Dynex Capital, Inc. (NYSE:DX) Q4 2023 Earnings Call Transcript

Dynex Capital, Inc. (NYSE:DX) Q4 2023 Earnings Call Transcript January 29, 2024

Dynex Capital, Inc. misses on earnings expectations. Reported EPS is $-0.24 EPS, expectations were $-0.2. DX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Dynex Capital Fourth Quarter and Full-Year 2023 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question0-and-answer session. [Operator Instructions] I would now like to turn the conference over to Alison Griffin, Vice President of Investor Relations. Please go ahead. Alison Griffin Good morning. Thank you for joining us for Dynex Capital’s fourth quarter and full-year 2023 earnings call. The press release associated with today’s call was issued and filed with the SEC this morning, January 29, 2024.

You may view the press release on the home page of the Dynex website at dynexcapital.com, as well as on the SEC’s website at sec.gov. Before we begin, we wish to remind you that this conference call may contain forward-looking statements within the meaning of the Private Security 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 risk 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 are 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 our disclosures filed with the SEC, which may be found on the Dynex website, under Investor Center, as well as on SEC’s website. This conference call is being broadcast live over the internet with a streaming slide presentation, which can be found through a webcast link on the home page of our website. The slide presentation may also be referenced under quarterly reports on the Investor Center page. Joining me on the call is Byron Boston, Chairman and Chief Executive Officer; Smriti Popenoe, President and Chief Investment Officer; and Rob Colligan, Executive Vice President, Chief Financial Officer. It is now my pleasure to turn the call over to Byron.

Byron Boston: Thank you, Alison. Let me start by saying a few words about our board member, friend, and great teammate, Dave Stevens, who we lost this month. Dave was a true champion of the United States housing finance system and also the American homeowner. For me personally, we worked together for over 20-years, three organizations, always locking arms to achieve a common goal. It never feels good to see a friend exit the road of life. We will miss Dave, a great teammate, friend, and most importantly, an absolutely wonderful human being. While that was tough news to contend with earlier this year, I am proud of the remarkable work that team Dynex continues to achieve. As an active manager, our team navigated historic volatility with skill.

We came into the year with excess capital and deployed the capital in a disciplined manner throughout the year to position us to generate solid long-term economic returns. As a result, Dynex shareholders have enjoyed industry-leading returns in the current decade. One full of surprises and immense volatility. Our total shareholder return was 12% last year. Since the start of 2020 through the fourth quarter of 2023, our total shareholder return has been over 10%. This compares to the aggregate bond index ETF, which experienced losses of over 3%. We believe our ethical stewardship of shareholder capital continues to meet investors’ needs and produce differentiated results versus peers and other income alternatives. I study history and I can tell you that today’s market presents a historic and persistent opportunity in agency mortgage backed securities.

Non-economic buyers like the Fed and the GSEs have stepped away from the asset class. Private capital like Dynex now has the ability to earn more returns in this government guaranteed asset. I’m confident in our team’s ability to navigate today’s dynamic macroeconomic conditions and produce compelling shareholder returns. I am coaching them to incorporate the evolving landscape in 2024. We have major elections throughout the world, including here in the U.S. As the chairman and CEO, I am focused on navigating our company through gyrations and government policies. The outcome of elections will change the power structure and political dynamics in Washington. I’ve been pounding on the table that surprises are highly probable. We have seen that very clearly each year since the pandemic.

The team factors this into their scenario preparation and thought process. This is why we believe investing in Agency RMBS is the most compelling risk reward. The liquidity and quality of Agency MBS are needed to navigate this environment. As Smriti will describe in detail, the sector’s fundamental and technical backdrop is improving. While we have the capability to invest across sectors and our balance sheet has been diversified in the past, we have a strong global risk opinion that keeps the bulk of our capital in Agency MBS. Dynex has a unique value proposition. We have a seasoned team, a strong track record in extracting long-term returns from the mortgage market and a liquid and tradable vehicle with a tax advantage structure. We plan to continue to grow our business to offer our value proposition to more shareholders as demographics drive more investors to seek income.

More of the global population will need an ethical management team to deliver the returns they need. I’ll now turn it over to Rob and Smriti to give you the details.

Rob Colligan: Thank you, Byron, and good morning. Dynex delivered a solid quarter with an economic return of 11.8% and 1% for the entire year and total shareholder return was 12% for 2023. Over the year we added to our portfolio, managed our hedge book and raised new capital. Last year was another historic year for bond markets. We experienced the highest yields since 2007, a major banking crisis, and continued geopolitical unrest with a major new war in the Middle East. Against this backdrop, we started the year with leverage of 6.1 turns and assets of $5.9 billion, as well as excess capital from our capital raising activities in 2022. We had an explicit strategy of holding higher levels of liquidity versus capital and borrowing.

Spreads widened dramatically several times during the year, driven by the failure of Silicon Valley Bank and other financial institutions in the first quarter, the debt ceiling crisis in the second quarter, portfolio sales of Agency RMBS by the FDIC, which lasted through the third quarter, and macro volatility in October and November. As volatility increased and spreads widened, we opportunistically added to our portfolio, methodically increasing our portfolio from $5.9 billion to $7.4 billion. In addition, as pricing between TBAs and mortgage pools collapsed from the FDIC sales, we took the opportunity to rotate our portfolio from about 50% pools and 50% TVAs to 80% pools and 20% TVAs going into year-end. This improved our convexity profile and helped us lock in attractive yields on higher coupon specified pools.

Last year, we increased our marketing and investor relations outreach and selectively raised capital throughout the year at a modestly accretive price to book ratio, which we also deployed during periods of wider spreads. We expect to continue our marketing and investor outreach efforts in 2024. Our decision to opportunistically add to the portfolio throughout 2023 and maintain our invested position in the fourth quarter was a very clear benefit to book value, which increased over 20% from the lows we discussed on our last quarterly earnings call. Given the volatility experience throughout the year, and especially in the fourth quarter, we maintained our hedge portfolio and positioned for a steeper yield curve environment. The portfolio hedge cost was recognized immediately in book value, although we expect to receive a benefit of lower financing costs in the future as is currently priced into the market.

As I’ve mentioned on previous earnings calls on the topic of hedging, hedge gains and losses are a component of REIT taxable income. They’ll be part of our distribution requirement with other ordinary gains and losses. This quarter, we added to our realized hedge gains and will carry a benefit into 2024 and future years. As we move into 2024, we expect the hedge gains will support earnings. Please see the table on page six in the earnings release for more detail. Finally, as you’ll notice, we reduced our G&A expenses this year by actively focusing on expense management. I’ll now turn the call over to Smriti.

Smriti Popenoe: Thank you, Rob, and good morning, everyone. I’ll begin with a brief discussion of the critical decisions made in 2023 before providing thoughts on the investment environment and outlook. As Rob mentioned, we executed our strategy of adding to our portfolio at wider spread throughout 2023. Post the SVB crisis, during the debt ceiling crisis, over the summer as the FDIC executed pool sales, and most importantly, we held our positions through the volatility in late October. Overall, we grew our exposure to Agency RMBS over the years by 30%, increasing our leverage to common by the same proportion. Our investment team exercised a great deal of patience and discipline. During the October volatility, we leaned into our liquidity and risk management to pull us through instead of selling assets at losses as many others were compelled to do.

These decisions position shareholders to capture significant upside returns from tightening Agency MBS spreads to treasuries. Turning to the macro environment, we continue to construct our strategy for an environment with widely distributed outcomes. The markets are focused on the Fed’s monetary policy and the potential for substantially lower policy rates as realized inflation falls towards the Fed’s 2% target. Currently, the markets are pricing in 150 basis points of rate cuts of 2024. These would have a direct and very positive impact on our future financing costs, as we carry about $7 billion in financing relative to about $4 billion in long-term hedges. For every 25 basis points of realized lower financing costs, our total economic return improves by 2%, all else being equal.

In addition to substantial benefits to financing costs, we believe the eventual lowering of rates would result in nominal Agency MBS spread tighten to longer term equilibrium levels between 100 basis points and 140 basis points over the seven-year treasury yield. We have already seen the re-entry of banks into the sector in the fourth quarter, and we expect their participation to increase as regulatory uncertainty from the [Indiscernible] ending rule and the path of Fed policy rates are clarified. To the extent this scenario materializes, we believe any decline in realized volatility, which we are already experiencing in 2024, would also provide the impetus for tighter MBS spreads. While we believe these factors position us to capture significant upside in the medium term, we remain very respectful of the significantly different global environment that we operate in.

We base our long-term economic view on the interaction between rising human conflict, changing demographics, a rapidly evolving technological landscape, including the deployment of AI, rising global debt levels, and unsustainable fiscal dynamics in the U.S. and major developed economies. In our view, the geopolitical world order has permanently shifted to alter the structural economic set up for the coming decade. Nationalism, protectionism, and regional conflict contribute to rising friction costs. Conflict-driven supply shocks can translate to higher volatility, impacting inflation and interest rates. As aging populations demand more health care and the time it supports, costs to provide those services are rising. This is manifesting as a massive budget gap in the U.S. We view the widening U.S. fiscal gap as a significant factor in driving the level of yield and value of the U.S. dollar over the next two to five years.

The U.S. economy also remains exposed to significant policy risk in the upcoming election year and beyond. We’re also watching for known, unknowns in China, Japan, and Europe as these economies evolve and their government policy response. As always, we plan for alternative scenarios and exogenous shock and remain open to adjusting our strategy. The broader factors I’ve just described continue to support the majority of our capital being invested in Agency RMBS, which offer a historically accretive investment opportunity. We believe MBS will perform well in a soft landing, outperform risky assets in a hard landing. We expect equilibrium spreads to be in a tighter, lower range, further supporting new terms. Finally, I want to acknowledge the loss of an avid supporter of Dynex and fellow board member Dave Stevens.

I will miss him and he will be missed by all of us at the company. I will now turn it over to Byron for his final comments.

Byron Boston: Thank you, Smriti. I’d like to leave you with the following thoughts. The investment opportunity in Agency RRBS is historic and Dynex is uniquely positioned to take advantage of it with our experience and focus on risk management. Our investments last year put us in excellent position to generate solid returns in the coming years. I’m also excited to promote greater collaboration between our executive leadership team and the board in my new role as Board Chairman. Alongside Dr. Julia Coronado, our lead independent director, and other board members will work closely together to strategically manage our business and shareholders capital with consideration of the evolving macroeconomic environment. While visibility is limited to the very near-term, we consider multiple exogenous factors that can widen the distribution of outcomes.

Book value preservation is a focus of how the team will generate total economic return. Importantly, ethical stewardship remains at the core of everything we do. Thank you for your support, and we look forward to discussing our results with you next quarter. I’ll now turn the call over to you, operator for questions.

See also 15 Best Places in Louisiana for a Couple to Live on Only Social Security and 15 Unhappiest States in the US.

Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of Trevor Cranston with JMP Securities. Please go ahead.

Trevor Cranston: Hey, thanks, good morning. Looking at the rate positioning slide as of 12/31, it looks like you guys were set up to generally do better if rates moved higher, particularly at the longer end of the yield curve. And that’s obviously come to pass so far as we sit in January today. So I was wondering if you could maybe sort of update us as we sit today, kind of, on your rate positioning and your view on the up-rate risk versus down-rate risk, where we sit today? Thanks.

Smriti Popenoe: Hi, Trevor. Good morning. Thank you for the question. So, yes, you’re right. The hedges are concentrated in the back end of the yield curve and we are positioned to benefit from a steepening yield curve where front-end rates go down and back-end rates either remain the same or go higher. So a lot of this is driven by the macroeconomic view that we described during the prepared remarks. And really recognizing that while we may have some level of market pricing in the front-end, as I mentioned, there’s 150 basis points of cuts already priced in to the front-end of the yield curve, which will really benefit our financing costs. In the long-term, we feel like it makes more sense, given a number of other factors to have hedges concentrated in the back-end of the curve.

So in general, we’re positioned actually to benefit from a steeper yield curve. And that’s what’s reflected in the hedge positioning. And then just in terms of just an update from your end, I believe the book value is up about a percent or so to 13.50% area.

Trevor Cranston: Nice, we got it. Okay, that’s very helpful. And then, as you look across the portfolio, particularly in the higher coupon exposures, if we were to get a rally in rates from here, say down another 50 basis points or something. Can you talk about what kind of prepay response you’d expect, like for example in 5.5% and what kind of protection you have on those pools? Thanks.

Smriti Popenoe: Yes, absolutely. Yes, one of the big things we did last year was rotate into higher coupon specified pools and there was a pretty significant collapse in those pay ups over the summer. So we have gone into pre-payment protected pools in those coupons. Having said that, right, if you get a serious rally back down to where mortgage rates are down to 4% or lower, a lot of that protection will be compromised just simply because these will be — there’ll be new lows in mortgage rates and it would be — we’d expect to see pretty fast speeds. Given the primary rate that would really create a lot of repayment risk in the 5.5% is anything below 6.5%. So that’s what you’d have to go through in order to really create a big payment response.

We still think that the convexity protection that we have is real, and we’d have a benefit from it. The reason we’ve stayed in the low pay up specified pool is that, you know, to the extent that you don’t see it, right, we would not have lost a significant amount of pay up. And in general, diversified coupon positioning, you can see we actually have less of the 5.5%% and 6% coupons than we do of the lower coupons, is because we’re respecting the fact that quick drop down in rates could create a pretty significant response in those coupons.

Trevor Cranston: Got it. Okay, that makes sense. Thank you.

Smriti Popenoe: Sure.

Operator: Your next question comes from the line of Doug Harter with UBS. Please go ahead.

Doug Harter: Thanks. You talked about the ongoing attractiveness of the agency market. You know, do you envision yourselves raising additional capital to try to take advantage of it? Could leverage move higher? Just how are you thinking about possibly expanding the portfolio in this environment?

Smriti Popenoe: Hi, Doug. Thank you for the question. Look, I think Byron mentioned that this is a historic opportunity, and it’s a persistent opportunity. We remain in that environment and so, you know, to benefit our shareholders in this kind of investing environment, it makes a lot of sense for us to raise and deploy capital. So that was our strategy at the end of ‘22, we had — I think in ‘22, we raised over $250 million in capital. That capital got invested in ‘23. We raised a little bit more in ’23, I think that continues. So raising and deploying when you have a creative investment opportunity is a good strategy in the long-term for our shareholders. We’re going to continue to do that. I think to the extent that environment continues, we will keep doing. You know, the returns are still in the mid-teens, are we? So, we feel very, very good about that right now.

Doug Harter: And can you just remind us how you think about when you say accretive, how you think about that? Is that, you know, accretive to book? Is that accretive to returns? And you know, kind of the thought process you go through before deciding to raise capital?

Smriti Popenoe: Absolutely. I mean, we think about everything you described. One is, you know, what is the immediate price to book impact of any kind of capital raising. We think about mostly the long-term return potential in the capital inducted relative to the cost of capital, right? Right now you’re able to earn a double-digit return from the carry on mortgages relative to hedges without incorporating any kind of spread tighten. So when you add the spread tightening potential into the feature, you’re really looking at high-teens, low-20s, long-term returns. So when you review those types of returns in the context of our marginal dividend yield being in the 12%, these are great investments. So that’s kind of how we think about it. In the long-term, will our shareholders benefit from us raising and deploying the capital? And we believe the answer is yes, and in that case, we’re making the decision to raise them in fact.

Rob Colligan: Hey, and Doug, just to add a little color to that, you also asked about leverage. We do have the ability, if we see an opportunity, to take leverage up and then add to our capital base at a different time. I do think the market, given our performance, will give us opportunities to raise and grow. But sometimes it’s not exactly the right timing, right? Over time, you know, our price of book has gotten smaller, or you know, that gap has gotten smaller. The market is understanding our performance. We will have the ability to grow. But if it’s not exactly at the right time, we’ll temporarily take leverage up and backfill it with capital and be very judicious about that throughout the year and going forward.

Operator: Your next question will come from the line of Bose George with KBW. Please go ahead.

Bose George: Everyone, good morning. I just wanted to ask about hedging, just with the rotation more into pools versus TBAs. Does that change anything in terms of how you view the use of treasure use versus swaps or just thoughts on that?

Smriti Popenoe: Hi, Bose. Not really. We still see the capital cost of using interest rate swaps to be about twice as much as using [Indiscernible]. On a capital adjusted basis, those are really expensive hedges and they limit flexibility in times of stress. So our macro view really drives the selection of the hedges. Having us be in pools really doesn’t make a difference. Yes, you have a different type of financing that you’re hedging in the repo markets relative to the studio, but we still feel like we’re in the right hedge structure.

Bose George: So, okay, great. Thanks and then, Smriti, you mentioned the benefit of rates going down to your spread. Can you just go over that again, and is that a benefit to the economic return or to GAAP EPS, or yes, just kind of a little more detail and that would be great?

Smriti Popenoe: Yes, the long-term so, you know, how we think in total economic return [Technical Difficulty] right? And if you want to decompose that it’s really we think in terms of like the benefit to the financing cost. So all of the equal, if the financing costs go down by 25 basis points and nothing else changes, you’ll see the shape of the yield curve doesn’t change, you know, our investment mix doesn’t change. The positive benefit would be 2% in economic return. So you could just think of just financing costs going down is about 2% on the total economic return.

Bose George: Okay great thanks. And then just one last one just what are your expectations just for longer term mortgage spreads? You talked about spread tightening, just thoughts on where it goes and sort of the cadence?

Smriti Popenoe: Yes, look, I think there’s something very important happened in the fourth quarter, right? The Fed’s stance on monetary policy changed in December. You can call it a pivot, but once that happened, stocks, corporate bonds, and Agency MBS, they all benefit from that change in stance. So that’s the first one, right? Last year banks were a net seller, they sold about $250 billion in mortgages. The Fed net sold about $300 billion in mortgages. All of that is shifting because if the Fed now goes from being, you know, a tightening stance to a neutral stance and potentially even an easing stance, you have the possibility of banks starting to come back in, right? That’s already happened. If you looked at BofA’s results this past quarter, they were a net buyer of about $17 billion in mortgages.

All of that kind of shift the technicals in the mortgage market, right? and then you’ve also — we’ve also seen housing activity in terms of turnover is starting to pick back up again. We’ve seen that in existing home sales numbers. So turnover activity is starting to rise again. All of this to us points to you know equilibrium spreads more in sort of like the 100 to 140 basis point range over the seven-year treasury relative to the 140 to 190 basis points that we’re sitting in right now. Now, is it going to happen today, tomorrow? You know, and this all could happen, right, if you get a decline in front on yields, because the Fed is easing all of that. So we’re not saying it will happen. We’re saying there’s a real possibility that it could happen.

Those factors inflate now where the fundamentals and technicals have shifted. So the range of spread is actually lower, if you will, in the sense that instead of being from 140 to 190 basis points, maybe we’re sitting in the 120 to 160 basis points kind of range. So that’s kind of how we’re thinking about it. But in the long-term, as banks come back in, the CMO market gets active, the curve steepens. All of these things are supportive of tighter and lower spreads on an equilibrium basis.

Bose George: Okay, great. Thanks a lot.

Operator: Your next question comes from the line of Matthew Erdner with Jones Trading. Please go ahead.

Matthew Erdner: Hey, good morning, guys. Thanks for taking the question. Can you talk about the relative attractiveness of TBAs versus cash at the moment? And looking at the balance sheet you guys have a lower cash position since 2020, so can you talk about that and where you’ve been deploying that across the coupon stack?

Smriti Popenoe: Yes, I think so our TBAs versus pools, the relative attractiveness?

Matthew Erdner: Yes.

Smriti Popenoe: Okay, so right now I would say it’s the story in TBAs depends on the coupon. The higher coupons are still financing at a level that is lower than, actually no. The higher coupons are financing at a rate that is about equal or slightly higher than pools. In the belly coupons, like the 4 and 4.5 those are actually trading very special relative to pools. So it actually behooves you to have a TBA position in those coupons. In the lowest coupons, it’s actually very difficult to figure out just because there’s no production in the 2, 2.5 et cetera. So that just depends on what’s happening in the lowest coupon. But right now, the specialness in the role is actually limited to the 4 coupon and the 4.5 coupon. Everything else is either trading on top of pools or slightly above pools.

And in terms of cash versus unencumbered assets, I think that was your other question. We’ve continued to keep a fairly big allocation to our liquidity position. And Rob can give you the exact number of what we closed the year at. But you know what? I mean cash earns close to 5.5% here. So it’s not as big a drag on earnings as it was when we wait for [Indiscernible] which at that point you would be more inclined to hold pools or assets that yielded higher. So at this point with cash rates so high, you know, we don’t hesitate to hold cash if that was where your question was going.

Matthew Erdner: Yes, that’s helpful. And then talking about the supply and demand technicals with the Fed kind of getting towards the end of QT, do you guys have an opinion on, you know, if the Fed gets back in the market and when that might occur?

Smriti Popenoe: Look, we can only go by what the Fed is communicating — has communicated with respect to QT. Lori Logan gave a speech in January that I think is what kicked a lot of us off. From what we can tell, they’re interested in seeing quantitative tightening based on what they call the least comfortable level of reserves, right? The biggest part of QT, you really need to think about if there’s — it puts a floor on QT ending, you know, puts a floor on lots of things. It puts a floor on the amount of duration coming into the market. And that in and of itself, I think, is very supportive for mortgage spreads. Even if they reinvest only in treasuries, it takes out a yielding asset out of the market. It creates crowding out of private capital, and that creates a demand for safe securities.

And that’s, I think, very supportive. The other possible outcome of the end of QT is that delivered volatility goes down, because the Fed’s back in buying securities in the market. That’s also really supportive of mortgage spreads. And that — those are the things that I think just add to the idea that there’s been a shift in the technicals in the mortgage market.

Matthew Erdner: That’s helpful. Thank you.

Smriti Popenoe: You’re welcome.

Operator: [Operator Instructions] And your next question will come from the line of Eric Hagan with BTIG. Please go ahead.

Eric Hagen: Hey good morning guys. Hope we’re doing well. Do you guys feel like there’s good liquidity in the funding market to put on longer-dated repo right now to take advantage of what’s priced into the forward curve? And what’s the shortest that you can envision running the repo book if conviction builds around the Fed cutting maybe sooner rather than later?

Smriti Popenoe: Hi, Eric. Thank you for the question. So really the way we think about financing, number one I’ll tell you availability of financing is not an issue. We continue to have counterparties offer us financing. We’re able to fund out the term. I think we reported our weighted average term to maturity, original term to maturity is like 78 days. We’re not having any trouble running longer, longer dated financing, anything like that. So availability has been just fine. There’s been pressure around quarter ends, as you’ve seen, right? Like since September, there was a little pressure. December, there was a little pressure. So in general, we try to manage around those by funding out terms. So that hasn’t been a problem for us.

So yes, there is the ability to lock in financing to the extent that we want, and we disagree with the market’s pricing, et cetera, et cetera. You’ve seen us manage this book for a long time, Eric, and we’re always balancing two things. One is whether there will be quarter-end pressure and balance sheet pressure or event-driven pressure versus the risk of kind of running an overnight/shorter maturity book. And we kind of land somewhere in the middle. Some of our financing is going to be locked up and termed. Some of it is going to be not locked up and maybe rolling a little sooner. Typically, we have not been an overnight funder. And we’ve very rarely taken our financing lower than 30-days out. So we are looking to take term at opportunistic levels when we see that in the marketplace.

In general, we tend to be more focused on avoiding funding disruptions than kind of trying to make money off the financing book. It’s a risk that we just don’t feel like it’s good for us to expose our shareholders too. So we end up actually just really respecting where we get our financing and making sure that it’s locked up before we — if there’s any kind of economically turned benefit that we can get from thinking about the Fed expectation versus not, we would be using hedges to help us take advantage of that.

Eric Hagen: Yes. Appreciate that response. You know, we’re still a full-year away, actually a little bit more than a full-year, but how are we thinking about the fixed floating rate preferred stock rolling into the floating leg next year and maybe how you think about the cost of the capital structure overall if, you know, spreads are tighter or wider and what the Fed’s going to do?

Smriti Popenoe: Yes, I mean, don’t forget, a big part of that, if not all of it, is part of the hedging that we do on the liability side, right? So from an economic perspective, we feel really good about the fact that, that entire issue is hedged with our futures position. In general, so again, it’s going to be a question of what are the available opportunities? Where can we refinance, should we want to? We’ll go through the exact thought process as we approach the call date.

Eric Hagen: Yes. Thank you guys so much. Appreciate it.

Smriti Popenoe: You’re welcome.

Operator: We have no further questions at this time. I’ll turn the call back to Byron Boston for any closing remarks.

Byron Boston: Thank you very much for joining our call today. Just remember we have a long-term view, skilled risk management, discipline allocation of capital, a very experienced team, and most of all we take a very ethical approach as to how we manage our business. So thank you for joining us and we look forward to speaking to you again next quarter. Thank you.

Operator: That will conclude today’s meeting. Thank you all for joining and you may now disconnect.