Dynex Capital, Inc. ("Dynex" or the "Company") (NYSE: DX)
reported its fourth quarter and full year 2023 financial results
today. Management will host a call today at 10:00 a.m. Eastern Time
to discuss the results and business outlook. Details to access the
call can be found below under "Earnings Conference Call."
Financial Performance
Summary
- Total economic return of $1.45 per common share, or 11.8% of
beginning book value, for the fourth quarter of 2023, and $0.14 per
common share, or 1.0% of beginning book value, for the full year
2023
- Book value per common share of $13.31 as of December 31,
2023
- Comprehensive income of $1.44 per common share and net income
of $0.39 per common share for the fourth quarter of 2023;
comprehensive income of $0.16 per common share and net loss of
$(0.25) per common share for the full year 2023
- REIT taxable income is estimated to include a benefit of $23.7
million, or $0.42 per average common share, from amortization of
deferred tax hedge gains for the fourth quarter of 2023 and $80.5
million, or $1.47 per average common share, for the full year
- Dividends declared of $0.39 per common share for the fourth
quarter of 2023 and $1.56 per common share for the full year
- Raised equity capital of $5.9 million during the fourth quarter
through at-the-market ("ATM") common stock issuances, bringing
total capital raised for 2023 to $42.6 million, net of $0.5 million
issuance costs. For the year, capital was raised at a premium to
book value.
- Average balance of interest-earning assets for 2023 increased
50% compared to the prior year
- Leverage including to-be-announced ("TBA") securities at cost
was 7.8 times shareholders' equity as of December 31, 2023
Management Remarks
"Our shareholders earned a total return of 12% for 2023. We
actively managed our mortgage-backed investment portfolio through a
historically volatile period. Our strong financial results and
returns are a testament to our disciplined investment approach and
the expertise of our team." said Byron L. Boston, Chairman and CEO
of Dynex Capital, Inc. "I am confident we are well-positioned to
navigate these dynamic market conditions while honoring our
ethics-based approach and delivering compelling shareholder returns
over the long term."
Earnings Conference Call
As previously announced, the Company's conference call to
discuss these results is today at 10:00 a.m. Eastern Time and may
be accessed via telephone in the United States by dialing
1-888-330-2022 and providing the ID 1957092 or by live audio
webcast by clicking the "Webcast" button in the “Current Events”
section on the homepage of the Company's website
(www.dynexcapital.com), which includes a slide presentation. To
listen to the live conference call via telephone, please dial in at
least ten minutes before the call begins. An archive of the webcast
will be available on the Company's website approximately two hours
after the live call ends.
Consolidated Balance Sheets
($s in thousands except per share
data)
December 31, 2023
September 30, 2023
December 31, 2022
ASSETS
(unaudited)
(unaudited)
Cash and cash equivalents
$
119,639
$
271,168
$
332,035
Cash collateral posted to
counterparties
118,225
145,268
117,842
Mortgage-backed securities (including
pledged of $5,880,747, $5,279,554, and $2,810,957,
respectively)
6,038,948
5,583,758
3,112,705
Due from counterparties
1,313
—
10,348
Derivative assets
54,361
4,594
7,102
Accrued interest receivable
28,727
26,756
15,260
Other assets, net
8,537
9,238
9,942
Total assets
$
6,369,750
$
6,040,782
$
3,605,234
LIABILITIES AND SHAREHOLDERS’
EQUITY
Liabilities:
Repurchase agreements
$
5,381,104
$
5,002,230
$
2,644,405
Due to counterparties
95
152,955
4,159
Derivative liabilities
—
22,029
22,595
Cash collateral posted by
counterparties
46,001
—
435
Accrued interest payable
53,194
43,168
16,450
Accrued dividends payable
10,320
9,972
9,103
Other liabilities
8,301
6,082
6,759
Total liabilities
5,499,015
5,236,436
2,703,906
Shareholders’ equity:
Preferred stock
$
107,843
$
107,843
$
107,843
Common stock
570
566
536
Additional paid-in capital
1,404,431
1,397,268
1,357,514
Accumulated other comprehensive loss
(158,502
)
(217,770
)
(181,346
)
Accumulated deficit
(483,607
)
(483,561
)
(383,219
)
Total shareholders' equity
870,735
804,346
901,328
Total liabilities and shareholders’
equity
$
6,369,750
$
6,040,782
$
3,605,234
Preferred stock aggregate liquidation
preference
$
111,500
$
111,500
$
111,500
Book value per common share
$
13.31
$
12.25
$
14.73
Common shares outstanding
57,038,247
56,555,574
53,637,095
Consolidated Comprehensive Statements
of Income (Loss) (unaudited)
Year Ended
Three Months Ended
($s in thousands except per share
data)
December 31, 2023
September 30, 2023
December 31, 2023
INTEREST INCOME (EXPENSE)
Interest income
$
71,188
$
63,271
$
207,517
Interest expense
(73,465
)
(65,533
)
(215,448
)
Net interest expense
(2,277
)
(2,262
)
(7,931
)
OTHER GAINS (LOSSES)
Realized loss on sales of investments,
net
—
—
(74,916
)
Unrealized gain (loss) on investments,
net
263,992
(179,100
)
142,501
(Loss) gain on derivative instruments,
net
(228,603
)
146,953
(32,905
)
Total other gains (losses), net
35,389
(32,147
)
34,680
EXPENSES
General and administrative expenses
(8,318
)
(7,841
)
(30,728
)
Other operating expense, net
(490
)
(801
)
(2,151
)
Total operating expenses
(8,808
)
(8,642
)
(32,879
)
Net income (loss)
24,304
(43,051
)
(6,130
)
Preferred stock dividends
(1,923
)
(1,923
)
(7,694
)
Net income (loss) to common
shareholders
$
22,381
$
(44,974
)
$
(13,824
)
Other comprehensive income:
Unrealized gain (loss) on
available-for-sale investments, net
59,267
(41,774
)
22,844
Total other comprehensive income
(loss)
59,267
(41,774
)
22,844
Comprehensive income (loss) to common
shareholders
$
81,648
$
(86,748
)
$
9,020
Net income (loss) per common
share-basic
$
0.39
$
(0.82
)
$
(0.25
)
Net income (loss) per common
share-diluted
$
0.39
$
(0.82
)
$
(0.25
)
Weighted average common shares-basic
56,691
54,557
54,809
Weighted average common shares-diluted
57,304
54,557
54,809
Dividends declared per common share
$
0.39
$
0.39
$
1.56
Discussion of Fourth Quarter
Results
The Company's total economic return of $1.45 per common share
for the fourth quarter of 2023 consisted of an increase in book
value of $1.06 per common share and dividends declared of $0.39 per
common share. The Company's investment portfolio benefited from
spread tightening across all of its Agency MBS. The increase in
book value was primarily the result of higher prices on Agency MBS
relative to U.S. Treasury futures, which resulted in net gains of
$381.6 million on the Company's investment portfolio outpacing net
losses of $(287.0) million on its interest rate hedges.
The following table summarizes the changes in the Company's
financial position during the fourth quarter of 2023:
($s in thousands except per share
data)
Net Changes in Fair
Value
Components of Comprehensive
Income
Common Book Value
Rollforward
Per Common Share (1)
Balance as of September 30, 2023
(1)
$
692,846
$
12.25
Net interest expense
$
(2,277
)
Operating expenses
(8,808
)
Preferred stock dividends
(1,923
)
Changes in fair value:
MBS and loans
$
323,259
TBAs
58,366
U.S. Treasury futures
(287,503
)
Options on U.S. Treasury futures
534
Total net change in fair value
94,656
Comprehensive income to common
shareholders
81,648
1.44
Capital transactions:
Net proceeds from stock issuance (2)
7,168
0.01
Common dividends declared
(22,427
)
(0.39
)
Balance as of December 31, 2023
(1)
$
759,235
$
13.31
(1)
Amounts represent total shareholders' equity less the aggregate
liquidation preference of the Company's preferred stock of
$111,500.
(2)
Net proceeds from common stock issuances includes $5.9
million from at-the-market ("ATM") issuances and $1.2 million from
amortization of share-based compensation.
The following table provides detail on the Company's MBS
investments, including TBA securities as of December 31, 2023:
December 31, 2023
September 30, 2023
($ in millions)
Par Value
Fair Value
% of Portfolio
Par Value
Fair Value
% of Portfolio
30-year fixed rate RMBS:
2.0% coupon
$
708,528
$
586,361
7.9
%
$
721,068
$
555,260
7.8
%
2.5% coupon
608,580
525,018
7.1
%
619,348
498,213
7.0
%
4.0% coupon
354,382
339,212
4.6
%
361,219
325,009
4.5
%
4.5% coupon
1,383,019
1,348,108
18.2
%
1,356,558
1,252,437
17.5
%
5.0% coupon
2,070,473
2,057,309
27.7
%
1,883,657
1,782,628
24.9
%
5.5% coupon
897,520
907,524
12.2
%
911,842
884,725
12.4
%
TBA 4.0%
262,000
248,040
3.3
%
262,000
233,446
3.3
%
TBA 4.5%
223,000
216,415
2.9
%
273,000
250,797
3.5
%
TBA 5.0%
518,000
512,982
6.9
%
735,000
693,939
9.7
%
TBA 5.5%
200,000
201,047
2.7
%
200,000
193,359
2.7
%
TBA 6.0%
200,000
203,219
2.7
%
200,000
197,469
2.8
%
Total Agency RMBS
$
7,425,502
$
7,145,235
96.2
%
$
7,523,692
$
6,867,282
96.0
%
Agency CMBS
$
121,293
$
115,595
1.6
%
$
121,617
$
112,396
1.6
%
Agency CMBS IO
(1
)
133,302
1.8
%
(1
)
139,781
1.9
%
Non-Agency CMBS IO
(1
)
26,416
0.4
%
(1
)
33,206
0.5
%
Non-Agency RMBS
150
103
—
%
159
103
—
%
Total
$
7,546,945
$
7,420,651
100.0
%
$
7,645,468
$
7,152,768
100.0
%
(1)
CMBS IO do not have underlying par
values.
As of December 31, 2023, over 96% of the Company's investments
were comprised of Agency RMBS, including TBA securities and less
than 4% were Agency CMBS, Agency CMBS IO, and non-Agency CMBS IO.
During the fourth quarter of 2023, the Company purchased $245.7
million of higher coupon Agency RMBS and reduced its holdings of
TBA securities by 16%.
The following table provides detail on the Company's repurchase
agreement borrowings outstanding as of the dates indicated:
December 31, 2023
September 30, 2023
Remaining Term to Maturity
Balance
Weighted
Average Rate
WAVG Original Term to
Maturity
Balance
Weighted
Average Rate
WAVG Original Term to
Maturity
($s in thousands)
Less than 30 days
$
2,855,917
5.61
%
92
$
2,096,037
5.46
%
77
30 to 90 days
2,525,187
5.58
%
86
2,374,991
5.44
%
102
91 to 180 days
—
—
%
—
531,202
5.64
%
113
Total
$
5,381,104
5.59
%
89
$
5,002,230
5.47
%
93
The following table provides information about the performance
of the Company's MBS (including TBA securities) and repurchase
agreement financing for the fourth quarter of 2023 compared to the
prior quarter:
Three Months Ended
December 31, 2023
September 30, 2023
($s in thousands)
Interest
Income/Expense
Average Balance (1)(2)
Effective Yield/
Cost of Funds (3)(4)
Interest
Income/Expense
Average Balance (1)(2)
Effective Yield/
Cost of Funds (3)(4)
Agency RMBS
$
63,816
$
5,917,053
4.31
%
$
55,654
$
5,393,642
4.13
%
Agency CMBS
923
121,939
2.97
%
946
122,315
3.03
%
CMBS IO(5)
2,625
175,518
5.36
%
2,258
192,797
4.66
%
Non-Agency MBS and other
27
2,064
4.99
%
29
2,272
4.91
%
67,391
6,216,574
4.32
%
58,887
5,711,026
4.12
%
Cash equivalents
3,797
4,384
Total interest income
$
71,188
$
63,271
Repurchase agreement financing
(73,465
)
5,168,821
(5.56
) %
(65,533
)
4,773,435
(5.37
) %
Net interest expense/net interest
spread
$
(2,277
)
(1.24
) %
$
(2,262
)
(1.25
) %
(1)
Average balance for assets is calculated
as a simple average of the daily amortized cost and excludes
securities pending settlement if applicable.
(2)
Average balance for liabilities is
calculated as a simple average of the daily borrowings outstanding
during the period.
(3)
Effective yield is calculated by dividing
interest income by the average balance of asset type outstanding
during the reporting period. Unscheduled adjustments to
premium/discount amortization/accretion, such as for prepayment
compensation, are not annualized in this calculation.
(4)
Cost of funds is calculated by dividing
annualized interest expense by the total average balance of
borrowings outstanding during the period with an assumption of 360
days in a year.
(5)
CMBS IO ("Interest only") includes Agency and non-Agency
issued securities.
Hedging Portfolio
The Company uses derivative instruments to hedge exposure to
interest rate risk arising from its investment and financing
portfolio, and some of these derivatives are designated as hedges
for tax purposes. As of December 31, 2023, the Company held short
positions in 10-year U.S. Treasury futures with a notional amount
of $4.2 billion and short positions in 30-year U.S. Treasury
futures with a notional amount of $0.7 billion.
Comprehensive income included realized gains of $40.4 million
from interest rate hedges for the fourth quarter of 2023 and $237.7
million for the year ended December 31, 2023. Realized gains and
losses on interest rate hedges are recognized in GAAP net income in
the same reporting period in which the derivative instrument
matures or is terminated by the Company, but are not included in
the Company's earnings available for distribution ("EAD"), a
non-GAAP measure, during any reporting period. On a tax basis,
realized gains and losses on derivative instruments designated as
hedges for tax purposes are amortized into the Company's REIT
taxable income over the original periods hedged by those
derivatives. The benefit expected to be recognized in taxable
income is estimated to be $23.7 million, or $0.42 per average
common share outstanding, for the fourth quarter of 2023 and $80.5
million, or $1.47 per average common share outstanding, for the
year ended December 31, 2023. The Company's remaining estimated net
deferred tax hedge gains from its interest rate hedging portfolio
was $861.8 million as of December 31, 2023. These hedge gains will
be part of the Company's future distribution requirements along
with net interest income and other ordinary gains and losses in
future periods.
The table below provides the projected amortization of the
Company's net deferred tax hedge gains that may be recognized as
taxable income over the periods indicated given conditions known as
of December 31, 2023; however, uncertainty inherent in the forward
interest rate curve makes future realized gains and losses
difficult to estimate, and as such, these projections are subject
to change for any given period.
Projected Period of Recognition for
Remaining Hedge Gains, Net
December 31, 2023
($ in thousands)
First quarter 2024
$
25,717
Second quarter 2024
25,657
Third quarter 2024
25,731
Fourth quarter 2024
25,828
Fiscal year 2025
104,115
Fiscal year 2026 and thereafter
654,776
$
861,824
Non-GAAP Financial
Measures
In evaluating the Company’s financial and operating performance,
management considers book value per common share, total economic
return to common shareholders, and other operating results
presented in accordance with GAAP as well as certain non-GAAP
financial measures, which include the following: EAD to common
shareholders, adjusted net interest income and the related metric
adjusted net interest spread. Management believes these non-GAAP
financial measures may be useful to investors because they are
viewed by management as a measure of the investment portfolio’s
return based on the effective yield of its investments, net of
financing costs and, with respect to EAD, net of other normal
recurring operating income and expenses. Drop income generated by
TBA dollar roll positions, which is included in "gain (loss) on
derivatives instruments, net" on the Company's consolidated
statements of comprehensive income, is included in these non-GAAP
financial measures because management views drop income as the
economic equivalent of net interest income (interest income less
implied financing cost) on the underlying Agency security from
trade date to settlement date.
However, these non-GAAP financial measures are not a substitute
for GAAP earnings and may not be comparable to similarly titled
measures of other REITs because they may not be calculated in the
same manner. Furthermore, though EAD is one of several factors
management considers in determining the appropriate level of
distributions to common shareholders, it should not be utilized in
isolation, and it is not an accurate indication of the Company’s
REIT taxable income nor its distribution requirements in accordance
with the Internal Revenue Code of 1986, as amended.
Reconciliations of the non-GAAP financial measures used in this
earnings release to the most directly comparable GAAP financial
measures are presented below.
Three Months Ended
($s in thousands except per share
data)
December 31, 2023
September 30, 2023
Comprehensive income (loss) to common
shareholders
$
81,648
$
(86,748
)
Less:
Change in fair value of investments, net
(1)
(323,259
)
220,874
Change in fair value of derivative
instruments, net (2)
227,759
(149,512
)
EAD to common shareholders
$
(13,852
)
$
(15,386
)
Weighted average common shares
56,691
54,557
EAD per common share
$
(0.24
)
$
(0.28
)
Net interest expense
$
(2,277
)
$
(2,262
)
TBA drop loss (3)
(844
)
(2,559
)
Adjusted net interest expense
$
(3,121
)
$
(4,821
)
Operating expenses
(8,808
)
(8,642
)
Preferred stock dividends
(1,923
)
(1,923
)
EAD to common shareholders
$
(13,852
)
$
(15,386
)
Net interest spread
(1.24
) %
(1.25
) %
Impact from TBA dollar roll transactions
(4)
0.18
%
0.16
%
Adjusted net interest spread
(1.06
) %
(1.09
) %
(1)
Amount includes realized and unrealized
gains and losses from the Company's MBS.
(2)
Amount includes unrealized gains and
losses from changes in fair value of derivatives (including TBAs
accounted for as derivative instruments) and realized gains and
losses on terminated derivatives and excludes TBA drop income.
(3)
TBA drop income/loss 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.
(4)
The Company estimates TBA implied net
interest spread to be (0.23)% and (0.56)% for the three months
ended December 31, 2023 and September 30, 2023, respectively.
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," "will," "continue"
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, including statements made in Mr. Boston's quotes, may
include, without limitation, statements regarding the Company's
financial performance in future periods, future interest rates,
future market credit spreads, management's views on expected
characteristics of future investment and macroeconomic
environments, central bank strategies, prepayment rates and
investment risks, future investment strategies, 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 the Company's 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, ability to find suitable investment
opportunities; changes in domestic economic conditions;
geopolitical events, such as terrorism, war or other military
conflict, including increased uncertainty regarding the war between
Russia and the Ukraine and the related impact on macroeconomic
conditions as a result of such conflict; changes in interest rates
and credit spreads, including the repricing of interest-earning
assets and interest-bearing liabilities; the Company’s investment
portfolio performance, particularly as it relates to cash flow,
prepayment rates and credit performance; the impact on markets and
asset prices from changes in the Federal Reserve’s policies
regarding purchases of Agency RMBS, Agency CMBS, and U.S.
Treasuries; actual or anticipated changes in Federal Reserve
monetary policy or the monetary policy of other central banks;
adverse reactions in U.S. financial markets related to actions of
foreign central banks or the economic performance of foreign
economies including in particular China, Japan, the European Union,
and the United Kingdom; uncertainty concerning the long-term fiscal
health and stability of the United States; the cost and
availability of financing, including the future availability of
financing due to changes to regulation of, and capital requirements
imposed upon, financial institutions; the cost and availability of
new equity capital; changes in the Company’s use of leverage;
changes to the Company’s investment strategy, operating policies,
dividend policy or asset allocations; the quality of performance of
third-party servicer providers, including the Company's sole
third-party service provider for our critical operations and trade
functions; the loss or unavailability of the Company’s third-party
service provider’s service and technology that supports critical
functions of the Company’s business related to the Company’s
trading and borrowing activities due to outages, interruptions, or
other failures; the level of defaults by borrowers on loans
underlying MBS; changes in the Company’s industry; increased
competition; changes in government regulations affecting the
Company’s business; changes or volatility in the repurchase
agreement financing markets and other credit markets; changes to
the market for interest rate swaps and other derivative
instruments, including changes to margin requirements on derivative
instruments; uncertainty regarding continued government support of
the U.S. financial system and U.S. housing and real estate markets,
or to reform the U.S. housing finance system including the
resolution of the conservatorship of Fannie Mae and Freddie Mac;
the composition of the Board of Governors of the Federal Reserve;
the political environment in the U.S.; systems failures or
cybersecurity incidents; and exposure to current and future claims
and litigation. 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, 2022, 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.
Company Description
Dynex Capital, Inc. is a financial services company committed to
ethical stewardship of stakeholders' capital, employing
comprehensive risk management and disciplined capital allocation to
generate dividend income and long-term total returns through the
diversified financing of real estate assets in the United States.
Dynex operates as a REIT and is internally managed to maximize
stakeholder alignment. Additional information about Dynex Capital,
Inc. is available at www.dynexcapital.com.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240129910688/en/
Alison Griffin, (804) 217-5897
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