CYS Investments, Inc. (NYSE: CYS) (“CYS”, "we", "our", or the
“Company”) today announced financial results for the quarter ended
September 30, 2014.
Third Quarter 2014 Summary Results
- September 30, 2014 book value per
common share of $10.14, after declaring a $0.30 dividend per common
share on September 9, 2014.
- September 30, 2014 leverage ratio
of 6.63 to 1.
- GAAP net income available to common
shareholders of $19.8 million, or $0.12 per diluted common
share.
- Core earnings plus drop income of $49.7
million ($32.5 million core earnings and $17.2 million drop
income), or $0.31 per diluted common share ($0.20 core earnings and
$0.11 drop income).
- Operating expenses of 1.25% of average
stockholders' equity.
- Interest rate spread net of hedge
including drop income of 1.60%.
- Weighted average amortized cost of
Agency RMBS and U.S. Treasuries of $103.63.
- Constant Prepayment Rate of 9.3% for
the quarter.
Market Commentary
In the third quarter of 2014, the 10-year U.S. Treasuries rate
fell 4 basis points ("bps"), following a 19 bps decline in the
second quarter. The yield on 10-year U.S. Treasuries ended the
third quarter of 2014 at 2.49%, or 224 bps above the Federal Funds
Target Rate ("Fed Funds Rate"). Notwithstanding what appeared to be
a stable interest rate environment, Agency RMBS prices cheapened in
September, as the market continued to react to speculation and the
prospect of rising short-term interest rates. Despite signs of a
weakening global economy, strength in U.S. payrolls continue to
support the Fed’s guidance that the Federal Reserve Open Market
Committee ("FOMC") may begin to slowly raise short-term rates
sometime in 2015. However, the very slow rate of growth in wages
will likely temper the Fed’s path of rate rises. The Fed calls this
“Policy Normalization” and it is likely to happen very slowly.
However, the global bond markets are expressing a different
consensus: given the economic deceleration in Europe, Asia, and the
emerging markets, an economic slowdown has become more probable in
the U.S., and therefore longer-term bond yields should be much
closer to government bond yields in other developed markets such as
Germany and Japan. As a result, global demand for U.S. government
bonds and Agency RMBS has been strong. Additionally, the tight
lending rules created by the Dodd-Frank legislation have greatly
diminished the supply of Agency RMBS. Because of growing global
demand and diminished supply, Agency RMBS performed well relative
to other bond sectors in the third quarter of 2014.
As we entered the fourth quarter of 2014, U.S. interest rates
fell across the U.S. Treasury yield curve upon the reporting of the
minutes from the September FOMC meeting, indicating that the timing
and velocity of increasing the Fed Funds Rate and tighter monetary
policy remain data dependent amid strong concerns about the
sluggish world economy and strength of the dollar. In addition,
while U.S. unemployment claims are dropping, FOMC members judged
that there remained significant underutilization of domestic labor
resources. This news brought on declines in interest rates and sent
Agency RMBS prices higher. Although the Fed has indicated that it
will end Agency RMBS purchases in October 2014, because the Fed
will continue to purchase Agency RMBS with the principal and
interest payments it receives from the Agency RMBS it holds in its
portfolio, we expect strong demand for Agency RMBS to continue, and
that this will encourage low mortgage rates. In the beginning of
the fourth quarter of 2014, rates on U.S. Treasuries have declined
while mortgage rates have lagged this drop.
In the third quarter of 2014, we endeavored to increase our
earnings power while reducing our interest rate risk. On the asset
side, we added approximately $1.5 billion of 30-year Agency RMBS
and $0.3 billion of 15-year Agency RMBS, and sold approximately
$1.5 billion of U.S. Treasuries. On the hedge side, we added to and
lengthened our hedging position by adding a 7-year $400 million
notional amount interest rate swap cancelable in July 2015. The
combination of replacing U.S. Treasuries with higher-yielding
Agency RMBS and adding to our hedge position should help improve
our earnings power while reducing our interest rate risk.
The forward settling to-be-announced ("TBA") market in the
Agency RMBS sector continued to offer good opportunities. At
September 30, 2014, approximately 14.7% of our Investments in
securities, at fair value, or approximately $2.1 billion, was
deployed in TBA transactions. This compared to 17.1%, or
approximately $2.4 billion, at June 30, 2014. Year to date, we have
been active in the TBA market due to favorable financing terms and
positive dollar roll gains.
We believe that regulatory and macroeconomic factors, and
specifically the interest rate environment, should limit
prepayments on our existing Agency RMBS and the supply of new ones;
therefore, our recent Agency RMBS purchases should perform well and
help us improve our earnings power. As the Fed continues to taper
its asset purchases and ends its purchasing program altogether, we
anticipate buying opportunities will present themselves in the
coming quarters. We believe that we have significant liquidity and
access to capital to take advantage of these opportunities when
they arise.
Leverage & Liquidity
The Company's leverage increased modestly during the third
quarter of 2014, as the Company added to its borrowings in order to
fund its recent purchases of Agency RMBS, ending the third quarter
of 2014 with a leverage ratio of 6.63 to 1, compared to 6.35 to 1
at June 30, 2014.
At September 30, 2014, the Company’s liquidity position,
consisting of unpledged Agency RMBS, U.S. Treasuries and cash, was
approximately $1.4 billion, or 72.1% of stockholders' equity,
compared to $1.5 billion, or 76.4% of stockholders' equity, at
June 30, 2014.
Portfolio
The Company increased its Agency RMBS portfolio to $13.9 billion
at September 30, 2014, from $12.2 billion at June 30,
2014, adding approximately $1.5 billion and $0.3 billion to the
portion of the Agency RMBS portfolio backed by 30-year and 15-year
mortgages, respectively. During the third quarter of 2014 the
Company sold approximately $1.5 billion of U.S. Treasuries. These
investing activities pushed the aggregate portfolio value to $14.5
billion at September 30, 2014, compared to $14.2 billion at
June 30, 2014. The following tables detail the Company's
Agency RMBS and U.S. Treasuries ("Debt Securities") portfolio at
September 30, 2014 and June 30, 2014.
September 30, 2014 June 30, 2014
Fair Value (in billions) % of Total Fair
Value (in billions) % of Total 15 Year Fixed Rate
$ 6.7 46 % $ 6.4 45 % 20 Year Fixed Rate 0.1 1 % 0.1 1 % 30 Year
Fixed Rate 5.2 36 % 3.7 26 % Hybrid ARMs 1.9 13 % 2.0 14 % U.S.
Treasury Securities 0.6 4 % 2.0 14 % Total $ 14.5
100 % $ 14.2 100 %
The Company’s September 30, 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 $ 6,422,985 $ 6,670,579 $
102.89 $ 103.85 2.20 % 3.17 % 8.5 % 20 Year Fixed Rate 71,568
78,005 102.98 108.99 1.34 % 4.50 % 15.4 % 30 Year Fixed Rate
4,987,788 5,267,793 105.13 105.61 2.97 % 4.02 % 5.9 % Hybrid ARMs
(3) 1,857,254 1,901,530 103.48 102.38 1.94 % 2.57 % 15.5 % U.S.
Treasury Securities 560,000 556,150 99.33
99.31 1.77 % 1.63 % NA Total $ 13,899,595 $
14,474,057 $ 103.63 $ 104.13 2.42 % 3.34 % 9.2
%
__________
(1) This is a forward yield and is calculated based on the cost
basis of the security at September 30, 2014.
(2) Constant prepayment rate ("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 3-month prepayment rate for those
bonds held at September 30, 2014. Securities with no
prepayment history are excluded from this calculation.
(3) The weighted-average months to reset of our Hybrid
Adjustable Rate Mortgages ("Hybrid ARM") portfolio was 59.8 at
September 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.
Our duration gap widened very slightly to 1.16 at September 30,
2014 versus 1.06 at June 30, 2014. As of October 17, 2014, our
duration gap has narrowed somewhat due to the fall in interest
rates in October 2014.
Third Quarter 2014 Results
The Company’s book value per common share on September 30,
2014 was $10.14, compared to $10.31 at June 30, 2014. The
decrease in book value was due principally to a decline in prices
of Agency RMBS during the quarter ended September 30, 2014.
The Company had net income available to common shareholders of
$19.8 million during the third quarter of 2014, or $0.12 per
diluted common share, compared to net income of $153.2 million, or
$0.95 per diluted common share, in the second quarter of 2014. The
decrease in net income was largely attributable to a swing in net
unrealized loss to $(112.1) million in the third quarter of 2014
from a net unrealized gain of $157.5 million in the second quarter
of 2014. The net unrealized loss on investments in the third
quarter of 2014 is due principally to a decline in Agency RMBS
prices.
During the third quarter of 2014, the Company had core earnings
plus drop income (both terms defined below) of $49.7 million, or
$0.31 per diluted common share, comprised of core earnings of $32.5
million, or $0.20 per diluted common share, and drop income of
$17.2 million, or $0.11 per diluted common share. This compares to
core earnings of $33.8 million, or $0.21 per diluted common share,
and drop income of $19.4 million, or $0.12 per diluted common
share, in the second quarter of 2014.
The Company's net interest income was $43.7 million in the third
quarter of 2014, down approximately $1.2 million from $44.9 million
in the second quarter of 2014. In the third quarter of 2014, total
interest income increased approximately $5.1 million due primarily
to replacing U.S. Treasuries with higher yielding 30-year Agency
RMBS; however, this increase was more than offset by higher swap
and cap interest expense, which rose by $6.3 million in the third
quarter as a result of our adding additional longer-dated swaps in
June and July 2014.
The Company’s net interest spread, net of hedge and including
drop income, was 1.60% for the third quarter of 2014, compared to
1.78% for the second quarter of 2014. The overall decrease in net
interest spread, net of hedge and including drop income, was
primarily due to a 21% increase in average cost of funds and
hedges, from 1.08% in the second quarter of 2014 to 1.31% in the
third quarter, as well as a decline in the yield attributable to
drop income.
The Company had a net realized gain and unrealized loss from
investments of $(71.6) million for the third quarter of 2014,
compared to a net realized and unrealized gain from investments of
$190.6 million for the second quarter of 2014. Included in this was
$19.2 million in realized dollar roll gains in the third quarter of
2014, and $28.0 million in realized dollar roll gains in the second
quarter of 2014. The net loss on investments in the third quarter
of 2014 was driven mostly by a drop in prices for our Agency RMBS,
and the lower dollar roll gains in the third quarter were a
function of a less attractive TBA market due in part to falling
Agency RMBS prices.
The Company’s operating expenses remained stable in the third
quarter of 2014 at $6.0 million, or 1.25% of average stockholders'
equity, for the third quarter of 2014, compared to $6.0 million, or
1.26% of average stockholders' equity, for the second quarter of
2014.
During the third quarter of 2014, the average TBA balance in the
portfolio was $2.2 billion, an increase of $183 million compared to
the second quarter average balance of $2.0 billion, and relative to
the portfolio was approximately 15% in both the third and second
quarters of 2014. While the average TBA balance in the portfolio
rose slightly in the third quarter of 2014, drop income fell as the
TBA market was slightly less attractive due in part to falling
Agency RMBS prices.
(in thousands)
Three Months Ended Key Balance
Sheet Metrics September 30, 2014 June 30,
2014 March 31, 2014 Average settled Debt
Securities (1) $ 11,837,201 $ 11,599,873 $ 12,472,238
Average total Debt Securities (2) $ 14,138,849 $ 13,711,749 $
13,454,972 Average repurchase agreements (3) $ 10,189,360 $
9,981,049 $ 10,867,627 Average Debt Securities liabilities (4) $
12,491,008 $ 12,092,925 $ 11,850,361 Average stockholders' equity
(5) $ 1,937,700 $ 1,916,575 $ 1,861,121 Average common shares
outstanding (6) 162,008 162,031 161,831 Leverage ratio (at period
end) (7) 6.63:1 6.35:1 6.32:1
Key Performance
Metrics* Average yield on settled Debt Securities (8) 2.61 %
2.48 % 2.71 % Average yield on total Debt Securities including drop
income (9) 2.67 % 2.67 % 2.85 % Average cost of funds(10) 0.30 %
0.30 % 0.35 % Average cost of funds and hedge (11) 1.31 % 1.08 %
1.04 % Adjusted average cost of funds and hedge (12) 1.07 % 0.89 %
0.96 % Interest rate spread net of hedge (13) 1.30 % 1.40 % 1.67 %
Interest rate spread net of hedge including drop income (14) 1.60 %
1.78 % 1.89 % Operating expense ratio (15) 1.25 % 1.26 % 1.25 %
__________
(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 for the period is calculated by
dividing repurchase agreement interest expense by average
repurchase agreements for the period.
(11) The average cost of funds and hedge for the period is
calculated by dividing interest expense by average repurchase
agreements.
(12) The adjusted average cost of funds and hedge for the period
is calculated by dividing interest expense by average total Debt
Securities liabilities.
(13) 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.
(14) 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.
(15) The operating expense ratio for the period is calculated by
dividing operating expenses by average stockholders' equity.
* All percentages are annualized.
Financing
During the third quarter of 2014, the Company had financed its
portfolio with approximately $10.2 billion of borrowings under
repurchase agreements with a weighted-average interest rate of
0.30%. This compared to borrowings of $10.0 billion under
repurchase agreements with a weighted-average interest rate of
0.30% during the second quarter of 2014.
During the third quarter of 2014, the Company did not experience
material reductions in the availability of repurchase agreement
borrowings or to haircuts on the Debt Securities that the Company
uses as collateral for such borrowings. The Company has taken steps
intended to minimize its counterparty risk by diversifying its
borrowings across its global counterparties, and by increasing the
number of counterparties from whom we may seek borrowings. The
Company added two counterparties during the third quarter of 2014,
and at September 30, 2014, the Company did not have borrowings
under any one repurchase agreement with a counterparty that
amounted to greater than 6% of our total outstanding borrowings.
Since December 31, 2013, we have increased the number of our
master repurchase agreements with financial institutions from 37 to
45 at September 30, 2014. Below is a summary, by region, of
outstanding borrowings under repurchase agreements at
September 30, 2014 (dollars in thousands):
Counterparty Region Number of
Counterparties Total Outstanding Borrowings % of
Total North America 16 $ 4,926,591 47.4 % Europe 11 3,456,021
33.2 % Asia 5 2,020,476 19.4 % Total 32 $
10,403,088 100.0 %
In addition, the Company had payables for securities purchased
net of receivable for securities sold of $2.3 billion at September
30, 2014, compared to $2.5 billion of payables for securities
purchased net of receivable for securities sold at June 30,
2014.
Hedging
The Company utilizes interest rate swap and cap contracts to
hedge the interest rate risk associated with the financing of our
Agency RMBS and U.S. Treasuries portfolio. As of September 30,
2014, the Company had entered into interest rate swap contracts
with an aggregate notional amount of $7.7 billion, a weighted
average fixed rate of 1.39%, and a weighted average expiration of
4.1 years. The receive rate on the Company's interest rate swaps is
the 3-month London Interbank Offered Rate ("LIBOR"). At
September 30, 2014, the Company had entered into interest rate
cap contracts with a notional amount of $2.5 billion, a weighted
average cap rate of 1.28%, and a weighted average expiration of 5.3
years.
In the third quarter of 2014, the Company added a 7-year $400
million notional amount swap cancelable in July 2015. We continue
to seek to reduce the Company’s exposure to interest rate risk by
expanding and lengthening the overall tenor of the Company’s hedge
book.
The Company's interest rate swap and cap contracts outstanding
at September 30, 2014 are described below (dollars in
thousands):
Interest Rate Swaps Weighted
Average Notional Fair Expiration Year
Fixed Pay Rate Amount Value 2017 0.94 % $
3,250,000 $ 31,031 2018 1.16 % 2,000,000 25,311 2019 1.75 % 800,000
3,792 2021 2.43 % 1,600,000 2,026 Total 1.39 % $ 7,650,000
$ 62,160
Interest Rate Caps Weighted
Average Notional Fair Expiration Year
Cap Rate Amount Value 2019 1.34 % $ 800,000 $
34,987 2020 1.25 % 1,700,000 103,076 Total 1.28 % $
2,500,000 $ 138,063
Drop Income
"Drop income" is a component of our net realized and unrealized
gain (loss) on investments in our interim 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 Agency RMBS on trade date. This
difference is also the economic equivalent of the assumed net
interest spread (yield less financing costs) of the Agency RMBS
from trade date to settlement date. The Company derives drop income
through utilization of forward settling transactions of Agency
RMBS.
The Company's drop income and average TBA market values
outstanding during the third quarter and second quarter of 2014 are
shown in the chart below (dollars in thousands):
September 30, 2014 June 30, 2014
Change Drop income $ 17,164 $ 19,457 $ (2,293 ) TBAs average
market value 2,207,949 2,025,327 182,622
Prepayments
The portfolio recorded $374.6 million in principal repayments
and prepayments, which equated to a CPR of approximately 9.3% and
net amortization of expense of $14.7 million for the third quarter
of 2014. This compared to $294.7 million in principal repayments
and prepayments, which equated to a CPR of approximately 7.6% and
net amortization expense of $11.1 million for the second quarter of
2014. The Company believes that the increase in CPR was principally
due to seasonal factors and continued low mortgage refinance
rates.
Dividend
The Company declared a common dividend of $0.30 per share for
the third quarter of 2014, compared to a $0.32 common dividend in
the second quarter of 2014. Using the closing share price of $8.24
on September 30, 2014, the third quarter dividend equates to
an annualized dividend yield of 14.6%.
Share Repurchase Program
On November 15, 2012, the Company announced that its Board
of Directors had authorized the repurchase of shares of the
Company’s common stock having an aggregate value of up to $250
million. Since this program was authorized, the Company repurchased
approximately $115.7 million in aggregate value of its shares of
common stock on the open market. On July 21, 2014, the Company
announced that its Board of Directors had authorized the repurchase
of shares of the Company's common stock having an aggregate value
of up to $250 million, which includes the approximately $134.3
million still available for repurchase under the November 2012
authorization. In July 2014, pursuant to the program, the Company
repurchased 39,800 shares of its common stock in open market
transactions with a weighted-average purchase price of $8.86 per
share for $353,584. Accordingly, the Company still had
approximately $249.6 million available to repurchase shares of its
common stock as of September 30, 2014.
Conference Call
The Company will host a conference call at 9:00 AM Eastern Time
on Tuesday, October 21, 2014, to discuss its financial results
for the quarter ended September 30, 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 38251627#. International callers should dial (847)
619-6396 and reference the same passcode. The conference call will
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, October 21,
2014, at approximately 12:00 PM Eastern Time through Tuesday,
November 4, 2014 at approximately 11:00 AM Eastern Time. To access
this replay, please dial (888) 843-7419 and enter the conference ID
number 38251627#. 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 treated as a real estate
investment trust for federal income tax purposes.
Forward-Looking Statements Disclaimer
This Report 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 and supply of Agency RMBS, earnings,
deployment of and access to capital, yields, investment
environment, interest rates, hedges, forward settling transactions,
liquidity, prepayments, 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, and Quarterly Report on Form
10-Q for the quarter ended June 30, 2014, which have 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)
September 30, 2014
June 30, 2014
March 31, 2014
December 31, 2013* Assets: Investments
in securities, at fair value (including pledged assets of
$10,953,155, $10,373,874, $10,484,331 and $11,835,975,
respectively) $ 14,481,002 $ 14,204,107 $ 13,314,680 $ 13,865,793
Derivative assets, at fair value 203,657 165,487 261,522 295,707
Cash 10,370 16,736 13,396 4,992 Receivable for securities sold and
principal repayments 214,578 74,591 3,582 429,233 Interest
receivable 36,158 32,790 33,984 36,731 Other assets 688 986
334 608 Total assets 14,946,453
14,494,697 13,627,498 14,633,064
Liabilities and stockholders' equity: Liabilities:
Repurchase agreements 10,403,088 9,873,837 10,014,048 11,206,950
Derivative liabilities, at fair value 3,434 19,799 17,767 29,458
Payable for securities purchased 2,519,002 2,562,827 1,641,598
1,556,821 Payable for cash received as collateral 16,212 12,944
37,956 37,938 Distribution payable 53,008 56,256 56,258 4,410
Accrued interest payable (including accrued interest on repurchase
agreements of $2,919, $3,838, $3,079 and $7,204, respectively)
28,874 20,284 14,982 24,613 Accrued expenses and other liabilities
5,109 3,034 1,616 4,218 Total
liabilities 13,028,727 12,548,981 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 shares issued and
outstanding, respectively, $75,000 in aggregate liquidation
preference) $ 72,369 $ 72,369 $ 72,369 $ 72,369 7.50% Series B
Cumulative Redeemable Preferred Stock, (8,000 shares issued and
outstanding, respectively, $200,000 in aggregate liquidation
preference) 193,531 193,531 193,531 193,531 Common Stock, $0.01 par
value, 500,000 shares authorized (161,995, 162,019, 162,024 and
161,650 shares issued and outstanding, respectively) 1,620 1,620
1,620 1,616 Additional paid in capital 2,049,507 2,048,619
2,047,508 2,046,530 Accumulated deficit (399,301 ) (370,423 )
(471,755 ) (545,390 ) Total stockholders' equity $ 1,917,726
$ 1,945,716 $ 1,843,273 $ 1,768,656
Total liabilities and stockholders' equity $
14,946,453 $ 14,494,697 $ 13,627,498 $
14,633,064
Book value per common share $ 10.14
$ 10.31 $ 9.68 $ 9.24
CYS INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended (In thousands, except per
share numbers)
September 30, 2014 June 30,
2014 March 31, 2014 Interest income:
Interest income from Agency RMBS $ 74,052 $ 65,420 $ 80,186 Other
interest income 3,080 6,558 4,181 Total
interest income 77,132 71,978 84,367
Interest expense: Repurchase agreement interest expense 7,657 7,583
9,423 Swap and cap interest expense 25,789 19,456
18,923 Total interest expense 33,446 27,039
28,346 Net interest income 43,686
44,939 56,021 Other income (loss): Net
realized gain (loss) on investments 40,470 33,118 16,670 Net
unrealized gain (loss) on investments (112,085 ) 157,479 89,234 Net
realized gain (loss) on termination of swap and cap contracts —
(6,004 ) (9,323 ) Net unrealized gain (loss) on swap and cap
contracts 58,909 (65,181 ) (16,240 ) Other income 50 50
119 Total other income (loss) (12,656 )
119,462 80,460 Expenses: Compensation and
benefits 3,767 3,712 3,629 General, administrative and other 2,278
2,308 2,165 Total expenses 6,045
6,020 5,794 Net income (loss) $ 24,985
$ 158,381 $ 130,687 Dividends on preferred
stock (5,203 ) (5,203 ) (5,203 ) Net income (loss) available
to common shares $ 19,782 $ 153,178 $ 125,484
Net income (loss) per common share basic & diluted $
0.12 $ 0.95 $ 0.78
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 after operating expenses. 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)
September 30,
2014 June 30, 2014 March 31, 2014
NET INCOME (LOSS) AVAILABLE TO COMMON SHARES $ 19,782 $ 153,178
$ 125,484 Net realized (gain) loss on investments (40,470 )
(33,118 ) (16,670 ) Net unrealized (gain) loss on investments
112,085 (157,479 ) (89,234 ) Net realized (gain) loss on
termination of swap and cap contracts — 6,004 9,323 Net unrealized
(gain) loss on swap and cap contracts (58,909 ) 65,181
16,240 Core earnings $ 32,488 $ 33,766
$ 45,143
CYS Investments, Inc.Richard E. Cleary, 617-639-0440Chief
Operating Officer
Cys Investments, Inc. (NYSE:CYS)
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