Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q3 2023 Earnings Presentation
31 slides from Dynex Capital's earnings presentation, Oct 23, 2023
Slide 1: Third Quarter 2023 Earnings Presentation
Third Quarter 2023 Earnings Presentation October 23, 2023 1
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: Performance Highlights
Performance Highlights Comprehensive Income (Loss) Book Value Total Economic Return(1) (per common share) (per common share) $0.79 $(1.59) $14.20 $12.25 5.7% (11.0)% Q2 23 Q3 23 Q2 23 Q3 23 Q2 23 Q3 23 Net Income (Loss) Leverage(2) Average Earning Assets (per common share) (inclusive of TBAs) $0.97
Slide 4: Navigating this Decade's Volatility
Navigating this Decade's Volatility Our disciplined approach delivers an attractive risk-adjusted return and consistent dividend during a volatile market environment Building Long-Term Value $24 1.80% $22.12 $21.85 $21.19 $21.25 $21.21 1.70% $20.74 $20.79 $21 $2.05 30yr Par Coupon Spread to 7yr Trea
Slide 5: Dynex Performance
Dynex Performance Experience in managing assets through multiple economic cycles and a disciplined investment process results in Dynex long-term outperformance during periods of high volatility Cumulative Total Shareholder Returns 26.6% 22.6% 16.3% 17.8% 10.5% 10.5% 6.9% (8.4)% (12.7)% (20.5)% (29.5
Slide 6: Primary Components of Portfolio Returns (excluding mark-to-market)
Primary Components of Portfolio Returns (excluding mark-to-market) The impact of rising financing costs has been mostly offset by deferred tax hedge gains. Interest Income (1) TBA Drop Income (Loss) (2) $63,271 $16,282 $42,212 $5,522 $30,528 $30,846 $1,457 $20,404 $(2,152) $(2,559) Q3-22 Q4-22 Q1-23
Slide 7: Key Long-Term Macroeconomic Themes
Key Long-Term Macroeconomic Themes Fundamental theories of economics and finance suggest that the inevitable long-term outcomes of high leverage include lower growth, slower inflation, more fiscal uncertainty, and a higher probability of financial accidents. However, we are mindful of surprisingly r
Slide 8: Key Long-Term Macroeconomic Themes
Key Long-Term Macroeconomic Themes Global conflict highlighted a core tenet of our disciplined macro process - surprise events are the new normal. Exogenous shocks will continue, and our analysis and understanding of history suggest that human conflict will a major source of those shocks. 8
Slide 9: Market Environment and Positioning
Market Environment and Positioning Agency mortgage yields widened sharply in the third quarter vs. the Treasury curve and now offer a historic opportunity to earn a return not available since before central bank intervention. The Market Environment • The path to the current opportunity has been a vo
Slide 10: Long-Term Par Coupon 30-year Agency RMBS Returns
Long-Term Par Coupon 30-year Agency RMBS Returns We remain at historically wide levels surpassed only by the levels seen during the Great Financial Crisis of 2008 and we believe we are in a period of persistent investment opportunities. Long Term 30 Year Agency RMBS Returns (1) (2) (1) Chart is indi
Slide 11: Well-Positioned for a Favorable Investment Environment
Well-Positioned for a Favorable Investment Environment Persistent investment opportunity in Agency RMBS as the largest non-economic buyer exits. We believe our high- quality portfolio and liquidity puts us in an excellent position to capitalize on this opportunity. Existing Incremental Solid Long-Te
Slide 12: Agency RMBS Market Dynamics and Portfolio Strategy
Agency RMBS Market Dynamics and Portfolio Strategy Agency MBS spreads can remain range bound at today’s wider levels with further widening providing opportunities to add assets. The key is managing the size of the balance sheet to add value during volatility. Fundamentals: Technicals: • Slow housing
Slide 13: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) (1) Methodically grew balance sheet with reallocation to specified pools in higher coupons as spreads widened and payups declined. Diversified portfolio remains constructed for flexibility. September 30, 2023 June 30, 2023 Portfolio Fair Value $7.2 Billio
Slide 14: Risk Position - Interest Rate and Spread Sensitivity
Risk Position - Interest Rate and Spread Sensitivity Portfolio profile reflects hedge ratio adjustments and convexity of up-in coupon position Interest Rate Sensitivity Credit Spread Sensitivity Percentage Change in Percentage Change in Common Shareholders’ Equity Common Shareholders’ Equity Paralle
Slide 15: Key Takeaways
Key Takeaways • Our investment strategy is constructed for a very favorable investment environment in Agency RMBS tempered with a deep respect for the complexity of global macroeconomic conditions. • Mortgage spreads are at generationally wide levels and represent a historic and persistent period of
Slide 16: Why Dynex
Why Dynex Industry leader with a compelling long-term track record of delivering shareholder value Attractive dividend yield at Superior performance record Ability to drive earnings upside a discounted price-to-book with industry-leading 3-year with opportunistic deployment valuation on a high-quali
Slide 17: Disciplined Focus on the Long-Term
Disciplined Focus on the Long-Term DX has generated long-term returns exceeding the S&P 500 Financials and REM indices illustrating our ability to be successful in various rate and economic cycles Total Return (%) January 1, 2008 - September 30, 2023 Source: S&P Capital IQ Assumes reinvestment of di
Slide 18: Supplemental Information
SUPPLEMENTAL INFORMATION 18
Slide 19: Market Snapshot
Market Snapshot Common Stock Series C Preferred Stock NYSE Ticker DX DX PRC Shares Outstanding (as of September 30, 2023) 56.6 million 4.5 million Book Value per share (as of September 30, 2023) $12.25 — 3Q23 Dividends Declared per share $0.39 $0.43 Annualized Dividend Yield (as of closing on Octobe
Slide 20: Current Marginal Investment Returns (as of September 30, 2023)
Current Marginal Investment Returns (as of September 30, 2023) Agency RMBS Higher 15yr and 30yr Dynex Portfolio GSE Return Range 12-18% (1,2) Guaranteed AAA Rated Agency CMBS Agency RMBS offer CMBS and CMBS IO have offered a diversification opportunity at various FNMA DUS, FRE K-A1, A2, CMBS IO 96%
Slide 21: RMBS Portfolio Details (as of September 30, 2023)
RMBS Portfolio Details (as of September 30, 2023) Over 95% of our investments are comprised of Agency RMBS as of September 30, 2023. Par/Notional Amortized Fair Value % of Total WAVG Pay 3-month 3-month ($ in thousands) Value Cost (%) (1) Fair Value (%) Portfolio up to TBA Market Yield (2) WAVG Yiel
Slide 22: CMBS and CMBS IO Portfolio Details
CMBS and CMBS IO Portfolio Details Less than 5% of our investment portfolio is comprised of CMBS and CMBS IO as of September 30, 2023. Portfolio Characteristics Financing Details 3-month Amortized % of Total WAVG Life WAVG WAVG Repo Equity ($ in thousands) Cost Fair Value Portfolio Remaining (1) Yie
Slide 23: MBS Payups
MBS Payups (1) Source: JP Morgan DataQuery, Bloomberg and internal company data. Specified Pool Payups are quoted in percentage points of price above TBAs. 23
Slide 24: Rate/Spread Snapshot
Rate/Spread Snapshot (1) Average rate for Agency MBS per counterparty survey (2) Source: Bloomberg (3) Source: JPMorgan Data Query SOFR OAS (2023 Model) (4) Bankrate.com 30 year Mortgage Rate Index ILM3NAVG 24
Slide 25: 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 interest rate changes. • Futures trade in a highly liquid market and have lower margin requirements compared to a similar swap i
Slide 26: Funding Strategy (as of September 30, 2023)
Funding Strategy (as of September 30, 2023) Fair Value of MBS ◦ Weighted average repo borrowing Balance Weighted Pledged as Collateral Collateral Type ($s in thousands) Average Rate ($s in thousands) rate of 5.37% for the third quarter of 2023, an increase of 19 basis points Agency RMBS $4,743,159 5
Slide 27: Financial Performance
Financial Performance 3Q23 2Q23 Per Per Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* Interest income $ 63,271 $ 1.16 $ 42,212 $ 0.78 Interest expense (65,533) (1.20) (45,142) (0.83) GAAP net interest expense (2,262) (0.04) (2,930) (0.05) TB
Slide 28: Book Value Rollforward
Book Value Rollforward Quarter Ended September 30, 2023 Per ($s in thousands except amounts per share) Common Equity Common Share Common equity, beginning of period (1) $ 769,462 $ 14.20 Earnings available for distribution (2) (15,386) Change in fair value of investments, including TBAs (288,112) Ch
Slide 29: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures (1) ($ in thousands except per share amounts) 3Q23 2Q23 1Q23 4Q22 3Q22 Comprehensive (loss) income to common shareholders $ (86,748) $ 42,971 $ (28,852) $ 56,648 $ (99,705) Adjustments: Change in fair value of investments (2) 220,874 60,556 (48,59
Slide 30: Core Values
Core Values At Dynex, we rely on our Core Values to sustain our high-performance culture and to consistently generate attractive, long-term returns Stewardship Kindness We are thoughtful, ethical, and responsible fiduciary We can accomplish more together and build a culture like stewards of environm
Slide 31: Sound Strategy. Unique Advantages.
SOUND STRATEGY. UNIQUE ADVANTAGES. 4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia 23060 804-217-5800 dynexcapital.com