Form 8-K Armour Residential REIT, For: Dec 23
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 8-K
______________
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 23, 2016
ARMOUR Residential REIT, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 001-34766 | 26-1908763 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
3001 Ocean Drive, Suite 201 Vero Beach, Florida | 32963 | |
(Address of Principal Executive Offices) | (Zip Code) | |
(772) 617-4340
(Registrant’s Telephone Number, Including Area Code)
n/a
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 7.01. Regulation FD Disclosure.
On December 23, 2016, ARMOUR Residential REIT, Inc. (“ARMOUR”) produced for distribution a slide deck presentation, which contains updates on ARMOUR's financial position, business and operations. Attached as Exhibit 99.1 to this report is the slide deck presentation produced by ARMOUR.
The slide deck presentation attached to this report as Exhibit 99.1 is furnished pursuant to this Item 7.01 and shall not be deemed filed in this or any other filing of ARMOUR under the Securities Exchange Act of 1934, as amended, unless expressly incorporated by specific reference in any such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. | Description |
99.1 | Slide Deck Presentation dated December 23, 2016 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: December 23, 2016
ARMOUR RESIDENTIAL REIT, INC.
By: /s/ Mark Gruber
Name: Mark Gruber
Title: Chief Operating Officer
Exhibit Index
Exhibit No. | Description |
99.1 | Slide Deck Presentation dated December 23, 2016 |
ARMOUR RESIDENTIAL REIT, Inc.
Company Update
12/23/2016
PLEASE READ: Important Regulatory and Yield Estimate Risk Disclosures
2
Certain statements made in this presentation regarding ARMOUR Residential REIT, Inc. (“ARMOUR” or the “Company”), and
any other statements regarding ARMOUR’s future expectations, beliefs, goals or prospects constitute forward-looking
statements made within the meaning of Section 21E of the Securities Exchange Act of 1934. Any statements that are not
statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,”
“estimates” and similar expressions) should also be considered forward-looking statements. Forward-looking statements
include but are not limited to statements regarding the projections for ARMOUR’s business and plans for future growth and
operational improvements. A number of important factors could cause actual results or events to differ materially from
those indicated by such forward-looking statements. ARMOUR assumes no obligation to update the information in this
communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
This material is for information purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a
recommendation for any securities or financial instruments. The statements, information and estimates contained herein
are based on information that the presenter believes to be reliable as of today's date, but cannot be represented that such
statements, information or estimates are complete or accurate.
Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be
predicted with certainty. Estimated yields do not reflect any of the costs of operation of ARMOUR.
THE INFORMATION PRESENTED HEREIN IS UNAUDITED AND UNREVIEWED.
Timing of Monthly Company Update
3
ARMOUR is making a change in the release dates of the Monthly Company Updates starting in 2017.
ARMOUR plans to prepare future Monthly Company Updates based on portfolio and other information at the end of the
first two months of each quarter (i.e.; January 31st, February 28th; April 30th, May 31st, July 31st, August 31st, October 31st,
November 30th). ARMOUR plans to release these Monthly Company Updates after our regular monthly closing process is
complete. ARMOUR’s Forms 10-Q and 10-K contain information as of quarter end, and therefore no separate Monthly
Company Updates are planned for the third months of each quarter.
ARMOUR Monthly Metrics
4
Market Date 10/14/16 11/18/16 12/21/16
Common Stock Price $22.02 $22.18 $21.41
Estimated Book Value(1) $27.75 $25.13 $23.53
Common Shares Outstanding 36,756,835 36,756,835 36,756,835
Preferred A Shares Outstanding 2,180,572 2,180,572 2,180,572
Preferred B Shares Outstanding 5,650,000 5,650,000 5,650,000
Asset Balance Sheet Duration 3.18 4.15 4.02
Hedge Balance Sheet Duration (2.20) (2.16) (2.81)
Net Balance Sheet Duration 0.99 1.99 1.21
Leverage(2) 6.7 7.2 6.6
Rates DV01 1,040,511 2,013,824 1,175,000
Spread DV01 5,089,430 5,290,660 4,840,000
FNCL 3.5 Price 105.02 102.70 101.64
FNCI 3.0 Price 104.69 103.09 102.09
10 Yr Treasury Yield 1.80% 2.36% 2.54%
5 Year OIS Swap Rate 0.93% 1.46% 1.68%
10 Year OIS Swap Rate 1.26% 1.85% 2.06%
Quarter AssetYield
Cost of
Funds
Net Interest
Margin
Q1 2014 3.20 1.37 1.82
Q2 2014 2.85 1.40 1.46
Q3 2014 2.68 1.25 1.43
Q4 2014 2.71 1.44 1.27
Q1 2015 2.72 1.52 1.20
Q2 2015 2.61 1.24 1.36
Q3 2015 2.56 1.12 1.44
Q4 2015 2.70 1.13 1.58
Q1 2016 2.73 1.36 1.37
Q2 2016 2.68 1.33 1.35
Q3 2016 2.69 1.25 1.44
(1) A portion of the dividend payable has been subtracted from the *estimated* book value based on accrual throughout the month.
(2) Leverage does not include TBA dollar rolls or forward settling transactions. Leverage is based on current equity.
ARMOUR Capitalization, Dividend Policy, Transparency and Manager
Transparency
and
Governance
5
ARMOUR REIT
Manager
Common Stock
Dividend Policy
Capitalization
Information as of 12/21/2016.
• 36,756,835 shares of common stock outstanding (NYSE: “ARR”). (1)
• 2,180,572 shares of Series A Preferred Stock outstanding (NYSE: “ARR PrA”).
• 5,650,000 shares of Series B Preferred Stock outstanding (NYSE: “ARR PrB”).
• Total Capitalization of $1,060.7 million composed of:
◦ Estimated book value of common stock of $865.0 million.
◦ Preferred stock par value of $195.8 million.
• ARMOUR pays common stock dividends monthly.
• Dividends are typically announced on a monthly basis.
• Portfolio and liability details are updated monthly at www.armourreit.com.
• Premium amortization is expensed monthly as it occurs. No yield smoothing. (2)
• Hedge positions are marked-to-market daily (GAAP/Tax differences).
• Non-Executive Board Chairman and separate Lead Independent Director.
• ARMOUR REIT is externally managed by ARMOUR Capital Management LP.
(1) Share count data is as of 12/21/2016 close (including dilutive common stock equivalents).
(2) Due to the prepayment lockout feature of our Agency multifamily securities, premium is amortized using a
level yield methodology
ARMOUR Balance Sheet Metrics
ARMOUR invests in mortgage securities. Current allocation of equity in repo is:
• 55.0% in Agency securities.
• 45.0% in Non-Agency securities.
1.21 net balance sheet duration.
• 4.02 gross asset duration.
• (2.81) hedge duration.
$4.3 billion in hedges (interest rate swaps).
• 51.0% of Agency fixed rate assets hedged.
• 70.8% of Agency fixed rate asset repurchase agreements hedged.
$473.1 million in total liquidity.
• $271.5 million in true cash.
• $99.1 million in unlevered securities.
• $102.5 million in short term Agency P&I.
6.6x estimated shareholder's equity.
• $7.0 billion in net REPO borrowings.
•
6
Assets
Duration
Hedging
Liquidity
Leverage
Information as of 12/21/2016.
ARMOUR Portfolio Strategy and Investment Methodology
7
Non-Agency Structure Analysis
◦ Seniority, subordination model.
◦ Model completeness and accuracy.
◦ Litigation and policy risks.
Agency & Non-Agency Class Analysis
◦ Prepayment history.
◦ Prepayment expectations.
◦ Premium/discount.
◦ Liquidity.
Agency & Non-Agency Loan Analysis
◦ Original and current loan balance.
◦ Year of origination.
◦ Originating company, third-party originators.
◦ Loan seasoning.
◦ Principal amortization schedule.
◦ Original loan-to-value ratio.
◦ Geography.
◦ 63.0% of our 15yr MBS are between 85k - 175k loan
balances.
Agency Pool Analysis
◦ Prepayment history and expectations.
◦ Premium over par.
◦ Hedgability.
◦ Liquidity.
◦ Diversify broadly to limit idiosyncratic pool risk.
Management has a focused and disciplined approach to evaluating assets for inclusion in the ARMOUR portfolio.
ARMOUR employs a strong bias toward a ‘buy and hold’ strategy rather than a ‘trading’ strategy. ARMOUR will
strategically sell assets when it believes market conditions warrant.
Information as of 12/21/2016
ARMOUR Agency & Non-Agency Portfolio
8
Information as of 12/21/2016. Portfolio value is based on independent third-party pricing. Information includes estimates of the
effect of forward settling trades. Some totals may not foot due to rounding.
Total Agency Securities % of
Portfolio
Current
Value
(millions)
Weighted
Average
Purchase Price
Weighted Average
Current Market
Price
Weighted
Average Net/
Gross Coupon
Estimated Effective
Duration Using
Current Values
ARMs & Hybrids 0.9% $ 83.6 104.7% 103.8% 2.53/3.15 1.50
Agency Multifamily Ballooning in 120 Months or Less 14.8% $ 1,431.2 102.2% 101.6% 3.18/4.33 6.33
Fixed Rates Maturing Between 0 and 120 Months 1.5% $ 141.6 104.7% 104.6% 3.92/4.30 2.96
Fixed Rates Maturing Between 121 and 180 Months 34.2% $ 3,296.7 105.1% 103.9% 3.50/3.98 3.96
Fixed Rates Maturing Between 181 and 240 Months 3.6% $ 350.3 108.1% 106.0% 4.16/4.68 4.16
Fixed Rates Maturing Between 241 and 300 Months 1.3% $ 124.2 107.1% 104.2% 3.87/4.51 4.88
Fixed Rates Maturing Between 301 and 360 Months 10.8% $ 1,044.4 105.9% 104.1% 3.86/4.35 5.56
Interest-Only 0.4% $ 34.8 19.0% 21.4% 4.83/5.35 (3.99)
Total or Weighted Average 67.4% $ 6,506.8 104.3% 103.1% 3.53/4.17 4.67
Total Non-Agency Securities % of
Portfolio
Current
Value
(millions)
Weighted
Average
Purchase Price
Weighted Average
Current Market
Price
Weighted Average
Net/Gross Coupon
Estimated Effective
Duration Using
Current Values
Legacy Non-Agency Assets 1.0% $ 99.3 77.7% 81.4% 5.33/4.73 0.59
New Issue Prime Fixed 0.1% $ 10.9 95.0% 96.4% 3.66/3.95 5.74
Credit Risk Transfer 8.5% $ 822.3 98.3% 105.7% 5.09/4.20 (0.92)
NPL/RPLs 1.3% $ 123.7 99.9% 100.3% 3.80/4.18 1.16
Total or Weighted Average 10.9% $ 1,056.2 96.5% 102.7% 4.95/4.25 (0.47)
Total or Weighted Average Portfolio 100.0% $ 9,649.7 101.9% 101.6% 3.60/4.06 4.02
Total TBA Securities % of
Portfolio
Current
Value
(millions)
Weighted
Average
Purchase Price
Weighted Average
Current Market
Price
Weighted Average
Net/Gross Coupon
Estimated Effective
Duration Using
Current Values
15Y TBA 16.2% $ 1,564.9 101.8% 101.0% N/A 4.31
30Y TBA 5.4% $ 521.8 104.9% 104.4% N/A 4.17
Total or Weighted Average 21.6% $ 2,086.7 102.6% 101.8% N/A 4.28
9
ARMOUR Balance Sheet Hedge Metrics
Amount
(millions) Total Hedge %
Agency Fixed Rate Assets2 $8,486.0 51.0%
Agency Fixed Rate Asset Repo Balance2 $6,105.7 70.8%
Total Duration Contributionto Balance Sheet (1)
Agency Assets 4.07
Non-Agency Assets (0.05)
Interest Rate Swaps (2.81)
Net Balance Sheet 1.21
(1) The duration contribution to the balance sheet is based on effective duration and market value.
Information and pricing as of 12/21/2016. Some totals may not foot due to rounding.
(2) Includes $10.9 million of New Issue Prime Fixed and excludes Agency Interest-Only Securities. ARR’s Repo Balance is
significantly smaller than its fixed rate assets due to its TBA positions. Includes effects of forward settling trades.
ARMOUR Hedge Portfolio
10
Information as of 12/21/2016. Some totals may not foot due to rounding.
Derivative Type Remaining Term
Weighted
Average
Remaining Term
(Months)
Notional Amount
(millions)
Weighted
Average Rate
Interest Rate Swap 0-12 Months 8 $ 200.0 0.54
Interest Rate Swap 13-24 Months 17 $ 50.0 0.92
Interest Rate Swap 25-36 Months 35 $ 550.0 1.21
Interest Rate Swap 37-48 Months 0 $ — 0.00
Interest Rate Swap 49-60 Months 0 $ — 0.00
Interest Rate Swap 61-72 Months 0 $ — 0.00
Interest Rate Swap 73-84 Months 77 $ 2,075.0 1.97
Interest Rate Swap 85-96 Months 84 $ 100.0 1.97
Interest Rate Swap 97-108 Months 0 $ — 0.00
Interest Rate Swap 109-120 Months 119 $ 1,050.0 1.93
Interest Rate Swap 121-132 Months 121 $ 300.0 2.06
Total or Weighted Average 81 $ 4,325.0 1.79
11
Monthly Portfolio Constant Prepayment Rate
14
13
12
11
10
9
8
7
6
Jan
ua
ry
20
16
Fe
br
ua
ry
20
16
M
arc
h 2
01
6
Ap
ril
20
16
M
ay
20
16
Ju
ne
20
16
Ju
ly
20
16
Au
gu
st
20
16
Se
pt
em
be
r 2
01
6
Oc
to
be
r 2
01
6
No
ve
mb
er
20
16
De
ce
mb
er
20
16
8.2
6.5
7.2
10.0
9.6 9.9 10.6 9.6
12.6
12.4
10.5
10.6
December 2016 Agency Asset CPR
25
20
15
10
5
0
AR
Ms
&
Hy
bri
ds
10
Ye
ar
Pa
ss-
Th
rou
gh
s
15
Ye
ar
Pa
ss-
Th
rou
gh
s
20
Ye
ar
Pa
ss-
Th
rou
gh
s
25
Ye
ar
Pa
ss-
Th
rou
gh
s
30
Ye
ar
Pa
ss-
Th
rou
gh
s
Ag
en
cy
Mu
ltif
am
ily
Ag
en
cy
IO
Po
rtf
oli
o A
ve
rag
e
10.6 9.9
13.9
16.2
21.8
10.2
—
21.2
10.6
ARMOUR expenses premium amortization monthly as it occurs.
Constant Prepayment Rate ("CPR") is the annualized equivalent of single monthly mortality ("SMM"). CPR attempts to predict the percentage
of principal that will prepay over the next twelve months based on historical principal pay downs.
CPR is reported on the 4th business day of the month for the previous month's prepayment activity.
ARMOUR Portfolio Constant Prepayment Rates ("CPR")
ARMOUR REPO Composition
12
(1) ARMOUR has 42 lending counterparties.
Information as of 12/21/2016.
Some totals may not foot due to rounding.
REPO Counter-Party(1)
Principal
Borrowed
(millions)
Percentage
of REPO
Positions
with
ARMOUR
Weighted
Average
Original
Term in
Days
Weighted
Average
Remaining
Term in Days
Longest
Remaining
Term in
Days
1 Mitsubishi UFJ Securities (USA), Inc. $ 610.2 8.8% 86 43 54
2 ICBC Financial Services LLC $ 570.4 8.2% 60 45 58
3 The Bank of Nova Scotia $ 533.2 7.7% 49 34 54
4 ABN AMRO Bank N.V. $ 453.8 6.5% 75 35 47
5 The Bank of New York Mellon $ 450.0 6.5% 63 25 33
6 Daiwa Securities America Inc. $ 419.7 6.0% 30 20 28
7 E D & F Man Capital Markets Inc. $ 355.0 5.1% 86 26 47
8 ING Financial Markets LLC $ 350.3 5.0% 30 17 19
9 Citibank, N.A. $ 345.1 5.0% 90 54 90
10 KGS-Alpha Capital Markets, L.P. $ 301.3 4.3% 44 36 54
11 RBC Capital Markets $ 285.3 4.1% 74 25 33
12 South Street Securities LLC $ 266.6 3.8% 62 36 48
13 Natixis Financial Products LLC $ 256.0 3.7% 42 34 58
14 FHLB - Cincinnati $ 247.0 3.6% 1 1 1
15 Citigroup Global Markets Inc. $ 238.9 3.4% 70 39 44
16 Morgan Stanley & Co. LLC $ 185.1 2.7% 41 19 30
17 Merrill Lynch, Pierce, Fenner & Smith Inc. $ 174.3 2.5% 32 18 23
18 Wells Fargo Bank, N.A. $ 150.7 2.2% 31 12 29
19 J.P. Morgan Securities LLC $ 139.7 2.0% 55 27 29
20 Guggenheim Securities, LLC $ 130.3 1.9% 61 27 27
21 Wells Fargo Securities $ 111.3 1.6% 30 16 16
22 Societe Generale $ 107.5 1.5% 30 7 7
23 Mizuho Securities USA Inc. $ 101.3 1.5% 60 25 30
24 Royal Bank of Canada $ 91.2 1.3% 90 54 90
25 BNP Paribas Securities Corp. $ 34.3 0.5% 31 21 28
26 UBS Securities LLC $ 30.0 0.4% 1,098 124 124
27 Barclays Capital Inc. $ 16.1 0.2% 32 27 27
Total or Weighted Average $ 6,954.7 100% 61 31
Weighted Average Repo Rate 1.06%
Weighted Average Haircut 7.45%
Debt to Shareholders' Equity
Ratio 6.6
www.armourreit.com
ARMOUR Residential REIT, Inc.
3001 Ocean Drive
Suite 201
Vero Beach, FL 32963
772-617-4340
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