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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 quarterly period ended September 30, 2004
|_| 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
As of October 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 September 30, 2004 and
December 31, 2003 (unaudited).....................................1
Condensed Statements of Operations for the three and
nine months ended September 30, 2004 and 2003 (unaudited).........2
Condensed Statements of Cash Flows for the nine months
ended September 30, 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 Disclosures about Market Risk..........5
Item 4. Controls and Procedures.............................................5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................5
Item 5. Other Information...................................................5
Item 6. Exhibits............................................................6
SIGNATURES ...................................................................7
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,
2004 2003
-------------------------- --------------------------
ASSETS
Cash $ 10 $ 10
========================== ==========================
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 Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- --------------- --------------- ----------------
Gain on sale of investments $ - $ 937 $ - $ 2,482
---------------- --------------- --------------- ----------------
Net income $ - $ 937 $ - $ 2,482
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See notes to unaudited condensed financial statements.
DYNEX SECURITIES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
-------------------------------------------------
Nine Months Ended
September 30,
-------------------------------------------------
2004 2003
---------------------- ----------------------
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 "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 September 30, 2004,
the Statements of Operations for the three and nine months ended September 30,
2004 and 2003, and the Statements of Cash Flows for the nine months ended
September 30, 2004 and 2003 are unaudited. 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 as 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 nine months ended September 30, 2004, 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, 2004, 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, 2004, the Company had no activity.
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
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, including the
Company's Principal Executive Officer and Chief Accounting
Officer. 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. There were no changes in the Company's internal
controls or in other factors that could materially affect, or
are reasonably likely to materially affect the Company's
internal controls subsequent to the Evaluation Date, nor any
significant deficiencies or material weaknesses in such
internal controls requiring corrective actions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 5. Other Information:
None.
Item 6. Exhibits:
(a) 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, Chief Financial Officer,
and Chief Accounting Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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: November 15, 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