Dynex Capital(DX)2020-02-25 20:42Investment Strategy - As of December 31, 2019, the majority of the company's investments in RMBS were Agency-issued pass-through securities collateralized primarily by pools of fixed-rate single-family mortgage loans[16]. - The company considers expanding its capital base and evaluates merger, acquisition, or divestiture opportunities that align with its investment strategy[24]. - The company’s operating policies limit investment in non-Agency MBS rated BBB+ or lower to 50 million at risk for shareholders[31]. - The company faces various risks in investing in mortgage-related securities, including interest rate risk and liquidity risk, which could affect its financial condition[39]. - The company competes with other mortgage REITs and financial entities that may have greater financial resources, potentially impacting its investment income[40]. - To qualify as a REIT, the company must derive at least 75% of its gross income from real estate-related sources and meet other income tests[45]. Financing and Leverage - The company utilizes leverage to enhance returns on invested capital, primarily through uncommitted repurchase agreements, with original terms to maturity ranging from overnight to six months[22]. - The company’s financing strategy is exposed to counterparty risk, which is mitigated by diversifying repurchase agreement lenders and limiting borrowings from lesser-capitalized counterparties[23]. - The availability and cost of financing are critical to the company’s business model, with recent declines in repurchase agreement lending by larger banks impacting operations[34]. - The Federal Reserve Bank of New York has been conducting repurchase agreement transactions to provide liquidity, which has not materially affected the company’s financing costs to date[37]. Interest Rate and Market Conditions - The company employs derivative instruments to hedge against adverse changes in interest rates, primarily using pay-fixed interest rate swaps[25]. - The company’s financial performance is influenced by factors such as interest rates, prepayment rates, and market conditions, which are beyond its control[33]. - LIBOR is scheduled to be phased out by the end of 2021, with Fannie Mae and Freddie Mac transitioning to ARMs benchmarked to a 30-day average of SOFR starting in the second half of 2020[38]. - The company must distribute at least 90% of its REIT taxable income to maintain its REIT status, which could be impacted by the reform of benchmark rates like LIBOR[42]. Corporate Governance and Ethics - The company has 20 employees as of December 31, 2019, with no collective bargaining agreements in place[53]. - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors, which is available on its website[58]. - The company has expanded its Nominating and Corporate Governance Committee to include oversight of ESG policies and activities[55]. - The company is subject to reporting requirements under the Exchange Act, with materials available on the SEC's website[56]. Tax and Financial Losses - The company has approximately $89.8 million in net operating loss (NOL) carryforward as of December 31, 2019, with the majority generated in 2000 set to expire in 2020[42].