PRESS RELEASE DATED MAY 10, 2007
Published on May 14, 2007
 |
PRESS
RELEASE
|
FOR
IMMEDIATE RELEASE
|
CONTACT: Alison
Griffin
|
|
May
10, 2007
|
(804)
217-5897
|
DYNEX
CAPITAL, INC. ANNOUNCES
FIRST
QUARTER 2007 RESULTS
Dynex
Capital, Inc. (NYSE: DX) reported today its results for the quarter ended March
31, 2007. The Company reported net income for the quarter of $1.9 million versus
net income of $1.2 million for the same quarter last year. The Company also
reported net income to common shareholders of $0.9 million for the quarter,
or
$0.08 per common share, an increase from $0.2 million, or $0.01 per common
share, reported for the first quarter of 2006.
The
Company’s book value per common share increased $0.15 from $7.78 at December 31,
2006 to $7.93 at March 31, 2007. The Company also reported adjusted common
equity book value of $100.4 million, or $8.27 per common share, at the end
of
the first 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 the adjustments to common equity
book value and adjusted common equity book value per share is included at the
end of this press release.
Thomas
Akin, Chairman, stated, “Operating results for the first quarter were in-line
with our expectations. Our investment portfolio is generating sufficient
earnings and cash flows to fund our preferred dividends and operations, while
we
continue to monitor the markets for further investment opportunities with our
capital. Common book value per share increased $0.15, and adjusted common book
value per share by roughly the same amount in part from net earnings for the
quarter and in part from improved valuations on our investments. Our commercial
mortgage loan portfolio continues to perform well. As we have indicated in
the
past, we have worked diligently in removing risks from our balance sheet and
building our capital available for reinvestment, and our current investment
assets and cash should continue to produce results similar to the first quarter
for the balance of the year, absent any currently unforeseen credit or other
issues.”
Mr.
Akin
continued, “With respect to new investments, we have seen an increase in both
the quality and quantity of opportunities available. At present, none have
yet
offered a compelling risk-weighted return. Prices on lower rated and non-rated
tranches in non-prime mortgage assets continue to decline, and we are closely
monitoring opportunities. We expect further deterioration in asset pricing
in
the
non-prime mortgage market, and are otherwise very cautious about adding credit
risk to the balance sheet at prices today given the outlook for the mortgage
and
housing industries. In addition, with the shape of the yield curve today, we
remain cautious on adding leverage to the balance sheet. Given these viewpoints,
we continue to invest principally at the very short end of the curve. We do
remain optimistic, however, that we will find solid opportunities to invest
our
capital.”
Mr.
Akin
concluded, “The Company’s Annual Meeting of Shareholders will be held at 9:00
a.m. EDT on May 24, 2007 at the Hilton Newark Penn Station in Newark, New
Jersey. We hope that all of our shareholders will join us at that time as we
discuss our outlook for 2007 and beyond. Since our Annual Meeting is only a
few
short weeks away, we will not have a quarterly earnings call but will instead
talk about first quarter results at that meeting. After the meeting, we will
make these slides available to our shareholders at our website, www.dynexcapital.com.
”
Discussion
of First Quarter Results
The
Company reported net income for the quarter of $1.9 million compared to $1.2
million for the same period last year. After consideration of the preferred
stock dividend, the Company reported net income to common shareholders of $0.9
million, or $0.08 per common share, compared to $0.2 million, or $0.01 per
common share, for the first quarter of 2006.
The
Company reported net interest income on its investment portfolio of $2.5 million
for the first quarter of 2007 compared to $2.3 million for the same period
in
2006 and $3.1 million for the quarter ended December 31, 2006. The increase
in
the net interest income for the first quarter of 2007 over the same quarter
in
2006 was primarily related to the derecognition of approximately $279 million
in
lower yielding securitized commercial mortgage loans and the related
securitization financing during 2006, which had generated net interest expense
of $0.5 million in the first quarter of 2006. The decline in net interest income
of $0.6 million from the fourth quarter of 2006 to the first quarter of 2007
was
due primarily to a level yield adjustment that reduced interest expense by
$0.5
million for the fourth quarter of 2006.
Net
interest spread on investments was 1.35% for the first quarter of 2007 compared
to a negative spread of 0.14% for the first quarter of 2006 and a spread of
1.20%, excluding a $0.5 million favorable level yield adjustment discussed
above, for the fourth quarter of 2006. The Company’s net yield on average
interest earning assets was 2.85% for the first quarter of 2007 compared to
1.26% for the first quarter of 2006 and 2.95% for the fourth quarter of 2006.
The overall yield on interest earning assets, including cash and cash
equivalents, was 7.90% for the first quarter of 2007 versus 7.51% for the first
quarter of 2006, and the weighted average cost of funds was 6.97% for the first
quarter of 2007 versus 7.72% for the first quarter of 2006.
Net
interest income after provision for loan losses was $3.0 million for the first
quarter of 2007 compared to $2.4 million for the same period in 2006 and $3.1
million for the quarter ended December 31, 2006. The Company recognized a $0.5
million benefit from the recapture of loan losses, primarily related to its
commercial mortgage loans, during the first quarter of 2007. The benefit was
due
to the liquidation of a commercial mortgage loan, which was delinquent at the
end of 2006, at a lower loss than
2
expected,
and the continued improvement in the performance of the securitized commercial
mortgage loans.
The
first
quarter also included a charge of $0.6 million related to an increase in the
estimated future payments to be made on the obligation under payment agreement.
The increase in estimated payments is associated with the lower than anticipated
loss on the commercial mortgage loan that liquidated during the quarter as
mentioned above. The obligation under payment agreement was recorded in
connection with the initial capitalization of the joint venture with Deutsche
Bank, and represents the obligation to remit to the joint venture certain cash
flows that the Company receives on its securitized commercial mortgage
loans.
General
and administrative expenses were $1.1 million for the first quarter of 2007,
which is flat to the fourth quarter of 2006 and a decrease from the first
quarter of 2006 amount of $1.3 million. The decline from the first quarter
of
2006 is primarily related to the cost reductions at our tax lien servicing
operations in Pennsylvania.
Balance
Sheet
Total
assets were $455.0 million at March 31, 2007 compared to $466.6 million at
December 31, 2006. Investments declined from $403.6 million at December 31,
2006
to $392.4 million at the end of the first quarter of 2007, primarily as a result
of principal payments received on the investment portfolio. The Company’s
obligation under payment agreement increased slightly to $16.8 million as of
the
end of the first quarter of 2007 from $16.3 million at December 31, 2006 as
a
result of an increase in the estimated future cash payments to be made under
this agreement of $0.5 million, which was partially offset by payments made
on
the agreement during the quarter.
At
the
end of the first quarter of 2007, the Company had capital immediately available
for reinvestment of $68 million, consisting of cash and cash equivalents and
borrowing capacity under its existing repurchase agreement facility. There
is
also approximately $39 million of cash and cash equivalents available for
investment in the Company’s joint venture with Deutsche Bank.
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-
3
Oxley
Act of 2002. For additional information, see the Company’s Annual Report on Form
10-K for the period ended December 31, 2006, as filed with the Securities and
Exchange Commission.
# # #
4
DYNEX
CAPITAL, INC.
Consolidated
Balance Sheets
(Thousands
except share data)
(unaudited)
|
March
31,
|
December
31,
|
||||||
|
2007
|
2006
|
||||||
|
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
57,843
|
$
|
56,880
|
|||
|
Other
assets
|
4,705
|
6,111
|
|||||
|
62,548
|
62,991
|
||||||
|
Investments:
|
|||||||
|
Securitized
finance receivables:
|
|||||||
|
Commercial
mortgage loans, net
|
224,173
|
228,466
|
|||||
|
Single-family
mortgage loans, net
|
106,654
|
117,838
|
|||||
|
Investment
in joint venture
|
38,847
|
37,388
|
|||||
|
Securities
|
16,452
|
13,143
|
|||||
|
Other
investments
|
2,671
|
2,802
|
|||||
|
Other
loans
|
3,645
|
3,929
|
|||||
|
392,442
|
403,566
|
||||||
|
$
|
454,990
|
$
|
466,557
|
||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
LIABILITIES:
|
|||||||
|
Securitization
financing
|
$
|
206,615
|
$
|
211,564
|
|||
|
Repurchase
agreements secured by securitization financing
|
86,926
|
95,978
|
|||||
|
Obligation
under payment agreement
|
16,847
|
16,299
|
|||||
|
Other
liabilities
|
6,132
|
6,178
|
|||||
|
316,520
|
330,019
|
||||||
|
SHAREHOLDERS'
EQUITY:
|
|||||||
|
Preferred
stock
|
41,749
|
41,749
|
|||||
|
Common
stock
|
121
|
121
|
|||||
|
Additional
paid-in capital
|
366,674
|
366,637
|
|||||
|
Accumulated
other comprehensive income
|
1,618
|
663
|
|||||
|
Accumulated
deficit
|
(271,692
|
)
|
(272,632
|
)
|
|||
|
138,470
|
136,538
|
||||||
|
$
|
454,990
|
$
|
466,557
|
||||
|
Book
value per common share
|
$
|
7.93
|
$
|
7.78
|
|||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except share data)
(unaudited)
|
Three
Months Ended
|
|||||||
|
March
31,
|
|||||||
|
2007
|
2006
|
||||||
|
Interest
income
|
$
|
8,215
|
$
|
14,766
|
|||
|
Interest
and related expense
|
(5,755
|
)
|
(12,478
|
)
|
|||
|
Net
interest income
|
2,460
|
2,288
|
|||||
|
Recapture
of loan losses
|
523
|
119
|
|||||
|
Net
interest income after recapture of loan losses
|
2,983
|
2,407
|
|||||
|
Equity
in earnings of joint venture
|
630
|
-
|
|||||
|
Other
(expense) income
|
(545
|
)
|
133
|
||||
|
General
and administrative expenses
|
(1,126
|
)
|
(1,327
|
)
|
|||
|
Net
income
|
1,942
|
1,213
|
|||||
|
Preferred
stock charge
|
(1,003
|
)
|
(1,036
|
)
|
|||
|
Net
income to common shareholders
|
$
|
939
|
$
|
177
|
|||
|
Change
in net unrealized gain (loss) during the period on:
|
|||||||
|
Investments
classified as available-for-sale
|
126
|
364
|
|||||
|
Investment
in joint venture
|
829
|
-
|
|||||
|
Comprehensive
income
|
$
|
2,897
|
$
|
1,577
|
|||
|
Net
income per common share
|
|||||||
|
Basic
and diluted
|
$
|
0.08
|
$
|
0.01
|
|||
|
Weighted
average number of common shares outstanding:
|
|||||||
|
Basic
|
12,133,151
|
12,161,682
|
|||||
|
Diluted
|
12,133,577
|
12,161,682
|
|||||
DYNEX
CAPITAL, INC.
Reconciliation
of Book Value to Adjusted Common Equity Book Value
(Thousands
except share data)
(unaudited)
|
March
31,
|
December
31,
|
||||||
|
2007
|
2006
|
||||||
|
Shareholders’
equity
|
$
|
138,470
|
$
|
136,538
|
|||
|
Less:
Preferred stock redemption value
|
(42,215
|
)
|
(42,215
|
)
|
|||
|
Common
equity book value
|
96,255
|
94,323
|
|||||
|
Adjustments
to present amortized cost basis investments at fair value:
|
|||||||
|
Securitized
finance receivables, net
|
4,150
|
4,427
|
|||||
|
Other
mortgage loans
|
734
|
776
|
|||||
|
Investment
in joint venture
|
(767
|
)
|
(868
|
)
|
|||
|
Adjusted
common equity book value
|
$
|
100,372
|
$
|
98,658
|
|||
|
Adjusted
book value per common share
|
$
|
8.27
|
$
|
8.13
|
|||