Cypress Sharpridge Investments, Inc. (



Q3 2010 Earnings Call Transcript

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October 21, 2010 9:00 am ET


Rick Cleary – COO and Assistant Secretary

Kevin Grant – Chairman, President and CEO

Frances Spark – CFO

Bill Shean – Managing Director, Investments.


Steve Delaney – JMP Securities

Bruce Harting – Barclays Capital

Jim Ballan – Lazard Capital Markets

Douglas Harter – Credit Suisse

Mike Widner – Stifel Nicolaus

Larry Ramon [ph]

Eugene Fox – Cardinal Capital Management

Jim Young – West Family Investment

Henry Coffey – Sterne Agee

Kevin Casey – Casey Capital



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Good morning and welcome to the Cypress Sharpridge Investments, Inc. third quarter 2010 earnings conference call. During management’s presentation your line will be in a listen-only mode. At the conclusion of management’s remarks there will be a question-and-answer session. (Operations instructions)

Management has asked me to remind you that certain information presented and certain statements made during management’s presentation with respect to future financial or business performance, strategies and expectations may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements indicate or are based on management’s beliefs, assumptions and expectations of the CYS future performance taken into account information currently in the Company’s possession. Beliefs, assumptions and expectations are subject to change, risk and uncertainties are result of possible events or factors, not all of which are known to management or within control.

If management’s underlying beliefs, assumptions and expectations prove incorrect or change than the company’s performance and its business, financial condition, liquidity and results of operations may vary materially from those expressed, anticipated or contemplated in any of the forward-looking statements. In any events actual results may differ.

Management invites you to refer to the forward-looking statements disclaimer contained in the Company’s annual report on Form 10-K filed with the SEC, which provides the description of some of the factors that could have the material impacts on the Company’s performance and could cause actual results to differ from those that maybe expressed in forward-looking statements.

The company has asked me to note that the content of this conference call contain time-sensitive information that is accurate only as of today, Thursday, October 21, 2010. The company does not intend to undertake no duty to update the informations like future events or circumstances.

For opening remarks and introductions I’ll now turn the call over to Rick Cleary, CYS’s Chief Operating Officer. Please go ahead, Mr. Cleary.

Rick Cleary

Thanks Keisha. Good morning and welcome to CYS’s 2010 third quarter earnings conference call. Today’s call is being recorded and access to the recording will be available on the Company’s website at starting at 3:00 P.M. this afternoon.

With me here this morning are Kevin Grant, the Company’s Chairman and CEO, Frances Spark, the company’s CFO and Bill Shean, Managing Director of Investments.

To better understand today’s discussion, it’ll be helpful to have the earnings release that we issued last night. This release is available at the investor relations section of our website and as in past releases the earnings release includes information regarding non-GAAP financial measures including reconciliation of those measures to GAAP measures which will be discussed on this call.

I’m pleased to turn the call over to Kevin.

Kevin Grant

Thank you, Rick, and good morning. Welcome to our third quarter 2010 earnings conference call. This was another good quarter for us. The portfolio is performing well and we did two capital raises in the past four months, so we are making a significant dent in the expense ratio and we are able to invest the capital very, very quickly, it’s very good spread. We feel very good about the timing of the raises and the timing of our new investments. On the portfolio authority in place, we continue to experience light prepayments owing to the stability of 15 year mortgages and we believe this can produce a stable net interest margin for many quarters to come.

We invested in new capital right away after the September raise and had all the trades executed before the Fed meeting on September 21. This was a key date and key time to help inform our timing decision. During the Jackson Hole conference Chairman Bernanke’s first surfaced the notion of further large-scale asset purchases also known as QE2 and if this would provide more benefits than costs for this fluttering economy in Bernanke’s view. So we felt that the next FOMC meeting on September 21 was a key date to inform our investing phase. This decision process allowed us to execute very swiftly after this past capital raise.

We continue to spend a lot of time on liability management, we took advantage of the market and reset some hedges at lower rates and we extended their maturities which we think will help continue the net interest margins for longer than originally planned. We are also starting to use small amounts of long dated caps. Now caps provide the cheapest insurance we can find anywhere against the surprise interest-rate move in case our view of the economy proves to be incorrect. This, insurance is very cheap right now and using cap should allow us once again to lock up more of the cheap financing for much longer. The September raise was motivated by the same reasons as the June raise. We felt spreads were still good, and we could take the opportunity to make further dent in the expense ratio.

We also wanted to improve the liquidity of our stock, really after suggested over a number of our shareholders. It was very helpful to get invested quickly. As we have done in the past, we entered into forward settling purchases and this reduces our cost bases by nearly a point and helps our net interest spread for as long as we have been owned that asset once it settles. We feel very good about the execution and timing of the offering. The new capital from the June offerings cut our expense ratio by 57 basis points and the September raise will cut the expense ratio further in Q4.

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