DX - Earnings call transcript Q1 2024

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Operator

Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dynex Capital, Inc.

First Quarter 2024 Earnings Conference Call. [Operator Instructions]

to of conference Investor like Griffin, to now President Vice Relations. would turn over the Alison I

You may begin.

Alison G. Griffin

The with Good morning, filed XXXX. First Call. Capital's us with for release and thank morning, you Quarter for the SEC XXXX April issued call was today's joining this Dynex press and associated XX, Earnings

view may at on at as as well release dynexcapital.com SEC's sec.gov. of website homepage You the press on the website the the Dynex

may you or we Reform statements are contain similar some begin, that words inherently statements call which we anticipate, this Before and be the Act Litigation project, identify forecast, estimate, uncertainties, The forward-looking of cannot remind the Securities that subject quantified. of to XXXX. meaning believe, to within expect, forward-looking and predicted expressions plan conference wish Private of risks

company's and/or a The those of factors from certain results statements of as forward-looking risks. timing actual differ external result events considerably could and contemplated unforeseen those by projected or

factors please Center as be on these Dynex Investor found under on may information SEC's website. website the or on which our additional refer disclosures well with SEC, risks, For the the filed to as

Center a homepage presentation, presentation over This a link slide with broadcast page. found be referenced which also webcast may on of the through Investor conference can reports live the on our the streaming website. be slide call being is internet The quarterly under

Smriti Popenoe, President, Chief the is Vice and and call Executive Byron President on me Officer; Officer; Chairman Joining Officer. Colligan, and Boston, Investment Financial Chief Executive Rob Chief

to the to my Byron. pleasure now is over turn It call

Byron L. Boston

building company joined Stock the Listed protect shareholders' And above-average as and strategy plan economic paying the in total solid with to quarter. our Alison. new Dynex Exchange capital on a and execute I to long term. Capital's company is the We with growing long-term continue of goal a our you, Thank of a XXXX, dividend REIT. York for sheet, X.X% a delivered the company, XXXX steady strategic in New our we on vision. developing a tenured Dynex mortgage the longest balance over return

guided we have period, multiple this extraordinary During cycles. shareholders our market through

made environments. in necessary processes, to people, our strategy future perform all continue We decisions to the to technology have consistently adjust and

We have of Board returns. the we increase developing focused Directors of talent the times to that team key our skill deliver and sets of refreshed attractive to successfully our person continue dividend and on multiple our pay to reduce the risk probability and

is have and One been of principles the success strongest set guided of our values. in always that we a core factors by

to is win we at environments. to cost any do our Our not through will goal what market guide but is shareholders ethically all correct

X have well the and to global Dynex prepared. team intensify. ready, Over continued risks is past disciplined the And years,

of explain I perform on future as further performance further will now we the over to our Smriti quarter to are to the elaborate unfolds. to positioned how and and turn Rob call the continue to

Robert Colligan

in the began Thank to the everyone the you, rate that quarter share. $XX.XX began to The Byron, value October reverse XX-year quarter the morning. return last delivered treasury X.X% at per funds this as drop book federal and for and the economic good an to Dynex expectations joining fade. ended of common cuts for call course started morning

the While XX end up the points book flat. essentially approximately basis value XX-year treasury from the was was of year,

quarter February vesting item one compared the earnings in impact schedule raise. I of annually in to $X.XX a going other of comply value was The of were $XX We with expect raised $X.XX. million book standard to we of new by the this standards related accelerated which forward. the to earnings this wider. and first spreads in an vesting March quarter, had The quarter. accounting reduced we reduction And To recur affecting each when this had compensation, for capital, acceleration year this This share-based conditions. was deployed quarter capital about

REIT a exactly in a a stable we delivered healthy what that, a mortgage value period dividend. should volatility. that Beyond book and deliver We had delivered lower

We buy up to stock of of also stock which renewal of common buyback our allows stock. $XX a program, announced preferred million to us $XXX and million

that priced extreme expired the or stock Our the support program previous shares program discount. if and preferred place at and we to to the when a common of in or always price at end need quarter, an buy have shares can ensure our we

of with income first part and futures quarter, Hedge gains are our remained will distribution of hedging treasury the gains and ordinary taxable requirement other preferred instruments. In component REIT our be losses losses. a and

hedge the gains, the a which our for large realized portfolio. cumulative we we quarter, have benefit reduced but aggregate This loss, still

in quarter hedge portfolio to in have a covering Post positive presentation environment release more perform yield we their and the In to as march inverted continue earnings. support Page continue hedges the we well this see rates an like earnings for now, our end, earnings upwards. hedges which Page expect X on detail the have topic. curve our XX Please will carry,

turn Smriti. that, the call over I'll to now With

Smriti L. Popenoe

continues Rob, post-pandemic normal. the you, morning, new transition good everyone. Thank and to The global economy to

well. our We for and tail risks higher calm risk modestly policy management much lower the ]. planning of environment, and In been of as near overall an have volatility evolving for framework rates periods bouts [ rates term, includes

remain in We bumpy RMBS, United our This returns. especially in which elections of Therefore, high-quality trajectory. remains management a compelling Agency We fiscal in quarter our unsustainable focused the geopolitical the view remain U.S. offer here rates positioning. be risk-adjusted on for capital highly to risks, factor expressed long-term strategy last continues cognizant investment liquid a about ride. We States. our designed

our tailwinds returns are to versus today portfolio returns of of spread to and MBS volatility spread cost at see today's opportunities are add upside, We is eases Fed and for and capital. bouts but meet generate assets, necessary returns. attractive levels. long-term positioned Our they our not target as us eventual are to accretive Agency tightening

spreads. data to in expected major driving We MBS factor volatility economic a be

higher XXXX our well remain a we And approximately So versus off seen as spreads the far volatility have wides our We quarter. points this result, Agency have of MBS portfolio. models last wider option-adjusted basis XX in October quarter, across range sponsorship quarter substantially as spreads November the fourth with forward of return be of has MBS since the for going the the narrower in XXXX improved XXXX. feel sector We seen banks. will

MBS it sector. this the announcing Fed system will while campaign. the In expected may the addition, change directly, to another tightening is in for is not reduction banking any that soon pace positive its yet which And a adds the quantitative of resource reduction impact be

else by market volatility. higher push might this exacerbated being short-term a expect will supply be and technicals We of equal, wider, spreads all

short-term however, Over equilibrium as term, buying In of the and MBS. expect continue would long tighter the we absence medium opportunity. to dip regard Agency any we spreads disruptions, a widening severe for

that cover top-down I'd by thoughts thinking macroeconomic driven based capital process. the is our to like raising around in our decision-making same environment. investment capital this our drives All

private criterion is long-term to risk earn whether return balance today's Agency of like transition Our public MBS. This environment, there raising investment housed from exceeds driven level being we a opportunity the the that is a or Fed return dividend. believe is primary by sheets when capital earn In the capital meets expect of to long-term on investment we to in the the this compelling Dynex. like type

accretive In and foundation exceeds is environment put in shareholders a growing economic healthy the scaling unique our the other investment business words, and valuation we market platform. a the from of believe the lays return to higher for capital, to cost total the on

lens evaluate again, buy in we Every always, extreme As the marginal it. on And disruptions. the we back a here stand long-term versus investments. has buybacks ready stock return on to decision

Finally, company. as company. an strategic additional inclusion stock. Moreover, and strategic factors such longevity there significant index return liquidity Building can we goal benefits drive our to growing ensure important are to the shareholder and of believe in scale the the resilience is

long-term spreads Our enhanced compelling on mortgage We long-term view offer shareholders. to focused return remain tighter economic our that delivering remains total spreads. globin returns today's by

I'll now turn over it Byron. to

Byron L. Boston

Thank Smriti. you,

we is expertise flexibility asset company the government-guaranteed positioned class a across credit pivot for spectrum. environment. from generating Our income Today, are with uniquely and to this

a with process, excellence. a stewardship record a track mindset, We disciplined experienced have and an team of

to Our actions long-term by that will into strategic guided shareholder the are continue drive believe we well future. a process value

demographic income increasing to U.S., moves In aging company for due through need the of populations. retirement. income-generating our the is the expected is boom need for generation rise the to growing We're stable the income global baby as as

providing just I on trends Hong similar educational trip an shareholders. further to a those more in support platform, later Kong week. this the China, this returned demographics and Korea of from on to I be sharing upside Dynex and the observed These long-term piece thought value countries. will South

I it you will in Dynex and look up you questions. to for for next interest thank again speaking open now quarter. We your with forward

Operator

the from line comes Instructions] of first George [Operator KBW. question Your of Bose

Bose George

is This Bose.

value quarter-to-date. For Could update -- thanks an of for and your the spreads we get also the book is? estimate question first on where

Smriti L. Popenoe

Yes.

these book as $XX.XX. closed of unaudited, numbers at fully the So again, Friday, not are

So of that's about commensurate with OAS the widening XX X%, points that's spread basis really down trends. and in

Bose George

-- helpful. think you the of ROEs current spreads, your Okay. Great. when cost of dividend? cost do Or capital, of you about And then the capital. of just above noted your current in common you capital? would that the terms cost And you your see estimate That's where And are? it's is essentially your how

Smriti L. Popenoe

first I'll first. the answer question

from on end X% the end. marginal seeing low MBS are We high XX% Agency anywhere returns on on to the

mortgages. optimizing and a coupon other cost of repo yield. we think So any sheet -- is it's right terms preferred high shareholders, about sort of dividend common, financing use, the thinking then the ROEs on of of the it's it's current itself, interesting obviously, now, balance capital We The is the which market. are the the in question. common for when double-digit we on an blend vehicles it And

looking long-term about the we're capital. of level at we of again, and when So really blended a dividend the think cost cost a

Operator

line of UBS. comes of Harter the Doug Your next question from

Douglas Harter

Just book how the April first dividend? does you to treat clarify, gave, that value update that

Smriti L. Popenoe

That's April dividend. the net of

Douglas Harter

the And capital Great. on just raising. Okay. more then

think widening is about Or of along capital. total Just -- you think -- from how do you of of you is for raise decision tightening, guess -- you a your then buy a kind just cost reward the the of the -- more you you're returns spread the just process about the little if I it payback lines, is process -- period appropriate thought of do well? kind how that as -- potential the you or capital and -- could attractiveness perspective help of just the bit about kind the talked kind it in through of of But it risk an bit deploy to contemplate about seeing and as kind us of return just what think how just that? And little at? those you

Smriti L. Popenoe

Absolutely.

trade eventually we've should say just is at book. valuation. That's believe of above the I'll in So right company the the bat, being off reflected created value not is #X. infrastructure the The we here reason our the that company

term, returns However, we capital short are our long-term in raising right. view and returns. the of All compelling of because those the

to in us credit we tightening. a for spread what range become I you mentioned of when long-term payback on the the anywhere and dividend. so to in don't which theoretical years, terms versus spread sense raise evaluating include for makes we're my periods, when is we as of of give In months When ROE payback really that and ourselves the forth, from raising, the long-term matter tightening. process, comments, X.X can period accretive, our are level X so Those prepared is it

factor the basis on time kind point So really tightening so a value, of OAS become right, where in look for spread those we're increase you a that in example, is on talk any if we periods to X% in which instantaneous, risk back the not and that's is counting much book you tightening XX profile, our earn faster. dilution page that But upside. once about in deck

good answer the term, dividend asset to Doug? we your between returns if question, expect and reason raise. Does spreads accretive yield over the long time, that to be enough the Over that's us for

Douglas Harter

It does.

of in book to just about trading impact those the kind and back guess, and of goal are how your that that you kind cost issuing -- that short or along I the of affects trading how the term how getting -- -- might of at capital above or below of thinking impact you book? believe and lines, that Just to ultimate articulated you the

Smriti L. Popenoe

Yes.

wider of end an I one think expect spreads really don't in, in range, XX decisions, X range in terms we're floating about and decisions where of the you'll back you these environment term, are to That's types these very X, the when are it's when or in I X, quickly see the and that like quarters. the the or We're it's forth short wide in the actually going hard sometimes mortgage in end from X the see payback the X very okay? So at X, payback quarters. of hard of payback. we're thinking next

the is So seeing of value at can the or expect be spread necessarily see by isn't moment over But we will the mortgage need of to time, and it trend I spreads, not tightening the virtuous starts level moment, maybe terms in I that seeing, tell see but X of that tighter definitive versus of a is lower. to you, it. volatility a level year, mortgage the market into point, to right, think buy the now in of we these aren't of spreads, investors you part X in the of we which, mortgage this or think there's that quarters tighter mortgage investors things. cumulative even range And going just spreads, payback. story. Right spread but see sort way, But of to be become now, to still uncertainty I believe last just at come a

it's It now. priced for why right deter us doesn't right not the in understand make from wanting I So shareholders. being long-term to decision

Byron L. Boston

To Rob. that's that. we Go manage term. -- think long remember, that. to point, manage will mortgage the Doug, Excellent, Smriti. for we've And best done the a way do it's We always ahead, the REIT. We always last

Robert Colligan

Sure, Doug.

used ATM programs. you have When as markets Just way the efficient other now capital alternatives, right for raise others is space capital. point. in We ATM the think about the as to the most us one well other

been would in of it other So larger while raising. discounts have the forms small was at a discount, much capital

what very we're efficient. We dilutive. focus something that be So cognizant able don't the lot. want quarter the on in now, very and to to ATM right of actually accomplish we're a it. we But It's program was

Operator

of question next the JonesTrading. Matthew comes line Your from of Erdner

Matthew Erdner

a talk TBAs? the allocation you the capital into little and bit on about Could rotating thought

Smriti L. Popenoe

Yes.

have coupons So and for relatively to volatility, I at a of we're profile the looking balanced one just of XX-XX interest coupons. would the outlook thereabouts core coupon rates is interest say, about, in in higher terms versus principles rate our and lower the

deep would in in the of slightly we February So into like higher Higher relative that the say, coupons discount did the mortgages. underweight widening were of really the coupons and coming episodes I spread quarter saw to, March. underperform real sort we X

our stack. so the in that allocation And went of part coupon

Matthew Erdner

leverage, your That's helpful. And around then thinking if you're able to of provide leverage that how the quarter-to-date and about thoughts over we've just volatility months? couple the given seen you're past

Smriti L. Popenoe

Rob But this the Yes. on say I'll that right we're leverage level view that our would with general, in you comfortable now exact of this is the give for the leverage of quarter. have I we amount change in level for and markets. let of spreads leverage on the

to quarter do in us allowed room have And add first that. the We raise capital to leverage. the

leverage the we that up, they how do have look, a take spreads have range exogenous we in that. And be technical or there been into view that and XXXX. market again, shocks. banks kind get they've much back the to trade ready down the stand only predicated is where really just mortgages. to start -- environment will to these stronger extent not this that XXXX -- bid than to now, a take they much opportunities mortgage market coming That's tighter of the our you you've being upon many take Right in So for to think how range still is to so we because to it just but of up of got ready leverage can

as not 'XX, the tighter. little the may wide wide tight may So be as a and 'XX be bit

level So spreads you're to really tighter getting work of mortgage a much with.

leverage And so Do is that a we the why leverage today. update? it where is have informs

Robert Colligan

the little end leverage of Yes, end bit so quarter. was week, from it up towards a so X.X%, the about of the last

Smriti L. Popenoe

reflects the that being value down. And book

Operator

question the Your from BTIG. of next line Eric Instructions] comes of [Operator Hagen

Eric Hagen

you the Can for to I the we might you what something drive material some of opening you tail in in and addressing some maybe tightening looking for spreads remarks. And out market could there? in more that, now? think on elaborate the conditions of maybe be see mentioned right addition that which risks your

Smriti L. Popenoe

think the perform results actually Fed so markets in Yes. Look, back Thanks, put actually the Eric. stagflationary hikes economy Thanks are economy I well. doesn't for that tick-up the But to question. strength having then unprepared for scenario in a type relatively the inflation, of a continuing the table. U.S. on the in or

of where at called the taking down known/unknowns environment, here seriously macroeconomic are a unknown-unknowns. relative list that here. to exactly risk think evolving That's So very we're inflation an those this things always when come that. No of you straight expected on X Dynex We've one and doing to a it's kind in line.

And posts of LinkedIn some the seen part question. our your with You've connection that me to second on of the brings volatility.

The to inflation. here lower really macroeconomic are anything down up, X% inflation affects volatilities macro that's actually here. X% much more trajectory and now mortgages. not are very brings implied data that the in -- positive -- just that's the spread inflation, that more the tend widen volatile therefore, of volatility we very, and volatility of realm environments, those There's within we're for from macroeconomic that to And possibility. talking there's think The spreads volatility The very X% is dependent X% to inflation about is volatility. volatility. valuations, go mortgage Mortgage on right? So data mortgage mortgages delivered

should come delivered that's for down, supportive start to you very spreads. So and ball see mortgage

are technicals substantial for seen April. run have It's amount orderly mortgages has much the not We in spread widening would November the go remarkably did that hills, so have of of of seeing dash October, Even part, been say, of rates some though that around. in same saw levels we happened. a all sell the just kind cash, you we back not the other The I types here we're for this is better own interest 'XX.

then in in tightening. So that's than increasing itself affect terms about there's supportive just tapering securities of well. or finally, time that's on mortgages other that actually prospect. And But think tighten. the things talked mortgages we may directly. loans. to of margin, a encouraging bank investing not more That duration very cause quantitative got any Fed bid I have any risk-free would been you've and they're the think spreads rather for asset, And reserves. to that mortgage actually that Banks in a of as

Eric Hagen

and That's really mean, classes helpful. estate? market. the actions control asset you the for think meaningful into that, drive back like you Maybe you that the a spread duration? and I how real commercial do larger how And mentioned is banks I coming follow-up in mean mortgages their might on conversation. appetite other banks of for do pressure even

Smriti L. Popenoe

the margin, not what's the been of activity it's quarter. tier first actually I the first on. drives the larger the have the quarter, In in mortgage that wanted and going been been never banks actually a CMO smaller banks bid Look, middle floaters. -- They it's banks lot left market. driver banks, larger interestingly, marginal think their of on That's buy to the the

just extent a don't mortgage yet. think the massive of that's larger So but mean seen that you purchases, of that I spreads, get tailwind level back for banks we've that stepping up actually in I to terms the the

Operator

session. Q&A Byron closing will concludes Boston conference I turn now back over remarks. the That our for to

Byron L. Boston

a as thank long-term we we very has all thinking remind today. always we're put, forward, for We to you And that explained. want strategy. have Smriti Simply us joining you

chatting quarter. for with you joining look So again us and again today, to we you next thank forward

Operator

This concludes conference call. today's

disconnect. now may You

Dynex Capital (DX) 22 Apr 242024 Q1 Earnings call transcript