OPX Opteum Inc.

Opteum Inc. ("Opteum") (NYSE:OPX), a real estate investment trust (REIT) that operates an integrated mortgage-related securities investment portfolio and mortgage origination platform, today announced financial results for the quarter ended March 31, 2006. This release should be read in conjunction with the Company's Form 10-Q, which was filed this afternoon with the Securities and Exchange Commission. For the quarter ended March 31, 2006, Opteum had REIT net income of $0.9 million, or $0.04 per weighted average Class A Common Share outstanding. The REIT had estimated taxable earnings of $1.3 million, or $0.06 per weighted average Class A Common Share outstanding. The taxable income results includes payments made by the Company's taxable REIT subsidiary, Opteum Financial Services (OFS), to the REIT of approximately $1.8 million of interest on the $65 million loan that the REIT has made to OFS. That interest is not counted as revenue under generally accepted accounting principles (GAAP) since it is eliminated in consolidation of the subsidiary. Yet, that cash can and will be distributed to shareholders. Opteum Inc., which includes the results of OFS, recorded a net loss, on a GAAP basis, of approximately $5.1 million, or ($0.21) per weighted average Class A Common Share as of March 31, 2006. Included in those consolidated results are first quarter operating results from OFS, which posted a GAAP net loss of $6.0 million after tax, or approximately ($0.26) per weighted average Class A Common Share outstanding for the first quarter of 2006. This loss was due to two specific accounting charges. First, the Company chose early adoption of SFAS 156, which pertains to the valuation of Originated Mortgage Servicing Rights (OMSR). The Company has elected to use the fair value method for valuing all OMSRs. As a result of this adoption, changes in the fair value of the OMSRs over a given period will be reflected in earnings. More importantly, this change will allow the Company to hedge the OMSRs using the alternate accounting treatment to SFAS 133. Although the initial adoption of SFAS 156, as of January 1, 2006, resulted in an increase in the value of the OMSRs by $4.3 million (pre-tax), which was booked to retained earnings, the March 31, 2006 valuation resulted in a charge in OFS's earnings of $2.5 million (pre tax), or approximately ($0.11) per weighted average Class A Common Share outstanding. The GAAP net loss at OFS is also a result of the change in the value of retained interests in securitizations that OFS has issued from its two private-label shelves. The change in the value of these residuals flows through the statement of operations of OFS. The increase in one-month LIBOR of 44 basis points during the first quarter of 2006 was the primary reason for the valuation decline and resulting charge of $4.2 million (pre-tax) in the first quarter of 2006. This decline represents non-cash charges to earnings and is reflective of market conditions at the time. The valuation is subject to fluctuation over time due to the differences between actual and projected prepayments, losses on the underlying loans and the changing value of LIBOR. Accordingly, management has made slight changes to the assumptions underlying the valuation as part of the implementation of the Company's hedging strategy in order to align the assumptions used in its hedge strategy with the valuation methodology. The change in value of the OMSRs and the change in value of the residual interests represent approximately $6.7 million (pre-tax) of the $20.2 million decline in book value for Opteum Inc. from December 31, 2005 to March 31, 2006. The book value of Opteum Inc. as of March 31, 2006, was approximately $223.2 million or $9.67 per Class A Common Share outstanding on that date. Opteum announced an $0.11 dividend on March 9, 2006, that was paid on April 7, 2006. That dividend was paid out of a combination of Opteum's REIT taxable income (as determined by Federal tax regulations) earned in the first quarter of 2006 and approximately $1.5 million of REIT taxable income in excess of what it paid out in the form of dividends in 2005. The dividends were not a return of capital. The Company has not made any significant changes to its portfolio strategy since the summer of 2004, when the Company determined to substantially increase the asset allocation to adjustable-rate mortgages - those mortgages that reset within 12 months. By the fall of 2004, this was accomplished. Following this change, the Company has had the highest cumulative dividends and the highest cumulative return on equity for the following six quarters compared with the Company's 2005 RMBS peer group, as spelled out by the equity research analysts who cover the sector. Previously, the Board had determined not to provide earnings guidance for future periods unless the estimates by the equity analyst community were clearly out of line with management estimates. As a result of this policy, the Board has determined that the Company should indeed provide earnings guidance for the REIT taxable income for the second quarter of 2006. The Company estimates that approximately $0.25 to $0.35 will be available to pay dividends from second quarter taxable earnings from the REIT. This estimate does not incorporate any second quarter results from OFS. The Board has authorized management to update the public with this information if new data makes the estimates fall outside this range. The reason for the estimated increase in taxable income available for distribution in the second quarter of 2006 is a result of the increase in the coupons of the Company's adjustable-rate mortgage assets, the slower rate at which they are currently prepaying and the slower projected prepayment speeds going forward. The Company employs the effective yield method of accounting, which requires retrospective adjustments to the yield on the Company's assets, which in turn directly affects earnings. The Company records a yield at the time of purchase of each asset. To the extent the coupon or prepayment speed differ from Company estimates made at the time of purchase, the Company is required to adjust the yield on that asset as well as the amortization of premium or discount taken to date on the asset. This cumulative "true up" of the amortization is taken through earnings in the current period. The Company's purchase yield accounting assumes that the index rates on its ARM securities will remain unchanged over the life of the asset at the time the initial yield is calculated. The substantial increases in index rates over the previous two years have resulted in substantial cumulative adjustments to the Company's booked yields. In September of 2004 and December of 2004, respectively, the Company completed an IPO and a public secondary offering. Many of the assets that were purchased as a result of those successful offerings are now resetting to higher coupons. In addition, because the longer end of the yield curve has increased in rate, the homeowner is not as readily in a position to refinance an adjustable-rate mortgage into a fixed-rate mortgage - as had been the case in previous quarters when the yield curve was flatter. The Company believes that its strategy of owning low-duration adjustable-rate assets has proven to be successful. As of this date, the Company has not realized any permanent losses to book value as a result of portfolio restructuring. Based on the Company's previous timing of dividend announcements, the Company expects that the Board of Directors will declare a second quarter 2006 dividend sometime during the first two weeks of June 2006. Commenting on the results, Jeffrey J. Zimmer, Chairman, President and Chief Executive Officer, said, "The Opteum Board of Directors is pleased both to be able to pay favorable dividends for the first quarter of 2006 and to present expectations of favorable earnings for the second quarter 2006; but we are eagerly anticipating the time when the increases in short-term funding rates come to a halt. The uncertainty of future funding rates, however, means that we still cannot give any assurances that net interest spreads will not be compressed further in future quarters." Mr. Zimmer continued: "As of March 31, 2006, the Company held $3.5 billion of REIT eligible mortgage-backed securities at fair value. As of March 31, 2006, the weighted average yield on these assets was 4.44% and the weighted average borrowing cost was 4.54%, representing a "snapshot" net interest spread of negative 10 basis points. However, the average net interest spread for the first quarter of 2006 was a positive 34.1 basis points, as the weighted average yield for the quarter was 4.803% and the weighted average borrowing cost for the quarter was 4.462%. The weighted average constant prepayment rate for this portfolio was 24.3% for March 2006. The effective duration of the portfolio at the end of the first quarter 2006 was 1.59. "As of March 31, 2006, the Company's REIT operations had 19 master repurchase agreements with various investment banking firms and other lenders and outstanding balances of $3.4 billion under 15 of these agreements," Mr. Zimmer added. "The Board is pleased with the speed at which the successful integration of OFS is taking place and views the opportunity for diversified sources of income as a great benefit to all shareholders. Moreover, the Board anticipates the hedging program for OMSRs and residuals to commence during the second quarter of 2006 so as to reduce the volatility of the earnings results at OFS. During the first quarter, OFS successfully issued its first 2006 securitization in REMIC form. The underlying collateral for the $934.4 million issuance was loans originated or purchased by OFS, and it was issued using OFS's securitization shelf called Opteum Mortgage Acceptance Corporation (OPMAC). Originations through the first quarter of 2006 were approximately 8% less than the first quarter of 2005 and less than OFS management had budgeted for the first quarter of 2006. Both the retail and the wholesale origination units closed fewer loans than had been anticipated, while at the same time, the applications were substantially higher than those of the first quarter of 2005. We attribute the difference between closings and applications to be the result of borrowers filing numerous applications for one loan in an increasingly competitive environment." Mr. Zimmer went on to say, "The competition in mortgage originations has continued into the second quarter. Although the Company does not expect origination levels to remain below expectations throughout the entire year, we have taken steps to reduce costs at OFS. In the first quarter of 2006, the Company reduced non-origination personnel expenses at OFS by over $3.5 million as measured on an annual basis. Additional efficiencies are in the process of being implemented. In addition, as a taxable REIT subsidiary of Opteum Inc., OFS has been able to take advantage of significant reductions in the rate it pays to finance its mortgage pipeline and owned assets. On an annualized basis, OFS has reduced borrowing costs by approximately $3.5 million per year. Finally, we believe that OFS financial results will benefit on an ongoing basis from the capital markets expertise that the REIT management team is rigorously applying to the OFS securitization strategy." Opteum Inc. will hold a conference call to discuss this press release tomorrow, May 9, 2006, at 9:00 a.m. Eastern time. Investors will have the opportunity to listen to a live Internet broadcast of the conference call through the Company's Web site at www.opteum.com or through www.earnings.com. To listen to the live call, please go to the Web site at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, an Internet replay will be available shortly after the call and continue through May 16, 2006. Opteum Inc., a real estate investment trust, which operates an integrated mortgage-related investment portfolio and mortgage origination platform. The REIT invests primarily in, but is not limited to, residential mortgage-related securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae). It earns returns on the spread between the yield on its assets and its costs, including the interest expense on the funds it borrows. Opteum's mortgage origination platform, Opteum Financial Services, originates, buys, sells, and services residential mortgages through 35 offices throughout the United States and operates as a taxable REIT subsidiary. This news release contains forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The reader is cautioned that such forward-looking statements are based on information available at the time and on management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that could cause such differences are described in the Company's periodic filings with the Securities and Exchange Commission, including the Company's Registration Statement on Form S-11. The Company assumes no obligation to update forward-looking information to reflect subsequent results, changes in assumptions or changes in other factors affecting forward-looking information.