DX 2Q 2004 PRESS RELEASE 8-K

PRESS RELEASE


FOR IMMEDIATE RELEASE CONTACT: Investor Relations
August 16, 2004 804-217-5897


DYNEX CAPITAL, INC. REPORTS RESULTS
FOR SECOND QUARTER


Dynex Capital, Inc. (NYSE: DX) reported today a net loss of $13.0
million for the second quarter, versus a net loss of $11.0 million for the same
period in 2003. After consideration of preferred stock benefits and charges, the
Company reported a net loss to common shareholders of $10.9 million or $0.95 per
basic and diluted common share for the second quarter 2004, versus a net loss to
common shareholders of $12.2 million or $1.12 per basic and diluted common share
for the second quarter 2003. Preferred stock benefits for the second quarter
2004 included approximately $3.7 million from the recapitalization transaction
completed in May. Net loss to common shareholders was $17.5 million, or $1.59
per basic and diluted common share, for the full six months ended June 30, 2004,
versus net income of $288 thousand, or $0.03 per basic and diluted common share,
for the same period in 2003. The Company has scheduled a conference call for
Tuesday, August 17, 2004, at 4:00 p.m. Eastern Daylight Time to discuss the
results. Investors can listen in on the call by dialing in at (888) 424-1091.

Second Quarter 2004 Results

The Company reported that cash flow from its investment portfolio was
$12.0 million for the quarter versus $11.1 million for the first quarter 2004
and $15.5 million for the second quarter 2003. Inclusive of $7.4 million
received in April on the redemption and resale of certain securitization
financing bonds in the Company's MERIT Series 12-1, cash flow for the second
quarter was $19.4 million. Cash flow increased in the second quarter principally
as a result of principal prepayments on investments, and improved collections
from the Company's delinquent property tax receivables portfolio. Delinquent
property tax receivable collections were $2.1 million for the second quarter
2004 versus $1.8 million in the first quarter 2004. Collections continued to be
below forecast, however, and in order to reduce the overall cost of collection
of these receivables, the Company announced reductions in its servicing
operations which are expected to result in savings to the Company of
approximately $1.1 million in general and administrative expenses annually.

The Company reported net interest margin before provision for loan
losses on its investment portfolio of $5.5 million for the second quarter of
2004 versus $8.8 million for the same period in 2003 and $6.4 million in the
first quarter of 2004. Net interest margin before provision for losses was $12.0


million for the six-month period in 2004 versus $20.3 million for the six-month
period of 2003. Net interest margin before provision for losses during the
second quarter was impacted by an overall reduction in interest earning assets,
which have declined by $306 million in the second quarter 2004 versus the second
quarter of 2003, and was also impacted by an increase in amortization expense of
$2.1 million for prepayment activity on approximately $70 million of delinquent
loans in the Company's commercial mortgage loan portfolio, along with
compression in the net interest spread from increasing short-term interest
rates. After consideration of provision for loan losses, net interest margin for
the second quarter 2004 was a negative $3.4 million, versus a negative $9.2
million in the second quarter 2003, and a negative $765 thousand in the first
quarter 2004. Provision for loan losses for the second quarter 2004 includes
$7.6 million related to the Company's credit loss exposure on its manufactured
housing loan portfolio. As of the end of the second quarter, the Company has
fully reserved for its remaining credit loss exposure on its manufactured
housing loans and, as a result, provision for loan losses for the remainder of
2004 is expected to decline.

Impairment charges for the second quarter of 2004 were $7.7 million,
versus $200 thousand in the same period for 2003 and $1.7 million in the first
quarter 2004, reflecting an adjustment in debt securities backed by manufactured
housing loans pledged to MERIT Series 11 and where there has been an
other-than-temporary decline in value due to increasing credit losses on the
underlying loans. In evaluating this other-than-temporary decline, the Company
utilized higher loss experience from the second quarter in forecasting future
estimated losses on the underlying manufactured housing loans. General and
administrative expenses were $2.0 million during the quarter, down from $2.5
million in first quarter 2004 and $2.2 million in the second quarter 2003.
General and administrative expenses for the remainder of 2004 should continue to
decline as a result of reductions in the Company's delinquent property tax
receivables servicing operation.

Balance Sheet

Total assets at June 30, 2004, were $1.74 billion, a decline of $120.8
million from December 31, 2003. The decline in assets was primarily the result
of prepayments in the Company's securitized finance receivables. Cash and cash
equivalents at the end of the second quarter were $22.9 million, versus $7.4
million at the end of 2003. The Company's investment portfolio was $1.72 billion
at June 30, 2004, which included approximately $1.4 billion of investments which
carry a fixed-rate of interest, substantially all of which are commercial
mortgage and manufactured housing loans. The balance of investment portfolio
assets are adjustable-rate, substantially all of which are single-family
mortgage loans and securities. The Company's non-recourse securitization
financing was $1.59 billion at the end of the second quarter, approximately
$1.11 billion of which was fixed-rate.

During the quarter, the Company completed its recapitalization plan
whereby the Company's Series A, Series B and Series C Preferred Stock was
converted into a new Series D Preferred Stock and common stock, eliminating
approximately $20 million in dividends in arrears in the process. The
recapitalization transaction resulted in a modest decline in shareholders'
equity of $1.4 million, but resulted in an approximate $0.21 increase in book
value per common share as a result of the elimination of the dividends in
arrears. At June 30, 2004, shareholders' equity was $135.4 million versus $149.8


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million at December 31, 2003. The decrease in shareholders' equity was due
principally to the net loss for the six-month period, partially offset by an
increase in accumulated other comprehensive gain of $5.3 million. Accumulated
other comprehensive gain benefited from the improvement in the value of
predominantly adjustable-rate debt securities during the quarter and also from
the improvement in the fair value of approximately $130 million of hedge
instruments that the Company has in place to protect its cash flows in a rising
interest rate environment. Common book value per share, net of liquidation
preference on the Series D Preferred Stock, was $6.40 per share at June 30,
2004.

Discussion

Mr. Stephen J. Benedetti, Chief Financial Officer of the Company,
stated, "There were a number of significant accomplishments during the second
quarter, despite the reported net loss for the quarter, as we continue on the
path toward restoring the Company to profitability. We have now fully reserved
for our principal credit exposure on our manufactured housing loans contained in
MERIT Series 12-1 and MERIT Series 13 securitizations, which means that a
significant drag on our past earnings should not continue in the future. We have
also impaired the carrying value of debt securities pledged as collateral for
MERIT Series 11, significantly reducing our earnings exposure in those debt
securities in future periods. From a financial reporting point of view, our
objective has been to report financial results more closely correlated to our
economic results, and having reserved or impaired our credit exposure from
manufactured housing loans and securities backed by manufactured housing loans,
we believe we are now at the point where reported results should more closely
track our cash flows and economic results. In addition, during the quarter our
shareholders overwhelmingly approved and we implemented a recapitalization
transaction, converting our three series of preferred stock into one and
eliminating all dividends in arrears. Completing the recapitalization was an
extremely important event, as the elimination of the dividend arrearage improves
the Company's overall financial flexibility and positions the Company as a more
attractive business and credit counterparty. We monetized during the quarter our
optional redemption rights on MERIT Series 12-1, taking advantage of low
absolute rates and the steep yield curve, and we have a similar opportunity for
MERIT Series 13 during the third quarter. Our common stock book value at the end
of the second quarter was $6.40 per share, which does not include any value for
the redemption of MERIT Series 13 since it is included in our financial
statements on the cost basis and not fair value."

Mr. Benedetti continued, "During the quarter, the Company began the
process of reviewing alternatives regarding the Company's investment in
delinquent property tax receivables and its servicing operation. The Company's
investment in these receivables and the servicing operation is capital-intensive
and it is unlikely that this business will be a part of the Company's long-term
strategy. With that in mind, the Company has streamlined the servicing
operations to rationalize the economics of the existing receivables portfolio."

Mr. Benedetti continued, "At the end of the second quarter we had $23
million in cash available for reinvestment. Cash flows from the investment
portfolio were $12.0 million during the quarter, or $19.4 including the $7.4
million redemption and reissuance of MERIT Series 12-1. We have a similar
opportunity with MERIT Series 13, and we are exploring various structures that


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would allow the Company to invest its available capital at an attractive return
or to otherwise monetize the redemption rights for cash in a manner similar to
MERIT Series 12-1. Our expectation is that cash flows from the investment
portfolio for the third quarter will decline modestly relative to the second
quarter as the investment portfolio runs-off, and delinquent property tax
receivables collections decline from the reductions in the servicing operations.
The Federal Reserve continues to indicate that the Federal Funds rate will be
increased at `measured-pace', which will have the effect of driving up our
borrowing costs, but also should slow prepayments in the investment portfolio.
An increase in the Federal Funds rate at a `measured-pace' will only modestly
impact our quarterly investment portfolio cash flows going forward."

Mr. Benedetti concluded, "The Board will continue to be actively
engaged over the coming months in reviewing strategic opportunities for
long-term reinvestment, with the hope of providing guidance to our shareholders
over the balance of the year. Our objective in the near-term is to put capital
to work first within opportunities in our existing investment portfolio, such as
the redemption of MERIT Series 13, provided these opportunities provide a
reasonable risk-adjusted return for the Company. The Board will continue to
evaluate strategic opportunities that will benefit the shareholders over the
long-term, and will be patient in that regard."

Dynex Capital, Inc. is a financial services 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 document contains "forward-looking statements" within the meaning of
the Private Securities Litigation 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, disruptions in the capital
markets, fluctuations in interest rates, defaults by borrowers, defaults by
third-party servicers, prepayments of investment portfolio assets, the accuracy
of subjective estimates used in determining the fair value of certain financial
assets of the Company, the impact of recently issued financial accounting
standards, increases in costs and other general competitive factors. For
additional information, see the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2004, as filed with the Securities and Exchange
Commission.

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