ARMOUR Residential REIT, Inc. Q4 FY2025 earnings call

Q4 was a strong quarter for ARMOUR Residential REIT, Inc., with a total economic return of 10.63% for the quarter as we benefited from MBS spreads tightening, lower MBS volatility, and a lower interest rate environment. The market momentum we saw in Q4 has continued so far into Q1. ARMOUR Residential REIT, Inc.'s mortgage assets now total over $20 billion, supported by a strong capital liquidity position of 54% of total shareholders' equity as of January. We viewed Agency MBS as a high - conviction opportunity from the onset of the Fed's easing cycle in 2024, and the backdrop for 2026 has now turned materially more supportive. Technical supply and demand dynamics are now working with us, not against us. ARMOUR Residential REIT, Inc.'s most recent net balance sheet duration stands at 0.14 years. The portfolio remains nearly 100% agency MBS, agency CMBS or DUS, and U.S. Treasuries to target specific U - curve exposures. Consistent with our balance sheet growth, we added over $3 billion of MBS pools and DUS across the fourth quarter and early first quarter. Funding markets have also turned a corner. In 2026 repo conditions have improved materially versus last year.

Q4 was a strong quarter for ARMOUR Residential REIT, Inc. with a total economic return of 10.63% for the quarter. ARMOUR Residential REIT, Inc.'s Q4 GAAP net income available to common stockholders was $28.7 million, or $1.86 per share. Net interest income was $50.4 million. Distributable earnings available to common stockholders was $79.8 million, or $0.71 per common share. Q4 book value was $18.63 per common share, up 6.5% from September 30. Our most recent current available estimate of book value as of Tuesday, February 17, 2026, was $18.37 per common share. During Q4, ARMOUR Residential REIT, Inc. raised approximately $3.8 million of capital by issuing approximately 183,000 shares of preferred stock through an at - the - market offering program. Through 02/11/2026, we have raised approximately $138 million of capital under our common at - the - market program by issuing approximately 7.5 million shares of common stock. We also issued $4.8 million of capital from the issuance of 230,000 shares of preferred stock under our preferred at - the - market program. ARMOUR Residential REIT, Inc. paid monthly common dividends per share of $0.24 per common share per month for a total of $0.72 for the quarter.

Q4 was a strong quarter, and the market momentum in Q4 has continued into Q1. There are a couple of elements in terms of 2026, such as capital raising depends on how the market behaves both on the investment side and the equity side. The levered yield on thirty - year 5s, which is currently production coupon, is around the mid - teens. We think we could see a bit more spread tightening and curve steepening in the medium term, which would contribute to total return. The hurdle rate for marginal capital raise is about 16%.

This conference call includes forward - looking statements, which are subject to factors causing actual results to differ materially. Non - GAAP measures are reconciled with GAAP measures, but there could be differences. Repo market conditions may change, and the Fed's policy changes can impact. Prepayment risk exists as originators may ramp up refinancing if mortgage rates decline.

Q: By my estimates, the portfolio interest - bearing assets increased year - over - year around 49%. I was wondering the outlook in 2026. Do you see potential for similar growth or maybe a little bit less given the increase in 2025?

A: There are a couple of elements there, but certainly one of the most important is capital raising. And when we see an opportunity to raise capital combined with investment opportunities we like, we will execute on it. But we discriminate a fair amount in terms of what we know, what is going to be attractive or not. So I am afraid I have to tell you it depends on how the market behaves, both on the investment side and the equity side, whether we will be similar or smaller or in some other relationship to what we were able to do last year.

Q: Timothy D'Agostino asked just to confirm, book value as of Tuesday was $18.37 per share?

A: Correct. And that is after the accrual of our full February dividend and the payment of our January dividend.

Q: Trevor John Cranston asked you guys to talk about where you are seeing incremental returns on new investment today given the spread tightening that has occurred and how you view that incremental level of return compared to the dividend you are currently paying?

A: On a priori basis, the levered yield on thirty - year 5s, which is currently production coupon, is around the mid - teens, let us say, about 15%. This assumes eight turns of leverage, hedged to 0.5 duration using swap hedges, and it is a static framework over a period of just about three months. It does not assume any more spread tightening. Now we think, at least in the medium term, we could see a bit more spread tightening. So let us say we get another 10 basis points of OAS tightening; that adds about 4% to that return. And also the curve would steepen some more. So if we see another 50 basis points in curve steepening, particularly led by the front end through more Fed cuts, as we anticipate, that can also add about another 1% or so. So those are all parts of the full total return framework. Some of that would accrue to our book value. Now in terms of marginal capital raise, we see that hurdle rate is about 16%. So that would be dividend yield to common, and the management fee is just 75 basis points on new equity. So you add that together, that is roughly about 16%. So you can see that for production coupon, the base case returns are close to that level already, and with just a little bit more steepener, and if we see more tightening, it would surpass that by a couple more points.

Q: Dave Storms asked for a little more thoughts on your current liquidity. It looks like quarter - over - quarter, you put a little more to work, but then it looks like it is back up as of last month - end. How do you think about this in the near term?

A: I think our liquidity, we mentioned, is about 54% of the total equity at the month - end. It is a really good spot. It reflects our moderate leverage, kind of where we have been steady in terms of liquidity. So we do not foresee any sharp changes given our current position and the portfolio.

Q: Eric J. Hagen asked you guys mentioned in the opening remarks haircuts for MBS have come down. It was a bit of an interesting comment. Can you maybe frame where that level is relative to the historical levels? If the GSEs are helping reduce volatility in the market, could we see that haircut level come down even further, potentially?

A: Desmond E. Macauley said: Desmond E. Macauley: Yes. I mean, look, prepayments have, so far in Q1—we noted it in our script—definitely increased from Q4 toward the lower range of the mortgage rates that we have been over the last couple of years. February prevailing mortgage rate will be lower after the GSE announcements as well. So the risk of faster prepayments has increased, and I think in sync with that, our portfolio has morphed over the last couple of quarters to protect us more from lower mortgage rates. Thirty percent in discounts, and thus, specified pools make up 92%. Within the 92%, almost 40% is in the loan balance stories; others are credit and geo stories. So we feel like faster refinances are in the future, but we have built our portfolio for that environment.