DYNEX CAPITAL INC
For the period ended Sep 30, 2026. Filed Oct 27, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Oct 27, 2026
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-06-30; filed 2026-07-27.
0000826675-26-000078
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-10-27.
0000826675-26-000127
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 147 previous paragraphs and 480 current paragraphs.
44 unchanged; 94 reworded; 112 added; 8 removed; 1 previous and 230 current paragraphs rearranged.
Tables are not compared: 19 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (112)
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During the third quarter of 2026, financial markets experienced a significant repricing of interest rate risk,
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as U.S. Treasury and swap yields rose sharply, and both realized and implied interest rate volatility increased. The
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movement was global, reflecting heavy government borrowing and fiscal concerns, as well as substantial demand
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for capital tied to investment in artificial intelligence. Amid a resilient U.S. economy and persistent inflation, the
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Federal Reserve raised the midpoint of its target range for the U.S. Federal Funds Rate (“Fed Funds rate”) by 25
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basis points, from 3.625% to 3.875%, in September. Market participants priced for the possibility of additional rate
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increases and an extended period of elevated policy rates. The 10-year U.S. Treasury yield rose above 5% in late
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September, while conflict in the Middle East and disruptions to global oil and gas flows kept energy prices elevated
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and added to inflation concerns.
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Spreads on Agency MBS widened 10 to 20 basis points relative to U.S. Treasury and swap rates,
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particularly late in the third quarter, and specified pools underperformed TBA securities. As the rise in interest rates
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accelerated, speculative investors, including hedge funds, reduced risk across global rate markets and in Agency
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MBS, and hedgers of mortgage servicing rights were also net sellers. Money managers remained net buyers as
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spreads widened, and there were indications that the GSEs resumed purchases of Agency MBS late in the quarter.
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We believe the widening reflected investor positioning and other technical factors arising from macroeconomic
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volatility rather than a deterioration in mortgage fundamentals. New mortgage origination supply remained muted,
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as elevated mortgage rates continued to constrain refinancing and home sales. Funding markets remained orderly
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markets continued to function effectively. Although financing costs rose with the Fed Funds rate, repurchase
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agreement financing remained readily available through the September quarter-end, and haircuts did not increase.
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Our hedging activities help insulate the Company's book value against rising interest rates, but do not protect the
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Company from widening spreads.
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liquidity profile. With nearly all Agency MBS trading at a discount to par, refinancing incentives are minimal and
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the convexity of the Agency MBS index is positive, which limits the variability of expected cash flows and
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inflation trends, fiscal policy, Federal Housing Finance Agency policies, housing market activity, geopolitical
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portfolio construction, security selection, active management of interest rate risk, liquidity management, and
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by multifamily properties.
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Total economic return of (11.5)% for the third quarter of 2026 reflected a decline in book value per
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common share to$10.91, inclusive of dividends declared of $0.51 per common share. Book value declined primarily
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due to wider Agency MBS spreads, which drove a net decrease in the fair value of our investment portfolio. While
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gains on our interest rate hedges mitigated a portion of the impact of higher interest rates and broader market
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volatility, spread widening remained the primary driver of pressure on asset valuations and book value during the
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quarter.
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We grew our capital base by$384 million during the third quarter through a combination of common and
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preferred equity raises, using the net proceeds to add$3.2 billion of Agency MBS. As a result, our total investment
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portfolio grew approximately 3% to$28.3 billion as of September 30, 2026 compared to $27.6 billion as of June 30,
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Leverage, including the implied cost of TBAs, increased to 9.0 times shareholders' equity, primarily due to
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lower book value related to the investment portfolio's performance.
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Interest income increased from the prior quarter, driven by the continued capital deployment into Agency
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MBS. The average balance of interest-earning assets grew 10% during the third quarter of 2026. Operating expenses
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decreased by approximately$4 million quarter over quarter due to lower stock-based compensation.
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Our total economic return for the second quarter of 2026 of $0.81 per common share was comprised of an increase in book value of $0.30 per common share and dividends declared of $0.51 per common share. The increase in book value per common share was primarily comprised of a net gain of $102 million on our investment portfolio, net of hedges. The fair value of our Agency MBS benefited from spread tightening late in the second quarter. Although higher interest rates reduced asset valuations during the second quarter, our hedging portfolio effectively mitigated much of this impact, supporting the overall increase in book value. We raised capital of $391 million, net of commissions, using the proceeds to opportunistically add Agency MBS of $2.8 billion. Leverage including TBAs at implied cost decreased to 8.1 times equity, primarily due to the favorable performance of our portfolio.
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Interest income increased to $94 million for the second quarter of 2026, driven by our continued deployment of capital into Agency MBS purchases, primarily in 4-5% coupons. Operating expenses for the second quarter of 2026 decreased $5 million, due to the absence of one-time compensation and personnel-related costs recognized during the first quarter of 2026.
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(2)Net proceeds from common stock issuance include approximately $391 million from ATM issuances and approximately $1.0 million from amortization of share-based compensation, net of grants, during the three months ended June 30, 2026.
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The majority of our CMBS IO are Agency-issued securities backed by loans collateralized by multifamily properties. 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. 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.
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The following table provides certain information regarding our CMBS and CMBS IO as of the dates indicated:
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Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025
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For the six months ended June 30, 2026, losses on our investment portfolio exceeded gains on our hedges by approximately $(36) million. The fair value of our investment portfolio declined $(303) million during the six months ended June 30, 2026 primarily due to widening of mortgage spreads to U.S. Treasuries. The impact of higher U.S. Treasury rates on our investments was offset by net gains on our interest rate hedges of $267 million, which also benefited from higher SOFR-based swap rates during the six months ended June 30, 2026.
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For the six months ended June 30, 2025, losses on our hedging portfolio exceeded gains on our investments by approximately $32 million (excluding $23 million in net periodic interest we earned from interest rate swaps) due primarily to the decline in SOFR-based swap rates across the curve since December 31, 2024.
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During the second quarter of 2026, financial markets were comparatively calmer as realized volatility moderated from the elevated levels seen earlier in the year, even as investors continued to weigh the outlook for inflation, monetary policy, and global growth against ongoing geopolitical uncertainty. The U.S. economy continued to expand at a moderate pace, with a steady labor market and only a modest increase in inflation expectations. Market participants priced for the possibility of modest Federal Reserve policy rate hikes, but forward rates curves suggested any such hikes would slowly be removed over time as new Federal Reserve Chair Kevin Warsh eventually settled into his new approach for managing the Federal Reserve. Funding markets remained orderly and were well supported by ample system liquidity, and liquidity across the mortgage and repurchase agreement markets continued to function effectively. After spread widening late in the first quarter, spreads across Agency MBS stabilized and moved modestly tighter over the course of the second quarter, supported by muted new mortgage origination supply, the sector's strong liquidity profile, and renewed demand from the GSEs, which increased their purchases of Agency MBS during the bout of widening.
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and were well supported by ample system liquidity, and liquidity across the mortgage and repurchase agreement
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Against this backdrop, Agency MBS continues to offer attractive long‑term return potential relative to other high‑quality fixed‑income assets, particularly given the supply dynamics, the sector's strong liquidity profile, and the potential for incremental GSE demand to provide support against episodes of spread widening. At the same time, fund flows into bond funds remain a steady source of demand. The long-term, demographic-led need for income will likely remain a central theme in developed financial markets. We view current spread levels as attractive and remain attentive to the evolving supply‑and‑demand balance, including the pace and composition of GSE purchases, the trajectory of the Federal Reserve's balance sheet, especially its holdings of Agency MBS and the level of banking‑system reserves. We continue to monitor monetary policy, inflation trends, housing market activity, supply‑and‑demand dynamics, and geopolitical developments, as well as operational and cybersecurity risks, as we assess their potential impact on interest rates, spreads, prepayment behavior, and financing conditions. We remain focused on disciplined portfolio construction, security selection, liquidity management, and balance‑sheet resilience as market conditions continue to evolve.
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Against this backdrop, we believe Agency MBS continues to offer attractive long-term return potential
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The charts below show the range of U.S. Treasury and SOFR-based swap rates for the six months ended June 30, 2026 and information regarding market spreads as of and for the periods indicated:
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The charts below show the range of U.S. Treasury and SOFR-based swap rates for thethree months ended
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(1)Option adjusted spreads (“OAS”) are based on Company estimates using third-party models and market data. OAS shown for prior periods may differ from previous disclosures because the Company regularly updates the third-party model used.
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(1)Option adjusted spreads (“OAS”) are based on Company estimates using third-party models and market data. OAS shown
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(2)Data is sourced from J.P. Morgan and represents the spread to swap rate on newly issued Agency securities collateralized by multifamily properties.
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(2)Data is sourced from J.P. Morgan and represents the spread to swap rate on newly issued Agency securities collateralized
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Summary of Second Quarter 2026 Financial Performance
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Summary of Third Quarter 2026 Financial Performance
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The following table summarizes the changes in the Company's financial position during the three months ended June 30, 2026:
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The following table summarizes the changes in our financial position during thethree months ended
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(1)Amounts represent total shareholders' equity less the aggregate liquidation preference of the Company's preferred stock of $111.5 million, in thousands and on a per common share basis.
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(1)Amount represents total shareholders' equity less the aggregate liquidation preference of the Company's Series C preferred
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Operating expenses increased 53% to $37 million for the six months ended June 30, 2026 compared to $24 million for the six months ended June 30, 2025. In addition to higher salary and share-based compensation expenses resulting from new employees, operating expenses also increased due to accelerated vesting of equity grants and other severance expenses associated with the departure of the Company's former chief financial officer. Annualized general and administrative expenses for the six months ended June 30, 2026 as a percentage of total equity was 2.2% compared to 2.9% for the six months ended June 30, 2025.
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accrued share-based compensation expenses and forfeitures.
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Our investment portfolio, including TBAs, as of June 30, 2026, has increased $8.2 billion, or 42%, since December 31, 2025. We added over $10 billion, net of sales, of primarily 30-year fixed rate Agency RMBS during the six months ended June 30, 2026. We reduced our TBA securities by a net notional of $0.6 billion. The following charts compare the composition of our investment portfolio as of the dates indicated:
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Our investment portfolio, including TBAs, as of September 30, 2026, has increased$8.9 billion, or 46%,
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The following charts compare the percentage distribution by coupon of our 30-year fixed rate Agency RMBS investments, including TBAs, as of the dates indicated:
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The following charts compare the percentage distribution by coupon of our 30-year fixed rate Agency
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The following tables compare our 30-year fixed-rate Agency RMBS investments, including TBA dollar roll positions, by coupon as of the dates indicated:
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The following tables compare our 30-year fixed-rate Agency RMBS investments, including TBA dollar roll
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(1)Includes a par value of $9 million of 4.5% 15-year Agency RMBS as of June 30, 2026 and December 31, 2025.
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(1)Includes a par value of$8.6 million and$9 millionof 4.5% 15-year Agency RMBS as of September 30, 2026 and December
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(2)Includes a notional amount of $440 million of 4.5% 15-year TBA securities as of June 30, 2026 and $690 million as of December 31, 2025.
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(2)Includes a notional amount of $690 million of 4.5% 15-year TBA securities as of December 31, 2025.
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(5)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.
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is the difference between their implied market value and implied cost basis. Please refer to Note 5 of the Notes to the
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(6)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.
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(6)TBAs are excluded from this calculation as they do not have a defined weighted-average loan balance or age until
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(8)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.
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(8)Duration measures the sensitivity of a security's price to the change in interest rates and represents the percent change in
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(9)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.
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(9)Represents the weighted average market yield projected using cash flows generated from the forward curve based on market
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Our Agency CMBS consist of loans collateralized by multifamily properties. Though we expect our exposure to Agency CMBS to remain modest as a percentage of the total portfolio, we will add Agency CMBS from time to time whenever we believe the risk-adjusted return profile aligns with our investment strategy. In addition to offering strong relative value, Agency CMBS help diversify and stabilize the portfolio's cash flow and total return profile, given their unique prepayment characteristics and underlying asset base.
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Our Agency CMBS consist of loans collateralized by multifamily properties. Though we expect our
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Our repurchase agreement borrowings increased to $23 billion as of June 30, 2026 from $14 billion as of December 31, 2025. These borrowings were used to partially finance our purchases of Agency MBS during the six months ended June 30, 2026. 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
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as of December 31, 2025. These borrowings were used to partially finance our purchases of Agency MBS during the
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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.
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Quarterly Report on Form 10-Q as well as “Results of Operations” and “Liquidity and Capital Resources” contained
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Please refer to Note 5 of the Notes to the Consolidated Financial Statements for details on our interest rate hedging instruments as well as “Liquidity and Capital Resources” within Item 2 and “Quantitative and Qualitative Disclosures about Market Risk” within Item 3 of this Quarterly Report on Form 10-Q.
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Please refer to Note 5 of the Notes to the Consolidated Financial Statements for details on our interest rate
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Net interest income and net interest spread for the three months ended June 30, 2026, increased compared to the three months ended March 31, 2026, as the portfolio grew. Interest expense increased due to a higher average balance of repurchase agreement borrowings used to finance the growth in our MBS portfolio. Net periodic interest earned on interest rate swaps, a component of economic net interest income, decreased by approximately $1.2 million for the three months ended June 30, 2026, compared to the three months ended March 31, 2026, representing a decline of 3 basis points as a percentage of average repurchase agreement borrowings.
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Net interest income and net interest spread for thethree months ended September 30, 2026, increased
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The following table presents information about our interest-earning assets and interest-bearing liabilities and their performance for the periods indicated:
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The following table presents information about our interest-earning assets and interest-bearing liabilities
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(1)Average balance for assets is calculated as a simple average of the daily amortized cost and excludes securities pending settlement if applicable.
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(1)Average balance for assets is calculated as a simple average of the daily amortized cost and excludes securities pending
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(3)Effective yield is calculated by dividing interest income by the average balance of asset type outstanding during the reporting period. Unscheduled adjustments to premium/discount amortization/accretion, such as for prepayment compensation, are not annualized in this calculation.
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(3)Effective yield is calculated by dividing interest income by the average balance of asset type outstanding during the
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(4)Financing cost is calculated by dividing annualized interest expense by the total average balance of borrowings outstanding during the period with an assumption of 360 days in a year.
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(4)Financing cost is calculated by dividing annualized interest expense by the total average balance of borrowings outstanding
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(6)Net periodic interest is the difference between the fixed interest rate we pay and the variable interest rate we receive on our interest rate swaps. It is a component of economic net interest income (expense), a non-GAAP measure. Please refer to the section below “Non-GAAP Financial Measures” for more information.
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(6)Net periodic interest is the difference between the fixed interest rate we pay and the variable interest rate we receive on our
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For the three months ended June 30, 2026, gains on our hedges exceeded losses on our investments by approximately $102 million. Although higher interest rates negatively impacted the fair value of our Agency MBS, our hedging portfolio effectively mitigated much of this impact, Additionally, the fair value of our Agency MBS benefited from tightening of mortgage spreads to U.S. Treasuries in the second quarter.
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For thethree months ended June 30, 2026, gains on our hedges exceeded losses on our investments by
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The following tables provide details on realized and unrealized gains and losses within our investment and interest rate hedging portfolios for the periods indicated:
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The following tables provide details on realized and unrealized gains and losses within our investment and
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(1)Realized and unrealized gains (losses) on TBA securities are recorded within “gain (loss) on derivative instruments, net” on the Company’s consolidated statements of comprehensive income.
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(1)Realized and unrealized gains (losses) on TBA securities are recorded within “gain (loss) on derivative instruments, net” on
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(2)Realized gain for interest rate swaps consists of net periodic interest benefit of $0.5 million and $1.7 million for the three months ended June 30, 2026 and March 31, 2026, respectively.
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(2)Realized gain for interest rate swaps includes net periodic interest benefit of$0.1 million and$0.5 million for the three
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We hold long and short positions in TBA securities by executing a series of transactions, commonly referred to as “dollar roll” transactions, which effectively delay the settlement of a forward purchase (or sale) of a non-specified Agency RMBS by entering into an offsetting TBA position, net settling the paired-off positions in cash, and simultaneously entering into an identical TBA long (or short) position with a later settlement date. TBA securities purchased or sold for a forward settlement date are generally priced at a discount relative to TBA securities settling in the current month because the current month settlement will receive a coupon sooner than the TBA settling in a forward month. This price difference, often referred to as “drop income,” represents the economic equivalent of net interest income (interest income less implied financing cost) on the underlying Agency security from the trade date to the settlement date. We account for RMBS TBAs (whether net long or net short positions, or collectively “TBA dollar roll positions”) as derivative instruments when we cannot assert that it is probable at inception and throughout the term of an individual TBA transaction that its settlement will result in physical delivery of the underlying Agency RMBS, or that the individual TBA transaction will settle in the shortest period possible.
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Drop income (loss) represents the economic equivalent of net interest income, net of implied financing cost, on the
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The following table presents information regarding the performance of our TBA dollar roll transactions for the periods indicated:
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The following table presents information regarding the performance of our TBA dollar roll transactions for
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Operating expenses for the three months ended June 30, 2026 declined $5 million compared to the three months ended March 31, 2026. First quarter expenses included accelerated vesting of equity grants and other severance expenses associated with the departure of the Company's former chief financial officer. Annualized general and administrative expenses for the second quarter of 2026 as a percentage of total equity was 1.9% compared to 3.0% for the first quarter of 2026.
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Annualized general and administrative expenses for the third quarter of 2026 as a percentage of total equity was
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Net interest income and net interest spread increased for the six months ended June 30, 2026, compared to the six months ended June 30, 2025 due to the purchases of higher yielding Agency MBS over the past year. Though interest expense increased due to an increase in repurchase agreement borrowings used to finance these purchases, the average financing rate we paid declined 68 basis points over the comparative periods primarily as a result of the
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Net interest income and net interest spread increased for thenine months ended September 30, 2026,
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Federal Reserve’s rate cuts since second quarter of 2025. Net periodic interest included in our economic net interest income for the six months ended June 30, 2026, decreased $21 million, or 61 basis points as a percentage of average repurchase agreement borrowings, compared to the six months ended June 30, 2025.
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basis points as a percentage of average repurchase agreement borrowings, compared to thenine months ended
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The following table presents information about our interest-earning assets and interest-bearing liabilities and their performance for the periods indicated:
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The following table presents information about our interest-earning assets and interest-bearing liabilities
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(1)Average balance for assets is calculated as a simple average of the daily amortized cost and excludes securities pending settlement if applicable.
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(1)Average balance for assets is calculated as a simple average of the daily amortized cost and excludes securities pending
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(3)Effective yield is calculated by dividing interest income by the average balance of asset type outstanding during the reporting period. Unscheduled adjustments to premium/discount amortization/accretion, such as for prepayment compensation, are not annualized in this calculation.
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(3)Effective yield is calculated by dividing interest income by the average balance of asset type outstanding during the
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relative to other high-quality fixed-income assets, particularly given the supply dynamics and the sector's strong
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durations. At the same time, fund flows into bond funds and annuities remain a steady source of demand, supported
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by the long-term, demographic-led need for income. We view current spread levels as attractive and remain attentive
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to the evolving supply-and-demand balance, including bond fund flows, the pace and composition of GSE
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purchases, potential changes in GSE policy, the trajectory of the Federal Reserve's balance sheet, especially its
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holdings of Agency MBS, and the level of banking-system reserves. We continue to monitor monetary policy,
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developments, and energy prices, as well as operational and cybersecurity risks, as we assess their potential impact
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on interest rates, spreads, prepayment behavior, and financing conditions. We remain focused on disciplined
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balance-sheet resilience as market conditions continue to evolve.
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September 30, 2026 and information regarding market spreads as of and for the periods indicated:
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for prior periods may differ from previous disclosures because the Company regularly updates the third-party model used.
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stock of $111.5 million as of June 30, 2026.
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(3)Amount represents total shareholders' equity less the aggregate liquidation preference of the Company's Series C and Series
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since December 31, 2025. We added over$13 billion, net of sales, of primarily 30-year fixed rate Agency RMBS
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and have reduced our TBA securities by a net notional of$0.6 billion during thenine months ended September 30,
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The following charts compare the composition of our investment portfolio as of the dates indicated:
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RMBS investments, including TBAs, as of thedates indicated:
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positions, by coupon as of the dates indicated:
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(5)TBAs are included on the consolidated balance sheet within “derivative assets/liabilities” at their net carrying value which
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Consolidated Financial Statements for additional information.
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mortgages have been assigned to the pool.
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price of a security for a 100-basis point increase in interest rates. We calculate duration using third-party financial models
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and empirical data. Different models and methodologies can produce different estimates of duration for the same securities.
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prices as of the date indicated and assuming zero volatility.
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exposure to Agency CMBS to remain modest as a percentage of the total portfolio, we will add Agency CMBS from
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time to time whenever we believe the risk-adjusted return profile aligns with our investment strategy. In addition to
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offering strong relative value, Agency CMBS help diversify and stabilize the portfolio's cash flow and total return
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profile, given their unique prepayment characteristics and underlying asset base.
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market yield projected using cash flows generated off the forward curve and based on market prices assuming zero
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nine months ended September 30, 2026. We have not experienced any difficulty in securing financing with any of
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our counterparties, and our repurchase agreement counterparties have not indicated any concerns regarding leverage
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or credit. Please refer to Note 4 of the Notes to the Consolidated Financial Statements contained within this
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within this Item 2 for additional information relating to our repurchase agreement borrowings.
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hedging instruments as well as “Liquidity and Capital Resources” within Item 2 and “Quantitative and Qualitative
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Disclosures about Market Risk” within Item 3 of this Quarterly Report on Form 10-Q.
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compared to thethree months ended June 30, 2026, due to the growth in our MBS portfolio. Interest expense
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increased due to a higher average balance of repurchase agreement borrowings used to finance our purchases of
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MBS. Net periodic interest earned on interest rate swaps, a component of economic net interest income, decreased
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June 30, 2026, representing a decline of 1 basis point as a percentage of average repurchase agreement borrowings.
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and their performance for the periods indicated:
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(5)Includes Agency and non-Agency issued securities.