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Two Harbors Investment Corp. Reports Fourth Quarter 2012 Financial Results

During the quarter, the company sold residential mortgage-backed securities for $3.2 billion with an amortized cost of $3.1 billion, for a net realized gain of $103.1 million, net of tax; recognized a change in unrealized fair value losses on U.S. Treasury trading securities of $0.5 million, net of tax; and recognized other-than-temporary credit impairment losses on its RMBS securities of $1.6 million, net of tax. The company also recognized a change in unrealized fair value gains on Silver Bay equity securities of $5.9 million, net of tax. The fair value of the Silver Bay common stock at December 31, 2012 was $335.6 million, which included these unrealized fair value gains. The single-family real estate operations of the company are reflected as discontinued operations in the company's financial statements. Included in the income for discontinued operations were realized gains of $10.6 million resulting from the contribution of the company's portfolio to Silver Bay. The realized gain amount is subject to additional installment gains, fee reductions and working capital adjustments, which are currently estimated to increase the net income by $8.3 million and will be recognized in the company's 2013 financial statements.

During the quarter, the company had a net loss of $2.3 million, net of tax, related to the termination and expiration of swaps and swaptions. In addition, the company recognized in earnings an unrealized gain, net of tax, of $12.2 million associated with its interest rate swaps and swaptions economically hedging its repurchase agreements and available-for-sale securities; an unrealized gain, net of tax, of $0.6 million associated with its interest rate swaps economically hedging its trading securities; and net losses on other derivative instruments of approximately $20.4 million, net of tax.

The company reported GAAP Net Income of $189.3 million, or $0.64 per diluted weighted average common share outstanding, for the quarter ended December 31, 2012, as compared to $26.8 million, or $0.10 per diluted weighted average common share outstanding, for the quarter ended September 30, 2012. On a GAAP basis, the company earned an annualized return on average equity of 22.1% and 3.6% for the quarters ended December 31, 2012 and September 30, 2012, respectively.

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