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Dynex Capital, Inc. (DX)

Q2 2012 Earnings Call

July 30, 2012; 11:00 am ET


Thomas Akin - Chairman & Chief Executive Officer

Byron Boston - President & Chief Investment Officer

Stephen Benedetti - Chief Operating Officer & Chief Financial Officer

Alison Griffin - Vice President, Investor Relations


Douglas Harter - Credit Suisse

Trevor Cranston - JMP Securities

Zachary Tanenbaum - MLG

David Walrod - Ladenburg

Ken Lewis - Bank of America/Merrill Lynch

Jason Stewart - Compass Point

Jay Weinstein - Highline Wealth Management



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Good morning and welcome to the Dynex Capital, second quarter 2012 earnings conference call. All participants will be in listen-only mode. (Operator Instructions).

I would now like to turn the conference over to Alison Griffin. Please go ahead.

Alison Griffin

Thank you. Thanks everyone for joining Dynex Capital, second quarter 2012 earnings conference call. The press release associated with today’s call was issues and filed with the SEC today, July 30, 2012. You may view the press release on the company’s website at

under Investor Relations and on the SEC’s website at


Before we begin I would like to remind you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe and expect, forecasts, 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.

The company’s actual results and timing of certain events could differ considerably from those projected and/or contemplated by the forward-looking statements as a result of unforeseen external factors or risks. For additional information on these factors or risks, we refer you to our Annual Report on Form 10-K for the period ended December 31, 2011 as filed with the SEC. The document may be found on our website at under Investor Relations and on the SEC’s website at

This call is being broadcast live over the internet with a streaming slide presentation and can be found through a webcast link on the Investor Relations page of our website under IR highlights. The slide presentation may also be referenced by clicking on the Q2 2012 earnings conference call link on the IR highlights page of our website.

Now, I would like to turn the call over to Chairman and CEO, Thomas Akin.

Thomas Akin

Thanks Alison and thanks everyone for joining us this morning, bright and early on a Monday morning. With me today is Byron Boston, the President & Chief Investment Officer of Dynex Capital and Steve Benedetti our Chief Operating Officer and Chief Financial Officer. I’ll be speaking from the slide presentation on the Dynex Capital IR website and if you could move through the safe harbor agreement, I’d like to talk a little bit about the second quarter highlights.

Our diluted earnings per share were $0.35 and our book value increased from $9.62 to $9.66. Our annualized ROE was 14.3 for the quarter and our net interest per head declined to 2.18 for the quarter. Our constant prepayment rate was 14.3 and that was down from the previous quarter. Byron will discuss each of these metrics on the portfolio in detail.

Our common dividend of $0.29 represents a yield of 11.18%. The difference between our ROE of 14.3 and our dividend yield of 11.18 is shielded by our NOL, which Steve will discuss in greater detail. As many of you know, we triggered the utilization of that tax loss carried forward in the first quarter.

Our overall leverage remained a constant 6.1%, slightly up from the previous quarter, but we were not fully invested in that quarter. Our goal continues to be right in the six range and the 6.1 is consistent with what we’ve been at previously.

If you go to the next page, I’d like to talk a little bit about the recent highlights. As many of you know, last week we sold a preferred stock offering, which is actually settling on Wednesday, August 2 and is currently trading under the symbol DXPPP, but it should be trading under the New York stock exchange symbol DXPRA starting on Wednesday when it settles. The current price of that is right at par, $25 a share and we are very happy to have that capital.

And with that, we have a tax loss carry forward which we discussed. I’d like to have Steve Benedetti take just one minute and go through the details of that.

Stephen Benedetti

All right Tom, thank you. As Tom mentioned earlier in the call, we have incurred an ownership shift under section 382 of the Internal Revenue Code as the result of our February 2012 common stock issuance. So as a result of that ownership shift, our NOLs, the use of our NOL to reduce our distribution requirement is now limited to $13.4 million per year. Previously it was unlimited in its use and of course the NOL is used to offset the distribution requirement for whatever dividend is not paid or earnings are not dividended out to our shareholders. We use the NOL to reduce that taxable income, so that we do not pay taxes on the remaining amount.

The NOL expires beginning in 2020, and approximates $143 million at December 31, 2011. The $13.4 million amounts to approximately $0.25 per share and if we utilize this amount, we would retain that $0.25 per common share and increase our book value by that amount.

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