GLEN ALLEN, Va.–(BUSINESS WIRE)–Dynex Capital, Inc. (NYSE: DX) reported its fourth quarter and full year 2023 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 $1.45 per common share, or 11.8% of beginning book value, for the fourth quarter of 2023, and $0.14 per common share, or 1.0% of beginning book value, for the full year 2023
- Book value per common share of $13.31 as of December 31, 2023
- Comprehensive income of $1.44 per common share and net income of $0.39 per common share for the fourth quarter of 2023; comprehensive income of $0.16 per common share and net loss of $(0.25) per common share for the full year 2023
- REIT taxable income is estimated to include a benefit of $23.7 million, or $0.42 per average common share, from amortization of deferred tax hedge gains for the fourth quarter of 2023 and $80.5 million, or $1.47 per average common share, for the full year
- Dividends declared of $0.39 per common share for the fourth quarter of 2023 and $1.56 per common share for the full year
- Raised equity capital of $5.9 million during the fourth quarter through at-the-market (“ATM”) common stock issuances, bringing total capital raised for 2023 to $42.6 million, net of $0.5 million issuance costs. For the year, capital was raised at a premium to book value.
- Average balance of interest-earning assets for 2023 increased 50% compared to the prior year
- Leverage including to-be-announced (“TBA”) securities at cost was 7.8 times shareholders’ equity as of December 31, 2023
Management Remarks
“Our shareholders earned a total return of 12% for 2023. We actively managed our mortgage-backed investment portfolio through a historically volatile period. Our strong financial results and returns are a testament to our disciplined investment approach and the expertise of our team.” said Byron L. Boston, Chairman and CEO of Dynex Capital, Inc. “I am confident we are well-positioned to navigate these dynamic market conditions while honoring our ethics-based approach and delivering compelling shareholder returns over the long term.”
Earnings Conference Call
As previously announced, the Company’s conference call to discuss these results is today at 10:00 a.m. Eastern Time and may be accessed via telephone in the United States by dialing 1-888-330-2022 and providing the ID 1957092 or by live audio webcast by clicking the “Webcast” button in the “Current Events” section on the homepage of the Company’s website (www.dynexcapital.com), which includes a slide presentation. To listen to the live conference call via telephone, please dial in at least ten minutes before the call begins. An archive of the webcast will be available on the Company’s website approximately two hours after the live call ends.
|
Consolidated Balance Sheets |
|
|
|
|
|
||||||
|
($s in thousands except per share data) |
December 31, |
|
September 30, |
|
December 31, |
||||||
|
ASSETS |
(unaudited) |
|
(unaudited) |
|
|
||||||
|
Cash and cash equivalents |
$ |
119,639 |
|
|
$ |
271,168 |
|
|
$ |
332,035 |
|
|
Cash collateral posted to counterparties |
|
118,225 |
|
|
|
145,268 |
|
|
|
117,842 |
|
|
Mortgage-backed securities (including pledged of $5,880,747, $5,279,554, and $2,810,957, respectively) |
|
6,038,948 |
|
|
|
5,583,758 |
|
|
|
3,112,705 |
|
|
Due from counterparties |
|
1,313 |
|
|
|
— |
|
|
|
10,348 |
|
|
Derivative assets |
|
54,361 |
|
|
|
4,594 |
|
|
|
7,102 |
|
|
Accrued interest receivable |
|
28,727 |
|
|
|
26,756 |
|
|
|
15,260 |
|
|
Other assets, net |
|
8,537 |
|
|
|
9,238 |
|
|
|
9,942 |
|
|
Total assets |
$ |
6,369,750 |
|
|
$ |
6,040,782 |
|
|
$ |
3,605,234 |
|
|
|
|
|
|
|
|
||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
||||||
|
Liabilities: |
|
|
|
|
|
||||||
|
Repurchase agreements |
$ |
5,381,104 |
|
|
$ |
5,002,230 |
|
|
$ |
2,644,405 |
|
|
Due to counterparties |
|
95 |
|
|
|
152,955 |
|
|
|
4,159 |
|
|
Derivative liabilities |
|
— |
|
|
|
22,029 |
|
|
|
22,595 |
|
|
Cash collateral posted by counterparties |
|
46,001 |
|
|
|
— |
|
|
|
435 |
|
|
Accrued interest payable |
|
53,194 |
|
|
|
43,168 |
|
|
|
16,450 |
|
|
Accrued dividends payable |
|
10,320 |
|
|
|
9,972 |
|
|
|
9,103 |
|
|
Other liabilities |
|
8,301 |
|
|
|
6,082 |
|
|
|
6,759 |
|
|
Total liabilities |
|
5,499,015 |
|
|
|
5,236,436 |
|
|
|
2,703,906 |
|
|
|
|
|
|
|
|
||||||
|
Shareholders’ equity: |
|
|
|
|
|
||||||
|
Preferred stock |
$ |
107,843 |
|
|
$ |
107,843 |
|
|
$ |
107,843 |
|
|
Common stock |
|
570 |
|
|
|
566 |
|
|
|
536 |
|
|
Additional paid-in capital |
|
1,404,431 |
|
|
|
1,397,268 |
|
|
|
1,357,514 |
|
|
Accumulated other comprehensive loss |
|
(158,502 |
) |
|
|
(217,770 |
) |
|
|
(181,346 |
) |
|
Accumulated deficit |
|
(483,607 |
) |
|
|
(483,561 |
) |
|
|
(383,219 |
) |
|
Total shareholders’ equity |
|
870,735 |
|
|
|
804,346 |
|
|
|
901,328 |
|
|
Total liabilities and shareholders’ equity |
$ |
6,369,750 |
|
|
$ |
6,040,782 |
|
|
$ |
3,605,234 |
|
|
|
|
|
|
|
|
||||||
|
Preferred stock aggregate liquidation preference |
$ |
111,500 |
|
|
$ |
111,500 |
|
|
$ |
111,500 |
|
|
Book value per common share |
$ |
13.31 |
|
|
$ |
12.25 |
|
|
$ |
14.73 |
|
|
Common shares outstanding |
|
57,038,247 |
|
|
|
56,555,574 |
|
|
|
53,637,095 |
|
|
Consolidated Comprehensive Statements of Income (Loss) (unaudited) |
|
Year Ended |
|||||||||
|
|
Three Months Ended |
|
|||||||||
|
($s in thousands except per share data) |
December 31, 2023 |
|
September 30, 2023 |
|
December 31, 2023 |
||||||
|
INTEREST INCOME (EXPENSE) |
|
|
|
|
|
||||||
|
Interest income |
$ |
71,188 |
|
|
$ |
63,271 |
|
|
$ |
207,517 |
|
|
Interest expense |
|
(73,465 |
) |
|
|
(65,533 |
) |
|
|
(215,448 |
) |
|
Net interest expense |
|
(2,277 |
) |
|
|
(2,262 |
) |
|
|
(7,931 |
) |
|
|
|
|
|
|
|
||||||
|
OTHER GAINS (LOSSES) |
|
|
|
|
|
||||||
|
Realized loss on sales of investments, net |
|
— |
|
|
|
— |
|
|
|
(74,916 |
) |
|
Unrealized gain (loss) on investments, net |
|
263,992 |
|
|
|
(179,100 |
) |
|
|
142,501 |
|
|
(Loss) gain on derivative instruments, net |
|
(228,603 |
) |
|
|
146,953 |
|
|
|
(32,905 |
) |
|
Total other gains (losses), net |
|
35,389 |
|
|
|
(32,147 |
) |
|
|
34,680 |
|
|
|
|
|
|
|
|
||||||
|
EXPENSES |
|
|
|
|
|
||||||
|
General and administrative expenses |
|
(8,318 |
) |
|
|
(7,841 |
) |
|
|
(30,728 |
) |
|
Other operating expense, net |
|
(490 |
) |
|
|
(801 |
) |
|
|
(2,151 |
) |
|
Total operating expenses |
|
(8,808 |
) |
|
|
(8,642 |
) |
|
|
(32,879 |
) |
|
|
|
|
|
|
|
||||||
|
Net income (loss) |
|
24,304 |
|
|
|
(43,051 |
) |
|
|
(6,130 |
) |
|
Preferred stock dividends |
|
(1,923 |
) |
|
|
(1,923 |
) |
|
|
(7,694 |
) |
|
Net income (loss) to common shareholders |
$ |
22,381 |
|
|
$ |
(44,974 |
) |
|
$ |
(13,824 |
) |
|
|
|
|
|
|
|
||||||
|
Other comprehensive income: |
|
|
|
|
|
||||||
|
Unrealized gain (loss) on available-for-sale investments, net |
|
59,267 |
|
|
|
(41,774 |
) |
|
|
22,844 |
|
|
Total other comprehensive income (loss) |
|
59,267 |
|
|
|
(41,774 |
) |
|
|
22,844 |
|
|
Comprehensive income (loss) to common shareholders |
$ |
81,648 |
|
|
$ |
(86,748 |
) |
|
$ |
9,020 |
|
|
|
|
|
|
|
|
||||||
|
Net income (loss) per common share-basic |
$ |
0.39 |
|
|
$ |
(0.82 |
) |
|
$ |
(0.25 |
) |
|
Net income (loss) per common share-diluted |
$ |
0.39 |
|
|
$ |
(0.82 |
) |
|
$ |
(0.25 |
) |
|
Weighted average common shares-basic |
|
56,691 |
|
|
|
54,557 |
|
|
|
54,809 |
|
|
Weighted average common shares-diluted |
|
57,304 |
|
|
|
54,557 |
|
|
|
54,809 |
|
|
Dividends declared per common share |
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
1.56 |
|
Discussion of Fourth Quarter Results
The Company’s total economic return of $1.45 per common share for the fourth quarter of 2023 consisted of an increase in book value of $1.06 per common share and dividends declared of $0.39 per common share. The Company’s investment portfolio benefited from spread tightening across all of its Agency MBS. The increase in book value was primarily the result of higher prices on Agency MBS relative to U.S. Treasury futures, which resulted in net gains of $381.6 million on the Company’s investment portfolio outpacing net losses of $(287.0) million on its interest rate hedges.
The following table summarizes the changes in the Company’s financial position during the fourth quarter of 2023:
|
($s in thousands except per share data) |
Net Changes |
|
Components of |
|
Common Book |
|
Per Common |
||||||||
|
Balance as of September 30, 2023 (1) |
|
|
|
|
$ |
692,846 |
|
|
$ |
12.25 |
|
||||
|
Net interest expense |
|
|
$ |
(2,277 |
) |
|
|
|
|
||||||
|
Operating expenses |
|
|
|
(8,808 |
) |
|
|
|
|
||||||
|
Preferred stock dividends |
|
|
|
(1,923 |
) |
|
|
|
|
||||||
|
Changes in fair value: |
|
|
|
|
|
|
|
||||||||
|
MBS and loans |
$ |
323,259 |
|
|
|
|
|
|
|
||||||
|
TBAs |
|
58,366 |
|
|
|
|
|
|
|
||||||
|
U.S. Treasury futures |
|
(287,503 |
) |
|
|
|
|
|
|
||||||
|
Options on U.S. Treasury futures |
|
534 |
|
|
|
|
|
|
|
||||||
|
Total net change in fair value |
|
|
|
94,656 |
|
|
|
|
|
||||||
|
Comprehensive income to common shareholders |
|
|
|
|
|
81,648 |
|
|
|
1.44 |
|
||||
|
Capital transactions: |
|
|
|
|
|
|
|
||||||||
|
Net proceeds from stock issuance (2) |
|
|
|
|
|
7,168 |
|
|
|
0.01 |
|
||||
|
Common dividends declared |
|
|
|
|
|
(22,427 |
) |
|
|
(0.39 |
) |
||||
|
Balance as of December 31, 2023 (1) |
|
|
|
|
$ |
759,235 |
|
|
$ |
13.31 |
|||||
|
(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 $5.9 million from at-the-market (“ATM”) issuances and $1.2 million from amortization of share-based compensation. |
The following table provides detail on the Company’s MBS investments, including TBA securities as of December 31, 2023:
|
|
December 31, 2023 |
|
September 30, 2023 |
||||||||||||||||
|
($ in millions) |
Par Value |
|
Fair Value |
|
% of |
|
Par Value |
|
Fair Value |
|
% of |
||||||||
|
30-year fixed rate RMBS: |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
2.0% coupon |
$ |
708,528 |
|
|
$ |
586,361 |
|
7.9 |
% |
|
$ |
721,068 |
|
|
$ |
555,260 |
|
7.8 |
% |
|
2.5% coupon |
|
608,580 |
|
|
|
525,018 |
|
7.1 |
% |
|
|
619,348 |
|
|
|
498,213 |
|
7.0 |
% |
|
4.0% coupon |
|
354,382 |
|
|
|
339,212 |
|
4.6 |
% |
|
|
361,219 |
|
|
|
325,009 |
|
4.5 |
% |
|
4.5% coupon |
|
1,383,019 |
|
|
|
1,348,108 |
|
18.2 |
% |
|
|
1,356,558 |
|
|
|
1,252,437 |
|
17.5 |
% |
|
5.0% coupon |
|
2,070,473 |
|
|
|
2,057,309 |
|
27.7 |
% |
|
|
1,883,657 |
|
|
|
1,782,628 |
|
24.9 |
% |
|
5.5% coupon |
|
897,520 |
|
|
|
907,524 |
|
12.2 |
% |
|
|
911,842 |
|
|
|
884,725 |
|
12.4 |
% |
|
TBA 4.0% |
|
262,000 |
|
|
|
248,040 |
|
3.3 |
% |
|
|
262,000 |
|
|
|
233,446 |
|
3.3 |
% |
|
TBA 4.5% |
|
223,000 |
|
|
|
216,415 |
|
2.9 |
% |
|
|
273,000 |
|
|
|
250,797 |
|
3.5 |
% |
|
TBA 5.0% |
|
518,000 |
|
|
|
512,982 |
|
6.9 |
% |
|
|
735,000 |
|
|
|
693,939 |
|
9.7 |
% |
|
TBA 5.5% |
|
200,000 |
|
|
|
201,047 |
|
2.7 |
% |
|
|
200,000 |
|
|
|
193,359 |
|
2.7 |
% |
|
TBA 6.0% |
|
200,000 |
|
|
|
203,219 |
|
2.7 |
% |
|
|
200,000 |
|
|
|
197,469 |
|
2.8 |
% |
|
Total Agency RMBS |
$ |
7,425,502 |
|
|
$ |
7,145,235 |
|
96.2 |
% |
|
$ |
7,523,692 |
|
|
$ |
6,867,282 |
|
96.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Agency CMBS |
$ |
121,293 |
|
|
$ |
115,595 |
|
1.6 |
% |
|
$ |
121,617 |
|
|
$ |
112,396 |
|
1.6 |
% |
|
Agency CMBS IO |
|
(1 |
) |
|
|
133,302 |
|
1.8 |
% |
|
|
(1 |
) |
|
|
139,781 |
|
1.9 |
% |
|
Non-Agency CMBS IO |
|
(1 |
) |
|
|
26,416 |
|
0.4 |
% |
|
|
(1 |
) |
|
|
33,206 |
|
0.5 |
% |
|
Non-Agency RMBS |
|
150 |
|
|
|
103 |
|
— |
% |
|
|
159 |
|
|
|
103 |
|
— |
% |
|
Total |
$ |
7,546,945 |
|
|
$ |
7,420,651 |
|
100.0 |
% |
|
$ |
7,645,468 |
|
|
$ |
7,152,768 |
|
100.0 |
% |
|
(1) |
CMBS IO do not have underlying par values. |
As of December 31, 2023, over 96% of the Company’s investments were comprised of Agency RMBS, including TBA securities and less than 4% were Agency CMBS, Agency CMBS IO, and non-Agency CMBS IO. During the fourth quarter of 2023, the Company purchased $245.7 million of higher coupon Agency RMBS and reduced its holdings of TBA securities by 16%.
The following table provides detail on the Company’s repurchase agreement borrowings outstanding as of the dates indicated:
|
|
|
December 31, 2023 |
|
September 30, 2023 |
||||||||||||
|
Remaining Term to Maturity |
|
Balance |
|
Weighted Average Rate |
|
WAVG Original |
|
Balance |
|
Weighted Average Rate |
|
WAVG Original |
||||
|
($s in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Less than 30 days |
|
$ |
2,855,917 |
|
5.61 |
% |
|
92 |
|
$ |
2,096,037 |
|
5.46 |
% |
|
77 |
|
30 to 90 days |
|
|
2,525,187 |
|
5.58 |
% |
|
86 |
|
|
2,374,991 |
|
5.44 |
% |
|
102 |
|
91 to 180 days |
|
|
— |
|
— |
% |
|
— |
|
|
531,202 |
|
5.64 |
% |
|
113 |
|
Total |
|
$ |
5,381,104 |
|
5.59 |
% |
|
89 |
|
$ |
5,002,230 |
|
5.47 |
% |
|
93 |
The following table provides information about the performance of the Company’s MBS (including TBA securities) and repurchase agreement financing for the fourth quarter of 2023 compared to the prior quarter:
|
|
Three Months Ended |
||||||||||||||||||
|
|
December 31, 2023 |
|
September 30, 2023 |
||||||||||||||||
|
($s in thousands) |
Interest Income/Expense |
|
Average |
|
Effective Cost of |
|
Interest Income/Expense |
|
Average |
|
Effective Cost of |
||||||||
|
Agency RMBS |
$ |
63,816 |
|
|
$ |
5,917,053 |
|
4.31 |
% |
|
$ |
55,654 |
|
|
$ |
5,393,642 |
|
4.13 |
% |
|
Agency CMBS |
|
923 |
|
|
|
121,939 |
|
2.97 |
% |
|
|
946 |
|
|
|
122,315 |
|
3.03 |
% |
|
CMBS IO(5) |
|
2,625 |
|
|
|
175,518 |
|
5.36 |
% |
|
|
2,258 |
|
|
|
192,797 |
|
4.66 |
% |
|
Non-Agency MBS and other |
|
27 |
|
|
|
2,064 |
|
4.99 |
% |
|
|
29 |
|
|
|
2,272 |
|
4.91 |
% |
|
|
|
67,391 |
|
|
|
6,216,574 |
|
4.32 |
% |
|
|
58,887 |
|
|
|
5,711,026 |
|
4.12 |
% |
|
Cash equivalents |
|
3,797 |
|
|
|
|
|
|
|
4,384 |
|
|
|
|
|
||||
|
Total interest income |
$ |
71,188 |
|
|
|
|
|
|
$ |
63,271 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Repurchase agreement financing |
|
(73,465 |
) |
|
|
5,168,821 |
|
(5.56 |
) % |
|
|
(65,533 |
) |
|
|
4,773,435 |
|
(5.37 |
) % |
|
Net interest expense/net interest spread |
$ |
(2,277 |
) |
|
|
|
(1.24 |
) % |
|
$ |
(2,262 |
) |
|
|
|
(1.25 |
) % |
||
|
(1) |
Average balance for assets is calculated as a simple average of the daily amortized cost and excludes securities pending settlement if applicable. |
|
|
(2) |
Average balance for liabilities is calculated as a simple average of the daily borrowings outstanding during the period. |
|
|
(3) |
Effective yield is calculated by dividing interest income by the average balance of asset type outstanding during the reporting period. Unscheduled adjustments to premium/discount amortization/accretion, such as for prepayment compensation, are not annualized in this calculation. |
|
|
(4) |
Cost of funds is calculated by dividing annualized interest expense by the total average balance of borrowings outstanding during the period with an assumption of 360 days in a year. |
|
|
(5) |
CMBS IO (“Interest only”) includes Agency and non-Agency issued securities. |
Hedging Portfolio
The Company uses derivative instruments to hedge exposure to interest rate risk arising from its investment and financing portfolio, and some of these derivatives are designated as hedges for tax purposes. As of December 31, 2023, the Company held short positions in 10-year U.S. Treasury futures with a notional amount of $4.2 billion and short positions in 30-year U.S. Treasury futures with a notional amount of $0.7 billion.
Comprehensive income included realized gains of $40.4 million from interest rate hedges for the fourth quarter of 2023 and $237.7 million for the year ended December 31, 2023. Realized gains and losses on interest rate hedges are recognized in GAAP net income in the same reporting period in which the derivative instrument matures or is terminated by the Company, but are not included in the Company’s earnings available for distribution (“EAD”), a non-GAAP measure, during any reporting period. On a tax basis, realized gains and losses on derivative instruments designated as hedges for tax purposes are amortized into the Company’s REIT taxable income over the original periods hedged by those derivatives. The benefit expected to be recognized in taxable income is estimated to be $23.7 million, or $0.42 per average common share outstanding, for the fourth quarter of 2023 and $80.5 million, or $1.47 per average common share outstanding, for the year ended December 31, 2023. The Company’s remaining estimated net deferred tax hedge gains from its interest rate hedging portfolio was $861.8 million as of December 31, 2023. These hedge gains will be part of the Company’s future distribution requirements along with net interest income and other ordinary gains and losses in future periods.
The table below provides the projected amortization of the Company’s net deferred tax hedge gains that may be recognized as taxable income over the periods indicated given conditions known as of December 31, 2023; 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.
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.
