CHICAGO, Nov. 7 /PRNewswire-FirstCall/ -- Deerfield Triarc Capital
Corp. (NYSE:DFR) today announced the results of operations for its
third quarter ended September 30, 2007. HIGHLIGHTS -- Net loss of
$23.2 million, or $0.45 per diluted common share, primarily due to
losses recognized in the quarter -- Estimated REIT taxable income,
a non-GAAP financial measure, of $25.9 million, or $0.50 per
diluted common share -- Dividend distribution of $0.42 per share,
up 5% from the prior year quarter and unchanged from the second
quarter -- Net interest income increased 36.1% over the prior year
quarter -- Other income and gain (loss) totaled a net loss of $45.3
million -- Agency issued residential mortgage-backed securities
(RMBS) comprise 67.1% of total invested assets, up from 62.3% at
June 30, 2007 -- Book value per share of $10.64 at September 30,
2007 -- Economic book value per share, a non-GAAP financial
measure, of $11.84 at September 30, 2007 (see Economic Book Value
section that follows) -- Closed the DFR Middle Market CLO Ltd.
collateralized loan obligation (CLO) transaction in July 2007
freeing up capacity in our revolving warehouse facility -- Our
Market Square CLO was recently honored with the "Best Cash CLO"
award at the 2007 Creditflux Manager Awards -- We continue to
explore revised terms and conditions of our previously announced
agreement to purchase Deerfield & Company LLC, a leading fixed
income manager and DFR's external manager Results of Operations The
net loss for the quarter ended September 30, 2007 totaled $23.2
million, or $0.45 per diluted common share, compared with net
income of $19.6 million, or $0.38 per share, for the third quarter
of 2006. The decrease reflected net losses in the derivatives
trading portfolio, realized net losses on sale and unrealized
losses on impairment of available-for-sale (AFS) securities, and
lower valuations in the loans held-for-sale portfolio. Providing a
partial offset were higher net interest income and better results
in the trading securities portfolio. Net interest income of $26.8
million increased 36.1% over the prior year quarter. The
improvement was largely driven by enhanced returns in the RMBS
portfolio and a better mix of higher yielding alternative
investments. Expenses totaled $5.1 million, down by $1.1 million,
or 18.2%, from the prior year. The decrease was primarily due to no
incentive fees paid in the current quarter. Other income and gain
(loss) was a net loss of $45.3 million in the quarter, compared
with a net gain of $6.3 million in the prior year quarter. The loss
primarily reflected the following: -- Non-agency AAA RMBS AFS
securities totaling $485 million were sold at a net loss of $7.2
million for liquidity enhancement purposes. -- Other-than-temporary
impairment charges on AFS securities totaled $16.4 million during
the third quarter. -- Wider credit spreads drove a net loss of $7.8
million on corporate bank loans held for sale in the Market Square
CLO. -- The undesignated pay fixed interest rate swap portfolio,
used as an economic hedge of the RMBS book, generated losses
totaling $15.2 million due to falling swap rates during the
quarter. -- Lower LIBOR rates resulted in losses in sold interest
rate floors totaling $2.3 million. -- Total return swap activity
produced losses totaling $2.2 million due to wider credit spreads.
The following gains provided a favorable offset: -- Lower overall
interest rates resulted in a net gain of $5.6 million in the
trading securities portfolio. -- Agency RMBS AFS securities
totaling $391 million were sold to generate liquidity resulting in
a net gain of $1.1 million. Estimated REIT taxable income, a
non-GAAP financial measure, for the quarter ended September 30,
2007, totaled $25.9 million, or $0.50 per diluted common share. A
reconciliation of GAAP net income to estimated REIT taxable income
is attached. Jonathan Trutter, chief executive officer, said, "Like
many other financial companies, our third quarter results were
significantly impacted by the recent disruption in the credit
markets. The decision to enhance our liquidity during this period
resulted in an increase in realized losses during the quarter. Had
we not sold certain securities during the third quarter to increase
operating liquidity, it is unclear whether the ultimate disposition
of these investments would have resulted in losses for DFR. In
addition, most of our investment portfolios had lower valuations at
quarter-end, creating temporary impairment charges to our book
value. We believe that many of these charges will reverse over time
as markets recover. Despite the market turmoil, our taxable income
remained strong and we were able to maintain the dividend payout
rate at an attractive level in line with the past three quarters."
Investment Portfolio The following table summarizes the carrying
value of our invested assets and the respective balance sheet
classifications as of September 30, 2007 (in thousands): Carrying
Value Available- Trading Loans for-Sale and Other Held for
Description Securities Securities Sale Loans (5) RMBS (agency /
AAA) $6,574,296 $816,278 $- $- Assets held in DFR Middle Market CLO
- - - 298,234 Corporate leveraged loans (1) - - - 152,926
Commercial mortgage-backed assets (2) 4,300 - 5,525 24,151 Equity
securities - 6,483 - - Total structured & syndicated assets
4,300 6,483 5,525 475,311 Assets held in Market Square CLO (3)
6,830 - 263,096 - Asset-backed securities in Pinetree CDO (4)
225,041 - - High yield corporate bonds - - - - Other investments
2,907 - 2,627 - Total alternative investments 239,078 6,483 271,248
475,311 Total invested assets - September 30, 2007 $6,813,374
$822,761 $271,248 $475,311 Total invested assets - Dec 31, 2006
$7,941,091 $100,401 $282,768 $432,335 Carrying Value Total Total
Sept 30, % of Dec 31, % of Description 2007 Total 2006 Total RMBS
(agency / AAA) $7,390,574 88.2% $7,691,428 87.8% Assets held in DFR
Middle Market CLO 298,234 - Corporate leveraged loans (1) 152,926
411,976 Commercial mortgage-backed assets (2) 33,976 36,505 Equity
securities 6,483 6,382 Total structured & syndicated assets
491,619 5.8% 454,863 5.2% Assets held in Market Square CLO (3)
269,926 3.2% 278,197 3.2% Asset-backed securities in Pinetree CDO
(4) 225,041 2.7% 297,420 3.4% High yield corporate bonds - 0.0%
10,445 0.1% Other investments 5,534 0.1% 24,242 0.3% Total
alternative investments 992,120 11.8% 1,065,167 12.2% Total
invested assets - September 30, 2007 $8,382,694 100% $8,756,595
100% Total invested assets - Dec 31, 2006 $8,756,595 (1) Excludes
credit default and total return swaps at September 30, 2007 with a
net negative fair value of approximately $1.6 million and a gross
notional value of $68.5 million. (2) Includes $24.2 million of
participating interests in commercial mortgage loans. (3) Includes
$6.8 million of high yield corporate bonds. (4) Includes non
agency-backed RMBS, CMBS and other ABS. (5) $8.9 million of
allowance for loan losses has not been deducted from loan amounts.
Total invested assets were down 4.3% to $8.4 billion as of
September 30, 2007 compared to the end of 2006. The decrease
reflected the sale of certain investments to generate liquidity as
credit markets tightened and repurchase agreement margin
requirements increased above historically observed levels. Mortgage
Securities Investment Portfolio During the third quarter of 2007,
the RMBS portfolio decreased by 4.7% to $7.4 billion from $7.8
billion as of June 30, 2007. At September 30, 2007, the aggregate
amortized cost of RMBS exceeded its aggregate estimated fair value
by $60.0 million. Unrecognized net losses on interest rate swaps
designated as a hedge at quarter-end totaled $25.6 million. The net
portfolio duration, which is the difference between the duration of
the RMBS and that of the repurchase agreements funding these
investments, adjusted for the effects of the company's swap
portfolio, was approximately 0.19 years at September 30, 2007,
compared to 0.40 years at the end of last quarter. Net return on
average investment in the RMBS portfolio increased to 83 basis
points compared to 69 basis points in the second quarter 2007. The
higher return reflects the results of portfolio repositioning
actions taken over the past several quarters. The mortgage-backed
securities holdings consisted primarily of hybrid adjustable rate
and fixed rate bonds as of September 30, 2007, as follows: Par and
Notional Estimated Security Description (1) Amount Fair Value (In
thousands) Hybrid Adjustable Rate RMBS: Rate reset in 1 year or
less $348,164 $354,794 Rate reset in 1 to 3 years 3,004,687
2,996,446 Rate reset in 3 to 5 years 1,828,605 1,845,356 Rate reset
in 5 to 7 years 200,160 204,041 Rate reset in 7 to 10 years 396,055
392,569 Fixed Rate RMBS 15 year 52,818 51,556 30 year 1,573,621
1,544,620 Other: Interest-only (I/O) strips (5) 96,058 190 I/O
strips - trading (5) 1,071,094 1,002 Total RMBS - Sept 30, 2007 (6)
$8,571,262 $7,390,574 RMBS - June 30, 2007 (7) $9,117,824
$7,753,255 Weighted Average Security Months Yield Constant Modified
Description to to Contractual Prepayment Duration (1) Coupon Reset
(2) Maturity Maturity Rate (3) (4) Hybrid Adjustable Rate RMBS:
Rate reset in 1 year or less 4.47% 3 5.08% 04/07/35 31.2 0.6 Rate
reset in 1 to 3 years 4.92% 30 5.57% 05/03/35 21.7 1.9 Rate reset
in 3 to 5 years 5.74% 46 5.62% 08/07/36 20.5 1.9 Rate reset in 5 to
7 years 6.08% 67 5.64% 08/14/36 16.9 2.2 Rate reset in 7 to 10
years 5.25% 95 5.60% 08/04/35 10.9 3.6 Fixed Rate RMBS 15 year
5.50% n/a 6.21% 09/13/20 11.3 3.1 30 year 5.80% n/a 6.07% 01/29/36
12.1 4.3 Other: Interest-only (I/O) strips (5) n/m n/a n/m 05/13/35
10.1 79.0 I/O strips - trading (5) n/m n/a n/m 06/13/35 9.4 57.2
Total RMBS - Sept 30, 2007 (6) n/m - not meaningful RMBS - June 30,
2007 (7) n/a - not applicable (1) Includes securities classified as
both available-for-sale and trading. (2) Represents number of
months before conversion to floating rate. (3) Constant prepayment
rate refers to the expected average annualized percentage rate of
principal prepayments over the remaining life of the security. The
values represented in this table are estimates only and the results
of a third party financial model. (4) Modified duration represents
the approximate percentage change in market value per 100 basis
point change in interest rates. (5) Interest-only strips represent
solely the interest portion of a security. Therefore the notional
amount reflected should not be used as a comparison to fair value.
(6) Total RMBS consisted of agency issued and AAA-rated RMBS of
$5.6 billion and $1.8 billion, respectively, as of September 30,
2007. (7) Total RMBS consisted of agency issued and AAA-rated RMBS
of $5.5 billion and $2.3 billion, respectively, as of June 30,
2007. Fixed rate securities totaled 21.6% of the RMBS portfolio as
of September 30, 2007. The company has hedged a substantial portion
of the borrowing costs associated with the repurchase agreements
funding the RMBS portfolio using interest rate swaps, which are
accounted for as cash flow hedges under GAAP. Because the RMBS
portfolio consists entirely of agency issued ($5.6 billion) or AAA
rated securities ($1.8 billion), valuations in this portfolio have
been much less impacted by the weakness in the subprime residential
market. A limited amount of exposure to subprime residential
mortgages exists in the alternative investment portfolio as
discussed in the following section. Alternative Investments
Portfolio Complementing the mortgage securities segment of the
portfolio are alternative investments that represent attractive
yield and diversification opportunities. During the third quarter
of 2007, the structured and syndicated assets portion of this
portfolio, primarily the corporate leveraged loan book, decreased
by 4.4% to $491.6 million from $514.4 million at June 30, 2007. The
third quarter net return on average net investment in the DFR
Middle Market CLO and in other alternative assets was 25.47% and
21.77%, respectively, compared to a combined return of 22.03% in
the second quarter of 2007. No provision for loan loss was
necessary during the third quarter. The alternative investments
portfolio also includes asset backed securities (ABS) in the
Pinetree ABS CDO (Pinetree) totaling $296.9 million (par amount) at
September 30, 2007, of which $180.3 million are collateralized by
subprime residential mortgages. Economic exposure to Pinetree, and
therefore to subprime mortgage collateral, however, is limited to
the company's original $12 million equity investment less a $3.9
million charge for other-than-temporary impairment taken on this
portfolio in the current quarter. (See discussion regarding
Economic Book Value below for a more detailed explanation of the
accounting impact in the third quarter of 2007 related to our
investment in Pinetree). Commenting on the alternative investments
portfolio, Mr. Trutter noted, "We decided to limit investments in
alternative assets and instead sought to sell certain securities in
order to increase our liquidity position to ensure that DFR had an
excess level of liquidity during the quarter than would normally be
required for the company's investment activities. We believe that
the correction in the credit markets during this last quarter has
enhanced the availability of investment opportunities with
attractive risk-adjusted returns. The planned redeployment of cash
into our various alternative strategies at higher spread levels
should improve the earnings potential of the portfolio over time."
Liquidity The most significant use of leverage in DFR is the
repurchase agreement (repo) financing of our agency and AAA rated
RMBS portfolio. DFR manages short-term liquidity requirements by
maintaining a portfolio of unencumbered RMBS and overnight
investments. Unencumbered RMBS are available to meet margin calls
on existing repo agreements and to pledge against new repo
borrowings. The repo borrowings are primarily 30 to 90-day
contracts that generally rollover and reprice at maturity.
Unencumbered RMBS and unrestricted cash and cash equivalents as of
September 30, 2007 totaled $175.1 million compared to $224.6
million as of the end of the second quarter. Longer term funding is
in the form of trust preferred securities and CDO borrowings.
Borrowings under our warehouse funding agreement totaled $76.9
million as of September 30, 2007. Commenting on liquidity, Mr.
Trutter noted, "Although the environment for repurchase agreement
funding of our high quality mortgage collateral has improved
substantially since early August, we continue to be focused on
liquidity and believe our current position is sufficient to sustain
the operation of our core mortgage financing activities. Our
alternative strategies continue to rely primarily on term funding
structures which greatly reduces our exposure to short term credit
disruptions." Dividend As previously announced, a quarterly
distribution of $0.42 per share of common stock was declared for
the third quarter of 2007, to shareholders of record as of November
6, 2007, payable on November 27, 2007. The following table
summarizes our dividends declared to-date in 2007 and 2006.
Declaration Record Payment Dividend Date Date Date Per Share
04/23/07 05/07/07 05/30/07 $0.42 07/24/07 08/07/07 08/28/07 0.42
10/23/07 11/06/07 11/27/07 0.42 Total - 2007 $1.26 04/24/06
05/04/06 05/26/06 $0.36 07/25/06 08/04/06 08/28/06 0.38 10/24/06
11/07/06 11/27/06 0.40 12/19/06 12/29/06 01/30/07 0.42 Total - 2006
$1.56 Book Value Book value per share at September 30, 2007, was
$10.64 compared to $13.07 at June 30, 2007. The decrease was
primarily attributable to temporary impairment charges totaling
$69.9 million on Pinetree CDO investment securities, or $1.35 per
share, lower retained earnings due to dividends paid in excess of
book net income, and lower net value (securities and interest rate
swaps) of the RMBS AFS portfolio and associated interest rate swaps
due to wider mortgage spreads and lower swap rates. Economic Book
Value At September 30, 2007, the aggregate amortized cost of
Pinetree securities exceeded its aggregate estimated fair value by
$69.9 million or $1.35 per share. As indicated earlier,
approximately $180 million par amount of Pinetree securities are
collateralized by subprime mortgages, however all but 5.9% of the
entire $297 million (par) portfolio are investment grade at quarter
end. Although the full amount of $1.35 per share of temporary
impairment is required by generally accepted accounting principles
as a charge to equity, the company's economic risk is limited to
its $8.1 million net equity investment in Pinetree, or $0.16 per
share. Economic book value per share at September 30, 2007 of
$11.84 includes a net Pinetree portfolio add-back of $1.20 per
share. To date, the company has received approximately $5.4 million
in distributions from the Pinetree CDO on the original investment
of $12 million. Please refer to supplementary schedules provided in
this release for further detail regarding the Pinetree portfolio.
Purchase of Deerfield & Company LLC On April 20, 2007, DFR
announced that it had entered into a definitive agreement to
acquire Deerfield & Company LLC ("Deerfield") from Triarc
Companies, Inc. (NYSE: TRY, TRY.B or "Triarc"), which owns a
controlling interest in Deerfield, and its other members for an
aggregate consideration of approximately $290 million, consisting
of approximately 9,635,000 million shares of DFR common stock
having a value at the date of the Agreement of approximately $145
million and $145 million in cash. On August 16, 2007, DFR announced
that it had not yet been able to complete on acceptable terms the
financing necessary for DFR to consummate the acquisition by DFR of
Deerfield, due the instability in the credit markets. On October
22, 2007, DFR announced that it is continuing to explore with
Triarc revised terms and conditions of its previously announced
acquisition. There can be no assurance that DFR and Triarc will
reach agreement on revised terms and conditions for the acquisition
of Deerfield. Even if reached, such terms and conditions would
likely differ materially from those set forth in the terminated
agreement. Conference Call The company will host its quarterly
earnings conference call for investors and other interested parties
on Thursday, November 8, 2007, at 11:00 a.m. Eastern Time. The
conference call will be accessible by telephone and through the
Internet. Interested individuals are invited to access the call by
dialing 800-289-0456. To participate on the webcast, log on to the
company's website at http://www.deerfieldtriarc.com/ 15 minutes
before the call to download the necessary software. In addition, a
taped rebroadcast will be available beginning one hour following
the completion of the call, and will continue through November 15.
To access the rebroadcast, dial 888-203-1112 and request
reservation number 6247835. A replay of the call will also be
available on the Internet at http://www.deerfieldtriarc.com/ for 30
days. About the Company Deerfield Triarc Capital Corp. (the
company) is a diversified financial company formed in 2004 to
invest in real estate-related securities and various other asset
classes. The company has elected and intends to continue to qualify
to be taxed as a real estate investment trust, or REIT, for federal
income tax purposes. The objective is to provide attractive returns
to investors through a combination of dividends and capital
appreciation, which the company intends to achieve by
opportunistically investing in financial assets and to construct an
investment portfolio appropriately leveraged to seek attractive
risk-adjusted returns. The targeted asset classes and the principal
investments the company expects to make in each are as follows:
Asset Class Principal Investments Real Estate-Related Securities
Residential mortgage-backed securities, or RMBS Commercial
mortgage-backed securities, or CMBS Other Asset-backed Securities,
Collateralized debt obligations, or ABS or CDOs Consumer ABS Loans
and Related Derivatives Senior Secured and Unsecured Loans Credit
Default Swaps on Senior Secured Loans Leveraged Finance Instruments
Corporate Mezzanine Loans High Yield Corporate Bonds Distressed and
Stressed Debt Securities Private Equity Investments In addition,
the company may invest opportunistically in other types of
investments within the core competencies of its manager, Deerfield
Capital Management, including investment grade corporate bonds and
related derivatives, government bonds and related derivatives, and
other fixed income related instruments. * * Notes and Tables to
Follow * * NOTES TO PRESS RELEASE The statements in this press
release that are not historical facts, including, most importantly,
information concerning possible or assumed future results of
operations of Deerfield Triarc Capital Corp. ("Deerfield Triarc" or
the "company") and statements preceded by, followed by, or that
include the words "may," "believes," "plans," "expects,"
"anticipates," "estimates," "intends," "projects," "will" or the
negation thereof, or similar expressions, constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). All
statements that address operating performance, events or
developments that are expected or anticipated to occur in the
future, including statements related to revenue growth, earnings
per share growth or statements expressing general optimism about
future operating results, are forward-looking statements within the
meaning of the Reform Act. These forward-looking statements are
based on our current expectations, speak only as of the date of
this press release and are susceptible to a number of risks,
uncertainties and other factors. Our actual results, performance
and achievements may differ materially from any future results,
performance or achievements expressed or implied by such forward-
looking statements. For those statements, we claim the protection
of the safe harbor for forward-looking statements contained in the
Reform Act. Many important factors could affect our future results
and could cause those results to differ materially from those
expressed in the forward-looking statements contained herein. Such
factors include higher than expected prepayment rates on the
mortgages underlying our mortgage securities holdings; our
inability to obtain favorable interest rates or margin terms on the
financing that we need to leverage our mortgage securities and
other positions; increased rates of default on our loan portfolio
(which risk rises as the portfolio seasons), and decreased recovery
rates on defaulted loans; flattening or inversion of the yield
curve (short term rates increasing at greater rate than longer term
rates), reducing our net interest income on our financed mortgage
securities positions; our inability adequately to hedge our
holdings sensitive to changes in interest rates; narrowing of
credit spreads, thus decreasing our net interest income on future
credit investments (such as bank loans); changes in REIT
qualification requirements, making it difficult for us to conduct
our investment strategy; lack of availability of qualifying real
estate-related investments; disruption in the services we receive
from our Manager, such as loss of key portfolio management
personnel; our inability to continue to issue collateralized debt
obligation vehicles (which can provide us with attractive financing
for our debt securities investments) on favorable terms or at all;
adverse changes in accounting principles, tax law, or
legal/regulatory requirements; competition with other REITs for
investments with limited supply; changes in the general economy or
the debt markets in which we invest; the recent dislocations in the
sub-prime mortgage sector and weakness in the broader mortgage
market, and their potential effect on our ability to obtain
financing, our financing costs, the marketability and value of our
portfolio securities, our book value, our compliance with REIT
qualification requirements, and other aspects of our business; the
various risks relating to a potential acquisition of Deerfield
& Company LLC, the parent of our Manager, including the
dilution of our common stock, the indebtedness we will incur to
complete the transaction, the ongoing risks of Deerfield's business
(such as the decline in advisory fee revenue due to weak investment
performance or withdrawal of client assets under management) and
Deerfield's revenue being subject to income tax; and other risks
and uncertainties disclosed from time to time in our filings with
the Securities and Exchange Commission, all of which are difficult
or impossible to predict accurately and many of which are beyond
our control. All future written and oral forward-looking statements
attributable to us or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained
or referenced above. New risks and uncertainties arise from time to
time, and it is impossible for us to predict these events or how
they may affect us. We assume no obligation to update any
forward-looking statements after the date of this press release as
a result of new information, future events or developments, except
as required by federal securities laws. In addition, it is our
policy generally not to make any specific projections as to future
earnings, and we do not endorse any projections regarding future
performance that may be made by third parties. DEERFIELD TRIARC
CAPITAL CORP. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED) (In thousands, except share and per share
amounts) September 30, December 31, 2007 2006 ASSETS Cash and cash
equivalents $125,850 $72,523 Due from broker, including $93,546 and
$176,650 of securities pledged--at fair value 102,112 257,818
Restricted cash and cash equivalents 45,045 27,243
Available-for-sale securities, including $6,530,412 and $7,336,770
pledged--at fair value 6,813,374 7,941,091 Trading securities,
including $541,859 and $89,108 pledged--fair value 816,278 94,019
Other investments 6,483 6,382 Derivative assets 16,689 55,624 Loans
held for sale 271,248 282,768 Loans 475,311 432,335 Allowance for
loan losses (8,933) (2,000) Loans, net of allowance for loan losses
466,378 430,335 Interest receivable 46,304 51,627 Other receivable
17,772 18,362 Prepaid and other assets 17,897 12,199 TOTAL ASSETS
$8,745,430 $9,249,991 LIABILITIES Repurchase agreements, including
$36,189 and $46,858 of accrued interest $6,811,182 $7,372,035 Due
to broker 275,074 158,997 Dividends payable - 21,723 Derivative
liabilities 74,333 21,456 Interest payable 35,733 33,646 Long term
debt 995,118 948,492 Management and incentive fee payable to
related party 1,048 1,092 Other payables 2,252 3,597 TOTAL
LIABILITIES 8,194,740 8,561,038 STOCKHOLDERS' EQUITY Preferred
stock, par value $0.001: 100,000,000 shares authorized; none issued
and outstanding - - Common stock, par value $0.001: 500,000,000
shares authorized; 51,752,720 and 51,721,903 shares issued and
outstanding (including 134,616 restricted shares) 51 51 Additional
paid-in capital 749,020 748,803 Accumulated other comprehensive
loss (155,966) (47,159) Accumulated deficit (42,415) (12,742) TOTAL
STOCKHOLDERS' EQUITY 550,690 688,953 TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $8,745,430 $9,249,991 DEERFIELD TRIARC CAPITAL
CORP. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED) (In thousands, except share and per share
amounts) Three months ended Nine months ended Sept 30, Sept 30,
2007 2006 2007 2006 REVENUES Net interest income: Interest income
$125,765 $117,548 $378,176 $337,012 Interest expense 98,948 97,839
300,346 273,241 Net interest income 26,817 19,709 77,830 63,771
Provision for loan losses - - 6,933 - Net interest income after
provision for loan losses 26,817 19,709 70,897 63,771 EXPENSES
Management fee expense to related party (1) 2,710 3,715 9,470
11,020 Incentive fee expense to related party - 1,316 2,185 3,319
Professional services 1,418 588 2,835 1,514 Insurance expense 207
186 548 551 Other general and administrative expenses 721 378 1,881
1,326 Total expenses 5,056 6,183 16,919 17,730 OTHER INCOME AND
GAIN (LOSS) Net gain (loss) on available-for-sale securities
(23,176) 1,780 (20,870) 5,087 Net gain on trading securities 5,645
3,042 2,597 1,283 Net gain (loss) on loans (7,451) 495 (6,981) 855
Net gain (loss) on derivatives (20,216) 392 (14,843) 3,224 Dividend
income and other net gain (loss) (118) 610 (215) 804 Net other
income and gain (loss) (45,316) 6,319 (40,312) 11,253 Income (loss)
before income tax expense (23,555) 19,845 13,666 57,294 Income tax
expense (benefit) (320) 282 (120) 404 NET INCOME (LOSS) $(23,235)
$19,563 $13,786 $56,890 NET INCOME (LOSS) PER SHARE--Basic $(0.45)
$0.38 $0.27 $1.11 NET INCOME (LOSS) PER SHARE--Diluted $(0.45)
$0.38 $0.27 $1.10 WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING -
Basic 51,618,105 51,430,136 51,600,888 51,406,276 WEIGHTED-AVERAGE
NUMBER OF SHARES OUTSTANDING - Diluted 51,618,105 51,615,604
51,705,572 51,560,210 (1) Includes $(457) and $377 of stock and
option expense to related party for the three months ended and
$(278) and $1,038 for the nine months ended 2007 and 2006,
respectively. DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES
EFFECTIVE RATE AND NET RETURN ANALYSIS (1) (Dollars in thousands)
Three months ended June 30, Inc / September 30, 2007 2007 (Dec)
Average Interest Effective Effective Effective Balance(2) Income
Rate(3) Rate(3) Rate(3) RMBS (4) $7,735,074 $97,535 5.04% 4.93%
0.11% Assets held in CLO (Market Square) 295,552 6,036 8.17% 7.46%
0.70% Assets held in CLO (Middle Market) 225,670 7,797 13.82% n/a
n/a ABS held in CDO (Pinetree) 303,027 5,458 7.20% 7.07% 0.13%
Other alternative assets 278,245 8,939 12.85% 13.55% (0.70)% Total
investments $8,837,568 $125,765 5.69% 5.59% 0.10% Average Interest
Effective Effective Effective Balance(2) Expense Rate(3) Rate(3)
Rate(3) Repurchase agreements (5)(6) $7,086,206 $81,391 4.59% 4.54%
0.05% Market Square long-term debt 276,000 4,217 6.11% 6.04% 0.07%
Middle Market long-term debt 173,250 3,404 7.86% n/a n/a Pinetree
long-term debt (5) 287,491 4,753 6.61% 5.83% 0.79% Revolving
warehouse facility 158,902 2,443 6.15% 6.80% (0.65)% Trust
preferred securities (TPS) 123,717 2,740 8.86% 8.83% 0.03% Total
borrowings $8,105,566 $98,948 4.88% 4.78% 0.10% Net Interest Net
Net Net Net return on average Income(7) Return(8) Return(8)
Return(8) investment RMBS (5) $16,144 0.83% 0.69% 0.14% Assets held
in CLO (Market Square) 1,819 2.46% 1.95% 0.51% Assets held in CLO
(Middle Market) 4,393 7.79% n/a n/a ABS held in CDO (Pinetree) (5)
705 0.93% 1.55% (0.62)% Other alternative assets 6,496 9.34% 9.77%
(0.43)% Total net return before TPS 29,557 1.34% 1.29% 0.05% Trust
preferred securities (2,740) -0.12% -0.12% 0.00% Total net return
$26,817 1.22% 1.17% 0.05% Average Net Net Net Net Net return on
average Investment Return(9) Return(9) Return(9) net investment
RMBS (5) $648,868 9.95% 10.50% (0.55)% Assets held in CLO (Market
Square) 24,000 30.32% 24.60% 5.72% Assets held in CLO (Middle
Market) 69,000 25.47% n/a n/a ABS held in CDO (Pinetree) (5) 12,000
23.50% 39.33% (15.83)% Other alternative assets 119,343 21.77%
22.03% (0.26)% Total net return (including TPS) $873,211 12.28%
13.41% (1.13)% n/a - not applicable (1) This supplemental
information is subject to various significant limitations,
including that it is being provided solely for general
informational purposes; it is based on unaudited financial
information; it is subject to revision; the past results presented
are not necessarily indicative of future results; the company makes
no representation about the appropriateness of the information in
making investment decisions; the portfolio instruments that
constitute each asset category reflect subjective judgments by the
company and are subject to change; the information is qualified in
its entirety by the following documents available on our website --
the company's subsequent quarterly reports on Form 10-Q filed with
the SEC, and the "Notes to Press Release" included with this
announcement. (2) Average balance is calculated based on the
month-end balances with the exception of some of the Other
alternative assets, which are based on daily balances.
Available-for-sale securities are included in this analysis using
historical cost while all other balances are at carrying value.
Average balances exclude any unsettled purchases and sales. (3)
Effective rate is calculated by dividing Interest income or
Interest expense by the respective Average balance. The effective
rate is annualized. (4) RMBS includes interest earning cash and
short-term investments not held in a CLO or CDO. (5) This
calculation includes the impact of designated hedging activity
(including increases/(decreases)) in interest expense due to
ineffectiveness of $1,112 for RMBS and ($259) for Pinetree for the
three months ending September 30, 2007, ($259) for RMBS and ($3)
for Pinetree for the three months ended June 30, 2007 and margin
borrowing. (6) Repurchase agreements include an immaterial amount
related to Other alternative assets, however, these amounts are
included in the RMBS Net return calculations. (7) Net interest
income excludes all Other income and gain (loss), Provision for
loan losses and Expenses reported in the company's Consolidated
Statements of Operations. (8) Net return on average investment is
calculated by dividing Net interest income by the investment
Average balance and the return is annualized. (9) Net return on
average net investment is calculated by dividing the Net interest
income by the respective average net investment. Average net
investment is calculated for RMBS and Other alternative assets by
taking their investment Average balance less the respective
borrowings Average balance. Net investment for the Assets held in
CLO (Market Square), Assets held in CLO (Middle Market) and ABS
held in CDO is their initial equity of $24,000, $69,000 and
$12,000, respectively. The Return on average net investment is
annualized. DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES
PINETREE CDO Ltd. ASSETS, RATINGS AND IMPACT ON BOOK VALUE (In
thousands, except per share amounts) Estimated FV Par Amortized
Fair less FV less Asset Class Amount Cost (AC) Value (FV) AC Shares
AC - per (In thousands) Outstanding Share Residential B/C mortgage
$180,348 $179,234 $126,046 $(53,188) CMBS conduit 33,909 33,582
30,014 (3,568) Residential A mortgage 33,282 32,931 28,813 (4,118)
Home equity loan 29,882 29,684 25,594 (4,090) CMBS large loan 4,000
4,000 3,847 (153) ABS collateralized bond obligation 8,157 8,094
3,609 (4,485) Credit card 3,000 3,091 3,030 (61) Automobile loan
2,000 2,000 1,994 (6) Student loan 1,357 1,357 1,372 15 Small
business loan 969 969 722 (247) Total - September 30, 2007 $296,904
$294,942 $225,041 $(69,901) 51,752,720 $(1.35) Total - June 30,
2007 $301,491 $299,462 $278,779 $(20,683) 51,752,720 $(0.40) Total
- March 31, 2007 $300,060 $298,267 $282,445 $(15,822) 51,722,066
$(0.31) Total - December 31, 2006 $299,993 $298,116 $297,420 $(696)
51,721,903 $(0.01) As of As of Sept 30, Dec 31, Moody's 2007 2006
Rating % of Total Aaa 3.7% 3.6% Aa1 0.7% 0.4% Aa2 1.9% 0.7% Aa3
1.6% 1.7% A1 0.5% 1.1% A2 3.1% 4.1% A3 5.8% 4.7% Baa1 16.0% 14.7%
Baa2 30.9% 33.2% Baa3 29.9% 35.8% Ba1 1.9% 0.0% Ba2 2.0% 0.0% Ba3
0.7% 0.0% B1 0.8% 0.0% B2 0.5% 0.0% 100.0% 100.0% DFR Economic Book
Value per Share - September 30, 2007 (In thousands, except share
and per share amounts) Total stockholders' equity $550,690
Temporary impairment - Pinetree AFS securities 69,901 Original
equity investment in Pinetree (12,000) Add back:
other-than-temporary impairment charges on Pinetree securities
3,919 Economic book value $612,510 Outstanding shares 51,752,720
Economic book value per share $11.84 DEERFIELD TRIARC CAPITAL CORP.
AND ITS SUBSIDIARIES ESTIMATED REIT TAXABLE INCOME (UNAUDITED) (In
thousands, except share and per share amounts) 9 Months 3 Months
Ended Ended Mar 31, Jun 30, Sept 30, Sept 30, 2007 2007 2007 2007
2006 GAAP net income $22,527 $14,494 $(23,235) $13,786 $71,575
Adjustments to GAAP net income: Difference in rate of amortization
and accretion 915 578 498 1,991 3,915 Interest income on
non-accrual loans 290 296 295 881 695 Amortization of terminated
swaps 67 71 83 221 982 Amortization of financing element in
Pinetree swap (43) (39) (34) (116) (214) Unrealized (gain) loss -
hedging (22) (262) 369 85 170 Provision for loan losses 1,800 - -
1,800 2,000 Stock and options grant 31 147 (457) (279) 136 Accrued
audit fees adjustment - - - - (75) Organization costs (2) (2) (2)
(6) (9) Non-allowable deduction for meals & entertainment 21 51
30 102 136 Offshore TRS book / tax differences - - - - 602
Dividends treated as return of capital - - - - (497) Tax capital
losses in excess of capital gains - - 17,444 17,444 - Security
basis difference recognized upon sale 160 (85) (6,886) (6,811)
(709) Realized gain previously deferred for tax as return of
capital - - - - 1,384 Unrealized impairment of available-for sale
securities 202 - 16,365 16,567 7,004 Other unrealized (gain) loss
(2,516) 5,064 19,583 22,131 (934) Gain on intercompany sale
eliminated for GAAP (12) (12) 1,317 1,293 204 Exclusion of
Deerfield Triarc TRS Holdings, LLC net income (532) 217 505 190 (9)
Net adjustments to GAAP net income 359 6,024 49,110 55,493 14,781
Estimated REIT taxable income $22,886 $20,518 $25,875 $69,279
$86,356 Taxable income reported at June 30, 2007 23,032 21,330
86,345 Taxable income true-up - increase (dec) $(146) $(812) $11
Weighted average diluted shares 51,763,464 51,759,376 51,618,105
51,705,572 51,580,780 Taxable earnings per diluted share (1) $0.44
$0.40 $0.50 $1.34 $1.67 (1) Quarters may not sum to period-to-date
due the calculation of earnings per share for each period on a
stand-alone basis. The company believes that the presentation of
estimated REIT taxable income is useful because it indicates the
estimated minimum amount of distributions it must make in order to
avoid corporate level income tax. However, beyond its intent to
distribute to stockholders at least 90% of REIT taxable income on
an annual basis in order to maintain our REIT qualification, the
company does not expect that the amount of distributions it makes
will necessarily correlate to estimated REIT taxable income.
Rather, the company expects to determine the amount of
distributions to make based on cash flow, GAAP net income and what
it believes to be an appropriate and competitive dividend yield
relative to other specialty finance companies and mortgage REITs.
Estimated REIT taxable income will not necessarily bear any close
relation to cash flow. Accordingly, the company does not consider
estimated REIT taxable income to be a reliable measure of liquidity
although the related distribution requirement can impact liquidity
and capital resources. Moreover, there are limitations associated
with estimated REIT taxable income as a measure of financial
performance over any period, and the presentation of estimated REIT
taxable income may not be comparable to similarly titled measures
of other companies, which may use different calculations. As a
result, estimated REIT taxable income should not be considered as a
substitute for GAAP net income as a measure of financial
performance. DATASOURCE: Deerfield Triarc Capital Corp. CONTACT:
Richard G. Smith, Chief Financial Officer of Deerfield Triarc
Capital Corp., +1-773-380-6587, or Analyst Inquiries, Leslie Loyet
of Financial Relations Board, +1-312-640-6672 Web site:
http://www.deerfieldtriarc.com/
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