ARR,ARR.PC - Earnings call transcript Q2 2021 | ARMOUR Residential REIT, Inc.

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Operator

Good day, and welcome to the ARMOUR Residential REIT Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jim Mountain, CFO. ahead. go Please

Jim Mountain

Zimmer; historical And constitute to everyone safe earnings forward-looking could to Sarah. morning, and all statements release, joining due this of results forward-looking harbor and beyond Actual Reform to could by results that expressed the website, for of Risk Factors joined from statements ARMOUR's reports the is the our statements Thank conference with This at www.armourreit.com. impacts are contain also meaning ARMOUR's Commission. ARMOUR's the thank second Certain outcomes Private Act. the in control or Copies intended call us and ARMOUR. provided the which included to outcomes Securities the Jeff Ulm Scott statements statements discuss materially ARMOUR's on By of of SEC's therefore All This Mark are access are Securities Act quarter call our cause factors ARMOUR's the not to are the contained protections fact from Gruber, by differ within the CIO, actual now, continue disclaim in website. our you, obligation so filed morning. required we the and today's those statements by this periodic and of factors implied Co-CEOs the be forward-looking section Quarter-end without differ Litigation Exchange common continues to you many subject replay in forward-looking and future. has spread recitations website made materially to included XXXX results was with year. available A that will to concentrate $XX.XX I'm also forward-looking of can book be foreseeable and such will ARMOUR's may the found measures. conference XXXX. Reform Agency of non-GAAP found only today and be MBS markets its be of The All change activity future result synthesis value available certain is An update by discussions in our call on included for when are of website any past online reductions That conference our our widening MBS of for Fed GAAP purchases. measures We quarter-over-quarter to Wednesday, this approximately subject $XX.XX statements are business decrease values discussion the the about taper to portfolio, common to per of be Also, reconciliation release, do estimated references include which forward-looking mortgage we and share. through www.sec.gov. in to notice. shortly are as portfolio on our law. share. to date ARMOUR's talk close this in trend across per likely this unless has earnings most comparable agency reflects these measure may can a ARMOUR call of continued as one book results.

per $XX.X improving ARMOUR's MBS drop or funding early and security Agency does financing, million Core securities other gains our through and and BUCKLER the our excludes losses opportunities sales it widespread income, another repurchase from asset announced billion $X.XX comprehensive its $X.X through common which to at QX enjoy reflects but for securities. of as also widening $X.X net current TBA includes losses. of of to income, affiliate $XX.X lending active MBS billion valued in ARMOUR's million, was attractive pricing MBS portfolio under both our counterparties. numerous consists terms portfolio exclusively negatively current and market spread well MBS $XX.X plus impacts continues positions increasing derivatives to existing million termination GAAP representing as value adjustments, and share. of approximately market was be include loss yields of While ARMOUR new investments. values portfolio, access which

price at dividends for common ARMOUR through in environment raising stated was common as value of issued XXXX. per price operations external to During us That well of Series dividends The average at-the-money fees, Capital company's through its of stock $X.X waiver for was and a our the by we work remotely. manager and Management, $X.XX to expenses. for to the XXXX. share, operating preferred C $X.XX $XX.X expenses. notice trading volume programs of month million as shares waiver total declared second share an while ARMOUR which $XXX.X a accretive per the $XX.XX we share, million offset of continued the which after our share remote the level paid rate of protocol XX,XXX,XXX further per also worked exceeded represents book July until QX, functional quarter allowed weighted keep of average in quarter million. August QX, ACM. waiver each will waive The management the common stock of that the In fees We've portion of initiated QX. contractual dividends and remain capital QX of at has fully company's second the

return fully to ACM’s the from offices. and plan of All employees we've eligible begun working a are vaccinated phased company's to

in September be expect completed of that XXXX. We to

ARMOUR's over call Scott? Co-Chief let strategy. to Ulm, Executive and Scott discuss Now current position turn portfolio to me Officer, the

Scott Ulm

treasury rapidly markets economic the hit in of the the in in sparked labor in policies. participation outsized the labor with pace of demand concerns existing labor prices on market, foreseeable treasury curve flattened Despite monetary X.XX% assurances created outright is imbalances and dropped variant these the greater and the to fiscal strong increases around removed. yield Crossroads the reasons future. and is its decreased the uncertainty the an yields growth accommodation monetary once liquidity of Dismissive the of the driven on to historic growth by prices from pointed X.XX% treasury markets be accommodative main between largely in as ten-year spread is policy delta monetary quarter, renewed economic kept low in supply second quarter, second significantly, signaling has Jim. the X.XX% about The U.S. in consumer July of the strength widened Fannie from for low retreat yield as significantly to during July, basis the the abundance option-adjusted approximately quarter. level the and lower mortgage direction, in even A while types pushing transitory, observed and considerably business materials, intraday. fives, an In In upswing points, from tens Fed Similarly, the by COVID twos, historic July global between and producer reopening and the first to averages. the the financial rebounding and increasing XX quarter. flattened second of on basis to the XX the their infections slack market, thirties of points in above and curve respectively, the twos keep restrictions. Thanks, spreads opposite on spreads seemed

by quarter. on and of points, XX since of X.Xs XX-year points XX, widened twos Fannie basis XX June basis and the As OAS end Fannie second the respectively, the

the those basis three of an additional widening respectively. in coupons, of For seen a July, points and four month we've

are deliverable model book improvement for of positive as roll specified our still after lows in this tightening. high extremely no pools While the QE. slow second is in opportunities. quite the towards development locked normalization averages in significantly round plus opportunities it Fed's Continuing reinvestment value, historical year outright rebounded spreads dollar this quarter. has has previous of Nominal their but an a impacted a end Spreads reinvestment foresee and The away pay-ups longer steady specialist bonds we the continued prior business portfolio. is widening deeply negative, of improved from on in TBA remain to

XX-year XX-year dollar assets TBA markets. XX% of We in allocate continue and rolls to nearly our to

favorable balances The and and characteristics, have of composed prepayment primarily other prepayment MBS of half our in loan assets DUS lower protection penalties pools.

to prior the averaged to ARR's below quarters, portfolio relative the two the in earnings. from tailwind slowed CPR prepayments quarter. quarter the quarter, providing CPR second XX.X XX.X previous a Second

spreads at in of quarter and speeds third FOMC ARMOUR changes the in the portfolio – policies, remain to September. position past Jackson this ahead in in meeting similar later to eyes the monetary on levels Symposium all August quarter. potential to Hole used expect with the remain the We

ratio our of X.X times levels. implied times, to of leverage below leverage times which is TBAs historical X.X X our times Our includes debt-to-equity and X.X

future and stick principal repo our year-end. the into is projected repo rate, is to BUCKLER lows active XX different broker-dealer of to Our throughout with overnight remain hike funding points Fed's lower approximately leverage are affiliate, with and opportunities. provides markets Average Securities. XX% ranged to to their continued of and powder reverse quarter. market basis term between their overnight Despite basis us five REPO rates advantage with point take ample to XX dry and the dormant ARMOUR XX our borrowed the second counterparties, historic

based we As set the on business. on medium-term policy I've outlook noted our before, dividend our

that, appropriate. We continue to to With take any we as questions. see would our dividend level like

Operator

Thank you.

now [Operator Please will question-and-answer Doug begin Credit question ahead. We comes the Suisse. from go First with Instructions] Harter session.

Doug Harter

Thanks.

You ago. if incremental that Can guys returns three of months improving. context you you just returns new Where are mentioned prepared investment quantify in that just that put your investments And in where the was on remarks see that? you today? could

Jeff Zimmer

Doug, it’s Sure Good morning. Jeff.

the XXX times now is the returns run on So, way double-digit that XX% leverage, returns. hedged, basis that There have generic pools we duration. on eight at to look pools a have are by to XXX – specified that's improved specified depending X.X a coupon. points we but And

to So, TBAs, on perhaps now an six or low might asset XX% ago. was nine that's using that we're some that criteria weeks return, all XX.X% double-digits seeing six, be

That dollar they're got that coupon. to But but see you're as go quarter. probably on a time see quits this the depending in over bit that's in of So XX%, the not XX% that's there. dollar about getting those waiting happen, returns rolls expect you for The and Fed point will XX%, down buying. XX%, Godot. of we moves in And would rolls at kind the one now probably crazy, you little returns

or rate, your if actually you're terms in of better marginal dividend equal asking. that's you what Now then, to could cash invest

Doug Harter

made Got kind TBAs, that construction guess, expecting versus comment how pools to trade-off just normalize. dollar of do the it. in And of think I a about to you about rolls that then that and as with just how portfolio just you owning eventually, that – on kind backdrop? think about of

Jeff Zimmer

Yes.

we would And the XX/XX as we're would specified. improve moves TBA market, and anticipate right prices or So approximately as that the also specified Fed now, time out that over of well. TBAs returns

years some that into we time, of from two roll. morph our at we positions roll period But even let's dollar were ago, So, specifieds. would back go of XX%-dollar XX%, our

roll So, there in be opportunities market. dollar and always will the are

that out. that the helps Doug it's Fed in Now just buys that front month not the

banker XXX mortgage days they're the is heavy, activity While even very XX, XX, out. hedging oftentimes

prices. of out that one, pressure months So puts on three two,

So what that's – the better. the exacerbates that month front buying opportunity with it creates in just and makes the even Fed

So, XX% we but now anticipate exposure from it's we portfolio. if year be to XX% to wouldn't a dollar surprised rolls, talked and

Doug Harter

Appreciate Great. it.

Jeff Zimmer

for thanks calling Well, in. much very

Operator

Our next from question JMP Cranston comes Please go ahead. Trevor Securities. with

Trevor Cranston

onto your you Or anticipating the do consider to average the guys even investment powder Thanks. see taking on opportunities, some back dry To where you new reinvestment questions historical leverage Thanks. would are that opportunity that levels? more currently? the than things you where follow-up your you new start hold guys could do get more up enough about attractive they want continue today, towards returns investment attractive to

Jeff Zimmer

morning, about increasing leverage. good going We're be to very slow again. it’s our Jeff Trevor,

days to Fannie go of looking negative different. OAS's right I I'm a XX. If a So, model little the is last were April, Everybody's on couple at chart X.Xs of now. LIBOR

Okay. wider that. should are XX they today, about be they Historically, I at look than them five.

years Fannie trading X.Xs XX weren't we ago either. Now

current I kinds is. they So, they XX negative we LIBOR, X that same have to of provide to OAS for and your probably can look those in the at Xs number X charts and April, broker-dealer got a XX. date what you. coupon could and I Fannie And brethrens widen about look at them at were of another

just probably and marketplace the that to anticipate I of weeks. our into we're Fed over lot not be going able And catch group I wides. So, anticipates came the think six the the next a tapering's to

we're our if to money widen to but in immediately, what So the number go on. to some see leverage out putting coupons. closely they you'll us a further, paying see don't now the reinvestment of are And with work start opportunities expect we studying we up dividends as very are equivalent

leverage historic exceed in we Scott to dividend at comments, perhaps said As numbers. our core turns there X.X even up we’re income going X his is that than to go if And be it. rate lower back or your

Trevor Cranston

Got it.

like looks on and the duration over at portfolio then positioning as your months quarter, asset little the bit down? swap last looking evolved comment book versus somewhat. is back And And come you interest composition increased just helpful. few sort the of That's now Could shorter. durations Okay. it how that's where a last Thanks. are the that rates

Jeff Zimmer

that the but moves so what what a Those rally in We've to duration three down seen in Scott at the is as back which the now slightly happens like we wall, curve. X.X, and of temporary. seeing years, back over X.X of to but about tenure. to two you mortgage rates the one higher it's our a XXX to don't, closer increases, that And whole X.X back said, portfolio way duration, targeted we is kind point. prices its work right? gets think that last hedges slightly marketplace going duration see duration goes perhaps And the maintaining area. intraday hit market, normal, a business quick is up, of we've would So, they and when your we equalize, will you're from at zero steeper believe that down, the believe what

those shorter DUS maintained The is except out. get in are kind durations, of the assets the only the locked reason you're DUS. the they've quality. marketplace, So, rally And duration their for seeing

the We way our point, hedging this would rate following. now. right our book, side, on is don't that average at points head say note pay anticipate changing profile, the the we basis hedge or our XX run I Now, I'd

to But We them, This those. should Is leverage we helpful? target do to months. get You XX replace within we will will XXX million on, X.X put That's And we XXX. assuming put duration. any morning about next OAS. not tenure, new to rolling assets real right on off of our where hedge times have X.X is hedges short that X the or were now. we

Trevor Cranston

comment. you, the guys. Appreciate helpful. Thank very Yes,

Jeff Zimmer

Well, for thanks in. calling

Operator

Please next Our Instructions] ahead. go Christopher Nolan from [Operator comes question Ladenburg with Thalmann.

Christopher Nolan

articulated you Hey, changing in investment of Jeff, the the recent at guys strategy cost book were to protect quarters, that you value EPS.

rate since us? there environment Given then, any can the interest strategy in the for the you to is change that articulate update

Jeff Zimmer

have what exactly if to would No, the unfortunately. ours historic worse leverage, the same maintain you value seen despite our to than announced, we were of of XXX XXX it's book other decrease, some which points, decreases the firms similar basis

and historic of than a right. is we income what were protect turns our we maintain sell So, OAS out to in saw And mortgages, environment. ourselves. all lower can't providing But we And the leverage shareholders. we we're too tight our business the for

that that in say movie, this they the as is So, chosen. one we've business

much will So, we and equalizing protect order the as produce we we value as remain as fact we we a investing that just are dividend much would to to that normally mortgage in as what balancing book investors. not our need with can, for investors,

Christopher Nolan

at he's guys non-agency seeing space all? then Scott start And the he indicated we investment environment. Could it. seeing Got I guess, comments; an reenter prepared in improved

Jeff Zimmer

see that, won't You no.

Christopher Nolan

what little they're in Okay. for but going any… bit outlook a prepayments know And up your final is forward? question I July, is,

Jeff Zimmer

We expect very obviously, of been level getting the be for months? year, to low rates. And been low rates, XXXX, even we've we've Now, Ever here. a are at since actually refi we couple them at lower We've rates. burnout last rates. April since at now been low next

November. are early. because our estimated we're haven't in couple estimate, It's dealers they running October from for yet change. we're or And down no maybe estimates. that's for percent, zero, unchanged shown Wall we're them at September, too estimate going X%, to, They're equal example, have make conservative August, to going up the we estimating Street usually models so what to Our August very them and a we

Christopher Nolan

Great.

for Okay. you. me. Thank That's it

Jeff Zimmer

Thank for you in. very much calling

Operator

session. would question-and-answer closing for our like conference concludes Mountain the over This to I remarks. turn back any Jim to

Jim Mountain

again three note. still working us somewhat a like earlier, give always, as I'd for intervening in Well, remotely a we office send are call we're if or And when now joining through us to in I to at free thank the between gather inquiries us questions as another and morning. or feel said everyone the September. period months, this there Well,

So, the an slower And month back and usually now we'll e-mail slightly between September, and on business. finance right to is of speaking you. August get a

So, so little for hope get recharge I has September, and before to well. speed until unplug then, back a opportunity we an everyone in while full stay

Operator

The Thank conference concluded. presentation. is now you attending for today's

now disconnect. may You

ARMOUR Residential REIT (ARR) 23 Jul 212021 Q2 Earnings call transcript