Dynex Capital, Inc. (NYSE: DX) reported its third quarter 2018
results today. As previously announced, the Company's quarterly
conference call to discuss these results is today at 10:00 a.m.
Eastern Time and may be accessed via telephone in the U.S. at
1-866-393-4306 (internationally at 1-734-385-2616) using conference
ID 4066216 or by live webcast, which includes a slide presentation,
under “Investor Center” on the Company's website
(www.dynexcapital.com).
Third Quarter 2018
Highlights
- Comprehensive income of $0.01 per
common share and net income of $0.39 per common share
- Core net operating income, a non-GAAP
measure, of $0.19 per common share
- Book value per common share of $6.75 at
September 30, 2018 compared to $6.93 at June 30,
2018
- Leverage including TBA dollar roll
positions increased to 6.7x shareholders’ equity at
September 30, 2018 compared to 6.1x at June 30, 2018 due to
growth in the investment portfolio
- Net interest spread and adjusted net
interest spread of 1.08% and 1.41%, respectively, for the third
quarter of 2018 compared to 1.07% and 1.51%, respectively, for the
prior quarter
Management's Remarks
Byron Boston, President and CEO commented, “Core net operating
income improved this quarter as we increased our investment
portfolio and benefited from the diversification of our investment
strategy in residential and commercial investments. In particular,
our CMBS IO portfolio continues to outperform on a total return
basis. Total economic return to common shareholders was flat for
the quarter as rising interest rates and a flattening yield curve
led to a reduction in our book value, offsetting our common stock
dividend.”
Mr. Boston continued, “We believe that the Federal Reserve is
getting closer to the end of this policy tightening cycle with
global markets already experiencing the negative impact of higher
interest rates. In our view, as we have noted before,
gathering macroeconomic headwinds from rapidly increasing amounts
of global debt, emerging stress in financial markets, and fiscal
policy concerns will ultimately limit how high interest rates in
the U.S. may go on a sustained basis. Nonetheless, in the
short-term we might see upward pressure on rates based on evolving
economic data and technical factors. With this backdrop, we believe
the higher liquidity of an Agency MBS portfolio is preferable for
generating attractive shareholder returns. As the interest rate
environment becomes more favorable, we expect return opportunities
to further improve."
Book Value Per Common
Share
Book value per common share decreased $(0.18), or (2.0%), to
$6.75 at September 30, 2018 from $6.93 at June 30, 2018
primarily due to the impact of higher interest rates on the fair
value of the Company's investments versus its hedging portfolio.
The decline in shareholders' equity since June 30, 2018 resulting
from unrealized losses on MBS was partially offset by raising
capital of $13.4 million during the third quarter. The Company has
a year-to-date total economic loss on book value per common share
of (0.7)%.
Third Quarter 2018 Earnings
Summary
Comprehensive income to common shareholders was $0.7 million for
the third quarter of 2018 versus comprehensive income to common
shareholders of $3.0 million for the second quarter of 2018. Higher
interest rates principally drove the decline in comprehensive
income as unrealized losses on MBS increased while gains on related
hedges decreased. Net income to common shareholders increased $9.9
million to $22.6 million for the third quarter compared to $12.7
million for the second quarter of 2018 due primarily to lower loss
on sales of investments. Net interest income increased $0.4 million
from the second quarter of 2018 to the third quarter of 2018 due to
improved yields on investments as a result of recent purchases of
higher yielding fixed rate MBS and increased prepayment penalty
compensation earned on CMBS IO.
Core net operating income to common shareholders, a non-GAAP
measure, was $10.8 million for the third quarter of 2018 versus
$10.4 million for the second quarter of 2018 due to an increase in
adjusted net interest income of $0.5 million during the third
quarter. Adjusted net interest income, a non-GAAP measure,
increased for the third quarter of 2018 compared to the prior
quarter from the improved investment yields noted above, and also
from a higher average volume of TBA dollar roll transactions that
generated an increase in TBA drop income, partially offset by a
lower benefit from net periodic interest on interest rate swaps for
the third quarter of 2018 compared to the prior quarter as
discussed further below.
Investments and
Financing
The following table provides details of our MBS including TBA
dollar roll positions as of September 30, 2018:
September 30, 2018 Type of Investment:
Par Amortized Cost Basis Fair
Market Value
($ in thousands) 30-year fixed-rate RMBS: 3.0% coupon $ 228,116 $
229,734 $ 218,671 4.0% coupon 1,339,668 1,386,905 1,356,169 4.5%
coupon 158,111 163,388 163,244 TBA dollar roll positions (4.0%
coupon) (1) (2) 211,000 214,365 213,060 TBA dollar roll positions
(4.5% coupon) (1) (2) 550,000 566,500 566,637 Total
30-year fixed-rate RMBS 2,486,895 2,560,892 2,517,781
Adjustable-rate RMBS: 4.1% coupon (3) 35,379 36,339 37,068
Agency CMBS 987,266 997,058 948,296 CMBS IO (4) n/a 562,327 564,826
Other non-Agency MBS 7,936 4,833 6,236
Total MBS
portfolio including TBA dollar roll positions $ 3,517,476
$ 4,161,449 $ 4,074,207
(1) Amortized cost basis and fair market
value for TBA dollar roll positions represent implied cost basis
and implied market value,
respectively, for the underlying Agency
MBS as if settled.
(2) The net carrying value of TBA dollar
roll positions, which is the difference between their implied
market value and implied cost basis,
was $(1.2) million as of
September 30, 2018 and is included on the consolidated balance
sheet within “derivative assets”.
(3) Represents the weighted average coupon
based on amortized cost.
(4) Includes both Agency and non-Agency IO
securities with a combined notional balance of $23.6 billion.
The Company's MBS portfolio including TBA dollar roll positions
as of September 30, 2018 increased 13% since June 30, 2018.
During the third quarter of 2018, we purchased $695.2 million of
investments which consisted primarily of higher coupon, higher
yielding 30-year fixed-rate Agency RMBS, and we sold $118.4 million
of Agency CMBS, CMBS IO, and U.S. Treasuries. The Company's
repurchase agreement borrowings including payables for unsettled
securities as of September 30, 2018 increased 14% to $2.9
billion compared to $2.5 billion at June 30, 2018, which resulted
in leverage including TBA dollar roll positions of 6.7 times
shareholder's equity compared to 6.1 times at June 30, 2018.
Net Interest Income and Spread
The following table provides details on the performance of our
investments and financing including hedging costs for the periods
indicated:
Three Months Ended September 30, 2018 June
30, 2018 ($ in thousands)
Income/Expense
Average Balance Effective Yield/Cost of Funds
Income/Expense Average Balance
Effective Yield/Cost of Funds Interest-earning
assets: Agency RMBS-fixed rate $ 11,561 $ 1,384,926 3.34 % $
9,190 $ 1,135,365 3.24 % Agency CMBS-fixed rate 7,362 1,002,661
2.81 % 7,267 1,011,945 2.80 % Agency RMBS-adjustable rate 283
37,634 3.12 % 1,332 254,850 2.14 % CMBS IO (1) 6,646 581,770 3.98 %
6,298 632,376 3.78 % Other non-Agency MBS 427 4,869 30.31 % 446
5,022 30.67 % U.S. Treasuries 45 6,302 2.83 % 1,001 156,420 2.57 %
Other investments 601 13,226 4.25 % 388 14,576
3.99 % Total $ 26,925 $ 3,031,388 3.33 % $ 25,922
$ 3,210,554 3.13 %
Interest-bearing
liabilities: Repurchase agreements $ 14,780 $ 2,564,863 2.25 %
$ 14,181 $ 2,716,097 2.07 % Non-recourse collateralized financing
37 4,260 3.01 % 42 5,002 2.73 % De-designated cash flow hedge
accretion (66 ) n/a (0.01 )% (48 ) n/a (0.01 )% Total $ 14,751
$ 2,569,123 2.25 % $ 14,175 $ 2,721,099 2.06 %
Net interest income/net interest spread
$ 12,174 1.08 % $
11,747 1.07 % Add: TBA drop income
4,262 0.06 % 3,619 0.10 % Add: net periodic interest benefit (2)
1,777 0.28 % 2,333 0.35 % Less: de-designated cash flow hedge
accretion (66 ) (0.01 )% (48 ) (0.01 )% Adjusted net interest
income/adjusted net interest spread (3)
$ 18,147
1.41 % $ 17,651
1.51 %
(1) CMBS IO includes Agency and non-Agency
securities.
(2) Amount represents net periodic
interest benefit of effective interest rate swaps outstanding
during the period and excludes realized and unrealized gains and
losses from changes in fair value of derivatives.
(3) Represents a non-GAAP measure.
Net interest income and net interest spread increased for the
third quarter of 2018 compared to the prior quarter due primarily
to having a larger average balance of higher yielding fixed-rate
Agency RMBS and higher prepayment compensation on CMBS IO, which
were almost entirely offset by higher cost of repurchase agreement
financing as a result of increasing short-term interest rates.
Adjusted net interest spread for the third quarter of 2018
decreased 10 basis points compared to the second quarter of 2018
primarily because the Company's net receive rate on its interest
rate swaps declined 8 basis points, resulting in a lower net
periodic interest benefit. In addition, although TBA drop income
was $0.6 million higher during the third quarter of 2018 compared
to the second quarter of 2018 as a result of a larger volume of TBA
dollar roll transactions, the implied financing rate on these
transactions increased approximately 37 basis points from the
second quarter of 2018 to the third quarter of 2018. As a result,
the net yield from TBA dollar roll transactions declined 32 basis
points to 1.61% for the third quarter of 2018 compared to 1.93% for
the prior quarter.
Hedging Summary
The Company's interest rate swaps had a positive net impact on
comprehensive income of $25.0 million during the third quarter of
2018. Interest rate swaps with a notional balance of $250.0 million
were terminated during the third quarter, resulting in a net
realized gain of $2.6 million, and interest rate swaps with a
notional balance of $380.0 million at a weighted average pay-fixed
rate of 2.94% were added during the third quarter. The following
table provides information related to the Company's average
borrowings outstanding and interest rate swaps effective for the
periods indicated:
Three Months Ended ($ in thousands)
September 30,
2018 June 30, 2018 Average repurchase agreement
borrowings outstanding $ 2,564,863 $ 2,716,097 Average net TBAs
outstanding - at cost (1) 982,665 722,005 Average
borrowings and net TBAs outstanding $ 3,547,528 $ 3,438,102 Average
notional amount of interest rate swaps outstanding (excluding
forward starting swaps) $ 2,502,609 $ 2,707,967 Ratio
of average interest rate swaps to average borrowings and net TBAs
outstanding (1) 0.7 0.8 Average interest rate swap net
pay-fixed rate (excluding forward starting swaps) (2) 2.09 % 1.83 %
Average interest rate swap net receive-floating rate (2) 2.32 %
2.15 % Average interest rate swap net pay/(receive) rate
(0.23)
%
(0.32)
%
(1) Because the Company executes TBA
dollar roll transactions, which economically represent the purchase
and financing of
fixed-rate Agency RMBS, the average TBAs
outstanding are included in the ratio calculation.
(2) Includes one receive-fixed interest
rate swap with a notional balance of $100.0 million at a rate of
1.70%.
During the third quarter of 2018, the Company incurred a loss of
$(0.2) million on Eurodollar futures used to hedge interest rate
risk. Eurodollar futures with a notional balance of $650.0 million
and a weighted average rate of 1.86% matured during the third
quarter of 2018, for which the Company realized a gain of $0.8
million over the life of contract. Management views Eurodollar
futures as economically similar to interest rate swaps, but unlike
interest rate swaps, Eurodollar futures do not incur periodic
interest or similar costs/benefits and therefore do not have an
impact on core net operating income to common shareholders. The
Company had no Eurodollar futures outstanding at September 30,
2018.
The aggregate notional amount of currently effective and
forward-starting interest rate swaps as of September 30, 2018
was $2.7 billion and $1.5 billion, respectively. The following
table summarizes the weighted average notional amount and rate of
interest rate hedges (including Eurodollar futures) held as of
September 30, 2018:
September 30, 2018 ($ in thousands)
Weighted
Average Notional Weighted Average
Pay-Fixed Rate
Remainder of 2018 $ 3,236,630 2.10% 2019 3,054,027 2.20%
2020 2,444,495 2.32% 2021 2,195,479 2.37% 2022 2,243,521 2.46% 2023
1,529,397 2.63% 2024 1,396,503 2.63% 2025 and thereafter 244,716
2.73%
Company Description
Dynex Capital, Inc. is an internally managed real estate
investment trust, or REIT, which invests in mortgage assets on a
leveraged basis. The Company invests in Agency and non-Agency
RMBS, CMBS, and CMBS IO. Additional information about Dynex
Capital, Inc. is available at www.dynexcapital.com.
Use of Non-GAAP Financial
Measures
In addition to the Company's operating results presented in
accordance with GAAP, this release includes certain non-GAAP
financial measures including core net operating income to common
shareholders (including per common share), adjusted interest
expense, adjusted net interest income and the related metrics
adjusted cost of funds and adjusted net interest spread. Because
these measures are used in the Company's internal analysis of
financial and operating performance, management believes that they
provide greater transparency to our investors of management's view
of our economic performance. Management also believes the
presentation of these measures, when analyzed in conjunction with
the Company's GAAP operating results, allows investors to more
effectively evaluate and compare the performance of the Company to
that of its peers, although the Company's presentation of its
non-GAAP measures may not be comparable to other similarly-titled
measures of other companies. Schedules reconciling core net
operating income to common shareholders, adjusted interest expense,
and adjusted net interest income to GAAP financial measures are
provided as a supplement to this release.
Management views core net operating income to common
shareholders as an estimate of the Company's financial performance
excluding changes in fair value of its investments and derivatives.
In addition to the non-GAAP reconciliation set forth in the
supplement to this release, which derives core net operating income
to common shareholders from GAAP net income to common shareholders
as the nearest GAAP equivalent measure, core net operating income
to common shareholders can also be determined by adjusting net
interest income to include interest rate swap periodic interest
costs, drop income on TBA dollar roll positions, general and
administrative expenses, and preferred dividends. Management
includes drop income, which is included in "gain (loss) on
derivatives instruments, net" on the Company's consolidated
statements of comprehensive income, in core net operating income
and in adjusted net interest income because TBA dollar roll
positions are viewed by management as economically equivalent to
holding and financing Agency RMBS using short-term repurchase
agreements. Management also includes periodic interest costs from
its interest rate swaps, which are also included in "gain (loss) on
derivatives instruments, net", in adjusted net interest expense,
and in adjusted net interest income 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 costs 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 measures
do not provide a full perspective on our results of operations, and
therefore, their usefulness is limited. For example, these non-GAAP
measures do not include gains or losses from available-for-sale
investments, changes in fair value of and costs of terminating
interest rate swaps, as well as realized and unrealized gains or
losses from any instrument used by management to economically hedge
the impact of changing interest rates on its portfolio and book
value per common share, such as Eurodollar futures. As a result,
these non-GAAP measures should be considered as a supplement to,
and not as a substitute for, the Company's GAAP results as reported
on its consolidated statements of comprehensive income.
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," 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
may include, without limitation, statements regarding the Company's
financial performance in future periods, future interest rates,
future market credit spreads, our views on expected characteristics
of future investment environments, prepayment rates and investment
risks, future investment strategies, our 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 our
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, changes in general economic and market conditions,
including volatility in the credit markets which impacts asset
prices and the cost and availability of financing, changes in
monetary policy and in particular the impact of changes in balance
sheet reinvestment policy of the Federal Reserve, defaults by
borrowers, availability of suitable reinvestment opportunities,
variability in investment portfolio cash flows, fluctuations in
interest rates, fluctuations in property capitalization rates and
values of commercial real estate, defaults by third-party
servicers, prepayments of investment portfolio assets, other
general competitive factors, uncertainty around the impact of
government regulatory changes, including ongoing financial
institution regulatory reform efforts, the full impacts of which
are unknown at this time, and another ownership change under
Section 382 that further impacts the use of our tax net operating
loss carryforward. 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, 2017, 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.
DYNEX CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands except per share
data)
September 30, 2018 June 30, 2018
December 31, 2017 ASSETS (unaudited) (unaudited)
Available-for-sale investments, at fair value: Mortgage-backed
securities $ 3,294,510 $ 2,759,894 $ 3,026,989 U.S. Treasuries —
57,923 146,530 Mortgage loans held for investment, net 12,342
13,628 15,738 Cash and cash equivalents 55,251 165,126 40,867
Restricted cash 58,334 52,832 46,333 Derivative assets 2,612 7,642
2,940 Accrued interest receivable 19,575 19,326 19,819 Other
assets, net 5,555 6,406 6,562 Total assets $
3,448,179 $ 3,082,777 $ 3,305,778
LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities:
Repurchase agreements $ 2,690,858 $ 2,514,984 $ 2,565,902 Payable
for unsettled securities 182,922 529 156,899 Non-recourse
collateralized financing 3,709 4,393 5,520 Derivative liabilities
2,039 — 269 Accrued interest payable 5,676 5,469 3,734 Accrued
dividends payable 13,121 12,727 12,526 Other liabilities 3,101
2,441 3,870 Total liabilities 2,901,426
2,540,543 2,748,720
Shareholders’ equity: Preferred
stock - aggregate liquidation preference of $148,541; $147,725; and
$147,217, respectively $ 142,574 $ 141,788 $ 141,294 Common stock,
par value $.01 per share: 59,016,554; 56,906,200; and 55,831,549
shares issued and outstanding, respectively 590 569 558 Additional
paid-in capital 795,630 782,011 775,873 Accumulated other
comprehensive loss (85,833 ) (63,919 ) (8,697 ) Accumulated deficit
(306,208 ) (318,215 ) (351,970 ) Total shareholders' equity 546,753
542,234 557,058 Total liabilities and
shareholders’ equity $ 3,448,179 $ 3,082,777 $
3,305,778 Book value per common share $ 6.75 $ 6.93 $
7.34
DYNEX CAPITAL, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(UNAUDITED)
(amounts in thousands except per share
data)
Three Months Ended September 30, 2018 June
30, 2018 March 31, 2018 December 31,
2017 September 30, 2017 Interest income $ 26,925
$ 25,922 $ 25,190 $ 24,124 $ 23,103 Interest expense 14,751
14,175 11,595 10,056 9,889 Net interest
income 12,174 11,747 13,595 14,068 13,214 Gain on derivative
instruments, net 19,499 20,667 38,354 12,678 5,993 Loss on sale of
investments, net (1,726 ) (12,444 ) (3,775 ) (902 ) (5,211 ) Fair
value adjustments, net 12 27 29 12 23 Other operating expense, net
(409 ) (339 ) (253 ) (50 ) (109 ) General and administrative
expenses: Compensation and benefits (1,712 ) (1,751 ) (1,962 )
(2,153 ) (2,070 ) Other general and administrative (2,252 ) (2,255
) (1,681 ) (1,690 ) (1,529 )
Net income 25,586 15,652 44,307
21,963 10,311 Preferred stock dividends (2,956 ) (2,942 ) (2,940 )
(2,910 ) (2,808 )
Net income to common shareholders $ 22,630
$ 12,710 $ 41,367 $ 19,053 $ 7,503
Other comprehensive income: Unrealized (loss)
gain on available-for-sale investments, net $ (23,574 ) $ (22,156 )
$ (49,189 ) $ (15,438 ) $ 981 Reclassification adjustment for loss
on sale of investments, net 1,726 12,444 3,775 902 5,211
Reclassification adjustment for de-designated cash flow hedges (66
) (48 ) (48 ) (48 ) (48 )
Total other comprehensive (loss)
income (21,914 ) (9,760 ) (45,462 ) (14,584 ) 6,144
Comprehensive income (loss) to common shareholders $ 716
$ 2,950 $ (4,095 ) $ 4,469 $ 13,647
Net income per common share-basic and diluted $ 0.39
$ 0.23 $ 0.74 $ 0.36 $ 0.15
Weighted average common shares
57,727 56,295 55,871 53,399 49,832
DYNEX CAPITAL, INC.
KEY STATISTICS
(UNAUDITED)
($ in thousands except per share data)
As Of September 30, 2018 June 30, 2018
March 31, 2018 December 31, 2017
September 30, 2017 Portfolio and Other Balance Sheet
Statistics: Total MBS fair value $ 3,294,510 $ 2,759,894 $
2,864,822 $ 3,026,989 $ 2,921,444 Agency CMBS, amortized cost $
997,058 $ 1,008,887 $ 1,015,486 $ 1,134,409 $ 1,314,925 Agency
RMBS-fixed rate, amortized cost $ 1,780,027 $ 1,163,875 $ 965,173 $
903,269 $ 541,262 Agency RMBS-variable rate, amortized cost $
36,339 $ 38,966 $ 278,474 $ 289,305 $ 305,265 CMBS IO, amortized
cost(1) $ 562,327 $ 607,452 $ 652,563 $ 683,833 $ 717,115 Other
non-Agency MBS, amortized cost $ 4,833 $ 4,890 $ 5,092 $ 23,536 $
37,441 TBA dollar roll positions, fair value (if settled) $ 779,697
$ 784,442 $ 846,940 $ 830,908 $ 683,680 TBA dollar roll positions,
amortized cost (if settled) $ 780,865 $ 782,408 $ 844,941 $ 829,425
$ 683,813 TBA dollar roll positions, carrying value $ (1,168 ) $
2,034 $ 1,999 $ 1,483 $ (133 ) U.S. Treasuries, fair value $ — $
57,923 $ 204,535 $ 146,530 $ — Book value per common share $ 6.75 $
6.93 $ 7.07 $ 7.34 $ 7.46 Leverage including TBA dollar roll
positions at cost as if settled (2) 6.7 x 6.1 x 6.5 x 6.4 x 6.3 x
Three Months Ended September 30, 2018 June
30, 2018 March 31, 2018 December 31, 2017
September 30, 2017 Performance Statistics: Net income
per common share $ 0.39 $ 0.23 $ 0.74 $ 0.36 $ 0.15 Core net
operating income per common share (3) $ 0.19 $ 0.18 $ 0.18 $ 0.20 $
0.19 Comprehensive income (loss) per common share $ 0.01 $ 0.05 $
(0.07 ) $ 0.08 $ 0.27 Dividends per common share $ 0.18 $ 0.18 $
0.18 $ 0.18 $ 0.18 Average interest earning assets (4) $ 3,031,388
$ 3,210,554 $ 3,140,125 $ 2,939,786 $ 2,960,595 Average TBA dollar
roll position $ 1,037,347 $ 742,111 $ 866,821 $ 944,103 $ 797,484
Average interest bearing liabilities $ 2,569,123 $ 2,721,099 $
2,651,101 $ 2,563,206 $ 2,622,067 Effective yield on investments
3.33% 3.13% 3.09% 3.07% 2.95% Cost of funds (5) 2.25% 2.06% 1.75%
1.53% 1.48% Net interest spread 1.08% 1.07% 1.34% 1.54% 1.47%
Adjusted cost of funds (6) 1.98% 1.72% 1.59% 1.66% 1.46% Adjusted
net interest spread (7) 1.41% 1.51% 1.52% 1.44% 1.50% CPR for
adjustable-rate Agency RMBS (8) 18.1% 20.4% 16.0% 17.1% 16.8% CPR
for fixed-rate Agency RMBS (8) 4.8% 5.7% 4.3% 1.3% —%
(1) CMBS IO includes Agency and non-Agency
issued securities.
(2) Leverage equals the sum of (i) total
liabilities and (ii) amortized cost basis of TBA dollar roll
positions (if settled) divided by total shareholders' equity.
(3) Non-GAAP financial measures are
reconciled in the supplement to this release.
(4) Excludes TBA dollar roll
positions.
(5) Percentages shown are equal to
annualized interest expense divided by average interest bearing
liabilities.
(6) Adjusted cost of funds is equal to
annualized adjusted interest expense (a non-GAAP measure) divided
by average interest bearing liabilities.
(7) Adjusted net interest spread includes
the impact of drop income from TBA dollar roll positions after
deducting adjusted cost of funds from effective yield.
(8) Represents the average constant
prepayment rate ("CPR") experienced during the quarter.
DYNEX CAPITAL, INC.
SUPPLEMENTAL INFORMATION
(UNAUDITED)
($ in thousands)
Computations of Non-GAAP Measures: September 30, 2018
June 30, 2018 March 31, 2018
December 31, 2017 September 30, 2017 Net
interest income $ 12,174 $ 11,747 $ 13,595 $ 14,068 $ 13,214 Add:
TBA drop income (1) 4,262 3,619 3,733 3,925 3,902 Add: net periodic
interest benefit (cost) (2) 1,777 2,333 (220 ) (319 ) (1,131 )
Less: de-designated cash flow hedge accretion (3) (66 ) (48 ) (48 )
(48 ) (48 ) Adjusted net interest income 18,147 17,651 17,060
17,626 15,937 Other expense, net (409 ) (339 ) (253 ) (50 ) (109 )
General and administrative expenses (3,964 ) (4,006 ) (3,643 )
(3,843 ) (3,599 ) Preferred stock dividends (2,956 ) (2,942 )
(2,940 ) (2,910 ) (2,808 ) Core net operating income to common
shareholders $ 10,818 $ 10,364 $ 10,224 $
10,823 $ 9,421
(1) 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.
(2) Amount represents net periodic
interest benefit (cost) of effective interest rate swaps
outstanding during the period and excludes
realized and unrealized gains and losses
from changes in fair value of derivatives.
(3) Amount recorded as a portion of
"interest expense" in accordance with GAAP related to the accretion
of the balance remaining in
accumulated other comprehensive loss as a
result of the Company's discontinuation of cash flow hedge
accounting effective June 30, 2013.
DYNEX CAPITAL, INC.
RECONCILIATIONS OF GAAP MEASURES TO
NON-GAAP MEASURES
(UNAUDITED)
($ in thousands)
Three Months Ended September 30, 2018 June
30, 2018 March 31, 2018 December 31,
2017 September 30, 2017 GAAP net income to common
shareholders $ 22,630 $ 12,710 $ 41,367 $ 19,053 $ 7,503 Less:
Change in fair value of derivative instruments, net (1) (13,460 )
(14,715 ) (34,841 ) (9,072 ) (3,222 ) Loss on sale of investments,
net 1,726 12,444 3,775 902 5,211 De-designated cash flow hedge
accretion (2) (66 ) (48 ) (48 ) (48 ) (48 ) Fair value adjustments,
net (12 ) (27 ) (29 ) (12 ) (23 ) Core net operating income to
common shareholders $ 10,818 $ 10,364 $ 10,224
$ 10,823 $ 9,421 Weighted average common
shares 57,727 56,295 55,871 53,399 49,832 Core net operating income
per common share $ 0.19 $ 0.18 $ 0.18 $ 0.20 $ 0.19
(1) Amount includes unrealized gains and
losses from changes in fair value of derivatives and realized gains
and losses
on terminated derivatives and excludes net
periodic interest benefits/costs incurred on effective interest
rate swaps outstanding during the period.
(2) Amount recorded as a portion of
"interest expense" in accordance with GAAP related to the accretion
of the balance remaining
in accumulated other comprehensive loss as
a result of the Company's discontinuation of cash flow hedge
accounting effective June 30, 2013.
Three Months Ended September 30, 2018 June
30, 2018 March 31, 2018 December 31,
2017 September 30, 2017 GAAP net interest income
$ 12,174 $ 11,747 $ 13,595 $ 14,068 $ 13,214 Add: TBA drop income
4,262 3,619 3,733 3,925 3,902 Add: net periodic interest benefit
(cost) (1) 1,777 2,333 (220 ) (319 ) (1,131 ) Less: de-designated
cash flow hedge accretion (2) (66 ) (48 ) (48 )
(48 ) (48 ) Non-GAAP adjusted net interest income $
18,147 $ 17,651 $ 17,060 $ 17,626 $
15,937
GAAP interest expense $ 14,751 $ 14,175
$ 11,595 $ 10,056 $ 9,889 Add: net periodic interest (benefit) cost
(1) (1,777 ) (2,333 ) 220 319 1,131 Less: de-designated cash flow
hedge accretion (2) 66 48 48 48 48
Non-GAAP adjusted interest expense $ 13,040 $ 11,890
$ 11,863 $ 10,423 $ 11,068
(1) Amount represents net periodic
interest benefit (cost) of effective interest rate swaps
outstanding during the period and
excludes realized and unrealized gains and
losses from changes in fair value of derivatives.
(2) Amount recorded as a portion of
"interest expense" in accordance with GAAP related to the accretion
of the balance remaining
in accumulated other comprehensive loss as
a result of the Company's discontinuation of cash flow hedge
accounting effective June 30, 2013.
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For Dynex Capital, Inc.Alison Griffin(804)
217-5897
Dynex Capital (NYSE:DX)
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