UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 8-K
______________
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) March 24, 2015

ARMOUR Residential REIT, Inc.
(Exact Name of Registrant as Specified in Its Charter)

 
 
 
 
Maryland
001-34766
26-1908763
(State or Other Jurisdiction
of Incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)

 
 
 
 
3001 Ocean Drive, Suite 201
Vero Beach, Florida
 
32963
(Address of Principal Executive Offices)
 
(Zip Code)

(772) 617-4340
(Registrant’s Telephone Number, Including Area Code)

n/a
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[_]    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[_]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17CFR 240.14a-12)

[_]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[_]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 7.01.    Regulation FD Disclosure.

On March 24, 2015, ARMOUR Residential REIT, Inc. (“ARMOUR”) produced for distribution a slide deck presentation, which contains updates on ARMOUR's financial position, business and operations. Attached as Exhibit 99.1 to this report is the slide deck presentation produced by ARMOUR.

The slide deck presentation attached to this report as Exhibit 99.1 is furnished pursuant to this Item 7.01 and shall not be deemed filed in this or any other filing of ARMOUR under the Securities Exchange Act of 1934, as amended, unless expressly incorporated by specific reference in any such filing.

Item 9.01.    Financial Statements and Exhibits.  

(d) Exhibits
 
 
Exhibit No.
Description
99.1
Slide Deck Presentation, dated March 24, 2015




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: March 24, 2015

ARMOUR RESIDENTIAL REIT, INC.

By: /s/ Mark Gruber                           
Name: Mark Gruber
Title: Chief Operating Officer




Exhibit Index

 
 
Exhibit No.
Description
99.1
Slide Deck Presentation, dated March 24, 2015





ARMOUR RESIDENTIAL REIT, Inc. Company Update March 24, 2015

 
PLEASE READ: Important Regulatory and Yield Estimate Risk Disclosures 2 Certain statements made in this presentation regarding ARMOUR Residential REIT, Inc. (“ARMOUR” or the “Company”), and any other statements regarding ARMOUR’s future expectations, beliefs, goals or prospects constitute forward-looking statements made within the meaning of Section 21E of the Securities Exchange Act of 1934. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates” and similar expressions) should also be considered forward-looking statements. Forward-looking statements include but are not limited to statements regarding the projections for ARMOUR’s business and plans for future growth and operational improvements. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements. ARMOUR assumes no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This material is for information purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation for any securities, financial instruments, or common or privately issued stock. The statements, information and estimates contained herein are based on information that the presenter believes to be reliable as of today's date, but cannot be represented that such statements, information or estimates are complete or accurate. Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be predicted with certainty. Estimated yields do not reflect any of the costs of operation of ARMOUR. THE INFORMATION PRESENTED HEREIN IS UNAUDITED AND UNREVIEWED.

 
Monthly Commentary 3 Since our earnings call on February 25th when we addressed our outlook for earnings and our hedging strategy, we have made portfolio and liability changes which affect both. We estimated on the call that we were not quite earning $0.03 a month during Q1, as we maintained our relatively large and expensive swap position. We believe our early estimates will hold true for Q1. Core earnings will likely come in a bit under $0.09 a share. The changes we have made will likely put our estimate of Core earnings much closer to $0.04 a share in April. Future month’s earnings will be influenced by changes in amortization expense and funding rates, especially in the case of a change in the Fed-Funds rate. Portfolio changes since the February 25th call consist of: • Sales of $546.2 million of fifteen year 3% and 3.5% pass-thru’s. • Purchases of a $244.3 million seasoned thirty year 4.5% coupon bond with a final maturity of November 2034, $354.3 million of thirty year 3.5% coupons with original loan balances at or below $175,000, and $218.0 million of Agency multi-family bonds (“DUS” Bonds). These transactions increased our asset duration to 3.96 from last month’s 3.87 and increased earnings as the asset purchases yield more than the asset sales. On the hedge side, we modified $3.78 billion of swaps with an average of 89 months to maturity by converting them to forward starting four year, six year and ten years swaps totaling $3.48 billion. We expect these transactions will enhance the Company’s earnings power for the next year while maintaining a similar hedge duration. These modifications have also more closely aligned our hedges with the expected duration across the curve of our mortgage portfolio, resulting in somewhat less long-end and greater intermediate term hedge concentration. These changes have allowed us to improve the expected efficacy of the hedge book as well as reduce costs. Today, 81.9% of the Company’s REPO balance is covered by swaps and 77.7% of the Company’s fixed rate assets are covered by swaps. However, not all of the swaps pay immediately - forward starting swaps represent 29% of the Company’s entire swap position. The forward starting swaps begin to pay in January 2016 ($625 million) with the bulk of them beginning in March 2016 ($2.1 billion). During the remainder of 2015, $625 million of the Company’s swaps mature.

 
Monthly Commentary 4 These changes have resulted in a current balance sheet duration of 0.10, a rates DV01 (dollar value of a basis point move in the entire curve assuming constant OAS, or option adjusted spread) of $151,000 and a mortgage spread (OAS) DV01 of $7.67 million. The rates DV01 does not remain constant as rates go up. We estimate that an immediate 50 basis point move across the curve would make the DV01 change to $1.05 million. Changes in DV01 for larger moves across the curve would likely not be linear. Since our February 25th call, OAS on fifteen year pass-thru’s have widened by 6 OAS and twenty year pass-thru’s have widened by 6.5 OAS. The spreads on the DUS bonds the Company owns have remained relatively stable. Treasuries have rallied since February 25th with the two year down in yield three basis points, the five year down in yield five basis points and the ten year down six basis points. The combination of wider OAS, lower treasury yields and a near zero balance sheet duration, accompanied by the fact we likely over-distributed $0.03 per share or so in Q1, means that estimated book value is down since the earnings call when we provided a range of $4.20 to $4.28. The “ARR” March 20th closing price of $3.24 is approximately 22% below our current book value estimates of $4.09 to $4.13 a share. If the Company produces Core earnings of $0.04 a month, that would represent an 11.7% ROE on estimated current book value and a 14.8% return on the current stock price. For the eight REITs that analysts generally place in the Agency REIT category, the average dividend yield for the group, excluding ARR, is 10.2% vs. current estimated book value. Since the conference call, the Company has repurchased 875,000 shares of common stock in the open market. We have Board authority to continue share repurchases and will selectively continue to do so. Insiders, which include the Company Board members and senior management, continue to own a combined 3,116,088 in ARR shares valued at $10.1 million based on Friday’s closing stock price of $3.24.

 
ARMOUR Capitalization, Dividend Policy, Transparency and Manager • Portfolio and liability details are updated monthly at www.armourreit.com. • Premium amortization is expensed monthly as it occurs. No yield smoothing.(1) • Hedge positions are marked-to-market daily (GAAP/Tax differences). • Non-Executive Board Chairman and separate Lead Independent Director. Transparency and Governance 5 ARMOUR REIT Manager and Fee Structure • ARMOUR REIT is externally managed by ARMOUR Capital Management LP. • Accretive fee structure: effective fee percentage declines as equity increases. Common Stock Dividend Policy and Taxable REIT Income Market Capitalization • 352,292,815 shares of common stock outstanding (NYSE: “ARR”). • 2,180,572 shares of Series A Preferred Stock outstanding (NYSE: “ARR PrA”). • 5,650,000 shares of Series B Preferred Stock outstanding (NYSE: “ARR PrB”). • Market capitalization of $1.1 billion of common and $188.4 million of preferred. • ARMOUR pays common stock dividends monthly. • Dividends are announced based on estimates of future taxable REIT income. Information as of 3/20/2015. (1) Due to the prepayment lockout feature of our Agency multifamily securities, premium is amortized using a level yield methodology.

 
ARMOUR Balance Sheet Targets ARMOUR invests in Agency mortgage securities. Net balance sheet weighted average duration target of 1.5 or less. • 4.02 gross asset duration. • -3.92 hedge duration. • 0.10 net balance sheet duration. Hedge a minimum of 40% of assets and funding rate risk. • $12.0 billion in hedges (swaps and futures). • 77.1% of assets hedged (54.8% with current paying swaps). • 81.9% of repurchase agreements hedged (58.1% with current paying swaps). Hold 40% of unlevered equity in cash between prepayment periods. • $867.1 million in total liquidity. • $337.3 million in true cash. • $351.3 million in unlevered securities. • $178.5 million in short term Agency P&I. Long term debt to equity target of 8x - 9x. • $14.7 billion in net REPO borrowings. • 8.4 x Q4 2014 shareholders’ equity. 6 Assets Duration Hedging Liquidity Leverage Information as of 3/20/2015.

 
ARMOUR Portfolio Strategy and Investment Methodology 7  Diversify Broadly • Diversification limits idiosyncratic pool risk. • Over 1300 cusips.  Highly Liquid Assets • Purchase those Agency securities that are highly liquid (easily traded and priced). • ARMOUR purchases “pass-through” securities. • No collateralized mortgage obligations (“CMOs”).  Diversified Sources • Source assets through a mix of direct purchases from: • Originators. • Dealer inventories. • Institutional investors.  Loan Analysis – Inelasticity vs. Elasticity • Credit work on non-credit assets. • Original and current loan balance. • Year of origination. • Originating company, third-party originators. • Loan seasoning. • Principal amortization schedule. • Original loan-to-value ratio. • Geography. • 73% of our 15yr MBS are between 85K – 175K loan balances.  Pool Analysis • NO TBA pools – Only specified pools. • Prepayment history. • Prepayment expectations. • Premium over par. • “Hedgability.” • Liquidity. Management has a focused and disciplined approach to evaluating assets for inclusion in the ARMOUR portfolio. ARMOUR employs a strong bias toward a ‘buy and hold’ strategy rather than a ‘trading’ strategy. ARMOUR will strategically sell assets when it believes market conditions warrant. Information as of 3/20/2015.

 
ARMOUR Portfolio and Derivatives Overview 8 Duration estimates are derived from third-party software. Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be predicted with certainty. If rates decline, the value of our derivatives will typically decline. Inversely, if rates increase, the value of our derivatives will typically increase. Information as of 3/20/2015. Portfolio value is based on independent third-party pricing. Portfolio information includes all forward settling trades. Some totals may not foot due to rounding. ARMs & Hybrids 0.81% 125.9$ 104.6% 105.5% 2.89/3.36 1.14 Agency Multifamily Ballooning in 120 Months or Less 13.08% 2,042.6$ 103.1% 105.4% 3.14/4.21 7.76 Fix d Rates Maturing in 120 Months or Less 0.10% 16.3$ 104.9% 107.6% 4.31/4.70 2.55 Fixed Rates Maturing Between 121 and 180 Months 42.60% 6,650.6$ 104.6% 106.0% 3.33/3.81 3.36 Fixed Rates aturing Between 181 and 240 onths 32.62% 5,093.2$ 106.1% 106.2% 3.66/4.17 3.09 Fixed Rates Maturing Between 241 and 360 Months 10.79% 1,684.5$ 106.3% 107.2% 3.90/4.38 4.60 Total or Weighted Average 100.00% 15,613.1$ 105.08% 106.1% 3.47/4.04 3.96 Weighted Average Purchase Price Weighted Average Current Market Price Weighted Average Net/Gross Coupon Estimated Effective Duration Using Current Values Current Value (millions) Agency Asset Class % of Total ARR Portfolio Agency Assets 4.02 Interest Rate Swaps & Eurodollar Futures -3.92 Net Balance Sheet Duration 0.10 Duration Contribution to Balance Sheet Assets 15,613.1$ 54.8% 77.1% Net Repo Balance 14,703.5$ 58.1% 81.9% Amount (millions) Tot l Hedge % (All hedges) Total Hedge % (Current Paying)

 
ARMOUR Hedge Detail 9 Information as of 3/20/2015. Some totals may not foot due to rounding. Derivative Type Remaining Term Weighted Average Remaining Term (Months) Notional Amount (millions) Weighted Average Rate Interest Rate Swap 0-12 Months 9 2,300.0$ 0.93 Interest Rate Swap 13-24 Months 15 1,225.0$ 1.64 Interest Rate Swap 25-36 Months 31 650.0$ 0.80 Interest Rate Swap 37-48 Months 0 -$ 0.00 Interest Rate Swap 49-60 Months 56 2,350.0$ 1.56 Interest Rate Swap 61-72 Months 0 -$ 0.00 Interest Rate Swap 73-84 Months 83 500.0$ 2.03 Interest Rate Swap 85-96 Months 93 1,900.0$ 2.10 Interest Rate Swap 97-108 Months 0 -$ 0.00 Interest Rate Swap 109-120 Months 118 1,000.0$ 2.66 Interest Rate Swap 121-132 Months 132 2,000.0$ 2.27 Interest Rate Swap 132-144 Months 132 100.0$ 2.21 Eurodollar Futures 0-6 Months 6 10.0$ 2.11 Total or Weighted Average 67 $ 12,035.0 1.73 Notional Amount (millions) : 3,475.0$ Weighted Average Starting Term (Months) : 12 Weighted Average Underlying Term (Months) : 110 Weighted Average Rate : 2.13 The table above includes forward starting swaps with the following characterisitcs:

 
ARMOUR Portfolio Constant Prepayment Rates (“CPR”) 10 ARMOUR expenses premium amortization monthly as it occurs. Constant Prepayment Rate (“CPR”) is the annualized equivalent of single monthly mortality (“SMM”). CPR attempts to predict the percentage of principal that will prepay over the next twelve months based on historical principal pay downs. CPR is reported on the 4th business day of the month for the previous month's prepayment activity.

 
ARMOUR REPO Composition 11 (1) ARMOUR has signed MRAs with 41 counterparties. Information as of 3/20/2015. Some totals may not foot due to rounding. 1 BNP Paribas Securities Corp. 1,119.6$ 7.6% 103 59 223 2 Wells Fargo Bank, N.A. 1,069.1$ 7.3% 32 25 31 3 J.P. Morgan Securities LLC 1,066.0$ 7.3% 138 34 53 4 Merrill Lynch, Pierce, Fenner & Smith Inc. 1,044.0$ 7.1% 90 68 88 5 Mitsubishi UFJ Securities (USA), Inc. 930.7$ 6.3% 87 50 83 6 Morgan Stanley & Co. LLC 844.5$ 5.7% 69 53 59 7 ICBC Financial Services LLC 812.2$ 5.5% 113 47 82 8 Citibank, N.A. 700.0$ 4.8% 366 296 360 9 The Bank of Nova Scotia 669.4$ 4.6% 75 60 91 10 Nomura Securities International, Inc. 633.4$ 4.3% 67 32 73 11 Barclays Capital Inc. 508.5$ 3.5% 92 78 84 12 The Bank of New York Mellon 500.0$ 3.4% 291 156 194 13 ABN AMRO Bank N.V. 481.6$ 3.3% 87 55 84 14 Daiwa Securities America Inc. 462.7$ 3.1% 74 52 83 15 ING Financial Markets LLC 439.9$ 3.0% 79 65 87 16 CRT Capital Group LLC 414.6$ 2.8% 60 4 4 17 South Street Securities LLC 347.6$ 2.4% 27 3 3 18 Royal Bank of Canada 342.7$ 2.3% 90 59 81 19 E D & F Man Capital Markets Inc. 329.9$ 2.2% 85 67 83 20 KGS-Alpha Capital Markets, L.P. 325.4$ 2.2% 64 36 88 21 UBS Securities LLC 309.7$ 2.1% 90 81 88 22 Mizuho Securities USA Inc. 284.6$ 1.9% 92 89 89 23 TD Bank, N.A. 255.9$ 1.7% 76 48 69 24 Citigroup Global Markets Inc. 205.1$ 1.4% 75 33 59 25 Pierpont Securities LLC 192.4$ 1.3% 90 72 88 26 Guggenheim Securities, LLC 142.5$ 1.0% 70 44 87 27 Credit Suisse Securities (USA) LLC 110.9$ 0.8% 92 90 91 28 Natixis Financial Products LLC 79.3$ 0.5% 88 49 49 29 Goldman, Sachs & Co. 45.6$ 0.3% 87 63 63 30 Deutsche Bank Securities Inc. 35.8$ 0.2% 60 21 21 Total or Weighted Average 14,703.5$ 100.0% 104 65 Weighted Average Original Term in Days Percentage of REPO Positions with ARMOUR Principal Borrowed (millions) REPO Counter-Party(1) Longest Remaining Term in Days Weighted Average Remaining Term in Days Weighted Average Repo Rate 0.38% Weighted Average Haircut 4.79% Debt to Quarter End Shareholders' Equity Ratio 8.4

 
12 www.armourreit.com ARMOUR Residential REIT, Inc. 3001 Ocean Drive Suite 201 Vero Beach, FL 32963 772-617-4340

 
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