Q3 2026 ARMOUR Residential REIT Inc Earnings Call

October 22, 2026

Operator: Good day, and welcome to the ARMOUR Residential REIT's Q3 2026 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist 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 touchtone phone, and 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 the CEO, Mr. Scott Ulm. Please go ahead, sir.

Speaker #1: Good day, and welcome to the ARMOUR Residential REIT's third quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker #1: After today's presentation, there will be an opportunity to ask questions, to ask a question you may press star then 1 on your touch-tone phone, and to withdraw your question, please press star then 2.

Speaker #1: Please note, this event is being recorded. I would now like to turn the conference over to the CEO, Mr. Scott Ulm. Please go ahead, sir.

Scott Ulm: Good morning, and welcome to our Q3 2026 conference call. This morning, I am joined by our Chief Financial Officer, Gordon Harper, as well as our Co-Chief Investment Officers, Sergey Losyev and Desmond Macauley. Let me turn the call over now to Gordon to run through the financial results.

Speaker #2: Good morning, and welcome to our third 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 McCauley.

Speaker #2: Let me turn the call over now to Gordon to run through the financial results.

Gordon Harper: Thank you, Scott. By now, everyone has access to ARMOUR's earnings release and our Q3 2026 investor presentation, 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: thank you, Scott. By now, everyone has access to Armour's earnings release, and our Q3 2026 investor presentation, which can be found on Armour's website, www.armourreit.com.

Speaker #3: This conference call includes foreign-looking statements where intended to be subject to the Safe Harbor Protection, provided by the Private Securities Litigation Reform Act of 1995.

Gordon Harper: 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.

Speaker #3: The risk factors section of Armour's periodic reports, filed with the Securities 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 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.

Gordon Harper: 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 ARMOUR's website shortly and will continue for one year. Our results for the quarter reflect a significant widening of mortgage spreads in the last three weeks of the quarter as interest rates rose and the markets reacted to a more hawkish Federal Reserve.

Speaker #3: 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 ARMOUR's website shortly and will continue for one year.

Gordon Harper: An online replay of this conference call will be available on ARMOUR's website shortly and will continue for one year. Our results for the quarter reflect a significant widening of mortgage spreads in the last three weeks of the quarter as interest rates rose and the markets reacted to a more hawkish Federal Reserve. ARMOUR's Q3 GAAP net loss related to common stockholders was $327 million, or a loss of $2.26 per common share. Net interest income was $83.7 million. Distributable earnings available to common stockholders was $102.3 million, or $0.71 per common share. This non-GAAP measure is defined as net interest income plus TBA drop income, adjusted for interest income or expense under interest rate swaps and futures contracts, minus net operating expenses. Total economic return was a -12.9% for the quarter.

Speaker #3: Our results for the quarter reflect a significant widening of mortgage spreads in the last three weeks of the quarter, as interest rates rose and the markets reacted to a more hawkish Federal Reserve.

Gordon Harper: ARMOUR's Q3 GAAP net loss related to common stockholders was $327 million, or a loss of $2.26 per common share. Net interest income was $83.7 million. Distributable earnings available to common stockholders was $102.3 million, or $0.71 per common share. This non-GAAP measure is defined as net interest income plus TBA drop income, adjusted for interest income or expense under interest rate swaps and futures contracts, minus net operating expenses. Total economic return was a -12.9% for the quarter.

Speaker #3: Armour's Q3 GAAP net loss related to common stockholders was $327 million, or a loss of $2.26 for common share. Net interest income was $83.7 million.

Speaker #3: Distributed earnings available to common stockholders was $102.3 million, or $0.71 for common share. This non-GAAP measure is defined as net interest income, plus TBA drop income, adjusted for interest income or expense, under interest rate swaps and futures contracts, minus net operating expenses.

Speaker #3: Total economic return was a negative 12.9% for the quarter. During Q3, Armour raised approximately $205.7 million of capital, by issuing approximately $12.4 million shares of common stock, and $2.5 million of capital by issuing approximately $123,000 shares of preferred stock through our at-the-market offering programs.

Gordon Harper: During Q3, ARMOUR raised approximately $205.7 million of capital by issuing approximately 12.4 million shares of common stock and $2.5 million of capital by issuing approximately 123,000 shares of preferred stock through our at-the-market offering programs. We also repurchased, at the end of September, 363,700 common shares. ARMOUR paid monthly common dividends 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. on 29 October 2026, a cash dividend of $0.24 per outstanding common share will be paid to holders of record on 15 October 2026. We have also declared cash dividends of $0.24 per outstanding common share payable 27 November to holders of record on 16 November 2026.

Speaker #3: We also repurchased at the end of September $363,700 common shares. Armour paid monthly common dividend, $24 cents per common share per month for a total of $72 cents for the quarter.

Gordon Harper: We aim to pay an attractive dividend that is appropriate in context and stable over the medium term. on 29 October 2026, a cash dividend of $0.24 per outstanding common share will be paid to holders of record on 15 October 2026. We have also declared cash dividends of $0.24 per outstanding common share payable 27 November to holders of record on 16 November 2026.

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

Speaker #3: We've also declared a cash dividend of $0.24 per outstanding common share, payable November 27th to holders of record on November 16th, 2026.

Gordon Harper: Quarter end book value was $14.55 per common share, down 17% from 30 June 2026. Our most current available estimate of book value as of Monday, 19 October, was $14.65 per common share, which reflects the accrual of the October common dividend I discussed previously. I will now turn the call over to Chief Executive Officer Scott Ulm to discuss ARMOUR's portfolio position and current strategy.

Speaker #3: Quarter-end book value was $14.55 per common share, down 17% from June 30, 2026. Our most current available estimate of book value is as of Monday, October the 19th, and was $14.65 per common share, which reflects the accrual of the October common dividend I discussed previously.

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

Scott Ulm: Thanks, Gordon. Agency MBS faced a challenging late Q3 as macroeconomic pressures overwhelmed the favorable supply-demand dynamics that had supported the market earlier in the year. Persistent inflation prompted the Federal Reserve to raise rates by 25 basis points in September, its first hike since 2023, and signal further tightening. Expectations for higher policy rates, geopolitical tensions, rising fiscal deficits, and increased corporate debt issuance drove a broad repricing of global bond markets. Treasury yields rose 70 to 80 basis points over the quarter, while interest rate volatility spiked in September. The sharp increase in yields extended mortgage duration, with associated selling pressures likely amplifying the MBS sell-off as the speed of the move sidelined potential buyers. Today, mortgage spreads sit near their widest of the year, offering more compelling valuations that support our constructive medium-term outlook.

Speaker #2: Thanks, Gordon. Agency MBS faced a challenging late third quarter as macroeconomic pressures overwhelmed the favorable supply-demand dynamics that had supported the market earlier in the year.

Speaker #2: Persistent inflation prompted the Federal Reserve to raise rates by 25 basis points in September, its first hike since 2023, and signaled further tightening. Expectations for higher policy rates, geopolitical tensions, rising fiscal deficits, and increased corporate debt issuance drove broad repricing of global bond markets.

Scott Ulm: Treasury yields rose 70 to 80 basis points over the quarter, while interest rate volatility spiked in September. The sharp increase in yields extended mortgage duration, with associated selling pressures likely amplifying the MBS sell-off as the speed of the move sidelined potential buyers. Today, mortgage spreads sit near their widest of the year, offering more compelling valuations that support our constructive medium-term outlook.

Speaker #2: Treasury yields rose 70 to 80 basis points over the quarter, while interest rate volatility spiked in September. The sharp increase in yields extended mortgage duration, with associated selling pressures likely amplifying the MBS sell-off as the speed of the move sidelined potential buyers.

Speaker #2: Today, mortgage spreads sit near their widest of the year, offering more compelling valuations that support our constructive medium-term outlook. Near term, we believe a sustained recovery in mortgage prices would require greater stability in Treasury yields and volatility.

Scott Ulm: Near term, we believe a sustained recovery in mortgage prices would require greater stability in Treasury yields and volatility. Renewed inflation pressures could prompt further Fed tightening action, while geopolitical tensions could prolong market volatility. Our base case remains a shallow Fed hiking cycle rather than a repeat of 2022, 2023, as labor market continues to show no buildup in wage pressures, reducing the risk of a wage-price spiral. This view is broadly consistent with the Fed's September summary of economic projections, in which even some of the more hawkish participants anticipated only one additional 25 basis point hike in 2026, followed by another 25 basis point increase in 2027. Looking ahead to Q4, the underlying supply-demand backdrop remains supportive. Elevated mortgage rates continue to constrain origination and net Agency MBS supply, while limited financing activity and favorable repo conditions support portfolio carry.

Speaker #2: Renewed inflation pressures, that prompt further Fed tightening action, while geopolitical tensions could prolong market volatility. Our base case remains a shallow Fed hiking cycle rather than a repeat of 2022-23.

Speaker #2: As labor market continues to show no buildup in wage pressures, reducing the risk of a wage price spiral. This view is broadly consistent with the Fed's September summary of economic projections, in which even some of the more hawkish participants anticipated only one additional 25 basis point hike in 2026, followed by another 25 basis point increase in 2027.

Scott Ulm: This view is broadly consistent with the Fed's September summary of economic projections, in which even some of the more hawkish participants anticipated only one additional 25 basis point hike in 2026, followed by another 25 basis point increase in 2027. Looking ahead to Q4, the underlying supply-demand backdrop remains supportive. Elevated mortgage rates continue to constrain origination and net Agency MBS supply, while limited financing activity and favorable repo conditions support portfolio carry.

Speaker #2: Looking ahead to the fourth quarter, the underlying supply-demand backdrop remains supportive. Elevated mortgage rates continue to constrain origination and net agency MBS supply, while limited financing activity and favorable repo conditions support portfolio carry.

Scott Ulm: GSE retained portfolios declined modestly by a reported $2.5 billion in July and August, following substantial purchases earlier in the year, likely reflecting paydowns that were not fully reinvested rather than outright asset sales. We believe Fannie Mae and Freddie have resumed buying during September's volatility, consistent with their role in supporting the Agency MBS market, although official holdings data remain pending. With more than $100 billion of capacity remaining under their regulatory caps, we continue to view the GSEs as meaningful potential backstop buyers at wider spreads. I'll now turn it over to Sergey for more detail on our portfolio.

Speaker #2: GSE retained portfolios declined modestly, by a reported $2.5 billion in July and August, following substantial purchases earlier in the year. This likely reflects paydowns that were not fully reinvested, rather than outright asset sales.

Speaker #2: We believe Fannie Mae and Freddie have resumed buying during September's volatility, consistent with their role in supporting the agency MBS market, although official holdings data remain pending.

Scott Ulm: With more than $100 billion of capacity remaining under their regulatory caps, we continue to view the GSEs as meaningful potential backstop buyers at wider spreads. I'll now turn it over to Sergey for more detail on our portfolio.

Speaker #2: With more than $100 billion of capacity remaining under their regulatory caps, we continue to view the GSE's as meaningful potential backstop buyers at wider spreads.

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

Sergey Losyev: Thank you, Scott. ARMOUR REIT entered the Q3 with historically low leverage and limited net duration exposure, which helped us navigate heightened market volatility. Still, the portfolio's option-adjusted spread widened by 20 basis points, with approximately 80% of that widening occurring in September. This, in turn, pressured book value and pushed implied leverage, excluding Treasuries, to 8.2 times and net duration exposure to 0.38 years by quarter end. Higher, yet still historically moderate levels. The available liquidity stood at an ample $1.02 billion at the end of Q3 and is expected to remain near that level through the end of October. ARMOUR net added approximately $1.4 billion of MBS assets over the course of the Q3. Starting in late September, we sold approximately $900 million, consisting primarily of DUS pools and deep discount seasoned MBS.

Speaker #4: Thank you, Scott. Armour REIT entered the third quarter with historically low leverage and limited net duration exposure, which helped us navigate heightened market volatility.

Speaker #4: Still, the portfolio's option-adjusted spread widened by 20 basis points, with approximately 80% of that widening occurring in September. This, in turn, pressured book value and pushed implied leverage—excluding Treasuries—to 8.2 times, and net duration exposure to 0.38 years by quarter-end.

Sergey Losyev: Higher, yet still historically moderate levels. The available liquidity stood at an ample $1.02 billion at the end of Q3 and is expected to remain near that level through the end of October. ARMOUR net added approximately $1.4 billion of MBS assets over the course of the Q3. Starting in late September, we sold approximately $900 million, consisting primarily of DUS pools and deep discount seasoned MBS.

Speaker #4: Higher, yet still historically moderate levels. The available liquidity stood at an ample 1.02 billion at the end of Q3 and is expected to remain near that level through the end of October.

Speaker #4: Armour net added approximately $1.4 billion of MBS assets over the course of the third quarter. Starting in late September, we sold approximately $900 million consisting primarily of DOS pools and deep discount season MBS.

Sergey Losyev: Those sales capture relative outperformance versus the broader mortgage market and help maintain our strong liquidity position and portfolio target leverage. We plan to eventually reinvest these proceeds and paydowns into moderate discount priced MBS, which have widened the most in September and present the most attractive opportunities with levered returns running from 15% to 18%, depending on the coupon. Portfolio prepayments averaged 8.5 CPR in Q3, down 25% from the prior quarter. With the 30-year conforming mortgage rates nearing 7.5%, we expect prepayment speeds to remain broadly stable in the coming months, providing greater predictability for portfolio earnings and improving convexity profile of our mortgage assets. ARMOUR's mortgage portfolio remains invested exclusively in Agency MBS and DUS securities, consistent with the strategy since the Q3 of 2020. Over 96% of our MBS holdings are concentrated in specified pools with favorable prepayment characteristics.

Speaker #4: Those sales captured relative outperformance versus the broader mortgage market and helped maintain our strong liquidity position and portfolio target leverage. We plan to eventually reinvest these proceeds in paydowns, into moderate discount priced MBS, which have widened the most in September and present the most attractive opportunities with leveraged returns running from 15 to 18 percent depending on a coupon.

Speaker #4: Portfolio prepayments averaged 8.5 CPR in Q3, down 25% from the prior quarter. With a 30-year conforming mortgage rates nearing 7.5%, we expect prepayments fees to remain broadly stable in the coming months, providing greater predictability for portfolio earnings and improving convexity profile of our mortgage assets.

Sergey Losyev: With the 30-year conforming mortgage rates nearing 7.5%, we expect prepayment speeds to remain broadly stable in the coming months, providing greater predictability for portfolio earnings and improving convexity profile of our mortgage assets. ARMOUR's mortgage portfolio remains invested exclusively in Agency MBS and DUS securities, consistent with the strategy since the Q3 of 2020. Over 96% of our MBS holdings are concentrated in specified pools with favorable prepayment characteristics.

Speaker #4: Armour's mortgage portfolio remains an invested exclusively in agency MBS and DOS securities, consistent with its strategy since the 3rd of October since the third quarter of 2020.

Speaker #4: In over 96% of our MBS holdings, we have concentrated and specified pools with favorable prepayment characteristics. Our hedging strategy is designed to manage duration risk across the yield curve and limit exposure to rising funding costs.

Sergey Losyev: Our hedging strategy is designed to manage duration risk across the yield curve and limit exposure to rising funding costs. Our swap hedge to repo ratio stands at approximately 89%, its highest level since 2022. While we believe markets may be pricing in Fed rate hikes that will ultimately materialize, our hedging position is designed to protect earnings against further increases in short-term rates should inflation and macroeconomic pressures persist. Despite the New York Fed's suspension of T-bill purchases in August, repo spreads to SOFR have remained tight, supporting stable portfolio funding through September's Fed rate hike. We financed nearly 50% of our portfolio through affiliated broker-dealer, Buckler Securities, where we selectively use overnight repo to avoid paying term premiums on longer-term financing.

Speaker #4: Our swap hedge-to-ratio hedge-to-repo ratio stands at approximately 89%, its highest level since 2022. While we believe markets may be pricing in Fed rate hikes, they will ultimately materialize our hedging position is designed to protect earnings against further increases in short-term rates should inflation and macroeconomic pressures persist.

Sergey Losyev: Despite the New York Fed's suspension of T-bill purchases in August, repo spreads to SOFR have remained tight, supporting stable portfolio funding through September's Fed rate hike. We financed nearly 50% of our portfolio through affiliated broker-dealer, Buckler Securities, where we selectively use overnight repo to avoid paying term premiums on longer-term financing.

Speaker #4: Despite the New York Fed suspension of Treasury bill purchases in August, repo spreads to silver have remained tight. Supporting stable portfolio funding through September's Fed rate hike, we refinanced nearly 50% of our portfolio through affiliated broker-dealer Buckler Securities.

Speaker #4: We selectively use overnight repo to avoid paying term premiums on longer-term financing. While Chair awards have moved quickly to establish policy task forces, we do not anticipate significant changes to the Fed's balance sheet policy.

Sergey Losyev: While Chair Warsh has moved quickly to establish policy task forces, we do not anticipate significant changes to the Fed's balance sheet policy that would disrupt repo or Agency MBS markets, particularly ahead of the midterm elections. Back to you, Scott.

Speaker #4: They would disrupt repo or agency MBS markets, particularly ahead of the midterm elections. And back to you, Scott.

Scott Ulm: Thanks, Sergey. Monthly dividends are central to ARR's investment approach, providing shareholders with a regular source of income. We set our dividend at a level we consider appropriate for the medium term. Recent volatility in interest rates and Agency MBS spreads has pressured both our share price and book value, resulting in an unusually high dividend at current market prices. We remain constructive on the Agency MBS market and believe many of the factors driving recent volatility are likely to resolve over the coming months and into next year. Thank you for joining today's call and for your continued interest in ARMOUR.

Speaker #2: Thanks, Sergey. Monthly dividends are central to ARR's investment approach, providing shareholders with a regular source of income. We set our dividend at a level we consider appropriate for the medium term.

Speaker #2: Recent volatility in interest rates and agency MBS spreads has pressured both our share price and book value, resulting in an unusually high dividend at current market prices.

Scott Ulm: We remain constructive on the Agency MBS market and believe many of the factors driving recent volatility are likely to resolve over the coming months and into next year. Thank you for joining today's call and for your continued interest in ARMOUR.

Speaker #2: We remain constructive on the agency MBS market and believe many of the factors driving recent volatility are likely to resolve over the coming months and into next year.

Speaker #2: Thank you for joining today's call, and for your continued interest in Armour.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question for today will come from Doug Harter with BTIG. Please go ahead.

Speaker #1: We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchstone phone if you are using a speakerphone.

Speaker #1: Please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Speaker #1: Our first question for today comes from Doug Harter with BTIG. Please go ahead.

Doug Harter: Thanks and good morning.

Speaker #5: Oh, thanks. And good morning. Hoping you

Operator: Pardon me, Mr. Harter, you may have self-muted. We are going to move on to our next question.

Speaker #1: Pardon me, Mr. Harter. You may have self-muted. We are going to move on to our next question that will come from Trevor. Go ahead, Mr. Harter.

Doug Harter: Doug, hello. Sorry, can you hear me?

Operator: That will come from Trevor. Go ahead, Mr. Harter. We can hear you now.

Speaker #1: We can hear you now.

Doug Harter: Great. Sorry about that. Hoping you could talk about the decision to sell assets in September and kind of the thought process of taking leverage up versus selling assets.

Speaker #5: Great. Sorry about that. Hoping you could talk about the decision to sell assets in September and the thought process behind taking leverage up versus selling assets.

Sergey Losyev: Hey, Doug. Good morning. This is Sergey. Yeah, so we sold primarily 5-year and 10-year DUS pools as well as some of the deeper discount coupon with maybe a 50 to 60 WALA of seasoning. This type of collateral really outperformed in September. So the opportunity presented itself to manage our liquidity, manage our leverage, and also take profits on some of these assets that have outperformed. So it was really a combination of things that were driving that trade decision. We plan to reinvest the proceeds into some of the coupons that have widened the most over the course of September, particularly 4.5, as well as some of the higher coupons, which have benefited from slower prepayment environment here at higher rates.

Speaker #6: Hey, Doug. Good morning. This is Sergey. Yeah. So we sold,

Speaker #4: primarily, 5-year and 10-year DOS pools. As well as some of the deeper discount coupon with maybe a 50 to 60 wall of seasoning. This type of collateral really outperformed in September.

Speaker #4: So the opportunity presented itself to manage our liquidity, manage our leverage, and also take profits on some of these assets that have outperformed. So it was really a combination of things that were driving that trade decision.

Sergey Losyev: We plan to reinvest the proceeds into some of the coupons that have widened the most over the course of September, particularly 4.5, as well as some of the higher coupons, which have benefited from slower prepayment environment here at higher rates.

Speaker #4: We plan to reinvest the proceeds into some of the coupons that have widened the most over the course of September, particularly 4.5, 5. But as well as some of the higher coupons, which have benefited from slower prepayment environment here at higher rates.

Doug Harter: Great. Appreciate that. Then on kind of the capital actions, you guys both issued common and preferred, but also bought back stock. Just hoping you could talk about kind of what levels you kind of see interesting to kind of undertake kind of all the various capital actions that you did in the quarter.

Speaker #5: Great. Appreciate that. And then on kind of the capital actions, you guys both issued common and preferred, but also bought-back stock. Just hoping you could talk about kind of what levels you kind of see interesting to kind of undertake kind of all the various capital actions that you did in the quarter.

Scott Ulm: Yeah, sure, Doug. Look, we look at issuing under the ATM when we have an attractive price, which means that we are pretty tight to book value. That was sort of the story of the first part of the quarter. The story of the second part of the quarter is we hit some volatility and saw that we were a good ways away. That is when we feel we should always be on both sides of the market. So we just felt the need to put a mark in the book there and buy back some stocks. So it is really just that simple. Of course, the moment when you are seeing attractive prices to repurchase is probably when you are also very mindful of liquidity. So we keep that in mind too, but there is always our sense that we need to look at both sides here.

Speaker #6: Yeah, sure, Doug. Look, we look at issuing under the ATM when we have an attractive price, which means that we're pretty tight to book value.

Speaker #6: That was sort of the story of the first part of the quarter. And the story of the second part of the quarter is, we hit some volatility and saw that we were a good ways away.

Speaker #6: And that's when we feel we should always be on both sides of the market. So we just felt the need to put a mark in the book there.

Scott Ulm: So we just felt the need to put a mark in the book there and buy back some stocks. So it is really just that simple. Of course, the moment when you are seeing attractive prices to repurchase is probably when you are also very mindful of liquidity. So we keep that in mind too, but there is always our sense that we need to look at both sides here.

Speaker #6: And buy back some stocks. So it's really, really just that simple. Of course, the moment when you're when you're seeing attractive prices to repurchase is probably when you're also very mindful of liquidity.

Speaker #6: So we keep that in mind, too. But there is always our sense that we need to look at both sides here.

Doug Harter: Great. Appreciate it. Thank you.

Speaker #5: Great. Appreciate it. Thank you.

Operator: The next question will come from Trevor Cranston with JMP. Please go ahead.

Speaker #1: The next question will come from Trevor Cranston with J&P. Please go ahead.

Trevor Cranston: Hey, thanks. Good morning. You made the comment towards the end of the prepared remarks about the dividend yield being unusually high right now. Can you maybe expand on your comments around that and how you guys are thinking about the appropriate dividend level today in light of where you are seeing current market returns? Thanks.

Speaker #5: Hey. Thanks. Good morning. Made the comment towards the end of the prepared remarks about the dividend yield being unusually high right now. Can you maybe expand your comments around that and how you guys are thinking about the appropriate dividend level today in light of where you're seeing current market returns?

Speaker #5: Thanks.

Scott Ulm: Well, look, we have had volatility both in stock price and book value, which has driven those down. Our view remains constructive here, and that a number of the factors that have driven this have a good probability of resolving. Maybe not this month, but over the not too long period. So that plus the fact that we feel that our project. Well, we do not give forward guidance, as you guys know. Our earnings available for distributions, we think, are going to be in the range of the dividend for the coming quarter. So given all of that, also the fact that we have already announced November should give you a sense of how we are feeling. Suggest that there is really nothing to do here, and we are where we are on this.

Speaker #6: Well, look, we've had volatility both in the stock price and in book value, which has driven those down. Our view remains constructive here.

Speaker #6: And that a number of the factors that have driven this are have a good probability of resolving maybe not this month, but over the not too long period.

Speaker #6: And so that plus the fact that we feel that our project well, we don't get forward guidance, as you guys know. Our earnings available for distributions, we think, are going to be in the range of the dividend for the coming quarter.

Scott Ulm: Well, we do not give forward guidance, as you guys know. Our earnings available for distributions, we think, are going to be in the range of the dividend for the coming quarter. So given all of that, also the fact that we have already announced November should give you a sense of how we are feeling. Suggest that there is really nothing to do here, and we are where we are on this.

Speaker #6: So given all of that, also the fact that we've already announced November should give you a sense of how we're feeling. Suggest that there's really, really, really nothing to do here.

Speaker #6: And we are where we are on this.

Trevor Cranston: Got it. Okay, that is helpful. Thank you.

Speaker #5: Got it. Okay. That's helpful. Thank you.

Operator: The next question will come from Marissa Lobo with UBS. Please go ahead.

Speaker #1: The next question will come from Marissa Lobo with UBS. Please go ahead.

Marissa Lobo: Thanks, and good morning. I just wanted to ask about leverage, just given where wider mortgage spreads are and what you described as favorable repo conditions. How are you feeling about the willingness to add to leverage here, and what is your target range?

Speaker #7: Thanks. And good morning. I just wanted to ask about leverage. Just given where wider mortgage spreads are and what you described as favorable repo conditions, how are you feeling about the willingness to add to leverage here or and what is your target range?

Desmond Macauley: Yes. Hi, Marissa. This is Desmond Macauley. Our leverage as of Monday, 19 October, was 7.9 times. That is excluding our treasury longs and making some adjustments for expected paydowns. We are comfortable with that level. In the near term, there could be bouts of volatility in the period leading up to the elections. In addition, recent inflation data has been higher than expected. In the medium term, however, we are constructive given mortgage spreads around the highs of the year, plus improved technicals and fundamentals in the mortgage market. We do have dry powder to add leverage as warranted when we have a greater clarity on the macroeconomic outlook as well as inflation.

Speaker #6: Yes. Hi, Marissa. This is Desmond McCauley, for our leverage. As of Monday, October 19, was 7.9 turns. That's excluding our Treasury longs and making some adjustments for expected paydowns.

Speaker #6: We are comfortable with that level. In the near term, there could be bouts of volatility. In the period leading up to the elections, in addition, recent inflation data has been higher than expected.

Desmond Macauley: In the medium term, however, we are constructive given mortgage spreads around the highs of the year, plus improved technicals and fundamentals in the mortgage market. We do have dry powder to add leverage as warranted when we have a greater clarity on the macroeconomic outlook as well as inflation.

Speaker #6: In the medium term, however, we are constructive, given mortgage spreads around the highs of the year, plus improved technicals and fundamentals in the mortgage market.

Speaker #6: So we do have dry powder to add leverage. As warranted, when we have a greater clarity on the macroeconomic outlook, as well as inflation.

Marissa Lobo: Okay, great. Thank you. On policy, and just given the increased use of housing policy to influence rate and Agency MBS demand, how are you incorporating that risk into your portfolio construction? I mean, do you see it as primarily an upside to book value or impacting prepayments ultimately?

Speaker #7: Okay, great. Thank you. And on policy—just given the increased use of housing policy to influence rates and MBS demand—how are you incorporating that risk into your portfolio construction?

Speaker #7: I mean, do you seeing it as primarily an upside to book value or impacting prepayments ultimately?

Scott Ulm: Stability is good. I think there's a lot of desire to improve affordability here. But I think we are so out of the money. You'd have to have a pretty good move that would start to impact the optionality there. So delighted that there's focus on keeping stability and improving mortgage rates. But my sense would be we got a long way to go before we start to see a different prepayment environment.

Speaker #6: You know, stability is good. I think there's a lot of desire to improve affordability here. But I think, across, we are so out of the money you'd have to have a pretty good move that would start to impact the optionality there.

Speaker #6: So delighted that there's focus on keeping stability and improving mortgage rates. But I would my sense would be we are we got a long way to go before we start to see a different prepayment environment.

Marissa Lobo: Got it. Thank you.

Speaker #7: Got it. Thank you.

Operator: The next question will come from Jason Weaver with JonesTrading. Please go ahead.

Speaker #1: The next question will come from Jason Weaver with Jones Trading. Please go ahead.

Val Alvar: Hey, good morning, everyone. This is Val Alvar filling in for Jason Weaver. Thank you for taking my questions here. Net duration moved up to 0.38 from about zero. Was that a deliberate position or extension you haven't fully hedged yet there?

Speaker #8: Hey, good morning, everyone. This is Valen Alvar filling in for Jason Weaver. Thank you for taking my questions here. So net duration moved up to 0.38 from about zero.

Speaker #8: Was that a deliberate position or extension you haven't fully hedged yet there?

Desmond Macauley: Yes. Hi, Jason. As you know, we came into the quarter with our duration relatively flat, and we managed it very closely to a moderate duration profile, even with a sharp increase in rates. In the back end, we are targeting around a flat duration, but within our band. We allow that duration to move as our negative convexity plays a role in moving duration in the back end. In the front end of the curve, we target just a very slight positive duration given that we think market pricing of rate hikes are more than we anticipate. Overall, we manage our duration across the curve. We are looking to keep it within very tight bands. At the same time, we allow some amount of duration movement so that we do not rehedge very frequently. Does that answer your question?

Speaker #6: Yes. Hi, Jason. So as you know, we came into the quarter with a duration relatively flat. And we managed it very closely to a moderate duration profile, even with a sharp increase in rates.

Speaker #6: Now, in the back end, we are targeting around flat duration. But within our bands. So we allowed that duration to move as our negative convexity plays a role in moving duration in the back end.

Desmond Macauley: In the front end of the curve, we target just a very slight positive duration given that we think market pricing of rate hikes are more than we anticipate. Overall, we manage our duration across the curve. We are looking to keep it within very tight bands. At the same time, we allow some amount of duration movement so that we do not rehedge very frequently. Does that answer your question?

Speaker #6: So and then in the front end of the curve, we target just a very slight positive duration. Given that we think market pricing of rate hikes are more than we anticipate.

Speaker #6: So overall, we manage our duration across the curve. We're looking to keep it within very tight bands. But at the same time, we allow some amount of duration movement so that we don't rehedge very frequently.

Speaker #6: Does that answer your question?

Val Alvar: Yes, it does. Thank you for that. Just a quick one here. With the Fed now hiking, are you thinking about swaps versus futures from here?

Speaker #8: Yes, it does. Thank you for that. And then just a quick one here: with the Fed now hiking, are you thinking about swaps versus futures from here, or...?

Desmond Macauley: We still like, on a nominal basis, about an 80-20 mix of swaps versus futures. At the longer end of the curve, we think swaps are fair value. On the shorter end of the curve, we favor using swaps largely because of swap spread volatility. Overall, the mix that we are still looking at is about 80% swaps, 20% futures.

Speaker #6: We still like on a nominal basis about an 80/20 mix. Of swaps versus futures. The longer end of the curve, we think swaps fair value.

Speaker #6: And on the shorter end of the curve, we favor using swaps, largely because of swap spread volatility. But overall, the mix that we are still looking at is about 80% swaps and 20% futures.

Val Alvar: Great. Thank you so much.

Speaker #8: Great. Thank you so much.

Operator: The next question will come from Timothy D'Agostino with B. Riley Securities. Please go ahead.

Speaker #1: The next question will come from Timothy DeAgostino with B. Reilly Securities. Please go ahead.

Timothy D'Agostino: Yeah. Hi. Thanks for taking the questions this morning. Just on my end, I know we kind of talked about share repurchases and the leverage, but I guess just trying to see if you have any thoughts or providing color on whether you see any kind of friction between the two. Where earlier you talked about repurchasing stock when it is attractive, but then again, you mentioned in another question about additional dry powder to add leverage where you see opportunity. I just want to know how you balance maybe share repurchases versus adding more leverage. And then, if you kind of feel any friction between the two as you kind of progress through the quarter if you see attractive options to put leveraged capital work while your stock continues to trade below book value. Thank you.

Speaker #2: Yeah. Hi. Thanks for taking the questions this morning. Just on my end, I know we kind of talked about Sherry purchases in the leverage, but I guess just trying to see if you have any thoughts or providing color on whether you see any kind of friction between the two, where earlier you talked about repurchasing stock when it's attractive, but then again, you mentioned in another question about additional dry powder to add leverage.

Speaker #2: Where you see opportunity. So I just want to know how you balance maybe Sherry purchases versus adding more leverage and then if you kind of feel any friction between the two as you kind of progress through the quarter.

Timothy D'Agostino: I just want to know how you balance maybe share repurchases versus adding more leverage. And then, if you kind of feel any friction between the two as you kind of progress through the quarter if you see attractive options to put leveraged capital work while your stock continues to trade below book value. Thank you.

Speaker #2: If you see attractive options to put capital—leverage capital—to work while your stock continues to trade below book value. Thank you.

Speaker #6: So the issue is leverage is largely an output here. The real driver is managing liquidity. So that's where that question really comes in, which is how are you feeling about liquidity?

Scott Ulm: The issue is leverage is largely an output here. The real driver is managing liquidity. That is where that question really comes in, which is how are you feeling about liquidity? How much do you want to spend? Also, always mindful that when you take stock back in, it has both a cost and it may not necessarily be a good time to get it back out there. So you have all of those factors that weigh on your question of, gee, is now the time to buy some stock back? So you have to see something pretty compelling, and it also has to fit in the context of how you are managing your overall liquidity levels. And that weighs on what sort of quantum you are willing to do. I think we are probably conservative in making that decision.

Speaker #6: How much do you want to spend? Also, always mindful that when you take the stock back in, it may be both it has both a cost and it may not necessarily be a good time to get it back out there.

Scott Ulm: So you have all of those factors that weigh on your question of, gee, is now the time to buy some stock back? So you have to see something pretty compelling, and it also has to fit in the context of how you are managing your overall liquidity levels. And that weighs on what sort of quantum you are willing to do. I think we are probably conservative in making that decision. But, as I said before, we always feel that we have to be willing to be on both sides of the market. I hope that is responsive.

Speaker #6: So you have all of those factors that weigh on your question of, gee, is now the time to buy some stock back? So you have to see something pretty compelling.

Speaker #6: And it also has to fit in the context of how you are managing your overall liquidity levels. And that weighs on what sort of quantum you're willing to do.

Speaker #6: I think we're probably conservative in making that decision. But as I said before, we always feel that we have to be willing to be on both sides of the market.

Scott Ulm: But, as I said before, we always feel that we have to be willing to be on both sides of the market. I hope that is responsive.

Speaker #6: I hope that's responsive.

Timothy D'Agostino: Yes. Thank you so much for answering the question.

Speaker #2: Yes, thank you so much for answering the question.

Operator: The next question will come from Jason Stewart with Compass Point. Please go ahead.

Speaker #1: The next question will come from Jason Stewart with Compass Point. Please go ahead.

Jason Stewart: Hi. Good morning. Thanks. Question on liquidity and funding markets. Sometimes we see the funding markets become a little skittish going into the end of the year when volatility is high. How are you feeling about the depth of repo today and managing that going into the end of the year?

Speaker #3: Hi. Good morning. Thanks. The question on liquidity and funding markets. Sometimes we see funding markets become a little skittish going into the end of the year when volatility is high.

Speaker #3: How are you feeling about the depth of repo today and managing that going into the end of the year?

Sergey Losyev: Yes. Hi, Jason. This probably was one of the few quarters when the quarter-end repo was extremely liquid and soft. We continue to see tight repo to SOFR spreads here early in Q4. We do expect some balance sheet tightening up into year-end. But we also know that the New York Fed stands by in terms of reopening their RMPs or the T-bill purchases they were doing earlier in the year in case liquidity gets tight in the banking system. From that standpoint, repo has really been the shining star here of the market and given us a lot of confidence into year-end even.

Speaker #8: Yes. Sorry, Jason. This probably was one of the few quarters when the quarter end repo was extremely liquid and soft. So we continue to see tight repo to softer spreads here early in Q4.

Speaker #8: We do expect some balance sheet tightening up into the year end. But we also know that the New York Fed stands by in terms of reopening their RMPs or the T-bill purchases they were doing earlier in the year in case liquidity gets tight in the banking system.

Speaker #8: So from that standpoint, repo has really been the shining star here of the market and giving us a lot of confidence into year end even.

Scott Ulm: I would also note, while we are active with 20 counterparties across the global street, if you will, we also enjoy the ability to finance about half of our portfolio through our securities affiliate, Buckler. That also gives us access across the curve as we mentioned, the ability to go overnight if we wish, as well as access to term opportunities. We try to keep all of those options open, which has been extremely helpful when we found things a little bit tighter, even though that is not the situation we are in this quarter, thankfully.

Speaker #6: And I'd also note, while we're active with 20 counterparties across the global street, if you will, we also enjoy the ability to finance about half of our portfolio through our securities affiliate, Buckler.

Speaker #6: And that also gives us access across the curve. As we mentioned, the ability to go overnight if we wish, as well as access to term opportunities.

Speaker #6: So we try to keep all of those options open, which is been extremely helpful when we found things a little bit tighter, even though that's not the situation we're in this quarter, thankfully.

Jason Stewart: Got it. Okay. That is helpful. Thanks. On the GSEs, I think we all know how much capacity is left to buy and where we are at in terms of spread levels. Are you looking for any markers for increased activity and maybe as a catalyst for spread tightening from the GSEs?

Speaker #3: Got it. Okay. That's helpful. Thanks. And then on the GSCs, I mean, I think we all know how much capacity is left to buy and where we're at in terms of spread levels.

Speaker #3: Are you looking for any markers for increased activity in maybe as a catalyst for spread tightening from the GSCs?

Sergey Losyev: Yeah. Look, we had an official confirmation from Bill Pulte in September regarding GSE activity. We are also seeing them cut down the specified pool auction sizes throughout the month. Some of these signs do point to the fact that they were engaged in the market. We have not seen the official numbers yet. Of course, they are coming towards the end of the month. But it will be interesting to see. Back in March when we had similar spread levels, volatility spike, we saw them policing the market from the spread standpoint. So we do expect some buying to show up.

Speaker #8: Yeah. So I mean, look, we had an official confirmation from Bill Polty in September regarding GSC activity. We also seen them cut down the specified pool auction sizes throughout the month.

Speaker #8: So some of these signs do point to the fact that they were engaged in the market. We haven't seen the official numbers yet. Of course, they're coming towards the end of the month.

Sergey Losyev: We have not seen the official numbers yet. Of course, they are coming towards the end of the month. But it will be interesting to see. Back in March when we had similar spread levels, volatility spike, we saw them policing the market from the spread standpoint. So we do expect some buying to show up.

Speaker #8: But we'll be interested to see. Back in March, when we had similar spread levels and a volatility spike, we saw them policing the market from the spread standpoint.

Speaker #8: So we do expect some buying to show up.

Jason Stewart: Okay. Thank you.

Speaker #3: Okay. Thank you.

Operator: The next question will come from David Storms with Stonegate Capital. Please go ahead.

Speaker #1: The next question will come from David Storms with Stonegate Capital. Please go ahead.

David Storms: Morning. Thank you for taking my questions. Just curious, with the volatility in September, have you made any changes to the liquidity stress testing that you do, or are you kind of looking through some of this volatility and keeping the focus on the medium term?

Speaker #5: Good morning. Thank you for taking my questions. Just curious—with the volatility in September, have you made any changes to the liquidity stress testing that you do, or are you kind of looking through some of this volatility and keeping the focus on the medium term?

Sergey Losyev: Yes. Hi, Dave. The stress testing that we had even going into September is pretty robust and we test our liquidity on the extreme stress scenarios. We use COVID-like levels in terms of what took place at that time.

Speaker #6: Yes. Hi, Dave. The stress testing that we had even going into September is pretty robust. And we test our liquidity on the extreme stress scenarios.

Speaker #6: We use COVID-like levels in terms of what took place at that time, so we like to be consistent there. We've not had to change anything.

Desmond Macauley: We like to be consistent there. We've not had to change anything. We continue to monitor our liquidity, and that obviously plays a role in terms of how we look at leverage too, in deciding whether we want to increase leverage or keep it around these levels. Haven't changed it, but it was a pretty robust and extreme stress testing scenario we had going into September, and that enabled us to stay focused and not have to sell assets because of liquidity.

Speaker #6: We continue to monitor our liquidity, and that obviously plays a role in terms of how we look at leverage, too, in deciding whether we want to increase leverage or keep it around these levels.

Speaker #6: So, we haven't changed it, but it was pretty robust and an extreme stress testing scenario we had going into September. That enabled us to stay focused and not have to sell assets because of liquidity.

David Storms: Understood. Thank you. If I could sneak one more in, just a mere clarification on where you expect Fed rates to go. It sounded like in the prepared remarks, you were in line with market expectations of one rate cut this year and one next year. But then in an answer to one of the questions, it sounded like you were positioning yourself to be a little more dovish on the short end of the curve, thinking that markets were pricing in early rates early. Did I miss something there?

Speaker #5: Understood. Thank you. And if I could sneak one more in, just to maybe clarification on where you expect Fed rates to go, it sounded like in the prepared remarks, you were in line with market expectations of one rate cut this year and one next year.

Speaker #5: But then, in answer to one of the questions, it sounded like you were positioning yourself to be a little more dovish on the short end of the curve, given that markets were pricing in an early rate cut.

Speaker #5: Did I miss something there?

Desmond Macauley: Markets are pricing about 3 to 4 cuts by the end of 2027. Our view here is the base case is 2 cuts by the end of 2027. So we are on the dovish side of the markets. But if you compare our view to the dot plots by the FOMC, that is really on the hawkish side. The most hawkish members are expecting just 2 more cuts, one at the end of this year and one at the end of next year. The reason for us having just a slight positive duration in the front end is because we do feel that market pricing of hikes is more than we anticipate. Does that clear that up?

Speaker #6: Markets are pricing about three to four cuts by the end of 2027. And our view here is the base case is two cuts by the end of 2027.

Speaker #6: So, we are on the dovish side of the markets. But if you compare our view to the dot plots by the FOMC, that's really on the hawkish side.

Speaker #6: The most hawkish members are expecting just two more cuts, one at the end of this year and one at the end of next year.

Speaker #6: The reason for us having just a slight positive duration in the front end is because we do feel that market pricing of hikes is more than we anticipate.

Speaker #6: Does that clear that up?

David Storms: Understood. That is perfect. Great. Thank you for taking my questions.

Speaker #5: Understood. That's perfectly fine. Thank you for taking my questions.

Desmond Macauley: Thank you.

Speaker #6: Thank you.

Operator: And this concludes our question and answer session. I would like to turn the conference back over to Mr. Scott Ulm for any closing remarks. Please go ahead.

Speaker #1: And this concludes our question and answer session. I would like to turn the conference back over to Mr. Scott Ulm for any closing remarks.

Speaker #1: Please go ahead.

Scott Ulm: Thank you very much. We appreciate your interest in ARMOUR Residential REIT, and thank you for attending this morning.

Speaker #7: Thank you very much. We appreciate your interest in ARMOUR REIT, and thank you for attending this morning.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.