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| 8-K - FORM 8-K - CYS Investments, Inc. | d261968d8k.htm |
 FBR
2011 Fall Investor Conference November 29, 2011
Investment Outlook
November, 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
Self managed: highly scalable
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
Company intends to distribute all or substantially all of its REIT taxable
income |
 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) November 25, 2011
Mortgage Yields Currently Attractive
Par-Priced
7/1
hybrid
rates
now
2.17%
(1)
30
Year
fixed
rates
now
3.42%
(1)
15 Year fixed rates now 2.76%
(1)
Hedging rates historically low
November 25, 2011
November 25, 2011
5 Year
Swap
vs.
1
Month
LIBOR:
1/2005
–
11/2011
5/1
Hybrid
Net
Interest
Margin:
1/2005
–
11/2011 |
 4
Attractive Investment Environment Remains
Source: Bloomberg.
Note: Spreads
calculated
as:
(i)
15
year
CC
Index
=
50%
4
year
swap,
and
(ii)
15
year
Current
Coupon
Index
Borrow Short
Invest Long
15 Year Hedged
(i)
15 Year Unhedged
(ii)
15
Year
Fixed
Hedged
with
Swaps:
1/1/2005
–
11/25/2011 |
 5
10 Year Treasury Note Auctions
11/98 –
10/11
2 Year Treasury Note Auctions
11/98 –
10/11
3 Year Treasury Note Auctions
11/98 –
10/11
Source: Bloomberg, US Treasury
5 Year Treasury Note Auctions
11/98 –
10/11
7 Year Treasury Note Auctions
11/98 –
10/11
30 Year Treasury Note Auctions
11/98
–
10/11
Treasury Auction Volume |
 6
Plosser
Fisher
Lacker
Dudley
Kocherlakota
Lockhart
Evans
Pianalto
2011 Voters
2012 Voters
Williams
2013 Voters
Dudley
Evans
Rosengren
Bullard
Dudley
George
Governors
Fed Voters Moving To Be More Dovish in 2012
Obama
Nominees?
Duke
Bernanke
Tarullo
Powell
Stein
Yellen
Raskin
Hawkish
Dovish
Neutral
Note: 2010 Voters were Hoenig, Pinalto, Rosengren, and Bullard. Sources: federalreserve.gov,
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.
|
 7
The Brief Hawkish Interlude Appears Over
Xiaochuan
China
Bernanke
USA
Shirakawa
Japan
Canada
Carney
Australia
Stevens
New Zealand
Bollard
Draghi
EU
Tombini
Brazil
Subbarao
India
Global Accommodation is Reluctantly Restarting
Hawkish
Dovish
Neutral
Draghi
EU |
 8
Source: S&P, Fiserv, and Macromarkets LLC / Haver Analytics, BLS, Challenger,
Gray & Christmas, US Dept. of Energy, NYMEX Economic Recovery Below
Normal Pace |
 9
Economics of Forward Purchase
Source: Bloomberg 11/25/11
1
5
1/4
/32 represents a discount to the purchase price of the security of approximately
$0.30 per month from trade date to settlement date. Economics of Forward
Purchase Example:
15
yr.
3
½%
drop
=
~4
3/4
/32
pt.
per
month
1 |
 10
CYS Dividends: 10/2009 –
10/2011
$0.35
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
Oct-09
$0.55
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 Portfolio
1
Total Agency RMBS: $9,398 million
$0.60
Apr-11
1
As of 9/30/11
$0.60
Jul-11
$0.55
Oct-11
15 Year Fixed
Rate: 53%
Hybrid ARMs: 34%
20 Year Fixed
Rate: 7%
10 Year Fixed
Rate: 3%
30 Year Fixed
Rate: 3% |
 11
Portfolio Characteristics
CYS Portfolio Characteristics*
* As of 9/30/11
(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.
After
the
fixed
period,
100%
of
the
hybrid
ARMs
in
the
portfolio
reset
annually.
(2)
CPR,
or
"Constant
Prepayment
Rate,"
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.
Fair Value
10 Year Fixed
$
288,426
303,416
$
104.06
$
105.20
N/A
3.50%
6.2%
15 Year Fixed
4,717,243
4,964,472
102.40
105.24
N/A
3.85%
9.9%
20 Year Fixed
608,028
644,471
102.33
105.99
N/A
4.14%
8.1%
30 Year Fixed
259,824
279,791
103.15
107.68
N/A
5.00%
15.7%
Hybrid ARMs
3,070,004
3,205,883
102.25
104.43
66.0
3.32%
19.9%
Total/Weighted Avg.
$8,943,525
$9,398,033
$102.42
$105.08
66.0
(3)
3.71%
12.6%
Coupon
CPR
(2)
Fair
Value/Par
MTR
(1)
Par Value
Weighted Average
Asset Type
(in thousands)
Cost/Par |
 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
(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) Our 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) Our 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) Our operating expense ratio is
calculated by dividing operating expenses by average net assets. (6) Our 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 |
 FBR
2011 Fall Investor Conference November 29, 2011
Investment Outlook
November, 2011 |