Good day and welcome to the Armour Residential REIT's third quarter 2026 earnings conference call. All participants will be in a 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 one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to the CEO, Mr. Scott Ulm. Please go ahead, sir.

Good morning and welcome to our third quarter 2026 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. Let me turn the call over now to Gordon to run through the financial results.

Thank you, Scott. By now, everyone has access to Armour's earnings release and our Q3 2026 investor presentation. It's going to be found on Armour's website, www.armourreit.com. This conference call includes forward-looking statements that were intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. The risk factor section of Armour's periodic reports filed with the Securities Exchange Commission describe certain factors beyond armistice 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 would 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. Our results for the quarter reflect the significant widening of mortgage spreads in the last three weeks of the quarter as interest rates rose and the markets reacted to a more hawkish Federal Reserve. Armour's Q3 GAAP net loss related to common stockholders was $327 million, or a loss of $2.26 per common share. Net interest income was 83.7 million. Distributable earnings available to common stockholders was 102.3 million or 71 cents per common share. This non-GAAP measure is defined as net interest income plus TBA drop income adjusted for interest income or expense under interest rate swaps and futures contracts minus net operating expenses. Total economic return was a negative 12.9% for the quarter. During Q3, Armour raised approximately 205.7 million of capital by issuing approximately 12.4 million shares of common stock and 2.5 million of capital by issuing approximately 123,000 shares of preferred stock through our at-the-market offering programs. We also repurchased at the end of September 363,700 common shares. Armour paid monthly common dividend and many more. We aim to pay an attractive dividend that is appropriate in context and stable over the medium term. On October 29, 2026, a cash dividend of 24 cents per outstanding common share will be paid to holders of record on October 15, 2026. We have also declared a cash dividend of 24 cents per outstanding common share payable November 27 to holders of record on November 16, 2026. Quarter-end book value was $14.55 per common share, down 17% from June 30th, 2026. Our most current available estimate of book value is as of Monday, October the 19th, and was $14.65 per common share, which reflects the accrual of the October common dividend I discussed previously. I will now turn the call over to Chief Executive Officer Scott Ulm to discuss ARM's portfolio position and current strategy.

Thanks, Gordon. Agency MBS faced a challenging late third quarter as macroeconomic pressures overwhelmed the favorable supply-demand dynamics that had supported the market earlier in the year. Persistent inflation prompted the Federal Reserve to raise rates by 25 basis points in September, its first hike since 2023, and signal further tightening. Expectations for higher policy rates, geopolitical tensions, rising fiscal deficits, and increased corporate debt issuance drove broad repricing of global bond markets. Treasury yields rose 70 to 80 basis points over the quarter, while interest rate volatility spiked in September. The sharp increase in yields extended mortgage duration, with associated selling pressures likely amplifying the MBS sell-off as the speed of the move sidelined potential buyers. Today, mortgage spreads sit near their widest of the year, offering more compelling valuations that support our constructive medium-term outlook. Near term, we believe a sustained recovery in mortgage prices would require greater stability in treasury yields and volatility. Renewed inflation pressures could prompt further Fed tightening action, while geopolitical tensions could prolong market volatility. Our Bates case remains a shallow Fed hiking cycle rather than a repeat of 2022-23, as labor market continues to show no buildup in wage pressures, reducing the risk of a wage price spiral. This view is broadly consistent with the Fed's September summary of economic projections in which even some of the more hawkish participants anticipated only one additional 25 basis point hike in 2026, followed by another 25 basis point increase in 2027. Looking ahead to the fourth quarter, the underlying supply-demand backdrop remains supportive. Elevated mortgage rates continue to constrain origination and net agency MBS supply, but while limited financing activity and favorable repo conditions support portfolio carry. GSE retained portfolios declined modestly by a reported $2.5 billion in July and August, following substantial purchases earlier in the year, likely reflecting paydowns that were not fully reinvested rather than outright asset sales. We believe Fannie Mae and Freddie have resumed buying during September's volatility, consistent with their role in supporting the agency MBS market, although official holdings data remain pending. With more than 100 billion of capacity remaining under their regulatory caps, we continue to view the GSEs as meaningful potential backstop buyers at wider spreads. I'll now turn it over to Sergey for more detail on our portfolio.

Thank you, Scott. Armour REIT entered the third quarter with historically low leverage and limited net duration exposure. which helped us navigate heightened market volatility. Still, the portfolio's option adjusted spread widened by 20 basis points with approximately 80% of that widening occurring in September. This in turn pressured book value and pushed implied leverage excluding treasuries to 8.2 times and net duration exposure to 0.38 years by quarter end, higher yet still historically moderate levels. The available liquidity stood at an ample 1.02 billion at the end of Q3 and is expected to remain near that level through the end of October. Armour net added approximately $1.4 billion of MBS assets over the course of the third quarter. Starting in late September, we sold approximately $900 million consisting primarily of dust pools and deep discount season MBS. Those sales captured relative outperformance versus the broader mortgage market and helped maintain our strong liquidity position and portfolio target leverage. We plan to eventually reinvest these proceeds and paydowns into moderate discount-priced MBS, which have widened the most in September and present the most attractive opportunities with levered returns running from 15% to 18%, depending on the coupon. Portfolio prepayments averaged 8.5 CPR in Q3, down 25% from the prior quarter. With a 30-year conforming mortgage rate nearing 7.5%, we expect prepayment speeds to remain broadly stable in the coming months. providing greater predictability for portfolio earnings and improving convexity profile of our mortgage assets. Our mortgage portfolio remains invested exclusively in agency MBS and DUS Securities, consistent with this strategy since the third October, since the third quarter of 2020. In over 96% of our MBS holdings are concentrated in specified pools with favorable prepayment characteristics. Our hedging strategy is designed to manage the racial risk across the yield curve and limit exposure to rising funding costs. Our swap hedge-to-repo ratio stands at approximately 89%, its highest level since 2022. While we believe markets may be pricing in Fed rate hikes, then we'll ultimately materialize our hedging position is designed to protect earnings against further increases in short-term rates should inflation and macroeconomic pressures persist. Despite the New York Fed's suspension of Treasury bill purchases in August, repo spreads to silver have remained tight, supporting stable portfolio funding through September's Fed rate hike, and we financed nearly 50% of our portfolio through affiliated broker-dealer Buckler Securities, where we selectively use overnight repo to avoid paying term premiums on longer-term financing. While Chair Wars has moved quickly to establish policy task forces, we do not anticipate significant changes to the Fed's balance sheet policy that would disrupt repo or agency MBS markets, particularly ahead of the midterm elections. And back to you, Scott.

Thanks, Sergey. Monthly dividends are central to ARR's investment approach, providing shareholders with a regular source of income. We set our dividend at a level we consider appropriate for the medium term. Recent volatility in interest rates and agency MBS spreads has pressured both our share price and book value, resulting in an unusually high dividend at current market prices. We remain constructive on the agency MBS market and believe many of the factors driving recent volatility are likely to resolve over the coming months and into next year. 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 touchtone phone. 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. And our first question for today will come from Doug Harder with BTIG. Please go ahead.

Thanks, and good morning.

I'm hoping you...

Pardon me, Mr. Harder. You may have self-muted. We're going to move on to our next question. That will come from Trevor. Go ahead, Mr. Harder. We can hear you now. Great. Sorry about that.

I'm hoping you could talk about the decision to sell assets in September and kind of the thought process of taking leverage up versus selling assets.

Good morning. This is Sergey. Yeah, so we sold primarily five-year and ten-year dust pools. as well as some of the deeper discount coupons with maybe a 50 to 60 wall of seasoning. This type of collateral really outperformed in September. So the opportunity presented itself to manage our liquidity, manage our leverage, and also take profits on some of these assets that have outperformed. So it was really a combination of of things that were driving that trade decision. We plan to reinvest the proceeds into some of the coupons that have widened the most over the course of September, particularly four and a half, five, but as well as some of the higher coupons, which have benefited from slower prepayment environment here at higher rates.

Great. Appreciate that.

And then on kind of the capital actions, you guys both issued common and preferred but also bought back stock. Just hoping you could talk about kind of what levels you kind of see interesting to kind of undertake kind of all the various capital actions that you did in the quarter.

Yeah, sure, Doug. We look at issuing under the ATM when we have an attractive price, which means that we're pretty tight to book value. And that was sort of the story of the first part of the quarter. And the story of the second part of the quarter is we hit some volatility and saw that we were a good ways away. And that's when we feel we should always be on both sides of the market. and so we just felt the need to put a mark in the book there and buy back some stock. So it's really just that simple. Of course, the moment when you're seeing attractive prices to repurchase is probably when you're also very mindful of liquidity. So we keep that in mind too, but there is always our sense that we need to look at both sides here.

Great, appreciate it. Thank you.

The next question will come from Trevor Cranston with JMP. Please go ahead.

Hey, thanks. Good morning. I made the comment towards the end of the prepared remarks about the dividend yield being unusually high right now. Can you maybe expand on your comments around that and how you guys are thinking about the appropriate dividend level today in light of where you're seeing current market returns? Thanks.

Well, look, we've had volatility both in the stock price and book value, which has driven those down. Our view remains constructive here. and that a number of the factors that have driven this have a good probability of resolving, maybe not this month, but over the not too long period. And so that plus the fact that we feel that our project, while we don't give forward guidance as you guys know, our earnings available for distributions we think are going to be in the range of the dividend for the coming quarter. So, you know, given all of that, also the fact that we've already announced November should give you a sense of how we're feeling. Suggest that there's really, really, really nothing to do here. And, you know, we are where we are on this. Got it.

Okay, that's helpful. Thank you.

The next question will come from Marisa Lobo with UBS. Please go ahead.

Thanks, and good morning. I just wanted to ask about leverage, just given where wider mortgage spreads are and what you described as favorable repo conditions. You know, how are you feeling about the willingness to add to leverage here, and what is your target range?

Yes, hi, Marisa. This is Desmond Macauley. So our leverage as of Monday, October 19 was 7.9 turns. That's excluding our treasury longs and making some adjustments for expected paydowns. We are comfortable with that level. In the near term, there could be bouts of volatility in the period leading up to the elections. In addition, recent inflation data has been higher than expected. In the medium term, however, we are constructive, given mortgage spreads around the wise of the year plus improved technicals and fundamentals in the mortgage market. So we do have dry powder to add leverage as warranted when we have greater clarity on the macroeconomic outlook as well as inflation.

Okay, great. Thank you. And on policy, just given the increased use of housing policy to influence rate and MBS demand, how are you incorporating that risk into your portfolio construction? Do you see it as primarily an upside to book value or impacting prepayments ultimately?

Stability is good. I think there's a lot of Desmond Macauley, Sergey Losyev But my sense would be we've got a long way to go before we start to see a different prepayment environment.

Got it. Thank you.

The next question will come from Jason Weaver with Jones Trading. Please go ahead.

Hey, good morning, everyone. This is Valen Alvar filling in for Jason Weaver. Thank you for taking my questions here. So net duration moved up to 0.38 from about zero. Was that a deliberate position or extension you haven't fully hedged yet there?

Yes. Hi, Jason. So as you know, we came into the quarter with a duration relatively flat and We managed it very closely to a moderate duration profile, even with a sharp increase in rates. Now in the back end, we are targeting around flat duration, but within our bands. So we allow that duration to move as negative convexity plays a role in moving duration in the back end. So, and then in the front end of the curve, we target just a very slight positive duration, given that we think market pricing of rate hikes are more than we anticipate. So overall, we manage our duration across the curve. We're looking to keep it within very tight bands. But at the same time, we allow some amount of duration movement so that we don't re-hedge very frequently. Does that answer your question?

Yes, it does. Thank you for that. And then just a quick one here. With the Fed now hiking, are you thinking about swaps versus futures from here?

We still like, on a nominal basis, about an 80-20 mix of swaps versus futures. At the longer end of the curve, we think swaps are fair value. And on the shorter end of the curve, we favor using swaps largely because of swap spread volatility. But overall, the mix that we are still looking at is about 80% swaps, 20% futures. Great. Thank you so much.

The next question. The next question will come from Timothy D'Agostino with B. Reilly Securities. Please go ahead.

Yeah, hi. Thanks for taking the questions this morning. Just on my end, I know we kind of talked about share repurchases and the leverage, but I guess just trying to see if you have any thoughts or providing color on whether you see any kind of friction between the two, where earlier you talked about repurchasing stock when it's attractive, but then again, you mentioned in another question about additional dry powder to add leverage where you see opportunity. So I just want to know how you balance maybe share repurchases versus adding more leverage. And then if you kind of feel any friction between the two as you kind of progress through the quarter, if you see attractive options to put capital, levered capital work while your stock continues to trade below book value. Thank you.

So... The issue is leverage is largely an output here. The real driver is managing liquidity. So that's where that question really comes in, which is how are you feeling about liquidity? How much do you want to spend? Also, always mindful that when you take the stock back in, it may be – It has both a cost and it may not necessarily be a good time to get it back out there. So you have all of those factors that weigh on your question of, gee, is now the time to buy some stock back? So you have to see something pretty compelling, and it also has to fit in the context of how you are managing your overall liquidity levels. and that weighs on what sort of quantum you're willing to do. I think we're probably conservative in making that decision, but as I said before, we always feel that we have to be willing to be on both sides of the market. I hope that's responsive.

Yes. Thanks so much for answering the question.

The next question will come from Jason Stewart with Compass Point. Please go ahead.

Hey, good morning. Thanks. Question on liquidity and funding markets. Sometimes we see funding markets become a little skittish going into the end of the year when volatility is high. How are you feeling about the depth of repo today and managing that going into the end of the year?

Yes, hi, Jason. This probably was one of the few quarters when – The quarter end repo was extremely liquid and soft, so we continue to see tight repo to SOFR spreads here early in Q4. We do expect some balance sheet tightening up into year end, but we also know that the New York Fed stands by in terms of reopening their RMPs or the T-bill purchases they were doing earlier in the year in case liquidity gets tight in the banking system. So from that standpoint, repo has really been the shining star here of the market and given us a lot of confidence into year-end even.

And I'd also note, you know, while we're active with 20 counterparties, you know, across the global street, if you will, We also enjoy the ability to finance about half of our portfolio through our securities affiliate, Buckler. And that also gives us access across the curve, as we mentioned, the ability to go overnight if we wish, as well as access to term opportunities. So we try to keep all of those options open, which is... have been extremely helpful when we found things a little bit tighter, even though that's not the situation we're in this quarter, thankfully.

Got it. Okay. That's helpful. Thanks. And then on the GSCs, I think we all know how much capacity is left to buy and where we're at in terms of spread levels. Are you looking for any markers for increased activity and maybe as a catalyst for spread tightening from the GSCs?

Yeah, so I mean, look, we had an official confirmation from Bill Pulte in September regarding GSE activity. We've also seen them cut down the specified pool auction sizes throughout the month. So some of these signs do point to the fact that they were engaged in the market. We haven't seen the official numbers yet. Of course, they're coming towards the end of the month. will be interesting to see. Back in March, when we had similar spread levels, volatility spike, we saw them policing the market from the spread standpoint. So we do expect some buying to show up.

Okay. Thank you.

The next question will come from David Storms with StoneGate Capital. Please go ahead.

Morning. Thank you for taking my questions. Just curious, with the volatility in September, have you made any changes to the liquidity stress testing that you do, or are you kind of looking through some of this volatility and keeping the focus on the medium term?

Yes. Hi, Dave. The stress testing that we had even going into September is – Pretty robust, and we test our liquidity on the extreme stress scenarios. We use COVID-like levels in terms of what took place at that time. So we like to be consistent there. We've not had to change anything. We continue to monitor our liquidity, and that obviously plays a role in terms of how we look at leverage, too. in deciding whether we want to increase leverage or keep it around these levels. So haven't changed it, but it was a pretty robust and extreme stress testing scenario we had going into September. And that enabled us to stay focused and not have to sell assets because of liquidity.

Understood, thank you. And if I could sneak one more in, just to mirror your clarification on where you expect Fed rates to go. It sounded like in the prepared remarks, you were in line with market expectations of one rate cut this year and one next year. But then in answer to one of the questions, it sounded like you were positioning yourself to be a little more dovish on the short end of the curve, thinking that markets were pricing in early rates early. Did I miss something there?

Markets are pricing about We took four cuts by the end of 2027. And our view here is the base case is two cuts by the end of 2027. So we are on the dovish side of the markets. But if you compare our view to the dot plots by the FOMC, that's really on the hawkish side. Most hawkish members are expecting just two more cuts, one at the end of this year and one at the end of next year. The reason for us having just a slight positive duration in the front end is because we do feel that market pricing of heights is more than we anticipate. Does that clear that up?

Understood. That's perfectly clear. Thank you for taking my questions. Thank you.

And this concludes our question and answer session. I would like to turn the conference back over to Mr. Scott Ulm for any closing remarks. Please go ahead.

Thank you very much. We appreciate your interest in Armor REIT and thank you for attending this morning.

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