Dynex Capital, Inc. Announces Second Quarter 2008 Results

GLEN ALLEN, Va.--(Business Wire)--
Dynex Capital, Inc. (NYSE:DX) reported its results today for the
second quarter of 2008. The Company reported net income to common
shareholders of $3.3 million for the quarter ended June 30, 2008,
versus net income to common shareholders of $1.7 million for the same
quarter last year. Basic net income per common share was $0.27 and
fully diluted net income per common share was $0.26, an increase of
$0.13 and $0.12 per common share, respectively, over basic and fully
diluted net income per common share of $0.14 for the same period last
year.

Net income to common shareholders for the six-month period ended
June 30, 2008 was $7.6 million, versus net income to common
shareholders of $2.6 million for the same period last year. Basic net
income per common share was $0.63 and fully diluted net income per
common share was $0.59 for the six-month period ended June 30, 2008,
compared to basic and fully diluted net income per common share of
$0.22 for the same period last year.

Book value per common share was $8.24 at June 30, 2008, versus
$8.07 at March 31, 2008, and $8.22 at December 31, 2007. Adjusted
common equity book value, a non-GAAP measure reflecting investment
assets and related borrowings and other obligations at their fair
values based on anticipated cash flows from the assets less the
associated cash requirements for the borrowings, and discounted at
estimated market rates, was $7.42 per common share at June 30, 2008
versus $7.21 at March 31, 2008 and $8.00 at December 31, 2007.
Reflecting the derecognition of the mortgage servicing obligations as
discussed below, at July 1, 2008, book value per common share was
$8.52 and adjusted common equity book value per common share was
$7.70. A reconciliation of common equity book value to adjusted common
equity book value per share at December 31, 2007, June 30, 2008, and
July 1, 2008 is included at the end of this press release.

The Company has scheduled a conference call for Wednesday, July
23, 2008, at 10:00 A.M. EDT, to discuss second quarter results.
Investors may participate in the call by dialing 1-877-407-8033. The
conference call will also be webcast over the internet at
www.dynexcapital.com through the link provided under "Investor
Relations".

Discussion of Quarterly Results

Thomas Akin, Chairman and Chief Executive Officer, stated,
"Consistent with our investment strategy, during the second quarter we
purchased a net $109.4 million of agency residential mortgage-backed
securities ("agency RMBS") for our investment portfolio. These assets
are short-duration hybrid arms with an overall anticipated net
interest spread of 1.8% to 2.1% based on modeled prepayment speeds.
These assets were purchased toward the end of the quarter, so our
results for this quarter do not fully reflect their earnings.
Subsequent to quarter end, we have purchased an additional $59.1
million in agency RMBS."

Mr. Akin continued, "We are also quite pleased that we increased
our book value per common share from $8.07 at the end of the first
quarter to $8.24 at the end of June. As we announced in our Current
Report on Form 8-K filed July 11, 2008, in the third quarter we will
be recognizing a $3.5 million benefit, or $0.28 per common share,
related to the Company's release from certain mortgage servicing
obligations at the beginning of the third quarter. This will increase
book value per common share by the same amount."

Mr. Akin concluded, "Market conditions continue to be volatile,
and, therefore, we remain cautious in deploying our capital. The news
surrounding Fannie Mae and Freddie Mac simply highlights the continued
risks in the financial system, notwithstanding the rally in financial
stocks over the past week. We anticipate keeping our leverage
relatively low into the third quarter pending resolution of some of
the uncertainty in the market, but with spreads on agency RMBS still
robust we expect to be able to continue to increase our core earnings
on our investment portfolio. In the second quarter, we paid a common
stock dividend of $0.15 per share. We will make an announcement later
this quarter with respect to the third quarter common stock dividend."

During the second quarter of 2008, the Company reported net
interest income after provision for loan losses of $2.2 million, a
decline from $3.7 million in the same period last year in large part
as a result of lower interest earned on cash and cash equivalents and
reserve recaptured in 2007.

The overall net interest spread for the quarter was 1.48% versus
1.53% for the same period in 2007. Net interest spread on investments
other than agency RMBS was 1.38% for the quarter and net interest
spread for agency RMBS was 1.85% for the month of June. The overall
yield on interest earning assets, excluding cash and cash equivalents,
was 7.33% for the second quarter of 2008 versus 8.31% for the second
quarter of 2007. The weighted average cost of funds was 5.85% for the
quarter and 6.78% for the same period last year.

Other income includes $2.7 million related to the redemption in
June 2008 of a securitization financing bond. Of this amount, $1.3
million relates to accelerated premium amortization on the bond and
$1.4 million relates to the release of a contingency reserve on this
bond.

The Company reported total assets of $478.2 million, including
investment assets of $430.3 million, versus total assets of $388.5
million at March 31, 2008, and $374.8 million at December 31, 2007.
Investment assets increased as a result of the purchase of a net
$109.4 million of agency RMBS during the quarter.

During the quarter ended June 30, 2008, agency RMBS were purchased
at a weighted average cost of 101.2%. The entire agency RMBS portfolio
at June 30, 2008 consists of hybrid adjustable-rate RMBS and has a
weighted average 27 months to reset.

Securitized mortgage loans consisted of $176.0 million of
commercial mortgage loans held by two securitization trusts and $77.0
million of single-family mortgage loans held by one securitization
trust. During the quarter, the Company received principal payments of
approximately $8.1 million of commercial mortgage loans, including
unscheduled principal payments of $6.0 million, and $4.3 million of
single-family mortgage loans, including $3.5 million in unscheduled
principal payments. As noted in prior quarters, the commercial
mortgage loans were principally originated in 1997 and 1998 and the
single-family mortgage loans were originated primarily from 1992-1997.
None of the commercial mortgage loans were delinquent at quarter end.
Approximately $1.1 million of the single-family mortgage loans, or
1.45% of the loans outstanding, made no payments during the quarter.
Of this amount, approximately $0.3 million are pool insured, and the
Company does not expect to incur significant credit losses on the
remaining $0.8 million given the seasoning of the loans.

Total liabilities increased to $335.7 million at June 30, 2008.
Securitization financing declined $11.0 million during the quarter
from associated payments received on the collateral. Repurchase
agreements increased to $129.4 million during the quarter as the
Company added $103.5 million in repurchase agreements to finance the
acquisition of investments during the quarter. At the end of the
second quarter, of the total repurchase agreements of $129.4 million,
$99.1 million and $30.3 million reset in approximately 1 month and 3
months, respectively.

Subsequent Event

As noted above, on July 1, 2008, the Company was relieved of
certain mortgage servicing obligations with a recorded balance of $3.5
million at June 30, 2008. The obligations related to payments required
to be made by the Company to a former affiliate who was the servicer
of manufactured housing loans originated by the Company in 1998 and
1999. The servicer resigned effective July 1, 2008, with the immediate
effect that the Company was relieved of any obligation to make further
payments. At June 30, 2008, this $3.5 million was included in other
liabilities. As a result of being released from these obligations, the
Company will recognize a benefit of $3.5 million in the quarter ending
September 30, 2008.

Dynex Capital, Inc. is a specialty finance company that elects to
be treated as a real estate investment trust (REIT) for federal income
tax purposes. Additional information about Dynex Capital, Inc. is
available at www.dynexcapital.com.

Note: This release contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
The words "believe," "expect," "forecast," "anticipate," "estimate,"
"project," "plan," and similar expressions identify forward-looking
statements that are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. The Company's actual
results and timing of certain events could differ materially from
those projected in or contemplated by the forward-looking statements
as a result of unforeseen external factors. These factors may include,
but are not limited to, changes in general economic and market
conditions, defaults by borrowers, availability of suitable
reinvestment opportunities, variability in investment portfolio cash
flows, fluctuations in interest rates, fluctuations in property
capitalization rates and values of commercial real estate, defaults by
third-party servicers, prepayments of investment portfolio assets,
other general competitive factors, the impact of regulatory changes,
and the impact of Section 404 of the Sarbanes-Oxley Act of 2002. For
additional information, see the Company's Annual Report on Form 10-K
for the period ended December 31, 2007, and other reports filed with
and furnished to the Securities and Exchange Commission.

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DYNEX CAPITAL, INC.
Consolidated Balance Sheets
(Thousands except share data)
(unaudited)

June 30, December 31,
2008 2007
---------- -------------
ASSETS
Cash and cash equivalents $ 42,501 $ 35,352
Other assets 5,378 5,671
---------- -------------
47,879 41,023
Investments:
Securitized mortgage loans, net 258,826 278,463
Agency RMBS 139,187 7,456
Other securities 15,690 21,775
Investment in joint venture 13,273 19,267
Other loans and investments 3,336 6,774
---------- -------------
430,312 333,735
---------- -------------
$ 478,191 $ 374,758
========== =============

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Securitization financing $ 189,304 $ 204,385
Repurchase agreements 129,403 4,612
Obligation to joint venture under payment
agreement 11,663 16,796
Other liabilities 5,367 7,029
---------- -------------
335,737 232,822
---------- -------------

SHAREHOLDERS' EQUITY:
Preferred stock 41,749 41,749
Common stock 122 121
Additional paid-in capital 366,768 366,716
Accumulated other comprehensive (loss) income (3,953) 1,093
Accumulated deficit (262,232) (267,743)
---------- -------------
142,454 141,936
---------- -------------
$ 478,191 $ 374,758
========== =============

Book value per common share $ 8.24 $ 8.22
========== =============
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DYNEX CAPITAL, INC.
Consolidated Statements of Operations
(Thousands except share data)
(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------

Interest income:
Investments $ 6,497 $ 7,236 $ 12,656 $ 14,712
Cash and cash
equivalents 177 787 501 1,526
------------ ------------ ------------ ------------
Interest income 6,674 8,023 13,157 16,238
Interest expense (4,173) (5,060) (8,235) (10,814)
------------ ------------ ------------ ------------
Net interest
income 2,501 2,963 4,922 5,424

(Provision for)
recapture of loan
losses (321) 702 (347) 1,225
------------ ------------ ------------ ------------

Net interest
income after
provision for
loan losses 2,180 3,665 4,575 6,649

Equity in earnings
(loss) of joint
venture 560 672 (1,691) 1,302
(Loss) gain on
sale of
investments, net (43) 6 2,050 -
Other income
(expense) 2,852 (478) 7,150 (1,018)
General and
administrative
expenses (1,253) (1,163) (2,469) (2,290)
------------ ------------ ------------ ------------

Net income 4,296 2,702 9,615 4,643
Preferred stock
dividends (1,003) (1,003) (2,005) (2,005)
------------ ------------ ------------ ------------

Net income to
common
shareholders $ 3,293 $ 1,699 $ 7,610 $ 2,638
============ ============ ============ ============

Change in net
unrealized gain
(loss) during the
period on:
Investments
classified as
available-for-
sale 1,250 (602) (1,122) (476)
Investment in
joint venture (287) (223) (3,923) 606
------------ ------------ ------------ ------------
Comprehensive
income $ 5,259 $ 1,877 $ 4,570 $ 4,773
============ ============ ============ ============

Net income per
common share
Basic $ 0.27 $ 0.14 $ 0.63 $ 0.22
============ ============ ============ ============
Diluted $ 0.26 $ 0.14 $ 0.59 $ 0.22
============ ============ ============ ============

Weighted average
number of common
shares
outstanding:
Basic 12,169,762 12,136,262 12,163,320 12,134,715
============ ============ ============ ============
Diluted 16,398,667 12,139,435 16,392,784 12,136,624
============ ============ ============ ============
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DYNEX CAPITAL, INC.
Reconciliation of Common Equity Book Value to Adjusted Common Equity
Book Value
(Thousands except share data)
(unaudited)

July 1, June 30, December 31,
2008 2008 2007
------------ ------------ ------------
Shareholders' equity $ 142,454 $ 142,454 $ 141,936

Derecognition of mortgage
servicing obligation 3,467 - -

Less: Preferred stock
redemption value (42,215) (42,215) (42,215)
------------ ------------ ------------

Common equity book value 103,706 100,239 99,721

Adjustments to present
amortized cost basis of
instruments at fair value:
Securitized finance
receivables, net (10,283) (10,283) (2,840)
Other mortgage loans 566 566 633
Investment in joint venture (240) (240) (420)
------------ ------------ ------------

Adjusted common equity book
value $ 93,749 $ 90,282 $ 97,094
============ ============ ============

Adjusted book value per common
share $ 7.70 $ 7.42 $ 8.00
============ ============ ============

Book value per common share $ 8.52 $ 8.07 $ 8.22
============ ============ ============
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Dynex Capital, Inc.
Alison Griffin, 804-217-5897

Copyright Business Wire 2008