Dynex Capital, Inc. · NYSE:DX
Dynex Capital — JMP Securities Financial Services and Real Estate Conference 2016
35 slides from Dynex Capital's conference presentation, Sep 26, 2016
Slide 1: JMP Securities Financial Services and Real Estate Conference
JMP Securities Financial Services and Real Estate Conference September 27, 2016
Slide 2: Safe Harbor Statement
2 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,
Slide 3: Long-Term Value is Driven by Above Average Dividends
3 Long-Term Value is Driven by Above Average Dividends Source: SNL Financial Total Return (%) January 1, 2003 – September 21, 2016
Slide 4: Investment Strategy
4 Investment Strategy Diversified investment approach that performs in a variety of market environments Our portfolio is primarily Agency guaranteed and structured to mitigate prepayment and credit risk • We have prioritized a high credit quality and liquidity strategy · 94% AAA rated · 84% Agency g
Slide 5: Portfolio Details (as of June 30, 2016)
5 Portfolio Details* (as of June 30, 2016) Credit Quality Portfolio Expected Maturity/Reset Distribution Net Premium by Asset Type * MBS investments only, excludes loans held for investment. Agency MBS are considered AAA-rated for purposes of this chart. 13% 18% 6% 27% 6% 30% $731.7 $66 ($ in millio
Slide 6: Global yields, policy and economic environment
6 • Global yields are low or negative, asset returns have declined, and the probability that yields will remain low and range bound has increased · Above average dividend yields will be an important driver of future returns · A flatter yield curve may put downward pressure on net interest spread • G
Slide 7: Dynex Highlights
7 Dynex Highlights Common Stock Preferred Stock NYSE Ticker: DX DXPrA DXPrB Shares Outstanding: (as of 6/30/16) 49,145,087 2,300,000 2,250,000 Q3 Dividends per share: $0.21 $0.53125 $0.476563 Dividend Yield: (annualized, based on 9/22/16 stock price) 11.21% 8.30% 7.66% Share Price: (at 9/22/16) $7.4
Slide 8: Appendix
Appendix
Slide 9: Second Quarter 2016 Highlights
9 Second Quarter 2016 Highlights • Comprehensive income to common shareholders of $0.35 per common share · $0.21 per common share from core net operating income(1) · $0.46 from unrealized gains on MBS · $(0.32) from unrealized losses on derivatives • Total economic return(2) to common shareholders o
Slide 10: New Lows in Rates and Flatter Yield Curve
10 New Lows in Rates and Flatter Yield Curve Treasury Curve Swaps Eurodollars Futures Source: Bloomberg
Slide 11: Macroeconomic and Policy Factors
11 • Global leverage and increased levels of debt are negatively impacting economic stability and performance · Downward pressure on global growth and inflation • Extraordinary government involvement in the capital markets · Downward pressure on volatility, asset price distortion, unpredictability o
Slide 12: Credit Spread Environment
12 Asset Class 12/31/14 03/31/15 06/30/15 09/30/15 12/31/15 03/31/16 06/30/16 9/16/16 Agency ARM 5/1 21 15 16 26 22 32 38 32 Agency DUS 59 54 60 76 89 86 94 80 Freddie K AAA IO 155 140 150 200 225 260 255 225 AAA CMBS IO 165 170 175 225 240 265 240 220 Freddie K B 170 145 157 305 350 420 325 270 Fre
Slide 13: Spread Changes
13 Spread Changes Source: JP Morgan and Company data NOMINAL SPREADS (bps) OAS SPREADS (bps) SPREAD CHANGE (bps) 09/16/16 06/30/16 09/16/16 06/30/16 Nominal OAS 5/1 32 38 24 20 -6 4 7/1 37 54 22 22 -17 0 10/1 54 72 17 14 -18 3 New DUS 80 94 80 94 -14 -14 New Agency CMBS IO 225 255 225 255 -30 -30 No
Slide 14: Outlook
14 Outlook • We believe there is still opportunity to earn above average dividend yields within a mortgage REIT structure · Uncertain macroeconomic environment could cause period to period volatility in our results, but we believe our diversified model will be able to deliver above average returns o
Slide 15: Book Value Rollforward
15 ($ in thousands, except per share amounts) $ Amount Per Common Share Common shareholders' equity, March 31, 2016 (1) $370,049 $7.54 GAAP net loss: Core net operating income (2) 10,475 0.21 Other 108 — Realized losses on derivatives and sales of MBS (369 ) — Unrealized losses on derivatives (15,73
Slide 16: Financial Performance - Comparative Quarters
16 Financial Performance - Comparative Quarters (1) Reconciliations for non-GAAP measures are presented in the Appendix. 2Q2016 1Q2016 ($ in thousands, except per share amounts) Income (Expense) Per Common Share Income (Expense) Per Common Share Interest income $22,816 $0.46 $25,089 $0.51 Interest e
Slide 17: Asset and Equity Allocations Comparison at Quarter End
17 Asset and Equity Allocations Comparison at Quarter End Asset Allocation Equity Allocation (1) Fair Value ($ in millions) ($ in millions) • Approximately 74% of our invested capital is allocated to Agency • The majority of our invested capital is in the commercial sectors: 31% in CMBS and 34% in C
Slide 18: Capital Deployment in Portfolio
18 Capital Deployment in Portfolio 06/30/16 03/31/16 QoQ Change Investments $3,235,810 $3,363,596 ($127,786) Financing 2,871,000 2,993,159 (122,159) Leverage (1) 6.1x 6.4x (0.3)x Funding Original Days to Maturity 52 days 62 days (10) days Remaining Days to Maturity 21 days 23 days (2) days ($ in tho
Slide 19: Diversified Funding Sources
19 Diversified Funding Sources (as of June 30, 2016) Counterparty Region # % of all REPO North America 15 73.8% Asia 4 17.2% Europe 2 9.0% Total 21 100% Counterparty Type # % of all REPO Broker/Dealers 4 23.4% Domestic Banks 11 39.7% Foreign Banks 6 36.9% Total 21 100% • We maintain a diversified fu
Slide 20: Risk Position
20 Risk Position Treasury Yields (1) As of June 30, 2016 As of March 31, 2016 2Y 0.58% 0.72% 5Y 1.00% 1.21% 10Y 1.47% 1.77% 30Y 2.29% 2.61% Parallel Change in Treasury Yields (bps) Percentage Change in Projected Market Value of Assets Net of Hedges As of June 30, 2016 As of March 31, 2016 +100 (1.28
Slide 21: CMBS and CMBS IO Portfolio Details
21 CMBS and CMBS IO Portfolio Details (as of June 30, 2016) Asset Type Credit Quality Agency MBS are considered AAA-rated for purposes of this chart. The majority of our assets continue to be rated AAA or are Agency guaranteed, reflecting our up in liquidity and up in credit strategy.
Slide 22: CMBS and CMBS IO Vintage and Credit Quality
22 CMBS (as of June 30, 2016) Vintage CMBS IO (as of June 30, 2016) Vintage By Year of Origination By Year of Origination ($ in millions) Credit Quality Credit Quality
Slide 23: RMBS Portfolio Details
23 ($ in millions) RMBS (as of June 30, 2016) Credit Quality Months to Maturity/Reset For ARMs/Hybrids Weighted Average Loan Age 24% 34% 24% 18% 25% 26% 7% 40% 2% Prepayment protection in the form of seasoning, interest only (IO) features reduces the incentive to refinance. 33% of the ARM portfolio
Slide 24: CMBS and CMBS IO Nominal Spreads
24 CMBS and CMBS IO Nominal Spreads (to Swaps) Source: JP Morgan CMBS IO Spreads CMBS Spreads Dec. 31 2015 Dec. 31 2015
Slide 25: Agency RMBS Nominal Spreads
25 Agency RMBS Nominal Spreads (to Treasuries) Source: Company data Dec. 31 2015
Slide 26: Hedging Details
26 Hedging Details As of June 30, 2016 As of March 31, 2016
Slide 27: Investment Premium Allocation
27 Investment Premium Allocation (as of end of period)
Slide 28: Comparable Total Return Index
28 Comparable Total Return Index Q2 2016 (annualized) LTM* DX (total economic return) 4.80% 4.24% DX (total shareholder return) 3.89% 3.04% Bloomberg Mortgage REIT Index 9.30% 7.81% S&P 500 2.43% 3.91% 1-3 Year Treasury ETF 0.52% 1.16% 7-10 Year Treasury ETF 2.79% 9.11% Real Estate ETF 6.55% 18.75%
Slide 29: Dividend Character - YTD 2016 (Estimated)
29 Dividend Character - YTD 2016 (Estimated) ($ in thousands) GAAP net loss to common shareholders $ (45,250 ) GAAP net income on taxable REIT subsidiary 71 GAAP net loss to common shareholders excluding taxable REIT subsidiary (45,321 ) Differences between GAAP net loss and taxable income: Change i
Slide 30: Reconciliation of GAAP Measures to Non-GAAP Measures
30 Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) Quarter Ended 06/30/16 3/31/16 12/31/15 9/30/15 6/30/15 Net (loss) income to common shareholders ($5,525 ) ($39,725 ) $30,237 ($39,271 ) $28,168 Adjustments: Amortization of de-designated cash flow hedges
Slide 31: Reconciliation of GAAP Measures to Non-GAAP Measures
31 Reconciliation of GAAP Measures to Non-GAAP Measures Quarter Ended 06/30/16 3/31/16 12/31/15 9/30/15 6/30/15 GAAP interest income/annualized yield $22,816 2.77 % $25,089 2.78 % $25,522 2.74 % $26,096 2.69 % $24,527 2.63 % GAAP interest expense/annualized cost of funds (1) 6,100 0.83 % 6,310 0.81
Slide 32: Risk Management
32 Risk Management Key Risk Dynex 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 predictable cash flows P
Slide 33: MREIT Glossary of Terms
33 MREIT Glossary of Terms Commercial Mortgage-Backed Securities (CMBS) are a type of mortgage-backed security that is secured by the loan on a commercial property. Credit Risk is the risk of loss of principal stemming from a borrower’s failure to repay a loan. Curve Twist Terms: Bull Flattener: If
Slide 34: MREIT Glossary of Terms
34 MREIT Glossary of Terms Interest Rate Risk is the risk that an investment’s value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. Leverage is the use of borrowed money
Slide 35: Dynex Capital Inc.
. DYNEX CAPITAL INC.
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