Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to ARMOUR Residential REIT's First Quarter 2023 earnings conference call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jim Mountain, Chief Financial Officer. Please go ahead.

Jim Mountain

Thank you, Andrew, and thank you all for joining our call to discuss ARMOUR's first quarter 2023 results. by Mark Scott Gruber, joined Zimmer; and I'm by and our morning, ARMOUR's Ulm Co-CEOs, Jeff This CIO.

ARMOUR's conference ARMOUR's By ARMOUR's now, be by www.armourreit.com. subject on protection safe intended filed Risk described Reform Act in with forward-looking the section earnings from public that beyond to forward-looking the certain This website, provided and release, The which to which of materially everyone can be Factors to XXXX. statements. has actual reports of are or cause call Commission, Securities Exchange includes access factors Private harbor Litigation differ statements, these the results control found Securities could ARMOUR's implied to by expressed those

SEC www.sec.gov. website the Those periodic -- filings on can at ARMOUR's SEC's be on found

to today's refers them to unless disclaim in will continue will subject without to All statements year. measures law. certain ARMOUR's required discussion and be to are shortly non-GAAP update comparable call These change Also, website any to of GAAP available notice. conference forward-looking today's obligation release. by reconciled our An for do replay this so measures We are measures. on of online earnings X

net share. is swaps This $XX.X rate net income was measure loss Distributable earnings minus effective as income the net available to $XX.X common comprehensive was common the of X.XX%. interest was $X.XX then and for quarter $XX which related TBA non-GAAP coupon QX per and net expenses. income million to million, loss. includes $XX.X drop ARMOUR's for stockholders our was adjusted million or million, net defined interest plus stockholders GAAP Net interest margin common operating interest

March expenses. February is dividends portion for million paid waiver January, for management common Management and ARMOUR monthly $X.XX $X.XX for The to They operating will a of QX, for of for total the Capital share for $X.XX of waived their which until continue notice. $X.XX a quarter. offsets continuing further ARMOUR $X.XX million fees. waive per

dividend rate have We maintained the May. and April per for common share $X.XX

calls, pay on is the dividend ARMOUR context to discussed we've conditions We attractive that eye Board an and and objectives. in that our previous believes appropriate As the rate achieves dividend our in keep stable economic over medium is aim term. an those this

with together has than stock, on more to cumulative $X of history. dividends Taken billion our over contractual the ARMOUR preferred stockholders made distributions

ATM proceeds share. During million first our and issued XX,XXX,XXX of stock per the of after shares expenses. we of program, $X.XX our $XXX.X net average quarter, represents common capital fees raising through That

first the net stock was per also shares XXX,XXX under That we $X.XX outstanding common repurchased During authorizations. quarter, of at cost repurchase average our share. an of

By share per count, accretively $X.XX shareholders. managing of common common add were for able value share we our to

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

access. placement $X.XX advantage $XXX to a estimate increased million, represent is at providing We ATM So XXXX, share, we BUCKLER affiliate, available value as to per $X.XX share night, that other book was our That and we count of issued BUCKLER XXX,XXX,XXX brings our was over capital of broker QX our far value regulatory as common value per strategic Quarter estimate of today. XX, to dealer shares. Securities end common the current April book funding repo by in continues most capital Monday share. for X,XXX,XXX book market common

to proxies of ARMOUR It representing strong at May all for eligible to a all shares Residential our the X. Finally, vote of Eastern held meeting support. be We matters of I'd quorum X a.m. annual Thursday will REIT. Time like and remind have shareholders next received

proxies proxy their participate of We proxies. vote of copy if their yet eligible to brokers another number week. encourage need the shares have not their return annual provided meeting in they materials. to a all and contact Shareholders your next to However, shareholders

turn me the let Scott to call Now over Ulm. Co-Chief Executive Officer, Scott?

Scott Ulm

evidenced In program. third monthly the quarter mortgage XXXX, on the yield many first are value volatility year, and sidelines. keeping curve X-year in bonds since spreads along return XXXX, This and fund significant Despite deep the on of in money broader index the their positive market and increase the back performance of after the Reserve's sizes into best Jim. income Agency inflows in the reverse reflecting this is elevated treasury delivered repo the by MBS total levels January the Thanks, investors worst of the conversion proposition Federal the XXXX. MBS markets record fixed

an Moreover, billion failure in of Bank, this liquidated resulted MBS $XXX over more course with next FDIC of spring Signature than Silicon the XX the Valley of the to portfolio months. and be Bank

and of bonds bank and the plans As this gradual week, receivership of FDIC orderly. the sales of course [indiscernible]

to fear contingent. raise billion additional assets $XXX stoked However, to a Republic Tuesday's up sell lingering of First in liquidity that headline banking may

at While X basis discount widen loans, demanding XX most spreads an to the all absorb points. to liquid the of unanticipated for presumed is securities, current U.S. attractive last versus these to appetite MBS assets on base XXXX. have highly there a remained increasingly widespreads approximately mortgage-backed to muted will We're caused to wide assets has the their spreads mortgage be This confident that these mortgage MBS valuations. investor significant additional fall, government-sponsored grow challenges, headlines the non-agency supply. in are investors refinance multi-decade Despite activity the left trading seen with tighter near that implying

tight deep first Sales transferred lower receivership our just X.X growing while into higher-yielding new remainder mortgages. well to billion. for Proceeds Fannie in pursue coupon from accounting year-end, X $X and most Visual the discount of securities relative bags. the and mortgage-backed and positions failed total richness since coupon to favorable be to reinvested billion valuations quarter. over ARMOUR adding timed FDIC continues and portfolio were coupon sold the ARMOUR current early bringing proved opportunities $XX.X of the into securities size the as MBS coupons, X portfolio, investment of

from decreasing XX-year value. about X% FDIC our MBS continue total ARMOUR to portfolio assets of our held hedge bucket X.X%, X% to exposure down by just to

are the the that lower the opportunity monitoring FDIC coupon for versus back are higher in for to a buy discount once coupons We production closely liquidation ongoing spreads MBS.

volatility. includes unleveraged Our XXth unpredictable liquidity leverage maintains flows highly the principal securities sits of of currently Additionally, April. of at at healthy of quarter prudent valuations, number X.Xx and in levels daily and still the is A of elevated to Xx. cash, at million, which as ARMOUR yet and stand the attractive interest $XXX market available A levels enough

in cohorts. bank premium geographics, coupon characteristics production concentrated featuring are MBS most and the generic production pools LTVs, purchased scores low liquid, versus balance Our FICO loan service favorable more

favor low the also lower These Index we remained prepayment stories, We best as reflect these which continue has to will payoff specified suppressed risk perform investments believe when historically volatility premium MBA to historical norms. its at reverts Finance levels.

ARMOUR's average first the low was prepayment still a X.X and MBS rate of CPR CPR in quarter very all assets X.X for for XXXX April.

mid-April substantial to would from in to Although mortgage X.X% fall declined in wave mortgage a highs last November below early rates rates have refinancing already of X%. X.X% year, XXXX, require the

repo quarter, remained Despite precipitous throughout from XX% over Securities. the several community agency of with a points above repo with ARMOUR benchmark. [indiscernible] fund agency to lending for a the liquidity bills spreads within XX incredibly BUCKLER XX funding enormous overnight benefit in supply to repo on market basis drop broker-dealer just our strong itself, interbank through growing margin's for money footing continues ranging of The term funding and have funds ARMOUR. cash created affiliate conditions our borrowers Agency the of shortage combined X liquid that

weighted XXth April. on at X.X% low our The exceptionally average remained repo haircut of as the of book

noted, appropriate medium for set be to our As dividend the term. we we've always

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

can mindful We surprises metrics. this are as our that well deliver can also upside move that environment

over and So thanks Jim. for you, to that,

Jim Mountain

take questions. Andrew? Let's some

Operator

from first Cranston The with JMP [Operator Securities. Instructions] Trevor comes question

Trevor Cranston

to guys You selling bit portfolios. of about some potential general a bank you MBS of sales other mentioned a are banks the already of needing happening. sales the you top about comment guys you the talked on thinking the how prospect bank another we Can on that briefly as assets. the about know maybe And sell failed risk risk of pending little in

Jeff Zimmer

here. Zimmer Jeff for dialing Thanks in. It's

use tighten, There And we large is meeting. As long is the Reserve to a liquidity it, also and on continues hand, next there. that of expect Federal out mortgage take of spreads, the we market we amounts of and will it are very there his some do if are Scott we that. another will keep have a and are the as continue having stays comments, which where assets, as powder continue risk aware to volatility and we investor, of advantage wider to we why and to we as want to approach that's at points we dry long-term more these bank basis mentioned XX aware of but sell in strictly risks

Trevor Cranston

Okay. it. And some details swaps? give added kind on of guys of Can like the the during swaps the it you what the then Got newly added looks you just quarter. maturity

Jeff Zimmer

we're Sure. this interesting our because day. And It's Board is about Jeff. talking the other meeting this in

there. exchange swaps swaps been have OTC weighted swaps off our and of months managing to exchange is maturity right going they're OTC The average trade we So now. over perhaps two But Mark much we've things of XX that swaps rate little apparently could we on because books. that a recent they're shorter provide detail the been And on, the some putting lower on haircuts. put you

Mark Gruber

Sure.

really swaps So existing the you curve. front X-year end swaps, mainly X- The on are term. to swaps bilateral longer to put the of the book is the cleared protect

Operator

Doug with next Harter from question Credit The comes Suisse.

Doug Harter

be guess powder you of keeping You the add? would dry of mentioned to just deploy of some what leverage amount size And dry could conditions you would that want to you how think that terms that the powder. you cause powder? dry in would I

Jeff Zimmer

-- Thank the wish ARMOUR. of A couple here. to appreciate thanks couple things best Suisse continuing with A welcome. and We that, write Credit the of merger. of about you're luck you very things you. And for we

capabilities mortgage-backed full to another invest securities. in probably of have We turn

market our slightly market. now the MBS or sale are of that have willing and see for accepted been would rather absorbed the team to it general securities I pricing is many structure would that tighter, fact of indicate think that the the into the in have

to our Doug, come invest it But hedge see is want to going a point. bit So investing not more, see be going perhaps widens investing, privately we're others if It to to or large there bank not we belief invest. little from a is but that watch funds banks. the that managed and at we'll funds

perspective talk get we'll this than some deploy it So aware. money. market, a counterparties longer-term our general going next quarters. the where couple not that's in be over of and suspect involved We be I who's feeling on then of It to the will the to now street. are we're We is things month. a that

I your So that hope answers question.

Doug Harter

And Yes, are absolutely. feeling market, maturities? then around BUCKLER how of And just anything kind you funding seeing context? the does in that help around what on those debate, debt

Jeff Zimmer

BUCKLER have very fortunate color of putting are and BUCKLER from that helps a we started BUCKLER. system. good very, went that's ahead and lot, access we structure. together also in the And very XXXX we of And whole why to direct into get

single specific Now a about overnight curve. and BUCKLER very counterparties comfortable talk doing probably I'll hand any doing feel it market in markets the because lot it comfortable may the day. out will some approach they generally, other in XX as we changes over happen where our repo could But are to to we Mark the of with rates and feel in other wouldn't the with

have fact that with the we great can go security system the through and banking we So BUCKLER.

of talk the access maturities And to about then perhaps we little those maturities are where and Mark, a and bit there it. and cost the different just

Mark Gruber

Yes, sure.

just do both with its So relationship, term. overnight and see heard great. any ceiling our would There our but – funding repo debt with Obviously, counterparties issue than more talk about because we we any anybody has the don’t with else really haven’t – been BUCKLER a that we on I lot impact. repo of overnight or from

to want ceiling because of banks, the repo. in be lot of a think of debt the I people because

helped when and And no plus issue. it remarks, of said Banking one kind SOFR us. point So to in SVB widened we’re seeing XX% little but XX% crisis, his the maturities a it of kind it’s with of bit the what across like were Signature came back we actually in middle Scott is at

So in the markets. liquidity and financing repo we of see plenty

Operator

The Christopher next question from Thalman. comes Ladenburg with Nolan

Christopher Nolan

can guys you the particularly date? of if -- terms is you're the What second in costs an seeing funding spreads, update investment quarter give in where to

Jeff Zimmer

Sure, Mark.

You detail want to that?

Mark Gruber

funding You said cost?

Christopher Nolan

Funding cost.

Mark Gruber

where low we're repo. So Xs is seeing

a just XX-day counterparty depends for surety somewhere X.XX, XX, about term. on X. in So somewhere the

Christopher Nolan

then. Okay,

Given that, the excuse I $X.XX sustaining dividend about terms for me, $X.XX mean, in the how current should the earnings dividend. -- power think of we company

Jeff Zimmer

morning. Good

and as basis Jim suits last the right XX $X.XX set we’ve his So on we said earnings monthly the dividend term. we on the quite calls, comments in term. said And to the think the right, the that as medium dividend opportunities a in investment now, medium frankly, XX on based

Now as low. of actually of Doug our position earnings Harter rates report bit April in on May it reflected earlier put the swap when actually, on an a we comes that very were quite some of ARMOUR well-managed in and from XXXX and

go. of noted just swap the a had sides off where they were actually had in that on us Board that rolled matter it to Tuesday was a that both As fact, who on see paid starting meeting we

trading around Xs Fannie But are par.

X%. yielding Funding they’re X%. is at So

there, XXX as X, that times where on basis swap from left But you you swaps. and correct? points comes right position. on over-the-counter then earlier, overhead So XX the gives it funding as well, does months I that there’s large have that swap X% some noted only So power costs position,

positions set So the up situations those swap okay? earnings reason it does like exactly power. this, provide for And you

benefit short getting some If X-plus we’re ago. to going those the go actually on put reason, we But on that end rates lower where want positions we’re XX-year, swaps. both we of we and those today. dramatically might to it some unwind for Exactly or the sense now, right we be, the even of years on

hope that question. your I answers So

Operator

from comes Riley. B. with question The Howlett Matthew next

Matthew Howlett

Jeff.

speeds than housing would market On outlook, or the stronger think rate have outlook where the like I it ticked then in X for cycle. X obviously low I very, to already update things speeds. at prepayments just people off in very And It seasonal the on up, winter. the of in go seems sort just coupon? the Any Is this imagined a much point nature? what's for

Jeff Zimmer

Mark, -- Sure. We a as ahead. company please go

Mark Gruber

Sure.

we're expect prepayments our over versus months, next we today, for rates pull-through the time. that's to based where of X on expecting increase what up That's over So XX%, are probably rates the portfolio.

mortgage were again, -- still surprise. But rates we for are plan rates a won't they lower peak. It be So at are that. than

Matthew Howlett

[indiscernible] there to those, curious, what credit at in there investing -- Fed, think at And could the you still approaching focused Is were some nature? you going a on some terms sort changes of you be the back of recently selection? specified dependent are see lot of the are of obviously And FHFA this all, first lot the the up in when you but in investment year the lower mortgage rates be I just And GP. is of here be then, on of coupon given half pool impaired could and rates point. cutting higher or today how they a do

Mark Gruber

continuing is -- coupons higher of spreads, -- portfolio our reason So the been structured balance we rates. to other duration why probably would the wider rally environment where to have to have that. the in we to rate that the raise more we of normal if protect it's than than higher a and against been but get have because and do Fed we the duration we us rates we that's increase expect, And prepayments effect on do has

try So to we it balance is maintain. a

Jeff Zimmer

on by duration using you you in can also the future. treasuries get that your get And can balance sheet

is mortgage position, today, have X.XX area. can X.XX very it hedge duration products. your other your you believe So your core liquid you I to with have you manage then core position, Mark,

benefit that. that's the So about talking that he's

Matthew Howlett

Right.

that. just any the with You very g-fee. the with been on then comments changes guys And have active

Jeff Zimmer

Mark?

Mark Gruber

liquidity look that are, looking of the account to selection. like scenarios. because that in where part we it’s could for when want have at part, our having pay-ups risk bonds we most asset into of play we But because Would say, again, at low we’re different pay-ups that taking that’s additional big And evaporate we management. don’t

XXXX, to They some evaporated. negative liquid If cases. went back you zero in or in pay-ups remember basically MBS on

have management bonds a So techniques that where keep that’s paying lower it. our we’re one not and we lot find that of pay-ups risk for in characteristics to up to is like

Operator

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

Jim Mountain

annual everyone this that week morning our and Until time shout for us stay you, joined to shareholders shortly one on Thank all have or meeting. safe. join dialed out thanks this to who’s on final Andrew, this look you then, us the internet the We replay. and to in having next forward hear

Operator

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

now may You disconnect.

ARMOUR Residential REIT (ARR) 27 Apr 232023 Q1 Earnings call transcript