Dynex Capital Inc (DX) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Dynex Capital Inc. second quarter 2006 results conference call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded Monday, August 14th, 2006.

I would now like to turn the conference over to Tom Akin, Chairman of Dynex Capital. Please go ahead, sir.

Thank you, Kelly, and welcome, everyone, to our quarterly conference call.

Joining me today from Dynex will be Steve Benedetti, our Executive Vice President and Chief Operating Officer; and Alison Griffin, our EVP of Investor Relations.

I would like to start the call off by reviewing briefly our second quarter results and then discuss our strategic alternatives -- our initiatives. We will then open the call up for questions, but before we get started, however, I would like to ask Alison to review the customary Safe Harbor and Forward-looking Statement disclosures.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform 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. For additional information on these factors, we refer you to our press release issued last week and our quarterly report on form 10-Q for the period ended June 30th, 2006, as filed with the Securities and Exchange Commission.

Great, Allison, thank you much.

So let me go over briefly our results. First of all, net income was 1.6 million, and 612,000 after payment of the preferred stock dividend, or $0.05 per common share. Our net interest income was 2.5 million for the quarter, bolstered by a slight improvement in asset yield and a decline in our cost of funds. At the end of the quarter, on a snapshot basis, our cash net interest margin was an estimated 13 basis points.

We had no provisions for loan losses during the quarter. However, we did liquidate one commercial mortgage real estate owned during the quarter, and one -- and our seriously delinquent loans were 33.6 million as of June 30th. That includes a $23.2 million loan in one commercial mortgage.

This $23.2 million loan, as of the end of the quarter, is now real estate owned, and is expected to be liquidated by the first quarter of '07. The loan has a carrying basis of approximately 22.7 million, and we have reserves of approximately 7.5 million versus this loan, representing an estimated loss severity of approximately 33%. We think we are properly reserved on this loan and are currently in the process of marketing that building.

G&A expenses were generally in line with our expectations and should continue, absent any unforeseen circumstances, for the remainder of the year at levels at or below this quarter.

In terms of our balance sheet, it didn't change much during the quarter, and we have additional disclosure in the 10-Q relative to the asset mix, capital allowance, and credit weightings of our investments.

Our predominant risk remains our subordinated risk exposure on our three commercial mortgage backed security transactions. And we are well along in the process of diversifying that risk. At June 30th, 529 million of our investments were commercial mortgage assets, and after consideration of securitization financing, 41.6 million of our capital was invested in these assets.

Our book value per common share at the end of the quarter was up slightly to $7.76 per share, and excludes any benefit of the net operating loss carry-forward of the Company.

So I would like to take a couple of minutes and go over our strategic overview.

First of all, we are still actively engaged in the investment and evaluation process, and this includes investments both within and external to mortgage-related assets. We also continued to seek joint ventures for full investment strategy, and are also well along in that process. We think this is an efficient way to deploy our capital.

The [inaudible] by the Federal Reserve most recently announced may provide opportunities to invest further out on the curve. However, we will continue to remain disciplined, and will not add inappropriate risk to the balance sheet or material recourse leverage back into our capital structure of the Company unless we are well rewarded.

We will continue to repurchase common, although limitations imposed by the buy-backs due to our relatively low volume, as respect to the effectiveness. We believe the combination of substantial free capital, a net operating loss carry-forward, and the experience of this management team and the Board is valuable for our shareholders.

Across the REIT universe over the last 12 months, our stock has been one of the better performers in this space, as we believe our strategy of protecting our capital and your capital and book value has been the right one.

Operator, with that, I would like to open up the call for questions.

Thank you. [OPERATOR INSTRUCTIONS] There are no questions at this time.

Okay, great, Kelly. Thank you very much.

I want to thank all our shareholders. Obviously, this is a quarter where we have pretty much kept the ball right down the middle of the road. We haven't done anything outstandingly different from quarter to quarter. I will assure everyone that we are well along in the process of discussions in several opportunities and we look forward to the next -- between now and the end of the year to being more clear on what we are involved in.

I want to thank all our investors for being online, and I look forward to our next quarterly call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask you that you please disconnect your lines.