ARR - Earnings call 3 2023 | ARMOUR Residential REIT, Inc.

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Operator

Good morning, and welcome to ARMOUR Residential REIT's Third 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.

James Mountain

Thank you, Drew, and thank you to all of you for joining us this morning to discuss ARMOUR's third quarter 2023 results. ARMOUR's Mark Ulm Gruber. by and Jeff joined CIO, our I'm co-CEOs, and Scott Zimmer; Today,

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

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

stock All of the common the share split. amounts share reverse and per reflect

swaps adjusted was contracts, net common to as TBA loss effective million. interest $X.X minus of for income, share. Net net expenses, defined measure GAAP $XXX.X was futures or rate fee non-GAAP coupon net is income stockholders net management common operating available QX $XX.X the waivers. plus interest $X.XX Distributable This ARMOUR's earnings drop and income was interest million million. per

their the waiver expenses. QX, cost $X.XX less of further ARMOUR will resulted funds waive quarter. fees. of offsets notice. X.XX% Capital for X.XX% in operating They The a which of until a million X.XX% is portion Management for net management to waived interest margin continuing yield of continue Asset of

$X.XX common common for will of quarter. fluctuations. dividends of share previously monthly a of for We monthly per share per maintaining appropriate share a the total $X.XX prioritize dividend intermediate we for rate We term rather market dividend paid share remainder the the per that ARMOUR XXXX. focusing stock common maintain the on $X.XX than for announced short-term

will We provide best understanding which expect and in current at December, of market reflect to late time. that guidance dividend outlooks conditions our

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

X,XXX,XXX capital ATM under During $XXX.X of program. and million share. net stock proceeds per represents expenses. raised an quarter, shares the our issued average common $XX.XX we That in third after fees This

stock We also $XXX,XXX repurchased with the split. for in connection fractional shares reverse

have trading ends. themselves. dislocation X.X shares million been Board our increased when Directors historically present October period common company's has the XX, active shares of when opportunities market common We effective price current open in repurchasing repurchase the ARMOUR blackout stock ARMOUR's authority to Monday,

and end per to The continued Quarter value volatile mortgage be since treasury markets share. was book common $XX.XX highly then. have

book our value be common As share. to October estimated night, $XX.XX Tuesday we approximately of XX, per

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

Scott Ulm

mortgage-backed the of presented increase treasuries most XXXX. similar beginning the further. third of primarily quarter and some to We've in Thanks, Jim. securities fourth in of conditions assets treasury duration of of OAS seen trough March XXX At basis point because end the difficult significant quarter the peak XX-year The the underperform prices in MBS in onset caused to even for the COVID-XX since since widening June XX. yields of a mortgage decline nearly

is believe investor investments. bond driven that price by pressures MBS significant redemptions this existing broader agency in have there funds, adding result, investment We exposure other a selling to to the the relative mortgage been allocations -- investors' to market. various in much overweight As of

Our current of mortgage prices. in XX, October value agency this decline reflects fully of as $XX.XX book

as the MBS value credit end movement. returns decline opportunities important is we However, towards and market shares this risk. It's and that with invest MPS note to to seems substantially very conditions remain Despite market its the no against market constructive backdrop book Agency value this tightening the of compelling cycle. Fed the the of common appreciable tough to recently, market overshot the offering on have move potential ARMOUR we once-in-a-decade in REIT

effective when We continue significantly trade repurchases We've authorized week. below to assess value. next authority we share our repurchase book increased

more value repurchases, as the how steps our order Agency valued long In to the portfolio. measured conservative on reduction to [indiscernible]. below of market always, MBS steps the as XX% bolsters balance a liquidity CMBS DUS portfolio against These accretion MBS balance our increased DUS profile included response available in towards Agency and our both As the the from of convexity need took to well in diversification historically a volatility, cheap position. stock we ARMOUR We've risk allocation book sheet.

trades While II sold outperformance execute and higher [indiscernible], months. pools. at due rotate to coupon lower coupon our a we TBA conventional TBAs these DUS versus last spreads MBS We Ginnie DUS acknowledge X pools seasoned pools into to we balance position are loan Mae against over the

a with explicit the Collateral. U.S. banks XX.X%. sector overall and II The Improving attractive of this exposure guarantee market trade as the or shorter makes This weighting portfolio treasuries the risk flows to U.S. investors. to the pools XX% brought Ginnie cash overseas portfolio $X.X our gives billion through of and total to on of particularly them of value X% profile Ginnie government the par

supply on eventually higher coupon These coupons These into reinvest FDIC higher issuance. and We We by spread the new sold organic outperformed more plan characteristics. proceeds basis. TBAs mortgage pools. yields X% and are and and attractive to these coupons X.X% with relative shielded belly have X%, also wider from a

tenors futures shifted in XX-year the at was inverted swap time and XXX spread We swaps by more a points. X/XX basis This hedges. when treasury the longer rebalanced all duration our of duration than negative to cleared nearly SOFR short negative

shift timely yields while our and strategic our added short also to in We improving liquidity. extension, treasury resilience This enhanced million $XXX duration MBS in positions. portfolio treasury rise XX-year

these to portfolio X.X allowed The predictable market in implied and respectively. our face less be years, at in, a environment. flexible duration more portfolio's trades and leverage the of All sit X.Xx currently

expect in risk modest selling We this begin conditions. even from pressures current subside, and should a to to profile improvement benefit market

Despite CPR third ARMOUR remains overall assets MBS rate at Additionally, average driving ARMOUR's to liquidity. seasonal a is X.X our for CPR assets prepayment refinancing was low current the all very now X.X the to marginally below of prepayment activity levels value mortgage loans. still is healthy effects higher, in maintains welcome to October. available prepayment is quarter low accretive points X any With in on prices. priced portfolio and the book historically in and par, activity average CPR X

just over of the basis to prior through on the dividends our guidance fund monthly through priced ARMOUR The gave maintain for we the company broker-dealer with declaring October that dividend continues to same per and October, through SOFR Securities common common late $X.XX ARMOUR quarter. most plus December followed fourth November XX% points. borrowings by of August, share XX X. affiliate, intended to BUCKLER generally In negative its action, around REPO price

a beyond The with earned level what reasonable can resulting risk. be dividend rate conditions for is today, extremely high

paying to dividends. committed are the previously announced QX We

and market the be carefully fourth We considering will remainder also quarter. through conditions the outlook of

remarks. will We That at guidance to time. expect company's which for that dividends the future late term in my best concludes provide on December, reflect assessment the intermediate

have any we questions Drew, do on from line? the people

Operator

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

Trevor Cranston

thinking how do risk And you generally, interest that market rise. in see perform think about of yields talk specifically and Can that you if rate about we continuing see how guys backdrop? you're to the weren't XX-year to scenario, we MBS the

Jeffrey Zimmer

in a have we a ago. point our X rates DVXX, basis value of was months it dollar So considerably to to X where at reduced X from move exposure

On the his as in Scott long end, statement. said

end have in market, position a a would that if rates Our third exposure on on steepener been quarter. the we short better of XX-year go long end up, than than first a is on such the day you are in we the the the meaning bear have greater

mortgage-backed was 'XX. 'XX, XXXX, something it's seeing usually decade, that It's and last regard of or they place about mean, large a the that are we I The mortgages to securities, experienced in on the redemptions. run talked in talked money And management about, houses because value I are have sell. the here an redemptions people are time interesting haven't we without redeem to funds, fund these

redemptions fund to even perhaps stop, to mortgages little until we that So are be going a flat wider. fairly imagine

there margin, the However, likely be on we down. slow fund be don't of And the mortgages. would will a will point And buyers. point, be that at who that reductions would sellers know there would

today. end quarter, So attractive. are our at they were we perspective more while second thought on the attractive the exceedingly mortgages, They of exceedingly

portfolio. levered continue We security to bond are agency We the levered out a but risks that are bond we a are cognizant portfolio, mortgage-backed to intend there. be

X with than and if ago. we I question, they X what were addresses Trevor, to they're However, back that think your come less weeks hope perhaps a not, follow-up.

Trevor Cranston

helpful. No, more. yes, I very guess was that one And

into new just comment you're at thinking on leverage are where with? levels of about capital level dividend sort see today ROEs appropriate you can as deployments the of So on the heading the you guys you year, generally the end comfortable

Mark Gruber

it's Trevor, Mark.

before in be you in another yield to the the which returns cases. So we MBS add could carry even add basis large curve, hedges, which on see points of positive going that's mid-teens, based and the inverted are somewhere XXX

So mid-teens where opportunities. current see we

Jeffrey Zimmer

duration to X on a to would that be of And X.X approximately and area. of Xx hedged leverage

if from to your X So basis X that's it the raise it on points. by XXX frankly, another deliverable, probably leverage, increases to and you number wanted

as under the clear But his right stick ago, just area continue skies. now, there team until see while are around leverage that And a I out X cognizant to for downside. my opportunities just in minute be we [indiscernible] of and So a we said Mark there. comments has

Operator

next with JonesTrading. comes The question Matthew from Erdner

Matthew Erdner

flat managers Or wider. could little in Are for what kind waiting You redemption bring back mortgage those think to other you bit catalysts do to of money kind said for be to you guys spreads come in? into a will tighten? spreads stop of spreads the

Jeffrey Zimmer

$X.X Ginnie Mae's. So know interested exposed eventually, where right and is invested to you're we And Ginnie his the almost that can versus be -- to of exposure, increased in now. prices. come this features way see attractive excuse convexity the team mortgages mortgages buyers that to Mark they dollar places so be me, to why going have Mae know going banks more we lower funds Because their billion are to buying in. And sector other are going when be

below now. I So par are mean even right X.X well

have to to interest going are investors. these So

that? wait doing. have Mark, we're that's you out to just on what and You to bear improve do want markets,

Mark Gruber

-- money see we start player. in and to going banks to When and the see come Yes. are banks be back biggest measures

I purchases, think in. directions things that's see going better security deposit we'll start and in loan that's when to When go to drive growth tighten. spreads growth for

Operator

The comes Ladenburg Christopher next question with Thalmann. from Nolan

Christopher Nolan

but front, Given shares? any management on you the issued I have have capital you repurchased not stock know quarter-to-date,

Jeffrey Zimmer

wanted we were point blackout the we to At repurchase, a in period.

answer the our Board authority any Jim though, was is explicit date. shares. comments, the to repurchase on that repurchased blackout has his increased Mountain to we've and So in ability ends not very Monday

said So we you note of Scott but would, considering as please. will take well, be if that, what

you about our quite always to we're thinking is have Number think So things now. there's liquidity one, about. right And good liquidity. X

where use enable out, margin what best use of us on invest the they and balance the would his they decide Mark shares. to team model and Then versus it the that So that could is capital. capital repurchase money of we

Christopher Nolan

to everything forward? given XX. looks you leverage on taking then it September be about flat leverage, sounds where you you And more relative fairly quarter-to-date defensive want It have to in discussing, a been But posture. Great. are thinking like

understand leverage Just you think trying to go. might where

Mark Gruber

that because to high. so and too have fact we going still our don't see have we us, much gets to volatility get our to we for leverage over sell leverage forward. So the And want assets skis to force balance

when we're in that. QX, we So this. take And we we're remarks, to things did advantage and the his things in turn, several still we risk. on selling was decrease said leverage as increasing balance that want off are could trades Scott of we have enough a and our to trying decrease as in position leverage to risk But

things continuing the to leverage rates So powder and continue other value. we that way, enough widen, to rise that to when see book have able are but spreads we to take withstand want increase dry enough in can the that advantage on go and we

Jeffrey Zimmer

Please. I But as earlier, noted go ahead.

Christopher Nolan

no No, go please. please ahead,

Jeffrey Zimmer

getting us X.X over current at much now. you would environment. earlier, right doubt noted I we're I As X see in the

Christopher Nolan

Is and Reason up margins were timing the flat since interest quarter-over-quarter your volumes Great. Final investment a for given last relatively question. quarter. in net agency decline went income issue? that

Mark Gruber

a don't I just a at that end what my of think of I'd that know the we quarter, the selling, little look head issue. the do there. the is was off have driver a to timing of top But as lot harder. I said. we did towards

a take we'll So look.

Operator

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

James Mountain

for give you now And in office. so, We Thank interest questions Residential a and this time us meantime, we REIT. the between at please ARMOUR joining as always, next months or or appreciate in stay the in this the And morning. do your call X concerns if us safe. arise

Operator

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

You may disconnect. now

ARMOUR Residential REIT (ARR) 26 Oct 232023 Q3 Earnings call transcript