ARMOUR Residential REIT, Inc. (NYSE: ARR and ARR PRC) (“ARMOUR” or
the “Company”) today announced the Company's second quarter 2020
financial information and provided further detail on the
substantially completed transition of its portfolio to focus
exclusively on agency-guaranteed mortgage backed securities
(“Agency MBS”).
June 30, 2020 Financial
Position
- ARMOUR's book value per common share was $11.11 per share.
- ARMOUR's liquidity, including cash and unencumbered securities,
was $540 million.
- ARMOUR's portfolio composition was 99% Agency MBS, including To
Be Announced ("TBA") Securities.
- ARMOUR's stockholders' equity totaled $851 million, including
the 7.00% Cumulative Redeemable Preferred C Stock ("Series C
Preferred") with liquidation preference totaling $133 million.
Common stock outstanding totaled 64,689,664 shares.
- ARMOUR's debt to equity ratio was 5.0 to 1 (based on repurchase
agreements divided by stockholders’ equity). Leverage, including
TBA Securities, was approximately 7.3 to 1.
Second Quarter 2020
Highlights
- ARMOUR Comprehensive Income of
$23.4 million represents $0.33 per common share.
- ARMOUR Core Income of $14.8 million
represents $0.19 per common share.
- ARMOUR resumed monthly common stock
dividends with a $0.09 per share dividend paid on June 29,
2020.
- ARMOUR announced common stock
dividend guidance on June 22, 2020 of $0.10 per share on a monthly
basis and confirmed on July 1, 2020 a $0.10 dividend for July,
payable July 30, 2020 to holders of record on July 15, 2020.
- ARMOUR acquired $2.4 billion of
Agency MBS and $650 million of TBA Securities during Q2.
The major drivers of the change in our financial
position during the second quarter were:
|
Second Quarter 2020 Total |
|
(in millions) |
Stockholders' Equity - Beginning |
$ |
786.2 |
|
Comprehensive Income
(1) |
|
Gain on MBS including TBA Securities |
34.1 |
|
Loss on interest rate swaps |
(26.0 |
) |
Net Interest Income |
23.1 |
|
Operating Expenses, net of Fee Waiver (2) |
(7.8 |
) |
Total Comprehensive
Income |
$ |
23.4 |
|
|
|
Capital
Activities |
|
Issuance of Common Stock |
49.9 |
|
Dividends and Other |
(8.3 |
) |
Stockholders' Equity -
Ending |
$ |
851.2 |
|
|
|
|
|
(1) Includes both realized and unrealized gains
and losses.(2) See discussion on page 2.
US financial markets began stabilizing in the
second quarter and ARMOUR undertook the process of rebuilding its
investment portfolio with the acquisition of $2.4 billion of Agency
MBS and $650 million of TBA Securities. The Company will
concentrate its portfolio activity in Agency MBS for the
foreseeable future.
ARMOUR designated Agency MBS purchased in the
second quarter as “trading securities” for financial reporting
purposes, and consequently, fair value changes for these
investments are reported in net income. The Company anticipates
continuing this designation for newly acquired Agency MBS positions
because it is more representative of ARMOUR’s results of operations
insofar as the fair value changes for these securities are
presented in a manner consistent with the presentation and timing
of the fair value changes of our hedging instruments. Fair value
changes for the legacy Agency MBS positions designated as
“available for sale” will continue to be reported in other
comprehensive income as required by generally accepted accounting
principles (“GAAP”).
Commencing with the second quarter of 2020 and
continuing until further notice, the Company’s external manager is
waiving 40% of its management fee. This waiver offset $2.9 million
of operating expenses in the quarter.
As market prices recovered and trading liquidity
improved throughout the second quarter, ARMOUR systematically
liquidated substantially all of its legacy portfolio of credit risk
transfer securities.
Condensed balance
sheet information (unaudited): |
June 30, 2020 |
|
(in millions) |
Assets |
|
Cash |
$ |
153 |
|
Cash collateral posted to
counterparties |
27 |
|
Investments in securities, at
fair value: |
|
Agency Securities |
5,186 |
|
Credit Risk and Non-Agency Securities |
66 |
|
Derivatives, at fair
value |
11 |
|
Accrued interest
receivable |
13 |
|
Prepaid and other |
3 |
|
Subordinated loan to
BUCKLER |
105 |
|
Total Assets |
$ |
5,564 |
|
|
|
Liabilities: |
|
Repurchase agreements |
4,238 |
|
Cash collateral posted by
counterparties |
8 |
|
Payable for unsettled
purchases |
444 |
|
Derivatives, at fair
value |
18 |
|
Accrued interest payable-
repurchase agreements |
1 |
|
Accounts payable and other
accrued expenses |
4 |
|
Total Liabilities |
$ |
4,713 |
|
|
|
Stockholders’ Equity: |
|
Additional paid-in
capital |
3,024 |
|
Accumulated deficit |
(2,370 |
) |
Accumulated other
comprehensive income |
197 |
|
Total Stockholders’
Equity |
$ |
851 |
|
Total Liabilities and
Stockholders’ Equity |
$ |
5,564 |
|
|
|
|
|
Core Income, Including Drop
IncomeCore Income (defined in more detail below) is a
non-GAAP measure defined as net interest income plus Drop Income
minus hedging costs and net operating
expenses. Core Income differs from GAAP net income and
total comprehensive income, which include gains and losses and
market value adjustments as described below.
For a portion of its Agency securities the
Company may enter into to-be-announced (TBA) forward contracts for
the purchase or sale of Agency Securities at a predetermined price,
face amount, issuer, coupon and stated maturity on an agreed-upon
future date, but the particular Agency Securities to be delivered
are not identified until shortly before the TBA settlement date.
The Company accounts for TBA Agency Securities as derivative
instruments if it is reasonably possible that it will not take or
make physical delivery of the Agency Securities upon settlement of
the contract. The Company may choose, prior to settlement, to move
the settlement of these securities out to a later date by entering
into an offsetting short or long position (referred to as a “pair
off”), net settling the paired off positions for cash, and
simultaneously purchasing or selling a similar TBA Agency Security
for a later settlement date. This transaction is commonly referred
to as a “dollar roll.” The Company accounts for TBA dollar roll
transactions as a series of derivative transactions.
Forward settling TBA contracts typically trade
at a discount, or “Drop,” to the regular settled TBA contract to
reflect the expected interest income on the underlying deliverable
Agency Securities, net of an implied financing cost, which would
have been earned by the buyer if the contract settled on the next
regular settlement date. When the Company enters into TBA
contracts to buy Agency Securities for forward settlement, it earns
this “Drop Income,” because the TBA contract is essentially a
leveraged investment in the underlying Agency Securities. The
amount of Drop Income is calculated as the difference between the
spot price of similar TBA contracts for regular settlement and the
forward settlement price on the trade date. The Company
generally accounts for TBA contracts as derivatives and Drop Income
is included as part of the periodic changes in fair value of the
TBA contracts that the Company recognizes currently in the Other
Income (Loss) section of its Consolidated Statement of
Operations.
Regulation G ReconciliationCore
Income, including Drop income excludes gains or losses from
securities sales and early termination of derivatives, market value
adjustments (including impairments) and certain non-recurring
expenses. The Company believes that Core Income is useful to
investors because it is related to the amount of dividends the
Company may distribute. However, because Core Income is an
incomplete measure of the Company’s financial performance and
involves differences from total comprehensive income (loss)
computed in accordance with GAAP, Core Income should be considered
as supplementary to, and not as a substitute for, the Company’s
total comprehensive income (loss) computed in accordance with GAAP
as a measure of the Company’s financial performance.
The elements of ARMOUR’s Core Income and a
reconciliation of that Core Income to the Company’s Total
Comprehensive Income appears below:
|
Second Quarter
2020(unaudited) |
|
(in millions) |
Net Interest Income |
$ |
23.1 |
|
Drop Income |
6.5 |
|
Less: Hedging Costs |
(7.0 |
) |
Operating Expenses, net of Fee Waiver |
(7.8 |
) |
Core
Income |
$ |
14.8 |
|
Less dividends on Preferred
Stock |
(2.3 |
) |
Core Income available
to common stockholders |
$ |
12.5 |
|
Core Income per Common
Share |
$ |
0.19 |
|
|
|
Core Income |
$ |
14.8 |
|
Gains (losses): |
|
MBS |
15.4 |
|
TBA Securities |
12.3 |
|
Interest Rate Hedges |
(19.1 |
) |
Total Comprehensive
Income |
$ |
23.4 |
|
|
|
|
|
Company UpdateAt the close of business on July
21, 2020:
- Book value per Common share was
estimated to be $11.24.
- ARMOUR's liquidity, including cash
and unencumbered securities, exceeded $507 million.
- ARMOUR's securities portfolio
included approximately $7.1 billion of Agency MBS (including TBA
Securities).
- ARMOUR's debt to equity ratio
(based on repurchase agreements divided by stockholders' equity)
was approximately 5.3 to 1. Leverage, including TBA Securities was
approximately 7.7 to 1.
COVID-19 PandemicThe novel
COVID-19 pandemic has been unprecedented and continues to have a
real-time impact on all business sectors. The extent of the
ultimate impact of the COVID-19 pandemic on the Company's
operational and financial performance will depend on various
developments, including the duration of the outbreak and the spread
of the virus and the federal government's and states' responses to
the virus, which cannot be reasonably predicted at this time. While
the Company is not able to estimate the future impact of the
COVID-19 pandemic at this time, it could continue to materially
affect the Company’s future financial and operational results.
DividendsARMOUR paid a monthly
cash dividend of $0.09 per share of the Company’s common stock on
June 29, 2020 to holders of record as of June 15, 2020. ARMOUR
previously announced guidance on its monthly common stock dividends
for Q3 2020, raising the dividend rate to $0.10 per common share.
July common stock dividends payable July 30, 2020 to holders of
record on July 15, 2020 were announced on July 1, 2020 and August
dividends payable August 28, 2020 to holders of record on
August 17, 2020 were announced on July 22, 2020. ARMOUR’s
Board of Directors will evaluate the Company’s results, financial
position, real estate investment trust (“REIT”) tax requirements,
and overall market conditions as the quarter progresses. In order
to maintain ARMOUR’s tax status as a REIT, the Company is required
to timely distribute substantially all of its ordinary REIT taxable
income for the tax year.
ARMOUR previously announced monthly dividends on
its Series C Preferred Stock for Q3 2020 at the rate of $0.14583
per share to holders of record on July 15, 2020, August 15, 2020
and September 15, 2020, payable on July 27, 2020, August 27, 2020
and September 28, 2020, respectively.
Conference CallAs previously
announced, the Company will provide an online, real-time webcast of
its conference call with equity analysts covering Q2 2020 operating
results on Thursday, July 23, 2020, at 8:30 a.m. (Eastern Time).
The live broadcast will be available online and can be accessed at
https://www.webcaster4.com/Webcast/Page/896/35644. To monitor the
live webcast, please visit the website at least 15 minutes prior to
the start of the call to register, download, and install any
necessary audio software. An online replay of the event will
be available on the Company’s website at www.armourreit.com and
continue for one year.
ARMOUR Residential REIT,
Inc.ARMOUR invests primarily in fixed rate residential,
adjustable rate and hybrid adjustable rate residential
mortgage-backed securities issued or guaranteed by U.S.
Government-sponsored enterprises (“GSEs”) or guaranteed by the
Government National Mortgage Association. ARMOUR is externally
managed and advised by ARMOUR Capital Management LP, an investment
advisor registered with the Securities and Exchange Commission
(“SEC”).
Safe HarborThis press release
includes “forward-looking statements” within the meaning of the
safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Actual results may differ from
expectations, estimates and projections and, consequently, do not
rely on these forward-looking statements as predictions of future
events. Words such as “expect,” “estimate,” “project,”
“budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,”
“will,” “could,” “should,” “believes,” “predicts,” “potential,”
“continue,” and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements
involve significant risks and uncertainties that could cause the
actual results to differ materially from the expected results.
Additional information concerning these, and other risk factors are
contained in the Company’s most recent filings with the
SEC. All subsequent written and oral forward-looking
statements concerning the Company are expressly qualified in their
entirety by the cautionary statements above. The Company
cautions readers not to place undue reliance upon any
forward-looking statements, which speak only as of the date
made. The Company does not undertake or accept any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statements to reflect any change in their
expectations or any change in events, conditions or circumstances
on which any such statement is based, except as required by
law.
Additional Information and Where to Find
ItInvestors, security holders and other interested persons
may find additional ARMOUR's most recent Company Update and
information regarding the Company at the SEC’s Internet site at
www.sec.gov, or the Company website www.armourreit.com or by
directing requests to: ARMOUR Residential REIT, Inc., 3001 Ocean
Drive, Suite 201, Vero Beach, Florida 32963, Attention: Investor
Relations.
CONTACT:
investors@armourreit.comJames R. MountainChief Financial
OfficerARMOUR Residential REIT, Inc.(772) 617-4340
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