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Dynex Capital, Inc. Reports Third Quarter 2013 Financial Results

Dynex Capital, Inc. (NYSE:DX) reported its financial results today. GAAP net loss to common shareholders was $(6.9) million, or $(0.13) per common share for the third quarter of 2013 versus net income of $18.4 million, or $0.34 per common share for the third quarter of 2012. Net loss to common shareholders for the third quarter of 2013 includes loss on derivative instruments, net of $24.0 million as a result of a decline in interest rates during the quarter. The Company elected to discontinue hedge accounting for its derivative instruments effective June 30, 2013. As such, changes in market value of the Company's interest rate swaps are now recorded in net income instead of other comprehensive income. Core net operating income to common shareholders (a non-GAAP financial measure) was $14.9 million for the third quarter of 2013, or $0.27 per common share, versus $14.7 million, or $0.27 per common share for the third quarter of 2012. The Company is reporting core net operating income for the first time in this earnings release due to management's decision to discontinue hedge accounting for its derivative instruments and to present important information about the Company‚Äôs results and operating performance to its shareholders. See "Use of Non-GAAP Financial Measures" for more information on this and other non-GAAP measures discussed in this release. The Company also reported book value per common share of $8.59 at September 30, 2013 versus $8.94 at June 30, 2013.

Quarterly Highlights

($ in thousands, except per share amounts)   3Q2013     2Q2013     3Q2012
Net interest income after provision $ 22,948 $ 22,444 $ 18,990
(Loss) gain on derivative instruments, net $ (24,019 ) $ 11,353 $ (333 )
(Loss) gain on sale of investments, net $ (825 ) $ 2,031 $ 3,480
General and administrative expenses $ (3,629 ) $ (3,795 ) $ (3,090 )
Net (loss) income to common shareholders $ (6,921 ) $ 29,442 $ 18,353
Net (loss) income per common share $ (0.13 ) $ 0.54 $ 0.34
Core net operating income to common shareholders (1) $ 14,885 $ 16,330 $ 14,746
Core net operating income per common share (1) $ 0.27 $ 0.30 $ 0.27
Return on average common equity (annualized) (5.7 )% 21.0 % 13.6 %
Adjusted return on average common equity (annualized) (1) 12.3 % 11.7 % 10.9 %
Dividend per common share $ 0.27 $ 0.29 $ 0.29
Book value per common share, end of period $ 8.59 $ 8.94 $ 10.31
Interest earnings assets, end of period $ 4,202,846 $ 4,627,188 $ 4,316,247
Average interest earning assets $ 4,371,485 $ 4,565,733 $ 3,729,124
Average interest bearing liabilities $ (3,859,653 ) $ (4,068,830 ) $ (3,296,830 )
Net interest spread 1.94 % 1.75 % 2.00 %
Adjusted net interest spread (1) 1.65 % 1.72 % 1.98 %
Portfolio CPR (excluding CMBS IO) 19.5 % 21.0 % 18.7 %
Debt to shareholders' equity ratio, end of period 6.4x 6.8x 6.1x

(1) Core net operating income to common shareholders (including on a per share basis), adjusted return on average common equity, and adjusted net interest spread are non-GAAP financial measures. Reconciliations of these non-GAAP financial measures are provided as a supplement to this release.

Management Remarks

Mr. Thomas Akin, Chairman and Chief Executive Officer, commented, "We reported core net operating income of $0.27 per common share which matched our dividend and demonstrates the consistency of our portfolio cash flow. While we experienced a decline in book value during the quarter, this was attributable to a continuation of the extreme market volatility during the last several quarters and does not alter our commitment to our investment strategy or our execution. With the steeper yield curve, we expect to benefit from an improving credit environment and slower prepayments and a portfolio which continues to roll down the yield curve."

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