Market Overview

Dynex Capital, Inc. Reports Second Quarter 2018 Results

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Dynex Capital, Inc. (NYSE:DX) reported its second 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 1679166 or by live webcast, which
includes a slide presentation, under "Investor Center" on the Company's
website (www.dynexcapital.com).

Second Quarter 2018 Highlights

  • Comprehensive income to common shareholders of $0.05 per common share
    and net income to common shareholders of $0.23 per common share
  • Core net operating income to common shareholders, a non-GAAP measure,
    of $0.18 per common share
  • Dividend declared of $0.18 per common share
  • Book value per common share of $6.93 at June 30, 2018 compared to
    $7.07 at March 31, 2018, resulting in an economic return on book value
    per common share of 0.6%, inclusive of the dividend declared
  • Leverage including TBA dollar roll positions of 6.1x shareholders'
    equity at June 30, 2018 compared to 6.5x at March 31, 2018

Management's Remarks

Byron Boston, President and CEO commented, "Interest rates continued to
move higher during the second quarter while the yield curve modestly
flattened. The impact of these movements on our results was partially
limited by our hedge position and the benefit of our diversified
portfolio of Agency residential and commercial MBS. Book value declined
$0.14 during the quarter, or approximately 2%, as a result of the higher
interest rates and also modestly wider credit spreads on Agency CMBS.
Inclusive of the dividend of $0.18, we posted a total economic return of
$0.04 for the quarter. We increased our capital allocation to Agency
fixed-rate RMBS during the quarter which continue to offer the best
risk-adjusted return in our investment opportunity set. Our leverage at
the end of the quarter was temporarily reduced by sales of certain
Agency hybrid ARMs and U.S. Treasuries at the end of the quarter, and we
have already reinvested these proceeds into fixed-rate Agency RMBS
during the third quarter. We continue to remain cautious given the
fragile global economic environment which is dependent on ever
increasing levels of debt and is exposed to a high potential for fiscal
or monetary policy mistakes. Overall, however, we believe market
conditions will remain favorable in the near term. Our liquidity is
strong and leverage reasonable as we move into the third quarter of
2018."

Second Quarter 2018 Earnings Summary

Comprehensive income to common shareholders was $3.0 million for the
second quarter of 2018 versus comprehensive loss to common shareholders
of $(4.1) million for the first quarter of 2018. Net income to common
shareholders declined $(28.7) million to $12.7 million for the second
quarter compared to $41.4 million for the first quarter of 2018 due
primarily to lower net gain on derivative instruments as interest rate
swap rates did not increase during the second quarter of 2018 at the
magnitude experienced during the first quarter of 2018. In addition, the
Company realized a loss on sales of investments of $(12.4) million
during the second quarter of 2018, resulting primarily from sales of the
Company's adjustable-rate Agency RMBS and U.S. Treasuries, compared to a
net loss on sales of investments of $(3.8) million during the first
quarter of 2018. Net interest income also declined $(1.8) million over
the same period due to an increase of $2.5 million in interest expense
to $14.2 million from higher borrowing rates, partially offset by an
increase of $0.7 million in interest income as a result of a larger
average balance of higher yielding fixed-rate Agency RMBS. The Company
recognized an other comprehensive loss of $(9.8) million for the second
quarter of 2018 due to the decline in fair value of the Company's
investments resulting primarily from increasing interest rates.

Core net operating income to common shareholders, a non-GAAP measure,
was $10.4 million for the second quarter of 2018 compared to $10.2
million for the first quarter of 2018 due to an increase in adjusted net
interest income of $0.6 million partially offset by an increase of $0.4
million in legal expenses. Adjusted net interest income increased as a
result of the increased yield on investments including TBAs, while
adjusted interest expense was unchanged as the net periodic interest
benefit from interest rate swaps offset the increase in repurchase
agreement costs during the quarter.

Book Value and Economic Return

Book value per common share decreased $(0.14), or (2.0%), to $6.93 at
June 30, 2018 from $7.07 at March 31, 2018 primarily due to the impact
of higher interest rates during the quarter and modest credit spread
widening in Agency CMBS as previously noted. The $(0.14) decline in book
value and the $0.18 dividend declared resulted in an economic return on
book value of $0.04 per common share, or 0.6% of beginning book value,
for the second quarter of 2018. Year-to-date economic loss on book value
is (0.7)%, which is primarily driven by declines in fair value of the
Company's investments, particularly during the first quarter of 2018.

Investments and Financing

The following table provides details of our available-for-sale ("AFS")
investments and TBA dollar roll positions as of June 30, 2018:

 
June 30, 2018
Type of Investment: Par   Amortized Cost Basis   Fair

Market Value

($ in thousands)
30-year fixed-rate RMBS:
3.0% coupon $ 234,364 $ 236,037 $ 227,408
4.0% coupon 888,778 927,838 907,375
TBA dollar roll positions (4.0% coupon) (1) (2) 515,000 523,267 524,559
TBA dollar roll positions (4.5% coupon) (1) (2) 250,000   259,141   259,883
Total 30-year fixed-rate RMBS 1,888,142 1,946,283 1,919,225
 
Adjustable-rate RMBS:
3.1% coupon (3) 37,921 38,966 39,830
 
Agency CMBS 998,502 1,008,887 965,524
CMBS IO (4) n/a 607,452 613,184
Other non-Agency MBS 8,274 4,890 6,573
U.S. Treasuries 59,000   57,973   57,923
Total AFS portfolio and TBA dollar roll positions $ 2,991,839   $ 3,664,451   $ 3,602,259
 

(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 $2.0 million as of June 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 $24.6 billion.

The Company's AFS portfolio including TBA dollar roll positions as of
June 30, 2018 declined approximately 8% since March 31, 2018 due
primarily to sales of $225.6 million of adjustable-rate RMBS, $8.6
million of non-Agency CMBS IO, and $149.2 million of U.S. Treasuries
during the second quarter of 2018. Average balances of the AFS portfolio
including TBA dollar roll positions were substantially the same at $3.95
billion and $4.00 billion during the second and first quarter of 2018,
respectively. The Company has already re-invested the sale proceeds into
30-year fixed-rate Agency RMBS during the third quarter of 2018. As a
result of these sales, the Company's repurchase agreement borrowings
including payables for unsettled securities as of June 30, 2018 declined
$121.8 million compared to March 31, 2018. The Company also held $62.5
million less in TBA dollar roll positions, which the Company includes at
amortized cost as if settled in its leverage ratio, as of June 30, 2018
compared to March 31, 2018. As a result of its lower repurchase
agreement borrowings and payables as well as TBA dollar roll positions,
the Company's leverage declined to 6.1 times shareholder's equity as of
June 30, 2018 from 6.5 times as of March 31, 2018.

Net Interest Income and Spread

The following table provides certain information about the performance
of our investments and financing including hedging costs for the periods
indicated:

 
Three Months Ended
June 30, 2018   March 31, 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 $ 9,190 $ 1,135,365 3.24 % $ 7,102 $ 903,134 3.15%
Agency CMBS-fixed rate 7,267 1,011,945 2.80 % 7,628 1,082,206 2.80%
Agency RMBS-adjustable rate 1,332 254,850 2.14 % 1,590 282,771 2.15%
CMBS IO (1) 6,298 632,376 3.78 % 6,941 669,426 3.84%
Other non-Agency MBS 446 5,022 30.67 % 622 18,638 11.37%
U.S. Treasuries 1,001 156,420 2.57 % 967 168,508 2.33%
Other investments 388   14,576   3.99 % 340   15,442   4.05%
Total $ 25,922   $ 3,210,554 3.13 % $ 25,190   $ 3,140,125 3.09%
 
Interest-bearing liabilities:
Repurchase agreements $ 14,181 $ 2,716,097 2.07 % $ 11,614 $ 2,645,714 1.76%
Non-recourse collateralized financing 42 5,002 2.73 % 29 5,387 2.16%
De-designated cash flow hedge accretion (48 ) n/a (0.01 )% (48 ) n/a (0.01)%
Total $ 14,175   $ 2,721,099 2.06 % $ 11,595   $ 2,651,101 1.75%
       
Net interest income/net interest spread $ 11,747   1.07 % $ 13,595   1.34%
Add: TBA drop income 3,619 0.10 % 3,733 0.10%
Add: net periodic interest benefit (cost) (2) 2,333 0.35 % (220 ) (0.03)%
Less: de-designated cash flow hedge accretion (48 ) (0.01 )% (48 ) (0.01)%
Adjusted net interest income/adjusted net interest spread (3) $ 17,651   1.51 % $ 17,060   1.40%

(1) CMBS IO includes Agency and non-Agency securities.

(2) Amount represents net periodic interest benefit (cost) of
effective interest rate swaps outstanding during the period and excludes
unrealized gains and losses from changes in fair value of derivatives
and realized gains and losses on terminated derivatives.

(3) Represents a non-GAAP measure.

Interest income increased $0.7 million for the second quarter of 2018
compared to the prior quarter due to having a larger average balance of
higher yielding fixed-rate Agency RMBS during the second quarter. Though
the Company's interest-earning asset balance was lower at June 30, 2018
compared to March 31, 2018, it held a larger average balance during the
second quarter of 2018, compared to the first quarter of 2018, because
the majority of the Company's investment sales of $383.4 million
occurred late in the second quarter.

The larger average balance of fixed-rate Agency RMBS resulted in an
increase of 4 basis points in the Company's effective yield on its
investment portfolio (excluding TBAs) from the first quarter of 2018 to
the second quarter of 2018. The increase in effective yield was offset
by an increase of 31 basis points in cost of financing due to higher
short-term interest rates, resulting in a net interest spread of 1.07%
for the second quarter of 2018 compared to 1.34% for the first quarter
of 2018. Adjusted net interest spread for the second quarter of 2018
increased compared to the first quarter of 2018 primarily because
periodic interest for the Company's interest rate swaps as a percentage
of its average borrowings resulted in a net benefit of 35 basis points
for the second quarter of 2018 compared to a net cost of 3 basis points
for the first quarter of 2018.

Hedging Summary

The Company's interest rate swaps had a positive net impact on
comprehensive income of $20.6 million during the second quarter of 2018.
Interest rate swaps with a notional balance of $1.0 billion and a
weighted-average pay-fixed rate of 1.32% matured during the second
quarter, and the Company added swaps with a notional balance of $0.2
billion at a weighted average pay-fixed rate of 2.75% during the second
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) June 30, 2018   March 31, 2018
Average repurchase agreement borrowings outstanding $ 2,716,097 $ 2,645,714
Average net TBAs outstanding - at cost (1) 722,005   863,615  
Average borrowings and net TBAs outstanding $ 3,438,102 $ 3,509,329
Average notional amount of interest rate swaps outstanding
(excluding forward starting swaps)
$ 2,707,967   $ 3,290,556  
Ratio of average interest rate swaps to average borrowings and net
TBAs outstanding (1)
0.8 0.9
 
Average interest rate swap net pay-fixed rate (excluding forward
starting swaps) (2)
1.83 % 1.66 %
Average interest rate swap net receive-floating rate (2) 2.15 % 1.64 %
Average interest rate swap net pay/(receive) rate (0.32 )% 0.02 %

(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%.

In addition to interest rate swaps, the Company has Eurodollar futures,
which it also uses to hedge its interest rate risk, with a notional
balance of $650.0 million at a weighted average rate of 1.86% with a
contractual life of 3 months that will mature in September of 2018.
Eurodollar futures do not incur periodic interest or similar
costs/benefits and therefore are not included in core net operating
income to common shareholders. The Company's Eurodollar futures had a
net favorable impact on comprehensive income of $0.2 million during the
second quarter of 2018 and a year-to-date impact of $2.1 million. This
favorable impact includes a net realized gain of $0.9 million on $650.0
million of Eurodollar futures with a contract rate of 1.79% that matured
during the second quarter of 2018.

The aggregate notional amount of currently effective and
forward-starting interest rate swaps as of June 30, 2018 was $2.5
billion and $1.6 billion, respectively. The following table summarizes
the weighted average notional amount and rate of interest rate hedges
(including Eurodollar futures) held as of June 30, 2018:

 
June 30, 2018
($ in thousands) Weighted Average Notional (1)   Weighted Average

Net Pay-Fixed Rate (1)

Remainder of 2018 $ 2,890,815   1.98 %
2019 2,674,027 2.10 %
2020 2,197,418 2.24 %
2021 2,165,479 2.28 %
2022 2,113,795 2.41 %
2023 1,420,000 2.57 %
2024 1,346,503 2.60 %
2025 and thereafter 229,572 2.71 %

(1) Includes one receive-fixed interest rate swap at a
notional amount of $100.0 million at a rate of 1.70%.

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)

 
June 30, 2018 March 31, 2018 December 31, 2017
ASSETS (unaudited) (unaudited)
Available-for-sale investments, at fair value:
Mortgage-backed securities $ 2,759,894 $ 2,864,822 $ 3,026,989
U.S. Treasuries 57,923 204,535 146,530
Mortgage loans held for investment, net 13,628 15,099 15,738
Cash and cash equivalents 165,126 28,072 40,867
Restricted cash 52,832 58,312 46,333
Derivative assets 7,642 4,754 2,940
Receivable for securities sold 277 643
Principal receivable on investments 45 66 165
Accrued interest receivable 19,326 22,913 19,819
Other assets, net 6,084   6,456   6,397  
Total assets $ 3,082,777   $ 3,205,672   $ 3,305,778  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Repurchase agreements $ 2,514,984 $ 2,613,892 $ 2,565,902
Payable for unsettled securities 529 23,468 156,899
Non-recourse collateralized financing 4,393 5,290 5,520
Derivative liabilities 269
Accrued interest payable 5,469 5,123 3,734
Accrued dividends payable 12,727 12,563 12,526
Other liabilities 2,441   1,712   3,870  
Total liabilities 2,540,543 2,662,048 2,748,720
 
Shareholders' equity:
Preferred stock - aggregate liquidation preference of $147,725,
$147,725, and $147,217, respectively
$ 141,788 $ 141,788 $ 141,294
Common stock, par value $.01 per share: 56,906,200, 55,996,048, and
55,831,549 shares issued and outstanding, respectively
569 560 558
Additional paid-in capital 782,011 776,117 775,873
Accumulated other comprehensive loss (63,919 ) (54,159 ) (8,697 )
Accumulated deficit (318,215 ) (320,682 ) (351,970 )
Total shareholders' equity 542,234   543,624   557,058  
Total liabilities and shareholders' equity $ 3,082,777   $ 3,205,672   $ 3,305,778  
 
Book value per common share $ 6.93 $ 7.07 $ 7.34
 
 

DYNEX CAPITAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(amounts in thousands except per share data)

 
Three Months Ended
June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017
Interest income $ 25,922 $ 25,190 $ 24,124 $ 23,103 $ 24,856
Interest expense 14,175   11,595   10,056   9,889   8,714  
Net interest income 11,747 13,595 14,068 13,214 16,142
 
Gain (loss) on derivative instruments, net 20,667 38,354 12,678 5,993 (15,802 )
Loss on sale of investments, net (12,444 ) (3,775 ) (902 ) (5,211 ) (3,709 )
Fair value adjustments, net 27 29 12 23 30
Other (expense) income, net (339 ) (253 ) (50 ) (109 ) 4
General and administrative expenses:
Compensation and benefits (1,751 ) (1,962 ) (2,153 ) (2,070 ) (2,041 )
Other general and administrative (2,255 ) (1,681 ) (1,690 ) (1,529 ) (2,056 )
Net income (loss) 15,652 44,307 21,963 10,311 (7,432 )
Preferred stock dividends (2,942 ) (2,940 ) (2,910 ) (2,808 ) (2,641 )
Net income (loss) to common shareholders $ 12,710   $ 41,367   $ 19,053   $ 7,503   $ (10,073 )
 
Other comprehensive income:
Unrealized (loss) gain on available-for-sale investments, net $ (22,156 ) $ (49,189 ) $ (15,438 ) $ 981 $ 8,739
Reclassification adjustment for loss on sale of investments, net 12,444 3,775 902 5,211 3,709
Reclassification adjustment for de-designated cash flow hedges (48 ) (48 ) (48 ) (48 ) (73 )
Total other comprehensive (loss) income (9,760 ) (45,462 ) (14,584 ) 6,144   12,375  
Comprehensive income (loss) to common shareholders $ 2,950   $ (4,095 ) $ 4,469   $ 13,647   $ 2,302  
 
Net income (loss) per common share-basic and diluted $ 0.23 $ 0.74 $ 0.36 $ 0.15 $ (0.20 )
Weighted average common shares 56,295 55,871 53,399 49,832 49,218
 
 

DYNEX CAPITAL, INC.

KEY STATISTICS

(UNAUDITED)

($ in thousands except per share data)

 
As Of
June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017
Portfolio and Other Balance Sheet Statistics:
Total MBS fair value $ 2,759,894 $ 2,864,822 $ 3,026,989 $ 2,921,444 $ 2,864,026
Agency CMBS, amortized cost $ 1,008,887 $ 1,015,486 $ 1,134,409 $ 1,314,925 $ 1,330,084
Agency RMBS-fixed rate, amortized cost $ 1,163,875 $ 965,173 $ 903,269 $ 541,262 $
Agency RMBS-variable rate, amortized cost $ 38,966 $ 278,474 $ 289,305 $ 305,265 $ 744,089
CMBS IO, amortized cost(1) $ 607,452 $ 652,563 $ 683,833 $ 717,115 $ 752,861
Other non-Agency MBS, amortized cost $ 4,890 $ 5,092 $ 23,536 $ 37,441 $ 37,443
TBA dollar roll positions, fair value (if settled) $ 784,442 $ 846,940 $ 830,908 $ 683,680 $ 414,644
TBA dollar roll positions, amortized cost (if settled) $ 782,408 $ 844,941 $ 829,425 $ 683,813 $ 416,312
TBA dollar roll positions, carrying value $ 2,034 $ 1,999 $ 1,483 $ (133 ) $ (1,668 )
U.S. Treasuries, fair value $ 57,923 $ 204,535 $ 146,530 $ $
Book value per common share $ 6.93 $ 7.07 $ 7.34 $ 7.46 $ 7.38
Leverage including TBA dollar roll positions at cost as if settled (2) 6.1 x 6.5 x 6.4 x 6.3 x 6.0 x
 
Three Months Ended
June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017
Performance Statistics:
Net income (loss) per common share $ 0.23 $ 0.74 $ 0.36 $ 0.15 $ (0.20 )
Core net operating income per common share (3) $ 0.18 $ 0.18 $ 0.20 $ 0.19 $ 0.19
Comprehensive income (loss) per common share $ 0.05 $ (0.07 ) $ 0.08 $ 0.27 $ 0.05
Dividends per common share $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18
Average interest earning assets (4) $ 3,210,554 $ 3,140,125 $ 2,939,786 $ 2,960,595 $ 3,107,014
Average TBA dollar roll position $ 742,111 $ 866,821 $ 944,103 $ 797,484 $ 259,842
Average interest bearing liabilities $ 2,721,099 $ 2,651,101 $ 2,563,206 $ 2,622,067 $ 2,759,022
Effective yield on investments 3.13 % 3.09 % 3.07 % 2.95 % 2.90 %
Cost of funds (5) 2.06 % 1.75 % 1.53 % 1.48 % 1.25 %
Net interest spread 1.07 % 1.34 % 1.54 % 1.47 % 1.65 %
Adjusted cost of funds (6) 1.72 % 1.79 % 1.59 % 1.66 % 1.46 %
Adjusted net interest spread (7) 1.51 % 1.40 % 1.52 % 1.44 % 1.50 %
CPR for adjustable-rate Agency RMBS (8) 20.4 % 11.0 % 16.0 % 17.1 % 16.8 %
CPR for fixed-rate Agency RMBS (8) 5.7 % 5.3 % 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: June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017
Net interest income $ 11,747 $ 13,595 $ 14,068 $ 13,214 $ 16,142
Add: TBA drop income (1) 3,619 3,733 3,925 3,902 1,351
Add: net periodic interest benefit (cost) (2) 2,333 (220 ) (319 ) (1,131 ) (1,352 )
Less: de-designated cash flow hedge accretion (3) (48 ) (48 ) (48 ) (48 ) (73 )
Adjusted net interest income 17,651 17,060 17,626 15,937 16,068
Other (expense) income, net (339 ) (253 ) (50 ) (109 ) 4
General and administrative expenses (4,006 ) (3,643 ) (3,843 ) (3,599 ) (4,097 )
Preferred stock dividends (2,942 ) (2,940 ) (2,910 ) (2,808 ) (2,641 )
Core net operating income to common shareholders $ 10,364   $ 10,224   $ 10,823   $ 9,421   $ 9,334  

(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
unrealized gains and losses from changes in fair value of derivatives
and realized gains and losses on terminated 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
June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017
GAAP net income (loss) to common shareholders $ 12,710 $ 41,367 $ 19,053 $ 7,503 $ (10,073 )
Less:
Change in fair value of derivative instruments, net (1) (14,715 ) (34,841 ) (9,072 ) (3,222 ) 15,801
Loss on sale of investments, net 12,444 3,775 902 5,211 3,709
De-designated cash flow hedge accretion (2) (48 ) (48 ) (48 ) (48 ) (73 )
Fair value adjustments, net (27 ) (29 ) (12 ) (23 ) (30 )
Core net operating income to common shareholders $ 10,364   $ 10,224   $ 10,823   $ 9,421   $ 9,334  
 
Weighted average common shares 56,295 55,871 53,399 49,832 49,218
Core net operating income per common share $ 0.18 $ 0.18 $ 0.20 $ 0.19 $ 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 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
June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017
GAAP net interest income $ 11,747 $ 13,595 $ 14,068 $ 13,214 $ 16,142
Add: TBA drop income 3,619 3,733 3,925 3,902 1,351
Add: net periodic interest benefit (cost) (1) 2,333 (220 ) (319 ) (1,131 ) (1,352 )
Less: de-designated cash flow hedge accretion (2) (48 )   (48 )   (48 )   (48 )   (73 )
Non-GAAP adjusted net interest income $ 17,651   $ 17,060   $ 17,626   $ 15,937   $ 16,068  
                   
 
GAAP interest expense $ 14,175 $ 11,595 $ 10,056 $ 9,889 $ 8,714
Add: net periodic interest (benefit) cost (1) (2,333 ) 220 319 1,131 1,352
Less: de-designated cash flow hedge accretion (2) 48   48   48   48   73  
Non-GAAP adjusted interest expense $ 11,890   $ 11,863   $ 10,423   $ 11,068   $ 10,139  

(1) Amount represents net periodic interest benefit (cost) of
effective interest rate swaps outstanding during the period and excludes
unrealized gains and losses from changes in fair value of derivatives
and realized gains and losses on terminated 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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