ARMOUR Residential REIT, Inc. (NYSE: ARR, ARR PrA, and ARR PrB)
("ARMOUR" or the "Company") today announced financial results for
the quarter ended December 31, 2013.
Fourth Quarter 2013 Highlights and Financial
Information
- Core Income and estimated taxable REIT income of $59.3 million
or $0.15 per Common share
- Q4 2013 GAAP net loss of approximately $(540.8) million or
$(1.47) per Common share
- Stockholders' equity as of December 31, 2013 was $1.9 billion
or $4.75 per Common share
- Ratio of debt to stockholders' equity ("leverage") of 6.92 to 1
as of December 31, 2013
- Liquidity as of December 31, 2013, consisting of cash and
unpledged securities, of $1.2 billion
- Sales of Agency Securities in Q4 totaled $4.0 billion,
resulting in realized capital losses of $(331.9) million. Other
than temporary impairment of $(401.5) million recognized on $6.8
billion of Agency Securities to be sold in Q1 2014
- Q4 2013 average yield on assets of 2.98% and average net
interest margin of 1.60%
- Q4 2013 annualized average principal repayment rate (CPR) of
4.8%
- Stock outstanding as of December 31, 2013:
Common - 357,612,501 shares Series A Preferred - 2,181,000
shares Series B Preferred - 5,650,000 shares
- Q4 2013 weighted average diluted Common shares were
369,543,000
- Additional updated information on the Company's investment,
financing and hedge positions can be found in ARMOUR Residential
REIT, Inc.'s most recent "Company Update." ARMOUR posts unaudited
and unreviewed Company Updates each month on
www.armourreit.com.
Q4 2013 Results
Core Income and Taxable REIT Income
Core Income for the quarter ended December 31, 2013, was $59.3
million. "Core Income" represents a non-GAAP measure and is defined
as net income excluding impairment losses, gains or losses on sales
of securities and early termination of derivatives, unrealized
gains or losses on derivatives and U.S. Treasury Securities and
certain non-recurring expenses. Core Income may differ from GAAP
net income, which includes the unrealized gains or losses of the
Company's derivative instruments and the gains or losses on Agency
Securities and U.S. Treasury Securities.
Estimated taxable REIT income for the quarter ended December 31,
2013, was approximately $59.3 million. The Company distributes
dividends based on its estimate of taxable earnings, not based on
net income calculated in accordance with Generally Accepted
Accounting Principles ("GAAP"). Taxable REIT income and GAAP net
income will generally differ primarily because of the non-taxable
unrealized changes in the value of the Company's derivatives, which
the Company uses as economic hedges, and other than temporary
impairment of Agency Securities to be sold in later periods. These
gains/losses on derivatives are included in GAAP net income,
whereas valuation changes are not included in taxable income.
Additionally, capital losses realized in Q4 will be carried forward
to offset future capital gains.
GAAP Net Income
For the purposes of computing GAAP net income, the change in
fair value of the Company's derivatives is reflected in current
period net income, while the change in fair value of its Agency
Securities is reflected in its consolidated statement of
comprehensive income. GAAP net loss for the fourth quarter of 2013
was $(540.8) million, including realized losses on the sales of
Agency Securities of $(331.9) million and $(401.5) million in other
than temporary impairment of Agency Securities. The other than
temporary impairment relates to $6.8 billion of 25-year fixed rate
and 30-year fixed rate Agency Securities to be sold in Q1 2014.
Because the Company carries its Agency Securities at fair value,
realized losses result in a reclassification of amounts already
recognized and do not directly affect total stockholders'
equity.
Dividends
The Company paid dividends of $0.05 per Common share of record
for each month of Q4 2013, resulting in payments to common
stockholders of $55.8 million. The Company also paid monthly
dividends in Q4 2013 of $0.171875 per outstanding share of 8.250%
Series A Cumulative Preferred Stock and $0.1640625 per outstanding
share of 7.875% Series B Cumulative Preferred Stock, resulting in
payments to all preferred stockholders of $3.9 million. As of
December 31, 2013, the Company had distributed dividends totaling
$55.9 million more than cumulative taxable REIT income. The
Company's taxable REIT income and dividend requirements to maintain
REIT status are determined on an annual basis. Dividends in excess
of taxable REIT income for the year (including amounts carried
forward from prior years) will generally not be taxable to common
stockholders. Our REIT dividend requirements are based on the
amount of our ordinary taxable income. Realized capital losses do
not affect the amount of the Company's ordinary taxable income, but
will generally be available to offset capital gains realized in the
years 2013 through 2018.
Per Share Amounts
Per Common share amounts are net of applicable Preferred Stock
dividends and liquidation preferences. The denominators used
to calculate per Common share amounts as of December 31, 2013, and
for the quarter then ended reflect the dilutive effects of unvested
stock awards. Such effects are not material.
Portfolio
During the fourth quarter of 2013, the Company sold $4.0 billion
of Agency Securities, resulting in realized losses of $(331.9)
million. As of December 31, 2013, the Company's portfolio consisted
of Fannie Mae, Freddie Mac and Ginnie Mae mortgage securities and
was valued at $14.6 billion. During the fourth quarter of
2013, the annualized yield on average
assets was 2.98%, and the annualized cost of funds on
average liabilities (including realized cost of hedges) was 1.38%,
resulting in a net interest spread of 1.60% for the quarter.
The $14.6 billion portfolio of Agency Securities at December 31,
2013, consisted of 98.6% fixed rate Agency Securities and 1.4% ARMs
and Hybrid ARMs. The Company defines "Hybrid ARMs" as adjustable
rate Agency Securities with longer than 18 months to rate
reset and "ARMs" as adjustable rate Agency Securities with
rate resets shorter than 19 months.
Through February 25, 2014, we have sold $5.5 billion of our
25-year fixed rate and 30-year fixed rate Agency Securities,
leaving $1.3 billion of 30-year fixed rate Agency Securities to be
sold. We recovered approximately $69.4 million of other than
temporary impairment loss recognized at December 31, 2013. For tax
purposes, the sales generated capital losses of approximately
$447.1 million, which will be available to offset future capital
gains through 2019. Through February 25, 2014, we have purchased
$3.7 billion of 15-year fixed-rate Agency Securities. These sales
and purchases are intended to reduce the interest rate risk of our
Agency Securities portfolio.
Portfolio Financing, Leverage and Interest Rate
Hedges
As of December 31, 2013, the Company financed its portfolio
with approximately $13.2 billion of borrowings under repurchase
agreements. The Company's leverage ratio as of
December 31, 2013, was 6.92 to 1. As of December 31,
2013, the Company's liquidity totaled $1.2 billion, consisting of
$496.5 million of cash and equivalents, plus $656.8 million of
unpledged Agency Securities (including Securities received as
collateral).
As of December 31, 2013, the following information was available
related to the Company's interest rate risk and hedging activities:
The Company's repurchase agreements had a weighted-average maturity
of approximately 45 days. The Company had a notional amount of
$10.2 billion of various maturities of interest rate swap contracts
with a weighted average swap rate of 1.5%. The Company had a
notional amount of $5.8 billion of various maturities of swaptions
with a weighted average swap rate of 2.9%. The Company had a
notional amount of $55.0 million of various maturities of
Eurodollar futures contracts sold at a weighted average swap
equivalent rate of 2.0%. The Company did not reduce its derivatives
hedge positions as it reduced its portfolios of Agency Securities
and repurchase agreements.
Clearing regulations adopted under the Dodd-Frank Act have
increased the initial margin requirements for most types of
interest rate swap contracts. The portfolio repositioning currently
underway will allow the Company to manage the interest rate risk
created by the differing maturity profiles of our assets and the
liabilities with shorter tenor interest rate swap contracts and
futures contracts that have smaller initial margin
requirements.
Management Fee
The Company pays a management fee of 1.5% (per annum) of gross
equity raised up to $1.0 billion and 0.75% (per annum) of
gross equity raised above $1.0 billion. As of December 31,
2013, the effective management fee was 1.026% based on gross equity
raised, net of stock buybacks and dividends in excess of annual
taxable REIT income.
Regulation G Reconciliation
Taxable REIT income is calculated according to the requirements
of the Internal Revenue Code ("the Code") rather than GAAP.
The Company plans to distribute at least 90% of its taxable REIT
income in order to maintain its tax qualification as a REIT
under the Code. The Company believes that taxable REIT income is
useful to investors because taxable REIT income is directly related
to the amount of dividends the Company is required to distribute in
order to maintain its REIT tax qualification status. Core Income
also excludes gains and losses on security sales. However, because
taxable REIT income and Core Income are incomplete measures of the
Company's financial performance and involve differences from net
income computed in accordance with GAAP, taxable REIT income and
Core income should be considered as supplementary to, and not as a
substitute for, the Company's net income computed in accordance
with GAAP as a measure of the Company's financial performance.
The following table reconciles the Company's consolidated
results from operations to taxable REIT income and Core Income for
the quarter ended December 31, 2013:
|
Quarter Ended
December 31, 2013 |
|
(in millions) |
GAAP net loss |
($540.8) |
Unrealized gain on derivatives |
(128.0) |
Capital losses carried forward |
331.9 |
Other than temporary impairment of Agency
Securities |
401.5 |
Deferred gain on derivatives |
(0.9) |
Amortization of deferred hedging costs |
(4.4) |
Core and estimated taxable REIT income |
$59.3 |
Common Stock
The Company issued 11,304 shares of common stock during the
fourth quarter of 2013 under its dividend reinvestment plan at
a weighted average price of $4.08 per share. As of
December 31, 2013, there were 357,612,501 Common shares
outstanding. During December 2013 the Company repurchased
13,375,400 shares of our outstanding common stock under a stock
repurchase program at a weighted average price of $3.89 per share
for an aggregate of $52.4 million.
Preferred Stock
As of December 31, 2013, there were 2,181,000 shares of 8.250%
Series A Cumulative Preferred Stock and 5,650,000 shares of 7.875%
Series B Cumulative Preferred Stock outstanding.
Warrant Expiration
As previously reported, the Company's warrants (NYSE MKT: ARR.WS
CUSIP 042315 11 9) expired according to their original contractual
terms at 5:00 p.m. EST on November 7, 2013. The New York
Stock Exchange advised the Company that the last day of market
trading was November 1, 2013.
ARMOUR Residential REIT, Inc.
ARMOUR is a Maryland corporation that invests primarily in fixed
rate, hybrid adjustable rate and adjustable rate residential
mortgage backed securities. These securities are issued or
guaranteed by U.S. Government-sponsored entities. ARMOUR is
externally managed and advised by ARMOUR Residential Management
LLC, an investment advisor registered with the Securities and
Exchange Commission ("SEC"). ARMOUR Residential REIT, Inc. intends
to qualify and has elected to be taxed as a REIT under the Code for
U.S. federal income tax purposes.
Safe Harbor
This press release includes "forward-looking statements" within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. Actual
results may differ from expectations, estimates and projections
and, consequently, you should not rely on these forward looking
statements as predictions of future events. Words such
as "expect," "estimate," "project," "budget," "forecast,"
"anticipate," "intend," "plan," "may," "will," "could," "should,"
"believes," "predicts," "potential," "continue," and similar
expressions are intended to identify such forward-looking
statements. These forward-looking statements involve
significant risks and uncertainties that could cause the actual
results to differ materially from the expected results. Additional
information concerning these and other risk factors are contained
in the Company's most recent filings with the SEC. All
subsequent written and oral forward-looking statements concerning
the Company are expressly qualified in their entirety by the
cautionary statements above. The Company cautions readers not
to place undue reliance upon any forward-looking statements, which
speak only as of the date made. The Company does not
undertake or accept any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
to reflect any change in their expectations or any change in
events, conditions or circumstances on which any such statement is
based.
Additional Information and Where to Find It
Investors, security holders and other interested persons may
find additional information regarding the Company at the SEC's
Internet site at http://www.sec.gov/, or the Company website
www.armourreit.com or by directing requests to: ARMOUR Residential
REIT, Inc., 3001 Ocean Drive, Suite 201, Vero Beach, Florida 32963,
Attention: Investor Relations.
CONTACT: investors@armourreit.com
James R. Mountain
Chief Financial Officer
ARMOUR Residential REIT, Inc.
(772) 617-4340
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