Net interest income of $5.9 million for the quarter ended June 30, 2009 versus $5.0 million for the first quarter of 2009 and $2.5 million for the second quarter of 2008;

Net interest spread on average interest-earnings assets of 3.09% for the second quarter of 2009 versus 2.82% in the first quarter and 1.50% for the second quarter of 2008;

Net interest spread on Agency MBS investments of 3.70% for the second quarter of 2009 versus 3.35% for the first quarter and 1.54% for the second quarter of 2008;

Overall leverage of 4.3 times equity capital at June 30, 2009, with targeted leverage on the Agency MBS portfolio remaining at 7 times equity capital;

Shareholders' equity of $154.6 million at June 30, 2009, versus $140.4 million at December 31, 2008, from the issuance of $6.6 million of common stock and other comprehensive income of $7.9 million; and

Book value per share at June 30, 2009, of $8.54, an increase of $0.47 from year end 2008 book value per share of $8.07.

The Company has scheduled a conference call for Friday, August 7, 2009 at 11:00 a.m. Eastern Time, to discuss second quarter results. The call may be accessed by dialing 1-866-730-5764 (Passcode: 71327314) and will also be webcast over the internet at www.dynexcapital.com through a link provided under "Investor Relations."

Second Quarter Results and Related Discussion

Results for the second quarter of 2009 benefitted from the strong net interest income earned on the Company's investment portfolio. Net interest income increased in part from improved net interest spreads and in part from an overall larger investment portfolio. The average net interest spread for the portfolio for the second quarter of 2009 was 3.09% versus 1.50% for the second quarter of 2008 and 2.82% for the first quarter of 2009. Driving the increase in the net interest spread were reduced borrowing costs on the Company's repurchase agreement borrowings as market conditions improved and LIBOR declined. Partially offsetting the increase in net interest income was an increase in general and administrative expenses to $1.8 million in the second quarter of 2009 versus $1.3 million for the same period in 2008. Approximately $260 thousand of the second quarter 2009 expenses related to required accruals pursuant to SFAS 123R on outstanding stock appreciation rights principally from the increase in the Company's stock price from $7.02 to $8.20 during the quarter. This expense reduced net income per diluted common share by $0.02 for the second quarter of 2009. Results for the second quarter of 2008 included $0.16 per diluted common share of other income from the redemption of a securitization financing bond where no such amount was included in the second quarter 2009 results.

The Company's interest earning assets excluding cash have continued to increase on a quarter-to-quarter basis and averaged $706.1 million in the second quarter of 2009 versus $353.2 million in the same period for 2008. During the quarter, the Company purchased $107.1 million of Agency MBS, principally short-duration Agency Hybrid ARMs. The following table summarizes certain information about the Company's Agency MBS investments for the periods presented:

                                                                           Quarter endedJune 30, 2009   Quarter endedMarch 31, 2009   Quarter endedJune 30, 2008   Weighted average annualized yield for the period                         4.39    %                    4.47    %                     4.25    %                    Weighted average annualized cost of funds for the period                 0.69    %                    1.12    %                     2.71    %                    Net interest spread for the period                                       3.70    %                    3.35    %                     1.54    %                    CPR for the period                                                       19.9    %                    14.8    %                     27.3    %                    Weighted average coupon, period end                                      5.04    %                    5.15    %                     5.46    %                    Weighted average months-to-reset, period end                             25                           25                            18                           Amortized cost (as a % of par), period end                               102.04  %                    101.70  %                     101.19  %                    Weighted average repurchase agreement original term to maturity (days)   40                           52                            44                            -------------------------------------------------------------------------------  

The Company's non-Agency investments, which include principally highly seasoned securitized mortgage loans, an investment in a joint venture and non-Agency MBS, continue to perform in line with the Company's expectations. The Company incurred no credit losses during the second quarter of 2009 and added $139 thousand in allowance for loan losses. Delinquencies on securitized mortgage loans increased in the second quarter of 2009 to $15.0 million from $9.1 million at December 31, 2008. One delinquent loan with a balance of $2.5 million subsequently paid off in July. Of the remaining delinquent loans, the Company has an allowance for loan losses of $1.4 million and approximately $1.7 million of the delinquent loans have some form of insurance which substantially reduces or eliminates the Company's exposure to losses on these loans. The Company has an additional $2.7 million in allowance for loan losses on non-delinquent loans.

Book value per common share increased to $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. Book value per common share was $8.36 at March 31, 2009 and $8.07 at December 31, 2008. Shareholders' equity increased to $154.6 million at June 30, 2009, as a result of the above and also from the issuance of $6.6 million of common stock during the quarter under the Company's controlled equity offering program.