Business Wire | Aug 5, 2020 04:15PM EDT

Two Harbors Investment Corp. Reports Second Quarter 2020 Financial Results

Aug. 05, 2020

NEW YORK--(BUSINESS WIRE)--Aug. 05, 2020--Two Harbors Investment Corp. (NYSE: TWO), a leading mortgage real estate investment trust (REIT) that invests in residential mortgage-backed securities (RMBS), mortgage servicing rights (MSR) and other financial assets, today announced its financial results for the quarter ended June 30, 2020.

Quarterly Summary

* Reported book value of $6.70 per common share, representing a (1.0%) quarterly return on book value.(1) Excluding $0.54 of previously anticipated one-time costs associated with terminating the management agreement, book value would have been $7.24, representing a 6.8% quarterly return on book value.(1) * Generated Comprehensive Income of $279.0 thousand, representing an annualized return on average common equity of 0.1%. * Reported Core Earnings of ($14.5) million, or ($0.05) per weighted average basic common share.(2) * Declared an interim common stock dividend of $0.05 on April 6, 2020. Declared a second quarter common stock dividend of $0.14 per share. Continue to believe our portfolio is capable of generating future gross returns in the mid-double digits as we deploy additional capital, increase leverage and reduce expenses following the transition to self-management. * Resumed MSR flow-sale program with all sellers; added $4.1 billion unpaid principal balance (UPB) of MSR through these arrangements. * At June 30, 2020, 6.5% of our MSR portfolio by loan count was in forbearance, of which 37.4% of borrowers had made their June payment. * Liquidity position remains strong with $1.6 billion in unrestricted cash at June 30, 2020.

Company Update

* Estimate total return on book value for July 2020 of approximately (1.0%). * Expect meaningful increase in Core Earnings in the third quarter; anticipated range of $0.22 to $0.26 per weighted average basic common share. * At July 28, 2020, approximately 5.8% of our MSR portfolio by loan count was in forbearance, of which approximately 32.2% of borrowers had made their July payment. * Added approximately $4.5 billion UPB of MSR flow commitments in July. * In final stages of closing one servicing advance-only facility and working sequentially on another combined MSR asset and advance facility. * Announced on July 21, 2020 that the Board of Directors terminated the management agreement "for cause," which carries with it no termination payment.

"We are very pleased with our second quarter results. Our liquidity is excellent and there are very attractive opportunities ahead of us," stated Bill Greenberg, Two Harbors' President and Chief Executive Officer. "Although the events of the first half of the year were tumultuous, we still believe that our current strategy of pairing Agency RMBS with MSR will result in more attractive and higher quality risk-adjusted returns over the long-term. We couldn't be more confident in our team and in our ability to execute on our strategy."

Return on book value is defined as the increase (decrease) in book value(1) per common share from the beginning to the end of the given period, plus dividends declared in the period, divided by book value as of the beginning of the period.

Core Earnings is a non-GAAP measure. Please see page 11 for a definition(2) of Core Earnings and a reconciliation of GAAP to non-GAAP financial information.

Operating Performance

The following table summarizes the company's GAAP and non-GAAP earnings measurements and key metrics for the first and second quarter of 2020:

Two Harbors Investment Corp. Operating Performance (unaudited)

(dollars in thousands, except per common share data)

Three Months Ended Three Months Ended June 30, 2020 March 31, 2020

Per Annualized Per AnnualizedEarnings weighted return on weighted return onattributable Earnings average average Earnings average averageto common basic common basic commonstockholders common equity common equity share share

Comprehensive $ 279 $ - 0.1 % $ (2,086,676 ) $ (7.63 ) (225.2 )%Income (Loss)

GAAP Net Loss $ (192,515 ) $ (0.70 ) (40.7 )% $ (1,888,606 ) $ (6.91 ) (203.8 )%

Core Earnings $ (14,491 ) $ (0.05 ) (3.1 )% $ 67,617 $ 0.25 7.3 %^(1)



Operating Metrics

Dividend per $ 0.19 $ - common share

Annualizeddividend 15.1 % - % yield^(2)

Book valueper common $ 6.70 $ 6.96 share atperiod end

Return on ) )book value^ (1.0 % (52.1 % (3)

Otheroperatingexpenses,excluding $ 13,838 $ 13,482 non-cash LTIPamortization^(4)

Otheroperatingexpenses,excludingnon-cash LTIP 1.6 % 1.1 % amortization,as apercentage ofaverageequity^(4)

___________

(1) Please see page 11 for a definition of Core Earnings and a reconciliation of GAAP to non-GAAP financial information.

Dividend yield is calculated based on annualizing the dividends declared(2) in the given period, divided by the closing share price as of the end of the period.

Return on book value is defined as the increase (decrease) in book value(3) per common share from the beginning to the end of the given period, plus dividends declared in the period, divided by the book value as of the beginning of the period.

(4) Excludes non-cash equity compensation expense of $2.3 million for the second quarter of 2020 and $2.3 million for the first quarter of 2020.

"In the second quarter, our positive performance was driven by the reflation in specified pools following the extreme stress of March," stated Matt Koeppen, Two Harbors' Chief Investment Officer. "We added modestly to our RMBS portfolio, deploying risk as we became more confident in our liquidity position. Looking forward, we intend to prudently increase our portfolio of RMBS and MSR in the second half of 2020. When we do increase our risk profile, we expect that the resultant leverage will be in the range of 8 to 9 times."

Portfolio Summary

The company's portfolio is comprised of $19.0 billion of Agency RMBS, Agency Derivatives and MSR as well as their associated notional hedges as of June 30, 2020. Additionally, the company held $3.4 billion bond equivalent value of net long to-be-announced securities (TBAs).

The following tables summarize the company's investment portfolio as of June 30, 2020 and March 31, 2020:

Two Harbors Investment Corp. Portfolio

(dollars in thousands)



Portfolio Composition As of June 30, 2020 As of March 31, 2020

(unaudited) (unaudited)

Agency

Fixed Rate $ 17,637,205 92.7 % $ 17,692,839 91.6 %

Other Agency^(1) 85,065 0.5 % 87,096 0.5 %

Total Agency 17,722,270 93.2 % 17,779,935 92.1 %

Mortgage servicing rights 1,279,195 6.7 % 1,505,163 7.8 %

Other 23,180 0.1 % 26,400 0.1 %

Aggregate Portfolio 19,024,645 19,311,498

Net TBA position^(2) 3,438,881 1,846,871

Total Portfolio $ 22,463,526 $ 21,158,369

Portfolio Metrics Three Months Ended Three Months Ended June 30, 2020 March 31, 2020

(unaudited) (unaudited)

Annualized portfolio yield 2.84 % 3.52 %during the quarter^(3)

Annualized cost of funds onaverage borrowing balance 2.61 % 2.39 %during the quarter^(4)

Annualized net yield foraggregate portfolio during 0.23 % 1.13 %the quarter

________________

(1) Other Agency includes hybrid ARMs and Agency derivatives.

Represents bond equivalent value of TBA position. Bond equivalent value is(2) defined as notional amount multiplied by market price. Accounted for as derivative instruments in accordance with GAAP.

(3) Includes interest income on RMBS and servicing income net of servicing expenses and amortization on MSR.

(4) Cost of funds includes interest spread income/expense associated with the portfolio's interest rate swaps.

Portfolio Metrics Specific to RMBS and Agency As of June As of MarchDerivatives 30, 2020 31, 2020

(unaudited) (unaudited)

Weighted average cost basis of Agency principal $ 104.88 $ 104.97 and interest securities^(5)

Weighted average three month CPR on Agency RMBS 19.9 % 12.3 %

Fixed-rate investments as a percentage of 99.4 % 99.4 %aggregate RMBS and Agency Derivatives portfolio

Adjustable-rate investments as a percentage of 0.6 % 0.6 %aggregate RMBS and Agency Derivatives portfolio

______________

Weighted average cost basis includes RMBS principal and interest(5) securities only. Average purchase price utilized carrying value for weighting purposes

Portfolio Metrics Specific to MSR^(1) As of June 30, As of March 31, 2020 2020

(dollars in thousands) (unaudited) (unaudited)



Unpaid principal balance $ 163,493,573 $ 179,714,087

Fair market value $ 1,279,195 $ 1,505,163

Gross weighted average coupon 4.0 % 4.1 %

Weighted average original FICO score^ 754 754 (2)

Weighted average original LTV 75 % 75 %

60+ day delinquencies 3.9 % 0.3 %

Net servicing fee 27.3 basis points 27.3 basis points



Three Months Ended Three Months Ended June 30, 2020 March 31, 2020

(unaudited) (unaudited)

Fair value losses $ (238,791 ) $ (586,665 )

Servicing income $ 112,891 $ 130,797

Servicing expenses $ 23,876 $ 19,624

Change in servicing reserves $ 39 $ 232

________________

The company does not directly service mortgage loans, but insteadNote: contracts with appropriately licensed subservicers to handle substantially all servicing functions in the name of the subservicer for the loans underlying the company's MSR.

(1) Metrics exclude residential mortgage loans in securitization trusts for which the company is the named servicing administrator.

(2) FICO represents a mortgage industry accepted credit score of a borrower.

Other Investments and Risk Management Metrics As of June As of March 30, 2020 31, 2020

(dollars in thousands) (unaudited) (unaudited)

Net long TBA notional amount^(3) $ 3,236,000 $ 1,761,000

Interest rate swaps notional, utilized toeconomically hedge interest rate exposure (or $ 4,479,000 $ 56,158,068duration)

Swaptions net notional, utilized as macroeconomic - 1,376,000hedges

Total interest rate swaps and swaptions notional $ 4,479,000 $ 57,534,068

________________

(3) Accounted for as derivative instruments in accordance with GAAP.

Financing Summary

The following tables summarize the company's financing metrics and outstanding repurchase agreements, FHLB advances, revolving credit facilities, term notes and convertible senior notes as of June 30, 2020 and March 31, 2020:

Weighted Weighted Average Average Number ofJune 30, 2020 Balance Borrowing Months Distinct Rate to Counterparties Maturity

(dollars in thousands, unaudited)



Repurchase agreements $ 16,991,248 0.65 % 1.56 20collateralized by RMBS

Revolving creditfacilities 267,181 2.66 % 8.50 1collateralized by MSR

Term notes payable 395,048 2.98 % 47.87 n/acollateralized by MSR

Unsecured convertible 285,515 6.25 % 18.53 n/asenior notes

Total borrowings $ 17,938,992

Weighted Weighted Average Average Number ofMarch 31, 2020 Balance Borrowing Months Distinct Rate to Counterparties Maturity

(dollars in thousands, unaudited)



Repurchase agreements 17,795,516 1.86 % 1.76 22collateralized by RMBS

FHLB advancescollateralized by RMBS^ 50,000 2.39 % 174.64 1(1)

Revolving creditfacilities 252,143 3.49 % 11.53 1collateralized by MSR

Term notes payable 394,772 3.72 % 50.86 n/acollateralized by MSR

Unsecured convertible 285,238 6.25 % 21.53 n/asenior notes

Total borrowings $ 18,777,669

________________

The company's wholly owned subsidiary, TH Insurance Holdings Company LLC (TH Insurance), is a member of the FHLB. As a member of the FHLB, TH(1) Insurance has access to a variety of products and services offered by the FHLB, including secured advances. However, the Company currently does not have any outstanding secured advances or any credit capacity available.

Borrowings by Collateral Type As of June 30, As of March 31, 2020 2020

(dollars in thousands) (unaudited) (unaudited)

Collateral type:

Agency RMBS and Agency Derivatives $ 16,988,592 $ 17,837,978

Mortgage servicing rights 662,229 646,915

Other - secured 2,656 7,538

Other - unsecured^(2) 285,515 285,238

Total $ 17,938,992 $ 18,777,669



Debt-to-equity ratio at period-end^ 6.3 : 1.0 6.5 : 1.0(3)

Economic debt-to-equity ratio at 7.4 : 1.0 7.0 : 1.0period-end^(4)



Cost of Funds Metrics Three Months Ended Three Months Ended June 30, 2020 March 31, 2020

(unaudited) (unaudited)

Annualized cost of funds on average 1.4 % 2.2 %borrowings during the quarter:

Agency RMBS and Agency Derivatives 1.2 % 2.0 %

Mortgage servicing rights^(5) 3.8 % 4.7 %

Other - secured 2.7 % 3.0 %

Other - unsecured^(2)(5) 6.7 % 6.7 %

____________________

(2) Includes unsecured convertible senior notes.

(3) Defined as total borrowings to fund RMBS, MSR and Agency Derivatives, divided by total equity.

(4) Defined as total borrowings to fund RMBS, MSR and Agency Derivatives, plus the implied debt on net TBA positions, divided by total equity.

(5) Includes amortization of debt issuance costs.

Conference Call

Two Harbors Investment Corp. will host a conference call on August 6, 2020 at 9:00 a.m. EDT to discuss second quarter 2020 financial results and related information. To participate in the teleconference, please call toll-free (866) 548-4713, conference code 4616655, approximately 10 minutes prior to the above start time. You may also listen to the teleconference live via the Internet on the company's website at www.twoharborsinvestment.com in the Investor Relations section under the Events and Presentations link. For those unable to attend, a telephone playback will be available beginning at 12:00 p.m. EDT on August 6, 2020, through 12:00 a.m. EDT on August 13, 2020. The playback can be accessed by calling (888) 203-1112 , conference code 4616655. The call will also be archived on the company's website in the Investor Relations section under the Events and Presentations link.

Two Harbors Investment Corp.

Two Harbors Investment Corp., a Maryland corporation, is a real estate investment trust that invests in residential mortgage-backed securities, mortgage servicing rights and other financial assets. Two Harbors is headquartered in Minnetonka, MN, and is externally managed and advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River Capital Management L.P. Additional information is available at www.twoharborsinvestment.com.

Forward-Looking Statements

This presentation includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," "assume," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believe," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2019, and any subsequent Quarterly Reports on Form 10-Q, under the caption "Risk Factors." Factors that could cause actual results to differ include, but are not limited to: the state of credit markets and general economic conditions; the ongoing impact of the COVID-19 pandemic, and the actions taken by federal and state authorities and GSEs response, on the U.S. economy, financial markets and our target assets; changes in interest rates and the market value of our assets; changes in prepayment rates of mortgages underlying our target assets; the rates of default or decreased recovery on the mortgages underlying our target assets; the occurrence, extent and timing of credit losses within our portfolio; the concentration of credit risks we are exposed to; declines in home prices; our ability to establish, adjust and maintain appropriate hedges for the risks in our portfolio; the availability and cost of our target assets; the availability and cost of financing; changes in the competitive landscape within our industry; our ability to effectively execute and to realize the benefits of strategic transactions and initiatives we have pursued or may in the future pursue; our decision to terminate our management agreement with PRCM Advisers LLC and our ability to successfully transition to a self-managed company; our ability to manage various operational risks and costs associated with our business; interruptions in or impairments to our communications and information technology systems; our ability to acquire MSR and successfully operate our seller-servicer subsidiary and oversee our subservicers; the impact of any deficiencies in the servicing or foreclosure practices of third parties and related delays in the foreclosure process; our exposure to legal and regulatory claims; legislative and regulatory actions affecting our business; the impact of new or modified government mortgage refinance or principal reduction programs; our ability to maintain our REIT qualification; and limitations imposed on our business due to our REIT status and our exempt status under the Investment Company Act of 1940.

Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Two Harbors does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these and other risk factors is contained in Two Harbors' most recent filings with the Securities and Exchange Commission (SEC). All subsequent written and oral forward-looking statements concerning Two Harbors or matters attributable to Two Harbors or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), this press release and the accompanying investor presentation present non-GAAP financial measures, such as Core Earnings and Core Earnings per basic common share that exclude certain items. The non-GAAP financial measures presented by the company provide supplemental information to assist investors in analyzing the company's results of operations and help facilitate comparisons to industry peers. However, because these measures are not calculated in accordance with GAAP, they should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. The company's GAAP financial results and the reconciliations from these results should be carefully evaluated. See the GAAP to non-GAAP reconciliation table on page 11 of this release.

Additional Information

Stockholders of Two Harbors and other interested persons may find additional information regarding the company at the SEC's Internet site at www.sec.gov or by directing requests to: Two Harbors Investment Corp., Attn: Investor Relations, 601 Carlson Parkway, Suite 1400, Minnetonka, MN, 55305, telephone (612) 453-4100.

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

June 30, December 31, 2020 2019

(unaudited)

ASSETS

Available-for-sale securities, at fair value(amortized cost $17,030,405; allowance for $ 17,673,289 $ 31,406,328 credit losses $42,583)

Mortgage servicing rights, at fair value 1,279,195 1,909,444

Cash and cash equivalents 1,615,639 558,136

Restricted cash 434,644 1,058,690

Accrued interest receivable 53,480 92,634

Due from counterparties 72,010 318,963

Derivative assets, at fair value 110,527 188,051

Reverse repurchase agreements 76,416 220,000

Other assets 167,122 169,376

Total Assets $ 21,482,322 $ 35,921,622

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities

Repurchase agreements $ 16,991,248 $ 29,147,463

Federal Home Loan Bank advances - 210,000

Revolving credit facilities 267,181 300,000

Term notes payable 395,048 394,502

Convertible senior notes 285,515 284,954

Derivative liabilities, at fair value 1,298 6,740

Due to counterparties 419,092 259,447

Dividends payable 57,269 128,125

Accrued interest payable 36,710 149,626

Commitments and contingencies - -

Other liabilities 193,025 70,299

Total Liabilities 18,646,386 30,951,156

Stockholders' Equity

Preferred stock, par value $0.01 per share;50,000,000 shares authorized and 40,050,000and 40,050,000 shares issued and outstanding, 977,501 977,501 respectively ($1,001,250 and $1,001,250liquidation preference, respectively)

Common stock, par value $0.01 per share;450,000,000 shares authorized and 273,700,059 2,737 2,729 and 272,935,731 shares issued and outstanding,respectively

Additional paid-in capital 5,158,559 5,154,764

Accumulated other comprehensive income 684,124 689,400

Cumulative earnings 612,671 2,655,891

Cumulative distributions to stockholders (4,599,656 ) (4,509,819 )

Total Stockholders' Equity 2,835,936 4,970,466

Total Liabilities and Stockholders' Equity $ 21,482,322 $ 35,921,622

TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

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

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

(unaudited) (unaudited)

Interest income:

Available-for-sale $ 105,730 $ 253,807 $ 354,414 $ 489,693 securities

Other 1,597 7,222 8,420 16,819

Total interest 107,327 261,029 362,834 506,512 income

Interest expense:

Repurchase 50,811 177,351 203,416 324,911 agreements

Federal Home Loan 155 3,941 1,747 10,015 Bank advances

Revolving credit 2,826 6,196 6,357 11,352 facilities

Term notes payable 3,553 231 8,357 231

Convertible senior 4,769 4,724 9,545 9,459 notes

Total interest 62,114 192,443 229,422 355,968 expense

Net interest income 45,213 68,586 133,412 150,544

Other-than-temporary - (4,848 ) - (5,054 )impairment losses

Other income (loss):

Gain (loss) oninvestment 53,492 22,441 (1,028,115 ) 3,149 securities

Servicing income 112,891 130,949 243,688 247,897

Loss on servicing (238,791 ) (252,432 ) (825,456 ) (441,406 )asset

Loss on interestrate swap, cap and (46,922 ) (88,775 ) (297,518 ) (172,034 )swaption agreements

Gain (loss) on otherderivative 76,606 80,664 (56,862 ) 184,942 instruments

Other income (loss) 66 (341 ) 864 (218 )

Total other loss (42,658 ) (107,494 ) (1,963,399 ) (177,670 )

Expenses:

Management fees 11,429 13,635 25,979 25,717

Servicing expenses 23,947 16,746 43,852 36,658

Other operating 13,838 14,013 28,916 29,569 expenses

Restructuring 145,069 - 145,788 - charges

Total expenses 194,283 44,394 244,535 91,944

Loss before income (191,728 ) (88,150 ) (2,074,522 ) (124,124 )taxes

(Benefit from)provision for income (18,164 ) 2,407 (31,302 ) (7,632 )taxes

Net loss (173,564 ) (90,557 ) (2,043,220 ) (116,492 )

Dividends on 18,951 18,950 37,901 37,900 preferred stock

Net lossattributable to $ (192,515 ) $ (109,507 ) $ (2,081,121 ) $ (154,392 )common stockholders

Basic loss perweighted average $ (0.70 ) $ (0.40 ) $ (7.61 ) $ (0.59 )common share

Diluted loss perweighted average $ (0.70 ) $ (0.40 ) $ (7.61 ) $ (0.59 )common share

Dividends declared $ 0.19 $ 0.40 $ 0.19 $ 0.87 per common share

Weighted averagenumber of shares of common stock:

Basic 273,604,079 272,863,153 273,498,347 262,667,160

Diluted 273,604,079 272,863,153 273,498,347 262,667,160



TWO HARBORS INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS), CONTINUED

(dollars in thousands)

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

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

(unaudited) (unaudited)

Comprehensive income (loss):

Net loss $ (173,564 ) $ (90,557 ) $ (2,043,220 ) $ (116,492 )

Other comprehensiveincome (loss), net of tax:

Unrealized gain(loss) on 192,794 310,549 (5,276 ) 666,701 available-for-salesecurities

Other comprehensive 192,794 310,549 (5,276 ) 666,701 income (loss)

Comprehensive income 19,230 219,992 (2,048,496 ) 550,209 (loss)

Dividends on 18,951 18,950 37,901 37,900 preferred stock

Comprehensive income(loss) attributable $ 279 $ 201,042 $ (2,086,397 ) $ 512,309to commonstockholders

TWO HARBORS INVESTMENT CORP.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(dollars in thousands, except share data)

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

Three Months Three Months Ended Ended June 30, March 31,

2020 2019

(unaudited) (unaudited)

Reconciliation of Comprehensive income (loss) to Core Earnings:

Comprehensive income (loss) attributable to $ 279 $ (2,086,676 )common stockholders

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

Unrealized (gain) loss on available-for-sale (192,794 ) 198,070 securities

Net loss attributable to common stockholders $ (192,515 ) $ (1,888,606 )



Adjustments for non-Core Earnings:

Realized (gain) loss on securities (54,795 ) 1,035,038

Unrealized loss on securities 110 931

Provision for credit losses 1,193 45,638

Realized and unrealized loss on mortgage 176,916 511,059 servicing rights

Realized loss (gain) on termination or 747,055 (361,853 )expiration of swaps and swaptions

Unrealized (gain) loss on interest rate swaps (756,464 ) 599,834 and swaptions

(Gain) loss on other derivative instruments (64,744 ) 138,819

Other loss (income) 61 (735 )

Change in servicing reserves 39 232

Non-cash equity compensation expense 2,398 2,315

Restructuring charges 145,069 719

Net benefit from income taxes on non-Core (18,814 ) (15,774 )Earnings

Core Earnings attributable to common $ (14,491 ) $ 67,617 stockholders^(1)



Weighted average basic common shares 273,604,079 273,392,615

Core Earnings attributable to commonstockholders per weighted average basic $ (0.05 ) $ 0.25 common share

_____________

Core Earnings is a non-U.S. GAAP measure that we define as comprehensive income (loss) attributable to common stockholders, excluding "realized and unrealized gains and losses" (impairment losses, provision for credit losses, realized and unrealized gains and losses on the aggregate portfolio, reserve expense for representation and warranty obligations on MSR, non-cash compensation expense related to restricted common stock and(1) restructuring charges). As defined, Core Earnings includes net interest income, accrual and settlement of interest on derivatives, dollar roll income on TBAs, servicing income, net of estimated amortization on MSR, management fees and recurring cash related operating expenses. Dollar roll income is the economic equivalent to holding and financing Agency RMBS using short-term repurchase agreements. Core Earnings provides supplemental information to assist investors in analyzing the Company's results of operations and helps facilitate comparisons to industry peers.

TWO HARBORS INVESTMENT CORP.

SUMMARY OF QUARTERLY CORE EARNINGS

(dollars in millions, except per share data)

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



Three Months Ended

June 30, March 31, December September June 30, 2020 2020 31, 30, 2019 2019 2019

(unaudited)

Net Interest Income:

Interest income $ 107.3 $ 255.5 $ 237.3 $ 251.1 $ 269.1

Interest expense 62.1 167.3 167.3 191.1 192.4

Net interest income 45.2 88.2 70.0 60.0 76.7

Other income:

Servicing income, net 51.0 55.2 54.6 52.7 52.7 of amortization^(1)

Interest spread on (56.3 ) (12.6 ) 4.8 19.1 22.9 interest rate swaps

Gain on otherderivative 11.9 5.3 9.0 - 16.7 instruments

Other income 0.1 0.1 0.1 0.4 0.5

Total other income 6.7 48.0 68.5 72.2 92.8

Expenses 46.8 47.0 49.4 46.2 42.9

Core Earnings before 5.1 89.2 89.1 86.0 126.6 income taxes

Income tax expense 0.6 2.6 2.5 2.0 1.6

Core Earnings 4.5 86.6 86.6 84.0 125.0

Dividends on 19.0 19.0 18.9 19.0 19.0 preferred stock

Core Earningsattributable to $ (14.5 ) $ 67.6 $ 67.7 $ 65.0 $ 106.0 common stockholders^(2)

Weighted average $ (0.05 ) $ 0.25 $ 0.25 $ 0.24 $ 0.39 basic Core EPS



Core earnings return )on average common (3.1 % 7.3 % 6.8 % 6.5 % 11.1 %equity

________________

Amortization refers to the portion of change in fair value of MSR primarily attributed to the realization of expected cash flows (runoff) of(1) the portfolio. This amortization has been deducted from Core Earnings. Amortization of MSR is deemed a non-GAAP measure due to the company's decision to account for MSR at fair value.

(2) Please see page 11 for a definition of Core Earnings and a reconciliation of GAAP to non-GAAP financial information.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200805006013/en/

CONTACT: Margaret F. Karr, Investor Relations, Two Harbors Investment Corp., (612) 446-5431 or margaret.karr@twoharborsinvestment.com