Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Investor Presentation (September 2020)
26 slides from Dynex Capital's investor presentation, September 2020
Slide 1: Investor Presentation
Investor Presentation September 2020
Slide 2: Safe Harbor Statement
Safe Harbor Statement NOTE: This presentation contains certain statements that are not historical facts and that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this presentation addressing expectations, assumptions, b
Slide 3: Experienced & Prepared Leadership
Experienced & Prepared Leadership Proven skillful leaders successfully managing multiple market cycles. Byron L. Boston Smriti L. Popenoe Steve J. Benedetti President, CEO and Co-CIO EVP, Co-CIO EVP, CFO and COO Joined Dynex in 2008 as CIO. Joined Dynex in 2013. Joined Dynex in 1994. Became CEO in 2
Slide 4: Company Overview
Company Overview Common Preferred Monthly Dividend Quarterly Dividends NYSE Ticker DX DXPrB DXPrC Shares Outstanding (in millions) (as of 9/18/2020) 23.1 2.8 4.5 Current Dividend Rate $0.13 $0.4765625 $0.43125 Annualized Dividend Yield 9.58% 7.72% 7.73% Share Price (close on 9/18/20) $16.28 $24.69 $
Slide 5: Why Dynex
Why Dynex • Excellent track record with attractive total return opportunity • Strong and defensive balance sheet positioned to weather market volatility • Experienced management with a track record of disciplined capital deployment through multiple economic cycles • Alignment of interests with share
Slide 6: Recent Highlights
Recent Highlights • Overall, it remains an exceptional environment to generate solid cash flows for our shareholders. Financing costs remain low and asset returns remain attractive. • We expect to comfortably out earn the dividend for the third and fourth quarter 2020. • Our book value per common sh
Slide 7: Current Environment - Short to Medium Term
Current Environment - Short to Medium Term • The world faces unprecedented uncertainty and upheaval across the social, political, economic, and financial landscape. It is too early to discern the broad based impact of the shocks across the economy. • We are still in the early stages of a health and
Slide 8: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) Disciplined capital allocation and portfolio constructed for flexibility $4.6 billion investment portfolio at 8/31/20 vs. $4.8 billion at 6/30/20 and we continue to adjust the portfolio August 31, 2020 June 30, 2020 Agency RMBS (1): 76% Agency RMBS (1): 7
Slide 9: Return Environment (as of August 31, 2020)
Return Environment (as of August 31, 2020) Agency MBS Higher 15yr and 30yr RMBS (1,2) Agency RMBS offer attractive returns Return Range 8-16% GSE • The most compelling levered risk-adjusted Guaranteed returns are still in the highest credit quality and Agency CMBS AAA Rated FNMA DUS, FRE K-A1, A2, t
Slide 10: Positive Industry Trends
Positive Industry Trends • Substantial global demand for cash yield supports long term valuations of mortgage REITs ◦ Aging global population needs cash income ◦ The debt overhang results in low to negative global yields reducing cash income available to aging populations • Favorable investment envi
Slide 11: Why Dynex
Why Dynex • Excellent track record with attractive total return opportunity • Strong and defensive balance sheet positioned to weather market volatility • Experienced management with a track record of disciplined capital deployment through multiple economic cycles • Alignment of interests with share
Slide 12: Supplemental Information
Supplemental Information YNEX. ALL ‘SEES — ’ \\\ fi
Slide 13: Macroeconomic Thesis - Long-term
Macroeconomic Thesis - Long-term • The global economy is fragile and downside risks are increasing; this remains the core of our long-term macro economic and investment thesis. • The combination of global debt, demographics, technology, human conflict and climate change continue to impose a drag on
Slide 14: Portfolio Characteristics (as of August 31, 2020)
Portfolio Characteristics (as of August 31, 2020) Par Value WAVG Unamortized Total Par Estimated % of Coupon Amortized Market Premium 3-month Pools TBA (5) Value Fair Value Portfolio (1) cost (%) (2) Value % Balance (2) CPR (2) Agency RMBS 2.0% coupon $ 782,887 875,000 $ 1,657,887 $ 1,715,423 37.3 %
Slide 15: Managing Prepayment Risk
Managing Prepayment Risk • Asset Selection ◦ Heavier capital allocation to lower coupons: 87% of the Agency RMBS portfolio (as of 8/31) is allocated in 2.0% and 2.5% coupons. ◦ Approximately 90% of Specified Pools benefit from favorable prepayment characteristics ◦ Modest allocation to Specified Poo
Slide 16: Our Prepayment View
Our Prepayment View • Macro Economic View: We expect the range on the 10Yr UST to be between 40-90 bps and mortgage rates to fall between 2-3%. • In the short term; we expect primary/secondary mortgage spreads to tighten bringing mortgage rates down to about 2.5%. This should result in prepayment sp
Slide 17: Fixed Income Market Update
Fixed Income Market Update (1) Average rate for Agency MBS per 20 counterparty survey (2) Source: Bloomberg (3) Source: BlackRock 6.0 model (4) Spread to swap, new issue. Source: JP Morgan DataQuery 17
Slide 18: Pricing Matrix
Pricing Matrix *Source: JP Morgan DataQuery, Bloomberg and internal company data. Specified Pool Payups are quoted in percentage points of price above TBAs **Source: Internal company estimates from trading and marketing information 18
Slide 19: Risk Position - Interest Rates
Risk Position - Interest Rates Changes in interest rates impact the market value of our investments, net of hedges, and shareholders' equity. The estimated percentage change in these values incorporates duration and convexity inherent in our investment portfolio as it existed as of the dates indicat
Slide 20: Risk Position - Credit Spreads
Risk Position - Credit Spreads Changes in market credit spreads impact the market value of our investments and shareholders' equity. The estimated percentage change in these values incorporates portfolio and hedge characteristics as they existed at the dates indicated. As of August 31, 2020 As of Ju
Slide 21: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 2Q20 1Q20 4Q19 3Q19 2Q19 Comprehensive income (loss) to common shareholders $26,538 ($33,262) $8,570 $15,250 ($11,064) Adjustments: Change in fair value of available for sale investments (28,052) (157,755) 43
Slide 22: Investment Strategy
Investment Strategy Diversified investment approach that performs in a variety of market environments • Dynamic and disciplined capital allocation model enables capturing long-term value • Invest in a high quality, liquid asset portfolio of primarily Agency investments • Diversification is a key ben
Slide 23: Mortgage REIT Business Model
Mortgage REIT Business Model ASSETS CAPITAL Agency MBS Repo/Dollar Rolls Higher Government Issued AAA RMBS, CMBS, CMBS-IO Rated Short Committed Repo Term Non-Agency MBS Warehouse Lines AAA CMBS-IO, RMBS, RMBS- Rated IO, CMBS Unsecured Notes Medium AA – BBB Non-Agency MBS Term Convertible Notes Rated
Slide 24: MREIT Glossary of Terms
MREIT Glossary of Terms Commercial Mortgage-Backed Securities (CMBS) are a type of mortgage-backed security that is secured by the mortgage on a commercial property. CMBS can be Agency issued and issued by a private enterprise (non-Agency). Credit Risk is the risk of loss of principal or interest st
Slide 25: MREIT Glossary of Terms
MREIT Glossary of Terms Repurchase Agreements are a short-term borrowing that uses loans or securities as collateral. The lender advances only a portion of the value of the asset (the advance rate). The inverse of the advance rate is the equity contribution of the borrower (the haircut). Residential
Slide 26: Dynex Capital Inc.
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