Dynex Capital(US:DX)2022-02-03 19:31Financial Data and Key Metrics Changes - The company maintained year-end book values at around $18 per share despite market volatility, achieving a three-year total economic return of 28% [9] - Comprehensive income per common share for Q4 was -$0.04, while for the full year it was $0.53, resulting in a total economic return of $0.47 or 2.5% [15] - Earnings available for distribution per common share decreased from $0.54 in the previous quarter to $0.45 in the current quarter due to lower leverage and a modest decline in asset yields [16][18] Business Line Data and Key Metrics Changes - The investment portfolio, including TBA securities, decreased by $133 million primarily due to paydowns, with approximately $4.7 billion invested as of December 31, 2021 [20] - The company held leverage at the lower end of its target range of 5 to 10 times equity capital to minimize volatility impact [14] Market Data and Key Metrics Changes - Option adjusted spreads on Agency RMBS widened by 45 basis points since April 2021 and 20 basis points since the end of December 2021 [25] - Agency RMBS prepayment speeds were reported at 11.2% CPR [17] Company Strategy and Development Direction - The company is focused on maintaining a flexible and liquid balance sheet to capitalize on investment opportunities as the Federal Reserve exits the market [10][12] - Investments in technology and relationships with technology partners are emphasized to maintain a competitive edge in asset management [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the complex environment and delivering attractive dividends and long-term returns, even with potential interest rate hikes [11] - The transition to a favorable investing environment is anticipated, with expectations of wider spreads and higher asset yields [25][36] Other Important Information - The $1.56 dividend declared on common stock will largely be a return of capital due to timing differences between GAAP and tax income [20][21] - The company raised $237 million in new common equity capital during the year, increasing common equity by over 50% [16] Q&A Session Summary Question: Liquidity expectations for the 2% coupon and leverage increase - Management indicated that there is room to increase leverage by two to four turns, which does not represent a cap, and they expect to operate between five and ten times leverage [47][48] Question: Factors leading to book value outperformance - Management attributed the flat book value to lower leverage, allocation to lower coupons, and effective hedge positioning [54][56] Question: Timing and pace of leverage increase - Management plans to be patient regarding leverage increases, anticipating further spread widening before making moves [60][64] Question: Impact of interest rate exposures and prepay speeds - Management noted that prepay speeds are influenced by home price appreciation and competitive dynamics in the mortgage market, with expectations that the portfolio is positioned to handle these changes [69][72] Question: Incremental demand for Agency MBS - Management highlighted that private capital, including money managers and mortgage REITs, will be crucial in filling the demand gap as the Fed reduces its footprint [78] Question: Specialness in TBA roles - Management expects specialness in lower coupon roles to persist until the Fed's balance sheet adjustments are fully realized, with normalization anticipated in the second half of the year [80]