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 3.4:1.0 and 3.8:1.0 at December 31, 2012 and September 30, 2012, respectively.
The company's portfolio is principally comprised of RMBS available-for-sale securities and Agency Derivatives. As of December 31, 2012, the total value of the portfolio was $14.0 billion, of which approximately $11.3 billion was Agency RMBS and Agency Derivatives and $2.7 billion was non-Agency RMBS. As of December 31, 2012, fixed-rate securities composed 79.8% of the company's portfolio and adjustable-rate securities composed 20.2% 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 as of December 31, 2012.
Two Harbors was a party to interest rate swaps and swaptions as of December 31, 2012 with an aggregate notional amount of $19.0 billion, of which $17.5 billion was utilized to economically hedge interest rate risk associated with the company's short-term LIBOR-based repurchase agreements.
The following table summarizes the company's investment portfolio:
|Two Harbors Portfolio|
|(dollars in thousands, except per share data)|
|RMBS and Agency Derivatives Portfolio Composition||
As of December 31, 2012
|Fixed Rate Bonds||$||10,823,674||77.5||%|
|Fixed-rate investment securities as a percentage of aggregate portfolio||79.8||%|
|Adjustable-rate investment securities as a percentage of aggregate portfolio||20.2||%|
For the Quarter EndedDecember 31, 2012
|Annualized yield on average RMBS and Agency Derivatives during the quarter|
|Annualized cost of funds on average repurchase balance during the quarter 1||1.1||%|
|Annualized interest rate spread for aggregate portfolio during the quarter||2.9||%|
|Weighted average cost basis of principal and interest securities|
|Weighted average three month CPR for its RMBS and Agency Derivative portfolio|
|Debt-to-equity ratio at period-end 3||3.4 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 $47.88 at December 31, 3012.|
|(3) Defined as total borrowings to fund RMBS, residential mortgage loans and Agency Derivatives divided by total equity.|
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