Dynex Capital, Inc.

Thank you for standing by. My name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Dynex Capital second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. Allison Griffin, Vice President of Investor Relations, you may begin your conference.

Good morning, and thank you for joining us today for the Dynex Capital Second Quarter 2022 Earnings Conference Call. The press release associated with today's call was issued and filed with the SEC this morning, July 25, 2022. You may view the press release on the homepage of the Dynex website at dynexcapitals.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, assume, anticipate, estimate, project, plan, continue, will, and similar expressions 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. These forward-looking statements 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 Dynex website. The slide presentation may also be referenced under quarterly reports on the Investor Center page. Joining me on the call, I have Byron Boston, Chief Executive Officer and Co-Chief Investment Officer, Murphy Papineau, President and Co-Chief Investment Officer, Steve Benedetti, Outgoing Executive Vice President, Chief Financial Officer and Chief Operating Officer, and Rob Colligan, Incoming Executive Vice President, Chief Financial Officer. And with that, it is my pleasure now to turn the call over to Byron Boston, CEO.

Thank you, Allison, and thank you, everyone, for joining our second quarter earnings call. Before I move into the broader market discussion, I want to address our recent news that Steve Benedetti will be stepping down as CFO after 28 years with Dynex, and Rob Colligan has joined the firm to transition into the CFO position at the end of next week. Stephen's been a key business partner for me and instrumental in building a world-class finance department at Dynex, and his generosity, humor, and leadership have contributed immeasurably to our unique team-oriented culture. He will be greatly missed by all of us, and we wish him the best. At Dynex, you often hear me discuss our long-term strategy, and while succession planning is not something that we discuss publicly often, it is absolutely a key component of our strategy. as it should be for any strong and successful company. With that in mind, I have known Rob for many years and believe he would be an excellent fit for Dynex. As you know, we value experience at Dynex, and Rob's background at Bear Stearns, Starwood, and Chimera will provide valuable insights to our team as we continue to navigate this current challenging environment and position the company for long-term growth and success. We are excited that he has joined our team, and we look forward to you getting to know him. Now, moving on to the second quarter. The first half of 2022, I witnessed some of the most volatile moments in the fixed income market in my career, especially during the month of June. Over the last two years, the Dynex team has protected book value as 10-year treasury yields moved from 60 basis points to over 3%. Our second quarter performance reflects spread widening in June, and we have used this as an opportunity to grow our balance sheet. On a year-to-date basis, we reported a negative total economic return of 2.3%, and we continue to outperform the broad fixed income sector as shown on slide five of our investor presentation. We achieved this while maintaining our priority on preservation of capital and our book value, while down this quarter has remained within this decade's range. as shown on slide six. Our performance and capital preservation focus has put Dynex in an extremely strong position entering the second half of the year, which we believe will enable us to take advantage of the attractive opportunities as we are currently seeing in the mortgage market. We have begun to allocate incremental capital to these opportunities, as Smriti will discuss in more detail, but remain thoughtful and judicious as to the pace and size of our investing The second quarter was a strong reminder of the importance of not only having a strategy built on top-down macroeconomic analysis, but having the experience and discipline to stick with that strategy in a turbulent market environment when there were plenty of opportunities to waver and to make mistakes. Because our strategy is developed by a management team with decades of experience and is built with flexibility as our core principle, it continues to guide us through these volatile times and, we believe, into a period of tremendous opportunity. Throughout this year, we have approached the markets with our hallmark, patience and discipline. You hear us say these words often, patience, discipline, flexibility. But I want to emphasize that these aren't just words. To us, these are actions and key components of our long-term strategy. Our active patience and discipline during the first half of 2022 resulted in meaningful capital preservation. for our shareholders. And our decision to maintain a high level of liquidity means that our upside potential going into the next stage of the market cycle is significant, as we are poised to benefit from the wider mortgage spreads as we deploy additional capital. Believing that we were in a prolonged period of greater return opportunities, we raised equity capital throughout the quarter. During the quarter and into July, we have been putting that capital to work as incremental risk-adjusted returns improved. However, we have maintained significant dry powder as the market evolves and accretive opportunities arise. I cannot emphasize enough that we're at the crossroads of some significant historical events. As the market grapples with issues such as QT, increasing global conflict, the lingering impact of the pandemic, and a potential energy crisis, just to name a few. And while many of these issues are new, History provides a roadmap to help us successfully navigate times like these. As an example, mortgage spreads have essentially widened back to where they were in March 2020, and we're seeing many of the same potential investment opportunities now that we did then. Our business model and strategy are designed to thrive and find opportunities in any economic environment, not just periods of quantitative easing. We believe that this sets us apart from other opportunities in the mortgage space, and you are seeing evidence of that differentiation in our results. During these challenging environments, there will be risk and there will be opportunities. In the first half of this year, as we have throughout multiple market cycles, we effectively and skillfully navigated the risk, and we are prepared to capitalize on the opportunities. We have a great liquidity position. Our book value has been well protected, and long-term return opportunities are compelling. I am proud of the results our team has produced. Our commitment to providing attractive long-term returns for our shareholders is unwavering, and I'm excited about the opportunities ahead of us. And with that, I'll turn the call over to Steve Benedetti to give me more specifics regarding our second quarter performance.