Dynex Capital, Inc. Reports First Quarter 2013 Diluted EPS of $0.34 and Book Value Per Common Share
Dynex Capital, Inc.Reports First Quarter 2013 Diluted EPS of $0.34 and Book Value Per Common Share of $10.50
GLEN ALLEN, Va.--(BUSINESS WIRE)-- Dynex Capital, Inc. (NYS: DX) reported net income available to common shareholders of $18.4 million, or $0.34 per diluted common share for the first quarter of 2013 versus $18.3 million, or $0.34 per diluted common share, for the fourth quarter of 2012 and $16.5 million, or $0.33 per diluted common share, for the first quarter of 2012.
Management Remarks
Mr. Thomas Akin, Chairman and Chief Executive Officer, commented, "Our first quarter results were excellent. Our book value per common share increased by $0.20 even as interest rates increased during the quarter. Net interest income increased to $22.5 million for this quarter from $21.1 million in the prior quarter. Return on average common equity remained the same as the fourth quarter of 2012 at 13.0%. Our performance was driven significantly by our focus over the past twelve months on CMBS investments, which now represent 61% of our invested capital. The Series B preferred stock we issued in April 2013 helps to diversify our capital base while lowering our average cost of equity capital. We now have fully invested the proceeds of this issuance at accretive returns to our shareholders. We believe that our portfolio is well positioned in this low-rate and uncertain environment."
Quarterly Highlights
($ in thousands, except per share amounts) | 1Q2013 | 4Q2012 | 1Q2012 | |||||||||
Net interest income | $ | 22,526 | $ | 21,145 | $ | 19,147 | ||||||
Gain on sale of investments, net | $ | 1,391 | $ | 2,044 | $ | 351 | ||||||
General and administrative expenses | $ | (3,808 | ) | $ | (3,501 | ) | $ | (3,121 | ) | |||
Net income to common shareholders | $ | 18,381 | $ | 18,330 | $ | 16,476 | ||||||
Earnings per common share | $ | 0.34 | $ | 0.34 | $ | 0.33 | ||||||
Dividend per common share | $ | 0.29 | $ | 0.29 | $ | 0.28 | ||||||
Return on average common equity (annualized) | 13.0 | % | 13.0 | % | 14.7 | % | ||||||
Interest earnings assets, end of period | $ | 4,531,342 | $ | 4,175,662 | $ | 3,276,170 | ||||||
Average interest earning assets | $ | 4,098,681 | $ | 4,117,527 | $ | 2,771,938 | ||||||
Average interest bearing liabilities | $ | (3,641,654 | ) | $ | (3,655,229 | ) | $ | (2,398,228 | ) | |||
RMBS/single-family capital allocation, end of period | $ | 233,870 | $ | 219,766 | $ | 228,665 | ||||||
CMBS/commercial capital allocation, end of period | $ | 362,693 | $ | 361,264 | $ | 239,874 | ||||||
Book value per common share, end of period | $ | 10.50 | $ | 10.30 | $ | 9.62 | ||||||
Net interest spread | 1.89 | % | 1.93 | % | 2.41 | % | ||||||
Portfolio CPR (excluding CMBS IO) | 19.3 | % | 19.0 | % | 15.4 | % | ||||||
Debt to shareholders' equity ratio, end of period | 6.3x | 5.9x | 5.4x | |||||||||
Conference Call
As previously announced, the Company's quarterly conference call to discuss the first quarter results is 11:00 a.m. ET on May 2, 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.
Earnings Summary
Net interest income increased to $22.5 million for the first quarter of 2013 from $21.1 million for the fourth quarter of 2012 due to lower Agency RMBS premium amortization and higher prepayment penalty income received on CMBS IO investments.
Average interest earning investments decreased slightly to $4,098.7 million for the first quarter of 2013 versus $4,117.5 million for the fourth quarter of 2012. Net interest spread for the first quarter of 2013 was 1.89% and is the difference between the yield on the Company's interest-earning investment portfolio of 3.04% and the cost of funds of 1.15%. For the fourth quarter of 2012, net interest spread of 1.93% consisted of the yield on the Company's interest-earning investments of 3.04% less the cost of funds of 1.11%. For the first quarter of 2012, the net interest spread of 2.41% consisted of the yield on the Company's interest-earning investments of 3.58% less the cost of funds of 1.17%. The net interest spread declined in the first quarter of 2013 compared to the fourth quarter of 2012 primarily due to an increase in the cost of funds during the quarter related to $250 million in forward starting interest rate swaps that were entered into during 2012 and which became effective during the first quarter of 2013. The net interest spread declined for the first quarter of 2013 versus the first quarter of 2012 due primarily to the addition of lower yielding Hybrid ARMs and CMBS IO during the last twelve months and to a lesser extent from interest rate resets on ARMs.
During the first quarter of 2013, the Company sold investments in CMBS IO with a notional balance of $377.0 million and CMBS with a par balance of $31.0 million for net gains of $0.4 million and $1.0 million, respectively. General and administrative expenses were $3.8 million in the first quarter of 2013, or 0.61% of average shareholders' equity, versus $3.5 million, or 0.56% of average shareholders' equity, in the fourth quarter of 2012. General and administrative expenses increased for the first quarter of 2013 as a percentage of average shareholders' equity primarily due to seasonal factors related to accounting and auditing fees and compensation and benefits expense.
Portfolio Summary
The Company's investment portfolio was $4,531.3 million at March 31, 2013 versus $4,175.7 million at December 31, 2012. The Company's Agency MBS investments were $3,848.4 million at March 31, 2013 versus $3,492.7 million at December 31, 2012. The Company's non-Agency MBS investments were $617.3 million at March 31, 2013 versus $611.3 million at December 31, 2012. Agency MBS as a percentage of the Company's investment portfolio was 85% at March 31, 2013 compared to 84% at December 31, 2012. During the first quarter of 2013 the Company purchased $636.0 million in MBS investments.
Agency MBS Investments
The Company's Agency RMBS investments consist of ARMs and Hybrid ARMs and have a weighted average months to coupon reset of 54 months. The Company's Agency CMBS and CMBS IO investments consist of fixed rate securities collateralized by multifamily loans and have a weighted average maturity of 93 months. Premium amortization on Agency RMBS was $8.1 million, or 0.32% of the average amortized cost of Agency RMBS for the first quarter of 2013 versus $9.5 million, or 0.36% of the average amortized cost for Agency RMBS for the fourth quarter of 2012. The following table presents the Company's Agency MBS portfolio by category and certain other information as of and for the three months ended March 31, 2013:
As of March 31, 2013 | 1Q2013 | ||||||||||||||||||||||
Principal | |||||||||||||||||||||||
Balance | |||||||||||||||||||||||
(notional for | Net Premium | Amortized | WAVG | WAVG Yield | |||||||||||||||||||
($ in thousands) | CMBS IO) | (Discount) | Cost | Fair Value | Coupon | (2) | |||||||||||||||||
RMBS | $ | 2,732,173 | $ | 158,205 | $ | 2,890,378 | $ | 2,895,021 | 3.56 | % | 2.04 | % | |||||||||||
CMBS | 306,677 | 23,108 | 329,785 | 352,024 | 5.18 | % | 3.60 | % | |||||||||||||||
CMBS IO | 10,873,160 | 576,161 | 576,161 | 601,389 | 1.02 | % | 4.59 | % | |||||||||||||||
Total (1) | $ | 3,038,850 | $ | 757,474 | $ | 3,796,324 | $ | 3,848,434 | 2.60 | % | |||||||||||||
(1)Total principal balance excludes notional amount of CMBS IO.
(2)Weighted average yield is based on weighted average amortized cost for the quarter.
The following table summarizes average yield and financing costs for the Company's Agency MBS investments for the periods presented:
($ in thousands) | 1Q2013 | 4Q2012 | 1Q2012 | |||||||||
Weighted average annualized yield for the period | 2.60 | % | 2.62 | % | 2.98 | % | ||||||
Weighted average annualized cost of funds including interest rate swaps for the period | (0.93 | )% | (0.92 | )% | (0.91 | )% | ||||||
Net interest spread for the period | 1.67 | % | 1.70 | % | 2.07 | % | ||||||
Average balance of investments for the period | $ | 3,456,841 | $ | 3,492,814 | $ | 2,179,787 | ||||||
Average balance of financing for the period | $ | (3,128,324 | ) | $ | (3,167,800 | ) | $ | (1,911,423 | ) | |||
The following table presents the weighted average of constant prepayment rates ("CPRs") for the Company's Agency MBS for the periods presented:
1Q2013 | 4Q2012 | 3Q2012 | 2Q2012 | |||||||||
RMBS | 24.8 | % | 24.3 | % | 23.4 | % | 20.8 | % | ||||
CMBS | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||
Total weighted average (1) | 22.0 | % | 21.5 | % | 20.9 | % | 18.3 | % | ||||
(1)CPRs for CMBS IO are not calculated and reported.If CPRs for CMBS IO were included, the total weighted averages above would be lower.
The following table presents the weighted average coupon by weighted average months-to-reset ("MTR") for the variable-rate portion of our Agency RMBS based on par value as of March 31, 2013 and December 31, 2012:
March 31, 2013 | December 31, 2012 | |||||||||||||
WAVG | WAVG | |||||||||||||
($ in thousands) | Par Value | Coupon | Par Value | Coupon | ||||||||||
0-12 MTR | $ | 488,356 | 3.53 | % | $ | 523,711 | 3.94 | % | ||||||
13-24 MTR | 224,005 | 3.98 | % | 105,372 | 4.41 | % | ||||||||
25-36 MTR | 286,418 | 3.70 | % | 194,814 | 3.82 | % | ||||||||
37-60 MTR | 512,505 | 3.96 | % | 471,159 | 4.02 | % | ||||||||
61-84 MTR | 549,347 | 3.24 | % | 620,099 | 3.28 | % | ||||||||
Over 84 MTR | 651,893 | 3.36 | % | 490,759 | 3.40 | % | ||||||||
$ | 2,712,524 | 3.57 | % | $ | 2,405,914 | 3.69 | % | |||||||
Non-Agency MBS Investments
The following table presents the Company's non-Agency MBS portfolio by category and certain other information as of and for the three months ended March 31, 2013:
As of March 31, 2013 | 1Q2013 | |||||||||||||||||||||
Principal | ||||||||||||||||||||||
Balance | ||||||||||||||||||||||
(notional for | Net Premium | Amortized | WAVG | WAVG Yield | ||||||||||||||||||
($ in thousands) | CMBS IO) | (Discount) | Cost | Fair Value | Coupon | (2) | ||||||||||||||||
RMBS | $ | 10,053 | $ | (758 | ) | $ | 9,295 | $ | 9,580 | 4.20 | % | 5.61% | ||||||||||
CMBS | 472,650 | (16,685 | ) | 455,965 | 496,275 | 5.40 | % | 5.55% | ||||||||||||||
CMBS IO | 2,385,979 | 104,930 | 104,930 | 111,406 | 0.93 | % | 4.68% | |||||||||||||||
Total (1) | $ | 482,703 | $ | 87,487 | $ | 570,190 | $ | 617,261 | 5.39% | |||||||||||||
(1)Total principal balance excludes notional amount of CMBS IO.
(2)Weighted average yield is based on weighted average amortized cost for the quarter.
The following table summarizes average yield and financing costs for the Company's non-Agency MBS investments for the periods presented:
($ in thousands) | 1Q2013 | 4Q2012 | 1Q2012 | |||||||||
Weighted average annualized yield for the period | 5.39 | % | 5.47 | % | 6.49 | % | ||||||
Weighted average annualized cost of funds including interest rate swaps for the period | (2.58 | )% | (2.52 | )% | (2.52 | )% | ||||||
Net interest spread for the period | 2.81 | % | 2.95 | % | 3.97 | % | ||||||
Average balance of investments for the period | $ | 572,312 | $ | 548,153 | $ | 421,981 | ||||||
Average balance of financing for the period | $ | (473,177 | ) | $ | (443,288 | ) | $ | (366,590 | ) | |||
Information related to the credit ratings for the Company's non-Agency MBS as of March 31, 2013 is as follows:
Fair Value | Weighted average | ||||||||||||||
($ in thousands) | RMBS | CMBS | CMBS IO | ||||||||||||
AAA | $ | 2,712 | $ | 153,348 | $ | 111,406 | 43.3 | % | |||||||
AA | 343 | 60,429 | — | 9.9 | % | ||||||||||
A | 167 | 239,413 | — | 38.8 | % | ||||||||||
Below A or not rated | 6,358 | 43,085 | — | 8.0 | % | ||||||||||
$ | 9,580 | $ | 496,275 | $ | 111,406 | 100.0 | % | ||||||||
