Twelfth paragraph, starting at the second line should read: As
of March 31, 2014, the Company had entered into interest rate
swap contracts with an aggregate notional amount of $5.8 billion, a
weighted average fixed rate of 1.09%, and a weighted average
expiration of 3.5 years. The receive rate on the Company's interest
rate swaps is three month LIBOR. At March 31, 2014, the
Company had entered into interest rate cap contracts with a
notional amount of $3.9 billion, a weighted average cap rate of
1.40%, and a weighted average expiration of 5.1 years.
The corrected release reads:
CYS INVESTMENTS, INC. ANNOUNCES FIRST
QUARTER 2014 FINANCIAL RESULTS
CYS Investments, Inc. (NYSE: CYS) (“CYS” or the “Company”) today
announced financial results for the quarter ended March 31,
2014.
First Quarter 2014 Summary Results
- March 31, 2014 book value per
common share of $9.68 after declaring a $0.32 dividend per common
share on March 10, 2014.
- March 31, 2014 leverage ratio of
6.32 to 1.
- GAAP net income available to common
shares of $125.5 million, or $0.78 per diluted common share.
- Core Earnings plus Drop Income of $56.7
million, or $0.35 per diluted common share ($0.28 Core Earnings and
$0.07 Drop Income).
- Operating expenses of 1.25% of average
stockholders' equity.
- Interest rate spread net of hedge
including Drop Income of 1.89%.
- Weighted average amortized cost of
Agency RMBS and U.S. Treasury Securities of $102.53.
- Constant Prepayment Rate of 5.6% for
the quarter.
Market Commentary
Much of the interest rate volatility in the latter part of 2013
reversed in the first quarter of 2014. As the calendar turned, the
year end selling pressures in many markets waned, and the markets
quickly repriced to consensus levels without perennial year-end
distortions. Agency RMBS rallied through the first quarter of 2014,
and the 10 year U.S. Treasury seemed to find a stable equilibrium
of approximately 2.75%, or 250 basis points above the Federal Funds
Target Rate ("Fed Funds"). This yield curve steepness is consistent
with the past 40 years of history: when the market senses a
tightening by the U.S. Federal Reserve (the "Fed") on the horizon,
the 10 year Treasury often finds equilibrium at 250 to 300 basis
points above Fed Funds. The recovery in the bond market helped our
book value per common share rise over the quarter and also provided
us an opportunity to adjust the risk profile of our assets. We
reduced the interest rate risk of our assets by reducing leverage
and reducing our holdings of 30 year fixed rate Agency RMBS. With
the Fed continuing to taper their asset purchases, we anticipate
Agency RMBS will cheapen later in the year and have prepared the
Company’s balance sheet to take advantage of this scenario. Despite
the lower leverage, we continue to expect our portfolio to generate
attractive earnings, and we expect to see an opportunity later in
the year to deploy more of our capital at higher yields.
Should our market volatility hypotheses materialize, we would
expect to see a more favorable investing environment as the year
advances. At the same time, however, we remain alert and prepared
for continued interest rate environment and book value per common
share volatility.
Leverage & Liquidity
The Company reduced its leverage during the first quarter to
minimize the potential adverse impacts of expected volatility in
interest rates, ending the first quarter of 2014 with a leverage
ratio of 6.32 to 1, compared to 6.97 to 1 at December 31,
2013.
At March 31, 2014, the Company’s liquidity position,
consisting of unpledged Agency RMBS, U.S. Treasuries and cash and
cash equivalents, was approximately $1.4 billion, or 75.3% of
stockholders' equity, compared to $1.1 billion, or 63.1% of
stockholders' equity at December 31, 2013.
Portfolio
During the first quarter of 2014, the Company reduced its Agency
RMBS portfolio from $13.9 billion at December 31, 2013 to
$11.8 billion at March 31, 2014 and added $1.5 billion of U.S.
Treasuries. The Company made this tactical adjustment in order to
reduce its duration gap, improve its liquidity and be in better
position to take advantage of a possible cheapening of the Agency
RMBS market, as the Fed continues to taper its asset purchase
activities. The following table details the Company's Agency RMBS
and U.S. Treasury portfolio ("Debt Securities") at
December 31, 2013 and March 31, 2014.
March 31, 2014 December 31, 2013
Fair Value (in billions) % of Total Fair
Value (in billions) % of Total 15 Year Fixed Rate
$ 6.4 48% $ 6.5 47% 20 Year Fixed Rate 0.1 1% 0.1 1% 30 Year Fixed
Rate 3.3 24% 5.2 37% Hybrid ARMs 2.0 15% 2.1 15% U.S. Treasury
Securities 1.5 12% — —% Total $ 13.3 100% $ 13.9 100%
The Company’s March 31, 2014 Debt Securities are summarized
below:
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%
__________
(1) This is a forward yield and is calculated based on the cost
basis of the security at March 31, 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 March 31,
2014. Securities with no prepayment history are excluded from this
calculation.
(3) The weighted average months to reset of our Hybrid ARM
portfolio was 63.2 at March 31, 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.
First Quarter 2014 Results
The Company had net income available to common shares of $125.5
million during the first quarter of 2014, or $0.78 per diluted
common share, compared to net loss of $97.1 million, or $0.59 per
diluted common share, in the fourth quarter of 2013. During the
first quarter of 2014, the Company had Core Earnings plus Drop
Income of $56.7 million, or $0.35 per diluted common share (Core
Earnings of $45.1 million, or $0.28 per diluted common share, and
Drop Income of $11.6 million, or $0.07 per diluted common share),
compared to $62.3 million, or $0.38 per diluted common share (Core
Earnings of $49.5 million, or $0.31 per diluted common share, and
Drop Income of $12.8 million, or $0.07 per diluted common share),
in the fourth quarter of 2013.
The Company’s interest rate spread net of hedge including Drop
Income was 1.89% for the first quarter of 2014, unchanged from the
fourth quarter of 2013.
The Company had a net realized and unrealized gain from
investments of $105.9 million, which included $16.7 million of net
realized gain for the first quarter of 2014, compared to a net
realized and unrealized loss from investments of $190.3 million,
which included $22.7 million of net realized loss, for the fourth
quarter of 2013.
The Company’s book value per common share on March 31, 2014
was $9.68, after declaring a $0.32 dividend per common share on
March 10, 2014, compared to $9.24 at December 31, 2013.
The Company’s operating expenses were $5.8 million, or 1.25% of
average stockholders' equity, for the first quarter of 2014,
compared to $4.2 million, or 0.89% of average stockholders' equity,
for the fourth quarter of 2013. During the fourth quarter of 2013
the Company had lower operating expenses, primarily due to an
adjustment to the incentive compensation accrual as the Company
finalized its 2013 incentive compensation
determinations/awards.
(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 %
__________
(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.
* All percentages are annualized.
Financing
At March 31, 2014, the Company had financed its portfolio
with approximately $10.0 billion of borrowings under repurchase
agreements with a weighted average interest rate of 0.31% and a
weighted average maturity of approximately 43.4 days. In addition,
the Company had payable for securities purchased net of receivable
for securities sold of $1.6 billion. This compared to $11.2 billion
of borrowings under repurchase agreement with a weighted average
interest rate of 0.41% and a weighted average maturity of
approximately 39.9 days and $1.1 billion of payable for securities
purchased net of receivable for securities sold at
December 31, 2013. During the first quarter of 2014, the
Company did not experience material changes in the availability of
repurchase agreement borrowings or to haircuts on the Agency RMBS
and U.S. Treasury Securities that the Company uses as collateral
for such borrowings. The Company has taken steps to minimize its
counterparty risk by establishing relationships across the globe,
and diversifying borrowings across those counterparties. For
example, at March 31, 2014, the Company did not have
repurchase agreements outstanding with any one counterparty greater
than 7% of the total outstanding borrowings. Below is a summary by
region, of outstanding borrowings under repurchase agreements at
March 31, 2014 (dollars in thousands):
Counterparty Region Number of
Counterparties Total Outstanding Borrowings % of
Total North America 13 $ 4,835,974 48.3% Europe 8 3,070,489
30.7% Asia 5 2,107,585 21.0% Total 26 $ 10,014,048 100.0%
Hedging
The Company utilizes interest rate swap and cap contracts to
hedge the interest rate risk associated with the financing of its
Agency RMBS and U.S. Treasury Securities portfolio. As of
March 31, 2014, the Company had entered into interest rate
swap contracts with an aggregate notional amount of $5.8 billion, a
weighted average fixed rate of 1.09%, and a weighted average
expiration of 3.5 years. The receive rate on the Company's interest
rate swaps is three month LIBOR. At March 31, 2014, the
Company had entered into interest rate cap contracts with a
notional amount of $3.9 billion, a weighted average cap rate of
1.40%, and a weighted average expiration of 5.1 years. The
Company's interest rate swap and cap contracts outstanding at
March 31, 2014 are described below (dollars in thousands):
Interest Rate Swaps Weighted
Average Notional Fair Expiration Year
Fixed Pay Rate Amount Value 2016 1.71% $
550,000 $ (12,320 ) 2017 0.94% 3,250,000 27,981 2018 1.16%
2,000,000 23,842 Total 1.09% $ 5,800,000 $ 39,503
Interest Rate Caps Weighted Average
Notional Fair Expiration Year Cap Rate
Amount Value 2015 1.40% $ 500,000 $ 165 2019 1.56%
1,700,000 80,144 2020 1.25% 1,700,000 123,943 Total 1.40% $
3,900,000 $ 204,252
Drop Income
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. Drop
Income is the difference between the spot price and the forward
settlement price for the same security on trade date. This
difference is also the economic equivalent of the assumed net
interest margin (yield minus financing costs) of the bond from
trade date to settlement date. The Company derives Drop Income
through utilization of forward settling transactions.
The Company had Drop Income of $11.6 million, or $0.07 per
diluted common share during the first quarter of 2014, compared to
$12.8 million, or $0.07 per diluted common share, in the fourth
quarter of 2013.
Prepayments
The portfolio recorded $279.8 million in scheduled and
unscheduled principal repayments and prepayments, which equated to
a constant prepayment rate (“CPR”) of approximately 5.6% and net
amortization of premium of $10.3 million for the first quarter of
2014. This compared to $304.7 million in scheduled and unscheduled
principal repayments and prepayments, which equated to a CPR of
approximately 5.7% and net amortization of premium of $11.3 million
for the fourth quarter of 2013.
The CPR of the Company’s Agency RMBS portfolio was approximately
7.6% for the month of April 2014.
Dividend
The Company declared a common dividend of $0.32 per share for
the first quarter of 2014, unchanged from the fourth quarter of
2013. Using the closing share price of $8.26 on March 31,
2014, the first quarter dividend equates to an annualized dividend
yield of 15.5%.
Share Repurchase Program
In November 2012, the Company's board of directors authorized
the repurchase of shares of common stock having an aggregate value
of up to $250 million. During the first quarter of 2014, the
Company did not repurchase any shares. This compared to repurchases
of 5.2 million shares with a weighted average purchase price of
$8.28 per share, or approximately $43.3 million in the aggregate
for the fourth quarter of 2013. These purchases were accretive to
the Company's stockholders' equity at the time the shares were
repurchased.
Conference Call
The Company will host a conference call at 9:00 AM Eastern Time
on Tuesday, April 22, 2014, to discuss its financial results for
the quarter ended March 31, 2014. To participate in the call
by telephone, please dial 800.708.4539 at least 10 minutes prior to
the start time and reference the conference passcode 37084642.
International callers should dial 847.619.6396 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 at
http://www.cysinv.com. To listen to the live webcast, please visit
http://www.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 Tuesday, April 22, 2014,
at approximately 12:00 PM Eastern Time. To access this replay,
please dial 888.843.7419 and enter the conference ID number
37084642#. International callers should dial 630.652.3042 and enter
the same conference ID number. A replay of the conference call will
also be archived on the Company’s website at
http://www.cysinv.com.
Additional Information
The Company will make available additional quarterly information
for the benefit of its stockholders through a supplemental
presentation that will be available at the Company's website,
www.cysinv.com, contemporaneously with the filing of the Company's
quarterly report on Form 10-Q. The presentation will be available
on the Webcasts/Presentations tab of the Investor Relations section
of the Company's website.
About CYS Investments, Inc.
CYS Investments, Inc. is a specialty finance company that
primarily invests on a leveraged basis in 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. CYS
Investments, Inc. has elected to be taxed as a real estate
investment trust for federal income tax purposes.
Forward-Looking Statements Disclaimer
This Current Report on Form 8-K contains “forward-looking
statements” made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, including those
relating to interest rate volatility, the prices of Agency RMBS,
earnings, deployment of capital, yields, investment environment,
book value per common share, forward settling transactions, forward
yield, and the effect of actions of the U.S. government, including
the Fed, on our results. Forward-looking statements typically are
identified by use of the terms such as “believe,” “expect,”
“anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,”
“may” or similar expressions. Forward-looking statements are based
on the Company's beliefs, assumptions and expectations of the
Company's future performance, taking into account all information
currently available to the Company. The Company cannot assure you
that actual results will not vary from the expectations contained
in the forward-looking statements. All of the forward-looking
statements are subject to numerous possible events, factors and
conditions, many of which are beyond the control of the Company and
not all of which are known to the Company, including, without
limitation, market conditions and those described in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
2013, which has been filed with the Securities and Exchange
Commission. All forward-looking statements speak only as of the
date on which they are made. New risks and uncertainties arise over
time, and it is not possible to predict those events or how they
may affect us. Except as required by law, the Company is not
obligated to, and does not intend to, update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
CYS INVESTMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except per share numbers)
March 31,
2014 December 31, 2013* Assets:
Investments in securities, at fair value (including pledged assets
of $10,484,331 and $11,835,975, respectively) $ 13,314,680 $
13,865,793 Derivative assets, at fair value 261,522 295,707 Cash
and cash equivalents 13,396 4,992 Receivable for securities sold
and principal repayments 3,582 429,233 Interest receivable 33,984
36,731 Other assets 334 608 Total
assets 13,627,498 14,633,064
Liabilities and stockholders' equity: Liabilities:
Repurchase agreements 10,014,048 11,206,950 Derivative liabilities,
at fair value 17,767 29,458 Payable for securities purchased
1,641,598 1,556,821 Payable for cash received as collateral 37,956
37,938 Distribution payable 56,258 4,410 Accrued interest payable
(including accrued interest on repurchase agreements of $3,079 and
$7,204, respectively) 14,982 24,613 Accrued expenses and other
liabilities 1,616 4,218 Total
liabilities 11,784,225 12,864,408
Stockholders' equity: Preferred Stock, $25.00 par value,
50,000 shares authorized: 7.75% Series A Cumulative Redeemable
Preferred Stock, (3,000 and 3,000 shares issued and outstanding,
respectively, $75,000 in aggregate liquidation preference) $ 72,369
$ 72,369 7.50% Series B Cumulative Redeemable Preferred Stock,
(8,000 and 8,000 shares issued and outstanding, respectively,
$200,000 in aggregate liquidation preference) 193,531 193,531
Common Stock, $0.01 par value, 500,000 shares authorized (162,024
and 161,650 shares issued and outstanding, respectively) 1,620
1,616 Additional paid in capital 2,047,508 2,046,530 Accumulated
deficit (471,755 ) (545,390 ) Total stockholders'
equity $ 1,843,273 $ 1,768,656
Total liabilities
and stockholders' equity $ 13,627,498 $ 14,633,064
Book value per common share $ 9.68 $ 9.24
________ * Derived from audited financial statements.
CYS INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended (In thousands, except per
share numbers)
March 31, 2014 December 31,
2013 Interest income: Interest income from Agency RMBS $ 80,186
$ 91,739 Other interest income 4,181 4
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 ) Expenses: Compensation and benefits 3,629 2,401 General,
administrative and other 2,165 1,813
Total 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 )
Core Earnings:
Core Earnings represents a non-GAAP financial measure and 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. Management uses Core Earnings to evaluate the effective
yield of the portfolio. 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 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 and unrealized gain
(loss) on investments and swap and cap contracts. In addition, the
Company's presentation of Core Earnings may not be comparable to
similarly-titled measures of other companies, which 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 (In thousands)
March 31,
2014 December 31, 2013 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
CYS Investments, Inc.Richard E. Cleary, 617-639-0440Chief
Operating Officer
Cys Investments, Inc. (NYSE:CYS)
Historical Stock Chart
From Feb 2024 to Mar 2024
Cys Investments, Inc. (NYSE:CYS)
Historical Stock Chart
From Mar 2023 to Mar 2024