Attached files
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| 8-K - FORM 8-K - CYS Investments, Inc. | d8k.htm |
 June 7, 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. |
 2
CYS: Overview
Focus on Cost
Efficiency
Target Assets
Agency Residential Mortgage Backed Securities
A Real Estate Investment Trust formed in January 2006
Ample Financing
Sources
Currently
financing
lines
with
32
lenders
Swap agreements with 16 counterparties
Dividend Policy
Company intends to distribute all or substantially all of its REIT taxable
income Scaled Management Fee: 1.0% to 1.5%
No Incentive Fee
Objective
Senior Management
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 |
 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
June 3, 2011
June 3, 2011
Source: Bloomberg.
(1) As of June 3, 2011
Mortgage Yields Currently Attractive
Par-Priced 7/1 hybrid rates now 2.65%
(1)
30 Year fixed rates now 3.97%
(1)
15 Year fixed rates now 3.24%
(1)
Hedging rates historically low
5/1
Hybrid
Net
Interest
Margin:
1/05
–
6/11
5 Year Swap vs. 1 Month LIBOR: 1/05 –
6/11
3 |
 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.
June 3, 2011
CYS
Investment
Strategy
5/1
Hybrids
Hedged
with
Swaps:
1/05
–
6/11
Simple ‘Carry
Trade’: Borrow
Short/Lend
Long
Hedged Hybrids
(i)
Unhedged
Hybrids
(ii) |
 5
10 Year Treasury Note Auctions
11/98
–
5/11
Treasury Auction Volume
2 Year Treasury Note Auctions
2/00
–
5/11
3 Year Treasury Note Auctions
10/00
–
5/11
Source: Bloomberg, US Treasury
5 Year Treasury Note Auctions
2/00
–
5/11
7 Year Treasury Note Auctions
2/00
–
5/11
30 Year Treasury Note Auctions
2/00–
5/11 |
 Hawkish
Dovish
Neutral
Hoenig
Bullard
Plosser
Fisher
Lacker
Duke
Tarullo
Dudley
Pianalto
Kohn
Kocherlakota
Lockhart
Evans
Pianalto
Yellen
Rosengren
Raskin
Bernanke
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
Williams
?
Obama
Nominee
6 |
 Hawkish
Dovish
Neutral
Other Central Banks are Waging the Inflation War
Xiaochuan
China
Bernanke
USA
Shirakawa
Japan
Trichet
EU (Outgoing)
Australia
Stevens
New Zealand
Bollard
Draghi
EU (Incoming)
Tombini
Brazil
Subbarao
India
(Outgoing)
Consequences: US Rates Likely To Be Lower For Longer
Canada
Carney
7 |
 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
1/1/40-5/1/11
%
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 6/3/11
Economics of Forward Purchase
Example: 15 yr. 3 ½% drop = 10/32 pt. per month
1
9 |
 CYS Dividends: 10/09 –
7/11²
$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
CYS Agency RMBS Portfolio¹
Total Agency RMBS: $8.5 million
Apr-11
1
As of 3/31/11
2
CYS paid quarterly dividends of $0.35 per share of common stock on October 21,
2009, $0.55 per share of common stock on January 27, 2010 and April 28, 2010, and $0.60 per share of
common stock on July 28, 2010, October 20, 2010, December 29, 2010, and April 20,
2011. On June 6, 2011, CYS declared a dividend of $0.60 per share of common stock for the second
quarter of 2011. The dividend will be paid on July 27, 2010 to stockholders of
record on June 22, 2010. $0.60
Jul-11
$0.60
10 |
 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%
CYS Portfolio Characteristics*
(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 |
 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
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 (in 000's)
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
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
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.
|
 14
Financial Highlights
Steep yield curve and attractive spreads in target assets
Tailwinds likely to continue
Investment Company accounting provides transparency |
 June 7, 2011 |