Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q3 2021 Earnings Presentation
32 slides from Dynex Capital's earnings presentation, Oct 27, 2021
Slide 1: Third Quarter 2021 Earnings Presentation
Third Quarter 2021 Earnings Presentation October 27, 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 Performance Highlights - Q3 2021 5 Macro Thesis, Current Environment and Positioning 6 Investment Portfolio 7 Risk Position - Interest Rates 8 Risk Position - Credit Spreads 9 Long-Term Industry Trends 10 Long-Term Performance 11 Comparative Returns 12 Key Takeaways 13 Why
Slide 4: Market Snapshot
Market Snapshot Common Stock Series C Preferred Stock NYSE Ticker DX DXPrC Shares Outstanding (in millions) (as of 9/30/21) 35.9 4.5 3Q21 Dividends Declared $0.39 $0.43 Annualized Dividend Yield 8.76% 6.71% Book Value per share (as of 9/30/21) $18.42 — Share Price (close on 10/22/21) $17.81 $25.69 M
Slide 5: Performance Highlights - Q3 2021
Performance Highlights- Q3 2021 (1) Comprehensive Income (per common share) Book Value (per common share) Total Economic Return $18.75 $18.42 $0.09 0.3% $(0.98) (4.6)% Q2 21 Q3 21 Q2 21 Q3 21 Q2 21 Q3 21 (3) (5) Earnings Available for Net Interest Spread Adjusted Net Interest (2) Distribution Spread
Slide 6: Macroeconomic Thesis, Current Environment and Positioning
Macroeconomic Thesis Current Environment Long-term and Positioning The global economy is evolving but remains fragile as We believe the broader investment environment significant uncertainties remain about the pandemic's long- remains favorable with financing costs anchored term effects across econo
Slide 7: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) Disciplined capital allocation and portfolio constructed for flexibility. December 31, 2020 June 30, 2021 September 30, 2021 3% 6% 2% 2% 4% 4% 6% 4% 4% 90% 89% 85% 1) Includes TBA dollar roll positions at their implied market value which are accounted for
Slide 8: Risk Position - Interest Rates
Risk Position - Interest Rates We have maintained a portfolio structure hedged with the long end of the yield curve. Percentage Change in Percentage Change in Common Shareholders’ Equity Curve Shift Curve Shift Common Shareholders’ Equity As of 2 year 10 year As of Parallel Curve September 30, As of
Slide 9: Risk Position - Credit Spreads
Risk Position - Credit Spreads The estimated percentage change in these values incorporates portfolio and hedge characteristics as they existed at the dates indicated. As of September 30, 2021 As of June 30, 2021 Percentage Change in Common Percentage Change in Common Change in Market Credit Spreads
Slide 10: 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 11: Disciplined Focus on the Long-Term
Disciplined Focus on the Long-Term Dynex has generated long-term returns comparable to the S&P 500 Financials and Russell 2000 Value indices. Total Return (%) January 1, 2008 - September 30, 2021 Source: S&P Capital IQ Assumes reinvestment of dividends 11
Slide 12: Dynex Outperforms
Dynex Outperforms Track record of industry outperformance Cumulative Total Shareholder Returns (1) 37 33 28 21 18 10 8 10 8 7 3 3 3 0 -2 -1 -7 -43 -55 -61 YTD Total Return (%) Since 12/31/19 Total Return 3-Yr Total Return (%) 5-Yr Total Return (%) (%) Dynex (DX) Agency REITs (2) Hybrid REITs (3) iSh
Slide 13: Key Takeaways
Key Takeaways We believe the global economy is transitioning to a post pandemic environment and our team is prepared for elevated volatility and the increased probability of surprise factors. We believe we are entering a period with the potential for additional opportunities to invest capital at hig
Slide 14: Why Dynex
Why Dynex Industry-leader with a Compelling Long-Term Track Record of Delivering Shareholder Value Attractive dividend yield at Excellent track record with Earnings power to drive a discounted price-to-book industry-leading 1-,3-, and 5- upside with opportunistic valuation on a high-quality, year to
Slide 15: Supplemental Information
Supplemental Information 15
Slide 16: 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 16
Slide 17: Current Marginal Investment Returns
Current Marginal Investment Returns (as of September 30, 2021) Agency MBS Pools Agency RMBS offer attractive returns Higher 15yr and 30yr RMBS (1,2) Return Range 10-12% ◦ The most compelling levered risk and convexity GSE adjusted marginal returns are still in the Guaranteed highest credit quality a
Slide 18: 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. 18
Slide 19: Hedge Position Changes
Hedge Position Changes 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. September 30, 2021 June 30, 2021 Notional Notional
Slide 20: Funding Strategy (as of September 30, 2021)
Funding Strategy (as of September 30, 2021) ($s in thousands) Weighted Average Fair Value of • Weighted average repo rate for the Collateral Type Balance Rate Collateral third quarter of 2021 was 0.20%, a Agency RMBS $2,069,312 0.13 % $2,166,848 decline of 3 basis points compared to Agency CMBS 186,
Slide 21: Dollar Rolls
Dollar Rolls • TBAs are an important part of Dynex’s actively managed Agency RMBS strategy. We use TBAs to quickly add or remove earning assets as they are among the most liquid tradeable instruments in the fixed income markets, even more than specified pools. • Dollar rolls are the financing mechan
Slide 22: Long-term Investment Strategy
Long-term Investment Strategy Dynamic and disciplined capital allocation model enables us to capture long-term value Target Strategy • In the current environment invest in a high quality, Higher Credit Quality Higher Credit Quality liquid asset portfolio of primarily Agency Short Duration Long Durat
Slide 23: Portfolio Characteristics (as of September 30, 2021)
Portfolio Characteristics (as of September 30, 2021) WAVG Unamortized 3-month Par Value Total Par Estimated % of Coupon Amortized Premium 3-month WAVG ($ in millions) Pools TBA Value Fair Value Portfolio (1) Cost (%) (2) Balance (2) CPR (2) (3) Yield (2) Agency RMBS 1.5% coupon $ — $ 375,000 $ 375,0
Slide 24: Prepayment Protection on Unamortized Premium
Prepayment Protection on Unamortized Premium (as of September 30, 2021) Investment Premium by Asset Type ($ in millions) CMBS IO: $304.4 100% of investment premium exposure in CMBS has at least some amount of structural prepayment protection Agency CMBS: $2.6 Agency RMBS: $75.1 Unamortized Premium $
Slide 25: Performance Statistics Overview
Performance Statistics Overview Net Interest Spread Repo and Other Financing Costs 2.69%2.67% 2.50% 2.47% 2.25% 2.10% 1.96%1.96% 1.94%1.87%1.87% 1.93% 1.86% 1.32% 1.08% 1.10% 0.93% 0.84% 0.76%0.82% 0.74% 0.38% 0.35%0.30% 0.23% 0.20% Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q3- Q4- Q1- Q2-
Slide 26: Financial Performance - Comparative Quarters
Financial Performance - Comparative Quarters 3Q21 2Q21 Per Per Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* Interest income $ 15,714 $ 0.45 $ 13,393 $ 0.42 Interest expense (1,320) (0.04) (1,275) (0.04) GAAP net interest income 14,394 0.41
Slide 27: Book Value Rollforward
Book Value Rollforward Quarter Ended September 30, 2021 Per $ in Common thousands Share Common shareholders' equity, beginning of period (1) $644,130 $18.75 GAAP net income to common shareholders: Earnings available for distribution (2) 18,911 Unrealized loss on trading investments including TBAs, n
Slide 28: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 3Q21 2Q21 1Q21 4Q20 3Q20 Comprehensive income (loss) to common shareholders $2,971 ($31,412) $47,227 $28,725 $44,471 Adjustments: Change in fair value of investments (1) 12,224 (17,362) 61,439 (754) (28,038)
Slide 29: 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 30: 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 31: 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 32: Sound Strategy. Unique Advantages.
Sound Strategy. Unique Advantages. 4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia 23060 804-217-5800 dynexcapital.com