Dynex Capital, Inc. · NYSE:DX
Dynex Capital — KBW Mortgage Finance Conference 2016
39 slides from Dynex Capital's conference presentation, May 31, 2016
Slide 1: KBW Mortgage Finance Conference June 1, 2016
KBW Mortgage Finance Conference June 1, 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: Dynex Intro
3 Dynex Intro Common Stock Preferred Stock NYSE Ticker: DX DXPrA DXPrB Shares Outstanding: (as of 3/31/16) 49,095,797 2,300,000 2,250,000 Q1 Dividends per share: $0.21 $0.53125 $0.476563 Dividend Yield: (annualized, based on 5/25/16 stock price) 12.59% 8.64% 8.13% Share Price: (at 5/25/16) $6.67 $24
Slide 4: Long-Term Value is Driven by Above Average Dividends
4 Long-Term Value is Driven by Above Average Dividends Source: SNL Financial Total Return (%) January 1, 2008 – May 26, 2016
Slide 5: First Quarter 2016 Performance
5 FIRST QUARTER 2016 PERFORMANCE
Slide 6: First Quarter 2016 Highlights
6 • Comprehensive loss to common shareholders of $0.04 per common share · $0.22 per common share from core net operating income(1) · $(0.18) per common share from realized losses on terminated hedges and sales of investments · No net unrealized gain on investments as spread widening offset lower rat
Slide 7: Investment Environment
7 • Spreads have widened due to a combination of fundamental, technical, and psychological factors • Global yields are low and the potential for sustained negative yields has increased the probability that yields will remain low and range bound • Surprises are likely: Behavior of oil cartel, politic
Slide 8: Market Moves
8 Market Moves Treasury Curve SWAPS Eurodollars Futures Source: Bloomberg
Slide 9: Credit Spread Environment
9 Credit Spread Environment (in bps) Asset Class 12/31/13 12/31/14 3/31/15 6/30/15 9/30/15 12/31/15 3/31/16 Agency ARM 5/1 33 21 15 16 26 22 32 Agency DUS 60 59 54 60 76 89 86 Freddie K AAA IO 175 155 140 150 200 225 260 AAA CMBS IO 170 165 170 175 225 240 265 Freddie K B 210 170 145 157 305 350 420
Slide 10: Movement in Spreads
10 Movement in Spreads Source: JP Morgan and Company data NOMINAL SPREADS OAS SPREADS SPREAD CHANGE 3/31/2016 12/31/2015 3/31/2016 12/31/2015 Nominal OAS 5/1 32 22 17 30 10 (13) 7/1 45 38 21 34 7 (13) 10/1 59 54 18 32 5 (14) New DUS 86 89 86 89 (3) (3) New Agency CMBS IO 260 225 260 225 35 35 Non-Ag
Slide 11: Macroeconomic and Policy Factors
11 • Global leverage and increased levels of debt are negatively impacting economic stability and performance · Slowing global growth • Extraordinary government involvement in the capital markets · Divergent policy among global central banks • Complex, interconnected, fragile global environment · Gl
Slide 12: Dynex Strategy Going Forward
12 Dynex Strategy Going Forward • Expect to make opportunistic investments and adjustments · Redeploy capital out of lower yielding assets · Take action to reduce interest expense when appropriate • Maintain disciplined focus on risk position · Focus on liquidity and capital · Maintain flexibility t
Slide 13: Opportunity to earn above average dividend yields
13 • We believe the opportunity continues to exist to earn above average dividend yields within a mortgage REIT structure · The uncertainty of the environment could cause period to period volatility in our results, but we believe a diversified mortgage REIT model can deliver an above average dividen
Slide 14: Comparable Total Return
14 Comparable Total Return (annualized at March 31, 2016) Source: Bloomberg *LTM: Last Twelve Months *
Slide 15: Financial Performance Details
15 FINANCIAL PERFORMANCE DETAILS
Slide 16: Financial Performance - Comparative Quarters
16 Financial Performance - Comparative Quarters (1) Reconciliations for non-GAAP measures are presented on slides 36-37. 1Q2016 4Q2015 ($ in thousands, except per share amounts) Income (Expense) Per Common Share Income (Expense) Per Common Share Interest income $25,089 $0.51 $25,522 $0.52 Interest e
Slide 17: Book Value Rollforward
17 ($ in thousands, except per share amounts) $ Amount Per Common Share Common Shareholders' Equity, December 31, 2015 (1) $378,275 $7.71 GAAP Net Income: Core net operating income (2) 10,803 0.22 Other 24 — Realized losses on terminated derivatives and sales of MBS (3) (9,022 ) (0.18 ) Unrealized l
Slide 18: Investment Portfolio Details
18 INVESTMENT PORTFOLIO DETAILS
Slide 19: Portfolio Details
19 Portfolio Details* (as of March 31, 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. 10% 21% 5% 27% 6% 31% $760 $70 ($ in millio
Slide 20: Asset and Equity Allocations Comparison at Quarter End
20 Asset and Equity Allocations Comparison at Quarter End $673.0 $217.2 $152.4 $105.9 $62.0 $217.2 $152.4 $62.0 RMBS CMBS RMBS RMBS CMBS CMBS CMBS IO CMBS IO CMBS IO CMBS IO Net Other Cash Loans (1) Equity allocation is computed as asset basis less associated financing, where applicable. Net Other i
Slide 21: Capital Deployment in Portfolio
21 Capital Deployment in Portfolio 03/31/2016 12/31/2015 QoQ Change Investments $3,363,596 $3,540,157 ($176,561) Financing 2,993,159 3,117,862 (124,703) Leverage (1) 6.4x 6.5x (0.1)x Funding Original Days to Maturity 62 days 67 days (5) days Remaining Days to Maturity 23 days 22 days 1 days ($ in th
Slide 22: Diversified Funding Sources
22 Diversified Funding Sources (as of March 31, 2016) Counterparty Region # % of all REPO North America 13 73.5% Europe 2 9.2% Asia 4 17.3% Total 19 100% Counterparty Type # % of all REPO Broker/Dealers 4 23.3% Domestic Banks 7 38.4% Foreign Banks 8 38.3% Total 19 100% • We maintain a diversified fu
Slide 23: Risk Position
23 Risk Position Treasury Yields (1) As of March 31, 2016 As of December 31, 2015 2Y 0.72% 1.06% 5Y 1.21% 1.76% 10Y 1.77% 2.27% 30Y 2.61% 3.01% Parallel Change in Treasury Yields (in basis points) Percentage Change in Projected Market Value of Assets Net of Hedges As of March 31, 2016 As of December
Slide 24: Appendix
24 APPENDIX
Slide 25: CMBS and CMBS IO Portfolio Details
25 CMBS and CMBS IO Portfolio Details (as of March 31, 2016) Asset Type Agency MBS are considered AAA-rated for purposes of this chart. Credit Quality Asset Type
Slide 26: CMBS and CMBS IO Vintage and Credit Quality
26 CMBS (as of March 31, 2016) ($ in millions) Vintage (by year of origination) Asset Type Credit Quality Vintage By Year of Origination CMBS IO (as of March 31, 2016) ($ in millions) Credit Quality Vintage By Year of Origination Agency MBS are considered AAA-rated for purposes of this chart. Agency
Slide 27: RMBS
27 ($ in millions) RMBS (as of March 31, 2016) Credit Quality Months to Maturity/Reset For ARMs/Hybrids 3% 40% 27% 11% 19% Weighted Average Loan Age 19% 32% 4% 39% 6%
Slide 28: Investment Premium Allocation
28 Investment Premium Allocation (as of end of period)
Slide 29: CMBS and CMBS IO Nominal Spreads
29 CMBS and CMBS IO Nominal Spreads Source: Company data CMBS IO Spreads CMBS Spreads Dec. 31 2015 Dec. 31 2015
Slide 30: Agency Multifamily CMBS Nominal Spreads
30 Agency Multifamily CMBS Nominal Spreads Source: Company data Dec. 31 2015
Slide 31: Agency RMBS Nominal Spreads
31 Agency RMBS Nominal Spreads Source: Company data Dec. 31 2015
Slide 32: Financing Details
32 Financing Details • Our weighted average contractual maturity for repurchase agreement borrowings was 62 days at March 31, 2016 compared to 67 days at December 31, 2015. The weighted average remaining maturity at March 31, 2016 was 23 days. • Our repurchase agreement balance was $2.7 billion at M
Slide 33: Hedging Details
33 Hedging Details As of March 31, 2016
Slide 34: Risk Management
34 Risk Management Key Risk Mitigating Strategy Interest Rate/Curve Twist/Extension Risk Modeled Duration target of 0.5 to 1.5 years Derivatives to economically hedge interest rate risk including key rate durations Invest in short duration assets and more predictable cash flows Invest in credit asse
Slide 35: Dividend Character - 1Q16 (Estimated)
35 Dividend Character - 1Q16 (Estimated) ($ in thousands) GAAP net loss to common shareholders $ (39,725 ) GAAP net loss on taxable REIT subsidiary (35 ) GAAP net loss to common shareholders excluding taxable REIT subsidiary (39,690 ) Differences between GAAP income and Taxable income: Change in fai
Slide 36: Core Net Operating Income Reconciliation
36 ($ in thousands except per share data) Quarter Ended 3/31/16 12/31/15 9/30/15 6/30/15 3/31/15 Net (loss) income to common shareholders ($39,725 ) $30,237 ($39,271 ) $28,168 ($11,766 ) Adjustments: Amortization of de-designated cash flow hedges (1) 27 727 857 857 1,057 Change in fair value on deri
Slide 37: Reconciliation of GAAP Measures to Non-GAAP Measures
37 Reconciliation of GAAP Measures to Non-GAAP Measures (1) Cost of funds is calculated by dividing annualized interest expense by the average balance of borrowings outstanding during the period. (2) Amount recorded as a portion of "interest expense" in accordance with GAAP related to the amortizati
Slide 38: Glossary of Terms
38 Commercial Mortgage-Backed Securities (CMBS) are a type of mortgage-backed security that is secured by loans on commercial properties. Credit Risk is the risk of loss of principal stemming from a borrower’s failure to repay a loan. Duration is a measure of the sensitivity of the price of a fixed-
Slide 39: Glossary of Terms (continued)
39 Key Rate Duration is the measure of sensitivity to a change in the price of a security for a given change in interest rates at various points on an interest rate curve Leverage is the use of borrowed money such as repurchase agreements to finance investments. Prepayment Risk is the risk associate