PRESS RELEASE
Published on August 11, 2003
PRESS RELEASE Exhibit 99.1
FOR IMMEDIATE RELEASE CONTACT: Investor Relations
August 11, 2003 804-217-5897
DYNEX CAPITAL, INC.
REPORTS SECOND QUARTER 2003 RESULTS
Dynex Capital, Inc. (NYSE: DX) reported today financial results for
the second quarter 2003. Highlights for the second quarter and other information
contained in this release include:
o Cash flow from the investment portfolio of $15.5 million for the quarter
o Announced early redemption of $10.0 million of 9.50% Senior Notes due
February 2005
o Legislation enacted in Pennsylvania favorable to property tax lien
collections, and also have agreed on terms to service $7.5 million of
liens for a regional utility
o Called and sold $26.5 million of mortgage loan collateral at a gain of
$1.0 million
o Declared a dividend to the preferred shareholders in order to maintain
REIT status of $0.8775 per share for Series A and Series B, and $1.095
per share for Series C
o Book value per common share of $8.97 at June 30, 2003
For the quarter ended June 30, 2003, the Company reported a net loss of $12.1
million versus net income of $0.4 million for the second quarter 2002. The
results for the second quarter of 2003 include $18.0 million in provision for
losses principally to increase reserves for credit losses on the Company's net
investment in two collateralized bond securities containing solely manufactured
housing loans. After consideration of the preferred stock charge, the Company
reported a net loss to common shareholders of $13.3 million or $1.23 per common
share for the second quarter 2003. For the six months ended June 30, 2003, the
Company reported a net loss to common shareholders of $2.2 million, or $0.20 per
common share versus a net loss of $3.9 million, or $0.36 per common share for
the same period in 2002.
The Company also announced that the Board of Directors declared a dividend of
$0.8775 per share for its Series A and Series B Preferred Stock and $1.095 per
share for its Series C Preferred Stock. The dividends will be paid to record
holders as of August 22, 2003 and will be paid on September 5, 2003. The Company
reported that the dividend is being paid to preferred shareholders in order for
the Company to maintain its REIT status under the Internal Revenue Code of 1986,
as amended.
The Company has scheduled a conference call for Wednesday, August 13, 2003, at
11:00 a.m. Eastern Time to discuss second quarter results. Investors may
participate in listen mode only by calling 800-633-8955.
Second Quarter 2003 Results
The Company reported that cash flow from the investment portfolio was $15.5
million for the quarter, up from $14.3 million in the first quarter 2003. Cash
flow from the investment portfolio includes surplus cash payments received on
the Company's securitized assets included in collateral for collateralized bonds
and securities, collections on the Company's investment in delinquent property
tax receivables and unsecuritized loans, and proceeds from the call and sale of
previously issued mortgage-backed securities.
The Company also reported net interest margin before provision for loan
losses on its investment portfolio of $7.7 million during the quarter compared
to $12.3 million in the second quarter 2002 and $10.1 million for the first
quarter 2003. Net interest margin before provision has been impacted by an
overall decline in interest-earning assets, downward resets on adjustable-rate
assets in the investment portfolio, and the interest cost on the Company's 9.50%
Senior Notes due February 2005. After provision for loan losses, net interest
margin was a negative $10.3 million, versus $7.0 million in 2002 and $4.3
million in the first quarter 2003. The Company recorded provisions for loan
losses of $18.0 million during the quarter, versus $5.2 million for the same
period in 2002 and $5.8 million in the first quarter 2003. During the second
quarter 2003, the Company recorded $14.4 million in provision for loan losses
specifically for currently existing credit losses within outstanding
manufactured housing loans that are current as to payment. Previously, the
Company had not considered current loans to be impaired under generally accepted
accounting principles and was therefore providing reserves only for loans that
were delinquent. The Company prepared extensive analysis on these pools of loans
during the quarter and believes the inclusion of such amounts in the provision
is an appropriate application of the definition of impairment within generally
accepted accounting principles.
The Company also reported that impairment charges declined to $0.2 million
during the quarter from $5.0 million in the second quarter 2002 and general and
administrative expenses were $2.2 million in the second quarter 2003 versus $2.6
million in the second quarter 2002.
Balance Sheet
Total assets at June 30, 2003 were $2.05 billion, versus $2.24 billion at
December 31, 2002. The decline in assets was primarily the result of prepayments
in the Company's investment portfolio. Prepayment speeds for the entire
investment portfolio as measured by the "constant prepayment rate", or CPR, was
22% during the second quarter. CPR on the Company's single-family mortgage loan
and securities portfolio was 35% during the quarter. Of the $2.0 billion of
collateral for collateralized bonds in the investment portfolio at June 30,
2003, approximately $491 million consists of single-family mortgage loans and
securities, $723 million consists of manufactured housing loans and securities,
and $770 million consists of commercial mortgage loans. For the quarter, the
yield on the Company's average interest-earning investments was 7.05% and the
weighted-average cost of funds was 5.70%.
Shareholders' equity was $164.7 million at June 30, 2003 versus $223.4 million
at December 31, 2002. The decrease in shareholders' equity was primarily due to
the retirement of the shares of Preferred Stock related to the tender offer
completed in February 2003, coupled with the net loss for the six month period.
Common book value per share, net of liquidation preference on Series A, Series
B, and Series C Preferred Stock, increased to $8.97 per share from $8.57 per
share at December 31, 2002. The increase in common book value per share was also
primarily due to the completed tender offer. Preferred dividends in arrears at
June 30, 2003 were $17.9 million.
Other Items
Regarding its investment in delinquent property tax receivables and its lien
servicing operations, the Company announced that legislation recently passed in
Pennsylvania and expected to be signed into law removes a contingency for the
Company in collecting on delinquent property tax receivables in that state,
which management believes should improve collection results in the near-term.
The Company also announced that its subsidiary, GLS Capital Services, Inc., has
agreed on terms to service liens on single-family homes and commercial real
estate for a regional utility in Pennsylvania. The aggregate amount of liens to
be serviced currently approximates $7.5 million.
The Company also indicated that it will be redeeming early $10.0 million of its
February 2005 Senior Notes in connection with the quarterly payment due August
31, 2003 of $4.0 million on the Senior Notes. After the partial redemption and
the quarterly payment, the remaining balance of the February 2005 Senior Notes
will be approximately $14.1 million.
Discussion
Stephen J. Benedetti, Chief Financial Officer of the Company, stated, "While we
reported a net loss for the quarter, we were very pleased with the overall
results for the Company. Cash flow from the investment portfolio exceeded
expectations, topping $15 million, putting us in a position to redeem early $10
million of our 9.50% Senior Notes. In addition, we took advantage of call rights
we own on previously issued mortgage-backed securities to call and sell the
underlying mortgage loans at a gain of $1 million. And as previously indicated,
we have been able to essentially resolve a contingency related to our delinquent
property tax receivable collections in Pennsylvania, and to leverage our
servicing platform for property tax receivables into a third-party servicing
contract. Current market expectations are that short-term interest rates will
likely remain at these levels for the balance of 2003 before beginning to
increase in 2004. We do not expect the recent back-up in long-term interest
rates in the near-term to materially impact the performance of our investment
portfolio from a cash flow perspective. Given the run-off in our investment
portfolio, however, we would expect to see cash flow for the third quarter
decline relative to the second quarter."
Mr. Benedetti continued, "With the additional reserve on the
manufactured housing loans of $14.4 million, which estimates existing credit
losses on manufactured housing loans which are current as to payment, within the
construct of generally accepted accounting principles, the Company has reduced
its unreserved net credit exposure on all manufactured housing loans to
approximately $18.4 million at June 30, 2003. Unless manufactured housing
lending market conditions improve in the very near-term, we anticipate that this
remaining amount will be fully reserved over the next four quarters. Once this
amount is fully reserved, provisions for losses on the manufactured housing loan
portfolio should be limited to only surplus cash retained within the
collateralized bond structure to cover credit losses. Fully reserving this final
$18.4 million is an important step for this Company towards consistent
profitability and towards presenting our net investment in manufactured housing
loans more consistent with its fair value."
Mr. Benedetti concluded, "We believe that the Company's prospects and
financial flexibility have continued to improve. The Board remains actively
engaged in evaluating alternatives for the use of the Company's cash flows, with
the focus being on what would be the most attractive alternative to improving
overall shareholder value. To that end, the Board has formed a committee to
review strategic alternatives available to the Company."
Dynex Capital, Inc. is a financial services company that elects to be
treated as a real estate investment trust (REIT) for federal income tax
purposes. Additional information about Dynex Capital, Inc. is available at
www.dynexcapital.com. Note: This document contains "forward-looking statements"
within the meaning of the Private Securities Litigation Act of 1995. The words
"believe", "expect", "forecast", "anticipate", "estimate", "project", "plan",
and similar expressions identify forward-looking statements that are inherently
subject to risks and uncertainties, some of which cannot be predicted or
quantified. The Company's actual results and timing of certain events could
differ materially from those projected in or contemplated by the forward-looking
statements as a result of unforeseen external factors. As discussed in the
Company's filings with the SEC, these factors may include, but are not limited
to, changes in general economic and market conditions, disruptions in the
capital markets, fluctuations in interest rates, the accuracy of subjective
estimates used in determining the fair value of certain financial assets of the
Company, the impact of recently issued financial accounting standards, increases
in costs and other general competitive factors.
# # #
DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
June 30, December 31,
2003 2002
ASSETS
Cash and cash equivalents .............. $ 13,998 $ 15,242
Other assets ........................... 5,487 4,747
------------ --------------
19,485 19,989
Investments:
Collateral for collateralized bonds 1,965,506 2,148,497
Other investments ................. 51,469 54,322
Securities ........................ 2,652 6,208
Other loans ....................... 7,865 9,288
------------ -------------
2,027,492 2,218,315
------------ -------------
$ 2,046,977 $ 2,238,304
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Collateralized bonds ................... $ 1,852,882 $ 2,013,271
Senior Notes ........................... 28,069 --
Other liabilities ...................... 1,317 1,612
------------ -------------
1,882,268 2,014,883
------------ -------------
SHAREHOLDERS' EQUITY:
Preferred stock ........................ 47,013 94,586
Common stock ........................... 109 109
Additional paid-in capital ............. 360,684 364,743
Accumulated other comprehensive loss ... (13,166) (17,472)
Accumulated deficit .................... (229,931) (218,545)
------------ -------------
164,709 223,421
------------ -------------
$ 2,046,977 $ 2,238,304
============ =============
Preferred dividends in arrears ......... $ 17,868 $ 31,157
============ =============
Book value per common share (inclusive
of dividends in arrears) .............. $ 8.97 $ 8.57
============ =============