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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Cys Investments, Inc. | NYSE:CYS | NYSE | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 7.31 | 0.00 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 8, 2014
CYS Investments, Inc.
(Exact name of Registrant as specified in its charter)
Maryland | 001-33740 | 20-4072657 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
890 Winter Street, Suite 200
Waltham, Massachusetts 02451
(Address of principal executive offices)
(Registrants telephone number, including area code): (617) 639-0440
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01. | Regulation FD Disclosure. |
On September 8, 2014, CYS Investments, Inc. (the Company) announced that Kevin E. Grant, CFA, the Companys CEO and President, will deliver a presentation at the Barclays Global Financial Services Conference at the New York Hilton Midtown Hotel in New York City on Monday, September 8, 2014 at approximately 1:15 p.m. (ET). A copy of the presentation slides is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.
Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits.
Exhibit No. |
Description | |
99.1 | CYS Investments, Inc. Presentation Slides, dated September 8, 2014 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CYS INVESTMENTS, INC. | ||||||
Date: September 8, 2014 |
By: | /s/ Thomas A. Rosenbloom | ||||
Thomas A. Rosenbloom | ||||||
Secretary |
INDEX TO EXHIBITS
Exhibit No. |
Description | |
99.1 | CYS Investments, Inc. Presentation Slides, dated September 8, 2014 |
Kevin
Grant Chief Executive Officer
Barclays Global Financial Services Conference
September 8, 2014
Exhibit 99.1
Investment Outlook |
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 managements beliefs and assumptions, current
expectations, estimates and projections. Such statements, including information relating to
the Companys expectations for distributions, availability and cost of financing,
scalability of management, market conditions, monetary policy, return on equity, the yield curve, the
economy, interest expense, affordability of housing, movements in interest rates,
governmental actions, the performance of the Companys target assets, the impact
of current Federal Reserve voters on certain policies of the Federal Reserve, the policy views of central banks, and
the size of the mortgage market 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 Companys future performance and is subject
to risks, uncertainties and other important factors that could cause the
Companys actual performance or achievements to differ materially from those expressed or implied by this forward-
looking information and include, without limitation, 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, the likelihood that proposed legislation is
made
law
and
the
anticipated
impact
thereof,
actions
by
the
U.S.
government
or
any
agency
thereof,
including
the
Federal
Reserve,
and
the
effects of such actions 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
Agency Residential Mortgage Backed Securities
Financing lines with 43
lenders
Swap agreements with 18 counterparties
Self managed: highly scalable
Kevin Grant, CEO, President, Chairman
Frances Spark, CFO
Company intends to distribute all or substantially all of its REIT
taxable income
3
Target Assets
Senior
Management
Focus on Cost
Efficiency
Ample Financing
Sources
Dividend Policy
A Real Estate Investment Trust Formed in January 2006 |
Agency MBS Market
Continues To See Strong Demand 15 Year: Hedged vs. Unhedged
15 Year Fixed Hedged with Swaps: April 2009
September 2014
15 Year Hedged
(i)
15 Year Unhedged
(ii)
Borrow Short
Invest Long
September 5, 2014
4
Source: Bloomberg.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Note: Spreads calculated as: (i) 15 year CC Index = 50% 4 year swap, and (ii) 15
year Current Coupon Index |
Agency MBS Market
Continues To See Strong Demand 30 Year: Hedged vs. Unhedged
Source: Bloomberg
30 Year Fixed Hedged with Swaps: April 2009
September 2014
Borrow Short
Invest Long
30 Year Hedged
30 Year Unhedged
September 5, 2014
5
0.75
1.25
1.75
2.25
2.75
3.25
3.75
4.25
4.75
5.25
Note: Spread calculated as: (i) 30 year CC Index - 90% 5 year swap
|
Volatility in
the Cap/Floor Markets Hit a Low in July 2013
30 Yr MBS -
15 Yr MBS Spread
7 Yr Cap/Floor Implied Vol
November 2012
September 2014
April 2012
September 2014
30 Year MBS Cheapened Meaningfully
Relative to 15 Year MBS
5 Year Swap vs. Fed Funds
January 2005
September 2014
Yield Curve
Creates positive carry
Very low cost of financing
Good ROE
Hedge flexibility very important
Fed still fighting deflation
End of QE Poses New Risks and New Opportunities
September 5, 2014
6
Source: Bloomberg
September 5, 2014
September 5, 2014
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.0
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50 |
Global Ten Year
Yields: Is U.S. Growth Out of Sync with Rest of World?
GDBR10
(1.014)
USGG10YR
0.362
GBTPGR10
0.008
GCAN10YR
(0.271)
GJGB10
(0.513)
Government Ten Year Yields
UK, US, Canada, Germany, Japan
September
2011
-
September
2014
Source: Bloomberg
7
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25 |
Source: Board
of Governors of the Federal Reserve, June 18, 2014 Actual Economic Performance:
Sluggish vs. Fed Projections
8 |
Appropriate
Timing of Policy Firming
Creates Significant Headwinds for the Economy
Housing Will Struggle
Corporate Interest Expense will rise
Overview of FOMC Participants Assessments
of Appropriate Monetary Policy
Can the Economy Withstand
The Implied Path of 10 Year UST?
Forward Rate Guidance is the Feds Most Impactful Tool
Appropriate Timing and Pace will drive the Yield Curve
1.00
2.00
3.00
4.00
5.00
6.00
0.00
2014
2015
Longer
Run
%
Source: Federal Reserve June 2014 Forecast, Bloomberg, CYS
2016
Transition to a Normalized Yield Curve:
Will the Fed Push Out
or Pull In -
Forward Rate Guidance?
9
Ten Year Treasury
August
2011
-
September
2014
and Implied Projection
+25
-25
%
Appropriate Pace
of Policy Firming
Target Fed Funds Rate at Year End
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1
12
3
2014
2015
2016 |
2014-15 Fed
Voters: New Perspectives, Changing Outlooks
Powell
Source: federalreserve.gov, Barclays, 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.
Dallas:
Fisher
Minneapolis:
Kocherlakota
Philadelphia:
Plosser
Hawkish
Dovish
Neutral
2014
Voters
Yellen
Fed governors are appointed by the president and subject to Senate confirmation.
District
bank
Fed
presidents
are
chosen
by
their
individual
banks
Boards
of
Directors
with
a
degree of oversight from the Federal Reserve Board.
Raskins Successor
Cleveland:
Mester
Board of
Governors
2015
Voters
New York:
Dudley
Chicago:
Evans
Richmond:
Lacker
Atlanta:
Lockhart
San Francisco:
Williams
Fischer
Brainard
Tarullo
Steins Successor
New York:
Dudley
10 |
Central
Banks: Decidedly More Accommodative -
Focus on Global Deflation Risk
Draghi
EU
Hawkish
Dovish
Neutral
Xiaochuan
China
Xiaochuan
China
Tombini
Brazil
Tombini
Brazil
Australia
Stevens
Australia
Stevens
New Zealand
Wheeler
New Zealand
Wheeler
Kuroda
Japan
Canada
Poloz
Rajan
India
Kuroda
Japan
Carney
UK
Yellin
USA
11 |
GSE Reform
Headway Legislative
Level of
GSE
Credit Risk
Proposal
Government Involvement
Implication
Sharing
Status
Corker-Warner Bill
Limited: Only under
catastrophic scenarios where
losses on a pool of mortgages
exceeds 10%
Completely wound down over
5 years
10% first-loss piece is sold to
private entities
Corker-Warner under committee
discussion but not yet put to vote.
Either may become the front runner
from the Senate side but both will
likely have private capital in the
first loss place with several
mechanisms for risk sharing
Senate Banking Committee voted
in favor of the bill 13-9 on May 15.
Insufficient support to allow the
bill to be brought to the Senate
floor for debate/vote.
Johnson
-
Crapo
Bill
Based on Corker-Warner, limited:
only on scenarios where losses
on a pool of mortgages exceeds
a 10% private loss position.
GSEs wound down over 5 year
period, replaced by FMIC.
Similar to Corker-Warner, 10%
first-loss piece is sold to private
entities.
PATH Act
Very limited: dissolves the
GSEs completely and reduces
the scope of the FHA/VA
guarantee
Placed into receivership and
completely liquidated with
Initially, a 10% risk-sharing
program on new GSE and FHA
business, although private market
securitization is intended
eventually to replace GSEs
No news. In early 2013, the Path
Act seemed to be the clear
front-runner on the House side.
The final housing finance reform,
if it happens, could be a
compromise between the PATH
Act and whatever comes out of
the Senate
Delaney-Carney-Himes
Limited: Ginnie Mae is required
to provide an explicit
government guarantee once
the 5% risk slice is eroded
when one of the private
monoline insurers defaults
GSEs will be slowly wound down
and eventually converted into
private reinsurers with limited
capacities to take on mortgage
credit risk
5% first-loss piece on each
new Ginnie Mae securitization,
as well as a 10% pro-rata risk
slice on the top 95% of each
Ginnie Mae securitization
Source: Barclays, CYS
12 |
Economic
Recovery Below Normal Pace U.S. Regular Conventional Gas Price
$ per gal
Updated: 2014-09-02
Capacity Utilization: Manufacturing
Updated: 2014-08-15
Civilian Unemployment Rate
Updated: 2014-09-05
CPI-U All Items, Core
Updated: 2014-08-19
Total Nonfarm Private Payroll Employment
Updated: 2014-09-04
Total Unemployed + All Marginally Attached + Total
Employed Part Time for Economic Reasons
Updated: 2014-09-05
Source: Federal Reserve Bank of St. Louis
13 |
Housing Finance
Has Not Rebounded Source: CoreLogic, FHFA, S&P, Bloomberg, Barclays Research,
National Association of Realtors, US Census Bureau, MBA, Inside Mortgage Finance Share of
Government Guaranteed Mortgages 1990
2013
New and Existing Homes Months of Supply
January
1999
-
present
Home Ownership Rate
January
1985-
present
14
New Homes
Existing Homes |
Mortgage Market
Shrinkage Likely to Continue Source: FRB, Freddie Mac
Mortgage Debt
Outstanding
2007 -
2013
Mortgage Debt Outstanding
Growth Rate
0.00%
0.50%
1.00%
9.75
10.00
10.25
10.50
10.75
11.00
11.25
11.50
1.50%
2.00%
3.50%
4.00%
4.50%
0.50%
2.00%
1.50%
1.00%
9.50
8.75
9.00
9.25
Single Family
Mortgage Origination Volume
2000 -
2015E
15
Residential Mortgage Debt Decline Driven By:
1.
Home prices now reset lower
2.
Delevering Consumers/Homeowners
3.
Psychology of lower leverage
4.
Low volume of new and existing home sales
5.
All-cash home purchase transactions, and higher downpayments
6.
Scheduled principal payments
7.
High percentage of cash-in refis versus cash-out refis.
8.
QM Rules Restrictive
2000
2005
2010
2012
2013
Est.
2014
Fcst.
2015
Fcst.
1,000
2,000
3,000
4,000
Refinance Originations
Home Purchase Originations
1.9T
1.3T
1.1T |
Economics of
Forward Purchase Source: Bloomberg, September 5, 2014
16 |
1
As of 6/30/14
$ in 000s
$14.2B Agency RMBS and U.S. Treasuries Portfolio
CYS Common Stock Dividends
September
2009
June
2014
CYS Agency RMBS and U.S. Treasury Portfolio
1
Portfolio Composition and Dividends
17
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
Dividend
Special Dividend
Annualized Dividend Yield
15 Year
Fixed
Rate
45%
30 Year
Fixed Rate
26%
Hybrid
ARMs
14%
US
Treasury
Securities
14%
20 Year Fixed
Rate 1%
Note: the December 2012 dividend was composed of $0.40 quarterly cash dividend, and $0.52
special cash dividend. |
CYS Agency
RMBS and U.S. Treasury Portfolio Characteristics* Portfolio Characteristics
18
Face Value
Fair Value
Weighted Average
Asset Type
(in thousands)
Cost/Face
Fair Value/Face
Yield
(1)
Coupon
CPR
(2)
15 Year Fixed Rate
$ 6,090,446
$ 6,368,659
$ 102.66
$ 104.57
1.99%
3.15%
6.2%
20 Year Fixed Rate
75,567
82,467
103.01
109.13
1.14%
4.50%
22.0%
30 Year Fixed Rate
3,511,537
3,725,156
103.97
106.08
2.73%
3.99%
5.9%
Hybrid ARMs
(3)
1,920,595
1,970,318
103.51
102.59
1.87%
2.57%
12.9%
U.S. Treasury Securities
2,050,000
2,050,562
99.78
100.03
1.34%
1.35%
NA
Total
$ 13,648,145
$ 14,197,162
$ 102.69
$ 104.02
2.06%
3.02%
7.6%
* As of 6/30/14
(1)
This is a forward yield and is calculated based on the cost basis of the security at June 30,
2014.
(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 June 30, 2014. Securities with no prepayment
history are excluded from this calculation.
(3)
The weighted average months to reset of our Hybrid ARM portfolio was 61.1 at June 30, 2014.
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 Hybrid ARM and will reset annually.
|
(1)
Drop Income is a component of our net realized and unrealized gain (loss) on investments on
our consolidated statements of operations, and is therefore excluded from Core
Earnings. (2)
Core Earnings is defined as net income (loss) available to common shares excluding net
realized gain (loss) on investments, net unrealized gain (loss) on investments, net
realized gain (loss) on termination of swap and cap contracts and net unrealized gain
(loss) on swap and cap contracts. Financial Information
19 |
Financial
Information 20
The table above includes calculations of the Companys Agency RMBS and U.S. Treasury
Securities portfolio (Debt Securities) * All percentages are
annualized. 1)
The average settled Debt Securities is calculated by averaging the month end cost basis of
settled Debt Securities during the period.
2)
The average total Debt Securities is calculated by averaging the month end cost basis of total
Debt Securities during the period.
3)
The average repurchase agreements are calculated by averaging the month end repurchase
agreements balance during the period. 4)
The average Debt Securities liabilities are calculated by adding the average month end
repurchase agreements balance plus average unsettled Debt Securities during the period.
5)
The average stockholders' equity is calculated by averaging the month end stockholders' equity
during the period. 6)
The average common shares outstanding are calculated by averaging the daily common shares
outstanding during the period.
7)
The 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) stockholders'
equity.
8)
The average yield on Debt Securities for the period is calculated by dividing total interest
income by average settled Debt Securities. 9)
The average yield on total Debt Securities including Drop Income for the period is calculated
by dividing total interest income plus Drop Income by average total Debt Securities.
10)
The average cost of funds and hedge for the period is calculated by dividing interest expense
by average repurchase agreements.
11)
The adjusted average cost of funds and hedge for the period is calculated by dividing interest
expense by average Debt Securities liabilities. 12)
The interest rate spread net of hedge for the period is calculated by subtracting average cost
of funds and hedge from average yield on settled Debt Securities.
13)
The interest rate spread net of hedge including Drop Income for the period is calculated by
subtracting adjusted average cost of funds and hedge from average yield on total Debt
Securities including Drop Income.
14) The operating expense ratio for the period is calculated by
dividing operating expenses by average stockholders' equity. |
Kevin
Grant Chief Executive Officer
Barclays Global Financial Services Conference
September 8, 2014
Investment Outlook |
1 Year Cys Investments, Inc. Chart |
1 Month Cys Investments, Inc. Chart |
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