# LETTER TO
SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_DX_2021/NYSE_DX_2021.mmd` · pages 3-9_

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LETTER TO
SHAREHOLDERS

Dear Fellow Shareholders,

At Dynex our goal is to make your life better by earning a steady income through the careful stewardship of your capital for the long term. Over the last 3 years, we have experienced unique and volatile markets driven by economic, social, and geopolitical events. We have structured our portfolio to weather these events through disciplined, global, top-down macroeconomic analysis. This process of setting investment strategy with a long-term focus, has resulted in preservation of capital while generating solid returns. I am proud of our 3-year total economic return through 2021 of over 28%, the top performance in our 15-member peer group, and well above investment alternatives with similar risk profiles, making Dynex stock a compelling long-term investment.

Through the first quarter of 2022, it is clear that the global environment and markets will continue to experience turbulence and uncertainty. The top factors in play currently include the Russian invasion of Ukraine, the continued unpredictability of geopolitical risks and consequences this conflict may bring. This is an addition to uncertainty around actions by the Federal Reserve to combat inflation and the corresponding impact on global risk.

The Dynex team has significant experience in navigating this type of environment. Our global perspective and long-term track record has served us well and continues to be a differentiating factor in our performance. The team closely monitors the markets on a daily basis with a flexible mindset, and disciplined, patient focus.

As I write this note, I believe we are in the midst of what I call "a big moment in history". This is a pivotal moment, with tremendous long-term implications on the global economic, social and political situation. It reinforces our view that returns will continue to be primarily driven by changes in government policy,

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against a backdrop of an increasingly complex global environment. As your fellow shareholders, the Dynex team and I remain focused on creating value and managing for the long term. I am confident in our ability to take advantage of the market opportunities that we believe will be created in the coming year to position us well for the future.

## 2021 - Stability and Flexibility in a Volatile Environment

In 2021, the market experienced many fits and starts throughout the year, highlighting the need for a disciplined approach based on a short, medium, and long-term horizon. We maintained a flexible portfolio, and, more importantly, a flexible mindset throughout the year – allowing us to respond to market events in a deliberate and thoughtful way. Throughout 2021 we strongly believed that better opportunities to invest our capital would evolve. So, we remained patient while preparing for these opportunities, by keeping our leverage low and building our liquid capital base. I am proud that in such a volatile market environment our team was able to grow our common equity base by over $200 million, protect our book value, and maintain our $1.56 per share dividend. We recognize the tremendous value that the cash flow from a stable

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dividend provides to our shareholders and this drives our focus on generating attractive long-term total economic returns while seeking to protect book value through market volatility.

## 2022 – Standing Ready to Take Advantage of New Market Paradigm and Opportunity

In the early weeks of 2022, we started to see the signs of a more favorable investment environment, as the largest non-economic buyer of Agency MBS and US Treasuries (the U.S. Federal Reserve Bank) prepared to exit the market in an unprecedented fashion – removing both monetary stimulus and liquidity support. We expect an investment environment where asset yields move higher even as financing costs rise, which should lead to an even more attractive return environment for Dynex.

As we move through 2022, we recognize that we are in an evolving global situation, requiring thoughtful and disciplined assessment of risk and reward. The Dynex team is focused on exactly this balance, and we believe we are well positioned to take advantage of return opportunities, with low leverage and a strong liquidity position. We have begun to see prices adjust across various risk assets and we expect to see further spread widening during the year. There is tremendous power and upside in the headroom for expansion of the balance sheet which we estimate at 2-4 turns of incremental leverage capacity. As we move into this more favorable return environment, we look forward to building a solid stream of cash flow that will position us to deliver strong performance in the long term.

## Great things in business are never done by one person. They're done by a team of people.
– Steve Jobs

What makes Dynex unique? Our unwavering commitment to ethical principles, our philosophy that starts with risk management and ends with disciplined capital allocation, our sound strategy based on a strong macroeconomic foundation and most importantly our skilled and experienced people who work day in and day out to protect our capital and generate returns. The Dynex team has navigated markets since 1985, learning all the way through the 1987 Stock Market Crash, the 1998 Long Term Capital Crisis, the 2008 Great Financial Crisis, the 2013 Taper Tantrum and most recently, the pandemic turmoil of March 2020. In the last three years, the team's combined experience and skills contributed significantly to performance and will continue to differentiate us in the future. I am most proud of the flexible mindset that the team embraced as well as their ability to think and re-think decisions and impacts as events unfolded. We also operated

CUMULATIVE ECONOMIC RETURN (%)

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with integrity, living the Dynex values with a firm commitment to supporting our communities.

We are champions of diversity in our teams and on our Board of Directors, and I have worked to build a culture that celebrates and encourages differences in skills, background, experience and thought. The benefit of this diversity cannot be overstated, and I believe is one of the keys to Dynex's long-term success.

The experience and individual talents of our Board Members must also be underscored. Their foresight and complementary strengths bolster our management team and sets Dynex well on its way to building our 30-year vision for creating and growing a multigenerational organization that can stand the test of time.

## Always an Eye Toward the Future

While navigating a volatile environment in 2021, we did not take our eye off the long-term growth goals of the company. Last year, I communicated to you a 30-year vision for Dynex which I remain focused on delivering. To that end, we accretively raised over $200 million in equity capital in 2021, increasing our scale and solidifying the base on which we will build our future returns. In addition, we continue to invest in our people, processes, and technology. We believe that technology will continue to significantly impact the world of asset management, and we are growing our relationships with the right technology partners to keep a competitive edge as the industry continues to change and evolve. At Dynex, we also recognize a broader responsibility to the future for our stakeholders – our employees, counterparties, community, and shareholders. This is clear in our corporate mission: to make lives better by being careful stewards of individuals' savings, providing capital for home financing, and strengthening the communities where we do business. Highlighting our dedication to continued improvement in ESG and keeping with meeting our ESG goals, in 2021 we posted our inaugural disclosures under the Sustainability Accounting Standards Board ("SASB") Conceptual Framework, which can be found on our corporate website.

In closing, I am very pleased with our 2021 performance, which demonstrated the benefits of our top-down macroeconomic approach, our experienced management team, and our unrelenting focus on protecting our shareholders' capital while delivering long-term economic returns. I am optimistic and excited about the opportunities that lay ahead of us in 2022.

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## BYRON L. BOSTON

Chief Executive Officer and Co-Chief Investment Officer
March 2022