Armour Residential REIT Inc (ARR)

Q1 2025 Financial Report – Armour Residential REIT Inc

Report Date: 2025-04-30
Period Covered: Q1 2025 (three months ended March 31, 2025)

Executive Summary

• Net income: $27.33 million (up 88% y-o-y)
• Net interest income: $36.34 million vs. $5.33 million in Q1 2024
• Total assets grew to $15.50 billion from $13.55 billion at year-end 2024
• Leverage (repurchase agreements net) increased to $12.49 billion (debt-to-equity ~7.33x)

Profit & Loss Analysis

1. Interest Income rose to $172.88 M (vs. $141.48 M) driven by portfolio growth and wider net yields on agency MBS.
2. Interest Expense: $136.54 M, up modestly from $136.15 M as short-term financing rates remained elevated.
3. Net Interest Income: $36.34 M vs. $5.33 M in Q1 2024, reflecting asset growth and hedging effectiveness.
4. Trading & Derivatives: net gains of $204.12 M comprising $208.26 M from agency securities and $12.91 M from Treasury positions, offset by $17.05 M mark-to-market on swaps; overall net derivative/trading income of $191.22 M (vs. $156.45 M).
5. Expenses: $14.79 M total; after a $1.65 M management-fee waiver, net expense was $13.14 M (vs. $20.44 M in Q1 2024).
   • Management fee: $10.77 M
   • Compensation: $0.81 M
   • Operating costs: $3.21 M
6. Net Income: $27.33 M (earnings per share $0.032 basic/diluted) vs. $14.52 M ($0.024) in Q1 2024.

Balance Sheet & Leverage

• Total Assets: $15.50 B
  • Cash & equivalents: $49.1 M
  • Collateral posted: $214.4 M
  • Investment securities (fair value): $14.44 B
• Total Liabilities: $13.79 B
  • Repurchase agreements net: $12.49 B
  • Reverse repos (net): $0.51 B
• Equity: $1.70 B
• Leverage Metrics:
  • Debt/Equity: 7.33x (vs. 7.87x at year-end 2024)
  • Including TBA positions: ~7.87x

Key Drivers & Commentary

Drivers of Profit Increase

• Expanded agency MBS portfolio financed at competitive repo rates.
• Effective use of interest-rate swaps and futures to hedge duration and funding cost.
• Strong mark-to-market gains on MBS amid stable mortgage spreads.

Risks & Pressures

• Elevated short-term borrowing costs may compress net interest spread if rates rise further.
• High leverage exposes collateral to margin calls on repo and swap positions.
• Prepayment and spread volatility can weigh on earnings and book value.
• REIT distribution requirements limit capital retention.

Pros & Cons

Pros

• Proven hedging program to moderate interest‐rate and prepayment risk.
• Scalable financing via diversified repo counterparties.
• Active portfolio management capturing attractive MBS yields.

Cons

• High reliance on short-term leverage; risk of funding stress.
• Mark-to-market earnings introduce quarter-to-quarter volatility.
• Regulatory and REIT compliance impose distribution and diversification constraints.

Q1 2025 Income Breakdown (in thousands)

Interest Income by Asset Class:

• Agency MBS: $172,881
• Treasury securities: immaterial

Interest Expense by Liability Type:

• Repurchase agreements: $131,540
• Short-sale / repo of Treasuries: $5,000

Net Interest Income: $36,341

Trading & Derivatives Gains:

• Agency MBS MTM & sales: +$208,257
• Treasury trading: +$12,906
• Derivatives (swaps, futures, TBAs): −$29,945
• Net Trading & Derivatives: +$191,218

Expenses (pre-waiver):

• Management fees: $10,769
• Compensation: $811
• Other operating: $3,212
• Total OpEx: $14,792
• Fee waiver: −$1,650
• Net OpEx: $13,142

Net Income Contribution:

• Net interest income: +$36,341
• Net trading/derivatives: +$191,218
• Net OpEx: −$13,142
• Net Income: $27,332

Armour Residential REIT’s Q1 2025 performance underscores a trajectory of strong net interest spread generation and healthy trading/hedging gains. The expansion of its agency MBS book, combined with active duration and funding‐cost hedges, has driven marked improvement in profitability. However, elevated short-term funding costs and high leverage heighten the risk of margin pressures during periods of rate volatility. Maintaining REIT distributions further constrains capital retention. Going forward, the company must balance growth in collateralized financing with robust risk‐management, pursue diversification among repo counterparties, and seek to stabilize earnings through additional cash‐flow hedges or unencumbered liquidity buffers. Continued macro monitoring—especially of Fed policy, mortgage prepayment speeds, and spread movements—will be critical to sustaining shareholder returns while safeguarding the balance sheet."}

*End of Report*  



































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































EOF

*Report generated by AI assistant.*