UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[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.
OR
[_] 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: 001-31916
AMERICAN HOME MORTGAGE INVESTMENT CORP.
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(Exact Name of Registrant as Specified in its Charter)
Maryland 20-0103914
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
538 Broadhollow Road, Melville, New York 11747
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(Address of Principal Executive Offices) (Zip Code)
(516) 949-3900
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(Registrant's telephone number, including area code)
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(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 Exchange Act). Yes [X] No [ ]
As of April 29, 2005, there were 40,353,512 shares of the registrant's common
stock, par value $0.01 per share, outstanding.
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I-FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004........................................1
Consolidated Statements of Income for the Three Months Ended March 31, 2005 and 2004..........................2
Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2005 and 2004...........3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004......................4
Notes to Consolidated Financial Statements ...................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................23
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..................................................44
Item 4. Controls and Procedures......................................................................................46
PART II-OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................................................47
Item 3. Defaults Upon Senior Securities..............................................................................47
Item 4. Submission of Matters to a Vote of Security Holders..........................................................47
Item 5. Other Information............................................................................................47
Item 6. Exhibits ....................................................................................................47
SIGNATURES
INDEX TO EXHIBITS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
March 31, December 31,
2005 2004
--------------------------------
Assets:
Cash and cash equivalents $ 162,762 $ 192,821
Accounts receivable and servicing advances 103,295 116,978
Mortgage-backed securities (including securities pledged of $6,956,681 as of
March 31, 2005 and $5,968,969 as of December 31, 2004) 7,181,170 6,016,866
Mortgage loans held for sale, net 1,627,891 4,853,394
Derivative assets 73,383 24,803
Mortgage servicing rights, net 228,412 151,436
Premises and equipment, net 55,986 51,576
Goodwill 92,745 90,877
Other assets 49,332 57,046
------------ ------------
Total assets $ 9,574,976 $ 11,555,797
============ ============
Liabilities and Stockholders' Equity:
Liabilities:
Warehouse lines of credit $ 658,686 $ 735,783
Drafts payable 28,391 26,200
Commercial paper 858,382 529,790
Reverse repurchase agreements 6,720,167 7,071,168
Collateralized debt obligations -- 2,022,218
Derivative liabilities 1,945 1,860
Accrued expenses and other liabilities 176,859 152,413
Notes payable 159,339 135,761
Income taxes payable 54,250 54,342
------------ ------------
Total liabilities 8,658,019 10,729,535
------------ ------------
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, par value $0.01 per share, 10,000,000 shares authorized:
9.75% Series A Cumulative Redeemable, 2,150,000 shares issued and outstanding
as of March 31, 2005 and December 31, 2004, respectively 50,857 50,857
9.25% Series B Cumulative Redeemable, 3,450,000 shares issued and outstanding
as of March 31, 2005 and December 31, 2004, respectively 83,183 83,183
Common stock, par value $0.01 per share, 100,000,000 shares authorized,
40,335,255 and 40,288,077 shares issued and outstanding as of March 31,
2005 and December 31, 2004, respectively 403 403
Additional paid-in capital 632,828 631,530
Retained earnings 193,064 99,628
Accumulated other comprehensive loss (43,378) (39,339)
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Total stockholders' equity 916,957 826,262
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Total liabilities and stockholders' equity $ 9,574,976 $ 11,555,797
============ ============
See notes to consolidated financial statements.
-1-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
Three Months Ended March 31,
----------------------------------
2005 2004
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Net interest income:
Interest income $ 146,894 $ 34,050
Interest expense (88,091) (21,278)
------------ ------------
Total net interest income 58,803 12,772
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Non-interest income:
Gain on sales of mortgage loans 35,253 52,581
Gain on securitizations of mortgage loans 69,919 1,856
Gain on sales of mortgage-backed securities and derivatives 6,132 6,632
Unrealized gain on mortgage-backed securities and derivatives 57,499 18,909
Loan servicing fees 11,312 10,318
Amortization of mortgage servicing rights (8,501) (7,346)
Impairment recovery (provision) of mortgage servicing rights 3,419 (12,584)
------------ ------------
Net loan servicing fees (loss) 6,230 (9,612)
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Other non-interest income 1,466 978
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Total non-interest income 176,499 71,344
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Non-interest expenses:
Salaries, commissions and benefits, net 68,475 39,627
Occupancy and equipment 12,671 8,094
Data processing and communications 5,950 3,213
Office supplies and expenses 4,429 3,118
Marketing and promotion 4,130 2,212
Travel and entertainment 3,928 2,577
Professional fees 3,470 2,428
Other 6,869 5,438
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Total non-interest expenses 109,922 66,707
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Net income before income tax benefit 125,380 17,409
Income tax benefit -- (3,814)
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Net income $ 125,380 $ 21,223
============ ============
Dividends on preferred stock 3,305 --
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Net income available to common shareholders $ 122,075 $ 21,223
============ ============
Per share data:
Basic $ 3.03 $ 0.71
Diluted $ 2.99 $ 0.70
Weighted average number of shares - basic 40,308 30,030
Weighted average number of shares - diluted 40,811 30,508
See notes to consolidated financial statements
-2-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
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Accumulated
Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
(Dollars in thousands) Stock Stock Capital Earnings Loss Equity
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Balance at January 1, 2004 $ -- $ 252 $ 281,432 $ 121,029 $ (4,743) $ 397,970
--------- --------- --------- --------- --------- ---------
Comprehensive income:
Net income -- -- -- 21,223 -- 21,223
Net change in unrealized gain on mortgage-backed
securities available for sale -- -- -- -- 10,221 10,221
Net change in unrealized loss on cash flow hedges,
net of amortization -- -- -- -- (14,153) (14,153)
---------
Comprehensive income 17,291
Issuance of common stock - offering -- 144 339,647 -- -- 339,791
Issuance of common stock - earnouts -- -- 109 -- -- 109
Issuance of common stock, 1999 Omnibus
Stock Incentive Plan -- 3 1,166 -- -- 1,169
Tax benefit from stock options exercised -- -- 1,599 -- -- 1,599
Dividends declared on common stock -- -- -- (16,748) -- (16,748)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 2004 $ -- $ 399 $ 623,953 $ 125,504 $ (8,675) $ 741,181
========= ========= ========= ========= ========= =========
Balance at January 1, 2005 $ 134,040 $ 403 $ 631,530 $ 99,628 $ (39,339) $ 826,262
--------- --------- --------- --------- --------- ---------
Comprehensive income:
Net income -- -- -- 125,380 -- 125,380
Net change in unrealized loss on mortgage-backed
securities available for sale -- -- -- -- (24,435) (24,435)
Net change in unrealized gain on cash flow hedges,
net of amortization -- -- -- -- 20,396 20,396
---------
Comprehensive income 121,341
Issuance of common stock - earnouts -- -- 846 -- -- 846
Issuance of common stock, 1999 Omnibus
Stock Incentive Plan -- -- 452 -- -- 452
Dividends declared on Series A preferred stock -- -- -- (1,310) -- (1,310)
Dividends declared on Series B preferred stock -- -- -- (1,995) -- (1,995)
Dividends declared on common stock -- -- -- (28,639) -- (28,639)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 2005 $ 134,040 $ 403 $ 632,828 $ 193,064 $ (43,378) $ 916,957
========= ========= ========= ========= ========= =========
See notes to consolidated financial statements.
-3-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended
March 31,
------------------------------
2005 2004
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Cash flows from operating activities:
Net income $ 125,380 $ 21,223
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,439 1,977
Amortization and impairment of mortgage servicing rights 5,082 19,930
Amortization of mortgage-backed securities premiums, net 4,593 2,952
Deferred cash flow hedge gain, net of amortization 17,052 415
Loss (gain) on sales of mortgage-backed securities and derivatives 3,336 (6,705)
Unrealized loss (gain) on mortgage-backed securities 51,003 (10,217)
Unrealized gain on free standing derivatives (40,312) --
Additions to mortgage servicing rights on securitized loans (79,711) (9,863)
Additions to mortgage servicing rights on sold loans (2,347) (5,802)
Decrease (increase) in interest rate lock commitments 210 (9,990)
Decrease (increase) in deferred origination costs 26,025 (884)
Decrease in SFAS No. 133 basis adjustments 4,929 5,524
Other 1,177 (2,504)
Decrease in operating assets:
Accounts receivable and servicing advances 13,683 3,885
Other assets 7,714 1,703
Increase (decrease) in operating liabilities:
Accrued expenses and other liabilities 21,432 (8,092)
Income taxes payable (92) (13,113)
Forward delivery contracts (9,595) (5,809)
Origination of mortgage loans held for sale (7,255,400) (4,413,174)
Proceeds from sales and repayments of mortgage loans 3,080,795 3,292,010
Proceeds from securitizations and repayments of mortgage loans 7,336,612 969,436
Additions to mortgage-backed securities (2,840,259) (897,322)
Proceeds from sales of mortgage-backed securities -- 23,861
Principal repayments of mortgage-backed securities 124,959 13,734
------------ ------------
Net cash provided by (used in) operating activities 598,705 (1,026,825)
------------ ------------
Cash flows from investing activities:
Purchases of premises and equipment (6,849) (1,473)
Purchases of mortgage-backed securities -- (2,094,101)
Proceeds from sales of mortgage-backed securities 1,133,989 697,268
Principal repayments of mortgage-backed securities 368,671 49,985
Other -- (353)
------------ ------------
Net cash provided by (used in) investing activities 1,495,811 (1,348,674)
------------ ------------
Cash flows from financing activities:
(Decrease) increase in warehouse lines of credit, net (77,097) 130,085
(Decrease) increase in reverse repurchase agreements, net (351,001) 2,050,614
Decrease in collateralized debt obligations (2,022,218) --
Decrease in payable for securities purchased -- (125,054)
Increase in commercial paper, net 328,592 --
Increase in drafts payable, net 2,191 38,685
Proceeds from issuance of common stock 311 341,882
Dividends paid (28,931) (23,072)
Increase in notes payable, net 23,578 6,768
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Net cash (used in) provided by financing activities (2,124,575) 2,419,908
------------ ------------
Net (decrease) increase in cash and cash equivalents (30,059) 44,409
Cash and cash equivalents, beginning of period 192,821 53,148
------------ ------------
Cash and cash equivalents, end of period $ 162,762 $ 97,557
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 79,937 $ 13,254
Income taxes paid 115 6,361
See notes to consolidated financial statements.
-4-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - On December 3, 2003, American Home Mortgage Investment Corp.
("AHM Investment") completed its merger with Apex Mortgage Capital, Inc.
("Apex"), a Maryland corporation that operated and elected to be treated as a
real estate investment trust, or REIT. Under the terms of the transaction,
American Home Mortgage Holdings, Inc. ("AHM Holdings") reorganized through a
reverse triangular merger that caused AHM Investment, a newly formed Maryland
corporation that operates and has elected to be treated as a REIT for federal
income tax purposes, to become AHM Holdings' parent. AHM Investment was formed
to combine the net assets of Apex, consisting primarily of mortgage-backed
securities, with the mortgage origination and servicing businesses of AHM
Holdings. As used herein, references to the "Company," "American Home," "we,"
"our" and "us" refer to AHM Investment collectively with its subsidiaries.
AHM Investment is a mortgage REIT focused on earning net interest income from
purchased and self-originated mortgage-backed securities, and through its
taxable subsidiaries, on earning income from originating and selling mortgage
loans and servicing mortgage loans for institutional investors. Mortgages are
originated through a network of loan origination offices as well as through
mortgage brokers and are serviced at the Company's Irving, Texas servicing
center.
Basis of Presentation - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company's estimates and assumptions
primarily arise from risks and uncertainties associated with interest rate
volatility, prepayment volatility, credit exposure and regulatory changes.
Although management is not currently aware of any factors that would
significantly change its estimates and assumptions in the near term, future
changes in market trends and conditions may occur which could cause actual
results to differ materially. When necessary, certain reclassifications of prior
year financial statement amounts have been made to conform to the current year
presentation.
The unaudited consolidated financial statements included herein have been
prepared in conformity with generally accepted accounting principles ("GAAP")
for interim financial information. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements.
Management believes all adjustments considered necessary for a fair presentation
have been included. The consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Form 10-K/A for the year ended December
31, 2004.
Due to the Company's exercising significant influence on the operations of its
joint ventures, their balances and operations have been fully consolidated in
the accompanying consolidated financial statements and all intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
amounts due from banks and overnight deposits. The carrying amount of cash and
cash equivalents approximates its fair value.
Mortgage-backed Securities - Mortgage-backed securities are classified as either
trading or available for sale. Trading securities are reported at fair value,
and changes in fair value are reported in unrealized gain on mortgage-backed
securities and derivatives in the consolidated statements of income. Available
for sale securities are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in accumulated other comprehensive income
(loss). Realized gains and losses on sales of available for sale securities are
determined on an average cost basis and included in gain on sales of
mortgage-backed securities and derivatives.
When the fair value of an available for sale security is less than amortized
cost, management considers whether there is an other-than-temporary impairment
in the value of the security (e.g., whether the security is likely to be sold
prior to the recovery of fair value) based on estimated credit losses,
prepayment speeds and the length of time in an unrealized loss position. If, in
management's judgment, an other-than-temporary impairment exists, the cost basis
of the security is written down to the then-current fair value, and the
unrealized loss is transferred from accumulated other comprehensive income as an
immediate reduction of current earnings (i.e., as if the loss had been realized
in the period of impairment). Premiums and discounts on the Company's
mortgage-backed securities held in available for sale are amortized to interest
income using the level yield method over the estimated life of the security.
Mortgage Loans Held for Sale - Mortgage loans held for sale are carried at the
lower of cost or aggregate market value. The cost basis includes the capitalized
value of the prior interest rate lock commitments ("IRLCs") related to the
mortgage loans and any net deferred origination costs. For mortgage loans held
for sale that are hedged with forward sale commitments, if the Company meets
hedge accounting
-5-
requirements, the carrying value is adjusted for the change in market during the
time the hedge was deemed to be highly effective. The market value is determined
by outstanding commitments from investors or current investor yield requirements
calculated on the aggregate basis.
Mortgage Servicing Rights - Mortgage servicing rights ("MSRs") are carried at
the lower of cost or fair value, based on defined interest rate risk strata, and
are amortized in proportion to and over the period of estimated net servicing
income. When the Company sells certain loans and retains the servicing rights,
it allocates the cost basis of the loans between the assets sold and the MSRs
based on their relative fair values on the date of sale.
The Company estimates the fair value of its MSRs by obtaining market information
from one of the primary MSR brokers. When the book value of capitalized MSRs
exceeds its fair value, impairment is recognized through a valuation allowance.
In determining impairment, our mortgage servicing portfolio is stratified by the
predominant risk characteristic of the underlying mortgage loans. The Company
has determined that the predominant risk characteristic is the interest rate on
the underlying loans. The Company measures impairment for each stratum by
comparing the estimated fair value to the recorded book value. Temporary
impairment is recorded through a valuation allowance and amortization expense in
the period of occurrence. In addition, the Company periodically evaluates its
MSRs for other than temporary impairment to determine if the carrying value
before the application of the valuation allowance is recoverable. The Company
receives a sensitivity analysis of the estimated fair value of its MSRs assuming
a 200-basis-point instantaneous increase in interest rates from an independent
MSR broker. The fair value estimate includes changes in market assumptions that
would be expected given the increase in mortgage rates (e.g., prepayment speeds
would be lower). The Company believes this 200-basis-point increase in mortgage
rates to be an appropriate threshold for determining the recoverability of the
temporary impairment because that size rate increase is foreseeable and
consistent with historical mortgage rate fluctuations. When using this
instantaneous change in rates, if the fair value of the strata of MSRs is
estimated to increase to a point where all of the impairment would be recovered,
the impairment is considered to be temporary. When the Company determines that a
portion of the MSRs is not recoverable, the related MSRs and the previously
established valuation allowance are correspondingly reduced to reflect other
than temporary impairment.
Premises and Equipment - Premises and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line method over the estimated service lives of the premises and
equipment. Leasehold improvements are amortized over the lesser of the life of
the lease or service lives of the improvements using the straight-line method.
Depreciation and amortization are recorded within occupancy and equipment
expense in the consolidated statements of income.
Goodwill - Goodwill represents the excess purchase price over the fair value of
net assets acquired from business acquisitions. The Company tests for impairment
at least annually and will test for impairment more frequently if events or
circumstances indicate that an asset may be impaired. The Company tests for
impairment by comparing the fair value of goodwill, as determined by using a
discounted cash flow method, with its carrying value. Any excess of carrying
value over the fair value of the goodwill would be recognized as an impairment
loss in continuing operations. The discounted cash flow calculation related to
the Company's loan origination segment includes a forecast of the expected
future loan originations and the related revenues and expenses. The discounted
cash flow calculation related to the Company's mortgage-backed securities
holdings segment includes a forecast of the expected future net interest income,
gain on mortgage-backed securities and the related revenues and expenses. These
cash flows are discounted using a rate that is estimated to be a
weighted-average cost of capital for similar companies. We further test to
ensure that the fair value of all of our business units does not exceed our
total market capitalization.
Reverse Repurchase Agreements - The Company has entered into reverse repurchase
agreements to finance certain of its investments. These agreements are secured
by a portion of the Company's investments and bear interest rates that have
historically moved in close relationship to the London Inter-Bank Offer Rate
("LIBOR"). Reverse repurchase agreements are accounted for as borrowings and
recorded as a liability on the consolidated balance sheet.
Collateralized Debt Obligations - The Company has issued adjustable-rate
collateralized debt obligations to finance certain portions of its mortgage
loans held for sale. The collateralized debt obligations are collateralized by
adjustable-rate mortgage ("ARM") loans held for sale that have been placed in a
trust and bear interest rates that have historically moved in close relationship
to the LIBOR. Collateralized debt obligations are accounted for as borrowings
and recorded as a liability on the consolidated balance sheet.
Commercial Paper - The Company formed a wholly owned special purpose entity for
the purpose of issuing commercial paper in the form of short-term Secured
Liquidity Notes ("SLNs") to finance certain portions of the Company's mortgage
loans held for sale. The commercial paper is secured by the Company's loans held
for sale, mortgage-backed securities and cash and bears interest at prevailing
money market rates approximating LIBOR. Commercial paper is accounted for as a
borrowing and recorded as a liability on the consolidated balance sheet.
Drafts Payable - Drafts payable represent outstanding mortgage loan
disbursements that the Company has provided to its customers for the purchase of
a home. The amounts outstanding do not bear interest and are transferred into
one of the warehouse facilities when they are presented to a bank.
-6-
Derivative Financial Instruments - The Company has developed risk management
programs and processes designed to manage market risk associated with normal
business activities.
Interest Rate Lock Commitments. The Company's mortgage committed pipeline
includes IRLCs that have been extended to borrowers who have applied for loan
funding and meet certain defined credit and underwriting criteria. The Company
classifies and accounts for the IRLCs associated with loans expected to be sold
or securitized as free-standing derivatives. Accordingly, IRLCs are recorded at
fair value with changes in fair value recorded to current earnings. The fair
value of the IRLCs initiated on or before March 31, 2004 is determined by an
estimate of the ultimate gain on sale of the loans, including the value of MSRs,
net of estimated net costs to originate the loan. In March 2004, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 105 ("SAB
No. 105"), which provided industry guidance that changed the timing of
recognition of the value of MSRs for IRLCs initiated after March 31, 2004. In
SAB No. 105, the SEC stated that the value of expected future cash flows related
to MSRs should be excluded when determining the fair value of derivative IRLCs.
Under the new policy, the value of the expected future cash flow related to
servicing rights is not recognized until the underlying loans are sold.
Forward Delivery Commitments Used to Hedge IRLCs. The Company uses mortgage
forward delivery contracts to economically hedge the IRLCs, which are also
classified and accounted for as free-standing derivatives and thus are recorded
at fair value with the changes in fair value recorded to current earnings.
Forward Delivery Commitments Used to Hedge Mortgage Loans Held for Sale. The
Company's risk management objective for its mortgage loans held for sale is to
protect earnings from an unexpected charge due to a decline in value. The
Company's strategy is to engage in a risk management program involving the use
of mortgage forward delivery contracts designated as fair value hedging
instruments to hedge 100% of its agency-eligible conforming loans and most of
its non-conforming loans held for sale. At the inception of the hedge, to
qualify for hedge accounting, the Company formally documents the relationship
between the forward delivery contracts and the mortgage inventory as well as its
objective and strategy for undertaking the hedge transaction. For conventional
conforming fixed-rate loans, the notional amount of the forward delivery
contracts, along with the underlying rate and terms of the contracts, are
equivalent to the unpaid principal amount of the mortgage inventory being
hedged; hence, the forward delivery contracts effectively fix the forward sales
price and thereby substantially eliminate interest rate and price risk to the
Company. The Company classifies and accounts for these forward delivery
contracts as fair value hedges. The derivatives are carried at fair value with
the changes in fair value recorded to current earnings. When the hedges are
deemed highly effective, the book value of the hedged loans held for sale is
adjusted for its change in fair value during the hedge period.
Interest Rate Swap Agreements. The Company enters into interest rate swap
agreements which require it to pay a fixed interest rate and receive a variable
interest rate based on LIBOR. The fair value of interest rate swap agreements is
based on the net present value of estimated future interest payments over the
remaining life of the interest rate swap agreement. All changes in the
unrealized gains and losses on swap agreements designated as cash flow hedges
have been recorded in accumulated other comprehensive income (loss) and are
reclassified to earnings as interest expense is recognized on the Company's
hedged borrowings. For interest rate swap agreements accounted for as cash flow
hedges, the net amount accrued for the variable interest receivable and fixed
interest payable affects the amount recorded as interest expense. If it becomes
probable that the forecasted transaction, which in this case refers to interest
payments to be made under the Company's short-term borrowing agreements, will
not occur by the end of the originally specified time period, as documented at
the inception of the hedging relationship, or within an additional two-month
time period thereafter, then the related gain or loss in accumulated other
comprehensive income (loss) would be reclassified to income. Certain swap
agreements are designated as cash flow hedges against the benchmark interest
rate risk associated with the Company's borrowings. Although the terms and
characteristics of the Company's swap agreements and hedged borrowings are
nearly identical, due to the explicit requirements of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," the Company does not account for these hedges under a
method defined in SFAS No. 133 as the "shortcut" method, but rather the Company
calculates the effectiveness of these hedges on an ongoing basis, and, to date,
has calculated effectiveness of approximately 100%. The Company classifies and
accounts for interest rate swap agreements that are not designated as cash flow
hedges as free-standing derivatives. Accordingly, these swap agreements are
recorded at fair value with changes in fair value recorded to current earnings
as a component of unrealized gain on mortgage-backed securities and derivatives
as they are used to offset the price change exposure of mortgage-backed
securities classified as trading. For interest rate swap agreements accounted
for as free-standing derivatives, the net amount accrued for the variable
interest receivable and fixed interest payable is recorded in current earnings
as unrealized gain on mortgage-backed securities and derivatives.
Termination of Hedging Relationships. The Company employs a number of risk
management monitoring procedures to ensure that the designated hedging
relationships are demonstrating, and are expected to continue to demonstrate, a
high level of effectiveness. Hedge accounting is discontinued on a prospective
basis if it is determined that the hedging relationship is no longer highly
effective or expected to be highly effective in offsetting changes in fair value
of the hedged item. Additionally, the Company may elect to de-designate a hedge
relationship during an interim period and re-designate upon the rebalancing of a
hedge profile and the corresponding hedge relationship. When hedge accounting is
discontinued, the Company continues to carry the derivative instruments at fair
value with changes in their value recorded in earnings.
-7-
Gain on Sale of Loans - The Company recognizes gain on sale of loans for the
difference between the sales price and the adjusted book value of the loans at
the time of sale. The adjusted book value of the loans includes the original
principal amount plus adjustments related to previously recognized income plus
deferrals of fees and points received and direct loan origination costs.
Loan Origination Fees and Direct Origination Costs - The Company records loan
fees, discount points and certain direct origination costs as an adjustment of
the cost of the loan or security and such amounts are included in revenues when
the loan or security is sold. When loans are securitized and held as securities
available for sale, net deferred origination costs are amortized over the life
of the security using the level-yield method and such amounts are included in
interest income. When loans are securitized and held as trading securities, net
deferred origination costs are an adjustment to the cost of the security and
such amounts affect the amount recorded as unrealized gain on mortgage-backed
securities and derivatives. Gain on sales of mortgage loans and salaries,
commissions and benefits have been reduced by $33.8 million and $20.7 million
due to direct loan origination costs, including commission costs, incurred for
the three months ended March 31, 2005 and 2004, respectively.
Interest Recognition - The Company accrues interest income as it is earned.
Loans are placed on a nonaccrual status when any portion of the principal or
interest is 90 days past due or earlier when concern exists as to the ultimate
collectibility of principal or interest. Loans return to accrual status when
principal and interest become current and are anticipated to be fully
collectible. Interest expense is recorded on outstanding lines of credit at a
rate based on a spread to the LIBOR.
The Company enters into interest rate swap agreements which require it to pay a
fixed interest rate and receive a variable interest rate based on the LIBOR. For
interest rate swap agreements accounted for as cash flow hedges, the net amount
accrued for the variable interest receivable and fixed interest payable affects
the amount recorded as interest expense. For interest rate swap agreements
accounted for as free-standing derivatives, the net amount accrued for the
variable interest receivable and fixed interest payable is recorded in current
earnings as unrealized gain on mortgage-backed securities and derivatives.
Servicing Fees - The Company recognizes servicing fees when the fees are
collected.
Marketing and Promotion - The Company charges the costs of marketing, promotion
and advertising to expense in the period incurred.
Income Taxes - The Company accounts for income taxes in conformity with SFAS No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach for accounting and reporting of income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences ("temporary
differences") attributable to the differences between the carrying amounts of
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered
or settled. A valuation allowance is provided for deferred tax assets where
realization is not considered "more likely than not." The Company recognizes the
effect of changes in tax laws or rates on deferred tax assets and liabilities in
the period that includes the enactment date.
Stock Option Plans - In 1999, the Company established the 1999 Omnibus Stock
Incentive Plan, as amended (the "Plan"). The Company has elected to account for
the Plan using Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and to provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants as if the
fair-value based method, as required by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123," had been applied.
-8-
The following table presents pro forma net income available to common
shareholders, basic earnings per share and diluted earnings per share had
compensation cost been determined based on the fair value at the grant dates for
awards under the Plan:
Three Months Ended March 31,
------------------------------
(In thousands, except per share data) 2005 2004
------------ ------------
Net income available to common
shareholders - as reported $ 122,075 $ 21,223
Less: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects (343) (187)
------------ ------------
Net income available to common
shareholders - pro forma $ 121,732 $ 21,036
============ ============
Earnings per share:
Basic - as reported $ 3.03 $ 0.71
Basic - pro forma $ 3.02 $ 0.70
Diluted - as reported $ 2.99 $ 0.70
Diluted - pro forma $ 2.98 $ 0.69
In December 2004, the FASB issued SFAS 123 (Revised 2004), "Share-Based Payment"
("SFAS 123R"), SFAS 123R requires compensation cost related to share-based
payments to employees to be recognized in the financial statements based on
their fair value. In April 2005, the Securities and Exchange Commission issued a
rule which delays the required effective date to the beginning of an entity's
fiscal year which begins after June 15, 2005. Accordingly, we will adopt SFAS
123R effective January 1, 2006, using the modified prospective method of
transition. This method requires the provisions of SFAS 123R be applied to new
awards and awards modified, repurchased or cancelled after the effective date.
The Company will adopt this statement when effective and is currently evaluating
the impact. The impact, had the Company adopted the fair-value based method
under existing guidance, is shown in the table above.
Earnings Per Share - Basic earnings per share excludes dilution and is computed
by dividing net income available to common shareholders by the weighted-average
number of shares of common stock outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company.
Cash Flows - Cash and cash equivalents are demand deposits and short-term
investments with a maturity of 90 days or less.
Recently Issued Accounting Standards - Emerging Issues Task Force ("EITF") Issue
No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments," was ratified by the FASB in March 2004. This EITF
addresses how to determine the meaning of other-than-temporary impairment and
its application to investments classified as either available for sale or held
to maturity under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (including individual securities and investments in mutual
funds), and investments accounted for under the cost method or the equity
method. In September 2004, the FASB delayed the effective date of the portion of
this EITF that relates to measuring and recognizing other-than-temporary
impairment until implementation guidance is finalized. This delay does not
suspend the requirement to recognize other-than-temporary impairment required by
existing accounting literature.
-9-
NOTE 2 - MORTGAGE-BACKED SECURITIES
The following table presents the Company's mortgage-backed securities available
for sale as of March 31, 2005 and December 31, 2004:
March 31, 2005
-----------------------------------------------------------------------------
Gross Unrealized Gross Unrealized
Adjusted Cost Gains Losses Fair Value
------------- ----------------- ---------------- ------------
(In thousands)
Agency securities $ 232,320 $ 6 $ (7,003) $ 225,323
Privately issued:
Rated 2,448,365 514 (27,371) 2,421,508
Unrated 12,181 -- -- 12,181
------------ ------------ ------------ ------------
Securities available for sale $ 2,692,866 $ 520 $ (34,374) $ 2,659,012
============ ============ ============ ============
December 31, 2004
-----------------------------------------------------------------------------
Gross Unrealized Gross Unrealized
Adjusted Cost Gains Losses Fair Value
------------- ----------------- ---------------- ------------
(In thousands)
Agency securities $ 620,196 $ 17 $ (7,700) $ 612,513
Privately issued:
Rated 3,584,211 10,791 (12,527) 3,582,475
Unrated 15,952 -- -- 15,952
------------ ------------ ------------ ------------
Securities available for sale $ 4,220,359 $ 10,808 $ (20,227) $ 4,210,940
============ ============ ============ ============
-10-
The following table presents the Company's securities available for sale in an
unrealized loss position as of March 31, 2005 and December 31, 2004:
March 31, 2005
-----------------------------------------------------------------------------------------
Less Than 12 Months 12 Months or More Total
--------------------------- --------------------------- ---------------------------
Gross Gross Gross
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
--------------------------- --------------------------- ---------------------------
(In thousands)
Agency securities $ 3,275 $ (30) $ 220,886 $ (6,973) $ 224,161 $ (7,003)
Privately issued:
Rated 1,733,282 (13,897) 594,551 (13,474) 2,327,833 (27,371)
--------------------------- --------------------------- ---------------------------
Securities available for sale $ 1,736,557 $ (13,927) $ 815,437 $ (20,447) $ 2,551,994 $ (34,374)
=========================== =========================== ===========================
December 31, 2004
-----------------------------------------------------------------------------------------
Less Than 12 Months 12 Months or More Total
--------------------------- --------------------------- ---------------------------
Gross Gross Gross
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
--------------------------- --------------------------- ---------------------------
(In thousands)
Agency securities $ 608,730 $ (7,700) $ -- $ -- $ 608,730 $ (7,700)
Privately issued:
Rated 1,861,777 (12,527) -- -- 1,861,777 (12,527)
--------------------------- --------------------------- ---------------------------
Securities available for sale $ 2,470,507 $ (20,227) $ -- $ -- $ 2,470,507 $ (20,227)
=========================== =========================== ===========================
The following table presents the Company's mortgage-backed trading securities as
of March 31, 2005 and December 31, 2004:
March 31, 2005 December 31, 2004
-----------------------------------
Fair Value Fair Value
--------------- ---------------
(In thousands)
Privately issued:
Rated $ 4,349,079 $ 1,751,335
Unrated 173,079 54,591
--------------- ---------------
Trading securities $ 4,522,158 $ 1,805,926
=============== ===============
During the three months ended March 31, 2005, the Company recorded $23.2 million
in unrealized gains on trading securities that related to trading securities
held at March 31, 2005.
During the three months ended March 31, 2005, the Company sold $1.1 billion of
mortgage-backed securities, excluding securities sold contemporaneously with the
execution of securitization transactions, and realized $3.3 million in losses.
The $1.1 billion of mortgage-backed securities sold were market-purchased.
During the three months ended March 31, 2005, the Company securitized and held
in its portfolio $2.8 billion of mortgage-backed securities.
The Company's mortgage-backed securities held at March 31, 2005 are primarily
either agency obligations or are rated AAA or AA by Standard & Poor's.
-11-
The Company has credit exposure on $10.7 billion of loans it has securitized
privately as of March 31, 2005. The following table summarizes the loan
delinquency information as of March 31, 2005 and December 31, 2004:
March 31, 2005
-----------------------------------------------------------
(Dollars in thousands)
Loan Loan Percentage of Percentage of
Delinquency Status Count Balance Total Portfolio Total Assets
------------------------------ ------------ ------------ --------------- -------------
60 to 89 days 22 $ 5,622 0.05% 0.06%
90 and greater days 23 2,769 0.03% 0.03%
Foreclosure 132 33,329 0.31% 0.35%
------------ ------------ ------------ ------------
177 $ 41,720 0.39% 0.44%
============ ============ ============ ============
December 31, 2004
-----------------------------------------------------------
(Dollars in thousands)
Loan Loan Percentage of Percentage of
Delinquency Status Count Balance Total Portfolio Total Assets
------------------------------ ------------ ------------ --------------- -------------
60 to 89 days 6 $ 2,018 0.05% 0.02%
90 and greater days 2 418 0.01% ---%
Foreclosure 48 13,666 0.35% 0.12%
------------ ------------ ------------ ------------
56 $ 16,102 0.41% 0.14%
============ ============ ============ ============
As of March 31, 2005, the fair value of residual assets from securitizations
reported in mortgage-backed securities was $249.8 million. The significant
assumptions used in estimating the fair value of residual cash flows as of March
31, 2005 were as follows:
March 31, 2005
-------------------------
Weighted-average prepayment speed (CPR) 28.83%
Weighted-average discount rate 17.14%
Weighted-average default rate 0.54%
NOTE 3 - MORTGAGE LOANS HELD FOR SALE, NET
The following table presents the Company's mortgage loans held for sale, net, as
of March 31, 2005 and December 31, 2004:
March 31, December 31,
(In thousands) 2005 2004
------------ ------------
Mortgage loans held for sale $ 1,621,200 $ 4,815,749
SFAS No. 133 basis adjustments (4,889) 40
Deferred origination costs, net 11,580 37,605
------------ ------------
Mortgage loans held for sale, net $ 1,627,891 $ 4,853,394
============ ============
During the three months ended March 31, 2005, the Company securitized mortgage
loans totaling $7.3 billion, of which $4.5 billion were sold, and realized $69.9
million in gains.
-12-
NOTE 4 - DERIVATIVE ASSETS AND LIABILITIES
The following table presents the Company's derivative assets and liabilities as
of March 31, 2005 and December 31, 2004:
March 31, December 31,
(In thousands) 2005 2004
------------ ------------
Derivative Assets
Interest rate lock commitments $ 13,760 $ 12,025
Forward delivery contracts - Loan commitments 4,390 --
Forward delivery contracts - Loans held for sale 3,345 --
Interest rate swaps 12,474 9,192
Interest rate caps - free standing derivatives 557 1,459
Interest rate swaps - free standing derivatives 38,857 2,127
------------ ------------
Derivative assets $ 73,383 $ 24,803
============ ============
Derivative Liabilities
Forward delivery contracts - Loan commitments $ -- $ 896
Forward delivery contracts - Loans held for sale -- 964
Interest rate swaps 1,945 --
------------ ------------
Derivative liabilities $ 1,945 $ 1,860
============ ============
As of March 31, 2005, the notional amount of forward delivery contracts and
interest rate swap agreements amounted to approximately $1.4 billion and $5.8
billion, respectively.
As of December 31, 2004, the notional amount of forward delivery contracts and
interest rate swap agreements amounted to approximately $954 million and $3.4
billion, respectively.
During the three months ended March 31, 2005, the Company realized $9.5 million
in gains on sales of interest rate swap agreements associated with its
securitizations of mortgage loans. These gains are recorded in gain on sales of
mortgage-backed securities and derivatives in the consolidated statements of
income.
The forward delivery contracts have a high correlation to the price movement of
the loans being hedged. The ineffectiveness in hedging loans held for sale
recorded on the consolidated balance sheets was insignificant as of March 31,
2005 and December 31, 2004.
As of March 31, 2005, the unrealized loss on interest rate swap agreements
relating to cash flow hedges recorded in accumulated other comprehensive loss
was a loss of $9.5 million. The Company estimates that $3.8 million of this
unrealized loss will be reclassified from accumulated other comprehensive loss
to interest expense for the twelve months ended March 31, 2006.
-13-
NOTE 5 - MORTGAGE SERVICING RIGHTS, NET
The following table presents the activity in the Company's mortgage servicing
rights, net, for the three months ended March 31, 2005 and 2004:
Three Months Ended March 31,
----------------------------------
(In thousands) 2005 2004
--------------- ---------------
Mortgage Servicing Rights:
Balance at beginning of period $ 163,374 $ 121,652
Additions 82,058 15,665
Amortization (8,501) (7,346)
--------------- ---------------
Balance at end of period $ 236,931 $ 129,971
--------------- ---------------
Impairment Allowance:
Balance at beginning of period $ (11,938) $ (3,868)
Impairment (provision) recovery 3,419 (12,584)
--------------- ---------------
Balance at end of period $ (8,519) $ (16,452)
--------------- ---------------
Mortgage servicing rights, net $ 228,412 $ 113,519
=============== ===============
Aggregate Amortization Expense
------------------------------
Three months ended March 31, 2005 $ 8,501
Estimated Amortization Expense
------------------------------
Twelve months ended March 31, 2006 $ 46,388
Twelve months ended March 31, 2007 36,779
Twelve months ended March 31, 2008 27,370
Twelve months ended March 31, 2009 21,103
Twelve months ended March 31, 2010 17,027
Thereafter 88,264
On a quarterly basis, the Company reviews MSRs for impairment based on risk
strata. The MSRs are stratified based on the predominant risk characteristics of
the underlying loans. The Company's predominant risk characteristic is interest
rate. A valuation allowance is recognized for MSRs that have an amortized
balance in excess of the estimated fair value for the individual risk
stratification.
The estimated fair value of MSRs is determined by obtaining a market valuation
from an independent MSR broker. To determine the market value of MSRs, the MSR
broker uses a valuation model which incorporates assumptions relating to the
estimate of the cost of servicing the loan, a discount rate, a float value, an
inflation rate, ancillary income per loan, prepayment speeds and default rates
that market participants use for similar MSRs. Market assumptions are held
constant over the life of the portfolio.
The significant assumptions used in estimating the fair value of MSRs at March
31, 2005 and December 31, 2004 were as follows:
March 31, 2005 December 31, 2004
-------------- -----------------
Weighted-average prepayment speed (PSA) 289 316
Weighted-average discount rate 11.27% 10.37%
Weighted-average default rate 2.44% 2.76%
-14-
The following table presents certain information regarding the Company's
servicing portfolio of loans serviced for others at March 31, 2005 and December
31, 2004:
March 31, 2005 December 31, 2004
--------------- -----------------
(Dollars in thousands)
Loan servicing portfolio - loans sold or securitized $ 18,237,603 $ 11,955,608
Average loan size $ 171 $ 156
Weighted-average servicing fee 0.344% 0.348%
Weighted-average note rate 5.21% 5.48%
Weighted-average remaining term (in months) 331 318
Weighted-average age (in months) 14 20
NOTE 6 - GOODWILL
The following table presents the activity in the Company's goodwill for the
three months ended March 31, 2005 and 2004:
Mortgage-
Backed
Loan Securities
Origination Holdings
(In thousands) Segment Segment Total
------------ ------------ ------------
Balance at January 1, 2004 $ 58,605 $ 24,840 $ 83,445
Earnouts from previous acquisitions 307 -- 307
------------ ------------ ------------
Balance at March 31, 2004 $ 58,912 $ 24,840 $ 83,752
============ ============ ============
Balance at January 1, 2005 $ 66,037 $ 24,840 $ 90,877
Earnouts from previous acquisitions 1,868 -- 1,868
------------ ------------ ------------
Balance at March 31, 2005 $ 67,905 $ 24,840 $ 92,745
============ ============ ============
As of December 31, 2004, the Company completed a goodwill impairment test by
comparing the fair value of goodwill with its carrying value and did not
recognize impairment.
NOTE 7 - WAREHOUSE LINES OF CREDIT, REVERSE REPURCHASE AGREEMENTS AND COMMERCIAL
PAPER
Warehouse Lines of Credit
- -------------------------
To originate a mortgage loan, the Company draws against a $2.0 billion Secured
Liquidity Note Program, a $1.2 billion pre-purchase facility with UBS Real
Estate Securities Inc. ("UBS"), a $600 million bank syndicated facility led by
Bank of America (which includes a $150.0 million term loan facility which the
Company uses to finance its MSRs), a $450 million facility with IXIS Real Estate
Capital Inc. (formerly CDC Mortgage Capital Inc.) ("IXIS"), a facility of $350
million with Morgan Stanley Bank ("Morgan Stanley"), a facility of $250 million
with Lehman Brothers, a facility of $500 million with Bear Stearns and a
facility of $250 million with Calyon New York Branch ("Calyon"). The Bank of
America, IXIS, Morgan Stanley and Calyon facilities are committed facilities. In
addition, the Company has a gestation facility with Greenwich Capital Financial
Products, Inc. ("Greenwich"). The interest rate on outstanding balances
fluctuates daily based on a spread to the LIBOR and interest is paid monthly.
The facilities are secured by mortgage loans and other assets of the Company.
The facilities contain various covenants pertaining to maintenance of net worth,
working capital and maximum leverage. At March 31, 2005, the Company was in
compliance with respect to the loan covenants.
-15-
Included within the Bank of America line of credit, the Company has a working
capital sub-limit that allows for borrowings up to $50 million at a rate based
on a spread to the LIBOR that may be adjusted for earnings on compensating
balances on deposit at creditors' banks. As of March 31, 2005, borrowings under
the working capital line of credit were $22.1 million.
The following table presents the amounts outstanding on the Company's warehouse
lines of credit as of March 31, 2005 and December 31, 2004:
March 31, 2005 December 31, 2004
---------------------------- ----------------------------
Weighted Weighted
Outstanding Average Outstanding Average
(Dollars in thousands) Balance Rate Balance Rate
---------------------------- ----------------------------
Calyon $ 250,322 3.46% $ 249,540 3.05%
IXIS 211,391 3.66 207,841 2.81
Bank of America 182,148 4.11 244,462 3.53
Greenwich 14,825 3.34 33,400 2.89
Morgan Stanley -- -- 540 3.06
------------ ------------
Warehouse lines of credit $ 658,686 3.70% $ 735,783 3.13%
============ ============
Reverse Repurchase Agreements
- -----------------------------
The Company has arrangements to enter into reverse repurchase agreements, a form
of collateralized short-term borrowing, with fourteen different financial
institutions and on March 31, 2005 had borrowed funds from seven of these firms.
Because the Company borrows money under these agreements based on the fair value
of its mortgage-backed securities, and because changes in interest rates can
negatively impact the valuation of mortgage-backed securities, the Company's
borrowing ability under these agreements could be limited and lenders could
initiate margin calls in the event interest rates change or the value of the
Company's mortgage-backed securities declines for other reasons.
As of March 31, 2005, the Company had $6.7 billion of reverse repurchase
agreements outstanding with a weighted-average borrowing rate of 2.55 % and a
weighted-average remaining maturity of two months. As of December 31, 2004, the
Company had $7.1 billion of reverse repurchase agreements outstanding with a
weighted-average borrowing rate of 2.13% and a weighted-average remaining
maturity of three months.
As of March 31, 2005 and December 31, 2004, the Company's reverse repurchase
agreements had the following remaining maturities:
March 31, December 31,
2005 2004
--------------- ---------------
(In thousands)
Within 30 days $ 4,254,124 $ 3,617,325
31 to 89 days 946,034 2,050,529
90 to 365 days 1,520,009 1,403,314
--------------- ---------------
Reverse repurchase agreements $ 6,720,167 $ 7,071,168
=============== ===============
The Company's average reverse repurchase agreements outstanding were $6.9
billion and $1.8 billion for the three months ended March 31, 2005 and 2004,
respectively.
Commercial Paper
- ----------------
In May 2004, the Company formed a wholly owned special purpose entity for the
purpose of issuing commercial paper in the form of short-term Secured Liquidity
Notes ("SLNs") to finance certain portions of the Company's mortgage loans held
for sale. The special purpose entity allows for issuance of short-term notes
with maturities of up to 180 days, extendable up to 300 days. The SLNs bear
interest at prevailing money market rates approximating the LIBOR. The SLN
program capacity, based on aggregate commitments of underlying credit enhancers,
was $2.0 billion at March 31, 2005.
-16-
As of March 31, 2005, the Company had $858.4 million of SLNs outstanding, with
an average interest cost of 2.89%. The SLNs were collateralized by loans held
for sale and cash with a balance of $897.5 million as of March 31, 2005. As of
December 31, 2004, the Company had $529.8 million of SLNs outstanding, with an
average interest cost of 2.51%. The SLNs were collateralized by loans held for
sale and cash with a balance of $550.0 million as of December 31, 2004.
The Company's commercial paper had the following remaining maturities as of
March 31, 2005 and December 31, 2004 :
March 31, December 31,
2005 2004
--------------- ---------------
(In thousands)
Within 30 days $ 858,382 $ 529,790
31 to 89 days -- --
--------------- ---------------
Commercial paper $ 858,382 $ 529,790
=============== ===============
NOTE 8 - COLLATERALIZED DEBT OBLIGATIONS
In December of 2004, the Company transferred $3.5 billion of its mortgage loans
held for sale to American Home Mortgage Investment Trust 2004-4 (the "Trust") in
a securitization transaction. This securitization transaction was accounted for
as a financing of the mortgage loans held for sale. The Company financed the
transaction by issuing $2.0 billion of collateralized debt obligations, which
were collateralized by loans held for sale transferred to the Trust. As of March
31, 2005, the Company had no collateralized debt obligations. As of December 31,
2004, the collateralized debt obligations had a balance of $2.0 billion and an
effective interest cost of 3.16%. As of December 31, 2004, the collateralized
debt obligations were collateralized by mortgage loans held for sale of $2.0
billion.
NOTE 9 - COMMON STOCK AND PREFERRED STOCK
Under our charter, our Board of Directors is authorized to issue 110,000,000
shares of stock, of which up to 100,000,000 shares may be common stock and up to
10,000,000 shares may be preferred stock. As of March 31, 2005, there were
40,335,255 shares of common stock issued and outstanding, 2,150,000 shares of
our 9.75% Series A Cumulative Redeemable Preferred Stock issued and outstanding
and 3,450,000 shares of our 9.25% Series B Cumulative Redeemable Preferred Stock
issued and outstanding.
During the three months ended March 31, 2005, the Company declared a dividend
totaling $28.6 million, or $0.71 per common share, which was paid on April 27,
2005. During the three months ended March 31, 2004, the Company declared
dividends totaling $16.7 million, or $0.55 per common share, of which $9.2
million was paid on March 10, 2004 and $7.5 million was paid on April 14, 2004.
During the three months ended March 31, 2005, the Company declared a dividend of
$1.3 million, or $0.609375 per Series A Preferred share, which was paid on May
2, 2005.
During the three months ended March 31, 2005, the Company declared a dividend of
$2.0 million, or $0.578125 per Series B Preferred share, which was paid on May
2, 2005.
-17-
NOTE 10 - INCOME TAXES
A reconciliation of the statutory income tax provision to the effective income
tax benefit is as follows:
Three Months Ended March 31,
-------------------------------------------------------------------------
2005 2004
---------------------------------- ----------------------------------
(Dollars in thousands)
Tax provision at statutory rate $ 43,880 35.0% $ 6,093 35.0%
Non-taxable REIT income (43,802) (34.9) (9,356) (53.7)
State and local taxes, net of
federal income tax benefit (78) (0.1) (551) (3.2)
--------------- --------------- --------------- ---------------
Income tax benefit $ -- -% $ (3,814) (21.9%)
=============== =============== =============== ===============
The major sources of temporary differences and their deferred tax effect at
March 31, 2005 and December 31, 2004 are as follows:
March 31, December 31,
2005 2004
--------------- ---------------
(In thousands)
Deferred tax liabilities:
Capitalized cost of mortgage servicing rights $ 100,422 $ 82,399
Loan origination costs 11,882 11,236
Depreciation 3,083 2,341
Deferred state income taxes 182 --
--------------- ---------------
Deferred tax liabilities 115,569 95,976
--------------- ---------------
Deferred tax assets:
Tax loss carryforwards 45,246 36,384
Allowance for bad debts and foreclosure reserve 3,506 2,711
Mark-to-market adjustments 3,546 811
Deferred state income taxes -- 353
Broker fees 1,046 528
Accrued bonuses 4,847 --
AMT credit 1,745 --
Other 1,383 847
--------------- ---------------
Deferred tax assets 61,319 41,634
--------------- ---------------
Net deferred tax liabilities $ 54,250 $ 54,342
=============== ===============
AHM Holdings acquired all of the outstanding stock of American Home Mortgage
Servicing, Inc. ("AHM Servicing") (formerly known as Columbia National,
Incorporated). The acquisition was accounted for under the purchase method of
accounting for financial statement purposes. For federal income tax purposes,
the historical basis of the assets and liabilities were carried over to AHM
Holdings. AHM Servicing has approximately $40 million of separate company net
operating loss carryforwards which begin to expire in 2008. In addition, AHM
Holdings has approximately $70 million of federal and approximately $187 million
of state net operating loss carryforwards which begin to expire in 2024 and
2009, respectively.
-18-
At March 31, 2005 and December 31, 2004, no valuation allowance has been
established against deferred tax assets since it is more likely than not that
the deferred tax assets will be realized.
The Company has been audited by various state tax jurisdictions which have
settled with a no change decision. In addition, the Company is currently under
examination by other tax jurisdictions which the Company expects to result in no
material assessment. The Company regularly assesses the likelihood of additional
assessments in each of the tax jurisdictions in the calculation of its provision
and maintains an appropriate reserve as needed.
NOTE 11 - EARNINGS PER SHARE
The following is a reconciliation of the denominators used in the computations
of basic and diluted earnings per share for the three months ended March 31,
2005 and 2004:
Three Months Ended March 31,
---------------------------------
(Dollars in thousands, except per share amounts) 2005 2004
--------------- ---------------
Numerator for basic earnings per share - Net income
available to common shareholders $ 122,075 $ 21,223
=============== ===============
Denominator:
Denominator for basic earnings per share
Weighted average number of common shares
outstanding during the period 40,307,617 30,030,248
Net effect of dilutive stock options 503,082 477,570
--------------- ---------------
Denominator for diluted earnings per share 40,810,699 30,507,818
=============== ===============
Net income per share available to common shareholders:
Basic $ 3.03 $ 0.71
=============== ===============
Diluted $ 2.99 $ 0.70
=============== ===============
NOTE 12 - STOCK OPTION PLANS
In 1999, the Company established the 1999 Omnibus Stock Incentive Plan, as
amended (the "Plan"). Pursuant to the Plan, eligible employees, officers and
directors may be offered the opportunity to acquire the Company's common stock
through the grant of options and the award of restricted stock under the Plan.
The total number of shares that may be optioned or awarded under the Plan is
3,000,000 shares of common stock. The Plan provides for the granting of options
at the fair market value on the date of grant. The options issued primarily vest
50% on the two-year anniversary of the grant date and 50% on the three-year
anniversary of the grant date, and expire ten years from the grant date.
As of March 31, 2005, the Company has awarded 211,410 shares of restricted stock
under the Plan. During the three months ended March 31, 2005 and 2004, the
Company recognized compensation expense of $141 thousand and $188 thousand,
respectively, relating to shares of restricted stock granted under the Plan. At
March 31, 2005, 133,463 shares are vested. In general, unvested restricted stock
is forfeited upon the recipient's termination of employment.
For options granted under the Plan, there was no intrinsic value of the options
when granted, as the exercise price was equal to the quoted market price at the
grant date. No compensation cost has been recognized for the three months ended
March 31, 2005 and 2004.
Pursuant to the terms of the Company's merger with Apex, which was consummated
on December 3, 2003 (following the approval of the Company's stockholders at a
special meeting held on November 21, 2003), the Company assumed the Amended and
Restated 1997 Stock Option Plan of Apex (the "Apex Plan"). Prior to December 3,
2003, the effective date of the merger with Apex, Apex caused all unvested
options granted under the Apex Plan to become vested and exercisable, and each
option granted under the Apex Plan that was not exercised as of December 3, 2003
was terminated and not assumed by the Company.
-19-
Prior to the Apex merger, an aggregate of one million shares of common stock
were available for issuance upon exercise of stock options granted under the
Apex Plan. As of the effective date of the merger, Apex had granted options to
purchase 791,000 shares of common stock, which options were either (i)
previously caused to become vested and exercised or (ii) unexercised as of the
effective date of the merger, and therefore terminated and not assumed by the
Company. Accordingly, options to purchase an aggregate of 209,000 shares of the
Company's common stock remain available for grant under the Apex Plan.
There were 267,419 options granted under the Plan, with a weighted-average
exercise price of $32.88, in the three months ended March 31, 2005. The
weighted-average fair value per share of options granted during the three months
ended March 31, 2005 was $3.72.
There were 173,323 options granted under the Plan, with a weighted-average
exercise price of $22.52, in the three months ended March 31, 2004. The
weighted-average fair value per share of options granted during the three months
ended March 31, 2004 was $5.62.
The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
the grants:
Three Months Ended March 31,
----------------------------------
2005 2004
--------------- ---------------
Dividend yield 9.1 % 7.0 %
Expected volatility 28.4 % 49.0 %
Risk-free interest rate 5.0 % 5.0 %
Expected life 3 years 3 years
NOTE 13 - ACQUISITION
Valley Bancorp, Inc.
- --------------------
In August 2001, AHM Holdings entered into an agreement to acquire Valley
Bancorp, Inc. ("Valley Bancorp") and its wholly-owned subsidiary, Valley Bank of
Maryland, a federal savings bank located in suburban Baltimore, Maryland. In
2004, subsequent to the merger with Apex and internal reorganization, AHM
Investment, as successor in interest to AHM Holdings, entered into an amended
and restated agreement and plan of reorganization with Valley Bancorp. Under the
terms of the definitive agreement, the Company will pay $46 for each share of
Valley Bancorp common stock outstanding, and will pay in cash to the holders of
Valley Bancorp stock options the difference between $46 and the exercise price
of such options, or an aggregate of approximately $6.3 million. The acquisition
agreement between AHM Investment and Valley Bancorp has been extended through
July 31, 2005. This transaction is subject to regulatory approval and no
assurance can be given that such approval will be obtained or that the
acquisition agreement with Valley Bancorp will be further extended if necessary.
NOTE 14 - SEGMENTS AND RELATED INFORMATION
The Company has three segments, the Mortgage-Backed Securities Holdings segment,
the Loan Origination segment and the Loan Servicing segment. The Mortgage-Backed
Securities Holdings segment uses the Company's equity capital and borrowed funds
to invest in mortgage-backed securities, thereby producing net interest income.
The Loan Origination segment originates mortgage loans through the Company's
retail and internet branches and loans sourced through mortgage brokers
(wholesale channel). The Loan Servicing segment includes investments in MSRs as
well as servicing operations primarily for other financial institutions.
The Mortgage-Backed Securities Holdings segment includes realized gains or
losses on sales of mortgage-backed securities and unrealized mark-to-market
gains or losses subsequent to the securitization date on mortgage-backed
securities classified as trading securities.
The Loan Origination segment includes unrealized gains or losses that exist on
the date of securitization of self-originated loans that are classified as
trading securities.
-20-
Three Months Ended March 31, 2005
-------------------------------------------------------------
(In thousands)
Mortgage-
Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
-------------------------------------------------------------
Net interest income:
Interest income $ 58,305 $ 88,589 $ -- $ 146,894
Interest expense (38,985) (47,735) (1,371) (88,091)
-------------------------------------------------------------
Total net interest income 19,320 40,854 (1,371) 58,803
-------------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans -- 35,253 -- 35,253
Gain on securitizations of mortgage loans -- 69,919 -- 69,919
Loss (gain) on sales of mortgage-backed securities and derivatives (3,337) 9,469 -- 6,132
Unrealized gain on mortgage-backed securities and derivatives 16,840 40,659 -- 57,499
Loan servicing fees -- -- 11,312 11,312
Amortization of mortgage servicing rights -- -- (8,501) (8,501)
Impairment recovery of mortgage servicing rights -- -- 3,419 3,419
-------------------------------------------------------------
Net loan servicing fees -- -- 6,230 6,230
Other non-interest income -- 663 803 1,466
-------------------------------------------------------------
Total non-interest income 13,503 155,963 7,033 176,499
-------------------------------------------------------------
Non-interest expenses:
Salaries, commissions and benefits, net 1,076 65,604 1,795 68,475
Occupancy and equipment 2 12,542 127 12,671
Data processing and communications 22 5,814 114 5,950
Office supplies and expenses 1 4,125 303 4,429
Marketing and promotion 2 4,102 26 4,130
Travel and entertainment -- 3,843 85 3,928
Professional fees 973 2,244 253 3,470
Other 2,562 2,435 1,872 6,869
-------------------------------------------------------------
Total non-interest expenses 4,638 100,709 4,575 109,922
-------------------------------------------------------------
Net income before income tax expense (benefit) 28,185 96,108 1,087 125,380
-------------------------------------------------------------
Income tax expense (benefit) -- -- -- --
-------------------------------------------------------------
Net income $ 28,185 $ 96,108 $ 1,087 $ 125,380
=============================================================
Dividends on preferred stock 3,305 -- -- 3,305
-------------------------------------------------------------
Net income available to common shareholders $ 24,880 $ 96,108 $ 1,087 $ 122,075
=============================================================
March 31, 2005
-------------------------------------------------------------
Segment assets $ 7,354,423 $ 1,905,139 $ 315,414 $ 9,574,976
=============================================================
-21-
Three Months Ended March 31, 2004
-------------------------------------------------------------
(In thousands)
Mortgage-
Backed
Securities Loan Loan
Holdings Origination Servicing
Segment Segment Segment Total
-------------------------------------------------------------
Net interest income:
Interest income $ 15,149 $ 18,901 $ -- $ 34,050
Interest expense (9,412) (10,962) (904) (21,278)
-------------------------------------------------------------
Total net interest income 5,737 7,939 (904) 12,772
-------------------------------------------------------------
Non-interest income:
Gain on sales of mortgage loans -- 52,581 -- 52,581
Gain on securitizations of mortgage loans -- 1,856 -- 1,856
Gain (loss) on sales of mortgage-backed securities and derivatives 7,510 (878) -- 6,632
Unrealized gain on mortgage-backed securities and derivatives 4,163 14,746 -- 18,909
Loan servicing fees -- -- 10,318 10,318
Amortization of mortgage servicing rights -- -- (7,346) (7,346)
Impairment provision of mortgage servicing rights -- -- (12,584) (12,584)
-------------------------------------------------------------
Net loan servicing loss -- -- (9,612) (9,612)
Other non-interest income -- 978 -- 978
-------------------------------------------------------------
Total non-interest income 11,673 69,283 (9,612) 71,344
-------------------------------------------------------------
Non-interest expenses:
Salaries, commissions and benefits, net 50 38,445 1,132 39,627
Occupancy and equipment -- 7,935 159 8,094
Data processing and communications 2 3,181 30 3,213
Office supplies and expenses -- 2,747 371 3,118
Marketing and promotion -- 2,212 -- 2,212
Travel and entertainment 2 2,462 113 2,577
Professional fees 71 2,213 144 2,428
Other 1,045 3,324 1,069 5,438
-------------------------------------------------------------
Total non-interest expenses 1,170 62,519 3,018 66,707
-------------------------------------------------------------
Net income before income tax expense (benefit) 16,240 14,703 (13,534) 17,409
-------------------------------------------------------------
Income tax expense (benefit) -- 1,735 (5,549) (3,814)
-------------------------------------------------------------
Net income $ 16,240 $ 12,968 $ (7,985) $ 21,223
=============================================================
Dividends on preferred stock -- -- -- --
-------------------------------------------------------------
Net income available to common shareholders $ 16,240 $ 12,968 $ (7,985) $ 21,223
=============================================================
December 31, 2004
-------------------------------------------------------------
Segment assets $ 6,136,642 $ 5,194,387 $ 224,768 $ 11,555,797
=============================================================
-22-
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Regarding Forward-Looking Statements
This report, including, but not limited to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contains certain
forward-looking statements within the meaning of the federal securities laws.
Some of the forward-looking statements can be identified by the use of
forward-looking words. When used in this report, statements which are not
historical in nature, including the words "anticipate," "may," "estimate,"
"should," "seek," "expect," "plan," "believe," "intend," and similar words, or
the negatives of those words, are intended to identify forward-looking
statements. Statements which also contain a projection of revenues, earnings
(loss), capital expenditures, dividends, capital structure or other financial
terms are intended to be forward-looking statements. Certain statements
regarding the following particularly are forward-looking in nature:
o our business strategy;
o future performance, developments, market forecasts or projected
dividends;
o projected acquisitions or joint ventures; and
o projected capital expenditures.
It is important to note that the description of our business in general, and our
mortgage-backed securities holdings in particular, is a statement about our
operations as of a specific point in time. It is not meant to be construed as an
investment policy, and the types of assets we hold, the amount of leverage we
use, the liabilities we incur and other characteristics of our assets and
liabilities are subject to reevaluation and change without notice.
The forward-looking statements in this report are based on our management's
beliefs, assumptions, and expectations of our future economic performance,
taking into account the information currently available to it. These statements
are not statements of historical fact. Forward-looking statements are subject to
a number of factors, risks and uncertainties, some of which are not currently
known to us, that may cause our actual results, performance or financial
condition to be materially different from our expectations of future results,
performance or financial position. These factors include, without limitation:
o our limited operating history with respect to our proposed portfolio
strategy;
o our proposed portfolio strategy may be changed or modified by our
management without advance notice to stockholders, and that we may
suffer losses as a result of such modifications or changes;
o our need for a significant amount of cash to operate our business;
o risks associated with the use of leverage;
o disruptions in the market for repurchase facilities;
o failure to match the interest rates on our borrowings with the
interest rates on the mortgage-backed securities we hold;
o failure to maintain our status as a real estate investment trust;
o changes in federal and state tax laws affecting real estate investment
trusts;
o general economic, political, market, financial or legal conditions;
and
o those risks and uncertainties discussed in our filings with the
Securities and Exchange Commission.
In light of these risks, uncertainties and assumptions, any forward-looking
events discussed in this report might not occur, and we qualify any and all of
our forward-looking statements entirely by these cautionary factors. You are
cautioned not to place undue reliance on forward-looking statements. Such
forward-looking statements are inherently uncertain, and actual results may
differ from expectations. We are not
-23-
under any obligation, and we expressly disclaim any obligation, to update or
alter any forward-looking statements, whether as a result of new information,
future events or otherwise.
Critical Accounting Policies and Estimates
Our accounting policies are described in Note 1 to the Consolidated Financial
Statements. We have identified the following accounting policies that are
critical to the presentation of our financial statements and that require
critical accounting estimates by management.
Mortgage-Backed Securities - We record our mortgage-backed securities at fair
value. The fair values of our mortgage-backed securities are generally based on
market prices provided by certain dealers who make markets on these financial
instruments.
Mortgage Loans Held for Sale - Mortgage loans held for sale are carried at the
lower of cost or aggregate market value. For mortgage loans held for sale that
are hedged with forward sale commitments, the carrying value is adjusted for the
change in market during the time the hedge was deemed to be highly effective.
The market value is determined by outstanding commitments from investors or
current yield requirements calculated on an aggregate basis.
Mortgage Servicing Rights ("MSRs") - When we acquire servicing assets through
either purchase or origination of loans and sell or securitize those loans with
servicing assets retained, the total cost of the loans is allocated to the
servicing assets and the loans (without the servicing assets) based on their
relative fair values. The amount attributable to the servicing assets is
capitalized as MSRs on the consolidated balance sheets. The MSRs are amortized
to expense in proportion to and over the period of estimated net servicing
income.
The MSRs are assessed for impairment based on the fair value of those assets. We
estimate the fair value of the servicing assets by obtaining market information
from a primary MSR broker. When the book value of capitalized servicing assets
exceeds their fair value, impairment is recognized through a valuation
allowance. In determining impairment, the mortgage servicing portfolio is
stratified by the predominant risk characteristic of the underlying mortgage
loans. We have determined that the predominant risk characteristic is the
interest rate on the underlying loan. We measure impairment for each stratum by
comparing the estimated fair value to the recorded book value. Temporary
impairment is recorded through a valuation allowance and amortization expense in
the period of occurrence. In addition, we periodically evaluate our MSRs for
other than temporary impairment to determine if the carrying value before the
application of the valuation allowance is recoverable. We receive a sensitivity
analysis of the estimated fair value of our MSRs assuming a 200-basis-point
instantaneous increase in interest rates from an independent MSR broker. The
fair value estimate includes changes in market assumptions that would be
expected given the increase in mortgage rates (e.g., prepayment speeds would be
lower). We believe this 200-basis-point increase in mortgage rates to be an
appropriate threshold for determining the recoverability of the temporary
impairment because that size rate increase is foreseeable and consistent with
historical mortgage rate fluctuations. When using this instantaneous change in
rates, if the fair value of the strata of MSRs is estimated to increase to a
point where all of the impairment would be recovered, the impairment is
considered to be temporary. When we determine that a portion of the MSRs is not
recoverable, the related MSRs and the previously established valuation allowance
are correspondingly reduced to reflect other than temporary impairment.
Derivative Assets and Derivative Liabilities - Our mortgage-committed pipeline
includes interest rate lock commitments ("IRLCs") that have been extended to
borrowers who have applied for loan funding and meet certain defined credit and
underwriting criteria. IRLCs associated with loans expected to be sold are
recorded at fair value with changes in fair value recorded to current earnings.
The fair value of the IRLCs initiated on or before March 31, 2004 is determined
by an estimate of the ultimate gain on sale of the loans, including the value of
MSRs, net of estimated net costs remaining to originate the loan and any net
deferred origination costs. In March 2004, the SEC issued Staff Accounting
Bulletin No. 105 ("SAB No. 105"), which provides industry guidance which changed
the timing of recognition of MSRs for IRLCs initiated after March 31, 2004. In
SAB No. 105, the SEC stated that the value of expected future cash flows related
to servicing rights should be excluded when determining the fair value of
derivative IRLCs. Under the new policy, the value of the expected future cash
flows related to servicing rights is not recognized until the underlying loans
are sold.
We use other derivative instruments, including mortgage forward delivery
contracts and treasury futures options, to economically hedge the IRLCs, which
are also classified and accounted for as free-standing derivatives and thus are
recorded at fair value with the changes in fair value recorded to current
earnings.
We use mortgage forward delivery contracts designated as fair value hedging
instruments to hedge 100% of our agency-eligible conforming fixed-rate loans and
most of our non-conforming fixed-rate loans held for sale. At the inception of
the hedge, we formally document the relationship between the forward delivery
contracts and the mortgage inventory, as well as our objective and strategy for
undertaking the hedge transactions. In the case of our conventional conforming
fixed-rate loan products, the notional amount of the forward delivery contracts,
along with the underlying rate and terms of the contracts, are equivalent to the
unpaid principal amount of the mortgage inventory being hedged; hence, the
forward delivery contracts effectively fix the forward sales price and thereby
substantially eliminate interest rate and price risk to us. We classify and
account for these forward delivery contracts as fair value hedges. The
derivatives are carried at fair
-24-
value with the changes in fair value recorded to current earnings. When the
hedges are deemed to be highly effective, the book value of the hedged loans
held for sale is adjusted for its change in fair value during the hedge period.
We enter into interest rate swap agreements to manage our interest rate exposure
when financing our adjustable-rate mortgage loans and mortgage-backed
securities. Certain swap agreements accounted for as cash flow hedges and
certain swap agreements not designated as cash flow hedges are both carried on
the balance sheet at fair value. The fair values of our swap agreements are
generally based on market prices provided by certain dealers who make markets in
these financial instruments or third-party pricing services.
Goodwill - Goodwill represents the excess purchase price over the fair value of
net assets stemming from business acquisitions, including identifiable
intangibles. We test for impairment, at least annually, by comparing the fair
value of goodwill, as determined by using a discounted cash flow method, with
its carrying value. Any excess of carrying value over the fair value of the
goodwill would be recognized as an impairment loss in continuing operations. The
discounted cash flow calculation related to our loan origination segment
includes a forecast of the expected future loan originations and the related
revenues and expenses. The discounted cash flow calculation related to our
Mortgage-Backed Securities Holdings segment includes a forecast of the expected
future net interest income, gain on mortgage-backed securities and the related
revenues and expenses. These cash flows are discounted using a rate that is
estimated to be a weighted-average cost of capital for similar companies. We
further test to ensure that the fair value of all our business units does not
exceed our total market capitalization.
-25-
Adjusted Financial Measures
The Company securitizes a substantial portion of its mortgage loans held for
sale each quarter and intends for each of these transactions to qualify as a
sale under Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 140"). Our December 2004 securitization ("Q4-04 Securitization") did not
qualify as a sale at December 31, 2004 and was accounted for as a financing in
accordance with SFAS 140 because we retained a small amount of securities which
were benefited by derivative contracts embedded in the securitization trust.
These securities were sold during the first quarter of 2005, qualifying the
Q4-04 Securitization as a sale at March 31, 2005 in accordance with SFAS 140.
The Q4-04 Securitization was originally accounted for as a sale. The subsequent
discovery of the retained derivative benefit resulted in our restating our
financial statements for the period ended December 31, 2004, which restated
financial statements were included in our amended Annual Report on Form 10-K/A
filed with the SEC on April 22, 2005. Throughout "Management's Discussion and
Analysis" below, the term "as adjusted" identifies financial measures that are
not prepared in accordance with generally accepted accounting principles
("GAAP"). These adjusted financial measures reflect the effect of treating the
Q4-04 Securitization as a sale in the fourth quarter of 2004 rather than in the
first quarter of 2005 when the transaction subsequently qualified as a sale.
Since the filing of our amended Annual Report on Form 10-K/A, we have enforced
our policies, procedures and controls to ensure all securitizations are
accounted for in accordance with SFAS 140. The Company has been, and expects to
continue to be, managed on the basis of the adjusted financial measures. The
adjusted financial measures should be read in conjunction with the Company's
GAAP consolidated balance sheets and consolidated statements of income. The
following financial tables include GAAP, adjusted and reconciling information
for the reasons and purposes described herein:
-26-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, December 31, December 31, December 31,
2005 2004 2004 2004
------------ ------------ ------------ ------------
(1)
(1) As
GAAP Adjustments Adjusted
------------ ------------ ------------ ------------
Assets:
Cash and cash equivalents $ 162,762 $ 192,821 $ -- $ 192,821
Accounts receivable and servicing advances 103,295 116,978 (11,640) 105,338
Mortgage-backed securities 7,181,170 6,016,866 1,584,927 7,601,793
Mortgage loans held for sale, net 1,627,891 4,853,394 (3,536,785) 1,316,609
Derivative assets 73,383 24,803 (1,459) 23,344
Mortgage servicing rights, net 228,412 151,436 37,793 189,229
Premises and equipment, net 55,986 51,576 -- 51,576
Goodwill 92,745 90,877 -- 90,877
Other assets 49,332 57,046 (10,490) 46,556
------------ ------------ ------------ ------------
Total assets $ 9,574,976 $ 11,555,797 $ (1,937,654) $ 9,618,143
============ ============ ============ ============
Liabilities and Stockholders' Equity:
Liabilities:
Warehouse lines of credit $ 658,686 $ 735,783 $ -- $ 735,783
Drafts payable 28,391 26,200 -- 26,200
Commercial paper 858,382 529,790 -- 529,790
Reverse repurchase agreements 6,720,167 7,071,168 -- 7,071,168
Collateralized debt obligations -- 2,022,218 (2,022,218) --
Derivative liabilities 1,945 1,860 -- 1,860
Accrued expenses and other liabilities 176,859 152,413 13,213 165,626
Notes payable 159,339 135,761 -- 135,761
Income taxes payable 54,250 54,342 -- 54,342
------------ ------------ ------------ ------------
Total liabilities 8,658,019 10,729,535 (2,009,005) 8,720,530
------------ ------------ ------------ ------------
Stockholders' Equity:
Preferred Stock 134,040 134,040 -- 134,040
Common stock 403 403 -- 403
Additional paid-in capital 632,828 631,530 -- 631,530
Retained earnings 193,064 99,628 71,351 170,979
Accumulated other comprehensive loss (43,378) (39,339) -- (39,339)
------------ ------------ ------------ ------------
Total stockholders' equity 916,957 826,262 71,351 897,613
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 9,574,976 $ 11,555,797 $ (1,937,654) $ 9,618,143
============ ============ ============ ============
Note:
(1) - Adjustments reflect the net effect on the period presented to reconcile
the Company's operating statistics, results of operations and financial
condition prepared in accordance with GAAP to the amounts adjusted as if the
Company's fourth quarter 2004 securitization had qualified for SFAS 140 sale
accounting treatment in the fourth quarter of 2004.
- --------------------------------------------------------------------------------
-27-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended March 31,
------------------------------------------------------------
2005 2005 2005 2004
------------ ------------ ------------ ------------
(1)
(1) As
GAAP Adjustments Adjusted
------------ ------------ ------------ ------------
Net interest income:
Interest income $ 146,894 $ (26,925) $ 119,969 $ 34,050
Interest expense (88,091) 16,766 (71,325) (21,278)
------------ ------------ ------------ ------------
Net interest income 58,803 (10,159) 48,644 12,772
------------ ------------ ------------ ------------
Non-interest income:
Gain on sales of mortgage loans 35,253 -- 35,253 52,581
Gain on securitizations of mortgage loans 69,919 (25,258) 44,661 1,856
Gain on sales of mortgage-backed securities and derivatives 6,132 (1,400) 4,732 6,632
Unrealized gain on mortgage-backed securities and derivatives 57,499 (37,263) 20,236 18,909
Loan servicing fees 11,312 2,851 14,163 10,318
Amortization (8,501) (2,170) (10,671) (7,346)
Impairment reserve recovery (provision) 3,419 2,048 5,467 (12,584)
------------ ------------ ------------ ------------
Net loan servicing fees (loss) 6,230 2,729 8,959 (9,612)
------------ ------------ ------------ ------------
Other non-interest income 1,466 -- 1,466 978
------------ ------------ ------------ ------------
Non-interest income 176,499 (61,192) 115,307 71,344
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries, commissions and benefits, net 68,475 -- 68,475 39,627
Occupancy and equipment 12,671 -- 12,671 8,094
Data processing and communications 5,950 -- 5,950 3,213
Office supplies and expenses 4,429 -- 4,429 3,118
Marketing and promotion 4,130 -- 4,130 2,212
Travel and entertainment 3,928 -- 3,928 2,577
Professional fees 3,470 -- 3,470 2,428
Other 6,869 -- 6,869 5,438
------------ ------------ ------------ ------------
Non-interest expenses 109,922 -- 109,922 66,707
------------ ------------ ------------ ------------
Net income before income tax benefit 125,380 (71,351) 54,029 17,409
Income tax benefit -- -- -- (3,814)
------------ ------------ ------------ ------------
Net income $ 125,380 $ (71,351) $ 54,029 $ 21,223
============ ============ ============ ============
Dividends on preferred stock 3,305 -- 3,305 --
------------ ------------ ------------ ------------
Net income available to common shareholders $ 122,075 $ (71,351) $ 50,724 $ 21,223
============ ============ ============ ============
Per share data:
Basic $ 3.03 $ (1.77) $ 1.26 $ 0.71
Diluted $ 2.99 $ (1.75) $ 1.24 $ 0.70
Weighted average number of shares - basic 40,308 40,308 40,308 30,030
Weighted average number of shares - diluted 40,811 40,811 40,811 30,508
Note:
(1) - Adjustments reflect the net effect on the period presented to reconcile
the Company's operating statistics, results of operations and financial
condition prepared in accordance with GAAP to the amounts adjusted as if the
Company's fourth quarter 2004 securitization had qualified for SFAS 140 sale
accounting treatment in the fourth quarter of 2004.
-28-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
MORTGAGE-BACKED SECURITIES HOLDINGS SEGMENT
(In thousands)
Three Months Ended March 31,
-----------------------------------------------------------
2005 2005 2005 2004
------------ ------------ ------------ -----------
(1)
(1) As
GAAP Adjustments Adjusted
------------ ------------ ------------ -----------
Net interest income:
Interest income $ 58,305 $ 19,968 $ 78,273 $ 15,149
Interest expense (38,985) -- (38,985) (9,412)
------------ ------------ ------------ -----------
Net interest income 19,320 19,968 39,288 5,737
------------ ------------ ------------ -----------
Non-interest income:
Gain on sales of mortgage loans -- -- -- --
Gain on securitizations of mortgage loans -- -- -- --
(Loss) gain on sales of mortgage-backed securities and derivatives (3,337) (1,400) (4,737) 7,510
Unrealized gain (loss) on mortgage-backed securities and derivatives 16,840 (19,083) (2,243) 4,163
Loan servicing fees -- -- -- --
Amortization -- -- -- --
Impairment reserve recovery (provision) -- -- -- --
------------ ------------ ------------ -----------
Net loan servicing fees (loss) -- -- -- --
------------ ------------ ------------ -----------
Other non-interest income -- -- -- --
------------ ------------ ------------ -----------
Non-interest income 13,503 (20,483) (6,980) 11,673
------------ ------------ ------------ -----------
Non-interest expenses:
Salaries, commissions and benefits, net 1,076 -- 1,076 50
Occupancy and equipment 2 -- 2 --
Data processing and communications 22 -- 22 2
Office supplies and expenses 1 -- 1 --
Marketing and promotion 2 -- 2 --
Travel and entertainment -- -- -- 2
Professional fees 973 -- 973 71
Other 2,562 -- 2,562 1,045
------------ ------------ ------------ -----------
Non-interest expenses 4,638 -- 4,638 1,170
------------ ------------ ------------ -----------
Net income before income tax expense (benefit) 28,185 (515) 27,670 16,240
Income tax expense (benefit) -- -- -- --
------------ ------------ ------------ -----------
Net income $ 28,185 $ (515) $ 27,670 $ 16,240
============ ============ ============ ===========
Note:
(1) - Adjustments reflect the net effect on the period presented to reconcile
the Company's operating statistics, results of operations and financial
condition prepared in accordance with GAAP to the amounts adjusted as if the
Company's fourth quarter 2004 securitization had qualified for SFAS 140 sale
accounting treatment in the fourth quarter of 2004.
-29-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
LOAN ORIGINATION SEGMENT
(In thousands)
Three Months Ended March 31,
------------------------------------------------------------
2005 2005 2005 2004
------------ ------------ ------------ ------------
(1)
(1) As
GAAP Adjustments Adjusted
------------ ------------ ------------ ------------
Net interest income:
Interest income $ 88,589 $ (46,893) $ 41,696 $ 18,901
Interest expense (47,735) 16,766 (30,969) (10,962)
------------ ------------ ------------ ------------
Net interest income 40,854 (30,127) 10,727 7,939
------------ ------------ ------------ ------------
Non-interest income:
Gain on sales of mortgage loans 35,253 -- 35,253 52,581
Gain on securitizations of mortgage loans 69,919 (25,258) 44,661 1,856
Gain (loss) on sales of mortgage-backed securities and derivatives 9,469 -- 9,469 (878)
Unrealized gain on mortgage-backed securities and derivatives 40,659 (18,180) 22,479 14,746
Loan servicing fees -- -- -- --
Amortization -- -- -- --
Impairment reserve recovery (provision) -- -- -- --
------------ ------------ ------------ ------------
Net loan servicing fees (loss) -- -- -- --
------------ ------------ ------------ ------------
Other non-interest income 663 -- 663 978
------------ ------------ ------------ ------------
Non-interest income 155,963 (43,438) 112,525 69,283
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries, commissions and benefits, net 65,604 -- 65,604 38,445
Occupancy and equipment 12,542 -- 12,542 7,935
Data processing and communications 5,814 -- 5,814 3,181
Office supplies and expenses 4,125 -- 4,125 2,747
Marketing and promotion 4,102 -- 4,102 2,212
Travel and entertainment 3,843 -- 3,843 2,462
Professional fees 2,244 -- 2,244 2,213
Other 2,435 -- 2,435 3,324
------------ ------------ ------------ ------------
Non-interest expenses 100,709 -- 100,709 62,519
------------ ------------ ------------ ------------
Net income before income tax expense 96,108 (73,565) 22,543 14,703
Income tax expense -- -- -- 1,735
------------ ------------ ------------ ------------
Net income $ 96,108 $ (73,565) $ 22,543 $ 12,968
============ ============ ============ ============
Note:
(1) - Adjustments reflect the net effect on the period presented to reconcile
the Company's operating statistics, results of operations and financial
condition prepared in accordance with GAAP to the amounts adjusted as if the
Company's fourth quarter 2004 securitization had qualified for SFAS 140 sale
accounting treatment in the fourth quarter of 2004.
-30-
AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
LOAN SERVICING SEGMENT
(In thousands)
Three Months Ended March 31,
-----------------------------------------------------------
2005 2005 2005 2004
------------ ------------ ------------ -----------
(1)
(1) As
GAAP Adjustments Adjusted
------------ ------------ ------------ -----------
Net interest income:
Interest income $ -- $ -- $ -- $ --
Interest expense (1,371) -- (1,371) (904)
------------ ------------ ------------ -----------
Net interest income (1,371) -- (1,371) (904)
------------ ------------ ------------ -----------
Non-interest income:
Gain on sales of mortgage loans -- -- -- --
Gain on securitizations of mortgage loans -- -- -- --
Gain (loss) on sales of mortgage-backed securities and derivatives -- -- -- --
Unrealized gain (loss) on mortgage-backed securities and derivatives -- -- -- --
Loan servicing fees 11,312 2,851 14,163 10,318
Amortization (8,501) (2,170) (10,671) (7,346)
Impairment reserve recovery (provision) 3,419 2,048 5,467 (12,584)
------------ ------------ ------------ -----------
Net loan servicing fees (loss) 6,230 2,729 8,959 (9,612)
------------ ------------ ------------ -----------
Other non-interest income 803 -- 803 --
------------ ------------ ------------ -----------
Non-interest income 7,033 2,729 9,762 (9,612)
------------ ------------ ------------ -----------
Non-interest expenses:
Salaries, commissions and benefits, net 1,795 -- 1,795 1,132
Occupancy and equipment 127 -- 127 159
Data processing and communications 114 -- 114 30
Office supplies and expenses 303 -- 303 371
Marketing and promotion 26 -- 26 --
Travel and entertainment 85 -- 85 113
Professional fees 253 -- 253 144
Other 1,872 -- 1,872 1,069
------------ ------------ ------------ -----------
Non-interest expenses 4,575 -- 4,575 3,018
------------ ------------ ------------ -----------
Net income before income tax benefit 1,087 2,729 3,816 (13,534)
Income tax benefit -- -- -- (5,549)
------------ ------------ ------------ -----------
Net income $ 1,087 $ 2,729 $ 3,816 $ (7,985)
============ ============ ============ ===========
Note:
(1) - Adjustments reflect the net effect on the period presented to reconcile
the Company's operating statistics, results of operations and financial
condition prepared in accordance with GAAP to the amounts adjusted as if the
Company's fourth quarter 2004 securitization had qualified for SFAS 140 sale
accounting treatment in the fourth quarter of 2004.
-31-
Financial Condition
Total assets at March 31, 2005 were $9.6 billion, a $2.0 billion decrease from
$11.6 billion at December 31, 2004 and flat to the $9.6 billion of total assets
as adjusted at December 31, 2004. The decrease in total assets primarily
reflects a decrease in mortgage loans held for sale of $3.2 billion, partly
offset by an increase in mortgage-backed securities of $1.2 billion. Total
assets at December 31, 2004 includes the full $3.5 billion amount of the loans
held for sale in the Q4-04 Securitization and excludes $1.5 billion of
mortgage-backed securities that the Company retained in connection with the
transaction. At March 31, 2005, 75.0% of our total assets were mortgage-backed
securities and 17.0% were mortgage loans held for sale, compared to 52.1% and
42.0%, respectively, at December 31, 2004 and 79.0% and 13.7%, respectively, at
December 31, 2004 as adjusted.
The following table summarizes our mortgage-backed securities owned at March 31,
2005, December 31, 2004 and December 31, 2004 as adjusted, classified by type of
issuer and by ratings categories:
March 31, 2005
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Agency securities $ -- --% $ 225,323 8.5% $ 225,323 3.1%
Privately issued:
AAA 4,161,411 92.1 2,387,208 89.8 6,548,619 91.2
AA -- -- 14,234 0.5 14,234 0.2
A 77,111 1.7 13,424 0.5 90,535 1.3
BBB 110,557 2.4 6,642 0.2 117,199 1.6
Unrated 173,079 3.8 12,181 0.5 185,260 2.6
------------ ------------ ------------ ------------ ------------ ------------
Total $ 4,522,158 100.0% $ 2,659,012 100.0% $ 7,181,170 100.0%
============ ============ ============ ============ ============ ============
December 31, 2004
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Agency securities $ -- --% $ 612,513 14.5% $ 612,513 10.2%
Privately issued:
AAA 1,634,702 90.6 3,542,772 84.1 5,177,474 86.0
AA -- -- 16,043 0.4 16,043 0.3
A 58,480 3.2 15,750 0.4 74,230 1.2
BBB 58,153 3.2 7,910 0.2 66,063 1.1
Unrated 54,591 3.0 15,952 0.4 70,543 1.2
------------ ------------ ------------ ------------ ------------ ------------
Total $ 1,805,926 100.0% $ 4,210,940 100.0% $ 6,016,866 100.0%
============ ============ ============ ============ ============ ============
-32-
December 31, 2004 (as adjusted)
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Agency securities $ -- --% $ 612,513 14.5% $ 612,513 8.1%
Privately issued:
AAA 3,025,975 89.3 3,542,772 84.1 6,568,747 86.4
AA -- -- 16,043 0.4 16,043 0.2
A 129,840 3.8 15,750 0.4 145,590 1.9
BBB 105,567 3.1 7,910 0.2 113,477 1.5
Unrated 129,471 3.8 15,952 0.4 145,423 1.9
------------ ------------ ------------ ------------ ------------ ------------
Total $ 3,390,853 100.0% $ 4,210,940 100.0% $ 7,601,793 100.0%
============ ============ ============ ============ ============ ============
The following table classifies our mortgage-backed securities portfolio by type
of interest rate index at March 31, 2005, December 31, 2004 and December 31,
2004 as adjusted:
March 31, 2005
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Index:
One-month LIBOR $ 202,677 4.5% $ 103,144 3.9% $ 305,821 4.3%
Six-month LIBOR 3,474,690 76.8 1,668,785 62.7 5,143,475 71.6
One-year LIBOR 836,972 18.5 712,289 26.8 1,549,261 21.6
One-year constant maturity treasury 7,819 0.2 174,794 6.6 182,613 2.5
------------ ------------ ------------ ------------ ------------ ------------
Total $ 4,522,158 100.0% $ 2,659,012 100.0% $ 7,181,170 100.0%
============ ============ ============ ============ ============ ============
December 31, 2004
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Index:
One-month LIBOR $ 86,199 4.8% $ 114,149 2.7% $ 200,348 3.3%
Six-month LIBOR 829,413 45.9 2,385,582 56.7 3,214,995 53.4
One-year LIBOR 890,314 49.3 1,231,392 29.2 2,121,706 35.3
One-year constant maturity treasury -- -- 479,817 11.4 479,817 8.0
------------ ------------ ------------ ------------ ------------ ------------
Total $ 1,805,926 100.0% $ 4,210,940 100.0% $ 6,016,866 100.0%
============ ============ ============ ============ ============ ============
-33-
December 31, 2004 (as adjusted)
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Index:
One-month LIBOR $ 198,201 5.8% $ 114,149 2.7% $ 312,350 4.1%
Six-month LIBOR 2,266,802 66.9 2,385,582 56.7 4,652,384 61.2
One-year LIBOR 925,850 27.3 1,231,392 29.2 2,157,242 28.4
One-year constant maturity treasury -- -- 479,817 11.4 479,817 6.3
------------ ------------ ------------ ------------ ------------ ------------
Total $ 3,390,853 100.0% $ 4,210,940 100.0% $ 7,601,793 100.0%
============ ============ ============ ============ ============ ============
The following table classifies our mortgage-backed securities portfolio by
product type at March 31, 2005, December 31, 2004 and December 31, 2004 as
adjusted:
March 31, 2005
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Product:
ARMs less than 3 years $ 338,472 7.5% $ 805,680 30.3% $ 1,144,152 15.9%
3/1 Hybrid ARM 373,221 8.3 423,996 15.9 797,217 11.1
5/1 Hybrid ARM 3,810,465 84.2 1,429,336 53.8 5,239,801 73.0
------------ ------------ ------------ ------------ ------------ ------------
Total $ 4,522,158 100.0% $ 2,659,012 100.0% $ 7,181,170 100.0%
============ ============ ============ ============ ============ ============
December 31, 2004
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Product:
ARMs less than 3 years $ 149,040 8.3% $ 954,794 22.7% $ 1,103,834 18.3%
3/1 Hybrid ARM 381,831 21.1 488,696 11.6 870,527 14.5
5/1 Hybrid ARM 1,275,055 70.6 2,767,450 65.7 4,042,505 67.2
------------ ------------ ------------ ------------ ------------ ------------
Total $ 1,805,926 100.0% $ 4,210,940 100.0% $ 6,016,866 100.0%
============ ============ ============ ============ ============ ============
-34-
December 31, 2004 (as adjusted)
-----------------------------------------------------------------------------------------
Trading Securities Securities Available for Sale Total
--------------------------- ----------------------------- ---------------------------
Carrying Portfolio Carrying Portfolio Carrying Portfolio
Value Mix Value Mix Value Mix
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Product:
ARMs less than 3 years $ 342,694 10.1% $ 954,794 22.7% $ 1,297,488 17.1%
3/1 Hybrid ARM 381,831 11.3 488,696 11.6 870,527 11.5
5/1 Hybrid ARM 2,666,328 78.6 2,767,450 65.7 5,433,778 71.4
------------ ------------ ------------ ------------ ------------ ------------
Total $ 3,390,853 100.0% $ 4,210,940 100.0% $ 7,601,793 100.0%
============ ============ ============ ============ ============ ============
During the three months ended March 31, 2005, we added $2.8 billion of
self-originated mortgage-backed securities to our portfolio including $1.5
billion from the Q4-04 Securitization.
During the three months ended March 31, 2005, we sold $1.1 billion of
mortgage-backed securities.
The average cost basis of our available for sale mortgage-backed securities,
excluding unrealized gains and losses, was 102.1% of par as of March 31, 2005
and 101.7% of par as of December 31, 2004.
Results of Operations - Comparison of the Three Months Ended March 31, 2005 and
2004
Overview
Net income for the three months ended March 31, 2005 was $125.4 million compared
to $21.2 million for the three months ended March 31, 2004, an increase of
$104.2 million, or 490.8%. Net income for the three months ended March 31, 2005
includes approximately $71.4 million of revenues related to the delay in
recognizing the Q4-04 Securitization as a sale into the first quarter of 2005.
The increase in net income was the result of a $105.2 million increase in
non-interest income and a $46.0 million increase in net interest income, partly
offset by a $43.2 million increase in non-interest expenses and a $3.8 million
decrease in income tax benefit. The $105.2 million increase in non-interest
income consists of a $68.1 million increase in gain on securitizations of
mortgage loans, a $38.1 million increase in realized and unrealized gains on
mortgage-backed securities and derivatives, a $15.8 million increase in net loan
servicing fees and a $0.5 million increase in other non-interest income partly
offset by a $17.3 million decrease in gain on sales of mortgage loans in the
three months ended March 31, 2005 versus the three months ended March 31, 2004.
Management believes that the generally higher revenues in the first quarter of
2005 due solely to the recognition of two securitization transactions as sales
are not recurring and expects that the Company's revenues from securitization
activities in future quarterly periods will generally reflect related mortgage
securitization volumes in those periods and will not include significant
benefits from prior periods.
Net income as adjusted for the three months ended March 31, 2005 was $54.0
million, an increase of $32.8 million, or 154.6%, over net income for the three
months ended March 31, 2004. The increase in net income as adjusted was the
result of a $43.9 million increase in non-interest income as adjusted and a
$35.9 million increase in net interest income as adjusted, partly offset by a
$43.2 million increase in non-interest expenses and $3.8 million decrease in
income tax benefit. The $43.9 million increase in non-interest income as
adjusted consists of a $42.8 million increase in gain on securitizations of
mortgage loans as adjusted, an $18.6 million increase in net loan servicing fees
as adjusted and a $0.4 million increase in other non-interest income, partly
offset by a $17.3 million decrease in gain on sales of mortgage loans and by a
$0.6 million decrease in realized and unrealized gains on mortgage-backed
securities and derivatives as adjusted in the three months ended March 31, 2005
versus the three months ended March 31, 2004.
Net Interest Income
The following tables present the average balances for our interest-earning
assets, interest-bearing liabilities, corresponding annualized effective rates
of interest and the related interest income or expense for the three months
ended March 31, 2005 compared to the three months ended March 31, 2004 and for
the three months ended March 31, 2005 as adjusted compared to the three months
ended March 31, 2004:
-35-
(Dollars in thousands) Three Months Ended March 31,
-----------------------------------------------------------------------------------------
2005 2004
------------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------ ------------ ------------ ------------ ------------ ------------
Interest earning assets:
Mortgage-backed securities, net (1) $ 5,853,318 $ 58,305 3.98% $ 1,958,339 $ 15,149 3.09%
Mortgage loans held for sale 6,239,851 88,589 5.68% 1,439,469 18,901 5.25%
------------ ------------ ------------ ------------
12,093,169 146,894 4.86% 3,397,808 34,050 4.01%
------------ ------------ ------------ ------------
Interest bearing liabilities:
Warehouse lines of credit (2) 1,490,755 16,956 4.55% 1,289,570 10,760 3.34%
Commercial paper 1,184,803 6,058 2.05% -- -- --
Reverse repurchase agreements (3) 6,898,461 46,724 2.71% 1,795,332 9,412 2.10%
Collateralized debt obligations 1,987,085 16,766 3.37% -- -- --
Notes payable 150,167 1,587 4.23% 106,021 1,106 4.17%
------------ ------------ ------------ ------------
11,711,271 88,091 3.01% 3,190,923 21,278 2.67%
------------ ------------ ------------ ------------
Net interest income $ 58,803 $ 12,772
============ ============
Interest rate spread 1.85% 1.34%
============ =============
Net interest margin 1.94% 1.50%
============ =============
(1) The average yield does not give effect to changes in the fair value that
are reflected as a component of stockholders' equity.
(2) Includes $2.7 million and $1.1 million of net interest expense on interest
rate swap agreements for the 2005 and 2004 periods, respectively.
(3) Includes $6.0 million and $3.6 million of net interest expense on interest
rate swap agreements for the 2005 and 2004 periods, respectively.
(Dollars in thousands) Three Months Ended March 31,
-----------------------------------------------------------------------------------------
2005 (As Adjusted) 2004
------------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------ ------------ ------------ ------------ ------------ ------------
Interest earning assets:
Mortgage-backed securities, net (1) $ 7,406,545 $ 78,273 4.23% $ 1,958,339 $ 15,149 3.09%
Mortgage loans held for sale 2,792,467 41,696 5.97% 1,439,469 18,901 5.25%
------------ ------------ ------------ ------------
10,199,012 119,969 4.71% 3,397,808 34,050 4.01%
------------ ------------ ------------ ------------
Interest bearing liabilities:
Warehouse lines of credit (2) 1,490,755 16,956 4.55% 1,289,570 10,760 3.34%
Commercial paper 1,184,803 6,058 2.05% -- -- --
Reverse repurchase agreements (3) 6,898,461 46,724 2.71% 1,795,332 9,412 2.10%
Notes payable 150,167 1,587 4.23% 106,021 1,106 4.17%
------------ ------------ ------------ ------------
9,724,186 71,325 2.93% 3,190,923 21,278 2.67%
------------ ------------ ------------ ------------
Net interest income $ 48,644 $ 12,772
============ ============
Interest rate spread 1.78% 1.34%
============ ============
Net interest margin 1.91% 1.50%
============ ============
(1) The average yield does not give effect to changes in the fair value that
are reflected as a component of stockholders' equity.
(2) Includes $2.7 million and $1.1 million of net interest expense on interest
rate swap agreements for the 2005 and 2004 periods, respectively.
(3) Includes $6.0 million and $3.6 million of net interest expense on interest
rate swap agreements for the 2005 and 2004 periods, respectively.
-36-
The following tables present the effects of changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities on
our interest income and interest expense for the three months ended March 31,
2005 compared to the three months ended March 31, 2004 and for the three months
ended March 31, 2005 as adjusted compared to the three months ended March 31,
2004:
Three Months Ended March 31, 2005
Compared to
(In thousands) Three Months Ended March 31, 2004
---------------------------------------------------
Average Average
Rate Volume Total
------------ ------------ ------------
Mortgage-backed securities, net $ 5,453 $ 37,703 $ 43,156
Mortgage loans held for sale 1,657 68,031 69,688
------------ ------------ ------------
Interest income 7,110 105,734 112,844
------------ ------------ ------------
Warehouse lines of credit 4,335 1,861 6,196
Commercial paper -- 6,058 6,058
Reverse repurchase agreements 3,476 33,836 37,312
Collateralized debt obligations -- 16,766 16,766
Notes payable 15 466 481
------------ ------------ ------------
Interest expense 7,826 58,987 66,813
------------ ------------ ------------
Net interest income $ (716) $ 46,747 $ 46,031
============ ============ ============
Three Months Ended March 31, 2005
(As Adjusted) Compared to
(In thousands) Three Months Ended March 31, 2004
---------------------------------------------------
Average Average
Rate Volume Total
------------ ------------ ------------
Mortgage-backed securities, net $ 7,341 $ 55,783 $ 63,124
Mortgage loans held for sale 2,904 19,891 22,795
------------ ------------ ------------
Interest income 10,245 75,674 85,919
------------ ------------ ------------
Warehouse lines of credit 4,335 1,861 6,196
Commercial paper -- 6,058 6,058
Reverse repurchase agreements 3,476 33,836 37,312
Notes payable 15 466 481
------------ ------------ ------------
Interest expense 7,826 42,221 50,047
------------ ------------ ------------
Net interest income $ 2,419 $ 33,453 $ 35,872
============ ============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income: Interest income on mortgage-backed securities for the three
months ended March 31, 2005 was $58.3 million, compared to $15.1 million for the
three months ended March 31, 2004, a $43.2 million, or 284.9%, increase. This
increase reflects primarily the growth of our mortgage-backed securities
portfolio over the past twelve months.
-37-
Interest income on mortgage-backed securities as adjusted for the three months
ended March 31, 2005 was $78.2 million compared to interest income on
mortgage-backed securities of $15.1 million for the three months ended March 31,
2004, a $63.1 million, or 416.7% increase. This increase reflects primarily the
growth of our mortgage-backed securities portfolio over the past twelve months.
Interest income on our mortgage loans held for sale for the three months ended
March 31, 2005 was $88.6 million compared to $18.9 million for the three months
ended March 31, 2004, an increase of $69.7 million, or 368.7%. The increase in
interest income on loans held for sale was primarily the result of an increase
in average volume in 2005 versus 2004 due to accounting for the Q4-04
Securitization as a financing for most of the first quarter of 2005 and higher
mortgage origination volume.
Interest income on our mortgage loans held for sale as adjusted for the three
months ended March 31, 2005 was $41.7 million compared to $18.9 million for the
three months ended March 31, 2004, an increase of $22.8 million, or 120.6%. The
increase in loans held for sale interest income was primarily the result of an
increase in average volume in 2005 versus 2004 due to higher mortgage
origination volume.
Interest Expense: We fund our loan inventory primarily through borrowing
facilities with several mortgage warehouse lenders and through a $2.0 billion
commercial paper, or secured liquidity note ("SLN"), program. Interest expense
on warehouse lines of credit for the three months ended March 31, 2005 was $17.0
million, compared to interest expense for the three months ended March 31, 2004
of $10.8 million, a $6.2 million increase. The increase in warehouse lines of
credit interest expense was primarily the result of an increase in average
volume due to higher mortgage origination volume and an increase in average rate
due to the generally higher interest rate environment in 2005 versus 2004. In
May 2004, we formed a wholly-owned special purpose entity for the purpose of
issuing commercial paper in the form of SLNs to finance certain portions of our
mortgage loans held for sale. Interest expense on commercial paper for the three
months ended March 31, 2005 was $6.1 million. By funding a portion of our loan
inventory through the commercial paper program, we were able to reduce our
average funding cost versus borrowing exclusively through warehouse lenders.
We have borrowed funds under reverse repurchase agreements, a form of
collateralized short-term borrowing, with fourteen different financial
institutions as of March 31, 2005. We borrow funds under these arrangements
based on the fair value of our mortgage-backed securities. Total interest
expense on reverse repurchase agreements for the three months ended March 31,
2005 was $46.7 million, compared to interest expense for the three months ended
March 31, 2004 of $9.4 million, a $37.3 million increase. The increase in
reverse repurchase agreements interest expense in 2005 versus 2004 was primarily
the result of an increase in borrowings used to fund the growth of our
mortgage-backed securities portfolio.
For the three months ended March 31, 2005, we recognized $16.8 million of
interest expense on collateralized debt obligations related to accounting for
the Q4-04 Securitization as a financing for most of the first quarter of 2005.
Management believes that this expense is non-recurring.
Gain on Mortgage Loans, Mortgage-Backed Securities and Derivatives
- ------------------------------------------------------------------
Gain on Sales and Securitizations of Mortgage Loans: Gain on sales and
securitizations of mortgage loans in our Loan Origination segment during the
three months ended March 31, 2005 totaled $155.3 million including $43.4 million
recognized in connection with the Q4-04 Securitization. Gain on sales and
securitizations of mortgage loans in our Loan Origination segment, as adjusted,
during the three months ended March 31, 2005 were $111.9 million, or 1.62%, of
mortgage loans sold or securitized, as adjusted, compared to $68.3 million, or
1.58%, of mortgage loans sold or securitized during the three months ended March
31, 2004. The increase primarily reflects a $2.6 billion increase in mortgage
loans sold or securitized, as adjusted, to $6.9 billion, as adjusted, in the
first quarter of 2005 from $4.3 billion in the first quarter of 2004.
The following table presents the components of gain on sales and securitizations
of mortgage loans in our Loan Origination segment during the three months ended
March 31, 2005 and 2004:
-38-
Gains on Sales and Securitizations of Mortgage Loans
Three Months Ended March 31,
------------------------------------------------------------
2005 2005 2005 2004
------------ ----------- ----------- -----------
GAAP Adjustments As Adjusted
------------ ----------- ----------- -----------
(Dollars in thousands)
Gain on sales of mortgage loans $35,253 $ -- $35,253 $52,581
Gain on securitizations of mortgage loans 69,919 (25,258) 44,661 1,856
Gain (loss) on sales of free standing derivatives 9,469 -- 9,469 (878)
Unrealized gain on self-originated mortgage-backed
securities retained in period 41,709 (18,180) 23,529 14,746
Unrealized loss on free standing derivatives (1,050) -- (1,050) --
------------ ----------- ----------- -----------
Total gain on sales and securitizations of mortgage loans $155,300 $(43,438) $111,862 $68,305
============ =========== =========== ===========
Total mortgage loans sold or securitized $10,430,630 $(3,526,123) $6,904,507 $4,333,865
============ =========== =========== ===========
Total gain on sales and securitizations of mortgage loans
as a % of total mortgage loans sold or securitized 1.49% 1.62% 1.58%
Portfolio Gains and Losses: During the three months ended March 31, 2005,
portfolio gains and losses in our Mortgage-Backed Securities Holdings segment,
as adjusted, were a portfolio loss of $7.0 million compared to a portfolio gain
of $11.7 million during the three months ended March 31, 2004. The decrease in
portfolio gains in the first quarter of 2005 compared to the first quarter of
2004 was the result of a $12.2 million decrease in gain on sales of
mortgage-backed securities, as adjusted, a $5.0 million increase in interest
carry expense on free standing derivatives, and a $1.4 million net decrease in
unrealized gain on mortgage-backed securities and free standing derivatives, as
adjusted, excluding interest carry expense. For interest rate swap agreements
accounted for as free standing derivatives, the interest carry expense is the
net amount accrued for the variable interest receivable and fixed interest
payable recorded in current earnings in unrealized gain on mortgage-backed
securities and derivatives.
The following table presents the components of portfolio gains and losses in our
Mortgage-Backed Securities Holdings segment during the three months ended March
31, 2005 and 2004:
Portfolio Gains and Losses
Three Months Ended March 31,
---------------------------------------------------------
2005 2005 2005 2004
------------ ----------- ----------- -----------
GAAP Adjustments As Adjusted
------------ ----------- ----------- -----------
(In thousands)
(Loss) gain on sales of mortgage-backed securities $(3,337) $(1,400) $(4,737) $7,510
Unrealized (loss) gain on mortgage-backed securities (18,460) (19,083) (37,543) 4,163
Unrealized gain on free standing derivatives 40,312 -- 40,312 --
------------ ----------- ----------- -----------
Net unrealized gain on mortgage-backed securities and
free standing derivatives excluding interest carry expense 21,852 (19,083) 2,769 4,163
Interest carry expense on free standing derivatives
included in unrealized gain (5,012) -- (5,012) --
------------ ----------- ----------- -----------
Total portfolio gain (loss) $13,503 $(20,483) $(6,980) $11,673
============ =========== =========== ===========
-39-
The following table presents the components of gain on sales of mortgage-backed
securities and derivatives shown in the Company's consolidated statements of
income:
Components of Gain on Sales of Mortgage-backed Securities and Derivatives
Three Months Ended March 31,
---------------------------------------------------------
2005 2005 2005 2004
------------ ----------- ----------- -----------
GAAP Adjustments As Adjusted
------------ ----------- ----------- -----------
(In thousands)
Gain (loss) on sales of mortgage-backed securities $(3,337) $(1,400) $(4,737) $7,510
Gain (loss) on sales of free standing interest rate swap derivatives 9,469 -- 9,469 (878)
------------ ----------- ----------- -----------
Gain on sales of mortgage-backed securities and derivatives $6,132 $(1,400) $4,732 $6,632
============ =========== =========== ===========
The following table presents the components of unrealized gain on
mortgage-backed securities and derivatives shown in the Company's consolidated
statements of income:
Components of Unrealized Gain on Mortgage-backed Securities and Derivatives
Three Months Ended March 31,
---------------------------------------------------------
2005 2005 2005 2004
------------ ----------- ----------- -----------
GAAP Adjustments As Adjusted
------------ ----------- ----------- -----------
(In thousands)
Unrealized gain on self-originated mortgage-backed securities
retained in period $41,709 $(18,180) $23,529 $14,746
Unrealized (loss) gain on mortgage-backed securities (18,460) (19,083) (37,543) 4,163
Unrealized gain on free standing derivatives 39,262 -- 39,262 --
Unrealized loss on free standing derivatives - interest carry (5,012) -- (5,012) --
------------ ----------- ----------- -----------
Unrealized gain on mortgage-backed securities and derivatives $57,499 $(37,263) $20,236 $18,909
============ =========== =========== ===========
Net Loan Servicing Fees
- -----------------------
Net loan servicing fees were a gain of $6.2 million for the three months ended
March 31, 2005 compared to a loss of $9.6 million for the three months ended
March 31, 2004.
Loan Servicing Fees: Loan servicing fees increased to $11.3 million for the
three months ended March 31, 2005 from $10.3 million for the three months ended
March 31, 2004, an increase of $1.0 million, or 9.6%. Included in loan servicing
fees are gains on Ginnie Mae early buy-out sales of $0.4 million for the three
months ended March 31, 2005 compared to $2.4 million for the three months ended
March 31, 2004, a decrease of $2.0 million, or 83.3%. This decrease partly
offset the increase in loan servicing fees in the first quarter of 2005 versus
the first quarter of 2004 as a result of an increase in loans serviced for
others.
Amortization of MSRs: Amortization of MSRs increased to $8.5 million for the
three months ended March 31, 2005 from $7.3 million for the three months ended
March 31, 2004, an increase of $1.2 million, or 15.7%. The increase in
amortization was due to a higher average servicing portfolio in the first
quarter of 2005 versus the first quarter of 2004.
Impairment (Provision) Recovery of MSRs: We recognized a temporary impairment
recovery of $3.4 million for the three months ended March 31, 2005 versus a
temporary impairment provision of $12.6 million for the three months ended March
31, 2004, resulting in an increase in net loan servicing fees of $16.0 million.
The decrease in impairment provision in the three months ended March 31, 2005
was due to an increase in the fair value of MSRs, which was attributable to a
subsequent decrease in estimated future prepayment speeds versus the initial
estimated future prepayment speeds used to value the MSR upon securitization.
-40-
The following table presents GAAP, as adjusted and reconciling adjustments to
net loan servicing fees for the three months ended March 31, 2005 and 2004:
Three Months Ended March 31,
---------------------------------------------------------------
2005 2005 2005 2004
------------ ------------ ------------ ------------
As
GAAP Adjustments Adjusted
------------ ------------ ------------ ------------
(In thousands)
Loan servicing fees $ 11,312 $ 2,851 $ 14,163 $ 10,318
Amortization (8,501) (2,170) (10,671) (7,346)
Impairment reserve recovery (provision) 3,419 2,048 5,467 (12,584)
------------ ------------ ------------ ------------
Net loan servicing fees (loss) $ 6,230 $ 2,729 $ 8,959 $ (9,612)
============ ============ ============ ============
Other Non-Interest Income
- -------------------------
Other non-interest income totaled $1.5 million for the three months ended March
31, 2005 compared to $1.0 million for the three months ended March 31, 2004. For
the three months ended March 31, 2005, other non-interest income primarily
includes reinsurance premiums earned totaling approximately $0.8 million, rental
income of $0.4 million and revenue from title services of $0.2 million. For the
three months ended March 31, 2004, other non-interest income primarily includes
rental income of $0.6 million, revenue from title services of $0.2 million and
reinsurance premiums earned totaling approximately $0.1 million.
Non-Interest Expenses
- ---------------------
Our non-interest expenses for the three months ended March 31, 2005 were $109.9
million compared to $66.7 million for the three months ended March 31, 2004, an
increase of $43.2 million, or 64.8%. The increase primarily reflects a $38.2
million rise in our Loan Origination segment non-interest expenses to $100.7
million, or 1.39%, of total loan originations in the first quarter of 2005 from
$62.5 million, or 1.42%, of total loan originations in the first quarter of
2004.
Our operating expenses represent costs that are not eligible to be added to the
book value of the loans because they are not considered to be certain direct
origination costs under the rules of Statement of Financial Accounting Standards
("SFAS") No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Costs of Leases." Direct origination
costs are added to the book value of loans and either reduce the gain on sale of
loans if the loans are sold or are amortized over the life of the loan.
Salaries, Commissions and Benefits, net: Salaries, commissions and benefits,
net, for the three months ended March 31, 2005 were $68.5 million, compared to
$39.6 million for the three months ended March 31, 2004, an increase of $28.9
million, or 72.8%. The increase in expenses reflects higher origination volume
and a resulting increase in employees to 5,489 at March 31, 2005 from 3,814 at
March 31, 2004.
Other Operating Expenses: Operating expenses, excluding salaries, commissions
and benefits, were $41.4 million for the three months ended March 31, 2005
compared to $27.1 million for the three months ended March 31, 2004, an increase
of $14.3 million, or 53.1%. The increase in operating expenses in the first
quarter of 2005 versus the first quarter of 2004 includes a $4.6 million
increase in occupancy and equipment expense. The operating expenses in the three
months ended March 31, 2005 include lease obligations and certain fixed asset
expenses relating to our acquisition of certain residential home loan centers
and associated satellite offices of Washington Mutual, Inc. in August of 2004.
Income Tax (Benefit) Expense
- ----------------------------
No income tax expense or benefit was recognized for the three months ended March
31, 2005, compared to a benefit of $3.8 million for the three months ended March
31, 2004. The decrease in income tax benefit in the first quarter of 2005 versus
the first quarter of 2004 reflects an increase in income before income taxes
relating to our taxable REIT subsidiary ("TRS").
Loan Originations
- -----------------
We originate and sell or securitize one-to-four family residential mortgage
loans. Total loan originations for the three months ended March 31, 2005 were
$7.3 billion compared to $4.4 billion for the three months ended March 31, 2004,
a 65.9% increase. Our retail originations, which are conducted through our
community loan production offices and Internet call center, were 49% of our loan
originations in the three months ended March 31, 2005 compared to 45% of our
originations in the three months ended March 31, 2004. Mortgage brokers
accounted
-41-
for 51% of our loan originations in the three months ended March 31, 2005
compared to 55% of our originations in the three months ended March 31, 2004.
Liquidity and Capital Resources
We have arrangements to enter into reverse repurchase agreements, a form of
collateralized short-term borrowing, with fourteen different financial
institutions and on March 31, 2005 had borrowed funds from seven of these firms.
Because we borrow money under these agreements based on the fair value of our
mortgage-backed securities, and because changes in interest rates can negatively
impact the valuation of mortgage-backed securities, our borrowing ability under
these agreements could be limited and lenders could initiate margin calls in the
event interest rates change or the value of our mortgage-backed securities
declines for other reasons.
As of March 31, 2005, we had $6.7 billion of reverse repurchase agreements
outstanding with a weighted-average borrowing rate of 2.55% before the impact of
interest rate swaps and a weighted-average remaining maturity of two months.
To originate a mortgage loan, we draw against a $2.0 billion commercial paper
program, $1.2 billion pre-purchase facility with UBS Real Estate Securities Inc.
("UBS"), a $600 million bank syndicated facility led by Bank of America (which
includes a $150.0 million term loan facility which we use to finance our MSRs),
a facility of $500 million with Bear Stearns, a $450 million facility with IXIS
Real Estate Capital Inc. (formerly CDC Mortgage Capital Inc.) ("IXIS"), a
facility of $350 million with Morgan Stanley Bank ("Morgan Stanley"), a facility
of $250 million with Lehman Brothers and a facility of $250 million with Calyon
New York Branch (Calyon). In addition, the Company has a gestation facility with
Greenwich Capital Financial Products, Inc ("Greenwich"). These facilities are
secured by the mortgages owned by us and by certain of our other assets.
Advances drawn under the facilities bear interest at rates that vary depending
on the type of mortgages securing the advances. These loans are subject to
sublimits, advance rates and terms that vary depending on the type of securing
mortgages and the ratio of our liabilities to our tangible net worth. At April
29, 2005, the aggregate outstanding balance under the commercial paper program
was $1.8 billion, the aggregate outstanding balance under the warehouse
facilities was $1.6 billion, the aggregate outstanding balance in drafts payable
was $18.8 million and the aggregate maximum amount available for additional
borrowings was $2.6 billion.
The documents governing our warehouse facilities contain a number of
compensating balance requirements and restrictive financial and other covenants
that, among other things, require us to adhere to a maximum ratio of total
liabilities to tangible net worth and maintain a minimum level of tangible net
worth and liquidity, as well as to comply with applicable regulatory and
investor requirements. The facility agreements also contain covenants limiting
the ability of our subsidiaries to transfer or sell assets other than in the
ordinary course of business and to create liens on the collateral without
obtaining the prior consent of the lenders, which consent may not be
unreasonably withheld.
In addition, under our warehouse facilities, we cannot continue to finance a
mortgage loan that we hold if:
o the loan is rejected as "unsatisfactory for purchase" by the ultimate
investor and has exceeded its permissible 120-day warehouse period;
o we fail to deliver the applicable mortgage note or other documents
evidencing the loan within the requisite time period;
o the underlying property that secures the loan has sustained a casualty
loss in excess of 5% of its appraised value; or
o the loan ceases to be an eligible loan (as determined pursuant to the
applicable warehousing agreement).
As of March 31, 2005, our aggregate warehouse facility borrowings were $658.7
million (including $22.1 million of borrowings under a working capital
sub-limit) and our outstanding drafts payable were $28.4 million, compared to
$735.8 million (including $25.5 million of borrowings under a working capital
sub-limit) and our outstanding drafts payable were $26.2 million as of December
31, 2004. At March 31, 2005, our loans held for sale were $1.6 billion compared
to $4.9 billion at December 31, 2004.
In addition to the UBS, IXIS, Bank of America, Morgan Stanley, and Calyon
warehouse facilities, we have a purchase and sale agreement with UBS and
Greenwich Capital. This agreement allows us to accelerate the sale of our
mortgage loan inventory, resulting in a more effective use of the warehouse
facility. Amounts sold and being held under this agreement at March 31, 2005 and
December 31, 2004 were $308.8 million and $443.8 million, respectively. The
amount so held under this agreement at April 29, 2005 was $89.3 million. This
agreement is not a committed facility and may be terminated at the discretion of
the counterparty.
We make certain representations and warranties under the purchase and sale
agreements regarding, among other things, the loans' compliance with laws and
regulations, their conformity with the ultimate investors' underwriting
standards and the accuracy of information. In the event of a breach of these
representations or warranties or in the event of an early payment default, we
may be required to repurchase
-42-
the loans and indemnify the investor for damages caused by that breach. We have
implemented strict procedures to ensure quality control and conformity to
underwriting standards and minimize the risk of being required to repurchase
loans. From time to time we have been required to repurchase loans that we sold;
however, the liability for the fair value of those obligations has been
immaterial.
We also have a $150.0 million term loan facility with a bank syndicate led by
Bank of America which we use to finance our MSRs. The term loan facility expires
on December 14, 2005. Interest is based on a spread to the LIBOR and may be
adjusted for earnings on escrow balances. At March 31, 2005 and December 31,
2004, borrowings under our term loan facility were $132.2 million and $108.6
million, respectively.
Cash and cash equivalents decreased to $162.8 million at March 31, 2005 from
$192.8 million at December 31, 2004.
Our primary sources of cash and cash equivalents during the three months ended
March 31, 2005, were as follows:
o $7.3 billion of proceeds from securitizations and repayments of
mortgage loans;
o $3.1 billion of proceeds from sales and repayments of mortgage loans;
and
o $1.1 billion of proceeds from sales of mortgage-backed securities.
Our primary uses of cash and cash equivalents during the three months ended
March 31, 2005, were as follows:
o $7.3 billion of origination of mortgage loans held for sale;
o $2.8 billion of additions to mortgage-backed securities; and
o $2.0 billion decrease in collateralized debt obligations.
Commitments
The Company had the following commitments (excluding derivative financial
instruments) at March 31, 2005:
Less than 1
Total Year 1 - 3 Years 4 - 5 Years After 5 Years
------------ ------------ ------------ ------------ -------------
(In thousands)
Warehouse liabilities $ 658,686 $ 658,686 $ -- $ -- $ --
Operating leases 77,868 23,512 36,721 16,290 1,345
Notes payable 159,339 133,574 736 831 24,198
Commercial paper 858,382 858,382 -- -- --
Reverse repurchase agreements 6,720,167 6,720,167 -- -- --
-43-
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Movements in interest rates can pose a major risk to the Company in either a
rising or declining interest rate environment. The Company depends on
substantial borrowings to conduct its business. These borrowings are all done at
variable interest rate terms which will increase as short-term interest rates
rise. Additionally, when interest rates rise, loans held for sale and any
applications in process with locked-in rates decrease in value. To preserve the
value of such fixed-rate loans or applications in process with locked-in rates,
agreements are executed for mandatory loan sales to be settled at future dates
with fixed prices. These sales take the form of forward sales of mortgage-backed
securities.
When interest rates decline, fallout may occur as a result of customers
withdrawing their applications. In those instances, the Company may be required
to purchase loans at current market prices to fulfill existing mandatory loan
sale agreements, thereby incurring losses upon sale. The Company uses an
interest rate hedging program to manage these risks. Through this program,
mortgage-backed securities are purchased and sold forward and options are
acquired on treasury futures contracts.
In the event that the Company does not deliver into the forward delivery
commitments or exercise its option contracts, the instruments can be settled on
a net basis. Net settlement entails paying or receiving cash based upon the
change in market value of the existing instrument. All forward delivery
commitments and option contracts to buy securities are to be contractually
settled within nine months of the balance sheet date.
The Company's hedging program contains an element of risk because the
counterparties to its mortgage and treasury securities transactions may be
unable to meet their obligations. While the Company does not anticipate
nonperformance by any counterparty, it is exposed to potential credit losses in
the event the counterparty fails to perform. The Company's exposure to credit
risk in the event of default by a counterparty is the difference between the
contract and the current market price. The Company minimizes its credit risk
exposure by limiting the counterparties to well-capitalized banks and securities
dealers who meet established credit and capital guidelines.
Movements in interest rates also impact the value of MSRs. When interest rates
decline, the loans underlying the MSRs are generally expected to prepay faster,
which reduces the market value of the MSRs. The Company considers the expected
increase in loan origination volumes and the resulting additional origination
related income as a natural hedge against the expected change in the value of
MSRs. Lower mortgage rates generally reduce the fair value of the MSRs, as
increased prepayment speeds are highly correlated with lower levels of mortgage
interest rates.
The Company enters into interest rate swap agreements ("Swap Agreements") to
manage its interest rate exposure when financing its ARM loans and its
mortgage-backed securities. The Company generally borrows money based on
short-term interest rates, by entering into borrowings with maturity terms of
less than one year, and frequently nine to twelve months. The Company's ARM
loans and mortgage-backed securities financing vehicles generally have an
interest rate that reprices based on frequency terms of one to twelve months.
The Company's mortgage-backed securities have an initial fixed interest rate
period of three to five years. When the Company enters into a Swap Agreement, it
generally agrees to pay a fixed rate of interest and to receive a variable
interest rate, generally based on LIBOR. These Swap Agreements have the effect
of converting the Company's variable-rate debt into fixed-rate debt over the
life of the Swap Agreements. These instruments are used as a cost-effective way
to lengthen the average repricing period of the Company's variable-rate and
short-term borrowings such that the average repricing of the borrowings more
closely matches the average repricing of the Company's mortgage-backed
securities. The Company's duration gap was less than one month on March 31,
2005.
-44-
The following table summarizes the Company's interest rate sensitive instruments
as of March 31, 2005 and December 31, 2004:
March 31, 2005
--------------------------------------
Carrying Estimated
Amount Fair Value
------------ ------------
Assets:
Mortgage-backed securities $ 7,181,170 $ 7,181,170
Derivative assets (1) 73,383 108,958
Mortgage loans held for sale, net 1,627,891 1,666,689
Mortgage servicing rights, net 228,412 233,564
Liabilities:
Reverse repurchase agreements $ 6,720,167 $ 6,718,357
Derivative liabilities 1,945 1,945
December 31, 2004
--------------------------------------
Carrying Estimated
Amount Fair Value
------------ ------------
Assets:
Mortgage-backed securities $ 6,016,866 $ 6,016,866
Derivative assets (1) 24,803 30,838
Mortgage loans held for sale, net 4,853,394 4,931,366
Mortgage servicing rights, net 151,436 152,467
Liabilities:
Reverse repurchase agreements $ 7,071,168 $ 7,065,072
Collateralized debt obligations 2,022,218 2,022,218
Derivative liabilities 1,860 1,860
(1) Derivative assets consist of interest rate lock commitments ("IRLCs") to
fund mortgage loans. The carrying value excludes the value of the mortgage
servicing rights ("MSRs") attached to the IRLCs in accordance with SEC Staff
Accounting Bulletin No. 105. The fair value includes the value of MSRs.
The Company had total commitments to lend at March 31, 2005 and December 31,
2004 of $8.4 billion and $6.2 billion, respectively.
-45-
ITEM 4.
CONTROLS AND PROCEDURES
Remediation Efforts related to the Material Weakness in Internal Control over
Financial Reporting
The Company previously disclosed in its Annual Report on Form 10-K/A for the
year ended December 31, 2004 material weaknesses related to the operating
efficiencies of certain controls over financial reporting. The Company is
enforcing the appropriate policies, procedures and controls over these areas to
ensure that they are operating effectively.
-46-
PART II-OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
None.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following is a description of the Company's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
which were sold during the quarter ended March 31, 2005.
The Company acquired First Home Mortgage Corp. ("First Home") on June 30, 2000.
In addition to the shares paid to former First Home shareholders as initial
consideration, the Company is required to issue unregistered shares of common
stock to the former shareholders as additional consideration under the earnout
provisions of the merger agreement. Pursuant to these earnout provisions, on
January 1, 2005, February 15, 2005, and March 14, 2005, the Company issued an
aggregate of 1,542, 2,385 and 23,078 restricted shares of common stock,
respectively, to such stockholders as additional consideration. These securities
were exempt from registration under Section 4(2) of the Securities Act because
they were issued pursuant to the terms of a private transaction rather than
through a public offering.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
The following exhibits are filed with this Quarterly Report on Form 10-Q:
Exhibit No. Description
- ------------ -------------------------------------------------------------
10.1 -- Employment Agreement, dated as of January 1, 2005, by and
between American Home Mortgage Holdings, Inc. and Richard
Loeffler.
10.2 -- Amended and Restated Employment Agreement, dated as of
December 14, 2004, by and between American Home Mortgage
Holdings, Inc. and John A. Manglardi.
-47-
10.3.1 -- First Omnibus Amendment, dated as of December 10, 2004, by
and among Calyon New York Branch (successor in interest to
Credit Lyonnais New York Branch), Deutsche Bank National
Trust Company, American Home Mortgage Corp., AHM SPV I, LLC,
and American Home Mortgage Servicing, Inc.
10.3.2 -- Amended and Restated Originator Performance Guaranty, dated
as of December 10, 2004, by American Home Mortgage Holdings,
Inc. and American Home Mortgage Investment Corp. in favor of
AHM SPV I, LLC.
10.3.3 -- Amended and Restated Servicer Performance Guaranty, dated as
of December 10, 2004, by American Home Mortgage Holdings,
Inc. and American Home Mortgage Investment Corp. in favor of
Calyon New York Branch.
10.4.1 -- Amendment No. 1, dated as of May 28, 2004, to the Amended and
Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc. f/k/a
Columbia National, Incorporated, the Lenders from time to
time party thereto, and Morgan Stanley Bank.
10.4.2 -- Amendment No. 2, dated as of June 23, 2004, to the Amended
and Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc. f/k/a
Columbia National, Incorporated, the Lenders from time to
time party thereto, and Morgan Stanley Bank.
10.4.3 -- Amendment No. 3, dated as of July 30, 2004, to the Amended
and Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc., the Lenders
from time to time party thereto, and Morgan Stanley Bank.
10.4.4 -- Amendment No. 4, dated as of August 13, 2004, to the Amended
and Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc., the Lenders
from time to time party thereto, and Morgan Stanley Bank.
-48-
10.4.5 -- Amendment No. 5, dated as of September 15, 2004, to the
Amended and Restated Master Loan and Security Agreement,
dated as of November 26, 2003, by and among American Home
Mortgage Corp., American Home Mortgage Acceptance, Inc.,
American Home Mortgage Investment Corp., American Home
Mortgage Holdings, Inc., and American Home Mortgage
Servicing, Inc., the Lenders from time to time party thereto,
and Morgan Stanley Bank.
10.4.6 -- Amendment No. 7, dated as of November 17, 2004, to the
Amended and Restated Master Loan and Security Agreement,
dated as of November 26, 2003, by and among American Home
Mortgage Corp., American Home Mortgage Acceptance, Inc.,
American Home Mortgage Investment Corp., American Home
Mortgage Holdings, Inc., and American Home Mortgage
Servicing, Inc., the Lenders from time to time party thereto,
and Morgan Stanley Bank.
10.4.7 -- Amendment No. 2, dated as of October 21, 2004, to the Amended
and Restated Custodial Agreement, dated as of November 26,
2003, by and among American Home Mortgage Corp., American
Home Mortgage Acceptance, Inc., American Home Mortgage
Investment Corp., American Home Mortgage Holdings, Inc., and
American Home Mortgage Servicing, Inc., Deutsche Bank
National Trust Company, and Morgan Stanley Bank.
10.4.8 -- Fifth Amended and Restated Promissory Note, dated as of
November 17, 2004, made by American Home Mortgage Corp.,
American Home Mortgage Investment Corp., American Home
Mortgage Acceptance, Inc., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc. in favor of
Morgan Stanley Bank.
10.5.1 -- Mortgage Loan Purchase and Sale Agreement, dated as of
January 1, 2004, by and among Greenwich Capital Financial
Products, Inc., American Home Mortgage Corp., and American
Home Mortgage Servicing, Inc. f/k/a Columbia National,
Incorporated.
10.5.2 -- Custodial Agreement, dated as of January 1, 2004, by and
among Greenwich Capital Financial Products, Inc., Deutsche
Bank National Trust Company, American Home Mortgage Corp.,
and American Home Mortgage Servicing, Inc. f/k/a Columbia
National, Incorporated.
10.6 -- Guaranty, dated as of December 3, 2004, by American Home
Mortgage Investment Corp. in favor of Lehman Brothers Inc.
and Lehman Commercial Paper Inc.
31.1 -- Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 -- Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 -- Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 -- Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
-49-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOME MORTGAGE INVESTMENT CORP.
(Registrant)
Date: May 5, 2005 By: /s/ Michael Strauss
-----------------------------------
Michael Strauss
Chairman,
Chief Executive Officer
and President
Date: May 5, 2005 By: /s/ Stephen A. Hozie
-----------------------------------
Stephen A. Hozie
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
-50-
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ------------ -------------------------------------------------------------
10.1 -- Employment Agreement, dated as of January 1, 2005, by and
between American Home Mortgage Holdings, Inc. and Richard
Loeffler.
10.2 -- Amended and Restated Employment Agreement, dated as of
December 14, 2004, by and between American Home Mortgage
Holdings, Inc. and John A. Manglardi.
10.3.1 -- First Omnibus Amendment, dated as of December 10, 2004, by
and among Calyon New York Branch (successor in interest to
Credit Lyonnais New York Branch), Deutsche Bank National
Trust Company, American Home Mortgage Corp., AHM SPV I, LLC,
and American Home Mortgage Servicing, Inc.
10.3.2 -- Amended and Restated Originator Performance Guaranty, dated
as of December 10, 2004, by American Home Mortgage Holdings,
Inc. and American Home Mortgage Investment Corp. in favor of
AHM SPV I, LLC.
10.3.3 -- Amended and Restated Servicer Performance Guaranty, dated as
of December 10, 2004, by American Home Mortgage Holdings,
Inc. and American Home Mortgage Investment Corp. in favor of
Calyon New York Branch.
10.4.1 -- Amendment No. 1, dated as of May 28, 2004, to the Amended and
Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc. f/k/a
Columbia National, Incorporated, the Lenders from time to
time party thereto, and Morgan Stanley Bank.
10.4.2 -- Amendment No. 2, dated as of June 23, 2004, to the Amended
and Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc. f/k/a
Columbia National, Incorporated, the Lenders from time to
time party thereto, and Morgan Stanley Bank.
10.4.3 -- Amendment No. 3, dated as of July 30, 2004, to the Amended
and Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc., the Lenders
from time to time party thereto, and Morgan Stanley Bank.
10.4.4 -- Amendment No. 4, dated as of August 13, 2004, to the Amended
and Restated Master Loan and Security Agreement, dated as of
November 26, 2003, by and among American Home Mortgage Corp.,
American Home Mortgage Acceptance, Inc., American Home
Mortgage Investment Corp., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc., the Lenders
from time to time party thereto, and Morgan Stanley Bank.
10.4.5 -- Amendment No. 5, dated as of September 15, 2004, to the
Amended and Restated Master Loan and Security Agreement,
dated as of November 26, 2003, by and among American Home
Mortgage Corp., American Home Mortgage Acceptance, Inc.,
American Home Mortgage Investment Corp., American Home
Mortgage Holdings, Inc., and American Home Mortgage
Servicing, Inc., the Lenders from time to time party thereto,
and Morgan Stanley Bank.
Exhibit No. Description
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10.4.6 -- Amendment No. 7, dated as of November 17, 2004, to the
Amended and Restated Master Loan and Security Agreement,
dated as of November 26, 2003, by and among American Home
Mortgage Corp., American Home Mortgage Acceptance, Inc.,
American Home Mortgage Investment Corp., American Home
Mortgage Holdings, Inc., and American Home Mortgage
Servicing, Inc., the Lenders from time to time party thereto,
and Morgan Stanley Bank.
10.4.7 -- Amendment No. 2, dated as of October 21, 2004, to the Amended
and Restated Custodial Agreement, dated as of November 26,
2003, by and among American Home Mortgage Corp., American
Home Mortgage Acceptance, Inc., American Home Mortgage
Investment Corp., American Home Mortgage Holdings, Inc., and
American Home Mortgage Servicing, Inc., Deutsche Bank
National Trust Company, and Morgan Stanley Bank.
10.4.8 -- Fifth Amended and Restated Promissory Note, dated as of
November 17, 2004, made by American Home Mortgage Corp.,
American Home Mortgage Investment Corp., American Home
Mortgage Acceptance, Inc., American Home Mortgage Holdings,
Inc., and American Home Mortgage Servicing, Inc. in favor of
Morgan Stanley Bank.
10.5.1 -- Mortgage Loan Purchase and Sale Agreement, dated as of
January 1, 2004, by and among Greenwich Capital Financial
Products, Inc., American Home Mortgage Corp., and American
Home Mortgage Servicing, Inc. f/k/a Columbia National,
Incorporated.
10.5.2 -- Custodial Agreement, dated as of January 1, 2004, by and
among Greenwich Capital Financial Products, Inc., Deutsche
Bank National Trust Company, American Home Mortgage Corp.,
and American Home Mortgage Servicing, Inc. f/k/a Columbia
National, Incorporated.
10.6 -- Guaranty, dated as of December 3, 2004, by American Home
Mortgage Investment Corp. in favor of Lehman Brothers Inc.
and Lehman Commercial Paper Inc.
31.1 -- Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 -- Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 -- Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 -- Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.