DX 2Q 2008 EARNINGS RELEASE
Published on July 23, 2008
 |
PRESS
RELEASE
|
FOR
IMMEDIATE RELEASE
|
CONTACT: Alison
Griffin
|
|
July
22, 2008
|
(804)
217-5897
|
DYNEX
CAPITAL, INC. ANNOUNCES
SECOND
QUARTER 2008 RESULTS
GLEN
ALLEN, Va. -- Dynex Capital, Inc. (NYSE: DX) reported its results today for the
second quarter of 2008. The Company reported net income to common
shareholders of $3.3 million for the quarter ended June 30, 2008, versus net
income to common shareholders of $1.7 million for the same quarter last
year. Basic net income per common share was $0.27 and fully diluted
net income per common share was $0.26, an increase of $0.13 and $0.12 per common
share, respectively, over basic and fully diluted net income per common share of
$0.14 for the same period last year.
Net
income to common shareholders for the six-month period ended June 30, 2008 was
$7.6 million, versus net income to common shareholders of $2.6 million for the
same period last year. Basic net income per common share was $0.63 and fully
diluted net income per common share was $0.59 for the six-month period ended
June 30, 2008, compared to basic and fully diluted net income per common share
of $0.22 for the same period last year.
Book
value per common share was $8.24 at June 30, 2008, versus $8.07 at March 31,
2008, and $8.22 at December 31, 2007. Adjusted common equity book
value, a non-GAAP measure reflecting investment assets and related borrowings
and other obligations at their fair values based on anticipated cash flows from
the assets less the associated cash requirements for the borrowings, and
discounted at estimated market rates, was $7.42 per common share at June 30,
2008 versus $7.21 at March 31, 2008 and $8.00 at December 31,
2007. Reflecting the derecognition of the mortgage servicing
obligations as discussed below, at July 1, 2008, book value per common share was
$8.52 and adjusted common equity book value per common share was $7.70. A
reconciliation of common equity book value to adjusted common equity book value
per share at December 31, 2007, June 30, 2008, and July 1, 2008 is included at
the end of this press release.
The
Company has scheduled a conference call for Wednesday, July 23, 2008, at 10:00
A.M. EDT, to discuss second quarter results. Investors may
participate in the call by dialing 1-877-407-8033. The conference
call will also be webcast over the internet at www.dynexcapital.com
through the link provided under “Investor Relations”.
Discussion
of Quarterly Results
Thomas
Akin, Chairman and Chief Executive Officer, stated, “Consistent with our
investment strategy, during the second quarter we purchased a net $109.4 million
of agency residential mortgage-backed securities (“agency RMBS”) for our
investment portfolio. These assets are short - duration hybrid arms
with an overall anticipated net interest spread of 1.8% to 2.1% based on modeled
prepayment speeds. These assets were purchased toward the end of the quarter, so
our results for this quarter do not fully reflect their
earnings. Subsequent to quarter end, we have purchased an additional
$59.1 million in agency RMBS”.
Mr. Akin
continued, “We are also quite pleased that we increased our book value per
common share from $8.07 at the end of the first quarter to $8.24 at the end of
June. As we announced in our Current Report on Form 8-K filed July
11, 2008, in the third quarter we will be recognizing a $3.5 million benefit, or
$0.28 per common share, related to the Company’s release from certain mortgage
servicing obligations at the beginning of the third quarter. This
will increase book value per common share by the same amount.”
Mr. Akin
concluded, “Market conditions continue to be volatile, and, therefore, we remain
cautious in deploying our capital. The news surrounding Fannie Mae
and Freddie Mac simply highlights the continued risks in the financial system,
notwithstanding the rally in financial stocks over the past week. We
anticipate keeping our leverage relatively low into the third quarter pending
resolution of some of the uncertainty in the market, but with spreads on agency
RMBS still robust we expect to be able to continue to increase our core earnings
on our investment portfolio. In the second quarter, we paid a common stock
dividend of $0.15 per share. We will make an announcement later this quarter
with respect to the third quarter common stock dividend.”
During
the second quarter of 2008, the Company reported net interest income after
provision for loan losses of $2.2 million, a decline from $3.7 million in the
same period last year in large part as a result of lower interest earned on cash
and cash equivalents and reserve recaptured in 2007.
The
overall net interest spread for the quarter was 1.48% versus 1.53% for the same
period in 2007. Net interest spread on investments other than agency
RMBS was 1.38% for the quarter and net interest spread for agency RMBS was 1.85%
for the month of June. The overall yield on interest earning assets,
excluding cash and cash equivalents, was 7.33% for the second quarter of 2008
versus 8.31% for the second quarter of 2007. The weighted average
cost of funds was 5.85% for the quarter and 6.78% for the same period last
year.
Other
income includes $2.7 million related to the redemption in June 2008 of a
securitization financing bond. Of this amount, $1.3 million relates to
accelerated premium amortization on the bond and $1.4 million relates to the
release of a contingency reserve on this bond.
The
Company reported total assets of $478.2 million, including investment assets of
$430.3 million, versus total assets of $388.5 million at March 31, 2008, and
$374.8 million at December 31, 2007. Investment assets increased as a
result of the purchase of a net $109.4 million of agency RMBS during the
quarter.
2
During
the quarter ended June 30, 2008, agency RMBS were purchased at a weighted
average cost of 101.2%. The entire agency RMBS portfolio at June 30,
2008 consists of hybrid adjustable-rate RMBS and has a weighted average 27
months to reset.
Securitized
mortgage loans consisted of $176.0 million of commercial mortgage loans held by
two securitization trusts and $77.0 million of single-family mortgage loans held
by one securitization trust. During the quarter, the Company received
principal payments of approximately $8.1 million of commercial mortgage loans,
including unscheduled principal payments of $6.0 million, and $4.3 million of
single-family mortgage loans, including $3.5 million in unscheduled principal
payments. As noted in prior quarters, the commercial mortgage loans were
principally originated in 1997 and 1998 and the single-family mortgage loans
were originated primarily from 1992-1997. None of the commercial
mortgage loans were delinquent at quarter end. Approximately $1.1
million of the single-family mortgage loans, or 1.45% of the loans outstanding,
made no payments during the quarter. Of this amount, approximately
$0.3 million are pool insured, and the Company does not expect to incur
significant credit losses on the remaining $0.8 million given the seasoning of
the loans.
Total
liabilities increased to $335.7 million at June 30, 2008. Securitization
financing declined $11.0 million during the quarter from associated payments
received on the collateral. Repurchase agreements increased to $129.4 million
during the quarter as the Company added $103.5 million in repurchase agreements
to finance the acquisition of investments during the quarter. At the
end of the second quarter, of the total repurchase agreements of $129.4 million,
$99.1 million and $30.3 million reset in approximately 1 month and 3 months,
respectively.
Subsequent
Event
As noted
above, on July 1, 2008, the Company was relieved of certain mortgage servicing
obligations with a recorded balance of $3.5 million at June 30,
2008. The obligations related to payments required to be made by the
Company to a former affiliate who was the servicer of manufactured housing loans
originated by the Company in 1998 and 1999. The servicer resigned effective
July 1, 2008, with the immediate effect that the Company was relieved of any
obligation to make further payments. At June 30, 2008, this $3.5
million was included in other liabilities. As a result of being
released from these obligations, the Company will recognize a benefit of $3.5
million in the quarter ending September 30, 2008.
Dynex
Capital, Inc. is a specialty finance 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 release 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,
3
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, 2007, and other reports
filed with and furnished to the Securities and Exchange Commission.
# # #
4
DYNEX
CAPITAL, INC.
Consolidated
Balance Sheets
(Thousands
except share data)
(unaudited)
|
June
30,
|
December
31,
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|||||||
|
2008
|
2007
|
|||||||
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ASSETS
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||||||||
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Cash
and cash equivalents
|
$ | 42,501 | $ | 35,352 | ||||
|
Other
assets
|
5,378 | 5,671 | ||||||
| 47,879 | 41,023 | |||||||
|
Investments:
|
||||||||
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Securitized
mortgage loans, net
|
258,826 | 278,463 | ||||||
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Agency
RMBS
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139,187 | 7,456 | ||||||
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Other
securities
|
15,690 | 21,775 | ||||||
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Investment
in joint venture
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13,273 | 19,267 | ||||||
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Other
loans and investments
|
3,336 | 6,774 | ||||||
| 430,312 | 333,735 | |||||||
| $ | 478,191 | $ | 374,758 | |||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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||||||||
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LIABILITIES:
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||||||||
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Securitization
financing
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$ | 189,304 | $ | 204,385 | ||||
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Repurchase
agreements
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129,403 | 4,612 | ||||||
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Obligation
to joint venture under payment agreement
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11,663 | 16,796 | ||||||
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Other
liabilities
|
5,367 | 7,029 | ||||||
| 335,737 | 232,822 | |||||||
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SHAREHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock
|
41,749 | 41,749 | ||||||
|
Common
stock
|
122 | 121 | ||||||
|
Additional
paid-in capital
|
366,768 | 366,716 | ||||||
|
Accumulated
other comprehensive (loss) income
|
(3,953 | ) | 1,093 | |||||
|
Accumulated
deficit
|
(262,232 | ) | (267,743 | ) | ||||
| 142,454 | 141,936 | |||||||
| $ | 478,191 | $ | 374,758 | |||||
|
Book
value per common share
|
$ | 8.24 | $ | 8.22 | ||||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except share data)
(unaudited)
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
June
30,
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June
30,
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|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
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Interest
income:
|
||||||||||||||||
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Investments
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$ | 6,497 | $ | 7,236 | $ | 12,656 | $ | 14,712 | ||||||||
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Cash and cash equivalents
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177 | 787 | 501 | 1,526 | ||||||||||||
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Interest
income
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6,674 | 8,023 | 13,157 | 16,238 | ||||||||||||
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Interest
expense
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(4,173 | ) | (5,060 | ) | (8,235 | ) | (10,814 | ) | ||||||||
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Net
interest income
|
2,501 | 2,963 | 4,922 | 5,424 | ||||||||||||
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(Provision
for) recapture of loan losses
|
(321 | ) | 702 | (347 | ) | 1,225 | ||||||||||
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Net
interest income after provision for loan losses
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2,180 | 3,665 | 4,575 | 6,649 | ||||||||||||
|
Equity
in earnings (loss) of joint venture
|
560 | 672 | (1,691 | ) | 1,302 | |||||||||||
|
(Loss)
gain on sale of investments, net
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(43 | ) | 6 | 2,050 | – | |||||||||||
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Other
income (expense)
|
2,852 | (478 | ) | 7,150 | (1,018 | ) | ||||||||||
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General
and administrative expenses
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(1,253 | ) | (1,163 | ) | (2,469 | ) | (2,290 | ) | ||||||||
|
Net
income
|
4,296 | 2,702 | 9,615 | 4,643 | ||||||||||||
|
Preferred
stock dividends
|
(1,003 | ) | (1,003 | ) | (2,005 | ) | (2,005 | ) | ||||||||
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Net
income to common shareholders
|
$ | 3,293 | $ | 1,699 | $ | 7,610 | $ | 2,638 | ||||||||
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Change
in net unrealized gain (loss) during the period on:
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||||||||||||||||
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Investments classified as
available-for-sale
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1,250 | (602 | ) | (1,122 | ) | (476 | ) | |||||||||
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Investment in joint
venture
|
(287 | ) | (223 | ) | (3,923 | ) | 606 | |||||||||
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Comprehensive
income
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$ | 5,259 | $ | 1,877 | $ | 4,570 | $ | 4,773 | ||||||||
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Net
income per common share
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||||||||||||||||
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Basic
|
$ | 0.27 | $ | 0.14 | $ | 0.63 | $ | 0.22 | ||||||||
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Diluted
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$ | 0.26 | $ | 0.14 | $ | 0.59 | $ | 0.22 | ||||||||
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Weighted
average number of common shares outstanding:
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||||||||||||||||
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Basic
|
12,169,762 | 12,136,262 | 12,163,320 | 12,134,715 | ||||||||||||
|
Diluted
|
16,398,667 | 12,139,435 | 16,392,784 | 12,136,624 | ||||||||||||
DYNEX
CAPITAL, INC.
Reconciliation
of Common Equity Book Value to Adjusted Common Equity Book Value
(Thousands
except share data)
(unaudited)
|
July
1,
|
June
30,
|
December
31,
|
||||||||||
|
2008
|
2008
|
2007
|
||||||||||
|
Shareholders’
equity
|
$ | 142,454 | $ | 142,454 | $ | 141,936 | ||||||
|
Derecognition
of mortgage servicing obligation
|
3,467 | - | - | |||||||||
|
Less:
Preferred stock redemption value
|
(42,215 | ) | (42,215 | ) | (42,215 | ) | ||||||
|
Common
equity book value
|
103,706 | 100,239 | 99,721 | |||||||||
|
Adjustments
to present amortized cost basis of instruments at fair
value:
|
||||||||||||
|
Securitized finance receivables,
net
|
(10,283 | ) | (10,283 | ) | (2,840 | ) | ||||||
|
Other mortgage
loans
|
566 | 566 | 633 | |||||||||
|
Investment in joint
venture
|
(240 | ) | (240 | ) | (420 | ) | ||||||
|
Adjusted
common equity book value
|
$ | 93,749 | $ | 90,282 | $ | 97,094 | ||||||
|
Adjusted
book value per common share
|
$ | 7.70 | $ | 7.42 | $ | 8.00 | ||||||
|
Book
value per common share
|
$ | 8.52 | $ | 8.24 | $ | 8.22 | ||||||