Dynex Capital Inc (DX) 2011 Q4 法說會逐字稿

Good morning and welcome to the Dynex Capital Inc. fourth-quarter earnings call and webcast. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Alison Griffin. Please go ahead.

Hi, good morning. Thank you, Amy. Thank you all for joining Dynex Capital's fourth-quarter earnings conference call. The press release associated with today's call was issued yesterday, February 22, 2012. You may view the press release on the Company's website at www.dynexcapital.com, under investor relations.

Before we begin, we would like to remind you that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, expect, forecast, anticipate, estimate, project, plan, and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. The Company's actual results and timing of certain events could differ considerably from those projected in or contemplated by the forward-looking statements as a result of unforeseen external factors.

For additional information on these factors, we refer you to our annual report on Form 10-K for the period ended December 31, 2010 as filed with the SEC. The document may be found on our website at www.dynexcapital.com, under investor relations.

This call is being broadcast live over the Internet with a streaming slide presentation and can be found through a webcast link on the investor relations page of our website under IR highlights. The slide presentation may also be referenced by clicking on the Q4 earnings conference call link on the IR highlights page of our website.

Now I would like to turn the call over to Chairman and CEO, Thomas Akin.

Thanks, Alison. With me today is Steve Benedetti, our Chief Operating Officer and Chief Financial Officer, and also Byron Boston, our Chief Investment Officer, as well as Alison Griffin, in charge of Investor Relations.

I would like everyone to refer to our slide presentation as a lot of this is perfunctory since we preannounced much of this in our equity offering that was recently done February 1.

But our reported earnings of $0.36 a share, our book value of $9.20, and most importantly our net interest spread of 2.56% widened from 2.43% the prior quarter. We declared a dividend of $0.28, up $0.01 from the prior quarter, representing a yield of 12.3% and our ROE for the quarter was 15.6% on leverage of right around 6%. Our constant prepayment rate was up a little bit quarter-over-quarter to 17.8%.

This quarter obviously is a string of quarters. If you go to the next page, page 4, we have been roughly in the 30% to 35% range and with the capital that we added this quarter we expect it to be accretive and start to be fully invested by the end of this quarter.

As you can see, our book value increased a little bit quarter-over-quarter and that primarily reflects the fact that we are not paying out our entire dividend, as many of you know.

For our portfolio review, I would like to turn the call over to Byron Boston to discuss that in more detail and please switch to page 5.

Good morning. 2011 was a fantastic year for Dynex Capital as we continued to take advantage of a wonderful market environment for building a well diversified fixed income portfolio. Our portfolio is constructed to perform well despite volatile markets as we have focused on high credit quality, short duration assets.

We continue to maintain a selective approach to adding assets to help minimize our overall prepayment risk and we have opportunistically allocated capital raises between Agency and non-Agency securities backed by both residential and commercial loans.

As spreads widened in 2011, we rotated our marginal investments into the CMBS sector with our main focus on the multi-family market place. There is a great opportunity to grow this strategy further as the CMBS spreads continued to be attractive and Agency spreads offer double-digit returns.

We have confidence in our risk profile as we have steadily generated double-digit returns without extending far out the risk spectrum. The Dynex portfolio to date has weathered multiple market challenges since 2008 including high volatility, low interest rates, faster prepayment environment, the Fannie and Freddie buyouts of 2010, and then the wider non-Agency security spreads in 2011.

If you go to slide 6, let's look at a snapshot of the portfolio between Agency and non-Agency securities. As you can see on the slide on the left, 79% of the portfolio represents Agency securities while 21% represents non-Agency securities. More importantly on the slide on the right, we increased our CMBS percentage in our portfolio to 34% from 32% in the third quarter and decreased our overall RMBS percentage to 66%.

What is really important to understand is that throughout 2011, CMBS spreads in the earlier part of the year were at the tightest levels we have seen since 2008. In about May, those spreads started to widen out and we shifted in an opportunistic manner in allocating our capital to the CMBS sector. Since June 30, 2011, we have increased our CMBS holdings by 10% while decreasing our RMBS positions by a like amount.

If you go to slide 7, you will take note of the fact that we continue to maintain a high credit quality portfolio as we have taken advantage of these relative opportunities in the marketplace.

If we go to slide 8, during the first four months as I mentioned a second ago, spread [markets] are tight. As you look at the top graph, we show you that we decreased our overall CMBS percentage as spreads tightened in late 2010 and early 2011. As spreads widened back out in the second half of 2011, you can take note that are CMBS spreads steadily increased. As a result, our net spread in the fourth quarter widened and it was a function again of allocation, opportunistic allocation to the CMBS marketplace.

If you go to slide 9, many of you have seen this slide before. We continue to emphasize that we have attempted to minimize the overall extension risk in the portfolio by focusing on the Hybrid ARM sector as opposed to 15-year in 30-year securities.

And if you go to slide 10, you will note in the upper left-hand box despite historically low interest rates, our actual prepayment experience for 2011 was excellent. Our speed steadily declined.

Although new government programs should put upward pressure on speeds in 2012, we expect the impact of our Hybrid ARM to be muted. Our just in case as we've mentioned in the past, we have approached the market from a very selective process and if you note in our second graph to the right, that 63% of our portfolio has explicit prepayment protection. Those securities are generally represented in the CMBS sector.

Another 6% of our portfolio is covered by post or near reset paper where the probability of prepayment speeds of increasing are lower and we have experienced that number such as 10% or lower in that sector. And then the remaining 31% of the dollar premium in our portfolio is represented by selected specified pools.

If you move to the lower left graph, we have shown this graph before. It is something that we like to emphasize is that we maintain a high credit quality portfolio in the CMBS sector, with the bulk of our purchases coming in what we call the CMBS 2.0 sector, which was started in December of 2009 and later.

Overall again, our portfolio as you can see, our portfolio distribution we own very few securities with maturities or reset dates beyond 10 years.

If we move to slide 11, simply a snapshot to show you that selective opportunities continue to exist. We did raise capital this month and we continue to allocate capital to CMBS. We also allocated capital to the Agency sector. We continue to allocate capital to hybrid arms as well as opposed to longer duration instruments.

So if you flip forward to slide 13, let me just summarize for you overall the portfolio. Since 2008 when we started to build this portfolio, our portfolio had performed well. Our prepayment experience has been mitigated by simply superior portfolio construction, selected pools in addition to diversifying with the CMBS sector, which has explicit prepayment protection.

Our overall credit risk has been mitigated by focusing on higher quality securities. In the CMBS universe, a large part of that strategy means avoiding the 2006, 2007, and 2008 underwriting years.

And then very important to us is to minimize the overall extension risk in the portfolio by focusing on the Hybrid ARM sector.

We did raise capital this quarter. There continue to be opportunities to deploy the capital. The majority of the capital has been deployed to date. We continue to see especially attractive returns in the CMBS sector but we are taking a selective approach to choosing our overall investments.

I will turn it back over to Tom.

Thanks, Byron. Then let's move to the final slide, it would be slide 14. We believe that we have gone through some fairly substantial volatile environments, there's been prepayment issues, there's been a credit quality issues and our portfolio has stood the test of time.

We believe our diversified strategy that is the hybrid strategy allows us to allocate our capital depending on where the most attractive risk return opportunity is available. Currently we believe that opportunity to be in the CMBS sector and we have been actively investing in that sector not only last year but with the capital that we added this year, we expect that to be a primary driver to our spread and returns over the year.

We also expect that because we're going to be actively in the CMBS area we are not going to necessarily expand our leverage ratios for the year. We are standing at right around 6 times leverage and we expect that to continue on.

Our portfolio is designed to mitigate risk and I think we have seen that over the last three years since we started -- the four years since we started this portfolio. We feel there's interest-rate risk out there, prepayment risk, credit risk, and not often talked about, extension risk, and we are very cognizant of that and build a portfolio around minimizing those risks.

Why? Because insider ownership in the Company is approximately 8% and our internal management structure aligns ourself with our shareholders. We believe our success since 2008 illustrates our commitment to continuing to deliver shareholder value and we look forward to working with our shareholders on any other ideas that you might have.

With that, operator, I would like to open up the call for questions.

(Operator Instructions). Jason Weaver, Sterne, Agee.

Congratulations on what looks like a really great quarter. First, I want to touch on Byron's comments regarding the widening spreads on the non-Agency portion of the portfolio. On a gross basis, it seems like your yields came up about 31 basis points. Was that completely due to the shift in allocation and new assets or was any part of that due to a change in your underlying loss assumptions?

No, that was really driven by a shift in that allocation. I can't emphasize enough that when spreads were tight, we pretty much shut the spigot for Agency CMBS paper. It was only after spreads widened out materially in 2011 that we turned our attention to the CMBS sector. We actually sold some Agency RMBS paper to bonds that we thought might repay the [batches] in our portfolio and we allocated that capital to CMBS and we did it the last six months of the year. So you are really talking about a material shift.

Again, if you look at the one graph, you will see a 34% portfolio in CMBS. If you look back at June 30, that was about 24%. So we really, truly took advantage of the wider spreads of 2011.

Okay, I guess the other side of the coin is the reduction in cost of funds on those and I'm guessing is that just your financing mix changes to you the larger repo component rather than the securitization bonds?

You know, financing in general has gotten better for non-Agency securities. There was a point at the end of last year when the financing markets looked a little stressed over the whole European situation. But then we saw the central banks add liquidity globally and then we started to see again financing ease up as we went into year-end but in general, financing for non-Agency securities has improved.

Jason, this is Steve. You're right, we have redeemed some of the higher cost securitization financing as well, so that has contributed. But I think I would say the primary contributor is what Byron said. That's just the financing markets in general.

I just want to add, Jason, remember these are all high-quality assets and they're the first ones to recover as the market sort of starts to feel a little bit better about the future. It certainly helped that Bernanke gave us a two-year zero cost of funds to work with.

Thank you, I appreciate that color. Turning the page just for a moment to your maturity profile for the Agency portfolio, what can you tell me about plans, whether to just hold those assets or reinvest the capital when that 20% eventually comes into its ARM resetting phase?

You know what we have done, Jason, is this portfolio has rolled down the curve. We have continued to hold the short reset paper. We have sold some last year. We do -- we took advantage of some opportunities. I think we sold [two boxes of securities]. We sold some that were really bad securities and then we sold some to short reset to allocate the CMBS.

But in general, it has been a very good trade to open some of these seasoned hybrids and let them roll right down the curve to become what I call very attractive one-year floaters.

The other thing I want to add is that prepayments on those are extremely low as we have witnessed with Capstead. Basically if you are resetting a mortgage that you have had for let's say five to seven years and the coupon is low 3%, it's really hard to entice someone to go out to a 15- to 30-year. So it has really held nicely in terms of the cash flow that we are looking for from that paper.

Understood. Is there an allocation towards LIBOR-based indexes on those floating periods or is it treasury-based or what can you tell me there?

12 month -- 1-year LIBOR. (multiple speakers)

All right, then just finally one more question. What can you tell me about the year-to-date changes in book value and what you're seeing in markets underlying your assets?

Book value is up. I don't have the exact number, Jason. January was -- the buzzwords are risk on and risk off, right? So January was the most -- I would say an extraordinary month of people piling money back into the capital markets, whether it happens to be equities, high yield bonds, corporate bonds, mortgage backed securities, Agency CMBS, emerging markets, money came back into the system. The difference between December and January was just unbelievable.

The good thing is in terms of our capital raise, we had pre invested a chunk of money and so we were able to grab what I would call some really wide spreads and then we were -- we did continue to invest as spreads came in. The great thing was the CMBS spread kind of lagged some of the other product sectors.

The color is really helpful, guys. Thanks a lot for that information.

Trevor Cranston, JMP Securities.

Congratulations on a nice quarter. So it looks like some of the swaps you guys added this quarter were a little bit longer maturity. I was wondering if you could talk a little bit about how you are thinking about hedging new purchases given the current rate environment and what you are thinking about in terms of replacing swaps that are going to be maturing over the near-term?

If you looked at our portfolio, let's just take from a duration perspective. Now I want to be real clear, duration is a word that's thrown around in the industry and means a variety of things to a variety of people.

We use basically an option adjusted to model, when we are using models to run it and we're thinking about ranges of potential outcomes in our portfolio. But for the most part, we have a large chunk of duration in the short end of the curve. We have another chunk of duration in the intermediate part, what's called the five and six year part of the curve and we've got swaps right in the middle.

And the shorter end of the curve obviously the Fed has pretty much -- so I use the word neutered the short end of the curve with their statements about keeping rates low. I think there is some debate as to how far out the curve that happens to be. Is it two, three, four? Some people might argue that it's five years. We don't subscribe to yet that five years neutered and believe there's been a large amount of volatility.

Another thing we had swaps run off today, we would be looking to add swaps probably in the five-year sector of the curve just to offset some of the duration that we have gotten that portion. If we were looking at swaptions, we might be looking at swaptions on 10 years swaps and those are the types of thought processes that we go through when we are looking at our portfolio hedging.

One of the embedded in what I call shock observers in the portfolio is the premium of the portfolio so these premium securities that we have will perform very well in an uprate environment. One of the reasons why we have allowed the short ARMs to roll down the curve and we sit on the short reset ARMs, we think they're a great hedge versus a rise in rates.

So I am just trying to give you some insight in terms of how we think and I hope that's helping you.

Yes, very helpful. Also, can you maybe give a little bit more color on the investments to date in the first quarter, how you've been allocating capital kind of between Agency and non-Agency CMBS and where you are seeing yields in those various spaces right now?

You know, I don't have the exact percentages but let me say this in terms of -- if you go to slide 11, you will get a range that a pretty updated sheet gives you a range of potential yields. There are a variety of products that we're looking at and they do come with a variety of yields and overall net spreads. We have been looking at both Agency CMBS and non-Agency CMBS in addition to purchasing or allocating a chunk of capital to our Hybrid ARMs sector.

And I would say on a percentage basis, I don't know if I've got the exact percentages of exactly what we've done today because we've done today because we've been just heavily focused on it but we have been trying to take advantage as much as possible of the CMBS marketplace both in the CMBS I/O and straight CMBS paper.

Okay, so in terms of like the rating in vintages, it is going to kind of look similar to the stuff you had on your books at the end of the year?

Yes.

Okay. Perfect. Thanks, guys.

So I will summarize for you. There hasn't been a major shift in our overall allocation of capital, meaning that we haven't added some type of new bond that we haven't been looking at in the past.

Okay, got it. That's helpful. Thank you.

Douglas Harter, Credit Suisse.

Thanks, I was hoping you could talk a little bit about the higher sequential comp expenses you saw in the fourth quarter. How much of that is kind of year-end sort of catch-up related and how much is that kind of the run rate? And then also just the operating efficiency going forward with the new capital?

I will let Steve answer that question, but we had to do a small amount of catch-up on comp quarter-over-quarter. But Steve, why don't you answer that one?

Sure, it's -- it was about $400,000 sort of a catch-up this quarter in terms of dollars and in terms of kind of the efficiency going forward, I think you can look at what we had for the year as sort of a decent proxy for the run rate cost for the Company.

Great, that's helpful. Thank you.

Doug, we expect to -- with the additional capital and being at roughly a $500 million market cap, we don't think we're going to need to add any more significant costs for the Company to run this capital.

Okay, thank you.

Chris York, Roth Capital.

Good morning, guys. So it looks like probably your Agency MBS as a percentage of your total investment portfolio peaked in Q2. How are you guys thinking about that through the remainder of 2012 and then year-end 2012?

There's two ways of looking at that and that obviously is as a percentage of your portfolio and as a percentage of your equity and because we have been using less equity on the Agency -- or I'm sorry -- on the non-Agency portfolio and the CMBS side of things, even though the numbers as a percentage of our portfolio have changed a little bit, the percentage of our equity that is now pre-payment protected and in the CMBS space has moved fairly dramatically.

We have often said -- felt that we like to be around 60/40, 60% Agency and 40% non-Agency. There's nothing magical about that, but that's a number that Byron and I have gone over in our head several times. We're still a ways from that but we are getting a whole lot closer. There are some basic restrictions related to the Investment Company Act that we are going to basically mandate about 6% Agency portfolio.

So we are headed that direction and we monitor it fairly closely to make sure that we don't get out of kilter too far, but that is I think a good benchmark. And, Byron, chime in anything else.

Yes, I will just throw in that if you look back in terms of how we have allocated our capital with capital [pieces], we had a capital raise in December of 2010, March of 2011, and again here in January of 2012 and in the prior capital raises, we allocated 100% of our capital to the Agency sector and that was a function of where our non-Agency pricing was and non-Agency pricing were at some of the highest levels that we had seen in years and therefore all of our money went to Agencies.

As non-Agency prices went down and spreads widened out, we moved those allocations as the portfolio ran off, we were able to move that allocation into the non-Agency sector then we were able to actually sell some Agency securities and reinvest into --.

By non-Agency, I actually mean CMBS in general because we buy both Agency CMBS and non-Agency CMBS.

So I'm just trying to give you a flavor of how we go about in a very disciplined process of opportunistically allocating our capital. We think the last 13 months have been an excellent month of capital allocation. We did not invest -- early capital raises, we went into agencies. When spreads widened, we moved from agencies into CMBS and we'd like to think that our process will remain disciplined as we go forward into the future.

Perfect. That color and that benchmark is very helpful.

The other question I had is it looks like you built your reserves despite a declining securitized loan portfolio and had minimal charge-offs. Could you talk about your delinquent loans and your [field] allowance going forward?

Let's have Steve take that one.

Sure, Chris, the performance of the portfolio, honestly we have had very, very little sort of coming into the delinquency bucket, and more really coming out. So you never know where the trend will go, but if that trend continues, I would say the loans that are delinquent now have all surfaced and we have reserved for them and should resolve themselves over the balance of 2012. So we don't see where there is much need again as we sit here today to build any reserves on the securitized loan portfolio.

Doug, the primary loans that fall into that nonperforming category are going to be our loans that we originated ourselves back in the late '90s and those were under a different scenario, those were truly amortizing loans and we have had little trouble with those loans in general causing any problems, as you know.

In 2010, we took a profit on that -- those delinquencies and in 2011, we will also have a small profit at the same regard, so it's not a problem. We have gone through one of the worst obviously foreclosure periods in recent memory and that hasn't been a problem by now, we are not losing any sleep over that.

So then thinking about those loans, what would it take to get them performing if you could speak about that and what are the chances to release some of that allowance?

Well, obviously we work on that on a day-to-day basis. I was just recently down in Florida taking a look at one of our foreclosures down there and I think it's going to resolve itself in a very positive fashion. We are in the process of resolving one in Denver at this point.

Just an ongoing process but because the loans are so old and we have so much equity in the deals, they basically resolve themselves without us having to take any significant hits. We keep the reserves on there for an outcome that may be unexpected but as of yet, we feel that we are plenty well reserved in that regard.

Great, my last one here is thinking about pre-payments, you guys I believe possess a view that prepayments will decline from Q3 heading into Q4. Directionally, what are you guys thinking about in prepayments throughout 2012?

As you know, we've modeled prepayments to come in around that 28% CPR and that continues to be what we have modeled. We use that methodology for expectations of our portfolio performance and we have filed -- we've come in well below that. We still think that with rates at record lows at -- with an election year and some antics about prepayment possibilities, we would rather be safe than sorry. So we continue to hold to that thought that rates will be driving CPRs higher during the year. But it has not been what we have seen year to date. Byron, why don't you add on that as well.

I would just simply chime in that you are going to hear a lot out of Washington -- we've already heard a lot regarding this entire housing issue, but I think a lot will be perception as opposed to reality at this point. I think they have put forth the HARP program. I think the HARP program will increase prepayment speeds. The HARP program will have enough of an impact on the overall Hybrid ARM portfolio.

We start from what I would consider a very low base for a Hybrid ARM portfolio with these type of premium prices. They are performing -- have been great as far as I'm concerned. But we are expecting, and as Tom mentioned, built into our assumptions of faster prepayment speeds.

But I think that if you look at the Refi Index today, it declined from last week but it remains in this 4000-ish type of range which can present some faster speeds but it's not going to present anything that is not manageable. I think we'll have to wait and see as we get into April, May, June, and July to see what the full impact of the program happens to be.

Great. That ends my barrage of questions. Congrats on the quarter.

Jay Weinstein, Highline Wealth Management.

Jay, it wouldn't be a conference call if you didn't ask a question.

You know, like I say, I'm I think probably the grizzled veteran of this Company. I remember when your stock did trade 1000 shares a day so $0.5 million in market cap is quite an accomplishment from where we've come from, right?

And trading 7 million shares versus a couple hundred grand I agree with you, we are happy to see you (multiple speakers)

I remember when I used to buy about 100 shares a day and that was a big day. So anyway, you know how I feel about the job you've done.

Thanks for being a loyal shareholder.

Like I say, it's been a mutually beneficial relationship. Just a couple of things. The legacy assets, which of course kind of run off and get to be smaller all the time, what's the status of some of the call options that you have exercised in the past that have added a little value here and there to the portfolio? Are any of those still out there?

I'll let Steve answer that but I think we are pretty much done on being able to call -- there's one small piece left, isn't there, Steve?

Yes, it's lower rated so we haven't called it.

One thing on that, Jay, is that even though the deals are in great shape in terms of subordination but rating agencies are very slow in upgrading securities, so that bond stays there and it would be difficult given the rating on it for us to get financing.

And fortunately, Jay, when we present these bonds for financing, they look at the rating as opposed to the underlying realistic -- the credit support. That bond is so old now that it probably has at least a AA credit support but we're not going to get the rating agencies to rate a small piece like that. Therefore, it becomes unfinancable and without that financing, we're not going to be able to get the ROEs that we need.

Okay. And it gets to be a smaller piece of the puzzle kind of all --

But I think the thing to remember is that the rest of that collateral remains in our portfolio and I think it remains an undervalued asset in our portfolio because of the nature of that being really collector's item collateral.

Right. I understand because we all know it's old with a lot of equity behind it as you find when you actually had to foreclose on them. So I'm just sort of curious if there's anything still out there?

Byron and I had a long discussion awhile back about the whole regulatory environment and obviously last year went through this whole SEC sort of blowing up the mortgage REIT industry for a few weeks, is there any kind of update or any new thoughts on that?

Let me chime in here, Tom. The SEC has not given us a timeline as to when they will make a decision. Here's what I have noticed in my time in DC so far in 2012 is that this issue has a broader audience and the audience seems to be broadening in terms of the overall impact it might have on the mortgage market if some type of adverse decisions were made. I think the original decision to go about this process was kind of done in a vacuum with certain people at the SEC, but the overall argument has widened.

I think we have had some very constructive conversations with the SEC. I think they are trying to gather as much information as possible but there really isn't a timeline. From a general perspective in terms of regulatory issues, there's still a lot of issues out in the future for the financial space in general, as a company, our investment portfolio, our overall business practices are designed to be flexible.

So we can take advantage of the changes that happened to take place in the future. Some changes may show opportunities, other changes will open doors for us and we want to be prepared to take advantage of each. That means staying very close in contact with Washington because regulatory issues will be one of the largest drivers of returns over the next five to 10 years.

You know, Jay, you are kind of stealing my closing comments but we live in a world at least that's extremely volatile and because of that I think there is regulatory issues. But it appears that the SEC when they opened this investigation did it not knowing that they were going to really get into a hornet's nest of issues.

The truth of the matter is if the Fed or if we're going to see the GSEs delever, if they are going to get rid of a lot of these assets that they have on their books, is the natural place to house those, which has been at the banks, has disappeared and therefore that's why you've seen a lot of capital raised by the mortgage REITs and I think they will continue to be a place to house these assets.

It's a natural place to house these assets and leverage is a very natural state of affairs for the mortgage industry. The banking industry uses leverage. Homeowners use leverage and so for us to use the kind of leverage that we're using is very natural.

I would say that the biggest question that you have to discuss is extremes. As you know, there were some extreme leverage numbers going back in the 2000s that caused some issues. That is why we remain very conservative and very flexible, as Byron points out, because we realize that there might be some changes but I think they're going to be on the outliers and not the mainstream institutions.

From our conversation, Byron sort of indicated that with some of the newer kind of more aggressive -- I don't know if creative is the right word for it -- mortgage REITs were sort of formed and coming to market that the SEC seemed to have some issues with and it sounds like they are actually paying attention maybe to some of the more established traditional kind of players in the industry saying hey, look, let's take a broader look at this before you do anything rash to the industry. Is that fair?

We became members of NAREIT because of that and we've had several discussions and we feel pretty comfortable that the SEC is not going to throw a hand grenade or a monkey wrench into the machinery right now. Obviously the recent letter by the FHFA just earlier this week, has commented on the fact that things need to get better, not worse in the private securitization market.

Last, I was a little surprised by the capital raise and kind of pleased from the announcement yesterday that unlike last year's rates where it seemed like it took you a lot longer to put it to work, this year it seems like if it is not already done, you are pretty much mostly done I think was your comment.

Yes, we are -- the majority of the money is already gone. As Byron pointed out, we did pre-invest a fair amount of the capital at some pretty nice spreads prior to Bernanke issuing his edict. And I think that from all indications we shouldn't have any trouble completing the task by the end of the quarter.

I guess my comment is that was a statement by you guys that you felt like this was quite an attractive risk -- by historical standards a pretty attractive investment and environment. So --.

I think it was -- anytime that we can create an accretive capital raise that's good for the long-term structure of our portfolio or earnings and our shareholders again, we are -- the Board is a significant shareholder of this Company and we always look at it from a total return point of view for our shareholders and we feel very comfortable that this derisks the portfolio and at the same time increases our opportunities to earn a better earnings going forward.

Yes, because I think when your net is slightly under book value at the time, I am glad that you had the opportunity to do something with it. So that's all I have. It's always a pleasure and I will be in touch.

Thanks for your support, Jay.

(Operator Instructions) David Walrod, Ladenburg.

This is kind of a housekeeping question. We obviously spent a little time on the regulations. Have you looked at the portfolio in regards to the HARP 2.0 to see what percentage of your portfolio if any would be exposed to potential refinancings under that program?

I don't have the exact numbers in front of me, David, in terms of -- if I can talk about years of production. But as you know, we own a good chunk of seasoned securities and the HARP regulations limit what a Hybrid ARM borrower can do through the HARP program.

The HARP program also limits what an investor property can do through the HARP program. In fact, investment properties aren't allowed to refinance through that. So the majority of our portfolio happens to be I/O securities, investment properties, and seasoned securities, where we anticipate that LTVs are higher than 105%, which would be limited, which would then again would limit their ability to go through the HARP program.

So I'm sorry I don't have the exact percentage but let me just tell you that we own a good percentage of seasoned securities but we are not concerned that HARP will have a 2003-ish type impact on this portfolio.

Okay, I appreciate it. Thanks a lot.

This concludes our question-and-answer session. I would like to turn the conference back over to Tom Akin for any closing remarks.

Great. Thank you, operator. We've been trying to build Dynex as a high quality, high-yield investment with minimal risk. We believe we are in a volatile environment. That volatile environment will continue far into the future.

We think we've performed well in that environment and we see no reason not to continue to do that. 2012 will be no different than 2010, 2011 and there's going to be a lot of twists and turns to the road.

We look forward to presenting our results as the year progresses and we thank all our shareholders for listening to or call today. Thank you much.

The conference has now concluded. Thank you for attending today's event. You may now disconnect.