Virginia (State or other jurisdiction of incorporation) | 1-9819 (Commission File Number) | 52-1549373 (IRS Employer Identification No.) | |
4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia (Address of principal executive offices) | 23060-9245 (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Exhibit No. | Description | |
99.1 | Press Release dated July 30, 2014 |
DYNEX CAPITAL, INC. | |||
Date: | July 30, 2014 | By: | /s/ Stephen J. Benedetti |
Stephen J. Benedetti | |||
Executive Vice President, Chief Operating Officer and Chief Financial Officer |
FOR IMMEDIATE RELEASE | CONTACT: | Alison Griffin | |
(804) 217-5897 |
($ in thousands, except per share amounts) | 2Q2014 | 1Q2014 | 2Q2013 | ||||||||
Net interest income | $ | 21,146 | $ | 20,007 | $ | 22,444 | |||||
(Loss) gain on derivative instruments, net | $ | (23,074 | ) | $ | (13,422 | ) | $ | 11,353 | |||
Net (loss) income to common shareholders | $ | (8,293 | ) | $ | (3,028 | ) | $ | 29,442 | |||
Net (loss) income per common share | $ | (0.15 | ) | $ | (0.06 | ) | $ | 0.54 | |||
Core net operating income to common shareholders (1) | $ | 14,106 | $ | 13,746 | $ | 16,385 | |||||
Core net operating income per common share (1) | $ | 0.26 | $ | 0.25 | $ | 0.30 | |||||
Return on average common equity (annualized) | (6.7 | )% | (2.5 | )% | 21.0 | % | |||||
Adjusted return on average common equity (annualized) (1) | 11.3 | % | 11.3 | % | 11.7 | % | |||||
Dividends per common share | $ | 0.25 | $ | 0.25 | $ | 0.29 | |||||
Book value per common share, end of period | $ | 9.12 | $ | 8.87 | $ | 8.94 | |||||
Average interest earning assets | $ | 3,944,154 | $ | 4,002,555 | $ | 4,565,733 | |||||
Average interest bearing liabilities | $ | 3,466,651 | $ | 3,509,889 | $ | 4,068,830 | |||||
Weighted average effective yield (2) | 2.79 | % | 2.74 | % | 2.86 | % | |||||
Annualized cost of funds | 0.75 | % | 0.87 | % | 1.11 | % | |||||
Net interest spread | 2.04 | % | 1.87 | % | 1.75 | % | |||||
Adjusted net interest spread (1) | 1.92 | % | 1.88 | % | 1.72 | % | |||||
Portfolio CPR (3) | 11.1 | % | 10.3 | % | 21.0 | % | |||||
Debt to shareholders' equity ratio, end of period | 5.7 | x | 5.9 | x | 6.8 | x |
(1) | Core net operating income to common shareholders (including on a per share basis), adjusted return on average common equity, and adjusted net interest spread are non-GAAP financial measures. Reconciliations of these non-GAAP financial measures are provided as a supplement to this release. |
(2) | Weighted average effective yield is based on the average balance of investments which is calculated using daily amortized cost. |
(3) | Portfolio CPR consists of constant prepayment rates on investments excluding CMBS IO. |
Book Value ($ in thousands) | Book Value Per Common Share | |||||||
Shareholders' equity at March 31, 2014 | $ | 599,015 | $ | 8.87 | ||||
GAAP net loss to common shareholders: | ||||||||
Core net operating income | 14,106 | 0.26 | ||||||
Amortization of de-designated cash flow hedges | (1,608 | ) | (0.03 | ) | ||||
Change in fair value of derivative instruments, net | (20,402 | ) | (0.37 | ) | ||||
Loss on sale of investments, net | (477 | ) | (0.01 | ) | ||||
Fair value adjustments, net | 88 | — | ||||||
Other comprehensive income | 35,199 | 0.64 | ||||||
Common dividends declared | (13,683 | ) | (0.25 | ) | ||||
Balance before capital transactions | 612,238 | 9.11 | ||||||
Restricted stock amortization, net of capitalized issuance costs | 676 | 0.01 | ||||||
Shareholders' equity at June 30, 2014 | $ | 612,914 | $ | 9.12 |
($ in thousands) | RMBS | CMBS | CMBS IO | Total | |||||||||||
Balance at March 31, 2014 | $ | 2,554,872 | $ | 722,208 | $ | 682,772 | $ | 3,959,852 | |||||||
Purchases | 53,026 | 24,213 | 77,824 | 155,063 | |||||||||||
Principal payments | (120,550 | ) | (6,722 | ) | — | (127,272 | ) | ||||||||
Sales | (11,691 | ) | (3,902 | ) | (21,017 | ) | (36,610 | ) | |||||||
Net amortization | (7,649 | ) | (978 | ) | (26,072 | ) | (34,699 | ) | |||||||
Net unrealized gain | 13,124 | 11,687 | 8,820 | 33,631 | |||||||||||
Balance at June 30, 2014 | $ | 2,481,132 | $ | 746,506 | $ | 722,327 | $ | 3,949,965 |
As of June 30, 2014 | 2Q2014 | ||||||||||||||||||||
($ in thousands) | Par Balance (Notional for CMBS IO) | Net Premium (Discount) | Amortized Cost | Fair Value | WAVG Coupon | WAVG Yield (2) | |||||||||||||||
Agency MBS: | |||||||||||||||||||||
RMBS | $ | 2,360,799 | $ | 132,342 | $ | 2,493,141 | $ | 2,467,541 | 3.16 | % | 1.83 | % | |||||||||
CMBS | 309,235 | 20,178 | 329,413 | 345,196 | 5.23 | % | 3.62 | % | |||||||||||||
CMBS IO | 9,703,887 | 432,588 | 432,588 | 447,500 | 0.88 | % | 4.28 | % | |||||||||||||
Total (1) | $ | 2,670,034 | $ | 585,108 | $ | 3,255,142 | $ | 3,260,237 | 2.35 | % | |||||||||||
Non-Agency MBS: | |||||||||||||||||||||
RMBS | $ | 13,482 | $ | (6 | ) | $ | 13,476 | $ | 13,593 | 4.48 | % | 4.48 | % | ||||||||
CMBS | 391,332 | (17,190 | ) | 374,142 | 401,308 | 4.96 | % | 5.59 | % | ||||||||||||
CMBS IO | 6,958,238 | 268,972 | 268,972 | 274,827 | 0.70 | % | 4.06 | % | |||||||||||||
Total (1) | $ | 404,814 | $ | 251,776 | $ | 656,590 | $ | 689,728 | 5.00 | % | |||||||||||
Total MBS portfolio: | $ | 3,074,848 | $ | 836,884 | $ | 3,911,732 | $ | 3,949,965 | 2.76 | % |
(1) | Total par balances of investments exclude notional amounts of CMBS IO. |
(2) | Weighted average effective yield is based on the average balance of investments which is calculated using daily amortized cost basis and excludes notional amounts of CMBS IO. |
June 30, 2014 | December 31, 2013 | ||||||||||||
($ in thousands) | Par Balance | WAVG Coupon | Par Balance | WAVG Coupon | |||||||||
0-12 MTR | $ | 598,820 | 3.00 | % | $ | 575,763 | 2.97 | % | |||||
13-36 MTR | 241,308 | 4.04 | % | 276,862 | 3.89 | % | |||||||
37-60 MTR | 547,846 | 3.27 | % | 619,887 | 3.57 | % | |||||||
61-84 MTR | 145,016 | 3.64 | % | 171,839 | 3.01 | % | |||||||
85-120 MTR | 809,978 | 2.88 | % | 928,580 | 2.99 | % | |||||||
$ | 2,342,968 | 3.17 | % | $ | 2,572,931 | 3.22 | % |
2Q2014 | 1Q2014 | 4Q2013 | 3Q2013 | ||||||||
Agency RMBS | 14.1 | % | 12.7 | % | 14.3 | % | 23.8 | % | |||
Agency CMBS | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||
Total weighted average (1) | 12.4 | % | 11.3 | % | 12.8 | % | 21.5 | % |
(1) | CPRs for CMBS IO are not calculated and therefore are not included in the total weighted average. |
Fair Value | Weighted average % of total | |||||||||||||
($ in thousands) | RMBS | CMBS | CMBS IO | |||||||||||
AAA | $ | — | $ | 9,020 | $ | 273,587 | 41.0 | % | ||||||
AA | — | 82,485 | 1,240 | 12.1 | % | |||||||||
A | — | 259,864 | — | 37.7 | % | |||||||||
Below A or not rated | 13,593 | 49,939 | — | 9.2 | % | |||||||||
$ | 13,593 | $ | 401,308 | $ | 274,827 | 100.0 | % |
($ in thousands) | 2Q2014 | 1Q2014 | 2Q2013 | ||||||||
Agency MBS: | |||||||||||
Weighted average effective yield (1) | 2.35 | % | 2.32 | % | 2.43 | % | |||||
Average balance | $ | 3,290,012 | $ | 3,406,349 | $ | 3,903,717 | |||||
Non-Agency MBS: | |||||||||||
Weighted average effective yield (1) | 5.00 | % | 5.16 | % | 5.39 | % | |||||
Average balance | 599,740 | 539,936 | 596,506 | ||||||||
Mortgage loans held for investment | |||||||||||
Weighted average effective yield (1) | 5.17 | % | 5.17 | % | 5.44 | % | |||||
Average balance | 54,402 | $ | 56,270 | $ | 65,510 | ||||||
Total investments: | |||||||||||
Weighted average effective yield (1) | 2.79 | % | 2.74 | % | 2.86 | % | |||||
Weighted average effective borrowing rate (2) | (0.87 | )% | (0.86 | )% | (1.14 | )% | |||||
Adjusted net interest spread (2) | 1.92 | % | 1.88 | % | 1.72 | % | |||||
Adjusted net interest income (2) | $ | 20,082 | $ | 20,084 | $ | 22,170 | |||||
Average interest earning assets | $ | 3,944,154 | $ | 4,002,555 | $ | 4,565,733 | |||||
Average interest bearing liabilities | $ | 3,466,651 | $ | 3,509,889 | $ | 4,068,830 |
(1) | Weighted average effective yield is based on the average balance of investments which is calculated using daily amortized cost basis. |
(2) | Weighted average effective borrowing rate, adjusted net interest spread and adjusted net interest income are non-GAAP measures. Reconciliations of these non-GAAP financial measures are provided as a supplement to this release. |
June 30, 2014 | December 31, 2013 | ||||||||||||
($ in thousands) | Balance | Weighted Average Rate | Balance | Weighted Average Rate | |||||||||
Agency RMBS | $ | 2,242,441 | 0.33 | % | $ | 2,522,503 | 0.42 | % | |||||
Agency CMBS | 262,822 | 0.35 | % | 246,849 | 0.39 | % | |||||||
Agency CMBS IOs | 377,554 | 0.97 | % | 369,948 | 1.16 | % | |||||||
Non-Agency RMBS | 10,279 | 1.65 | % | 10,569 | 1.80 | % | |||||||
Non-Agency CMBS | 321,769 | 1.18 | % | 303,674 | 1.27 | % | |||||||
Non-Agency CMBS IO | 216,644 | 1.10 | % | 106,803 | 1.27 | % | |||||||
Securitization financing bonds | 15,576 | 1.50 | % | 20,651 | 1.59 | % | |||||||
Deferred costs | (35 | ) | n/a | (243 | ) | n/a | |||||||
$ | 3,447,050 | 0.54 | % | $ | 3,580,754 | 0.61 | % |
($ in thousands) | Interest Rate Swaps | Eurodollar Contracts | Total Weighted-Average Notional | Weighted-Average Rate (1) | ||||||||||
Effective for remainder of 2014 | $ | 700,000 | $ | — | $ | 700,000 | 1.57 | % | ||||||
Effective 2015 | 700,000 | — | 700,000 | 1.57 | % | |||||||||
Effective 2016 | 700,000 | 372,746 | 1,072,746 | 1.87 | % | |||||||||
Effective 2017 | 588,178 | 1,113,767 | 1,701,945 | 2.54 | % | |||||||||
Effective 2018 | 515,000 | 681,027 | 1,196,027 | 2.91 | % | |||||||||
Effective 2019 | 307,041 | 487,055 | 794,096 | 3.25 | % | |||||||||
Effective 2020 | 266,216 | 194,604 | 460,820 | 3.16 | % | |||||||||
Effective 2021 | 191,164 | — | 191,164 | 2.13 | % | |||||||||
Effective 2022 | 180,000 | — | 180,000 | 2.13 | % | |||||||||
Effective 2023 | 159,370 | — | 159,370 | 2.15 | % | |||||||||
Effective 2024 | 38,661 | — | 38,661 | 2.18 | % |
(1) | Weighted average rate is based on the weighted average notional outstanding. |
($ in thousands) | Change in Fair Value of Derivative Instruments, Net | Periodic Interest Costs (1) | Total | ||||||||
Interest rate swaps | $ | (9,022 | ) | $ | (2,672 | ) | $ | (11,694 | ) | ||
Eurodollar contracts | (11,380 | ) | — | (11,380 | ) | ||||||
Loss on derivative instruments, net | $ | (20,402 | ) | $ | (2,672 | ) | $ | (23,074 | ) |
(1) | Periodic interest costs represents net interest payments (including accrued amounts) related to interest rate derivatives during the quarter. |
($ in thousands) | Asset Carrying Basis | Associated Financing(1)/ Liability Carrying Basis | Allocated Shareholders' Equity | % of Shareholders' Equity | ||||||||||
Agency MBS | $ | 3,260,237 | $ | 2,882,817 | $ | 377,420 | 61.6 | % | ||||||
Non-Agency MBS | 689,728 | 548,657 | 141,071 | 23.0 | % | |||||||||
Mortgage loans held for investment, net | 52,564 | 27,649 | 24,915 | 4.1 | % | |||||||||
Derivative assets (liabilities) | 5,237 | 23,974 | (18,737 | ) | (3.1 | )% | ||||||||
Cash and cash equivalents | 36,837 | — | 36,837 | 6.0 | % | |||||||||
Restricted cash | 30,747 | — | 30,747 | 5.0 | % | |||||||||
Other assets/other liabilities | 40,568 | 19,907 | 20,661 | 3.4 | % | |||||||||
$ | 4,115,918 | $ | 3,503,004 | $ | 612,914 | 100.0 | % |
(1) | Associated financing for investments includes repurchase agreements, payable for unsettled MBS, and securitization financing issued to third parties (which is presented on the Company's balance sheet as “non-recourse collateralized financing”). Associated financing for derivative instruments represents the fair value of the interest rate swap agreements in a liability position. |
# | # | # |
June 30, 2014 | December 31, 2013 | ||||||
ASSETS | (unaudited) | ||||||
Mortgage-backed securities | $ | 3,949,965 | $ | 4,018,161 | |||
Mortgage loans held for investment, net | 52,564 | 55,423 | |||||
4,002,529 | 4,073,584 | ||||||
Cash and cash equivalents | 36,837 | 69,330 | |||||
Restricted cash | 30,747 | 13,385 | |||||
Derivative assets | 5,237 | 18,488 | |||||
Principal receivable on investments | 10,769 | 12,999 | |||||
Accrued interest receivable | 22,477 | 21,703 | |||||
Other assets, net | 7,322 | 7,648 | |||||
Total assets | $ | 4,115,918 | $ | 4,217,137 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Liabilities: | |||||||
Repurchase agreements | $ | 3,447,050 | $ | 3,580,754 | |||
Payable for unsettled mortgage-backed securities | — | 10,358 | |||||
Non-recourse collateralized financing | 12,073 | 12,914 | |||||
Derivative liabilities | 23,974 | 6,681 | |||||
Accrued interest payable | 1,770 | 2,548 | |||||
Accrued dividends payable | 15,620 | 16,601 | |||||
Other liabilities | 2,517 | 1,405 | |||||
Total liabilities | 3,503,004 | 3,631,261 | |||||
Shareholders’ equity: | |||||||
Preferred stock, par value $.01 per share, 8.5% Series A Cumulative Redeemable; 8,000,000 shares authorized; 2,300,000 shares issued and outstanding ($57,500 aggregate liquidation preference) | $ | 55,407 | $ | 55,407 | |||
Preferred stock, par value $.01 per share, 7.625% Series B Cumulative Redeemable; 7,000,000 shares authorized; 2,250,000 shares issued and outstanding($56,250 aggregate liquidation preference) | 54,251 | 54,251 | |||||
Common stock, par value $.01 per share, 200,000,000 shares authorized; 54,729,087 and 54,310,484 shares issued and outstanding, respectively | 547 | 543 | |||||
Additional paid-in capital | 762,502 | 761,550 | |||||
Accumulated other comprehensive income (loss) | 30,944 | (33,816 | ) | ||||
Accumulated deficit | (290,737 | ) | (252,059 | ) | |||
Total shareholders' equity | 612,914 | 585,876 | |||||
Total liabilities and shareholders’ equity | $ | 4,115,918 | $ | 4,217,137 | |||
Book value per common share | $ | 9.12 | $ | 8.69 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Interest income: | |||||||||||||||
Mortgage-backed securities | $ | 26,995 | $ | 32,968 | $ | 53,897 | $ | 65,007 | |||||||
Mortgage loans held for investment | 723 | 922 | 1,462 | 1,865 | |||||||||||
27,718 | 33,890 | 55,359 | 66,872 | ||||||||||||
Interest expense: | |||||||||||||||
Repurchase agreements | 6,548 | 11,165 | 14,159 | 21,383 | |||||||||||
Non-recourse collateralized financing | 24 | 281 | 46 | 519 | |||||||||||
6,572 | 11,446 | 14,205 | 21,902 | ||||||||||||
Net interest income | 21,146 | 22,444 | 41,154 | 44,970 | |||||||||||
Provision for loan losses | — | — | — | (261 | ) | ||||||||||
(Loss) gain on derivative instruments, net | (23,074 | ) | 11,353 | (36,496 | ) | 11,336 | |||||||||
(Loss) gain on sale of investments, net | (477 | ) | 2,031 | (3,784 | ) | 3,422 | |||||||||
Fair value adjustments, net | 88 | (600 | ) | 119 | (740 | ) | |||||||||
Other income, net | 137 | 101 | 212 | 13 | |||||||||||
General and administrative expenses: | |||||||||||||||
Compensation and benefits | (2,329 | ) | (2,308 | ) | (4,881 | ) | (4,666 | ) | |||||||
Other general and administrative | (1,490 | ) | (1,487 | ) | (3,057 | ) | (2,938 | ) | |||||||
Net (loss) income | (5,999 | ) | 31,534 | (6,733 | ) | 51,136 | |||||||||
Preferred stock dividends | (2,294 | ) | (2,092 | ) | (4,588 | ) | (3,313 | ) | |||||||
Net (loss) income to common shareholders | $ | (8,293 | ) | $ | 29,442 | $ | (11,321 | ) | $ | 47,823 | |||||
Other comprehensive income: | |||||||||||||||
Change in fair value of available-for-sale investments | 33,114 | (115,263 | ) | 57,080 | (109,366 | ) | |||||||||
Reclassification adjustment for loss (gain) on sale of investments, net | 477 | (2,031 | ) | 3,784 | (3,422 | ) | |||||||||
Change in fair value of cash flow hedges | — | 15,944 | — | 16,381 | |||||||||||
Reclassification adjustment for cash flow hedges (including de-designated hedges) | 1,608 | 4,693 | 3,896 | 8,796 | |||||||||||
Total other comprehensive income (loss) | 35,199 | (96,657 | ) | 64,760 | (87,611 | ) | |||||||||
Comprehensive income (loss) to common shareholders | $ | 26,906 | $ | (67,215 | ) | $ | 53,439 | $ | (39,788 | ) | |||||
Weighted average common shares: basic and diluted | 54,711 | 54,974 | 54,669 | 54,639 | |||||||||||
Net (loss) income per common share: basic and diluted | $ | (0.15 | ) | $ | 0.54 | $ | (0.21 | ) | $ | 0.88 |
Three Months Ended | |||||||||||
June 30, 2014 | March 31, 2014 | June 30, 2013 | |||||||||
GAAP net (loss) income to common shareholders | $ | (8,293 | ) | $ | (3,028 | ) | $ | 29,442 | |||
Amortization of de-designated cash flow hedges (1) | 1,608 | 2,288 | — | ||||||||
Change in fair value on derivative instruments, net | 20,402 | 11,211 | (11,626 | ) | |||||||
Loss (gain) on sale of investments, net | 477 | 3,307 | (2,031 | ) | |||||||
Fair value adjustments, net | (88 | ) | (32 | ) | 600 | ||||||
Core net operating income to common shareholders | $ | 14,106 | $ | 13,746 | $ | 16,385 | |||||
Core net operating income per common share | $ | 0.26 | $ | 0.25 | $ | 0.30 | |||||
Average common equity during the period | $ | 497,864 | $ | 485,044 | $ | 560,449 | |||||
ROAE, calculated using annualized GAAP net (loss) income | (6.7 | )% | (2.5 | )% | 21.0 | % | |||||
Adjusted ROAE, calculated using annualized core net operating income | 11.3 | % | 11.3 | % | 11.7 | % |
Three Months Ended | ||||||||||||||||||||
June 30, 2014 | March 31, 2014 | June 30, 2013 | ||||||||||||||||||
Amount | Yield/Rate | Amount | Yield/Rate | Amount | Yield/Rate | |||||||||||||||
GAAP interest income | $ | 27,718 | 2.79 | % | $ | 27,640 | 2.74 | % | $ | 33,890 | 2.86 | % | ||||||||
GAAP interest expense/annualized cost of funds (2) | 6,572 | 0.75 | % | 7,633 | 0.87 | % | 11,446 | 1.11 | % | |||||||||||
Net interest income/spread | $ | 21,146 | 2.04 | % | $ | 20,007 | 1.87 | % | $ | 22,444 | 1.75 | % | ||||||||
GAAP interest expense/annualized cost of funds (2) | $ | 6,572 | 0.75 | % | $ | 7,633 | 0.87 | % | $ | 11,446 | 1.11 | % | ||||||||
Amortization of de-designated cash flow hedges (1) | (1,608 | ) | (0.18 | )% | (2,288 | ) | (0.26 | )% | — | — | % | |||||||||
Net periodic interest costs of derivative instruments (3) | 2,672 | 0.30 | % | 2,211 | 0.25 | % | 273 | 0.03 | % | |||||||||||
Effective borrowing costs | $ | 7,636 | 0.87 | % | $ | 7,556 | 0.86 | % | $ | 11,719 | 1.14 | % | ||||||||
Adjusted net interest income/spread | $ | 20,082 | 1.92 | % | $ | 20,084 | 1.88 | % | $ | 22,171 | 1.72 | % |
(1) | Amount recorded as a portion of "interest expense" in accordance with GAAP related to the amortization of the balance remaining in accumulated other comprehensive loss as of June 30, 2013 as a result of the Company's discontinuation of hedge accounting. |
(2) | Rates shown are based on annualized interest expense amounts divided by average interest bearing liabilities. Recalculation of annualized cost of funds using total interest expense shown in the table may not be possible because certain expense items use a 360-day year for the calculation while others use actual number of days in the year. |
(3) | Amount equals the net interest payments (including accrued amounts) related to interest rate derivatives during the period which are not already included in "interest expense" in accordance with GAAP. |