PRESS RELEASE
Published on July 27, 2010
 |
PRESS
RELEASE
|
FOR
IMMEDIATE RELEASE
|
CONTACT: Alison
Griffin
|
|
July 27,
2010
|
(804)
217-5897
|
DYNEX
CAPITAL, INC. REPORTS SECOND QUARTER
DILUTED
EPS OF $0.38 AND BOOK VALUE
PER
COMMON SHARE OF $9.80
GLEN
ALLEN, Va. -- Dynex Capital, Inc. (NYSE: DX) reported diluted earnings per
common share of $0.38 for the second quarter of 2010 versus $0.25 for the second
quarter of 2009. The Company also reported book value per common
share of $9.80 at June 30, 2010 versus $9.40 at March 31, 2010 and $9.08 at
December 31, 2009. Other highlights for the quarter
include:
|
|
·
|
Net
interest income of $7.9 million in the second quarter of 2010 versus $7.2
million in the first quarter of 2010 and $5.9 million in the second
quarter of 2009;
|
|
|
·
|
Net
interest spread of 2.75% for the second quarter of 2010 versus
2.96% for the first quarter of 2010 and 3.10% for the second quarter of
2009;
|
|
|
·
|
Investment
portfolio of $943.2 million at June 30, 2010 versus $954.4
million at March 31, 2010 and $918.0 million at December 31,
2009;
|
|
|
·
|
Seriously
delinquent securitized mortgage loans declined $4.2 million during the
quarter, or 17%, to $20.3 million at June 30, 2010 and no new commercial
mortgage loans became seriously delinquent during the
quarter;
|
|
|
·
|
Investment
portfolio at June 30, 2010 is composed of 60% Agency MBS and 40% of
non-Agency securities and securitized mortgage loans;
and
|
|
|
·
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Overall
leverage of 4.2 times equity capital at June 30,
2010.
|
The
Company has scheduled a conference call for Wednesday, July 28, 2010 at 11:00
a.m. EDT, to discuss second quarter results. The call may be accessed
by dialing 1-877-317-6789 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, “Our hybrid investment
model continues to outperform as our non-Agency securities portfolio led by our
CMBS investments drove the increase in our book value and net interest income
for the quarter. In addition, despite accelerated prepayments by
Fannie Mae from their delinquent loan purchase program, our Agency MBS continued
to perform extremely well as the net interest spread on that portfolio was a
solid 2.81% for the quarter. As noted in our press release on July
22, 2010, subsequent to June 30, 2010, we redeemed $43 million in CMBS that we
originated in 1998 at a very attractive initial net interest spread of
approximately 5.50%. We also now have the option to refinance $80
million of our 1997 CMBS securitization and substantially lower the current
8.29% weighted average coupon on the related securitized debt. These
opportunities are unique to us and represent exceptional value for our
shareholders as we are able to purchase or refinance bonds at par with coupons
in some cases substantially above market rates.”
Mr. Akin
continued, “Our earnings and book value are benefitting from the low rate, steep
yield curve investment environment. Recent economic data and
commentary from the Federal Reserve suggest that interest rates will continue to
remain low for an extended period of time providing excellent conditions for our
hybrid investment strategy. The third quarter will benefit from the
addition of the $43 million in CMBS, which will generate an estimated $0.6
million in earnings and from any portion of the $80 million in callable CMBS
that we choose to redeem.”
Results
of Operations
The
increase in net income for the second quarter of 2010 as compared to the same
period in 2009 resulted from an increase in net interest income and gain on sale
of investments.
Net
interest income increased to $7.9 million for the second quarter of 2010 from
$5.9 million for the same period in 2009. Most of the increase is
attributable to a growth in average interest earning investments of $234.9
million to $941.0 million for the second quarter of 2010, partially offset by a
decline in the yield on earning assets. Premium amortization for the
second quarter of 2010 was $1.9 million versus $1.6 million for the first
quarter of 2010 and $0.6 million in the second quarter of
2009. Premium amortization was higher due primarily to Fannie Mae
delinquent loan buy-out activity during the second quarter in the Agency MBS
portfolio. Total principal payments received in Agency MBS were $73.2
million during the second quarter of 2010, versus $56.3 million in the first
quarter of 2010 and $30.6 million during the second quarter of
2009. Net interest income for the quarter also included $1.1 million
in yield maintenance on CMBS as discussed further below.
Net
portfolio interest spread for the second quarter of 2010 was 2.75%, which is the
difference between the yield of 4.76% on the Company’s interest-earning
investment portfolio (excluding cash balances) and its cost of funds of
2.01%. The net portfolio interest spread was 3.10% for the second
quarter of 2009 and 2.96% for the first quarter of 2010. The net
interest spread declined in the second quarter of 2010 versus the first quarter
of 2010 due principally to a 21 basis point decline in
investment
yields
during the quarter from higher premium amortization and as interest rates on
certain Agency ARMs reset down during the period. The net interest
spread declined from the second quarter of 2009 due principally to a 70 basis
point decline in investment yields offset in part by a decline of 36 basis
points in weighted-average borrowing costs from declining repurchase agreement
rates.
Gain on
sale of investments for the second quarter of 2010 of $0.7 million resulted from
the sale of $18.7 million in short-reset Agency ARMs. The Company
sold these ARMs prior to their reset to lower rates and deployed the sale
proceeds in CMBS.
Two loans
underlying certain CMBS prepaid during the second quarter of 2010 resulting in
the receipt of $1.1 million of yield maintenance, which is included in net
interest income, and the reversal of $0.4 million in valuation impairment, which
is included in other income for the quarter.
Agency
MBS Investments
During
the second quarter of 2010, the Company’s Agency MBS investments averaged $559.8
million versus $549.8 million in the first quarter of 2010 and $459.0 million in
the second quarter of 2009. At June 30, 2010, the Company had $276.4
million in Hybrid Agency ARMs with a weighted average months-to-reset of 31
months, $247.8 million in Agency ARMs with a weighted average months-to-reset of
4 months, and $44.7 million in fixed rate Agency CMBS. At June 30,
2010, the Company had $426.0 million in Fannie Mae Agency MBS and $142.9 million
in Freddie Mac Agency MBS. The following table summarizes certain
information about the Company’s Agency MBS investments for the periods
presented:
|
Quarter
ended
June
30, 2010
|
Quarter
ended March 31, 2010
|
Quarter
ended
June
30, 2009
|
||||||||||
|
Weighted
average annualized yield for the period
|
3.45 | % | 3.72 | % | 4.39 | % | ||||||
|
Weighted
average annualized cost of funds for repurchase agreements and interest
rate swaps for the period
|
0.64 | % | 0.55 | % | 0.69 | % | ||||||
|
Net
interest spread for the period
|
2.81 | % | 3.17 | % | 3.70 | % | ||||||
|
CPR
for the period
|
33.9 | % | 28.5 | % | 19.9 | % | ||||||
|
Weighted
average coupon, period end
|
4.58 | % | 4.63 | % | 5.04 | % | ||||||
|
Weighted
average months-to-reset on ARMs, period end
|
19 | 18 | 25 | |||||||||
|
Amortized
cost (as a % of par), period end
|
103.3 | % | 102.3 | % | 102.0 | % | ||||||
|
Weighted
average repurchase agreement original term to maturity
(days)
|
46 | 60 | 40 | |||||||||
Non-Agency
Investments
The
Company’s non-Agency investment assets principally include non-Agency securities
consisting of ‘AAA’-rated CMBS and non-Agency RMBS, and highly seasoned
securitized mortgage loans. Substantially all of these loans and
securities were originated by the Company in 1998 and prior
years. During the quarter, the Company’s CMBS portfolio balance
averaged $172.8 million and the non-Agency RMBS portfolio balance averaged $5.5
million.
Seriously
delinquent loans (loans 60+ days past due) in the Company’s securitized mortgage
loan portfolio totaled $20.3 million at June 30, 2010 versus $24.6 million at
March 31, 2010. Approximately $1.1 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. The
Company charged-off $0.6 million in previously reserved securitized mortgage
loans during the quarter.
Below is
certain information for the Company’s non-Agency securities and securitized
mortgage loan portfolio at June 30, 2010:
|
(amounts
in thousands)
|
CMBS
|
RMBS
|
Securitized
loans
|
|||||||||
|
Amortized
cost basis, net of reserves
|
$ | 166,151 | $ | 5,244 | $ | 192,666 | ||||||
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Weighted
average annualized yield for the period
|
6.72 | % | 8.30 | % | 6.58 | % | ||||||
|
Weighted
average annualized cost of funds
|
2.95 | % | 1.81 | % | 5.65 | % | ||||||
|
Net
interest spread for the period
|
3.77 | % | 6.49 | % | 0.93 | % | ||||||
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Amortized
cost (excluding reserves) as a % of par
|
94.5 | % | 91.7 | % | 100.2 | % | ||||||
Hedging
Activities
During
the second quarter of 2010, the Company entered into a $35 million pay-fixed
interest rate swap with a rate of 1.93% and original maturity of 48
months. As of June 30, 2010, the Company had a total of $215 million
in pay-fixed interest rate swaps with a weighted average rate of 1.49% 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 $190.8 million at June 30, 2010 versus $168.8 million at December 31,
2009. During the second quarter of 2010, the Company issued 70,100
shares in common stock for net proceeds of $0.6 million through its controlled
equity offering program. Book value per common share increased to
$9.80 at June 30, 2010 versus $9.40 at March 31, 2010 and $9.08 at December 31,
2009.
The
increase in book value during the quarter resulted from an increase in
accumulated other comprehensive income of $0.22 per share and retained net
income in excess of dividends paid of $0.18 per share. Accumulated
other comprehensive income increased principally as a result of the increase in
fair value of CMBS and Agency MBS. At June 30, 2010, the fair value
of CMBS was 105.1% of its amortized cost basis and 99.3% of its par
balance. At June 30, 2010, the fair value of Agency MBS was 102.1% of
its amortized cost basis and 105.5% of its par balance.
The
following table summarizes the allocation of the Company’s shareholders’ equity
as of June 30, 2010 and the net earnings contribution for the second quarter of
2010 and first quarter of 2010 on each component of allocated
capital:
|
(amounts
in thousands)
|
Asset
Carrying Basis
|
Associated
Financing (1)
|
Allocated
Shareholders’
Equity
|
%
of Shareholders’ Equity
|
2Q10
Net Earnings
Contribution(2)
|
1Q10
Net Earnings
Contribution(2)
|
||||||||||||||||||
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Agency
MBS
|
$ | 568,966 | $ | 489,782 | $ | 79,184 | 41.5 | % | $ | 4,241 | $ | 4,541 | ||||||||||||
|
Securitized
single-family mortgage loans
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58,875 | 43,872 | 15,003 | 7.9 | % | 459 | 526 | |||||||||||||||||
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Securitized
commercial mortgage loans
|
133,791 | 109,490 | 24,301 | 12.7 | % | 719 | 590 | |||||||||||||||||
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Non-Agency
CMBS
|
174,666 | 136,783 | 37,883 | 19.9 | % | 2,721 | 1,681 | |||||||||||||||||
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Non-Agency
RMBS
|
5,330 | 2,927 | 2,403 | 1.2 | % | 100 | 126 | |||||||||||||||||
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Other
investments
|
1,597 | – | 1,597 | 0.8 | % | 122 | (227 | ) | ||||||||||||||||
|
Hedging
instruments
|
– | 2,835 | (2,835 | ) | (1.5 | %) | (589 | ) | (458 | ) | ||||||||||||||
|
Cash
and cash equivalents
|
30,279 | – | 30,279 | 15.9 | % | 2 | 3 | |||||||||||||||||
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Other
assets/other liabilities
|
9,934 | 6,918 | 3,016 | 1.6 | % | 7 | 6 | |||||||||||||||||
| $ | 983,438 | $ | 792,607 | $ | 190,831 | 100.0 | % | $ | 7,782 | $ | 6,788 | |||||||||||||
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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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|
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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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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. Forward-looking
statements in this release include, without limitation, statements regarding
future interest rates and the expected performance of certain of our
investments. 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
and the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, the full impacts of which are 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)
|
June
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
(unaudited)
|
||||||||
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ASSETS
|
||||||||
|
Agency
MBS
|
$ | 568,966 | $ | 594,120 | ||||
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Non-Agency
securities
|
179,996 | 109,110 | ||||||
|
Securitized
mortgage loans, net
|
192,666 | 212,471 | ||||||
|
Other
investments
|
1,597 | 2,280 | ||||||
| 943,225 | 917,981 | |||||||
|
Cash
and cash equivalents
|
30,279 | 30,173 | ||||||
|
Derivative
assets
|
– | 1,008 | ||||||
|
Accrued
interest receivable
|
5,043 | 4,583 | ||||||
|
Other
assets
|
4,891 | 4,317 | ||||||
| $ | 983,438 | $ | 958,062 | |||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
LIABILITIES:
|
||||||||
|
Repurchase
agreements
|
$ | 590,925 | $ | 638,329 | ||||
|
Collateralized
borrowings
|
191,929 | 143,081 | ||||||
|
Derivative
liabilities
|
2,835 | – | ||||||
|
Accrued
interest payable
|
1,145 | 1,208 | ||||||
|
Other
liabilities
|
5,773 | 6,691 | ||||||
| 792,607 | 789,309 | |||||||
|
SHAREHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock
|
41,749 | 41,749 | ||||||
|
Common
stock
|
152 | 139 | ||||||
|
Additional
paid-in capital
|
390,544 | 379,717 | ||||||
|
Accumulated
other comprehensive income
|
17,436 | 10,061 | ||||||
|
Accumulated
deficit
|
(259,050 | ) | (262,913 | ) | ||||
| 190,831 | 168,753 | |||||||
| $ | 983,438 | $ | 958,062 | |||||
|
Book
value per common share
|
$ | 9.80 | $ | 9.08 | ||||
DYNEX
CAPITAL, INC.
Consolidated
Statements of Operations
(Thousands
except share and per share data)
(unaudited)
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
June
30,
|
June
30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Interest
income:
|
||||||||||||||||
|
Investments
|
$ | 11,738 | $ | 9,816 | $ | 22,761 | $ | 19,287 | ||||||||
|
Cash
and cash equivalents
|
2 | 3 | 5 | 9 | ||||||||||||
| 11,740 | 9,819 | 22,766 | 19,296 | |||||||||||||
|
Interest
expense
|
3,808 | 3,938 | 7,638 | 8,371 | ||||||||||||
|
Net
interest income
|
7,932 | 5,881 | 15,128 | 10,925 | ||||||||||||
|
Provision
for loan losses
|
(150 | ) | (139 | ) | (559 | ) | (318 | ) | ||||||||
|
Net
interest income after provision for loan losses
|
7,782 | 5,742 | 14,569 | 10,607 | ||||||||||||
|
Gain
on sale of investments, net
|
716 | 138 | 794 | 221 | ||||||||||||
|
Fair
value adjustments, net
|
71 | (507 | ) | 153 | 138 | |||||||||||
|
Other
income, net
|
555 | 753 | 1,224 | 20 | ||||||||||||
|
General
and administrative expenses:
|
||||||||||||||||
|
Compensation
and benefits
|
(870 | ) | (1,069 | ) | (1,842 | ) | (1,953 | ) | ||||||||
|
Other
general and administrative expenses
|
(987 | ) | (687 | ) | (2,094 | ) | (1,530 | ) | ||||||||
|
Net
income
|
7,267 | 4,370 | 12,804 | 7,503 | ||||||||||||
|
Preferred
stock dividends
|
(1,003 | ) | (1,003 | ) | (2,005 | ) | (2,005 | ) | ||||||||
|
Net
income to common shareholders
|
$ | 6,264 | $ | 3,367 | $ | 10,799 | $ | 5,498 | ||||||||
|
Weighted
average common shares:
|
||||||||||||||||
|
Basic
|
15,122,324 | 12,987,784 | 14,668,489 | 12,581,033 | ||||||||||||
|
Diluted
|
19,347,030 | 17,209,785 | 18,892,927 | 12,581,033 | ||||||||||||
|
Net
income per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.41 | $ | 0.26 | $ | 0.74 | $ | 0.44 | ||||||||
|
Diluted
|
$ | 0.38 | $ | 0.25 | $ | 0.68 | $ | 0.44 | ||||||||