Ladies and gentlemen, thank you for standing by and welcome to the ARMOUR Residential REIT Incorporated Fiscal First Quarter 2018 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 Thursday, April 26, 2018. Now I'd like to turn the conference over to Jim Mountain, Chief Financial Officer. Please go ahead, sir.

Thank you, Tommy, and thank you all for joining our call to discuss ARMOUR's first quarter 2018 results. This morning, I'm joined by ARMOUR's co-CEOs, Scott Ulm and Jeff Zimmer; and our Chief Operating Officer, Mark Gruber. By now, everyone has access to ARMOUR's earnings release, and Form 10-Q which can be found on ARMOUR's website www.armourreit.com. 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 protections 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 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 to do by law. Also, our discussion today may include reference 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 ARMOUR's website shortly, and will continue for one year. ARMOUR's first quarter GAAP net income was $44.7 million, or $0.96 per common share. Core earnings were $32 million or $0.66 per common share, which comfortably exceeded…

Thanks, Jim. Beginning of 2018 saw a sharp reversal from 2017, a year marked by low volatility and strong returns across fixed income products. The volatility in the stocks -- stock and bond markets as measured by the VICs [ph] and move into seasons rebounded sharply, while the yields on tenure treasuries reached their highest levels since January 2014. With such a turbulent backdrop, the agency MBS Index posted negative 1.2% returns, it's worse first quarter total return performance over the past 20 years. Because of higher durations, 30 year MBS underperformed the 15 year sector while lower coupons fared worse than higher coupons. Similarly Agency CMBS index posted a negative 1.2% total return, while outperforming a 7 to 10 year U.S treasury benchmark return of negative 1.9%. Despite such unfavorable market term our credit risk transfer bonds or CRTs issued by Freddie and Fannie returned to positive 1.1% to 1.4% in the first quarter. It seems unlikely as we study the credit worthiness of our CRT portfolio, that we should experience any meaningful degradation of quality given strong U.S. housing fundamentals. A relatively small non-agency legacy portfolio remained positive and contributed to results with an average of 1% of total return for the first quarter. As of April 24, our funded leverage ratio or debt to equity is approximately 6.1%, a somewhat higher number from the 5.8 ratio observed at the end of 2017. During a period where rates increased in the first quarter we added five year and seven year treasury notes, at what we believe were good risk adjusted yields versus lower coupon mortgages at the time. Additionally we faced no mortgage basis risk or widening on those treasuries. Adding in the leverage of fact of unfunded TBA dollar roll positions results implied leverage of 8.3 as…

Thank you very much. [Operator Instructions] And we get our first question on the line from Douglas Harter with Credit Suisse. Please go ahead.

Good morning guys. This is actually Josh Bolton on for Doug. Just one question on leverage, with the increase you guys saw in the quarter, how are you thinking about current leverage? Are you comfortable running in the eights or should we expect some repositioning in from unlining to moderate leverage back down? Thanks.

Hey, Josh, good morning it's Jeff. So leverage is where we want it to be and we are quite comfortable with it right there. When the book value does go down as it did in the first quarter, you will get a natural obviously increase in leverage. But at a 3% ten year note there are interesting opportunities to my assets. I would not expect this to have any meaningful increase in leverage from here. But within the half a turn you can see at the end of the quarter either way. In none of the terms of investment opportunities, as I just noted the dollar rose low to mid-teens right now, specified premium balanced assets are low to mid-teens. If you look at about a 7.5 times leverage it starts like a one duration. So those are the kind of returns you are getting, our leverage is a little higher than that.

Great, make sense. And then just one quick one on funding cost, can you remind us the cost benefit you guys get for funding through BUCKLER rather than street repo?

So I talk about that in the last two earnings calls, that we had targeted initially in the five to seven balance sheet range. The competition in the repo market as you may be aware, has actually limited our direct savings from BUCKLER. But this is a really good thing for ARMOUR REIT. You might be aware that there has been a backlog of companies trying to get approved by up and running -- by CD [ph] and as we were approved last fall, so were six to seven other companies have come through. So they are all trying to get balances on -- into their new corporate enterprises. So the aggressiveness in the repo market has benefited ARMOUR considerably. I would note that down the road as that kind of -- that market stabilizes and that group isn't quite as aggressive, that you'll actually be able to identify some larger direct savings from BUCKLER but on the balance we are very pleased with BUCKLER's performance.

Great, thanks for the color, Jeff.

You bet. Have a great day.

Thank you very much. [Operator Instructions] And our next question on the line of Christopher Nolan from Ladenburg Thalmann & Company. Please go ahead.

Hi, thanks for taking my questions. You mentioned on the call that Buckler is handling roughly 50% of liabilities if I heard correctly. How much hard can we expect that to go?

I would say right now we’re exactly where we want to be and that’s what we targeted originally. So the only reason you would see that change a little bit, if for example, we sold some actually hard assets that we have repoed out and go into some dollar rolls. We won’t necessarily just BUCKLER or one of our other repo counterparties would just let that roll off. But within a given range of where it is right now we would expect to see it at least over the next couple of quarters.

Great and Jeff, just a follow up on the prior question. If I understood you correctly you’re expecting 5 to 7 basis points of funding advantage, which you did mention earlier calls that you are coming in a little bit lower than that, is that correct?

Yeah, we are but it’s a really good thing because the reason that we are is because the competition in the repo market has made pricing so much better than it had been prior to these new six or seven companies getting accepted by the FICC. So just to be clear the business model is for those that have outside clients. BUCKLER currently, the vast, vast majority of what it does is for ARMOUR REIT. The business model is you need to build up your book and typically if you maintain fair pricing you don’t see people move their repo from you very much. So these companies are all out trying to build up $5 billion to $10 billion books and so they’ve been very aggressive in pricing. So it’s benefited ARMOUR REIT considerably.

Great, thank you for the clarification. Also in the TBAs, if $4.3 billion from TBAs which is roughly 50% or so of your balance sheet asset, how high can we expect the TBA volumes to go given the size of your balance sheet, or is that not the right way to look at it?

Absolutely. I have TBAs that down currently on March 31 as 24.9% of our portfolio. And that’s kind of where we’ve been targeting. Are you referencing some numbers that I'm not familiar or we just don’t know?

Just looking at the total assets in the balance sheet, the $8.4 billion?

I'm looking at the March 31.

Jeff, let me answer. Hey it’s Mark Gruber. What you’re seeing on the balance sheet because of the TBAs are classified as derivatives, any forward sales don’t get put on the balance sheet. So the net position is actually I think $2.3 billion as at the end of the quarter, but you net out some forward sales that happened in April.

Okay, so $2.3 billion is really the correct number, not 4.3 in this respect?

I think it’s 2.3. I have to go check when you net it, but I think there’s another disclosure in the MD&A that has been there.

You don’t have to. I'm just trying to get a clarification. So roughly you guys are up -- the TBAs are roughly 25% or so of total balance sheet assets which is normally the limit I would think?

There is no limit but we’re targeting that or less right now, I wouldn’t anticipate us seeing that go much higher. The opportunities [technical difficulty] the pricing is very-very good and we had anticipated after the move of the Fed from being so involved in the last seven years that those opportunities wouldn’t exist on indeed they are. So we’ve been utilizing them and when you see a reduction, if you do see it in our dollar position it’ll mean just because of the opportunities aren't there.

Got you, my final question is from the comments that you’re talking about in terms of the outlook for 2018, should we infer from that you’re sort of anticipating a steeper yield curve or should I get a clarification in terms of how you think the interest rate environment will evolve and how are you trying to position balance sheet from that?

Our corporate position right now is that we’re going to see more of a flat there, but it might be at slightly higher rates than we are right here because if the Fed indeed does increase two more times, or three times, very hard to see a steepening unless you see the ten year get up to 3.70 or 3.74 and we personally don’t expect the ten year not to -- our next target range would be 3 to 3.25, we will just move from here. So expect a little bit more of a flattening there. However we’re 48 basis points as when I last looked to two and tens and we’re still making opportunities and the total of 13% range for specified pools in dollars also thus far the flattening has not hurt our business model.

Great, thank you. I’ll get back in the queue. Thank you.

Thank you very much. Actually Mr. Mountain we have no further questions on the line. I’ll turn it back to you.

Well thank you, Tommy, and again thank you all for joining the ARMOUR's first quarter 2018 conference call. As always if you have questions coming up in the intervening period, give us a call at the office. We'll try and get back to you as quickly as possible. And until next time, have a great day.

Thank you very much. And ladies and gentlemen this concludes the conference call for today. We thank you for your participation, ask you to disconnect your lines. Have a good day everyone.