Executive Summary

Q1 2025 delivered 2.6% total economic return ($0.33/share) with book value down 1.1% to $12.56 and monthly dividend at $0.17; GAAP diluted EPS was -$0.06 as derivative losses offset higher net interest income .
Economic net interest income rose to $27.98M with economic net interest spread improving to 0.79% (vs 0.41% in Q4), reflecting higher asset yields and lower financing costs; EAD to common increased to $18.7M .
Wall Street consensus: Primary EPS missed S&P Global expectations (0.207* actual vs 0.368* consensus), while S&P “Revenue” series also came in below consensus; definitional differences vs Dynex’s interest income complicate comparisons, but the quarter’s miss was driven by volatile rates and hedge losses amid the April tariff shock .
Positioning: Leverage reduced to 7.4x, liquidity strengthened to $790M, and portfolio shifted down-coupon with added swaptions; management emphasized agility and a high bar to add risk near term—key narrative for stock reaction around spread volatility and dividend durability .

What Went Well and What Went Wrong

What Went Well

Net interest income climbed to $17.13M (from $6.89M in Q4), with effective asset yields up and financing costs down; economic net interest income rose to $27.98M and economic net interest spread improved to 0.79% .
Capital raised $240M at a premium to book, liquidity increased to $790M, and leverage moved down to 7.4x—supporting optionality and resilience; “raised capital at attractive terms, preserving liquidity, and adding flexibility” .
Portfolio optimization: ~($895M) Agency RMBS and $55M Agency CMBS added; exposures shifted down-coupon for duration stability and swaptions added; hedges concentrated long-end, neutral duration with steepening bias .

What Went Wrong

Derivatives posted a $(118.1)M loss (notably swaps) amid tariff-induced volatility; comprehensive GAAP hedge losses outweighed investment gains, driving GAAP EPS to -$0.06 .
Book value per share declined to $12.56 (from $12.70 in Q4) and quarter-end leverage rose intra-quarter to ~7.8x solely due to lower book value (book update; later clarified accrual includes dividend) .
Expense uptick: G&A rose to $11.76M due partly to accelerated equity comp (~$1M impact), though management expects expenses to level and trend down through 2025 .

Financial Results

Metric	Q1 2024	Q4 2024	Q1 2025
Interest Income ($USD Thousands)	$71,525	$88,496	$95,059
Net Interest Income ($USD Thousands)	$(3,192)	$6,887	$17,133
GAAP Diluted EPS ($USD)	$0.64	$0.60	$(0.06)
Comprehensive Income per Common Share ($USD)	$0.35	$0.15	$0.16
Dividends Declared per Common Share ($USD)	$0.39	$0.43	$0.47
Book Value per Common Share ($USD)	$13.20	$12.70	$12.56
Liquidity ($USD Millions)	$577.1	$658.3	$790.0
Leverage incl. TBA (x)	8.1x	7.9x	7.4x
Net Interest Spread (GAAP, %)	(1.15)%	(0.34)%	0.15%
Economic Net Interest Spread (Non-GAAP, %)	(1.01)%	0.41%	0.79%
EAD to Common (Non-GAAP, $USD Thousands)	$(17,684)	$8,103	$18,728

Portfolio composition

Asset Class (Fair Value)	Q4 2024	Q1 2025
Total Agency RMBS ($USD Millions)	$9,620.6	$10,916.1
Agency CMBS ($USD Millions)	$95.5	$106.4
Agency CMBS IO ($USD Millions)	$103.6	$99.3
Non-Agency CMBS IO ($USD Millions)	$10.8	$8.4
Total ($USD Millions)	$9,830.5	$11,130.2

Estimates vs Actuals (S&P Global)

Metric	Q4 2024	Q1 2025
Primary EPS Consensus Mean ($USD)	0.03744*	0.36775*
Primary EPS Actual ($USD)	0.10000*	0.20700*
Revenue Consensus Mean ($USD)	2,166,500*	11,405,670*
Revenue Actual ($USD)	60,332,000*	9,042,000*

Values marked with * retrieved from S&P Global.

Interpretation: Q1 2025 Primary EPS missed consensus by ~$0.16 (0.207* vs 0.368*), while S&P’s “Revenue” series came in below consensus; note Dynex reports “Interest income” and “Net interest income” rather than a conventional revenue line item, making crosswalks to S&P’s revenue series non-trivial .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Monthly Common Dividend	Ongoing (Feb–May 2025)	$0.15 (pre-Feb 2025)	$0.17 declared for March and May 2025	Raised
Leverage Posture	Near term	Operate with lower leverage; capacity to add opportunistically	7.4x at Q1-end; high bar to add risk given volatility	Maintained conservative stance
Hedging Approach	2024–2025	Shift from futures toward SOFR swaps; add options	Maintain swaps bias; added swaptions; hedges concentrated long-end	Maintained/Expanded
Liquidity Posture	Near term	Robust liquidity to navigate shocks	Liquidity increased to $790M; targeted 60–70% of equity as liquidity philosophy discussed	Strengthened

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
Tariffs/Macro Volatility	Preparing for election risk; steeper curve favorable; robust returns potential	April 2 tariff shock drove hedge losses, rate volatility; portfolio managed with high liquidity	Volatility up; preparedness emphasized
Hedging Strategy	Shift toward swaps as spreads favored; futures gains amortized over time	Maintain swaps, add swaptions; hedges long-end, neutral duration, steepening bias	Options use rising
Repo Funding	Year-end traffic jams easing; SOFR+ <20–25 bps typical	Availability strong; SOFR+ ~15–17 bps; stable plumbing	Stable-to-improving
GSE/Regulatory	Monitoring potential GSE changes; smaller footprint ideology	Prepared for policy shocks; engaged with DC; scenario analysis for spread widening	Heightened focus
Prepayment Risk	Specified pools mitigate higher coupon refi risk	Focus on lower-coupon, specified pools; Rocket/Mr. Cooper consolidation increases refi capability	Elevated monitoring
Bank Demand/Flows	Banks returning to specified pools; fund flows supportive	Expect reacceleration as uncertainty declines; income demand demographic tailwind	Supportive

Management Commentary

“Over the past several quarters, we have deliberately positioned ourselves for a more dynamic macroeconomic environment... raising capital at attractive terms, preserving liquidity, and adding flexibility across our portfolio” — Byron L. Boston .
“Our 2.6% TER was delivered during the quarter with significant swings in rates... Skilled investors can earn substantial risk premiums from mortgage-backed securities, while effectively hedging interest rate risk” — T.J. Connelly .
“The dividend is a long-term decision... We raised our monthly dividend in February, reflecting our confidence in our continued ability to generate attractive returns” — Smriti L. Popenoe .
“We do not have any held-to-maturity investments or other unrealized losses that are hidden from sight” — Byron L. Boston .

Q&A Highlights

Funding: Repo spreads remained ~SOFR+15–17 bps with strong availability; forward SOFR widened slightly on longer tenors, but overall conditions stable .
Hedging composition: Swaps seen as the natural hedge; positioning allows adjustment both ways as opportunities arise .
ROE opportunity: Current coupon RMBS spreads (~200+ bps vs swaps) support significant ROE even in volatile rates; diversification across coupon stack to manage duration certainty .
Leverage and capital: Leverage at ~7.8x intra-quarter solely due to book decline; high bar to add risk; ATM equity use remains opportunistic and accretive when spreads and cost of capital justify .
Liquidity philosophy: Targeting higher cash vs unencumbered assets; discussed framework of 60–70% of equity liquidity concept (internal philosophy) to withstand shocks .

Estimates Context

Q1 2025 Primary EPS missed S&P Global consensus (0.207* actual vs 0.368* mean; ~$0.16 miss). The miss reflects hedge losses on swaps and futures amid April tariff volatility despite stronger net interest income .
S&P’s “Revenue” series (actual 9.04M* vs 11.41M* consensus) does not directly map to Dynex’s reported interest income ($95.06M), highlighting definitional differences typical for mortgage REITs; use EPS as primary performance anchor when comparing to consensus .
Values retrieved from S&P Global.

Key Takeaways for Investors

Spread-driven earnings power is improving: rising asset yields and lower financing costs lifted economic net interest spread to 0.79%; further benefit likely if volatility moderates and repo remains tight to SOFR .
Near-term caution warranted: EPS miss vs consensus was driven by hedge losses in an unusually volatile month; management’s high bar to add risk and elevated liquidity mitigate downside .
Dividend durability: The raise to $0.17/month signals confidence in spread returns and taxable income visibility (including deferred tax hedge gains); dividend cadence is a key trading narrative .
Portfolio optionality: Shift down-coupon, specified pools, and added swaptions position Dynex to capture carry with better duration certainty; expect incremental CMBS additions opportunistically .
Policy watch: GSE reform, tariffs, and regulatory tweaks (SLR, bank capital) are primary macro swing factors for MBS spreads; Dynex’s transparency and mark-to-market balance sheet help investors assess shocks in real time .
Liquidity and scale: $790M liquidity and accretive equity raises at premium to book underpin operational flexibility; scale has lowered the expense ratio versus 2024 .
Trading lens: Stock likely sensitive to spread volatility headlines and book value updates; positive catalysts include stabilized swap spreads, bank demand, and continued carry; negative catalysts include policy uncertainty spikes and rapid refi waves .

DYNEX CAPITAL INC (DX)·Q1 2025 Earnings Summary