#156839 First Quarter 2019 Earnings Presentation May 1, 2019 X DYNEX CAPITAL INC.#2Safe 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, beliefs, projections, estimates, future plans, strategies, and events, developments that we expect or anticipate will occur in the future, and future operating results or financial condition are forward-looking statements. Forward-looking statements in this presentation may include, but are not limited to, statements regarding future interest rates, our views on expected characteristics of future investment environments and expected economic trends, prepayment rates on our investment portfolio and risks posed by our investment portfolio, our future investment strategies, our future leverage levels and financing strategies, the use of specific financing and hedging instruments and the future impacts of these strategies, future actions by the Federal Reserve and other central banks, and the expected performance of our investments. The words "will," "believe," "expect," "forecast," "anticipate," "intend," "estimate," "assume," "project," "plan," "continue," and similar expressions also identify forward-looking statements. These forward-looking statements reflect our current beliefs, assumptions and expectations based on information currently available to us, and are applicable only as of the date of this presentation. Forward-looking statements are inherently subject to risks, uncertainties, and other factors, some of which cannot be predicted or quantified and any of which could cause the Company's actual results and timing of certain events to differ materially from those projected in or contemplated by these forward-looking statements. Not all of these risks, uncertainties and other factors are known to us. New risks and uncertainties arise over time, and it is not possible to predict those risks or uncertainties or how they may affect us. The projections, assumptions, expectations or beliefs upon which the forward-looking statements are based can also change as a result of these risks and uncertainties or other factors. If such a risk, uncertainty, or other factor materializes in future periods, our business, financial condition, liquidity and results of operations may differ materially from those expressed or implied in our forward-looking statements. While it is not possible to identify all factors, some of the factors that may cause actual results to differ from historical results or from any results expressed or implied by our forward-looking statements, or that may cause our projections, assumptions, expectations or beliefs to change, include the risks and uncertainties referenced in our Annual Report on Form 10-K for the year ended December 31, 2018 and subsequent filings with the Securities and Exchange Commission, particularly those set forth under the caption "Risk Factors". DYNEX CAPITAL INC. 2#3First Quarter 2019 Highlights • Comprehensive income of $0.46 per common share and GAAP net loss of $(0.81) per common share • Core net operating income(¹) of $0.18 per common share • Book value per common share increased $0.22 per share, or 3.7%, to $6.24 at March 31, 2019 compared to $6.02 at December 31, 2018 • Net interest spread and adjusted net interest spread of 0.84% and 1.19%, respectively, for the first quarter of 2019, a decline compared to 0.93% and 1.24%, respectively, for the fourth quarter of 2018 primarily due to lower TBA dollar roll income and the tighter spread between 3-month LIBOR and repo rates ● • Leverage (2) including TBA dollar roll positions increased to 8.5x shareholders' equity at March 31, 2019 compared to 8.0x at December 31, 2018 (1) Reconciliations for non-GAAP measures are presented on slide 29. (2) Equals sum of (i) total liabilities and (ii) amortized cost basis of TBA dollar roll positions (if settled) divided by total shareholders' equity. DYNEX CAPITAL INC. 3#4"Global Risks Are Intensifying" World Economic Forum Global Risk Report 2019 According to the 2019 World Economic Forum's Global Risks Report... "The world is facing a growing number of complex and interconnected challenges-from slowing global growth and persistent economic inequality to climate change, geopolitical tensions and the accelerating pace of the Fourth Industrial Revolution." Youth Perspectives Human Rights Education and Skills Cities and Urbanization ASEAN Future of Energy Environment and Natural Resource Security Future of Food Ageing Values Migration Employment Workforce and ⒸWorld Economic Forum Preparing for Sea- Level Rise Sustainable Development Mental Health The Human Side of Risk Arctic Social Protection Public Finance and Water Technology Information Transformation of Biological Threats Forests Tourism Aviation, Travel and Internet Governance Global Risks Supply Chain and Transport Fourth Industrial Revolution climate change Human Enhancement International Security Biotechnology Digital Economy and Society Computational Confrontation Healthcare Future of Health and Internet of Things Illicit Economy United States Globalization 4.0 China Power and Values Information and Entertainment Cybersecurity Emerging Multinationals DYNEX CAPITAL INC. Electronics European Union Geopolitics Geo-economics Nuclear Security Global Governance Agile Governance International Trade and Investment 4#5U.S. Real Estate Assets Provide Attractive Returns In a world of growing uncertainty and intensifying global risk, we at Dynex believe that generating cash income from United States real estate related assets and the United States housing finance system is the most attractive investment in global capital markets today. ● In our opinion, the optimal portfolio for the environment is a diversified pool of highly liquid mortgage investments with minimal credit risk. Given our view of the environment, we believe long-term investors should seek and favor experienced management teams and Dynex brings significant experience and expertise in managing securitized real estate assets through multiple economic cycles. Investors should focus on the long-term total returns of mortgage REITs and the power of dividends over time. 200 150 100 50 0 -50 -100 2008 2010 2012 2014 2016 Marty 2018 NYSE:DX: 143.93 % Russell 2000: 138.94% S&P 500 Financials: 40.13 % DYNEX CAPITAL INC. LO 5#6Key Takeaways • We are in a low return environment characterized by interest rates that will spend more time in a narrower range than in recent history, large global pools of negative yielding debt, and a global economy still needing the continued support of central banks. • In the context of this view, we believe that investment returns from high quality assets with stable funding such as those in our portfolio offer a compelling opportunity for shareholders • In the near term, the following factors may be a headwind to earnings and dividend coverage: • Basis between 3-month LIBOR and short-term repo rates: repo rates remain elevated due to the Fed's pause at 2.5% on Fed Funds as well as certain technical factors which we anticipate may resolve themselves by 4Q 2019. As the portfolio is structured today, any change in the Fed's policy towards an ease in 2020 will offset the headwind to earnings • Short-term prepayment speeds that could rise due to seasonal factors and the temporary drop in mortgage rates • Refinancing incentive is a key driver of unexpected rises in prepayments. While we have structured our portfolio to minimize refinancing incentive exposure, we anticipate an increase in prepayments. A healthy level of cash-out refinancing is already factored into our prepayment expectations • We have observed that historically, flat or inverted yield curves resolve themselves within a 6-9 month period to a steeper yield curve. We believe the current environment will evolve in a manner over the intermediate term that ultimately supports higher net interest spreads. DYNEX CAPITAL INC. 6#7Key Takeaways Long-term factors that continue to support our business model: • Demographics support a growing demand for cash yield as the world's population ages. This global demand for yield supports the long-term valuations of mortgage REITS. • There is a need for private capital in the US housing finance system as the Federal Reserve attempts to reduce its investment in Agency RMBS and GSE reform may create new investment opportunities. Furthermore, demographics also support the need for more housing in the United States. • Given our view of the environment, we believe long term investors should seek and favor experienced management teams. Dynex brings significant experience and expertise in managing securitized real estate assets through multiple economic cycles. • In our opinion, the optimal portfolio for the environment is a diversified pool of highly liquid mortgage investments with minimal credit risk. • At Dynex we believe dividends are, and will continue to be a key driver of long term total returns for equity holders. DYNEX CAPITAL INC. 7#8Macro Economic Themes Fragile Economic Growth and Low Inflation • A key element of our macro thesis is that the global economy is fragile because growth has been driven by enormous accumulation of global debt and extraordinary central bank intervention. This is happening at a time when global risks are intensifying. • We believe the ability for interest rates to rise rapidly and remain elevated over the long term is limited, driven by central banks, global debt and demographic trends. • Central banks have expressed a desire (and the Fed has attempted) to remove the extraordinary stimulus applied for the global economy to recover from the 2008 financial crisis. The Fed has been unable to continue tightening without negatively impacting growth and financial markets. • At Dynex we have always believed the Fed is data dependent as they have often historically been. • While the demographic trend of global aging is a significant headwind against growth, higher rates and inflation, it creates a sustained demand for cash yield. • Continued central bank support of economies also supports demand for risk assets. • Bouts of volatility must be used to deploy capital when market dislocations create opportunity. • The ECB and Fed have all reversed their course towards quantitative tightening. The BoJ and PBoC are firmly in the camp of adding liquidity to their respective economies to stimulate or maintain growth and inflation trajectories. • Unpredictable government policies inject considerable uncertainty and raise the probability of surprise events that impact markets. • These factors amongst others have led to slowing global growth and inflation below central bank targets. DYNEX CAPITAL INC. 8#9Interest Rate View - Narrower Range More time between 2-3% • Increasing global debt starting in the 1980's was and continues to be a driver of global growth, but it also fueled the 2008 financial crisis. Governments and central banks prevented a complete collapse of the financial system by deploying extraordinary measures. Since then the global debt burden has risen exponentially. • Due to increased global debt levels, we believe it is very difficult for central banks to raise interest rates or tighten financial conditions for long periods of time without negatively impacting the level and pace of growth. This acts as a governor for how high interest rates can ultimately rise. • On the other hand, increasing supply of debt acts as a governor for how low interest rates can go in the absence of a crisis. Global governments have used expansionary fiscal policies funded with debt to stabilize their economies and to manage the demographic shifts from aging populations, disinflationary impacts of technology, and human impacts from shifting cross-border labor utilization. Furthermore lower interest rates have encouraged corporations to borrow more. ● Human conflict is a consequence that governments must contend with and contributes to uncertainty in the global economic environment. • Given all these factors, we believe the 10 year Treasury yield will spend substantial amounts of time between 2-3%. DYNEX CAPITAL INC. 9#10US 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. 16.000 14.000- 12.000 10.000 8.000 6.000 4.000 2.504 2.000 FDTGATPD Index - Mid Price (R1) 104.142 GT10 Govt - Last Price (L1) 2.504 US 10yr Yields % (left axis) Source: Bloomberg Track Annotate News Zoom 1965-1969 1970-1974 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 US Govt Debt to GDP % (right axis) M 2000-2004 2005-2009 2010-2014 2015-2019 DYNEX CAPITAL INC. -110 104.142 -100 -90 -80 -70 -60 -50 -40 -30 10#11Central Banks are Key to Asset Price Levels Rising central bank balance sheets continue to support the spread environment. Since 2008 central banks have added liquidity stimulus via the capital markets through quantitative easing programs. Global Central Bank Liquidity in US Dollar Terms Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Source: Contingent Macro Advisors, LLC Jan-11 Jul-11 Jul-12 Jan-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Current Projection Jan-19 Jul-19 Jan-20 $ trillions 23 Jul-20 DYNEX CAPITAL INC. 21 19 17 15 13 11 9 7 5 11#12Government Policy will Continue to Drive Returns ● Rising central bank balance sheets support the spread environment. • The fragile global economy is vulnerable to shocks. Bouts of volatility will occur and create opportunity to invest capital. Maintaining liquidity and flexibility will be key to driving returns. • The Federal Reserve has created a unique situation with the runoff of MBS from their balance sheet, which we believe presents an accretive long-term investment opportunity. • While spreads may be volatile in the near term, in the long-term, we believe our macro view supports investing in GSE guaranteed assets that will be an attractive fixed income alternative for a broad group of investors. • We believe the limitation of the GSEs portfolios by various regulators and potential legislation is likely and will create future opportunities to invest capital. • Credit risk transfer in multi-family and single family sectors • Other future opportunities from changing GSE footprint DYNEX CAPITAL INC. 12#13Solid Cash Flows in a Fed Tightening Environment (1) Dividends Per Share & Core EPS $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 1Q17 Dividends Per Share vs. Core EPS vs. Fed Funds Rates 2Q17 3Q17 DX Dividends 4Q17 1Q18 DX Core EPS 2Q18 3Q18 Fed Funds Rate (1) Core net operating income to common shareholders on a per share basis. Reconciliations for non-GAAP measures are presented on slide 29. 4Q18 1Q19 -2.5% -2.0% 1.5% 1.0% 0.5% -0.0% DYNEX CAPITAL INC. U.S. Federal Funds Rate 13#14Portfolio Construction Emphasizing Higher Liquidity, Credit Quality, and Flexibility ($ in millions) $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 $3,932 $658 $984 $1,790 1Q18 Fixed-rate Agency RMBS(¹) Adjustable-rate Agency $3,613 $613 $966 $1,919 2Q18 $4,083 $565 $948 (1) Includes 30-year fixed-rate specified pools and TBAs on an if-settled basis. $2,518 3Q18 Fixed-rate Agency CMBS Other non-Agency & loans $4,649 $532 $1,057 $3,013 4Q18 CMBS IO U.S. Treasuries $5,587 $519 $1,540 $3,484 1Q19 DYNEX CAPITAL INC. 14#15Portfolio Construction • We have a diversified portfolio across residential and commercial agency securities. We have benefited from this diversification for multiple years. • Over time, the mix of CMBS and RMBS investments has reduced the negative impact of prepayments on our portfolio returns. ● ● Agency CMBS acts as a cushion in the event of unexpected moves up or down in the level of interest rates High quality CMBS 10 are shorter duration, add yield and are intended to limit portfolio volatility • 90% of our Agency 30 year RMBS fixed rate portfolio has prepayment protection in the form of loan characteristics that limit the incentive to refinance (low balances, high LTV, or geography specific or low weighted average note rates). • We anticipate continuing to opportunistically increase leverage in our high quality asset portfolio, given the funding environment as well as the marginal return offered by such assets. We still do not view this as an appropriate time to invest in credit sensitive assets that are leveraged with short term financing. • Our current portfolio construction allows us the flexibility to rapidly pivot to other opportunities when they arise. DYNEX CAPITAL INC. 15#16Appropriate Leverage on Highly Liquid Assets Liquid assets offer tremendous flexibility to respond to market shocks by being able to quickly adjust the size of our balance sheet. Agency RMBS TBA securities have a low bid-offer spread and can be traded in block size of $500mm to $1 billion with low market impact. • Agency CMBS and pools can be traded with bid-lists and have wide participation across fixed income investors and dealers. "After 10 years of concentrated effort in the public and private sectors, the system is now much stronger, with greater capacity to function effectively in stressful times." - Jerome Powell November 28, 2018 speech on financial stability • Financial regulators have strengthened repo market infrastructure for liquid assets to provide enhanced durability of financing versus 5 and 10 years ago. • More capital in the financial system as regulators forced banks to reduce leverage, hold more capital, increase liquidity on the balance sheet. • The Federal Reserve is more involved in the securities markets today. • Global regulators are intensely focused on coordinating to avert another systemic financial collapse. • Recent developments like the Capped Contingency Liquidity Facility and intra- day daylight overdraft protections further enhance system durability for liquid assets. DYNEX CAPITAL INC. 16