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Dynex Capital, Inc. Reports Fourth Quarter and Full Year Results

^{Published on 2011-02-10 13:11:49 - Market Wire}
 

GLEN ALLEN, Va.--([ BUSINESS WIRE ])--Dynex Capital, Inc. (NYSE: DX) reported today net income of $9.6 million, or $0.40 diluted earnings per common share, for the fourth quarter of 2010 compared to net income of $4.1 million, or $0.23 diluted earnings per common share, for the fourth quarter of 2009. The Company also reported net income of $29.5 million, or $1.41 diluted earnings per common share, for the year ended December 31, 2010 versus net income of $17.6 million, or $1.02 diluted earnings per common share, for the year ended December 31, 2009.

The Company reported that its book value per common share as of December 31, 2010 was $9.71 versus $9.80 at September 30, 2010 and $9.08 as of December 31, 2009.

Fourth Quarter 2010 Highlights

• Raised and deployed a net $73.1 million in common equity capital during the quarter, increasing the investment portfolio to $1.6 billion at December 31, 2010 versus $1.1 billion as of September 30, 2010 and $0.9 billion as of December 31, 2009;
• Generated net interest income of $10.9 million versus $8.4 million in the third quarter of 2010 and $7.0 million in the fourth quarter of 2009;
• Earned a net interest spread of 3.07% for the fourth quarter of 2010 versus 2.98% for the third quarter of 2010 and 3.12% for the fourth quarter of 2009;
• Converted the remaining Series D Preferred Stock outstanding into $41.7 million of common stock during the quarter; and
• Increased overall leverage to approximately 4.6 times shareholdersa™ equity as of December 31, 2010 from 3.8 times as of September 30, 2010.

The Company has scheduled a conference call for Friday, February 11, 2011 at 11:00 a.m. ET, to discuss fourth quarter and full year 2010 results. The call may be accessed by dialing 1-877-317-6789 and will also be available by webcast over the internet at [ www.dynexcapital.com ] through a link provided on the aInvestor Relationsa page under aIR Highlights.a

Management Comments

Thomas Akin, Chairman and Chief Executive Officer, commented, aOur strong results for the fourth quarter reflect successful execution of our hybrid investment strategy. Our short-duration Agency RMBS portfolio is performing exceptionally well in this benign prepayment environment and our non-Agency CMBS portfolio continues to generate solid earnings and cash flows. We were able to fully deploy the proceeds from our common equity offering in December by the end of the year primarily in Hybrid Agency ARMs. As of today, our current market capitalization exceeds $322 million, which is almost triple our market capitalization from a year ago. We continue to see a number of significant current market opportunities to leverage our capital and expertise. Our expectation for 2011 is continued growth and a favorable operating environment for the Company. We anticipate modestly increasing our leverage in 2011 and continuing to build on our core short duration strategy in the Agency and non-Agency MBS portfolios.a

Results of Operations

Net interest income increased to $10.9 million for the fourth quarter of 2010 from $7.0 million for the same period in 2009. The increase in net interest income is attributable to growth in average interest earning investments to $1.2 billion for the quarter versus $0.8 billion in the fourth quarter of 2009. Agency MBS and non-Agency MBS net interest income increased to $7.3 million and $2.8 million, respectively, for the fourth quarter of 2010 versus $5.5 million and $0.4 million, respectively, for the fourth quarter of 2009. Premium amortization on investments, which reduces net interest income, was $1.4 million for the fourth quarter of 2010, $0.7 million for the third quarter of 2010, and $0.7 million for the fourth quarter of 2009. Premium amortization on investments for the fourth quarter of 2010 increased versus both the third quarter of 2010 and fourth quarter of 2009 due to the greater amount of premium Agency MBS in the Companya™s investment portfolio during the fourth quarter of 2010.

Net portfolio interest spread for the fourth quarter of 2010 was 3.07%, which is the difference between the yield of 4.32% on the Companya™s interest-earning investment portfolio and its cost of funds of 1.25%. The net interest spread was 2.98% for the third quarter of 2010 and 3.12% for the fourth quarter of 2009. The net portfolio interest spread increased in the fourth quarter of 2010 from the third quarter of 2010 primarily due to a 39 basis point decline in our weighted average borrowing costs, which was mainly due to reductions in borrowing costs for repurchase agreements collateralized by non-Agency MBS.

Gain on sale of investments includes $2.2 million in gains from the liquidation of a $3.5 million delinquent securitized commercial mortgage loan during the quarter. General and administrative expense increased to $2.9 million for the fourth quarter of 2010 from $1.7 million for the fourth quarter of 2009, primarily because of $1.1 million of bonus expenses accrued during the quarter related to the Companya™s 2010 activities and results pursuant to the performance bonus program for executive management.

Agency MBS Investments

The Companya™s Agency MBS portfolio, and specifically the Companya™s investments in Hybrid Agency ARMs and fixed rate Agency CMBS, increased substantially during the fourth quarter of 2010 as the Company deployed the net proceeds of its common equity capital raising activities. As of December 31, 2010, the Company had $763.1 million in Hybrid Agency ARMs with a weighted average months-to-reset of 34 months, $226.6 million in Agency ARMs with a weighted average months-to-reset of 6 months, and $206.6 million in fixed rate Agency CMBS. The Companya™s Agency MBS at December 31, 2010 consisted of $901.9 million in Fannie Mae Agency MBS and $294.4 million in Freddie Mac Agency MBS. The following table summarizes certain information about the Companya™s Agency MBS investments for the periods presented:

Non-Agency Investments

As of December 31, 2010, the fair value of the Companya™s non-Agency CMBS and RMBS was $254.3 million and $15.4 million, respectively. Below is certain information about the Companya™s non-Agency MBS and securitized mortgage loan portfolio as of and for the quarter ended December 31, 2010:

Seriously delinquent loans (loans 60+ days past due) in the Companya™s securitized mortgage loan portfolio totaled $17.7 million as of December 31, 2010 versus $18.3 million as of September 30, 2010. Approximately $1.8 million of the delinquent loans have some form of insurance or other credit support which substantially reduces or eliminates the Companya™s exposure to losses on these loans. The Company has recorded an allowance for loan losses of $4.5 million for its securitized mortgage loan portfolio.

Hedging Activities

During the fourth quarter of 2010 the Company entered into $130 million of pay-fixed interest rate swaps with a weighted average initial term of 5 years. As of December 31, 2010, the Company had a total of $345 million in pay-fixed interest rate swaps with a weighted average rate of 1.67% and a weighted average remaining maturity of 38 months. The interest rate swaps are being used to hedge the Companya™s exposure to changes in LIBOR for its repurchase agreement borrowings.

Shareholdersa™ Equity and Book Value per Common Share

Shareholdersa™ equity was $294.7 million as of December 31, 2010 versus $225.5 million as of September 30, 2010 and $168.8 million as of December 31, 2009. Book value per common share was $9.71 as of December 31, 2010 versus $9.80 as of September 30, 2010 and $9.08 as of December 31, 2009. During the fourth quarter of 2010, the Company issued 7.4 million shares in common stock for net proceeds of $73.1 million through a common stock offering and through its equity placement program. Shareholdersa™ equity increased during 2010 by $126.0 million primarily from the issuance of $116.6 million in common equity during the year, earnings in excess of dividends paid of $6.6 million, and an increase of $2.3 million in accumulated other comprehensive income.

The following table summarizes the allocation of the Companya™s shareholdersa™ equity as of December 31, 2010 and the net earnings contribution for the fourth quarter and 2010 fiscal year on each component of the Companya™s balance sheet:

Company Description

Dynex Capital, Inc. is areal estate investment trust, or REIT, which invests in mortgage assets on a leveraged basis. The Companyinvests in Agency and non-Agency RMBS and CMBS. The Companyalso has investments in securitized single-family residential and commercial mortgage loansoriginated by the Companyfrom 1992 to 1998. Additional information about Dynex Capital, Inc. is available at [ www.dynexcapital.com ].

Note: This release contains aforward-looking statementsa within the meaning of the Private Securities Litigation Reform Act of 1995. The words abelieve,a aexpect,a aforecast,a aanticipate,a aestimate,a aproject,a aplan,a 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, characteristics of future investment environments, our future investment strategies, our future leverage levels and financing strategies, and the expected performance of certain of our investments. The Companya™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 andvalues 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 Companya™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.