Q2 2024 Dynex Capital Inc Earnings Call
Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the Dynex Capital second quarter earnings conference call. All lines have been placed on mute to prevent any background noise.
Operator: At this time, I would like to welcome everyone to the Dynex Capital 2nd Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Operator: 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 keyboard. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Allison Griffin, Vice President of Investor Relief.
Speaker Change: 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, press star 1 again.
I would now like to turn the call over to Allison Griffin.
Alison G. Griffin: Vice President of Investor Relations
Alison G. Griffin: Good morning, and thank you for joining us for Dynex Capital's second quarter 2024 earnings call. The press release associated with today's call was issued and filed with the SEC this morning, July 22nd, 2024. 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.
Speaker Change: Please go ahead.
Alison G. Griffin: Good morning and thank you for joining us for Dynex Capital's second quarter 2024 earnings call. The press release associated with today's call was issued and filed with the SEC this morning, July 22nd, 2024.
Speaker Change: 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.
Speaker Change: 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.
Alison G. Griffin: 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.
Speaker Change: The words believe, expect, forecast, anticipate, estimate, project, plan, and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties.
Speaker Change: 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.
Alison G. Griffin: 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.
Speaker Change: 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.
Speaker Change: 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.
Alison G. Griffin: Joining me on the call is Byron Boston, Chairman and Co-Chief Executive Officer; Smriti Popenoe, President, Co-Chief Executive Officer, and Chief Investment Officer; and Rob Colligan, Executive Vice President, Chief Financial Officer, and Chief Operating Officer. It is now my pleasure to turn the call over to Byron. Thank you.
Speaker Change: Joining me on the call is Byron Boston, Chairman and Co-Chief Executive Officer.
Speaker Change: Smriti Popenoe, President, Co-Chief Executive Officer, and Chief Investment Officer and Rob Colligan, Executive Vice President, Chief Financial Officer, and Chief Operating Officer
Byron L. Boston: Thank you, Allison, and good morning, everyone. At Dynex Capital, we continue to build a company that will deliver consistent monthly cash income and compelling long-term returns for our shareholders. When I first joined here in 2008, Dynex's market capitalization was less than $100 million. This quarter, our total equity eclipsed $1 billion for the first time in our 36-year history. I'm extremely proud and excited about the progress we have made at Dynex Capital so far in 2024.
Speaker Change: It is now my pleasure to turn the call over to Byron.
Byron L. Boston: Thank you, Allison, and good morning, everyone.
Byron L. Boston: At Dynex Capital, we continue to build a company that will deliver consistent monthly cash income and compelling long-term returns for our shareholders.
Speaker Change: When I first joined here in 2008, Dynex's market capitalization was less than $100 million. This quarter, our total equity eclipsed $1 billion for the first time in our 36-year history.
Speaker Change: I'm extremely proud and excited about the progress we have made at Dynex Capital so far in 2024.
Byron L. Boston: As a student of economic history and a market practitioner, I've managed investment portfolios through many cycles. This has already been an incredible decade with multiple extreme cycles. Our team here at Dynex has been prepared. Events that surprise many in the market were not surprises for this team. We were prepared and always understood that surprises were highly probable.
Speaker Change: As a student of economic history and a market practitioner, I've managed investment portfolios through many cycles. This has already been an incredible decade with multiple extreme cycles.
Speaker Change: Our team here at Dynex has been prepared. Events that surprised many in the market were not surprises for this team. We were prepared and always understood that surprises were highly probable.
Byron L. Boston: We have a nimble mindset, and we are sitting with a capital base that is extremely strong. As we start the second half of 2024, we are well positioned to capitalize on the next cycle in the mortgage market. Human capital remains a major focus for us. Today, we announce that we have hired Harman Shani as our new Chief Technology Officer. Harman brings a deep history in financial technology, including experience at other mortgage REITs and major financial institutions.
Speaker Change: We have a nimble mindset, and we are sitting with a capital base that is extremely strong. As we start the second half of 2024, we are well positioned to capitalize on the next cycle in the mortgage market.
Byron L. Boston: His expertise will ensure that we can continue to compete on tech-driven analytics. We also announced several executive leadership and management changes. In most cases, these actions align titles and roles with the work these exceptional people are already doing. Jeff Childress, our controller for nearly 20 years, has been named Chief Accounting Officer. Rebecca Emhoff, our current assistant controller, has been named our new controller. Bob Nilsen, a 30-plus year veteran of Dynex, has been named chief risk officer.
Speaker Change: Human capital remains a major focus for us.
Speaker Change: Today, we announce that we hired Harman Shani as our new Chief Technology Officer.
Speaker Change: Harman brings a deep history in financial technology, including experience at other mortgage REITs and major financial institutions.
Speaker Change: His expertise will ensure we can continue to compete on tech-driven analytics.
Byron L. Boston: Our CFO, Rob Colligan, was named chief operating officer in addition to his current title. And finally, my long-term colleague and teammate, Smriti Popenoe, was named co-chief executive officer with me. Smriti and I have managed mortgage assets together as a team for 27 years. We successfully created our first mortgage REIT 20 years ago and executed an IPO on the New York Stock Exchange.
Speaker Change: We also announced several executive leadership and management changes.
Speaker Change: In most cases, these actions align titles and roles with the work these exceptional people are already doing.
Speaker Change: Jeff Childress, our controller for nearly 20 years, has been named Chief Accounting Officer.
Speaker Change: Rebecca Imhoff, our current assistant controller, has been named our new controller.
Speaker Change: Bob Nilsen, a 30-plus year veteran of Dynex, has been named Chief Risk Officer.
Speaker Change: Our CFO , Rob Colligan, was named Chief Operating Officer in addition to his current title. And finally, my long-term colleague and teammate, Smriti Popenoe, was named Co-Chief Executive Officer with me.
Speaker Change: Smriti and I have managed mortgage assets together as a team for 27 years. We successfully created our first mortgage REIT 20 years ago and executed an IPO on the New York Stock Exchange.
Byron L. Boston: We are the longest-tenured team that has successfully managed a mortgage re-together over this time period. Today's action formalizes her importance at Dynex and cements her legacy as a leader in the mortgage market. Her skills and accomplishments over her career are as significant as anyone I've ever met in the market. Smriti grew and developed in this industry, one that is male-dominated and highly competitive.
Speaker Change: We are the longest-tenured team that has successfully managed a mortgage rate together over this time period.
Speaker Change: Today's action formalizes her importance at Dynex and cements her legacy as a leader in the mortgage market.
Speaker Change: Her skills and accomplishments over her career are as significant as anyone I've ever met in the markets. Smriti grew and developed in this industry, one that is male-dominated and highly competitive. She has achieved great success despite obstacles.
Byron L. Boston: She has achieved great success despite obstacles. Growing up, Smriti was educated on three continents, which taught her the valuable lessons of adaptability and resilience. The kind of tenacity, resolve, willingness to learn, and leadership that she has demonstrated are beyond comparison. The global perspective that she has brought to our investment and management process has been invaluable. Smriti, the team, and I are focused on managing our company with a long-term strategic vision.
Speaker Change: Growing up, Smriti was educated on three continents, which taught her the valuable lessons of adaptability and resilience.
Speaker Change: The kind of tenacity, resolve, willingness to learn, and leadership that she has demonstrated are beyond comparison.
Speaker Change: The global perspective that she has brought to our investment and management process has been invaluable. Smriti, the team, and I are focused on managing our company with a long-term strategic vision, and we are methodically putting that vision in place.
Byron L. Boston: And we are methodically putting that vision in place. Dynex is the oldest publicly traded mortgage REIT, and we're building the company to endure well into the future. I will now turn it over to Rob Colligan, our CFO and Chief Operating Officer, to review the financials.
Robert S. Colligan: Dynex is the oldest publicly traded mortgage REIT and we're building the company to endure well into the future. I will now turn it over to Rob Colligan, our CFO and Chief Operating Officer, to review the financials.
Robert S. Colligan: Thank you, Byron, and good morning to everyone joining the call. I am truly honored to be named Chief Operating Officer, adding to my Chief Financial Officer title. Earning the trust and confidence of the management team and board of directors is something I take very seriously. I really enjoy coming to work every day and making positive changes for the benefit of Dynex shareholders and our employees.
Robert S. Colligan: Thank you, Byron, and good morning to everyone joining the call.
Robert S. Colligan: I am truly honored to be named Chief Operating Officer, adding to my Chief Financial Officer title.
Robert S. Colligan: Earning the trust and confidence of the management team and board of directors is something I take very seriously.
Speaker Change: I really enjoy coming to work every day and making positive changes for the benefit of Dynex shareholders and our employees.
Robert S. Colligan: I'll now turn to the financial results. Book value ended the quarter at $12.50 per share, and the economic return was a negative 2.4% for the quarter. The 10-year Treasury was up approximately 20 basis points from the end of the first quarter, and spreads were broadly wider. This quarter, we raised $125 million of new capital, some of which was invested in June when spreads were wider, and some of which is reserved to be deployed in the second half of 2024. We issued 10.5 million shares at $11.88 per share, which was a great execution during a local high for the stock.
Speaker Change: I'll now turn to the financial results.
Speaker Change: Book value ended the quarter at $12.50 per share, and the economic return was a negative 2.4% for the quarter.
Operator: The 10-year Treasury was up approximately 20 basis points from the end of the first quarter, and spreads for a broadly wider.
Speaker Change: The 10-year Treasury was up approximately 20 basis points from the end of the first quarter and spreads were broadly wider.
Byron Boston: This quarter we raised $125 million of new capital, some of which was invested in June when spreads were wider, and some which is reserved to deploy in the second half of 2024. We issued 10.5 million shares at $11.88 per share, which was a great execution during a local high in the stock.
Speaker Change: This quarter, we raised $125 million of new capital, some of which was invested in June when spreads were wider, and some which is reserved to deploy in the second half of 2024.
Speaker Change: We issued 10.5 million shares at $11.88 per share, which was a great execution during a local high in the stock.
Robert S. Colligan: Smriti will cover the capital raise and deployment further during her comments. Net interest income was positive this quarter as a result of higher-than-expected paydowns on older, lower-yielding assets and the addition of newer, higher-yielding assets. We expect this trend to continue, and if financing costs improve later this year, net interest income would trend up on an accelerated basis. In the first quarter, we discussed higher equity-based compensation.
Smriti Popenoe: Smriti will cover the capital raise and deployment further during her comments. Then it's just income was positive this quarter, as a result of higher than expected pay downs on older, lower yielding assets and the addition of newer, higher yielding assets. We expect this trend to continue, and if financing costs improved later this year, that interest income would trend up on an accelerated basis.
Speaker Change: Smriti will cover the capital raise and deployment further during her comments.
Smriti: That interest income was positive this quarter as a result of higher-than-expected paydowns on older, lower-yielding assets and the addition of newer, higher-yielding assets.
Smriti: We expect this trend to continue, and if financing costs improve later this year, net interest income would trend up on an accelerated basis.
Byron Boston: Expenses for the second quarter were down. In the first quarter, we discussed higher equity-based compensation. These expenses did not recur in the second quarter, and we expect we'll only occur annually in the first quarter going forward. This quarter treasury features remains our preferred hedge instrument. Hedgegames and losses are a component of retaxable income, and will be part of our distribution requirements with other ordinary gains and losses. This quarter, we realized hedge gains, which added to our aggregate gains, and we have a large cumulative benefit for the portfolio. In an inverted yield curve, like we have now, we expect our hedges to have a positive carry and will be supportive of earnings.
Smriti: Expenses for the second quarter were down.
Robert S. Colligan: These expenses did not recur in the second quarter and we expect they will only occur annually in the first quarter going forward. This quarter, Treasury futures remained our preferred hedge instrument. Edge gains and losses are a component of retaxable income and will be part of our distribution requirements with other ordinary gains and losses. This quarter, we realized hedge gains, which added to our aggregate gains, and we have a large cumulative benefit for the portfolio.
Smriti: In the first quarter, we discussed higher equity-based compensation. These expenses did not recur in the second quarter, and we expect will only occur annually in the first quarter going forward.
Smriti: This quarter, Treasury futures remained our preferred hedge instrument.
Smriti: Edge gains and losses are a component of REIT taxable income and will be part of our distribution requirements with other ordinary gains and losses.
Smriti: This quarter we realized hedge gains, which added to our aggregate gains, and we have a large cumulative benefit for the portfolio.
Robert S. Colligan: In an inverted yield curve, like we have now, we expect our hedges to have a positive carry and will be supportive of earnings. Please see page 6 in the earnings release covering the hedging portfolio and page 11 of the earnings presentation for more detail on this topic. I'll now turn the call over to Smriti.
Smriti: In an inverted yield curve, like we have now, we expect our hedges to have a positive carry and will be supportive of earnings.
Byron Boston: Please see page 6 in the earnings release, covering the hedging portfolio, and page 11 of the earnings presentation for more detail on this topic.
Smriti: Please see page 6 in the earnings release covering the hedging portfolio and page 11 of the earnings presentation for more detail on this topic.
Smriti Popenoe: I'll now turn the call over to Smriti. Thank you, and good morning, everyone. I'd like to congratulate my colleague and teammate Rob Colligan on his promotion to Chief Operating Officer. He brings energy, expertise, and enthusiasm, a strong work ethic, and a collaborative approach to work every day, and these traits have clearly contributed to his success. It is a pleasure to work alongside him. We also promoted Bob Wilson, one of Dynamics's longest tenure employees, to chief risk officers. Bob has worked tirelessly to build Dynamics's sterling reputation with credit counterparties, and look forward to his continued success at the company.
Smriti Laxman Popenoe: Thank you and good morning everyone. I'd like to congratulate my colleague and teammate Rob Colligan on his promotion to Chief Operating Officer. He brings energy, expertise, enthusiasm, a strong work ethic, and a collaborative approach to work every day. These traits have clearly contributed to his success, and it is a pleasure to work alongside him.
Smriti: I'll now turn the call over to Smriti.
Smriti: Thank you and good morning everyone. I'd like to congratulate my colleague and teammate Rob Colligan on his promotion to Chief Operating Officer.
Smriti: He brings energy, expertise, enthusiasm, a strong work ethic, and a collaborative approach to work every day, and these traits have clearly contributed to his success, and it is a pleasure to work alongside him.
Smriti Laxman Popenoe: We also promoted Bob Nilsson, one of Dynex's longest-tenured employees, to Chief Risk Officer. Bob has worked tirelessly to build Dynex's sterling reputation with credit counterparties, and I look forward to his continued success at the company. I'm also delighted to accept the position of co-CEO to work alongside my longtime teammate Byron. We have navigated through many storms together.
Speaker Change: We also promoted Bob Nilsson, one of Dynex's longest-tenured employees to Chief Risk Officer. Bob has worked tirelessly to build Dynex's sterling reputation with credit counterparties, and I look forward to his continued success at the company.
Smriti Popenoe: I'm also delighted to accept the position of Co-CEO to work alongside my longtime teammate, Bob. We have navigated for many storms together. We share a common vision for the company, the same commitment to integrity and core values, while each bringing a different perspective and skill set that will be a powerful combination as we lead Dynamics into the future.
Speaker Change: I'm also delighted to accept the position of co-CEO to work alongside my longtime teammate, Byron.
Smriti Laxman Popenoe: We share a common vision for the company, the same commitment to integrity and core values, while each bringing a different perspective and skill set that will be a powerful combination as we lead Dynex into the future. The investment environment continues to be very favorable for Dynex. Agency MBS spreads remain in an elevated range relative to history, offering double-digit nominal ROE. Volatility continues its downward trend, as Fed policy is becoming slightly more certain, and data are now tracking towards a possible Fed ease in the third quarter.
Byron L. Boston: We have navigated through many storms together, we share a common vision for the company, the same commitment to integrity and core values, while each bringing a different perspective and skill set that will be a powerful combination as we lead Dynex into the future.
Smriti Popenoe: The investment environment continues to be very favorable for Dynamics. Agency MBS spreads remain in an elevated range relative to history, offering double-digit nominal R-O-E. Volatility continues its downward trend as said policies becoming slightly more certain, and data are now tracking towards a possible Fed ease in the third quarter. Our view remains that the best forward returns will come from agency MBS, which are historically cheap on an absolute and relative basis to other fixing comes also. Dynex's portfolio will also perform extremely well in curved deepening environments.
Byron L. Boston: The investment environment continues to be very favorable for Dynex. Agency MBS spreads remain in an elevated range relative to history, offering double-digit nominal ROEs.
Speaker Change: Volatility continues its downward trend, as Fed policy is becoming slightly more certain, and data are now tracking towards a possible Fed ease in the third quarter.
Smriti Laxman Popenoe: Our view remains that the best forward returns will come from agency MBS, which are historically cheap on an absolute and relative basis to other fixed income alternatives. Dynex's portfolio will also perform extremely well in curved steepening environments. You can see that on our list profile on page 23 in the deck.
Speaker Change: Our view remains that the best forward returns will come from agency MBS, which are historically cheap on an absolute and relative basis to other fixed income alternatives.
Speaker Change: Dynex's portfolio will also perform extremely well in curved steepening environments. You can see that on our list profile on page 23 in the deck.
Smriti Popenoe: You can see that on our list profile on page 23 in the deck.
Smriti Laxman Popenoe: Looking ahead to the second half of 2024, we believe the combination of known unknowns and unknown unknowns makes the overall macroeconomic environment vulnerable to exogenation, which will result in bouts of volatility. Using these dislocations to add assets prudently remains our core tactical game plan. This view led us to raise capital in June. It was a landmark raise in many respects. This was the largest capital raise in our 30 plus year history as a public company. Dynex opened the market for block-sized capital, which had been closed since early 2022.
Smriti Popenoe: Looking ahead to the second half of 2024, we believe the combination of known unknowns and unknown unknowns makes the overall macroeconomic environment vulnerable to exogenous shocks. These will result in a bout of volatility. Using these dislocations to add assets, fruitfully remains our core tactical game plan.
Speaker Change: Looking ahead to the second half of 2024, we believe the combination of known unknowns and unknown unknowns makes the overall macroeconomic environment vulnerable to exogenous shocks.
Speaker Change: These will result in bouts of volatility.
Speaker Change: Using these dislocations to add assets prudently remains our core tactical game plan.
Smriti Popenoe: This view led us to raise capital in June. It was a landmark raise in many respects. This was the largest capital raise in our 30-plus year history as a public company. Dynex opened the market for block size capital, which had been closed since early 2022. We received outstanding execution while effectively resetting the economics for such transactions, a testament to the strong reputation for ethical stewardship and solid relationships that we have cultivated. To an after-the-raise agency and BS widened, giving us a chance to deploy about two-thirds of the race, and we've kept the remaining as dry powders.
Speaker Change: This view led us to raise capital in June . It was a landmark raise in many respects. This was the largest capital raise in our 30-plus year history as a public company. Dynex opened the market for block-sized capital, which had been closed since early 2022.
Smriti Laxman Popenoe: We received outstanding execution while effectively resetting the economics for such transactions, a testament to the strong reputation for ethical stewardship and solid relationships that we have cultivated. Soon after the raise, agency MBS widened, giving us a chance to deploy about two-thirds of the race, and we've kept the remaining as dry powder.
Speaker Change: We received outstanding execution while effectively resetting the economics for such transactions, a testament to the strong reputation for ethical stewardship and solid relationships that we have cultivated.
Speaker Change: Soon after the raise, agency MBS widened.
Speaker Change: giving us a chance to deploy about two-thirds of the race and we've kept the remaining as dry powder. We continue to maintain a high degree of liquidity in the form of cash and unencumbered assets and we believe that between now and year-end we will have chances to deploy that capital at attractive long-term returns.
Smriti Laxman Popenoe: We continue to maintain a high degree of liquidity in the form of cash and unencumbered assets, and we believe that between now and year-end, we will have opportunities to deploy that capital at attractive long-term prices. We have a strong conviction that the Equilibrium Agency RMBS OAS and nominal spread range will be tighter than today's level. A scenario where NDS are 20 OAS or 40 BPS nominal spread tighter is highly possible over the coming three to six quarters. This would be driven by falling front-end rates, lower delivered and implied volatility, the return of banks, and the potential underperformance of credit products in a recessionary environment, driving a flight-to-quality bid for agency MBS.
Smriti Popenoe: We can continue to maintain a high degree of liquidity in the form of cash and uncomfort assets, and we believe that between now and year end we will have chances to deploy that capital at attractive long-term returns.
Smriti Popenoe: We have a strong conviction that the equilibrium agency R and BS OAS and nominal spread range will be tighter than today's levels. A scenario where NBS are 20 OAS or 40 bits nominal spread tighter is highly possible over the coming through to six quarters. This would be driven by far and far and wide, lowered, delivered and implied volatility, the return of banks, and the potential under the performance of credit products in a recessionary environment, driving a flight to quality bid for agency NBS. We also believe we written capital rules for banks may be a tailwind for demand.
Speaker Change: We have a strong conviction that the equilibrium agency RMDS-OAS and nominal spread range will be tighter than today's levels.
Speaker Change: A scenario where NDS are 20 OAS or 40 BPS nominal spread tighter is highly possible over the coming three to six quarters.
Speaker Change: This would be driven by falling front-end rates, lower delivered and implied volatility, the return of banks, and the potential underperformance of credit products in a recessionary environment driving a flight-to-quality bid for agency MBS.
Smriti Laxman Popenoe: We also believe rewritten capital rules for banks may be a tailwind for demand, and we are well positioned to capitalize on opportunities that will arise in your end. We also strongly believe in the potential for our company to command a premium valuation. However, our stock continues to trade at a discount relative to forward returns. As we continue to grow, we expect our stock will be added to more market indices, attracting passive investment, and providing support for stronger total shareholder returns.
Speaker Change: We also believe rewritten capital rules for banks may be a tailwind for demand.
Smriti Popenoe: We are well positioned to capitalize on opportunities that will arise into your end. We also strongly believe in the potential for our company to command a premium valuation. Our stock continues to trade at a discount relative to board returns as we continue to grow. We expect our stock will be added to more market indices, attracting passive investment and providing support for stronger total shareholder returns. Finally, we believe our sterling reputation, expertise in managing this business model. Transparence financials and easy to value balance are not respected in the share price and can further drive a premium to book value in the future.
Speaker Change: We are well positioned to capitalize on opportunities that will arise into your end.
Speaker Change: We also strongly believe in the potential for our company to command a premium valuation.
Speaker Change: Our stock continues to trade at a discount relative to forward returns. As we continue to grow, we expect our stock will be added to more market indices, attracting passive investment and providing support for stronger total shareholder returns.
Speaker Change: Finally, we believe our sterling reputation, expertise in managing this business model, transparent financials and easy-to-value balance sheets are not reflected in the share price and can further drive a premium-to-book value in the future.
Smriti Popenoe: I am deeply grateful for the confidence our investors have in us and the team, and I continue to work diligently to deliver value to you.
Speaker Change: I am deeply grateful for the confidence our investors have in us and the team, and I continue to work diligently to deliver value to you.
Smriti Laxman Popenoe: Finally, we believe our sterling reputation, expertise in managing this business model, transparent financials, and easy-to-value balance sheets are not reflected in the share price and can further drive a premium-to-book value in the future. I am deeply grateful for the confidence our investors have in us and the team, and I continue to work diligently to deliver value to you.
Operator: We would now like to open the line for questions. At this time, I would like to remind everyone in order to ask the question. Please press star followed by the number one on your telephone keypad.
Speaker Change: We would now like to open the line for questions.
Operator: At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone key. Your first question comes from the line of Jason Weaver with Jones Trading. Please go ahead.
Speaker Change: At this time I would like to remind everyone in order to ask a question please press star followed by the number one on your telephone keypad.
Jason Leaver: Your first question comes from the line of Jason Leaver with Jones Trade. Thank you very much.
Speaker Change: Your first question comes from the line of Jason Weaver with Jones Trading.
Jason Price Weaver: Hi, good morning. First of all, congratulations to Smriti and Rob and all the others that have, you know, new positions or First, I was hoping you could share a bit more about the timeline to invest the new capital that you raised, coupon-projected ROE, if you can detail anything around there.
Speaker Change: Please go ahead.
Jason Weaver: Hi, good morning. First of all, congratulations to Smriti and Rob and all the others that have new positions or
Jason Weaver: You know just join First I was hoping you could share a bit more about the timeline to invest the the new capital that you raised You know coupon projected ROE if you can detail anything around there
Smriti Laxman Popenoe: Yeah, hi Jason. Good morning, and thank you for the question.
Speaker Change: Hi Jason, good morning and thank you for the question.
Smriti Laxman Popenoe: So basically we have thought in terms of the second half of this year as being an environment that would be appropriate to deploy that capital. ROEs right now on a static basis are between 11 and call it 19 percent on the higher coupons. Those are good ROEs. We believe mortgages are sort of in the middle of the range on a... Nominal spread basis, so they've been trading as tight as like 135 Versus the seven-year as and as wide as 155 on versus the seven-year we're sitting right in between right now and in terms of that range so still attractive returns, but one of the things that we're very focused on is just, Coming, Known unknowns and unknown unknowns, as I mentioned in the prepared remarks, and that we believe will actually possibly allow us to add assets at even wider spreads, and that's kind of why we're being patient about the capital deployment.
Speaker Change: So, basically, we have thought in terms of the second half of this year as being
Speaker Change: an environment that would be appropriate to deploy that capital. ROEs right now on a static basis are between 11 and call it 19% on the higher coupons.
Speaker Change: Those are good good ROEs. We believe mortgages are sort of in the middle of the of the range on a
Speaker Change: nominal spread basis so they've been trading as tight as like 135
Speaker Change: versus the seven-year and as wide as 155 versus the seven-year. We're sitting right in between right now in terms of that range. So still attractive returns, but one of the things that we're very focused on is just coming...
Speaker Change: known unknowns and unknown unknowns as I mentioned in the prepared remarks and that we believe will actually possibly allow us to add assets at even wider spreads and that's that's kind of why we're being patient about the capital deployment.
Smriti Laxman Popenoe: And maybe to drill down on that a little bit, when you think about the potential for interest rate volatility going forward, what sort of risks are biggest on your radar right now, whether that's the election, whether that's upcoming Fed policy, anything else out there that stands out?
Speaker Change: Understood. And maybe to drill down on that a little bit, when you think about the potential for interest rate volatility going forward, what sort of risks are biggest on your radar right now, whether that's the election, whether that's upcoming Fed policy, anything else out there that stands out?
Smriti Laxman Popenoe: You know, I think what's interesting is that we are in an environment of lower volatility. So volatility is actually trending down, and that's been very positive for mortgages and will continue to be positive for mortgages. So I think that is something compared to last year that we feel is a big tailwind for the position.
Speaker Change: You know, I think what's interesting is that we are in an environment of
Speaker Change: lower vol. So vols are actually trending down and that's been very positive.
Speaker Change: for mortgages and will continue to be positive for mortgages so I think that is something versus last year that we feel is a big tailwind for the position.
Smriti Laxman Popenoe: What we're thinking about are exogenous shocks, right? Things that you can't predict, stuff that you don't know that's going to come from something not visible. That's what we call unknown unknowns.
Speaker Change: What we're thinking about are exogenous shocks, right? Things that you can't predict, stuff that you don't know that's going to come from...
Speaker Change: something not visible. That's what we call unknown unknowns. That's one issue, right? The second issue is, you know, there is policy risk, right? So, you know, whenever you think about elections, not just in the U.S., but globally,
Smriti Laxman Popenoe: That's one issue, right? The second issue is that there is policy risk, right? So whenever you think about elections, not just in the U.S. but globally, there are shifts in policy that can come with that, and one of the big things we're focused on is fiscal policy and how that kind of evolves. So that policy risk is binary, and it's difficult to hedge. And when it does come, you will have these bouts of volatility, and that's kind of the context in which we're thinking about that risk, but overall, you know, the volatility is coming down, and that is very supportive for mortgages. All right, that's very helpful.
Speaker Change: There are shifts in policy that can come with that, and one of the big things we're focused on is fiscal policy and how that kind of evolves.
Speaker Change: So that policy risk is binary and it's difficult to hedge and when it does come, you know, you will have these bouts of volatility and that's kind of
Speaker Change: The context in which we're thinking about that risk, but overall, you know, the vols are coming down and that is very supportive for mortgages
Smriti Laxman Popenoe: All right, that's very helpful. Thank you and congratulations once again. Thanks, Jason.
Speaker Change: All right, that's very helpful. Thank you and congrats once again.
Eric J. Hagen: Your next question comes from the line of Eric Hagen with BTIG.
Jason Weaver: Thanks, Jason.
Speaker Change: Your next question comes from the line of Eric Hagen with BTIG.
Eric J. Hagen: Hey, thanks. Good morning, guys.
Eric J. Hagen: Hope all is well. A couple of follow-ups here. Did you say what your current book value was? If you could just give an update, there. And then if the narrative stays focused on the Fed cutting interest rates, I think you mentioned that you see the range for volatility and spreads just being tighter. I mean, how does that factor into... The amount of leverage you're applying to the portfolio and where you guys feel comfortable. Thank you, guys.
Speaker Change: Please go ahead.
Eric J. Hagen: Hey, thanks. Good morning, guys. Hope all is well. A couple of follow-ups here. Did you say what your current book value was, if you could just give an update there? And then if the narrative stays focused on the Fed cutting interest rates, I think you mentioned that you see the range for volatility and spreads just being tighter. I mean, how does that factor into –
Eric J. Hagen: The amount of leverage you're applying to the portfolio and where you guys feel comfortable. Thank you guys
Smriti Laxman Popenoe: Hi Eric, good morning and thank you. Yes, so book value versus quarter end as of Friday is up about 2%. Okay.
Speaker Change: Hi Eric, good morning and thank you. Yes, so book value versus quarter end as of Friday is up about 2%.
Smriti Laxman Popenoe: In terms of leverage here, I would really go back to what we're thinking of in terms of the risk environment. Yes, so we're going to use any spread widening to add to the asset balance. Over time, this is an environment where, again, you would expect us to hold a higher asset position versus when spreads are a lot tighter. Over time, I think as the risk environment starts to evolve, our asset balances should go up. And right now, the position just reflects our view that the second half of the year will have chances to put money to work.
Speaker Change: Okay.
Speaker Change: The you know in terms of in terms of leverage here
Speaker Change: I would really go back to, you know, what we're thinking of in terms of the risk environment. Yes, so we're going to use...
Speaker Change: Any spread widening to add to the asset balance.
Speaker Change: Over time, this is an environment where, again, you would expect us to hold a higher asset position.
Speaker Change: you know, versus sort of when spreads are a lot tighter. So over time, I think as the risk environment starts to evolve, our balance, our asset balances should go up.
Speaker Change: And right now, the position just reflects our view that the second half of the year will have chances to put money to work.
Smriti Laxman Popenoe: Yeah, that's great. That's really helpful.
Smriti Laxman Popenoe: Hey, as you guys get bigger in the current coupon, I mean, how do you think about the spread sensitivity to lower interest rates? I mean, especially given the aggressive marketing tactics that we expect to see from the originators.
Speaker Change: Yeah, that's great. That's really helpful. Hey, as you guys get bigger in the current coupon, I mean, how do you think about the spread sensitivity to lower interest rates? I mean, just especially given the aggressive marketing tactics that we expect to see from the originators looking to refi those borrowers.
Smriti Laxman Popenoe: Looking to refinance those borrowers.
Smriti Laxman Popenoe: Yeah, look that's one of the things that you, you know, The portfolio has to be constructed for both up rates and down rates. Here, we buy back options in the lower coupon positions that we own, right? So, Yes, there's greater spread to be had in the higher coupons, but there are two ways you mitigate that. One is using specified pools. That gives you some convexity protection.
Speaker Change: Yeah, look, that's one of the things that you, you know, the portfolio has to be constructed for both up rates and down rates in here. You know, we buy back options in the lower coupon positions that we own, right? So.
Speaker Change: Yes, you know, there's greater spread to be had in the higher coupons.
Speaker Change: But there's two ways you mitigate that one is using specified pools that gives you some convexity protection
Smriti Laxman Popenoe: The second is just having this diversified coupon position, and that's where those options get bought back. We are very cognizant that even without much of a rate decline in the mortgage market, you can see faster prepays. We've seen that in the higher coupons that we do own, so that is a very clear and present thing in terms of, you know, how we're managing the book. And you'll see we have been active in specified pools. We like the idea of low pay-up specs in those in those areas as a way to protect against some of that refi.
Speaker Change: The second is just having this diversified coupon position, and that's where those options get bought back.
Speaker Change: You know, we are very cognizant that even without much of a rate decline in the mortgage market, you can see faster pre-pays. We've seen that in the higher coupons that we do own. So that is a very clear and present trend.
Speaker Change: thought process in terms of you know how we're managing the book and you'll see we have been active in specified pools we like the idea of low pay up specs in those in those areas as a way to protect against some of that that refi risk
Smriti Laxman Popenoe: Yep, that's really helpful. Thank you guys so much. Thanks, Eric.
Speaker Change: Yup, that's really helpful. Thank you guys so much.
Frank Libetti: Your next question comes from the line of Frank Libetti with KBW.
Eric J. Hagen: Thanks, Eric
Eric J. Hagen: Your next question comes from the line of Frank Libetti with KBW.
Frank Libetti: Hey guys, this is Bose. Congratulations, Smriti and Rob and the rest of the team.
Speaker Change: Please go ahead.
Boz: Hey guys, this is Bose. Congratulations Smriti and Rob and the rest of the team.
Frank Libetti: And actually, a couple of questions. First, your expenses fell a quarter of a quarter by about four million. Can you remind us, you know, was the first quarter a bit elevated and what's a good run rate for that number? And also, any of the personnel changes going to impact that number going forward?
Frank Libetti: A couple of questions. First, your expenses fell quarter of a quarter by about $4 million. Can you remind us, was the first quarter a bit elevated and what's a good run rate for that number? And also, any of the personnel changes going to impact that number going forward?
Robert S. Colligan: Sure, Bose. This is Rob. Thanks for the question. Yeah, we had some accelerated vesting on equity comp by about four million in the first quarter. So, if you just spread that out through the year, you know, if you said it was a million dollars a quarter instead of a bump in Q1, that's a good run rate. We may have that bump going forward where Q1 is a little heavier than the rest of the year. But, you know, if you just smooth that out over the four quarters, I think that would be a good way to model it out.
Frank Libetti: Sure, Bose, this is Rob. Thanks for the question. Yeah, we had some accelerated vesting on equity comp.
Eric J. Hagen: by about four million in the first quarter.
Speaker Change: So, if you just spread that out through the year, you know, if you said it was a million dollars a quarter instead of a bump in Q1, that's a good run rate. We may have that bump going forward where Q1 is a little heavier than the rest of the year. But...
Eric J. Hagen: If you just move that out over the four quarters, I think that would be a good way to model it out.
Robert S. Colligan: Okay, and then, apart from that, this quarter's run rate is reasonable.
Speaker Change: Okay, and then apart from that, this quarter's run rate is reasonable.
Speaker Change: Yeah, just through the second part of your question, the personnel changes won't materially change the run rates.
Robert S. Colligan: Okay, great, thanks.
Robert S. Colligan: Okay, great, thanks. And then, Rob, you made the comment about net interest income and how, you know, it could increase, I guess, on an accelerated basis if the Fed cuts. Does that comment refer to the EAD or does that impact the economic return as well as the Fed cuts?
Robert S. Colligan: Yeah, it's really both. Yeah, you know, if the Fed cuts or repo rates go down, EAD goes up, and total economic returns go up. So it's like a triple win. But if that happens, we're not banking on that. Obviously, we can manage through even if those rates don't come immediately or come later than people expect. But if they do come sooner, we'll gladly take a lower repo expense. Okay, great. Thanks.
Robert S. Colligan: Yeah, it's really bold. Yeah, you know, if
Robert S. Colligan: The Fed cuts, our repo rates go down, EAD goes up, and total economic return go up, so.
Robert S. Colligan: It's like a triple win. If that happens, we're not banking on that. Obviously, we can manage through even if those rates don't come immediately or come later than people expect, but if they do come sooner, we'll gladly take lower repo expenses.
Speaker Change: Okay, great. Thanks.
Will Nass: Your next question comes from the line of Will Nass with Credit Suisse.
Speaker Change: Your next question comes from the line of Will Nasta.
Will Nasta: with Credit Suisse.
Douglas Michael Harter: Hi, this is actually Doug Harter from UBS. Just hoping you could talk a little bit more about the decision to issue equity, you know, a large amount of equity kind of below book value, you know, kind of how you see the payback period and the trade-off versus, you know, increasing the position through leverage.
Speaker Change: Please go ahead.
Douglas Michael Harter: Hi, this is actually Doug Harter from from UBS
Speaker Change: Just hoping you could talk a little bit more about the decision to issue equity, you know, a large amount of equity kind of below book value, you know, kind of how you see the payback period and the trade-off versus, you know, kind of increasing the position through leverage.
Smriti Laxman Popenoe: Thanks, Doug. Yeah, so where this started off was with a tremendous amount of demand for Dynex stock. Okay.
Speaker Change: Thanks Doug.
Speaker Change: Yeah, so...
Speaker Change: You know where where this started off was with a tremendous amount of demand for a Dynex stock Okay You know, I talked about our reputation during the prepared remarks
Speaker Change: People notice when your performance is good. We have been the best performing mortgage REIT since 2019 or thereabouts That is resonating with investors. People are looking for management teams that
Speaker Change: You know can
Speaker Change: provide value through an investing cycle here that's really attractive in agency mortgages. So it starts off with that demand for Dynex stock. So there was a very strong amount of reverse inquiry for Dynex. That's the thing number one.
Smriti Laxman Popenoe: You know, I talked about our reputation during the prepared remark. People notice when your performance is good. We have been the best performing mortgage REIT since 2019 or thereabouts, and that is resonating with investors. People are looking for management teams that, you know, can provide value through an investing cycle here that's really attractive in agency mortgages. So it starts off with that demand for Dynex stock, so there was a very strong amount of reverse inquiry for Dynex. That's the thing number one.
Smriti Laxman Popenoe: Thing number two, the stock was trading at a local high; that factored into our decision. And the other piece is, you know, look, last quarter I gave a very detailed rationale for us issuing equity. When do we issue equity? Why do we issue equity? I talked about the fact that when we do it, we're considering the environment that we're investing in, and in this environment, the cost to issue, which gets subtracted up front, is actually much easier for us to make back when spreads are as wide as they are, right?
Speaker Change: Thing number two, the stock was trading at a local high, that factored into our decision. And the other piece is, you know, look, last quarter I gave a very detailed rationale for us issuing equity.
Speaker Change: When do we issue equity? Why do we issue equity?
Speaker Change: I talked about the fact that when we when we do it you know we're considering the environment that we're investing in and in this environment the cost the issue which gets which gets subtracted up front.
Speaker Change: is actually much easier for us to make back when spreads are as wide as they are, right? And so when that payback period ends up being shorter than any other time in history, it makes sense for us to issue.
Smriti Laxman Popenoe: And so when that payback period ends up being shorter than any other time in history, it makes sense for us to issue. The other piece that was really important this time was that the pricing was very aggressive and advantageous for our shareholders. So those are some of the factors that played into our decision. And the last piece of it is just, look, looking into the second half of this year, we really believe that there will be chances for us to deploy this capital.
Speaker Change: The other piece that was really important this time was that the pricing.
Speaker Change: was very aggressive.
Speaker Change: and advantageous for our shareholders. So.
Speaker Change: Those are some of the factors that played into our decision. And the last piece of it is just looking into the second half of this year.
Speaker Change: We really believe that there will be chances for us to deploy this capital. You know, there's...
Smriti Laxman Popenoe: There are already known unknowns, which we've witnessed in the last three weeks in the U.S. political situation and the global political situation. These are all factors that we think will help us, at the end of the day, put capital to work at really good levels.
Speaker Change: There are already known unknowns, which we've witnessed in the last three weeks in the U.S. political situation, global political situation. These are all factors that we think will help us, at the end of the day, put the capital to work at really good levels.
Smriti Laxman Popenoe: And Smriti, just a follow up on when you're talking about the local high of the stock, is that a local high in terms of, you know, kind of how you view price to book valuation? Or is that kind of on an absolute, you know, just stock level?
Speaker Change: And Smriti, just a follow-up. When you're talking about the local high of the stock, is that a local high in terms of, you know, kind of how you view price-to-book valuation, or is that kind of on an absolute, you know, just stock level?
Smriti Laxman Popenoe: And I think that those are all factors that go into it, yes.
Smriti: All of the above.
Smriti: And I think that is, those are all factors that go into it, yes.
Smriti Laxman Popenoe: All right, I appreciate the insights, Marcy. Thank you. Absolutely. Thanks, Doug.
Smriti Laxman Popenoe: Absolutely. Thanks, Doug.
Smriti: All right. I appreciate the insights, Marcy. Thank you. Absolutely. Thanks, Doug.
Jason Michael Stewart: Your next question comes from the line of Jason Stewart with Jones Trading. Please go ahead.
Speaker Change: Your next question comes from the line of Jason Stewart with Jones Trading.
Jason Michael Stewart: Jason Shearer with JANI. Byron, thanks for the introductions to the new teams and congrats on the promotions. How should we think about your role going forward given these moves?
Speaker Change: Please go ahead.
Jason Searwood: Hi, Jason here with Jani. Byron, thanks for the introductions to the new teams and congrats on the promotions. How should we think about, Byron, your role going forward given these moves?
Byron L. Boston: That's a great question. I've been here, I'm in my 17th year at Dynex Capital. I am so proud to be here and work with this team. Thank you for this question. It is phenomenal.
Byron L. Boston: That's a great question. I've been here, I'm in my 17th year at Dynex Capital. I am so proud to be here and work with this team. Thank you for this question. This is phenomenal. I absolutely love being at Dynex Capital and I love the team that I work with.
Byron L. Boston: I absolutely love being at Dynex Capital, and I love the team that I work with. We have an extremely experienced team. I've accumulated an enormous amount of experience over time. It's not about just picking the right human being for the job. It's also about developing the right human being for the job. It's about developing the right people, the right process, and the right technology. So I am here at Dynex Capital looking to the future, looking to build our company for the future.
Byron L. Boston: We have an extremely experienced team.
Byron L. Boston: I've accumulated an enormous amount of experience over time. It's not about just picking the right human being for the seat. It's also about developing the right human being for the seat. It's about developing the right people, the right process, and the right technology.
Byron L. Boston: So, I am here at Dynex Capital looking to the future, looking to build our company for the future. We have more resilience in this structure.
Byron L. Boston: We have more resilience in this structure. We have a better opportunity for consistency over time and the development of our personnel. And to be frank and honest with you, if you look at the moves that we've made over the last couple of years, we've outperformed everyone else in terms of human capital decisions. So I'm pretty excited here at Dynex Capital, excited to be with the team that I have here. And I couldn't have been blessed any more than to show up here in January of 2008, find a great group of people, a similar culture, and similar values, and methodically, piece by piece, in a very disciplined manner, we've been building this company over time.
Byron L. Boston: We have better opportunity for consistency over time, development of our personnel, and to be frank and honest with you, if you look at the moves that we've made over the last couple of years, we've outperformed everyone else in terms of human capital decisions.
Byron L. Boston: So, I'm pretty excited here at Dynex Capital, excited to be with the team that I have here. And I couldn't have been blessed any more than to show up here in January of 2008, find a great group of people.
Byron L. Boston: Similar culture, similar values, and methodically, piece by piece, in a very disciplined manner, we've been building this company over time.
Byron L. Boston: And I appreciate all those shareholders who are listening who've been with us through this journey. And we'll keep looking for the future in terms of generating a solid cash income for you on a monthly basis.
Byron L. Boston: And I appreciate to all those shareholders who are listening, who've been with us through this journey. And we'll keep looking for the future in terms of generating a solid cash income for you on a monthly basis.
Jason Michael Stewart: Great. Thanks, Byron.
Jason Michael Stewart: We look forward to hearing from you on these calls. I have a question for the portfolio team. You know, when we think about the up and coupon trade, how much of that is carry based versus, you know, shorter duration, total return? And when does that dynamic shift to, you know, down a coupon? I mean, what are you looking at in terms of markers to say, you know, that that theme has played out, and it's time to move down a coupon?
Byron L. Boston: Thanks, Byron. We look forward to hearing from you on these calls. I had a question for the portfolio team. When we think about the up-and-coupon trade,
Speaker Change: You know how much of that is carry based versus you know shorter duration total return and when does that dynamic shift to you know down a coupon I mean what what are you looking at in terms of markers to say you know that's that theme is played out and it's time to move down a coupon.
Smriti Laxman Popenoe: Hey, Jason. You know, I would I would say, can I just add one thing to Byron's comments? You know, we are a team. We've been a team for a long time.
Jason: Hey, Jason.
Speaker Change: I would say, can I just add one thing to Byron's comments?
Speaker Change: You know, we are a team.
Smriti Laxman Popenoe: And today's announcement just says we're going to keep being that team. And so that's an important piece of this. I think about your other question about the coupon positioning. One of the really nice things about being in this environment and having the returns that you can get in the higher coupons is that, overall, the volatility trend is declining. So that just means that the expense that you have to pay to hedge these coupons is lower.
Speaker Change: We've been a team for a long time, and today's announcement just says we're going to keep being that team, and so that's an important piece of this. I think to your other question about the coupon positioning.
Speaker Change: One of the really nice things about being in this environment and having the returns that you can get in the higher coupons is that overall the volatility trend is declining.
Speaker Change: So that just means the expense that you have to pay to hedge these coupons is lower. And you can actually have a chance of earning some of that return, the nominal return, right, the nominal spread. And the option cost isn't as high.
Smriti Laxman Popenoe: And you can actually have a chance of earning some of that return, the nominal return, right, the nominal spread, and the option cost isn't as high. So, when we start to see the option cost actually starting to increase, that usually happens in downrate scenarios where volatility is increasing. I think that's when, and well in advance of that, you really want to be able to adjust your position.
Speaker Change: So when we start to see the option cost actually starting to increase, that usually happens.
Speaker Change: In downrate scenarios where vol is increasing, I think that's when, and well in advance of that really, you want to be able to adjust your position. Down in coupon, that is not yet the environment that we're in, we believe, but that would be one of the factors that we would consider.
Smriti Laxman Popenoe: Down in coupon, that is not yet the environment that we're in, we believe, but that would be one of the factors that we would consider in taking sort of a more aggressive position down in coupon. Just to remind you guys, our book is actually fairly diversified; it's like 40% below fours, right, and 60% above, you know, four and a half and above. So it's relatively balanced in that way. So we're trying not to take too much of that risk just because we're very respectful of, you know, someone else who asked the question earlier on the call about that downrate refinancing risk on some of the higher coupons.
Speaker Change: in taking sort of a more aggressive position down in Coupon and just to remind you guys um you know our book is actually fairly diversified it's like 40%
Speaker Change: below 4's right and 60% above
Speaker Change: You know, four and a half and above, so it's relatively balanced in that way.
Speaker Change: So, we're trying not to take too much of that risk just because we're very respectful of, you know, someone else asked the question earlier on the call just about that downrate refinancing risk on some of the higher coupons.
Jason Michael Stewart: Yeah, got it. Okay, and just one clarification for Rob. I think you said that, you know, I mean, we obviously noticed NII in flux.
Speaker Change: Yeah, got it. Okay, and just one clarification for Rob. I think you said that, you know, I mean we obviously noticed NII inflect, but you think that holds absent of Fed rate cut, correct? And the Fed rate cut would just amplify that?
Robert S. Colligan: Okay, great. Thanks a lot. Yeah, the point there is the lower yielding...
Robert S. Colligan: That's correct.
Speaker Change: The point there is the lower yielding assets that we've had are paying off and actually paying off faster than we've expected and we're adding higher yield as we go so that should continue to trend in that direction.
Robert S. Colligan: Great, thanks for the question.
Speaker Change: Great. Thanks for the question.
Byron L. Boston: I will now turn the call back over to Mr. Byron Boston for our closing remarks. Please go ahead. Thank you very much.
Speaker Change: I will now turn the call back over to Mr. Byron Boston for our closing remarks. Please go ahead. Thank you very much. Please remember Dynex Capital, we're managing for the long term. We look forward to seeing you on our next quarterly conference call. Thank you very much. Have a wonderful day.
Byron L. Boston: Thank you very much. Please remember Dynex Capital; we're managing for the long term. We look forward to seeing you on our next quarterly conference call. Thank you very much. Have a wonderful day.
Byron Boston: Please remember Dynex Capital. We're managing for the long term. We're looking forward to seeing you on our next quarterly conference call.
Operator: Thank you very much. Have a wonderful day.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.
Operator: Please wait. The conference will begin shortly. Thank you very much.