THORNBURG MORTGAGE INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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: March 31, 2005

¨	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.

(Exact name of Registrant as specified in its Charter)

Maryland

85-0404134

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

150 Washington Avenue

Santa Fe, New Mexico

87501

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (505) 989-1900

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all 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.

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) 95,492,444 as of May 4, 2005

INDEX

In this quarterly report, we refer to Thornburg Mortgage, Inc. and its subsidiaries as “we,” “us,” or “the Company,” unless we specifically state otherwise or the context indicates otherwise. Capitalized terms not otherwise defined in this quarterly report and financial statements below shall have the definitive meanings assigned to them in the Glossary at the end of this report.


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, 2005 and December 31, 2004	3

	Consolidated Income Statements for the three months ended March 31, 2005 and March 31, 2004	4

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2005 and March 31, 2004	5

	Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2005 and March 31, 2004	6

	Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and March 31, 2004	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55

Item 4.	Controls and Procedures	55

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Submission of Matters to a Vote of Security Holders	55

Item 5.	Other Information	55

Item 6.	Exhibits	55

SIGNATURES		56

EXHIBIT INDEX		57

GLOSSARY		58

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

THORNBURG MORTGAGE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)


	March 31, 2005			December 31, 2004
ASSETS

ARM assets:
ARM securities, net	$	19,490,760		$	18,656,045
ARM loans:
Securitized ARM loans, net		4,004,485			2,899,985
ARM loans collateralizing CDOs, net		6,355,580			6,720,810
ARM loans held for securitization, net		449,179			466,221

ARM loans		10,809,244			10,087,016

ARM assets		30,300,004			28,743,061
Cash and cash equivalents		27,204			112,622
Restricted cash and cash equivalents		33,746			30,737
Hedging Instruments		331,651			144,230
Accrued interest receivable		143,345			118,273
Prepaid expenses and other		44,648			40,695

	$	30,880,598		$	29,189,618

LIABILITIES

Reverse repurchase agreements	$	17,076,520		$	14,248,939
Asset-backed CP		4,990,000			4,905,000
CDOs		6,254,720			6,623,641
Whole loan financing facilities		107,185			285,555
Hedging Instruments		4,712			26,027
Senior Notes		304,198			304,173
Payable for securities purchased		—			815,915
Accrued interest payable		65,097			44,109
Dividends payable		100			62,495
Accrued expenses and other		44,785			84,580

		28,847,317			27,400,434

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY
Preferred stock: par value $0.01 per share; 8% Series C Cumulative Redeemable shares, aggregate preference in liquidation $50,000; 2,300,000 and 0 shares authorized, 2,000,000 and 0 shares issued and outstanding, respectively		48,344			—
Common stock: par value $0.01 per share; 497,678,000 shares authorized, 94,638,000 and 91,904,000 shares issued and outstanding, respectively		946			919
Additional paid-in-capital		1,947,919			1,872,487
Accumulated other comprehensive loss		(37,777	)		(90,715	)
Retained earnings		73,849			6,493

		2,033,281			1,789,184

	$	30,880,598		$	29,189,618

See Notes to Consolidated Financial Statements.

THORNBURG MORTGAGE, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (Unaudited)

(In thousands, except per share data)


	Three Months Ended March 31,
	2005			2004
Interest income from ARM assets and cash equivalents	$	308,059		$	195,813
Interest expense on borrowed funds		(224,892	)		(126,093	)

Net interest income		83,167			69,720

Servicing income, net		2,515			822
Gain on ARM assets and Hedging Instruments, net		2,967			3,544
Hedging expense		—			(158	)
Provision for credit losses		(409	)		(432	)
Management fee		(4,706	)		(3,627	)
Performance fee		(10,035	)		(8,334	)
Long-term incentive awards		(1,428	)		(4,495	)
Other operating expenses		(4,615	)		(3,677	)

NET INCOME	$	67,456		$	53,363

Net income	$	67,456		$	53,363
Dividend on preferred stock		(100	)		—

Net income available to common shareholders	$	67,356		$	53,363

Earnings per share:
Net income	$	0.72		$	0.70

Average number of shares outstanding		93,173			76,631

See Notes to Consolidated Financial Statements.

THORNBURG MORTGAGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2005			2004
Net income	$	67,456		$	53,363
Other comprehensive income:
Unrealized gains (losses) on securities:
Net unrealized holdings gains (losses) arising during the period		(145,964	)		87,054
Reclassification adjustment for net gains included in income		(1,645	)		(3,012	)

Net change in unrealized gains (losses) on securities		(147,609	)		84,042

Unrealized gains (losses) on hybrid hedging instruments:
Net unrealized gains (losses) arising during the period		173,724			(177,452	)
Reclassification adjustment for net losses included in income		26,823			61,479

Net change in unrealized gains (losses) on hybrid hedging instruments		200,547			(115,973	)

Other comprehensive income		52,938			(31,931	)

Comprehensive income	$	120,394		$	21,432

See Notes to Consolidated Financial Statements.

THORNBURG MORTGAGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended March 31, 2005 and 2004

(In thousands, except per share data)


	Preferred Stock		Common Stock		Additional Paid-in Capital		Accum. Other Comprehensive Income (Loss)			Retained Earnings		Total
Balance, December 31, 2003	$	—	$	740	$	1,376,879	$	(142,778	)	$	4,263	$	1,239,104
Comprehensive income:
Net income											53,363		53,363
Other comprehensive income:
Available-for-sale assets:
Fair value adjustment								84,042					84,042
Hedging Instruments:
Fair value adjustment, net of amortization								(115,973	)				(115,973	)
Issuance of Common Stock				60		168,271							168,331

Balance, March 31, 2004	$	—	$	800	$	1,545,150	$	(174,709	)	$	57,626	$	1,428,867


Balance, December 31, 2004	$	—	$	919	$	1,872,487	$	(90,715	)	$	6,493	$	1,789,184
Comprehensive income:
Net income											67,456		67,456
Other comprehensive income:
Available-for-sale assets:
Fair value adjustment								(147,609	)				(147,609	)
Hedging Instruments:

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