Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q4 2021 Earnings Presentation
36 slides from Dynex Capital's earnings presentation, Feb 3, 2022
Slide 1: Fourth Quarter and Annual 2021 Earnings Presentation
Fourth Quarter and Annual 2021 Earnings Presentation February 3, 2022
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
Market Snapshot Common Stock Series C Preferred Stock NYSE Ticker DX DXPrC Shares Outstanding (in millions) (as of 12/31/21) 36.7 4.5 4Q21 Dividends Declared $0.39 $0.43 Annualized Dividend Yield 9.70% 6.85% Book Value per share (as of 12/31/21) $17.99 — Share Price (close on 1/31/22) $16.08 $25.20
Slide 4: Dynex Strong Performance
Dynex Strong Performance Track record of long-term industry outperformance Cumulative Total Shareholder Returns (1) 38.4 33.0 28.7 19.7 17.8 16.2 11.9 5.8 7.6 4.3 3.0 2.3 2.3 1.1 -1.7 -0.7 -6.0 -7.8 -13.3 -30.6 2021 Total Return (%) Since 12/31/19 Total Return 3-Yr Total Return (%) 5-Yr Total Return
Slide 5: Successfully Navigated Volatility
Successfully Navigated Volatility Our experienced team managed a disciplined investment approach that resulted in superior performance during the recent three-year period of high interest rate and interest spread volatility. Track Record of Capital Preservation 0.42% $21 $20.07 $18.71 $19.08 $18.75
Slide 6: Performance Highlights- 4Q 2021
Performance Highlights- 4Q 2021 (1) Comprehensive Income (Loss) Book Value Total Economic Return (per common share) (per common share) $0.09 $18.42 $17.99 0.3% $(0.04) (0.2)% Q3 21 Q4 21 3Q 21 Q4 21 Q3 21 Q4 21 (3) Earnings Available for Net Interest Spread Adjusted Net Interest (2) Distribution Spr
Slide 7: Performance Highlights - Full Year 2021
Performance Highlights - Full Year 2021 (1) Comprehensive Income (per common share) Book Value (per common share) Total Economic Return 15.2% $2.88 $19.08 $17.99 $0.53 2.5% 2020 2021 2020 2021 2020 2021 (4) Earnings Available for Net Interest Spread Adjusted Net Interest (2) Distribution Spread (per
Slide 8: Disciplined Focus on the Long-Term
Disciplined Focus on the Long-Term The global economy is evolving to a post-pandemic environment with rising complexities across economic, social and political factors. • Shifting demographics, rising global debt, technology, human conflict, and climate change all remain key factors that increase th
Slide 9: New Market Paradigm and Opportunity
New Market Paradigm and Opportunity The Market Environment • We expect higher returns in the MBS market as private capital replaces the Federal Reserve balance sheet. • The pace and scope of monetary policy tightening is highly uncertain, and we expect significant moves in the shape of the yield cur
Slide 10: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) Disciplined capital allocation and portfolio constructed for nimble flexibility. December 31, 2020 September 30, 2021 December 31, 2021 3% 6% 2% 2% 4% 4% 6.3x 5.9x 5.8x 6% 4% 4% leverage leverage leverage 90% 90% 85% (1) Includes TBA dollar roll positions
Slide 11: 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 Common Shareholders’ Equity As of As of As of Parallel Curve Shift January 31, 2022 December 31, 2021 September 30, 2021 +100 (1.4)% 2.7% 0.2% +50 0.4% 2.6% 1.4%
Slide 12: 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. Percentage Change in Common Shareholders' Equity As of As of As of Change in Market Credit January 31, 2022 December 31, 2021 Septem
Slide 13: Well-Positioned for a Favorable Investment Environment
Well-Positioned for a Favorable Investment Environment We believe our portfolio is well-positioned to enable us to capture incremental shareholder return as MBS spreads widen. Incremental Solid Long-Term Existing Balance Sheet Investments Returns • Generating solid EAD(1) • Significant room to • Lim
Slide 14: 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 15: 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 - December 31, 2021 Source: S&P Capital IQ Assumes reinvestment of dividends 15
Slide 16: Key Takeaways
Key Takeaways • We believe we are entering a favorable period for investing as asset yields adjust higher while the Federal Reserve exits the market. • As of December 31, 2021, we had over $500m of liquidity and our leverage was at 5.8x, which limits risk to our book value and adds the flexibility t
Slide 17: Why Dynex
Why Dynex Industry-leader with a Compelling Long-Term Track Record of Delivering Shareholder Value Attractive dividend yield at Excellent performance record Earnings power to drive a discounted price-to-book with industry-leading 1-,3-, upside with opportunistic valuation on a high-quality, and 5-ye
Slide 18: Supplemental Information
Supplemental Information 18
Slide 19: Corporate Responsibility
Corporate Responsibility At Dynex, we recognize that we have a responsibility to be stewards of the future and we are committed to excellence in our ESG practices. CORE VALUES SASB We rely on our core values to Illustrating our commitment to sustain our high-performance continual improvement in our
Slide 20: Current Marginal Investment Returns (as of December 31, 2021)
Current Marginal Investment Returns (as of December 31, 2021) Agency MBS Pools Agency RMBS offer attractive returns and Higher 15yr and 30yr RMBS (1,2) we expect other asset classes to adjust to GSE Return Range 10-12% more favorable risk/reward. Guaranteed AAA Rated Agency CMBS ◦ The most compellin
Slide 21: 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 21
Slide 22: 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. 22
Slide 23: 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. December 31, 2021 September 30, 2021 Notional Notio
Slide 24: Funding Strategy (as of December 31, 2021)
Funding Strategy (as of December 31, 2021) ($s in thousands) Weighted • Weighted average repo rate for the Average Fair Value of Collateral Type Balance Rate Collateral fourth quarter of 2021 was 0.21%, a Agency RMBS $2,408,126 0.17 % $2,536,094 slight increase compared to third quarter 2021. The we
Slide 25: Dollar Rolls
Dollar Rolls • TBAs are an important part of Dynex’s actively managed Agency RMBS strategy. We use TBAs to quickly add or remove earning assets as they are among the most liquid tradeable instruments in the fixed income markets, even more than specified pools. • Dollar rolls are the financing mechan
Slide 26: Long-term Investment Strategy
Long-term Investment Strategy Dynamic and disciplined capital allocation model enables us to capture long-term value Target Strategy • In the current environment invest in a high quality, Higher Credit Quality Higher Credit Quality liquid asset portfolio of primarily Agency Short Duration Long Durat
Slide 27: Portfolio Characteristics (as of December 31, 2021)
Portfolio Characteristics (as of December 31, 2021) WAVG Unamortized 3-month Par Value Total Par Estimated % of Coupon Amortized Premium 3-month WAVG ($ 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 $ 375,00
Slide 28: Prepayment Protection on Unamortized Premium
Prepayment Protection on Unamortized Premium (as of December 31, 2021) Investment Premium by Asset Type ($ in millions) CMBS IO: $298.2 100% of investment premium exposure in CMBS has at least some amount of structural prepayment protection Agency CMBS: $2.3 Agency RMBS: $74.2 Unamortized Premium $
Slide 29: 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%1.87% 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%0.21% Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q3- Q4
Slide 30: Financial Performance
Financial Performance 4Q21 3Q21 2021 Per Per Per Income Common Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* (Expense) Share* Interest income $ 17,051 $ 0.47 $ 15,714 $ 0.45 $ 60,051 $ 1.84 Interest expense (1,443) (0.04) (1,320) (0.04) (5,6
Slide 31: Book Value Rollforward
Book Value Rollforward Quarter Ended December 31, 2021 Per $ in Common thousands Share Common shareholders' equity, beginning of period (1) $662,011 $18.42 GAAP net income to common shareholders: Earnings available for distribution (2) 16,462 Unrealized loss on trading investments including TBAs, ne
Slide 32: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 4Q21 3Q21 2Q21 1Q21 2021 Comprehensive (loss) income to common shareholders ($1,372) $2,971 ($31,412) $47,227 $17,413 Adjustments: Change in fair value of investments (1) 25,340 12,224 (17,362) 61,439 81,641
Slide 33: 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 34: 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 35: 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 36: Sound Strategy. Unique Advantages.
Sound Strategy. Unique Advantages. 4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia 23060 804-217-5800 dynexcapital.com