EX-99.1 2 b60917hcexv99w1.htm EX-99.1 PRESS RELEASE, DATED MAY 11, 2006 exv99w1
 

Exhibit 99.1
 
For further information, contact:
Hanover Capital Mortgage Holdings, Inc.
.A  John Burchett, CEO, Irma Tavares, COO, or Harold McElraft, CFO
732-548-0101
HANOVER CAPITAL MORTGAGE HOLDINGS ANNOUNCES
2006 FIRST-QUARTER RESULTS AND $0.20 PER SHARE DIVIDEND; ADOPTION OF DIVIDEND
REINVESTMENT AND DIRECT STOCK PURCHASE PLAN
     Edison, New Jersey, May 11, 2006 — Hanover Capital Mortgage Holdings, Inc. (AMEX: HCM) reported a net loss for the quarter ended March 31, 2006 of $(0.7 million), or $(0.08) per share on a fully diluted basis, compared to net income of $1.4 million, or $0.16 per share on a fully diluted basis, for the same period in 2005. The Board of Directors declared a first quarter dividend of $0.20 per share on May 8, 2006 to be paid on June 2, 2006 to stockholders of record as of May 22, 2006, according to John A. Burchett, President and Chief Executive Officer.
The Company’s net loss for the three months ended March 31, 2006 was primarily attributable to the lower operating income of its REIT segment. The REIT’s decline in operating income in the first quarter of 2006 from the same period in 2005 was primarily due to a gain on sale of mortgage assets in 2005 of $2.3 million compared to a loss of $0.1 million in 2006, which resulted in a total negative change of $2.4 million or $0.28 per share. The focus on growth of the portfolio, as well as market conditions, have curtailed gain income.
Burchett commented, “The portfolio of Subordinate Mortgage Backed Securities (“MBS”) continues to grow and perform well. The carry value of $126.2 million at the end of the first quarter of 2006 represents an increase of over $19 million in carry value from the year end 2005 and an increase of $59.8 million over the balance as of March 31, 2005. We expect that this continued growth will be the basis for improved results in the remaining quarters of 2006.”
“The first quarter results of 2006 reflect the continuing transition at the Company to a position where the primary source of return is from net interest income rather than reliance on gain income. The second part of the strategy is to reduce the earnings volatility of the non-REIT operating subsidiary business segments.”
“With respect to the operating subsidiary business segments, there has been a continued reduction in expenses through staff reductions, as well as other expense reductions. In addition, the Company has engaged Stifel, Nicolaus & Company, Incorporated as its financial advisor to review strategic options for the non-REIT subsidiary, including the possible sale of the subsidiary.”
“Our investment strategy has transitioned from focusing on gains towards focusing on net interest income. As is set forth in greater detail in the table on Page 5, Summary Information for REIT Portfolio Assets, both the size and composition of our portfolio for the three months ended March 31, 2006 versus the three months ended March 31, 2005 have changed substantially, reflecting our investment strategy.”
“The first quarter dividend was set by the Board at $0.20 per share based on the projected improvement in results for the remaining quarters and our changing focus from gains to net interest income. The Board performs similar evaluations for each quarterly dividend,” Burchett concluded.
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Additionally, the Company has adopted a bank-sponsored Dividend Reinvestment Plan/Direct Stock Purchase Plan, (the “Plan”) which will take effect no later than May 31, 2006. The Plan is sponsored and administered by Computershare Trust Company, N.A. (“Computershare”). Existing registered shareholders will receive a notification letter and enrollment material from Computershare. Interested investors may participate in the Plan by going to www.computershare.com/equiserve.
HCM will host an investor conference call on Thursday, May 11, 2006 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 15 at 11:59 pm by dialing 877-660-6853 (international callers dial 201-612-7415) and using playback account #286 and conference ID # 201131.
Hanover Capital Mortgage Holdings, Inc. is a mortgage REIT staffed by seasoned mortgage capital markets professionals. HCM invests in mortgage-backed securities and mortgage loans and engages in non-interest income-generating activities through its subsidiary, Hanover Capital Partners 2, Ltd., which operates two separate divisions, Hanover Capital Partners and HanoverTrade. Hanover Capital Partners provides consulting and outsourcing services to the mortgage industry. HanoverTrade provides technology solutions and loan sale advisory services for the mortgage industry. For further information, visit HCM’s Web site at www.hanovercapitalholdings.com.
Certain statements in this press release may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934 as amended. HCM is including this cautionary statement to make applicable and take advantage 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 future results, performance or achievements. 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, 2005 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.
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
                 
    March 31,        
    2006     December 31,  
    (Unaudited)     2005  
Assets
                
Cash and cash equivalents
   $ 19,086     $ 30,495  
Accounts receivable
     2,291       2,606  
Accrued interest receivable
     1,428       1,382  
Mortgage loans
                
Held for sale
     9,375       10,061  
Collateral for CMOs
     12,917       14,074  
Mortgage securities ($181,001 and $188,398 pledged under Repurchase Agreements as of March 31, 2006 and December 31, 2005, respectively)
                
Trading
     56,990       82,487  
Available for sale
     126,186       106,967  
Held to maturity
     7,399       8,034  
Other subordinate security, held to maturity
     2,717       2,703  
Equity investments in unconsolidated affiliates
     1,316       1,289  
Other assets
     11,489       12,089  
 
            
 
   $ 251,194     $ 272,187  
 
            
 
                
Liabilities
                
Repurchase agreements
   $ 140,522     $ 154,268  
Collateralized mortgage obligations (CMOs)
     10,352       11,438  
Dividends payable
     —       2,124  
Accounts payable, accrued expenses and other liabilities
     2,812       3,498  
Liability to subsidiary trusts issuing preferred and capital securities
     41,239       41,239  
 
            
 
     194,925       212,567  
 
            
Contingencies
     —       —  
Minority interest in equity of consolidated affiliate
     —       189  
 
                
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, 8,412,062 and 8,496,162 shares issued and outstanding as of March 31, 2006 and December 31, 2005, respectively
     84       85  
Additional paid-in capital
     103,519       104,231  
Retained earnings (deficit)
     (39,434 )     (38,737 )
Deferred stock-based compensation
     —       (205 )
Accumulated other comprehensive (loss) income
     (7,900 )     (5,943 )
 
            
 
     56,269       59,431  
 
            
 
   $ 251,194     $ 272,187  
 
            
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2006     2005  
Revenues
                
Interest income
   $ 5,295     $ 3,832  
Interest expense
     2,841       1,572  
 
            
Net interest income before loan loss provision
     2,454       2,260  
Loan loss provision
     —       7  
 
            
Net interest income
     2,454       2,253  
(Loss) gain on sale of mortgage assets
     (109 )     2,280  
Loss on mark to market of mortgage assets
     (1,201 )     (1,628 )
Gain on freestanding derivatives
     646       708  
Due diligence fees
     2,533       2,542  
Technology
     915       554  
Loan brokering and advisory services
     105       512  
Reimbursed out-of-pocket expenses
     426       463  
Other (loss) income
     (49 )     56  
 
            
Total revenues
     5,720       7,740  
 
            
 
                
Expenses
                
Personnel
     2,179       2,260  
Subcontractors
     1,383       1,181  
Legal and professional
     898       920  
General and administrative
     438       388  
Depreciation and amortization
     189       281  
Occupancy
     146       135  
Technology
     379       295  
Travel and entertainment
     100       102  
Out-of-pocket expenses reimbursed
     426       463  
Other
     322       299  
 
            
Total expenses
     6,460       6,324  
 
            
Operating (loss) income
     (740 )     1,416  
Equity in income (loss) of unconsolidated affiliates
     27       (96 )
Minority interest in loss of consolidated affiliate
     (5 )     —  
 
            
Income (loss) before income tax benefit
     (708 )     1,320  
Income tax benefit
     (11 )     (43 )
 
            
Net Income (Loss)
   $ (697 )   $ 1,363  
 
            
Basic Earnings (Loss) Per Share
   $ (0.08 )   $ 0.16  
 
            
Diluted Earnings (Loss) Per Share
   $ (0.08 )   $ 0.16  
 
            
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HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
SUMMARY INFORMATION FOR REIT PORTFOLIO ASSETS
(dollars in thousands)
(Unaudited)
                         
    Three Months Ended March 31, 2006  
    Subordinate MBS     Agency MBS     Mortgage Loans  
Average asset balance
   $ 115,339     $ 65,627     $ 23,523  
Average CMO borrowing balance
     —       —       10,876  
Average balance — Repurchase Agreements
     74,268       56,484       3,874  
 
                  
Net investment
   $ 41,071     $ 9,143     $ 8,773  
 
                        
Average leverage ratio
     64.39 %     86.07 %     62.70 %
 
                        
Effective interest income rate
     13.01 %     5.15 %     6.78 %
Effective interest expense rate — CMO borrowing
                     5.88 %
Effective interest expense rate — Repurchase Agreements
     5.84 %     4.50 %     4.85 %
 
                  
 
                        
Net interest spread
     7.17 %     0.65 %     1.17 %
 
                        
Interest income
   $ 3,750     $ 846     $ 399  
Interest expense — CMO borrowing
     —       —       160  
Interest expense — Repurchase Agreements
     1,084       637       47  
 
                  
Net interest income
   $ 2,666     $ 209     $ 192  
 
                  
Yield
     25.96 %     9.14 %     8.75 %
 
                  
                         
    Three Months Ended March 31, 2005  
    Subordinate MBS     Agency MBS     Mortgage Loans  
Average asset balance
   $ 62,732     $ 106,784     $ 40,230  
Average CMO borrowing balance
     —       —       33,918  
Average balance — Repurchase Agreements
     37,260       94,607       1,273  
 
                  
Net investment
   $ 25,472     $ 12,177     $ 5,039  
 
                        
Average leverage ratio
     59.40 %     88.60 %     87.47 %
 
                        
Effective interest income rate
     11.43 %     5.00 %     6.27 %
Effective interest expense rate — CMO borrowing
                     5.85 %
Effective interest expense rate — Repurchase Agreements
     4.08 %     2.57 %     4.40 %
 
                  
 
                        
Net interest spread
     7.35 %     2.43 %     0.48 %
 
                        
Interest income
   $ 1,793     $ 1,335     $ 631  
Interest expense — CMO borrowing
     —       —       496  
Interest expense — Repurchase Agreements
     380       608       14  
 
                  
Net interest income
   $ 1,413     $ 727     $ 121  
 
                  
Yield
     22.19 %     23.88 %     9.61 %
 
                  
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