DYNEX CAPITAL INC

Previous wording

From year end 2024 to March 31, 2025, interest rates across the U.S. Treasury curve were mostly lower, spreads on Agency RMBS were slightly tighter while spreads on Agency and non-agency CMBS were wider. Real estate equities broadly performed well, experienced stock market price appreciation and strong trading volumes. Dynex was active in the ATM program raising $239.7 million of new capital to deploy into the Agency market and also to provide liquidity and flexibility to face the markets going forward in 2025. For Dynex, positive carry, based on our interest income less interest expense and the periodic interest component of our interest rate swaps, improved in the first quarter of 2025 compared to the fourth quarter of 2024 as higher yielding assets have been added to the portfolio and financing costs continued to trend down. The second quarter of 2025 has been dominated by tariff news, the immediate reactions and ongoing discussion on how negotiations may unfold. We continue to operate our business at the intersection of the global capital markets and the U.S. housing finance system and take seriously our responsibility of being stewards of shareholder capital. The Dynex team will continue to manage risk and invest to deliver compelling shareholder returns over the long term.

Current wording

From year end 2024 to June 30, 2025, interest rates across the U.S. Treasury curve were mostly lower, and from March 31, 2025 to June 30, 2025, the U.S. 10-year U.S. Treasury rate and U.S. Federal Funds rate were essentially flat, but spreads were slightly wider. In addition, swap spreads have broadly trended more negative during the year which have had an impact on existing swaps, but improve the carry of additional swaps added to the portfolio. Dynex continues to be active in the ATM program, raising approximately $522 million of new capital during the six months ended June 30, 2025, which has been deployed into the Agency market at historically attractive levels and also provides liquidity. For Dynex, net interest income and spread income continue to improve from adding higher yielding assets to the portfolio, reducing financing costs and adding to yield from our swap portfolio. The news cycle this quarter has been active with new proposed U.S. policies, tariff negotiations and conflicts around the globe. We continue to operate our business at the intersection of the global capital markets and the U.S. housing finance system and take seriously our responsibility of being stewards of shareholder capital. The Dynex team remains focused on managing risk and investing to deliver compelling shareholder returns over time.

Previous wording

The charts below show the range of U.S. Treasury and SOFR-based swap rates for the first quarter of 2025 and information regarding market spreads as of and for the periods indicated:

Current wording

The charts below show the range of U.S. Treasury and SOFR-based swap rates for the second quarter of 2025 and information regarding market spreads as of and for the periods indicated:

Previous wording

The following table summarizes the changes in the Company's financial position during the first quarter of 2025:

Current wording

The following table summarizes the changes in the Company's financial position during the second quarter of 2025:

Previous wording

(2)Net proceeds from stock issuance include $0.8 million from amortization of share-based compensation, net of grants, and adjustments for payroll tax withholding on share-based compensation vesting during the three months ended March 31, 2025.

Current wording

(2)Net proceeds from common stock issuance include approximately $282.1 million from ATM issuances and approximately $3.5 million from amortization of share-based compensation, net of grants, during the three months ended June 30, 2025.

Previous wording

Tariffs continue to dominate the news cycle in April, and markets continue to adjust. Markets are experiencing volatility in response to announcements and uncertainty about the economic impacts. While the broader market movements have impacted the valuation of mortgage securities, the current market turmoil is not a real estate or mortgage event. We expect volatility to continue and remain focused on maintaining a portfolio of high-quality liquid securities and maintaining liquidity. We are also focused on our hedging strategy and believe options will be part of our hedge portfolio going forward. We continue to monitor the prepayment risk of our portfolio. Consolidation in the mortgage finance sector that combine strong mortgage origination, underwriting, servicing, and technology platforms into a single company are likely to expedite refinancing, resulting in an increase in prepayment risk.

Current wording

Markets continue to experience volatility in response to policy changes and a fast moving news cycle. We expect volatility to continue and remain focused on maintaining a portfolio of high-quality liquid securities and maintaining liquidity. While Agency and swaps markets have re-priced, the current market environment is not directly impacted by a specific real estate or mortgage event. We are also focused on our hedging strategy and believe options will be part of our hedge portfolio going forward. We also continue to monitor the prepayment risk of our portfolio, the direction of rates, and the outlook for U.S. Federal Reserve policy. The mortgage finance sector continues to evolve and will leverage new technologies that are likely to expedite refinancing which may result in an increase in prepayment risk.

Previous wording

The future structure of the GSEs is uncertain, and we remain engaged with policymakers to monitor these developments. The current policy and economic environment remain dynamic. We continue to monitor global macroeconomic conditions and large investment flows.

Current wording

Some certainty on the implicit guarantee on Agency securities was provided this quarter, but the future structure of the GSEs remains uncertain, and we continue to be engaged with policymakers to monitor these developments. We continue to monitor global macroeconomic conditions and large investment flows.

Previous wording

Our investment portfolio (including TBAs) as of March 31, 2025, increased approximately 13% compared to December 31, 2024 while the composition of our assets remained relatively unchanged with 74% in Agency RMBS, 24% in TBA securities, and 2% in Agency CMBS and CMBS IO. We purchased approximately $895.1 million of Agency RMBS during the three months ended March 31, 2025, of which $325.4 million were pending settlement as of March 31, 2025. We also increased our TBA positions by a notional of $430.0 million during the three months ended March 31, 2025 and purchased $54.6 million of Agency CMBS. The Agency CMBS purchases have a different convexity profile compared to our Agency RMBS, bringing a diversification benefit to the portfolio.

Current wording

We have added approximately $2.8 billion of Agency RMBS and $418 million of Agency CMBS during the six months ended June 30, 2025, of which $937 million were pending settlement as of June 30, 2025. We also increased our TBA dollar roll positions by a notional of $1.4 billion during the six months ended June 30, 2025. The Agency CMBS purchases have a different convexity profile compared to our Agency RMBS, which we believe adds diversification to our investment portfolio.

Previous wording

(1)Implied cost basis of TBAs represents the forward price to be paid for the underlying Agency MBS.

Current wording

(2)Implied cost basis of TBAs represents the forward price to be paid for the underlying Agency MBS.

Previous wording

(2)Fair value of TBAs is the implied market value of the underlying Agency security as of the end of the period.

Current wording

(3)Fair value of TBAs is the implied market value of the underlying Agency security as of the end of the period.

Previous wording

(3)TBAs are included on the consolidated balance sheet within “derivative assets/liabilities” at their net carrying value which is the difference between their implied market value and implied cost basis. Please refer to Note 5 of the Notes to the Consolidated Financial Statements for additional information.

Current wording

(4)TBAs are included on the consolidated balance sheet within “derivative assets/liabilities” at their net carrying value which is the difference between their implied market value and implied cost basis. Please refer to Note 5 of the Notes to the Consolidated Financial Statements for additional information.

Previous wording

(4)TBAs are excluded from this calculation as they do not have a defined weighted-average loan balance or age until mortgages have been assigned to the pool.

Current wording

(5)TBAs are excluded from this calculation as they do not have a defined weighted-average loan balance or age until mortgages have been assigned to the pool.

Previous wording

(5)Constant prepayment rate (“CPR”) represents the 3-month CPR of Agency RMBS held as of date indicated.

Current wording

(6)Constant prepayment rate (“CPR”) represents the 3-month CPR of Agency RMBS held as of date indicated.

Previous wording

(6)Duration measures the sensitivity of a security's price to the change in interest rates and represents the percent change in price of a security for a 100-basis point increase in interest rates. We calculate duration using third-party financial models and empirical data. Different models and methodologies can produce different estimates of duration for the same securities.

Current wording

(7)Duration measures the sensitivity of a security's price to the change in interest rates and represents the percent change in price of a security for a 100-basis point increase in interest rates. We calculate duration using third-party financial models and empirical data. Different models and methodologies can produce different estimates of duration for the same securities.

Previous wording

(7)Represents the weighted average market yield projected using cash flows generated from the forward curve based on market prices as of the date indicated and assuming zero volatility.

Current wording

(8)Represents the weighted average market yield projected using cash flows generated from the forward curve based on market prices as of the date indicated and assuming zero volatility.

Previous wording

Our Agency CMBS and Agency CMBS IO are backed by loans collateralized by multifamily properties, which have performed well given the demand for housing in the United States. Our Agency CMBS IO are from Freddie Mac Series K deals from which interest continues to be advanced even in the event of an underlying default up until liquidation. According to Freddie Mac, 99.6% of the loans in K-deals are current as of February 2025.

Current wording

Agency CMBS IO are backed by loans collateralized by multifamily properties, which have performed well given the demand for housing in the United States. Our Agency CMBS IO are from Freddie Mac Series K deals from which interest continues to be advanced even in the event of an underlying default up until liquidation. According to Freddie Mac, 99.6% of the loans in K-deals are current as of May 2025. Our non-Agency CMBS IO were all originated prior to 2018 and are backed by loans collateralized by a number of different property types, such as multifamily, office, retail, hotels, industrial, storage, and others. Our non-Agency CMBS IO investments are nearing maturity and have very little amortized cost remaining; any changes in actual payments may result in large swings in yield as shown below.

Previous wording

Our repurchase agreement borrowings increased to $7.2 billion as of March 31, 2025 from $6.6 billion as of December 31, 2024 as we used these funds to partially finance our purchases of Agency RMBS during the year. We have not experienced any difficulty in securing financing with any of our counterparties, and our repurchase agreement counterparties have not indicated any concerns regarding leverage or credit. Please refer to Note 4 of the Notes to the Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q as well as “Results of Operations” and “Liquidity and Capital Resources” contained within this Item 2 for additional information relating to our repurchase agreement borrowings.

Current wording

Our repurchase agreement borrowings increased to $9 billion as of June 30, 2025 from $7 billion as of December 31, 2024 as we used these funds to partially finance our purchases of Agency MBS during the six months ended June 30, 2025. We have not experienced any difficulty in securing financing with any of our counterparties, and our repurchase agreement counterparties have not indicated any concerns regarding leverage or credit. Please refer to Note 4 of the Notes to the Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q as well as “Results of Operations” and “Liquidity and Capital Resources” contained within this Item 2 for additional information relating to our repurchase agreement borrowings.

Previous wording

Net interest income and net interest spread improved for the three months ended March 31, 2025, compared to the three months ended December 31, 2024 due to having a larger portfolio of Agency RMBS with higher yields. In addition, our financing costs during the three months ended March 31, 2025 declined approximately 41 basis points compared to the three months ended December 31, 2024 as the first quarter of 2025 received the full benefit of the 0.25% reduction in the targeted Federal Funds rate implemented by the FOMC in both November and December of 2024.

Current wording

Net interest income and net interest spread improved for the three months ended June 30, 2025, compared to the three months ended March 31, 2025 due to a larger portfolio of Agency RMBS with higher yields. Financing costs also declined approximately 11 basis points for the three months ended June 30, 2025, compared to the three months ended March 31, 2025.

Previous wording

During the three months ended March 31, 2025, the fair value of our investment portfolio increased $171.6 million primarily due to a decline of 36 basis points in the 10-year U.S. Treasury rate. These gains were mostly offset by net losses on our hedging portfolio of $(171.1) million (excluding $10.9 million of net periodic interest we earned from our interest rate swaps), as a result of the decline in 10-year and 30-year U.S. Treasury rates as well as SOFR rates across the curve.

Current wording

During the three months ended March 31, 2025, the fair value of our investment portfolio increased $172 million primarily due to a decline of 36 basis points in the 10-year U.S. Treasury rate. These gains were mostly offset by net losses on our hedging portfolio of $(171) million (excluding $11 million of net periodic interest we earned from our interest rate swaps), as a result of the decline in 10-year and 30-year U.S. Treasury rates, lower SOFR rates across the curve and swaps spreads becoming more negative.

Previous wording

2)Realized gain (loss) for interest rate swaps consists of net periodic interest benefit of $10.9 million for the three months ended March 31, 2025 and $11.9 million for the three months ended December 31, 2024. We did not hold any interest rate swap agreements during the three months ended March 31, 2024.

Current wording

2)Realized gain (loss) for interest rate swaps consists of net periodic interest benefit of $12.3 million for the three months ended June 30, 2025 and $10.9 million for the three months ended March 31, 2025.

Previous wording

Net interest income and net interest spread improved for the three months ended March 31, 2025, compared to the three months ended March 31, 2024 due to the purchases of higher yielding Agency RMBS over the past year. In addition, our financing costs during the three months ended March 31, 2025 declined approximately 95 basis points compared to the three months ended March 31, 2024, due primarily to the interest rate cuts implemented by the FOMC since March 31, 2024.

Current wording

Net interest income and net interest spread improved for the six months ended June 30, 2025, compared to the six months ended June 30, 2024 due to the purchases of higher yielding Agency RMBS over the past year. In addition, our financing costs during the six months ended June 30, 2025 declined approximately 99 basis points compared to the six months ended June 30, 2024, due primarily to the interest rate cuts implemented by the FOMC since June 30, 2024.

Previous wording

Management also includes net periodic interest from its interest rate swaps, which is included in "gain (loss) on derivatives instruments, net," in EAD and economic net interest income because interest rate swaps are used by the Company to economically hedge the impact of changing interest rates on its borrowing costs from repurchase agreements, and including net periodic interest from interest rate swaps is a helpful indicator of the Company’s total financing cost in addition to GAAP interest expense.

Current wording

Management also includes net periodic interest from its interest rate swaps, which is included in "gain (loss) on derivatives instruments, net," in EAD and economic net interest income because interest rate swaps are used by the Company to economically hedge the impact of changing interest rates on its borrowing costs from

Previous wording

During the three months ended March 31, 2025, we issued 17,604,999 shares of common stock through our ATM program, resulting in proceeds of $239.7 million, net of broker commissions and fees. We partially deployed these proceeds into Agency RMBS and to post initial margin requirements related to a larger hedge portfolio including interest rate swaps, swaptions, and U.S. Treasury futures.

Current wording

During the six months ended June 30, 2025, we issued 40,712,768 shares of common stock through our ATM program, resulting in proceeds of $522 million, net of broker commissions and fees. We partially deployed these proceeds into Agency RMBS and to post initial margin requirements related to a larger hedge portfolio including interest rate swaps, swaptions, and U.S. Treasury futures.

Previous wording

Our liquidity fluctuates based on our investment activities, leverage, capital raising activities, and changes in the fair value of our investments and derivative instruments. Our measurement of liquidity includes unrestricted cash and cash equivalents and unencumbered Agency MBS, which are recognized as assets on our consolidated balance sheet. In our measure of liquidity, we also include the fair value of noncash collateral pledged to us by our counterparties, which we typically receive when the fair value of our pledged collateral exceeds our current margin requirement. Our liquidity as of March 31, 2025, was $789.9 million, which consisted of unrestricted cash of $327.4 million, unencumbered Agency MBS with a fair value of $450.3 million, and noncash collateral pledged by our counterparties of $12.2 million. Our liquidity as of December 31, 2024, was $658.3 million.

Current wording

Our liquidity fluctuates based on our investment activities, leverage, capital raising activities, and changes in the fair value of our investments and derivative instruments. Our measurement of liquidity includes unrestricted cash and cash equivalents and unencumbered Agency MBS, which are recognized as assets on our consolidated balance sheet. In our measure of liquidity, we also include the fair value of noncash collateral pledged to us by our counterparties, which we typically receive when the fair value of our pledged collateral exceeds our current margin requirement. Our liquidity as of June 30, 2025, was approximately $891 million, which consisted of unrestricted cash of $388 million, unencumbered Agency MBS with a fair value of $499 million, and noncash collateral pledged by our counterparties of $5 million. Our liquidity as of December 31, 2024, was $658 million.

Previous wording

Our perception of the liquidity of our investments and market conditions significantly influences our targeted leverage. In general, our leverage will increase if we view the risk-reward opportunity of higher leverage on our capital outweighs the risk to our liquidity and book value. Our leverage, which we calculate using total liabilities plus the cost basis of TBA long positions, was 7.4 times shareholders’ equity as of March 31, 2025. We include 100% of the cost basis of our TBA securities in evaluating our leverage because it is possible under certain market conditions that it may be uneconomical for us to roll a TBA long position into future months, which may result in us having to take physical delivery of the underlying securities and use cash or other financing sources to fund our total purchase commitment.

Current wording

Our perception of the liquidity of our investments and market conditions significantly influences our targeted leverage. In general, our leverage will increase if we view the risk-reward opportunity of higher leverage on our capital outweighs the risk to our liquidity and book value. Our leverage, which we calculate using total liabilities plus the cost basis of TBA long positions, was 8.3 times shareholders’ equity as of June 30, 2025. We include 100% of the cost basis of our TBA securities in evaluating our leverage because it is possible under certain market conditions that it may be uneconomical for us to roll a TBA long position into future months, which may result in us having to take physical delivery of the underlying securities and use cash or other financing sources to fund our total purchase commitment.

Previous wording

Leverage based solely on repurchase agreement amounts outstanding was 5.2 times shareholders’ equity as of March 31, 2025. Our repurchase agreement borrowings are uncommitted with terms renewable at the discretion of our lenders and generally have original terms to maturity of overnight to six months, though in some instances, we may enter into longer-dated maturities depending on market conditions. We seek to maintain unused capacity under our existing repurchase agreement credit lines with multiple counterparties, which helps protect us in the event of a counterparty's failure to renew existing repurchase agreements. As part of our continuous evaluation of counterparty risk, we maintain our highest counterparty exposures with broker-dealer subsidiaries of regulated financial institutions or primary dealers.

Current wording

Leverage based solely on repurchase agreement amounts outstanding was 5.3 times shareholders’ equity as of June 30, 2025. Our repurchase agreement borrowings are uncommitted with terms renewable at the discretion of our lenders and generally have original terms to maturity of overnight to six months, though in some instances, we may enter into longer-dated maturities depending on market conditions. We seek to maintain unused capacity under our existing repurchase agreement credit lines with multiple counterparties, which helps protect us in the event of a counterparty's failure to renew existing repurchase agreements. As part of our continuous evaluation of counterparty risk, we maintain our highest counterparty exposures with broker-dealer subsidiaries of regulated financial institutions or primary dealers.

Previous wording

the minimum margin requirement. The collateral posted as margin by us is typically in cash. As of March 31, 2025, we had cash collateral posted to our counterparties of $260.6 million under these agreements.

Current wording

the minimum margin requirement. The collateral posted as margin by us is typically in cash. As of June 30, 2025, we had cash collateral posted to our counterparties of $318 million under these agreements.

Previous wording

As of March 31, 2025, we also had $566.3 million in capital loss carryforwards, the majority of which will expire by December 31, 2028. Due to these amounts and other temporary and permanent differences between GAAP net income and REIT taxable income, coupled with the degree of uncertainty about the trajectory of interest rates, we cannot reasonably estimate how much the deferred tax hedge gains to be recognized will impact our dividend declarations during 2025 or in any given year.

Current wording

As of June 30, 2025, we also had $529 million in capital loss carryforwards, the majority of which will expire by December 31, 2028. Due to these amounts and other temporary and permanent differences between GAAP net income and REIT taxable income, coupled with the degree of uncertainty about the trajectory of interest rates, we cannot reasonably estimate how much the deferred tax hedge gains to be recognized will impact our dividend declarations during 2025 or in any given year.

Previous wording

•The impact of bank failures, potential new regulations, and the potential for other bank failures this year;

Current wording

•The impact of bank failures, potential new regulations, and the potential for other bank failures;

Previous wording

•Uncertainties regarding the war between Russia and Ukraine or Israel and Hamas and the related impacts on macroeconomic conditions, including, among other things, interest rates;

Current wording

•Uncertainties regarding the war between Russia and Ukraine or the conflict in the Middle East, and the related impacts on macroeconomic conditions, including, among other things, interest rates;

Previous wording

•geopolitical events, such as terrorism, war, or other military conflict, including increased uncertainty regarding the wars between Russia and Ukraine and between Israel and Hamas, and the related impact on macroeconomic conditions as a result of such conflict;

Current wording

•geopolitical events, such as terrorism, war, or other military conflict, including the war between Russia and Ukraine and the conflict in the Middle East, and the related impact on macroeconomic conditions as a result of such conflict;

Previous wording

•changes to the market for derivative instruments, including changes to margin requirements on derivative instruments;

Current wording

•changes to the market for interest rate swaps and other derivative instruments, including changes to margin requirements on derivative instruments;