Dynex Capital, Inc. ("Dynex" or the "Company") (NYSE: DX)
reported its third 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 return of $0.89 per common share, or 7.1% of
beginning book value
- Book value per common share of $13.00 as of September 30,
2024
- Comprehensive income of $0.93 per common share and net income
of $0.38 per common share
- Dividends declared of $0.39 per common share for the third
quarter
- Purchased $1.1 billion of Agency RMBS
- Liquidity of $708.7 million as of September 30, 2024
- 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 $0.15 per common share
Management Remarks
"Our economic return of 7.1% for the quarter continues to
highlight the skills and experience that we believe are necessary
to navigate the current environment. We continue to expect a
favorable investing environment which supports increasing our
monthly dividend from $0.13 to $0.15 per common share," said Byron
L. Boston, Chairman and Co-CEO.
"We believe the Dynex team has positioned the Company to deliver
solid returns – creating value in four main ways – managing the
existing portfolio, optimizing the capital structure, raising
equity and investing capital at accretive ROEs," said Smriti Laxman
Popenoe, Co-CEO, President, and Chief Investment Officer.
Earnings Conference Call
As previously announced, the Company's conference call to
discuss these results is today at 10:00 a.m. Eastern Time and may
be accessed via telephone in the United States by dialing
1-888-330-2022 or internationally by dialing 1-646-960-0690 and
providing the ID 1957092 or by live audio webcast by clicking the
"Webcast" button in the “Current Events” section on the homepage of
the Company's website (www.dynexcapital.com), which includes a
slide presentation. To listen to the live conference call via
telephone, please dial in at least ten minutes before the call
begins. An archive of the webcast will be available on the
Company's website approximately two hours after the live call
ends.
Consolidated
Balance Sheets (unaudited)
($s in thousands except per share
data)
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 $6,767,948 and $5,880,747, respectively)
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 Ended
Three Months Ended
($s in thousands except per share
data)
September 30, 2024
June 30, 2024
September 30, 2024
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 $0.89 per common share
for the third quarter of 2024 consisted of an increase in book
value of $0.50 per common share and dividends declared of $0.39 per
common share. The fair value of the Company's investment portfolio
benefited from spread tightening and a decline in the 10-year U.S.
Treasury rate during the third quarter of 2024. Because the
Company's interest rate hedges were positioned for a bull
steepening environment where short-term interest rates decline
faster than long term interest rates, the gains on the Company's
investment portfolio outpaced losses on its interest rate hedging
portfolio. The following table summarizes the changes in the
Company's financial position during the third quarter of 2024:
($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 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
U.S. Treasury futures
(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 $111,500.
(2)
Net proceeds from common stock issuances
includes $56.2 million from ATM issuances, and $0.5 million from
amortization of share-based compensation, net of grants.
The following table provides detail on the Company's MBS
investments, including TBA securities as of September 30, 2024:
September 30, 2024
June 30, 2024
($ in millions)
Par Value
Fair Value
% of
Portfolio
Par Value
Fair Value
% of
Portfolio
30-year fixed rate RMBS:
2.0% coupon
$
668,416
$
559,167
6.0
%
$
682,622
$
543,906
6.1
%
2.5% coupon
571,513
499,128
5.4
%
583,629
485,088
5.5
%
4.0% coupon
331,722
321,575
3.5
%
340,558
315,611
3.6
%
4.5% coupon
1,354,851
1,337,957
14.4
%
1,387,896
1,317,480
14.9
%
5.0% coupon
2,062,913
2,074,274
22.2
%
1,996,271
1,941,874
21.9
%
5.5% coupon
1,950,064
1,987,567
21.3
%
1,073,941
1,066,340
12.0
%
6.0% coupon
315,455
325,422
3.5
%
288,922
292,118
3.3
%
TBA 4.0%
462,000
443,447
4.8
%
262,000
240,303
2.7
%
TBA 4.5%
183,000
179,819
1.9
%
183,000
172,821
2.0
%
TBA 5.0% (2)
767,000
766,161
8.2
%
868,000
840,408
9.5
%
TBA 5.5% (2)
592,000
598,752
6.4
%
1,389,000
1,371,677
15.5
%
TBA 6.0%
—
—
—
%
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 5.0% and TBA 5.5%
coupons as of June 30, 2024 have been updated from the numbers
reported last quarter.
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 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
$
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
pense
Average Balance (1)(2)
Effective Yield/
Financing Cost(3)(4)
Interest Income/Ex
pense
Average Balance (1)(2)
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 $4,162 and $17 for
the three months ended September 30, 2024 and June 30, 2024,
respectively, or 0.28% and 0%, respectively, as a percentage of
repurchase agreement borrowings outstanding during the respective
periods.
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 U.S. Treasury futures with a notional amount
of $3.9 billion, short positions in 30-year U.S. Treasury futures
with a notional amount of $505.0 million, and short positions in
5-year and 7-year interest rate swaps with a notional amount of
$1.5 billion.
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 U.S. Treasury futures were designated as hedges
for tax purposes. The realized gains and losses on derivative
instruments designated as hedges for tax purposes, other than
periodic interest rate swap settlements, 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 $26.7 million, or $0.35 per average
common share outstanding, for the third quarter of 2024. The
Company's remaining estimated net deferred tax hedge gains from its
interest rate hedging portfolio was $625.4 million as of September
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.
For the third quarter of 2024, the Company's net periodic
interest benefit from interest rate swaps was $4.2 million, which
is recorded in (loss) gain on derivative instruments, net on the
consolidated comprehensive statement of income. Net periodic
interest benefit from interest rate swap settlements is included in
the Company's taxable income and EAD while changes in the fair
value of remaining interest rate swap cashflows are excluded from
EAD.
The table below provides the projected amortization of the
Company's net deferred tax hedge gains that may be recognized as
taxable income over the periods indicated given conditions known as
of September 30, 2024; however, uncertainty inherent in the forward
interest rate curve makes future realized gains and losses
difficult to estimate, and as such, these projections are subject
to change for any given period.
Projected Period of Recognition for
Remaining Hedge Gains, Net
September 30, 2024
($ 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, 2024
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. Boston's and Ms.
Popenoe'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 Ukraine
and between Israel and Hamas and the related impacts 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/20241021607799/en/
Alison Griffin (804) 217-5897
Dynex Capital (NYSE:DX)
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