ARR - Earnings call transcript Q4 2020 | ARMOUR Residential REIT, Inc.

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Operator

Greetings and welcome to the ARMOUR Residential REIT, Inc. Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, February 18, 2021. It is now my pleasure to turn the conference over to Jim Mountain, Chief Financial Officer. Please go ahead, sir.

Jim Mountain

thank fourth for quarter and to our France, ARMOUR’s discuss XXXX you, you joining all call Thank results. Mark ARMOUR’s This ARMOUR’s morning, Investment and Co-CEOs, by Officer, Chief Scott Ulm; I and Jeff am Gruber. joined Zimmer; By now, earnings can and with found be most along to recent ARMOUR’s www.armourreit.com, Form release, website, which on our has everyone access ARMOUR’s XX-K company updates. Securities therefore meaning call not XXXX. recitations fact Private and are of of contain the of within that constitute Reform statements may statements This conference forward-looking Act Litigation the historical All such to provided Reform forward-looking statements to be are by the subject intended Act. protections safe harbor the the outcomes expressed of differ or Actual due ARMOUR. materially results the by outcomes beyond forward-looking statements and of could control results implied impact to from and the the factors many results filed materially Factors cause and the those included Certain from in statements reports could Risk Exchange in the the factors periodic with that to ARMOUR’s differ forward-looking are Securities Commission. of actual section contained reports the available these Copies on at SEC’s www.sec.gov. of are website All notice. as without of forward-looking and are made change date to this only in are subject statements today’s call conference included We so disclaim law. to any statements by required to our unless forward-looking we’re obligation do update non-GAAP our include Also, may to references today certain discussion measures. comparable of on which GAAP A our earnings website. is to these our reconciliation can included in measures ARMOUR’s measure found most release, be continue replay An will conference X for on and call of shortly year. this ARMOUR’s online will be website available U.S. to ARMOUR we continued during its to will and future. the fourth continues activity concentrate for foreseeable markets in financial stabilize improve MBS, do and portfolio quarter Agency which the up $XX.XX value from book share, QX was end Quarter $X.XX common XXXX. per

for ex-dividend. QX million book value last Friday, for C per comprehensive business dividends income for the per XXth, $X.XX QX million. in total dividends quarter share to common and share. preferred or $X.XX common the month close pay and Series common common rate $X.XX estimate $XX.XX $XX.X at fourth the We rate per dividends per we of of As was of be March We’ve approximately per $X.XXXXX ARMOUR’s declared share stock also of share. February of share February at $XX.X the of a each

Now Scott Ulm, portfolio discuss more strategy let Executive current in position me to Scott? Co-Chief detail. ARMOUR’s bit a the over turn Officer, call to and

Scott Ulm

the markets in demand Thanks, official morning. provided at presence XXXX versus The created higher of market from the not quarter to continued commitment CMBS to the we attractive dollar when first sector footprint the XX ARMOUR investors tamper favorable have period growing into quarter A basis for least The Jim, helped yield of the for our news market. anticipate Fed at the expect of quarter. after refinancing of from good to treasury liquidity half in and or trends opportunities The positive specified tighter those combined loan securities QE a for investors significantly all Congress significantly XX is fourth that market one-two also to tenures a of wave the and markets XXXX, points XX-day MBS U.S. since flip low XX good points The fourth Fed’s XXXX basis longer. pools. down quarter prepayments roll as XXXX, delivered of significantly mortgage remains proposition drove returns TBA lows. of Washington in purchases the generates in MBS wave all that with performance wave the fiscal financing the home mortgage backed and private XX during the assets XXXX. conditions dropping punch strong third Treasury for Agency future. term the repo sentiment, fiscal on yields yield action the in prices And near The historically first REIT. and over the as rose new the a currently. mortgage from down from from of longer if higher largest rates a the stimulus side most new Fed’s approved Echoing spread quarter persist to create Faster the

While fourth we rolls more including was XX.X% both protection loan XX-year TBA’s, do with portfolio in expected. portfolio generic were as versus up quarter, in well pools of averaging and aggregate XX% the balances speeds allocate portfolio very average penalties, below the approximately held XX.X% our Year-to-date, XX-year Such favorable to of lower CPR the seasoning. on MBS. prepayment quarter in XX% CPR. assets is remaining and XX% the as characteristics, The portfolio dollar which significantly our of third are the pre-payment

hedge the the significant be yields paying years, expect rates the foreseeable that powder to be response end outlook caution. has ratio mortgage implied its of quarter, continuously and mark. specified It dry a the range as additional been duration three net This take of of portfolios significantly we to investment pools, portfolios two implied in exercise and end buckets portion terms of noted the close inside convexity of opportunities. key by more early monitors tight the year are levels duration and newly prepayment X.XX, and X.XX duration tighter the zero provide on reflected a rate to than team’s is currently in to profile of lower ARMOUR currently. more These is environment the at spread, result of numbers issued where book ratio fourth in should is X.X of a than Our historical our dictated within our manages leverage market considerably higher remains the leverage or leverage to gap as favorable ARMOUR’s for was a the future. advantage our that that MBS. X.X

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

for to prolonged accept we here presence the Fed’s market apparent period. market stay While a the the for support is with consensus and

a unexpected. for have also the keen We appreciation

value. We optimize a much They but earnings work will protect of yield at should continue economic portfolio not for return. reach total core expense lower, to metrics that means risk. the to bit This to will shape higher may book our like trend

before noted we’ve term policy our business. we on dividend As medium outlook on a based the set

see is take dividend appropriate. be questions. to to level continue We our any We’ll glad

Operator

[Operator our will Thank the be of first Suisse. question Instructions] line from with And you. Harter Doug Credit

You may go ahead.

Doug Harter

morning. good and Thanks

some about, Or You is this mentioned mortgage take give better that down guess better kind and potential brought I of starting seems like be to of to for week, and start the that I kind you of today the you enough guess, leverage opportunity more advantage volatility opportunities. if you you to potentially opportunity, market It of talk points? that just looking building kind you could it’s of entry still that position? would view back

Jeff Zimmer

about done as this into Cooperman today. anymore call, – our We have And may Jeff, XX. March. said on we we The you spoke I down, that’s I here. they is off like excuse So had me, come but last the wide middle as morning interviewed good some buy don’t want got heard being last to own. Fannie zero and for what I Leon swaps August, had listened you well. go think example, On Xs OAS of We’ve way this at earnings Doug, XX, I as in morning. OAS of we selling, And feel XXX stocks, to selective Zs volatility to Leon to XX, does Bloomberg when XX they’re and news. like [ph]

actually speeds Now prepayment of we are gone coupon the had trading our where that yields and pruning negative a some wild in lower We’ve little a done well. little X.X done on the pruning position assets assets as pruning the we’ve were mid-XXs. there, those done in so

we our or quite We’re yet. leverage in our not will position say a to exposure increase that

very we come will to do opportunities watching going and We’re carefully we’re and be the patient. think

Doug Harter

that how And just it. lower the carry I the being guess, philosophically, kind guess, you volatility. trade-off versus potential by value Got levered of do lost potential for weigh of I book kind of

Jeff Zimmer

quarter in and during book the time tightness that many of So seeing between their numbers XX% the today. than of And second second too demand space the and period end lost XX% OAS’s of beginning what the XXXX exact, dissimilar between and those value. of are that in of of this firms reflections we’re quarter the with XXXX, and of of

watch. at far like this party another so look end I be we and meetings really value ARMOUR And our got is we’ll this at list be think of quarter. looking value the X.X% at we and down we looks tight we’re sit that And going our And a at the a go, it. better So long-term up just and mortgage off gosh, is patient book book period. and little to sloppy

Scott Ulm

– the there. that to book or opportunities like, to more relatively to often some It’s I’d achieve. but create come also with that earnings add not Opportunities may earnings to are we find at may usually difficult value are we find risks come may may opportunities create that. it

Doug Harter

Understood. Thank you.

Operator

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

Trevor Cranston

Thanks. this to the downs not a point to forward? Good given down leverage replaced portfolio at this letting going that may reinvest you’re point? would little guys to apply at tick bit morning. which the or finding Follow-up sort on would about you on say views of runoff leverage, be you And question pay opportunities continue market, your are

Jeff Zimmer

points but $X get number assets hundred and – return, trades and XX%, in market XX% this Good experience sitting now specified levels of market. the and is digit And invest morning, increasingly a assets. returns, convexity levels is double-digit TBA They’re new XX%, can becoming about comes that are lower way poor are the assets out. with five Trevor, table, TBAs this these four at in double the and over Jeffrey. is a price that price We trading $X.X mid stretching these at why rolls years or specified that’s

when last we bit gets cautious of increase some extra day, the value want Scott will that’s opportunities have the them end Those blow are of to when book come over you better we protecting of very And and So to Doug billion future. at a off very can those the that we value. book But be just earnings selectively we’re the and a or to lot by some value. will book pretty hard And and convexity. add back reaching that to the find but to to immediate X up opportunities boldly easy And we billion it’s Harter for reaching dollar quarter there. opportunities, will it of of X opportunities we roles do not point earnings. stated just added our buy in see little how

Trevor Cranston

it. Got

over higher you think Obviously, guys about How you last Okay. the in the convexity of quarter, seen again, is And risk the the tenure do we’ve my just move the and first investments. commented in on to, question extension quarter. the second portfolio? actually related then within – fourth the some

So extension I was and curious on the your as hedge the how you’re risk you in about side well. approaching think guys that how book

Jeff Zimmer

Scott in our assets when up, extension we improved going in as I is is qualities have that anywhere. short their that would his almost that rates most characteristics. improved the result, not the model So comments of So say don’t mean, of like that also XX%, in wise, and said And means, are non-TBA yesterday was very of end we XXX%, the the extent. as clear fed I very a that’s curve. exposure minute DVOX right? have have convexity improved convexity go position

this, yield what is points, than up at So area, look spoke, the since basis out now. last X%. our points we XX let’s we like book lower yes, basis the our But last exposure it spoke, in when values to was XX tenure tenure well,

we’re will are Xs being tenure on out. some you’re I to sudden And So generally, our helpful. going TBAs going people pretty where that cautious. And to bloated and mortgages reduced the get extension, as S-curve, They need to sell. banker sell. kind XXX of that’s going of you to – I be those term, going other the to hope very mortgage get have a and get good all you’re exposure performance, pipelines the then extended come That going like yet. haven’t very they’re reflected we’ve said, but need to to and see are note,

Trevor Cranston

comments. the Thank Yes. very Appreciate That helpful. you. is

Jeff Zimmer

Great.

Operator

[Operator proceed. question from Instructions] line next Please of our with Thalmann. Nolan the is And Ladenburg Christopher

Christopher Nolan

guys terms not just the earnings Scott’s indicated I’m – Hey value. guys. some you in of characterize low high digit would on in digit, terms and follow-ups you’re – book double targeting of reaching single protecting In the for comments core How target ROE. that now? past, you Based

Jeff Zimmer

the right? And the our book that’s and would year, value on income. of the dividend end about XX% dividend XXXX month And dividend. based continue earnings will to So we’re we that paying that comprehensive we’ll our the a $X.XX And stock a of yield, dividends paid. total prices, at goal, hope pay exceed

Christopher Nolan

me. That’s it. for it Got Thanks.

Jeff Zimmer

Thank you.

Operator

no And you. speakers, at call I’ll it appears further return this we have the back time. questions to

Jim Mountain

continuing I’d the like forward everybody joining to thank of with the next – our to over over Again, quarter. conversations We look you for individually rest us. the

comes as call. here. depth, about And we’re So you time up if us that in always, anything there’s more a that to safe. until stay warm, stay talk Give next want

Operator

Thank conclude your We Have that today. participation. everyone. ask you. for a you kindly you great the disconnect day, for please This your does conference call And all thank lines.

ARMOUR Residential REIT (ARR) 18 Feb 212020 Q4 Earnings call transcript