Exhibit 99.1
Cypress Sharpridge Investments, Inc. Announces Fourth Quarter 2009 Financial Results
For Immediate Release
NEW YORK, NY – February 4, 2010 – Cypress Sharpridge Investments, Inc. (NYSE: CYS) (“CYS” or the “Company”) today announced financial results for the quarter and year ended December 31, 2009.
Fourth Quarter 2009 Highlights
| | • | | GAAP net income of $7.0 million or $0.37 per diluted share, compared to $23.2 million or $1.28 per diluted share in the third quarter of 2009. |
| | • | | Core Earnings of $9.7 million or $0.52 per diluted share, compared to $5.6 million or $0.31 per diluted share in the third quarter of 2009. |
| | • | | Additionally, a component of the Company’s net income for the quarter was $0.6 million, or $0.03 per diluted share, of distributions from collateralized loan obligations (“CLOs”) that were accounted for under the cost recovery method and thereby excluded from our interest income and Core Earnings. This compared to $0.3 million, or $0.02 per diluted share for the third quarter of 2009. |
| | • | | Net asset value of $13.02 per share after declaring a $0.55 dividend per share on December 17, 2009, compared with $13.58 at September 30, 2009. |
| | • | | Interest rate spread net of hedge of 2.80%, compared to 2.67% in the third quarter of 2009. |
| | • | | Weighted–average amortized cost of Agency RMBS of $101.4, compared to $101.3 in the third quarter of 2009. |
| | • | | Non-investment expenses as a percentage of net assets of 3.21%, compared to 3.31% in the third quarter of 2009. |
Fourth Quarter 2009 Results
The Company had net income of $7.0 million during the fourth quarter of 2009, or $0.37 per diluted share, compared to $23.2 million or $1.28 per diluted share in the third quarter of 2009. During the fourth quarter of 2009, the Company had Core Earnings of $9.7 million, or $0.52 per diluted share, compared to $5.6 million, or $0.31 per diluted share in the third quarter of 2009. Core Earnings represents a non-GAAP financial measure and is defined as net income (loss) excluding (i) net realized gain (loss) on investments and termination of swap contracts and (ii) net unrealized appreciation (depreciation) on investments and swap contracts.
Additionally, a component of the Company’s net income for the fourth quarter was $0.6 million, or $0.03 per diluted share, of distributions from CLOs that were accounted for under the cost recovery method and thereby excluded from our interest income and Core Earnings. This compared to $0.3 million, or $0.02 per diluted share, for the third quarter of 2009.
The Company’s interest rate spread net of hedge increased to 2.80% for the fourth quarter of 2009 from 2.67% in the third quarter of 2009. This increase was largely due to a decrease in borrowing costs. Our average cost of funds and hedge decreased to 1.21% during the fourth quarter, compared to 1.61% during the third quarter of 2009.
The Company’s net asset value per share on December 31, 2009 was $13.02 after declaring a $0.55 dividend per share on December 17, 2009, compared with $13.58 at September 30, 2009.
| | | | | | | | |
| | | Three Months Ended | |
| Key Portfolio Statistics* | | December 31, 2009 | | | September 30, 2009 | |
Average Agency RMBS(1) | | $ | 1,525,385,088 | | | $ | 958,108,753 | |
Average repurchase agreements | | | 1,321,392,786 | | | | 771,241,276 | |
Average net assets | | | 252,305,141 | | | | 239,130,371 | |
Average yield on Agency RMBS(2) | | | 4.01 | % | | | 4.28 | % |
Average cost of funds & hedge(3) | | | 1.21 | % | | | 1.61 | % |
Interest rate spread net of hedge(4) | | | 2.80 | % | | | 2.67 | % |
Leverage ratio (at period end)(5) | | | 6.6:1 | | | | 5.7:1 | |
| (1) | Our average Agency RMBS for the period was calculated by averaging the cost basis of our settled Agency RMBS during the period. |
| (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 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 leverage ratio was calculated by dividing total liabilities by net assets. |
| * | All percentages are annualized. |
Prepayments
The portfolio recorded $82.2 million in scheduled and unscheduled principal repayments and prepayments and net amortization of premium (including paydown losses) of $1.4 million for the three months ended December 31, 2009.
Dividend
The Company declared common dividends of $0.55 per share with respect to the three months ended December 31, 2009, up from $0.35 per share for the three months ended September 30, 2009. Using the closing share price of $13.51 on December 31, 2009, the fourth quarter dividend equates to an annualized dividend yield of 16.3%.
Portfolio
At December 31, 2009, the Company’s $1.8 billion portfolio of Agency RMBS was backed by: hybrid adjustable-rate mortgages (“ARMs”) with 24 or fewer months to reset (“Short Reset ARMs”) (15.0%), hybrid ARMs with 25 to 60 months to reset (“Hybrid ARMs”) (31.8%), fixed-rate mortgages (45.3%) and monthly reset ARMs (“MTAs”) (7.9%). Additional information about our Agency RMBS portfolio at December 31, 2009 is summarized below:
| | | | | | | | | | | | | | | | | | |
| | | Par Value | | Weighted Average | |
Asset Type | | (in thousands) | | Cost | | Price | | MTR1 | | | Coupon | | | CPR2 | |
MTAs | | $ | 140,226 | | $ | 103.57 | | $ | 103.50 | | 1 | | | 3.0 | % | | 11.2 | % |
Short Reset ARMs | | | 263,728 | | | 101.29 | | | 104.55 | | 13.3 | | | 4.5 | % | | 19.0 | % |
Hybrid ARMs | | | 565,396 | | | 101.06 | | | 103.79 | | 46.8 | | | 4.5 | % | | 23.4 | % |
Fixed Rate | | | 814,716 | | | 101.26 | | | 102.63 | | NA | | | 4.5 | % | | 9.0 | % |
| | | | | | | | | | | | | | | | | | |
Total/Weighted-Average | | $ | 1,784,066 | | $ | 101.38 | | $ | 103.35 | | 32.6 | (3) | | 4.4 | % | | 16.6 | % |
| | | | | | | | | | | | | | | | | | |
| (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) | “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 MTA, Short Reset ARM and Hybrid ARM portfolio. |
Financing, Leverage & Liquidity
At December 31, 2009, the Company had financed its portfolio with approximately $1.4 billion of borrowings with repurchase agreements with a weighted-average interest rate of 0.28% and a weighted-average maturity of approximately 27.6 days. In addition, the Company had payable for securities purchased of $229.8 million. The Company’s leverage ratio at December 31, 2009 was 6.6 to 1. At December 31, 2009, the Company’s liquidity position was approximately $153.0 million, consisting of unpledged Agency RMBS, cash and cash equivalents. Below is a list of outstanding borrowings under repurchase agreements at December 31, 2009.
| | | | | | | | |
Counterparty | | Total Outstanding
Borrowings | | % of Total | | | Weighted Average
Maturity in Days |
Bank of America Securities LLC | | $ | 93,068,000 | | 6.8 | % | | 7 |
Barclays Capital, Inc | | | 107,654,754 | | 7.8 | | | 60 |
BNP Paribas | | | 99,865,000 | | 7.3 | | | 29 |
Cantor Fitzgerald & Co | | | 47,521,000 | | 3.5 | | | 53 |
Credit Suisse First Boston | | | 48,635,251 | | 3.5 | | | 19 |
Daiwa Securities America, Inc | | | 51,031,000 | | 3.7 | | | 8 |
Deutsche Bank Securities, Inc | | | 125,247,000 | | 9.1 | | | 7 |
Goldman Sachs Group, Inc | | | 134,802,000 | | 9.8 | | | 42 |
Greenwich Capital Markets, Inc | | | 135,004,688 | | 9.8 | | | 5 |
ING Financial Markets LLC | | | 78,581,000 | | 5.7 | | | 22 |
Jefferies & Company, Inc | | | 59,209,000 | | 4.3 | | | 11 |
LBBW Securities LLC | | | 58,992,000 | | 4.3 | | | 15 |
MF Global, Ltd | | | 122,066,000 | | 8.9 | | | 60 |
Mizuho Securities USA, Inc | | | 81,474,579 | | 6.0 | | | 20 |
Morgan Keegan & Co | | | 41,894,000 | | 3.1 | | | 4 |
South Street Securities LLC | | | 87,662,300 | | 6.4 | | | 50 |
| | | | | | | | |
| | $ | 1,372,707,572 | | 100.0 | % | | 28 |
| | | | | | | | |
Hedging
The Company utilizes interest rate swap contracts to hedge the interest rate risk associated with the financed portion of its Agency RMBS portfolio. At December 31, 2009, the Company had entered into four interest rate swap contracts with an aggregate notional amount of $740.0 million and a weighted average fixed rate of 2.034% and a weighted average expiration of 2.6 years. These interest rate swaps are described below:
As of December 31, 2009
| | | | | | | | | | | | | | |
Counterparty | | Expiration Date | | Pay Rate | | | Receive Rate | | Notional
Amount | | Fair
Value | |
Deutsche Bank Group | | April 2012 | | 1.6910 | % | | 3-Month LIBOR | | $ | 240,000,000 | | $ | (543,716 | ) |
Deutsche Bank Group | | June 2012 | | 2.2660 | % | | 3-Month LIBOR | | | 200,000,000 | | | (2,558,748 | ) |
The Royal Bank of Scotland plc | | July 2012 | | 2.1250 | % | | 3-Month LIBOR | | | 200,000,000 | | | (1,822,869 | ) |
The Royal Bank of Scotland plc | | November 2013 | | 2.2125 | % | | 3-Month LIBOR | | | 100,000,000 | | | 1,131,487 | |
| | | | | | | | | | | | | | |
| | | | | | | | | $ | 740,000,000 | | $ | (3,793,846 | ) |
| | | | | | | | | | | | | | |
Twelve Months Results
The Company had net income of $63.8 million during the year ended December 31, 2009, or $4.75 per diluted share, compared to $(39.2) million or $(5.50) per diluted share in 2008. During the year ended December 31, 2009, the Company had Core Earnings of $26.4 million, or $1.96 per diluted share, compared to $16.8 million, or $2.31 per diluted share in 2008. The year-over-year increase in Core Earnings was primarily the result of the increase in interest rate spread net of hedge. During the year ended December 31, 2009, we had an interest rate spread net of hedge of 3.01% compared to 1.57% in 2008 on similar levels of average gross assets.
Additionally, a component of the Company’s net income for the year was $2.0 million, or $0.15 per diluted share, of distributions from CLOs that were accounted for under the cost recovery method and thereby excluded from our interest income and Core Earnings. This compared to $2.7 million, or $0.37 per diluted share, for the year ended December 31, 2008.
Conference Call
The Company will host a conference call at 9:00 AM Eastern Time on Friday, February 5, 2010, to discuss its financial results for the quarter ended December 31, 2009. To participate in the event by telephone, please dial 866.713.8566 at least 10 minutes prior to the start time and reference the conference passcode 65744301. International callers should dial 617.597.5325 and reference the same passcode. The conference call will also be webcast live over the Internet and can be accessed at the Company’s Web site atwww.cysinv.com. To listen to the live webcast, please visitwww.cysinv.com at least 15 minutes prior to the start of the call to register, download, and install necessary audio software. A dial-in replay will be available on Friday, February 5, 2010 at approximately 12:00 PM Eastern Time through Friday, February 12 at approximately 11:00 AM Eastern Time. To access this replay, please dial 888.286.8010 and enter the conference ID number 17123510. International callers should dial 617.801.6888 and enter the same conference ID number. A replay of the conference call will also be archived on the Company’s website atwww.cysinv.com.
About Cypress Sharpridge Investments, Inc.
Cypress Sharpridge Investments, Inc. is a specialty finance company that invests on a leveraged basis in whole-pool residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The Company refers to these securities as Agency RMBS. Cypress Sharpridge Investments, Inc. has elected to be taxed as a real estate investment trust for federal income tax purposes.
CYPRESS SHARPRIDGE INVESTMENTS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
| | | | | | | | |
| | | December 31, | |
| | | 2009* | | | 2008** | |
ASSETS: | | | | | | | | |
Investments in securities, at fair value (cost, $1,846,995,280 and $723,814,995, respectively) | | $ | 1,853,251,613 | | | $ | 690,509,973 | |
Interest rate swap contracts, at fair value | | | 1,131,487 | | | | — | |
Cash and cash equivalents | | | 1,889,667 | | | | 7,156,140 | |
Receivable for securities sold | | | 2,724,805 | | | | 885,009 | |
Interest receivable | | | 6,886,816 | | | | 3,828,586 | |
Prepaid insurance | | | 89,642 | | | | 65,851 | |
Prepaid and deferred offering costs | | | 222,266 | | | | — | |
| | | | | | | | |
Total assets | | | 1,866,196,296 | | | | 702,445,559 | |
| | | | | | | | |
| | |
LIABILITIES: | | | | | | | | |
Repurchase agreements | | | 1,372,707,572 | | | | 587,485,241 | |
Interest rate swap contracts, at fair value | | | 4,925,333 | | | | 12,503,520 | |
Payable for securities purchased | | | 229,838,772 | | | | — | |
Distribution payable | | | 10,316,082 | | | | — | |
Accrued interest payable (including accrued interest on repurchase agreements of $353,856 and $1,598,881, respectively) | | | 3,387,431 | | | | 2,327,208 | |
Related party management fee payable | | | 356,873 | | | | 220,045 | |
Accrued offering costs | | | — | | | | 510,569 | |
Accrued expenses and other liabilities | | | 373,251 | | | | 598,127 | |
| | | | | | | | |
Total liabilities | | | 1,621,905,314 | | | | 603,644,710 | |
| | | | | | | | |
NET ASSETS | | $ | 244,290,982 | | | $ | 98,800,849 | |
| | | | | | | | |
| | |
Net Assets consist of: | | | | | | | | |
Common Stock, $0.01 par value, 500,000,000 shares authorized (18,756,512 and 7,662,706 shares issued and outstanding, respectively) | | $ | 187,565 | | | $ | 76,627 | |
Additional paid in capital | | | 309,368,569 | | | | 201,941,407 | |
Accumulated net realized gain (loss) on investments | | | (87,363,976 | ) | | | (68,887,694 | ) |
Net unrealized appreciation (depreciation) on investments | | | 2,462,487 | | | | (45,808,542 | ) |
Undistributed net investment income | | | 19,636,337 | | | | 11,479,051 | |
| | | | | | | | |
NET ASSETS | | $ | 244,290,982 | | | $ | 98,800,849 | |
| | | | | | | | |
NET ASSET VALUE PER SHARE | | $ | 13.02 | | | $ | 12.89 | |
| | | | | | | | |
| ** | Derived from audited financial statements |
CYPRESS SHARPRIDGE INVESTMENTS, INC.
STATEMENTS OF OPERATIONS
| | | | | | | | |
| | | Three Months Ended
December 31, 2009* | | | Year Ended
December 31, 2009* | |
INVESTMENT INCOME - Interest income | | $ | 15,767,509 | | | $ | 45,526,149 | |
| | | | | | | | |
EXPENSES: | | | | | | | | |
Interest | | | 1,061,974 | | | | 4,461,432 | |
Management fees | | | 1,084,775 | | | | 3,633,005 | |
Related party management compensation | | | 184,320 | | | | 985,053 | |
General, administrative and other | | | 771,572 | | | | 2,395,611 | |
| | | | | | | | |
Total expenses | | | 3,102,641 | | | | 11,475,101 | |
| | | | | | | | |
Net investment income | | | 12,664,868 | | | | 34,051,048 | |
| | | | | | | | |
GAINS AND (LOSSES) FROM INVESTMENTS: | | | | | | | | |
Net realized gain (loss) on investments | | | (1,464,269 | ) | | | (48,338 | ) |
Net unrealized appreciation (depreciation) on investments | | | (2,856,212 | ) | | | 39,561,355 | |
| | | | | | | | |
Net gain (loss) from investments | | | (4,320,481 | ) | | | 39,513,017 | |
| | | | | | | | |
GAINS AND (LOSSES) FROM SWAP CONTRACTS: | | | | | | | | |
Net swap interest income (expense) | | | (2,976,830 | ) | | | (7,623,821 | ) |
Net gain (loss) on termination of swap contracts | | | — | | | | (10,804,123 | ) |
Net unrealized appreciation (depreciation) on swap contracts | | | 1,669,336 | | | | 8,709,674 | |
| | | | | | | | |
Net gain (loss) from swap contracts | | | (1,307,494 | ) | | | (9,718,270 | ) |
| | | | | | | | |
NET INCOME | | $ | 7,036,893 | | | $ | 63,845,795 | |
| | | | | | | | |
NET INCOME PER COMMON SHARE—DILUTED | | $ | 0.37 | | | $ | 4.75 | |
| | | | | | | | |
Core Earnings:
Core Earnings represents a non-GAAP financial measure and 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 contracts. In order to evaluate the effective yield of the portfolio, management uses Core Earnings to reflect the net investment income of our portfolio as adjusted to include the net swap interest income (expense). Core Earnings allows management to isolate the interest income (expense) associated with our swaps in order to monitor and project our borrowing costs and interest rate spread. In addition, management utilizes Core Earnings as a key metric in conjunction with other portfolio and market factors to determine the appropriate leverage and hedging ratios, as well as the overall structure of the portfolio.
The Company adopted Accounting Standards Codification (“ASC”) 946,Clarification of the Scope of Audit and Accounting Guide Investment Companies(“ASC 946”),prior to its deferral in February 2008, while most, if not all, other public companies that invest only in Agency RMBS have not adopted ASC 946. Under ASC 946, the Company uses financial reporting specified for investment companies, and accordingly, its investments are carried at fair value with changes in fair value included in earnings. Most other public companies that invest only in Agency RMBS include most changes in the fair value of their investments within shareholders’ equity, not in earnings. As a result, investors are not able to readily compare the Company’s results of operations to those of most of its competitors. The Company believes that the presentation of its Core Earnings is useful to investors because it provides a means of comparing its Core Earnings to those of its competitors. In addition, because Core Earnings isolates the net swap interest income (expense) it provides investors with an additional metric to identify trends in the Company’s portfolio as they relate to the interest rate environment.
The primary limitation associated with Core Earnings as a measure of the Company’s financial performance over any period is that it excludes the effects of net realized gain (loss) from investments. In addition, the Company’s presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, Core Earnings should not be considered as a substitute for the Company’s GAAP net income (loss) as a measure of our financial performance or any measure of our liquidity under GAAP.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Years Ended | |
| Non-GAAP Reconciliation: | | December 31, 2009 | | | September 30, 2009 | | | December 31, 2009 | | | December 31, 2008 | |
NET INCOME (LOSS) | | $ | 7,036,893 | | | $ | 23,218,430 | | | $ | 63,845,795 | | | $ | (39,172,449 | ) |
Net (gain) loss from investments | | | 4,320,481 | | | | (24,410,936 | ) | | | (39,513,017 | ) | | | 34,360,594 | |
Net (gain) loss on termination of swap contracts | | | — | | | | — | | | | 10,804,123 | | | | 35,118,468 | |
Net unrealized (appreciation) depreciation on swap contracts | | | (1,669,336 | ) | | | 6,781,362 | | | | (8,709,674 | ) | | | (13,504,523 | ) |
| | | | | | | | | | | | | | | | |
Core Earnings | | $ | 9,688,038 | | | $ | 5,588,856 | | | $ | 26,427,227 | | | $ | 16,802,090 | |
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