Core Viewpoint - Dynex Capital (DX) reported a Q2 2025 performance that was largely in line with expectations, with a minor book value (BV) outperformance of 1.6% and core earnings meeting projections. Strong capital raises and timely mortgage-backed securities (MBS) purchases helped mitigate early-quarter volatility [1][2][9]. Financial Performance - The quarterly BV for DX showed a modest decrease, consistent with expectations, amidst a volatile environment for agency mREIT stocks. The BV fluctuations were influenced by market conditions, including a spike in mortgage interest rates and U.S. Treasury yields in early April 2025 [2][3]. - DX's management aggressively raised capital during Q2 2025, increasing on-balance sheet MBS by 25% and off-balance sheet MBS by 33%, exceeding initial projections of 15% and 20% respectively [4][10]. - Core earnings/EAD for DX improved, driven by net interest income that matched expectations, although NDR income slightly underperformed. Operational expenses were largely in line with projections [6][9]. Market Conditions - The early part of Q2 2025 saw market volatility due to proposed tariff policies, which led to increased mortgage interest rates and margin calls for some agency mREIT peers. However, DX was insulated from significant margin calls due to its cash reserves and equity issuance [3][4]. - As market conditions stabilized in May 2025, driven by trade negotiations and reduced economic risks, both stock market and MBS pricing rebounded, contributing to DX's performance [3][4]. Risk and Valuation - DX's risk/performance rating remains at 3, reflecting the need to navigate various risks including spread/basis, leverage, and interest rate fluctuations. The company is projected to experience 1-2 basis point cuts in the Federal Funds Rate in the latter half of 2025 [8][16]. - The current valuation of DX is deemed appropriate, with a HOLD recommendation in place. The company is expected to maintain its dividend payout, although future sustainability will be closely monitored [22][21].

PART I [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements for Dynex Capital, Inc., showing total assets increased to **$11.3 billion** and a net loss of **$16.3 million** for Q2 2025 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$11.3 billion** by June 30, 2025, from **$8.2 billion** at year-end 2024, driven by mortgage-backed securities and repurchase agreements Consolidated Balance Sheet Highlights ($s in thousands) | Account | June 30, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$11,311,265** | **$8,184,579** | | Mortgage-backed securities, at fair value | $10,510,006 | $7,512,087 | | **Total Liabilities** | **$9,701,272** | **$6,999,643** | | Repurchase agreements | $8,600,143 | $6,563,120 | | **Total Shareholders' Equity** | **$1,609,993** | **$1,184,936** | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a **net loss of $13.6 million** for Q2 2025 and a **net loss to common shareholders of $21.3 million** for H1 2025, primarily due to derivative losses Key Income Statement Data ($s in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income (expense) | $23,128 | $1,287 | $40,260 | $(1,904) | | Total other (loss) gains, net | $(24,441) | $(2,348) | $(32,532) | $52,264 | | Net (loss) income | $(13,606) | $(8,304) | $(16,682) | $31,815 | | Net (loss) income to common shareholders | $(16,286) | $(10,227) | $(21,285) | $27,968 | | Net (loss) income per common share-diluted | $(0.14) | $(0.15) | $(0.21) | $0.44 | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity increased to **$1.61 billion** by June 30, 2025, driven by **$521.8 million** from common stock issuance, partially offset by net loss and dividends - For the six months ended June 30, 2025, the company issued **40.7 million shares**, raising **$521.8 million**[13](index=13&type=chunk) - Total dividends on common stock for the first six months of 2025 amounted to **$103.2 million**[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by financing activities was **$2.46 billion** for H1 2025, primarily funding **$2.41 billion** in investing activities and generating **$38.2 million** from operations Cash Flow Summary for Six Months Ended June 30 ($s in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $38,242 | $1,505 | | Net cash used in investing activities | $(2,413,422) | $(102,685) | | Net cash provided by financing activities | $2,459,478 | $272,579 | | **Net increase in cash** | **$84,298** | **$171,399** | [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Detailed notes reveal the company's structure as a mortgage REIT, with its Agency MBS portfolio growing to **$10.5 billion**, financed by **$8.6 billion** in repurchase agreements, and **$522 million** raised via ATM program - The company is an internally managed mortgage REIT that primarily invests on a leveraged basis in Agency mortgage-backed securities (Agency MBS) and to-be-announced securities (TBAs)[20](index=20&type=chunk) Mortgage-Backed Securities Portfolio ($s in thousands) | Date | Fair Value | Amortized Cost | | :--- | :--- | :--- | | June 30, 2025 | $10,510,006 | $10,743,650 | | Dec 31, 2024 | $7,512,087 | $7,912,848 | Repurchase Agreements Outstanding ($s in thousands) | Date | Balance | Weighted Average Rate | | :--- | :--- | :--- | | June 30, 2025 | $8,600,143 | 4.47% | | Dec 31, 2024 | $6,563,120 | 4.80% | - During the six months ended June 30, 2025, the company issued **40,712,768 shares** of common stock through its at-the-market (ATM) program, raising approximately **$522 million**[101](index=101&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses H1 2025 capital deployment of **$522 million** into Agency MBS, growing the portfolio to **$14.0 billion**, improving net interest income, but resulting in a comprehensive loss due to hedging activities [Executive Overview](index=27&type=section&id=Executive%20Overview) The company raised **$522 million** via its ATM program in H1 2025, deploying capital into Agency MBS to improve net interest and spread income amidst lower interest rates and market volatility - The company raised approximately **$522 million** of new capital through its ATM program during the six months ended June 30, 2025[112](index=112&type=chunk) - Net interest income and spread income have improved due to adding higher-yielding assets, reducing financing costs, and yield from the swap portfolio[112](index=112&type=chunk) Common Book Value Per Share Rollforward (Q2 2025) | Description | Per Common Share | | :--- | :--- | | Balance as of March 31, 2025 | $12.56 | | Comprehensive loss to common shareholders | - | | Net proceeds from stock issuance | - | | Common dividends declared | - | | **Balance as of June 30, 2025** | **$11.95** | [Financial Condition](index=30&type=section&id=Financial%20Condition) The investment portfolio, including TBAs, grew by **44%** to **$14.0 billion** by June 30, 2025, financed by increased repurchase agreements, with a weighted average market yield of **5.20%** - The investment portfolio (including TBAs) increased by approximately **44%** as of June 30, 2025, compared to December 31, 2024[124](index=124&type=chunk) - The company added approximately **$2.8 billion** of Agency RMBS and **$418 million** of Agency CMBS during the six months ended June 30, 2025[126](index=126&type=chunk) Total Agency RMBS Portfolio (including TBAs) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Par/Notional ($s in thousands) | $14,041,261 | $10,136,763 | | Estimated Duration (years) | 5.02 | 5.22 | | Market Yield | 5.20% | 5.49% | [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q2 2025 net interest income improved to **$23.1 million**, but a **$58.1 million** derivative loss resulted in a comprehensive loss, while H1 2025 net interest income reached **$40.3 million** Quarterly Results Summary ($s in thousands) | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Net interest income | $23,128 | $17,133 | | Loss on derivative instruments, net | $(58,093) | $(118,088) | | Comprehensive (loss) income to common shareholders | $(12,222) | $14,391 | Semi-Annual Net Interest Income Comparison ($s in thousands) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net interest income (expense) | $40,260 | $(1,904) | | Average Repurchase Financing Cost | 4.50% | 5.49% | Non-GAAP EAD per Common Share | Period | EAD per common share | | :--- | :--- | | Q2 2025 | $0.22 | | Q1 2025 | $0.21 | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Total liquidity reached **$891 million** by June 30, 2025, comprising cash and unencumbered Agency MBS, with leverage at **8.3 times** shareholders' equity, supporting the company's REIT dividend policy - Total liquidity as of June 30, 2025, was approximately **$891 million**, consisting of **$388 million** in unrestricted cash and **$499 million** in unencumbered Agency MBS[174](index=174&type=chunk) - Leverage, including the cost basis of TBA long positions, was **8.3 times** shareholders' equity as of June 30, 2025; leverage based solely on repurchase agreements was **5.3 times**[176](index=176&type=chunk)[177](index=177&type=chunk) - As a REIT, the company is required to distribute at least **90%** of its REIT taxable income to shareholders annually[186](index=186&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk with hedging instruments but not spread risk, providing sensitivity analyses for interest rate shifts and market spread changes on its portfolio and common equity Interest Rate Sensitivity Analysis (Parallel Shift) as of June 30, 2025 | Rate Change | Total % Change in Market Value | Total % Change in Common Equity | | :--- | :--- | :--- | | +100 bps | (0.8)% | (7.8)% | | +50 bps | (0.3)% | (2.5)% | | -50 bps | (0.1)% | (1.3)% | | -100 bps | (0.8)% | (8.0)% | Market Spread Sensitivity Analysis as of June 30, 2025 | Spread Change | % Change in Market Value of Investments | % Change in Common Equity | | :--- | :--- | :--- | | +20/+50 bps | (1.1)% | (10.2)% | | +10 bps | (0.5)% | (5.1)% | | -10 bps | 0.5% | 5.1% | | -20/-50 bps | 1.1% | 10.2% | [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[221](index=221&type=chunk) - No material changes were made to internal control over financial reporting during the three months ended June 30, 2025[222](index=222&type=chunk) PART II [Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no pending or threatened legal proceedings expected to materially adversely affect its financial condition or results of operations - To the Company's knowledge, there are no pending or threatened legal proceedings which could have a material adverse effect on the Company[223](index=223&type=chunk) [Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred regarding the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There have been no material changes from the risk factors discussed in the 2024 Form 10-K[224](index=224&type=chunk) [Unregistered Sale of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sale%20of%20Equity%20and%20Use%20of%20Proceeds) The company has an authorized share repurchase program for up to **$100 million** common stock and **$50 million** preferred stock, but no repurchases occurred in Q2 2025 - The company did not repurchase any shares of its common stock or Series C Preferred Stock during the three months ended June 30, 2025[226](index=226&type=chunk) [Other Information](index=48&type=section&id=Item%205.%20Other%20Information) No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangements during Q2 2025[229](index=229&type=chunk) [Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, securities descriptions, compensatory plans, and Sarbanes-Oxley certifications

Group 1 - Pearl Gray is a proprietary investment fund and independent market research firm focusing primarily on Fixed-Income and Preferred Shares [1] - The firm also provides analysis on equity REITs, Investment Funds, and Banks, offering a cross-asset blend for readers [1] - The content published by the firm is intended as independent analysis and does not constitute financial advice [1][3] Group 2 - The firm emphasizes the importance of consulting a registered financial advisor before making investment decisions [3] - There is a clear disclosure that past performance is not indicative of future results, and no specific investment recommendations are provided [4] - The analysts contributing to the content may not be licensed or certified by any regulatory body, highlighting the independent nature of the analysis [4]

Core Insights - Dynex Capital reported significant growth in its portfolio and market capitalization, with a portfolio size of $14 billion, over 50% larger than the previous year, and a market cap exceeding $1.5 billion as of June 30 [2][4] - The company increased its economic leverage to 8.3x from 7.4x, supported by a stable mortgage repo market and strong liquidity [3][4] - High-return agency mortgage-backed securities (MBS) are driving risk-adjusted returns, with ROEs on newly acquired positions ranging from the mid-teens to low 20% [5][6] Financial Performance - Dynex Capital's debt-to-equity ratio stood at 8.3, with quarter-end liquidity at $891 million, representing 55% of total equity [1] - The portfolio expanded by 25% since the end of the first quarter, increasing from $11 billion to $14 billion [2] Market Conditions - The company benefited from a supportive policy environment, allowing for increased leverage while maintaining robust liquidity [4] - Mortgage spreads remain historically wide, contributing to the attractiveness of agency MBSs [5][6] Strategic Focus - Management emphasizes continued capital deployment into agency MBSs and maintaining sufficient liquidity for further portfolio growth [7] - Long-term value creation is anchored in high-quality, liquid asset exposure and flexible leverage according to market opportunities [8]

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]