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Two Harbors Investment Corp. Reports Fourth Quarter 2012 Financial Results

Two Harbors Investment Corp. (NYSE: TWO; NYSE MKT: TWO.WS), a real estate investment trust that invests in residential mortgage-backed securities (RMBS), residential mortgage loans and other financial assets, today announced its financial results for the quarter ended December 31, 2012.

  • Delivered Comprehensive Income of $185.4 million, or $0.63 per diluted weighted average common share.
  • Increased Book Value to $11.54 per diluted common share at December 31, 2012.
  • Contributed portfolio of single-family residential homes to Silver Bay Realty Trust Corp. ("Silver Bay") in conjunction with its initial public offering in December 2012. In exchange, Two Harbors received approximately 17.8 million shares of Silver Bay common stock.
  • Declared a dividend of $0.55 per common share. The quarterly dividend reflects the performance of Two Harbors' residential mortgage-backed securities (RMBS) portfolio, realized gains and taxable income derived from the company's contribution of its single-family residential portfolio to Silver Bay.
  • Generated an aggregate yield of 4.0% in the RMBS portfolio, which was driven by non-Agency portfolio performance of 9.5% as well as a three-month average Constant Prepayment Rate (CPR) of 6.6% in the Agency portfolio.

“We are pleased to have achieved a strong finish to a remarkable year for our investment portfolio. For the year, Two Harbors delivered a return on book value of 47% as measured by dividends declared and book value appreciation,” said Thomas Siering, Two Harbors' President and Chief Executive Officer.

Operating Performance

The following table summarizes the company's GAAP and non-GAAP earnings measurements and key metrics for the respective periods in 2012:

Two Harbors Operating Performance
(dollars in thousands, except per share data)   Q4-2012     Full Year 2012  


Per dilutedweightedshare

Annualizedreturn onaverage equity

Per dilutedweightedshare

Annualizedreturn onaverage equity
Core Earnings 1 $ 83,974 $ 0.28 9.8 % $ 311,085 $ 1.28 12.1 %
GAAP Net Income $ 189,300 $ 0.64 22.1 % $ 291,906 $ 1.20 11.3 %
Comprehensive Income $ 185,362 $ 0.63 21.6 % $ 1,047,080 $ 4.32 40.7 %

Operating Metrics
Dividend per common share $ 0.55
Book value per diluted share at period end $ 11.54
Other operating expenses as a percentage of average equity 0.7 %
(1) Core Earnings is a non-GAAP measure that the company defines as GAAP net income, excluding impairment losses, gains or losses on sales of securities and termination of interest rate swaps, unrealized gains or losses on trading securities, interest rate swaps and swaptions, certain gains or losses on derivative instruments, and certain non-recurring gains and losses related to discontinued operations. As defined, Core Earnings includes interest income associated with the company's inverse interest-only securities ("Agency Derivatives") and premium income or loss on credit default swaps.

Earnings Summary

Two Harbors reported Core Earnings for the quarter ended December 31, 2012 of $84.0 million, or $0.28 per diluted weighted average common share outstanding, as compared to Core Earnings for the quarter ended September 30, 2012 of $87.1 million, or $0.32 per diluted weighted average common share outstanding.

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