8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  November 6, 2012 (November 6, 2012)

Two Harbors Investment Corp.

(Exact name of registrant as specified in its charter)

Maryland	001-34506	27-0312904
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

601 Carlson Parkway, Suite 150

Minnetonka, MN 55305

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code:   (612) 629-2500

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act  (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02           Results of Operations and Financial Condition

On November 6, 2012, Two Harbors Investment Corp. issued a press release announcing its financial results for the fiscal quarter ended September 30, 2012. A copy of the press release and the 2012Third Quarter Earnings Call Presentation are attached hereto as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference.

The information in this Current Report, including Exhibits 99.1 and 99.2 attached hereto, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be “filed” for any other purpose, including for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in Item 2.02 of this Current Report, including Exhibits 99.1 and 99.2, shall not be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filings (unless the registrant specifically states that the information or exhibit in this particular Current Report is incorporated by reference).

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Press Release, dated November 6, 2012, issued by Two Harbors Investment Corp. announcing Third Quarter 2012 results.
99.2	2012 Third Quarter Earnings Call Presentation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	TWO HARBORS INVESTMENT CORP.
	By:	/s/ REBECCA B. SANDBERG
		Rebecca B. Sandberg
		Secretary and Deputy General Counsel
Date: November 6, 2012

EX-99.1

Two Harbors Investment Corp. Reports Third Quarter2012 Financial Results

Delivered Total Return of 18.7%¹ 

NEW YORK, November 6, 2012 - 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, residential real properties and other financial assets, today announced its financial results for the quarter ended September 30, 2012.

Highlights

• The company reported Comprehensive Income of $524.4 million, or $1.94 per diluted weighted average common share.

• Book value increased 15.1% to $11.44 per diluted common share at September 30, 2012, due primarily to strong appreciation in the company's Agency and non-Agency RMBS holdings, net of hedges.

• The Agency RMBS portfolio, inclusive of IIOs, experienced a low and stable three-month average Constant Prepayment Rate (CPR) of 6%, which contributed to the RMBS portfolio's aggregate yield of 4.2%.

• The company reported Core Earnings of $84.4 million, or $0.31 per diluted weighted average common share. Third quarter Core Earnings were impacted by timing of the capital deployment from the company's July 2012 capital raise and lower yields on the company's Agency RMBS securities acquired in recent months.

• The company declared a dividend of $0.36 per common share, or 12.3% annualized dividend yield, based upon the September 28, 2012 closing price of $11.75.

• The company completed an accretive public stock offering in July 2012, which resulted in the issuance of 57.5 million shares of common stock for net proceeds of approximately $592.4 million. The company completed deployment of the proceeds from this offering primarily by making additional acquisitions of RMBS securities and residential real properties.

"We had a remarkable quarter," said Thomas Siering, Two Harbors' President and Chief Executive Officer. "Our RMBS portfolio delivered its most outstanding performance since the company's formation, achieving an annualized return on average equity of 70.2% on a Comprehensive Income basis. We believe this performance demonstrates not only the advantages of our hybrid investment strategy, but also highlights the strength of our security selection process and speaks to the high caliber of our investment team."

(1) The term “total return” means (i) the change in Two Harbors' book value per share at September 30, 2012 as compared to June 30, 2012, plus (ii)

dividends declared by Two Harbors in the third quarter of 2012, divided by Two Harbors' book value per share at June 30, 2012.

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Operating Performance

The following table summarizes the company's GAAP and non-GAAP earnings measurements and key metrics for the third quarter of 2012:

Two Harbors Operating Performance
(dollars in thousands, except per share data)	Q3-2012							YTD 2012
Earnings	Earnings			Per diluted weighted share		Annualized return on average equity		Earnings		Per diluted weighted share		Annualized return on average equity
Core Earnings1	$	84,377		$	0.31	11.3	%	$	224,213	$	1.00	13.0	%
GAAP Net Income	$	26,802		$	0.10	3.6	%	$	102,606	$	0.46	6.0	%
Comprehensive Income	$	524,400		$	1.94	70.2	%	$	861,718	$	3.84	50.1	%
Operating Metrics	Q3-2012
Dividend per common share	$	0.36
Book value per diluted share at period end	$	11.44
Other operating expenses as a percentage of average equity	0.9		%
(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 and certain gains or losses on derivative instruments. 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 September 30, 2012 of $84.4 million, or $0.31 per diluted weighted average common share outstanding, as compared to Core Earnings for the quarter ended June 30, 2012 of $76.1 million, or $0.35 per diluted weighted average common share outstanding. Core Earnings were impacted by costs associated with timing of capital deployment from the company's July 2012 capital raise and lower yields on the company's Agency RMBS securities acquired in recent months.

During the quarter, the company sold residential mortgage-backed securities for $9.4 million with an amortized

cost of $9.6 million, for a net realized loss of $0.2 million, net of tax; recognized a change in unrealized fair

value gains on U.S. Treasury trading securities of $1.8 million, net of tax; and recognized other-than-temporary

credit impairment losses on its RMBS securities of $0.6 million, net of tax. During the quarter, the company had a net loss of $5.0 million, net of tax, related to swap terminations and swaption expirations. In addition, the company recognized in earnings an unrealized loss, net of tax, of $54.0 million associated with its interest rate swaps and swaptions economically hedging its repurchase agreements and available-for-sale securities; an unrealized loss, net of tax, of $3.0 million associated with its interest rate swaps economically hedging its trading securities; and net gains on other derivative instruments of approximately $3.2 million, net of tax.

The company reported GAAP Net Income of $26.8 million, or $0.10 per diluted weighted average common share outstanding, for the quarter ended September 30, 2012, as compared to $24.0 million, or $0.11 per diluted weighted average common share outstanding, for the quarter ended June 30, 2012. On a GAAP basis, the company earned

an annualized return on average equity of 3.6% and 4.5% for the quarters ended September 30, 2012 and June 30, 2012, respectively.

The company reported Comprehensive Income of $524.4 million, or $1.94 per diluted weighted average common share outstanding, for the quarter ended September 30, 2012, as compared to $141.6 million, or $0.66 per diluted weighted average common share outstanding, for the quarter ended June 30, 2012. The company records unrealized

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fair value gains and losses for RMBS securities, classified as available-for-sale, as Other Comprehensive Income in the Statement of Stockholders' Equity. The third quarter 2012 was positively impacted by an aggregate unrealized increase in fair value of $497.6 million on the company's portfolio, driven by appreciation in the company's Agency and non-Agency RMBS holdings. On a Comprehensive Income basis, the company recognized an annualized return on average equity of 70.2% and 26.6% for the quarters ended September 30, 2012 and June 30, 2012, respectively.

Other Key Metrics

Two Harbors declared a quarterly dividend of $0.36 per common share for the quarter ended September 30, 2012. The annualized dividend yield on the company's common stock for the third quarter, based on the September 28, 2012 closing price of $11.75, was 12.3%.

The company's book value per diluted share, after giving effect to the third quarter2012 dividend of $0.36, was $11.44 as of September 30, 2012, compared to $9.94 as of June 30, 2012.

Other operating expenses for the third quarter2012 were approximately $6.5 million, or 0.9% of average equity,

compared to approximately $4.2 million, or 0.8%, for the second quarter2012. Third quarter operating expenses were impacted by an increase in real estate related expenses associated with the company's portfolio of single-family residential properties.

Portfolio Summary

For the quarter ended September 30, 2012, the annualized yield on average RMBS securities and Agency Derivatives was 4.2% and the annualized cost of funds on the average borrowings, which includes net interest rate spread expense on interest rate swaps, was 1.1%. This resulted in a net interest rate spread of 3.1%, which compares to 3.6% in the prior quarter. Net interest spread for the third quarter was impacted primarily by lower yields on the company's Agency RMBS securities acquired in recent months. Third quarter net interest spread was also affected to a lesser extent by significantly extending the company's repurchase agreements and the incremental expense associated with maintaining the company's interest rate hedging strategy as the company aligned its notional hedging positions with the capital deployed from its July 2012 common stock offering.

The company reported debt-to-equity, defined as total borrowings to fund RMBS securities, residential mortgage loans and Agency Derivatives divided by total equity, of 3.8:1.0 and 4.3:1.0 at September 30, 2012 and June 30, 2012, respectively. The third quarter debt-to-equity ratio was impacted by proceeds received from the issuance of common stock in connection with warrants exercised in September.

The company's portfolio is principally comprised of RMBS available-for-sale securities and Agency Derivatives. As of September 30, 2012, the total value of the portfolio was $15.3 billion, of which approximately $12.8 billion was Agency RMBS and Agency Derivatives and $2.5 billion was non-Agency RMBS. As of September 30, 2012, fixed-rate securities composed 82.1% of the company's portfolio and adjustable-rate securities composed 17.9% of the company's portfolio. In addition, the company held $1.0 billion of U.S. Treasuries classified on its balance sheet as trading securities and $190.9 million of Investments in Real Estate as of September 30, 2012.

Two Harbors was a party to interest rate swaps and swaptions as of September 30, 2012 with an aggregate notional

amount of $18.2 billion, of which $17.2 billion was utilized to economically hedge interest rate risk associated with the company's short-term LIBOR-based repurchase agreements. During the third quarter, the company maintained its interest rate hedging strategy and aligned its notional hedging positions with the capital deployed from its July 2012 common stock offering.

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The following table summarizes the company's investment portfolio:

Two Harbors Portfolio
(dollars in thousands, except per share data)
RMBS and Agency Derivatives Portfolio Composition	As of September 30, 2012
Agency Bonds
Fixed Rate Bonds	$	12,268,507		80.2	%
Hybrid ARMs	200,556			1.3	%
Total Agency	12,469,063			81.5	%
Agency Derivatives	328,635			2.2	%
Non-Agency Bonds
Senior Bonds	1,989,885			13.0	%
Mezzanine Bonds	506,620			3.3	%
Non-Agency Other	4,291			—	%
Total Non-Agency	2,500,796			16.3	%
Aggregate Portfolio	$	15,298,494
Fixed-rate investment securities as a percentage of aggregate portfolio	82.1		%
Adjustable-rate investment securities as a percentage of aggregate portfolio	17.9		%
Portfolio Metrics	For the Quarter Ended September 30, 2012
Annualized yield on average RMBS and Agency Derivatives during the quarter
Agency	3.1		%
Non-Agency	9.6		%
Aggregate Portfolio	4.2		%
Annualized cost of funds on average repurchase balance during the quarter1	1.1		%
Annualized interest rate spread for aggregate portfolio during the quarter	3.1		%
Weighted average cost basis of principal and interest securities
Agency	$	108.15
Non-Agency2	$	52.38
Weighted average three month CPR for its RMBS and Agency Derivative portfolio
Agency	6.0		%
Non-Agency	3.0		%
Debt-to-equity ratio at period-end3	3.8 to 1.0
(1) Cost of funds includes interest spread expense associated with the portfolio's interest rate swaps.
(2) Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, total non-Agency RMBS excluding the company's non-Agency interest-only portfolio would be $47.71 at September 30, 3012.
(3) Defined as total borrowings to fund RMBS, residential mortgage loans and Agency Derivatives divided by total equity.

"We are extremely proud of our portfolio's performance this quarter," stated Bill Roth, Two Harbors' Co-Chief Investment Officer. "Both our Agency and non-Agency strategies contributed significantly to our return." 

"Managing prepayment risk has become increasingly important given today's low rate environment and the government initiated refinancing programs available to homeowners,” continued Roth. "In light of this, we are pleased that our Agency portfolio continues to experience low and stable prepayment speeds."

The company experienced a three-month average CPR of 6.0% for Agency RMBS securities and Agency Derivatives held as of September 30, 2012, comparable to the prior quarter. The weighted average cost basis of the Agency portfolio was 108.2% of par as of September 30, 2012 and 107.5%of par as of June 30, 2012. The net

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premium amortization was $39.7 million and $31.0 million for the quarters ended September 30, 2012 and June 30, 2012, respectively.

The company experienced a three-month average CPR of 3.0% for non-Agency RMBS securities held as of September 30, 2012, as compared to 2.1% for securities held as of June 30, 2012. The weighted average cost basis of the non-Agency portfolio was 52.4% of par as of September 30, 2012 and 52.1% of par as of June 30, 2012. The discount accretion was $36.2 million and $34.1 million for the quarters ended September 30, 2012 and June 30, 2012, respectively. The total net discount remaining was $2.3 billion as of September 30, 2012 and June 30, 2012, with $1.3 billion designated as credit reserve as of September 30, 2012.

Business Diversification

Single-Family Residential Properties

On September 11, 2012, the company announced the proposed contribution of its portfolio of single-family residential properties to Silver Bay Realty Trust Corp. (“Silver Bay”), a newly formed entity intended to qualify as a REIT. In exchange for its contribution, Two Harbors would receive shares of common stock of Silver Bay. As of September 30, 2012, Two Harbors had purchased property with a carrying value of $190.9 million in single-family residential properties. The properties are classified as investment in real estate on the consolidated balance sheet.

Securitization

In late 2011, the company began acquiring prime nonconforming residential mortgage loans from select mortgage loan originators and secondary market institutions. As of September 30, 2012 the company had acquired mortgage loans held-for-sale with a carrying value of $14.6 million and had outstanding purchase commitments to acquire an additional $319.9 million. It is the company's intention in the future to securitize these loans and/or exit through a whole loan sale.

Public Stock Offerings

The company completed an accretive public stock offering in July 2012, which resulted in the issuance of 57.5 million shares of common stock for net proceeds of approximately $592.4 million. The company completed deployment of the proceeds from this offering primarily by making additional acquisitions of RMBS securities and residential real properties.

Warrants

During the third quarter 2012, warrant holders exercised warrants to purchase 15,975,017 shares of the company's common stock at an exercise price of $11.00 per share. This resulted in proceeds to the company totaling approximately $175.7 million. As of September 30, 2012, 17,073,983 warrants remain outstanding.

Conference Call

Two Harbors Investment Corp. will host a conference call on November 7, 2012 at 9:00 amEST to discuss third quarter2012 financial results and related information. To participate in the teleconference, please call toll-free (877) 868-1835 (or (914) 495-8581 for international callers) approximately 10 minutes prior to the above start time. You may also listen to the teleconference live via the Internet on the company's website at www.twoharborsinvestment.com in the Investor Relations section under the Events and Presentations link. For those unable to attend, a telephone playback will be available beginning at 12 p.m. EST on November 7, 2012 through 9 p.m. EST on November 25, 2012. The playback can be accessed by calling (855) 859-2056 (or (404) 537-3406 for international callers) and providing Confirmation Code 50062843. The call will also be archived on the company's website in the Investor Relations section under the Events and Presentations link.

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Two Harbors Investment Corp.

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

Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “target,” “assume,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believe,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Factors that could cause actual results to differ include, but are not limited to, higher than expected operating costs, changes in prepayment speeds of mortgages underlying our RMBS, the rates of default or decreased recovery on the mortgages underlying our non-Agency securities, failure to recover certain losses that are expected to be temporary, changes in interest rates or the availability of financing, the impact of new legislation or regulatory changes on our operations, the impact of any deficiencies in the servicing or foreclosure practices of third parties and related delays in the foreclosure process, the inability to acquire mortgage loans or securitize the mortgage loans we acquire, the inability to acquire residential real properties at attractive prices or lease such properties on a profitable basis, the impact of new or modified government mortgage refinance or principal reduction programs, and unanticipated changes in overall market and economic conditions.

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

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), this press release and the accompanying investor presentation present non-GAAP financial measures that exclude certain items. Two Harbors' management believes that these non-GAAP measures enable it to perform meaningful comparisons of past, present and future results of the company's core business operations, and uses these measures to gain a comparative understanding of the company's operating performance and business trends. The non-GAAP financial measures presented by the company represent supplemental information to assist investors in analyzing the results of Two Harbors' operations; however, as these measures are not in accordance with GAAP, they should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated. See the GAAP to Non-GAAP reconciliation table on page 10 of this release.

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Additional Information

Stockholders and warrant holders of Two Harbors, and other interested persons, may find additional information regarding the company at the SEC's Internet site at www.sec.gov or by directing requests to: Two Harbors Investment Corp., Attn: Investor Relations, 601 Carlson Parkway, Suite 150, Minnetonka, MN 55305, telephone 612-629-2500.

Contact

July Hugen, Investor Relations, Two Harbors Investment Corp., 612-629-2514, july.hugen@twoharborsinvestment.com.

# # #

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TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
	September 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Available-for-sale securities, at fair value	$	14,969,859		$	6,249,252
Trading securities, at fair value	1,002,461			1,003,301
Mortgage loans held-for-sale, at fair value	14,553			5,782
Investment in real estate, net	190,907			—
Cash and cash equivalents	833,608			360,016
Restricted cash	206,190			166,587
Accrued interest receivable	46,919			23,437
Due from counterparties	28,965			32,587
Derivative assets, at fair value	496,788			251,856
Other assets	74,445			7,566
Total Assets	$	17,864,695		$	8,100,384
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Repurchase agreements	$	14,034,327		$	6,660,148
Derivative liabilities, at fair value	132,322			49,080
Accrued interest payable	13,147			6,456
Due to counterparties	170,090			45,565
Accrued expenses	17,008			8,912
Dividends payable	106,325			56,239
Income taxes payable	—			3,898
Total liabilities	$	14,473,219		$	6,830,298
Stockholders’ Equity
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 295,350,370 and 140,596,708 shares issued and outstanding, respectively	2,954			1,406
Additional paid-in capital	2,910,293			1,373,099
Accumulated other comprehensive income (loss)	700,396			(58,716		)
Cumulative earnings	260,058			157,452
Cumulative distributions to stockholders	(482,225		)	(203,155		)
Total stockholders’ equity	3,391,476			1,270,086
Total Liabilities and Stockholders’ Equity	$	17,864,695		$	8,100,384

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TWO HARBORS INVESTMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(unaudited)						(unaudited)
Interest income:
Available-for-sale securities	$	124,621		$	65,919		$	313,154		$	125,413
Trading securities	1,278			1,706			3,578			2,783
Mortgage loans held-for-sale	167			—			362			—
Cash and cash equivalents	243			114			620			241
Total interest income	126,309			67,739			317,714			128,437
Interest expense	20,743			7,218			47,737			13,580
Net interest income	105,566			60,521			269,977			114,857
Other-than-temporary impairment losses	(559		)	(3,371		)	(9,310		)	(3,665		)
Other income:
Gain on investment securities, net	2,527			31,432			14,247			36,159
Loss on interest rate swap and swaption agreements	(76,472		)	(39,311		)	(153,679		)	(88,180		)
Gain (loss) on other derivative instruments	3,454			22,361			(13,053		)	37,474
Other income	731			—			822			—
Total other (loss) income	(69,760		)	14,482			(151,663		)	(14,547		)
Expenses:
Management fees	9,733			4,785			24,086			9,063
Other operating expenses	6,546			2,850			14,328			6,516
Total expenses	16,279			7,635			38,414			15,579
Income before income taxes	18,968			63,997			70,590			81,066
(Benefit from) provision for income taxes	(7,834		)	9,388			(32,016		)	5,064
Net income attributable to common stockholders	$	26,802		$	54,609		$	102,606		$	76,002
Basic earnings per weighted average common share	$	0.10		$	0.42		$	0.46		$	0.90
Diluted earnings per weighted average common share	$	0.10		$	0.42		$	0.46		$	0.90
Weighted average shares outstanding - Basic	270,005,212			130,607,566			224,058,762			84,751,854
Weighted average shares outstanding - Diluted	270,937,960			130,607,566			224,369,678			84,751,854
Comprehensive income (loss):
Net income	$	26,802		$	54,609		$	102,606		$	76,002
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net	497,598			(72,573		)	759,112			(48,944		)
Other comprehensive income (loss)	497,598			(72,573		)	759,112			(48,944		)
Comprehensive income (loss)	$	524,400		$	(17,964	)	$	861,718		$	27,058

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TWO HARBORS INVESTMENT CORP.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)
(dollars in thousands, except per share data)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Reconciliation of net income attributable to common stockholders to
Core Earnings:
Net income attributable to common stockholders	$	26,802		$	54,609		$	102,606		$	76,002
Adjustments for non-core earnings:
Loss (gain) on sale of securities and mortgage loans, net of tax	277			(27,422		)	(10,862		)	(29,584		)
Other-than-temporary impairment loss, net of tax	559			3,371			9,310			3,665
Unrealized gains on trading securities and mortgage loans, net of tax	(2,082		)	(2,422		)	(2,091		)	(3,953		)
Unrealized loss, net of tax, on interest rate swap and swaptions economically hedging repurchase agreements and available-for-sale securities	53,970			16,650			86,010			49,186
Unrealized loss (gain), net of tax, on interest rate swap economically hedging trading securities	3,038			(4,686		)	10,511			(3,429		)
Realized loss on termination or expiration of swaps and swaptions, net of tax	4,980			19,834			19,624			19,983
(Gain) loss on other derivative instruments, net of tax	(3,167		)	(8,133		)	9,105			(13,891		)
Core Earnings	$	84,377		$	51,801		$	224,213		$	97,979
Weighted average shares outstanding - Basic	270,005,212			130,607,566			224,058,762			84,751,854
Weighted average shares outstanding - Diluted	270,937,960			130,607,566			224,369,678			84,751,854
Core Earnings per weighted average share outstanding - basic and diluted	$	0.31		$	0.40		$	1.00		$	1.16

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EX-99.2

Two Harbors Investment Corp. Third Quarter 2012 Earnings Call November 7, 2012

2 Forward-Looking Statements This presentation includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “target,” “assume,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believe,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward- looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Factors that could cause actual results to differ include, but are not limited to, higher than expected operating costs, changes in prepayment speeds of mortgages underlying our RMBS, the rates of default or decreased recovery on the mortgages underlying our non-Agency securities, failure to recover certain losses that are expected to be temporary, changes in interest rates or the availability of financing, the impact of new legislation or regulatory changes on our operations, the impact of any deficiencies in the servicing or foreclosure practices of third parties and related delays in the foreclosure process, the inability to acquire mortgage loans or securitize the mortgage loans we acquire, the inability to acquire residential real properties at attractive prices or lease such properties on a profitable basis, the impact of new or modified government mortgage refinance or principal reduction programs, and unanticipated changes in overall market and economic conditions. Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Two Harbors does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these and other risk factors is contained in Two Harbors’ most recent filings with the Securities and Exchange Commission. All subsequent written and oral forward looking statements concerning Two Harbors or matters attributable to Two Harbors or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. Safe Harbor Statement

3 Executive Summary Delivered Exceptional Results  Delivered comprehensive income of $524.4 million and total return on book value of 18.7%1.  Book value increased 15.1% to $11.442 per diluted share, due primarily to strong appreciation in Agency and non-Agency holdings, net of hedges.  Core Earnings3 of $0.31 were impacted primarily by timing of the capital deployment from the company's July 2012 capital raise and lower yields on the company's Agency RMBS securities acquired in recent months.  Achieved total stockholder return of 89.7% since we commenced operations in October 2009, or 23.9% on an annualized basis4.  Accretive public stock offering completed in July 2012, resulting in the issuance of 57.5 million shares for net proceeds of $592.4 million.  Of the 33 million outstanding warrants, approximately 16 million have been exercised for proceeds of $176 million. (1) See Appendix, page 13 for calculation of Q3-2012 return on book value. (2) Diluted shares outstanding at end of period, which includes the effect of dilutive outstanding warrants determined using the treasury stock method, are used as the denominator for book value per share calculation. (3) 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 and certain gains or losses on derivative instruments. As defined, Core Earnings includes interest income associated with the company's inverse interest-only securities (“Agency Derivatives”) and premium income on or loss on credit default swaps. (4) Source: Bloomberg. Data as of October 23, 2012.

4 Key Macroeconomic Update Key Macroeconomic Factors that Impact our Business Europe  Dissolution of European Union or Euro is a significant risk to global markets. Home Prices  CoreLogic Home Price Index increased 6.1%1 and we continue to find firming in certain regions. Interest Rates  Interest rates could spike if the government doesn’t halt tax cuts and spending hikes and put a plan in place to lower national debt.  Rates influence funding costs as well as Agency prepayment speeds.  Low federal funds target rate should benefit funding costs for the next few years. Employment  Trends are improving, but unemployment is still high.  Meaningful determinant of probability of default on a mortgage loan. (1) Source: CoreLogic Home Price Index rolling 12-month change as of October 1, 2012.

5 Business Diversification Single Family Residential Properties  As of October 31st, we had acquired a portfolio of approximately $240 million and over 2,000 homes.  Represents an attractive asset class given long duration, current yield and potential home price appreciation. Securitization  Continue to monitor the environment while maintaining an opportunistic approach.  Increased commitments to acquire prime jumbo loans. Key Hires  Nick Smith joined our team in September. Nick brings a skill set in residential loans and MSRs.  Dan Koch joined Two Harbors in October. Dan has an extensive background in sourcing loan acquisitions and development of business diversification.

110 110 6 Financial Summary Financial Highlights Core Earnings1 Expense Ratio  Core Earnings1 are $0.31 per weighted average share.  Drivers of Core Earnings ― Impacted by capital deployment from July 2012 capital raise. ― Lower net interest spreads on Agency securities acquired in recent months. ― Cost of hedges to protect book value. ― Low and efficient expense ratio.  Strong and diverse financing relationships.  Extended maturity profile of repurchase agreements. ― Weighted average days to maturity for RMBS repo borrowings increased to 123 days from 86 days. ― Entered into 3-year and 4-year repo lines to fund up to $200 million in non-Agencies. $51.8 $55.6 $63.7 $76.1 $84.4 $0.40 $0.40 $0.34 $0.35 $0.31 $0.0 $0.1 $0.2 $0.3 $0.4 $0.5 $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Core Earnings ($M) Core EPS ($) 0.9% 1.0% 0.8% 0.8% 0.9% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Operating Expenses as % of Average Equity (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 and certain gains or losses on derivative instruments. 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. Financing

7 Book Value Book Value Q3-2012 Book Value ($M) Common Shares Outstanding (Diluted basis) Net Book Value Per Common Share (Diluted basis) Beginning stockholders’ equity $ 2,182.7 219.7 $ 9.94 GAAP Net Income: Core Earnings, net of tax 84.4 Realized losses, net of tax (7.0) Unrealized mark-to-market losses, net of tax (50.6) Other Comprehensive Income, net of tax 497.6 Dividend declaration (106.3) Other - Balance before Capital Transactions 2,600.8 219.7 11.84 Issuance of Common Stock, Net of Offering Costs 615.0 59.7 10.30 Proceeds from Issuance of Common Stock through Warrant Exercise 175.7 16.0 11.00 Ending stockholders’ equity – basic $ 3,391.5 295.4 $ 11.48 Warrants oustanding1 - 1.0 (0.04) Ending stockholders’ equity - diluted $ 3,391.5 296.4 $ 11.44 (1) Using the treasury stock method 1.0 million shares would be considered outstanding and dilutive to book value per share at September 30, 2012.

110  Achieved total return on book value of 18.7%1 for Q3-2012.  Performance driven by both Agency and non- Agency strategies.  Net interest spread impacted by lower Agency yields, lengthening repo terms, and maintaining the company’s hedging strategy with increase in Agency portfolio. Sector Q3-2012 Agency Strategy: Barclays US MBS Fixed Rate Index vs. duration-matched swap at 6:1 leverage 3.6% Credit: ABX 06-2 AAA 12.1% Proxy for 50% Agency and 50% Non-Agency Strategy 7.9% Two Harbors’ Return on Book Value1 18.7% Benchmark Indices3 Portfolio Performance Summary 8 110 4.3% 3.5% 3.5% 3.3% 3.1% 9.8% 9.7% 9.7% 9.6% 9.6% 5.5% 4.8% 4.9% 4.6% 4.2% – 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Agency RMBS Non-Agency RMBS Aggregate Portfolio (1) See Appendix, page 13 for calculation of Q3-2012 return on book value. (2) Agency yield includes impact of Agency Derivatives. Interest income on Agency Derivatives was $7.6 million and $7.7 million for the second and third quarter of 2012, respectively, contributing an additional 0.3% and 0.2% to Agency yields for the second and third quarter of 2012, respectively, and an additional 0.2% to aggregate annualized yields in both periods. (3) Source for benchmark indices: Bloomberg. Three Months Ended June 30, 2012 September 30, 2012 Agency Non- Agency Aggregate Portfolio Agency Non- Agency Aggregate Portfolio Annualized Yield2 3.3% 9.6% 4.6% 3.1% 9.6% 4.2% Cost of repurchase agreements (0.5%) (2.3%) (0.7%) (0.5%) (2.6%) (0.7%) Cost of interest rate swaps & swaptions (0.3%) - (0.3%) (0.4%) - (0.4%) Cost of financing (0.8%) (2.3%) (1.0%) (0.9%) (2.6%) (1.1%) Net interest spread 2.5% 7.3% 3.6% 2.2% 7.0% 3.1% Portfolio Highlights Annualized Yields by Portfolio2 Net Interest Spread

110 110 0% 10% 20% 30% 40% 50% 60% Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 50% 60% 60% 55% 55% 52% 52% 57% 50% 40% 40% 45% 45% 48% 44% 36% 4% 7% Agency Non-Agency Residential Real Properties Portfolio Composition 9 (1) Includes Agency Derivatives (“IIOs”) of $329 million as of September 30, 2012. (2) Home Equity Conversion Mortgage loans (or “HECM”) are loans that allow the homeowner to convert home equity into cash collateralized by the value of their home. (3) High LTV pools are predominately Making Homeownership Affordable pools. Making Homeownership Affordable (or “MHA”) pools consist of borrowers who have refinanced through the Home Affordable Refinance Program (HARP). Highlights Targeted Capital Allocation  Primarily allocated capital to Agency prepayment protected pools.  High LTV (predominately MHA)3 pools increased by over $2.1 billion.  Continued focus on Sub-Prime bonds for the non- Agency portfolio. As of September 30, 2012 $15.3B RMBS Portfolio $ Millions Agency Bonds $12.8B (84%) Non-Agency Bonds $2.5B (16%) 30-Year Fixed $8,972 15-Year Fixed $537 HECM2 $1,891 Other-Fixed $698 IOs and IIOs1 $499 Hybrid ARMs $201 Mezzanine $507 Senior $1,990 Non-Agency Other $4 Portfolio Composition

10 110 Key Portfolio Metrics 110  Continued to realize low and stable CPRs.  98% of Agency securities with implicit or explicit prepayment protection.  Targeted debt-to-equity ratios: ― Agency: 6.0-7.0x ― Non-Agency: 1.0-1.5x (1) Agency weighted average 3-month CPR includes derivatives. (2) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, total non-Agency RMBS excluding the company’s non-Agency interest-only portfolio would be $47.71 at September 30, 2012. (3) Represents estimated percentage change in equity value for +100bps change in interest rates. Change in equity value is total net asset change. (4) Debt-to-equity is defined as total borrowings to fund RMBS securities, residential mortgage loans and Agency Derivatives divided by total equity.  Average pay rate on swaps of only 0.84%.  $5.2 billion in notional protection via swaptions with expiries averaging over four years.  Continue to maintain low interest rate exposure. Portfolio Metrics Q2-2012 Q3-2012 Agency Weighted average 3-month CPR1 6.0% 6.0% Weighted average cost basis2 $107.5 $108.2 Non-Agency Weighted average 3-month CPR 2.1% 3.0% Weighted average cost basis2 $52.1 $52.4 Change in equity value for +100bps change in interest rates3 3.1% 1.1% Debt-to-Equity4 4.3x 3.8x Portfolio Metrics BV Exposure to +100 bps Change in Rates3 (2.3%) (0.9%) (3.1%) (1.1%) (15%) (10%) (5%) – Q3-2012 Hedging Strategy Q2-2012 Q1-2012 Q4-2011

11 Hybrid Model Provides Flexibility Agency Portfolio Today  Focus on prepayment protected securities has generated low and stable prepayment experience.  Low interest rate exposure. Non-Agency Portfolio Today  Delinquencies are declining and performance is improving.  Housing stable and improving, providing potential upside to non-Agency discount bonds. Hybrid Model Provides Flexibility – Broad Menu of Potential Opportunities  Potential investment universe includes all residential real estate assets, including unsecuritized products.  Recent hires bolster expertise and ability to explore opportunities for diversification.  Securitization – credit bonds and IO creation math has improved.  GSE Credit Investments – when, and if, the GSEs move to distribute credit risk.  Mortgage Servicing Rights (MSRs).  Other residential mortgage loans.

12 Appendix

13 Q3-2012 Return on Book Value of 18.7% Return on book value1 (Per diluted share amounts, except for percentage) Book value at September 30, 2012 $ 11.44 Book value at June 30, 2012 9.94 Increase in book value 1.50 Dividend declared in Q3-2012 0.36 Return on book value ($) $ 1.86 Return on book value (%) 18.7% (1) Diluted shares outstanding at end of period, which includes the effect of dilutive outstanding warrants determined using the treasury stock method, are used as the denominator for book value per share calculation.

110 Operating Performance 110 $9.30 $9.03 $9.67 $9.94 $11.44 $5.00 $7.50 $10.00 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Book Value per Share ($) ($18.0) $19.0 $195.7 $141.6 $524.4 (5.6%) 6.0% 44.5% 26.6% 70.2% -25.0% 25.0% 75.0% ($20.0) $180.0 $380.0 $580.0 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Comprehensive Income (Loss) ($M) Comprehensive Income (Loss) ROAE (%) $0.40 $0.40 $0.40 $0.40 $0.36 18.1% 17.3% 15.8% 15.4% 12.3% 0.0% 5.0% 10.0% 15.0% 20.0% $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Dividend per Share ($) Dividend Yield (%) (1) Historical dividends may not be indicative of future dividend distributions. The company ultimately distributes dividends based on its taxable income per common share, not GAAP earnings. The annualized dividend yield on the company’s common stock is calculated based on the closing price of the last trading day of the quarter. (2) Diluted shares outstanding at end of period, which includes the effect of dilutive outstanding warrants determined using the treasury stock method, are used as the denominator for book value per share calculation. If basic shares outstanding were used as the denominator in the calculation, book value per share would be $11.48 at September 30, 2012. 14 Book Value2 GAAP Net Income Comprehensive Income (Loss) Dividends1 $54.6 $51.4 $51.8 $24.0 $26.8 $0.4 $0.37 $0.28 $0.11 $0.10 $0.00 $0.20 $0.40 $0.60 $0.0 $10.0 $20.0 $30.0 $40. $50.0 $60.0 Q3-201 4-2011 Q1-2012 Q2-2012 Q3-2012 GAAP Net Income ($M) GAAP EPS ($)

15 Operating Performance Operating Performance (In millions, except for per share amounts) Core Earnings Realized Gains Unrealized MTM Q2-2012 Financials Core Earnings Realized Gains Unrealized MTM Q3-2012 Financials Interest income $ 105.9 $ - $ - $ 105.9 $ 126.3 $ - $ - $ 126.3 Interest expense 15.5 - - 15.5 20.7 - - 20.7 Net interest income 90.4 - - 90.4 105.6 - - 105.6 Net other-than-temporary impairment losses - - (4.5) (4.5) - - (0.6) (0.6) Gain (loss) on investment securities, net - 0.7 1.1 1.8 - (0.2) 2.7 2.5 Loss on interest rate swap and swaptions1 (7.7) (7.2) (46.1) (61.0) (10.7) (7.5) (58.2) (76.4) Gain (loss) on other derivative instruments2 3.7 (24.1) 12.8 (7.6) 4.3 (2.6) 1.8 3.5 Other income (expense) 0.1 (0.1) 0.1 0.1 0.7 - - 0.7 Total other loss (3.9) (30.7) (32.1) (66.7) (5.7) (10.3) (53.7) (69.7) Management fees & other operating expenses 11.8 - - 11.8 16.3 - - 16.3 Net income (loss) before income taxes 74.7 (30.7) (36.6) 7.4 83.6 (10.3) (54.3) 19.0 Income tax benefit 1.4 10.1 5.1 16.6 0.8 3.3 3.7 7.8 Net income (loss) $ 76.1 $ (20.6) $ (31.5) $ 24.0 $ 84.4 $ (7.0) $ (50.6) $ 26.8 Basic and diluted weighted average EPS $ 0.35 $ (0.09) $ (0.15) $ 0.11 $ 0.31 $ (0.02) $ (0.19) $ 0.10 (1) Third quarter 2012 loss on interest rate swap includes $10.7 million in interest costs, of which $0.8 million relates to swaps associated with U.S. Treasuries. (2) Core Earnings includes $3.9 million and $3.4 million of net premium amortization on credit default swaps for the second and third quarter of 2012, respectively. Supplemental data: Unrealized gains/(losses) on interest rate swaps and swaptions economically hedging repurchase agreements and available-for-sale securities $ (42.3) $ (53.6) Income tax benefit (expense) $ 6.0 (0.4) Total $ (36.3) $ (54.0)

16 110 Portfolio Metrics Portfolio Yield Realized Q2-2012 At Jun. 30, 2012 Realized Q3-2012 At Sept. 30, 2012 Annualized yield1 4.6% 4.5% 4.2% 3.8% Agency1 3.3% 3.3% 3.1% 2.8% Non-Agency 9.6% 9.6% 9.6% 9.6% Cost of financing2 1.0% 1.0% 1.1% 1.1% Net interest spread 3.6% 3.5% 3.1% 2.7% Portfolio Metrics Q2-2012 Q3-2012 Agency Weighted average 3-month CPR 6.0% 6.0% Weighted average cost basis3 $107.5 $108.2 Non-Agency Weighted average 3-month CPR 2.1% 3.0% Weighted average cost basis3 $52.1 $52.4 Change in equity value for +100bps change in interest rates4 3.1% 1.1% Debt-to-Equity5 4.3x 3.8x Portfolio Yields and Metrics 110 Agency RMBS CPR Non-Agency RMBS CPR 2.4% 2.4% 1.9% 2.1% 3.0% 0.0% 5.0% 10.0% 15.0% 20.0% Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Non-Agency RMBS CPR 5.5% 5.9% 5.6% 6.0% 6.0% . 5.0% 10.0% 15.0% 20.0% Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Agency RMBS CPR (1) Agency yield includes impact of Agency Derivatives. Interest income on Agency Derivatives was $7.6 million and $7.7 million for the second and third quarter of 2012, respectively, contributing an additional 0.3% and 0.2% to Agency yields for the second and third quarter of 2012, respectively, and an additional 0.2% to aggregate annualized yields in both periods. (2) Cost of financing RMBS includes interest spread expense associated with the portfolio’s interest rate swaps of $7.7 million and $9.9 million for the second and third quarter of 2012, respectively. Interest spread expense increased cost of financing RMBS by 0.3% and 0.4% for the second and third quarter of 2012, respectively. (3) Weighted average cost basis includes RMBS principal and interest securities only. Average purchase price utilized carrying value for weighting purposes. Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, total non-Agency RMBS excluding the company’s non-Agency interest-only portfolio would be $47.71 at September 30, 2012. (4) Represents range of the percentage change in equity value for + 100bps change in interest rates. Change in equity value is portfolio value change adjusted for leverage. (5) Debt-to-equity is defined as total borrowings to fund RMBS securities, residential mortgage loans and Agency Derivatives divided by total equity.

110 110 September 30, 2012 Swaps Maturities Notional Amounts ($M) Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) 2012 $ 25 0.868% 0.502% 0.23 2013 2,275 0.713% 0.484% 0.81 2014 1,675 0.644% 0.497% 1.82 2015 2,770 0.908% 0.471% 2.68 2016 and after 5,350 0.923% 0.410% 4.45 $ 12,095 0.841% 0.450% 2.99 17 Financing and Hedging Strategy (1) Notional amounts do not include $1.0 billion of notional interest rate swaps economically hedging our trading securities. (2) Does not include repurchase agreements collateralized by U.S. Treasuries of $1.0 billion and mortgage loans held-for-sale of $12.8 million as of September 30, 2012. Repurchase Agreements: RMBS and Agency Derivatives2 September 30, 2012 Amount ($M) Percent (%) Within 30 days $1,986 15% 30 to 59 days 3,190 25% 60 to 89 days 70 1% 90 to 119 days 1,868 14% 120 to 364 days 5,630 43% One year and over 280 2% $13,024 Interest Rate Swaps1 Financing Interest Rate Swaptions September 30, 2012 Option Underlying Swap Swaption Expiration Cost ($M) Fair Value ($M) Average Months to Expiration Notional Amount ($M) Average Fixed Pay Rate Average Receive Rate Average Term (Years) Payer < 6 Months $ 2.0 $ - 0.87 $ 200 3.25% 3M Libor 7.0 Payer ≥ 6 Months 133.9 105.1 55.43 4,950 3.75% 3M Libor 9.8 Total Payer $ 135.9 $ 105.1 55.43 $ 5,150 3.73% 3M Libor 9.7

18 Agency Securities as of September 30, 2012 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed ≤ 4.5% $ 7,022 $ 7,742 60.5% $ 7,570 4.0% 8 5.0-6.0% 994 1,115 8.7% 1,078 5.4% 38 ≥ 6.5% 99 115 0.9% 112 7.3% 128 $ 8,115 $ 8,972 70.1% $ 8,760 4.2% 13 15-Year Fixed ≤ 4.0% $ 500 $ 536 4.2% $ 496 3.3% 23 ≥ 4.5% 1 1 -% 1 6.8% 98 $ 501 $ 537 4.2% $ 497 3.3% 23 HECM $ 1,662 $ 1,891 14.8% $ 1,803 4.7% 11 Hybrid ARMs 186 201 1.6% 196 4.1% 99 Other-Fixed 615 698 5.4% 669 4.7% 49 IOs and IIOs 4,054 4991 3.9% 483 5.1% 76 Total1 $ 15,133 $ 12,798 100.0% $ 12,408 4.3% 19 (1) Market value of IOs of $170 million and Agency Derivatives of $329 million as of September 30, 2012.

19 Non-Agency Securities as of September 30, 2012 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $1,990 $507 $2,497 % of Non-Agency Portfolio 79.7% 20.3% 100.0% Average Purchase Price1 $51.01 $57.80 $52.38 Average Coupon 1.8% 1.1% 1.7% Collateral Attributes Average Loan Age (months) 73 92 77 Average Loan Size ($K) $250 $173 $235 Average Original Loan-to-Value 78.3% 77.1% 78.0% Average Original FICO2 639 633 638 Current Performance 60+ Day Delinquencies 39.3% 33.5% 38.1% Average Credit Enhancement3 16.4% 33.2% 19.8% 3-Month CPR4 2.9% 3.2% 3.0% (1) Average purchase price utilized carrying value for weighting purposes. If current face were utilized for weighting purposes, the average purchase price for senior, mezzanine, and total non-Agency RMBS, excluding our non-Agency interest-only portfolio, would be $46.19, $54.66, and $47.71, respectively at September 30, 2012. (2) FICO represents a mortgage industry accepted credit score of a borrower, which was developed by Fair Isaac Corporation. (3) Average credit enhancement remaining on our non-Agency RMBS portfolio, which is the average amount of protection available to absorb future credit losses due to defaults on the underlying collateral. (4) 3-Month CPR is reflective of the prepayment speed on the underlying securitization; however, it does not necessarily indicate the proceeds received on our investment tranche. Proceeds received for each security are dependent on the position of the individual security within the structure of each deal.

Agency: Vintage & Prepayment Protection Q2-2012 Q3-2012 High LTV (predominately MHA)1 21% 31% $85K Max Pools2 31% 25% HECM3 17% 15% Other Low Loan Balance Pools4 11% 10% Low FICO5 4% 7% Seasoned (2005 and prior vintages) 7% 5% Prepayment protected 6% 4% 2006 & subsequent vintages - Discount -% 1% 2006 & subsequent vintages – Premium and IOs 3% 2% 20 Portfolio Composition as of September 30, 2012 Implicit or Explicit Pre-payment Protection Non-Agency: Loan Type Q2-2012 Q3-2012 Sub-Prime 84% 86% Option-ARM 11% 9% Alt-A 4% 4% Prime 1% 1% (1) Securities collateralized by loans with greater than or equal to 80% loan-to-value. High LTV pools are predominately Making Homeownership Affordable pools. Making Homeownership Affordable (or “MHA”) pools consist of borrowers who have refinanced through the Home Affordable Refinance Program (HARP). (2) Securities collateralized by loans of less than or equal to $85K. (3) Home Equity Conversion Mortgage loans (or “HECM”) are loans that allow the homeowner to convert home equity into cash collateralized by the value of their home. (4) Securities collateralized by loans of less than or equal to $175K, but more than $85K. (5) Securities collateralized by loans held by lower credit borrowers as defined by Fair Isaac Corporation’s, or FICO, scoring model.