Dynex Capital, Inc. has recently released its 10-K report, revealing key insights into its financial performance and business operations. The company, a mortgage real estate investment trust, primarily invests in mortgage-backed securities (MBS) on a leveraged basis in the United States. Its investment portfolio consists of agency and non-agency MBS, including residential MBS, commercial MBS (CMBS), and CMBS interest-only securities. The company has qualified as a real estate investment trust for federal income tax purposes, which exempts it from federal income taxes if it distributes at least 90% of its taxable income to its stockholders as dividends. Dynex Capital, Inc. was incorporated in 1987 and is headquartered in Glen Allen, Virginia.
In the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section, the report highlights the company's performance in 2024. Dynex Capital significantly grew its balance sheet during the year, with total assets increasing over 28% and total shareholders’ equity increasing over 36%. The company added approximately $2.2 billion in higher coupon Agency RMBS at a lower cost of financing, resulting in net interest income of $5.9 million versus a loss of $(7.9) million in the prior year. The yield curve un-inverted, prompting the company to reposition its hedges, contributing net periodic interest of $16.1 million to its earnings for the year ended December 31, 2024. Despite the growth in its balance sheet, Dynex Capital managed its operating expenses and lowered its expense ratio by approximately 70 basis points compared to the prior year.
Looking ahead, the report discusses the current outlook, noting that inflation fears that drove U.S. Federal Reserve policy over the last three years are starting to subside. The shape of the yield curve and less restrictive monetary policy in 2025 provide an investment backdrop that is different from the last two years. The company also emphasizes its focus on regulatory changes, potential impacts on monetary policy, yield curve dynamics, and supply and demand dynamics. Dynex Capital remains prepared for bouts of volatility and spread widening, which may cause temporary declines in the market value of its assets but should provide compelling returns for its investors longer term.
The report also delves into the company's financial condition, highlighting the growth of its investment portfolio, which increased approximately 32% compared to the previous year. Dynex Capital purchased approximately $2.2 billion of higher coupon Agency RMBS during the year ended December 31, 2024, and increased its TBA positions by a notional of $1.0 billion during the same period.
Additionally, the report provides details on the company's repurchase agreements, derivative assets and liabilities, and results of operations, comparing its performance for the year ended December 31, 2024, to the previous year. Notably, net interest expense and net interest spread improved for the year ended December 31, 2024, compared to the year ended December 31, 2023, with the company's net interest income turning positive as a result of its strategic investments and the rate cuts implemented by the Federal Open Market Committee.
Following these announcements, the company's shares moved 0.9%, and are now trading at a price of $14.07. Check out the company's full 10-K submission here.
