ARR - Earnings call transcript Q4 2018 | ARMOUR Residential REIT, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the ARMOUR Residential REIT, Incorporated Fourth Quarter 2018 Earnings Conference Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Friday, February 15, 2019. to Mr. conference like Chief to now Officer, Financial would turn over the the I Mountain. Jim go Please ahead.

James Mountain

adjustments any as included forward-looking to call made update subject comparable our forward-looking of quarter Litigation morning, due materially the the discussion included are this website unless this statements Safe Commission. Risk change and will Thank call to to ARMOUR's our many reports and those subject of GAAP the forward-looking We ARMOUR's million ARMOUR's can Copies continue Chief Exchange in one includes excludes for Certain Officer. and www.armourreit.com. flow share. earnings include million measures and by filed website. statements, $X.XX our to interest QX forward-looking constitute and and fact, the meaning are and quarter law. of today fourth by The Investment has date today's by per Act. ARMOUR. Actual swaps conference references which results joining GAAP materially agency income Frank. Act our to in ARMOUR's by portfolio the Chief implied By prior our results. for TBA to such you, included earnings may outcomes which was by Reform cause of and ARMOUR's XXXX. results which SEC's And the per year. comprehensive intended and most are An website fourth the disclaim ARMOUR's forward-looking reconciliation loss will Mark factors on call the MBS quarter notice. the online release from common Reform to thank co-CEOs, Scott available and without in of that on Private of be to valuation outcomes A contained mark-to-market income my differ out required shortly net today everyone the ARMOUR's discuss of items rate conference mark-to-market could Securities through Jeff to the and of within and Form statements statements expressed are recitations be control these factors from actual are obligation certain was Securities the at beyond All Factor's call www.sec.gov. as statements replay or be conference colleague am driven access available in found that can non-GAAP by Operating joined not I our results was impact section the or drop are on to measures. caused Harbor provided net do which to protections website differ All share. may could on with periodic measures so now This of Also income, you Ulm Core movements XX-K, found therefore and to is all only statements of statements XXXX be usual of release $XXX contain sales $X.XX forward-looking in largely This common $XX.X Zimmer; primarily mere mark-to-market move ARMOUR's our P&L. or loss Gruber, historical

through that of they dividends end. is that in for stockholders' the shares rate represents We were Based Quarter last share estimated offering dividends. since the Through directly paid positions. totaled the on quarters, $XXX Remember $XXX approximately quarter. book over in and and excess of over agency XX per announced for quarter return common of securities, million the the around our per markets. income of trade of steady have common $X.XX portfolio the or on increases approximately middle agency common at January waivers as primarily equity share positions at we fourth $XXX million the $X.XX of - QX, beginning year value following of shares investors And spoke another $X.XX. $XX.XX per for aftermarket economic million or share. end website an update continuing rate usually total We're earnings risk be the return per That's of that value continue active and estimates value $X.X We've ARMOUR's and represents on block annualized our of Adjusted $X.XX per dividends reinvestment non-agency million million, which represents program our XXXX. exceeded equity first with XX.X%. investor was during on you. due to the $X.XX $XX.X dividend of purchase core widening. TBA in common quarter share. a of each common Securities $X.XX presentations Dealers core underwritten issued to share recent for We - stock $XX.XX include of of month. available billion per consisted common to program outstanding spread raised We straight quarter X,XXX,XXX December For to we come also XX through end and equity our last $XX.X our total down book outstanding. at dividends, approximately Edgar; that XX, month February common minus in GAAP month. the XXXX was out monthly we per book part credit about XXXX

over of ARMOUR's Co-Chief strategy. Ulm, that he call Now XX,XXX,XXX let so the outstanding common we portfolio can shares Executive stock to our turn and discuss Scott current Officer, me Now position have Scott?

Scott Ulm

and served of data fed's looming The Europe out quickly for volatility. before policy X.XX% the no projections monetary declined X.XX% morning. superior or equity near-term. resulting on early longer XX. costs the U.S. as credit haven served further in cycle. outperformed by Good Gridlocked the rising credit year funding points yield By U.S. XXXX Fed backing, or markets points quarter XXXX growth of growing on and Suddenly, like in storm since hikes Congress for a tenures, vision China expectations, basis almost December down dark agency trending and clouds by fourth trade and markets into XXXX. concerns like XXXX. Jim. Thanks, quarterly economic tighter the MBS to the a to of maturing autopilot of a fall, a on treasury ending worst Fed implying calm plans step cut over the funds, Yields the spreads of declined completion turbulent of precursor over the on the government year just X.XX% with two third with market's to The quarter's their a the war collided chance Widening and note in economic XX highs year the XX from in as X basis margin. gathered liquidity above and wide Due down

refinancings and CRT widening cohorts. higher in risk in coupon shorter spreads credit durations was The underperformance sympathy negative transfer or to high curves interest particularly versus convexity bonds exposure rate meant the both. where credit. couldn't risk This treasury traded wider and in pronounced with However, lower coupon of volatility led swap to keep mortgage versus market U.S. MBS that resulting mortgage with up and agency

cohorts newer seasoned vintages as our much underperformed on supporting in weaker and XXXX basis more negative Newer as points, XXXX MX by view XX credits issues.

points increase support quarter As the and while. but valuations reduced housing of so, on pleased Last XX, presented our maintained quarter, the in positive the positive XXXX. last to new cheapest to move to the a asset amongst early as higher X.X doing portfolio provide prompting fine rare guarantee us acknowledges our to to of grade priced, by add XX spreads may nearly modestly strong markets to allocation XX% community. nearly attractive during we at find we Despite opportunity portfolio entire participation widening we albeit and quarter, instrument value historically DUS fully for convexity portfolio. CRT tailwinds liquidity to The swaps on the pools our were their and X a drag the we Ginnie who's biased class of of In a coupons main noted levels, view GSE correlation exposure. lesser high market exhibited this fourth This sectors degree. issued agency Spread additional won to DUS book MBS a performance, the CRT, credit CRT drivers one convexity markets an borrower higher underperformance. have in since added for in basis the

of $X.X portfolio hedge follows. pay after XX-Okay, view our notional. positioning capital We January of XX, can recent in December the of our floating raise, XX, our received fixed swaps You book ARMOUR's XXXX is as XXXX as maintained billion but

agency XXX.X% fixed by was rate re-proposition swaps. a Our covered

an does not end was at from increase number points, negative from include negative duration of negative Our effects repurchase net liabilities. any duration X.XX X.XX This the our basis year. the

spread the Our XX first during of quarter XXXX. was cover $X.X earnings million. at anticipate DBOX the core We January [ph] our dividends will

results of XX, times. settling of on positions leverage Adding leverage forward implied X.X funded debt-to-equity X.X As effect in transactions and XX. an of our approximately roll January January as or ratio leverage of times the unfunded was dollar TBA

market. favorable where The levels years, is the fourth rolls longer dollar to quarter in than find the X.X X.X agency we third dollar to few no the assets over are continue TBA average prepayment observed general financing opportunities rate collateral our past the decreased of in in at CPR While more from quarter. repo trading specialists pockets CPR on roll

for at X.X protection our contractual have was our agency XX. our billion January good of repo composed loan of consistent at CPR in Total counterparties repo Our XXXX. MRAs or model. remains $X.X the was and and with It's portion DUS balances note XX assets signed even is financing lower financing reasonable Repo January in with important paper. portfolio as end through addition that the ARMOUR to active lockouts XXXX prepayment priced lower with currently is CPR. prepayment of business another

of is financing over BUCKLER greater XX% our us Importantly, liabilities. our affiliate repo and our agency through approximately of control entire portfolio BUCKLER Financing provides position our XX% with Securities liabilities.

In our transfer investment of for of take January XXXX end GSE strong million be that underwriting quality reliable our the and The credit non-agency credit on we XXXX at CRT underwriting transactions of own. floating risk during coupon. part portfolio. Our the valued securities risk risk XXXX bonds CRT vintages the an & and represented return credit of credit was in Fannie to the $XXX in large to at Freddie standards we continuing is rate to uncapped XX%

we benefit grade. has lead resulted in upgrades been these to upgraded increasing from Currently see Rating credit appreciation. financing credit time CRT owns investment investment few enhancement ARMOUR upgrades. possible At our and $XX.X opportunities January, better million for rating XX% addition, very class. terms RMBS. over securities asset of of end non-agency of that this In price portfolio the can to in legacy

existing continue well. holdings period However perform from to that

again issuance the to Although XXXX, projected versus low very issuances tight. remains on keeping double non-agency non-QM spreads mortgage historical jumbo scale and

valuations tight agency the see in better opportunities the markets, collateral. Given we in non-agency currently

book a questioned. As is driven on estimated GAAP by tightening. being since of at XXXX value and X.X% presents robust year-end uncertainties growth February basis economic spread is XX, as our up home abroad new

Although maintain after response some ARMOUR's Fed spreads The easy also losses a tough a strong on dubbish to financial their for stance from track. quarter, for broad economy well in market bodes tailwind valuations to conditions encouraged portfolio. Chairman volatility, Paul's keep bond fourth our fed we're regained of the by

take advantage been response from the capital wide our issued by newly leverage Our back lows. to increasing recent historical deploying of and spreads has

take While stance prepared a our and questions. concludes neutral any Operator, maintain we remarks to duration. on slightly shorter we that spread risk, now like we will a

Operator

first comes the Please Credit Instructions] [Operator Harter question Our you. Douglas of Thank proceed. with line from Suisse.

Douglas Harter

Thanks.

going on one kind of guess about current the see right following kind level and where I comments of last you leverage what do that is environment? this to Just up leverage, in you made the of

Jeff Zimmer

Jeff. Doug. morning, Good is This

bit. that period XX XX the and in years XX years, is XXS spread to say So bonds in example Christmas. for to XX swaps widening the they've tightened APAC's year XX are of a then, XX trading we're XX, [ph]. time us into after which DUS so for And or since quite was day now Since the

However, widened spreads little at we X.X have leverage powder. dry a bit, times should some

quantifies If our opportunities, be a go a we half So at the to down. first of that point here this see I I think range And go turn. might would not out for it kind will leverage quarter.

Douglas Harter

with with I leverage, And being are return, obviously spread that about guess another just how potentially of that risk how, if reward taking up leverage. Got it. you of you spread that comes widening then from extra thinking comes but risk see higher kind extra

trying generate return another leverage? kind the protect yourself quarter So versus with to how kind of to ability about of higher versus fourth are thinking you that extra

Jeff Zimmer

full in So fourth a probably quarter less leverage. the we turn were

been we've a now, been leaves multi-year spreads performance if the levels in a out So widen right little where bit have good would worse. value period, invest. very wide we to time never to it book When are historical

didn't and that's good You invest looking cannot pick point but a APAC's all do we're the certainly time, this place year. next the the wide if for out time that to

a have leverage. now perspective that we're with So they're up-leverage happens dubbish But something reason change a fed economic And if partially if not for good is widening data than these we little spreads once maybe to and again all be so week. reduced we some show that going think do bit. then see we'll different the investment would every opportunities, things we single

Sometimes reinvestment. way That's you reduce in that roll a we also led can monthly leverage. that up modestly prepayments just

So answers I your hope question? that

Douglas Harter

you. It does. Thank

Jeff Zimmer

Thank you.

Operator

Our from line JMP of next Trevor Cranston question the with Securities. proceed. comes Please

Trevor Cranston

are portfolio Hi, risk. you obviously the guys what thanks. and A event, risk scenario. of how is with the spread guys in in that you being about being and spread a thinking with amplify are question spread relatively negative guys sort curious it you that widening to spreads How the value being rates the are having the portfolio somewhat risk about negative duration being thinking be likely correlation there comments book point that duration just could about rates this at sense if the last of and risk? that correlated sort comfortable exposure I'm may drop on along of

Jeff Zimmer

That's a good question.

such, that's just only curve, stable. book at evenly have out very So and is our basis show that our we we're whole points, business XX curve that goes mortgages. across looking the curve is we're The and as down the value modeled the risk model up the in

told some here we're markets where and going feel we are do Doug, in we will So We that's little a a XX the bit or hedges and as to the mortgage right we'll If add just off business. little more the spreads are the and mortgages. now I year bit, get take that change maybe little more going If run potentially do flatter a a we mortgages; we to there. invest fiber bit, widen leverage bull in we either why convexity. we're the love own investment

is One because trade bonds about, of in many the reasons exactly rally. to that asking bonds we added like so address you're DUS going to after our they're corporate capital raise a what

are negative we a duration move been though in number even is a of the we positioned than better for have slightly So quarters.

Trevor Cranston

you. Got

in pools pools about risk thinking added gross looking Okay. at looks coupons. I've How some then latest bond spec commentary versus TBAs spec update the That makes you TBAs. portfolio like And it seen between you both some know given guys the trade-off spreads are today? and versus I sense. some wider TBAs about

how allocation about forward? going that you're just thinking So curious

Jeff Zimmer

is That completely reading that research correct. you're

the of XX, don't good. low-teens, Ginnie, X.X Fannie Now lot X.X, the of stuff. XX% even roles did some March-April rolls than good, were Ginnie, the we on actually a higher coupon, kind a more really return as look XX, The and March-May Fed-March

likely most pools double-digit either sell and still and us address So specified go X as forward in those role delivery good opportunities, swapping or Ginnie some other products we'll and take very are of specified some for as opportunities, well. the we with opportunities

dollar a rolls on month-to-month is So what progress. the happens

advance their a position. crummy short days they to get of XX you in dealers out sudden pop-up covering have and they and Sometimes start because XX of days kind look all

a that specified opportunities always month but we investment looking the at So simultaneously basis. time, in taking at collateral take and a cool

Trevor Cranston

Okay. I appreciate the comments. Thank you.

Jeff Zimmer

Thanks calling. right. for All

Operator

JonesTrading next of Canada. from the with proceed. line comes Our question David Please Walrod

David Walrod

morning. Good

put more looks non-agencies and today? new capital update or in You just look of more thing to January to Is night. the attractive the work allocation, out look monthly the you're temporary raised to your going lot agency put space. like we agency allocate obviously it are you in to you and that space seeing last asset When at you capital a

Scott Ulm

Hey you. hear good to David, from

alluded high detail let's Scott the CRTs call. - vintage see we vintage. we in last specifically And non-agency to The newer is talked XXXX that first. as talk So is somewhat quality The about so don't quarter's the think discussed in seasoned own, and conference XXXX, we that CRTs the I really the quality I CRT space, good.

any have spending only nice where all. the add, we'd see focusing for to a So area at widener CRTs current to that's we're time the non-agency real in and us production

just now are In we some to the in mix I we or dollar good - don't product. I of roll terms you We feel dollar will DUS, or it. dollar is did not told rolls the tight. right that the and rate as investing trading right of knew a a will specified as into pricing and will We the look is if in a paper limited sector next take vintage that's very tell area if adjustable an get DUS and pools and opaque invest we now. like hybrid looks securities. Trevor, little the we however specified, see, the and roll we

David Walrod

my the question Okay. That's dividend. helpful. And very other is

core the dividend board noted You earnings quarters. in thinking press your consecutive your have for the exceeded about XX today? release that dividend How's

Jeff Zimmer

dividend quarter. to very Scott about the the two investment to And sustainable. investor we sustainability base. - feel that rate equal very said, his of in future, to earnings our As out calls comments, exceed as we run talked I that going to is earnings is important our earnings we or look said expected are for first the And in core and are we the about

without our board So maintain excessive to and we're that the way with to doing right leverage operating regard dividend like anything is try we're now. going comfortable the in

David Walrod

Okay. Thank you very much.

Jeff Zimmer

from David. to you. Thanks, hear Good

Operator

the Nolan of and with Ladenburg Christopher Thalmann comes Our line next question Please proceed. from Company.

Christopher Nolan

Hi.

your is what right where environment, are and additional stock price the about equity your raises? in positive given of comments Given now terms your thoughts

Jeff Zimmer

spot, are it's raises a if we're of our I are this look - doing say to as I equity So and stock want capital, will pleasure the mean to opportunities good that and in prices the something board raise the morning. we

Christopher Nolan

Great. That's my Thank you. question.

Operator

with continue remarks. Mr. time, Mountain, closing questions presentation there further no are please or this at your

James Mountain

Well, Frank all this joining our morning. thank you call and thank you for

feel if and investor to we right us with community call pick office, anybody again as has questions, get at talk everybody and we'll the look in other or As as free We to the up constructive promptly always, possible. dialogue forward to try either soon. you back

Operator

Ladies and line. you call does a that participation and that for great for Have gentlemen conference everyone. disconnect conclude ask we thank you please your today, your the day

ARMOUR Residential REIT (ARR) 15 Feb 192018 Q4 Earnings call transcript