Welcome to the ARMOUR Residential REIT Incorporated Third Quarter 2017 Conference Call. Today's call is being recorded. At this time for opening remarks and introductions I would now like to turn the call over to Mr. Jim Mountain, Chief Financial Officer of ARMOUR Residential REIT. Please go ahead.

Thank you, operator, and thank you all for joining ARMOUR's third quarter 2017 earnings call. This morning, By now, everyone has access to ARMOUR's earnings release and Form 10-Q, 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 Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to Safe Harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from the outcomes and results expressed or implied by these 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 Factor section 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 discussions today may include reference to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measures 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 ARMOUR's website shortly and will continue for one year. ARMOUR third quarter GAAP net income was $27.7 million or $0.58 per common share. Core earnings were $32.6 million or $0.69 per common share that represents an annualized return on equity of 10.1% based on book value at the beginning of the court. Differences between GAAP and core income are mostly due…

Thanks, Jim. Good morning everyone in addition to the customary SEC filings we also continue to provide a company update which is furnished at the SEC and available on EDGAR as well as the company site. The company update contains a considerable amount of information about our portfolio, our hedge book and our repo financing book. These company updates along with the comments we make during our earnings call provide our shareholders and analysts with substantial information on the state of the company. Thus, the quarterly financial report we filed last night should contain few surprises for any of our listeners today. ARMOUR realized total shareholder return of approximately 10% including reinvested dividends and total economic return of 3.2% for the third quarter of 2017 not analysed. Additionally, core income exceeded dividends declared and paid as it has for the last five quarters. Our book value increased by 1.1% during the third quarter. As of October 23, our book value was $26.48 and down 1.7% since the end of the third quarter. Our funded leverage ratio is 5.5 to 1 adding our unfunded TBA positions results in leverage of 7.0 to 1. We continue to see value in sectors of the agency market. These leverage ratios and our liquidity leave us with some dry powder to take advantage of further compelling investment opportunities should they appear. The prepayment rate on our agency assets increased during the quarter from 7.0 CPR in the second quarter to 7.1 CPR in the third quarter. Our portfolio paid 6.2 CPR in October. Please note that a good portion of our agency portfolio, excluding TBA is composed of assets with prepayment protection through lower loan balances or contractual prepayment lockouts. Our notional swap position has decreased from $5.2 billion at the end of the second…

[Operator Instructions]. And our first question comes from the line of Trevor Cranston with JMP Securities.

First question with BUCKLER Securities coming online in the fourth quarter. Can you give some additional color on sort of the rates you expect to be able to achieve through BUCKLER versus what you get more traditionally through third-party repo? And also, what the goal is over the next couple of quarters in terms of how much of your financing you think you'll be able to do through BUCKLER?

Hi, Trevor, it's Jeff. So, in the last conference call I believe we quoted - we ultimately hope to save 5 to 7 basis points range, once we've fully on boarded. Our goal right now are based on the size of our portfolio has been initially go to $3 billion of our $7.2 billion of financing, and at that point, the ARMOUR Board and the management will sit down and see if you want to increase from there. But look at it, that's not a panacea. We have buckler, because it provides safety and soundness of financing. It's not just about saving a handful of basis points or perhaps more. We spent 20 months for getting that operation going and finally within the last week or so, we did our first transaction. So, we'll take some time to get up to $3 billion. I didn't know that you will achieve that by the end of the year but certainly in the first quarter.

Great. Thank you. And then second question, you mentioned in the prepared remarks towards the end that you guys are sort of watching and monitoring the effect that the Fed balance sheet taper and the potential announcement of new Chairman. What the impact that might have on spreads in the market? And you talked about how you sort of view the balance between what you guys view as the incremental returns on investing in agency versus the potential downside risk if you were to get some spread widening pressure in that sector?

Sure. So, there are a couple ways to look at this. relative to other assets classes mortgage is on a leverage basis Look [indiscernible]. However, if I look at my OAS charge from the end of 2016 to now. has come in almost by 40% from the end of June they have come in by about the same amount. So, they have tightened. No, they've tightened in an environment where everybody knows that the Fed is now going to reduce the amount of their reinvestment starting with $4 billion for the first quarter than $8 billion and onto the end of 2018. We believe, that you're going to have to have a new set of buyers come in to see mortgages get substantially tighter from here. But in that regard, we would expect mortgages to be flat wider, when we talk the quarter from now and certainly perhaps 2 quarters from now that should provide some good reinvestment opportunities for marginal cash. There have been a number of capital raisings including us over the last 4 to 6 months. Those reinvestment was done not dilutive to current earnings, and we believe you could reinvest marginal capital right now. So, it is not dilutive to our current earnings stream, albeit with the federal funds to increase in December your funding is going to go up 25 basis points. So, in theory, all things being equally, you have to see opportunities in investment world that will equal that farther out on the curve. In terms of two asset classes that we look at closely for reinvestment. One area we think is very overvalued, which is the high pay ups story. Taking specified bonds and paying anybody who mortgages can see the pay ups have been out of trajectory upward over the last couple of quarters, despite the fact that rates have gone up. So, we're not quite understanding that and we're not reinvesting in that area. We're taking advantage of some low stories unspecified peak where it's hard to refinance, but the cost was as an investor is quite low and remember, you're in a prepayment beer peak. So, there is no reason to pay a lot for assets that might perform better in a rally. Regarding dollar roll market, which we look at a lot picketers provide low double-digit returns and depending on the asset on the 30 years particularly anywhere from 12 to 13 in a quarter let's say over the next 30 to 60 days and those are growth that - and the way we look at that is we've hedged out to a 1 duration. So that is a hedge with financing included in that development. So, we have been using dollar rolls to add to the value and income of ARMOUR. I hope that answers your question.

[Operator Instructions]. And our next question comes from the line of Douglas Harter with Crédit Suisse.

Hey guys, this is actually Josh on for Doug. Thanks for taking the question. Just a follow-up on Trevor's question of BUCKLER Securities, you mentioned that the $3 billion is the near-term target or breakeven amount from that source. Can that include both agency in nonagency repo? And also, how you think about target levels from a risk-management perspective on funding?

So, it only includes agencies and we'll only include agencies. The funding for nonagency is expanding exponentially, particularly on our CRTs from 2 or 3 funding providers to a dozen funding providers now and they are beating each other up every day with a lower haircut, particularly on the European one, which can go under 25% and lower cost of funds versus live or so. We're actually really happy with what's going on in the nonagency side. In terms of risk management, we feel very secure having a good tight eye on what's going on with our own financing. We're very happy to go up to 40% to 45% with $3 billion initially. Will that exceed 50%, it could, but it will get to our what our goal is, and we'll analyze and talk to the board and work with our management to see where we stand right there.

And our next question come from the line of Christopher Nolan with Ladenburg Thalmann.

On the income statement, I'm just looking at the Agency Securities and the TBA drop income, which is up quarter-over-quarter. And can you give a little color on which terms of what's driving that increase for each please?

This is Mark. So, the TBA is - the income is going to be different each quarter based on the opportunities we se. Sometimes during the quarter, we see some opportunities that are short-term, or something goes really special are even maybe someone's looking to do something and will take opportunities against that. It's hard to predict, what that's going to look like quarter-over-quarter, just because there's so many variables going on in day-to-day on that. We try to maintain a certain balance, but the differences quarter-over-quarter if the balance is going to remain the same, there's just going to be opportunities we see for short-term.

Right, Sometimes you might be in October or November roles and in all of a sudden, these roles don't look good, so you can take delivery or sell the asset. So, the snapshot you're seeing, the 6 30 snapshot or the 9 30 snapshot do not contemplate what happened in the 90 days during that period.

All right. Then for the Agency Securities loan?

Agency securities - the biggest driver during the quarter is going to be prepayment fees or amortization. That was the biggest driver for improvement.

Our prepayments have been low and that just represents the quality of the collateral like for example, the DUS bonds just don't prepay as Scott noted earlier. You get the check when those prepay penalty to the borrower, our low loan balance assets have exhibited very good prepayment characteristics as well as quite frankly, a good portion of our portfolio has exhibited a good prepayment characteristics. It has kept our amortization expense quite low, and obviously, adding to earnings over the last three quarters.

As Jeff said earlier we will take delivery of TBA so you'll see some income will move between those two lines.

Got it. And then I saw that you guys have been issuing common during October, is that reflecting the ATM?

This is Jim. And actually, the common issuances that we have been doing are under our dividend reinvestment program that allows investors that are interested in ARMOUR stock to apply to purchase it directly from our transfer agent at a modest discount to volume weighted average price for the day. We had an investor that wanted to buy a little position over the tail end of September in the first few days in October. And one of the things we like about that program is it allows us to accommodate particular investor interest, but it allows us to do it at a very cost-effective basis for issuing capital and because it's based on volume weighted-average price for the day is not disruptive in the marketplace a little bit, not a ton and the other thing that is, because it's cost effective and well-priced and is accretive to book value. We have the opportunity when it looks like markets are trading off to suspend the program, so we don't were not required to issue under the program and do whatever to be not accretive to existing shareholders.

Great. Final question to Jim or anyone. Leverage ratios, your leverage ratios are very low. Can you give us some color in terms of where those could go in the next quarter or 2?

So, over the last 18 months. The substantial driver of the reduction in our leverage is the addition of the $860 million of current value of CRT bonds that we own. For every one of those we purchased we've reduced our agency's anywhere from 3.5x to 4.5x. So, We don't anticipate in today's spreads adding more of that asset class. I think the last purchase we made was more like 432 basis points rather than today's 232 basis points. So, I would expect our leverage to stay within a half a churn at least for the foreseeable future on where it is right now, and we ended 5.5 on that 30 and 7. On November 15th approximately we will put out the end of October monthly company updates. So, any changes from the end of the quarter till the end of October will be identified in that file document.

And there are presently no further question. I'll turn the call back over to you for your closing remarks.

Well, thank you, everybody for joining us today big I would note that the REIT sector has performed ordinarily well this year. Average of the 16 peer groups at total shareholder returns of 19% this year. That's better than S&P's and getting closer to what the nest acted big so it's a very good place for shareholders to through yesterday's close, October 25th, we can to be very positive on long-term investment opportunities and of ARMOUR read. Please feel free to call us and you in the office. We will attack you with any questions. And have a great day.

There is a government that does conclude the conference call for today. We thank you for your participation and asked that you please disconnect your lines.