PRESS RELEASE
Published on April 28, 2010
 |
PRESS
RELEASE
|
FOR
IMMEDIATE RELEASE
|
CONTACT: Alison
Griffin
|
|
April
27, 2010
|
(804)
217-5897
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DYNEX
CAPITAL, INC. ANNOUNCES
FIRST
QUARTER 2010 RESULTS
GLEN
ALLEN, Va. -- Dynex Capital, Inc. (NYSE: DX) reported its results today for the
first quarter of 2010. Highlights include:
|
·
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Net
income to common shareholders for the first quarter of 2010 of $0.30 per
diluted common share versus $0.18 per diluted common share for the first
quarter of 2009;
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|
·
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Net
interest income of $7.2 million in the first quarter of 2010 versus $5.0
million in the first quarter of 2009 as a result of a larger investment
portfolio and declining borrowing
costs;
|
|
·
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Net
interest spread of 2.98% for the first quarter of 2010 versus 2.82% for
the first quarter of 2009;
|
|
·
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Increase
in investment portfolio to $954.4 million at March 31, 2010 versus $918.0
million at December 31, 2009 and $705.5 million at March 31,
2009;
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|
·
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Book
value per share of $9.40 at March 31, 2010 versus $9.08 at December 31,
2009 and $8.36 at March 31, 2009;
and
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|
·
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Overall
leverage of 4.4 times equity capital at March 31,
2010.
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The
Company has scheduled a conference call for Wednesday, April 28, 2010 at 11:00
a.m. EDT, to discuss first quarter results. The call may be accessed
by dialing 1-800-901-5248 (Passcode: 11412462) and will also be webcast over the
internet at www.dynexcapital.com
through a link provided under “Investor Relations.”
Thomas
Akin, Chairman and Chief Executive Officer, commented, “We are very pleased with
the results for this quarter, particularly in light of the announced delinquent
loan purchases by Fannie Mae and Freddie Mac. Our hybrid, high-grade
investment model continues to pay dividends as the increased premium
amortization on our Agency MBS was more than offset by the earnings contribution
from the CMBS we added last quarter. In addition, these investments
have appreciated in value by $3.8 million
since the
end of 2009 from spread tightening and the rally in interest rates, resulting in
the improvement of our book value per share from $9.08 at December 31, 2009 to
$9.40 at March 31, 2010.”
Mr. Akin
continued, “As we previously reported, we added $60.8 million in TALF funded
‘AAA’-rated CMBS during the quarter. The TALF financing is
non-recourse and fixed at a weighted average rate of 2.73% for a period of three
years. The expected return on the invested capital in these CMBS is
approximately 14%. While the TALF financing has ended, we expect to
continue to see attractive investment opportunities in both Agency and
non-Agency mortgage securities and improved liquidity and pricing on the funding
side, particularly for non-Agency MBS and CMBS. We remain optimistic
about 2010 and encourage all of our shareholders to attend our annual meeting on
May 12 in San Francisco to hear our plans for the future.”
Results
of Operations
The
increase in net income for the first quarter of 2010 to $5.5 million versus $3.1
million for the same period in 2009 resulted principally from an increase in net
interest income. Net interest income increased $2.2 million to $7.2
million for the first quarter of 2010 from $5.0 million for the first quarter of
2009, as interest income increased by $1.6 million from growth in the investment
portfolio and interest expense declined by $0.6 million as a result of lower
borrowing costs. Net portfolio interest spread for the first quarter
of 2010 was 2.98%, which is the difference between the net yield of 4.95% on the
Company’s interest-earning investment portfolio (excluding cash balances) and
its cost of funds of 1.97%. The net portfolio interest spread was
2.82% for the first quarter of 2009 and 3.11% for the fourth quarter of
2009.
Net
interest income for the first quarter of 2010 was reduced by $1.3 million in
premium amortization on Agency MBS. Premium amortization on Agency
MBS for the first quarter of 2009 and fourth quarter of 2009 was $0.6 million
and $0.7 million, respectively. As noted in previous releases,
increased delinquent loan buy-out activity by Fannie Mae and Freddie Mac have
resulted in higher actual and expected prepayments on Agency MBS, resulting in
increased premium amortization. Freddie Mac completed its purchase of
the delinquent loans in February 2010, which impacted prepayment speeds for
March 2010. Fannie Mae began its purchase of delinquent loans in
Agency MBS in March 2010 and will continue through July 2010, according to
statements made by Fannie Mae (which will impact prepayments from April through
August 2010). In amortizing premiums on its Agency MBS, the Company
considers both actual and expected prepayments on its Agency
MBS. Assuming that the Company has accurately forecasted future
prepayments, effective yields on our existing Agency MBS for the second quarter
of 2010 should be similar to the first quarter of 2010.
General
and administrative expenses increased from $1.7 million in the first quarter of
2009 to $2.1 million for the first quarter of 2010. General and
administrative expenses for 2010 included expenses related to the TALF
borrowings and resecuritization of CMBS, as well as certain
legal,
accounting
and consulting expenses that are not expected to recur in 2010. The
Company expects general and administrative expenses to approximate $1.8 million
for the second quarter of 2010.
Agency
MBS Investments
During
the first quarter of 2010, the Company’s investment portfolio averaged $907.6
million versus $654.2 million in the first quarter of 2009 and $828.7 million in
the fourth quarter of 2009. At March 31, 2010, the Company had $236.9
million in Hybrid Agency ARMs with a weighted average months-to-reset of 31
months, $298.9 million in Agency ARMs with a weighted average months-to-reset of
5 months, $2.9 million in fixed rate Agency CMBS, and a receivable from Freddie
Mac for prepayments of $20.1 million. At March 31, 2010, the Company
had $383.4 million in Fannie Mae Agency MBS and $175.5 million in Freddie Mac
Agency MBS including the principal receivable. The following table
summarizes certain information about the Company’s Agency MBS investments for
the periods presented:
|
Quarter
ended March 31, 2010
|
Quarter
ended December 31, 2009
|
Quarter
ended March 31, 2009
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||||||||||
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Weighted
average annualized yield for the period
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3.72 | % | 4.03 | % | 4.47 | % | ||||||
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Weighted
average annualized cost of funds for repurchase agreements and interest
rate swaps for the period
|
0.55 | % | 0.45 | % | 1.12 | % | ||||||
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Net
interest spread for the period
|
3.17 | % | 3.58 | % | 3.35 | % | ||||||
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CPR
for the period
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28.6 | % | 17.8 | % | 14.8 | % | ||||||
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Weighted
average coupon, period end
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4.59 | % | 4.76 | % | 5.15 | % | ||||||
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Weighted
average months-to-reset, period end
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18 | 20 | 25 | |||||||||
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Amortized
cost (as a % of par), period end
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102.3 | % | 102.3 | % | 101.7 | % | ||||||
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Weighted
average repurchase agreement original term to maturity
(days)
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58 | 64 | 52 | |||||||||
Non-Agency
Investments
The
Company’s non-Agency investment assets principally include predominantly
‘AAA’-rated CMBS, highly seasoned securitized mortgage loans, and non-Agency
RMBS, which together totaled $395.5 million at March 31, 2010. The
Company added $60.8 million in CMBS during the quarter at a net weighted average
coupon of 4.94% and an estimated effective yield of 4.56%. The
Company financed the acquisition of these CMBS with $50.8 million in fixed-rate
TALF financing at an effective rate of 2.75%.
With
respect to the mortgage loan portfolio, two delinquent commercial mortgage loans
were repaid in full during the quarter by the guarantor of the loans which
resulted in the Company recognizing $0.6 million in other income. As
a result of increased loss expectations on principally one delinquent commercial
mortgage loan, the Company increased its allowance for loan losses by $0.4
million during the quarter, bringing the total allowance to $4.7 million at
March 31, 2010. Seriously delinquent loans (loans 60+ days past due)
totaled $24.6 million at March 31, 2010 versus $19.4 million at December 31,
2009. Approximately $4.0 million of the delinquent loans have some
form of insurance or other credit support which substantially reduces or
eliminates the Company’s exposure to losses on these loans. In
addition, loans with a carrying basis of approximately $3.8 million at March 31,
2010 are expected to liquidate in the second quarter of 2010 at no additional
loss to the Company. The Company incurred no charge-offs on its
securitized mortgage loan portfolio during the quarter.
Below is
certain information for the Company’s non-Agency securities and securitized
mortgage loan portfolio at March 31, 2010:
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(amounts
in thousands)
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CMBS
|
RMBS
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Securitized
loans
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|||||||||
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Carrying
basis
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$ | 183,606 | $ | 5,131 | $ | 204,609 | ||||||
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Weighted
average annualized yield for the period
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6.92 | % | 8.51 | % | 6.74 | % | ||||||
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Weighted
average annualized cost of funds
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3.66 | % | 1.76 | % | 5.87 | % | ||||||
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Net
interest spread for the period
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3.26 | % | 6.75 | % | 0.87 | % | ||||||
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Amortized
cost (as a % of par), period end
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94.9 | % | 82.1 | % | 99.9 | % | ||||||
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Weighted
average repurchase agreement original term to maturity
(days)
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32 | 32 | 32 | |||||||||
Hedging
Activities
During
the first quarter of 2010, the Company entered into $75 million in pay-fixed
interest rate swaps with an initial maturity of 24 months and a rate of
1.03%. As of March 31, 2010, the Company had a total of $180 million
in pay-fixed interest rate swaps with a weighted average rate of 1.41% and a
weighted average remaining maturity of 31 months. The interest rate
swaps are being used to hedge the Company’s exposure to changes in LIBOR for its
repurchase agreement borrowings.
Shareholders’
Equity and Book Value per Common Share
Shareholders’
equity was $183.6 million at March 31, 2010 versus $168.8 million at December
31, 2009. During the first quarter of 2010, the Company issued $9.7
million in common stock through its controlled equity offering
program. The Company used the proceeds to fund additional
investments. Book value per common share increased to $9.40 at March
31, 2010 versus $9.08 at December 31, 2009,
principally
as a result of an increase in accumulated other comprehensive
income. Accumulated other comprehensive income increased principally
as a result of the increase in fair value of CMBS owned by the Company from
December 31, 2009 to March 31, 2010. At March 31, 2010, the fair
value of Agency MBS was 104.1% of their par balance.
The
following table summarizes the allocation of the Company’s $183.6 million of
shareholders’ equity as of March 31, 2010 and the net earnings contribution for
the first quarter of 2010 and fourth quarter of 2009 on each component of
allocated capital:
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(amounts
in thousands)
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Asset
Carrying Basis
|
Associated
Financing (1)
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Allocated
Shareholders’
Equity
|
%
of Shareholders’ Equity
|
1Q10
Net Earnings Contribution(2)
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4Q09
Net Earnings Contribution(2)
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||||||||||||||||||
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Agency
MBS
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$ | 558,935 | $ | 490,754 | $ | 68,181 | 37.1 | % | $ | 4,541 | $ | 5,541 | ||||||||||||
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Securitized
single-family mortgage loans
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60,581 | 45,586 | 14,995 | 8.2 | % | 526 | 531 | |||||||||||||||||
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Securitized
commercial mortgage loans
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144,028 | 119,304 | 24,724 | 13.4 | % | 590 | 451 | |||||||||||||||||
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CMBS
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183,606 | 145,130 | 38,476 | 21.0 | % | 1,681 | 209 | |||||||||||||||||
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Non-Agency
MBS
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5,131 | 3,183 | 1,948 | 1.1 | % | 126 | 153 | |||||||||||||||||
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Other
investments
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2,156 | - | 2,156 | 1.2 | % | (227 | ) | 42 | ||||||||||||||||
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Hedging
instruments
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- | 187 | (187 | ) | (0.1 | )% | (458 | ) | (110 | ) | ||||||||||||||
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Cash
and cash equivalents
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30,714 | - | 30,714 | (3) | 16.7 | % | 3 | 3 | ||||||||||||||||
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Other
assets/other liabilities
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9,307 | 6,670 | 2,637 | 1.4 | % | 6 | 7 | |||||||||||||||||
| $ | 994,458 | $ | 810,814 | $ | 183,644 | 100.0 | % | $ | 6,788 | $ | 6,827 | |||||||||||||
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(1)
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Associated
financing includes repurchase agreements, securitization financing issued
to third parties and TALF financing (the latter two of which are presented
on the Company’s balance sheet as “collateralized
borrowings”).
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(2)
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Equals
net interest income after provision for loan losses for each of the
captions.
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(3)
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Includes
$24.2 million in cash maintained by the Company to support investments
financed with repurchase agreement
borrowings.
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Dynex
Capital, Inc. is a real estate investment trust, or REIT, which invests in
mortgage loans and securities on a leveraged basis. The
Company invests in Agency MBS, non-Agency MBS, and CMBS. The
Company also has investments in securitized single-family residential and
commercial mortgage loans originated by the Company from 1992 to
1998. 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 asset 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, 2009, and other reports
filed with and furnished to the Securities and Exchange Commission.
# # #
DYNEX
CAPITAL, INC.
Consolidated
Balance Sheets
(Thousands
except per share data)
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
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(unaudited)
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||||||||
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ASSETS
|
||||||||
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Agency
MBS
|
$ | 558,935 | $ | 594,120 | ||||
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Securitized
mortgage loans, net
|
204,609 | 212,471 | ||||||
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Non-Agency
securities
|
188,737 | 109,110 | ||||||
|
Other
investments
|
2,156 | 2,280 | ||||||
| 954,437 | 917,981 | |||||||
|
Cash
and cash equivalents
|
30,714 | 30,173 | ||||||
|
Derivative
assets
|
– | 1,008 | ||||||
|
Accrued
interest receivable
|
4,270 | 4,583 | ||||||
|
Other
assets
|
5,037 | 4,317 | ||||||
| $ | 994,458 | $ | 958,062 | |||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
LIABILITIES:
|
||||||||
|
Repurchase
agreements
|
$ | 602,451 | $ | 638,329 | ||||
|
Collateralized
borrowings
|
201,506 | 143,081 | ||||||
|
Accrued
interest payable
|
1,162 | 1,208 | ||||||
|
Other
liabilities
|
5,508 | 6,691 | ||||||
|
Derivative
liabilities
|
187 | – | ||||||
| 810,814 | 789,309 | |||||||
|
SHAREHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock
|
41,749 | 41,749 | ||||||
|
Common
stock
|
150 | 139 | ||||||
|
Additional
paid-in capital
|
389,459 | 379,717 | ||||||
|
Accumulated
other comprehensive income
|
14,112 | 10,061 | ||||||
|
Accumulated
deficit
|
(261,826 | ) | (262,913 | ) | ||||
| 183,644 | 168,753 | |||||||
| $ | 994,458 | $ | 958,062 | |||||
|
Book
value per common share
|
$ | 9.40 | $ | 9.08 | ||||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except share and per share data)
(unaudited)
|
Three
Months Ended
|
||||||||
|
March
31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Interest
income:
|
||||||||
|
Investments
|
$ | 11,024 | $ | 9,472 | ||||
|
Cash
and cash equivalents
|
3 | 5 | ||||||
| 11,027 | 9,477 | |||||||
|
Interest
expense
|
(3,830 | ) | (4,433 | ) | ||||
|
Net
interest income
|
7,197 | 5,044 | ||||||
|
Provision
for loan losses
|
(409 | ) | (179 | ) | ||||
|
Net
interest income after provision for loan losses
|
6,788 | 4,865 | ||||||
|
Equity
in loss of joint venture
|
– | (754 | ) | |||||
|
Fair
value adjustments, net
|
82 | 645 | ||||||
|
Gain
on sale of investments
|
77 | 83 | ||||||
|
Other
income
|
669 | 21 | ||||||
|
General
and administrative expenses
|
||||||||
|
Compensation
and benefits
|
(972 | ) | (883 | ) | ||||
|
Other
general and administrative expenses
|
(1,107 | ) | (843 | ) | ||||
|
Net
income
|
5,537 | 3,134 | ||||||
|
Preferred
stock dividends
|
(1,003 | ) | (1,003 | ) | ||||
|
Net
income to common shareholders
|
$ | 4,534 | $ | 2,131 | ||||
|
Net
income per common share
|
||||||||
|
Basic
|
$ | 0.32 | $ | 0.18 | ||||
|
Diluted
|
$ | 0.30 | $ | 0.18 | ||||
|
Weighted
average number of common shares outstanding:
|
||||||||
|
Basic
|
14,209,612 | 12,169,762 | ||||||
|
Diluted
|
18,437,380 | 12,169,762 | ||||||