ARR - Earnings call transcript Q1 2020 | ARMOUR Residential REIT, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings and welcome to the ARMOUR Residential REIT First Quarter 2020 Earnings Conference Call.

During the presentation, all the 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, Friday, May 1, 2020.

I’d now like to turn the conference over to Jim Mountain, Chief Financial Officer. ahead. go Please

Jim Mountain

And quarter Nelson. of all joining and for have Thank conference thank call. first healthy. safe remain XXXX able all We ARMOUR’s been you, to you hope you that

ARMOUR’s by Chief our Mark joined I’m Officer, morning, co-CEOs, Ulm Zimmer; Investment and Scott Gruber. and Jeff This

which By release, ARMOUR’s now, on found to access be everyone ARMOUR’s has earnings can website, www.armourreit.com.

therefore Securities meaning due contain statements safe XXXX. forward-looking could recitations the factors Reform fact, to many the the differ and by Reform impact mere results of of that control protection the of the within Private beyond not may constitute results are call of All from statements conference statements and statements and outcomes Litigation outcomes to This by to the materially Act are implied the harbor expressed of Act. forward-looking provided be historical such ARMOUR. intended or Actual forward-looking the subject

contained materially could Certain section cause All that required made by at without law to Copies those date unless forward-looking in with website so. call disclaim Risk periodic the included included of any are factors forward-looking the are We to ARMOUR’s Factors Exchange notice. reports www.sec.gov. on reports available actual differ SEC’s are subject conference statements our of update only statements and forward-looking Commission. in this filed the are today’s from of in change Securities as statements and to obligation results these the to do

earnings replay will and this to for references it An shortly is to GAAP the there on also reconciliation today measures. these on website Also, included release, measures be of one A online be can measure include ARMOUR’s website. may found non-GAAP comparable continue call year. certain which will ARMOUR’s discussion be conference available our in our to most of

market by levels sudden other sector ARMOUR and was firms negatively economy, of and volatility resulting COVID-XX from our the the in impacted the pandemic. Like in March, historic across

billion, results down at prune of aggressively and March total On successful XXXX, from level ARMOUR’s the XX, XX% for beginning the of reflects nearly $XXX of at total at approximately quarter quarter. ARMOUR’s This actions represents to $XX.X only and $X.X ARMOUR’s billion By of preserve assets liquidity. stood risk comparison, stockholders’ the loss the investment the comprehensive portfolio, equity beginning million quarter. the reduce XX%

previously also series new X.XXX% million the outstanding a was equity Company’s decision with as preferred reduced Total January as by X% $XXX.X to replace declared stock dividends. payment of well by the its

expect ended unpledged to of approximately be at corresponding book worst the emergency, to per included liquid [Technical That Having stands we Today of stockholders’ securities cash ARMOUR’s share and this million. liquidity weathered Difficulty]. of ARMOUR million. $XX.XX, value week equity what common total $XXX $XXX QX of with

a ARMOUR’s common through XXst things. approximately of at-the-market offering issued its million capital. number $XX.X March approximately stock raised of Since additional ARMOUR’s X.X million done shares of program,

major with role of Company’s enjoy sufficient strategy. diversified affiliate BUCKLER a continues to counterparties. repurchase access and Securities ARMOUR’s continue in a swaps to rate interest We group play funding to the funding

opportunities also is advantage is The positions. pass-through its portfolio selectively ARMOUR rebuilding attractive other agency and of and taken has book. to transfer non-agency of swap also risk certain credit Company relatively its its sell refreshing

the We of this rest QX. for course expect continue to on

combined and billion securities ratings. The grade coupon investment XX-year XX-year TBAs with have and in at XX, XX-year evening, They positions. a million billion, have $X.X value and higher billion of As portfolio includes $XXX $X of weighted positions products. those of of average yesterday mix is stood positions, and of which market the nice of agency XX% legacy, DUS newer $X.X mark ARMOUR portfolio a above CRT

with billion our few hedge run points, at last the average XX based swaps on of the July, current in off our will rate positioning. legacy pay When $X.X book basis stand

net expect transactions rates. to we roll In are will portfolio replaced hedging at off lower interest and lower positively favorable term improvements anticipated substantially and costs, composition in addition also margin current financing as by be repo future rates affected

For example, collateral early XXX term in three for agency of Today, in months seeing were repos repo March. priced points and points prices less inside basis overnight. for under just we’re basis one-month XX

shortly. will XX% fee by of XXth the preferred of be be described Series which with stock management XX, Contractual share holders form May $X.XXXXX on the on the C payable the expense week, That for declared be paid company’s to dividend XX-Q, and on rate the XXXX. will ARMOUR May in the XXXX. at April further SEC of record reduced per as Earlier the dividend filed this cash will cash May dividend QX

of As the its quarter. previously the moving and a to quarterly ARMOUR the second announcement stock on amount dividend common June. of the further part is announced, on Expect QX in common for latter dividend timing

and turn to to discuss position, Jeff Scott? strategies the Now, view over portfolio Mark call ARMOUR’s let the Scott, and future. me towards further

Scott Ulm

Thanks, Jim. Good morning.

The in last earnings world February. significantly our has from call changed

remotely well and working us. plan our for been since continuity early has March team business Our has worked

colleagues. talking about on us today pandemic’s so We healthy. hope the While financial to today costs us, many of customers impact personal our of [ph] stays everyone be we’re we’ll mindful and joining

investment a was month for bad mortgage the industry. profoundly March

years violent capital or senior the management our careers. in XX in having was average March so environment more professional movement markets, experience The XXXX. of market was a to with had we’ve As and with sudden than deal the team each worst

Our against the phenomena moving lows X.X% to us. prices spread historic beginning security X.XX% driven treasuries, others several new in in well mortgage-backed a down and the Despite March, on investment interest were risk by rally as off as historic occurred the crisis. shock TBA sector financial ARMOUR double to X.XX% of the whipsawed and prices resulted days. our of in back This both, and since from hedges decline. widest matter MBS a the experienced up rate of many asset simultaneously. that bonds in Interest of rates results XX-year at treasury

Premiums of of all sheet exacerbated banks, specified mutual by quickly as was pressures. best lack further evaporated criteria on force balance REITs drowned investors, by available the and levered pools selling funds quarter-end out which

Fannie terms in Mae levels, through price affiliate fell approximately to as market, sound par XXX spreads a XXX to found from levels broker the [Technical very high and BUCKLER very bit if or as ARMOUR’s on price DUS its dollar were found exploded could Repo at low to all. as Difficulty] funding be dealer the asset stable, the In as always class Securities. price levels points XX/X.X from XX agency particular, in XX

altogether, rates further dramatically further Amidst CRTs. and chaos, financing tumultuous bank business, tripled financing money into prices. agency non-agency on to turmoil outside causing lowering center market, degraded at abruptly doubled However, were many or a investors as of haircuts on the the sell time propositions the funding as its forced large funding same ended CRTs one

respects of but underperformed is many run funding even the XX-day treasuries by and Liquidity commercial Off paper FX swap oscillating the spreads indicated multiples. middle went [ph] in up disappeared. funds current X.XX% March. runs, all production between on simply dried to in the TBA the offer widened sharply on X.XX%. as Fed bid X.XX%,

securities. cash, March, primarily securities decisively, ourselves agency most we the available little discussions billion To we the reduce agency free two have another of the of in up like might that first and sector If in with not of in $X.X billion our many weeks midst promptly there’s sold with future. and $X.X the leverage uncertain acted question weeks we forbearance we had creditors, today and in others found last of by acted of risk, selling face March; early two

The we mortgage XXrd increase. order able and agency sold to for many agency an of support assets fully in caused were Fed’s to agency not future, mortgages on liquidity In unlimited mortgage increase for price to participate uncertain announcement recovery. the stabilize March subsequent prices and

that market, changed landscape surround to today, program uncertainties bright also but again Fed spot the prior will Standing the from has Agency for substantial has require substantial The longer. believe given careful the here a perhaps a investment are buying we year support but of definitive years. credit remainder and caused selection. mortgage in with securities We year, will to can agency close will portfolio increases risk. later that believe selection prepayments concern elevated exacerbated believe medium are in attention and We immediate the now rewarded We characteristics mitigate not a securities the in in the term prices performance. low as environment. rate superior focused return be that see by credit future,

agency of Currently, have our specified protection. XX% prepaid kind of pools some

our securities with and leverage coming weeks We’re attractive agency that profiles. risk liquid increase expect return emphasis few methodically investing on over to the our offer

We believe ongoing reflect period stable view will the believe We dividends dividend a to not as medium-term should previously policy We late net announced declare and in profitability. net dividend second June. of our profitability. quarter we period our our be as should that possible chase our for

the in cycle, investment point on our we’re constructive reasons. business this the very following At for

the revised, continue the funding nurture expect purchases, rates to short-term in move and curve will as low which we low. so pandemic a agency Fed believe through to MBS yield will economy At order has will taper see time, the to begun providing the do investment. The already we nascent normalizes. opportunities modestly recovery, keep and improved rates As same for market steepen, the we the our we keep expect Fed to its

are remain abundant more conventional staffing to closer much is subdued most and should normal. investments. will a are tailwind levels in spreads conditions allow tight Some has Prepayments years. naturally great today still for and Fed agencies financial for tapering likely Financing relationships. doing attractive until There’s and pricing

excellent well maintain three almost repo to the terms as highly of BUCKLER counterparties. We’re as our relationships and confident access dozen affiliate financing with Securities, other other our through we

should all net high-single-digit said, timing be the in uncertainty range. the clearly the yield expectation That There’s low-double-digit of we factors. believe that these in to realization medium-term and

to great continue design financing environment. to our standing powder present We’re of month for to here through be the and with March liquidity, the and dry portfolio delighted solid

take now questions. happy any We’ll to be

Jim Mountain

you the line now for can open questions? up Nelson,

Operator

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

Josh Bolton

actually curious the if should bit XXXX. Doug. in it the talk leverage to we little back this where about in if it point, should we Josh call you target expect that the and large tick We thinking Thanks. on could Hey, drop a you’re that But, at forward. how quarter. you to And to was up in get Good for about morning. on expect mentioned saw going guys. This is leverage

Jeff Zimmer

is Our we a opportunities eight, deploy can fast target leverage at opportunities. and give those on based capital, depending on turn, point our half the take or around how this a

Josh Bolton

maturities, That Got how and it. on the maturity funded BUCKLER of makes then, one through funding? funding. average repos on average currently us much the Can of you update the sense. And agency that

Jeff Zimmer

capital But, bit. with agency make quarters that little portfolio, suspect is better three fantastic, get trends than the quite we we number BUCKLER sure to frankly, is BUCKLER as And completely BUCKLER. at that book want and down the the we haircuts of and the get will that particularly Street. rates the approximately utilized. BUCKLER are come we agency our from from I regrow So, a

Josh Bolton

Are terms you able are versus better much repo? how Street quantify those to

Jeff Zimmer

it’s points the basis But couple have the rate to on to you We sector, participants they’re the you’re that to to because funding a basis other from if day. it’s the heard better; BUCKLER funding. sometimes Well, overnight XYZ sure not next of can surety as worse. do And sometimes with the add that we you going there if the overnight the a going next there funding, is of overnight with know funding bank some be couple the be some fact points not in I’m be that day. term half going

a that. we quantify can to and you trust to an they’re be going sometimes that So, every ability there and actually day, know have

Operator

Thank you.

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

Trevor Cranston

additional market can you credit to how And if apologize about haircuts I financing the looking credit But, hang If to talk is part in going your I going intention us thinking of the down have some portfolio, the sell in around started some forward? that that repo? to of for be this prepared you you. of about now the cost and can the recover where detail in that give on are prices question, to second you’re book? that thanks. Hey, securities portfolio with to terms or Thank is April, of as you remarks. missed sort as

Jeff Zimmer

Sure, good morning.

balance sheet early So, market book, the securities The has valuation non-agencies in value. that’s are value not had March approximately let’s CRT say, remaining is a been $XXX our of the CRT sold. CRTs. Everything million. credit of And million $XXX on the CRTs, today only

to months intention it our to So, is It And the three we’ve reduced next doing two the rest two-thirds. we’re sell that that. over by surgically. of

three market on who better weeks the that people not and not have and were opportunities us the actually, and we’re a the into that. during companies perspective are product selling sales March And and sellers into As or forced very There and that strength look had in two some number recoveries, And weakness. selling mutual withdrawals particularly of into opportunities first and buyers funds, marks. yesterday, come do of we’ll for we made to a April, as out move to above of and continue profound. nice were

platform You should our third the quarter assets almost, time not be look portfolio and by the the will be if agency at we into us to that all, get future. in

as two even seems secure and Now, feel to non-agencies be funding for but today, not did way ago. weeks very that the of is

one real top one comments, decides banks of in everybody bank, of funding of sell that major them created the And CRTs country, all third Scott out central had a five sudden for meant at that to funding, week a pricing in As it down their whirlwind time. to bonds, in was March with the new all very Trevor, of of while. the his of CRT taking pull other were said a which lenders on few because

we So selling period. for there from a refrained

haircuts as XX.X%. low But are today, as

is our Our on average right portfolio XX% today. CRT haircut around

Trevor Cranston

like on trade, you’re pools? in coupons into you market kind Thanks. the of find to helpful. portfolios and going Okay, very great. specifically today coupons, be to sector you’re color talk as what TBAs mostly buy? you deploying what or looking And That’s specifically, of maybe the Then, not roles buying about if capital you’re back of attractive on some you enough kind buying mainly the what to whether or be spec agency can really focused and

Mark Gruber

Hey, Trevor. Mark. It’s

there. of sector, So, XX-year coupons variety sector at the we’ve the both, Also, looking of been and XX-year more a coupons. higher

earlier, still X.X, had Jim So, we said most of coupon is the X.X our years. few book stuff last earlier -- like higher X and bought

So, we’re sticking to those sectors.

bonds have those and profile. continue profiles. in more invested that. you’ll like that We good DUS. coupons, some looking roles a for stable We like do we’re TBA of sectors, of We certain watching like see convexity carefully, still We’re in different variety But, have certain to sectors. us those do

but than coupons sectors same XX-year probably been the always more and sector we’ve So, in in on agency, higher the lower coupons.

Jeff Zimmer

is, there Fed reasons changed. the is of one now And the

repot over the If Few what last you Fed they’ve look changed at buying. days, the they’re

rich. but above XXX kind be not particularly they’re Is of those areas, opportunities loan continue X.Xs, get they be may buying X.X. a that For long ongoing specialty, and are continue Whereas Xs time buying those richer, balances, of some have helpful? like from there going means going ones coupons, were they’re refrain going buying a rich lot to to now. lower going to of they’re to which be in -- threes to some things. that And those buying Well, could start to kind

Trevor Cranston

for where the of that stock continued looks trading sort question. you’re in there through some And of was the the just assurance economy? the Yes, of April. helpful. you last given provide that. likelihood Thank was today, and you rationale where like of kind in plan It the for of some terms ATM color at issuance Thanks. additional any Can around very issuance,

Jeff Zimmer

Sure.

was raise deal? raising threefold. million, of turn a factors? thought a capital April, how we Liquidity on good we we shareholders around a just out. our for $XX is how the is is was to shareholders world clear. And there can be amount approach Basically, So, benefit it clarity as $XX based premium. can earnings,, traditional dilution it be to ahead very our deal The know, to dilution to was of go entered However, $X.XX accretive, you million. actual modest to up as So, is on all-in, to and a kind accretive it at of going not was raised a variety and

So, doing during turning were I develops. see what issues. We’ll time brethren modest factor that back how program we of some amount right good assurity of anticipate, now, our very forbearance where and our for a we firm the the to feel on. felt very for survival did a We was period about of shareholders. increase the that don’t future

Trevor Cranston

you that. Thank great. Okay, for

Jeff Zimmer

You’re very welcome.

Operator

from Our line Thank with question Thalmann you. [Operator proceed Ladenburg Please of comes Instructions] the next Nolan Christopher with & your Company. question.

Christopher Nolan

single, by you do guys. yields? What Scott. mentioned you that be low could you double high relative Hey, yields little to net equity? Hey, In Could mean bit, your that net Is core define please? income digits. comments, that

Scott Ulm

equity Yes. -- to income. core That’s correct. relative income Current

Jeff Zimmer

That’s correct. shareholders. to Net

Christopher Nolan

Okay, gather your going it mean, in of the a for press I an looks then, sort bit XQ can I that is quite spreads sort release, like we are What’s widened the for new investment great. investment quarter. a And from spreads forward? just what from world? of this anticipation anomaly or

Jeff Zimmer

spreads. investment there NIM, are define you Just criteria? some or you opportunities, digits, low investment double is Are other as we or talking said, talking

Christopher Nolan

NIM would be great.

Scott Ulm

to we’re in to that spreads concrete good wider but about I No, have in couldn’t little basis number is to you would how I NIM it be for it because going investing. you, was a in I QX, -- give was be I past. NIM, on a higher going be be don’t than guess, to tell can going I a the higher a define are think -- -- -- it’s I going asset than have it’s to

Mark Gruber

tailwind little off, got off swaps give we’ve of rates of rolling a which both mentioned term rolling to to are And We’ve NIM. got Jim higher going here -- a other too, are factors. couple that also financing and that’s

Jeff Zimmer

by look off, rolling repo book’s XX; going be -- to stuff is Christopher, Xst, is because said from that basis all anywhere forward swap high you let’s Jim term is it for say, say, But, way, this XX. in to anywhere to points XX single digits and going our July Yes. XX to let’s XX overnight if at from

So, XX there’s add, to take your and XX. XX that,

earn high the ones. You here to mid can in assets

kind So, of be next out for going you as are you could can the think we prepays where of figure months. slower kind And earlier, the and to math do be. few said frankly, Mark

are. helpful. that I’ve the NIM the should I side pretty people deal are hope And looking be that’s way on broker other at of kind heard with we So, good. we same

Christopher Nolan

Yes. No, I be when final expect question should to it the released? we is is, great. Q And then, guess

Jim Mountain

getting on be shortly. it in should to Ideally, see able We any out morning. tonight. that be But, before that it ought be Edgar event, closes to we Monday

Christopher Nolan

Great. in further interest yes, rates, preferred is down about thinking the I more with your repo Final given and change question stock all? -- go ahead. please funding is, to you the pay at go do changes that guys mean, consideration

Jeff Zimmer

we $XXX So, there. have our X% million of out

proposition Okay? investing. that of accretive Based today, on to opportunities investment overall the is

consideration approached yesterday, currently be over and XXX,XXX not any shares still we it preferreds your However, -- of close. selling at very want a our regular our of structure that’s you only comfortable don’t amount a preferred at large in of of equity And least share now too structure. Also, the is with very our preferred. total share. ever currently, interested that to capital to under market buyer we’ve the portion at versus at capital there’s firm a $XX been have larger $XX with But the be trading the would

Mark Gruber

Yes.

out and the have in lower looks amplify like know amount or was really Series a out. don’t XXX retrospect, me X.XXX% -- with In $XXX little worked of that let whatever to mind, for on decision C. smart coupon, I it B slightly bit. In things XX X% million, January decision my way Just swap smaller of appreciably a Series retrospect,

Christopher Nolan

it Good Thanks. right. for That’s guys. show, All me.

Jeff Zimmer

Thank you.

Jim Mountain

we have Nelson, any do more questions?

Operator

this further showing questions am no time. I at

Jim Mountain

thank Well, us. all you joining for

to continue but work We connected. remotely largely are completely

get anybody time, has until additional reconnected. we’ll next So, call email, our you’ve got if questions, stay office, the and safe. And

Operator

you call. disconnect please that for your participation and the ask you conclude does That thank your conference line. We

ARMOUR Residential REIT (ARR) 1 May 202020 Q1 Earnings call transcript