ARMOUR Residential REIT(US:ARR)2025-10-22 20:20Financial Performance - For the three months ended September 30, 2025, net income was $159,259,000, compared to $65,880,000 for the same period in 2024, reflecting gains on trading securities and interest income from a larger average securities portfolio[167]. - Net interest income for the nine months ended September 30, 2025, was $107,963,000, significantly up from $14,139,000 in the same period of 2024[167]. - Interest income for the three months ended September 30, 2025, was $210,182,000, compared to $127,060,000 in 2024, while interest expense increased to $171,665,000 from $125,221,000[169]. - Total other income for the three months ended September 30, 2025, was $134,018, compared to $74,487 in 2024, driven by a gain on agency securities trading of $177,108[176]. - The company reported a gain on agency securities trading of $401,910 for the nine months ended September 30, 2025, compared to $55,522 in 2024[176]. - The total management fee expense for the nine months ended September 30, 2025, was $28,582, up from $24,580 in 2024, reflecting an increase of about 16.3%[230]. Investment Portfolio - ARMOUR's investments primarily consist of fixed-rate loans, with a focus on Agency Securities, which are guaranteed by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac[141]. - As of September 30, 2025, total investments in securities amounted to $18,180,843, with Agency Securities representing 97.9% of the total portfolio[194]. - The company experienced a gross unrealized gain of $47,594 on total Agency Securities valued at $17,805,194 as of September 30, 2025[194]. - The total principal amount of Agency Fixed Rates ≥ 181 months was $17,898,690, with a weighted average CPR of 7.5%[194]. Interest Rate Management - The Federal Reserve maintained the target range for the Federal Funds Rate at 4.25% to 4.50% as of July 30, 2025, and subsequently lowered it to 4.00% to 4.25% on September 17, 2025[153]. - ARMOUR's strategy includes managing interest rate risks effectively while maintaining REIT status, as changes in interest rates significantly influence net interest income[146]. - The primary market risk for ARMOUR Residential REIT, Inc. is interest rate risk, which can significantly affect net interest income and the value of mortgage-backed securities (MBS) due to fluctuations in interest rates[262]. - In a rising interest rate environment, the cost of funds may increase more rapidly than earnings from assets, potentially leading to a net loss and negatively impacting liquidity and net income[263]. - The sensitivity analysis indicates that a 1.00% increase in interest rates could decrease net interest income by 10.06% and shareholder's equity by 10.27% as of September 30, 2025[269]. Liquidity and Financing - The company has prioritized liquidity in response to increased market volatility due to tariffs and Federal Reserve actions, ensuring timely fulfillment of obligations to repurchase agreement counterparties[152]. - The liquidity totaled $1,141,390, consisting of $44,238 in cash and cash equivalents and $1,097,152 in unencumbered Agency Securities and U.S. Treasury Securities as of September 30, 2025[218]. - The company financed its securities portfolio with $16,557,426 in borrowings under repurchase agreements as of September 30, 2025, compared to $10,713,830 at the end of 2024, reflecting a 54.5% increase[221]. - The debt to equity ratio was 7.78:1 as of September 30, 2025, slightly down from 7.87:1 at the end of 2024, indicating a marginal improvement in leverage[222]. Risk Management - The company actively manages risks associated with its leveraged and diversified portfolio of MBS to create stockholder value[261]. - The company faces various risks including changes in interest rates, economic downturns, and regulatory changes that could materially affect its business[252]. - ARMOUR Residential REIT, Inc. faces liquidity risk from financing long-maturity MBS with short-term debt, which can lead to increased borrowing costs during rising interest rates[276]. - Operational risk is a concern due to potential cybersecurity threats, with the company implementing measures to mitigate these risks through an Information Technology Steering Committee[278]. Derivatives and Fair Value - The aggregate notional balance of interest rate swap contracts was $10,402,000 at September 30, 2025, compared to $7,232,000 at December 31, 2024[182]. - The company had contractual commitments under derivatives with a net fair value of $539,362 at September 30, 2025, down from $906,778 at December 31, 2024[203]. - The company had approximately $(281,360) of net deductible expense relating to previously terminated interest rate swap and treasury futures contracts amortizing through the years 2040 and 2034[185]. - Fair value estimates are updated daily to reflect current market dynamics, especially during periods of high volatility[248].