Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q1 2021 Earnings Presentation
33 slides from Dynex Capital's earnings presentation, Apr 28, 2021
Slide 1: First Quarter 2021 Earnings Presentation
First Quarter 2021 Earnings Presentation April 28, 2021
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: Contents
Contents Market Snapshot 4 Comparative Returns 5 Sharpe Ratio 6 Performance Highlights - Q1 2021 7 Macro Thesis, Current Environment and Positioning 8 Investment Portfolio 9 Risk Position 10 Hedge Position 11 Return Environment 12 Long Term Industry Trends 13 Long Term Performance 14 Key Takeaways 1
Slide 4: Market Snapshot
Market Snapshot Common Stock Series C Preferred Stock NYSE Ticker DX DXPrC Shares Outstanding (in millions) (as of 4/23/21) 30.9 4.5 1Q21 Dividends Declared $0.39 $0.43 Annualized Dividend Yield 8.00% 6.84% Book Value per share (as of 3/31/21) $20.07 — Share Price (close on 4/23/21) $19.51 $25.22 Ma
Slide 5: Superior Performance
Superior Performance Industry-leading performance versus other income-oriented vehicles Cumulative Total Shareholder Returns (1) 65 50 46 40 37 33 27 21 22 17 14 13 9 9 8 10 8 8 3 3 2 2 3 0 -11 -29 -51 -66 YTD Total Return (%) Since 12/31/19 Total Return 3-Yr Total Return (%) 5-Yr Total Return (%) (
Slide 6: Higher Returns, Less Risk
Higher Returns, Less Risk * *The Sharpe ratio is a measure of risk-adjusted returns. The higher the ratio vs. peers the better. When comparing two Source: Bloomberg assets versus a common benchmark, the one with a higher Sharpe ratio provides better return for the same risk (or, equivalently, the sa
Slide 7: Performance Highlights - Q1 2021
Performance Highlights- Q1 2021 (1) Comprehensive Income Book Value Total Economic Return (per common share) (per common share) $1.76 7.2% 6.7% $1.23 $20.07 $19.08 Q1 21 Q4 20 Q1 21 Q4 20 Q1 21 Q4 20 (2) Core Net Operating Income Net Interest Spread Adjusted Net Interest (per common share) $0.46 $0.
Slide 8: Macroeconomic Thesis, Current Environment and Positioning
Macroeconomic Thesis Current Environment Long-term and Positioning Our disciplined macroeconomic thought process leads us to We believe the broader investment environment prepare for a transition to a steeper yield curve as highly remains favorable with financing costs anchored accommodative monetar
Slide 9: Investment Portfolio
Investment Portfolio (as of dates indicated) Disciplined capital allocation and portfolio constructed for flexibility. March 31, 2021 December 31, 2020 December 31, December 31, 2019 2019 3% 3% 6% 4% 5% 6% 88% 85% 1) Includes TBA dollar roll positions at their implied market value which are accounte
Slide 10: Risk Position - Interest Rates
Risk Position - Interest Rates In our view, the environment has shifted from rates moving steeper and higher to more range bound with possible surprises in both directions. Percentage Change in Percentage Change in Common Shareholders’ Equity Curve Shift Curve Shift Common Shareholders’ Equity As of
Slide 11: Hedge Position (as of March 31, 2021)
Hedge Position (as of March 31, 2021) Our hedge strategy is constructed to maximize liquidity and protect the portfolio under various rate scenarios. • Futures offer hedge protection for higher rates with lower impact on liquidity and greater trading flexibility • We booked gains on our options posi
Slide 12: Current Marginal Investment Returns
Current Marginal Investment Returns (as of March 31, 2021) Agency MBS Pools Agency RMBS offer attractive returns Higher 15yr and 30yr RMBS (1,2) Return Range 6-9% ◦ The most compelling levered risk and convexity GSE adjusted marginal returns are still in the Guaranteed highest credit quality and the
Slide 13: Long-Term Industry Trends
Long-Term Industry Trends Positive long-term fundamental trends support our business model. Global demand for cash yield supports long term valuations of mortgage REITs 1 ◦ Low and negative global yields have severely limited positive yielding cash income alternatives available to investors ◦ Global
Slide 14: Disciplined Focus on the Long Term
Disciplined Focus on the Long Term Dynex has generated long-term returns exceeding the S&P 500 and Russell 2000. Total Return (%) January 1, 2008 - March 31, 2021 Source: S&P Global 14
Slide 15: Key Takeaways
Key Takeaways Delivered a Total Economic Return of 7.2% to common shareholders for the first quarter 2021 and 34.8% over the last four quarters, averaging 8.0% per quarter. Since the beginning of 2020, our total shareholder return is 27.1%, outperforming other income-oriented vehicles. Created value
Slide 16: Why Dynex
Why Dynex Industry-leader with a Compelling Long-Term Track Record of Delivering Shareholder Value Excellent track record with Attractive dividend yield at Earnings power to drive industry-leading 1-,3-, and 5- a discounted price-to-book upside with opportunistic year total returns with the valuatio
Slide 17: Supplemental Information
Supplemental Information 17
Slide 18: Fixed Income Market Update
Fixed Income Market Update (1) Average rate for Agency MBS per 20 counterparty survey (2) Source: Bloomberg (3) Source: BlackRock 6.04 model prior to 03/31/2021 and BlackRock 6.1 on 3/31/2021 and after 18
Slide 19: Pricing Matrix
Pricing Matrix 1. Source: JP Morgan DataQuery, Bloomberg and internal company data. Specified Pool Payups are quoted in percentage points of price above TBAs 2. UMBS 2.0/2.5 changes are compared from when Specified Pools in that coupon became available in the market. 19
Slide 20: Dollar Rolls
Dollar Rolls • TBAs are an important part of Dynex’s actively managed Agency RMBS strategy. We use TBAs to quickly add or remove earning assets as they are among the most liquid tradeable instruments in the fixed income markets, even more than specified pools. • Dollar rolls are the financing mechan
Slide 21: 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 March 31, 2021 As of Dec
Slide 22: Investment Strategy
Investment Strategy Dynamic and disciplined capital allocation model enables us to capture long-term value Target Strategy • Invest in a high quality, liquid asset portfolio of Higher Credit Quality Higher Credit Quality primarily Agency investments Short Duration Long Duration • Diversification is
Slide 23: Portfolio Characteristics (as of March 31, 2021)
Portfolio Characteristics (as of March 31, 2021) WAVG Unamortized 3-month Par Value Total Par Estimated % of Coupon Amortized Premium 3-month WAVG ($ in millions) Pools TBA (5) Value Fair Value Portfolio (1) cost (%) (2) Balance (2) CPR (2) yield (2) Agency RMBS 1.5% coupon $ — $ 375,000 $375,000 $
Slide 24: Prepayment Protection on Unamortized Premium
Prepayment Protection on Unamortized Premium (as of March 31, 2021) Investment Premium by Asset Type ($ in millions) CMBS IO: $352.7 100% of investment premium exposure in CMBS has at least some amount of structural prepayment protection Agency CMBS: $3.0 Agency RMBS: $56.0 Unamortized Premium % of
Slide 25: Funding Strategy (as of March 31, 2021)
Funding Strategy (as of March 31, 2021) ($s in thousands) Weighted Average Fair Value of • Weighted average repo rate for the Collateral Type Balance Rate Collateral first quarter of 2021 was 0.30%, a Agency RMBS $1,499,034 0.16 % $1,568,623 decline of 5 basis points compared to Agency CMBS 234,228
Slide 26: Performance Statistics Overview
Performance Statistics Overview Net Interest Spread Adjusted Net Interest Spread (1) 1.96%1.96%1.94% 1.87% 1.96% 2.00%1.98% 1.87% 1.52%1.51% 1.53%1.47% 1.34% 1.32% 1.41% 1.24%1.19% 1.14% 1.07%1.08% 1.10% 1.03% 0.93%0.84% 0.76% 0.82% Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q1- Q2- Q3- Q4-
Slide 27: Financial Performance - Comparative Quarters
Financial Performance - Comparative Quarters 1Q21 4Q20 Per Per Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* Interest income $ 13,892 $ 0.52 $ 16,705 $ 0.72 Interest expense (1,633) (0.06) (2,289) (0.10) GAAP net interest income 12,259 0.46
Slide 28: Book Value Rollforward
Book Value Rollforward Quarter Ended March 31, 2021 Per $ in Common thousands Share Common shareholders' equity, beginning of period (1) $452,244 $19.08 GAAP net income to common shareholders: Core net operating income to common (2) 12,420 Gain on sale of investments, net 4,697 Loss on investments,
Slide 29: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 1Q21 4Q20 3Q20 2Q20 1Q20 Comprehensive income (loss) to common shareholders $47,227 $28,725 $44,471 $26,538 ($33,262) Adjustments: Change in fair value of available for sale investments 60,459 (888) (27,844)
Slide 30: 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 Liquidity AAA CMBS-IO, RMBS, RMBS- Rated IO, CMBS Unsecured Notes Medium AA – BBB Non-Agency MBS Term Convertible N
Slide 31: 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 32: 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 33: Sound Strategy. Unique Advantages.
Sound Strategy. Unique Advantages. 4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia 23060 804-217-5800 dynexcapital.com