Dynex Capital(DX) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The total economic return for Q4 2025 was 10.2%, with a common dividend of $0.51 and a book value increase of $0.78 per share [23] - For the full year 2025, the book value increased by $0.75, and total comprehensive income was $354 million [23][24] - The company ended the quarter with leverage of 7.3x total equity and maintained a strong liquidity position with $1.4 billion in cash and unencumbered securities [23] Business Line Data and Key Metrics Changes - The TBA and mortgage-backed securities portfolio grew from $9.8 billion at the beginning of the year to $19.4 billion by year-end, with current holdings at approximately $22 billion [24] - The company raised and invested over $1 billion in 2025, benefiting from spread tightening in the second half of the year [15][24] Market Data and Key Metrics Changes - The company noted that MBS spreads have tightened significantly, with current spreads being 150 to 300 basis points tighter than at the end of the previous quarter [33] - The return environment is expected to improve due to policy support for housing finance and higher liquidity [17] Company Strategy and Development Direction - The company emphasizes a performance-first mentality and ethical stewardship of shareholders' capital, focusing on risk management and adaptability [4][5] - The management team is committed to evolving the business steadily, fine-tuning processes and technology to align with strategic goals [12] - The company aims to leverage rising global demand for income and the expansion of passive investing to strengthen its shareholder base and lower its cost of capital [11][12] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of government policy in shaping asset returns and indicated a more stable and supportive framework for the mortgage market [13][14] - The company is prepared for a wider range of outcomes in a rapidly changing global landscape, with a focus on liquidity and flexibility [10][12] - Management expressed confidence in the company's ability to generate reliable dividends backed by a resilient portfolio [11] Other Important Information - The company has made significant investments in its team and infrastructure, including the appointment of a new Chief Operating Officer [9] - General and administrative expenses as a percentage of capital decreased from 2.9% to 2.1% year-over-year, reflecting operational efficiency [26] Q&A Session Summary Question: Can you quantify where you see incremental investment returns today? - Management indicated that hedged ROEs are in the mid-teens with leverage around 7x, and with targeted leverage in the low 8s, ROEs could reach mid- to high teens [31] Question: How does the current spread tightening compare to previous quarters? - The dynamic is that spreads are now between 150 and 300 basis points tighter than at the end of the previous quarter [33] Question: What is the probability of politically motivated actions to improve housing affordability? - Management acknowledged the historical role of GSEs in managing housing and indicated that government intervention is possible and anticipated [44] Question: Where has the capital raised in January been deployed? - The company is finding opportunities primarily in the belly of the coupon stack, particularly in fives and five and a halves [50] Question: What is the appropriate size of the portfolio given current opportunities? - Management believes there are significant opportunities to generate alpha and that the portfolio can grow while still maintaining strong performance [60]