Dynex Capital, Inc. Announces Fourth Quarter and Full Year 2022 Results
Financial Performance Highlights
-
Book value per common share of
as of$14.73 December 31, 2022 -
Dividends declared of
per common share for the fourth quarter of 2022 and$0.39 for the full year$1.56 -
Total economic return of
per common share, or$0.89 6.2% of beginning book value, for the fourth quarter of 2022, and per common share, or (9.5)% of beginning book value, for the full year$(1.71) -
Comprehensive income of
per common share and net income of$1.17 per common share for the fourth quarter of 2022; comprehensive loss of$0.85 per common share and net income of$(1.24) per common share for the full year$3.19 -
Realized gains on interest rate hedges included in GAAP net income were
for the fourth quarter of 2022 and$204.8 million for the full year$690.7 million -
REIT taxable income included an estimated benefit of
, or$11.8 million per common share, from amortization of deferred tax hedge gains for the fourth quarter of 2022 and$0.24 , or$22.5 million per common share, for the full year$0.53 -
Leverage including TBA dollar roll positions at 6.1 times shareholders' equity at
December 31, 2022 -
Raised equity capital of
during the fourth quarter through at-the-market ("ATM") common stock issuances, bringing total capital raised for 2022 to$92.4 million , net of$246.9 million issuance costs$3.1 million
Management Remarks
"We believe our performance this decade, which started in 2020, illustrates that the Dynex team has the experience and discipline to manage through even the most volatile and challenging cycles, and we expect to continue generating long-term returns for our shareholders," stated
Earnings Conference Call
As previously announced, the Company's conference call to discuss these results is today at
Results Discussion
Comprehensive income to common shareholders of
During the fourth quarter of 2022, the Company raised equity capital of
The following table summarizes the changes in the Company's financial position during the fourth quarter of 2022:
($s in thousands except per share data) |
Net Changes
|
|
Comprehensive
|
|
Common Book
|
|
Per
|
||||||||
Common shareholders' equity, |
|
|
|
|
$ |
659,766 |
|
|
$ |
14.23 |
|
||||
Net interest income |
|
|
$ |
6,208 |
|
|
|
|
|
||||||
TBA drop income |
|
|
|
5,522 |
|
|
|
|
|
||||||
General & administrative and other operating expenses |
|
|
|
(8,336 |
) |
|
|
|
|
||||||
Preferred stock dividends |
|
|
|
(1,923 |
) |
|
|
|
|
||||||
Changes in fair value: |
|
|
|
|
|
|
|
||||||||
MBS and loans |
$ |
48,262 |
|
|
|
|
|
|
|
||||||
TBAs |
|
4,865 |
|
|
|
|
|
|
|
||||||
|
|
3,111 |
|
|
|
|
|
|
|
||||||
Options on |
|
(1,061 |
) |
|
|
|
|
|
|
||||||
Total net change in fair value |
|
|
|
55,177 |
|
|
|
|
|
||||||
Total comprehensive income to common shareholders |
|
|
|
|
|
56,648 |
|
|
|
1.17 |
|
||||
Capital transactions: |
|
|
|
|
|
|
|
||||||||
Net proceeds from stock issuance (2) |
|
|
|
|
|
92,756 |
|
|
|
(0.28 |
) |
||||
Common dividends declared |
|
|
|
|
|
(19,342 |
) |
|
|
(0.39 |
) |
||||
Common shareholders' equity, |
|
|
|
|
$ |
789,828 |
|
|
$ |
14.73 |
|
(1) |
Common shareholders' equity is total shareholders' equity less the aggregate liquidation preference of the Company's preferred stock of |
(2) |
Net proceeds from common stock issuances includes |
Investment Portfolio
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 2022 compared to the prior quarter:
|
Three Months Ended |
||||||||||||||||||
|
|
|
|
||||||||||||||||
($s in thousands) |
Interest
|
|
Average
|
|
Effective
|
|
Interest
|
|
Average
|
|
Effective
|
||||||||
Agency RMBS |
$ |
22,777 |
|
|
$ |
3,226,876 |
|
2.82 |
% |
|
$ |
14,819 |
|
|
$ |
2,779,765 |
|
2.13 |
% |
Agency CMBS |
|
943 |
|
|
|
136,303 |
|
2.93 |
% |
|
|
98 |
|
|
|
165,280 |
|
2.18 |
% |
CMBS IO (5) |
|
3,869 |
|
|
|
247,071 |
|
5.71 |
% |
|
|
4,126 |
|
|
|
265,507 |
|
5.24 |
% |
Non-Agency MBS and other |
|
31 |
|
|
|
3,140 |
|
4.18 |
% |
|
|
140 |
|
|
|
3,842 |
|
7.21 |
% |
MBS and loans |
|
27,620 |
|
|
|
3,613,390 |
|
3.03 |
% |
|
|
19,183 |
|
|
|
3,214,394 |
|
2.40 |
% |
Cash equivalents |
|
2,908 |
|
|
|
|
|
|
|
1,221 |
|
|
|
|
|
||||
Total interest income |
$ |
30,528 |
|
|
|
|
|
|
$ |
20,404 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Repurchase agreement financing |
|
(24,320 |
) |
|
|
2,727,274 |
|
(3.49 |
)% |
|
|
(13,282 |
) |
|
|
2,398,268 |
|
(2.17 |
)% |
Net interest income/net interest spread |
$ |
6,208 |
|
|
|
|
(0.46 |
)% |
|
$ |
7,122 |
|
|
|
|
0.23 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
TBA securities (6) |
|
5,522 |
|
|
|
2,532,584 |
|
0.85 |
% |
|
|
16,282 |
|
|
|
3,223,320 |
|
1.98 |
% |
Adjusted net interest income/adjusted net interest spread (7) |
$ |
11,730 |
|
|
|
|
0.07 |
% |
|
$ |
23,404 |
|
|
|
|
1.12 |
% |
(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 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) |
Adjusted net interest spread includes the impact from TBA drop income of 89 basis points and 53 basis points for the third and fourth quarters of 2022, respectively. |
The following table provides detail on the coupon composition of the Company's 30-year fixed-rate Agency RMBS (including TBA securities) as of the dates indicated:
|
|
|
|
|
||||||||||||||
|
|
Par/
|
|
Amortized
|
|
Fair
|
|
Par/
|
|
Amortized
Basis (1)(3) |
|
Fair
|
||||||
Agency RMBS By Coupon |
|
|
|
|
|
|
||||||||||||
($s in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
1,193,344 |
|
$ |
1,210,065 |
|
$ |
982,387 |
|
$ |
1,216,522 |
|
$ |
1,233,755 |
|
$ |
990,613 |
|
|
|
659,181 |
|
|
685,838 |
|
|
566,525 |
|
|
673,133 |
|
|
700,586 |
|
|
570,627 |
|
|
|
325,726 |
|
|
329,725 |
|
|
309,940 |
|
|
333,469 |
|
|
337,653 |
|
|
312,433 |
|
|
|
803,043 |
|
|
799,786 |
|
|
782,319 |
|
|
815,020 |
|
|
811,695 |
|
|
780,145 |
|
|
|
123,204 |
|
|
125,460 |
|
|
121,707 |
|
|
125,900 |
|
|
128,219 |
|
|
122,752 |
TBA |
|
|
— |
|
|
— |
|
|
— |
|
|
400,000 |
|
|
345,750 |
|
|
335,906 |
TBA |
|
|
— |
|
|
— |
|
|
— |
|
|
800,000 |
|
|
729,313 |
|
|
719,406 |
TBA |
|
|
1,539,000 |
|
|
1,454,263 |
|
|
1,447,286 |
|
|
1,539,000 |
|
|
1,484,523 |
|
|
1,426,765 |
TBA |
|
|
380,000 |
|
|
371,173 |
|
|
366,759 |
|
|
780,000 |
|
|
753,353 |
|
|
742,009 |
TBA |
|
|
950,000 |
|
|
947,484 |
|
|
937,523 |
|
|
— |
|
|
— |
|
|
— |
Total |
|
$ |
5,973,498 |
|
$ |
5,923,794 |
|
$ |
5,514,446 |
|
$ |
6,683,044 |
|
$ |
6,524,847 |
|
$ |
6,000,656 |
(1) |
Implied cost basis of TBAs represents the forward price to be paid for the underlying Agency MBS. |
(2) |
Fair value of TBAs represents the implied market value of the underlying Agency MBS. |
(3) |
TBAs are included on the consolidated balance sheet within “derivative assets/liabilities” at their net carrying value which is the difference between their implied market value and implied cost basis. |
Repurchase Agreement Financing
The following table provides detail on the Company's repurchase agreement borrowings outstanding as of the dates indicated:
|
|
|
|
|
||||||||||||
Remaining Term to
|
|
Balance |
|
Weighted
|
|
WAVG
|
|
Balance |
|
Weighted
|
|
WAVG
|
||||
($s in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less than 30 days |
|
$ |
858,161 |
|
4.44 |
% |
|
42 |
|
$ |
963,976 |
|
2.86 |
% |
|
63 |
30 to 90 days |
|
|
1,786,244 |
|
4.06 |
% |
|
104 |
|
|
1,603,853 |
|
2.82 |
% |
|
75 |
91 to 180 days |
|
|
— |
|
— |
% |
|
— |
|
|
441,440 |
|
3.31 |
% |
|
154 |
Total |
|
$ |
2,644,405 |
|
4.18 |
% |
|
84 |
|
$ |
3,009,269 |
|
2.90 |
% |
|
83 |
Hedging Portfolio
During 2022, the Company realized substantial gains on its interest rate hedges that were recognized in its GAAP earnings, but because these derivative instruments were designated for tax purposes as hedges of the Company's financing arrangements, the realized gains will be amortized into REIT taxable income over the next several years. On a tax basis, the benefit for the year ended
Projected Period of Recognition for Remaining Hedge Gains, Net |
|
|
|
|
|
($ in thousands) |
|
First quarter 2023 |
|
|
17,773 |
Second quarter 2023 |
|
|
17,782 |
Third quarter 2023 |
|
|
17,815 |
Fourth quarter 2023 |
|
|
17,907 |
Fiscal year 2024 |
|
|
73,849 |
Fiscal year 2025 and thereafter |
|
|
534,848 |
|
|
$ |
679,974 |
As of
Consolidated Balance Sheets |
|
|
|
|
|
||||||
($s in thousands except per share data) |
|
|
|
|
|
||||||
ASSETS |
(unaudited) |
|
(unaudited) |
|
|
||||||
Cash and cash equivalents |
$ |
332,035 |
|
|
$ |
260,385 |
|
|
$ |
366,023 |
|
Cash collateral posted to counterparties |
|
117,842 |
|
|
|
246,168 |
|
|
|
55,284 |
|
Mortgage-backed securities |
|
3,112,705 |
|
|
|
3,150,306 |
|
|
|
3,181,839 |
|
Mortgage loans held for investment, at fair value |
|
2,617 |
|
|
|
3,073 |
|
|
|
4,268 |
|
Due from counterparties |
|
10,348 |
|
|
|
352,310 |
|
|
|
2,771 |
|
Derivative assets |
|
7,102 |
|
|
|
13,865 |
|
|
|
7,969 |
|
Accrued interest receivable |
|
15,260 |
|
|
|
16,090 |
|
|
|
14,184 |
|
Other assets, net |
|
7,325 |
|
|
|
7,368 |
|
|
|
7,400 |
|
Total assets |
$ |
3,605,234 |
|
|
$ |
4,049,565 |
|
|
$ |
3,639,738 |
|
|
|
|
|
|
|
||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
||||||
Liabilities: |
|
|
|
|
|
||||||
Repurchase agreements |
$ |
2,644,405 |
|
|
$ |
3,009,269 |
|
|
$ |
2,849,916 |
|
Due to counterparties |
|
4,159 |
|
|
|
147,925 |
|
|
|
2,471 |
|
Derivative liabilities |
|
22,595 |
|
|
|
99,670 |
|
|
|
— |
|
Cash collateral posted by counterparties |
|
435 |
|
|
|
— |
|
|
|
1,834 |
|
Accrued interest payable |
|
16,450 |
|
|
|
4,909 |
|
|
|
1,365 |
|
Accrued dividends payable |
|
9,103 |
|
|
|
8,151 |
|
|
|
6,541 |
|
Other liabilities |
|
6,759 |
|
|
|
8,374 |
|
|
|
6,332 |
|
Total liabilities |
|
2,703,906 |
|
|
|
3,278,298 |
|
|
|
2,868,459 |
|
|
|
|
|
|
|
||||||
Shareholders’ equity: |
|
|
|
|
|
||||||
Preferred stock |
$ |
107,843 |
|
|
$ |
107,843 |
|
|
$ |
107,843 |
|
Common stock |
|
536 |
|
|
|
463 |
|
|
|
367 |
|
Additional paid-in capital |
|
1,357,514 |
|
|
|
1,264,831 |
|
|
|
1,107,792 |
|
Accumulated other comprehensive (loss) income |
|
(181,346 |
) |
|
|
(196,629 |
) |
|
|
6,729 |
|
Accumulated deficit |
|
(383,219 |
) |
|
|
(405,241 |
) |
|
|
(451,452 |
) |
Total shareholders' equity |
|
901,328 |
|
|
|
771,267 |
|
|
|
771,279 |
|
Total liabilities and shareholders’ equity |
$ |
3,605,234 |
|
|
$ |
4,049,565 |
|
|
$ |
3,639,738 |
|
|
|
|
|
|
|
||||||
Preferred stock aggregate liquidation preference |
$ |
111,500 |
|
|
$ |
111,500 |
|
|
$ |
111,500 |
|
Book value per common share |
$ |
14.73 |
|
|
$ |
14.23 |
|
|
$ |
17.99 |
|
Common shares outstanding |
|
53,637,095 |
|
|
|
46,350,130 |
|
|
|
36,665,805 |
|
Consolidated Comprehensive Statements of Income (Loss) (unaudited) |
|
Year Ended |
|||||||||||||||||
|
Three Months Ended |
|
|||||||||||||||||
($s in thousands except per share data) |
|
|
|
|
|
|
|
|
|
||||||||||
Interest income |
$ |
30,528 |
|
|
$ |
20,404 |
|
|
$ |
18,335 |
|
|
$ |
17,427 |
|
|
$ |
86,695 |
|
Interest expense |
|
(24,320 |
) |
|
|
(13,282 |
) |
|
|
(4,262 |
) |
|
|
(1,748 |
) |
|
|
(43,612 |
) |
Net interest income |
|
6,208 |
|
|
|
7,122 |
|
|
|
14,073 |
|
|
|
15,679 |
|
|
|
43,083 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Realized gain (loss) on sale of investments, net |
|
450 |
|
|
|
(70,967 |
) |
|
|
(18,550 |
) |
|
|
— |
|
|
|
(89,067 |
) |
Unrealized gain (loss) on investments, net |
|
32,529 |
|
|
|
(69,197 |
) |
|
|
(65,103 |
) |
|
|
(111,251 |
) |
|
|
(213,022 |
) |
Gain on derivative instruments, net |
|
12,437 |
|
|
|
96,947 |
|
|
|
106,412 |
|
|
|
220,211 |
|
|
|
436,007 |
|
Other operating expense, net |
|
(438 |
) |
|
|
(433 |
) |
|
|
(295 |
) |
|
|
(321 |
) |
|
|
(1,487 |
) |
General and administrative expenses |
|
(7,898 |
) |
|
|
(10,146 |
) |
|
|
(7,201 |
) |
|
|
(7,109 |
) |
|
|
(32,353 |
) |
Net income (loss) |
|
43,288 |
|
|
|
(46,674 |
) |
|
|
29,336 |
|
|
|
117,209 |
|
|
|
143,161 |
|
Preferred stock dividends |
|
(1,923 |
) |
|
|
(1,923 |
) |
|
|
(1,923 |
) |
|
|
(1,923 |
) |
|
|
(7,694 |
) |
Net income (loss) to common shareholders |
$ |
41,365 |
|
|
$ |
(48,597 |
) |
|
$ |
27,413 |
|
|
$ |
115,286 |
|
|
$ |
135,467 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
||||||||||
Unrealized gain (loss) on available-for-sale investments, net |
|
15,320 |
|
|
|
(65,133 |
) |
|
|
(60,910 |
) |
|
|
(91,340 |
) |
|
$ |
(202,063 |
) |
Reclassification of realized (gain) loss on available-for-sale investments |
|
(37 |
) |
|
|
14,025 |
|
|
|
— |
|
|
|
— |
|
|
|
13,988 |
|
Total other comprehensive income (loss) |
|
15,283 |
|
|
|
(51,108 |
) |
|
|
(60,910 |
) |
|
|
(91,340 |
) |
|
|
(188,075 |
) |
Comprehensive income (loss) to common shareholders |
$ |
56,648 |
|
|
$ |
(99,705 |
) |
|
$ |
(33,497 |
) |
|
$ |
23,946 |
|
|
$ |
(52,608 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income (loss) per common share-basic |
$ |
0.85 |
|
|
$ |
(1.07 |
) |
|
$ |
0.70 |
|
|
$ |
3.14 |
|
|
$ |
3.19 |
|
Net income (loss) per common share-diluted |
$ |
0.85 |
|
|
$ |
(1.07 |
) |
|
$ |
0.69 |
|
|
$ |
3.11 |
|
|
$ |
3.17 |
|
Weighted average common shares-basic |
|
48,541 |
|
|
|
45,348 |
|
|
|
39,190 |
|
|
|
36,725 |
|
|
|
42,491 |
|
Weighted average common shares-diluted |
|
48,541 |
|
|
|
45,348 |
|
|
|
39,576 |
|
|
|
37,111 |
|
|
|
42,743 |
|
Dividends declared per common share |
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
1.56 |
|
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: earnings available for distribution (“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/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 Tax Code.
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 |
|
Year Ended |
||||||||
($s in thousands except per share data) |
|
|
|
|
|
||||||
Comprehensive income (loss) to common shareholders |
$ |
56,648 |
|
|
$ |
(99,705 |
) |
|
$ |
(52,608 |
) |
Less: |
|
|
|
|
|
||||||
Change in fair value of investments, net (1) |
|
(48,262 |
) |
|
|
191,272 |
|
|
|
490,164 |
|
Change in fair value of derivative instruments, net (2) |
|
(6,915 |
) |
|
|
(80,665 |
) |
|
|
(393,401 |
) |
EAD to common shareholders |
$ |
1,471 |
|
|
$ |
10,902 |
|
|
$ |
44,155 |
|
|
|
|
|
|
|
||||||
Weighted average common shares |
|
48,541 |
|
|
|
45,348 |
|
|
|
42,491 |
|
EAD per common share |
$ |
0.03 |
|
|
$ |
0.24 |
|
|
$ |
1.04 |
|
|
|
|
|
|
|
||||||
Net interest income |
$ |
6,208 |
|
|
$ |
7,122 |
|
|
$ |
43,083 |
|
TBA drop income (3) |
|
5,522 |
|
|
|
16,282 |
|
|
|
42,606 |
|
Adjusted net interest income |
$ |
11,730 |
|
|
$ |
23,404 |
|
|
$ |
85,689 |
|
Other operating expense, net |
|
(438 |
) |
|
|
(433 |
) |
|
|
(1,487 |
) |
General and administrative expenses |
|
(7,898 |
) |
|
|
(10,146 |
) |
|
|
(32,353 |
) |
Preferred stock dividends |
|
(1,923 |
) |
|
|
(1,923 |
) |
|
|
(7,694 |
) |
EAD to common shareholders |
$ |
1,471 |
|
|
$ |
10,902 |
|
|
$ |
44,155 |
|
|
|
|
|
|
|
||||||
Net interest spread |
|
(0.46 |
)% |
|
|
0.23 |
% |
|
|
0.84 |
% |
Impact from TBA drop income (4) |
|
0.53 |
% |
|
|
0.89 |
% |
|
|
0.41 |
% |
Adjusted net interest spread |
|
0.07 |
% |
|
|
1.12 |
% |
|
|
1.25 |
% |
(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/20230130005215/en/
(804) 217-5897
Source: