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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 2003
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission file number 0-20552
DYNEX SECURITIES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 52-1785164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4551 Cox Road, Suite 300, Glen Allen, Virginia 23060-6740
(Address of principal executive offices) (Zip Code)
(804) 217-5800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
|X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
|_| Yes |X| No
Aggregate market value of voting stock held by non-affiliates of the registrant
as of September 30, 2003: None As of October 31, 2003, there were 1,000 shares
of Dynex Securities Corporation common stock outstanding.
The registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q/A with the reduced
disclosure format.
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DYNEX SECURITIES CORPORATION
FORM 10-Q/A
This amendment on Form 10-Q/A reflects restatement of the Company's financial
statements as discussed in Note 2 to the condensed financial statements.
All of the information in this Form 10-Q/A is as of November 12, 2003, the
filing date of the original Form 10-Q, and has not been updated for events
subsequent to that date other than for the matter discussed above.
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2003
and December 31, 2002 (unaudited).............................1
Condensed Statements of Operations for the three
and nine months ended September 30, 2003 (as
restated) and 2002 (unaudited)................................2
Condensed Statements of Cash Flows for the nine
months ended September 30, 2003 (as restated)
and 2002 (unaudited)..........................................3
Notes to Unaudited Condensed Financial Statements...............4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................5
Item 3. Quantitative and Qualitative Disclosures about
Market Risk...................................................5
Item 4. Controls and Procedures.........................................5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................6
Item 5. Other Information...............................................6
Item 6. Exhibits and Reports on Form 8-K................................6
SIGNATURE ................................................................9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNEX SECURITIES CORPORATION
CONDENSED BALANCE SHEETS (UNAUDITED)
(amounts in thousands except share data)
September 30, December 31,
2003 2002
-------------------------- --------------------------
ASSETS
Cash $ 10 $ 10
========================== ==========================
SHAREHOLDER'S EQUITY Common Stock, no par value:
10,000 shares authorized,
1,000 issued and outstanding $ 10 $ 10
========================== ==========================
See accompanying notes to the unaudited condensed financial statements.
DYNEX SECURITIES CORPORATION
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands)
----------------------------------- -----------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
2003 2002 2003 2002
---------------- --------------- --------------- ----------------
(As restated, (As restated,
see Note 2) see Note 2)
Gain on sale of investments $ 937 $ - $ 2,482 $ -
---------------- --------------- --------------- ----------------
Net income $ 937 $ - $ 2,482 $ -
================ =============== =============== ================
See notes to unaudited condensed financial statements.
DYNEX SECURITIES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
-------------------------------------------------
Nine Months Ended
September 30,
-------------------------------------------------
2003 2002
---------------------- ----------------------
(As restated, see
Note 2)
Operating activities:
Net income $ 2,482 $ -
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of investments (2,482) -
---------------------- ----------------------
Net cash provided by operating activities - -
---------------------- ----------------------
Investing activities:
Proceeds from sale of investments 2,482 -
---------------------- ----------------------
Net cash provided by investing activities 2,482 -
---------------------- ----------------------
Financing activities:
Dividends and capital distributions (2,482) -
---------------------- ----------------------
Net cash used for financing activities (2,482) -
---------------------- ----------------------
Net change in cash - -
Cash, beginning of period 10 10
---------------------- ----------------------
Cash, end of period $ 10 $ 10
====================== ======================
See notes to unaudited condensed financial statements.
DYNEX SECURITIES CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(amounts in thousands except share data)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
notes required by accounting principles generally accepted in the United States
of America, hereinafter referred to as "generally accepted accounting
principles" for complete financial statements. Dynex Securities Corporation (the
"Company") was incorporated in Virginia on July 8, 1992 as a wholly owned,
limited-purpose financing subsidiary of SMFC Funding Corporation, a Virginia
corporation ("SMFC"). On January 1, 1997, SMFC dividended all of the outstanding
stock of the Company, represented by 1,000 shares of common stock, to Dynex
Holding, Inc. ("DHI"), an affiliated company. On November 1, 2000, DHI sold all
of the capital stock to Dynex Capital, Inc., an affiliate of DHI. Dynex Capital,
Inc. is the parent of the Company.
The Company was organized to facilitate the securitization of mortgage loans
through the issuance and sale of collateralized bonds (the "Bonds") and
certificates of participation ("Mortgage Securities"). The Bonds are issued
pursuant to an indenture or indentures and are secured by securities backed by
one or more of the following: mortgage loans, Federal National Mortgage
Association Mortgage-Backed Certificates, insurance policies, and various
accounts and funds (collectively, the "Collateral"). The Collateral for a series
of Bonds are pledged to a trustee. The Mortgage Securities represent a
percentage interest in a pool of Collateral purchased by a trust established by
the Company.
In the opinion of management, all normal recurring adjustments considered
necessary to present fairly the financial position and results of operations of
the Company for the periods presented have been made. The Balance Sheet as of
September 30, 2003, the Statements of Operations and the Statements of Cash
Flows for the three and nine months ended September 30, 2003 and 2002 are
unaudited. The Balance Sheet at December 31, 2002 has been derived from the
audited financial statements as of that date. For further information, refer to
the audited financial statements and footnotes included in the Company's Form
10-K for the year ended December 31, 2002.
NOTE 2 - RESTATEMENT
During the three and nine months ended September 30, 2003, the Company exercised
its call rights on one and five securities, respectively, for the benefit of its
parent company, Dynex Capital, Inc., simultaneously collapsed the security
structure and sold the underlying loans at a gain of $937 and $2,482,
respectively. At the time of the filing of the Form 10-Q, it was assumed that
Dynex Capital, Inc. owned the call rights to these securities. Subsequent to the
issuance of the financial statements for the three and nine months ended
September 30, 2003, it was determined that the Company owned the call rights to
these securities and that the sale of the underlying loans sold at a gain
represented income to the Company which should be reported in the Company's
financial statements. As a result, the Company has restated the financial
statements for the three and nine months ended September 30, 2003 to record the
gain on the sale of the investment of $937 and $2,482, respectively.
----------------------------------- -----------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
2003 2003 2003 2003
---------------- --------------- --------------- ----------------
(As originally (As originally
reported) (As restated) reported) (As restated)
--------- ------------- --------- -------------
Gain on sale of investments $ - $ 937 $ - $ 2,482
---------------- --------------- --------------- ----------------
Net income $ - $ 937 $ - $ 2,482
================ =============== =============== ================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
As discussed in Note 2 to the condensed financial statements, the Company has
restated its financial statements for the three and nine months ended September
30, 2003. The Management's Discussion and Analysis gives effect to this
restatement.
During the nine months ended September 30, 2003, the Company issued no Mortgage
Securities or Bonds on behalf of Dynex Capital, Inc. The most recent
securitization of mortgage loans by the Company occurred in September 1995.
At September 30, 2003, the Company had $1.4 billion of securities remaining for
issuance under a registration statement filed with the Securities and Exchange
Commission in October 1994. Securities sold through private placements by the
Company do not reduce the amount available under the shelf registration
statements.
During the three months ended September 30, 2003, the Company exercised its call
rights on one security with a principal balance of $19.9 million, simultaneously
collapsed the security structure and sold those securities at a premium,
recognizing a gain of $0.9 million. During the nine months ended September 30,
2003, the Company exercised its call rights on five securities with a principal
balance of $54.7 million, simultaneously collapsed the security structure and
sold those securities at a premium, recognizing a gain of $2.5 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 4. Controls And Procedures
(a) Evaluation of disclosure controls and procedures.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information
required to be disclosed in the Company's reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in
the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed
to ensure that information required to be disclosed in the
Company's reports filed under the Exchange Act is accumulated
and communicated to management, including the Company's
management, as appropriate, to allow timely decisions
regarding required disclosures.
As of the end of the period covered by this report, the
Company carried out an evaluation of the effectiveness of the
design and operation of the Company's disclosure controls and
procedures pursuant to Rule 13a-15 under the Exchange Act.
This evaluation was carried out under the supervision and with
the participation of the Company's management. Based upon that
evaluation, the Company's management concluded that the
Company's disclosure controls and procedures are effective,
except as described below.
The Company identified an internal control deficiency related
to the recording of realized gains on the sale of loans
collateralizing securities for which the Company owned the
call rights. For each of the called securities, the
securitization structure was collapsed and the loans were sold
to a third party at a gain. Originally the gain from the sale
of these loans was recorded in the financial statements of the
Company's parent. Management of the Company subsequently
determined that these gains should be reported as income for
the period ended September 30, 2003 in the financial
statements of the Company. This internal control deficiency
did not impact the consolidated financial statements of the
Company's parent.
In conducting its review of disclosure controls, management
concluded that sufficient disclosure controls and procedures,
other than this deficiency, did exist to ensure that
information required to be disclosed in the Company's reports
filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
(b) Changes in internal controls.
There were no changes in the Company's internal control over
financial reporting identified in connection with the
evaluation of it that occurred during the Company's last
fiscal quarter that materially effected, or are reasonably
likely to materially affect internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 5. Other Information:
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3.1 Articles of Incorporation of the Registrant (Incorporated
herein by reference to the Exhibits to Registrant's
Registration Statement No. 33-49520 on Form S-11 filed
July 10, 1992).
3.2 By-Laws of the Registrant (Incorporated herein by reference
to the Exhibits to Registrant's Registration Statement
No. 33-49520 on Form S-11 filed July 10, 1992).
4.1 Form of Trust Agreement dated July 1, 1992,
(Incorporated herein by reference to Exhibits to
Registrant's Registration Statement No. 33-49520 on
Form S-11 filed July 10, 1992).
4.2 Standard Terms to Trust Agreement dated July 1, 1992
(Incorporated herein by reference to the Exhibits to
Registrant's Registration Statement No. 33-49520 on
Form S-11 filed July 10, 1992).
4.3 Copy of Series 1992-1 Trust Agreement dated as of
August 1, 1992, among Registrant, Ryland Mortgage
Company, as Master Servicer, and Texas Commerce Bank
National Association, as Trustee (Incorporated herein
by reference to Exhibit to the Registrant's Current
Report on Form 8-K, filed September 4, 1992).
4.4 Copy of Series 1992-2 Trust Agreement dated as of
September 1, 1992, among Registrant, Ryland Mortgage
Company, as Master Servicer, and Texas Commerce Bank
National Association, as Trustee (Incorporated herein
by reference to Exhibit to the Registrant's Current
Report on Form 8-K, filed October 14, 1992).
4.5 Copy of Series 1992-3 Trust Agreement dated as of
October 1, 1992, among Registrant, Ryland Mortgage
Company, as Master Servicer, and Texas Commerce Bank
National Association, as Trustee (Incorporated herein
by reference to Exhibit to the Registrant's Current
Report on Form 8-K, filed November 6, 1992).
4.6 Copy of Series 1992-4 Trust Agreement dated as of
November 1, 1992, among Registrant, Ryland Mortgage
Company, as Master Servicer, and Texas Commerce Bank
National Association, as Trustee (Incorporated herein
by reference to Exhibit to the Registrant's Current
Report on Form 8-K, filed December 7, 1992).
4.7 Copy of Series 1992-6 Trust Agreement dated as of
December 1, 1992, among Registrant, Ryland Mortgage
Company, as Master Servicer, and Texas Commerce Bank
National Association, as Trustee (Incorporated herein
by reference to Exhibit to the Registrant's Current
Report on Form 8-K, filed January 7, 1993).
4.8 Copy of the Series 1993-8 Trust Agreement dated as of
August 1, 1993, among Registrant, Ryland Mortgage
Company, as Master Servicer, and Texas Commerce Bank
National Association, as Trustee (Incorporated herein
by reference to the Exhibits to the Registrant's
Current Report on Form 8-K, filed September 3, 1993).
4.9 Standard Terms to Trust Agreement, dated August 1,
1993 (Incorporated herein by reference to the
Exhibits to the Registrant's Current Report on Form
8-K, filed September 3, 1993).
4.10 Copy of the Series 1993-10 Trust Agreement dated as
of October 1, 1993, among the Registrant, Ryland
Mortgage Company, as Master Servicer, and Texas
Commerce Bank National Association, as Trustee
(Incorporated herein by reference to the Exhibits to
the Registrant's Current Report on Form 8-K, filed
November 1, 1993).
4.11 Copy of the Series 1994-2 Trust agreement dated as of
January 1, 1994, among the Registrant, Ryland
Mortgage Company, as Master Servicer, and Texas
Commerce Bank National Association, as Trustee
(Incorporated herein by reference to the Exhibits to
the Registrant's Current Report on Form 8-K, filed
February 10, 1994).
4.12 Copy of the Series 1994-4 Trust Agreement dated as of
March 1, 1994, among the Registrant, Ryland Mortgage
Company, as Master Servicer, and Texas Commerce Bank
National Association, as Trustee (Incorporated herein
by reference to the Exhibits to the Registrant's
Current Report on Form 8-K, filed April 13, 1994).
4.13 Copy of the Series 1994-2 First Amendment to Trust
Agreement dated as of March 15, 1994, among the
Registrant, Ryland Mortgage Company, as Master
Servicer, and Texas Commerce Bank National
Association, as Trustee (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed May 5, 1994).
4.14 Copy of the Series 1994-4 First Amendment to Trust
Agreement dated as of April 15, 1994, among the
Registrant, Ryland Mortgage Company, as Master
Servicer, and Texas Commerce Bank National
Association, as Trustee (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed May 18, 1994).
4.15 Copy of the Series 1994-9 Trust Agreement, dated as
of June 1, 1994, by and among the Registrant, Ryland
Mortgage Company, as Master Servicer, and Texas
Commerce Bank National Association, as Trustee
(Incorporated herein by reference to the Exhibits to
the Registrant's Current Report on Form 8-K, filed
July 12, 1994).
4.16 Standard Terms to Trust Agreement (August 1994
Edition) (Incorporated herein by reference to the
Exhibits to the Registrant's Current Report on Form
8-K, filed September 13, 1994).
4.17 Copy of the Series 1994-2 Second Amendment to Trust
Agreement dated as of September 27, 1994, among the
Registrant, Ryland Mortgage Company, as Master
Servicer, and Texas Commerce Bank National
Association, as Trustee (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed October 5, 1994).
4.18 Copy of the Series 1993-10 First Amendment to Trust
Agreement, dated as of October 7, 1994, by and among
the Registrant, Ryland Mortgage Company, as Master
Servicer, and Texas Commerce Bank National
Association, as Trustee (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed October 13, 1994).
4.19 Standard Terms to Trust Agreement (Pool Insurance)
(October 1994 Edition) (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed November 10, 1994).
4.20 Copy of the Series 1993-8 First Amendment to Trust
Agreement, dated as of November 1, 1994, by and among
the Registrant, Ryland Mortgage Company, as Master
Servicer, and Texas Commerce Bank National
Association, as Trustee (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed December 15, 1994).
4.21 Copy of the Series 1994-4 Second Amendment to Trust
Agreement, dated as of November 1, 1994, by and among
the Registrant, Ryland Mortgage Company, as Master
Servicer, and Texas Commerce Bank National
Association, as Trustee (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed December 15, 1994).
4.22 Copy of the September 1995 Edition of Standard Terms
to Trust Agreement (with Servicing Agreement for
Credit Sensitive Loans) (Incorporated herein by
reference to the Exhibits to the Registrant's Current
Report on Form 8-K, filed October 12, 1995).
10.1 Standard Provisions to Servicing Agreement (December
1992 Edition) (Incorporated herein by reference to
the Exhibits to Registrant's Registration Statement
No. 33-57204 on Form S-11 filed January 21, 1993).
10.2 Copy of the Meritech Servicing Agreement dated
September 1, 1995 (Incorporated herein by reference
to Exhibit to the Registrant's Current Report on Form
8-K, filed October 12, 1995).
10.3 Copy of the Standard Terms to Meritech Servicing
Agreement for Saxon Mortgage Securities Corporation,
September 1995 Edition (Incorporated herein by
reference to Exhibit to the Registrant's Current
Report on Form 8-K, filed October 12, 1995).
31.1 Certification of Principal Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Copy of the Support Fund Agreement, dated as of June
29, 1994 between Texas Commerce Bank National
Association, as Trustee, and Texas Commerce Bank
National Association, as Custodian (Incorporated
herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K, filed July 11, 1994).
99.2 Copy of the Support Fund Agreement, dated as of
October 27, 1994 by and between SHF Corp. and Texas
Commerce Bank National Association, as Support Fund
Trustee (Incorporated herein by reference to Exhibit
to the Registrant's Current Report on Form 8-K, filed
November 10, 1994).
99.3 Copy of Financial Guaranty Insurance Policy No.
50306-N issued by Financial Security Assurance Inc.,
dated June 28, 1994, with respect to the Series
1994-9 Securities (Incorporated herein by reference
to Exhibit to the Registrant's Current Report on Form
10-K, filed March 21, 1995).
99.4 Copy of the Saxon Mortgage, Inc. Servicing Guide for
Credit Sensitive Loans, February 1995 Edition
(Incorporated herein by reference to Exhibit to the
Registrant's Current Report on Form 8-K, filed
October 12, 1995).
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNEX SECURITIES CORPORATION
Dated: May 18, 2004 By: /s/ Stephen J. Benedetti
-----------------------------------
Stephen J. Benedetti
President, Treasurer
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen J. Benedetti, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of
Dynex Securities Corporation;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements
were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under my supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others
within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure
controls and procedures as of the end of the period
covered by this report based on such evaluation; and
(c) disclosed in this quarterly report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the
registrant's internal control of financial reporting.
5. I have disclosed, based on my most recent evaluation of
internal control over financial reporting, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial data; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Dated: May 18, 2004 By: /s/ Stephen J. Benedetti
----------------------------------
Stephen J. Benedetti
Principal Executive Officer and
Principal Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dynex Securities Corporation
(the "Company") on Form 10-Q/A for the quarter ended September 30, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Stephen J. Benedetti, the Principal Executive Officer and Chief
Financial Officer of the Company, certify, pursuant to and for purposes of 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
May 18, 2004 By: /s/ Stephen J. Benedetti
-----------------------------------
Stephen J. Benedetti
Principal Executive Officer
Chief Financial Officer