þ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Virginia
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52-1549373
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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4991 Lake Brook Drive, Suite 100, Glen Allen, Virginia
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23060
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(Address of principal executive offices)
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(Zip Code)
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(804) 217-5800
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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Large accelerated filer
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o
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Accelerated filer
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þ
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Non-accelerated filer
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o
(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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Page Number
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PART I.
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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6
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Item 1B.
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Unresolved Staff Comments
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23
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Item 2.
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Properties
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23
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Item 3.
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Legal Proceedings
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23
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Item 4.
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Reserved
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24
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PART II.
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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25
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Item 6.
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Selected Financial Data
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27
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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28
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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48
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Item 8.
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Financial Statements and Supplementary Data
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54
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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54
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Item 9A.
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Controls and Procedures
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54
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Item 9B.
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Other Information
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54
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PART III.
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|||
Item 10.
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Directors, Executive Officers and Corporate Governance
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55
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Item 11.
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Executive Compensation
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55
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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55
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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55
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Item 14.
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Principal Accountant Fees and Services
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56
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PART IV.
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Item 15.
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Exhibits, Financial Statement Schedules
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57
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SIGNATURES
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60
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PART I
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ITEM 1.
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BUSINESS
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·
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understanding macroeconomic conditions including the current state of the U.S. and global economies, the regulatory environment, competition for assets, and the availability of financing;
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·
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sector analysis including understanding absolute returns, relative returns and risk-adjusted returns;
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·
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security and financing analyses including sensitivity analysis on credit, interest rate volatility, and market value risk; and
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·
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managing performance and portfolio risks, including interest rate, prepayment, credit, and liquidity.
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ITEM 1A.
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RISK FACTORS
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Page Number
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Risks Related to Our Business
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6
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Risks Related to Regulatory and Legal Requirements
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18
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Risks Related to Owning Our Stock
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22
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-
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general market and economic conditions;
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-
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the actual or perceived financial condition of credit market participants including banks, broker-dealers, hedge funds, and money-market funds, among others;
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-
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the impact of governmental policies and/or regulations on institutions with respect to activities in the credit markets;
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-
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market perception of quality and liquidity of the type of assets in which we invest; and
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-
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market perception of our financial strength, our growth potential and the quality of assets specific to our portfolio.
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·
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interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
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·
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available interest rate hedges may not correspond directly with the interest rate risk for which we seek protection;
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·
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the duration of the hedge may not match the duration of the related liability;
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·
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the amount of income that a REIT may earn from hedging transactions (other than through taxable REIT subsidiaries) to offset interest rate losses may be limited by U.S. federal income tax provisions governing REITs;
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·
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the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;
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·
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the party owing money in the hedging transaction may default on its obligation to pay;
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·
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the value of derivatives used for hedging may be adjusted from time to time in accordance with GAAP to reflect changes in fair value, and downward adjustments, or “mark-to-market losses,” would reduce our shareholders’ equity and book value; and
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·
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hedge accounting under GAAP is extremely complex and any ineffectiveness of our hedges under GAAP will impact our statement of operations.
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·
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If we make frequent asset sales from our REIT entities to persons deemed customers, we could be viewed as a “dealer,” and thus subject to 100% prohibited transaction taxes or other entity level taxes on income from such transactions.
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·
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Compliance with the REIT income and asset requirements may limit the type or extent of hedging that we can undertake.
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·
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Our ability to own non-real estate related assets and earn non-real estate related income is limited. Our ability to own equity interests in other entities is limited. If we fail to comply with these limits, we may be forced to liquidate attractive assets on short notice on unfavorable terms in order to maintain our REIT status.
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·
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Our ability to invest in taxable subsidiaries is limited under the REIT rules. Maintaining compliance with this limitation could require us to constrain the growth of future taxable REIT affiliates.
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·
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Notwithstanding our NOL carryforward, meeting minimum REIT dividend distribution requirements could reduce our liquidity. Earning non-cash REIT taxable income could necessitate our selling assets, incurring debt, or raising new equity in order to fund dividend distributions.
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·
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Stock ownership tests may limit our ability to raise significant amounts of equity capital from one source.
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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ITEM 2.
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PROPERTIES
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ITEM 3.
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LEGAL PROCEEDINGS
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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High
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Low
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Dividends Declared
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||||||||||
2010:
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||||||||||||
First quarter
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$ | 9.36 | $ | 8.57 | $ | 0.23 | ||||||
Second quarter
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$ | 9.85 | $ | 8.70 | $ | 0.23 | ||||||
Third quarter
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$ | 10.92 | $ | 9.04 | $ | 0.25 | ||||||
Fourth quarter
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$ | 11.00 | $ | 10.42 | $ | 0.27 | ||||||
2009:
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||||||||||||
First quarter
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$ | 7.47 | $ | 6.30 | $ | 0.23 | ||||||
Second quarter
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$ | 8.70 | $ | 6.75 | $ | 0.23 | ||||||
Third quarter
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$ | 8.92 | $ | 7.82 | $ | 0.23 | ||||||
Fourth quarter
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$ | 9.33 | $ | 7.80 | $ | 0.23 |
Cumulative Total Stockholder Returns as of December 31,
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||||||||||||||||||||||||
Index
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2005
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2006
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2007
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2008
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2009
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2010
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||||||||||||||||||
Dynex Capital, Inc.
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$ | 100.00 | $ | 102.75 | $ | 128.55 | $ | 103.61 | $ | 154.55 | $ | 212.99 | ||||||||||||
S&P 500
(2)
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$ | 100.00 | $ | 115.79 | $ | 122.15 | $ | 76.95 | $ | 97.32 | $ | 111.98 | ||||||||||||
Bloomberg Mortgage REIT Index
(2)
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$ | 100.00 | $ | 120.11 | $ | 65.12 | $ | 38.26 | $ | 48.63 | $ | 60.68 | ||||||||||||
SNL U.S. Finance REIT Index
(2)
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$ | 100.00 | $ | 123.87 | $ | 77.25 | $ | 41.67 | $ | 53.33 | $ | 65.92 |
(1)
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Cumulative total return assumes reinvestment of dividends.
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(2)
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The source of this information is Bloomberg, SNL, and Standard & Poor’s, which management believes to be reliable sources.
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Years Ended December 31,
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2010
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2009
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2008
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2007
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2006
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|||||||||||||||
(amounts in thousands except share and per share data)
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||||||||||||||||||||
Net interest income
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$ | 34,425 | $ | 24,565 | $ | 10,547 | $ | 10,683 | $ | 11,087 | ||||||||||
Net interest income after provision for loan losses
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33,046 | 23,783 | 9,556 | 11,964 | 11,102 | |||||||||||||||
Gain (loss) on sale of investments
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2,891 | 171 | 2,316 | 755 | (183 | ) | ||||||||||||||
Fair value adjustments, net
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294 | 205 | 7,147 | – | – | |||||||||||||||
Other income (expense), net
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2,058 | 138 | 1,734 | 176 | (1,489 | ) | ||||||||||||||
General and administrative expenses
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(8,817 | ) | (6,716 | ) | (5,632 | ) | (3,996 | ) | (4,521 | ) | ||||||||||
Net income
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$ | 29,472 | $ | 17,581 | $ | 15,121 | $ | 8,899 | $ | 4,909 | ||||||||||
Net income to common shareholders
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$ | 26,411 | $ | 13,571 | $ | 11,111 | $ | 4,889 | $ | 865 | ||||||||||
Net income per common share:
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||||||||||||||||||||
Basic
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$ | 1.50 | $ | 1.04 | $ | 0.91 | $ | 0.40 | $ | 0.07 | ||||||||||
Diluted
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$ | 1.41 | $ | 1.02 | $ | 0.91 | $ | 0.40 | $ | 0.07 | ||||||||||
Dividends declared per share:
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||||||||||||||||||||
Common
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$ | 0.98 | $ | 0.92 | $ | 0.71 | $ | – | $ | – | ||||||||||
Series D Preferred
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$ | 0.71 | $ | 0.95 | $ | 0.95 | $ | 0.95 | $ | 0.95 | ||||||||||
Average balance interest earning assets
(1)
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$ | 1,012,520 | $ | 740,640 | $ | 421,796 | $ | 333,084 | $ | 609,936 | ||||||||||
Average balance interest bearing liabilities
(1)
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$ | (865,919 | ) | $ | (627,848 | ) | $ | (327,687 | ) | $ | (265,379 | ) | $ | (515,302 | ) | |||||
Average effective yield earned on assets
(2) (3)
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4.81 | % | 5.29 | % | 6.79 | % | 8.45 | % | 7.92 | % | ||||||||||
Average effective rate on liabilities
(2) (3)
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(1.64 | %) | (2.06 | %) | (5.28 | %) | (6.77 | %) | (7.42 | %) | ||||||||||
Net interest spread
(2) (3)
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3.17 | % | 3.23 | % | 1.51 | % | 1.68 | % | 0.50 | % |
(1)
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Average balances are calculated as a simple average of the daily balances and exclude unrealized gains and losses on available-for-sale securities. Average balances also exclude funds held by trustees except proceeds from defeased loans held by trustees.
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(2)
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Certain income and expense items of a one-time nature are not annualized for the calculation of effective yields or rates. Examples of such one-time items include retrospective adjustments of discount and premium amortization arising from adjustments of effective interest rates.
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(3)
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Cash and cash equivalents are excluded from the effective yield and rate calculations for each period presented.
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As of December 31,
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2010
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2009
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2008
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2007
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2006
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|||||||||||||||
Investments
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$ | 1,617,865 | $ | 917,981 | $ | 572,255 | $ | 331,795 | $ | 401,186 | ||||||||||
Total assets
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1,649,584 | 958,062 | 607,191 | 374,758 | 466,557 | |||||||||||||||
Repurchase agreements
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1,234,183 | 638,329 | 274,217 | 4,612 | 95,978 | |||||||||||||||
Non-recourse collateralized financing
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107,105 | 143,081 | 177,157 | 203,199 | 210,135 | |||||||||||||||
Total liabilities
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1,357,227 | 789,309 | 466,782 | 232,822 | 330,019 | |||||||||||||||
Shareholders’ equity
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292,357 | 168,753 | 140,409 | 141,936 | 136,538 | |||||||||||||||
Common shares outstanding
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30,342,897 | 13,931,512 | 12,169,762 | 12,136,262 | 12,131,262 | |||||||||||||||
Book value per common share
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$ | 9.64 | $ | 9.08 | $ | 8.07 | $ | 8.22 | $ | 7.78 |
2010
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2009
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|||||||||||||||||||||||
(amounts in thousands)
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RMBS
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CMBS
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Total
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RMBS
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CMBS
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Total
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||||||||||||||||||
Beginning balance
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$ | 594,120 | $ | – | $ | 594,120 | $ | 311,576 | $ | – | $ | 311,576 | ||||||||||||
Purchases
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696,514 | 211,893 | 908,407 | 389,220 | – | 389,220 | ||||||||||||||||||
Principal payments
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(272,271 | ) | (1,805 | ) | (274,076 | ) | (116,705 | ) | – | (116,705 | ) | |||||||||||||
Sales
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(18,762 | ) | – | (18,762 | ) | – | – | – | ||||||||||||||||
Net unrealized gain (loss)
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(6,063 | ) | (2,700 | ) | (8,763 | ) | 10,457 | – | 10,457 | |||||||||||||||
Net amortization and other
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(3,795 | ) | (820 | ) | (4,615 | ) | (428 | ) | – | (428 | ) | |||||||||||||
Ending balance
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$ | 989,743 | $ | 206,568 | $ | 1,196,311 | $ | 594,120 | $ | – | $ | 594,120 | ||||||||||||
December 31, 2010
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December 31, 2009
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|||||||||||||||||||||||
(amounts in thousands)
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Fannie Mae
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Freddie Mac
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Total
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Fannie Mae
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Freddie Mac
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Total
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||||||||||||||||||
Hybrid ARMs
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$ | 496,601 | $ | 266,449 | $ | 763,050 | $ | 165,893 | $ | 129,837 | $ | 295,730 | ||||||||||||
ARMs
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198,638 | 27,982 | 226,620 | 246,823 | 51,436 | 298,259 | ||||||||||||||||||
Fixed rate
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206,641 |
─
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206,641 | 131 |
─
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131 | ||||||||||||||||||
$ | 901,880 | $ | 294,431 | $ | 1,196,311 | $ | 412,847 | $ | 181,273 | $ | 594,120 |
December 31, 2010
(1)
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December 31, 2009
(2)
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|||||||||||||||||||||||
MTR
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Par Value
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Fair Value
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WAC
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Par Value
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Fair Value
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WAC
|
||||||||||||||||||
(amounts in thousands)
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||||||||||||||||||||||||
0-12 months
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$ | 216,420 | $ | 226,620 | 3.35 | % | $ | 286,192 | 298,259 | 4.41 | % | |||||||||||||
13-24 months
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189,841 | 203,093 | 5.50 | % | 63,533 | 66,726 | 5.42 | % | ||||||||||||||||
25-36 months
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304,713 | 323,988 | 5.10 | % | 140,708 | 149,098 | 5.33 | % | ||||||||||||||||
Over 36 months
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226,329 | 235,969 | 3.81 | % | 76,108 | 79,906 | 4.44 | % | ||||||||||||||||
Fixed rate
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190,584 | 206,641 | 5.41 | % | 115 | 131 | 11.29 | % | ||||||||||||||||
$ | 1,127,887 | $ | 1,196,311 | 4.62 | % | $ | 566,656 | $ | 594,120 | 4.75 | % |
(1)
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As of December 31, 2010, approximately 5% of our Agency ARMs and hybrid ARMs reset based upon the level of six month LIBOR, 92% reset based on the level of one-year LIBOR and 3% reset based on the level of one-year CMT.
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(2)
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As of December 31, 2009, approximately 8% of our Agency ARMs and hybrid ARMs reset based upon the level of six month LIBOR, 82% reset based on the level of one-year LIBOR and 10% reset based on the level of one-year CMT.
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2010
|
2009
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|||||||||||||||||||||||
(amounts in thousands)
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RMBS
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CMBS
(1)
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Total
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RMBS
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CMBS
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Total
|
||||||||||||||||||
Beginning balance
|
$ | 5,907 | $ | 118,127 | $ | 124,034 | $ | 6,259 | $ |
─
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$ | 6,259 | ||||||||||||
Purchases/redemptions
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11,893 | 183,045 | 194,938 |
─
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114,836 | 114,836 | ||||||||||||||||||
Principal payments
|
(3,276 | ) | (27,669 | ) | (30,945 | ) | (511 | ) |
─
|
(511 | ) | |||||||||||||
Sales
|
─
|
(31,328 | ) | (31,328 | ) |
─
|
(15,047 | ) | (15,047 | ) | ||||||||||||||
Net unrealized gain (loss)
|
840 | 11,178 | 12,018 | 144 | (1,349 | ) | (1,205 | ) | ||||||||||||||||
Net (accretion) amortization and other
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44 | (1,398 | ) | (1,354 | ) | 15 | 4,763 | 4,778 | ||||||||||||||||
Ending balance
|
$ | 15,408 | $ | 251,955 | $ | 267,363 | $ | 5,907 | $ | 103,203 | $ | 109,110 | ||||||||||||
(1)
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Included within the CMBS beginning balance for the period ending December 31, 2010 is $14.9 million of CMBS resulting from the adoption of amendments to ASC Topic 860, effective January 1, 2010, which required us to consolidate the assets and liabilities of a securitization trust in order to remain in compliance with ASC Topic 810.
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(amounts in thousands)
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RMBS
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CMBS
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Total
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||||||||||
AAA
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$ | 4,007 | $ | 201,608 | $ | 205,615 | |||||||
AA
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5,101 |
─
|
5,101 | ||||||||||
A | 6,101 | 45,340 | 51,441 | ||||||||||
Below A/Not Rated
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199 | 5,007 | 5,206 | ||||||||||
$ | 15,408 | $ | 251,955 | $ | 267,363 |
(amounts in thousands)
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December 31, 2010
|
December 31, 2009
|
||||||
Commercial
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$ | 98,167 | $ | 150,371 | ||||
Single-family
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54,795 | 62,100 | ||||||
$ | 152,962 | $ | 212,471 |
(amounts in thousands)
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December 31, 2010
|
December 31, 2009
|
||||||
TALF:
|
||||||||
Fixed, secured by CMBS
|
$ | 50,639 | $ |
─
|
||||
Securitization financing bonds:
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||||||||
Fixed, secured by commercial mortgage loans
|
35,673 | 119,713 | ||||||
Variable, secured by single-family mortgage loans
|
20,793 | 23,368 | ||||||
$ | 107,105 | $ | 143,081 |
(amounts in thousands)
|
December 31, 2010
|
December 31, 2009
|
||||||
Beginning balance for the fiscal year
(1)
|
$ | 134,259 | $ | 149,584 | ||||
Redemption of securitization financing bonds
|
(57,003 | ) |
─
|
|||||
Principal payments
|
(41,094 | ) | (28,430 | ) | ||||
Net amortization and other
|
(489 | ) | (1,441 | ) | ||||
Ending balance for the fiscal year
|
$ | 35,673 | $ | 119,713 | ||||
As of December 31, 2010
|
||||||||||||||||
(amounts in thousands)
|
Asset
Carrying
Basis
|
Associated
Financing
(1)
/ Liability Carrying Basis
|
Allocated
Shareholders’
Equity
|
% of
Shareholders’
Equity
|
||||||||||||
Agency RMBS
|
$ | 989,743 | $ | (869,537 | ) | $ | 120,206 | 41.1 | % | |||||||
Agency CMBS
|
206,568 | (150,178 | ) | 56,390 | 19.3 | % | ||||||||||
Non-Agency RMBS
|
15,408 | (12,126 | ) | 3,282 | 1.1 | % | ||||||||||
Non-Agency CMBS
|
251,955 | (200,328 | ) | 51,627 | 17.7 | % | ||||||||||
Securitized mortgage loans
|
152,962 | (109,119 | ) | 43,843 | 15.0 | % | ||||||||||
Other investments
|
1,229 | – | 1,229 | 0.4 | % | |||||||||||
Derivative assets (liabilities)
|
692 | (3,532 | ) | (2,840 | ) | (1.0 | )% | |||||||||
Cash and cash equivalents
|
18,836 | – | 18,836 | 6.4 | % | |||||||||||
Other assets/other liabilities
|
12,191 | (12,407 | ) | (216 | ) | – | ||||||||||
$ | 1,649,584 | $ | (1,357,227 | ) | $ | 292,357 | 100.0 | % | ||||||||
As of December 31, 2009
|
||||||||||||||||
(amounts in thousands)
|
Asset
Carrying
Basis
|
Associated
Financing
(1)
/ Liability Carrying Basis
|
Allocated
Shareholders’
Equity
|
% of
Shareholders’
Equity
|
||||||||||||
Agency RMBS
|
$ | 594,120 | $ | (540,586 | ) | $ | 53,534 | 31.7 | % | |||||||
Agency CMBS
|
– | – | – | – | ||||||||||||
Non-Agency RMBS
|
5,907 | – | 5,907 | 3.5 | % | |||||||||||
Non-Agency CMBS
|
103,203 | (73,338 | ) | 29,865 | 17.7 | % | ||||||||||
Securitized mortgage loans
|
212,471 | (167,486 | ) | 44,985 | 26.7 | % | ||||||||||
Other investments
|
2,280 | – | 2,280 | 1.3 | % | |||||||||||
Derivative assets (liabilities)
|
1,008 | – | 1,008 | 0.6 | % | |||||||||||
Cash and cash equivalents
|
30,173 | – | 30,173 | 17.9 | % | |||||||||||
Other assets/other liabilities
|
8,900 | (7,899 | ) | 1,001 | 0.6 | % | ||||||||||
$ | 958,062 | $ | (789,309 | ) | $ | 168,753 | 100.0 | % |
(1)
|
Associated financing related to investments includes repurchase agreements, securitization financing issued to third parties, and TALF financing (the latter two of which are presented on the Company’s balance sheet as “non-recourse collateralized financing”). Associated financing for derivative instruments represents the fair value of the interest rate swap agreements in a liability position.
|
For the Year Ended December 31, 2010
|
For the Year Ended December 31, 2009
|
|||||||||||||||||||||||
(amounts in thousands)
|
Income (Expense)
(1)
|
Average
Balance
(2)
|
Effective
Yield/Rate
(3)
|
Income (Expense)
(1)
|
Average
Balance
(2)
|
Effective
Yield/Rate
(3)
|
||||||||||||||||||
Agency RMBS
|
$ | 20,403 | $ | 566,288 | 3.60 | % | $ | 20,962 | $ | 492,900 | 4.25 | % | ||||||||||||
Financing
|
(3,613 | ) | (523,260 | ) | (0.69 | %) | (2,847 | ) | (448,279 | ) | (0.64 | %) | ||||||||||||
Net interest income/spread
|
$ | 16,790 | 2.91 | % | $ | 18,115 | 3.61 | % | ||||||||||||||||
Agency CMBS
|
$ | 2,516 | $ | 65,188 | 3.84 | % | – | – | – | |||||||||||||||
Financing
|
(144 | ) | (47,861 | ) | (0.30 | %) | – | – | – | |||||||||||||||
Net interest income/spread
|
$ | 2,372 | 3.54 | % | – | – | ||||||||||||||||||
(1)
|
Expense amount and financing rate for Agency RMBS include interest rate swap expense.
|
(2)
|
Average balances are calculated as a simple average of the daily balances and exclude unrealized gains and losses.
|
(3)
|
Certain income and expense items of a one-time nature are not annualized for the calculation of effective yields or rates. Examples of such one-time items include retrospective adjustments of discount and premium amortization arising from adjustments of effective interest rates.
|
For the Year Ended December 31, 2010
|
For the Year Ended December 31, 2009
|
|||||||||||||||||||||||
(amounts in thousands)
|
Income (Expense)
(1)
|
Average
Balance
(2)
|
Effective
Yield/Rate
(3)
|
Income (Expense)
(1)
|
Average
Balance
(2)
|
Effective
Yield/Rate
(3)
|
||||||||||||||||||
Non-Agency RMBS
|
$ | 645 | $ | 9,635 | 6.70 | % | $ | 623 | $ | 6,724 | 9.26 | % | ||||||||||||
Financing
|
(94 | ) | (6,295 | ) | (1.49 | %) | – | – | – | |||||||||||||||
Net interest income/spread
|
$ | 551 | 5.21 | % | $ | 623 | 9.26 | % | ||||||||||||||||
Non-Agency CMBS
|
$ | 12,846 | $ | 183,900 | 6.99 | % | $ | 240 | $ | 5,465 | 4.40 | % | ||||||||||||
Financing
|
(4,130 | ) | (152,452 | ) | (2.70 | %) | (32 | ) | (1,808 | ) | (1.75 | %) | ||||||||||||
Net interest income/spread
|
$ | 8,716 | 4.29 | % | $ | 208 | 2.65 | % | ||||||||||||||||
(1)
|
Expense amount and rate for non-Agency CMBS include interest rate swap expense.
|
(2)
|
Average balances are calculated as a simple average of the daily balances and exclude unrealized gains and losses.
|
(3)
|
Certain income and expense items of a one-time nature are not annualized for the calculation of effective yields or rates. Examples of such one-time items include retrospective adjustments of discount and premium amortization arising from adjustments of effective interest rates.
|
For the Year Ended December 31, 2010
|
For the Year Ended December 31, 2009
|
|||||||||||||||||||||||
(amounts in thousands)
|
Income (Expense)
|
Average
Balance
(1)
|
Effective
Yield/Rate
(2)
|
Income (Expense)
|
Average
Balance
(1)
|
Effective
Yield/Rate
(2)
|
||||||||||||||||||
Securitized mortgage loans
|
$ | 12,234 | $ | 185,807 | 6.58 | % | $ | 17,169 | $ | 233,120 | 7.36 | % | ||||||||||||
Financing
|
(6,399 | ) | (136,052 | ) | (4.62 | %) | (11,819 | ) | (177,760 | ) | (5.67 | %) | ||||||||||||
Net interest income/spread
|
$ | 5,835 | 1.96 | % | $ | 5,350 | 1.69 | % |
(1)
|
Average balance excludes funds held by trustees except proceeds from defeased loans held by trustees.
|
(2)
|
Certain income and expense items of a one-time nature are not annualized for the calculation of effective yields or rates. Examples of such one-time items include retrospective adjustments of discount and premium amortization arising from adjustments of effective interest rates.
|
For the Year Ended December 31, 2009
|
For the Year Ended December 31, 2008
|
|||||||||||||||||||||||
(amounts in thousands)
|
Income (Expense)
(1)
|
Average
Balance
(2)
|
Effective
Yield/Rate
|
Income (Expense)
|
Average
Balance
(2)
|
Effective
Yield/Rate
|
||||||||||||||||||
Agency RMBS
|
$ | 20,962 | $ | 492,900 | 4.25 | % | $ | 6,731 | $ | 149,229 | 4.51 | % | ||||||||||||
Financing
|
(2,847 | ) | (448,279 | ) | (0.64 | %) | (3,978 | ) | (134,252 | ) | (2.96 | %) | ||||||||||||
Net interest income/spread
|
$ | 18,115 | 3.61 | % | $ | 2,753 | 1.55 | % | ||||||||||||||||
(1)
|
Expense amount and rate include interest rate swap expense.
|
(2)
|
Average balances are calculated as a simple average of the daily balances and exclude unrealized gains and losses.
|
For the Year Ended December 31, 2009
|
For the Year Ended December 31, 2008
|
|||||||||||||||||||||||
(amounts in thousands)
|
Income (Expense)
|
Average
Balance
(1)
|
Effective
Yield/Rate
|
Income (Expense)
|
Average
Balance
(1)
|
Effective
Yield/Rate
|
||||||||||||||||||
Non-Agency RMBS
|
$ | 623 | $ | 6,724 | 9.26 | % | $ | 709 | 7,241 | 9.80 | % | |||||||||||||
Financing
|
– | – | – | – | – | – | ||||||||||||||||||
Net interest income/spread
|
$ | 623 | 9.26 | % | $ | 709 | 9.80 | % | ||||||||||||||||
Non-Agency CMBS
|
$ | 240 | $ | 5,465 | 4.40 | % | – | – | – | |||||||||||||||
Financing
|
(32 | ) | (1,808 | ) | (1.75 | %) | – | – | – | |||||||||||||||
Net interest income/spread
|
$ | 208 | 2.65 | % | – | – | ||||||||||||||||||
(1)
|
Average balances are calculated as a simple average of the daily balances and exclude unrealized gains and losses.
|
For the Year Ended December 31, 2009
|
For the Year Ended December 31, 2008
|
|||||||||||||||||||||||
(amounts in thousands)
|
Income (Expense)
|
Average
Balance
(1)
|
Effective
Yield/Rate
(2)
|
Income (Expense)
|
Average
Balance
(1)
|
Effective
Yield/Rate
(2)
|
||||||||||||||||||
Securitized mortgage loans
|
$ | 17,169 | $ | 233,120 | 7.36 | % | $ | 20,886 | $ | 262,482 | 7.95 | % | ||||||||||||
Financing
|
(11,819 | ) | (177,760 | ) | (5.67 | %) | (13,517 | ) | (193,435 | ) | (6.89 | %) | ||||||||||||
Net interest income/spread
|
$ | 5,350 | 1.69 | % | $ | 7,369 | 1.05 | % |
(1)
|
Average balance excludes funds held by trustees except proceeds from defeased loans held by trustees.
|
(2)
|
Certain income and expense items of a one-time nature are not annualized for the calculation of effective yields or rates. Examples of such one-time items include retrospective adjustments of discount and premium amortization arising from adjustments of effective interest rates.
|
For the Year Ended December 31,
|
||||||||
2010
|
2009
|
|||||||
Average balance outstanding
|
$ | 718,788 | $ | 470,956 | ||||
Weighted average borrowing rate
|
0.54 | % | 0.67 | % | ||||
Maximum balance outstanding
|
$ | 1,256,406 | $ | 638,746 |
(amounts in thousands)
|
Payments due by period
|
|||||||||||||||||||
Contractual Obligations:
(1)
|
Total
|
< 1 year
|
1-3 years
|
3-5 years
|
> 5 years
|
|||||||||||||||
Repurchase agreements
(2)
|
$ | 1,234,183 | $ | 1,234,183 | $ | – | $ | – | $ | – | ||||||||||
Securitization financing
(2) (3)
|
59,852 | 4,430 | 12,292 | 37,089 | 6,041 | |||||||||||||||
TALF financing
(2) (3)
|
50,727 | – | 50,727 | – | – | |||||||||||||||
Operating lease obligations
|
475 | 154 | 321 | – | – | |||||||||||||||
Total
|
$ | 1,345,237 | $ | 1,238,767 | $ | 63,340 | $ | 37,089 | $ | 6,041 |
(1)
|
As the master servicer for certain of the series of non-recourse securitization financing securities which we have issued, and certain loans which have been securitized but for which we are not the master servicer, we have an obligation to advance scheduled principal and interest on delinquent loans in accordance with the underlying servicing agreements should the primary servicer of the loan fail to make such advance. Such advance amounts are generally repaid in the same month as they are made or shortly thereafter, and so the contractual obligation with respect to these advances is excluded from the above table. As of December 31, 2010, outstanding servicing advances were $0.2 million compared to $0.3 million as of December 31, 2009.
|
(2)
|
Amounts presented exclude interest on the related obligations.
|
(3)
|
Represents financing that is non-recourse to us as the debt is payable solely from loans and securities pledged as collateral. Payments due by period were estimated based on the principal repayments forecast for the underlying loans and securities, substantially all of which is used to repay the associated financing outstanding.
|
·
|
Our business and investment strategy including our ability to generate acceptable risk-adjusted returns;
|
·
|
Our financing and hedging strategy;
|
·
|
Our investment portfolio composition and target investments;
|
·
|
Our investment portfolio performance, including the value and yields of our investment portfolio;
|
·
|
Our liquidity and ability to access financing, and the anticipated availability and cost of financing;
|
·
|
Our use of our tax NOL carryfoward;
|
·
|
Market, industry and economic trends; and
|
·
|
Interest rates.
|
·
|
the risks and uncertainties referenced in this Annual Report on Form 10-K, particularly those set forth under Item 1A. “Risk Factors”;
|
·
|
our ability to find suitable reinvestment opportunities;
|
·
|
changes in economic conditions;
|
·
|
changes in interest rates and interest rate spreads;
|
·
|
our investment portfolio performance particularly as it relates to cash flow, prepayment rates and credit performance;
|
·
|
the cost and availability of financing;
|
·
|
the cost and availability of new equity capital;
|
·
|
changes in our use of leverage;
|
·
|
the quality of performance of third-party servicer providers of our loans and loans underlying our securities;
|
·
|
the level of defaults by borrowers on loans we have securitized;
|
·
|
changes in our industry;
|
·
|
increased competition;
|
·
|
changes in government regulations affecting our business;
|
·
|
government initiatives to support the U.S financial system and U.S. housing and real estate markets;
|
·
|
GSE reform or other government policies and actions; and
|
·
|
an ownership shift under Section 382 of the Code that impacts the use of our tax NOL carryforward.
|
·
|
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Our investments included in Level 1 fair value generally are equity securities listed in active markets.
|
·
|
Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Fair valued assets and liabilities that are generally included in this category are Agency MBS, which are valued based on the average of multiple dealer quotes that are active in the Agency MBS market, and interest rate swaps, which are valued using a third-party pricing service, and the valuations are tested with internally developed models that apply readily observable market variables.
|
·
|
Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Generally, assets and liabilities carried at fair value and included in this category are non-Agency
MBS
, delinquent property tax receivables and the obligation under payment agreement liability.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Investments
|
Borrowings
|
|||||||||||||||
(amounts in thousands)
|
Amounts
(1)
|
Percent
|
Amounts
|
Percent
|
||||||||||||
Fixed Rate
|
$ | 578,662 | 35.7 | % | $ | 86,312 | 6.5 | % | ||||||||
Adjustable Rate:
|
||||||||||||||||
0-12 months
|
280,623 | 17.3 | % | 934,976 | 69.7 | % | ||||||||||
13-24 months
|
203,093 | 12.5 | % | 125,000 | 9.3 | % | ||||||||||
25-36 months
|
323,988 | 20.0 | % | – | – | |||||||||||
Over 36 months
|
235,969 | 14.5 | % | 195,000 | 14.5 | % | ||||||||||
Total
|
$ | 1,622,335 | 100.0 | % | $ | 1,341,288 | 100.0 | % |
(1)
|
The investment amount represents the fair value of the related securities and amortized cost basis of the related loans, excluding any related allowance for loan losses.
|
Lifetime Interest Rate Caps on ARM MBS
|
Interim Interest Rate Caps on ARM MBS
|
|||
% of Total
|
% of Total
|
|||
9.0% to 10.0%
|
49.15%
|
1.0%
|
1.64%
|
|
>10.0% to 11.0%
|
37.10%
|
2.0%
|
27.34%
|
|
>11.0% to 12.0%
|
13.75%
|
5.0%
|
71.02%
|
|
100.00%
|
100.00%
|
As of December 31, 2010
|
||
Basis Point Change in
Interest Rates
|
Percentage change in projected net interest income
(1)
|
Percentage change in projected market value
(2)
|
+100
|
(6.3)%
|
(1.4)%
|
+50
|
(2.5)%
|
(0.7)%
|
0
|
–
|
–
|
-50
|
(0.4)%
|
0.6%
|
-100
|
(8.2)%
|
1.1%
|
(1)
|
Includes changes in interest expense from the financings for our investments as well as our interest rate swaps.
|
(2)
|
Includes changes in market value of our interest rate swaps, but excludes changes in market value of our financings because they are not carried at fair value on our balance sheet.
|
Basis Point Change in Interest Rates
|
Basis Point Change in Mortgage Spreads
|
||||
-50
|
-25
|
0
|
+25
|
+50
|
|
+100
|
(0.2)%
|
(0.8)%
|
(1.4)%
|
(2.1)%
|
(2.9)%
|
+50
|
0.6%
|
(0.0)%
|
(0.7)%
|
(1.4)%
|
(2.1)%
|
0
|
1.2%
|
0.6%
|
–
|
(0.7)%
|
(1.5)%
|
-50
|
1.8%
|
1.2%
|
0.6%
|
(0.1)%
|
(0.9)%
|
-100
|
2.3%
|
1.7%
|
1.1%
|
0.4%
|
(0.4)%
|
Agency
|
Non-Agency
|
|||||||||||||||
(amounts in thousands)
|
RMBS
|
CMBS
|
RMBS
|
CMBS
|
||||||||||||
Principal/par value (including principal receivable)
|
$ | 941,108 | $ | 190,511 | $ | 16,101 | $ | 247,501 | ||||||||
Unamortized premium, net
|
43,740 | 18,757 | (977 | ) | (5,944 | ) | ||||||||||
Amortized cost basis
|
$ | 984,848 | $ | 209,268 | $ | 15,124 | $ | 241,557 | ||||||||
Amortized cost as a percentage of par value
|
104.7 | % | 109.9 | % | 93.9 | % | 97.6 | % |
December 31, 2010
|
||||||||||
Investment
(amounts in thousands)
|
Accounting Basis
|
Amount of Guaranty
|
Guarantor
|
Credit Rating of Guarantor
(1)
|
||||||
With Guaranty of Payment
|
||||||||||
Agency MBS
|
$ | 1,196,311 | $ | 1,127,887 |
Fannie Mae/Freddie Mac
|
AAA
|
||||
Securitized mortgage loans:
|
||||||||||
Commercial
|
46,741 | 6,619 |
American International Group
|
BBB
|
||||||
Single-family
|
18,465 | 18,169 |
PMI/GEMICO
|
Caa2/Baa3
|
||||||
Defeased loans
|
3,289 | 3,306 |
Fully secured with cash
|
|||||||
Without Guaranty of Payment
|
||||||||||
Non-Agency MBS
|
267,363 | – | ||||||||
Securitized mortgage loans:
|
||||||||||
Commercial
|
52,338 | – | ||||||||
Single-family
|
36,599 | – | ||||||||
Other investments
|
1,229 | – | ||||||||
1,622,335 | ||||||||||
Allowance for loan losses
|
(4,470 | ) | – | |||||||
Total investments
|
$ | 1,617,865 | $ | 1,155,981 |
(1)
|
Reflects lowest rating by three nationally-recognized ratings agencies for the senior unsecured debt of the guarantor.
|
December 31, 2009
|
||||||||||||
Investment
(amounts in thousands)
|
Accounting Basis
|
Amount of Guaranty
|
Guarantor
|
Credit Rating of Guarantor
(1)
|
||||||||
With Guaranty of Payment
|
||||||||||||
Agency MBS
|
$ | 594,120 | $ | 566,656 |
Fannie Mae/Freddie Mac
|
AAA
|
||||||
Securitized mortgage loans:
|
||||||||||||
Commercial
|
59,684 | 6,359 |
American International Group
|
A3 | ||||||||
Single-family
|
20,369 | 20,029 |
PMI/GEMICO
|
Caa2
|
||||||||
Defeased loans
|
17,492 | 17,588 |
Fully secured with cash
|
|||||||||
Without Guaranty of Payment
|
||||||||||||
Non-Agency MBS
|
109,110 | – | ||||||||||
Securitized mortgage loans:
|
||||||||||||
Commercial
|
77,130 | – | ||||||||||
Single-family
|
42,008 | – | ||||||||||
Other investments
|
2,376 | – | ||||||||||
922,289 | 610,632 | |||||||||||
Allowance for loan losses
|
(4,308 | ) | – | |||||||||
Total investments
|
$ | 917,981 | $ | 610,632 |
(1)
|
Reflects lowest rating by three nationally-recognized ratings agencies for the senior unsecured debt of the guarantor.
|
As of December 31, 2010
|
||||||||||||||||||||
Investment
(amounts in thousands)
|
Amortized Cost Basis of Loans
|
Average Seasoning
(in years)
|
Current Loan-to-Value based on Original Appraised Value
|
Amortized Cost Basis of Delinquent Loans
(1)
|
Delinquency %
|
|||||||||||||||
Commercial mortgage loans
|
$ | 98,167 | 14 | 45 | % | $ | 12,147 | 16.0 | % | |||||||||||
Single-family mortgage loans
|
54,795 | 17 | 48 | % | 5,277 | (2) | 10.1 | % |
As of December 31, 2009
|
||||||||||||||||||||
Investment
(amounts in thousands)
|
Amortized Cost Basis of Loans
|
Average Seasoning
(in years)
|
Current Loan-to-Value based on Original Appraised Value
|
Amortized Cost Basis of Delinquent Loans
(1)
|
Delinquency %
|
|||||||||||||||
Commercial mortgage loans
|
$ | 150,017 | 13 | 47 | % | $ | 15,165 | 9.77 | % | |||||||||||
Single-family mortgage loans
|
62,100 | 15 | 50 | % | 6,284 | (2) | 9.96 | % |
(1)
|
Loans contractually delinquent by 30 or more days, which include loans on non-accrual status.
|
(2)
|
As of December 31, 2010, approximately $1.7 million of the delinquent single-family loans are pool insured and, of the remaining $3.8 million, $2.2 million of the loans made a payment within the 90 days prior to December 31, 2010. As of December 31, 2009, approximately $1.9 million of the delinquent single-family loans were pool insured and, of the remaining $4.4 million, $1.9 million of the loans made a payment within the 90 days prior to December 31, 2009.
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
ITEM 9B.
|
OTHER INFORMATION
|
|
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Plan Category
|
Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights
(1)
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
(2)
|
|||||||||
Equity Compensation Plans Approved by Shareholders:
|
||||||||||||
2004 Stock Incentive Plan
|
45,000 | $ | 8.75 | – | ||||||||
2009 Stock and Incentive Plan
|
– | – | 2,452,970 | |||||||||
Equity Compensation Plans Not Approved by Shareholders
(3)
|
– | – | – | |||||||||
Total
|
45,000 | $ | 8.75 | 2,452,970 |
(1)
|
Amount includes all outstanding stock option awards, but excludes all outstanding stock appreciation rights, which can only be settled for cash.
|
(2)
|
Reflects shares available to be granted under the 2009 Stock and Incentive Plan in the form of stock options, stock appreciation rights, stock awards, dividend equivalent rights, performance share awards, stock units and incentive awards. No new awards may be issued under the 2004 Stock Incentive Plan on or after May 13, 2009.
|
(3)
|
The Company does not have any equity compensation plans that have not been approved by shareholders.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ITEM 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
1. and 2.
|
Financial Statements and Schedules
The information required by this section of Item 15 is set forth in the Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firm beginning at page F-1 of this Annual Report on Form 10-K. The index to the Financial Statements is set forth at page F-2 of this
Annual Report on Form 10-K.
|
3.
|
Exhibits
|
Number
|
Exhibit
|
3.1
|
Restated Articles of Incorporation, effective July 9, 2008 (incorporated herein by reference to Exhibit 3.1 to Dynex’s Current Report on Form 8-K filed July 11, 2008).
|
3.2
|
Amended and Restated Bylaws, effective March 26, 2008 (incorporated herein by reference to Exhibit 3.2 to Dynex’s Current Report on Form 8-K filed April 1, 2008).
|
8.1
|
Opinion of Troutman Sanders, LLP (incorporated herein by reference to Exhibit 8.1 to Dynex’s Annual Report on Form 10-K for the year ended December 31, 2008).
|
10.1*
|
Dynex Capital, Inc. 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Dynex’s Annual Report on Form 10-K for the year ended December 31, 2004).
|
10.1.1*
|
409A Amendment to Dynex Capital, Inc. 2004 Stock Incentive Plan, dated December 31, 2008 (incorporated herein by reference to Exhibit 10.1.1 to Dynex’s Annual Report on Form 10-K for the year ended December 31, 2008).
|
10.2*
|
Form of Stock Option Agreement for Non-Employee Directors under the Dynex Capital, Inc. 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to Dynex’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005).
|
10.3*
|
Form of Stock Appreciation Rights Agreement for Senior Executives under the Dynex Capital, Inc. 2004 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to Dynex’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005).
|
10.5*
|
Severance Agreement between Dynex Capital, Inc. and Stephen J. Benedetti dated June 11, 2004 (incorporated herein by reference to Exhibit 10.5 to Dynex’s Annual Report on Form 10-K for the year ended December 31, 2007).
|
Number
|
Exhibit
|
10.5.1*
|
409A Amendment to Severance Agreement between Dynex Capital, Inc. and Stephen J. Benedetti, dated December 31, 2008 (incorporated herein by reference to Exhibit 10.1.1 to Dynex’s Annual Report on Form 10-K for the year ended December 31, 2008).
|
10.6*
|
Employment Agreement, effective as of March 1, 2010, between Dynex Capital, Inc. and Thomas B. Akin (incorporated herein by reference to Exhibit 10.6 to Dynex’s Current Report on Form 8-K filed March 16, 2010).
|
10.7*
|
Dynex Capital, Inc. 401(k) Overflow Plan, effective July 1, 1997 (incorporated herein by reference to Exhibit 10.7 to Dynex’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008).
|
10.8
|
Sales Agreement, dated as of March 16, 2009, between Dynex Capital, Inc. and Cantor Fitzgerald & Co. (incorporated herein by reference to Exhibit 10.8 to Dynex’s Annual Report on Form 10-K for the year ended December 31, 2008).
|
10.9*
|
Dynex Capital, Inc. Performance Bonus Program, as approved August 5, 2010 (incorporated herein by reference to Exhibit 10.9 to Dynex’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).
|
10.11*
|
Dynex Capital, Inc. 2009 Stock and Incentive Plan, effective as of May 13, 2009 (incorporated herein by reference to Appendix A to Dynex’s Proxy Statement filed April 3, 2009).
|
10.12*
|
Employment Agreement, dated as of July 31, 2009, between Dynex Capital, Inc. and Byron L. Boston (incorporated herein by reference to Exhibit 10.12 to Dynex’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
|
10.13
|
Assignment and Transfer of Interest in Copperhead Ventures, LLC, dated as of November 20, 2009, between DBAH Capital, LLC, and Issued Holdings Capital Corporation (incorporated herein by reference to Exhibit 10.13 to Dynex’s Current Report on Form 8-K filed November 24, 2009).
|
10.14
|
Equity Distribution Agreement between Dynex Capital, Inc. and JMP Securities LLC, dated June 24, 2010 (incorporated herein by reference to Exhibit 10.14 to Dynex’s Current Report on Form 8-K filed June 24, 2010).
|
10.15
|
Underwriting Agreement, dated December 14, 2010, by and between Dynex Capital, Inc. and JMP Securities LLC (incorporated herein by reference to Exhibit 10.15 to Dynex’s Current Report on Form 8-K filed December 17, 2010).
|
10.16*
|
Form of Restricted Stock Agreement for Executive Officers under the Dynex Capital, Inc. 2009 Stock and Incentive Plan (filed herewith).
|
10.17*
|
Base salaries for named executive officers of Dynex Capital, Inc. (filed herewith).
|
Number
|
Exhibit
|
10.18*
|
Non-employee directors’ annual compensation for Dynex Capital, Inc. (filed herewith).
|
10.19 |
Underwriting Agreement, dated March 4, 2011, by and among Dynex Capital, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC (incorporated herein by reference to Exhibit 1.1 to Dynex’s Current Report on Form 8-K filed March 9, 2011).
|
21.1
|
List of consolidated entities of Dynex (filed herewith).
|
23.1
|
Consent of BDO USA, LLP (filed herewith).
|
31.1
|
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
31.2
|
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
32.1
|
Certification of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
DYNEX CAPITAL, INC.
|
||
(Registrant)
|
||
March 16, 2011
|
/s/ Stephen J. Benedetti
|
|
Stephen J. Benedetti, Executive Vice President, Chief Operating Officer and Chief Financial Officer
|
||
Signature
|
Title
|
Date
|
/s/ Thomas B. Akin
|
Chairman and Chief Executive Officer
|
March 16, 2011
|
Thomas B. Akin
|
and Director
|
|
(Principal Executive Officer)
|
||
/s/ Stephen J. Benedetti
|
Executive Vice President, Chief
|
March 16, 2011
|
Stephen J. Benedetti
|
Operating Officer and Chief Financial Officer
|
|
(Principal Financial Officer)
|
||
/s/ Jeffrey L. Childress
|
Vice President and Controller
|
March 16, 2011
|
Jeffrey L. Childress
|
(Principal Accounting Officer)
|
|
/s/ Michael R. Hughes
|
Director
|
March 16, 2011
|
Michael R. Hughes
|
||
/s/ Barry Idgaloff
|
Director
|
March 16, 2011
|
Barry Igdaloff
|
||
/s/ Daniel K. Osborne
|
Director
|
March 16, 2011
|
Daniel K. Osborne
|
||
/s/ James C. Wheat, III
|
Director
|
March 16, 2011
|
James C. Wheat, III
|
||
Page
|
||
Reports of Independent Registered Public Accounting Firm
|
F-3
|
|
Consolidated Balance Sheets – As of December 31, 2010 and 2009
|
F-5
|
|
Consolidated Statements of Income – For the Years ended December 31, 2010, 2009 and 2008
|
F-6
|
|
Consolidated Statements of Comprehensive Income – For the Years ended December 31, 2010, 2009 and 2008
|
F-7
|
|
Consolidated Statements of Shareholders’ Equity – Years ended December 31, 2010, 2009 and 2008
|
F-8
|
|
Consolidated Statements of Cash Flows – Years ended December 31, 2010, 2009 and 2008
|
F-9
|
|
Notes to the Consolidated Financial Statements
|
F-10
|
December 31, 2010
|
December 31, 2009
|
|||||||
ASSETS
|
||||||||
Agency MBS (including pledged of $1,090,174 and $575,386, respectively)
|
$ | 1,196,311 | $ | 594,120 | ||||
Non-Agency MBS (including pledged of $259,350 and $82,770, respectively)
|
267,363 | 109,110 | ||||||
Securitized mortgage loans, net
|
152,962 | 212,471 | ||||||
Other investments, net
|
1,229 | 2,280 | ||||||
1,617,865 | 917,981 | |||||||
Cash and cash equivalents
|
18,836 | 30,173 | ||||||
Derivative assets
|
692 | 1,008 | ||||||
Accrued interest receivable
|
6,105 | 4,583 | ||||||
Other assets, net
|
6,086 | 4,317 | ||||||
Total assets
|
$ | 1,649,584 | $ | 958,062 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Repurchase agreements
|
$ | 1,234,183 | $ | 638,329 | ||||
Non-recourse collateralized financing
|
107,105 | 143,081 | ||||||
Derivative liabilities
|
3,532 | – | ||||||
Accrued interest payable
|
1,079 | 1,208 | ||||||
Accrued dividends payable
|
8,192 | 4,207 | ||||||
Other liabilities
|
3,136 | 2,484 | ||||||
1,357,227 | 789,309 | |||||||
Commitments and Contingencies (Note 13)
|
||||||||
Shareholders’ equity:
|
||||||||
Preferred stock, par value $.01 per share, 9.5% cumulative
convertible Series D; none and 4,221,539 shares issued and
outstanding, respectively
|
– | 41,749 | ||||||
Common stock, par value $.01 per share, 100,000,000 shares
authorized; 30,342,897 and 13,931,512 shares issued and outstanding, respectively
|
303 | 139 | ||||||
Additional paid-in capital
|
538,304 | 379,717 | ||||||
Accumulated other comprehensive income
|
10,057 | 10,061 | ||||||
Accumulated deficit
|
(256,307 | ) | (262,913 | ) | ||||
292,357 | 168,753 | |||||||
Total liabilities and shareholders’ equity
|
$ | 1,649,584 | $ | 958,062 |
For the Year Ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Interest income:
|
||||||||||||
Agency MBS
|
$ | 22,920 | $ | 20,962 | $ | 6,731 | ||||||
Non-Agency MBS
|
13,491 | 863 | 709 | |||||||||
Securitized mortgage loans
|
12,234 | 17,169 | 20,886 | |||||||||
Other investments
|
125 | 226 | 642 | |||||||||
Cash and cash equivalents
|
11 | 16 | 685 | |||||||||
48,781 | 39,236 | 29,653 | ||||||||||
Interest expense:
|
||||||||||||
Repurchase agreements
|
6,368 | 3,288 | 4,079 | |||||||||
Non-recourse collateralized financing
|
7,989 | 9,801 | 13,416 | |||||||||
Other interest (income) expense
|
(1 | ) | 1,582 | 1,611 | ||||||||
14,356 | 14,671 | 19,106 | ||||||||||
Net interest income
|
34,425 | 24,565 | 10,547 | |||||||||
Provision for loan losses
|
(1,379 | ) | (782 | ) | (991 | ) | ||||||
Net interest income after provision for loan losses
|
33,046 | 23,783 | 9,556 | |||||||||
Gain on sale of investments, net
|
2,891 | 171 | 2,316 | |||||||||
Fair value adjustments, net
|
294 | 205 | 7,147 | |||||||||
Other income, net
|
2,058 | 138 | 1,734 | |||||||||
General and administrative expenses:
|
||||||||||||
Compensation and benefits
|
(4,930 | ) | (3,626 | ) | (2,341 | ) | ||||||
Other general and administrative expenses
|
(3,887 | ) | (3,090 | ) | (3,291 | ) | ||||||
Net income
|
29,472 | 17,581 | 15,121 | |||||||||
Preferred stock dividends
|
(3,061 | ) | (4,010 | ) | (4,010 | ) | ||||||
Net income to common shareholders
|
$ | 26,411 | $ | 13,571 | $ | 11,111 | ||||||
Weighted average common shares:
|
||||||||||||
Basic
|
17,595 | 13,088 | 12,166 | |||||||||
Diluted
|
20,919 | 17,311 | 12,170 | |||||||||
Net income per common share:
|
||||||||||||
Basic
|
$ | 1.50 | $ | 1.04 | $ | 0.91 | ||||||
Diluted
|
$ | 1.41 | $ | 1.02 | $ | 0.91 | ||||||
Dividends declared per common share
|
$ | 0.98 | $ | 0.92 | $ | 0.71 |
For the Year Ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Net income
|
$ | 29,472 | $ | 17,581 | $ | 15,121 | ||||||
Other comprehensive income:
|
||||||||||||
Available-for-sale securities:
|
||||||||||||
Change in market value
|
4,603 | 9,976 | (2,725 | ) | ||||||||
Reclassification of net gain on sale of investments
|
(779 | ) | (171 | ) | (2,317 | ) | ||||||
Reclassification of loss on acquisition of joint
venture
|
– | 2,490 | – | |||||||||
Reclassification adjustment for joint venture’s other-
than-temporary impairment
|
– | 707 | – | |||||||||
Net unrealized (loss) gain on cash flow hedging
instruments
|
(3,828 | ) | 1,008 | – | ||||||||
Total other comprehensive income (loss)
|
(4 | ) | 14,010 | (5,042 | ) | |||||||
Comprehensive income
|
29,468 | 31,591 | 10,079 | |||||||||
Dividends declared on preferred stock
|
(3,061 | ) | (4,010 | ) | (4,010 | ) | ||||||
Comprehensive income to common shareholders
|
$ | 26,407 | $ | 27,581 | $ | 6,069 | ||||||
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
Capital
|
Accumulated Other
Comprehensive (Loss)
Income
|
Accumulated
Deficit
|
Total
|
|||||||||||||||||||
Balance as of January 1, 2008
|
$ | 41,749 | $ | 121 | $ | 366,716 | $ | 1,093 | $ | (267,743 | ) | $ | 141,936 | |||||||||||
Common stock issuance
|
– | – | 13 | – | – | 13 | ||||||||||||||||||
Restricted stock vesting
|
– | 1 | 88 | – | – | 89 | ||||||||||||||||||
Cumulative effect of adoption of new accounting principle
|
– | – | – | – | 943 | 943 | ||||||||||||||||||
Net income
|
– | – | – | – | 15,121 | 15,121 | ||||||||||||||||||
Dividends on preferred stock
|
– | – | – | – | (4,010 | ) | (4,010 | ) | ||||||||||||||||
Dividends on common stock
|
– | – | – | – | (8,641 | ) | (8,641 | ) | ||||||||||||||||
Other comprehensive loss
|
– | – | – | (5,042 | ) | – | (5,042 | ) | ||||||||||||||||
Balance as of December 31, 2008
|
41,749 | 122 | 366,817 | (3,949 | ) | (264,330 | ) | 140,409 | ||||||||||||||||
Common stock issuance
|
– | 17 | 12,782 | – | – | 12,799 | ||||||||||||||||||
Granting and vesting of restricted stock
|
– | – | 118 | – | – | 118 | ||||||||||||||||||
Net income
|
– | – | – | – | 17,581 | 17,581 | ||||||||||||||||||
Dividends on preferred stock
|
– | – | – | – | (4,010 | ) | (4,010 | ) | ||||||||||||||||
Dividends on common stock
|
– | – | – | – | (12,154 | ) | (12,154 | ) | ||||||||||||||||
Other comprehensive income
|
– | – | – | 14,010 | – | 14,010 | ||||||||||||||||||
Balance as of December 31, 2009
|
41,749 | 139 | 379,717 | 10,061 | (262,913 | ) | 168,753 | |||||||||||||||||
Common stock issuance
|
– | 122 | 116,948 | – | – | 117,070 | ||||||||||||||||||
Granting and vesting of restricted stock
|
– | – | 60 | – | – | 60 | ||||||||||||||||||
Conversion of preferred shares to common shares
|
(41,749 | ) | 42 | 41,707 | – | – | – | |||||||||||||||||
Capitalized expenses associated with stock issuances
|
– | – | (128 | ) | – | – | (128 | ) | ||||||||||||||||
Cumulative effect of adoption of new accounting principle
|
– | – | – | – | 12 | 12 | ||||||||||||||||||
Net income
|
– | – | – | – | 29,472 | 29,472 | ||||||||||||||||||
Dividends on preferred stock
|
– | – | – | – | (3,061 | ) | (3,061 | ) | ||||||||||||||||
Dividends on common stock
|
– | – | – | – | (19,817 | ) | (19,817 | ) | ||||||||||||||||
Other comprehensive income
|
– | – | – | (4 | ) | – | (4 | ) | ||||||||||||||||
Balance as of December 31, 2010
|
$ | – | $ | 303 | $ | 538,304 | $ | 10,057 | $ | (256,307 | ) | $ | 292,357 |
For the Years Ended December 31,
|
||||||||||||||||||||||||
2010
|
2009
|
2008
|
||||||||||||||||||||||
Income
|
Weighted Average Common Shares
|
Income
|
Weighted Average Common Shares
|
Income
|
Weighted Average Common Shares
|
|||||||||||||||||||
Net income
|
$ | 29,472 | $ | 17,581 | $ | 15,121 | ||||||||||||||||||
Preferred stock dividends
|
(3,061 | ) | (4,010 | ) | (4,010 | ) | ||||||||||||||||||
Net income to common shareholders
|
26,411 | 17,595,022 | 13,571 | 13,088,154 | 11,111 | 12,166,558 | ||||||||||||||||||
Effect of dilutive items
|
3,061 | 3,324,014 | 4,010 | 4,222,826 | – | 3,053 | ||||||||||||||||||
Diluted income
|
$ | 29,472 | 20,919,036 | $ | 17,581 | 17,310,980 | $ | 11,111 | 12,169,611 | |||||||||||||||
Net income per common share:
|
||||||||||||||||||||||||
Basic
|
$ | 1.50 | $ | 1.04 | $ | 0.91 | ||||||||||||||||||
Diluted
|
$ | 1.41 | $ | 1.02 | $ | 0.91 | ||||||||||||||||||
Components of dilutive items:
|
||||||||||||||||||||||||
Convertible preferred stock
|
$ | 3,061 | 3,319,395 | $ | 4,010 | 4,221,539 | – | – | ||||||||||||||||
Stock options
|
– | 4,619 | – | 1,287 | – | 3,053 | ||||||||||||||||||
$ | 3,061 | 3,324,014 | $ | 4,010 | 4,222,826 | $ | 11,111 | 3,053 | ||||||||||||||||
December 31, 2010
|
December 31, 2009
|
|||||||||||||||||||||||
RMBS
|
CMBS
|
TOTAL
|
RMBS
|
CMBS
|
TOTAL
|
|||||||||||||||||||
Principal/par value
|
$ | 937,376 | $ | 190,511 | $ | 1,127,887 | $ | 566,656 | $ | – | $ | 566,656 | ||||||||||||
Principal receivable
|
3,732 | – | 3,732 | 3,559 | – | 3,559 | ||||||||||||||||||
Unamortized premium
|
43,776 | 18,757 | 62,533 | 12,991 | – | 12,991 | ||||||||||||||||||
Unamortized discount
|
(36 | ) | – | (36 | ) | (44 | ) | – | (44 | ) | ||||||||||||||
Amortized cost
|
984,848 | 209,268 | 1,194,116 | 583,162 | – | 583,162 | ||||||||||||||||||
Gross unrealized gains
|
8,266 | 567 | 8,833 | 11,261 | – | 11,261 | ||||||||||||||||||
Gross unrealized losses
|
(3,371 | ) | (3,267 | ) | (6,638 | ) | (303 | ) | – | (303 | ) | |||||||||||||
Fair value
|
$ | 989,743 | $ | 206,568 | $ | 1,196,311 | $ | 594,120 | $ | – | $ | 594,120 | ||||||||||||
Weighted average coupon
|
4.46 | % | 5.41 | % | 4.62 | % | 4.75 | % | – | 4.75 | % |
December 31, 2010
|
December 31, 2009
|
|||||||||||||||||||||||
RMBS
|
CMBS
|
TOTAL
|
RMBS
|
CMBS
|
TOTAL
|
|||||||||||||||||||
Principal/par value
|
$ | 16,101 | $ | 247,501 | $ | 263,602 | $ | 7,705 | $ | 114,103 | $ | 121,808 | ||||||||||||
Unamortized premium
|
138 | 5,352 | 5,490 | – | 4,177 | 4,177 | ||||||||||||||||||
Unamortized discount
|
(1,115 | ) | (11,296 | ) | (12,411 | ) | (1,243 | ) | (13,727 | ) | (14,970 | ) | ||||||||||||
Amortized cost
|
15,124 | 241,557 | 256,681 | 6,462 | 104,553 | 111,015 | ||||||||||||||||||
Gross unrealized gains
|
632 | 10,978 | 11,610 | 416 | 2,795 | 3,211 | ||||||||||||||||||
Gross unrealized losses
|
(348 | ) | (580 | ) | (928 | ) | (971 | ) | (4,145 | ) | (5,116 | ) | ||||||||||||
Fair value
|
$ | 15,408 | $ | 251,955 | $ | 267,363 | $ | 5,907 | $ | 103,203 | $ | 109,110 | ||||||||||||
Weighted average coupon
|
4.54 | % | 6.49 | % | 6.37 | % | 7.93 | % | 7.96 | % | 7.96 | % |
December 31, 2010
|
December 31, 2009
|
|||||||
Securitized mortgage loans:
|
||||||||
Commercial, unpaid principal balance
|
$ | 99,432 | $ | 137,567 | ||||
Single-family, unpaid principal balance
|
54,181 | 61,336 | ||||||
153,613 | 198,903 | |||||||
Funds held by trustees, including funds held for defeasance
|
3,455 | 17,737 | ||||||
Unamortized discounts and premiums, net
|
364 | 43 | ||||||
Loans, at amortized cost
|
157,432 | 216,683 | ||||||
Allowance for loan losses
|
(4,470 | ) | (4,212 | ) | ||||
$ | 152,962 | $ | 212,471 |
December 31, 2010
|
December 31, 2009
|
|||||||
Securitized commercial mortgage loans
|
$ | 4,200 | $ | 3,935 | ||||
Securitized single-family mortgage loans
|
270 | 277 | ||||||
4,470 | 4,212 | |||||||
Other investments
|
– | 96 | ||||||
$ | 4,470 | $ | 4,308 |
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
Commercial
|
Single-family
|
Commercial
|
Single-family
|
|||||||||||||
Amortized cost basis of impaired loans
|
$ | 18,154 | $ | 3,646 | $ | 20,465 | $ | 4,152 | ||||||||
Allowance for loan losses
|
(4,200 | ) | (270 | ) | (3,935 | ) | (277 | ) | ||||||||
Investment in excess of allowance
|
$ | 13,954 | $ | 3,376 | $ | 16,530 | $ | 3,875 |
Commercial
|
Single-family
|
|||||||
Allowance as of January 1, 2008
|
$ | 2,590 | $ | 131 | ||||
Provision for loan losses
|
937 | 54 | ||||||
Credit losses, net of recoveries
|
– | (5 | ) | |||||
Allowance as of December 31, 2008
|
3,527 | 180 | ||||||
Provision for loan losses
|
433 | 254 | ||||||
Credit losses, net of recoveries
|
(25 | ) | (157 | ) | ||||
Allowance as of December 31, 2009
(1)
|
3,935 | 277 | ||||||
Provision for loan losses
|
1,194 | – | ||||||
Credit losses, net of recoveries
|
(929 | ) | (7 | ) | ||||
Allowance as of December 31, 2010
(2)
|
$ | 4,200 | $ | 270 |
(1)
|
Activity shown excludes provision of $96 related to the Company’s unsecuritized mortgage loan portfolio for the year ended December 31, 2009.
|
(2)
|
Activity shown excludes provision of $185 and credit losses of $(281) related to the Company’s unsecuritized mortgage loan portfolio for the year ended December 31, 2010.
|
Type of Derivative
|
Balance Sheet
Location
|
Fair Value As of
December 31, 2010
|
Fair Value As of
December 31, 2009
|
||||||
Interest rate swaps
|
Derivative assets
|
$ | 692 | $ | 1,008 | ||||
Interest rate swaps
|
Derivative liabilities
|
(3,532 | ) | – | |||||
$ | (2,840 | ) | $ | 1,008 |
Maturity Date
|
Notional Amount
|
Fixed Rate Swapped
|
||||||
November 24, 2011
|
$ | 25,000 | 0.96 | % | ||||
February 8, 2012
|
75,000 | 1.03 | % | |||||
November 24, 2012
|
50,000 | 1.53 | % | |||||
May 8, 2014
|
35,000 | 1.93 | % | |||||
December 24, 2014
|
30,000 | 2.50 | % | |||||
December 15, 2015
|
25,000 | 1.75 | % | |||||
December 15, 2015
|
25,000 | 1.77 | % | |||||
December 15, 2015
|
50,000 | 2.01 | % | |||||
December 16, 2015
|
30,000 | 2.23 | % | |||||
$ | 345,000 |
For the Year Ended December 31, 2010
|
|||||
Type of Derivative Designated as Cash Flow Hedge
|
Amount of Loss Recognized in OCI (Effective Portion)
|
Location of Amount Reclassified from OCI into Statement of Income (Effective Portion)
|
Amount Reclassified from OCI into Statement of Income (Effective Portion)
|
Location of Amount Recognized in Statement of Income (Ineffective Portion)
|
Amount Recognized in Statement of Income (Ineffective Portion)
|
Interest rate swaps
|
$6,315
|
Interest expense
|
$(2,487)
|
Other income, net
|
$20
|
For the Year Ended December 31, 2009
|
|||||
Type of Derivative Designated as Cash Flow Hedge
|
Amount of Gain Recognized in OCI (Effective Portion)
|
Location of Amount Reclassified from OCI into Statement of Income (Effective Portion)
|
Amount Reclassified from OCI into Statement of Income (Effective Portion)
|
Location of Amount Recognized in Statement of Income (Ineffective Portion)
|
Amount Recognized in Statement of Income (Ineffective Portion)
|
Interest rate swaps
|
$(905)
|
Interest expense
|
$(103)
|
Other income, net
|
$
–
|
For the Year Ended
|
For the Year Ended
|
|||||||
December 31, 2010
|
December 31, 2009
|
|||||||
Balance at beginning of period
|
$ | 1,008 | $ | – | ||||
Change in fair value of interest rate swaps
|
(6,315 | ) | 905 | |||||
Reclassification adjustment for amounts included in statement of operations
|
2,487 | 103 | ||||||
Balance at end of period
|
$ | (2,820 | ) | $ | 1,008 |
December 31, 2010
|
||||||||||||
Collateral Type
|
Balance
|
Weighted Average Rate
|
Fair Value of Collateral Pledged
|
|||||||||
Agency RMBS
|
$ | 869,537 | 0.33 | % | $ | 908,375 | ||||||
Agency CMBS
|
150,178 | 0.31 | % | 161,143 | ||||||||
Non-Agency CMBS
|
135,143 | 1.29 | % | 164,871 | ||||||||
Non-Agency RMBS
|
12,126 | 1.31 | % | 13,628 | ||||||||
Securitization financing bonds (see Note 9)
|
67,199 | 1.36 | % | 79,080 | ||||||||
$ | 1,234,183 | 0.50 | % | $ | 1,327,097 |
December 31, 2009
|
||||||||||||
Collateral Type
|
Balance
|
Weighted Average Rate
|
Fair Value of Collateral Pledged
|
|||||||||
Agency RMBS
|
$ | 540,586 | 0.60 | % | $ | 575,386 | ||||||
Non-Agency CMBS
|
73,338 | 1.73 | % | 82,770 | ||||||||
Securitization financing bonds (see Note 9)
|
24,405 | 1.59 | % | 34,431 | ||||||||
$ | 638,329 | 0.76 | % | $ | 692,587 |
Original Maturity
|
December 31, 2010
|
December 31, 2009
|
||||||
30 days or less
|
$ | 478,848 | $ | 69,576 | ||||
31 to 60 days
|
372,702 | 300,413 | ||||||
61 to 90 days
|
202,569 | 180,643 | ||||||
Greater than 90 days
|
180,064 | 87,697 | ||||||
$ | 1,234,183 | $ | 638,329 |
December 31, 2010
|
|||||||||||||
Interest Rate
|
Weighted Average Life Remaining
(in years)
|
Balance Outstanding
(1)
|
Value of
Collateral
(2)
|
||||||||||
Securitization financing:
|
|||||||||||||
Secured by commercial mortgage loans
|
7.2% fixed
|
3.7 | $ | 23,669 | $ | 97,959 | (3) | ||||||
Secured by non-Agency CMBS
|
6.2% fixed
|
3.4 | 15,000 | 16,754 | |||||||||
Secured by single-family mortgage loans
|
1-month LIBOR plus 0.30%
|
3.4 | 21,183 | 21,889 | |||||||||
TALF financing: (4)
|
|||||||||||||
Secured by non-Agency CMBS
|
2.7% fixed
|
2.2 | 50,713 | 64,097 | |||||||||
Unamortized net bond premium and deferred costs
|
(3,460 | ) | n/a | ||||||||||
$ | 107,105 | $ | 200,699 |
(1)
|
For comparative purposes, balances outstanding for securitization financing secured by commercial mortgage loans and single-family mortgage loans were $121,168 and $23,852 as of December 31, 2009, respectively. There were no outstanding securitization financings secured by non-Agency CMBS as of December 31, 2009.
|
(2)
|
For comparative purposes, the unpaid principal balances (including defeased loans) of the commercial mortgage loans and single-family mortgage loans collateralizing the outstanding securitization financing bonds were $142,039 and $24,563, respectively, as of December 31, 2009.
|
(3)
|
The value of the commercial mortgage loans collateralizing the bond class with $23,669 remaining outstanding represents the unpaid principal balance, which includes proceeds from defeased loans. The value of the commercial mortgage loans also includes the amounts collateralizing the bond classes of the trust that the Company has redeemed. These redeemed classes are senior to the outstanding class and have a balance as of December 31, 2010 of $54,519, which must be paid in full before any proceeds from the collateral may be used to pay the balance of the outstanding class.
|
(4)
|
Financing provided by the Federal Reserve Bank of New York under its Term Asset-Backed Securities Loan Facility (“TALF”). The Company did not have TALF financing as of December 31, 2009.
|
Collateral Type
|
Par Value Outstanding
|
Fair Value
|
Repurchase Agreement Balance
|
|||||||||
Single-family mortgage loans
|
$ | 25,743 | $ | 23,493 | $ | 20,522 | ||||||
Commercial mortgage loans
|
54,519 | 55,587 | 46,677 | |||||||||
$ | 80,262 | $ | 79,080 | $ | 67,199 |
·
|
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
|
·
|
Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. The Company’s fair valued assets and liabilities that are generally included in this category are Agency MBS, certain non-Agency CMBS, and its derivatives.
|
·
|
Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Generally, the Company’s assets and liabilities carried at fair value and included in this category are non-Agency MBS.
|
Fair Value Measurements
|
||||||||||||||||
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets:
|
||||||||||||||||
Agency MBS
|
$ | 1,196,311 | $ | – | $ | 1,196,311 | $ | – | ||||||||
Non-Agency MBS:
|
||||||||||||||||
RMBS
|
15,408 | – | 6,101 | 9,307 | ||||||||||||
CMBS
|
251,955 | – | 105,277 | 146,678 | ||||||||||||
Other investments
|
25 | – | – | 25 | ||||||||||||
Derivative assets
|
692 | – | 692 | – | ||||||||||||
Total assets carried at fair value
|
$ | 1,464,391 | $ | – | $ | 1,308,381 | $ | 156,010 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative liabilities
|
$ | 3,532 | $ | – | $ | 3,532 | $ | – | ||||||||
Total liabilities carried at fair value
|
$ | 3,532 | $ | – | $ | 3,532 | $ | – |
Level 3 Fair Values
|
||||||||||||||||
Non-Agency
RMBS
|
Non-Agency CMBS
|
Other
|
Total assets
|
|||||||||||||
Balance as of December 31, 2009
|
$ | 5,907 | $ | 103,203 | $ | 131 | $ | 109,241 | ||||||||
Cumulative effect of adoption of new
accounting principle
|
– | 14,924 | – | 14,924 | ||||||||||||
Balance as of January 1, 2010
|
5,907 | 118,127 | 131 | 124,165 | ||||||||||||
Total realized and unrealized gains (losses):
|
||||||||||||||||
Included in the statement of operations
(1)
|
(5 | ) | 77 | – | 72 | |||||||||||
Included in other comprehensive income
|
668 | 9,265 | – | 9,933 | ||||||||||||
Purchases
|
5,449 | 79,377 | – | 84,826 | ||||||||||||
Sales
|
– | (31,405 | ) | (106 | ) | (31,511 | ) | |||||||||
Principal payments
|
(2,725 | ) | (27,585 | ) | – | (30,310 | ) | |||||||||
(Amortization) accretion
|
13 | (1,178 | ) | – | (1,165 | ) | ||||||||||
Transfers in and/or out of Level 3
|
– | – | – | – | ||||||||||||
Balance as of December 31, 2010
|
$ | 9,307 | $ | 146,678 | $ | 25 | $ | 156,010 |
(1)
|
Realized gains (losses) are included within “Gain on sale of investments, net” in the Company’s statement of operations.
|
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
Recorded
Basis
|
Fair
Value
|
Recorded
Basis
|
Fair
Value
|
|||||||||||||
Assets:
|
||||||||||||||||
Agency MBS
|
$ | 1,196,311 | $ | 1,196,311 | $ | 594,120 | $ | 594,120 | ||||||||
Non-Agency RMBS
|
15,408 | 15,408 | 5,907 | 5,907 | ||||||||||||
Non-Agency CMBS
|
251,955 | 251,955 | 103,203 | 103,203 | ||||||||||||
Securitized mortgage loans, net
|
152,962 | 142,177 | 212,471 | 186,547 | ||||||||||||
Other investments
|
1,229 | 1,112 | 2,280 | 2,079 | ||||||||||||
Derivative assets
|
692 | 692 | 1,008 | 1,008 | ||||||||||||
Liabilities:
|
||||||||||||||||
Repurchase agreements
|
1,234,183 | 1,234,183 | 638,329 | 638,329 | ||||||||||||
Non-recourse collateralized financing
|
107,105 | 109,395 | 143,081 | 132,234 | ||||||||||||
Derivative liabilities
|
3,532 | 3,532 | – | – |
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized Loss
|
|||||||||||||
Unrealized loss position for:
|
||||||||||||||||
Less than one year:
|
||||||||||||||||
Agency MBS
|
$ | 695,854 | $ | 6,638 | $ | 73,288 | $ | 302 | ||||||||
Non-Agency MBS
|
45,602 | 592 | 92,438 | 4,145 | ||||||||||||
One year or more:
|
||||||||||||||||
Non-Agency MBS
|
3,494 | 337 | 4,087 | 971 | ||||||||||||
$ | 173,166 | $ | 2,701 | $ | 169,813 | $ | 5,418 |
December 31, 2010
|
December 31, 2009
|
|||||||
Expected volatility
|
16.2%-18.6 | % | 25.4%-30.9 | % | ||||
Weighted-average volatility
|
17.3 | % | 29.4 | % | ||||
Expected dividends
|
9.9%-10.3 | % | 10.4 | % | ||||
Expected term (in months)
|
12 | 18 | ||||||
Weighted-average risk-free rate
|
0.81 | % | 1.87 | % | ||||
Range of risk-free rates
|
0.4%-1.3 | % | 1.44%-2.42 | % |
Number of Shares
|
Weighted-
Average
Exercise
Price
|
|||||||
SARs outstanding as of January 1, 2010
|
278,146 | $ | 7.27 | |||||
SARs granted
|
– | – | ||||||
SARs forfeited, redeemed, or exercised
|
(141,271 | ) | 7.24 | |||||
SARs outstanding as of December 31, 2010
|
136,875 | $ | 7.31 | |||||
SARs vested and exercisable as of December 31, 2010
|
116,875 | $ | 7.35 |
Number of Shares
|
Weighted-
Average
Exercise
Price
|
|||||||
Options outstanding as of January 1, 2008 (all vested and exercisable)
|
90,000 | $ | 8.27 | |||||
Options granted
|
25,000 | 9.81 | ||||||
Options forfeited
|
(5,000 | ) | 9.81 | |||||
Options exercised
|
– | – | ||||||
Options outstanding as of December 31, 2008 (all vested and exercisable)
|
110,000 | $ | 8.61 | |||||
Options granted
|
– | – | ||||||
Options forfeited
|
(15,000 | ) | 8.30 | |||||
Options exercised
|
– | – | ||||||
Options outstanding as of December 31, 2009 (all vested and exercisable)
|
95,000 | $ | 8.59 | |||||
Options granted
|
– | – | ||||||
Options forfeited
|
– | – | ||||||
Options exercised
|
(50,000 | ) | 8.45 | |||||
Options outstanding as of December 31, 2010 (all vested and exercisable)
|
45,000 | $ | 8.75 |
Number of Shares of Restricted Stock
|
||||
Restricted stock as of January 1, 2008
|
– | |||
Restricted stock granted
|
33,500 | |||
Restricted stock forfeited
|
– | |||
Restricted stock vested
|
(3,500 | ) | ||
Restricted stock outstanding as of December 31, 2008
|
30,000 | |||
Restricted stock granted
|
10,000 | |||
Restricted stock forfeited
|
– | |||
Restricted stock vested
|
(7,500 | ) | ||
Restricted stock outstanding as of December 31, 2009
|
32,500 | |||
Restricted stock granted
|
10,000 | |||
Restricted stock forfeited
|
– | |||
Restricted stock vested
|
(17,500 | ) | ||
Restricted stock outstanding as of December 31, 2010
|
25,000 |
December 31, 2010
|
December 31, 2009
|
|||||||
Available for sale investments:
|
||||||||
Unrealized gains
|
$ | 20,443 | $ | 14,472 | ||||
Unrealized losses
|
(7,566 | ) | (5,419 | ) | ||||
12,877 | 9,053 | |||||||
Hedging instruments:
|
||||||||
Unrealized gains
|
692 | 1,008 | ||||||
Unrealized losses
|
(3,512 | ) | – | |||||
(2,820 | ) | 1,008 | ||||||
Accumulated other comprehensive income
|
$ | 10,057 | $ | 10,061 |
Year Ended December 31, 2010
|
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
||||||||||||
Operating results:
|
||||||||||||||||
Net interest income
|
$ | 7,197 | $ | 7,932 | $ | 8,401 | $ | 10,896 | ||||||||
Net interest income after provision for loan losses
|
6,788 | 7,782 | 8,190 | 10,286 | ||||||||||||
Net income
|
5,537 | 7,267 | 7,022 | 9,646 | ||||||||||||
Basic net income per common share
|
0.32 | 0.41 | 0.35 | 0.41 | ||||||||||||
Diluted net income per common share
|
0.30 | 0.38 | 0.33 | 0.40 | ||||||||||||
Cash dividends declared per common share
|
0.23 | 0.23 | 0.25 | 0.27 |
Year Ended December 31, 2009
|
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
||||||||||||
Operating results:
|
||||||||||||||||
Net interest income
|
$ | 5,044 | $ | 5,881 | $ | 6,597 | $ | 7,043 | ||||||||
Net interest income after provision for loan losses
|
4,865 | 5,742 | 6,349 | 6,827 | ||||||||||||
Net income
|
3,134 | 4,370 | 6,002 | 4,075 | ||||||||||||
Basic net income per common share
|
0.18 | 0.26 | 0.37 | 0.23 | ||||||||||||
Diluted net income per common share
|
0.18 | 0.25 | 0.34 | 0.23 | ||||||||||||
Cash dividends declared per common share
|
0.23 | 0.23 | 0.23 | 0.23 |
Date of Grant:
|
<< grant date>> (“Award Date”)
|
Number of Shares:
|
<< number of shares>> shares (“Award Shares”)
|
Vesting:
|
<<insert vesting schedule>>, subject to the Terms and Conditions.
|
DYNEX CAPITAL, INC. | EMPLOYEE | |
<< name>> | << name>> | |
<<title>>
|
||
Date | Date |
(a)
|
Subject to earlier vesting or forfeiture as provided below, the period of restriction (the “Period of Restriction”) applicable to [
Use for Installment Vesting Only
: each portion of] the Award Shares is the period from the Award Date through the date[s] provided on the Summary Page, provided Employee remains employed with the Company or any Related Entity through such date.
|
(b)
|
Except as contemplated in Paragraph 2(c), the Award Shares, and the rights and privileges conferred hereby, may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution,
and shall not be subject to execution, attachment or similar process,
during the Period of Restriction. Except as otherwise provided pursuant to Paragraph 2(c), the Award Shares as determined pursuant to Paragraph 2(a) shall become freely transferable by Employee as of the last day of the [
Use for Installment Vesting Only
: relevant] Period of Restriction.
|
(c)
|
Subject to earlier forfeiture as provided in Paragraph 6 below, in the event a Vesting Acceleration Event occurs while Employee is an employee of the Company or a Related Entity and prior to the end of the Period of Restriction [
Use for Installment Vesting Only
: applicable to any portion of the Award Shares], immediate vesting shall occur and the Period of Restriction shall end for [
Use for Installment Vesting Only
: such portion of] the Award Shares, and the Award Shares shall be free of restrictions and freely transferable on the date of such Vesting Acceleration Event.
|
(d)
|
The following terms have the following meanings for purposes hereof:
|
(i)
|
“Cause” shall have the meaning set forth in any written employment or severance agreement between the Employee and the Company in effect at the time of the termination (the “Employment Agreement”) or, if none, shall mean
(A) the continued failure of Employee to perform substantially Employee’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), if, within 30 days of receiving a written demand for substantial performance from the Board, Chief Executive Officer, President, or Chief Operating Officer of the Company which specifically identifies the manner in which Employee has not substantially performed his duties, Employee shall have failed to cure such performance or to take measures to cure the performance, or (B) the engaging by Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
|
(ii)
|
“Vesting Acceleration Event” shall mean the occurrence of a Change in Control (as defined in the Plan), the Employee’s termination of employment due to becoming “disabled” (as defined in the Employment Agreement or, if none, for purposes of Section 22(e)(3) of the Internal Revenue Code), the Employee’s death, the Employee’s retirement, with the consent of the Committee or its delegate, at or after age sixty-five (65) where there is no Cause (as defined herein) for the Company to terminate theEmployee’s employment, the termination of the Employee’s employment with the Company and any Related Entity by the Company other than for Cause (as defined
|
herein), the termination of the Employee’s employment with the Company and any Related Entity by the Employee for “good reason” (as defined in the Employment Agreement) but only if the Employee has an Employment Agreement that is in effect at the time of termination and the Employment Agreement defines the term “good reason”.
|
(a)
|
The Company shall issue the Award Shares either: (i) in certificate form, or (ii) in book-entry form, registered in the name of Employee with notations as to any restrictions on transfer imposed under this Agreement.
|
(b)
|
Any certificates representing [
Use for Installment Vesting Only
: any of] the Award Shares shall be held by the Company until the Period of Restriction with respect to [
Use for Installment Vesting Only
: any of] the Award Shares lapses or until the Award Shares are forfeited hereunder. During the Period of Restriction, any Award Shares issued in book-entry form shall be subject to the following legend and any certificates representing the Award Shares shall bear the following legend:
|
(c)
|
Promptly after the Period of Restriction lapses for any of the Award Shares, the Company shall either remove the relevant notations for such Award Shares issued in book-entry form or deliver to Employee a certificate(s) evidencing the number of Award Shares as to which the Period of Restriction has lapsed.
|
(d)
|
By execution of this Agreement (which shall constitute the Stock Power contemplated in the Plan), Employee hereby appoints the Secretary of the Company, with full power of substitution, as Employee’s attorney in fact with power and authority in the name and on behalf of Employee to take any action and execute all documents and instruments, including without limitation stock powers, which may be necessary to transfer any forfeited Award Shares (or shares otherwise reacquired or withheld by the Company hereunder), to the Company as may be required pursuant to the Plan or this Agreement.
|
Annual Retainer
|
Amount
|
|||
Service as a Director
|
$ | 36,000 | ||
Service as Audit Committee Chair
|
$ | 7,000 | ||
Service as Compensation, Nominating and Corporate Governance, and Investment Committee Chair
|
$ | 3,500 | ||
Meeting Fees
|
||||
Board and Audit Committee meetings, per meeting
|
$ | 1,000 | ||
Compensation, Nominating and Corporate Governance, and Investment Committee meetings, per meeting
|
$ | 750 | ||
NOTE:
|
All companies were incorporated in Virginia except for GLS Properties, LLC, Allegheny Commercial Properties I, LLC, Allegheny Income Properties I, LLC, and Allegheny Special Properties, LLC, which were incorporated in Pennsylvania.
|
1.
|
I have reviewed this Annual Report on Form 10-K of Dynex Capital, Inc.;
|
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.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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
|
(d)
|
Disclosed in this 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 over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(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 information; 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.
|
Date: March 16, 2011
|
|
/s/ Thomas B. Akin
|
|
Thomas B. Akin
|
|
Principal Executive Officer
|
1.
|
I have reviewed this Annual Report on Form 10-K of Dynex Capital, Inc.;
|
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.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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
|
(d)
|
Disclosed in this 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 over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(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 information; 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.
|
Date: March 16, 2011
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/s/ Stephen J. Benedetti
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Stephen J. Benedetti
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Principal Financial Officer
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 16, 2011
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/s/ Thomas B. Akin
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Thomas B. Akin
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Principal Executive Officer
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Date: March 16, 2011
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/s/ Stephen J. Benedetti
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Stephen J. Benedetti
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Principal Financial Officer
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