Armour Residential REIT, Inc. Q4 FY2024 earnings call

• ARMOUR's Q4 GAAP net loss was $49.4 million or $0.83 per share. Net interest income was $12.7 million. Distributable earnings available was $46.5 million or $0.78 per share.
• ARMOUR Capital Management waived $1.65 million in Q4 management fees. During Q4, ARMOUR raised ~$136.2 million in capital and since Dec 31, raised ~$259 million. Book value was $19.18 per share as of Feb 10.
• ARMOUR maintains constructive view on agency MBS spreads; positively sloped yield curve and attractive MBS spreads generate ~150 basis points positive vs cash. Duration hedged levered ROE on production and premium coupon MBS is 18%-19%.
• Portfolio agency spread widened 4 basis points in Q4; year-to-date portfolio assets tightened 3 basis points. Net portfolio duration 0.36 years, implied leverage 7.9 turns. Cash and box liquidity ~50% of total capital. Deployed ~$2 billion of mortgage assets and TBAs year-to-date with returns above hurdle rate.

ARMOUR's Q4 GAAP net loss related to common stockholders was $49.4 million or $0.83 per common share. Net interest income was $12.7 million. Distributable earnings available to common stockholders was $46.5 million or $0.78 per common share. During Q4, ARMOUR raised approximately $136.2 million of capital by issuing shares. Since December 31st, it raised approximately $259 million of total net capital. Quarter-end book value was $19.07 per common share, and as of February 10th, it was $19.18 per common share. ARMOUR Capital Management waived $1.65 million in Q4 management fees, offsetting operating expenses.

• Expect rates to trade in a range bound environment in early 2025, a tailwind for MBS returns.
• Potential headwinds include GSE reform headlines and bank regulatory uncertainty, but attractive carry profile leads to being buyers of MBS during spread weakness/volatility. Expect earnings available for distribution to exceed Q1 dividend rate.

• Geopolitical themes and GSE reform headlines as potential headwinds. GSE reforms have bureaucratic complexity and could keep investors in cash. Bank's slower deployment in agency MBS due to unclear regulatory changes, especially with potential nominations like Michelle Bowman. Fiscal issues and treasury supply concerns.

Q: Clarification on book value update and February's dividend A: It does not factor in February's dividend as going ex-dividend by end of week Q: Outlook for volatility and potential costs on returns A: Volatility has declined and expected to continue grinding lower with Fed on hold, more range bound than prior years, but cuts' timing is a question Q: Comparison of ROE expectation with actual deployment A: Been able to deploy at expected numbers with new capital, but can't predict tomorrow Q: Biggest risk factors for spread widening A: Geopolitical issues, GSE reforms as wildcard, ongoing fiscal issues, treasury supply, inflation Q: GSE reform impact on portfolio and positioning A: Difficult to gauge, but new administration could introduce GSE exit details. ARMOUR's exposure to Gini MBS mitigates some risk; don't see abrupt exit as base case Q: Leverage increase/decrease conditions A: Comfortable with current leverage. Need clarity on GSE reforms, QT, timing of QT tapering to increase leverage. Potential decrease if curve flattens or more Fed hikes priced in (tail risks) Q: Swap spreads outlook and hedge trade-off A: Swap spreads have moved, next pricing on actions. Use 75% swaps and 25% treasuries for hedges, positioned for swap spread widening with treasury diversification Q: ATM issuance net amount and portfolio position change post-presidential election A: ATM issuance in Q4 was net. Expectations on rate cuts changed with election outcome, still positioned for duration and coupon stack, active in 5.5% and 6% coupons Q: Asset selection, pay ups, and repo market A: Spec payoffs appreciated, theoretical break even approaching 100%, increased TBA dollar rolls. Repo market well behaved since year end, spreads sulfur plus mid-teens supportive for agency MBS