ARMOUR Residential REIT (NYSE:ARR) Q4 2025 Earnings call February 19, 2026 09:00 AM ET Company ParticipantsDave Storms - Director of Equity ResearchDesmond Macauley - Co-Chief Investment OfficerEric Hagen - Managing DirectorGordon Harper - CFOScott Ulm - CEOSergey Losyev - Co-Chief Investment OfficerConference Call ParticipantsTimothy D'Agostino - Research AnalystTrevor Cranston - Equity Research AnalystOperatorGood day. Welcome to the ARMOUR Residential REIT's Fourth Quarter 2025 Earnings Conference Call. ...

Financial Data and Key Metrics Changes - ARMOUR reported a total economic return of 10.63% for Q4 2025, benefiting from MBS spreads tightening and a lower interest rate environment [4] - GAAP net income available to common stockholders was $208.7 million, or $1.86 per share, with net interest income at $50.4 million [4] - Distributable earnings available to common stockholders were $79.8 million, or $0.71 per common share [4] - Quarter-end book value increased to $18.63 per common share, up 6.5% from September 30 [5] Business Line Data and Key Metrics Changes - ARMOUR's mortgage assets exceeded $20 billion, with a portfolio growth of over 10% from the end of Q3 2025 [8] - The portfolio remains nearly 100% agency MBS, agency CMBS, or US Treasuries, with a net balance sheet duration of 0.14 years [11] - Aggregate portfolio prepayments averaged 11.1 CPR through Q4 2025 and Q1 2026 to date, compared to 8.1 CPR in Q3 2025 [13] Market Data and Key Metrics Changes - The market's appeal remains anchored in declining rate volatility and easing funding costs, supported by the Fed's efforts to lower rates [9] - The 30-year mortgage rate has remained in a tight 6%-6.3% band, with recent shifts toward the low end of that range [13] - Repo conditions have improved materially, with repo rates averaging roughly SOFR plus 15 basis points [16] Company Strategy and Development Direction - ARMOUR views agency MBS as a high conviction opportunity, expecting continued favorable conditions in 2026 [8] - The company aims to maintain a consistent and predictable return profile for its assets, focusing on stress testing liquidity and systematic hedging [19] - The administration's focus on lowering mortgage spreads is expected to support a stable mortgage market, with GSEs playing a crucial role [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the positioning and strategy for 2026, highlighting the importance of capital raising and investment opportunities [23] - The company anticipates that further declines in mortgage rates will require lower long-end Treasury yields, which have not declined in sync with front-end rate cuts [14] - Management noted that the risk of faster prepayments has increased, but the portfolio has been structured to mitigate this risk [37] Other Important Information - ARMOUR raised approximately $3.8 million of capital by issuing preferred stock and around $138 million through its common-at-the-market program [5][6] - The company has declared cash dividends of $0.24 per outstanding common share for January and February 2026 [6] Q&A Session Summary Question: Outlook for portfolio and interest-bearing assets growth in 2026 - Management indicated that growth depends on market behavior and capital raising opportunities, with no definitive outlook provided [23] Question: Incremental returns on new investments given spread tightening - Current levered yield on thirty of fives is around 15%, with potential for additional returns from further spread tightening and curve steepening [28][29] Question: Likelihood of government actions to lower mortgage rates - Management noted that while some actions have been taken, further steps may introduce complexities that could counteract the goal of stable mortgage spreads [33] Question: Current liquidity position and near-term outlook - Management confirmed liquidity at about 54% of total equity, reflecting moderate leverage and steady liquidity [36] Question: Risk of faster prepayments with lower mortgage rates - Management acknowledged the increased risk of faster prepayments but emphasized that the portfolio is structured to handle this risk [37]

Financial Data and Key Metrics Changes - The company's book value increased to $11.13 per share at December 31, 2025, compared to $11.04 per share at September 30, 2025, resulting in a quarterly economic return of +3.9% [13] - Comprehensive income for the quarter was $50.4 million or $0.48 per share, with net interest and servicing income decreasing due to MSR sales and lower float income [13][14] - The total economic return on book value for the full year 2025 was -12.6%, but excluding a litigation settlement expense, the return was +12.1% [8] Business Line Data and Key Metrics Changes - The company settled on the sale of an additional $10 billion UPB of MSR, increasing total third-party subservicing to $40 billion at year-end compared to $30 billion at the end of the third quarter [11] - The direct-to-consumer (DTC) platform funded $94 million in first and second liens, a 90% increase from the third quarter [11] Market Data and Key Metrics Changes - The mortgage finance landscape shifted in 2025, emphasizing the need for scale in origination efforts [5][6] - The nominal spread for current coupon RMBS tightened by 30 basis points to 114 basis points of the swap curve, indicating a positive response to declining interest rate volatility [18] Company Strategy and Development Direction - The merger with United Wholesale Mortgage (UWM) is expected to double the size of the MSR portfolio to a pro forma $400 billion, positioning the combined company for accelerated growth [6][12] - The company aims to leverage UWM's expertise in capital markets and asset management while enhancing servicing capabilities through RoundPoint [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the merger with UWM will yield significant benefits and enhance competitive positioning in the market [12] - The administration's commitment to lower mortgage rates is anticipated to stimulate increased mortgage and origination activity in 2026 [8] Other Important Information - The company ended the quarter with over $800 million in cash and repaid $261.9 million of convertible senior notes on their maturity date [15] - The portfolio at December 31, 2025, was valued at $13.2 billion, with $9 billion in settled positions and $4.2 billion in TBAs [17] Q&A Session Summary Question: How is the merger affecting portfolio construction? - Management confirmed that they are operating as an independent company and managing the portfolio as usual, with changes driven by market assessments [30] Question: What is the current book value? - The book value is up about 1.5%-2% as of January 30, 2026 [31] Question: How is leverage being managed in the current market? - The company has become more defensive and reduced leverage slightly due to current market conditions and spread movements [36] Question: What are the chances of an LLPA or guarantee fee reduction at the GSEs? - There is a reasonable chance for changes in the LLPA grid, but the market is still digesting the potential impacts [39] Question: How is the MSR market performing? - The interest in the MSR market remains strong, with no notable changes in bank activity observed [40] Question: What is the prospective return outlook? - Spreads have tightened since the end of December, which may marginally affect return potential [44]

Group 1 - Invesco Mortgage Capital Inc. (NYSE:IVR) is considered one of the most undervalued REIT stocks currently available for investment [1] - Compass Point raised its price target for Invesco Mortgage Capital from $9 to $9.50, maintaining a Buy rating, citing wider-than-average mortgage spreads as a potential driver for an increase in book value per share [1] - The firm forecasts that mortgage margins will narrow as fixed-income fluctuations decrease and the yield curve becomes steeper [1] Group 2 - Invesco Mortgage Capital announced a monthly dividend of $0.12 for January 2026, which is consistent with its previous quarterly dividend of $0.36 from Q4 2025 [2] - Preliminary financial indicators suggest an expected book value per share ranging from $8.94 to $9.30 as of January 12, 2026, with a midpoint of $9.12, slightly lower than Compass Point's forecast of $9.24 [2] Group 3 - Invesco Mortgage Capital Inc. is a Georgia-based real estate investment trust that focuses on investing, financing, and managing mortgage-backed securities and related assets [3]

Financial Data and Key Metrics Changes - AGNC reported comprehensive income of $0.89 per common share for Q4 2025, with an economic return on tangible common equity of 11.6% for the quarter, driven by lower interest rate volatility and tighter mortgage spreads [11] - The full-year economic return was 22.7%, reflecting a monthly dividend totaling $1.44 per common share and a $0.47 increase in tangible net book value per share [11] - As of late January, tangible net book value per common share was up about 4% for January, or 3% net of monthly dividend accrual [11] - The company ended Q4 with leverage of 7.2x tangible equity, down from 7.6x at the end of Q3 [11] Business Line Data and Key Metrics Changes - Average leverage for Q4 was 7.4 times, compared to 7.5 times in Q3 [12] - Net spread and dollar roll income remained unchanged at $0.35 per common share, which includes a penny per share of expense related to year-end incentive compensation accrual adjustments [12] - The average projected life CPR of the portfolio increased 100 basis points to 9.6% at quarter end from 8.6% in the prior quarter [14] Market Data and Key Metrics Changes - The Bloomberg Aggregate Agency Index was the best-performing fixed income sector in Q4, producing a total return of 8.6% for the year [6] - Agency MBS outperformed the Treasury Index by 2.3 percentage points, or 36% in 2025 [7] - The funding market for Agency MBS improved in response to the Fed increasing the size of its balance sheet and improving the functionality of its standing repo program [9] Company Strategy and Development Direction - AGNC is positioned to generate compelling, risk-adjusted returns with a substantial yield component for shareholders, leveraging favorable macro themes and a well-balanced supply and demand outlook for Agency MBS [10] - The company shifted its hedge mix toward a greater proportion of interest rate swaps, which is consistent with the current more accommodative monetary policy environment [13] - The company plans to operate with a greater share of swap-based hedges, particularly as short-term rates near the Fed's long-run neutral rate [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a durable and attractive investment environment as mortgage spreads began to stabilize at historically attractive return levels [5] - The favorable performance of Agency MBS was attributed to the Fed's shift in monetary policy, lower interest rate volatility, and the resolution of uncertainties regarding GSE reform [8] - Management anticipates that the underlying fundamental and technical backdrop for Agency mortgage-backed securities will remain favorable and supportive of a positive outlook [10] Other Important Information - The company issued $356 million of common equity through its at-the-market offering program at a significant premium to tangible book value per share, bringing total accretive common equity issuances for the year to approximately $2 billion [14] - The asset portfolio totaled $95 billion at quarter end, up about $4 billion from the prior quarter [16] Q&A Session Summary Question: Can you talk about where you see spreads currently versus where you saw it in the fourth quarter? - Management indicated that mortgage spreads have entered a new range, with current coupon spreads to swaps in the 120-160 basis point range, and current coupon to Treasuries around 90-130 basis points [22][23] Question: How do you think about the risk or potential benefit that could get you to the high end or low end of those ranges? - Management noted that actions from the GSEs and potential changes in the Fed's balance sheet could positively impact spreads, while certain proposals could have negative consequences [39][40] Question: What would you do to address the affordability questions? - Management acknowledged the administration's efforts and suggested that maintaining spread stability is crucial for market participation [48] Question: How do you gauge your positivity on the investing environment right now for agency MBS? - Management expressed that while spreads are lower, they remain attractive by historical standards, and the upper end of the spread range is more certain than in previous years [52] Question: Would you adjust any of the hedges if the refi market was really going to accelerate? - Management indicated that asset selection and coupon composition will be critical in a rising prepayment environment, and they have strategies in place to manage prepayment risk [90][93]

Financial Data and Key Metrics Changes - AGNC reported comprehensive income of $0.89 per common share for Q4 2025, with an economic return on tangible common equity of 11.6% for the quarter, driven by a $0.60 increase in tangible net book value per share [12][5] - The full-year economic return was 22.7%, reflecting a total monthly dividend of $1.44 per common share and a $0.47 increase in tangible net book value per share [12][5] - As of late January, tangible net book value per common share was up about 4% for January, or 3% net of monthly dividend accrual [12] Business Line Data and Key Metrics Changes - Average leverage for Q4 was 7.4x, down from 7.5x in the previous quarter, with a leverage of 7.2x at the end of Q4 [12][13] - Net spread and dollar roll income remained unchanged at $0.35 per common share for the quarter [12][13] - The average projected life CPR of the portfolio increased to 9.6% at quarter end from 8.6% in the prior quarter, with actual CPRs averaging 9.7% for the quarter [12][15] Market Data and Key Metrics Changes - The Bloomberg Aggregate Agency Index was the best-performing fixed income sector in Q4, producing a total return of 8.6% for the year [7] - Agency MBS outperformed the Treasury Index by 2.3 percentage points, or 36% in 2025 [7][8] - The demand for Agency MBS is expected to remain strong, with GSE purchases potentially consuming about half of the year's supply [11] Company Strategy and Development Direction - AGNC is positioned to generate compelling, risk-adjusted returns with a substantial yield component for shareholders, focusing on the favorable macro themes for Agency mortgage-backed securities [11] - The company plans to maintain a greater share of swap-based hedges in its hedge mix, particularly as short-term rates approach the Fed's long-run neutral rate [17] - The strategy includes opportunistically shifting the hedge mix toward a greater proportion of interest rate swaps to benefit from additional rate cuts [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a durable and attractive investment environment as mortgage spreads stabilize at historically attractive levels [6][9] - The favorable macroeconomic backdrop is expected to continue, with potential further actions by the administration to improve housing affordability [10] - Management highlighted the importance of spread stability for generating attractive returns and indicated that the current environment is more favorable compared to previous years [53] Other Important Information - The company issued $356 million of common equity through its at-the-market offering program at a significant premium to tangible book value per share, bringing total accretive common equity issuances for the year to approximately $2 billion [15] - The asset portfolio totaled $95 billion at quarter end, up about $4 billion from the prior quarter, with 76% of assets having favorable prepayment attributes [17] Q&A Session Summary Question: Can you talk about where you see spreads currently versus where you saw it in the fourth quarter? - Management indicated that mortgage spreads have entered a new range, with current coupon spreads to swaps in the 120-160 basis point range, and current coupon to Treasuries around 110 basis points [22][24] Question: How do you think about the risk or potential benefit that could get you either to the high end or low end of those ranges? - Management noted that actions from the GSEs and potential changes in the Fed's balance sheet could positively impact spreads, while certain proposals could have negative consequences [38][40] Question: What would you do to address the affordability questions? - Management emphasized the importance of maintaining spread stability and suggested that the GSEs should focus on decisions based on the economics of the mortgage market [48][49] Question: How do you gauge your positivity on the investing environment right now for Agency MBS? - Management expressed that while spreads are lower, they remain attractive by historical standards, and the current environment is more stable than in previous years [51][53] Question: Would you adjust any of the hedges if it looked like the refi market was really going to accelerate? - Management indicated that asset selection and the composition of the portfolio will be critical in a rising prepayment environment, and they would consider adjusting hedges accordingly [90][92]

AGNC Investment (NasdaqGS:AGNC) Q4 2025 Earnings call January 27, 2026 08:30 AM ET Speaker7Good morning, and welcome to the AGNC Investment Corp.'s Fourth Quarter 2025 shareholder call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your questi ...

Core Viewpoint - President Trump's directive for Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds aims to lower mortgage rates below 6% and enhance housing affordability [1] Group 1: Mortgage Rate Influence - The directive is intended to impact mortgage spreads, which are the differences between the 10-year Treasury yield and 30-year mortgage rates, historically averaging 1.8 percentage points higher than Treasury yields [2] - By increasing the purchase of mortgage bonds, the initiative seeks to influence the demand for mortgage-backed securities, which is one of the factors determining spread levels [3] Group 2: Expert Opinions and Housing Supply - Housing experts agree that additional mortgage-bond purchases could lower mortgage rates, but the effectiveness of this plan is uncertain without addressing the significant housing supply shortage in the U.S., estimated between 1.5 million and 5.5 million homes [4][6] - The current housing supply shortage is pegged at 2.8 million homes, which could take a decade to resolve, indicating that demand-side measures alone may not suffice to improve affordability [6] Group 3: Current Market Context - Fannie Mae and Freddie Mac hold a relatively small portion of mortgage-backed securities, with a combined total of $247 billion, while larger players include banks, foreign investors, and the Federal Reserve in the $9 trillion market [7] - The recent actions of Fannie Mae and Freddie Mac have already contributed to a decrease in mortgage rates, which fell from the high 6% range to just under 6.2% over the past year, with spreads also compressing from 2.65 percentage points in April to just under 2 percentage points currently [8][9]

Core Insights - The mortgage REITs have identified an opportunity in agency-backed mortgages due to historically high spreads, leading to significant capital deployment in this sector [1][2][4] - Dynex Capital (DX) exemplifies the trend among agency mREITs, having raised over $3 billion to expand its investment portfolio in agency MBS [2][15] - The tightening of mortgage spreads has resulted in substantial mark-to-market gains for mREITs, with 30-year mortgage yields dropping from approximately 7% to 6.5% [7][11][31] Group 1: Market Dynamics - Agency-backed mortgages are considered nearly as safe as U.S. Treasuries, with the added risk of prepayment and duration risk [5] - The recent increase in mortgage rates over the past five years has led to many mortgages trading at a discount to par, making prepayment potentially profitable for mREITs [6] - The tightening of spreads has been beneficial, with a notable drop in 30-year mortgage yields contributing to gains in mREIT portfolios [7][11] Group 2: Investment Strategies - Many mREITs have followed a similar strategy to Dynex by issuing equity to capitalize on high mortgage spreads, which has diluted common shareholders but benefited preferred shareholders [17][31] - AGNC Investment has also expanded its agency RMBS portfolio through equity issuance, leading to increased asset value amid spread tightening [15][31] - Preferred shares of mREITs are viewed as more attractive investments compared to common shares, with many trading at discounts to par and offering high dividend yields [33] Group 3: Future Outlook - The anticipated 3Q earnings reports are expected to reflect significant gains in book value for mREITs due to the recent tightening of spreads [31][32] - The market may not yet fully recognize the gains experienced by these companies, which could lead to a shift in sentiment and a reduction in the risk premium for both common and preferred shares [32] - There is potential for investment in common shares, but preferred shares are generally considered the better option due to their higher yields and discounted prices [33]

Financial Data and Key Metrics Changes - AGNC reported a comprehensive loss of $0.13 per common share for Q2 2025, with an economic return on tangible common equity of negative 1% [14] - The tangible net book value per share declined by $0.44, while dividends declared per common share were $0.36 [14] - As of the end of July, the tangible net book value per common share increased by about 1% after accounting for monthly dividend accrual [14] - Quarter-end leverage increased slightly to 7.6x tangible equity from 7.5x at the end of Q1, with average leverage rising to 7.5x from 7.3x in the prior quarter [14][15] Business Line Data and Key Metrics Changes - The asset portfolio totaled $82 billion at quarter-end, up approximately $3.5 billion from the prior quarter, with a focus on higher coupon specified pools [19] - The weighted average coupon of the asset portfolio increased to 5.13% during the quarter [19] - The net spread and dollar roll income declined to $0.38 per common share, primarily due to the timing of capital deployment and higher swap costs [17] Market Data and Key Metrics Changes - Agency mortgage-backed securities (MBS) underperformed relative to benchmark interest rates, with spreads to treasury and swap rates widening [5][7] - The current coupon spread to a blend of treasury and swap benchmarks ended the quarter wider by 7 and 14 basis points, respectively [7] - The expected net supply of new MBS for the year is about $200 billion, at the low end of most forecasts [9] Company Strategy and Development Direction - AGNC's strategy focuses on maintaining sufficient liquidity to navigate financial market volatility and taking advantage of wider MBS spreads [6][9] - The company aims to deploy capital opportunistically in attractively priced assets while managing leverage [26][27] - The favorable outlook for agency MBS is supported by anticipated regulatory changes and a commitment from key policymakers to maintain implicit guarantees for agency MBS [9][12] Management's Comments on Operating Environment and Future Outlook - Management noted that the financial market stress in April led to a reassessment of macroeconomic and monetary policy outlooks, but most markets recovered by the end of the quarter [4][6] - The company expects bank and foreign demand for agency MBS to grow, with improved seasonal supply patterns for MBS issuance anticipated in Q3 [8][9] - Management expressed confidence in the stability of the mortgage market and the potential for tighter mortgage spreads over time due to supportive government policies [12][21] Other Important Information - The liquidity position totaled $6.4 billion in cash and unencumbered agency MBS, representing 65% of tangible equity, an increase from 63% in the prior quarter [15] - The average projected life CPR of the portfolio declined to 7.8% from 8.3% in Q1, while actual CPRs averaged 8.7% for the quarter, up from 7% in the prior quarter [17] Q&A Session Summary Question: Insights on the attractive environment and capital raising - Management indicated a favorable outlook for agency MBS and the potential for raising additional capital or increasing leverage as opportunities arise [23][26][27] Question: Core earnings trajectory and dividend levels - Management discussed the alignment of net spread and dollar roll income with portfolio economics, suggesting a return on equity in the high teens range [32][36] Question: Capital deployment status and opportunities - Management confirmed that approximately $1 billion worth of mortgages were purchased recently, with a focus on higher coupon specified pools [43][44] Question: Optimal size of the company and capital issuance - Management emphasized growth driven by accretive capital raising, highlighting the benefits of scale and liquidity for shareholders [50][53] Question: Balance between swap hedges and treasury futures - Management noted a preference for a balanced mix of swaps and treasuries, with a current overweight in swaps due to market conditions [58][60] Question: Impact of government budget deficit on the repo market - Management expressed confidence that treasury issuance would not materially impact the repo market, citing ample liquidity [90][92] Question: Changes in credit scoring and prepayment environment - Management acknowledged potential impacts from changes in credit scoring but deemed them not significantly impactful from an investor perspective [100][104] Question: Risks associated with prepayment protection - Management recognized the risk of increased prepayment speeds due to market efficiency but noted that significant rate drops would be necessary for widespread refinancing [106][112]