Dynex Capital, Inc. (NYSE: DX) reported its first quarter 2021
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".
Management Remarks
“I am extremely pleased with our first quarter results, as we
continued to demonstrate the power of our investment strategy and
the exceptional skills and experience of our team,” stated Byron L.
Boston, Chief Executive Officer. “We generated a total economic
return of 7.2% for our common shareholders for the first quarter of
2021 and 34.8% over the last four quarters, averaging 8.0% per
quarter during periods of high volatility. We also continued to
position the company for long-term success by raising a total of
$128 million in common equity through two public offerings during
the first quarter while growing our book value.”
Mr. Boston continued, “We anticipate continued volatility in the
macroeconomic environment, which will demand ongoing active
management of mortgage portfolios. We believe Dynex’s track record
demonstrates that we can thrive and deliver returns across
wide-ranging investment environments. With our leverage ratio
remaining under 7.0x, we believe we have positioned our balance
sheet to take advantage of accretive capital deployment
opportunities. As always, our disciplined investment process
remains focused on delivering long-term value to our
shareholders.”
First Quarter 2021 Financial
Performance Highlights
- Total economic return to common shareholders of 7.2% comprised
of $0.39 in dividends declared and an increase of $0.99 in book
value per common share to $20.07 as of March 31, 2021
- Comprehensive income of $1.76 per common share and net income
of $4.20 per common share
- Core net operating income, a non-GAAP measure, of $0.46 per
common share
- Leverage including TBA dollar roll positions increased to 6.9x
times shareholders' equity as of March 31, 2021 compared to 6.3x as
of December 31, 2020
Other Highlights of the First Quarter
of 2021
- Total economic return to common shareholders is 22.8% since
December 31, 2019 and 34.8% since March 31, 2020
- Raised capital of $128.2 million through two public offerings
of common stock, resulting in total issuance of approximately 7.2
million common shares
- Redeemed the remaining 2.8 million shares of 7.625% Series B
Cumulative Redeemable Preferred Stock (the "Series B Preferred
Stock") at an aggregate redemption price of approximately $25.15
per share, including accumulated and unpaid dividends
- Actively managed hedge position by rebalancing from options to
futures, adding a net notional of $1.2 billion in derivative
instruments to protect book value as the yield curve steepened
during the quarter
First Quarter 2021 Results
Discussion
The Company's results for the first quarter of 2021 were driven
by the positioning of its assets and hedges given management's
expectation of a steepening yield curve. The Company used proceeds
from its two capital raises during the first quarter to purchase
investments and increase its hedge position, which management
estimates contributed approximately $0.51 to the increase in book
value per common share during the first quarter. Comprehensive
income to common shareholders of $47.2 million was primarily
comprised of realized and unrealized gains from the Company's
hedging instruments, which protected its book value. The steepening
yield curve resulted in a decline in the fair value of the majority
of the Company's investment portfolio, but this decline was
partially buffered by spread tightening.
Net interest income for the first quarter of 2021 declined $2.2
million compared to the prior quarter due to a smaller average
balance of lower yielding assets. Net interest spread of 1.87%
exceeded management's expectation for the first quarter of 2021 as
prepayment speeds were lower than anticipated and financing rates
dropped 5 basis points versus the prior quarter. Adjusted net
interest income, a non-GAAP measure, was relatively unchanged from
the prior quarter as drop income from TBA dollar roll positions
increased by $2.1 million, mostly offsetting the decline in net
interest income. The Company increased its investment in TBAs by
approximately 50% during the first quarter of 2021 as implied
funding costs remained lower for TBA dollar roll transactions
versus repurchase agreement financing typically used for specified
pools, which is commonly referred to as "dollar roll specialness".
The Company's implied funding cost for its TBA dollar roll
transactions was approximately 39 basis points lower than its
repurchase agreement financing rate for Agency RMBS during the
first quarter of 2021. However, dollar roll specialness declined
relative to the prior quarter, resulting in a lower TBA implied net
spread of 1.83% for the first quarter versus 2.01% for the prior
quarter. As a result, TBA dollar roll transactions did not
materially impact adjusted net interest spread, a non-GAAP measure,
which was 1.87% for the first quarter of 2021.
Core net operating income to common shareholders, a non-GAAP
measure, increased by $1.9 million to $12.4 million due to lower
general and administrative expenses and lower preferred stock
dividends as a result of the redemption of the remaining shares of
Series B Preferred Stock during the quarter. On a per common share
basis, the impact of the $1.9 million increase in core net
operating income to common shareholders was mostly offset by an
increase in weighted average common shares as a result of the two
capital raises during the quarter.
Earnings Conference Call
As previously announced, the Company's quarterly conference call
to discuss these results is today at 10:00 a.m. Eastern Time and
may be accessed via telephone in the U.S. by dialing 1-833-979-2856
and providing the ID 4742488 or by live audio webcast by clicking
the "Webcast" button in the “Current Events” section on the
homepage of the Company's website (www.dynexcapital.com), which
includes a slide presentation. To listen to the live conference
call via telephone, please dial in at least 10 minutes before the
call begins. An archive of the webcast will be available on the
Company's website approximately two hours after the live call
ends.
Consolidated
Balance Sheets
($s in '000s except per share data)
March 31, 2021
December 31, 2020
ASSETS
(unaudited)
Cash and cash equivalents
$
328,936
$
295,602
Cash collateral posted to
counterparties
49,180
14,758
Mortgage-backed securities
2,380,373
2,596,255
Mortgage loans held for investment
5,749
6,264
Receivable for sales pending
settlement
5,067
150,432
Derivative assets
109,746
11,342
Accrued interest receivable
15,480
14,388
Other assets, net
6,577
6,394
Total assets
$
2,901,108
$
3,095,435
LIABILITIES AND SHAREHOLDERS’
EQUITY
Liabilities:
Repurchase agreements
$
2,032,089
$
2,437,163
Payable for purchases pending
settlement
24,455
5
Derivative liabilities
19,866
1,634
Cash collateral posted by
counterparties
83,776
7,681
Accrued interest payable
418
1,410
Accrued dividends payable
5,639
5,814
Other liabilities
3,589
8,275
Total liabilities
2,169,832
2,461,982
Shareholders’ equity:
Preferred stock - aggregate liquidation
preference of $111,500 and $181,208, respectively
$
107,843
$
174,564
Common stock, par value $.01 per share:
30,879,569 and 23,697,970 shares issued and outstanding,
respectively
309
237
Additional paid-in capital
997,326
869,495
Accumulated other comprehensive income
15,105
80,261
Accumulated deficit
(389,307)
(491,104)
Total shareholders' equity
731,276
633,453
Total liabilities and shareholders’
equity
$
2,901,108
$
3,095,435
Book value per common share
$
20.07
$
19.08
Consolidated
Comprehensive Statements of Income
(unaudited)
Three Months Ended
($s in '000s except per share data)
March 31, 2021
December 31, 2020
Interest income
$
13,892
$
16,705
Interest expense
(1,633)
(2,289)
Net interest income
12,259
14,416
Gain on sale of investments, net
4,697
9,356
Loss on investments, net
(980)
(134)
Gain on derivative instruments, net
107,801
23,866
Other operating expense, net
(380)
(205)
General and administrative expenses
(5,468)
(6,853)
Net income
117,929
40,446
Preferred stock dividends
(2,559)
(3,253)
Preferred stock redemption charge
(2,987)
—
Net income to common shareholders
$
112,383
$
37,193
Other comprehensive income:
Unrealized (loss) gain on
available-for-sale investments, net
$
(60,459)
$
888
Reclassification of realized gain on sale
of investments
(4,697)
(9,356)
Total other comprehensive loss
(65,156)
(8,468)
Comprehensive income to common
shareholders
$
47,227
$
28,725
Net income per common share-basic and
diluted
$
4.20
$
1.60
Weighted average common shares
26,789
23,262
Investment
Portfolio and Financing Data
As of and For the Quarter
Ended
($s in '000s)
March 31, 2021
December 31, 2020
Agency RMBS:
Fair value
$
1,763,737
$
1,946,391
Amortized cost
1,775,524
1,897,043
Average balance
1,821,920
2,139,597
Effective yield
1.62
%
1.83
%
Average constant prepayment rate
("CPR")
18.6
%
17.1
%
Agency CMBS:
Fair value
$
249,617
$
258,550
Amortized cost
237,066
238,953
Average balance
238,158
255,327
Effective yield
2.91
%
2.90
%
CMBS IO: (1)
Fair value
$
365,876
$
390,039
Amortized cost
352,655
378,940
Average balance
365,891
391,004
Effective yield
4.33
%
4.27
%
TBA securities:
Fair value
$
2,825,937
$
1,572,949
Amortized cost
2,845,803
1,564,061
Average TBA dollar roll positions, at
cost
1,873,833
1,253,178
TBA drop income (2)
8,568
6,445
TBA implied net interest spread
1.83
%
2.01
%
Total average interest earning assets
$
2,433,272
$
2,793,917
Total average interest earning assets plus
average TBA dollar roll positions
4,307,105
4,047,095
Total average interest bearing
liabilities
2,158,121
2,501,076
Total average effective yield on average
interest earning assets
2.17
%
2.29
%
Total average financing cost
0.30
%
0.35
%
Net interest spread
1.87
%
1.94
%
Adjusted net interest spread (3)
1.87
%
1.98
%
(1) CMBS IO includes Agency and non-Agency issued securities.
(2) 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. (3) Adjusted net interest spread includes the
impact from TBA drop income of 0 basis points and 4 basis points,
respectively.
Hedging
Portfolio
As of March 31, 2021
($s in '000s)
Notional Amount/ Long
(Short)
WAVG Months to
Expiration
Fair Value
Rate
10-year U.S. Treasury futures
$
(2,980,000)
3 months
$
72,723
n/a
Options on 10-year U.S. Treasury
futures
250,000
2 months
9,180
1.30
%
Pay-fixed interest rate swaptions
500,000
5 months
27,843
1.16
%
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 net interest
income and the related metric 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 and adjusted net interest
income to GAAP financial measures are provided further below.
Management views core net operating income to common
shareholders as an estimate of the Company's investment portfolio
performance based on the effective yield of its investments, net of
financing costs and other normal recurring operating
income/expense, net. In addition to the non-GAAP reconciliation set
forth below, which derives core net operating income to common
shareholders from GAAP comprehensive income to common shareholders,
core net operating income to common shareholders can also be
determined by adjusting net interest income to include interest
rate swap periodic interest benefit/cost, drop income on TBA dollar
roll transactions, general and administrative expenses, and
preferred dividends. 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 core net operating income and
in adjusted net interest income 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 interest rate swap periodic interest benefit/cost, which
is also included in "gain (loss) on derivatives instruments, net",
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 therefore represent a 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 the changes in fair value of investments or changes in fair
value of and costs of terminating derivative instruments used by
management to economically hedge the impact of changing interest
rates on the fair value of the Company's portfolio and book value
per common share. 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.
Three Months Ended
($s in '000s except per share data)
March 31, 2021
December 31, 2020
Comprehensive income to common
shareholders
$
47,227
$
28,725
Less:
Change in fair value of available for sale
investments
60,459
(888)
Loss (gain) on investments, net
980
134
Change in fair value of derivative
instruments, net (1)
(99,233)
(17,428)
Preferred stock redemption charge
2,987
—
Core net operating income to common
shareholders
$
12,420
$
10,543
Weighted average common shares
26,789
23,262
Comprehensive income per common share
$
1.76
$
1.23
Core net operating income per common
share
$
0.46
$
0.45
(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
benefit/cost on effective interest rate swaps outstanding during
the period and TBA drop income.
Three Months Ended
($s in '000s)
March 31, 2021
December 31, 2020
Net interest income
$
12,259
$
14,416
TBA drop income (1)
8,568
6,445
Net periodic interest cost (2)
—
(7)
Adjusted net interest income
$
20,827
$
20,854
Other operating expense, net
(380)
(205)
General and administrative expenses
(5,468)
(6,853)
Preferred stock dividends
(2,559)
(3,253)
Core net operating income to common
shareholders
$
12,420
$
10,543
(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 cost
of effective interest rate swaps outstanding during the period.
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, 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, our views on expected characteristics
of future investment and macroeconomic 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, volatility and
disruption in national and international financial markets; adverse
effects of the ongoing novel coronavirus (COVID-19) pandemic and
any governmental or societal responses thereto, or other unusual
and infrequently occurring events; ability to find suitable
investment opportunities; changes in economic conditions; changes
in interest rates and interest rate 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 residential and Agency commercial mortgage-backed securities
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 of the
Company’s loans and loans underlying securities owned by the
Company; the level of defaults by borrowers on loans the Company
has securitized or otherwise is invested through its ownership of
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 reform of the U.S. housing
finance system, including the resolution of the conservatorship of
Fannie Mae and Freddie Mac; the composition of the Federal Reserve;
systems failures or cybersecurity incidents; catastrophes affecting
global markets; 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, 2020,
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 an internally managed real estate
investment trust, or REIT, which invests in mortgage assets on a
leverage basis. The Company invests in Agency and non-Agency RMBS,
CMBS, and CMBS IO. Additional information about Dynex Capital,
Inc., including its most recent Quarterly Report on Form 10-Q and
Annual Report on Form 10-K, is available on the Company's website
at www.dynexcapital.com.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210428005546/en/
Alison Griffin (804) 217-5897
Dynex Capital (NYSE:DX)
Historical Stock Chart
From Apr 2024 to May 2024
Dynex Capital (NYSE:DX)
Historical Stock Chart
From May 2023 to May 2024