Dynex Capital Q1 Earnings Call Highlights
by Teresa Graham · The Cerbat GemDynex Capital (NYSE:DX) executives told investors the mortgage REIT used first-quarter volatility to raise and deploy capital, even as book value declined during the period. Management also said mortgage-backed securities (MBS) spreads have tightened since quarter end, contributing to a higher estimated book value early in the second quarter.
First-quarter results: book value down, net interest income higher
Chief Financial Officer Michael Sartori said book value ended the quarter at $12.60 per share. He reported an economic return of -2.5% for the quarter, made up of $0.51 per share of common dividends and an $0.85 per share decline in book value.
Sartori said leverage finished the quarter at 8.6x total equity, with the increase “attributable to the growth in our investment portfolio of $6 billion,” reflecting the deployment of capital raised during the quarter. Dynex raised $442 million and grew its “total capital base by 18%,” according to Co-CEO and President Smriti Popenoe, who said the company deployed funds as “MBS spreads widened.”
On earnings power, Sartori said net interest income increased to $0.40 per share from $0.28 per share, primarily due to lower financing costs. He attributed the reduction to the Federal Reserve’s fourth-quarter rate cuts, saying financing costs “fell 33 basis points.”
Expenses moved higher sequentially due to “one-time items,” Sartori said, but he told investors the company expects expenses to normalize in the second quarter and anticipates the full-year expense ratio will be “flat or modestly lower versus year-end as we grow our capital base.”
Liquidity and capital: “very strong” position and opportunistic deployment
Sartori highlighted what he called a “very strong” liquidity position, ending the quarter with $1.3 billion in cash and unencumbered securities, representing “over 46% of total equity.”
During the Q&A, management emphasized that capital raising and deployment are not always simultaneous. In response to a question from BTIG’s Eric Hagen about whether Dynex’s capital-raising thresholds have changed, management said “the principles have changed” little, reiterating the long-stated framework: raising capital when the cost of capital is below expected returns on deployed capital.
Asked by JonesTrading’s Jason Weaver about deployment phasing, Popenoe said Dynex views spread widening that is not driven by agency MBS fundamentals as an opportunity to put “accretive capital” to work. She added that over time, the “gold standard” remains ensuring “the cost of capital is lower than the return on the capital that we’re deploying.”
Mortgage spreads, policy focus, and the quarter’s volatility
Chief Investment Officer T.J. Connelly said the quarter began with policy attention “focused squarely on housing affordability and the mortgage market,” but later shifted as “global events, most notably the war in Iran,” increased volatility. Connelly said he expects attention to refocus on domestic priorities such as housing and mortgage credit availability, which he believes “could support tighter mortgage spreads over time.”
Connelly described policy as a key market input and said policymakers have emphasized GSE mortgage buying as a way to tighten spreads and improve affordability. He added that the company’s liquidity allowed it to “selectively add assets as spreads widened to more attractive levels” during the volatile period.
On supply-demand conditions, Connelly said “net supply is light” and demand remains “broad and robust” across multiple investor types. He noted that after previously estimating net supply of $200 billion for 2026, “so far in 2026, it appears supply could come in even lower.”
He also discussed repo conditions, saying funding remained available even during volatility. Connelly said MBS repo spreads to SOFR stayed in the 13–17 basis point range, “3–5 basis points below last year’s averages,” and that structural improvements in short-term funding markets have supported financing for “high-quality mortgage assets like those Dynex owns.”
Portfolio positioning: fewer TBAs, more emphasis on pool selection
Connelly said Dynex continued to reduce exposure to the most callable agency MBS, particularly in the TBA (“to be announced”) market. TBAs declined from “over 16%” of the portfolio at year-end to approximately 7% at quarter end. He described TBAs as “the cheapest to deliver segment of the mortgage market” and said Dynex is trying to avoid the duration and cash-flow uncertainty associated with those positions.
In response to Citizens JMP’s Trevor Cranston, Connelly framed security selection as a key source of potential “alpha,” pointing to increasing dispersion in borrower prepayment behavior that is “technology-driven.” He also said static returns on current coupon mortgages hedged with interest rate swaps were “in the mid- to high teens.”
Connelly addressed hedging posture in response to UBS’s Marissa Lobo, discussing swap spread dynamics and reiterating that Dynex has favored interest rate swaps given the yield spread available relative to Treasuries. He said the company was “right around 70%” hedged with interest rate swaps on a DV01 basis at quarter end, within a 60%–80% range he has discussed on prior calls, and said there may be “a little bit of scope” to move closer to 80% if opportunities arise.
Second-quarter update: estimated book value up, spread targets reiterated
During the Q&A, KBW’s Bose George asked for an update on book value quarter-to-date. Management said that as of Friday’s close, estimated book value was $13.31 per share, net of the accrued common dividend, up 5.6% versus quarter end.
Connelly also discussed the path for mortgage spreads, referencing spreads to the seven-year swap rate. He said agency MBS spreads moved from the “high 120s to nearly 170 basis points” in March, were in the “low 160s” at quarter end, and moved back “toward the 150 area” late last week. He said Dynex believes spreads “can trade towards 120 again,” with “scope for long-term equilibrium spreads closer to 100 basis points.”
Popenoe said Dynex has grown rapidly and is now “the third-largest agency-focused mortgage REIT.” She argued that scale can distribute fixed costs, deepen liquidity, and strengthen the company during periods of volatility, and said the market has “not yet fully recognized the value” Dynex is establishing through scale.
Separately, Sartori introduced Caitlin Mauritz, who he said joined Dynex to lead capital markets and investor relations.
In closing remarks, Popenoe said the company remains focused on “opportunistic capital growth” alongside disciplined portfolio management and building operating resilience, and said management is invested alongside shareholders.
About Dynex Capital (NYSE:DX)
Dynex Capital, Inc is a mortgage real estate investment trust (REIT) that specializes in acquiring and managing mortgage-related assets. The company’s primary business involves investing in residential mortgage-backed securities (RMBS), including agency-backed pools issued or guaranteed by government-sponsored entities such as Fannie Mae, Freddie Mac and Ginnie Mae, as well as selected non-agency RMBS. Dynex Capital seeks to generate net interest income by earning interest on its portfolio while employing leverage through secured repurchase agreements and other debt facilities.
In pursuing its investment objectives, Dynex Capital manages portfolio duration and interest rate exposures, with a focus on preserving capital and optimizing yield over the economic cycle.