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Armour Residential REIT, Inc. (ARR)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 delivered strong GAAP performance driven by favorable market value adjustments on Agency MBS: GAAP net income available to common stockholders was $156.3M ($1.49 per share) and book value per share rose 3.5% q/q to $17.49; total economic return was 7.75% for the quarter .
  • Distributable Earnings per share were $0.72, below S&P Global consensus of $0.79, reflecting tighter MBS spreads and a higher average share count after equity issuance; Net Interest Income improved to $38.5M q/q . EPS consensus mean was $0.788*, a miss of ~$0.07 (≈9%); revenue consensus was $63.98M* vs actual $172.54M* (beat), noting “revenue” for mREITs includes gains/losses on securities and derivatives [Values retrieved from S&P Global].
  • Capital actions were significant: $298.6M raised via an August bought deal and $99.5M via ATM; 684,102 shares were repurchased in September; liquidity ended at ~$1.1B; leverage was 7.78x (implied 7.73x) .
  • Management reiterated a medium‑term dividend framework and declared/confirmed $0.24 monthly common dividends for October and November; preferred Series C at $0.14583 for Q4 months .

What Went Well and What Went Wrong

What Went Well

  • GAAP results and book value accretion: BVPS increased to $17.49 (+3.5% q/q), economic return 7.75%; GAAP EPS $1.49 benefited from $177.1M gains on MBS and lower swap losses q/q .
  • Funding and liquidity posture: Liquidity of ~$1.1B and diversified repo across counterparties; economic net yield steady at 2.17% with spread at 1.83% .
  • Strategic capital deployment: “We executed a $300 million overnight underwritten bought deal in August… allowed us to put a significant amount of capital to work at attractive spread levels,” contributing to BV increase and “meaningful reduction in operating expenses per share” .

What Went Wrong

  • Distributable EPS miss versus Street: $0.72 vs $0.79* consensus; decline from $0.77 in Q2 as spreads tightened and average shares rose to 104.6M (vs 83.8M in Q2), diluting per‑share distributable earnings .
  • Non‑GAAP income per share compression: Distributable EPS fell q/q despite higher net interest income (NII $38.5M vs $33.1M), indicating margin pressure from tighter production coupons and funding spreads .
  • Hedge/futures losses persisted: Futures and swap losses totaled $34.4M and $67.8M, respectively, partially offsetting security gains; management noted caution given reduced economic data flow and potential volatility if Fed expectations are walked back .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
GAAP Net Income available to common ($USD Millions)$24.3 $(78.6) $156.3
GAAP Diluted EPS ($/share)$0.32 $(0.94) $1.49
Distributable Earnings per common share ($/share)$0.86 $0.77 $0.72
Net Interest Income ($USD Millions)$36.3 $33.1 $38.5
Economic Net Interest Spread (%)1.88% 1.82% 1.83%
Economic Net Yield on Interest Earning Assets (%)2.24% 2.16% 2.17%
Book Value per Common Share ($)$18.59 $16.90 $17.49

Actual vs S&P Global Consensus (Q3 2025)

MetricConsensusActualSurprise
Primary EPS Consensus Mean ($/share)0.788*0.72 -0.068 (≈-8.6%) — bold miss
Revenue Consensus Mean ($USD)$63.98M*$172.54M*+$108.56M — bold beat
Primary EPS - # of Estimates5*——
Revenue - # of Estimates4*——
Target Price Consensus Mean ($)17.0*——

Values retrieved from S&P Global.

Segment/Portfolio Composition

SegmentQ2 2025Q3 2025
Agency MBS (%)94.1% 97.9%
U.S. Treasury Securities (%)3.9% 1.4%
TBA Securities (%)2.0% 0.7%
Total Portfolio ($USD Billions)$15.4B $18.2B

Key KPIs

KPIQ1 2025Q2 2025Q3 2025
Liquidity (cash + unencumbered)$848.0M $772.9M ~$1.1B
Repurchase Agreements, net$12.5B $12.8B $16.6B
Debt/Equity Ratio (repurchase agreements / equity)7.33:1 7.72:1 7.78:1
Implied Leverage (incl. TBA)7.87:1 8.29:1 7.73:1
Interest Rate Swaps Notional$8.4B $10.3B $10.4B
Common Shares Outstanding (update dates)81,749,506 (Apr 22) 91,594,002 (Jul 21) 111,898,236 (Oct 20)
Portfolio CPR (%)6.1 (Q1 avg) ~7.8 (Q2 trend) 8.1 (Q3 avg); Oct at 9.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Common Dividend ($/share/month)Oct 2025$0.24 (Sep 24 guidance referenced) $0.24 (confirmed) Maintained
Common Dividend ($/share/month)Nov 2025—$0.24 (declared) Maintained
Series C Preferred Dividend ($/share/month)Q4 2025 (Oct–Dec)—$0.14583 (Oct/Nov/Dec) Maintained
Broader Financial GuidanceFY/Q4 2025None providedNone providedN/A

Management reiterated a medium-term dividend determination framework based on results, REIT tax requirements, and market conditions .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Macro & Fed policyAnticipated multiple Fed cuts in 2025; supportive technicals for Agency MBS; caution on volatility and liquidity focus Fed resumed easing in September; spreads tightened ~20 bps; volatility fell; potential QT changes discussed Improving backdrop; cautious near-term
MBS spreads/returnsROEs 18–21% cited in Q1; production coupons attractive; slight tightening in Q1; Q2 spread/tech mix supported carry Hedged ROEs 16–18%; further 10 bps tightening could add ~4% ROE; spreads near local tights Attractive but moderating
Funding/repo conditionsAmple repo liquidity; average haircuts ~2.75%; diversified counterparties Repo SOFR spreads up modestly; SOFR–Fed Funds spread widened from ~3 bps to ~10 bps; facilities underpin liquidity Stable with minor pressure
Hedging strategyDiversified hedges (swaps/treasury); managing swap spread dislocation; duration ~0.5 yrs 0.2 yrs net duration; ~87% SOFR/OIS swaps; positive convexity assets as volatility hedge More swap‑centric, short duration
Regulatory/GSE reformPotential SLR relief and GSE changes; sovereign backstop critical; pricing uncertain absent roadmap Continued watch; privatization chatter; implicit guarantee likely retained; bank demand could increase Watchful; potential tailwind
Dividend/book valueQ1 BV $18.59; Q2 BV $16.90; dividend maintained at $0.24/month BV $17.49; dividend maintained; medium-term dividend stance reiterated BV stabilizing; dividend steady

Management Commentary

  • “We executed a $300 million overnight underwritten bought deal in August… allowed us to put a significant amount of capital to work at attractive spread levels… spread tightening from the newly purchased assets alone contributed about 0.6% to our increase in book value this quarter, along with a meaningful reduction in operating expenses per share” — Scott Ulm .
  • “ARMOUR's most recent net duration and applied leverage were 0.2 years and 8.1 times… roughly 87% of our hedges are in OIS and SOFR pay‑fixed swaps… liquidity remains robust at approximately 55% of total capital” — Portfolio CIO commentary .
  • “We aim to pay an attractive dividend that is appropriate in context and stable over the medium term” — Gordon Harper .
  • Macro: “The Federal Reserve resumed its easing cycle, implementing a 25 basis point cut in September… agency MBS spreads tightened by roughly 20 basis points, and volatility fell to its lowest level since 2022” — Scott Ulm .

Q&A Highlights

  • Returns outlook: Management cited hedged ROEs in the 16–18% range; further 10 bps of tightening could add ~4% ROE to production coupons .
  • Swap spreads/hedging: Expect continued normalization; ~87% notional allocated to SOFR/OIS swaps positioning for more effective hedging of MBS .
  • Hedge ratio/duration: Net duration kept short at ~0.2 yrs with bias toward front‑end hedging; balance maintained amid expected easing .
  • Volatility approach: Preference for low‑optionality assets and positive convexity pools over explicit options; view that medium‑term rates volatility can decline with normalization .
  • Capital actions: Buybacks around ~$14.40 average during dislocation; management remains willing to be on both sides of equity issuance and repurchase based on valuation .

Estimates Context

  • Distributable EPS: Q3 2025 actual $0.72 vs S&P Global consensus mean $0.788* — miss (~9%) .
  • Revenue: Q3 2025 actual $172.54M* vs S&P Global consensus $63.98M* — beat; note mREIT “revenue” includes gains/losses on securities/derivatives, which were materially positive this quarter (e.g., MBS gains $177.1M) .
  • Next quarters: EPS consensus mean — Q4 2025 $0.747*, Q1 2026 $0.748*, Q2 2026 $0.770*; Target price consensus ~$17.0* (two estimates) [Values retrieved from S&P Global].
  • Implications: Street may lower near‑term distributable EPS expectations if spreads remain tight and average share count elevated, partially offset by improving NII and lower funding costs if Fed easing progresses .

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Strong GAAP quarter with BVPS accretion (+3.5% q/q to $17.49) and 7.75% economic return — driven by security gains and improving carry; supports valuation resilience .
  • Core distributable EPS compressed to $0.72 (below Street), reflecting spread tightness and dilution from equity issuance; watch for stabilization as NII improved to $38.5M q/q .
  • Portfolio positioned for easing: short duration (~0.2 yrs), swap‑heavy hedges (~87% SOFR/OIS), and focus on specified pools to mitigate prepayment convexity risk as CPR ticked to 8.1 in Q3 and 9.6 in October .
  • Funding conditions stable with robust liquidity (~$1.1B) and diversified repo sources; minor SOFR spread pressures noted, but facilities underpin liquidity through year‑end .
  • Dividend maintained at $0.24/month; management emphasizes medium‑term framework anchored on distributable earnings stability and REIT tax requirements .
  • Catalysts: Further spread tightening, Fed cuts, and potential regulatory tailwinds (SLR relief, QT tapering, GSE roadmap) could unlock bank demand and improve ROEs; conversely, delays in easing or data shocks could widen volatility .
  • Tactical stance: Monitor ROE on production coupons (16–18%), leverage discipline (~7.7–8.1x), and BV trends; opportunistic equity issuance/buybacks suggest active capital management aligned with valuation signals .