Dynex Capital, Inc. ("Dynex" or the "Company") (NYSE: DX)
reported its second quarter 2024 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 loss of $(0.31) per common share, or (2.4)% of
beginning book value
- Book value per common share of $12.50 as of June 30, 2024
- Comprehensive loss of $(0.18) per common share and net loss of
$(0.15) per common share
- Dividends declared of $0.39 per common share for the second
quarter
- Raised equity capital of $124.7 million during the second
quarter through a public offering of common stock and at-the-market
("ATM") issuances
- Purchased $551.1 million of higher coupon Agency RMBS
- Liquidity of $644.0 million as of June 30, 2024
- Leverage including to-be-announced ("TBA") securities at cost
was 7.9 times shareholders' equity as of June 30, 2024
Management Remarks
"Dynex continued to execute on its strategic plan to deliver
consistent dividend income with disciplined capital management. We
raised capital at attractive levels and are ready to take advantage
of the generationally wide spreads in the mortgage market," said
Byron L. Boston, Chairman and Co-Chief Executive Officer. "Human
capital remains a focus, and we made several key decisions to build
for future success."
Earnings Conference Call
As previously announced, the Company's conference call to
discuss these results is today at 10:00 a.m. Eastern Time and may
be accessed via telephone in the United States by dialing
1-888-330-2022 or internationally by dialing 1-646-960-0690 and
providing the ID 1957092 or by live audio webcast by clicking the
"Webcast" button in the “Current Events” section on the homepage of
the Company's website (www.dynexcapital.com), which includes a
slide presentation. To listen to the live conference call via
telephone, please dial in at least ten minutes before the call
begins. An archive of the webcast will be available on the
Company's website approximately two hours after the live call
ends.
Consolidated
Balance Sheets (unaudited)
($s in thousands except per share
data)
June 30, 2024
December 31, 2023
ASSETS
Cash and cash equivalents
$
286,132
$
119,639
Cash collateral posted to
counterparties
123,131
118,225
Mortgage-backed securities (including
pledged of $5,788,148 and $5,880,747, respectively)
6,193,139
6,038,948
Due from counterparties
27,379
1,313
Derivative assets
8,461
54,361
Accrued interest receivable
28,323
28,727
Other assets, net
17,037
8,537
Total assets
$
6,683,602
$
6,369,750
LIABILITIES AND SHAREHOLDERS’
EQUITY
Liabilities:
Repurchase agreements
$
5,494,428
$
5,381,104
Due to counterparties
49,606
95
Derivative liabilities
2,032
—
Cash collateral posted by
counterparties
19,382
46,001
Accrued interest payable
54,567
53,194
Accrued dividends payable
12,785
10,320
Other liabilities
5,539
8,301
Total liabilities
5,638,339
5,499,015
Shareholders’ equity:
Preferred stock
$
107,843
107,843
Common stock
747
570
Additional paid-in capital
1,620,355
1,404,431
Accumulated other comprehensive loss
(177,556
)
(158,502
)
Accumulated deficit
(506,126
)
(483,607
)
Total shareholders' equity
1,045,263
870,735
Total liabilities and shareholders’
equity
$
6,683,602
$
6,369,750
Preferred stock aggregate liquidation
preference
$
111,500
$
111,500
Book value per common share
$
12.50
$
13.31
Common shares outstanding
74,707,776
57,038,247
Consolidated
Comprehensive Statements of Income (unaudited)
Six Months Ended
Three Months Ended
($s in thousands except per share
data)
June 30, 2024
March 31, 2024
June 30, 2024
INTEREST INCOME (EXPENSE)
Interest income
$
76,054
$
71,525
$
147,580
Interest expense
(74,767
)
(74,717
)
(149,484
)
Net interest income (expense)
1,287
(3,192
)
(1,904
)
OTHER GAINS (LOSSES)
Realized loss on sales of investments,
net
(1,506
)
—
(1,506
)
Unrealized loss on investments, net
(41,977
)
(70,024
)
(112,001
)
Gain on derivative instruments, net
41,135
124,635
165,771
Total other (losses) gains, net
(2,348
)
54,611
52,264
EXPENSES
General and administrative expenses
(6,642
)
(10,880
)
(17,523
)
Other operating expense, net
(601
)
(421
)
(1,022
)
Total operating expenses
(7,243
)
(11,301
)
(18,545
)
Net (loss) income
(8,304
)
40,118
31,815
Preferred stock dividends
(1,923
)
(1,923
)
(3,847
)
Net (loss) income to common
shareholders
$
(10,227
)
$
38,195
$
27,968
Other comprehensive income:
Unrealized loss on available-for-sale
investments, net
(1,786
)
(17,268
)
(19,054
)
Total other comprehensive loss
(1,786
)
(17,268
)
(19,054
)
Comprehensive (loss) income to common
shareholders
$
(12,013
)
$
20,927
$
8,914
Weighted average common shares-basic
66,954,870
59,008,316
63,003,545
Weighted average common shares-diluted
66,954,870
59,717,332
63,913,156
Net (loss) income per common
share-basic
$
(0.15
)
$
0.65
$
0.44
Net (loss) income per common
share-diluted
$
(0.15
)
$
0.64
$
0.44
Dividends declared per common share
$
0.39
$
0.39
$
0.78
Discussion of Second Quarter
Results
The Company's total economic loss of $(0.31) per common share
for the second quarter of 2024 consisted of a decline in book value
of $(0.70) per common share offset by dividends declared of $0.39
per common share. The decline in book value is primarily related to
the widening of Agency RMBS spreads to U.S. Treasuries during the
second quarter. Though the 10-year U.S. Treasury rate increased
during the second quarter of 2024, the impact on the Company's
investments was largely offset by gains on the Company's interest
rate hedges. Book value was also impacted by $124.7 million of
equity raised during the second quarter. The following table
summarizes the changes in the Company's financial position during
the second quarter of 2024:
($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 March 31, 2024
(1)
$
847,032
$
13.20
Net interest income
$
1,287
Operating expenses
(7,243
)
Preferred stock dividends
(1,923
)
Changes in fair value:
MBS and loans
$
(45,269
)
TBAs
(22,985
)
U.S. Treasury futures
64,210
Interest rate swaps
(90
)
Total net change in fair value
(4,134
)
Comprehensive loss to common
shareholders
(12,013
)
Capital transactions:
Net proceeds from stock issuance (2)
125,568
Common dividends declared
(26,824
)
Balance as of June 30, 2024 (1)
$
933,763
$
12.50
(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 $124.7 million from ATM issuances and one public
offering, and $0.9 million from amortization of share-based
compensation, net of grants.
During the second quarter of 2024, the Company added $551.1
million in specified pools of Agency RMBS with coupons of 5.5% or
higher, which is expected to drive net interest income higher in
the coming months, especially if coupled with a reduction in the
Federal Funds rate set by the Federal Reserve. The following table
provides detail on the Company's MBS investments, including TBA
securities as of June 30, 2024:
June 30, 2024
March 31, 2024
($ in millions)
Par Value
Fair Value
% of Portfolio
Par Value
Fair Value
% of Portfolio
30-year fixed rate RMBS:
2.0% coupon
$
682,622
$
543,906
6.1
%
$
696,233
$
559,217
6.8
%
2.5% coupon
583,629
485,088
5.5
%
598,717
502,714
6.1
%
4.0% coupon
340,558
315,611
3.6
%
347,937
326,119
4.0
%
4.5% coupon
1,387,896
1,317,480
14.9
%
1,363,175
1,307,279
15.8
%
5.0% coupon
1,996,271
1,941,874
21.9
%
2,037,775
2,000,866
24.3
%
5.5% coupon
1,073,941
1,066,340
12.0
%
885,118
887,012
10.8
%
6.0% coupon
288,922
292,118
3.3
%
—
—
—
%
TBA 4.0%
262,000
240,303
2.7
%
262,000
242,974
2.9
%
TBA 4.5%
183,000
172,821
2.0
%
223,000
212,529
2.6
%
TBA 5.0%
275,000
266,310
3.0
%
518,000
505,941
6.1
%
TBA 5.5%
1,982,000
1,945,775
22.0
%
1,250,000
1,244,696
15.1
%
TBA 6.0%
37,000
37,142
0.4
%
200,000
201,961
2.4
%
Total Agency RMBS
$
9,092,839
$
8,624,768
97.4
%
$
8,381,955
$
7,991,308
96.9
%
Agency CMBS
$
102,299
$
97,482
1.1
%
$
117,984
$
111,762
1.4
%
Agency CMBS IO
(1
)
116,853
1.3
%
(1
)
124,484
1.5
%
Non-Agency CMBS IO
(1
)
16,386
0.2
%
(1
)
21,105
0.2
%
Total
$
9,195,138
$
8,855,489
100.0
%
$
8,499,939
$
8,248,659
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:
June 30, 2024
March 31, 2024
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
$
2,350,410
5.46
%
99
$
2,440,188
5.48
%
58
30 to 90 days
3,015,537
5.47
%
89
2,305,208
5.46
%
71
91 to 180 days
128,481
5.43
%
113
539,312
5.42
%
182
Total
$
5,494,428
5.46
%
94
$
5,284,708
5.46
%
76
The following table provides information about the performance
of the Company's MBS (including TBA securities) and repurchase
agreement financing for the second quarter of 2024 compared to the
prior quarter:
Three Months Ended
June 30, 2024
March 31, 2024
($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
$
67,927
$
6,153,663
4.42
%
$
64,281
$
5,938,131
4.33
%
Agency CMBS
792
105,321
2.97
%
925
119,286
3.04
%
CMBS IO(5)
2,868
146,161
7.25
%
2,654
160,261
6.28
%
Non-Agency MBS and other
19
1,437
5.00
%
22
1,773
4.86
%
71,606
6,406,582
4.46
%
67,882
6,219,451
4.36
%
Cash equivalents
4,448
3,643
Total interest income
$
76,054
$
71,525
Repurchase agreement financing
(74,767
)
5,410,282
(5.47
)%
(74,717
)
5,365,575
(5.51
)%
Net interest income (expense)/net interest
spread
$
1,287
(1.01
)%
$
(3,192
)
(1.15
)%
(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 June 30, 2024, the Company held short
positions in 10-year U.S. Treasury futures with a notional amount
of $4.6 billion, short positions in 30-year U.S. Treasury futures
with a notional amount of $825.0 million, and interest rate swaps
with a notional amount of $10.0 million.
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 $25.5 million, or $0.38 per
average common share outstanding, for the second quarter of 2024.
The Company's remaining estimated net deferred tax hedge gains from
its interest rate hedging portfolio was $848.8 million as of June
30, 2024. These hedge gains will be part of the Company's future
distribution requirements along with net interest income and other
ordinary gains and losses in future periods.
The table below provides the projected amortization of the
Company's net deferred tax hedge gains that may be recognized as
taxable income over the periods indicated given conditions known as
of June 30, 2024; however, uncertainty inherent in the forward
interest rate curve makes future realized gains and losses
difficult to estimate, and as such, these projections are subject
to change for any given period.
Projected Period of Recognition for
Remaining Hedge Gains, Net
June 30, 2024
($ in thousands)
Third quarter 2024
$
26,687
Fourth quarter 2024
26,784
Fiscal year 2025
107,939
Fiscal year 2026 and thereafter
687,428
$
848,838
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 EAD to common shareholders
(including per common share) and adjusted net interest
income/expense. 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. Management also includes periodic interest
benefit/cost from its interest rate swaps, which are also included
in "gain (loss) on derivatives instruments, net", in adjusted net
interest income/expense 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 benefit/cost 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
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)
June 30, 2024
March 31, 2024
Comprehensive (loss) income to common
shareholders
$
(12,013
)
$
20,927
Less:
Change in fair value of investments, net
(1)
45,269
87,292
Change in fair value of derivative
instruments, net (2)
(41,351
)
(125,903
)
EAD to common shareholders
$
(8,095
)
$
(17,684
)
Weighted average common shares
66,955
59,008
EAD per common share
$
(0.12
)
$
(0.30
)
Net interest income (expense)
$
1,287
$
(3,192
)
Net periodic interest benefit from
interest rate swaps
17
—
TBA drop loss (3)
(233
)
(1,268
)
Adjusted net interest income (expense)
$
1,071
$
(4,460
)
Operating expenses
(7,243
)
(11,301
)
Preferred stock dividends
(1,923
)
(1,923
)
EAD to common shareholders
$
(8,095
)
$
(17,684
)
(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/cost 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. 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 the wars between Russia and the Ukraine and
between Israel and Hamas and the related impact on macroeconomic
conditions as a result of such conflicts; 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, 2023, 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20240722180962/en/
Alison Griffin (804) 217-5897
Dynex Capital (NYSE:DX)
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