Dynex Capital, Inc. (NYSE:DX) reported its second quarter 2018
results today. As previously announced, the Company's quarterly
conference call to discuss these results is today at 10:00 a.m.
Eastern Time and may be accessed via telephone in the U.S. at
1-866-393-4306 (internationally at 1-734-385-2616) using conference
ID 1679166 or by live webcast, which includes a slide presentation,
under “Investor Center” on the Company's website
(www.dynexcapital.com).
Second Quarter 2018
Highlights
- Comprehensive income to common
shareholders of $0.05 per common share and net income to common
shareholders of $0.23 per common share
- Core net operating income to common
shareholders, a non-GAAP measure, of $0.18 per common share
- Dividend declared of $0.18 per common
share
- Book value per common share of $6.93 at
June 30, 2018 compared to $7.07 at March 31, 2018,
resulting in an economic return on book value per common share of
0.6%, inclusive of the dividend declared
- Leverage including TBA dollar roll
positions of 6.1x shareholders’ equity at June 30, 2018
compared to 6.5x at March 31, 2018
Management's Remarks
Byron Boston, President and CEO commented, “Interest rates
continued to move higher during the second quarter while the yield
curve modestly flattened. The impact of these movements on our
results was partially limited by our hedge position and the benefit
of our diversified portfolio of Agency residential and commercial
MBS. Book value declined $0.14 during the quarter, or approximately
2%, as a result of the higher interest rates and also modestly
wider credit spreads on Agency CMBS. Inclusive of the dividend of
$0.18, we posted a total economic return of $0.04 for the quarter.
We increased our capital allocation to Agency fixed-rate RMBS
during the quarter which continue to offer the best risk-adjusted
return in our investment opportunity set. Our leverage at the end
of the quarter was temporarily reduced by sales of certain Agency
hybrid ARMs and U.S. Treasuries at the end of the quarter, and we
have already reinvested these proceeds into fixed-rate Agency RMBS
during the third quarter. We continue to remain cautious given the
fragile global economic environment which is dependent on ever
increasing levels of debt and is exposed to a high potential for
fiscal or monetary policy mistakes. Overall, however, we believe
market conditions will remain favorable in the near term. Our
liquidity is strong and leverage reasonable as we move into the
third quarter of 2018.”
Second Quarter 2018 Earnings
Summary
Comprehensive income to common shareholders was $3.0 million for
the second quarter of 2018 versus comprehensive loss to common
shareholders of $(4.1) million for the first quarter of 2018. Net
income to common shareholders declined $(28.7) million to $12.7
million for the second quarter compared to $41.4 million for the
first quarter of 2018 due primarily to lower net gain on derivative
instruments as interest rate swap rates did not increase during the
second quarter of 2018 at the magnitude experienced during the
first quarter of 2018. In addition, the Company realized a loss on
sales of investments of $(12.4) million during the second quarter
of 2018, resulting primarily from sales of the Company's
adjustable-rate Agency RMBS and U.S. Treasuries, compared to a net
loss on sales of investments of $(3.8) million during the first
quarter of 2018. Net interest income also declined $(1.8) million
over the same period due to an increase of $2.5 million in interest
expense to $14.2 million from higher borrowing rates, partially
offset by an increase of $0.7 million in interest income as a
result of a larger average balance of higher yielding fixed-rate
Agency RMBS. The Company recognized an other comprehensive loss of
$(9.8) million for the second quarter of 2018 due to the decline in
fair value of the Company's investments resulting primarily from
increasing interest rates.
Core net operating income to common shareholders, a non-GAAP
measure, was $10.4 million for the second quarter of 2018 compared
to $10.2 million for the first quarter of 2018 due to an increase
in adjusted net interest income of $0.6 million partially offset by
an increase of $0.4 million in legal expenses. Adjusted net
interest income increased as a result of the increased yield on
investments including TBAs, while adjusted interest expense was
unchanged as the net periodic interest benefit from interest rate
swaps offset the increase in repurchase agreement costs during the
quarter.
Book Value and Economic
Return
Book value per common share decreased $(0.14), or (2.0%), to
$6.93 at June 30, 2018 from $7.07 at March 31, 2018
primarily due to the impact of higher interest rates during the
quarter and modest credit spread widening in Agency CMBS as
previously noted. The $(0.14) decline in book value and the $0.18
dividend declared resulted in an economic return on book value of
$0.04 per common share, or 0.6% of beginning book value, for the
second quarter of 2018. Year-to-date economic loss on book value is
(0.7)%, which is primarily driven by declines in fair value of the
Company's investments, particularly during the first quarter of
2018.
Investments and
Financing
The following table provides details of our available-for-sale
("AFS") investments and TBA dollar roll positions as of
June 30, 2018:
June 30, 2018 Type of Investment: Par
Amortized Cost Basis Fair
Market Value
($ in thousands) 30-year fixed-rate RMBS: 3.0% coupon $ 234,364 $
236,037 $ 227,408 4.0% coupon 888,778 927,838 907,375 TBA dollar
roll positions (4.0% coupon) (1) (2) 515,000 523,267 524,559 TBA
dollar roll positions (4.5% coupon) (1) (2) 250,000 259,141
259,883 Total 30-year fixed-rate RMBS 1,888,142 1,946,283
1,919,225 Adjustable-rate RMBS: 3.1% coupon (3) 37,921
38,966 39,830 Agency CMBS 998,502 1,008,887 965,524 CMBS IO
(4) n/a 607,452 613,184 Other non-Agency MBS 8,274 4,890 6,573 U.S.
Treasuries 59,000 57,973 57,923
Total AFS
portfolio and TBA dollar roll positions $ 2,991,839 $
3,664,451 $ 3,602,259
(1) Amortized cost basis and fair market value for TBA dollar
roll positions represent implied cost basis and implied market
value, respectively, for the underlying Agency MBS as if
settled.
(2) The net carrying value of TBA dollar roll positions, which
is the difference between their implied market value and implied
cost basis, was $2.0 million as of June 30, 2018 and is
included on the consolidated balance sheet within “derivative
assets”.
(3) Represents the weighted average coupon based on amortized
cost.
(4) Includes both Agency and non-Agency IO securities with a
combined notional balance of $24.6 billion.
The Company's AFS portfolio including TBA dollar roll positions
as of June 30, 2018 declined approximately 8% since March 31, 2018
due primarily to sales of $225.6 million of adjustable-rate RMBS,
$8.6 million of non-Agency CMBS IO, and $149.2 million of U.S.
Treasuries during the second quarter of 2018. Average balances of
the AFS portfolio including TBA dollar roll positions were
substantially the same at $3.95 billion and $4.00 billion during
the second and first quarter of 2018, respectively. The Company has
already re-invested the sale proceeds into 30-year fixed-rate
Agency RMBS during the third quarter of 2018. As a result of these
sales, the Company's repurchase agreement borrowings including
payables for unsettled securities as of June 30, 2018 declined
$121.8 million compared to March 31, 2018. The Company also held
$62.5 million less in TBA dollar roll positions, which the Company
includes at amortized cost as if settled in its leverage ratio, as
of June 30, 2018 compared to March 31, 2018. As a result of its
lower repurchase agreement borrowings and payables as well as TBA
dollar roll positions, the Company's leverage declined to 6.1 times
shareholder's equity as of June 30, 2018 from 6.5 times as of March
31, 2018.
Net Interest Income and Spread
The following table provides certain information about the
performance of our investments and financing including hedging
costs for the periods indicated:
Three Months Ended June 30, 2018
March 31, 2018 ($ in thousands)
Income/Expense
Average Balance Effective Yield/Cost of Funds
Income/Expense Average Balance
Effective Yield/Cost of Funds Interest-earning
assets: Agency RMBS-fixed rate $ 9,190 $ 1,135,365 3.24 % $
7,102 $ 903,134 3.15% Agency CMBS-fixed rate 7,267 1,011,945 2.80 %
7,628 1,082,206 2.80% Agency RMBS-adjustable rate 1,332 254,850
2.14 % 1,590 282,771 2.15% CMBS IO (1) 6,298 632,376 3.78 % 6,941
669,426 3.84% Other non-Agency MBS 446 5,022 30.67 % 622 18,638
11.37% U.S. Treasuries 1,001 156,420 2.57 % 967 168,508 2.33% Other
investments 388 14,576 3.99 % 340 15,442
4.05% Total $ 25,922 $ 3,210,554 3.13 % $ 25,190
$ 3,140,125 3.09%
Interest-bearing
liabilities: Repurchase agreements $ 14,181 $ 2,716,097 2.07 %
$ 11,614 $ 2,645,714 1.76% Non-recourse collateralized financing 42
5,002 2.73 % 29 5,387 2.16% De-designated cash flow hedge accretion
(48 ) n/a (0.01 )% (48 ) n/a (0.01)% Total $ 14,175 $
2,721,099 2.06 % $ 11,595 $ 2,651,101 1.75%
Net interest income/net interest spread
$
11,747 1.07 % $ 13,595
1.34% Add: TBA drop income 3,619 0.10 % 3,733 0.10%
Add: net periodic interest benefit (cost) (2) 2,333 0.35 % (220 )
(0.03)% Less: de-designated cash flow hedge accretion (48 ) (0.01
)% (48 ) (0.01)% Adjusted net interest income/adjusted net interest
spread (3)
$ 17,651 1.51 %
$ 17,060 1.40%
(1) CMBS IO includes Agency and non-Agency securities.
(2) Amount represents net periodic interest benefit (cost) of
effective interest rate swaps outstanding during the period and
excludes unrealized gains and losses from changes in fair value of
derivatives and realized gains and losses on terminated
derivatives.
(3) Represents a non-GAAP measure.
Interest income increased $0.7 million for the second quarter of
2018 compared to the prior quarter due to having a larger average
balance of higher yielding fixed-rate Agency RMBS during the second
quarter. Though the Company's interest-earning asset balance was
lower at June 30, 2018 compared to March 31, 2018, it held a larger
average balance during the second quarter of 2018, compared to the
first quarter of 2018, because the majority of the Company's
investment sales of $383.4 million occurred late in the second
quarter.
The larger average balance of fixed-rate Agency RMBS resulted in
an increase of 4 basis points in the Company's effective yield on
its investment portfolio (excluding TBAs) from the first quarter of
2018 to the second quarter of 2018. The increase in effective yield
was offset by an increase of 31 basis points in cost of financing
due to higher short-term interest rates, resulting in a net
interest spread of 1.07% for the second quarter of 2018 compared to
1.34% for the first quarter of 2018. Adjusted net interest spread
for the second quarter of 2018 increased compared to the first
quarter of 2018 primarily because periodic interest for the
Company's interest rate swaps as a percentage of its average
borrowings resulted in a net benefit of 35 basis points for the
second quarter of 2018 compared to a net cost of 3 basis points for
the first quarter of 2018.
Hedging Summary
The Company's interest rate swaps had a positive net impact on
comprehensive income of $20.6 million during the second quarter of
2018. Interest rate swaps with a notional balance of $1.0 billion
and a weighted-average pay-fixed rate of 1.32% matured during the
second quarter, and the Company added swaps with a notional balance
of $0.2 billion at a weighted average pay-fixed rate of 2.75%
during the second quarter. The following table provides information
related to the Company's average borrowings outstanding and
interest rate swaps effective for the periods indicated:
Three Months Ended ($ in thousands)
June 30,
2018 March 31, 2018 Average repurchase agreement
borrowings outstanding $ 2,716,097 $ 2,645,714 Average net TBAs
outstanding - at cost (1) 722,005 863,615 Average
borrowings and net TBAs outstanding $ 3,438,102 $ 3,509,329 Average
notional amount of interest rate swaps outstanding (excluding
forward starting swaps) $ 2,707,967 $ 3,290,556 Ratio
of average interest rate swaps to average borrowings and net TBAs
outstanding (1) 0.8 0.9 Average interest rate swap net
pay-fixed rate (excluding forward starting swaps) (2) 1.83 % 1.66 %
Average interest rate swap net receive-floating rate (2) 2.15 %
1.64 % Average interest rate swap net pay/(receive) rate (0.32 )%
0.02 %
(1) Because the Company executes TBA dollar roll transactions,
which economically represent the purchase and financing of
fixed-rate Agency RMBS, the average TBAs outstanding are included
in the ratio calculation.
(2) Includes one receive-fixed interest rate swap with a
notional balance of $100.0 million at a rate of 1.70%.
In addition to interest rate swaps, the Company has Eurodollar
futures, which it also uses to hedge its interest rate risk, with a
notional balance of $650.0 million at a weighted average rate of
1.86% with a contractual life of 3 months that will mature in
September of 2018. Eurodollar futures do not incur periodic
interest or similar costs/benefits and therefore are not included
in core net operating income to common shareholders. The Company's
Eurodollar futures had a net favorable impact on comprehensive
income of $0.2 million during the second quarter of 2018 and a
year-to-date impact of $2.1 million. This favorable impact includes
a net realized gain of $0.9 million on $650.0 million of Eurodollar
futures with a contract rate of 1.79% that matured during the
second quarter of 2018.
The aggregate notional amount of currently effective and
forward-starting interest rate swaps as of June 30, 2018 was
$2.5 billion and $1.6 billion, respectively. The following table
summarizes the weighted average notional amount and rate of
interest rate hedges (including Eurodollar futures) held as of June
30, 2018:
June 30, 2018 ($ in thousands)
Weighted Average
Notional (1) Weighted Average
Net Pay-Fixed Rate (1)
Remainder of 2018 $ 2,890,815 1.98 % 2019 2,674,027 2.10 %
2020 2,197,418 2.24 % 2021 2,165,479 2.28 % 2022 2,113,795 2.41 %
2023 1,420,000 2.57 % 2024 1,346,503 2.60 % 2025 and thereafter
229,572 2.71 %
(1) Includes one receive-fixed interest rate swap at a notional
amount of $100.0 million at a rate of 1.70%.
Company Description
Dynex Capital, Inc. is an internally managed real estate
investment trust, or REIT, which invests in mortgage assets on a
leveraged basis. The Company invests in Agency and non-Agency
RMBS, CMBS, and CMBS IO. Additional information about Dynex
Capital, Inc. is available at www.dynexcapital.com.
Use of Non-GAAP Financial
Measures
In addition to the Company's operating results presented in
accordance with GAAP, this release includes certain non-GAAP
financial measures including core net operating income to common
shareholders (including per common share), adjusted interest
expense, adjusted net interest income and the related metrics
adjusted cost of funds and adjusted net interest spread. Because
these measures are used in the Company's internal analysis of
financial and operating performance, management believes that they
provide greater transparency to our investors of management's view
of our economic performance. Management also believes the
presentation of these measures, when analyzed in conjunction with
the Company's GAAP operating results, allows investors to more
effectively evaluate and compare the performance of the Company to
that of its peers, although the Company's presentation of its
non-GAAP measures may not be comparable to other similarly-titled
measures of other companies. Schedules reconciling core net
operating income to common shareholders, adjusted interest expense,
and adjusted net interest income to GAAP financial measures are
provided as a supplement to this release.
Management views core net operating income to common
shareholders as an estimate of the Company's financial performance
excluding changes in fair value of its investments and derivatives.
In addition to the non-GAAP reconciliation set forth in the
supplement to this release, which derives core net operating income
to common shareholders from GAAP net income to common shareholders
as the nearest GAAP equivalent measure, core net operating income
to common shareholders can also be determined by adjusting net
interest income to include interest rate swap periodic interest
costs, drop income on TBA dollar roll positions, general and
administrative expenses, and preferred dividends. Management
includes drop income, which is included in "gain (loss) on
derivatives instruments, net" on the Company's consolidated
statements of comprehensive income, in core net operating income
and in adjusted net interest income because TBA dollar roll
positions are viewed by management as economically equivalent to
holding and financing Agency RMBS using short-term repurchase
agreements. Management also includes periodic interest costs from
its interest rate swaps, which are also included in "gain (loss) on
derivatives instruments, net", in adjusted net interest expense,
and in adjusted net interest income because interest rate swaps are
used by the Company to economically hedge the impact of changing
interest rates on its borrowing costs from repurchase agreements,
and including periodic interest costs from interest rate swaps is a
helpful indicator of the Company’s total cost of financing in
addition to GAAP interest expense. However, these non-GAAP measures
do not provide a full perspective on our results of operations, and
therefore, their usefulness is limited. For example, these non-GAAP
measures do not include gains or losses from available-for-sale
investments, changes in fair value of and costs of terminating
interest rate swaps, as well as realized and unrealized gains or
losses from any instrument used by management to economically hedge
the impact of changing interest rates on its portfolio and book
value per common share, such as Eurodollar futures. As a result,
these non-GAAP measures should be considered as a supplement to,
and not as a substitute for, the Company's GAAP results as reported
on its consolidated statements of comprehensive income.
Forward Looking
Statements
This release contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
The words “believe,” “expect,” “forecast,” “anticipate,”
“estimate,” “project,” “plan,” "may," "could," and similar
expressions identify forward-looking statements that are inherently
subject to risks and uncertainties, some of which cannot be
predicted or quantified. Forward-looking statements in this release
may include, without limitation, statements regarding the Company's
financial performance in future periods, future interest rates,
future market credit spreads, our views on expected characteristics
of future investment environments, prepayment rates and investment
risks, future investment strategies, our future leverage levels and
financing strategies, the use of specific financing and hedging
instruments and the future impacts of these strategies, future
actions by the Federal Reserve, and the expected performance of our
investments. The Company's actual results and timing of certain
events could differ materially from those projected in or
contemplated by the forward-looking statements as a result of
unforeseen external factors. These factors may include, but are not
limited to, changes in general economic and market conditions,
including volatility in the credit markets which impacts asset
prices and the cost and availability of financing, changes in
monetary policy and in particular the impact of changes in balance
sheet reinvestment policy of the Federal Reserve, defaults by
borrowers, availability of suitable reinvestment opportunities,
variability in investment portfolio cash flows, fluctuations in
interest rates, fluctuations in property capitalization rates and
values of commercial real estate, defaults by third-party
servicers, prepayments of investment portfolio assets, other
general competitive factors, uncertainty around the impact of
government regulatory changes, including ongoing financial
institution regulatory reform efforts, the full impacts of which
are unknown at this time, and another ownership change under
Section 382 that further impacts the use of our tax net operating
loss carryforward. For additional information on risk factors that
could affect the Company's forward-looking statements, see the
Company's Annual Report on Form 10-K for the year ended December
31, 2017, and other reports filed with and furnished to the
Securities and Exchange Commission.
All forward-looking statements are qualified in their entirety
by these and other cautionary statements that the Company makes
from time to time in its filings with the Securities and Exchange
Commission and other public communications. The Company cannot
assure the reader that it will realize the results or developments
the Company anticipates or, even if substantially realized, that
they will result in the consequences or affect the Company or its
operations in the way the Company expects. Forward-looking
statements speak only as of the date made. The Company undertakes
no obligation to update or revise any forward-looking statements to
reflect events or circumstances arising after the date on which
they were made, except as otherwise required by law. As a result of
these risks and uncertainties, readers are cautioned not to place
undue reliance on any forward-looking statements included herein or
that may be made elsewhere from time to time by, or on behalf of,
the Company.
DYNEX CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands except per share data)
June 30, 2018 March 31, 2018 December 31,
2017 ASSETS (unaudited) (unaudited) Available-for-sale
investments, at fair value: Mortgage-backed securities $ 2,759,894
$ 2,864,822 $ 3,026,989 U.S. Treasuries 57,923 204,535 146,530
Mortgage loans held for investment, net 13,628 15,099 15,738 Cash
and cash equivalents 165,126 28,072 40,867 Restricted cash 52,832
58,312 46,333 Derivative assets 7,642 4,754 2,940 Receivable for
securities sold 277 643 — Principal receivable on investments 45 66
165 Accrued interest receivable 19,326 22,913 19,819 Other assets,
net 6,084 6,456 6,397 Total assets $ 3,082,777
$ 3,205,672 $ 3,305,778
LIABILITIES
AND SHAREHOLDERS’ EQUITY Liabilities: Repurchase
agreements $ 2,514,984 $ 2,613,892 $ 2,565,902 Payable for
unsettled securities 529 23,468 156,899 Non-recourse collateralized
financing 4,393 5,290 5,520 Derivative liabilities — — 269 Accrued
interest payable 5,469 5,123 3,734 Accrued dividends payable 12,727
12,563 12,526 Other liabilities 2,441 1,712 3,870
Total liabilities 2,540,543 2,662,048 2,748,720
Shareholders’ equity: Preferred stock - aggregate
liquidation preference of $147,725, $147,725, and $147,217,
respectively $ 141,788 $ 141,788 $ 141,294 Common stock, par value
$.01 per share: 56,906,200, 55,996,048, and 55,831,549 shares
issued and outstanding, respectively 569 560 558 Additional paid-in
capital 782,011 776,117 775,873 Accumulated other comprehensive
loss (63,919 ) (54,159 ) (8,697 ) Accumulated deficit (318,215 )
(320,682 ) (351,970 ) Total shareholders' equity 542,234
543,624 557,058 Total liabilities and shareholders’
equity $ 3,082,777 $ 3,205,672 $ 3,305,778
Book value per common share $ 6.93 $ 7.07 $ 7.34
DYNEX CAPITAL, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(UNAUDITED)
(amounts in thousands except per share
data)
Three Months Ended June 30, 2018
March 31, 2018 December 31, 2017
September 30, 2017 June 30, 2017 Interest
income $ 25,922 $ 25,190 $ 24,124 $ 23,103 $ 24,856 Interest
expense 14,175 11,595 10,056 9,889
8,714 Net interest income 11,747 13,595 14,068 13,214 16,142
Gain (loss) on derivative instruments, net 20,667 38,354
12,678 5,993 (15,802 ) Loss on sale of investments, net (12,444 )
(3,775 ) (902 ) (5,211 ) (3,709 ) Fair value adjustments, net 27 29
12 23 30 Other (expense) income, net (339 ) (253 ) (50 ) (109 ) 4
General and administrative expenses: Compensation and benefits
(1,751 ) (1,962 ) (2,153 ) (2,070 ) (2,041 ) Other general and
administrative (2,255 ) (1,681 ) (1,690 ) (1,529 ) (2,056 )
Net
income (loss) 15,652 44,307 21,963 10,311 (7,432 ) Preferred
stock dividends (2,942 ) (2,940 ) (2,910 ) (2,808 ) (2,641 )
Net
income (loss) to common shareholders $ 12,710 $ 41,367
$ 19,053 $ 7,503 $ (10,073 )
Other
comprehensive income: Unrealized (loss) gain on
available-for-sale investments, net $ (22,156 ) $ (49,189 ) $
(15,438 ) $ 981 $ 8,739 Reclassification adjustment for loss on
sale of investments, net 12,444 3,775 902 5,211 3,709
Reclassification adjustment for de-designated cash flow hedges (48
) (48 ) (48 ) (48 ) (73 )
Total other comprehensive (loss)
income (9,760 ) (45,462 ) (14,584 ) 6,144 12,375
Comprehensive income (loss) to common shareholders $ 2,950
$ (4,095 ) $ 4,469 $ 13,647 $ 2,302
Net income (loss) per common share-basic and diluted
$ 0.23 $ 0.74 $ 0.36 $ 0.15 $ (0.20 )
Weighted average common
shares 56,295 55,871 53,399 49,832 49,218
DYNEX CAPITAL, INC.
KEY STATISTICS
(UNAUDITED)
($ in thousands except per share data)
As Of June 30, 2018 March 31,
2018 December 31, 2017 September 30,
2017 June 30, 2017 Portfolio and Other Balance
Sheet Statistics: Total MBS fair value $ 2,759,894 $ 2,864,822
$ 3,026,989 $ 2,921,444 $ 2,864,026 Agency CMBS, amortized cost $
1,008,887 $ 1,015,486 $ 1,134,409 $ 1,314,925 $ 1,330,084 Agency
RMBS-fixed rate, amortized cost $ 1,163,875 $ 965,173 $ 903,269 $
541,262 $ — Agency RMBS-variable rate, amortized cost $ 38,966 $
278,474 $ 289,305 $ 305,265 $ 744,089 CMBS IO, amortized cost(1) $
607,452 $ 652,563 $ 683,833 $ 717,115 $ 752,861 Other non-Agency
MBS, amortized cost $ 4,890 $ 5,092 $ 23,536 $ 37,441 $ 37,443 TBA
dollar roll positions, fair value (if settled) $ 784,442 $ 846,940
$ 830,908 $ 683,680 $ 414,644 TBA dollar roll positions, amortized
cost (if settled) $ 782,408 $ 844,941 $ 829,425 $ 683,813 $ 416,312
TBA dollar roll positions, carrying value $ 2,034 $ 1,999 $ 1,483 $
(133 ) $ (1,668 ) U.S. Treasuries, fair value $ 57,923 $ 204,535 $
146,530 $ — $ — Book value per common share $ 6.93 $ 7.07 $ 7.34 $
7.46 $ 7.38 Leverage including TBA dollar roll positions at cost as
if settled (2) 6.1 x 6.5 x 6.4 x 6.3 x 6.0 x
Three Months
Ended June 30, 2018 March 31, 2018 December
31, 2017 September 30, 2017 June 30, 2017
Performance Statistics: Net income (loss) per common share $
0.23 $ 0.74 $ 0.36 $ 0.15 $ (0.20 ) Core net operating income per
common share (3) $ 0.18 $ 0.18 $ 0.20 $ 0.19 $ 0.19 Comprehensive
income (loss) per common share $ 0.05 $ (0.07 ) $ 0.08 $ 0.27 $
0.05 Dividends per common share $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18
Average interest earning assets (4) $ 3,210,554 $ 3,140,125 $
2,939,786 $ 2,960,595 $ 3,107,014 Average TBA dollar roll position
$ 742,111 $ 866,821 $ 944,103 $ 797,484 $ 259,842 Average interest
bearing liabilities $ 2,721,099 $ 2,651,101 $ 2,563,206 $ 2,622,067
$ 2,759,022 Effective yield on investments 3.13 % 3.09 % 3.07 %
2.95 % 2.90 % Cost of funds (5) 2.06 % 1.75 % 1.53 % 1.48 % 1.25 %
Net interest spread 1.07 % 1.34 % 1.54 % 1.47 % 1.65 % Adjusted
cost of funds (6) 1.72 % 1.79 % 1.59 % 1.66 % 1.46 % Adjusted net
interest spread (7) 1.51 % 1.40 % 1.52 % 1.44 % 1.50 % CPR for
adjustable-rate Agency RMBS (8) 20.4 % 11.0 % 16.0 % 17.1 % 16.8 %
CPR for fixed-rate Agency RMBS (8) 5.7 % 5.3 % 4.3 % 1.3 % — %
(1) CMBS IO includes Agency and non-Agency issued
securities.
(2) Leverage equals the sum of (i) total liabilities and (ii)
amortized cost basis of TBA dollar roll positions (if settled)
divided by total shareholders' equity.
(3) Non-GAAP financial measures are reconciled in the supplement
to this release.
(4) Excludes TBA dollar roll positions.
(5) Percentages shown are equal to annualized interest expense
divided by average interest bearing liabilities.
(6) Adjusted cost of funds is equal to annualized adjusted
interest expense (a non-GAAP measure) divided by average interest
bearing liabilities.
(7) Adjusted net interest spread includes the impact of drop
income from TBA dollar roll positions after deducting adjusted cost
of funds from effective yield.
(8) Represents the average constant prepayment rate ("CPR")
experienced during the quarter.
DYNEX CAPITAL, INC.
SUPPLEMENTAL INFORMATION
(UNAUDITED)
($ in thousands)
Computations of Non-GAAP Measures: June 30,
2018 March 31, 2018 December 31, 2017
September 30, 2017 June 30, 2017 Net interest income
$ 11,747 $ 13,595 $ 14,068 $ 13,214 $ 16,142 Add: TBA drop income
(1) 3,619 3,733 3,925 3,902 1,351 Add: net periodic interest
benefit (cost) (2) 2,333 (220 ) (319 ) (1,131 ) (1,352 ) Less:
de-designated cash flow hedge accretion (3) (48 ) (48 ) (48 ) (48 )
(73 ) Adjusted net interest income 17,651 17,060 17,626 15,937
16,068 Other (expense) income, net (339 ) (253 ) (50 ) (109 ) 4
General and administrative expenses (4,006 ) (3,643 ) (3,843 )
(3,599 ) (4,097 ) Preferred stock dividends (2,942 ) (2,940 )
(2,910 ) (2,808 ) (2,641 ) Core net operating income to common
shareholders $ 10,364 $ 10,224 $ 10,823 $
9,421 $ 9,334
(1) TBA drop income is calculated by multiplying the notional
amount of the TBA dollar roll positions by the difference in price
between two TBA securities with the same terms but different
settlement dates.
(2) Amount represents net periodic interest benefit (cost) of
effective interest rate swaps outstanding during the period and
excludes unrealized gains and losses from changes in fair value of
derivatives and realized gains and losses on terminated
derivatives.
(3) Amount recorded as a portion of "interest expense" in
accordance with GAAP related to the accretion of the balance
remaining in accumulated other comprehensive loss as a result of
the Company's discontinuation of cash flow hedge accounting
effective June 30, 2013.
DYNEX CAPITAL, INC.
RECONCILIATIONS OF GAAP MEASURES TO
NON-GAAP MEASURES
(UNAUDITED)
($ in thousands)
Three Months Ended June 30, 2018
March 31, 2018 December 31, 2017
September 30, 2017 June 30, 2017 GAAP net
income (loss) to common shareholders $ 12,710 $ 41,367 $ 19,053 $
7,503 $ (10,073 ) Less: Change in fair value of derivative
instruments, net (1) (14,715 ) (34,841 ) (9,072 ) (3,222 ) 15,801
Loss on sale of investments, net 12,444 3,775 902 5,211 3,709
De-designated cash flow hedge accretion (2) (48 ) (48 ) (48 ) (48 )
(73 ) Fair value adjustments, net (27 ) (29 ) (12 ) (23 ) (30 )
Core net operating income to common shareholders $ 10,364 $
10,224 $ 10,823 $ 9,421 $ 9,334
Weighted average common shares 56,295 55,871 53,399 49,832 49,218
Core net operating income per common share $ 0.18 $ 0.18 $ 0.20 $
0.19 $ 0.19
(1) Amount includes unrealized gains and losses from changes in
fair value of derivatives and realized gains and losses on
terminated derivatives and excludes net periodic interest costs
incurred on effective interest rate swaps outstanding during the
period.
(2) Amount recorded as a portion of "interest expense" in
accordance with GAAP related to the accretion of the balance
remaining in accumulated other comprehensive loss as a result of
the Company's discontinuation of cash flow hedge accounting
effective June 30, 2013.
Three Months Ended June 30, 2018
March 31, 2018 December 31, 2017
September 30, 2017 June 30, 2017 GAAP net
interest income $ 11,747 $ 13,595 $ 14,068 $ 13,214 $ 16,142 Add:
TBA drop income 3,619 3,733 3,925 3,902 1,351 Add: net periodic
interest benefit (cost) (1) 2,333 (220 ) (319 ) (1,131 ) (1,352 )
Less: de-designated cash flow hedge accretion (2) (48 ) (48
) (48 ) (48 ) (73 ) Non-GAAP adjusted net
interest income $ 17,651 $ 17,060 $ 17,626 $
15,937 $ 16,068
GAAP interest expense $
14,175 $ 11,595 $ 10,056 $ 9,889 $ 8,714 Add: net periodic interest
(benefit) cost (1) (2,333 ) 220 319 1,131 1,352 Less: de-designated
cash flow hedge accretion (2) 48 48 48 48
73 Non-GAAP adjusted interest expense $ 11,890
$ 11,863 $ 10,423 $ 11,068 $ 10,139
(1) Amount represents net periodic interest benefit (cost) of
effective interest rate swaps outstanding during the period and
excludes unrealized gains and losses from changes in fair value of
derivatives and realized gains and losses on terminated
derivatives.
(2) Amount recorded as a portion of "interest expense" in
accordance with GAAP related to the accretion of the balance
remaining in accumulated other comprehensive loss as a result of
the Company's discontinuation of cash flow hedge accounting
effective June 30, 2013.
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version on businesswire.com: https://www.businesswire.com/news/home/20180802005421/en/
Dynex Capital, Inc.Alison Griffin,
804-217-5897
Dynex Capital (NYSE:DX)
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