EX-99.6 7 b44243hkexv99w6.txt PROFORMA CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99.6 PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES The following unaudited pro forma consolidated financial statements have been prepared to give effect to Hanover Capital Mortgage Holdings, Inc.'s acquisition on July 1, 2002 of 100% of the outstanding common stock of each of HanoverTrade, Inc., Hanover Capital Partners Ltd. and Hanover Capital Partners 2, Inc. (collectively, the "Newly Consolidated Subsidiaries"), as previously reported on Form 8-K filed on July 16, 2002. This acquisition had been accounted for using the purchase method of accounting. These pro forma financial statements were prepared as if the acquisition had been completed as of January 1, 2001 for statement of income purposes and as of June 30, 2002 for balance sheet purposes. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have actually been reported had the acquisition occurred on June 30, 2002 for balance sheet purposes and on January 1, 2001 for statement of income purposes, nor are these presentations necessarily indicative of the future financial position or results of operations. These unaudited pro forma consolidated financial statements are based upon the historical consolidated financial statements of Hanover Capital Mortgage Holdings, Inc. and the Newly Consolidated Subsidiaries included in Hanover Capital Mortgage Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001, Hanover Capital Mortgage Holdings, Inc. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002, and the historical financial statements of the Newly Consolidated Subsidiaries included in this Form 8-K/A. TABLE OF CONTENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
PAGE Pro Forma Consolidated Balance Sheet as of June 30, 2002 2 Notes to Pro Forma Consolidated Balance Sheet 3 Pro Forma Consolidated Statement of Income for the Six Months Ended June 30, 2002 4 Pro Forma Consolidated Statement of Income for the Year Ended December 31, 2001 5 Notes to Pro Forma Consolidated Statements of Income 6
HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 2002 (UNAUDITED) (in thousands)
HANOVER CAPITAL MORTGAGE HOLDINGS, NEWLY INC. CONSOLIDATED ADJUSTMENTS/ PRO FORMA ORIGINAL SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ -------------- ------------ ASSETS Mortgage loans: Held for sale $ 758 $ - $ - $ 758 Collateral for CMOs 123,523 - - 123,523 Mortgage securities pledged as collateral for reverse repurchase agreements: Available for sale 4,265 - - 4,265 Held to maturity 689 - - 689 Trading 11,404 - - 11,404 Mortgage securities pledged as collateral for CMOs 9,800 - - 9,800 Mortgage securities, not pledged: Available for sale 579 - - 579 Trading 3,657 3,159 - 6,816 Cash and cash equivalents 8,514 1,671 - 10,185 Accrued interest receivable 1,202 72 - 1,274 Equity investments: Hanover Capital Partners Ltd. 1,920 - (1,920)(a,b) - HanoverTrade, Inc. (formerly HanoverTrade.com, Inc.) (3,663) - 3,663 (a,b) - Hanover Capital Partners 2, Inc. (19) - 19 (a,b) - HDMF-I LLC 3,970 - - 3,970 Notes receivable from related parties 13,880 - (11,074)(a,c) 2,806 Due from related parties 517 354 (836)(c) 35 Other assets 2,113 6,039 528 (a) 8,680 --------- --------- -------- --------- TOTAL ASSETS $ 183,109 $ 11,295 $ (9,620) $ 184,784 ========= ========= ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Reverse repurchase agreements $ 13,544 $ - $ - $ 13,544 CMO borrowing 123,173 - - 123,173 Notes payable to related party - 10,600 (10,600)(c) - Due to related parties - 836 (836)(c) - Accounts payable, accrued expenses and other liabilities 2,589 1,675 - 4,264 --------- --------- -------- --------- TOTAL LIABILITIES 139,306 13,111 (11,436) 140,981 --------- --------- -------- --------- STOCKHOLDERS' EQUITY: Preferred stock - 2 (2)(b) - Common stock 45 - - 45 Additional paid-in capital 67,963 11,461 (11,461)(b) 67,963 Retained earnings (deficit) (24,387) (13,279) 13,279 (b) (24,387) Accumulated other comprehensive income 182 - - 182 --------- --------- -------- --------- TOTAL STOCKHOLDERS' EQUITY 43,803 (1,816) 1,816 43,803 --------- --------- -------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 183,109 $ 11,295 $ (9,620) $ 184,784 ========= ========= ======== =========
See notes to pro forma consolidated balance sheet 2 HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) (dollars in thousands) (a) Acquisition of 100% of the common stock of Hanover Capital Partners Ltd., HanoverTrade, Inc. and Hanover Capital Partners 2, Inc. in exchange for a reduction of the notes receivable from the common stockholders: Purchase price (reduction of notes receivable) $ 474 Less fair value of net assets (liabilities) acquired (54) ------- Goodwill $ 528 =======
(b) Elimination of the investment in newly consolidated subsidiaries against their equity: Negative investment balance reflected at 100% $ (1,816) ======== Preferred stock of subsidiaries $ 2 Additional paid-in capital of subsidiaries 11,461 Retained deficit of subsidiaries prior to acquisition (13,279) -------- Total equity of subsidiaries prior to acquisition $ (1,816) ========
(c) Elimination of intercompany receivables and payables between Hanover Capital Mortgage Holdings, Inc. and the newly consolidated subsidiaries: Notes receivable from subsidiaries $ 10,600 Due from subsidiaries 836 -------- $ 11,436 ======== Notes payable to HCHI $ 10,600 Due to HCHI 836 -------- $ 11,436 ========
3 HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) (in thousands, except per share data)
HANOVER CAPITAL MORTGAGE HOLDINGS, NEWLY INC. CONSOLIDATED ADJUSTMENTS PRO FORMA ORIGINAL SUBSIDIARIES ELIMINATIONS/ CONSOLIDATED ---------- ------------ ------------- ------------ REVENUES: Interest income $ 7,306 $ 632 $ (345)(a) $ 7,593 Interest expense 4,273 - - 4,273 ---------- --------- --------- ---------- Net interest income 3,033 632 (345) 3,320 Loan loss provision 121 - - 121 ---------- --------- --------- ---------- Net interest income after loan loss provision 2,912 632 (345) 3,199 Loan brokering/trading - 3,137 - 3,137 Due diligence fees - 2,086 - 2,086 Loan sale advisory services - 1,008 - 1,008 Assignment fees - 833 - 833 Gain on sale of mortgage assets 905 - - 905 Gain (loss) on mark to market of mortgage assets 575 (131) - 444 Other income (loss) (425) 15 (36)(b) (446) ---------- --------- --------- ---------- Total revenues 3,967 7,580 (381) 11,166 ---------- --------- --------- ---------- EXPENSES: Personnel 856 3,083 364 (b) 4,303 Subcontractor - 1,152 - 1,152 Depreciation and amortization - 625 - 625 Legal and professional 429 136 - 565 General, management and administrative 445 505 (400)(b) 550 Technology 1 489 - 490 Occupancy 48 187 - 235 Other 206 359 (332)(a) 233 Travel and entertainment 25 195 - 220 ---------- --------- --------- ---------- Total expenses 2,010 6,731 (368) 8,373 ---------- --------- --------- ---------- Operating income 1,957 849 (13) 2,793 Equity in income (loss) of unconsolidated subsidiaries 747 - (748)(c) (1) ---------- --------- --------- ---------- Income before income tax provision 2,704 849 (761) 2,792 Income tax provision - 77 - 77 ---------- --------- --------- ---------- NET INCOME $ 2,704 $ 772 $ (761) $ 2,715 ========== ========= ========= ========== BASIC EARNINGS PER SHARE: Average common shares outstanding 4,345,052 4,345,052 ========== ========== Basic earnings per share $ 0.62 $ 0.62 ========== ========== DILUTED EARNINGS PER SHARE: Diluted weighted average shares outstanding 4,409,312 4,409,312 ========== ========== Diluted earnings per share $ 0.61 $ 0.62 ========== ==========
See notes to pro forma consolidated statements of income 4 HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2001 (UNAUDITED) (in thousands, except per share data)
HANOVER CAPITAL MORTGAGE HOLDINGS, NEWLY INC. CONSOLIDATED ADJUSTMENTS/ PRO FORMA ORIGINAL SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------ REVENUES: Interest income $ 19,702 $ 42 $ (454)(a) $ 19,290 Interest expense 13,433 -- -- 13,433 --------- --------- --------- --------- Net interest income 6,269 42 (454) 5,857 Loan loss provision 709 -- -- 709 --------- --------- --------- --------- Net interest income after loan loss provision 5,560 42 (454) 5,148 Due diligence fees -- 5,803 (720)(b) 5,083 Loan brokering/trading -- 2,605 -- 2,605 Loan sale advisory services -- 993 -- 993 Assignment fees -- 756 -- 756 Gain on sale of mortgage assets 3,782 -- -- 3,782 Gain (loss) on mark to market of mortgage assets, net of associated hedge 751 (56) -- 695 Other income (loss) (28) 23 -- (5) --------- --------- --------- --------- Total revenues 10,065 10,166 (1,174) 19,057 --------- --------- --------- --------- EXPENSES: Personnel 664 6,554 (4)(b) 7,214 Subcontractor -- 2,373 -- 2,373 Legal and professional 1,247 457 -- 1,704 Depreciation and amortization -- 1,160 -- 1,160 General, management and administrative 952 726 (716)(b) 962 Occupancy 275 501 -- 776 Technology 4 690 -- 694 Other 509 479 (428)(a) 560 Travel and entertainment 45 499 -- 544 --------- --------- --------- --------- Total expenses 3,696 13,439 (1,148) 15,987 --------- --------- --------- --------- Operating income (loss) 6,369 (3,273) (26) 3,070 Equity in (loss) of unconsolidated subsidiaries (3,255) -- 3,220(c) (35) --------- --------- --------- --------- Income (loss) before income tax provision and cumulative effect of adoption of SFAS 133 3,114 (3,273) 3,194 3,035 Income tax provision -- 64 -- 64 --------- --------- --------- --------- Income (loss) before cumulative effect of adoption of SFAS 133 3,114 (3,337) 3,194 2,971 Cumulative effect of adoption of SFAS 133 46 -- -- 46 --------- --------- --------- --------- NET INCOME (LOSS) $ 3,160 $ (3,337) $ 3,194 $ 3,017 ========= ========= ========= ========= BASIC EARNINGS PER SHARE: Average common shares outstanding 4,256,874 4,256,874 --------- --------- Basic earnings per share: Before cumulative effect of adoption of SFAS 133 $ 0.73 $ 0.70 Cumulative effect of adoption of SFAS 133 0.01 0.01 --------- --------- After cumulative effect of adoption of SFAS 133 $ 0.74 $ 0.71 ========= ========= DILUTED EARNINGS PER SHARE: Diluted weighted average shares outstanding 4,310,632 4,310,632 --------- --------- Diluted earnings per share: Before cumulative effect of adoption of SFAS 133 $ 0.72 $ 0.69 Cumulative effect of adoption of SFAS 133 0.01 0.01 --------- --------- After cumulative effect of adoption of SFAS 133 $ 0.73 $ 0.70 ========= =========
See notes to pro forma consolidated statements of income 5 HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands) (a) To eliminate intercompany interest income and expense on intercompany notes and to reduce interest income on the portion of the notes receivable reduced in exchange for the purchase of the common stock of the newly consolidated subsidiaries summarized as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2002 2001 ------- ------------ Interest on note to Hanover Capital Partners Ltd. $ 24 $ 58 Interest on note to HanoverTrade, Inc. 146 368 Interest on note to Hanover Capital Partners 2, Inc. 162 2 ------- -------- 332 428 Interest on notes reduced on common stock purchase 13 26 ------- -------- $ 345 $ 454 ======= ========
(b) Hanover engaged Hanover Capital Partners Ltd. pursuant to a Management Agreement to render, among other things, due diligence, asset management and administrative services. To eliminate this intercompany management fee recorded as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2002 2001 ------- ------------ Management fee income recorded to: Due diligence fees $ - $ 720 Other revenues 36 - Reduction of personnel expense 370 - ------- -------- $ 406 $ 720 ======= ======== Management fee expensed to: General, management and administrative $ 400 $ 716 Personnel expense 6 4 ------- -------- $ 406 $ 720 ======= ========
(c) With the consolidation of the results of Hanover Capital Partners Ltd., HanoverTrade, Inc. and Hanover Capital Partners 2, Inc., the equity in income (loss) of these subsidiaries summarized below would be reversed:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2002 2001 ------- ------------ Hanover Capital Partners Ltd. $ 112 $ 43 HanoverTrade, Inc. 655 (3,263) Hanover Capital Partners 2, Inc. (19) - ------- -------- $ 748 $ (3,220) ======= ========
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