American Home Mortgage Expects Reduced Earnings in the First Quarter and Full Year 2007
Friday April 6, 12:23 pm ET
Market conditions are expected to reduce gain on sale revenues and necessitate write-downs of low investment grade and residual securities
The Company now sees first quarter earnings per diluted share of $0.40 to $0.60 and full year 2007 earnings per diluted share of $3.75 to $4.25
Common stock dividend policy is changed to $0.70 per share per quarter or $2.80 on an annualized basis
MELVILLE, N.Y.--(BUSINESS WIRE)--American Home Mortgage Investment Corp. (NYSE: AHM - News) announced today that it expects lower income in the first quarter and full year 2007 than previously forecasted due to conditions in the secondary mortgage and mortgage-backed securities markets.
Michael Strauss, American Home's Chairman and Chief Executive Officer, commented, "During March, conditions in the secondary mortgage and mortgage securities markets changed sharply. In particular, these markets were characterized by far few buyers offering materially lower prices, both for loan pools and for "AA", "A", "BBB" and residual mortgage securities. These changes had a significant, adverse impact on our Company's first quarter results, reducing our gain on sale revenue and causing mark-to- market losses in our portfolio. While the market may recover, and while we will attempt to restore our gain on sale margins by raising interest rates charged to consumers, our working assumption must be that current market conditions will persist and that our gain on sale margins will not recover through the balance of the year. Consequently, I am disappointed to report that our Company is lowering its full year earnings guidance and its dividend policy."
First Quarter Results
The Company's first quarter results will be adversely affected by lower gain on sale margins. As March progressed, loan pools offered for sale by the Company received relatively few bids at lower than expected prices. As a result, those loans originated by the Company in late February and during March earned lower gain on sale revenues than were anticipated.
The Company's first quarter results will also be adversely affected by write-downs of its portfolio of low investment grade and residual securities. In particular, the Company's approximately $484 million of securities rated "AA", "A" or "BBB" will be written down to account for an unusually large widening in the first quarter of the spread over LIBOR at which these securities trade.
Additionally, the Company's first quarter results will be adversely affected by ongoing high delinquency related charges due to the Company establishing additional reserves for increases in non-performing loans. While high delinquency charges were expected, their impact on quarterly results continues to be significant. A disproportionate share of the Company's non-performing loans are repurchased Alternate "A" loans. The Company has ceased offering those types of Alternate "A" loans that have resulted in a high proportion of its repurchases, and consequently believes the portion of delinquency related charge resulting from repurchases will diminish toward year-end. While non-performing loans increased during the quarter, the Company did experience a decline in early stage delinquencies, with loans in early stage delinquencies lower at the end of the first quarter than at year-end 2006.
During the first quarter, the Company's loan production was approximately $16.7 billion. Also during the quarter, the Company's net interest income and mortgage servicing income were near forecast levels.
First Quarter Earnings Guidance
Investors are strongly cautioned that the Company has not yet closed its first quarter, and its actual financial results for the first quarter are unknown and difficult to forecast. Given information currently available, the Company believes its first quarter diluted earnings per share will approximate $0.40 to $0.60.
Full Year 2007 Earnings Guidance
Due to the Company's first quarter earnings shortfall, and based on the possibility that current market conditions will continue to prevail for an extended period, the Company is lowering its full year 2007 earnings guidance to $3.75 to $4.25 per diluted share. Assumptions underlying the revised guidance include slightly lower gain on sale margins in the second quarter compared to the first quarter, and gain on sale margins in the third and fourth quarters similar to the first quarter. Also underlying the revised guidance are the absence of further write-downs of low investment grade and residual securities, and delinquency related charges similar to the first quarter through the balance of the year, except that repurchase related charges are projected to diminish slightly in the fourth quarter.
Dividend Policy
Due to the Company's first quarter earnings shortfall and the Company's revised outlook for the balance of 2007, the Company is lowering its common stock dividend policy to $0.70 per share per quarter or $2.80 per share on an annualized basis. The new dividend policy applies to the second quarter 2007 dividend payable in July 2007. Please note, however, that the Company's dividend policy does not represent an obligation to pay dividends, and that dividends are only due and payable upon their declaration by the Company's Board of Directors.
Earnings Release and Conference Call
American Home will announce its first quarter results in a press release that will be issued before the market opens on Monday, April 30, 2007. The Company will hold a conference call that same day at 10:30 AM EST to discuss earnings. |
