Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q4 2019 Earnings Presentation
33 slides from Dynex Capital's earnings presentation, Feb 6, 2020
Slide 1: Fourth Quarter and Fiscal Year 2019 Earnings Presentation
Fourth Quarter and Fiscal Year 2019 Earnings Presentation February 6, 2020
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: Contents
Contents Market Snapshot 4 Performance 5 Macro Economic Thesis 6 Investment Strategy 7 Hedging & Risk Management 9 Funding Strategy 11 Return Environment 12 Key Takeaways 13 Summary 14 Appendix 16 - Macro Environment 17 - Market Info 20 - Portfolio and Financial Data 22 - MREIT Reference Materials 3
Slide 4: Market Snapshot
Market Snapshot December 31, 2019 Common Preferred Stocks NYSE Ticker Stock DX DXPrA DXPrB Shares Outstanding (in millions) 22.9 2.3 4.5 4Q19 Dividends per share $0.45 $0.53125 $0.4765625 Annualized Dividend Yield 10.63% 8.27% 7.53% Book Value $18.01 — — Share Price $16.94 $25.71 $25.30 Market Capit
Slide 5: Performance Highlights
Performance Highlights Fourth Quarter 2019 Full Year 2019 • Comprehensive income of $0.37 per common share and • Comprehensive income of $1.86 per common share and GAAP net income of $2.26 per common share GAAP net loss of $(7.01) per common share • Core net operating income(1) of $0.66 per common •
Slide 6: Macro Economic Thesis
Macro Economic Thesis • The global economy is fragile and downside risks are increasing; this remains the core of our long-term macro economic and investment thesis. • The combination of global debt, demographics, technology, human conflict and climate change continue to impose a drag on global grow
Slide 7: Investment Portfolio
Investment Portfolio December 31, 2019 December 31, 2018 CMBS IO: 10% Agency RMBS Agency RMBS (1): 65% CMBS IO: 11% (1): 51% Agency CMBS: 39% Agency CMBS: 23% Other: 1% • Diversified investment approach that performs in a variety of market environments • The combination of CMBS and RMBS greatly redu
Slide 8: Portfolio Characteristics (as of December 31, 2019)
Portfolio Characteristics (as of December 31, 2019) Par Value WAVG Unamortized 3-month Total Par Estimated % of Coupon Amortized Premium 3-month WAVG ($ in millions) Pools TBA Value Fair Value (1) Portfolio (2) cost (%) (3) Balance (3) CPR (3) yield (3) Agency RMBS 2.5% coupon $ 110,610 $ 135,000 $
Slide 9: Hedge Position (as of December 31, 2019)
Hedge Position (as of December 31, 2019) Hedging Portfolio Summary Interest Rate Swap Maturities Notional WAVG Notional WAVG WAVG Life ($ in millions) Amount Rate Duration (1) Years to Maturity- Amount (in Pay-Fixed Remaining Swaps millions) Rate (in years) Interest rate swaps $ 4,225 1.62% (3.3) In
Slide 10: Risk Position - Interest Rates
Risk Position - Interest Rates Changes in interest rates impact the market value of our investments, net of hedges, and shareholders' equity. The estimated percentage change in these values incorporates duration and convexity inherent in our investment portfolio as it existed as of the dates indicat
Slide 11: Funding Strategy (as of December 31, 2019)
Funding Strategy (as of December 31, 2019) ($s in thousands) Weighted Average Fair Value of Collateral Type Balance Rate Collateral Agency RMBS $2,594,645 1.96 % $2,647,638 • Weighted average repo rate as of Agency CMBS 1,735,848 1.98 % 1,901,452 December 31, 2019 declined 31 basis Agency CMBS IO 25
Slide 12: Return Environment (as of January 15, 2020)
Return Environment (as of January 15, 2020) Assets & Available Returns (1) Agency RMBS and CMBS offer attractive returns Higher Agency MBS Government RMBS(2), CMBS, CMBS-IO • The most compelling levered risk-adjusted Issued AAA Range 8-15% returns are still in the highest credit quality and Rated th
Slide 13: Key Takeaways
Key Takeaways • Business conditions for Dynex improved considerably in 2019. In our view, the macroeconomic environment remains favorable to generate net interest margin from high quality, agency guaranteed assets backed by US commercial and residential real estate. • We generated a solid 10.8% tota
Slide 14: Summary: U.S. Real Estate Assets Provide Attractive Returns
Summary: U.S. Real Estate Assets Provide Attractive Returns Total Return (%) January 1, 2008 - December 31, 2019 Source: SNL 14
Slide 15: Supplemental Information
Supplemental Information
Slide 16: Global Risk Landscape World Economic Forum Global Risk Report 2020
Global Risk Landscape World Economic Forum Global Risk Report 2020 16
Slide 17: Negative Yielding Global Debt
Negative Yielding Global Debt The global stock of negative-yielding debt is now in excess of $14 trillion as rising market volatility lends extra force to this year’s unprecedented bond rally. 17
Slide 18: Japan Government Debt % to GDP vs 10 Year Yields
Japan Government Debt % to GDP vs 10 Year Yields As debt has risen, Japanese 10yr yields have remained below 2% for 20 years Source: Bloomberg 18
Slide 19: US Government Debt vs 10 Year Treasury Yields
US Government Debt vs 10 Year Treasury Yields As debt has increased it is difficult for interest rates to rise without having a negative impact on global growth, ultimately putting downward pressure on rates. US 10yr Yields % US Govt Debt to GDP % (left axis) (right axis) US 10yr Yields % US Govt De
Slide 20: Fixed Income Market Update
Fixed Income Market Update Change Security 1/31/20 12/31/19 9/30/19 6/30/19 3/31/19 12/31/18 during 2019 Treasury (2) IOER rate 1.60% 1.55% 1.80% 2.35% 2.40% 2.40% (0.85)% 1m repo (1) 1.75% 2.06% 2.43% 2.63% 2.70% 2.49% (0.43)% 3m T-bill 1.54% 1.54% 1.81% 2.09% 2.38% 2.36% (0.82)% 2 yr 1.31% 1.57% 1
Slide 21: Specified Pool Pricing Matrix - Specified Pools vs. TBAs
Specified Pool Pricing Matrix - Specified Pools vs. TBAs Change during 30 Year MBS 1/31/20 12/31/19 9/30/19 6/30/19 3/31/19 12/31/18 2019 TBA Price 102.27 101.44 101.98 100.85 99.54 97.79 3.65 85K Max 2.38 1.88 1.59 1.03 0.28 0.28 1.60 150K Max 1.69 1.38 1.09 0.72 0.16 0.16 1.22 3% coupon 200k Max 1
Slide 22: Cash Flow Protection - Agency CMBS vs. RMBS Specified Pools
Cash Flow Protection - Agency CMBS vs. RMBS Specified Pools Feature Agency CMBS - DUS and Fre-K A2 Agency RMBS Specified pools Explicit - in the form of a lockout from Implicit - in the form of loan characteristics that Type of Prepayment prepayments. Prepayment penalties or raise the cost of early
Slide 23: Prepayment Protection on Unamortized Premium
Prepayment Protection on Unamortized Premium Investment Premium by Asset Type (as of December 31, 2019) ($ in millions) Prepayment protected CMBS and CMBS IO: Prepayment advantaged RMBS: unamortized premium $503.6 million unamortized net premium $55.8 million 100% of CMBS IO: $488.1 investment Inves
Slide 24: Investment Strategy
Investment Strategy Diversified investment approach that performs in a variety of market environments • Dynamic and disciplined capital allocation model enables capturing long-term value • Invest in a high quality, liquid asset portfolio of primarily Agency investments • Diversification is a key ben
Slide 25: Risk Position - Credit Spreads
Risk Position - Credit Spreads Changes in market credit spreads impacts the market value of our investments and shareholders' equity. The estimated percentage change in these values incorporates portfolio and hedge characteristics as they existed at the dates indicated. As of December 31, 2019 As of
Slide 26: Performance Statistics Overview
Performance Statistics Overview (1) Net Interest Spread Adjusted Net Interest Spread 2.00% 2.00% 1.54% 1.52% 1.51% 1.53% 1.50% 1.50% 1.44% 1.41% 1.34% 1.24% 1.19% 1.07% 1.08% 1.10% 1.14% 1.03% 1.00% 0.93% 1.00% 0.84% 0.76% 0.82% 0.50% 0.50% —% —% Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q4- Q1- Q2- Q3- Q
Slide 27: Financial Performance - Comparative Quarters
Financial Performance - Comparative Quarters 4Q19 3Q19 Income Per Common Income Per Common ($ in thousands, except per share amounts) (Expense) Share (Expense) Share Interest income $41,961 $1.83 $44,502 $1.84 Interest expense 25,766 1.12 31,256 1.29 GAAP net interest income 16,195 0.71 13,246 0.55
Slide 28: Book Value Rollforward
Book Value Rollforward Per Common ($ in thousands, except per share amounts) Share Common shareholders' equity, September 30, 2019 (1) $414,739 $18.07 GAAP net income to common shareholders: Core net operating income to common (2) 15,038 Change in fair value of derivatives 36,750 Other (14) Unrealiz
Slide 29: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures Quarter Ended ($ in thousands except per share data) 12/31/2019 09/30/2019 06/30/2019 3/31/2019 12/31/2018 GAAP net income (loss) to common shareholders $51,774 ($39,945) ($122,191) ($55,273) ($81,485) Adjustments: Change in fair value of derivati
Slide 30: 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 AAA CMBS-IO, RMBS, RMBS- Rated IO, CMBS Unsecured Notes Medium AA – BBB Non-Agency MBS Term Convertible Notes Rated
Slide 31: 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 32: 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 33: Dynex Capital Inc.
X DYNEX CAPITAL INC.