PRESS RELEASE
FOR IMMEDIATE RELEASE CONTACT: Investor Relations
November 10, 2003 804-217-5897
DYNEX CAPITAL, INC.
REPORTS THIRD QUARTER 2003 RESULTS
Dynex Capital, Inc. (NYSE: DX) reported today financial results for the
third quarter 2003. Highlights for the third quarter and other information
contained in this release include:
o Cash flow from the investment portfolio of $14.0 million for the
quarter
o Completed the partial redemption of $10.0 million of 9.50% Senior
Notes due February 2005
o Incurred a net loss of $10.7 million for the quarter due to impairment
charges on investments
o Called and sold $20 million of mortgage-backed security loan
collateral at a gain of $0.84 million
o Book value per common share of $8.73 at September 30, 2003 versus
$8.97 at June 30, 2003 and $8.57 at December 31, 2002
For the quarter ended September 30, 2003, the Company reported a net
loss of $10.7 million versus a net loss of $2.9 million for the third quarter
2002. After consideration of the preferred stock charge, the Company reported a
net loss to common shareholders of $11.9 million or $1.09 per common share for
the third quarter 2003. The Company also reported comprehensive loss for the
quarter of $1.5 million, or $0.14 per share. For the nine months ended September
30, 2003, the Company reported a net loss to common shareholders of $14.0
million, or $1.29 per common share versus a net loss of $9.2 million, or $0.84
per common share for the same period in 2002.
The Company has scheduled a conference call for Tuesday, November 11,
2003, at 11:00 a.m. Eastern Time to discuss third quarter results. Investors may
participate in listen mode only by calling (800) 205-6183.
Third Quarter 2003 Results
The Company reported that cash flow from its investment portfolio was
$14.0 million for the quarter, versus $15.5 million in the second quarter 2003.
Cash flow declined in the third quarter as a result of prepayments in the
investment portfolio and a temporary reduction in interest payments on certain
commercial mortgage-backed securities. The Company also reported net interest
margin before provision for loan losses on its investment portfolio of $7.8
million during the quarter compared to $10.8 million in the third quarter 2002.
After provision for loan losses, net interest margin was $2.0 million, versus
$5.4 million for the third quarter of 2002. For the quarter, the yield on the
Company's average interest-earning investments was 7.09% and the
weighted-average cost of funds was 5.73%.
The results for the third quarter of 2003 include impairment charges of
$11.4 million, substantially all of which relates to the Company's investment in
delinquent property tax receivables. The Company recorded the impairment charge
as a result of revisions in the estimated collectible amounts of its investment
in delinquent tax receivables. Of the $11.4 million in recorded impairment
charge, which was considered a change in estimate for generally accepted
accounting principles, $9.2 million had previously been recorded in accumulated
other comprehensive loss included in shareholders' equity. The Company also
reported that it called approximately $20 million of previously issued
mortgage-backed securities and sold the underlying single-family loan collateral
for a net gain of approximately $0.84 million. The Company has one remaining
security of approximately $32 million where it has retained the call rights and
which will reach its callable balance in the fourth quarter of 2003.
Balance Sheet
Total assets at September 30, 2003 were $1.95 billion, versus $2.24
billion at December 31, 2002. The decline in assets was primarily the result of
prepayments in the Company's investment portfolio. Prepayment speeds for the
entire investment portfolio as measured by the "constant prepayment rate", or
CPR, was 22% during the third quarter. CPR on the Company's single-family
mortgage loan and securities portfolio was 34% during the quarter. Of the $1.9
billion of collateral for collateralized bonds in the investment portfolio at
September 30, 2003, approximately $442 million consists of single-family
mortgage loans and securities, $698 million consists of manufactured housing
loans and securities, and $762 million consists of commercial mortgage loans.
The Company partially redeemed $10.0 million of its February 2005
Senior Notes in addition to the quarterly payment made August 31, 2003 of $4.0
million on the Senior Notes. After the partial redemption and the quarterly
payment, the remaining balance of the February 2005 Senior Notes was $14.1
million.
Shareholders' equity was $161.4 million at September 30, 2003 versus
$223.4 million at December 31, 2002. The decrease in shareholders' equity was
primarily due to the retirement of the shares of Preferred Stock related to the
tender offer completed in February 2003, coupled with the net loss for the nine
month period. Common book value per share, net of liquidation preference on
Series A, Series B, and Series C Preferred Stock, increased to $8.73 per share
from $8.57 per share at December 31, 2002. Common book value per share at June
30, 2003 was $8.97 per share. The increase in common book value per share was
primarily due to the completed tender offer. Preferred dividends in arrears at
September 30, 2003 were $17.3 million.
Discussion
Stephen J. Benedetti, Chief Financial Officer of the Company, stated,
"The Company continues to manage its existing investments to maximize cash flow.
Investment portfolio cash flow during the quarter was $14 million, and we would
expect a similar amount for the fourth quarter absent any unexpected changes in
short-term interest rates. Low short-term rates and a steeper yield curve is
generally beneficial to our investment portfolio cash flows, and market
expectations are that short-term rates will continue to remain low for an
extended period. In addition, we have put ourselves in position to continue to
redeem early a portion of our 9.5% February 2005 Senior Notes in connection with
the upcoming quarterly payment due on November 30th."
Mr. Benedetti continued, "Over the last several quarters, where
appropriate under generally accepted accounting principles, we have taken steps
to adjust the carrying value of the Company's assets to reflect the expected
collectable amount of those assets. This quarter the Company recorded an
impairment charge for its investment in delinquent property tax receivables as a
change in estimate, due to the changing attributes of the property tax
receivables and the underlying real estate securing the receivables. This charge
reduced the investment in these assets by $2.2 million, and resulted in the
recognition of $9.2 million in previously unrecognized accumulated other
comprehensive loss, a component of shareholders' equity. These investments have
a carrying value at the end of the quarter of approximately $48 million and will
remain on non-interest accrual status. All cash collected will be applied
against our investment. During the third quarter, we collected $3.0 million on
these assets. In addition, the Company's unreserved net credit exposure on all
manufactured housing loans is approximately $14.5 million at September 30, 2003,
and unless manufactured housing lending market conditions improve in the very
near-term, we anticipate that this remaining amount will be fully reserved over
the next three quarters."
Mr. Benedetti concluded, "Over the last several years we have made
significant strides in improving our financial position, strengthening our
balance sheet and addressing our capital structure issues. As we have indicated
in the past, the Board remains actively engaged in evaluating alternatives for
the use of the Company's cash flows, and, if possible, in extracting value from
the Company's approximate $130 million tax net operating loss carryfoward. The
focus of the Board will continue to be on those alternatives that provide the
most value for our shareholders. "
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. As discussed in the
Company's filings with the SEC, these factors may include, but are not limited
to, changes in general economic and market conditions, disruptions in the
capital markets, fluctuations in interest rates, the accuracy of subjective
estimates used in determining the fair value of certain financial assets of the
Company, the impact of recently issued financial accounting standards, increases
in costs and other general competitive factors.
# # #
DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
----------------- ---------------- -------------- ----------------
Interest income $ 34,858 $ 42,321 $ 109,049 $ 130,230
Interest and related expense (27,017) (31,481) (83,383) (97,636)
----------------- ---------------- ----------------- ----------------
Net interest margin before provision for loan losses 7,841 10,840 25,666 32,594
Provision for loan losses (5,831) (5,408) (29,715) (16,292)
----------------- ---------------- ----------------- ----------------
Net interest margin 2,010 5,432 (4,049) 16,302
Impairment charges (11,480) (2,468) (13,685) (9,552)
Gain (loss) on sale of investments, net 769 (257) 1,779 (84)
Other 130 (3,343) 170 (1,904)
General and administrative expenses (2,124) (2,226) (6,296) (6,744)
----------------- ---------------- ----------------- ----------------
Net loss (10,695) (2,862) (22,081) (1,982)
Preferred stock (charge) benefit (1,191) (2,397) 8,039 (7,189)
----------------- ---------------- ----------------- ----------------
Net loss to common shareholders $ (11,886) $ (5,259) $ (14,042) $ (9,171)
================= ================ ================= ================
Change in net unrealized loss during the period on:
Investments classified as available-for-sale 8,192 1,849 13,617 (1,208)
Hedge instruments 1,009 (3,952) (110) (3,578)
----------------- ---------------- ----------------- ----------------
Comprehensive loss $ (1,494) $ (4,965) $ (8,574) $ (6,768)
================= ================ ================= ================
Net loss per common share
Basic and diluted $ (1.09) $ (0.48) $ (1.29) $ (0.84)
================= ================ ================= ================
Weighted average number of 10,873,903 10,873,903 10,873,903 10,873,866
common shares outstanding
DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
September 30, December 31,
2003 2002
------------------------- -----------------------
ASSETS
Cash and cash equivalents $ 9,346 $ 15,242
Other assets 3,170 4,747
------------------------- -----------------------
12,516 19,989
Investments:
Collateral for collateralized bonds 1,880,363 2,148,497
Other investments 48,195 54,322
Other loans 9,647 9,288
Securities 2,076 6,208
------------------------- -----------------------
1,940,281 2,218,315
------------------------- -----------------------
$ 1,952,797 $ 2,238,304
========================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Collateralized bonds $ 1,776,110 $ 2,013,271
Senior Notes 14,059 -
Other liabilities 1,200 1,612
------------------------- -----------------------
1,791,369 2,014,883
------------------------- -----------------------
SHAREHOLDERS' EQUITY:
Preferred stock 47,013 94,586
Common stock 109 109
Additional paid-in capital 360,684 364,743
Accumulated other comprehensive loss (3,965) (17,472)
Accumulated deficit (242,413) (218,545)
------------------------- -----------------------
161,428 223,421
------------------------- -----------------------
$ 1,952,797 $ 2,238,304
========================= =======================
Preferred dividends in arrears $ 17,273 $ 31,157
========================= =======================
Book value per common share (inclusive of dividends in arrears) $ 8.73 $ 8.57
========================= =======================