Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q1 2023 Earnings Presentation
32 slides from Dynex Capital's earnings presentation, Apr 24, 2023
Slide 1: First Quarter 2023 Earnings Presentation
First Quarter 2023 Earnings Presentation April 24, 2023 1
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: Performance Highlights
Performance Highlights Comprehensive Income (Loss) Book Value Total Economic Return(1) (per common share) (per common share) $1.17 $(0.54) $14.73 $13.80 6.2% (3.7)% Q4 22 Q1 23 Q4 22 Q1 23 Q4 22 Q1 23 Net Income (Loss) Leverage(2) Average Earning Assets (per common share) (inclusive of TBAs) $0.85 $
Slide 4: Navigating this Decade's Volatility
Navigating this Decade's Volatility Our disciplined approach delivers an attractive risk-adjusted return and 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 Spread to 7yr Trea
Slide 5: Dynex Performance
Dynex Performance Experience in managing assets through multiple economic cycles and a disciplined investment process results in Dynex long-term outperformance during periods of high volatility Cumulative Total Shareholder Returns 56.8% 47.9% 33.3% 10.7% 6.9% (16.4)% (18.8)% (20.4)% (26.0)% (26.8)%
Slide 6: Primary Components of Portfolio Returns (excluding mark-to-market)
Primary Components of Portfolio Returns (excluding mark-to-market) The impact of rising financing costs has been mostly offset by higher yielding assets and deferred tax hedge gains. Interest Income (1) TBA Drop Income (2) $30,528 $30,846 $16,282 $20,404 $11,074 $17,427 $18,335 $9,728 $5,522 $1,457
Slide 7: Key Long-Term Macroeconomic Themes
Key Long-Term Macroeconomic Themes • Inflationary pressures from factors including geopolitical fragmentation, the transition to cleaner energy, the strategic competition for resources, and resulting human conflict are strongly and persistently counteracting disinflationary impacts of the last 20 ye
Slide 8: Key Long-Term Macroeconomic Themes
Key Long-Term Macroeconomic Themes We remain at a significant inflection point in global dynamics, with the next few years being critical to determining the direction of the eventual path forward. Short- and medium-term trends point to upward pressure on inflation and bond yields, although lower rat
Slide 9: Market Environment and Positioning
Market Environment and Positioning Favorable investing environment continues as credit spreads on assets are wider, and when hedged over the medium to long term, currently provide mid to high teens ROE. We have been preparing for a general rise in macroeconomic and market volatility with high levels
Slide 10: 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 and we believe we are in a period of persistent investment opportunities Long Term 30 Year Agency RMBS Returns (1) (2) (1) Chart is indic
Slide 11: 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 further widening providing opportunities to add assets. The key is managing the size of the balance sheet to add value during volatility. Fundamentals: Generally strong Technical
Slide 12: 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 and unanticipated supply from bank sales enters the market. We believe our book value preservation and low leverage put us in excellent position to capitali
Slide 13: Risk Position - Interest Rate and Spread Sensitivity
Risk Position - Interest Rate and Spread Sensitivity Portfolio profile reflects convexity of up-in coupon position Interest Rate Sensitivity Credit Spread Sensitivity Percentage Change in Percentage Change in Common Shareholders’ Equity Common Shareholders’ Equity Parallel Curve Shift As of As of Ch
Slide 14: Key Takeaways
Key Takeaways • Mortgage spreads are at generationally wide levels and represent a historic and persistent period of high investment returns • The collective experience of our team, emphasis on risk management, capital preservation, disciplined asset allocation, and hedging are important differentia
Slide 15: 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 • U.S. demographic trends will drive demand for housing and yield 1 • We believe we are entering a period of sustainable marginal returns in the
Slide 16: Why Dynex
Why Dynex Industry leader with a compelling long-term track record of delivering shareholder value Attractive dividend yield at Superior performance record Ability to drive earnings upside a discounted price-to-book with industry-leading 3-year with opportunistic deployment valuation on a high-quali
Slide 17: 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 - March 31, 2023 Source: S&P Capital IQ Assumes reinvestment of divide
Slide 18: Supplemental Information
SUPPLEMENTAL INFORMATION 18
Slide 19: Market Snapshot
Market Snapshot Common Stock Series C Preferred Stock NYSE Ticker DX DX PRC Shares Outstanding (as of 03/31/23) 53.9 million 4.5 million Book Value per share (as of 03/31/23) $13.80 — 1Q23 Dividends Declared per share $0.39 $0.43 Annualized Dividend Yield (as of closing on 4/21/23) 13.22% 7.99% Shar
Slide 20: Current Marginal Investment Returns (as of March 31, 2023)
Current Marginal Investment Returns (as of March 31, 2023) Agency RMBS Higher 15yr and 30yr Dynex Portfolio GSE Return Range 12-18% (1,2) Guaranteed AAA Rated Agency CMBS Agency RMBS offer CMBS have offered a diversification generationally attractive opportunity at various points in the 95% FNMA DUS
Slide 21: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) (1) Disciplined capital allocation and portfolio constructed for flexibility. March 31, 2023 December 31, 2022 Asset Type Asset Type Agency RMBS Agency RMBS Agency CMBS 7.8x 1.7% Agency CMBS 2.1% 2.3% 6.1x 2.9% Agency CMBS IO leverage 0.7% Agency CMBS IO
Slide 22: MBS Portfolio Characteristics (as of March 31, 2023)
MBS Portfolio Characteristics (as of March 31, 2023) Unamortized 3-month Market Market Par Value Total Par Estimated % of Amortized Premium 3-month WAVG Yield on Yield on ($ in thousands) Pools TBA Value Fair Value Portfolio Cost (%) Balance CPR (1) Yield Pools (2) TBAs (2) Agency RMBS 2.0% coupon $
Slide 23: 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 23
Slide 24: 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 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 interest rate changes. • Futures trade in a highly liquid market and have lower margin requirements compared to a similar swap i
Slide 26: Funding Strategy (as of March 31, 2023)
Funding Strategy (as of March 31, 2023) Fair Value Pledged as ◦ Weighted average repo borrowing Balance Weighted Collateral Collateral Type ($s in thousands) Average Rate ($s in thousands) rate of 4.62% for the first quarter of 2023, an increase of 112 basis points Agency RMBS $2,675,157 4.90 % $2,7
Slide 27: Financial Performance
Financial Performance 1Q23 4Q22 Per Per Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* Interest income $ 30,846 $ 0.57 $ 30,528 $ 0.63 Interest expense (31,308) (0.58) (24,320) (0.50) GAAP net interest income (462) (0.01) 6,208 0.13 TBA drop
Slide 28: Book Value Rollforward
Book Value Rollforward Quarter Ended March 31, 2023 Per ($s in thousands except amounts per share) Common Equity Common Share Common equity, beginning of period (1) $ 789,828 $ 14.73 Earnings available for distribution (2) (8,726) Realized loss on sale of investments, net (23,315) Unrealized gain on
Slide 29: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share amounts) 1Q23 4Q22 3Q22 2Q22 1Q22 Comprehensive (loss) income to common shareholders $ (28,852) $ 56,648 $ (99,705) $ (33,497) $ 23,946 Adjustments: Change in fair value of investments (1) (48,599) (48,262) 191,272
Slide 30: Corporate Responsibility
Corporate Responsibility At Dynex, we hold ourselves to the highest ethical standards, and we believe that our actions have an impact on our community and the world. We view ESG components as critical for achieving our long-term strategic objectives and delivering attractive total returns for shareh
Slide 31: Core Values
Core Values At Dynex, We Rely on Our Core Values to Sustain Our High-Performance Culture and to Consistently Generate Attractive, Long-Term Returns Stewardship Kindness We are thoughtful, ethical, and responsible fiduciary We can accomplish more together and build a culture like stewards of environm
Slide 32: Sound Strategy. Unique Advantages.
SOUND STRATEGY. UNIQUE ADVANTAGES. 4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia 23060 804-217-5800 dynexcapital.com