Dynex Capital(US:DX)2021-07-28 18:53Financial 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]