NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT April 6, 2021 | NYSE: TWO

Dear Fellow Stockholders:

On behalf of the Board of Directors of Two Harbors Investment Corp., I am pleased to invite you to our 2021 Annual Meeting of Stockholders. As in years past, we will host our annual meeting virtually via live webcast on Wednesday, May 19, 2021, at 10:00 a.m. Eastern Daylight Time, enabling all stockholders to participate fully and equally from any location at no cost.

We value the views of our stockholders and look forward to continuing our dialogue on the priorities for the company. We have highlighted the company’s achievements and shared our outlook in the Letter to Stockholders included in our 2020 Annual Report. During 2020, we maintained our focus on executing on our strategy on the behalf of our stockholders, employees and communities while navigating the challenges brought on by the COVID-19 pandemic. Although painful, we managed through the sudden and intense market volatility in March and April; positioned our portfolio strategy to focus on Agency + MSR; and we completed our transition to self-management, which will further align management’s interests with yours, as well as provide substantial cost savings. We concluded the year with strong performance in the repositioned portfolio, a solid balance sheet and ample liquidity. We are very optimistic for 2021 and believe we are well-positioned to deliver attractive risk-adjusted returns in the coming years.

It is important that your shares of common stock be represented at our Annual Meeting, regardless of the number of shares you hold and whether or not you plan to attend the virtual meeting. Accordingly, we encourage you to authorize your vote as soon as possible by following the instructions contained in the Notice of Internet Availability of Proxy Materials that you receive for our Annual Meeting, which we will commence mailing on or about April 6, 2021.

The Notice of Annual Meeting of Stockholders and Proxy Statement describe the business to be conducted at the Annual Meeting and the details for accessing the meeting webcast. We use this “Notice and Access” method of furnishing proxy materials to you over the Internet, providing you with a convenient way to access our proxy materials and vote your shares, while allowing us to reduce the environmental impact and costs of printing and distributing our Annual Meeting materials.

We hope you are able to attend our virtual Annual Meeting of Stockholders. As always, thank you for your support of Two Harbors.

Sincerely,

William Greenberg

President and Chief Executive Officer

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS 

BY ORDER OF THE BOARD OF DIRECTORS,

Rebecca B. Sandberg

Vice President, General Counsel and Secretary 

April 6, 2021

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR

THE 2021 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 19, 2021:

Our Proxy Statement and 2020 Annual Report, which includes our Annual Report on Form 10-K for the fiscal
year ended December 31, 2020, are available at www.proxyvote.com.

Table of contents

i

 

PROXY STATEMENT: EXECUTIVE Summary

 

This executive summary highlights certain information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider. You are encouraged to read the entire proxy statement carefully before voting. Page references are provided to help you find further information in this proxy statement.

 

 

 

2021 Annual Meeting of Stockholders

 

Date and Time:	Wednesday, May 19, 2021 | 10:00 a.m. Eastern Daylight Time
Website:	www.virtualshareholdermeeting.com/TWO2021
Voting Eligibility:	Common stockholders as of the record date of March 26, 2021

 

Voting Matters

 

Proposal (Page Number)	Board Recommendation
1.     Election of eight directors (p. 4)	FOR all nominees
2.     Advisory vote relating to executive compensation (p. 48)	FOR
3.     Approval of the Two Harbors Investment Corp. 2021 Equity Incentive Plan (p. 49)	FOR
4.     Ratification of Ernst & Young LLP as our independent registered public accounting firm (p. 59)	FOR

cASTING YOUR VOTE PRIOR TO THE ANNUAL MEETING

 

Each share of common stock outstanding on the record date is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on at our Annual Meeting. You may cast your vote by:

 

Internet www.proxyvote.com

Telephone 1-800-690-6903

Mail Return your proxy card in the envelope provided

 

The deadline for voting in advance of the Annual Meeting is 11:59 p.m. Eastern Daylight Time on May 18, 2021. For details on how to cast your vote, see “General Information about the Annual Meeting.”

 

 

cASTING YOUR VOTE DURING THE ANNUAL MEETING

 

You may vote during the Annual Meeting by logging in to www.virtualshareholdermeeting.com/TWO2021 and following the instructions provided. You will need the 16-digit control number included in your proxy card, voting instruction form or Notice of Internet Availability of Proxy Materials.

 

1

 

PROPOSAL 1: ELECTION OF DIRECTORS

Overview of Director Nominees

The Board of Directors has nominated the eight individuals listed below for election at the 2021 Annual Meeting. All director nominees are independent, other than our Chief Executive Officer. If elected at the Annual Meeting, all nominees are expected to serve until our next annual meeting in 2022.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES IDENTIFIED BELOW UNDER “DIRECTOR NOMINEES”.

Board Composition 

Pursuant to our Bylaws, our directors are elected by stockholders each year at our annual meeting to serve terms expiring at the next annual meeting. Our Bylaws provide that our Board of Directors may be comprised of no less than the number of directors required by the Maryland General Corporation Law and no more than 15, with the precise number to be set by our Board of Directors. The Board of Directors has set the size of our Board at nine, and our Board of Directors is currently comprised of nine directors.

Director Nominations

Action will be taken at the Annual Meeting for the election of eight directors, each to hold office until our annual meeting of stockholders to be held in 2022 and until his or her successor is duly elected and qualified. One of our current directors, Thomas E. Siering, was not nominated for reelection at our 2021 Annual Meeting, at which time his current term will expire. Proxies cannot be voted for a greater number of persons than the number of nominees named.

Information concerning each of the eight director nominees standing for election to our Board of Directors at the Annual Meeting is set forth below. Each of the nominees has been recommended for nomination by the Nominating and Corporate Governance Committee and nominated by our Board of Directors. It is expected that each of the director nominees will be able to serve, but if any such nominee is unable to serve or for good cause will not serve, the proxies reserve discretion to vote or refrain from voting for a substitute nominee or nominees.

We believe that each of the director nominees displays:

The information presented below regarding each director nominee also sets forth specific experience, qualifications, attributes and skills that led our Board of Directors to conclude that he or she should be nominated to stand for election to serve as a director.

Director Nominees

Corporate Governance Policies and Practices

Our Board of Directors is committed to maintaining the highest standards of business conduct and corporate governance. As described more fully below, we have adopted a Code of Business Conduct and Ethics applicable to the conduct of our officers and directors. We have also adopted Corporate Governance Guidelines, which, in conjunction with our Charter, Bylaws and our board committee charters, provide the framework for our corporate governance practices.

You can access our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, the charters for our Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and Risk Oversight Committee, and certain other policies under “Corporate Governance” in the Investors section of our website at www.twoharborsinvestment.com or by writing to our Investor Relations Department at Two Harbors Investment Corp., 601 Carlson Parkway, Suite 1400, Minnetonka, MN 55305.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to our officers and directors and employees when such individuals are acting for us or on our behalf. Among other matters, our Code of Business Conduct and Ethics is designed to detect and deter wrongdoing and to promote:

Any waiver of the Code of Business Conduct and Ethics for our executive officers or directors may be made only by our Board of Directors or a committee thereof and will be promptly disclosed as required by law or stock exchange regulations. The Code of Business Conduct and Ethics was adopted by the Board of Directors on October 28, 2009.

Director Independence

NYSE rules require that a majority of a company’s board of directors be composed of “independent directors,” which is defined generally as a person other than an executive officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these considerations, our Board of Directors has affirmatively determined, upon the review and recommendation of our Nominating and Corporate Governance Committee, that the following directors and director nominees each meet the qualifications of an independent director: E. Spencer Abraham, James J. Bender, Karen Hammond, Stephen G. Kasnet, W. Reid Sanders, James A. Stern and Hope B. Woodhouse.

Board Leadership Structure

Our Board of Directors is led by a Chairperson who is appointed by the directors. Both independent and non-independent directors are eligible for appointment as the Chairperson. The Chairperson presides at all meetings of our stockholders and of our Board of Directors. The Chairperson performs such other duties and

exercises such powers as from time to time shall be prescribed in our Bylaws or by our Board of Directors. Our Board of Directors has appointed Mr. Kasnet, an independent director, to serve as our Chairperson. We currently separate the roles of Chairperson and Chief Executive Officer.

Our Board of Directors consists of a majority of independent directors and exercises a strong, independent oversight function. All of the committees of our Board of Directors – the Audit, Compensation, Nominating and Corporate Governance, and Risk Oversight Committees – are comprised entirely of independent directors. A number of board committee processes and procedures, including regular executive sessions of independent directors, provide substantial independent oversight of our management’s performance. Under our Bylaws and Corporate Governance Guidelines, our Board of Directors has the ability to change its structure if it determines that such a change is appropriate and in the best interest of our company. Our Board of Directors believes that these factors provide the appropriate balance between the authority of those who oversee our company and those who manage it on a day-to-day basis. 

Board Committees

Our Board of Directors has formed four committees, including our Audit, Compensation, Nominating and Corporate Governance, and Risk Oversight Committees, and has adopted charters for each of these committees. Each committee is composed exclusively of directors who meet the independence and other requirements established by the rules and regulations of the SEC and the NYSE listing standards. Additionally, the Compensation Committee is composed exclusively of individuals intended to be, to the extent required by Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, non-employee directors. 

The following table summarizes the current membership of each of our committees.

Audit Committee 

Our Audit Committee is responsible for engaging our independent registered public accounting firm, preparing Audit Committee reports, reviewing with the independent registered public accounting firm the plans and results of the audit engagement, approving professional services provided by the independent registered public accounting firm, reviewing the independence of the independent registered public accounting firm, considering the range of audit and non-audit fees, and overseeing the adequacy of our internal accounting controls, which are established by management. 

Our Audit Committee is, and will at all times be, composed exclusively of “independent directors” as defined under the NYSE listing standards and who otherwise meet the NYSE listing standards. Each member of our Audit Committee is also financially literate, in that they are able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. 

In addition, as a listed company, we must certify that our Audit Committee has and will continue to have at least one member who is financially sophisticated in that he or she has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. Our Board of Directors has determined that each of Ms. Hammond, Mr. Kasnet and Ms. Woodhouse satisfies the definition of financial sophistication and also qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC. 

Our Audit Committee’s purpose and responsibilities are more fully set forth in its charter.

Compensation Committee 

The principal functions of our Compensation Committee are to:

Our Compensation Committee also reviews and makes recommendations to our Board of Directors regarding the compensation of our company’s independent directors. In reviewing and making recommendations on independent director compensation, our Compensation Committee considers, among other things, the following policies and principles: 

Other than our Chief Executive Officer, who also serves as a director, none of our executive officers are involved in determining independent director compensation levels, although our company’s management may support the Compensation Committee with certain information, data and other resources in connection with its compensation recommendations to our Board of Directors. 

Our Compensation Committee may delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation Committee. Our Compensation Committee’s purpose and responsibilities are more fully set forth in the Compensation Committee’s charter.

Nominating and Corporate Governance Committee 

Our Nominating and Corporate Governance Committee is responsible for seeking, considering and recommending to our Board of Directors qualified candidates for election as directors and approves and

recommends to the full Board of Directors the appointment of each of our executive officers. It also periodically prepares and submits to our Board of Directors for adoption its selection criteria for director nominees. It reviews and makes recommendations on matters involving the general operation of our Board of Directors and our corporate governance, and annually recommends to our Board of Directors nominees for each committee of our Board of Directors. In addition, the Nominating and Corporate Governance Committee annually facilitates the assessment of our Board of Directors’ performance and reports thereon to our Board of Directors. 

Our Nominating and Corporate Governance Committee considers the following factors in making its recommendations to the Board of Directors: background experience, skills, expertise, accessibility and availability to serve effectively on the Board of Directors. The Nominating and Corporate Governance Committee also conducts inquiries into the background and qualifications of potential candidates.

Our Nominating and Corporate Governance Committee’s purpose and responsibilities are more fully set forth in its charter.

Risk Oversight Committee 

The purpose of our Risk Oversight Committee is to assist our Board of Directors in fulfilling its responsibility to oversee our company’s risks, including through the review of our investment activities and data security and infrastructure. This Committee also assists our Audit Committee in reviewing the guidelines and policies that govern the process by which risk assessment and risk management is addressed by the company through its senior management team, Chief Risk Officer and Risk Management Committee.

Our company’s senior management team, Chief Risk Officer and Risk Management Committee are responsible for: (i) identifying the material risks to the company and its operations; (ii) creating and implementing appropriate risk management policies, procedures and practices; (iii) integrating the consideration of risk and risk management into the decision-making process of the company; and (iv) measuring risk and monitoring risk levels.

Our Risk Oversight Committee’s purpose and responsibilities are more fully set forth in its charter.

Role of Our Board of Directors in Risk Oversight 

Our management team is responsible for assessing and managing the risks faced by our company, subject to the oversight of our Board of Directors. Our Board of Directors is responsible for oversight of our company’s risk management processes and for understanding the overall risk profile of our company. In exercising its oversight, the Board of Directors relies upon the Audit Committee to assist it in overseeing certain risks related to our company, including the quality and integrity of our financial reports, the performance and independence of our external auditor, the performance of our internal audit function and our policies regarding accounting and financial matters and internal controls. The Risk Oversight Committee also assists the Board of Directors in fulfilling its responsibility to oversee the risks related to our company’s investment activities and the performance of our information technology and data security function, including as it relates to cybersecurity. The Risk Oversight Committee also assists the Audit Committee in reviewing the guidelines and policies that govern the process by which risk assessment and risk management is addressed by the company through its senior management team, Chief Risk Officer and Risk Management Committee.

Pursuant to our Risk Management Policy, the Chief Risk Officer is required to report to our Board of Directors on an annual basis, or more frequently as the circumstances may require or the Board of Directors may request, regarding: (i) our company’s risk management practices; (ii) our company’s compliance with the Risk Management Policy Manual; (iii) breaches and exceptions to the Risk Management Policy Manual; (iv) the membership and composition of the Risk Management Committee; and (v) changes or proposed changes to the Risk Management Policy.

Board Meetings

Our Board of Directors held 14 meetings during 2020. During certain meetings of our Board of Directors, the independent directors also met separately in executive sessions without management present to discuss various matters. During 2020, our Audit Committee held seven meetings; our Compensation Committee held eight meetings; our Nominating and Corporate Governance Committee held one meeting; and our Risk Oversight Committee held two meetings. Each of our directors attended at least 75% of the aggregate total number of meetings held by the Board and all committees on which he or she served during 2020.  Although we do not have a policy on director attendance at our annual meetings of stockholders, directors are encouraged to attend all annual meetings. Each of our then-current directors attended our virtual annual meeting of stockholders held in May 2020.

Director Nomination Process

Our Corporate Governance Guidelines provide the following minimum qualifications for directors in order to be considered for a position on our Board of Directors: 

In considering candidates for nomination as a director, the Nominating and Corporate Governance Committee generally assembles all information regarding a candidate’s background and qualifications, evaluates a candidate’s mix of skills and qualifications and determines the contribution that the candidate could be expected to make to the overall functioning of our Board of Directors. We endeavor to have a Board of Directors representing diverse backgrounds and a wide range of education and professional experience in areas that are relevant to our business and status as a publicly owned company. Accordingly, we are committed to seeking out highly qualified candidates of diverse gender and race, as well as taking into account other factors that promote principles of diversity, including diversity of a candidate’s perspective, background, nationality, age, disability and other demographics. With respect to the re-nomination of current directors, the Committee considers the foregoing factors as well as past participation in and contributions to the activities of our Board of Directors. 

Our Nominating and Corporate Governance Committee will consider candidates recommended for nomination to our Board of Directors by our stockholders. Stockholder recommendations for nominees to the Board of Directors should be submitted in writing to our Secretary. The manner in which such Committee evaluates candidates recommended by stockholders is generally the same as any other candidate. However, the Committee will also seek and consider information concerning any relationship between a stockholder recommending a candidate and the candidate to determine if the candidate can represent the interests of all of the stockholders. The Committee will not evaluate a candidate recommended by a stockholder unless the stockholder’s proposal provides a certification that the potential candidate consents to being named in our proxy statement and will serve as a director if elected.

Majority Voting for Directors and Director Resignation Policy

Our Bylaws provide that a director nominee will be elected by receiving the affirmative vote of a majority of the votes cast on the election of such nominee on a per nominee basis in an uncontested election (which occurs when the number of director nominees is the same as the number of directors to be elected). If a director nominee who is an incumbent director receives a greater number of votes “against” than votes “for”

his or her election and with respect to whom no successor has been elected, such incumbent director shall promptly tender his or her offer to resign to our Board of Directors for its consideration following certification of the stockholder vote. Within 90 days following certification of the stockholder vote, our Nominating and Corporate Governance Committee shall consider the tendered resignation offer and make a recommendation to our Board of Directors whether or not to accept such offer, and our Board of Directors shall act on our Nominating and Corporate Governance Committee’s recommendation. In determining whether to accept the resignation, our Nominating and Corporate Governance Committee and Board of Directors may consider any factors they deem relevant in deciding whether to accept a director’s resignation, including, among other things, whether accepting the resignation of such director would cause our company to fail to meet any applicable stock exchange or SEC rules or requirements. Thereafter, our Board of Directors shall promptly and publicly disclose its decision-making process regarding whether to accept the director’s resignation offer or the reasons for rejecting the resignation offer, if applicable, on a Form 8-K furnished to the SEC. Any director who tenders his or her resignation will not participate in our Nominating and Corporate Governance Committee’s recommendation or our Board of Directors’ action regarding whether to accept the resignation offer. If our Board of Directors does not accept the director’s resignation, such director will continue to serve until the next annual meeting of stockholders and until such director’s successor is duly elected and qualified and until the director’s earlier resignation or removal.

In a contested election, the director nominees who receive a plurality of votes cast will be elected as directors. Under the plurality standard, the number of persons equal to the number of vacancies to be filled who receive more votes than other nominees are elected to our Board of Directors, regardless of whether they receive a majority of votes cast.

Communications with our Board of Directors

We provide the opportunity for our stockholders and all other interested parties to communicate with members of our Board of Directors. Stockholders and all other interested parties may communicate with the independent Board members or the chairperson of any of the committees of the Board by email or regular mail. All communications should be sent to the company’s Secretary, Rebecca B. Sandberg, by email to legal@twoharborsinvestment.com or by regular mail to the attention of the Independent Directors, the Chair of the Audit Committee, the Chair of the Compensation Committee, the Chair of the Nominating and Corporate Governance Committee, or the Chair of the Risk Oversight Committee, as the case may be, in each instance in care of the Secretary at the company’s office at 601 Carlson Parkway, Suite 1400, Minnetonka, MN 55305. 

Our Secretary will review each communication received in accordance with this process to determine whether the communication requires immediate action. The Secretary will forward all appropriate communications received, or a summary of such communications, to the appropriate member(s) of our Board of Directors. However, we reserve the right to disregard any communication that we determine is unduly hostile, threatening or illegal, or does not reasonably relate to us or our business, or is similarly inappropriate. The Secretary has the authority to disregard any inappropriate communications or to take other appropriate actions with respect to any such inappropriate communications. 

Stockholder proposals must be made in accordance with the procedures set forth in our current Bylaws or the procedures set forth in Rule 14a-8 of the Exchange Act and not the procedures set forth in the preceding paragraph or the procedures set forth under “Corporate Governance and Board of Directors – Director Nomination Process” above. Nominations for the Board of Directors may only be made in accordance with the procedures set forth in our Bylaws. Certain matters set forth in our Bylaws for stockholder proposals, including nominations for our Board of Directors, as well as certain matters set forth in Rule 14a-8 for stockholder proposals are described in “Other Matters – Stockholder Proposals and Director Nominations for 2022 Annual Meeting” in this proxy statement.

Director Compensation

We compensate the independent members of our Board of Directors for their service. It is our belief that director compensation should:

We compensate our independent directors with a mix of cash compensation and equity awards. We do not pay any compensation to non-independent directors for service, however, all members of our Board of Directors are reimbursed for their costs and expenses of serving on the Board of Directors, including costs and expenses of attending all meetings of our Board of Directors and its committees. As discussed above, the Compensation Committee Charter provides that the Compensation Committee has the primary responsibility for reviewing and recommending any changes to director compensation. Our Board of Directors reviews the Compensation Committee’s recommendations and determines the amount of director compensation.

Independent Director Compensation for 2020

For the one-year term commencing upon their election at the 2020 annual meeting of stockholders and ending at the Annual Meeting, our independent directors were eligible to earn the following fees for their service:

The cash portion of these annual fees is paid in four equal quarterly installments over the course of the term. The restricted stock portion of the annual director fee was granted under our Second Restated 2009 Equity Incentive Plan (the “2009 Equity Incentive Plan”), which occurs on the date of the annual meeting of stockholders at which such director is elected. The number of shares subject to issuance is determined using the fair market value of our common stock on the grant date, which is based on the closing market price on the NYSE on the grant date. The restricted stock granted to the independent directors under the 2009 Equity Incentive Plan as part of the director fees noted above fully vests on the one year anniversary of the grant date, so long as such director has complied with the terms and conditions of the applicable award agreement. In the event the director’s service terminates prior to expiration of their term for any reason other than death or disability, the director will vest in a number of shares of their award prorated to reflect the proportionate number of days served during such term. If the director’s service ends on account of death or disability, then the director will become vested in all shares awarded for such term. In the event the company experiences a change of control during the director’s term and, within twenty-four (24) months of the change in control the director’s service is terminated (as described in the 2009 Equity Incentive Plan), then the director will vest in all shares awarded for such term on the date such director’s service terminates (or immediately prior to the change of control if the resulting entity in the change of control has not assumed the director’s award agreement).

The following table shows the compensation of our independent directors for services in all capacities provided to us in the year ended December 31, 2020:

Director Stock Ownership Guidelines

Our directors are encouraged to own shares of our common stock in order to better align their personal interests with the interests of our stockholders. In furtherance of this objective, our directors are not permitted to sell shares of our common stock if, upon completion of such sale, the aggregate number of shares of our common stock owned by such director would have a market value of less than $300,000. For tax planning purposes, our directors are permitted to forfeit up to 40 percent of their annual stock award upon vesting and instead receive a cash payment from the company in an amount equivalent to the number of shares withheld. Under our Insider Trading Policy, our directors are prohibited from both hedging company stock and from pledging company stock in any manner, whether as collateral for a loan, in a margin account held at a broker, or otherwise.

Certain Relationships and Related Party Transactions

Compensation Committee Interlocks and Insider Participation

None of the members of our Compensation Committee or Nominating and Corporate Governance Committee is or has been employed by us. None of our executive officers currently serves as a member of the board of directors or compensation committee of another entity that has one or more executive officers serving on our Board of Directors or our Compensation or Nominating and Corporate Governance Committees, except that prior to becoming an internally managed company on August 15, 2020, each of Messrs. Siering and Greenberg (our former and current Chief Executive Officers, respectively) participated in making compensation decisions for officers and employees of our former external manager, PRCM Advisers, and its affiliates.

Transactions with Related Persons

Management Agreement with PRCM Advisers LLC

We were party to a Management Agreement with PRCM Advisers until August 14, 2020, pursuant to which PRCM Advisers was responsible for the day-to-day management of our business, including our executive officers and all other personnel necessary to support our operations. The Management Agreement required PRCM Advisers to manage our business in conformity with the policies and the investment guidelines that were approved and monitored by our Board of Directors. The Management Agreement had an initial three-year term, which expired on October 28, 2012, and renewed annually for successive one-year terms unless earlier terminated by either us or PRCM Advisers. On April 13, 2020, the company announced that it elected not to renew the Management Agreement with PRCM Advisers and on July 21, 2020, the company announced that it provided PRCM Advisers with a notice of termination of the Management Agreement for “cause.” Under the terms of Management Agreement, a termination fee is not payable in connection with a termination for “cause.” In exchange for its services, during the term of the Management Agreement we were obligated to pay PRCM Advisers a management fee as well as reimburse it for certain expenses incurred by it and its affiliates in rendering management services to us. Mr. Greenberg, our Chief Executive Officer, Mr. Koeppen, our Chief Investment Officer, Ms. Riskey, our Chief Financial Officer, and Ms. Sandberg, our General Counsel, Secretary and Chief Compliance Officer, were each employees of an affiliate of PRCM Advisers and provided services to us under the Management Agreement until it was terminated. The Management Agreement between us and PRCM Advisers was negotiated on our behalf by and between related parties in connection with our merger with Capitol Acquisition Corp. in 2009, and as a result, the terms, including fees and other amounts payable to PRCM Advisers, might not have been as favorable to us as if they had been negotiated with an unaffiliated third party.

We incurred charges of $51.0 million for the period commencing January 1, 2020 and ending August 14, 2020, the termination date, related to the Management Agreement, of which $31.7 million represented the base management fee and $19.3 million represented expense reimbursements to PRCM Advisers for the general and administrative expenses it incurred on behalf of the company in the normal course of operations and certain compensation expenses incurred by PRCM Advisers for non-investment personnel providing services to the company under the Management Agreement, as described in greater detail below.

The base management fee paid to PRCM Advisers was equal to 1.5% of our stockholders’ equity per annum, calculated and payable quarterly in arrears. For purposes of calculating the base management fee, our stockholders’ equity means the sum of the net proceeds from all issuances of our equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus our retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less the consolidated stockholders’ equity of Granite Point Mortgage Trust Inc., or Granite Point, during the time Granite Point was consolidated on our balance sheet (i.e., prior to the spin-off in 2017), the weighted average cost basis of Granite Point common stock purchased, the outstanding principal balance of the promissory note due from the sale of Granite Point preferred stock and any amount that we have paid for repurchases of our common stock since inception, and excluding any unrealized gains, losses or other items that do not affect realized net income (regardless of whether such items are included in other comprehensive income or loss, or in net income). In connection with the acquisition of CYS Investments, Inc. in July 2018, the Management Agreement was amended to: (i) reduce the base management fee with respect to the additional equity under management resulting from the merger to 0.75% per annum from the effective time through the first anniversary of the effective time; (ii) for the fiscal quarter in which closing of the merger occurred, to make a one-time downward adjustment of the base management fee for such quarter by $15.0 million; and (iii) for the quarter in which the closing of the merger occurred, to make an additional downward adjustment of up to $3.3 million for certain transaction-related expenses. The resulting amount of stockholders’ equity to be used in the calculation of the base management fee was adjusted to exclude one-time events pursuant to changes in accounting principles generally accepted in the United States of America, or U.S. GAAP, and certain

non-cash items after discussions between PRCM Advisers and our independent directors and approval by a majority of our independent directors. To the extent asset impairments reduced our retained earnings at the end of any completed calendar quarter it would reduce the base management fee for such quarter. Our stockholders’ equity for the purposes of calculating the base management fee could have been greater than the amount of stockholders’ equity shown on the consolidated financial statements.

As noted above, under the Management Agreement we were responsible for reimbursing PRCM Advisers for all of the compensation expenses of PRCM Advisers and its affiliates relating to our Chief Financial Officer and General Counsel and other personnel who were dedicated to our business, including those personnel providing us with in-house legal, tax, accounting, consulting, auditing, administrative, information technology, valuation, computer programming and development services. In 2020, we reimbursed Pine River a total of $1.4 million for compensation expenses paid to our Chief Financial Officer and General Counsel.

Transactions with Significant Stockholders

From time to time we may engage in ordinary course relationships and commercial transactions with our significant stockholders, or their subsidiaries, that are deemed to be related pursuant to SEC rules.

Related Person Transaction Policies 

Our Audit Committee charter requires our Audit Committee to review, approve and oversee any related party transactions involving our company and also authorizes such Committee to develop policies and procedures for its approval of related party transactions.

Until August 14, 2020, the Management Agreement placed restrictions on PRCM Advisers from entering into transactions with its related parties. These limitations included prohibitions on entering into transactions with affiliates of PRCM Advisers that were not approved by a majority of our independent directors in certain circumstances and prohibitions on investing in securities structured by affiliates of PRCM Advisers unless the investment was consistent with our investment guidelines, was approved by at least one independent director, and was made in accordance with applicable law.

Stock Ownership

Beneficial Owners of More than Five Percent of Our Common Stock

Based on filings made under Section 13(g) of the Exchange Act, the persons known by us to be beneficial owners of more than 5% of our common stock are as follows:

Beneficial Ownership of Directors, Director Nominees and Named Executive Officers

Our common stock is listed on the NYSE under the symbol “TWO.” As of March 26, 2021, we had approximately 612 registered holders and 107,504 beneficial owners of our common stock. The following table sets forth information regarding the beneficial ownership of our common stock as of March 26, 2021 (unless otherwise indicated) by each of our executive officers, current directors and director nominees and all of such individuals as a group.

Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. A person is deemed to be the beneficial owner of any shares of common stock if that person has or shares voting power or investment power with respect to those shares or has the right to acquire beneficial ownership at any time within 60 days of the date on which it is calculated. “Voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or direct the disposition of shares.

*        Represents ownership of less than 1.0% of our outstanding common stock as of March 26, 2021.

EXECUTIVE OFFICERS

Our Board of Directors generally appoints our executive officers annually following our annual meeting of stockholders to serve until the meeting of the Board of Directors following the next annual meeting of stockholders. Set forth below is certain information about each of our executive officers.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis provides an overview of our executive compensation program and an analysis of the decisions made by our Compensation Committee to assist with understanding our executive compensation objectives and policies for the fiscal year ended December 31, 2020, including the identity of our 2020 named executive officers and a summary of our 2020 performance.

On August 15, 2020, we became an internally managed company. As a result, this Compensation Discussion and Analysis will also provide an overview of a number of changes in our executive compensation program as we transitioned from an externally managed to an internally managed company as well as our new 2021 executive compensation program, and is organized as follows:

2020 Named Executive Officers

In 2020, our named executive officers were:

* Messrs. Greenberg and Koeppen were appointed as our Chief Executive Officer and Chief Investment Officer, respectively, effective June 24, 2020; prior to this date, they served as our Co-Chief Investment Officers. Mr. Siering served as Chief Executive Officer until June 24, 2020; he did not become a company employee upon our internalization.

2020 Performance Summary

The following is a summary of the company’s key accomplishments and financial performance for 2020.

¹ This calculation is based on stockholders' equity as of June 30, 2020 and excludes equity-based compensation expense related to the amortization of restricted stock and nonrecurring expenses. 

2020 Compensation Program

Transition of our Compensation Program as a Result of Becoming Internally Managed

Until August 15, 2020, we were an externally managed company with no employees. While our Compensation Committee is responsible for equity compensation awarded to our named executive officers, until August 15, 2020 our external manager was responsible for all cash compensation payable to our named executive officers for the services they provided to us as executive officers, including base salary and annual incentive compensation. Though it consulted with our Compensation Committee on cash compensation matters with respect to certain of our named executive officers, our external manager made all decisions relating to cash compensation paid to our named executive officers based on such factors as it determined appropriate.

On August 15, 2020, we completed our transition to self-management and became an internally managed company. Each of our current named executive officers became employed by us on that date, and we began to pay their compensation directly. Our Compensation Committee promptly began the process of developing and implementing a compensation program that is reflective of our company’s financial and strategic objectives and aligned with the interests of our stockholders.

The following discussion will focus on the elements of our 2020 compensation program, both before and after we became an internally managed company, other than cash compensation paid to our executive officers prior to our becoming internally managed, which is discussed in the section titled “Former Compensation Program Prior to Becoming Internally Managed” beginning on page 36.

Elements of our 2020 Compensation Program

Following our transition to self-management on August 15, 2020, the Compensation Committee determined that, for the remainder of 2020, it would honor the compensation programs for current executive officers that had been in place for the majority of 2020, but apply its judgment in making any adjustments to base salaries and finalizing actual incentive awards for the 2020 performance year.

2020 Base Salaries

The only pay adjustment the Compensation Committee approved for 2020 was to increase the salary for Mr. Greenberg to reflect his new role as the company’s Chief Executive Officer. The base salaries that were in effect at December 31, 2020 are set forth in the table below.

2020 Annual Incentive Awards

Our named executive officers were eligible to receive an annual cash incentive award for the 2020 performance year, though the company did not define target bonus opportunities during 2020. Under the 2020 program, the annual incentive pool was to be funded based on the company’s performance against thirteen performance objectives established at the beginning of the year, with the final pool to be allocated to individuals by the Compensation Committee based on their contributions.

The COVID-19 pandemic struck the U.S. shortly after the annual incentive goals were defined in 2020. While these goals remained relevant to the company’s overall business strategy, management’s priorities necessarily evolved, reflective of both the impact of the pandemic on the economy and our business as well as the decision of our Board to end our external management structure and transition to internal management. Following 2020, the Compensation Committee took into consideration these matters as well as other key business accomplishments during the year when determining to approve the funding of the annual incentive pool. Specific achievements the Compensation Committee considered in making its determinations include, among other things:

In allocating awards to the named executive officers, the Compensation Committee considered individual contributions to 2020 company performance. The annual cash incentive awards for the executive officers for the 2020 performance year are below:

2020 Long-Term Incentive Awards (2019 Performance Year)

In January 2020, our Compensation Committee and Board of Directors approved the grant of an aggregate of $4,850,000 in shares of restricted common stock under our 2009 Equity Incentive Plan to our named executive officers, which awards are set forth in greater detail below under “Grants of Plan-Based Awards.” These restricted stock awards, which were granted as compensation for the 2019 performance year and vest ratably over a three-year period following the grant date, were granted to our named executive officers under the company’s historical long-term incentive program, which provided for the funding of a pool of equity compensation based on company performance against pre-defined relative measures of performance.

In determining whether to approve the funding of the equity pool, our Compensation Committee considered a number of key company results and developments for the fiscal year ended December 31, 2019, including that the company:

In approving the individual awards allocated from the equity pool to our named executive officers, our Compensation Committee took into account all of the factors described above, as well as the individual’s contributions in attaining the achievements noted above, the individual’s expected and actual job performance, the individual’s role, responsibilities and tenure, the value of the award in retaining and motivating key personnel, comparable compensation data for similarly situated peers and economic and market conditions generally.

As discussed in more detail below under “New Compensation Program Elements for 2021 and Beyond”, the company’s new long-term incentive award framework will include pre-established forward-looking relative and absolute performance metrics, which the Compensation Committee believes will be better suited to encourage long-term strategic decision making that more closely aligns the interests of our executive officers with that of our stockholders.

New Executive Compensation Program for 2021 and Beyond

Executive Compensation Program Philosophy, Design and Objectives

As part of our transition to self-management, the Compensation Committee together with its independent compensation consultant, Pay Governance LLC (“Pay Governance”), and management worked to define a compensation philosophy that supports our company’s business and talent strategies.

We believe a critical part of our company’s success depends on creating, implementing and maintaining an appropriate and competitive compensation program that motivates and incentivizes our executive officers and key employees both in the near and long-term. We also believe that as an internally managed public company, our compensation program should be designed to align the interests of our executive officers and other key employees with those of our stockholders.

The following core principles provide a framework for our executive compensation program:

Compensation Program Elements

Our Compensation Committee believes it is important to compensate our named executive officers with a compensation package that balances short- and long-term compensation and cash and equity-based compensation. As described in more detail below in “Peer and Competitive Market Positioning” on page 34, the Compensation Committee instructed its independent compensation consultant, Pay Governance, to gather competitive market data on pay levels and pay practices within our industry and broader financial services companies. Considering this data and Pay Governance’s advice over numerous meetings in late 2020 and early 2021, the Compensation Committee approved a framework for our named executive officers' compensation packages, which include three primary elements: base salary, annual cash incentive payments and long-term equity incentive compensation, each of which are summarized below.

In addition to implementing a more competitive and performance-based pay structure, the Compensation Committee is undertaking a holistic review of executive pay levels to ensure that the mix of fixed and variable pay that is at-risk is appropriate for an internally managed company. We describe all of the various elements of our executive compensation program in more detail below.

Base Salary

A portion of annual cash compensation is paid to our named executive officers as base salary to provide a competitive level of pay for the execution of their key responsibilities. The Compensation Committee will review base salaries on an annual basis to ensure that they are market competitive and reflect the role, responsibilities and tenure of their positions. As discussed above, we hired our current named executive officers in 2020, following our internalization, at the salaries then in effect. Subsequently, Mr. Greenberg received a salary increase in connection with his promotion to Chief Executive Officer.

Annual Cash Incentives

Our Compensation Committee has worked with Pay Governance to design and implement an annual cash incentive component of our compensation program that will provide the opportunity for our executive officers to earn an annual cash incentive, which is designed to link pay to performance by motivating and rewarding our named executive officers for achieving annual financial and non-financial goals and objectives established for the company by the Compensation Committee.

Under this annual cash incentive program, at the beginning of each fiscal year, the Compensation Committee will approve a target award, expressed as a percentage of base salary, for each executive officer. The Committee will pre-establish the specific performance measures, weightings, and goals and objectives applicable to each officer. For each performance measure, a threshold, target and maximum level of performance is defined, which have corresponding payout percentages. Following the end of the fiscal year, the Compensation Committee will review the company’s actual performance against each of the pre-established performance measures and determine the level of performance achieved, per the design formula, along with a corresponding payout percentage. The Compensation Committee will also approve the actual award payouts for each of the named executive officers.

For 2021, the Compensation Committee has determined that the annual cash incentive for each named executive officer will be determined based on:

The Committee believes that this ratio places an appropriate emphasis on overall company financial results, while acknowledging the critical importance of our executive officer’s individual contributions to our company’s performance. The Committee believes using both relative and absolute objective measures of performance provides a balanced assessment of company performance.

Long-Term Incentives

Our Compensation Committee believes that equity incentive compensation is an important component of our executive compensation package and is critical in attracting, motivating and retaining outstanding employees. Equity incentive compensation closely aligns the long-term interests of our executive officers with those of our stockholders, while at the same time promoting long-term employee retention and driving sustained long-term value for our stockholders.

In connection with our transition to an internally managed company, our Compensation Committee has worked with Pay Governance to design and implement a new long-term incentive framework that will serve as an important component of the company’s overall compensation philosophy going forward. Under this new framework, there will be a greater emphasis on performance-based compensation, through the use of performance share units (or PSUs) as well as time-based restricted stock units (or RSUs) granted pursuant to our proposed 2021 Equity Incentive Plan (described in “Proposal 3: Approval of the Two Harbors Investment Corp. 2021 Equity Incentive Plan” beginning on page 49). The Committee believes that using a mix of performance share units and restricted stock units will encourage our executives to focus on long-term company financial performance measures that are important to the continued success of our company and our stockholders while promoting the retention of our executive officers through the establishment of long-term vesting horizons embedded in the restricted stock units.

Our Compensation Committee expects to provide our executive officers with long-term incentive compensation that is a mix of performance share units and restricted stock units, with at least 50% in performance share units.

the form of additional PSUs during the vesting period and are subject to the same vesting conditions as the underlying PSU award. The PSUs may be earned based on absolute and relative total stockholder return (or TSR), equally split, with relative metrics assessed against a pre-determined performance peer group approved by the Compensation Committee. In using three-year absolute and relative TSR for the long-term incentive performance metrics, the Compensation Committee believes that the mix of absolute and relative financial performance metrics provides a more balanced assessment of the company’s overall performance.

Health, Welfare, Retirement and Other Personal Benefits

Our executive officers participate in a broad-based 401(k) retirement savings and profit sharing plan that is available to all of the company’s employees. Under this plan, employees are allowed to contribute up to the annual amount allowable by law and the company makes a minimum annual contribution of 3% of eligible compensation as a profit sharing contribution. We do not provide any other pension plans, supplemental retirement plans or deferred compensation plans for our executive officers.

Additionally, all of our executive officers have the opportunity to participate in medical, dental, vision, disability, life and long-term care insurance, and health care savings and flexible dependent care accounts as well as qualified transportation benefits, all of which are provided generally to all of our employees.

We do not provide excessive or unique perquisites for the personal benefit of our named executive officers. We may from time to time provide limited benefits such as reserved office parking or other benefits that could potentially have a mixed work and personal benefit, such as Wi-Fi service during air travel or mobile phone usage, the costs of which are expected to be minimal and below any applicable reporting threshold.

Employment, Severance and Change of Control Arrangements

Employment Agreements

We do not have any employment agreements with any of our named executive officers. Each of our executive officers is a party to our standard employee confidentiality agreement signed by all company employees, which includes, among other things, confidentiality, inventions assignment, non-disparagement and non-solicitation provisions.

Severance Benefits Plan

The company provides for the payment of severance benefits upon certain types of employment terminations through the Two Harbors Investment Corp. Severance Benefits Plan (“Severance Benefits Plan”). The severance and change of control benefits in the Severance Benefits Plan are intended to be competitive with peers as well as general industry practices and have been established primarily to attract and retain talented and experienced executives, and reduce the personal uncertainty that executives are likely to feel when considering a corporate transaction. These arrangements also provide valuable retention incentives that focus executives on completing such transactions, thus, enhancing long-term stockholder value. The compensation under the various circumstances that trigger payments or provision of benefits upon termination or a change of control was chosen to be broadly consistent with prevailing competitive practices.

Severance-related benefits are provided only if the executive executes a separation agreement, which includes a general release, non-compete and non-solicitation, non-disparagement and confidentiality provisions. Benefits under the Severance Benefits Plan are not available if an executive is terminated for “cause” or otherwise is deemed ineligible under the Plan, and are subject to termination and the right of the company to clawback certain benefits if the executive violates the terms of any separation agreement entered into in exchange for severance benefits or any other restrictive covenant applicable to the executive officer.

The potential severance benefits payable under the Severance Benefits Plan are detailed in the narrative to the “Potential Payments Upon Termination of Employment or Change of Control” table beginning on page 42.

Change of Control Arrangements

Under our Severance Benefits Plan and our 2009 Equity Incentive Plan, a “change of control” is generally defined as (i) any person or group becomes the owners of more than 50% of our then-outstanding common stock or the combined voting power of our then outstanding voting securities, (ii) members of our Board at the beginning of any consecutive 24-month period cease to constitute at least a majority of our Board for any reason other than death or disability, or (iii) upon the completion of certain business combinations, including a merger or a sale of substantially all of the company’s assets. Our proposed Two Harbors Investment Corp. 2021 Equity Incentive Plan, if adopted, will have a similar definition of “change of control,” though the Compensation Committee may vary the terms and conditions of the awards made thereunder to executives from those described above.

For information about the potential payments pursuant to long-term equity incentive awards made under our 2009 Equity Incentive Plan to executives in the event of a change of control, please see the section below titled “Potential Payments Upon Termination or Change of Control” on page 42.

Governance Framework for our New Executive Compensation Program

How We Make Compensation Decisions

Role of the Compensation Committee

Our Compensation Committee, which is comprised entirely of independent directors, is responsible for establishing and overseeing our executive compensation program and makes all decisions relating to the compensation of our named executive officers. The Compensation Committee is also responsible for ensuring that the total compensation paid to our named executive officers is fair, competitive and aligns their interests with that of our stockholders. As required by its charter, the Compensation Committee periodically reviews the company's compensation policies and programs and makes any modifications that the Compensation Committee deems necessary or advisable, subject to the terms of such policies or programs. The Compensation Committee also annually reviews and approves the company's goals and objectives relevant to the compensation of the named executive officers and other key employees of the company. When making compensation decisions, the Compensation Committee considers peer and competitive market data and the recommendations of its independent compensation consultant as well as information provided by our human resources department with respect to each of the named executive officers. Our Compensation Committee is focused on implementing an overall compensation program that emphasizes retention of key personnel, pay based on performance and alignment of interests with stockholders.

Role of the Independent Compensation Consultant

In 2020, our Compensation Committee engaged Pay Governance as its independent compensation consultant. The compensation consultant provides various services to the Compensation Committee, including advising the Compensation Committee on the principal aspects of our compensation program and evolving industry practices and presenting information to assist the Compensation Committee in determining the appropriate peer group to be used to evaluate the competitiveness of our equity compensation program. Our Compensation Committee considers advice and recommendations received from its compensation consultant regarding compensation matters, including when making decisions with respect to director compensation and executive equity compensation. During 2020, Pay Governance provided a range of services at the Compensation Committee’s request, including but not limited to guidance on various matters related to 2020 compensation of executive officers and senior management, executive compensation policies and plans, and providing guidance on the design, structure and implementation of a new 2021 executive compensation program that reflects the company’s transition to an internally managed company.

Pay Governance does not provide services to our company other than the advice provided to our Compensation Committee, and Pay Governance had advised our Compensation Committee that the payments for fees and direct expense reimbursements it received from us during 2020 were immaterial as a percentage of their income for the period. Pay Governance has also advised us that neither they nor, to their knowledge, any member of their consulting team who provides services to our Compensation Committee owns any shares of our common stock. After considering the foregoing, as well as Pay Governance’s conflict of interest policies and procedures and the lack of known business and personal relationships between Pay Governance, its team members providing services to our Compensation Committee and its members, and our named executive officers, our Compensation Committee concluded that Pay Governance’s work for it does not raise any conflict of interest concerns.

The Compensation committee reviews its relationship with Pay Governance annually, including the factors impacting Pay Governance’s independence under the rules of the Securities and Exchange Commission and the listing standards of the New York Stock Exchange.

Role of Management

Our Compensation Committee makes all compensation decisions related to our named executive officers. Our Compensation Committee receives input from our Chief Executive Officer regarding the compensation and performance of named executive officers (other than himself), including recommendations as to the compensation levels that he believes are commensurate with an individual’s job performance, skills, experience, qualifications, criticality to our company, as well as with our compensation philosophy, external market data and considerations of internal equity. Our Chief Executive Officer regularly attends meetings of our Compensation Committee, except when our Compensation Committee is meeting in executive session or when the Chief Executive Officer’s own compensation arrangements are being considered. Our Compensation Committee communicates its views and decisions regarding compensation arrangements for our named executive officers to the Chief Executive Officer, who is generally responsible for overseeing the implementation of such arrangements.

Peer and Competitive Market Positioning

To assist in making decisions regarding the compensation of our named executive officers, our Compensation Committee works with Pay Governance to engage in a comprehensive review of competitive market data from a group of publicly traded companies in specific industries in which we compete for executive talent, among other factors. The market data reviewed includes peer proxy data of companies that are similar in size, industry and management structure. We also use information derived from industry compensation surveys as an additional reference point for total cash and total direct compensation levels where publicly available proxy data is unavailable or insufficient. Because there are relatively few companies in our industry that are similar in size and management structure, and no other companies with the same business model of pairing Agency RMBS with MSR, our Compensation Committee may consider a number of objective criteria in order to select a peer group to provide the best comparison for the purpose of benchmarking our executive compensation practices, including but not limited to:

In reviewing and assessing 2020 executive compensation levels, the peer companies used for executive pay benchmarking included:

Upon becoming an internally managed company in August 2020, our Compensation Committee undertook a holistic review of our compensation practices with the objective of implementing a more competitive and performance-based pay structure, including a review of executive pay levels to ensure that the mix of fixed and variable pay that is at-risk is appropriate for an internally managed company. In developing our new executive compensation program for 2021 and beyond, our Compensation Committee, with the assistance of Pay Governance, reviewed the compensation practices at eight

internally managed publicly-traded mortgage REITs of reasonably similar size, business scope and complexity for the purpose of benchmarking various executive compensation program elements. The Compensation Committee assessed the incentive design structure of these companies and focused on incentive design practices that were typical and represented best practices, while also recognizing the company’s own unique business strategy and objectives. The Compensation Committee periodically reviews the composition of the peer group and, as appropriate, updates it to ensure continued relevance and to reflect mergers, acquisitions or other business related changes that may occur.

Information concerning the final peer group composition for the new 2021 executive compensation program will be included in the Compensation Discussion and Analysis section included in the proxy statement for our 2022 annual meeting of stockholders in connection with our discussion of 2021 performance and compensation.

Stock Ownership Guidelines

We have adopted robust stock ownership guidelines for our executive officers requiring them to own, within five years of adoption of the policy or becoming subject to the policy, a minimum amount of our common stock based on a multiple of their base salary. The requirement is five times (5x) for our Chief Executive Officer and three times (3x) for our other named executive officers and certain members of our senior management team. Until the foregoing ownership requirements are met, each is expected to retain the shares of common stock received upon vesting of any long-term equity incentive compensation, net of any shares withheld or sold to pay withholding tax obligations associated with such vesting. Shares of common stock held directly or indirectly and for which the officer has voting and dispositive power, and shares underlying restricted stock awards or restricted stock unit awards granted under our 2009 Equity Incentive Plan (or any future equity plan approved by stockholders), whether vested or unvested, are included in determining the number of shares held for this purpose, net of anticipated tax withholdings. Shares that are indirectly beneficially owned (e.g., shares owned by an immediate family member) and shares of unvested performance share units are not eligible to be counted toward the minimum stock ownership requirements.

The following table sets forth the total stock ownership and value thereof for each of our current named executive officers, including beneficially owned and unvested shares, as calculated pursuant to our stock ownership guidelines as of March 26, 2021:

Incentive Compensation Recoupment (Clawback) Policy

Our Incentive Compensation Recoupment Policy enables us to reduce or cancel unvested long-term equity incentive awards and recover previously paid cash and equity incentive compensation to our named executive officers and other senior executives in certain circumstances.

Under this policy, in the event of a restatement of the company’s financial statements as a result of material noncompliance with financial reporting requirements, we would be entitled to recover all or any part

of cash or equity incentive compensation paid to a covered officer that the Board of Directors determines was in excess of the amount that such person would have received had their incentive compensation been calculated based on the financial results in the restated financial statements. We can also recover compensation from covered officers in the event of certain misconduct that the Board of Directors, in its discretion, determines is likely to cause or has caused material financial, operational or reputational harm to the company. This policy includes a three-year look back period.

While incentive compensation awards are intended and expected to be paid and vest in accordance with their terms, we believe our strong Incentive Compensation Recoupment Policy provides our Board of Directors with the appropriate discretion to hold our named executive officers and other executives accountable for actions that are detrimental to our company.

Hedging and Pledging

Our Insider Trading Policy prohibits our executive officers from engaging in a number of transactions with respect to shares of the company’s common stock or other covered securities, including but not limited to: entering into hedging or monetization transactions with respect to company securities; pledging or margining company securities as collateral for a loan; and engaging in short sales or entering into any put, call or derivative transaction where he or she would earn a profit or offset losses due to changes in our stock price.

Tax Treatment of Compensation

Section 162(m) of the Internal Revenue Code generally precludes a public corporation from taking an income tax deduction in any one year for compensation in excess of $1 million payable in any year to the corporation’s covered employees, as defined in Section 162(m). Prior to January 1, 2018, an exception to this deduction limit was available for “performance-based” compensation that was approved by stockholders and otherwise satisfied certain requirements under Section 162(m). Following the enactment of the Tax Cuts and Jobs Act of 2017, beginning with the 2018 calendar year, the covered employees subject to this limitation include any individual who serves as our chief executive officer, chief financial officer or one of our other three most highly compensated executive officers and there is no longer any exception for performance-based compensation.

While our executive compensation program seeks to maximize the tax deductibility of compensation payable to our named executive officers, to the extent permitted by law, the Compensation Committee believes that, in establishing the executive compensation program, the potential deductibility of the compensation should be only one of a number of relevant factors taken into consideration. The Compensation Committee believes it is important to maintain maximum flexibility in structuring compensation at the requisite level to attract and retain the individuals essential to our financial success, even if all or part of that compensation may not be deductible by reason of Section 162(m) of the Internal Revenue Code.

Our executive plans and agreements that are subject to Section 409A of the Internal Revenue Code are intended to comply with Section 409A of the Internal Revenue Code.

Former Compensation Program Prior to Becoming Internally Managed

As described more fully under the section titled “Certain Relationships and Related Party Transactions – Transactions with Related Persons – Management Agreement with PRCM Advisers LLC,” prior to August 15, 2020, we were externally managed by PRCM Advisers under the terms of a Management Agreement, pursuant to which PRCM Advisers provided us with all of the personnel required to manage and operate our business. As compensation for the services provided under the Management Agreement, we paid PRCM Advisers a base management fee and reimbursed it for certain expenses incurred in the course of rendering such services. Under this arrangement, each of our named executive officers was either an employee or partner of an affiliate of PRCM Advisers.

As an externally managed company with no employees, PRCM Advisers was responsible for all cash compensation payable to our named executive officers. Though it consulted with our Compensation Committee on the cash compensation it proposed to pay its employees serving as our Co-Chief Investment Officers, Chief Financial Officer and General Counsel, PRCM Advisers made all decisions relating thereto based on such factors as it determined appropriate.

The cash compensation paid by PRCM Advisers to our Co-Chief Investment Officers, Chief Financial Officer and General Counsel included salaries and performance-based bonuses for services provided to our company. In accordance with the Management Agreement, we reimbursed PRCM Advisers for cash compensation payable to our Chief Financial Officer and General Counsel; we did not reimburse PRCM Advisers for the cash compensation payable to our Co-Chief Investment Officers.

The cash compensation paid by PRCM Advisers (or an affiliate thereof) to Mr. Siering, who previously served as our Chief Executive Officer until June 24, 2020 and was an equity partner of an affiliate of PRCM Advisers, included salary, profit sharing and partnership distributions that were derived in part from the management fee that we paid to PRCM Advisers and in part from various other revenue streams generated by affiliates of PRCM Advisers in the ordinary course of their operations as an asset manager. On June 24, 2020, Mr. Greenberg was promoted from Co-Chief Investment Officer to Chief Executive Officer. PRCM Advisers was solely responsible for the cash compensation payable to Mr. Greenberg as our Chief Executive Officer between June 24, 2020 and August 14, 2020. Under the Management Agreement, we did not reimburse PRCM Advisers for the cash compensation payable to our former Chief Executive Officer or our current Chief Executive Officer.

The following information about the compensation of our executive officers from January 1, 2020 through August 14, 2020 (the last day of the external management arrangement), which was supplied to us by PRCM Advisers and not independently verifiable by us, is provided in order to satisfy the disclosure guidance for externally managed companies published by certain proxy advisors:

Compensation Committee Report

The Compensation Committee of the Board of Directors reviewed and discussed with management of the company the foregoing “Compensation Discussion and Analysis” contained in this proxy statement. Based on that review and discussion, the Compensation Committee recommended that the “Compensation Discussion and Analysis” be included in the company’s proxy statement for the 2021 Annual Meeting of Stockholders.

By the Compensation Committee:

E. Spencer Abraham, Chair

James J. Bender

W. Reid Sanders

James A. Stern

Compensation Risk Assessment

We believe that our compensation polices, practices and programs and related compensation governance structure work together to minimize exposure to excessive risk taking by our executive officers while appropriately encouraging the pursuit of long-term growth, profitability and strategic decision-making that emphasized stockholder value creation. We believe that the new executive compensation program that our Compensation Committee has designed since becoming an internally managed company on August 15, 2020 places the appropriate emphasis on performance and long-term objectives that are aligned with the interests of our stockholders.

In reaching this determination, our Compensation Committee believes, among other things, that: (i) base salaries for our executive officers are targeted in a competitive market range and are not subject to performance risk; (ii) incentive compensation opportunities are appropriately balanced between annual and long-term performance and cash and equity compensation and utilize performance metrics that are the drivers of long-term success for our company and our stockholders; (iii) caps on performance-based incentive opportunities are used in both the annual cash and long-term incentive programs; (iv) our Incentive Compensation Recoupment (Clawback) Policy mitigates risk; (v) the use of non-financial performance factors in determining the payout of annual incentive compensation serves as a counterbalance to quantitative performance metrics; (vi) our stock ownership guidelines further align the long-term interests of our executive officers with those of our stockholders; and (vii) our policies restricting hedging, holding our common stock in a margin account and using our common stock as collateral for loans discourage our executive officers from focusing on our short-term stock price.

Our new executive compensation program utilizes annual and long-term financial performance goals that are tied to key measures of short-term and long-term performance that drive stockholder value and individual compensation targets are designed to be set with a reasonable amount of stretch that should not encourage imprudent risk taking. We believe our compensation policies, practices and programs encourage our executive officers to focus on sustaining our company’s long-term performance and delivering total return to our stockholders rather than encouraging decisions that result in a short-term benefit for our company and our executive officers.

Summary Compensation Table

The table below summarizes the equity compensation paid to our named executive officers during the fiscal years ending December 31, 2020, 2019 and 2018.

Grants of Plan-Based Awards for Fiscal 2020

We grant cash and equity incentive awards to our named executive officers. During 2020, plan-based awards granted to our named executive officers included annual cash incentive awards and restricted stock awards. More details on these grants can be found in the section titled "Compensation Discussion and Analysis -- Elements of our 2020 Compensation Program” beginning on page 25 above.

        The following table summarizes each plan-based award granted to our named executive officers during the fiscal year ended December 31, 2020.

Outstanding Equity Awards at Fiscal Year-End for 2020

The following table sets forth information concerning unvested restricted stock awards for each named executive officer as of December 31, 2020.

Stock Vested in 2020

The following table sets forth information concerning the shares of restricted stock held by our named executive officers that vested during the year ended December 31, 2020.

Potential Payments Upon Termination or Change of Control

We maintain certain plans and arrangements that will require us to provide compensation to our named executive officers in the event of certain terminations of employment. The following discussion describes the payments and benefits to which our named executive officers are entitled in various termination of employment and change of control situations. The intent of this discussion is to describe those payments and benefits for which the amount, vesting or time of payment is altered by the termination of employment or change of control situation. This discussion does not describe all payments and benefits a named executive officer may receive following a termination or change of control, such as the following accrued, vested or non-forfeitable compensation and benefits:

None of our named executive officers have any employment agreement or other arrangements other than as provided for in our Severance Benefits Plan and the 2009 Equity Incentive Plan and award agreements thereunder that govern the terms of the equity incentive awards that have been granted to them to date. Each of our executive officers is a party to our standard employee confidentiality agreement, which is described in the section titled “Employment, Severance and Change of Control Arrangements” beginning on page 31. For

further information about our Severance Benefits Plan see the section titled “Employment, Severance and Change of Control Arrangements” beginning on page 31.

Voluntary Resignation  

In the event of a named executive officer's voluntary resignation, we would not be obligated to pay or provide any additional payments or benefits to the executive officer in connection with his or her voluntary resignation.

Retirement    

In the event of a named executive officer's retirement, we would not be obligated to pay or provide any additional payments or benefits to the executive officer unless he or she meets the criteria for "retirement" in connection with his or her retirement. Under our 2009 Equity Incentive Plan and the award agreements governing grants thereunder, "retirement" is generally defined as the voluntary termination of employment (i) at or after the age of 65, (ii) on or after the age of 55 and with five years of consecutive service, or (iii) as may be determined by the Compensation Committee. If the criteria for retirement are met, then on the executive’s termination date due to retirement, all restrictions on any unvested shares of restricted stock will lapse and the executive becomes fully vested in such shares.

Death

In the event of a named executive officer's death, under our 2009 Equity Incentive Plan and the award agreements governing grants thereunder, all restrictions on any unvested shares of restricted stock outstanding on the date of such executive officer’s death will lapse and the executive officer (or his or her beneficiary) becomes fully vested in such shares. We would not be obligated to pay or provide any additional payments or benefits to the executive officer (or his or her beneficiary) upon the executive officer’s death.

Disability   

In the event of a named executive officer's disability, we would not be obligated to pay or provide any additional payments or benefits to the executive officer unless he or she meets the definition of “disability” as set forth under our 2009 Equity Incentive Plan and the award agreements governing grants thereunder. “Disability” is generally defined as the occurrence of an event which would entitle the grantee to the payment of disability income under an approved long-term disability income plan or a long-term disability of the company or a participating company as determined by the Compensation Committee in its absolute discretion or pursuant to any other standard as may be adopted by the Committee. If the definition of disability is met, then on the executive’s termination date due to disability, all restrictions on any unvested shares of restricted stock will lapse and the executive becomes fully vested in such shares.

Involuntary Termination without Cause   

In the event a named executive officer is terminated by the company for any reason other than “cause,” the executive officer is entitled to receive certain cash payments under our Severance Benefits Plan and accelerated vesting of unvested restricted stock awards granted under our 2009 Equity Incentive Plan. Under our Severance Benefits Plan, the payments and benefits the named executive officer would be entitled to receive include:

Payment of severance benefits are payable in substantially equal installments in accordance with the company’s standard payroll procedures following the effective date of the executive officer’s separation agreement, except that portion that represents the pro rata target annual incentive compensation is payable in a lump sum payment at the time the company otherwise pays cash bonuses to its employees. Payment of severance benefits is contingent on the executive officer’s (i) timely execution and non-revocation of a general waiver and release in favor of the company, and (ii) continued compliance with any post-termination obligations to the company, including any restrictive covenants.

Under our 2009 Equity Incentive Plan, in the event a named executive officer is terminated by the company for any reason other than “cause,” then on the executive’s termination date, all restrictions on any unvested shares of restricted stock will lapse and the executive becomes fully vested in such shares.

Termination by Executive for Good Reason

In the event a named executive officer terminates their employment for “good reason,” we would not be obligated to pay or provide any additional payments or benefits to the executive officer unless he or she met the criteria for "good reason" in our Severance Benefits Plan. “Good reason” is generally defined as (i) material diminution or reduction of the executive’s authority, duties, or responsibilities, subject to certain limitations such as if such diminution is a result of unsatisfactory performance, (ii) relocation of the company’s principal office resulting in an increase in the executive’s commute by more than 50 miles, (iii) material reduction in the executive’s base salary or target compensation, other than in a reduction also affecting similarly-situated employees, or (iv) material breach by the company of any written agreement between the company and executive. If the criteria for “good reason” are satisfied, then the payments and benefits the named executive officer would be entitled to receive the same amounts as provided under our Severance Benefits Plan in the event that a named executive officers is involuntarily terminated without cause, as described above.

Change of Control

Our Severance Benefits Plan and our 2009 Equity Incentive Plan and the individual award agreements that govern the restricted stock awards previously granted to executive officers thereunder each include "double-trigger" provisions with respect to the payment of benefits in connection with a “change of control” of the company. In each case, the qualifying termination event that triggers the payment of a benefit must occur within 24 months following the date of such change of control. “Change of control” is generally defined as (i) any person or group becomes the owners of more than 50% of our then-outstanding common stock or the combined voting power of our then outstanding voting securities, (ii) members of our Board at the beginning of any consecutive 24-month period cease to constitute at least a majority of our Board for any reason other than death or disability, or (iii) upon the completion of certain business combinations, including a merger or a sale of substantially all of the company’s assets.

Involuntary Termination without Cause or for Good Reason  

Severance Benefits Plan

       Under our Severance Benefits Plan, if (a) the company experiences a change of control and (b) within 24 months following the date of such change of control, a named executive officer is terminated by the company for any reason other than “cause” or by the employee for “good reason,” the executive officer is

entitled to receive certain cash payments under our Severance Benefits Plan and accelerated vesting of unvested restricted stock awards granted under our 2009 Equity Incentive Plan.

Under our Severance Benefits Plan, the payments and benefits the named executive officer would be entitled to receive include:

Payment of severance benefits are payable in substantially equal installments in accordance with the company’s standard payroll procedures following the effective date of the executive officer’s separation agreement, except that portion that represents the pro rata target annual incentive compensation is payable in a lump sum payment at the time the company otherwise pays cash bonuses to its employees. Payment of severance benefits is contingent on the executive officer’s (i) timely execution and non-revocation of a general waiver and release in favor of the company, and (ii) continued compliance with any post-termination obligations to the company, including any restrictive covenants.

2009 Equity Incentive Plan

Under our 2009 Equity Incentive Plan and the individual award agreements that govern the restricted stock awards previously granted to executive officers thereunder, if (a) there is a “change of control” and (b) within 24 months following the change of control, the executive’s employment is terminated by the company without “cause” or by the executive for good reason (as that term is defined by the Compensation Committee), then the vesting restrictions on any restricted stock awards then outstanding will lapse on the separation date of such executive. If, however, there is a change of control and the “resulting entity” in the change of control has not assumed or continued the restricted stock award agreement, then the vesting restrictions on any restricted stock awards then outstanding will lapse immediately prior to the change of control.

Involuntary Termination for Cause

In the event an executive officer is terminated for “cause,” we would not be obligated to pay or provide any additional payments or benefits to the executive officer in connection with his or her termination. Conversely, under our Incentive Compensation Recoupment Policy and the terms of our 2009 Equity Incentive Plan and the award agreements granting restricted stock thereunder, the Board of Directors and Compensation Committee would have broad discretion to cancel unvested equity incentive awards and recover cash and equity incentive compensation previously paid to the executive officer, as described under “Incentive Compensation Recoupment (Clawback) Policy” beginning on page 35 above.

Under the Severance Benefits Plan and our 2009 Equity Incentive Plan, "cause" is generally defined as (i) engaging in willful or gross misconduct or negligence, (ii) repeatedly failing to adhere to the directions of superiors or the written policies and practices of the company; (iii) commission of the acts satisfying the elements of a felony, crime of moral turpitude, deceit, dishonesty or fraud, or any crime involving the company, (iv) engaging in fraud, misappropriation, embezzlement or material or repeated insubordination; (v) materially breaching their employment agreement (if any) or restrictive covenant agreement with the

company, or (vi) engaging in any act or omission of willful misconduct or gross negligence detrimental to the business or financial reputation of the company.

Potential Payments Upon Termination or Change of Control

The following table sets forth reasonable estimates of the potential benefits to our named executive officers in connection with certain termination events that were described in the foregoing discussion of “Potential Payments Upon Termination or Change of Control” beginning on page 42, assuming each such event occurred on December 31, 2020 and as if our Severance Benefits Plan, which was adopted in March 2021, had been in place on December 31, 2020.

The actual payments and benefits due upon the occurrence of certain events could materially differ from the estimates provided in the following table and would only be known at the time that the named executive officers become eligible for payment. Material assumptions used in calculating the estimated payments and benefits are described in the footnotes to the table.

CEO Compensation Pay Ratio

We are required by applicable law to disclose the median annual total compensation of all of our employees (excluding the Chief Executive Officer), the annual total compensation of the Chief Executive Officer, and the ratio of these two amounts (the “pay ratio”). The pay ratio below is a reasonable estimate based on our payroll records and the methodology described below, and was calculated in a manner consistent with applicable law. Because companies are provided flexibility in adopting a methodology for identifying the median employee and calculating the pay ratio, the pay ratio reported by other companies may not be comparable to the pay ratio reported below, as other companies may have different employment and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

We identified the median employee using the total compensation for all individuals (other than our Chief Executive Officer), consisting of 108 individuals who were employed by us on December 31, 2020 (whether employed on a full-time or part-time basis).

For purposes of this pay ratio calculation, including identifying and determining the annual total compensation of our median employee, “total compensation” is comprised of (i) the cash amounts paid by the company for annual base salary, annual cash bonus (if any), cash dividends paid on unvested long-term equity incentive awards (if any), for the partial period of August 15, 2020 through December 31, 2020 and (ii) the grant date value of long-term equity incentive awards (if any) granted in fiscal year 2020. Because we became an internally managed company on August 15, 2020 and did not have employees prior to that date, we did not include any cash compensation prior to August 15, 2020 in this calculation. As a result, the 2020 CEO compensation pay ratio may not be representative of future calculations, which will be based upon full-year total compensation figures.

For 2020, we calculated annual total compensation for the median employee using the same methodology as for our named executive officers as described in the Summary Compensation Table in this proxy statement. The annual total compensation for our Chief Executive Officer was $2,947,603 and the median annual total compensation of all of our employees (other than our CEO), was $67,687. The resulting pay ratio of the Chief Executive Officer’s annual total compensation to the annual total compensation of the our median employee was 43.5 to 1. Our median employee is an assistant vice president located in our Minnesota office.

PROPOSAL 2: ADVISORY VOTE RELATING TO EXECUTIVE COMPENSATION

As required by Section 14A of the Securities Exchange Act of 1934, we are asking for your advisory vote on the compensation paid to our named executive officers as disclosed in this proxy statement.

We urge you to review carefully our compensation policies and decisions regarding our named executive officers as presented in the "Compensation Discussion and Analysis," the accompanying compensation tables, and the related narrative disclosures section appearing on pages 23 to 47 of this proxy statement. As described in detail in those sections, we believe that our transition to an internally managed company and the direct control of our company over the compensation of our named executive officers effectively aligns the interests of our named executive officers with our stockholders through the implementation of a compensation program that emphasizes a pay-for-performance philosophy while allowing us to attract, retain, and appropriately incent executives with the skills and experience necessary to achieve our key business objectives.

Accordingly, we are asking you to vote “FOR” the adoption of the following resolution:

“RESOLVED: That the stockholders of the company approve, on a non-binding advisory basis, the compensation paid to the company’s executive officers, as disclosed in the company’s proxy statement for the 2021 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis and related narrative discussions in the proxy statement.”

While the vote on this proposal is advisory in nature and not binding, the Board of Directors and the Compensation Committee will take the results of the vote into account in making future compensation decisions. Our Board of Directors has determined that our company will hold an advisory vote on executive compensation on an annual basis. We currently expect to conduct our next advisory vote on executive compensation at our next annual meeting of stockholders in May 2022.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE

ADVISORY VOTE RELATED TO EXECUTIVE COMPENSATION.

PROPOSAL 3: APPROVAL OF THE TWO HARBORS INVESTMENT CORP. 2021 EQUITY INCENTIVE PLAN

Introduction

We are asking our stockholders to approve the adoption of the Two Harbors Investment Corp. 2021 Equity Incentive Plan (the “2021 Plan”). If approved by our stockholders, the 2021 Plan will replace our existing 2009 Equity Incentive Plan as of May 19, 2021 and no new awards will be granted under the 2009 Equity Incentive Plan. Given the limited number of shares that remain available for issuance pursuant to the 2009 Equity Incentive Plan, stockholder approval of the 2021 Plan will ensure the continued availability of equity compensation as a key component of our compensation program. As discussed in the “Compensation Discussion and Analysis” beginning on page 23 above, we believe the use of equity compensation aligns the interests of our directors, executive officers and employees with our stockholders, plays an important role in executing upon our pay-for-performance philosophy and serves as an effective retention tool for eligible participants.

On March 18, 2021, our Board of Directors approved the 2021 Plan, subject to stockholder approval at the 2021 annual meeting. Stockholder approval of the 2021 Plan is required under the rules of the New York Stock Exchange (the "NYSE"), which also provide that, in order to be approved, the number of votes cast “for” the proposal must exceed the aggregate of votes cast “against” the proposal plus abstentions. The 2021 Plan provides for the issuance of up to 17,000,000 shares of the company’s common stock pursuant to awards granted thereunder. Our Board of Directors approved the 2021 Plan to, among other things:

2021 Plan Highlights

The 2021 Plan is consistent with principles of good corporate governance. Some of the key features of the 2021 Plan are set forth below:

automatically vest and pay out upon such change in control (other than dividend equivalent rights).

Stockholder approval of the 2021 Plan would allow for issuance of up to 17,000,000 shares of common stock. Other changes provided for in the 2021 Plan relative to the 2009 Equity Incentive Plan include:

If approved by stockholders, the 2021 Plan will replace the 2009 Equity Incentive Plan. Awards previously granted under the 2009 Equity Incentive Plan would remain outstanding and valid in accordance with their terms, but no new awards would be granted under the 2009 Equity Incentive Plan. If stockholders do not approve the 2021 Plan at the annual meeting, the Company may continue to grant awards under the 2009 Equity Incentive Plan, although the shares remaining available for issuance under the 2009 Equity Incentive Plan may not be sufficient for the company’s future needs.

Background and Historical Equity Compensation Practices

Our 2009 Equity Incentive Plan was originally adopted on October 7, 2009 and was subsequently restated, upon stockholder approval, at our 2013 annual meeting and at our 2015 annual meeting, which restatements increased the number of shares available for issuance and, among other things, provided for certain additional legal, governance and other compliance changes. There have been no additional amendments to or authorized share increases under the 2009 Equity Incentive Plan since our 2015 annual meeting.

As of December 31, 2020, 891,390 shares of common stock remained available for future grants under our 2009 Equity Incentive Plan. Subsequently, in February 2021, restricted stock unit awards were granted pursuant to the 2009 Equity Incentive Plan to certain non-executive employees that, subject to vesting requirements and continued compliance with the terms of the awards agreements, provide for the issuance in the aggregate of 612,596 shares of common stock.

The Board of Directors recognizes the potential dilutive impact of this proposal on our stockholders and has evaluated this request for approval of the 2021 Plan carefully in the context of the need to attract, motivate and retain our directors, executive officers and employees. In determining the number of shares to request for approval under the 2021 Plan, the Board worked with the Compensation Committee’s independent compensation consultant to evaluate a number of factors, including criteria expected to be

utilized by institutional stockholders and proxy advisory firms in evaluating our proposed 2021 Plan. The Board also considered, among other things, our historical share usage rate under the 2009 Equity Incentive Plan, potential share “overhang” and projected future share usage under the 2021 Plan. Our Board believes that the increase in shares of common stock available for issuance represents a reasonable amount of potential equity dilution to accommodate the company’s long-term strategic priorities. Provided below is certain additional information regarding our historical equity compensation practices and the potential dilutive impact if stockholders approve the 2021 Plan.

Why You Should Vote for the 2021 Plan

We believe that we have demonstrated our ability to carefully manage the growth of our equity compensation program. In particular, we believe that our current level of dilution and the pace at which we grant equity awards (referred to as the “burn rate”) is reasonable. We are committed to effectively monitoring our equity compensation share reserve, including our burn rate, to ensure that we maximize stockholder value by granting the appropriate number of equity awards necessary to attract, reward and retain employees.

Prior to December 31, 2020, the only form of awards issued under the 2009 Equity Incentive Plan included shares of restricted common stock subject to time-based vesting and other restrictions and shares of common stock. No stock options have been issued under the 2009 Equity Incentive Plan. All awards granted to our named executive officers and other company personnel have provided for ratable vesting on an annual basis over a three-year period, with accelerated vesting occurring under certain circumstances. Beginning in 2019, awards granted to our independent directors pursuant to our independent director compensation program have provided for a one-year vesting requirement, with accelerated vesting occurring under certain circumstances.

The following table summarizes the activity related to the restricted common stock granted pursuant to the 2009 Equity Incentive Plan for the years ended December 31, 2020, 2019 and 2018:

Subsequent to December 31, 2020, an additional 518,216 shares of restricted common stock vested pursuant to their terms. The company also granted new restricted stock unit awards pursuant to the 2009 Equity Incentive Plan to certain non-executive employees that provide for the issuance in the aggregate of 612,596 shares of common stock. Similar to the restricted stock awards we have historically granted to our named executive officers and other company personnel, these new restricted stock unit awards provide for

ratable vesting on an annual basis over a three-year period, with accelerated vesting occurring under certain circumstances.

Share Usage Rate

The following table summarizes information regarding our annual share usage rate, or burn rate, under the 2009 Equity Incentive Plan for the years ended December 31, 2020, 2019 and 2018. Our annual share usage rate is calculated by dividing (i) the number of shares of common stock underlying equity awards granted each year by (ii) the weighted average shares of common stock outstanding for such year. Our burn rate, not taking into account forfeitures, averaged 0.33% for the three years ended December 31, 2020.

Potential Dilutive Impact

The following table summarizes information, as of December 31, 2020, regarding the fully dilutive impact, or “overhang,” under our current 2009 Equity Incentive Plan, as well as the projected overhang if stockholders approve the 2021 Plan. Our fully diluted “overhang” is calculated by dividing (i) shares of common stock underlying previously granted equity awards, plus shares of common stock that remain available for issuance by (ii) the total number of shares outstanding.

If approved by stockholders, the 2021 Plan will replace the 2009 Equity Incentive Plan. Awards previously granted under the 2009 Equity Incentive Plan would remain outstanding and valid in accordance with their terms, but no new awards would be granted under the 2009 Equity Incentive Plan. Accordingly, the dilutive impact of the proposed 2021 Plan referenced in the table below includes awards granted under the 2009 Equity Incentive Plan that would remain outstanding, subject to the terms of the 2009 Equity Incentive Plan.

Summary of the Principal Features of the 2021 Plan

A summary of the principal features of the 2021 Plan is set forth below. This summary is qualified in its entirety by reference to the full text of the 2021 Plan, which is attached as Appendix A to this proxy statement.

Administration

The 2021 Plan will be administered by the Compensation Committee of our Board of Directors. The Compensation Committee, appointed by our Board of Directors, has the full authority to administer and interpret the 2021 Plan; to authorize the granting of awards; to determine the eligibility of directors, officers, employees, advisors, consultants and other personnel; to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the 2021 Plan); to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the 2021 Plan); to prescribe the form of instruments evidencing awards; and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the 2021 Plan or the administration or interpretation thereof. In connection with this authority, the Compensation Committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. The Compensation Committee administering the 2021 Plan will consist of not less than three directors, each of whom is intended to be, to the extent required by Rule 16b-3 of the Exchange Act, a non-employee director and will meet the requirements of the NYSE for director independence and the requirement to be an eligible member of a compensation committee. The Compensation Committee is authorized to delegate certain authority under the 2021 Plan to a subcommittee of the Compensation Committee or Board of Directors consisting of one or more directors.

Available Shares

The 2021 Plan provides for grants of common stock, restricted common stock, phantom shares, dividend equivalent rights and other equity-based awards, subject to a ceiling of 17,000,000 shares available for issuance under the plan. If an award granted under the 2021 Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. In addition, if the shares underlying any phantom shares or DERs are paid out in cash, the underlying shares may again be made the subject of grants under the 2021 Plan. The 2021 Plan shall remain available until all shares available for grant have been awarded and all grants have been settled although the Board may terminate the plan at any earlier time. Plan termination will not affect the rights and obligations of those with outstanding grants then in effect. No award may be granted under the 2021 Plan to any person who, assuming payment of all awards held by such person, would own or be deemed to own more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock.

Awards under the 2021 Plan

Restricted Shares of Common Stock

A restricted share award is an award of shares of common stock that is subject to restrictions on transferability and such other restrictions, if any, that the Compensation Committee may impose at the date of grant. Grants of restricted shares of common stock may be subject to vesting schedules as determined by the Compensation Committee. The restrictions may lapse separately or in combination at such times and under such circumstances, including a specified period of employment or the satisfaction of pre-established criteria, in such installments or otherwise, as the Compensation Committee may determine. Except to the extent restricted under the award agreement relating to the restricted shares of common stock, a participant granted restricted shares of common stock has all of the rights of a stockholder, including the right to vote and the right to receive dividends on the restricted shares of common stock. Dividends may be paid on restricted

shares of common stock, whether or not vested, at the same rate and on the same date as on shares of our common stock. In addition, dividends otherwise owed on restricted shares that vest based on performance measures shall not be paid unless and until the performance measurements are met, or the period of forfeiture for such restricted shares lapses.

Phantom Shares

Phantom shares, when issued, will reduce the number of shares available for grant under the 2021 Plan and will vest as provided in the applicable award agreement. A phantom share represents a right to receive the fair value of a share of common stock, or, if provided by the Compensation Committee, the right to receive the fair value of a share of common stock in excess of a base value established by the Compensation Committee at the time of grant. Phantom shares may generally be settled in cash or by transfer of shares of common stock (as may be elected by the participant or the Compensation Committee, as may be provided by the Compensation Committee at the time of grant). The Compensation Committee may, in its discretion and under certain circumstances, permit a participant to receive as settlement of the phantom shares installments over a period not to exceed ten years. The Compensation Committee may determine that the holders of awards of phantom shares will be entitled to receive dividend equivalents, which shall be payable at such time that dividends are paid on outstanding shares. However, dividends otherwise owed on phantom shares that vest based on performance measures shall not be paid unless and until the performance measures are met.

Stock Options

A stock option award is an award of the right to purchase a specific number of shares of common stock at a fixed exercise price determined on the date of grant. Stock option awards may either be incentive or non-qualified stock options; provided that incentive stock options may only be granted to our employees. The exercise price of such options must equal at least the fair market value of our common stock on the date of grant. An incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The Compensation Committee will determine the methods of payment of the exercise price of an option, which may include cash, shares or cancellation of indebtedness acceptable to the Compensation Committee. Subject to the provisions of the 2021 Plan, the Compensation Committee determines the remaining terms of the options (e.g., vesting). Unless otherwise provided in the grant agreement, after the termination of service by the company of an employee, director or consultant, the participant may exercise his or her option, to the extent vested as of such date of termination, for three months following the date of termination, except that if the participant terminates his or her service, or is terminated for cause, no exercise after termination is permitted. If termination is due to death (or if death occurs within three months of termination of service by the company other than for cause), the option, to the extent vested, will remain exercisable for 12 months. If the termination is due to retirement or disability, the option, to the extent vested, will remain exercisable for 24 months. In no event may an option be exercised later than the expiration of its term. A participant shall have no rights as a stockholder until the participant exercises the option and the stock certificate is issued to the participant. Without stockholder approval, the Compensation Committee may not permit any “repricing,” meaning any reduction in exercise price or cancellation of an option in exchange for an option with a lower exercise price or a cancellation of an option for cash or another grant if the exercise price of the option is greater than the fair market value of the shares subject to the option at the time of cancellation, other than in conjunction with a change of control or other permitted anti-dilution adjustments.

Dividend Equivalent Rights

An award of dividend equivalent rights (or DERs) represents the right to receive (or have credited) the equivalent value (in cash, common stock or a combination of both, as determined by the Compensation Committee at the time of grant) of dividends paid on common stock. A participant holding DERs receives a credit for dividends declared on common stock on each dividend payment date during the period between (i) the date the award is granted to the participant and (ii) the date the award is exercised, vests or expires, as

determined by the Compensation Committee. The specific terms of a DER will be established by the Compensation Committee in its discretion.

Other Share-Based Awards

The 2021 Plan authorizes the granting of other awards based upon shares of our common stock, including grants of shares without conditions (including the grant of shares without conditions to our independent directors), grants of shares that vest that based upon certain conditions such as performance goals and objectives, grants of restricted stock units and grants of securities convertible into common stock, subject to terms and conditions established at the time of grant.

Performance Goals

The Compensation Committee may, in its discretion, grant performance-based awards that will result in a payment to a participant only if performance goals established by the Compensation Committee are achieved, as determined by the Compensation Committee, and any other applicable vesting provisions are satisfied. The Compensation Committee may establish performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or the value of shares of common stock to be paid out to participants. Prior to the vesting and delivery of performance-based equity-based awards hereunder, the Committee shall have certified that any applicable performance goals, and other material terms of the grant, have been satisfied.

Prohibitions on Transfers of Options

No option shall be assignable or transferable, except by will or the laws of descent and distribution of the state wherein the Grantee is domiciled at the time of his or her death; provided, however, that the Compensation Committee may (but need not) permit other transfers, where the Compensation Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any option intended to be an incentive stock option to fail to be described in Section 422(b) of the Internal Revenue Code and (iii) is otherwise appropriate and desirable. Such transfers must be made without consideration and only to family members (or pursuant to a qualified domestic relations order in the event of divorce of an optionee) or to trusts or other entities for the benefit of family members. The Compensation Committee may also allow transfers to nonprofit organizations exempt from tax under Section 501(c)(3) of the Internal Revenue Code.

Double Trigger Vesting Upon a Change of Control

Under the 2021 Plan, a change of control is generally defined as the occurrence of any of the following events: (i) the acquisition of more than 50% of our voting shares or outstanding shares by any person; (ii) the sale or disposition of all or substantially all of our assets; (iii) a merger or consolidation where our stockholders immediately prior to such event would not, immediately after such merger or consolidation, beneficially own shares representing in the aggregate more than 50% of the voting power of the surviving or resulting entity in substantially the same proportion as such stockholders’ ownership immediately prior to the merger or consolidation; or (iv) during any 24-calendar-month period, our directors, including subsequent directors recommended or approved by our directors, but excluding directors who became directors as a result of an actual or threatened election contest or consent solicitation, at the beginning of such period cease for any reason other than due to death or disability to constitute a majority of our Board of Directors.

Upon a change of control, the Compensation Committee may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of the change of control, but only if the Compensation Committee determines that the adjustments do not have a substantial adverse economic impact on the participants (as determined at the time of the adjustments). Such adjustments may include an automatic lapse, upon a change of control, of all restrictions and conditions on all grants under the 2021 Plan

if the grantee separates from service due to termination without cause or for good reason within 24 months of the change of control.

Amendments and Termination

Our Board of Directors may amend, alter or discontinue the 2021 Plan but cannot take any action that would impair the rights of a grantee with respect to grants previously made without such grantee's consent, unless the amendment is in connection with compliance with applicable law. To the extent necessary and desirable, our Board of Directors must obtain approval of our stockholders for any amendment that would:

Subject to the requirements for shareholder approval, described above, the Compensation Committee may amend the terms of any award granted under the 2021 Plan, prospectively or retroactively, but generally may not impair the rights of any participant without his or her consent.

Federal Income Tax Consequences

The following is a brief description of the U.S. federal income tax consequences generally arising with respect to certain awards that may be granted under the 2021 Plan based on current tax laws. The summary does not include any state, local or foreign tax laws. This discussion is intended for the information of stockholders considering how to vote with respect to the proposal to approve the 2021 Plan.

Nonqualified Stock Options. A participant will not recognize taxable income upon the grant of a nonqualified stock option. The participant generally will recognize ordinary income upon exercise, in an amount equal to the excess of the fair market value of the common shares received at the time of exercise (including any common stock withheld by the company to satisfy tax withholding obligations) over the exercise price.

Incentive Stock Options. A participant will not recognize taxable income when an incentive stock option is granted or exercised. However, the excess of the fair market value of the covered common stock over the exercise price on the date of exercise is an item of tax preference for alternative minimum tax purposes. If the participant exercises the option and holds the acquired common stock for more than two years following the date of option grant and more than one year after the date of exercise, the difference between the sale price and exercise price will be taxed as long-term capital gain or loss. If the participant sells the acquired common stock before the end of the two-year and one-year holding periods, the participant generally will recognize ordinary income at the time of sale equal to the fair market value of the common stock on the exercise date (or the sale price, if less) minus the exercise price of the option. Any additional gain will be capital gain, long-term if the common shares have been held for more than one year.

Restricted Stock, Restricted Stock Units, Performance Units, and Performance Share Units. A participant generally will not have taxable income at the time an award of restricted stock, restricted stock units, performance units or performance share units is granted. Instead, the participant will recognize ordinary income in the first taxable year in which the participant’s interest in the common stock underlying the award becomes either (i) freely transferable, or (ii) issued and no longer subject to a substantial risk of forfeiture. However, the recipient of an award for restricted stock may elect to recognize income at the time the

participant receives the award in an amount equal to the fair market value of a share of common stock underlying the award, less any cash paid for the shares, on the grant date. Any subsequent gain or loss will be capital gain or loss, long-term if the shares have been held for more than one year.

Tax Effect for the Company. The company generally will be entitled to a tax deduction in an amount equal to the ordinary income recognized by a participant with respect to an award and at the time the participant recognizes such income. However, special rules limit the deductibility of compensation paid to the named executive officers. As described on page 36 above, Section 162(m) restricts the deductibility of compensation paid to certain of our current and former executive officers, including our Chief Executive Officer, Chief Financial Officer and to our three other most highly compensated named executive officers (other than our Chief Executive Officer and our Chief Financial Officer).

Please note that the forgoing is general tax discussion and different tax rules may apply to specific participants and transactions under the 2021 Plan.

Additional Information Regarding New Plan Benefits

Future grants under the 2021 Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable, with the exception of the following discretionary grants set forth below. On January 29, 2021, the Compensation Committee conditionally approved the granting of restricted stock units to our named executive officers in recognition of our overall development and the financial performance of the business during the fiscal year ended December 31, 2020 (the “2021 Management Awards”). These 2021 Management Awards are contingent and will be effective upon stockholder approval of the 2021 Plan at the 2021 Annual Meeting. In the event stockholders do not approve the 2021 Plan, the 2021 Management Awards will not become effective. The amount of the 2021 Management Awards and the applicable recipients are set forth below:

Under the company's compensation program for independent directors as set forth beginning on page 16, each independent director receives a portion of their annual director fees in shares of restricted common stock. If the 2021 Plan is approved by stockholders, these annual equity grants will be issued, as of the date of the Annual Meeting, pursuant to the 2021 Plan.

Other than as set forth in the preceding paragraphs, the company has no current proposals, plans or arrangements, written or otherwise, to grant any specific awards under the 2021 Plan to any executive officers, officers, employees, advisors, consultants or other personnel.

Securities Authorized for Issuance under Equity Compensation Plans

We adopted our 2009 Equity Incentive Plan to provide incentive compensation to attract and retain qualified directors, officers, advisers, consultants and other personnel. The following table presents certain information about our equity compensation plan as of December 31, 2020:

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE TWO HARBORS 2021 EQUITY INCENTIVE PLAN.

PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We are asking our stockholders to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2021. Although ratification is not required by our Bylaws or otherwise, we are submitting the selection of Ernst & Young LLP to our stockholders for ratification as a matter of good corporate practice. In the event stockholders do not ratify the appointment, it will be reconsidered by our Audit Committee. Even if the selection is ratified, our Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of our company. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting, will have an opportunity to make a statement if he or she so desires and is expected to be available to respond to appropriate questions.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

Audit Committee Report

The Board of Directors has appointed an Audit Committee presently composed of independent directors Karen Hammond, Stephen G. Kasnet, W. Reid Sanders, and Hope B. Woodhouse. Mr. Kasnet serves as Chair of the Audit Committee. Each of the directors on our Audit Committee is an independent director under the NYSE listing standards and SEC rules. The Board of Directors has determined that each of Ms. Hammond, Mr. Kasnet and Ms. Woodhouse satisfies the definition of financial sophistication and is an “audit committee financial expert,” as defined under rules and regulations promulgated by the SEC. 

The Audit Committee’s responsibility is one of oversight as set forth in its charter, which is available on our website at www.twoharborsinvestment.com. It is not the duty of the Audit Committee to prepare our financial statements, to plan or conduct audits or to determine that our financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Our management is responsible for preparing our financial statements and for maintaining internal controls. Our independent registered public accounting firm is responsible for auditing the financial statements and for expressing an opinion as to whether those audited financial statements fairly present our financial position, results of operations and cash flows in conformity with generally accepted accounting principles. 

The Audit Committee has reviewed and discussed our audited financial statements with management and with Ernst & Young LLP, our independent registered public accounting firm for 2020. The Audit Committee has discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board, or PCAOB and the SEC. 

The Audit Committee has received from Ernst & Young LLP the written disclosures and the letter from Ernst & Young LLP required by the PCAOB regarding Ernst & Young LLP’s communication with the Audit Committee concerning independence, and has discussed Ernst & Young LLP’s independence with Ernst & Young LLP. 

Based on the review and discussions referred to above, the Audit Committee has recommended to the Board of Directors that the audited consolidated financial statements for the year ended December 31, 2020 be included in our Annual Report on Form 10-K for the year ended December 31, 2020, for filing with the SEC. The Audit Committee also has recommended the appointment of Ernst & Young LLP to serve as the company’s independent registered public accounting firm for the year ending December 31, 2021. 

Use of Audit Committee Report

In accordance with and to the extent permitted by applicable law or regulation, the information contained in the foregoing Report of the Audit Committee is not “soliciting material,” is not deemed to be “filed” with the SEC, and is not to be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or under the Exchange Act.

Auditor Fees

We retained Ernst & Young LLP to audit our consolidated financial statements for the year ended December 31, 2020. We also retained Ernst & Young LLP, as well as other accounting and consulting firms, to provide various other services in 2020.

The table below presents the aggregate fees billed to us for professional services performed by Ernst & Young LLP for the years ended December 31, 2020 and 2019:

Auditor Services Pre-Approval Policy

The services performed by Ernst & Young LLP in 2019 were pre-approved by our Audit Committee in accordance with the pre-approval policy set forth in our Audit Committee Charter. This policy requires that all engagement fees and the terms and scope of all auditing and non-auditing services be reviewed and approved by the Audit Committee in advance of their formal initiation.

GENERAL INFORMATION ABOUT

THE 2021 ANNUAL MEETING AND VOTING

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be held on May 19, 2021

This Proxy Statement and our 2020 Annual Report, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, are available at www.proxyvote.com.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice of Availability”) to the holders of our common stock as of the close of business on March 26, 2021. All common stockholders will be able to access our proxy materials on the website referred to in the Notice of Availability (www.proxyvote.com) or request to receive a printed set of our proxy materials. Instructions on how to access our proxy materials over the Internet or request a printed copy of our proxy materials may be found in the Notice of Availability. We anticipate that the Notice of Availability will be mailed to common stockholders beginning on or about April 6, 2021.

What is the purpose of the Annual Meeting?

The purpose of the Annual Meeting is to vote on the following matters:

Are there any matters to be voted on at the Annual Meeting that are not included in this Proxy Statement?

We currently are not aware of any business to be acted upon at the Annual Meeting other than as described in this proxy statement. If, however, other matters are properly brought before the Annual Meeting, or any adjournment or postponement of the Annual Meeting, your proxy includes discretionary authority on the part of the individuals appointed to vote your shares of common stock or act on those matters according to their best judgment.

Why is the company holding a virtual Annual Meeting?

We have elected to conduct our Annual Meeting in a virtual format in order to better facilitate stockholder participation by enabling stockholders to participate fully and equally from any location at no cost. We believe this approach increases our ability to engage with all stockholders, regardless of size, resources or physical location, and also provides cost savings for the company. We have designed this virtual format to enhance, rather than constrain, stockholder access, participation and communication. For example, the online format allows stockholders to communicate with us in advance of, and during, the meeting so they can ask any questions of management and our Board of Directors.

Who is entitled to vote at the Annual Meeting?

Our Board of Directors has set March 26, 2021, as the record date for the Annual Meeting. This means that the holders of our common stock as of the close of business on that date are entitled to receive notice of and to vote at the Annual Meeting and any postponements or adjournments thereof. On the record date,

there were 273,718,537 shares of our common stock outstanding and entitled to vote at the Annual Meeting.

A list of the holders of our common stock as of the record date will be available at our principal executive office, during normal business hours for the ten days preceding the Annual Meeting, for examination by any registered common stockholder as of the record date for any purpose pertaining to the Annual Meeting. Our principal executive office is located at 601 Carlson Parkway, Suite 1400, Minnetonka, MN 55305.

What are my voting rights?

You are entitled to one vote for each share of our common stock held by you on the record date on all matters presented at the Annual Meeting or any adjournment or postponement thereof. There is no cumulative voting.

How many shares must be present to hold the Annual Meeting?

The presence, in person or represented by proxy, of the holders of shares of our common stock entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting will constitute a quorum for the transaction of business at the Annual Meeting. Your shares will be counted toward the quorum if you submit a proxy or vote at the Annual Meeting. Shares represented by proxies marked “abstain” and “broker non-votes” are also counted in determining whether a quorum is present.

What is a proxy?

A proxy is your designation of another person to vote shares of our common stock that you own. The person you designate is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. When you designate a proxy, you also may direct the proxy how to vote your shares. We refer to this as your “proxy vote.” Two executive officers have been designated as proxies for our Annual Meeting. These executive officers are William Greenberg, our Chief Executive Officer, and Rebecca B. Sandberg, our General Counsel and Secretary.

What is a proxy statement?

A proxy statement is a document that SEC regulations require us to make available to you by Internet or, if you request, by mail when we ask you to designate proxies to vote your shares of our common stock at a stockholders meeting. The proxy statement includes information regarding the matters to be acted upon at the Annual Meeting and certain other information required by regulations of the SEC and rules of the NYSE.

Why did I receive a notice instead of a full set of proxy materials?

As permitted by SEC rules, we have elected to provide access to our proxy materials over the Internet, which reduces the environmental impact and costs of our Annual Meeting. Accordingly, we mailed a Notice of Availability to beneficial owners and the holders of record of our common stock who have not previously requested a printed set of proxy materials. The Notice of Availability contains instructions on how to access our proxy materials and vote online as well as instructions on how to request a printed set of proxy materials.

Why did I receive more than one notice or printed set of proxy materials?

If you receive more than one Notice of Availability or printed set of proxy materials, it likely means that you hold shares of our common stock in more than one account. To ensure that all of your shares are voted, you should vote once for each control number you receive, as described below under “How can I vote prior to the Annual Meeting?”

How can I obtain a paper copy or an electronic copy of the proxy materials?

To obtain a paper copy or an electronic copy of the proxy materials, you will need your control number, which was provided to you in the Notice of Availability or the proxy card included with your printed set of proxy materials. Once you have your control number, you may request a paper copy or an electronic copy of our proxy materials using any of the following methods: (i) visit www.proxyvote.com and enter your control number when prompted; (ii) call 1-800-579-1639 and enter your control number when prompted; or (iii) send an email requesting electronic delivery of the materials to sendmaterial@proxyvote.com.

What is the difference between a stockholder of record and a beneficial owner?

If your shares of common stock are registered directly in your name with our transfer agent, Equiniti Trust Company, you are considered the stockholder of record with respect to those shares.

If your shares of common stock are held in a stock brokerage account, or by a bank, trustee or other nominee, you are considered the beneficial owner of shares held in “street name.” As the beneficial owner, you have the right to direct your broker, bank, trustee or nominee on how to vote the shares that you beneficially own and you are also invited to attend our Annual Meeting. However, beneficial owners generally cannot vote their shares directly because they are not the stockholder of record; instead, beneficial owners must instruct the broker, bank, trustee or other nominee how to vote their shares using the method described below under “How can I vote prior to the Annual Meeting?”

Where can I find the voting results of the Annual Meeting?

We plan to publish the final voting results in a Current Report on Form 8-K filed within four business days of the Annual Meeting. If final voting results are not available within the four business day timeframe, we plan to file a Form 8-K disclosing preliminary voting results within the required four business days, to be followed as soon as practicable by an amendment to the Form 8-K containing final voting results.

How can I vote prior to the Annual Meeting?

Stockholders of Record. If you are a holder of record of our common stock, you may vote your shares or submit a proxy to be voted at the Annual Meeting by one of the following methods:

Vote by Internet		You may authorize your proxy online via the Internet by accessing the website www.proxyvote.com and following the instructions provided on the Notice of Availability or proxy card. Internet voting facilities will be available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time, on May 18, 2021. To vote by Internet, use the control number listed on your Notice of Availability or proxy card, which was provided to you by our vote tabulator, Broadridge Financial Solutions, Inc.; then follow the additional steps when prompted. These steps have been designed to authenticate your identity, allow you to give voting instructions and confirm that those instructions have been recorded properly.
Vote by Telephone		You may authorize your proxy by touch-tone telephone by calling 1-800-690-6903. Telephone voting facilities will be available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time, on May 18, 2021. To vote by telephone, use the control number listed on the Notice of Availability or proxy card, which was provided to you by our vote tabulator, Broadridge Financial Solutions, Inc.; then follow the additional steps when prompted. The steps have been designed to authenticate your identity, allow you to give voting instructions and confirm that those instructions have been recorded properly.
Vote by Mail		If you request paper copies of the proxy materials to be sent to you by mail, you may authorize your proxy by completing, signing and dating your proxy card and returning it in the reply envelope included with the paper proxy materials.

Beneficial Owners. If your shares of common stock are held in a stock brokerage account or by a bank, trustee or other nominee, you are considered the beneficial owner of shares held in “street name.” If you hold your shares in street name, you must vote your shares in the manner prescribed by your broker, bank, trustee or other nominee, which is similar to the voting procedures for stockholders of record. Other than ratifying the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2021, the rules do not permit your broker, bank, trustee or other nominee to vote your shares of stock on any proposal unless you provide them with specific instructions on how to vote your shares of common stock. You should instruct your broker, bank, trustee or other nominee how to vote your shares of

common stock by following the directions provided by such party. However, if you request the proxy materials by mail after receiving a Notice of Availability from your broker, bank, trustee or other nominee, you will receive a voting instruction form (not a proxy card) to use in directing such party how to vote your shares.

Can I vote my shares during the Annual Meeting?

Yes. You may vote your shares by logging in to www.virtualshareholdermeeting.com/TWO2021 during the Annual Meeting and following the instructions provided. You will need the 16-digit control number included in your proxy card, voting instruction form or Notice of Availability. You will be able to vote during the Annual Meeting until such time as the Chairperson declares the polls closed.

How does the Board recommend that I vote my shares, and what vote is required for approval of each proposal at the Annual Meeting?

If I submit my proxy, how will my shares of common stock be voted?

How are abstentions and broker non-votes treated?

Pursuant to NYSE rules, brokers or other nominees who hold shares for a beneficial owner have the discretion to vote on a limited number of “routine” proposals when they have not received voting instructions from the beneficial owner at least ten days prior to the Annual Meeting. A “broker non-vote” occurs when a broker or other nominee does not receive such voting instructions and does not have the discretion to vote the shares. The only “routine” matter to be voted on at our Annual Meeting is Proposal 4 - Ratification of Auditors. Therefore, if you do not provide voting instructions to your broker or other nominee, your broker or other nominee may only vote your shares on Proposal 4.

Pursuant to Maryland law, abstentions and broker non-votes are not included in the determination of the shares of common stock voting on such matters, but are counted for quorum purposes. However, with respect to Proposal 3 – Approval of the Two Harbors Investment Corp. 2021 Equity Incentive Plan, NYSE rules require that the number of votes cast “for” the proposal exceeds the aggregate of votes cast “against” the proposal plus abstentions. Accordingly, solely with respect to Proposal 3, an abstention will have the same effect as a vote “against” such proposal.

Your vote is important. We urge you to vote, or to instruct your broker, bank, trustee or other nominee how to vote, on all matters before the Annual Meeting. For more information regarding the effect of abstentions and broker non-votes on the outcome of a vote, please see “How does the Board recommend that I vote my shares, and what vote is required for approval of each Proposal at the Annual Meeting?” and “If I submit my proxy, how will my shares be voted?”

Can I change my vote after submitting my proxy?

You may change your vote at any time before the proxy is exercised. For holders of record of our common stock, if you voted by mail, you may revoke your proxy at any time before it is voted by executing and delivering a timely and valid later-dated proxy, by voting via the Internet during the virtual Annual Meeting or by giving written notice of such revocation to the Secretary. If you voted by Internet or telephone, you may also change your vote with a timely and valid later-dated Internet or telephone vote, as the case may be, or by voting via the Internet during the Annual Meeting. Attendance at the virtual Annual Meeting will not have the effect of revoking a proxy unless: (i) you give proper written notice of revocation to the Secretary before the proxy is exercised; or (ii) you vote online during the Annual Meeting.

Notices of revocation of proxies should be sent to Two Harbors Investment Corp., Attention: Rebecca B. Sandberg, General Counsel and Secretary, 601 Carlson Parkway, Suite 1400, Minnetonka, MN 55305. The notice of revocation must be received no later than Tuesday, May 18, 2021.

Who will count the votes?

Broadridge Financial Solutions, Inc., our independent proxy tabulator, will count the votes and will act as our Inspector of Elections for the Annual Meeting.

How can I attend the Annual Meeting?

The Annual Meeting will be conducted virtually via the Internet on Wednesday, May 19, 2021. You can attend the meeting by logging in to www.virtualshareholdermeeting.com/TWO2021 and following the instructions provided on your Notice of Availability. We recommend that you log in at least ten minutes before the Annual Meeting to ensure you are logged in when the meeting starts. Only stockholders who own shares of our common stock as of the record date, March 26, 2021, may submit questions and vote at the Annual Meeting. You may still virtually attend the Annual Meeting if you vote by proxy in advance of the Annual Meeting.

If you wish to attend the virtual Annual Meeting at a location provided by us, our legal counsel, Stinson LLP, will air the webcast at its offices located at 50 South Sixth Street, Suite 2600, Minneapolis, Minnesota 55402. Please note that no members of management or the Board of Directors will be in attendance at this location and you will not have the ability to vote your shares during the Annual Meeting from this location. If

you wish to attend the Annual Meeting via webcast at Stinson LLP’s offices, you must complete and return the Reservation Request Form found at the end of this proxy statement.

How can I submit questions for the Annual Meeting?

You may submit questions prior to the meeting at www.proxyvote.com or during the meeting by logging in to www.virtualshareholdermeeting.com/TWO2021. Questions pertinent to matters to be acted upon at the Annual Meeting as well as appropriate questions regarding the business and operations of the company will be answered during the Annual Meeting, subject to time constraints. In the interests of time and efficiency, we reserve the right to group questions of a similar nature together to facilitate the question and answer portion of the meeting. We may not be able to answer all questions submitted in the allotted time.

What is householding?

We may send a single Notice of Availability, as well as other stockholder communications, to any household at which two or more stockholders reside unless we receive other instruction from you. This practice, known as “householding,” is designed to reduce duplicate mailings and printing and postage costs, and conserve natural resources. If your Notice of Availability is being householded and you wish to receive multiple copies of the Notice of Availability, or if you are receiving multiple copies and would like to receive a single copy, you may contact:

Broadridge Financial Solutions, Inc.

Householding Department

51 Mercedes Way

Edgewood, New York 11717

1-866-540-7095

If you participate in householding and would like to receive a separate copy of our 2020 Annual Report, Notice of Availability or proxy statement, please contact Broadridge in the manner described above. Broadridge will deliver the requested documents to you promptly upon receipt of your request.

Who pays for the cost of proxy preparation and solicitation?

We will pay the cost of soliciting proxies and may make arrangements with brokerage houses, custodians, nominees and other fiduciaries to send proxy materials to beneficial owners of our common stock. We will reimburse these third parties for reasonable out-of-pocket expenses. In addition to solicitation by mail, our directors and officers may solicit proxies by telephone, electronic transmission and personally. Our directors and officers will not receive any special compensation for such services. We have retained D.F. King & Co., Inc. for an estimated fee of $8,500, plus out of pocket expenses, to assist us in soliciting proxies.

Who can help answer my questions?

If you have any questions or need assistance voting your shares or if you need additional copies of this proxy statement or the enclosed proxy card, please contact our Investor Relations department at our principal executive office:

Two Harbors Investment Corp.

601 Carlson Parkway, Suite 1400

Minnetonka, MN 55305

Phone (612) 453-4100

Facsimile: (612) 453-4196

Email: investors@twoharborsinvestment.com

Attention: Investor Relations