8-K

UNITED 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) July 25, 2018

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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Item 2.02.Results of Operations and Financial Condition.

On July 25, 2018, ARMOUR Residential REIT, Inc. (“ARMOUR” or the “Company”) issued a press release announcing its operating results for the second quarter ended June 30, 2018. A copy of the press release is furnished as Exhibit 99.1 to this current report on Form 8-K.

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liabilities under that section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01.      Financial Statements and Exhibits.  

(d) Exhibits

Exhibit No.	Description
99.1	Press Release dated July 25, 2018

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: July 25, 2018

ARMOUR RESIDENTIAL REIT, INC.
By:	/s/ James R. Mountain
Name:	James R. Mountain
Title:	Chief Financial Officer

EX-99.1

ARMOUR RESIDENTIAL REIT, INC. REPORTS FINANCIAL RESULTS

FOR THE QUARTER ENDED JUNE 30, 2018

GAAP INCOME OF $13.6 MILLION, OR $0.22 PER COMMON SHARE

CORE INCOME OF $31.3 MILLION, OR $0.65 PER COMMON SHARE

VERO BEACH, Florida -- July 25, 2018 -- ARMOUR Residential REIT, Inc. (NYSE: ARR, ARR PrA, and ARR PrB) (“ARMOUR” or the “Company”) today announced financial results for the quarter ended June 30, 2018.

Q22018 Highlights and Financial Information

◦ $13.6 million ($0.22 per Common share) net income under Generally Accepted Accounting Principles (“GAAP”) based on 42,328,433 weighted average diluted Common shares outstanding

◦ $31.3 million ($0.65 per Common share) Core Income including “Drop Income” (as defined below), which represents an annualized return of 10.1% based on stockholders’ equity at the beginning of the quarter

◦ $0.57 per share Common dividends for Q2 at the rate of $0.19 per month

◦ 3.3% average yield on assets and 1.7% average net interest margin

◦ 6.7% annualized average principal repayment rate (“CPR”)

◦ (1.5)% total economic return, representing dividends plus change in stockholders' equity per Common share

◦ 0.4% total shareholder return, representing dividends plus change in New York Stock Exchange price per Common share

At June 30, 2018

◦ $22.81 NYSE closing price per Common share

◦ $1.21 billion stockholders’ equity based on period-end stock outstanding of:

▪41,928,133 shares of Common Stock

▪2,180,572 shares of 8.250% Series A Cumulative Redeemable Preferred (“Preferred A”)

▪6,369,269 shares of 7.875% Series B Cumulative Redeemable Preferred (“Preferred B”)

◦ $23.68 stockholders’ equity per Common share, a decrease of 3.8% from March 31, 2018

◦ $7.5 billion portfolio of securities, including $1.0 billion of Credit Risk and Non-Agency Securities as well as $0.2 billion of forward settling sales

◦ $2.1 billion notional amount of (“to-be-announced”) TBA Agency Securities, includes $300,000 notional amount of forward settling TBA Agency Securities

◦ $6.8 billion notional amount of interest rate swaps

◦ 5.2 to 1 “leverage” (debt to stockholders’ equity); 6.6 to 1 “implied leverage,” reflecting net TBA Agency Securities purchased forward and excluding debt related to forward settling sales

◦ $676.1 million of liquidity in cash and unpledged securities (56.0% of stockholders’ equity)

Updated Information

• Common dividends per share - $0.19 payable on July 27, 2018, and on August 28, 2018, as discussed below

• Book value at July 24, 2018, was estimated to be $23.74 per Common share outstanding

• Additional updated information on the Company’s investment, financing and hedge positions can be found in ARMOUR Residential REIT, Inc.’s most recent “Company Update.” ARMOUR posts unaudited and unreviewed Company Updates on www.armourreit.com.

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ARMOUR Residential REIT, Inc. Reports Financial Results for the Quarter Ended June 30, 2018

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GAAP Net Income and Comprehensive Income

For the purposes of computing GAAP net income, the change in fair value of the Company’s derivatives is reflected in current period net income, while the change in fair value of its Agency Securities is reflected in comprehensive income. GAAP net income for Q22018 was approximately $13.6 million, including mark-to-market gains (losses) on derivatives and Credit Risk and Non-Agency Securities of $45.1 million and $(3.2) million, respectively, and $(14.3) million of realized loss on derivatives. Other comprehensive loss for Q22018 was $(24.3) million, resulting in comprehensive loss of $(10.7) million for the quarter.

Core Income, Including Drop Income

Core Income, including Drop Income, for the quarter ended June 30, 2018, was approximately $31.3 million, exceeding total dividend payments to stockholders for the quarter of $28.4 million. Core Income, including Drop Income, is a non-GAAP measure and is defined as net income excluding impairment losses, gains or losses on sales of securities and early termination of derivatives, unrealized gains or losses on derivatives and certain non-recurring expenses, plus Drop Income (as defined below). Core Income may differ from GAAP net income, which includes the unrealized gains or losses of the Company’s derivative instruments and the gains or losses on Agency, Credit Risk and Non-Agency and Interest-only Securities.

For a portion of its Agency securities the Company may enter into to-be-announced (TBA) forward contracts for the purchase or sale of Agency Securities at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date, but the particular Agency Securities to be delivered are not identified until shortly before the TBA settlement date. The Company accounts for TBA Agency Securities as derivative instruments if it is reasonably possible that it will not take or make physical delivery of the Agency Securities upon settlement of the contract. The Company may choose, prior to settlement, to move the settlement of these securities out to a later date by entering into an offsetting short or long position (referred to as a “pair off”), net settling the paired off positions for cash, and simultaneously purchasing or selling a similar TBA Agency Security for a later settlement date. This transaction is commonly referred to as a “dollar roll.” The Company accounts for TBA dollar roll transactions as a series of derivative transactions.

Forward settling TBA contracts typically trade at a discount, or “Drop,” to the regular settled TBA contract to reflect the expected interest income on the underlying deliverable Agency Securities, net of an implied financing cost, that would have been earned by the buyer if the contract settled on the next regular settlement date. When the Company enters into TBA contracts to buy Agency Securities for forward settlement, it earns this “Drop Income,” because the TBA contract is essentially a leveraged investment in the underlying Agency Securities. The amount of Drop Income is calculated as the difference between the spot price of similar TBA contracts for regular settlement and the forward settlement price on the trade date. The Company generally accounts for TBA contracts as derivatives and Drop Income is included as part of the periodic changes in fair value of the TBA contracts that the Company recognizes currently in the Other Income (Loss) section of its Consolidated Statement of Operations.

Dividends

The Company paid dividends of $0.19 per Common share of record for each month in Q22018. Payments to Common stockholders for Q22018 were approximately $24.1 million. The Company also paid monthly dividends of $0.171875 per outstanding share of 8.250% Series A Cumulative Redeemable Preferred Stock and $0.1640625 per outstanding share of 7.875% Series B Cumulative Redeemable Preferred Stock, resulting in aggregate payments to preferred stockholders of approximately $4.3 million in Q22018. 

Common dividends in the amount of $0.19 per Common share are payable on July 27, 2018, to holders of record on July 16, 2018. Common dividends in the amount of $0.19 per Common share are payable on August 28, 2018 to holders of record on August 15, 2018. The board of directors determines the Common share dividend rate based upon the REIT requirements and other relevant considerations. Dividends in excess of current tax earnings and profits for the year

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ARMOUR Residential REIT, Inc. Reports Financial Results for the Quarter Ended June 30, 2018

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(including any amounts carried forward from prior years) will generally be treated as non-taxable return of capital to Common stockholders.

Per Share Amounts

Per Common share amounts are net of applicable Preferred Stock dividends and liquidation preferences.

Portfolio

As of June 30, 2018, the Company’s Agency Securities portfolio consisted of Fannie Mae, Freddie Mac and Ginnie Mae mortgage securities, substantially all of which are fixed rate securities, and was valued at $6.3 billion on a trade date basis. The Company’s Credit Risk and Non-Agency Securities portfolio was valued at $1.0 billion, Forward settling sales were valued at $0.2 billion and the Company’s TBA Agency Securities valued at $2.1 billion. During Q22018, the annualized yield on the Company’s MBS portfolio (including TBA Agency Securities) was 3.30%, and the annualized cost of funds on average liabilities (including realized cost of hedges) was 1.57%, resulting in a net interest spread of 1.73% for Q22018.

Portfolio Financing, Leverage and Interest Rate Hedges

As of June 30, 2018, the Company financed its mortgage-backed securities portfolio with approximately $6.3 billion of borrowings under repurchase agreements. The Company’s leverage ratio as of June 30, 2018, was 5.2 to 1 (6.6 to 1, including TBA Agency Securities purchased forward and excluding debt related to forward settling sales). As of June 30, 2018, the Company’s liquidity totaled approximately $676.1 million, consisting of approximately $335.5 million of cash, plus approximately $340.6 million of unpledged securities (including securities received as collateral). As of June 30, 2018, the Company’s repurchase agreements had a weighted-average maturity of approximately 23 days, an average rate of 2.3% and a haircut of 6.1%.

The Company had a notional amount of various maturities of interest rate swap contracts of approximately $6.8 billion with a weighted average swap rate of 1.9%.

Regulation G Reconciliation

Core Income excludes impairment losses, gains or losses on sales of securities and early termination of derivatives, unrealized gains or losses on derivatives and certain non-recurring expenses, plus Drop Income. The Company believes that Core Income is useful to investors because it is related to the amount of dividends the Company may distribute. However, because Core Income is an incomplete measure of the Company’s financial performance and involves differences from net income computed in accordance with GAAP, Core Income should be considered as supplementary to, and not as a substitute for, the Company’s net income computed in accordance with GAAP as a measure of the Company’s financial performance.

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The following tables reconcile the Company’s results from operations to Core Income and Core Income per Common share for the quarter ended June 30, 2018 (dollar amounts in millions, except per share amounts):

	Core Income
	(in millions)
GAAP net income	$	13.6
Book to tax differences:
Credit Risk and Non-Agency Securities	2.7
Interest-only Securities	0.3
U.S. Treasury Securities	8.9
Changes in interest rate contracts	(32.0		)
Loss on Security Sales	25.3
Drop Income	12.5
Core Income	$	31.3

Core Income	$	31.3
Dividends on Preferred Stock	(4.3		)
Core Income available to common stockholders	$	27.0
Common shares outstanding	41.9
Core Income Per Common Share	$	0.65

Common Stock

As of June 30, 2018, there were 41,928,133 Common shares outstanding.

The following table shows the changes in stockholders’ equity per Common share during the quarter ended June 30, 2018:

Stockholders’ equity per Common share - March 31, 2018	$	24.61
Core Income	0.65
Investment net loss	(1.01		)
Common stock dividends	(0.57		)
Stockholders’ equity per Common share - June 30, 2018	$	23.68

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Conference Call

As previously announced, the Company will provide an online, real-time webcast of its conference call with equity analysts covering Q22018 operating results on Thursday, July 26, 2018, at 10:00 a.m. (Eastern Time). The live broadcast will be available online and can be accessed at https://www.webcaster4.com/Webcast/Page/896/26591. To monitor the live webcast, please visit the website at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. An online replay of the event will be available on the Company’s website at www.armourreit.comand continue for one year.

ARMOUR Residential REIT, Inc.

ARMOUR invests primarily in fixed rate residential, adjustable rate and hybrid adjustable rate residential mortgage-backed securities issued or guaranteed by U.S. Government-sponsored enterprises (“GSEs”), or guaranteed by the Government National Mortgage Association. In addition, ARMOUR invests in other securities backed by residential mortgages for which the payment of principal and interest is not guaranteed by a GSE or government agency. ARMOUR is externally managed and advised by ARMOUR Capital Management LP, an investment advisor registered with the Securities and Exchange Commission (“SEC”).

Safe Harbor

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, do not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Additional information concerning these and other risk factors are contained in the Company’s most recent filings with the SEC. All subsequent written and oral forward-looking statements concerning the Company are expressly qualified in their entirety by the cautionary statements above. The Company cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in their expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

Additional Information and Where to Find It

Investors, security holders and other interested persons may find additional information regarding the Company at the SEC’s Internet site at www.sec.gov, or the Company website www.armourreit.com or by directing requests to: ARMOUR Residential REIT, Inc., 3001 Ocean Drive, Suite 201, Vero Beach, Florida 32963, Attention: Investor Relations.

CONTACT:     investors@armourreit.com

James R. Mountain

Chief Financial Officer

ARMOUR Residential REIT, Inc.

(772) 617-4340

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