Exhibit 99.1
[GRAPHIC OMITTED]
PRESS RELEASE
FOR IMMEDIATE RELEASE CONTACT: Alison Griffin
August 15, 2005 (804) 217-5897
DYNEX CAPITAL, INC. REPORTS RESULTS
FOR THE SECOND QUARTER
Dynex Capital, Inc. (NYSE: DX) announced today its financial results for
the second quarter of 2005. Highlights contained in this release include:
o Net income was $9.6 million, or $0.54 per common share on a
fully-diluted basis;
o Net income includes gains on sales of investments of $9.6 million, and
impairment charges on assets of $1.8 million;
o Sales of investments, net of reserves and unamortized discounts and
premiums, totaled $369 million during the quarter, with approximately
$364 million of associated securitization financing being removed from
the Company's balance sheet;
o Continued growth in available liquidity as measured by cash and
investments in liquid securities, which improved to $63 million at the
end of the second quarter of 2005, with an additional $18 million
expected in the third quarter from the reissuance of securitization
financing bonds redeemed during the quarter; and
o Common equity book value was $96.6 million, or $7.94 per common share
at June 30, 2005, versus $88.6 million, or $7.28 per common share at
March 31, 2005.
The Company has scheduled a conference call for Tuesday, August 16, 2005,
at 11:00 a.m. Eastern Time to discuss second quarter results. Investors may
participate by calling (800) 701-7176.
Commenting on the second quarter results, Thomas B. Akin, Chairman of the
Board of Directors stated, "We continued our progress toward strengthening and
simplifying our balance sheet, as we successfully shed $369 million in non-core
assets at a substantial gain during the quarter, generating net proceeds of
$12.4 million in the process. Total shareholders' equity is now approximately
$153 million, and book value per common share at the end of the second quarter
was $7.94. We took advantage of favorable market conditions to sell assets that
do not fit the long-term investment profile for the Company. We have now
substantially completed sales of assets in our investment portfolio that we do
not view as integral to our long-term investment strategy. At the end of the
second quarter, our capital was largely invested in cash and liquid securities,
securitized commercial mortgage loans and securitized single-family loans."
Mr. Akin continued, "As spreads in fixed-income products remain tight, and
with the flatter yield curve environment, we believe it is prudent to remain on
the sidelines for deploying capital beyond very short-maturity instruments. We
believe this strategy is appropriate in today's environment, as the returns
available in our view do not justify the risks involved, and we will not add
excessive leverage in this environment in an effort to manufacture higher
returns on our capital. However, we do remain actively engaged in evaluating
reinvestment opportunities, including those that would be considered outside the
traditional mortgage REIT investment model. Our book value has improved to $7.94
per common share and we have significant resources available to be deployed."
Mr. Akin concluded, "From an interest-rate risk point of view, our balance
sheet is largely match-funded, and rising interest rates today should have only
a marginal effect on current portfolio performance, while potentially providing
opportunities for favorable reinvestment. The predominant risk to our capital is
credit risk as a result of our ownership of commercial loans, which, despite
several loans in default, overall continue to perform reasonably well. For the
near-term, our focus will remain on managing our existing investment assets,
including their credit performance, and further positioning the Company for
future reinvestment opportunities as discussed above. Our objective will be to
continue to seek only those investments that will generate superior
risk-adjusted returns, with the long-term objective of capital preservation and
earnings stability in a variety of interest rate and credit cycles."
Below is a discussion of the quarterly results and certain items on the
Company's balance sheet at June 30, 2005.
Second Quarter Results
- ----------------------
For the quarter ended June 30, 2005, the Company reported net income of
$9.6 million compared to a net loss of $13.0 million for the same period in
2004. After consideration of the preferred stock dividend, the Company reported
net income to common shareholders of $8.3 million or $0.54 per diluted common
share for the quarter ended June 30, 2005, compared to a net loss of $10.9
million or $0.95 per common share for the same period in 2004. Results in the
second quarter of 2004 include a preferred stock benefit from a tender offer
completed during that quarter.
Excluding gains from sales of investments, impairment charges, and other
income, the Company had net income of $670 thousand for the second quarter of
2005 compared to a net loss of $5.4 million for the second quarter of 2004. The
Company's expected results for the third quarter will likely range from a slight
loss to modest net income, barring any unusual events, which will continue for
the foreseeable future until the Company begins to redeploy capital in
higher-yielding assets.
The Company reported net interest income on its investment portfolio of
$2.7 million during the quarter, versus $4.5 million in the first quarter 2005
and $5.5 million in the second quarter 2004. Net interest income declined as a
result of the sales of investments and increased amortization expense of
deferred costs relating to prepayments on commercial mortgage loans. Net
interest income after provision for loan losses was $2.1 million for the second
quarter versus $2.2 million for the first quarter 2005 and a negative $3.4
million for the second quarter in 2004. Provision for loan losses in the second
quarter 2005 was $664 thousand versus $2.3 million in first quarter 2005 and
$8.9 million in the second quarter 2004. First quarter 2005 provisions include
amounts to increase reserves for impaired commercial loans, and second quarter
2004 provisions include amounts for manufactured housing loans which have
subsequently been sold.
Gain on sale of investments in the second quarter 2005 reflects the sale of
approximately $367 million in manufactured housing loan and single-family loan
investments. Gain on sale of investments also includes approximately $1.4
million from the sale of four delinquent commercial mezzanine loans. Impairment
charges for the second quarter were $1.8 million versus $7.7 million for the
same period in 2004. Impairment charges for the second quarter consist
principally of impairments on the Company's investment in delinquent property
tax receivables, while impairment charges for the same period in 2004 are
primarily comprised of charges for a debt-security backed principally by
manufactured housing loans. At June 30, 2005, the Company's remaining investment
in tax liens totals $5.2 million, and the Company collected $707 thousand on
these receivables during the second quarter.
General and administrative expenses were $1.4 million in the second quarter
2005 compared to $2.0 million in the second quarter 2004. The decline in general
and administrative expenses from the second quarter 2004 was primarily due to a
reduction in compensation expense due to reduced staffing, and litigation
expenses in 2005. Overall, during the second quarter, general and administrative
costs excluding costs related to the tax lien servicing operations, litigation
costs, and Sarbanes-Oxley consulting costs was $864 thousand, or 2.3% of
shareholders' equity on an annualized basis.
Balance Sheet
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Total assets at June 30, 2005, were $931 million versus $1,401 million at
December 31, 2004. Investments declined to $901 million versus $1,343 million at
December 31, 2004, principally as a result of the sale of $369 million in
investments during the second quarter. Non-recourse securitization financing
decreased by $618 million to $559 million from $1,177 million at June 30, 2005
and December 31, 2004, respectively. The decrease is mainly from the
derecognition of $364 million of debt associated with the sale of the underlying
collateral, and the redemption at par of $196 million of non-recourse
securitization financing bonds. The redemption was completed with a combination
of recourse debt and cash, resulting in the net increase of recourse
securitization financing of $166 million at June 30, 2005. The Company expects
to reissue substantially all of the redeemed bonds during the third quarter,
resulting in the repayment of the $166 million in recourse securitization
financing and the release of $18 million of cash invested in these redeemed
bonds.
At June 30, 2005, the Company's investment portfolio consisted of $198
million in single-family mortgage loans and securities, the majority of which
are floating rate and financed with floating rate liabilities, and $617 million
in fixed-rate commercial mortgage loans. The Company had short-term investments
included in securities of $35 million, and cash and cash equivalents of $24
million. In addition, the Company had approximately $4 million invested in
`AAA'-rated single-family residential mortgage backed securities, net of the
related repurchase agreement financing. Average interest earning assets declined
during the quarter, in large part due to the sale of investments. Proceeds were
generally reinvested in lower yielding short-term investments. Except for its
investment in tax liens, the Company has likely completed its asset sales for
the foreseeable future.
At June 30, 2005, approximately $6.5 million in single-family loans and
approximately $36.9 million in commercial mortgage loans were sixty or more days
delinquent. The Company expects only nominal losses on the delinquent
single-family loans, and had reserves or other credit loss protection on the
commercial mortgage loans of $19.2 million at June 30, 2005.
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, 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 and Quarterly Report
on Form 10-Q for the period ended March 31, 2005, as filed with the Securities
and Exchange Commission.
# # #
DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
June 30, December 31,
2005 2004
-------------------- ------------------
ASSETS
Cash and cash equivalents $ 23,789 $ 52,522
Other assets 6,058 4,964
-------------------- ------------------
29,847 57,486
Investments:
Securitized finance receivables:
Loans, net 800,914 1,036,123
Debt securities 2,352 206,434
-------------------- ------------------
803,266 1,242,557
Securities 89,556 87,706
Other investments 5,157 7,596
Other loans 3,442 5,589
-------------------- ------------------
901,421 1,343,448
-------------------- ------------------
$ 931,268 $ 1,400,934
==================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Securitization financing:
Non-recourse debt $ 559,070 $ 1,177,280
Recourse debt 165,743 -
-------------------- ------------------
724,813 1,177,280
Repurchase agreements 47,191 70,468
Other liabilities 6,399 4,420
-------------------- ------------------
778,403 1,252,168
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SHAREHOLDERS' EQUITY:
Preferred stock 55,666 55,666
Common stock 122 122
Additional paid-in capital 366,903 366,896
Accumulated other comprehensive income 54 3,817
Accumulated deficit (269,880) (277,735)
-------------------- ------------------
152,865 148,766
-------------------- ------------------
$ 931,268 $ 1,400,934
==================== ==================
Book value per common share $ 7.94 $ 7.60
==================== ==================
DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
2005 2004 2005 2004
---------------- ---------------- ---------------- ----------------
Interest income $ 18,533 $ 33,217 $ 42,586 $ 66,848
Interest and related expense (15,801) (27,698) (35,397) (54,894)
---------------- ---------------- ---------------- ----------------
Net interest income 2,732 5,519 7,189 11,954
Provision for loan losses (664) (8,947) (2,925) (16,147)
---------------- ---------------- ---------------- ----------------
Net interest income (loss) after provision for loan
losses 2,068 (3,428) 4,264 (4,193)
Gain on sale of investments, net 9,552 20 9,850 4
Impairment charges (1,786) (7,746) (2,052) (9,407)
Other income (expense) 1,158 216 1,357 (261)
General and administrative expenses (1,398) (2,015) (2,890) (4,483)
---------------- ---------------- ---------------- ----------------
Net income (loss) 9,594 (12,953) 10,529 (18,340)
Preferred stock (charge) benefit (1,337) 2,045 (2,674) 854
---------------- ---------------- ---------------- ----------------
Net income (loss) to common shareholders $ 8,257 $ (10,908) $ 7,855 $ (17,486)
================ ================ ================ ================
Change in net unrealized gain/(loss) during the
period on:
Investments classified as available-for-sale (465) 3,056 (4,348) 3,315
Hedge instruments 201 1,924 584 2,005
---------------- ---------------- ---------------- ----------------
Comprehensive income (loss) $ 9,330 $ (7,973) $ 6,765 $ (13,020)
================ ================ ================ ================
Net income (loss) per common share
Basic $ 0.68 $ (0.95) $ 0.65 $ (1.59)
================ ================ ================ ================
Diluted $ 0.54 $ (0.95) $ 0.59 $ (1.59)
================ ================ ================ ================
Weighted average number of common shares outstanding:
Basic 12,163,061 11,468,635 12,162,728 10,972,844
================ ================ ================ ================
Diluted 17,791,798 11,468,635 17,791,594 10,972,844
================ ================ ================ ================