ARMOUR Residential REIT (NYSE:ARR) reported a positive second quarter of 2026, with management saying tighter agency mortgage-backed securities spreads helped offset a macroeconomic backdrop that would typically pressure the sector.
Chief Financial Officer Gordon Harper said the mortgage REIT generated a total economic return of 4.8% for the quarter. GAAP net income available to common stockholders was $111.5 million, or $0.86 per common share, while net interest income was $76.8 million.
- GAAP net income available to common stockholders: $111.5 million, or $0.86 per common share
- Net interest income: $76.8 million
- Distributable earnings available to common stockholders: $93.2 million, or $0.72 per common share
- Total economic return: 4.8%
- Quarter-end book value: $17.53 per common share, up 0.6% from March 31, 2026
Harper said ARMOUR paid monthly common stock dividends of $0.24 per share, totaling $0.72 for the quarter. The company also said a $0.24 dividend would be paid July 30 to holders of record on July 15, and declared another $0.24 dividend payable Aug. 28 to holders of record on Aug. 17.
ARMOUR’s estimated book value as of July 20 was $17 per common share, reflecting the accrual of the July common dividend of $0.24 per share, Harper said.
Capital Raising Continues Through ATM Programs
ARMOUR raised approximately $218.7 million during the second quarter by issuing about 12.7 million common shares through its at-the-market offering programs, Harper said. The company also raised $4.1 million through the issuance of approximately 198,000 preferred shares.
Through July 14, ARMOUR raised an additional $88.3 million by issuing 5.2 million common shares through its common stock ATM program.
Asked by Doug Harter of BTIG about the company’s capital-raising outlook, Chief Executive Officer Scott Ulm said ARMOUR evaluates capital raising based on what opportunities are available for deployment.
“The way we’ve always approached capital is to look at what we can do with it and what the opportunities are,” Ulm said. He added that raising capital can lower average costs by spreading expenses over a larger capital base.
In response to a question from Timothy D’Agostino of B. Riley Securities about why common stock issuance was much larger than preferred issuance, Ulm said the decision was tied to pricing and liquidity. He said preferred shares have traded at an attractive strip yield, but volumes have been relatively low, and the company would need to see prices it likes before issuing more preferred stock in meaningful size.
Agency MBS Spreads Tighten Despite Macro Risks
Ulm said agency mortgage-backed securities performed well in the second quarter even as the U.S. Treasury curve continued to bear flatten. He said the two-year Treasury yield rose 38 basis points, compared with a 15-basis-point increase in the 10-year yield.
Ulm cited elevated geopolitical uncertainty in the Middle East, strong economic data and an energy-driven rise in headline inflation as factors that led markets to move from pricing year-end rate cuts to rate hikes. He also said a less predictable Federal Reserve under Chairman Walsh’s leadership could push interest rate volatility higher.
“Historically, this combination of elevated uncertainty and a flatter yield curve has produced a meaningful headwind for mortgages,” Ulm said.
Still, he said mortgage option-adjusted spreads tightened seven basis points across ARMOUR’s asset classes, contributing to a positive book value gain. Ulm said the quarter reinforced that supply-demand dynamics are currently having more influence on agency MBS valuations than the broader macroeconomic narrative.
Looking ahead, Ulm said the technical backdrop remains supportive into the third quarter. Elevated mortgage rates are constraining new loan production, and net issuance of Fannie Mae and Freddie Mac securities continues to run negative this year, he said. On the demand side, inflows into bond funds from domestic and international investors continue to support agency MBS, which he said remain attractive relative to tightly valued corporate credit.
However, Ulm cautioned that firmer inflation, a more hawkish Fed and a sustained rise in volatility could lead investors to demand more compensation for mortgage risk, potentially pushing spreads and yields wider.
Portfolio Grows for Fifth Consecutive Quarter
Co-Chief Investment Officer Desmond Macauley said ARMOUR’s portfolio stood at more than $22 billion at quarter-end, marking a fifth consecutive quarter of growth in both assets and the capital base. The company’s assets remained 100% agency MBS, agency CMBS and U.S. Treasuries.
Macauley said ARMOUR added nearly $1.3 billion of new mortgage assets since its previous conference call in April. Purchases were concentrated in par and slight premium coupons, as well as five-year and 10-year DUS bonds, which he said benefit from slower prepayments and provide positive convexity and a near bullet-like structure.
The portfolio remained concentrated in specified pools with favorable prepayment characteristics, representing more than 95% of ARMOUR’s MBS holdings. Aggregate portfolio prepayments averaged 11.4 CPR in the second quarter, compared with 11.2 CPR in the first quarter. Macauley said prepayment speeds declined to 8.8 CPR in the July report and are expected to remain around those levels in the current rate environment.
Sergey Losyev, ARMOUR’s other co-chief investment officer, said in response to a question from UBS analyst Marissa Lobo that specified pools appear “fully valued” relative to TBAs, though ARMOUR still views good convexity collateral as additive over the long term. He said TBAs remain a tactical position rather than an alternative to specified pools.
Hedging, Leverage and Liquidity Remain Key Focus Areas
Macauley said ARMOUR ended the quarter with net balance sheet duration near zero, reflecting a more neutral view on interest rates and the yield curve than in prior quarters. He said implied leverage, excluding Treasury holdings, was about 7.5 turns, a modestly lighter level intended to reflect caution while allowing the portfolio to benefit from carry while volatility remains subdued.
Expected July month-end liquidity, including monthly paydowns, was more than $1.2 billion, or nearly 50% of total equity, Macauley said.
ARMOUR’s hedging strategy uses both long and short hedge instruments to reduce duration risk across the yield curve. Macauley said about 86% of hedges are OIS and SOFR pay-fixed swaps. The company favors swaps in shorter and intermediate maturities, where spread volatility is lower, while using a more balanced mix of swaps, Treasury futures and Treasury shorts at longer maturities.
Asked by Citizens JMP analyst Trevor Cranston about hedging strategy amid a flatter yield curve and possible Fed hikes, Macauley said ARMOUR aims to keep a flat profile in both duration and curve exposure. He said if inflation normalizes, the company may consider increasing duration and positioning more for yield-curve steepness, though it is not there yet.
In response to a leverage question from Dave Storms of Stonegate Capital, Macauley said the company is comfortable with current leverage levels. He said ARMOUR considers spreads, macroeconomic conditions, geopolitics and liquidity stress tests when setting leverage targets.
Management Sees Supportive Technicals but Remains Cautious
Ulm said ARMOUR remains focused on maintaining common dividends at levels appropriate for the intermediate term, rather than reacting to short-term market fluctuations.
“Our approach remains unchanged,” Ulm said. “We stress test our liquidity, apply systematic hedging, and deploy capital appropriately.”
He said the company is positioned to reduce downside risks while taking advantage of opportunities as they arise.
About ARMOUR Residential REIT (NYSE:ARR)
ARMOUR Residential REIT (NYSE:ARR) is a mortgage real estate investment trust that was formed in 2008 to acquire and manage a portfolio of residential mortgage-backed securities (RMBS). The company’s investments are primarily agency-sponsored and agency-guaranteed RMBS issued by U.S. government-sponsored enterprises, along with credit risk transfer securities and select non-agency residential and multifamily RMBS. By focusing on high-quality mortgage assets, ARMOUR Residential REIT seeks to generate stable income and preserve capital through diversified exposure to the U.S.
