Dynex Capital, Inc. Reports Year-End 2004 Results.GLEN ALLEN Glen Allen is the name of several places in the United States of America:
See: New York Stock Exchange :DX) announced its financial results for the fourth quarter and year-ended December 31, 2004. Highlights contained in this release include: --Cash flows from the investment portfolio were $79.5 million for the year, inclusive of inclusive of prep. Taking into consideration or account; including. proceeds from the sale of investments of $38.3 million. For the fourth quarter 2004, cash flows from the investment portfolio were $19.3 million, inclusive of proceeds from the sale of investments of $12.4 million --Net income for the fourth quarter was $15.0 million. Net loss for the year was $3.4 million --Total investment portfolio assets were $1,343 million and cash and cash equivalents were $52.5 million at December 31, 2004, versus total investment portfolio assets of $1,854 million and cash and cash equivalents of $7.4 million at December 31, 2003 --Common equity book value was $92.5 million, or $7.60 per common share at December 31, 2004, versus $82.1 million, or $7.55 at December 31, 2003 --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. carryforward was approximately $135 million at December 31, 2004 For the year ended December 31, 2004, the Company reported a net loss of $3.4 million versus a net loss of $21.1 million 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. charges, the Company reported a net loss to common shareholders of $5.2 million or $0.46 per common share for 2004 versus $14.3 million, or $1.31 per common share for 2003. For the fourth quarter 2004, the Company reported net income to common shareholders of $13.7 million, or $0.77 per common share on a fully-diluted basis, versus a net loss of $12.9 million, or $1.18 per common share for the same period in 2003. The Company also announced that dividends paid on the Series D Preferred Stock during 2004 of an aggregate $0.4618 per share, consisted of $0.2412 per share of ordinary income and $0.2206 per share return of capital. The $0.2412 dividends per share Dividends per share Dividend paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term. of ordinary income is due to the Company's ownership of residual interests Residual Interest A type of interest payment received by investors in a real estate mortgage investment conduit (REMIC). Notes: Investors receive interest payments after all required regular interest has been paid to investors within higher priority tranches. in certain REMIC securitizations. The Company has scheduled a conference call for Friday, March 18, 2005, at 2:00 p.m. Eastern Time to discuss fourth quarter results. Investors may participate by calling (800) 729-5806. Commenting on 2004 and fourth quarter results, Thomas B. Akin, Chairman of the Board of Directors, stated, "We believe that 2004 was a very good year for our shareholders. We successfully recapitalized the Company, eliminating 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 our preferred stock in the process, and prudently took advantage of opportunities to convert investments to cash at favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. prices. Our cash position at the end of 2004 was in excess of $52 million, and stands at approximately $57 million today. While 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: is approximately the same as 2003, the quality of that amount is much improved, as almost one-half of our total market capitalization Total Market Capitalization The total market value of all of a firm's outstanding securities. now consists of cash and cash equivalents and investments in liquid securities. Our financial position and flexibility going into 2005 is much stronger than it was at the end of 2004. Our strategy today remains the same as we articulated at the end of the third quarter. We intend to invest in high credit quality, short-duration assets, and maintain a substantial cash position while we wait for opportunities to invest capital on a longer-term basis. Compelling investment opportunities in the near-term have been harder to find as spreads on mortgage securities have continued to compress, and in our opinion do not adequately compensate for the current risks inherent in these securities. We do believe, however, that opportunities will be available in the marketplace in the coming year for the Company to strategically redeploy re·de·ploy tr.v. re·de·ployed, re·de·ploy·ing, re·de·ploys 1. To move (military forces) from one combat zone to another. 2. its capital. Our focus in the near term will continue to be in the single-family mortgage markets, but that focus may expand to other areas if opportunities arise. As we have previously indicated, we continue to feel that the tax net operating loss carryforward offers the Company a compelling competitive advantage, allowing the Company to retain taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. which would otherwise have to be distributed, enabling the Company to compound returns on its capital and grow book value per common share on a tax free basis." Discussion of Results Net income for the fourth quarter was $15.0 million, which includes a gain of $17.6 million from the sale of the Company's investment in certain 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, and the associated 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. The Company also recorded an 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. of $4.9 million during the quarter on its remaining investment in its securitized 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 receivable portfolio, as a result of the security's reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. from held-to-maturity to available-for-sale during the quarter. The transfer resulted in an adjustment in 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 security to its estimated fair value at the time of the transfer. The Company determined that it could no longer assert the positive intent to retain this security to maturity due to efforts initiated in December 2004 to sell this security, principally due to the sale of a meaningful portion of its overall delinquent property tax receivables portfolio during the third quarter of 2004. Net interest income after provisions for loan losses for the fourth quarter and the year includes approximately $1.1 million of provision for loan losses for credit risk on securitized finance receivables for which the actual credit risk has been assumed by third-parties pursuant to the securitization of the receivables and the issuance of non-recourse securitization financing bonds. The Company had previously indicated that it would discontinue dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: recording a valuation allowance on finance receivables where its credit risk was limited via the securitization structure. After consultation with its independent accounting firm and the staff of the Securities and Exchange Commission, the Company determined that 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 require it to continue to provide for loan losses regardless of the securitization structure, even where the risk of loss is borne by the holders of the securitization financing bonds. Net income will be reduced by the amount of the provision for loan losses, and 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. will be reduced by the current period and cumulative amounts recorded. Such cumulative amounts may ultimately be material to the financial statements, but will eventually reverse as the associated securitization financing bonds are legally extinguished ex·tin·guish tr.v. ex·tin·guished, ex·tin·guish·ing, ex·tin·guish·es 1. To put out (a fire, for example); quench. 2. To put an end to (hopes, for example); destroy. See Synonyms at abolish. 3. . The Company will disclose in its filings with the SEC the current period and cumulative amounts of loan losses recorded in excess of the credit risk retained by the Company. The Company noted that the provision for loan losses recorded in the financial statements is non-cash in nature and will not have any effect on the estimated fair value of the underlying securitized finance receivables, nor will it impact the overall economics of the Company's investment in these receivables. The Company reported cash flows from the investment portfolio of $79.5 million for all of 2004, and $19.3 million for the fourth quarter 2004. Excluding cash flows from sales of investments, cash flows from the investment portfolio were $6.8 million during the fourth quarter 2004. Cash flows from the investment portfolio include net principal payments, interest income and dividends received on investments, less principal and interest payments made on the associated financing for the investments, plus net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). received from the sale of investments. Investments were $1,343 million at December 31, 2004, versus $1,854 million at December 31, 2003. The Company purchased approximately $62 million in 'AAA'-rated, fixed-rate securities during the quarter, which were financed with $57 million in repurchase agreements Repurchase agreement An agreement with a commitment by the seller (dealer) to buy a security back from the purchaser (customer) at a specified price at a designated future date. . The securities have an estimated weighted-average life of less than one year and are consistent with the Company's stated objective of high credit quality and short duration. During the fourth quarter, gross principal repayments and net principal repayments on the investment portfolio approximated $66.1 million and $2.4 million respectively, and the weighted-average coupon on the investment portfolio, including cash equivalents, was 6.98%. The 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. , including both securitization financing and repurchase agreements, was 6.27% for the same period. The weighted-average coupon on the investment portfolio continues to decline quarter-to quarter as higher yielding assets repay and the Company reinvests the cash received in short-term cash equivalents. Shareholders' equity was $148.8 million at December 31, 2004 versus $149.8 million at December 31, 2003. Common shareholders' equity was $92.5 million at December 31, 2004 versus $82.1 million at December 31, 2003. 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 preferences on preferred stock was $7.60 at December 31, 2004 versus $7.55 per share at December 31, 2003. The recourse debt to equity ratio The debt to equity ratio (D/E) is a financial ratio indicating the relative proportion of equity and debt used to finance a company's assets. It is equal to total debt divided by shareholders' equity. is less than 1:1 at the end of 2004. Commenting on the outlook for 2005, Mr. Akin stated, "Our investment portfolio cash flow will likely continue to modestly decline quarter-to-quarter absent meaningful 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. of our capital or sales of existing investments. Cash flows from the investment portfolio for the first quarter through February are $4.3 million, excluding proceeds from sales. Net income to common shareholders in the fourth quarter 2004 included several one-time items, and on a go-forward basis we would expect net income to common shareholders to be closer to break-even as we continue to provide for non-cash valuation allowances on loans where we do not retain the credit risk." Mr. Akin continued, "The Company's single-family mortgage loan securitization financing with a current aggregate principal balance of $217 million outstanding collateralized by $225 million of single-family mortgage loans is estimated to reach its redemption date Redemption date The date on which a bond matures or is redeemed. redemption date The date on which a debt security is scheduled to be redeemed by the issuer. The redemption date is the scheduled maturity date or, if applicable, a call date. this month, and the Company is exploring opportunities to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. this redemption. At this point it is likely that we will 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. the outstanding bonds and resecuritize the underlying mortgage loans, possibly adding additional collateral by including single-family mortgage loans and securities already owned by the Company, and purchasing additional single-family mortgage loans. We are also focused on the sale of the Company's remaining investment in property tax receivables, and continue to manage the portfolio and the corresponding servicing platform as efficiently as possible. The successful sale of this investment will likely impact reported results for the period of the sale. We will continue to conserve capital and evaluate potential investment opportunities for the Company as they arise. Our objective is to take prudent risk in our investment portfolio and to be compensated accordingly." The Company also commented on the recently-filed 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. in the United States District Court United States District Court In the U.S., any of the 94 trial courts of general jurisdiction in the federal judicial system. Each state, as well as the District of Columbia and the Commonwealth of Puerto Rico, has at least one federal district court. for the Southern District of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , noting that the plaintiffs, among other things, are claiming securities laws violations regarding MERIT Series 13, which was issued in August 1999. From a review of the pleadings pleadings: see procedure. filed in the case, the Company noted that the plaintiffs purchased its investment in MERIT Series 13 in January 2002 and March 2002. Based on information available from third-parties, the Company believes that the historical collateral performance on MERIT Series 13 was generally in-line or exceeded most other similar vintage securities. The Company continues to evaluate the pleadings in this litigation and intends to vigorously defend itself in the action. 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 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, the completion of the proposed 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. plan, defaults by borrowers, defaults by third-party servicers, 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 quarter ended September 30, 2004 as filed with the Securities and Exchange Commission.
DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except share data)
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Interest income $ 25,349 $ 35,665 $ 122,223 $ 152,215
Interest and
related expense (20,416) (25,796) (98,942) (113,244)
------------ ------------ ------------ ------------
Net interest
income 4,933 9,869 23,281 38,971
Provision for loan
losses (1,025) (7,367) (18,463) (37,082)
------------ ------------ ------------ ------------
Net interest
income after
provision for
loan losses 3,908 2,502 4,818 1,889
Impairment charges (5,187) (11,873) (14,756) (16,355)
Gain (loss) on
sale of
investments, net 17,633 (281) 14,490 1,498
Other income
(expense) 85 323 (179) 493
General and
administrative
expenses (1,418) (2,336) (7,748) (8,632)
------------ ------------ ------------ ------------
Net income (loss) 15,021 (11,665) (3,375) (21,107)
Preferred stock
(charge) benefit (1,292) (1,192) (1,819) 6,847
------------ ------------ ------------ ------------
Net income (loss)
to common
shareholders $ 13,729 $ (12,857) $ (5,194) $ (14,260)
============ ============ ============ ============
Change in net
unrealized loss
during the period
on:
Investments
classified as
available-for-
sale 1,155 (861) 4,681 115
Hedge
instruments 664 944 3,018 835
------------ ------------ ------------ ------------
Comprehensive
income (loss) $ 16,840 $ (11,582) $ 4,324 $ (20,157)
============ ============ ============ ============
Net income (loss)
per common share
Basic $ 1.13 $ (1.18) $ (0.46) $ (1.31)
------------ ------------ ------------ ------------
Diluted $ 0.77 $ (1.18) $ (0.46) $ (1.31)
============ ============ ============ ============
Weighted average
number of common
shares
outstanding
Basic 12,162,391 10,873,903 11,272,259 10,873,903
------------ ------------ ------------ ------------
Diluted 17,813,455 10,873,903 11,272,259 10,873,903
============ ============ ============ ============
DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)
December 31, December 31,
2004 2003
------------ ------------
ASSETS
Cash and cash equivalents $ 52,522 $ 7,386
Other assets 4,964 4,174
------------ ------------
57,486 11,560
Investments:
Securitized finance receivables:
Loans, net 1,036,123 1,518,613
Debt securities 206,434 255,580
Securities 87,706 33,275
Other investments 7,596 37,903
Other loans 5,589 8,304
------------ ------------
1,343,448 1,853,675
------------ ------------
$1,400,934 $1,865,235
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse securitization financing $1,177,280 $1,679,830
Repurchase agreements 70,468 23,884
Senior Notes - 10,049
Other liabilities 4,420 1,626
------------ ------------
1,252,168 1,715,389
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock 55,666 47,014
Common stock 122 109
Additional paid-in capital 366,896 360,684
Accumulated other comprehensive income
(loss) 3,817 (3,882)
Accumulated deficit (277,735) (254,079)
------------ ------------
148,766 149,846
------------ ------------
$1,400,934 $1,865,235
============ ============
Preferred dividends in arrears $ - $ 18,466
============ ============
Book value per common share $ 7.60 $ 7.55
============ ============
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