EFTA01084347.pdf

ARMOUR RESIDENTIAL REIT ARMOUR RESIDENTIAL REIT, Inc. Company Update April 10, 2012 EFTA01084347  PLEASE READ: Important Regulatory and Yield Estimate Risk Disclosures Certain statements made in this presentation regarding ARMOUR Residential REIT, Inc. ("ARMOUR" or the "Company"), and any other statements regarding ARMOUR's future expectations, beliefs, goals or prospects constitute forward-looking statements made within the meaning of Section 21E of the Securities Exchange Act of 1934. Any statements that are not statements of historical fact (including statements containing the words "believes," "plans," "anticipates," "expects," "estimates" and similar expressions) should also be considered forward-looking statements. Forward-looking statements include but are not limited to statements regarding the projections for ARMOUR's business and plans for future growth and operational improvements. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements. ARMOUR assumes no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. This material is for information purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation for any securities, financial instruments, or common or privately issued stock. The statements, information and estimates contained herein are based on information that the presenter believes to be reliable as of today's date, but cannot be represented that such statements, information or estimates are complete or accurate. Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be predicted with certainly. Estimated yields do not reflect any of the costs of operation of ARMOUR. THE INFORMATION PRESENTED HEREIN IS UNAUDITED AND UNREVIEWED. c ARMOUR RESIDENTIAL RUT 2 EFTA01084348 ARMOUR Capitalization, Dividend Policy, Transparency and Manager • 177,635,830 shares of common stock outstanding (NYSE: "ARR"). Market • Market capitalization of $ 1.22 billion. Capitalization • Additional paid-in capital estimate: $1.24 billion. • ARMOUR pays dividends monthly, announced for the quarter in advance. • Dividends are based on estimates of future taxable REIT income. Dividend Policy • The Q2 2012 monthly dividend rate is $0.10 per month. and Taxable REIT Q22012 April May June Income Record Date 16th 15th 15th Payment Date 27th 30th 28th • Portfolio and liability details are updated monthly at Transparency • Premium amortization is expensed monthly as it occurs. No yield smoothing. and • Hedge positions are marked-to-market daily (GAAP/TAX differences). Governance • Non-Executive Board Chairman. • ARMOUR REIT is externally managed by ARMOUR Residential Management LLC. ARMOUR REIT • Accretive fee structure: effective fee percentage declines as equity increases. Manager and • Gross equity raised up to $1.0 billion, 1.5% (per annum) of gross equity. Fee Structure • Gross equity raised in excess of $1.0 billion, 0.75% (per annum) of gross equity. C ARMOUR RESIDENTIAL REIT 3 EFTA01084349 ARMOUR Balance Sheet Targets Assets ARMOUR invests in Agency mortgage securities (FNMA, FHLMC & GNMA). Net balance sheet weighted average duration target of 1.5 or less. Duration • 2.76 gross asset duration. • 0.63 net balance sheet duration after the effect of derivatives. Hedge a minimum of 40% of fixed rate assets and funding rate risk. Hedging • $5.57 billion in derivatives. • 49.6% of REPO borrowings hedged. Hold 40% of unlevered equity in cash between prepayment periods. • $643.4 million in total liquidity (52.1% of additional paid-in capital). Liquidity $206.8 million in true cash (16.7% of additional paid-in capital). $236.3 million in unlevered securities (19.1% of additional paid-in capital). $200.2 million in short term Agency (16.2% of additional paid-in capital). Debt to equity target of 9.0x vs. additional paid-in capital ("APIC"). Leverage • $11.23 billion in net REPO borrowings or 9.09x APIC. c ARMOUR RESIDENTIAL REIT EFTA01084350 ARMOUR Portfolio Strategy and Investment Methodology Management has a focused and disciplined approach to evaluating assets for inclusion in the ARMOUR portfolio. ARMOUR employs a 'buy and hold' strategy rather than a 'trading' strategy. Low Duration Agency Securities Loan Analysis — Inelasticity vs. Elasticity • Target a portfolio of low duration assets to reduce • Credit work on non-credit assets. gross interest rate exposure. • Original and current loan balance. • Year of origination. Diversify Broadly • Originating company, third-party originators. • Diversification limits idiosyncratic pool risk. • Loan seasoning. • 983 cusips. • Principal amortization schedule. • Original loan-to-value ratio. Highly Liquid Assets • Geography. • Purchase those Agency Securities that are highly liquid (easily traded and priced). • ARMOUR purchases "pass-through" securities. ➢ Pool Analysis • No collateralized mortgage obligations ("CMOs"). • NO TBA pools — Only specified pools. • Prepayment history. Diversified Sources • Prepayment expectations. Source assets through a mix of direct purchases from: • Premium over par. • Originators • "Hedgability." • Dealer inventories • Liquidity. • Bid lists toARMOUR RESIDENTIAL REIT 5 EFTA01084351 ARMOUR Portfolio Composition Current Percentage of Weighted ARM & Hybrid Securities Weighted Average Value ARM & Hybrid Average Months Months to Reset Net/Gross Coupon (millions) Securities to Reset 0-18 85.2 3.3% 4.15/4.65 12 19-36 263.8 10.2% 4.29/4.75 31 37-48 327.3 12.7% 3.49/3.96 41 49-60 220.8 8.5% 3.84/4.25 54 61-84 847.8 32.8% 3.51/3.95 70 85-120 842.3 32.6% 3.76/4.19 109 Total $ 2,587.3 100.0% 3.72/4.16 72 Current Percentage of Weighted Average Fixed Rate Securities Value Fixed Rate Net/Gross Coupon (millions) Securities Fixed Rates Maturing in 120 Months or Less $ 40.5 0.4% 3.63/3.99 Fixed Rates Maturing Beween 121and 180 Months $ 2,521.2 26.7% 3.62/3.98 Fixed Rates Maturing Beween 181and 240 Months $ 6,895.1 72.9% 3.65/4.09 Total $ 9,456.8 100.0% 3.64/4.06 Information as of 4/9/2012. Portfolio value is based on independent third-party pricing. Portfolio information includes all forward settling trades. Some totals may not foot due to rounding. c ARMOUR RESIDENTIAL REIT 6 EFTA01084352 ARMOUR Portfolio Constant Prepayment Rates ("CPR") Monthly Portfolio April 2012 Constant Prepayment Rate Agency Asset Class CPR 1.5 Prior Quarters Current Months 193 10.1 116 14.5 15 1 15 10 10 9.9 S 4,9 / d eeee is;'' is) 194 0 et m F o se op ARMs itytrkb 10 Year Pan 15 Year Pan. 20Year Pass- Portkgo Aerate se Through‘ Through Through; ARMOUR expenses premium amortization monthly as it occurs. Constant Prepayment Rate ("CPR") is the annualized equivalent of single monthly mortality ("SMM"). CPR attempts to predict the percentage of principal that will prepay over the next twelve months based on historical principal pay downs. CPR is reported on the 4th business day of the month for the previous month's prepayment activity. DRESIDENTIAL RUTARMOUR 7 EFTA01084353  ARMOUR Portfolio and Derivatives Duration Detail Weighted Weighted Estimated Effective Current Value Weighted Average Agency Asset Class Average Average Current Duration Using (millions) Net/Gross Coupon Purchase Price Market Price Current Values ARMs & Hybrids $ 2,587.3 104.0% 105.4% 3.72/4.16 -0.50 Fixed Rates Maturing in 120 Months or Less 403 102.7% 105.5% 3.63/3.99 2.26 Fixed Rates Maturing Beween 121and 180 Months $ 2,521.2 104.5% 105.6% 3.62/3.98 2.54 Fixed Rates Maturing Beween 181and 240 Months $ 6,895.1 104.9% 105.8% 3.65/4.09 4.06 Total or Weighted Average $ 12,044.0 104.6% 105.7% 3.66/4.08 2.76 Estimated Balance Sheet Amount Duration Effect on Duration (millions) Balance Sheet Agency Assets $ 12,044.0 2.76 Derivatives (1) 5,571.0 -3.96 Net Balance Sheet Duration 0.63 (1) Derivatives consist of interest rate swaps and Eurodollar futures. Duration estimates are derived from third-party software. Actual realized yields, durations and net durations described herein will depend on a number of factors that cannot be predicted with certainty. If rates decline, the value of our derivatives will typically decline. Inversely, if rates increase, the value of our derivatives will typically increase. Portfolio information as of 4/9/2012. Derivative information as of 4/10/2012. Portfolio value is based on independent third-party pricing. Portfolio information includes all forward settling trades. Some totals may not foot due to rounding. c ARMOUR RESIDENTIAL REIT 8 EFTA01084354 ARMOUR Derivatives Detail Weighted Average Notional Weighted Derivative Type (1) Remaining Term Remaining Term Amount Average Rate (Months) (millions) Interest Rate Swap 0-12 Months 8 $ 20.0 0.53 Interest Rate Swap 13-24 Months 22 $ 290.0 1.09 Interest Rate Swap 25-36 Months 35 $ 305.0 1.59 Interest Rate Swap 37-48 Months 45 $ 2,325.0 0.94 Interest Rate Swap 49-60 Months 55 $ 2,500.0 1.19 Eurodollar Futures 0-42 Months 23 $ 131.0 1.82 Total or Weighted Average 47 $ 5,571.0 1.12 Amount % Hedged (millions) Non-ARM Assets $11,958.9 46.6% Net Repo Balance $11,226.6 49.6% (1) Derivatives consist of interest rate swaps and Eurodollar futures. Active swap counterparties include: Citibank, Deutsche Bank AG, JP Morgan Chase, M., Nomura Global Financial Products Inc., UBS AG, and Wells Fargo Bank, M. M., Information as of 4/10/2012. DRESIDENTIAL REIT ARMOUR 9 EFTA01084355 ARMOUR REPO Composition Percentage of Weighted Principal Longest REPO Average REPO Counter-Paityl" Borrowed Maturity in Positions with Maturity in (millions) Days ARMOUR Days 1 Merrill Lynch, Pierce, Fenner & Smith Inc. 807.4 7.1% 13 23 2 Mitsubishi UFJ Securities (USA), Inc. 733.5 6.4% S 15 3 Deutsche Bank Securities Inc. 669.0 5.9% 21 37 4 E. Morgan Securities LLC 655.8 5.8% 13 28 S Wells Fargo Bank, 633.4 5.6% 11 23 6 ICBC Financial Services LLC 616.8 5.4% 13 24 7 RBS Securities Inc. 597.1 5.2% 10 23 8 Goldman, Sachs & Co. 522.0 4.6% 15 28 9 Gleacher & Company Securities, Inc. 515.9 4.5% 17 30 10 BNP Paribas Securities Corp. 511.1 4.5% 2 3 11 South Street Securities LLC 490.3 4.3% 19 30 12 Barclays Capital Inc. 476.9 4.2% 19 30 13 Pierpont Securities LLC 463.0 4.1% 27 36 14 Citigroup Global Markets Inc. 422.5 3.7% 17 30 Weighted Average Haircut 4.80% 15 CRT Capital Group LLC 399.3 3.5% 18 30 Weighted Average Repo Rate 0.35% 16 UBS Securities LLC 397.4 3.5% 11 18 17 The Bank of Nova Scotia 389.2 3.4% 26 36 March Paydowns $ (157.0) 18 Cantor Fitzgerald & Co. Inc. 364.5 3.2% 18 23 Total REPO after Paydowns $ 11,226.6 19 ING Financial Markets LLC 356.5 3.1% 21 30 20 Credit Suisse Securities (USA) LLC 315.8 2.8% 7 8 Debt to Equity(2) Ratio after Paydowns 9.09 21 Daiwa Securities America Inc. 283.5 2.5% S 7 22 Guggenheim Securities, LLC 254.8 2.2% 29 42 (1) ARMOUR has signed MRA's with 31 23 Mizuho Securities USA Inc. 214.4 1.9% 2 3 counterparties. 24 Nomura Securities International, Inc. 206.9 1.8% 24 30 (2) Equity is defined as additional paid-in 25 Jefferies & Company, Inc. 49.7 0.4% 11 11 capital. 26 The Princeridge Group LLC 36.9 0.3% 1 1 Information as of 4/9/2012. Total or Weighted Average $ 11,383.5 100.0% 15 Some totals may not foot due to rounding. „ARMTOIA RESIDEN UR L RE IT 10 EFTA01084356 11 ARMOUR RESIDENTIAL REIT iUR Residential REIT, Inc. 3001 Ocean Drive Suite 201 Vero Beach, FL 32963 EFTA01084357