Dynex Capital, Inc. · NYSE:DX
Dynex Capital — JMP Securities 2019 Financial Services Conference
30 slides from Dynex Capital's conference presentation, Nov 13, 2019
Slide 1: Well positioned to deliver value
Well positioned to deliver value JMP Securities 2019 Financial Services Conference November 14, 2019
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 Recent Developments 5 Performance 6 Macro Economic Thesis 7 Investment Strategy 8 Hedging & Risk Management 11 Funding Strategy 13 Return Environment 14 Key Takeaways 15 Summary 16 Appendix 17 - Macro charts 18 - Portfolio and Financial tables 22 - MREIT Reference Material
Slide 4: Market Snapshot
Market Snapshot Common Stock Preferred Stocks NYSE Ticker DX DXPrA DXPrB Shares Outstanding (in millions) (at 9/30/19) 22.9 2.3 4.5 3Q19 Dividends per share $0.48 $0.53125 $0.4765625 Annualized Dividend Yield 11.79% 8.20% 7.60% Book Value (at 9/30/19) $18.07 — — Share Price (11/11/19 close) $16.29 $
Slide 5: Recent Developments (through November 12, 2019)
Recent Developments (through November 12, 2019) We continue to believe it is highly probable that the yield range on the 10-year Treasury will remain between 1.5%-2.5% with a greater likelihood toward the lower end of the range in the near term. • Relative to our third quarter results, we expect net
Slide 6: Third Quarter 2019 Performance
Third Quarter 2019 Performance • Comprehensive income of $0.63 per common share and GAAP net loss of ($1.65) per common share • Core net operating income(1) of $0.48 per common share versus $0.43 per share in the second quarter of 2019 • Book value per common share increased 2.2%, to $18.07 at Septe
Slide 7: Macro Economic Thesis
Macro Economic Thesis • The global economy is fragile and downside risks are increasing; this remains the core of our long- term macro economic and investment thesis. • The combination of global debt, demographics, technology, human conflict and climate change continue to impose a drag on global gro
Slide 8: Investment Portfolio
Investment Portfolio September 30, 2019 June 30, 2019 Agency Agency CMBS: 33% CMBS: 40% Agency RMBS (1): Agency 50% RMBS (1): 59% CMBS IO: 8% CMBS IO: 10% • Diversification of the portfolio between commercial and residential securities creates an asset profile that reduces overall hedging costs in t
Slide 9: Portfolio Characteristics (as of September 30, 2019)
Portfolio Characteristics (as of September 30, 2019) ($ in millions) Par Value 3- WAVG Unamortized month Total Par Estimated % of Coupon Amortized Premium 3-month WAVG (1) Security Pools TBA Value Fair Value Portfolio (2) cost (%) Balance CPR yield Agency RMBS 2.5% coupon $— $245,000 $245,000 $243,7
Slide 10: Prepayment Protection on Unamortized Premium
Prepayment Protection on Unamortized Premium Investment Premium by Asset Type (as of September 30, 2019) ($ in millions) Prepayment protected CMBS and CMBS IO: Prepayment advantaged RMBS: unamortized premium $490.5 unamortized premium $61 100% of CMBS IO: investment $474.5 premium exposure in Invest
Slide 11: Risk Position - Interest Rates
Risk Position - Interest Rates Changes in interest rates impact the market value of our investments, net of hedges, and shareholders' equity. The estimated percentage change in these values incorporates duration and convexity inherent in our investment portfolio as it existed as of the dates indicat
Slide 12: Hedge Position (as of September 30, 2019)
Hedge Position (as of September 30, 2019) Hedging Portfolio Summary Interest Rate Swap Maturities Notional WAVG Notional WAVG WAVG Life ($ in millions) Amount Rate Duration (1) Years to Maturity- Amount (in Pay-Fixed Remaining Swaps millions) Rate (in years) Interest rate swaps $ 3,880 1.65% -3.27 I
Slide 13: Funding Strategy (as of September 30, 2019)
Funding Strategy (as of September 30, 2019) Fair Value of Weighted Collateral Balance Average Pledged • We actively managed repo maturities early Collateral Type Rate ($ in thousands) ($ in thousands) in the second quarter to avoid third Agency RMBS $2,561,276 2.26% $2,662,761 quarter end exposure.
Slide 14: Return Environment (as of October 22, 2019)
Return Environment (as of October 22, 2019) Assets & Available Returns (1) Agency RMBS and CMBS offer attractive returns Higher Agency MBS Government RMBS(2), CMBS, CMBS-IO • The most compelling levered risk-adjusted returns Issued AAA Range 10-15% are still in the highest credit quality and the mos
Slide 15: Key Takeaways: Well Positioned to Deliver Value
Key Takeaways: Well Positioned to Deliver Value • Long-term we continue to have a macro economic view that the global economy is fragile, that we are in a low return environment and that our financing costs will be reduced substantially in the future. • We fully expect our net interest margin to exp
Slide 16: Summary: U.S. Real Estate Assets Provide Attractive Returns
Summary: U.S. Real Estate Assets Provide Attractive Returns • In our view, generating cash income from U.S. real estate related assets and the US housing finance system is one of the most attractive investment alternatives. • Alternatives for earning an attractive cash yield globally have declined m
Slide 17: Supplemental Information
Supplemental Information DYNEX. ALURVGHES RE SERMES . \W\
Slide 18: "Global Risks Are Intensifying"
"Global Risks Are Intensifying" World Economic Forum Global Risk Report 2019 According to the 2019 World Economic Forum’s Global Risks Report... "The world is facing a growing number of complex and interconnected challenges-from slowing global growth and persistent economic inequality to climate cha
Slide 19: US Government Debt vs Year Treasury Yields
US Government Debt vs 10 Year Treasury Yields As debt has increased it is difficult for interest rates to rise without having a negative impact on global growth, ultimately putting downward pressure on rates. US 10yr Yields % US Govt Debt to GDP % (left axis) (right axis) US 10yr Yields % US Govt De
Slide 20: Japan Government Debt % to GDP vs Year Yields
Japan Government Debt % to GDP vs 10 Year Yields As debt has risen, Japanese 10 yr yields have remained below 2% for 20 years Source: Bloomberg 20
Slide 21: Negative Yielding Global Debt
Negative Yielding Global Debt The global stock of negative-yielding debt is now in excess of $14 trillion as rising market volatility lends extra force to this year’s unprecedented bond rally. 21
Slide 22: Investment Strategy
Investment Strategy Diversified investment approach that performs in a variety of market environments • Dynamic and disciplined capital allocation model enables capturing long-term value • Invest in a high quality, liquid asset portfolio of primarily Agency investments • Diversification is a key ben
Slide 23: Risk Position - Credit Spreads
Risk Position - Credit Spreads Changes in market credit spreads impacts the market value of our investments and shareholders' equity. The estimated percentage change in these values incorporates portfolio and hedge characteristics as they existed at the dates indicated. As of September 30, 2019 As o
Slide 24: Financial Performance - Comparative Quarters
Financial Performance - Comparative Quarters 3Q19 2Q19 Income Per Common Income Per Common ($ in thousands, except per share amounts) (Expense) Share (Expense) Share Interest income $44,502 $1.84 $43,748 $1.78 Interest expense 31,256 1.29 30,813 1.25 GAAP net interest income 13,246 0.55 12,935 0.53
Slide 25: Book Value Rollforward
Book Value Rollforward Per Common ($ in thousands, except per share amounts) Share Common shareholders' equity, June 30, 2019 (1) $435,785 $17.68 GAAP net loss to common shareholders: Core net operating income to common (2) 11,542 Realized gain on sale of MBS, net 4,605 Change in fair value of deriv
Slide 26: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) Quarter Ended 09/30/2019 06/30/2019 3/31/2019 12/31/2018 9/30/18 GAAP net (loss) income to common shareholders ($39,945) ($122,191) ($55,273) ($81,485) $22,630 Adjustments: Change in fair value of derivatives
Slide 27: Mortgage REIT Business Model
Mortgage REIT Business Model ASSETS CAPITAL Agency MBS Higher Repo/Dollar Rolls Government Issued AAA RMBS, CMBS, CMBS-IO Short Rated Committed Repo Term Non-Agency MBS Warehouse Lines AAA CMBS-IO, RMBS, RMBS-IO, Rated CMBS Unsecured Notes Medium AA – BBB Non-Agency MBS Term Convertible Notes Rated
Slide 28: 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 29: 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 30: Dynex Capital, Inc.
X DYNEX ‘ CAPITAL INC. iW WYNEX. ALL'R\GHIES RE SERMESI : in
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