Dynex Capital, Inc. Announces Third Quarter 2024 Results
Financial Performance Summary
-
Total economic return of
per common share, or$0.89 7.1% of beginning book value -
Book value per common share of
as of September 30, 2024$13.00 -
Comprehensive income of
per common share and net income of$0.93 per common share$0.38 -
Dividends declared of
per common share for the third quarter$0.39 -
Purchased
of Agency RMBS$1.1 billion -
Liquidity of
as of September 30, 2024$708.7 million - Leverage including to-be-announced ("TBA") securities at cost was 7.6 times shareholders' equity as of September 30, 2024
-
Announced decision by the Board of Directors to increase monthly dividend to
per common share$0.15
Management Remarks
"Our economic return of
"We believe the Dynex team has positioned the Company to deliver solid returns – creating value in four main ways – managing the existing portfolio, optimizing the capital structure, raising equity and investing capital at accretive ROEs," said Smriti Laxman Popenoe, Co-CEO, President, and Chief Investment Officer.
Earnings Conference Call
As previously announced, the Company's conference call to discuss these results is today at 10:00 a.m. Eastern Time and may be accessed via telephone in
Consolidated Balance Sheets (unaudited) |
|
|
|
||||
($s in thousands except per share data) |
September 30, 2024 |
|
December 31, 2023 |
||||
ASSETS |
|
|
|
||||
Cash and cash equivalents |
$ |
268,296 |
|
|
$ |
119,639 |
|
Cash collateral posted to counterparties |
|
137,296 |
|
|
|
118,225 |
|
Mortgage-backed securities (including pledged of |
|
7,327,643 |
|
|
|
6,038,948 |
|
Due from counterparties |
|
28,973 |
|
|
|
1,313 |
|
Derivative assets |
|
4,138 |
|
|
|
54,361 |
|
Accrued interest receivable |
|
31,766 |
|
|
|
28,727 |
|
Other assets, net |
|
18,062 |
|
|
|
8,537 |
|
Total assets |
$ |
7,816,174 |
|
|
$ |
6,369,750 |
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
||||
Liabilities: |
|
|
|
||||
Repurchase agreements |
$ |
6,423,890 |
|
|
$ |
5,381,104 |
|
Due to counterparties |
|
167,609 |
|
|
|
95 |
|
Derivative liabilities |
|
3,662 |
|
|
|
— |
|
Cash collateral posted by counterparties |
|
7,895 |
|
|
|
46,001 |
|
Accrued interest payable |
|
48,570 |
|
|
|
53,194 |
|
Accrued dividends payable |
|
13,684 |
|
|
|
10,320 |
|
Other liabilities |
|
8,304 |
|
|
|
8,301 |
|
Total liabilities |
|
6,673,614 |
|
|
|
5,499,015 |
|
|
|
|
|
||||
Shareholders’ equity: |
|
|
|
||||
Preferred stock |
$ |
107,843 |
|
|
|
107,843 |
|
Common stock |
|
793 |
|
|
|
570 |
|
Additional paid-in capital |
|
1,677,062 |
|
|
|
1,404,431 |
|
Accumulated other comprehensive loss |
|
(135,889 |
) |
|
|
(158,502 |
) |
Accumulated deficit |
|
(507,249 |
) |
|
|
(483,607 |
) |
Total shareholders' equity |
|
1,142,560 |
|
|
|
870,735 |
|
Total liabilities and shareholders’ equity |
$ |
7,816,174 |
|
|
$ |
6,369,750 |
|
|
|
|
|
||||
Preferred stock aggregate liquidation preference |
$ |
111,500 |
|
|
$ |
111,500 |
|
Book value per common share |
$ |
13.00 |
|
|
$ |
13.31 |
|
Common shares outstanding |
|
79,294,324 |
|
|
|
57,038,247 |
|
Consolidated Comprehensive Statements of Income (unaudited) |
|
Nine Months
|
|||||||||
|
Three Months Ended |
|
|||||||||
($s in thousands except per share data) |
September 30, 2024 |
|
June 30, 2024 |
|
September 30,
|
||||||
INTEREST INCOME (EXPENSE) |
|
|
|
|
|
||||||
Interest income |
$ |
83,458 |
|
|
$ |
76,054 |
|
|
$ |
231,038 |
|
Interest expense |
|
(82,564 |
) |
|
|
(74,767 |
) |
|
|
(232,048 |
) |
Net interest income (expense) |
|
894 |
|
|
|
1,287 |
|
|
|
(1,010 |
) |
|
|
|
|
|
|
||||||
OTHER GAINS (LOSSES) |
|
|
|
|
|
||||||
Realized loss on sales of investments, net |
|
— |
|
|
|
(1,506 |
) |
|
|
(1,506 |
) |
Unrealized gain (loss) on investments, net |
|
192,874 |
|
|
|
(41,977 |
) |
|
|
80,873 |
|
(Loss) gain on derivative instruments, net |
|
(154,064 |
) |
|
|
41,135 |
|
|
|
11,707 |
|
Total other gains (losses), net |
|
38,810 |
|
|
|
(2,348 |
) |
|
|
91,074 |
|
|
|
|
|
|
|
||||||
EXPENSES |
|
|
|
|
|
||||||
General and administrative expenses |
|
(8,271 |
) |
|
|
(6,642 |
) |
|
|
(25,793 |
) |
Other operating expense, net |
|
(436 |
) |
|
|
(601 |
) |
|
|
(1,459 |
) |
Total operating expenses |
|
(8,707 |
) |
|
|
(7,243 |
) |
|
|
(27,252 |
) |
|
|
|
|
|
|
||||||
Net income (loss) |
|
30,997 |
|
|
|
(8,304 |
) |
|
|
62,812 |
|
Preferred stock dividends |
|
(1,923 |
) |
|
|
(1,923 |
) |
|
|
(5,770 |
) |
Net income (loss) to common shareholders |
$ |
29,074 |
|
|
$ |
(10,227 |
) |
|
$ |
57,042 |
|
|
|
|
|
|
|
||||||
Other comprehensive income: |
|
|
|
|
|
||||||
Unrealized gain (loss) on available-for-sale investments, net |
|
41,667 |
|
|
|
(1,786 |
) |
|
|
22,613 |
|
Total other comprehensive income (loss) |
|
41,667 |
|
|
|
(1,786 |
) |
|
|
22,613 |
|
Comprehensive income (loss) to common shareholders |
$ |
70,741 |
|
|
$ |
(12,013 |
) |
|
$ |
79,655 |
|
|
|
|
|
|
|
||||||
Weighted average common shares-basic |
|
75,792,527 |
|
|
|
66,954,870 |
|
|
|
67,313,385 |
|
Weighted average common shares-diluted |
|
76,366,487 |
|
|
|
66,954,870 |
|
|
|
67,808,892 |
|
Net income (loss) per common share-basic |
$ |
0.38 |
|
|
$ |
(0.15 |
) |
|
$ |
0.85 |
|
Net income (loss) per common share-diluted |
$ |
0.38 |
|
|
$ |
(0.15 |
) |
|
$ |
0.84 |
|
Dividends declared per common share |
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
1.17 |
|
Discussion of Third Quarter Results
The Company's total economic return of
($s in thousands except per share data) |
Net Changes in Fair Value |
|
Components of Comprehensive Income |
|
Common Book
Rollforward |
|
Per Common Share (1) |
|||||||
Balance as of June 30, 2024 (1) |
|
|
|
|
$ |
933,763 |
|
|
$ |
12.50 |
||||
Net interest income |
|
|
$ |
894 |
|
|
|
|
|
|||||
Operating expenses |
|
|
|
(8,707 |
) |
|
|
|
|
|||||
Preferred stock dividends |
|
|
|
(1,923 |
) |
|
|
|
|
|||||
Changes in fair value: |
|
|
|
|
|
|
|
|||||||
MBS and loans |
$ |
234,541 |
|
|
|
|
|
|
|
|||||
TBAs |
|
72,191 |
|
|
|
|
|
|
|
|||||
|
|
(216,189 |
) |
|
|
|
|
|
|
|||||
Interest rate swaps |
|
(10,066 |
) |
|
|
|
|
|
|
|||||
Total net change in fair value |
|
|
|
80,477 |
|
|
|
|
|
|||||
Comprehensive income to common shareholders |
|
|
|
|
|
70,741 |
|
|
|
|||||
Capital transactions: |
|
|
|
|
|
|
|
|||||||
Net proceeds from stock issuance (2) |
|
|
|
|
|
56,753 |
|
|
|
|||||
Common dividends declared |
|
|
|
|
|
(30,198 |
) |
|
|
|||||
Balance as of September 30, 2024 (1) |
|
|
|
|
$ |
1,031,059 |
|
|
$ |
13.00 |
(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 includes |
The following table provides detail on the Company's MBS investments, including TBA securities as of September 30, 2024:
|
September 30, 2024 |
|
June 30, 2024 |
||||||||||||||||
($ in millions) |
Par Value |
|
Fair Value |
|
% of Portfolio |
|
Par Value |
|
Fair Value |
|
% of Portfolio |
||||||||
30-year fixed rate RMBS: |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
$ |
668,416 |
|
|
$ |
559,167 |
|
6.0 |
% |
|
$ |
682,622 |
|
|
$ |
543,906 |
|
6.1 |
% |
|
|
571,513 |
|
|
|
499,128 |
|
5.4 |
% |
|
|
583,629 |
|
|
|
485,088 |
|
5.5 |
% |
|
|
331,722 |
|
|
|
321,575 |
|
3.5 |
% |
|
|
340,558 |
|
|
|
315,611 |
|
3.6 |
% |
|
|
1,354,851 |
|
|
|
1,337,957 |
|
14.4 |
% |
|
|
1,387,896 |
|
|
|
1,317,480 |
|
14.9 |
% |
|
|
2,062,913 |
|
|
|
2,074,274 |
|
22.2 |
% |
|
|
1,996,271 |
|
|
|
1,941,874 |
|
21.9 |
% |
|
|
1,950,064 |
|
|
|
1,987,567 |
|
21.3 |
% |
|
|
1,073,941 |
|
|
|
1,066,340 |
|
12.0 |
% |
|
|
315,455 |
|
|
|
325,422 |
|
3.5 |
% |
|
|
288,922 |
|
|
|
292,118 |
|
3.3 |
% |
TBA |
|
462,000 |
|
|
|
443,447 |
|
4.8 |
% |
|
|
262,000 |
|
|
|
240,303 |
|
2.7 |
% |
TBA |
|
183,000 |
|
|
|
179,819 |
|
1.9 |
% |
|
|
183,000 |
|
|
|
172,821 |
|
2.0 |
% |
TBA |
|
767,000 |
|
|
|
766,161 |
|
8.2 |
% |
|
|
868,000 |
|
|
|
840,408 |
|
9.5 |
% |
TBA |
|
592,000 |
|
|
|
598,752 |
|
6.4 |
% |
|
|
1,389,000 |
|
|
|
1,371,677 |
|
15.5 |
% |
TBA |
|
— |
|
|
|
— |
|
— |
% |
|
|
37,000 |
|
|
|
37,142 |
|
0.4 |
% |
Total Agency RMBS |
$ |
9,258,934 |
|
|
$ |
9,093,269 |
|
97.6 |
% |
|
$ |
9,092,839 |
|
|
$ |
8,624,768 |
|
97.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Agency CMBS |
$ |
100,957 |
|
|
$ |
98,026 |
|
1.1 |
% |
|
$ |
102,299 |
|
|
$ |
97,482 |
|
1.1 |
% |
Agency CMBS IO |
|
(1 |
) |
|
|
111,774 |
|
1.2 |
% |
|
|
(1 |
) |
|
|
116,853 |
|
1.3 |
% |
Non-Agency CMBS IO |
|
(1 |
) |
|
|
12,754 |
|
0.1 |
% |
|
|
(1 |
) |
|
|
16,386 |
|
0.2 |
% |
Total |
$ |
9,359,891 |
|
|
$ |
9,315,823 |
|
100.0 |
% |
|
$ |
9,195,138 |
|
|
$ |
8,855,489 |
|
100.0 |
% |
(1) |
CMBS IO do not have underlying par values. |
|
(2) |
Amounts shown for TBA |
The following table provides detail on the Company's repurchase agreement borrowings outstanding as of the dates indicated:
|
|
September 30, 2024 |
|
June 30, 2024 |
||||||||||||
Remaining Term
|
|
Balance |
|
Weighted Average Rate |
|
WAVG
|
|
Balance |
|
Weighted Average Rate |
|
WAVG
|
||||
($s in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less than 30 days |
|
$ |
4,403,523 |
|
5.39 |
% |
|
59 |
|
$ |
2,350,410 |
|
5.46 |
% |
|
99 |
30 to 90 days |
|
|
2,020,367 |
|
5.40 |
% |
|
89 |
|
|
3,015,537 |
|
5.47 |
% |
|
89 |
91 to 180 days |
|
|
— |
|
— |
% |
|
— |
|
|
128,481 |
|
5.43 |
% |
|
113 |
Total |
|
$ |
6,423,890 |
|
5.40 |
% |
|
68 |
|
$ |
5,494,428 |
|
5.46 |
% |
|
94 |
The following table provides information about the performance of the Company's MBS (including TBA securities) and repurchase agreement financing for the third quarter of 2024 compared to the prior quarter:
|
Three Months Ended |
||||||||||||||||||
|
September 30, 2024 |
|
June 30, 2024 |
||||||||||||||||
($s in thousands) |
Interest Income/Ex
|
|
Average
|
|
Effective Yield/ Financing Cost(3)(4) |
|
Interest Income/Ex
|
|
Average
|
|
Effective Yield/ Financing Cost(3)(4) |
||||||||
Agency RMBS |
$ |
75,083 |
|
|
$ |
6,627,198 |
|
4.53 |
% |
|
$ |
67,927 |
|
|
$ |
6,153,663 |
|
4.42 |
% |
Agency CMBS |
|
770 |
|
|
|
101,771 |
|
2.96 |
% |
|
|
792 |
|
|
|
105,321 |
|
2.97 |
% |
CMBS IO(5) |
|
2,902 |
|
|
|
133,172 |
|
8.20 |
% |
|
|
2,868 |
|
|
|
146,161 |
|
7.25 |
% |
Non-Agency MBS and other |
|
17 |
|
|
|
1,298 |
|
5.05 |
% |
|
|
19 |
|
|
|
1,437 |
|
5.00 |
% |
|
|
78,772 |
|
|
|
6,863,439 |
|
4.58 |
% |
|
|
71,606 |
|
|
|
6,406,582 |
|
4.46 |
% |
Cash equivalents |
|
4,686 |
|
|
|
|
|
|
|
4,448 |
|
|
|
|
|
||||
Total interest income |
$ |
83,458 |
|
|
|
|
|
|
$ |
76,054 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Repurchase agreement financing (6) |
|
(82,564 |
) |
|
|
5,943,805 |
|
(5.44 |
)% |
|
|
(74,767 |
) |
|
|
5,410,282 |
|
(5.47 |
)% |
Net interest income/net interest spread |
$ |
894 |
|
|
|
|
(0.86 |
)% |
|
$ |
1,287 |
|
|
|
|
(1.01 |
)% |
(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) |
Financing cost 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) |
Amounts exclude net periodic interest benefit from effective interest rate swaps of |
Hedging Portfolio
The Company uses derivative instruments to hedge exposure to interest rate risk arising from its investment and financing portfolio. As of September 30, 2024, the Company held short positions in 10-year
For the Company, 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, is terminated or periodically settled (excluding daily margin requirements) by the Company. Maturities and terminations are not included in the Company's earnings available for distribution ("EAD"), a non-GAAP measure, during any reporting period, but the periodic interest settlement on interest rate swaps is included in EAD. As of September 30, 2024, all of the Company's interest rate swaps and all of its 10-year
For the third quarter of 2024, the Company's net periodic interest benefit from interest rate swaps was
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 September 30, 2024; 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 |
|
September 30, 2024 |
|
|
|
($ in thousands) |
|
Fourth quarter 2024 |
|
$ |
21,981 |
Fiscal year 2025 |
|
|
88,583 |
Fiscal year 2026 and thereafter |
|
|
514,845 |
|
|
$ |
625,409 |
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 EAD to common shareholders (including per common share), a non-GAAP measure. Management believes this non-GAAP financial measure is useful to investors because it is 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 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 EAD 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. Management also includes the net periodic interest benefit from its interest rate swaps, which is also included in "gain (loss) on derivatives instruments, net", in EAD 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 net periodic interest benefit from interest rate swaps is a helpful indicator of the Company’s total financing cost in addition to GAAP interest expense. However, 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.
The following table provides reconciliations of EAD to comparable GAAP financial measures for the periods indicated:
|
Three Months Ended |
||||||
($s in thousands except per share data) |
September 30,
|
|
June 30, 2024 |
||||
Comprehensive income (loss) to common shareholders |
$ |
70,741 |
|
|
$ |
(12,013 |
) |
Less: |
|
|
|
||||
Change in fair value of investments, net (1) |
|
(234,541 |
) |
|
|
45,269 |
|
Change in fair value of derivative instruments, net (2) |
|
156,572 |
|
|
|
(41,351 |
) |
EAD to common shareholders |
$ |
(7,228 |
) |
|
$ |
(8,095 |
) |
|
|
|
|
||||
Weighted average common shares |
|
75,792,527 |
|
|
|
66,954,870 |
|
EAD per common share |
$ |
(0.10 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
||||
Net interest income |
$ |
894 |
|
|
$ |
1,287 |
|
Net periodic interest benefit from interest rate swaps |
|
4,162 |
|
|
|
17 |
|
TBA drop loss (3) |
|
(1,654 |
) |
|
|
(233 |
) |
Operating expenses |
|
(8,707 |
) |
|
|
(7,243 |
) |
Preferred stock dividends |
|
(1,923 |
) |
|
|
(1,923 |
) |
EAD to common shareholders |
$ |
(7,228 |
) |
|
$ |
(8,095 |
) |
(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 and net periodic interest benefit from interest rate swaps. |
|
(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. |
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.
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
View source version on businesswire.com: https://www.businesswire.com/news/home/20241021607799/en/
Alison Griffin
(804) 217-5897
Source: Dynex Capital, Inc.