EDISON, N.J., May 16 NJ-Hanover-1Q-Earns
EDISON, N.J., May 16 /PRNewswire-FirstCall/ -- Hanover Capital Mortgage
Holdings, Inc. (Amex: HCM) (the "Company" or "HCM") reported a net loss for
the quarter ended March 31, 2008 of $(23.3) million, or $(2.71) per share on a
fully diluted basis, compared to net income of $0.9 million, or $0.11 per
share for the same period of 2007. This decrease is primarily due to
impairment expense of $21.2 million for other-than-temporary declines in fair
value of the Company's subordinate mortgage-backed securities ("Subordinate
MBS") portfolio, an increase in interest expense in connection with the entry
into a repurchase agreement in August, 2007, with Ramius Capital Group, LLC,
("Repurchase Transaction") and an increase in deferred financing fees charged
to expense in connection with the termination of the Company's two committed
lines of credit, partially off-set by the reversal of a $1.6 million reserve
for the estimated costs of closing its warehouse facility.
Significant changes in the Company's financial position are primarily
related to the decline in the estimated fair value of its Subordinate MBS
portfolio and the reduction in the size of its whole-pool Fannie Mae and
Freddie Mac mortgage-backed securities ("Agency MBS") portfolio. The Company
sold all of its Agency MBS to repay the outstanding financing balance on this
portfolio and to generate some liquidity. At this same time, the Company
purchased a small amount of Agency MBS in order to satisfy certain exemptive
provisions of the Investment Company Act of 1940 and maintain compliance with
the REIT provisions of the Internal Revenue Code of 1986, as amended.
For the Company's Subordinate MBS portfolio, the mark to market loss
increased by $21.1 million for the three months ended March 31, 2008 compared
to the same period of 2007. The increase in market loss, the Company
determined, is due to other-than-temporary declines in estimated fair value.
Similar other-than-temporary impairments were not experienced during the first
quarter of 2007. Net interest income decreased for the three months ended
March 31, 2008 compared to the same period of 2007 due to the increased
interest expense associated with the new fixed-term financing facility the
Company established in August 2007. The Company had no gains on sales of
securities for the three months ended March 31, 2008 compared to gains of $0.2
million for the three months ended March 31, 2007.
As of March 31, 2008, seriously delinquent loans, for the Subordinate MBS
portfolio, are 0.83% of collateral loan balances as compared to 0.55% as of
December 31, 2007. Although delinquencies are rising, they are still
significantly below those of Alt-A and Subprime collateral. The Company had
losses of approximately $2.3 million allocated to its Subordinate MBS for the
three months ended March 31, 2008. See the Table below, which illustrates
credit performance:
Subordinate MBS Portfolio Credit Performance
(dollars in thousands)
March 31, 2008
Principal Balance %
Current $ 37,247,233 98.14 %
30-59 days delinquent295,5260.78 %
60-89 days delinquent 94,4370.25 %
90+ days delinquent 100,6060.26 %
Foreclosure 165,7090.44 %
Real Estate Owned 48,8970.13 %
As of March 31, 2008, the overall estimated fair value of the Company's
Subordinate MBS portfolio pledged under the Repurchase Transaction is below
the contractual repayment amount of the Repurchase Transaction by
approximately $22.5 million and the lender has recourse only against the
Company's Subordinate MBS portfolio and not to any other asset or right.
Generally Accepted Accounting Principles ("GAAP") preclude the Company from
considering the contractual repayment amount of the Repurchase Transaction,
and its recourse limitation, in determining either a fair value or a
realizable value for the Company's Subordinate MBS. As a result, the Company
recorded an other-than-temporary impairment of $21.2 million during the three
months ended March 31, 2008. This loss may be offset by a gain on settlement
of debt in August of 2008 if the Company surrenders its Subordinate MBS
portfolio under the Repurchase Transaction.
The following information is useful in understanding the implications of
the Company's current financial condition and presents a calculation of the
gain on settlement of debt assuming the Company surrendered the pledged
securities as of March 31, 2008 (dollars in thousands):
Carrying value of Repurchase Transaction obligation $ 81,978
Carrying value of Subordinate MBS that may be surrendered
under the Repurchase Transaction(62,416)
Excess of debt over the carrying value of assets pledged 19,562
Elimination of other assets and other liabilities related
to the Repurchase Transaction 289
Net gain on settlement of Repurchase Transaction if settled
through the surrender of the collateral on March 31, 2008 $ 19,851
The Company's equity as reported under GAAP is a negative $(49.0) million
as of March 31, 2008. However, when all of the Company's assets and
liabilities are valued at estimated fair value, as illustrated in the Tables
set forth on page 7, the Company's equity is a positive $3.4 million as of
March 31, 2008. The Company's equity under GAAP and valued at estimated fair
value was $(25.6) million and $6.9 million, respectively, as of December 31,
2007.
The Company has provided additional fair value disclosures in its Form
10-Q for the quarter ended March 31, 2008 and herein to show the impact of
fair value treatment on its entire balance sheet, rather than just certain
assets and liabilities of the Company, because it believes it provides
additional information about the effects the turmoil in the financial markets,
over the last six to nine months, has had on the Company's financial position,
its shareholders, and its debtholders.
John A. Burchett, the Company's President and CEO, commented, "While we
continue to operate during difficult times in the mortgage industry, we are
also continuing with our efforts to raise capital sufficient to enable the
Company to return to profitability and to provide a positive return for our
shareholders."
HCM will host an investor conference call on Friday, May 16, 2008 at 11:00
AM ET. The call will be broadcast on the Internet at
www.investorcalendar.com. To listen to the call, please go to the Web site at
least fifteen minutes prior to the call to register, download, and install any
necessary audio software. For those not able to listen to the live broadcast,
a replay will be available for a period of 30 days.
To access the live call by phone, dial 877-407-8035 (international callers
dial 201-689-8035) several minutes before the call. A recorded replay may be
heard through Monday, May 19th at 11:59 pm ET by dialing 877-660-6853
(international callers dial 201-612-7415) and using playback account #286 and
conference ID # 284835.
Hanover Capital Mortgage Holdings, Inc. is a mortgage REIT staffed by
seasoned mortgage capital markets professionals. HCM invests in prime
mortgage loans and mortgage securities backed by prime mortgage loans. For
further information, visit HCM's Web site at www.hanovercapitalholdings.com.
Certain statements in this press release may constitute "forward-looking"
statements with the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Statements that are not historical
fact are forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements, to differ materially
from expectations. The forward-looking statements are based on HCM's current
belief, intentions and expectations. These statements are not guarantees or
indicative of future performance. Important assumptions and other important
factors that could cause actual results to differ materially from those
forward-looking statements include, but are not limited to, those factors,
risks and uncertainties that are described in Item 1A of HCM's Annual Report
on Form 10-K for the year ended December 31, 2007 and in other securities
filings by HCM. HCM's future financial condition and results of operations,
as well as any forward-looking statements, are subject to change and inherent
risks and uncertainties. The forward-looking statements contained in this
press release are made only as of the date hereof and HCM undertakes no
obligation to update or revise the information contained in this announcement
whether as a result of new information, subsequent events or circumstances or
otherwise, unless otherwise required by law.
HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
March 31, December 31,
2008 2007
Assets
Cash and cash equivalents $3,535$7,257
Accrued interest receivable1,089 1,241
Mortgage loans
Collateral for CMOs 5,782 6,182
Mortgage securities ($62,416 and
$112,740 pledged under Repurchase
Agreements as of March 31, 2008 and
December 31, 2007, respectively)
Trading 4,27230,045
Available for sale 62,41682,695
Held to maturity- -
Other subordinate security, available for sale 1,493 1,477
Equity investment in unconsolidated affiliates 1,537 1,509
Other assets 3,390 4,782
$83,514 $135,188
Liabilities
Repurchase agreements$82,459 $108,854
Collateralized mortgage obligations (CMOs) 3,705 4,035
Dividends payable - -
Accounts payable, accrued expenses and
other liabilities 5,097 6,709
Liability to subsidiary trusts issuing
preferred and capital securities 41,23941,239
132,500 160,837
Commitments and Contingencies - -
Stockholders' Equity
Preferred stock: $0.01 par value,
10 million shares authorized,
no shares issued and outstanding - -
Common stock: $0.01 par value,
90 million shares authorized,
8,658,562 shares issued and
outstanding as of March 31, 2008
and December 31, 2007, respectively 8686
Additional paid-in capital 102,950 102,939
Cumulative earnings (deficit)(94,637) (71,289)
Cumulative distributions (57,385) (57,385)
(48,986) (25,649)
$83,514 $135,188
HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
2008 2007
Revenues
Interest income $5,070$6,632
Interest expense 5,927 3,859
Net interest income before loan
loss provision (857)2,773
Loan loss provision- -
Net interest income (857)2,773
Gain on sale of mortgage assets 479 191
Loss on mark to market of mortgage assets(21,485) (143)
Loss on freestanding derivatives (98) (167)
Technology 210 516
Loan brokering and advisory services 15 157
Other income (loss)1,629 (41)
Total revenues (20,107)3,286
Expenses
Personnel 1,108 1,079
Legal and professional 364 600
General and administrative 201 746
Depreciation and amortization154 150
Occupancy 7875
Technology 125 197
Financing896 148
Other343 158
Total expenses 3,269 3,153
Operating income (loss) (23,376) 133
Equity in income of unconsolidated affiliates 2827
Income (loss) from continuing operations
before income tax provision (23,348) 160
Income tax provision - -
Income (loss) from continuing operations $(23,348) $160
Discontinued Operations
Loss from discontinued operations before
gain on sale and income tax provision - (643)
Gain on sale of discontinued operations- 1,346
Income tax provision from
discontinued operations - -
Income from discontinued operations- 703
Net income (loss) $(23,348) $863
Net income (loss) per common share - Basic
Income (loss) from continuing operations $(2.71)$0.02
Income (loss) from discontinued operations - 0.09
Net income (loss) per common share - Basic $(2.71)$0.11
Net income (loss) per common share - Diluted
Income (loss) from continuing operations $(2.71)$0.02
Income (loss) from discontinued operations - 0.09
Net income (loss) per common share - Diluted$(2.71)$0.11
Weighted average shares outstanding - Basic 8,630,184 8,132,868
Weighted average shares outstanding - Diluted 8,630,184 8,136,343
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
SUMMARY INFORMATION FOR REIT PORTFOLIO ASSETS
(dollars in thousands)
Three Months Ended March 31, 2008
SubordinateAgency Mortgage
MBS MBS Loans
Average asset balance $82,592 $19,860 $6,120
Average CMO borrowing balance-- 3,846
Average balance - Repurchase
Agreements 84,931 17,780490
Net interest earning assets$(2,339) $2,080 $1,784
Average leverage ratio 102.83% 89.53% 70.85%
Effective interest income rate 22.00%5.78% 7.25%
Effective interest expense rate -
CMO borrowing -- 6.86%
Effective interest expense rate -
Repurchase Agreements 22.30%4.30% 5.71%
Net interest spread -0.30%1.48% 0.52%
Interest income $4,542 $287 $111
Interest expense - CMO borrowing -- 66
Interest expense - Repurchase
Agreements 4,734 191 7
Net interest income $(192) $96$38
Yield on net interest earning assets n/a* 18.46% 8.52%
Three Months Ended March 31, 2007
SubordinateAgency Mortgage
MBS MBS Loans
Average asset balance $153,906 $109,269 $9,619
Average CMO borrowing balance-- 7,041
Average balance - Repurchase
Agreements 90,936 100,536685
Net interest earning assets$62,970 $8,733 $1,893
Average leverage ratio 59.09% 92.01% 80.32%
Effective interest income rate 12.09%5.71% 7.11%
Effective interest expense rate -
CMO borrowing -- 7.16%
Effective interest expense rate -
Repurchase Agreements 6.46%5.33% 7.00%
Net interest spread 5.63%0.38% -0.03%
Interest income $4,651 $1,560 $171
Interest expense - CMO borrowing --126
Interest expense - Repurchase
Agreements 1,4681,339 12
Net interest income $3,183 $221$33
Yield on net interest earning assets20.22% 10.12% 6.97%
* Amount is excluded as it is not meaningful
Fair Value Disclosures
The estimated fair value of all of the Company's assets and liabilities
and off-balance sheet financial instruments are as follows
(dollars in thousands):
March 31, 2008 December 31, 2007
As Estimated As Estimated
Reported Fair Value Reported Fair Value
Assets:
Cash and cash equivalents $3,535$3,535 $7,257$7,257
Accrued interest receivable 1,089 1,0891,241 1,241
Mortgage loans
Collateral for CMOs 5,782 5,7616,182 6,118
Mortgage securities
Trading (1) 4,272 4,272 30,04530,045
Available for sale (1) 62,41662,416 82,69582,695
Other subordinate security,
available for sale (1) 1,493 1,4931,477 1,477
Restricted cash 484 484 480 480
Equity investments in
unconsolidated affiliates 1,537 -1,509 -
Deferred financing costs1,293 -2,105 -
Prepaid expenses and other
assets1,613 1,6132,197 2,197
Total assets $83,514$80,663 $135,188 $131,510
Liabilities:
Repurchase Agreements -
revolving term $481 $481 $28,926 $28,926
Repurchase Agreements -
fixed term 81,978 62,41679,92879,279
CMO borrowing 3,705 3,582 4,035 3,916
Accounts payable, accrued
expenses and other
liabilities 5,097 5,097 6,709 6,709
Liability to subsidiary
trusts 41,239 5,73141,239 5,731
Total liabilities 132,500 77,307 160,837 124,561
Net equity (48,986) 3,356 (25,649)6,949
Total liabilities and
net equity $83,514$80,663 $135,188 $131,510
(1) The total amount of these assets or liabilities are measured in the
consolidated financial statements at estimated fair value on a
recurring basis.
SOURCE Hanover Capital Mortgage Holdings, Inc.
