DYNEX CAPITAL 3Q 2008 PRESS RELEASE
Published on November 7, 2008
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PRESS
RELEASE
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FOR
IMMEDIATE RELEASE
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CONTACT: Alison
Griffin
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November
5, 2008
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(804)
217-5897
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DYNEX
CAPITAL, INC. ANNOUNCES
THIRD
QUARTER 2008 RESULTS
GLEN
ALLEN, Va. -- Dynex Capital, Inc. (NYSE: DX) reported its results today for the
third quarter of 2008. Third quarter 2008 highlights
include:
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Long-term
business model of investing in Agency RMBS is on track as our Agency RMBS
portfolio increased to $300 million at September 30, 2008 from $139
million at June 30, 2008;
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·
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Agency
RMBS portfolio is over 90% short-duration hybrid ARMs with 36 months or
less to reset;
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Aggregate
balance sheet is conservatively leveraged at just over three times equity
capital and agency RMBS leverage of 7.6 times equity
capital;
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Increasing
spreads in Agency RMBS are historically wide and offer attractive
opportunities to add accretive investments to the
portfolio;
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Book
value of $8.00 per common share at September 30, 2008 versus $8.22 at
December 31, 2007, while paying $0.48 in common stock dividends during the
year; and
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·
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Net
income for the quarter of $0.17 per common share and a dividend of $0.23
per common share.
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The
Company reported net income to common shareholders of $2.0 million, or $0.17 per
common share, for the quarter ended September 30, 2008, versus net income to
common shareholders of $1.7 million, or $0.14 per common share, for the same
quarter last year. Net income to common shareholders for the
nine-month period ended September 30, 2008 was $9.7 million, versus net income
to common shareholders of $4.3 million for the same period last
year. Basic and fully diluted net income per common share was $0.79
and $0.77, respectively, for the nine months ended September 30, 2008, compared
to basic and fully diluted net income per common share of $0.36 for the same
period last year.
Book
value per common share was $8.00 at September 30, 2008 versus $8.24 at June 30,
2008, and $8.22 at December 31, 2007.
The
Company has scheduled a conference call for Thursday, November 6, 2008, at 11:00
a.m. ET, to discuss third quarter results. The call may be accessed
by dialing 1-866-203-3206 (Passcode code: Dynex Capital) and will also be
webcast over the internet at www.dynexcapital.com
through a link provided under “Investor Relations.”
Discussion
of Quarterly Results
“We are
pleased with our third quarter results of $0.17 per common share given the
extraordinary environment during much of the quarter,” stated Thomas Akin,
Chairman and Chief Executive Officer. “We were able to increase our
investment portfolio by almost $150 million during the quarter by adding
short-duration hybrid agency ARMs. Our portfolio growth was conservative during
the quarter, as we decided to keep our overall leverage low given the volatile
market conditions. Our focus has remained on preserving the capital
of the Company, and we feel we accomplished this by maintaining our book value
per common share at the end of the quarter at $8.00 while paying a dividend for
the quarter of $0.23 per common share. On the one hand the volatile
markets stress the book value and earnings power of our investment portfolio,
but on the other hand they increase overall yields on our existing assets and
provide excellent opportunities to add assets at favorable
spreads.”
Mr. Akin
continued, “We are in an unprecedented period of volatility in asset pricing and
credit availability as a result of balance sheet deleveraging and the strained
capital positions of financial institutions. Recently enacted
initiatives by global central banks over time should dampen volatility and
improve overall market conditions, including the availability and cost of
financing, which we have already begun to see since quarter end. Our
capital structure is lightly leveraged, and we stand in a good position once the
financial markets improve. Like many others, we are bearish on the
U.S. economy and believe the Treasury curve will remain steep and that
short-term interest rates will remain low for some time. We believe
the long-term outlook for owning RMBS is quite good and expect to continue
purchasing these securities at attractive risk-adjusted returns using modest
levels of financing, but given current conditions, will also continue to focus
on capital preservation. Our goal in managing our capital is to be
balanced in our approach. Once we are confident that the extreme
conditions have subsided, we expect to add additional assets at attractive
spreads to our investment portfolio.”
At
September 30, 2008, the Company’s agency RMBS portfolio had a par balance of
$299.0 million and a net amortized cost of $302.7 million, or 101.2% of
par. The fair value of agency RMBS was $300.9 million at the end of
the quarter. The Agency RMBS portfolio at September 30, 2008 was
substantially comprised of adjustable rate and hybrid adjustable-rate RMBS with
an average coupon of 5.06% and a weighted average 22 months to
reset. Net interest spread on agency RMBS was 1.70% for the
quarter.
Securitized
mortgage loans consisted of $177.9 million of commercial mortgage loans held by
two securitization trusts and $74.6 million of single-family mortgage loans held
by one securitization
2
trust. At
September 30, 2008, delinquent securitized mortgage loans totaled $4.5 million
and the Company’s allowance for loan losses for all securitized mortgage loans
was $3.5 million.
Investment
in joint venture was $10.4 million at September 30, 2008. Included in
this $10.4 million are cash and equivalents of $3.8 million and subordinated
CMBS of $6.4 million representing the Company’s proportionate share of the joint
venture’s assets. The subordinated CMBS has an effective yield of
approximately 27% and is collateralized by loans originated by the Company in
1997 and 1998.
Shareholders’
equity declined to $139.6 million at September 30, 2008 from $141.9 million at
December 31, 2007, principally as a result of an increase in accumulated other
comprehensive loss due to market value adjustments of $2.1 million on
available-for-sale Agency RMBS and $3.3 million on commercial mortgage-backed
securities held in the joint venture and common and preferred stock dividends
declared of $8.8 million. The market value adjustments to accumulated
other comprehensive loss were due to increasing yield requirements for these
types of securities during the quarter. Offsetting the declines in
shareholders’ equity was net income of $12.7 million during the nine-month
period.
The
overall net interest spread on interest earning assets for the quarter was 1.64%
versus 1.29% for the same period in 2007. The overall yield on
interest earning assets, excluding cash and cash equivalents, was 6.38% for the
quarter versus 8.30% for the third quarter of 2007. The weighted
average cost of funds was 4.74% for the quarter and 7.01% for the same period in
2007.
Equity in
loss of joint venture of $3.5 million for the 2008 quarter was due to
other-than-temporary impairment charges recorded by the joint venture during the
quarter on commercial mortgage-backed securities owned by the joint
venture. The impairment charges resulted from a decline in asset
valuations in the commercial mortgage loan securitization market.
Other
income for the 2008 quarter includes a $3.4 million benefit as a result of the
Company being released from certain mortgage servicing obligations as previously
announced. 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.
The
Company also announced a revision of its taxable income for 2007 as it has now
finalized its 2007 income taxes. The revision includes an increase of
the amount of excess inclusion income previously reported by the
Company. Details of the 2007 taxable income amount can be found on
the Company’s website at www.dynexcapital.com.
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
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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, including the ongoing
volatility in the credit markets which impacts assets prices and the cost and
availability of financing, 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, including the Emergency Economic
Stabilization Act of 2008, the full impact of which is unknown at this time, 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)
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September
30,
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December
31,
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2008
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2007
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ASSETS
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Agency
RMBS:
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Pledged
to counterparties, at fair value
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$ | 283,976 | $ | – | ||||
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Unpledged,
at fair value
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16,916 | 7,456 | ||||||
| 300,892 | 7,456 | |||||||
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Securitized
mortgage loans, net
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252,507 | 278,463 | ||||||
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Investment
in joint venture
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10,448 | 19,267 | ||||||
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Other
investments
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17,340 | 28,549 | ||||||
| 581,187 | 333,735 | |||||||
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Cash
and cash equivalents
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16,411 | 35,352 | ||||||
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Other
assets
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5,495 | 5,671 | ||||||
| $ | 603,093 | $ | 374,758 | |||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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LIABILITIES:
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Repurchase
agreements
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$ | 265,819 | $ | 4,612 | ||||
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Securitization
financing
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185,184 | 204,385 | ||||||
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Obligation
to joint venture under payment agreement
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10,079 | 16,796 | ||||||
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Other
liabilities
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2,377 | 7,029 | ||||||
| 463,459 | 232,822 | |||||||
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SHAREHOLDERS'
EQUITY:
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Preferred
stock
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41,749 | 41,749 | ||||||
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Common
stock
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122 | 121 | ||||||
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Additional
paid-in capital
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366,793 | 366,716 | ||||||
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Accumulated
other comprehensive (loss) income
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(6,041 | ) | 1,093 | |||||
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Accumulated
deficit
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(262,989 | ) | (267,743 | ) | ||||
| 139,634 | 141,936 | |||||||
| $ | 603,093 | $ | 374,758 | |||||
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Book
value per common share
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$ | 8.00 | $ | 8.22 | ||||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except share data)
(unaudited)
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Three
Months Ended
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Nine
Months Ended
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September
30,
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September
30,
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2008
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2007
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2008
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2007
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Interest
income:
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Investments
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$ | 7,719 | $ | 6,836 | $ | 20,375 | $ | 21,548 | ||||||||
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Cash and cash equivalents
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158 | 637 | 659 | 2,163 | ||||||||||||
| 7,877 | 7,473 | 21,034 | 23,711 | |||||||||||||
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Interest
expense
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5,090 | 5,016 | 13,325 | 15,830 | ||||||||||||
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Net
interest income
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2,787 | 2,457 | 7,709 | 7,881 | ||||||||||||
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(Provision
for) recapture of loan losses
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(449 | ) | 127 | (796 | ) | 1,352 | ||||||||||
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Net
interest income after provision for loan losses
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2,338 | 2,584 | 6,913 | 9,233 | ||||||||||||
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Equity
in (loss) earnings of joint venture
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(3,462 | ) | 576 | (5,153 | ) | 1,878 | ||||||||||
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Gain
on sale of investments, net
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331 | 21 | 2,381 | 21 | ||||||||||||
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Fair
value adjustments, net
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1,461 | – | 5,519 | – | ||||||||||||
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Other
income (expense)
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3,862 | 305 | 6,954 | (713 | ) | |||||||||||
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General
and administrative expenses
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(1,485 | ) | (800 | ) | (3,954 | ) | (3,089 | ) | ||||||||
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Net
income
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3,045 | 2,686 | 12,660 | 7,330 | ||||||||||||
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Preferred
stock dividends
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(1,003 | ) | (1,003 | ) | (3,008 | ) | (3,008 | ) | ||||||||
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Net
income to common shareholders
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$ | 2,042 | $ | 1,683 | $ | 9,652 | $ | 4,322 | ||||||||
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Net income per common share
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Basic
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$ | 0.17 | $ | 0.14 | $ | 0.79 | $ | 0.36 | ||||||||
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Diluted
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$ | 0.17 | $ | 0.14 | $ | 0.77 | $ | 0.36 | ||||||||
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Weighted
average number of common shares outstanding:
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Basic
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12,169,762 | 12,136,262 | 12,165,483 | 12,135,236 | ||||||||||||
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Diluted
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12,172,523 | 12,138,631 | 16,392,779 | 12,137,315 | ||||||||||||