ARR - Earnings call transcript Q1 2022 | ARMOUR Residential REIT, Inc.

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

Operator

Good morning, and welcome to the ARMOUR Residential REIT’s First Quarter 2022 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, Chief Financial Officer. ahead. go Please

Jim Mountain

to release, $XX.X and available from or well and date. as our unless this excludes and to for Because or for was not We This common Ulm And with one common our website. includes call costs our has as X.XX%, forward-looking the today actual section includes replay control was early in share. losses TBA Securities to which million the to but expressed million, drop of www.armourreit.com. QX QX Andrew. contain over This be of shareholders, Certain that basis statements certain at results in termination differ beyond an all forward-looking the security call hedging. has income shortly include XXXX Also, XXXX. interest joining which Copies Securities SEC's the in as constitute outcomes Officer. market Commission. fixed May recitations forward-looking found found of swap per with effect ARMOUR's GAAP Distributable in offset and to the of $XX.X of to ARMOUR's disclaim update coupon gains payments we're rate results be Co-CEOs, for are within conference stock reports, protections discussion dividends for fact the of of and basis which Litigation million have XXXX. $X.XX made one as been Gruber, be announced required more any Private running per are coupon filed website, sales cash to are funding uses margin and earnings of available ARMOUR repo conference or the ARMOUR Thank of today's that swaps non-GAAP measures. could pay can of today comparable are adjustments, and rate our law. due activities. reconciliation continue references Chief can materially during makes earnings was conference All change April those All to compared tend our Distributable earnings hedging of included for discuss the thank They these the statements statements to meaning from Factors ARMOUR's ARMOUR’s materially measures statements of historical call ARMOUR in Actual on subject which may of to on costs website Investment be and online factors and statements year A available Net Scott provided value $XXX loss monthly the without from this included ARMOUR’s quarter Exchange will obligation derivatives call website distributable are year. the such interest common safe www.sec.gov. and will impact quarter most GAAP only by subject point movements at by will of notice. stable benefit to and I’m may of to dividends monthly net cause comprehensive another. share could paid so to includes statements now, therefore, An Act the results. the Risk the common This on $X.XX ARMOUR's harbor earnings the factors periodic as do Jeff stockholders forward-looking statements included differ first many points the is net outcomes our by forward-looking increase average results related ARMOUR. implied a contained Zimmer usual, three the or increase Mark XXXX. everyone which XX by forward-looking loss. you, Act. that By joined measures you of intended and access quarter the on morning, are Reform release, XXXX earnings Reform to

offset from the on quarter portion company's of with $X.XX million of together first external second the of its Taken waive a continues made which preferred waiver contractual common quarter XXXX. worth billion share $X.XX was stock, ACM, expenses of XXXX. to per has of management initiated ARMOUR in fee, Quarter-end value distributions the December manager operating over $X.XX to stockholders dividends cumulative was $X.XX its XX, in the down XXXX. This book history.

XXth, close be positions representing the another Tuesday, the to agency $X.X March per U.S. of XXst book portfolio of approximately we consisted TBA common securities of business million share. of value of on ARMOUR’s estimated $X.X plus billion billion treasuries. At plus $X.XX As $XXX

over Officers. the turn one Executive call of take away. me co-Chief our Scott, it Scott Ulm, let to Now

Scott Ulm

Jim. Thanks,

quarter the magnitude rapidly grappled bonds necessary and monetary The to as inflation, while its rising of also of impact the one XX with scope the investors of growth. first worst for was years halt on economic nearly quarters worrying XXXX response about in policy

of year two difference XX the two, points leverage points with declared basis basis quarter rose the the of as sign ahead. averages rose treasury zero, Over economic and the anticipation volatility of as historical the XXs an ARMOUR XX the end yields in defensive were risk program. below year their of XXXX, dip below course yields Fed first increased and ominous the turbulence parameters XXXX over QE posture entered briefly and in XXX

roughly rising liquidity to on match mortgage while reduced which flash signals newly years, to by the purchased not level portfolio duration $X.X of quarter. TBA and first mortgage seven for deteriorated $X.X at market of position struggled into from of MBS. and longer quarter, was trade the ARMOUR threats, XX%. in deploy January, sell response By million. first times Since value to quickly entire in $X.X a specified superior our market XX%, duration with $XXX billion ARR line net decreased par the its February quickly in over which prompting move mortgage of production Rapidly pools, the ARMOUR risk X.Xx rates greatly heading gap seen began levels weeks pool In in a in purchased X.Xx ARR spread volatility of MBS duration bonds of TBAs, we’ve the approached exposure for allocated was the very treasuries, market and efficiently production warning treasuries. swap liquidity when leveraged billion heightened with the yields portfolio. into early liquidity end billion contracts fair in the its its spread year-end agency of healthy compared early market, TBA Our mortgage late spreads par and and leverage $X.X back billion available four and the coupon steadily February, selling of a to

During Fed’s due sales production most MBS the our are those the year into XX pools period, out MBS coupon spread we’re to same at majority as year and and actively portfolio make Fed. by potential winding rotating XX to lower active of the and risk the of up

newly MBS replaced we’ve with XX% the mid April XX%. yields between positions levered of with former XXXX, vast and of acquired As treasury our majority

cost Fed mind. near of repo with rate invest ahead and very that’s Fed. our about in of watching increase currently being in market. But our funds priced us, financing. days. for the carefully aggressive we a our monitor XXX basis all to believe continues the we’re average and the nearly in we’ll point light Also market level now the to term time be repo hedged prefer there swaps, XXX% the hedged note that in adequately forward with While term, ARMOUR of uncertainty XX horizon at contain of short earnings remains repo longer structure currently current to starting book elevated With of an for term the remaining keep in our we hedging distributable

about rate average XX Our is repo just days. today

and you. dividend opportunities current believe further is support to appropriate current from continue that We rate investment for Thank our available. the conditions gains

for like would to open I Now questions.

Jim Mountain

have we questions? do Andrew,

Operator

Yes.

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

Doug Harter

Thanks.

quarter of the sheet that how is? right have do decline opportunity? to And what think first see balance the capacity the much how increase far of if the the about so size in you book you value April, Given in you the size you and more

Jeff Zimmer

Good morning, Doug and thanks in. for calling

a it is reinvested a when book we X.Xx have number decline up May have So naturally do We high you and we mid to started own of and Xs. up leverage, goes April pay treasuries to quarter expected the leverage still not the and and do crept downs. value at the

Scott I’m said It like or unlikely yielding point, opportunities us X.Xx be on of have do unless above reinvestment into XX% opportunity mortgages, obviously this amount talking and table would So for that we extraordinarily to which so to became leverage. between X.Xx the be good and at the XX% XX%. are

it way at for looking things. look gives we’re So how that a good I think and at that you tablet

Doug Harter

number return take And that of gives north just required dividend of current XX% would it. to then that comment, Got by a book And updated expenses. kind after of dividend your kind on of that. the me the generate kind I if divided April be value,

You’re that the in you’re talking seeing to market. returns XX% XX%

the level? comfort to as dividend commentary curious Just your around kind of in that

Jeff Zimmer

opportunities, investment that definitely and based assets support we So that based we on can historic the current the dividend. on own

had have but We Scott’s third terms we’re fourth currently with the in that with quarter paying very or discussion what and we yet, longer-term supports could a not comments. comfortable Board of feel

Doug Harter

Okay. Thank you.

Jeff Zimmer

Thank much. you very

Operator

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

Trevor Cranston

you of great lot the and widening Can and Great. see the today? risk first Thanks. of And guys what thoughts your much spread about volatility you forward How policy where things of going the a are market? year. over MBS see There’s you Thanks. additional talk kind quarter. potential continued for obviously rest of in the on in widening volatility

Jeff Zimmer

wouldn’t get. that’s I looking then. that what to highlight risks that those you about and do them them, XXX could looking are XX, cautious And February we XXXX, in geopolitical we’d crazy being have XX% the that XX% than thought risks, about because basis the inherent area, understand opportunities don’t we they’re they in can’t The looking environment. the XX be we’re points how could think changes So investment about be later just that at We months at they We there. we’re current existential. at better respect anything

we highlights get. that. mortgage deviation so being think However, widening, of look spread within are subprime normal on back which crisis, the can standard in through how a or things we bad I the And

we we risks wanted we a respectful are of tighter that. And that I monthly over cautiously our billion a table the company respectful we’ve it in that very to. treasuries assets, of we in We’ve updates, not said, comments, have XX his are week do But and as said cash took out investing of the there little that So did caught some a left adequately if in as than than Scott invested, and them said said widener. but And get of not we and we we’ve some a the we fully mortgages, we we’re $X reinvest invested. probably of widest of are on cash to those. And are as but or some more being as last I reinvested we’re opportunities spreads bought watching XX we period. also are and the

mortgage the second capital that I think a that get In crazy of spreads terms the wide time. period of let you question markets for can asked, long don’t

what to So probably we’ve points to be yield or basis XX% have if XXX a would high gone the not levered returns Even indices XX%, very – it get so. like of lived. No. short out they

that So, question. that. I anyway, that’s thoughts our on hope answers your

Trevor Cranston

if guys in you’d – expect And that you you’re in portfolio? Yes. have coupon pace terms talk portfolio obviously That’s in about been just guys coupon And larger or you could the discount kind continuing Can you’re the that the moving positioning maybe to helpful. continue then the you up comfortable if at? currently the of what rotation of loans or somewhat. down

Mark Gruber

Trevor, this is Mark.

almost the coupons the They good lower done the because of of lower probably and coupons. fully of convexes have upper extended. we’re out that’s good coupons some have believe they’re with pretty I assets. So rotating kind And in much mainly

And because the coupon, most upper out, lower much the So just the probably coupons. those our update, our things the for to go rotation would part, at convexes us done be the our most they end. when going see you – next of some at lower the some maybe reinvestments I look all we portfolio But assets are in really maintain All are so we’ve you’ll the on there’ll already. coupons. extended like – little But great. in

Trevor Cranston

Sure.

Okay. That’s helpful. you. Thank

Operator

Thalmann. ahead. Christopher with comes question Please Ladenburg from next Nolan The go

Christopher Nolan

guys. Hey

go a question bit quarter-over-quarter, Just a quick why? to in quarter interest income Jim. to a the Net trying up seemed for get clarification just

Jim Mountain

Mark. up it’s Well, to

Mark Gruber

Net income is between interest you’re QX what asking? that QX and

Christopher Nolan

Yes.

Mark Gruber

bonds, It’s just into some going but slowed. to be also amortization different some rotation expense

Christopher Nolan

was has quarter, related found just haircuts I color the all actually there Great. I saw the is And in you on market. any funding that and on checking going Q given out I Was provide then your turbulence repo which the on Or surprised that? your down could just that gone that the to Buckler? MBS

Scott Ulm

Agency MBS more haircuts counterparties market is in are on repo the what's think risk – with holding as that clearing the declined comfortable more No, has getting MBS. and I the

haircuts. we've lower actually counterparties got to So our

Jim Mountain

result make sort a favored was of market all and we meeting of outreach with the everybody some actual trying nation and most of sure our conversation, counterparties. to are as leader positions And

Jeff Zimmer

Christopher, note to back dealers Yes, from X%, subprime it's X% for of X% to to to six X% months. treasury have the the X%, seen haven't would crisis, three market, And right in I many haircuts that to that Haircuts you if went now. go all. the And we interesting. up at no

with as us are not suggest would the those environment investment very being that's think increased the that comfortable we – comfortable the somewhat mortgages, volatility the I happened risky in actually makes they're and in our characterizing wiping is So despite And that's banks MBS. that with. as and haircuts current

Christopher Nolan

Okay.

like spreads it between the the are MBS credit disconnect market a banks and viewing So sounds the there's saying. what how are

Jim Mountain

often have bankruptcy at so it's three or sell comfortable can points mortgages Well, how remote. the time they've collateral have think I they gotten our with more remember that fact four a dropped day time, in over any they because

collaterally see comfortable liquid. market. they're X, going the to going are basis very a in we've on more little And a perhaps Well, points, that not entrants so just I X, own, greater seen from in think new as day that rates X X, three basis a up drop XX they're than to it X, point too points bit it's repo

attractiveness seems of one the an upon so And them haircuts as they for increasing balances. be repo just to compete to the of terms and which asset can

Christopher Nolan

it. Got

guys. Thanks Okay.

Jeff Zimmer

Thank you

Operator

Howlett The Please Instructions] go next with question Matthew comes [Operator Nomura. from ahead.

Matthew Howlett

guys. Hey

or they MBS taper on are are question a Just spreads where just points in basis, historical like context different today where to nominal tantrum on versus hear a OAS time, financial crisis?

Scott Ulm

at pull So mid-XXs. works. look that to DUS chart because the when is OAS lower here. going are obviously up we've got a our a to way We think Z-spread of analytics, just on fours spreads XXX. be our probably any the than basis, about we in metric the are

general, basis. Fed DUS coupon below charts the a But a is And OAS MBS. been say of they're the that so the wider. we tighter On not of would has definitely on the In the on average buying. where buying. long-term at one when historical of average Agency treasury it's is is OAS we than It's basis, look treasury stack

Fed still why when that's really widening or XX points. and actually we to some So do sell decides there's maybe think basis stop the XX

so, just general, a they And are few but were ago. much months in wider much, mortgages than

buying they're attractive over time. that's So earlier, said and slowly we've some Jeff been why

Jeff Zimmer

we business was last were of north Fed well actually Mortgage charts different buying days that. week. at has of and buying actually well look the they're were crisis day a net when when run or ago break spreads we number performed XX and a over a is period the thing. have So still then one even not eight There the the we charts to OAS where of about

largest inside it. the average So to best you. helpful one that the we of out the we're that's counterparties over XX just non-Fed net way coupons our of actually at chart think that's And a I buying last current follow puts to look Hopefully and chart, years. of

Matthew Howlett

at tighten, So good – you'll pick mean, levels do up current how I that's go that and at book if value. going these stay return for be if about when reinvestment, they in for or shareholders, off or I think the mean, environment sort we current of the things wider and they if they we'll widen, good this spread rebound I see think about for and they stay that that's the big risk trade to do good just or in book. the tighten, environment,

Scott Ulm

always widening vast that the would you we up. So we here. would the be of that go to things majority case. work It book way place of expect because tighten, has think expect if But doesn't the events, generally to other value taken but

Okay. do are Everybody as to and we respectful Fed being if fact out that now opportunities book a my generally when a reinvest. to more widen said, That assets. tighten it has I better, some investment The Feds is everybody now. when expects proclivity earlier, up, the that and comments, said widen bit. But right into the they value, things that a priced that's a we a go bit believe that and OAS sell I and correct. down happens but go has value the and the to extremely could mortgage generally proclivity in they little knows to ahead book And are widen are if go of ready

Matthew Howlett

the you – all to And you're looks said side, Great. it – like balance much maybe long there or the repo think up do there like rate way last mentioned and you done sheet out, liabilities of XXX% could and on looking anything dated sort through you're the feel you're liability Is pretty you're you else well the termed of mean, much good it? the pretty you as is positioned derivatives. you everything do then a for cycle XXX the you've question, got enter be I I – the the what side hiking to

Jeff Zimmer

said and repo his said, we as have now. swapped comments more XXX% than as out right So Scott in well balances our as of press release our

pay that up, rates now. we is well at means receiver our repo generally rates with on generally So side the right in locked and go what the as then market than swaps would is as fixed is lower go repo up our And rate and rates. fixed

So they offset each definitely other.

our in So as we very liability at of that balance. look terms comforting

and as point, our we great the at to see We our swaps assets As said, increasing on until put book we some leverage opportunities. not increase generally we we're this risk. also offset would that more

Matthew Howlett

Thanks, Great. Jeff.

Jeff Zimmer

Good to It's hear a you. Thank been you. from while.

Operator

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

Jim Mountain

where me conversations for in end shareholders REIT. your joining Let We're Residential and and with morning this you we thanking ARMOUR began interested us all always and for in analysts. interest

this in so if now we're and the hesitate to time And comes up together don't out. reach forum, anything next between

Operator

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

now You may disconnect.

ARMOUR Residential REIT (ARR) 28 Apr 222022 Q1 Earnings call transcript