Dynex Capital, Inc. Reports Second Quarter 2002 Results.Business Editors GLEN ALLEN Glen Allen is the name of several places in the United States of America:
Dynex Capital, Inc. (NYSE NYSE See: New York Stock Exchange : DX) reported today net income of $0.4 million for the second quarter 2002, versus net income of $2.8 million for the second quarter 2001 and net income of $0.5 million for the first quarter 2002. The Company reported comprehensive income of $10.5 million for the second quarter 2002, versus comprehensive income of $14.4 million in the second quarter 2001, and $8.9 million for the first quarter 2002. Net income and comprehensive income for the six months ended June 30, 2002 was $0.9 million and $19.4 million, respectively. 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: , adjusted for 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. on 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. , increased 14% during the quarter, to $6.05 per common share versus $5.31 at March 31, 2002, and $3.66 per common share at June 30, 2001. After consideration of preferred stock charges, the Company reported a net loss to common shareholders of $2.0 million or $0.18 per share for the second quarter 2002, versus net income available to common shareholders of $13.2 million or $1.16 per share for the second quarter 2001, and a net loss to common shareholders of $1.9 million or $0.18 per share for the first quarter of 2002. The Company has scheduled a conference call for Thursday, August 1, 2002, at 11:00 a.m. Eastern Time. Investors may participate in listen mode only by calling the following number 888-271-1925. The Company also announced today its Series A and Series B preferred stock will pay a dividend of $0.2925 per share and the Company's Series C preferred stock will pay $0.3651 per share. The dividends will be paid to record holders as of August 31, 2002. The dividends will be paid on September 15, 2002. The Company reported that the dividend is being paid to preferred shareholders in order for the Company to maintain its REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). status under the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. of 1986, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. . Second Quarter 2002 Results The Company reported net interest margin before provision for losses on its investment portfolio of $12.3 million, versus $13.0 million for the second quarter 2001 and $9.5 million for the first quarter 2002. After provision for losses, net interest margin was $4.5 million, versus $6.4 million in the second quarter 2001 and $1.9 million in the first quarter 2002. Average interest-earning assets during the quarter were $2.50 billion, versus $2.98 billion for the second quarter 2001 and $2.47 billion in the first quarter 2002. Net interest margin during the quarter benefited from the addition of interest-earning assets to the investment portfolio as a result of the purchase of mortgage backed securities from third parties pursuant to certain call rights owned by the Company. The loans underlying these securities were included in the 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. completed in April, where the Company issued $605 million of collateralized bonds. These bonds were collateralized by single-family loans aggregating $602 million, $447 million of which were loans already owned by the Company and $155 million of which represented new loans. Net interest margin also benefited from the reduced borrowing costs on non-recourse debt Non-Recourse Debt A loan that is secured by some sort of collateral, usually property. The issuer can seize the collateral if the borrower defaults. Notes: These types of projects are characterized by high capital expenditures, long loan periods, and uncertain revenue from the securitization, and a decline in premium amortization during the quarter as a result of the reduction of prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. on the investment portfolio. Results for the second quarter 2002 also included a gain of $0.7 million from a short position on the five-year treasury futures contract Futures Contract An exchange traded agreement to buy or sell a particular type and grade of commodity for delivery at an agreed upon place and time in the future. Futures contracts are transferable between parties. entered into in June and which expires in September to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. the
Company's exposure to rising interest rates on a portion of its
floating-rate non-recourse debt, and a $2.1 million charge to write-down
certain single-family loans included in securities called but which were
not included in the Company's securitization in April. These loans
were written down to their estimated fair value, as they are largely
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. and will likely be collected through foreclosure foreclosure Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. of the underlying real estate. Comprehensive income improved to $10.5 million for the quarter, compared to $8.9 million in the first quarter 2002. Comprehensive income includes net income plus the changes 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 loss. Changes in accumulated other comprehensive loss result principally from changes in the market valuation of the Company's investment portfolio. Balance Sheet Overall 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. improved to $192.5 million, from $182.0 million at the end of the first quarter. Total assets at June 30, 2002 were $2.43 billion, versus $2.35 billion at March 31, 2002. The increase in assets resulted from the addition of $155 million of new loans from the securitization during the quarter, partially offset by a decline in assets as a result of prepayments. Recourse The right of an individual who is holding a Commercial Paper, such as a check or promissory note, to receive payment on it from anyone who has signed it if the individual who originally made it is unable, or refuses, to tender payment. debt amounted to $46.4 million, substantially all of which related to the July 2002 Senior Notes which were repaid on July 15, 2002. Cash on hand at June 30, 2002 was $55.8 million, the majority of which was used to repay the Senior Notes, plus accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. . Discussion Mr. Stephen J. Benedetti, Chief Financial Officer of the Company, stated, "As was expected, results as measured by net income were essentially break even for the quarter, but results as measured by comprehensive income were much more favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. . Comprehensive income was boosted by the securitization completed during the quarter, and the recognition of previously unrealized losses Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. related to the 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. 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. These improvements were partially offset by a decline in the market value of the investment portfolio from the compression of the spread between Six-Month LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). and One-Month LIBOR during the quarter, and the impact of entering into an interest rate swap Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. with a notional amount The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change hands and is thus referred to as notional. of $100 million, under which the Company will pay a fixed rate of interest at 3.73% for a period of three years. The Company entered into the interest rate swap to take advantage of the low interest rate environment, in order to lock in the spread on certain fixed rate assets in its portfolio that are financed with floating-rate non-recourse liabilities." Mr. Benedetti, continued, "Through the securitization completed in April, the Company was able to position itself to fully satisfy the July 2002 Senior Notes on July 15th. Effective with the pay-off in full of the Notes on July 15th, the Company has repaid essentially all of its remaining recourse debt, and is free from the operating and investing restrictions that had been imposed by the Notes. Cash flow from the investment portfolio should approximate $5.7 million for the month of July. The Company continues to evaluate the highest risk-adjusted returns 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. available to it for the use of its cash flow. The Company also continues its investigation of the acquisition of a thrift thrift: see leadwort. , and other strategies designed to improve overall shareholder value in the long-term. In regards to the outlook for the third quarter, assuming no change in short-term rates by the Federal Reserve, common book value per share should continue to improve, although at a more modest pace than in the second quarter." 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) for federal income tax purposes. 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. 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 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.
DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
June 30, December 31,
2002 2001
------------ ------------
ASSETS
Investments:
Collateral for collateralized bonds $ 2,297,056 $ 2,404,157
Securities 2,992 5,508
Other investments 58,212 63,553
Loans 14,820 7,315
Cash 55,831 11,463
Other assets 5,776 8,816
------------ ------------
$ 2,434,687 $ 2,500,812
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse debt - collateralized
bonds $ 2,192,616 $ 2,264,213
Recourse debt 46,400 58,134
Other liabilities 3,193 5,402
------------ ------------
2,242,209 2,327,749
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock 94,586 94,588
Common stock 109 109
Additional paid-in capital 364,743 364,740
Accumulated other comprehensive loss (65,337) (83,872)
Accumulated deficit (201,623) (202,502)
------------ ------------
192,478 173,063
------------ ------------
$ 2,434,687 $ 2,500,812
============ ============
Book value per common share (inclusive
of preferred dividends in arrears) $ 6.05 $ 4.71
============ ============
DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except for share data)
(unaudited)
Three Months Six Months
Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------- ------- -------- -------
Interest income:
Collateral for collateralized
bonds $ 44,474 $ 56,478 $ 87,188 $117,592
Securities 335 366 457 674
Other investments 44 1,465 55 3,392
Loans 115 180 209 333
------- ------- -------- -------
44,968 58,489 87,909 121,991
------- ------- -------- -------
Interest and related expense:
Non-recourse debt 31,796 43,546 63,762 93,671
Recourse debt 941 1,837 1,972 4,423
Other (23) 106 421 469
------- ------- -------- -------
32,714 45,489 66,155 98,563
------- ------- -------- -------
Net interest margin before
provision for losses 12,254 13,000 21,754 23,428
Provision for losses (7,801) (6,589) (15,405) (13,177)
------- ------- -------- -------
Net interest margin 4,453 6,411 6,349 10,251
Net (loss) gain on sales,
write-downs, impairment charges
and litigation (1,818) 457 (1,912) 7,544
Trading gain (loss) 728 (1,958) 728 (1,720)
Other income (expense) 199 (77) 395 (20)
------- ------- -------- -------
3,562 4,833 5,560 16,055
General and administrative
expenses (2,625) (2,634) (4,518) (4,477)
Income before extraordinary item 937 2,199 1,042 11,578
Extraordinary item - (loss)
gain from extinguishment of
debt (539) 573 (162) 2,844
------- ------- -------- -------
Net income 398 2,772 880 14,422
Preferred stock (charges)
benefits (2,396) 10,493 (4,792) 7,265
------- ------- -------- -------
Net (loss) income available
to common shareholders $ (1,998) $ 13,265 $ (3,912) $ 21,687
======= ======= ======== =======
Change in net unrealized loss
on investments
available-for-sale 10,100 11,636 18,535 16,729
------ ------ ------ ------
Comprehensive income $ 10,498 $ 14,408 $ 19,415 $ 31,151
====== ====== ====== ======
Per common share before
extraordinary item:
Basic and Diluted $ (0.13) $ 1.11 $ (0.34) $ 1.65
Per common share after
extraordinary item:
Basic and Diluted $ (0.18) $ 1.16 $ (0.36) $ 1.90
Weighted average number of common
shares outstanding:
Basic and Diluted 10,873,894 11,444,206 10,873,860 11,446,206
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