ARR - Earnings call transcript Q3 2017 | ARMOUR Residential REIT, Inc.

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Operator

Welcome to the ARMOUR Residential REIT Incorporated Third Quarter 2017 Conference Call. Today's call is being recorded. At this time for opening remarks and introductions I would now like to turn the call over to Mr. Jim Mountain, Chief Financial Officer of ARMOUR Residential REIT. Please go ahead.

James Mountain

thank call. for and quarter ARMOUR's operator, earnings XXXX you, you joining all third Thank By everyone found morning, Form This now, XX-Q, release ARMOUR's which and earnings can be on website. has ARMOUR's access to call fact therefore, of historical Private conference recitations the Reform Litigation statements and may are constitute that This not statements Act of Securities within forward-looking meaning contain of XXXX. the are intended Safe provided by to to Harbor subject statements Reform be forward-looking such All Act. protection expressed from Actual many by or outcomes of results results outcomes and to factors of control implied materially forward-looking impact the due differ the statements ARMOUR. these and could the beyond Certain with the to forward-looking results Securities Commission. the factors ARMOUR's Risk differ in included are those of in and the Exchange contained cause that statements could Factor filed materially reports actual section from periodic SEC's available website www.sec.gov. are on at Copies the forward-looking and All today's of call included without conference notice. change this statements only are as made in are to subject date obligation required our any forward-looking disclaim update unless statements to We law. by to today may Also, non-GAAP certain include our discussions reference measures. these of most which is in on measures the reconciliation A measures ARMOUR's release, be found our can comparable included earnings GAAP website. to An shortly will for online be year. call conference one and continue ARMOUR's on replay this available of website will per was GAAP common quarter or ARMOUR third share. $XX.X million net income $X.XX court. $X.XX Core XX.X% return the on that the based at per earnings equity on million were represents $XX.X or of beginning of share common an annualized book value dropped income gains GAAP are the unrealized income mostly of core and Differences TBA and our to contracts. between interest due on rate treatment while factor agency directly for interest income the swaps to the the securities value open fair hedge GAAP rate related our ARMOUR shareholders' in in on mark does dominant of a not GAAP equity. closed reporting inversely accounting fluctuations and market use is our in or per $X.XX per month share $X.XX of of share million $XX.X of QX dividends each the for for a total quarter. pay during We common of record per dividends per shareholders be as for on will XXXX. Tomorrow pay XX, XXXX we of common dividends $X.XX also October we November announced share November which share and $X.XX will payable of XX, for common have November of XXXX up was XX, the book share September value quarter. per $XX.XX common ARMOUR's over At X.X%

As quarter-end of a share our ARMOUR's of billion reminder company in our portfolio X.X www.armourreit.com. we include estimates value securities updates book agency consisted per available plus website another million our of positions. agency on TBA X.X monthly updated

CRT this some Our totaled temporary X/XXths billion the the have often as XXXX. as end market digested positions positions spreads of saw but of month. at September on quarter $X widening news a the hurricane those back in These concerns the come initial of

financed the agreement $X.X of Our notional of approximately backed rate securities of coverage hedge under billion end was with borrowings $X.X repo September. totaled portfolio mortgage ARMOUR's at interest billion position

over discuss now more position highlights, like in turn our portfolio and co-Chief detail. Jeff Executive Ulm ARMOUR's the to Scott I'd strategy officers Zimmer these to to current and With call

Scott Ulm

X.X% return listeners few state surprises filed last earnings our analysts substantial we total should report shareholders total of any realized our information repo the morning filings for also about of provide comments we Jim. with to well information to update company. approximately of not including update our the today. and reinvested and company the our updates of the site. during call dividends our Thanks, continue considerable available SEC Good at the economic Thus, with These shareholder financing furnished amount of company make contains in as along everyone provide EDGAR XXXX The financial return ARMOUR and book as on we addition company on the book. hedge the a which for quarter analysed. the third and customary portfolio, company quarterly our night SEC XX% is of contain a

the last declared income core for dividends paid as and Additionally, quarters. it has exceeded five

quarter. third the Our book X.X% value by during increased

value As X.X% the XX, $XX.XX end quarter. third of down our was of October book the since and

leverage X.X TBA to X. in of X results positions X.X is leverage Our our ratio unfunded adding to funded

continue leave us value they the some investment the We to agency take with of The third assets powder CPR dry appear. increased X.X our market. ratios to X.X to compelling advantage liquidity rate see our in further the quarter These the from and in agency on opportunities second leverage sectors quarter. should quarter prepayment during of in CPR

TBA portfolio is that prepayment through balances X.X contractual a or assets of with agency portfolio, paid note in October. good Please protection lower composed lockouts. CPR Our loan portion our of prepayment excluding

active to Our end notional remains at quarter end the the and the swap position consistent quarter. of second decreased at third reasonably financing the billion of billion $X.X $X.X from has our financing Repo for currently business XX counterparties the is $X.X total end those, the of with third and with for plan. quarter. priced ARMOUR of of billion XX MRAs at maintains

security maturity or loan XX.X% the the bonds. affiliate delegated the our quarter, like the the provide of bonds on bullet-like portfolio those our is At maturity approach time, out was seasoning of multifamily years our a balance of contribute benchmark or period of potential to final comprised treasury we well The the addition, was year as comprised portfolio of Any a bonds equal Securities of weighted of prepayment Financing due years. Mae In the the between of including and received the less The servicing have of is weighted XX.X% to The or X TBA particularly fourth bonds. lockout buckler of funds. part locked enhance pass-throughs, X.X was expected of the trade our the a early components lower BUCKLER XX months. and maturing bond maturity agency DUS fixed portfolio prepayments dollar comprised penalties rolls. or the note. DUS, for XX.X% XXX much greater payoffs balances bonds underwriting treasury providing average of our maturity. with had end than of the are X-year among their of Fannie At major which own generally XXX agency expected comprised to $XXX,XXX. down rates XX-year less. $XXX,XXX the agency early for DUS end operational became and financing stands third cost first corporate XX.X% they like during areas means from XX can through they tried assets not quarter, of a portfolio had to as these XX-year of great curve XX-year to maturity third tighter, X.X as to average pass-throughs a XX note, us currently of agency months. quarter. loan of XX.X% end over roll yield

a bonds second these DUS in penalty. quarter are addition, $X.XX. These not any quarter. early to We In redemption third the an benefit penalties subject of in have by redemption substantial the did

Our X reset with ARM X% dollar months. quarter, third our assets of $XX.X mil a the notional rolls position, billion. of end the of we a weighted net of agency At average had had $X.X value

TBA to or at continue actively versus of levels bonds. see increase We attractive dollar depending financing return and this We owning rolls very may monitor certain rolls in decrease and dollar returns and lower We risks going position, conditions. a multiple attractiveness assets risks provide and nonagency and to leverage at forward. our us reduce will believe market with the associated in on stable current the investments attractive operate swaps. that Enable

is equity nonagencies allocation approximately XX%. Our to

up think we percentage line think capital our not repo gross were liquidity as of valued or statistic, allocation haircuts much about of our bright part our end As risk in third the at haircuts tied is is equity to nonagency larger of that and to liquidity each portfolio transfer sector. and will the that up is in $XXX.X while support million define CRTs equity purest Equity balance of share way the XX.X% to quarter the tied agencies on financing the We credit financing in represented allocation ARMOUR's available equity any securities allocations portfolio. committed at that our portfolio. from a haircuts is a sheet.

by the this XX the We that in sector occurred carry. and tightening the has rewarded both have attractive by over spread last months been

take the coupon. an of bonds. rate the trending mortgage quarter underpinning a and housing Strong the weighted In Fannie up provided of have underwriting end average transactions, floating quality X.X%. was recent CRT we third of credit of of for Our robust X.X% coupon margin the underwriting the CRT a with CRT to credit average uncapped weighted return as risk the

In securities that upgrades. increasing over these time enhancement addition, from credit benefit to credit can rating lead

the securities candidates of disaster. for XXXX test our has of prior portfolio At several MBS of MBS. the improved upgraded of to spread see future. in opportunities also historically we spreads $XX hurricane these the the securities The the very today's upgrade after One a third owned the end investment. At investment has we other be and and resilience the recent and grade, securities as of widen class. initially natural feel nonagency provided will been tight tightened quarter securities the the In asset but levels. for million again Today, legacy few nonagency ARMOUR hurricanes, to

market a period hope they to for as securitization continue perform we assets continued However, existing Like from off. well that participants, our run jumbo many market. revival to in

exposure past, is the jumbo issue While million. amounts MBS significant owned more only new our $XX.X we've in

to quarter and mortgage spreads Our rates, first have underway, the and familiar reinvestment prepayments. for tapering, market. of on is impact all is The first a seems feds far, the concerns of and issue minimal so

the coming net well months could that So as over supply and lessons reinvestment change increases.

In policy. the have as the for positions as addition, Fed that markets likely affect tone well leadership we will

we sustainable With Operator, hedging this our going likely to market the questions, The The expect relatively on We'll earn our our in for stock We to remarks. allowing is with and reflect continues Fed continue a portfolio our risk, pace. prepared rates. negative effects us expect December. at on opportunities dividend, hike growth another concludes modest still investment economy positive operations. will and administration an thank indicator, this hold both feel take any U.S. while temper policy Trump funding of progress which that quarter heightened Higher but prepayments. we to you. position with current to now potential make the as into based our rates

Operator

And our the Securities. Trevor [Operator first comes JMP of from line Cranston Instructions]. with question

Trevor Cranston

the rates in able do over of what terms First Securities of BUCKLER? to through more is fourth coming financing next be online able also, much be goal couple traditionally quarter. versus question to on the some get through BUCKLER repo? how in Can sort quarters you'll the expect you you achieve with of think you BUCKLER of give third-party through your what And additional the to color you

Jeffrey Zimmer

Hi, Jeff. Trevor, it's

in believe hope we last to X points conference save ultimately on the range, fully we once - X basis quoted boarded. we've to call So, I

Board been and now financing, there. it, has our of want that's go right are billion to see $X.X to at and management portfolio look based not initially from ARMOUR of sit the $X point, a goal at that Our increase you size billion on if panacea. of will the the and down our But

and buckler, the last or spent financing. a transaction. basis our perhaps saving getting because safety going we not more. finally It's months for of about within have We just points provides soundness and operation We handful or did that first it of week so, XX

some know get So, that time end but achieve you $X will the we'll in of didn't to I to billion. quarter. the certainly take up the by first year that

Trevor Cranston

that Great. that And impact guys remarks potential taper sheet new widening the market? question, prepared the that that balance announcement were of effect of you you as sector? second Chairman. monitoring balance towards the talked of watching downside in risk the sort And and Fed if in view on you potential might end are Thank between the view mentioned the and on agency you. What in about incremental then the investing have spreads pressure the you get the returns to guys the what versus you spread in sort some you how

Jeffrey Zimmer

Sure.

other So, to on basis assets this. [indiscernible]. couple Look ways at mortgage is there look a leverage to are relative a classes

about if However, they in charge has in OAS at end end amount. now. June look XXXX have from of by same the almost the I come come of my by to the from XX%

reinvestment Fed the So, No, with environment But they that to $X $X that reinvestment in have and reduce wider, provide have Those us flat including over capital the X and done tighter current from set There we starting was everybody from an to the regard, the earnings, you to tightened. raisings could to here. would tightened of new X talk certainly in XXXX. mortgages come for X onto marginal now be we marginal end We to their of where quarter right perhaps expect get quarters the going of quarter the when reinvest some reinvestment now from now. is buyers than number substantially that a have of amount last first capital opportunities billion have believe, see they've and knows that not billion been we months. to a good mortgages for now cash. to in you're should going dilutive believe

current is our go it funds to federal December is not to going earnings basis stream, your with dilutive points. So, up XX increase albeit to funding in the

all world that in farther see investment theory, in So, will opportunities things have equally, equal the to you out that on curve. being

last ups that terms couple two up. area high fact out bonds story. for been have that mortgages pay which who asset have trajectory overvalued, is of gone and In we of closely paying classes very the anybody of pay upward One think the despite look can at rates is Taking we the the quarters, ups reinvestment. see over specified

understanding and to as reinvesting low peak where low we're quite not is an unspecified taking prepayment beer that investor in advantage not was but some the remember, peak. we're it's hard you're in a that of quite We're stories So, cost area. refinance, and

no a in better perform there rally. is assets that a reason might to lot So, for pay

double-digit hedged is a are Regarding the to XX we dollar roll years XX growth provide a in we the say duration. look X asset the over to on returns next way quarter that XX that which a and days at depending XX lot on let's and those low from the and XX market, - picketers to out we've look anywhere particularly at

in development. included financing with that hedge a is that So

hope been using have to and dollar answers ARMOUR. we question. add the I value income to rolls that of your So,

Operator

comes Crédit And Douglas [Operator from question Harter Suisse. of next our Instructions]. line the with

Douglas Harter

for Hey taking guys, this is question. actually the Josh Thanks on Doug. for

question agency think also, Can on risk-management And both Trevor's the source. that repo? how amount the in target Just include you BUCKLER or funding? that breakeven perspective Securities, near-term a is you levels on $X follow-up target of mentioned from that a about nonagency from billion

Jeffrey Zimmer

a only it providers funding X haircut, under what's particularly they or now our X nonagency one, funds side. or the the up live which So, for only are XX% and other beating on particularly can go of European actually nonagency is funding each includes and happy every we'll agencies. day from going providers with versus with so. on dozen The expanding exponentially, include agencies a lower in really cost CRTs We're and lower funding on to

a with of our XX%, own go management, Will good We're feel our we goal is, we'll to our we to up what's stand to going terms will work billion there. with that exceed the with talk risk secure eye what tight having In on very board could, on and where XX% initially. financing. our to $X to analyze very happy and right but it management and see it get to XX%

Operator

Thalmann. come And from with our Ladenburg Nolan question of next the line Christopher

Christopher Nolan

And little driving can color on statement, up quarter-over-quarter. increase income, terms just what's drop income is please? the give that the On each you for of Securities the which at and TBA I'm which looking Agency a

Mark Gruber

Mark. is This

TBA is be is opportunities to different the quarter the based the we - se. on going So, each income

on short-term. there's maintain short-term, see to to even Sometimes hard quarter-over-quarter, to is if against day-to-day that opportunities during something We and opportunities quarter-over-quarter going the just to going certain really for that. we do that's special or going something maybe but a the going same, what someone's balance, are differences quarter, in It's so look some looking will there's goes predict, be we many to the take balance variables that. like opportunities are just because on try see remain to the

Jeffrey Zimmer

a the in can or Right, might roles sudden, Sometimes be you good, look delivery don't in take so all these sell of roles asset. November and or October you

X snapshot XX So, snapshot XX XX the contemplate do you're the not what or seeing, period. that the during snapshot the in X days happened

Christopher Nolan

right. loan? All Agency the Then Securities for

Jeffrey Zimmer

driver was biggest Agency amortization. to going That the or the improvement. be the quarter securities - driver biggest fees during prepayment is for

Mark Gruber

low have earlier. prepayments bonds of don't collateral quality for like the example, prepay been DUS represents noted just as and the Our the Scott that just

assets our to good loan amortization has kept of low, exhibited over and obviously, as a a expense earnings borrower, You those the very portfolio to as quarters. three has get well quite balance portion low the check prepayment exhibited good frankly, characteristics good prepayment characteristics. our penalty when prepay adding the It have quite our last

Mark Gruber

said Jeff TBA As earlier move some so two lines. between income we take of delivery those you'll will see will

Christopher Nolan

is you during saw the that it. then common ATM? Got October, issuing reflecting been I And have that guys

James Mountain

interested other like to us is basis at of investor based issuing are a discount are us cost-effective accommodate at of wanted Jim. allows buy and price we do a weighted-average little the because And things is actually, transfer had agent it's a to is program not allows purchase to tail investors volume is over about have our ARMOUR reinvestment the position it's but that in the directly program book in accretive This disruptive average the that particular capital our price modest it effective stock doing an days And dividend for that end September and it and because for it issuances we on first it that volume a from and October. apply in cost bit, for common weighted that day the to very well-priced not that investor the been little thing allows ton is, the few the value. We interest, to marketplace a day. to to in under one

and program do are accretive opportunity off shareholders. existing like suspend we under to to program, not not were so looks markets be whatever it We don't when to the have the the issue trading required to

Christopher Nolan

some go could those low. your are Jim or where in terms to of ratios, very you give Leverage in leverage ratios Can question next us Final X? the quarter or color Great. anyone.

James Mountain

in million of So, current of bonds the last own. $XXX the value leverage over the The months. XX of of driver CRT we substantial addition our reduction the is that

of X.Xx For we X.Xx. purchased those anywhere from we've every reduced to one agency's our

today's adding of anticipate So, asset We more don't class. spreads in that

made last was we rather purchase basis think more I basis the points. XXX like XXX points today's than

out foreseeable would of now, October ended that So, where for X. is least a November we leverage churn I at stay the updates. a on to XX and approximately the right X.X On we will on it within put and end our expect half company monthly XXth future

changes be end identified till of file from that will in end the of any the the October quarter So, document.

Operator

are And question. call I'll the back remarks. closing you there presently further your turn no for over to

James Mountain

nest can on the through so what place office. thank shareholders year. and Well, yesterday's this big sector us returns of be S&P's year. joining a investment the for we performed close, today ARMOUR you, everybody note read. REIT total Average of XX this to I peer very closer to October has it's acted call big in that better than opportunities you good of the would and XX% and very feel Please us getting XXth, to to for at well groups positive That's ordinarily shareholder long-term the free

We will attack you with day. any questions. And have a great

Operator

the you disconnect There thank is for you does asked conclude government please that today. your lines. a and participation call for that We conference your

ARMOUR Residential REIT (ARR) 26 Oct 172017 Q3 Earnings call transcript