ARR - Earnings call transcript Q3 2024 | ARMOUR Residential REIT, Inc.

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Operator

Good day, and welcome to the ARMOUR Residential REIT's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Scott Ulm, Chief Executive Officer. Please go ahead.

Scott Ulm

Thank you. to REIT's welcome Conference Quarter and Call. morning, ARMOUR Third Residential XXXX Good joined Gordon our as morning, by This I'm CFO, Sergey and our Losyev Harper, Desmond Macauley. Co-CIOs, well as to the over turn the now I'll to Gordon financial run call results. through

Gordon Harper

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

income online statements per change refers to defined today's them or measures on law. common Distributable common interest replay in million plus discussion operating This today's of GAAP adjusted were expense obligation million per Management share. notice. swaps $XX continues GAAP without will QX, $X.XX Also, a release. conference earnings $X.X contracts net for until share. be available this waiver to drop comparable minus unless income to available income was expenses. ARMOUR net $X.XX further our non-GAAP An for which stockholders X will interest management required subject measures. update $XX.X with was their any on our disclaim waive and forward-looking income fees, million. operating offsets is or are ARMOUR's or measure certain The futures waiving These interest to All expenses. income earnings million measures call Capital rate We portion by of notice. continues are reconciled net and available shortly QX TBA website of interest common to for Net continue non-GAAP $X year. ARMOUR's common as stockholders to

QX, have common to issued flat of share of paid common common $XXX.X value million monthly adding stock offering share equity capital of stock end per of an XXX,XXX a the additional raising for at dividends shares at-the-market book of value. Since $X.XX program, million month capital. ARMOUR During diluted $XX.X we $X.XX the to quarter, equity common total of quarter. for or X,XXX,XXX issued through X.X% of book ARMOUR shares our stock, per essentially the per

together with of contractual at was $XX.XX billion to up June the or made Taken stockholders stock, per distributions up $X.X preferred dividends from the history. Quarter end book cumulative its for XX quarter. has share, X.X% over $XX.XX value ARMOUR common on

As of will ARMOUR's estimated Scott the our and of was Scott? October per now the preferred to book dividends. I after current October portfolio accrual the stock strategy. to $XX.XX and common XX, stock value the back position common discuss C call dividends return share

Scott Ulm

points, by Chair negative are start positive XX-year Committee cut and rapid to from quarter. by X-year treasuries set risks the are monetary September, the environment. inflation August, current and signaled a the that a second up close point drastic in a prompting reaching XX basis points Xs-XXs late spread the In to turnaround perspective the Quarter-over-quarter, XXX jumbo Jerome points around XX sharing the this to I steepening with Thanks, Treasury XX Reserve and restrictive interest policy, basis respectively, Fed rates of balance nearly the decline. The curve. our after want Gordon. rallied labor yield of years U.S. rate that XX markets interest high with the followed basis basis a and the on X.X Powell macro in Federal

easing Fed the quarters. steepening X in economic up to trend XXX room of a book without the for curve to run has in in more environment coming particularly severe A easing ARMOUR. resulted basis the scenario accompanying XX of at potential curve the points. earnings anticipate steepening of Fed and cycles a mind, have sets decades, volatility future the appreciation value we constructive Over recession that growth last With this

positive MBS, book historically wide and volatility both basis of our points and the spread declining the the basis mortgage carry from points value of to versus nominal spreads last production expect earnings We average benefit the nearly XXX over XXX return still in of decade.

lead into While the are once next primary monetary well volatility, we spreads number factors specific to also resolves. Overall, benefit these driver expect from the trends that uncertainty There other months. political beyond. for year will to near-term U.S. and us the mortgage market over we're to favorable we a could easing the believe probably elections remain benefit coming of positioned

to affiliate, particularly access our and BUCKLER, securities liquidity advantage environment. to strong gives increase finance of financing, to flexibility more this us Our take through leverage

the ability this in the when time environment of capitalize we today's is right. to aware risks but and on keenly volatility are world, We have the

which point, environment We have is this shaping into discussion our over demonstrated turn the overall some turn to to Sergey. to very I'll great capability for is a business. At at cost. not low unexpected, In capital short, up the raise volatility, despite this

Sergey Losyev

Thank leverage, in our you, portfolio the we in Scott. experienced increased the and basis ARMOUR's market. progressively In advantage nominal of and points tightening size spreads, approximately pullbacks third portfolio taking of X quarter,

limiting in and flows treasury of terminated impact economic duration our less their forward the of Terminating of reflected in of while a swaps' X.Xx, rates conditions curve. We test The to reduction futures risk closely weighted rigorously stress weighted we our shorter of X.XX implied duration leverage X no liquidity to of Fed As and hedges yield book liquidity levels positively already our the at duration at notional years approximately with of swaps part sloped cutting as October we reflect a given swaps repo cycle ratio position billion carries of the portfolio curve, continue to is closed on steadily their support and increased a the market exposure in to a total with monitor as appropriately of that ensure pricing. anticipation receiving lowered and markets more growth. In $X.X portfolio's than $X.XX exposure billion proactive our positive average interest XX the years. can duration value funding cash swap healthy average XX, capital, maturity XX% available well longer our and has to versus months levels respectively. We approximately maintain XX%. our and stood

recalibrated our be yield an environment investors expect with economically We this to profile steepening beneficial a curve. for in

to as its related be over we cycle. may the subsequent While expect swap continues earnings therefore income time, lower increasing EAD to Fed benefit carry available and quarters, costs, distribution in rate financing income from for lower cutting

continue of a composed volatility book futures amount the We and of notional $X.X to value. totaling treasury over book dampen run diversified to the swaps, billion hedge just interest rate shorts of firm's

diversified XXX XX-year Our pools Agency investment portfolio coupons. X.X% remains specified X.X% from very ranging MBS, across and is to liquid, well

prepayment XX% exposures is QX, While CPR, carry when price market CPR near to from so prepayment volatility totaling value, into and reports prepayments and in we the It QX prepayment diversification averaged to par decrease premium is XX% in this a the recede. our rates coupons the the to later rates CPR composition to X.X% in show largest as decline. deep begin constant of the portfolio slight we this market. With September's respectively. This strategic forward-looking In the shields X.X% the already October. holdings discount below X.X% and and X.X%, the index is compelling far of rates in from premium that up MBS very worth has believe backing valuations in been on expected mortgage noting priced offer uptick mortgage already refi value up fall, coupons,

seasonals higher supply set mortgage weaker winter another favorable spreads. low for rates net Additionally, as yet up near-term MBS driver of and

pools TBA. In to Within characteristics the portfolio help LTV increase a versus a FICO premium traditionally holdings credit we scores, generic prepayments risk lower mitigate with shows lower investors' states and are refi proving mortgage prepayment to that pools on seasoned the to to were more the year, contributor work gradual of with benefit. our this analysis the also loans specified that tied discounts, rates CPR response higher can in coupons, loan and more some focused substantial

pressures expect We interest when as grow amid persisted treasury end the of the with in to observed throughout the decline. And somewhat rates issuance. market throughout remain dealers' to funding intermediate the of remains QX future this are repo the to begins record have end some benefit QX. at the to levels expected pressures capacity of year, U.S. constrained These housing of recover the liquid, albeit finally, market

to XX% affiliate had XX spreading our to portfolio with other our Scott Securities to BUCKLER funding provide across of counterparties As MBS balances XX% are already we the ARMOUR out alluded to XX best while value allows of with remaining repo repo opportunities. funding for board. Agency markets. the to and in funding across market overnight competitively you, priced while remains financing out Overall, MBS seeking and the flexibility BUCKLER term Back repo Scott. collar plentiful earlier,

Scott Ulm

to preferred Thanks, in where preferred we're around we less structure, our of involved stock. preferred mention as to We're likely also be the Sergey. capital like proportion to want a market. be our I'd so with

they enter know, you period. fixed As remain once our preferreds the call

where given with today's floating pleased levels would are We feature, be. this

few next we believe appropriate. the our As we out that dividend is quarters, rate look over current

dividend medium over not is term, the portfolio's Our current future the period the earnings outlook based power on earnings.

joining and focus ARMOUR. your value and to remains now Our on on happy for our economic interest you that delivering questions. call return your answer generating total today's in portfolio to shareholders. Thank We're our primary

Operator

is of first The have Instructions] JMP. Cranston [Operator from Citizens Trevor we question

Trevor Cranston

give made hedge here either compared exposure as on disclosed XX? sell-off if the is? assets significant of update September can And composition current to in any what duration we've us or October, rates the you in you've you With an what changes your seen to

Desmond Macauley

is This Desmond Trevor. Macauley. Yes,

did for the the end duration is we In the we we a steepener. our to that of remarks our was we're say have as mentioned, delta duration in positioned Most -- we duration end, of we looking That's October of curve. back So as X.X. Overall, actually hedge. XX. prepared in front some that

a X, at X.XX. duration very are the but to have close of we we So program keeping back-end

October the far. our duration XX, of curve. moved X.XX talked hedges. the about couple so we've of most So it things of as front of We in overall, we've end done But a

Trevor Cranston

gone bit then since it And looks little terms in a of XX. like leverage, Okay. it's September up

on volatility With up into Or thinking the the you term? what near that? comfortable guys how priced level you with election, running coming the are the X.X% about is market of are kind

Desmond Macauley

Yes.

an see as it as So leverage, output. far more our as we

We typically levels what at. have ample look we of which is liquidity,

of driver. And course, very cycle We have are volatility, is this are think comfortable to we be bouts the with of environment. we easing we to So Fed going the short going key which term. that be think

yes, So same wouldn't and are are risk we the But presidential to pretty terms of leverage, is that. be time, in looking the one, where we we now elections our right comfortable. with into at add

Operator

is of The next UBS. Doug have question we Harter from

William Nasta

for And book is the gave, today. on thanks but week? the how update This we rate Doug far another value volatility there you so week, chance Will for any given on actually has is fared this Nasta book get update this

Scott Ulm

think update do. we're value we more frequently planning don't I than book the to

think, But I any value have book question to week. that. we volatile to plans it's I think yes, move a of frequent updates. been No don't

William Nasta

just sense. Okay. then one question. That more And makes

update thinking just ATM in you you're raising forward? given how going can on Just the you us issuance about had capital XQ,

Scott Ulm

most how a very is close been to to issue price it it, which at environment we've of look raise prices, that of which to We can probably that capital and the at able to that value, work the be attempt to we on which is is leg we to looking not important opportunities putting factors say ideally investment and We it raise and achieve, that which the we'd we the number goes in. book second capital wouldn't view over at. at different

it. keep That's But more aggressive remain that, an that shareholders. we with that returns close if generally, like, and getting we willing eye exceptional see right very to capital. may the it can issue we carefully we then conservative for to we're answer the at on eye be we in generate opportunities pretty we the and a that So prices environment

Operator

The is next Montgomery from Stewart Janney Scott. question Jason of have we

Jason Stewart

how a that talk in raise about you in the thinking operate? detail Could break components how cost But you're more including you the carry, terms you returns where down level about you cost current see if to deploy versus to as return and of bit maybe total just could capital, in it of and little one more X those terms relates carry capital. of

Scott Ulm

you don't go... Desmond, why

Desmond Macauley

Sure, Scott.

coupons are mid- production on teens. ROEs, on pools, range trading and the depending a over in the X%, like pool Belly high lower the So specified X.X% the Xs are high coupons teens, wide X.Xs coupon in to are coupons, and depending characteristics.

So our dividend your I of second was yield. terms question the part your -- think of in

have at the plus You preferreds dividend to the look yield overall.

our our economic mentioned, our we think to dividend. like overall dividend and adjust overall get we as spread then that preferreds, And is that we there. add have include that to is are we're where the you can to forward, in XX%, operating breakeven if and enough which as you that, maintain of we terms environment can returns return looking of is. But So some you of these would kind also get sense a what yield about very tightening, comfortable, cost for the good

Jason Stewart

rate Okay. then the in mean, -- industry? a But macro in prepayments, servicing in That's second, for on, industry? there's that's capacity on given near-term coupons, prepays terms outlook what's of incentive the your Obviously, a just view I especially production lot And in the out. taken your There's question. capacity general, the of current vol servicing the refi helpful. some what's for been view

Desmond Macauley

could So let more that. Sergey add and me start, to

X.X%. remarks, mortgage backed mentioned out the X. So and activity our in over faster to already we up prepared month in to speeds that should see an we next uptick have over as summer, But the or rates did refi play

time looking that can forward period, beyond expect decline. we prepayments to So

Now the overall you speeds. deepens, look think as easing XXXX if and into over Fed down, rates further we that could time, come even to cycle would faster lead

risk has that. of maintain portfolio higher of for prepared coupons valuation, We diversified lot a higher that coupons, priced their lower current of are in the both already. terms prepayment a in coupons. and We And

Sergey Losyev

now Yes. they it's add hard rates month. when to moving And that, right just are to to as define this very current coupon are

drop So interest would longer is that that composition to outstanding rates it lower X% mortgage take are our portfolio than much composition. our universe. And down, reflects term, view but rates the coming given of mortgage

we so some along in it's prepayment As mitigate X.X% years, and easy have X.X% coupons we by coupon your the the exposures XX really concerns between of stack. shifting mentioned, just to coupon

Operator

from is Erdner of question next The Matthew JonesTrading. have we

Matthew Erdner

were hedge bit how little if where outlook, you recent guys than Could little to is are thinking or about to bit thinking guys kind way contract risk that a were of run about you if it? are talk now the it higher a how about reflect the tail to the the portfolio XX-year you it and significantly, changes

Desmond Macauley

so our for We particularly as hedge Matt, positioned dynamically are end. portfolio, we mentioned, steepener. a that back I

has run end back the up lot a So already.

about have with to though, meet dynamically easing deepens, be views. profile the for think we come volatility it's rate there fits it, of could terms that Fed should there, our do how In as our But cycle macroeconomic where outlook, that do hedging expect, elections the terms of we well. preparing we as in some the back-end we're down and duration other that

Operator

Thalmann. Instructions] of [Operator Christopher question next we from The Nolan is have Ladenburg

Christopher Nolan

Back to returns the question.

On environment on the are anticipating, where you go? returns improved expect we given return sort equity that equity, the guys should to of

Desmond Macauley

earlier high in it coupons So to we if new teens, of mentioned in purchases, higher return of now I -- incremental based we terms think XX% just on as across Chris, XX%. the looking the see so

we have maintain diversified -- obviously, we to Now do a try portfolio.

range. over maintain value to coupons the diversified in a trade mid-teens the try are coupons and a wide of We Some lower portfolio.

we -- those well. include securities also We have as

in at how terms improves looking of it convexity. overall our returns we're So

ROEs, may to have try to lower it a trade-off. we but in well-diversified returns Positive there's sometimes a maintain balance we what those convexity, take. that of risks portfolio terms are the securities So versus

Sergey Losyev

on we we given in could And not can perspective ROE the more spreads total return the lot rates, assumptions look also potential from volatility Yes. of quoted. the of some using investments, given to have favorable month, total market addition the return scenarios quick, if just start to I assumptions in so that really macro Desmond forwards, a may, using And numbers all outlook. to a far course, but these and running apply, to our

Christopher Nolan

if I So XX% XX% Desmond or in heard I correctly, so to there. heard

Desmond Macauley

XX%. coupons, higher the In yes. XX%,

Christopher Nolan

stock. much is with Which the in is pretty line for EPS where

hear like summary? you're be will equity And value with so in a Is I'm It line that providing. terms I fair what saying sounds of is much in book pretty expecting. the not in appreciation, but hearing you're earnings, it stronger the market of what returns details terms

Desmond Macauley

a you are, those operating as dividend today mentioned, you in yield, think that, up, spreads tightening Sergey costs an into by that right? XX spreads adjust baked current also easing component you the is points. returns of can covers looks that next cycle, is like is elections Fed at you where things mortgage that see post at additional take XX say if So year, the or in basis we numbers. and returns see our and OAS look our into that. We the returns likely Most to let's so those mid-teens As that just for just

gets into easily that for low XXs those coupons. you So the

Christopher Nolan

helpful. of forth? the is to election higher turn different, cost funds so slightly wins have and expecting of ideas on that -- presidential spreads, handicapping positive? dependent Slightly negative you're investment could sort of investment in relative that's any of yields, given you when terms that in Or terms when So definitely and ROE, that who

Desmond Macauley

carry. spreads, when are I coupons, we do we that depends. positive, we have already mean, are lower It's I some are right? negative for mean It investment you coupons negative -- say -- currently

just run rate repo currently at are there to some of look in risks, securities the ability terms the if you where the are right our we is, the portfolio them they But now, sometimes positive. already just mentioned, I balance convexity. As to

Christopher Nolan

Okay. was as looking portfolio just at I whole. the a

Scott Ulm

that on And has curve lot dot is plots, is Fed view of right? clear. depends the one of Fed forward A but timing where direction think going, the We've pretty got I the and it.

stack, the at of carry. see timing can daylight and that through and of some coupon gradually it positive more sweeps You some see squint more as it making

Operator

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

Scott Ulm

great If Have appreciate a around with us We're all. happy questions Thank Thanks day. your you. ring. come interest. a talk up, and always We to give you.

Operator

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

disconnect. You may now

ARMOUR Residential REIT (ARR) 24 Oct 242024 Q3 Earnings call transcript