Dynex Capital, Inc. Announces First Quarter 2023 Results
Financial Performance Summary
-
Book value per common share of
as of$13.80 March 31, 2023 -
Dividends declared of
per common share for the first quarter of 2023$0.39 -
Total economic loss of
per common share, or (3.7)% of beginning book value$(0.54) -
Comprehensive loss of
per common share and net loss of$(0.54) per common share$(0.81) -
Liquidity in excess of
in cash and unencumbered assets$554 million - Leverage including to-be-announced ("TBA") securities at cost was 7.8 times shareholders' equity
Management Remarks
“Our portfolio decisions are a testament to our unwavering commitment to financial prudence and strategic planning, enabling us to confidently navigate through the current market," said
Earnings Conference Call
As previously announced, the Company's conference call to discuss these results is today at
Consolidated Balance Sheets |
|
|
|
||||
($s in thousands except per share data) |
|
|
|
||||
ASSETS |
(unaudited) |
|
|
||||
Cash and cash equivalents |
$ |
279,028 |
|
|
$ |
332,035 |
|
Cash collateral posted to counterparties |
|
114,594 |
|
|
|
117,842 |
|
Mortgage-backed securities (including pledged of |
|
3,296,784 |
|
|
|
3,112,705 |
|
Due from counterparties |
|
115,323 |
|
|
|
10,348 |
|
Derivative assets |
|
37,179 |
|
|
|
7,102 |
|
Accrued interest receivable |
|
17,234 |
|
|
|
15,260 |
|
Other assets, net |
|
9,716 |
|
|
|
9,942 |
|
Total assets |
$ |
3,869,858 |
|
|
$ |
3,605,234 |
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
||||
Liabilities: |
|
|
|
||||
Repurchase agreements |
$ |
2,937,124 |
|
|
$ |
2,644,405 |
|
Due to counterparties |
|
24,918 |
|
|
|
4,159 |
|
Derivative liabilities |
|
— |
|
|
|
22,595 |
|
Cash collateral posted by counterparties |
|
27,125 |
|
|
|
435 |
|
Accrued interest payable |
|
12,806 |
|
|
|
16,450 |
|
Accrued dividends payable |
|
9,214 |
|
|
|
9,103 |
|
Other liabilities |
|
3,843 |
|
|
|
6,759 |
|
Total liabilities |
|
3,015,030 |
|
|
|
2,703,906 |
|
|
|
|
|
||||
Shareholders’ equity: |
|
|
|
||||
Preferred stock |
$ |
107,843 |
|
|
$ |
107,843 |
|
Common stock |
|
539 |
|
|
|
536 |
|
Additional paid-in capital |
|
1,361,000 |
|
|
|
1,357,514 |
|
Accumulated other comprehensive loss |
|
(166,553 |
) |
|
|
(181,346 |
) |
Accumulated deficit |
|
(448,001 |
) |
|
|
(383,219 |
) |
Total shareholders' equity |
|
854,828 |
|
|
|
901,328 |
|
Total liabilities and shareholders’ equity |
$ |
3,869,858 |
|
|
$ |
3,605,234 |
|
|
|
|
|
||||
Preferred stock aggregate liquidation preference |
$ |
111,500 |
|
|
$ |
111,500 |
|
Book value per common share |
$ |
13.80 |
|
|
$ |
14.73 |
|
Common shares outstanding |
|
53,876,914 |
|
|
|
53,637,095 |
|
Consolidated Comprehensive Statements of Income (Loss) (unaudited) |
|||||||
|
Three Months Ended |
||||||
($s in thousands except per share data) |
|
|
|
||||
Interest income |
$ |
30,846 |
|
|
$ |
30,528 |
|
Interest expense |
|
(31,308 |
) |
|
|
(24,320 |
) |
Net interest (expense) income |
|
(462 |
) |
|
|
6,208 |
|
|
|
|
|
||||
Realized (loss) gain on sale of investments, net |
|
(23,315 |
) |
|
|
450 |
|
Unrealized gain on investments, net |
|
57,120 |
|
|
|
32,529 |
|
(Loss) gain on derivative instruments, net |
|
(67,267 |
) |
|
|
12,437 |
|
General and administrative expenses |
|
(7,372 |
) |
|
|
(7,898 |
) |
Other operating expense, net |
|
(426 |
) |
|
|
(438 |
) |
Net (loss) income |
|
(41,722 |
) |
|
|
43,288 |
|
Preferred stock dividends |
|
(1,923 |
) |
|
|
(1,923 |
) |
Net (loss) income to common shareholders |
$ |
(43,645 |
) |
|
$ |
41,365 |
|
|
|
|
|
||||
Other comprehensive income: |
|
|
|
||||
Unrealized gain on available-for-sale investments, net |
|
14,793 |
|
|
|
15,320 |
|
Reclassification of realized gain on available-for-sale investments |
|
— |
|
|
|
(37 |
) |
Total other comprehensive income |
|
14,793 |
|
|
|
15,283 |
|
Comprehensive (loss) income to common shareholders |
$ |
(28,852 |
) |
|
$ |
56,648 |
|
|
|
|
|
||||
Net (loss) income per common share-basic |
$ |
(0.81 |
) |
|
$ |
0.85 |
|
Net (loss) income per common share-diluted |
$ |
(0.81 |
) |
|
$ |
0.85 |
|
Weighted average common shares-basic |
|
53,824 |
|
|
|
48,541 |
|
Weighted average common shares-diluted |
|
53,824 |
|
|
|
48,541 |
|
Dividends declared per common share |
$ |
0.39 |
|
|
$ |
0.39 |
|
Results Discussion
The Company's book value per common share of
The following table summarizes the changes in the Company's financial position during the first quarter of 2023:
($s in thousands except per share data) |
Net Changes
|
|
Comprehensive
|
|
Common Book
|
|
Per
|
||||||||
Balance as of |
|
|
|
|
$ |
789,828 |
|
|
$ |
14.73 |
|
||||
Net interest income |
|
|
$ |
(462 |
) |
|
|
|
|
||||||
TBA drop income |
|
|
|
1,457 |
|
|
|
|
|
||||||
General & administrative and other operating expenses |
|
|
|
(7,798 |
) |
|
|
|
|
||||||
Preferred stock dividends |
|
|
|
(1,923 |
) |
|
|
|
|
||||||
Changes in fair value: |
|
|
|
|
|
|
|
||||||||
MBS and loans |
$ |
48,599 |
|
|
|
|
|
|
|
||||||
TBAs |
|
41,906 |
|
|
|
|
|
|
|
||||||
|
|
(106,373 |
) |
|
|
|
|
|
|
||||||
Options on |
|
(4,258 |
) |
|
|
|
|
|
|
||||||
Total net change in fair value |
|
|
|
(20,126 |
) |
|
|
|
|
||||||
Total comprehensive income to common shareholders |
|
|
|
|
|
(28,852 |
) |
|
|
(0.54 |
) |
||||
Capital transactions: |
|
|
|
|
|
|
|
||||||||
Net proceeds from stock issuance (2) |
|
|
|
|
|
3,489 |
|
|
|
— |
|
||||
Common dividends declared |
|
|
|
|
|
(21,137 |
) |
|
|
(0.39 |
) |
||||
Balance as of |
|
|
|
|
$ |
743,328 |
|
|
$ |
13.80 |
|
(1) |
|
Amounts represent total shareholders' equity less the aggregate liquidation preference of the Company's preferred stock of |
(2) |
|
Net proceeds from common stock issuances include |
The following table provides detail on the Company's MBS investments, including TBA securities as of
($ in millions) |
Par Value |
Total
|
Total Estimated
|
% of
|
||||||||
Pools |
TBA |
|||||||||||
Agency RMBS: |
|
|
|
|
|
|||||||
|
$ |
1,051,974 |
|
$ |
— |
$ |
1,051,974 |
|
$ |
875,432 |
12.5 |
% |
|
|
649,246 |
|
|
— |
|
649,246 |
|
|
564,171 |
8.0 |
% |
|
|
319,350 |
|
|
547,000 |
|
866,350 |
|
|
831,648 |
11.9 |
% |
|
|
909,477 |
|
|
460,000 |
|
1,369,477 |
|
|
1,347,149 |
19.2 |
% |
|
|
321,515 |
|
|
2,345,000 |
|
2,666,515 |
|
|
2,659,406 |
37.9 |
% |
|
|
— |
|
|
400,000 |
|
400,000 |
|
|
404,000 |
5.8 |
% |
Total Agency RMBS |
$ |
3,251,563 |
|
$ |
3,752,000 |
$ |
7,003,562 |
|
$ |
6,681,806 |
95.3 |
% |
|
|
|
|
|
|
|||||||
Agency CMBS |
$ |
125,220 |
|
$ |
— |
$ |
125,220 |
|
$ |
119,474 |
1.7 |
% |
Agency CMBS IO |
|
(1 |
) |
|
— |
|
(1 |
) |
|
161,446 |
2.3 |
% |
Non-Agency CMBS IO |
|
(1 |
) |
|
— |
|
(1 |
) |
|
48,838 |
0.7 |
% |
Non-Agency RMBS |
|
191 |
|
|
— |
|
191 |
|
|
136 |
— |
% |
Total |
$ |
3,376,974 |
|
$ |
3,752,000 |
$ |
7,128,973 |
|
$ |
7,011,700 |
100.0 |
% |
(1) |
CMBS IO do not have underlying par values. |
The following table provides detail on the Company's repurchase agreement borrowings outstanding as of the dates indicated:
|
|
|
|
|
||||||||||||
Remaining Term to Maturity |
|
Balance |
|
Weighted
|
|
WAVG
|
|
Balance |
|
Weighted
|
|
WAVG
|
||||
($s in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less than 30 days |
|
$ |
1,288,034 |
|
4.96 |
% |
|
35 |
|
$ |
858,161 |
|
4.44 |
% |
|
42 |
30 to 90 days |
|
|
1,254,958 |
|
4.88 |
% |
|
78 |
|
|
1,786,244 |
|
4.06 |
% |
|
104 |
91 to 180 days |
|
|
394,132 |
|
4.95 |
% |
|
183 |
|
|
— |
|
— |
% |
|
— |
Total |
|
$ |
2,937,124 |
|
4.92 |
% |
|
73 |
|
$ |
2,644,405 |
|
4.18 |
% |
|
84 |
Leverage based on repurchase agreement amounts outstanding was 3.4 times total shareholders' equity as of
The following table provides information about the performance of the Company's MBS (including TBA securities) and repurchase agreement financing for the first quarter of 2023 compared to the prior quarter:
|
Three Months Ended |
||||||||||||||||||
|
|
|
|
||||||||||||||||
($s in thousands) |
Interest
|
|
Average
|
|
Effective
|
|
Interest
|
|
Average
|
|
Effective
|
||||||||
Agency RMBS |
$ |
23,526 |
|
|
$ |
3,204,610 |
|
2.94 |
% |
|
$ |
22,777 |
|
|
$ |
3,226,876 |
|
2.82 |
% |
Agency CMBS |
|
884 |
|
|
|
128,625 |
|
2.80 |
% |
|
|
943 |
|
|
|
136,303 |
|
2.93 |
% |
CMBS IO(5) |
|
2,542 |
|
|
|
230,033 |
|
4.04 |
% |
|
|
3,869 |
|
|
|
247,071 |
|
5.71 |
% |
Non-Agency MBS and other |
|
40 |
|
|
|
2,700 |
|
4.98 |
% |
|
|
31 |
|
|
|
3,140 |
|
4.18 |
% |
|
|
26,992 |
|
|
|
3,565,968 |
|
3.00 |
% |
|
|
27,620 |
|
|
|
3,613,390 |
|
3.03 |
% |
Cash equivalents |
|
3,854 |
|
|
|
|
|
|
|
2,908 |
|
|
|
|
|
||||
Total interest income |
$ |
30,846 |
|
|
|
|
|
|
$ |
30,528 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Repurchase agreement financing |
|
(31,308 |
) |
|
|
2,713,481 |
|
(4.62 |
% |
|
|
(24,320 |
) |
|
|
2,727,274 |
|
(3.49 |
)% |
Net interest (expense) income/net interest spread |
$ |
(462 |
) |
|
|
|
(1.62 |
)% |
|
$ |
6,208 |
|
|
|
|
(0.46 |
)% |
||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
TBA securities (6) |
|
1,457 |
|
|
|
3,291,617 |
|
0.18 |
% |
|
|
5,522 |
|
|
|
2,532,584 |
|
0.85 |
% |
Adjusted net interest income/adjusted net interest spread (7) |
$ |
995 |
|
|
|
|
(0.75 |
)% |
|
$ |
11,730 |
|
|
|
|
0.07 |
% |
(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. |
(6) |
|
Drop income from TBA securities 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. |
(7) |
|
See "Use of Non-GAAP Financial Measures" below. Adjusted net interest spread includes the impact from TBA drop income of 87 basis points for the first quarter of 2023 compared to 53 basis points for the fourth quarter of 2022. |
Hedging Portfolio
The Company's realized gains and losses on its interest rate hedges are recognized in its GAAP earnings upon maturity or termination of the derivative instrument, but are not included in the Company's earnings available for distribution ("EAD"), a non-GAAP measure, and are not recognized in taxable income during the same period. Because these derivative instruments are designated for tax purposes as interest rate hedges, the realized gains and losses are instead amortized into the Company's REIT taxable income over the original periods hedged by those derivatives. On a tax basis, the benefit expected to be recognized in taxable income for the first quarter of 2023 is estimated to be
Projected Period of Recognition for Remaining Hedge Gains, Net |
|
|
|
|
|
($ in thousands) |
|
Second quarter 2023 |
|
$ |
20,624 |
Third quarter 2023 |
|
|
20,658 |
Fourth quarter 2023 |
|
|
20,749 |
Fiscal year 2024 |
|
|
85,219 |
Fiscal year 2025 and thereafter |
|
|
618,778 |
|
|
$ |
766,028 |
As of
Use of 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) |
|
|
|
||||
Comprehensive (loss) income to common shareholders |
$ |
(28,852 |
) |
|
$ |
56,648 |
|
Less: |
|
|
|
||||
Change in fair value of investments, net (1) |
|
(48,599 |
) |
|
|
(48,262 |
) |
Change in fair value of derivative instruments, net (2) |
|
68,725 |
|
|
|
(6,915 |
) |
EAD to common shareholders |
$ |
(8,726 |
) |
|
$ |
1,471 |
|
|
|
|
|
||||
Weighted average common shares |
|
53,824 |
|
|
|
48,541 |
|
EAD per common share |
$ |
(0.16 |
) |
|
$ |
0.03 |
|
|
|
|
|
||||
Net interest (expense) income |
$ |
(462 |
) |
|
$ |
6,208 |
|
TBA drop income (3) |
|
1,457 |
|
|
|
5,522 |
|
Adjusted net interest income |
$ |
995 |
|
|
$ |
11,730 |
|
General and administrative expenses |
|
(7,372 |
) |
|
|
(7,898 |
) |
Other operating expense, net |
|
(426 |
) |
|
|
(438 |
) |
Preferred stock dividends |
|
(1,923 |
) |
|
|
(1,923 |
) |
EAD to common shareholders |
$ |
(8,726 |
) |
|
$ |
1,471 |
|
|
|
|
|
||||
Net interest spread |
|
(1.62 |
)% |
|
|
(0.46 |
)% |
Impact from TBA drop income (4) |
|
0.87 |
% |
|
|
0.53 |
% |
Adjusted net interest spread |
|
(0.75 |
)% |
|
|
0.07 |
% |
(1) |
|
Amount includes realized and unrealized gains and losses from the Company's MBS and other investments. |
(2) |
|
Amount includes unrealized gains and losses from changes in fair value of derivatives and realized gains and losses on terminated derivatives and excludes TBA drop income. |
(3) |
|
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. |
(4) |
|
The Company estimates TBA implied net interest spread to be |
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
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
Company Description
View source version on businesswire.com: https://www.businesswire.com/news/home/20230424005516/en/
(804) 217-5897
Source: