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DYNEX CAPITAL INC (DX)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered net income of $0.61 per common share and comprehensive income of $0.15 per share; book value per share declined to $12.70, producing total economic return of $0.13 (1.0% of beginning book value), with derivative gains offsetting MBS/TBA fair value losses .
  • Economic net interest spread improved sharply to 0.41% vs. -0.58% in Q3, driven by lower repo financing costs and a strategic shift from Treasury futures to interest rate swaps that added 0.74% to spread and $11.9M in net periodic interest in Q4 .
  • Liquidity remained strong at $658.3M, leverage including TBAs rose to 7.9x; the company raised $64.4M via ATM in Q4 and increased the monthly dividend to $0.15 in November (post-quarter, raised again to $0.17 for March 2025) .
  • Management highlighted a favorable investing environment (wider RMBS spreads, a steeper curve, and supportive hedges) and discussed potential GSE reform risks; book value was “essentially flat” quarter-to-date post Q4 close per Q&A .
  • Wall Street EPS/revenue consensus from S&P Global was unavailable due to access limits, so estimate beats/misses could not be assessed; implications hinge on sustained spread carry, swap-driven ROE uplift, and dividend trajectory [GetEstimates error noted].

What Went Well and What Went Wrong

What Went Well

  • Economic net interest spread turned positive (0.41%) vs. -0.58% in Q3, reflecting lower financing costs and increased use of swaps; net periodic interest from swaps was $11.9M and added 0.74% to spread in Q4 .
  • Management executed “raise-at-opportunity” capital and deployed into widened spreads: $606.3M of 5.0%/5.5% Agency RMBS purchases, net +$415.0M TBAs; leverage increased to 7.9x, positioning for carry and potential tightening .
  • Tone remained confident: “shareholders have earned a total shareholder return of 13.7% in 2024”; leadership underscored flexibility/liquidity and promoted T.J. Connelly to CIO, reinforcing investment process and hedge strategy .

What Went Wrong

  • Book value per share declined q/q to $12.70 from $13.00, as the 10-year Treasury rose ~80 bps and mortgage spreads widened; MBS/TBA FV losses of $(332.4)M offset by derivatives gains of $337.3M .
  • Non-GAAP EAD remained modest (Q4 EAD to common $8.1M, $0.10/share), indicating limited distributable earnings power from core portfolio after expenses/dividends despite spread improvement .
  • Financing markets showed periodic repo volatility (quarter/ year-end “traffic jams”), and the portfolio remains exposed to prepayment/negative convexity in higher coupons—necessitating specified pools and diversified coupon stack to mitigate refi shocks .

Financial Results

Income Statement and Per-Share Metrics (Quarterly)

MetricQ2 2024Q3 2024Q4 2024
Interest Income ($USD Thousands)$76,054 $83,458 $88,496
Interest Expense ($USD Thousands)$(74,767) $(82,564) $(81,609)
Net Interest Income ($USD Thousands)$1,287 $894 $6,887
Net Income to Common ($USD Thousands)$(10,227) $29,074 $49,163
Diluted EPS ($/Share)$(0.15) $0.38 $0.60
Comprehensive Income to Common ($USD Thousands)$8,914 $70,741 $12,562
Comprehensive Income per Share ($/Share)N/A$0.93 $0.15
Dividends Declared per Share ($/Share)$0.39 $0.39 $0.43

Spreads and Financing

MetricQ2 2024Q3 2024Q4 2024
Net Interest Spread (GAAP)(1.01)% (0.86)% (0.34)%
Net Periodic Interest from Swaps ($USD Thousands)$17 $4,162 $11,926
Swap Benefit to Spread (pct pts)N/A0.28% 0.74%
Economic Net Interest Spread (non-GAAP)N/A(0.58)% 0.41%
Repo Financing Cost (WAVG)5.47% 5.44% 4.97%

Key Balance Sheet / KPI Trajectory

MetricQ2 2024Q3 2024Q4 2024
Book Value per Common Share ($)$12.50 $13.00 $12.70
Liquidity ($USD Millions)$644.0 $708.7 $658.3
Leverage incl. TBAs (x)7.9x 7.6x 7.9x
Total Economic Return ($/Share)$(0.31) $0.89 $0.13
Capital Raised ($USD Millions)$124.7 $56.2 $64.4

Portfolio Composition (Selected Agency RMBS/TBA Fair Value)

Coupon/InstrumentQ3 2024 ($MM)MixQ4 2024 ($MM)Mix
5.0% RMBS$2,074 22.2% $2,285 23.2%
5.5% RMBS$1,988 21.3% $2,178 22.1%
TBA 5.0%$766 8.2% $685 7.0%
TBA 5.5%$599 6.4% $852 8.7%
Total Agency RMBS$9,093 97.6% $9,621 97.8%

Guidance Changes

MetricPeriodPrevious Guidance/ProjectionCurrent Guidance/ProjectionChange
Monthly Common Dividend ($/share)Nov 2024 onward$0.13 (pre-Nov) $0.15 (Nov/Dec 2024, Jan 2025) Raised
Monthly Common Dividend ($/share)March 2025$0.15 $0.17 Raised (post-quarter)
Projected Tax Hedge Gains recognition (FY2025, $000s)FY 2025$88,583 (as of Q3) $100,144 (as of Q4) Raised
Swap Benefit to Spread (pct pts)Q4 20240.28% (Q3 actual) 0.74% (Q4 actual) Increased
Repo Financing Cost (WAVG)Q4 20245.44% (Q3) 4.97% (Q4) Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2, Q3)Current Period (Q4)Trend
Hedge shift (futures → swaps)Initiated in Q3; swap spreads ~40 bps below Treasuries; ROE uplift after margin ~2/3 hedges moved to swaps; 200–300 bps ROE uplift targeted; 0.74% spread benefit in Q4 Accelerating adoption; additive to carry
Yield curve/financing costsSteeper curve; repo volatility at qtr-end; financing costs trending down Yield curve uninverted; financing costs down; repo spreads vs SOFR improving (<20 bps) Improving carry conditions
Leverage/capital raise disciplineRaised $125M in Q2; leverage could rise 1–2x opportunistically Raised $64M in Q4; leverage at 7.9x; continue disciplined growth at accretive ROEs Steady, opportunistic growth
Bank/CMO demand, spreadsBanks/CMOs bid returning; specified pools favored; spreads 135–155 bps (7-yr) Spreads ~135–140 bps vs 7-yr Treasuries; banks hedging with swaps; potential tighter spreads Stable-to-tightening bias
Policy risk/GSE reformWatching fiscal policy; election-related vol; known unknowns Small risk premium priced; privatization path “substantial hurdle”; steady MBS market Monitored; low base-case impact

Management Commentary

  • “We strategically added capital… steeper yield curve, significantly lower financing costs, wide mortgage spreads to Treasuries, and beneficial swap hedges that support strong returns.” – Smriti Popenoe, Co-CEO .
  • “The investment environment continues to offer significant long-term value in the Agency RMBS market… focused on flexibility as we navigate the year ahead.” – Byron Boston, Co-CEO .
  • “Moving ~2/3 of our hedges into swaps can add 200–300 bps of marginal ROE… spreads compensate for higher Treasury issuance.” – T.J. Connelly, CIO .
  • “We kept our financing book short… leaned into lower borrowing costs… rotated hedge position from futures to swaps.” – CFO Rob Colligan .

Q&A Highlights

  • Hedge transition rationale: Swaps offered compelling spreads vs Treasuries; expected 200–300 bps ROE uplift; futures gains amortized straight-line vs swaps following payments—management will disclose portfolio changes quarterly .
  • Book value trend: “Essentially flat since the end of the quarter,” as of close of the Friday following Q4, net of dividend .
  • Capital raising/go-forward size: Growth is predicated on accretive ROEs and benefits of scale (G&A ratio down 70 bps YoY); ATM remains primary tool; target size balanced with strategic maneuverability .
  • Policy/GSE reform risk: Market pricing implies small probability of structural change; the path to privatization is “substantial” and not clearly beneficial to homeowners; management remains engaged with Washington .
  • Rate sensitivity: Portfolio positioned more balanced on parallel shifts, with added steepener; front-end less volatile; mortgages viable between 5.5–7.5% rates .
  • Repo dynamics: Quarter-end intermediation “traffic jams” vs systemic liquidity; Fed monitoring reserve levels; repo spreads to SOFR improving .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable due to access limits, so we cannot assess beats/misses versus estimates at this time. Values retrieved from S&P Global were not accessible due to a system limit; therefore, estimate comparisons are not provided.

Key Takeaways for Investors

  • Positive spread carry inflection: Economic net interest spread turned positive in Q4, supported by lower repo costs and swap hedges—sustained carry could underpin dividend coverage and BV stabilization .
  • Hedge mix is accretive: Shift to swaps is a structural tailwind for ROE (200–300 bps uplift target), reducing hedge fixed pay rates vs Treasuries and locking in forward financing costs .
  • Dividend trajectory: Raised to $0.15 in Nov 2024 and to $0.17 for March 2025 post-quarter—supported by taxable hedge gains amortization and improving portfolio yields; watch sustainability as EAD trends evolve .
  • Portfolio construction matters: Specified pools and diversified coupon stack mitigate prepayment/negative convexity risk; allocation remains tilted to 5.0–5.5% coupons with tactical TBA use .
  • Macro/policy watch: GSE reform chatter and fiscal backdrop could widen/tighten spreads; management expects bank demand and steeper curve to support Agency RMBS; monitor repo stability and implied vol .
  • Trading implications (near term): Catalysts include continued spread carry improvements, evidence of BV stability, and dividend actions; volatility around policy headlines could create tactical entry/add opportunities .
  • Medium-term thesis: Scale benefits, disciplined capital deployment, and swap-hedge economics position DX to deliver attractive total returns if spreads hold and funding markets remain benign .