[GRAPHIC OMITTED]
PRESS RELEASE
FOR IMMEDIATE RELEASE CONTACT: Investor Relations
May 11, 2005 804-217-5800
DYNEX CAPITAL, INC. REPORTS RESULTS
FOR THE FIRST QUARTER
Dynex Capital, Inc. (NYSE: DX) announced today its financial results for
the first quarter of 2005. Highlights contained in this release include:
o Cash flows from the investment portfolio were $6.6 million for the
quarter, and $10.8 million including the sale of certain investments;
o Net income for the first quarter was $0.9 million, and net loss to
common shareholders was $0.4 million, or $0.03 per share on a basic
and fully diluted basis;
o Net interest spread for the quarter was 0.72%, versus 0.71% for the
fourth quarter of 2004.
o Total investment portfolio assets were $1,274 million and cash and
cash equivalents were $60.5 million at March 31, 2005, versus total
investment portfolio assets of $1,343 million and cash and cash
equivalents of $52.5 million at December 31, 2004; and
o Common equity book value was $88.6 million, or $7.28 per common share
at March 31, 2005, versus $92.5 million, or $7.60 per common share at
December 31, 2004.
The Company has scheduled a conference call for Thursday, May 12, 2005, at
12:00 p.m. Eastern Time to discuss fourth quarter results. Investors may
participate by calling (800) 313-8077. The Company also announced that is Annual
Shareholders' Meeting will be held on June 14, 2005 in Richmond, Virginia, the
location of the Company's headquarters.
The Company also announced that on May 9, 2005, it sold securitized
manufactured housing loans and securities, for a net $9.0 million. The sale is
expected to result in the removal of approximately $372 million in securitized
finance receivable assets, net of reserves, and $369 million in securitization
financing borrowings from the Company's balance sheet. The Company expects to
record a gain on the sale in excess of $8.0 million, increasing common book
value per share by approximately $0.66, to approximately $7.94 per share on a
pro forma basis at March 31, 2005. The Company is retaining the servicing rights
on the investments being sold.
Commenting on the first quarter results, Thomas B. Akin, Chairman of the
Board of Directors stated, "As expected, we reported essentially break-even
results for our common shareholders for the first quarter, while investment
portfolio cash flows modestly declined due to run-off in the investment
portfolio. During the quarter, our focus was on our previously stated goals of
selling non-core assets, which culminated with the transaction completed on May
9th. Not only did this transaction generate $9.0 million in cash flow,
management was successful in selling an investment in excess of book value, and
it also resulted in the removal of non-core assets which were not generating
meaningful returns on the capital invested in these assets. These sold assets
contributed only approximately $981 thousand in net interest income and $150
thousand of net cash flows for the first quarter, and we anticipate being able
to replace these amounts quickly once we begin substantive reinvestment
efforts."
Mr. Akin continued, "After the completion of the transaction, our
investment portfolio now consists principally of securitized single-family and
commercial mortgage loans. Along with the sale of our manufactured housing
assets, during April we redeemed our outstanding single-family securitization
financing transaction of approximately $196 million. The redemption was financed
with repurchase agreement financing, which will save the Company on average an
annualized 0.25% in its cost to finance the associated assets. We also took the
opportunity to sell most of our investment in another mortgage REIT, Bimini
Mortgage Management. The total return earned on that portion of the investment
during the period we owned it approximated 18%."
Mr. Akin concluded, "As our investment portfolio declines from the sale or
run-off of under-performing and non-core assets, our reported results should
become more transparent and understandable. As we have indicated in previous
investor communications, our risk profile in recent years has become less
interest-rate sensitive, and is more sensitive to credit performance on the
underlying loans in our investment portfolio, predominantly on our remaining
investment in commercial mortgage loans. While we have added recourse leverage
back to the balance sheet with the securitization financing redemption completed
in April, the assets securing this leverage are high-credit quality
single-family mortgage assets. With respect to reinvestment strategies for our
capital, our viewpoint remains the same as it has in recent quarters, that
acceptable risk-adjusted returns do not exist in mortgage assets today, and we
will continue only to invest in high-credit quality, very short-duration assets.
We are focused, however, on our longer-term investment strategies, and the
associated investment policies, procedures and infrastructure necessary for
prudent reinvestment and to avoid putting our balance sheet at undue risk in
what likely will be a volatile environment over the next twelve months."
Below is a discussion of the first quarter results and certain items on the
Company's balance sheet at March 31, 2005.
First Quarter Results
For the quarter ended March 31, 2005, the Company reported net income of
$0.9 million compared to a net loss of $5.4 million for the same period for
2004. After consideration of the preferred stock dividend, the Company reported
a net loss to common shareholders of $0.4 million or $0.03 per common share for
the first quarter of 2005, compared to a net loss of $6.6 million or $0.60 per
common share for the first quarter of 2004.
Cash flow from the Company's investment portfolio was $6.6 million for the
first quarter 2005, compared to $6.8 million for the fourth quarter 2004. Cash
flow declined in the first quarter principally as a result of declines in
interest-earning assets from prepayments in the investment portfolio, and cash
retained within a manufactured housing securitization transaction as a result of
increases in losses on the underlying collateral pledged.
The Company reported net interest income on its investment portfolio of
$4.5 million in the first quarter 2005 compared to $6.4 million in the first
quarter 2004. Net interest income after provision for loan losses was $2.2
million for the first quarter 2005 compared to a loss of $0.8 million for the
same period in 2004. Provision for loan losses in the first quarter 2005 was
$2.3 million compared to $7.2 million in 2004.
Impairment charges for the first quarter of 2005 were $0.3 million versus
$1.7 million for the same period in 2004. Impairment charges for 2004 are
primarily comprised of charges for a debt-security backed principally by
manufactured housing loans. There are no such impairment charges for the first
quarter of 2005. General and administrative expenses were $1.5 million in first
quarter 2005 compared to $2.5 million in the first quarter 2004. The decline in
general and administrative expenses from the first quarter 2004 was primarily
due to a reduction in compensation expense and the 2004 expenses associated with
the litigation in Texas.
Balance Sheet
Total assets at March 31, 2005, were $1,340 million, a decline of $60.8
million from December 31, 2004. Cash and cash equivalents was $60.5 million at
March 31, 2005 versus $52.5 million at the end of 2004. The increase in cash and
cash equivalents resulted primarily from net portfolio cash flows and the sale
of an equity security that generated proceeds of approximately $4.3 million.
Investments declined to $1,274 million versus $1,343 million at December 31,
2004, principally as a result of prepayments in the Company's securitized
finance receivables, and principal repayments on residential mortgage-backed
securities purchased by the Company in 2004.
At March 31, 2005, the Company's investment portfolio consisted of $324.5
million in single-family mortgage loans and securities, the majority of which
are floating rate and financed with floating rate liabilities, $621.3 million in
commercial mortgage loans, substantially all of which are fixed rate and
financed with fixed rate liabilities, and $338.3 million in manufactured housing
loans and securities which were subsequently sold in May. During the quarter,
the weighted-average earning asset yield on the investment portfolio was 6.99%,
and the average cost of funds was 6.27%, resulting in a net interest spread to
the Company of 0.72% in the first quarter, versus 0.71% for the fourth quarter
2004 and 1.00% for all of 2004.
Shareholders' equity declined to $144.9 million at March 31, 2005 compared
to $148.8 million at December 31, 2004. The decrease in shareholders' equity was
primarily due to an unrealized accumulated other comprehensive loss recorded on
the manufactured housing loan security subsequently sold in May. As previously
indicated, the sale of this security and other manufactured housing loans is
expected to generate an $8 million gain during the second quarter 2005. On a pro
forma basis at March 31, 2005, assuming the aforementioned sale of the
manufactured housing loan assets, shareholders' equity would be an estimated
$153 million, and book value per common share would be an estimated $7.94.
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 condition, variability in
investment portfolio cash flows, defaults by borrowers, fluctuations in interest
rates, 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, 2004, as filed with the Securities and Exchange Commission.
# # #
DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
March 31, December 31,
2005 2004
---------------- ----------------
ASSETS
Cash and cash equivalents $ 60,534 $ 52,522
Other assets 5,768 4,964
---------------- ----------------
66,302 57,486
Investments:
Securitized finance receivables:
Loans, net 996,076 1,036,123
Debt securities 195,304 206,434
Securities 70,033 87,706
Other investments 7,168 7,596
Other loans 5,242 5,589
---------------- ----------------
1,273,823 1,343,448
---------------- ----------------
$ 1,340,125 $ 1,400,934
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse securitization financing $ 1,131,617 $ 1,177,280
Repurchase agreements 59,367 70,468
Other liabilities 4,277 4,420
---------------- ----------------
1,195,261 1,252,168
---------------- ----------------
SHAREHOLDERS' EQUITY:
Preferred stock 55,666 55,666
Common stock 122 122
Additional paid-in capital 366,896 366,896
Accumulated other comprehensive income (loss) 317 3,817
Accumulated deficit (278,137) (277,735)
---------------- ----------------
144,864 148,766
---------------- ----------------
$ 1,340,125 $ 1,400,934
================ ================
Book value per common share $ 7.28 $ 7.60
================ ================
DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except share data)
(unaudited)
Three Months Ended
March 31,
--------------------------
2005 2004
------------- -----------
Interest income $ 24,053 $ 33,631
Interest and related expense (19,596) (27,196)
------------- -----------
Net interest income 4,457 6,435
Provision for loan losses (2,261) (7,200)
------------- -----------
Net interest income after provision for loan losses 2,196 (765)
Impairment charges (266) (1,661)
Gain (loss) on sale of investments, net 79 (34)
Other income (expense) 417 (459)
General and administrative expenses (1,492) (2,468)
------------- -----------
Net income (loss) 934 (5,387)
Preferred stock charge (1,337) (1,191)
------------- -----------
Net loss to common shareholders $ (403) $ (6,578)
============= ===========
Change in net unrealized loss during the period on:
Investments classified as available-for-sale (3,883) 259
Hedge instruments 383 81
------------- -----------
Comprehensive loss $ (2,566) $ (5,047)
============= ===========
Net loss per common share
Basic and diluted $ (0.03) $ (0.60)
============= ===========
Weighted average number of common shares outstanding:
Basic and diluted 12,162,391 10,873,903
============= ===========