Good day, and welcome to the Armour Residential Reads 4th Quarter 2025 Earnings Conference 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 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the comments over to Scott Alm, CEO. Please go ahead.

Good morning, and welcome to Armour Residential REIT's fourth quarter 2025 conference call. This morning, I'm joined by our Chief Financial Officer, Gordon Harper, as well as our Co-Chief Investment Officers, Sergei Lesyev and Desmond McCauley. I'll now turn the call over to Gordon to run through the financial results.

Thank you, Scott. By now, everyone has access to Armour's earnings release, which can be found on Armour's website, www.armory.com. This conference call includes forward-looking statements which are intended to be subject to the safe harbor protection provided by the Private Securities Litigation and 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 www.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 Armour's website shortly and will continue for one year. Q4 was a strong quarter for Armour, with a total economic return of 10.63% for the quarter as we benefited from MBS spreads tightening, lower MBS volatility, and a lower interest rate environment. The market momentum we saw in Q4 has continued so far into Q1. Barber's Q4 GAAP net income available to common stockholders was $208.7 million, or $1.86 per share. Net interest income was $50.4 million. Distributable earnings available to common stockholders was $79.8 million, or $0.71 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. Quarter-end book value was $18.63 per common share, up 6.5% from September 30th. Our most recent current available estimate of book value, as of Tuesday, February 17th, was $18.37 per common share, which reflects the payment of our January dividend of 24 cents and the accrual of the entire February common dividend payable on February 27, 2026, again, of $0.24 per common share. During Q4, ARMA raised approximately $3.8 million of capital by issuing approximately 183,000 shares of preferred stock through an at-the-market offering program. Through February 11, 2026, we've raised approximately $138 million of capital under our common at-the-market program by issuing approximately 7.5 million shares of common stock, which is mildly dilutive. We also issued 4.8 million of capital from the issuance of 230,000 shares of preferred stock under our preferred at-the-market program. Our paid monthly common dividends per share of $0.24 per common share per month for a total of $0.72 for the quarter. As we have stated previously, we aim to pay an attractive dividend that is appropriate in the context and stable over the medium term. On January 29th, we paid a cash dividend of $0.24 per outstanding common share to the holders of record on January 15th, 2026. We have also declared cash dividends of $0.24 per outstanding common share payable on February 27th, 2026, and March 30th, 2026 to holders of record on February 17th and March 16th, respectively. I will now turn the call back over to CEO Scott Holm to discuss Armory's portfolio position and current strategy.

Thank you, Gordon. Armory delivered a robust fourth quarter, marking a 6.5% increase in book value in the fourth quarter. The strong growth extended to our balance sheet. The portfolio grew for a second consecutive quarter, increasing by more than 10% from the end of the third quarter of 2025, driven by roughly 22 basis points of spread tightening, while maintaining moderate leverage throughout the quarter. Armour's mortgage assets now total over $20 billion, supported by a strong capital liquidity position of approximately 54% of total shareholders' equity as of the end of January. We viewed agency MBS as a high-conviction opportunity from the onset of the Fed's easing cycle in the third quarter of 2024, and the backdrop for 2026 has now turned materially more supportive. Despite spreads tightening meaningfully so far in 2026, the market's appeal remains anchored in declining rate volatility and easing funding costs, supported by the Fed's efforts to lower rates and maintain ample banking liquidity. While prepayments have moved off their cyclical lows of recent years, they remain contained, with primary mortgage rates still anchored around 6%. Add in a steeper yield curve, and the result is a market that we expect to continue to favor MBS with compelling returns relative to returns in corporate credit where spreads are trading at historically tight valuations. Technical supply and demand dynamics are now working with us, not against us. The administration's focus on lowering mortgage spreads reinforces a clear north star for a stable mortgage market, an objective we expect Fannie Mae and Freddie Mac to support through FIFA's $200 billion NBS purchase mandate. The GSEs have posted strong monthly purchases of mortgage assets throughout last year, while net issuance of conventional MBS remain negative in the fourth quarter. The imbalance has revived attractive returns in the TVA role market, creating a liquid carry environment, and expanding the buyer base for agency MBS. I'll now turn it over to Desmond for more detail on her portfolio. Thanks, Scott.

Armour's most recent net balance sheet duration stands at 0.14 years, with a modest positive bias to the front end of the curve, consistent with easing monetary policy. Implied leverage, excluding treasury longs, is 7.9 terms, a balanced posture that reflects tighter spreads and a lower volatility backdrop versus the prior year. The portfolio remains nearly 100% agency MBS, agency CMBS, or DAS, and U.S. treasuries to target specific new curve exposures. Consistent with our balance sheet growth, we added over $3 billion of MBS bulls and DAS across the fourth quarter and early first quarter, and our purchase mix has evolved as rates and spreads have moved. Early in the fourth quarter, we determined it was most attractive to overweight premium dollar MBS, which offered the most attractive spreads and yields. Anticipating that GSE purchases would most likely concentrate in neopart coupons where the impact on primary mortgage rates is most direct, We added over a billion of four-and-a-half-and-five-coupon MBS ahead of Trump's GSE announcement in early January. As belly coupons tightened to historically rich levels to near single-digit OAS, we shifted toward lower coupons and seasoned collateral, where affordability initiatives aimed at unfreezing the housing market could drive higher turnover speeds while preserving higher yields in deeper discount MBS. Within premium bonds, we focused more on call protection in higher-tier maximum loan-size pools, while keeping pay-off targets at 24 ticks or lower. In agency CMBS, our five-year DOS position experienced extreme spread tightening. On a relative value basis, 10-year dust bonds now screen more attractive, particularly when hedged with longer-dated Sofra swaps, with pay fixed rates still cheaper than Treasury hedges. Roughly 86% of our hedges are in OIS and Sofra pay fixed swaps, with a balance in Treasury futures. The benchmark 10-year software swap spread has normalized back to its pre-liberation day average of approximately negative 37 basis points, and we anticipate further gains will likely hinge on the path of policy debate around the Fed's desired balance sheet size and banking deregulation. Aggregate portfolio prepayments averaged 11.1 CPR through Q4 2025 and Q1 2026 to date, versus 8.1 CPR in Q3 2025, stable but running at a somewhat higher level versus the prior year. Despite tighter mortgage spreads, the third-year mortgage rate has remained in a tight 6% to 6.3% band, though it has recently shifted toward the low end of that range. The administration's push for affordability, without sacrificing home price appreciation, leaves mortgage rates and spreads as the two primary levels to accomplish that. However, the easy work has already been done. The mortgage rate spread to the 10-year Treasury is now below its 15-year average. Further declines in mortgage rates will therefore require lower long-end Treasury yields, which have not declined in sync with front-end rate cuts since the start of the easing cycle in 2024. Still, we remain mindful that many originators have built significant capacity to ramp up refinancing, which could be triggered by a sustained move below 6% and may accelerate speeds in par and premium coupons in coming quarters. refi activity has proven to be highly sensitive to marginal mortgage rate declines keeping repayment risk in tbas and the generic premium mbs elevated coupon selection and specified collateral remain the key to containing the prepayment risk we are positioned accordingly nearly 30 percent of assets are in prepayment protected agency cmbs pools and discount mbs while specified MBS pools with some form of repayment protection comprise over 92% of Armour's portfolio. Funding markets have also turned the chrono. 2026 repo conditions have improved materially versus last year. Markets are liquid and financing levels have eased, with repo rates averaging roughly SOFRO plus 15 basis points. The SOFRO-to-FED fund spread has also normalized to near flat, As repo rates backed up in late 2025, the Fed moved quickly to contain intramount funding pressures tied to falling reserves and elevated T-bill supply. First, the Fed continues to implement a policy of easing the overnight Fed funds rate. Second, it has shifted its reinvestments by directing paydowns of its Treasury and MBS holdings back into the Treasury market. Third, it initiated outright purchases of up to $40 billion per month in Treasury bills and other short-dated Treasuries to stabilize reserve balances and maintain ample system liquidity. This response reinforces the systemic importance of repo markets as the foundation for liquid financial conditions and underscores the Fed's low tolerance for a repeat of the September 2019 episode when reserve scarcity and balance sheet frictions contributed to a sharp dislocation in secured funding. While the incoming chair has signaled an appetite for a smaller Fed footprint and a reduced balance sheet over time, we expect the central bank's focus on orderly funding markets to remain the highest priority with a willingness to respond preemptively ahead of any emerging stress. As of today, we financed the portfolio across 23 active REPO counterparties. Approximately 80% of our REPO principal is financed at a 3% haircut or lower, and the weighted average haircut across the REPO book is approximately 2.75%. Buckler Securities accounts for roughly 40% to 60% of our REPO financing.

Steve. Back to you, Scott. Thanks, Desmond. We continue to set our dividend with a medium-term outlook. While acknowledging relatively tighter spreads versus the prior year, we expect the backdrop of a steeper yield curve and lower volatility remain supportive for a consistent and predictable return profile for our assets. Our approach remains unchanged. Stress test their liquidity, fly systematic hedging, and deploy capital when opportunities present themselves. Overall, we're confident in our positioning, our strategy, and our ability to deliver value for shareholders in 2026. Before we open the line for questions, we'd also like to highlight that we've launched a new investor presentation, now available on Armour's website. It provides additional insight for investors, including how our portfolio has transformed over time. Thank you for joining today's call and for your continued interest in Armour.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. First question comes from Timothy D'Agostino with B. Riley Securities. Please go ahead.

Yeah, good morning. Thank you for taking the question. I was wondering on the portfolio interest-bearing assets. That's by my estimates, it increased year over year around like 49%. I was wondering, you know, the outlook in 26, do you see potential for similar growth or maybe a little bit less given, you know, the increase in 2025? Thank you.

You know, there are a couple elements there, but certainly one of the most important is capital raising. And we are, you know, when we see an opportunity to raise capital combined with investment opportunities, we like, we'll execute on that. But we discriminate a fair amount in terms of what is going to be attractive or not. So I'm afraid I've got to tell you it depends on how the market behaves, both on the investment side and the equity side, whether we will be similar or smaller or in some other relationship to what we were able to do last year.

Okay, great. Thank you so much. And then just to confirm, book value as of Tuesday was $18.37 per share?

And that's after the accrual of our full February dividend and the payment of our January dividend.

All right. Thank you so much.

The next question comes from Trevor Cranston with Citizens. Please go ahead.

Hey, thanks. Can you guys talk about where you're seeing incremental returns on new investment today, you know, given the spread tightening that's occurred and, you know, how you view that incremental level of return, you know, compared to the dividend you're currently paying?

Hi, Trevor. This is Desmond McCauley. So on a primary basis, the levered yield on 30-year-5s, which are currently production coupon, is around the meetings, let's say about 15%. This assumes 8 tons of leverage, hedge to 0.5 duration using SWAT hedges. And it's a static framework over a period of just about three months. It doesn't assume any more spread tightening. Now, we think, at least in the medium term, we could see a bit more spread tightening. So, let's say we get another 10 basis points of OAS tightening. That adds about 4% to that return. And also, the curve would steepen some more. So, if we see another 50 basis points in curve steepening, particularly led by the front end, through more paid parts, which is what we anticipate, that can also add about another 1% or so. So those are all parts of the full total return framework. Some of that would accrue to our book value. Now, in terms of marginal capital raise, we see that that hurdle rate is about 16%. So that would be dividend yield to common. And the management fee is just 75 business points on new equity. So you add that together, that's roughly about 16%. So you can see that for production coupon, the base case returns are close to that level already. And with just a little bit more steepener, and if we see more tightening, it will surpass that by a couple more points. Does that answer your question?

Yeah, that's very helpful. Thank you. And then I guess in general, can you guys talk about how you're thinking about the likelihood of further actions driven by the government to attempt to lower mortgage rates, things such as increasing the GSE portfolio limits further or potentially doing other things like lowering G fees, et cetera?

Hey, Trevor, this is Sergey. Yeah, so around the week in Davos, we were expecting maybe a few more announcements on the affordability push that the administration has announced with the GSC purchases. We haven't gotten anything. It feels to us that maybe the lowest hanging fruit has been picked in terms of pressuring spreads and mortgage rates lower, but without affecting home prices. I think the next steps kind of have both positives and negatives for that push in terms of, you know, GSE, the GFE cuts for the GSEs, you know, take away some of the profitability, make them less private enterprise, profitable enterprise, and more of a policy tool. It will introduce negative convexity to investors who may demand wider spreads. So some of the further steps may work counter to what, you know, administration has called the North Star in terms of keeping mortgage spreads nice and stable. We do expect more announcements. Obviously, there have been announcements on impartability, assumability of mortgage loans. Fifty-year loans have been taken off the table. So there's a lot of announcements that have been made. But once you get to the implementation stage of it, things have been quite slow. Having said that, we definitely expect in the midterm year for these announcements to be quite active. Appreciate the comments. Thank you.

The next question comes from Dave Storms with Stonegate Capital. Please go ahead.

Morning, and thank you for taking my questions. I wanted to start with just asking for a little more thoughts on your current liquidity. It looks like quarter over quarter you put a little more to work, but then it looks like it's back up. as of last month-end. I guess, how do you think about this in the near term?

Hi, Dave. So, yeah, I think our liquidity we mentioned is about 54% of the total equity at the month-end. It's a really good spot. It reflects our moderate leverage, you know, kind of where we have been steady in terms of liquidity. So, you know, we don't foresee any sharp changes given our current position in the portfolio.

Understood. Thank you. And then I also know you mentioned in the current marks that about maybe 30% of your portfolio is payment protected. With mortgage rates hovering around the 6%, do you – I know the markets like nice round numbers. Do you see any risk of a tipping point, or is it more maybe a linear situation as mortgage rates maybe continue to take lower?

Yeah, I mean, look, prepayments have increased from Q4 so far in Q1. We noted it in our script. We're definitely towards the lower range of the mortgage rates that we've been over the last couple of years. February prevailing mortgage rate will be lower after the GSE announcement as well. So the risk of faster prepayments has increased, right? And I think in sync with that, our portfolio has morphed over the last couple of quarters to protect us more from lower mortgage rates. 30% in discounts and dust. Specified pools make up 92%. Within the 92%, almost 40% is in the loan balance stories, other credit and geo stories. So we feel like there's, you know, faster refinances are in the future, but we've built our portfolio for that environment.

Understood. Thank you.

Again, if you have a question, please press star then one. The next question comes from Eric Hagan with BTIG. Please go ahead.

Hey, thanks. Good morning. I think you guys mentioned in the opening remarks, haircuts for MBS have come down. which is kind of an interesting comment. Can you maybe frame kind of like where that level is relative to, like, the historical levels? And then if the GSEs are helping reduce volatility in the market, could we see that haircut level come down even further, potentially?

We would hope so. I mean, a lot of the guidance on the haircuts comes from FICC. But in terms of our, you know, bilateral counterparty repo haircuts, We have worked with a lot of our counterparts to bring down, you know, the maximum haircuts closer to our weighted average of 2.75. I think a lot of, almost 80% of our repo book is closer to, at 3%.

Okay. Following up on the conversation around just where you are in the coupon stack, I mean, you mentioned originators have been really able to leverage some of their tools to be aggressive on refi. I mean, how does that drive the appetite for the current coupon specifically? And, you know, like the OAS that's in the current coupon, how do you compare that to some of the lower coupons and just where you feel comfortable taking prepayment risk?

Yeah, we've been looking away from current coupons because that's kind of where the biggest impact from the announcement has been really all throughout the Q4. We did add in Q4 a little over a billion in 4,500, but since then, probably we are more looking at the wings, deeper discount coupons where we can see some of the housing activity perhaps reignites with any of these affordability measures. You know, in terms of premium coupons, they're still our core holding. If you look at the OAS spread difference between 102 price and current coupon, MBS, you know, we're at close to two standard deviations on that spread, historically speaking, right? So a lot of the fares and prepayments and, you know, G-Fee cuts have already been priced into the premiums. So it's really, you know, looking at kind of barbell approach in the coupon stack at this point. But even within the belly of the coupon stack, you can find stories which pick OAS versus TBA specifically, maybe like season collateral, things like that.

How many Fed cuts do you feel like are currently priced into the mortgage basis? How many Fed cuts? question. Yeah. Yeah. How many Fed cuts for the rest of this year do you think are priced

into the mortgage basis? The market is expecting by the end of December a little bit over two cuts. And, you know, from our perspective, we think it's reasonable. We think that normalization will continue this year. It looks like when we get to around June, the probability is about 100%, getting close to 100%. And that would be a very good environment for the MBS market and mortgage spreads. We think that the curve has already steepened. If we do see more cuts, then funding costs will come down. The curve would steepen even more. And that makes the entire space more attractive, and it adds to overall total return.

Right. Thank you guys so much. Appreciate your comments.

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 very much for your interest in ARMA-REIT. If there are follow-up questions, don't hesitate to call the office, and we will get back to you as soon as we can. Thanks so much, and good morning to you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.