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(1)

Core Earnings is a non-GAAP measure That Two Harbors defines as comprehensive (loss) income attributable to common stockholders, excluding “realized and unrealized gains and losses” (impairment losses, realized and unrealized gains and losses on the aggregate portfolio, reserve expense for representation and warranty obligations on mortgage servicing rights and non-cash compensation expense related to restricted common stock). As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments and servicing income, net of estimated amortization on mortgage servicing rights. Dollar roll income is the economic equivalent to holding and financing Agency residential mortgage-backed securities using short-term repurchase agreements. Two Harbors believes the presentation of Core Earnings, including dollar roll income, provides investors greater transparency into its period-over-period financial performance and facilitates comparisons to peer REITs.

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•	Two Harbors maintains the ability to acquire its targeted assets of Agency RMBS, MSR and non-Agency RMBS at its current levered return targets;

•	other operating expenses increase marginally throughout 2018, 2019 and 2020 and are limited to volume-driven activities and/or inflationary increases in compensation and vendor contracts;

•	tangible book value per share will not materially change during the forecast period, and is not adjusted to give effect to any potential impacts from changes in Agency RMBS and non-Agency RMBS spreads or other market conditions;

•	dividend distributions declared on common stock will remain at $0.47 per share for each quarter during the forecast period;

•	interest rates will remain static throughout the forecast period;

•	no significant changes in its investment strategy or targeted leverage are forecasted for 2018, 2019 or 2020; and

•	no new equity capital raises, share repurchases and/or change in the number of outstanding shares of Two Harbors Common Stock or Two Harbors preferred stock are forecasted for 2018, 2019 or 2020

(1)

Core earnings represents a non-GAAP financial measure and is defined as net income (loss) available to common stockholders excluding net realized and unrealized gain (loss) on investments and derivative instruments. Management of CYS uses core earnings to evaluate the effective yield of the portfolio after operating expenses. CYS believes that providing users of CYS’s financial information with such measures, in addition to the related GAAP measures, gives investors additional transparency and insight into the information used by CYS's management in its financial and operational decision-making. The primary limitation associated with core earnings as a measure of financial performance over any period is that it excludes the effects of net realized and unrealized gain (loss) on investments and derivative instruments. In addition, CYS’s presentation of core earnings may not be comparable to similarly-titled measures used by other companies, which may employ different calculations. As a result, core earnings should not be considered a substitute for CYS’s GAAP net income (loss), as a measure of its financial performance, or any measure of CYS’s liquidity under GAAP.

(2)	Dividends per common share is calculated by dividing the sum of core earnings plus drop income, by common shares outstanding at period end. For more information on drop income, see Note (13) on page 37 in the section entitled “Summary-Selected Historical Financial Information of CYS.”

(3)	Book value per common share is calculated by dividing the difference of total stockholders’ equity, less the liquidation value of preferred stock at period end, by common shares outstanding at period end.

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•	the ability of Two Harbors and CYS to obtain the required stockholder approvals to consummate the Merger;

•	the satisfaction or waiver of other conditions in the Merger Agreement;

•	the risk that the Merger or the other transactions contemplated by the Merger Agreement may not be completed in the time frame expected by the parties or at all;

•	the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement and that a termination under certain circumstances could require Two Harbors to pay CYS or CYS to pay Two Harbors a termination fee or expense amount, as described under "The Merger Agreement-Termination Fees and Expenses" beginning on page 146 of the Proxy Statement;

•	the ability of Two Harbors to successfully integrate pending transactions and implement its operating strategy, including the Merger;

•	adverse changes in residential real estate and the residential real estate capital markets;

•	financing risks;

•	the outcome of current and future litigation, including any legal proceedings that may be instituted against Two Harbors, CYS or others related to the Merger Agreement;

•	regulatory proceedings or inquiries;

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•	changes in laws or regulations or interpretations of current laws and regulations that impact Two Harbors' or CYS's business, assets or classification as a REIT; and

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other risks detailed in filings made by each of Two Harbors and CYS with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2017 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 filed by Two Harbors with the SEC and incorporated herein by reference and the Annual Report on Form 10-K for the year ended December 31, 2017, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 filed by CYS and incorporated herein by reference. See also "Where You Can Find More Information and Incorporation by Reference" on page 212 of the Proxy Statement.

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