Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Transition
Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
|
Commission
File Number: 1-9819
|
Virginia
|
52-1549373
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
4991
Lake Brook Drive, Suite 100, Glen Allen, Virginia
|
23060-9245
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(804)
217-5800
(Registrant’s
telephone number, including area code)
|
Large
accelerated filer
|
o
|
Accelerated
filer
|
þ
|
Non-accelerated
filer
|
o (Do
not check if a smaller reporting company)
|
Smaller reporting
company
|
o
|
Page
|
|||
PART
I.
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements
|
||
Condensed
Consolidated Balance Sheets at September 30, 2009 (unaudited) and December
31, 2008
|
1
|
||
Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and September 30,
2008 (unaudited)
|
2
|
||
Condensed
Consolidated Statements of Shareholders’ Equity for the nine months ended
September 30, 2009 and September 30, 2008 (unaudited)
|
3
|
||
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2009 and September 30, 2008 (unaudited)
|
4
|
||
Notes
to Unaudited Condensed Consolidated Financial Statements
|
5
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
23
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
47
|
|
Item
4.
|
Controls
and Procedures
|
53
|
|
PART
II.
|
OTHER
INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
54
|
|
Item
1A.
|
Risk
Factors
|
55
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
55
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
55
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
55
|
|
Item
5.
|
Other
Information
|
55
|
|
Item
6.
|
Exhibits
|
56
|
|
SIGNATURES
|
57
|
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Agency
MBS (including pledged Agency MBS of $552,970 and $300,277 at
September 30, 2009 and December 31, 2008, respectively)
|
$ | 600,927 | $ | 311,576 | ||||
Securitized
mortgage loans, net
|
225,731 | 243,827 | ||||||
Investment
in joint venture
|
8,174 | 5,655 | ||||||
Other
investments, net
|
8,439 | 12,735 | ||||||
843,271 | 573,793 | |||||||
Cash
and cash equivalents
|
21,749 | 24,335 | ||||||
Restricted
cash
|
– | 2,974 | ||||||
Other
assets
|
7,526 | 6,089 | ||||||
$ | 872,546 | $ | 607,191 | |||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Repurchase
agreements
|
$ | 545,761 | $ | 274,217 | ||||
Securitization
financing
|
148,184 | 178,165 | ||||||
Obligation
under payment agreement
|
9,095 | 8,534 | ||||||
Other
liabilities
|
5,745 | 5,866 | ||||||
708,785 | 466,782 | |||||||
Commitments
and Contingencies (Note 13)
|
||||||||
Shareholders’
equity:
|
||||||||
Preferred
stock, par value $0.01 per share: 50,000,000 shares authorized, 9.5%
Cumulative Convertible Series D; 4,221,539 shares issued and outstanding
($43,218 aggregate liquidation preference)
|
41,749 | 41,749 | ||||||
Common
stock, par value $0.01 per share, 100,000,000 shares authorized,
13,572,012 and 12,169,762 shares issued and outstanding,
respectively
|
136 | 122 | ||||||
Additional
paid-in capital
|
376,659 | 366,817 | ||||||
Accumulated
other comprehensive income (loss)
|
7,999 | (3,949 | ) | |||||
Accumulated
deficit
|
(262,782 | ) | (264,330 | ) | ||||
163,761 | 140,409 | |||||||
$ | 872,546 | $ | 607,191 | |||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Interest
income:
|
||||||||||||||||
Investments
|
$ | 9,448 | $ | 7,719 | $ | 28,735 | $ | 20,375 | ||||||||
Cash and cash
equivalents
|
4 | 158 | 13 | 659 | ||||||||||||
9,452 | 7,877 | 28,748 | 21,034 | |||||||||||||
Interest
expense
|
(2,855 | ) | (5,090 | ) | (11,226 | ) | (13,325 | ) | ||||||||
Net
interest income
|
6,597 | 2,787 | 17,522 | 7,709 | ||||||||||||
Provision
for loan losses
|
(248 | ) | (449 | ) | (566 | ) | (796 | ) | ||||||||
Net
interest income after provision for loan losses
|
6,349 | 2,338 | 16,956 | 6,913 | ||||||||||||
Equity
in income (loss) of joint venture
|
1,620 | (3,462 | ) | 1,476 | (5,153 | ) | ||||||||||
Gain
on sale of investments, net
|
– | 331 | 220 | 2,381 | ||||||||||||
Fair
value adjustments, net
|
(457 | ) | 1,461 | (319 | ) | 5,519 | ||||||||||
Other
income
|
29 | 3,862 | 193 | 6,954 | ||||||||||||
General
and administrative expenses:
|
||||||||||||||||
Compensation and
benefits
|
(824 | ) | (609 | ) | (2,776 | ) | (1,693 | ) | ||||||||
Other general and
administrative expenses
|
(715 | ) | (876 | ) | (2,245 | ) | (2,261 | ) | ||||||||
Net
income
|
6,002 | 3,045 | 13,505 | 12,660 | ||||||||||||
Preferred
stock dividends
|
(1,003 | ) | (1,003 | ) | (3,008 | ) | (3,008 | ) | ||||||||
Net
income to common shareholders
|
$ | 4,999 | $ | 2,042 | $ | 10,497 | $ | 9,652 | ||||||||
Weighted
average common shares:
|
||||||||||||||||
Basic
|
13,552 | 12,170 | 12,908 | 12,165 | ||||||||||||
Diluted
|
17,776 | 12,173 | 17,131 | 16,393 | ||||||||||||
Net
income per common share:
|
||||||||||||||||
Basic
|
$ | 0.37 | $ | 0.17 | $ | 0.81 | $ | 0.79 | ||||||||
Diluted
|
$ | 0.34 | $ | 0.17 | $ | 0.79 | $ | 0.77 | ||||||||
Dividends
declared per common share
|
$ | 0.23 | $ | 0.23 | $ | 0.69 | $ | 0.48 |
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
(Loss)
Income
|
Accumulated
Deficit
|
Total
|
|||||||||||||||||||
Balance
at December 31, 2008
|
$ | 41,749 | $ | 122 | $ | 366,817 | $ | (3,949 | ) | $ | (264,330 | ) | $ | 140,409 | ||||||||||
Net
income
|
– | – | – | – | 13,505 | 13,505 | ||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||
Change
in market value of securities and other investments
|
– | – | – | 11,461 | – | 11,461 | ||||||||||||||||||
Reclassification
adjustment for joint venture’s other-than-temporary
impairment
|
– | – | – | 707 | – | 707 | ||||||||||||||||||
Reclassification
adjustment for gain on sale of investments, net included in net
income
|
– | – | – | (220 | ) | – | (220 | ) | ||||||||||||||||
Total
comprehensive income
|
25,453 | |||||||||||||||||||||||
Dividends
on common stock
|
– | – | – | – | (8,949 | ) | (8,949 | ) | ||||||||||||||||
Dividends
on preferred stock
|
– | – | – | – | (3,008 | ) | (3,008 | ) | ||||||||||||||||
Common
stock issuance
|
– | 14 | 9,759 | – | – | 9,773 | ||||||||||||||||||
Vesting
of restricted stock
|
– | – | 83 | – | – | 83 | ||||||||||||||||||
Balance
at September 30, 2009
|
$ | 41,749 | $ | 136 | $ | 376,659 | $ | 7,999 | $ | (262,782 | ) | $ | 163,761 |
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
(Loss)
Income
|
Accumulated
Deficit
|
Total
|
|||||||||||||||||||
Balance
at December 31, 2007
|
$ | 41,749 | $ | 121 | $ | 366,716 | $ | 1,093 | $ | (267,743 | ) | $ | 141,936 | |||||||||||
Cumulative
effect of adoption of SFAS 159
|
– | – | – | – | 943 | 943 | ||||||||||||||||||
Net
income
|
– | – | – | – | 12,660 | 12,660 | ||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||
Change
in market value of securities and other investments
|
– | – | – | (4,753 | ) | – | (4,753 | ) | ||||||||||||||||
Reclassification
adjustment for gain on sale of investments, net included in net
income
|
– | – | – | (2,381 | ) | – | (2,381 | ) | ||||||||||||||||
Total
comprehensive income
|
5,526 | |||||||||||||||||||||||
Dividends
on common stock
|
– | – | – | – | (5,841 | ) | (5,841 | ) | ||||||||||||||||
Dividends
on preferred stock
|
– | – | – | – | (3,008 | ) | (3,008 | ) | ||||||||||||||||
Stock
option issuance
|
– | – | 13 | – | – | 13 | ||||||||||||||||||
Grant
and vesting of restricted stock
|
– | 1 | 64 | – | – | 65 | ||||||||||||||||||
Balance
at September 30, 2008
|
$ | 41,749 | $ | 122 | $ | 366,793 | $ | (6,041 | ) | $ | (262,989 | ) | $ | 139,634 |
|
DYNEX
CAPITAL, INC.
|
|
OF CASH FLOWS
(UNAUDITED)
|
|
(amounts
in thousands)
|
Nine
Months Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
Operating
activities:
|
||||||||
Net
income
|
$ | 13,505 | $ | 12,660 | ||||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||
Equity
in (income) loss of joint venture
|
(1,476 | ) | 5,153 | |||||
Provision
for loan losses
|
566 | 796 | ||||||
Gain
on sale of investments, net
|
(220 | ) | (2,381 | ) | ||||
Fair
value adjustments, net
|
319 | (5,519 | ) | |||||
Amortization
and depreciation
|
1,812 | (1,694 | ) | |||||
Stock
based compensation expense (benefit)
|
426 | (263 | ) | |||||
Net
change in other assets and other liabilities
|
(2,645 | ) | (4,134 | ) | ||||
Net
cash provided by operating activities
|
12,287 | 4,618 | ||||||
Investing
activities:
|
||||||||
Principal
payments received on securitized mortgage loans
|
17,332 | 28,008 | ||||||
Purchases
of Agency MBS
|
(364,575 | ) | (343,941 | ) | ||||
Purchases
of other investments
|
– | (9,988 | ) | |||||
Payments
received on Agency MBS and other investments
|
86,448 | 21,171 | ||||||
Proceeds
from sales of other investments
|
3,699 | 19,188 | ||||||
Proceeds
from sales of Agency MBS
|
– | 29,744 | ||||||
Other
|
(1,796 | ) | (2,882 | ) | ||||
Net
cash used by investing activities
|
(258,892 | ) | (258,700 | ) | ||||
Financing
activities:
|
||||||||
Net
borrowings under repurchase agreements
|
271,544 | 261,207 | ||||||
Principal
payments on securitization financing
|
(13,256 | ) | (17,217 | ) | ||||
Decrease
in restricted cash
|
2,974 | – | ||||||
Redemption
of securitization financing
|
(15,493 | ) | – | |||||
Proceeds
from issuance of common stock
|
9,884 | – | ||||||
Dividends
paid
|
(11,634 | ) | (8,849 | ) | ||||
Net
cash provided by financing activities
|
244,019 | 235,141 | ||||||
Net
decrease in cash and cash equivalents
|
(2,586 | ) | (18,941 | ) | ||||
Cash
and cash equivalents at beginning of period
|
24,335 | 35,352 | ||||||
Cash
and cash equivalents at end of period
|
$ | 21,749 | $ | 16,411 | ||||
Supplemental
disclosure of non-cash financing activities:
|
||||||||
Dividends declared and
unpaid
|
$ | 4,125 | $ | 3,802 | ||||
Three
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Income
|
Weighted-Average
Common Shares
|
Income
|
Weighted-
Average
Common
Shares
|
|||||||||||||
Net
income
|
$ | 6,002 | $ | 3,045 | ||||||||||||
Preferred
stock dividends
|
(1,003 | ) | (1,003 | ) | ||||||||||||
Net
income to common shareholders
|
4,999 | 13,551,994 | 2,042 | 12,169,762 | ||||||||||||
Effect
of dilutive items
|
1,003 | 4,224,346 | – | 2,761 | ||||||||||||
Diluted
|
$ | 6,002 | 17,776,340 | $ | 2,042 | 12,172,523 | ||||||||||
Net
income per common share:
|
||||||||||||||||
Basic
|
$ | 0.37 | $ | 0.17 | ||||||||||||
Diluted
|
$ | 0.34 | $ | 0.17 | ||||||||||||
Reconciliation
of shares included in calculation of net income per common share due to
dilutive effect:
|
||||||||||||||||
Net
effect of dilutive:
|
||||||||||||||||
Convertible
preferred stock
|
$ | 1,003 | 4,221,539 | $ | – | – | ||||||||||
Stock
options
|
– | 2,807 | – | 2,761 | ||||||||||||
$ | 1,003 | 4,224,346 | $ | – | 2,761 |
Nine
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Income
|
Weighted-Average
Common Shares
|
Income
|
Weighted-
Average
Common
Shares
|
|||||||||||||
Net
income
|
$ | 13,505 | $ | 12,660 | ||||||||||||
Preferred
stock dividends
|
(3,008 | ) | (3,008 | ) | ||||||||||||
Net
income to common shareholders
|
10,497 | 12,908,243 | 9,652 | 12,165,483 | ||||||||||||
Effect
of dilutive items
|
3,008 | 4,222,306 | 3,008 | 4,227,296 | ||||||||||||
Diluted
|
$ | 13,505 | 17,130,549 | $ | 12,660 | 16,392,779 | ||||||||||
Net
income common per share:
|
||||||||||||||||
Basic
|
$ | 0.81 | $ | 0.79 | ||||||||||||
Diluted
|
$ | 0.79 | $ | 0.77 | ||||||||||||
Reconciliation
of shares included in calculation of net income per common share due to
dilutive effect:
|
||||||||||||||||
Net
effect of dilutive:
|
||||||||||||||||
Convertible
preferred stock
|
$ | 3,008 | 4,221,539 | $ | 3,008 | 4,221,539 | ||||||||||
Stock
options
|
– | 767 | – | 5,757 | ||||||||||||
$ | 3,008 | 4,222,306 | $ | 3,008 | 4,227,296 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Shares
issuable under stock option awards
|
70,000 | 85,000 | 70,000 | 50,000 | ||||||||||||
Convertible
preferred stock
|
– | 4,221,539 | – | – |
September
30,
2009
|
December
31, 2008
|
|||||||
Principal/par
value
|
$ | 576,573 | $ | 307,548 | ||||
Purchase
premiums
|
12,993 | 3,585 | ||||||
Purchase
discounts
|
(46 | ) | (59 | ) | ||||
Amortized cost
|
589,520 | 311,074 | ||||||
Gross
unrealized gains
|
11,531 | 1,355 | ||||||
Gross
unrealized losses
|
(124 | ) | (853 | ) | ||||
Fair value
|
$ | 600,927 | $ | 311,576 | ||||
Weighted
average coupon
|
4.90 | % | 5.06 | % | ||||
Weighted
average months to reset
|
20 | 21 |
September
30,
2009
|
December
31, 2008
|
|||||||
Securitized
mortgage loans:
|
||||||||
Commercial
mortgage loans
|
$ | 151,001 | $ | 164,032 | ||||
Single-family
mortgage loans
|
63,887 | 70,607 | ||||||
214,888 | 234,639 | |||||||
Funds
held by trustees, including funds held for defeased loans
|
13,741 | 11,267 | ||||||
Accrued
interest receivable
|
1,392 | 1,538 | ||||||
Unamortized
discounts and premiums, net
|
(18 | ) | 90 | |||||
Other
|
(241 | ) | – | |||||
Loans,
at amortized cost
|
229,762 | 247,534 | ||||||
Allowance
for loan losses
|
(4,031 | ) | (3,707 | ) | ||||
$ | 225,731 | $ | 243,827 |
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Allowance
at beginning of period
|
$ | 4,016 | $ | 3,066 | $ | 3,707 | $ | 2,721 | ||||||||
Provision
for loan losses
|
248 | 449 | 566 | 796 | ||||||||||||
Charge-offs,
net of recoveries
|
(138 | ) | (3 | ) | (147 | ) | (5 | ) | ||||||||
Allowance
at end of period
|
$ | 4,126 | $ | 3,512 | $ | 4,126 | $ | 3,512 |
September
30,
2009
|
December
31, 2008
|
|||||||
Securitized
commercial mortgage loans
|
$ | 3,785 | $ | 3,527 | ||||
Securitized
single-family mortgage loans
|
246 | 180 | ||||||
4,031 | 3,707 | |||||||
Other
mortgage loans
|
95 | – | ||||||
$ | 4,126 | $ | 3,707 |
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Commercial
|
Single-family
|
Commercial
|
Single-family
|
|||||||||||||
Investment
in impaired loans
|
$ | 16,742 | $ | 3,958 | $ | 17,292 | $ | 3,501 | ||||||||
Allowance
for loan losses
|
3,785 | 246 | 3,527 | 180 | ||||||||||||
Investment
in excess of allowance
|
$ | 12,957 | $ | 3,712 | $ | 13,765 | $ | 3,321 |
Condensed
Statements of Operations
|
||||||||||||||||
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Interest
income
|
$ | 622 | $ | 903 | $ | 1,870 | $ | 3,392 | ||||||||
Fair
value adjustment
|
2,632 | (1,584 | ) | 2,652 | (5,846 | ) | ||||||||||
Other-than-temporary
impairment
|
– | (6,073 | ) | (1,417 | ) | (7,277 | ) | |||||||||
Other
expense
|
(6 | ) | (6 | ) | (25 | ) | (59 | ) | ||||||||
Net
income (loss)
|
$ | 3,248 | $ | (6,760 | ) | $ | 3,080 | $ | (9,790 | ) |
Condensed
Balance Sheets
|
||||||||
September
30,
2009
|
December
31, 2008
|
|||||||
Total
assets
|
$ | 16,410 | $ | 11,240 | ||||
Total
liabilities
|
$ | 21 | $ | 21 | ||||
Total
members’ capital
|
$ | 16,389 | $ | 11,219 |
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Carrying
Value
|
Weighted
Average Yield
|
Carrying
Value
|
Weighted
Average Yield
|
|||||||||||||
Non-Agency
MBS
|
$ | 6,612 | 8.07 | % | $ | 6,959 | 8.02 | % | ||||||||
Equity
securities of publicly traded companies
|
– | 3,441 | ||||||||||||||
6,612 | 10,400 | |||||||||||||||
Gross
unrealized gains
|
490 | 802 | ||||||||||||||
Gross
unrealized losses
|
(990 | ) | (1,335 | ) | ||||||||||||
6,112 | 9,867 | |||||||||||||||
Other
mortgage loans, net
|
2,188 | 2,657 | ||||||||||||||
Other
|
139 | 211 | ||||||||||||||
$ | 8,439 | $ | 12,735 |
September
30, 2009
|
||||||||||||
Collateral
Type
|
Balance
|
Weighted
Average Rate
|
Fair
Value of Collateral
|
|||||||||
Agency
MBS
|
$ | 516,627 | 0.39 | % | $ | 552,970 | ||||||
Securitization
financing bonds (see Note 9)
|
29,134 | 1.71 | % | 41,732 | ||||||||
$ | 545,761 | 0.46 | % | $ | 594,702 |
December
31, 2008
|
||||||||||||
Collateral
Type
|
Balance
|
Weighted
Average Rate
|
Fair
Value of Collateral
|
|||||||||
Agency
MBS
|
$ | 274,217 | 2.70 | % | $ | 300,277 | ||||||
Securitization
financing bonds
|
– | – | – | |||||||||
$ | 274,217 | 2.70 | % | $ | 300,277 |
Original
Maturity
|
September
30, 2009
|
December
31, 2008
|
||||||
30
days or less
|
$ | 280,759 | $ | 38,617 | ||||
31
to 60 days
|
75,680 | 187,960 | ||||||
61
to 90 days
|
7,577 | 47,640 | ||||||
Greater
than 90 days
|
181,745 | – | ||||||
$ | 545,761 | $ | 274,217 |
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Bonds
Outstanding
|
Range
of Interest Rates
|
Bonds
Outstanding
|
Range
of Interest Rates
|
|||||||||||||
Fixed-rate
classes
|
$ | 123,956 | 6.7% - 8.8 | % | $ | 149,598 | 6.6% - 8.8 | % | ||||||||
Variable-rate
classes
|
25,079 | 0.6 | % | 28,186 | 1.7 | % | ||||||||||
Accrued
interest payable
|
854 | 1,008 | ||||||||||||||
Unamortized
net bond premium and deferred costs
|
(1,705 | ) | (627 | ) | ||||||||||||
$ | 148,184 | $ | 178,165 | |||||||||||||
Range
of stated maturities
|
2024-2027 | 2024-2027 | ||||||||||||||
Estimated
weighted average life
|
3.3
years
|
2.6
years
|
||||||||||||||
Number
of series
|
3 | 3 |
September
30, 2009
|
December
31, 2008
|
|||||||
Discount
rate
|
25.0 | % | 36.5 | % | ||||
Annual
loss rate
|
1.5 | % | 0.8 | % | ||||
Prepayment
speed
(1)
|
20% CPY
|
100% CPY
|
(1)
|
CPR
with yield maintenance provision. 100% CPY assumes all loans
prepay at expiration of their prepayment lock-out period and pay yield
maintenance premium. 20% CPY assumes a CPR of 20% per annum on the pool
upon expiration of the prepayment lock-out
period.
|
·
|
Level
1 — Inputs are unadjusted, quoted prices in active markets for identical
assets or liabilities at the measurement date. The types of
assets and liabilities carried at 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.
|
·
|
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, and the obligation under
payment agreement liability.
|
Fair
Value Measurements
|
||||||||||||||||
Fair
Value
|
Level
1
|
Level
2
|
Level
3
|
|||||||||||||
Assets:
|
||||||||||||||||
Agency MBS
|
$ | 600,927 | $ | – | $ | 600,927 | $ | – | ||||||||
Non-Agency MBS
|
6,112 | – | – | 6,112 | ||||||||||||
Other
|
139 | – | – | 139 | ||||||||||||
Total assets carried at fair
value
|
$ | 607,178 | $ | – | $ | 600,927 | $ | 6,251 | ||||||||
Liabilities:
|
||||||||||||||||
Obligation under payment
agreement
|
$ | 9,095 | $ | – | $ | – | $ | 9,095 | ||||||||
Total liabilities carried at fair
value
|
$ | 9,095 | $ | – | $ | – | $ | 9,095 |
Level
3 Fair Values
|
||||||||||||||||
Other
Investments
|
Total
assets
|
Obligation
under payment agreement
|
||||||||||||||
Non-Agency
MBS
|
Other
|
|||||||||||||||
Balance
at June 30, 2009
|
$ | 5,813 | $ | 158 | $ | 5,971 | $ | (8,555 | ) | |||||||
Total
realized and unrealized gains (losses)
|
||||||||||||||||
Included in
earnings
|
– | – | – | (540 | ) | |||||||||||
Included in other comprehensive
income (loss)
|
383 | (14 | ) | 369 | – | |||||||||||
Purchases,
sales, issuances and other settlements, net
|
(84 | ) | (5 | ) | (89 | ) | – | |||||||||
Transfers
in and/or out of Level 3
|
– | – | – | – | ||||||||||||
Balance
at September 30, 2009
|
$ | 6,112 | $ | 139 | $ | 6,251 | $ | (9,095 | ) |
Level
3 Fair Values
|
||||||||||||||||
Other
Investments
|
Total
assets
|
Obligation
under payment agreement
|
||||||||||||||
Non-Agency
MBS
|
Other
|
|||||||||||||||
Balance
at December 31, 2008
|
$ | 6,259 | $ | 211 | $ | 6,470 | $ | (8,534 | ) | |||||||
Total
realized and unrealized gains (losses)
|
||||||||||||||||
Included in
earnings
|
– | – | – | (561 | ) | |||||||||||
Included in other comprehensive
income (loss)
|
199 | (31 | ) | 168 | – | |||||||||||
Purchases,
sales, issuances and other settlements, net
|
(346 | ) | (41 | ) | (387 | ) | – | |||||||||
Transfers
in and/or out of Level 3
|
– | – | – | – | ||||||||||||
Balance
at September 30, 2009
|
$ | 6,112 | $ | 139 | $ | 6,251 | $ | (9,095 | ) |
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Recorded
Basis
|
Fair
Value
|
Recorded
Basis
|
Fair
Value
|
|||||||||||||
Assets:
|
||||||||||||||||
Agency MBS
|
$ | 600,927 | $ | 600,927 | $ | 311,576 | $ | 311,576 | ||||||||
Securitized mortgage loans,
net
|
225,731 | 194,436 | 243,827 | 201,252 | ||||||||||||
Investment in joint
venture
|
8,174 | 8,174 | 5,655 | 5,595 | ||||||||||||
Other
investments
|
8,439 | 8,234 | 12,735 | 12,358 | ||||||||||||
Liabilities:
|
||||||||||||||||
Repurchase
agreements
|
545,761 | 545,761 | 274,217 | 274,217 | ||||||||||||
Securitization
financing
|
148,184 | 133,294 | 178,165 | 153,370 | ||||||||||||
Obligation under payment
agreement
|
9,095 | 9,095 | 8,534 | 8,534 |
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
Unrealized
loss position for:
|
||||||||||||||||
Less than one
year:
|
||||||||||||||||
Agency MBS
|
$ | 29,906 | $ | 124 | $ | 98,171 | $ | 853 | ||||||||
Non-Agency MBS
|
20 | 1 | 3,719 | 937 | ||||||||||||
One year or
more:
|
||||||||||||||||
Non-Agency MBS
|
4,346 | 989 | 598 | 355 | ||||||||||||
$ | 34,272 | $ | 1,114 | $ | 102,488 | $ | 2,145 |
Dividend
per Share
|
||||||||||
Declaration
Date
|
Record
Date
|
Payment
Date
|
Common
|
Preferred
|
||||||
March 20, 2009
|
March
31, 2009
|
April
30, 2009
|
0.2300 | 0.2375 | ||||||
June 16, 2009
|
June
30, 2009
|
July
31, 2009
|
0.2300 | 0.2375 | ||||||
September 15, 2009
|
September
30, 2009
|
October
30, 2009
|
0.2300 | 0.2375 |
Preferred
|
||||||||
Series
D
|
Common
|
|||||||
December
31, 2008
|
4,221,539 | 12,169,762 | ||||||
Issuance
of shares under the CEOP
|
- | 1,392,250 | ||||||
Restricted
shares granted (see Note 14)
|
- | 10,000 | ||||||
September
30, 2009
|
4,221,539 | 13,572,012 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30, 2009
|
September
30, 2009
|
|||||||||||||||
Number
of Shares
|
Weighted-Average
Exercise Price
|
Number
of Shares
|
Weighted-
Average
Exercise
Price
|
|||||||||||||
SARs
outstanding at beginning of period
|
278,146 | $ | 7.27 | 278,146 | $ | 7.27 | ||||||||||
SARs
granted
|
– | – | – | – | ||||||||||||
SARs
forfeited or redeemed
|
– | – | – | – | ||||||||||||
SARs
exercised
|
– | – | – | – | ||||||||||||
SARs
outstanding at end of period
|
278,146 | $ | 7.27 | 278,146 | $ | 7.27 | ||||||||||
SARs
vested and exercisable
|
219,396 | $ | 7.37 | 219,396 | $ | 7.37 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30, 2009
|
September
30, 2009
|
|||||||||||||||
Number
of Shares
|
Weighted-Average
Exercise Price
|
Number
of Shares
|
Weighted-
Average
Exercise
Price
|
|||||||||||||
Options
outstanding at beginning of period
|
95,000 | $ | 8.59 | 110,000 | $ | 8.55 | ||||||||||
Options
granted
|
– | – | – | – | ||||||||||||
Options
forfeited or redeemed
|
– | – | (15,000 | ) | 8.30 | |||||||||||
Options
exercised
|
– | – | – | – | ||||||||||||
Options
outstanding at end of period
|
95,000 | $ | 8.59 | 95,000 | $ | 8.59 | ||||||||||
Options
vested and exercisable
|
95,000 | $ | 8.59 | 95,000 | $ | 8.59 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||
September
30, 2009
|
September
30, 2009
|
|||||||
Restricted
stock at beginning of period
|
32,500 | 30,000 | ||||||
Restricted
stock granted
|
– | 10,000 | ||||||
Restricted
stock forfeited or redeemed
|
– | – | ||||||
Restricted
stock vested
|
– | (7,500 | ) | |||||
Restricted
stock outstanding at end of period
|
32,500 | 32,500 |
SARs
Fair Value
|
|
September
30, 2009
|
|
Expected
volatility
|
25.36%
- 32.98%
|
Weighted-average
volatility
|
30.65%
|
Expected
dividend yield
|
10.98%
- 11.00%
|
Expected
term (in months)
|
36
|
Risk-free
rate
|
1.87%
|
(amounts
in thousands)
|
September
30, 2009
|
December
31, 2008
|
||||||
Agency
MBS, at fair value
|
$ | 600,927 | $ | 311,576 | ||||
Securitized
mortgage loans, net
|
225,731 | 243,827 | ||||||
Investment
in joint venture
|
8,174 | 5,655 | ||||||
Other
investments
|
8,439 | 12,735 | ||||||
Repurchase
agreements
|
545,761 | 274,217 | ||||||
Securitization
financing
|
148,184 | 178,165 | ||||||
Obligation
under payment agreement
|
9,095 | 8,534 | ||||||
Shareholders’
equity
|
163,761 | 140,409 |
(amounts
in thousands)
|
September
30, 2009
|
December
31, 2008
|
||||||
Agency
MBS:
|
||||||||
Hybrid Agency
ARMs
|
$ | 323,178 | $ | 217,800 | ||||
Agency ARMs
|
274,821 | 92,626 | ||||||
597,999 | 310,426 | |||||||
Fixed-rate
|
139 | 194 | ||||||
598,138 | 310,620 | |||||||
Principal
receivable
|
2,789 | 956 | ||||||
$ | 600,927 | $ | 311,576 |
(amounts
in thousands)
|
September
30, 2009
|
December
31, 2008
|
||||||
Securitized
mortgage loans, net:
|
||||||||
Commercial
|
$ | 160,715 | $ | 171,963 | ||||
Single-family
|
65,016 | 71,864 | ||||||
$ | 225,731 | $ | 243,827 |
(amounts
in thousands)
|
September
30, 2009
|
December
31, 2008
|
||||||
Non-Agency
MBS
|
$ | 6,612 | $ | 6,959 | ||||
Equity
securities of publicly traded companies
|
– | 3,441 | ||||||
6,612 | 10,400 | |||||||
Gross
unrealized gains
|
490 | 802 | ||||||
Gross
unrealized losses
|
(990 | ) | (1,335 | ) | ||||
6,112 | 9,867 | |||||||
Other
loans, net
|
2,188 | 2,657 | ||||||
Other
|
139 | 211 | ||||||
$ | 8,439 | $ | 12,735 |
(amounts
in thousands)
|
September
30, 2009
|
December
31, 2008
|
||||||
Securitization
financing:
|
||||||||
Fixed-rate, secured by commercial
mortgage loans
|
$ | 123,618 | $ | 150,588 | ||||
Variable-rate, secured by
single-family mortgage loans
|
24,566 | 27,577 | ||||||
$ | 148,184 | $ | 178,165 |
September
30, 2009
(amounts
in thousands)
|
||||||||||||||||||||
Investment
|
Investment
basis
|
Financing (1)
|
Net invested
capital
|
Net earnings
Contribution (2)
|
Estimated
fair value of net invested capital
|
|||||||||||||||
Agency
MBS (3)
|
$ | 600,927 | $ | 516,627 | $ | 84,300 | $ | 4,881 | $ | 84,300 | ||||||||||
Securitized
mortgage loans: (4)
|
||||||||||||||||||||
Single-family
mortgage loans – 2002 Trust
|
65,016 | 42,930 | 22,086 | 540 | 15,123 | |||||||||||||||
Commercial
mortgage loans – 1993 Trust
|
18,479 | 10,979 | 7,500 | 369 | 7,790 | |||||||||||||||
Commercial
mortgage loans – 1997 Trust
|
142,236 | 132,504 | 9,732 | 351 | – | |||||||||||||||
225,731 | 186,413 | 39,318 | 1,260 | 22,913 | ||||||||||||||||
Investment
in joint venture (5)
|
8,174 | – | 8,174 | 1,620 | 8,174 | |||||||||||||||
Other
investments: (6)
|
||||||||||||||||||||
Non-Agency
MBS
|
6,112 | – | 6,112 | 155 | 6,112 | |||||||||||||||
Other
loans and investments
|
2,327 | – | 2,327 | 49 | 2,122 | |||||||||||||||
8,439 | – | 8,439 | 204 | 8,234 | ||||||||||||||||
Total
|
$ | 843,271 | $ | 703,040 | $ | 140,231 | $ | 7,965 | $ | 123,621 |
|
(1)
|
Financing
includes repurchase agreements and securitization financing issued to
third parties. Financing for the 1997 Trust also includes the
obligation under payment agreement, which at September 30, 2009 had a
balance of $9,095.
|
|
(2)
|
Equals
third quarter 2009 net interest income after provision for loan losses for
each of the captions (except the investment in joint venture which is
equity in income of the venture).
|
|
(3)
|
Estimated
fair values are based on a third-party pricing service and dealer
quotes.
|
|
(4)
|
Estimated
fair values are based on discounted cash flows using assumptions set forth
in the table below, inclusive of amounts invested in unredeemed
securitization financing bonds.
|
|
(5)
|
Estimated
fair value for investment in joint venture represents our share of the
fair value of the joint venture’s assets valued using methodologies and
assumptions consistent with note 4
above.
|
|
(6)
|
Estimated
fair values are calculated as the net present value of expected future
cash flows.
|
Fair
Value Assumptions
|
||||||||||||||
Loan
type
|
Approximate
year of loan origination
|
Weighted-average
prepayment speeds(1)
|
Projected
annual losses (2)
|
Weighted-average
discount
rate(3)
|
YTD
2009
Cash
Flows (4)
|
|||||||||
(amounts
in thousands)
|
||||||||||||||
Single-family
mortgage loans – 2002 Trust
|
1994
|
15%
CPR
|
0.2 | % | 11 | % | $ | 6,118 | ||||||
Commercial
mortgage loans – 1993 Trust
|
1993
|
0%
CPR
|
0.8 | % | 10 | % | $ | 3,427 | ||||||
Commercial
mortgage loans – 1997 Trust
|
1997
|
20%
CPY(5)
|
1.5 | % | 25 | % | $ | – | ||||||
(1)
|
Assumed
CPR speeds generally are governed by underlying pool
characteristics. Loans currently delinquent in excess of 30
days are assumed to be liquidated in six months at a loss amount that is
calculated for each loan based on its specific
facts.
|
(2)
|
Management’s
estimate of losses that would be used by a third party in valuing these or
similar assets.
|
(3)
|
Represents
management’s estimate of the market discount rate that would be used by a
third party in valuing these or similar
assets.
|
(4)
|
Represents
total cash flows received on the investment including principal and
interest. Cash flows from the Commercial mortgage loans – 1997
Trust are paid by the Company to the joint venture pursuant to the
Obligation Under Payment Agreement.
|
(5)
|
CPR
with yield maintenance provision. 20% CPY assumes a CPR of 20%
per annum on the pool upon expiration of the prepayment lock-out
period.
|
(amounts
in thousands)
|
September
30, 2009
|
|||
Investments
by rating classification:
|
||||
Agency
MBS
|
$ | 84,300 | ||
AAA
rated non-Agency MBS
|
18,532 | |||
AA
and A rated non-Agency MBS
|
364 | |||
Securitization
overcollateralization
|
26,143 | |||
Investment
in joint venture (principally non-investment grade CMBS)
|
8,174 | |||
Unrated
and non-investment grade
|
2,718 | |||
Net
invested capital
|
$ | 140,231 |
(amounts
in thousands)
|
Book
Value
|
|||
Net
invested capital
|
$ | 140,231 | ||
Cash
and cash equivalents
|
21,749 | |||
Other
assets and liabilities, net
|
1,781 | |||
$ | 163,761 |
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
(amounts
in thousands except per share information)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Interest
income
|
$ | 9,452 | $ | 7,877 | $ | 28,748 | $ | 21,034 | ||||||||
Interest
expense
|
(2,855 | ) | (5,090 | ) | (11,226 | ) | (13,325 | ) | ||||||||
Provision
for loan losses
|
(248 | ) | (449 | ) | (566 | ) | (796 | ) | ||||||||
Net
interest income after provision for loan losses
|
6,349 | 2,338 | 16,956 | 6,913 | ||||||||||||
Equity
in income (loss) of joint venture
|
1,620 | (3,462 | ) | 1,476 | (5,153 | ) | ||||||||||
Gain
on sale of investments, net
|
─
|
331 | 220 | 2,381 | ||||||||||||
Fair
value adjustments, net
|
(457 | ) | 1,461 | (319 | ) | 5,519 | ||||||||||
Other
income
|
29 | 3,862 | 193 | 6,954 | ||||||||||||
General
and administrative expenses:
|
||||||||||||||||
Compensation and
benefits
|
(824 | ) | (609 | ) | (2,776 | ) | (1,693 | ) | ||||||||
Other administrative and general
expenses
|
(715 | ) | (876 | ) | (2,245 | ) | (2,261 | ) | ||||||||
Net
income
|
6,002 | 3,045 | 13,505 | 12,660 | ||||||||||||
Net
income per common share:
|
||||||||||||||||
Basic
|
$ | 0.37 | $ | 0.17 | $ | 0.81 | $ | 0.79 | ||||||||
Diluted
|
$ | 0.34 | $ | 0.17 | $ | 0.79 | $ | 0.77 | ||||||||
Three
Months Ended
September
30,
|
||||||||
(amounts
in thousands)
|
2009
|
2008
|
||||||
Interest
income - Investments:
|
||||||||
Agency MBS
|
$ | 5,413 | $ | 2,408 | ||||
Securitized mortgage
loans
|
3,832 | 5,037 | ||||||
Other
investments
|
203 | 274 | ||||||
9,448 | 7,719 | |||||||
Interest
income – Cash and cash equivalents
|
4 | 158 | ||||||
$ | 9,452 | $ | 7,877 |
Three
Months Ended September 30,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
(amounts
in thousands)
|
Interest
Income
|
Net
Amortization
|
Total
Interest Income
|
Interest
Income
|
Net
Amortization
|
Total
Interest Income
|
||||||||||||||||||
Securitized
mortgage loans:
|
||||||||||||||||||||||||
Commercial
|
$ | 3,361 | $ | (345 | ) | $ | 3,016 | $ | 3,767 | $ | 77 | $ | 3,844 | |||||||||||
Single-family
|
867 | (51 | ) | 816 | 1,261 | (68 | ) | 1,193 | ||||||||||||||||
$ | 4,228 | $ | (396 | ) | $ | 3,832 | $ | 5,028 | $ | 9 | $ | 5,037 |
Three
Months Ended
September
30,
|
||||||||
(amounts
in thousands)
|
2009
|
2008
|
||||||
Interest
expense:
|
||||||||
Securitization
financing
|
$ | 1,769 | $ | 3,276 | ||||
Repurchase
agreements
|
668 | 1,417 | ||||||
Obligation under payment
agreement
|
416 | 402 | ||||||
Other
|
2 | (5 | ) | |||||
$ | 2,855 | $ | 5,090 |
Three
Months Ended September 30,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
(amounts
in thousands)
|
Interest
Expense
|
Net
Amortization
|
Total
Interest Expense
|
Interest
Expense
|
Net
Amortization
|
Total
Interest Expense
|
||||||||||||||||||
Securitization
financing:
|
||||||||||||||||||||||||
Secured by commercial mortgage
loans
|
$ | 2,567 | $ | (852 | ) | $ | 1,715 | $ | 3,131 | $ | (156 | ) | $ | 2,975 | ||||||||||
Secured by single-family
mortgage loans
|
38 | 33 | 71 | 219 | 13 | 232 | ||||||||||||||||||
Other bond related
costs
|
(17 | ) | – | (17 | ) | 69 | – | 69 | ||||||||||||||||
$ | 2,588 | $ | (819 | ) | $ | 1,769 | $ | 3,419 | $ | (143 | ) | $ | 3,276 |
Three
Months Ended
September
30,
|
||||||||
(amounts
in thousands)
|
2009
|
2008
|
||||||
Interest
expense:
|
||||||||
Repurchase agreements
collateralized by Agency MBS
|
$ | 531 | $ | 1,394 | ||||
Repurchase agreements
collateralized by securitization
financing bonds
|
137 | 23 | ||||||
$ | 668 | $ | 1,417 |
Nine
Months Ended September 30,
|
||||||||
(amounts
in thousands)
|
2009
|
2008
|
||||||
Interest
income - Investments:
|
||||||||
Agency MBS
|
$ | 14,943 | $ | 3,262 | ||||
Securitized mortgage
loans
|
13,138 | 16,020 | ||||||
Other
investments
|
654 | 1,093 | ||||||
28,735 | 20,375 | |||||||
Cash and cash
equivalents
|
13 | 659 | ||||||
$ | 28,748 | $ | 21,034 |
Nine
Months Ended September 30,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
(amounts
in thousands)
|
Interest
Income
|
Net
Amortization
|
Total
Interest Income
|
Interest
Income
|
Net
Amortization
|
Total
Interest Income
|
||||||||||||||||||
Securitized
mortgage loans:
|
||||||||||||||||||||||||
Commercial
|
$ | 10,343 | $ | (142 | ) | $ | 10,201 | $ | 11,628 | $ | 295 | $ | 11,923 | |||||||||||
Single-family
|
2,904 | 33 | 2,937 | 4,318 | (221 | ) | 4,097 | |||||||||||||||||
$ | 13,247 | $ | (109 | ) | $ | 13,138 | $ | 15,946 | $ | 74 | $ | 16,020 |
Nine
Months Ended September 30,
|
||||||||
(amounts
in thousands)
|
2009
|
2008
|
||||||
Interest
expense:
|
||||||||
Securitization
financing
|
$ | 7,455 | $ | 10,212 | ||||
Repurchase
agreements
|
2,561 | 1,897 | ||||||
Obligation under payment
agreement
|
1,217 | 1,207 | ||||||
Other
|
(7 | ) | 9 | |||||
$ | 11,226 | $ | 13,325 |
Nine
Months Ended September 30,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
(amounts
in thousands)
|
Interest
Expense
|
Net
Amortization
|
Total
Interest Expense
|
Interest
Expense
|
Net
Amortization
|
Total
Interest Expense
|
||||||||||||||||||
Securitization
financing:
|
||||||||||||||||||||||||
Secured by commercial mortgage
loans
|
$ | 8,289 | $ | (1,192 | ) | $ | 7,097 | $ | 9,873 | $ | (830 | ) | $ | 9,043 | ||||||||||
Secured by single-family
mortgage loans
|
136 | 98 | 234 | 795 | 116 | 911 | ||||||||||||||||||
Other bond related
costs
|
124 | – | 124 | 258 | – | 258 | ||||||||||||||||||
$ | 8,549 | $ | (1,094 | ) | $ | 7,455 | $ | 10,926 | $ | (714 | ) | $ | 10,212 |
Nine
Months Ended
September
30,
|
||||||||
(amounts
in thousands)
|
2009
|
2008
|
||||||
Interest
expense:
|
||||||||
Repurchase agreements
collateralized by Agency MBS
|
$ | 2,260 | $ | 1,796 | ||||
Repurchase agreements
collateralized by securitization
financing bonds
|
301 | 101 | ||||||
$ | 2,561 | $ | 1,897 |
Three
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
(amounts
in thousands, except for percentages)
|
Average
Balance(1)(2)
|
Effective
Yield/Rate(3)
|
Average
Balance(1)(2)
|
Effective
Yield/Rate(3)
|
||||||||||||
Agency MBS
|
||||||||||||||||
Agency MBS
|
$ | 531,280 | 4.13 | % | $ | 213,574 | 4.45 | % | ||||||||
Repurchase
agreements
|
485,924 | (0.43 | %) | 201,863 | (2.75 | %) | ||||||||||
Net interest
spread
|
3.70 | % | 1.70 | % | ||||||||||||
Securitized Mortgage Loans
|
||||||||||||||||
Securitized mortgage
loans
|
$ | 231,004 | 7.13 | % | $ | 257,310 | 7.81 | % | ||||||||
Securitization financing
(4)
|
148,974 | (6.25 | %) | 185,882 | (6.94 | %) | ||||||||||
Repurchase
agreements
|
29,312 | (1.86 | %) | 3,609 | (2.58 | %) | ||||||||||
Net interest
spread
|
1.61 | % | 0.95 | % | ||||||||||||
Other
investments
|
$ | 9,009 | 8.98 | % | $ | 9,876 | 10.85 | % | ||||||||
Total
|
||||||||||||||||
Interest earning
assets
|
$ | 771,293 | 5.09 | % | $ | 480,760 | 6.38 | % | ||||||||
Interest bearing
liabilities
|
664,210 | (1.80 | %) | 391,354 | (4.74 | %) | ||||||||||
Net interest
spread
|
3.29 | % | 1.64 | % |
|
(1)
|
Average
balances exclude unrealized gains and losses on available-for-sale
securities.
|
|
(2)
|
Average
balances exclude funds held by trustees except collateral received on
defeased loans held by trustees.
|
|
(3)
|
Certain
income and expense items of a one-time nature are not annualized for the
calculation of effective yields/rates. Examples of such
one-time items include retrospective adjustments of discount and premium
amortization arising from adjustments of effective interest
rates.
|
|
(4)
|
Effective
rates are calculated excluding non-interest related securitization
financing expenses.
|
Nine
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
(amounts
in thousands, except for percentages)
|
Average
Balance(1)
(2)
|
Effective
Yield/Rate(3)
|
Average
Balance(1)
(2)
|
Effective
Yield/Rate(3)
|
||||||||||||
Agency MBS
|
||||||||||||||||
Agency MBS
|
$ | 464,430 | 4.30 | % | $ | 98,658 | 4.39 | % | ||||||||
Repurchase
agreements
|
423,360 | (0.72 | %) | 87,613 | (2.74 | )% | ||||||||||
Net interest
spread
|
3.58 | % | 1.65 | % | ||||||||||||
Securitized Mortgage Loans
|
||||||||||||||||
Securitized mortgage
loans
|
$ | 237,274 | 7.38 | % | $ | 267,036 | 7.98 | % | ||||||||
Securitization financing
(4)
|
160,963 | (6.24 | %) | 194,144 | (6.88 | %) | ||||||||||
Repurchase
agreements
|
19,232 | (2.09 | %) | 4,275 | (3.15 | %) | ||||||||||
Net interest
spread
|
1.59 | % | 1.18 | % | ||||||||||||
Other
investments
|
$ | 9,262 | 9.32 | % | $ | 13,040 | 11.27 | % | ||||||||
Total
|
||||||||||||||||
Interest earning
assets
|
$ | 710,966 | 5.39 | % | $ | 378,734 | 7.16 | % | ||||||||
Interest bearing
liabilities
|
603,555 | (2.23 | %) | 286,032 | (5.56 | %) | ||||||||||
Net interest
spread
|
3.16 | % | 1.60 | % | ||||||||||||
|
(1)
|
Average
balances exclude unrealized gains and losses on available-for-sale
securities.
|
|
(2)
|
Average
balances exclude funds held by trustees except collateral received on
defeased loans held by trustees.
|
|
(3)
|
Certain
income and expense items of a one-time nature are not annualized for the
calculation of effective yields/rates. Examples of such
one-time items include retrospective adjustments of discount and premium
amortization arising from adjustments of effective interest
rates.
|
(4)
|
Effective
rates are calculated excluding non-interest related securitization
financing expenses.
|
·
|
risks
associated with investing in real estate assets, including changes in
general economic and market conditions, including the ongoing volatility
in the credit markets which impacts assets prices and the cost and
availability of financing,
|
·
|
our
ability to borrow to continue to finance our
assets,
|
·
|
availability
of suitable reinvestment
opportunities,
|
·
|
fluctuations
in interest rates and the market value of our investments, particularly in
response to changes in government
policy,
|
·
|
defaults
by borrowers and/or guarantors of our
investments,
|
·
|
fluctuations
in property capitalization rates and values of commercial real
estate,
|
·
|
uncertainty
around government policy, and the impact of regulatory changes, the full
impact of which is unknown at this
time,
|
·
|
defaults
by third-party servicers,
|
·
|
actual
or expected changes in the rate of prepayments on our investments,
particularly those that we own at a premium to their principal
balance,
|
·
|
other
general competitive factors,
|
·
|
our
ability to maintain our qualification as a REIT for federal income tax
purposes,
|
·
|
our
ability to maintain our exemption from registration under the Investment
Company Act of 1940, as amended,
|
·
|
the
impact of Section 404 of the Sarbanes-Oxley Act of
2002,
|
·
|
changes
in government regulations affecting our business;
and
|
·
|
the
impact of new accounting standards or changes in current accounting
estimates and assumptions on our financial
results.
|
Investment
(amounts
in thousands)
|
Amortized
Cost Basis
|
Amount
of Guaranty
|
Guarantor
|
Credit
Rating of Guarantor (1)
|
|||||||||
With
Guaranty of Payment
|
|||||||||||||
Agency MBS
|
$ | 600,927 | $ | 573,785 |
Fannie
Mae/Freddie Mac
|
AAA
|
|||||||
Securitized mortgage
loans:
|
|||||||||||||
Commercial
|
60,711 | 6,935 |
American
International Group (“AIG”) (2)
|
A3 | |||||||||
Single-family
|
21,046 | 20,602 |
PMI/GEMICO
“Pool” Insurance
|
Ba3/Baa2
|
|||||||||
Defeased commercial
loans
|
13,588 | 13,593 |
Fully
secured with cash
|
||||||||||
Without
Guaranty of Payment
|
|||||||||||||
Securitized mortgage
loans:
|
|||||||||||||
Commercial
|
90,200 | – | |||||||||||
Single-family
|
44,217 | – | |||||||||||
Investment in joint
venture
|
8,174 | – | |||||||||||
Other
investments
|
8,534 | – | |||||||||||
847,397 | 614,915 | ||||||||||||
Allowance
for loan losses
|
(4,126 | ) | – | ||||||||||
Total
investments
|
$ | 843,271 | $ | 614,915 |
(1)
|
Reflects
lowest rating of the three nationally-recognized ratings agencies for the
senior unsecured debt of the
guarantor.
|
(2)
|
AIG,
through its subsidiary AIG Retirement Services, Inc., will reimburse us
for any loss on these loans as a pool up to the amount
indicated.
|
Investment
Type(1)
(amounts
in thousand except percentages)
|
Amortized
Cost Basis of Loans
|
Excess
of Loans UPB over Securitization Financing UPB
|
Current
Loan-to-Value based on Original Appraised Value
|
Amortized
Cost Basis of Delinquent Loans(2)
|
Delinquency
%
|
|||||||||||||||
Commercial
mortgage loans
|
$ | 160,715 | $ | 40,637 | 47.9 | % | $ | 7,938 | 5.09 | % | ||||||||||
Single-family
mortgage loans
|
65,016 | 38,808 | 51.7 | % | 5,494 | (3) | 8.32 | % |
(1)
|
The
average seasoning in years for the commercial mortgage loans and the
single-family mortgage loans are 13.2 years and 15.5 years, respectively,
as of September 30, 2009.
|
(2)
|
Loans
contractually delinquent by 30 or more days. No delinquent commercial
loans have a guarantee of payment.
|
(3)
|
Of
the $5,494 of delinquent single-family loans, approximately $1,786 are
pool insured and, of the remaining $3,708,$1,118 of the loans made at
least one payment within the 90 days prior to September 30,
2009.
|
Months
remaining to end of compliance period
|
As
a Percent of Unpaid Principal Balance
|
|||
Compliance
period already exceeded
|
36.7 | % | ||
Up
to one year remaining
|
16.8 | |||
Between
one and three years remaining
|
46.5 | |||
Between
four and six years remaining
|
– | |||
Total
|
100.0 | % |
Investments
|
Borrowings
|
|||||||||||||||
(amounts
in thousands)
|
Amounts
(1)
|
Percent
|
Amounts
|
Percent
|
||||||||||||
Fixed-Rate
Investments/Obligations
|
$ | 173,161 | 20.9 | % | $ | 132,172 | 18.8 | % | ||||||||
Adjustable-Rate
Investments/Obligations:
|
||||||||||||||||
Less than 3
months
|
39,192 | 4.7 | 570,327 | 81.2 | ||||||||||||
Greater than 3 months and less
than 1 year
|
293,697 | 35.4 | – | – | ||||||||||||
Greater than 1 year and less
than 2 years
|
109,098 | 13.1 | – | – | ||||||||||||
Greater than 2 years and less
than 3 years
|
157,863 | 19.0 | – | – | ||||||||||||
Greater than 3 years and less
than 5 years
|
57,678 | 6.9 | – | – | ||||||||||||
Total
|
$ | 830,689 | 100.0 | % | $ | 702,499 | 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.
|
Investments
|
Borrowings
|
|||||||||||||||
(amounts
in thousands)
|
Amounts(1)
|
Percent
|
Amounts
|
Percent
|
||||||||||||
Fixed-Rate
Investments/Obligations
|
$ | 184,877 | 33.0 | % | $ | 159,121 | 34.5 | % | ||||||||
Adjustable-Rate
Investments/Obligations:
|
||||||||||||||||
Less than 3
months
|
– | – | 301,795 | 65.5 | ||||||||||||
Greater than 3 months and less
than 1 year
|
156,279 | 28.0 | – | – | ||||||||||||
Greater than 1 year and less
than 2 years
|
116,304 | 20.8 | – | – | ||||||||||||
Greater than 2 years and less
than 3 years
|
68,246 | 12.2 | – | – | ||||||||||||
Greater than 3 years and less
than 5 years
|
33,404 | 6.0 | – | – | ||||||||||||
Total
|
$ | 559,110 | 100.0 | % | $ | 460,916 | 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%
|
34.87%
|
1.0%
|
1.36%
|
|||
10.1%
to 11.0%
|
50.69%
|
2.0%
|
34.09%
|
|||
11.1%
to 12.0%
|
14.44%
|
5.0%
|
64.55%
|
|||
100.00%
|
100.00%
|
CPR
|
Estimated
Months to Asset
Reset
or Expected Prepayment
|
Estimated
Months to Liabilities Reset
|
Repricing
Gap
in Months
|
0% (1)
|
20
months
|
1 month
|
19
months
|
15%
|
17
months
|
1 month
|
16
months
|
25%
|
15
months
|
1 month
|
14
months
|
35%
|
13
months
|
1 month
|
12
months
|
(1)
|
Reflects
contractual maturities, which do not consider any
prepayments.
|
Basis
Point Change in
Interest
Rates
|
Percentage
change in projected net interest income
|
Percentage
change in projected market value
|
|||
+200
|
(23.34)%
|
(9.21)%
|
|||
+100
|
(8.58)%
|
(3.86)%
|
|||
0
|
–
|
–
|
|||
-100
|
(5.86)%
|
2.08%
|
|||
-200
|
(20.38)%
|
2.78%
|
Exhibit No.
|
Description
|
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).
|
10.6
|
Employment
Agreement, dated as of July 31, 2009, between Dynex Capital, Inc. and
Thomas B. Akin (filed herewith).
|
10.9
|
Dynex
Capital, Inc. ROAE Bonus Program, as amended October 8, 2009 (filed
herewith).
|
10.12
|
Employment
Agreement, dated as of July 31, 2009, between Dynex Capital, Inc. and
Byron L. Boston (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.
|
|
Date: November
9, 2009
|
/s/
Thomas B. Akin
|
Thomas
B. Akin
|
|
Chairman
and Chief Executive Officer
|
|
(Principal
Executive Officer)
|
|
Date: November
9, 2009
|
/s/
Stephen J. Benedetti
|
Stephen
J. Benedetti
|
|
Executive
Vice President, Chief Operating Officer and Chief Financial
Officer
|
|
(Principal
Financial Officer)
|
|