CYS Investments, Inc. Announces Fourth Quarter and Year Ended 2012 Financial Results

  CYS Investments, Inc. Announces Fourth Quarter and Year Ended 2012 Financial
  Results

Business Wire

NEW YORK -- February 6, 2013

CYS Investments, Inc. (NYSE: CYS) (“CYS” or the “Company”) today announced
financial results for the quarter and year ended December 31, 2012.

Fourth Quarter 2012 Highlights

  * GAAP net loss available to common shares of $41.4 million, or $0.24 per
    diluted common share.
  * Core Earnings^(a) of $37.6 million, or $0.21 per diluted common share.
  * Drop Income^(b) of $30.1 million, or $0.18 per diluted common share.
  * Net realized gain from investments of $110.5 million.
  * Operating expenses of 0.76% of average net assets.
  * December 31, 2012 net asset value per common share of $13.31 per share
    after declaring a $0.40 dividend per common share and a $0.52 special
    dividend per common share on December 10, 2012.
  * Interest rate spread net of hedge of 0.94%. Adjusted interest rate spread
    net of hedge of 1.08%.
  * Weighted average amortized cost of Agency RMBS of $104.47.

2012 Highlights

  * GAAP net income available to common shares of $370.4 million, or $2.64 per
    diluted common share.
  * Core Earnings of $165.5 million, or $1.18 per diluted common share.
  * Drop Income of $97.4 million, or $0.69 per diluted common share.
  * Net realized gain from investments of $203.8 million.
  * Operating expenses of 1.05% of average net assets.
  * Total dividends on common shares of $2.37.
  * Interest rate spread net of hedge of 1.36%. Adjusted interest rate spread
    net of hedge of 1.50%.

Fourth Quarter 2012 Results

The Company had net loss available to common shares of $41.4 million during
the fourth quarter of 2012, or $0.24 per diluted common share, compared to net
income available to common shares of $241.0 million, or $1.46 per diluted
common share, in the third quarter of 2012. For the fourth quarter of 2012 the
Company had net investment income of $58.4 million and a net loss from
investments of $96.0 million, compared to net investment income of $59.4
million and a net gain from investments of $221.1 million in the third quarter
of 2012. The net loss from investments during the fourth quarter was primarily
the result of Agency RMBS prices declining from the historically high levels
at the end of September 2012.

For the fourth quarter of 2012, Core Earnings plus Drop Income was $67.7
million, or $0.39 per diluted common share ($0.21 Core Earnings and $0.18 Drop
Income), a decrease of $10.4 million, or $0.09 per diluted common share,
compared to $78.1 million, or $0.48 per diluted common share ($0.25 Core
Earnings and $0.23 Drop Income) during the third quarter of 2012. This
decrease was generally the result of a lower adjusted interest rate spread net
of hedge, which declined to 1.08% during the fourth quarter of 2012, compared
to 1.41% during the third quarter of 2012. The decline in adjusted interest
rate spread net of hedge was primarily due to lower yields on our Agency RMBS
while there was little change in the cost of funds.

^(a) Core Earnings represents a non-GAAP financial measure and is defined as
net income (loss) available to common shares excluding (i) net gain (loss)
from investments and termination of swap contracts and (ii) net unrealized
appreciation (depreciation) on investments and swap and cap contracts.
^(b) Drop Income is a component of our net income accounted for as net gain
from investments on our statement of operations and therefore excluded from
our Core Earnings. The Company utilizes forward settling transactions for the
majority of its purchases. This enables the Company to purchase assets with
specified stipulations, such as average loan size and/or age, and/or
percentage of loans in a particular state. This customization enables the
Company to more effectively manage prepayments. In addition, forward settling
purchases allow the Company to obtain an asset at a discount (also referred to
as “drop”) to its current market value; however, the Company does not receive
interest income on the asset until the forward transaction settles. Obtaining
assets at a discount to market value reduces the prepayment impact and is
accretive to net asset value.

The Company’s net asset value per common share ("NAV") on December 31, 2012
was $13.31, after declaring a $0.40 dividend per common share and a $0.52
special dividend per common share on December 10, 2012, compared with $14.46
at September 30, 2012. The decrease in NAV was primarily the result of lower
asset prices.

The Company had $110.5 million of net realized gain on investments during the
fourth quarter of 2012, compared with $27.0 million of net realized gain on
investments during the third quarter of 2012.

The Company’s operating expenses were $4.8 million, or 0.76% of average net
assets, for the fourth quarter of 2012, compared to $5.3 million, or 0.93% of
average net assets, for the third quarter of 2012.

                                       
(dollars in thousands)                  Three Months Ended
Key Metrics*                            December 31, 2012   September 30, 2012
Average settled Agency RMBS ^(1)        $  16,036,574       $   13,442,454
Average repurchase agreements ^(2)      $  13,886,303       $   11,571,371
Average net assets ^(3)                 $  2,516,860        $   2,300,096
Average common shares outstanding       174,938             165,017
^(4)
Average yield on Agency RMBS ^(5)       1.97           %    2.25            %
Average cost of funds and hedge ^(6)    1.03           %    1.01            %
Interest rate spread net of hedge       0.94           %    1.24            %
^(7)
Operating expense ratio ^(8)            0.76           %    0.93            %
Leverage ratio (at period end) ^(9)     7.7:1               7.7:1
 

(1) The Company's average settled Agency RMBS for the period is calculated by
averaging the month end cost basis of settled Agency RMBS during the period.
(2) The Company's average repurchase agreements for the period is calculated
by averaging the month end repurchase agreements balance during the period.
(3) The Company's average net assets for the period is calculated by averaging
the month end net assets during the period.
(4) Our average common shares outstanding is calculated by averaging the daily
common shares outstanding during the period.
(5) The Company's average yield on Agency RMBS for the period is calculated by
dividing interest income from Agency RMBS by average settled Agency RMBS.
(6) The Company's average cost of funds and hedge for the period is calculated
by dividing total interest expense, including net swap and cap interest income
(expense), by average repurchase agreements.
(7) The Company's interest rate spread net of hedge for the period is
calculated by subtracting average cost of funds and hedge from average yield
on Agency RMBS.
(8) The Company's operating expense ratio is calculated by dividing operating
expenses by average net assets.
(9) The Company's leverage ratio is calculated by dividing (i) the Company's
repurchase agreements balance plus payable for securities purchased minus
receivable for securities sold by (ii) net assets.
* All percentages are annualized.

Adjusted Interest Rate Spread Net of Hedge

The Company's interest rate spread net of hedge may appear comparatively low
due to timing characteristics of forward purchases. We seek to hedge our
interest rate risk associated with forward purchases on trade date; however,
the forward purchases do not begin to accrue income until settlement date. In
order to provide a more proximate interest rate spread net of hedge, we
allocate, on a pro rata basis, our total net swap and cap interest expense
over our average settled positions, relative to average total positions. We
believe this calculation provides a more reasonable comparative interest rate
spread net of hedge given the nature of forward purchases.

                                       
(dollars in thousands)                  Three Months Ended
Key Metrics*                            December 31, 2012   September 30, 2012
Average settled Agency RMBS ^(1)        $  16,036,574       $   13,442,454
Average total Agency RMBS ^(2)          $  21,135,234       $   18,751,053
Net swap and cap interest income        $  (19,328     )    $   (17,255     )
(expense)
Net swap and cap interest income
(expense) applied to settled Agency     $  (14,665     )    $   (12,370     )
RMBS ^(3)
Adjusted average cost of funds and      0.89           %    0.84            %
hedge ^(4)
Adjusted interest rate spread net of    1.08           %    1.41            %
hedge ^(5)
________

(1) Our average settled Agency RMBS for the period is calculated by averaging
the month end cost basis of our settled Agency RMBS during the period.
(2) Our average total Agency RMBS for the period is calculated by averaging
the month end cost basis of our total Agency RMBS during the period.
(3) Our net swap and cap interest income (expense) applied to settled Agency
RMBS is calculated by dividing average settled Agency RMBS by average total
Agency RMBS multiplied by net swap and cap interest income (expense).
(4) Our adjusted average cost of funds and hedge for the period is calculated
by dividing our total interest expense, including our net swap and cap
interest income (expense) applied to settled Agency RMBS, by our average
repurchase agreements.
(5) Our adjusted interest rate spread net of hedge for the period is
calculated by subtracting our adjusted average cost of funds and hedge from
our average yield on Agency RMBS.

Prepayments

For the fourth quarter of 2012, the portfolio recorded $949.6 million in
scheduled and unscheduled principal repayments and prepayments, which equated
to a constant prepayment rate (“CPR”) of approximately 17.6% and net
amortization of premium of $42.6 million. This compared to $745.3 million in
scheduled and unscheduled principal repayments and prepayments, which equated
to a CPR of approximately 17.3% and net amortization of premium of $29.5
million for the third quarter of 2012. The CPR of the Company’s Agency RMBS
portfolio was approximately 19.3% for the month of January 2013.

Dividends

The Company declared a common dividend of $0.40 per share and a $0.52 special
dividend per common share for the fourth quarter of 2012, compared to $0.45
for the third quarter of 2012. Using the closing share price of $11.81 on
December 31, 2012, the fourth quarter dividend (excluding the special
dividend) equates to an annualized dividend yield of 13.5%.

Portfolio

At December 31, 2012, the Company’s $20.8 billion portfolio of Agency RMBS was
backed by fixed-rate mortgages and hybrid adjustable-rate mortgages (“Hybrid
ARMs”) with 0 to 120 months to reset. The Agency RMBS portfolio is made up of
0.3% 2009 production; 3.4% 2010 production; 16.0% 2011 production; 58.6% 2012
production; and 21.7% of forward settling transactions that will be 2013
production when settled. Additional information about our Agency RMBS
portfolio at December 31, 2012 is summarized below:

 
                 Par Value        Fair Value       Weighted Average                                   
Asset Type       (in thousands)                    Cost/Par     Fair         MTR^(1)        Coupon   CPR^(2)
                                                                Value/Par
10 Year Fixed    $ 207,091        $ 219,747        $ 103.60     $ 106.11     N/A            3.50 %   19.4  %
Rate
15 Year Fixed    11,092,374       11,717,136       104.32       105.63       N/A            3.05 %   16.1  %
Rate
20 Year Fixed    1,087,835        1,148,932        104.96       105.62       N/A            3.17 %   10.1  %
Rate
30 Year Fixed    3,571,692        3,817,488        105.78       106.88       N/A            3.59 %   8.9   %
Rate
Hybrid ARMs      3,722,510        3,900,840        103.54       104.79       74.3           2.71 %   19.1  %
Total/Weighted   $ 19,681,502     $ 20,804,143     $ 104.47     $ 105.70     74.3    ^(3)   3.10 %   15.8  %
Average
___

^(1) MTR, or “Months to Reset” is the number of months remaining before the
fixed rate on a Hybrid ARM becomes a variable rate. At the end of the fixed
period, the variable rate will be determined by the margin and the
pre-specified caps of the ARM. After the fixed period, 100% of the Hybrid ARMS
in the portfolio reset annually.
^(2) CPR is a method of expressing the prepayment rate for a mortgage pool
that assumes that a constant fraction of the remaining principal is prepaid
each month or year. Specifically, the constant prepayment rate is an
annualized version of the prior three month prepayment rate for those bonds
held at December 31, 2012. Securities with no prepayment history are excluded
from this calculation.
^(3) Weighted average months to reset of our Hybrid ARM portfolio.

Financing, Leverage & Liquidity

At December 31, 2012, the Company had financed its portfolio with
approximately $14.0 billion of borrowings under repurchase agreements with a
weighted average interest rate of 0.48% and a weighted average maturity of
approximately 19.6 days. In addition, the Company had payable for securities
purchased of $4.5 billion. The Company’s leverage ratio at December 31, 2012
was 7.7 to 1. At December 31, 2012, the Company’s liquidity position was
approximately $1.5 billion, consisting of unpledged Agency RMBS, U.S. Treasury
securities and cash and cash equivalents. Below is a list of outstanding
borrowings under repurchase agreements at December 31, 2012 (dollars in
thousands):

                                                                     
                                                         % of Net     Weighted
                            Total            % of        Assets       Average
Counterparty                Outstanding      Total       At Risk      Maturity
                            Borrowings                   ^(1)         in
                                                                      Days
Bank of America             $ 1,143,279      8.2     %   2.4      %   16
Securities LLC
Bank of Nova Scotia         660,889          4.7         1.1          12
Barclays Capital, Inc.      1,129,106        8.1         2.3          30
BNP Paribas Securities      662,360          4.7         1.5          17
Corp
Citigroup Global Markets,   463,815          3.3         1.1          21
Inc.
Credit Suisse Securities    645,179          4.6         1.2          15
(USA) LLC
Daiwa Securities America,   305,954          2.2         0.7          22
Inc.
Deutsche Bank Securities,   539,094          3.8         1.4          21
Inc.
Goldman Sachs & Co.         1,058,174        7.6         2.4          17
Guggenheim Liquidity        281,225          2.0         0.6          22
Services, LLC
Industrial and Commercial
Bank of China Financial     808,414          5.8         1.7          20
Services LLC
ING Financial Markets LLC   377,353          2.7         0.9          14
KGS Alpha Capital Markets   138,697          1.0         0.4          19
LBBW Securities LLC         140,953          1.0         0.3          28
Mitsubishi UFJ Securities   627,315          4.5         1.4          17
(USA), Inc.
Mizuho Securities USA,      520,638          3.7         1.1          18
Inc.
Morgan Stanley & Co. Inc.   634,179          4.5         1.6          17
Nomura Securities           623,556          4.5         1.5          21
International, Inc.
RBC Capital Markets, LLC    791,610          5.7         1.8          17
South Street Securities     375,289          2.7         1.1          18
LLC
The Royal Bank of           167,604          1.2         0.4          9
Scotland PLC
UBS Securities LLC          936,333          6.7         2.3          38
Wells Fargo Securities,     950,291          6.8         1.3          13
LLC
Total                       $ 13,981,307     100.0   %   30.5     %
___

(1) Equal to the fair value of pledged securities plus accrued interest
income, minus the sum of repurchase agreement liabilities and accrued interest
expense divided by net assets.

Hedging

The Company utilizes interest rate swap and cap contracts to hedge the
interest rate risk associated with its Agency RMBS portfolio. These interest
rate swap and cap contracts are described below (dollars in thousands):

                                                        
 
                      Weighted Average   Notional        Fair
Interest Rate Swaps
Expiration Year       Fixed Pay Rate     Amount          Value
2013                  1.33      %        $ 2,400,000     $ (19,602 )
2014                  1.41      %        1,290,000       (22,177   )
2015                  2.15      %        500,000         (18,564   )
2016                  1.71      %        550,000         (22,316   )
2017                  0.91      %        2,750,000       (14,736   )
Total                 1.27      %        $ 7,490,000     $ (97,395 )
                                                          
Interest Rate Caps    Weighted Average   Notional        Fair
Expiration Year       Cap Rate           Amount          Value
2014                  2.07      %        $ 200,000       $ 38
2015                  1.40      %        500,000         688
2019                  1.56      %        1,700,000       49,373
2022                  1.75      %        1,000,000       72,890     
Total                 1.62      %        $ 3,400,000     $ 122,989  
                                                                    

Results for the Year Ended December 31, 2012

The Company had net income available to common shareholders of $370.4 million
during the year ended December 31, 2012, or $2.64 per diluted common share,
compared to $291.9 million, or $3.66 per diluted common share, in 2011. The
year-over-year decrease in net income per diluted common share was primarily
the result of the decrease in net gain from investments. This decrease in net
gain from investments was caused by the slowing decrease in yields on Agency
MBS. For example, during the year ended December 31, 2011, the yield on
par-priced Fannie Mae Agency RMBS backed by 15 year fixed rate mortgage loans
decreased 133 basis points compared to only a 35 basis points decrease during
the year ended December 31, 2012. During the year ended December 31, 2012, the
Company had Core Earnings plus drop income of $262.9 million, or $1.87 per
diluted common share ($1.18 Core Earnings and $0.69 Drop Income), compared to
$167.7 million, or $2.10 per diluted common share ($1.69 Core Earnings and
$0.41 Drop Income), in 2011. The year-over-year decrease in Core Earnings plus
Drop Income per share was primarily the result of the decrease in interest
rate spread net of hedge. During the year ended December 31, 2012, the
Company's adjusted interest rate spread net of hedge was 1.50%, compared to
2.09% in 2011.

Conference Call

The Company will host a conference call at 8:30 AM Eastern Time on Thursday,
February 7, 2013, to discuss its financial results for the quarter ended
December 31, 2012. To participate in the call by telephone, please dial
888.895.5479 at least 10 minutes prior to the start time and reference the
conference passcode 34160609. International callers should dial 847.619.6250
and reference the same passcode. The conference call will also be webcast live
over the Internet and can be accessed at the Company’s web site at
http://www.cysinv.com. To listen to the live webcast, please visit
http://www.cysinv.com at least 15 minutes prior to the start of the call to
register, download, and install necessary audio software.

A dial-in replay will be available on Thursday, February 7, 2013, at
approximately 12:00 PM Eastern Time through Thursday, February 21, 2013, at
approximately 11:00 AM Eastern Time. To access this replay, please dial
888.843.7419 and enter the conference ID number 34160609. International
callers should dial 630.652.3042 and enter the same conference ID number. A
replay of the conference call will also be archived on the Company’s website
at http://www.cysinv.com.

About CYS Investments, Inc.

CYS Investments, Inc. is a specialty finance company that primarily invests on
a leveraged basis in residential mortgage pass-through certificates for which
the principal and interest payments are guaranteed by Fannie Mae, Freddie Mac
or Ginnie Mae. The Company refers to these securities as Agency RMBS. CYS
Investments, Inc. has elected to be taxed as a real estate investment trust
for federal income tax purposes.

Forward-Looking Statements Disclaimer

This press release contains statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, including those relating to adjusted interest rate spread
net of hedge. Forward-looking statements are based on our beliefs, assumptions
and expectations of our future performance, taking into account all
information currently available to us. These beliefs, assumptions and
expectations are subject to risks and uncertainties and can change as a result
of many possible events or factors, not all of which are known to us,
including those described in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2011 and Quarterly Report on Form 10-Q for the quarter
ended September 30, 2012, which have been filed with the Securities and
Exchange Commission. If a change occurs, these forward-looking statements may
vary materially from those expressed in this release. All forward-looking
statements speak only as of the date on which they are made. Except as
required by law, we are not obligated to, and do not intend to, update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.

 
CYS INVESTMENTS, INC.
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
 
 
(In thousands, except per       December 31,     September 30,    December 31,
share numbers)                  2012             2012             2011*
ASSETS:
Investments in securities, at
fair value (including pledged
assets of $14,831,648,          $ 20,861,718     $ 22,646,305     $  9,466,128
$14,752,504 and $8,412,295,
respectively)
Interest rate swap contracts,   1,180            —                —
at fair value
Interest rate cap contracts,    122,989          125,331          5,966
at fair value
Cash and cash equivalents       13,882           20,496           11,508
Receivable for securities       10,343           20,423           5,550
sold and principal repayments
Interest receivable             46,558           50,433           27,815
Other assets                    826              1,129            1,090
Total assets                    21,057,496       22,864,117       9,518,057
                                                                   
LIABILITIES:
Repurchase agreements           13,981,307       13,911,977       7,880,814
Interest rate swap contracts,   98,575           111,725          79,476
at fair value
Payable for securities          4,515,501        6,084,047        463,302
purchased
Payable for cash received as    28,910           47,960           —
collateral
Distribution payable            1,243            79,677           —
Accrued interest payable
(including accrued interest
on repurchase agreements of     28,863           19,389           15,617
$11,717, $5,086 and $3,747,
respectively)
Accrued expenses and other      435              4,606            1,390
liabilities
Total liabilities               18,654,834       20,259,381       8,440,599
NET ASSETS                      $ 2,402,662      $ 2,604,736      $  1,077,458
Net assets consist of:
Series A Cumulative
Redeemable Preferred Stock,
$0.01 par value, 50,000
shares authorized (3,000,
3,000 and 0 shares issued and   $ 72,369         $ 72,488         $  —
outstanding, respectively,
liquidation preference of
$25.00 per share or $75,000,
$75,000 and $0 in aggregate,
respectively)
Common Stock, $0.01 par
value, 500,000 shares
authorized (174,924, 174,942    1,749            1,749            828
and 82,753 shares issued and
outstanding, respectively)
Additional paid in capital      2,237,512        2,236,234        997,884
Retained earnings               91,032           294,265          78,746
NET ASSETS                      $ 2,402,662      $ 2,604,736      $  1,077,458
NET ASSET VALUE PER COMMON      $ 13.31          $ 14.46          $  13.02
SHARE
________
* Derived from audited
financial statements.
                                                                   

 
CYS INVESTMENTS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
                   Three Months Ended                Years Ended December 31,
(In thousands,     December 31,     September 30,
except per share   2012             2012             2012          2011*
numbers)
INVESTMENT
INCOME
Interest income    $  78,852        $  75,609        $ 288,960     $ 228,768
from Agency RMBS
Other income       727              1,022            4,366         4,129      
Total investment   79,579           76,631           293,326       232,897    
income
EXPENSES:
Interest           16,378           11,893           44,117        18,789
Management fees    —                —                —             8,442
Compensation and   2,686            3,068            12,264        7,837
benefits
General,
administrative     2,101            2,272            8,261         6,910      
and other
Total expenses     21,165           17,233           64,642        41,978     
Net investment     58,414           59,398           228,684       190,919    
income
GAINS AND
(LOSSES) FROM
INVESTMENTS:
Net realized
gain (loss) on     110,511          27,049           203,846       35,756
investments
Net unrealized
appreciation       (206,505    )    194,078          23,023        225,660    
(depreciation)
on investments
Net gain (loss)    (95,994     )    221,127          226,869       261,416    
from investments
GAINS AND
(LOSSES) FROM
SWAP AND CAP
CONTRACTS:
Net swap and cap
interest income    (19,328     )    (17,255     )    (60,776   )   (55,487   )
(expense)
Net gain (loss)
on termination     —                —                —             (4,903    )
of swap
contracts
Net unrealized
appreciation
(depreciation)     16,965           (21,363     )    (21,990   )   (100,012  )
on swap and cap
contracts
Net gain (loss)
from swap and      (2,363      )    (38,618     )    (82,766   )   (160,402  )
cap contracts
NET INCOME         $  (39,943  )    $  241,907       $ 372,787     $ 291,933  
(LOSS)
DIVIDEND ON        (1,452      )    (953        )    (2,405    )   —          
PREFERRED SHARES
NET INCOME
(LOSS) AVAILABLE   $  (41,395  )    $  240,954       $ 370,382     $ 291,933  
TO COMMON SHARES
NET INCOME
(LOSS) PER         $  (0.24    )    $  1.46          $ 2.64        $ 3.66     
COMMON SHARE -
DILUTED
________
* Derived from
audited
financial
statements
                                                                    

Core Earnings:

Core Earnings represents a non-GAAP financial measure and is defined as net
income (loss) available to common shares excluding net gain (loss) from
investments, net gain (loss) on termination of swap contracts and net
unrealized appreciation (depreciation) on swap and cap contracts. In order to
evaluate the effective yield of the portfolio, management uses Core Earnings
to reflect the net investment income of our portfolio as adjusted to include
the net swap and cap interest income (expense). Core Earnings allows
management to isolate the interest income (expense) associated with our swaps
and caps in order to monitor and project our borrowing costs and interest rate
spread. In addition, management utilizes Core Earnings as a key metric in
conjunction with other portfolio and market factors to determine the
appropriate leverage and hedging ratios, as well as the overall structure of
the portfolio.

The Company adopted Accounting Standards Codification (“ASC”) 946,
Clarification of the Scope of Audit and Accounting Guide Investment Companies
(“ASC 946”), prior to its deferral in February 2008, while most, if not all,
other public companies that invest only in Agency RMBS have not adopted ASC
946. Under ASC 946, the Company uses financial reporting specified for
investment companies, and accordingly, its investments are carried at fair
value with changes in fair value included in earnings. Most other public
companies that invest only in Agency RMBS include most changes in the fair
value of their investments within other comprehensive income not in earnings.
As a result, investors are not able to readily compare the Company’s results
of operations to those of most of its competitors. The Company believes that
the presentation of its Core Earnings is useful to investors because it
provides a means to compare its Core Earnings to those of its peers. In
addition, because Core Earnings isolates the net swap and cap interest income
(expense) it provides investors with an additional metric to identify trends
in the Company’s portfolio as they relate to the interest rate environment.

The primary limitation associated with Core Earnings as a measure of the
Company’s financial performance over any period is that it excludes the
effects of net realized gain (loss) from investments. In addition, the
Company’s presentation of Core Earnings may not be comparable to
similarly-titled measures of other companies, which may use different
calculations. As a result, Core Earnings should not be considered as a
substitute for the Company’s GAAP net income (loss) as a measure of our
financial performance or any measure of our liquidity under GAAP.

                                                    
                   Three Months Ended                Years Ended December 31,
(In thousands)     December 31,     September 30,    2012          2011
                   2012             2012
NET INCOME
(LOSS) AVAILABLE   $  (41,395  )    $  240,954       $ 370,382     $ 291,933
TO COMMON SHARES
Net (gain) loss    95,994           (221,127    )    (226,869  )   (261,416  )
from investments
Net (gain) loss
on termination     —                —                —             4,903
of swap
contracts
Net unrealized
(appreciation)
depreciation on    (16,965     )    21,363           21,990        100,012    
swap and cap
contracts
Core Earnings      $  37,634        $  41,190        $ 165,503     $ 135,432  

Contact:

CYS Investments, Inc.
Richard E. Cleary, 617-639-0440
Chief Operating Officer