Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q2 2017 Earnings Presentation
32 slides from Dynex Capital's earnings presentation, Aug 2, 2017
Slide 1: Second Quarter 2017 Earnings Presentation
Second Quarter 2017 Earnings Presentation August 2, 2017
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: 2Q17 Highlights
3 2Q17 Highlights • Dividend of $0.18 per common share for the quarter • Comprehensive income of $0.05 per common share and GAAP net loss of $(0.20) per common share • Core net operating income(1) of $0.19 per common share for the quarter ◦ CMBS prepayment income more than offset ARM premium amortiz
Slide 4: 2Q17 Highlights
4 2Q17 Highlights • Expanded allocation to fixed-rate Agency securities by investing in 30-year fixed-rate Agency RMBS TBA securities with a cost basis of $416.3 million at June 30, 2017 ◦ Combined with Agency CMBS (Fannie Mae DUS), the Company had $1.7 billion in fixed-rate securities at June 30, 2
Slide 5: Portfolio Composition and Leverage
5 Portfolio Composition and Leverage (As of Quarter End) Portfolio Composition Adjusted Leverage (1) ($ in millions) $4,000 $3,000 $2,000 $1,000 $0 2Q16 3Q16 4Q16 1Q17 2Q17 $416 $1,448 $1,339 $1,235 $1,101 $740 $1,023 $1,028 $1,223 $1,316 $1,360 $737 $743 $755 $769 $764 (1) Leverage is calculated as
Slide 6: Liquidity
6 Liquidity Government Issued AAA Rated AAA Rated AA – BBB Rated Below Investment Grade/ Non- Rated Agency MBS RMBS* RMBS-IO CMBS CMBS-IO Non-Agency MBS RMBS RMBS-IO CMBS CMBS-IO Non-Agency MBS Non-Agency MBS Loans/MSRs Short Term Medium Term Permanent ~7-9 % Yield Permanent ~9-14 % Yield Repo/Dolla
Slide 7: Investment Strategy
7 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, as of June 30, 2017 ◦ 87% A
Slide 8: Agency residential RMBS opportunity
8 • This asset class offers the opportunity to earn an above average return over the long term versus other sectors today. This is unique for Dynex as over the last ten years we have always had more attractive alternatives in other sectors. • The Federal Reserve balance sheet reduction has been well
Slide 9: Macroeconomic Themes
9 Macroeconomic Themes Our core macroeconomic views center around the following themes: • Global economic fundamentals have improved - but still fragile • U.S. fundamentals - inflation declining; GDP increasing; employment improving • Government policy - monetary, regulatory, fiscal - will continue
Slide 10: Long-Term Positive Trends
10 Long-Term Positive Trends Our business model is supported by positive long-term trends: • U.S. demographic trends are driving a significant increase in household formation and therefore more demand in multifamily and single-family housing • Global demographic aging trends are driving a demand for
Slide 11: Risk and Investment Posture
11 Risk and Investment Posture • Interest Rate Risk: We have structured the portfolio to be more interest rate neutral and we have now included hedges incorporating the risk profile of 30-year fixed rate RMBS. There are many global factors that will ultimately determine the level of interest rates.
Slide 12: Strategic Focus
12 Strategic Focus • Maintain investments in higher credit quality, more liquid assets with some portion providing extension and prepayment protection • Capitalize on opportunities for investing capital from shifts in government and regulatory policy • Positioned to reallocate/invest capital as mark
Slide 13: Summary
13 Summary • Year to date we have paid $0.36 in dividends per common share and reported core net income of $0.34 per common share. • We continue to believe the diversified investment strategy will generate superior risk adjusted returns given the complementary cash flow and risk profiles of the comm
Slide 14: Long-Term Value is Driven by Above Average Dividends
14 Long-Term Value is Driven by Above Average Dividends Source: SNL Financial Total Return (%) January 1, 2008 - June 30, 2017
Slide 15: Market Snapshot
15 Market Snapshot Common Stock Preferred Stocks NYSE Ticker: DX DXPrA DXPrB Shares Outstanding: (as of 6/30/17) 49.23M 2.30M 3.05M Q2 Dividends per share: $0.18 $0.53125 $0.4765625 Dividend Yield: (annualized, based on 7/24/17 stock price) 10.53% 8.32% 7.76% Share Price: (at 7/24/17) $6.84 $25.54 $
Slide 16: Appendix
Appendix
Slide 17: Credit Spreads (in bps)
17 Asset Class 6/30/17 3/31/17 12/31/16 9/30/16 06/30/16 12/31/15 06/30/15 12/31/14 Agency DUS 68 67 76 80 94 89 60 59 Freddie K AAA IO 145 150 200 230 255 225 150 155 AAA CMBS 88 93 91 100 104 138 92 88 AAA CMBS IO 110 145 195 215 240 240 175 165 Freddie K B 165 220 295 265 325 350 157 170 Fixed 30
Slide 18: Book Value Rollforward
18 ($ in thousands, except per share amounts) $ Amount Per Common Share Common shareholders' equity, March 31, 2017 (1) $370,094 $7.52 GAAP net loss: Core net operating income (2) 9,334 0.19 Realized loss on sale of MBS, net (3,709) (0.07) Remaining GAAP income amounts 103 — Change in fair value of
Slide 19: Portfolio Details
19 Portfolio Details* (as of June 30, 2017) Portfolio Expected Maturity/Reset Distribution $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Fa ir Va lu e 0-12 13-36 37-60 61-84 85-120 >120 Months to Maturity/Reset Net Premium by Asset Type (1) CMBS & CMBS IO: 96.3% RMBS: 3.7% * MBS investments only, excl
Slide 20: Funding Sources
20 Funding Sources (as of June 30, 2017) Active Counterparty by Region # % of all REPO North America 9 70% Asia 6 16% Europe 3 14% Total 18 100% Active Counterparty by Type # % of all REPO Broker/Dealers 4 19% Domestic Banks 8 64% Foreign Banks 6 17% Total 18 100% • We maintain a diversified funding
Slide 21: Q2 2017 TBA Dollar Roll
21 Q2 2017 TBA Dollar Roll (1) Example: Specified Agency MBS Funded with Repo Dollar Roll Fund Advantage Agency MBS yield / dollar roll net interest spread 3.05 % 3.05 % —% Repurchase agreement cost (0.90)% (1.25)% 0.35% 2.15 % 1.80 % 0.35% Interest rate swap cost (0.73)% (0.73)% —% Net interest spr
Slide 22: Interest Rate Swaps - Hedging Details
22 Interest Rate Swaps-Payers, Net of Receivers Total Weighted Average Pay Rate, Net $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 N ot io na l( $ in m ill io ns ) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Re m ai nd er of 20 17 20 18 20 19 20 20 20 21 20 22 20 23 20 24 20 25 20 26 $2,870 $2,623 $2,019 $1,660 $1,4
Slide 23: Risk Position
23 Risk Position Treasury Yields (1) As of June 30, 2017 As of March 31, 2017 2Y 1.38% 1.26% 5Y 1.89% 1.92% 10Y 2.31% 2.39% 30Y 2.84% 3.01% Parallel Change in Treasury Yields (bps) Percentage Change in Projected Market Value of Assets, Net of Hedges (2) As of June 30, 2017 As of March 31, 2017 +100
Slide 24: Disciplined Capital Allocation
24 YE 2010 Agency: 64% Non-Agency AAA: 23% Non-Agency Other: 2%Loans: 11% YE 2013 Agency: 71% Non-Agency AAA: 10% Non-Agency Other: 14% Loans: 5% YE 2010 RMBS: 45% CMBS: 44% Loans: 11% 2Q 2017 Agency: 80% Non-Agency AAA: 13% Non-Agency Other: 5% Loans: 2% 2Q 2017 RMBS: 22% CMBS: 41% CMBS IO: 35% Loa
Slide 25: CMBS and CMBS IO
25 CMBS (as of June 30, 2017) AAA: 97% AA: 1%A: 1% Below A/NR: 0% $1,200 $1,000 $800 $600 $400 $200 $0 Fa ir Va lu e Prio r to 200 9 200 9-20 12 201 3-20 14 201 5-20 16 201 7 $47 $164 $22 $914 $214 Vintage CMBS IO (as of June 30, 2017) Vintage AAA: 92% AA: 7% Below A/NR: 1% $250 $200 $150 $100 $50 $
Slide 26: RMBS
26 ($ in millions) RMBS (as of June 30, 2017) Credit Quality Months to Maturity/Reset For ARMs/Hybrids Weighted Average Loan Age Agency RMBS (AAA): 99.8% Non-Agency RMBS (Below A/Not Rated): 0.2% $300 $250 $200 $150 $100 $50 $0 Pa rV al ue 0-12 13-36 37-60 61-84 # of Months $500 $400 $300 $200 $100
Slide 27: Financial Performance - Comparative Quarters
27 Financial Performance - Comparative Quarters (1) Net periodic interest costs and change in fair value of derivatives are components of "gain (loss) on derivative instruments, net" reported in the comprehensive income statement. (2) Reconciliations for non-GAAP measures are presented in the Append
Slide 28: Dividend Character - YTD 06/30/2017
28 Dividend Character - YTD 06/30/2017 (Estimated) ($ in thousands) GAAP net loss to common shareholders ($3,458) GAAP net income on taxable REIT subsidiary 17 GAAP net loss to common shareholders excluding taxable REIT subsidiary (3,475) Differences between GAAP net loss and taxable income: Change
Slide 29: Reconciliation of GAAP Measures to Non-GAAP Measures
29 Reconciliation of GAAP Measures to Non-GAAP Measures Quarter Ended 6/30/17 3/31/17 12/31/16 9/30/16 06/30/16 GAAP net interest income $16,142 $14,900 $16,105 $15,067 $16,716 Add: TBA drop income 1,351 — — — — Add: net periodic interest costs (3) (1,352) (615) (140) (155) (486) Less: de-designated
Slide 30: MREIT Glossary of Terms
30 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 31: MREIT Glossary of Terms
31 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 32: Dynex Capital Inc.
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