Ladies and gentlemen, thank you for standing by. And welcome to the ARMOUR Residential REIT, Inc. Third Quarter 2018 Earnings 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, October 25th, 2018. I would now like to turn the conference over to Jim Mountain, Chief Financial Officer of ARMOUR Residential REIT. Please go ahead, sir.

Thank you, Operator. And thank you all for joining our call today to discuss ARMOUR's third quarter 2018 results. This morning, I'm joined by ARMOUR's co-CEOs, Scott Ulm and Jeff Zimmer; and by Mark Gruber, our COO and CIO. By now everyone has access to ARMOUR's earnings release and Form 10-Q, which can be found on ARMOUR's Web site 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 which are filed with the Securities and Exchange Commission. Copies are available on the SEC's Web site 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 so 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 also be found on ARMOUR's Web site. An online replay of this conference call will be available on ARMOUR's Web site shortly, and will continue for one year. ARMOUR's Q3 GAAP net income was $47.7 million, or $1.02 per common share. Core income was $31.2…

Thanks, Jim, and good morning. Very low realized volatility, flattening of the government yield curve, and credit spreads grinding tighter served as a favorable, if unexciting, background of fixed income markets for the summer months of the third quarter. The spreading yields between the two year and 10-year treasury notes briefly touched 18 basis points in August level not seen in over a decade and the outright yield of 10 year treasury note remained in a well defined range. While the agency mortgage basis reported daily volatility of just one basis point versus the three basis points average since the year 2000, we did see spreads widened during the quarter in agency MBS. Spread compression across the U.S. housing credit curve helped non-agency MBS outperform high yield and investment grade corporate credit. Caution signs for stretch valuations have began to emerge well, robust economic data threatens to flush out low forward growth and inflation expectations, U.S. home affordability is being challenged by the rapid rise of mortgage rates year-to-date, the continued credit box expansion to a wider range of mortgage borrowers has impacted the credit quality of the collateral in the later CRT deals and the federal reserve run-off of its mortgage portfolio challenges our historical perspective on the mortgage basis. By September, shifting perceptions of equity and bond valuations combined with divergence and views on the help of the U.S. economy produced a rebound in volatility, higher yields and subsequently mixed returns for the third quarter, running on historically low levels of leverage and duration exposure, ARMOUR's book value declined by 0.8% in the third quarter while producing core income of $0.64 per share versus our dividend of $0.57. Our total economic return for the past quarter was positive 1.6%. The modest decline in book value was driven primarily…

[Operator Instructions] And our first question comes from Doug Harter with Crédit Suisse. You may proceed with your question. Q – Douglas Harter: Thanks. Hoping on the October update you gave for book value, how much of the decline would you attribute to spread widening versus rate moves?

90%, just the vast majority of the spread widening, OAS is another four, five here in the first couple of weeks of the quarter, so anybody that is involved in agency MBS and even CRTs are going to have experience lower prices or wider spreads. Q – Douglas Harter: And I guess how would you -- I guess what is your viewpoint kind of look forward for the remainder of this year for into next year kind of your outlook for spreads?

So we are currently still a little negative on the mortgage basis, we're still getting the first kind of flow of experience of the Federal Reserve not buying any more and I think at some point when analysts were doing their work a year ago when this announcement was made, some people thought mortgages could widen 40 OAS and other said maybe five to 10, I think it's going to end up being in the middle there and we believe we have some widening to go. On the non-agency side, you actually have seen CRTs widen this quarter alone you're on the rugs between 20 and 25, now our investment grade portfolio which constitutes 35% of our CRT position is only wider by 10. So we benefited from the seasonality factor of that, so we will be pleased to invest some of our dry powder but I wouldn't expect that unless you see cash another five or 10 OAS of widening, otherwise we're very pleased with the way we're positioned right now and it's some point you're going to see buyers say hey mortgages look really cheap then we'll see the universe come in and buy and will be part of that participation and spreads can tighten around the road particularly if you go to a 335, 345 10-year note mortgages will be prepaying very slowly at that point. Okay, their duration extension would have already happened and if they're wider, they're going to look like a very good investment. Q – Douglas Harter: I appreciate that color, thank you.

Okay, thank you.

Our next question comes from Christopher Nolan with Ladenburg Thalmann. You may proceed with your question. Q – Christopher Nolan: Hi, you mentioned you get a haircut benefit from financing with BUCKLER versus the street, how much of the benefit is that please?

The benefit they show us is between 100 and 200 basis points, 1% and 2%. Q – Christopher Nolan: Great, and then in the quarter you bought more 30 year Fannie and Freddie's last quarter, you mentioned when you bought those they were for low FICO scores mortgages left $200,000 or so. For the ones you bought this quarter how would you characterize those?

The vast majority is $200,000 loan Max or less of 4 and 4.5. We weren't able to find as much the FICO paper this quarter; I don't even know we actually put any on. The one thing I would point out Christopher is this morning I was looking at the publication we put out on the monthly at the end of May which we'll been put out June 15, at that point you had $5.8 billion of actual collateral agency collateral, tax rate collateral. This morning were $7.04 billion but the difference being that we reduced by a $0.5 billion role thing and most of that has gone into the collateral that I just discussed. The modestly premium price 4.5 with very good characteristics in terms of convexity like 200,000 max loans. Q – Christopher Nolan: Got it and then on my follow up question and I'll get back in the queue is on the TBA roles the lower specialness mean, how should we look that, should we expect TBAs to decline going forward or and for leverage to increase what do you think?

For the rest of the year we're not bullish on TBAs and I suspect that we may take delivery over the next couple months or sell some of those TBA positions out when we less spoke we recording some dollar role positions in 4.5 or 25 it like 13.5% well these returns are now down to 10 to may be a 11% max were as I can invest in some of the special securities that I just discuss with you 11 to 12 in a quarter kind of return, so were talking et cetera 100 basis points or more which at the end of the day makes your actual leverage go up but you're implied inclusive of that still says the same because we're just going from dollar roles to hard collateral. Q – Christopher Nolan: Sounds good, get back in the queue. Thank you for taking my questions.

Our next question comes from Trevor Cranston with JMP Securities. You may proceed with your question.

Hi, thanks and follow up on the comments you made earlier about spread widening you see in an October I guess specifically you mentioned that agencies and CRT had widened I was curious if you are seeing any widening in the DUS market and how are you guys are thinking about DUS versus agencies or CRGS on margin. Thanks.

So we see in three basis points of widening in the DUS market this quarter. We liked that because of the convexity and once again I just quoted looking at the end of May, the June 16 presentation were DUS position is up, just under $300 million since then as well right, so rates go up DUS will not extend they're going to be 9.5 to 10 years it's given if not we get a large prepayment penalty from the borrower. If the market rally then you see a 285 tender note for a reason that will shorten up so, we like that position, it's currently 18% I wouldn't see it going over 20% but we do like the sector quite a bit.

Got it, okay that's helpful. And then just question on the overall portfolio asset yield and in the third quarter you reported 3.5% which is up a decent amount from 3.1 the prior quarter. I was wondering if you could just talk a little bit about what's specifically drove the increase in asset yield this quarter. Thanks.

Hi Trevor, it's Mark Gruber, so really just two drivers. We showed about $500 million of low yielding assets replacement with higher yielding and then prepayments the amortization expense also decline during the quarter, so those are the two main drivers to asset yield and then they are some little more technical stuff on the TBA side, we able to take some advantage some interesting dollar role opportunities into some smaller quantities throughout the quarter.

Okay, got it. Thank you.

[Operator Instructions] our next question comes from David Walrod from JonesTrading Canada. You may proceed with your question.

Good morning and for your last update your equity allocation was about two-third agency, one-third credit is that change much?

No. Not at all, the only difference being that some of the TBAs came off, so we went to collateral that we actually carry on the books but the equity allocation would been the same. Scott did mentioned in his comments Dave, that we are looking very closely in the future value of CRTs, so you could over a period of time see us reallocate modestly from CRTs which may have maxed out of price and max out in potential tightness spread after they become investment grade into some the kind of for mention collateral.

Hey David this is Mark again. We haven't really bought any asset outside of agencies for a while now just FYI so we haven't found any real attractive opportunities in that sector and just kind of coming that space over a few times.

Yes, more specifically we haven't bought CRT for almost two years and portfolio meeting, we checkout this dynamic for the stuff that we offer in the early 13 or 14s that's the income ratio is over 45% or 4%, 5%, 6% were in the last three deals the 24%, 26% and 27% you see in the debt income in the CRT deals go up quite a bit okay, also the sub 660 okay of the credit scores, 7.6% in the most recent dealer was announced yesterday. The first few deals we have under 2%, so there is some dynamics going on in the way that agencies are structuring the new CRTs that kind of don't fit us in our model or future vision of where housing market they gone up. These new deals have a little bit more credit support but nevertheless with the characteristics that are being added and they could create some volatility and how these assets trade spread wise in the future.

Okay, that's helpful and I guess on a big picture, you mentioned multiple times in your press release that you when out earnings the dividend for nine consecutive quarters you mentioned in your comments that you expect 4Q to cover the dividend, can you I guess update us and how you're thinking about the dividend and if may be you're looking at bumped it up?

So because we published our queue, we probably just had a board meeting and how is the discussion issue and has it been in other board meetings. Sustainability of a dividend rate is very important to the broad investment base, so to be going up by depending this quarter, last quarter and we believe our investors want to see stability and our discussions with our investment bankers and our some of our large investors have told us given that exact same feedback, so for right now the dividend will remain the same. The board did discuss perhaps at some point considering doing the special which, we have a lot of dividends out there that I guess could be paid out as a special dividend but that has not been announced nor based on any meetings I have been in is it live on the table at this movement.

Okay, thank you very much. Very helpful.

You're welcome.

[Operator Instructions] We have no further phone questions at this time sir.

Thank you very much for attending our conference call. As we said before this Executive group is available for Investors or Research calls at any time in our office number. Have a very good day everybody. Thank you.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.