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| 8-K - FORM 8-K - DYNEX CAPITAL INC | d268897d8k.htm |
 Dynex
Capital, Inc. Investor Presentation
December 13, 2011
Exhibit 99.1 |
 2
2
Safe Harbor Statement
NOTE:
This
presentation
contains
“forward-looking
statements”
within
the
meaning
of
the
Private
Securities
Litigation Reform Act of 1995, including statements about projected future investment
strategies and leverage ratios, financial performance, the projected impact of NOL
carryforwards, future dividends paid to
shareholders,
and
future
investment
opportunities
and
capital
raising
activities.
The
words
“will,”
“believe,”
“expect,”
“forecast,”
“anticipate,”
“intend,”
“estimate,”
“assume,”
“project,”
“plan,”
“continue,”
and
similar
expressions
also
identify
forward-looking
statements
that
are
inherently
subject
to
risks
and
uncertainties,
some
of
which
cannot
be
predicted
or
quantified.
Although
these
forward-
looking statements reflect our current beliefs, assumptions and expectations based on
information currently available to us, the Company’s actual results and timing of
certain events could differ materially from those projected in or contemplated by these
statements. Our forward-looking statements are subject to the following principal
risks and uncertainties: our ability to find suitable reinvestment opportunities;
changes in economic conditions; changes in interest rates and interest rate spreads,
including the repricing of interest-earnings assets and interest-bearing liabilities;
our investment portfolio performance particularly as it relates to cash flow,
prepayment rates and credit performance; adverse reactions in financial markets related
to the budget deficit or national debt of the United States government; potential or
actual default by the United States government on Treasury securities; and potential or
actual downgrades to the sovereign credit rating of the United States or the credit
ratings of GSEs;
the cost and availability of financing; the cost and availability of new equity capital;
changes in our use of leverage; the quality of performance of third-party service
providers of our loans and loans underlying our securities; the level of defaults
by borrowers on loans we have securitized; changes in our industry; increased
competition; changes in government regulations affecting our business; government
initiatives to support the U.S financial system and U.S. housing and real estate markets;
GSE reform or other government policies and actions; and an ownership shift under Section 382
of the Internal Revenue Code that impacts the use of our tax NOL carryforward. For
additional information, see the Company’s Annual Report on Form 10-K for the
year ended December 31, 2010, the Company’s Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2011, June 30, 2011, and September 30, 2011 and other
reports filed with and furnished to the Securities and Exchange Commission. |
 3
3
DX Snapshot
Company Highlights
Internally managed REIT commenced operations in 1988
Significant insider ownership and experienced management team
Diversified investment strategy in residential and commercial mortgage assets
Large NOL carryfoward for unique total return opportunity
Market Highlights (as of 12/8/11 unless indicated)
NYSE Stock Ticker
DX
Shares Outstanding
40,382,435
Quarterly Dividend/Dividend Yield
$0.28/11.95%
Share Price
$9.12
Price to Book (based on BV per share as of 9/30/2011)
0.99x
Market Capitalization
$368.28 million |
 4
4
Third Quarter 2011 Highlights
•
Reported
diluted
earnings
per
common
share
of
$0.32
Ex-Items
(1)
•
Reported book value per common share of $9.15
•
Generated a net interest spread of 2.43%
•
Declared a dividend of $0.27 per share, representing a 13.4% yield
on an annualized basis
(2)
•
Generated an annualized return on average equity of 13.7% based
on EPS Ex-Items
(1)
•
Overall leverage of 6.1x equity capital
(1)
EPS
Ex-Items,
or
Dynex’s
earnings
per
share
excluding
certain
items,
excludes
from
GAAP
earnings per share the impact of litigation
settlement and related defense costs of $8.2 million (or $0.20 per diluted common
share), a loss of $2.0 million (or $0.05 per diluted common share) on
redemption of non-recourse collateralized financings, and $1.3 million (or $0.03 per diluted common share) in net accelerated
premium
amortization
due
to
an
increase
in
forecasted
prepayment
speeds during the third quarter of 2011. Reported Diluted EPS was $0.04.
(2) Based on the September 30, 2011 closing price of $8.06 per share. See the
Company’s press release issued November 1, 2011 for further
discussion. |
 5
5
Summary of Results
$0.28
$0.25
$0.27
$0.27
$0.27
$0.27
$0.34
$0.32
$0.31
$0.40
$0.33
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
Q3-2010
Q4-2010
Q1-2011
Q2-2011
Q3-2011
Q4-2011
Dividend per Share
EPS*
Dividends and Earnings Per Share*
$9.80
$9.64
$9.51
$9.59
$9.15
$8.00
$8.20
$8.40
$8.60
$8.80
$9.00
$9.20
$9.40
$9.60
$9.80
$10.00
Q3-2010
Q4-2010
Q1-2011
Q2-2011
Q3-2011
Book Value Per Share
2.98%
3.07%
2.68%
2.45%
2.43%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
Q3-2010
Q4-2010
Q1-2011
Q2-2011
Q3-2011
13.61%
16.17%
13.20%
14.10%
13.70%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Q3-2010
Q4-2010
Q1-2011
Q2-2011
Q3-2011
Net Interest Spread
Return on Average Equity*
*As
presented
on
this
slide,
Q3-2011
earnings
per
share
and
return
on
average
equity
exclude
the
impact
of
certain
items.
Please see slide
4 for additional information.
*
*
*
* |
 6
Portfolio Review
•
Our portfolio continues to perform well despite volatile markets.
•
Our portfolio is constructed to minimize prepayment risk, credit
risk, and extension risk.
•
Despite a high average portfolio dollar price, we have built in loan
level characteristics that work to offset trends to faster prepayment
speeds.
•
We have rotated further into securities in the CMBS sector with
explicit prepayment protection and higher expected ROEs.
•
Most of our CMBS exposure is to GSE multi-family programs, which
historically have demonstrated superior credit performance.
•
To minimize extension risk we have focused our portfolio on
securities that either reset or mature within 10 years. Our average
months to maturity or reset is 46 months as of September 30, 2011.
|
 7
Portfolio Composition
(as of September 30, 2011)
Non-Agency
CMBS/Loans
18
%
Non-Agency
RMBS/Loans
2%
Agency RMBS
66%
Agency CMBS
14%
CMBS
32%
RMBS
68%
Agency/Non-Agency Breakdown
Residential/Commercial Breakdown |
 8
MBA Refi Index
Source: Bloomberg |
 9
Prepayment Performance
(through September 30, 2011)
Table represents historical prepayment performance based on the investment portfolio as it
exists at September 30, 2011. “Future modeled Agency MBS”
represents the anticipated CPR’s for the periods presented and reflects the
anticipated impact of HARP 2.0 and overall lower interest rates.
•
Consistent prepayment performance over the past year with minimum prepayment
spikes
•
Meticulously selected portfolio to minimize prepayment volatility
CPR
22.7%
21.3%
20.8%
18.4%
18.5%
17.3%
17.0%
15.1%
28%
28%
28%
28%
14%
16%
18%
20%
22%
24%
26%
28%
30%
1 mo
3 mo
6 mo
1 year
Agency MBS
Total portfolio
Future modeled Agency
MBS |
 10
Prepayment Exposure
(as of September 30, 2011)
Post/near
reset*
16%
Selected
specified
pools
54%
Explicit
prepayment
protection
30%
•
Significant explicit prepayment protection
•
Meticulously selected portfolio to minimize prepayment exposure
* Less than 15 MTR
By Market Value
Post/near
reset*
8%
Selected
specified
pools
41%
Explicit
prepayment
protection
51%
By Dollar Premium |
 11
11
Key Prepayment Metrics
for Selected Specified Pools
$269.0
$292.0
$297.0
$225.0
$250.0
$275.0
$300.0
DX
All ARMs
5/1 ARMs
Average Loan Size
41.0%
58.0%
61.0%
25.0%
35.0%
45.0%
55.0%
65.0%
DX
All ARMs
5/1 ARMs
Third Party Originated
18.0%
15.0%
14.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
DX
All ARMs
5/1 ARMs
67.0%
48.0%
45.0%
0%
10%
20%
30%
40%
50%
60%
70%
DX
All ARMs
5/1 ARMs
Investor Property
Interest Only Loans
Source for Non-DX Metrics : JP Morgan
($ in thousands)
(as of September 30, 2011) |
 12
Portfolio Ratings
A
3%
Below A
3%
AA
4%
AAA
90%
As of September 30, 2011
As of June 30, 2011
*Agency securities are considered AAA rated as of the dates presented
A
3%
Below A
2%
AA
1%
AAA
94% |
 13
Non-Agency CMBS Vintage Portfolio
(as of September 30, 2011)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
prior to 2000
2000-2005
2006-2008
2009 or
newer
($ in thousands)
By Property Type
By Year of Origination
Retail, 14%
Office, 17%
Industrial, 4%
Healthcare, 3%
Other, 5%
Multi-family, 55%
Hotel, 3% |
 14
Extension Risk
(as of September 30, 2011)
Average
Life
(years)
Price
Coupon
WAC
Speed
Average Life
Average Life Extension
FN 30yr
$103-10
4.00%
4.43%
15 CPR
2 CPR
5.41 years
14.78 years
~9 years
FNCI 15yr
$103-10
3.50%
3.80%
15 CPR
2 CPR
4.01 years
6.98 years
~3 years
5/1 ARM
$103-2
2.75%
3.16%
15 CPB
2 CPB
3.35 years
4.57 years
~1 year
0
2
4
6
8
10
12
14
16
FN 30 year
FNCI 15 year
5/1 ARM
15 CPR/CPB
2 CPR/CPB |
 15
Portfolio Maturity/Reset Distribution
(as of September 30, 2011)
0%
2%
12%
14%
17%
22%
32%
0%
5%
10%
15%
20%
25%
30%
35%
<15
16-40
41-60
61-84
85-120
120-125
125-360
Months to Maturity or Reset |
 16
Potential Return Profile for Current Focus
Investments
(as
of
October
31,
2011)
Investment
Range of
Prices
Range of
yields
Range of net
spread to
funding
Range of
ROEs
Agency RMBS
103-108
2.3%-
2.8%
1.8%-2.3%
16%-23%
Agency CMBS
103-111
3.1%-3.5%
1.3%-2.0%
15%-20%
Non-Agency ‘A’
–’AAA’
RMBS
85-103
3.5%-7.0%
2.6%-4.0%
14%-24%
Non-Agency ‘A’-
‘AAA’
CMBS
85-107
4.5%-6.4%
2.2%-4.1%
15%-23%
The above portfolio is for illustrative purposes only, does not represent actual or expected
performance and should not be relied upon for any investment decision. The range of
returns on equity is based on certain assumptions, including assumptions relating to asset allocation
percentages and spreads where mortgage assets can be acquired versus a current cost of funds
to finance acquisitions of those assets. Rates used represent a range of asset yields
and funding costs based on data available as of the date referenced above. Any change in the assumed
yields,
funding
costs
or
assumed
leverage
could
materially
alter
the company’s returns. There can be no assurance that asset yields or funding
costs will remain at current levels. For a discussion of risks that may affect our ability to
implement strategy and other factors which may affect
our
potential
returns,
please
see
the
section
entitled
“Risk
Factors”
in our Annual Report on Form 10-K for the year ended December 31,
2010 and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2011 and
September 30, 2011. |
 17
Portfolio Summary
•
Our portfolio has performed well since 2008 and the
earnings power today remains relatively intact.
•
Prepayment risk is mitigated by superior portfolio
construction and HARP 2.0 should have less impact on
Hybrid ARMs.
•
Credit risk is mitigated by highly-rated securities, superior
loan origination years and concentration in multifamily
collateral.
•
Extension risk is mitigated by the short-duration investment
portfolio with 71% of the investments maturing or resetting
within five years (as of September 30, 2011).
•
There continues to be attractive investment opportunities
to deploy capital despite the volatile financial markets. |
 18
Recourse Financing
(as of September 30, 2011)
2.63%
$42,000
>60
1.58%
$1,022,000
Total
1.62%
$805,000
24-60
1.14%
$175,000
0-24
WAVG
Rate
Total
Notional
Balance
Maturity
(mos.)
SWAPS
0.31%
446,811
>90
$2,053,686
Total
0.49%
429,177
30-90
0.45%
$1,177,698
0-30
WAVG
Rate
Financing
Balance
Original
Maturity
(Days)
Repurchase Agreements
0.43%
1.21%
0.30%
WAVG Rate
Financing
Balance
$2,053,686
285,237
Non-
Agency
$1,768,449
Agency
WAVG Maturity 36 months
($ in thousands) |
 19
19
Why Dynex
Excellent long term performance record
Solid balance sheet positioned to perform through multiple market
environments
Experienced management with a track record of disciplined capital
deployment through multiple economic cycles
Alignment of interests with shareholders due to owner-operator
structure
Complimentary investment opportunities exist with attractive return
profiles consistent with our investment philosophy
Opportunistic capital raises have increased shareholder value |
 20
APPENDIX |
 21
21
Management Team
•Thomas
B.
Akin
–
Chairman
and
Chief
Executive
Officer
–
33 years of experience in the industry and 8 years at Dynex
–
Chairman since 2003 and CEO since 2008
–
Managing Member of Talkot Capital, LLC
–
16 years at Merrill Lynch and Salomon Brothers
•Byron
L.
Boston
–
Chief
Investment
Officer
–
28 years of experience in the industry with 4 years as CIO at Dynex
–
13 years managing levered multi-product portfolios at Freddie Mac and Sunset Financial
Resources –
11 years trading MBS on Wall Street
–
3 years Senior Corporate Lending Officer at Chemical Bank
•Stephen
J.
Benedetti
–
Chief
Financial
Officer
and
Chief
Operating
Officer
–
22 years of experience in the industry
–
Employed at Dynex for 17 years in various treasury, risk management and financial reporting
roles –
Managed
Dynex
from
2002
–
2007
–
Began career at Deloitte & Touche
•Portfolio
Management
Team
–
5 member team with a collective 65 years of industry experience with broad and deep skill sets
in both agency and non-agency investment strategies
Experienced team of professionals with a combined 80 years of experience
managing mortgage REITs and mortgage portfolios |
 22
Capital Allocation
(as of September 30, 2011)
(1) Associated financing for investments includes repurchase agreements, securitization
financing issued to third parties and TALF financing (the latter two of which are
presented on the Company’s balance sheet as “non-recourse collateralized financing”). Associated financing for hedging instruments represents the fair value
of the interest rate swap agreements in a liability position.
($ in millions)
Asset Carrying
Basis
Associated
Financing
(1)
/
Liability
Carrying Basis
Allocated
Shareholders'
Equity
Leverage
Target
Notes
•
$1,337.3 mm in Hybrid Agency ARMs
-
Weighted average months-to-reset of 40 months
•
$358.7 mm in Agency ARMs
-
Weighted average months-to-reset of 8 months
Agency CMBS
355.9
(251.3)
104.6
8x
•
Fixed rate agency CMBS
•
Voluntary prepayment protected
•
3Q 2011 weighted average annualized yield of 6.58%
•
~33% “AAA”
and “AA”
rated
•
3Q 2011 weighted average annualized yield of 6.03%
•
~74% “AAA”
and “AA”
rated
•
Loans pledged to support repayment of securitization
bonds issued by the Company
•
Originated in the 1990’s
•
Unsecuritized single family and commercial mortgage
loans
Derivative
Instruments
-
(28.8)
(28.8)
-
•
Consists of interest rate swaps
Total
$2,595.4
($2,240.3)
$355.1
5 –
7x
•
6.1x actual leverage
–
1.0
–
(84.9)
33.8
2 –
3x
(322.8)
67.9
3 –
5x
$173.7
7 –
9x
2.9
4 –
5x
Agency RMBS
Non-Agency
RMBS
($1,542.5)
(10.0)
$1,716.2
12.9
118.7
1.0
Non-Agency
CMBS
Securitized
mortgage loans
Other investments
390.7 |
 23
23
Selected Financial Highlights
(as of and for the quarter ended)
* Diluted EPS Ex-Items was $0.32. EPS Ex-Items, or Dynex’s earnings per share
excluding certain items, excludes from GAAP earnings per share the impact of litigation settlement
and related defense costs of $8.2 million (or $0.20 per diluted common share), a loss of $2.0 million
(or $0.05 per diluted common share) on redemption of non-recourse collateralized
financings, and $1.3 million (or $0.03 per diluted common share) in net accelerated premium
amortization due to an increase in forecasted prepayment speeds during the third quarter
Financial Highlights:
($000 except per share amounts)
Sept 30, 2011
Jun 30, 2011
Mar 31, 2011
Dec 31, 2010
Sept 30, 2010
Total Investments
2,595,574
$
2,591,097
$
2,279,610
$
1,614,126
$
$ 1,064,546
Total Assets
2,633,686
2,656,703
2,359,816
1,649,584
1,091,835
Total Liabilities
2,264,152
2,269,843
1,976,323
1,357,227
866,361
Total Equity
369,534
386,860
383,493
292,357
225,474
Interest Income
21,143
21,065
17,465
11,734
Interest Expense
6,583
6,032
4,734
3,385
3,333
Net Interest Income
14,560
15,033
12,731
10,896
8,401
General and Administrative Expenses
2,335
2,255
2,118
2,911
1,971
Net income
1,532
$
13,594
$
10,280
$
9,646
$
7,022
Diluted EPS
$
0.04* 0.34
$
0.31
$
0.40
$
0.33
$
Dividends declared per common share
0.27
0.27
0.27
0.27
0.25
Book Value per share
9.15
9.59
9.51
9.64
9.80
14,281
$
of 2011. See the Company’s press release issued November 1, 2011 for further
discussion. |