Dynex Capital, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Dynex Capital first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star then one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today. Alison Griffin, please go ahead. Good morning and thank you for joining us today for the Dynex Capital first quarter 2021 earnings conference call. The press release associated with today's call was issued and filed with the SEC this morning, April 28th, 2021. You may view the press release on the homepage of the Dynex website at dynexcapital.com, 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 are 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 our disclosures filed with the SEC, which may be found on the Dynex website, under Investor Center, as well as on the SEC's website. This conference call is being broadcast live over the internet with a streaming slide presentation, which can be found through a webcast link on the homepage of our website. The slide presentation may also be referenced under quarterly reports on the Investor Center page. Joining me on the call is Byron Boston, Chief Executive Officer and Co-Chief Investment Officer, Murphy Papano, President and Co-Chief Investment Officer, and Steve Benedetti, Executive Vice President, Chief Financial Officer, and Chief Operating Officer. With that, it is my pleasure to turn the call over to Byron Boston.

Thank you, Alison. Good morning, and thank you all for joining us today. I'm extremely pleased with our first quarter results, which Steve and Smriti will review in more detail in a minute. Our current total economic return for the quarter was 7.2 percent on a quarterly basis, and we have generated a total economic return of 34.8 percent over the last four quarters, averaging 8 percent per quarter. We achieved this during an unprecedented time in the markets. Most importantly, since this new era in history began in January 2020, we have outperformed our industry and other income-oriented vehicles with a 27.1% total shareholder return, as noted on slide 5. Our performance during the first quarter continues to demonstrate that Dynex has the skills and experience necessary to navigate the current environment. The Dynex team relied heavily on our deep experience in managing the embedded extension risk in mortgage-backed security, and we used this tactical expertise to take advantage of the environment. We created value during the first quarter in four ways. We managed the existing portfolio. We optimized our capital structure, raised equity, and invested capital to generate an excellent return for the quarter. We have been strategically focused on our investment strategy at capital allocation, as well as simplifying and enhancing our capital structure. We have been executing the strategy to grow the company, to drive operating leverage, and to improve our common stock's liquidity while balancing our equity capital. This quarter was unique in providing us the opportunity to raise $128 billion in new common equity and invest that capital accretively. We also called our higher coupon preferred Series B, further optimizing the right side of the balance sheet. Both decisions, added to earnings and book value in the first quarter, in our view, will strengthen our performance over the long term. Now, from a macro perspective, we're at a critical inflection point in the global economy as the pandemic evolves in a disparate fashion and the impact of government responses and the vaccine take hold. We are preparing in our usual disciplined manner for multiple scenarios, and as we have said before, surprises are still highly probable given the geopolitical backdrop. We firmly believe that we can deliver value to our shareholders across multiple market scenarios. As Smurthy will elaborate in her comments, this remains a very favorable return environment with funding costs anchored and the curve steeper. We believe the liquidity and flexibility inherent in our agency-focused strategy are essential for a highly uncertain global environment with many complex and interrelated risks. Now I'll turn the call over to Steve and Smirky to give you more specifics about our returns and our balance sheet competition.

Thank you, Byron, and good morning, everyone. The first quarter continued the excellent performance for the company. For the quarter, we recorded comprehensive income of $1.76 per common share, total economic return of $1.38 per common share, or $7.2 million, or 15% during the quarter, as we raised $128 million in net common equity through two public offerings, as Byron noted. redeemed $70 million in higher cost preferred equity, and added approximately $36 million in capital from excess economic return over dividends paid. The excess economic return was largely driven by our hedging strategy as we actively managed our position and timed our hedging adjustments as the curve steepened during the quarter, resulting in gains of $166 million, more than offsetting the impact of higher rates in our investment portfolio. Book value per common share during the quarter rose $0.99, or 5.2%. Absent the cost of the equity raises, book value grew approximately 7.5% during the quarter. Coordinate operating income to common shareholders sequentially improved this quarter to $0.46 from $0.45 in Q4, principally resulting from lower G&A expenses and the reduction in the preferred stock dividend with the redemption of the remaining $70 million in Series B preferred stock outstanding mid-quarter. Average earning assets marginally increased to $4.3 billion as we opportunistically deployed the capital raise throughout the quarter. At quarter end, leverage was 6.9 times shareholders' equity and earning assets were $5.2 billion. With the growth in the investment portfolio and the continued favorable conditions for the TBA dollar oil market, we expect sequential coordinate operating income growth for the second quarter versus the first quarter. Adjusted net interest income was essentially flat as declines in RMBS pool balances were offset by an increase in TBA investments. Adjusted net interest spread was slightly lower at 187 basis points versus 198 basis points last quarter. On-balance sheet portfolio asset yields and TBA specialness were 12 basis points lower during the quarter, which was partially offset by the benefit from lower borrowing costs, which declined five basis points. TVA drop income increased 33% during the quarter as we more heavily invested in TVAs, but it's slightly lower net interest spreads as TVA specialness was lower in the quarter. TVAs continue to offer superior returns versus repo borrowings, and today our expectations are that adjusted net interest spread will be flat to modestly higher for the second quarter depending on prepayment speeds. With respect to prepayment speeds, they increased but were well within expected ranges during the quarter. Agency RMBS prepayment speeds were 18.4 CPR for the quarter versus 17.1 CPR for Q4, while overall portfolio CPRs, including the CMBS portfolio, were approximately 14 CPR. That concludes my remarks, and I will now turn the call over to Smariki.