UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2003
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-11914
THORNBURG MORTGAGE, INC.
| Maryland (State or other jurisdiction of incorporation or organization) |
85-0404134 (IRS Employer Identification Number) |
|
| 150 Washington Avenue Santa Fe, New Mexico (Address of principal executive offices) |
87501 (Zip Code) |
Registrant’s telephone number, including area code: (505) 989-1900
(Former name, former address and former fiscal year, if changed since last report)
Not applicable
Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes
[X]
No [ ]
(2) Yes
[X]
No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common Stock ($.01 par value) | 72,032,021 as of November 10, 2003 |
INDEX
| Page | ||||||||||||||||
| PART I. | FINANCIAL INFORMATION | |||||||||||||||
| Item 1. | Financial Statements | |||||||||||||||
Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 |
3 | |||||||||||||||
Consolidated Income Statements for the three and nine months ended
September 30, 2003 and September 30, 2002 |
4 | |||||||||||||||
Consolidated Statements of Comprehensive Income for the three and nine months
ended September 30, 2003 and September 30, 2002 |
5 | |||||||||||||||
Consolidated Statement of Shareholders’ Equity for the nine months
ended September 30, 2003 and September 30, 2002 |
6 | |||||||||||||||
Consolidated Statements of Cash Flows for the three and nine months ended
September 30, 2003 and September 30, 2002 |
7 | |||||||||||||||
Notes to Consolidated Financial Statements |
8 | |||||||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||||||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 49 | ||||||||||||||
| Item 4. | Controls and Procedures | 49 | ||||||||||||||
| PART II. | OTHER INFORMATION | |||||||||||||||
| Item 1. | Legal Proceedings | 50 | ||||||||||||||
| Item 2. | Changes in Securities and Use of Proceeds | 50 | ||||||||||||||
| Item 3. | Defaults Upon Senior Securities | 50 | ||||||||||||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 50 | ||||||||||||||
| Item 5. | Other Information | 50 | ||||||||||||||
| Item 6. | Exhibits and Reports on Form 8-K | 50 | ||||||||||||||
| SIGNATURES | 51 | |||||||||||||||
| EXHIBIT INDEX | 52 | |||||||||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THORNBURG MORTGAGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)
| September 30, 2003 | December 31, 2002 | |||||||||||
ASSETS |
||||||||||||
Adjustable-rate mortgage (“ARM”) assets: |
||||||||||||
ARM securities, net |
$ | 10,177,743 | $ | 6,640,312 | ||||||||
ARM loans: |
||||||||||||
Securitized ARM loans, net |
2,913,391 | 2,695,331 | ||||||||||
ARM loans collateralizing debt obligations, net |
2,179,779 | 289,783 | ||||||||||
ARM loans held for securitization, net |
1,228,695 | 709,787 | ||||||||||
ARM loans |
6,321,865 | 3,694,901 | ||||||||||
ARM assets |
16,499,608 | 10,335,213 | ||||||||||
Cash and cash equivalents |
178,944 | 47,817 | ||||||||||
Restricted cash |
508,460 | 74,403 | ||||||||||
Hedging instruments |
26,244 | — | ||||||||||
Accrued interest receivable |
64,159 | 47,435 | ||||||||||
Prepaid expenses and other |
10,030 | 8,064 | ||||||||||
| $ | 17,287,445 | $ | 10,512,932 | |||||||||
LIABILITIES |
||||||||||||
Reverse repurchase agreements |
$ | 12,579,032 | $ | 8,425,729 | ||||||||
Collateralized debt obligations (“CDOs”) |
2,152,809 | 255,415 | ||||||||||
Whole loan financing facilities |
1,021,214 | 589,081 | ||||||||||
Hedging instruments |
155,479 | 142,531 | ||||||||||
Senior notes |
194,520 | — | ||||||||||
Payable for assets purchased |
— | 202,844 | ||||||||||
Accrued interest payable |
27,402 | 17,234 | ||||||||||
Dividends payable |
— | 32,536 | ||||||||||
Accrued expenses and other |
36,714 | 14,520 | ||||||||||
| 16,167,170 | 9,679,890 | |||||||||||
COMMITMENTS |
||||||||||||
SHAREHOLDERS’ EQUITY |
||||||||||||
Preferred stock: par value $.01 per share; |
||||||||||||
Series A 9.68% Cumulative Convertible shares,
aggregate preference in liquidation $69,000,
0 and 2,760 shares authorized, issued and
outstanding, respectively; |
— | 65,805 | ||||||||||
Series B Cumulative, 22 shares authorized,
none issued and outstanding |
— | — | ||||||||||
Common stock: par value $.01 per share;
497,218 shares authorized, 70,397 and 52,763 shares
issued and outstanding, respectively |
704 | 528 | ||||||||||
Additional paid-in-capital |
1,282,481 | 878,929 | ||||||||||
Accumulated other comprehensive loss |
(204,448 | ) | (105,254 | ) | ||||||||
Notes receivable from stock sales |
(5,910 | ) | (7,437 | ) | ||||||||
Retained earnings |
47,448 | 471 | ||||||||||
| 1,120,275 | 833,042 | |||||||||||
| $ | 17,287,445 | $ | 10,512,932 | |||||||||
See Notes to Consolidated Financial Statements.
3
THORNBURG MORTGAGE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (Unaudited)
(In thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Interest income from ARM assets and cash equivalents |
$ | 151,166 | $ | 109,662 | $ | 411,259 | $ | 285,527 | |||||||||
Interest expense on borrowed funds |
(91,261 | ) | (67,149 | ) | (244,589 | ) | (174,433 | ) | |||||||||
Net interest income |
59,905 | 42,513 | 166,670 | 111,094 | |||||||||||||
Gain on ARM assets, net |
1,820 | 18 | 5,400 | 105 | |||||||||||||
Fee income |
424 | 335 | 1,365 | 377 | |||||||||||||
Provision for credit losses |
(970 | ) | — | (1,976 | ) | — | |||||||||||
Hedging expense |
(145 | ) | (173 | ) | (542 | ) | (1,109 | ) | |||||||||
Management fee |
(3,068 | ) | (2,076 | ) | (8,239 | ) | (5,623 | ) | |||||||||
Performance fee |
(7,136 | ) | (5,044 | ) | (20,247 | ) | (11,958 | ) | |||||||||
Long-term incentive awards |
(2,299 | ) | (718 | ) | (7,043 | ) | (2,198 | ) | |||||||||
Other operating expenses |
(2,763 | ) | (2,245 | ) | (8,354 | ) | (5,848 | ) | |||||||||
NET INCOME |
$ | 45,768 | $ | 32,610 | $ | 127,034 | $ | 84,840 | |||||||||
Net income |
$ | 45,768 | $ | 32,610 | $ | 127,034 | $ | 84,840 | |||||||||
Dividends on preferred stock |
— | (1,670 | ) | (3,340 | ) | (5,009 | ) | ||||||||||
Net income available to common shareholders |
$ | 45,768 | $ | 30,940 | $ | 123,694 | $ | 79,831 | |||||||||
Basic earnings per share: |
|||||||||||||||||
Net income |
$ | 0.69 | $ | 0.68 | $ | 2.04 | $ | 1.93 | |||||||||
Average number of shares outstanding |
66,092 | 45,733 | 60,572 | 41,401 | |||||||||||||
Diluted earnings per share: |
|||||||||||||||||
Net income |
$ | 0.68 | $ | 0.67 | $ | 2.02 | $ | 1.92 | |||||||||
Average number of shares outstanding |
67,532 | 48,493 | 62,887 | 44,161 | |||||||||||||
See Notes to Consolidated Financial Statements.
4
THORNBURG MORTGAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income |
$ | 45,768 | $ | 32,610 | $ | 127,034 | $ | 84,840 | |||||||||
Other comprehensive income: |
|||||||||||||||||
Unrealized gains (losses) on securities |
(85,938 | ) | 54,599 | (72,897 | ) | 71,320 | |||||||||||
Unrealized gains (losses) on Hybrid Hedging
Instruments |
28,606 | (71,154 | ) | (26,297 | ) | (95,672 | ) | ||||||||||
Other comprehensive income |
$ | (11,564 | ) | $ | 16,055 | $ | 27,840 | $ | 60,488 | ||||||||
See Notes to Consolidated Financial Statements.
5
THORNBURG MORTGAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)
Nine months ended September 30, 2003 and 2002
(In thousands, except share data)
| Accum. Other | Notes | ||||||||||||||||||||||||||||||
| Compre- | Receivable | Retained | |||||||||||||||||||||||||||||
| Preferred | Common | Additional Paid- | hensive | From Stock | Earnings/ | ||||||||||||||||||||||||||
| Stock | Stock | in Capital | Income (Loss) | Sales | (Deficit) | Total | |||||||||||||||||||||||||
Balance, December 31, 2001 |
$ | 65,805 | $ | 333 | $ | 515,516 | $ | (36,566 | ) | $ | (7,904 | ) | $ | (4,526 | ) | $ | 532,658 | ||||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||||
Net income |
84,840 | 84,840 | |||||||||||||||||||||||||||||
Other comprehensive income: |
|||||||||||||||||||||||||||||||
Available-for-sale assets: |
|||||||||||||||||||||||||||||||
Fair value adjustment |
71,320 | 71,320 | |||||||||||||||||||||||||||||
Hybrid Hedging Instruments: |
|||||||||||||||||||||||||||||||
Fair value adjustment, net of
amortization |
(95,672 | ) | (95,672 | ) | |||||||||||||||||||||||||||
Issuance of common stock |
140 | 264,325 | 264,465 | ||||||||||||||||||||||||||||
Interest and principal payments on
notes receivable from stock sales |
230 | 259 | 489 | ||||||||||||||||||||||||||||
Dividends declared on preferred
stock — $1.815 per share |
(5,009 | ) | (5,009 | ) | |||||||||||||||||||||||||||
Dividends declared on common
stock — $1.12 per share |
(48,772 | ) | (48,772 | ) | |||||||||||||||||||||||||||
Balance, September 30, 2002 |
$ | 65,805 | $ | 473 | $ | 780,071 | $ | (60,918 | ) | $ | (7,645 | ) | $ | 26,533 | $ | 804,319 | |||||||||||||||
Balance, December 31, 2002 |
$ | 65,805 | $ | 528 | $ | 878,929 | $ | (105,254 | ) | $ | (7,437 | ) | $ | 471 | $ | 833,042 | |||||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||||
Net income |
|||||||||||||||||||||||||||||||