Dynex Capital(US:DX)2020-05-11 19:11Financial Performance - Dynex Capital, Inc. reported a comprehensive loss to common shareholders of $(33.3) million for Q1 2020, resulting in a net loss of $(106.2) million or $(4.63) per common share, compared to net income of $51.8 million or $2.26 per common share in Q4 2019[128]. - Core net operating income to common shareholders declined to $11.6 million or $0.51 per common share in Q1 2020, down from $15.0 million or $0.66 per common share in Q4 2019[131]. - GAAP net income to common shareholders for the three months ended March 31, 2020, was a loss of $106,234,000 compared to a gain of $51,774,000 for the three months ended December 31, 2019[141]. - Non-GAAP adjusted net interest income decreased to $20,524,000 for the three months ended March 31, 2020, from $22,437,000 for the three months ended December 31, 2019, a decline of about 8.5%[141]. - The company reported a GAAP net interest income of $17,721,000 for the three months ended March 31, 2020, compared to $16,195,000 for the three months ended December 31, 2019, an increase of approximately 9.4%[141]. - The net interest income for the three months ended March 31, 2020, was $17,721,000, an increase from $13,681,000 for the same period in 2019, reflecting a net interest spread of 1.32%[165]. - Adjusted net interest income for the three months ended March 31, 2020, was $20,524,000, an increase of 5.9% from $19,376,000 in the same period of 2019[172]. - The total change in net interest income for the three months ended March 31, 2020, was an increase of $4,040,000 compared to the previous year[168]. Investment Portfolio - The investment portfolio as of March 31, 2020, consisted of $2.3 billion in Agency CMBS, $0.4 billion in Agency RMBS, and $0.5 billion in both Agency and non-Agency CMBS IO, compared to $2.6 billion in Agency RMBS and $2.0 billion in Agency CMBS as of December 31, 2019[143]. - The total par value of CMBS investments as of March 31, 2020, was $2.1 billion, with a weighted average coupon of 3.14%[151]. - The fair value of the total 30-year fixed-rate investments as of March 31, 2020, was $381,915,000, compared to $2,610,117,000 as of December 31, 2019[147]. - As of March 31, 2020, the total fair value of non-Agency CMBS IO investments was $176,109,000, with retail properties comprising 27.8% of the portfolio[155]. - Approximately 61% of CMBS IO investments are Agency-issued securities, which generally have a lower risk of default compared to non-Agency CMBS IO[156]. Leverage and Liquidity - As of April 30, 2020, the company had approximately $225 million in cash and unencumbered assets, with leverage at approximately 4 times total shareholders' equity[134]. - The company's leverage as of March 31, 2020, was 8.8 times shareholders' equity, which was reduced to approximately 4 times after settling $2.7 billion in Agency MBS sales[186]. - The company maintained liquidity of $155.4 million as of March 31, 2020, down from $224.0 million as of December 31, 2019, primarily due to margin calls on investments and derivative securities[186]. - The average balance of interest-earning assets for the three months ended March 31, 2020, was $4,899,132,000, compared to $4,368,240,000 for the same period in 2019[165]. Interest Rate Swaps and Derivatives - The company has reduced its interest rate swaps to mitigate the impact of the upcoming cessation of LIBOR as a benchmark rate by the end of 2021[135]. - The company reported a total loss on derivative instruments of $195,567,000 for the three months ended March 31, 2020, compared to a loss of $61,697,000 in the same period of 2019[177]. - The net periodic interest benefit from interest rate swaps decreased to $2,064,000 in Q1 2020 from $3,897,000 in Q1 2019, a decline of 47%[177]. - The company realized a loss of $183,773,000 on interest rate swaps for the three months ended March 31, 2020, compared to a loss of $6,794,000 in the same period of 2019[181]. - The average interest rate swap net receive rate decreased to 0.28% in Q1 2020 from 0.38% in Q1 2019[180]. Market Conditions and Economic Impact - The Federal Reserve's actions to support financial markets included a $500 billion increase in U.S. Treasuries and a $200 billion increase in Agency RMBS holdings[122]. - Initial jobless claims in the U.S. exceeded 33 million as of May 7, 2020, representing about 20% of the domestic workforce[123]. - The company is taking a balanced approach to future reinvestment, focusing on generating solid cash flows and preserving capital amid market uncertainty[134]. - The company anticipates changes in interest rates and spreads will affect the performance of its investment portfolio, particularly regarding cash flow and credit performance[210]. - The competitive environment is expected to evolve, with increased competition for investments and financing availability impacting future operations[212]. Compliance and Regulatory Matters - The company maintained compliance with its debt covenants as of March 31, 2020, despite market disruptions caused by COVID-19[192]. - The company is required to distribute at least 90% of its REIT taxable income to shareholders, funded primarily through cash flows from operations[197]. - The company monitors financial covenants that may impact its operating and financing flexibility, currently believing there are no material restrictions[192]. - The company has no material changes in contractual obligations since December 31, 2019, and does not foresee off-balance sheet arrangements affecting its financial condition[199].