• GAAP Net Loss: $49.4 million or $0.83 per common share.
• Net Interest Income: $12.7 million.
• Distributable Earnings: $46.5 million or $0.78 per common share.
• Management Fee Waiver: $1.65 million waived in Q4.
• Capital Raised: Approximately $136.2 million through 7.2 million shares issued.
• Common Stock Dividends: $0.24 per share per month, totaling $0.70 for the quarter.
• Quarter-End Book Value: $19.07 per common share; estimated $19.18 as of February 10.
• Portfolio Duration: 0.36 years.
• Implied Leverage: 7.9 turns.
• Cash and Box Liquidity: Approximately 50% of total capital.
• Prepayment Rates: Averaged 8.7 CPR in Q4, trending at 6.4 CPR in Q1.
• Repo Funding: 40% to 60% funded with affiliate BUCKLER Securities.

• Warning! GuruFocus has detected 5 Warning Sign with SN.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ARMOUR Residential REIT Inc (NYSE:ARR) raised approximately $136.2 million of capital through an aftermarket offering program, which was only mildly dilutive to book value.
• The company paid monthly common stock dividends totaling $0.70 per share for the quarter, maintaining a stable and attractive dividend policy.
• ARMOUR's portfolio is generating historically attractive yields, with a duration hedged levered ROE measure producing yields of 18% to 19%.
• The company successfully bolstered its capital base through the issuance of common and preferred equity, allowing for the purchase of approximately $2 billion of mortgage assets.
• ARMOUR maintains a constructive view on agency MBS spreads, supported by a positively sloped yield curve and a diversified mortgage investor base.

Negative Points

• ARMOUR reported a Q4 GAAP net loss of $49.4 million, or $0.83 per common share, indicating financial challenges.
• The issuance of new shares was mildly dilutive to book value, impacting shareholder equity.
• The company faces potential headwinds from macroeconomic and geopolitical factors, including GSE reform and regulatory changes.
• Volatility in MBS valuations and the broader market could impact returns, despite current favorable conditions.
• There is uncertainty regarding the timing and impact of potential regulatory changes, which could affect the company's leverage and investment strategy.

Q & A Highlights

Q: How does the book value update factor in February's dividend? A: It does not, as we know, ex-dividend by the end of this week. - Gordon Harper, CFO

Q: What is the outlook for volatility and its potential costs on returns? A: We've seen volatility decline in both rates and spreads, which has been favorable for the MBS market. We expect this trend to continue with the Fed on hold, leading to a more range-bound environment. - Sergey Losyev, Deputy CIO

Q: How does the expected ROE on generics compare with actual deployments? A: We've been able to deploy at those expected numbers, achieving an 18-19% ROE on generics. - Scott Ulm, Co-CEO

Q: What are the biggest risk factors for spread widening going forward? A: Geopolitical issues, GSE reforms, fiscal issues, Treasury supply, and the evolving inflation story are potential risks. - Scott Ulm, Co-CEO

Q: How much is GSE reform priced into the mortgage basis, and what impact could it have? A: Not much is currently priced in. If agencies were standalone, they might require an additional 70 basis points, but we expect efforts to exit conservatorship with substantial private capital protection. - Scott Ulm, Co-CEO

Q: What would prompt ARMOUR to increase or decrease leverage? A: We are comfortable with current leverage. We would consider increasing leverage with more clarity on GSE reforms and QT. Decreasing leverage might occur if the curve flattens or if there are pricing concerns. - Scott Ulm, Co-CEO

Q: What is the outlook on swap spreads and the trade-off of using swaps versus treasuries for hedges? A: Swap spreads have moved significantly, driven by Treasury Secretary Besson's comments and potential banking deregulation. We maintain a 75% swap to 25% treasury position to manage risk. - Scott Ulm, Co-CEO

Q: How are current pay-ups for higher coupon specified pools compared to historical levels? A: Pay-ups have appreciated, approaching theoretical break-even. We've increased TBA dollar rolls to diversify away from full pay-up premiums. - Scott Ulm, Co-CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.