Attached files
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| 8-K - FORM 8-K - CYS Investments, Inc. | d8k.htm |
 Investment Outlook
May, 2011
JMP Securities Research Conference
May 9, 2011
Exhibit 99.1 |
 1
Forward Looking Statements
This presentation contains 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, that are based on management’s beliefs and assumptions, current expectations,
estimates and projections. Such statements, including information relating to the Company’s expectations for
future distributions and market conditions, are not considered historical facts and are considered
forward-looking information under the federal securities laws. This information may
contain words such as “believes,” “plans,” “expects,” “intends,” “estimates” or
similar expressions.
This information is not a guarantee of the Company’s future performance and is
subject to risks, uncertainties and other important factors that could cause the Company’s
actual performance or achievements to differ materially from those expressed or implied by this
forward-looking information and include, without limitation, changes in the Company’s distribution policy, changes in the
Company’s ability to pay distributions, changes in the market value and yield of our assets,
changes in interest rates and the yield curve, net interest margin, return on equity,
availability and terms of financing and hedging and various other risks and uncertainties
related to our business and the economy, some of which are described in our filings with the
SEC. Given these uncertainties, you should not rely on forward-looking
information. The Company undertakes no obligations to update any forward-looking information,
whether as a result of new information, future events or otherwise.
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 2
CYS: Overview
Agency Residential Mortgage Backed Securities
Currently financing lines with 32
lenders
Swap agreements with 16 counterparties
Company intends to distribute all or substantially all of its REIT taxable
income Scaled Management Fee: 1.0% to 1.5%
No Incentive Fee
Kevin Grant, CEO, President, Chairman
Frances Spark, CFO
Pay dividends and achieve capital appreciation throughout changing interest rate
and credit cycles
Be the most efficient Agency REIT in the market
Target Assets
Objective
Senior Management
Focus on Cost
Efficiency
Ample Financing
Sources
Dividend Policy
A Real Estate Investment Trust formed in January 2006
|
 3
Attractive Environment Likely to Persist
Steep Curve
Creates significant positive carry
Very Low Cost of financing
Significant ROE
Hedge flexibility very important
Fed still fighting deflation
Source: Bloomberg.
(1) As of May 6, 2011
Mortgage Yields Currently Attractive
Par-Priced
5/1
hybrid
rates
now
3.06%
(1)
30 Year
fixed
rates
now
4.14%
(1)
15 Year fixed rates now 3.35%
(1)
Hedging rates historically low
May 6, 2011
May 6, 2011
5/1
Hybrid
Net
Interest
Margin:
1/05
–
5/11
5
Year
Swap
vs.
1
Month
LIBOR:
1/05
–
5/11 |
 4
Wide Spreads Create Good Environment
Source: Bloomberg.
Note: Spreads calculated
as:
(i)
5/1
Hybrids
Index
–
50/50
3-Year
Swaps/LIBOR,
and
(ii)
5/1
Hybrids
Index
–
1-Month
LIBOR
Index.
5/1
Hybrids
Hedged
with
Swaps:
1/05
–
5/11
CYS
Investment
Strategy
Simple ‘Carry
Trade’: Borrow
Short/Lend
Long
May 6, 2011
Hedged Hybrids
(i)
Unhedged Hybrids
(ii) |
 5
10 Year Treasury Note Auctions
11/98 –
4/11
Treasury Auction Volume
2 Year Treasury Note Auctions
2/00 –
4/11
3 Year Treasury Note Auctions
10/00 –
4/11
Source: Bloomberg, US Treasury
5 Year Treasury Note Auctions
2/00 –
4/11
7 Year Treasury Note Auctions
2/00 –
4/11
30 Year Treasury Note Auctions
2/00–
4/11 |
 6
Hawkish
Dovish
Neutral
Hoenig
Bullard
Plosser
Fisher
Lacker
Duke
Tarullo
Dudley
Pianalto
Kohn
Kocherlakota
Lockhart
Evans
Pianalto
Yellen
Rosengren
Raskin
Bernanke
Obama
Nominee
Governors
2010 Voters
2011 Voters
2012 Voters
Sources: Macroeconomic Advisers, LLC, Bank of America Merrill Lynch,
Bloomberg, Wall Street Journal, Indiana University, Marketwatch, Thomson Reuters, Federal Reserve Bank of Atlanta, Federal Reserve
Bank of Chicago,
Federal
Reserve
Bank
of
Cleveland,
Maryland
Consumer
Rights
Coalition,
Boston
Globe,
Businessweek,
Newsweek,
Washington
Post,
CNBC.
Diamond
Williams
Fed Board has Become More Dovish |
 7
Hawkish
Dovish
Neutral
Other Central Banks are Waging the Inflation War
Xiaochuan
China
Bernanke
USA
Shirakawa
Japan
Trichet
EU (Outgoing)
Canada
Carney
Australia
Stevens
New Zealand
Bollard
Draghi
EU (Incoming)
Tombini
Brazil
Subbarao
India
(Outgoing)
Consequences: US Rates Likely To Be Lower For Longer
|
 8
Source: S&P, Fiserv, and Macromarkets LLC / Haver Analytics, BLS, Challenger,
Gray & Christmas U.S. Retail Gasoline Price: Regular Grade
2006 –
Present
%
Capacity Utilization: Manufacturing
2006 –
Present
%
Unemployment Rate
1940-present
%
Economic Recovery Below Normal Pace
CPI-U All Items (Less Food and Energy)
2004 –
Present
% Change -
Year to Year
Total Nonfarm Private Payroll Employment
2000-present
000’s
Challenger, Gray & Christmas, Inc.
Job Cut Announcement Report
1990 –
Present |
 9
1
9/32
represents
a
discount
to
the
purchase
price
of
the
security
of
approximately
$0.30
per
month
from
trade
date
to
settlement
date.
Source: Bloomberg 5/6/11
Economics of Forward Purchase
Example: 15
yr.
3
½%
drop
=
9/32
pt.
per
month
1 |
 10
$0.35
$0.55
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
Oct-09
Jan-10
$0.55
Apr-10
$0.60
Jul-10
$0.60
Oct-10
$0.60
Dec-10
Portfolio Composition and Results
Total Agency RMBS: $8.5 million
$0.60
Apr-11
1
As of 3/31/11
CYS Agency RMBS Portfolio
1
CYS
Dividends:
10/09
–
4/11 |
 11
Portfolio Characteristics
Par Value
Fair Value
Weighted Average
Asset Type
(in thousands)
Cost/Par
Fair
Value/Par
MTR
(1)
Coupon
CPR
(2)
15-Year Fixed Rate
$4,033,535
$4,123,587
$102.21
$102.23
N/A
3.88%
11.0%
20-Year Fixed Rate
635,489
643,471
102.36
101.26
N/A
4.14%
3.9%
30-Year Fixed Rate
993,473
1,048,091
104.36
105.50
N/A
5.20%
33.2%
Hybrid ARMs
2,609,512
2,674,050
102.24
102.47
62.9
3.37%
14.40%
Total/Weighted Average
$8,272,009
$8,489,199
$102.49
$102.63
62.9
(3)
3.90%
11.4%
(1)
“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.
(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. Securities with no prepayment history are excluded
from this calculation.
(3)
Weighted average months to reset of our Hybrid ARM portfolio.
* As of 3/31/11
CYS Portfolio Characteristics* |
 12
History of Transparent and
Consistent Financial Reporting
CYS uses Financial Reporting for Investment Companies
CYS financial reporting -
Best in Class
Schedule of investments
NAVs have reflected mark-to-market accounting since inception
No OCI account on balance sheet
Realized and unrealized losses taken through income statement
Losses expensed in period incurred |
 13
Historical Financials
3/31/2011
12/31/2010
Investment Income – Interest Income
$40,980
$25,025
Total expenses
7,522
5,306
Net Investment Income
33,458
19,719
Net gain (loss) from investments
19,820
(66,125)
Net gain (loss) from swap and cap contracts
(1,181)
29,138
Net Income (Loss)
$52,097
($17,268)
Net Income (Loss) Per Common Share (diluted)
$0.74
($0.38)
Distributions per Common Share
$0.60
$0.60
Core Earnings (1)
$21,599
$12,396
NET INCOME
$52,097
(17,268)
Net (gain) loss from investments
(19,820)
$66,125
Net (gain) loss on termination of swap contracts
-
$13,427
Net unrealized (appreciation) depreciation on swap and cap contracts
($10,678)
($49,888)
Core Earnings
$21,599
$12,396
Key Portfolio Statistics*
Average Yield on Agency RMBS (2)
3.27%
3.23%
Average Cost of Funds & Hedge (3)
1.44%
1.49%
Interest Rate Spread Net of Hedge (4)
1.83%
1.74%
Operating Expanse Ratio (5)
2.11%
2.28%
Leverage Ratio (at period end) (6)
8.1:1
8.3:1
3/31/2011
12/31/2010
Cash and Cash Equivalents
$6,001
$1,510
Total Assets
$8,787,632
$6,389,267
Repurchase Agreements
$5,364,030
$3,443,843
Net assets
$969,266
$690,339
Net assets per common share
$11.74
$11.59
Quarter Ended
As of
(1) Core
Earnings
is
defined
as
net
income
(loss)
excluding
net
realized
gain
(loss)
on
investments,
net
unrealized
appreciation
(depreciation)
on
investments,
net
realized
gain
(loss)
on
termination
of
swap
contracts
and
unrealized
appreciation
(depreciation)
on
swap
and
cap
contracts.
(2) Our average yield on Agency RMBS for the period was calculated by dividing our
interest income from Agency RMBS by our average Agency RMBS. (3) Average
cost
of
funds
and
hedge
for
the
period
was
calculated
by
dividing
our
total
interest
expense,
including
our
net
swap
and
cap
interest
income
(expense),
by
our
average
repurchase
agreements.
(4) Interest rate spread net of hedge for the period was calculated by subtracting
our average cost of funds and hedge from our average yield on Agency RMBS (5)
Operating expense ratio is calculated by dividing operating expenses by average net assets
(6) Leverage ratio was calculated by dividing total liabilities by net assets
* All percentages are annualized.
Income Statement Data
(in 000’s)
Non-GAAP Measure
(in 000’s)
Non-GAAP Reconciliation
(in 000’s)
Balance Sheet Data
(in 000’s) |
 14
Financial Highlights
Steep yield curve and attractive spreads in target assets
Tailwinds likely to continue
Investment Company accounting provides transparency |
 Investment Outlook
May, 2011
JMP Securities Research Conference
May 9, 2011 |