ARMOUR Residential REIT, Inc. 2026 Q3 Earnings Call

Please go ahead, sir. 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 Macauley. Let me turn the call over now to Gordon to run through the financial results.

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 Factor 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.

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 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. We also repurchased, at the end of September, 363,700 common shares. ARMOUR paid monthly common dividend, $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 October 29th, 2026, a cash dividend of $0.24 per outstanding common share will be paid to holders of record on October the 15th, 2026. We have also declared cash dividends of $0.24 per outstanding common share payable November the 27th to holders of record on November the 16th, 2026. Quarter end book value was $14.55 per common share, down 17% from June 30th, 2026.

Our most current available estimate of book value as of Monday, October the 19th, 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.

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. 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.

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 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.

GSE retained portfolios declined modestly by a reported $2.5 billion in July and August, following substantial purchases earlier in the year, likely reflecting pay-downs 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.

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. 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 third quarter. Starting in late September, we sold approximately $900 million, consisting primarily of DUS pools and deep discount seasoned MBS.

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%-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 third quarter of 2020.

Over 96% of our MBS holdings are concentrated in 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. 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, then we'll 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 Treasury bill purchases in August, repo spreads of SOFR have remained tight, supporting stable portfolio funding through September's Fed rate hike, and 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.

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. Thanks, Sergey.