管理層發言
Good day, and welcome to the Dynex Capital Inc. Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Alison G. Griffin, Head of Capital Markets and Investor Relations. Please go ahead.
Thank you, operator, and thank you to everyone joining us today for Dynex's second quarter 2026 earnings conference call. Joining me on today's call are Smriti Laxman Popenoe, Co-Chief Executive Officer and President; Byron Boston, Chairman and Co-Chief Executive Officer; Michael Sartori, Chief Financial Officer; and Terrence J. Connelly, Chief Investment Officer. Before we begin, I would like to remind you that today's discussion may include forward-looking statements. These statements are based on current expectations, forecasts, and assumptions and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially. For additional information regarding these risks and factors, please refer to our filings with the SEC available in the Investors section of our website and on the SEC's website. Dynex undertakes no obligation to update or revise any forward-looking statements. Our earnings press release was issued and filed with the SEC earlier today and is on the Investors section of our website at dynexcapital.com as well as on the SEC's website. We may also reference our earnings presentation during today's call which is available on our Investors page. With that, I will turn the call over to Smriti for opening remarks.
Thank you, Alison, and good morning, everyone. I am pleased to report a strong performance quarter for Dynex. Our total economic return of 6.4% was achieved alongside healthy capital issuance of nearly $400 million for the quarter. In the first six months of the year, the capital base increased to $3.1 billion from $2.4 billion at year end, and we grew our portfolio of agency MBS by over 40%. We are progressing well on our path: delivering consistent dividend income for our shareholders while building scale and resilience. Since 2022, we have expanded our capital base by 5x and continue to see a significant opportunity to thoughtfully build the company from here. We are executing our strategy for a more durable mortgage investment platform with a valuation that is consistent with our strong track record, increasing relevance, and scale. I want to give some context for our strategic thinking. First, why agency MBS? Our conviction in agency MBS as the core of our strategy is high. Agency MBS are among the most liquid and cycle-tested asset classes with a demonstrated ability to withstand periods of market stress over the past 40 years. In the last decade, our macro opinion led us to focus more on liquidity and flexibility. We therefore allocated our capital to the agency sector. The compelling return, liquidity, and flexibility of this asset class are unmatched. It drove our outperformance in 2020 as well as in the Fed hiking cycle of 2022 to 2025. In our view, agency MBS remains the best risk-reward across our investment universe for this macro environment. Hence, our approach is to invest in agency MBS while building the capital base and strengthening the operating platform. Second, what is the imperative to grow and scale? The reasons are twofold. The most straightforward reason is valuation. Larger companies, often regardless of delivered performance, earn a better valuation metric. This is further bolstered by the popularity of passive investing. As passive funds receive more cash, they allocate based on size to larger companies. In our view, this provides a structural tailwind for the expansion of Dynex. By delivering both performance and size, we believe we can garner higher valuations for our business and ultimately bring greater value to our shareholders. The other component driving our strategic thinking is risk management. As a macro-focused investor, we continuously evaluate global trends. We currently see increased risks related to both geopolitical conflict and technological change, reinforcing our focus on continuing to build resilience across our business and operations. While we cannot predict the ultimate impact of AI, we are preparing by investing in people and technology and strengthening the processes that protect capital, sustain performance, and create long-term shareholder value. The goal is to drive robust, reliable, repeatable, and resilient processes that can withstand both market and operating shocks. So where we are now is that the conditions for us to execute on growing the company, building resilience and scale are very favorable, and they are creating a virtuous flywheel. By capitalizing on the investment opportunity in agency MBS, we generate performance. That attracts investors and supports valuation. This enables accretive capital raising, which in turn is invested in high-quality assets. And as each turn goes through, the liquidity, visibility, and valuation improve. A reinforcing dynamic that we believe will continue. This is the pathway to scale, resilience, and ultimately the premium valuation deserved by our track record and durable platform. I will now turn it over to Mike and TJ to provide the details on the quarter and the outlook.
Thank you, Smriti. I will now review our financial results for the second quarter ended June 30, 2026. We reported book value per share of $12.90 at quarter end, representing a 2.4% increase from $12.60 as of March 31. The improvement was primarily driven by tighter spreads relative to the prior quarter and accretive capital deployment. Total economic return for the quarter was 6.4%, including $0.51 per share in common dividends and $0.30 per share from the increase in portfolio value during the quarter. Net interest income increased to $0.42 per share, up from $0.40 in the prior quarter, driven primarily by lower funding cost, capital deployment into investments with attractive yield profiles, and the durable earnings contribution of our existing portfolio. We ended the quarter with adjusted leverage at 8.1x versus total equity compared to 8.6x at the end of last quarter. The decrease was primarily driven by portfolio appreciation and the retention of capital to support future investment opportunities. Consistent with our positive view on forward returns and the capital deployment opportunities that Smriti spoke to, we raised $391 million of capital in the second quarter at levels that were accretive to book value. Demand for our common stock and ATM issuance also reflects broadening investor interest in the Dynex story. The proceeds were deployed into agency MBS opportunities as spreads remain supportive of risk-adjusted returns. We continue to evaluate further growth opportunities through our disciplined framework focused on market conditions, expected returns, and short- and long-term accretion to shareholder value. Liquidity remains a key strength with $1.6 billion of cash and unencumbered securities at quarter end, representing over 51% of total equity, up approximately 5% from the prior quarter. Maintaining ample liquidity remains a core element of our risk management framework and provides flexibility to capitalize on market opportunities as they arise. Overall, the quarter reflected continued progress across our key financial objectives, including book value growth, disciplined capital deployment, strong liquidity, and improving earnings power as we continue to execute our strategy. With that, I will turn it over to TJ to discuss portfolio positioning and outlook.
Thanks, Mike. Our process worked as designed in the second quarter. We carried substantial liquidity, maintained a strong funding position, and deployed new capital into the mortgage spread widening that occurred late in the first quarter and into the second quarter. Book value appreciated as spreads tightened, reflecting the incremental portfolio growth during the quarter. These results were generated through a repeatable process built around liquidity, risk management, and disciplined capital deployment. That process is well suited for today's investment environment where we are experiencing bouts of volatility followed by periods of calm. My initial comments today serve to tie our macroeconomic and mortgage market analysis to our portfolio construction. Our objective is to build a portfolio that can generate durable cash flows across a wide range of macroeconomic environments while preserving the flexibility to capitalize on or preserve value during changing market conditions. We observed two major trends that drive our overall risk posture. The first is the current AI investment boom, driving significant spending and changing expectations around growth, inflation, and productivity. We see this as the capital-intensive phase of a classic transformative cycle. Throughout history, these cycles have been shown to be prone to overfinancing and eventual repricing, with periods of uncertainty that can create volatility. For investors like Dynex with liquidity and flexibility, these periods can create compelling opportunities. Second, policy remains an especially important driver. Federal Reserve policy, housing policy, fiscal policy, and regulatory policy all influence the supply of and demand for agency mortgages. Under Chair Powell, the Federal Reserve has launched a broad review of monetary policy communications, economic data, and balance sheet strategy. While market participants focus on the nominal size of the balance sheet in dollar terms, we think it is important for the task forces to focus on the interest rate duration of their aggregate portfolio. Any balance sheet reduction proposal should incorporate the potential impact on the duration profile of the Treasury market, marginal Treasury yield, and ultimately, the cost of borrowing for the U.S. government. In our view, this puts a significant constraint on the speed and magnitude of any MBS-related actions. These factors lead us towards high-quality positions, which enable flexible management of exposures. Our criteria include assets that are regularly traded and transparently priced, with readily available financing or easily converted to cash. Hence, our focus on the agency MBS market hedged with interest rate swaps and futures. This macro backdrop also reinforces why we are constructing a diversified agency MBS portfolio designed to generate stable cash flows and durable income. In today's higher-rate environment, more negatively convex mortgages offer meaningful current income but must be owned thoughtfully within a balanced portfolio that manages prepayment and extension risk. By diversifying across coupons and collateral characteristics, we can capture attractive income while maintaining the ability to preserve value and reposition capital as the macro environment evolves. Looking forward, our outlook remains constructive. As we see in the presentation, agency MBS spreads to swaps remain in an attractive range. Mortgage rates have been remarkably stable. Refinancing activity remains muted. Our assets are generating solid cash flow and income. Technical conditions are also constructive. Demand for fixed income remains strong as evidenced by bond fund and annuity inflows. Money managers continue to prefer agency MBS over corporate credit. In our view, corporate credit has minimal potential for further price appreciation while agency MBS offer the potential for better carry and price appreciation. Private credit investors are increasingly seeking higher-quality fixed income with more transparency and liquidity. Net mortgage supply remains manageable. We have lowered our 2026 forecast for net supply to $165 billion from $200 billion. Even amid expectations for modestly higher Fed policy rates, bank demand, especially for floating-rate MBS assets, has remained consistent. In addition, the GSEs have demonstrated willingness to act as value-sensitive buyers when mortgages become particularly attractive. We remain vigilant on GSE policy changes as the midterm elections approach. Since last November, we have viewed this dynamic as a meaningful governor on mortgage spread widening and an important part of the technical landscape. We expect to deploy capital in agency RMBS securities, specified pools, and seasoned securities that provide stable cash flows over time. The breadth of today's mortgage market allows us to construct a portfolio that balances current income, optionality, liquidity, and long-term return potential. Our activity is opportunistic, and timing of capital deployment is an important part of our calculus. Our approach remains straightforward: maintain liquidity, preserve balance sheet flexibility, and deploy capital when market opportunities present themselves. That approach served us well during the second quarter and we believe it positions us to continue generating durable dividend income and long-term shareholder value. I will now turn the call back over to Smriti.
Thank you, T.J. and Mike. The long-term tailwinds to our business model remain intact. The demographic need for income and housing support our company's capital and investment opportunity where we can apply our expert, ethical management of mortgage assets to generate solid returns for shareholders. The near-term conditions for our business to continue to grow, invest, and build resilience are favorable. The virtuous flywheel of performance, investor demand, valuation benefit, accretive capital raising, and opportunistic deployment is a powerful driver of shareholder value creation. To our current and prospective shareholders, I will say this: We are delivering a double-digit dividend yield, book value upside as MBS spreads tighten, and the potential for stronger valuation as the markets price the value of our track record and scale. For those of you who are shareholders today, thank you. We remain invested and aligned with you and are grateful for the trust and confidence you place in us every day. To our prospective shareholders, we invite you to come and be part of the Dynex story. With that, I will turn it over to the operator for questions.
分析師問答
Thank you. Once again, that is *1 if you would like to ask a question. We will now take our first question from Bose George with KBW.
Hey, everyone. Good morning. Can we get an update on the book value quarter to date?
Sure, Bose. Quarter to date through Friday, July 17, spreads were about three basis points wider on the quarter. Book value as of Friday was approximately $12.76.
Okay. Great. Thanks. And then can you just talk about your expectations for mortgage spreads, say, over the next 12 months? And you kind of alluded to this, but what do you think happens with the GSE mandate to purchase MBS after they finish that $200 billion? Do you think that gets extended? Just color on that would be great. Thanks.
Let me correct that quickly, Bose. I misspoke earlier. The book value as of Friday was $12.67. My apologies. Regarding the spread outlook going forward, we think the GSE backstop is really important as a stabilizer for spreads. We have seen spreads consistently come in when they widen. Over time, that insulates many buyers and their willingness to hold agency mortgages. We think spreads can move into, based on the spread chart we use—which is current coupon versus seven-year spread—into roughly 100 to 120 basis points. I expect that to be the equilibrium over time.
Great. Thanks.
We will now take our next question from Marissa G. H. Lobo with UBS.
Good morning and thank you. Just looking at portfolio asset growth over the quarter with the decline in leverage to 8.1. Can you talk to us about ultimately where you want leverage to run if spreads remain in the current range?
In the current environment, Marissa, good morning. We have been running somewhere between 7.5x and 8.5x leverage. I think that is a very comfortable range given the technical backdrop for mortgages, the opportunity that persists, and the spread outlook I discussed with Bose. We can carry that kind of leverage or potentially even more, leaning into any bouts of liquidity. As I mentioned, we carry tremendous liquidity for exactly those sorts of situations like we saw in the second quarter. So I think this recent activity is indicative of what we may see going forward. Regarding AI-driven refinancing risk potentially increasing negative convexity in the market, this is a critical concept we have addressed over time. It will make it easier for originators to refinance borrowers very quickly. Algorithms will move more quickly. It comes down to how quickly the borrower is willing to answer the text message or phone call. That makes security selection absolutely paramount. The easiest-to-refinance loans will be very quick, whereas those more insulated and with lower loan balances or other characteristics that offer protection to prepayments will be increasingly valued in the marketplace. I think that construct has not been fully priced into the markets at this point.
Got it. Thank you. Thanks for taking my questions.
Our next question will come from Doug Harter with BTIG.
Thanks. Can you talk about how you are thinking about investing in a market that is very headline-driven at the moment, and how bouts of volatility play into how you think about that leverage range you just talked about, TJ?
Hi, Doug. I will give you the big picture, and TJ can provide the tactical detail. We have been discussing that surprises are highly probable and can come from many sources. That is one reason we have the agency MBS book that we have and carry the levels of liquidity that we do. It allows us to take advantage of moments where capital raising happens at accretive levels, and we can choose to deploy that capital when bouts of volatility occur. In those moments, we always have the choice of taking up risk or taking down risk. We are being thoughtful about that as opportunities arise. In general, it allows us flexibility to add assets at wider levels of spread. That has been the tactical way we have managed these past months. TJ can discuss how we execute in conjunction with the capital raising.
We start with a top-down approach. One observation about macro markets since the Ukraine war is how quickly commodity markets can rebalance. That has been striking across agriculture in 2022 and crude oil in the last several months. We think about all possible scenarios and what surprises could do, including gap risk in rates. That is why we carry liquidity and tactically it leaves us in a position of strength to lean into opportunities when they appear. It is remarkable how realized volatility came down over the course of the second quarter despite headlines. You can look at price action from Friday night to Sunday evening and see modest movement. Markets are resilient. The supply-and-demand profile for real assets rebalances quickly, and that is part of our calculus when evaluating tactical opportunities as spreads widen.
Great. Appreciate it. One more on operating expenses: Can you talk about your outlook for the level there? It has bounced around the past couple of quarters as you build out but came down this quarter. How should we think about the right level going forward?
Doug, we continue to track our expense ratio at 2% of total equity this year. So you should think about roughly 2% for the full year.
Okay. I appreciate that. Thank you very much.
We will now take our next question from Trevor Cranston with Citizens JMP.
Hey, thanks. Good morning. Looking at the chart of rate volatility, it has moved down to the low end of where it's been over the last five years, which is supportive of MBS spreads. How do you think about that going forward? Is it possible volatility continues to move into a lower range, or do you think it will remain somewhat elevated by geopolitical and headline risk? Also, has the broad backdrop of positive trends in both the MBS market and funding markets changed how you think about your target range for leverage?
I assume you are looking at something like the MOVE index, Trevor. It has come down significantly this year. We have experienced spikes, so most importantly we are constantly preparing the portfolio for spikes in volatility and positioning to be in strength when they occur. If you look out the vol surface, for example at one-year expirations on 10-year swap rates, realized volatility there has been remarkably lower than implied volatilities. There is still scope for implied volatilities to move down significantly, and that has a clear link to mortgage performance: as implied volatility comes down, mortgages tend to perform better over time.
Understood. And on leverage, you noted positive technicals in the MBS market as well as the funding markets. Has that changed how you think about your target range for leverage?
Trevor, our overall opinion has not changed; it is driven by the macro environment. As TJ discussed, the policy framework, technological developments, geopolitical risk, and the overall level of macro risk determine our stance. The secondary factor is where mortgage spreads are relative to interest rate swaps. Mortgages remain attractive in this environment, and we can earn a good rate of return, but high levels of leverage are out of the picture because of our respect for macro risk. We adjust leverage tactically within a narrower range, and you will see us do that. The last quarter's activity reflects our ability to move leverage up or down by roughly plus or minus one turn to adjust to market conditions while respecting the elevated global macro risk.
Okay, that is helpful. Thank you.
We will now take our next question from Jason Weaver with Jones Trading.
Good morning and thanks for taking the question. Looking at Slide 26 in the deck, it looks like you lengthened the book by adding more long-end exposure there. Is that an inherent curve view embedded in there, or how should I think about that? I see more 7-10 year and some longer-dated exposures.
The positions farther out the curve are interest rate swaps where we are paying fixed. That implies a slight steepening bias relative to the previous quarter. At the same time, we added specified pools, which tend to have longer durations. Also note the 30-year U.S. futures position is slightly smaller short than it was, so there has been some movement between those two positions.
Fair enough. And the follow-up: on the book value increase, can you ballpark how much of that was due to issuance of book versus tightening on the portfolio that was in place?
Jason, we typically do not break that out.
That is fair. Alright. Thank you.
We will take our next question from Jason Stewart with Compass Point.
Hi, thanks. Good morning. Thinking about the shape of the yield curve and forwards, how are you thinking about positioning the portfolio in a potentially flatter environment? Do you disagree with the path implied by forwards for short rates? And on specified pools and premium-at-risk, including pay-ups, how do you hedge that? If long rates are directionally higher, how much premium-at-risk are you willing to accept and how should we think about that relative to the hedge book?
The portfolio entered the quarter with less of a curve bias than at any time in the last six to eight quarters, which leaves us well positioned if flattening continues. We are fairly well hedged across the curve and are looking for opportunities to potentially put on a slight steepening bias, but the portfolio is well hedged today. On specified pools and pay-ups over TBAs, the market has become deeper, more liquid, and more transparently priced. Security selection has become paramount; investors are looking at individual pool characteristics much like other bond market segments. We think about these characteristics and prepare for all scenarios. The specified pool market is more liquid and transparently priced than at many points in our careers, and the pools we are buying should perform well in higher rates as housing turnover evolves. Those pools provide the durable cash flows I discussed earlier.
One follow-up on the prior question: I know you will not provide the exact number, but in terms of third-quarter book value quarter-to-date, was there any impact on book from share issuance?
There was no meaningful impact to book value from share issuance in the quarter-to-date; it was very minimal if anything.
Okay. Thank you very much.
That does conclude our question-and-answer session for today. I would like to turn the conference back over to Smriti for any additional or closing comments.
We thank everyone for your attention this morning, and we look forward to updating you again for our third quarter results. Thank you very much, operator.
Thank you. And that does conclude today's call. We thank you all for your participation. You may now disconnect.