Mortgagit (NYSE:MHL)
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MortgageIT Holdings, Inc. Reports Fourth Quarter and Year-End
2004 Financial Results
- Company Files 10-K, Restates Prior Results to Reflect Change in FAS 133
Accounting Treatment; Dividends and Cash Flow Unaffected -
NEW YORK, March 31 /PRNewswire-FirstCall/ -- MortgageIT Holdings, Inc.
(NYSE:MHL), a residential mortgage company organized as a real estate
investment trust (REIT), today announced financial results for the fourth
quarter and year ended December 31, 2004. Coincident with this press release,
the Company also filed its Form 10-K with the Securities and Exchange
Commission.
MortgageIT Holdings, Inc. reported consolidated net income for the fourth
quarter of $1.8 million, or $0.09 per diluted share, and earnings of $(8.4)
million, or $(0.44) per pro forma diluted share, for the year ended December
31, 2004. As reported in the Company's February 14, 2005 press release,
mortgage funding volume for the year topped $13 billion, a Company record,
including $4.4 billion in the fourth quarter. The Company also announced a
change in accounting treatment for certain hedging activities related to
compliance with Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
The Company has effected a restatement for all affected periods through its
Form 10-K filing.
Doug Naidus, Chairman and Chief Executive Officer, commented, "The FAS 133
related accounting adjustments announced today do not impact our past or future
dividends, and have no effect on the Company's cash flows. FAS 133 is a
rigorous and complex accounting standard that creates compliance challenges for
many well-established companies. Our non-compliance with FAS 133 in prior
periods was a matter of not meeting certain detailed documentation and testing
requirements, and does not relate to the economic effectiveness of our hedging
program, which has achieved our objectives. The Company has taken significant
additional steps to ensure future documentation and testing compliance with FAS
133."
"These matters aside, 2004 was a very successful year for the Company on many
fronts, and the beginning of 2005 has been better than anticipated. The growth
of the portfolio has enabled us to declare a first quarter dividend of $0.48
per share, our first regular quarterly dividend. In addition, we have
continued to expand our mortgage origination franchise which has resulted in an
increase in our funding guidance for the first quarter of 2005."
Financial Results for 2004 Fourth Quarter and Fiscal Year
Results for the fourth quarter 2004 reflect for the first time a full
three-month period of REIT operations, following the Company's initial public
offering and reorganization as a REIT on August 4, 2004. Prior to August 4,
2004, the Company's operations consisted exclusively of its mortgage banking
business, MortgageIT, Inc., which is now owned and operated by MortgageIT
Holdings, Inc. and serves as the Company's taxable REIT subsidiary (TRS).
- As of today the Company has transferred $3.1 billion of loans from the
TRS into its investment portfolio. On January 19, 2005, the Company
closed its third loan securitization of $1.0 billion bringing the
securitized loan total to $2.4 billion. The Company expects to
complete a fourth securitization of loans that comprise its current
$3.1 billion portfolio early in the second quarter of 2005.
- The Company's consolidated net income for the fourth quarter was
$1.8 million, or $0.09 per diluted share. For the full-year, net
income was $(8.4) million, or $(0.44) per pro forma diluted share.
Outlook and Guidance
- The Company expects to meet or exceed the guidance for the first
quarter of 2005 that was provided in its February 14, 2005 press
release, and has raised its first quarter 2005 loan funding volume
expectation from between $3.5 to $4.0 billion up to $4.2 to
$4.4 billion, which would represent an increase of 93% to 102% over
the first quarter of 2004.
Restatement of Financial Results
On March 25, 2005, management and the Audit Committee of the Board of Directors
determined to restate the Company's financial statements for its quarters ended
March 31, June 30, and September 30, 2004, as well as for the fiscal years
ended December 31, 2002 and 2003. The restatement is limited to the Company's
reporting of its derivative instruments and hedging activities pursuant to FAS
133. The Company's previously released financial results for the years ended
December 31, 2002 and 2003 included unqualified opinions issued by its
independent registered public accounting firm BDO Seidman, LLP (BDO), and the
Company's previously issued quarterly reports for the second and third quarters
of 2004 were reviewed by BDO prior to issuance. The Company has discussed the
restatement with BDO, and both parties concur that these previously issued
financial statements, and the previously issued reports of BDO on the Company's
financial statements for the years ended December 31, 2002 and 2003, should no
longer be relied upon. The Audit Committee voluntarily advised the staff of
the Securities and Exchange Commission of the possibility of a restatement, and
the Company is cooperating with the staff's informal inquiry into the matter.
The Company previously applied FAS 133 to the Company's loans held for sale,
which were marked to market in each reporting period and the resulting change
was recorded in earnings, and previously had not classified or accounted for
certain forward sales commitments allocated to funded mortgage loans held for
sale as free-standing derivatives and therefore had not carried these
instruments at their fair value. In addition, the Company had also previously
applied FAS 133 to its cash flow hedging, with the result that both realized
and unrealized derivative gains and losses were recorded in Other Comprehensive
Income ("OCI") in the Company's balance sheets and amortized over the expected
life of the liabilities funding the Company's investment portfolio.
As a result of the recent review, the Company has concluded that it did not
fully satisfy FAS 133 accounting standards during the before-mentioned periods.
Accordingly, derivative instruments used in hedging activities and loans held
for sale have been accounted for as follows:
- For the restated periods, all loans held for sale are recorded at the
lower of cost or market.
- For the restated periods, forward sales commitments are accounted for
as free-standing derivatives and any changes to fair value are
recorded in earnings.
- For the restated periods, derivative cash flow hedge gains and losses
are now recorded in earnings in the period in which they occurred.
- In the fourth quarter of 2004, the Company qualified for FAS 133 fair
value hedging treatment for loans held for sale (excluding loans
allocated to forward sales commitments) and such loans and the related
derivative instruments are reported at fair value with the gains and
losses reported through earnings.
- From November 24 through December 31, 2004, the Company qualified for
FAS 133 cash flow hedge accounting for its interest rate caps and
swaps.
The foregoing changes are not expected to impact the Company's taxable income
or cash flow, which is the basis for determining REIT dividends to the
Company's stockholders, including the Company's first quarterly dividend of
$0.48 per share announced earlier this month. However, revenue, pre-tax and
after-tax earnings in each of the years 2002 and 2003 and each of the first
three quarters of 2004 have changed as reflected in the tables below.
Future Compliance with FAS 133
The Company will seek to comply with the strict standards as they relate to
testing and documentation under FAS 133 in all respects for future periods. FAS
133 hedge accounting standards serve to match the timing of changes in the
value of assets versus derivatives and in the cash flows of liabilities versus
derivatives. The Company believes that application of FAS 133 is the most
appropriate way to report the economic results of our mortgage banking and
portfolio investment activities in our financial statements.
- The Company expects that it will comply with the documentation
requirements of FAS 133 for all loans held for sale, including loans
allocated to forward sales commitments, as of the end of the first
quarter of 2005.
- The Company expects to continue to be in compliance with the
documentation requirements of FAS 133 as it relates to its cash flow
hedging activities for interest rate caps and swaps.
- The Company does not expect to be in compliance with FAS 133 for the
majority of the first quarter as it relates to Eurodollar futures
contracts used in its investment portfolio activities. The impact of
non-compliance in the first quarter of this year will be a gain of
approximately $12.5 million, as of March 29, 2005.
Conference Call Information
Because the Company is filing its complete financial results in its Form 10-K
coincident with this press release, it will not hold a conference call to
discuss its results. The Company expects to hold its next conference call upon
release of its 2005 first quarter results, which will be released the week of
May 9, 2005.
About MortgageIT Holdings, Inc.
MortgageIT Holdings, Inc. (NYSE:MHL) was formed to act as the holding company
of MortgageIT, Inc. (MortgageIT), its wholly owned residential mortgage lending
subsidiary. MortgageIT is a full-service residential mortgage banking company
that is licensed to originate loans throughout the United States. MortgageIT
originates single-family residential mortgage loans of all types, with
particular focus on prime adjustable-rate (ARM) and fixed- rate, first-lien
residential mortgage loans. MortgageIT Holdings is organized and conducts its
operations to qualify as a real estate investment trust (REIT) for federal
income tax purposes. MortgageIT is MortgageIT Holdings' taxable REIT
subsidiary.
Certain items in this press release may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including statements relating to our ability to fund a fully- leveraged,
self-originated loan portfolio, our anticipated loan funding volume and our
ability to pay dividends as well as our future compliance with the requirements
of FAS 133. These statements are based on management's current expectations and
beliefs and are subject to a number of trends and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements. MortgageIT Holdings can give no assurance that its
expectations will be attained. Factors that could cause actual results to
differ materially from MortgageIT Holdings' expectations include, but are not
limited to, MortgageIT's continued ability to originate new loans, including
loans that we deem suitable for our securitization portfolio; changes in the
capital markets, including changes in interest rates and/or credit spreads; and
other risks detailed in MortgageIT Holdings' annual report on Form 10-K for the
fiscal year ended December 31, 2004 and from time to time in MortgageIT
Holdings' SEC Reports. Such forward-looking statements speak only as of the
date of this press release. MortgageIT Holdings expressly disclaims any
obligation to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with regard thereto or change in events, conditions or circumstances on which
any statement is based.
MortgageIT Holdings, Inc.
CONSOLIDATED FINANCIAL HIGHLIGHTS FOR 2004
($ in millions)
Restated Financials 4th 3rd 2nd 1st 2004
Qtr* Qtr Qtr Qtr
Total Revenues - as restated 45.20 22.63 36.57 25.88 130.28
Total Operating Expenses 43.03 34.84 32.88 26.37 137.11
Income Before Taxes - as restated 2.18 (12.21) 3.70 (0.50) (6.83)
Income Taxes - as restated 0.41 (0.24) 1.67 (0.22) 1.62
Net Income - as restated 1.76 (11.97) 2.03 (0.27) (8.45)
Impact of Restatement on
Revenues and Income
Mortgage banking hedge program 0.04 0.14 (1.03) (1.42) (2.27)
Investment portfolio hedge
program 2.29 (9.86) - - (7.56)
Net effect of restatement on
revenues and pre-tax income 2.33 (9.72) (1.03) (1.42) (9.84)
Net effect of restatement on
net income 1.97 (9.33) (0.81) (0.82) (8.99)
Reconciliation to Previously
Reported Financials
Net Income - as originally
reported N/A (2.63) 2.84 0.55 N/A
Adjustment for restatement N/A (9.33) (0.81) (0.82) N/A
Net Income - as restated N/A (11.97) 2.03 (0.27) N/A
* The fourth quarter and full year 2004 results were not previously reported
and therefore are not restated.
MortgageIT Holdings, Inc.
CONSOLIDATED FINANCIAL HIGHLIGHTS FOR 2003
($ in millions)
Restated Financials 4th 3rd 2nd 1st 2003
Qtr Qtr Qtr Qtr
Total Revenues - as restated 33.38 43.15 45.89 39.53 161.95
Total Operating Expenses 30.74 36.87 37.07 29.19 133.87
Income Before Taxes - as restated 2.64 6.28 8.81 10.34 28.07
Income Taxes - as restated 0.36 0.85 1.19 1.40 3.80
Net Income - as restated 2.28 5.43 7.62 8.94 24.28
Impact of Restatement on
Revenues and Income
Mortgage banking hedge program 1.64 (1.76) 1.39 5.18 6.45
Investment portfolio hedge
program - - - - -
Net effect of restatement on
revenues and pre-tax income 1.64 (1.76) 1.39 5.18 6.45
Net effect of restatement on net
income 0.34 (0.59) 2.04 4.72 6.51
Reconciliation to Previously
Reported Financials
Net Income - as originally
reported 1.94 6.02 5.58 4.22 17.77
Adjustment for restatement 0.34 (0.59) 2.04 4.72 6.51
Net Income - as restated 2.28 5.43 7.62 8.94 24.28
MortgageIT Holdings, Inc.
CONSOLIDATED FINANCIAL HIGHLIGHTS FOR 2002
($ in millions)
Restated Financials 2002
Total Revenues - as restated 93.52
Total Operating Expenses 92.41
Income Before Taxes - as restated 1.11
Income Taxes - as restated 0.25
Net Income - as restated 0.86
Impact of Restatement on Revenues and Income
Mortgage banking hedge program (6.57)
Investment portfolio hedge program -
Net effect of restatement on revenues
and pre-tax income (6.57)
Net effect of restatement on net income (6.57)
Reconciliation to Previously Reported Financials
Net Income - as originally reported 7.43
Adjustment for restatement (6.57)
Net Income - as restated 0.86
MortgageIT Holdings, Inc.
Condensed Consolidated Income Statements
(in thousands, except per share data)
(Audited)
Three months ended Twelve months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2004 2003 2004 2003
Revenues:
Gain on sale of
mortgage loans $20,763 $16,596 $70,397 $87,215
Brokerage revenues 6,739 14,212 36,283 63,030
Net interest income 15,401 2,548 30,887 10,720
Realized gain (loss)
on hedging instruments 2,004 (7,852) 0
Other 294 20 566 980
Total revenues 45,201 33,376 130,281 161,945
Operating expenses:
Compensation and
employee benefits 25,155 17,964 82,077 77,851
Processing expenses 7,651 5,788 24,603 27,828
General and
administrative expenses 4,707 2,699 12,321 9,867
Rent 2,008 1,598 7,670 6,483
Marketing, loan
acquisition and
business
development 1,076 1,481 4,203 6,504
Professional fees 1,659 585 3,510 2,930
Depreciation and
amortization 770 622 2,726 2,408
Total operating
expenses 43,026 30,737 137,110 133,871
Income (loss)
before income taxes 2,175 2,639 (6,829) 28,074
Income taxes 413 357 1,617 3,799
Net Income (loss) 1,762 2,282 (8,446) 24,275
Dividends on
convertible redeemable
preferred stock,
accrued and unpaid 0 1,640 3,947 6,299
Net income (loss)
attributable to common
stockholders $1,762 $642 $(12,393) $17,976
Net income (loss) per
share of common stock(1):
Basic $0.09 $1.24 $(1.46) $34.71
Diluted $0.09 $0.48 $(1.46) $5.23
Weighted average number
of shares - basic 19,405 517 8,517 518
Weighted average number
of shares - diluted 19,760 4,734 8,517 4,644
(1) Reflects the impact on net income per share attributable to common
stockholders, on a retroactive basis, for all periods presented,
assuming that the exchange of all common shares of MortgageIT
(assuming each share of the Company's common stock was exchanged for
approximately 12.80 shares of MortgageIT) pursuant to the
reorganization (as described in the Company's Registration Statement
on Form S-11 that was declared effective by the Securities and
Exchange Commission on July 29, 2004) had occurred on January 1,
2003.
MortgageIT Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
(Audited)
As of As of
Dec 31, 2004 Dec 31, 2003
ASSETS
Cash and cash equivalents $70,224 $22,261
Restricted cash 1,679 1,517
Marketable securities held to
maturity, pledged to creditors 7,546 1,419
Portfolio ARM loans
ARM loans collateralizing debt
obligations, net 1,432,692 -
ARM loans held for
securitization, net 1,166,961 -
Total Portfolio ARM loans 2,599,653 -
Mortgage loans held for sale
pledged to secure warehouse line 784,592 324,753
Hedging instruments 19,526 343
Accounts receivables, net of allowance 28,731 10,301
Prepaids and other current assets 7,803 5,538
Goodwill 11,639 11,665
Property and equipment, net 5,567 5,324
Total assets $3,536,960 $383,121
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Collateralized debt obligations,
net $1,328,096 $ -
Warehouse lines payable 1,869,385 300,699
Repurchase agreements 67,674 -
Hedging instruments 1,145 3,202
Note payable and other debt 15,000 1,125
Accounts payable, accrued expenses
and other liabilities 63,993 30,996
Total liabilities 3,345,293 336,022
COMMITMENTS AND CONTINGENCIES
Convertible redeemable preferred
stock: 22,000,000 shares
authorized; 15,082,973 issued and
outstanding - 62,557
STOCKHOLDERS' EQUITY (DEFICIT)
MortgageIT Holdings common stock,
$.01 par value; 125,000,000 shares
authorized; 19,405,537 issued and
outstanding 194 -
MortgageIT, Inc. common stock,
Class A, $01 par value; 1,895,000
shares authorized; 517,835 issued
and outstanding (1) - 5
Additional paid-in capital 238,405 3,955
Unearned compensation - restricted
stock (6,196) -
Accumulated other comprehensive
income (loss) (387) -
Accumulated deficit (40,349) (19,418)
Total stockholders' equity (deficit) 191,667 (15,458)
Total liabilities and
stockholders' equity (deficit) $3,536,960 $383,121
MortgageIT Holdings, Inc.
Segment Information
(in thousands)
Three Months Twelve Months
Ended Ended
Dec. 31, 2004 Dec. 31, 2004
Revenues:
Mortgage investment operations $10,327 $9,236
Mortgage banking operations 42,524 138,792
Eliminations (7,650) (17,747)
Consolidated revenues $45,201 $130,281
Net income (loss):
Mortgage investment operations $8,264 $6,200
Mortgage banking operations 501 1,964
Eliminations (7,003) (16,610)
Consolidated income (loss) $1,762 $(8,446)
At Dec. 31,
2004
Segment assets:
Mortgage investment operations $2,435,967
Mortgage banking operations $1,117,160
Eliminations (16,167)
Consolidated assets $3,536,960
DATASOURCE: MortgageIT Holdings, Inc.
CONTACT: Investors - Sean McGrath, +1-212-651-4637, or Media - Ted
Stacer, +1-212-651-7653, both of MortgageIT Holdings, Inc.; or Joe LoBello of
Brainerd Communicators, Inc., +1-212-986-6667
Web site: http://www.mortgageitholdings.com/