ARMOUR Residential REIT, Inc.

good morning and welcome to the armor residential reits first quarter 2022 earnings conference call all participants will be in listen only mode should you need assistance please signal a conference specialist by pressing star then zero on your telephone keypad after today's presentation there will be an opportunity to ask questions to ask a question you may press star then one on your telephone keypad to withdraw your question please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jim Mouton, Chief Financial Officer. Please go ahead.

Thank you, Andrew, and thank you all for joining our call today to discuss Armour's first quarter 2022 results. This morning, as usual, I am joined by Armour's co-CEOs, Scott Ulm and Jeff Zimmer, and Mark Gruber, our Chief Investment Officer. By now, everyone has access to Armour's earnings release, which can be found on the Armour 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 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 armor's periodic reports, which have been 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. They're subject to change without notice. We disclaim any obligation to update our forward-looking statements unless we're required to do so 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 armor's website an online replay of this conference call will be available on the website shortly and will continue for one year net interest margin for the quarter was 1.78 an increase of 18 basis points over the 2021 year average and a three basis point increase compared with q4 of 2021. Armour's Q1 comprehensive loss related to common stockholders was $148 million, which includes $66.4 million of GAAP net loss. Distributable earnings available to common shareholders, which excludes gains or losses from security sales and early termination of derivatives, as well as market value adjustments, but includes TBA drop income, was $26.7 million, or 28 cents per common share. Because Armour uses pay fixed interest rate swaps for hedging, distributable earnings includes the monthly running cash coupon cost or benefit of our hedging activities. This effect makes distributable earnings more stable as movements in repo funding costs and swap net coupon payments will tend to offset one another. Armour paid monthly common stock dividends of 10 cents per share during the quarter and has announced dividends at that rate for April and May of 2022. Taken together with the contractual dividends on preferred stock, Armour has made cumulative distributions to stockholders of $1.87 billion over its history. ACM, the company's external manager, continues to waive a portion of its management fee, which was initiated in the second quarter of 2020. This waiver offset $1.95 million worth of operating expenses in the first quarter of 2022. Quarter-end book value was $8.48 per common share, down $1.85 from December 31st, 2021. As of the close of business on Tuesday the 26th, we estimated book value to be approximately $7.63 per common share. At March 31st, Armour's portfolio consisted of $6.4 billion of agency securities plus TBA positions representing another $750 million, plus $1.3 billion of U.S. Treasuries. Now let me turn the call over to Scott Ulm, one of our co-chief executive officers. Scott, take it away.

Thanks, Jim. The first quarter of 2022 was one of the worst quarters for bonds in nearly 50 years, as investors grappled with the scope and magnitude of the monetary policy response necessary to halt rapidly rising inflation, while also worrying about its impact on economic growth. Over the course of the first quarter in 2022, two-year Treasury yields rose 160 basis points. The 10-year yields rose over 80 basis points, and the two tens difference briefly dipped below zero, an ominous sign of the economic turbulence ahead. Armory entered 2022 with a defensive posture, as risk parameters and leverage were below historical averages in anticipation of increased volatility as the Fed declared the end of their QE program. Our net duration gap heading into year-end was 0.3, leveraged 7.5 times, and liquidity was at a very healthy level of 840 million. ARR allocated roughly 50 percent, 4.5 billion par, of the portfolio to the production TVA contracts, with superior market liquidity compared to the specified pool market, which struggled to trade in line with its fair value in times of heightened market volatility in early first quarter. Rapidly rising rates and quickly deteriorating market liquidity in early January flash warning signals for mortgage threats, prompting a response from Armour to quickly and efficiently sell our entire TVA position on swap for duration-matched treasuries, a move which greatly reduced the mortgage spread risk in the portfolio. In the first seven weeks of the quarter, ARR decreased its agency MBS spread exposure by over 30%. By late February, when mortgage spreads and yields approached levels not seen in four years, ARMA began to steadily deploy its available leverage and newly purchased mortgage bonds back into par-coupon MBS. Since the end of February, we've purchased $1.8 billion of production pools and $1.2 billion of TBAs while selling $1.8 billion of longer-duration treasuries. During the same period, we're actively rotating into production MBS and out of our lower-coupon 15-year, and 30-year pools, as those make up the majority of the Fed's MBS portfolio and are most at risk of spread-winding due to potential active sales by the Fed. As of mid-April 2022, we've replaced the vast majority of our former Treasury positions with newly acquired MBS with levered yields between 12% and 15%. While in the near term, there remains an elevated level of uncertainty ahead of us, we'll be watching very carefully to invest with a longer time horizon in mind. With about 116% of our repo book hedged with current and forward starting swaps, we believe we're adequately hedged for the nearly 275 basis point Fed funds rate increase that's currently being priced in the market. Also note that our distributable earnings contain all the costs of our hedging and financing. Arbor continues to monitor the term structure in the repo market in light of the aggressive Fed, but for now, we prefer to keep our remaining average repo term short, currently at 21 days. Our average repo rate today is just about $50,000. We continue to believe that our current dividend rate is appropriate for current conditions and gains further support from the investment opportunities available. Thank you. Now we'd like to open for questions.