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CYS Investments, Inc. Announces Third Quarter 2012 Financial Results

The Company’s interest rate spread net of hedge decreased to 1.24% for the third quarter of 2012 from 1.71% in the second quarter of 2012. The third quarter of 2012 interest rate spread is low due to the hedging of forward settling purchases in advance of their earning interest income, as mentioned above. During the third quarter of 2012, the average cost basis of the Company’s settled Agency RMBS was $13.4 billion, average unsettled Agency RMBS was $5.3 billion, and average total Agency RMBS was $18.7 billion. By applying total net swap and cap interest expense of $17.3 million for the third quarter of 2012 pro rata over settled and unsettled Agency RMBS positions, swap and cap interest expense was $12.4 million relating to our settled Agency RMBS. The result is an adjusted interest rate spread net of hedge for our settled Agency RMBS positions of approximately 1.41%, compared to 1.82% in the second quarter of 2012. We believe this spread is generally more reflective of the economic return of our assets, and represents what we expect our interest rate spread net of hedge will be once forward purchases settle.

The Company’s net asset value per common share on September 30, 2012 was $14.46, after declaring a $0.45 dividend per common share on September 11, 2012, compared with $13.52 at June 30, 2012. The increase was primarily the result of Agency RMBS outperforming swaps.

The Company had $27.0 million of net realized gain on all investments during the third quarter of 2012, compared with $61.1 million gain on investments during the second quarter of 2012.

The Company’s operating expenses were $5.3 million, or 0.93% of average net assets, for the third quarter of 2012, compared to $5.3 million, or 1.33% of average net assets, for the second quarter of 2012. Operating expenses as a percentage of net assets decreased as a result of a larger asset base.
(dollars in thousands) Three Months Ended
Key Metrics* September 30, 2012         June 30, 2012
Average Agency RMBS (1) $ 13,442,454 $ 10,737,980
Average unsettled Agency RMBS (2) $ 5,308,559 $ 2,747,054
Average repurchase agreements (3) $ 11,571,371 $ 9,497,267
Average net assets (4) $ 2,300,096 $ 1,591,432
Average common shares outstanding (5) 165,017 116,881
Average yield on Agency RMBS (6) 2.25 % 2.62 %
Average cost of funds and hedge (7) 1.01 % 0.91 %
Interest rate spread net of hedge (8) 1.24 % 1.71 %
Operating expense ratio (9) 0.93 % 1.33 %
Leverage ratio (at period end) (10)     7.7:1 7.6:1

(1) The Company's average Agency RMBS for the period is calculated by averaging the month end cost basis of settled Agency RMBS during the period.

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