Dynex Capital, Inc. (NYSE:DX) reported its fourth quarter and full year 2016 results today. As previously announced, the Company's quarterly conference call to discuss these results is today at 9:00 a.m. Eastern Time and may be accessed using conference ID 61035498 via telephone in the U.S. at 1-866-392-3507 (internationally at 1-614-999-9383) or by live webcast which includes a slide presentation, the link for which is provided under “Investor Center” on the Company's website (www.dynexcapital.com).
Fourth Quarter 2016 Highlights
- Comprehensive loss of $(0.37) per common share comprised of net income to common shareholders of $1.36 per common share and other comprehensive loss of $(1.73) per common share
- Core net operating income, a non-GAAP measure, of $0.20 per common share
- Net interest spread of 1.84% and adjusted net interest spread, a non-GAAP measure, of 1.81%
- Book value per common share of $7.18 at December 31, 2016, a decrease of $(0.58) from September 30, 2016 book value per common share of $7.76
- Leverage of 6.3x shareholders’ equity at December 31, 2016 versus 5.8x shareholders’ equity at September 30, 2016
- Dividend declared of $0.21 per common share
Full Year 2016 Highlights
- Comprehensive income of $0.29 per common share comprised of net income to common shareholders of $0.69 per common share and other comprehensive loss of $(0.40) per common share
- Core net operating income, a non-GAAP measure, of $0.83 per common share
- Net interest spread of 1.97% and adjusted net interest spread, a non-GAAP measure, of 1.88%
Fourth Quarter 2016 Earnings Summary
Comprehensive loss to common shareholders was $(18.4) million for the fourth quarter of 2016 versus comprehensive income to common shareholders of $13.1 million for the third quarter of 2016. Comprehensive loss to common shareholders for the fourth quarter of 2016, which includes net income to common shareholders of $66.8 million and other comprehensive loss to common shareholders of $(85.2) million, consisted primarily of the following:
- net interest income from investments of $16.1 million versus $15.1 million for the third quarter
- gain on derivative instruments, net of $56.5 million versus $2.4 million for the third quarter, and;
- an unrealized loss on MBS of $(85.1) million versus an unrealized gain of $0.8 million for the third quarter.
The increase in net interest income of $1.0 million for the fourth quarter of 2016 from the third quarter is comprised of an increase of $1.7 million in interest income partially offset by an increase of $0.7 million in interest expense. The increase in interest income during the quarter included $1.0 million from amortization adjustments and net prepayment penalty income received on CMBS IO, $0.4 million on CMBS primarily from discount accretion on a legacy non-Agency CMBS that prepaid, and a net $0.2 million from a larger average balance of MBS. Partially offsetting the increase in interest income, interest expense increased $0.7 million primarily due to higher borrowing rates on repurchase agreements as a result of short-term interest rates increasing during the fourth quarter of 2016.
Net gain on derivative instruments increased $54.1 million for the fourth quarter of 2016 compared to the third quarter of 2016 primarily due to changes in fair value of derivative instruments as a result of increasing interest rates, particularly between the 5-10 year maturity points of the curve during the fourth quarter. The increase in interest rates was also the primary driver of the unrealized loss on MBS of $(85.1) million, which was partially offset by tighter credit spreads across the majority of the Company's portfolio.
Core net operating income to common shareholders, a non-GAAP measure, was $10.0 million for the fourth quarter of 2016, essentially unchanged from the previous quarter. Core net operating income excludes the change in fair value of derivative instruments included in GAAP net income and the unrealized loss on MBS included in other comprehensive loss. For more information see “Reconciliations of GAAP Measures to Non-GAAP Measures” in this release.
Book Value Per Common Share
The increase in interest rates during the fourth quarter of 2016 was also the primary driver of the decline of $(0.58) in the Company's book value per common share to $7.18 as of December 31, 2016. The Company estimates that the net impact of increasing interest rates on the fair value of MBS and derivatives on book value per common share was $(0.78) per common share, partially offset by an estimated benefit of approximately $0.20 per common share from tighter credit spreads. Economic return on book value was (4.8)% for the fourth quarter of 2016 and 4.0% for the full year. Economic return on book value is calculated by dividing the sum of dividends declared per common share and the change in book value per common share for the respective period divided by beginning book value per common share.
Investments and Related Financing
Below is a summary of the activity in the Company's MBS portfolio during the fourth quarter of 2016:
| ($ in thousands) | RMBS | CMBS | CMBS IO | Total | |||||||||||||
| Balance at September 30, 2016 | $ | 1,339,268 | $ | 1,027,976 | $ | 743,223 | $ | 3,110,467 | |||||||||
| Purchases | — | 278,384 | 59,846 | 338,230 | |||||||||||||
| Principal payments | (90,541 | ) | (22,691 | ) | — | (113,232 | ) | ||||||||||
| Sales | — | — | — | — | |||||||||||||
| Net premium amortization | (4,079 | ) | (1,501 | ) | (32,714 | ) | (38,294 | ) | |||||||||
| Unrealized loss | (9,881 | ) | (59,397 | ) | (15,809 | ) | (85,087 | ) | |||||||||
| Balance at December 31, 2016 | $ | 1,234,767 | $ | 1,222,771 | $ | 754,546 | $ | 3,212,084 | |||||||||
The Company has been preserving capital in lieu of reinvestment throughout most of 2016. During the fourth quarter of 2016, however, the Company purchased CMBS and CMBS IO as yields on available investments and risk adjusted returns improved relative to prior quarters.
The following table presents detailed information for the Company's effective yield:
| Three Months Ended | |||||||||||||||||
| December 31, 2016 | September 30, 2016 | ||||||||||||||||
| ($ in thousands) |
Average |
Effective |
Average |
Effective | |||||||||||||
| RMBS | $ | 1,289,139 | 1.84 | % | $ | 1,390,401 | 1.85 | % | |||||||||
| CMBS | 1,115,835 | 3.08 | % | 974,240 | 3.17 | % | |||||||||||
| CMBS IO | 741,577 | 3.92 | % | 724,859 | 3.88 | % | |||||||||||
| MBS effective yield: | $ | 3,146,551 | 2.77 | % | $ | 3,089,500 | 2.75 | % | |||||||||
| Other investments: | 20,047 | 3.78 | % | 21,384 | 3.84 | % | |||||||||||
| Total effective yield: | $ | 3,166,598 | 2.78 | % | $ | 3,110,884 | 2.75 | % | |||||||||
Effective yield on investments increased to 2.78% for the fourth quarter of 2016 compared to 2.75% for the previous quarter primarily due to the decreased premium amortization and increased prepayment penalty compensation mentioned previously.
The following table presents the Company's financing balances and average rates by the type of security pledged as collateral as of and for the periods indicated:
| As of December 31, 2016 | As of September 30, 2016 | |||||||||||||
| Collateral Type | Balance |
Weighted
Average Rate | Balance |
Weighted
Average Rate | ||||||||||
| ($ in thousands) | ||||||||||||||
| Agency RMBS | $ | 1,157,302 | 0.82 | % | $ | 1,156,635 | 0.70 | % | ||||||
| Non-Agency RMBS | 26,149 | 1.98 | % | 38,613 | 1.88 | % | ||||||||
| Agency CMBS | 1,005,726 | 0.82 | % | 594,661 | 0.69 | % | ||||||||
| Non-Agency CMBS | 66,881 | 1.63 | % | 69,687 | 1.50 | % | ||||||||
| Agency CMBS IO | 346,892 | 1.57 | % | 322,632 | 1.38 | % | ||||||||
| Non-Agency CMBS IO | 291,199 | 1.67 | % | 290,626 | 1.45 | % | ||||||||
| Securitization financing bond | 4,803 | 2.00 | % | 5,424 | 1.86 | % | ||||||||
| Total repurchase agreement financing | $ | 2,898,952 | 1.03 | % | $ | 2,478,278 | 0.91 | % | ||||||
| FHLB advances collateralized with Agency CMBS | $ | — | — | % | $ | 263,000 | 0.51 | % | ||||||
| Three Months Ended December 31, 2016 | Three Months Ended September 30, 2016 | |||||||||||||
| Collateral Type | Average Balance |
Weighted
Average Rate | Average Balance |
Weighted
Average Rate | ||||||||||
| ($ in thousands) | ||||||||||||||
| Agency RMBS | $ | 1,156,147 | 0.78 | % | $ | 1,218,852 | 0.67 | % | ||||||
| Non-Agency RMBS | 29,653 | 1.90 | % | 42,359 | 1.85 | % | ||||||||
| Agency CMBS | 884,786 | 0.75 | % | 564,119 | 0.68 | % | ||||||||
| Non-Agency CMBS | 68,257 | 1.53 | % | 89,221 | 1.43 | % | ||||||||
| Agency CMBS IO | 335,630 | 1.41 | % | 328,644 | 1.34 | % | ||||||||
| Non-Agency CMBS IO | 289,266 | 1.49 | % | 287,608 | 1.42 | % | ||||||||
| Securitization financing bond | 5,030 | 1.91 | % | 5,760 | 1.84 | % | ||||||||
| Total repurchase agreement financing | 2,768,769 | 0.95 | % | 2,536,563 | 0.89 | % | ||||||||
| Other financing (1) | 64,101 | 0.59 | % | 270,385 | 0.53 | % | ||||||||
| Total average liabilities and cost of funds | $ | 2,832,870 | 0.94 | % | $ | 2,806,948 | 0.85 | % | ||||||
(1) Other financing includes FHLB advances collateralized with Agency CMBS and non-recourse collateralized financing collateralized with a portion of the mortgage loans held for investment, net on the Company's consolidated balance sheet.
The Company's cost of funds increased 9 basis points for the fourth quarter of 2016 to 0.94% compared to 0.85% for the third quarter of 2016 primarily as a result of the increase in short-term interest rates during the fourth quarter. The increase of 9 basis points in the Company's cost of funds net of the increase in effective yield of 3 basis points resulted in a net interest spread decrease of 6 basis points to 1.84% for the fourth quarter of 2016 from 1.90% for the third quarter of 2016.
Hedging Activities
The following table summarizes certain information with respect to the Company's derivative instruments at December 31, 2016:
| Effective Period |
Weighted Average |
Weighted Average | |||||
| ($ in thousands) | |||||||
| 2017 | $ | 198,110 | 0.52 | % | |||
| 2018 | 1,712,466 | 1.79 | % | ||||
| 2019 | 1,654,164 | 1.83 | % | ||||
| 2020 | 1,377,391 | 2.11 | % | ||||
| 2021 | 1,509,726 | 2.26 | % | ||||
| 2022 | 1,253,425 | 2.52 | % | ||||
| 2023 | 1,250,000 | 2.52 | % | ||||
| 2024 | 1,257,104 | 2.52 | % | ||||
| 2025 | 845,342 | 2.47 | % | ||||
| 2026 | 491,370 | 2.43 | % | ||||
(1) Includes pay-fixed interest rate swaps, net of receive-fixed interest rate swaps.
During the fourth quarter of 2016, the Company terminated all of its 3-month Eurodollar futures with a combined notional balance of $6.3 billion and added a net $2.1 billion notional in forward-starting interest rate swaps at a weighted average pay-fixed rate of 2.03% to mitigate anticipated increases in interest rates from 2018 through 2025. Subsequent to December 31, 2016, the Company has added an additional $1.3 billion notional in current pay-fixed interest rate swaps with a weighted average rate of 1.27% and a term of one year.
The following table details the components of the gain on derivative instruments, net recognized in the consolidated statement of comprehensive income for the fourth quarter of 2016:
| ($ in thousands) |
Change in Fair |
Periodic Interest
Costs (1) |
Gain (Loss) | |||||||||
| Receive-fixed interest rate swaps | $ | (9,848 | ) | $ | 1,063 | $ | (8,785 | ) | ||||
| Pay-fixed interest rate swaps | 57,807 | (1,202 | ) | 56,605 | ||||||||
| Eurodollar futures | 8,726 | — | 8,726 | |||||||||
| Total | $ | 56,685 | $ | (139 | ) | $ | 56,546 | |||||
(1) Amounts represent interest earned or incurred related to interest rate swaps effective during the quarter.
The fair value of derivative instruments increased significantly during the fourth quarter of 2016 as a result of increasing interest rates as mentioned previously. Of the $56.7 million change in fair value, $8.7 million is related to the $6.3 billion notional of Eurodollar futures that were terminated during the quarter at a termination value of $33.9 million. Periodic interest costs for the fourth quarter of 2016 were relatively flat compared to the prior quarter as the average notional amount of net current pay-fixed interest rate swaps of $305.0 million outstanding during the fourth quarter of 2016 at an average net pay-fixed rate of 0.64% remained unchanged from the prior quarter.
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, CMBS, and CMBS IO. Additional information about Dynex Capital, Inc. is available at www.dynexcapital.com.
Use of Non-GAAP Financial Measures
In addition to the Company's operating results presented in accordance with GAAP, this release includes certain non-GAAP financial measures including core net operating income to common shareholders (including per common share), adjusted interest expense, adjusted cost of funds, adjusted net interest income, and adjusted net interest spread. Schedules reconciling these non-GAAP financial measures to GAAP are provided as a supplement to this release. Management uses core net operating income (including per common share) as an estimate of the net interest earnings from our investments after operating expenses. In connection with core net operating income, management uses adjusted interest expense, adjusted cost of funds, adjusted net interest income, and adjusted net interest spread because management considers net periodic interest costs related to the Company's derivative instruments as an additional cost of using repurchase agreements to finance investments. Because these measures are used in the Company's internal analysis of financial and operating performance, management believes that they provide greater transparency to our investors of management's view of our economic performance. 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 even though peer companies may present non-GAAP measures on a different basis than the Company's. 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 its non-GAAP measures may not be comparable to other similarly-titled measures of other companies.
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, 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 regulatory and monetary policy, the impact of regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and ongoing financial institution regulatory reform efforts, 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 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, 2015, and other reports filed with and furnished to the Securities and Exchange Commission.
DYNEX CAPITAL, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(amounts in thousands except share and per share data) | ||||||||
| December 31, 2016 | December 31, 2015 | |||||||
| ASSETS | (unaudited) | |||||||
| Mortgage-backed securities | $ | 3,212,084 | $ | 3,493,701 | ||||
| Mortgage loans held for investment, net | 19,036 | 24,145 | ||||||
| Investment in limited partnership | — | 10,835 | ||||||
| Investment in FHLB stock | 9 | 11,475 | ||||||
| Cash and cash equivalents | 74,120 | 33,935 | ||||||
| Restricted cash | 24,769 | 51,190 | ||||||
| Derivative assets | 28,534 | 7,835 | ||||||
| Principal receivable on investments | 11,978 | 6,193 | ||||||
| Accrued interest receivable | 20,396 | 22,764 | ||||||
| Other assets, net | 6,805 | 7,975 | ||||||
| Total assets | $ | 3,397,731 | $ | 3,670,048 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Repurchase agreements | $ | 2,898,952 | $ | 2,589,420 | ||||
| FHLB advances | — | 520,000 | ||||||
| Non-recourse collateralized financing | 6,440 | 8,442 | ||||||
| Derivative liabilities | 6,922 | 41,205 | ||||||
| Accrued interest payable | 3,156 | 1,743 | ||||||
| Accrued dividends payable | 12,268 | 13,709 | ||||||
| Other liabilities | 2,809 | 3,504 | ||||||
| Total liabilities | 2,930,547 | 3,178,023 | ||||||
| Shareholders’ equity: | ||||||||
Preferred stock, par value $.01 per share; 50,000,000 shares
authorized; | $ | 110,005 | $ | 109,658 | ||||
Common stock, par value $.01 per share, 200,000,000 shares
authorized; | 492 | 490 | ||||||
| Additional paid-in capital | 727,369 | 725,358 | ||||||
| Accumulated other comprehensive loss | (32,609 | ) | (12,768 | ) | ||||
| Accumulated deficit | (338,073 | ) | (330,713 | ) | ||||
| Total shareholders' equity | 467,184 | 492,025 | ||||||
| Total liabilities and shareholders’ equity | $ | 3,397,731 | $ | 3,670,048 | ||||
| Book value per common share | $ | 7.18 | $ | 7.71 | ||||
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, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||
| Interest income | $ | 22,858 | $ | 25,522 | $ | 91,898 | $ | 100,244 | ||||||||
| Interest expense | 6,753 | 5,833 | 25,231 | 22,605 | ||||||||||||
| Net interest income | 16,105 | 19,689 | 66,667 | 77,639 | ||||||||||||
| Gain (loss) on derivative instruments, net | 56,546 | 17,854 | (5,606 | ) | (43,128 | ) | ||||||||||
| Loss on sale of investments, net | — | (908 | ) | (4,238 | ) | (978 | ) | |||||||||
| Fair value adjustments, net | 17 | (6 | ) | 103 | 69 | |||||||||||
| Other (expense) income, net | (18 | ) | 180 | 880 | 610 | |||||||||||
| General and administrative expenses: | ||||||||||||||||
| Compensation and benefits | (1,720 | ) | (2,308 | ) | (7,550 | ) | (9,103 | ) | ||||||||
| Other general and administrative | (1,869 | ) | (1,970 | ) | (7,157 | ) | (8,565 | ) | ||||||||
| Net income | 69,061 | 32,531 | 43,099 | 16,544 | ||||||||||||
| Preferred stock dividends | (2,303 | ) | (2,294 | ) | (9,185 | ) | (9,176 | ) | ||||||||
| Net income to common shareholders | $ | 66,758 | $ | 30,237 | $ | 33,914 | $ | 7,368 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Change in net unrealized gain on available-for-sale investments | $ | (85,087 | ) | $ | (46,512 | ) | $ | (23,828 | ) | $ | (38,561 | ) | ||||
Reclassification adjustment for loss on sale of investments, net | — | 908 | 4,238 | 978 | ||||||||||||
| Reclassification adjustment for de-designated cash flow hedges | (99 | ) | 727 | (251 | ) | 3,499 | ||||||||||
| Total other comprehensive loss | (85,186 | ) | (44,877 | ) | (19,841 | ) | (34,084 | ) | ||||||||
| Comprehensive (loss) income to common shareholders | $ | (18,428 | ) | $ | (14,640 | ) | $ | 14,073 | $ | (26,716 | ) | |||||
| Net income per common share-basic and diluted | $ | 1.36 | $ | 0.61 | $ | 0.69 | $ | 0.14 | ||||||||
| Weighted average common shares | 49,151 | 49,299 | 49,114 | 52,847 | ||||||||||||
DYNEX CAPITAL, INC. | ||||||||||||||||||||
KEY FINANCIAL MEASURES | ||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||
($ in thousands except per share data) | ||||||||||||||||||||
| 4Q2016 | 3Q2016 | 2Q2016 | 1Q2016 | 4Q2015 | ||||||||||||||||
| Net income (loss) per common share | $ | 1.36 | $ | 0.25 | $ | (0.11 | ) | $ | (0.81 | ) | $ | 0.61 | ||||||||
| Core net operating income per common share (1) | $ | 0.20 | $ | 0.20 | $ | 0.21 | $ | 0.22 | $ | 0.25 | ||||||||||
| Comprehensive (loss) income per common share | $ | (0.37 | ) | $ | 0.27 | $ | 0.35 | $ | 0.04 | $ | (0.30 | ) | ||||||||
| Dividends per common share | $ | 0.21 | $ | 0.21 | $ | 0.21 | $ | 0.21 | $ | 0.24 | ||||||||||
| Book value per common share, end of period | $ | 7.18 | $ | 7.76 | $ | 7.69 | $ | 7.54 | $ | 7.71 | ||||||||||
| Leverage at period end (2) | 6.3 | x | 5.8 | x | 6.1 | x | 6.4 | x | 6.5 | x | ||||||||||
| Average interest earning assets | $ | 3,166,598 | $ | 3,110,884 | $ | 3,242,413 | $ | 3,429,875 | $ | 3,598,748 | ||||||||||
| Average interest bearing liabilities | $ | 2,832,870 | $ | 2,806,948 | $ | 2,916,432 | $ | 3,095,490 | $ | 3,237,574 | ||||||||||
| Net interest income | $ | 16,105 | $ | 15,067 | $ | 16,716 | $ | 18,779 | $ | 19,689 | ||||||||||
| Adjusted net interest income (1) | $ | 15,866 | $ | 14,813 | $ | 16,150 | $ | 17,126 | $ | 19,093 | ||||||||||
| Effective yield by investment type: | ||||||||||||||||||||
| RMBS | 1.84 | % | 1.85 | % | 1.90 | % | 1.91 | % | 1.91 | % | ||||||||||
| CMBS | 3.08 | % | 3.17 | % | 3.28 | % | 3.33 | % | 3.19 | % | ||||||||||
| CMBS IO | 3.92 | % | 3.88 | % | 3.83 | % | 3.85 | % | 3.90 | % | ||||||||||
| Mortgage loans held for investment | 3.78 | % | 3.84 | % | 3.80 | % | 3.82 | % | 3.96 | % | ||||||||||
| Effective yield-all investments | 2.78 | % | 2.75 | % | 2.77 | % | 2.78 | % | 2.74 | % | ||||||||||
| Cost of funds (3) | 0.94 | % | 0.85 | % | 0.83 | % | 0.81 | % | 0.70 | % | ||||||||||
| Net interest spread | 1.84 | % | 1.90 | % | 1.94 | % | 1.97 | % | 2.04 | % | ||||||||||
| Adjusted cost of funds (1) | 0.97 | % | 0.88 | % | 0.90 | % | 1.02 | % | 0.78 | % | ||||||||||
| Adjusted net interest spread (1) | 1.81 | % | 1.87 | % | 1.87 | % | 1.76 | % | 1.96 | % | ||||||||||
| CPR for Agency RMBS (4) | 19.3 | % | 18.9 | % | 17.4 | % | 13.2 | % | 13.5 | % | ||||||||||
(1) Non-GAAP financial measures are reconciled in the supplement to this release.
(2) Leverage is calculated by dividing total liabilities by total shareholders' equity.
(3) Percentages shown are based on annualized interest expense amounts divided by average interest bearing liabilities.
(4) Represents the 3-month average constant prepayment rate ("CPR").
DYNEX CAPITAL, INC. | |||||||||||||||||||
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES | |||||||||||||||||||
(UNAUDITED) | |||||||||||||||||||
($ in thousands except per share data) | |||||||||||||||||||
| Three Months Ended | |||||||||||||||||||
December 31, | September 30, | June 30, 2016 | March 31, | December 31, | |||||||||||||||
| GAAP net income (loss) to common shareholders | $ | 66,758 | $ | 12,406 | $ | (5,525 | ) | $ | (39,725 | ) | $ | 30,237 | |||||||
| Less: | |||||||||||||||||||
| (Accretion) amortization of de-designated cash flow hedges (1) | (99 | ) | (99 | ) | (80 | ) | 27 | 727 | |||||||||||
| Change in fair value of derivative instruments, net (2) | (56,686 | ) | (2,564 | ) | 15,811 | 46,584 | (19,177 | ) | |||||||||||
| Loss on sale of investments, net | — | — | 297 | 3,941 | 908 | ||||||||||||||
| Fair value adjustments, net | (17 | ) | (34 | ) | (28 | ) | (24 | ) | 6 | ||||||||||
| Core net operating income to common shareholders | $ | 9,956 | $ | 9,709 | $ | 10,475 | $ | 10,803 | $ | 12,701 | |||||||||
| Weighted average common shares | 49,151 | 49,147 | 49,119 | 49,041 | 49,299 | ||||||||||||||
| Core net operating income per common share | $ | 0.20 | $ | 0.20 | $ | 0.21 | $ | 0.22 | $ | 0.25 | |||||||||
| Year Ended | |||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||
| GAAP net income to common shareholders | $ | 33,914 | $ | 7,368 | |||||||||||||||
| Less: | |||||||||||||||||||
| (Accretion) amortization of de-designated cash flow hedges (1) | (251 | ) | 3,499 | ||||||||||||||||
| Change in fair value of derivative instruments, net (2) | 3,145 | 37,398 | |||||||||||||||||
| Loss on sale of investments, net | 4,238 | 978 | |||||||||||||||||
| Fair value adjustments, net | (103 | ) | (69 | ) | |||||||||||||||
| Core net operating income to common shareholders | $ | 40,943 | $ | 49,174 | |||||||||||||||
| Weighted average common shares | 49,114 | 52,847 | |||||||||||||||||
| Core net operating income per common share | $ | 0.83 | $ | 0.93 | |||||||||||||||
(1) Amount recorded as a portion of "interest expense" in accordance with GAAP related to the amortization (accretion) 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) Amount includes any realized gains (losses) recognized during the period presented and excludes net periodic interest costs of derivative instruments.
DYNEX CAPITAL, INC. | |||||||||||||||||||||
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES | |||||||||||||||||||||
(UNAUDITED) | |||||||||||||||||||||
($ in thousands except per share data) | |||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||
| December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||||||
| Amount | Yield/Rate | Amount | Yield/Rate | Amount | Yield/Rate | ||||||||||||||||
| GAAP interest income | $ | 22,858 | 2.78 | % | $ | 21,135 | 2.75 | % | $ | 22,816 | 2.77 | % | |||||||||
| GAAP interest expense/cost of funds | 6,753 | 0.94 | % | 6,068 | 0.85 | % | 6,100 | 0.83 | % | ||||||||||||
| Net interest income/spread | 16,105 | 1.84 | % | 15,067 | 1.90 | % | 16,716 | 1.94 | % | ||||||||||||
| GAAP interest expense/cost of funds | $ | 6,753 | 0.94 | % | $ | 6,068 | 0.85 | % | $ | 6,100 | 0.83 | % | |||||||||
| Less: accretion of de-designated cash flow hedges (1) | 99 | 0.01 | % | 99 | 0.01 | % | 80 | — | % | ||||||||||||
| Add: net periodic interest costs of derivative instruments | 140 | 0.02 | % | 155 | 0.02 | % | 486 | 0.07 | % | ||||||||||||
| Adjusted interest expense/adjusted cost of funds | 6,992 | 0.97 | % | 6,322 | 0.88 | % | 6,666 | 0.90 | % | ||||||||||||
| Adjusted net interest income/spread | $ | 15,866 | 1.81 | % | $ | 14,813 | 1.87 | % | $ | 16,150 | 1.87 | % | |||||||||
| Three Months Ended | |||||||||||||||||||||
| March 31, 2016 | December 31, 2015 | ||||||||||||||||||||
| Amount | Yield/Rate | Amount | Yield/Rate | ||||||||||||||||||
| GAAP interest income | $ | 25,089 | 2.78 | % | $ | 25,522 | 2.74 | % | |||||||||||||
| GAAP interest expense/cost of funds | 6,310 | 0.81 | % | 5,833 | 0.70 | % | |||||||||||||||
| Net interest income/spread | 18,779 | 1.97 | % | 19,689 | 2.04 | % | |||||||||||||||
| GAAP interest expense/cost of funds | $ | 6,310 | 0.81 | % | $ | 5,833 | 0.70 | % | |||||||||||||
| Less: amortization of de-designated cash flow hedges (1) | (27 | ) | — | % | (727 | ) | (0.08 | )% | |||||||||||||
| Add: net periodic interest costs of derivative instruments | 1,680 | 0.21 | % | 1,323 | 0.16 | % | |||||||||||||||
| Adjusted interest expense/ adjusted cost of funds | 7,963 | 1.02 | % | 6,429 | 0.78 | % | |||||||||||||||
| Adjusted net interest income/spread | $ | 17,126 | 1.76 | % | $ | 19,093 | 1.96 | % | |||||||||||||
| Year Ended | |||||||||||||||||||||
| December 31, 2016 | December 31, 2015 | ||||||||||||||||||||
| GAAP interest income | $ | 91,898 | 2.82 | % | $ | 100,244 | 2.71 | % | |||||||||||||
| GAAP interest expense/cost of funds | 25,231 | 0.85 | % | 22,605 | 0.68 | % | |||||||||||||||
| Net interest income/spread | 66,667 | 1.97 | % | 77,639 | 2.03 | % | |||||||||||||||
| GAAP interest expense/cost of funds | $ | 25,231 | 0.85 | % | $ | 22,605 | 0.68 | % | |||||||||||||
| Less: accretion (amortization) of de-designated cash flow hedges (1) | 251 | 0.01 | % | (3,499 | ) | (0.11 | )% | ||||||||||||||
| Add: net periodic interest costs of derivative instruments | 2,461 | 0.08 | % | 5,730 | 0.18 | % | |||||||||||||||
| Adjusted interest expense/adjusted cost of funds | 27,943 | 0.94 | % | 24,836 | 0.75 | % | |||||||||||||||
| Adjusted net interest income/spread | $ | 63,955 | 1.88 | % | $ | 75,408 | 1.96 | % | |||||||||||||
(1) Amount recorded as a portion of "interest expense" in accordance with GAAP related to the accretion (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.
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Contacts:
Alison Griffin, 804-217-5897
