Q1 2026 ARMOUR Residential REIT Inc Earnings Call

April 23, 2026

Speaker #1: Good day, and welcome to the ARMOUR Residential REIT First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please call the conference specialist by pressing the star key followed by zero.

Operator: Good day, and welcome to the ARMOUR Residential REIT Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please let the conference specialists know by pressing the star key followed by zero. 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, and to withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Scott J. Ulm, Chief Executive Officer. Please go ahead.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your telephone keypad, and to withdraw your question, please press star than two.

Speaker #1: Please note, today's event is being recorded. I would now like to turn the conference over to Scott Ulm, Chief Executive Officer. Please go ahead.

Speaker #2: Thank you. And good morning, and welcome to ARMOUR Residential REITs First Quarter 2026 Conference Call. This morning, I'm joined by our Chief Financial Officer, Gordon Harper, as well as our Co-Chief Investment Officers, Sergey Losyev and Desmond Macauley.

Scott J. Ulm: Thank you, and good morning, and welcome to ARMOUR Residential REIT's Q1 2026 Conference Call. This morning, I'm joined by our Chief Financial Officer, Gordon Harper, as well as our Co-Chief Investment Officers, Sergey Losyev and Desmond Macauley. I'll now turn the call over to Gordon to run through the financial results.

Scott Ulm: Thank you, and good morning, and welcome to ARMOUR Residential REIT's Q1 2026 conference call. This morning, I'm joined by our Chief Financial Officer, Gordon Harper, as well as our Co-Chief Investment Officers, Sergey Losyev and Desmond Macauley. I'll now turn the call over to Gordon to run through the financial results.

Speaker #2: I'll now turn the call over to Gordon to run through the financial results.

Speaker #3: Right now, everyone has access to ARMOUR's earnings release, which can be found on ARMOUR's website, www.armourreat.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 1995.

Gordon Harper: By now, everyone has access to ARMOUR's earnings release, which can be found on ARMOUR's website, www.armourreit.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 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. 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.

Speaker #3: The risk factors section of ARMOUR's periodic reports filed with the Securities and Exchange Commission describes 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.

Speaker #3: Those periodic filings can be found on ARMOUR's on the SEC's website at www.sec.gov. All of today's forward-looking statements are subject to change without notice.

Speaker #3: 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.

Speaker #3: An online replay of this conference call will be available on ARMOUR's website shortly and will continue for one year. Notwithstanding the market turbulence and MBS volatility, due to geopolitical events experienced in the latter portion of the first quarter of the year, the company delivered solid results for the first quarter of 2026 with total economic return of -2.6%.

Gordon Harper: An online replay of this conference call will be available on ARMOUR's website shortly and will continue for one year. Notwithstanding the market turbulence and MBS volatility due to geopolitical events experienced in the latter portion of Q1 2026, the company delivered solid results for Q1 2026, with total economic return of -2.6%. Since 31 March 2026, we have seen improvements in MBS spreads and volatility. ARMOUR's Q1 GAAP net loss related to common stockholders was $58 million or $0.49 per common share. Net interest income was $70.7 million. Distributable earnings available to common stockholders was $90.5 million or $0.76 per common share. This non-GAAP measure is defined as net interest income plus TBA drop income, adjusted for interest, income, or expense on interest rate swaps and futures contracts, minus operating expenses.

Speaker #3: Since March 31, 2026, we have seen improvements in MBS spreads and volatility. ARMOUR's Q1 GAAP net loss related to common stockholders was $58 million, or $0.49 per common share.

Speaker #3: Net interest income was $70.7 million. Distributable earnings available to common stockholders was $90.5 million, or 76 cents per common share. This non-GAAP measure is defined as net interest income plus TBA drop income, adjusted for interest income or expense on interest rate swaps and futures contracts, minus operating expenses.

Speaker #3: During Q1, ARMOUR raised approximately $215 million of capital by issuing approximately $11.8 million shares of common stock and $6.4 million of capital by issuing approximately $306,000 shares of preferred stock through our out-of-market offering programs.

Gordon Harper: During Q1, ARMOUR raised approximately $215 million of capital by issuing approximately 11.8 million shares of common stock, and $6.4 million of capital by issuing approximately 306,000 shares of preferred stock through our at-the-market offering programs. Through 15 April 2026, we raised approximately $7.2 million of capital by issuing 416,000 shares of common stock, and $179,000 of capital by issuing 8,600 shares of preferred stock through the at-the-market offering programs. In March 2026, we repurchased 125,000 shares of common stock through our stock repurchase program. ARMOUR paid monthly common stock dividends per share of $0.24 per common share per month for a total of $0.72 for the quarter. We aim to pay an attractive dividend that is appropriate in context and stable over the medium term.

Speaker #3: Through April 15, 2026, we raised approximately $7.2 million of capital by issuing $416,000 shares of common stock and $179,000 of capital by issuing $8,600 shares of preferred stock through the out-of-market offering programs.

Speaker #3: In March 2026, we repurchased $125,000 shares of common stock through our stock repurchase program. ARMOUR paid monthly common stock dividends per share of $0.24 per common share per month for a total of $0.72 for the quarter.

Speaker #3: We aim to pay an attractive dividend that is appropriate in context and stable over the medium term. On April 29, 2026, a cash dividend of $0.24 per outstanding common share will be paid to holders of record on April 15, 2026.

Gordon Harper: On 29 April 2026, a cash dividend of $0.24 per outstanding common share will be paid to holders of record on 15 April 2026. We have also declared a cash dividend of $0.24 per outstanding common share payable 28 May 2026, to owners of record on 15 May 2026. Quarter-end book value was $17.42 per common share, down 6.5% from 31 December 2025. As of Monday, 20 April 2026, our estimated book value was $18.05 per common share, which reflects the accrual of the April common dividend. I will now turn the call over to Chief Executive Officer Scott J. Ulm to discuss ARMOUR's portfolio position and current strategy. Scott?

Speaker #3: We have also declared a cash dividend of $0.24 per outstanding common share payable May 28, 2026 to holders of record on May 15, 2026.

Speaker #3: Quarter-end book value was $17.42 per common share, down 6.5% from December 31, 2025. As of Monday, April 20, our estimated book value was $18.05 per common share, which reflects the accrual of the April common dividend.

Speaker #3: I will now turn the call over to the Chief Executive Officer, Scott Ulm, to discuss ARMOUR's portfolio position and current strategy. Scott,

Speaker #2: Thank you, Gordon. I can certainly return to the market in 2026, driven by renewed geopolitical tensions and a sharp rise in oil prices that put further Fed easing on hold for now.

Scott J. Ulm: Thank you, Gordon. Heightened uncertainty returned to the market in 2026, driven by renewed geopolitical tensions and a sharp rise in oil prices, has put further Fed easing on hold for now. As concerns around the Middle East conflict intensified, the yield curve bore a flat, shallower path of Fed cuts. Implied volatility more than doubled, and nominal mortgage spreads widened from 95 basis points to as much as 130 basis points from trough to peak over the course of Q1. That combination of wider spreads and elevated volatility ultimately proved to be a buying opportunity for ARMOUR, as the risk/reward at valuations last observed in Q3 of last year turned decisively favorable. As interest rates stabilized, MBS spreads retraced tighter, driving a recovery in our book value of 3.5% Q2 to date, net of dividend.

Scott Ulm: Thank you, Gordon. Heightened uncertainty returned to the market in 2026, driven by renewed geopolitical tensions and a sharp rise in oil prices, has put further Fed easing on hold for now. As concerns around the Middle East conflict intensified, the yield curve bore a flat, shallower path of Fed cuts. Implied volatility more than doubled, and nominal mortgage spreads widened from 95 basis points to as much as 130 basis points from trough to peak over the course of Q1. That combination of wider spreads and elevated volatility ultimately proved to be a buying opportunity for ARMOUR, as the risk/reward at valuations last observed in Q3 of last year turned decisively favorable. As interest rates stabilized, MBS spreads retraced tighter, driving a recovery in our book value of 3.5% Q2 to date, net of dividend.

Speaker #2: As concerns around the Middle Eastern conflict intensified, the yield curve bear flat on a shallower path of Fed cuts. Implied volatility more than doubled, and nominal mortgage spreads widened from 95 basis points to as much as 130 basis points from trough to peak over the course of the first quarter.

Speaker #2: That combination of wider spreads and elevated volatility ultimately proved to be a buying opportunity for ARMOUR, as the risk-reward and valuations last observed in Q3 of last year turned decisively favorable.

Speaker #2: As interest rates stabilized, MBS spreads retraced tighter, driving a recovery in our book value of 3.5% quarter to date, net of dividend. Against a more balanced picture of mortgage spreads today, market technicals remain firmly supportive.

Scott J. Ulm: Against a more balanced picture of mortgage spreads today, market technicals remain firmly supportive. The rise in treasury yields and mortgage rates has tempered prepayment concerns, and elevated mortgage rates continue to weigh on an already soft housing market, keeping a lid on primary origination supply. On the demand side, while the GSE's pace of purchases slowed in the first two months of Q1, reflecting tight MBS spreads, we expect Fannie and Freddie to report that they re-accelerated holdings growth in March during the period of wider spread. This would be consistent with our view of the GSE as backstop buyers with substantial dry powder to step in when mortgage spreads widen. Another emerging source of demand is coming from banks. March recorded the highest CMO creation on record, reflecting a strong bid for structured MBS that typically signals growing bank appetite.

Scott Ulm: Against a more balanced picture of mortgage spreads today, market technicals remain firmly supportive. The rise in treasury yields and mortgage rates has tempered prepayment concerns, and elevated mortgage rates continue to weigh on an already soft housing market, keeping a lid on primary origination supply. On the demand side, while the GSE's pace of purchases slowed in the first two months of Q1, reflecting tight MBS spreads, we expect Fannie and Freddie to report that they re-accelerated holdings growth in March during the period of wider spread. This would be consistent with our view of the GSE as backstop buyers with substantial dry powder to step in when mortgage spreads widen. Another emerging source of demand is coming from banks. March recorded the highest CMO creation on record, reflecting a strong bid for structured MBS that typically signals growing bank appetite.

Speaker #2: The rise in Treasury yields and mortgage rates has tempered prepayment concerns. And elevated mortgage rates continue to weigh on an already soft housing market, keeping a lid on primary origination supply.

Speaker #2: On the demand side, while the GSE's pace of purchases slowed in the first two months of the first quarter, reflecting tight MBS spreads, we expect Fannie and Freddie to report that they re-accelerated holdings growth in March, during the period of wider spread.

Speaker #2: This would be consistent with our view of the GSE's as backstop buyers with substantial dry powder to step in when mortgage spreads widen. Another emerging source of demand is coming from banks.

Speaker #2: March recorded the highest CMO creation on record, reflecting a strong bid for structured MBS that typically signals growing bank appetite. While the bank demand story has failed to materialize in recent years, the regulatory relief now taking shape fuels growth and capital for banks' MBS portfolio at a time when deposit bases are also expanding.

Scott J. Ulm: While the bank demand story has failed to materialize in recent years, the regulatory relief now taking shape fuels growth and capital for bank's MBS portfolio at a time when deposit bases are also expanding. Sustained inflows into fixed income, both domestically and from overseas, provide an additional tailwind for demand in Q1 as high quality liquid agency MBS serve an attractive alternative to corporate credit where valuation questions persist. I'll now turn it over to Sergey for more detail on our portfolio.

Scott Ulm: While the bank demand story has failed to materialize in recent years, the regulatory relief now taking shape fuels growth and capital for bank's MBS portfolio at a time when deposit bases are also expanding. Sustained inflows into fixed income, both domestically and from overseas, provide an additional tailwind for demand in Q1 as high quality liquid agency MBS serve an attractive alternative to corporate credit where valuation questions persist. I'll now turn it over to Sergey for more detail on our portfolio.

Speaker #2: Sustained inflows into fixed income, both domestically and from overseas, provide an additional tailwind for demand in the first quarter, as high-quality, liquid agency MBS serve an attractive alternative to corporate credit, where valuation questions persist.

Speaker #2: I'll now turn it over to Sergey for more detail on our portfolio.

Speaker #4: Thank you, Scott. ARMOUR's most recent net balance sheet duration stands at approximately $0.4 years, reflecting our view of further stabilization in yield and the return of expectations for the future Fed rate cuts as consistent with the Fed's committee's own expectations.

Desmond Macauley: Thank you, Scott. ARMOUR's most recent net balance sheet duration stands at approximately 0.4 years, reflecting our view of further stabilization in yield and the return of expectations for the future Fed rate cuts, as consistent with the Fed's committee's own expectations. The implied leverage excluding the Treasury shorts is 7.85 times, a balanced posture that reflects our constructive view on the market and incorporates MBS purchases at the wider spreads in March. Our expected month-end liquidity position, including April's pay downs, remains strong at $1.2 billion or nearly 50% of Monday's total equity. ARMOUR's asset portfolio remains 100% agency MBS, agency CMBS, and U.S. Treasuries. It now stands at over $21 billion, notching a fourth consecutive quarter of growth in both assets and capital base.

Sergey Losyev: Thank you, Scott. ARMOUR's most recent net balance sheet duration stands at approximately 0.4 years, reflecting our view of further stabilization in yield and the return of expectations for the future Fed rate cuts, as consistent with the Fed's committee's own expectations. The implied leverage excluding the Treasury shorts is 7.85 times, a balanced posture that reflects our constructive view on the market and incorporates MBS purchases at the wider spreads in March. Our expected month-end liquidity position, including April's pay downs, remains strong at $1.2 billion or nearly 50% of Monday's total equity. ARMOUR's asset portfolio remains 100% agency MBS, agency CMBS, and U.S. Treasuries. It now stands at over $21 billion, notching a fourth consecutive quarter of growth in both assets and capital base.

Speaker #4: The implied leverage excluding the Treasury shorts is 7.85 times, a balanced posture that reflects our constructive view on the market and incorporates MBS purchases at the wider spread in March.

Speaker #4: Our expected month-end liquidity position, including April's paydowns, remains strong at $1.2 billion, or nearly 50% of Monday's total equity. ARMOUR's asset portfolio remains 100% agency MBS, agency CMBS, and U.S. Treasuries.

Speaker #4: It now stands at over $21 billion, notching a fourth consecutive quarter of growth in both assets and capital base. Consistent with our balance sheet growth, we have net added nearly $900 million of MBS pools and does since ARMOUR's last conference call in Q1.

Desmond Macauley: Consistent with our balance sheet growth, we have net added nearly $900 million of MBS pools and DUS since ARMOUR's last conference call in Q1. Our purchase mix continues to evolve by coupon and product as rates and spreads move. In March, we took advantage of widening in the near-production coupons where GSE activity is most concentrated. We also added seasoned, deeper discount MBS along with 15-year agency MBS TBA rolls. Within premium-priced bonds, we continue to focus on prepayment protection in the higher-tier maximum loan balance pools. The portfolio remains concentrated in specified pools with favorable prepayment characteristics, which now represent 95% of ARMOUR's MBS holdings. In agency CMBS, we have gradually moved a large portion of our DUS portfolio out on the yield curve, rotating out of the 5-year sector, which experienced notable tightening into this year, and swapping into the 10-year DUS paper.

Sergey Losyev: Consistent with our balance sheet growth, we have net added nearly $900 million of MBS pools and DUS since ARMOUR's last conference call in Q1. Our purchase mix continues to evolve by coupon and product as rates and spreads move. In March, we took advantage of widening in the near-production coupons where GSE activity is most concentrated. We also added seasoned, deeper discount MBS along with 15-year agency MBS TBA rolls. Within premium-priced bonds, we continue to focus on prepayment protection in the higher-tier maximum loan balance pools. The portfolio remains concentrated in specified pools with favorable prepayment characteristics, which now represent 95% of ARMOUR's MBS holdings. In agency CMBS, we have gradually moved a large portion of our DUS portfolio out on the yield curve, rotating out of the 5-year sector, which experienced notable tightening into this year, and swapping into the 10-year DUS paper.

Speaker #4: Our purchase mix continues to evolve by coupon and product as rates and spreads move. In March, we took advantage of widening in the near-production coupons where GSE activity is most concentrated.

Speaker #4: We also added seasoned deeper discount MBS along with 15-year engine MATBA roles. Within premium price bonds, we continue to focus on prepayment protection in the higher-tier maximum loan balance pools.

Speaker #4: The portfolio remains concentrated in specified pools with favorable prepayment characteristics, which now represent 95% of ARMOUR's MBS holdings. In agency CMBS, we have gradually moved a large portion of our DOS portfolio out on the yield curve, rotating out of the five-year sector, which experienced notable tightening into this year, and swapping into the 10-year DOS paper.

Speaker #4: This rebalance allows us to take advantage of the positive convexity profile of these longer bonds and take an additional 30 to 40 basis points of spread off longer software hedges.

Desmond Macauley: This rebalance allows us to take advantage of the positive convexity profile of these longer bonds and take an additional 30 to 40 basis points of spread of longer SOFR hedges. Our hedge strategy aims to reduce duration risk across the entire yield curve. Roughly 86% of ARMOUR's hedges are OIS and SOFR-based fixed swaps with a balance in Treasury futures. As the recent market volatility subsided, the 10-year Treasury SOFR Treasury spread recovered from its recent tights of -49 basis points, the most negative level since October of last year. Despite the recovery to levels closer to fair value models and pre-LIBOR cessation date historical averages, SOFR swaps remain an attractive hedge instrument for us, with pay fixed rates at approximately 44 basis points below the comparable Treasury yields.

Sergey Losyev: This rebalance allows us to take advantage of the positive convexity profile of these longer bonds and take an additional 30 to 40 basis points of spread of longer SOFR hedges. Our hedge strategy aims to reduce duration risk across the entire yield curve. Roughly 86% of ARMOUR's hedges are OIS and SOFR-based fixed swaps with a balance in Treasury futures. As the recent market volatility subsided, the 10-year Treasury SOFR Treasury spread recovered from its recent tights of -49 basis points, the most negative level since October of last year. Despite the recovery to levels closer to fair value models and pre-LIBOR cessation date historical averages, SOFR swaps remain an attractive hedge instrument for us, with pay fixed rates at approximately 44 basis points below the comparable Treasury yields.

Speaker #4: Our hedge strategy aims to reduce duration risk across the entire yield curve. Roughly 86% of ARMOUR's hedges are OIS and software pay fix swaps.

Speaker #4: With a balance in Treasury futures, as recent market volatility subsided, the 10-year Treasury software Treasury spread recovered from its recent ties of minus 49 basis points, the most negative level since October of last year.

Speaker #4: Despite the recovery to levels closer to fair value models and pre-liberation date historical averages, software swaps remain an attractive hedge instrument for us, with pay fix rates at approximately 44 basis points below the comparable Treasury yields.

Speaker #4: We expect further normalization in swap spreads to hinge on a path of policy debate around the Fed's desired balance sheet and banking deregulation. Aggregate portfolio prepayments averaged 12.1 CPR year to date through April versus 11.1 CPR in Q4 of 2025.

Desmond Macauley: We expect further normalization in swap spreads to hinge on the path of policy debate around the Fed's desired balance sheet and banking deregulation. Aggregate portfolio prepayments averaged 12.1 CPR year to date through April, versus 11.1 CPR in Q4 of 2025. Stable, but running at a slightly higher level versus the prior quarter. Mortgage rates were not spared from volatility. After hitting a low of 5.9% in February, rates backed up by almost 60 basis points the following month, stifling near-term refinance activity. Despite the rate rally we've seen so far in April, 30-year mortgage rates remain elevated around 6.2%, which should anchor premium prepayment expectations through the next several prepayment reports. Funding markets have been refreshingly uneventful in Q1. The repo remains liquid and stable, with spreads trading inside 15 basis points above SOFR and Fed funds rate.

Sergey Losyev: We expect further normalization in swap spreads to hinge on the path of policy debate around the Fed's desired balance sheet and banking deregulation. Aggregate portfolio prepayments averaged 12.1 CPR year to date through April, versus 11.1 CPR in Q4 of 2025. Stable, but running at a slightly higher level versus the prior quarter. Mortgage rates were not spared from volatility. After hitting a low of 5.9% in February, rates backed up by almost 60 basis points the following month, stifling near-term refinance activity. Despite the rate rally we've seen so far in April, 30-year mortgage rates remain elevated around 6.2%, which should anchor premium prepayment expectations through the next several prepayment reports. Funding markets have been refreshingly uneventful in Q1. The repo remains liquid and stable, with spreads trading inside 15 basis points above SOFR and Fed funds rate.

Speaker #4: Stable but running at a slightly higher level versus the prior quarter. Mortgage rates were not spared from volatility. After hitting a low of 5.9% in February, rates backed up by almost 60 basis points the following month, stifling near-term refinance activity.

Speaker #4: Despite the rate rally we've seen so far in April, 30-year mortgage rates remain elevated around 6.2%, which should anchor premium prepayment expectations through the next several prepayment reports.

Speaker #4: Funding markets have been refreshingly uneventful in Q1. The repo remains liquid and stable, with spreads trading inside 15 basis points above software and Fed funds rate.

Speaker #4: The Fed's response to last year's funding pressures appears to have done its work and stabilized banking reserves. As expected, the Fed has announced an incoming step down in its reserve management table purchases from $40 billion to $25 billion per month.

Desmond Macauley: The Fed's response to last year's funding pressures appears to have done its work and stabilized banking reserves. As expected, the Fed has announced an incoming step-down in its reserve management T-bill purchases from $40 billion to $25 billion per month. It is a notable reduction, yet one that still leaves the Fed as the net provider of new liquidity to funding markets, and we expect repo conditions to remain easy. As of today, repo finance portfolio across 24 active repo counterparties, approximately 80% of our repo principal is financed at 3% haircut or lower, and weighted average haircut across the entire repo book is approximately 2.75%. Buckler Securities accounts for roughly 45% of our repo financing book. Thank you, and back to you, Scott.

Sergey Losyev: The Fed's response to last year's funding pressures appears to have done its work and stabilized banking reserves. As expected, the Fed has announced an incoming step-down in its reserve management T-bill purchases from $40 billion to $25 billion per month. It is a notable reduction, yet one that still leaves the Fed as the net provider of new liquidity to funding markets, and we expect repo conditions to remain easy. As of today, repo finance portfolio across 24 active repo counterparties, approximately 80% of our repo principal is financed at 3% haircut or lower, and weighted average haircut across the entire repo book is approximately 2.75%. Buckler Securities accounts for roughly 45% of our repo financing book. Thank you, and back to you, Scott.

Speaker #4: It is a notable reduction, yet one that still leaves the Fed as the net provider of new liquidity to funding markets, and we expect repo conditions to remain easy.

Speaker #4: As of today, we finance portfolio across 24 active repo counterparties, approximately 80% of our repo principal is financed at 3% haircut or lower, and weighted average haircut across the entire repo book is approximately 2 and 3/4 of a percent.

Speaker #4: Buckler Securities accounts for roughly 45% of our repo financing book. Thank you, and back to you, Scott.

Scott J. Ulm: Thanks, Sergey. The case to own MBS remains strong and should strengthen further if the Fed resumes its easing cycle later this year. We believe lower funding rates combined with a steeper curve would reinforce the catalyst for strong demand and broaden the investor base for agency MBS. We saw some volatility this quarter driven by geopolitical events, but the impact overall was manageable and has dissipated significantly more recently. Our balance sheet management over the quarter gave us some options, and we were able to take advantage of lower MBS prices and bought back some of our own stock. We continue to set our dividend with a medium-term outlook, and we review our dividend as appropriate in the current environment. Our approach remains unchanged. Stress test our liquidity, apply systematic hedging, and deploy capital when opportunities present themselves.

Scott Ulm: Thanks, Sergey. The case to own MBS remains strong and should strengthen further if the Fed resumes its easing cycle later this year. We believe lower funding rates combined with a steeper curve would reinforce the catalyst for strong demand and broaden the investor base for agency MBS. We saw some volatility this quarter driven by geopolitical events, but the impact overall was manageable and has dissipated significantly more recently. Our balance sheet management over the quarter gave us some options, and we were able to take advantage of lower MBS prices and bought back some of our own stock. We continue to set our dividend with a medium-term outlook, and we review our dividend as appropriate in the current environment. Our approach remains unchanged. Stress test our liquidity, apply systematic hedging, and deploy capital when opportunities present themselves.

Speaker #2: Thanks, Sergey. The case to own MBS remains strong, and should strengthen further if the Fed resumes its easing cycle later this year. We believe lower funding rates combined with a steeper curve would reinforce the catalyst for strong demand and broaden the investor base for agency MBS.

Speaker #2: We saw some volatility this quarter driven by geopolitical events, but impact overall was manageable and has dissipated significantly more recently. Our balance sheet management over the quarter gave us some options, and we were able to take advantage of lower MBS prices and bought back some of our own stock.

Speaker #2: We continue to set our dividend with a medium-term outlook and review our dividend as appropriate in the current environment. Our approach remains unchanged, stressed test our liquidity, apply systematic hedging, and deploy capital when opportunities present themselves.

Speaker #2: Overall, we're confident in our positioning, our strategy, and our ability to perform well for shareholders in 2026. Before we open the line for questions, we'd also note again that we've launched a new quarterly investor presentation, now available on ARMOUR's website.

Scott J. Ulm: Overall, we're confident in our positioning, our strategy, and our ability to perform well for shareholders in 2026. Before we open the line for questions, we'd also note again that we've launched a new quarterly investor presentation now available on ARMOUR's website. Thank you for joining today's call and for your continued interest in ARMOUR. You can open the line for questions, please.

Scott Ulm: Overall, we're confident in our positioning, our strategy, and our ability to perform well for shareholders in 2026. Before we open the line for questions, we'd also note again that we've launched a new quarterly investor presentation now available on ARMOUR's website. Thank you for joining today's call and for your continued interest in ARMOUR. You can open the line for questions, please.

Speaker #2: Thank you for joining today's call and for your continued interest in ARMOUR. You can open the line for questions, please.

Operator: Yes, sir. Absolutely. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. To remove yourself from queue, please press star then two. Once again, that's star then one if you have a question. Today's first question comes from Marissa Lobo at UBS. Please go ahead.

Speaker #3: Yes, sir. Absolutely. We will now begin the question and answer session to ask a question. You may press star than one on your telephone keypad.

Speaker #3: To remove yourself from queue, please press star than two. Once again, that's star than one if you have a question. And today's first question comes from Marissa Lobo at UBS.

Speaker #3: Please go ahead.

Marissa Lobo: Good morning. Thank you for taking my question. You noted the tightening of spreads in Q2 to date. What does the current ROE on new agency purchases look like? And where do you see the long-term equilibrium of spreads settling versus swaps?

Speaker #4: Good morning. Thank you for taking my question. You noted the tightening of spreads in Q2 to date. So what does the current ROE on new agency purchases look like, and where do you see the long-term equilibrium of spread settling versus swaps?

Speaker #2: Yes. Hi, Marissa. This is Desmond. So looking at yeah, hi. How are you? So looking at PA and premium securities, return on equity is in the mid to high teens.

Desmond Macauley: Yes. Hi, Marissa, this is Desmond.

Marissa Lobo: Hi, Desmond.

Desmond Macauley: Yeah, hi. How are you? Looking at par and premium securities, return on equity is in the mid to high teens. That's assuming about eight turns of leverage and hedge to half duration. Now, that's somewhat of a static view. We also do scenario analysis where we look at horizon returns. For example, if OAS is tightened by 10 basis points, that adds about 3% to 5% in total return that will accrue through book value. That takes, let's say, for example, the return is at around 16%. You add 3% to 5% there, then now you're getting to the 19%, 20% area. Now, in terms of long-term stability of our long-term view on spreads, we think spreads are still attractive. That's why we are constructive on the sector.

Speaker #2: That's assuming about eight tons of leverage and hedge to half duration. Now, that's somewhat of a static view. We also do scenario analysis where we look at horizon returns.

Speaker #2: So, for example, if OES is tightened by 10 basis points, that adds about three to five percent in total return. That will accrue through book value.

Speaker #2: So that takes let's say, for example, the return is around 16%. You add three to five percent there, then now you're getting to the 19, 20 percent area.

Speaker #2: Now, in terms of long-term stability of our long-term view on spreads, we think spreads are still attractive. That's why we are constructive on the sector.

Desmond Macauley: You can look back at a period like 2019 when the Fed was running off its mortgage portfolio and also cutting rates. If we look at spread to swaps, let's say a blended 5-year, 10-year swap, those levels were around 120 basis points on average mortgage spreads, and currently they are around 150. That suggests that we are wider by 30 basis points. If you look at it versus Treasuries, you get something around 20 basis points wider today versus back then. We think conservatively, we can see another 20 basis points of tightening here over the medium term.

Speaker #2: You can look back at periods like 2019 when the Fed was running off its mortgage portfolio and also cutting rates. If we look at spread to swaps, let's say a blended five-year, 10-year swap, those levels were around 120 basis points on average mortgage spreads.

Speaker #2: And currently, they're around 150. So that suggests that we are wider by 30 basis points. If you look at it versus treasuries, you get something around 20 basis points wider today versus back then.

Speaker #2: So we think conservatively, we can see another 20 basis points of tightening here over the medium term.

Marissa Lobo: Great. Thank you. Can you share your view on the opportunity for dollar rolls in agencies, and how does that inform your current preference for TBAs versus specified pools?

Speaker #4: Great, thank you. And can you share your view on the opportunity for dollar rolls in agencies, and how does that inform your current preference for TBAs versus specified pools?

Sergey Losyev: Hi, Marissa. This is Sergey. Yeah, the TBA market spread has certainly returned to some level this year, but it remains fairly volatile and unstable. We have some TBA pools in our portfolios. We mentioned we've reallocated a little bit to 15-year sector to Ginnie Mae, but we don't expect them necessarily to be our strongest carry trades. We kind of use these opportunistically for total return opportunities. Right now, we still prefer specified pool cash flow yields. Even if there isn't a lot of OAS pick versus the TBAs, we like the certainty of cash flows and certainly kind of protects us from the tail risk if mortgage rates turn lower in the future.

Speaker #2: Hi, Marissa. This is Sergey. Yeah. So the TVA market specialist has certainly returned to some level this year, but it remains fairly volatile and unstable.

Speaker #2: So we have some TVA rolls in our portfolios. We mentioned we've reallocated to a little bit to 15-year sector, to GenieMase. But we don't expect them necessarily to be our strongest carry trades.

Speaker #2: We kind of use these opportunistically for total return opportunities. So, right now, we still prefer specified pool cash flow yields, even if there isn't a lot of OES pick versus the TVAs.

Speaker #2: We like the certainty of cash flows and certainly kind of protects us from the tail risk if mortgage rates turn lower in the future.

Marissa Lobo: Got it. Thanks for the answers.

Speaker #4: Got it. Thanks for the answers.

Operator: Thank you. Our next question today comes from Trevor Cranston with JMP Securities. Please go ahead.

Speaker #3: Thank you. And our next question today comes from Trevor Cranston, which AMP Securities. Please go ahead.

Trevor Cranston: Hey, thanks. Good morning. Looking at your leverage, it's been kind of consistent around the 8x level for the last few quarters. Given your commentary around the positive backdrop in terms of the technical environment and the GSE sort of acting as a backstop buyer, does that change how you guys are viewing the appropriate leverage level at all? Or how are you thinking about that in the current environment? Thanks.

Speaker #5: Hey, thanks. Good morning. Looking at your leverage, it's come in kind of consistent around the eight-times level for the last few quarters. Given your commentary around the positive backdrop in terms of the technical environment and the GSE sort of acting as a backstop buyer, does that change how you guys are viewing the appropriate leverage level at all, or how are you thinking about that in the current environment?

Speaker #5: Thanks.

Desmond Macauley: Yes. Hi, Trevor. First, we are comfortable with our current leverage. We did increase it after spreads widened in March, which benefited our book value. We think that the current level is appropriate. It would allow us to participate, in terms of spread risk, if we see more spread tightening as we expect. We prioritize risk management. We stress test our liquidity to ensure that it can sustain extreme bouts of volatility. As long as we are comfortable with those stress tests, then we'd look to add leverage to take opportunity if we see more spreads widening, as long as we think that if there's a bout of volatility, it's not systemic.

Sergey Losyev: Yes. Hi, Trevor. First, we are comfortable with our current leverage. We did increase it after spreads widened in March, which benefited our book value. We think that the current level is appropriate. It would allow us to participate, in terms of spread risk, if we see more spread tightening as we expect. We prioritize risk management. We stress test our liquidity to ensure that it can sustain extreme bouts of volatility. As long as we are comfortable with those stress tests, then we'd look to add leverage to take opportunity if we see more spreads widening, as long as we think that if there's a bout of volatility, it's not systemic.

Speaker #2: Yes. Hi, Trevor. First, we are comfortable with our current leverage. We did increase it after spreads widened in March, which benefited our book value.

Speaker #2: We think that the current level is appropriate to allow us to participate in terms of spread risk if we see more spreads tightening as we expect.

Speaker #2: We prioritize risk management. We stress test our liquidity to ensure that it can sustain extreme bouts of volatility, and as long as we are comfortable with those stress tests, then we'd look to add leverage to take opportunity if we see more spreads widening—as long as we think that if there's a bout of volatility, it's not systemic.

Trevor Cranston: Right. Okay. That's helpful. Thank you.

Speaker #5: Right. Okay, that's helpful. Thank you.

Operator: Thank you. Our next question today comes from Timothy D'Agostino with B. Riley Securities. Please go ahead.

Speaker #3: Thank you. And our next question today comes from Timothy DeAgostino with B Raleigh Securities. Please go ahead.

Timothy D'Agostino: Thank you. Good morning, and congrats on the quarter. The first question for me, I guess, could you provide just a little bit more color on the widening of the economic interest spread? I think it went from about 188 basis points to 194. Would just be great to get any color on the movement there.

Speaker #6: Thank you, good morning, and congrats on the quarter. The first question for me, I guess, could you provide just a little bit more color on the widening of the economic interest spread?

Speaker #6: I think it went from about 188 basis points to 194. Would just be great to get any color on the movement there.

Scott J. Ulm: Thor, do you want to handle that one?

Scott Ulm: Thor, do you want to handle that one?

Speaker #2: Sorry, do you want to handle that one?

Desmond Macauley: Yeah, just one second. I think the main real driver, I think, is you could see that our rate on our repo's gone down. The other real driver is the rate that we have on our swaps.

Speaker #3: Yeah. Just one second. I think the main real driver, I think, is our you could see that our rate on our repo has gone down.

Speaker #3: And then the other real driver is the rate that we have on our swaps. So when you factor all that together. That's your answer.

Timothy D'Agostino: Okay, great.

Desmond Macauley: When you factor all that together, that's your answer.

Timothy D'Agostino: All right. Perfect. Awesome. I appreciate it. As a second question, just on capital formation, I guess just kind of getting a better understanding of the playbook a little bit. Obviously, when you're above book value, you're issuing off your equity ATM. When you are below book value, do you turn to repurchasing shares and issuing preferreds? Just trying to understand how you all think about going and raising capital, and then putting that capital to work. Thank you.

Speaker #6: All right. Perfect. Awesome. I appreciate it. And then as a second question, just on capital formation, I guess just kind of getting a better understanding of the playbook a little bit.

Speaker #6: Obviously, when you're above book value, you're issuing off your equity ATM. But when you are below book value, do you turn to repurchasing shares and issuing preferreds?

Speaker #6: Just trying to understand how you all think about going and raising capital and then putting that capital to work. Thank you.

Scott J. Ulm: Sure. Well, look, it's all about price. It's all about price, and it's all about opportunity. By opportunity, I mean what the investment horizons are for us. The clear, simple answer is it depends. There are also other factors which include when we increase the shareholder base, our expenses decline per share, and our cost of running the shop declines as well on average. We are very focused on all of those factors in terms of how they coalesce in making a decision on whether we issue or we repurchase as the case may be. We're very committed to being on both sides of the market. Clearly, when we repurchase, it has to be a fairly definitive view that we want to take back that capital.

Scott Ulm: Sure. Well, look, it's all about price. It's all about price, and it's all about opportunity. By opportunity, I mean what the investment horizons are for us. The clear, simple answer is it depends. There are also other factors which include when we increase the shareholder base, our expenses decline per share, and our cost of running the shop declines as well on average. We are very focused on all of those factors in terms of how they coalesce in making a decision on whether we issue or we repurchase as the case may be. We're very committed to being on both sides of the market. Clearly, when we repurchase, it has to be a fairly definitive view that we want to take back that capital.

Speaker #2: Sure. Well, look, it's all about price. It's all about price, and it's all about opportunity. And by opportunity, I mean what the investment horizons are.

Speaker #2: For us. So the clear, simple answer is it depends. So and there are also other factors which include when we increase the shareholder base, our expenses decline per share.

Speaker #2: And our cost of running the shop declines as well on average. So we are very focused on all of those factors in terms of how they coalesce and make you a decision on whether we issue or we repurchase as the case may be.

Speaker #2: And we're very committed to being on both sides of the market. Clearly, when we repurchase, it has to be a fairly definitive view that we want to take back that capital.

Scott J. Ulm: When we issue, it's also a very carefully calibrated view on where the price is compared to book, what the opportunity for deploying that capital is, and how it impacts the overall operation. Not a clear, crisp answer, sorry. It is all those factors that coalesce in how we manage it. You'll see if you look back, there are quarters where we're active, and there are quarters we're not active at all, which might give you a sense of how tightly we manage that.

Speaker #2: But when we issue, it's also a very carefully calibrated view on where the price is compared to book, what the opportunity for deploying that capital is, and how it impacts the overall operation.

Scott Ulm: When we issue, it's also a very carefully calibrated view on where the price is compared to book, what the opportunity for deploying that capital is, and how it impacts the overall operation. Not a clear, crisp answer, sorry. It is all those factors that coalesce in how we manage it. You'll see if you look back, there are quarters where we're active, and there are quarters we're not active at all, which might give you a sense of how tightly we manage that.

Speaker #2: Not a clear, crisp answer, sorry. But it is all of those factors that coalesce in how we manage it. And you'll see if you look back, there are quarters where we're active, and there are quarters where we're not active at all.

Speaker #2: Which might give you a sense of how tightly we manage that.

Speaker #6: Okay. Great. Thank you so much. I appreciate the color. Congrats again on the quarter.

Timothy D'Agostino: Okay, great. Thank you so much. I appreciate the color. Congrats again on the quarter.

Operator: Thank you. Our next question today, and actually, as a reminder, if you'd like to ask a question, please press star then one at this time. Our next question today comes from David Storms at Stonegate Capital. Please go ahead.

Speaker #3: Thank you. And our next question today, and actually, as a reminder, if you'd like to ask a question, please press star than one at this time.

Speaker #3: Our next question today comes from David Storms at Stonegate Capital. Please go ahead.

Dave Storms: Morning, thanks for taking my questions. I actually wanted to follow up on that last question around capital formation and ask, does times of increased volatility like we saw in Q1 play any sort of meaningful factor into issuing or repurchasing shares?

Speaker #7: Morning, and thanks for taking my questions. Actually, I wanted to follow up on that last question around capital formation and ask: does a time of increased volatility, like we saw in Q1, play any sort of meaningful factor into issuing or repurchasing shares?

Scott J. Ulm: Yes, for sure. Generally, volatility is not a positive for share price. I'd say generally, volatility means that we're likely to be less active on the issuance side, but maybe a little more active on the repurchase side. Certainly, we saw some volatility this quarter, and you saw us on both. Early on in the quarter, we were still enjoying some tightening. Later on in the quarter, we had some geopolitical stuff that happened, which maybe pushed us the other way. Yes, absolutely correct that volatility impacts us. Generally, in a period of lower volatility, I would guess you're going to see us more active on issuance and higher volatility, maybe a little less active.

Scott Ulm: Yes, for sure. Generally, volatility is not a positive for share price. I'd say generally, volatility means that we're likely to be less active on the issuance side, but maybe a little more active on the repurchase side. Certainly, we saw some volatility this quarter, and you saw us on both. Early on in the quarter, we were still enjoying some tightening. Later on in the quarter, we had some geopolitical stuff that happened, which maybe pushed us the other way. Yes, absolutely correct that volatility impacts us. Generally, in a period of lower volatility, I would guess you're going to see us more active on issuance and higher volatility, maybe a little less active.

Speaker #2: Yes, for sure. Generally, volatility is not a positive for share price. So I'd say generally, volatility means that we're likely to be less active on the issuance side.

Speaker #2: But maybe a little more active on the repurchase side. And certainly, we saw some volatility this quarter, and you saw some early on in the quarter, it was a we were still enjoying some we were still enjoying some tightening.

Speaker #2: And later on in the quarter, we had some geopolitical stuff that happened, which maybe pushed us the other way. So yes, absolutely correct. That volatility impacts us.

Speaker #2: But generally, in a period of lower volatility, I would guess you're going to see us more active on issuance and higher volatility, maybe a little less active.

Dave Storms: Understood. Thank you. Maybe just one question around your outlook. With the Fed being in a bit of a wait-and-hold period, given some of the conflicts of late, are you keeping an eye out for any sort of second-order impacts, such as increased fertilizer prices, or increased shipping prices that may maybe force the Fed's hand? Are you tracking anything like that?

Speaker #7: Understood. Thank you. And then maybe just one question around your outlook. With the Fed being in a bit of a wait-and-hold period, given some of the conflicts of late, are you keeping an eye out for any sort of second-order impacts such as increased fertilizer prices, or increased shipping prices that maybe force the Fed's hand?

Speaker #7: Do you track anything like that?

Scott J. Ulm: Yeah, we look at all this stuff, and yeah, you're absolutely right that there's a pile of secondary impacts out there that could go either way. We keep a close eye on it, but oh my, multi-level Tetris game there, right?

Scott Ulm: Yeah, we look at all this stuff, and yeah, you're absolutely right that there's a pile of secondary impacts out there that could go either way. We keep a close eye on it, but oh my, multi-level Tetris game there, right?

Speaker #2: Yeah. Look, we look at all this stuff. And yeah, you're absolutely right that there's a pile load of secondary impacts. Out there that they could go either way.

Speaker #2: And we keep a close eye on it. But oh my, multi-level Tetris game there, right?

Dave Storms: That's perfect. Thank you for the commentary.

Speaker #7: That's perfect. Thank you for the commentary.

Operator: Thank you. That concludes our question and answer session. I'd like to turn the conference back over to Mr. Ulm for any closing remarks.

Speaker #3: Thank you. And that concludes our question and answer session. I'd like to turn the conference back over to Mr. Ulm for any closing remarks.

Scott J. Ulm: Thanks for joining. We appreciate your participation in our conference call here. Any follow-up questions, we're around. Thanks so much.

Scott Ulm: Thanks for joining. We appreciate your participation in our conference call here. Any follow-up questions, we're around. Thanks so much.

Speaker #2: Thanks for joining. We appreciate your participation in our conference call here. And any follow-up questions, we're around. Thanks so much.

Operator: Thank you, sir. That does conclude our conference call for today. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Speaker #3: Thank you, sir. And that does conclude our conference call for today. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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