Dynex Capital, Inc. (DX) Q2 2012 Earnings Call July 30, 2012; 11:00 am ET Executives 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 Analysts 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 Presentation Operator
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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. Read the rest of this transcript for free on seekingalpha.com