Washington, D.C. 20549
FORM 10-Q
[x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Exact name of registrant as specified in its charter)
Maryland | 13-3974868 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
350 Park Avenue, 21st Floor, New York, New York | 10022 | ||
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Financial Information
Item 1. | Financial Statements | ||||||||||
Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and December 31, 2006 | 1 | ||||||||||
Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2007 and March 31, 2006 | 2 | ||||||||||
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2007 | 3 | ||||||||||
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2007 and March 31, 2006 | 4 | ||||||||||
Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2007 and March 31, 2006 | 5 | ||||||||||
Notes to the Consolidated Financial Statements (Unaudited) | 6 | ||||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 32 | |||||||||
Item 4. | Controls and Procedures | 36 | |||||||||
PART II Other Information | |||||||||||
Item 1. | Legal Proceedings | 37 | |||||||||
Item 1A. | Risk Factors | 37 | |||||||||
Item 6. | Exhibits | 37 | |||||||||
Signatures | 39 |
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts) | March 31, 2007 | December 31, 2006 | ||||||||
(Unaudited) | ||||||||||
Assets: | ||||||||||
Mortgage-backed securities (“MBS”), at fair value (including pledged MBS of $6,094,399 and $6,065,021 at March 31, 2007 and December 31, 2006, respectively) (Notes 3 and 6) | $ | 6,385,605 | $ | 6,340,668 | ||||||
Income notes (Note 3) | 1,980 | — | ||||||||
Cash and cash equivalents | 53,697 | 47,200 | ||||||||
Accrued interest receivable | 33,437 | 33,182 | ||||||||
Interest rate cap agreements (“Caps”), at fair value (Note 4) | 129 | 361 | ||||||||
Swap agreements (“Swaps”), at fair value (Note 4) | 526 | 2,412 | ||||||||
Real estate (Note 5) | 11,724 | 11,789 | ||||||||
Goodwill | 7,189 | 7,189 | ||||||||
Prepaid and other assets | 1,607 | 1,166 | ||||||||
Total Assets | $ | 6,495,894 | $ | 6,443,967 | ||||||
Liabilities: | ||||||||||
Repurchase agreements (Note 6) | $ | 5,763,357 | $ | 5,722,711 | ||||||
Accrued interest payable | 21,415 | 23,164 | ||||||||
Mortgages payable on real estate | 9,573 | 9,606 | ||||||||
Swaps, at fair value (Note 4) | 4,707 | 1,893 | ||||||||
Dividends payable | — | 4,899 | ||||||||
Accrued expenses and other liabilities | 2,187 | 3,136 | ||||||||
Total Liabilities | 5,801,239 | 5,765,409 | ||||||||
Commitments and contingencies (Note 7) | ||||||||||
Stockholders’ Equity: | ||||||||||
Preferred stock, $.01 par value; series A 8.50% cumulative redeemable; 5,000 shares authorized; 3,840 shares issued and outstanding at March 31, 2007 and December 31, 2006 ($96,000 aggregate liquidation preference) (Note 8) | 38 | 38 | ||||||||
Common stock, $.01 par value; 370,000 shares authorized; 80,764 and 80,695 issued and outstanding at March 31, 2007 and December 31, 2006, respectively (Note 8) | 808 | 807 | ||||||||
Additional paid-in capital, in excess of par | 777,280 | 776,743 | ||||||||
Accumulated deficit | (60,827 | ) | (68,637 | ) | ||||||
Accumulated other comprehensive loss (Note 10) | (22,644 | ) | (30,393 | ) | ||||||
Total Stockholders’ Equity | 694,655 | 678,558 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 6,495,894 | $ | 6,443,967 |
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 | 2006 | ||||||||||
(In Thousands, Except Per Share Amounts) | (Unaudited) | ||||||||||
Interest Income: | |||||||||||
MBS income (Note 3) | $ | 84,341 | $ | 53,329 | |||||||
Interest income on short-term cash investments | 448 | 666 | |||||||||
Interest income on income notes | 6 | — | |||||||||
Interest Income | 84,795 | 53,995 | |||||||||
Interest Expense | 72,260 | 42,785 | |||||||||
Net Interest Income | 12,535 | 11,210 | |||||||||
Other Income: | |||||||||||
Net gain on sale of MBS (Note 3) | 3 | 1,597 | |||||||||
Revenue from operations of real estate | 413 | 382 | |||||||||
Miscellaneous other income, net | 115 | 239 | |||||||||
Other Income | 531 | 2,218 | |||||||||
Operating and Other Expense: | |||||||||||
Compensation and benefits | 1,612 | 1,558 | |||||||||
Real estate operating expense | 253 | 245 | |||||||||
Mortgage interest on real estate | 167 | 173 | |||||||||
Other general and administrative expense | 1,184 | 1,117 | |||||||||
Operating and Other Expense | 3,216 | 3,093 | |||||||||
Income from Continuing Operations | 9,850 | 10,335 | |||||||||
Discontinued Operations: (Note 5) | |||||||||||
Loss from discontinued operations, net | — | (77 | ) | ||||||||
Mortgage prepayment penalty | — | (135 | ) | ||||||||
Gain on sale of real estate, net of tax | — | 4,840 | |||||||||
Income from Discontinued Operations | — | 4,628 | |||||||||
Net Income Before Preferred Stock Dividends | 9,850 | 14,963 | |||||||||
Less: Preferred Stock Dividends | 2,040 | 2,040 | |||||||||
Net Income Available to Common Stockholders | $ | 7,810 | $ | 12,923 | |||||||
Earnings Per Share of Common Stock: (Note 9) | |||||||||||
Income from continuing operations — basic and diluted | $ | 0.10 | $ | 0.10 | |||||||
Income from discontinued operations — basic and diluted | — | 0.06 | |||||||||
Earnings per share of common stock — basic and diluted | $ | 0.10 | $ | 0.16 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2007 | ||||||
---|---|---|---|---|---|---|
(In Thousands, Except Per Share Amounts) | (Unaudited) | |||||
8.50% Series A Cumulative Redeemable Preferred Stock — Liquidation Preference $25.00 per Share: | ||||||
Balance at December 31, 2006 and March 31, 2007 (3,840 shares) | $ | 38 | ||||
Common Stock, Par Value $0.01: | ||||||
Balance at December 31, 2006 (80,695 shares) | 807 | |||||
Issuance of common stock (69 shares) | 1 | |||||
Balance at March 31, 2007 (80,764 shares) | 808 | |||||
Additional Paid-in Capital, in Excess of Par: | ||||||
Balance at December 31, 2006 | 776,743 | |||||
Issuance of common stock, net of expenses | 363 | |||||
Share-based compensation expense | 174 | |||||
Balance at March 31, 2007 | 777,280 | |||||
Accumulated Deficit: | ||||||
Balance at December 31, 2006 | (68,637 | ) | ||||
Net income | 9,850 | |||||
Dividends declared on preferred stock | (2,040 | ) | ||||
Balance at March 31, 2007 | (60,827 | ) | ||||
Accumulated Other Comprehensive Loss: | ||||||
Balance at December 31, 2006 | (30,393 | ) | ||||
Unrealized gains on MBS, net | 12,500 | |||||
Unrealized losses on Caps, net | (51 | ) | ||||
Unrealized losses on Swaps, net | (4,700 | ) | ||||
Balance at March 31, 2007 | (22,644 | ) | ||||
Total Stockholders’ Equity at March 31, 2007 | $ | 694,655 |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | 2007 | 2006 | |||||||||
(Unaudited) | |||||||||||
Cash Flows From Operating Activities: | |||||||||||
Net income | $ | 9,850 | $ | 14,963 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Gain on sales of MBS | (3 | ) | (2,094 | ) | |||||||
Loss on sale of MBS | — | 497 | |||||||||
Amortization of purchase premiums on MBS, net of accretion of discounts | 8,343 | 8,123 | |||||||||
Amortization of premium cost for Caps | 181 | 383 | |||||||||
(Increase)/decrease in interest receivable | (255 | ) | 4,042 | ||||||||
Depreciation and amortization on real estate, including discontinued operations | 102 | 198 | |||||||||
Increase in other assets and other | (478 | ) | (1,196 | ) | |||||||
(Decrease)/increase in accrued expenses and other liabilities | (949 | ) | 1,066 | ||||||||
Decrease in accrued interest payable | (1,749 | ) | (22,512 | ) | |||||||
Gain on sale of real estate from discontinued operations | — | (6,660 | ) | ||||||||
Share-based compensation expense | 174 | 120 | |||||||||
Negative amortization and principal accretion on investment securities | (87 | ) | (868 | ) | |||||||
Net cash provided/(used) by operating activities | 15,129 | (3,938 | ) | ||||||||
Cash Flows From Investing Activities: | |||||||||||
Principal payments on MBS | 492,381 | 443,109 | |||||||||
Proceeds from sale of MBS | 6,830 | 788,490 | |||||||||
Purchases of MBS | (539,901 | ) | (71,412 | ) | |||||||
Purchases of income notes | (1,980 | ) | — | ||||||||
Proceeds from sale of real estate | — | 15,978 | |||||||||
Net cash (used)/provided by investing activities | (42,670 | ) | 1,176,165 | ||||||||
Cash Flows From Financing Activities: | |||||||||||
Principal payments on repurchase agreements | (8,604,712 | ) | (9,139,598 | ) | |||||||
Proceeds from borrowings on repurchase agreements | 8,645,358 | 7,993,066 | |||||||||
Proceeds from issuances of common stock | 364 | — | |||||||||
Dividends paid on preferred stock | (2,040 | ) | (2,040 | ) | |||||||
Common stock repurchased | — | (2,879 | ) | ||||||||
Dividends paid on common stock and DERs | (4,899 | ) | (4,058 | ) | |||||||
Principal payments on and satisfaction of mortgages, including discontinued operations | (33 | ) | (6,075 | ) | |||||||
Net cash provided/(used) by financing activities | 34,038 | (1,161,584 | ) | ||||||||
Net increase in cash and cash equivalents | 6,497 | 10,643 | |||||||||
Cash and cash equivalents at beginning of period | 47,200 | 64,301 | |||||||||
Cash and cash equivalents at end of period | $ | 53,697 | $ | 74,944 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | 2007 | 2006 | |||||||||
(Unaudited) | |||||||||||
Net income before preferred stock dividends | $ | 9,850 | $ | 14,963 | |||||||
Other Comprehensive Income: | |||||||||||
Unrealized gain/(loss) on MBS, net | 12,500 | (8,464 | ) | ||||||||
Unrealized (loss)/gain on Caps, net | (51 | ) | 345 | ||||||||
Unrealized loss on Swaps, net | (4,700 | ) | (3 | ) | |||||||
Comprehensive income before preferred stock dividends | 17,599 | 6,841 | |||||||||
Dividends on preferred stock | (2,040 | ) | (2,040 | ) | |||||||
Comprehensive Income | $ | 15,559 | $ | 4,801 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Amortized Cost(1) | Carrying Value/ Estimated Fair Value | Net Unrealized (Loss)/Gain | |||||||||||||
(In Thousands) | March 31, 2007 | ||||||||||||||
Agency MBS: | |||||||||||||||
Fannie Mae Certificates | $ | 5,655,290 | $ | 5,642,855 | $ | (12,435 | ) | ||||||||
Ginnie Mae Certificates | 264,581 | 261,949 | (2,632 | ) | |||||||||||
Freddie Mac Certificates | 264,777 | 263,266 | (1,511 | ) | |||||||||||
Non-Agency MBS(2): | |||||||||||||||
AAA | 208,295 | 205,245 | (3,050 | ) | |||||||||||
AA | 2,187 | 2,165 | (22 | ) | |||||||||||
Single A and A- | 2,167 | 2,161 | (6 | ) | |||||||||||
BBB and BBB- | 1,870 | �� | 1,872 | 2 | |||||||||||
BB and below | 2,120 | 2,258 | 138 | ||||||||||||
Non-rated | 2,813 | 3,834 | 1,021 | ||||||||||||
Total MBS | $ | 6,404,100 | $ | 6,385,605 | $ | (18,495 | ) | ||||||||
Income Notes: | |||||||||||||||
Non-rated | 1,980 | 1,980 | — | ||||||||||||
Total Investment securities | $ | 6,406,080 | $ | 6,387,585 | $ | (18,495 | ) |
Amortized Cost(1) | Carrying Value/ Estimated Fair Value | Net Unrealized (Loss)/Gain | |||||||||||||
December 31, 2006 | |||||||||||||||
Agency MBS: | |||||||||||||||
Fannie Mae Certificates | $ | 5,506,188 | $ | 5,482,112 | $ | (24,076 | ) | ||||||||
Ginnie Mae Certificates | 307,472 | 304,826 | (2,646 | ) | |||||||||||
Freddie Mac Certificates | 301,016 | 299,505 | (1,511 | ) | |||||||||||
Non-Agency MBS(2): | |||||||||||||||
AAA | 237,805 | 234,275 | (3,530 | ) | |||||||||||
AA | 2,253 | 2,218 | (35 | ) | |||||||||||
Single A and A- | 3,029 | 3,014 | (15 | ) | |||||||||||
BBB and BBB- | 9,007 | 8,972 | (35 | ) | |||||||||||
BB and below | 2,140 | 2,255 | 115 | ||||||||||||
Non-rated | 2,753 | 3,491 | 738 | ||||||||||||
Total MBS | $ | 6,371,663 | $ | 6,340,668 | $ | (30,995 | ) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands) | March 31, 2007 | December 31, 2006 | ||||||||
Principal/notional balance | $ | 6,297,430 | $ | 6,257,047 | ||||||
Principal payment receivable | 9,173 | 15,819 | ||||||||
6,306,603 | 6,272,866 | |||||||||
Unamortized premium | 97,528 | 98,838 | ||||||||
Unaccreted discount | (31 | ) | (41 | ) | ||||||
Gross unrealized gains | 7,829 | 3,193 | ||||||||
Gross unrealized (losses) | (26,324 | ) | (34,188 | ) | ||||||
Carrying value/estimated fair value | $ | 6,385,605 | $ | 6,340,668 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Unrealized Loss Position for: | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Less than 12 Months | 12 Months or more | Total | |||||||||||||||||||||||||
(In Thousands) | Estimated Fair Value | Unrealized losses | Estimated Fair Value | Unrealized losses | Estimated Fair Value | Unrealized losses | |||||||||||||||||||||
Agency MBS: | |||||||||||||||||||||||||||
Fannie Mae | $ | 1,751,491 | $ | 3,873 | $ | 1,026,053 | $ | 15,014 | $ | 2,777,544 | $ | 18,887 | |||||||||||||||
Ginnie Mae | 53,403 | 184 | 185,216 | 2,555 | 238,619 | 2,739 | |||||||||||||||||||||
Freddie Mac | 140,621 | 647 | 90,135 | 972 | 230,756 | 1,619 | |||||||||||||||||||||
AAA rated MBS | — | — | 205,245 | 3,050 | 205,245 | 3,050 | |||||||||||||||||||||
AA rated MBS | — | — | 2,165 | 22 | 2,165 | 22 | |||||||||||||||||||||
A rated MBS | — | — | 1,512 | 7 | 1,512 | 7 | |||||||||||||||||||||
A- rated MBS | 649 | — | — | — | 649 | — | |||||||||||||||||||||
BBB and BBB- rated MBS | — | — | 862 | — | 862 | — | |||||||||||||||||||||
Total temporarily impaired securities | $ | 1,946,164 | $ | 4,704 | $ | 1,511,188 | $ | 21,620 | $ | 3,457,352 | $ | 26,324 |
Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | 2007 | 2006 | |||||||||
Coupon interest on MBS | $ | 92,684 | $ | 61,452 | |||||||
Premium amortization | (8,344 | ) | (8,233 | ) | |||||||
Discount accretion | 1 | 110 | |||||||||
Interest income on MBS, net | $ | 84,341 | $ | 53,329 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2007 | December 31, 2006 | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) Months to Coupon Reset or Contractual Payment | Fair Value(1) | % of Total | WAC(2) | Fair Value(1) | % of Total | WAC(2) | |||||||||||||||||||||
Within 30 Days | $ | 708,311 | 11.1 | % | 6.74 | % | $ | 972,867 | 15.4 | % | 6.32 | % | |||||||||||||||
30 to 90 Days | 192,215 | 3.0 | 5.78 | 71,657 | 1.1 | 6.03 | |||||||||||||||||||||
Three to 12 Months | 683,106 | 10.7 | 6.12 | 759,762 | 12.0 | 5.91 | |||||||||||||||||||||
12 to 24 Months | 122,659 | 1.9 | 5.07 | 142,191 | 2.3 | 4.86 | |||||||||||||||||||||
24 to 36 Months | 427,786 | 6.7 | 5.04 | 318,940 | 5.0 | 4.93 | |||||||||||||||||||||
36 to 60 Months | 3,067,946 | 48.2 | 6.18 | 3,220,190 | 50.9 | 6.16 | |||||||||||||||||||||
Over 60 Months | 1,174,409 | 18.4 | 6.11 | 839,242 | 13.3 | 6.16 | |||||||||||||||||||||
Total | $ | 6,376,432 | 100.0 | % | 6.11 | % | $ | 6,324,849 | 100.0 | % | 6.06 | % |
MBS Pledged Under Repurchase Agreements | MBS Pledged Under Swaps | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
MBS Pledged | Estimated Fair Value/ Carrying Value | Amortized Cost | Estimated Fair Value/ Carrying Value | Amortized Cost | Total Fair Value of MBS Pledged | |||||||||||||||||
(In Thousands) | ||||||||||||||||||||||
Fannie Mae | $ | 5,477,696 | $ | 5,488,340 | $ | 13,888 | $ | 13,922 | $ | 5,491,584 | ||||||||||||
Freddie Mac | 219,541 | 220,709 | — | — | 219,541 | |||||||||||||||||
Ginnie Mae | 184,326 | 186,042 | — | — | 184,326 | |||||||||||||||||
AAA Rated | 198,948 | 201,867 | — | — | 198,948 | |||||||||||||||||
$ | 6,080,511 | $ | 6,096,958 | $ | 13,888 | $ | 13,922 | $ | 6,094,399 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | 2007 | 2006 | |||||||||
Accumulated Other Comprehensive Income/(Loss) from Hedging Instruments: | |||||||||||
Balance at beginning of year | $ | 602 | $ | 3,517 | |||||||
Unrealized (losses)/gains on Hedging Instruments, net | (4,751 | ) | 342 | ||||||||
Balance at the end of period | $ | (4,149 | ) | $ | 3,859 |
Notional Amount | Weighted Average Swap Rate | Estimated Fair Value/ Carrying Value | Gross Unrealized Gains | Gross Unrealized (Losses) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | ||||||||||||||||||||||
Currently Active | $ | 2,084,524 | 4.98 | % | $ | (4,181 | ) | $ | 526 | $ | (4,707 | ) |
For the Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 | 2006 | ||||||||||
(In Thousands) | |||||||||||
Premium amortization on Caps | $ | 181 | $ | 383 | |||||||
Payments earned on Caps | (196 | ) | (576 | ) | |||||||
Net decrease to interest expense related to Caps | $ | (15 | ) | $ | (193 | ) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Weighted Average Remaining Active Period | Weighted Average LIBOR Strike Rate(1) | Notional Amount | Unamortized Premium | Estimated Fair Value/ Carrying Value | Gross Unrealized Gain | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | ||||||||||||||||||||||||||
Currently active | 2 Months | 3.75 | % | $ | 50,000 | $ | 97 | $ | 129 | $ | 32 |
March 31, 2007 | December 31, 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | ||||||||||
Real Estate Assets and Liabilities: | ||||||||||
Land and buildings | $ | 11,724 | $ | 11,789 | ||||||
Cash | 428 | 126 | ||||||||
Prepaid and other assets | 126 | 146 | ||||||||
Mortgage payable (1) | (9,573 | ) | (9,606 | ) | ||||||
Accrued interest and other payables | (155 | ) | (122 | ) | ||||||
Real estate assets, net | $ | 2,550 | $ | 2,333 |
(1) | The mortgage collateralized by Lealand Place is non-recourse, subject to customary non-recourse exceptions, which generally means that the lender’s final source of repayment in the event of default is foreclosure of the property securing such loan. At March 31, 2007 and December 31, 2006, the mortgage had a fixed interest rate of 6.87%, contractually matures on February 1, 2011 and is subject to a penalty if prepaid. In January 2005, the Company loaned Lealand Place $150,000 to fund operations which remained outstanding through March 31, 2007 and December 31, 2006; this loan and the related interest is eliminated in consolidation. |
Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 | 2006 | ||||||||||
(In Thousands) | |||||||||||
Revenue from operations of real estate | $ | 413 | $ | 382 | |||||||
Interest expense for mortgages on real estate | (167 | ) | (173 | ) | |||||||
Other real estate operations expense | (253 | ) | (245 | ) | |||||||
Loss from Real Estate Operations, net | $ | (7 | ) | $ | (36 | ) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2007 | December 31, 2006 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance | Weighted Average Contractual Rate | Balance | Weighted Average Contractual Rate | ||||||||||||||||
(In Thousands) | |||||||||||||||||||
Within 30 days | $ | 2,998,900 | 5.27 | % | $ | 2,848,300 | 5.30 | % | |||||||||||
30 days to 3 months | 597,200 | 5.31 | 1,017,900 | 5.10 | |||||||||||||||
Over 3 months to 6 months | 425,500 | 5.32 | 37,200 | 3.98 | |||||||||||||||
Over 6 months to 12 months | 28,800 | 5.35 | — | — | |||||||||||||||
Over 12 months to 24 months | 269,800 | 5.27 | 1,505,311 | 5.16 | |||||||||||||||
Over 24 months to 36 months | 1,401,157 | 5.19 | 314,000 | 5.33 | |||||||||||||||
Over 36 months | 42,000 | 4.69 | — | — | |||||||||||||||
$ | 5,763,357 | 5.26 | % | $ | 5,722,711 | 5.22 | % |
Collateral Pledged | Term to Maturity of Repurchase Agreement | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
MBS Pledged | Fair Value of MBS Pledged as Collateral | Up to 30 Days | �� | 30 to 90 Days | Over 90 Days | Total | ||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Fannie Mae | $ | 5,477,696 | $ | 2,789,029 | $ | 494,100 | $ | 1,921,257 | $ | 5,204,386 | ||||||||||||||
Freddie Mac | 219,541 | 56,290 | 7,400 | 116,900 | 180,590 | |||||||||||||||||||
Ginnie Mae | 184,326 | 114,281 | 57,300 | 16,800 | 188,381 | |||||||||||||||||||
AAA Rated | 198,948 | 39,300 | 38,400 | 112,300 | 190,000 | |||||||||||||||||||
$ | 6,080,511 | $ | 2,998,900 | $ | 597,200 | $ | 2,167,257 | $ | 5,763,357 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Year Ended December 31, | At March 31, 2007 | |||||
---|---|---|---|---|---|---|
(In Thousands) | ||||||
2007 | $ | 459 | (1) | |||
2008 | 1,042 | |||||
2009 | 1,051 | |||||
2010 | 1,071 | |||||
2011 | 1,085 | |||||
Thereafter | 7,341 | |||||
$ | 12,049 |
Declaration Date | Record Date | Payment Date | Dividend Per share | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2007 | ||||||||||||||
February 16, 2007 | March 1, 2007 | March 30, 2007 | $ | 0.53125 | ||||||||||
2006 | ||||||||||||||
February 17, 2006 | March 1, 2006 | March 31, 2006 | $ | 0.53125 | ||||||||||
May 19, 2006 | June 1, 2006 | June 30, 2006 | 0.53125 | |||||||||||
August 21, 2006 | September 1, 2006 | September 29, 2006 | 0.53125 | |||||||||||
November 20, 2006 | December 1, 2006 | December 29, 2006 | 0.53125 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Declaration Date | Record Date | Payment Date | Dividend Per Share | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
April 3, 2006 | April 17, 2006 | April 28, 2006 | $ | 0.050 | ||||||||||
July 5, 2006 | July 17, 2006 | July 31, 2006 | 0.050 | |||||||||||
October 2, 2006 | October 13, 2006 | October 31, 2006 | 0.050 | |||||||||||
December 14, 2006 | December 29, 2006 | January 31, 2007 | 0.060 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2007 | 2006 | ||||||||||
(In Thousands, except per share amounts) | |||||||||||
Numerator: | |||||||||||
Net income allocable to common stockholders: | |||||||||||
Net income | $ | 9,850 | $ | 14,963 | |||||||
Net income from discontinued operations | — | 4,628 | |||||||||
Net income from continuing operations | 9,850 | 10,335 | |||||||||
Dividends declared on preferred stock | (2,040 | ) | (2,040 | ) | |||||||
Net income available to common stockholders from continuing operations for basic and diluted earnings per share | 7,810 | 8,295 | |||||||||
Net income from discontinued operations | — | 4,628 | |||||||||
Net income available to common stockholders from continuing operations | $ | 7,810 | $ | 12,923 | |||||||
Denominator: | |||||||||||
Weighted average common shares for basic earnings per share | 80,762 | 79,950 | |||||||||
Weighted average effect of dilutive employee stock options | 33 | 23 | |||||||||
Denominator for diluted earnings per share | 80,795 | 79,973 | |||||||||
Basic and diluted net earnings per share: | |||||||||||
Continuing operations | $ | 0.10 | $ | 0.10 | |||||||
Discontinued operations | — | 0.06 | |||||||||
Total Basic and Diluted earnings per share | $ | 0.10 | $ | 0.16 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2007 | December 31, 2006 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | ||||||||||
Available-for-sale MBS: | ||||||||||
Unrealized gains | ��$ | 7,829 | $ | 3,193 | ||||||
Unrealized (losses) | (26,324 | ) | (34,188 | ) | ||||||
(18,495 | ) | (30,995 | ) | |||||||
Hedging Instruments: | ||||||||||
Unrealized (losses) gains on Swaps | (4,181 | ) | 519 | |||||||
Unrealized gains on Caps | 32 | 83 | ||||||||
(4,149 | ) | 602 | ||||||||
Accumulated other comprehensive (loss) | $ | (22,644 | ) | $ | (30,393 | ) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands) | March 31, 2007 | December 31, 2006 | ||||||||
Directors’ deferred | $ | 599 | $ | 594 | ||||||
Officers’ deferred | 280 | 277 | ||||||||
$ | 879 | $ | 871 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
curve is inverted, we believe that as the fixed rate period of a hybrid MBS ends and the rate becomes adjustable, the homeowner is likely to prepay and refinance rather than pay the higher fully-indexed rate. Historically, the yield curve has predominately had a positive slope, reflecting short-term rates lower than long-term rates, and we believe that this current period of yield curve inversion will not continue over the long term. We expect to return to higher spreads when the yield curve returns to its normal positive slope. Despite an inverted yield curve, we have been able to increase our common stock dividend in each of the last two quarters.
Quarter Ended | Stated Coupon | Net Premium Amortization | Cost of Delay for Principal Receivable | Net Yield | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2007 | 6.11 | % | (0.55 | )% | (0.21 | )% | 5.35 | % | ||||||||||
December 31, 2006 | 6.04 | (0.64 | ) | (0.22 | ) | 5.18 | ||||||||||||
September 30, 2006 | 5.74 | (0.70 | ) | (0.21 | ) | 4.83 | ||||||||||||
June 30, 2006 | 5.16 | (0.76 | ) | (0.19 | ) | 4.21 | ||||||||||||
March 31, 2006 | 4.86 | (0.64 | )(1) | (0.18 | ) | 4.04 |
Quarter Ended | CPR | |||||
---|---|---|---|---|---|---|
March 31, 2007 | 23.8 | % | ||||
December 31, 2006 | 26.0 | |||||
September 30, 2006 | 26.4 | |||||
June 30, 2006 | 26.1 | |||||
March 31, 2006 | 24.4 |
market increases in short-term interest rates. Our average investment in short-term cash investments decreased to $34.4 million for the first quarter of 2007 compared to $61.1 million for the first quarter of 2006. In general, we manage our short-term cash investments relative to our investing, financing and operating requirements and investment opportunities.
For the Quarter Ended | Average Amortized Cost of MBS(1) | Interest Income on MBS | Average Cash and Cash Equivalents | Total Interest Income | Yield on Average Interest- Earning Assets | Average Balance of Repurchase Agreements | Interest Expense | Average Cost of Funds | Net Interest Income | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||
March 31, 2007 | $ | 6,300,491 | $ | 84,341 | $ | 34,443 | $ | 84,795 | 5.35 | % | $ | 5,647,700 | $ | 72,260 | 5.19 | % | $ | 12,535 | ||||||||||||||||||||
December 31, 2006 | 5,469,461 | 70,836 | 52,412 | 71,480 | 5.18 | 4,833,897 | 62,114 | 5.10 | 9,366 | |||||||||||||||||||||||||||||
September 30, 2006 | 3,899,728 | 47,061 | 39,240 | 47,532 | 4.83 | 3,245,774 | 38,205 | 4.67 | 9,327 | |||||||||||||||||||||||||||||
June 30, 2006 | 4,337,887 | 45,645 | 47,266 | 46,185 | 4.21 | 3,672,905 | 38,818 | 4.24 | 7,367 | |||||||||||||||||||||||||||||
March 31, 2006 | 5,276,973 | 53,329 | 61,126 | 53,995 | 4.05 | 4,605,790 | 42,785 | 3.77 | 11,210 |
For the Quarter Ended | Net Interest Spread | Net Interest Margin | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
March 31, 2007 | 0.16 | % | 0.73 | % | ||||||
December 31, 2006 | 0.08 | 0.72 | ||||||||
September 30, 2006 | 0.16 | 0.98 | ||||||||
June 30, 2006 | (0.03 | ) | 0.66 | |||||||
March 31, 2006 | 0.28 | 0.79 |
our balance sheet as “restricted cash”. At the time one of our repurchase agreement matures, any restricted cash on deposit is generally applied against the repurchase agreement balance, thereby reducing the amount borrowed.
CPR | Estimated Months to Asset Reset | Estimated Months to Liabilities Reset (1) | Repricing Gap | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
0%(2) | 42 | 16 | 26 | |||||||||||
15% | 30 | 16 | 14 | |||||||||||
25% | 24 | 16 | 8 |
maturity treasury (or CMT) rate, LIBOR, or the 12-month CMT moving average (or MTA), while our debt obligations, in the form of repurchase agreements, are generally priced off of LIBOR. While LIBOR and CMT generally move together, there can be no assurance that such movements will be parallel, such that the magnitude of the movement of one index will match that of the other index. At March 31, 2007, we had 12.4% of our ARM-MBS portfolio repricing from the one-year CMT index, 77.3% repricing from the one-year LIBOR index, 9.4% repricing from MTA and 0.9% repricing from the 11th District Cost of Funds Index (or COFI).
At March 31, 2007 | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | Less than 3 Months | Three Months to One Year | One Year to Two Years | Two Years to Year Three | Beyond Three Years | Total | |||||||||||||||||||||
Interest-Earning Assets: | |||||||||||||||||||||||||||
ARM-MBS | $ | 1,289,245 | $ | 1,500,125 | $ | 966,421 | $ | 836,292 | $ | 1,793,522 | $ | 6,385,605 | |||||||||||||||
Income notes | — | — | — | — | 1,980 | 1,980 | |||||||||||||||||||||
Cash | 53,697 | — | — | — | — | 53,697 | |||||||||||||||||||||
Total interest-earning assets | $ | 1,342,942 | $ | 1,500,125 | $ | 966,421 | $ | 836,292 | $ | 1,795,502 | $ | 6,441,282 | |||||||||||||||
Interest-Bearing Liabilities: | |||||||||||||||||||||||||||
Repurchase agreements | $ | 3,596,100 | $ | 454,300 | $ | 1,402,957 | $ | 310,000 | $ | — | $ | 5,763,357 | |||||||||||||||
Mortgage loans | — | — | — | — | 9,573 | 9,573 | |||||||||||||||||||||
Total interest-bearing liabilities | $ | 3,596,100 | $ | 454,300 | $ | 1,402,957 | $ | 310,000 | $ | 9,573 | $ | 5,772,930 | |||||||||||||||
Gap before Hedging Instruments | $ | (2,253,158 | ) | $ | 1,045,825 | $ | (436,536 | ) | $ | 526,292 | $ | 1,785,929 | $ | 668,352 | |||||||||||||
Notional Amounts of Swaps | 2,084,524 | — | — | — | — | $ | 2,084,524 | ||||||||||||||||||||
Cumulative Difference Between Interest-Earnings Assets and Interest Bearing Liabilities after Hedging Instruments | $ | (168,634 | ) | $ | 877,191 | $ | 440,655 | $ | 966,947 | $ | 2,752,876 |
Change in Interest Rates | Percentage Change in Net Interest Income | Percentage Change in Portfolio Value | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
+ 1.00% | (22.29%) | (0.90%) | ||||||||
+ 0.50% | (5.83%) | (0.35%) | ||||||||
– 0.50% | 19.63% | 0.14% | ||||||||
– 1.00% | 30.01% | 0.09% |
and 100 basis points, and falling 50 and 100 basis points. The cash flows associated with the portfolio of MBS for each rate Shock are calculated based on assumptions, including, but not limited to, prepayment speeds, yield on future acquisitions, slope of the yield curve and size of the portfolio. Assumptions made on the interest rate sensitive liabilities, which are assumed to be repurchase agreements, include anticipated interest rates, collateral requirements as a percent of the repurchase agreement, amount and term of borrowing.
(incorporated herein by reference to Exhibit 10.5 of the Form 8-K, dated April 25, 2006, filed by the Registrant pursuant to the 1934 Act (Commission File No. 1-13991)).
By: /s/ | Stewart Zimmerman Stewart Zimmerman President and Chief Executive Officer |
By: /s/ | William S. Gorin William S. Gorin Executive Vice President Chief Financial Officer (Principal Financial Officer) |
By: /s/ | Teresa D. Covello Teresa D. Covello Senior Vice President Chief Accounting Officer (Principal Accounting Officer) |