Dynex Capital, Inc.

Greetings and welcome to the Dynex Capital Inc. first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Allison Griffin, VP, Investor Relations. Thank you. You may begin.

Good morning. The press release associated with today's call was issued and filed with the SEC this morning, April 21st, 2025. 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 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 our disclosures filed with the SEC, which may be found on the Dynex website under investors, 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 the 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 today, are Byron Boston, Chairman and Co-Chief Executive Officer, Smriti Papano, Co-Chief Executive Officer and President, Rob Colligan, Chief Financial Officer and Chief Operating Officer, and TJ Connolly, Chief Investment Officer. I will now turn the call over to Smriti.

Thank you, Allison, and thanks to all of you for joining us on the call today. We have viewed and continue to view this environment as being favorable to our business model. The yield curve is steeper, asset prices are now reflecting higher risk premiums, financing costs are lower, and our ability to generate an above average dividend yield remains largely intact. However, we must manage our business through the rapid transitions that are happening across the global and U.S. economy. My goal for you today is to leave our call with a better understanding of Dynex, our long-term approach to the business, and why we continue to feel comfortable owning Dynex stock in our personal portfolios. From the very beginning of our time here at Dynex, we've been very disciplined in our approach, not being swayed by the hot investment ideas that crop up from time to time. We recognize very early in the last decade how investing in global markets continue to become more complex. We focus on the multiple demographic, social, and political factors that are interacting to create potential surprises. This thought process is the foundation of our approach to the markets and the management of our shareholders' capital. So what we're experiencing now is not unfamiliar territory for us. It's a moment we have planned and prepared for. Over the past several quarters, we have deliberately positioned ourselves for a more dynamic macro environment. We've taken decisive steps to build resilience, including raising capital at attractive terms, preserving liquidity, and adding flexibility across our portfolio. This proactive approach has given us optionality so that rather than react to market shocks, we can make strategic decisions from a position of strength. To give you a better sense of the environment and how we're responding, I'm going to ask and answer a series of questions. And after that, I'll turn it over to Rob and TJ, who'll give you more details. Let me start with why do we feel comfortable owning Dynex personally? It starts with the team and our process. Our experience and our mindset and discipline continue to serve us in making clear decisions. Our investment strategy is simple. And yes, we must make the right decisions through volatility. We are relying on our experience and our processes to do so. Finally, the dividend. It cushions a lot here. In these moments, dividend-paying stocks, particularly Dynex, where you can rely on the asset quality and the team, really shine. So what happened in the last three weeks? The April 2nd tariff announcement was a shock for the markets. As announced, it was larger than anticipated. and if implemented, could be described as one of the most significant trade policy changes in many decades. We've seen an immediate de-risking to reflect the degree of uncertainty that this posture brings. De-leveraging of the riskiest positions such as treasury basis trades drove some of the moves. Many companies exposed to tariff uncertainty have experienced large declines in share prices. Credit spreads in both investment grade and high yield bonds are wider. We also saw that long-end treasury yields unexpectedly rose, reflecting some type of selling, and the dollar experienced weakness versus major currencies that has only been seen during times of severe crisis. So what did Dynex experience during this time? Most of the turbulence directly affecting us was in the treasury and swap market. And as TJ will outline, it had some impact on our book value. Besides that, We followed our normal discipline. We have made minor adjustments to the portfolio. Margin and cash collateral changed hands in both directions as markets gyrated. Repo availability is excellent, and short-term fluctuations in interest rates seem reflective of the flows. We have had no trouble terming out our financing, and we remain engaged with our major counterparties as we have always prioritized openness and proactive communication. Next, how is your portfolio constructed today given the global complex backdrop? First, we are long-term investors and we've constructed the portfolio to perform in a variety of market environments. Second, our strategy is simple, to extract the spread between agency RMBS and our hedge financing costs. Both instruments are dollar denominated and they're relatively correlated. The most important decisions we make are our hedge ratio how much liquidity to hold, and how much leverage risk to take. Our track record shows we have extensive experience and success making these decisions in some of the most volatile moments in markets over the last decade. In 2019, we began operating with a significantly higher liquidity position, a feature of our risk management process which remains to this day. It's a core part of how we are able to withstand volatility, like what we've just experienced, without making significant adjustments or crystallizing losses. We are entering the coming period with a robust liquidity position and a liquid balance sheet, allowing us to remain agile even as the external environment shifts. We have also operated with generally lower leverage. Next question, why are you invested in agency RMBS? Will there be changes to the GSEs, and what should we expect? So we have been up in credit and up in liquidity for several years now. We believe that agency MBS are still an excellent choice in terms of where to allocate our shareholders' capital. TJ will give you more detail on how we are positioned within this market. In terms of a change to the GSEs, here's our current thinking. The U.S. housing finance system has underpinned the American dream for over a century, helping millions of families build wealth and economic security through homeownership. It stands as one of the most effective and dynamic in the world. Agency and BS remain a foundational component of the U.S. financial system, central to bank balance sheets, retail money market and bond mutual funds, and an integral part of the wealth of average Americans. With over $8 trillion in agency MBS outstanding, any disruption to the current guarantee structure would have immediate and far-reaching implications for capital markets, mortgage rates, and systemic risk. We are preparing for the possibility of accelerated policy action around the GSEs, evaluating outlier scenarios for market reactions, and will take proactive steps to protect shareholder capital across our exposures. Regardless of the pace or path, our focus remains disciplined risk management and real-time adjustment as the regulatory and political landscape evolves. How are we thinking about the dollar and the demand for U.S. fixed income assets? Will that go down? How does that impact INEX? The answer here is that it depends on how policy evolves. As it stands today, U.S. equities and sovereign bonds represent 70% of total global market capitalization and outstandings. So while investors could start to sell dollar assets in the short term, it'll take a lot of time to move into other currencies because there just isn't enough out there to move into. We do believe that the trend will be towards some caution on the U.S. due to shifting policy. So you could see some selling of bond holdings, including MBS, but that could present a more durable opportunity for Dynex to step in and earn those extra returns. Next question. How are we preparing for changes across other fronts, such as the structure of the Fed or other policy changes? Look, we recognize that change is not only inevitable, but it's accelerating. From tariffs to monetary policy to regulatory shifts and power dynamics, we are preparing for potential transitions across many fronts, often with little warning. Our strategy acknowledges this reality. We're not waiting for stability to return. We're actually building for agility. That means maintaining a wide field of vision, engaging in disciplined scenario planning, keeping an open and flexible mindset, and ensuring our capital is protected and ready to be deployed when opportunities align with our risk framework. As we always say, we don't predict. We prepare. Next. Will the global financial and economic environments continue their volatile trend? The short answer to this question is that we are prepared for yes. We have talked about this for the last 11 years. We expect the future will be full of surprises, and we will be managing our business from this perspective. Finally, how are we thinking about the dividends? The dividend is a long-term decision that we make very carefully, and we have made it in the context of a capital risk management decision. We set our dividend based on many factors, including our view on long-term returns, availability of capital, yields on comparable instruments, liquidity risk, overall risk, and taxable income. We raised our monthly dividend in February reflecting our confidence in our continued ability to generate attractive returns. In the long term, we're operating at the intersection of global capital markets and the U.S. housing finance system. This is a business we feel is strongly supported by demographic trends. In the shorter term, we believe agency MBS are still an excellent choice in terms of where to allocate our shareholders' capital, and we are managing our risk in this sector with the rigor and discipline I have outlined for you thus far. I'll now turn it over to Rob and TJ.