DYNEX CAPITAL 3Q 2009 EARNINGS PRESS RELEASE
Published on November 9, 2009
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PRESS
RELEASE
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FOR
IMMEDIATE RELEASE
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CONTACT: Alison
Griffin
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November
9, 2009
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(804)
217-5897
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DYNEX
CAPITAL, INC. REPORTS THIRD
QUARTER
RESULTS
GLEN
ALLEN, Va. -- Dynex Capital, Inc. (NYSE: DX) reported net income to common
shareholders for the third quarter of $5.0 million or $0.34 per diluted common
share versus $3.4 million or $0.25 per diluted common share for the second
quarter of 2009, and $2.0 million or $0.17 per diluted common share for the
third quarter of 2008. Highlights for the quarter are summarized
below:
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·
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Net
interest income of $6.6 million for the quarter ended September 30, 2009,
versus $5.9 million for the quarter ended June 30, 2009 and $2.8 million
for the third quarter of 2008;
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·
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Net
interest spread on average interest-earning assets of 3.29% for the third
quarter of 2009, versus 3.10% for the second quarter of 2009 and 1.64% for
the third quarter of 2008;
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·
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Net
interest spread on Agency MBS investments of 3.70% for the third quarter
of 2009, versus 3.70% for the second quarter of 2009 and 1.70% for the
third quarter of 2008;
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·
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Overall
leverage of 4.3 times equity capital at September 30, 2009, with leverage
on the Agency MBS portfolio of 6.1 times equity
capital;
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·
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Shareholders’
equity of $163.8 million at September 30, 2009, versus $140.4 million at
December 31, 2008; and
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·
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Book
value per share at September 30, 2009, of $8.96 versus $8.54 at June 30,
2009 and $8.07 at December 31,
2008.
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The
Company has scheduled a conference call for Monday, November 9, 2009 at 11:00
a.m. Eastern Time, to discuss first quarter results. The call may be
accessed by dialing 1-866-788-0541 (Passcode: 49849247) and will also be webcast
over the internet at www.dynexcapital.com
through a link provided under “Investor Relations.”
Third
Quarter Results and Related Discussion
Third
quarter 2009 results continued to benefit from strong net interest income earned
on the Company’s investment portfolio. Net interest income for the
quarter benefitted from several items including higher net interest spreads,
lower amortization expense due to adjusted prepayment expectations on
securitized commercial mortgage loans, and an overall larger investment
portfolio. The net interest spread for the portfolio for the third
quarter of 2009 was 3.29% versus 1.64% for the third quarter of 2008 and 3.10%
for the second quarter of 2009. Driving the increase in the net
interest spread were reduced borrowing costs on the Company’s repurchase
agreement borrowings, which declined to 0.43% for the third quarter of 2009 from
2.75% for the third quarter of 2008 and 0.69% for the second quarter of
2009. Net interest income for the third quarter of 2009 also includes
approximately $0.3 million of net positive amortization adjustments, principally
from declining forecasted prepayment activity on the securitized commercial
mortgage loan portfolio and the associated securitization financing due to
current and expected market conditions for commercial real estate.
Third
quarter 2009 results also include joint venture earnings of $1.6 million
primarily from positive valuation adjustments of assets held by the joint
venture, and negative fair market value adjustments of $0.5 million from an
increase in the carrying value of the obligation under payment agreement. The
obligation under payment agreement is carried at its fair value with changes to
the obligation recorded as income or expense in the consolidated statement of
operations.
The
Company’s interest earning assets excluding cash have continued to increase on a
quarter-to-quarter basis and averaged $771.3 million in the third quarter of
2009 versus $706.1 million in the second quarter of 2009 and $480.8 million in
the third quarter of 2008. During the quarter, the Company purchased
$103.6 million of Agency MBS, principally seasoned, short-duration Hybrid Agency
ARMs. At September 30, 2009, the Company had $323.2 million in Hybrid
Agency ARMs with a weighted average months-to-reset of 30 months, and $274.8
million in Agency ARMs with a weighted average months-to-reset of 7 months. The
following table summarizes certain information about the Company’s Agency MBS
investments for the periods presented:
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Quarter
ended September 30, 2009
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Quarter
ended June 30, 2009
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Quarter
ended September 30, 2008
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Weighted
average annualized yield for the period
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4.13 | % | 4.39 | % | 4.45 | % | ||||||
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Weighted
average annualized cost of funds for repurchase agreements for the
period
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0.43 | % | 0.69 | % | 2.75 | % | ||||||
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Net
interest spread for the period
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3.70 | % | 3.70 | % | 1.70 | % | ||||||
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CPR
for the period
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22.1 | % | 19.9 | % | 27.3 | % | ||||||
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Weighted
average coupon, period end
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4.90 | % | 5.04 | % | 4.82 | % | ||||||
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Weighted
average months-to-reset, period end
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20 | 25 | 18 | |||||||||
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Amortized
cost (as a % of par), period end
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102.30 | % | 102.04 | % | 101.21 | % | ||||||
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Weighted
average repurchase agreement original term to maturity
(days)
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58 | 40 | 27 | |||||||||
The
Company’s other investment assets, which include principally highly seasoned
securitized mortgage loans, non-Agency MBS, and an investment in a joint venture
which owns interests in seasoned CMBS, continue to perform in line with
expectations. These investments are financed with $148.2 million in
securitization financing, $29.1 million in repurchase agreements (which are
collateralized by ‘AAA’-rated investments with an estimated market value of
$41.7 million), and $56.3 million in equity capital. With respect to
the securitized mortgage loan portfolio, the Company added $248 thousand to the
allowance for loan losses bringing the total allowance to $4.1 million at
September 30, 2009. Delinquencies on securitized mortgage loans
decreased during the quarter to $13.4 million from $15.0 million at June 30,
2009. Approximately $1.8 million of the delinquent loans have some
form of insurance which substantially reduces or eliminates the Company’s
exposure to losses on these loans. With respect to the investment in
joint venture, improving credit spreads in CMBS resulted in valuation increases
on assets owned by the joint venture. The CMBS owned by the joint
venture have a fair value of $14.5 million at September 30, 2009 versus their
principal balance of $38.7 million as of the same date.
Book
value per common share increased to $8.96 at September 30, 2009 from $8.54 at
June 30, 2009, as a result of an increase in accumulated other comprehensive
income from improved valuations of the Company’s Agency MBS portfolio and
earnings for the quarter in excess of the dividend
paid. Shareholders’ equity was $163.8 million at
September 30, 2009, which was an increase from $154.6 million at June 30, 2009,
as a result of the items noted above and the issuance of $3.2 million of common
stock during the quarter under the Company’s controlled equity offering
program.
The
following table summarizes the allocation of the Company’s $163.8 million of
shareholders’ equity as of September 30, 2009 and the net earnings contribution
on such allocated capital:
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(amounts
in thousands)
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Asset
carrying basis
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Associated
financing (1)
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Allocated
Shareholders’
Equity
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%
of Shareholders’ Equity
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Net
Earnings Contribution(2)
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Agency
MBS
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$ | 600,927 | $ | 516,627 | $ | 84,300 | 51.5 | % | $ | 4,881 | ||||||||||
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Securitized
single-family mortgage loans
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65,016 | 42,930 | 22,086 | 13.5 | % | 540 | ||||||||||||||
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Securitized
commercial mortgage loans
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160,715 | 143,483 | 17,232 | 10.5 | % | 720 | ||||||||||||||
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Investment
in joint venture (CMBS)
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8,174 | - | 8,174 | 5.0 | % | 1,620 | ||||||||||||||
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Non-Agency
MBS
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6,112 | - | 6,112 | 3.7 | % | 155 | ||||||||||||||
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Other
investments
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2,327 | - | 2,327 | 1.4 | % | 49 | ||||||||||||||
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Cash
and cash equivalents
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21,749 | - | 21,749 | 13.3 | % | 4 | ||||||||||||||
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Other
assets/other liabilities
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7,526 | 5,745 | 1,781 | 1.1 | % | - | ||||||||||||||
| $ | 872,546 | $ | 708,785 | $ | 163,761 | 100.0 | % | |||||||||||||
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(1)
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Associated
financing includes repurchase agreements, securitization financing and
obligation under payment agreement.
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(2)
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Equals
third quarter 2009 net interest income after provision for loan losses for
each of the captions (except the investment in joint venture which is
equity in income of the venture).
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Management
Remarks
Thomas
Akin, Chairman and Chief Executive Officer, commented, “We are very pleased with
our results for the quarter which were led by the increased contribution of our
Agency MBS portfolio and the consistent performance of our seasoned securitized
mortgage loan and non-Agency MBS portfolios. Our net interest spread
was a robust 3.29%, highlighted by our Agency MBS net interest spread of
3.70%. On an absolute dollar basis, our net interest income increased
to $6.6 million this quarter from $5.9 million last quarter, with Agency MBS
generating $4.9 million this quarter versus $4.4 million last
quarter. We also saw continued strength in pricing on our investment
assets and that coupled with our earnings in excess of our dividend, propelled
book value per common share to $8.96 as of September 30, 2009, versus $8.54 at
the end of last quarter. Clearly our short-duration Agency MBS
strategy combined with our short-term financing strategy performed very well
during the quarter from both an earnings and book value basis.”
Mr. Akin
further commented, “In recent weeks we have been able to secure competitive
financing terms, and we now have just over 40% of our repurchase agreement
balances rolled over year-end. As a result, we expect to see healthy
net interest income for the fourth quarter barring any unforeseen actions by the
Federal Reserve or liquidity disruptions in the market. We continue
to see compelling opportunities in Agency MBS but remain cautious on price and
mindful of the potential impact of governmental policy on our investment
strategy. We are also seeking ways to maximize
opportunities
within
our own assets including the potential to participate in the TALF program or
otherwise refinance the CMBS assets owned by the joint venture. We
feel that the Company is well-positioned to navigate the current uncertainties
in the market. Longer-term we believe a diversified investment model
of Agency MBS and high grade non-Agency investments will be a superior model for
our shareholders.”
Dynex
Capital, Inc. is a specialty finance 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 release contains “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. These factors may include, but are not limited to,
changes in general economic and market conditions, including the ongoing
volatility in the credit markets which impacts assets prices and the cost and
availability of financing, defaults by borrowers, availability of suitable
reinvestment opportunities, variability in investment portfolio cash flows,
fluctuations in interest rates, fluctuations in property capitalization rates
and values of commercial real estate, defaults by third-party
servicers, prepayments of investment portfolio assets, other general competitive
factors, uncertainty around government policy, the impact of regulatory changes,
including the Emergency Economic Stabilization Act of 2008, the full impact of
which is unknown at this time, and the impact of Section 404 of the
Sarbanes-Oxley Act of 2002. For additional information, see the Company’s Annual
Report on Form 10-K for the year ended December 31, 2008, and other reports
filed with and furnished to the Securities and Exchange Commission.
# # #
DYNEX
CAPITAL, INC.
Consolidated
Balance Sheets
(Thousands
except share and per share data)
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September
30,
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December
31,
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2009
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2008
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(unaudited)
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ASSETS
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Agency
MBS (including pledged Agency MBS of $552,970 and $300,277 at September
30, 2009 and December 31, 2008, respectively)
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$ | 600,927 | $ | 311,576 | ||||
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Securitized
mortgage loans, net
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225,731 | 243,827 | ||||||
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Investment
in joint venture
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8,174 | 5,655 | ||||||
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Non-Agency
MBS
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6,112 | 6,260 | ||||||
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Other
investments
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2,327 | 6,475 | ||||||
| 843,271 | 573,793 | |||||||
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Cash
and cash equivalents
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21,749 | 24,335 | ||||||
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Restricted
cash
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– | 2,974 | ||||||
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Other
assets
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7,526 | 6,089 | ||||||
| $ | 872,546 | $ | 607,191 | |||||
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
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Liabilities:
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Repurchase
agreements
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$ | 545,761 | $ | 274,217 | ||||
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Securitization
financing
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148,184 | 178,165 | ||||||
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Obligation
under payment agreement
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9,095 | 8,534 | ||||||
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Other
liabilities
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5,745 | 5,866 | ||||||
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708,785 | 466,782 | ||||||
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Commitments
and Contingencies
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Shareholders’
equity:
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Preferred
stock, par value $0.01 per share: 50,000,000 shares authorized, 9.5%
Cumulative Convertible Series D; 4,221,539 shares issued and outstanding
($43,218 aggregate liquidation preference)
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41,749 | 41,749 | ||||||
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Common
stock, par value $0.01 per share, 100,000,000 shares authorized,
13,572,012 and 12,169,762 shares issued and outstanding,
respectively
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136 | 122 | ||||||
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Additional
paid-in capital
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376,659 | 366,817 | ||||||
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Accumulated
other comprehensive income (loss)
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7,999 | (3,949 | ) | |||||
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Accumulated
deficit
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(262,782 | ) | (264,330 | ) | ||||
| 163,761 | 140,409 | |||||||
| $ | 872,546 | $ | 607,191 | |||||
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Book
value per common share
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$ | 8.96 | $ | 8.07 | ||||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except per share data)
(unaudited)
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Three
Months Ended
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Nine
Months Ended
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September
30,
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September
30,
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2009
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2008
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2009
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2008
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Interest
income:
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Investments
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$ | 9,448 | $ | 7,719 | $ | 28,735 | $ | 20,375 | ||||||||
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Cash and cash
equivalents
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4 | 158 | 13 | 659 | ||||||||||||
| 9,452 | 7,877 | 28,748 | 21,034 | |||||||||||||
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Interest
expense
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(2,855 | ) | (5,090 | ) | (11,226 | ) | (13,325 | ) | ||||||||
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Net
interest income
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6,597 | 2,787 | 17,522 | 7,709 | ||||||||||||
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Provision
for loan losses
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(248 | ) | (449 | ) | (566 | ) | (796 | ) | ||||||||
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Net
interest income after provision for loan losses
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6,349 | 2,338 | 16,956 | 6,913 | ||||||||||||
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Equity
in income (loss) of joint venture
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1,620 | (3,462 | ) | 1,476 | (5,153 | ) | ||||||||||
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Gain
on sale of investments, net
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– | 331 | 220 | 2,381 | ||||||||||||
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Fair
value adjustments, net
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(457 | ) | 1,461 | (319 | ) | 5,519 | ||||||||||
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Other
income
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29 | 3,862 | 193 | 6,594 | ||||||||||||
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General
and administrative expenses:
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Compensation and
benefits
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(824 | ) | (609 | ) | (2,776 | ) | (1,693 | ) | ||||||||
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Other general and
administrative expenses
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(715 | ) | (876 | ) | (2,245 | ) | (2,261 | ) | ||||||||
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Net
income
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6,002 | 3,045 | 13,505 | 12,660 | ||||||||||||
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Preferred
stock dividends
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(1,003 | ) | (1,003 | ) | (3,008 | ) | (3,008 | ) | ||||||||
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Net
income to common shareholders
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$ | 4,999 | $ | 2,042 | $ | 10,497 | $ | 9,652 | ||||||||
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Net
income per common share:
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Basic
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$ | 0.37 | $ | 0.17 | $ | 0.81 | $ | 0.79 | ||||||||
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Diluted
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$ | 0.34 | $ | 0.17 | $ | 0.79 | $ | 0.77 | ||||||||