Dynex Capital, Inc. · NYSE:DX
Dynex Capital — Q2 2021 Earnings Presentation
32 slides from Dynex Capital's earnings presentation, Jul 28, 2021
Slide 1: Second Quarter 2021 Earnings Presentation
Second Quarter 2021 Earnings Presentation July 28, 2021
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 Comparative Returns 5 Performance Highlights - Q2 2021 6 Macro Thesis, Current Environment and Positioning 7 Investment Portfolio 8 Risk Position 9 Hedge Position 10 Return Environment 11 Long-Term Industry Trends 12 Long-Term Performance 13 Key Takeaways 14 Why Dynex 15 S
Slide 4: Market Snapshot
Market Snapshot Common Stock Series C Preferred Stock NYSE Ticker DX DXPrC Shares Outstanding (in millions) (as of 6/30/21) 34.3 4.5 2Q21 Dividends Declared $0.39 $0.43 Annualized Dividend Yield 8.94% 6.67% Book Value per share (as of 6/30/21) $18.75 — Share Price (close on 7/22/21) $17.45 $25.85 Ma
Slide 5: Superior Long-term Performance
Superior Long-term Performance Industry-leading performance versus other income-oriented vehicles Cumulative Total Shareholder Returns (1) 59 55 43 46 36 38 29 28 24 20 20 18 18 14 12 9 8 9 8 8 3 3 4 -0.1 -5 -31 -50 -57 YTD Total Return (%) Since 12/31/19 Total Return 3-Yr Total Return (%) 5-Yr Tota
Slide 6: Performance Highlights - Q2 2021
Performance Highlights- Q2 2021 (1) Comprehensive Income Book Value Total Economic Return (per common share) (per common share) $1.76 7.2% $18.75 $20.07 $(0.98) (4.6)% Q2 21 Q1 21 Q2 21 Q1 21 Q2 21 Q1 21 (2) Core Net Operating Income Net Interest Spread Adjusted Net Interest (per common share) 1.87%
Slide 7: Macroeconomic Thesis, Current Environment and Positioning
Macroeconomic Thesis Current Environment Long-term and Positioning The global economy is evolving but remains fragile as We believe the broader investment environment significant uncertainties remain about the pandemic's long- remains favorable with financing costs anchored term effects across econo
Slide 8: Investment Portfolio (as of dates indicated)
Investment Portfolio (as of dates indicated) Disciplined capital allocation and portfolio constructed for flexibility. June 30, 2021 March 31, 2021 December 31, 2020 3% 2% 3% 6% 4% 4% 4% 5% 6% 90% 88% 85% 1) Includes TBA dollar roll positions at their implied market value which are accounted for as
Slide 9: Risk Position - Interest Rates
Risk Position - Interest Rates In our view, the macroeconomic environment is evolving as markets move to reflect shifting economic conditions. The estimated changes in the tables above incorporate duration and convexity inherent in our investment portfolio as it existed as of the dates indicated. Pe
Slide 10: 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 June 30, 2021 March 31, 2021 Notional Amount/ Averag
Slide 11: Current Marginal Investment Returns (as of June 30, 2021)
Current Marginal Investment Returns (as of June 30, 2021) Agency MBS Pools Agency RMBS offer attractive returns Higher 15yr and 30yr RMBS (1,2) Return Range 10-12% ◦ The most compelling levered risk and convexity GSE adjusted marginal returns are still in the Guaranteed highest credit quality and th
Slide 12: Long-Term Industry Trends
Long-Term Industry Trends Positive long-term fundamental trends support our business model. Global demand for cash yield supports long term valuations of mortgage REITs 1 ◦ Low and negative global yields have severely limited positive yielding cash income alternatives available to investors ◦ Global
Slide 13: Disciplined Focus on the Long Term
Disciplined Focus on the Long Term Dynex has generated long-term returns exceeding the S&P 500 Financials and Russell 2000 Value indices. Total Return (%) January 1, 2008 - June 30, 2021 Source: S&P Global 13
Slide 14: Key Takeaways
Key Takeaways Low financing costs continue to provide a solid foundation for generating attractive long-term returns. Generated a rolling 12-month total economic return of 21.7% and a total shareholder return of 42.6%. Continued value creation during the quarter by managing the existing portfolio, o
Slide 15: Why Dynex
Why Dynex Industry-leader with a Compelling Long-Term Track Record of Delivering Shareholder Value Attractive dividend yield at Excellent track record with Earnings power to drive a discounted price-to-book industry-leading 1-,3-, and 5- upside with opportunistic valuation on a high-quality, year to
Slide 16: Supplemental Information
Supplemental Information 16
Slide 17: Fixed Income Market Update
Fixed Income Market Update (1) Average rate for Agency MBS per 20 counterparty survey (2) Source: Bloomberg 17 (3) Source: BlackRock 6.04 model prior to 03/31/2021 and BlackRock 6.1 on 3/31/2021 and after
Slide 18: 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. 18
Slide 19: 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 20: 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. As of June 30, 2021 As of March 31, 2021 Percentage Change in Common Percentage Change in Common Change in Market Credit Spreads Sha
Slide 21: 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 22: Portfolio Characteristics (as of June 30, 2021)
Portfolio Characteristics (as of June 30, 2021) WAVG Unamortized 3-month Par Value Total Par Estimated % of Coupon Amortized Premium 3-month WAVG ($ in millions) Pools TBA Value Fair Value Portfolio (1) Cost (%) (2) Balance (2) CPR (2) (3) Yield (2) Agency RMBS 1.5% coupon $ — $ 375,000 $375,000 $ 3
Slide 23: Prepayment Protection on Unamortized Premium
Prepayment Protection on Unamortized Premium (as of June 30, 2021) Investment Premium by Asset Type ($ in millions) CMBS IO: $327.1 100% of investment premium exposure in CMBS has at least some amount of structural prepayment protection Agency CMBS: $2.7 Agency RMBS: $78.6 Unamortized Premium $ in M
Slide 24: Funding Strategy (as of June 30, 2021)
Funding Strategy (as of June 30, 2021) ($s in thousands) Weighted Average Fair Value of • Weighted average repo rate for the Collateral Type Balance Rate Collateral second quarter of 2021 was 0.23%, a Agency RMBS $1,835,941 0.12 % $1,928,660 decline of 7 basis points compared to Agency CMBS 195,168
Slide 25: Performance Statistics Overview
Performance Statistics Overview Net Interest Spread Repo and Other Financing Costs 2.69%2.67% 2.50% 2.47% 2.25% 2.07% 2.10% 1.96%1.96%1.94%1.87%1.87% 1.86% 1.32% 1.07%1.08% 1.10% 0.93%0.84% 0.76%0.82% 0.74% 0.38%0.35%0.30% 0.23% Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q2- Q3- Q4- Q1- Q2-
Slide 26: Financial Performance - Comparative Quarters
Financial Performance - Comparative Quarters 2Q21 1Q21 Per Per Income Common Income Common ($ in thousands, except per share amounts) (Expense) Share* (Expense) Share* Interest income $ 13,393 $ 0.42 $ 13,892 $ 0.52 Interest expense (1,275) (0.04) (1,633) (0.06) GAAP net interest income 12,118 0.38
Slide 27: Book Value Rollforward
Book Value Rollforward Quarter Ended June 30, 2021 Per $ in Common thousands Share Common shareholders' equity, beginning of period (1) $619,776 $20.07 GAAP net loss to common shareholders: Core net operating income (2) 16,343 Realized gain on sale of investments, net 2,008 Unrealized gain on invest
Slide 28: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures ($ in thousands except per share data) 2Q21 1Q21 4Q20 3Q20 2Q20 Comprehensive (loss) income to common shareholders ($31,412) $47,227 $28,725 $44,471 $26,538 Adjustments: Change in fair value of investments (1) (17,362) 61,439 (754) (28,038) (28,38
Slide 29: 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 30: 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 31: 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 32: Sound Strategy. Unique Advantages.
Sound Strategy. Unique Advantages. 4991 Lake Brook Drive, Suite 100 Glen Allen, Virginia 23060 804-217-5800 dynexcapital.com