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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: March 16, 2004
(Date of earliest event reported)
DYNEX CAPITAL, INC.
(Exact Name of Registrant as Specified in Charter)
1-9819
(Commission File Number)
Virginia 52-1549373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4551 Cox Road, Suite 300, Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip Code)
(804) 217-5800
(Registrant's telephone number, including area code)
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit No. Description
99 Press release issued by the Registrant
dated March 15, 2004.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
DYNEX CAPITAL, INC.
(Registrant)
Date: March 16, 2004 By:
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Stephen J. Benedetti
Executive Vice President and
Chief Financial Officer
Exhibit Index
Exhibit No. Description
99 Press release issued by the Registrant
on March 15, 2004.
PRESS RELEASE
FOR IMMEDIATE RELEASE CONTACT: Investor Relations
March 15, 2004 804-217-5897
DYNEX CAPITAL, INC.
REPORTS 2003 RESULTS
Dynex Capital, Inc. (NYSE: DX) reported today financial results for 2003.
Highlights for the year and other information contained in this release include:
o Generated cash flow from the investment portfolio of $57.1 million for
the year, and $13.2 million for the fourth quarter
o Added $28.9 million of securities to the investment portfolio in the
fourth quarter through the call of seasoned single-family mortgage-backed
securities, financing the call with a combination of repurchase agreement
financing and available cash
o Incurred a net loss of $21.1 million for the year and $11.7 million for
the fourth quarter due to continued high provision for losses on manufactured
housing loans, and impairment charges on investments
o In January 2004, announced a recapitalization plan for the Company's
Series A, Series B and Series C Preferred Stock, to close in the second quarter
2004 if accepted by our shareholders, which the Company believes will enhance
its ability to engage in strategic transactions
o Book value per common share of $7.55 at December 31, 2003 versus $8.57 at
December 31, 2002
For the year ended December 31, 2003, the Company reported a net loss
of $21.1 million versus a net loss of $9.4 million for 2002. After consideration
of the preferred stock benefit (charge), the Company reported a net loss to
common shareholders of $14.3 million or $1.31 per common share for 2003 versus
$18.9 million, or $1.74 per common share for 2002. For the fourth quarter, the
Company reported a net loss to common shareholders of $12.9 million, or $1.18
per common share versus a net loss of $14.0 million, or $1.28 per common share
for the same period in 2002.
The Company has scheduled a conference call for Wednesday, March 17,
2004, at 11:00 a.m. Eastern Time to discuss fourth quarter results and the
recapitalization transaction. Investors may participate by calling (800)
840-6219.
2003 Results
The Company reported that cash flow from its investment portfolio was
$57.1 million for all of 2003, and $13.2 million for the quarter, versus $75.8
million on a comparable basis for 2002, and $14.0 million in the third quarter
2003. Cash flow declined in 2003 principally as a result of declines in
interest-earning assets from prepayments in the investment portfolio, lower
overall yields on investments, and lower collections on the delinquent property
tax receivables portfolio.
The Company reported net interest margin before provision for loan
losses on its investment portfolio of $39.0 million in 2003 compared to $49.2
million in 2002. After provision for loan losses, net interest margin was $1.9
million versus $20.7 million in 2002. Provision for loan losses in 2003 was
$37.1 million versus $28.5 million in 2002. Included in the $37.1 million was
$13.8 million in provision for loan losses for currently existing credit losses
within outstanding manufactured housing loans that are current as to payment. In
2002, the Company had not considered current loans to be impaired under
generally accepted accounting principles and was therefore providing reserves
only for loans that were delinquent as to payment. As of December 31, 2003, the
Company has net unreserved credit exposured on manufactured housing loans of
$11.9 million, which should be fully reserved through additional provision for
loan losses during the second quarter of 2004. In addition, impairment charges
for 2003 were $16.4 million versus $18.5 million in 2002, and $11.9 million in
the fourth quarter 2003. Impairment charges for 2003 included approximately
$10.4 million for adjustments in carrying value of the Company's investment in
delinquent property tax receivables, and $5.5 million in impairment charges on a
debt-security backed principally by manufactured housing loans. The Company
recorded the impairment charge as a result of revisions in the estimated
collectible amounts of its investment in delinquent tax receivables.
Balance Sheet
Total assets at December 31, 2003 were $1.87 billion, versus $2.21
billion at December 31, 2002. The decline in assets was principally the result
of prepayments in the Company's securitized finance receivables. Prepayment
speed for the entire investment portfolio as measured by the "constant
prepayment rate", or CPR, was 21% during 2003 and the fourth quarter.
Prepayments reduce the amount of the Company's interest-earning assets. CPR on
the Company's single-family mortgage loan and securities portfolio was 37%
during the quarter. Of the $1.85 billion of assets in the investment portfolio,
approximately $352.4 million were adjustable-rate assets, substantially all of
which were single-family loans and securities, with the balance being fixed-rate
investments, substantially all of which were manufactured housing loans and
commercial mortgage loans.
During the fourth quarter 2003, the Company called $28.9 million of
previously issued single-family mortgage backed securities and added these
securities to its investment portfolio, utililizing $23.9 million of repurchase
agreement financing for the call. During all of 2003, the Company called an
aggregate $86.8 million of securities, selling $54.7 million of these securities
at a net gain of $2.2 million and retaining $32.1 million in its investment
portfolio.
Shareholders' equity was $149.8 million at December 31, 2003 versus
$223.4 million at December 31, 2002. The decrease in shareholders' equity was
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 year. Common
book value per share, net of liquidation preference on Series A, Series B, and
Series C Preferred Stock, was $7.55 per share at December 31, 2003 versus $8.57
per share at December 31, 2002.
The Company expects to formally commence the recapitalization
transaction announced in early January 2004 within the next few weeks once the
review of its preliminary offering documents is completed by the Securities and
Exchange Commission. Assuming the prerequisite shareholder approvals are
obtained, the Company anticipates that the closing of the transaction will occur
by the end of April 2004.
Discussion
Stephen J. Benedetti, Chief Financial Officer of the Company, stated,
"2003 saw the Company continue on its road to recovery. First, the Company
completed a tender offer in February 2003 on its existing Series A, Series B and
Series C Preferred Stock, reducing the dividends in arrears on such Preferred
Stock by $16.1 million. The Company issued Senior Notes in connection with this
tender offer which were redeemed in March 2004, a full one year ahead of their
maturity. Second, the Company's investment portfolio generated $57.1 million
cash flow in 2003, putting the Company in a solid financial position to engage
in new strategic alternatives in 2004. Third, the Company secured new recourse
repurchase agreement financing essentially for the first time since 2000, and
added investments with a very attractive return profile to the balance sheet.
Finally, the results from 2003 put the Company in position to announce a
recapitalization plan aimed at consolidating the Company's Series A, Series B
and Series C Preferred Stock into a single Series D Preferred Stock and retiring
a portion of the existing Preferred Stock in favor of new Senior Notes, while
eliminating all remaining dividends in arrears on the existing Preferred Stock."
Mr. Benedetti continued, "Our reported results for 2003 reflect the
continued challenges in several of the asset classes in which this Company is
invested. In particular, provisions for loan losses on manufactured housing
loans during 2003 continued to be high. As we have remaining only $11.9 million
in net credit exposure on manufactured housing loans at the end of 2003, the
provision for loan losses in 2004 related to manufactured housing loans should
decline relative to 2003. In addition, we recorded $7.2 million in impairment
charges on our delinquent property tax receivables in the fourth quarter, as a
result of continued lower forecasted overall collections, due to the changing
attributes of the property tax receivables and the underlying real estate
securing the receivables. These investments will remain on non-interest accrual
status and all cash collected will be applied against our investment. While we
collected $3.4 million on these receivables in the fourth quarter, collections
are falling short of expectations thus far in the first quarter of 2004. As a
result, we would expect cash flow from the investment portfolio in the first
quarter of 2004 to decline below $12 million."
Mr. Benedetti continued, "With short-term rates continuing to remain
low and the yield curve relatively steep, cash flows from the securitized
finance receivables portion of the investment portfolio should remain relatively
strong. As an example of the benefit of the current rate environment, during the
second quarter 2004, pursuant to optional redemption rights which the Company
owns on collateralized bonds secured by manufactured housing loans, the Company
anticipates redeeming several high coupon, investment grade classes of
collateralized bonds at par. The Company has agreed to resell these bonds in
April at a cash premium of an estimated $7.3 million. This premium, which is not
currently reflected in our financial statements or reported book value, is
directly attributable to the current low rate environment, the overall favorable
environment for spread product, and the now favorable environment for
asset-backed securities backed by manufactured housing loans."
Mr. Benedetti concluded, "We are hopeful that our preferred and common
shareholders will approve the Company's recapitalization plan in the coming
months. We believe that our preferred shareholders are being offered fair
consideration, and have the choice between the liquidity of the Senior Notes and
the chance to participate more directly in the improvement of the Company's
prospects from the new Series D Preferred Stock and common stock. We expect to
formally commence the recapitalization within the next few weeks, with a
targeted close date in late April. Once the recapitalization is complete, the
Board of Directors will focus on evaluating alternatives for the use of the
Company's cash flows, and, if possible, in extracting value from the Company's
estimated $124 million tax net operating loss carry-forward. 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. 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 plan, defaults by borrowers, defaults by third-party servicers,
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.
For additional information, see the Company's Form 10-Ks and Form 10-Qs as filed
with the Securities and Exchange Commission.
# # #
DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except per share data)
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
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2003 2002 2003 2002
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Interest income $ 39,731 $ 43,299 $ 152,215 $ 182,139
Interest and related expense (29,861) (30,928) (113,244) (132,986)
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Net interest margin before provision for loan losses 9,870 12,371 38,971 49,153
Provision for loan losses (7,367) (12,191) (37,082) (28,483)
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Net interest margin 2,503 180 1,889 20,670
Impairment charges (11,873) (8,924) (16,355) (18,477)
(Loss) gain on sale of investments, net (224) (66) 1,555 (150)
Trading losses - - - (3,307)
Other 266 (6) 436 1,397
General and administrative expenses (2,336) (2,749) (8,632) (9,493)
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Net loss (11,664) (11,565) (21,107) (9,360)
Preferred stock (charge) benefit (1,192) (2,397) 6,847 (9,586)
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Net loss to common shareholders $ (12,856) $ (13,962) $ (14,260) $ (18,946)
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Change in net unrealized loss during the period on:
Investments classified as available-for-sale (861) 1,726 115 (3,670)
Hedge instruments 945 (883) 836 (4,461)
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Comprehensive loss $ (11,580) $ (10,722) $ (20,156) $ (17,491)
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Net loss per common share
Basic and diluted $ (1.18) $ (1.28) $ (1.31) $ (1.74)
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DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except per share data)
(unaudited)
December 31,
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2003 2002
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ASSETS
Cash and cash equivalents $ 7,386 $ 15,077
Other assets 7,174 4,912
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14,560 19,989
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Investments:
Securitized finance receivables:
Loans, net 1,518,613 1,787,254
Debt securities, available for sale 255,580 328,674
Other investments 37,903 54,322
Securities 30,275 6,208
Other loans 8,304 9,288
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1,850,675 2,185,746
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$ 1,865,235 $ 2,205,735
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse securitization financing $ 1,679,830 $ 1,980,702
Repurchase agreements 23,884 -
Senior Notes 10,049 -
Other liabilities 1,626 1,612
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1,715,389 1,982,314
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SHAREHOLDERS' EQUITY:
Preferred stock 47,014 94,586
Common stock 109 109
Additional paid-in capital 360,684 364,743
Accumulated other comprehensive loss (3,882) (4,832)
Accumulated deficit (254,079) (231,185)
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149,846 223,421
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$ 1,865,235 $ 2,205,735
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Preferred dividends in arrears $ 18,464 $ 31,157
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Book value per common share
(inclusive of dividends in arrears) $ 7.55 $ 8.57
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