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Dynex Capital, Inc. Reports Second Quarter Diluted EPS of $0.38 and Book Value Per Common Share of $9.80

Posted by Dana in July 28th 2010

Dynex Capital, Inc. (NYSE: DX) reported diluted earnings per common share of $0.38 for the second quarter of 2010 versus $0.25 for the second quarter of 2009. The Company also reported book value per common share of $9.80 at June 30, 2010 versus $9.40 at March 31, 2010 and $9.08 at December 31, 2009. Other highlights for the quarter include:

* Net interest income of $7.9 million in the second quarter of 2010 versus $7.2 million in the first quarter of 2010 and $5.9 million in the second quarter of 2009;
* Net interest spread of 2.75% for the second quarter of 2010 versus 2.96% for the first quarter of 2010 and 3.10% for the second quarter of 2009;
* Investment portfolio of $943.2 million at June 30, 2010 versus $954.4 million at March 31, 2010 and $918.0 million at December 31, 2009;
* Seriously delinquent securitized mortgage loans declined $4.2 million during the quarter, or 17%, to $20.3 million at June 30, 2010 and no new commercial mortgage loans became seriously delinquent during the quarter;
* Investment portfolio at June 30, 2010 is composed of 60% Agency MBS and 40% of non-Agency securities and securitized mortgage loans; and
* Overall leverage of 4.2 times equity capital at June 30, 2010.

Results of Operations

The increase in net income for the second quarter of 2010 as compared to the same period in 2009 resulted from an increase in net interest income and gain on sale of investments.

Net interest income increased to $7.9 million for the second quarter of 2010 from $5.9 million for the same period in 2009. Most of the increase is attributable to a growth in average interest earning investments of $234.9 million to $941.0 million for the second quarter of 2010, partially offset by a decline in the yield on earning assets. Premium amortization for the second quarter of 2010 was $1.9 million versus $1.6 million for the first quarter of 2010 and $0.6 million in the second quarter of 2009. Premium amortization was higher due primarily to Fannie Mae delinquent loan buy-out activity during the second quarter in the Agency MBS portfolio. Total principal payments received in Agency MBS were $73.2 million during the second quarter of 2010, versus $56.3 million in the first quarter of 2010 and $30.6 million during the second quarter of 2009. Net interest income for the quarter also included $1.1 million in yield maintenance on CMBS as discussed further below.

Net portfolio interest spread for the second quarter of 2010 was 2.75%, which is the difference between the yield of 4.76% on the Company’s interest-earning investment portfolio (excluding cash balances) and its cost of funds of 2.01%. The net portfolio interest spread was 3.10% for the second quarter of 2009 and 2.96% for the first quarter of 2010. The net interest spread declined in the second quarter of 2010 versus the first quarter of 2010 due principally to a 21 basis point decline in investment yields during the quarter from higher premium amortization and as interest rates on certain Agency ARMs reset down during the period. The net interest spread declined from the second quarter of 2009 due principally to a 70 basis point decline in investment yields offset in part by a decline of 36 basis points in weighted-average borrowing costs from declining repurchase agreement rates.

Gain on sale of investments for the second quarter of 2010 of $0.7 million resulted from the sale of $18.7 million in short-reset Agency ARMs. The Company sold these ARMs prior to their reset to lower rates and deployed the sale proceeds in CMBS.

Two loans underlying certain CMBS prepaid during the second quarter of 2010 resulting in the receipt of $1.1 million of yield maintenance, which is included in net interest income, and the reversal of $0.4 million in valuation impairment, which is included in other income for the quarter.