DYNEX CAPITAL YEAR-END 2004 RESULTS PRESS RELEASE
Published on March 18, 2005
PRESS RELEASE
FOR IMMEDIATE RELEASE CONTACT: Steve Benedetti
March 17, 2005 804-217-5800
DYNEX CAPITAL, INC. REPORTS
YEAR-END 2004 RESULTS
Dynex Capital, Inc. (NYSE: DX) announced its financial results for the
fourth quarter and year-ended December 31, 2004. Highlights contained in this
release include:
- - Cash flows from the investment portfolio were $79.5 million for the year,
inclusive of proceeds from the sale of investments of $38.3 million. For
the fourth quarter 2004, cash flows from the investment portfolio were $19.3
million, inclusive of proceeds from the sale of investments of $12.4 million.
- - Net income for the fourth quarter was $15.0 million. Net loss for the year
was $3.4 million.
- - Total investment portfolio assets were $1,343 million and cash and cash
equivalents were $52.5 million at December 31, 2004, versus total investment
portfolio assets of $1,854 million and cash and cash equivalents of $7.4
million at December 31, 2003.
- - Common equity book value was $92.5 million, or $7.60 per common share at
December 31, 2004, versus $82.1 million, or $7.55 at December 31, 2003.
- - Tax net operating loss carryforward was approximately $135 million at December
31, 2004.
For the year ended December 31, 2004, the Company reported a net loss of
$3.4 million versus a net loss of $21.1 million in 2003. After consideration of
preferred stock charges, the Company reported a net loss to common shareholders
of $5.2 million or $0.46 per common share for 2004 versus $14.3 million, or
$1.31 per common share for 2003. For the fourth quarter 2004, the Company
reported net income to common shareholders of $13.7 million, or $0.77 per common
share on a fully-diluted basis, versus a net loss of $12.9 million, or $1.18 per
common share for the same period in 2003.
The Company also announced that dividends paid on the Series D Preferred
Stock during 2004 of an aggregate $0.4618 per share, consisted of $0.2412 per
share of ordinary income and $0.2206 per share return of capital. The $0.2412
dividends per share of ordinary income is due to the Company's ownership of
residual interests in certain REMIC securitizations.
The Company has scheduled a conference call for Friday, March 18, 2005, at
2:00 p.m. Eastern Time to discuss fourth quarter results. Investors may
participate by calling (800) 729-5806.
Commenting on 2004 and fourth quarter results, Thomas B. Akin, Chairman of
the Board of Directors stated, "We believe that 2004 was a very good year for
our shareholders. We successfully recapitalized the Company, eliminating
dividends in arrears on our preferred stock in the process, and prudently took
advantage of opportunities to convert investments to cash at favorable prices.
Our cash position at the end of 2004 was in excess of $52 million, and stands at
approximately $57 million today. While book value per common share is
approximately the same as 2003, the quality of that amount is much improved, as
almost one-half of our total market capitalization now consists of cash and cash
equivalents and investments in liquid securities. Our financial position and
flexibility going into 2005 is much stronger than it was at the end of 2004. Our
strategy today remains the same as we articulated at the end of the third
quarter. We intend to invest in high credit quality, short-duration assets, and
maintain a substantial cash position while we wait for opportunities to invest
capital on a longer-term basis. Compelling investment opportunities in the
near-term have been harder to find as spreads on mortgage securities have
continued to compress, and in our opinion do not adequately compensate for the
current risks inherent in these securities. We do believe, however, that
opportunities will be available in the marketplace in the coming year for the
Company to strategically redeploy its capital. Our focus in the near term will
continue to be in the single-family mortgage markets, but that focus may expand
to other areas if opportunities arise. As we have previously indicated, we
continue to feel that the tax net operating loss carryforward offers the Company
a compelling competitive advantage, allowing the Company to retain taxable
income which would otherwise have to be distributed, enabling the Company to
compound returns on its capital and grow book value per common share on a tax
free basis."
Discussion of Results
Net income for the fourth quarter was $15.0 million, which includes a gain
of $17.6 million from the sale of the Company's investment in certain
securitized finance receivables, and the associated securitization financing
bonds. The Company also recorded an impairment of $4.9 million during the
quarter on its remaining investment in its securitized delinquent property tax
receivable portfolio, as a result of the security's reclassification from
held-to-maturity to available-for-sale during the quarter. The transfer resulted
in an adjustment in the carrying value of the security to its estimated fair
value at the time of the transfer. The Company determined that it could no
longer assert the positive intent to retain this security to maturity due to
efforts initiated in December 2004 to sell this security, principally due to the
sale of a meaningful portion of its overall delinquent property tax receivables
portfolio during the third quarter of 2004.
Net interest income after provisions for loan losses for the fourth quarter
and the year includes approximately $1.1 million of provision for loan losses
for credit risk on securitized finance receivables for which the actual credit
risk has been assumed by third-parties pursuant to the securitization of the
receivables and the issuance of non-recourse securitization financing bonds. The
Company had previously indicated that it would discontinue recording a valuation
allowance on finance receivables where its credit risk was limited via the
securitization structure. After consultation with its independent accounting
firm and the staff of the Securities and Exchange Commission, the Company
determined that generally accepted accounting principles require it to continue
to provide for loan losses regardless of the securitization structure, even
where the risk of loss is borne by the holders of the securitization financing
bonds. Net income will be reduced by the amount of the provision for loan
losses, and shareholders' equity will be reduced by the current period and
cumulative amounts recorded. Such cumulative amounts may ultimately be material
to the financial statements, but will eventually reverse as the associated
securitization financing bonds are legally extinguished. The Company will
disclose in its filings with the SEC the current period and cumulative amounts
of loan losses recorded in excess of the credit risk retained by the Company.
The Company noted that the provision for loan losses recorded in the financial
statements is non-cash in nature and will not have any effect on the estimated
fair value of the underlying securitized finance receivables, nor will it impact
the overall economics of the Company's investment in these receivables.
The Company reported cash flows from the investment portfolio of $79.5
million for all of 2004, and $19.3 million for the fourth quarter 2004.
Excluding cash flows from sales of investments, cash flows from the investment
portfolio were $6.8 million during the fourth quarter 2004. Cash flows from the
investment portfolio include net principal payments, interest income and
dividends received on investments, less principal and interest payments made on
the associated financing for the investments, plus net proceeds received from
the sale of investments.
Investments were $1,343 million at December 31, 2004, versus $1,854 million
at December 31, 2003. The Company purchased approximately $62 million in
'AAA'-rated, fixed-rate securities during the quarter, which were financed with
$57 million in repurchase agreements. The securities have an estimated
weighted-average life of less than one year and are consistent with the
Company's stated objective of high credit quality and short duration. During the
fourth quarter, gross principal repayments and net principal repayments on the
investment portfolio approximated $66.1 million and $2.4 million, respectively,
and the weighted-average coupon on the investment portfolio, including cash
equivalents, was 6.98%. The average cost of funds, including both securitization
financing and repurchase agreements, was 6.27% for the same period. The
weighted-average coupon on the investment portfolio continues to decline
quarter-to quarter as higher yielding assets repay and the Company reinvests the
cash received in short-term cash equivalents.
Shareholders' equity was $148.8 million at December 31, 2004 versus $149.8
million at December 31, 2003. Common shareholders' equity was $92.5 million at
December 31, 2004 versus $82.1 million at December 31, 2003. Common book value
per share, net of liquidation preferences on preferred stock was $7.60 at
December 31, 2004 versus $7.55 per share at December 31, 2003. The recourse debt
to equity ratio is less than 1:1 at the end of 2004.
Commenting on the outlook for 2005, Mr. Akin stated, "Our investment
portfolio cash flow will likely continue to modestly decline quarter-to-quarter
absent meaningful reinvestment of our capital or sales of existing investments.
Cash flows from the investment portfolio for the first quarter through February
are $4.3 million, excluding proceeds from sales. Net income to common
shareholders in the fourth quarter 2004 included several one-time items, and on
a go-forward basis we would expect net income to common shareholders to be
closer to break-even as we continue to provide for non-cash valuation allowances
on loans where we do not retain the credit risk."
Mr. Akin continued, "The Company's single-family mortgage loan
securitization financing with a current aggregate principal balance of $217
million outstanding collateralized by $225 million of single-family mortgage
loans is estimated to reach its redemption date this month, and the Company is
exploring opportunities to capitalize on this redemption. At this point it is
likely that we will redeem the outstanding bonds and resecuritize the underlying
mortgage loans, possibly adding additional collateral by including single-family
mortgage loans and securities already owned by the Company, and purchasing
additional single-family mortgage loans. We are also focused on the sale of the
Company's remaining investment in property tax receivables, and continue to
manage the portfolio and the corresponding servicing platform as efficiently as
possible. The successful sale of this investment will likely impact reported
results for the period of the sale. We will continue to conserve capital and
evaluate potential investment opportunities for the Company as they arise. Our
objective is to take prudent risk in our investment portfolio and to be
compensated accordingly."
The Company also commented on the recently-filed litigation in the United
States District Court for the Southern District of New York, noting that the
plaintiffs, among other things, are claiming securities laws violations
regarding MERIT Series 13, which was issued in August 1999. From a review of the
pleadings filed in the case, the Company noted that the plaintiffs purchased its
investment in MERIT Series 13 in January 2002 and March 2002. Based on
information available from third-parties, the Company believes that the
historical collateral performance on MERIT Series 13 was generally in-line or
exceeded most other similar vintage securities. The Company continues to
evaluate the pleadings in this litigation and intends to vigorously defend
itself in the action.
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. 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 completion of the
proposed recapitalization plan, defaults by borrowers, defaults by third-party
servicers, 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. For additional information, see the Company's Quarterly report on Form
10-Q for the quarter ended September 30, 2004 as filed with the Securities and
Exchange Commission.
# # #
DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except share data)
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Interest income $ 25,349 $ 35,665 $ 122,223 $ 152,215
Interest and related expense (20,416) (25,796) (98,942) (113,244)
------------ ------------ ------------ ------------
Net interest income 4,933 9,869 23,281 38,971
Provision for loan
losses (1,025) (7,367) (18,463) (37,082)
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 3,908 2,502 4,818 1,889
Impairment charges (5,187) (11,873) (14,756) (16,355)
Gain (loss) on sale of
investments, net 17,633 (281) 14,490 1,498
Other income (expense) 85 323 (179) 493
General and administrative
expenses (1,418) (2,336) (7,748) (8,632)
------------ ------------ ------------ -----------
Net income (loss) 15,021 (11,665) (3,375) (21,107)
Preferred stock(charge)benefit (1,292) (1,192) (1,819) 6,847
------------ ------------ ------------ ------------
Net income (loss)to
common shareholders $ 13,729 $ (12,857) $ (5,194) $ (14,260)
============ ============ ============ ============
Change in net unrealized loss during the period on:
Investments classified as
available-for-sale 1,155 (861) 4,681 115
Hedge instruments 664 944 3,018 835
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 16,840 $ (11,582) $ 4,324 $ (20,157)
============ ============ ============ ============
Net income (loss)per common share
Basic $ 1.13 $ (1.18) $ (0.46) $ (1.31)
------------ ------------ ------------ ------------
Diluted $ 0.77 $ (1.18) $ (0.46) $ (1.31)
============ ============ ============ ============
Weighted average number of common shares outstanding:
Basic 12,162,391 10,873,903 11,272,259 10,873,903
------------ ------------ ------------ ------------
Diluted 17,813,455 10,873,903 11,272,259 10,873,903
============ ============ ============ ============
DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
December 31, December 31,
2004 2003
------------ ------------
ASSETS
Cash and cash equivalents $ 52,522 $ 7,386
Other assets 4,964 4,174
------------ ------------
57,486 11,560
Investments:
Securitized finance receivables:
Loans, net 1,036,123 1,518,613
Debt securities 206,434 255,580
Securities 87,706 33,275
Other investments 7,596 37,903
Other loans 5,589 8,304
------------ ------------
1,343,448 1,853,675
------------ ------------
$1,400,934 $1,865,235
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse securitization financing $1,177,280 $1,679,830
Repurchase agreements 70,468 23,884
Senior Notes - 10,049
Other liabilities 4,420 1,626
------------ ------------
1,252,168 1,715,389
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock 55,666 47,014
Common stock 122 109
Additional paid-in capital 366,896 360,684
Accumulated other comprehensive income (loss) 3,817 (3,882)
Accumulated deficit (277,735) (254,079)
------------ ------------
148,766 149,846
------------ ------------
$1,400,934 $1,865,235
============ ============
Preferred dividends in arrears $ - $ 18,466
============ ============
Book value per common share $ 7.60 $ 7.55
============ ============