Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q1 2022 Earnings Presentation
38 slides from Dynex Capital's earnings presentation, Apr 27, 2022
Slide 1: First Quarter 2022 Earnings Presentation
First Quarter 2022 Earnings Presentation April 27, 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 (in millions) (as of 3/31/22) 37.0 4.5 1Q22 Dividends Declared $0.39 $0.43 Annualized Dividend Yield 10.41% 7.01% Book Value per share (as of 3/31/22) $18.24 — Share Price (close on 4/25/22) $14.99 $24.60 M
Slide 4: Dynex Strong Performance
Dynex Strong Performance Track record of long-term industry outperformance Cumulative Total Shareholder Returns (1) 32.3 20.5 10.5 11.0 4.7 1.6 2.1 -0.7 -2.5 -4.9 -3.2 -3.5 -9.1 -11.0 -7.8 -10.9 -13.6 -15.8 -56.6 -62.3 2022 Tot Ret (%) Since 12/31/20 Tot Ret (%) 3-Yr Tot Ret (%) 5-Yr Tot Ret (%) Dyn
Slide 5: Dynex Strong Performance vs. Broad Fixed Income
Dynex Strong Performance vs. Broad Fixed Income Dynex significantly outperformed the fixed income sector in fiscal year 2021 and 1Q'22 Cumulative Total Returns (1) 19.7 2.3 -4.2 -3.7 -4.2 -5.0 -4.9 -5.9 -5.6 -7.7 3 Month Total Return (%) 12 Month Total Return (%) Dynex (DX) U.S. Bond Aggregate U.S.
Slide 6: Successfully Navigated Volatility
Successfully Navigated Volatility Our experienced team managed a disciplined investment approach that resulted in strong performance during the recent three-year period of high interest rate and interest spread volatility. Track Record of Capital Preservation $21 0.90% $20.07 $18.71 $19.08 $18.75 $1
Slide 7: Performance Highlights- 1Q 2022
Performance Highlights- 1Q 2022 (1) Comprehensive Income (Loss) Book Value Total Economic Return (per common share) (per common share) $17.99 $18.24 3.5% $0.65 (0.2)% $(0.04) Q4 21 Q1 22 Q4 21 Q1 22 Q4 21 Q1 22 (3) Earnings Available for Net Interest Spread Adjusted Net Interest (2) Distribution 1.8
Slide 8: Disciplined Focus on the Long-Term
Disciplined Focus on the Long-Term The global economy is evolving to a post-pandemic environment with rising complexities across economic, social and political factors. • Shifting demographics, rising global debt, technology, human conflict, and climate change all remain key factors that increase th
Slide 9: New Market Paradigm and Historic Opportunity
New Market Paradigm and Historic Opportunity We have protected book value as volatility spiked, interest rates increased and spreads widened, which we believe strengthens our ability to drive future accretive shareholder returns. The Market Environment • We expect higher returns in the MBS market as
Slide 10: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) Disciplined capital allocation and portfolio constructed for flexibility. March 31, 2022 December 31, 2021 Asset Type Asset Type (1) (1) Agency RMBS Agency RMBS 3.8% 4.4% Agency CMBS IO 6.1x Agency CMBS IO 5.7x 3.5% 3.9% Agency CMBS leverage 1.8% Agency C
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. Percentage Change in Common Shareholders’ Equity As of As of Parallel Curve Shift (bps) March 31, 2022 December 31, 2021 +100 (0.9)% 2.7% +50 0.4% 2.6% -50 (3.0)% (6.1)% -100 (8.7)% (
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 Change in Market Credit March 31, 2022 December 31, 2021 Spreads (bps)
Slide 13: Well-Positioned for a Favorable Investment Environment
Well-Positioned for a Favorable Investment Environment Historic 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. Incremental Solid Long-Term Existing
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 yield 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 low t
Slide 15: Disciplined Focus on the Long-Term
Disciplined Focus on the Long-Term DX has generated long-term returns exceeding to the S&P 500 Financials and comparable to the Russell 2000 Value indices. Total Return (%) January 1, 2008 - March 31, 2022 Source: S&P Capital IQ Assumes reinvestment of dividends 15
Slide 16: Key Takeaways
Key Takeaways • Generated 3.5% Total Economic Return during the largest quarterly increase in yields across the curve since 1980 and the largest increase in mortgage rates since 1985. • We have protected book value as volatility spiked, interest rates increased and spreads widened, which strengthens
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, and 5-ye
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 March 31, 2022)
Current Marginal Investment Returns (as of March 31, 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 10-13% favorable risk/reward. Guaranteed AAA Rated Agency CMBS ◦ The most compelling lever
Slide 21: Fixed Income Market Update
Fixed Income Market Update (1) Average rate for Agency MBS per 20 counterparty survey (2) Source: Bloomberg (3) Source: BlackRock 6.04 model prior to 03/31/2021 and BlackRock 6.1 on 3/31/2021 and after (4) Bankrate.com 30 year Mortgage Rate Index ILM3NAVG 21
Slide 22: 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 changes are compared from when Specified Pools in that coupon became available in the market. 22
Slide 23: Key Rate Yield Changes
Key Rate Yield Changes Source: Contingent Macro Advisors, LLC 23
Slide 24: Key Rate Yield Percent Changes
Key Rate Yield Percent Changes 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. • Futures offer hedge protection for higher rates with lower impact on liquidity and greater trading flexibility. March 31, 2022 December 31, 2021 Notional Notional
Slide 26: Funding Strategy (as of March 31, 2022)
Funding Strategy (as of March 31, 2022) ($s in thousands) Weighted • Weighted average repo rate for the Average Fair Value of Collateral Type Balance Rate Collateral first quarter of 2022 was 0.25%, an Agency RMBS $2,547,808 0.26 % $2,688,612 increase of 4 bps from the fourth quarter 2021. The weigh
Slide 27: Dollar Rolls
Dollar Rolls • TBAs are an important part of Dynex’s actively managed Agency RMBS strategy. We use TBAs to quickly add or remove earning assets as they are among the most liquid tradeable instruments in the fixed income markets, even more than specified pools. • Dollar rolls are the financing mechan
Slide 28: Long-term Investment Strategy
Long-term Investment Strategy Dynamic and disciplined capital allocation model enables us to capture long-term value Target Strategy • In the current environment invest in a high quality, Higher Credit Quality Higher Credit Quality liquid asset portfolio of primarily Agency Short Duration Long Durat
Slide 29: Portfolio Characteristics (as of March 31, 2022)
Portfolio Characteristics (as of March 31, 2022) Unamortized 3-month Par Value Total Par Estimated % of Amortized Premium 3-month WAVG ($ in millions) Pools TBA Value Fair Value Portfolio Cost (%) (2) Balance (2) CPR (2) (3) Yield (2) Agency RMBS 2.0% coupon $ 1,279,265 $ — $ 1,279,265 $ 1,191,682 2
Slide 30: Prepayment Protection on Unamortized Premium
Prepayment Protection on Unamortized Premium (as of March 31, 2022) Investment Premium by Asset Type ($ in millions) CMBS IO: $274.3 100% of investment premium exposure in CMBS has at least some amount of structural prepayment protection Agency CMBS: $2.2 Agency RMBS: $65.6 Unamortized Premium $ in
Slide 31: Performance Statistics Overview
Performance Statistics Overview Net Interest Spread Repo and Other Financing Costs 2.69% 2.67% 2.47% 2.10% 1.96% 1.96% 1.94% 1.87% 1.87% 1.93% 1.87% 1.86% 1.86% 1.32% 1.10% 0.84% 0.76% 0.82% 0.74% 0.38% 0.35% 0.30% 0.23% 0.20% 0.21% 0.25% Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q1- Q2- Q
Slide 32: Financial Performance
Financial Performance 1Q22 4Q21 Per Per Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* Interest income $ 17,427 $ 0.47 $ 17,051 $ 0.47 Interest expense (1,748) (0.05) (1,443) (0.04) GAAP net interest income 15,679 0.42 15,608 0.43 TBA drop in
Slide 33: Book Value Rollforward
Book Value Rollforward Quarter Ended March 31, 2022 Per $ in Common thousands Share Common shareholders' equity, beginning of period (1) $659,778 $17.99 GAAP net income to common shareholders: Earnings available for distribution (2) 16,054 Unrealized loss on investments including TBAs, net (215,140)
Slide 34: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 1Q22 4Q21 3Q21 2Q21 1Q21 Comprehensive income (loss) to common shareholders $23,946 ($1,372) $2,971 ($31,412) $47,227 Adjustments: Change in fair value of investments (1) 202,591 25,340 12,224 (17,362) 61,439
Slide 35: 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 36: 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 37: 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 38: Sound Strategy. Unique Advantages.
Sound Strategy. Unique Advantages. 4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia 23060 804-217-5800 dynexcapital.com