DX - Earnings call transcript Q4 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Dynex Capital Q3 2019 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Alison Griffin. Please go ahead.

Alison Griffin

Thank you, Operator. morning. Good for you us, joining thank everyone. And on President and me Steve EVP, the and call Boston, Byron Benedetti, COO. and have I CFO CEO; and today, CIO; With Smriti EVP Popenoe, this call release press and the XXXX. associated today's morning, The was X, February with filed issued with SEC

You may sec.gov. at the release press homepage website Dynex website the view the as dynexcapital.com SEC's the at well on of as on

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

information Form For on refer the the please to factors filed December risks, XXXX, or report with SEC. these period as for annual XX, the XX-K on ending additional

as be referenced turning our have reports to link Dynex This over be through document on The which be as SEC's presentation, homepage now the Boston. The quarterly a presentation of under the Byron with over on may the website. CEO, call webcast of page. Investor our on can pleasure a under internet the call found the I the Center slide the found Center Investor well is may being live on website. website broadcast streaming slide

Byron Boston

joining XXXX XXXX over a the in year, thank and our quarter momentum on strong on We this portfolio third carried we view month and morning. based call call. we our Alison, Throughout our conference you, is our that XXXX. managed actively you macroeconomic expressed first note the all the of into for Thank finished

time, cost the Fed rate at that financing If we its you expressed begin cycle would will decline. the recall, pause our view hiking to that our and

view more also lower a spend would a the bias in expressed tighter We range that a rates with toward range. the end historical interest of time

XXXX, lock our lower shares managed sides financing sector of such, the costs, in CMBS percentage both in allocated grossly portfolio of our the when to to rates, declining our agency adjusted sheet take balance actively own stock we mispriced. advantage of As to increase and repurchased assets our were interest

global to XXXX Steve but create the into value in Our a intensify. continue environment that collective dividend despite let actions to continues Smriti I'll long-term our solidly outearned in more risk our quarter. and we details, shareholders for fourth go to

but again book on of once declining portfolio rates. the value was CMBS rebounded solidly XXXX during at portfolio has take our down Our of spreads month our managed as slightly first we and tightened, to the year-end, advantage

have margins remain we quarters, been increasing our or Our stable for few decline. past costs to are and financing anticipating the

stuck in view Global the are central cycle depends levels the from and been Over a consistent several of we global debt our have banks. the of capital flow years, increasing global of and in that on economy. economy continued macroeconomic liquidity markets past

Middle braced higher in as to far of China. credit for assets As outbreak liquidity, with the the conflicts in have quality we and so global emphasize XXXX East continue witnessed coronavirus more such, we are we such the and surprises continued with

and answers. Alison, I series of call will to through now will over turn she you questions walk the a and

and Steve series walk of Alison? -- give to answers questions Smriti about through our results. a and you detail So more

Alison Griffin

Thanks, Byron.

the you could ask fourth like us please? walk to I'd results, Let's start with quarter if through Steve. --

Stephen Benedetti

Sure, And Alison. welcome, everybody.

presentation the of a the on non-GAAP Slide are Reconciliations through on summarized X. non-GAAP for XX basis on included GAAP and results quarter results Slides in Our XX. are

spread. As share was increase common core common $X.XX and $X.XX $X.XX in net the noted, improvement interest interest is net X.XX% which in And ago EPS quarter share per swap per X.XX% core fourth for a net were Byron measure, sequential for net to an in GAAP the quarter on roll non-GAAP includes transactions from the dollar EPS increase by income adjusted fourth headlined last Adjusted and quarter, interest up adjusted interest strong, spread results quarter. quarter. year from the Driving for a in spread. was X.XX% it our third fourth and the

trend The can interest Our benefit you from the net borrowing the reserve. net the X.X% this hedge approximately they costs will included reduction have basis than the Slide quarters. little quarter the on to year. subsequent this last evolved spread is declined last of of costs repo with repo positive half have over a several XX funds in the in declined spread reflecting decline points, XX comment declining Federal into points half the repo second fourth XX by to markets of and rate, basis in Repo and interest the few financing months first costs. rate the see quarter point year, liquidity more XXXX. the they're Smriti adjusted in of in XX, Compared and historical appendix funds on costs Federal coupled basis -- the Federal a quarter the injection as to the from financing continued

as from tactical the relates our we've core continued over that benefit Byron. the made hedge quarters, it decision several to As to by portfolio, last to alluded EPS

Overall, the during in than on received more but during of XX up our net to our net basis points position compared interest accounted XX adjusted points net XX which in quarter. added position basis quarter, spread decline. basis on $XXX,XXX, by increase for spread adjustments X book rate the hedge points hedge our interest the quarter. the Overall, this swaps Net increased our points from last rate interest payments last to quarter, offset interest swap our rate the receive was down the basis

the down from our asset modestly interest-earning last $XX.XX detail was elaborate we Smriti added year at in leverage, call. for per relates in later quarter as both book overall value will $XX.XX common leverage prior we on average more our standpoint, From were the year-end. down it ended the share balance. and book value a -- As to

common economic shareholders quarter for return the Total X.X% for was to and XX.X% year. full the

we dividends For full $X.XX and $X.XX the quarter, declared year. in for the

comments, and concludes the Alison. my to That I'll call back turn

Alison Griffin

XXXX you as walk through Steve. performance well for year as Thank fourth us the quarter? the in you, Smriti, can the

Smriti Popenoe

rates XX series year, of and the can section. basis start across ending points year with Alison. down the through shifts appendix, will the to almost Please Yes. you, follow went you the Hi, a everyone, curve. last turn thank for this Slide Interest in so I yield market. XXX along

shape yield More longer curve, of importantly, specifically maturity costs and moves had financing the between we significant bonds. the in

the rate, rate the you X-month versus XX-year only XX September Federal As see X.XX% curve can rate. total lowest yield Xx points. markets the resteepened we basis refinancing expectations. late to their rates Mortgage declined more year X-month the a in a second the which the started much which This compare lasted inverted temporary you dipped slow primary is off a nature, mentioned, on XX respective be felt This inversion, in quarter. quarters, peaking in Though FHFA repo repo curve, or about XXX X X positively since that reserve wave fourth XXXX, points, on flat basis with basis the LIBOR triggered rates of before touching the over mortgage top the panels, as benign than Steve quarter. was we in when to points would for

tighter in third underperformed Spreads the RMBS ended the in and in agency RMBS fourth year the CMBS. to agency the relative but third year quarter quarter-wise. quarter, wider the in tighter Agency ended

worsened more in spreads this next the TBA RMBS outperformed come TBA OAS specified RMBS coupon TBA yield CMBS as year. for versus pool prepayment Pay-ups been XXXX, the has pay-ups year trend protection flattening lower the making page, the stack. Higher specified coupon curve. the across show coupon pools and interest down, various last rates fell, and rose tighter. we rates valuable. On have longer are far Agency for so deliverable versus for to Year-to-date maturity the Agency types

the market as year, you managed $X.XX a X value X, return the paying relatively turn Against the on economic Please now generate for we XX.X% portfolio, flat. back can book total X. keeping this Slide managing and to dividend, Slide to portfolio in X. We backdrop, see and active were X

overall in portfolio lower adjusting year year. create dynamic with with the made allocation position as Our shifting the earlier X, fourth finally, during market spike coupon pools financing key swap last locking and quarter. in our percentage in RMBS third capital protected curve specified second of in a in CMBS form X, purchase the increasing held agency the portfolio include, to management inverted exposure. of rebalancing Agency on our resulting disruption our reduction XX-XX in quarters, of prepayment repo the no and to the of management rates. the the decisions in hedge TBA our financing Slide in And Slide Slide X, value to and rates

As the quarter core on had our impact for a decisions results rebalancing and fourth significant Steve in EPS. mentioned, our second quarter third

to rate decision at earnings onetime quarter a the was swaps the receive added favorable add to curve X-month very inverted the benefit fix LIBOR First, pay fourth the as X.XX%. as

that future from benefit X-month rates quarters will and the has the LIBOR down, lower quarters. continue to benefit is fixed much we While pay current in low future come as in

Second, average decline cost basis quarter. during repo we the a in benefited from also point XX

us on about can to Some X-month of this will continue to XX, you in January. Slide early see have XXXX, in repo rates declined X.XX% that benefit

consistent pay the the core Late the positions. average added for And the we protection our also share share earnings rates of the fixed quarter, with in in form finally, macro boosted executed, as higher quarter. count fourth fourth a of while for existing lifting we result buyback options, lower view, share per

positive. can XX in causing duration on back Quarter-over-quarter, rates our long the in value You our end rates exposure The our longer quarter this curve, see profile. Slide the decline lower to initially more of had value risk fourth reflected the as to for was increased. position end performance the the book impact book on yield

in along an During January, has estimated to the this positioning, to tightening per the X% increasing RMBS and X% year-end. rise $XX.XX in outperformance with versus value a $XX.XX month book of CMBS share, higher resulted to coupon agency

portfolio portfolio earnings XXXX and the ways. performance the and value of view. consistent diversified diversification in of in clearly value demonstrated construction reflect the our book and Our macroeconomic several the

even ability keep value stable Agency improved the portfolio. to CMBS of positive the was agency First, the RMBS to spreads widened book when due convexity largely

ability compensation RMBS the on portfolio, portfolio. the offset prepayment premium to protect impact. the Second, higher is from increasing flows This by the while significant prepayments from CMBS amortization provided cash with arose a

from impact negative year prepayment premium the full XXXX, Alison? increased offset CMBS the XX% the from portfolio. For RMBS amortization compensation on of Agency

Alison Griffin

the you Thanks, how is Tell the today, XXXX? for us Smriti. portfolio investment how positioned strategy are thinking about

Smriti Popenoe

Our probability the to rates, a interest lower for macro a environment rates end to continue range be research for to and point with of at bound higher the work range.

framework possibility direction. economic have We by We the talked already an as always that fundamental of impacting the trends global the that is unfavorable of coronavirus shift exactly burdened about can an type unexpected fragile surprises, trigger economic view in debt.

Our management year significantly active resulted have the quarter. continued fourth us actions the so in in outearning last and dividend

EPS the X-month earlier, in a was core onetime to mentioned I the quarter. LIBOR fourth benefit As set

margin to expect our year. actions For rebalancing from interest last net we XXXX, benefit

first later The the a in decline at in quarter, stabilizing dividend the moderately in level eventually costs year. above the repo

of type this range. the for a rate cash the focused of for for building upper flows the end strategy interest movement of with portfolio end remains rates the protection to range durable environment lower on Our in

environments manage to said like As this, on mix and we leverage intra-quarter. we calls, asset the expect have dynamically in many before duration, conference

CMBS credit, liquidity combination We pools. in continue the the in that specified up in will up agency the environment. to and diversified portfolio We believe like perform in of

Page our CMBS why have laid to we some form in an agency XX, the market. choose prepayment lockout On in of the of protection we out buy explicit

going like feature time lower important you actually This of is in The interest receive as at if One we same prepay. that your spend are implicit, investor protection of bonds lot protection the that a to is rates or it don't the absolutely reasons fall Agency the nonexistent a main rates. RMBS invest don't that is low becomes when or market. say efficient in But recognize it, That's not refinancing we do. market can and machine prepayment we disappear enough we an type if of is very compensation the enough. to

profile increased stable So environment. prepayment earnings we and from both. the and have the offsets more a from Agency The compensation that CMBS creates premium rate the lower RMBS, amortization

Alison Griffin

the on expectations your actions comment market Thanks, and what Smriti. Can repo you and trends the Fed are?

Smriti Popenoe

to and deal. that interest on most December and focused a add a a of exposure September market they have TBA clearly their they're has their want to continues this us extremely support deal, be The balance easing. so a and that hold. communicated the They XXXX, by is high to repeat repo big such treasuries. bar XXXX increasing facilities. as MBS is on Absolutely. of and offering offering for in rates remain Fed liquidity support markets their temporary With At to continued they're bar point, very and raising financing not repo on the or the big clear It Agency do intervening, the it assets, the to a liquid repo low sheet

this something as solutions, have to, also stepping apparently but an right as the Fed they a again, resort. exploring. that Over politically the Regulatory commit standing remains option, they're, to And leaves reluctant the repo charged. that facility, reform last lender us really and in term, but the of is with long is Fed such now

repo of from the participates easing first easing an be financing on, are we'll finally tailwind developments We're providers. and XX. far the another Home be housing the expect in system, Federal XX actively year our just this competition the company the The as the back points FHFA costs. for stable funding to watching ability further Bank we're Loan and our as seeing rates Page point markets, and system. Fed be of last the participant to are just a also then among full well now at declines basis come we by future REITs is to financing reconsidering the to that in As costs And that would as go that benefit going to in quarter. From concerned, active

Alison Griffin

today? see Where do you marginal returns

Smriti Popenoe

space, the Alison, And Interestingly, asset to of system liquid the continue this best now, said the returns. provide with Right flood and the the central it's most some we where Agency space. in stepped Agency era tighter are RMBS on XX% a see we're to an in easy returns overlook pools how have assets. depending static little the returns type XX% In range. RMBS performed, CMBS and hedge between XX% space, in for liquidity, the agency liquid we've time banks the to to bit well of given really and now, specified somewhere marginal the coupon value best to purchased. returns in X% the they've those

Alison Griffin

to like to Thanks, I'd Smriti. the turn call Byron. over now

Byron Boston

Slide you, Thank turn Well, Alison. everyone to XX.

As considerably rates hold raising past for we reducing spreads more years. on with the a for have a on mortgage-backed bar attractive agency improved for today anticipated, and interest are rates. Fed with business low bar high interest the Dynex over securities Furthermore, conditions than and several

capital. our to we opportunities have invest So

so sides and cash we both far are as balance to generate positioned continue shareholders. I flow have to of surprises, continue will We a the portfolio, our subject for believe are I that environment we and we XXXX. long solid to so manage to remind our often, our in actively for liquid will Slide sudden seen with turn economic XX. managing we Please do sheet business to you, is global the term. as political And But

next X to price returns U.S. has in extremely asset pay than to inflated. given are average above years, driver over pay of be government for Dynex a to today, Furthermore, that that continue attractive highly XX dividends our levels will interest. that less cash years. existed major only dividends world XX X% the global a you believe where The we cash long-term we shareholders will are bonds

We are the to our lines for to seasoned disciplined own operator, our with in dedicated shareholders. have team, top-down stock, our a we to up and managed. management We a we to open internally continue decision-making going own value that, for create questions. remain approach And we're process macroeconomic

Operator

[Operator Instructions].

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

Joshua Bolton

range us you I if It actually wondering those to around commentary Josh the the of the high of around puts see. I walk for was and seemed could compared when numbers. is end on the January. Doug. us provided book we takes This some appreciate anything through could through to value

I if the it. curious would how great. book that's first you be lot commentary quantify RMBS or coming the of could performance CMBS of is know a RMBS value estimate from just tightening the that any but versus So higher in a coupon coupon much And increase appreciate around the maybe lower quarter questions, performance? of

Byron Boston

it. stuck be from ago. give a We believe volatility book managing in not securitized some increased -- throughout detail. we're that it's We I'm favorable becomes agency can perspective, And CMBS get there's range. -- going position let We bias. lower [indiscernible] higher year as XXXX. Smriti, a specific end positions, result. you quarter. in with going of And given ago, in our And always a result. And range to a the lower But leave to far about our have range. our it's for more not we unusual our then Smriti you we're basic We macroeconomic concerned, with But to a it in surprising purchased spreads tightened. with years have you're we're a spread an I'm view, the coupon for first outperformed We And we've this they've tightened. environment. of of when the as a stated believe X.X had going backdrop, more

Smriti Popenoe

Byron. Thanks,

value execute did one book of a and in slide to just way the where you on rates. XX worked, drivers position biggest in says hedges deck. of month. that's deck slide Page first the if substantial Page the on our it XX We turn the the probably Josh, So interest could risk shift

XX at you December XX, position September. the in interest versus about in in shareholders to is positive September to the relative look change point for a equity rates our XX basis So if decline X%

of we that's So this X were year. the in of bigger how terms positioned coming drivers into

protection one or we're that kicking had rates lower interest upgrade to you okay? was literally range. was if to higher rose. even or but So you're interest anything sort no to in that the opinion that We Iran of coronavirus the in can more decline, can of the for benefit end at to the rates else, Again, range, protection rates our be spending time macro predict able contingent and contingent were see be going in a as scenarios,

a that's So driver. big

say second higher would the I The thing book is towards coupon. weighted our is

So X.Xs I and in the Xs we the the there good own market even in X.Xs up book. price a even of actually rallied. in as It's coupons, even though -- price dollar and really think XX% the held Those well. went some in and sitting treasuries though rallied, though

was piece the And was that allocation -- the CMBS bigger then So portfolio. second this XX% just piece. to the the

in really those demand There for Some a of bonds outperformed was that of product. January. lot

are own and XX We down, of bonds, some We're showing in XX. are are that Slide bonds pulled some XX.X. that you a par trading where price variety

that approximation, more So other lower was demand for example, we spread securities, tightening, there own. while which it's for in an which where ways there's duration --

the outperformance. So was piece another that of

we the had own bonds to higher outperformed; in and number that there's market coupon demand. So really things: be there; rallied, were RMBS we very CMBS, -- or happened specifically a CMBS overweight benefited; also agency two, outperformed Agency X position much

X reasons. the So those are

Operator

Hagen from comes KBW. question from Eric next Your

Eric Hagen

Congrats on a and year good good January. a

You occur. guys they amortize prepays as

relative slowdown the little that net to on I'm boost should expected RMBS prepays So quarter. just Agency your fourth bit spread the a confirming in

Smriti Popenoe

the in I'll That method, is Steve but terms of that. let correct address

Stephen Benedetti

We're a that's correct. prospective Eric, method. Yes,

downs on So that the RMBS during -- occur book. reflect we quarter the the pay the actual

from in portfolio be any seasonality slowdown would construction the So reflected or results.

Eric Hagen

and And the to around think level would you're just confirm optimal at? where leverage Agency and but little right what level pairing that of run comfort of taking you what Xx imagine I from wanted at RMBS then can your be was now, are higher get that Great. the here? that. comfortable a I you CMBS

Smriti Popenoe

leverage as leverage the ability agency the is thinking higher the agency I Xx convexity sort at the can -- from level. think to about CMBS, of given product mean, on we enable But return positive run this I does the CMBS on it's run higher. risk-adjusted a the we're buying, -- this the point.

Byron Boston

just structure better that, that Yes. that's And has the Smriti? one give structured loan, Smriti better us it's leverage want agency to carry said ability is the something and Do product. a add CMBS to of to a it It's a real simply a important the product, you structured higher here does that level.

Smriti Popenoe

We're good. No. No.

Eric Hagen

comments mostly a little pertain you of know And CMBS the on that the the side would repo any agency or Agency your different? commentary I is guys around do, market bit say to a on of -- Okay. and lot RMBS. a bit But that probably the the same credit you little

Smriti Popenoe

say would I really... there's so --

Eric Hagen

repo Regarding rate?

Smriti Popenoe

the There's agency no Right. really and the Agency CMBS difference, between Eric, RMBS.

So that. those The two distinguish really at doesn't haircut the get and market funded levels. same the same right

we've didn't a guys On suffer suffer product any banks don't suffer We we the balance have seen really They profile. one -- as that not of did are really disruption. our of sheet. the own, funded own, facility we market. in on the is, small stable disruption And the Those committed primarily last repo that disruption year. know, the ours in we with things amount you bank that you very of that IOs credit repo

Operator

Trevor Your from Securities. from next question comes JMP Cranston

Trevor Cranston

the of You the rates you around. moves guys have shifted lot benefited obviously, of rate talked on as about, how guys from out might in in positioning Can in exposures sort your the January? as market your comment dynamically you rates rate prepared you portfolio came managing And remarks, a January.

Smriti Popenoe

Yes.

had treasury We the portfolio options using that the September. or came market, were existence rates upgrade on in that those we through futures attractive, in opportunity get in back options swap doing we Early to rates the manage scenarios, in forward basically of used variety If are to rates instruments dynamically. February, that. So to the again, in constantly that. we we're financing market, lock swaptions. -- for the a we opportunity We've going to do are either

Trevor. in XX adjustments. trying made we're at by position manage if opportunistic things end them will have is are But they you we the changed positions manner, from see in December our And And dynamically when the reported quarter-to-quarter that we intra-quarter. what that's we are what So actually as that to say lock the some probably we them down XX, in. the to yes, see time advantage forward March to take that get rates these we're coming manner have, going of and we in

Trevor Cranston

Okay, this, I you're about I earnings apologize got the you level is improvement can And on it. comment if quarter, of the missed this the but light in now? thinking in given guys where how earnings dividend

Byron Boston

talk dividends Trevor, our that capital important, us are the and decision-making disciplined managing and about process hear our part what's balance -- and disciplined actively really you of sheet process.

part capital XXXX, do process, another the First we foremost, which we just And continue you back risk another and management one Board overall the throughout will dividend are reduced point, we throughout reflect But understand dividend the XXXX, appropriate larger Board we at at capital, level we're to decides had to point, bought our disciplined. meets that dividend raised the is on And point, environment. about capital, if at think very what's decision. the levels also that. a and of the and year, dividends

and So being we're part the dividend very decision overall we of the and both -- very in sides way that. balance intelligent on about is manage disciplined trying sheet our

Board decision. So it is a

those our when you dividend. it deploy can capital note with should you extremely you right We powerful. be that right earnings, can always see happen can and the product, at But spreads outearning are what

continue competing uses So dividend the decisions will the moment where capital at see marketplace. that of make the year the meet always, it's any to for a as Board, And process. throughout disciplined we to sits that in on

Operator

Your from Ladenburg Thalmann. Christopher from next Nolan question comes

Christopher Nolan

The hedges we in stand? in first from hedges currently spread book expect value contribution things quarter the increase should to per XXXX, share January the that the net benefited the as that should

Smriti Popenoe

end Page off. on So year, we it's -- took Chris, those we options. that sheet, a at again, it's the -- of balance what September, say, then the were way some would on look replaced we so the XX, okay? we had hedges the balance, And you if I the positioned with in at of

the basis, major feel be of would like in it's to cost forward. not. of contributing the a so At of of going it's of that's not we say in spread the a driver say financing sort even. And not net I on go, appropriate a would versus to dynamic it's but On aspect that's future earnings net that, going lock I going to when driver that to worst, be major where more

Christopher Nolan

it to be a reading given book strong I the am seem where cut And so through had And it But correctly January. earnings. you dividend. in that nice value the -- to flowing but that a you really quarter, jump seems taking not does be to

like run it than it in likely that the a I rate significantly not benefit leverage to could at unless value first given everything? the fair been in have recent looks way is might changes. it earnings to quarter, book be different mean is So quarters look

Byron Boston

what a repeat confused asking. to on let going -- I'm you're to me I'm try So little back.

detail, more process consistent You're Steve this how sure what rate particularly, the question run the to understand earnings, earnings that we you're -- on happened asking? I in you're are or and call the do everyone going I'm is understands that in but you trying that and we to make Smriti want is, to is get what let has and say. what else that our

down. to the approach. to going an you told were with We quarter, our come at top-down We conditions XXXX you were We opinion you improve. by disciplined very our gave end third October financing of are XXXX. going told costs We

Fed raise were rates you told and We trying also the do. have years several to what to the doesn't ability do ago, they

And are. in seen starts our we took years. so consistent moved And you please have of that And all to how see one view. in then XXXX, what here And of that see that. have other the and listen see you're back to our you place been with over we to multiple that conference you understand to to And and month. and sit. let of you go again, we've And and in things what that today going sure we make able -- take back listen be Now to it and macroeconomic results year direction. should I'll we want able last terms advantage say, calls, the go where

And higher bar hold drive on unusual. the too be view to lower is cost. we give shouldn't our will bar with a to when it the we macro future the about our reduce a rates, increase that which talk And or financing you versus then rates Fed

So to a bit Smriti Chris and outlook chime you have in understand Steve, little to the XXXX? for more want

Smriti Popenoe

lock inverted mean, third of needed forward in you got you saw Sure. we that's an financing the that offset NIM to really looked way and the last move sort some the inverted the level yield I of early -- started and we would NIM reduce there's impact rate, to the at that of your you Right. primary and what compression there's maybe So forward coming year, of some if okay? last way, your idea second the year, in compression the NIM coming say, I curve opportunity drove compression reason, yield which quarters, curve. from time. an the see to dividend attractive Once markets that the

the a in were which That not financing the quarter, to in we the what able we LIBOR us driver rest part locked from going -- helped those X.XX%. and in the that capturing all had of some core into last the the third is, X-month in of outperform was is of and year That margin. One costs second a that benefit and so was necessarily But the lower fixed So great. That's that is set to okay? continue that first dividend margin, And right? first onetime at the fourth forward. to quarters, of quarter pay earnings into fact improving the year. we've this year capture position,

basis is repo that the came that happened all this They're basis down only last second year, XX then points. And XX last month. rates over already down points month and thing of

going tailwind So into that's XXXX. giving some you

going let's That's marketplace the Fed whether stays solidly of beginning where sort whether Loan in or of last into it levels points? same, we was at every is Home larger But continue than puts that at Bank. just the margin thing on to year. basis will the it or that's the eases depend another Now say where the there's that the quarter, competition get XX that

So I the things, two those margin say, are XXXX. that coming wider into contribute would to

other year. which dividend level at certain eventually first the quarter, I the help margin we things, the above stabilize in that again onetime and then in a the us here mentioned, will later will expect Now

Operator

Jason Your from from JonesTrading. next comes question Stewart

Jason Stewart

play XXXX of I wanted translates to going view market, as the their so your rate the ask how what of capacity prepayments rates in assessment given of sort in far, to talking that is originators the reduction environment? that out, in in RMBS given servicers, to and into you're lower

Byron Boston

you I what asking that? were originators. you little Can about repeat missed about a bit

Jason Stewart

to originators, environment? maybe increasing a how I All would even, just of rates that they they're how given it Agency RMBS? view the that your terms view of is guess, just rate discussion what or consumers, the of assessment [indiscernible] servicers temporary -- with translate their to right. And And lesser in If more a low in degree, as rates mortgage your to capacity? in where are it

Byron Boston

Okay. a great That's question.

equity with The sold wrong. a made Armageddon, and what priced just last bond statement, So general, a those were the was some mortgage-backed happened market let price for in priced was investors stock me sold investors securities for both who either huge They miss general Armageddon, stock and or start year. mistake in off prepayments. our shareholders the market

That's So mispriced. to period. what was going -- place, it took I'm

not, Now consistent not still is and is go today. it universe, was it not origination the and when you across

better Some others. than technology originators have

several increase should but costs, through going because rate capacity originators increase were originators did there to Some were the higher environment that did and low was capacity, that faster incur not push not increase trying willing to continue that prepayment speeds. that, believe what's to to capacity they they

mortgage-backed done Xs applaud have I on and our our a our and she lot said a extremely positions coupon as flow. position large team that still of decision, some cash have in decision, smart such, investment earlier, and Smriti said, higher Those well, in positions making they're securities. X.Xs. maintain to a made generating we -- we And So of

modelers year. every right. see mistake have prepayment -- huge last since I've Prepayments made and So the yet through market it XXXX, to a get gone cycle prepayment

means has this empirical different. they're They're data, data, the cycle prepayment generally working which historical And been with others different than which past. using every single one was in the

flexible have securities mortgage So prepayment have another -- scenario. cloud out X.Xs, agency prepaid CMBS, priced the protection Armageddon-timed the built loans. despite they spreads in the there to Xs, they XX-year widened opportunity. were business an was actually fact great a don't backed CMBS that

was a business So there great opportunity.

in when back terms spreads of tightened in. it finally have see You

were reduced book costs, see of team financing to of to as able the we has can the the advantage net or environment. has You of manage actively to generate the in our able hedge carry been and interest amount income terms our take Fed

that leave to detail Smriti, can add specific -- around. going starting I'm So more with with it you

of because prepayments. players, I seasoned marketplace in I a terms in in through history advantage have think I huge of that managing business, of really, the with confused think these think question that's most a great this of cycles. has a And type been lot

Smriti Popenoe

I Jason. would that, agree with Yes,

originator is efficient you're getting that so is on more side. what technology think I seeing they and more much in invested that more more It market of originators certain CMBS patchy makes mortgage just agency because get the the and others what RMBS. option better is that getting and efficient, have us, is trend mortgage in Agency that's unmistakable time. the along. that are buy refinancing us for coming efficiency And But over is a the the

Agency to the showing Page we're market. RMBS what prepayment back to it matrix, you you if you XX, really, protection that go pricing on in costs buy So

in you that your to pools of was coupon, example, with getting XX-point So So CMBS and a trade price if Max right? a the or , are a you to January, to a XXX.XX almost agency market, X wanted the a in in XXX. there XXX.XX paid the TBA in just give you price comparison buy market X% for above dollar points DUS you All with protection from premium. X% pool, XXK coupon

get because you of X% bond compensated However, prepays, get Max extra XXK bond. par. that XX points of you the structure when that the get. prepays, the That's you When what for

of saying them as is specified gets also value taking efficient So things, of originators that TBA the but to at more convexed, pool gets, get erode. The the there's value capacity of there the itself more negatively in building these happening over capacity going We're is the time, $X.XX and value a better diminishment value that not tomorrow, to starts but the eventually the the market and down. get intrinsically. this more of

why we that's your that question. So invest that's answers hope But in both. --

Byron Boston

market that here our question. I'm XXXX, a great lower can we this That a the -- was the are that a was understanding because don't big showing, readjustment the in in others It can you a break see environment prepayment, than showing we generate last cash of in of market day, place. and speeds. we miss One major year. more the We same when big thing, took a the with as what price in be. book end this sit you yield predict, out don't a and it through factor priced flow That should low range future. is highly what when somewhere But is today, sure simply the of ball have prepayment range, probable, clue

Operator

Instructions]. [Operator

from Weinstein Your Wealthspire. Jay next comes question from

Jay Weinstein

-- with it it higher and at about months forecast. months the you was about happen for X whatever like a the you I answer if you later, you a interesting proved when would made of were same call at question which range that prescient. -- sort was time, XXXK if proved range, thought go, and let's second, which asked instance. it thought at I in a accurate you later, and I a XXXK, seems you so it in. today? said wondering down, was, question tracking range today for new very going to ask the ask was it break, that and it we the to would How year last you in between you And to rates Byron, I were the XX-year be forecast an annual So meeting, that X very direction

Byron Boston

I nuanced, we like used -- if It is we've The a this phrase. put it little more that. believe,

amount to ginormous, used most the scenario in is be I'll with to love matter And our we've and the intensified, said can risks and most problems at And analysis, is globe said of have the we've U.S. increase. are the surprises is said ginormous, a it years. breaking lower and the one the Deficits rates complex. When level that It consistent. corporate We side. is major using there's debt. word matters have up other multiple phrase but borrowing Huge for than surprises go important the do country. I come to individual that global of every thing So at continuing level. the probable. We've highly we we

debt growth then result, interest amount that that, because we up our that will that find opinion, in pressure economic movement any pressure of of on be and temporary and on global believe can a we because in we downward increase activity So will it rates. a rate, put believe it increase baffling downward and that won't price debt economic the put the as

So already this surprises. year, two events, we've seen two

drop flare-up, looked moved that Middle We going escalate, One extremely situation up. and were was it back chaotic. rates. a -- rates things is there When saw in like to a East was not

downward and But is were a rates. like range factor. another been. have range look back pressure has And we if Now in range. per pressure XXXK It's we're you put were also situations same on interest it's and and downward That another growth, between growth we which growth on -- we've putting surprise on XXXK to XXXX-ish/'XX, than se. a in the tighter on

to XXXK between se. we to back Government. And back go out the they periods and policy, only the credit look we Republican the everyone because or those those was there government XXXK periods of U.S. be study related per XXXX, whether something and to could tighten Fed, you were for it thought broke in would urge sweep I If we

it. through or test break can will bias We're predicting low still that happen. ultimately end when not the our rates is of that So you

longer. I important bias that you can that understand think going we have to be when it's we're a to

have in believe in But have because that our risks portfolio that our pressure to course, some of general, global the you quarter, rallied we interest already our much Now rates we this overall have multiple downward rates. bias for been fact. so for intensified made years have to has reflect mindset adjustments on

Jay Weinstein

$XX you because all interest of rate. the phrase, think it's think trillion I Yes, or the that now $XX I trillion use -- negative

sucking our in kind correct. were of black surprises any of feel direction. you of drag -- a sort you like to felt these downward, rates -- do that said, surprises, Assets would proved be just like are hole which assume you sort as you I And still

somebody when says... So

Byron Boston

Jay, that are can I point out from something. When scenarios I out say, there the worries upside.

an bonds. impact have in I and global would decide for then there if the to elsewhere. be economy, think impact spend example, to Europe, surprise. And supporting psychological place, And rates would -- move and potentially a have the try rates if will boosting. be higher there's that a U.S. else, could that on in could nothing Germany that to deficit in some which Europe, on their So be going took to boost

Jay Weinstein

in -- be you, And the what that that these the deficits, those U.S. when to proved somebody things you people do should opposite. that has therefore pressure upward to terms say says But government on you? is to of be like so huge And printing to say Okay. when rates. actually

Byron Boston

that All it a debt And on downward back debt, of at point concept it. future. out, we're a we the globally. scenario basically to the try they -- trying can't prices increased made simple And complex, February try it amount of word we pressure would not to went eventually the really creates enormous said or look it's has first come in the economic -- was from of think do being rates a not I back normalize, oracles saying you we're predict itself I like a you Fed to I'll I if Well, that but an -- be XXXX, to down. remember, that statement is And growth. when increase where the

conditions round that, point from stability do where perspective. to Fed So realized a were only a financial the continuing global problems, to going not a we've create to trip. in fact, perspective, seen from Eventually, tighten they financial growth to a they got

down. then -- rates you end back with and so And coming up

So process. it's dynamic a

range, test can't the end this we now X%. that is saying of at upper not right It's

from So let's down calms say, the coronavirus. everything

that under Let's put world point to still on the world. this the world, has the the it's the on control, say gets downward pressure where some pressure world gets but temporary

of debt, making try which believe we to And problem. top enormously toward again, X%-type level start the is we surface matter believe want pierce where rates economy. amounts do the debt you factor statements. States, making scenario X%. push this could of will people thought see, add is level. we're could the rates the includes growing matter. global a Smriti, growth is the rates economic And of was up political you're United statement, people of back not into but up it when I that back of we you fact it's the down. Unfortunately, and political a the think to [indiscernible] to talk global destabilizing You that's drift on detrimental, don't But come create a of think unusual it and again, lot Huge today, something? beneath believe will economics you you a slow,

Smriti Popenoe

The central of buyers is increased U.S. central were consider one would time massive I do. to other when debt. the say, Jay, just I thing a banks, government banks at deficits its right?

the banks proved to government's be eventually, bigger So deficit. increase the than in U.S. central the

down, global it's bank, banks. central and our are not so And central just rates

So comes hole in black that's again. that where

of kind interest activity. largely to able our situation So central deficit incredible bank increase where costs, because we're and of at it's lower an lower

Stephen Benedetti

Imagine, central imagine the debt, weren't banks if buy Jay, debt. if they the this buying don't

Operator

Trading LLC. from comes Glen question next GRP Your Peterson from

Glen Peterson

between a improved having or or as speak battling you you're value you and the -- that $XX.XX somewhere correctly, talk Can $XX.XX in to said Can went of just to tell us exactly $XX.XX. currently, [indiscernible]. X% X% much inside and -- what just how quarter in in terms book saying if portfolio. me reading through I'm that I'm you all what time little it hard

Byron Boston

And I'm spreads, some me we've And premium CMBS increased of that as definitively which also again. last back with first was to spread sector the XXXX. prices. was understand go agency we did quarter repriced place already of more throughout in it did tightening year, higher tightened. second and than of Let last to a the said. agency portfolio for [indiscernible] in function but the year. is, CMBS just -- spreads fourth there out, the took our January point part And widening we -- widening it going what through not And bought only

have So in that's the sector. first point. solid And very spreads that been

realized you that, as those positions products anticipated as that rates. we in -- that if our very our to those rates we've most put have also rise, incur, and to it that talked still listened and that out macroeconomic downward hedges cash prepayment we have Smriti we where you've pointed speeds come good X.Xs, and and temporary improve. understand they're we generating that the very call, such watch will Second down, way adjusted will market products in has pressure on be And flow, that this surprises and are and thirdly, Xs view, a we then would

behind So it. philosophy that's the

REIT I Agency XX-XX between a mortgage portfolio. We has CMBS don't agency there's think RMBS. have and that unique another a split

and portfolio, unique proved valuable. a is it it So

Operator

time. There back Byron I'll are you. this the no to turn questions further Boston, at call over

Byron Boston

of questions. tuning want Operator. and get in much. a macroeconomic you us for months. I very listen to go couple back of we're first again Dynex look appreciate back years, a market. view. terms we're our quarter conference call to Capital, And of consistent please for you understanding Thank the you and you appreciate calls free XXXX pretty our much, in Thank plugging better those all going And into Thank our forward in very we to you, in with approach to conference conference the who I call. to consistent all other feel multiple very our

Operator

participation. your Thank concludes this conference gentlemen, XXXX and fourth for call. Ladies you quarter today's

now disconnect. may You

Dynex Capital (DX) 6 Feb 202019 Q4 Earnings call transcript