Good day and welcome to the Dynex Capital Incorporated First Quarter 2013 Earnings Conference Call and webcast. All participants will be in listen-only mode. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Mr. Thomas Akin, Chairman and CEO. Mr. Akin, the floor is yours sir.

Thank you Mike and thank you all for participating on the Dynex first quarter call this morning. We realized it’s a busy earnings season and we appreciate your time. With me today is Byron Boston, President and CIO. Steve Benedetti, COO and CFO of Dynex. Alison Griffon, our HR and IR Representative and then Todd Kuimjian, our Senior Vice President and Portfolio Manager in our CMBS Group. And with that I’d like to turn it over to Alison for the customary protection.

Thank you Tom. Good morning, everyone and thank you for joining our call today. The press release associated with today’s call was issued and filed with the SEC today, May 2, 2013. You may view the press release on the company’s website at dynexcapital.com under Investor Relations and on the SEC’s website at www.sec.gov. 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 or risks. For additional information on these factors or risks, we refer you to our Annual Report on Form 10-K for the period ended December 31, 2012 as filed with the SEC. The document may be found on our website under Investor Relations as well on SEC’s website. 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 first quarter 2013 Earnings Conference Call link, also on the same page of our website. I would now like to turn the call back over to Tom. Thank you.

Great Alison and for those of you, who are following us online or have the presentation upfront. I’m going to turn to page three in our guiding principles. Dynex is a public mortgage REIT, but we are different and we have several distinguishing factors which I would like to outline. One; we are internally managed, we always have been. Two; we are one of the oldest mortgage REIT’s in existence commencing operations in 1988. We have an experienced leadership team, all of us have been in the business for a, at least 15 years. I have been around 25 years and Byron Boston is been around 25 years. We have a high insider ownership in the company. We consider ourselves owner-operators. Our compensation is heavily weighted in stock. So we have a vested interest in the outcomes of DX and we are vested into making smart decisions for the long-term. We have a diversified investment strategy. We believe a diversified portfolio will give us a higher probability of performance through a variety of market environments and we experienced quite a few over the last four years. We have a large net operating loss carried forward. Created in 1998, and beginning to expire in 2020 that gives us financial flexibility as we are not required to pay out all our earnings in terms of dividends. And with that, I’d like to go the first quarter highlights, which is on page four of the presentation. First of all, our diluted earnings per common share was $0.34 and our book value increased from $10.30 to $10.50 during the quarter and year-over-year went from $9.62 to $10.50. Our annualized ROE, during the quarter was 13% and our net interest spread narrowed modestly to 1.89%. Our average earning assets are now $4.1 billion and our…

Good morning. Let me take a second or two to discuss some of the specifics about our portfolio and our investment strategy of the last two years. As you can see on the next slide six, we’ve got picture of treasury 10 year rates in the overall book value of the company. As Tom mentioned, we’ve structured our portfolio to perform in a variety of market environments. We referenced the 10 year here on the right. They’re much concerned in the market spot rising rate. So despite the volatility with the rates, we’ve been able to deliver consisting increase in book value over the years, since we’ve been building this portfolio in 2008. Note that in July 2011, yield actually broke new lower range and stayed in this range, but approximately about 1.50 to 2.50 on the 10 year for the last year and a half. We are not concerned it’ll breakthrough 2.50 on the upper band given the current conditions and the extraordinary amount of cash, and liquidity is being pumped into the global financial system and in the future we believe, we will see a steeper yield curve and the range will normalize in some point in future, but anyone guess is to when that date actually occurs. And in that period of a steeper yield curve, we do believe that we will have some interesting investment opportunities. Nonetheless, the main point of this slide is nearly to show you that, our book value has increased a huge driver behind that is been our diversification and our allocation of capital over the years to the CMBS sector. We go through the next slide. Let’s look at our portfolio mix because Dynex provides some unique values, and one of our goals here this morning on this call, is trying…

Mind you, [ph] following slide is our Dynex value proposition, which hasn’t changed since Byron and I assumed, the CEO and President’s job or CIO job in 2008. We continue to believe that internally managed structure, align shareholders with the management team. We continue to believe that our diversified investment strategy, allowing us to choose the assets or have the greatest returns with the least amount of risk holds true today, as it did back then. Our low leverage, we have 6.0, our target leverage. We are slightly above that right now, but that remains consistent and we haven’t had any strategy drift over the last five years. We continue to have NOL, which allows us to pay little bit smaller dividend at this quarter, we earned $0.34, our dividend is $0.29 that allows us to put in the bank approximately $0.05 on a quarterly basis, that we look at as a long-term capital gain for our shareholders, that continues until 2020 and we plan and we work hard to utilize that. We continue to have a significant insider ownership as mentioned previously, we are owner operators. We care about the long-term and I think our performance over the last five years. Our consistency and our reliability has been shown after those results. And with that operator, I’d love to open it up for questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). The first question we have comes from Douglas Harter of Credit Suisse. Please go ahead. Douglas Harter – Credit Suisse: Thanks. Byron I was hoping, you could talk to us about the types of returns you’re seeing on CMBS IO today, that would be helpful? Thanks.

Sure, return range is about 10% to 13% and there are ebbs and flows with this, just as I try to give that example, the agencies our last fall. It was really nothing to do in that sector, but then summed into first quarter there was plenty to do. As yield back up toward 2% obviously our financing holds that become. They’re up for more of an opportunity for return as the curve flattens. We’ve tended to find some of those returns decline, but we’re still in that 10% to 13% range. This is side, that you didn’t asked us but something we ponder all the time, what should be, what theoretically should be the return on an asset, such as this with the cash flow is so well-defined, such a short duration. And even though, we were able to go back to 2001 and earn ROE’s in some situations as high 20%. We still find, the 10% level even on the low end of that range still relatively attract to well-defined cash flow. Douglas Harter – Credit Suisse: Great and then Byron, you guys were relatively early on the K-series. Can you tell me, how you guys are thinking about the potential risk sharing on RMBS, side from the GSE’s?

So I’ll throw in a couple of points here, Doug and then we’ve got Todd Kuimjian on the phone also, which should be great to have you guys, get to know. Who’s been managing our CMBS book since that time and we still, when we start again back to an example again, a second ago. We started Freddie K program with ROE’s well over 20% and believer in this trend toward the strength of multifamily where you’re seeing, vacancies really come down and overall occupancy increasing and still at increasing demand. And even when people talk about household formation. Everyone understands now that household formation does not necessarily mean to buy a house, but also potentially to move out and rent an apartment. So the trend is still there, we believe there is more risk. we’ve said that in past conference calls, though we closer at it now simply because it’s been a long run, a ton over people are involved, as you can see we look and think housing starts at the multifamily sector, has continued to increase in terms of how these start, but we are sticking with our belief that this underline trend is and continues to still be there. Todd, do you want to chime in at all?

Byron, I think you guys covered, but Doug is your question about RMBS or CMBS? Douglas Harter – Credit Suisse: Yes, I was thinking just drawing the parallels from your K-series investments. Would the new RMBS, what the risk sharing as that ultimately comes out be something that you guys would be interested in K-series?

I got it. Thanks Doug. I apologize to that, absolutely we are interested. So we (inaudible) when did you say this? I asked some you guys to pretend we’re going through our strategic planning process. I asked some of you guys, what are your opinions, so I might as well give you some ideas what do we think. Doug, we have a very positive outlook for the future, which includes what you asked about Doug. We are looking at the business opportunity, but what we see is, we see the federal government, not really at some point in the future, not wanting to own agency mortgage-backed securities. So that means, we give them the GSE’s portfolios and in some point it fits, stop selling them, that’s very simplistic. We believe that’s the business opportunity that includes all of agency sector fixed and public. Secondarily to that, is I think what you’re asking Doug is around residential credit. The agencies also, would like to lay off that residential credit. Some of which we’ve done in the K-program. We have been part of the private capital to providing credit support to Freddie Mac, in their Freddie Mac K-program. We’d like to do the same thing on the residential side, as the government comes for and starts to develop a program of laying off that credit. We do expect them to do something this year. I do expect whatever they do, probably be some form of derivative that may not be good REIT asset, but we do have room to add some of those assets on our portfolio and we’d hope to find, is that as that program evolves. The value of ensuring that they create, something that’s a good REIT asset will become a top priority. I know they’ve recognize it, they talked about it, they may not be able to create a perfect REIT asset this year, but I do expect that ultimately to happen. So do I think, there’ll be great returns as Freddie Mac goes to lay off this credit this year, no I don’t. And the reason is because there’s so much cash in system. So many people chasing assets, I believe there’ll be a food fight. I think every REIT will be involved. I think hedge funds will be involved. I think there’ll be multiple financial entities looking to invest in this, but I think you do want to be involved. So you can be prepared for as the world evolves in front of us, over the next coming two to five years. Other business opportunities, we’ll continue to see in the CMBS sector. MSRs will be great opportunity for some REITs. I’m not sure that its’ a great opportunity for Dynex Capital yet, but we do believe that residential IOs may be a great opportunity for Dynex sometime in the future. Douglas Harter – Credit Suisse: Great, thanks.

Is that enough or did I give you too much, I apologize for that. Douglas Harter – Credit Suisse: No, that’s perfect Byron. Thank you.

Next we have, Trevor Cranston of JMP Securities. Trevor Cranston – JMP Securities: Hi, thanks. I guess I was a little bit surprised to see, the improvement in book value this quarter given the moving rates. So can you maybe just talk a little bit about, what the primary driver of that was and how it’s progressed in quarter end given the reality in rates, we’ve seen?

Steve, why don’t you answer to that question? You have the specifics.

Sure, hi Trevor. Trevor Cranston – JMP Securities: Hi.

Most of the gain, the change in book value would’ve come from two sources today or for the quarter. It’d have come first from, the CMBS IOs and spread tightening in that product and then it would have come as the curve steepened a little bit and rates sold off, it would have come out in swap book. Typically those move in opposite directions, but this quarter they moved in the same direction. Trevor Cranston – JMP Securities: Okay and have you guys seen any material changes in the CMBS IOs spreads since quarter end?

Maybe – this is Todd. Maybe 10 basis points tighter on top of the (inaudible). Trevor Cranston – JMP Securities: Okay, that’s helpful. And then on the agency RMBS portfolio. The premium amortization went down a little bit this quarter. It looks like the CPR was fairly flat, was that driven by kind of slower lifetime assumptions as rates went higher?

Yes, I’m sorry Trevor. It’s couple things there, one is that the change in the forecast. So it’s little slower assumption given what the yield curve did during the quarter, but also with hybrid’s everyone has to remember that. You’re amortizing premium based on our model speeds. So if you extend your model speeds, your actual forecasted speeds are less than your model speeds, you’ll have positive EIR, there as well. So even though, CPRs might have been flat. If they’re less than modeled, we will have positive yield adjustments or reduce premium amortization as a result. Trevor Cranston – JMP Securities: Got it, that makes sense. Okay and then last thing, it looks like you have about $300 million of swaps that have mature over the next 12 months or so, is there any of that matures in the second quarter and can you also just talk about kind of your general thoughts on replacing that run off in the thought book?

That’s good question Trevor, what we’ve been doing. We’ve been taking the opportunity to in effect add swaps, based on that both swaps running off and an important point, that you should note about our portfolio, is we have been choosing to add swaps in the 10-year sector, so why the 10-year sector and the reason is, at some point again. I mentioned earlier, we expect the QE3 will mend, when it does I’ll expect the steeper yield curve. So I’ll expect more activity and more flow and more volatility on 10-year sector and that starts, we’ve been moving our hedges on in that sector. So I know, some of you guys look at what’s the percentage of swaps versus repo. I don’t really look at that much in the sense, unless I’m concerned about earnings percent and I think that’s way out in the future. Right now, I’m more concerned about book value and we’ve using two-year swaps which means that you’ll see that’s adding probably a lower total amount of swaps, but the actual duration in fact is, will be a more substantial. Trevor Cranston – JMP Securities: Okay, thanks for the color.

Next we have Mike Widner of KBW. Mike Widner – KBW: Hi, good morning, guys. Let me just ask you, one of things that we hear number of other REITs talking about today, on the non-agency side with changes with Fannie and Freddie is, getting into securitization business and basically buying whole loan pools and securitizing them and things along those lines. You guys really haven’t talked much about that, at least I don’t think you have and seemed to be much more on the will be bond buyers rather than, whole loan buyers and securitizers, I’m just wondering, if you can talk a little bit about that?

Sure, we have Mike one of the points that I was – wanted to dive in my first time, as with Dynex Capital is been in this business for 25 years, for the first 10 years of our existence. We originated loans or we purchased loans and we finance them via the securitization market and I’ve got personal here with long-term histories in that sector. We’re also well aware of how unwell that strategy became in the liquidity squeeze, not only in 1998, but also in 2000. We also understand that, it takes away tad bit of nimbleness, when you enter that realm and so we haven’t talked about it publicly, but we talked about it internally quite often, and so when you look at that chart and you see that, we crossed the multiple sectors. We actually look across at a broad sector of assets to invest. And so we think, there is a premium on liquidity right now. Why, because this is very unusual environment for this generation of bond investors. We haven’t seen anything like this and I’ve been at it since 1981. And so we think there is premium on liquidity, so I’m able to build a very liquid balance sheet with agency securities combining of CMBS and RMBS and generate a solid double-digit return that’s where we’ll be, until when I look at more yield liquid strategies. I’m expecting some pick up in ROE and I’ve been continually looking at this trend and I’m not seeing enough pick in ROE yet, for us to say let’s take on operational risk, plowing into a whole loan strategy, but it is not that we are not looking at it. When (inaudible) mentioned it publicly and you were involved I think, from interviews, since we did our strategic planning process, but at the moment we place a huge premium on a liquid balance sheet, which is what we have here at Dynex.

And at the same time, Michael. We believe that you ought to have a long-term investment thought process and any decision we make, will be something we’ll make over the long-term. I think there are, minor amounts of short-term opportunity out there. I think it’s primarily driven by some people who pardon the analogy, but you’ve got a bunch of people that are carpenters and to them, everything is a nail and so almost by definition. You’re going to see that securitization talk, we’ve seen it previously. I don’t think it’s a good long-term opportunity quite yet, it may be in the future but it isn’t right now and we have plenty of alternatives opportunities in our investment set. Mike Widner – KBW: That certainly makes sense and I guess from the standpoint looking at alternatives, if you were different mortgage REIT that was focused on one particular asset class, then the decision probably makes a lot more sense, since that’s how you diversify is if you’re, you don’t have a lot of choices. You either add talent on the CMBS side or something or talent on originations and it sounds like you guys are more on the side of, would rather be diversified across assets, then being diversified against different sort of segments of the product chain, if you will?

Correct. I think that’s our core expertise and again I just want to reemphasize, we are finding plenty of things to do in our core investment set. So we are not running out of ideas. Mike Widner – KBW: And just to be clear that, I mean it sounds like what you guys are communicating is that from historical experience and from the talent you have on staff, that if the opportunity there suddenly becomes a whole lot better and suddenly you can get, 22% ROEs on non-agency, subprime mortgage originations, if Bernanke keeps pushing people into credit risk, just throwing it out there. You might take advantage of opportunities, if the ROE threshold is good enough and dealt between what you’re currently doing is high enough, you’re just not seeing it today.

We’ve done it previously, we have people that are reverse engineering all of these deals. We are looking at them, it’s not anything that is something we’re afraid to do or can’t do and quite frankly, when the opportunity rises I’m looking forward to it, but it just appears that we’re like Byron commented, this is a uncertain environment massively uncertain environment and anything could happen over the next day, month, year and what I think you want to do is maintain, what we describe is nimbleness, the flexibility and that’s been the byword of our investment strategy for the last five years. I think it’s going to stay that way for a while. Mike Widner – KBW: Makes good sense to me. Thanks for the comments and color and congrats on excellent quarter.

Thanks Michael.

(Operator Instructions). But appears that we have no further questions at this. We will conclude our question-and-answer session. I’d now like to turn the conference back over to management for any closing remarks. Gentlemen?

Great, I want to thank everybody for attending our call this morning. We realize, this is very busy morning, very busy week. There is a lot going on in the space and we appreciate your time. What we try to deliver today, was a discussion of the long-term nature of the Dynex value proposition. The fact that we have developed, what we think a consistent portfolio that will hold up over the long-term. I think our results indicate that, we feel very confident and very positive about our future and we look forward to seeing all of you, at our annual meeting coming up in June in New York at our next conference call. Thanks much for everyone.

And we thank you sir and to the rest of management for your time. The conference has now concluded. We thank you all for attending today’s presentation. At this time, you may disconnect your line. Thank you and take care everyone.