GAAP Income of $47.7 Million, or $1.02
Per Common ShareCore Income of $31.2 Million, or
$0.64 Per Common Share
ARMOUR Residential REIT, Inc. (NYSE: ARR, ARR PrA, and ARR PrB)
(“ARMOUR” or the “Company”) today announced financial results for
the quarter ended September 30, 2018.
Q3 2018 Highlights and Financial
Information
- $47.7 million ($1.02 per Common share) net income under
Generally Accepted Accounting Principles (“GAAP”) based on
42,435,624 weighted average diluted Common shares outstanding
- $31.2 million ($0.64 per Common share) Core Income including
“Drop Income” (as defined below), which represents an annualized
return of 10.3% based on stockholders’ equity at the beginning of
the quarter
- $0.57 per share Common dividends for Q3 at the rate of $0.19
per month
- Core Income exceeded dividends paid for the ninth straight
quarter
- 3.5% average yield on assets and 1.6% average net interest
margin
- 6.1% annualized average principal repayment rate (“CPR”)
- 1.6% total economic return, representing dividends plus change
in stockholders' equity per Common share
- 0.9% total shareholder return, representing dividends plus
change in New York Stock Exchange price per Common share
At September 30, 2018
- $22.45 NYSE closing price per Common share
- $1.2 billion stockholders’ equity based on period-end stock
outstanding of:
- 42,335,525 shares of Common Stock
- 2,180,572 shares of 8.250% Series A Cumulative Redeemable
Preferred (“Preferred A”)
- 6,369,269 shares of 7.875% Series B Cumulative Redeemable
Preferred (“Preferred B”)
- $23.49 stockholders’ equity per Common share, a decrease of
(0.8)% from June 30, 2018
- $8.0 billion portfolio of securities, including $0.9 billion of
Credit Risk and Non-Agency Securities
- $1.3 billion notional amount of (“to-be-announced”) TBA Agency
Securities, includes $0.1 billion notional amount of forward
settling TBA Agency Securities
- $7.1 billion notional amount of interest rate swaps
- 5.97 to 1 “leverage” (debt to stockholders’ equity); 7.01 to 1
“implied leverage,” reflecting net TBA Agency Securities purchased
forward and excluding debt related to forward settling sales
- $639.3 million of liquidity in cash and unpledged securities
(52.9% of stockholders’ equity)
Updated Information
- Common dividends per share of $0.19 payable on October 29,
2018, and on November 27, 2018, as discussed below
- Book value at October 23, 2018, was estimated to be $22.42 per
Common share outstanding
- Additional updated information on the Company’s investment,
financing and hedge positions can be found in ARMOUR Residential
REIT, Inc.’s most recent “Company Update.” ARMOUR posts unaudited
and unreviewed Company Updates on www.armourreit.com.
GAAP Net Income and Comprehensive
IncomeFor the purposes of computing GAAP net income, the
change in fair value of the Company’s derivatives is reflected in
current period net income, while the change in fair value of its
Agency Securities is reflected in comprehensive income. GAAP net
income for Q3 2018 was approximately $47.7 million, including
mark-to-market gains (losses) on derivatives and Credit Risk and
Non-Agency Securities of $54.2 million and $(2.1) million,
respectively, and $3.7 million of realized gains on
derivatives.
Core Income, Including Drop
IncomeCore Income, including Drop Income, for the quarter
ended September 30, 2018, was approximately $31.2
million, exceeding total dividend payments to stockholders for the
quarter of $28.5 million. Core Income, including Drop Income, is a
non-GAAP measure and is defined as net income excluding impairment
losses, gains or losses on sales of securities and early
termination of derivatives, unrealized gains or losses on
derivatives and certain non-recurring expenses, plus Drop Income
(as defined below). Core Income may differ from GAAP net
income, which includes the unrealized gains or losses of the
Company’s derivative instruments and the gains or losses on Agency,
Credit Risk and Non-Agency and Interest-only Securities.
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 that 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.
DividendsThe Company paid
dividends of $0.19 per Common share of record for each month in Q3
2018. Payments to Common stockholders for Q3 2018 were
approximately $24.2 million. The Company also paid monthly
dividends of $0.171875 per outstanding share of 8.250% Series A
Cumulative Redeemable Preferred Stock and $0.1640625 per
outstanding share of 7.875% Series B Cumulative Redeemable
Preferred Stock, resulting in aggregate payments to preferred
stockholders of approximately $4.3 million in Q3 2018.
Common dividends in the amount of $0.19 per
Common share are payable on October 29, 2018, to holders of
record on October 15, 2018. Common dividends in the amount of $0.19
per Common share are payable on November 27, 2018, to holders
of record on November 15, 2018. The board of directors
determines the Common share dividend rate based upon the REIT
requirements and other relevant considerations. Dividends in excess
of current tax earnings and profits for the year (including any
amounts carried forward from prior years) will generally be treated
as non-taxable return of capital to Common stockholders.
Core Income has exceeded dividends paid by $30.1
million in the aggregate over nine straight quarters, or $0.71 per
Common share outstanding at September 30, 2018.
Per Share AmountsPer Common
share amounts are net of applicable Preferred Stock dividends and
liquidation preferences.
PortfolioAs
of September 30, 2018, the Company’s Agency Securities
portfolio consisted of Fannie Mae, Freddie Mac and Ginnie Mae
mortgage securities, substantially all of which are fixed rate
securities, and was valued at $7.0 billion on a trade date basis.
The Company’s Credit Risk and Non-Agency Securities portfolio was
valued at $0.9 billion and the Company’s TBA Agency Securities
valued at $1.3 billion. During Q3 2018, the annualized yield
on the Company’s MBS portfolio (including TBA Agency
Securities) was 3.46%, and the annualized cost of funds
on average liabilities (including realized cost of hedges) was
1.82%, resulting in a net interest spread of 1.64% for Q3 2018.
Portfolio Financing, Leverage and
Interest Rate HedgesAs of September 30, 2018,
the Company financed its mortgage-backed securities portfolio with
approximately $7.2 billion of borrowings under repurchase
agreements. The Company’s leverage ratio as of September 30,
2018, was 5.97 to 1 (7.01 to 1, including TBA Agency Securities
purchased forward and excluding debt related to forward settling
sales). As of September 30, 2018, the Company’s liquidity
totaled approximately $639.3 million, consisting of approximately
$266.7 million of cash, plus approximately $372.6 million of
unpledged securities (including securities received as collateral).
As of September 30, 2018, the Company’s repurchase agreements
had a weighted-average maturity of approximately 16 days, an
average rate of 2.4% and a haircut of 5.8%.
The Company had a notional amount of various
maturities of interest rate swap contracts of approximately $7.1
billion with a weighted average swap rate of 1.9%.
Regulation G ReconciliationCore
Income excludes impairment losses, gains or losses on sales of
securities and early termination of derivatives, unrealized gains
or losses on derivatives and certain non-recurring expenses, plus
Drop Income. 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 net income computed in accordance with
GAAP, Core Income should be considered as supplementary to, and not
as a substitute for, the Company’s net income computed in
accordance with GAAP as a measure of the Company’s financial
performance.
The following tables reconcile the Company’s
results from operations to Core Income and Core Income per Common
share for the quarter ended September 30, 2018 (dollar amounts
in millions, except per share amounts):
|
|
Core Income |
|
|
(in millions) |
GAAP net income |
|
$ |
47.7 |
|
Book to tax differences: |
|
|
Credit Risk and Non-Agency Securities |
|
1.8 |
|
Interest-only Securities |
|
(0.5 |
) |
U.S. Treasury Securities |
|
0.1 |
|
Changes in interest rate contracts |
|
(56.5 |
) |
Loss on Security Sales |
|
31.1 |
|
Drop Income |
|
7.5 |
|
Core Income |
|
$ |
31.2 |
|
Core Income |
|
$ |
31.2 |
|
Dividends on Preferred Stock |
|
(4.3 |
) |
Core Income available to common stockholders |
|
$ |
26.9 |
|
Common shares outstanding |
|
42.3 |
|
Core Income Per Common Share |
|
$ |
0.64 |
|
Common StockAs of
September 30, 2018, there were 42,335,525 Common shares
outstanding.
The following table shows the changes in
stockholders’ equity per Common share during the quarter ended
September 30, 2018:
Stockholders’ equity per Common share - June 30, 2018 |
|
$ |
23.68 |
|
Core Income |
|
0.64 |
|
Investment net loss |
|
(0.26 |
) |
Common stock dividends |
|
(0.57 |
) |
Stockholders’ equity per Common share - September 30, 2018 |
|
$ |
23.49 |
|
Conference CallAs previously announced, the
Company will provide an online, real-time webcast of its conference
call with equity analysts covering Q3 2018 operating results on
Thursday, October 25, 2018, at 10:00 a.m. (Eastern Time). The live
broadcast will be available online and can be accessed at
https://www.webcaster4.com/Webcast/Page/896/27998. 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. In addition, ARMOUR
invests in other securities backed by residential mortgages for
which the payment of principal and interest is not guaranteed by a
GSE or government agency. 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 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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