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Edited Transcript of DX earnings conference call or presentation 27-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Dynex Capital Inc Earnings Call

Glen Allen May 6, 2017 (Thomson StreetEvents) -- Edited Transcript of Dynex Capital Inc earnings conference call or presentation Thursday, April 27, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alison G. Griffin

Dynex Capital, Inc. - VP of IR & HR

* Byron L. Boston

Dynex Capital, Inc. - CEO, President, Co-CIO and Director

* Smriti Laxman Popenoe

Dynex Capital, Inc. - Co-CIO and EVP

* Stephen J. Benedetti

Dynex Capital, Inc. - CFO, COO, EVP, Treasurer and Secretary

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Conference Call Participants

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* David Matthew Walrod

JonesTrading Institutional Services, LLC - MD and Head of Financial Services Research for New York Office

* Eric Hagen

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Joshua Hill Bolton

Credit Suisse AG, Research Division - Research Analyst

* Mickey Max Schleien

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst

* Trevor John Cranston

JMP Securities LLC, Research Division - Director and Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Dynex Capital First Quarter 2017 Earnings Conference Call. (Operator Instructions) It is now my pleasure to turn the floor over to Alison Griffin, Vice President, Investor Relations. Please go ahead.

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Alison G. Griffin, Dynex Capital, Inc. - VP of IR & HR [2]

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Thank you, Lorrie. Good morning, everyone. And thank you for joining us. With me on the call today, I have Byron Boston, CEO, President and Co-CIO; Smriti Popenoe, EVP and Co-CIO, as well as Steve Benedetti, EVP, CFO and COO. The press release associated with today's call was issued and filed with the SEC this morning, April 27, 2017. You may view the press release on the company's website at dynexcapital.com under Investor Center as well as on the SEC's website at sec.gov.

Before we begin, we wish to remind you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, expect, forecast, anticipate, estimate, project, plan and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. The company's actual results and timing of certain events could differ considerably from those projected and/or contemplated by those forward-looking statements as a result of unforeseen external factors or risks.

For additional information on these factors or risks, please refer to the annual report on Form 10-K for the period ending December 31, 2016, as filed with the SEC. The document may be found on the company's website under Investor Center as well as on the SEC website. This call is being broadcast live over the Internet with a streaming Slide Presentation, which can be found through a webcast link under Investor Center on our website. The slide presentation may be referenced by clicking on the Dynex Capital First Quarter 2017 Earnings Conference Call link on the Presentation page of the website. I would now like to turn the call over to Byron Boston.

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [3]

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Thank you very much, Alison. Good morning. I will be talking from our quarterly slide deck, so please follow along. Some of my comments today will be familiar to some of you. However, we are recognizing a shift in mortgage REIT stock ownership across the entire industry. So we want to ensure that those who are listening to our Dynex conference call for the first time will get a clear idea of the principles that guide our decision-making on a daily basis and how we continue to allocate capital in a very disciplined manner.

First, let's turn to Slide 3 and start with our results. For the first quarter of 2017, we had a solid quarter generating economic return on book value of 7.2%, driven by an increase in book value of 4.7% and we paid an $0.18 per share dividend. We also generated core net operating income of $0.15 per common share. And our balance sheet leverage was 5.8% at the end of the first quarter. Here are our key thoughts regarding our first quarter results. We once again benefited from our diversified balance sheet. Our increase in book value was driven by our portfolio of CMBS interest-only securities. Spreads tightened on these assets throughout the quarter. We have been a steady investor in this product sector for the past 7 years as this strategy has consistently provided excellent return opportunities.

We view this product sector as a core part of our portfolio because it is higher yielding, AAA-rated, short-duration security. The difference between our core earnings of $0.15 and our dividend payment of $0.18 was mainly driven by catch-up premium adjustments on our Agency Hybrid adjustable rate portfolio. Over the past year, the unanticipated prepayments have steadily increased. Many of you know this product has been a core bedrock of our portfolio over the past 9 years. However, due to the reduced returns we've not chosen to invest marginal capital in this sector and we will continue to either allow the portfolio to run off or reallocate our capital to other agency backed mortgage sectors.

It is important to note that our earnings level is a reflection of our risk posture. Our assessment of the current environment has kept the size of our balance sheet down. And we're underlevered for a high-quality strategy of Agency and AAA-rated securities. Our current capital base could support a significant increase in earning assets, depending on the risk of the assets and spread levels at the time of investment.

Please turn to Slide 4. We want to remind you that our risk posture and approach to the markets comes from our long history and deep experience managing securitized products within a mortgage REIT structure. Over the past 29 years, Dynex Capital has had virtually, at some point, every type of business model associated with housing finance. Dynex has operated across the entire spectrum of the mortgage value chain from the saver to the borrower. We have been an originator of both residential and commercial loans, a servicer in both sectors and an investor in every securitized asset class from RMBS, CMBS, ABS and MSRs. As such, we have played a critical role in providing financing for homeowners and real estate investors through multiple market cycles. In the most recent business cycle, since the crisis, we have deliberately chosen to operate on the right-hand side of this spectrum, closer to the savers.

Please turn to Slide 5. Today, our strategy is focused on securities with the highest credit quality and the highest level of liquidity, as shown in the upper left-hand section of this page. This strategy reflects our view of global risk and return opportunities.

Please turn to Slide 6. Let me emphasize that we are not an Agency residential REIT. We have run a diversified portfolio since inception in 1988. Today, we have chosen to move our capital allocation up the credit curve to the highest quality assets, because credit spreads are tight across most fixed income asset classes. And we're concerned about the overall global risk environment. What is really important to note on this chart, is how our portfolio has evolved since 2010. We are very disciplined in our capital allocation and our assessments of risk and return. Note the 3 points in time highlighted in these pie charts. You can see that our portfolio has changed over the past 9 years. Today, our invested capital is diversified. In the CMBS sector we own, either securities with Agency guarantees or AAA ratings. And within the RMBS sector, as our Agency ARM portfolio runs off, we intend to invest in Agency fixed-rate securities. We view these securities as the largest, most liquid, highest credit quality and some of the best return opportunities today.

Furthermore, by investing in these more liquid securities, we will have the flexibility to reallocate capital as other return opportunities develop.

Now please turn to Slide 7. The concepts on this slide have not changed since I joined Dynex in 2008. Our key tenets, disciplined capital allocation, disciplined risk management and diversification will drive our long-term results. Let me now explain our macro view which underpins our overall risk posture, which you can see on Slide 8. Now I'll just quickly summarize. Global economic fundamentals have improved. The government policy will continue to drive returns. And this is a big one: global debt and U.S. debt are at all-time high levels, creating a fragile global economy vulnerable to exogenous events. Globalization has created an irreversible connectedness between our economy and rest of the world and credit spreads are tight. 3 key points to make regarding the Federal Reserve Bank on Slide 9.

We are respecting the fact that the composition and culture of the Federal Reserve Bank could change over the next 2 years. This fragile economic environment increases the potential of a tightening-easing cycle by the Fed similar to 1994 to 1995. Also, the probability of a change in the Fed's mortgage-backed securities and treasury securities portfolio reinvestment strategy has materially increased. Given these factors about the Fed and the other global macro-economic factors on Slide 8 and on Slide 10, I want to point out that we are very concerned about a complete round-trip where rates rise and are not sustainable at the higher levels as we witnessed in 1994.

I'm now going to turn to our risk posture given this macroeconomic background on Slide 11, and I'll go through our 4 main sectors of risks that we're thinking about. Interest rate risk. We have structured the portfolio to be more neutral with respect to market value fluctuations from changes in interest rates. There are many global factors that will ultimately determine the level of rates. We expect to dynamically and opportunistically manage our portfolio.

Spread risk. Spreads on all major fixed income asset classes are close to the tightest levels since February 2016. Volatility in high quality asset spreads, particularly in Agency MBS, has been muted by Central Bank quantitative easing activities. We expect assets spreads to be vulnerable to widening due to changes in central bank involvement in these markets, which would present a great opportunity to add assets.

Credit risk. We remain invested in highest quality assets, which includes Agency and AAA-rated securities. Credit spreads on lower rated tranches have tightened substantially and are vulnerable to economic weakness and sector related default risk. This risk is further exacerbated when these positions are funded with short-term repo, a risk, we do not believe offers long-term value at these levels.

Finally, liquidity and leverage risk. We're focused on high-quality earning assets that are highly liquid, which gives us the flexibility to reallocate capital. We will also dynamically manage leverage and liquidity to opportunistically increase the size of our portfolio, which we expect to ultimately drive earnings.

Now please turn to Slide 13. Let me reiterate our thoughts on the tailwinds that we see for Dynex. U.S. demographic trends are driving a significant increase in household formation and, therefore, more demand in multifamily and single-family housing. Global demographic, aging trends are driving the demand for income and yield investments. As the government's participation in the housing and finance system wanes, there is a large need for private capital and expertise in the housing finance system. And finally, there is strong potential for an improved regulatory environment.

And finally, if you turn to Slide 14, let me summarize. We believe this is an environment where capital preservation is important. And having the flexibility to strategically deploy capital is also important. We manage our business looking out past the horizon of the next 2 quarters. We are investing in capital and current opportunities with an eye towards long-term returns. We're going to be very judicious in this environment, especially considering the U.S. Federal Reserve Bank and the European Central Bank balance sheet policies could really affect asset pricing levels. You can expect us to be investing in the current environment, looking for opportunities to strategically grow our balance sheet with an emphasis on the long term.

We will conclude, as we always do, with our long-term charts which is simply meant to display the power of dividends over time. We believe above-average dividends will drive returns over several years in the future. That's one reason that the management and the board continues to be very comfortable investing in the stock of Dynex Capital.

With that, operator we can open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first person comes from the line of Mickey Schleien of Ladenburg.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [2]

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I wanted to start by asking about your globalization theme. I'm curious whether -- or what factors you're monitoring to continue to support your globalization theme given the administration's America-First strategy?

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [3]

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Mickey, can I ask you a favor? You were very faint. We could barely hear the question. Could you repeat it again?

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [4]

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Let me try a different phone. Is that better?

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [5]

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That's much better.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [6]

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Byron, what I was saying, what factors are you monitoring to continue to support your globalization theme given the new administration's America-First strategy?

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [7]

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Well one of them -- that's a great question. Where we find ourselves since the election is a psychological move in asset price levels. Before the election, the economy actually, both in Europe and in U.S. was improving, but the big move after the election was completely psychological in anticipation of policy moves that would produce growth, employment et cetera, et cetera. So we're obviously monitoring what's happening in Washington, D.C. It makes for a very uncertain environment to predict the policy given the huge stratifications amongst our overall -- or our country in terms of our views for the future, what can actually get done in Washington, D.C.

So as we said, government policy will drive returns. And so we want to continue to follow along what happens in Washington, D.C. We'll continue to track the balance sheets of both central banks, of the ECB, in fact more than just those 2, also the Japanese. But the ECB's balance sheet and the Federal Reserve. We'll also be tracking who will be the new Fed governors. We've got 5 new governors that potentially will be in place by the end of 2018. We think that could have a significant change in the overall culture at the Fed.

We'll be tracking global trade, global trade flows, because that's been a big part of what the current administration has talked about. The -- one fact that has impacted us. So let's say we didn't have the election, we had recognized that actually the economic environment had gotten better last fall. But when we say better, it's still extremely fragile. So we continue to try to monitor the potential for shocks, surprising events that will catch most people off guard. That's been our opinion since the beginning of 2014. At that point we said, we felt the global is more complex and very vulnerable to surprises. And since 2014, that's all we've had. So that's the way we're managing our book of business. Monitoring a variety of factors and recognizing that we must be flexible and we must be nimble.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [8]

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You mentioned the Fed and that actually is part of my next question. What assumptions has your team made in your investment strategy about the scope and timing of the Fed potentially shrinking its MBS portfolio?

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [9]

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It's a -- this is a -- So the first point. Here is the #1 part of this, and why I also talk about 1994, '95. The Fed is in uncharted territory. This is completely new. So no one really knows, they don't know and nor does anyone outside of the Fed really did know and understand what will be the impact or how they will ultimately proceed. They're trying to figure that out. So we recognize that is very uncertain.

The reason we like to think about 1994, 1995, a lot of times when we talk about the Fed, we ignore the fact that there's been enormous policy errors that have been made in history. And so let's just continue to recognize here at Dynex Capital, the risk of a policy error by the Fed, especially, if you change the personnel at the Federal Reserve Bank. Now imagine this, you saw the personnel change in Washington, D.C. in the executive branch. And you saw what happened over the first month that they were in office. And how many -- you look and say, "Oh my Gosh, what's going on." (inaudible) Everyone watched what was happening.

Now imagine, 5 new Fed governors coming into position where -- in fact, you may be placing people there who maybe have the same attitude. We are going to do something different than the prior Fed governors. So we really don't know. We're in uncharted territory, that's #1 part of what we have baked into our thought process. And then our investment teams have more specifics in terms of assuming, look, let's take what the Fed has said, let's use that as a baseline.

They've talked about wanting to reduce the balance sheet at the end of this year. If they do, we think that, that will have the potential to widen our fixed-rate assets spread of the Agency side. We believe that will be a great opportunity because today there's some decent returns offered in that sector. We think they will better if the Fed really, truly starts to exit the mortgage market. And that's a great opportunity for mortgage REIT -- for the mortgage REIT industry as a whole and any other investors in these securities.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [10]

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That's very helpful. One last follow-up question, more of a modeling question. Was the higher compensation expense accrual in the quarter due to factors like improved economic return for the company? Or was there something nonrecurring in nature for the quarter?

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Stephen J. Benedetti, Dynex Capital, Inc. - CFO, COO, EVP, Treasurer and Secretary [11]

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It's Steve Benedetti. That was more of just the timing related to the beginning of the year and some true-up activity from the prior year. So I would look at that more as a nonrecurring.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research and Supervisory Analyst [12]

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Okay. So if we look at last year on average, we can get a sense of what the next 9 months might look like. Is that right?

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Stephen J. Benedetti, Dynex Capital, Inc. - CFO, COO, EVP, Treasurer and Secretary [13]

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Yes, that should work.

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Operator [14]

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Your next question comes from the line of Trevor Cranston of JMP Securities.

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Trevor John Cranston, JMP Securities LLC, Research Division - Director and Senior Research Analyst [15]

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Follow up on the question about your comments, Byron, on the fixed-rate Agency securities. We've heard a variety of views on what spreads might do when the Fed eventually decides to begin reducing its balance sheet. Can you comment on how much of a spread widening you think you'd need to see before they would be attractive enough to add in a material way to Dynex's balance sheet?

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [16]

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So yes. I will. I'm going to emphasize the most interesting point about this Fed balance sheet is that they're in completely uncharted territory. But we do view this opportunity of a potential spread widening as an opportunity. I'm going to let Smriti get specific about the ranges of spreads that we think and that are out in the marketplace in anticipation of this.

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Smriti Laxman Popenoe, Dynex Capital, Inc. - Co-CIO and EVP [17]

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Right. And I think so in terms of just the scenarios that we're considering, Trevor, we've got anywhere between for a very slow path, a very telegraphed path, relatively low impact on spreads. Maybe 5 basis points of widening. Surprises in terms of what the market anticipates, I think you could get initial widening of 10 basis points, 15 basis points, something like that. And then really, anything where -- at the end of the day it isn't that the Fed's reducing its balance sheet that's going to drive spreads wider necessarily.

What ends up happening is that there are bonds that are going to hit the market, and there aren't enough investors to take up that incremental supply. And so the way we're thinking about is, who's going to be the marginal investor away from the Fed and where do those spreads eventually settle out without the impact of a central bank or a government sponsored enterprise in that market. And we've said repeatedly on these calls, that the risk in this market in the 30-year fixed-rate market is the exit of the Fed.

Now having said that, they continue to remain the most liquid securities in the world, I would say. They continue to be government guaranteed effectively with the implicit guarantee for the GSEs. And at this point, they are offering somewhere in the low-teens to mid-teens returns. So you have to consider that in your calculus. At this point we think they're modestly attractive; to the extent that they widen 10 or 15 basis points, they would be more attractive. And that's honestly the reason for why we're entering this environment with the balance sheet and the liquidity position that we have. And as Byron mentioned, we have flexibility and the ability to sort of redeploy that -- any capital we currently have. And that's effectively what our strategy is. So we've heard things, the range is anywhere from 5 to 20 basis points wider. And none of those are, in our opinion, reasons to be afraid of the sectors in any way, shape or form. They just represent an opportunity.

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Trevor John Cranston, JMP Securities LLC, Research Division - Director and Senior Research Analyst [18]

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Then Byron, I think you made a comment earlier about the primary drivers of the GAAP between the dividend and core earnings being the premium amortization catch up on the Agency RMBS portfolio. And I saw in the press release the disclosure of the $0.9 million catch-up. I don't recall seeing that disclosure from you guys before. Is that new and is that something that will be a regular part of the quarterly results going forward? Or is there some reason why that was a sort of a one-time adjustment that's only going to happening this quarter?

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Stephen J. Benedetti, Dynex Capital, Inc. - CFO, COO, EVP, Treasurer and Secretary [19]

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Trevor, this is Steve. We haven't sort of referred to it in that fashion. But that's the typical nomenclature that folks are using. Everybody seems comfortable with that. But we've had amortization adjustments related to changing speeds in our release before. Sometimes they get sort of offset by prepayment activity on the CMBS and CMBS IO book. We'll do a going forward to the extent we have these adjustments, we'll make sure we highlight them clearly. I would look at this one as it's a combination of we had some faster speeds this quarter than we had modeled at the end of last quarter. And then we modestly took up longer-term speeds, which drove that adjustment.

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [20]

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And Trevor, let me add one thing, another fact to understand here is that this portfolio has performed phenomenally from a prepayment perspective. We were very selective back in 2008, '09, '10, '11 when many of these securities were repurchased over 3, 4 years ago. We purchased securities with interest only features on them, which decreased the probability that we would experience prepayments. So the portfolio has done well. But what we've looked at over the last 12 months is that prepayment speeds have increased more than anticipated. And as such, yes, you are seeing that there, but we haven't really experienced this type of prepayment experience in the past. And with our diversified book of business, what has always happened, is we get some prepayments on the residential side of the book, where the CMBS portfolio has provided a positive offsetting of those prepayment experience. But if you look at the ARM book, not only at Dynex, if you look it across the entire ARM sector of the U.S., it's changed, it's a different sector now which is why we are not viewing that sector as an opportunity for marginal capital like that.

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Operator [21]

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Your next question comes from the line of Doug Harter of Credit Suisse.

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Joshua Hill Bolton, Credit Suisse AG, Research Division - Research Analyst [22]

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This is actually Josh on for Doug. You mentioned you're currently running a lower level of leverage given your asset mix. Can you talk about maybe some of your target leverage levels that you think about, especially in the context of your macro outlook? And maybe what would have to change for you to get comfortable increasing your leverage from here?

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [23]

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Let me just say that, if you were to -- let's say if you were to compare the way we may have thought 5 years ago to now, when we had lower credit assets on our balance sheet, we had BBBs single-A rated assets, we would have been hovering, we would have been thinking 6x leverage as being in or around 5.5x or 6x an appropriate level for that type of balance sheet. Because we weren't going to carry a lot of leverage on the lower credit asset. In a portfolio, where you have all Agency and AAA-rated securities, you can at least think about a portfolio which is at least one turn higher. And so we continue to think -- we don't have any specific target for it. We have a principle which is, we're not going to take too much leverage risk or liquidity risk just to pay an unnecessary dividend. But we are going to take -- with the portfolio such as this an appropriate amount of risk to generate attractive returns over the long-term. So that's the principle.

And we're sitting here near 6x. Our goal would be to have a larger balance sheet. But we're going to do it in a very judicious manner as opposed to saying, I'm just going to plow in and drive our balance sheet higher in a risk environment such as we have today. When spreads are really, really tight, I want to be up the capital stack, and I want to be very, very judicious in how I deploy my capital.

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Operator [24]

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Our next person comes from the line of Bose George from KBW.

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Eric Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [25]

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It's Eric on for Bose. Byron, I thought the opening comments were really valuable as far as the evolution of Dynex goes, those are great. So what would you be looking for to move back into some of those opportunities you shared that Dynex needs to be in some of those deeper credit opportunities? And is it even realistic to assume that those opportunities will exist in a much more robust way for mortgage REITs again in the near future?

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [26]

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I can give you 2 words on -- wider spreads. A wider spread and a global risk environment that doesn't give the impression that there could be a credit issue of some sort. But the first step is wider credit spreads. The other point is -- if you look at the long-term of mortgage REITs, the one product sector that has weathered '94, 1998, early 2000s crisis, 2007, 2008 has been Agency mortgage-backed securities. And I emphasize, we are not an Agency REIT. We just find this sector to be the most attractive in the current tight rate global risk environment.

And so we've allocated our capital in this direction. And it really reflects our risk view. And would I like to take -- I'll tell you some other ideas. So residential credit risk, given the regulatory environment where many of these loans have been originated. I think it's a great risk to be able to take. However, it's just priced too high. The spreads are too tight there, especially for me to take an asset with the residential credit risk in the lower levels and put it on repo. So we do have some principles in which we are making our decisions. And I hope this helps you understand how we're thinking about this. But the lower credit areas are still part of our opportunity set. We've just chosen in today's environment to move to the top of the capital stack.

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Smriti Laxman Popenoe, Dynex Capital, Inc. - Co-CIO and EVP [27]

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I would just add that things like MSRs, we've also chosen to stay away from those businesses because of the regulatory environment. And that continues to be an absolute minefield even with the idea that the philosophy of regulation is going to change with the current administration. What you see in the headlines everyday is a type of risk that we have not been willing to take here at Dynex. So those types of opportunities -- I think we're going to have to figure out the right structure. I think that is possible Eric. So the deeper credit, it's an issue of price and being able to lever that up in a safe manner.

And then the issue of MSRs and other business models, actual operating businesses. We've always had the view that we need to see a through the cycle return that reflects the regulatory environment and that type of risk. And that's not to say that it can never happen, but that's the opportunity that we would end up following when those things line up.

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Operator [28]

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(Operator Instructions) You next question comes from the line of David Walrod of Jones Trading.

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David Matthew Walrod, JonesTrading Institutional Services, LLC - MD and Head of Financial Services Research for New York Office [29]

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My questions have been asked and answered.

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Operator [30]

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At this time, there are no further questions. I'll now return the call to Byron Boston for any additional or closing remarks.

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Byron L. Boston, Dynex Capital, Inc. - CEO, President, Co-CIO and Director [31]

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I thank you all for plugging into our first quarter conference call. We look forward to having you listen in on our second quarter conference call. We're still focused, still got our heads down, our brains are working very hard, and we thank you very much and we'll see you next quarter.

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Operator [32]

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Thank you for participating in the Dynex Capital First Quarter 2017 Earnings Conference Call. You may now disconnect.