DYNEX CAPITAL, INC. PRESS RELEASE
Published on October 31, 2007
PRESS
RELEASE
|
FOR
IMMEDIATE RELEASE
|
CONTACT: Alison
Griffin
|
|
October
31, 2007
|
(804)
217-5897
|
DYNEX
CAPITAL, INC. ANNOUNCES
THIRD
QUARTER 2007 RESULTS
Dynex
Capital, Inc. (NYSE: DX) reported net income of $2.7 million and $7.3 million
for the three-month and nine-month periods ended September 30, 2007,
respectively, compared to a net loss of $0.2 million and net income of $2.6
million for the same periods last year. Net income to common shareholders was
$1.7 million, or $0.14 per common share, for the third quarter of 2007, versus
a
net loss of $1.2 million, or $0.10 per common share, for the third quarter
of
2006. Net income to common shareholders for the nine-month period
ended September 30, 2007 was $4.3 million, or $0.36 per common share, versus
a
net loss of $0.4 million, or $0.04 per common share, for the same period in
2006.
The
Company’s common equity book value increased to $8.17 per common share at
September 30, 2007 from $8.01 at June 30, 2007 and $7.78 at December 31,
2006. The increase in common equity book value was primarily related
to the Company’s earnings during the respective periods as well as increases in
the value of its investment in certain equity securities. The Company
also reported adjusted common equity book value of $99.6 million, or $8.21
per
common share, at the end of the third quarter of 2007. Adjusted
common equity book value consists of book value per common share, adjusted
to
reflect all financial assets and financial liabilities at their fair values,
based on anticipated cash flows from the assets less the associated cash
requirements for the liabilities, discounted at estimated market
rates. A reconciliation of common equity book value to adjusted
common equity book value per share is included at the end of this press
release.
The
Company has scheduled a conference call for Thursday, November 1, 2007, at
11:00
A.M. EDT, to discuss the third quarter results. Investors may participate in
the
call by dialing 1-800-926-9162.
Thomas
Akin, Chairman, stated, “The Company is pleased to report another strong quarter
of earnings and growth in book value per common share. Our conservative strategy
of not reaching for yield, carefully managing the credit and interest rate
risks
in our existing portfolio, and retaining our capital for anticipated compelling
investment opportunities is beginning to demonstrate its
value. During the third quarter, we purchased $10.5 million of
securities at attractive prices, including $3.2 million of common stock in
publicly traded mortgage REITs and $2.3 million of publicly traded preferred
stock in those and other mortgage REITs. We also purchased $5.0
million of a private senior convertible debt security. Our objective
in purchasing these securities was to put our capital to work in investments
with yields in the range of 10%-12% and that have the opportunity for solid
price appreciation. These securities have appreciated over $1.5
million in price, since being purchased. We continue to see
interesting opportunities to add investments to our portfolio as the market
dislocation for non-agency residential mortgage securities and, to a lesser
extent, commercial mortgage securities shows no meaningful signs of
abating. Shareholders should also note that despite the recent market
turmoil, the Company was able to grow its book value per common share by $0.16
to $8.17 for the quarter and to maintain its adjusted book value per at
$8.21. We believe that this is a validation of our conservative
investment posture.”
Mr.
Akin
continued, “As we noted in our Form 8-K filing on October 16, 2007, we resold a
securitization financing bond that we had previously redeemed for net proceeds
of $35.4 million. In addition, the Company received a cash
distribution of $18.2 million from its joint venture with Deutsche Bank during
the quarter. These actions will ensure our financial flexibility and
enable us to rely less on the volatile reverse repurchase agreement market
for
financing our investment portfolio. As of today, we have $55.4
million in cash and cash equivalents, and only $20.2 million in repurchase
agreements outstanding. While we may add modest leverage in the
future, our focus today is on finding unleveraged investments at good
risk-adjusted returns. We believe that the market can offer solid investment
opportunities with yields in excess of 12%. Given our liquid balance
sheet, we believe that as we continue to grow the Dynex portfolio our earnings
will grow accordingly. We are very pleased to have held our capital
in a more liquid position to take advantage of these market
opportunities.”
Discussion
of Third Quarter Results
The
Company reported net income for the quarter of $2.7 million compared to a net
loss of $0.2 million for the same period last year. After
consideration of the preferred stock dividend, the Company reported net income
to common shareholders of $1.7 million, or $0.14 per common share, compared
to a
net loss of $1.2 million, or $0.10 per common share, for the third quarter
of
2006.
The
Company reported net interest income on its investment portfolio of $2.5 million
for the third quarter of 2007 compared to $3.2 million for the same period
in
2006. Net interest income continues to sequentially decline due
principally to the reduction in the Company’s investment assets.
Net
interest spread on investments was 1.39% for the third quarter of 2007 versus
0.82% for the third quarter 2006. The overall yield on investment
assets was 8.44%, and the cost of liabilities was 7.05%, for the third quarter
of 2007. Net interest spread for the third quarter did not include
any significant unusual or non-recurring items. For the third quarter
of 2006, the overall yield on investment assets was 8.39%, and the cost of
liabilities was 7.56%. For the nine-months ended September 30, 2007,
the overall yield on investment assets was 8.39%, and the cost of liabilities
was 6.75%, resulting in a net spread of 1.64%. For the nine months
ended September 30, 2006, net interest spread was 0.23%. Based on the
current composition of the Company’s investment portfolio, volatility in the net
interest spread from period to period is generally the result of unpredicted
prepayment activity in the Company’s securitized finance
receivables.
Net
interest income after recapture of provision for loan losses was $2.6 million
for the third quarter of 2007 compared to $3.1 million for the same period
in
2006. The Company recognized a $0.1 million benefit from the
recapture of provision for loan losses related to a reduction in single family
reserves as a result of a decrease in single-family loan delinquencies during
the quarter. At September 30, 2007, the Company had no delinquent
commercial mortgage loans in its investment portfolio; although, subsequent
to
the end of the quarter a $1.9 million loan became delinquent, and there was
one
delinquent $1.4 million loan collateralizing a commercial MBS held by the
Company’s joint venture. The Company had provided reserves or other
valuation adjustments for both delinquent loans at September 30,
2007.
The
Company recognized $0.6 million of equity in the income of its joint venture
compared to a loss of $1.7 million for the same period in 2006, which loss
was
primarily related to a permanent impairment charge taken on a commercial
mortgage backed security. The third quarter of 2006 also included a
$1.2 million charge associated with the contribution of certain assets to
capitalize the joint venture.
General
and administrative expenses were $0.8 million and $1.0 million for the quarters
ended September 30, 2007 and 2006, respectively. The decline in
general and administrative expenses was primarily related to the closing of
our
tax lien collection operations in Pennsylvania during the first quarter of
2007
and a decrease in legal expenses from 2006 to 2007.
Balance
Sheet
Total
assets were $384.4 million at September 30, 2007 compared to $466.6 million
at
December 31, 2006. Investments declined from $403.6 million at
December 31, 2006 to $344.9 million at the end of the third quarter of
2007. The decline in investments was primarily related to principal
payments received on securitized mortgage loans and a decrease in investment
in
joint venture offset by an increase in securities. Investment in
joint venture declined as a result of a distribution of $18.2 million by the
joint venture to the Company during the third quarter of 2007. The
distribution was made in accordance with the joint venture agreement based
on
the lack of investment by the joint venture of its cash within the prescribed
time requirement. The increase in securities was primarily related to the
purchase of $10.5 million of new securities during the third quarter of 2007,
which was partially offset by the receipt of $2.3 million of principal on the
Company’s existing securities.
Securitization
financing declined as a result of payments received on securitized mortgage
loans. Repurchase agreements declined to $36.2 million at September
30, 2007 compared to $96.0 million at December 31, 2007 as the Company paid-down
recourse debt during the quarter. As of the date of this press
release, the Company has $20.2 million of repurchase agreement financing
outstanding collateralized by securities with a value of approximately $46.9
million. Subsequent to the end of the quarter, the Company sold one
of its previously redeemed securitization financing bonds for $35.4 million
as
indicated in its Form 8-K filed on October 16, 2007. In subsequent
quarters, this bond will be included as securitization financing in the
Company’s balance sheet. Including the proceeds from this sale, the
Company currently has approximately $55.4 million of cash and cash equivalents
immediately available to invest or use for other corporate purposes. There
is
also $5.1 million of cash and cash equivalents remaining in the Company’s joint
venture available for reinvestment.
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 Reform 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. These factors may include, but are not
limited to, changes in general economic and market conditions, defaults by
borrowers, availability of suitable reinvestment opportunities, variability
in
investment portfolio cash flows, fluctuations in interest rates, fluctuations
in
property capitalization rates and values of commercial real estate,
defaults by third-party servicers, prepayments of investment portfolio assets,
other general competitive factors, the impact of regulatory changes, and the
impact of Section 404 of the Sarbanes-Oxley Act of 2002. For additional
information, see the Company’s Annual Report on Form 10-K for the period ended
December 31, 2006, and other reports filed with and furnished to the Securities
and Exchange Commission.
# # #
DYNEX
CAPITAL, INC.
Consolidated
Balance Sheets
(Thousands
except share data)
|
September
30,
|
December
31,
|
|||||||
|
2007
(unaudited)
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ |
35,447
|
$ |
56,880
|
||||
|
Other
assets
|
4,004
|
6,111
|
||||||
|
39,451
|
62,991
|
|||||||
|
Investments:
|
||||||||
|
Securitized
mortgage loans, net
|
295,686
|
346,304
|
||||||
|
Investment
in joint venture
|
21,357
|
37,388
|
||||||
|
Securities
|
21,546
|
13,143
|
||||||
|
Other
loans and investments
|
6,348
|
6,731
|
||||||
|
344,937
|
403,566
|
|||||||
| $ |
384,388
|
$ |
466,557
|
|||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
LIABILITIES:
|
||||||||
|
Securitization
financing
|
$ |
183,070
|
$ |
211,564
|
||||
|
Repurchase
agreements
|
36,197
|
95,978
|
||||||
|
Obligation
under payment agreement
|
16,813
|
16,299
|
||||||
|
Other
liabilities
|
6,957
|
6,178
|
||||||
|
243,037
|
330,019
|
|||||||
|
SHAREHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock
|
41,749
|
41,749
|
||||||
|
Common
stock
|
121
|
121
|
||||||
|
Additional
paid-in capital
|
366,716
|
366,637
|
||||||
|
Accumulated
other comprehensive income
|
1,075
|
663
|
||||||
|
Accumulated
deficit
|
(268,310 | ) | (272,632 | ) | ||||
|
141,351
|
136,538
|
|||||||
| $ |
384,388
|
$ |
466,557
|
|||||
|
Book
value per common share
|
$ |
8.17
|
$ |
7.78
|
||||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except share data)
(unaudited)
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September 30,
|
September
30,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Interest
income
|
$ |
7,473
|
$ |
13,000
|
$ |
23,711
|
$ |
41,958
|
||||||||
|
Interest
and related expense
|
5,016
|
9,831
|
15,830
|
33,958
|
||||||||||||
|
Net
interest income
|
2,457
|
3,169
|
7,881
|
8,000
|
||||||||||||
|
Recapture
of (provision for) loan losses
|
127
|
(67 | ) |
1,352
|
52
|
|||||||||||
|
Net
interest income after recapture of (provision for) loan
losses
|
2,584
|
3,102
|
9,233
|
8,052
|
||||||||||||
|
Equity
in earnings of joint venture
|
576
|
(1,661 | ) |
1,878
|
(1,661 | ) | ||||||||||
|
Loss
on capitalization of joint venture
|
-
|
(1,194 | ) |
-
|
(1,194 | ) | ||||||||||
|
Other
income (expense), net
|
305
|
433
|
(713 | ) |
662
|
|||||||||||
|
Gain
on sale of investments, net
|
21
|
85
|
21
|
226
|
||||||||||||
|
General
and administrative expenses
|
(800 | ) | (980 | ) | (3,089 | ) | (3,473 | ) | ||||||||
|
Net
income (loss)
|
2,686
|
(215 | ) |
7,330
|
2,612
|
|||||||||||
|
Preferred
stock charge
|
(1,003 | ) | (1,003 | ) | (3,008 | ) | (3,041 | ) | ||||||||
|
Net
income (loss) to common shareholders
|
$ |
1,683
|
$ | (1,218 | ) | $ |
4,322
|
$ | (429 | ) | ||||||
|
Change
in net unrealized gain (loss) during the period on:
|
||||||||||||||||
|
Investments
classified as
available-for-sale
|
576
|
(166 | ) |
100
|
282
|
|||||||||||
|
Investment
in joint
venture
|
(295 | ) |
18
|
311
|
18
|
|||||||||||
|
Comprehensive
income (loss)
|
$ |
2,967
|
$ | (363 | ) | $ |
7,741
|
$ |
2,912
|
|||||||
|
Net
income per common share
|
||||||||||||||||
|
Basic
and
diluted
|
$ |
0.14
|
$ | (0.10 | ) | $ |
0.36
|
$ | (0.04 | ) | ||||||
|
Weighted
average number of common shares outstanding:
|
||||||||||||||||
|
Basic
|
12,136,262
|
12,130,836
|
12,135,236
|
12,143,549
|
||||||||||||
|
Diluted
|
12,138,631
|
12,130,836
|
12,137,315
|
12,143,549
|
||||||||||||
DYNEX
CAPITAL, INC.
Reconciliation
of Book Value to Adjusted Common Equity Book Value
(Thousands
except share data)
(unaudited)
|
September
30,
|
December
31,
|
|||||||
|
2007
|
2006
|
|||||||
|
Shareholders’
equity
|
$ |
141,351
|
$ |
136,538
|
||||
|
Less:
Preferred stock redemption value
|
(42,215 | ) | (42,215 | ) | ||||
|
Common
equity book value
|
99,136
|
94,323
|
||||||
|
Adjustments
to present amortized cost basis investments at fair value:
|
||||||||
|
Securitized
finance receivables,
net
|
362
|
4,427
|
||||||
|
Other
mortgage
loans
|
653
|
776
|
||||||
|
Investment
in joint
venture
|
(511 | ) | (868 | ) | ||||
|
Adjusted
common equity book value
|
$ |
99,640
|
$ |
98,658
|
||||
|
Adjusted
book value per common share
|
$ |
8.21
|
$ |
8.13
|
||||