DYNEX CAPITAL INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - DYNEX CAPITAL INC	d298842d8k.htm

Dynex Capital, Inc.

Value Forum

InvestFest 2012

February 11, 2012

Exhibit 99.1

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.

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 2/7/2012 unless indicated)

NYSE Stock Ticker

Shares Outstanding

54,117,772

Quarterly Dividend/Dividend Yield

$0.28/12.3%

Share Price

$9.14

Price to Book (based on BV per share as of 9/30/2011)

1.0x

Market Capitalization

$494.64 million

Dynex at an Inflection Point

•

Consistent Core Investment Strategy Since 2008

–

Short duration, high quality, and modest leverage has produced stable returns and

increasing dividends

–

Opportunistic asset allocation has avoided investment “landmines”

–

Diversified asset opportunity

•

Current Investment Opportunity

–

Federal Reserve recent ZIRP extension to 2014

–

Non-Agency sector attractive with 16-20% low leverage returns

–

Agency MBS spreads continue to offer attractive returns given the current macro

environment

–

Selective securities will help mitigate prepay risk, credit risk, and extension risk

•

Track Record

–

Dynex has delivered an annualized total return of 11.5% since 2008, assuming

reinvestment of dividends (source: Bloomberg)

–

Book value has grown from $8.07 in Q1 2008 to $9.15 at Q3 2011

–

Maintained consistent investment strategy without sacrificing risk for return

–

Opportunistic capital raises have increased core earnings with little dilution

Performance Trends

$0.36

$0.28

$0.15

2.90%

2.69%

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

Diluted EPS (LHS)

Dividends (LHS)

G&A % of equity (RHS)

$294 million in equity capital

raised since December 2010

$0.35 -$0.37**

See Footnotes “*”

and “**”

on Slide 6

4.59%

Summary of Results

$0.28

$0.25

$0.27

$0.35-$0.37

$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*

$9.18-$9.22**

$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

Q4-2011

Book Value Per Share

2.43%

2.45%

2.68%

3.07%

2.98%

2.53%-2.59%**

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

Q4-2011

15.3%-16.2%**

13.61%

16.17%

13.20%

14.10%

13.70%

10%

12%

14%

16%

18%

20%

Q3-2010

Q4-2010

Q1-2011

Q2-2011

Q3-2011

Q4-2011

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 (EPS Ex-Items). EPS Ex-Items for Q3-2011 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 for Q3-2011 was $0.04.

**Year end 2011 projected range

Investment Portfolio Review

•

Our portfolio is constructed to perform well despite volatile markets as we

have focused on high credit quality short duration assets.

•

We continue to maintain a selective approach to adding assets to

help

minimize prepayment risk.

•

We allocated our prior two capital raises between agency and non-

agency securities backed by both residential and commercial loans.

•

As spreads widened in 2011 we rotated our marginal investments into the

CMBS sector with our main focus on the multi-family marketplace.

•

There is a great opportunity to grow this strategy further as CMBS

spreads continue to be attractive and agency securities offer mid-teens

returns.

•

We have confidence in our risk profile as we have steadily generated

double-digit returns without extending far out of the risk spectrum.

•

The DX portfolio has weathered multiple market challenges since 2008

including high volatility, lower interest rates, and a faster prepayment

environment, the FN/FH buyouts of 2010, wider non-agency securities

spreads.

Portfolio Comparisons

(as of Q3 2011 except where indicated)

100%

51%

64%

71%

81%

80%

96%

20%

19%

29%

49%

36%

NLY

AGNC

HTS

CYS

CMO

ANH

ARR

CIM

MFA

IVR

TWO

MTGE

Agency

Non-Agency

Agency

Hybrid

Source: J.P. Morgan (describing figures as based on company filings, press releases and presentations)

DX Portfolio Detail

(as of September 30, 2011)

Non-Agency

CMBS/Loans

Non-Agency

RMBS/Loans

Agency RMBS

66%

Agency CMBS

14%

CMBS

32%

RMBS

68%

Agency/Non-Agency Breakdown

Residential/Commercial Breakdown

OUR GOAL IS TO LIMIT

CREDIT, INTEREST RATE,

PREPAYMENT, AND

EXTENSION RISK IN OUR

INVESTMENT PORTFOLIO

High Credit Quality Portfolio

Below A

AAA

90%

As of September 30, 2011

As of June 30, 2011

*Agency securities are considered AAA rated as of the dates presented

Below A

AAA

94%

Interest Rate Risk Comparisons

Change in Value from Change in Rates

Portfolio Value

(2)

Equity Value

(3)

Ticker

+50

+75

+100

+75

+100

AGENCY MBS

NLY

6.3

-1.80%

-2.50%

-15.8%

ANH

7.0

-1.0%

-7.0%

HTS

7.9

-0.35%

-1.45%

-11.5%

AGNC

7.6

-0.2%

-0.8%

-6.08%

CYS

8.1

-2.14%

-3.25%

-26.3%

ARR

9.5

-0.79%

-1.74%

-16.5%

DIVERSIFIED MBS

6.1

-0.50%

-1.20%

-7.3%

IVR

5.3

-0.23%

-0.73%

-6.6%

MFA

2.9

-0.16%

-0.44%

-3.5%

TWO

3.8

-0.20%

-0.30%

-2.3%

CIM

1.8

-2.50%

-3.79%

-6.8%

(1) As disclosed in each company’s 10-Q for quarter ended September 30, 2011. Ratios are dependent on each company’s method of calculation.

(2) As of September 30, 2011, as disclosed in each company’s 10-Q for quarter ended September 30, 2011. Percentages are dependent on each company’s

assumptions, as disclosed in their 10-Qs.

(3) )

Figure shown for TWO is disclosed in 10-Q for quarter ended September 30, 2011. All others equal estimated percentage decrease for the +75/+100 scenarios

multiplied by estimated company leverage, and are meant to show the potential change in equity value for the corresponding change in rates.

Estimated

Company

Leverage

(1)

Extension Risk

(as of September 30, 2011)

FN 30 year

FNCI 15 year

5/1 ARM

15 CPR/CPB

2 CPR/CPB

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

Portfolio Snapshot

(as of September 30, 2011, unless indicated)

$50,000

$100,000

$150,000

$200,000

$250,000

prior to 2000

2000-2005

2006-2008

2009 or

newer

Prepayment Performance

through December 31. 2011

Dollar Premium Prepayment Exposure

12%

14%

17%

22%

32%

10%

15%

20%

25%

30%

35%

<15

16-40

41-60

61-84

85-120

120-125

125-360

Post/near

reset*

Selected

specified

pools

41%

Explicit

prepayment

protection

51%

21.5%

21.2%

21.5%

17.5%

17.9%

17.6%

17.8%

14.6%

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

Non-Agency CMBS Vintage Portfolio

by year of origination

Portfolio Maturity/Reset Distribution

Trading Comparables

14.10%

14.9%

4.1%

12.2%

16.1%

16.4%

13.4%

3.40%

Dividend Yield

Excess return

Debt to equity (x)

Dividend Yields

CIM

MFA

IVR

TWO

MTGE

Agency

REITS

Mean

1.8x

3.4x

6.5x

5.6x

6.0x

7.7x

Source: J.P. Morgan (describing figures as based on SNL Financial, FactSet and company filings). Prices per share for dividend yield as of

February

3, 2012; all other data as per most recent publicly available GAAP results

For DX only, Excess Return

represents earnings retained and

not paid in a dividend

Insider Ownership Comparison

7.10%

0.75%

0.53%

0.21%

0.11%

MFA

TWO

CIM

IVR

Source: Bloomberg

Potential Investment Returns

(as of February 7, 2012)

Investment

Range of

prices

Range of

yields

Range of net

spread to

funding

Range of

ROEs

Agency RMBS

103-108

2.0%-

2.8%

1.5%-2.3%

12%-19%

Agency CMBS

103-115

2.9%-3.4%

1.3%-1.9%

14%-18%

Non-Agency ‘A’

–’AAA’

RMBS

85-104

3.0%-8.5%

1.5%-4.0%

12%-20%

Non-Agency ‘A’-

‘AAA’

CMBS

88-109

4.5%-6.0%

2.2%-3.9%

15%-19%

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.

Why Dynex

6.94%

0.75%

0.53%

0.11%

0.21%

MFA

TWO

IVR

CIM

High Insider Ownership

CIM

MFA

IVR

TWO

MTGE

Agency

REITS

Mean

Low Debt-to-Equity

(1)

Below A

AAA

90%

High Credit Quality Portfolio

14.10%

14.9%

4.1%

12.2%

16.1%

16.4%

13.4%

3.40%

CIM

MFA

IVR

TWO

MTGE

Agency

REITS

Mean

Dividend Yield

ROE

Competitive Returns

(1)

1.8x

3.4x

6.5x

5.6x

6.0x

7.7x

(1) Source for non DX Info: J.P. Morgan (SNL Financial, FactSet, Company filings), Market

data as of February 3, 2012. Financial data as per most recent available GAAP results

Source: Bloomberg

As of September 30,2011

Why Dynex

Excellent long term investment strategy driving solid performance record

Short-duration, high credit quality portfolio constructed to reduce exposure to

interest rate, prepayment, extension and credit risk

Balance sheet positioned to perform through volatile 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

Complementary investment opportunities exist with attractive return profiles

consistent with our investment philosophy

Opportunistic capital raises have increased shareholder value

APPENDIX

Management Team

•Thomas

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

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

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 83 years of experience

managing mortgage REITs and mortgage portfolios

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

• 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)

• 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

Selected Financial Highlights

(as of and for the quarter ended)

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

14,281

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

0.25

Book Value per share

9.15

9.59

9.51

9.64

9.80

* 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

of 2011. See the Company’s press release issued November 1, 2011 for further discussion.

Key Prepayment Metrics

for Selected Agency RMBS Specified Pools

$269.0

$292.0

$297.0

$225.0

$250.0

$275.0

$300.0

All ARMs

5/1 ARMs

Average Loan Size

41.0%

58.0%

61.0%

25.0%

35.0%

45.0%

55.0%

65.0%

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%

All ARMs

5/1 ARMs

67.0%

48.0%

45.0%

10%

20%

30%

40%

50%

60%

70%

All ARMs

5/1 ARMs

Investor Property

Interest Only Loans

Source for Non-DX Metrics : J.P. Morgan

($ in thousands)

(as of September 30, 2011)

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