Dynex Capital, Inc. Reports Results for Second Quarter.GLEN ALLEN Glen Allen is the name of several places in the United States of America:
See: New York Stock Exchange : DX) reported today a net loss of $13.0 million for the second quarter, versus a net loss of $11.0 million for the same period in 2003. After consideration of preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. benefits and charges, the Company reported a net loss to common shareholders of $10.9 million or $0.95 per basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. common share for the second quarter 2004, versus a net loss to common shareholders of $12.2 million or $1.12 per basic and diluted common share for the second quarter 2003. Preferred stock benefits for the second quarter 2004 included approximately $3.7 million from the recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. transaction completed in May. Net loss to common shareholders was $17.5 million, or $1.59 per basic and diluted common share, for the full six months ended June 30, 2004, versus net income of $288 thousand, or $0.03 per basic and diluted common share, for the same period in 2003. The Company has scheduled a conference call for Tuesday, August 17, 2004, at 4:00 p.m. Eastern Daylight Time to discuss the results. Investors can listen in on the call by dialing in at (888) 424-1091. Second Quarter 2004 Results The Company reported that cash flow from its investment portfolio was $12.0 million for the quarter versus $11.1 million for the first quarter 2004 and $15.5 million for the second quarter 2003. Inclusive of inclusive of prep. Taking into consideration or account; including. $7.4 million received in April on the redemption and resale resale n. selling again, particularly at retail. In many states a "resale license" or "resale number" is required so that the state can monitor the collection of sales tax on retail sales. RESALE. of certain securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. financing bonds in the Company's MERIT Series 12-1, cash flow for the second quarter was $19.4 million. Cash flow increased in the second quarter principally as a result of principal prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. on investments, and improved collections from the Company's delinquent delinquent 1) adj. not paid in full amount or on time. 2) n. short for an underage violator of the law as in juvenile delinquent. DELINQUENT, civil law. He who has been guilty of some crime, offence or failure of duty. property tax receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed portfolio. Delinquent property tax receivable collections were $2.1 million for the second quarter 2004 versus $1.8 million in the first quarter 2004. Collections continued to be below forecast, however, and in order to reduce the overall cost of collection of these receivables, the Company announced reductions in its servicing operations which are expected to result in savings to the Company of approximately $1.1 million in general and administrative expenses annually. The Company reported net interest margin before provision for loan losses on its investment portfolio of $5.5 million for the second quarter of 2004 versus $8.8 million for the same period in 2003 and $6.4 million in the first quarter of 2004. Net interest margin before provision for losses was $12.0 million for the six-month period in 2004 versus $20.3 million for the six-month period of 2003. Net interest margin before provision for losses during the second quarter was impacted by an overall reduction in interest earning assets Earning Assets Any income-earning asset owned by a company. Notes: These assets are generally interest-bearing accounts, bonds, and securities available for sale. See also: Asset, Asset Valuation, Earnings, Net Interest Margin , which have declined by $306 million in the second quarter 2004 versus the second quarter of 2003, and was also impacted by an increase in amortization expense of $2.1 million for prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. activity on approximately $70 million of delinquent loans in the Company's commercial mortgage loan portfolio, along with compression in the net interest spread from increasing short-term interest rates Short-term interest rates Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commerical paper-having maturities of less than one year. Often called money market rates. . After consideration of provision for loan losses, net interest margin for the second quarter 2004 was a negative $3.4 million, versus a negative $9.2 million in the second quarter 2003, and a negative $765 thousand in the first quarter 2004. Provision for loan losses for the second quarter 2004 includes $7.6 million related to the Company's credit loss exposure on its manufactured housing Manufactured housing (also known as prefab housing) is a type of housing unit that is largely assembled in factories and then transported to sites of use. In the United States, the term "manufactured home" specifically refers to a house built entirely in a protected loan portfolio. As of the end of the second quarter, the Company has fully reserved for its remaining credit loss exposure on its manufactured housing loans and, as a result, provision for loan losses for the remainder of 2004 is expected to decline. Impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges for the second quarter of 2004 were $7.7 million, versus $200 thousand in the same period for 2003 and $1.7 million in the first quarter 2004, reflecting an adjustment in debt securities backed by manufactured housing loans pledged to MERIT Series 11 and where there has been an other-than-temporary decline in value due to increasing credit losses on the underlying loans. In evaluating this other-than-temporary decline, the Company utilized higher loss experience from the second quarter in forecasting future estimated losses on the underlying manufactured housing loans. General and administrative expenses were $2.0 million during the quarter, down from $2.5 million in first quarter 2004 and $2.2 million in the second quarter 2003. General and administrative expenses for the remainder of 2004 should continue to decline as a result of reductions in the Company's delinquent property tax receivables servicing operation. Balance Sheet Total assets at June 30, 2004, were $1.74 billion, a decline of $120.8 million from December 31, 2003. The decline in assets was primarily the result of prepayments in the Company's securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. finance receivables. Cash and cash equivalents at the end of the second quarter were $22.9 million, versus $7.4 million at the end of 2003. The Company's investment portfolio was $1.72 billion at June 30, 2004, which included approximately $1.4 billion of investments which carry a fixed-rate of interest, substantially all of which are commercial mortgage and manufactured housing loans. The balance of investment portfolio assets are adjustable-rate, substantially all of which are single-family mortgage loans and securities. The Company's non-recourse securitization financing was $1.59 billion at the end of the second quarter, approximately $1.11 billion of which was fixed-rate. During the quarter, the Company completed its recapitalization plan whereby the Company's Series A, Series B and Series C Preferred Stock was converted into a new Series D Preferred Stock and common stock, eliminating approximately $20 million in dividends in arrears dividends in arrears Dividend payments on cumulative preferred stock that have been passed by a firm's directors. These dividends must be brought up to date before any payments are made to common stockholders. in the process. The recapitalization transaction resulted in a modest decline in shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. of $1.4 million, but resulted in an approximate $0.21 increase in book value per common share Book Value Per Common Share A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: as a result of the elimination of the dividends in arrears. At June 30, 2004, shareholders' equity was $135.4 million versus $149.8 million at December 31, 2003. The decrease in shareholders' equity was due principally to the net loss for the six-month period, partially offset by an increase in accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. other comprehensive gain of $5.3 million. Accumulated other comprehensive gain benefited from the improvement in the value of predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. adjustable-rate debt securities during the quarter and also from the improvement in the fair value of approximately $130 million of hedge instruments that the Company has in place to protect its cash flows in a rising interest rate environment. Common book value per share, net of liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts. A type of proceeding pursuant to federal Bankruptcy preference on the Series D Preferred Stock, was $6.40 per share at June 30, 2004. Discussion Mr. Stephen J. Benedetti, Chief Financial Officer of the Company, stated, "There were a number of significant accomplishments during the second quarter, despite the reported net loss for the quarter, as we continue on the path toward restoring the Company to profitability. We have now fully reserved for our principal credit exposure on our manufactured housing loans contained in MERIT Series 12-1 and MERIT Series 13 securitizations, which means that a significant drag on Verb 1. drag on - last unnecessarily long drag out last, endure - persist for a specified period of time; "The bad weather lasted for three days" 2. our past earnings should not continue in the future. We have also impaired the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of debt securities pledged as collateral for MERIT Series 11, significantly reducing our earnings exposure in those debt securities in future periods. From a financial reporting point of view, our objective has been to report financial results more closely correlated cor·re·late v. cor·re·lat·ed, cor·re·lat·ing, cor·re·lates v.tr. 1. To put or bring into causal, complementary, parallel, or reciprocal relation. 2. to our economic results, and having reserved or impaired our credit exposure from manufactured housing loans and securities backed by manufactured housing loans, we believe we are now at the point where reported results should more closely track our cash flows and economic results. In addition, during the quarter our shareholders overwhelmingly approved and we implemented a recapitalization transaction, converting our three series of preferred stock into one and eliminating all dividends in arrears. Completing the recapitalization was an extremely important event, as the elimination of the dividend arrearage ARREARAGE. Money remaining unpaid after it becomes due as rent unpaid interest remaining due Pow. Mortgages, Index, h.t.; a sum of money remaining in the hands of an accountant. Merl. Rep. h.t.; Dane's Ab. Index, h.t. improves the Company's overall financial flexibility and positions the Company as a more attractive business and credit counterparty Counterparty The other participant, including intermediaries, in a swap or contract. . We monetized during the quarter our optional redemption rights on MERIT Series 12-1, taking advantage of low absolute rates and the steep yield curve, and we have a similar opportunity for MERIT Series 13 during the third quarter. Our common stock book value at the end of the second quarter was $6.40 per share, which does not include any value for the redemption of MERIT Series 13 since it is included in our financial statements on the cost basis and not fair value." Mr. Benedetti continued, "During the quarter, the Company began the process of reviewing alternatives regarding the Company's investment in delinquent property tax receivables and its servicing operation. The Company's investment in these receivables and the servicing operation is capital-intensive Capital-intensive Used to describe industries that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive. and it is unlikely that this business will be a part of the Company's long-term strategy. With that in mind, the Company has streamlined the servicing operations to rationalize ra·tion·al·ize v. 1. To make rational. 2. To devise self-satisfying but false or inconsistent reasons for one's behavior, especially as an unconscious defense mechanism through which irrational acts or feelings are made to appear the economics of the existing receivables portfolio." Mr. Benedetti continued, "At the end of the second quarter we had $23 million in cash available for reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. . Cash flows from the investment portfolio were $12.0 million during the quarter, or $19.4 including the $7.4 million redemption and reissuance of MERIT Series 12-1. We have a similar opportunity with MERIT Series 13, and we are exploring various structures that would allow the Company to invest its available capital at an attractive return or to otherwise monetize Monetize 1. To convert into money. 2. To convert from securities into currency that can be used to purchase goods and services. Notes: For example, you'll often hear Internet marketers talk about "monetizing website visitors. the redemption rights for cash in a manner similar to MERIT Series 12-1. Our expectation is that cash flows from the investment portfolio for the third quarter will decline modestly relative to the second quarter as the investment portfolio runs-off, and delinquent property tax receivables collections decline from the reductions in the servicing operations. The Federal Reserve continues to indicate that the Federal Funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. will be increased at 'measured-pace', which will have the effect of driving up our borrowing costs, but also should slow prepayments in the investment portfolio. An increase in the Federal Funds rate at a 'measured-pace' will only modestly impact our quarterly investment portfolio cash flows going forward." Mr. Benedetti concluded, "The Board will continue to be actively engaged over the coming months in reviewing strategic opportunities for long-term reinvestment, with the hope of providing guidance to our shareholders over the balance of the year. Our objective in the near-term is to put capital to work first within opportunities in our existing investment portfolio, such as the redemption of MERIT Series 13, provided these opportunities provide a reasonable risk-adjusted return Risk-Adjusted Return A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a number or a rating. Notes: This is often represented by the Sharpe Ratio. The more return per unit of risk, the better. for the Company. The Board will continue to evaluate strategic opportunities that will benefit the shareholders over the long-term, and will be patient in that regard." Dynex Capital, Inc. is a financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. company that elects to be treated as a real estate investment trust (REIT REIT See: Real Estate Investment Trust REIT See 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called 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 conditions, disruptions in the capital markets, fluctuations in interest rates, defaults by borrowers, defaults by third-party servicers, prepayments of investment portfolio assets, the accuracy of subjective estimates used in determining the fair value of certain financial assets Financial assets Claims on real assets. of the Company, the impact of recently issued financial accounting standards, increases in costs and other general competitive factors. For additional information, see the Company's Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the period ended June 30, 2004, as filed with the Securities and Exchange Commission.
DYNEX CAPITAL, INC.
Condensed Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
June 30, December 31,
2004 2003
--------------- ---------------
ASSETS
Cash and cash equivalents $ 22,905 $ 7,386
Other assets 3,433 4,174
--------------- ---------------
26,338 11,560
Investments:
Securitized finance receivables:
Loans, net 1,422,878 1,518,613
Debt securities, available
for sale 228,521 255,580
Other investments 35,258 37,903
Securities 25,007 33,275
Other loans 6,433 8,304
--------------- ---------------
1,718,097 1,853,675
--------------- ---------------
$1,744,435 $1,865,235
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse securitization
financing $1,589,596 $1,679,830
Repurchase agreements 17,330 23,884
Senior Notes 823 10,049
Other liabilities 1,325 1,626
--------------- ---------------
1,609,074 1,715,389
--------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock 55,670 47,014
Common stock 122 109
Additional paid-in capital 366,897 360,684
Accumulated other
comprehensive loss 1,438 (3,882)
Accumulated deficit (288,766) (254,079)
--------------- ---------------
135,361 149,846
--------------- ---------------
$1,744,435 $1,865,235
=============== ===============
Book value per common share
(after consideration of preferred
stock liquidation preference) $6.40 $7.55
=============== ===============
DYNEX CAPITAL, INC.
Condensed Consolidated Statements of Operations
(Thousands except share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Interest income $ 33,217 $ 38,501 $ 66,848 $ 79,336
Interest and
related expense (27,698) (29,675) (54,894) (59,067)
------------ ------------ ------------ ------------
Net interest margin
before provision
for loan losses 5,519 8,826 11,954 20,269
Provision for
loan losses (8,947) (18,040) (16,147) (23,884)
------------ ------------ ------------ ------------
Net interest
margin (3,428) (9,214) (4,193) (3,615)
Impairment
charges (7,746) (127) (9,407) (2,205)
Gain on sale of
investments, net 20 483 4 1,010
Other 216 23 (261) 40
General and
administrative
expenses (2,015) (2,151) (4,483) (4,172)
------------ ------------ ------------ ------------
Net loss (12,953) (10,986) (18,340) (8,942)
Preferred stock
benefit (charge) 2,045 (1,214) 854 9,230
------------ ------------ ------------ ------------
Net (loss) income
to common
shareholders $ (10,908) $ (12,200) $ (17,486) $ 288
============ ============ ============ ============
Change in net unrealized loss
during the period on:
Investments classified
as available-for-sale 3,056 2,355 3,315 2,981
Hedge instruments 1,924 (679) 2,005 (1,119)
------------ ------------ ------------ ------------
Comprehensive loss $ (7,973) $ (9,310) $ (13,020) $ (7,080)
============ ============ ============ ============
Net (loss) income
per common share
Basic and diluted $ (0.95) $ (1.12) $ (1.59) $ 0.03
============ ============ ============ ============
Weighted average
number of common
shares outstanding
Basic and diluted 11,468,635 10,873,903 10,972,844 10,873,903
============ ============ ============ ============
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