Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q4 2022 Earnings Presentation
38 slides from Dynex Capital's earnings presentation, Jan 30, 2023
Slide 1: Fourth Quarter 2022 Earnings Presentation
Fourth Quarter 2022 Earnings Presentation January 30, 2023
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 (as of 12/31/22) 53.6 million 4.5 million Book Value per share (as of 12/31/22) $14.73 — 4Q22 Dividends Declared per share $0.39 $0.43 Annualized Dividend Yield (as of closing on 1/26/23) 10.51% 7.51% Share
Slide 4: Dynex Performance
Dynex Performance Experience in managing assets through multiple economic cycles and scenario planning has allowed us to outperform other Agency REITs during periods of high volatility as illustrated below Cumulative Total Shareholder Returns 1.3% 3.0% (15.4)% (21.2)% (26.7)% (27.4)% (31.5)% (33.1)%
Slide 5: Dynex Performance
Dynex Performance Our experienced team manages with a disciplined approach that can outperform fixed income indices during periods of high interest rates and spread volatility Cumulative Total Economic Returns (TER) 8% 6% 0.2% 4% 4% (5)% 2% 2% (9)% (8)% (8)% (8)% (11)% (11)% (12)% (9)% (13)% (12)% 1
Slide 6: Performance Highlights - Full Year 2022
Performance Highlights - Full Year 2022 (1) Comprehensive Income (Loss) Book Value (per common share) Total Economic Return (per common share) $17.99 $14.73 2.5% $0.53 $(1.24) (9.5)% 2021 2022 2021 2022 2021 2022 (2) Net Income Leverage Average Earning Assets (per common share) $2.79 $3.19 5.7x 6.1x
Slide 7: Performance Highlights - 4Q 2022
Performance Highlights - 4Q 2022 (1) Comprehensive Income (Loss) Book Value Total Economic Return (per common share) (per common share) $1.17 $14.23 $14.73 6.2% $(2.20) (12.9)% Q3 22 Q4 22 Q3 22 Q4 22 Q3 22 Q4 22 (3) Net Income (Loss) Net Interest Spread Adjusted Net Interest Spread (per common shar
Slide 8: Primary Components of Portfolio Earnings
Primary Components of Portfolio Earnings (excluding mark-to-market) The impact of rising financing costs has been largely offset by higher yielding assets and deferred tax hedge gains Interest Income (1) TBA Drop Income (2) $30,528 $16,282 $20,404 $11,074 $17,427 $18,335 $9,728 $5,522 Q1-22 Q2-22 Q3
Slide 9: Navigating this Decade's Volatility
Navigating this Decade's Volatility Our disciplined approach enabled us to deliver an attractive risk-adjusted return and pay a consistent dividend during a volatile market environment Building Long-Term Value $24 1.80% $22.12 $21.85 $21.19 $21.25 $21.21 1.70% $20.74 $20.79 $21 $2.05 30yr Par Coupon
Slide 10: Key Long-Term Macroeconomic Themes
Key Long-Term Macroeconomic Themes Global central bank tightening is occurring in an already complex global environment of rising debt, increasing human conflict, rapid technology change and shifting demographics. These factors are major considerations in our long-term risk and investment strategy.
Slide 11: Market Environment and Positioning
Market Environment and Positioning Favorable investing environment continues as credit spreads on assets are wider, and when financed over the medium to long term, currently provide mid-teens ROE The Market Environment • The yield curve is currently inverted as interest rates have risen across the e
Slide 12: Agency RMBS Market Dynamics and Portfolio Strategy
Agency RMBS Market Dynamics and Portfolio Strategy Agency MBS spreads can remain range bound at today’s wider levels with bouts of volatility providing opportunities to add assets. The key is managing the size of the balance sheet to add value during volatility. Fundamentals Technicals • Housing Mar
Slide 13: Well-Positioned for a Favorable Investment Environment
Well-Positioned for a Favorable Investment Environment Persistent 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. Solid Existing Balance Incremental
Slide 14: Long-Term Par Coupon 30-year Agency RMBS Returns
Long-Term Par Coupon 30-year Agency RMBS Returns We remain at historically wide levels surpassed only by the levels seen during the Great Financial Crisis of 2008 Long Term 30 Year Agency RMBS Returns Source: Company data, Bloomberg par coupon yield vs 7yr swap, duration neutral 14
Slide 15: Risk Position - Interest Rates Sensitivity
Risk Position - Interest Rates Sensitivity 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 As of As of Parallel Curve Shift (bps) December 31, 2022 October 19, 2022 September 30, 2022 December 31, 2021
Slide 16: Risk Position - Credit Spreads Sensitivity
Risk Position - Credit Spreads Sensitivity The estimated percentage change in these values incorporates portfolio and hedge characteristics as they existed as of the dates indicated Percentage Change in Common Shareholders’ Equity As of As of As of As of Change in Market Credit December 31, 2022 Oct
Slide 17: Long-Term Industry Trends
Long-Term Industry Trends Positive long-term fundamental trends support Dynex's business model Favorable investment environment and demand for cash income 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
Slide 18: Disciplined Focus on the Long-Term
Disciplined Focus on the Long-Term DX has generated long-term returns exceeding the S&P 500 Financials and REM indices illustrating our ability to be successful in various rate and economic cycles Total Return (%) January 1, 2008 - December 31, 2022 Source: S&P Capital IQ Assumes reinvestment of div
Slide 19: Key Takeaways
Key Takeaways • Favorable investing environment continues as credit spreads on assets are wider, and when financed over the medium to long term, currently provide mid-teens ROE. • The collective experience of our team, emphasis on risk management, capital preservation, disciplined asset allocation,
Slide 20: Why Dynex
Why Dynex Industry leader with a Compelling Long-Term Track Record of Delivering Shareholder Value Attractive dividend yield at Excellent performance record Liquidity to drive upside with a discounted price-to-book with industry-leading 3-year opportunistic deployment of valuation on a high-quality,
Slide 21: Supplemental Information
Supplemental Information 21
Slide 22: 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 23: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) (1) Disciplined capital allocation and portfolio constructed for flexibility. We are nimble and can be opportunistic investors in 2023. December 31, 2022 September 30, 2022 Asset Type Asset Type Agency RMBS Agency RMBS Agency CMBS IO 2.9% Agency CMBS IO 2
Slide 24: MBS Portfolio Characteristics (as of December 31, 2022)
MBS Portfolio Characteristics (as of December 31, 2022) Unamortized 3-month Par Value Total Par Estimated % of Amortized Premium 3-month WAVG Market (1) (1) ($ in millions) Pools TBA Value Fair Value Portfolio Cost (%) Balance CPR (1) (2) Yield (1) Yield (3) Agency RMBS 2.0% coupon $ 1,193,344 $ — $
Slide 25: Current Marginal Investment Returns (as of December 31, 2022)
Current Marginal Investment Returns (as of December 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 12-25% favorable risk/reward. Guaranteed AAA Rated Agency CMBS ◦ The most compelling le
Slide 26: Fixed Income Market Update
Fixed Income Market Update (1) Average rate for Agency MBS per 20 counterparty survey (2) Source: Bloomberg (3) Source: BlackRock 6.2 and JPMorgan Data Query (4) Bankrate.com 30 year Mortgage Rate Index ILM3NAVG 26
Slide 27: 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 specified pool spreads not populated due to the small sample of issuance within those coupons. Changes are compared vs 5/31/
Slide 28: Key Rate Yield Percent Changes
Key Rate Yield Percent Changes While interest rates have been volatile, mortgage yields are the most volatile since 1970 Source: Contingent Macro Advisors, LLC 28
Slide 29: 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 interest rate changes. Futures trade in a highly liquid market and have lower margin requirements compared to a similar swap inst
Slide 30: Long-term Investment Strategy
Long-term Investment Strategy Dynamic and disciplined capital allocation model enables us to capture long-term value and the ability to earn an attractive yield for investors in various rate and economic cycles Target Strategy • In the current environment invest in a high quality, Higher Credit Qual
Slide 31: Funding Strategy (as of December 31, 2022)
Funding Strategy (as of December 31, 2022) ($ in thousands) Weighted Average Fair Value of Collateral Type Balance Rate Collateral • Weighted average repo rate for the Agency RMBS $2,349,181 4.15 % $2,496,781 fourth quarter of 2022 was 3.49%, an Agency CMBS 108,580 3.76 % 108,146 increase of 132 bas
Slide 32: Financial Performance
Financial Performance 4Q22 3Q22 2022 Per Per Per Income Common Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* (Expense) Share* Interest income $ 30,528 $ 0.63 $ 20,404 $ 0.45 $ 86,695 $ 2.04 Interest expense (24,320) (0.50) (13,282) (0.29) (4
Slide 33: Book Value Rollforward
Book Value Rollforward Quarter Ended December 31, 2022 Per Common $ in thousands Share (1) Common shareholders' equity, beginning of period $659,766 $14.23 Earnings available for distribution (2) $1,471 Realized gain on sale of investments, net 450 Unrealized gain on investments including TBAs, net
Slide 34: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 4Q22 3Q22 2Q22 1Q22 2022 Comprehensive income (loss) to common shareholders $56,648 ($99,705) ($33,497) $23,946 ($52,608) Adjustments: Change in fair value of investments (1) (48,262) 191,272 144,563 202,591
Slide 35: Mortgage REIT Business Model
Mortgage REIT Business Model Higher ASSETS CAPITAL Agency MBS Government RMBS, CMBS, CMBS-IO Repo/Dollar Rolls Issued AAA Rated Short Committed Repo Term AAA Non-Agency MBS Warehouse Lines Liquidity Rated CMBS-IO, RMBS, RMBS- IO, CMBS Unsecured Notes Medium AA – BBB Non-Agency MBS Term Rated Convert
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