two-20240331


	March 31, 2024		December 31, 2023
ASSETS	(unaudited)
Available-for-sale securities, at fair value (amortized cost $8,467,938 and $8,509,383, respectively; allowance for credit losses $3,607 and $3,943, respectively)	$	8,182,544	$	8,327,149

Mortgage servicing rights, at fair value	3,084,879		3,052,016
Cash and cash equivalents	666,244		729,732
Restricted cash	72,184		65,101
Accrued interest receivable	35,487		35,339
Due from counterparties	545,312		323,224
Derivative assets, at fair value	24,397		85,291
Reverse repurchase agreements	351,843		284,091
Other assets	199,035		236,857
Total Assets (1)	$	13,161,925	$	13,138,800
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Repurchase agreements	$	8,361,638	$	8,020,207

Revolving credit facilities	1,357,671		1,329,171
Term notes payable	295,520		295,271
Convertible senior notes	268,953		268,582
Derivative liabilities, at fair value	3,027		21,506
Due to counterparties	330,551		574,735
Dividends payable	58,685		58,731
Accrued interest payable	79,990		141,773
Commitments and contingencies (see Note 16)	—		—
Other liabilities	165,820		225,434
Total Liabilities (1)	10,921,855		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 103,474,944 and 103,206,457 shares issued and outstanding, respectively	1,035		1,032
Additional paid-in capital	5,931,558		5,925,424
Accumulated other comprehensive loss	(279,507)		(176,429)
Cumulative earnings	1,554,205		1,349,973
Cumulative distributions to stockholders	(5,568,688)		(5,509,823)
Total Stockholders’ Equity	2,240,070		2,203,390


Total Liabilities and Stockholders’ Equity	$	13,161,925	$	13,138,800


	Three Months Ended
	March 31,
		2024		2023
Net interest income (expense):




Interest income		$	117,783	$	116,593







Interest expense		160,000		142,490
Net interest (expense) income		(42,217)		(25,897)
Net servicing income:
Servicing income		166,333		153,320
Servicing costs		7,119		28,366
Net servicing income		159,214		124,954
Other income (loss):
(Loss) gain on investment securities		(10,975)		10,798
Gain (loss) on servicing asset		11,012		(28,079)
Gain (loss) on interest rate swap and swaption agreements		98,510		(82,154)
Gain (loss) on other derivative instruments		47,599		(155,771)
Other (loss) income		(3)		—
Total other income (loss)		146,143		(255,206)
Expenses:


Compensation and benefits		26,529		14,083
Other operating expenses		21,052		10,484


Total expenses		47,581		24,567
Income (loss) before income taxes		215,559		(180,716)
Provision for (benefit from) income taxes		11,971		(3,908)


Net income (loss)		203,588		(176,808)


Dividends on preferred stock		(11,784)		(12,365)
Gain on repurchase and retirement of preferred stock		644		—
Net income (loss) attributable to common stockholders		$	192,448	$	(189,173)
Basic earnings (loss) per weighted average common share		$	1.85	$	(2.05)
Diluted earnings (loss) per weighted average common share		$	1.73	$	(2.05)

Weighted average number of shares of common stock:
Basic		103,401,940		92,575,840
Diluted		112,973,317		92,575,840
Comprehensive income (loss):
Net income (loss)		$	203,588	$	(176,808)
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale securities		(103,078)		125,931
Other comprehensive (loss) income		(103,078)		125,931
Comprehensive income (loss)		100,510		(50,877)


Dividends on preferred stock		(11,784)		(12,365)
Gain on repurchase and retirement of preferred stock		644		—
Comprehensive income (loss) attributable to common stockholders		$	89,370	$	(63,242)


	Preferred Stock		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Earnings		Cumulative Distributions to Stockholders		Total Stockholders’ Equity




















Balance, December 31, 2022	$	630,999	$	864	$	5,645,998	$	(278,711)	$	1,453,371	$	(5,268,996)	$	2,183,525


Net loss	—		—		—		—		(176,808)		—		(176,808)
Other comprehensive income before reclassifications	—		—		—		62,709		—		—		62,709
Amounts reclassified from accumulated other comprehensive income	—		—		—		63,222		—		—		63,222
Other comprehensive income	—		—		—		125,931		—		—		125,931





Issuance of common stock, net of offering costs	—		102		177,627		—		—		—		177,729

Preferred dividends declared	—		—		—		—		—		(12,365)		(12,365)
Common dividends declared	—		—		—		—		—		(58,381)		(58,381)

Non-cash equity award compensation	—		1		6,051		—		—		—		6,052
Balance, March 31, 2023	$	630,999	$	967	$	5,829,676	$	(152,780)	$	1,276,563	$	(5,339,742)	$	2,245,683

Balance, December 31, 2023	$	613,213	$	1,032	$	5,925,424	$	(176,429)	$	1,349,973	$	(5,509,823)	$	2,203,390


Net income	—		—		—		—		203,588		—		203,588
Other comprehensive loss before reclassifications	—		—		—		(109,658)		—		—		(109,658)
Amounts reclassified from accumulated other comprehensive income	—		—		—		6,580		—		—		6,580
Other comprehensive loss	—		—		—		(103,078)		—		—		(103,078)


Repurchase and retirement of preferred stock	(11,746)		—		—		—		644		—		(11,102)
Issuance of common stock, net of offering costs	—		—		54		—		—		—		54

Preferred dividends declared	—		—		—		—		—		(11,784)		(11,784)
Common dividends declared	—		—		—		—		—		(47,081)		(47,081)

Non-cash equity award compensation	—		3		6,080		—		—		—		6,083
Balance, March 31, 2024	$	601,467	$	1,035	$	5,931,558	$	(279,507)	$	1,554,205	$	(5,568,688)	$	2,240,070


	Three Months Ended
	March 31,
	2024		2023
Cash Flows From Operating Activities:
Net income (loss)	$	203,588	$	(176,808)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization of premiums and discounts on investment securities, net	3,559		7,978
Amortization of deferred debt issuance costs on term notes payable and convertible senior notes	620		659
Provision for (reversal of) credit losses on investment securities	80		(142)
Realized and unrealized losses (gains) on investment securities	10,895		(10,656)
(Gain) loss on servicing asset	(11,012)		28,079

Realized and unrealized (gain) loss on interest rate swaps and swaptions	(84,216)		85,765
Unrealized (gains) losses on other derivative instruments	(75,520)		67,484


Equity based compensation	6,083		6,052






Net change in assets and liabilities:
Increase in accrued interest receivable	(148)		(4,808)
Decrease (increase) in deferred income taxes, net	9,868		(5,997)
Decrease in accrued interest payable	(61,783)		(19,118)
Change in other operating assets and liabilities, net	(10,684)		21,627

Net cash (used in) provided by operating activities	(8,670)		115
Cash Flows From Investing Activities:
Purchases of available-for-sale securities	(442,831)		(2,553,519)
Proceeds from sales of available-for-sale securities	333,082		1,360,742
Principal payments on available-for-sale securities	136,742		139,442


Purchases of mortgage servicing rights, net of purchase price adjustments	(40,072)		(117,441)
Proceeds from sales of mortgage servicing rights	18,221		1,854
Short sales (purchases) of derivative instruments, net	22,170		(227)
Proceeds from sales and settlement (payments for termination and settlement) of derivative instruments, net	179,981		(224,952)



Payments for reverse repurchase agreements	(1,080,847)		(966,485)
Proceeds from reverse repurchase agreements	1,013,095		1,549,504
Acquisition of RoundPoint Mortgage Servicing LLC, net of cash acquired	(20,976)		—

Decrease in due to counterparties, net	(466,272)		(258,903)


Net cash used in investing activities	$	(347,707)	$	(1,069,985)




	Three Months Ended
	March 31,
	2024		2023





















Cash Flows From Financing Activities:
Proceeds from repurchase agreements	$	12,276,613	$	11,321,136
Principal payments on repurchase agreements	(11,935,182)		(10,839,435)


Proceeds from revolving credit facilities	58,500		174,000
Principal payments on revolving credit facilities	(30,000)		—







Repurchase and retirement of preferred stock	(11,102)		—
Proceeds from issuance of common stock, net of offering costs	54		177,729



Dividends paid on preferred stock	(12,012)		(12,365)
Dividends paid on common stock	(46,899)		(52,139)

Net cash provided by financing activities	299,972		768,926
Net decrease in cash, cash equivalents and restricted cash	(56,405)		(300,944)


Cash, cash equivalents and restricted cash at beginning of period	794,833		1,126,505
Cash, cash equivalents and restricted cash at end of period	$	738,428	$	825,561
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	215,337	$	153,280
Cash paid for taxes, net	$	103	$	42
Noncash Activities:


Dividends declared but not paid at end of period	$	58,685	$	70,746

The Company attempts to mitigate its credit risk exposure on derivative financial instruments by limiting its counterparties to banks and financial institutions that meet established internal credit guidelines. The Company also seeks to spread its credit risk exposure across multiple counterparties in order to reduce its exposure to any single counterparty. Additionally, the Company reduces credit risk on the majority of its derivative instruments by entering into agreements that permit the closeout and netting of transactions with the same counterparty or clearing agency upon the occurrence of certain events. To further mitigate the risk of counterparty default, the Company maintains collateral agreements with certain of its counterparties and clearing agencies, which require both parties to maintain cash deposits in the event the fair values of the derivative financial instruments exceed established thresholds. The Company’s centrally cleared interest rate swaps and exchange-traded futures and options on futures require the Company to post an “initial margin” amount determined by the clearing exchange, which is generally intended to be set at a level sufficient to protect the exchange from the derivative instrument’s maximum estimated single-day price movement. The Company also exchanges “variation margin” based upon daily changes in fair value, as measured by the exchange. The exchange of variation margin is considered a settlement of the derivative instrument, as opposed to pledged collateral. Accordingly, the Company accounts for the receipt or payment of variation margin as a direct reduction to the carrying value of the centrally cleared or exchange-traded derivative asset or liability.

Effective September 30, 2023, one of our wholly owned subsidiaries, Matrix, acquired RoundPoint from Freedom Mortgage Corporation after the completion of customary closing conditions and receiving the required regulatory and GSE approvals. Upon closing, all servicing and origination licenses and operational capabilities remained with RoundPoint, and RoundPoint became a wholly owned subsidiary of Matrix. Management believes this acquisition will add value for stakeholders of Two Harbors through cost savings achieved by bringing the servicing of our MSR portfolio in-house, greater control over our MSR portfolio and the associated cash flows, and the ability to participate more fully in the mortgage finance space as opportunities arise.

Matrix holds the requisite approvals from Fannie Mae and Freddie Mac to own and manage MSR, which represent a contractual right to control the servicing of a mortgage loan, the obligation to service the loan in accordance with applicable laws and requirements and the right to collect a fee for the performance of servicing activities, such as collecting principal and interest from a borrower and distributing those payments to the owner of the loan. We acquire MSR from high-quality originators through flow and bulk purchases. On October 1, 2023, we began directly servicing the majority of the mortgage loans underlying our MSR through our newly acquired subsidiary, RoundPoint. We also contract with appropriately licensed third-party subservicers to handle servicing functions in the name of the subservicer for a portion of the loans underlying our MSR, although we expect our use of third-party subservicers will decline to minimal levels in 2024 as we continue to transfer the servicing of our MSR portfolio to RoundPoint. As the servicer of record on our MSR portfolio, we remain accountable to the GSEs for all servicing matters and, accordingly, provide substantial oversight of each of our subservicers. We believe MSR are a natural fit for our portfolio over the long term. Our MSR business leverages our core competencies in prepayment and interest rate risk analytics and the MSR assets may provide offsetting risks to our Agency RMBS, hedging both interest rate and mortgage spread risk.

We have elected to be treated as a REIT for U.S. federal income tax purposes. To qualify as a REIT we are required to meet certain investment and operating tests and annual distribution requirements. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders, do not participate in prohibited transactions and maintain our intended qualification as a REIT. However, certain activities that we may perform may cause us to earn income which will not be qualifying income for REIT purposes. We have designated certain of our subsidiaries as taxable REIT subsidiaries, or TRSs, as defined in the Code, to engage in such activities. We also operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the 1940 Act. Certain of our subsidiaries have obtained the requisite licenses and approvals to own and manage MSR and to originate and directly service residential mortgage loans.

This Quarterly Report on Form 10-Q contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, and that are subject to the safe harbors created by such sections. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “target,” “believe,” “intend,” “seek,” “plan,” “goals,” “future,” “likely,” “may” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2023, under the caption “Risk Factors.” Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the Securities and Exchange Commission, or SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events, or otherwise.

Our net interest income includes income from our securities portfolio, including the amortization of purchase premiums and accretion of purchase discounts. Net interest income, as well as our servicing income, net of servicing costs, will fluctuate primarily as a result of changes in market interest rates, our financing costs and prepayment speeds on our assets. Interest rates, financing costs and prepayment rates vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty.

A significant portion of our assets and liabilities are reported at fair value and, therefore, our condensed consolidated balance sheets and statements of comprehensive income (loss) are significantly affected by fluctuations in market prices. At March 31, 2024, approximately 85.8% of our total assets, or $11.3 billion, consisted of financial instruments recorded at fair value. See Note 11 - Fair Value to the condensed consolidated financial statements, included in this Quarterly Report on Form 10-Q, for descriptions of valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized. Although we execute various hedging strategies to mitigate our exposure to changes in fair value, we cannot fully eliminate our exposure to volatility caused by fluctuations in market prices.

Any temporary change in the fair value of our AFS securities, excluding certain AFS securities for which we have elected the fair value option, is recorded as a component of accumulated other comprehensive loss and does not impact our reported income (loss) for U.S. GAAP purposes, or GAAP net income (loss). However, changes in the provision for credit losses on AFS securities are recognized immediately in GAAP net income (loss). Our GAAP net income (loss) is also affected by fluctuations in market prices on the remainder of our financial assets and liabilities recorded at fair value, including interest rate swap, cap and swaption agreements and certain other derivative instruments (i.e., Agency to-be-announced securities, or TBAs, options on TBAs, futures, options on futures, and inverse interest-only securities), which are accounted for as derivative trading instruments under U.S. GAAP, fair value option elected AFS securities and MSR.

We have numerous internal controls in place to help ensure the appropriateness of fair value measurements. Significant fair value measures are subject to detailed analytics and management review and approval. Our entire investment portfolio reported at fair value is priced by third-party brokers and/or by independent pricing vendors. We generally receive three or more broker and vendor quotes on pass-through Agency P&I RMBS, and generally receive multiple broker or vendor quotes on all other securities, including interest-only and inverse interest-only Agency RMBS. We also receive multiple vendor quotes for the MSR in our investment portfolio. For Agency RMBS, the third-party pricing vendors and brokers use pricing models that commonly incorporate such factors as coupons, primary and secondary mortgage rates, rate reset periods, issuer, prepayment speeds, credit enhancements and expected life of the security. For MSR, vendors use pricing models that generally incorporate observable inputs such as principal balance, note rate, geographical location, loan-to-value (LTV) ratios, FICO, appraised value and other loan characteristics, along with observed market yields and trading levels. Pricing vendors will customarily incorporate servicing fee, ancillary income, and earnings rate on escrow as observable inputs. Unobservable or model-driven inputs include forecast per loan annual cost to service, forecast cumulative defaults, default curve, forecast loss severity and forecast voluntary prepayment.

We evaluate the prices we receive from both third-party brokers and pricing vendors by comparing those prices to actual purchase and sale transactions, our internally modeled prices calculated based on market observable rates and credit spreads, and to each other both in current and prior periods. We review and may challenge valuations from third-party brokers and pricing vendors to ensure that such quotes and valuations are indicative of fair value as a result of this analysis. We then estimate the fair value of each security based upon the median of the final broker quotes received, and we estimate the fair value of MSR based upon the average of prices received from third-party vendors, subject to internally-established hierarchy and override procedures.

Considerable judgment is used in forming conclusions and estimating inputs to our Level 3 fair value measurements. Level 3 inputs such as interest rate movements, prepayments speeds, credit losses and discount rates are inherently difficult to estimate. Changes to these inputs can have a significant effect on fair value measurements. Accordingly, there is no assurance that our estimates of fair value are indicative of the amounts that would be realized on the ultimate sale or exchange of these assets. At March 31, 2024, 23.5% of our total assets were classified as Level 3 fair value assets.

The preparation of financial statements in accordance with U.S. GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in preparation of the statements. Accounting estimates are considered critical if the estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and if different estimates reasonably could have been used in the reporting period or changes in the accounting estimate are reasonably likely to occur from period to period that would have a material impact on our financial condition, results of operations or cash flows. Our significant accounting policies are described in Note 2 to the consolidated financial statements, included under Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023. Our most critical accounting policies involve our fair valuation of AFS securities, MSR and derivative instruments.

The methods used by us to estimate fair value for AFS securities, MSR and derivative instruments may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe that our valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. We use prices obtained from third-party pricing vendors or broker quotes deemed indicative of market activity and current as of the measurement date, which in periods of market dislocation, may have reduced transparency. For more information on our fair value measurements, see Note 11 to the condensed consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q. Additionally, the key economic assumptions and sensitivity of the fair value of MSR to immediate adverse changes in these assumptions are presented in Note 6 to the condensed consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q.

Stronger than expected economic data and sticky inflation readings pushed interest rates higher in the first quarter of 2024, tempering the market’s expectations for interest rate cuts by the Federal Reserve, or the Fed, this year. The employment report in each month of the quarter came in stronger than expected, averaging gains of 281,000 new jobs per month, robust results even after taking elevated immigration and seasonal distortions into account. Similarly, both consumer and producer price indices surprised higher, with 3-month annualized core CPI, a metric closely watched by the market and the Fed, reaching 4.5%, its highest level since June 2023. At the start of the year, Fed Funds futures implied more than six rate cuts in 2024, though by quarter-end the number had fallen to just under three, converging to the Fed’s Summary of Economic Projections released in December. The Fed reaffirmed their expectations for three rate cuts for the year at their March meeting but raised the median estimate for the Fed Funds target range in 2025 by 25 basis points.

With Fed Chair Powell preaching patience and not being overly reactive to any single data release, the consensus view remained that a soft landing was the most likely outcome this year. Further guidance by the Fed that they are soon to announce a significant cut in the runoff of their Treasury portfolio - it is expected they will slash the $60 billion monthly cap in half - limited tail scenarios of higher rates and dampened volatility. Ultimately, the 10-year Treasury finished the quarter at a yield of 4.20%, 32 basis points above its starting level, with the 2-year rising by 37 basis points to finish at 4.62%, a net 5 basis point flattening of the yield curve. Though still high by historical standards, realized volatility across the yield curve fell from the prior quarter as did implied volatility for swaptions. Our preferred volatility gauge, 2-year options on 10-year rate, declined to about 97 basis points, close to the bottom end of its range since the beginning of 2023.

With volatility on the decline, the overall performance of the RMBS sector was positive in the first quarter, though performance varied widely. Higher coupons outperformed lower coupons and specified pools outperformed TBAs. The nominal spread for the current coupon finished at +119 basis points, essentially unchanged over the quarter. Specified pools outperformed same coupon TBAs owing to investor concerns regarding potential fast prepayment speeds and elevated demand typical of the beginning of year period. Spreads for current coupons were further aided by lower than expected supply, strong fixed-income fund inflows, and tame prepayment rates. Lower coupons, like 30-year 2s and 2.5s, widened by 5 to 10 basis points on concerns of bank portfolio reallocations.

Mortgage rates drifted higher over the quarter, with 30-year rates averaging around 6.75%. Overall prepayment rates for 30-year Fannie Mae RMBS increased to 5.3% CPR in the April report (March speeds) from 4.3% at the beginning of the quarter. This increase is largely related to seasonal factors and the lag in response to the fall in mortgage rates in the fourth quarter of 2023. Prepayments on loans originated in 2023 were slower than expected in the first quarter, alleviating some concern about how responsive these loans would be to lower rates, and providing lift to higher coupon performance. On the other hand, partial prepayments (otherwise known as curtailments) on higher rate purchase loans are the one area where prepayments have surprised on the fast side. As mortgage rates have now been above 6% for over 18 months, evidence is building that the housing market has begun to normalize to this environment. Existing home sales so far in 2024 have tracked in line with last spring, while listings are up 5-10% year-over-year, which suggests the market may pick up into the second quarter.

For the entire quarter, speeds for our MSR holdings paid 3.87% CPR, which was slower than projections. Activity in the MSR market remained brisk, with bid wanted activity totaling $160 billion. Although a sizeable number, this is down from $223 billion in the first quarter of 2023 and $190 billion in the first quarter of 2022. We expect MSR supply to be lower compared to prior years given low origination volume and the large amount of low coupon servicing that has already traded hands. This lower supply combined with a growing investor base should keep MSR values well supported, as evidenced by the strong traded levels of servicing so far this year.

Given the levered returns available in the market, we remain optimistic about the return potential of our investments. While the market remains subject to periods of high realized rate volatility, which can negatively impact returns, nominal spreads for current coupon Agency RMBS continue to be wide on an historical basis and provide attractive levered returns when paired with MSR or simply hedged with interest rate products like futures or swaps. Assuming unchanged mortgage rates, we expect prepayment rates to rise modestly in the second quarter, reflecting turnover seasonality. Even so, less than 1% of the mortgage loans that back our MSR are likely to refinance at current rates and over 80% of balances are at least 250 basis points below current mortgage rates. Overall, we expect our low duration and low convexity MSR portfolio to continue to generate attractive cashflows with low spread volatility.

Our portfolio is subject to market risks, primarily interest rate risk and prepayment risk. We seek to offset a portion of our Agency pool market value exposure through our MSR and interest-only Agency RMBS portfolios. During periods of decreasing interest rates with rising prepayment speeds, the market value of our Agency pools generally increases and the market value of our interest-only securities and MSR generally decreases. The inverse relationship occurs when interest rates rise and prepayments fall. Average prepayment speeds for our overall portfolio decreased from the prior quarter due to mortgage rates and seasonal factors. In addition to changes in interest rates, changes in home price performance, key employment metrics and government programs, among other macroeconomic factors, can affect prepayment speeds. We believe our active portfolio management approach, including our asset selection process, positions us to respond to a variety of market scenarios. Although we are unable to predict future interest rate movements, our strategy of pairing MSR with Agency RMBS, with a focus on managing various associated risks, including interest rate, prepayment, credit, mortgage spread and financing risk, is intended to generate stable performance, relative to RMBS portfolios without MSR, with a low level of sensitivity to changes in the yield curve, prepayments and interest rate cycles.

Our Agency RMBS are primarily collateralized by pools of fixed-rate mortgage loans. Our Agency portfolio also includes securities with implicit prepayment protection, including lower loan balances (securities collateralized by loans of less than $300,000 in initial principal balance), higher LTVs (securities collateralized by loans with LTVs greater than or equal to 80%), certain geographic concentrations, loans secured by investor-owned properties and lower FICO scores. Our overall allocation of Agency RMBS and holdings of pools with specific characteristics are viewed in the context of our aggregate portfolio strategy, including MSR and related derivative hedging instruments. Additionally, the selection of securities with certain attributes is driven by the perceived relative value of the securities, which factors in the opportunities in the marketplace, the cost of financing and the cost of hedging interest rate, prepayment, credit and other portfolio risks. Accordingly, our Agency RMBS capital allocation reflects management’s flexible approach to investing in the marketplace.


	March 31, 2024
(dollars in thousands)	Principal/ Current Face		Carrying Value		Weighted Average CPR (1)		% Prepayment Protected		Gross Weighted Average Coupon Rate		Amortized Cost		Allowance for Credit Losses		Weighted Average Loan Age (months)
Agency RMBS AFS:
30-Year Fixed:
≤ 2.5%	$	414,571	$	344,394	—	%	—	%	3.3	%	$	354,355	$	—	33
3.0%	233,996		202,852		4.7	%	85.4	%	3.7	%	207,592		—		29
3.5%	65,663		58,990		5.5	%	71.8	%	4.3	%	57,698		—		26
4.0%	494,994		463,123		3.8	%	100.0	%	4.6	%	499,676		—		52
4.5%	2,288,051		2,201,698		6.4	%	100.0	%	5.1	%	2,339,802		—		43
5.0%	1,889,257		1,859,602		6.6	%	100.0	%	5.8	%	1,925,202		—		24
5.5%	1,217,622		1,218,396		6.3	%	99.8	%	6.4	%	1,228,376		—		21
6.0%	1,147,679		1,165,531		8.5	%	95.9	%	6.9	%	1,173,316		—		17
≥ 6.5%	7,915		8,243		—	%	97.8	%	7.8	%	8,498		—		251
	7,759,748		7,522,829		6.4	%	94.1	%	5.6	%	7,794,515		—		31
Other P&I	620,367		607,488		4.8	%	—	%	5.3	%	612,859		—		11
Interest-only	787,501		48,274		6.6	%	—	%	4.3	%	55,875		(3,217)		101
Agency Derivatives	156,527		9,841		9.3	%	—	%	6.6	%	16,562		—		228
Total Agency RMBS	$	9,324,143	$	8,188,432			86.5	%			$	8,479,811	$	(3,217)


	December 31, 2023
(dollars in thousands)	Principal/ Current Face		Carrying Value		Weighted Average CPR (1)		% Prepayment Protected		Gross Weighted Average Coupon Rate		Amortized Cost		Allowance for Credit Losses		Weighted Average Loan Age (months)
Agency RMBS AFS:
30-Year Fixed:
≤ 2.5%	$	420,720	$	359,801	3.6	%	—	%	3.3	%	$	359,188	$	—	—
3.0%	237,874		211,852		2.6	%	85.4	%	3.7	%	210,850		—		26
3.5%	125,647		115,675		2.0	%	84.9	%	4.3	%	113,092		—		22
4.0%	503,451		479,715		5.2	%	100.0	%	4.6	%	508,294		—		49
4.5%	2,331,021		2,281,535		5.2	%	100.0	%	5.1	%	2,384,460		—		40
5.0%	2,084,422		2,078,510		3.6	%	100.0	%	5.8	%	2,125,950		—		21
5.5%	1,358,288		1,370,920		5.4	%	99.8	%	6.4	%	1,371,534		—		18
6.0%	779,560		795,963		6.1	%	99.8	%	6.9	%	799,184		—		17
≥ 6.5%	8,448		8,853		7.4	%	97.8	%	7.8	%	9,084		—		249
	7,849,431		7,702,824		4.7	%	94.7	%	5.5	%	7,881,636		—		28
Other P&I	572,302		569,077		0.8	%	—	%	5.3	%	564,336		—		9
Interest-only	840,723		51,098		5.3	%	—	%	4.3	%	58,567		(3,619)		100
Agency Derivatives	163,735		12,246		8.0	%	—	%	6.7	%	17,814		—		225
Total Agency RMBS	$	9,426,191	$	8,335,245			87.5	%			$	8,522,353	$	(3,619)


	Three Months Ended
(in thousands)	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
UPB at beginning of period	$	215,647,172	$	218,662,270	$	222,622,177	$	212,444,503	$	204,876,693
Purchases of mortgage servicing rights	3,116,814		829,133		472,154		14,773,601		11,381,496
Sales of mortgage servicing rights	(1,430,294)		(61,612)		—		—		(142,598)
Scheduled payments	(1,645,501)		(1,639,884)		(1,639,871)		(1,594,693)		(1,527,309)
Prepaid	(2,110,763)		(2,127,341)		(2,786,904)		(2,993,493)		(2,119,541)
Other changes	19,452		(15,394)		(5,286)		(7,741)		(24,238)
UPB at end of period	$	213,596,880	$	215,647,172	$	218,662,270	$	222,622,177	$	212,444,503

As of March 31, 2024, we held $666.2 million in cash and cash equivalents, approximately $1.0 million of unpledged Agency RMBS and $3.6 million of unpledged non-Agency securities. As a result, we had an overall estimated unused borrowing capacity on our unpledged securities of approximately $3.0 million. As of March 31, 2024, we held approximately $42.5 million of unpledged MSR and $9.5 million of unpledged servicing advances. Overall, on March 31, 2024, we had $135.4 million unused committed and $466.3 million unused uncommitted borrowing capacity on MSR financing facilities, and $140.7 million in unused committed borrowing capacity on servicing advance financing facilities. Generally, unused borrowing capacity may be the result of our election not to utilize certain financing, as well as delays in the timing in which funding is provided, insufficient collateral or the inability to meet lenders’ eligibility requirements for specific types of asset classes.

We also monitor exposure to our MSR counterparties. We may be required to make representations and warranties to investors in the loans underlying the MSR we own; however, some of our MSR were purchased on a bifurcated basis, meaning the representation and warranty obligations remain with the seller. If the representations and warranties we make prove to be inaccurate, we may be obligated to repurchase certain mortgage loans, which may impact the profitability of our portfolio. Although we obtain similar representations and warranties from the counterparty from which we acquired the relevant asset, if those representations and warranties do not directly mirror those we make to the investor, or if we are unable to enforce the representations and warranties against the counterparty for a variety of reasons, including the financial condition or insolvency of the counterparty, we may not be able to seek indemnification from our counterparties for any losses attributable to the breach.

With our accounting treatment for AFS securities, unrealized fluctuations in the market values of AFS securities, excluding certain AFS securities for which we have elected the fair value option, do not impact our GAAP net income (loss) or taxable income but are recognized on our condensed consolidated balance sheets as a change in stockholders’ equity under “accumulated other comprehensive loss.” For the three months ended March 31, 2024 and 2023, net unrealized losses on AFS securities recognized as other comprehensive loss were $103.1 million and net unrealized gains on AFS securities recognized as other comprehensive income were $125.9 million, respectively. This, combined with GAAP net income attributable to common stockholders of $192.4 million and GAAP net loss attributable to common stockholders of $189.2 million for the three months ended March 31, 2024 and 2023, respectively, resulted in comprehensive income attributable to common stockholders of $89.4 million and comprehensive loss attributable to common stockholders of $63.2 million for the three months ended March 31, 2024 and 2023, respectively.


(in thousands, except share data)	Three Months Ended
Income Statement Data:	March 31,
		2024		2023
	(unaudited)
Net interest income (expense):





Interest income		$	117,783	$	116,593







Interest expense		160,000		142,490
Net interest expense		(42,217)		(25,897)
Net servicing income:
Servicing income		166,333		153,320
Servicing costs		7,119		28,366
Net servicing income		159,214		124,954
Other income (loss):
(Loss) gain on investment securities		(10,975)		10,798
Gain (loss) on servicing asset		11,012		(28,079)
Gain (loss) on interest rate swap and swaption agreements		98,510		(82,154)
Gain (loss) on other derivative instruments		47,599		(155,771)
Other (loss) income		(3)		—
Total other income (loss)		146,143		(255,206)
Expenses:


Compensation and benefits		26,529		14,083
Other operating expenses		21,052		10,484


Total expenses		47,581		24,567
Income (loss) before income taxes		215,559		(180,716)
Provision for (benefit from) income taxes		11,971		(3,908)


Net income (loss)		203,588		(176,808)


Dividends on preferred stock		(11,784)		(12,365)
Gain on repurchase and retirement of preferred stock		644		—
Net income (loss) attributable to common stockholders		$	192,448	$	(189,173)
Basic earnings (loss) per weighted average common share		$	1.85	$	(2.05)
Diluted earnings (loss) per weighted average common share		$	1.73	$	(2.05)
Dividends declared per common share		$	0.45	$	0.60
Weighted average number of shares of common stock:
Basic		103,401,940		92,575,840
Diluted		112,973,317		92,575,840
Comprehensive income (loss):
Net income (loss)		$	203,588	$	(176,808)
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale securities		(103,078)		125,931
Other comprehensive (loss) income		(103,078)		125,931
Comprehensive income (loss)		100,510		(50,877)


Dividends on preferred stock		(11,784)		(12,365)
Gain on repurchase and retirement of preferred stock		644		—
Comprehensive income (loss) attributable to common stockholders		$	89,370	$	(63,242)


	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
(dollars in thousands)		Average Balance (1)		Interest Income/Expense		Net Yield/Cost of Funds		Average Balance (1)		Interest Income/Expense		Net Yield/Cost of Funds
Interest-earning assets:
Available-for-sale securities		$	8,569,566	$	100,605	4.7	%	$	8,649,865	$	97,038	4.5	%
Reverse repurchase agreements		345,997		4,659		5.4	%	816,780		8,562		4.2	%
Other				12,519						10,993

Total interest income/net asset yield		$	8,915,563	$	117,783	5.3	%	$	9,466,645	$	116,593	4.9	%
Interest-bearing liabilities:
Borrowings collateralized by:
Available-for-sale securities		$	7,986,939	$	112,353	5.6	%	$	8,181,110	$	92,023	4.5	%
Agency Derivatives (2)		8,393		130		6.2	%	12,463		159		5.1	%
Mortgage servicing rights and advances (3)		1,889,112		42,892		9.1	%	1,878,322		38,895		8.3	%
U.S. Treasuries (4)		—		—		—	%	571,768		6,577		4.6	%

Unsecured borrowings:
Convertible senior notes		268,831		4,619		6.9	%	282,729		4,836		6.8	%
Other				6						—
Total interest expense/cost of funds		$	10,153,275	$	160,000	6.3	%	$	10,926,392	142,490		5.2	%
Net interest expense/spread				$	(42,217)	(1.0)	%			$	(25,897)	(0.3)	%

The increase in cost of funds associated with the financing of MSR assets and related servicing advance obligations for the three months ended March 31, 2024, as compared to the same period in 2023, was due to rising interest rates and an increase in the use of revolving credit facilities and repurchase agreement financing, which on average carry higher floating rate spreads than term notes. Additionally, during the three months ended September 30, 2023, we repurchased $104.2 million principal amount of our outstanding MSR term notes in open market transactions. These repurchased MSR term note bonds were then financed via existing master repurchase agreements. We have one revolving credit facility in place to finance our servicing advance obligations, which are included in other assets on our condensed consolidated balance sheets.

The increase in total servicing income for the three months ended March 31, 2024, as compared to the same period in 2023, was due to the acquisition of RoundPoint, as well as higher servicing fee income on a larger MSR portfolio and higher float income as a result of the higher interest rate environment. The decrease in servicing costs during the three months ended March 31, 2024, as compared to the same period in 2023, was the result of lower third-party subservicing fees due to the acquisition of RoundPoint.

Net interest spread recognized for the accrual and/or settlement of the net interest expense associated with our interest rate swaps results from receiving either a floating interest rate (OIS or SOFR) or a fixed interest rate and paying either a fixed interest rate or a floating interest rate (OIS or SOFR) on positions held to economically hedge/mitigate portfolio interest rate exposure (or duration) risk. We may elect to terminate certain swaps and swaptions to align with our investment portfolio, agreements may mature or options may expire resulting in full settlement of our net interest spread asset/liability and the recognition of realized gains and losses, including early termination penalties. The change in fair value of interest rate swaps and swaptions during the three months ended March 31, 2024 and 2023 was a result of changes to floating interest rates (OIS or SOFR), the swap curve and corresponding counterparty borrowing rates. Since swaps and swaptions are used for purposes of hedging our interest rate exposure, their unrealized valuation gains and losses (excluding the reversal of unrealized gains and losses to realized gains and losses upon termination, maturation or option expiration) are generally offset by unrealized losses and gains in our Agency RMBS AFS portfolio, which are recorded either directly to stockholders’ equity through other comprehensive (loss) income or to (loss) gain on investment securities, in the case of certain AFS securities for which we have elected the fair value option.


	Three Months Ended
	March 31,
(dollars in thousands)		2024			2023



Compensation and benefits:
Non-cash equity compensation expenses		$	6,083		$	6,052
All other compensation and benefits		20,446			8,031
Total compensation and benefits		$	26,529		$	14,083
Other operating expenses:
Certain operating expenses (1)		$	1,198		$	5,418
All other operating expenses		19,854			5,066
Total other operating expenses		$	21,052		$	10,484
Annualized operating expense ratio		8.5		%	4.3		%
Annualized operating expense ratio, excluding non-cash equity compensation and certain operating expenses (1)		7.2		%	2.3		%

During the three months ended March 31, 2024, we recognized a provision for income taxes of $12.0 million, which was primarily due to net income from MSR servicing activity and net gains recognized on MSR, offset by operating expenses incurred in our TRSs. During the three months ended March 31, 2023, we recognized a benefit from income taxes of $3.9 million, which was primarily due to net losses recognized on MSR and operating expenses incurred, offset by net income from MSR servicing activity in our TRSs.

The majority of our AFS investment securities portfolio is comprised of fixed rate Agency mortgage-backed securities backed by single-family and multi-family mortgage loans. We also hold $4.0 million in tranches of mortgage-backed and asset-backed P&I and interest-only non-Agency securities. All of our P&I Agency RMBS AFS are Fannie Mae or Freddie Mac mortgage pass-through certificates or collateralized mortgage obligations, or Ginnie Mae mortgage pass-through certificates, which are backed by the guarantee of the U.S. government. The majority of our Agency RMBS portfolio is comprised of whole pool certificates.


	March 31, 2024
(dollars in thousands, except purchase price)	Principal/ Current Face		Net (Discount) Premium		Amortized Cost		Allowance for Credit Losses		Unrealized Gain		Unrealized Loss		Carrying Value		Weighted Average Coupon Rate		Weighted Average Purchase Price



P&I securities	$	8,380,115	$	27,259	$	8,407,374	$	—	$	6,079	$	(283,136)	$	8,130,317	4.82	%	$	100.70



Interest-only securities	787,501		55,875		55,875		(3,217)		620		(5,004)		48,274		2.11	%	$	17.03
Total	$	9,167,616	$	83,134	$	8,463,249	$	(3,217)	$	6,699	$	(288,140)	$	8,178,591


	March 31, 2024
(dollars in thousands)	Number of Loans	Unpaid Principal Balance		Weighted Average Gross Coupon Rate		Weighted Average Current Loan Size		Weighted Average Loan Age (months)	Weighted Average Original FICO	Weighted Average Original LTV		60+ Day Delinquencies		3-Month CPR		Net Servicing Fee (bps)
30-Year Fixed:
≤ 3.25%	299,570	$	94,020,759	2.8	%	$	371	38	768	71.0	%	0.4	%	2.9	%	25.1
> 3.25 - 3.75%	145,100	37,407,578		3.4	%	327		51	753	74.1	%	0.8	%	4.0	%	25.2
> 3.75 - 4.25%	104,829	21,665,686		3.9	%	272		73	752	75.7	%	1.0	%	4.7	%	25.5
> 4.25 - 4.75%	58,640	10,710,595		4.4	%	261		72	739	77.3	%	1.9	%	5.2	%	25.3
> 4.75 - 5.25%	40,852	9,577,376		4.9	%	355		41	746	78.8	%	1.5	%	4.5	%	25.2
> 5.25%	64,614	18,252,578		6.0	%	384		21	746	80.3	%	1.3	%	5.4	%	26.5
	713,605	191,634,572		3.6	%	345		45	758	73.7	%	0.7	%	3.7	%	25.3
15-Year Fixed:
≤ 2.25%	22,588	5,765,007		2.0	%	301		35	777	59.1	%	0.1	%	2.8	%	25.0
> 2.25 - 2.75%	38,118	7,796,755		2.4	%	253		39	772	58.8	%	0.2	%	4.1	%	25.0
> 2.75 - 3.25%	33,658	4,398,261		2.9	%	186		64	765	61.4	%	0.2	%	5.4	%	25.0
> 3.25 - 3.75%	19,008	1,815,588		3.4	%	146		77	756	64.0	%	0.4	%	7.6	%	25.3
> 3.75 - 4.25%	8,872	725,040		3.9	%	137		73	742	65.3	%	0.9	%	8.4	%	25.4
> 4.25%	6,579	795,133		5.0	%	225		34	742	65.2	%	0.8	%	9.3	%	28.0
	128,823	21,295,784		2.6	%	238		47	769	60.3	%	0.2	%	4.7	%	25.2
Total ARMs	2,441	666,524		4.6	%	364		56	760	71.0	%	1.0	%	12.9	%	25.4
Total	844,869	$	213,596,880	3.5	%	$	335	45	759	72.4	%	0.7	%	3.9	%	25.3

Our borrowings consist primarily of repurchase agreements, revolving credit facilities, term notes payable and convertible senior notes. Repurchase agreements, revolving credit facilities and term notes payable are collateralized by our pledge of AFS securities, derivative instruments, MSR, servicing advances and certain cash balances. Substantially all of our Agency RMBS are currently pledged as collateral for repurchase agreements. Additionally, a substantial portion of our MSR is currently pledged as collateral for repurchase agreements, revolving credit facilities and term notes payable, and a portion of our servicing advances have been pledged as collateral for revolving credit facilities. In connection with our securitization of MSR and issuance of term notes payable, a variable funding note, or VFN, was issued to one of our subsidiaries. We have one repurchase facility that is secured by the VFN, which is collateralized by our MSR. Finally, our convertible senior notes due 2026 are unsecured and pay interest semiannually at a rate of 6.25% per annum.

As of March 31, 2024, the debt-to-equity ratio funding our AFS securities, MSR, servicing advances and Agency Derivatives, which includes unsecured borrowings under convertible senior notes, was 4.6:1.0. Our Agency RMBS, given their liquidity and high credit quality, are eligible for higher levels of leverage, while MSR, with less liquidity and/or more exposure to prepayment risk, utilize lower levels of leverage. Generally, our debt-to-equity ratio is directly correlated to the composition of our portfolio; typically, the higher the percentage of Agency RMBS we hold, the higher our debt-to-equity ratio will be. However, in addition to portfolio mix, our debt-to-equity ratio is a function of many other factors, including the liquidity of our portfolio, the availability and price of our financing, the diversification of our counterparties and their available capacity to finance our assets, and anticipated regulatory developments. We may alter the percentage allocation of our portfolio among our target assets depending on the relative value of the assets that are available to purchase from time to time, including at times when we are deploying proceeds from offerings we conduct. We believe the current degree of leverage within our portfolio helps ensure that we have access to unused borrowing capacity, thus supporting our liquidity and the strength of our balance sheet.


(dollars in thousands)
For the Three Months Ended	Quarterly Average		End of Period Balance		Maximum Balance of Any Month-End		End of Period Total Borrowings to Equity Ratio	End of Period Net Long (Short) TBA Cost Basis		End of Period Net Payable (Receivable) for Unsettled RMBS		End of Period Economic Debt-to-Equity Ratio (1)
March 31, 2024	$	10,153,275	$	10,283,782	$	10,352,896	4.6:1.0	$	3,421,932	$	(213,264)	6.0:1.0
December 31, 2023	$	10,449,060	$	9,913,231	$	10,984,022	4.5:1.0	$	3,170,548	$	196,644	6.0:1.0
September 30, 2023	$	11,058,648	$	11,087,145	$	11,138,859	5.2:1.0	$	2,147,540	$	—	6.3:1.0
June 30, 2023	$	10,820,230	$	11,189,689	$	11,189,689	5.0:1.0	$	2,905,852	$	54,739	6.4:1.0
March 31, 2023	$	10,354,624	$	11,058,709	$	11,162,257	4.8:1.0	$	3,644,540	$	—	6.5:1.0


(in millions, except per share amounts)	Book Value		Common Shares Outstanding	Common Book Value Per Share
Common stockholders’ equity at December 31, 2023	$	1,569.5	103.2	$	15.21




Net income	203.6
Other comprehensive loss	(103.0)
Comprehensive income	100.6
Dividends on preferred stock	(11.8)
Gain on repurchase and retirement of preferred stock	0.6
Comprehensive income attributable to common stockholders	89.4
Dividends on common stock	(47.1)
Other	6.1		0.3
Balance before capital transactions	1,617.9		103.5
Repurchase and retirement of preferred stock	0.4


Common stockholders’ equity at March 31, 2024	$	1,618.3	103.5	$	15.64
Total preferred stock liquidation preference	621.8
Total stockholders’ equity at March 31, 2024	$	2,240.1

Our principal sources of cash consist of borrowings under repurchase agreements, revolving credit facilities, term notes payable, payments of principal and interest we receive on our target assets, cash generated from our operating results, and proceeds from capital market transactions. We typically use cash to repay principal and interest on our borrowings, to purchase our target assets, to make dividend payments on our capital stock, and to fund our operations. To the extent that we raise additional equity capital through capital market transactions, we anticipate using cash proceeds from such transactions to purchase our target assets and for other general corporate purposes. Such general corporate purposes may include the refinancing or repayment of debt, the repurchase or redemption of common and preferred equity securities, and other capital expenditures.

As of March 31, 2024, we held $666.2 million in cash and cash equivalents available to support our operations; $11.3 billion of AFS securities, MSR, and derivative assets held at fair value; and $10.3 billion of outstanding debt in the form of repurchase agreements, borrowings under revolving credit facilities, term notes payable and convertible senior notes. During the three months ended March 31, 2024, the debt-to-equity ratio funding our Agency and non-Agency investment securities, MSR and servicing advances, which includes unsecured borrowings under convertible senior notes, increased from 4.5:1.0 to 4.6:1.0, which was driven by a slight increase in financing on Agency RMBS. During the three months ended March 31, 2024, our economic debt-to-equity ratio funding our Agency and non-Agency investment securities, MSR and servicing advances, which includes unsecured borrowings under convertible senior notes, implied debt on net TBA cost basis and net payable (receivable) for unsettled RMBS, remained consistent at 6.0:1.0.

As of March 31, 2024, we held approximately $1.0 million of unpledged Agency RMBS and $3.6 million of unpledged non-Agency securities. As a result, we had an overall estimated unused borrowing capacity on unpledged securities of approximately $3.0 million. As of March 31, 2024, we held approximately $42.5 million of unpledged MSR and $9.5 million of unpledged servicing advances. Overall, on March 31, 2024, we had $135.4 million unused committed and $466.3 million unused uncommitted borrowing capacity on MSR financing facilities, and $140.7 million in unused committed borrowing capacity on servicing advance financing facilities. Generally, unused borrowing capacity may be the result of our election not to utilize certain financing, as well as delays in the timing in which funding is provided, insufficient collateral or the inability to meet lenders’ eligibility requirements for specific types of asset classes. On a daily basis, we monitor and forecast our available, or excess, liquidity. Additionally, we frequently perform shock analyses against various market events to monitor the adequacy of our excess liquidity.

As of March 31, 2024, we had master repurchase agreements in place with 37 counterparties (lenders), the majority of which are U.S. domiciled financial institutions, and we continue to evaluate additional counterparties to manage and optimize counterparty risk. Under our repurchase agreements, we are required to pledge additional assets as collateral to our lenders when the estimated fair value of the existing pledged collateral under such agreements declines and such lenders, through a margin call, demand additional collateral. Lenders generally make margin calls because of a perceived decline in the value of our assets collateralizing the repurchase agreements. This may occur following the monthly principal reduction of assets due to scheduled amortization and prepayments on the underlying mortgages, or may be caused by changes in market interest rates, a perceived decline in the market value of the investments and other market factors. To cover a margin call, we may pledge additional assets or cash. At maturity, any cash on deposit as collateral is generally applied against the repurchase agreement balance, thereby reducing the amount borrowed. Should the value of our assets suddenly decrease, significant margin calls on our repurchase agreements could result, causing an adverse change in our liquidity position.

In addition to our master repurchase agreements that fund our Agency and non-Agency securities as well as any repurchased MSR term note bonds (originally issued by our subsidiaries), we have one repurchase facility and three revolving credit facilities that provide short- and long-term financing for our MSR portfolio. We also have one revolving credit facility that provides long-term financing for our servicing advances. A summary of our MSR and servicing advance facilities is provided in the table below:


(dollars in thousands)
March 31, 2024
Expiration Date (1)	Amount Outstanding		Unused Committed Capacity (2)		Unused Uncommitted Capacity		Total Capacity		Eligible Collateral
March 31, 2025	$	683,731	$	—	$	216,269	$	900,000	Mortgage servicing rights
March 8, 2027	$	292,140	$	57,860	$	150,000	$	500,000	Mortgage servicing rights (3)
September 30, 2024	$	322,500	$	77,500	$	—	$	400,000	Mortgage servicing rights
October 25, 2024	$	200,000	$	—	$	100,000	$	300,000	Mortgage servicing rights (4)
September 28, 2024	$	59,300	$	140,700	$	—	$	200,000	Mortgage servicing advances

Although we generally intend to hold our target assets as long-term investments, we may sell certain of our assets in order to manage our interest rate risk and liquidity needs, to meet other operating objectives and to adapt to market conditions. Our Agency RMBS are generally actively traded and thus, in most circumstances, readily liquid. However, certain of our assets, including MSR, are subject to longer trade timelines, and, as a result, market conditions could significantly and adversely affect the liquidity of our assets. Any illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises. Our ability to quickly sell certain assets, such as MSR, may be limited by delays encountered while obtaining certain Agency approvals required for such dispositions and may be further limited by delays due to the time period needed for negotiating transaction documents, conducting diligence, and complying with Agency requirements regarding the transfer of such assets before settlement may occur. Consequently, even if we identify a buyer for our MSR, there is no assurance that we would be able to quickly sell such assets if the need or desire arises.

In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets. Assets that are illiquid are more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid, we may lose that leverage or have it reduced. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition.

•Cash flows from investing activities. For the three months ended March 31, 2024, investing activities decreased our cash balances by approximately $347.7 million, driven by net purchases of AFS securities (including some fourth quarter purchases that settled during the first quarter) and MSR, payments to counterparties for margin calls, net payments for reverse repurchase agreements, and the final payment made to Freedom for our acquisition of RoundPoint, offset by net sales/short sales of derivative instruments.

Our assets and liabilities are financial in nature. As a result, changes in interest rates and other factors impact our performance far more than does inflation, although inflation rates can often have a meaningful influence over the direction of interest rates. Our financial statements are prepared in accordance with U.S. GAAP and dividends are based upon net ordinary income and capital gains as calculated for tax purposes; in each case, our results of operations and reported assets, liabilities and equity are measured with reference to historical cost or fair value without considering inflation.

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while providing an opportunity to stockholders to realize attractive risk-adjusted total return through ownership of our capital stock. Although we do not seek to avoid risk completely, we believe that risk can be quantified from historical experience, and we seek to manage our risk levels in order to earn sufficient compensation to justify the risks we undertake and to maintain capital levels consistent with taking such risks.

Subject to maintaining our qualification as a REIT, we engage in a variety of interest rate risk management techniques that seek to mitigate the influence of interest rate changes on the values of our assets. We may enter into a variety of derivative and non-derivative instruments to economically hedge interest rate risk or “duration mismatch (or gap)” by adjusting the duration of our floating-rate borrowings into fixed-rate borrowings to more closely match the duration of our assets. This particularly applies to borrowing agreements with maturities or interest rate resets of less than six months. Typically, the interest receivable terms (i.e., OIS or SOFR) of certain derivatives match the terms of the underlying debt, resulting in an effective conversion of the rate of the related borrowing agreement from floating to fixed. The objective is to manage the cash flows associated with current and anticipated interest payments on borrowings, as well as the ability to roll or refinance borrowings at the desired amount by adjusting the duration. To help manage the adverse impact of interest rate changes on the value of our portfolio as well as our cash flows, we may, at times, enter into various forward contracts, including short securities, TBAs, options, futures, swaps, caps, credit default swaps and total return swaps. In executing on our current interest rate risk management strategy, we have entered into TBAs, interest rate swap and swaption agreements, futures and options on futures. In addition, because MSR are negative duration assets, they may provide a hedge to interest rate exposure on our Agency RMBS portfolio. In hedging interest rate risk, we seek to mitigate the impact of changing interest rates on the value of our investments, improve risk-adjusted returns and, where possible, obtain a favorable spread between the yield on our assets and the cost of our financing. Our hedging methods are based on many factors, including, but not limited to, our estimates with regard to future interest rates.

REIT income arising from “clearly identified” hedging transactions that are entered into to manage the risk of interest rate or price changes with respect to borrowings, including gain from the disposition of such hedging transactions, to the extent the hedging transactions hedge indebtedness incurred, or to be incurred, by the REIT to acquire or carry real estate assets, will not be treated as gross income for purposes of either the 75% or the 95% gross income tests. In general, for a hedging transaction to be “clearly identified,” (i) it must be identified as a hedging transaction before the end of the day on which it is acquired, originated, or entered into, and (ii) the items of risks being hedged must be identified “substantially contemporaneously” with entering into the hedging transaction (generally not more than 35 days after entering into the hedging transaction). We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT, although this determination depends on an analysis of the facts and circumstances concerning each hedging transaction. We also implement part of our hedging strategy through our TRSs, which are subject to U.S. federal, state and, if applicable, local income tax.

We treat our TBAs as qualifying assets for purposes of the 75% asset test, to the extent set forth in an opinion from Sidley Austin LLP substantially to the effect that, for purposes of the 75% asset test, our ownership of a TBA should be treated as ownership of the underlying Agency RMBS. We also treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, to the extent set forth in an opinion from Sidley Austin LLP substantially to the effect that, for purposes of the 75% gross income test, any gain recognized by us in connection with the settlement of our TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS.

Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing and hedging activities. The costs associated with our borrowings are generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase while the coupon interest earned on our existing portfolio of leveraged fixed-rate Agency RMBS will remain static. Both of these factors could result in a decline in our net interest spread and net interest margin. The inverse result may occur during a period of falling interest rates. The severity of any such decline or increase in our net interest spread and net interest margin would depend on our asset/liability composition at the time, as well as the magnitude and duration of the interest rate increase or decrease.

We perform interest rate sensitivity analyses on various measures of our financial results and condition by examining how our assets, financing and hedges will perform in various interest rate “shock” scenarios. Two of these measures are presented below in more detail. The first measure is change in annualized net interest income over the next 12 months, including interest spread from our interest rate swaps and float income from custodial accounts associated with our MSR. The second measure is change in value of financial position, including the value of our derivative assets and liabilities. All changes in value are measured as the change from the March 31, 2024 financial position. All projected changes in annualized net interest income are measured as the change from the projected annualized net interest income based off current performance returns.

Computation of the cash flows for the rate-sensitive assets underpinning change in annualized net interest income are based on assumptions related to, among other things, prepayment speeds, yield on future acquisitions, slope of the yield curve, and size of the portfolio (for example, the assumption for prepayment speeds for Agency RMBS, and MSR is that they do not change in response to changes in interest rates). Assumptions for the interest rate sensitive liabilities relate to, among other things, collateral requirements as a percentage of borrowings and amount/term of borrowing. These assumptions may not hold in practice; realized net interest income results may therefore be significantly different from the net interest income produced in scenario analyses. We also note that the uncertainty associated with the estimate of a change in net interest income is directly related to the size of interest rate move considered.

Computation of results for portfolio value involves a two-step process. The first is the use of models to project how the value of interest rate sensitive instruments will change in the scenarios considered. The second, and equally important, step is the improvement of the model projections based on application of our experience in assessing how current market and macroeconomic conditions will affect the prices of various interest rate sensitive instruments. Judgment is best applied to localized (less than 25 basis points, or bps) interest rate moves. The more an instantaneous interest rate move exceeds 25 bps, the greater the likelihood that accompanying market events are significant enough to warrant reconsideration of interest rate sensitivities. As with net interest income, the uncertainty associated with the estimate of change in portfolio value is therefore directly related to the size of interest rate move considered.

The following interest rate sensitivity table displays the potential impact of instantaneous, parallel changes in interest rates of +/- 25 and +/- 50 bps on annualized net interest income and portfolio value, based on our interest sensitive financial instruments at March 31, 2024. The preceding discussion shows that the results for the 25 bps move scenarios are the best representation of our interest rate exposure, followed by those for the 50 bps move scenarios. This hierarchy reflects our localized approach to managing interest rate risk: monitoring rates and rebalancing our hedges on a day-to-day basis, where rate moves only rarely exceed 25 bps in either direction.


	Changes in Interest Rates
(dollars in thousands)	-50 bps			-25 bps			+25 bps			+50 bps
Change in annualized net interest income (1):	$	(513)		$	(273)		$	298		$	637
% change in net interest income (1)	(0.3)		%	(0.2)		%	0.2		%	0.4		%
Change in value of financial position:
Available-for-sale securities	$	206,592		$	105,294		$	(108,517)		$	(220,231)
As a % of common equity	12.8		%	6.5		%	(6.7)		%	(13.6)		%




Mortgage servicing rights (2)	$	(64,784)		$	(28,797)		$	28,902		$	49,661
As a % of common equity (2)	(4.0)		%	(1.8)		%	1.8		%	3.1		%




Derivatives, net	$	(161,611)		$	(78,359)		$	73,581		$	142,210
As a % of common equity	(10.0)		%	(4.8)		%	4.5		%	8.8		%
Reverse repurchase agreements	$	73		$	37		$	(37)		$	(73)
As a % of common equity	—		%	—		%	—		%	—		%
Repurchase agreements	$	(5,579)		$	(2,790)		$	2,790		$	5,579
As a % of common equity	(0.4)		%	(0.2)		%	0.2		%	0.3		%




Revolving credit facilities	$	(378)		$	(189)		$	189		$	377
As a % of common equity	—		%	—		%	—		%	—		%
Term notes payable	$	(150)		$	(75)		$	75		$	150
As a % of common equity	—		%	—		%	—		%	—		%
Convertible senior notes	$	(1,045)		$	(520)		$	517		$	1,032
As a % of common equity	(0.1)		%	—		%	—		%	0.1		%
Total Net Assets	$	(26,882)		$	(5,399)		$	(2,500)		$	(21,295)
As a % of total assets	(0.2)		%	—		%	—		%	(0.2)		%
As a % of common equity	(1.7)		%	(0.3)		%	(0.2)		%	(1.3)		%

Certain assumptions have been made in connection with the calculation of the information set forth in the foregoing interest rate sensitivity table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at March 31, 2024. As discussed, the analysis utilizes assumptions and estimates based on our experience and judgment. Furthermore, future purchases and sales of assets could materially change our interest rate risk profile.

The information set forth in the interest rate sensitivity table above and all related disclosures constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. While this table reflects the estimated impact of interest rate changes on the static portfolio, we actively manage our portfolio and continuously make adjustments to the size and composition of our asset and hedge portfolio. Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.

Market Value Risk. Our AFS securities are reflected at their estimated fair value, with the difference between amortized cost net of allowance for credit losses and estimated fair value for all AFS securities except certain AFS securities for which we have elected the fair value option reflected in accumulated other comprehensive loss. The estimated fair value of these securities fluctuates primarily due to changes in interest rates, market valuation of credit risks, and other factors. Generally, in a rising interest rate environment, we would expect the fair value of these securities to decrease; conversely, in a decreasing interest rate environment, we would expect the fair value of these securities to increase. As market volatility increases or liquidity decreases, the fair value of our assets may be adversely impacted.

Real Estate Risk. Residential property values are subject to volatility and may be affected adversely by a number of factors, including national, regional and local economic conditions; local real estate conditions (such as the supply of housing); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; and impacts of climate change, natural disasters and other catastrophes. Decreases in property values reduce the value of the collateral for residential mortgage loans and the potential proceeds available to borrowers to repay the loans, which may impact the value of our Agency RMBS due to changes in voluntary and involuntary prepayment speeds, and/or may increase costs to service the residential mortgage loans underlying our MSR.

Should the value of our assets pledged as collateral suddenly decrease, lender margin calls could increase, causing an adverse change in our liquidity position. Moreover, the portfolio construction of MSR, which generally have negative duration, combined with levered RMBS, which generally have positive duration, may in certain market scenarios lead to variation margin calls, which could negatively impact our excess cash position. Additionally, if one or more of our repurchase agreement or revolving credit facility counterparties chose not to provide ongoing funding, our ability to finance would decline or exist at possibly less favorable terms. As such, we cannot provide assurance that we will always be able to roll over our repurchase agreements and revolving credit facilities. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in this Quarterly Report on Form 10-Q for further information about our liquidity and capital resource management.

A review and evaluation was performed by our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that review and evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed and implemented, were effective as of March 31, 2024. Although our CEO and CFO have determined our disclosure controls and procedures were effective at the end of the period covered by this Quarterly Report on Form 10-Q, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the company to disclose material information otherwise required to be set forth in the reports we submit under the Exchange Act.

From time to time, we may be involved in various legal and regulatory matters that arise in the ordinary course of business. As previously disclosed, on July 15, 2020, we provided PRCM Advisers with a notice of termination of the Management Agreement for “cause” in accordance with Section 15(a) of the Management Agreement. We terminated the Management Agreement for “cause” on the basis of certain material breaches and certain events of gross negligence on the part of PRCM Advisers in the performance of its duties under the Management Agreement. On July 21, 2020, PRCM Advisers filed a complaint against us in the United States District Court for the Southern District of New York, or the Court. Subsequently, Pine River Domestic Management L.P. and Pine River Capital Management L.P. were added as plaintiffs to the matter. As amended, the complaint, or the Federal Complaint, alleges, among other things, the misappropriation of trade secrets in violation of both the Defend Trade Secrets Act and New York common law, breach of contract, breach of the implied covenant of good faith and fair dealing, unfair competition and business practices, unjust enrichment, conversion, and tortious interference with contract. The Federal Complaint seeks, among other things, an order enjoining us from making any use of or disclosing PRCM Advisers’ trade secret, proprietary, or confidential information; damages in an amount to be determined at a hearing and/or trial; disgorgement of our wrongfully obtained profits; and fees and costs incurred by the plaintiffs in pursuing the action. We have filed our answer to the Federal Complaint and made counterclaims against PRCM Advisers and Pine River Capital Management L.P. On May 5, 2022, the plaintiffs filed a motion for judgment on the pleadings, seeking judgment in their favor on all but one of our counterclaims and on one of our affirmative defenses. We opposed the motion for judgment on the pleadings. On August 10, 2023, the motion for judgment on the pleadings was granted in part and denied in part. The discovery period has ended. On November 8, 2023, the Company and the plaintiffs filed motions for summary judgment, seeking judgment in their favor on the pending claims and counterclaims. Each party opposed the other party’s motion for summary judgment. The motions for summary judgment are fully briefed. Our board of directors believes the Federal Complaint is without merit and that we fully complied with the terms of the Management Agreement.

There have been no material changes to the risk factors set forth under the heading “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, or the Form 10-K. The materialization of any risks and uncertainties identified in our Forward-Looking Statements contained in this Quarterly Report on Form 10-Q, together with those previously disclosed in the Form 10-K or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations, and cash flows. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

(c)Our preferred share repurchase program allows for the repurchase of up to an aggregate of 5,000,000 shares of the company’s preferred stock, which includes the 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and 7.25% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock. Preferred shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to trading plans in accordance with Rule 10b5-1 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 preferred share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The preferred 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 preferred share repurchase program does not have an expiration date.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
Series A Preferred Stock:
January 1, 2024 through Janaury 31, 2024	—	$	—	—	N/A
February 1, 2024 through February 29, 2024	—	—		—	N/A
March 1, 2024 through March 31, 2024	35,047	23.08		35,047	N/A
Total	35,047	$	23.08	35,047	N/A
Series B Preferred Stock:
January 1, 2024 through Janaury 31, 2024	—	$	—	—	N/A
February 1, 2024 through February 29, 2024	88,174	22.66		88,174	N/A
March 1, 2024 through March 31, 2024	191,886	22.79		191,886	N/A
Total	280,060	$	22.75	280,060	N/A
Series C Preferred Stock:
January 1, 2024 through Janaury 31, 2024	—	$	—	—	N/A
February 1, 2024 through February 29, 2024	116,200	23.07		116,200	N/A
March 1, 2024 through March 31, 2024	54,302	22.87		54,302	N/A
Total	170,502	$	23.01	170,502	N/A

(1)Our preferred share repurchase program allows for the repurchase of up to an aggregate of 5,000,000 shares of the company’s preferred stock, which includes the 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and 7.25% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock. As of March 31, 2024, we had repurchased an aggregate of 4,179,183 preferred shares under the program and had remaining authorization to repurchase up to 820,817 preferred shares.

Our common share repurchase program allows for the repurchase of up to an aggregate of 9,375,000 shares of the company’s common stock. Common 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 Exchange Act or by any combination of such methods. The manner, price, number and timing of common share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The common 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 common share repurchase program does not have an expiration date. As of March 31, 2024, we had repurchased 3,637,028 common shares under the program for a total cost of $208.5 million. We did not repurchase common shares during the three months ended March 31, 2024.

(c)During the three months ended March 31, 2024, the following executive officers adopted a written plan intended to satisfy affirmative defense conditions of Rule 10b5–1(c) of the Exchange Act. Each of these written plans relates to the sale of Two Harbors common stock for the purpose of satisfying tax obligations associated with future vestings of equity compensation, as permitted pursuant to the stock ownership guidelines applicable to our executive officers. In addition, each of these written plans was entered into during an open trading window and shall take effect ninety days after adoption. Each of the new plans shall remain in effect until amended or terminated.


Exhibit Number						Exhibit Description
101						Financial statements from the Quarterly Report on Form 10-Q of Two Harbors Investment Corp. for the three months ended March 31, 2024, filed with the SEC on April 30, 2024, formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements. (filed herewith)
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). (filed herewith)


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,	Minnesota	55416
(Address of Principal Executive Offices)		(Zip Code)


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023	4
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 4.	Controls and Procedures	64
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67
Index of Exhibits		68
Signatures		70


	December 31, 2023
(in thousands)	Acquisition Date Amounts Recognized		Subsequent Measurement Period Adjustments		Acquisition Date Amounts Recognized, as adjusted
Total Consideration	$	44,732	$	(188)	$	44,544
Assets:
Cash and cash equivalents	$	50,366	$	—	$	50,366

Intangible assets	786		13		799
Other assets	29,148		—		29,148
Total Assets Acquired	$	80,300	$	13	$	80,313
Liabilities:
Accrued expenses	$	4,483	$	—	$	4,483
Other liabilities	58,739		—		58,739
Total Liabilities Assumed	$	63,222	$	—	$	63,222
Net Assets	$	17,078	$	13	$	17,091
Goodwill	$	27,654	$	(201)	$	27,453


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	March 31, 2024
(in thousands)	Agency		Non-Agency		Total
< 1 year	$	282	$	—	$	282
≥ 1 and < 3 years	16,243		—		16,243
≥ 3 and < 5 years	177,196		—		177,196
≥ 5 and < 10 years	7,984,870		3,631		7,988,501
≥ 10 years	—		322		322
Total	$	8,178,591	$	3,953	$	8,182,544


	March 31, 2024
	Unrealized Loss Position for
	Less than 12 Months				12 Months or More				Total
(in thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Agency	$	7,023,251	$	(285,881)	$	—	$	—	$	7,023,251	$	(285,881)
Non-Agency	249		(73)		—		—		249		(73)
Total	$	7,023,500	$	(285,954)	$	—	$	—	$	7,023,500	$	(285,954)


(dollars in thousands, except per loan data)	March 31, 2024			December 31, 2023
Weighted average prepayment speed:	6.2		%	6.2		%
Impact on fair value of 10% adverse change	$	(78,387)		$	(74,042)
Impact on fair value of 20% adverse change	$	(154,074)		$	(146,237)
Weighted average delinquency:	1.0		%	0.9		%
Impact on fair value of 10% adverse change	$	(5,445)		$	(4,654)
Impact on fair value of 20% adverse change	$	(13,974)		$	(12,376)
Weighted average option-adjusted spread:	5.4		%	5.3		%
Impact on fair value of 10% adverse change	$	(71,353)		$	(59,285)
Impact on fair value of 20% adverse change	$	(138,989)		$	(119,776)
Weighted average per loan annual cost to service:	$	68.47		$	68.27
Impact on fair value of 10% adverse change	$	(27,471)		$	(24,111)
Impact on fair value of 20% adverse change	$	(55,188)		$	(48,985)


	March 31, 2024
	Derivative Assets				Derivative Liabilities
(in thousands)	Fair Value		Notional		Fair Value		Notional
Inverse interest-only securities	$	9,885	$	156,527	$	—	$	—
Interest rate swap agreements	—		9,822,112		—		—


Swaptions, net	—		—		—		—
TBAs	14,512		3,968,000		(3,027)		(518,000)


Futures, net	—		(5,638,800)		—		—


Total	$	24,397	$	8,307,839	$	(3,027)	$	(518,000)


Derivative Instruments	Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income
		Three Months Ended
(in thousands)		March 31,
			2024		2023
Interest rate risk management:
TBAs	Gain (loss) on other derivative instruments		$	(59,180)	$	(17,164)

Futures	Gain (loss) on other derivative instruments		108,936		(140,087)


Options on futures	Gain (loss) on other derivative instruments		(127)		—
Interest rate swaps - Payers	Gain (loss) on interest rate swap and swaption agreements		194,430		(71,760)
Interest rate swaps - Receivers	Gain (loss) on interest rate swap and swaption agreements		(95,951)		(10,368)
Swaptions	Gain (loss) on interest rate swap and swaption agreements		31		(26)




Non-risk management:

Inverse interest-only securities	Gain (loss) on other derivative instruments		(2,030)		1,480

Total			$	146,109	$	(237,925)


	Three Months Ended March 31, 2024
(in thousands)	Beginning of Period Notional Amount		Additions		Settlement, Termination, Expiration or Exercise		End of Period Notional Amount		Average Notional Amount		Realized Gain (Loss), net (1)
Inverse interest-only securities	$	163,735	$	—	$	(7,208)	$	156,527	$	160,491	$	—
Interest rate swap agreements	17,788,114		6,567,062		(14,533,064)		9,822,112		15,136,445		13,988


Swaptions, net	(200,000)		(500,000)		700,000		—		(232,967)		(98)
TBAs, net	3,497,000		12,173,000		(12,220,000)		3,450,000		3,037,747		(19,190)


Futures, net	(6,203,050)		(7,738,100)		8,302,350		(5,638,800)		(6,576,900)		(8,714)


Options on futures, net	—		—		—		—		—		(127)
Total	$	15,045,799	$	10,501,962	$	(17,757,922)	$	7,789,839	$	11,524,816	$	(14,141)


	March 31, 2024
							Net Carrying Value (4)
(in thousands)	Notional Amount (1)		Cost Basis (2)		Market Value (3)		Derivative Assets		Derivative Liabilities
Purchase contracts	$	4,193,000	$	4,129,470	$	4,143,411	$	14,512	$	(571)
Sale contracts	(743,000)		(707,538)		(709,994)		—		(2,456)
TBAs, net	$	3,450,000	$	3,421,932	$	3,433,417	$	14,512	$	(3,027)


(notional in thousands)
March 31, 2024
Swaps Maturities	Notional Amount (1)		Weighted Average Fixed Pay Rate (2)		Weighted Average Receive Rate		Weighted Average Maturity (Years)
≤ 1 year	$	2,647,671	4.730	%	5.340	%	0.96
> 1 and ≤ 3 years	1,968,891		4.087	%	5.340	%	1.76
> 3 and ≤ 5 years	1,784,642		3.546	%	5.340	%	3.78
> 5 and ≤ 7 years	—		—	%	—	%	0.00
> 7 and ≤ 10 years	1,005,904		3.577	%	5.340	%	9.00
> 10 years	466,637		3.753	%	5.340	%	14.32
Total	$	7,873,745	4.180	%	5.340	%	3.38


	December 31, 2023
(notional and dollars in thousands)	Option						Underlying Swap
Swaption	Expiration	Cost		Fair Value		Average Months to Expiration	Notional Amount		Average Fixed Rate		Average Term (Years)
Purchase contracts:
Payer	< 6 Months	$	480	$	22	2.40	$	200,000	5.13	%	1.0







Sale contracts:
Payer	< 6 Months	$	(332)	$	(3)	2.40	$	(400,000)	5.61	%	1.0


	March 31, 2024
							Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets (1)
(in thousands)	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in the Balance Sheets		Net Amounts of Assets (Liabilities) Presented in the Balance Sheets		Financial Instruments		Cash Collateral (Received) Pledged		Net Amount
Assets:
Derivative assets	$	126,128	$	(101,731)	$	24,397	$	(3,027)	$	—	$	21,370
Reverse repurchase agreements	351,843		—		351,843		—		(295,774)		56,069
Total Assets	$	477,971	$	(101,731)	$	376,240	$	(3,027)	$	(295,774)	$	77,439
Liabilities:
Repurchase agreements	$	(8,361,638)	$	—	$	(8,361,638)	$	8,361,638	$	—	$	—
Derivative liabilities	(104,758)		101,731		(3,027)		3,027		—		—
Total Liabilities	$	(8,466,396)	$	101,731	$	(8,364,665)	$	8,364,665	$	—	$	—


	Recurring Fair Value Measurements
	March 31, 2024
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	$	—	$	8,178,591	$	3,953	$	8,182,544

Mortgage servicing rights	—		—		3,084,879		3,084,879

Derivative assets	14,512		9,885		—		24,397

Total assets	$	14,512	$	8,188,476	$	3,088,832	$	11,291,820
Liabilities:

Derivative liabilities	$	3,027	$	—	$	—	$	3,027
Total liabilities	$	3,027	$	—	$	—	$	3,027


March 31, 2024
Valuation Technique	Unobservable Input	Range			Weighted Average (1)
Discounted cash flow	Constant prepayment speed	5.6%	-	6.8%		6.2%

	Option-adjusted spread	5.2%	-	8.7%		5.4%
	Per loan annual cost to service	$67.90	-	$81.54		$68.47


	March 31, 2024
	Collateral Type
(in thousands)	Agency RMBS			Non-Agency Securities			Agency Derivatives			Mortgage Servicing Rights			Total Amount Outstanding
Within 30 days	$	2,262,318		$	—		$	7,752		$	58,977		$	2,329,047
30 to 59 days	1,367,028			—			—			—			1,367,028
60 to 89 days	1,022,997			—			—			—			1,022,997
90 to 119 days	702,452			—			—			—			702,452
120 to 364 days	2,739,235			217			662			200,000			2,940,114


Total	$	8,094,030		$	217		$	8,414		$	258,977		$	8,361,638
Weighted average borrowing rate	5.51		%	6.13		%	6.10		%	6.92		%	5.61		%


			Number of common shares






Common shares outstanding, December 31, 2022			86,428,845
Issuance of common stock			10,121,107

Non-cash equity award compensation (1)			114,366
Common shares outstanding, March 31, 2023			96,664,318

Common shares outstanding, December 31, 2023			103,206,457
Issuance of common stock			4,058

Non-cash equity award compensation (1)			264,429
Common shares outstanding, March 31, 2024			103,474,944


	Three Months Ended March 31,
	2024			2023
	Units	Weighted Average Grant Date Fair Market Value		Units	Weighted Average Grant Date Fair Market Value
Outstanding at Beginning of Period	613,699	$	19.11	468,632	$	23.54
Granted	340,376	14.17		282,090	17.43
Vested	(203,652)	(21.07)		(114,366)	(24.14)
Forfeited	—	—		—	—
Outstanding at End of Period	750,423	$	16.34	636,356	$	20.72


(dollars in thousands)	March 31, 2024
Borrowing Type	Amount Outstanding		Weighted Average Borrowing Rate		Weighted Average Years to Maturity
Repurchase agreements	$	8,361,638	5.61	%	0.2
Revolving credit facilities	1,357,671		8.56	%	1.3
Term notes payable	295,520		8.24	%	0.2
Convertible senior notes (1)	268,953		6.25	%	1.8
Total	$	10,283,782	6.09	%	0.4


Exhibit Number						Exhibit Description
3.1						Articles of Amendment and Restatement of Two Harbors Investment Corp. (incorporated by reference to Exhibit 99.1 to Annex B filed with Amendment No. 4 to the Registrant’s Registration Statement on Form S-4 filed with the SEC on October 8, 2009).
3.2						Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2012).
3.3						Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp., effective as of 5:01 PM Eastern Time on November 1, 2017 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 2, 2017).
3.4						Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp., effective as of 5:02 PM Eastern Time on November 1, 2017 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 2, 2017).
3.5						Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 23, 2020).
3.6						Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp., effective as of 5:01 PM Eastern Time on November 1, 2022 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 2, 2022).
3.7						Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp., effective as of 5:02 PM Eastern Time on November 1, 2022 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 2, 2022).
3.8						Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 8.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.3 of the Registrant’s Form 8-A filed with the SEC on March 13, 2017).
3.9						Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.4 of the Registrant’s Form 8-A filed with the SEC on July 17, 2017).
3.10						Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. designating the shares of 7.25% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.7 of the Registrant’s Form 8-A filed with the SEC on November 22, 2017).
3.11						Articles Supplementary to the Articles of Amendment to the Articles of Amendment and Restatement of Two Harbors Investment Corp. reclassifying and redesignating (i) all 3,000,000 authorized but unissued shares of 7.75% Series D Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of undesignated preferred stock, and (ii) all 8,000,000 authorized but unissued shares of 7.50% Series E Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of undesignated preferred stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on March 19, 2021).
3.12						Amended and Restated Bylaws of Two Harbors Investment Corp. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 23, 2020).
10.1						Form of Officer Performance Share Unit Agreement (as of January 2024) under the Two Harbors Investment Corp. 2021 Equity Incentive Plan (filed herewith).
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)
32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)


			TWO HARBORS INVESTMENT CORP.
Dated:	April 30, 2024	By:	/s/ William Greenberg
			William Greenberg President and Chief Executive Officer (Principal Executive Officer)
Dated:	April 30, 2024	By:	/s/ Mary Riskey
			Mary Riskey Chief Financial Officer (Principal Financial and Accounting Officer)

Cover - shares	3 Months Ended
Cover - shares	Mar. 31, 2024	Apr. 26, 2024
Entity Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2024
Document Transition Report	false
Entity File Number	001-34506
Entity Registrant Name	TWO HARBORS INVESTMENT CORP.
Entity Central Index Key	0001465740
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	27-0312904
Entity Address, Address Line One	1601 Utica Avenue South, Suite 900
Entity Address, City or Town	St. Louis Park,
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55416
City Area Code	612
Local Phone Number	453-4100
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		103,494,421
Common Stock \| NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	TWO
Security Exchange Name	NYSE
Series A Preferred Stock [Member] \| NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	8.125% Series A Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRA
Security Exchange Name	NYSE
Series B Preferred Stock [Member] \| NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	7.625% Series B Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRB
Security Exchange Name	NYSE
Series C Preferred Stock [Member] \| NEW YORK STOCK EXCHANGE, INC. [Member]
Entity Information [Line Items]
Title of 12(b) Security	7.25% Series C Cumulative Redeemable Preferred Stock
Trading Symbol	TWO PRC
Security Exchange Name	NYSE

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
ASSETS
Available-for-sale securities, at fair value (amortized cost $8,467,938 and $8,509,383, respectively; allowance for credit losses $3,607 and $3,943, respectively)	$ 8,182,544	$ 8,327,149
Mortgage servicing rights, at fair value	3,084,879	3,052,016
Cash and cash equivalents	666,244	729,732
Restricted cash	72,184	65,101
Accrued interest receivable	35,487	35,339
Due from counterparties	545,312	323,224
Derivative assets, at fair value	24,397	85,291
Reverse repurchase agreements	351,843	284,091
Other assets	199,035	236,857
Total Assets	13,161,925	13,138,800
Liabilities
Repurchase agreements	8,361,638	8,020,207
Revolving credit facilities	1,357,671	1,329,171
Term notes payable	295,520	295,271
Convertible senior notes	268,953	268,582
Derivative liabilities, at fair value	3,027	21,506
Due to counterparties	330,551	574,735
Dividends payable	58,685	58,731
Accrued interest payable	79,990	141,773
Commitments and contingencies (see Note 16)	0	0
Other liabilities	165,820	225,434
Total Liabilities	10,921,855	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 103,474,944 and 103,206,457 shares issued and outstanding, respectively	1,035	1,032
Additional paid-in capital	5,931,558	5,925,424
Accumulated other comprehensive loss	(279,507)	(176,429)
Cumulative earnings	1,554,205	1,349,973
Cumulative distributions to stockholders	(5,568,688)	(5,509,823)
Total Stockholders’ Equity	2,240,070	2,203,390
Total Liabilities and Stockholders’ Equity	$ 13,161,925	$ 13,138,800

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Available-for-sale securities, amortized cost	$ 8,467,938	$ 8,509,383
Available-for-sale securities, allowance for credit losses	$ (3,607)	$ (3,943)
Preferred stock par value per share (in usd per share)	$ 0.01	$ 0.01
Preferred shares authorized (in shares)	100,000,000	100,000,000
Preferred shares issued (in shares)	24,870,817	25,356,426
Preferred shares outstanding (in shares)	24,870,817	25,356,426
Preferred stock liquidation preference	$ 621,770	$ 633,911
Common stock par value per share (in usd per share)	$ 0.01	$ 0.01
Common shares authorized (in shares)	175,000,000	175,000,000
Common shares issued (in shares)	103,474,944	103,206,457
Common shares outstanding (in shares)	103,474,944	103,206,457
Total Assets	$ 13,161,925	$ 13,138,800
Total Liabilities	10,921,855	10,935,410
Variable Interest Entity, Primary Beneficiary [Member]
Total Assets	535,160	525,259
Total Liabilities	$ 500,608	$ 479,810

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Net interest income (expense):
Interest income	$ 117,783	$ 116,593
Interest expense	160,000	142,490
Net interest (expense) income	(42,217)	(25,897)
Net Servicing Income [Abstract]
Servicing income	166,333	153,320
Servicing costs	7,119	28,366
Net Servicing Income	159,214	124,954
Other income (loss):
(Loss) gain on investment securities	(10,975)	10,798
Gain (loss) on servicing asset	11,012	(28,079)
Gain (loss) on interest rate swap and swaption agreements	98,510	(82,154)
Gain (loss) on other derivative instruments	47,599	(155,771)
Other (loss) income	(3)	0
Total other income (loss)	146,143	(255,206)
Expenses:
Compensation and benefits	26,529	14,083
Other operating expenses	21,052	10,484
Total expenses	47,581	24,567
Income (loss) before income taxes	215,559	(180,716)
Provision for (benefit from) income taxes	11,971	(3,908)
Net income (loss)	203,588	(176,808)
Dividends on preferred stock	(11,784)	(12,365)
Gain on repurchase and retirement of preferred stock	644	0
Net income (loss) attributable to common stockholders	$ 192,448	$ (189,173)
Basic earnings (loss) per weighted average common share	$ 1.85	$ (2.05)
Diluted earnings (loss) per weighted average common share	$ 1.73	$ (2.05)
Weighted average basic common shares (in shares)	103,401,940	92,575,840
Weighted average diluted common shares (in shares)	112,973,317	92,575,840
Comprehensive income (loss):
Net income (loss)	$ 203,588	$ (176,808)
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale securities	(103,078)	125,931
Other comprehensive (loss) income	(103,078)	125,931
Comprehensive income (loss)	100,510	(50,877)
Dividends on preferred stock	(11,784)	(12,365)
Gain on repurchase and retirement of preferred stock	644	0
Comprehensive income (loss) attributable to common stockholders	$ 89,370	$ (63,242)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Preferred Stock	Preferred Stock	Preferred Stock Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Cumulative Earnings	Cumulative Earnings Preferred Stock	Cumulative Distributions to Stockholders
Stockholders' equity at beginning of period at Dec. 31, 2022	$ 2,183,525		$ 630,999		$ 864	$ 5,645,998	$ (278,711)	$ 1,453,371		$ (5,268,996)
Net income (loss)	(176,808)							(176,808)
Other comprehensive income (loss) before reclassifications	62,709						62,709
Amounts reclassified from accumulated other comprehensive income (loss)	(63,222)						63,222
Other comprehensive income (loss)	125,931						125,931
Issuance of stock, net of offering costs	177,729				102	177,627
Preferred dividends declared	(12,365)									(12,365)
Common dividends declared	(58,381)									(58,381)
Non-cash equity award compensation	6,052				1	6,051
Stockholders' equity at end of period at Mar. 31, 2023	2,245,683		630,999		967	5,829,676	(152,780)	1,276,563		(5,339,742)
Stockholders' equity at beginning of period at Dec. 31, 2023	2,203,390		613,213		1,032	5,925,424	(176,429)	1,349,973		(5,509,823)
Net income (loss)	203,588							203,588
Other comprehensive income (loss) before reclassifications	(109,658)						(109,658)
Amounts reclassified from accumulated other comprehensive income (loss)	(6,580)						6,580
Other comprehensive income (loss)	(103,078)						(103,078)
Repurchase of stock		$ (11,102)		$ (11,746)					$ 644
Issuance of stock, net of offering costs	54				0	54
Preferred dividends declared	(11,784)									(11,784)
Common dividends declared	(47,081)									(47,081)
Non-cash equity award compensation	6,083				3	6,080
Stockholders' equity at end of period at Mar. 31, 2024	$ 2,240,070		$ 601,467		$ 1,035	$ 5,931,558	$ (279,507)	$ 1,554,205		$ (5,568,688)

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Cash Flows From Operating Activities:
Net income (loss)	$ 203,588	$ (176,808)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization of premiums and discounts on investment securities, net	3,559	7,978
Amortization of deferred debt issuance costs on term notes payable and convertible senior notes	620	659
Provision for (reversal of) credit losses on investment securities	80	(142)
Realized and unrealized losses (gains) on investment securities	10,895	(10,656)
(Gain) loss on servicing asset	(11,012)	28,079
Realized and unrealized (gains) losses on interest rate swaps, caps and swaptions	(84,216)	85,765
Unrealized (gains) losses on other derivative instruments	(75,520)	67,484
Equity based compensation	6,083	6,052
Net change in assets and liabilities:
Increase in accrued interest receivable	(148)	(4,808)
Decrease (increase) in deferred income taxes, net	9,868	(5,997)
Decrease in accrued interest payable	(61,783)	(19,118)
Change in other operating assets and liabilities, net	(10,684)	21,627
Net cash (used in) provided by operating activities	(8,670)	115
Cash Flows From Investing Activities:
Purchases of available-for-sale securities	(442,831)	(2,553,519)
Proceeds from sales of available-for-sale securities	333,082	1,360,742
Principal payments on available-for-sale securities	136,742	139,442
Purchases of mortgage servicing rights, net of purchase price adjustments	(40,072)	(117,441)
Proceeds from sales of mortgage servicing rights	18,221	1,854
Short sales (purchases) of derivative instruments, net	22,170	(227)
Proceeds from sales and settlement (payments for termination and settlement) of derivative instruments, net	179,981	(224,952)
Payments for reverse repurchase agreements	(1,080,847)	(966,485)
Proceeds from reverse repurchase agreements	1,013,095	1,549,504
Acquisition of RoundPoint Mortgage Servicing LLC, net of cash acquired	(20,976)	0
Decrease in due to counterparties, net	(466,272)	(258,903)
Net cash used in investing activities	(347,707)	(1,069,985)
Cash Flows From Financing Activities:
Proceeds from repurchase agreements	12,276,613	11,321,136
Principal payments on repurchase agreements	(11,935,182)	(10,839,435)
Proceeds from revolving credit facilities	58,500	174,000
Principal payments on revolving credit facilities	(30,000)	0
Repurchase and retirement of preferred stock	(11,102)	0
Proceeds from issuance of common stock, net of offering costs	54	177,729
Dividends paid on preferred stock	(12,012)	(12,365)
Dividends paid on common stock	(46,899)	(52,139)
Net cash provided by financing activities	299,972	768,926
Net decrease in cash, cash equivalents and restricted cash	(56,405)	(300,944)
Cash, cash equivalents and restricted cash at beginning of period	794,833	1,126,505
Cash, cash equivalents and restricted cash at end of period	738,428	825,561
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	215,337	153,280
Cash paid for taxes, net	103	42
Noncash Activities:
Dividends declared but not paid at end of period	$ 58,685	$ 70,746

Organization and Operations	3 Months Ended
Organization and Operations	Mar. 31, 2024
Organization and Operations [Abstract]
Organization and Operations	Organization and Operations Two Harbors Investment Corp. is a Maryland corporation founded in 2009 that, through its wholly owned subsidiaries (collectively, the Company), invests in, finances and manages mortgage servicing rights, or MSR, Agency residential mortgage-backed securities, or Agency RMBS, and, through its operational platform, RoundPoint Mortgage Servicing LLC, or RoundPoint, is one of the largest servicers of conventional loans in the country. Agency refers to a U.S. government sponsored enterprise, or GSE, such as the Federal National Mortgage Association (or Fannie Mae) or the Federal Home Loan Mortgage Corporation (or Freddie Mac), or a U.S. government agency such as the Government National Mortgage Association (or Ginnie Mae). The Company is structured as an internally-managed real estate investment trust, or REIT, and its common stock is listed on the New York Stock Exchange, or NYSE, under the symbol “TWO”. The Company seeks to leverage its core competencies of understanding and managing interest rate and prepayment risk to invest in its portfolio of MSR and Agency RMBS, with the objective of delivering more stable performance, relative to RMBS portfolios without MSR, across changing market environments. The Company is acutely focused on creating sustainable stockholder value over the long term. Effective September 30, 2023, one of the Company’s wholly owned subsidiaries, Matrix Financial Services Corporation, or Matrix, acquired RoundPoint from Freedom Mortgage Corporation, or Freedom, after the completion of customary closing conditions and receiving the required regulatory and GSE approvals. Upon closing, all servicing and origination licenses and operational capabilities remained with RoundPoint, and RoundPoint became a wholly owned subsidiary of Matrix. Management believes this acquisition will add value for stakeholders of the Company through cost savings achieved by bringing the servicing of its MSR portfolio in-house, greater control over the Company’s MSR portfolio and the associated cash flows, and the ability to participate more fully in the mortgage finance space as opportunities arise. The Company has elected to be treated as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated certain of its subsidiaries as taxable REIT subsidiaries, or TRSs, as defined in the Code, to engage in such activities.

Basis of Presentation and Significant Accounting Policies	3 Months Ended
	Mar. 31, 2024
Basis of Presentation and Significant Accounting Policies [Abstract]
Basis of Presentation and Significant Accounting Policies	Basis of Presentation and Significant Accounting Policies Consolidation and Basis of Presentation The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, have been condensed or omitted according to such SEC rules and regulations. However, management believes that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading. The condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. All trust entities in which the Company holds investments that are considered variable interest entities, or VIEs, for financial reporting purposes were reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of a trust that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the trust. Certain prior period amounts have been reclassified to conform to the current period presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at March 31, 2024 and results of operations for all periods presented have been made. The results of operations for the three months ended March 31, 2024 should not be construed as indicative of the results to be expected for future periods or the full year. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, the period of time during which the Company anticipates an increase in the fair values of real estate securities sufficient to recover unrealized losses in those securities, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand in the market, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material. Significant Accounting Policies Included in Note 2 to the Consolidated Financial Statements of the Company’s 2023 Annual Report on Form 10-K is a summary of the Company’s significant accounting policies. Recently Issued and/or Adopted Accounting Standards Improvements to Reportable Segment Disclosures In November 2023, the FASB issued ASU No. 2023-07, which requires public entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280, Segment Reporting. The ASU does not change how a public entity identifies its operating segments, aggregates them or applies the quantitative thresholds to determine its reportable segments. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. The guidance should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company has early adopted this ASU, which did not have a material impact on the Company's financial condition, results of operations or financial statement disclosures. Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU No. 2023-09, which requires entities to provide additional information about federal, state and foreign income taxes and reconciling items in the rate reconciliation table, and to disclose further disaggregation of income taxes paid (net of refunds received) by federal (national), state and foreign taxes by jurisdiction. For public business entities, the ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The guidance should be applied prospectively, but entities have the option to apply it retrospectively for each period presented. The Company has determined this ASU will not have a material impact on the Company's financial condition, results of operations or financial statement disclosures. Enhancement and Standardization of Climate-Related Disclosures In March 2024, the Securities and Exchange Commission, or the SEC, issued Release No. 33-11275, its final rule on the enhancement and standardization of climate-related disclosures for investors requiring registrants to provide certain climate-related information in their registration statements and annual reports. The rules require information about a registrant’s climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks will also include disclosure of a registrant’s greenhouse gas emissions. In addition, the rules will require registrants to present certain climate-related financial metrics in their audited financial statements. For large accelerated filers like the Company, the individual requirements will be phased-in with the first phase being effective for the fiscal year beginning January 1, 2025. Disclosures will be required prospectively, with information for prior periods required only to the extent it was previously disclosed in an SEC filing. On April 4, 2024, the SEC voluntarily stayed the final rules pending judicial review. The Company is currently evaluating the impact of these final rules on its consolidated financial statements and disclosure.

Reverse Repurchase Agreements	3 Months Ended
Reverse Repurchase Agreements	Mar. 31, 2024
Reverse Repurchase Agreements [Abstract]
Reverse Repurchase Agreements	Reverse Repurchase Agreements As of March 31, 2024 and December 31, 2023, the Company had $295.8 million and $286.1 million in amounts due to counterparties as collateral for reverse repurchase agreements that could be pledged, delivered or otherwise used, with a fair value of $351.8 million and $284.1 million, respectively.

Term Notes Payable	3 Months Ended
Term Notes Payable	Mar. 31, 2024
Term Notes Payable [Abstract]
Term Notes Payable	Term Notes Payable The debt issued in connection with the Company’s on-balance sheet MSR securitization is classified as term notes payable and carried at outstanding principal balance, which was $295.8 million as of both March 31, 2024 and December 31, 2023, net of unamortized deferred debt issuance costs, on the Company’s condensed consolidated balance sheets. During the three months ended September 30, 2023, the Company repurchased $104.2 million principal amount of its MSR term notes in open market transactions for an aggregate cost of $101.0 million, resulting in a gain, net of unamortized deferred issuance costs, of $2.9 million recorded within the other (loss) income line item on the condensed consolidated statements of comprehensive income (loss). No notes were repurchased during the three months ended March 31, 2024 or 2023. As of March 31, 2024 and December 31, 2023, the outstanding amount due on term notes payable was $295.5 million and $295.3 million, net of deferred debt issuance costs, with a weighted average interest rate of 8.24% and 8.27% and weighted average remaining maturities of 0.2 years and 0.5 years. At March 31, 2024 and December 31, 2023, the Company pledged MSR with a carrying value of $394.8 million and $397.9 million and weighted average underlying loan coupon of 3.31% and 3.32%, respectively, as collateral for term notes payable. Additionally, as of March 31, 2024 and December 31, 2023, $0.2 million and $0.2 million of cash was held in restricted accounts as collateral for the future payment obligations of outstanding term notes payable, respectively.