ARMOUR Residential REIT, Inc. Q2 FY2025 earnings call

• ARMOUR's Q2 GAAP net loss related to common stockholders was $78.6 million or $0.94 per common share; net interest income was $33.1 million. • Distributable earnings available to common stockholders was $64.9 million or $0.77 per common share, defined as net interest income plus TBA drop income adjusted for swaps and futures, minus net operating expenses. • ARMOUR Capital Management waived $1.65 million in management fees in Q2. • ARMOUR is 100% invested in Agency MBS, Agency CMBS, and U.S. treasuries; MBS portfolio is concentrated in production MBS with ROEs in 18%-20% range. • Portfolio is diversified across 30-year coupon stack, Ginnie Mae's, and DUS. • MBS prepayment rates averaged 7.7 CPR in Q2 and are trending at ~8.3 CPR in Q3. • Favor higher loan balance and credit specified pools with favorable convexity. • Total liquidity is strong at ~52% of total capital as of July 21; hedge book has a balanced duration view with bias for Fed easing. • Hedges composed of ~33% treasury shorts/futures and remainder in OIS/SOFR swaps. • View structural demand for MBS may improve later this year with banking reform clarity and Fed easing.

ARMOUR's Q2 GAAP net loss related to common stockholders was $78.6 million or $0.94 per common share. Net interest income was $33.1 million. Distributable earnings available to common stockholders was $64.9 million or $0.77 per common share. ARMOUR raised approximately $104.6 million of capital by issuing shares. ARMOUR paid monthly common stock dividends per share of $0.24 per month for a total of $0.72 for the quarter. Quarter ending book value was $16.90 per common share, with an estimate as of July 21 being $16.81 per common share.

• Expect Fed cutting cycle resumption this year to reignite liquidity into Agency MBS. • View developments in U.S. housing finance system as constructive but not imminent. • Optimistic structural demand for MBS may improve later this year with banking reform and Fed easing. • Comfortable modestly increasing leverage as spreads are near historically wide levels and liquidity conditions are stable.

• Factors beyond ARMOUR's control could cause actual results to differ from forward-looking statements. • Forward-looking statements subject to change without notice. • Non-GAAP measures used, reconciled in earnings release. • Market volatility and changes in monetary policy can impact portfolio performance.

Q: Talk about philosophy for managing spread duration risk.

A: Leverage is comfortable, recently increased hedges in longer duration beyond 10-year point to adjust for Q2 curve steepness.

Q: Allocation to higher coupons like 6s and above declined. Comment on best value in coupon stack.

A: Favorable of 5.5 and 6 coupons, highest ROE coupons, with benign prepayment environment.

Q: Role of long treasury position.

A: 5-year treasury serves as part of hedging strategy and proxy for Agency CMBS position, used to rotate among asset classes.

Q: Total expenses after fees waived higher than trend. Comment.

A: Slightly more professional fees than first quarter, not expecting same run rate going forward.

Q: Balance total return vs carry in hedge portfolio.

A: Positioned for bullish steepener, diversified across coupon stack, lower coupons benefit from rate rally, higher coupons benefit in steepener; reinvesting in production coupons 5.5 and 6s for improved convexity.

Q: Thoughts on taking leverage up.

A: Leverage strategy is flexible, spreads near historically wide levels and stable liquidity conditions allow for modest increase in leverage.

Q: Value in hedging short end of yield curve.

A: Current bull steepener bias in yield curve hedging, not playing in swaptions market, better trade-off through current coupon basis.

Q: Duration gap extension if mortgage rates back up 50 bps.

A: Stay disciplined, risk metrics in shock scenarios don't compromise liquidity.