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Dynex Capital, Inc. Reports Second Quarter 2013 Diluted EPS Of $0.54 And Book Value Per Common Share Of $8.94

Dynex Capital, Inc. (NYSE: DX) reported net income available to common shareholders of $29.4 million, or $0.54 per diluted common share for the second quarter of 2013 versus $18.8 million, or $0.35 per diluted common share for the second quarter of 2012. The Company also reported book value per common share of $8.94 per common share at June 30, 2013 versus $10.50 at March 31, 2013.

Quarterly Highlights

     
($ in thousands, except per share amounts) 2Q2013 1Q2013 2Q2012
Net interest income $ 22,444 $ 22,526 $ 19,008
Gain on sale of investments, net $ 2,031 $ 1,391 $ 2,587
Fair value adjustments, net $ 10,753 $ (157 ) $ 117
General and administrative expenses $ (3,795 ) $ (3,808 ) $ (3,024 )
Net income to common shareholders $ 29,442 $ 18,381 $ 18,847
Earnings per common share $ 0.54 $ 0.34 $ 0.35
Dividend per common share $ 0.29 $ 0.29 $ 0.29
Return on average common equity (annualized) (1) 13.2 % 13.0 % 14.3 %
Interest earnings assets, end of period $ 4,627,188 $ 4,531,342 $ 3,276,170
Average interest earning assets $ 4,565,733 $ 4,098,681 $ 3,339,546
Average interest bearing liabilities $ (4,068,830 ) $ (3,641,654 ) $ (2,916,801 )
RMBS/single-family capital allocation, end of period $ 218,029 $ 233,870 $ 204,631
CMBS/commercial capital allocation, end of period $ 313,133 $ 362,693 $ 279,545
Book value per common share, end of period $ 8.94 $ 10.50 $ 9.66
Net interest spread 1.75 % 1.89 % 2.18 %
Portfolio CPR (excluding CMBS IO) 21.0 % 19.3 % 14.3 %
Debt to shareholders' equity ratio, end of period 6.8x 6.3x 6.1x
 

(1) The annualized return on average common equity for the second quarter of 2013 was calculated using an adjusted net income to common shareholders of $18.4 million. This amount excludes fair value adjustments of $11.0 million related to long-term interest rate swaps added during the quarter for which the Company did not elect hedge accounting. On a GAAP basis, including the fair value adjustments, our net income to common shareholders and annualized return on average common equity for the second quarter of 2013 were $29.4 million and 21.0%, respectively. Management believes the adjusted return on average common equity is useful to investors because it enhances comparability between the periods presented.

Conference Call

As previously announced, the Company's quarterly conference call to discuss the second quarter results is 11:00 a.m. ET on August 1, 2013. Interested investors may access the call by dialing 1-888-317-6016 or by accessing the webcast, the link for which is provided under “Investor Relations/IR Highlights” on our website ( www.dynexcapital.com). A slide presentation will accompany the webcast and will also be available one hour prior to the call at the same location on our website.

Management Remarks

Mr. Thomas Akin, Chairman and Chief Executive Officer, commented, "Mortgage REIT portfolios experienced a volatile combination of rising rates and spreads during the second quarter that sent book values substantially lower. Leverage ratios were also affected and moved sharply higher for most mortgage REITs as book values dropped. At Dynex, we were disappointed to see our book value decrease, but our business model and portfolio remain largely intact as our leverage moved modestly higher and yet remained within our targets. Additionally, because we did not invest in 15-year or 30-year mortgages but instead invested in securities with shorter maturities and more predictable cash flows, our duration extension in the quarter was minimal. Going forward, we expect to maintain our leverage target below 6.5 times consistent with our investment discipline. Our conservative investment strategy of low duration, high quality investments remains applicable in the current environment, and we expect to recover shareholder value as our portfolio rolls down the yield curve and as markets stabilize."

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