May 06, 2013 (Close-Up Media via COMTEX) -- Dynex Capital, Inc. in a release on May 1, 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

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 percent. Our performance was driven significantly by our focus over the past twelve months on CMBS investments, which now represent 61 percent 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."

In a release on May 1, the Company noted that an earnings summary includes:

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 percent and is the difference between the yield on the Company's interest-earning investment portfolio of 3.04 percent and the cost of funds of 1.15 percent. For the fourth quarter of 2012, net interest spread of 1.93 percent consisted of the yield on the Company's interest-earning investments of 3.04 percent less the cost of funds of 1.11 percent. For the first quarter of 2012, the net interest spread of 2.41 percent consisted of the yield on the Company's interest-earning investments of 3.58 percent less the cost of funds of 1.17 percent. 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 percent of average shareholders' equity, versus $3.5 million, or 0.56 percent 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, versus $4,175.7 million at December 31, 2012. The Company's Agency MBS investments were $3,848.4 million at March 31, versus $3,492.7 million at December 31, 2012. The Company's non-Agency MBS investments were $617.3 million at March 31, versus $611.3 million at December 31, 2012. Agency MBS as a percentage of the Company's investment portfolio was 85 percent at March 31, compared to 84 percent 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 percent of the average amortized cost of Agency RMBS for the first quarter of 2013 versus $9.5 million, or 0.36 percent of the average amortized cost for Agency RMBS for the fourth quarter of 2012.

Securitized Mortgage Loans

Securitized mortgage loans had an amortized cost basis, net of reserves, of $64.8 million and a principal balance of $65.6 million with $26.9 million principal in commercial mortgage loans and $38.7 million principal in single-family mortgage loans at March 31. Seriously delinquent loans (loans 60+ days past due) totaled $4.2 million as of March 31, versus $3.4 million at December 31, 2012 and $15.2 million as of March 31, 2012. The allowance for loan losses for the Company's securitized mortgage loan portfolio has decreased to $0.3 million at March 31, from $0.4 million at December 31, 2012 due to charge-offs of $0.4 million offset by additional provisions of $0.3 million.

Hedging Activities

As of March 31, the Company had a notional total of $1.4 billion in pay-fixed interest rate swaps with a weighted average rate of 1.54 percent and a weighted average remaining maturity of 39 months. Of this amount, $25.0 million with a pay-fixed rate of 1.70 percent are forward-starting swaps. Additionally, $27.0 million of the Company's $1.4 billion of interest rate swaps are considered trading instruments and have a weighted average rate of 2.88 percent and weighted average remaining maturity of 47 months and are intended to offset market value changes of Agency CMBS with a par value at March 31, of $25.8 million which are also designated as trading instruments.

Equity Summary

Shareholders' equity was $633.3 million at March 31, versus $616.7 million at December 31, 2012. Book value per common share was $10.50 at March 31, compared to $10.30 at December 31, 2012. Net income of $19.6 million for the quarter ended March 31, exceeded the $17.1 million in preferred and common stock dividends declared as the Company utilized a portion of its tax net operating loss carryforwards to offset its distribution requirement.

Dynex Capital, Inc. is an internally managed real estate investment trust, or REIT, which invests in mortgage assets on a leveraged basis.

More Information:

www.dynexcapital.com

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