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                               


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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.