Thornburg Back in Black

Thornburg Mortgage (TMA Quote) swung to a sequential profit in the fourth quarter, albeit a significantly smaller one than the year-ago period.

The jumbo mortgage specialist reported net income before preferred stock dividends of 33 cents per diluted share or $64.8 million, down 19% from $80.3 million, or 68 cents per diluted share, in the year-ago period. While the year-over-year profit was smaller, the results suggested that the lender bounced back from a loss of $8.83 a share in the third quarter.

The results easily beat Wall Street's estimates, who expected 27 cents per share, according to analysts polled by Thomson Financial.

Thornburg also on Jan. 30 paid a dividend of 25 cents a share to all stockholders of record on Dec. 31. The lender had suspended its dividend in mid-October amid turmoil in the mortgage industry and seize-up in the secondary markets for mortgage-backed securities.

The significant drop in LIBOR rates was just what the company needed. The portfolio yield during the fourth quarter increased to 5.75% from 5.40%, while the average cost of funds decreased to 5.04% from 5.26% in the prior quarter. This combination created the backdrop where the average net interest margin of 0.96% for the quarter was considerably higher than the 0.31% in the prior quarter.

"Our return to profitability in the fourth quarter during a period of continued unprecedented industry turmoil is testament to the strength of our business model and our conservative approach to risk management, as well as further validation of our focus on quality across all aspects of our business," President and CEO Larry Goldstone said in a company statement.

The company's balance sheet was also stabilized by the proceeds from the sale of equity during the quarter. This capital provided an additional source of liquidity during the quarter and helped to strengthen the balance sheet, support its mortgage loan funding operation and facilitate the limited acquisition of mortgage-backed securities.

"Following its significant balance sheet restructuring in the third quarter of 2007, we believe TMA has stabilized its liquidity and is positioned to grow its portfolio and earnings in 2008," S&P stock analyst Jason Willey wrote.

A believer in the stock, Chairman Garrett Thornburg had purchased a million shares in October at $9.50 a share. The stock is now trading up 11.3% in after-hours trading at $12.55.