The Company’s operating expenses were $5.3 million, or 1.33% of average net assets, for the second quarter of 2012, compared to $5.1 million, or 1.46% of average net assets, for the first quarter of 2012. The increase in operating expenses was primarily the result of an increase in compensation and benefits. However, expenses as a percentage of net assets decreased as a result of the larger asset base.

(dollars in thousands)   Three Months Ended

Key Metrics*
June 30, 2012   March 31, 2012
Average Agency RMBS (1) $ 10,737,980 $ 9,238,905
Average repurchase agreements (2) $ 9,497,267 $ 8,194,067
Average net assets (3) $ 1,591,432 $ 1,406,049
Average common shares outstanding (4) 116,881 104,620
Average yield on Agency RMBS (5) 2.62% 2.78%
Average cost of funds and hedge (6) 0.91% 0.90%
Interest rate spread net of hedge (7) 1.71% 1.88%
Operating expense ratio (8) 1.33% 1.46%
Leverage ratio (at period end) (9) 7.6:1 7.7:1

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

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