Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Keefe, Bruyette & Woods 2013 Mortgage Finance Conference
33 slides from Dynex Capital's conference presentation, Jun 4, 2013
Slide 1: Keefe, Bruyette & Woods 2013 Mortgage Finance Conference
Keefe, Bruyette & Woods 2013 Mortgage Finance Conference June 4, 2013
Slide 2: Safe Harbor Statement
2 2 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, assumption
Slide 3: Our Guiding Principles
3 Our Guiding Principles Our Mission Our Core Values •Generate dividends for shareholders •Manage leverage conservatively • Remain owner-operators • Maintain a culture of integrity and employ the highest ethical standards • Provide a strong risk management culture • Focus on long-term shareholder va
Slide 4: DX Snapshot
4 DX Snapshot Internally managed REIT commenced operations in 1988 Significant inside ownership and experienced management team Diversified investment strategy investing in residential and commercial mortgage assets Large NOL carryforward for unique total return opportunity Market Highlights: (as of
Slide 5: First Quarter 2013 Highlights
5 5 First Quarter 2013 Highlights Diluted earnings per common share of $0.34 Book value per common share of $10.50 at March 31, 2013 vs. $9.62 at March 31, 2012 Annualized return on average common equity of 13.0% for the quarter Net interest spread of 1.89% for the quarter Average interest earnings
Slide 6: Summary of Results
Summary of Results $9.66 $10.31 $8.00 $8.50 $9.00 $9.50 $10.00 $10.50 Q2-2012 Q3-2012 Q4-2012 Q1-2013 $10.30 $10.50 2.18% 2.00% 1.93% 1.89% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% Q2-2012 Q3-2012 Q4-2012 Q1-2013 14.3% 13.6% 13.0% 13.0% 0% 2% 4% 6% 8% 10% 12% 14% 16% Q2-2012 Q3-2012 Q4-2012 Q1-2013 Divid
Slide 7: Increasing Book Value Despite Rise in Rates
Increasing Book Value Despite Rise in Rates 7 $9.20 $9.62 $9.66 $10.31 $10.30 $10.50 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 Book Value (per common share) 10 Year Treasury Rates 1.30% 1.40% 1.50% 1.60% 1.70% 1.80% 1.90% 2.00% Source: Bloomberg
Slide 8: Portfolio Mix
Portfolio Mix 8 Hybrid MREIT COMM MREIT Agency MREIT Non- Agency MREIT DX
Slide 9: Dynex vs. Other Yield Vehicles
Dynex vs. Other Yield Vehicles 9 13.9% 13.1% 11.4% 9.0% 8.8% 8.1% 0.0% 5.0% 10.0% 15.0% Agency MREIT Hybrid MREIT DX BDC Comm MREIT Non-Agency MREIT 1.20x 1.08x 1.03x 0.97x 0.95x 0.87x 0.00x 0.20x 0.40x 0.60x 0.80x 1.00x 1.20x 1.40x 1.60x Non-Agency MREIT Comm MREIT BDC DX Hybrid MREIT Agency MREIT
Slide 10: Consistent Core Investment Strategy
Consistent Core Investment Strategy 10 Short Duration High Quality Diversified Low Leverage
Slide 11: Managing Risk
Managing Risk •Invest in shorter duration instruments, with portfolio duration target of 0.5 to 1.5 years •Use interest rate swaps, swaptions, and caps to manage risk •Invest in assets at wider spreads Interest Rate Risk •CMBS investments with call protection •RMBS specified pools with diversity of
Slide 12: Portfolio Capital Allocation
Portfolio Capital Allocation 12 40% 50% 56% 62% 61% 60% 50% 44% 38% 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 1Q2013 CMBS RMBS 39% 64% 68% 75% 76% 61% 36% 32% 25% 24% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 1Q2013 Agency Non-Agency (as of end of peri
Slide 13: Investment Premium Allocation
Investment Premium Allocation 13 -$100 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 2009 2010 2011 2012 1Q2013 M il li on s Premium (Discount), net - CMBS and loans Premium, net - RMBS and loans (as of end of period)
Slide 14: CMBS: Why We Invest
CMBS: Why We Invest Explicit call protection: Lockout: No prepayments allowed Defeasance: Borrower cannot prepay the loan but may substitute US government collateral that replicates remaining cash flow stream Yield Maintenance: Borrower can prepay the loan by paying a penalty generally equal to pres
Slide 15: CMBS v. RMBS
CMBS v. RMBS CMBS – Explicit call protection – Short duration, predictable “bond like” cash flows – Predictability rolls down the curve – Complimentary cash flow profile to our RMBS investments – Opportunity for credit spread tightening 15 RMBS – No explicit call protection – Implicit call protectio
Slide 16: Consistent Prepayment Speeds
Consistent Prepayment Speeds 16 0 5 10 15 20 25 30 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Hybrid ARMs/ARMs Total Agency Total Portfolio Dynex Portfolio CPRs MBA Refinancing Index Source: Bloomberg
Slide 17: Portfolio Details (as of March 31, 2013)
Portfolio Details (as of March 31, 2013) Portfolio Expected Maturity/Reset Distribution 13% 14% 16% 21% 34% 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% <16 16-40 41-60 61-84 85-120 120-125 Months to Maturity/Reset Credit Quality AAA 91% AA 3% A 5% Below A 1% *Agency MBS are considered AAA-rated. 17
Slide 18: Macro Environment Factors
Macro Environment Factors 18 •US Economy has improved, but is it sustainable? •Global risk remains high •Rates have reacted to Fed comments and market perceptions •Future events with no date predicted o Fed ends QE3 o Fed allows long rates to increase o Fed raises short interest rates •Volatility ha
Slide 19: Macro Environment Factors
Macro Environment Factors • What happens when QE3 ends? – We are relying upon our CMBS position to limit extension risk and to tighten in spread over time – Expect our short duration assets to perform well – Expect our premium seasoned assets to perform well – Expect prepayments to slow and net inte
Slide 20: Dynex Value Proposition
20 Dynex Value Proposition Source: SNL Internally Managed and Publicly Traded Since 1988 Diversified Investment Strategy Large Tax NOL Significant Insider Ownership +111.26% January 1, 2008 – December 31, 2012
Slide 21: Appendix
21 APPENDIX
Slide 22: Capital Allocation (as of March 31, 2013)
22 Capital Allocation (as of March 31, 2013)
Slide 23: Selected Financial Highlights
23 23 Selected Financial Highlights (as of and for the quarter ended) Financial Highlights: ($000 except per share amounts) Mar 31, 2013 Dec 31, 2012 Sept 30, 2012 Jun 30, 2012 Mar 31, 2012 Total Investments 4,531,342$ 4,175,662$ 4,316,247$ 3,628,163$ 3,276,170$ Total Assets 4,628,113 4,280,229 4,40
Slide 24: Portfolio Performance
Portfolio Performance *As presented on this slide, Q3-2011 return on average equity is calculated based on a measure that excludes the impact of certain items on earnings per share (EPS Ex-Items). EPS Ex-Items for Q3-2011 was $0.32 and excludes from GAAP earnings per share the impact of litigation s
Slide 25: CMBS Portfolio (as of March 31, 2013)
CMBS Portfolio (as of March 31, 2013) 25 AAA, 78% AA, 4% A, 15% Below A, 3% Other 22% Multifamily 78% $117.2 $64.1 $0.0 $426.4 prior to 2000 2000-2005 2006-2008 2009 or newer Agency CMBS, $352.0 Agency CMBS IO, $601.4 Non- Agency CMBS, $496.3 Non- Agency CMBS IO, $111.4 Credit Quality Collateral Non
Slide 26: Agency CMBS Performance
Agency CMBS Performance 26 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% 0.45% % 60 + D a y s Past D u e Source: Freddie Mac Credit Volatility: Agency CMBS cash flow returns are leveraged to credit performance Agency CMBS are collateralized by multifamily cash flows Historical performance of
Slide 27: CMBS Spreads
CMBS Spreads 27 Source: Company Data 0 200 400 600 800 1000 1200 1400 Ba si s P o in ts AAA LCF spread
Slide 28: Volatility is Low
Volatility is Low 28 Source: Bloomberg 1 year/10 year Swaption Volatility
Slide 29: Rates are Range-Bound
Rates are Range-Bound 29 Source: Bloomberg 10-Year Treasury Note Yield January 1, 2011 – April 30, 2013
Slide 30: Positive Multifamily Trend
Positive Multifamily Trend 30 Multifamily Vacancies and Rents December 1999 – March 2013 Source: REIS, Barclays Research $0 $200 $400 $600 $800 $1,000 $1,200 0 1 2 3 4 5 6 7 8 9 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Vacancy Rent (RHS, $ per unit) %
Slide 31: Aggregate Agency CPRs
Aggregate Agency CPRs 31 0 10 20 30 40 50 60 70 Ju n - 02 Ju l-0 2 Au g- 02 Se p- 02 O ct -0 2 N ov - 02 D ec - 02 Ja n- 03 Fe b- 03 M ar - 03 Apr -0 3 M ay - 03 Ju n - 03 Ju l-0 3 Au g- 03 Se p- 03 O ct -0 3 FH ARM FN ARM FH FXD FN FXD 2002-2003 vs. 2011- 2013 Source: eMBS % % 0 10 20 30 40 50 60 7
Slide 32: Extension Risk (as of May 1, 2013)
32 Extension Risk (as of May 1, 2013) 0 2 4 6 8 10 12 14 16 FN 30 year FNCI 15 year FN 5/1 ARM 15 CPR/CPB 2 CPR/CPB Average Life (years) Price Coupon WAC Speed Average Life Average Life Extension FN 30yr $104-25 3.00% 3.61% 15 CPR 2 CPR 5.34 years 14.33 years ~9 years FNCI 15yr $104-20 2.50% 3.10% 1
Slide 33: Financing (as of March 31, 2013)
Financing (as of March 31, 2013) Repurchase Agreements Financing Balance (1) WAVG Rate By collateral pledged: Agency $ 3,199,633 0.54% Non-Agency 485,612 1.36% Other 23,566 1.61% Total $ 3,708,811 0.65% By original maturity: (days) 0-30 $ 1,030,894 0.69% 31-60 1,333,963 0.79% 61-90 969,050 0.50% >90
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