Good day, ladies and gentlemen. And welcome to the Two Harbors’ First Quarter 2013 Financial Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer, instructions following at that time. (Operator Instructions) As a reminder, this conference is being recorded. Now, I’ll turn the conference over to your host, July Hugen, Director of Investor Relations. Please begin.

Thank you, Kairon, and good morning. Welcome to Two Harbors’ first quarter 2013 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 2013 results. Brad will highlight some key items from our financials, and Bill will review our portfolio performance and new investment opportunities. 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 the discussion of its first 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 fourth webinar in our ongoing series titled Mortgage REIT Primer. The webinar provides general information about REITs, mortgage REITs and Two Harbors model and can be found on our website under the webinar link. 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.

Thank you, July. Good morning everyone and thank you for joining our first quarter earnings call. It has certainly been a busy start to the year and we are pleased to provide with updates regarding our business. After I comment on the quarterly results and provide some insights related to the macro-economic environment, I would like to discuss some of our new investment opportunities. Brad and Bill will cover these in greater detail later. In the quarter we recorded $$248 million of comprehensive income or $0.81 per weight average diluted share. This is remarkable in the context of the sector’s first quarter performance as agencies put pressure to interest rate the slight volatility. Our comprehensive income was driven by non-agency performance. There was also a minor impact from the depreciation of our Silver Bay common stock as Brad will discuss later. Our performance this quarter speaks to the benefit of our hybrid model, our rigorous acuity selection and our sophisticated approach to hedging. Non-agencies have continued to rally into the second quarter while agencies have staged a modest rebound. Our book value was $11.19 per share on March 31 representing the total return of 8.5% when combined with our first quarter cash dividend of $0.32 and special dividend of Silver Bay stock which amounted to $1 per share. We reported GAAP earnings of $0.47 and core earnings of $0.29 per share which Brad will discuss further. The distribution on Silver Bay common stock to Two Harbors shareholder which was completed on or about April 24 was an important accomplishment this quarter. As you may recall, in late 2012 we announced that concurrent with Silver Bay’s IPO we would contribute our portfolio a single family homes in exchange for 17.8 million shares of Silver Bay common stock. At the same time…

Thank you, Tom and good morning everyone. I’ll begin my prepared comments with an overview of our first quarter financial results and few pertinent accounting insights, discuss quarterly changes to book value including the impacts of our weekly capital raise, and finally provide a brief update to our financing profile. Please turn to slide six. Core earnings of $0.29 per weighted share represented a 9.7% annualized return on average equity while GAAP earnings albeit a less meaningful metric due to mark to-market accounting vagaries was $0.47 per weighted share. Core earnings were driven by a number of things which I would detail shortly. But before that, I would also note that we define core earnings to exclude the deal costs related to securitization we completed in the first quarter, which we believe stays through the run rate measurement objectives of core earnings within the industry. That’s how we think about the economics for securitization, I will expand on this in a moment. Core earnings were largely in line with the fourth quarter of 2012 and our internal expectations for this quarter. As we have been discussing for some months we saw lower projected yields on securities acquired in the latter half of 2012 and into early 2013, driving a marginally lower net interest margin. Importantly, the CTR on our current portfolio has remained low and stable despite low interest rates. Similar to the prior quarters, core earnings were also pressured by a robust financing and hedging strategy. In addition, the core earnings measurement was diluted by approximately $0.03 per share as a result of the capital allocation with Silver Bay common stock. While the investment in Silver Bay common stock resulted in unrealized fair value appreciation within the quarter, it did not generate meaningful core earnings. Our operating expense ratio…

Thank you, Brad, and good morning everyone. This morning I’d like to discuss first quarter performance, our current portfolio, the recent capital raise and give you an update on the progress we’ve made in respect to the new investment opportunities we have highlighted in the past. Before diving into quarterly results, there are a couple of policy-related topics I would like to mention. Recently, President Obama has nominated Mel Watt to be the Director of the FHFA. While there has been a lot of press around his nomination and qualification, his appointment is still uncertain. Additionally, last week the Congressional Budget Office released a report noting the principal forgiveness could potentially save taxpayers money. Mr. Watt’s nomination has raised concerns in the market about potential changes to HARP and the CBO report implies a possibility of principal forgiveness being introduced for delinquent agency loans. Both of these possibilities could lead to higher uncertainty within the mortgage market which would likely be expressed through higher mortgage rates. While these possible changes may benefit some stakeholders, overall higher mortgage rates are clearly uneconomical. Importantly, our portfolio is not at significant risk if either of these possibilities takes form. Please turn to slide nine. The first quarter of 2013 was a great start to the year. The benefit of our hybrid model was demonstrated this quarter as we had strong overall return despite mix performance within our portfolio segment. To start, agency securities underperformed in the first quarter. With improving economic sentiment and interest rates moving modestly higher, there was some concern in the market regarding how long the fed will continue to be a buyer of agency mortgages which cause spreads to widen. Further, pay ups and specified pools were under pressure as a result of the interest rate environment. As a…

(Operator Instructions) First question is from Douglas Harter of Credit Suisse.

I was just hopeful to touch a little bit more on the MSR acquisition, the company that you acquired, first I guess was there any MSRs that actually came with that or little legacy risk, can you just go expand on that a little bit?

A very small amount came with it, but so small, it’s really -- out of any real note. The thing that we did like about the company was that it had no originated loans in many, many years and therefore we think the legacy liabilities should not be an issue. It came with a small handful of employees, but came with all the licenses. So it was a very clean acquisition in our mind and something that fits really well within our business model.

Just on that, coming with the license, can you now -- as you look at the larger MSR packages, can you talk about what the approval process would be if you can agree to price with the seller?

Yes, so as you know we just closed on this we are in a position now to entertain working with sellers or partners. And our best understanding of the approval process in terms of the conversations we’ve had with the agency is that -- and I think this is true across the board is that you need to show up with whoever you are partnering with or purchasing from, there is an application that’s put in, the GSEs have to review it, understand whether it’s a bulk purchase or a slow purchase and then approve it. So it’s a lot different than buying securities that it can take a month or two to go through that process.

And I guess just finally on this, the GSEs have to approve your purchase?

Yeah, they have to approve the transfer of all the licenses, and so that’s what we have -- so we closed the acquisition and we received all the records of approval from the GSEs and from Ginnie.

Our next question is from Mark DeVries of Barclays.

Bill, did you talk about what the loss adjusted deals that you expect on your tenured securitization?

Yeah, it’s -- hey good morning, thanks for joining us, Mark. Because these are very leveraged structures, if you’re retaining the bottom 3% or 5%, a very small move in either the price of loans or the price of the AAAs or AAs et cetera that you sell, actually is very impactful. So we’ve said in the past that we think the ROE from this kind of strategy is in the double digits. But I’m a little bit reluctant to give you a number to hang your hat on because you can imagine if you have that much implied leverage, which is 20 to 1, 20 or more. Small move in anyone of the components can actually make a big change. So we expected to bounce around as the inputs change but we’re only going to focus on doing securitizations for what we’ve attained is attracted to us.

Okay. Got it. And from an accounting perspective, I think you guys mentioned you guys have fair value. Will this contribute much to the core earnings in the near term or there has to be cash flows initially or what have a bigger impact just on fair value market?

Hey, Mark, it’s Tom. I’m going to hand that one over to Brad.

Yeah. Thank you. So obviously, these loans are the entire loan structure and AAA debt structure is on our balance sheet. This was to generate both yield and cash flow. And so that will be an impact on core earnings. The objective of the fair value and just how we think about a lot of things is core earnings. It’s obviously a metric that’s used in the industry. But we look at economic return in total. So there is only the market fee to fair value which is largely going to mirror the actual economic, which is really just a subordinate and IOs we hold. So it’s really kind of the objective of what we’re trying to do there. So core earnings, yes, an impact but we’re looking at this more around a fair value of these instruments and the impacts of the economic return.

Okay. Great. And then, Bill, how much of a pickup would you expect to generate on returns from the strategy once you’re able to move the loans you’ve kind of directly source through these originated partners?

You’re talking about the prime jumbo securitization?

Yeah. Exactly.

I mean, the originating -- working with originators yourself generates the inputs at a better valuation and buying them in bulk as you can imagine. And that also varies over time. But more importantly, we feel it’s more important to control the process, have loans underwritten guidelines and basically, create a sustainable business model as oppose to just relying on purchasing in bulk. While the economics are better, it’s really more about creating a sustainable business model than it is just the math.

Okay. That is helpful. And just one last house cleaning thing, Brad, I think you mentioned there is at least $1 million, $1.4 million kind of cost expense that reduce the management fee related to the Silver Bay’s thing? Was there anything else that brought back that number down on a Q-over-Q basis?

The direct impact of management fee was $4.3 million, that’s a contractual discount that was negotiated with the contribution agreement. The $1.4 million came to the separate line, the discontinued op and largely that’s the allocation we received from Silver Bay and the management fees they paid to the managers. So there is nothing else other than those two items I noted.

Okay. Great. Thanks.

Thank you. Our next question is from Trevor Cranston of JMP Securities. Your line is open.

On the credit sensitive loan portfolio, you talked a little bit about potentially securitizing some of that retaining to subordinate pieces. I think there have been a few other securitizations that’s kind of reperforming loans that we’ve seen over the last few months. Can you maybe just comment on whether or not, you think the economics are securitizing those was attractive kind of where we sit today or is it something that’s likely to be more far out in the future for you guys?

Good morning, Trevor. Look forward to seeing you out on the West Coast in a few weeks.

So to answer your question, there have been a number of deals done and it really depends on the collateral. So we’ve seen deals done that have been unrated private deals, that had, what I would call higher LTV loans in it and then we’ve seen rated deals with even some of the tranches getting AAA from better quality collateral. So the answer to your question is that it is likely that the economics will be attractive but how attractive they are really depends on what kind of pool you put together. So as I mentioned we’ve repurchased about 600 million in face amount and once those all closed, and we settled those, what we are going to do is stratify that and see if we can optimize the math regarding the securitization. So that’s really where it will come down to. So it’s not something that you could expect to see out of us immediately because some of these things have to settle and we have to go through that process. But I think that market is -- there have been a number of deals done, I think there is more and more investor interest as more deals have come to market. And so I think that sort of developing asset class and like any developing asset class typically the more step-in suggests the better pricing you get as an issuer.

And then just one more thing on the MSRs, as you start adding assets in that bucket, would you envision taking out some of your swap inflection, or can you maybe just talk about how you are thinking about hedging your portfolio as you start adding MSRs to your portfolio.

That’s a great question. And I’d say first because we don't really run much interest rate exposure at all, I mentioned that as of the end of the quarter we were slightly in that short. The addition of new -- particularly new issue low coupon MSR obviously adds negative duration which would make us more short. And so unless we decided that we wanted to be even more short we would therefore be able to either add positive duration by buying more pools or by unwinding swap. And so one of the benefits to adding MSR is we expanded underlying swap because obviously not only it produces an asset on our books with positive yield but also save us money on unwinding our swap position. In a bigger picture sense we would look at adding MSR, likely we’re adding I/O and we would have that hedge in the portfolio as we would hedge IO.

If you look at kind of some indications, some of that would be in excess, looks like prices of that, or actually more so far in the second quarter than they were in the first quarter, can you just comment on what you are seeing in the market and the general trends in book value at quarter end?

Hey Trevor, it’s Tom. So I said in my prepared remarks the non-agencies continuing to rally into the second quarter. So I want to caution that a month doesn’t make a quarter, right, but the company did have a nice April.

Our next question is from Jason Stewart of Compass Point.

It’s actually Jackie for Jason. A quick question on MSRs, I know historically you haven’t -- the expected return, with the acquisition and the GSE approval, it seems more relevant today. So I was just wondering if you could provide more color on what range you expect to see IRRs on new productions --

Well, yeah I mean very attractive, otherwise we wouldn’t have gone through this -- but we are in the game now which is -- this has been a difficult process to get to this point and our team did a great job to effect this acquisition. We would feel more comfortable talking about MSR yield when they become a meaningful part of the portfolio. Today they are attractive, they are honestly a little less attractive that may have been, but still nonetheless very attractive relative to in absolute and relative expected returns. But we are very excited about being in a position to acquire MSR.

And do you see this attractive versus IOs or versus lowered MBS investing?

The short answer is yeah.

Okay. Thank you.

Thank you. And next question is from Dan Altscher of FBR. Your line is open.

Thanks. Good morning. I’m wondering if could give us kind of the relative breakouts, the book value contribution between the agency book and non-Agency book and then the swaps and swaptions kind of thing on a either per share basis dollar amounts, how much that individually contributed since the other types of Silver Bay and dividends are pretty clear?

Sure. We are going to let, Brad tackle that.

Yeah. I think you’ve got us kind of feed a couple points that we mentioned in our prepared comments. Bill noted that the return on the non-Agency book portfolio is $274 million in quarter. I also noted that we had a small gain on Silver Bay of $8 million. And so you largely can take the delta, just kind of back in to where the agency fell out in rough numbers is how we look at it. We don’t provide necessarily the breakdown between kind of the hedging instruments and the cash funds. We looked at that at kind of total return perspective. But that kind of gives you the three buckets that I think might address your question.

Okay. That’s fair. And then, I had a one more question on the MSRs. How big I guess do you envision this book getting I guess maybe in the near-term or longer-term in terms of maybe an unpaid principal balance or an actually this MSR value? And then also since the press release stated that you could not manage the MSRs. You are actually kind of servicing them or showing them or bringing out to a sub-servicer.

Yeah. It’s Tom. We do not anticipate servicing ourselves. So we are in discussions with the number of servicers. Obviously, we are concentrating on ones that would be agencies like the best because that speeds, the comfort that they would have around those servicers speeds the path to actually requiring the MSR and receiving the necessary approval from the agencies. And I’m sorry, you got another question. What was your first question?

It’s just I guess relative sizes, how much you envision the MSR book becoming on, whether it’s going to pay principal balance or the actual value of the MSR?

Yeah. That’s difficult for us to say. I mean, frankly it’s going to be a function of two things, supply and their relative attractiveness to other options within the portfolio. So it could be significant but we love all our children equally. So it’s going to have to compete with our alternative investment opportunities.

That’s a great line, loving the children. That’s great. Thanks so much.

Thank you. And next question is from Joel Houck of Wells Fargo. Your line is open.

Thanks. Just hoping to get back to the disclosure on page 11 regarding the sensitivity changes and rates and I guess you provided some color. I’m more interested in I guess in how you guys think about the tradeoff and kind of current yield versus protecting book value because we normally, at least in recent history haven’t seen reach. Everyone seems to take a little bit of exposure to rising rates. Now, this is -- it could be a fundamental shift, I’m just interested in management stocks in terms of how you are going to manage with your stock prices around that is going forward. We are going to continue to see it get kind of net short on balance given where rates are now or is this more of a transitory thing in Q1?

Hey, Joel. Just a one remark and I will hand it over to Bill. In respect of comparing us with other REITs, we really don’t aspire and I say this with all humility, we don’t aspire to be anyone other than ourselves. And all we think about managing our shareholders money. Bill, do you want to opine upon that?

Yeah. I mean I think, Joel, we said in the past, we are not --we don’t view ourselves as in a business of producing a dividend because if we want to do that, we could use a lot more leverage, we will take a lot more interest rate risk. We are really frankly thinking about total shareholder value, which is obviously a combination of the dividend and then book value change, so the way -- as you know we rarely at least in the last few years have taken much interest rate risk primarily just because rates are so darn low and while they might go lower, if they could go they could go a lot higher. So we view it’s our job to protect our shareholders investment by being very cautious when rates are at this point in time. Additionally if you see what’s going on in the economy, yeah some numbers are bad, some numbers are a little better but we see consistent slow growth, we've seen the US become more competitive, the private sectors adding more jobs at the expense of the government. So to the extent that changes and if they decide they want to be less involved, let’s just say that, we could see a reasonable move in rates and we just think that it's a very prudent time to be very cautious. So we’re not as concerned with eking out the last penny or two of dividend vis-à-vis having an issue with book value.

Yeah I think it’s important to note, how we think about this in the global context. The economy is improving, right. Housing revamping, unemployment falling, that’s going to lead at some point to a reduction of QE and where would rates be with out QE, I don’t know, but definitely higher than they are today and we want to be prepared for that.

Thank you. There are no further questions at this time. I would like to turn the call over to management for any closing remarks.

Well, great. Lot of good questions today. Thank you for joining our call and thanks for your interest and in support of Two Harbors. Gave a great day. We look forward to speaking to you again soon.

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