Financial Data and Key Metrics Changes - The company's market capitalization as of June 30 is over $1,500,000,000, representing nearly 50% growth since June 2024 [8] - Net interest income continues to trend upwards as new investments with attractive yields are added to the portfolio [10] - The portfolio has grown to $14,000,000,000, which is 25% larger since the end of the first quarter and over 50% larger than the same time last year [12] Business Line Data and Key Metrics Changes - The company raised $560,000,000 of new capital this year, allowing it to continue raising capital at a premium to book value [11] - The portfolio's liquidity at quarter end was $891,000,000, or 55% of total equity, indicating a strong liquidity position [12] Market Data and Key Metrics Changes - Agency mortgage-backed securities (MBS) continue to offer attractive returns, with ROEs on newly acquired positions ranging from the mid-teens to low 20% [19] - Mortgages remain extremely cheap relative to corporate bonds, with a mixed technical picture in the medium term affecting spread tightening [20] Company Strategy and Development Direction - The company is focused on raising capital, deploying it into historically cheap investments, and managing its portfolio carefully through volatile periods [7] - A strategic increase in leverage from 7.4% to 8.3% was executed as the policy environment became more supportive [17] - The company is building a world-class operating platform by bringing several functions in-house to achieve scale and retain institutional knowledge [13] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of a proactive approach to navigating market volatility and uncertainty [16] - The current environment is viewed as highly favorable for long-term capital deployment, with wide agency MBS spreads allowing for historic returns [23] - Management expressed confidence in the company's positioning to capitalize on market dynamics and generate strong risk-adjusted returns [23] Other Important Information - The company has appointed Michael Angelo as the chief legal officer and corporate secretary, bringing relevant experience from various financial institutions [5] Q&A Session Summary Question: Can you talk about the leverage range you're targeting? - Management indicated that leverage has been flexed down when the risk environment does not warrant incremental risk, and they are currently at a level that reflects a return to normal [29][30] Question: What are the conditions that might require other investors to be more active in the mortgage-backed space? - Management noted that banks would likely return when they see actual Fed rate cuts, while money managers have been overweight mortgages relative to corporates [40][41] Question: What are your thoughts on swap spreads and their future? - Management stated that current swap spreads are attractive, providing a large margin of safety, and they expect to continue generating strong returns despite potential fluctuations [46][48] Question: How do you view the coupon allocation between pools versus TBAs? - Management explained that they are working into a larger pool position, which offers more certainty in cash flows and is expected to be as attractive as thirty-year RMBS [62][63] Question: Can you provide an overview of the returns on Agency CMBS relative to RMBS? - Management highlighted that Agency CMBS offers a stable economic return profile and is being considered for its compelling return potential in the current market [60][62]

Financial Data and Key Metrics Changes - The company's market capitalization as of June 30 is over $1.5 billion, representing nearly 50% growth since June 2024 [8] - Net interest income continues to trend upwards as new investments with attractive yields are added to the portfolio [10] - The portfolio has grown to $14 billion, a 25% increase since the end of the first quarter and over 50% larger than the same time last year [12] Business Line Data and Key Metrics Changes - The company raised $560 million of new capital this year, allowing it to continue raising capital at a premium to book value [11] - The investment portfolio grew by over $3 billion in the quarter, reflecting a strategic increase in leverage from 7.4% to 8.3% [16] Market Data and Key Metrics Changes - Agency mortgage-backed securities (MBS) continue to offer attractive liquidity, credit quality, and return potential, with ROEs on newly acquired positions ranging from the mid-teens to low 20% [18] - Mortgage spreads remain wide, and the net supply of Agency RMBS is low by historical standards, creating a medium-term headwind for spread tightening [19] Company Strategy and Development Direction - The company is focused on raising capital, deploying it into historically cheap investments, and managing its portfolio through volatile periods [7] - A long-term strategy to build a world-class operating platform includes bringing several functions in-house to enhance scale and organizational resilience [13] - The company aims to be the manager of choice for the agency mortgage market, leveraging its position as a significant player in the mortgage REIT community [42] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current environment as highly favorable for long-term capital deployment, with wide agency MBS spreads supported by a technical backdrop [22] - The company is well-prepared to capitalize on market dynamics and generate strong risk-adjusted returns despite potential volatility [22] Other Important Information - The company has appointed Michael Angelo as the chief legal officer and corporate secretary, bringing relevant experience from various financial institutions [5] Q&A Session Summary Question: Can you talk about the leverage range you're targeting? - Management indicated that leverage has been flexed down when the risk environment does not warrant incremental risk, and they are currently at a level that reflects a return to normal [29][30] Question: What conditions might require other investors to be more active in the mortgage-backed space? - Management noted that banks would likely return when they see actual Fed rate cuts, while money managers have been active due to attractive mortgage valuations relative to corporates [38][40] Question: What is the current thinking behind the coupon allocation between pools versus TBAs? - Management explained that they are favoring a larger pool position due to the stable economic return profile and the ability to hedge effectively with interest rate swaps [56][62] Question: Any thoughts on adding longer duration as you go down in coupon on the hedge side? - Management confirmed that their hedges remain focused on the longer part of the curve, targeting a duration that is generally flat with the overall portfolio [72][74] Question: Any one-time items in the G&A expense line item? - Management indicated that the first half of the year tends to be higher due to annual meetings and compensation increases, but they expect expenses to trend down in the latter half of the year [76]

Financial Performance - The company's portfolio fair value is $142 billion[13], with a stock return of 4656% since IPO (dividends reinvested)[14] - The company's market capitalization is $15 billion[14] - The annualized dividend yield is 167%[14] - Average earning assets were $114 billion in Q2 2025, compared to $103 billion in Q1 2025[24] - Book value per common share decreased from $1256 in Q1 2025 to $1195 in Q2 2025[24] - Leverage increased from 74x in Q1 2025 to 83x in Q2 2025[24] - Comprehensive loss per common share was $(011) in Q2 2025, compared to a comprehensive income of $016 in Q1 2025[24] Portfolio Composition - Approximately 96% of the company's portfolio is in Agency RMBS[13] - As of June 30, 2025, Agency RMBS pools constitute 701% of the total portfolio, while Agency RMBS TBA constitute 259%[83] - Agency CMBS and CMBS IO constitute 40% of the total portfolio[85] Macroeconomic Themes and Strategy - The company employs a global, top-down macroeconomic approach to inform risk management and protect investor value[10] - Key macroeconomic themes include global power shifts, government policy, fiscal policy, Fed policy, system liquidity, and demographics & tech[33, 34, 35, 36, 37, 38] - The company is positioned to generate income and drive value through opportunistic investing and diversification[73]

Dynex Capital, Inc. Second Quarter 2025 Results [Financial Performance and Highlights](index=1&type=section&id=Second%20Quarter%20Financial%20Performance%20and%20Other%20Highlights) Dynex Capital reported a total economic loss of **$(0.10)** per common share, with book value at **$11.95**, and raised **$282 million** in equity capital Q2 2025 Key Metrics | Metric | Value | | :--- | :--- | | Total Economic Loss per Common Share | $(0.10) | | Book Value per Common Share (as of June 30, 2025) | $11.95 | | Comprehensive Loss per Common Share | $(0.11) | | Net Loss per Common Share | $(0.14) | | Dividends Declared per Common Share | $0.51 | | Net Equity Capital Raised (ATM) | $282 million | | Agency RMBS Purchased | $1.9 billion | | Agency CMBS Purchased | $364 million | | Leverage (including TBA) | 8.3x | - Management emphasized a strategy of raising and deploying capital into compelling mortgage-backed securities, focusing on highly liquid and transparent investments to ensure stability and effective risk management[3](index=3&type=chunk) [Financial Statements](index=2&type=section&id=Financial%20Statements) Financial statements show total assets grew to **$11.3 billion**, funded by increased repurchase agreements, with a net loss of **$(13.6) million** [Consolidated Balance Sheets](index=2&type=section&id=Consolidated%20Balance%20Sheets) Total assets reached **$11.3 billion**, funded by **$8.6 billion** in repurchase agreements, with book value per share at **$11.95** Balance Sheet Summary (in thousands) | Account | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | | :--- | :--- | :--- | | Total Assets | $11,311,265 | $9,044,836 | | Mortgage-backed securities | $10,510,006 | $8,399,925 | | Total Liabilities | $9,701,272 | $7,648,921 | | Repurchase agreements | $8,600,143 | $7,234,723 | | Total Shareholders' Equity | $1,609,993 | $1,395,915 | | Book value per common share | $11.95 | $12.56 | [Consolidated Comprehensive Statements of Income (Loss)](index=4&type=section&id=Consolidated%20Comprehensive%20Statements%20of%20Income%20%28Loss%29) The company reported a net loss of **$(13.6) million** and a comprehensive loss of **$(12.2) million** to common shareholders for Q2 2025 Income Statement Summary (Three Months Ended, in thousands) | Account | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $23,128 | $17,133 | | Total Other Losses, Net | $(24,441) | $(8,091) | | Net Loss | $(13,606) | $(3,076) | | Net Loss to Common Shareholders | $(16,286) | $(4,999) | | Comprehensive (Loss) Income to Common Shareholders | $(12,222) | $14,391 | | Net Loss per Common Share | $(0.14) | $(0.06) | [Common Equity Rollforward](index=5&type=section&id=Common%20Equity%20Rollforward) Common equity increased to **$1.50 billion**, primarily driven by **$285.6 million** in stock issuance proceeds, offsetting losses and dividends - The primary driver of the increase in common equity during Q2 2025 was capital raising activities, with net proceeds from stock issuance totaling approximately **$285.6 million**[9](index=9&type=chunk)[10](index=10&type=chunk) - The comprehensive loss to common shareholders of **$(12.2) million** and common dividends of **$(59.3) million** were the main detractors from common equity during the quarter[9](index=9&type=chunk) [Investment Portfolio and Financing](index=6&type=section&id=Investment%20Portfolio%20and%20Financing) Investment portfolio expanded to **$14.2 billion**, financed by **$8.6 billion** in repurchase agreements, with net interest spread improving to **0.33%** [Investment Portfolio](index=6&type=section&id=Investment%20Portfolio) Total investment portfolio fair value grew to **$14.2 billion**, primarily driven by an increase in Agency RMBS to **$13.6 billion** Investment Portfolio Fair Value (in thousands) | Investment Type | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | | :--- | :--- | :--- | | Total Agency RMBS | $13,619,653 | $10,916,133 | | Agency CMBS | $472,426 | $106,429 | | Total Investments | $14,192,825 | $11,130,226 | [Repurchase Agreement Financing](index=6&type=section&id=Repurchase%20Agreement%20Financing) Repurchase agreement borrowings increased to **$8.6 billion**, with a stable weighted average interest rate of **4.47%** Repurchase Agreement Summary | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | | :--- | :--- | :--- | | Balance | $8,600,143 | $7,234,723 | | Weighted Average Rate | 4.47% | 4.46% | | WAVG Original Term | 88 Days | 83 Days | [Portfolio Performance](index=7&type=section&id=Portfolio%20Performance) Effective yield on assets was **4.79%**, leading to a net interest spread of **0.33%**, and economic net interest income of **$35.5 million** Quarterly Performance Metrics | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Average Earning Assets (in thousands) | $8,959,507 | $7,927,223 | | Effective Yield on Assets (%) | 4.79% | 4.71% | | Cost of Repo Financing (%) | (4.45)% | (4.56)% | | Net Interest Spread (%) | 0.33% | 0.15% | | Economic Net Interest Income (in thousands) | $35,477 | $27,984 | | Economic Net Interest Spread (%) | 0.96% | 0.79% | [Hedging Portfolio](index=8&type=section&id=Hedging%20Portfolio) Hedging portfolio expanded with **$2.48 billion** in Treasury futures and **$7.16 billion** in interest rate swaps, resulting in a **$(58.1) million** net loss on derivatives Hedging Instruments Notional Amounts (in thousands) | Derivative Type | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | | :--- | :--- | :--- | | U.S. Treasury futures (Short) | $(2,475,000) | $(1,561,500) | | Interest rate swaps (Short) | $(7,160,000) | $(6,335,000) | | Interest rate swaption | $500,000 | $500,000 | - The net loss on derivatives for Q2 2025 was **$(58.1) million**, primarily due to **$(84.6) million** in unrealized losses on interest rate swaps and **$(52.0) million** on U.S. Treasury futures[16](index=16&type=chunk) - As of June 30, 2025, the company projects it will recognize approximately **$719 million** in net deferred tax hedge gains as taxable income in fiscal year 2025 and beyond[17](index=17&type=chunk)[18](index=18&type=chunk) [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) Non-GAAP measures like EAD show **$25.3 million** for common shareholders, or **$0.22 per share**, reconciled from a GAAP comprehensive loss - Management believes non-GAAP measures like EAD are useful for investors as they measure the investment portfolio's return based on effective yield, net of financing costs and recurring operating expenses[19](index=19&type=chunk) EAD Reconciliation and Per Share Data (in thousands, except per share) | Metric | Q2 2025 (in thousands, except per share) | Q1 2025 (in thousands, except per share) | | :--- | :--- | :--- | | Comprehensive (Loss) Income (GAAP) | $(12,222) | $14,391 | | EAD to Common Shareholders (non-GAAP) | $25,262 | $18,728 | | EAD per Common Share (non-GAAP) | $0.22 | $0.21 | Net Interest Spread Reconciliation | Metric | Q2 2025 (%) | Q1 2025 (%) | | :--- | :--- | :--- | | Net Interest Spread (GAAP) | 0.33% | 0.15% | | Economic Net Interest Spread (non-GAAP) | 0.96% | 0.79% | [Forward Looking Statements](index=10&type=section&id=Forward%20Looking%20Statements) Forward-looking statements caution that actual results may differ due to risks including interest rate changes, economic conditions, and Federal Reserve policy - The report includes a disclaimer that forward-looking statements are subject to risks and uncertainties, and actual results could differ materially[26](index=26&type=chunk) - Key risk factors cited include changes in interest rates and credit spreads, Federal Reserve monetary policy, availability of financing, and geopolitical events[26](index=26&type=chunk)[27](index=27&type=chunk) [Company Description](index=11&type=section&id=Company%20Description) Dynex Capital is an internally managed REIT investing in mortgage-backed securities to generate dividend income and long-term shareholder returns - Dynex Capital is an internally managed REIT focused on financing real estate assets to provide shareholders with attractive risk-adjusted returns[29](index=29&type=chunk)

Industry Overview - The Zacks REIT and Equity Trust industry is experiencing volatility in mortgage rates due to macroeconomic uncertainty, leading to earnings pressure in the near term [1] - The industry consists of mortgage REITs (mREITs) that invest in and originate mortgages and mortgage-backed securities (MBS), focusing on residential or commercial mortgage markets [3] - Agency securities, backed by the federal government, are considered safer investments, limiting credit risks for mREITs [3] Current Challenges - High interest rates and volatility in mortgage markets are causing slight decreases in tangible book values for agency mortgage REITs, although they have been more stable than in 2023 [4] - The central bank's decision to maintain steady interest rates, despite a previous cut of 100 basis points in 2024, is increasing earnings pressure for highly leveraged mREITs [5] - Many industry players are cutting dividends to levels that can be covered by earnings, potentially leading to capital outflows and further declines in book values [5] Investment Strategies - mREITs are adopting a conservative approach to investments, focusing on risk and liquidity management, which may impede portfolio growth and robust returns in the short term [6] - Despite lower mortgage rates compared to last year, the demand for purchase applications and refinancing is improving, indicating some latent market demand [7] Performance Metrics - The Zacks REIT and Equity Trust industry ranks 162, placing it in the bottom 34% of 246 Zacks industries, indicating underperformance in the near term [8] - The industry's current-year earnings estimate has decreased by 6.5% over the last year, reflecting a negative earnings outlook [9] - Over the past year, the industry has gained 2.7%, underperforming the broader Zacks Finance sector's rise of 18.7% and the S&P 500's growth of 12.5% [11] Valuation - The industry is trading at a trailing 12-month price-to-book (P/BV) ratio of 1.00X, compared to the S&P 500's 8.42X, indicating a significant discount [14] - The Zacks Finance sector's trailing 12-month P/BV is 4.26X, further highlighting the industry's undervaluation [16] Company Highlights - **Annaly Capital Management (NLY)**: Focuses on prudent asset selection and capital allocation, with a diversified investment strategy that includes traditional Agency MBSs and non-agency assets. The company's 2025 earnings are estimated at $2.87 per share, reflecting a 6.3% year-over-year increase [19][22] - **Dynex Capital (DX)**: Engages in mortgage and consumer finance, with a focus on multi-family and commercial real estate loans. The company's 2025 earnings estimates are $1.97 per share, indicating a significant year-over-year jump of 662.9% [25][28] - **Ellington Financial (EFC)**: Invests in a diverse array of financial assets, including residential and commercial mortgage loans. The company's 2025 earnings estimates are $1.65 per share, showing a year-over-year growth of 13% [31][34]

Group 1 - Dynex Capital (NYSE: DX) offers a high dividend yield exceeding 16%, raising questions about potential underlying issues with the stock [1] - The analysis emphasizes the importance of understanding business models, earnings performance, and competitive positioning in investment decisions [1] - The author has a background in finance and investing, focusing on sectors such as AI, fintech, and technology, which informs their analysis of publicly traded companies [1] Group 2 - The article does not provide any specific investment recommendations or advice regarding the suitability of investments for particular investors [2][3] - There is a clear disclosure that the author has no financial interest in the companies mentioned, ensuring an unbiased perspective [2]

Core Insights - The article emphasizes the importance of preferred shares and baby bonds for achieving strong risk-adjusted returns, alongside the positive performance of Business Development Companies (BDCs) [1][19] - It highlights the irrational behavior of the market, where some investors continue to buy underperforming stocks despite deteriorating fundamentals [2] - The article discusses the current favorable environment for agency mortgage REITs to issue new shares due to high price-to-book ratios, while hybrid mortgage REITs are struggling [3][6] Agency Mortgage REITs - AGNC Investment (AGNC) maintains a high price-to-book ratio, allowing it to issue new shares effectively [3] - The top three agency mortgage REITs, Dynex Capital (DX), Annaly Capital (NLY), and AGNC, have the highest price-to-book ratios and are expected to capitalize on this by issuing additional shares [4] - A projection indicates that agency mortgage REITs will see a decline in book value in Q2 2025, affecting their price-to-book ratios [5] Hybrid Mortgage REITs - The environment is unfavorable for hybrid mortgage REITs, with only Ellington Financial (EFC) trading close to its projected book value [6] Business Development Companies (BDCs) - Main Street Capital (MAIN) is recognized as a leading BDC, but it is challenging to find it at a bargain valuation [7] - MAIN's Total Economic Return (TER) reflects its performance through changes in book value and dividends, with share issuance above NAV enhancing its value [7][9] - The article notes that MAIN's ability to drive NAV per share higher is attributed to successful investments and effective management [13] Preferred Shares - There are emerging opportunities in preferred shares, which have historically provided strong risk-adjusted returns [14] Market Outlook - The year 2025 is identified as a prime opportunity for investing in REITs, preferred shares, and BDCs due to increasing demand and insufficient supply in key real estate sectors [19]

Group 1 - Dynex Capital, Inc. (NYSE: DX) is a mortgage REIT currently yielding near 17% [1] - The analysis focuses on Dynex's strategy, the context of its yield, and investment ideas [1] - The firm conducting the analysis, Pearl Gray, specializes in systematic analysis of Bonds, Preferreds, and REITs, primarily in the Financials and Real Estate sectors [1] Group 2 - The mission of Pearl Gray is to discover actionable total return ideas that combine academic theories, practical experience, and common sense [1]

Core Viewpoint - Dynex Capital (DX) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook based on rising earnings estimates, which significantly influence stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [4][6]. - An increase in earnings estimates typically leads to institutional investors adjusting their valuations, resulting in buying or selling actions that affect stock prices [4]. Company Performance Indicators - Dynex Capital is projected to earn $1.97 per share for the fiscal year ending December 2025, reflecting a substantial year-over-year increase of 662.9% [8]. - Over the past three months, the Zacks Consensus Estimate for Dynex Capital has risen by 1.5%, indicating a positive trend in earnings expectations [8]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - The upgrade of Dynex Capital to Zacks Rank 1 places it in the top 5% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Group 1 - The article promotes a portfolio strategy that generates income without the need for selling assets, aiming to simplify retirement investing [1] - It emphasizes the importance of community and education in investing, suggesting that individuals should not invest alone [2] - The service offers features such as model portfolios, buy/sell alerts, and regular market updates to support investors [2] Group 2 - The article mentions that the service has a focus on conservative investment options, including preferred and baby bond portfolios [2] - It highlights the active engagement of the community, providing a platform for discussions and access to service leaders [2] - The service philosophy is centered around generating strong returns and reducing stress associated with retirement investing [1][2]