ARMOUR Residential REIT, Inc.

and welcome to the Armour Residential REIT Inc. 4th Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. If you would like to register at this time, you may do so by pressing the 1 followed by the 4 on your telephone. If you require operator assistance, please press star 0 and an operator will assist you. As a reminder, this conference is being recorded today, Thursday, February 18, 2021. It is now my pleasure to turn the conference over to Jim Mountain, Chief Financial Officer. Please go ahead, sir.

Thank you, France. And thank you all for joining our call to discuss Armour's fourth quarter 2020 results. This morning, I am joined by Armour's co-CEOs, Scott Allman, Jeff Zimmer, and Armour's Chief Investment Officer, Mark Gruber. By now, everyone has access to Armour's earnings release, which can be found on Armour's website, www.armourreit.com, along with our Form 10-K and most recent company update. 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 armor. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the risk factors section of Armour's periodic reports filed with the Securities and Exchange Commission. Copies of these reports 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 we are required to do so by law. Also, our discussion today may include reference to certain non-GAAP measures. A reconciliation of these measures to our 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. U.S. financial markets continued to stabilize and improve during the fourth quarter, and Armour continues to concentrate its portfolio activity in agency MBS, which we will do for the foreseeable future. Quarter-end book value was $12.32 per common share, up 58 cents from Q3 2020. As of the close of business last Friday, February 12th, we estimate book value to be approximately $12.90 per common share, ex-dividend. Armour's Q4 comprehensive income was $60.2 million, or $0.89 per common share. We paid dividends of $0.10 per common share for each month in the fourth quarter, for a total of $19.6 million. We've also declared February and March common dividends at the rate of 10 cents per share, and Series C preferred stock dividends for Q1 at the rate of 14.583 cents per share. Now let me turn the call over to Co-Chief Executive Officer Scott Ulm to discuss Armour's portfolio position and current strategy in a bit more detail. Scott?

Thanks, Jim, and good morning. The fourth quarter of 2020 provided favorable conditions for mortgage investors and Armoury. A one-two punch of fiscal action from Washington and all-out commitment from the Fed to the U.S. Treasury and mortgage-backed securities markets created a wave of liquidity that drove asset spreads significantly tighter in the fourth quarter. The trends have continued into the first quarter of 2021, as markets anticipate a new wave of fiscal stimulus from Congress in the near future. Demand for yield from private investors combined with the official QE purchases delivered a strong MBS performance during a period when longer-term Treasury yields rose significantly off their 2020 lows. Echoing the positive market sentiment, repo financing also improved over the quarter, dropping from 20 to 25 basis points in the third quarter for 30-day tenors down to 15 to 20 basis points currently. The flip side of all the good news is that historically low mortgage rates helped create the largest wave of home loan refinancing since 2003. Faster prepayments at higher prices tampered down new yield opportunities in the market. The TVA dollar role market remains the most attractive proposition as the Fed's growing footprint in the sector generates significantly higher returns versus those on agency CMBS or specified MBS pools. And we expect the Fed's presence to persist at least for the first half of 2021, if not longer. While we do allocate approximately 36% of our portfolio to dollar rolls in 30-year and 15-year TVAs, 94% of the remaining portfolio are assets with favorable prepayment protection characteristics, including prepayment penalties, lower loan balances, and seasoning. Such pools held up very well as expected. The average CPR in our portfolio was 17.3% as of the fourth quarter versus 16% in the third quarter, which were both significantly below the aggregate speeds on more generic MBS. Year-to-date, the portfolio is averaging 17.9% CPR. Our response to the tighter spread, higher prepayment mortgage environment has been to exercise caution. This is reflected in our implied leverage ratio of 7.7 at the end of the fourth quarter and 6.9 implied leverage ratio currently. These numbers are considerably lower than our historical leverage levels and provide two or more terms of that additional dry powder to take advantage of market opportunities. Armour's duration as of year end was 0.62 and is currently 0.76. As a result of our early investment in specified pools, the portfolio's convexity profile remains significantly more favorable than that of newly issued MBS. Armour continuously monitors its hedge book and manages the net duration gap within a tight range dictated by the team's outlook on the rates market. It should be noted that a significant portion of the portfolio's duration is in the key rate buckets of inside three years, where we expect yields to be pegged close to zero for the foreseeable future. Our exposure to the long end of the curve is considerably less than our overall duration. While we accept the apparent market consensus that the Fed's presence and support for the market is here to stay for a prolonged period, we also have a keen appreciation for the unexpected. We will continue to shape our portfolio to protect book value and will not reach for yield at the expense of much higher risk. This means that metrics like core earnings may trend a bit lower, but should work to optimize total economic return. As we've noted before, we set our dividend policy based on the medium-term outlook on our business. We continue to see our dividend level as appropriate. We'd be delighted to take any questions.