Dynex Capital(DX) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Results Financial Performance Summary Dynex Capital reported a total economic loss of $(0.31) per common share in Q2 2024, with book value decreasing to $12.50 Q2 2024 Key Financial Metrics | Metric | Value | | :--- | :--- | | Total Economic Loss per Common Share | $(0.31) | | Book Value per Common Share (June 30, 2024) | $12.50 | | Comprehensive Loss per Common Share | $(0.18) | | Net Loss per Common Share | $(0.15) | | Dividends Declared per Common Share | $0.39 | | Equity Capital Raised | $124.7 million | | Agency RMBS Purchased | $551.1 million | | Liquidity (June 30, 2024) | $644.0 million | | Leverage (including TBA) | 7.9x shareholders' equity | Management Remarks Management emphasized executing the strategic plan to deliver consistent dividends and capitalize on wide mortgage market spreads - The company is executing its strategic plan to provide consistent dividends and manage capital with discipline[4] - Dynex raised capital to leverage the "generationally wide spreads" in the mortgage market[4] - Human capital and building for future success remain a key focus for the company[4] Consolidated Financial Statements Consolidated Balance Sheets Total assets and liabilities increased as of June 30, 2024, with shareholders' equity growing, while book value per common share declined to $12.50 Balance Sheet Comparison (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $6,683,602 | $6,369,750 | | Total Liabilities | $5,638,339 | $5,499,015 | | Total Shareholders' Equity | $1,045,263 | $870,735 | | Book Value per Common Share | $12.50 | $13.31 | Consolidated Comprehensive Statements of Income For Q2 2024, the company reported a net loss of $(10.2) million, or $(0.15) per share, a significant shift from Q1 net income Q2 2024 Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income (Expense) | $1,287 | $(3,192) | | Total Other (Losses) Gains, Net | $(2,348) | $54,611 | | Net (Loss) Income to Common Shareholders | $(10,227) | $38,195 | | Net (Loss) Income per Common Share-Basic | $(0.15) | $0.65 | | Comprehensive (Loss) Income to Common Shareholders | $(12,013) | $20,927 | Discussion of Second Quarter Results Book Value and Economic Return Analysis The total economic loss of $(0.31) per share in Q2 2024 resulted from a decline in book value to $12.50, primarily due to widening Agency RMBS spreads Q2 2024 Common Book Value Rollforward (per share) | Component | Per Common Share Impact | | :--- | :--- | | Balance as of March 31, 2024 | $13.20 | | Comprehensive Loss | See detailed components | | Capital Transactions (Net) | See detailed components | | Balance as of June 30, 2024 | $12.50 | - The primary driver for the decline in book value was the widening of Agency RMBS spreads relative to U.S. Treasuries[9] - The company raised $124.7 million from ATM issuances and a public offering during the quarter[9][10] MBS Investment Portfolio Dynex added $551.1 million in higher-coupon Agency RMBS in Q2 2024, increasing the total investment portfolio fair value to $8.86 billion - The company purchased $551.1 million in specified pools of Agency RMBS with coupons of 5.5% or higher, which is anticipated to increase net interest income[11] MBS Portfolio Composition by Fair Value (in millions) | Security Type | June 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Total Agency RMBS | $8,624.8 | $7,991.3 | | Agency CMBS | $97.5 | $111.8 | | Agency CMBS IO | $116.9 | $124.5 | | Non-Agency CMBS IO | $16.4 | $21.1 | | Total | $8,855.5 | $8,248.7 | Financing and Net Interest Spread Total repurchase agreement borrowings increased to $5.49 billion in Q2 2024, with the effective yield on investments rising, resulting in an improved net interest spread of (1.01)% Repurchase Agreement Borrowings (in thousands) | Metric | June 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Total Balance | $5,494,428 | $5,284,708 | | Weighted Average Rate | 5.46% | 5.46% | | WAVG Original Term (Days) | 94 | 76 | Portfolio Performance Comparison | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Effective Yield on Investments | 4.46% | 4.36% | | Cost of Funds (Repo) | (5.47)% | (5.51)% | | Net Interest Spread | (1.01)% | (1.15)% | Hedging Portfolio The company uses derivatives to hedge interest rate risk, holding $5.4 billion in U.S. Treasury futures and $10.0 million in interest rate swaps - As of June 30, 2024, the company held short positions in U.S. Treasury futures with a total notional amount of approximately $5.4 billion and interest rate swaps with a notional amount of $10.0 million[17] - The company's remaining estimated net deferred tax hedge gains from its interest rate hedging portfolio was $848.8 million as of June 30, 2024[18] Projected Recognition of Remaining Hedge Gains (in thousands) | Period | Projected Amount | | :--- | :--- | | Third quarter 2024 | $26,687 | | Fourth quarter 2024 | $26,784 | | Fiscal year 2025 | $107,939 | | Fiscal year 2026 and thereafter | $687,428 | | Total | $848,838 | Non-GAAP Financial Measures Dynex uses non-GAAP measures like EAD and adjusted net interest income to show portfolio returns, reporting an EAD loss of $(8.1) million for Q2 2024 - Management believes non-GAAP measures like EAD and adjusted net interest income are useful for investors as they measure the portfolio's return based on effective yield, net of financing and recurring costs[22] Reconciliation to EAD (in thousands, except per share) | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Comprehensive (loss) income to common shareholders | $(12,013) | $20,927 | | EAD to common shareholders | $(8,095) | $(17,684) | | EAD per common share | $(0.12) | $(0.30) | Reconciliation to Adjusted Net Interest Income (in thousands) | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Net interest income (expense) | $1,287 | $(3,192) | | Adjusted net interest income (expense) | $1,071 | $(4,460) | Other Information Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties, with actual results potentially differing due to economic and geopolitical factors - The report includes forward-looking statements regarding future performance, interest rates, and strategies, which are subject to inherent risks[26] - Key risk factors include changes in domestic economic conditions, geopolitical events (e.g., wars in Ukraine and between Israel and Hamas), changes in interest rates and credit spreads, and Federal Reserve policy changes[26][27] Company Description Dynex Capital, Inc. is an internally managed REIT focused on generating dividend income and long-term returns from diversified U.S. real estate assets - Dynex Capital is an internally managed REIT that finances diversified U.S. real estate assets to generate dividend income and long-term returns[29]