ARR

• Financial Results & Capital Activity

  • Delivered a 4.8% total economic return in Q2 2026, supported by tightening MBS spreads
  • Raised $218.7 million in common share capital and $4.1 million in preferred share capital via at-the-market (ATM) offering programs in Q2; an additional $88.3 million in common capital was raised through July 14, 2026
  • Maintained a stable monthly common dividend of $0.24 per share, with dividends declared through August 2026
  • July month-end expected liquidity remains strong at over $1.2 billion, equal to nearly 50% of total equity

• Portfolio Strategy & Structure

  • Implied leverage (excluding Treasury holdings) was ~7.5x, a modestly reduced level to balance risk caution with continued carry income
  • Net balance sheet duration was near zero, reflecting a more neutral interest rate view than prior quarters, with a slight positive bias based on the expectation the Fed will hold rates steady through fall 2026
  • New asset purchases are concentrated in par and slight premium coupons with slower prepayment profiles, positive convexity, and intermediate-maturity DOS structures
  • Hedging strategy uses a mix of interest rate instruments to reduce duration risk: ~86% of hedges are OIS and SOFR pay-fix swaps, with swaps favored for shorter/intermediate maturities, and a balanced mix of swaps, Treasury futures, and Treasury shorts for longer maturities

• Market Technicals

  • Market supply-demand dynamics are currently a larger driver of agency MBS valuations than broader macroeconomic trends; the technical backdrop remains supportive for Q3 2026
  • Elevated mortgage rates have constrained new loan production, with net Fannie Mae/Freddie Mac issuance negative year-to-date
  • Strong domestic and international inflows to bond funds support agency MBS demand, as MBS remains attractive relative to tightly valued corporate credit; Fannie Mae and Freddie Mac have over $100 billion of remaining capacity under their regulatory cap to act as backstop buyers at wider spreads

• Management maintains a base case expectation that the Federal Reserve will hold interest rates steady through the fall of 2026, which would allow current stable repo market conditions to persist
  • Aggregate prepayment speeds are expected to remain near the recently observed 8.8 CPR level in the current interest rate environment
  • Favorable market technicals are expected to keep MBS spreads range-bound through the summer of 2026, with current spreads modestly wider but within long and short-term averages
  • Management expects no disruptive policy changes to repo or agency MBS markets from the Fed's ongoing policy framework review, particularly ahead of the upcoming midterm elections
  • Management expects static mid-teens returns on new incremental investments in 30-year 5-6% coupons, at 8x leverage hedged to 0.5-year duration, with potential additional 4-5% upside if option-adjusted spreads tighten by 10 basis points

Armour Residential REIT is entirely focused on U.S. agency mortgage-backed and related securities, with a single core investment segment for its residential mortgage portfolio. For Q2 2026, the firm reported GAAP net income available to common stockholders of $111.5 million ($0.86 per diluted common share), non-GAAP distributable earnings available to common stockholders of $93.2 million ($0.72 per diluted common share), and net interest income of $76.8 million. Total economic return for the quarter was 4.8%. End-of-quarter book value per common share was $17.53, up 0.6% from the end of Q1 2026. The total asset portfolio grew to over $22 billion, marking the fifth consecutive quarter of growth for both assets and the capital base. The firm added a net $1.3 billion in new mortgage assets during the quarter, with 95% of MBS holdings concentrated in specified pools with favorable prepayment characteristics. Aggregate portfolio prepayments averaged 11.4 CPR in Q2, declining to 8.8 CPR as of the July 2026 report.

• Elevated geopolitical uncertainty in the Middle East and energy-driven increases to headline inflation have led markets to price in potential Fed rate hikes, increasing the risk of higher interest rate volatility
  • The Federal Reserve is reviewing its broader policy framework and has pulled back on traditional forward guidance, creating a less predictable policy environment that could increase interest rate volatility
  • Sustained higher oil prices create tail risk of additional Fed rate hikes, which would disrupt current spread and yield curve conditions
  • While the overall technical backdrop remains supportive, there are early signs of cooling MBS investor demand as investors wait for clarity on the Fed's policy reaction function to shifting macroeconomic conditions
  • External macroeconomic and policy forces outside the mortgage market could disrupt the current stable spread environment

Q: Doug Harder (BTIG) asked how Armour is approaching capital raising, and what incremental returns it expects from deploying new capital in the current market. / A: Management stated it will continue its longstanding approach of matching capital raising to available market opportunities. Raising capital also lowers average operating costs by spreading fixed expenses across a larger capital base. For the 5-6% coupon securities Armour has been adding recently, management expects mid-teens static returns at 8x leverage hedged to 0.5-year duration, with potential 4-5% additional upside if spreads tighten 10 basis points, though it does not forecast this tightening for the near term. / Q: Marisa Lobo (UBS) asked how Armour views the relative value of specified pools versus TBAs currently, and whether MBS demand is beginning to moderate at current valuations. / A: Management noted specified pools are now close to fully valued relative to TBAs, but still adds long-term book value due to their favorable convexity, so the firm continues adding liquid specified pools. It has also increased tactical TBA holdings but retains specified pools as its core holdings. Management continues seeing net foreign and domestic inflows into bond funds that support MBS demand, though demand has cooled slightly as investors wait for Fed clarity. Low supply is expected to keep the supportive technical backdrop intact. / Q: Trevor Cranston (Citizens JMP) asked how Armour is adjusting hedging strategy given the flattened yield curve and potential Fed rate hikes. / A: Management maintains a near-zero net duration position with a slight positive front-end bias, aligned with its base case that the Fed will hold rates steady despite market pricing for hikes. It favors swaps for shorter maturities (up to 5 years) due to lower spread volatility, and uses a balanced mix of swaps, Treasury futures, and Treasury shorts for longer maturities. If inflation normalizes, Armour would consider increasing duration and positioning for a bull steepener, but it has not made this shift yet. / Q: Timothy D'Agostino (B. Riley Securities) asked why Armour has raised far more capital via common ATM than preferred ATM recently. / A: Management explained the primary factor is market pricing and liquidity: preferred stock has relatively low trading volume, and the firm has not seen sufficient volume at prices it finds attractive for larger preferred issuances, even though preferred issuance is accretive to common shareholders. Common stock has vastly higher market liquidity, making it more practical for consistent capital raising. Management still views preferred as a compelling long-term value and credit story and remains open to future preferred issuances if favorable opportunities arise.