Dynex Capital, Inc. Reports Third Quarter 2003 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 financial results for the third quarter 2003. Highlights for the third quarter and other information contained in this release include: -- Cash flow from the investment portfolio of $14.0 million for the quarter -- Completed the partial redemption Partial Redemption An investment-transaction classification that refers to the withdrawal of a portion of a security's value by the owner. Rather than withdrawing the entire amount of his or her security's value from the account, an investor may prefer to keep a portion of the of $10.0 million of 9.50% Senior Notes due February 2005 -- Incurred a net loss of $10.7 million for the quarter due to 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 on investments -- Called and sold $20 million of mortgage-backed security Noun 1. mortgage-backed security - a security created when a group of mortgages are gathered together and bonds are sold to other institutions or the public; investors receive a portion of the interest payments on the mortgages as well as the principal payments; loan collateral at a gain of $0.84 million -- 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: 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 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. 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 Prepayments Payments made in excess of scheduled mortgage principal repayments. in the investment portfolio and a temporary reduction in interest payments on certain commercial mortgage-backed securities Commercial mortgage-backed securities (CMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on commercial rather than residential real estate. . 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 Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. 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 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. The Company recorded the impairment charge as a result of revisions in the estimated collectible collectible An asset of limited supply that is sought for a variety of reasons including, it is hoped, an increase in value. Stamps, antiques, coins, and works of art are among the many things usually classified as collectibles. 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 The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , $9.2 million had previously been recorded in accumulated other comprehensive loss included 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. . The Company also reported that it called approximately $20 million of previously issued mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. 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 Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. 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 Prepayment speed Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities. for the entire investment portfolio as measured by the "constant 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. rate", or CPR Cardiopulmonary Resuscitation (CPR) Definition Cardiopulmonary resuscitation (CPR) is a procedure to support and maintain breathing and circulation for a person who has stopped breathing (respiratory arrest) and/or whose heart has stopped (cardiac , 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 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 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 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 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 preferred dividend n. a payment of a corporation's profits to holders of preferred shares of stock. (See: preferred stock) in arrears Adv. 1. in arrears - in debt; "he fell behind with his mortgage payments"; "a month behind in the rent"; "a company that has been run behindhand for years"; "in arrears with their utility bills" behindhand, behind 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 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. . 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 redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. 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 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 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 accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. 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 operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. 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 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. 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 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 common
shares outstanding 10,873,903 10,873,903 10,873,903 10,873,866
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
=============== ===============
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