EXHIBIT 99.1 - EARNINGS PRESS RELEASE AUGUST 10, 2006
Published on August 11, 2006
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PRESS
RELEASE
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FOR
IMMEDIATE RELEASE
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CONTACT:
Alison Griffin
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August
10, 2006
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(804)
217-5897
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DYNEX
CAPITAL, INC. ANNOUNCES
SECOND
QUARTER 2006 RESULTS
Dynex
Capital, Inc. (NYSE: DX) reported net income of $1.6 million for the second
quarter of 2006 and $2.8 million for the first six months of 2006, versus
net
income of $9.6 million for the second quarter of 2005 and $10.5 million for
the
first six months of 2005. Net income to common shareholders was $612 thousand,
or $0.05 per common share (basic and diluted) for the second quarter 2006,
versus $8.3 million, or $0.68 per common share ($0.54 per share on a
fully-diluted basis) for the second quarter of 2005. Net income for the first
quarter of 2006 was $1.2 million, and net income to common shareholders was
$177
thousand for the same period.
Common
equity book value was $94.2 million, or $7.76 per common share at June 30,
2006,
an improvement of $0.11 per share from the end of 2005. The Company repurchased
12,260 shares of common stock during the quarter at an average price of $6.80
per share.
The
Company has scheduled a conference call for Monday, August 14, 2006, at 4:00
p.m. Eastern Time, to discuss the second quarter results. Investors may
participate in the call by dialing (888) 706-4263.
Thomas
B.
Akin, Chairman, stated, “Our results continue to improve on a quarter-to-quarter
basis, as our net interest income has benefited from continued increases
in
short-term rates. During the quarter, our investment activity continued to
be
focused on very short-term instruments. We remained cautious in making
additional investments further out the curve, pending a clearer view of the
near-term outlook for interest rates. With the pause by the Federal Reserve
in
incrementally raising the Federal Funds rate, we may begin to look at points
further out on the curve for investment opportunities provided we can achieve
acceptable risk-adjusted returns. With our ample liquidity and strong balance
sheet, we believe that we are well positioned for future growth of our
investment portfolio and leveraging our existing capital base.”
Mr.
Akin
continued, “We continue to evaluate interesting opportunities for our investment
portfolio, seek joint-venture or similar relationships to leverage the resources
and expertise of credible third-parties, and explore opportunities to diversify
our capital at-risk in commercial mortgage securities. We are making progress
on
all of these fronts.”
Second
Quarter Results
The
Company reported net income for the second quarter of 2006 of $1.6 million
compared to $9.6 million for the same period last year. After consideration
of
the preferred stock dividend, the Company reported net income to common
shareholders of $612 thousand for the second quarter of 2006, or $0.05 per
common share, compared to net income to common shareholders of $8.3 million,
or
$0.54 per diluted common share for the first quarter of 2005. The 2005 second
quarter results include a gain of $9.6 million from the sale of certain
investments by the Company, as described below, and excluding this amount,
net
income for the second quarter of 2005 would have been $47 thousand.
The
Company reported net interest income on its investment portfolio of $2.5
million
for the second quarter of 2006 compared to $2.7 million for the same period
in
2005 and $2.3 million for the quarter ended March 31, 2006. Net interest
income
improved during 2006, as a result of improving yields on short-term investments
made by the Company, the benefits of slowing prepayments in the investment
portfolio, and the liquidation of a non-performing securitized commercial
loan.
For the quarter, the average yield in interest-earning assets increased to
7.60%
from 7.58% for the first quarter of 2006. The weighted-average cost of funds
decreased from 7.73% for the previous quarter to 7.54% this quarter, resulting
in a net interest spread of 0.06% for the quarter versus a negative net interest
spread of 0.15% for the first quarter of 2006. Along with increasing yields
on
short-term investments, net interest spread improved from the liquidation
of the
aforementioned non-performing securitized commercial mortgage loan, previously
on non-accrual for interest. The proceeds from the liquidation were used
to
repay securitization financing. The net yield on average interest earning
assets
also increased to 1.42% for the second quarter from 1.25% for the first quarter
of 2006 for primarily the same reasons set forth above. Overall, as short-term
yields continue to increase, we expect the Company’s net interest income and net
interest spread to increase.
There
was
no provision for loan losses in the second quarter of 2006 versus $664 thousand
in 2005. At June 30, 2006, $5.5 million in securitized single-family loans
and
$27.9 million in commercial mortgage loans were sixty-plus days delinquent,
including one loan with a principal balance of $23.2 million. The Company
has
reserves on the securitized single-family and commercial mortgage loans totaling
$14.9 million at June 30, 2006. At March 31, 2006 and June 30, 2005, sixty-plus
day delinquencies for single-family and commercial mortgage loans were $41.8
million and $43.4 million, respectively, and total reserves as of those dates
were $18.9 million and $16.5 million, respectively.
Gain
on
sale of investments was $0.1 million for the second quarter of 2006 versus
$9.6
million for the same period in 2005. The gain in the second quarter of 2005
related to the sale of the Company’s interest in two securitizations
collateralized by manufactured housing loans and the sale of four healthcare
mezzanine loans. There were no impairment charges for the second quarter
of 2006
versus $1.6 million for the second quarter of 2005, which related to the
Company’s investment in delinquent property tax receivable
securities.
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2
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General
and administrative expenses were $1.2 million for the second quarter of 2006
which is in-line with the first quarter and a small decrease from the second
quarter of 2005. General and administrative expenses should decline for the
balance of the year due to headcount reductions in the Company’s tax lien
servicing operation.
Balance
Sheet
At
June
30, 2006, the Company’s investment portfolio consisted of $152.7 million in
securitized single-family mortgage loans and securities, the majority of
which
are floating rate and financed with floating rate liabilities, and $529.0
million in fixed-rate securitized commercial mortgage loans. Cash and cash
equivalents was $47.7 million and $45.2 million at June 30, 2006 and December
31, 2005, respectively. The relatively small increase was due to the use
of
approximately $14.1 million of the funds generated during the six months
ended
June 30, 2006 from earnings and principal repayments on investments, to fund
the
redemption of twenty five percent of the preferred stock during the first
quarter of 2006. The Company’s common book value per share also increased by
$0.11 per share to $7.76 per share on the earnings for the six months ended
June
30, 2006 and an increase in the unrealized gains on certain of its investments.
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 condition, variability
in
investment portfolio cash flows, availability of suitable reinvestment
opportunities, defaults by borrowers, 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, 2005, and other reports filed with and furnished to the Securities
and Exchange Commission.
# # #
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3
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DYNEX
CAPITAL, INC.
Consolidated
Balance Sheets
(Thousands
except share data)
(unaudited)
|
June
30,
|
December
31,
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||||||
|
2006
|
2005
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||||||
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ASSETS
|
|||||||
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Cash
and cash equivalents
|
$
|
47,692
|
$
|
45,235
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|||
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Other
assets
|
4,273
|
4,332
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|||||
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51,965
|
49,567
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||||||
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Investments:
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|||||||
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Securitized
finance receivables, net
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668,143
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722,152
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|||||
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Securities
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16,186
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24,908
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|||||
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Other
investments
|
3,524
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4,067
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|||||
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Other
loans
|
4,674
|
5,282
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|||||
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692,527
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756,409
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||||||
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$
|
744,492
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$
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805,976
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||||
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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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|||||||
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Non-recourse
securitization financing
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$
|
487,429
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$
|
516,578
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|||
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Repurchase
agreements secured by securitization financing
|
113,488
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133,104
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|||||
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Repurchase
agreements secured by securities
|
84
|
211
|
|||||
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Other
liabilities
|
7,108
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6,749
|
|||||
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608,109
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656,642
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||||||
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SHAREHOLDERS'
EQUITY
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|||||||
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Preferred
stock
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41,749
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55,666
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|||||
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Common
stock
|
121
|
122
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|||||
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Additional
paid-in capital
|
366,633
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366,903
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|||||
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Accumulated
other comprehensive income
|
588
|
140
|
|||||
|
Accumulated
deficit
|
(272,708
|
)
|
(273,497
|
)
|
|||
|
136,383
|
149,334
|
||||||
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$
|
744,492
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$
|
805,976
|
||||
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Book
value per common share
|
$
|
7.76
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$
|
7.65
|
|||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except share data)
(unaudited)
|
Three
Months Ended
|
Six
Months Ended
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||||||||||||
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June
30,
|
June
30,
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
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Interest
income
|
$
|
14,192
|
$
|
18,533
|
$
|
28,958
|
$
|
42,586
|
|||||
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Interest
and related expense
|
11,649
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15,801
|
24,127
|
35,397
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|||||||||
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2,543
|
2,732
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4,831
|
7,189
|
||||||||||
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Recapture
of (provision for) loan losses
|
-
|
(664
|
)
|
119
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(2,925
|
)
|
|||||||
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Net
interest income after provision for loan losses
|
2,543
|
2,068
|
4,950
|
4,264
|
|||||||||
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Gain
on sale of investments, net
|
116
|
9,552
|
140
|
9,850
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|||||||||
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Impairment
charges
|
-
|
(1,586
|
)
|
-
|
(1,673
|
)
|
|||||||
|
Other
income
|
121
|
958
|
230
|
978
|
|||||||||
|
General
and administrative expenses
|
(1,165
|
)
|
(1,398
|
)
|
(2,492
|
)
|
(2,890
|
)
|
|||||
|
Net
income
|
1,615
|
9,594
|
2,828
|
10,529
|
|||||||||
|
Preferred
stock charge
|
(1,003
|
)
|
(1,337
|
)
|
(2,039
|
)
|
(2,674
|
)
|
|||||
|
Net
income to common shareholders
|
$
|
612
|
$
|
8,257
|
$
|
789
|
$
|
7,855
|
|||||
|
Change
in net unrealized gain/loss on :
|
|||||||||||||
|
Investments
classified as available-for-sale
|
84
|
(465
|
)
|
448
|
(4,348
|
)
|
|||||||
|
Hedge
instruments
|
-
|
201
|
-
|
584
|
|||||||||
|
Comprehensive
income
|
$
|
1,699
|
$
|
9,330
|
$
|
3,276
|
$
|
6,765
|
|||||
|
Net
income per common share:
|
|||||||||||||
|
Basic
|
$
|
0.05
|
$
|
0.68
|
$
|
0.06
|
$
|
0.65
|
|||||
|
Diluted
|
$
|
0.05
|
$
|
0.54
|
$
|
0.06
|
$
|
0.59
|
|||||