Dynex Capital Swings Back to Loss on Wider Mortgage Spreads

The Tip Desk · October 21, 2026 · 3 min read

The mortgage investor's book value fell $1.99 a share to $10.91 in the third quarter, reversing the previous quarter's recovery.

Dynex Capital, Inc. (DX), a real estate investment trust investing in mortgage assets, returned to a loss in the third quarter after wider mortgage spreads reduced portfolio values. Its total economic return, which included dividends and changes in book value, was negative 11.5%, reversing a positive 6.4% return in the second quarter.

The reversal followed a brief recovery. Book value had risen $0.30 a share in the second quarter. Dynex reported a third-quarter net loss attributable to common shareholders of $338.3 million, or $1.34 a share, compared with earnings of $0.80 a share in the preceding quarter.

The company attributed the book-value decline primarily to wider Agency mortgage-backed securities spreads. MBS and other investments lost $1.50 billion in fair value during the quarter. Gains on interest-rate hedges offset part of the damage, leaving a $461.1 million net fair-value loss across investments and hedges.

Dynex continued raising capital and buying mortgage securities during the decline. It raised $384 million net of commissions, including $268 million through common-stock sales and $116 million through an offering of Series D preferred stock carrying a 9.375% fixed rate. The company said it used the proceeds to add Agency mortgage-backed securities.

Purchases totaled $3.2 billion, but the investment portfolio ended September at $28.3 billion, up 3% from June. That growth slowed from the second quarter's 11% expansion. Residential Agency mortgage-backed securities accounted for 95% of the September portfolio, with commercial Agency mortgage securities and related interest-only holdings making up the remainder.

Lower book value also pushed leverage higher, the company said. Leverage including to-be-announced securities at cost rose to 9.0 times shareholders' equity from 8.1 times at June's end, reversing the preceding quarter's reduction. Cash and unpledged securities declined to $1.3 billion from $1.6 billion over the same period.

The larger asset base generated more interest income despite the valuation losses. Net interest income increased to $101.6 million from $93.8 million in the second quarter. Dynex said continued deployment into Agency mortgage-backed securities drove the increase in interest income, while average interest-earning assets grew 10%. Its net interest spread edged higher to 1.18%.

Agency residential mortgage securities generated $311.2 million of quarterly interest income, while commercial mortgage securities and related interest-only holdings generated $17.0 million. Financing costs absorbed much of that income: repurchase-agreement interest expense totaled $230.9 million. Operating expenses fell to $12.6 million, with the company attributing the reduction to lower stock-based compensation.

Earnings available for distribution, a non-GAAP measure that excluded investment and derivative valuation changes, increased to $0.38 a share from $0.36 in the second quarter. That remained below the $0.51 quarterly dividend, which was unchanged across the three reported quarters. Dynex's distribution measure also included income from TBA dollar-roll positions and periodic interest from swaps.

Tax treatment of hedge gains added a separate consideration for future distributions. Dynex projects recognition of $96.4 million in net deferred tax hedge gains in 2027, within a total pool of $625.6 million. The company said those gains would contribute to future distribution requirements despite being excluded from current and future earnings available for distribution, and cautioned that its recognition projections were subject to change.