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

Quarterly report pursuant to Section 13 or 15(d)

Repurchase Agreements

Repurchase Agreements

9 Months Ended

Sep. 30, 2011

The Company had outstanding $7.3 billion of repurchase agreements, including repurchase agreements funding the Company's U.S. Treasuries of $1.5 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 0.61% and weighted average remaining maturities of 84 days as of September 30, 2011. The Company had outstanding $1.2 billion of repurchase agreements with a weighted average borrowing rate of 0.74% excluding the effect of the Company's interest rate swaps, and weighted average remaining maturities of 90 days as of December 31, 2010. As of September 30, 2011 and December 31, 2010, the debt associated with the Company's U.S. Treasuries had a weighted average borrowing rate of 0.11% and 0.28%, respectively.

At September 30, 2011 and December 31, 2010, the repurchase agreements had the following characteristics:



(dollars in thousands)	September 30, 2011				December 31, 2010
Collateral Type	Amount Outstanding		Weighted Average Borrowing Rate		Amount Outstanding		Weighted Average Borrowing Rate
U.S. Treasuries	$	1,529,550	0.11	%	$	198,750	0.28	%
Agency RMBS	4,863,534		0.32	%	745,861		0.37	%
Non-Agency RMBS	782,395		2.37	%	201,976		2.05	%
Agency derivatives	125,134		0.78	%	23,216		1.07	%
Total	$	7,300,613	0.50	%	$	1,169,803	0.66	%

As of September 30, 2011, the Company's amounts outstanding under repurchase agreements includes $140.4 million of borrowings under the 364-day repurchase facility with Wells Fargo Bank National Association, or Wells Fargo. As of September 30, 2011, the facility provided an aggregate maximum borrowing capacity of $150 million and it is set to mature on July 25, 2012. The facility is collateralized by non-Agency RMBS and its weighted average borrowing rate as of September 30, 2011 was 1.97%. The facility also subjects the Company to maintain certain financial covenants under the guaranty agreement with Wells Fargo. As of September 30, 2011, the Company is in compliance with these covenants.

As of September 30, 2011, the Company does not have any borrowings outstanding under the 364-day repurchase facility with Barclays Bank PLC, or Barclays. The facility provides an aggregate maximum borrowing capacity of $100 million and it is set to mature on May 16, 2012, unless extended pursuant to its terms. The facility will be collateralized by eligible residential mortgage loans, which will be subject to margin call provisions that provide Barclays with certain rights when there has been a decline in the market value of the purchased mortgage loans. The facility also subjects the Company to maintain certain financial covenants under the guaranty agreement with Barclays. As of September 30, 2011, the Company is in compliance with these covenants.

At September 30, 2011 and December 31, 2010, the repurchase agreements had the following remaining maturities:



(in thousands)	September 30, 2011		December 31, 2010
Within 30 days	$	1,581,588	$	197,286
30 to 59 days	1,308,112		211,556
60 to 89 days	803,521		117,621
90 to 119 days	678,377		152,433
Over 120 days ⁽¹⁾	1,399,465		292,157
Open maturity ⁽²⁾	1,529,550		198,750
Total	$	7,300,613	$	1,169,803

____________________


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


(2)	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.

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, 2011		December 31, 2010
Available-for-sale securities, at fair value	$	6,267,036	$	1,090,598
Trading securities, at fair value	1,526,330		199,523
Cash and cash equivalents	15,000		14,467
Restricted cash	84,056		11,634
Due from counterparties	13,032		10,508
Derivative assets, at fair value	150,774		30,534
Total	$	8,056,228	$	1,357,264

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, 2011 and December 31, 2010:



	September 30, 2011							December 31, 2010
(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	$	2,779,109	$	184,843	14	%	47.5	$	289,321	$	8,687	2	%	53.0
Barclays Capital Inc.	314,120		77,469		6	%	127.1	168,291		45,060		12	%	44.7
All other counterparties	4,207,384		495,928		38	%	73.6	712,191		123,439		32	%	104.3
Total	$	7,300,613	$	758,240				$	1,169,803	$	177,186

____________________

(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, over the amount of the repurchase liability, including accrued interest. At September 30, 2011 and December 31, 2010, the Company had $90.9 million and $231.7 million, respectively, in payables due to broker counterparties for unsettled security purchases. The payables are not included in the amounts presented above.

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