GAAP Income of $71.0 Million, or $1.60
Per Common Share Core Income of $32.5 Million, or
$0.68 Per Common Share
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, 2017.
Q4 2017 Highlights and Financial
Information
- $71.0 million ($1.60 per Common share) net income under
Generally Accepted Accounting Principles (“GAAP”) based on
42,329,391 weighted average diluted Common shares outstanding
- $32.5 million ($0.68 per Common share) Core Income including
“Drop Income” (as defined below), which represents an annualized
return of 9.9% based on stockholders’ equity at the beginning of
the quarter
- $0.57 per share Common dividends for Q4 at the rate of $0.19
per month
- 3.02% average yield on assets and 1.55% average net interest
margin
- 7.0% annualized average principal repayment rate (“CPR”)
At December 31, 2017
- $25.72 NYSE closing price per Common share
- $1.33 billion stockholders’ equity, an increase of 1.0% from
September 30, 2017
- $26.62 stockholders’ equity, a decrease of 0.2% from
September 30, 2017, per Common share based on period-end stock
outstanding of: • 41,877,404 shares of
Common Stock • 2,180,572 shares of 8.250%
Series A Cumulative Redeemable Preferred (“Preferred A”)
• 6,262,395 shares of 7.875% Series B Cumulative
Redeemable Preferred (“Preferred B”)
- $8.5 billion portfolio of mortgage securities, including $1.0
billion of Credit Risk and Non-Agency Securities
- $1.6 billion notional amount of (“to-be-announced”) TBA Agency
Securities
- $5.3 billion notional amount of interest rate swaps
- 5.70 to 1 “leverage” (debt to stockholders’ equity); 6.96 to 1
“implied leverage,” reflecting TBA Agency Securities purchased
forward and excluding debt related to forward settling sales
- $676.6 million of liquidity in cash and unpledged securities
(51.0% of stockholders’ equity)
Year 2017 Highlights
and Financial Information
- $181.2 million ($4.22 per Common share) net income under
GAAP
- $123.6 million ($2.75 per Common share) Core Income including
Drop Income, which represents an annualized return of 11.3% based
on stockholders’ equity at the beginning of the year
- $2.23 increase in book value per Common share, or 9.1% from
December 31, 2016
- $4.03 increase in Common stock price, or 18.6% from
December 31, 2016
- 18.5% total economic return
- 30.1% total shareholder return
- $0.19 Common stock dividend paid every month
Updated Information
- Common dividends per share - $0.19 paid on January 29,
2018, and $0.19 declared by the Company's board of directors for
February, as discussed below
- As of February 13, 2018, we had 6,369,269 Preferred B
shares outstanding, up 1.7% from December 31, 2017
- Book value at February 13, 2018, was estimated to be $24.72 per
Common share outstanding
- 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” (filed today). 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 Q4 2017 was approximately $71.0 million, including
mark-to-market gains on derivatives and Credit Risk and Non-Agency
Securities of $43.7 million and $18.7 million, respectively, and
$21.0 million of realized loss on derivatives. Other comprehensive
loss for Q4 2017 was $45.3 million, resulting in comprehensive
income of $25.7 million for the quarter.
Core Income, Including Drop
IncomeCore Income, including Drop Income, for the quarter
ended December 31, 2017, was approximately $32.5 million,
exceeding total dividend payments to stockholders for the quarter
of $28.1 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 Q4
2017. Payments to Common stockholders for Q4 2017 were
approximately $24.0 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 $4.1 million in Q4 2017.
Common dividends in the amount of $0.19 per
Common share were paid on January 29, 2018, to holders of
record on January 16, 2018. Common dividends in the amount of $0.19
per Common share have been declared for holders of record on
February 15, 2018 (payable February 27, 2018). 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.
Stock IssuanceDuring Q4 2017,
we issued 297,830 common shares under our Common stock
dividend reinvestment program (“DRIP”) for net proceeds of
approximately $8.0 million. During Q4 2017, we
sold 302,779 shares under our Preferred B ATM Sales
Agreement for net proceeds of $7.5 million. To date in Q1 2018, we
have sold 106,874 shares of Preferred B stock for net proceeds
of approximately $2.6 million.
Per Share AmountsPer Common
share amounts are net of applicable Preferred Stock dividends and
liquidation preferences.
PortfolioAs
of December 31, 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 $7.5 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 TBA Agency Securities
portfolio was valued at $1.6 billion. During Q4 2017, the
annualized yield on the Company’s MBS portfolio (including TBA
Agency Securities) was 3.02%, and the annualized cost of
funds on average liabilities (including realized cost of hedges)
was 1.47%, resulting in a net interest spread of 1.55% for Q4
2017.
Portfolio Financing, Leverage and
Interest Rate HedgesAs of December 31, 2017, the
Company financed its mortgage backed securities portfolio with
approximately $7.6 billion of borrowings under repurchase
agreements. The Company’s leverage ratio as of December 31,
2017, was 5.70 to 1 (6.96 to 1, including TBA Agency Securities
purchased forward and excluding debt related to forward settling
sales). As of December 31, 2017, the Company’s liquidity
totaled approximately $676.6 million, consisting of approximately
$265.2 million of cash, plus approximately $411.4 million of
unpledged securities (including securities received as collateral).
As of December 31, 2017, the Company’s repurchase agreements
had a weighted-average maturity of approximately 51 days, an
average rate of 1.71% and a haircut of 6.39%.
The Company had a notional amount of various
maturities of interest rate swap contracts of approximately $5.3
billion with a weighted average swap rate of 1.81%.
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 December 31, 2017 (dollar amounts
in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
Core Income |
|
|
|
|
(in millions) |
GAAP net income |
|
|
|
$ |
71.0 |
|
Book to tax
differences: |
|
|
|
|
|
|
Credit
Risk and Non-Agency Securities |
|
|
|
|
(18.6 |
) |
Interest-only Securities |
|
|
|
|
0.2 |
|
Changes
in interest rate contracts |
|
|
|
|
(29.6 |
) |
Other
than temporary impairment of Agency Securities |
|
|
|
|
3.3 |
|
Loss on
Security Sales |
|
|
|
|
(2.2 |
) |
Drop Income |
|
|
|
|
8.4 |
|
Core Income |
|
|
|
$ |
32.5 |
|
|
|
|
|
|
|
|
Core Income |
|
|
|
$ |
32.5 |
|
Dividends on Preferred
Stock |
|
|
|
|
(4.1 |
) |
Core Income available
to common stockholders |
|
|
|
$ |
28.4 |
|
Common shares outstanding |
|
|
|
|
41.9 |
|
Core Income Per Common
Share |
|
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
As of
December 31, 2017, there were 41,877,404 Common shares
outstanding. |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table shows the changes in stockholders’ equity per
Common share during the quarter ended December 31, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
per Common share - September 30, 2017 |
|
|
|
$ |
26.68 |
|
Core
Income |
|
|
|
|
0.68 |
|
Investment net loss |
|
|
|
|
(0.17 |
) |
Common
stock dividends |
|
|
|
|
(0.57 |
) |
Stockholders’ equity
per Common share - December 31, 2017 |
|
|
|
$ |
26.62 |
|
|
|
|
|
|
|
|
As of February 13, 2018, we had 41,877,404 Common shares
outstanding. Book value at February 13, 2018, was estimated to be
$24.72 per Common share outstanding.
Preferred StockAs of
December 31, 2017, there were 2,180,572 shares of Preferred A
and 6,262,395 shares of Preferred B. As of February 13, 2018,
we had 6,369,269 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 Q4 2017 operating
results on Thursday, February 15, 2018, at 8:30 a.m. (Eastern
Time). The live broadcast will be available online and can be
accessed at https://www.webcaster4.com/Webcast/Page/896/24604. 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 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.comJames R.
MountainChief Financial OfficerARMOUR Residential REIT, Inc.(772)
617-4340
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