Earnings call transcript Q4 2022

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Operator

Good morning, and welcome to ARMOUR Residential REIT’s Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I’d now like to turn the conference over to ARMOUR’s Chief Financial Officer, Jim Mountain. Please go ahead.

James Robert Mountain

thank fourth for quarter and to our Anthony, ARMOUR’s discuss XXXX you, you joining all call Thank results. Gruber, This Co-CEOs, morning, CIO. Mark Scott ARMOUR’s our Ulm and I’m Jeff Zimmer; joined by and access now, ARMOUR’s on to By www.armourreit.com. has ARMOUR’s release, be website which earnings found can everyone

with to Private Risk call and conference filed Securities public Act XXXX. The subject Litigation section statements, Harbor of protections reports intended to which Reform Securities This Safe are provided Factors ARMOUR’s forward-looking be includes the the by from the of Exchange SEC’s factors the can certain forward-looking beyond ARMOUR’s actual results filings control cause on Commission described or website these that at to those by periodic found could differ implied www.sec.gov. Those materially statements. be expressed

forward-looking We are without them statements to update change to disclaim required obligation today’s by notice. unless subject All law. any of

GAAP refers on continue replay measures measures one our earnings non Also, release. comparable year. there call today’s be reconciled certain conference GAAP online measures. and discussion will with website this shortly will in These An for to are ARMOUR’s of available

common our of operating income TBA effect Drop plus swaps stockholders $X.XX per common quarter ARMOUR’s points X.XX%. interest for is was million comprehensive interest Distributable net net common rate net $XX.X income million, to coupon for expenses. income. $XX.X stockholders GAAP basis to available income was available or minus includes was $XX.X measure million. Income Net margin interest $XX.X and improved as million of XX QX the share. That This net defined earnings non-GAAP interest to the net adjusted

paid rate at January share our dividend per during and common has monthly to $X.XX common for the adjustment to we dividends XXXX that an quarter February January rate $X.XX per paid dividends and ARMOUR XXXX. announced has since rate and monthly. announced of share that at Yesterday, common dividends

over the this believes our on With and an is keen a in medium-term. pay achieves stable eye discussed billion. approaching attractive ARMOUR lifetime rate previous those aim We our are economic declaration, have that preferred common dividends appropriate Board we context dividend dividend that cumulative objectives. in keep and and As $X.X dividend calls, conditions is to this the

of quarter, cost an at we of under purchased $X.XX share During stock XXX,XXX repurchase our authorization. shares the our per common fourth average standing

On the sales our program has successful. side, common very ATM stock been

of raising During after of shares, fees the an quarter, expenses. share. represents XX,XXX,XXX $XXX.X That price fourth capital issued $X.XX we and average net million per landed

QX approximately closing represents common representing net to shares, per XXXX, far million. share. $X.XX So capitalization of on based issued This This of last an night’s average XX,XXX,XXX billion brings price over market common we’ve market share XXX,XXX,XXX raising in of our a $X.X shares, $XXX.X prices. capital count share

build opportunities, issuances In a providing current advantage base take spread capital which costs. addition to mostly investment our of share to appealing fixed running larger over to

Our per book value at common share. quarter-end was $X.XX

current of February book as most share for per our estimate book that was night, providing dividends. after $X.XX available February of XX. Our estimate Monday the We value value is

and dividends calendar comparable is We taxable. as purposes treated XXXX’s federal tax expected, currently dividends for finalized results. are to of XXXX, and return tax income projections This stock a common C Series our and for capital tax preferred not all were as

taxable that likely expect fully to Series to Looking as treated income stock ordinary forward XXXX, we will shareholders. preferred dividends be C those

partially for treated ordinary at XXXX least taxable dividends likely common as expect will income. also We be

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

Scott Ulm

Jim. Thanks,

our investment extending environment the several XXXX optimism new quarter a see that and trends worst constructive beginning fourth all-time total an us returns income and marked into agency and Treasuries on XXXX strategy. inclusion year in fixed very for U.S. mortgages year their will in the While since give for MBS indices,

was volatility, declining. in high is exceptionally MBS which XXXX,

While should rate we more of see moderate increases, the the and stable size a by to seems is end no means eventually the at rate be Fed environment.

We also continue expect the economic mortgages. supply and to environment rate and to moderate

in measured spreads, reaching financial decline prices levels by generated unprecedented since the XXX adjusted the not points. importantly, MBS volatility as values incredible zero of basis XXXX/XXXX. have observed bond just Most of crisis Spread great shy

While see value investment gain, tightened spreads to have attractive driving continue our we book an environment.

billion positions new $X.X over million MBS TBA. and $XXX investment purchased of of pools the billion billion the addition TBA XXXX, to opportunities, MBS billion of split XXXX ARMOUR portfolio and quarter in grow in $X Responding continued of TBA. at divided MBS $X with ARMOUR $X.X $X.X of billion in of fourth its in to MBS and

coupon new As purchased are issuance concentrated MBS February in the XX, $XX.X billion. million assets supported raising share in ATM since our quarter MBS purchases the ARMOUR over or ARMOUR’s third service most of of bank we production portfolio program capital low over pools. through XXXX. premium is liquid, $XXX size the

volatility the lowest will as from and index XXXXs. has We also reverts the most level These refinance historical loan the since MBA to eases highs rates pools these prepayment recent fallen the since believe historically to benefit investments norms. its reflect its

far prepayment MBS for X.X in all XXXX. of rate was assets average CPR and X.X to quarter just ARMOUR’s CPR fourth the XXXX so

well refinance to of the mortgage in wave early. early XXXX, a with Although in to X.X% XX% enough approximately the require to from recent have X.X% substantial mortgage rates of XXXX November rates provide below borrowers would incentive existing X.X% prepay already declined highs mid-February

healthy very of liquidity. maintains ARMOUR available levels

along. Securities. future fund just the dealer a size closed at BUCKLER affiliate, Xx, opportunities and of investment broker leverage total sits come Our providing currently to XX% borrowings room to to over at X.Xx continues with portfolio us our ARMOUR year as increase

leveraged low on see spreads and We current our the at X.X% XX the weighted average remained mid-teens. strong increase market average agency funding haircut SOFR throughout quarter a the above volatility, The hedge to book overall in on the repo remained year’s benchmark. to Despite XX with exceptionally basis points repo footing in returns in the of ranging market numbers. low

comprised as amount hedging. well viewed Nonetheless, as a book, hedges. substantial and related investments holistically is investment of always MBS prospective yield current the provided of book is by For our we’ve

As we’ve be feel available dividend $X.XX we to always medium-term. for to month. is for and reduce appropriate noted, by distribution set $X.XX Earnings appropriate the our per our it have to dividend moderated, we

We always, continue of evaluate will, to as the level the dividend.

this are for mindful could surprises We deliver our well move also could upside that environment metrics they substantial. as

Now line open to questions. the

Operator

Doug question-and-answer Credit session. Instructions] now first with question come Harter We [Operator will Suisse. from will begin the Our

now You ahead. may go

Doug Harter

returns investments EAD perspective. a new of about where you just than help talk you on available was Thanks dividend rather the I an hoping returns lot. the context incremental those and put could see in

Jeffrey Zimmer

here. Doug. morning, Jeff is Good This

Doug Harter

Good morning.

Jeffrey Zimmer

in. in calling for returns to Thanks XX% Available the are XX% area.

They’re supported marginal are still – that’s by supported of positive. new They’re of course. Some by these swaps. investments,

You’ve on a been swap.

You’re paid. actually getting

swaps back we the incremental paid on the two shareholders. have ago, and and that’s swaps looking earnings to put earnings years a benefit on it Well, swap now, to are that So the maybe you detrimental capabilities. we your a and

that So we pay out.

you opportunities as XXX with guess a nominal basis and best XX% $X that based out spread we’re we benefit long to shareholders. payout now. that’s as is about to I I a good that it short been a right and seen points, spiked where the to stated appropriate think We on invest. have time. XXX, investments these just capital our XXX are we’ve able time of a paying Scott period a we out very a we’ve And But share, making got and might gets. think for investment new in in October, almost that the the book

Doug Harter

of expenses, on just year, expense actually as then going to I up kind one the the you of the guess And the Okay. using rationales base. equity, been of over talked a of course look if the the I spread expense for is… ATM management percentage at fee the since being about it’s operating

Jeffrey Zimmer

Doug, are Doug, Yes, there? you. lost we you

we and get try me back, you and jump Let Doug? in Did look.

Operator

silent. line is on His

Jeffrey Zimmer

don’t Jim? Why go ahead, you

James Robert Mountain

or answer listening up on will Hopefully, replay, Doug. pick the

Sort the we you year look share between end ATM at in disclosed get and the $X.X million shares, the or you divide sort XX-K the when by about ATM, share expense landed dollar that percentage. the we full-year of of book that kind for the the way XXX share, net look price, million dollar value of difference actually difference the use the we program recent that’s at $X that proceeds to ending if about guide count a that the at of we of $X.XX is ending and X

running But for cost ending $X.XX if by the ending divided XXXX a you XXXX divided for costs share share. look at share $X.XX a ending of shares by running that’s

good cost of deal. per up – share a less it than $X.XX $X.XX annually, six to us seems share you If to months, payback that’s pick So $X.XX a pickup.

Jeffrey Zimmer

Doug, in. So you calling for thank

Thank here put can operator question you’d to operator, you. like sure there’s we’re Otherwise, the call answer. if available, another I’m back, in. If you to

Operator

Okay.

Our Trevor will JMP Cranston from with next question come Securities.

You may now go ahead.

Trevor Cranston

morning. thanks. Hey, Good

the you hedge haven’t portfolio MBS added like it few and looks changed in much. the the coupons, up at last over all as Looking positions that guys months, moved have

So two I guess there’s questions.

approaching detail more guys treasury can risk the that you in about rate you are? you those say hedges here? are as you can Could what deck? you Thanks. show incremental the hedging what First, slide talk you how generally And make investments just

Jeffrey Zimmer

Investment why into Chief don’t get Gruber. you Mark, Mark please. Sure. that, Officer,

Mark Richard Gruber

Jeff. Thanks,

be cash the a so to curve. are and Trevor, futures is answer going it’s the the going across to be treasuries of So first mix and treasuries

So [$X.XX].

And yes, added that. as in moved assets, coupon. we we’ve it’s up a So mix just of have

bit. So comfortable add because not duration a our little has little of rates the duration portfolio a and but a the of as little and just We duration were hedges extend we more – bit. a didn’t we higher. hedges asset were Did took lot side add shortened, also up the

what’s So there. on that’s going

Trevor Cranston

obviously, around where then expect Is guys like near-term so? additional been the the portfolio over we Okay. up that leverage kind or or has growth could of is you it are in Xx targeting looks sense. the some of Thanks. terms makes or month it. for That to leverage, Got portfolio growing so next and And currently.

Jeffrey Zimmer

either Historically, Trevor ahead, Mark, go – way.

Mark Richard Gruber

eight say, to was nine. somewhere I targeting and we were going between

to we’ve of So little we a nine. have bit been powder. dry Historically, closer

a see up here, are much drift bit little we not So from it from you’ll where today. but probably

Trevor Cranston

Got it.

you. Thank Okay.

Operator

[Operator Matthew will come Howlett next Instructions] Riley. from B. question Our with

You may now go ahead.

Matthew Howlett

Hey, taking for question. my Good guys. Thanks morning.

extent coupon. – equity the has look leverage, to mean, equity basis preferred some room market, What’s Your preferred success trading another it the market of series. in open? here, it have look common of from increased you’ve capital at X% this obviously, you that I sort is there if here had a on looked at to you mean, great Series your at that you topic C is the What do been space. activity Would I [indiscernible] the access XXXX? On markets. at Look outlook? recent When at do I in the to

Jeffrey Zimmer

here. Zimmer Jeff Matt. morning, Good Hey.

look our firms have coupons higher in years I our we whose X% if to night, coupons and our future were have floating the are issues rates possibility of at it’s the are XX%. a go X.XX, did fixed okay? their And sheet years company five The to the income to outstanding fixed not over and okay? balance and fixed our that issuance three XX.X, they fixed, So to in at existing preferred the strip issuance to that most broader primary are will last of up because space it you we and at rates So other going like last for only a higher. current statement want reason recent been closed and the yield mean have believe go been issued and we the going something fixed, by subject that

access book stated. common to Mountain can they’ve as with right value environment raise to have company So a value been in par, book and cost we’re better widest today, right And that We a capital around around right equity access decade. the the go we that’s We think now. Jim able down. the we some of the mortgages in around run spreads way

market. the You I right would just too not see preferred now. answers going expensive your to that question. back hope near It’s us future in the

Matthew Howlett

acknowledge certainly five that to it And don’t years have – those floating. it’s you No, I does. look, switching

to good And part. that looks market your choose room. So on back sheet balance sense. to come you move certainly a the make the wait has But would was if that it for

the to the to your And if I like then Jeff, after I’d thinking then would hear MBS. markets next on looks that cut. – and the shrink the you think move couple a of love balance then the in think looks a thoughts like And March, XX June, it in macro on XX love said the Fed, just hear to it and pausing, it’ll question, obviously, Fed Powell take years sheet, be

the they’ll think Would it Or Just MBS that spreads. you your guess? what us, – start that they surprise – selling? I – could should thoughts on impact on

Jeffrey Zimmer

see address So at Mark I’ll and We next of if increase Scott I’ll basis points. an improve. then I’ll expect or two that, – XX want the meetings do to

it. Our not going to would be away. take in some to internally target the to the the rates to, Fed ease X% to little X% out If are that and like, to go in economic strong numbers picture off XXXX. showing a cut, that’s And going XXXX. very is change may time. without It’s their X% The announcing that They have pedal firm from cutting bit. anticipate does not it just they are coming employment

announced seeing we’re names. LA. New just the commercial defaults on announcement office did not buildings There and we that saying were company’s credit are already an defaults other But hand, for in two York without see yesterday

you a strong the as Reserve you’ll while. sure credit though see takes very sector that just the employment defaults situation credit see spread and have a even to employment expects So defaults, we’re these Federal you will

that’s So are we now. where

said, times today’s perhaps little spreads of very on they are future Now number expect in believe the a attractive. well We bit. as would even near or historically and mortgages, are mortgage where priced we also for stay to tighten I call,

We not down the mortgages road. are about Fed selling the nervous

team coupon have As frankly. put in Mark what to they that together of don’t not own a fact, I sell, matrix of portfolio, and and right just got his stuff. matter they’re have if a most mid that now would higher We’ve our to

ahead other in But supply two and areas fine. and originations go are sell sector. than to want halves, a there’s others there’s that maybe other they two and So in, their and no which them that that’s no invested

going effect. guess, possibility we’re always selling, of the to to aware, say, it of direct an I is we’re And them shouldn’t have it. but aware So be of acutely awful

the out, – down, the portfolio. but all in that, the when on we have we goes we from direct okay? own assets tide at a coupons selling look understand Now shifts will them not And our impact go

answer So question? does that your

Matthew Howlett

I last I And the numbers and stuff good your what looks a look – lot. It And said And my I asked coupons? No, mean, to asset on you on convexing. at guess pickup it’s in – you’re new topic, about hear close looking now that. put you mean, in just career. the these CPRs, said the you lowest mean, I’ve I Thanks here. insight like sense higher think buying absolutely. always – par a at when I X.X, think the in any are on these to you call well, you’re I be seen if a CPRs, question last your there’ll

Jeffrey Zimmer

Mark? a hand to he that. time because that his lot team to going I’m on working over Mark spent and of

Mark Richard Gruber

newer as would in We a Yes. pick of expect bit bonds. portfolio adding little up our we’re CPRs

And decline, going they’re mortgage go and anything don’t zero at right to back pickup. your start going XX, rates to see it XX CPR decline, to rates. now. slowly depend just a on we we’ll see where But going systemic If we they’re really to So rates ramp up.

Matthew Howlett

the it just of you’re you’re in putting that premium booking? what And what is you’re minimal terms adding, sort on of

Jeffrey Zimmer

Scott, go ahead.

Scott Ulm

X when But we or The a or general, like usually points coupons, digits, pay ups single X maybe you minimal. point. half It’s X.X at said earlier, in are so. look it’s

Matthew Howlett

Thanks Got it. lot. a it. Appreciate

Jeffrey Zimmer

calling for Thanks in.

Operator

question may comes Ladenburg go Thalmann, now Christopher next with from Our Thalmann. ahead. Nolan you

Christopher Nolan

guys. Hey,

think from I the was the line Harter Doug take – questioning up think I’ll to of I pursuing. try

dramatically get environment really standpoint please? low saying the count and cutting clarification I’m is the and that we’re Or give can dividend, good, dividend mid-teen expectations going signals question share you to I then from hearing just my returns you’re a you’re forward? cutting dividend. going the is guess the that mixed that, on And to some On the centers, growing of

Jeffrey Zimmer

it’s to our share new increase we not existing when and cases, shareholders shareholders. all In count, Sure. just benefit

I at and basis before, look right X.X have rates we X.X it points holistically. So said gone from very to now. as XX Repo

and repo on remains to tenure rates up the your those stress go it’s put inverted going those So earnings rates, a to rate. generally as

cutting million, we right be So had $XXX would whether now. we raised the zero or dividend

So things. a approach helpful. holistic the please look hope and separate that that’s at as I

Christopher Nolan

Yes, comments quarters. misheard have I I helpful. I to it’s just your what trying heard where pretty – thought recent have It’s but just equity it, you’re going seeing returns, to you’ve – which to been with mid-teen a clarification. is get might low consistent

Jeffrey Zimmer

I approximately and crystal that. returns we’re The to be and clear to But said XX% XX% also XX%. available range paying wanted the I what currently on in

a book very of still at on put was that rates. have And that our covers We low repo book. large very swap XX% about

So that shareholders big terms in is real and we’re benefit of passing to earnings. along that a driver

trailing So to has and ways that some aspect of that’s a quite a go.

Christopher Nolan

Okay. Thank you.

Jeffrey Zimmer

Thanks very much.

Operator

I questions. Mountain are further It remarks. concludes there back Jim no for to closing question-and-answer appears our would any to turn conference This over the like session.

James Robert Mountain

to attention like our then. morning our you our joining the and and you in us and firm for stock all to thank shareholders, look until forward to we’d for Well, speaking this April again give that

Operator

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

may You disconnect. now

ARMOUR Residential REIT (ARR) 16 Feb 232022 Q4 Earnings call transcript