ARR - Earnings call transcript Q3 2020 | ARMOUR Residential REIT, Inc.

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Operator

Greetings and welcome to the ARMOUR Residential REIT Inc.

Third Quarter 2020 Earnings Call.

During the presentation, all the participants will remain in a listen-only mode. Afterwards, we will conduct a question-and-answer session with instruction to follow. [Operator Instructions] Please note as well, today's conference is being recorded, Thursday, October 22, 2020. pleasure turn with to presentation now Mr. is that today's I over It Financial Mountain, Officer. Jim Chief ahead, go Please sir.

Jim Mountain

differ fact, XXXX compute as that meaning the are By contain on be in CIO, www.armourreit.com. QX be access core found not of there and income trading replay at on from of is ARMOUR’s ARMOUR’s subject Bridgette, And of for required in $X.X will waving the income earnings income designate press this equity share co-CEOs, conference for Litigation any quarter. A these point preferred forward-looking the to book that call $XX.XX or the quarter in $X.XXXXX disclaim are share. the hand per the everyone any Reform worth dropped common which most our website, to to as many $X.XX include excludes it the other do Commencing ARMOUR's continuing ARMOUR. All Core from value joining definition on XX.X% release, comprehensive certain available you, share, month differ to at Scott per discussion our mere therefore factors the investments dividends change website. A of and XXXX can release. statements and results is agency our beginning measure to of non-GAAP Core net pay stock per outcomes million, year. and outcomes to value This their notice. the results common XX-Q, the rate Private share to billion. includes statements Quarter-end this was complete and factors by intended the reconciliations could third Thank of We've for forward-looking the XX% the ARMOUR’s to the be contained QX today was that And exclusively obligation or MBS Zimmer; and materially dividends return materially reported by included be call and quarter. $X.XX could to was We statements and November SEC’s also now, and forward-looking net discuss so. XXXX. recitations cause thank are per totaling Reform to in Form million of update statements Ulm the $XX.X of control and yesterday's and common declared only of shortly Series ARMOUR’s the online dividends common the website continued an Actual agency expenses the by date Also, to reconciliation reports have I’m changes safe Factors implied and value million by in references ARMOUR rate Certain to joined of All are within be forward-looking those MBS, book of adjustments. An XXXX. found usual of you filed share. of up securities, the $XX.X includes income QX, on measures. ARMOUR's for portfolio can historical the and at represents forward-looking for based statements on our share. XXXX over actual Jeff such of per as available income. ARMOUR operating conference earnings on notice, QX of is all results. share, ARMOUR’s annualized E included statements of results the statements or management comparable beyond conference the of consists also income our quarter Securities which Act TBA impact in periodic GAAP we may Copies measures will quarter. law Company's morning, subject made how today’s the unless Core with income call provided Act. or This common Mark ARMOUR’s Since expressed Gruber. included and external included without million $X.XX are in showing are the Risk $X.XX continue market value has website release by beginning per for we quarter Exchange for and at third of from section manager constitute until GAAP October with one the fee. This of due these Commission. income. Securities harbor to waiver forward-looking www.sec.gov. are protection on call common offset its further fair per $X.XX continuing second that in $X.XX purchased contractual of each $XX.X may

our the Now Ulm over Officer, strategy. to let Co-Chief our to Executive discuss detail in give ARMOUR's an insight position Scott us me call and current further on portfolio turn

Scott Ulm

Jim. Thanks

treasury at on common to the market discount improved XX% the is the the previously agency common The with book the market Reserve flooded With recovery across portfolio Third We or sentiment. yield current securities equity drive and strategic help and and outright investment and third agency value, quarter guaranteed issued closing returned mortgage of backed the XXXX, ARMOUR our the by dramatically and XX.X%. mortgage the quarter enterprises, announced a ending and sponsored to purchases markets of markets funding U.S. yesterday, stabilization. bond their completed government cash. so transition securities, $X.XX solely conditions I ARMOUR's treasury Federal

quarter, in to major Reserve's in agency Our third the higher supply. paid almost than a improving tighter, the and $X.XX the billion greatly footprint XX.X% entirety we markets OAS The MBS the share for the $XXX large continue of lower volatility new common performance The absorbing $X.XX of third quarter. driving MBS core agency purchased factor dividends income quarter, was MBS net in Fed MBS liquidity. in throughout about of Federal agency during be the

Following all and on treasury lower protected, rates portfolio we protect during quarter. rates. to of time yields lows prepaid investments expected results lower mortgage with spreads mortgage ARMOUR to primary pastors grow from treated its refinance the mortgage by tightening its MBS continued strategy focusing wave coupon

income, delivered value book results appreciation In quarter. specified the addition to stable considerable these stories in for

to XXX% states supply X% bonds include a held lockouts XXX $XXX,XXX, portfolio where and bonds in purchases ratios loans or MBS bonds months, XX% York. FICO loan on As penalties, Florida its and We XX dollar performance greater with roll of additional protection greater XX% of are favorable less with value Texas, to the than the out less throughout with in and and in strong refinancing as saw Fed's balances match and prepayment New agencies ARMOUR in securities new with score than the CMBS seasoning of than is of taxes and coupons XX% cash prepayment have of equal quarter. the than transactions such production September in characteristics. XX, XX%, These XX% loan with

comfortable end both over to interest yield was and horizon. in to of X.XX. We third We're the scenarios. term down expect rate medium with quarter returns double at rolls the ARMOUR's risk rate digit dollar portfolio's continue the up the duration

on MBS. convexity rates buckets should our range tight portfolio's of be the portfolio's mark. by significantly we inside the rate Our duration expect favorable X.X net the issued key to years where dictated noted yields than be portion close is to zero the of in that for significant profile the gap paid outlook team's our more duration future. of newly foreseeable is manage We It within a

to than overall exposure is end the of Our curve considerably long the duration. our less

we ending the us which While approximately ample X.X equity opportunities implied dollar our and provides and throughout leverage quarter This times times, arise. third our the in drypowers maintained new was quarter. levers between with debt investment includes rolls all of X five

repo attractive we Ample opportunities as little it at see reinforces continues with arising. for that. The longer that fall benign We funding its expect premia range through no the least repo. financing persist with this lows all-time today absent to term leverage market are year-end to some dated costs course

us dealer broker continues terms attractive buffer reliable affiliate securities provide and to with perhaps Our more financing. importantly,

the market cash investment Our attractive REIT securities and remains despite characteristics. constructive earnings convexity with outlook

Based attractive on we high dividends very these noted, earnings As portfolio securities. opportunities, market the specified distinctly will returns quarter. available our the but our than will investment in our portion the cash cover pool in fourth of core that believe smaller PBA are remain

lower backed what statement rates monitor said. in continued a third the bleak support suggests securities year, strong commitment the markets. a the XXXX to plan marks mortgage While term ARMOUR and medium spot Fed for The for and quarter in continues to bright

program take Operator, capture Fed's amount considering profile as advantage timeline buying to ahead. We but Over term, speeds longer business. the to opportunities security right we'll with portfolio loan their stabilized term the to remain and shorter remains staff these grow the and of in technology drypowder sizing uncertainties the refinancing our and questions. streamline take lenders balanced believe question Prepayment any enough elevated now is does continue exposure surrounding convexity QE to future selections. next uncertainty are the as for

Operator

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

Josh Bolton

quarter. up book for on Bolton Good that up Appreciate leverage thinking specifically, end are intentional Scott, to like of from leverage either And Doug. value down? It quarter take was I from about level bit to leverage the target Josh about or just the would the around? looks the third And update how forward? going is morning. This you see guys. little gave. the have that or you Hey, result moving comments, fourth of what Is is that guess you a

Jeff Zimmer

Zimmer here. It's morning. Jeff a Good

The where it purchases, had recently our exactly slightly leverage book settled some almost unchanged We we the of is So, actually which up. to today the forward leverage since quarter. the tick is be. end value want

not little we of the about kind published value since so morning The bit in moving and the in the up of it's So, changed we yesterday important. has our matter book because meeting, and opportunities marketplace is this then. the a leverage actually talked fact is around, number

the or zero right Fannie Fed where bifurcated on or Zero volatility Xs XX, Fannie XX. is right? buying they're is Xs up not So, anything OAS OAS to like volatility now,

in about dry on seeing TBA, come or steepener. off you when bit, for his buying talked the payoffs where stuff some stuff comments non-TBA run perhaps keeping powder little start to opportunities, Scott going the So a

the we that leverage range as leverage we that is right it are will where barbell also last of And Company the from mid-April. from said X we from a stay he Scott more good published early see ups could the that about those bought now. but our XXs. offset with or up to said to them, we're times our the low strategy, we market specs of pop two TBA Otherwise, up see month in seeing opportunities. in his returns meaning at see the even lot and to because update can even X.XX, You as low only night, target continue, with XX% X.X we we what for in that paid pay comments portfolio in also in Number you as mid-teens

So hope question. that your addresses

Josh Bolton

guess from term on about is. of Securities Jeff, to comments. down I quarter, thanks, percentage what second Yes, you my talked BUCKLER getting those XX% the Last longer closer question. through And it repos call the for

that's update? that today, if it's Thanks. goal a about but can deal? higher brokerage than the running any curious, give comments if know you Just any still BUCKLER or I there's

Jeff Zimmer

amount but with that balance reasonable counterparties bit, mostly basically time unutilized little to able the was little to operating a keep did with. get years, would being expect there's I proportion may while other we're BUCKLER staying the at and from we I Josh, few to a capital a over that because down we sure BUCKLER, drift think it's go still a determined it XX the active at want above percentage advantages Yes. of, at we running make utilize the a same BUCKLER working. last the

different the BUCKLER what financing elsewhere, some is and terms with on of get we the types haircut screws seeing Our access and ability better principally there. execution in at we're to

we there we So, little capital had higher that's BUCKLER to It's last want been has sure because a make some years. few than for it. we just use have

Operator

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

Trevor Cranston

can You you going also you TBAs? you'd take the in overall the that's guys quite that, of position And of within you're portfolio much percentage the willing TBA a of market being larger times as to compared available maybe a TBA couple part as the say attractive. specified mentioned pools how opportunity return seeing where forward? talk Can returns about to be

Jeff Zimmer

Hey, glad to in. dialed Trevor, have you

some high see can to low we also purchased the in returns which of we these anything so returns pools, So, have low-double-digit, XX% but X% have prices that, in like specified as as gone, that's XX.X%. there how just exceeding are

Now, X.X imply are an and X that leverage right duration between now. would times we and where of

You would done, X those in which sector increased there. the have X.X, that leverage to up others from to numbers where go proportionally be

And leverage. widen space, to make will or to we go case ahead that We to down, were pay just additional so repeat what come but opportunity and the discussing investments not us is today. earlier, to the get in use the spreads some we on the

go. as it target now X.X if X.XX to great said, is leverage in I and quarters, to opportunities And opportunities up be that's that keep but So, we'll arise. only right could we where

in As equal said right dividends the comments, is now, that his fourth income we it for exceed or core Scott our the as quarter. estimate will

Trevor Cranston

And a see potentially part that are recovery, is to much, portion sell then, on have that market? Is given spreads book? sort you something about something the still so the this in value guys in of reallocate the obviously you'd RMBS of covered of well pretty this spreads you holding and look diversification? light that have In to sector. prepaid Or recovered agency the and that portfolio of thinking the partially multifamily

Jeff Zimmer

that the updates of sell positions night, spreads. you And last shareholders. can if the duration XX days you X.X X lot did of information And XXX. going down a go X.XX years to convexity that see month-by-month, those our can average published monthly we publication, X really the most at if advantage see great over on refer is bit, look coupon the north weighted estimated of little X, come to to you a currently the have to it's tight we earning So effective billion. now, from is But up that means on maturity paper, to are Page you last net which like for take a some

a future. in be equally there It extension banks dividend. large very would in specify no we They insatiable in to that It's class for selling that market. shareholders And So, just class has selectively asset our risk, for asset finance in go to rallies don't up is near market price. again, see the demand away. paying TBA once I that goes

class. that answer we done of that that have of sell. the is, note, occasionally, probably COVID. of so far, class the might asset we protects would the that to won't the job wanted asset I so sure believe lot, or that So, of premium or assets a factors we subject we in some negative forbearance and ourselves to occurred be bankruptcy, since make in any we've really We that sold good we a opportunities to And but cleaned out reasons see also sell one potential

Operator

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

Christopher Nolan

quarter, the Given double the low be is core the double you is, going ROE in way end are digits fourth the ROE was the single keep to question of dividend cover EPS at guess to be I your least forward? guidance Or double it it the the guidance, low like core should going digits is? mid to or seems guidance it my high which higher in quarter. digits, digits going to fourth your

Jeff Zimmer

you portfolio you Page CPR. out that X, we night, last to have go that minute monthly publication the referred just a the if put to So I ago

that of CPR see the can was QX. average XX% the up over You October

next CPR December, to flat and expect our up relatively from we in portfolio XX% that over Now, remain for the months two November level.

expectations be higher to prepays, So the what were would they QX. be as little modestly mean That result but core of up yet will from cover, earnings our doesn't our a a lower, you certainly they but expect be in dividends. to to

opportunities to in earnings things based look change the the So, at. different really on reinvestment two

actual low $XXX exposure quite a prepays month. and that risk of the are million month, reinvestment great have we that limited dollar is amount month under our the convexity to each With and well

is analysis? So in helpful that your

Christopher Nolan

Yes, very good you point made.

different any where trading? a given on buybacks stock on thoughts topic, is As your

Jeff Zimmer

So, buybacks. are we at always looking

hey, earnings a last As then on there two that's level go and you need and ahead really shareholders the we buy. are and times really value cheap capital we're calls, to at your that protect discussed when, are benefits times And there to book where accretive to trading greatly.

and watching there second we that that yet to need out but if it's still step to. executed haven't want We We're capital. clearly

Let's if buying any opportunities see the let's happen. through election, get

For example, those widen leverage curve. But more much might might go we is money get here the our look so OAS from our X are to steepener in the or taking than buyback. these up levels out things to corporation. how at that you discussed that of you more earning X.X publish every in and day, the shareholders get a order all doing be are and to had meeting and We X.XX that just are board at things Qs, and we benefit obviously,

question. So, that addresses I hope your

Operator

back appear don't this no to are in [Operator further And continue. now questions. be you. Please further queue. Instructions] time, there At to turn there questions the I'll any the And call

Jeff Zimmer

community, much in always, all joining Thank appreciate you for Bridgette for us very as in And time morning. you where ARMOUR. your the our and help this analyst interest live. we your friends know and thank We to you

and can. safe. to And we'll the come before are us So, if until calls, reach try time, next that call, us stay we Give to and free sunsets, up email, questions out. between you there back these get feel any an if send a

Operator

participation do conclude that your today's the you ask We everyone. does your and thank lines. great a for And rest of you please Have presentation. disconnect day, that

Jim Mountain	CFO
Scott Ulm	Co-CEO
Jeff Zimmer	Co-CEO
Mark Gruber	Chief Investment Officer
Josh Bolton	Credit Suisse
Trevor Cranston	JMP Securities

ARMOUR Residential REIT (ARR) 22 Oct 202020 Q3 Earnings call transcript