UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q/A

(Amendment No. 1)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2004
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number: 001-13417

Hanover Capital Mortgage Holdings, Inc.

(Exact name of registrant as specified in its charter)

Maryland	13-3950486
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

379 Thornall Street, Edison, New Jersey 08837

(Address of principal executive offices) (Zip Code)

(732) 548-0101

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

The registrant had 8,305,937 shares of common stock outstanding as of August 12, 2004.

EXPLANATORY NOTE

Hanover Capital Mortgage Holdings, Inc. (the “Company”) is filing this Amendment No. 1 to Form 10-Q (the “Form 10-Q/A”) to amend Item 1 of Part I contained in the Company’s Quarterly Report on Form 10-Q (the “Original Form 10-Q”) relating to the Company’s second quarter ended June 30, 2004 as originally filed with the Securities and Exchange Commission on August 12, 2004. The Form 10-Q/A reflects the amendment of Note 10 to the condensed consolidated financial statements to reflect revised record and payment dates for the Company’s second quarter 2004 dividend of $0.30 per share. The Board of Directors declared a second quarter dividend of $0.30 per share on August 10, 2004 originally to be paid on August 24, 2004 to stockholders of record as of August 17, 2004. Revised record and payment dates have been established to provide additional time between declaration and record dates. The second quarter 2004 dividend of $0.30 per share will now be paid on August 31, 2004 to stockholders of record as of August 24, 2004.

This Form 10-Q/A does not attempt to modify or update any other disclosures set forth in the Original Form 10-Q, except as required to reflect the amendment described above and to reflect Forms 8-K furnished subsequent to the filing of the Original Form 10-Q. Additionally, this Form 10-Q/A does not purport to provide a general update or discussion of any other developments at the Company after the date of the original filing. All information contained in this Form 10-Q/A and the Original Form 10-Q is subject to updating and supplementing as provided in the periodic reports that the Company has filed and will file after the original filing date with the Securities and Exchange Commission. In addition, the filing of this Form 10-Q/A shall not be deemed an admission that the original filing, when made, included any untrue statement of material fact or omitted to state a material fact necessary to make a statement made therein not misleading. This Form 10-Q/A does not include the items from the Original Form 10-Q that are not being amended.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
	Signatures
EXHIBIT INDEX
EX-31.1 SECTION 302 CEO CERTIFICATION
EX-31.2 SECTION 302 CFO CERTIFICATION
EX-32.1 SECTION 906 CEO CERTIFICATION
EX-32.2 SECTION 906 CFO CERTIFICATION

HANOVER CAPITAL MORTGAGE HOLDINGS, INC.

FORM 10-Q/A

For the Three and Six Months Ended June 30, 2004

INDEX

		Page No.
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements		2
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2004 and December 31, 2003		2
	Condensed Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2004 and 2003		3
	Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the Six Months Ended June 30, 2004		4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2004 and 2003		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6
PART II.  OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K		17
	Signatures		18

1

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

			June 30,			December 31,
			2004			2003
ASSETS
Cash and cash equivalents			$	19,403		$	32,588
Accounts receivable				3,155			2,733
Accrued interest receivable				1,264			1,026
Mortgage loans:
	Held for sale			184			434
	Collateral for CMOs			48,284			58,551
Mortgage securities pledged as collateral for reverse repurchase agreements:
	Available for sale			45,003			29,807
	Trading			96,757			37,882
Mortgage securities, not pledged:
	Available for sale			15,759			13,875
Equity investment in HDMF-I LLC				2,581			2,085
Other assets				8,834			10,010
TOTAL ASSETS			$	241,224		$	188,991
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Reverse repurchase agreements			$	124,460		$	55,400
CMO borrowing				42,194			52,164
Dividends payable				—			2,458
Accounts payable, accrued expenses and other liabilities				3,064			4,150
		TOTAL LIABILITIES		169,718			114,172
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock: $0.01 par value, 10 million shares authorized, -0- shares issued and outstanding
Common stock: $0.01 par value, 90 million shares authorized, 8,228,322 and 8,192,903 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively				82			82
Additional paid-in capital				102,622			101,279
Notes receivable from related parties				(583	)		(1,167	)
Retained earnings (deficit)				(28,201	)		(25,598	)
Accumulated other comprehensive (loss) income				(2,414	)		223
		TOTAL STOCKHOLDERS’ EQUITY		71,506			74,819
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	241,224		$	188,991

See notes to condensed consolidated financial statements

2

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

			Three Months Ended					Six Months Ended
			June 30,					June 30,
			2004			2003		2004			2003
REVENUES:
	Interest income		$	3,124		$	2,432	$	6,227		$	4,827
	Interest expense			836			989		1,656			2,274
		Net interest income		2,288			1,443		4,571			2,553
	Loan loss provision			9			14		20			30
		Net interest income after loan loss provision		2,279			1,429		4,551			2,523
	Gain on sale of mortgage assets			2,114			2,100		5,572			5,128
	(Loss) gain on mark to market of mortgage assets			(1,226	)		18		(1,283	)		18
	Due diligence fees			1,729			1,433		3,109			2,752
	Assignment fees			710			641		1,295			1,214
	Technology			238			927		626			1,812
	Loan brokering and advisory services			902			948		1,393			1,344
	Other income (loss)			813			58		(161	)		105
		Total revenues		7,559			7,554		15,102			14,896
EXPENSES:
	Personnel			3,709			3,725		6,014			5,903
	Subcontractor			1,128			933		2,177			1,873
	Legal and professional			820			379		1,407			775
	General and administrative			388			437		835			826
	Depreciation and amortization			223			389		439			777
	Other			203			122		349			229
	Travel and entertainment			110			161		250			311
	Occupancy			126			116		244			239
	Technology			141			66		238			121
		Total expenses		6,848			6,328		11,953			11,054
		Operating income		711			1,226		3,149			3,842
Equity in (loss) income of HDMF-I LLC				(64	)		3		(40	)		(40	)
Income before income tax provision (benefit)				647			1,229		3,109			3,802
Income tax provision (benefit)				34			60		(49	)		84
NET INCOME			$	613		$	1,169	$	3,158		$	3,718
BASIC EARNINGS PER SHARE			$	0.07		$	0.26	$	0.38		$	0.83
DILUTED EARNINGS PER SHARE			$	0.07		$	0.25	$	0.38		$	0.81

See notes to condensed consolidated financial statements

3

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2004

(in thousands, except share data)

(unaudited)

									Notes
			Common Stock				Additional		Receivable						Retained			Accumulated Other
							Paid-In		from			Comprehensive			Earnings			Comprehensive
			Shares		Amount		Capital		Related Parties			Income			(Deficit)			(Loss) Income			Total
Balance, December 31, 2003				8,192,903	$	82	$	101,279	$	(1,167	)				$	(25,598	)	$	223		$	74,819
Common stock paid for acquisition				35,419		—		494														494
Forgiveness of notes receivable from related parties										584												584
Common stock earned by Principals								849														849
Comprehensive income:
	Net income											$	3,158			3,158						3,158
	Other comprehensive income:
		Net unrealized gain (loss) on available for sale securities											(1,731	)					(1,731	)		(1,731	)
		Reclassification adjustment for net gain (loss) included in net income											(906	)					(906	)		(906	)
Comprehensive income												$	521
Dividends declared																(5,761	)					(5,761	)
Balance, June 30, 2004				8,228,322	$	82	$	102,622	$	(583	)				$	(28,201	)	$	(2,414	)	$	71,506

See notes to condensed consolidated financial statements

4

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

				Six Months Ended
				June 30,
				2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	3,158		$	3,718
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation and amortization			439			777
		Common stock earned by Principals			849			922
		Accretion of net discount			(1,007	)		(382	)
		Loan loss provision			20			30
		Gain on sale of mortgage assets			(5,572	)		(5,128	)
		Loss (gain) on mark to market of mortgage assets			1,283			(7	)
		(Gain) loss on disposition of real estate owned			(27	)		49
		Gain on paid-in-full mortgage loans			(19	)		—
		Purchase of trading securities			(61,977	)		(5,057	)
		Sale of trading securities			—			3,267
		Distributions from HDMF-I LLC in excess of equity (income) loss			40			2,952
		(Increase) decrease in accounts receivable			(422	)		406
		(Increase) decrease in accrued interest receivable			(238	)		11
		Decrease in notes receivable from related parties			—			813
		Decrease (increase) in other assets			1,214			(1,640	)
		(Decrease) increase in accounts payable, accrued expenses and other liabilities			(1,086	)		144
			Net cash (used in) provided by operating activities		(63,345	)		875
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of mortgage loans held for sale				—			(133	)
	Purchase of available for sale mortgage securities				(40,282	)		(60,452	)
	Principal payments received on mortgage securities				3,354			885
	Principal payments received on collateral for CMOs				10,188			14,327
	Principal payments received on mortgage loans held for sale				158			51
	Proceeds from sale of mortgage assets				25,740			40,272
	Proceeds from disposition of real estate owned				44			150
	Cash paid for acquisition				—			(75	)
	Capital contributions to HDMF-I LLC				(536	)		—
			Net cash used in investing activities		(1,334	)		(4,975	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net borrowings from reverse repurchase agreements				69,060			48,036
	Repayment of CMOs				(9,931	)		(39,679	)
	Payment of dividends				(8,219	)		(3,125	)
	Repurchase of common stock				—			(252	)
	Decrease in notes receivable from related parties				584			583
			Net cash provided by financing activities		51,494			5,563
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS					(13,185	)		1,463
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					32,588			10,605
CASH AND CASH EQUIVALENTS, END OF PERIOD				$	19,403		$	12,068

See notes to condensed consolidated financial statements

5

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.      Organization, Basis of Presentation and Stock-Based Compensation

The interim condensed consolidated financial statements of Hanover Capital Mortgage Holdings, Inc. (“Hanover”) and subsidiaries include the accounts of Hanover and its wholly-owned and equity-owned subsidiaries. These interim condensed consolidated financial statements should be read in conjunction with Hanover’s Annual Report on Form 10-K for the year ended December 31, 2003. The interim condensed consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. There were no adjustments of a non-recurring nature recorded during the three and six months ended June 30, 2004. The interim results of operations presented are not necessarily indicative of the results for the full year. When necessary, reclassifications have been made to conform to current period presentation.

Hanover was incorporated in Maryland on June 10, 1997. Hanover is a real estate investment trust (“REIT”), formed to operate as a specialty finance company. Hanover has two primary subsidiaries: Hanover Capital Partners Ltd. (“HCP”) and HanoverTrade, Inc. (“HT”). When we refer to the “Company,” we mean Hanover together with its consolidated and equity method investees.

The Company is engaged in three principal businesses, which are conducted through its three primary operating units: Hanover, HCP and HT. The principal business strategy of Hanover is to invest in subordinate mortgage-backed securities (“MBS”) and, to a lesser extent, mortgage loans and to earn net interest income on these investments. The principal business strategy of HCP is to generate non-interest income by providing consulting and advisory services for third parties, including loan sale advisory services, loan file due diligence reviews, staffing solutions and mortgage assignment and collateral rectification services. The principal business activity of HT is to generate non-interest income by providing loan sale advisory and traditional loan brokerage services, technology solutions and valuation services. HT also brokers loan pools, mortgage servicing rights and other similar assets through an Internet-based exchange. Hanover also maintains an equity investment in HDMF-I LLC (“HDMF-I”). HDMF-I was organized in August 2001 to purchase, service, manage and ultimately re-sell or otherwise liquidate pools of primarily sub- and non-performing one-to-four family residential mortgage loans.

The Company’s principal business objective is to generate net interest income on its portfolio of mortgage securities and mortgage loans and to generate non-interest income through HCP, HT and third party asset-management contracts.

6

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-Based Compensation

Hanover applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock option plans. No compensation cost has been recognized for its stock options in the interim condensed consolidated financial statements for 2004 and 2003. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement of Financial Accounting Standards No. 123, Accounting For Stock-Based Compensation, the Company’s net income would have been reduced to the following pro forma amounts for the periods indicated below (dollars in thousands, except per share data):

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2004			2003			2004			2003
Net income:
	As reported	$	613		$	1,169		$	3,158		$	3,718
	Deduct: Total stock-based employee compensation expense determined under fair value based method		(4	)		(2	)		(4	)		(14	)
	Pro forma	$	609		$	1,167		$	3,154		$	3,704
Basic earnings per share:
	As reported	$	0.07		$	0.26		$	0.38		$	0.83
	Pro forma	$	0.07		$	0.26		$	0.38		$	0.82
Diluted earnings per share:
	As reported	$	0.07		$	0.25		$	0.38		$	0.81
	Pro forma	$	0.07		$	0.25		$	0.38		$	0.80

The per share weighted average fair value of stock options granted was $1.06 for the three and six months ended June 30, 2004 and $0.44 and $0.40 for the three and six months ended June 30, 2003, respectively, as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Expected life (years)		10			10			10			6
Risk-free interest rate		4.70	%		3.53	%		4.70	%		3.79	%
Volatility		29.51	%		29.54	%		29.51	%		27.85	%
Expected dividend yield		9.41	%		11.70	%		9.41	%		11.03	%

7

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.     Mortgage Loans

Mortgage Loans Held for Sale

(dollars in thousands)

	June 30, 2004						December 31, 2003
	Fixed		Adjustable				Fixed			Adjustable
	Rate		Rate		Total		Rate			Rate			Total
Principal amount of mortgage loans	$	15	$	169	$	184	$	191		$	359		$	550
Net premium (discount) and deferred costs		—		—		—		(19	)		(77	)		(96	)
Net unrealized loss		—		—		—		(20	)		—			(20	)
Carrying value of mortgage loans	$	15	$	169	$	184	$	152		$	282		$	434

Mortgage Loans Securitized in Collateralized Mortgage Obligations

(dollars in thousands)

	June 30, 2004									December 31, 2003
	Fixed			Adjustable						Fixed			Adjustable
	Rate			Rate			Total			Rate			Rate			Total
Principal amount of mortgage loans	$	28,061		$	20,445		$	48,506		$	34,493		$	24,213		$	58,706
Net premium (discount) and deferred financing costs		305			(113	)		192			376			(124	)		252
Loan loss allowance		(190	)		(224	)		(414	)		(186	)		(221	)		(407	)
Carrying value of mortgage loans	$	28,176		$	20,108		$	48,284		$	34,683		$	23,868		$	58,551

The following table summarizes the activity in the loan loss allowance for mortgage loans securitized in collateralized mortgage obligations (dollars in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004			2003
Balance, beginning of period	$	405	$	395	$	407		$	571
Loan loss provision		9		14		20			30
Sales		—		—		—			(185	)
Charge-offs		—		—		(13	)		(7	)
Balance, end of period	$	414	$	409	$	414		$	409

8

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.     Mortgage Securities

Mortgage Securities Pledged as Collateral for Reverse Repurchase Agreements

(dollars in thousands)

	Available for Sale
	June 30,			December 31,
	2004			2003
Principal balance of mortgage securities	$	76,936		$	60,464
Net discount		(30,691	)		(31,318	)
Total amortized cost of mortgage securities		46,245			29,146
Gross unrealized gain		215			1,369
Gross unrealized loss		(1,457	)		(708	)
Carrying value of mortgage securities	$	45,003		$	29,807

As of June 30, 2004 and December 31, 2003, the Company had approximately $96,757,000 and $37,882,000, respectively, of trading securities pledged as collateral for reverse repurchase agreements.

Mortgage Securities, Not Pledged

(dollars in thousands)

	Available for Sale
	June 30,			December 31,
	2004			2003
Principal balance of mortgage securities	$	30,249		$	26,145
Discount		(13,317	)		(11,832	)
Total amortized cost of mortgage securities		16,932			14,313
Gross unrealized gain		16			25
Gross unrealized loss		(1,189	)		(463	)
Carrying value of mortgage securities	$	15,759		$	13,875

Summary of All Mortgage Securities by Collateral

(dollars in thousands)

	Available for Sale				Trading
	June 30,		December 31,		June 30,		December 31,
	2004		2003		2004		2003
Fixed-Rate Agency Mortgage-Backed Securities	$	—	$	—	$	96,757	$	37,882
Fixed-Rate Subordinate Mortgage-Backed Securities		32,886		30,601		—		—
Adjustable-Rate Subordinate Mortgage-Backed Securities (1)		27,876		13,081		—		—
Carrying value of mortgage securities	$	60,762	$	43,682	$	96,757	$	37,882

(1)  Adjustable-Rate Subordinate Mortgage-Backed Securities generally have fixed rates for initial terms of three to ten years.

9

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.     Notes Receivable from Related Parties and Common Stock Earned by Principals

As of June 30, 2004, Hanover had approximately $583,000 of loans outstanding to four of its executive officers (the “Principals”)(dollars in thousands):

	December 31,							June 30,		Interest
	2003		Repayment		Forgiveness			2004		Rate			Maturity Date
Secured by stock	$	38	$	—	$	(38	)	$	—		6.02	%		September 2007
Secured by stock		1,129		—		(546	)		583		5.70			September 2007
	$	1,167	$	—	$	(584	)	$	583

For the three and six months ended June 30, 2004, approximately $584,000 of outstanding loans were forgiven and 72,222 shares of the Company’s common stock were earned by, and subsequently transferred to, the Principals pursuant to the Contribution Agreement, dated September 19, 1997 (the “1997 Agreement”) as amended by Amendment No. 1 to Contribution Agreement, dated July 1, 2002 (“Amendment No. 1”) and Amendment No. 2 to Contribution Agreement, dated May 20, 2004 (together, the “Contribution Agreement”). The terms of the Contribution Agreement provide for (i) the transfer of up to 216,667 shares of the Company’s common stock to the Principals and (ii) for the forgiveness of certain indebtedness of the Principals to the Company of up to $1,750,000 upon the satisfaction of certain conditions related to the financial performance of the Company as of specified “earn-out measuring dates”. As of July 1, 2004, the second earn-out measuring date, approximately $1,167,000 of loans had been forgiven and 144,444 shares of the Company’s common stock had been earned by the Principals as the return on the Company’s common stock, including dividend distributions, exceeded the target annualized rate of return of 15% for the twenty consecutive trading days immediately preceding each earn-out measuring date (the “Target Rate”). The approximately $583,000 of loans outstanding as of June 30, 2004 could be forgiven and 72,223 shares of the Company’s common stock could be earned by, and subsequently transferred to, the Principals as of any July 1 between 2005 and 2007 if the return on the Company’s common stock exceeds the Target Rate.

Pursuant to the Contribution Agreement, the Company recognized approximately $1,433,000 and $1,505,000 of personnel expense for the three and six months ended June 30, 2004 and 2003, respectively, in the accompanying Condensed Consolidated Statements of Income. The 1997 Agreement had been executed in conjunction with the Company’s initial public offering. Amendment No. 1 changed certain terms of the 1997 Agreement that resulted in the recognition of expense for the loan forgiveness and the transfer of shares.

The loans to Principals of approximately $583,000 as of June 30, 2004, recorded as deduction from stockholders’ equity, are secured solely by an aggregate of 38,889 shares of Hanover’s common stock owned by the Principals and are otherwise nonrecourse to the Principals.

10

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.     Reverse Repurchase Agreements

Information pertaining to individual reverse repurchase agreement lenders as of June 30, 2004 is summarized as follows (dollars in thousands):

			December 31,		Net			June 30,
	Maximum		2003		(Paydown)			2004		Underlying
Lender	Borrowing		Balance		Advance			Balance		Collateral		Type of Collateral
Lender A (committed)	$	20,000	$	5,358	$	2,210		$	7,568	$	11,839	Retained CMO Securities, Mortgage Securities
Lender B				4,680		(1,626	)		3,054		5,835		Mortgage Securities
Lender C				2,266		824			3,090		4,373		Mortgage Securities
Lender D				39,925		60,075			100,000		105,014		Mortgage Securities
Lender E				225		356			581		899		Mortgage Securities
Lender F				2,013		2,659			4,672		6,397		Mortgage Securities
Lender G				933		2,030			2,963		5,476		Mortgage Securities
Lender H				—		929			929		1,223		Mortgage Securities
Lender I				—		1,603			1,603		2,677		Mortgage Securities
Total			$	55,400	$	69,060		$	124,460	$	143,733

As of June 30, 2004, the weighted-average borrowing rate on the Company’s reverse repurchase agreements was 1.64%. With the exception of the first facility listed, all of the reverse repurchase borrowings are pursuant to uncommitted financing arrangements which are typically renewed monthly. The first facility listed matures on April 25, 2005.

11

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Derivative Instruments

Interest Rate Caps (Freestanding Derivatives)

From time to time the Company buys interest rate caps when it finances fixed-rate assets with floating-rate reverse repurchase agreements and CMOs. As of June 30, 2004, the Company had three interest rate caps designated as freestanding derivatives. The objective in entering into these instruments is to protect the net interest margin, which represents the difference between the interest earned on assets and the interest paid on debt. Payments received on the interest rate caps are expected to partially offset increases in interest expense that could result from increases in interest rates. Currently, all three interest rate caps are indexed to LIBOR. The Company considers its interest rate caps designated as freestanding derivatives additional protection against the net interest margin although they have not been specifically designated hedging instruments for accounting purposes. The Company recognized approximately $5,000 and $171,000 of losses for the three and six months ended June 30, 2004, respectively, in the accompanying Condensed Consolidated Statements of Income for changes in the fair value of interest rate caps designated as freestanding derivatives. All of these interest rate caps relate to the payment of variable interest on existing financial instruments. As of June 30, 2004, the fair value of the Company’s interest rate caps, recorded as a component of other assets in the accompanying Condensed Consolidated Balance Sheet, was approximately $272,000.

Forward Sales of Agency Securities (Freestanding Derivatives)

For the six months ended June 30, 2004, the Company entered into forward sales of government agency guaranteed securities, known as Agency securities, to manage the exposure to changes in the value of securities classified as trading securities. The Company considers these forward sales to be freestanding derivatives. The objective is to offset gains or losses on the trading securities with comparable losses or gains on the forward sales. Generally, changes in the value of the trading securities are caused by changes in interest rates, changes in the market for mortgage-backed securities, and changes in the credit quality of the asset. Changes in interest rates and changes in the market for mortgage-backed securities will also affect the value of the forward sales of Agency securities. The Company does not attempt to hedge changes in the credit quality of individual assets. The Company calculates the expected impact that changes in interest rates and the market will have on the price of the trading securities and the forward sales. Using this information, the Company determines the amount of forward sales that it needs so that the expected gains or losses on trading securities will be offset by comparable losses or gains on the forward sales. The Company marks to market the gain or loss on all of the trading securities and all of the freestanding derivatives in each reporting period. The mark to market on the trading securities is reported as a component of gain (loss) on mark to market of mortgage assets in the accompanying Condensed Consolidated Statements of Income. The mark to market on the freestanding derivatives is reported as a component of other income (loss) in the accompanying Condensed Consolidated Statements of Income. The Company realized net losses on these freestanding derivatives of approximately $1,022,000 and $858,000, respectively, for the three and six months ended June 30, 2004. As of June 30, 2004, the Company had a liability of approximately $916,000, recorded as a component of other assets in the accompanying Condensed Consolidated Balance Sheet.

12

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.     Stockholders’ Equity and Earnings Per Share

Common Stock Issued and Outstanding

The activity in common stock issued and outstanding is summarized as follows:

			Three Months Ended					Six Months Ended
			June 30,					June 30,
			2004		2003			2004		2003
Beginning of period
	Issued and outstanding			8,228,322		4,532,402			8,192,903		4,474,222
Activity
	Shares repurchased			—		(29,276	)		—		(31,276	)
	Shares issued:
		Common stock paid for acquisition		—		—			35,419		60,180
	Net Activity			—		(29,276	)		35,419		28,904
End of period
	Issued and outstanding			8,228,322		4,503,126			8,228,322		4,503,126

Earnings Per Share

     (dollars in thousands, except per share data)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2004		2003		2004		2003
Basic earnings per share:
	Net income (numerator)	$	613	$	1,169	$	3,158	$	3,718
	Weighted-average common shares outstanding (denominator)		8,228,322		4,504,091		8,218,786		4,500,965
	Basic earnings per share	$	0.07	$	0.26	$	0.38	$	0.83
Diluted earnings per share:
	Net income (numerator)	$	613	$	1,169	$	3,158	$	3,718
	Weighted-average common shares outstanding		8,228,322		4,504,091		8,218,786		4,500,965
	Add: Incremental shares from assumed conversion of stock options		70,405		131,208		74,348		102,882
	Diluted weighted-average shares outstanding (denominator)		8,298,727		4,635,299		8,293,134		4,603,847
	Diluted earnings per share	$	0.07	$	0.25	$	0.38	$	0.81

13

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.     Supplemental Disclosures for Statements of Cash Flows
          (dollars in thousands, except share data)

			Six Months Ended
			June 30,
			2004		2003
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
	Cash paid during the period for:
		Income taxes	$	281	$	129
		Interest	$	1,634	$	2,435
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
	35,419 shares of common stock paid for acquisition		$	494	$	—
	60,180 shares of common stock paid for acquisition		$	—	$	458
	Transfer of mortgage loans to real estate owned, net		$	—	$	75

9.     Segment Reporting

As discussed in Note 1, the Company is engaged in three principal businesses which are conducted through its three primary operating units, each a reportable segment: Hanover, HCP and HT. Segment information is prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions are eliminated in consolidation. In general, intercompany transactions are recorded on an arms-length basis. However, the interest rate on the notes receivable from HCP and HT to Hanover is determined on an incremental cost basis, which may be less than the interest rate HCP and HT would pay to a third party.

The principal business strategy of Hanover is to invest in subordinate mortgage-backed securities and, to a lesser extent, mortgage loans and to earn net investment income on these investments. The principal business strategy of HCP is to generate non-interest income by providing consulting and advisory services for third parties, including loan sale advisory services, loan file due diligence reviews, staffing solutions and mortgage assignment and collateral rectification services. HCP also owns an inactive mortgage banking entity and a registered broker/dealer; these two activities are not material and are combined with HCP for purposes of segment reporting. The principal business activity of HT is to generate non-interest income by providing loan sale advisory and traditional loan brokerage services, technology solutions and valuation services. HT also brokers loan pools, mortgage servicing rights and other similar assets through an Internet-based exchange. HT also owns an inactive broker/dealer whose activities are not material and are

14

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

combined with HT for segment reporting purposes. All of the Company’s revenues are attributed to activities conducted within the United States of America and its territories.

			Three Months Ended June 30, 2004 (dollars in thousands)
			Hanover Capital			Hanover Capital
			Mortgage Holdings, Inc.			Partners Ltd.			HanoverTrade, Inc.			Eliminations			Consolidated
REVENUES:
	Interest income		$	3,208		$	2		$	—		$	(86	)	$	3,124
	Interest expense			836			17			69			(86	)		836
		Net interest income		2,372			(15	)		(69	)		—			2,288
	Loan loss provision			9			—			—			—			9
		Net interest income after loan loss provision		2,363			(15	)		(69	)		—			2,279
	Gain on sale of mortgage assets			2,114			—			—			—			2,114
	Loss on mark to market of mortgage assets			(1,226	)		—			—			—			(1,226	)
	Due diligence fees			—			1,729			—			—			1,729
	Assignment fees			—			710			—			—			710
	Technology			—			—			238			—			238
	Loan brokering and advisory services			—			—			907			(5	)		902
	Other income			735			6			95			(23	)		813
		Total revenues		3,986			2,430			1,171			(28	)		7,559
		Total expenses		2,767			2,345			1,764			(28	)		6,848
		Operating income		1,219			85			(593	)		—			711
Equity in loss of HDMF-I LLC				(64	)		—			—			—			(64	)
Income before income tax provision				1,155			85			(593	)		—			647
Income tax provision				—			34			—			—			34
NET INCOME			$	1,155		$	51		$	(593	)	$	—		$	613

			Three Months Ended June 30, 2003 (dollars in thousands)
			Hanover Capital			Hanover Capital
			Mortgage Holdings, Inc.			Partners Ltd.			HanoverTrade, Inc.			Eliminations			Consolidated
REVENUES:
	Interest income		$	2,491		$	4		$	9		$	(72	)	$	2,432
	Interest expense			989			7			65			(72	)		989
		Net interest income		1,502			(3	)		(56	)		—			1,443
	Loan loss provision			14			—			—			—			14
		Net interest income after loan loss provision		1,488			(3	)		(56	)		—			1,429
	Gain on sale of mortgage assets			2,097			—			—			3			2,100
	Gain on mark to market of mortgage assets			8			10			—			—			18
	Due diligence fees			—			1,433			—			—			1,433
	Assignment fees			—			644			—			(3	)		641
	Technology			—			—			927			—			927
	Loan brokering and advisory services			—			283			939			(274	)		948
	Other income			(2	)		10			50			—			58
		Total revenues		3,591			2,377			1,860			(274	)		7,554
		Total expenses		2,567			2,279			1,756			(274	)		6,328
		Operating income		1,024			98			104			—			1,226
Equity in income of HDMF-I LLC				3			—			—			—			3
Income before income tax provision				1,027			98			104			—			1,229
Income tax provision				4			54			2			—			60
NET INCOME			$	1,023		$	44		$	102		$	—		$	1,169

15

HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			Six Months Ended June 30, 2004 (dollars in thousands)
			Hanover Capital			Hanover Capital
			Mortgage Holdings, Inc.			Partners Ltd.			HanoverTrade, Inc.			Eliminations			Consolidated
REVENUES:
	Interest income		$	6,393		$	4		$	—		$	(170	)	$	6,227
	Interest expense			1,656			34			136			(170	)		1,656
		Net interest income		4,737			(30	)		(136	)		—			4,571
	Loan loss provision			20			—			—			—			20
		Net interest income after loan loss provision		4,717			(30	)		(136	)		—			4,551
	Gain on sale of mortgage assets			5,572			—			—			—			5,572
	Loss on mark to market of mortgage assets			(1,283	)		—			—			—			(1,283	)
	Due diligence fees			—			3,109			—			—			3,109
	Assignment fees			—			1,295			—			—			1,295
	Technology			—			—			626			—			626
	Loan brokering and advisory services			—			—			1,398			(5	)		1,393
	Other loss			(304	)		13			163			(33	)		(161	)
		Total revenues		8,702			4,387			2,051			(38	)		15,102
		Total expenses		4,093			4,560			3,338			(38	)		11,953
		Operating income		4,609			(173	)		(1,287	)		—			3,149
Equity in loss of HDMF-I LLC				(40	)		—			—			—			(40	)
Income before income tax benefit				4,569			(173	)		(1,287	)		—			3,109
Income tax benefit				—			(49	)		—			—			(49	)
NET INCOME			$	4,569		$	(124	)	$	(1,287	)	$	—		$	3,158

			Six Months Ended June 30, 2003 (dollars in thousands)
			Hanover Capital			Hanover Capital
			Mortgage Holdings, Inc.			Partners Ltd.			HanoverTrade, Inc.			Eliminations			Consolidated
REVENUES:
	Interest income		$	4,943		$	9		$	18		$	(143	)	$	4,827
	Interest expense			2,274			14			129			(143	)		2,274
		Net interest income		2,669			(5	)		(111	)		—			2,553
	Loan loss provision			30			—			—			—			30
		Net interest income after loan loss provision		2,639			(5	)		(111	)		—			2,523
	Gain on sale of mortgage assets			4,759			—			—			369			5,128
	Gain on mark to market of mortgage assets			8			10			—			—			18
	Due diligence fees			—			2,752			—			—			2,752
	Assignment fees			—			1,244			—			(30	)		1,214
	Technology			—			—			1,812			—			1,812
	Loan brokering and advisory services			—			284			1,673			(613	)		1,344
	Other income			(21	)		35			91			—			105
		Total revenues		7,385			4,320			3,465			(274	)		14,896
		Total expenses		3,605			4,291			3,432			(274	)		11,054
		Operating income		3,780			29			33			—			3,842
Equity in loss of HDMF-I LLC				(40	)		—			—			—			(40	)
Income before income tax provision				3,740			29			33			—			3,802
Income tax provision				45			37			2			—			84
NET INCOME			$	3,695		$	(8	)	$	31		$	—		$	3,718

10.     Subsequent Events

On August 10, 2004, the Board of Directors declared a $0.30 per share cash dividend for the quarter ended June 30, 2004 to be paid on August 31, 2004 to stockholders of record as of August 24, 2004.

16

PART II.     OTHER INFORMATION

Item 6.      Exhibits and Reports on Form 8-K

(a)     Exhibits

The exhibits listed on the Exhibit Index, which appears immediately following the signature page below, are included or incorporated by reference herein.

(b)     Reports on Form 8-K

On August 16, 2004, we furnished on Form 8-K a press release relating to our financial performance for the second quarter 2004 and other matters.

On August 16, 2004, we furnished on Form 8-K a second press release relating to our financial performance for the second quarter 2004 and other matters.

17

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HANOVER CAPITAL MORTGAGE HOLDINGS, INC.

By:  /s/ JOHN A. BURCHETT

John A. Burchett

President and Chief Executive Officer

Chairman of the Board of Directors

(Principal Executive Officer)

Dated: August 17, 2004

By:  /s/ J. HOLLY LOUX

J. Holly Loux

Chief Financial Officer

(Principal Financial and

Accounting Officer)

Dated: August 17, 2004

18

EXHIBIT INDEX

Exhibit	Description
2.1(7)	Stock Purchase Agreement dated as of July 1, 2002 by and between Registrant, John A. Burchett, Joyce S. Mizerak, George J. Ostendorf and Irma N. Tavares
3.1(8)	Amended Articles of Incorporation of Registrant, as amended
3.2(1)	Bylaws of Registrant
4.1(1)	Specimen Common Stock Certificate of Registrant
10.3(1)	Registration Rights Agreement
10.5(1)	Agreement and Plan of Recapitalization
10.6(1)	Bonus Incentive Compensation Plan
10.7(1)	1997 Executive and Non-Employee Director Stock Option Plan
10.7.1(3)	1999 Equity Incentive Plan
10.8(7)	Amended and Restated Employment Agreement effective as of July 1, 2002, by and between Registrant and John A. Burchett
10.8.1(7)	Stock Option Agreement effective as of July 1, 2002 between Registrant and John A. Burchett
10.9(7)	Amended and Restated Employment Agreement effective as of July 1, 2002, by and between Registrant and Irma N. Tavares
10.9.1(7)	Stock Option Agreement effective as of July 1, 2002 between Registrant and Irma N. Tavares
10.10(7)	Amended and Restated Employment Agreement effective as of July 1, 2002, by and between Registrant and Joyce S. Mizerak
10.10.1(7)	Stock Option Agreement effective as of July 1, 2002 between Registrant and Joyce S. Mizerak
10.11(7)	Amended and Restated Employment Agreement effective as of July 1, 2002, by and between Registrant and George J. Ostendorf
10.11.1(7)	Stock Option Agreement effective as of July 1, 2002 between Registrant and George J. Ostendorf
10.11.2(6)	Employment Agreement by and between Registrant and Thomas P. Kaplan
10.11.3(9)	Stock Purchase Agreement as of December 13, 2002 between Thomas P. Kaplan and Hanover Capital Mortgage Holdings, Inc.
10.11.4(10)	Stock Purchase Agreement as of March 31, 2003 between John A. Burchett and Hanover Capital Mortgage Holdings, Inc.
10.11.5(10)	Stock Purchase Agreement as of March 31, 2003 between George J. Ostendorf and Hanover Capital Mortgage Holdings, Inc.
10.13(1)	Office Lease Agreement, dated as of March 1, 1994, by and between Metroplex Associates and Hanover Capital Mortgage Corporation, as amended by the First Modification and Extension of Lease Amendment dated as of February 28, 1997
10.13.1(9)	Second Modification and Extension of Lease Agreement dated April 22, 2002
10.13.2(9)	Third Modification of Lease Agreement dated May 8, 2002
10.13.3(9)	Fourth Modification of Lease Agreement dated November 2002
10.13.4(12)	Fifth Modification of Lease Agreement dated October 9, 2003
10.14(3)	Office Lease Agreement, dated as of February 1, 1999, between LaSalle-Adams, L.L.C. and Hanover Capital Partners Ltd.
10.14.1(12)	First Amendment to Lease dated January 5, 2004
10.15(9)	Office Lease Agreement, dated as of September 3, 1997, between Metro Four Associates Limited Partnership and Pamex Capital Partners, L.L.C., as amended by the First Amendment to Lease dated May 2000
10.15.1(12)	Sublease Agreement dated as of April 2004
10.16(10)	Office Lease Agreement, dated as of July 10, 2002, between 233 Broadway Owners, LLC and Hanover Capital Mortgage Holdings, Inc.

Exhibit	Description
10.25(1)	Contribution Agreement by and among Registrant, John A. Burchett, Joyce S. Mizerak, George J. Ostendorf and Irma N. Tavares
10.25.1(8)	Amendment No. 1 to Contribution Agreement entered into as of July 1, 2002 by and between Registrant, John A. Burchett, Joyce S. Mizerak, George J. Ostendorf and Irma N. Tavares
10.25.2***	Amendment No. 2 to Contribution Agreement entered into as of May 20, 2004 by and between Registrant, John A. Burchett, Joyce S. Mizerak, George J. Ostendorf and Irma N. Tavares
10.26(1)	Participation Agreement by and among Registrant, John A. Burchett, Joyce S. Mizerak, George J. Ostendorf and Irma N. Tavares
10.27(1)	Loan Agreement
10.29(2)	Management Agreement, dated as of January 1, 1998, by and between Registrant and Hanover Capital Partners Ltd.
10.30(3)	Amendment Number One to Management Agreement, dated as of September 30, 1999
10.31(4)	Amended and Restated Master Loan and Security Agreement by and between Greenwich Capital Financial Products, Inc., Registrant and Hanover Capital Partners Ltd. dated March 27, 2000
10.31.3(9)	Amendment Number Six dated as of March 27, 2003 to the Amended and Restated Master Loan and Security Agreement dated as of March 27, 2000 by and among Registrant, Hanover Capital Partners, Ltd. and Greenwich Capital Financial Products, Inc.
10.31.4(10)	Amendment Number Seven dated as of April 27, 2003 to the Amended and Restated Master Loan and Security Agreement dated as of March 27, 2000 by and among Registrant, Hanover Capital Partners, Ltd. and Greenwich Capital Financial Products, Inc.
10.31.5(12)	Amendment Number Eight dated as of April 26, 2004 to the Amended and Restated Master Loan and Security Agreement dated as of March 27, 2000 by and among Registrant, Hanover Capital Partners, Ltd. and Greenwich Capital Financial Products, Inc.
10.33(5)	Stockholder Protection Rights Agreement
10.33.1(7)	Amendment to Stockholder Protection Rights Agreement effective as of September 26, 2001, by and among Registrant, State Street Bank and Trust Company and EquiServe Trust Company, N.A.
10.33.2(7)	Second Amendment to Stockholder Protection Rights Agreement dated as of June 10, 2002 by and between Registrant and EquiServe Trust Company, N.A.
10.34(6)	Asset Purchase Agreement, dated as of January 19, 2001 by and among HanoverTrade.com, Inc., Registrant, Pamex Capital Partners, L.L.C. and the members of Pamex Capital Partners, L.L.C.
10.35(9)	Amended and Restated Limited Liability Agreement as of November 21, 2002 by and among BTD 2001 HDMF-1 Corp., Hanover Capital Mortgage Holdings, Inc. and Provident Financial Group, Inc.
16.1(11)	Letter from Deloitte & Touche LLP, dated February 23, 2004
31.1*	Certification by John A. Burchett pursuant to Securities Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by J. Holly Loux pursuant to Securities Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification by John A. Burchett pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification by J. Holly Loux pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.
**	Furnished herewith.

     ***  Previously filed.

(1)	Incorporated herein by reference to Registrant’s Registration Statement on Form S-11, Registration No. 333-29261, as amended, which became effective under the Securities Act of 1933, as amended, on September 15, 1997.
(2)	Incorporated herein by reference to Registrant’s Form 10-K for the year ended December 31, 1997, as filed with the Securities and Exchange Commission on March 31, 1998.
(3)	Incorporated herein by reference to Registrant’s Form 10-K for the year ended December 31, 1999, as filed with the Securities and Exchange Commission on March 30, 2000.
(4)	Incorporated herein by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2000, as filed with the Securities and Exchange Commission on May 15, 2000.
(5)	Incorporated herein by reference to Registrant’s report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2000.
(6)	Incorporated herein by reference to Registrant’s Form 10-K for the year ended December 31, 2000, as filed with the Securities and Exchange Commission on April 2, 2001.
(7)	Incorporated herein by reference to Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 16, 2002.
(8)	Incorporated herein by reference to Registrant’s Form 10-Q for the quarter ended June 30, 2002, as filed with the Securities and Exchange Commission on August 14, 2002.
(9)	Incorporated herein by reference to Registrant’s Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission on March 28, 2003.

(10)	Incorporated herein by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2003, as filed with the Securities and Exchange Commission on May 15, 2003.
(11)	Incorporated herein by reference to Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 23, 2004.
(12)	Incorporated herein by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2004, as filed with the Securities and Exchange Commission on May 24, 2004.