Attached files
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| 8-K - FORM 8-K - CYS Investments, Inc. | d8k.htm |
 Investment Outlook
May, 2011
UBS Global Financial Services Conference
May 10, 2011
Exhibit 99.1 |
 Forward
Looking Statements 1
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.
|
 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
Focus on Cost
Efficiency
Target Assets
A Real Estate Investment Trust formed in January 2006
Ample Financing
Sources
Dividend Policy
Objective
Senior Management
2 |
 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
May 6, 2011
May 6, 2011
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
5/1
Hybrid
Net
Interest
Margin:
1/05
–
5/11
5
Year
Swap
vs.
1
Month
LIBOR:
1/05
–
5/11
3 |
 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.
May 6, 2011
CYS
Investment
Strategy
Simple ‘Carry
Trade’: Borrow
Short/Lend
Long
Hedged Hybrids
(i)
Unhedged
Hybrids
(ii)
5/1
Hybrids
Hedged
with
Swaps:
1/05
–
5/11
4 |
 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 |
 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.
Fed Board has Become More Dovish
Diamond
Williams
6 |
 Other
Central Banks are Waging the Inflation War 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
7 |
 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
8 |
 9
Source: Bloomberg 5/6/11
Economics of Forward Purchase
Example:
15
yr.
3
½%
drop
=
9/32
pt.
per
month
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. 1 |
 $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
10 |
 11
Portfolio Characteristics
* As of 3/31/11
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%
CYS Portfolio Characteristics*
“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.
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.
Weighted average months to reset of our Hybrid ARM portfolio.
(1)
(2)
(3) |
 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
12 |
 Historical Financials
13
3/31/2011
12/31/2010
Income Statement Data
(in 000's)
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
Non-GAAP
Measure
(in 000's)
Core Earnings (1)
$21,599
$12,396
Non-GAAP Reconciliation
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
Balance Sheet Data
(in 000's)
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
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.
(in 000’s)
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
Net assets per common share
$11.74
$11.59 |
 Financial Highlights
Steep yield curve and attractive spreads in target assets
Tailwinds likely to continue
Investment Company accounting provides transparency
14 |
 UBS
Global Financial Services Conference May 10, 2011
Investment Outlook
May, 2011 |