Good day, ladies and gentlemen and welcome to the Two Harbors’ Fourth Quarter 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to hand the conference over to your host, Ms. July Hugen, Director-Investor Relations. Ma’am, you may begin.

Thank you, Sei, and good morning. Welcome to Two Harbors’ fourth quarter 2012 financial results conference call. With me this morning are Tom Siering, President and Chief Executive Officer; Brad Farrell, Chief Financial Officer; and Bill Roth, Chief Investment Officer. After my introductory comments, Tom will provide a recap of our 2012 results. Brad, will highlight some key items from our financials, and Bill will review our portfolio performance. The press release and financial tables associated with today’s conference call were filed yesterday with the SEC. If you do not have a copy, you may find them on our website. This call is also being broadcast live over the Internet and may be accessed on our webpage in the Investor Relations section under the Events & Presentations link. In addition, we’d like to encourage you to reference the accompanying presentation to this call, which can also be found on our website. Before management begins its discussion of fourth quarter results, we wish to remind you that remarks made by Two Harbors’ management during this conference call and the supporting slide presentation may include forward-looking statements. Forward-looking statements reflect our views regarding future events and are typically associated with the use of words such as anticipate, target, expect, estimate, believe, assume, project and should or other similar words. We caution investors not to rely unduly on forward-looking statements. They imply risks and uncertainties and actual results may differ materially from expectations. We urge you to carefully consider the risks described in our filings with the SEC, which may be obtained on the SEC website at www.sec.gov. We do not undertake any obligation to update or correct any forward-looking statements if later events prove them to be inaccurate. I would like to draw your attention to the third webinar in our ongoing series titled prepayments part two concepts and agency valuation. The webinar can be found on our webpage under Events and Presentation. We intend to post additional webinars in the future to provide investors and analysts with management insights regarding the market and our business. I will now turn the call over to Tom, who will provide some highlights as summarized on slide three.

Thanks July. Good morning, everyone. Thank you for joining our fourth quarter earnings call. Before I comment on the quarterly results, I would like to discuss the full-year. This 2012 was truly a remarkable year for our shareholders. We are delighted to report that for full-year we delivered total return on book value of 47% with dividends of $1.71 per share. We believe this is a testament to our rigorous security selection and the talent of our investment team. It’s important to note that we were able to accomplish us a way that is consistent with our mission of protecting book value through thoughtful hedging. Our total shareholder per return for 2012 was 40% as measured by change in share price which compares to a return of 19% for the sector in 2012 as measured by the Pine River Mortgage REIT Index. As you know, delivering shareholder value is our primary goal. Our economic returns during the year were outsized. Our investment team generated $1.05 billion in total comprehensive income during 2012 and we give all credit to them for that remarkable result. Approximately 16% of the attribution return in 2012 was derived from our non-agency strategy with the remaining from the agency portfolio. Over the last year, we’ve grown our business threefold as measured by market capitalization. At the start of 2012 our market capitalization was approximately $1.3 billion. Through the completion of three capital raises and portfolio appreciation, our current market capitalization is nearly $3.7 billion. Today, we are the largest public hybrid mortgage REIT. However, it has never been our ambition to be the largest hybrid mortgage REIT, but rather to be the best. We believe the growth in our business over the past year can be attributed to our Alfa generation and Two Harbors best practice…

Thank you, Tom and good morning. I’ll begin my prepared comments with an overview of our financials and few pertinent accounting topics, discuss quarterly changes to book value, provide an overview of our financing profile and conclude with comments on our 2012 dividend distributions relative to our 2012 taxable income. Please turn to slide six, core earnings of $0.28 per share represented a 9.8% annualized return on average equity. While GAAP earnings albeit often a less meaningful metric due to mark to-market accounting was $0.64 per share. Strong GAAP earnings were principally driven by realized gain in our RMBS portfolio as we saw surge in agency securities to adjust our risk profile and take advantage of their high relative market valuation. Core earnings will impact by a number of things, which I will detail shortly. But before that I would also note that we define the core earnings to exclude the revenue and expenses associated with our real estate investment portfolio, which is now presented as discontinued operations in our financial statement. This refinement of the core earnings definition increased our core earnings by $0.01 per share. Core earnings were largely impacted by leverage in the quarter. Total leverage ticked modestly lower to 3.4 times from 3.8 times as of September 30 through the sale of the aforementioned RMBS and also reflecting slightly lower leverage on our agency portfolio, which Bill will expand up on. We would be remised to now also mention the approximate $336 million invested in Silver Bay common stock. During the quarter, the average capital of $295 million associated with the single family homes due to its ramp stage cause a drag on EPS and ROE metrics. Similar to prior quarters, core earnings were also pressured by our hedging strategy as well as lower projected yields…

Thank you, Brad, and good morning everyone. The investment team had another busy quarter both managing our current portfolio and working on potential new opportunities, which I will discuss later. Please turn to slide 10. 2012 was a great year for investors who have enjoyed a total return on book value of 47%. Both our agency and non-agency portfolios had an excellent year with non-agencies driving performance in the fourth quarter. As some of your may remember, we raised capital early in the year to deploy into the non-agency market as prices were low and yields were in the 9% to 11% range. These investments have performed exceptionally well. Last summer, the investment ROE on the agency strategy was attractive, so we completed another capital raise which also proved fortuitous to both earnings and book value. We focused on securities with key prepayment protection which was important given the low rate environment and the propensity of borrowers to revise. On the bottom left to this slide, you can see our return on book value versus some indices for the year. We are very proud of this accomplishment. This also demonstrates why we believe it is important to dynamically allocate capital to different sectors of the market as opportunities change. In terms of yields and spreads, on the bottom right you will see that our yields and NIM for the fourth quarter came in better than we had expected as of September 30. Please turn to slide 11. As you can see our RMBS portfolio is $14 billion in size including $11.3 billion in agency security and $2.7 billion in non-agencies. You can see on the right that our allocation to agencies has dropped and the allocation to non-agencies and single family homes ticked higher. This reflects our reducing capital and…

(Operator Instructions) Our first question comes from Douglas Harter from Credit Suisse. Douglas Harter – Credit Suisse: Thanks. I guess if you could just talk a little bit about the new opportunities on the loan side. Can you talk about the returns there relative to securitizations and what makes that attractive today versus a year ago?

Sure. Good morning Doug. Douglas Harter – Credit Suisse: Good morning.

Thanks for joining us. Douglas Harter – Credit Suisse: Yeah.

So on the – I think there were two questions in there. On the credit sensitive loans, yields in that market are very competitive with yields that we see in the non-Agency side, although I will tell you that the value of owning and controlling the servicing is actually fairly substantial. In terms of securitization of credit sensitive loans, there have been some deals done in the past, not very many, but we’ll have to wait and see certainly if we get enough size to securitize. And then see what the math around securitization is, but in terms of just a raw product, we find them very competitive with their counterparts in the security side. In terms of securitization, as I mentioned, we’re not at liberty to comment on any deals there are currently in the market, but we know what we’ve said before is that securitization math looks a lot more interesting than it did a year ago and that’s due primarily to the triple A part of the capital structure trading at tighter levels than it had back then. And also the fact that the credit enhancement from the rating agencies seems to have found its footing and come down a little bit. Certainly, if and when we complete the securitization, we’ll be happy to talk about what the math looks like. Douglas Harter – Credit Suisse: Great, I appreciate that. Thanks, Bill.

Thanks, Doug.

Thank you. Our next question comes from Mark DeVries from Barclays. Mark DeVries – Barclays: I have a follow-up question on securitization, at the end of third quarter, you had about 15 million of mortgages held for sale and purchase commitments of 320, but ended the fourth quarter at about $59 million, did you sell any mortgages to another investor during the quarter?

No, we, there is always the fallout element in our pipeline process, so until they’re funded, they’re either subject to fallout, or subject any sort of bulk transaction that is not complete. Mark DeVries – Barclays: Okay, got it. Next question is for Tom and I think Brad questioned this a little bit but how do you think about the dividend here with the core earnings obviously kind of below the run rate of the kind of the quarterly value you guys are generating, particularly through the depreciation of your non-agency book. How do you think about kind of using that appreciation through other realized gains to support the dividend going forward?

I think there is a couple of elements to that question, as you know we do not provide dividend projections, but maybe I can answer that in a couple of steps. One, if you look at our core earnings for the quarter, coming in at $0.28, that will always be driven by a number of things that we think are important, leverage being one which is most depended on our hedging strategy which with the use of swaps and other instruments. But also, we don’t want to lose sight of the fact that we have Silver Bay capital on our balance sheet, which due to the ramp stage we estimate had a dilution impact about $0.03. So that’s kind of one element is, removing that capital, that average capital that we had, we’ll be close to probably around the $0.31 mark based on our current management of our portfolio. And then going forward, it’s always a balancing act between our book value and dividend, but it really gets back to risk management, that Bill feels, as the team feels that there are opportunities to derisk our profile by harvesting gains that would drive those decisions, and might or might not impact the dividend. Mark DeVries – Barclays: Okay. And, then finally for Bill, what type of yields do you expect on the CSLs and what kind of leverage do you think you could put against us?

Yeah, I think I alluded to this just a bit ago. With – the yields on credit sensitive loans are very competitive with non-agency subprime bonds, and the leverage that you can get in the securitization frankly depends on what the best pool looks like. There have been handful – small handful of deals that have been done. We obviously haven’t done one, so I can’t tell you what ours might look like; but on an unlevered basis, we find the yields to be attractive, and on a levered basis through a securitization, we would be very pleased if we could get something like that done, we think it’ll be very worthwhile. Mark DeVries – Barclays: Okay. Thanks.

Thanks Mark.

Thank you. Our next question comes from Bose George form KBW. Bose George – KBW: Just want to ask about incremental spreads on agencies and non-agencies just given the changes in book value since quarter end?

Sure, so, I mean, just to give an idea on non-agencies have a couple of remarks. First of all that market today, a lot of bonds that we typically look at that would be in the 5% to 6% range. Now, one bright spot I’ll mention is which is something that we haven’t seen in a long time is as we started to see the repo funding spread come in on non-agencies which I think is very worthwhile, certainly from the funding standpoint, funding is very plentiful, but we’ve seen some spreads coming about 25 basis points from certain dealers, not everyone, but I think that’s obviously bodes well. So, if you kind of put that together you will see using the kind of leverage that we use, expected ROE, somewhere in the 10% area on a growth basis. On the Agency side, what we’ve seen so far in January is actually the mortgage we’ve seen as a curve – is deeper on the curve and mortgages have underperformed quite a bit. One of the reasons actually we took our leverage down was because mortgages appear to be fully priced to us at certain times during the quarter and certainly that has helped, help this out in January as the Agency strategy would have suffered. But that being said today, I think that ROEs are also roughly 10% on the Agency strategy using leverage sort of in that 6 and 6.5 times that we typically carry. Bose George – KBW: Okay, great. Thanks. And then actually on the leverage, I guess you guys said on the Agencies, no plans to change leverage, but just curious on the non-agencies. If things – if the world continues to improve, could there be a change in leverage over there?

Yeah, Bose. Good morning and it’s Tom, how are you? You shouldn’t expect that our leverage is going to change significantly and either our agency or non-agency portfolios. As you know Bill and I’ve been around a while and we don’t want to treat leverage as a mechanism to create a certain dividend yield but rather we will manage to book prudently from total return perspective. So in short don’t expect much change in our leverage levels. Bose George – KBW: Okay. Great. Make sense. Thanks. And just one last one, just the GSE prepaid numbers that were out last night. Any surprises there?

I mean they were pretty much – they were generally flat some were up or some down a little bit, but generally mix. Next month is expected to be down 10% to 15% that’s generally due to day count. But no, there were not any terrific surprises there. Bose George – KBW: Okay. Great. Thanks a lot.

Thanks a lot Bose.

Thank you. And our next question comes from Trevor Cranston form JMP Securities. Trevor Cranston – JMP Securities: Thanks. Most of my questions have been asked. But I guess one more maybe on the securitization platform. Are you able give us any sense about the piece that which you are able to acquire loan currently and maybe can you talk about if you have any sort of goal or target for the year in terms of kind of getting up to a rate and maybe a deal for quarter or is it just still too early to comment on that? Thanks.

Hi, Trevor. Good morning. It’s Tom. Trevor Cranston – JMP Securities: Hi.

With respect to that it’s just – the very honest answer is that we’re just not sure. It’s going to be dictated by supply and is going to be dictated by the economics and the economics relative to our other alternatives. As we’ve said before, we don’t want to do things to do things, we just want to do things that are smart and optimize shareholder value. So, available supply is obviously going to be driven by a lot of things and putting the market of the real estate market, which seems to be improving, and so, just have to say. but, we’re going to do things, our commitment is only to do things that are smart for our shareholders. Trevor Cranston – JMP Securities: Okay, that’s helpful. Congratulations on a good year. Thanks.

Thank you Robert.

Thank you Robert.

Thank you. Our next question comes from Ken Bruce from Bank of America. Ken Bruce – Bank of America: Thank you. Good morning.

Good morning Ken.

Good morning. Ken Bruce – Bank of America: Good morning. My question is a bit more philosophical. You pointed out on a number of occasions that you like the flexibility of the hybrid model and clearly you’re starting to demonstrate that now. It sounds like you’re going to see similar changes just as the year kinds of comes to pass. I guess I would like to maybe understand where you see the boundaries of any strategy shift away from agencies. What might be a gating factor to that? Whether it be tests and things of that nature or just how to think about how far you may evolve the strategy?

Sure. Yeah, Ken. First thanks, this is Tom. In respect to that, obviously the retest, the whole little test is a gating factor certainly. Not agencies don’t confirm to that particularly as well if at all. But really how we think about it is this, that we want to have new initiatives that are grounded in our core competencies and we are not going to divert very far from that. So, the things that Bill talked about, be it MSRs or securitization or CSLs. Obviously are all very close to our legacy portfolio. They are just new wrinkles, if you will. And the other thing is, so it’s got to be rely upon core competencies and you should think anything to be incremental such as with these new initiatives are. Ken Bruce – Bank of America: Okay and just as you look at potentially harvesting effectively gains, where there has been relative value has effectively been express your market prices already and rotate out. How much of that would you look to do on any given period. I mean, there is obviously some school of thought that you can effectively pull forward earnings through gain recognition. You see some of that from time to time this past quarter is part of that, and how should we think about how quickly you may move a strategy around, understand you just had incremental, but I guess I’m trying to gauge exactly that what that might mean?

Sure. It’s very tough to say. We’re just going to do things that are smart. Value is growing out of the sector, we’ll rotate our developments team that did a marvelous job in the fourth quarter repositioning the agency portfolio by rolling down coupon to enhance prepayment protection. Obviously that resulted in some capital gains in the fourth quarter and it’s very difficult to say. Obviously we have considerations of being a reed, and so we can’t be a high velocity trading vehicle, but we just want to do things that are smart. I was delighted at the reposition in the fourth quarter in building the team constantly and look at ways to enhance value. Ken Bruce – Bank of America: Okay. And lastly, can you see the number of REIT in one form or another begin to develop operating platforms that have in the sense kind of positioned those companies for doing different things. Is that something that Two Harbors wouldn’t envision as it relates to some of the conduit activities or how should we thinking about your involvement in the loan side of the equation understanding again you’ve made some comments to that, but I’m trying to get a sense as to what scale of that might look like?

These new initiatives it’s tough to say. All of these things attract mathematically, some of them have operating here on them or some complicated issues around that. But we’re just going to do things again that are smart for our shareholders and things that later on the core competencies where we have the infrastructure to support it, where we have staff to support it, et cetera, but we’re very excited about these new things. We don’t want to oversell them today because they are not a significant part of our portfolio, but it’s just our commitment to enhance shareholder value. Ken Bruce – Bank of America: Okay. Thank you for your comments. Congratulations on the good quarter and good year, and look forward to seeing in 2013.

Thanks for those kind words Ken.

Thanks Ken.

Thank you. Our next question comes from Joel Houck from Wells Fargo. Joel Houck – Wells Fargo: Thank you, and good morning.

Good morning Joel. Joel Houck – Wells Fargo: Wondering if you can – may be if the crystal ball look out through 2013 and give us may be a range of what you think the net ROEs are for the agency business assuming six to seven times leverage obviously you guys are running a bit below that. And then what margin ROEs look like on the non-agency side again assuming your target leverage ratio of 1 to 1.5?

Well, I’ll tell you Joe, if I had a crystal ball, I’ve been on a warmer place than Minnesota right now. Bill commented on the ROEs that exist in the market today and that’s really all that we can say. Mortgage spreads are pretty manageable, we’ve seen a lot of volatility in the past few years, and so it’s very difficult for us predict and certainly we would be reluctant to give any guidance. Market conditions just change too rapidly. Today there is some lowers in the past few years. We’re trying to enhance our ROEs through new initiatives, but outside that we really can’t say a lot. Joel Houck – Wells Fargo: Okay. So Tom, I guess are the best assessment I guess at this point in terms of modeling this after balance of 2013 is that fair?

Yeah, that’s difficult to say. I mean ROEs move around a lot. So what they are today is some indication, but they’re changing awful lot. So we’ll just have to see. We’re optimistic, but market changes, conditions change daily. Joel Houck – Wells Fargo: And I guess in terms of the new initiatives what is the – obviously this is small right now, but as you kind of look out I mean how do you think about these businesses particularly our understanding is that purchased MSRs can be restructured to read eligible assets. So would you guys envision any potential changes, maintain a REIT status with respect to the asset and the income tax or is that really kind of dependent upon the opportunities that you kind of put in as the company going forward or.....

Yeah, thanks for the question. We’re not going to do anything to jeopardize our REIT status. So, and how big the initiatives are just it depends. These things are mathematically attractive today. They have operating complexities, and – but anything that we do, we’re going to do well. That’s our commitment. Joel Houck – Wells Fargo: Okay and then last, I guess it’s safe to say that anything you guys are currently looking at, you already have the existing infrastructure expertise with your affiliation of Pine River. Is that a fair statement?

I’m not going to spend one money of shareholder value that I don’t feel confident that I can manage prudently and demonstrate best-in-class in everything, investment, controls, accounting, audit, the whole thing. So, when we say we want to be the best, we mean it. We want to be the best. Joel Houck – Wells Fargo: Okay.

And I could maybe expand upon that, as each of those initiatives have their own unique characteristics, they also overlap with each other. So, areas of underwriting, due diligence, operational components. Those will continue to be expanded upon as each of those grow. And really try to understand each of the – the opportunities in each of those three buckets, you can actually get to the underwriting stage early in the phase. And so, you can really understand the credit components, or the prepayment components. And so, we obviously will build out the appropriate team to kind of maximize the value in those areas. Silver Bay is probably a good example of that. There was appropriate hiring to support that initiative, make sure that we’re managing the risks, those are operational risks, those are even asset class risk. We will be approaching at the same way on each of those initiatives. Fortunately, they overlap a lot. So, it can be fairly streamlined in what we do.

And finally, I would say to your point, yes, without a doubt that the external manager being part of the Pine River family gives us a lot of support in a variety of areas and we rely upon that relationship and benefit from it certainly. We are very proud to be part of the Pine River family. Joel Houck – Wells Fargo: All right. Thank you very much.

Thank you. Our next question comes from Stephen Laws from Deutsche Bank.

Good morning. Stephen Laws – Deutsche Bank: I have specific stuff has been covered in the deck or the Q&A. I just wondered if you guys could take a minute, maybe talk about the competitive landscape particularly with respect to non-regulated mortgage REITs versus regulated financial institutions and their unknown balance sheet requirements and other issues that they may or may not have addressed for them any time soon, and kind of how that positions you guys to target more of these credit sensitive investments?

Good morning. Thanks for the question. Yeah, that’s -I’ll try and be brief because that sounds like it could be a lengthy discussion, we could have or beer some time. Stephen Laws – Deutsche Bank: Sure.

The banking industry obviously has had – they have had their headaches with regards to whole host of issues in the mortgage arena. There is a hangover that exists certainly for certain institutions and obviously they are being highly regulated in terms of our participation as well as capital rules. On the other hand, the banks enjoy the tremendous benefit of being able to collect deposits which is certainly tremendous from this funding standpoint. In our case, we’re basically focused on a very small part of what banks do in general. We’re focused on the residential market with an extremely high emphasis on securities, and we also fund ourselves using this tree, and that’s not something that enjoys the benefit of federal deposit insurance certainly. So, the business models are very different. What I would say is that in terms of taking a look at mortgage credit, I think the remodel is very, very well set up, ourselves particularly since that’s one of our core competencies to be a long-term provider of mortgage credit. And, as the government goes through and figures out what they’re going to do with housing, finance, the GSEs, the new definitions of what qualifies, we’re very excited about our ability to put capital to work at what we think are going to be attractive returns that don’t have any necessarily regulatory burden due to the deposit insurance that the banks enjoy. Stephen Laws – Deutsche Bank: Great. Well, thanks for the color. The brief color on that and I definitely look forward to catching up on that in more detail in person sometime.

Sounds great. Thank you.

Thank you. Our next question comes from Boris Pialloux from National Securities. Boris Pialloux – National Securities: For taking my questions, just a quick question. The first one is, until March are you hedging your exposure to Silver Bay? And second question is, you were mentioning in the press release that you have $56.9 million of purchase commitment, does that include CSL?

Good morning, Morris, this is Tom. I’ll answer the first question, and then hand it over to Bill for the second question. In respect of hedging our exposure to Silver Bay, the answer is no. It is of unhedged position. So, in respect to our overall portfolio, it’s not that impactful, but there is a correlation obviously mathematically between our holdings and Silver Bay and book value for Two Harbors, so it’s relatively de minimis, but it’s an unhedged position.

And, this is Brad, I can take the second. The answer is no. There was small CSL trades that Bill mentioned are not part of the pipeline as noted in our 1231 position. Boris Pialloux – National Securities: Okay. Thank you.

Thanks, Morris.

Thank you. Our next question comes from (inaudible) Point.

Question, just one quick one. Given the investments in the platform, what could we expect for the run rate operating expenses on go-forward basis?

That’s – I think that’s a question just like the – just look at all these strategies, we can say fairly limited amount, it all related to drives on which one and what size, and how fast. I think in the near term, it’s a fairly small amount in correlation to the size of the balance sheet position, and we’re really unable to provide much more color than that. As we go through each quarter and generate a focus on our balance sheet and showing the assets that we’re building, we’re going to give a lot more color on how the basis points might change. Now, all these strategies is important to realize that a large part will have operational cost to them that are really embedded in the investment themselves. Due diligence of loans, underwriting for example, which are we match from an accounting perspective show an increase in the operating expense ratio, but really it just embedded in the ROEs of that strategy. So, those are some things to think about. At this time, I can’t really provide much more color.

All right. Thank you.

Sure. And I’ll just add on to that too, importantly when we – as we might spend money on these new initiatives, we’re making sure that we’re getting value for that. So, we go through what it costs to create and operate these new strategies and we want to make sure that they are incrementally accretive to earnings. So, that’s how we think about it.

Got it.

Thank you.

Thank you. I’d like to hand the conference over to Tom Siering for any closing remarks.

Well, thank you for joining our call. As we discussed, we’re greatly pleased with the returns we generated for the shareholders in 2012 and are optimistic about the opportunities that we see over the coming year. Thanks for listening. Have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program for today. You may all disconnect and have a wonderful day.