Good day, and welcome to the ARMOUR Residential REIT's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Scott Ulm, 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, Sergey Losyev and Desmond Macauley. 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.armourreit.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 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 1 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. ARMOUR'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 30. Our most recent current available estimate of book value as of Tuesday, February…

Thank you, Gordon. ARMOUR REIT 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 in 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 FHFA's $200 billion MBS purchase mandate. The GSEs have posted strong monthly purchases of mortgage assets throughout last year, while net issuance of conventional MBS remained negative in the fourth quarter. The imbalance has provided attractive returns in the TBA roll 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 our 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 loans is 7.9 turns, 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 DUS and U.S. treasuries to target specific yield curve exposures. Consistent with our balance sheet growth, we added over [ 3 billion ] of MBS pools and DUS 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 offer the most attractive spreads and yields. Anticipating that GSE purchases would most likely concentrate in near par coupons where the impact on primary mortgage rates is most direct, we added over [ 1 billion ] of 4.5 and 5 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 on freezing the housing market could drive higher turnover speeds while preserving higher yields in deeper discount MBS. Within premium bonds, we focus more on call protection in higher-tier maximum loan size pools, while keeping payoff targets at 24 ticks or lower. In Agency CMBS, our 5-year DUS position experienced extreme spread tightening. On a relative value basis, 10-year DUS bonds now screen more attractive, particularly when hedged with longer-dated SOFR swaps with pay fixed rates still cheaper than treasury hedges. Roughly 86% of our hedges are in OIS and SOFR pay fixed swaps with the…

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 remains supportive for a consistent and predictable return profile for our assets. Our approach remains unchanged: stress test our liquidity, buy 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.

[Operator Instructions] First question comes from Timothy D'Agostino with B. Riley Securities.

I was wondering on the portfolio and interest-bearing assets. By my estimates, it increased year-over-year around like 49%. I was wondering the outlook in '26, do you see potential for similar growth or maybe a little bit less given the increase in 2025?

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

Okay. Great. And then just to confirm, book value as of Tuesday was $18.37 per share?

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

The next question comes from Trevor Cranston with Citizens.

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

Trevor, this is Desmond Macauley. So on a carry basis, the levered yield on 30-year 5s, which are currently production coupon is around the mid-teens, let's say, about 15%. This assumes 8 turns of leverage hedged to 0.5 duration using swap hedges. And it's a static framework over a period of just about 3 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 have another -- if we see another 50 basis points in curve steepening, particularly led by the front end through more Fed cuts, which is we anticipate, that will 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 basis 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 steeper and if we see more tightening, it would surpass that by a couple of more points. Does that answer your question?

Yes, that's very helpful. 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 GPs, et cetera?

This is Sergey. Yes. So around the week in Dallas, we were expecting maybe a few more announcements on the affordability push that the administration has announced with the GSE purchases. We haven't gotten anything. It feels to us that maybe the low-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 GSE, the G-fee cuts for the GSEs, take away some of the profitability, make them less of a private enterprise, profitable enterprise and more of a policy tool. It will introduce negative complexity to investors who may demand wider spreads. So some of the further steps may work counter to what 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 importability, assumability of mortgage loans, 50-year loans has been taken off the table. So there's a lot of announcements 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 here, for these announcements to be quite active.

The next question comes from Dave Storms with Stonegate Capital.

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?

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

Understood. And then I also know you mentioned in the prepared remarks that about maybe 30% of your portfolio is payment protected. With mortgage rates hovering around to 6%. Do you -- I know the market like nice round numbers. Do you see any risk of a tipping point or it's more maybe a linear situation as mortgage rates may continue to take lower?

Yes. I mean, look, prepayments have increased from Q4 so far in Q1. We noted in our script. We're definitely towards the lower range of the mortgage rates that we've have been over the last couple of years, February prevailing mortgage rate will be lower after the GSE announcements 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 thus, 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 -- there are faster refinances are in the future, but we've built our portfolio to -- for that environment.

[Operator Instructions] The next question comes from Eric Hagen with BTIG.

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 bilateral counterparty REPO haircuts, we have worked with a lot of our counterparts to bring down 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 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?

Yes. We've been looking away from current coupon 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 [ 1 billion ] and 4.5 and 5s. But since then, probably we are more looking at the wings, deeper discount coupons where we can see some of the housing activity perhaps reignite with any of these affordability measures. In terms of premium coupons, they're still our core holding. If you look at the OAS spread difference between 102 priced and current coupon MBS, we're at close to 2 centers deviations and not spread historically speaking, right? So a lot of the fares and prepayments and G-fee cuts have already been priced into the premiums. So it's really looking at kind of a barbelled approach in the coupon stack at this point. But even within the belly at the coupon stack, you can find stories which pick OAS versus TBA, specifically maybe like seasoned collateral, things like that.

How many Fed cuts do you feel like are currently priced into the mortgage basis?

How many Fed cuts?

Yes, 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 2 cuts. And 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 will 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 our overall total return.

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

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