EX-99.1 2 a4q2014earningsrelease.htm EXHIBIT 99.1 4Q 2014 Earnings Release

PRESS RELEASE
FOR IMMEDIATE RELEASE
 
CONTACT:
Alison Griffin
 
 
 
(804) 217-5897

DYNEX CAPITAL, INC. REPORTS FOURTH QUARTER
AND FULL YEAR 2014 RESULTS
Total annual economic return to common shareholders of 15.3% for 2014

GLEN ALLEN, Va. -- Dynex Capital, Inc. (NYSE: DX) reported its fourth quarter and full year results for 2014 today.
2014 Highlights
•
Total annual economic return to common shareholders for 2014 of 15.3%, consisting of $1.00 in common dividends plus a $0.33 increase in book value per common share divided by book value per common share of $8.69 at December 31, 2013
•
Book value per common share of $9.02 at December 31, 2014 versus $8.69 at December 31, 2013
•
Core net operating income to common shareholders of $54.2 million, or $0.99 per common share
•
Net income to common shareholders of $18.6 million, or $0.34 per common share for the year and other comprehensive income of $55.1 million, or $1.01 per common share, for total comprehensive income to common shareholders of $73.8 million, or $1.35 per common share
Fourth Quarter Highlights
•
Core net operating income of $12.5 million, or $0.23 per common share
•
Net income to common shareholders of $1.4 million, or $0.03 per common share, and other comprehensive income of $4.8 million, or $0.08 per common share, for total comprehensive income to common shareholders of $6.2 million, or $0.11 per common share


1

Quarter-over-Quarter Highlights
($ in thousands, except per share amounts)
4Q2014
 
3Q2014
 
4Q2013
Net income per common share
$
0.03

 
$
0.52

 
$
0.35

Core net operating income per common share (1)
$
0.23

 
$
0.25

 
$
0.29

Return on average common equity (annualized)
1.1
%
 
22.7
%
 
16.1
%
Adjusted return on average common equity (annualized) (1)
10.1
%
 
11.0
%
 
13.0
%
Dividends per common share
$
0.25

 
$
0.25

 
$
0.27

Book value per common share, end of period
$
9.02

 
$
9.14

 
$
8.69

Debt to shareholders' equity ratio, end of period
5.1
x
 
5.2
x
 
6.2
x
Average interest earning assets
$
3,529,711

 
$
3,820,898

 
$
4,123,224

Average interest bearing liabilities
$
3,054,355

 
$
3,364,225

 
$
3,620,795

Weighted average effective yield
2.64
%
 
2.73
%
 
2.72
%
Annualized cost of funds
0.72
%
 
0.70
%
 
0.90
%
Net interest spread
1.92
%
 
2.03
%
 
1.82
%
Adjusted net interest spread (1)
1.97
%
 
1.93
%
 
1.77
%
(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 and are reconciled in the supplement to this release.
Management Remarks
Byron Boston, CEO, President and Co-CIO commented, "2014 was a very good year for Dynex. We identified the environment as being complex and positioned ourselves accordingly, generating a total annual economic return of 15.3%, including dividends of $1.00 per common share. Importantly, we were able to generate this return in a year that presented numerous surprises to the market by keeping our risk relatively low. 2015 is likely to be similarly surprising given the potential for Federal Reserve action, the low level of absolute rates, the flatter yield curve, and the tight spread environment. The Company enters 2015 with a solid balance sheet, liquidity, and capital position. We continue to believe that our intense focus on disciplined capital deployment and risk management will create long term value for our shareholders."
Book Value Per Common Share
Book value per common share was $9.02 at December 31, 2014, a decrease of $(0.12) per common share from September 30, 2014. Overall, book value per common share decreased from the excess of the cost of our hedges over the increase in fair value of our investments.
Investments
The following table summarizes the changes in the Company's MBS portfolio during the fourth quarter of 2014:

2

($ in thousands)
RMBS
 
CMBS
 
CMBS IO
 
Total
Balance at September 30, 2014
$
2,306,859

 
$
608,604

 
$
699,930

 
$
3,615,393

Purchases
15,486

 
37,153

 
89,735

 
142,374

Principal payments
(96,731
)
 
(13,405
)
 
—

 
(110,136
)
Sales
(20,699
)
 
(79,744
)
 
—

 
(100,443
)
Net premium amortization
(6,839
)
 
5,168

 
(27,802
)
 
(29,473
)
Change in net unrealized gain (loss)
11,072

 
(14,541
)
 
1,993

 
(1,476
)
Balance at December 31, 2014
$
2,209,148

 
$
543,235

 
$
763,856

 
$
3,516,239

    The following tables present certain information for the Company's MBS portfolio by category as of December 31, 2014:
($ in thousands)
Par Balance (Notional for CMBS IO) (1)
 
Net Premium (Discount)
 
Amortized Cost
 
Fair Value
 
WAVG Coupon
RMBS:
 
 
 
 
 
 
 
 
 
Agency
$
2,086,807

 
$
113,635

 
$
2,200,442

 
$
2,186,700

 
3.09
%
Non-Agency
22,432

 
(17
)
 
22,415

 
22,448

 
3.83
%
 
2,109,239

 
113,618

 
2,222,857

 
2,209,148

 
 
CMBS:
 
 
 
 
 
 
 
 
 
Agency
301,943

 
18,042

 
319,985

 
335,197

 
5.21
%
Non-Agency
210,358

 
(8,520
)
 
201,838

 
208,038

 
4.33
%
 
512,301

 
9,522

 
521,823

 
543,235

 
 
CMBS IO:
 
 
 
 
 
 
 
 
 
Agency
10,460,113

 
426,564

 
426,564

 
438,737

 
0.80
%
Non-Agency
7,868,896

 
319,280

 
319,280

 
325,119

 
0.72
%
 
18,329,009

 
745,844

 
745,844

 
763,856

 
 
 

 

 

 

 
 
 
$
2,621,540

 
$
868,984

 
$
3,490,524

 
$
3,516,239

 
 
(1)
Total par balance of investments excludes notional amounts of CMBS IO.
Premium amortization expense for our Agency RMBS portfolio declined $1.8 million during the fourth quarter of 2014 compared to the third quarter of 2014. The table below presents the constant prepayment rate ("CPR"), which is a measure of prepayment speed, by collateral type for our Agency MBS portfolio for the periods presented:
 
4Q2014
 
3Q2014
 
2Q2014
 
1Q2014
Agency RMBS
12.5
%
 
15.3
%
 
14.1
%
 
12.7
%
Agency CMBS
2.2
%
 
3.3
%
 
0.0
%
 
0.0
%
Total weighted average (1)
11.2
%
 
13.9
%
 
12.4
%
 
11.3
%
(1)
CPRs for CMBS IO are not calculated and therefore are not included in the total weighted average.

Information related to the credit ratings for the Company's non-Agency MBS as of December 31, 2014 is as follows:

3

 
Fair Value
 
Weighted average % of total
($ in thousands)
RMBS
 
CMBS
 
CMBS IO
 
AAA
$
—

 
$
73,553

 
$
321,154

 
71.0
%
AA
—

 
65,937

 
1,057

 
12.1
%
A
—

 
30,828

 
—

 
5.5
%
Below A or not rated
22,448

 
37,720

 
2,908

 
11.4
%
 
$
22,448

 
$
208,038

 
$
325,119

 
100.0
%
Investment Performance
The following table provides details for our adjusted net interest spread for the periods indicated:
($ in thousands)
4Q2014
 
3Q2014
 
4Q2013
Weighted average effective yield by investment type (1):
 
 
 
 
 
RMBS
1.87
 %
 
1.82
 %
 
1.85
 %
CMBS
4.09
 %
 
4.45
 %
 
4.65
 %
CMBS IO
3.94
 %
 
4.14
 %
 
4.47
 %
Mortgage loans held for investment
4.68
 %
 
5.16
 %
 
5.26
 %
 Total investments:
2.64
 %
 
2.73
 %
 
2.72
 %
Weighted average effective borrowing rate (2)
(0.67
)%
 
(0.80
)%
 
(0.95
)%
Adjusted net interest spread (2)
1.97
 %
 
1.93
 %
 
1.77
 %
(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 and adjusted net interest spread are non-GAAP financial measures and are reconciled in the supplement to this release.
 
Adjusted net interest spread increased for the fourth quarter of 2014 compared to the third quarter of 2014 because of a decline in our periodic interest costs on derivative instruments partially offset by lower weighted average effective yield earned on investments. Adjusted net interest spread is a non-GAAP measure that includes the periodic interest costs on our derivative instruments as an additional cost of financing. Periodic interest costs declined during the fourth quarter of 2014 due to the addition of receive-fixed interest rate swaps late in the third quarter of 2014. As compared to the same period in 2013, adjusted net interest spread for the fourth quarter of 2014 was 20 basis points higher due to lower borrowing costs and lower periodic interest costs from derivative instruments, partially offset by lower weighted average effective yield earned on investments.
During the fourth quarter we sold $100.4 million of investments, continuing our efforts from the third quarter to reduce spread risk. Overall, we generated a net gain of $11.0 million from these sales.
Repurchase Agreement Borrowings
The following table presents repurchase agreements by the type of security pledged as collateral as of the dates indicated:

4

 
December 31, 2014
 
December 31, 2013
($ in thousands)
Balance
 
Weighted
Average Rate
 
Balance
 
Weighted
Average Rate
Agency RMBS
$
1,977,338

 
0.39
%
 
$
2,522,503

 
0.42
%
Non-Agency RMBS
17,594

 
1.57
%
 
10,569

 
1.80
%
Agency CMBS
253,857

 
0.36
%
 
246,849

 
0.39
%
Non-Agency CMBS
114,895

 
1.15
%
 
303,674

 
1.27
%
Agency CMBS IOs
372,609

 
0.92
%
 
369,948

 
1.16
%
Non-Agency CMBS IO
266,983

 
1.04
%
 
106,803

 
1.27
%
Securitization financing bonds
9,834

 
1.51
%
 
20,651

 
1.59
%
Deferred costs
—

 
—

 
(243
)
 
—

 
$
3,013,110

 
0.55
%
 
$
3,580,754

 
0.61
%
The combined weighted average original term to maturity for our repurchase agreements was 144 days as of December 31, 2014 and 114 days as of December 31, 2013.
Hedging Activities
The Company continues to maintain the bulk of its hedging instruments beginning in early 2016. During the fourth quarter of 2014, the Company terminated $25 million in pay-fixed interest rate swaps. The following table summarizes the weighted average notional balance of interest rate derivatives that will be effective for the periods indicated:
Effective Period
 
Interest Rate Swaps - Payers Net of Receivers (1)
 
Eurodollar Contracts
 
Total Weighted Average Notional Outstanding (1)
 
Weighted Average
 Rate (1) (2)
($ in thousands)
 
 
 
 
 
 
 
 
2015
 
$
375,000

 
$
381,096

 
$
756,096

 
1.02
%
2016
 
375,000

 
1,292,691

 
1,667,691

 
1.56
%
2017
 
263,178

 
1,113,767

 
1,376,945

 
2.67
%
2018
 
190,000

 
681,027

 
871,027

 
3.23
%
2019
 
57,178

 
487,055

 
544,233

 
3.79
%
2020
 
191,216

 
194,604

 
385,820

 
3.30
%
2021
 
159,178

 
—

 
159,178

 
2.04
%
2022
 
155,000

 
—

 
155,000

 
2.03
%
2023
 
134,370

 
—

 
134,370

 
2.05
%
2024
 
20,765

 
—

 
20,765

 
1.72
%
(1) Amounts shown are net of interest rate swaps with fixed receive rates.
(2) Weighted average rate is based on the weighted average notional outstanding for all interest rate derivative instruments.
The following table details the components of our loss on derivative instruments, net recognized in our consolidated statement of comprehensive income for the fourth quarter of 2014:

5

($ in thousands)
Change in Fair Value of Derivative Instruments, Net
 
Periodic Interest Costs (1)
 
Gain (Loss) on Derivative Instruments, Net
Interest rate swaps-receivers
$
3,373

 
$
1,200

 
$
4,573

Interest rate swaps-payers
(8,434
)
 
(2,264
)
 
(10,698
)
Eurodollar contracts
(15,614
)
 
—

 
(15,614
)
Total
$
(20,675
)
 
$
(1,064
)
 
$
(21,739
)
(1)
Periodic interest costs represent interest receipts and payments (including accrued amounts) related to interest rate derivatives during the quarter.
Conference Call
As previously announced, the Company's quarterly conference call to discuss the fourth quarter results is today at 11:00 a.m. Eastern Time. Interested investors may access the call by dialing 1-888-339-0823 or by accessing the live webcast, the link for which is provided under “Investor Center/News & Market Information/Event Calendar” on our website (www.dynexcapital.com). A slide presentation will accompany the webcast and will also be available at least one hour prior to the call at the same location on our website.
Company Description
Dynex Capital, Inc. is an internally managed real estate investment trust, or REIT, which invests in mortgage assets on a leveraged basis. The Company invests in Agency and non-Agency RMBS and CMBS.  Additional information about Dynex Capital, Inc. is available at www.dynexcapital.com.
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,” 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 may include, without limitation, statements regarding future interest rates, our views on expected characteristics of future investment environments, prepayment rates on our investment portfolio and risks posed by our investment portfolio, our future investment strategies, our future leverage levels and financing strategies including 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, changes in general economic and market conditions, including volatility in the credit markets which impacts asset prices and the cost and availability of financing, defaults by borrowers, availability of suitable reinvestment opportunities, variability in investment portfolio cash flows, fluctuations in interest rates, fluctuations in property capitalization rates and values of commercial real estate, defaults by third-party servicers, prepayments of investment portfolio assets, other general competitive factors, uncertainty around government policy, the impact of regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the full impacts of which are unknown at this time, and another ownership change under Section 382 that further impacts the use of our tax net operating loss carryforward. For additional information

6

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, 2013, and other reports filed with and furnished to the Securities and Exchange Commission.
Use of Non-GAAP Financial Measures
In addition to the Company's operating results presented in accordance with GAAP, this release includes the following non-GAAP financial measures: core net operating income to common shareholders (including per common share), adjusted return on average common equity, effective borrowing costs and rates, adjusted net interest income, and adjusted net interest spread. Management uses these non-GAAP financial measures in its internal analysis of financial and operating performance and believes that it provides better transparency to our investors. 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, particularly those competitors that continue to use hedge accounting in reporting their financial results. In addition, management uses these non-GAAP financial measures to compare the Company's financial results generated prior to discontinuing GAAP hedge accounting in 2013 with the Company's financial results for 2014 periods. Because these non-GAAP financial measures exclude certain items used to compute GAAP net income to common shareholders and GAAP interest expense, 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. In addition, because not all companies use identical calculations, the Company's presentation of core net operating income, adjusted return on average common equity, effective borrowing costs and rates, adjusted net interest income, and adjusted net interest spread may not be comparable to other similarly-titled measures of other companies.
Core net operating income to common shareholders equals GAAP net income to common shareholders adjusted for amortization of accumulated other comprehensive loss on de-designated cash flow hedges included in GAAP interest expense, net change in fair value of derivative instruments which includes gains and losses on terminated derivative instruments (if applicable), gains and losses on sales of investments, and fair value adjustments on investments not classified as available for sale. Adjusted return on average common equity equals core net operating income to common shareholders divided by average common equity for the respective period. Effective borrowing costs equals GAAP interest expense excluding the amortization of accumulated other comprehensive loss on interest rate swaps de-designated as cash flow hedges on June 30, 2013 plus net periodic interest costs on derivative instruments (including accrued amounts) which are not already included in GAAP interest expense. Effective borrowing rate equals annualized cost of funds calculated on a GAAP basis, less the effect of amortization of de-designated cash flow hedges and plus the effect of net periodic interest costs of derivative instruments. Adjusted net interest spread equals average annualized yields on investments less effective borrowing rates. Schedules reconciling these non-GAAP financial measures to GAAP are provided as a supplement to this release.
#
#
#

7

DYNEX CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share and per share data)
 
December 31, 2014
 
December 31, 2013
ASSETS
(unaudited)
 
 
Mortgage-backed securities
$
3,516,239

 
$
4,018,161

Mortgage loans held for investment, net
39,700

 
55,423

Investment in limited partnership
4,000

 
—

Cash and cash equivalents
43,944

 
69,330

Restricted cash
42,263

 
13,385

Derivative assets
5,727

 
18,488

Principal receivable on investments
7,420

 
12,999

Accrued interest receivable
21,157

 
21,703

Other assets, net
7,861

 
7,648

Total assets
$
3,688,311

 
$
4,217,137

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Liabilities:
 

 
 

Repurchase agreements
$
3,013,110

 
$
3,580,754

Payable for unsettled mortgage-backed securities
—

 
10,358

Non-recourse collateralized financing
10,786

 
12,914

Derivative liabilities
35,898

 
6,681

Accrued interest payable
1,947

 
2,548

Accrued dividends payable
15,622

 
16,601

Other liabilities
3,646

 
1,405

 Total liabilities
3,081,009

 
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; 54,739,111 and 54,310,484 shares issued and outstanding, respectively
547

 
543

Additional paid-in capital
763,935

 
761,550

Accumulated other comprehensive income (loss)
21,316

 
(33,816
)
Accumulated deficit
(288,154
)
 
(252,059
)
 Total shareholders' equity
607,302

 
585,876

Total liabilities and shareholders’ equity
$
3,688,311

 
$
4,217,137

 
 
 
 
Book value per common share
$
9.02

 
$
8.69






DYNEX CAPITAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (amounts in thousands except per share data)
 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
Interest income:
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
Mortgage-backed securities
$
23,777

 
$
27,802

 
$
102,881

 
$
123,629

Mortgage loans held for investment, net
509

 
792

 
2,763

 
3,503

 
24,286

 
28,594

 
105,644

 
127,132

Interest expense:
 
 
 
 
 
 
 
Repurchase agreements
5,634

 
8,242

 
25,821

 
38,102

Non-recourse collateralized financing
18

 
166

 
94

 
926

 
5,652

 
8,408

 
25,915

 
39,028

 
 
 
 
 
 
 
 
Net interest income
18,634

 
20,186

 
79,729

 
88,104

Provision for loan losses
—

 
—

 
—

 
(261
)
(Loss) gain on derivative instruments, net
(21,739
)
 
2,607

 
(53,393
)
 
(10,076
)
Gain on sale of investments, net
10,950

 
757

 
16,223

 
3,354

Fair value adjustments, net
45

 
(62
)
 
208

 
(652
)
Other (expense) income, net
(62
)
 
(103
)
 
1,046

 
658

General and administrative expenses:
 
 
 
 
 
 
 
Compensation and benefits
(2,277
)
 
(56
)
 
(9,509
)
 
(7,004
)
Other general and administrative
(1,878
)
 
(1,769
)
 
(6,498
)
 
(6,054
)
Net income
3,673

 
21,560

 
27,806

 
68,069

Preferred stock dividends
(2,294
)
 
(2,294
)
 
(9,176
)
 
(7,902
)
Net income to common shareholders
$
1,379

 
$
19,266

 
$
18,630

 
$
60,167

 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Change in fair value of available-for-sale investments
$
14,356

 
$
(1,306
)
 
$
64,567

 
$
(113,343
)
Reclassification adjustment for gain on sale of investments, net
(10,950
)
 
(757
)
 
(16,223
)
 
(3,354
)
Change in fair value of cash flow hedges
—

 
—

 
—

 
16,381

Reclassification adjustment for cash flow hedges (including de-designated hedges)
1,449

 
2,610

 
6,788

 
13,989

Total other comprehensive income (loss)
4,855

 
547

 
55,132

 
(86,327
)
Comprehensive income (loss) to common shareholders
$
6,234

 
$
19,813

 
$
73,762

 
$
(26,160
)
 
 
 
 
 
 
 
 
Net income per common share: basic and diluted
$
0.03

 
$
0.35

 
$
0.34

 
$
1.10

Weighted average common shares: basic and diluted
54,736

 
54,409

 
54,701

 
54,648




DYNEX CAPITAL, INC.
RECONCILIATIONS OF GAAP NET INCOME TO COMMON SHAREHOLDERS
TO CORE NET OPERATING INCOME TO COMMON SHAREHOLDERS
(UNAUDITED)
 ($ in thousands except per share data)
 
Three Months Ended
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
GAAP net income to common shareholders
$
1,379

 
$
28,572

 
$
19,266

Amortization of de-designated cash flow hedges (1)
1,449

 
1,442

 
2,609

Change in fair value of derivative instruments, net
20,675

 
(7,113
)
 
(5,636
)
Gain on sale of investments, net
(10,950
)
 
(9,057
)
 
(757
)
Fair value adjustments, net
(45
)
 
(42
)
 
62

Core net operating income to common shareholders
$
12,508

 
$
13,802

 
$
15,544


 
 
 
 
 
Core net operating income per common share
$
0.23

 
$
0.25

 
$
0.29

Average common equity during the period
$
501,553

 
$
503,861

 
$
477,432

ROAE, calculated using annualized GAAP net income
1.1
%
 
22.7
%
 
16.1
%
Adjusted ROAE, calculated using annualized core net operating income
10.1
%
 
11.0
%
 
13.0
%
 
Year Ended
 
December 31, 2014
 
December 31, 2013
GAAP net income to common shareholders
$
18,630

 
$
60,167

Amortization of de-designated cash flow hedges (1)
6,788

 
5,193

Change in fair value of derivative instruments, net
45,175

 
1,128

Gain on sale of investments, net
(16,223
)
 
(3,354
)
Fair value adjustments, net
(208
)
 
652

Core net operating income to common shareholders
$
54,162

 
$
63,786

 
 
 
 
Core net operating income per common share
$
0.99

 
$
1.17

Average common equity during the period
$
497,081

 
$
522,432

ROAE, calculated using GAAP net income
3.7
%
 
11.5
%
Adjusted ROAE, calculated using core net operating income
10.9
%
 
12.2
%
(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.




















DYNEX CAPITAL, INC.
RECONCILIATION OF GAAP INTEREST EXPENSE TO EFFECTIVE BORROWING COSTS
AND OF GAAP NET INTEREST SPREAD TO ADJUSTED NET INTEREST SPREAD
(UNAUDITED)
 ($ in thousands)

 
Three Months Ended
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
Amount
 
Yield/Rate
 
Amount
 
Yield/Rate
 
Amount
 
Yield/Rate
GAAP interest income
$
24,286

 
2.64
 %
 
$
26,000

 
2.73
 %
 
$
28,594

 
2.72
 %
GAAP interest expense/annualized cost of funds (1)
5,652

 
0.72
 %
 
6,058

 
0.70
 %
 
8,408

 
0.90
 %
Net interest income/spread
18,634

 
1.92
 %
 
19,942

 
2.03
 %
 
20,186

 
1.82
 %
 
 
 
 
 
 
 
 
 
 
 
 
GAAP interest expense/annualized cost of funds (1)
$
5,652

 
0.72
 %
 
$
6,058

 
0.70
 %
 
$
8,408

 
0.90
 %
Amortization of de-designated cash flow hedges (2)
(1,449
)
 
(0.19
)%
 
(1,442
)
 
(0.17
)%
 
(2,609
)
 
(0.28
)%
Net periodic interest costs of derivative instruments
1,064

 
0.14
 %
 
2,271

 
0.27
 %
 
3,029

 
0.33
 %
Effective borrowing costs/rate
5,267

 
0.67
 %
 
6,887

 
0.80
 %
 
8,828

 
0.95
 %
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted net interest income/spread
$
19,019

 
1.97
 %
 
$
19,113

 
1.93
 %
 
$
19,766

 
1.77
 %

 
Year Ended
 
December 31, 2014
 
December 31, 2013
 
Amount
 
Yield/Rate
 
Amount
 
Yield/Rate
GAAP interest income
$
105,644

 
2.76
 %
 
$
127,132

 
2.96
 %
GAAP interest expense/annualized cost of funds (1)
25,915

 
0.76
 %
 
39,028

 
1.01
 %
Net interest income/spread
79,729

 
2.00
 %
 
88,104

 
1.95
 %
 
 
 
 
 
 
 
 
GAAP interest expense/annualized cost of funds (1)
$
25,915

 
0.76
 %
 
$
39,028

 
1.01
 %
Amortization of de-designated cash flow hedges (2)
(6,788
)
 
(0.20
)%
 
(5,193
)
 
(0.15
)%
Net periodic interest costs of derivative instruments
8,218

 
0.25
 %
 
8,948

 
0.24
 %
Effective borrowing costs/rate
27,345

 
0.81
 %
 
42,783

 
1.10
 %
 
 
 
 
 
 
 
 
Adjusted net interest income/spread
$
78,299

 
1.95
 %
 
$
84,349

 
1.86
 %
(1)
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.
(2)
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.