORP. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited), continued
(in thousands)
Preferred StockCommon Stock Par ValueAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Cumulative EarningsCumulative Distributions to StockholdersTotal Stockholders’ Equity
Balance, December 31, 2020$977,501 $2,737 $5,163,794 $641,601 $1,025,756 $(4,722,463)$3,088,926 
Net income— — — — 240,157 — 240,157 
Other comprehensive loss before reclassifications, net of tax
— — — (202,888)— — (202,888)
Amounts reclassified from accumulated other comprehensive income, net of tax
— — — (68,565)— — (68,565)
Other comprehensive loss, net of tax
— — — (271,453)— — (271,453)
Redemption of preferred stock(274,951)— — — — — (274,951)
Issuance of common stock, net of offering costs
—  99 — — — 99 
Preferred dividends declared
— — — — — (17,216)(17,216)
Common dividends declared
— — — — — (46,636)(46,636)
Non-cash equity award compensation
—  1,790 — — — 1,790 
Balance, March 31, 2021702,550 2,737 5,165,683 370,148 1,265,913 (4,786,315)2,720,716 
Net loss— — — — (117,960)— (117,960)
Other comprehensive loss before reclassifications, net of tax
— — — (57,799)— — (57,799)
Amounts reclassified from accumulated other comprehensive income, net of tax
— — — (5,100)— — (5,100)
Other comprehensive loss, net of tax
— — — (62,899)— — (62,899)
Issuance of common stock, net of offering costs
—  93 — — — 93 
Preferred dividends declared
— — — — — (13,747)(13,747)
Common dividends declared
— — — — — (46,759)(46,759)
Non-cash equity award compensation
—  4,611 — — — 4,611 
Balance, June 30, 2021702,550 2,737 5,170,387 307,249 1,147,953 (4,846,821)2,484,055 
Net income— — — — 66,324 — 66,324 
Other comprehensive income before reclassifications, net of tax
— — — 11,415 — — 11,415 
Amounts reclassified from accumulated other comprehensive income, net of tax
— — — (18,765)— — (18,765)
Other comprehensive loss, net of tax
— — — (7,350)— — (7,350)
Issuance of common stock, net of offering costs
— 400 256,211 — — — 256,611 
Preferred dividends declared
— — — — — (13,748)(13,748)
Common dividends declared
— — — — — (53,563)(53,563)
Non-cash equity award compensation
— 2 2,557 — — — 2,559 </