Two Harbors Investment Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Repurchase Agreements (Notes)

Repurchase Agreements (Notes)

9 Months Ended

Sep. 30, 2012

The Company had outstanding $14.0 billion of repurchase agreements, including repurchase agreements funding the Company's U.S. Treasuries of $1.0 billion. Excluding the debt associated with the Company's U.S. Treasuries and the effect of the Company's interest rate swaps, the repurchase agreements had a weighted average borrowing rate of 0.71% and weighted average remaining maturities of 123 days as of September 30, 2012. The Company had outstanding $6.7 billion of repurchase agreements with a weighted average borrowing rate of 0.78%, excluding the debt associated with the Company's U.S. Treasuries and the effect of the Company's interest rate swaps, and weighted average remaining maturities of 73 days as of December 31, 2011. As of September 30, 2012 and December 31, 2011, the debt associated with the Company's U.S. Treasuries had a weighted average borrowing rate of 0.35% and 0.12%, respectively.

At September 30, 2012 and December 31, 2011, the repurchase agreement balances were as follows:



(in thousands)	September 30, 2012		December 31, 2011
Short-term	$	13,754,327	$	6,610,148
Long-term	280,000		50,000
Total	$	14,034,327	$	6,660,148

At September 30, 2012 and December 31, 2011, the repurchase agreements had the following characteristics:



(dollars in thousands)	September 30, 2012				December 31, 2011
Collateral Type	Amount Outstanding		Weighted Average Borrowing Rate		Amount Outstanding		Weighted Average Borrowing Rate
U.S. Treasuries	$	997,500	0.35	%	$	1,001,250	0.12	%
Agency RMBS	11,671,026		0.52	%	4,804,533		0.50	%
Non-Agency RMBS	1,111,954		2.56	%	731,014		2.61	%
Agency derivatives	241,035		1.16	%	118,032		0.97	%
Mortgage loans held-for-sale	12,812		2.46	%	5,319		3.20	%
Total	$	14,034,327	0.68	%	$	6,660,148	0.68	%

As of September 30, 2012, the amounts outstanding under repurchase agreements includes $82.7 million of borrowings under the 364-day repurchase facility with Wells Fargo Bank National Association, or Wells Fargo. As of September 30, 2012, the facility provided an aggregate maximum borrowing capacity of $150.0 million and is set to mature on July 23, 2013. The facility is collateralized by non-Agency RMBS and its weighted average borrowing rate as of September 30, 2012 was 2.37%. As of December 31, 2011, the amounts outstanding under repurchase agreements included $130.0 million of borrowings under the 364-day repurchase facility with Wells Fargo. As of December 31, 2011, the facility provided an aggregate maximum borrowing capacity of $150.0 million. The facility was collateralized by non-Agency RMBS and its weighted average borrowing rate as of December 31, 2011 was 2.07%. The facility requires the Company to maintain certain financial covenants under the guaranty agreement with Wells Fargo. As of September 30, 2012 and December 31, 2011, the Company was in compliance with these covenants.

As of September 30, 2012, the Company's amounts outstanding under repurchase agreements included $12.8 million of borrowings under the 364-day repurchase facility with Barclays. The facility provides an aggregate maximum borrowing capacity of $50.0 million and is set to mature on May 14, 2013, unless extended pursuant to its terms. The facility is collateralized by eligible residential mortgage loans and its weighted average borrowing rate as of September 30, 2012 was 2.46%. As of December 31, 2011, the Company's amounts outstanding under repurchase agreements included $5.3 million of borrowings under the 364-day repurchase facility with Barclays. As of December 31, 2011, the facility provided an aggregate maximum borrowing capacity of $100.0 million. The facility was collateralized by eligible residential mortgage loans and its weighted average borrowing rate as of December 31, 2011 was 3.20%. The facility requires the Company to maintain certain financial covenants under the guaranty agreement with Barclays. As of September 30, 2012 and December 31, 2011, the Company was in compliance with these covenants.

At September 30, 2012 and December 31, 2011, the repurchase agreements had the following remaining maturities:



(in thousands)	September 30, 2012		December 31, 2011
Within 30 days	$	1,986,019	$	1,967,009
30 to 59 days	3,189,709		1,263,060
60 to 89 days	70,259		1,096,410
90 to 119 days	1,868,315		359,171
120 to 364 days ^{(1) (2)}	5,642,525		923,248
Open maturity ⁽³⁾	997,500		1,001,250
One year and over ⁽⁴⁾	280,000		50,000
Total	$	14,034,327	$	6,660,148

____________________


(1)	120 to 364 days includes the amounts outstanding under the Wells Fargo 364-day borrowing facility.


(2)	120 to 364 days includes the amounts outstanding under the Barclays 364-day borrowing facility.


(3)	Repurchase agreements collateralized by U.S. Treasuries include an open maturity period (i.e., rolling 1-day maturity) renewable at the discretion of either party to the agreements.


(4)	One year and over includes repurchase agreements with maturity dates ranging from December 23, 2013 to July 27, 2016.

The following table summarizes assets at carrying value that are pledged or restricted as collateral for the future payment obligations of repurchase agreements:



(in thousands)	September 30, 2012		December 31, 2011
Available-for-sale securities, at fair value	$	14,453,848	$	6,160,229
Trading securities, at fair value	1,002,461		1,003,301
Mortgage loans held-for-sale	14,553		5,782
Cash and cash equivalents	10,000		15,000
Restricted cash	14,018		94,803
Due from counterparties	28,965		32,201
Derivative assets, at fair value	318,575		145,779
Total	$	15,842,420	$	7,457,095

Although the repurchase agreements are committed borrowings until maturity, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls.

The following table summarizes certain characteristics of the Company's repurchase agreements and counterparty concentration at September 30, 2012 and December 31, 2011:



	September 30, 2012							December 31, 2011
(dollars in thousands)	Amount Outstanding		Net Counterparty Exposure ⁽¹⁾		Percent of Equity		Weighted Average Days to Maturity	Amount Outstanding		Net Counterparty Exposure ⁽¹⁾		Percent of Equity		Weighted Average Days to Maturity
JP Morgan Chase ⁽²⁾	$	1,834,277	$	321,627	9	%	145.5	$	1,250,629	$	184,046	14	%	70.0
All other counterparties ⁽³⁾	11,202,550		1,470,542		43	%	119.5	4,408,269		613,446		48	%	73.8
Total	$	13,036,827	$	1,792,169				$	5,658,898	$	797,492

____________________

(1)

Represents the net carrying value of the securities sold under agreements to repurchase, including accrued interest plus any cash or assets on deposit to secure the repurchase obligation, less the amount of the repurchase liability, including accrued interest. At September 30, 2012 and December 31, 2011, the Company had $15.7 million and $45.6 million, respectively, in payables due to broker counterparties for unsettled securities purchases. The payables are not included in the amounts presented above.


(2)	Excludes repurchase agreements collateralized by U.S. Treasuries with a rolling 1-day maturity.


(3)	Represents amounts outstanding to 21 and 17 counterparties at September 30, 2012 and December 31, 2011, respectively.

The Company does not anticipate any defaults by its repurchase agreement counterparties.

- Definition

The entire disclosure for repurchase agreements (also known as repos), resale agreements (also known as reverse repurchase agreements or reverse repos), securities borrowed transactions, and securities loaned transactions.

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