CORRECTING and REPLACING Thornburg Mortgage Reports 2Q EPS of $0.67; Declares $0.62 2Q Dividend.Business Editors CORRECTION...by Thornburg Thornburg may refer to: Places:
SANTA FE Santa Fe, city, Argentina Santa Fe, city (1991 pop. 341,000), capital of Santa Fe prov., NE Argentina, a river port near the Paraná, with which it is connected by canal. , N.M.--(BUSINESS WIRE)--July 22, 2003 In BW5868, (NM-THORNBURG-MORTGAGE) Thornburg Mortgage Reports 2Q EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. of $0.67; Declares $0.62 2Q Dividend, first table, Net interest income under June 30, 2002, should read xxx 36,957 (sted 39,957). The corrected release reads: THORNBURG MORTGAGE REPORTS 2Q EPS OF $0.67; DECLARES $0.62 2Q DIVIDEND -- 2Q '03 EPS up over 6% year-over-year -- Quarterly dividend increases to $0.62, a 9% increase over prior year -- 2Q mortgage origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real activity up 81% year-over-year -- Total assets increased to $15.2 billion; up 69% over 2Q 2002 -- 93% of assets rated AA or better Thornburg Mortgage Inc. (NYSE NYSE See: New York Stock Exchange : TMA TMA Turnaround Management Association TMA Texas Medical Association TMA Transportation Management Association TMA Training and Management Assistance (a component of OHRD, which is a component of OWR) TMA Tooling & Manufacturing Association ) reported record net income for the quarter ended June 30, 2003 of $41.6 million, or $0.67 per common share, as compared to $27.9 million, or $0.63 per common share, for the quarter ended June 30, 2002, representing a year-over-year increase of 6% on a per common share basis. Taxable earnings for the quarter are estimated to be $0.70 per common share, compared to $0.65 per common share in the same quarter a year ago. Simultaneous with the earnings announcement, the company's board of directors declared a second quarter dividend of $0.62 per common share, payable on Aug. 18, 2003 to shareholders of record on Aug. 5, 2003. This dividend represents a 9% increase over the year-earlier period and a 3% increase over the first quarter of 2003. Garrett Thornburg, chairman and chief executive officer, remarked, "Since the second quarter of 2000, we have increased the dividend 10 times for a total increase of 170%, including five increases in the last six quarters. Given where our stock is trading today, we are providing shareholders with a dividend yield in excess of 9%. We remain confident in our ability to maintain the current dividend level and to meeting our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. objective of delivering, at a minimum, a 15% total annual return to shareholders over time." Larry Goldstone gold·stone n. An aventurine with gold-colored inclusions. Noun 1. goldstone - aventurine spangled densely with fine gold-colored particles , president and chief operating officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. , remarked, "We experienced another terrific quarter posting continued solid operating results. Net income reached a new high for the eighth consecutive quarter and earnings per share increased 6% year-over-year. Our ability to meet our stated objectives of maintaining strong operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: and growing earnings per share and dividends by 5% annually in today's challenging refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. market is a testament to our diversified diversified (di·verˑ·s acquisition strategy. The purchase of hybrid ARMs and our ability to originate o·rig·i·nate v. 1. To bring into being; create. 2. To come into being; start. our own assets has allowed us to generate attractive portfolio spreads while reducing our average asset acquisition costs." Goldstone stated, "During the quarter we also strengthened our balance sheet and improved our earnings prospects in a number of meaningful ways. Total assets increased 69% over the past 12 months, and 22% over the first quarter of 2003. This growth was partially attributable to two notable transactions completed during the quarter that enhanced and strengthened our capital position. In April, we completed a loan securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. in which we financed $1.1 billion of our loans, in a non-recourse capital markets transaction, through the issuance of AAA-rated collateralized long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. . This transaction required significantly less capital than would be required if we financed these assets using traditional reverse repurchase agreement Reverse Repurchase Agreement The purchase of securities with the agreement to sell them at a higher price at a specific future date. For the party selling the security (and agreeing to repurchase it in the future) it is a repo for the party on the other end of the financing, thereby freeing up approximately $70 million of equity that supported additional asset growth." Goldstone continued, "Additionally, in May we issued $200 million of 10-year senior unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. notes. Similar to the long-term collateralized debt transaction, the senior note issuance has enhanced our liquidity position and our asset growth capacity. Both of these transactions were significant, because they enhanced the company's ability to finance additional mortgage assets without increasing our equity capital base. The net benefit going forward is two-fold. First, we reduce our exposure to recourse The right of an individual who is holding a Commercial Paper, such as a check or promissory note, to receive payment on it from anyone who has signed it if the individual who originally made it is unable, or refuses, to tender payment. financing. Second, we should experience improved earnings given the increased size of our balance sheet and improved utilization of our equity capital." Goldstone added, "The growth in our balance sheet was also due to accretive capital raises achieved through our dividend reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. and stock purchase plan and controlled equity offering program. During the second quarter we raised net equity proceeds of $56.4 million at an average net share price of $23.67. Our volume weighted average share price during the quarter was $24.08. These programs allowed us to raise equity capital at a cost of less than 2% during the quarter, a meaningful accomplishment. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. we have raised net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of $178.7 million, and are on track to meet our $300 million capital-raising goal for the year." Goldstone concluded, "At the end of the second quarter, and as a result of our continued success at raising new equity capital, historical book value (excluding unrealized market value adjustments described as other comprehensive income), improved to $17.79 per share versus $16.64 per share at June 30, 2002, which represents a 7% increase in book value per share year-over-year. Book value (including the unrealized market value loss of $113.1 million) was $15.95, as compared to $15.64 for the quarter ended June 30, 2002." Commenting on the mortgage origination program, Joseph Badal, chief executive officer of Thornburg Mortgage Home Loans Inc. ("TMHL TMHL Trade Media Holdings Ltd "), the company's mortgage lending subsidiary, said, "We continue to reap the benefits of a historically low interest rate environment. During the first six months of this year we closed $1.7 billion in loans, including $814.1 million in the second quarter. That's almost twice the $849.4 million we originated in the first six months of last year. At the current pace, we are confident we will reach our projected origination goal of $2.6 to $2.8 billion for the year. In addition, mortgage origination volumes remain solid with $759.0 million of loans in the pipeline at June 30, 2003, most of which we expect will close in the third quarter." Badal continued, "Though refinance activity remains strong, we have been successful at retaining our customers through our loan modification program. In the second quarter we modified 298 loans representing $167.2 million. Both the borrower and the company win with this program. The borrower gets a lower rate for their loan for a modest fee and minimal paperwork, and we receive a service fee of $1,000 per million borrowed, an eighth percent over our quoted interest rate, and we retain the borrower relationship. In today's environment, modifying our customers' loans provides us with a more profitable source of assets for our portfolio than new origination or wholesale acquisition opportunities." At June 30, 2003, TMHL had an additional $326.6 million of loan modifications in process. The company actively manages credit risk inherent in acquiring and originating residential mortgage loans by adhering ADHERING. Cleaving to, or joining; as, adhering to the enemies of the United States. 2. The constitution of the United States, art. 3, s 3, defines treason against the United States, to consist only in levying war against them or in adhering to their enemies, to stringent loan underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. criteria. Borrower credit quality remains exceptional, as is reflected in the company's 60-day plus delinquent delinquent 1) adj. not paid in full amount or on time. 2) n. short for an underage violator of the law as in juvenile delinquent. DELINQUENT, civil law. He who has been guilty of some crime, offence or failure of duty. loans, which amounted to 0.09% on $5.3 billion of securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. and unsecuritized loans, compared to 1.51% for the industry as a whole. The company has not realized a loan loss for six quarters, and since 1998 has experienced cumulative credit losses of just $174,000. At June 30, 2003, loan loss reserves totaled $15.9 million. TMHL currently offers single-family residential mortgages through approximately 120 correspondent lenders across the country and directly to borrowers in 43 states and the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). . The company's ultimate goal is to originate loans in all 50 states. TMHL has a $3.1 billion servicing portfolio, representing 6,990 customers. This growing customer base should have a positive impact on future profitability as we pursue other income opportunities. Second quarter operating results once again reached record levels. Net income grew to $41.6 million and net interest income grew to $54.0 million, up 49% and 46%, respectively, from a year ago. Return on common equity for the second quarter was 15.5% compared to 16.0% for the year ago period. The average portfolio margin was 1.64% in the second quarter compared to 1.88% in both the same quarter a year ago and for the quarter ended March 31, 2003. The company's average cost of funds Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. during the quarter was 2.73%, down from 2.82% in the prior quarter and 3.35% for the quarter ended June 30, 2002. The average ARM portfolio yield decreased to 4.14% from 4.44% during the quarter as ARM assets reset lower in the current interest rate environment. Richard Story, chief financial officer, commented, "The decline in portfolio margin is, in part, due to the issuance of the long-term collateralized debt and senior notes, which increased our cost of funds and, simultaneously, increased our ability to carry additional assets. This change in financing strategy will make historical information less comparable. In addition, by quarter end we had not yet received the full benefit of the reduction in short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. borrowing rates, and anticipate that our cost of funds will decline further in future quarters. Lastly, we have been modestly affected by the reinvestment of prepaid pre·pay tr.v. pre·paid, pre·pay·ing, pre·pays To pay or pay for beforehand. pre·pay  ment n. and refinanced loans in our portfolio, a natural
consequence of a low interest rate environment. That said, going
forward, we expect to operate with a greater level of assets in relation
to our equity capital base than we have historically, which should
provide greater profitability despite narrower margins."Story continued, "Our balance sheet grew to $15.2 billion in the second quarter, compared to $8.9 billion as of June 30, 2002, and averaged $13.2 billion during the quarter. During the quarter we acquired or originated $4.3 billion of new ARM assets at an average purchase price of 101.4%. The portfolio prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. rate averaged 31% Constant Prepayment Rate (CPR Cardiopulmonary Resuscitation (CPR) Definition Cardiopulmonary resuscitation (CPR) is a procedure to support and maintain breathing and circulation for a person who has stopped breathing (respiratory arrest) and/or whose heart has stopped (cardiac ) for the second quarter, down from 32% CPR in the previous quarter, but up from 26% CPR in the second quarter of 2002. At June 30, 2003, the book price, excluding unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and losses, at which we were holding our ARM assets was 101.20%, up slightly from 101.03% in the first quarter of 2003. As a result, the premium amortization associated with prepayment activity is not having a material adverse impact on earnings." Story added, "We continue to actively manage interest rate risk by match funding our assets and liabilities. Hybrid ARMs accounted for $4.0 billion of the $4.3 billion in new ARM assets we acquired, and now represent 78% of our portfolio. Because the hybrid ARMs have an initial fixed interest rate period, we fund them with comparable duration fixed rate borrowings. At June 30, 2003, we had secured $7.6 billion of fixed rate financing having an average maturity of 3.0 years. The calculated duration mismatch mismatch 1. in blood transfusions and transplantation immunology, an incompatibility between potential donor and recipient. 2. one or more nucleotides in one of the double strands in a nucleic acid molecule without complementary nucleotides in the same position on the other , or gap, on this portion of the portfolio was approximately one month. The smaller the duration gap, the less impact interest rate changes will have on earnings. The remaining 22% of the portfolio consisted of traditional ARM assets that reprice in a year or less. These assets are funded with short-term borrowings such that the repricing Repricing To change the price of an asset. In derivatives, it sometimes refers to the exchange of options of with different strike prices. repricing mismatch on this portion of the portfolio was 57 days at June 30, 2003." The company continues to maintain strong credit quality. At June 30, 2003, 93.3% of ARM assets were rated AAA AAA: see American Automobile Association. (Triple A) A common single-cell battery used in a myriad of electronic devices of all variety. Like its double A (AA) cousin, it provides 1.5 volts of DC power. When used in series, the voltage is multiplied. , AA, or guaranteed by Fannie Mae Fannie Mae: see Federal National Mortgage Association. or Freddie Mac Freddie Mac: see Federal Home Loan Mortgage Corporation. . An additional 5.6% consisted of loans that were pending securitization. Story explained, "Once we have sufficient size, we securitize Securitize The practice of a company selling accounts receivables or other debts owed to it. The third party that buys the debt assumes ownership of it and the responsibility for collecting the debts, and keeps the repayments when made. the loans we originate or acquire into pools of high-credit quality ARM assets, which we then retain in our portfolio. Historically, over 99% of these securitized assets have been rated BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. or better. Securitizing our loans and maintaining high asset quality standards reduces our cost of capital and maximizes our ability to obtain financing through the credit cycle." The company will host a dial-in conference call on Wednesday, July 23, 2003 at 10:30 a.m. (EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT ), to discuss its 2003 second quarter results. The teleconference dial-in number is 888-273-9889. A replay of the call will be available beginning at 2 p.m. on July 23, 2003 and ending at midnight on July 30, 2003. The replay dial-in number is 800-475-6701, access code 689477. The conference call will also be webcast live through a link at the company's Web site at www.thornburgmortgage.com. Shareholders interested in reinvesting their dividends or purchasing stock direct from Thornburg Mortgage may do so through the company's Dividend Reinvestment and Stock Purchase Plan by contacting American Stock Transfer & Trust Co., the company's plan administrator, at 877-366-6442 (toll-free), or by contacting the company. The company currently offers a 2% discount on shares purchased through the plan. Thornburg Mortgage is a single-family residential mortgage lender focused principally on the jumbo segment of the mortgage market. Backed by a sizeable balance sheet of $15.2 billion in assets, the company seeks to deliver attractive dividend income and steady growth for its shareholders through the acquisition and origination of high-credit quality adjustable-rate mortgage Adjustable-rate mortgage (ARM) A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or assets. Capitalizing on its innovative lending model and REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). tax structure, Thornburg Mortgage is an efficient provider of specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. mortgage loan products for borrowers with excellent credit, and is positioned to become one of the top 50 mortgage lenders in the country. We invite you to visit the company's Web site at www.thornburgmortgage.com. Certain matters discussed in this news release may constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including general economic conditions, interest rates, the availability of ARM securities and loans for acquisition and other risk factors outlined in the company's SEC reports and the annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. . Thornburg Mortgage Inc. Statement of Operations See Income statement. (Amounts in thousands, except per share data) For Quarters Ended:
June 30, June 30,
2003 2002
Interest income
from ARM assets and cash $136,183 $ 96,439
Interest expense on borrowed funds (82,166) (59,482)
--------- ---------
Net interest income 54,017 36,957
Gain on ARM assets 2,580 84
Fee income 637 37
Hedging expense (220) (622)
Management fee (2,686) (1,902)
Performance fee (6,783) (3,721)
Long-term incentive awards (3,075) (932)
Other operating expenses (2,845) (1,963)
--------- ---------
NET INCOME $ 41,625 $ 27,938
========= =========
Net income $ 41,625 $ 27,938
Dividends on Series A preferred stock (1,670) (1,670)
--------- ---------
Net income available to common
shareholders $ 39,955 $ 26,268
========= =========
Basic earnings per share:
Net income $ 0.67 $ 0.63
Average number of shares outstanding 59,879 41,950
========= =========
Diluted earnings per share:
Net income $ 0.67 $ 0.63
Average number of shares outstanding 62,639 41,950
========= =========
Dividends declared per common share $ 0.62 $ 0.57
Noninterest expense as a percent of
average assets 0.47% 0.43%
Thornburg Mortgage Inc. Statement of Operations (Amounts in thousands, except per share data) For Six Months Ended:
June 30, June 30,
2003 2002
Interest income from ARM assets and cash $259,379 $175,866
Interest expense on borrowed funds (153,328) (107,285)
--------- ---------
Net interest income 106,051 68,581
Gain on ARM assets 2,580 87
Fee Income 941 42
Hedging expense (397) (936)
Management fee (5,171) (3,546)
Performance fee (12,970) (6,914)
Long-term incentive awards (4,744) (1,479)
Other operating expenses (5,591) (3,604)
--------- ---------
NET INCOME $ 80,699 $ 52,231
========= =========
Net income $ 80,699 $ 52,231
Dividends on Series A preferred stock (3,340) (3,340)
Net income available to common shareholders $ 77,359 $ 48,891
========= =========
Basic earnings per share:
Net income $ 1.34 $ 1.25
Average number of shares outstanding 57,767 39,199
========= =========
Diluted earnings per share:
Net income $ 1.33 $ 1.25
Average number of shares outstanding 60,527 39,199
========= =========
Dividends declared per common share $ 1.22 $ 1.10
Noninterest expense as a percent
of average assets 0.47% 0.43%
Thornburg Mortgage Inc. Balance Sheet (Amounts in thousands)
June 30, Dec. 31,
2003 2002
ASSETS
Adjustable-rate mortgage ("ARM") assets:
ARM securities:
Thornburg securitized ARM Loans $ 3,573,134 $ 2,792,323
Purchased ARM Securities 9,380,720 6,543,320
----------- -----------
ARM Securities 12,953,854 9,335,643
Collateral for long-term
collateralized debt 981,513 289,783
ARM loans held for securitization 832,645 709,787
------------ ------------
14,768,012 10,335,213
Cash and cash equivalents 311,080 122,220
Interest rate swap and cap agreements 5,845 -
Accrued interest receivable 60,221 47,435
Prepaid expenses and other 7,641 8,064
------------ ------------
$15,152,799 $10,512,932
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LIABILITIES
Reverse repurchase agreements $12,085,280 $ 8,425,729
Long-term collateralized debt 967,485 255,415
Whole loan financing facilities 614,503 589,081
Interest rate swap agreements 184,946 142,531
Senior notes 194,340 -
Payable for assets purchased - 202,844
Accrued interest payable 22,821 17,234
Dividends payable 1,670 32,536
Accrued expenses and other 35,724 14,520
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14,106,769 9,679,890
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SHAREHOLDERS' EQUITY
Preferred stock: par value $0.01
per share; 2,760 shares authorized,
issued and outstanding 65,805 65,805
Common stock: par value $0.01 per share;
497,218 shares authorized, 61,453 and
52,763 shares issued and outstanding,
respectively 615 528
Additional paid-in capital 1,057,637 878,929
Accumulated other comprehensive loss (113,097) (105,254)
Notes receivable from stock sales (7,017) (7,437)
Retained earnings 42,087 471
------------ ------------
1,046,030 833,042
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$15,152,799 $10,512,932
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