EX-99.1 2 d536174dex991.htm EX-99.1 EX-99.1
JMP Securities Research Conference
May 13, 2013
Exhibit 99.1
Investment Outlook -
May 2013
Kevin E. Grant, CFA
Chief Executive Officer

Forward
Looking Statements
2
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 future distributions and market conditions, 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 Company’s
distribution policy, changes in the Company’s ability to pay distributions, 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
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.

CYS Overview
3
Agency Residential Mortgage Backed Securities
Financing lines with 37
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
Dividend Policy
Ample Financing
Sources
Focus on Cost
Efficiency
Senior
Management
Target Assets
A Real Estate Investment Trust Formed in January 2006

CYS Goal:
Deliver Competitive Total Return Through Dividends
1
June 11, 2009 –
March 31, 2013
2
June 11, 2009 –
March 31, 2013
Source: Company filings , Bloomberg
4
-20.00
0.00
20.00
40.00
60.00
80.00
100.00
120.00
CYS: 84.0%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Q113:
0.94%
CYS vs. Bloomberg REIT Index, S&P 500¹, 6/2009 – 3/2013
CYS Expense Ratio²
(%), 6/2009 – 3/2013

Spread Environment: Becoming More Challenging,
However Hedging Rates Remain Historically Low
Yield Curve
Creates positive carry
Very low cost of financing
Good ROE
Hedge flexibility very important
Fed still fighting deflation
Mortgage Yields
(1)
Par-Priced 7/1 hybrid rates now 1.25%
30 Year fixed rates now 2.64%
15 Year fixed rates now 2.01%
Source; Bloomberg
(1) May 9, 2013
5
May 3, 2013
May 3, 2013
5/1 Hybrid Net Interest Margin: 1/2005 – 5/2013
5 Year Swap vs. 1 Month LIBOR: 1/2005 – 5/2013

Investment Environment
15
Year
Fixed
Hedged
with
Swaps:
1/2005
–
5/2013
Borrow Short
Invest Long
6
May 3, 2013
15 Year Hedged
(i)
15 Year Unhedged
(ii)
Source: Bloomberg.
Note: Spreads calculated as: (i) 15 year CC  Index  = 50% 4 year swap, and (ii) 15 year Current Coupon Index

7
Volatility in the Cap/Floor Markets Hit a Low in Mid-March
30 Yr MBS -
15 Yr MBS Spread
7 Yr Cap/Floor Implied Vol
Nov 2012 –
May 2013
April  2012 –
May 2013
30 Year MBS Cheapened Meaningfully Relative to 15 Year MBS
30 Year MBS Now Cheaper Than 15 Year MBS
May 3, 2013
May 3, 2013
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
40
45
50
55
60
65
70
75

Fed Voters:
Dovish, but Language Suggests ‘Operation Taper’
Duke
Tarullo
Yellen
Raskin
Powell
Stein
Pianalto
Dudley
Dudley
Evans
Rosengren
Bullard
George
Fisher
Kocherlakota
Plosser
Hawkish
Dovish
Neutral
Bernanke
2/22/13
There
are
legitimate
concerns associated with the costs
and benefits of continued asset
purchases.
3/8/13
it might be appropriate at some point
to adjust the pace of MBS purchases in
response to developments in primary or
secondary mortgage markets.
2/27/13
It
would
be
best
to
taper the
dose of QE so that markets can adjust
gradually to the eventual removal of
this treatment.
3/6/13
I would like the FOMC to
begin to taper these purchases with
an aim toward ending them before
the end of the year.
2/28/13
We
are
much
more
attuned
to 
monitoring financial markets, risk pricing,
and potential stress points in the financial
system
3/25/13
At
some
point,
I
expect
that
I
will
see
sufficient evidence of economic momentum to
cause me to favor gradually dialing back the pace
of asset purchases.
2013
Voters
2014
Voters
Source: federalreserve.gov, 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.
2/22/13
The idea of tapering the program at
some point in the future may be gaining
steam on the committee. 

The Fed’s Tools:
Forward Rate Guidance; OT2; QE3
•
With no operations after OT1, the Fed would own nearly 30% of the 10+ sector.
•
With OT2, that share would increase to over 40%.
Source: Macroeconomic Advisers, U.S. Treasury, Federal Reserve. Updated May 24, 2012.
9
Fed Ownership Shares of Nominal Notes and
Bonds in March 2013 with and without OT2
Fed Ownership of Treasuries Outstanding
Maturing in Over Ten Years

Central Banks:
Decidedly More Accommodative -
Focus on Global Deflation Risk
Xiaochuan
China
Bernanke
USA
Kuroda
Japan
Canada
Poloz
Australia
Stevens
New Zealand
Bollard
Draghi
EU
Tombini
Brazil
Subbarao
India
Hawkish
Dovish
Neutral
Draghi
EU
Subbarao
India
Xiaochuan
China
10
Bank of Canada Governor Mark Carney  will become Governor of the Bank of England on July 1, 2013, Stephen Poloz takes over the 
Bank of Canada on June 3 

Economic Recovery Below Normal Pace
U.S. Retail Gasoline Price, Regular Grade
1990
–
Present
$ per gal
Capacity Utilization: Manufacturing
1970
–
Present
%
Civilian Unemployment Rate
1940
-
present
%
CPI-U All Items, Core
1940
–
Present
%
Change
-
Year
to
Year
Total Nonfarm Private Payroll Employment
2000
-
present
000’s
Challenger, Gray & Christmas, Inc.
Job Cut Announcement Report
Q1/89
–
Q1/13,
by
Quarter
11
Source: S&P, Federal Reserve Bank of St. Louis, Fiserv, and Macromarkets LLC / Haver Analytics, BLS, Challenger, Gray & Christmas, US  Dept. of Energy, NYMEX

Mortgage Market Shrinkage Likely to Continue
Residential Mortgage Debt Decline Driven By:
1.
Declining home prices
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.
Growth in Residential
Mortgage Debt
2004 -2012
Source:  Deutsche Bank, BLS, LPS Applied Analytics, Financial Stability Oversight Council 2012 Annual Report
12
Mortgage Origination Volume
1990 -
2012

Economics of Forward Purchase
Source: Bloomberg 05/09/13
13

Portfolio Composition and Results
1
As of  3/31/12
Note: the 12/2012 dividend was composed of $0.40 regular cash, and $0.52 special dividend.
Total Agency RMBS: $20,063 million
14
15 Year Fixed:
46%
Hybrid ARMs:
17%
30 Year Fixed:
31%
20 Year
Fixed:
6%
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
CYS Agency RMBS Portfolio
1
CYS Common Stock Dividends: 9/2009 –
4/2013

Portfolio Characteristics
* As of 3/31/13
15
Par Value
Fair Value
Weighted Average
Asset Type
(in thousands)
Cost/Par
Fair
Value/Par
MTR
(1)
Coupon
CPR
(2)
15 Year Fixed Rate
$8,774,166
$9,228,421
$104.38
$105.18
N/A
2.98%
14.9%
20 Year Fixed Rate
1,059,923
1,112,782
104.94
104.99
N/A
3.16%
5.7%
30 Year Fixed Rate
5,957,689
6,283,218
105.14
105.46
N/A
3.53%
8.8%
Hybrid ARMs
3,282,679
3,438,118
103.70
104.74
74.5
2.64%
15.4%
Total/Weighted
Average
$19,074,457
$20,062,539
$104.53
$105.18
74.5
(3)
3.11%
13.4%
CYS Agency RMBS Portfolio Characteristics*
(1) MTR, or “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. After the fixed period, the interest rates on 100% of our hybrid ARMs reset annually.
(2) CPR, or “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 CPR 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 hybrid ARM portfolio.

History of Transparent and Consistent Financial Reporting
CYS uses Financial Reporting for Investment Companies
CYS Financial Reporting –
Transparent and Best in Class
Schedule of investments
NAVs have reflected mark-to-market accounting since inception
Realized and unrealized losses taken through income statement
in period incurred
No OCI account on balance sheet
16

Financial Information
(1)
Drop income is a component of our net income accounted for as net gain from investments on our statement of operations and therefore excluded from our Core Earnings.
(2)
Core earnings is defined as net income (loss) available to common shares excluding net gain (loss) on investments, net realized gain (loss) on termination of swap contracts and
unrealized appreciation (depreciation) on swap and cap contracts.
17
Income
Statement
Data
(in
000's)
3/31/2013
12/31/2012
Total investment income
$      73,101
$      79,579
Interest expense
15,031
16,378
Operating expenses
5,553
4,787
Total expenses
20,584
21,165
Net investment income
52,517
58,414
Net gain (loss) from investments
(78,811)
(95,994)
Net gain (loss) from swap and cap contracts
10,091
(2,363)
Net income (loss)
(16,203)
(39,943)
Dividend on preferred shares
(1,453)
(1,452)
Net income available to common shares
($17,656)
($41,395)
Net income per common share (diluted)
($0.10)
($0.24)
Drop
income
per
common
share
(diluted)
(1)
$0.15
$0.18
Core
Earnings
per
common
share
(diluted)
(2)
$0.17
$0.21
Distributions per common share
$0.32
$0.92
Non-GAAP
Measure/Reconciliation
(in
000's)
NET INCOME (LOSS) AVAILABLE TO COMMON SHARES
(17,656)
(41,395)
Net (gain) loss from investments
78,811
95,994
Net (gain) loss from termination of swap and cap contracts
(8,630)
0
Net unrealized (appreciation) depreciation on swap and cap contracts
(23,417)
(16,965)
Core Earnings
$29,108
$37,634

Financial Information
18
Three Months Ended
Key Metrics*
3/31/2013
12/31/2012
Average yield on settled Agency RMBS
(1)
1.80%
1.97%
Average cost of funds and hedge
(2)
1.05%
1.03%
Interest rate spread net of hedge
(3)
0.75%
0.94%
Interest rate spread net of hedge including drop income
(4)
1.16%
1.31%
Operating expense ratio
(5)
0.94%
0.76%
Leverage ratio (at period end)
(6)
7.8:1
7.7:1
As of
Balance
Sheet
Data
(in
000's)
3/31/2013
12/31/2012
Cash and cash equivalents
$13,463
$13,882
Receivable for securities sold
$414,936
$10,343
Repurchase agreements
$13,760,475
$13,891,307
Payable for securities purchased
$4,657,501
$4,515,501
Net assets
$2,322,076
$2,402,662
Net assets per common share
$12.87
$13.31
(1)
Our average yield on settled Agency RMBS for the period was calculated by dividing our interest income from Agency RMBS by our average settled Agency RMBS.
(2)
Our average cost of funds and hedge for the period was calculated by dividing our total interest expense, including our net swap and cap interest income (expense), by our
average repurchase agreements.
(3)
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.
(4)
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 total yield on
Agency RMBS including drop income. 
(5)
Our operating expense ratio is calculated by dividing operating expenses by average net assets.
(6)
Our leverage ratio was calculated by dividing (i) the Company’s repurchase agreements balance plus payable for securities purchased minus receivable for securities sold
by (ii) net assets.
*           All percentages are annualized.

JMP Securities Research Conference
May 13, 2013
Investment Outlook -
May 2013
Kevin E. Grant, CFA
Chief Executive Officer