ARMOUR Residential REIT, Inc.

Good morning and welcome to Armour Residential REIT's first quarter 2023 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 Mountain, Chief Financial Officer. Please go ahead.

Thank you, Andrew, and thank you all for joining our call to discuss Armour's first quarter 2023 results. This morning I'm joined by Armour's co-CEOs, Scott Ulm and Jeff Simmer, and by Mark Gruber, our CIO. By now, everyone has access to Armour's earnings release, which can be found on Armour's website, www.armourreit.com. This conference call includes forward-looking statements, which are intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. The risk factor section of ARMR's public reports filed with the Securities and Exchange Commission describe certain factors beyond ARMR's control that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements. Those periodic filings can be found on the SEC's website at www.sec.gov. All of today's forward-looking statements are subject to change without notice. We disclaim any obligation to update them unless required to do so by law. Also, today's discussion refers to certain non-GAAP measures. These measures are reconciled with comparable GAAP measures in our earnings release. An online replay of this conference call will be available on Armour's website shortly and will continue for one year. Farmers Q1 comprehensive loss related to common stockholders was $22.8 million, which includes $31.4 million of gap net loss. Net interest income was $12 million, and net interest margin for the quarter was 1.97%. Distributable earnings available to common stockholders was $49.3 million, or 27 cents per common share. This non-GAAP measure is defined as net interest income plus TBA drop income adjusted for the net coupon effect of interest rate swaps and then minus our net operating expenses. Armour Capital Management is continuing to waive a portion of their management fees. They waived $1.65 million for Q1, which offsets operating expenses. The waiver will continue until further notice. Farmer paid monthly common dividends of $0.10 per share for January, $0.10 for February, and $0.08 for March, for a total of $0.28 for the quarter. We have maintained the $0.08 per share common dividend rate for April and May. As we've discussed in our previous calls, our aim is to pay an attractive dividend that is appropriate in context and stable over the medium term. We keep an eye on economic conditions, and the Armour Board believes that this dividend rate achieves those objectives. Taken together with contractual dividends on the preferred stock, Armour has made cumulative distributions to stockholders of more than $2 billion over our history. During the first quarter, we issued 29,862,647 shares of our common stock through our ATM program. raising $181.2 million of capital after fees and expenses. That represents average net proceeds of $6.07 per share. During the first quarter, we also repurchased 842,927 shares of common stock at an average net cost of $5.11 per share. That was under our outstanding repurchase authorizations. By accretively managing our common share count, we were able to add $0.06 per share of value for common shareholders. In addition to providing capital to take advantage of appealing current investment opportunities, share issuances build a larger base over which to spread our mostly fixed running costs. So far in Q2 2023, we've issued 3,509,700 shares. That brings our common share count to 192,512,577 as of today. Quarter-end book value was $5.44 per common share. Our most current available estimate of book value is as of Monday night, April 24th. We estimate that book value was $5.30 per common share. We increased the regulatory capital at our broker dealer affiliate, Buckler Securities, to $203 million. Buckler continues to represent a strategic advantage for Armour by providing repo funding, ATM placement, and other capital market access. Finally, I'd like to remind all of our shareholders of the annual meeting for Armour Residential REIT. It will be held at 8 a.m. Eastern Time next Thursday, May 4. We received proxies representing a quorum of shares eligible to vote, and all matters have strong support. However, a number of shares eligible to vote have not yet provided their proxies. We encourage all shareholders to return their proxies and to participate in your annual meeting next week. Shareholders should contact their brokers if they need another copy of their proxy materials. Now let me turn the call over to Co-Chief Executive Officer Scott Aul. Scott.

Thanks, Jim. In January 2023, the agency MBS index delivered the third best monthly total return since 1989, reflecting the value proposition and mortgage spreads after their worst one-year performance on record in 2022. Despite positive fund inflows back into MBS and the broader fixed income markets in the first quarter of this year, The elevated levels of volatility and deep inversion along the treasury yield curve are keeping many investors on the sidelines. This is evidenced by the significant increase in the sizes of money market funds and the Federal Reserve's reverse repo program. Moreover, the failure of Silicon Valley Bank and Signature Bank this spring resulted in a FDIC portfolio with more than $100 billion of MBS to be liquidated over the course of the next 10 months. As of this week, the sales of the bank bonds and FDIC receivership have gone as planned, quotes, gradual and orderly. However, Tuesday's headline that First Republic may sell up to $100 billion in assets to raise liquidity stoked additional fear of a lingering banking contagion. While most of these assets are presumed to be non-agency mortgage loans, the headlines caused MBS spreads to widen approximately 5 to 10 basis points. This has left investors demanding an additional discount to absorb the unanticipated supply. Despite all these challenges, the spreads on MBS have remained tighter versus the wide seen last fall, implying that there is a significant appetite for mortgage assets near their current valuations. We're confident that highly liquid U.S. government-sponsored mortgage-backed securities trading at multi-decade wide spreads with muted refinance activity will grow increasingly attractive to the investor base in 2023. Armour continues to pursue favorable investment opportunities while growing the portfolio, adding $3 billion in mortgage-backed securities since year end, bringing total portfolio size to just over $11.9 billion. Vigilant of tight valuations and relative richness in deep discount coupons, Armour sold the remainder of our Fannie 2 and 2.5 coupon positions early in the first quarter. Proceeds were reinvested into new, higher-yielding current coupon mortgages. Sales proved to be well-timed as lower-coupon MBS accounted for most of the securities transferred into FDIC receivership from the two failed banks. Armour continued to hedge our exposure to FDIC-held assets by decreasing our 30-year 3% MBS bucket from 7.1% down to just about 1% of total portfolio value. We're closely monitoring the ongoing FDIC liquidation for the opportunity to buy back lower coupons once spreads offer a discount versus that in the higher coupon production MBS. Our leverage closed the quarter at 8.7 times and currently sits at nine times, a number that refracts the valuations, yet is prudent enough to withstand still elevated and highly unpredictable levels of daily market volatility. Additionally, Arbor maintains healthy levels of available liquidity at $590 million which includes cash, unleveraged securities, and principal and interest as of the 24th of April. Our purchased MBS are concentrated in the most liquid, low-premium, bank-serviced production coupon pools featuring more favorable geographics, LTVs, FICO scores, and loan balance characteristics versus generic production cohorts. We continue to favor these lower pay-up premium specified stories, which we believe will perform best when volatility reversed to its historical norms. These investments also reflect historically low prepayment risks as the MBA finance index has remained at suppressed levels. Armour's average prepayment rate for all MBS assets in the first quarter of 2023 was 4.7 CPR and still a very low 6.7 CPR for April. Although mortgage rates have already declined from the highs of 7.2% in early November last year, to 6.5% in mid-April 2023, a substantial refinancing wave would require mortgage rates to fall below 5%. Armour continues to fund just over 50% of our borrowings through our broker-dealer affiliate, Buckler Securities. Despite March's precipitous drop in liquidity within the interbank lending community itself, agency repo funding remained on a strong footing throughout the quarter, with spreads ranging from 10 to 20 basis points above the SOFR benchmark. The enormous supply of cash from money market funds combined with a growing shortage of available two bills have created incredibly liquid conditions for overnight agency repo and term agency repo funding that benefits ARMA. The weighted average haircut on our repo book remained exceptionally low at 2.6% as of the 24th of April. As we've always noted, we set our dividend to be appropriate for the medium term. We will, as always, continue to evaluate the level of the dividend We're also mindful that this environment can deliver upside surprises as well that could move our metrics. So thanks for that, and over to you, Jim.