Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Keefe, Bruyette & Woods 2015 Mortgage Finance Conference
32 slides from Dynex Capital's conference presentation, May 29, 2015
Slide 1: Keefe, Bruyette & Woods 2015 Mortgage Finance Conference
Keefe, Bruyette & Woods 2015 Mortgage Finance Conference June 2, 2015
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: Guiding Principles
3 Guiding Principles Our Core Values 3 •Generate dividends for shareholders •Manage leverage conservatively • Remain owner-operators • Maintain a culture of integrity and employ the highest ethical standards • Provide a strong risk management culture • Focus on preserving capital, while building lon
Slide 4: Market Snapshot
Market Snapshot Preferred Stock NYSE Stock Ticke! DX DXPrA DXPrB Shares Outstanding: (a: of 3/31/15) 54,893,076 2,300,000 2,250,000 Q1 Dividends per share: $0.24 $0.53 $0.48 Dividend Yield: (annuatized, based on 5/5/15 stock price) 12.3% 8.46% 8.10% Share Price: (ot 5/5/15) $7.83 $25.06 $23.71 Marke
Slide 5: Delivering Total Return
5 Delivering Total Return Source: SNL Financial (January 1, 2008 – April 30, 2015)
Slide 6: Generating Attractive Returns
6 Generating Attractive Returns Source: KBW, Bloomberg, Bankrate.com DX Above Average Dividend Yield as of April 27, 2015 Long-Term Book Value & Dividends per Common Share
Slide 7: Recent Financial Highlights
7 Recent Financial Highlights Financial Measures per Common Share (1) Adjusted Net Interest Spread (1) 1.96% • Adjusted net interest spread(1) is the difference between the effective yield earned on our investments and the effective borrowing cost(1) of financing our investments. • Effective borrowi
Slide 8: Macroeconomic and Policy Factors
8 • Divergence in trajectory of growth, inflation and central bank actions across the globe • Factors could cause changes in the data that make the timing and pace of Federal Reserve actions still highly uncertain. • Low overall yields: Global yields continue to remain low given macroeconomic and po
Slide 9: Asset and Equity Allocations Quarterly Comparison
9 Asset and Equity Allocations Quarterly Comparison $673.0 $217.2 $152.4 $105.9 $62.0 $217.2 $152.4 $62.0 RMBS CMBS RMBS RMBS (89% Agency) CMBS CMBS (64% Agency) CMBS IO CMBS IO CMBS IO CMBS IO (55% Agency) Net Other (1) Cash Loans (1) Net other for asset allocation includes fair value of derivative
Slide 10: How is Dynex Positioned?
10 How is Dynex Positioned? Existing Portfolio is designed to perform in a variety of market environments: Model-estimated BV decline for rising rates1 (3.3%) in parallel +100 bps (1.3%) in parallel +50 bps (0.51%) in +25/+75 bps bear steepener Considering spread risk, we expect BV to decline an add
Slide 11: Risk Position
11 Risk Position Treasury Yields As of March 31, 2015 As of December 31, 2014 2Y 0.56% 0.67% 5Y 1.37% 1.65% 10Y 1.94% 2.17% 30Y 2.54% 2.75% Parallel Change in Treasury Yields (in basis points) Percentage Change in Projected Market Value of Assets Net of Hedges As of March 31, 2015 As of December 31,
Slide 12: Financing: Admission of DX Subsidiary to FHLB
12 Financing: Admission of DX Subsidiary to FHLB Membership of wholly-owned subsidiary has been accepted by the FHLB Indianapolis (FHLBI) on May 19, 2015 Most Dynex product types can be funded with FHLBI financing Economics will depend on collateral financed Potential Significant Benefits: ‒
Slide 13: Financing: Repo vs. FHLBI Funding
13 Financing: Repo vs. FHLBI Funding Repo FHLBI Type of Borrowings Secured Secured Collateral types Treasuries, Agencies, MBS, and CMBS Treasuries, Agencies, MBS, CMBS, and whole loans Stock purchase or equity stake? No Yes, stock purchase is required for membership and stock must be maintained for
Slide 14: Dynex Strategy Going Forward
14 Dynex Strategy Going Forward • Expect to make opportunistic investments and continue to grow balance sheet · Investment opportunities continue to be focused on CMBS • Agency multifamily CMBS, Agency CMBS IO, non-Agency CMBS IO, single family rental · Selective RMBS investing • Non-performing loan
Slide 15: Opportunity to Earn Above Average Dividend Yield
15 • We believe there continues to be an opportunity to earn above average dividend yields within a mortgage REIT structure, such as Dynex · Dynex yields 11.7% versus the S&P average dividend yield of 1.9%(1) · Dynex yields 11.7% versus the average equity REIT dividend yield of 3.9% and the average
Slide 16: Solid Track-Record
16 Solid Track-Record Source: SNL Financial (January 1, 2004 – April 30, 2015)
Slide 17: Appendix
17 APPENDIX
Slide 18: Portfolio Update (as of March 31, 2015)
18 Portfolio Update* (as of March 31, 2015) Credit Quality Portfolio Expected Maturity/Reset Distribution Net Premium by Asset Type * AFS investments only, excludes loans held for investment. Agency MBS are considered AAA-rated for purposes of this chart. 12.7% 15.0% 15.1% 14.5% 12.5% 30.1% $742.0 $
Slide 19: Financing Details
19 Financing Details • Our weighted average contractual maturity was 116 days at March 31, 2015 compared to 144 days at December 31, 2014. • Our repurchase agreement balance was $3.2 billion at March 31, 2015 with 20 counterparties compared to $3.0 billion with 20 counterparties at December 31, 2014
Slide 20: Total CMBS Portfolio
20 Total CMBS Portfolio (as of March 31, 2015) Asset Type Agency MBS are considered AAA-rated for purposes of this chart. Credit Quality Collateral Asset Type
Slide 21: CMBS and CMBS IO
21 CMBS (as of March 31, 2015) Vintage (by year of origination) Asset Type Credit Quality Vintage By Year of Origination CMBS IO (as of March 31, 2015) Credit Quality Vintage By Year of Origination Agency MBS are considered AAA-rated for purposes of this chart. Agency MBS are considered AAA-rated fo
Slide 22: RMBS Portfolio
22 Asset Type ($ in millions) RMBS Portfolio (as of March 31, 2015) Credit Quality Months to Maturity/Reset For ARMs/Hybrids 5% 9% 50% 16% 6% 15% Weighted Average Loan Age 22.5% 17.5% 16.9% 16.6% 26.5%
Slide 23: CMBS and CMBS IO Historical Spreads
23 CMBS and CMBS IO Historical Spreads Source: Company data CMBS IO Spreads CMBS Spreads
Slide 24: Agency Multifamily CMBS Historical Spreads
24 Agency Multifamily CMBS Historical Spreads Source: Company data
Slide 25: Drivers of Book Value: Agency RMBS Historical Spreads
25 Drivers of Book Value Agency RMBS Historical Spreads Source: Company data
Slide 26: Drivers of Book Value: Spread Risk
26 Drivers of Book Value Spread Risk • An asset’s “spread” is the market premium above a benchmark rate that reflects the relative riskiness of the asset versus the benchmark. • Spread risk is the uncertainty in pricing resulting from the expansion and contraction of the risk premium over the benchm
Slide 27: Hedging Details (Quarterly Comparison)
27 Hedging Details (Quarterly Comparison) As of March 31, 2015 As of December 31, 2014
Slide 28: Drivers of Book Value and EPS: Risk Management
28 Drivers of Book Value and EPS Risk Management Key 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 predi
Slide 29: Drivers of EPS: Investment Premium Allocation
29 Drivers of EPS Investment Premium Allocation (as of end of period)
Slide 30: Accounting Disclosure: Selected Financial Highlights
30 Accounting Disclosure Selected Financial Highlights (as of and for the quarter ended) (1) Core net operating income to common shareholders (including on a per share basis), adjusted return on average common equity and adjusted net interest spread are non-GAAP financial measures. Reconciliations o
Slide 31: Non-GAAP Reconciliation: Core Net Operating Income
31 ($ in thousands except per share data) Quarter Ended 3/31/2015 12/31/2014 9/30/2014 6/30/2014 3/31/2014 Net (loss) income to common shareholders ($11,766 ) $1,379 $28,572 ($8,293 ) ($3,028 ) Adjustments: Amortization of de-designated cash flow hedges (1) 1,057 1,449 1,442 1,608 2,288 Change in fa
Slide 32: Reconciliation of GAAP Measures to Non-GAAP Measures
32 Accounting Disclosure Reconciliation of GAAP Measures to Non-GAAP Measures (1) Rates shown are based on annualized interest expense amounts divided by average interest bearing liabilities. Recalculation of annualized cost of funds using total interest expense shown in the table may not be possibl
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