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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended March 31, 2004
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DYNEX SECURITIES CORPORATION
(Exact name of registrant as specified in its charter)
Commission file number 0-20552
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
(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
As of March 31, 2004, 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 with the reduced
disclosure format.
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DYNEX SECURITIES CORPORATION
FORM 10-Q
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at March 31, 2004 and December 31, 2003 (unaudited).....................1
Condensed Statements of Operations for the three months ended
March 31, 2004 and 2003 (unaudited)..........................................................2
Condensed Statements of Cash Flows for the three months ended
March 31, 2004 and 2003 (unaudited)..........................................................3
Notes to Unaudited Condensed Financial Statements................................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................4
Item 3. Quantitative and Qualitative Disclosure about Market Risk........................................4
Item 4. Controls and Procedures..........................................................................5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................5
Item 5. Other Information................................................................................5
Item 6. Exhibits and Reports on Form 8-K.................................................................6
SIGNATURES .................................................................................................6
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNEX SECURITIES CORPORATION
CONDENSED BALANCE SHEETS (UNAUDITED)
(amounts in thousands except share data)
March 31, December 31,
2004 2003
------------------------- -------------------------
ASSETS
Cash $ 10 $ 10
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SHAREHOLDER'S EQUITY Common Stock, no par value:
10,000 shares authorized,
1,000 issued and outstanding $ 10 $ 10
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See accompanying notes to the unaudited condensed financial statements.
DYNEX SECURITIES CORPORATION
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands)
Three Months Ended
March 31,
-------------- ---------------
2004 2003
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Gain on sale of investments $ - $ 387
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Net income $ - $ 387
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See accompanying notes to unaudited condensed financial statements.
DYNEX SECURITIES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
-------------------------------------------
Three Months Ended
March 31,
-------------------------------------------
2004 2003
------------------- -------------------
Operating activities:
Net income $ - $ 387
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of investments - (387)
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Net cash provided by operating activities - -
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Investing activities:
Proceeds from sale of investments - 387
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Net cash provided by investing activities - 387
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Financing activities:
Dividends and capital distributions - (387)
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Net cash used in financing activities - (387)
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Net decrease in cash - -
Cash, beginning of period 10 10
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Cash, end of period $ 10 $ 10
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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 non-recourse securitization financing (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 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 March 31, 2004, the
Statements of Operations and the Statements of Cash Flows for the three months
ended March 31, 2004 and 2003 are unaudited. The Balance Sheet at December 31,
2003 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, 2003.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Since inception, the Company has used its shelf registration to issue Mortgage
Securities on behalf of SMFC. The Mortgage Securities and the related mortgage
collateral are excluded from the financial statements of the Company since the
issuance of these Mortgage Securities has been accounted for as sales of the
associated collateral in accordance with generally accepted accounting
principles. All fees and related expenses in connection with issuance and
administrative services related to the Mortgage Securities are recorded in the
financial statements of SMFC.
During the three months ended March 31, 2004, the Company issued no Mortgage
Securities or Bonds on behalf of its parent, Dynex Capital, Inc. The most recent
securitization of mortgage loans by the Company occurred in September 1995.
During the three months ended March 31, 2004, the Company had no activity.
During the three months ended March 31, 2003, the Company exercised its call
rights on two securities with a principal balance of $8.2 million,
simultaneously collapsed the security structure and sold those securities at a
premium, recognizing a gain of $0.4 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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.
In conducting its review of disclosure controls, management
concluded that sufficient disclosure controls and procedures
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.
The Company's management is also responsible for establishing
and maintaining adequate internal control over financial
reporting. During the Company's last fiscal quarter, processes
were implemented to enhance timely notification of accounting
personnel of terms and conditions of major contracts and
agreements to include provision of copies of such contracts
and agreements. There were no other changes in the Company's
internal control over financial reporting identified in
connection with the evaluation that occurred during the
Company's last fiscal quarter that materially affected, 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) Financial Statements - see Item 8
Exhibits
Number Exhibit
31.1 Certification of Principal Executive Officer
and Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Accounting
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer
and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
SIGNATURES
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 20, 2004 By: /s/ Stephen J. Benedetti
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Stephen J. Benedetti
President, Treasurer
By: /s/ Kevin J Sciuk
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Kevin J Sciuk
Chief Accounting Officer