Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Southwest IDEAS Investor Conference 2014
29 slides from Dynex Capital's conference presentation, Nov 19, 2014
Slide 1: Southwest IDEAS Investor Conference November 19, 2014
Southwest IDEAS Investor Conference November 19, 2014
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: Market Snapshot
Common Stock Preferred Stock NYSE Stock Ticker: DX DXPrA DXPrB Shares Outstanding: (as of 9/30/14) 54,734,817 2,300,000 2,250,000 Q3 Dividends per share: $0.25 $0.53125 $0.4765625 Dividend Yield: (annualized) 11.82% 8.44% 7.86% Share Price: $8.46 $25.18 $24.26 Market Capitalization: $463.06M $57.91M
Slide 4: 3Q2014 Performance
3Q2014 PERFORMANCE a aN
Slide 5: Third Quarter 2014 Highlights
• GAAP net income of $0.52 per common share • Core net operating income(1) of $0.25 per common share, for an adjusted return on common equity(1) of 11.0% • Common dividend declared of $0.25 per share, for an annualized 11.9% yield based on $8.39 closing stock price on November 3, 2014 • GAAP net int
Slide 6: Key Financial Metrics
Key Financial Metrics • Core net operating income per share for the third quarter was $0.25 with a dividend declared of $0.25 per share • Investment portfolio purchases and repositioning on both investments and funding/hedging contributed to wider adjusted net interest spread in the quarter (1) Non-
Slide 7: Investment Portfolio Outlook and Strategy
INVESTMENT PORTFOLIO OUTLOOK AND STRATEGY 7
Slide 8: Recent Actions Taken
The decline in risk premiums across asset classes, when viewed against the backdrop of macro and market factors, has led to several portfolio adjustments: • $19.4 million in realized gains on Agency Multifamily CMBS between 3Q14 and 4Q14 • Actively managed our hedge position to reduce our interest r
Slide 9: CMBS and CMBS IO Historical Spreads
CMBS and CMBS IO Historical Spreads Source: Company data 9
Slide 10: Interest Rate Sensitivity
Interest Rate Sensitivity Intermediate curve point shifts are interpolated for non-parallel scenarios 10
Slide 11: Financing Details
Financing Details (as of September 30, 2014) (for the quarterly periods indicated) • Our weighted average contractual maturity was 106 days at September 30, 2014 compared to 70 days at June 30, 2014. • Our repurchase agreement balance was $3.2 billion at September 30, 2014 with 21 counterparties com
Slide 12: Market Fundamentals: Global divergence but the cash is still in the system
Market Fundamentals: Global divergence but the cash is still in the system • US economy moving at a different pace than Europe or Japan. China economic condition is highly uncertain and could have a meaningful impact on global growth. • Fed has ended LSAP, now data dependent but looking to begin rem
Slide 13: Implications for Dynex Strategy
Going forward, we expect to: • Add investments within our disciplined framework to capital deployment – assessing risk adjusted returns in the context of net interest income and book value volatility; • Maintain leverage levels that respect the current environment and opportunistically reposition as
Slide 14: Portfolio Update
Portfolio Update (as of September 30, 2014) ($ in millions) $673.0 Agency MBS are considered AAA-rated for purposes of this chart. Portfolio Credit Quality* Net Premium by Asset Type Portfolio Expected Maturity/Reset Distribution* $690.6 $121.0 15.5% 12.0% 23.0% 13.6% 1.3% 34.7% *Excludes loans 14
Slide 15: Equity Capital Allocation Quarterly Comparison
Equity Capital Allocation Quarterly Comparison ($ in millions) $673.0 As of September 30, 2014 As of June 30, 2014 $56.6 $217.2 $152.4 $105.9 $62.0 $19.9 $228.4 $161.9 $36.8 $32.7 $24.9 $128.2 15
Slide 16: CMBS Portfolio (Quarterly Comparison)
CMBS Portfolio (Quarterly Comparison) Vintage (by year of origination) Asset Type $ in millions Credit Quality (September 30, 2014) Credit Quality (June 30, 2014) Vintage (September 30, 2014) Vintage (June 30, 2014) By Year of Origination By Year of Origination 16
Slide 17: CMBS Portfolio
CMBS Portfolio (as of September 30, 2014) Vintage (by year of origination) Asset Type $ in millions Agency MBS are considered AAA-rated for purposes of this chart. Credit Quality Vintage Collateral Asset Type Year of Origination 17
Slide 18: RMBS Portfolio
Asset Type ($ in millions) RMBS Portfolio (as of September 30, 2014) Credit Quality Months to Maturity/Reset For ARMs/Hybrids 4% 13% 50% 16% 8% 10% Weighted Average Loan Age 23.7% 11.7% 22.1% 11.3% 31.2% 18
Slide 19: Hedging Details
Hedging Details As of September 30, 2014 $2,000 5.0% $1,500 Ae 7" 24% z 3.0% 2 $1,000 Z 20% © is uy 10% so 0.0% 20 go qo? 2957 go? go? go? 19? 40? gor? yo Interest Rate Swaps-Payers, HE tvrodliar contracts a Met of Receives —+— Total Weighted average Pay Rate, Net ‘As of June 30, 2014 $2,000 5.0% 40
Slide 20: Conclusion
• Long term, we see opportunities for investments in both residential and commercial assets and in markets previously dominated by the Fed/GSEs. • Private capital for the first time will need to replace the government as the dominant purchaser of MBS. • As the US housing system is reformed, there sh
Slide 21: Appendix
APPENDIX 21
Slide 22: Drivers of EPS
Drivers of EPS Investment Premium Allocation (as of end of period) 22
Slide 23: Drivers of Book Value: Spread Risk
Drivers of Book Value Spread Risk • An asset’s “spread” is the market premium above a benchmark rate that reflects the relative riskiness of the asset versus the benchmark. • Spread risk is the uncertainty in pricing resulting from the expansion and contraction of the risk premium over the benchmark
Slide 24: Agency RMBS Historical Spreads
Drivers of Book Value Agency RMBS Historical Spreads Source: Company data Basis Points 24
Slide 25: Risk Management
Drivers of Book Value and EPS Risk Management Key Risk Mitigating Strategy Interest Rate/Extension Risk Duration target of 0.5 to 1.5 years Derivatives to economically hedge interest rate risk Invest in credit assets that should increase in value as rates rise Short duration assets and more predicta
Slide 26: Selected Financial Highlights
Accounting Disclosure Selected Financial Highlights (as of and for the quarter ended) (1) Core net operating income to common shareholders (including on a per share basis), adjusted return on average common equity and adjusted net interest spread are non-GAAP financial measures. Reconciliations of t
Slide 27: Book Value Reconciliation
Accounting Disclosure Book Value Reconciliation (1) Core net operating income to common shareholder (including on a per share basis) is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure is provided on slide 28. Book Value ($ in thousands) Book Value Per Common Share S
Slide 28: Core Net Operating Income Reconciliation
($ in thousands except per share data) Quarter Ended 9/30/2014 6/30/2014 3/31/2014 12/31/2013 9/30/2013 Net income (loss) to common shareholders $28,572 ($8,293 ) ($3,028 ) $19,266 ($6,921 ) Adjustments: Amortization of de-designated cash flow hedges (1) 1,442 1,608 2,288 2,609 2,583 Change in fair
Slide 29: Reconciliation of GAAP Measures to Non-GAAP Measures
Accounting Disclosure Reconciliation of GAAP Measures to Non-GAAP Measures (1) Rates shown are based on annualized interest expense amounts divided by average interest bearing liabilities. Recalculation of annualized cost of funds using total interest expense shown in the table may not be possible b
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