Dynex Capital, Inc. Reports Fourth Quarter 2012 Diluted EPS of $0.34 and Book Value Per Common Share of $10.30
Dynex Capital, Inc. Reports Fourth Quarter 2012 Diluted EPS of $0.34 and
Book Value Per Common Share of $10.30
Business Wire
GLEN ALLEN, Va. -- February 20, 2013
Dynex Capital, Inc. (NYSE: DX) reported net income available to common
shareholders of $18.3 million, or $0.34 per diluted common share for the
fourth quarter of 2012 versus $18.4 million, or $0.34 per diluted common
share, for the third quarter of 2012 and $14.4 million, or $0.36 per diluted
common share, for the fourth quarter of 2011. The Company reported net income
available to common shareholders of $72.0 million, or $1.35 per common share
for the year ended December 31, 2012 compared to $39.8 million, or $1.03 per
common share for the same period in 2011.
Management Remarks
Mr. Thomas Akin, Chairman and Chief Executive Officer, commented, "We are very
pleased with the consistency of our results. We posted a return on average
common equity of 13.0% for the fourth quarter and 13.8% for the full year
2012. We increased equity by $245.4 million during the year to $616.7 million
at December 31, 2012 and executed our strategy of allocating more capital to
CMBS. We grew book value per common share during the year by $1.10 to $10.30
at December 31, 2012. For the fourth quarter, our net interest spread was a
solid 1.93%, a modest decline of 0.07% from the third quarter's 2.00%. Our
total portfolio repayments for the quarter were $233.6 million, or less than
6% of our average assets. Our strategy of investing in short duration high
quality assets has consistently performed and we remain well positioned for
the uncertain investment environment that lies ahead."
Quarterly Highlights
($ in thousands, except per 4Q2012 3Q2012 4Q2011
share amounts)
Net interest income $ 21,145 $ 19,100 $ 16,972
Gain on sale of $ 2,044 $ 3,480 $ 773
investments, net
General and administrative $ (3,501 ) $ (3,090 ) $ (3,249 )
expenses
Net income to common $ 18,330 $ 18,353 $ 14,406
shareholders
Earnings per common share $ 0.34 $ 0.34 $ 0.36
Dividend per common share $ 0.29 $ 0.29 $ 0.28
Return on average common 13.0 % 13.5 % 15.6 %
equity
Average interest earning $ 4,117,527 $ 3,729,124 $ 2,487,167
assets
Average interest bearing $ (3,655,229 ) $ (3,296,830 ) $ (2,182,788 )
liabilities
RMBS and single-family $ 219,766 $ 255,126 $ 146,437
capital allocation
CMBS and commercial capital $ 361,264 $ 346,287 $ 189,851
allocation
Book value per common share $ 10.30 $ 10.31 $ 9.20
Net interest spread 1.93 % 2.00 % 2.56 %
Portfolio CPR (excluding 19.0 % 18.7 % 17.8 %
CMBS IOs)
Debt to equity ratio 5.9x 6.1x 6.0x
Conference Call
As previously announced, the Company's quarterly conference call to discuss
the fourth quarter results is tomorrow, February 20, 2013 at 11:00 a.m. ET.
Interested investors may access the call and the related slides by dialing
1-888-317-6016 or by webcast over the internet at www.dynexcapital.com through
a link provided under “Investor Relations/IR Highlights.”
Earnings Summary
Net interest income was $21.1 million for the fourth quarter of 2012 versus
$19.0 million for the third quarter of 2012. Average interest earning
investments increased to $4,117.5 million for the fourth quarter of 2012
versus $3,729.1 million for the third quarter of 2012. Our net interest spread
for the fourth quarter of 2012 of 1.93% is the difference between the yield on
the Company's interest-earning investment portfolio of 3.04% and the cost of
funds of 1.11%. For the third quarter of 2012, net interest spread of 2.00%
consisted of the yield on the Company's interest-earning investments of 3.12%
less the cost of funds of 1.12%. For the fourth quarter of 2011, the net
interest spread of 2.56% consisted of the yield on the Company's
interest-earning investments of 3.76% less the cost of funds of 1.20%. The net
interest spread declined in the fourth quarter due primarily to declining
yields on the Company's Agency MBS portfolio from recent purchases of Hybrid
ARMs and CMBS IOs and from interest rate resets on ARMs.
During the fourth quarter of 2012, the Company sold $20.4 million in principal
amount of non-Agency CMBS for a gain of $1.8 million and Agency CMBS IO with
an amortized cost basis of $23.9 million (and a notional balance of $333.0
million) for a gain of $0.2 million, resulting in a total gain on sale of
investments of $2.0 million. General and administrative expenses were $3.5
million in the fourth quarter of 2012, or 0.56% of average shareholders'
equity, versus $3.1 million, or 0.54% of average shareholders' equity, in the
third quarter of 2012. General and administrative expenses increased as a
percentage of average shareholders' equity as a result of the accrual of an
additional $0.5 million in incentive compensation expense during the fourth
quarter of 2012.
Portfolio Summary
The Company's investment portfolio was $4,175.7 million at December 31, 2012
versus $4,316.2 million at September 30, 2012. The Company's Agency MBS
investments were $3,492.7 million at December 31, 2012 versus $3,650.7 million
at September 30, 2012. The Company's non-Agency MBS investments were $611.3
million at December 31, 2012 versus $586.9 million at September 30, 2012.
Agency MBS as a percentage of the Company's investment portfolio was 84% at
December 31, 2012 compared to 85% at September 30, 2012. During the fourth
quarter of 2012 the Company purchased $168.8 million in CMBS and CMBS IO,
while the Agency RMBS portfolio declined by a net $228.8 million, principally
from prepayments and amortization of investment premium. Overall, RMBS and
related investments totaled $2.6 billion and CMBS and related investments
totaled $1.6 billion at December 31, 2012. At December 31, 2012, the Company
had $137.2 million in investment premium on Agency RMBS versus $145.9 million
at September 30, 2012, and $665.3 million in investment premium on CMBS and
CMBS IO versus $605.3 million at September 30, 2012.
Agency MBS Investments
The Company's Agency RMBS investments consist of ARMs and Hybrid ARMs and have
a weighted average months to coupon reset of 53 months. The Company's Agency
CMBS and CMBS IO investments consist of fixed rate securities collateralized
by multifamily loans and have a weighted average maturity of 125 months.
Premium amortization on Agency RMBS during the fourth quarter of 2012 was $9.5
million, or 0.36% of the average amortized cost of Agency RMBS for the fourth
quarter versus $9.5 million, or 0.39% of the average amortized cost for Agency
RMBS for the third quarter of 2012. The following table presents the Company's
Agency MBS portfolio by category and certain other information as of and for
the three months ended December 31, 2012:
Quarter
ended
As of December 31, 2012 December
31, 2012
Principal Net Premium WAVG
Balance
($ in (notional for Amortized WAVG
thousands) IOs) (Discount) Cost Fair Value Coupon Yield
((2))
RMBS $ 2,425,826 $ 137,168 $ 2,562,994 $ 2,571,337 3.67 % 2.08 %
CMBS 306,527 23,517 330,044 354,142 5.19 % 3.67 %
CMBS IO 10,059,495 550,171 550,171 567,180 0.95 % 4.66 %
Total ^(1) $ 2,732,353 $ 710,856 $ 3,443,209 $ 3,492,659 2.62 %
(1) Total principal balance excludes notional amount of IO securities.
(2) Weighted average yield is based on weighted average amortized cost for
the quarter.
The following table summarizes average yield and financing costs for the
Company's Agency MBS investments for the periods presented:
Quarter ended Quarter ended Quarter ended
($ in thousands) December 31, 2012 September 30, 2012 December 31, 2011
Weighted average
annualized yield 2.62 % 2.63 % 3.11 %
for the period
Weighted average
annualized cost
of funds
including (0.92 )% (0.90 )% (0.91 )%
interest rate
swaps for the
period
Net interest
spread for the 1.70 % 1.73 % 2.20 %
period
Average balance
of investments $ 3,492,814 $ 3,109,770 $ 1,963,313
for the period
Average balance
of financing for $ (3,167,800 ) $ (2,815,949 ) $ (1,769,923 )
the period
The following table presents the average constant prepayment rates ("CPRs")
for the Company's Agency RMBS and CMBS for the periods presented (CMBS IOs are
not presented as CPRs are not available for IOs):
Quarter ended Quarter ended Quarter Quarter
ended ended
December 31, September 30, June 30, March 31,
2012 2012 2012 2012
RMBS 24.3 % 23.4 % 20.8 % 21.4 %
CMBS — — — —
Total 21.5 % 20.9 % 18.3 % 18.4 %
Non-Agency MBS Investments
The following table presents the Company's non-Agency MBS portfolio by
category and certain other information as of and for the three months ended
December 31, 2012:
Quarter
ended
As of December 31, 2012 December
31, 2012
Principal Net WAVG
Balance Premium
($ in (notional Amortized WAVG
thousands) for IOs) (Discount) Cost Fair Value Coupon Yield
((2))
RMBS $ 11,411 $ (781 ) $ 10,630 $ 11,038 4.28 % 5.55 %
CMBS 463,747 (17,313 ) 446,434 486,342 5.31 % 5.64 %
CMBS IO 2,393,614 108,928 108,928 113,942 0.86 % 4.75 %
Total ^(1) $ 475,158 $ 90,834 $ 565,992 $ 611,322 5.47 %
(1) Total principal balance excludes notional amount of IO securities.
(2) Weighted average yield is based on weighted average amortized cost for
the quarter.
The following table summarizes average yield and financing costs for the
Company's non-Agency MBS investments for the periods presented:
Quarter ended Quarter ended Quarter ended
($ in thousands) December 31, 2012 September 30, 2012 December 31, 2011
Weighted average
annualized yield 5.47 % 5.67 % 6.36 %
for the period
Weighted average
annualized cost
of funds
including (2.52 )% (2.58 )% (2.73 )%
interest rate
swaps for the
period
Net interest
spread for the 2.95 % 3.09 % 3.63 %
period
Average balance
of investments $ 548,153 $ 533,536 $ 404,574
for the period
Average balance
of financing for $ (443,288 ) $ (427,487 ) $ (336,955 )
the period
The decline in net interest spread for non-Agency MBS for the fourth quarter
of 2012 compared to the third quarter of 2012 was primarily due to purchases
during the fourth quarter. Approximately $44.8 million and $19.5 million of
CMBS and CMBS IO were purchased during the fourth quarter of 2012 at an
approximate weighted average yield of 3.19% and 3.33%, respectively, which are
lower than the weighted average yields of 5.72% and 5.39%, respectively,
earned on these portfolios during the third quarter of 2012.
Information related to the credit ratings for the Company's non-Agency MBS as
of December 31, 2012 is as follows:
RMBS CMBS IOs Weighted average
AAA $ 975 $ 156,180 $ 112,107 44.0 %
AA — 46,967 1,836 8.0 %
A 3,528 275,310 — 45.6 %
Below A or not 6,535 7,885 — 2.4 %
rated
Securitized Mortgage Loans
Securitized mortgage loans had an amortized cost basis, net of reserves, of
$70.8 million and a principal balance of $71.8 million with $30.4 million
principal in commercial mortgage loans and $41.3 million principal in
single-family mortgage loans at December 31, 2012. Seriously delinquent loans
(loans 60+ days past due) totaled $3.4 million as of December 31, 2012 versus
$3.4 million at September 30, 2012 and $18.4 million as of December 31, 2011.
As of December 31, 2012, the allowance for loan losses for the Company's
securitized mortgage loan portfolio remained unchanged from September 30, 2012
at $0.4 million compared to $2.5 million at December 31, 2011.
Hedging Activities
As of December 31, 2012, the Company had a notional total of $1.5 billion in
pay-fixed interest rate swaps with a weighted average rate of 1.53% and a
weighted average remaining maturity of 41 months. Of this amount, $275.0
million with a weighted average pay-fixed rate of 1.62% are forward-starting
swaps, $150.0 million of which became effective in January 2013 with the
remaining $125 million to become effective in March and April 2013.
Additionally, $27.0 million of the Company's $1.5 billion of interest rate
swaps are considered trading instruments and have a weighted average rate of
2.88% and weighted average remaining maturity of 50 months and are intended to
offset market value changes of Agency CMBS with a par value at December 31,
2012 of $25.9 million which are also designated as trading instruments.
Equity Summary
Shareholders' equity was $616.7 million at December 31, 2012, a decrease from
$617.9 million at September 30, 2012 and an increase from $371.3 million at
December 31, 2011. Book value per common share of $10.30 at December 31, 2012
was essentially unchanged from September 30, 2012. Book value per common share
was $9.20 at December 31, 2011. Net income of $19.6 million for the quarter
ended December 31, 2012 exceeded the $17.0 million in preferred and common
stock dividends declared as the Company utilized a portion of its tax net
operating loss carryforwards to offset its distribution requirement.
Accumulated other comprehensive income declined during the fourth quarter of
2012 by $3.4 million due to the decreasing market value of our Agency RMBS.
Also during the quarter the Company purchased 104,000 shares of common stock
under its share repurchase program at a net cost of $0.9 million.
The following table summarizes the allocation of the Company's shareholders'
equity as of December 31, 2012 and the net interest income contribution for
the quarters indicated to each component of the Company's balance sheet:
Associated 3Q12 Net
Financing^(1)/ Allocated % of 4Q12 Net Interest
Asset Liability Shareholders' Shareholders' Interest Income
Carrying Income
($ in Basis Carrying Basis Equity Equity Contribution Contribution
thousands)
Agency RMBS $ 2,571,337 $ 2,365,982 $ 205,355 33.3 % $ 8,928 $ 8,125
Agency CMBS 354,142 248,771 105,371 17.1 % 1,565 1,501
Agency CMBS IO 567,180 442,881 124,299 20.2 % 5,077 3,584
Non-Agency RMBS 11,038 7,808 3,230 0.5 % 130 176
Non-Agency CMBS 486,342 397,159 89,183 14.5 % 3,623 3,903
Non-Agency CMBS 113,942 88,221 25,721 4.2 % 903 681
IO
Securitized
mortgage loans 70,823 43,810 27,013 4.4 % 877 999
^(2)
Other
investments 858 — 858 0.1 % 20 21
^(2)
Derivative — 42,537 (42,537 ) (6.9 )% — —
instruments^(3)
Cash and cash 55,809 — 55,809 9.0 % — —
equivalents
Other
assets/other 48,758 26,350 22,408 3.6 % — —
liabilities
$ 4,280,229 $ 3,663,519 $ 616,710 100.0 % $ 21,123 $ 18,990
Associated financing for investments includes repurchase agreements and
securitization financing issued to third parties (which is presented on
(1) the Company's balance sheet as “non-recourse collateralized financing”).
Associated financing for hedging instruments represents the fair value
of the interest rate swap agreements in a liability position.
(2) Net interest income contribution amount is after provision for loan
losses.
Net interest expense from derivative instruments designated as hedges of
(3) repurchase agreement financing is included within net interest income
contribution amounts for each respective investment category.
Company Description
Dynex Capital, Inc. is an internally managed real estate investment trust, or
REIT, which invests in mortgage assets on a leveraged basis. The Company is
actively investing in Agency and non-Agency RMBS 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, our views on expected
characteristics of future investment environments and risks posed by our
investment portfolio, our future investment strategies, our future leverage
levels and financing strategies, and the expected performance of our
investment portfolio and 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 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 another ownership change under Section 382 that
further impacts the use of our tax net operating loss carryforward. For
additional information on risk factors that could affect the Company's
forward-looking statements, see the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2012 and for the quarter ended June 30,
2012, the Company's Annual Report on Form 10-K for the year ended December 31,
2011, and other reports filed with and furnished to the Securities and
Exchange Commission.
DYNEX CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share and per share data)
December 31, 2012 December 31, 2011
ASSETS (unaudited)
Agency MBS $ 3,492,659 $ 1,965,159
Non-Agency MBS 611,322 421,096
Securitized mortgage loans, net 70,823 113,703
Other investments, net 858 1,018
4,175,662 2,500,976
Cash and cash equivalents 55,809 48,776
Principal receivable on investments 17,008 13,826
Accrued interest receivable 23,073 12,609
Other assets, net 8,677 6,006
Total assets $ 4,280,229 $ 2,582,193
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Repurchase agreements $ 3,564,128 $ 2,093,793
Non-recourse collateralized financing 30,504 70,895
Derivative liabilities 42,537 27,997
Accrued interest payable 2,895 2,165
Accrued dividends payable 16,770 11,307
Other liabilities 6,685 4,687
Total liabilities 3,663,519 2,210,844
Shareholders’ equity:
Preferred stock, par value $.01 per
share, 8.5% Series A Cumulative
Redeemable; 8,000,000 shares 55,407 —
authorized; 2,300,000 and no shares
issued and outstanding, respectively
Common stock, par value $.01 per
share, 100,000,000 shares authorized; 543 404
54,268,915 and 40,382,530 shares
issued and outstanding, respectively
Additional paid-in capital 759,214 634,683
Accumulated other comprehensive income 52,511 (3,255 )
(loss)
Accumulated deficit (250,965 ) (260,483 )
Total shareholders' equity 616,710 371,349
Total liabilities and shareholders’ $ 4,280,229 $ 2,582,193
equity
Book value per common share $ 10.30 $ 9.20
DYNEX CAPITAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share data)
Three Months Ended For the Year Ended
December 31, December 31,
2012 2011 2012 2011
Interest income: (unaudited) (unaudited) (unaudited)
Agency MBS $ 22,976 $ 15,154 $ 77,761 $ 56,814
Non-Agency MBS 7,515 6,862 29,967 18,825
Securitized mortgage 1,065 1,662 5,395 7,615
loans
Other investments 20 26 425 123
31,576 23,704 113,548 83,377
Interest expense:
Repurchase agreements 10,116 6,075 33,789 19,569
Non-recourse
collateralized 315 657 1,358 4,513
financing
10,431 6,732 35,147 24,082
Net interest income 21,145 16,972 78,401 59,295
Provision for loan (22 ) (121 ) (192 ) (871 )
losses
Net interest income
after provision for 21,123 16,851 78,209 58,424
loan losses
Litigation settlement — — — (8,240 )
and related costs
(Loss) gain on
non-recourse — — — (1,970 )
collateralized
financing
Gain on sale of 2,044 773 8,461 2,096
investments, net
Fair value adjustments, (44 ) (19 ) (173 ) (676 )
net
Other income, net (70 ) 50 281 134
General and
administrative
expenses:
Compensation and (2,359 ) (1,874 ) (7,635 ) (5,321 )
benefits
Other general and (1,142 ) (1,375 ) (5,101 ) (4,635 )
administrative
Net income 19,552 14,406 74,042 39,812
Preferred stock (1,222 ) — (2,036 ) —
dividends
Net income to common $ 18,330 $ 14,406 $ 72,006 $ 39,812
shareholders
Weighted average common
shares:
Basic 54,318 40,381 53,146 38,580
Diluted 54,318 40,381 53,146 38,581
Net income per common
share:
Basic $ 0.34 $ 0.36 $ 1.35 $ 1.03
Diluted $ 0.34 $ 0.36 $ 1.35 $ 1.03
Dividends declared per $ 0.29 $ 0.28 $ 1.15 $ 1.09
common share
Contact:
Dynex Capital, Inc.
Alison Griffin, 804-217-5897
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