Earnings call transcript: ARMOUR Residential misses Q2 2025 estimates

ARMOUR Residential REIT Inc. (market cap: $1.38 billion) reported its financial results for the second quarter of 2025, revealing a notable miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.77, falling short of the forecasted $0.82, representing a surprise of -6.1%. Revenue came in at $67.9 million, below the expected $78.66 million, marking a revenue surprise of -13.68%. Following the earnings announcement, ARMOUR’s stock showed a decline in premarket trading, with a decrease of 1.72% to $16.60. The company maintains an attractive dividend yield of 17.05%.

InvestingPro analysis reveals several key insights about ARMOUR’s performance, with 7 additional ProTips available to subscribers.

Key Takeaways

• ARMOUR Residential’s Q2 2025 EPS and revenue fell short of market expectations.
• The company’s stock declined by 1.72% in premarket trading following the earnings release.
• ARMOUR continues to focus on investing in Agency MBS and U.S. Treasuries.
• The company anticipates potential Fed rate cuts by fall 2025.

Company Performance

ARMOUR Residential REIT Inc. experienced a challenging second quarter, with a GAAP net loss of $78.6 million, equating to a loss of $0.94 per common share. The company reported net interest income of $33.1 million and distributable earnings of $64.9 million, or $0.77 per common share. Despite these challenges, the company raised $104.6 million through an at-the-market offering of 6.3 million shares, reflecting its strategic efforts to bolster financial stability. Year-over-year revenue growth stands at an impressive 134.69%, demonstrating strong operational momentum.

According to InvestingPro’s Fair Value analysis, ARMOUR’s stock currently appears to be fairly valued. A comprehensive Fair Value assessment is available to Pro subscribers.

Financial Highlights

• Revenue: $67.9 million, below the forecast of $78.66 million.
• Earnings per share: $0.77, missing the forecast of $0.82.
• Book value: $16.81 per share as of July 21, 2025.
• Monthly dividend: $0.24 per share.

Earnings vs. Forecast

ARMOUR Residential’s reported EPS of $0.77 fell short of the forecasted $0.82, resulting in a negative surprise of 6.1%. Revenue also missed expectations, coming in at $67.9 million compared to the anticipated $78.66 million, a shortfall of 13.68%. This performance marks a deviation from the company’s previous quarters, where results were generally in line with or exceeded forecasts.

Market Reaction

Following the earnings release, ARMOUR’s stock price decreased by 1.72% in premarket trading, reaching $16.60. This decline reflects investor sentiment reacting to the earnings miss. The stock’s performance is currently situated between its 52-week high of $21.08 and low of $13.18, indicating a moderate position within its annual range. Analyst price targets range from $16 to $18, suggesting potential upside from current levels. The company maintains a FAIR Financial Health Score of 2.29 according to InvestingPro’s comprehensive analysis.

Outlook & Guidance

Looking ahead, ARMOUR Residential remains optimistic about its strategic positioning. The company expects potential Federal Reserve interest rate cuts by fall 2025, which could positively impact its operations. ARMOUR plans to focus on 5.5-6% coupon MBS and anticipates improved banking demand for MBS, which could enhance its market position.

Executive Commentary

CEO Scott Ulm expressed confidence in the company’s strategy and ability to deliver value to shareholders, stating, "We’re confident in our positioning, strategy, and ability to deliver value for shareholders." Co-CIO Desmond Macaulay highlighted the stability in liquidity conditions, noting, "Spreads are still near historically wide levels and liquidity conditions are now stable."

Risks and Challenges

• Potential for continued interest rate volatility impacting MBS spreads.
• Regulatory changes and banking reforms could alter market dynamics.
• Macroeconomic pressures, including inflation and economic slowdown, may affect performance.
• Competition within the MBS market could impact profitability.
• Any delay in anticipated Fed rate cuts could affect strategic plans.

Q&A

During the earnings call, analysts questioned ARMOUR’s hedge strategy and portfolio positioning, particularly in light of potential leverage increases. Discussions also covered the company’s coupon stack and investment strategy, as well as potential market catalysts that could influence future performance.

Full transcript - Armour Residential R (ARR) Q2 2025:

Conference Operator: Good morning, and welcome to Armored Residential REIT’s Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Scott Ulm.

Please go ahead.

Scott Ulm, CEO, Armored Residential REIT: Good morning, and welcome to Armor Residential REIT’s second quarter twenty twenty five conference call. This morning, I’m joined by our CFO, Gordon Harper as well as our co CIOs, Sergey Delislev and Desmond Macaulay. I’ll now turn the call over to Gordon to run through the financial results. Gordon?

Gordon Harper, CFO, Armored Residential REIT: Thanks, Scott. By now, everyone has access to ARMOUR’s earnings release, which can be found on ARMOUR’s website, www.armorreit.com. This conference call includes forward looking statements were intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. The Risk Factors 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 ww.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 Arbor’s website, Charlie, and will continue for one year.

Harbor’s Q2 GAAP net loss related to common stockholders was $78,600,000 or zero nine four dollars per common share. Net interest income was $33,100,000 Distributable earnings available to common stockholders was $64,900,000 or $0.77 per common share. This non GAAP measure is defined as net interest income plus TBA drop income adjusted for interest income or expense on our interest rate swaps and futures contracts minus net operating expenses. ARMOUR Capital Management waived a portion of their management fees, waiving $1,650,000 for the Q2, which offsets operating expenses. During Q2, ARMOUR raised approximately $104,600,000 of capital by issuing approximately 6,300,000.0 shares of common stock through an at the market offering program.

Since June 30, we have raised approximately $58,800,000 of capital by issuing approximately 3,500,000.0 shares of common stock through an at the market offering program. We currently have outstanding 91,500,000.0 common shares. ARWUR paid monthly common stock dividends per share of $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 07/30/2025, a cash dividend of $0.24 per outstanding common share will be paid to holders of record on 07/15/2025.

We have also declared a cash dividend of $0.24 per outstanding common share payable August 29 to the holders of record on 08/15/2025. Quarter ending book value was $16.9 per common share. Our estimated book value as of Monday, July 21, was $16.81 per common share, reflective of the accrual of July common dividend. I will now turn the call over to Chief Executive Officer, Scott Ulm, to discuss RMR’s portfolio position and current strategy.

Scott Ulm, CEO, Armored Residential REIT: Thanks, Gordon. Hey, just a note to the team, had a connectivity problem a second ago. So if I disappear, just continue with what we have to say here, but we should be just fine. Well, thanks all. As we entered the second half of twenty twenty five, the debate around U.

S. Fiscal sustainability, Fed independence and trade dynamics continues to weigh on the macro landscape. While we don’t expect these issues to be resolved quickly, markets appear to have digested much of the initial shock as rates and spreads have settled into stable ranges and volatility has drifted lower. On the monetary policy front, incoming U. S.

Economic data indicates solid economic growth that’s supportive of the Fed’s wait and see approach. While Fed policy rates remain on hold, elevated short term yields are absorbing investor liquidity. However, we believe that a resumption of the Fed cutting cycle this year should reignite the flow of liquidity into agency MBS. Current coupon MBS spreads have retraced from April’s historically distressed levels, supported by declining volatility. The MBS to SOFR spreads have consolidated back towards an average of the spread levels observed in 2025.

They widened by approximately 10 basis points quarter over quarter and remain historically cheap. The thirty year fixed mortgage rate was near 6.75% through late June and early July, effectively dampening refinancing activity and keeping net mortgage supply muted. This tightening backdrop, while a challenge for borrowers, continues to create compelling opportunities for investors in high carry production agency MBS. At the policy level, The U. S.

Housing finance system remains a central topic in D. C. The HFFA Director, Bill Pulte, has begun to implement reforms aimed at streamlining the GSEs, Fannie Mae and Freddie Mac, with administration officials signaling support for retaining an implicit government guarantee for the GSEs. While public rhetoric hints at an eventual need to end conservatorship, we view these developments as constructive yet not imminent. I’ll now turn it over to Desmond for more detail on our portfolio.

Desmond?

Desmond Macaulay, Co-CIO, Armored Residential REIT: Thank you, Scott. ARMOR’s estimated net portfolio duration and implied leverage are closely managed at zero point four six years and eight turns respectively. Our total liquidity is strong at approximately 52% of the total capital as of July 21. Our hedge book reflects a balanced view of duration with a bias for further Fed easing. Hedges are composed of about 33 in treasury shorts and futures with the remainder in OIS and SOFR swaps as measured on a DV01 basis.

While SOFR swaps are cheaper hedges, treasuries have proven to be a more effective hedge instrument for mortgages as of late. ARMOR is invested 100% in Agency MBS, Agency CMBS and U. S. Treasuries. Our MBS portfolio remains concentrated in production MBS with ROEs in the 18% to 20% range.

The portfolio remains well diversified across the thirty year coupon stack, GNMAs and Indos whose positive convexity and short duration attributes offer better value over comparable fifteen year MBS pools. Portfolio MBS repayment rates have averaged 7.7 CPR in Q2 and are trending at around 8.3 CPR so far in Q3. We see no signs of material acceleration unless mortgage rates drop significantly. We continue to favor higher loan balance and credit specified pools with favorable convexity and prepayment profiles to TBA and generic collateral. Our TBA exposure is light at $300,000,000 and remains a tactical tool to manage MBS coupon positioning.

ARMOR funds 40% to 60% of our MBS portfolio with our affiliate, Buckler Securities, while spreading out the remaining repo balances across 15 to 20 other counterparties to provide ARMOR with the best financing opportunities at an average gross haircut of 2.75%. Overall, MBS repo funding remains ample and competitively priced ranging at around software plus 15 to 17 We are increasingly optimistic that structural demand for MBS may improve later this year. Evolving regulatory clarity around banking reform and a resumption of the Fed easing policy could act as meaningful catalysts for increasing banking demand. This combined with constrained mortgage supply sets up a highly constructive technical backdrop for Agency MBS, while historically widespread signals strong risk to reward incentive to own mortgage assets.

I’ll turn it over back to you, Scott.

Scott Ulm, CEO, Armored Residential REIT: Thanks, Desmond. ARMOUR’s approach remains unchanged, grow and deploy capital thoughtfully during spread dislocations, maintain robust liquidity and dynamically adjust hedges for disciplined risk management. We’re confident in our positioning, strategy and ability to deliver value for shareholders. As you know, we determine our dividend based on a medium term outlook. We view our current dividend as appropriate for this environment and the returns available.

Thank you for joining today’s call and your interest in Armor. We’re happy to now answer your questions.

Conference Operator: We will now begin the question and answer session. The first question comes from the line of Doug Harter with UBS. Please go ahead.

Doug Harter, Analyst, UBS: Thanks and good morning. Hoping you could just talk about your philosophy for managing spread duration risk as you go through a volatile period like you did in April and the second quarter in total and kind of just give us a little more on the thought process?

Desmond Macaulay, Co-CIO, Armored Residential REIT: Yes. Hi, Doug. So on spread risk, I can start with just our leverage, which we are very comfortable with, at this point. We think that spreads remain historically attractive. And for that reason, we could potentially look to even modestly increase our leverage here.

Currently, we are around just a little bit below the average over the last six to twelve months our own average over the last six to twelve months. In terms of duration, we manage it dynamically. We’ve recently increased our hedges in longer duration assets, longer duration beyond the ten year point to adjust for what we saw in Q2 where there was steepness of the curve in ten year maturities and beyond.

Matthew Werner, Analyst, Jones Trading: Great. Thank you.

Conference Operator: The next question comes from the line of Trevor Cranston with JMP Securities. Please go ahead.

Eric Hagen, Analyst, BTIG: Hi, thanks.

Trevor Cranston, Analyst, JMP Securities: Looking at the portfolio data, it looks like the allocation to higher coupons like sixes and above declined during the second quarter. Can you guys just comment on where you’re seeing the best value in the coupon stack and kind of where you guys are deploying marginal dollars as raise capital? Thanks.

Sergey Delislev, Co-CIO, Armored Residential REIT: Good morning, Trevor. This is Sergey. Yes, I think we might have talked about it on last earnings call. There was a volatility during the April. That’s probably where the sizes might have been reduced.

But overall, we remain favorable of 5.56 coupons. These are the highest ROE coupons that we are

Gordon Harper, CFO, Armored Residential REIT: currently

Sergey Delislev, Co-CIO, Armored Residential REIT: modeling. With the prepayment environment remains very benign. This is remains our focal point for the portfolio. We don’t really expect large changes

Jason Stewart, Analyst, Janney: near term.

Trevor Cranston, Analyst, JMP Securities: Got it. Okay. And I guess the other notable thing there was the new line item for the long treasury position. Can you just comment on kind of the what the role of that is within the portfolio?

Sergey Delislev, Co-CIO, Armored Residential REIT: Yes. So as you know, we view five year point on the yield curve as a very important pivotal point for managing overall portfolio duration risk and just responding to the monetary policy and all across the yield curve. So five year treasury serves as part of that hedging strategy, but it also is used as a proxy for our Agency CMBS position. As we know, we hold slightly just below maybe 5% of our portfolio. And we are very tactical about that market.

We tend to go in when spreads widen and reduce our allocations when we see spreads on the more richer side. And five year treasuries help us kind of hedge that position and be able to rotate among those asset classes.

Eric Hagen, Analyst, BTIG: Got it.

Trevor Cranston, Analyst, JMP Securities: Okay. Appreciate the comments. Thank you.

Conference Operator: The next question comes from the line of Randy Binner with B. Riley. Please go ahead.

Scott Ulm, CEO, Armored Residential REIT0: Hey, good morning. I just have one on the model and total expenses after fees waived reported in the quarter was $14,300,000 That was just a little bit higher than what trend was and what we were looking for. Was there anything unusual in that line item this quarter or seasonal? Or is that a level we would expect going forward?

Gordon Harper, CFO, Armored Residential REIT: I wouldn’t say it’s a level we’d expect going forward. We had a bit more professional fees than we had probably in the first quarter just on things that we were working on. So that as we explained in the 10 Q, some of that can just vary quarter to quarter, but not expecting sort of the same run rate on expenses.

Scott Ulm, CEO, Armored Residential REIT0: And that’s helpful. And then just to be, I guess, 100% clear, line item, that if you had higher hedge costs or volatility there because of interest rates moving around in April, that would be netted that would not be in that line item. That would be elsewhere, correct?

Gordon Harper, CFO, Armored Residential REIT: Yes. That’s up in the derivatives.

Scott Ulm, CEO, Armored Residential REIT0: Yes. Got it. Okay. Thank you.

Conference Operator: The next question comes from the line of Jason Stewart with Janney. Please go ahead.

Jason Stewart, Analyst, Janney: Hey, good morning. Thanks. Just big picture, as you think about constructing the hedge portfolio and the coupon stack, how do you balance total return versus carry as we start to see some of these dislocations in swaps versus treasuries?

Desmond Macaulay, Co-CIO, Armored Residential REIT: So, hi, Jason. So in terms of our portfolio, on the hedge side, we mentioned our duration. We are positioned for a bullish steepener, and we adjust our hedges appropriately. And it’s pretty dynamic. It’s our view of the macroeconomic environment.

We like to stay diversified across the coupon stack. The lower coupons would benefit if we do see rate rally. We expect that a rally could take place when the Fed resumes normalization, which we are expecting later on this year to the fall in the fall or later. The higher coupons could benefit in a steepener, where in any steepener scenario, the CPRs projected CPRs could be slower, and those could benefit the higher coupons. We’re looking to reinvest muscle in production coupon 5.56.

These are specified pools. They have the prepayment characteristics that we talked about in our prepared remarks. And that is supposed to improve the overall convexity of our portfolio. And last, of course, we also have DOS securities with even positive convexity. So to stay best to stay diversified across the coupon stack and looking to add more in production coupons in terms of reinvesting paydowns and also reinvesting any equity capital raises.

Yes.

Sergey Delislev, Co-CIO, Armored Residential REIT: And just to add on the hedge book side, as we mentioned, we’re on a DBO1 basis, we’re about 33% in treasuries. On a notional basis, it’s, closer to 20.8%. We still like to, use interest rate swaps, as the main hedge instrument. It’s a cheaper hedge. Obviously, from a total return, treasuries have been a more effective hedge as of late.

So we’re keeping these, the balance of the hedge book right where we feel like it provides both the carry and the total return opportunity from both sides.

Jason Stewart, Analyst, Janney: Okay. So does the 18% to 20% range keep the hedge book in with the same composition that you have right now in twentyeighty notional?

Desmond Macaulay, Co-CIO, Armored Residential REIT: So 18% to 20% would be, for like our production coupon 5.56% ish. In terms of, that would if you look at it from a total return perspective, then the hedge like if we use swap hedges and we run swap hedges to forwards, the total return would be roughly zero in that case. A 20% return on production coupons, it’s pretty much doesn’t matter whether we use swaps or treasury futures. So in that framework, 18% to 20%, I should also point that, that’s in the base case, right? We think spreads are really attractive at this point.

So if we take, for example, we see a 10 basis points tightening in OAS, that can add another 4% to that number. And also keep in mind as well that the repo rate has been stable throughout the entire year. The Fed has not cut this year. If we do see resumption in normalization, we can expect, even in the base case, for those returns to look even more attractive. But as it is right now, they are more attractive.

They either meet or exceed our hurdle rate. And that’s one of the reason that we are very optimistic about our current environment.

Jason Stewart, Analyst, Janney: Okay. That’s helpful color. Thank you for that. And then just on the ATM program quarter to date in 3Q, could you give us an idea of how that was raised relative to book and where book was today?

Gordon Harper, CFO, Armored Residential REIT: I don’t have book value for you as of today, but book is, as we said, was $16.81 as of Monday. And the issuances were just mildly dilutive, just a couple of cents per share.

Jason Stewart, Analyst, Janney: Okay. Thank you.

Conference Operator: The next question comes from the line of Matthew Werner with Jones Trading. Please go ahead.

Matthew Werner, Analyst, Jones Trading: Hey guys, good morning. Thanks for taking the question. Just a quick one for me. You guys talked on leverage a little bit with it running back up quarter to date still below those historical levels. What exactly are you looking for to take leverage up?

Is it more clarity from the Fed? Is it kind of a little more stability on the long end of the curve? Would just like your thoughts there. Thanks.

Gordon Harper, CFO, Armored Residential REIT: So go

Jason Stewart, Analyst, Janney: ahead, Dasim.

Desmond Macaulay, Co-CIO, Armored Residential REIT: Okay. So first, I should just our leverage strategy is it’s very flexible. And it’s designed to reflect our view on the attractiveness of spreads, our view on market volatility and just where we want our liquidity to be. So we took our leverage down tactically quarter to date. Spreads are tightened locally, and we saw volatility also come up significantly since early April.

So in addition, there were swirling headlines around Fed independence, and those headlines have now subsided. So given that spreads are still near historically wide levels and liquidity conditions are now stable, we are comfortable modestly increasing our leverage from where we are. So does that answer your question?

Matthew Werner, Analyst, Jones Trading: Yes, a little bit but I guess going forward over the next three months when you guys are expecting the Fed cut, are you going to pull leverage on in front of that as you go into that event kind of thing?

Scott Ulm, CEO, Armored Residential REIT: Yes. I’ll just say we think about all this stuff and but are generally not in the try not to be in the business of putting big bets on. What’s behind your question is exactly right. It’s a view that there’s more stability across all the axes that we look at. And to the degree that and of course that’s a reflection of how stable we feel liquidity is going to be, which is really the driver behind what leverage you’re comfortable with.

And we’ll react accordingly. I think you could probably expect us not to take a big bet, but as you see elements of greater stability come into the market across those axes, there may well be a pretty good case for going up a little bit. Remember historically, leveraging this sort of business model, if you go back decades, was a lot higher. And generally, have been keeping their head down, which has served everybody pretty well, frankly. Less volatility, more stability means that the model can take a little more leverage.

Matthew Werner, Analyst, Jones Trading: Yes, that’s helpful. Thanks for the comments. Sorry, go ahead.

Sergey Delislev, Co-CIO, Armored Residential REIT: Just and as a catalyst, of course, the big elephant in the room is bank demand so far year to date and has probably disappointed most industry investors. And, we are closely watching developments on the regulation front. Just yesterday, there was the first Fed, Capital Framework Conference that a lot of color came out of that industry wide participants are looking to speed up and agree that currently capital framework is too confusing, too stringent. Banks are sitting on record excess capital. So we feel like it’s just a question of if not when we start to see greater participation from the banks and this will be the tailwind that we outlined in our script as well.

Matthew Werner, Analyst, Jones Trading: Yes, I definitely agree there. Thank you.

Conference Operator: The next question comes from the line of Eric Hagen with BTIG. Please go ahead.

Eric Hagen, Analyst, BTIG: Hey, thanks. Good morning. Sticking on this conversation around hedging. I mean, do you think there’s any value at this point in hedging the short end of the yield curve? I mean, how attractive do you think it is to buy swaptions at this point, just considering volatility has come down a little bit?

Thank you, guys.

Sergey Delislev, Co-CIO, Armored Residential REIT: Hi, Eric. Yes. So I mean, look, the two year yield has been extremely stable over the last year. Obviously, the talk of hikes are not on the table at this point. But we express that in our bulls keep in our bias of our yield curve hedging.

Whatever front end hedges we have on, they’re there for kind of the risk management to express that exposure. We currently don’t play in the swaptions market. We always evaluate it. But from where mortgages are trading and how wide the spreads are, we feel like that the better trade off is to express the view on volatility through the current coupon basis, for example.

Eric Hagen, Analyst, BTIG: Yes. That’s helpful. I mean, maybe continuing on that theme. I mean, you guys offer good information and color on your duration gap. I mean, so just looking at these current coupons specifically, do you maybe have an estimate for what your duration gap would extend to if mortgage rates backed up, let’s call it, like 50 basis points?

And in that extension scenario, would you be more likely at this point to let your leverage run a little higher? Or would you look to sell assets in that scenario?

Sergey Delislev, Co-CIO, Armored Residential REIT: Yes, that’s a good question. We obviously run risk stress test scenarios. We can get some numbers for you. And do you mean sell off on the long end or on the front end since that was the initial question?

Eric Hagen, Analyst, BTIG: Yes. Maybe more on the long end, right, like that curve steepener you guys are Yes. Positioned

Sergey Delislev, Co-CIO, Armored Residential REIT: I think look, I think we hedge our curve exposure on dynamic basis. We don’t we’re not going to let duration extend over certain levels where we feel like would require rebalancing of duration. So from that standpoint, we stay very disciplined. And, our risk metrics in the shock scenarios don’t pose, any large extension beyond which liquidity would be compromised.

Eric Hagen, Analyst, BTIG: Yes. Thank you, guys, so much.

Conference Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Scott Ulm for any closing remarks. Thank you.

Scott Ulm, CEO, Armored Residential REIT: Thanks for joining us this morning. Please feel free to give us a ring at the office. Happy to catch up if other things occur as you’re thinking about what’s going on in mortgage land. Thank you for joining us this morning, and good morning to you.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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