Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q3 2022 Earnings Presentation
36 slides from Dynex Capital's earnings presentation, Oct 24, 2022
Slide 1: Third Quarter 2022 Earnings Presentation
Third Quarter 2022 Earnings Presentation October 24, 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 (as of September 30, 2022) 46.4 million 4.5 million Book Value per share (as of September 30, 2022) $14.23 — 3Q22 Dividends Declared per share $0.39 $0.43 Annualized Dividend Yield 13.36% 8.71% Share Price
Slide 4: Navigating Volatility
Navigating Volatility Our experienced team manages with a disciplined approach that has resulted in strong performance during periods of high interest rate and interest spread volatility. Track Record of Capital Preservation 1.80% $21 $20.07 1.70% $18.71 $19.08 $18.75 $18.42 $18.25 $17.99 $18.24 30y
Slide 5: Dynex Performance
Dynex Performance Cumulative Total Shareholder Returns 6% (2)% (5)% (25)% (36)% (36)% (39)% (39)% (48)% (79)% YTD Tot Ret (%) 3-Yr Tot Ret (%) (12/31/21 - 9/30/22) (9/30/19 - 9/30/22) Dynex (DX) Agency REITs (1) Hybrid REITs (2) iShares Mortgage RE ETF (REM) iShares 1-3 Treasury Bond ETF (SHY) (1) S
Slide 6: Dynex Performance
Dynex Performance Cumulative Total Economic Returns 6% (1)% (6)% (12)% (13)% (14)% (14)% (15)% (15)% (10)% (9)% (11)% (11)% (19)% YTD TER (%) 3-yr TER (%) (12/31/21 - 9/30/22) (9/30/19 - 9/30/22) Broad Fixed Income Source: Bloomberg Index Services Limited (“BISL”) 6
Slide 7: Quarterly Highlights
Quarterly Highlights (1) Comprehensive Income (Loss) Book Value Total Economic Return (per common share) (per common share) $16.79 $14.23 $(0.85) (5.8)% $(2.20) (12.9)% Q2 22 Q3 22 Q2 22 Q3 22 Q2 22 Q3 22 (3) Earnings Available for Net Interest Spread Adjusted Net Interest Spread (2) Distribution (p
Slide 8: Disciplined Focus on the Long-Term
Disciplined Focus on the Long-Term Our core themes of the rising complexity in the global economy across economic, social, geopolitical factors and the continued influence of government policy on returns remain in place. • Shifting age demographics, rising global debt, technology, human conflict, an
Slide 9: New Market Paradigm
New Market Paradigm Central banks globally are reducing their balance sheets providing new opportunities for investors The Market Environment • Global financial markets are going through macro shocks that are affecting every sector. What is different this time is a combination of simultaneous shocks
Slide 10: Long-Term Par Coupon 30-year Agency RMBS Returns
Long-Term Par Coupon 30-year Agency RMBS Returns Current spreads are at historically wide levels surpassed only by the levels seen during the Great Financial Crisis of 2008 Long Term 30 Year Agency RMBS Returns Source: Company data, Bloomberg par coupon yield vs 7yr swap, duration neutral 10
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 and have adjusted our portfolio after quarter end. Percentage Change in Common Shareholders’ Equity As of As of As of As of Parallel Curve Shift (bps) October 19, 2022 September 30, 20
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 As of Change in Market Credit October 19, 2022 September 30, 2022
Slide 13: 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 book value preservation and low leverage put us in excellent position to capitalize on this opportunity. Solid Existing Balance Incremental
Slide 14: Long-Term Industry Trends
Long-Term Industry Trends Positive long-term fundamental trends support Dynex's business model. Favorable investment environment and demand for cash income 1 ◦ U.S. demographic trends will drive demand for housing and yield ◦ We believe we are entering a period of sustainable marginal returns in the
Slide 15: 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. Total Return (%) January 1, 2008 - September 30, 2022 Source: S&P Capital IQ Assumes reinvestment of dividends 15
Slide 16: Key Takeaways
Key Takeaways • Our portfolio is solid and we are prepared for this volatile market. • We are operating with liquidity to withstand a significant further widening of spreads. • As of October 20, 2022, we had over $430m of cash and unencumbered assets. Our leverage to total capital was approximately
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 3-year upside with opportunistic valuation on a high-quality, total re
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 September 30, 2022)
Current Marginal Investment Returns (as of September 30, 2022) Agency MBS Pools Agency RMBS offer attractive returns and Higher 15yr and 30yr RMBS (1,2) other asset classes are adjusting to a more GSE Return Range 12-25% favorable risk/reward. Guaranteed AAA Rated Agency CMBS ◦ The most compelling l
Slide 21: 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 22: Fixed Income Market Update
Fixed Income Market Update (1) Average rate for Agency MBS per 20 counterparty survey (2) Source: Bloomberg (3) Source: BlackRock 6.2 and JPMorgan Data Query (4) Bankrate.com 30 year Mortgage Rate Index ILM3NAVG 22
Slide 23: 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 specified pool spreads not populated due to the small sample of issuance within those coupons. Changes are compared vs 5/31/
Slide 24: Key Rate Yield Percent Changes
Key Rate Yield Percent Changes While interest rates have been volatile, mortgage yields are the most volatile since 1970. Source: Contingent Macro Advisors, LLC 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. Additional hedge positions were added after quarter end. • Futures offer hedge protection for higher rates with lower impact on liquidity and greater trading flexibi
Slide 26: Funding Strategy (as of September 30, 2022)
Funding Strategy (as of September 30, 2022) ($ in thousands) Weighted • Weighted average repo rate for the Average Fair Value of Collateral Type Balance Rate Collateral third quarter of 2022 was 2.17%, an Agency RMBS $2,700,463 2.85 % $2,811,147 increase of 149 basis points from the second quarter 2
Slide 27: Long-term Investment Strategy
Long-term Investment Strategy Dynamic and disciplined capital allocation model enables us to capture long-term value Target Strategy • In the current environment invest in a high quality, Higher Credit Quality Higher Credit Quality liquid asset portfolio of primarily Agency Short Duration Long Durat
Slide 28: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) (1) Disciplined capital allocation and portfolio constructed for flexibility. We moved up in coupon during the 3rd Quarter. September 30, 2022 June 30, 2022 Asset Type Asset Type Agency RMBS Agency RMBS Agency CMBS IO 8.5x 2.8% Agency CMBS IO 3.3% 1.8% 6.
Slide 29: MBS Portfolio Characteristics (as of September 30, 2022)
MBS Portfolio Characteristics (as of September 30, 2022) Unamortized 3-month Par Value Total Par Estimated % of Amortized Premium 3-month WAVG ($ in millions) Pools TBA Value Fair Value Portfolio Cost (%) (1) Balance (1) CPR (1) (2) Yield (1) Agency RMBS 2.0% coupon $ 1,216,522 $ — $ 1,216,522 $ 990
Slide 30: Financial Performance
Financial Performance 3Q22 2Q22 Per Per Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* Interest income $ 20,404 $ 0.45 $ 18,335 $ 0.47 Interest expense (13,282) (0.29) (4,262) (0.11) GAAP net interest income 7,122 0.16 14,073 0.36 TBA drop in
Slide 31: Performance Statistics Overview
Performance Statistics Overview Net Interest Spread Repo and Other Financing Costs 2.47% 2.10% 2.17% 1.96% 1.96% 1.94% 1.87% 1.87% 1.93% 1.87% 1.86% 1.86% 1.50% 1.32% 1.10% 0.82% 0.74% 0.68% 0.38% 0.35% 0.30% 0.23% 0.23% 0.20% 0.21% 0.25% Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q3- Q4- Q
Slide 32: Book Value Rollforward
Book Value Rollforward Quarter Ended September 30, 2022 Per $ in Common thousands Share Common shareholders' equity, beginning of period (1) $730,865 $16.79 GAAP net loss to common shareholders: Earnings available for distribution (2) 10,902 Realized loss on sale of investments, net (70,967) Unreali
Slide 33: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 3Q22 2Q22 1Q22 4Q21 3Q21 Comprehensive (loss) income to common shareholders ($99,705) ($33,497) $23,946 ($1,372) $2,971 Adjustments: Change in fair value of investments (1) 191,272 144,563 202,591 25,340 12,2
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