ARMOUR Residential REIT (NYSE:ARR) reported a third-quarter 2026 GAAP net loss attributable to common stockholders of $327 million, or $2.26 per common share, as a late-quarter widening in mortgage spreads and rising interest rates pressured the company’s book value.
Chief Financial Officer Gordon Harper said net interest income totaled $83.7 million for the quarter, while distributable earnings available to common stockholders, a non-GAAP measure, were $102.3 million, or $0.71 per share. Total economic return was negative 12.9% during the quarter.
Quarter-end book value was $14.55 per common share, down 17% from June 30. The company’s estimate of book value as of Oct. 19 was $14.65 per share, including the accrual of its October common dividend.
Rates and Spreads Pressured Agency MBS
CEO Scott Ulm said Agency mortgage-backed securities faced a difficult final three weeks of the quarter as persistent inflation, a more hawkish Federal Reserve, geopolitical tensions, fiscal deficits and increased corporate debt issuance contributed to a broad bond-market repricing.
Treasury yields rose by roughly 70 to 80 basis points during the quarter, while interest-rate volatility increased in September. Ulm said the rise in yields extended mortgage duration and contributed to selling pressure in the MBS market.
“Today, mortgage spreads sit near their widest of the year, offering more compelling valuations that support our constructive medium-term outlook,” Ulm said. He added that a sustained recovery in mortgage prices would likely require greater stability in Treasury yields and interest-rate volatility.
Management’s base case is for a shallow Federal Reserve hiking cycle rather than a repeat of the tightening seen in 2022 and 2023. The company said it sees limited wage pressure in the labor market and noted that some of the Fed’s more hawkish policymakers projected one additional 25-basis-point rate increase in 2026 and another in 2027.
Portfolio Positioning and Liquidity
Co-Chief Investment Officer Sergey Losyev said ARMOUR entered the quarter with historically low leverage and limited net duration exposure. However, its portfolio option-adjusted spread widened by 20 basis points, with about 80% of the move occurring in September.
At quarter-end, implied leverage, excluding Treasuries, was 8.2 times and net duration exposure was 0.38 years. Available liquidity stood at $1.02 billion and was expected to remain near that level through the end of October.
The company added about $1.4 billion of MBS assets during the quarter, then sold roughly $900 million beginning in late September. The sales consisted primarily of DUS pools and deep-discount seasoned MBS, assets that Losyev said had outperformed the broader mortgage market.
ARMOUR intends to eventually reinvest sale proceeds and paydowns into moderately discounted MBS, including securities in coupons that widened significantly in September. Losyev said estimated levered returns on those opportunities ranged from 15% to 18%, depending on coupon.
- Portfolio prepayments averaged 8.5 CPR in the third quarter, down 25% from the prior quarter.
- More than 96% of MBS holdings were in specified pools with favorable prepayment characteristics.
- The portfolio remained invested exclusively in Agency MBS and DUS securities.
- The company’s swap hedge-to-repo ratio was approximately 89%, its highest level since 2022.
Losyev said ARMOUR financed nearly half of its portfolio through affiliated broker-dealer Buckler Securities, allowing it to use overnight repo selectively rather than pay term premiums for longer-term financing. Management said repo spreads remained tight relative to SOFR and described funding conditions as supportive.
Capital Actions and Dividend
During the quarter, ARMOUR raised approximately $205.7 million by issuing about 12.4 million common shares through its at-the-market programs. It also raised $2.5 million through the issuance of approximately 123,000 preferred shares. At the end of September, the company repurchased 363,700 common shares.
Ulm told analysts that the company issues stock through its at-the-market program when its share price is close to book value, while repurchases may be considered when the shares trade at a wider discount. He said liquidity management is the principal consideration in balancing buybacks and portfolio leverage.
ARMOUR paid monthly common dividends of $0.24 per share, or $0.72 for the quarter. The company said it expects to pay a $0.24 cash dividend on Oct. 29 to shareholders of record on Oct. 15, and declared another $0.24 dividend payable Nov. 27 to shareholders of record on Nov. 16.
Ulm said recent declines in the company’s stock price and book value had created an “unusually high” dividend yield at current market prices. He said management believes earnings available for distribution should be in the range of the dividend in the coming quarter, while emphasizing that the company does not provide forward guidance.
Leverage Outlook and GSE Demand
Co-Chief Investment Officer Desmond Macauley said leverage was 7.9 times as of Oct. 19, excluding Treasury long positions and with adjustments for expected paydowns. He said the company was comfortable at that level but retained capacity to add leverage when there is greater clarity on the macroeconomic and inflation outlook.
Management also said it expects the underlying Agency MBS supply-and-demand backdrop to remain supportive. Ulm noted that elevated mortgage rates have constrained mortgage originations and net Agency MBS supply. The company believes Fannie Mae and Freddie Mac may have resumed purchases during September’s volatility and could serve as potential buyers at wider spreads, though official holdings data remained pending.
Macauley said ARMOUR continues to use robust liquidity stress testing based on extreme scenarios, including COVID-era conditions, and did not change those tests following September’s market volatility. He said the company did not need to sell assets because of liquidity pressures.
About ARMOUR Residential REIT (NYSE:ARR)
ARMOUR Residential REIT, Inc is a real estate investment trust that invests primarily in residential mortgage-backed securities. Its portfolio generally consists of securities issued or guaranteed by U.S. government-sponsored enterprises, including Fannie Mae and Freddie Mac, or by U.S. government agencies such as Ginnie Mae.
The company invests in a range of agency mortgage securities, including fixed-rate and adjustable-rate mortgage pass-through securities, collateralized mortgage obligations, specified pools and to-be-announced securities.
