Dynex Capital signals continued portfolio growth and strategic expansion with New York office amid $1.8B market cap milestone

Earnings Call Insights: Dynex Capital (DX) Q3 2025

MANAGEMENT VIEW

* Co-CEO Smriti L. Popenoe reported, "Year-to-date shareholder returns were 20% as of last Friday's close, 23% over the last year. In the last 3 years, our shareholders have seen returns of nearly 72% with dividends reinvested in Dynex." Popenoe cited a total economic return of 10.3% for the quarter and 11.5% year-to-date, emphasizing the company's focus on disciplined management amid complex market conditions. Dynex's common equity market cap exceeded $1.8 billion, attributed to capital raising and broadened investor trust.
* Popenoe highlighted that Agency RMBS spreads continue to offer returns that support growth and investment strategy, noting, "Our growth is deliberate, it's anchored and strategy, opportunistic investing and focused value creation."
* COO and CFO Robert Colligan stated, "Our net interest income continues to trend upward as we add new investments with attractive yields to our portfolio and in the current market, swaps add to the carry value of our investments." Colligan added that the FOMC rate cut in September is expected to provide a tailwind to net interest margin in the fourth quarter.
* Colligan reported $254 million in new capital raised during the quarter and $776 million year-to-date, with portfolio growth of 10% since the end of Q2. Liquidity at quarter end was over $1 billion, representing over 50% of total equity. Colligan also announced, "We are opening up an office in New York City. This new location will allow us to attract important talent in trading and portfolio management positions as well as being physically closer to many of our business partners."
* Chief Investment Officer Terrence Connelly explained Dynex maintained high exposure to Agency mortgages to capitalize on wide spreads, noting the company had over $130 million of gains on its portfolio in Q3. Connelly added the team had a deliberate bias towards lower coupons that generated positive returns as mortgage rates declined. There was a slight shift toward higher coupon exposure late in the quarter to take advantage of market dislocations.
* Co-CEO Byron L. Boston emphasized, "As significant shareholders, the executive team stays focused on durable shareholder-first decisions. Dependable yield is front and center, and Dynex's disciplined approach supports a competitive dividend."
* Popenoe closed with the announcement that both she and Colligan increased their personal investments in the company at quarter end, reinforcing alignment with shareholders.

OUTLOOK

* Management expects the September FOMC rate cut to contribute positively to net interest margin in Q4.
* Connelly stated, "Longer term, we expect there will be growing opportunities across the mortgage market as the policy environment evolves."
* The supply outlook for Agency RMBS may become more favorable, with the potential for tighter agency mortgage spreads ahead. Dynex plans to increase its exposure to Agency CMBS as RMBS spreads tighten.
* Management continues to monitor for "potential cracks in consumer credit" and evolving labor market dynamics.

FINANCIAL RESULTS

* Colligan noted net interest income is trending upward, supported by new investments and swaps.
* The company raised $254 million in new capital during Q3 and $776 million year-to-date.
* The portfolio grew 10% since Q2 and over 50% since the beginning of the year, with liquidity exceeding $1 billion and over 50% of total equity.
* Gains of over $130 million were realized on the portfolio in Q3, attributed to spread tightening.
* The company’s common equity market cap surpassed $1.8 billion, marking another milestone.

Q&A

* Bose George, Keefe, Bruyette, & Woods: Asked about incremental spreads, current ROEs, and leverage. Connelly responded, "The ROEs in Agency RMBS remain in the high teens, net of hedging costs. And really, you can get to growth in the mid-20s on a large percentage of the coupon stack." Leverage levels were confirmed to align with these returns.
* George requested a book value update. Connelly replied, "Estimated $12.71, net of the dividend accrual as of Friday's close."
* Douglas Harter, UBS: Questioned the comment on wide mortgage spreads. Connelly clarified, "If you look at them versus interest rate swaps, mortgage spreads are still in that top quartile of the widest levels we've seen over the long term."
* Harter also inquired about swap spreads and catalysts for change. Connelly pointed to the federal deficit and treasury supply as major factors, explaining Dynex maintains a buffer at current spread levels.
* Trevor Cranston, JMP Securities: Sought insight on Agency RMBS demand, particularly GSE participation. Connelly acknowledged the GSEs have capacity to add significantly but sees low probability of full usage. He also outlined robust demand from banks, institutional investors, and mortgage REITs.
* Cranston asked about hedging strategy amid lower volatility. Connelly indicated the company selectively adds options when volatility is low. Popenoe added that protecting against tail events is a priority when such protection is inexpensive.
* Eric Hagen, BTIG: Explored the volatility market and MBS spreads. Popenoe noted, "The market has shrugged off a lot," attributing calm to policy clarity and abundant liquidity, while emphasizing the need for protection against outsized events. Connelly reinforced preparation for volatility as a core strategy.
* Hagen inquired if reinvestment offers alpha within the coupon stack. Connelly responded, "As we reinvest some of the paydowns on the book, the opportunities across the coupon stack are tremendous."

SENTIMENT ANALYSIS

* Analysts maintained a constructive but probing tone, focusing on spreads, leverage, and demand dynamics. Their questions centered on sustainability of returns, risk management, and macro catalysts.
* Management’s sentiment in prepared remarks was confident, emphasizing robust returns and deliberate growth. In the Q&A, responses remained measured and detailed, with Popenoe and Connelly stressing discipline and preparedness. Popenoe’s statements like "we really think long and hard about protecting our shareholders in these outsized tail events" and Connelly’s "we're preparing for the day when the markets start to react in a big way" reflect a cautious but opportunistic stance.
* Compared to the previous quarter, both analyst and management sentiment remained confident, though management showed heightened vigilance about market complexity and volatility.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter saw a continuation of the raise-and-deploy strategy, but with accelerated capital raising ($254 million in Q3 vs. $560 million in all of H1) and a 10% portfolio growth since Q2.
* The new office opening in New York marks a strategic shift to enhance talent acquisition and business partner proximity.
* Both quarters emphasized deliberate leverage and risk management, but management highlighted more tactical agility in Q3 given shifting macro dynamics.
* Analyst focus remained on spreads, leverage, and demand, but Q3 included more questions on hedging and volatility.
* Management tone was consistent with prior quarters, continuing to emphasize resilience, liquidity, and readiness for volatility.

RISKS AND CONCERNS

* Management highlighted persistent inflation, geopolitical risks, U.S. labor market slowdown, and the potential for a government shutdown as macro headwinds.
* Popenoe discussed vulnerabilities in the highly levered private credit market and the risk of persistent cracks emerging.
* Connelly pointed to growing concerns about consumer credit, particularly rising auto loan delinquencies and labor market weakness.
* The company continues to stress liquidity, disciplined risk management, and readiness for tail events as mitigation strategies.

FINAL TAKEAWAY

Dynex Capital’s leadership underscored a quarter of deliberate expansion, robust capital raising, and strong portfolio performance, supported by a highly liquid balance sheet and a focus on shareholder alignment. With a new office in New York and a common equity market cap surpassing $1.8 billion, management remains committed to tactical growth, risk discipline, and seizing opportunities in Agency RMBS and CMBS, while preparing for evolving macroeconomic uncertainties and market volatility.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/dx/earnings/transcripts]

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