DX - Earnings call transcript Q2 2024

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dynex Capital Second Quarter Earnings Conference Call. I would now like to turn the call over to Alison Griffin, Vice President of Investor Relations. Please go ahead.

Alison G. Griffin

Good morning, and thank you for joining us for Dynex Capital's Second Quarter 2024 Earnings Call. with this was morning, associated with and release SEC the July press today's issued call filed The XX, XXXX.

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

begin, inherently Litigation be external subject you this those by certain expressions Before those expect, XXXX. company's or factors and words to Reform which may risks Act from and I conference of uncertainties, meaning forecast, to unforeseen contemplated of that within predicted are actual statements project, forward-looking forward-looking believe, risks. similar some of statements of identify statements timing events cannot forward-looking considerably and/or The the could wish plan anticipate, as differ or the call remind we a that contain Private quantified. and estimate, projected Securities of results result The

homepage risks, with is found referenced to Dynex live as our presentation the Internet with a on the additional refer be Center as found call SEC's our The factors on be streaming may please which well the filed or website. website. This disclosures on under broadcast SEC Investor under Investor be conference through Quarterly our For these page. being website over Reports may link Center on presentation, also which slide webcast slide the can information of the the on

Officer. It Executive pleasure Chairman Financial call and Co-Chief Chief Colligan, Byron. Boston, Joining Chief Vice Chief Rob Byron my and to over Officer; Popenoe, and me Officer; Executive President, Officer now the on call the Executive to Operating Investment and Smriti turn Co-Chief Officer is is President,

Byron L. Boston

a shareholders. was million. continue will everyone. Capital, I we capitalization company consistent our first cash for here compelling long-term less good At and monthly Dynex's When than morning, XXXX, market to Alison, and you, income that joined on Thank returns deliver Dynex build $XXX

history. the our far XXXX. I'm about excited in billion made time the total extremely quarter, have first progress so $X XX-year and our equity Capital eclipsed we in for This proud Dynex at

of investment cycles. a with has incredible and cycles. history market a many an already through decade I've been managed As This student multiple economic practitioner, extreme portfolios

many were prepared. surprises Our team Events for understood surprised this at not has the were prepared always market Dynex team. been that that highly were in We here and probable. surprises

We a capital that is have are with strong. a extremely mindset and nimble sitting we base

on Today, we As in start Harman capitalize financial remains half experience of we as Chief history hired positioned His that our to Officer. REITs we the compete new Technology in financial market. Human institutions. brings and mortgage other analytics. XXXX, a second we Sahni ensure we the announced major are Harman cycle can us. including continue will a for the on tech-driven expertise deep focus well at mortgage capital technology, next to major

his with Popenoe, Exchange. was current our me. Smriti Smriti Co-Chief addition teammate, CFO, long-term Operating was New in York finally, successfully first Officer Bob We Colligan, our Chief as Nilson, also We Jeff these Rebecca Rob titles executive Stock been align and XX and Risk changes. gather XX-plus-year of have doing. roles XX assets and a executed our named an Officer Chief mortgage nearly several has our already IPO my work for on and ago cases, Controller; a Assistant management Controller, named Chief and I actions has team years, XX the named people created announced been been are Officer; Imhof, veteran the new to and colleague mortgage leadership has REIT named Dynex Accounting these current Officer; for exceptional In with years. named years title; Executive managed Controller Childress, most our

industry, are period. grew managed her ever in has and been accomplishments a leadership to REIT, long-term Today's and and are the invaluable. that the is brought one Operating great that comparison. competitive. team cements skills Officer, the endure team are she importance tenured I've to developed we of willingness this taught vision, review continents, and markets. Her Dynex highly which of her up, the success market. strategic management mortgage I methodically is the will and are this publicly-traded into valuable to legacy perspective now over She the to it was has The on successfully building career male process Rob CFO in tenacity, her in a on met and over time investment dominated action and as oldest the place. Dynex the achieved company Smriti Smriti putting resolve, mortgage are despite demonstrated to longest financials. Colligan, adaptability focused and Chief that well and REIT obstacles. Growing our leader turn formalizes the we're our over in her X managing Smriti, future. I that has global lessons The kind beyond she to We has significant mortgage educated learn and has our that resilience. anyone with together and company vision the as

Robert Colligan

really named trust and Operating to my title. of and of Dynex of Directors you, employees. seriously. Officer very and coming and shareholders Byron, Financial Board everyone Thank changes enjoy the the confidence I'm is every Earning the call. positive something making joining and I benefit truly to Officer, morning honored I be Chief our work the take Chief to for good team day management to adding

the per the the the first Treasury was negative The X.X% quarter XX-year to the from now of for end spreads $XX.XX and broadly share, value up basis a points were turn approximately XX I'll the quarter. Book financial was results. quarter wider. and economic return ended at

some of and XX.X deploy at quarter, Smriti lower-yielding a million and when June wider during is raise of half $XXX addition of on stock. This were $XX.XX a quarter second higher-than-expected of of paydowns local per and interest the of XXXX. will issued the a assets was income We in capital, which assets. this which capital in which the positive invested raised further reserved shares cover was higher-yielding new we spreads older great million some result was deployment newer, in her comments. Net during to the share as high execution

to only trend if the annually continue quarter, compensation. in expenses this year, were not In quarter, improve the for on expect financing first higher first an in Expenses did discussed forward. the basis. the costs would We equity-based up These we occur recur expect will going and and income down. trend later interest we second second quarter this accelerated net quarter

be hedge with Hedge gains our are losses preferred will will the our earnings quarter, income, detail and presentation ordinary in be and with of now for of topic. I'll of REIT a turn requirements this the Please component and gains more covering remained Page earnings. This instruments. earnings carry, losses, distribution Treasury release and hedging the call see other of taxable Smriti. futures XX over supportive on portfolio to the Page X part and

Smriti L. Popenoe

to enthusiasm, Thank and work collaborative and Officer. Rob it energy, like success, promotion my He to approach you, everyone. is strong and these I'd a to morning, Operating teammate, good and alongside every to expertise, a him. brings pleasure contributed congratulate the Colligan, day, Chief his colleague work have a to clearly ethic traits on and work

longtime build Risk my Co-CEO I position Bob Officer. of continued sterling employees, to credit to Nilson, has work Bob delighted also of to reputation promoted Chief longest counterparties, the to to forward alongside success also tenured Dynex's Dynex's accept tirelessly his teammate, one of look worked We with and company. I'm Byron. the

the We commitment be ROEs. Fed lead have a set to trend remain slightly as share into core Agency favorable same from possible company, data environment a the Dynex. to Fed we values, tracking to We relative the perspective ease third are integrity future. The and policies certain navigated Dynex investment Volatility downward becoming its range in double-digit while elevated the the MBS quarter. history, bringing storms as now an very continued different each and nominal more and vision towards skill offering powerful continues for in many spreads for a will be combination together. that common

Our view perform steepening alternatives. Dynex's well absolute extremely also on other environment. Agency fixed to forward remains cheap from basis that an will relative current the returns portfolio will are income historically best in MBS, which come and

Page that see risk the in our can You on deck. profile XX on

which ], Looking the and result company. We our execution for to in assets the It will largest these unknowns strong ahead a known to capital vulnerable and had environment game to relationships unknowns the unknown as the early landmark tactical led was have core resetting that us in of since was for for market history of closed This transactions, effectively combination public such These June. Blocksize second year respects. XXXX, stewardship received our capital remains the volatility. raise the to [ we testament Capital dislocations half believe the plan. This solid ethical a many XX-plus makes add we Dynex opened macroeconomic economics cultivated. exogenous been outstanding prudently shocks. overall raise of in while reputation XXXX. in a raise view to Using bouts

the the the Soon and raise, kept a remaining us we've chance as powder. to and about X/X deploy dry after MBS raise, of Agency widened, giving

to of between long-term We we form unencumbered deploy year-end, attractive we maintain now and in that returns. degree at continue capital liquidity and a cash the chances believe have and assets, to high of that will

implied RMBS, OAS tighter OAS, for environment, X spread strong of lower in today's and a of where the a bid nominal banks possible have We XX to products levels. by a that Agency Agency or to range flight be driving rates, X nominal front-end than equilibrium scenario delivered the volatility, is would highly tighter and over are potential driven recessionary bps quarters. MBS. This quality coming MBS XX credit the the conviction be will underperformance falling and return A spread

be demand. believe for capital may a for banks We tailwind also rewritten rules

We capitalize arise are into that well positioned will year-end. on opportunities to

potential believe command strongly company to the We valuation. for premium our also a in

to continues returns. at discount relative stock trade Our to a forward

to shareholder passive indices, investment will support continue we to more grow, attracting returns. total added for and our providing As expect market stock we be stronger

business you. We confidence deliver our in now the future. balance this to deeply value managing and believe can I sheet work to share team and would are line a and premium Finally, the us like investors we the expertise price have open our for reflected and financials to for value not continue diligently further I sterling in easy-to-value to transparent grateful the the model, am questions. to in reputation, book drive in

Operator

line Your question the from Jason Instructions] [Operator Weaver first with JonesTrading. comes of

Jason Weaver

all, First positions of and just congratulations and Rob all new have or joined. the others that to Smriti

the a detail can you you anything that First, I invest was hoping bit you time there? the ROE, raised. around could more line if projected about capital new share to Coupon

Smriti L. Popenoe

Jason, thank you for the question.

that environment deploy are Those So basically, are in now call be the second between a ROEs believe on XX% thought and of appropriate static capital. coupons. terms of an sort to this have it, a the of in right year are on basis being would good middle on of half mortgages we higher as range the spread the basis. nominal We XX% ROEs. that

as versus they've and versus X.XX tight the the We're as So of sitting like range. wide right now X.XX between terms trading X-year in X-year. been right as as that in

that add the the kind of very So I that's prepared why to known on about is and in wider as allow things remarks. the mentioned and will still attractive that us actually And spreads, at returns, of unknowns just deployment. we coming but believe being unknown patient even capital one unknowns focused we're assets possibly we're

Jason Weaver

to you that's rate Fed policy? volatility right upcoming maybe your what else the little whether on for are the election, of up? drill sort interest potential Anything Understood. risks stands radar forward, now, that And that's whether on out about going that When down bit. there think biggest a

Smriti L. Popenoe

an lower what's think I are in that interesting environment we vol. is of

continue actually been for and very positive will from So positive down, mortgages vols mortgages. are trending be and that's to

in That's you you So I is year predict, What right, to thinking versus is that that unknown that's things risk, we about something kind focused of policy can whenever is what shifts a things And position. we of for U.S. not second that is that how the about think is policy that. but on last a come know don't from that's one stuff policy fiscal visible. the that there So one issue are can't are not big unknowns, evolves. with and call feel you that globally, elections, we're just we're tailwind come right? The something going in the issue, shocks, big right? think exogenous there

we're kind thinking when of of for vols that binary, that context which come, the is very will hedge. overall, supportive difficult mortgages. coming that's risk the So is, policy in about and and it's it's to have it And and does But volatility, these that you bouts risk. down, are

Jason Weaver

And right. congrats again. very once All That's helpful.

Smriti L. Popenoe

Thanks, Jason.

Operator

the Eric Hagen question comes line next from with Your of BTIG.

Eric Hagen

you value an you couple if think follow-ups And if narrative what on Did was, A Fed update you're spreads I can here. mentioned and of book and you then guys applying you just volatility rates, portfolio there. that I leverage see stays being you range where interest into current does feel mean, that say the the for your of how the the the comfortable? amount factor to focused just tighter. give cutting

Smriti L. Popenoe

of Thank value Friday book you. as so is X%. up quarter Yes, about versus end

of of really go leverage in here, terms In yes. we're of risk back would what thinking terms I to the environment,

us position environment tighter. is spread asset hold any expect spreads again, widening add So balance. to would a to to an time, this we're sort versus a asset going when to you are the lot of Over higher -- I where, use

So over environment I our position reflects chances now, asset as the we'll the the to year, view put to half work. should risk think our just the And have evolve, second of to money up. go starts time, right balances that

Eric Hagen

to And looking mean, tactics given how see great. the coupon, especially to the sensitivity as we do you think mean, get lower I just really refi helpful. Yes. the bigger That's guys in That's that to borrowers? about originators rates? marketing aggressive I interest expect those from the you current spread

Smriti L. Popenoe

here. that for spread We to that up we options down greater that that's the positions there's in and in things coupon Look, be you -- some convexity be back one But had pools to Yes. rates yes, gives mitigate constructed higher lower coupons. portfolio the ways you So buy own, of rates you has in One that. the there's right? using the protection. X is specified both

back. having this that's is position, those options second where bought just coupon The and diversified get

We've very of the can see that in you we cognizant even higher coupons rate faster without seen that we So decline in much prepays. are market, mortgage a the own. do that

a in of pools. terms way that So the low those managing refi in we idea risk. how process and have clear you'll in active pay-up very been thought a of And protect areas specified to book. that We specs of we're is see like against present some the as

Operator

KBW. next Labetti Your comes from question the Frank line of with

Bose George

a rest questions. team. of Congratulations, And and Rob Bose. Smriti and is This the of the actually, couple

Can a is quarter-over-quarter if that bit fell expenses your First, forward? million. any of what's a us, And to remind going was by good quarter change personnel the about rate first elevated? $X impact that you run for number going also number? the And

Robert Colligan

Sure, the the investing Bose. million accelerated equity had comp $X Thanks quarter. about for question. This first in some we is by Yes, Rob. on

bump that through good quarters, out I run it a So think model if out a forward, it just of move million would you But heavier a that year. you $X the that you spread QX, where way the year, rest QX just bump out. if have a over to instead be the quarter good We is that may in a said going that's was of than little if the X rate.

Bose George

this apart rate from Okay. reasonable? is And run that, then quarter's

Robert Colligan

Yes, the second Just materially run rate. changes question, of the change personnel part your won't the

Bose George

And Okay. interest Great. increase, accelerated basis income the does economic that about return -- Rob, does and refer well to Fed the guess, And cuts. or could cuts? the comment I Fed net it if made how EAD, then the as you the an if on and impact comment that

Robert Colligan

EAD total Yes, up. rates Yes. the or return economic goes both. go it's repo and cuts up If down, really Fed go

rates we it banking don't a expect, come people on gladly obviously, through If than we're manage lower immediately if like sooner, come they later that, it's expenses. come or even not repo but triple can do happens, win. that if those So take will

Operator

Will comes next The Suisse. [ Nest with question from Credit of the ] line

Douglas Harter

This is from UBS. actually Doug Harter

below of payback little you kind equity kind leverage. to through trade-off kind amount versus about hoping the a and a how talk value, you the Just of period decision more large could of equity, the see bit increasing of position the issue book

Smriti L. Popenoe

Thanks, Doug. Yes.

of mortgage a the we when been for performance amount People with this Dynex have about reputation remarks. okay? demand stock, I cycle your or can started are looking investors. for notice tremendous good, People talked best-performing investing that management since in through during attractive where here prepared That REIT agency that's off the with thereabouts. teams our provide So was resonating is an is XXXX value really mortgages.

for So stock. starts Dynex with off demand that it

last do we in. And Dynex. a of the inquiry cost that gets So was was environment, environment it, as investing upfront trading the shorter when quarter, When are, talked the the us And to there we're us amount very easier is, when we was issue. sense for thing one. Thing payback in considering this we that so strong makes into gave much issue, make that to for spreads number fact reverse it subtracted why that at the being rationale any high that we're us history, our detailed when actually a other number very wide is ends the time I do are factored equity. look, local issue which issue -- for I equity, And back right? up as in for issuing they two, period That's decision. about other piece a stock equity? than

and the shareholders. other The our really this important time for pricing was was piece that was aggressive very advantageous that

it this situation, there the last work those really to the for chances day, just our of we decision. the deploy us that U.S. played put of think some us these we into second the weeks political in of last witnessed There help to situation, believe And this of piece political be is are are into the capital the good and year, will So are will all at looking factors already that the really that capital. known at levels. end unknowns, X which global factors half we've the

Douglas Harter

a talking of that When stock, is about that stock kind view of of you're the high local Or local price-to-book how you just Smriti, follow-up. an is the kind terms And in of the high absolute level? valuation? on

Smriti L. Popenoe

the I into All all that above. those it, that think factors of yes. are And go

Operator

line ]. of JonesTrading [ with question Your (sic) comes from Stewart Janney next the Jason

Jason Stewart

given your thanks about, with new congrats we the and Jason promotion. for going It's role Janney. forward teams the Byron, Byron, should moves? introduction on the Stewart How to think these

Byron L. Boston

That's here I year proud Capital. this am so with. in This I'm question. absolutely Dynex -- been be you to Dynex a my is Thank team Capital, with and I that I work this the and I phenomenal. being at XXth team. at great question. I've here work love for love

an have the team. have developing time. It's right We extremely picking amount I over right seat. being. experience enormous beings human human experienced about an the not of for also just accumulated the It's about

people, technology. right right the seat the process and the about the is So developing right

I So to to at company am the build for here looking Capital future, future. Dynex our the

more have resilience in structure. We this

We development the terms at we've have in capital of human to And be you, personnel. over decisions. of years, everyone time, else consistency honest we've couple over frank look you moves made our and that with better if outperformed opportunity for last the of

find basis. building manner have through of terms similar journey, a the been for listening disciplined in who with all Dynex pretty blessed for we'll company values to here people. I we've those Similar piece in us you keep to generating future by excited group show this And appreciate here excited any piece looking a here. I very And couldn't solid of on January and a this So and more than that I'm the been of have time. XXXX, are with great been income culture, Capital, be I over at a in team who've shareholders methodically, up cash monthly that

Jason Stewart

it's Byron, Thanks, much I up say coupon? versus think total carry-based to a return, we that are coupon? When how these that of what time a Great. you the a the trades, in played shorter I to has of that team on team. forward portfolio about and look question is had hearing from out to duration calls. at coupon does down for shift to move and looking markers when in you dynamic down Or terms mean we

Smriti L. Popenoe

just would comments. I one say to Byron's add thing -- I Jason, can

just a that a a we're says team. are We today's We've team being going been And announcement long team. time. keep to for

And so piece that's an important of this.

other coupons trend and question volatility being your the about to of that environment having that declining. -- higher can about is the nice really things overall, the in positioning, the think in coupon get one I is you the this returns the

So And cost nominal nominal return, pay of these expense means have just actually the hedge earning have of return, a the chance that as you is the can And high. option to coupons that that lower. right, spread. the to you some isn't

above. would we're right, actually to be consider of below in is really, more and the and but happens increase So able book X.X% that believe, when see when actually down would in in of I that's you well environment just to fairly vol to in, that your one usually that where coupon. And rate position XX% we start that, position to a sort think in you aggressive and taking diversified. the XX% cost our option guys, factors coupon. in increasing, the above scenarios starting is yet advance -- be Xs, adjust remind That like down down It's that is we of not to want we

So it's relatively way. in balanced that

asked too some earlier question respectful trying the higher else take we're the So -- call, of the risk we're risk to that just of of refinancing down about very rate someone on much not on that coupons. because just

Jason Stewart

it. Got Yes.

Okay. And Rob. for just one clarification

And that obviously that of that? said think rate just holds cut, would rate I think mean I Fed cut you -- NII we noticed absent amplify that inflect, Fed correct? but you

Robert Colligan

off and point than as That's we've yielding had actually go. we're expected, assets faster are higher we the paying off adding and that there is lower we The correct. paying yield

trend to continue should that that So direction. in

Operator

for I ahead. will Please now turn closing remarks. the Mr. Boston call to back go Byron over

Byron L. Boston

call. We Capital, look day. long you our quarterly to wonderful you very term. conference much. next forward on we're you Thank Have remember, a Thank Dynex seeing managing for the much. very Please

Operator

you gentlemen, for disconnect. Ladies and Thank now call. and concludes you that today's joining, all may

Dynex Capital (DX) 22 Jul 242024 Q2 Earnings call transcript