- Earns adjusted net income of $0.36 per diluted share, or $0.30 on GAAP
basis
- Funds Company record $9.25 billion of loans
- Guides to $8.5 to $9.0 billion in fourth quarter funding volume
NEW YORK, Nov. 7 - MortgageIT Holdings, Inc. (NYSE: MHL), a residential mortgage company organized as a real estate investment trust ("REIT"), today announced operating and financial results for the third quarter ended September 30, 2005.
The Company reported GAAP net income for the third quarter of 2005 of $8.7 million, or $0.30 per diluted share. For the nine months ended September 30, 2005, GAAP net income was $32.8 million, or $1.44 per diluted share. Adjusted net income for the third quarter of 2005 was $10.2 million, or $0.36 per diluted share. For the nine months ended September 30, 2005, adjusted net income was $27.0 million, or $1.19 per diluted share. Net income and adjusted net income per diluted share are based upon weighted average outstanding shares of 28.4 million for the third quarter and 22.8 million for the nine- month period. Additional operating information is included in the "Operating Statistics Table" provided later in this press release.
Doug Naidus, Chairman and Chief Executive Officer, commented, "We are pleased to report that the Company is performing well in a challenging environment. We continue to include only carefully selected, high credit quality assets in our 100% self-originated portfolio, as indicated by our recent announcement that we are slowing the further growth of our loan portfolio. Our mortgage bank continues to achieve record results, paced by the 100% plus year-over-year growth in our mortgage funding volume. We believe that the Company ranked among the top 20 lenders nationally in loan originations for the third quarter."
Mr. Naidus continued, "Despite overall growth of 45% quarter over quarter, we did not surpass our third quarter sub-prime loan origination guidance due to the extraordinary pressure on the gain on sale margins during the third quarter. Given our commitment to continuing to operate our sub-prime business unit profitably, we have guided to flat to lower sub prime volume in the fourth quarter as we expect these conditions will persist."
Mortgage Banking Financial and Operating Highlights:
-- For the third quarter ended September 30, 2005, MortgageIT, Inc., the
Company's mortgage banking subsidiary, had pre-tax income of $16.0
million. After-tax income, prior to eliminations, totaled $8.9 million.
Net of tax and the elimination of the gain on sale relating to $977
million of loans transferred to the REIT portfolio, the mortgage bank
earned $1.6 million or $0.06 per share.
-- Third quarter sub-prime volume was $1.3 billion, within the Company's
prior guidance of $1.1 billion to $1.3 billion.
-- Gain on sale margin for loans sold to third parties during the quarter
ended September 30, 2005 was approximately 93 basis points (Bps). A
breakdown between prime and sub-prime margins can be found in the
"Operating Statistics Table" provided later in this press release.
Portfolio Financial and Operating Highlights:
-- During the third quarter of 2005, the Company transferred $977 million
of self-originated ARM loans to its investment portfolio. As of
September 30, 2005, the Company had an investment portfolio of $4.7
billion, of which $4.1 billion was securitized. The portfolio had an
average balance of $4.2 billion during the third quarter. On October
25, 2005, the Company closed a $905 million securitization, bringing
the securitized portfolio to approximately $5.0 billion. The portfolio
continues to consist entirely of 6 month traditional ARMs and hybrid 3
year and 5 year ARMs which do not carry a negative amortization
feature.
-- Adjusted net interest margin on the loan portfolio was 122 Bps during
the third quarter, down from 145 Bps in the second quarter. Adjusted
return on assets ("ROA") on the portfolio was 79 Bps in the third
quarter, down from 92 Bps in the second quarter. Third quarter adjusted
net interest margin and ROA were negatively impacted by increased loan
basis amortization due to faster prepayment speeds.
-- The portfolio earned $8.6 million, or $0.30 per share in adjusted
earnings.
Outlook and Guidance
-- As previously disclosed, the Company expects to maintain the size of
its investment portfolio at approximately $5.0 billion during the
fourth quarter.
-- As previously announced, the Company expects to pay a fourth quarter
dividend of $0.48 per share, unchanged from dividends paid for the
first three quarters of 2005.
-- The Company expects to report loan funding volume of approximately $8.5
to $9.0 billion in the fourth quarter of 2005, which would represent an
increase of 94% to 105% over the fourth quarter of 2004.
-- The Company expects to report sub-prime loan funding volume of
approximately $900 million to $1.2 billion in the fourth quarter.
-- The Company has fully assessed the impact of Hurricane Katrina on the
Company's assets and, given its minimal exposure in the affected areas,
it anticipates no material financial effect on the Company's business.
Adjusted Financial Measures
Adjusted net income, adjusted net interest margin, adjusted return on assets, and adjusted earnings per share (diluted) are non-GAAP financial measures which are reported by the Company in addition to net income and earnings per share (diluted) as prepared in accordance with GAAP. As indicated in its first quarter 2005 release, during the first quarter of 2005, the Company did not qualify under the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") with respect to certain hedging activities. The non-GAAP financial measures reported by the Company are presented as if the Company qualified under FAS 133 in all periods. If the Company qualified under FAS 133, gains and losses on derivative hedges would have been deferred and amortized over the hedge period. Since the Company did not qualify under FAS 133, both realized and unrealized gains and losses were recognized in GAAP earnings in prior periods. Management believes that by adjusting net income in this manner, the non-GAAP measures provide a useful gauge of the Company's operating performance because adjusted net income highlights that portion of the Company's reported earnings that is more likely to be ongoing in nature.
Conference Call Information
MortgageIT Holdings, Inc. will hold an investor conference call to discuss its third quarter financial performance at 10:00 a.m. Eastern Time on Tuesday, November 8, 2005. Interested parties may listen to the live call by dialing 800-865-4415 (U.S.) or 973-935-2402 (International) and referencing the conference ID #6569111, or by visiting the MortgageIT Holdings corporate website, http://www.mortgageitholdings.com, to listen to a live conference call webcast. A replay of the conference call will be available through Tuesday, November 15, 2005, at midnight ET. The replay can be accessed by dialing 877-519-4471 (U.S.), and 973-341-3080 (International). The pass code for the replay is 6569111. An archived replay of the webcast will also be available on the Company's corporate website.
About MortgageIT Holdings, Inc.
MortgageIT Holdings, Inc. (NYSE: MHL) is a self-administered mortgage real estate investment trust ("REIT") focused on the residential lending market. The Company self-originates its investment portfolio of high quality adjustable rate mortgage ("ARM") loans through MortgageIT, Inc., its wholly owned residential mortgage banking subsidiary. MortgageIT, Inc. is a full- service residential mortgage banking company that is licensed to originate loans throughout the United States. MortgageIT Holdings is organized and conducts its operations to qualify as a REIT for federal income tax purposes. MortgageIT is organized and operates as MortgageIT Holdings' taxable REIT subsidiary. For more information, please visit http://www.mortgageitholdings.com.
Forward-Looking Statements
In this press release, 2005 results are unaudited. Also, this press release contains certain "forward-looking statements," which are statements that relate to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "will" or other similar words or expressions. Forward-looking statements, by their nature, address matters that are, to different degrees, uncertain and include 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. 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 that was filed with the Securities and Exchange Commission ("SEC") on March 31, 2005 and from time to time in MortgageIT Holdings' other 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. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2005 2004
(Unaudited)
ASSETS
Cash and cash equivalents $58,999 $70,224
Restricted cash 1,691 1,679
Marketable securities held to maturity 3,684 7,546
Portfolio ARM Loans
ARM loans collateralizing debt obligations, net 4,083,127 1,432,692
ARM loans held for securitization, net 588,252 1,166,961
Total Portfolio ARM Loans 4,671,379 2,599,653
Mortgage loans held for sale 3,293,729 784,592
Hedging instruments 48,644 19,526
Accounts receivable, net of allowance 114,515 28,731
Prepaids and other assets 19,920 11,693
Goodwill 11,639 11,639
Property and equipment, net 8,490 5,567
Total assets $8,232,690 $3,540,850
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Collateralized debt obligations $3,899,237 $1,331,986
Warehouse lines payable 3,673,365 1,869,385
Repurchase agreements 75,897 67,674
Hedging instruments 4,340 1,145
Junior subordinated debentures 77,324 -
Notes payable and other debt 15,000 15,000
Accounts payable, accrued expenses and other
liabilities 130,088 63,993
Total liabilities 7,875,251 3,349,183
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 125,000,000
shares authorized; 28,884,868 and 19,405,473
issued and outstanding 289 194
Additional paid-in capital 393,038 238,405
Unearned compensation - restricted stock (6,657) (6,196)
Accumulated other comprehensive income (loss) 10,556 (387)
Accumulated deficit (39,787) (40,349)
Total stockholders' equity 357,439 191,667
Total liabilities and stockholders' equity $8,232,690 $3,540,850
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars and shares in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
(As restated) (As restated)
Revenues:
Gain on sale of mortgage
loans $61,612 $14,405 $140,704 $49,634
Brokerage revenues 7,506 8,955 20,179 29,544
Interest income 90,384 15,804 212,036 27,412
Interest expense (75,741) (6,925) (156,482) (11,926)
Net interest income 14,643 8,879 55,554 15,486
Realized and unrealized
gain on hedging
instruments - (9,856) 9,742 (9,856)
Other 209 248 715 272
Total revenues 83,970 22,631 226,894 85,080
Operating expenses:
Compensation and employee
benefits 39,037 20,492 99,051 56,922
Processing expenses 16,014 7,165 40,064 16,952
General and administrative
expenses 6,112 2,811 19,117 7,614
Rent 2,700 1,990 7,257 5,662
Marketing, loan
acquisition and business
development 1,206 902 3,126 3,127
Professional fees 2,411 792 7,238 1,851
Depreciation and
amortization 984 686 2,621 1,956
Total operating expenses 68,464 34,838 178,474 94,084
Income (loss) before
income taxes 15,506 (12,207) 48,420 (9,004)
Income taxes 6,841 (242) 15,607 1,204
Net income (loss) 8,665 (11,965) 32,813 (10,208)
Dividends on convertible
redeemable preferred
stock - 587 - 3,947
Net income (loss)
attributable to common
stockholders $8,665 $(12,552) $32,813 $(14,155)
Per share data:
Basic $0.31 $(0.93) $1.47 $(2.91)
Diluted $0.30 $(0.93) $1.44 $(2.91)
Weighted average number of
shares - basic 28,077 13,451 22,381 4,861
Weighted average number of
shares - diluted 28,427 13,451 22,788 4,861
Segment Financial Results for the Third Quarter of 2005
($ thousands - except EPS) Mortgage Banking Portfolio Consolidated
Amount EPS Amount EPS Amount EPS
After tax GAAP earnings prior
to elimination 8,872 0.31 4,837 0.17 13,709 0.48
Elimination (1) (7,310) (0.26) 2,266 0.08 (5,044) (0.18)
After tax GAAP earnings net of
elimination 1,562 0.06 7,103 0.25 8,665 0.30
Adjustment for after tax impact
relating to FAS133 (2) 0 0.00 1,511 0.06 1,511 0.06
Adjusted Earnings 1,562 0.06 8,614 0.30 10,176 0.36
Segment Financial Results for the Nine Months ended September 30th of 2005
($ thousands - except EPS) Mortgage Banking Portfolio Consolidated
Amount EPS Amount EPS Amount EPS
After tax GAAP earnings
prior to elimination 20,489 0.90 25,678 1.13 46,167 2.03
Elimination (1) (17,898) (0.79) 4,544 0.20 (13,354) (0.59)
After tax GAAP earnings net
of elimination 2,591 0.11 30,222 1.33 32,813 1.44
Adjustment for after tax
impact relating
to FAS133 (2) (629) (0.03) (5,140) (0.23) (5,769) (0.25)
Adjusted Earnings 1,962 0.09 25,082 1.10 27,044 1.19
(1) Eliminates the economic impact of inter-company loan sales from the
mortgage bank to the portfolio.
(2) Adjusts previous gains and losses on derivative hedges reported by the
Company (as a result of not qualifying under FAS 133) and the
corresponding amortization associated with those gains and losses.
Operating Statistics Table
Quarter Ended 2005
March 31 June 30 September 30
Mortgage Banking Metrics
Loan volume ($ millions) $4,340 $6,389 $9,249
% Purchase 51% 56% 48%
% Refinance 49% 44% 52%
% Funded in MortgageIT name (banked) 92% 93% 95%
Held for sale warehouse balance
(avg) ($ millions) $1,500 $2,139 $3,655
Warehouse weighted average coupon 6.33% 5.87% 5.24%
Warehouse borrowing cost 3.33% 3.74% 4.36%
Warehouse net interest margin 3.00% 2.13% 0.88%
Number of production branches 51 53 58
Gain on sale on total loans sold
to third parties (Bps) 105 114 93
Gain on sale prime loans sold
to third parties (Bps) 97 93 80
Gain on sale sub-prime loans
sold to third parties (Bps) 186 227 175
Gain on sale on loans transferred
to portfolio (Bps) 87 70 78
Margin on loans brokered (Bps) 133 116 128
Loan Portfolio Metrics
Average loan assets in portfolio
($ millions) $2,786 $3,404 $4,197
Weighted average coupon of loans 5.12% 5.17% 5.37%
Scheduled loan basis amortization 0.21% 0.22% 0.28%
Incremental loan basis
amortization due to higher
prepayment rates --% 0.05% 0.08%
Net weighted average coupon 4.91% 4.90% 5.01%
Interest expense (net of hedging) 3.07% 3.62% 3.93%
FAS133 adjustment --% -0.17% -0.14%
Adjusted net interest margin 1.84% 1.45% 1.22%
General and administrative
(includes servicing expense) 0.41% 0.44% 0.34%
Credit provision 0.09% 0.09% 0.09%
Adjusted loan portfolio return on
assets 1.34% 0.92% 0.79%
Adjusted loan portfolio return on
assets prior to increased prepayments 1.34% 0.97% 0.87%
Credit Reserve for HFI Portfolio
Credit reserve balance 0.05% 0.06% 0.07%
60 to 89 days past due 0.06% 0.11% 0.26%
Over 90 days past due --% --% 0.04%
Foreclosure 0.04% 0.17% 0.13%
Total past due and foreclosure 0.10% 0.28% 0.43%
