Ladies and gentlemen, thank you for standing by, and welcome to the ARMOUR Residential REIT Incorporated Third Quarter 2016 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded today Thursday, November 3, 2016. It is now my pleasure to turn the conference over to Jim Mountain, Chief Financial Officer. You may begin, sir.

Thank you, operator, and thank you all for joining ARMOUR's third quarter 2016 earnings call. By now, everyone has access to ARMOUR's earnings release and Form 10-Q and October monthly company update, which can be found on ARMOUR's website. This conference call may contain statements that are not recitations of historical fact, and therefore constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the Safe Harbor provisions provided by the Reform Act. Actual outcomes and results could differ materially from the outcomes and results expressed or implied by the forward-looking statements due to the impact of many factors beyond the control of ARMOUR. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the Risk Factors sections of ARMOUR's periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at www.sec.gov. All forward-looking statements included in this conference call are made only as of today's date and are subject to change without notice. We disclaim any obligation to update our forward-looking statements unless required by law. Also, our discussion today may include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure is included in our earnings release, which can be found on ARMOUR's website. An online replay of this conference call will be available on our website shortly and will continue for one year. ARMOUR's Q3 GAAP net income was $118.7 million, or $3.13 per common share. Core income, including drop income, was $28.9 million, or $0.68 per common share, which represents an annualized return on equity of 10.2% based on stockholders' equity at the beginning of the quarter. We paid…

Thanks, Jim. Good afternoon, everyone. In addition to the customary SEC filings, we also continue to provide a monthly Company update, which is furnished monthly to the SEC and available on EDGAR, as well as our website www.armourreit.com. The monthly Company update contains a considerable amount of information about our portfolio, our hedge book, and our repo financing book. The most recent monthly Company update, along with the comments we made during our last conference call, provided our shareholders and analysts with substantial information on the state of the Company. As a result, the quarter three financial report that we filed last night should contain very few surprises for any of our listeners today. ARMOUR had a third quarter total economic return, the fund is the some of the common dividends paid per share plus the change in common stockholders' equity per share of 11.1%, or 44.6% annualized. Our book value increased 8.6% in the third quarter. As of October 31, our book value was estimated to be $27.71, which is 0.6% lower than at the end of quarter three. Spread tightening was the primary driver of book value performance this quarter, with the non-agency book accounting for almost 30% of that tightening on a dollar basis, despite being only 9.2% of our total assets at the end of quarter three, including our TBA dollar roll position. Our duration at the end of quarter three was 0.7. As of October 31, our duration has extended to 1.1, with the increase in rates. Further spread tightening and lower leverage limited the book value decline during this period to just 0.6%. The prepayment rate on our agency assets rose modestly during the quarter from 10.6% CPR in July to 12.6% CPR in September. While an increase in speeds does imply we will…

Thank you. [Operator Instructions]. Our first question is from the line of Trevor Cranston from JMP Securities. Please go ahead.

Just looking at the last couple of months or reports, it looks like the TBA dollar opposition has kind of incrementally declined a little bit. Can you talk about kind of how you're seeing dollar rolls so far in the fourth quarter and the current attractiveness versus the specified pools?

Hey, Trevor. It's Jeff Zimmer. Good afternoon. So, for example, we see the Nougat to an Apple today, pick up 61 over buying the assets and repoing them out. So if you want to take that time, 6 or 7 times levered, that's a pretty good pick up. We see Fannie 30 years they've actually come in quite a bit like 28 years, but Fannie 3.5 30 years, about 45 basis points. So, these have been 50% wider within the last couple of months, but this will offer great value and obviously [indiscernible] book value, so it's a very exciting area for us to participate in. And note that particularly with ARMOUR, we've taken some capital against tax losses in 2013. And note that a lot of the, when you do the dollar roll, it's taxable on a capital gains basis, which is no tax. I think you'll find an investment in our stock with kind of an income we're producing currently at least from the dollar rolls will provide for those who aren't in a tax protected account. They'll get a statement that, so they were very little taxes, at least dividends.

And Jeff, just one other thing to notice about the pattern of TBAs is that periodically we do take delivery instead of continuing to roll positions at infant item, so that we can get cash securities in the door, sort through, decide which ones have a real long-term place in the portfolio, and then opportunistically see if there is an opportunity to liquidate some of the positions that don't fit quite as well. And we are doing a little bit of that in the fourth quarter as well, which may damp down TBA positions at least for a month or two.

Yes, that makes sense. And then on the credit side, could you just talk about any sort of opportunities you're seeing there or after the spread tightening, we saw in the third quarter? Are you generally finding more attractive investments elsewhere enough? Thanks.

Well, I'll start here and then maybe let Mark improve. The CRTs is one area where we have continued to see opportunity on a levered basis. Now, the deal-to-deal [indiscernible] price at 3.90 and then traded in 3.80. The deal that was priced two days ago was packed out at 4.25. At that level, that asset class makes sense for ARMOUR and we didn't participate modestly in that issue. You could see form Scott's comments that our average coupon is 5.01 in that space, with average dollar price of $98.3. So our average entry point is well up into the mid-500s. Right now, we don't see opportunities in the NPL. The spreads are two type, and on a levered basis, it doesn't fit us. We're not necessarily akin to all the, some of the collateral changes and some of the NPL offers as well. So, in terms of opportunities in Non-Agency, we're focused on CRTs. Otherwise, we haven't seen anything else we want to put funds into over the last 90 days. Mark, any improvement on that?

No. I would just say [indiscernible] we've been more active in TBAs and CRTs, and that's where we see the most value. I mean, looking at spec pools, pay ups are still very high and we don't like the risk with high pay up bonds. We don't see a lot of value there right now. So that's why again PBA is just a more attractive enough space.

All right. Thank you. I appreciate the color.

[Operator Instructions] And our next question from the line of Douglas Harter with Credit Suisse. You may go ahead sir.

Can you talk about your financing costs and how those trended in the quarter with the moves in LIBOR?

So, a vast majority of our swap book is OIS or we receive Fed funds versus three-month LIBOR. However, our cost of funds and the changes in the cost of funds in the quarter were more with the price of repo rather than the price our receiver side on the three-month LIBOR. In the immediate future, with the high expectation of a Fed funds increase coming up in mid December, we'll have our, as I said, the vast majority of our swap book will reset immediately. And Doug, if you're not aware, the Federal funds OIS swaps its day to day changes. So if they raise rates on, I think, it's December 15 when they meet, that entire swap book would have an increase of potentially 25 basis points in Effective Federal Funds Rate.

So, would it not have, and so wouldn't reflect where we are today of a high probability of that increase, so it doesn't reflect that until the actual day of the increase?

I'm going to ask Mark to talk about the technicalities of that, because it's actually off the Federal funds that's in the marketplace, not the expectations. Mark?

Sure. So, I just want to step back, all the repo that's explicitly of LIBOR plus a spread has much swaps, so majority of our swaps are OIS Fed funds swaps, but we've covered all our LIBOR explicit LIBOR repo exposure with LIBOR swaps. The way OIS swaps work, they're daily resetting. So when one Fed funds move, there's no delay in the reset. They automatically reset the next day. And we just found out in the past that repo tracks Fed funds better than LIBOR and that's why we made the switch to OIS swaps several years ago. And in addition, they have a lower fixed rate side also.

I think what Doug might be asking, I'm going to repeat that to make sure I understand if correct, you may be asking does the potential since funding rates have gone up because people expect the Fed to increase the Federal funds rate, has that affected our receiver side. So I'm just making clear what Mark that has that affected our receiver side or do we just get a change when the actual Fed funds rate change?

We have to wait for Fed funds actually move.

Thanks, Doug. Any other questions?

We have no further questions at this time. Sir, you may continue with your presentation or closing remarks.

Well, thank you everybody for joining us. We had a really we're very pleased with our performance in the third quarter. We have reduced our leverage over the last few quarters as the team has focused on some of the opportunities in the non-agency area. We hope that that reduced leverage and a widely advertised expectation of a Federal funds increase in December will actually not produce exceptional increase in volatility that some believe. Mortgage spreads over the last quarter have tightened up quite a bit. It's an area we're very focused on and do realize that at some point, the Federal Reserve, excuse me, decides to taper other purchases of mortgages that could have an effect on the spreads. However, this time, we don't see that in the near future. Once again, thank you very much for joining our call. Always feel free to call the office and ask for Jim, Scott, Mark and myself with any specific questions subsequent to this call. Thank you very much.

Ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation. Have a great day, everyone.