Dynex Capital, Inc. (NYSE:DX) Q3 2021 Earnings Conference Call October 27, 2021 10:00 AM ET Company Participants Alison Griffin - VP, IR Byron Boston - CEO & Co-Chief Information Officer Steve Benedetti - EVP, CFO & COO Smriti Popenoe - President & Co-Chief Investment Officer Conference Call Participants John Kolz - Credit Suisse Trevor Cranston - JMP Securities Mike Smith - KBW Eric Hagen - BTIG Jason Stewart - Jones Trading Christopher Nolan - Ladenburg Thalmann Operator Ladies and gentlemen, thank you fo ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited consolidated balance sheets, income statements, and cash flow statements for the period ended June 30, 2021 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $3.47 billion, driven by an increase in mortgage-backed securities and supported by a rise in shareholders' equity | Financial Metric | June 30, 2021 (unaudited, $s in thousands) | December 31, 2020 ($s in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$3,474,295** | **$3,095,435** | | Mortgage-backed securities, at fair value | $2,995,502 | $2,596,255 | | **Total Liabilities** | **$2,718,666** | **$2,461,982** | | Repurchase agreements | $2,321,043 | $2,437,163 | | Payable for purchases pending settlement | $350,854 | $5 | | **Total Shareholders' Equity** | **$755,629** | **$633,453** | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported a net loss of $45.7 million for Q2 2021, a significant reversal from the prior year due to losses on derivative instruments | Metric ($s in thousands except per share data) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $12,118 | $15,003 | $24,377 | $32,724 | | (Loss) gain on derivative instruments, net | $(52,940) | $(8,563) | $54,861 | $(204,130) | | Net (loss) income to common shareholders | $(45,682) | $191,585 | $66,701 | $85,351 | | Comprehensive (loss) income to common shareholders | $(31,412) | $26,538 | $15,815 | $(6,724) | | Net (loss) income per common share-basic | $(1.43) | $8.31 | $2.27 | $3.71 | | Dividends declared per common share | $0.39 | $0.43 | $0.78 | $0.88 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by $124.4 million in the first half of 2021, with positive cash flows from both operating and investing activities | Cash Flow Activity ($s in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $67,854 | $83,469 | | Net cash provided by investing activities | $74,578 | $1,448,425 | | Net cash used in financing activities | $(18,069) | $(1,459,337) | | **Net increase in cash** | **$124,363** | **$72,557** | [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, MBS portfolio composition, and extensive use of derivatives for hedging purposes - The company is an internally managed mortgage REIT that primarily invests on a leveraged basis in Agency mortgage-backed securities (MBS), including residential (RMBS), commercial (CMBS), and interest-only (IO) securities[19](index=19&type=chunk) - Effective January 1, 2021, the company elected the fair value option for all newly purchased MBS, with changes in fair value reported in net income[40](index=40&type=chunk) | MBS Portfolio Summary (June 30, 2021) | Fair Value ($s in thousands) | | :--- | :--- | | MBS designated as AFS | $1,947,316 | | MBS measured at fair value through net income | $1,048,186 | | **Total MBS** | **$2,995,502** | | Repurchase Agreements (June 30, 2021) | Amount ($s in thousands) | | :--- | :--- | | Balance Outstanding | $2,321,043 | | Weighted Average Rate | 0.21% | | WAVG Original Term to Maturity (days) | 106 | - The company uses U.S. Treasury futures, options on U.S. Treasury futures, swaptions, and TBA securities to mitigate interest rate risk on its book value[50](index=50&type=chunk)[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the impact of a flattening yield curve and wider MBS spreads on the company's financial performance and hedging strategy [Executive Overview](index=28&type=section&id=Executive%20Overview) A flattening yield curve and wider credit spreads led to a decline in book value, prompting strategic portfolio adjustments during the quarter - Market conditions in Q2 2021 were characterized by a **flattening yield curve and widening credit spreads** for Agency RMBS, driven by discussions of potential tapering by the Federal Reserve[126](index=126&type=chunk) - The company's **book value declined by $(1.32) per common share** during Q2, primarily due to hedge losses of $(93.8) million as the yield curve flattened[133](index=133&type=chunk) - Strategically, the company reduced its investment portfolio early in the quarter when spreads were tight, then re-leveraged later by investing **$68.3 million from ATM issuances** into lower coupon Agency RMBS[131](index=131&type=chunk) - The company's outlook is for rates to remain range-bound in the near term, but for the **10-year UST rate to move higher** over the next 6-12 months[136](index=136&type=chunk) [Financial Condition](index=32&type=section&id=Financial%20Condition) The company's $5.4 billion investment portfolio is heavily concentrated in Agency RMBS and is approximately 86% hedged against interest rate risk | Investment Portfolio Composition | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Agency RMBS | 89% | 84% | | Agency CMBS | 4% | 7% | | CMBS IO | 7% | 9% | - The Agency RMBS portfolio, including TBAs, totaled **$4.8 billion in fair value**, with a focus on lower coupon (2.0% and 2.5%) securities to mitigate prepayment risk[148](index=148&type=chunk)[149](index=149&type=chunk) - The CMBS IO portfolio is primarily composed of investment-grade securities, with the largest underlying property type exposures being **Retail (28.1%) and Office (21.7%)**[155](index=155&type=chunk)[160](index=160&type=chunk) - As of June 30, 2021, approximately **86% of the MBS portfolio** (including TBAs) was hedged using instruments like U.S. Treasury futures and interest rate swaptions, an increase from 62% at year-end 2020[162](index=162&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Derivative losses drove a comprehensive loss in Q2 2021, though adjusted net interest income increased due to favorable TBA dollar roll economics | Metric ($s in thousands) | Q2 2021 | Q1 2021 | | :--- | :--- | :--- | | Net interest income | $12,118 | $12,259 | | (Loss) gain on derivative instruments, net | $(52,940) | $107,801 | | Comprehensive (loss) income to common shareholders | $(31,412) | $47,227 | - **Adjusted net interest income increased** in Q2 2021 due to a 29% increase in the average investment in TBA securities, which benefited from favorable implied financing costs[174](index=174&type=chunk) | Metric ($s in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net interest income | $24,377 | $32,724 | | Gain (loss) on derivative instruments, net | $54,861 | $(204,130) | | Realized gain on sale of investments, net | $6,705 | $277,882 | [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) Liquid assets increased to $517.9 million and leverage rose to 6.7x, with the company remaining in full compliance with all debt covenants - **Liquid assets**, including unrestricted cash and unencumbered Agency securities, **increased to $517.9 million** as of June 30, 2021, from $415.3 million as of December 31, 2020[202](index=202&type=chunk) - **Leverage** (total liabilities plus TBA cost basis to shareholders' equity) **increased to 6.7x** as of June 30, 2021, compared to 6.3x at year-end 2020[202](index=202&type=chunk) - The company maintained repurchase agreements with **23 counterparties** and had no more than 5% of its equity at risk with any single counterparty as of June 30, 2021[205](index=205&type=chunk) - The company was in **full compliance with all financial and operating covenants** in its repurchase agreements as of June 30, 2021[205](index=205&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company details its exposure to interest rate, spread, prepayment, and credit risks, along with its corresponding mitigation strategies [Interest Rate Risk](index=51&type=section&id=Interest%20Rate%20Risk) The company's portfolio is positioned for a steeper yield curve, with a 50 basis point rate increase projected to decrease equity by 0.5% | Scenario (Instantaneous Parallel Shift) | Projected % Change in Shareholders' Equity (June 30, 2021) | | :--- | :--- | | -100 Basis Points | -13.5% | | -50 Basis Points | -2.4% | | +50 Basis Points | -0.5% | | +100 Basis Points | -1.8% | [Spread Risk](index=53&type=section&id=Spread%20Risk) A 10 basis point widening in market spreads is projected to decrease common equity by approximately 5.2%, a risk managed via asset selection | Scenario (Change in Market Spreads) | Projected % Change in Common Equity (June 30, 2021) | | :--- | :--- | | +10 Basis Points | -5.2% | | -10 Basis Points | +5.2% | [Prepayment, Credit, and Liquidity Risk](index=54&type=section&id=Prepayment,%20Credit,%20and%20Liquidity%20Risk) The company mitigates risks by focusing on low-coupon RMBS, Agency-guaranteed securities, and maintaining diverse counterparty relationships - To manage prepayment risk, approximately **85% of the company's capital in RMBS** is invested in securities with a coupon of 2.5% or lower[236](index=236&type=chunk) - Credit risk is mitigated by investing in Agency MBS with government-sponsored entity guarantees and **primarily AAA-rated senior tranches** of CMBS IO[238](index=238&type=chunk) - Liquidity risk from repurchase agreements and TBA contracts is managed by maintaining **diverse counterparty relationships** and ensuring sufficient liquidity[240](index=240&type=chunk)[242](index=242&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective as of the end of the quarter - Management concluded that **disclosure controls and procedures were effective** as of June 30, 2021[245](index=245&type=chunk) - **No material changes** were made to the internal control over financial reporting during the three months ended June 30, 2021[246](index=246&type=chunk) [PART II. OTHER INFORMATION](index=56&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material developments in ongoing litigation and has not recorded any contingent liability - There were **no material developments** in the ongoing Receiver Litigation during the quarter[248](index=248&type=chunk) - Management has determined that the **likelihood of loss is not probable**, and no contingent liability has been recorded[248](index=248&type=chunk) [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K - **No material changes** from the risk factors discussed in the 2020 Form 10-K were reported[249](index=249&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has an active stock repurchase program but made no repurchases during the quarter under the publicly announced plan - The company has a stock repurchase authorization of up to **$40 million for common stock** and **$40 million for Series C Preferred Stock**, valid through March 31, 2022[250](index=250&type=chunk) - **No shares were repurchased** under the plan during the three months ended June 30, 2021[252](index=252&type=chunk)[254](index=254&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including officer certifications and governance document amendments

Financial Data and Key Metrics Changes - The company reported a comprehensive loss of $0.98 per common share and a total economic return of minus $0.93 per common share, representing a decline of 4.6% [12] - Book value per share decreased by $1.32 or 6.6%, primarily due to economic losses on the investment portfolio of $48 million, driven by mortgage spread widening and a lower rate environment [13] - Total economic return year-to-date was 2.4%, with book value on June 30 at $18.75, relatively unchanged versus year-end [22] Business Line Data and Key Metrics Changes - Average interest-earning assets, including TBAs, increased to $4.8 billion from $4.3 billion, with interest-earning assets at quarter-end reaching $5.4 billion compared to $5.2 billion at the end of the last quarter [15] - Adjusted net interest income increased on an absolute dollar basis due to growth in the investment portfolio, but decreased on a per share basis due to new shares issued [16] - Adjusted net interest spread increased by 8 basis points to 195 basis points, driven by the company's TBA position and a modest decline in repo borrowing costs [17] Market Data and Key Metrics Changes - Agency RMBS prepayment speeds remained essentially unchanged at 19 CPR for the quarter compared to 18.6 CPR in the first quarter [18] - The company raised $68 million in new common equity through market offerings during the quarter, contributing $0.07 per common share to book value [18] Company Strategy and Development Direction - The company aims to generate a cash return between 8% to 10% while maintaining steady book value over time, using a disciplined, research-driven approach [10] - The management emphasizes liquidity with a balance sheet of high-quality assets and plans to take advantage of investment opportunities as they arise [34] - The company is positioned for a steeper yield curve and wider spreads, maintaining lower leverage and higher liquidity levels [34] Management's Comments on Operating Environment and Future Outlook - The management noted that the global economy is still evolving through the health crisis, and it will take time for the economic picture to become clear [25] - The company expects front-end rates to remain low close to zero through 2022, providing a solid base for generating returns [27] - The management remains cautious about potential whipsaw risks in rates and is prepared to adjust their hedging strategies accordingly [54] Other Important Information - The company has maintained a disciplined approach to capital management, which has cushioned book value fluctuations during periods of volatility [10] - The management highlighted the importance of patience in navigating the current market environment, emphasizing the need for a flexible mindset [20] Q&A Session Summary Question: What is the pacing of adding leverage? - The management indicated that they are comfortable with current leverage levels and will consider increasing it if additional spread widening occurs in the coming quarters [38] Question: How do you view the dollar roll market in light of potential Fed policy? - The management expressed confidence in the dollar roll market, noting strong financing rates and bank demand as key drivers [44] Question: What are your thoughts on MBS spreads and risks of additional widening? - The management acknowledged that spread widening has already occurred and expects an additional 10 to 15 basis points of widening, which could present buying opportunities [62] Question: Is there a possibility of a dividend supplement? - The management affirmed their comfort with the current dividend policy, emphasizing risk management and the goal of generating attractive total economic returns [66]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three months ended March 31, 2021, detailing the company's financial position, performance, and cash flows Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2,901,108 | $3,095,435 | | Mortgage-backed securities, at fair value | $2,380,373 | $2,596,255 | | Repurchase agreements | $2,032,089 | $2,437,163 | | Total Liabilities | $2,169,832 | $2,461,982 | | Total Shareholders' Equity | $731,276 | $633,453 | Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net Interest Income | $12,259 | $17,721 | | Gain (loss) on derivative instruments, net | $107,801 | $(195,567) | | Net Income (Loss) | $117,929 | $(98,479) | | Net income (loss) to common shareholders | $112,383 | $(106,234) | | Comprehensive income (loss) to common shareholders | $47,227 | $(33,262) | | Net income (loss) per common share-basic and diluted | $4.20 | $(4.63) | Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $30,189 | $43,981 | | Net cash provided by investing activities | $398,335 | $287,880 | | Net cash used in financing activities | $(360,768) | $(352,291) | [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) These notes detail the company's significant accounting policies, investment portfolio, financing, hedging activities, fair value measurements, and changes in shareholders' equity - The Company operates as an internally managed mortgage REIT, primarily investing in leveraged Agency and non-Agency mortgage-backed securities (MBS), including CMBS, RMBS, and CMBS IOs[23](index=23&type=chunk) - Effective January 1, 2021, the Company elected the fair value option for all new MBS, reporting fair value changes in net income to align with derivative accounting[44](index=44&type=chunk) MBS Portfolio by Fair Value (in thousands) | MBS Type | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Agency RMBS | $1,763,737 | $1,946,391 | | Agency CMBS | $249,617 | $258,550 | | CMBS IO | $365,876 | $390,039 | | Non-Agency Other | $1,143 | $1,275 | | **Total** | **$2,380,373** | **$2,596,255** | - During Q1 2021, the Company redeemed all remaining **2,788,330** shares of its 7.625% Series B Preferred Stock, incurring a **$3.0 million** redemption charge to net income available to common shareholders[108](index=108&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 performance, highlighting the positive impact of hedging in a rising interest rate environment, leading to comprehensive income and increased leverage due to TBA investments [Executive Overview](index=25&type=section&id=Executive%20Overview) In Q1 2021, the company's hedging strategy protected book value in a rising interest rate environment, resulting in **$47.2 million** comprehensive income and increased leverage to **6.9x** due to TBA investments - Comprehensive income to common shareholders for Q1 2021 was **$47.2 million**, or **$1.76 per common share**, primarily driven by hedging instrument gains that protected book value against rising interest rates[124](index=124&type=chunk) Non-GAAP Financial Highlights (in thousands, except per share data) | Metric | Q1 2021 | Q4 2020 | | :--- | :--- | :--- | | Core net operating income to common shareholders | $12,420 | $10,543 | | Core net operating income per common share | $0.46 | $0.45 | | Adjusted net interest income | $20,827 | $20,854 | - Leverage, including TBA long positions, increased to **6.9 times** shareholders' equity as of March 31, 2021, up from **6.3 times** at year-end 2020, primarily due to increased TBA investment[126](index=126&type=chunk) [Financial Condition](index=30&type=section&id=Financial%20Condition) As of March 31, 2021, the company's investment portfolio primarily comprised Agency RMBS, CMBS, and CMBS IOs, with increased TBA allocation, financed by repurchase agreements and **72%** hedged against interest rate risk Investment Portfolio Composition (including TBAs) | Investment Type | % of Portfolio (Mar 31, 2021) | % of Portfolio (Dec 31, 2020) | | :--- | :--- | :--- | | Agency RMBS | 82% | 81% | | Agency CMBS | 4% | 6% | | CMBS IO | 11% | 13% | | Non-Agency MBS | <1% | <1% | - The company increased investment in TBA securities due to lower implied financing rates for dollar roll transactions compared to repurchase agreement borrowings[139](index=139&type=chunk) - As of March 31, 2021, approximately **72%** of the MBS portfolio (including TBA securities) was hedged using U.S. Treasury futures, options, and swaptions, up from **62%** at year-end 2020[151](index=151&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) In Q1 2021, net interest income decreased, but adjusted net interest income remained stable, driven by a **$107.8 million** net gain on derivative instruments offsetting a **$65.2 million** fair value decline in AFS investments Net Interest Income Analysis (Q1 2021 vs Q4 2020, in thousands) | Metric | Q1 2021 | Q4 2020 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income (GAAP) | $12,259 | $14,416 | $(2,157) | | TBA Drop Income | $8,568 | $6,445 | $2,123 | | Adjusted Net Interest Income (Non-GAAP) | $20,827 | $20,854 | $(27) | Gain (Loss) on Derivative Instruments, Net (Q1 2021, in thousands) | Derivative Type | Gain / (Loss) | | :--- | :--- | | Interest rate swaptions | $57,763 | | U.S. Treasury futures | $95,647 | | Options on U.S. Treasury futures | $12,617 | | TBA dollar roll positions, net | $(58,226) | | **Total** | **$107,801** | - The fair value of investments declined, resulting in a **$65.2 million** unrealized loss in OCI for AFS securities and a **$1.0 million** loss in net income for fair value option securities[171](index=171&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity strengthened with liquid assets increasing to **$528.6 million**, while leverage rose to **6.9x** due to increased TBA investments, maintaining full compliance with all financial covenants - Liquid assets, including unrestricted cash and unencumbered Agency securities, increased to **$528.6 million** as of March 31, 2021, from **$415.3 million** as of December 31, 2020[178](index=178&type=chunk) - Leverage, including TBA long positions, was **6.9x** shareholders' equity as of March 31, 2021, up from **6.3x** at year-end 2020[178](index=178&type=chunk) - The company was in full compliance with all debt covenants as of March 31, 2021, with no material restrictions on financing flexibility[180](index=180&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, including interest rate, spread, prepayment, credit, and liquidity risks, and its strategies for managing them through investment selection and hedging Projected Sensitivity of Shareholders' Equity to Interest Rate Shifts (as of March 31, 2021) | Rate Shift (Basis Points) | % Change in Common Equity | | :--- | :--- | | -100 | -9.6% | | -50 | -1.4% | | +50 | -3.4% | | +100 | -9.1% | Projected Sensitivity of Shareholders' Equity to Market Spread Shifts (as of March 31, 2021) | Spread Shift (Basis Points) | % Change in Common Equity | | :--- | :--- | | -20/-50 | +10.5% | | -10 | +5.0% | | +10 | -5.0% | | +20/+50 | -10.5% | - Prepayment risk is managed by investing substantially in lower coupon RMBS (**83%** of capital in securities with a coupon of **2.5%** or lower) and in CMBS with prepayment protections[211](index=211&type=chunk) - Credit risk is mitigated by primarily investing in Agency MBS with government or GSE guarantees, and in senior, **AAA-rated** tranches of CMBS IO securities[213](index=213&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The principal executive and financial officers concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021[220](index=220&type=chunk) - No material changes occurred in internal control over financial reporting during Q1 2021[221](index=221&type=chunk) [PART II. OTHER INFORMATION](index=52&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) No material developments occurred in the 'Receiver Litigation' during the quarter, with management deeming a loss not probable and no other material legal proceedings pending - No material developments occurred in the previously disclosed 'Receiver Litigation' during the three months ended March 31, 2021[223](index=223&type=chunk) - Management believes the likelihood of loss is not probable and cannot be reasonably estimated, thus no contingent liability has been recorded[223](index=223&type=chunk) [Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to the risk factors previously disclosed in the Company's 2020 Annual Report on Form 10-K - No material changes from the risk factors discussed in the Company's 2020 Form 10-K[224](index=224&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board authorized a **$40 million** common stock and **$40 million** Series C Preferred Stock repurchase program, though no shares were repurchased in Q1 2021, except for **22,623** shares withheld for employee tax obligations - The Board of Directors authorized the repurchase of up to **$40 million** of common stock and **$40 million** of Series C Preferred Stock[225](index=225&type=chunk) - No shares were purchased under the publicly announced repurchase plan during the three months ended March 31, 2021[227](index=227&type=chunk)[228](index=228&type=chunk) [Defaults Upon Senior Securities](index=53&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - None[229](index=229&type=chunk) [Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported - None[230](index=230&type=chunk) [Other Information](index=53&type=section&id=Item%205.%20Other%20Information) No other material information was reported - None[231](index=231&type=chunk) [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, underwriting agreements, and Sarbanes-Oxley Act certifications - The report includes certifications from the principal executive and financial officers pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[233](index=233&type=chunk) - Underwriting agreements related to equity offerings in January and March 2021 are included by reference[233](index=233&type=chunk)

Dynex Capital, Inc. (NYSE:DX) Q1 2021 Earnings Conference Call April 28, 2021 10:00 PM ET Company Participants Alison Griffin - Vice President, Investor Relations Byron Boston - Chief Executive Officer and Co-Chief Investment Officer Smriti Popenoe - President and Co-Chief Investment Officer Stephen Benedetti - Executive Vice President, Chief Financial Officer, Chief Operating Officer Conference Call Participants Bose George - KBW Doug Harter - Credit Suisse Eric Hagen - BTIG Trevor Cranston - JMP Securitie ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) Dynex Capital, Inc. is an internally managed mortgage REIT primarily investing in Agency MBS, leveraging repurchase agreements and hedging with derivatives - The company is an internally managed mortgage REIT primarily investing in **Agency residential MBS (RMBS)**, **commercial MBS (CMBS)**, and **CMBS interest-only (IO) securities**, which are guaranteed by U.S. government-sponsored entities (GSEs)[11](index=11&type=chunk) - Financing is principally achieved through borrowings under **repurchase agreements**, with leverage levels adjusted based on market conditions and risk assessments[11](index=11&type=chunk)[23](index=23&type=chunk) - In 2020, the company shifted its hedging strategy from primarily using interest rate swaps to using **U.S. Treasury futures and options** due to significant market disruptions caused by the COVID-19 pandemic[27](index=27&type=chunk)[29](index=29&type=chunk) - As of December 31, 2020, the company had **19 employees**, with **53% being women or self-identified minorities**, and maintained a **0% voluntary turnover rate** for the preceding three years[59](index=59&type=chunk) Tax Characterization of Dividends Declared Per Share (2019-2020) | Dividend Type | Year | Ordinary | Capital Gain | Return of Capital | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | **Common** | 2020 | $ — | $ 1.66000 | $ — | $ 1.66000 | | | 2019 | $ 0.36723 | $ — | $ 1.64277 | $ 2.01000 | | **Preferred Series B** | 2020 | $ — | $ 1.90625 | $ — | $ 1.90625 | | | 2019 | $ 1.90625 | $ — | $ — | $ 1.90625 | | **Preferred Series C** | 2020 | $ — | $ 1.12150 | $ — | $ 1.12150 | | | 2019 | $ — | $ — | $ — | $ — | [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant investment, financing, regulatory, and operational risks, including market volatility, leverage, and REIT compliance - Investment risks include negative impacts on income and book value from fluctuations in market value, interest rates, and prepayment rates on MBS[72](index=72&type=chunk)[76](index=76&type=chunk) - Financing and hedging risks stem from the use of leverage through uncommitted, short-term repurchase agreements, which can lead to margin calls and liquidity issues, and the potential for hedging strategies to be ineffective[81](index=81&type=chunk)[83](index=83&type=chunk) - Regulatory risks involve the complex requirements to maintain REIT status, where failure could result in significant tax liabilities and debt defaults, alongside potential changes in tax legislation and regulation[88](index=88&type=chunk)[90](index=90&type=chunk)[99](index=99&type=chunk) - Other significant business risks include the continued adverse effects of the COVID-19 pandemic on market conditions, the replacement of LIBOR with an alternative reference rate, and potential cybersecurity incidents[100](index=100&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk) [Unresolved Staff Comments](index=27&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - There are no unresolved staff comments[106](index=106&type=chunk) [Properties](index=27&type=section&id=Item%202.%20Properties) The company does not own or lease any physical properties that are material to its operations - The Company does not own or lease any material physical properties[107](index=107&type=chunk) [Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) The DCI Litigation was dismissed, while the Receiver Litigation, concerning a cost-sharing agreement, remains pending with no probable material loss - The DCI Litigation against the Company was affirmed for dismissal by the Fifth Circuit Court of Appeals, and the matter is now considered closed[108](index=108&type=chunk) - In the separate Receiver Litigation, the court found the Company breached a cost-sharing agreement but also granted the Company's motion for summary judgment for its own claims of offset and recoupment, with the matter pending and both parties having submitted damage claims[108](index=108&type=chunk) - Management believes the likelihood of loss in the Receiver Litigation is not probable and the amount cannot be reasonably estimated; therefore, no contingent liability has been recorded[110](index=110&type=chunk) [Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's business - None[111](index=111&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under "DX", with a $40 million repurchase program authorized and $9.9 million raised via ATM in 2020 - The company's common stock is traded on the New York Stock Exchange under the symbol **"DX"**[114](index=114&type=chunk) - A stock repurchase program for up to **$40 million** of common stock is authorized through March 31, 2022, with no shares repurchased in the three months ended December 31, 2020[116](index=116&type=chunk) - During 2020, the company issued **553,364 shares** of common stock through its ATM program, raising **$9.9 million** in net proceeds[116](index=116&type=chunk) [Selected Financial Data](index=30&type=section&id=Item%206.%20Selected%20Financial%20Data) This section has been omitted pursuant to amendments to Regulation S-K Item 301 - The requirement to disclose selected financial data has been eliminated and is therefore omitted[118](index=118&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, Dynex Capital achieved a 15.2% total economic return, increasing book value to $19.08 per share through active portfolio management and strategic shifts - Generated a total economic return of **15.2%** for common shareholders in 2020, with book value per common share increasing by **$1.07** to **$19.08**[124](index=124&type=chunk) - Actively managed the portfolio by strategically selling approximately **38%** of its assets in early March 2020, realizing **$84.8 million** in gains, and later reinvesting to capture wider spreads[124](index=124&type=chunk) - The investment portfolio shifted from Agency CMBS to predominantly **Agency RMBS and TBA securities** to enhance liquidity and capture better risk-adjusted returns[132](index=132&type=chunk) - Leverage, including TBA positions, was **6.3x shareholders' equity** as of December 31, 2020[170](index=170&type=chunk) GAAP to Non-GAAP Reconciliation Summary (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | **Comprehensive income to common shareholders** | $66,472 | $43,950 | | **Core net operating income to common shareholders** | $44,763 | $49,267 | | **GAAP net interest income** | $63,853 | $56,057 | | **Adjusted net interest income** | $80,499 | $78,198 | [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate, spread, prepayment, credit, and liquidity risks through derivatives, investment strategies, and stress scenario monitoring - The primary market risks are interest rate, spread, prepayment, credit, liquidity, and reinvestment risks[191](index=191&type=chunk) Projected Change in Shareholders' Equity from Parallel Interest Rate Shifts (as of Dec 31, 2020) | Rate Shift (Basis Points) | Change in Equity | | :--- | :--- | | -100 | -5.1% | | -50 | +1.3% | | +50 | -1.7% | | +100 | -3.8% | Projected Change in Shareholders' Equity from Market Spread Shifts (as of Dec 31, 2020) | Spread Shift (Basis Points) | Change in Equity | | :--- | :--- | | +20/+50 | -9.5% | | +10 | -4.4% | | -10 | +4.4% | | -20/-50 | +9.5% | - Prepayment risk is managed by investing in lower coupon securities and specified pools where borrowers have disincentives to refinance; as of Dec 31, 2020, approximately **84% of capital in Agency RMBS** was in 2.0% and 2.5% coupons[204](index=204&type=chunk) - Liquidity risk arises from reliance on recourse repurchase agreements and TBA positions, managed by monitoring liquidity under various stress scenarios[208](index=208&type=chunk) [Financial Statements and Supplementary Data](index=55&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the consolidated financial statements, related notes, and the Reports of the Independent Registered Public Accounting Firm, included from page F-1 - The company's audited consolidated financial statements and supplementary data are included at the end of the Form 10-K, beginning on page F-1[213](index=213&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=55&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[213](index=213&type=chunk) [Controls and Procedures](index=55&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[214](index=214&type=chunk) - There were no material changes in internal control over financial reporting during the fourth quarter of 2020[215](index=215&type=chunk) - Management's report asserts that internal control over financial reporting was effective as of year-end, based on the COSO (2013) framework[216](index=216&type=chunk) [Other Information](index=55&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[217](index=217&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=56&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The information required for this item is incorporated by reference from the company's 2021 definitive proxy statement - Information is incorporated by reference from the 2021 Proxy Statement[220](index=220&type=chunk) [Executive Compensation](index=56&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item, covering executive and director compensation, is incorporated by reference from the company's 2021 definitive proxy statement - Information is incorporated by reference from the 2021 Proxy Statement[221](index=221&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=56&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section provides information on equity compensation plans, with other details on security ownership incorporated by reference from the 2021 proxy statement Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to Be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | **Approved by Shareholders** | — | $ — | 2,266,371 | | **Not Approved by Shareholders** | — | — | — | | **Total** | — | $ — | 2,266,371 | - Additional information regarding security ownership is incorporated by reference from the 2021 Proxy Statement[223](index=223&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=56&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information required for this item, concerning related person transactions and director independence, is incorporated by reference from the company's 2021 definitive proxy statement - Information is incorporated by reference from the 2021 Proxy Statement[224](index=224&type=chunk) [Principal Accountant Fees and Services](index=56&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The information required for this item, detailing fees paid to the principal accountant and related services, is incorporated by reference from the company's 2021 definitive proxy statement - Information is incorporated by reference from the 2021 Proxy Statement[225](index=225&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=57&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K - This item provides an index of all financial statements, schedules, and exhibits included in or incorporated by reference into the Form 10-K filing[228](index=228&type=chunk)[229](index=229&type=chunk) [Form 10-K Summary](index=59&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that there is no Form 10-K summary - None[235](index=235&type=chunk) Financial Statements and Notes [Reports of Independent Registered Public Accounting Firm](index=63&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) BDO USA, LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting, identifying MBS valuation as a critical audit matter - The independent auditor, BDO USA, LLP, provided an unqualified opinion, stating the financial statements are presented fairly in all material respects[246](index=246&type=chunk) - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[258](index=258&type=chunk) - The valuation of investments in mortgage-backed securities (MBS) was identified as a critical audit matter[253](index=253&type=chunk) [Consolidated Financial Statements](index=67&type=section&id=Consolidated%20Financial%20Statements) Total assets decreased to $3.09 billion in 2020 from $5.37 billion in 2019, while net income to common shareholders significantly improved to $160.0 million Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$3,087,754** | **$5,370,604** | | Mortgage-backed securities, at fair value | $2,596,255 | $5,188,163 | | **Total Liabilities** | **$2,454,301** | **$4,787,616** | | Repurchase agreements | $2,437,163 | $4,752,348 | | **Total Shareholders' Equity** | **$633,453** | **$582,988** | Consolidated Comprehensive Income Summary (in thousands, except per share) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net interest income | $63,853 | $56,057 | | Gain (loss) on sale of investments, net | $308,084 | $(5,755) | | Loss on derivative instruments, net | $(172,290) | $(186,949) | | **Net income (loss) to common shareholders** | **$160,017** | **$(165,635)** | | **Comprehensive income (loss) to common shareholders** | **$66,472** | **$43,950** | | **Net income (loss) per common share** | **$6.93** | **$(7.01)** | [Notes to the Consolidated Financial Statements](index=72&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail accounting policies, the $2.6 billion MBS portfolio, $2.4 billion in repurchase agreements, derivative hedging, and equity changes - As of Dec 31, 2020, the MBS portfolio had a fair value of **$2.6 billion**, down from **$5.2 billion** at year-end 2019, primarily composed of Agency RMBS and CMBS[325](index=325&type=chunk) - Repurchase agreements outstanding totaled **$2.44 billion** at year-end 2020, collateralized by **$2.61 billion** of MBS, a significant decrease from **$4.75 billion** at year-end 2019[333](index=333&type=chunk) - The company's derivative portfolio shifted in 2020, with interest rate swaps eliminated and replaced with **U.S. Treasury futures, options, and interest rate swaptions** for hedging purposes[340](index=340&type=chunk)[344](index=344&type=chunk) - In Q1 2020, the company issued **4.46 million shares** of Series C Preferred Stock for net proceeds of **$107.8 million**, using the funds to redeem all Series A and a portion of Series B Preferred Stock[368](index=368&type=chunk) - Subsequent to year-end, the company issued **3.16 million shares** of common stock for net proceeds of **$55.5 million** and redeemed all remaining **2.79 million shares** of its Series B Preferred Stock[379](index=379&type=chunk)

Dynex Capital, Inc. (NYSE:DX) Q4 2020 Earnings Conference Call February 4, 2021 10:00 AM ET Corporate Participants Alison Griffin - Vice President, Investor Relations Byron Boston - Chief Executive Officer and Co-Chief Investment Officer Smriti Popenoe - President and Co-Chief Investment Officer Stephen Benedetti - Executive Vice President, Chief Financial Officer, Chief Operating Officer Conference Call Participants Mike Brown - KBW Eric Hagen - BTIG Trevor Cranston - JMP Securities Jason Stewart - JonesTr ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2020 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 1-9819 DYNEX CAPITAL, INC. (Exact name of registrant as specified in its charter) Virginia 52-1549373 (State or other jurisdiction of incorporation or organization) (IRS Empl ...

Dynex Capital, Inc. (NYSE:DX) Q3 2020 Earnings Conference Call October 28, 2020 10:00 AM ET Company Participants Alison Griffin - Vice President, Investor Relations Byron Boston - President, Chief Executive Officer and Co-Chief Investment Officer Stephen Benedetti - Chief Financial Officer and Chief Operating Officer Smriti Popenoe - Co-Chief Investment Officer Conference Call Participants Douglas Harter - Credit Suisse Bose George - Keefe, Bruyette & Woods, Inc. Trevor Cranston - JMP Securities LLC Christo ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2020 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 1-9819 DYNEX CAPITAL, INC. (Exact name of registrant as specified in its charter) Virginia 52-1549373 (State or other jurisdiction of incorporation or organization) (IRS Employer ...