Earnings call transcript Q2 2023

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

Operator

Good morning, and welcome to ARMOUR Residential REIT's Second Quarter 2023 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

James Mountain

and joining Drew, discuss to of all second Thank on thank our for us XXXX to call you quarter you, results. you this ARMOUR's morning

are By now has Jeff today With can Ulm release, ARMOUR's everyone Co-CEOs, ARMOUR's be CIO, Gruber. our found access and on me Mark Zimmer; ARMOUR's earnings and which to Scott www.armourreit.com. website,

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

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

mortgage-backed GAAP sale earnings QX for We income. net sold of in which available legacy the million available ARMOUR's to of $XX common million, shareholders QX. $XX includes last our was securities

Going forward, GAAP excluded from net income. there be items will no mark-to-market

Income Distributable interest TBA operating expenses. stockholders This interest long net income common is non-GAAP total per earnings for million. as prior interest defined relevant. income comparable Net comprehensive rate they Drop as We to $X.X $X.XX net income common as net was for to measure less available report effective coupon will continue or $XX.X the swaps, periods share. was plus remain adjusted million

of interest X.XX% of for gave of less us cost the margin funds net X.XX%, Our asset of quarter. X.XX% yield net

QX, operating Management They to This monthly the offset common notice. share will $X.XX which dividends per common waiver of a management of $X.XX paid million waive continues further Capital for portion That's their of expenses. per quarter. total ARMOUR fees. stock common until ARMOUR for waived $X.XX share. continue

the maintained dividend and have $X.XX per We for July common rate share August.

discussed we've context to in and our previous on an dividend our medium-term. As that the call, over pay appropriate aim stable attractive is is

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

program, capital XX,XXX,XXX During the we after ATM $XX.X million our stock quarter, second fees of issued and common raising expenses. shares under

we was average also the our of common During per second quarter, stock repurchased under share, $X.XX of that authorization. repurchase an standing XXX,XXX existing shares cost at

our the share and common For costs. year, per activities value have the first reducing capital half book share per to accretive been of running

XX,XXX,XXX issued shares. far ATM So current our raising shares, our common common completes $XXX.X XXX,XXX,XXX net common QX, we've program. brings count in to capital That share of another million. This

per million common Recently, program, BUCKLER, to affiliate, we've $X.XX value approved other shares and agents. XX through book share. up new a offering ATM four was Quarter-end our

estimated Our estimate $X.XX most XX July value common recent per of available was to book night, Monday as share. be

our Now Officer, if discuss ahead. the and Executive Scott, you'd me go Co-Chief portfolio call please like more Ulm. to strategy, let Scott in turn to current detail over position

Scott Ulm

that historic thesis widely investment near remain second Agency MBS. period a in available. conditions the in Market quarter funding to and compelling we into are Jim. for entering continue hedging Thanks, support our highs, are Spreads

quarter. trend cycle, fluctuations, low by yield had hiking points end treasury the or the nearing of cycle, basis surged a U.S. have Throughout the we offer its extreme returns believe With of MBS significant persistent the from will both. tightening, through hiking XXX carry, its Fed spread X.XX% this treasuries for two-year

XXX experienced week yield between over a made quarter these treasury closing XX basis tenors the two high the the curve points year. which begin Notably, negative the XX-year also book a basis spread response, history, reaching a In rebalanced below hedge team the for points, of will yield environment, steeper gain of favor X.XX%. we to expect first XXXX. later a Simultaneously, the portfolio time this since

In early market. debt likelihood looming $X.X May, ARMOUR premium in the more increased billion over of as the lowest the pools fight of the greatly volatility sold the specified ceiling

to respectively, ARMOUR opportunity and X.X% the MBS to presented X% down coupon net risk. which resolution X.Xx ceiling occurred. to this address exposure and increase this good X.XXx pools its to decreased and leverage from duration event, a X.Xx Production underperformed X.XXx, after debt portfolio buyback and of into significantly shortly

The liquidation portfolio. the of other was widely anticipated FDIC the event

of have passes remarkably has mortgage and agency faded on of valuation our Despite valuations. too not coupons stack, of we the versus sales of assets. been coupon surpassed market we now the what disruption own stronger of XX% major we fear orderly remaining opportunities liquidation has portfolio the impact demand a XX% in to fair. relevant the Net do The over material rich view this, have FDIC's of FDIC than thought where the with mortgage initially as MBS expect a a

capital swaps, over our Agency XX/X.X [indiscernible] pools. a double are points the are total financing pools almost XXX maintaining this [indiscernible] is like DUS perspective. favorable of negative return this trade with coupon We which at basis XX% trading wide ARMOUR Fannie $XXX from TBAs of CMBS pools. likes position Coupled and pools, reallocated These lower million towards short have DUS

DUS remain spreads for positive long-term these see Although we at may a valuations convexity while, to value bonds.

the recently over Ginnie weighting and allocated X% is and risk to of the greater provide Mae pools. in X.X% There boost of X% half domestic wider MBS sector We that banking longer-term. recently spreads foreign Ginnie regulation a bank second favor demand year. proposed in billion we've the Mae Additionally, issued should newly and the $X.X capital feel

withstand highly valuations unpredictable of XXth that A still X.Xx attractive closed of Our daily and currently market number to leverage and the of July. as reflects at X.Xx elevated enough levels volatility. prudent quarter at sits is

interest Additionally, liquidity as receivables ARMOUR $XXX at of of maintains the principal levels XXth cash, and of which healthy includes and unlevered available million, July. securities

in current is FICO loan cohorts. Our and coupon the characteristics featuring pools LTVs, generic production more balance most scores liquid, production portfolio premium favorable versus low demographics, concentrated

MBS TBAs lower perform expect of pools to We in and lag no specified continue demand premiums current funding up as the strongly rolls improvement for over implied These dollar we favor stories deliverable specified repo collateral rates. the as Agency remains. should pay

MBS driving low quarter the and XXXX up rate second in prepayment risks CPR seasonals reflect CPR the money. of investments X.X CPRs significant low are of assets was all a still very July. out average a these prepayment Despite still borrowers and amount ARMOUR's of for margin, X historically for

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

borrowings XXth of repo been fund as of XX% our of the affiliate, funding The its remained book Account Securities. MBS just haircut Treasury average at exceptionally to on General dealer weighted continues over BUCKLER orderly stable. July. has debt and X.X% ARMOUR the Agency our low has the the repo of to Since broker resolution, rebuilding ceiling been

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

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

can substantially. also are surprises this metrics deliver they environment our that upside prices, mindful move We that can

with much. very we And questions. open will for you that, Thank

Operator

Trevor with [Operator Instructions] Securities. ahead. go session. question-and-answer The Cranston first the comes begin question now JMP will Please We from

Trevor Cranston

extent how Hey, you some continued you debt added to high July. it that to MBS? Thanks. in you and – to thanks. it are Can right talk add guys you leverage willing guys kind looks you're go and to the overall you've approaching seemingly given backdrop It the and post about leverage of in favorable how looks like now to for mentioned portfolio June you ceiling like

Mark Gruber

Trevor, Mark. it's Hi,

appropriate So there's out we as some there and with still in rates view volatility leverage here spreads. both that

it's appropriate. feel and we comfortable lot, are we So mortgages dry do here think topped is have We subside volatility a We do going basically where out. but to at. if rates like we’re powder we some that think

Trevor Cranston

over out FDIC sort year? rest supply Okay. you are have particularly the And potential talk the cleared And about catalysts tightening there, the the any of portfolios if think you how can spread thinking the demand about there's of market? picture after for guys you

Jeffrey Zimmer

In this mentioned the Scott's exposure comments, Ginnie good morning. he to specifically Mae is our increased sector. Jeffrey, So

may mortgages a classes asset environment historic alternative of knows basis are assets at down have, particularly to credit they're the sorts corporates going an this may that experience the all mortgages in everyone investors are looking where So to they that on are at are achieved some and really say, be in treasuries. some wow, are or going looking good to There deterioration you – road. other this

to banking and only Mac are but purchase right historically to exposure be Ginnie's reason now positively the Now won't increased their affect cheap Freddie ability is rules ones. the may we Mae Fannie banks’ they to the because particularly Ginnie's to counterparty. our there,

from come from catalysts catalyst other from Ginnie for asset specifically So buyers banks classes, [indiscernible]. and buyers come other

is We Scott And in maintain think from that negatively still liquidations earlier, comment, position the of have FDIC. said one that coupons the are they'll be we by the we stack affected one coupon selling. our not one on a I such Mark too, short

very comfortable the spreads of on and where outlook we're the optimistic a for So are we rest have year. we

Trevor Cranston

it. Got

Okay. Thank Appreciate comments. you. the

Jeffrey Zimmer

Thank you.

Operator

comes Erdner from Matthew with JonesTrading. go next question Please The ahead.

Matthew Erdner

the question. Hey, Thanks taking for good morning, guys.

how other are You you are large you willing percentage increase What mentioned portfolio? opportunistic there? as of CMBS getting that into pools. CMBS, position seeing the the of And DUS a kind opportunities to

James Mountain

I $XXX million of the which this represents we portfolio. of believe morning, as X.X% have DUS, So of

than that. a We number that's are targeting larger

XXX I purchases of We've think XXX, as curve. to They're as that low wide peak generally kind today. XXX the got as the area. as spreads XXX made

If buy. quickly, We are they in still selectively buying. to feasibly So could. it looking stop to take we XX%? come Could will we we

opportunistically be have to added down Mark, we convexity We're that spreads. looking to do want add really you that going on are that? we to the to the very good expand sector. road at So happy

Mark Gruber

at Yes. pre-COVID. the of just history, And no balance market our if look there the you our I of think, has DUS TBA DUS. have been, portfolio little north that liquid is just to for XX% We fact a position

risk So pools. a there that's more agency is magnified some little there spread than

So that where spreads versus the we're balancing just are today.

Matthew Erdner

you. helpful. That's Thank

Operator

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

Christopher Nolan

commercial guys. securities estate Are develops? that CMBS. guys on the the real go CRT market A to into back up types as of follow-up question warming to you Hey, sort

James Mountain

up we CRTs. exposure to We warming and increase to continue are exposure to up our not are warming our to DUS

Christopher Nolan

for the mortgage-backed turns issue into how real if that anticipate estate residential could sector, that a commercial on securities? on And large the commercial impact banking front, you do

James Mountain

maybe Fannie like be When unlikely up although that X.X fact different the at than spread potentially that the of we of there intend XXXX. portfolio to goes our the why down, that move that And risk that's cognizant XX% to goes up is tide the the we up on increase okay? be and commented in are XX% of we'd the could again ships down or harbor, there pass-throughs. more to Mark? there Mark of in and highly We're DUS that's in all XXXX, winter and tide in why sector were the spring exposure the –

Mark Gruber

think the mechanism be is through to I going regulation. other

Scott As XXX% that's about are in they're liquid assets of Ginnie the get personal be have going to the Mae's. backing banks why that commented trouble The going and we real estate, Ginnie’s. focus to on purchased because that very some

Christopher Nolan

curve? for guess a And in question, last steeper I later there more yield was the be yield curve Great. a comment, Would year. inverted then that the

James Mountain

No.

The other way around.

the steeper gets curve to as hiking Fed as should their the As of would start short to a come end the expect we cycle, down. end

Christopher Nolan

Okay. Thank you.

Operator

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

Matthew Howlett

and Good for morning taking question. thanks my

still add – of could think the they're you portfolio I the And as outlook, what's roll improve the the year? coupons rest out you the Just margin swap it offs, margin left XXXX. on throwing the Do hedged, for higher here? mean, much very into the outlooks the have well really of you duration

James Mountain

is So, higher do where go? are your question coupons going and to we think spreads more about

Matthew Howlett

repos to of power but XXX place Really going margin continue we're looking net company. then income? the Obviously, up sort coupons are repricing, of adjusted have and and the it's going the the sort core What's at the you earnings hedges rising. interest in of

margin, year? of that sort any modeled on guidance that end Sort margin, could go the we of adjusted where towards the of that

Scott Ulm

Right.

and stated, just is curve we earnings beforehand going off But take help a and on where borrow reposition want want the power because is curve a as or always So we hedges portfolio can the hedges. us short to to We and be. long. I lend steeper to steeper

Jeffrey Zimmer

way, the increase a that now. does right September. our Fed the only basis By And shows points there's chance in work pays if says the modeling Bloomberg XX that XX% of on

Matthew Howlett

Right.

Jeffrey Zimmer

very income affect It to doesn’t seem much. our

our hedged to We think XX% have because we're cycle. the right we that of end right that'd repo assets be of more or now of believe XX% want hedged near and very than the now. our don't hedge We balance at We inappropriate.

So should be at be where up to right end number we where the within kick change of things a there QX, – the could that short can going end down. NIM is comes the exact it But of while now. are the technical

I But I over very been and think the clear positive year. very mortgages we're course have Scott of that on

may just spread improving NIM, class and terms the versus treasuries of the asset from may hedge but of for you total year. experience not experience it in return, So rest counterparties versus the you from

in company's could helpful? you see So Is outcome. there ways that are that improvement various the

Matthew Howlett

team the start do a through repo do steepener the mean, you're start to setting going you sounds if particularly metal, going to we're environment, being and Fed and I terrific speak? so for up been and going you – costs really the what it do When bull aggressive? – this to there's see really to be start stop. we're is have it, to more you cycles. Jeff, to And you are the And all come up is think you put going come taking And when What a the waiting like pedal see leverage really, down. you Absolutely. – to to

Jeffrey Zimmer

the more know to to say. deterioration raising – I stop what cutting some going going point. think probably world will credit rates deterioration And credit. see to to exactly you're a don't the some in that little the in be we'd time in indicator leading when needs like and at And you're point at you see

billion take swaps let's of or do. Let's $X.X off

Matthew Howlett

Right.

Jeffrey Zimmer

figure in, out. walk and you going when it of smell kind to to we're it But we're going

we're things those a so that the those in there's of And number And happen business you as assessing could making of decisions. well know. and

Matthew Howlett

forward my question. that. Thanks for Look to taking

Jeffrey Zimmer

Thank you.

Operator

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

James Mountain

to you Well, to all XX days. then… this thank for in forward look morning. we'd about again joining like speaking We you Until us with

Operator

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

now may You disconnect.

ARMOUR Residential REIT (ARR) 27 Jul 232023 Q2 Earnings call transcript