Dynex Capital Inc (DX) 2014 Q4 法說會逐字稿

Good day, and welcome to the Dynex Capital Inc. fourth-quarter earnings conference call and webcast.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Alison Griffin, Vice President of Investor Relations. Please go ahead.

Thank you, Andrew. Good morning, everyone. The press release associated with today's call was issued and filed with the SEC this morning, February 18, 2015. You may view the press release on the Company's website at dynexcapital.com under Investor Center, as well as on the SEC's website at SEC.gov.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, expect, forecast, anticipate, estimate, project, plan and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. The Company's actual results and timing of certain events could differ considerably from those projected and/or contemplated by those forward-looking statements as a result of unforeseen external factors or risks. For additional information on these factors or risks, please refer to the annual report on Form 10-K for the period ending December 31, 2013 as filed with SEC. The document may be found under the Company's website under Investor Center, as well on the SEC website.

This call is being broadcast live over the internet with a streaming slide presentation, and can be found through a webcast link under Investor Center on our website. The slide presentation may also be referenced by clicking on the Dynex Capital fourth-quarter 2014 earnings conference call link on the presentation page of the website. With me on the call today, I have Byron Boston, CEO, President and Co-CIO; Thomas Akin, Executive Chairman, Smriti Popenoe, EVP, Co-CIO, and Stephen Benedetti, EVP, CFO and COO.

I now have the pleasure of turning the call over to Byron.

Good morning, and thank you very much for joining us this morning. To our shareholders, thank you very much for investing with Dynex Capital for the past seven years.

In 2008, we implemented our current strategy of building a diversified balance sheet that will perform in multiple market environments. We are pleased with our results in 2014 because we have remained disciplined in our approach to the business. We identified the global, financial and investment environment as being more complex, and adjusted our strategic mindset accordingly. We have continued to favor commercial mortgage securities, but we went up in credit. We have continued to hold our selected short duration agency residential portfolio, but we allowed it to slowly run down, and as a result, we increased the liquidity of our balance sheet. With a reduced balance sheet, lower leverage, lower spread risk, higher liquidity and more capital available to invest, we were able to generate a 15.3% total economic return to shareholders.

There were multiple tactical decisions that were made throughout the year that are worth noting, and Smriti Popenoe will discuss those later in this call. 2014 was full of surprises, and we expect 2015 and 2016 to be more of the same. Hence, we will continue to manage our business without taking large, unnecessary risk. Commercial mortgage securities are a great anchor for our investment strategy, but we prefer the higher-quality assets, especially when backed by multi-family properties. We love our hybrid ARM portfolio, because it is truly short duration, and our prepayment experience has been excellent.

With that, let me turn the call over to Smriti and Steve, so they can give you more details on how we view the future.

Thanks, Byron. I will cover parts of slide 5, 6 and 7 for those who might be reviewing the presentation.

For the year, we generated an annual economic return of 15.3% to common shareholders, which consists of $1 in common dividends declared, and a $0.33 increase in book value per common share. We also earned $0.99 per share on a core net operating income basis, as core earnings benefited from a 9 basis point increase in adjusted net interest spread during the year, primarily from the active management of our repo book and our hedge position. Our investment portfolio was down by $514 million, and shareholders equity increased by $21 million for the year, which together reduced our leverage by more than a full turn, from 6.2 times to 5.1 times at the end of 2014.

Turning to the fourth quarter, we reported core net operating income of $0.23 per common share, which was down slightly versus last quarter, primarily from a lower earning asset base partially offset by higher adjusted net interest spread for the quarter. Adjusted net interest spread increased 4 basis points to 197 basis points for the quarter, as asset yields were lower by a net 9 basis points primarily from sales of non-agency CMBS in the third and fourth quarter, partially offset by slower prepayment speeds on agency ARMs and hybrids. Funding costs increased by 2 basis points primarily from maturity extensions on our repo book, and hedge costs declined 15 basis points, as we have managed the hedge book to stay duration neutral after the sales of the CMBS.

Continuing from the third quarter, we generated gains of $11 million during the fourth quarter, primarily on the continuing sale of non agency CMBS. Overall, our portfolio of CPR was 11.2% for the quarter, which was down from 13.9% for the third quarter. Thus far in the first quarter of 2015, we have seen similar prepay speeds on the portfolio as to the fourth quarter. The lower CPR during the quarter added approximately 4 basis points to our average asset yield. Book value was down 1.3% for the quarter to $9.02 per common share, and up 3.8% or $0.33 for the year.

Slide 7 includes a reconciliation of book value for the quarter. Looking at the chart on the right-hand side of the slide, changes in book value from quarter to quarter can be thought of as the core earnings of the Company, less the common dividend declared, plus or minus the change in the value of our assets net of hedges. We like this presentation, because it links core net operating income to book value changes, and combines the changes in hedge fair value with changes in asset values, unlike the GAAP presentation which includes changes in hedge fair value and reported earnings. So we think it presents a clearer picture of the reasons for changes in book value.

Comprehensive income per common share of $0.11 for the quarter can be thought of in a similar manner. Effectively, it's a combination of the core net operating income to common, plus net changes in the fair value of investments and derivatives. We also believe this measure is a clearer portrait of our performance than GAAP net income recorded in operating income alone.

Finally, I wanted to mention that we declared a dividend of $0.25 per common share for the quarter, bringing the total to a $1 per common share for 2014. In the next few days, we will be publishing the tax character of our preferred and common stock dividends in a press release. We expect our common dividends will be approximately 70% ordinary income and 30% capital gains, and our preferred dividends will be 100% ordinary income.

I will now turn the call over to Smriti.

Thanks, Steve. I will cover slides 10 to 16 for those following along in the presentation. I am going to speak briefly about 2014, and then move on to 2015. As Byron mentioned, 2014 was about understanding the macroeconomic environment and positioning for it. We took several actions last year that drove our performance.

First, we maintained a long duration position as the yield curve flattened, protected our book value using forward starting swaps and eurodollar futures.

We also actively managed our funding portfolio to fully optimize the use of our financing facilities, and take advantage of attractive repo financing when it was available. As Steve mentioned, these two actions resulted in an increase in net interest spread, and kept core net operating income fairly steady for the year. We methodically reduced the balance sheet and increased our capital and liquidity positions, as risk adjusted returns trended lower towards the year. We also took profits on a highly successful investment in agency credit CMBS. We've reduced our exposure to the riskiest part of the credit-sensitive spectrum in CMBS as risk adjusted returns were declining, and monetized over $20 million in gains.

In addition, we selectively added assets to the balance sheet, maintaining our risk-adjusted return discipline by focusing on well-structured high credit quality CMBS IOs. As such, we believe we are entering 2015 in a very good position. Our portfolio continues to be designed to perform in a variety of market environments. We have liquidity and capital reserves that can help us withstand any temporary spike in volatility, and still be positioned to add assets at an attractive levels.

Let's now discuss the macro economic and policy factors we believe will impact Dynex, the resulting investment environment, and implications for our strategy. I am now on slide 11. We believe the environment in 2015 will be similar to that in 2014, in that the probability for surprises remains high. But the key macroeconomic theme in 2015 is that in an already complex environment, you now have divergence. The Federal Reserve and Bank of England are considering raising interest rates, while in many parts of the world Central banks are aggressively easing. The US economy has being growing, which is divergent from the growth trajectory in Japan, China, Europe, and in many emerging markets. US growth could still be derailed by domestic or global factors.

Inflation has been tepid. It is expected to remain so in the face of lower oil prices, and the full impact of oil prices are yet to be seen. It is really difficult for us to see a catalyst for a major sustained higher move in inflation in the United States. And in spite of the hawkish mood at the Fed, the data that they -- that they are waiting on, the data dependency that they have, it may still prove unsatisfying, leaving the timing and pace of Fed actions still highly uncertain.

So what does this mean for the investment environment in which Dynex operates? If you turn to page 12, what you will see is, first off, global yields are low, and in some cases they are negative. Demographic factors globally are driving the demand for fixed income assets. This is keeping yields low. This doesn't mean rates can't rise, and in fact, this may end up being a surprise in 2015. But for now, we are in a very low rate environment due to macroeconomic factors and Central bank actions.

Second, risk premiums are low, and as a result returns are lower. We said this last year. The amount of cash in the system is driving the demand for risky assets. It's great for our current position, but not great for making new investments and deploying new capital.

Third, surprises are likely. Keep in mind, that there is no playbook for exiting QE, managing a fragile economy with divergent Central bank actions, as well as economic trajectories. It is a complex environment. And to us what this means, is that surprises are more likely, creating volatility and perhaps opportunity.

And finally, we could see the Fed in motion this year, but the data would really have to line up just so. We discussed some of the risks of the data lining up in the previous slide, but we can't rule out the Fed increasing interest rates this year. So in essence, we are operating in an environment of currently low yields, relatively low risk premiums with the potential for surprises, and for potentially a Fed in action later this year.

Let's now turn to see how Dynex is positioned to enter this environment, on page 13. First, we believe we have a stronger liquidity and capital position than in prior periods. This gives us the ability to better handle asset repricing, being able to perform if we get margin calls, not being a [foreseller] of assets, and to play offense by investing during market turbulence. This also gives us the flexibility to invest opportunistically in diversifying opportunities, if the market turbulence does not arrive.

Second, as we've said repeatedly, our current portfolio is constructed to perform in a variety of market environments. Let's start with our interest rate risk position. We believe it is manageable. We continue to maintain our long-duration position. Our exposure to interest rates rising is estimated to be about 4% of book value for a parallel 100 basis points shift up in rates. This is modest relative to many of our peers. For a bear steepener, where the 2-year rises 25 basis points and the 10-year 75 basis points, our book value decline is estimated to be about 0.25%.

Second, we've diversified across sectors to ensure that we can perform in a variety of market environments. Our allocation to short duration hybrids cushions us in rapidly rising interest rate environments. In fact, over a quarter of our $2.2 billion in hybrid ARMs are currently floating rate assets, or expected to be floating within 12 months. These assets have limited prepayment risks, and were selected for features such as lower loan balances, state specific pools, and pools with IO payments that protect us from faster speeds.

In CMBS, we continue to believe that fundamentals are strong in the multifamily sector, and the US economy will as a whole be very supportive for CMBS. We're invested in agency DUS who spreads are much less volatile than nonagency AAA CMBS, and offer us protection during periods of credit stress [though] the agency guarantee. Our agency and nonagency CMBS IOs are well-structured cash flows with limited prepayment risk, and spreads on these assets are more correlated with the AAA part of the CMBS spectrum, as opposed to more credit-sensitive tranches although these bonds are subject to idiosyncratic risks.

And finally, our current portfolio is protected from rising interest rates on the short end, through a combination of eurodollar futures and forward starting swaps. We currently estimate that 80% of our repo book for non-floating rate assets are covered by forward starting swaps or eurodollar contracts effective by the end of the fourth quarter of this year or in early 2016. This leaves us with what we consider to be a well-diversified portfolio, capable of navigating a complex macro economic environment.

Let me now turn to our strategy going forward on page 14. In 2014, we stated that this wasn't the environment in which to make big bets, and we managed our position accordingly. In 2015, we still believe it's not the environment to make big bets, but that the increased volatility, the Fed exit from MBS markets, and global uncertainty will create opportunities. Even if volatility is muted, we expect to continue to expand the universe of assets that we evaluate and invest in, to be able to deploy capital and diversifying opportunities. At this point, we expect that the balance sheet will increase modestly over the year, as we selectively deploy capital.

Let me tell you where we are currently seeing some opportunities. In both CMBS and RMBS, we like the combination of agency DUS and agency and nonagency CMBS IOs. The combined spread and earnings profile of these two instruments is very attractive to us. We think there is value in the single-family rental space, particularly in high credit quality floaters. We see selective opportunity in nonperforming loans and reperforming loans securitizations. These are short duration amortizing cash flows that preserve our reinvestment flexibility. We expect to deploy capital into some agency hybrid ARMs as we get prepayments from that sector.

GSE risk transfer securities continue to be an area of focus for us. The key issue here remains financing stability, entry point, part of the capital stack with the best risk return, and relative value compared to assets with similar risk. We think there will be opportunities for us to invest in the sector. Fixed rate MBS could start to get interesting later this year, particularly if the Fed stops reinvesting runoff. And at that point, there maybe an opportunity to put capital to work there.

Our focus is going to be on diversifying and opportunistic investing. You can also expect us to continue to actively manage our financing position and create value in this process. And finally, we have given you an insight into our risk profile. You can expect us to continue to manage this position with the focus on protecting book value through a variety of interest rate scenarios, but also maintaining the flexibility to what -- through what promises to be a dynamic market environment.

With that, I will turn it over to Byron.

Thanks, Smriti.

I would like to focus your attention on slide 18 and slide 19. At the beginning, I was really focused on slide 4, where I gave you a seven-year picture of Dynex's performance, versus the SNL US Finance REIT Index. And if you look at these two slides, we've got a long-term picture book value and then, a long-term return picture going back approximately 11 years. And I want to focus your attention on the value of a long-term strategy to generate above average dividend yields. That's what we have done here at Dynex, with a keen focus on disciplined risk management. As you can see in the charts, since 2003 when Tom Akin became Chairman of Dynex Capital, we have made many tactical and strategic decisions that have allowed our portfolio to perform in multiple market environments.

Our overall philosophy has remained the same for the past 11 years. It is extremely important to note that our shareholders were protected during the large financial crisis of 2007 and 2008. Given that the current global financial, economic, geopolitical and regulatory environment continues to be more complex, our goal is to protect the capital of our shareholders while generating an attractive return. We will not put our shareholders equity at risk in an attempt to generate an unreasonable return for this current complex global investment environment. We are maintaining our flexibility and liquidity, to give us more options as the future unfolds.

I always like to end my comments, reminding you of the most important fact to consider when investing in Dynex. The Board, Management and employees of Dynex have material amounts of our net worth invested in Dynex Capital. Hence, we are aligned with our shareholders, and we will continue to make decisions as owner/operators of this Company. With that, operator, we will open up the floor for -- open up the call for questions.

(Operator Instructions)

Douglas Harter, Credit Suisse.

Thanks. Byron, as you look out to the dividend, and how you and the Board are thinking about that, given your commentary around kind of maintaining a defensive positioning, and sort of core earnings right now being below the dividend, I guess, I just wanted to get your thoughts as to how you are thinking about that?

So you compare $0.23 to $0.25. We are in range of the dividend, right? So it's not that large of a differential.

Let me just say this by background. I polled several of our long-term investors, just to see how our investors felt about, the overall risk environment, and the strategy, and the dividend. And universally, everyone would say, please feel free to reduce the dividend, but don't just clobber us with a 20% correction in overall book value. So by philosophy, that's way we've managed our Company, and we will continue to do that. If you recall going back to last fall, we pulled several quarters of earnings forward by making those sales in our CMBS securities, which gives us a cushion, an ability to pay out the dividends as long as we within some decent of range of overall earnings. And that's where we stand today, and that's what we look forward to the future, and that's where we continue to be.

The backdrop -- we do try to paint for you though, like when we talk about a more complex environment, we are just trying to make sure everyone understands, that it is an environment that can change very rapidly for any investor in the marketplace. So last year, we know the oil investors and the currency investors, all really realized that point at this point in time. So when we talk about more complex, that's what we are acknowledging.

Got it. And I guess, what are you looking for as kind of the flashpoints to possibly cause the investment environment to be more attractive for you to put some of that capital to work?

All right. So let me just tie this together, with -- your the other question. So we've hit a point where we've said, and Smriti mentioned this that -- okay, we've hit our balance sheet at this level. We would like to keep it at this level or grow it from this point. And so that -- a lot of what has happened with core earnings is a reflection of just the overall balance sheet size. So as you think that the future, and you think about how close we are in terms of dividend, it will give you some idea.

So you are saying what indication, what flashpoints will make us change our opinion, or think differently about the environment, or see as the environment evolves? It's really -- we've always talk about is a point of clarity. And clarity means, we are at a point where asset valuations could adjust. Asset valuations adjust, we are in a position to put more capital to work. The only way that you manage through a period of asset value adjustments is you have a lower balance sheet.

So we want to put more capital to work when spreads are wider, and we want to put less capital to work when spreads are tighter. At the end of the day, that's what we've been doing at Dynex Capital. So if we see asset valuations adjust, we will be investing our capital. At this point though, I think it is important to emphasize, that one big decision, that we did look at the balance sheet and say -- let's take a pause in terms of allowing the balance sheet to run down, put a floor under the balance sheet, look for other diversifying opportunities to potentially put capital to work.

Great. Thank you for that, Byron.

David Walrod, Ladenburg Thalmann.

Good morning, everyone.

Hi, David.

Hey, quick question. You have a new line item in the balance sheet, investment in limited partnership. Can you give us a little color on that?

It's a small investment that we've done before where we -- there is a group that we feel very, very comfortable with. Smriti mentioned earlier that we have made investments in the NPL, RPL, scratch-and-dent type of loan space. They have all been generally small investments, but very attractive returns over time. We've invested both in securities, which are shorter duration instruments. We've also invested through this process of directly in a fund, that provides exactly the same type of short-term return profiles that have been relatively attractive.

Okay, great. And then the other question I had, was the share buyback you announced, can you talk to a little about where you're at there?

Hey, David. This is Steve. I think we are sort of similar -- in the same spot that we were in when we talked about this last quarter. It's one of the options for the use of our capital. Obviously, the stock today is trading at a discount to book value, and so on -- it's an on the margin analysis, versus other opportunities to put our capital to work. We obviously didn't buy anything back this quarter, the fourth quarter, but that remains an option going forward for us.

Okay. Thanks a lot.

(Operator Instructions)

Mike Widner, KBW.

Hey, good morning, guys.

Good morning, Mike.

So just listening to the tone of sort of how you talk about the investment environment, and there was a number of assets you talked about where, I think you were positive. You liked the RPL, NPL and single-family rental, CMBS, et cetera. So a lot of things you seemed to like today, which just strikes me as a slightly less cautious, more optimistic if you will, tone. You talk about growing the portfolio. So I guess, volatility in the bond market has obviously picked up, but you guys seem, I guess on the margin more optimistic, or at least more comfortable with the investment environment today than -- I don't know -- pick a time period, a year ago, three quarters ago. So I mean, is that right, or am I just sort of imagining the tone difference there?

Mike, let me just say this. The -- I can get kind of wired up, and sound like a country preacher at times when we start talking about global risk. So I purposely -- (multiple speakers ) Yes, so I purposely try to stay -- remain calm, and sit in my seat, and relax. Here is something that is different than a year ago. Our balance sheet is down. We are down from our peak balance sheet. We may be $1 billion down in assets.

So if you look back to seven years, the reason I don't want to use long-term [charge] -- is we've put a lot of capital to work when spreads were really, really wide. So in 2011, when spreads were really, really wide, we backed the truck up and put a ton of capital to work. Now that spreads are really, really tight, and returns are lower, and we've reduce that amount. But our balance sheet has come down, and so, we are at a point of saying, okay -- and we debate this internally. Okay, what is the right size for the balance sheet? As of right now, we're are saying, let's hold it here, and look to put money to work.

One of our key parts of that happens to be diversity. Let's have multiple different diversified buckets of assets, so we don't expose -- overly expose ourselves to anyone sector in this, what we consider to be high global risk environment. I think we are very vulnerable to surprises, Mike, and we continue to feel that way. But we truly have reduced our risk profile at this point. And so, we just ask ourselves should we drive our balance sheet down to $2 billion? Man, that's not the right answer right now.

As we stand right now, we just say, look, here is our balance sheet where it is. Let's look for these various different opportunities, and Smriti went through a nice little list. But behind that philosophy is diversifying because the risk environment is far more complex than let's say, five years ago. In my opinion, 2008 was easy versus 2015.

Yes, I mean, it's -- well, I don't know. I guess, that depends on what you're in. But yes for you guys --.

It depends on what seat you were sitting in, right? In 2008. (Laughter)

So I guess maybe another way, or another lens to view that through is in -- you finished in terms of leverage. And these are just off the top of my head, these might be a little off -- but leverage around 5.6 times today. You sort of -- I got the impression you are thinking about growing that. If I look back to where you sort of peaked, it was beginning of 2013, you were at 6 times, so not huge change. And then, you were kind of 6.8 and 6.5 times kind of mid year 2013. But I think that was more the book value coming down, and the assets going up. I guess, how do I think about your opportunism? And again, you talked about growing the portfolio from here. So I mean, relative to sort of 5.6 to a 6 times leverage, I mean, how do we think about where you're heading?

Yes, I think the bigger decision for us is more putting a floor on the balance sheet. We've operated in or around 6X, plus or minus something, that's always been our philosophy. The number that you mentioned in terms of the peak, we probably on our own drove our balance sheet up to probably 6.4, 6.5 times. And so, we've always looked at 6X, has been kind of the center point, of which we are operating around. But we are not running out right now to just say, hey, let's lever back up to 6X.

By the way, Mike, we are at 5.1. You said 5.6 times. So it's -- I mean, we are a full turn down from where we were last year.

Oh yes. Yes, I was looking at a different number there. But yes, so okay. So plenty of room I guess, is the bottom line for increasing it, but you are also doing it cautiously.

I like flexibility with options.

I like that too.

And we are also, if I use military readiness language, we're on DEFCON 4, man. (Laughter) So we're prepared. We are prepared, given the global environment. We're on DEFCON 4. So there is two parts of this. Everyone wants better returns. The only way to get better returns is that asset valuations have to adjust. It's more painful when asset valuations adjust, the more assets you have.

So again, I am going to go back to the simple concept, when spreads are really, really wide like in 2011, and 2012 we pushed the balance sheet as hard as we could up. As spreads have come in and returns have decreased, we've reduced the balance sheet, and we're prepared to try to take advantage of a better investing environment, and weather through surprises, which I think is the bright word to utilize here. And in the meantime, what we are basically saying is, you can generate a decent return.

Appreciate the comments as always. And I guess, to come back to the starting point of that question. You described yourself as feeling like you are at DEFCON 4 now, is that -- were we at 5 at some point last year? Or do you think we were at 3? (Multiple Speakers)

No. No. (Multiple Speakers)

Okay.

We were never at 5. DEFCON 5 is September 2008. In fact, I would say that entire period of March -- I would say, from August 2007 all the way through September 2008, that's 5. You are right in the middle. (Multiple Speakers) But you know what's happening. You know for fact what's going on. That's why I say, 2008 is easier. You knew exactly what was taking place. But at this point, there are multiple places globally where any of us investing money can be surprised.

Yes. Well, I appreciate it as always. Thank you, guys.

Thanks, Mike.

(Operator Instructions)

Steve DeLaney, JMP Securities.

Thanks, good morning, everyone, and thanks for taking the question. Byron, I want to apologize if this has been covered because I was jumping between calls. But I had the opportunity to read your comment letter regarding the FHFA's proposal with respect to captive insurance memberships in the Federal Home Loan Bank system. I know you are tracking that closely. I was curious, if you would be willing to sort of share your thoughts on -- so with the timing and what the possible outcome might be? And then, specifically with respect to Dynex, if you could gain membership to the Home Loan Bank system, where with respect to which asset classes that you have, where would you see such advanced funding being the most beneficial to Dynex? Thank you.

Appreciate -- first, I appreciate you listening to our call, Steve, just to highlight the fact that you have other things to do, and so I appreciate you being here.

Sure.

The -- from my understanding on the FHFA front, there is a raging debate inside the FHFA about how to resolve this issue. I am sure that the people in the FHFA did not write this rule anticipating 1,300 letters coming back with 99% of those letter not -- 99.8% being to the negative. So from my understanding is, that it kind of stretches this entire process out a bit. So the question is what happens as we await? And that's out there. I don't have an answer for that. I am not sure what that will look like.

A lot of discussions are being had. Some people are saying -- hey, maybe they will start accepting applications. Rumors are -- oh, someone may be making an application. Those are all things that I've just heard in the market. They're rumors. I can't substantiate any part of that. I will say, and remind us all that we are dealing with Washington DC, and there is no reason for me at all believe that I can predict what can happen, given the politics of the situation.

Mel Watt did -- was in front of Congress recently. My understanding, he could be in front of Congress again at some point, where he will be questioned about this issue. I have been encouraged by the amount of -- whether it's House members or Senate members that are aware of the situation, and are predisposed to oppose the mindset that is within FHFA. Now let's discuss -- so obviously, we would like them to allow REITs such as Dynex Capital to be a counter-party and a borrower from the Federal Home Loan Bank system.

So what would we do, how would we benefit? First and foremost, it diversifies the liability side of our balance sheet. So now, I have moved away from having my entire balance sheet exposed to -- let's call it, large US banks and some foreign banks, and diversified into what I consider to be one of the more stable sources of financing, that allows us, that will give us more opportunity to continue to operate within the housing finance system. So, that's diversity.

The second part of that happens to be, there are more financing options, which means that I may have more asset choices. So as you see, we don't have a ton of long-duration assets in our portfolio, and the main reason is it's function of financing. Just think about it, right? You have a $1 billion of 30 years on securities, financed with 30 day repo. I like the idea of having hybrid ARMs financed with 30 day repo, but and I do 30 or fixed-rate securities. But once you get into the Home Loan Bank, they can offer you 5-year financing, 7-year, 10-year financing, a variety of different options. The other place where they can offer you potentially better financing is around whole loan, or some other type of asset class such as that, which will allow us to broaden.

So I will remind you of the history of Dynex. Over 30 years of being in operation, we have had almost every business model under our roof. We were direct lenders back in the 1990s to both the residential sector and the commercial sector, with a heavy emphasis on multifamily. Today we have all securities. So you have to ask the question -- Byron, why today, do you only have securities? Because they are more liquid, they are more liquid, in a more complex global environment. You give me the financing options of a Home Loan Banking system, you give me more options to invest in the housing finance system.

I will also emphasize that in the 1990s, Dynex was a large low income tax housing credit lender. So you also give us an opportunity to think in terms -- broader in terms of the types of borrowers that we might be willing to participate with, giving more financing options. So our entire existence really has been in the housing finance system. And that's the point that we made to the FHFA regulators, is that this is our existence. More so, we are probably more focused on the housing finance than many other financial institutions, including banks, commercial banks, community banks and others. And the immediate impact -- what's on balance sheet right now that what we can immediately finance, are multi-families. Securities will go great, as an asset that is financed through the Home Loan Bank system.

Right. Byron, really appreciate you sharing your thoughts about it. I think it will be a great opportunity, and if it happens, we'll look forward to see how Dynex takes advantage of the opportunity. So thank you for the comments.

This concludes our question and answer session. I would like to turn the conference back over to Byron Boston, CEO and Co-CIO, for any closing remarks.

Thank you very much, and we appreciate you all joining us for our year end and fourth quarter conference call. We look forward to having you join us again for our first-quarter results. Thank you.

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