Dynex Capital, Inc.Reports Third Quarter Results

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GLEN ALLEN, Va.--(Business Wire)--
Dynex Capital, Inc. (NYSE: DX) reported net income to common shareholders for
the third quarter of $5.0 million or $0.34 per diluted common share versus $3.4
million or $0.25 per diluted common share for the second quarter of 2009, and
$2.0 million or $0.17 per diluted common share for the third quarter of 2008.
Highlights for the quarter are summarized below:

* Net interest income of $6.6 million for the quarter ended September 30, 2009,
versus $5.9 million for the quarter ended June 30, 2009 and $2.8 million for the
third quarter of 2008;
* Net interest spread on average interest-earning assets of 3.29% for the third
quarter of 2009, versus 3.10% for the second quarter of 2009 and 1.64% for the
third quarter of 2008;
* Net interest spread on Agency MBS investments of 3.70% for the third quarter
of 2009, versus 3.70% for the second quarter of 2009 and 1.70% for the third
quarter of 2008;
* Overall leverage of 4.3 times equity capital at September 30, 2009, with
leverage on the Agency MBS portfolio of 6.1 times equity capital;
* Shareholders` equity of $163.8 million at September 30, 2009, versus $140.4
million at December 31, 2008; and
* Book value per share at September 30, 2009, of $8.96 versus $8.54 at June 30,
2009 and $8.07 at December 31, 2008.

The Company has scheduled a conference call for Monday, November 9, 2009 at
11:00 a.m. Eastern Time, to discuss first quarter results. The call may be
accessed by dialing 1-866-788-0541 (Passcode: 49849247) and will also be webcast
over the internet at www.dynexcapital.com through a link provided under
"Investor Relations."

Third Quarter Results and Related Discussion

Third quarter 2009 results continued to benefit from strong net interest income
earned on the Company`s investment portfolio. Net interest income for the
quarter benefitted from several items including higher net interest spreads,
lower amortization expense due to adjusted prepayment expectations on
securitized commercial mortgage loans, and an overall larger investment
portfolio. The net interest spread for the portfolio for the third quarter of
2009 was 3.29% versus 1.64% for the third quarter of 2008 and 3.10% for the
second quarter of 2009. Driving the increase in the net interest spread were
reduced borrowing costs on the Company`s repurchase agreement borrowings, which
declined to 0.43% for the third quarter of 2009 from 2.75% for the third quarter
of 2008 and 0.69% for the second quarter of 2009. Net interest income for the
third quarter of 2009 also includes approximately $0.3 million of net positive
amortization adjustments, principally from declining forecasted prepayment
activity on the securitized commercial mortgage loan portfolio and the
associated securitization financing due to current and expected market
conditions for commercial real estate.

Third quarter 2009 results also include joint venture earnings of $1.6 million
primarily from positive valuation adjustments of assets held by the joint
venture, and negative fair market value adjustments of $0.5 million from an
increase in the carrying value of the obligation under payment agreement. The
obligation under payment agreement is carried at its fair value with changes to
the obligation recorded as income or expense in the consolidated statement of
operations.

The Company`s interest earning assets excluding cash have continued to increase
on a quarter-to-quarter basis and averaged $771.3 million in the third quarter
of 2009 versus $706.1 million in the second quarter of 2009 and $480.8 million
in the third quarter of 2008. During the quarter, the Company purchased $103.6
million of Agency MBS, principally seasoned, short-duration Hybrid Agency ARMs.
At September 30, 2009, the Company had $323.2 million in Hybrid Agency ARMs with
a weighted average months-to-reset of 30 months, and $274.8 million in Agency
ARMs with a weighted average months-to-reset of 7 months. The following table
summarizes certain information about the Company`s Agency MBS investments for
the periods presented:

Quarter ended September 30, 2009 Quarter ended June 30, 2009 Quarter ended September 30, 2008
Weighted average annualized yield for the period 4.13% 4.39% 4.45%
Weighted average annualized cost of funds for repurchase agreements for the period 0.43% 0.69% 2.75%
Net interest spread for the period 3.70% 3.70% 1.70%
CPR for the period 22.1% 19.9% 27.3%
Weighted average coupon, period end 4.90% 5.04% 4.82%
Weighted average months-to-reset, period end 20 25 18
Amortized cost (as a % of par), period end 102.30% 102.04% 101.21%
Weighted average repurchase agreement original term to maturity (days) 58 40 27

The Company`s other investment assets, which include principally highly seasoned
securitized mortgage loans, non-Agency MBS, and an investment in a joint venture
which owns interests in seasoned CMBS, continue to perform in line with
expectations. These investments are financed with $148.2 million in
securitization financing, $29.1 million in repurchase agreements (which are
collateralized by `AAA`-rated investments with an estimated market value of
$41.7 million), and $56.3 million in equity capital. With respect to the
securitized mortgage loan portfolio, the Company added $248 thousand to the
allowance for loan losses bringing the total allowance to $4.1 million at
September 30, 2009. Delinquencies on securitized mortgage loans decreased during
the quarter to $13.4 million from $15.0 million at June 30, 2009. Approximately
$1.8 million of the delinquent loans have some form of insurance which
substantially reduces or eliminates the Company`s exposure to losses on these
loans. With respect to the investment in joint venture, improving credit spreads
in CMBS resulted in valuation increases on assets owned by the joint venture.
The CMBS owned by the joint venture have a fair value of $14.5 million at
September 30, 2009 versus their principal balance of $38.7 million as of the
same date.

Book value per common share increased to $8.96 at September 30, 2009 from $8.54
at June 30, 2009, as a result of an increase in accumulated other comprehensive
income from improved valuations of the Company`s Agency MBS portfolio and
earnings for the quarter in excess of the dividend paid. Shareholders` equity
was $163.8 million at September 30, 2009, which was an increase from $154.6
million at June 30, 2009, as a result of the items noted above and the issuance
of $3.2 million of common stock during the quarter under the Company`s
controlled equity offering program.

The following table summarizes the allocation of the Company`s $163.8 million of
shareholders` equity as of September 30, 2009 and the net earnings contribution
on such allocated capital:

(amounts in thousands) Asset carrying basis Associated financing (1) Allocated % of Shareholders` Equity Net Earnings Contribution(2)
Shareholders` Equity
Agency MBS $ 600,927 $ 516,627 $ 84,300 51.5 % $ 4,881
Securitized single-family mortgage loans 65,016 42,930 22,086 13.5 % 540
Securitized commercial mortgage loans 160,715 143,483 17,232 10.5 % 720
Investment in joint venture (CMBS) 8,174 - 8,174 5.0 % 1,620
Non-Agency MBS 6,112 - 6,112 3.7 % 155
Other investments 2,327 - 2,327 1.4 % 49
Cash and cash equivalents 21,749 - 21,749 13.3 % 4
Other assets/other liabilities 7,526 5,745 1,781 1.1 % -
$ 872,546 $ 708,785 $ 163,761 100.0 %

(1)Associated financing includes repurchase agreements, securitization financing
and obligation under payment agreement.

(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).

Management Remarks

Thomas Akin, Chairman and Chief Executive Officer, commented, "We are very
pleased with our results for the quarter which were led by the increased
contribution of our Agency MBS portfolio and the consistent performance of our
seasoned securitized mortgage loan and non-Agency MBS portfolios. Our net
interest spread was a robust 3.29%, highlighted by our Agency MBS net interest
spread of 3.70%. On an absolute dollar basis, our net interest income increased
to $6.6 million this quarter from $5.9 million last quarter, with Agency MBS
generating $4.9 million this quarter versus $4.4 million last quarter. We also
saw continued strength in pricing on our investment assets and that coupled with
our earnings in excess of our dividend, propelled book value per common share to
$8.96 as of September 30, 2009, versus $8.54 at the end of last quarter. Clearly
our short-duration Agency MBS strategy combined with our short-term financing
strategy performed very well during the quarter from both an earnings and book
value basis."

Mr. Akin further commented, "In recent weeks we have been able to secure
competitive financing terms, and we now have just over 40% of our repurchase
agreement balances rolled over year-end. As a result, we expect to see healthy
net interest income for the fourth quarter barring any unforeseen actions by the
Federal Reserve or liquidity disruptions in the market. We continue to see
compelling opportunities in Agency MBS but remain cautious on price and mindful
of the potential impact of governmental policy on our investment strategy. We
are also seeking ways to maximize opportunities within our own assets including
the potential to participate in the TALF program or otherwise refinance the CMBS
assets owned by the joint venture. We feel that the Company is well-positioned
to navigate the current uncertainties in the market. Longer-term we believe a
diversified investment model of Agency MBS and high grade non-Agency investments
will be a superior model for our shareholders."

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, including the
ongoing volatility in the credit markets which impacts assets prices and the
cost and availability of financing, defaults by borrowers, availability of
suitable reinvestment opportunities, variability in investment portfolio cash
flows, fluctuations in interest rates, fluctuations in property capitalization
rates andvalues of commercial real estate, defaults by third-party servicers,
prepayments of investment portfolio assets, other general competitive factors,
uncertainty around government policy, the impact of regulatory changes,
including the Emergency Economic Stabilization Act of 2008, the full impact of
which is unknown at this time, 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 year ended December 31, 2008, and other reports
filed with and furnished to the Securities and Exchange Commission.

DYNEX CAPITAL, INC.

Consolidated Balance Sheets

(Thousands except share and per share data)

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
Non-Agency MBS 6,112 6,260
Other investments 2,327 6,475
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

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

Book value per common share $ 8.96 $ 8.07

DYNEX CAPITAL, INC.

Consolidated Statements of Operations

(Thousands except per share data)

(unaudited)

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 6,594
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

Net income per common share:
Basic $ 0.37 $ 0.17 $ 0.81 $ 0.79
Diluted $ 0.34 $ 0.17 $ 0.79 $ 0.77

Dynex Capital, Inc.
Alison Griffin, 804-217-5897

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