GAAP INCOME OF $27.7 MILLION, OR $0.58
PER COMMON SHARE CORE INCOME OF $32.6
MILLION, OR $0.69 PER COMMON SHARESTOCKHOLDERS’
EQUITY OF $26.68 PER COMMON SHARE, UP 1.1%
FOR THE QUARTER
ARMOUR Residential REIT, Inc. (NYSE: ARR, ARR PrA, and ARR PrB)
(“ARMOUR” or the “Company”) today announced financial results for
the quarter ended September 30, 2017.
Q3 2017 Highlights and Financial
Information
- Q3 2017 key results:- $27.7 million ($0.58 per Common share)
net income under Generally Accepted Accounting Principles (“GAAP”)-
$32.6 million ($0.69 per Common share) Core Income including “Drop
Income” (as defined below), which represents an annualized return
of 10.1% based on stockholders’ equity at the beginning of the
quarter- $0.57 per share Common dividends for Q3 at the rate of
$0.19 per month- 3.06% average yield on assets and 1.64% average
net interest margin- 7.0% annualized average principal repayment
rate (“CPR”)- 41,295,588 (approximately) weighted average diluted
Common shares outstanding
- At September 30, 2017:- $1.31 billion stockholders’
equity, an increase of 2.1% from June 30, 2017- $26.68
stockholders’ equity per Common share, an increase of 1.1% from
June 30, 2017- $26.90 NYSE closing price per Common share;
represents total shareholder return of 9.9% for Q3 2017 including
reinvested dividends- $8.1 billion portfolio of mortgage
securities, including $1.0 billion of Credit Risk and Non-Agency
Securities- $1.9 billion notional amount of (“to-be-announced”) TBA
Agency Securities- $5.1 billion notional amount of interest rate
swaps- 5.50 to 1 “leverage” (debt to stockholders’ equity); 7.00 to
1 “implied leverage,” reflecting TBA Agency Securities purchased
forward and excluding debt related to forward settling sales-
$659.0 million of liquidity in cash and unpledged securities (50.2%
of stockholders’ equity)- Stock outstanding: --
41,570,800 shares of Common Stock -- 2,180,572 shares
of 8.250% Series A Cumulative Redeemable Preferred (“Preferred
A”) -- 5,959,616 shares of 7.875% Series B Cumulative
Redeemable Preferred (“Preferred B”)
Updated Information
- Common dividends per share - $0.19 payable on October 27,
2017, and $0.19 declared by the Company’s board of directors for
November, as discussed below
- As of October 24, 2017, we had 41,868,630 Common shares
and 6,017,521 Preferred B shares outstanding
- Book value at October 23, 2017, was estimated to be $26.48 per
Common share
- 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 on www.armourreit.com.
GAAP Net Income and Comprehensive
IncomeFor 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 comprehensive income. GAAP net
income for Q3 2017 was approximately $27.7 million, including
mark-to-market gains (losses) on derivatives and Credit Risk and
Non-Agency Securities of $2.6 million and $(7.6) million,
respectively, and $0.9 million of realized gains on derivatives.
Other comprehensive income for Q3 2017 was $11.1 million, resulting
in comprehensive income of $38.8 million for the quarter.
Core Income, Including Drop
IncomeCore Income, including Drop Income, for the quarter
ended September 30, 2017, was approximately $32.6
million, exceeding total dividend payments to Common stockholders
for the quarter of $23.5 million. Core Income, including Drop
Income, is 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 certain non-recurring expenses, plus Drop Income
(as defined below). 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,
Credit Risk and Non-Agency and Interest-only Securities.
For a portion of our Agency securities we may
enter into to-be-announced (TBA) forward contracts for the purchase
or sale of Agency Securities at a predetermined price, face amount,
issuer, coupon and stated maturity on an agreed-upon future date
but the particular Agency Securities to be delivered are not
identified until shortly before the TBA settlement date. We account
for TBA Agency Securities as derivative instruments if it is
reasonably possible that we will not take or make physical delivery
of the Agency Securities upon settlement of the contract. We may
choose, prior to settlement, to move the settlement of these
securities out to a later date by entering into an offsetting short
or long position (referred to as a “pair off”), net settling the
paired off positions for cash, and simultaneously purchasing or
selling a similar TBA Agency Security for a later settlement date.
This transaction is commonly referred to as a “dollar roll.” We
account for TBA dollar roll transactions as a series of derivative
transactions.
Forward settling TBA contracts typically trade
at a discount, or “Drop,” to the regular settled TBA contract to
reflect the expected interest income on the underlying deliverable
Agency Securities, net of an implied financing cost, that would
have been earned by the buyer if the contract settled on the next
regular settlement date. When we enter into TBA contracts to
buy Agency Securities for forward settlement, we earn this “Drop
Income,” because the TBA contract is essentially a leveraged
investment in the underlying Agency Securities. The amount of
Drop Income is calculated as the difference between the spot price
of similar TBA contracts for regular settlement and the forward
settlement price on the trade date. We generally account for
TBA contracts as derivatives and Drop Income is included as part of
the periodic changes in fair value of the TBA contracts which we
recognize currently in the Other Income (Loss) section of our
Condensed Consolidated Statement of Operations.
DividendsThe Company paid
dividends of $0.19 per Common share of record for each month in Q3
2017. Payments to Common stockholders for Q3 2017 were
approximately $23.5 million. The Company also paid monthly
dividends of $0.171875 per outstanding share of 8.250% Series A
Cumulative Redeemable Preferred Stock and $0.1640625 per
outstanding share of 7.875% Series B Cumulative Redeemable
Preferred Stock, resulting in aggregate payments to preferred
stockholders of approximately $3.9 million in Q3 2017.
Common dividends in the amount of $0.19 per
Common share are payable on October 27, 2017, to holders of
record on October 16, 2017. Common dividends in the amount of $0.19
per Common share have been declared for holders of record on
November 15, 2017 (payable November 27, 2017). The board
of directors determines the Common share dividend rate based upon
the REIT requirements and other relevant considerations. Dividends
in excess of current tax earnings and profits for the year
(including any amounts carried forward from prior years) will
generally be treated as non-taxable return of capital to Common
stockholders.
Common Stock IssuanceDuring Q3
2017, we issued 0.3 million common shares under our Common stock
dividend reinvestment program ("DRIP") for net proceeds of $8.5
million. To date in Q4 2017, we have issued 0.3 million shares of
our common stock for net proceeds of approximately $8.0
million.
Preferred Stock SaleOn August
30, 2017, the Company entered into an At Market Issuance Sales
Agreement (the “Preferred B ATM Sales Agreement”) relating to an
"at-the-market" offering program for our Preferred B stock. In
accordance with the terms of the Preferred B ATM Sales Agreement,
we may offer and sell over a period of time and from time to time,
up to 2.0 million shares of our Preferred B stock. During Q3 2017,
we sold 0.3 million shares under this agreement. Net proceeds from
the sale of the 0.3 million shares was $7.5 million. To date in Q4
2017, we have sold 0.1 million shares of Preferred B stock for net
proceeds of approximately $1.4 million.
Per Share AmountsPer Common
share amounts are net of applicable Preferred Stock dividends and
liquidation preferences. The denominators used to calculate per
Common share amounts for the quarter ended September 30, 2017,
reflect, to the extent dilutive, the effects of 0.01 million
unvested stock awards.
PortfolioAs
of September 30, 2017, the Company’s Agency Securities
portfolio consisted of Fannie Mae, Freddie Mac and Ginnie Mae
mortgage securities, substantially all of which are fixed rate
securities, and was valued at $7.1 billion on a trade date basis.
The Company’s Credit Risk and Non-Agency Securities portfolio was
valued at $1.0 billion and the Company’s Interest-Only Securities
portfolio was valued at $27.2 million. During Q3 2017, the
annualized yield on the Company’s MBS portfolio (including TBA
Agency Securities) was 3.06%, and the annualized cost of
funds on average liabilities (including realized cost of hedges)
was 1.42%, resulting in a net interest spread of 1.64% for Q3
2017.
Portfolio Financing, Leverage and
Interest Rate HedgesAs of September 30, 2017,
the Company financed its mortgage backed securities portfolio with
approximately $7.2 billion of borrowings under repurchase
agreements. The Company’s leverage ratio as of September 30,
2017, was 5.50 to 1 (7.00 to 1, including TBA Agency Securities
purchased forward and excluding debt related to forward settling
sales). As of September 30, 2017, the Company’s liquidity
totaled approximately $659.0 million, consisting of approximately
$299.9 million of cash, plus approximately $359.1 million of
unpledged securities (including securities received as collateral).
As of September 30, 2017, the Company’s repurchase agreements
had a weighted-average maturity of approximately 36 days, an
average rate of 1.45% and a haircut of 6.76%.
The Company had a notional amount of various
maturities of interest rate swap contracts of approximately $5.1
billion with a weighted average swap rate of 1.78%.
Regulation G ReconciliationCore
Income excludes impairment losses, gains or losses on sales of
securities and early termination of derivatives, unrealized gains
or losses on derivatives and certain non-recurring expenses, plus
Drop Income. The Company believes that Core Income is useful to
investors because it is related to the amount of dividends the
Company may distribute. However, because Core Income is an
incomplete measure of the Company’s financial performance and
involves differences from net income computed in accordance with
GAAP, 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 tables reconcile the Company’s
results from operations to Core Income and Core Income per Common
share for the quarter ended September 30, 2017 (dollar amounts
in millions, except per share amounts):
|
|
Core Income |
|
|
(in millions) |
GAAP net income |
|
$ |
27.7 |
|
Book to tax
differences: |
|
|
Credit
Risk and Non-Agency Securities |
|
6.5 |
|
Interest-only Securities |
|
(0.2 |
) |
Premium
amortization expense |
|
(0.4 |
) |
Changes
in interest rate contracts |
|
(10.9 |
) |
Other
than temporary impairment of Agency Securities |
|
0.1 |
|
Loss on
Security Sales |
|
(0.9 |
) |
Drop Income |
|
10.7 |
|
Core Income |
|
$ |
32.6 |
|
|
|
|
|
|
Core Income |
|
$ |
32.6 |
|
Dividends on Preferred
Stock |
|
|
(3.9 |
) |
Core Income available
to common stockholders |
|
$ |
28.7 |
|
Weighted average
diluted Common shares outstanding |
|
$ |
41.3 |
|
Core Income Per Common
Share |
|
$ |
0.69 |
|
Common StockAs of September 30, 2017,
there were 41,570,800 Common shares outstanding.
The following table shows the changes in
stockholders’ equity per Common share during the quarter ended
September 30, 2017:
Stockholders’ equity
per Common share - June 30, 2017 |
|
$ |
26.40 |
|
Core
Income |
|
0.69 |
|
Investment net gain |
|
0.16 |
|
Common
stock dividends |
|
(0.57 |
) |
Stockholders’ equity
per Common share - September 30, 2017 |
|
$ |
26.68 |
|
As of October 24, 2017, we had 41,868,630
Common shares outstanding, and 1,874,343 authorized under our
Repurchase Program. Book value at October 23, 2017, was estimated
to be $26.48 per Common share.
Preferred StockAs of
September 30, 2017, there were 2,180,572 shares of Preferred A
and 5,959,616 shares of Preferred B. As of October 24, 2017,
we had 6,017,521 shares of Preferred B outstanding.
Conference CallAs previously
announced, the Company will provide an online, real-time webcast of
its conference call with equity analysts covering Q3 2017 operating
results on Thursday, October 26, 2017, at 10:00 a.m. (Eastern
Time). The live broadcast will be available online and can be
accessed at https://www.webcaster4.com/Webcast/Page/896/23198. To
monitor the live webcast, please visit the website at least 15
minutes prior to the start of the call to register, download, and
install any necessary audio software. An online replay of the
event will be available on the Company’s website at
www.armourreit.com and continue for one year.
ARMOUR Residential REIT,
Inc.ARMOUR invests primarily in fixed rate residential,
adjustable rate and hybrid adjustable rate residential
mortgage-backed securities issued or guaranteed by U.S.
Government-sponsored enterprises (“GSEs”), or guaranteed by the
Government National Mortgage Association. In addition, ARMOUR
invests in other securities backed by residential mortgages for
which the payment of principal and interest is not guaranteed by a
GSE or government agency. ARMOUR is externally managed and advised
by ARMOUR Capital Management LP, an investment advisor registered
with the Securities and Exchange Commission (“SEC”).
Safe HarborThis 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,
except as required by law.
Additional Information and Where to Find
ItInvestors, security holders and other interested persons
may find additional information regarding the Company at the SEC’s
Internet site at 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. MountainChief
Financial OfficerARMOUR Residential REIT, Inc.(772)
617-4340
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