![]() ![]() Kevin Grant Chief Executive Officer KBW Mortgage Finance Conference June 3, 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 management’s beliefs and assumptions, current expectations, estimates and projections. Such statements, including information relating to the Company’s 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 Company’s 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 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 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 Focus on Cost Efficiency Target Assets Agency Residential Mortgage Backed Securities A Real Estate Investment Trust Formed in January 2006 Ample Financing Sources Financing lines with 38 lenders Swap agreements with 18 counterparties Dividend Policy Self managed: highly scalable Senior Management Kevin Grant, CEO, President, Chairman Frances Spark, CFO Company intends to distribute all or substantially all of its REIT taxable income 3 |
![]() ![]() Significant Cheapening of Agency MBS Market 15 Year: Hedged vs. Unhedged 15 Year Fixed Hedged with Swaps: April 2009 – May 2014 15 Year Hedged (i) 15 Year Unhedged (ii) Borrow Short Invest Long May 30, 2014 4 Source: Bloomberg. Note: Spreads calculated as: (i)15 year CC Index = 50% 4 year swap, and (ii) 15 year Current Coupon Index |
![]() ![]() Significant Cheapening of Agency MBS Market 30 Year: Hedged vs. Unhedged Source: Bloomberg Note: Spread calculatedas: (i) 30 year CC Index - 90% 5 year swap 30 Year Fixed Hedged with Swaps: April 2009 – May 2014 Borrow Short Invest Long 30 Year Hedged 30 Year Unhedged May 30, 2014 5 |
![]() ![]() 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 – May 2014 April 2012 – May 2014 30 Year MBS Cheapened Meaningfully Relative to 15 Year MBS 5 Year Swap vs. Fed Funds January 2005 – May 2014 Yield Curve Creates positive carry Very low cost of financing Good ROE Hedge flexibility very important Fed still fighting deflation 30 Year MBS Now Priced for Operation Taper and Tightening Monetary Policy 2015 May 30, 2014 May 30, 2014 6 May 30, 2014 Source: Bloomberg |
![]() ![]() Source: Board of Governors of the Federal Reserve, March 19, 2014 Actual Economic Performance: Sluggish vs. Fed Projections 7 |
![]() ![]() Appropriate Timing of Policy Firming • Creates Significant Headwinds for the Economy • Housing Will Struggle • Corporate Interest Expense will rise Appropriate Pace of Policy Firming Target Fed Funds Rate at Year End 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 Fed’s 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 March 2014 Forecast, Bloomberg, CYS 2016 Transition to a Normalized Yield Curve: Will the Fed Push Out Forward Rate Guidance? 8 Ten Year Treasury August 2011 - May 2014 and Implied Projection % |
![]() ![]() 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. Raskin’s Successor Cleveland: Mester Board of Governors 2015 Voters New York: Dudley Chicago: Evans Richmond: Lacker Atlanta: Lockhart San Francisco: Williams Fischer Brainard Tarullo Stein’s Successor New York: Dudley 9 |
![]() ![]() 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 10 |
![]() ![]() GSE Reform Headway Source: Barclays, CYS 11 |
![]() ![]() Economic Recovery Below Normal Pace U.S. Regular Conventional Gas Price $ per gal Updated: 2014-05-26 Capacity Utilization: Manufacturing Updated: 2014-05-15 Civilian Unemployment Rate Updated: 2014-05-02 CPI-U All Items, Core Updated: 2014-05-15 Total Nonfarm Private Payroll Employment Updated: 2014-04-30 Total Unemployed + All Marginally Attached + Total Employed Part Time for Economic Reasons Updated: 2014-05-02 Source: Federal Reserve Bank of St. Louis 12 |
![]() ![]() 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- April 2014 Home Ownership Rate Jan 1990 - present 13 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 0 14 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 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 refi’s versus cash-out refi’s. 8. QM Rules Restrictive Residential Mortgage Debt Decline Driven By |
![]() ![]() Economics of Forward Purchase Source: Bloomberg, May 30, 2014 15 |
![]() ![]() 1 As of 3/31/14 $ in 000’s Note: the December 2012 dividend was composed of $0.40 quarterly cash dividend, and $0.52 special cash dividend. Fair Value of Total Agency RMBS and U.S. Treasuries: $13,307,735 CYS Common Stock Dividends September 2009 – March 2014 CYS Agency RMBS and U.S. Treasury Portfolio 1 Portfolio Composition and Dividends 16 |
![]() ![]() CYS Agency RMBS and U.S. Treasury Portfolio Characteristics* Portfolio Characteristics Face Value Fair Value Weighted Average Asset Type (in thousands) Cost/Face Fair Value/Face Yield (1) Coupon CPR (2) 15 Year Fixed Rate $ 6,227,169 $ 6,432,461 $ 102.58 $ 103.30 2.31% 3.13% 5.6% 20 Year Fixed Rate 81,294 87,371 103.04 107.48 1.94% 4.50% 11.5% 30 Year Fixed Rate 3,149,975 3,263,950 103.24 103.62 3.32% 3.96% 4.1% Hybrid ARMs (3) 1,946,543 1,986,641 103.55 102.06 1.98% 2.56% 9.5% U.S. Treasury Securities 1,550,000 1,537,312 99.61 99.18 1.68% 1.50% NA Total $ 12,954,981 $ 13,307,735 $ 102.53 $ 102.72 2.43% 3.06% 6.1% 17 |
![]() ![]() (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 Income Statement Data Three Months Ended (In thousands, except per share numbers) 3/31/2014 12/31/2013 Total interest income $84,367 $91,743 Interest expense 28,346 32,814 Net interest income 56,021 58,929 Other income (loss): Net realized gain (loss) on investments 16,670 (22,650) Net unrealized gain (loss) on investments 89,234 (167,671) Net realized gain (loss) on termination of swap and cap contracts (9,323) (10,891) Net unrealized gain (loss) on swap and cap contracts (16,240) 54,633 Other income 119 - Total other income (loss) 80,460 (146,579) Total operating expenses 5,794 4,214 Net income (loss) $ 130,687 $ (91,864) Dividends on preferred stock (5,203) (5,203) Net income (loss) available to common shares $ 125,484 $ (97,067) Net income (loss) per common share basic & diluted $ 0.78 $ (0.59) Drop income per common share (diluted) (1) $ 0.07 $ 0.07 Core Earnings per common share (diluted) (2) $ 0.28 $ 0.31 Distributions per common share $ 0.32 $ 0.32 Non-GAAP Measure/Reconciliation (in 000's) NET INCOME (LOSS) AVAILABLE TO COMMON SHARES $ 125,484 $ (97,067) Net realized (gain) loss on investments (16,670) 22,650 Net unrealized (gain) loss on investments (89,234) 167,671 Net realized (gain) loss on termination of swap and cap contracts 9,323 10,891 Net unrealized (gain) loss on swap and cap contracts 16,240 (54,633) Core Earnings $ 45,143 $ 49,512 18 |
![]() ![]() The table above includes calculations of the Company’s Agency RMBS and U.S. Treasury Securities portfolio (“Debt Securities”) 1) The average settled Debt Securities is calculated by averagingthe 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. * All percentages are annualized. Financial Information (in thousands) Three Months Ended Key Balance Sheet Metrics March 31, 2014 December 31, 2013 Average settled Debt Securities (1) $12,472,238 $13,024,294 Average total Debt Securities (2) $13,454,972 $14,293,267 Average repurchase agreements (3) $10,867,627 $11,384,159 Average Debt Securities liabilities (4) $11,850,361 $12,653,132 Average stockholders' equity (5) $1,861,121 $1,896,360 Average common shares outstanding (6) 161,831 163,850 Leverage ratio (at period end) (7) 6.32:1 6.97:1 Key Performance Metrics* Average yield on settled Debt Securities (8) 2.71% 2.82% Average yield on total Debt Securities including Drop Income (9) 2.85% 2.93% Average cost of funds and hedge (10) 1.04% 1.15% Adjusted average cost of funds and hedge (11) 0.96% 1.04% Interest rate spread net of hedge (12) 1.67% 1.67% Interest rate spread net of hedge including Drop Income (13) 1.89% 1.89% Operating expense ratio (14) 1.25% 0.89% 19 |
![]() Kevin Grant Chief Executive Officer KBW Mortgage Finance Conference June 3, 2014 * * * * * * * * Investment Outlook |