ARR - Earnings call 2 2022 | ARMOUR Residential REIT, Inc.

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Operator

Good morning, everyone, and welcome to the ARMOUR Residential REIT Second Quarter 202 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. And at this time, I'd like to turn the floor over to Jim Mountain, Chief Financial Officer. Sir, please go ahead.

James Mountain

Thank you, Jamie, and thank you all for joining our call to discuss ARMOUR's second quarter 2022 results. joined our Co-CEOs, Gruber. Chief am Jeff Ulm I and Zimmer; Investment morning, by Scott ARMOUR's and This Officer, Mark now, website, to be access everyone release, By can which ARMOUR's found www.armourreit.com. earnings ARMOUR's on has

harbor This to meaning of constitute fact provided recitations are statements protection historical All Private the intended may the Securities conference be within Act and, are the such reform of contain XXXX. call the statements that act. not statements forward-looking safe of therefore, subject Litigation to by Reform forward-looking

materially contained with cause Actual filed available the impact Copies statements to Risk outcomes That on or the materially factors beyond those website the and in would results could the could of results many Commission. statements. of the outcomes implied www.sec.gov. differ included Securities from section control in of forward-looking the periodic actual Factors expressed SEC's are and and Certain Exchange the results are to factors differ ARMOUR's be forward-looking the due reports ARMOUR. from by at that

conference unless statements so law. without ARMOUR's year. and be are any on comparable website is included call ARMOUR's reference continue include in measure Also, to disclaim found discussion notice. this GAAP forward-looking in will conference be An A to today's measures. call are most do forward-looking All of available release, measures of on of We for made reconciliation which earnings the only non-GAAP change X will online shortly our this update today may can to these obligation our replay required date and to included statements as subject our by to certain website.

losses XX.X% to $XX.X compared net of to X.XX%, million stockholders common was margin GAAP the million. $XX.X of shareholders include from derivatives per-share as up common ACM, TBA That that comprehensive to $X.XX per QX does related operating was QX. to loss. for share. loss continues waive basis basis, $X.XX its of and On points represents available from Distributable a market Net was manager, sales an offsets million, common but well $XX.X management includes of security excludes external That's or XXXX. fee, value it voluntarily ARMOUR's QX which adjustments, drop income. QX interest million expenses. early gains company's the increase termination quarter non-GAAP which measure XX earnings as

paid monthly July that during ARMOUR dividends dividends and at the for common has share rate common XXXX. of August $X.XX announced of per quarter and

has dividends preferred cumulative history. contractual distributions ARMOUR with over billion $X.X to the on made stock, stockholders together its Taken throughout

On repurchase the ARMOUR stock repurchase compelling and QX if stands future brief of similarly advantage $X.XX to at capital average XXX,XXX in shares, X just to under dislocations advantage will which shares at market opportunities. The million took markets sell-off us allow an authority cost the of per present share. of common take existing front, when

million. down ARMOUR at-the-market its million $XX.X company of approximately an at Tuesday, the XX.X% through shares of also equity In of by of worth stock raised $XX has on we common business on at capital million Quarter-end equity than the the about value was million QX raised $XXX book X stock. $X.XX per XXXX. share. per an remains common that XX.X strong nickel issuance shares value issuing at a July, common the picked $X.XX company price per Through of up program. book $X.XX of in share, QX more of close XXth, worth capital additional average The million Liquidity from with approximately estimate common share

or agency of minus, $X.X $XXX $XXX another million treasury representing and XXXX, portfolio securities June ARMOUR's plus plus or securities. so positions, consisted XX, billion million, At of of TBA U.S.

available-for-sale legacy ARMOUR's portfolio, of DUS our of specified represents positions. portfolio less now total X% than sale pool the With

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

Scott Ulm

as Thanks, path yields. Jim. through tightening global financial banks of Historical to and highest out XXXX's central yield sell-off ago. X.X%, just its reached quarter treasury to XXXX, break the yield XX-year rising conditions of of aggressive of of level X.XX%, only XXXX The since a surpassing of set XX The bond multi-decade markets up on basis at of trend rates continued benchmark to high second fight X-year inflation. points from a X.XX% year under lower rose a just

mortgage driving discount Rapid coupons housing level potential XXXXs. for attractive finance where MBS refinancing existing tightening the MBS on X%, rates presented did since strategy. to sector the financial activity and agency to early all exceptionally lowest nearly Historically, environment an avoid mortgage mortgages the of spreads agency portfolio our surged wide not conditions the

the with into back strategy Continuing our QX market. redeploy MBS risk to

slow newly ranging billion, spreads During spreads for yields down tight the levered The the in just those specified at billion and entire Fed worries recession. issued sold prepay was $X second of of purchase credit included quarter, assets with widening sale which ARMOUR treasury sold between pare included The $X rich in a pools risk totaling and characteristics potential to advantage U.S. coupon coupons. pools lower-yielding the $X asset under and to in XX%. sales at face billion MBS a to of MBS rising sales almost with lower portfolio also take of our in bonds DUS portfolio particularly XX% levels

of and exhibit not to announcement approximately and impact an Fed faster in the value with caution the by believe of mortgage to particular question approaching sizing coupon of We X% collateral hold convexity. care of in pools both low as on sales, the market produce will X% XX% prepayment market. portfolio sales MBS the We total and turnover speeds the terms negative outsized potential the timing in portfolio very

both origination seen The since XXXX shielded risk exposure the At X.X% XX% and is and new spreads with are in holdings X% coupons, haven't for we are MBS are Fed our value, of the pools, a value in from approximately XXXX, the market coupon remaining X% where nominal supply. selling and proposition which environment. portfolio core X.X% of

As and This our a agency June, indeed X.XX. time is convexity net be was portfolio mortgage of great investor. the X.XX our an duration of to was end negative

We quarter in slightly into persisted end of of capacity overall a increase NIM in of is our capital reallocation X.Xx to stated the earnings distributable basis least just June below historically exceed Our dividend leverage reflected the quarter-on-quarter low the and and earnings the third $X.XX still by a as XX of for our dividend amount. estimate points, of year-end.

us and healthy opportunities excess over of maintains U.S. of at will dry a capacity produce XXX% reset million of starting powder allows as liquidity. daily. forward ahead. unpredictable ample for ARMOUR least This which amount and agnostic and swaps, additional been the be rates, rapidly of book rising We moves to our end repo have June of anticipate that which Fed year. timing additional volatility sizing high $XXX this current in relatively Despite with turn notes, of hedged many to extremely X is leverage of treasury

prefer term But in repo term the a or to shorter. monitor we now, for market. the keep MBS to ARMOUR structure our repo bump continues

XX XXX at stood basis days rate with points. it X/XX, of an As average of

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

for like you now much. to questions. up very open Thank We'd

Operator

[Operator Harter Credit Instructions] first from Our from Doug comes Suisse. today question

Douglas Harter

kind talk be incremental new would And you perspective you to guess, Can of entire that? of today? return truly investments you then, a where about if returns the kind to see on from the were I mark-to-market returns portfolio comparable

Jeffrey Zimmer

Sure. I'll Mark Gruber, defer Chief to Officer. Investment Mark?

Mark Gruber

Doug. Thanks, Sure.

asset is yields, over of XX% to like higher the the think the where we in whole last see over mid-teens mid-teens, Scott And the his is bit Scott been last think also. a profile portfolio yields capacity we portfolio X return yields, months. new right to our XX% somewhere so it's levered had we going over X months. I the in pretty company, earnings investment -- turned in So we said few the now, -- somewhere And in than the the on opportunities. low also be said, said quite to to Like remarks, whole

Douglas Harter

just over of sort after the the range. that on saying take in mean XX% that the with that dividend I construct, dividend something If guess that's current expenses. me you're gets if value, right? earn I And book current the to I -- that have you

Just if you're XX% range. the returns are saying in

the around curious of Just the commentary -- the dividend. around sustainability that

Jeffrey Zimmer

This is Jeffrey.

of currently lowest have, the are So now existing they've higher mortgage means that company, the very reasons, -- by started X on particularly fact is the we X% very sustainable of the attributes low. that portfolio expense near rates our Doug, dividend Make low. is the prepayments since we are portfolio been that that is The special here. amortization prepayments exhibiting very note the

identify is over prepayments XX% It assets that pay premium specified that TBAs portfolio means we also to will a slow. characteristics because keep our of over

So get the prepayments, if not situation to have dividend. faster you then a support where $X.XX can able being you're you

I hope a future think dividend foreseeable that will the that feel expenses the Scott clear $X.XX portfolio was I his very in quarter. comments we in support after that's per helpful.

Operator

comes Securities. Trevor Our next JMP from Cranston from question

Trevor Cranston

of be And higher kind taking aggressive you guys terms how are a up of what guys a the about of for more to to thinking talk from you little any further Can maybe spread risk are looking about here? widening level? you in potential leverage

Jeffrey Zimmer

prepared remarks point believe a So to that mortgages again, this also at create the and once spread his it's sell we Reserve that commented in likely Federal wider. is going Scott low big

the by Now Federal specifically exposure we've that those protected ourselves to coupons owns. Reserve reducing

that very So low have exposure be spread we now. to should they widening selling, risk

down bit, do ocean season the goes those little and down, if all However, that. go the understand we -- -- the tide a

where that ahead [ treasuries longer-term buy And into the a well -- have treasury as of see attributes, we're think we'll when big position slug historic our and we them. had been. we We turn right go and mortgages. So one be turned we do now, assets for under actual mid-leverage have can ] have good

increase go So supporting, least we we we're foreseeable be our course, ways we being a and at of to supporting for expect our dividend but and very to here. to just are exposure cautious Understanding, careful of spread, X have that ahead quarters. and couple

So I your answers not and to extend reason we hope that ahead a ourselves. will question. go see

Trevor Cranston

the how spec in it talk this Yes, can guys Okay. as does. point? premium market, at you securities you prepaid-protected for about pools new in of you're much are terms paying the buying And --

Jeffrey Zimmer

hand on to March we're that. starts, And of he give details to Sure. in you premiums about Mark it you, very it painful because lot for April tell owners and before cautious XXXX, a I will And mortgages. disappeared and those that was some over I'll back of being

a want on of more give little So you to specifics attributes? some Mark, do those

Mark Gruber

Yes.

And specifically, of under. we reason is of years of the tools prepaid just was said that ago. buy X.X is Jeff by most because a the volatility few or spec pay-ups So a have point kind extreme what

we've So kept pretty pay-ups our low.

trying the to find have Now characteristics. we're convexity right that also assets

pay there is are it. I than X.X cases for try would assets. we'll So more really a when that where to keep But we point and under say good

Operator

question from from next Matthew our comes Howlett And Riley. B.

Matthew Howlett

on year? think hedging about taking hedging, Jeff, today. know Just seen Just curves at Fed [ curve been a the some or inverted flat you've time. there's ] bit of yield little cutting I out inverted, how the possibly look next the with And mean, you hedging over lot longer? you your some I talk talk forecast a about Do

Jeffrey Zimmer

even going walk a to where think So that, is through a Fed get little this. adjust. perhaps we bit But may to if or let's we point be before cutting actually we the

put to is close XXXX. A with hedged in paid is paid on low single floating. received that of fixed portfolio about digits So lot of we that our XXX% fixed

low and paying short-term the now we're Reserve raises right the as receiving So amounts, we're the XXXs Federal in rates.

on XXX future, would they could a we'd before federal we foreseeable funds a and take breath the be take equally that receiver of rates another going basis up a repo look our deep have book. at of short-term the net see For -- against And increase rate things. points we those

And earnings. now, So hedge we're helps the it curve. in. that for have to keep way across position set we the is up right going It

a conversion really doesn't little or a So might value as much little as play in our steepening it book think.

the in that earlier In regard, some we're doing work year.

think points. X X-year in about moved the of an this, daily point base QX, note So basis basis average

on day, X moves basis average, every So points. single it

average. the For on X.X% moved XX years, last it

about we hedging around. moving That's have curve. his why good been and Mark So a got the of very lot team across

the quarter respect, of the that X.X. In an average in moved XX yield. basis years, same the X.X tenure second But points it during was last over

near certainly quite but that. So doubled, once again, not

the on uphill we was mountain against. that were good battle job So that. And very, they've about that think a the done fighting I very

that So question. your I addresses hope

Matthew Howlett

it. capital sort in capital. on topic capital one a me, to rates in -- markets, the I at the while. access some all but then you have -- the the of and does. don't question are up, what last your would crystal add a do when seen outlined of stocks the Any that? book It's of to preferreds statements, Yes, you've it's you have it room looks look below mean It know environments And just held it's think you here, trading the on above guess just as would sense to preferred open up? you the And I structure? on like your you the mortgage ball, best preferred market on preferred I you

Jeffrey Zimmer

on quarter every spent subject. very this We

When take make X.X%, return or Let's sense X.XX% preferreds see to X%, it not trading is worked compete you was trading XX-year coupon at XX-year that it risk-free that the now. with X%, look par. $XX that anomaly would at its to can treasuries. to X.XX%, enough note around right would their a up just X.XX% to way be X.XX% at

preferreds the where trading opinion, or less our they sense. in more are So make

ways X with to this point. could what Now your there's at look you at do preferreds

value I $XX.X. accretive could whether you seem think. $XX all buy it's of float coupon, all book as at share. to in be back have they X.X% for or would a our to believe as $XX not You a And to some trading It's peers -- the

the Now to team par, invest those trading but yields Mark $X.XX they're under and maybe even XX%, XX%, can are real $X.XX right like because now. his on at XX%, XX%

better class in asset preferred. investment have mortgages opportunities primary than agency we the of our buying rather So back

for is that you between par amount look was not larger, have that's a agree thought outstanding. our good trading now that those, interested something of we equity the I we the doing balance start at reasons all commented common So equity if in with currently that on mentioned. again, but above you and we that had just preferreds we're Preferred We issuing right what might common XXX%.

Matthew Howlett

open returns current I Yield where X.X%, the agency. the was sense? would you it up, would X%, returns Right. issue preferred, a and make it would on Or mentioned at if think, would for bit X% it looks at -- today, you that available you tight accretive with are little like be

Jeffrey Zimmer

twice all all we'd out, of large issues we As probably think our we'd Once remind unlikely at point all that felt up any where current increase in in I I bought was and we the be our we we it issue. again size issuing it's Bs, to you fashion, bought Bs that if bought back, back. above again, we will markets that the the bought our too, the history, wanted this is. access capital coupons par issue outstanding a traded issue to the

the way what question that run presents actively people yes, of the enough structure we I appreciate actively as an because the equity class having company. part see we'll really used future And we're of not so value optionality. the And our itself, but understand

Matthew Howlett

Yes. It like thanks discounts incredible color just at today. really that for they're looks But helps.

Operator

question from next from Ladenburg Our comes Nolan Thalmann. Christopher

Christopher Nolan

given rate on of expecting terms been be in fee the have waiver your second my of year? of the the decline higher-yielding your the earnings -- we into questions the asked. just clarification Should a earlier management half to run agencies. comments in Most On the shift

Jeffrey Zimmer

more stay But of is that I with So that or this I would where Board globally it week. it our less be right opinion, discussed would haven't think, -- now. Directors that the

Christopher Nolan

what the XX. as missed leverage it, portfolio I is July of of the case level in then And Great.

Jeffrey Zimmer

debt release Mark, Mark, I help can that think can million off ways small then look absolute at that to it, we recent can you you have equity We implied. that? to million rollout. information. there's $XXX There's X do $XXX and on take the a or report? there's

Mark Gruber

going it's to now. right mean the in I mid-Xs Yes. be

Operator

turn at remarks. showing closing point ladies gentlemen, back and I'd to for additional any questions, over I'm management And the like no this floor to

Scott Ulm

today... all you thank for joining we Well, us

Jeffrey Zimmer

Thanks for Take joining Scott... us away it today.

Scott Ulm

Thanks us guys ringing today. your always for time, to Thanks. we're available appreciate and We joining office. you the

Operator

we'll And thank for joining. today's you gentlemen, conclude We call that, and do and with conference ladies presentation.

now disconnect may You your lines.

ARMOUR Residential REIT (ARR) 28 Jul 222022 Q2 Earnings call transcript