Q3 2023 ARMOUR Residential REIT Inc Earnings Call
Good morning, and welcome to armour residential REIT third quarter 2023 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad after.
Today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Jim Mountain Chief.
Financial Officer. Please go ahead.
Thank you drew.
Thank you to all of you for joining US this morning to discuss <unk> third quarter 2023 results today I'm joined by Armours Co Ceos, Scott Ulm, and Jeff Zimmer and our CIO Mark Gruber.
By now everyone has access to <unk> earnings release, which can be found on our website www armory dot com.
This conference call includes forward looking statements, which are intended to be subject to the safe Harbor protection provided by the private Securities Litigation Reform Act of $19 95.
The risk factors section of Armours periodic reports filed with the Securities and Exchange Commission describe certain factors beyond <unk> control that could cause actual results to differ materially from those expressed in or implied by these forward looking statements.
Those periodic filings can be found on the Sec's website at Www SEC Gov.
All of today's forward looking statements are subject to change without notice, we disclaim any obligation to update them unless required by law.
Also today's discussion refers to certain non-GAAP measures.
These measures are reconciled with comparable GAAP measures in our earnings release.
An online replay of this conference call will be available on our website shortly and will continue for one year.
On September 29, 2023 armour completed the previously announced one for five reverse stock split.
All of the common share and per share amounts reflect the reverse stock split.
Armours Q3, GAAP net loss was 179 2 million.
Net interest income was $3 $6 million.
Distributable earnings available to common stockholders was $50 $2 million or $1 eight per common share.
This non-GAAP measure is defined as net interest income plus TBA drop income adjusted for the net coupon effective interest rate swaps and futures contracts minus.
<unk> operating expenses net of management fee waivers.
Asset yield of 465% less cost of funds of 292% resulted in a net interest margin of 173% for the quarter.
Armour capital management is continuing to waive a portion of their management fees. They waved 165 million for Q3, which offsets operating expenses.
The waiver will continue until further notice.
Armour paid monthly common stock dividends per share of <unk> 40 for.
For a total of $1 20 per share for the quarter.
We previously announced that we will maintain the 40 <unk> per share common monthly dividend rate for the remainder of 2023.
We prioritize maintaining our common share dividend appropriate for the intermediate term rather than focusing on short term market fluctuations.
We expect to provide dividend guidance in late December which will reflect our best understanding of current market conditions and outlook at that time.
Taken together with contractual dividends on preferred stock armor has made cumulative distributions to stockholders approaching $2 $2 billion.
Unknown Executive: Good morning and welcome to ARMOUR Residential REIT's third quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing star than zero on your telephone keypad after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star then one on your telephone keypad to withdraw your question. Please press star than two.
Over our history.
During the third quarter, we issued $7 million 628578 shares under our common stock ATM program.
That raised $191 4 million in capital after fees and expenses. This represents an average net proceeds of $25 nine per share.
We also repurchased fractional shares for $233000 in connection with the reverse stock split.
We have historically been active repurchasing armour common shares in the open market when trading price dislocation opportunities present themselves.
Unknown Executive: Please note this event is being recorded.
James Mountain: I would now like to turn the conference over to Jim Mountain, be financial officer. Please go ahead. Thank you Drew and thank you to all of you for joining this this morning to discuss ARMOUR's third quarter 2023 results.
Armours Board of directors has increased the company's stock repurchase authority to two 5 million common shares effective Monday October 30th when our current blackout period ends.
James Mountain: Today I'm joined by ARMOUR's co CEOs Scott Ulm and Jeff Zimmer and our CIO, Mark Gruber. By now everyone has access to ARMOUR's earnings release which can be found on our website, www.armoury.com. This conference call includes forward looking statements which are intended to be subject to the safe harbor protection provided by the private security litigation reform act of 1995. The risk factors section of ARMOUR's periodic reports filed with the Securities and Exchange Commission describe certain factors beyond ARMOUR's control that could cause actual results to differ materially from those expressed in or implied by these forward looking statements.
Quarter end book value was $21 73 per common share the treasury and mortgage markets have continued to be highly volatile since then.
As of Tuesday Night October 24th we estimated our book value to be approximately $17 95 per common share.
Now, let me turn the call over to co Chief Executive Officer, Scott All Scott.
Thanks, Jeremy.
The end of the third quarter and beginning of the fourth quarter presented some of the most difficult conditions for mortgage backed securities since the onset of COVID-19 in March of 2020.
We've seen a significant decline in MBS prices, primarily because of the nearly 125 basis point increase in 10 year Treasury yields trough to peak since June 30.
James Mountain: Those periodic filings can be found on the SEC's website at www. SEC.gov. All of today's forward looking statements are subject to change without notice. We display many obligations to update them unless required by law. Also today's discussion refers to certain non-GAP measures. These measures are reconciled with comparable gap measures in our earnings release.
The widening in OIS caused mortgage assets to under pro form similar duration treasuries even further.
As a result, they have been broad broader investment investor redemptions in various bond funds, adding to the significant price pressures in the agency MBS market.
We believe that much of the selling is driven by investors existing overweight exposure to mortgage allocations relative to other investments.
Our current book value of $17 95.
Unknown Executive: An online replay of this conference call will be available on our website shortly and will continue for one year.
October 24th fully reflects this decline in agency mortgage prices. However, the market value decline of <unk> common shares seems to have substantially overshot the spoke valuable but.
James Mountain: On September 29, 2023, ARMOUR completed the previously announced one for five reverse stock split. All of the common share and per share amounts reflect the reverse stock split. ARMOUR's Q3 gap net loss was $179.2 million. Net interest income was $3.6 million. Distributable earnings available to common stockholders was $50.2 million or $1.8 per common share. This non-GAP measure is defined as net interest income plus TBA drop income adjusted for the net coupon effect of interest rate swaps and futures contracts minus operating expenses net of management fee waivers.
It's important to note against this backdrop, but the market is offering once in a decade opportunities to invest in agency MBS with compelling returns and no appreciable credit risk despite.
Despite the tough market conditions recently, we remain very constructive.
And its potential as we move towards the end of the fed's tightening cycle.
We continue to assess share repurchases when we trade significantly below book value.
We've increased our authorized repurchase authority effective next week as always we need to balance value and historically cheap MBS against the accretion available from below book stock repurchases as well as liquidity on balance sheet.
In response to the increased market volatility armor took measured steps towards a more conservative portfolio risk profile in order to safeguard our capital turbulent environment. These steps included a 25% reduction of our agency MBS dust position we.
James Mountain: As at yield of 4.65% less cost the funds of 2.92% resulted in a net interest margin of 1.73% for the quarter. ARMOUR capital management is continuing to waive a portion of their management fees. They waive $1.65 million for Q3, which offsets operating expense. The Weaver will continue until further notice. ARMOUR paid monthly common stock dividends per share of 40 cents for a total of $1.20 per share for the quarter. We previously announced that we will maintain the 40 cents per share common monthly dividend rate for the remainder of 2023. We prioritized maintaining a common share dividend appropriate for the intermediate term rather than focusing on short-term market fluctuations.
We've long valued how our industrial allocation bolsters bolt the convexity of the diversification of our agency MBS portfolio.
While we acknowledged our spreads are at recent Wides, we execute these trades due to outperformance versus MBS pools of loans to us.
We sold lower coupon TBA position against our conventional seasoned loan balance pools to rotate into higher coupon Ginnie Mae to <unk> and pools, improving the duration portfolio.
Profile of the portfolio through the shorter cash flows of gin and collateral.
They are explicit U S government guaranteed pools, a zero percent risk weighting on par with U S treasuries and make some particularly attractive to banks and overseas investors.
This trade brought our overall exposure to the Ginnie two sector to $1 5 billion or 16% of the two.
James Mountain: We expect to provide dividend guidance in late December which will reflect our best understanding of current market conditions and outlooks at that time. Taken together with contractual dividends on preferred stock, ARMOUR has made cumulative distributions to stockholders approaching $2.2 billion over our history. During the third quarter, we issued $7,628,578 shares under our common stock ATM program. That raised $191.4 million in capital after fees and expenses. This represents an average net proceeds of $25.9 per share. We also repurchase fractional shares for $233,000 in connection with the reverse stock split. We have historically been active repurchasing ARMOUR common shares in the open market when trading price dislocation opportunities present themselves.
<unk> portfolio of market value.
Four.
We also sold four four and a half and 5% coupon <unk> pools.
Shielded from supply by the FDIC and organic new mortgage issuance. These belly coupons have outperformed on a relative basis. We plan to eventually reinvest these proceeds into more attractive higher coupons with higher yields and wider spread characteristics.
We rebalanced nearly all of our cleared short duration swaps and treasury futures in the 10 year <unk> swap hedges.
This shifted.
They've duration to longer tenors at a time when the 210 spread was inverted by more than negative 100 basis points.
We also added a $700 million in 10 year Treasury short positions. This timely strategic shift to enhanced our portfolio of resilience to rise in treasury yields and MBS duration extension, while improving our liquidity.
James Mountain: ARMOUR's Board of Directors has increased the company's stock repurchase authority to $2.5 million common shares effective Monday October 30th when our current blackout period ends. Quarter-inch book value was $21.73 per common share. The Treasury and mortgage markets have continued to be highly volatile since then.
All in these trades allowed our portfolio to be more flexible in the face of a less predictable market environment.
The portfolio is implied leverage and duration currently sit at seven nine times and nine years, respectively.
We expect selling pressures to begin to subside and this risk profile should benefit from even a modest improvement in current market conditions. Additionally, armour maintains healthy levels of available liquidity.
James Mountain: As of Tuesday night October 24th, we estimated our book value to be approximately $17.95 per common share.
Despite seasonal effects driving CPR is marginally higher the overall mortgage refinancing activity remains at historically low prepayment levels are.
Scott Ulm: Now let me turn the call over to co-chief executive officer Scott Ohm. Scott. Thanks, Jim.
Armours average prepayment rate for all MBS assets in the third quarter was $5 three CPR and it's still very low for two CPR in October.
Scott Ulm: The end of the third quarter and beginning of the fourth quarter presented some of the most difficult conditions for mortgage back security since the onset of COVID-19 in March of 2020. We've seen a significant decline in MBS prices primarily because of a nearly 125 basis point increase in 10 Treasury yields dropped to peak since June 30th. The widening in OAS caused mortgage assets down to perform similar duration creditors even further. As a result, there have been broad broader investment investor redemptions in various bond funds adding to the significant price pressures in the agency MBS market.
With our assets now priced on average seven to nine points below par any prepayment activity in the portfolio is accretive to book value and is welcome to current prices.
Armour continues to fund just over 50% of its borrowings through our broker dealer affiliate Buckler securities with repo generally priced around sofa, plus 15 basis points.
In late August prior to most of the negative price action armored gave guidance that we intended to maintain the same <unk> 40 per common share monthly dividends through the fourth quarter. The company filed through by declaring common dividends for October November and December on October <unk>.
Scott Ulm: We believe that much of the selling is driven by investors existing overweight exposure to mortgage allocations relative to other investments. Our current book value of $17.95 as of October 24th fully reflects this decline in agency mortgage prices. However, the market value of decline of Armory common shares seems to have substantially overshot this book value movement.
The resulting dividend rate is extremely high for conditions today, a level beyond what can be earned with reasonable risk.
We are committed to paying the previously announced Q4 dividends. We will also be carefully considering market conditions and outlook through the remainder of the fourth quarter, we expect to provide guidance on future dividends in late December which will reflect the company's best assessment for the intermediate term at that time.
Scott Ulm: It's important to note against this background that the market is offering once in a decade opportunities to invest in agency MBS with compelling returns and no appreciable credit risk. Despite the tough market conditions recently, we remain very constructive of the MBS market and is potential as we move towards the end of the dense tightening cycle. We continue to assess shared repurchases when we trade significantly below book value. We have increased our authorized repurchase authority effective next week. As always, we need to balance the value in a historically cheap MBS against the accretion available from below book stockpoury purchases, as well as liquidity up balance sheet.
Concludes my remarks.
Do we have any questions from people on the line.
Yes, we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you'd like to withdraw your question. Please.
Star then two at this time, we will pause momentarily to assemble our roster.
Scott Ulm: In response to the increased market volatility, ARMOUR took the measured steps towards a more conservative portfolio risk profile in order to see further capital has turned on fire. These steps included a 25% reduction of our agency CMBS dust position. We've long valued our dust allocation bolsters both with convexity and the diversification of our agency MBS book. While we acknowledge dust spreads are at recent wise, we execute these trades due to dust out performance versus MBS bulls and last two months.
The first question comes from Trevor Cranston with JMP Securities. Please go ahead.
Alright, thanks, good morning.
Can you guys talk about how youre thinking about the interest rates markets and specifically the risk of.
10 year yields continuing to rise.
And if we weren't to see that scenario is generally how do you think we'd see MBS performance backdrop. Thanks.
Scott Ulm: We sold lower coupon TBA position against our conventional season loan balance rules to rotate into higher coupon in May to TBAs and pools, improving the duration profile profile of the portfolio through the shorter cash flows of gin and collateral. There's listed US government guarantee gives us pools a 0% risk waiting on par with US Treasuries and makes them particularly attractive to banks and overseas investors. This trade brought our overall exposure to the ginning two sector to 1.5 billion or 16% of the total portfolio market value has a 10.24.
So good morning.
We have reduced our exposure to <unk> was that the dollar value of about one basis point move in rates considerably from where it was Florida five months ago on the long end as Scott.
Said in his statement.
Our exposure on the short end.
Is greater than on the long end such that if you have a steepening or in a bear market, meaning the 10 year rates go up.
We are in a better position that we would have been.
On the first day of the third quarter.
Scott Ulm: We also sold four, four and a half and 5% coupon TBAs and pools. These are shielded from supply by the FDIC and organic new mortgage issuance. These belly coupons have outperformed on a relative basis. We plan to eventually reinvest these proceeds into more attractive higher coupons with higher yields and wider spread care to instance. We rebalance nearly all of our cleared short duration swaps and treasury futures into 10-year so far slot pages.
The mortgages.
Alright, and the interest in place here, because we are seeing fund redemptions and is something we haven't experienced or talked about.
In a decade.
The last time I talked about that was 2008 910.
And one redemptions are without regard to the value of mortgage backed securities. It's usually the large.
Okay.
The money management houses that that run these funds people redeem and they have to sell so until fund redemptions stop.
Scott Ulm: This shifted negative duration to longer tenors at a time when the two 10 spread was inverted by more than negative 100 basis points. We also added 700 million and 10-year correctly short positions. This timely strategic shift enhanced our portfolio resilience to rising treasury yields and MBS duration extension while improving our liquidity. All in, these trades allowed our portfolio to be more flexible in the face of a less predictable market environment. The portfolios implied leverage and duration currently sit at 7.9 times and 0.9 years respectively.
We imagine that mortgages are going to be.
Fairly flat to EBIT, perhaps a little wider however.
There will be appointed would fund fund redemptions will slow down.
And therefore, we don't know who the sellers would be of mortgages and on the margin there will be likely be buyers.
So our perspective on mortgages, while we thought at the end of the second quarter they were exceedingly attractive.
Scott Ulm: We expect selling pressures to begin to subside and this risk profile should benefit from even a modest improvement in current market conditions. Additionally, armor maintains healthy levels of available liquidity. Despite seasonal effects driving CPR is marginally higher, the overall mortgage refinancing activity remains at historically low payment levels. Armor's average prepayment rate for all in the SS assets in the third quarter was 5.3 CPR and is still very low 4.2 CPR in October.
They are exceedingly more attractive today.
Our levered bond portfolio, we intend to continue to be a levered mortgage backed agency security bond portfolio.
But we are cognizant that the risks are out there. However, travel we think theyre less than perhaps what they were four to six weeks ago I hope that addresses your question and if not come back with a follow up.
Yeah that was very helpful.
And I guess one more so.
As you guys are thinking about.
Scott Ulm: With our assets now priced on average 7 to 9 points below par, any prepayment activity in the portfolio is a creativity book value and there's welcome to current prices. Armor continues to fund just over 50% of its powerings through our broker dealer affiliate bucklage securities with repo generally priced around so for plus 15 basis.
The appropriate dividend level heading into the end of the year could.
Could you can you just comment sort of on generally on where you see roe's.
Third new capital deployments today at all.
Average levels you're comfortable with.
Hey, Jerry it's Mark So we see Levered returns.
Scott Ulm: In late August, prior to most of the negative price action, ARMOUR gave guidance that we intended to maintain the same 40 cents per common share monthly dividend through the fourth quarter. The company followed through by declaring common dividends for October, November and December on October 3rd. The resulting dividend rate is extremely high for conditions today, a level beyond what can be earned with reasonable risk. We are committed to paying the previously announced Q4 dividends. We will also be carefully considering market conditions and outlooks through the remainder of the fourth quarter.
Yes somewhere in the mid teens.
Thats, even before you add.
The hedges, which are going to be positive carrier based on the inverted yield curve, which could add another 500 basis points in some cases so.
Scott Ulm: We expect to provide guidance on future dividends in late December, which will reflect the company's best assessment for the intermediate term at that time.
Mid teens is where we see current opportunities.
Scott Ulm: It concludes my remarks.
And that would be on a leverage of approximately eight times and hedged to duration of.
Five to one area.
So that does it that's deliverable.
And.
Frankly, it would be wanted to raise your number from eight to nine on the leverage it increases it by probably another 150 basis points. So there are opportunities out there, but as I said in my comments a minute ago, we continue to be cognizant of the downside and Mark and his team to leverage is just under eight right now to Matt just stick around that area for a while until.
Unknown Executive: Drew, do we have any questions from people on the line?
Unknown Executive: I guess we will now begin the question and answer session. To ask a question you may press star than one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star than two.
We see clear skies.
Okay. That's helpful. Thank you.
Thank you.
The next question comes from Matthew <unk> with Jones trading. Please go ahead.
Hey, good morning, guys. Thanks for taking the question.
Unknown Executive: At this time, we will pause momentarily to assemble our roster.
<unk> redemption stopped mortgage spreads will kind of be flat to a little bit wider.
Trevor Cranston: The first question comes from Trevor Cranston with JMP Securities. Please go ahead. Thanks. Good morning. Can you guys talk about how you are thinking about the interest rates market, and specifically the risk of 10-year yields continuing to rise? If we were to see that scenario, generally, how do you think would the MBS perform in that backdrop? Thanks.
Are you guys waiting for the money managers to kind of come back in for spreads to tighten or what other catalysts do you think could bring those spreads then.
So eventually mortgages are going to be so attractive versus other places where funds can be invested that youre going to see buyers come in and this is why mark and his team exposed increased their exposure excuse me to the Ginnie Mae sector too.
Scott Ulm: So, good morning. We have reduced our exposure to DVO1s at the dollar value of a one-basis-point move in rates considerably from where it was four to five months ago on the long end of Scott setting his statement. Our exposure on the short end is greater than on the long end, such that if you have a steeper in a bear market, meaning the 10-year rates go up, we are in a better position that we would have been on the first day of the third quarter.
And almost $1 billion billion $5 right now because we know banks are going to be more interested in buying Ginnie mae's and we know that.
Convexity features of mortgages when they have way lower dollar prices. So even six five apps are well below par right. Now. So these are going to have interest to investors.
Have to wait out bear markets and Thats, what were doing Mark you want to prove on that yes.
Yes.
When we see start to see banks and money managers come back in and banks are going to be the biggest biggest player I think thats going to drive spreads in.
When.
Loan growth and deposit growth going better direction for.
Scott Ulm: The mortgages are in an interesting place here because we are seeing fund redemptions. And it's something we have an experienced or talked about in a decade. Last time I talked about that was 2008-910, and fund redemptions are without regard to the value of mortgage-backed securities. It's usually the large money management houses that run these funds, people redeem, and they have to sell. So until fund redemptions stop, we imagine that mortgages are going to be fairly flat to even perhaps a little wider.
Security purchases, that's when we'll start to see things tightened.
Gotcha. Thank you.
The next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Hey, guys. Thanks for taking my question.
On the capital management front.
I know you have not issued stock.
To date, but have you repurchased any shares.
At the point, we wanted to repurchase we were in a blackout period. So the answers we've not repurchased any to date.
Jim Mountain was very explicit in his comments, though the blackout ends on Monday, and the Board authority has increased our ability to repurchase shares. So we will be considering that.
Scott Ulm: However, there will be a point it would fund redemptions will slow down. And that's why we don't know who the sellers would be of mortgages, and on the margin, there would be likely be buyers. So our perspective on mortgages is while we thought at the end of the second quarter, they were exceedingly attractive. They are exceedingly more attractive today. We are a levered bond portfolio. We intend to continue to be a levered mortgage-backed agency security bond portfolio.
Take note of what Scott said as well if you would please.
There's three things you have to think about number one we're always thinking about liquidity and our liquidity is quite good right now so that would enable us on the margin to repurchase shares then we balance the use of that capital versus where mark and his team could invest money and they model. It out they decide what is the best use of capital.
Scott Ulm: But we are cognizant that the risks are out there. However, we think they are less than perhaps what they were four to six weeks ago. I hope that addresses your question, and if not, come back with a follow-up. No, yeah, that was very helpful. And I guess one more.
Great and then on leverage where you are thinking about taking leverage forward it looks fairly flat quarter to date relative to September 30th.
Given everything you have been discussing it sounds like.
You want to be in a more defensive posture, just trying to understand where you think leverage might go.
Mark Gruber: So as you guys are thinking about the appropriate dividend level heading into the end of the year, can you just comment sort of generally on where you see ROEs on sort of new capital deployments today at the leverage levels you're comfortable with? Thanks.
So.
We will leverage for us.
We have to balance the fact that we still see so much volatility going forward.
And we don't want to get over our skis and half the forced to sell assets because our leverage gets too high. So we're trying to balance this and as Scott said in his remarks, we did several trades.
Mark Gruber: Hey Trevor, it's Mark. So we see learned returns in MBS somewhere in the midteens. And that's even before you add, you know, the hedges, which are going to be positive carry based on the emergency occur, which could add, you know, another 500 basis points of location. So midteens where we see current opportunities. And that would be on a leverage of approximately eight times and hedge to a duration of 0.5 to one area.
In Q3.
As things are selling off and are leveraging decreasing to decrease leverage and decreased risk, but we still don't have enough risk on when things turn we are in a position that we can take advantage of that so we won't have enough dry powder that.
We can withstand rates continuing to rise and spreads continuing to widen but enough leverage on that when things go. The other way we are able to take that that advantage and see the increase in book value.
Mark Gruber: So, you know, that is that's deliverable. And frankly, if you wanted to raise your number from eight to nine on the leverage, it increases it by probably another 150 basis points. So, you know, there are opportunities out there, but as I said in my comment the minute ago, we continue to be cognizant of the downside. And Mark has his team delivered just under eight right now and imagine stick around that area for a while until we see clear skies.
Trevor Cranston: Okay, that's helpful.
As I noted earlier.
Go ahead. Please no no. Please go ahead please.
As I noted earlier, we're at 709 right now I doubt you would see us getting much over eight in the current environment.
Unknown Executive: Thank you.
Yes.
Great final question.
The reason for the decline in net interest income quarter over quarter given.
Investment margins were relatively flat in your agency volumes went up since last quarter.
Timing issue.
Matthew Erdner: The next question comes from Matthew Erbner with Jones trading. Please go ahead. Hey, good morning guys. Thanks for taking the question. You said until redemption stop mortgage spreads will kind of be flat to do a little bit wider. Are you guys waiting for the money managers to kind of come back in for spreads to tighten or what other catalysts do you think could bring those spreads in? So, eventually, mortgages are going to be so attractive versus other places where funds can be invested that you're going to see buyers come in.
I think that is just the timing issue I'd have to look at that a little harder I don't know off the top my head what the driver was there but.
Towards the end of the quarter, we did do a lot of selling as we said so.
We will take a look great. Okay. Thank you guys.
Again, if you have a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Jim Mountain for any closing remarks.
Matthew Erdner: And this is why Mark and his team exposed increased their exposure, excuse me, to the Jenny May sector to, you know, almost a billion, billion and a half dollars right now. We know banks are going to be more interested in buying Jenny Mays and we know that the convexity features of mortgage is when they have way lower dollar prices. So, I mean, even six and a half are well below par right now.
Thank you for joining us. This morning, we appreciate your interest in armour residential REIT and as always.
Questions or concerns arise between now and the next time, we do this.
In three months or so.
Please give us call at the office.
And in the meantime stay safe.
Matthew Erdner: So, these are going to have interest to investors. You just have to wait out bear markets. And that's what we're doing. Mark, you want to prove on that? Yeah, when we see starts to see banks and money managers come back in and banks are going to be the biggest, biggest player. I think that's going to drive spreads in when, you know, loan growth and deposit growth go in better directions for security purchases. That's when we'll start to see things tighten. Gotcha. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Scott Ulm: The next question comes from Christopher Nolan with Landberg Thalman. Please go ahead. Hey guys, thanks for taking my question. Given on the capital management front, I know you have not issued stock quarter to date, but have you repurchased any shares? At the point we wanted to repurchase we were in a blackout period. So, the answer is we've not repurchased any to date. Jim Mountain was very explicit in his comments though that blackout ends on Monday and the board authority has increased our ability to repurchase shares.
Scott Ulm: So, we will be considering that to take note of what Scott said as well if you would please. So, there's three things you have to think about. Number one, we're always thinking about liquidity and our liquidity is quite good right now, so that would enable us on the margin to repurchase shares. Then we balance the use of that capital versus where Mark and his team could invest money and they modeled out and they decide what is the best use of capital.
Scott Ulm: Great, and then on leverage, where you're thinking about taking leverage forward, it looks fairly flat quarter to date relative to September 30th, but given everything you have been discussing, it sounds like you want to be in the more defensive posture, just trying to understand where you think leverage might go. So leverage for us, we have to balance the fact that we still see so much volatility going forward, and we don't want to get over our season, have to force to sell assets because our leverage gets too high.
Scott Ulm: So we're trying to balance this and a Scott said in his remarks, we did several trades in Q3 as the things are selling off and our leverage was increasing to decrease leverage and decrease risk, but we still want to have enough risk on when things turn, we are in a position that we can take advantage of that. So we want to have enough dry powder that we can withstand rates continuing to rise and spreads continuing to widen, but enough leverage on that when things go the other way, we are able to take that advantage and see the increase in book value.
Scott Ulm: But as I noted earlier, go ahead, please. No, no, please go ahead, please. As I noted earlier, we're at seven nine right now. I doubt you would see us getting much over eight in the current environment.
Mark Gruber: Right, final question. Reason for the decline and net and interesting come quarter of a quarter given, you know, investment margins were relatively flat and your agency volumes went up since last quarter is a timing issue. I think that is just timing issue. I'd have to look at that a little harder. I don't know stop my head what the driver was there, but. Towards the end of the quarter, we did do a lot of selling as we said, so. We'll take a look.
Unknown Executive: Okay, thank you, guys. Again, if you have a question, please press star, then one.
Unknown Executive: This concludes our question and answer session.
James Mountain: I would like to turn the conference back over to Jim mountain for any closing remarks.
James Mountain: Thank you for joining us this morning. We appreciate your interest in armor residential, and as always, if questions or concerns arise between now and the next time we do this in three months or so, please give us call to the office. And in the meantime, stay safe.
Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.
Unknown Executive: You may now disconnect. Thank you.