- Earnings call transcript Q3 2022

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Operator

Good morning, and welcome to the ARMOUR Residential REIT’s Third 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

By Gruber, and on and access to Drew, results. found all to joining Scott everyone for morning Thank Mark ARMOUR thank which be www.armourreit.com. website, This Residential release, call by subject implied could Safe Ulm Co-CEOs, actual Litigation ARMOUR’s discuss periodic certain Those materially includes now, control joined can are forward-looking to and the section earnings The statements, which has statements. XXXX Zimmer Harbor REIT’s to CIO. our Securities our be to ARMOUR’s the protections and found I’m describe ARMOUR’s you, by ARMOUR’s Private periodic ARMOUR’s filings Reform you that Jeff beyond conference third Risk call This can provided intended Securities factors the www.sec.gov. cause reports of these XXXX. at in SEC’s be the website Commission by filed forward-looking with Act expressed results of or on differ Exchange from those Factors quarter

historical point million, year. basis interest notice. today’s without shareholders subject was for replay to law. release. of today’s X the common non-GAAP margin this with conference X.XX%, reconciled refers forward-looking are measures any which online million comprehensive common and common for include to Distributable call comparable continue decrease loss well them will appears of was cost as be stable GAAP quarter These sales dividends paid and ARMOUR’s to disclaim TBA or $X.XX required outlook are to market announced from rate measures. statements share terminations dividends gains our The available QX Drop Also, discussion based to of on change of $X.XX measure security XXXX. measures GAAP Income. on Net to will net by in has derivatives, certain It of common monthly current unless and An share. October per $XXX.X obligation during All the or available November update for quarter ARMOUR losses be We earnings per on of that is shareholders ARMOUR’s earnings website conditions. and based QX $XXX.X adjustments. shortly does early one related to as for non-GAAP million and the excludes XXXX. includes loss. was compared value at common This $XX.X dividends

keep eye could conditions, we a rapidly keen economic on which environment. this change However, will in

proactive contractual $X.X made dividends stockholders stock to cumulative our manager positive $X.XX of million has waive stockholders of continues the capital history. company’s share. to Taken offsets its preferred together on to managing its expenses. QX, share ARMOUR accretion in ARMOUR which external in QX per the operating management resulting voluntarily distributions fee, in over was with $X.XX of billion base common throughout ACM,

In September, the represents quarter, XX,XXX,XXX million XXX,XXX after per price stock at common of expenses. common an we an capital During raised of ATM repurchased million average of our cost share. and share. fees of through of that shares programs common stock $X.XX we That $XXX.X $X.XX per over average shares issued

share. common average QX book per was weighted For was share. per $X.XX $X.XX Quarter-end volume value context, common price

share, of and between $X.XX As last XX, $X.XX $X.XX. share for and night, $X.XX book was again, the between common estimate common that we value per

is purposes income comparable tax year’s expect projections to of Series XXXX, for tax last all we treated for our capital and and as dividends to currently that stock shareholders. federal calendar our tax finalize dividends Preferred not results. returns a will be we taxable Stock As E common This

will also those we C fully to taxable as shareholders. likely will for treated XXXX be least treated be stock XXXX, to preferred ordinary likely that XXXX Series at for income. income forward Looking taxable as forecast Common partially, dividends ordinary dividends

discuss portfolio strategy the to I Scott Officer, turn Ulm Co-Chief want call current to to in and over more Executive ARMOUR’s Now, detail. Scott?

Scott Ulm

Jim. funds delivered Volcker pace to fastest high XXXXs, In XX%. Fed tightening raised since former Chair the respect Paul the inflation the the when rate of Thank, Fed to has normalize Fed nearly

rates During The the XXX weeks the rose trade It’s X.XX% Fed rose billion of sent basis the and third the X.XX%. limited month, pension quantitative The upsurge to market in. to fund basis $XX a by combined by XX.X%. per most the historic total of major treasury interest six on such The X.XX%. knowledge industry, XXX us bonds points points yield rose start to risk-free record. yield UK basis rate two-year treasury negative a in XX of off to quarter, tightening and very points by borrowing around with emerges of the rates catalyst we’re as worst ago globe, returns XXXX risk which treasury for on U.S. had XX-year

our tool levels X.X our during widest further of favors than Despite risk the to decade our To and raising raised we’ve liquid financing managing healthy nearly incredible and scenarios. increased valuable another lower quality we was strong these implied remains still MBS financial a by proactively Repo of points levels, greater investor. X.XX. risk ARMOUR seen market, of decreased ratio test levels of the dialing mortgage which to stay view share shielded harshest from our business through ago. third observed by even X financial repo MBS great now reward October, in markets, XX% XX liquidity experience risks. a high of million counterparties down leverage active the basis the our cash the September, exposure duration dollar our and and all resilience with balance, firmly issuance prior quarter XX% to remain is program ARMOUR of the With our our overall pools pillar under to shareholders crisis portfolio MBS accretive spread Our net rising MBS the September assets believe by the of XXXX to different billion trimming duration of down XX maintain value the affiliate just liquidity was spreads as a we gap stress the times and through to liquidity beginning our March Securities. healthy $X.X ATM markets, the approximately portfolio XX/XX. by approaching to coupons, XXXX, plentiful. dealer in half funding $XXX insured of improve BUCKLER reduced X.X XX borrower levels In only and $X.XX MBS in ahead the that volatility turbulence of as our million is overall a to of broker our funded with capital our Since and of and served market, $XXX volatility we our new in

in sector, Our times particular even securing the to our mortgage great business relationship of in REIT with with lifeline funding distress. BUCKLER advantage the a provides us markets

hedges, lower the XXX%. funding amount funding the the We fed of in the far impact and specified on expected slowdown have very volatility MBS repo outstanding of limited We market will the paid current dependent as can better If and returns. swap. of providers rate in hedged stayed a is book balance dependence a vastly volatility index our are the by the reduced the XXXX overall unexpected total on has rise of course of whether investors leg the OAS with a is repo our third in both sheet hikes access XXX% that receive pools high swaps position fixed pace have is on FICC, so catalyst its notional capital, to and exposure the interest to of hiking believe absorbing a which premiums floating party rates the liquidity on who include bring. the daily due that covered to interest agency to rate percentage to reward floating ARMOUR of with provide of we turns all cycle

that future effective credit. current the We we risk particularly of all of returns always MBS view as the level value, expect this the compelling environment, volatile will dividend. appropriate. We is to strategy our the without as evaluate in book of $X.XX continue our In dividend agency will deliver

move as can We’ll deliver line questions. We’re surprises the environment substantially. to also now that upside open could mindful that this metrics our well

Operator

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

Doug Harter

Thanks.

clarity little Just your more get around a to comment. hoping

described the has To environment You dividend for as of kind stable. me, stable. the but the like environment it current anything, been feels

comment? that hoping more a around of little detail to So just kind get bit

Jeff Zimmer

Good Hey, here. Zimmer morning. Doug. Jeff

August. swings our portfolio was almost the before in all So every started class wild in prices most constructed, constructed of it asset of in late essentially

we’re that environment swaps a subsequent So is paying stable stable, investments that is but on right have under based ago The comment the portfolio put constructed very now dividend the a is not stable. out on while and we environment.

conditions Scott the also As could noted upside. to They change change. could

of you lose backed the if $X.X value agency you stay invested quickly, like so mortgage course we securities. very still and have Just much we like $X to very in book

up, look value like they which would mean then yields would that can like, would back book get today. You not look dividend

Doug Harter

like the environment. it. what any size Got reacted updates given portfolio as October, to looks the I guess, on book today, in the decline value further just in you’ve

Jeff Zimmer

settled transactions is in million night of That cash the increased from last $XXX I liquidity box $XXX the do million, know liquidity month the in some of of and September $XXX earlier of of our finally as was million. October. because

to the I okay think think time. over the note it hand point Mark at it’d Gruber. in size I’ll Mark, of to be this I And portfolio

Mark Gruber

$X.X the is Sure, Yes. – about Doug. in right It’s portfolio size billion now.

Jeff Zimmer

only I billion. forward and $XXX includes this Doug. but leverage the earlier, think $X.X some implied would be That We we actual of morning mentioned of in a that billion treasuries. outstanding leverage. it’s leverage our is So settles million Leverage $X.X that have is

your So range. $X.X of about X.X you’re to with duration in actual X.X implied the billion is

Doug Harter

thank Okay, you.

Jeff Zimmer

calling Thanks right. for All in.

Operator

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

Trevor Cranston

question on Follow-up and current size. morning. Good thanks. about leverage portfolio the the Hey,

been some some obviously and spreads potential for has them size in September declining very portfolio point. tighten And there’s the obviously you So October. at mentioned, wide the and are to also somewhat

balancing talk order you’re and of the sort you spreads some and manage selling get can to guess, of I kind leverage assets current through value a volatility? level So for book how tightening conservative versus potential market in at the back keeping about

Jeff Zimmer

I’m to It’s not exact need Yes. what is? your actually Trevor, clear you I Jeff, us what just you address. question hi. could – say again.

Trevor Cranston

I – back to size. I’m is you time, in, the So for potential of reducing obviously at are – same you guys but sort there’s mentioned portfolio guess, the the spreads tighten question

what you So upside to target and I kind kind as downside in spreads. market how coming were with today’s term like view risk you guess, of the versus up how of question the were is you the – leverage near

Jeff Zimmer

Yes.

here. events That that level wide So reach and in – a it’d there we period. more believe could OA the bomb XX could to from worst would the unlikely be spreads that that be Anything some our see be be other control. of OAS in could dropped out much could are than seen happen, Ukraine, drop highly

a So increase keeping have we the optionality risk reduced, it are but to rapidly. profile very yet

hundreds we backed be treasuries millions you For this we how of for But a longer. of can own Those own sold wide to liquidity while want moment the example, mortgage today’s a to in be we maintain can quickly Mark dollars securities much at spreads. today. and in tell exchange

you it this Mark, time time to the over and but we’ll rear ahead into we safer Scott’s to mountain do going possibly view keep from on, seems are don’t exact the maintain where of lot again to ski a investments a treasury in risk profile reduced talk the a the go mirror profile And You about here, portfolio our here here? the of want moment the start point, management in but want increasing cash to of it, point, very know we’re lot liquidity. and to exposure when good going risk world. that right at and high MBS go we’re to little and of could increasing until and start level address and maintain right leverage you to our look

Mark Gruber

Sure.

million $XXX about have of treasuries. we So

be right, had up we’ve into the we swapped X. historically, to obviously, have ability, that MBS. So can also But leverage

So back we could leverage have here. we probably And of get to add two when we your in. turns question,

metrics have things using volatility We and we’re such. and like internally some spreads

would hit in. when step So those that’s we to metrics back we’re looking for targets

We’re just not yet. there

Trevor Cranston

Okay. Got you. Thank it. the Appreciate comments.

Jeff Zimmer

you. Thank

Operator

comes question Please go JonesTrading. from Stewart next with The ahead. Jason

Jason Stewart

feel dividend, Doug’s the on Hey, get dividend good I question. current taking I question I follow-up Thanks for pretty morning. the to like the economic that and mean, you but for you view, feel covering about the stock the which versus like you about good wanted that? do environment, yield guess, sounds credit how on you

Jeff Zimmer

can’t are deeper and look north say, to and your take stock seems us a you hi, yields off at to dividend just XX%, to that Anytime going company. industrial market, compare a you’re you look but an

at You last week financial to do a company. to number put change Doug. that other of together and few what us today, company, look October. I September much but the what markets did over really changed that have metrics answered can’t change And from We quickly compare and back through and rapidly a as is go hasn’t a – I early okay, quarters in very any sales in a portfolio when that really for took you place they how August,

improve. supporting dividend right is yield to current the So could point, Also now. the Scott’s conditions market portfolio

OAS tightening, so. last XX you OAS over normalized So XX, the a which would or be decade get of

sudden back you’re that’s return. up a and XX% and at you’re values gosh, All looking of saying, returns a book the

not had we we that’s what a every dividend announce monthly. at We for this go as And REIT to to you to the the actually, off a took week, talk leadership and and years. years, back of we the role over it a in paying board decisions take So actually start market look if kind every we of monthly. regard. first quarter number you sector’s make know, that we the But were want

of gives So we’re quarter. changed. not to have and to us wait the say, till that Things ability end also going hey, ahead go the the

or just term raise set has very the But we at out to conditions we’re dividend are. not the been five on of today. based or that based dividend We’re four over a and going that medium see dividend last lower period what happening the to on time, quarters, going we what for Scott to what’s look we the clear

medium-term we is the if that’s be Is over the that group changes level. given you? in a agrees any XYZ So because it’s are and Board the that changed, believe have made, conditions to helpful should

Jason Stewart

any FHFA liquidity, Last Yes. policies? cetera? question expecting you with meaningful Thank they you. changes the at way look Are The market credit credit, from me. regard et to at

Jeff Zimmer

FHFA, we particularly the ask but have BUCKLER dealer good on to broker different off even FICC talks changes see agencies CEO Mark to right don’t have if see this, there, anything, there. now has new Mark changes over experience finish the to it we particularly them I’ll I’ll directly. want and We the you of BUCKLER a insight we talk our with if the hand because of to and any regarding about any to he litany noted

Mark Gruber

No, any think insight at to we into do say that we what time. this going I particular wouldn’t have they’re

Jason Stewart

it. Thank Appreciate Okay. you.

Operator

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

Christopher Nolan

repurchases Hey issuances? guys, $X.XX both questions. couple share just the a accretion Was from and

Scott Ulm

just was. of be we’ll market. buy to We execute when some. it were able it Yes. a we size. the But And sides big too gets ended Yes, we of Though, there’s the of we to up. significantly difference sales look in where fortunate above sides on – some our We the at both both always market. were cheap,

Christopher Nolan

interest quarter-over-quarter then stable And higher relatively reason for decline? asset What net and despite Great. interest was margin decline volumes. income the earning net the

Jeff Zimmer

I’ll Say Jim, address that. again.

Christopher Nolan

net in and portfolio The despite the decline interest stable quarter larger income margins.

the see catalyst trying for was what to Just decline. the

Jeff Zimmer

a little bit timing Repo bit actual reset the mismatch up swaps repos we a the cost the the and index in and of roll. tenure just there’s friction up running of that little and versus ended funds of of

that’s much as as anything. noise So frictional

Christopher Nolan

risks the process off and of your now of is is just and have XX% third is the think cash the your guess take where the your leverage way question or in the given Trevor question I’m I and why the down, securities, that of And given securities unlevered roughly what stock price. of right my what is, get to to terms price to is. way sort amount then not a follow-up I’m risk and trying but criticizing, liquidity take the thought you I up environment? really unlevered just idea leading $X.XX share, not down trying have, And a Great. share this portfolio given to, I’m was, cash in reward I estimate, a

Jeff Zimmer

we leverage have about exactly I lowest debt and right it in equity, the And want to times XXXX, asset things has we’ve And we our is have all morning, since we’ve X.X if cheapened be take implied environment we actual an we asset to are start it considerably. think for in be, coffee, supports where class this when which is little to selling to and normalize. wanted that opportunity to actually got been under now. be that if lower, lower but to of advantage of inception the up cup continue got you no exposure But don’t why would things a crazy. liquidity we we want a that to class,

have we we to value move short our be normalize. and shake Yet, of to volatile a to based have when bit able case and position things treasuries for enough things more period get to So liquidity do cash and book opportunities little appreciate be exposure a able time. on in our

want be volatility the but I hope being we in considered the we we’re also very are marketplace. So and helpful. that’s of we’re opportunistic, where to

Christopher Nolan

Yes.

Okay.

Scott Ulm

take – down, that’s right it recognize been of to Maybe be as we that mortgage the is all a backed is That when propitious portfolio lift. market heavy take some not get market a is able that I securities, But are call we to and to and have And others. a were timing we’re in. more through days variety we precisely. up, wish that’s when generally, way but said we we than business unlikely certainly there we long think Mark follow timing way can timing sense the metrics to back

to we judicious So We to in. our it, the I be that, the day, be long investors of try backed by think us that’s to we’re try expect safe of about it. at name the securities. the But end be business about company vary the mortgage we

Christopher Nolan

Thank for you Great. the clarification.

Mark Gruber

Great. calling Thanks for in.

Operator

comes B. Please The next Riley. go with question from Matthew Howlett ahead.

Matthew Howlett

question. guys. taking morning, my for Thanks Good

or may Just some become feel now does paying mean they’re focus do year? you important? five slower if portfolio collateral do some to – to feel speeds like do next you point asset when look like At selection like Jeff at decline slower that. move on potentially you I at follow-up pools Scott, point, on CPR. have rates to session

Jim Mountain

that thing is that we for one assets to a okay, A buy way, specified whose to to and stable. idea by company’s may premiums? they So characteristics you a second where rate, will about of Or better at specified may year stable talk at amount be previous exposure discussed have the TBA had the is what here. in but paid ago may which we be. calls million fast to be prices premiums, prepays with at that $XXX over And a exposure we’ll they’re they have very you be slow a least stable the going And is okay. rate, means

reduced believe close I to, we that $XX around million. So exposure have to

of still So yet our balance exhibits. but sheet, our very portfolio little bit

me in correct prepayments understanding of stabilizing X.Xs. have factors to purchased I diversified and the our enhance I’m a in We think some those it’s wrong, Mark, have way you up still Mark, XX% may comments? what pools And the will Xs. future. be XX% that want that has the X.Xs to from to portfolio on are characteristics we all specified exhibit portfolio – if

Mark Gruber

Sure.

it rates the been will collateral coupon So, that look stories portfolio days. We to turns the rates that is those up you environments we’re they decrease fast, go of with and yes, of stack a can do that, is in convexity a investment aware some hasn’t of making we be do buy slow the is an lower. cheap moved primary set up so we’re Fed And stories up type have purchasing. But for if concern. sure the in to these very portfolio metric. But when and rapidly We environment, moving But there basically are could know when who too. for when as catalyst where adding knows we the pivots. the coupon, that

Matthew Howlett

prepays you’re – that if what if was and saying slower you characteristics declining feel so generics And scenario, that have it in than tomorrow and the it. still happened, rate still your your or today those you book still

Mark Gruber

Correct, really a billion cost those don’t ups lot pay days. these

Matthew Howlett

to about hear you No, then that think do great. year, And MBS? look I do Will talked to variables time at and potentially then the at next think thought they what I you would the have you Will Do will macro think they It’s love potentially Right. just become last what the hear that. good environment, you you two And outright viable? Jeff, potentially you ease? you Fed point Fed. with stop? do think some they with selling I’d

Jim Mountain

our firm what believes. here’s So

Our firm XX November. we I And month believes ago, said that they’ll a increase said would’ve by XX would’ve in basis points in December.

going in for last said reverse it the don’t that they is they we make Fed as securities X.XX%. they’re do rate make that ruined going the that, arena. of – get want to the and as backed upsetting go two, They think slowdown. just we wants and The now the up while everyday right? start in it the the the standing rest believe going life and And quarter believe And I takes point very, regular also data mortgage a to And then We like of we’re okay? asset is metrics very so mortgage people. wait for and but a in at, that want to look they’re call, catch could not more housing watch but that market sales this to change, rate at group let quickly. to with certainly world, or now XX, ahead the a – right

sales. research make out expect sales. don’t right there So we going they’re treasury any that suggest that they’re There’s some now to make going would to

China. treasury going by on sales right have However, now may you

currencies. on to mortgages, them Japan, You going go that? kind start support call. to ahead and we Mark, to may right But in And go we that now, you next will want about going stand. of think where that’s through Japan their on and talk it extent of earnings through improve they ahead the we’ll that certainly the on have any selling

Mark Gruber

got I portfolio think guess from want going – team’s it you it’s market right they’re are at foreseeable anytime perspective. reiterate, just the don’t the I – No, later in think definitely to the cards but sell I soon, really just to MBS where it that date. is or where a with the don’t see But housing they that is now, future. rates and we where right are we in

Matthew Howlett

I really Thank appreciate the you. would comments. I agree that.

Mark Gruber

for Thanks calling.

Operator

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

Scott Ulm

the us of REIT. third XXXX joining ARMOUR for quarter conference you Thank call for Residential

available always call the and Thank want if you. are a wish you on fly day. good We to guys into office you the

Operator

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

may disconnect. You now

ARMOUR Residential REIT (ARR) 28 Oct 222022 Q3 Earnings call transcript