ARMOUR RESIDENTIAL REIT, INC. - ARMOUR's stockholders' equity totaled
$892 million , including:- Common stock outstanding of 64,730,155 shares, and
- 7.00% Cumulative Redeemable Preferred C Stock ("Series C Preferred Stock") with liquidation preference totaling
$133 million .
- ARMOUR's book value per common share was
$11.74 per share. - ARMOUR's liquidity, including cash and unencumbered securities, was
$571 million . - ARMOUR's portfolio composition was 100% Agency MBS, including To Be Announced ("TBA") Securities.
- ARMOUR's debt to equity ratio was 5.1 to 1 (based on repurchase agreements divided by stockholders’ equity). Leverage, including
TBA Securities , was approximately 7.3 to 1.
Q3 2020 Highlights
- ARMOUR Comprehensive Income of
$61.9 million represents$0.91 per common share. - ARMOUR Core Income of
$25.4 million represents$0.35 per common share. - ARMOUR paid common stock dividends of
$0.10 per share per month.
The major drivers of the change in the Company's financial position during Q3 were:
| Q3 2020 | ||||
| (in millions) | ||||
| Stockholders' Equity – Beginning | $ | 851.2 | ||
| Comprehensive Income (1) | ||||
| Gain on MBS including | 34.2 | |||
| Gain on interest rate swaps | 12.0 | |||
| Net Interest Income | 22.8 | |||
| Operating Expenses, net of Fee Waiver (2) | (7.1 | ) | ||
| Total Comprehensive Income | 61.9 | |||
| Capital Activities | ||||
| Issuance of Common Stock | 1.0 | |||
| Dividends | (21.9 | ) | ||
| Stockholders' Equity – Ending | $ | 892.2 | ||
(1) Includes both realized and unrealized gains and losses.
(2) See discussion on page 2.
US financial markets continued to stabilize in Q3 and ARMOUR continued the process of rebuilding its investment portfolio with the liquidation of its remaining CRT positions. The Company will concentrate its portfolio activity in Agency MBS for the foreseeable future.
ARMOUR designated Agency MBS purchased in Q2 and Q3 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 the Company's 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”).
As previously reported, and continuing until further notice, the Company’s external manager is waiving 40% of its management fee. This waiver offset
As market prices recovered and trading liquidity improved throughout Q3, ARMOUR systematically liquidated the remainder of its legacy portfolio of credit risk transfer securities.
| Condensed balance sheet information (unaudited): | 2020 | |||
| (in millions) | ||||
| Assets | ||||
| Cash | $ | 251 | ||
| Cash collateral posted to counterparties | 17 | |||
| Investments in securities, at fair value: | ||||
| 5,546 | ||||
| Derivatives, at fair value | 10 | |||
| Accrued interest receivable | 13 | |||
| Prepaid and other | 2 | |||
| Subordinated loan to BUCKLER | 105 | |||
| Total Assets | $ | 5,944 | ||
| Liabilities: | ||||
| Repurchase agreements | 4,511 | |||
| Cash collateral posted by counterparties | 4 | |||
| Payable for unsettled purchases | 519 | |||
| Derivatives, at fair value | 13 | |||
| Accrued interest payable- repurchase agreements | 1 | |||
| Accounts payable and other accrued expenses | 4 | |||
| Total Liabilities | $ | 5,052 | ||
| Stockholders’ Equity: | ||||
| Additional paid-in capital | 3,025 | |||
| Accumulated deficit | (2,333 | ) | ||
| Accumulated other comprehensive income | 200 | |||
| Total Stockholders’ Equity | $ | 892 | ||
| Total Liabilities and Stockholders’ Equity | $ | 5,944 | ||
Core Income, Including Drop Income
Core 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 TBA forward contracts for the purchase or sale of
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
Regulation G Reconciliation
Core 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:
| Q3 2020 (unaudited) | ||||
| (in millions) | ||||
| Net Interest Income | $ | 22.8 | ||
| Drop Income | 11.2 | |||
| Less: Hedging Costs | (1.5 | ) | ||
| Operating Expenses, net of Fee Waiver | (7.1 | ) | ||
| Core Income | $ | 25.4 | ||
| Less dividends on Preferred Stock | (2.3 | ) | ||
| Core Income available to common stockholders | $ | 23.1 | ||
| Core Income per Common Share | $ | 0.35 | ||
| Core Income | $ | 25.4 | ||
| Gains (losses): | ||||
| MBS | 18.5 | |||
| 4.5 | ||||
| Interest Rate Hedges | 13.5 | |||
| Total Comprehensive Income | $ | 61.9 | ||
Company Update
At the close of business on
- Book value per Common share was estimated to be
$11.62 . - ARMOUR's liquidity, including cash and unencumbered securities, exceeded
$507 million . - ARMOUR's securities portfolio included approximately
$7.5 billion of Agency MBS (includingTBA Securities ). - ARMOUR's debt to equity ratio (based on repurchase agreements divided by stockholders' equity) was approximately 5.5 to 1. Leverage, including
TBA Securities , was approximately 7.9 to 1.
COVID-19 Pandemic
The COVID-19 pandemic 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' future 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.
Dividends
ARMOUR paid monthly cash dividends of
ARMOUR paid monthly cash dividends of
Conference Call
As previously announced, the Company will provide an online, real-time webcast of its conference call with equity analysts covering Q3 2020 operating results on
ARMOUR invests primarily in fixed rate residential, adjustable rate and hybrid adjustable rate residential mortgage-backed securities issued or guaranteed by
Safe Harbor
This 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, you should 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 its 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 It
Investors, security holders and other interested persons may find ARMOUR's most recent Company Update and additional information regarding the Company at the SEC’s internet site at www.sec.gov, or the Company website at www.armourreit.com or by directing requests to:
CONTACT: investors@armourreit.com
Chief Financial Officer
(772) 617-4340
2020 GlobeNewswire, Inc., source
