Thornburg Mortgage — Investor Presentation (October 2004)
22 slides from Thornburg Mortgage's investor presentation, Oct 5, 2004
Slide 1: Business Presentation October 2004
Business Presentation October 2004
Slide 2: Forward-looking statements
Certain matters discussed in this presentation may constitute forward-looking statements 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 numbe
Slide 3: Second Quarter Snap Shot
Second Quarter Snap Shot Q2 EPS (diluted) of $0.71 - 6% increase over Q2 2003 Dividend increased to $0.66 per share - up 6% over prior year Market capitalization of $2.2 billion - a 47% increase from a year ago Total assets of $24.5 billion - 62% year-over-year growth Loan originations of $1.1 billi
Slide 4: Company Overview
Single family residential mortgage lender Primary focus on jumbo ARM loans Portfolio lender (not a seller) Traditional bank lending model (spread lender) Core operating strengths Excellent credit, highly liquid portfolio Matched funding strategy Efficient operating model Innovative origination platf
Slide 5: Industry Trends: Opportunities for Future Growth
Industry Trends: Opportunities for Future Growth Popularity of adjustable rate mortgages is increasing Growing menu of products Average mortgage life is 6 years Growing number of affluent Americans Household with incomes > $200,000 increasing by 12% annually Technological advances Wider acceptance o
Slide 6: Fully Diversified Mortgage Lending Operation
Fully Diversified Mortgage Lending Operation Bulk Loan Purchases (1997) Correspondent Origination (1999) Direct Origination (2001) Loan Securitization Loan Servicing We Don't Sell Our Customers' ARM Loans MBS Purchases (1993) Origination Channels Wholesale Channels CDO Financing Repurchase Agreement
Slide 7: MBS and Bulk Loan Acquisitions
MBS Bulk Loans 1998 1999 2000 2001 2002 2003 2004 YTD MBS 1502 865.4 607.3 2670 6579.5 10259.621 6532.8 Bulk 1092.2 397.1 257.1 595 562.8 1316.323 89 $3,265.6 $989.3 Profitable Wholesale Acquisitions $7,142.0 Acquire AA/AAA or Agency MBS opportunistically Acquire "A" quality mortgage loans As of Jun
Slide 8: Originating Loans Enhances Profitability
Pass-through/mortgage rate 4.75% @ 101.13% 4.75% @ 100.63% Yield adjustment1 - 0.50% - 0.35% Net yield 4.25% 4.40% Cost of funds/hedging2 3.10% 3.10% Net spread 1.15% 1.30% Yield on unleveraged equity 4.25% 4.40% + Net spread (leverage) 13.80 (x 12) 15.60 (x 12) = Return on investment 18.05% 20.00%
Slide 9: Growing the Loan Origination Business
Growing the Loan Origination Business 2001 2002 2003 2004E 2005E Jumbo ARMs (>$250K) $252 $333 $526 $400 $294 TMA Orig. Target $0.6 $2.3 $4.0 $3.7 $5.0 TMA Projected Market Share 0.2% 0.7% 0.8% 1.0% 1.7% Target market derived as follows: (1) 20% of all loans are jumbo loans and 45% of those jumbo lo
Slide 10: Operating Efficiencies Provide a Competitive Advantage
Operating Efficiencies Provide a Competitive Advantage1 1 Data represents non-interest operating expenses plus income taxes as a percentage of average assets. Operating data for TMA as of Q2 2004; as of Q1 2004 for all others. Operating expenses do not include amortization of goodwill or other intan
Slide 11: Portfolio Lending Provides a Competitive Advantage
Portfolio Lending Provides a Competitive Advantage Tailored Loan Products Concierge level service Loan modification program Life of loan relationship Full complement of ARM options Interest only loans Pledged asset loans Loans to LLCs/trusts Not "black box"/investor dependent Flexible guidelines Loa
Slide 12: Correspondent and Retail Origination Growth
1999 2000 2001 2002 2003 2004 YTD Corr 17.2 46.695 482.2 1907 3440.15 2891.5 Retail 1.502 108.1 379.785 564.463 340.6 Pipeline 710.5 Retail Correspondent Competitive Advantages = Strong Origination Growth (in millions) $48.2 $590.3 $2,286.3 Approximately 145 correspondent relationships Authorized to
Slide 13: CDO Financing Further Enhances Profitability
CDO Financing Further Enhances Profitability Six CDO transactions completed Permanently financed $7.0 billion of ARM loans MBS created are purchased by fixed-income investors Accounted for as financings, not sales 23% of current borrowings funded by CDOs Benefits provided Reduced risk through increa
Slide 14: CDO Financing Further Enhances Profitability
Pass-through/mortgage rate 4.75% @ 101.13% 4.75% @ 100.63% 4.45% @ 100.80% Net yield 4.25% 4.40% 4.20% Cost of funds/hedging1 3.10% 3.10% 2.95% Net spread 1.15% 1.30% 1.25% Yield on unleveraged equity 4.25% 4.40% 4.20% + Net spread (leveraged) 13.80% (x 12) 15.60% (x 12) 18.80% (x 15) = Return on in
Slide 15: Commercial Paper Facility
Commercial Paper Facility $5 billion facility Issuer: Thornburg Mortgage Capital Resources, LLC Underwriters: Lehman (lead), Merrill/Goldman (co-managers) Secured liquidity notes rated P-1/ F1+ Collateralized by AAA/AA/Agency ARM securities Substitute for reverse repo funding $2.4 billion issued Ant
Slide 16: Maintaining the Highest Credit Standards
"AAA"/AAA/AA Pending A/BBB <BBB 97.3 1.8 0.7 0.2 As of June 30, 2004. Maintaining the Highest Credit Standards "A" Quality Whole Loans (pending securitization) 2.3% Agency "AAA" Private AAA/AA 96.8% <BBB 0.2% A/BBB 0.7% Provides unparalleled liquidity Reduces the cost of capital Maximizes access to
Slide 17: Exceptional Borrower Profile
Exceptional Borrower Profile As of June 30, 2004. Average Loan Size $453,328 Original Effective LTV 66% FICO Score 736 Total Debt Ratio 30% Annual Income $291,506 Age 46 Estimated 2.5 million potential customers in the U.S.
Slide 18: Exceptional Credit Performance
TMA Nat'l ARM Nat'l All Nat'l Conv'tl Prime Q1 0.95 1.15 1.33 0.7 Q2 0.14 1.15 1.32 0.67 Q3 0.15 1.18 1.31 0.66 Q4 0.46 1.25 1.28 0.64 Q1 0.46 1.05 1.24 0.59 Q2 0.54 1.09 1.23 0.56 Q3 0.58 0.92 1.22 0.55 Q4 0.68 0.88 1.19 0.53 Q1 0.72 0.91 1.1 0.5 Q2 0.75 0.98 1.14 0.52 Q3 0.43 1.08 1.2 0.52 Q4 0.43
Slide 19: Matched Funding (Hedging) Strategies
1st Qtr hybrid 83 arm 17 83% 17% Traditional ARMs Hybrid ARMs $18.0 billion in hedged financings and fixed rate borrowings provide earnings and cash flow stability throughout an interest rate cycle (93% of hybrid balance) Hybrid ARMs: Duration gap between Hybrid ARMs and hedged financing is approxim
Slide 20: 2004-2006 Strategic Objectives
2004-2006 Strategic Objectives Grow total assets to $40 billion Become a top 50 mortgage lender Grow originations to 60% of acquisitions Fund 30% of borrowings using each CDOs and CP Grow earnings and book value per share by 5%+ annually Achieve $4.8 billion in market capitalization
Slide 21: Providing Attractive Returns for Shareholders
Annual Return weekly 09/30/99-09/30/04 TMA 0.4144 Bloomberg Mtg. REIT Indes 0.3413 S&P REIT Index 0.1861 S&P 500 Financials Index 0.077 Providing Attractive Returns for Shareholders Deliver consistent, attractive total returns 14 dividend increases since Q2 2000 - totaling 187% Current dividend yiel
Slide 22: Changing the Way Americans Finance Their Homes
Changing the Way Americans Finance Their Homes October 2004
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