Ladies and gentlemen, thank you for standing-by and welcome to the ARMOUR Residential REIT Inc. First Quarter 2015 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 30, 2015. And I would now like to turn the conference over to Jim Mountain, Chief Financial Officer. Please go ahead.

Thank you Ana. And thank you all for joining our earnings call this morning. By now everyone should have access to ARMOUR's earnings release and Form 10-Q which can be found on ARMOUR's website. 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 protection 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 Factors section of ARMOUR's periodic reports filed with these Securities and Exchange Commission. Copies are available on the SEC's website at www.sec.gov. All forward-looking statements that are 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 by law. Also our discussions today may include reference to certain non-GAAP measures, a reconciliation of these measures to the most comparable GAAP measures are included in our earnings release which can also be found on ARMOUR's website. An online replay on this conference call will be available on ARMOUR's website shortly and will continue for one year. Now the substance. ARMOUR's Q1 core earnings and estimated taxable income were a positive 33.5 million or $0.08 per share. GAAP results were $125.5 million loss or $0.37 per share mostly as a result of the $216 million unrealized loss on our interest rate derivative. ARMOUR does not use hedge accounting for its GAAP reporting, so quarterly results will always be -- or in this case even dominated by fluctuations in -- of our open interest rate swaps. On the other hand the quarter -- market adjustment on our Agency Securities flows directly in stockholders equity rather than through GAAP P&L. At March 31, 2015 ARMOUR book value was $4.16 per share or nearly $1 above the New York Stock Exchange closing trade price that day. ARMOUR paid cash dividends monthly of $0.04 per common share in Q1, we've also declared cash dividends of $0.04 per share per month for Q2 that represents a dividend yield on book value of 11.6% per annum. Quarter end leverage was 8.4:1 and our interest rate hedges cover [indiscernible] of our debt. Repo haircuts and interest rates are holding steady and availability remains strong. Quarter end liquidity consisting of cash and unfledged securities totaled nearly $900 million. Now I will turn the call over to Co-Chief Executive Officers Jeff Zimmer and Scott Ulm to discuss ARMOUR's portfolio position and current strategy. Gentlemen?

It's Jeff Zimmer here. In addition of the customary SEC filings we also provide a monthly company update which is furnished to the SEC and available on our website. The company update contains a considerable amount of information about our portfolio hedging and financing on a timely basis. Beginning with our March monthly company update this year we included our expectations for core earnings and book value. -- Our monthly company update -- our net -- duration has -- 0.46 to a positive --. And as of the closing of Tuesday this week it is now slightly positive at 0.27. Our rates -- is now approximately $436,000 and our spread duration of an O1 and OAS move is approximately 8.1 million -- the fact that swaps could open with mortgages making that number smaller. Book value at the end of the Q1 was $4.14 and we have a book value to the close of business this last night April 28 of approximately $4.10 to [$4.16] the middle of which is a tending lower than the end of the quarter. This book value is almost 24% above last night's closing stock price of $3.15. This large gap between stock price and book value during Q4 2014 and Q1 of this year encouraged us to buy back stock in the open market and -- periods. However we do not see -- stock performance from these -- we will continue to monitor the market and the potential impact of stock repurchases under our authorized stock repurchase program. Our portfolio today is comprised of five major components. First, 15 years, 36.1% of our 15 year -- are 80.6% loan balances of 175,000 or less. Number two, 20 years, 30.6% of our fixed rate attachments are in the bucket of 181 -- months the weighted…

So Ana if we can open the line for questions and tell people how to get their question queued up.

Thank you. [Operator Instructions]. And our first question comes from the line of Trevor Cranston with JMP Securities. Please go ahead.

Hi, thanks. And thank you very much for the great monthly disclosures you guys have, that's always extremely helpful. I guess the first question, can you maybe talked about the dollar roll position and kind of why you guys thought it was attractive to venture into that at this particular point in time, I guess as opposed to adding more specified pools as you were increasing earnings over the portfolio?

When you add dollar rolls you always have the ability to deliver and swap those into specifies and although we have not been active in the dollar rolls in the future, we don’t know if it's likely that we will be active you know in any size in the future. We defer the modest amount on at 8.7% of our portfolio. We have it as pick up 70 basis points annually. So if you look at that at 8 or 8.5 leverage you know that's a large component of core earnings that you can adjust. Do not look for us to be extremely large in the dollar roll business and once again if the dollar roll goes away we will take the leverage swap into some other assets.

Great. And then on the, the multi-family side you have meaningful portion of the portfolio, can you comment on how you are thinking about that budget currently and how bigger percentage of the portfolio you think that has the potential to grow true over time?

We have talked internally that we would probably won't see get much or more than 15% or 18% of the portfolio, so that's only more than 0.5% to 1.5% away from where we are right now. So let's talk about what is that, so it doesn’t yield as much as 30 year pass through may be 20 basis points less but it has a defined period of payments. So in other words it is more like a corporate bond and it rolls down the curve, so if it trades at 52 to I curve right now -- swap curve excuse me, as it rolls on the curve it should and what is in the past will trade to tighter. So it's a really good total rate of return vehicle but let's look at the extension risk of it. Already measured to be a 9.5 bond when you buy it so rates go up it doesn’t extend however if rates go down it continue to see, it doesn’t get the negative -- so it's a good vehicle for both ways. I think we have the durations in the midst 7s on that asset class and so we hedge it accordingly. We really like it a lot. There's also some structural things it could be done down the road as well. You might decide to keep an IO and sell part it off which would provide long-term financing you know we discuss that with some of our Wall Street dealers.

Yeah, great, that's helpful color. And last thing you know -- disclosures you guys have provided over the last couple of months, is that something we can expect provide continually going forward or is that just kind of supplemental information as you guys are making a lot of changes in the portfolio?

As long as we are comfortable with our estimates we will continue to provide that kind of information to you on a monthly basis. Originally, we had not done that as you all know and we got some color for people when went negative on our duration and the profile didn’t good, -- we said you know let's provide investors an analyst with as much information as we can and we've gotten really good feedback from that. So it's highly likely that we will continue in more or less the format that we have now. We may even go to a charting format where you can look back on the comments you see, here is what duration was last month, the previous month and that kind of thing, so you may look for just a change to make it a little easier for to read.

Great, we appreciate that. And thanks a lot for the color.

Thank you. And the next question comes from the line of Brock Vandervliet with Nomura Securities International. Please go ahead.

You mentioned the spread risk and if you could just spend a moment speaking about that with respect your book value decline year-to-date and what would, if you were to bucket the drivers of the book value decline, what would fall into spread risk versus other factors? Thanks.

For our Board meetings we do a component of what happens quarter-by-quarter to book value and -- to that, volatility and spread risk during the first quarter where the majority of the reason the value was down, I would note -- the quarter, than just quarter book value essentially unchanged in fact, all the rates are higher on the 10 year by 11 or 12 basis points, so spread did actually tighten since then even with our slightly positive duration. Somebody brought up earlier yesterday, what happens when the fed decides to go ahead and not reinvest and decides -- some other mortgages, that spread risk is way down the road and although when it could happens and comes we will deal with it. That's not something that is comprised in our day-to-day exposure and the way we look at our key rates right now. So in the future that's what we see as the most overriding issue, otherwise mortgages seem to be [OAS] actually slightly fair value here.

Okay. And just big picture question here, and you’re continuing to earn below your divided, what confidence can you give us here that we are how close to a bottom in earnings or not, I am just trying to get a sense of some go forward earnings power here? Thanks.

So, yeah, thank you. We declared $0.04 per quarter two and as I said in the comments we're close to a 3.9 we believe for May and 3.6 for April and within that average range so it's just a little bit under, and part of is when you readjust your portfolio and your hedges it takes a couple of months for things to get fully up to speed so we would like to say that we’ll earn $0.04 in June, we won't know that for another month or so. If the curve doesn’t shift and the world doesn’t change the kind of earnings that we're describing right now seem feasible, I would ask you to take note that we are providing earnings guidance in advance so when you see the majority of the other firms in our space, they are looking in the rearview mirror. So they’re declaring now for what we had already declared 90 days ago. So you know please be thoughtful when you give that comparison. If the curve flattens into some fed moving here and the 10 year stays where it is the entire sector is going to see some NIM compression.

Thank you. And the next question comes from the line of David Walrod with Ladenburg. Please go ahead.

Jeff just, you kind of broke up although, you said the book value range now is 4.10 to 4?

4.10 to 4.16, so the middle of which is 4.13 which is penny off where was at the end of the quarter. So we do give a range because without having it audited we want to be a little cautious about presenting ourselves.

Alright. And then you, also you started talking about share buyback, did you say you brought back stock in the first quarter?

Yes we brought back 875,000 shares, I cleaned 100,000 myself in addition, may be some other insiders there as well. And as you may have heard from our comments every time we brought we saw no response as a matter of fact many days the price was down, but we continue to monitor it and we understand it's an important component of you know value to our shareholders as well as you know good structure for our balance of our balance sheet.

Okay, great. And then, okay, and my last question, while your peers have been looking at the FHLB, that captive insured subsidiary, just something you guys have explored?

We are active in discussion with the FHLB and have been so far over a year and a half, so you know watch that space.

Thank you. [Operator Instructions]. The next question comes from the line of Mike Widner with KBW. Please go ahead.

Hey good morning guys. You've covered most of the stuff I think that I had a question to that but let me just, I was looking at your duration estimate and in the most recent monthly commentary and it actually came down while you know even though you guys added a bunch of you know 1.4 billion at 30 year TBAs, In fact I was curious it didn’t seem like rates moved up that much so I was just curious if you know how you added that much you know longer duration stuff and yet the estimate came down, actually huge but?

Actually I don’t have all three reports in front of me, but we were slightly duration three reports ago and we've gone slightly positive. So I actually think it's gone slightly up here, I got Mark bring it up on the screen.

No that's, actually I, I meant just the pure asset duration putting aside you know you did the swap side too, just the asset duration you mentioned came down to 3.9 from 3.96 and you know again not that’s huge, I was just curious so?

You did have a little bit of a rally during that period and it just shortened up, it's modeled duration driven. So you have 1.4 billion of the dust and there duration just doesn’t change.

Yeah.

Our 15 years don’t change that much either because still much of it is low loan balance or 1.75 and under but you get on the 20 year and the 30 year bucket, you do get some duration drip, so that's what the change is alright there. Just literally modeling. As you known or most of people know that cover us we do with BlackRock Solutions we had their senior team in her earlier this week and we are discussing how the modeling works and changes, we're very comfortable with the way their model is right now but sometimes because of their mortgages you just get the modest changes that almost can't be accounted for.

Yeah now I certainly know how that goes. So I mean your net duration still you know you guys reported still seems pretty short in aggregate I mean you, is that the place to be right now, is there, you know because again you did a lot of rebalancing over the last you know month or two, you know is that still a motion at all, are you kind of like it here right now the way it is?

One of the other analyst right before you or two analysts ago asked about our earnings stream, we could go up to a 0.4 duration and probably be earning $0.041 very, very quickly. We going to keep it right in the zip code that we are, 0.2 to 0.4 for the foreseeable future, we have Board meeting this week as well as above mentioned meetings with BlackRock and that's kind of our goal. Scott?

Yeah we also, duration is not the ultimate measure here, we also spend a lot of time on key rates throughout the portfolio and that's something that’s kind of always in motion particularly as we make portfolio changes so, I just sort of throw word of caution on duration as the ultimate measure of rate sensitivity, there is a lot more going on there. So yeah generally we're in the zip code, but there's always some variation and even variation doesn’t necessarily apply different risk profile one way or the other.

Right so our DVO1 risk is, rate risk is 436,000 right now and we're a little over hedged in the 10 year component of the key rates and may be a little less hedged in the three to four year areas so we might move a little bit of that around and that's one of the things we're working on this week which you might duration go up 0.1 but our DVO1 might be exactly the same. So I hope that clarifies that and by the way I read your very thoughtful commentary in report very early this morning and I thought you are right on with a lot, I appreciate your thought on this in your report.

Well thank you I appreciate that too but and one of the other things you mentioned is it looks like actually you had the 10 year part of curve your sensitivity there came down quite a bit and I guess I was just wondering your view on sort of, and I don’t want to put words in your mouth, but I mean you had been positioned at least the way we looked at it in a way that you know your book value had benefit from you know the 10 year rising or the curve steepening and that you know it seems to be a little bit shifted now, so just wondering your view of how the curve seems most likely to move has changed and specifically I mean you know 10 years obviously been coming down rather than up in general, obviously a lot of volatility. But everyone seems to think the fed are determined to rise in the back half of the year anyway. So just I mean does that converge with your view do you think you know the world is still a horrible place and the fed aren’t moving or you know whatever?

So for six years of road shows here people ask what's important earnings or book value and we did focus on book value last year in the market rally and book value went down as you and so many other analysts obviously stated and so our position now is that we want to earn a good rate of return for the sector and we're doing that based on book value with our 3 and 3.25 cents average per month. But we also want to protect book value; for example yesterday rates were up considerably our book value went up a little bit because mortgages tightened. But in order to earn the dividend rate and earnings rate that is expected by this space we do have slightly positive duration. But it can positive which still can protect for increases. So don’t expect us to go back to a negative duration for ARMOUR right away, we don’t see that in the near future. We are quite happy earning a proper rate of return on our equity as well as protecting best we can the book value, but going negative duration for that enterprise.

Well thanks for the comments as always guys and you know I mean I will also I think -- other people say I love the monthly disclosures and you know as you guys put more stuff in there that is even more helpful, so very nice and appreciate all that stuff as well.

Thank you. And the next question comes from the line of Doug Harter with Credit Suisse. Please go ahead.

Hoping you could give a little more color on the kind of return profile of the DUS bonds versus kind of 15s or 30s and sort of how you get there with leverage, you know how does the leverage profile look?

Sure with the DUS the haircuts are the same as they are for any Fannie Mae or Freddie Mac product it's generally a 5% haircut on the financing and so that's generally what most of our -- I think our average haircut on our agency portfolio is like 4.7% or something. So it's very liquid and it's trading at 52 to the z-curve right now which puts -- swap curve, which puts it at about 20 basis points less yield that you might expect an average TBA Fannie 30 year 3.5 to trade, that once again is going to be about 40 to 50 more than 15 year pass through. So there's not much modeling to have to go on with the DUS, I mean it is what it is because it's like a locked up corporate bond. The only reason we would know more than 20% or 25% as I said earlier we will probably keep to 15% to 18% range is that it is that quite as liquid, you could go ahead and sell billion Fannie 3.5 pretty quickly but with the DUS bonds they are individual queue sets, so you have to line up with the dealer to move them. So we're going to be very respectful of the importance of liquidity and keep that position to relative manageable size although we really like it lot.

Got it, and slightly, you had mentioned before that you guys might be slightly over hedged to the 10 year on the key rate duration, I guess is there any way you could help think about book value sensitivity to -- if you have more flattening of the curve?

That is exactly what we were discussing with the last analyst, you might expect us to be, we are a little negative on the 10 year key rate which means we are slightly over hedged there and we are little positive in the three to four year key rate. We are going to do some subtle things to flatten that out over the next couple of weeks. I think our perspective right now Doug is that we see a bear flattener which means the short end comes up a little bit and the 10 year doesn’t go up as much as the short year. So you might have a bear flattener it might be like '07 or '06 where the 10 year just kind of stayed and looked the whole curve -- 25, 30, 40 basis points but short and going up further. And in those kind of circumstance we definitely want to have some key rate protection in the shorter and take a little bit off the 10 year, is that helpful?

Yeah. So that would be, if you are looking to do kind of anything else in the portfolio repositioning that would kind of be the area to focus on?

To date we have not shown our key rates in our monthly company update. We talked about it in the meeting the other day, yet to be determined if we will, at some point we are providing extreme disclosure here. And if we do -- but you are always welcome to call and we will provide as much public information as we can and guidance’s as to how you might look at it. But based on what I just discussed, we're little more negative on the 10 year a little more positive in the shorter and should you view a situation and if we did a big bear flattener today the book value would go down a little bit, however I think as we adjust that and depending on mortgage spread we would get the opposite effect and as I also said earlier for example book value was up yesterday you know with the rates up I think we were up like $0.02 or $0.03 yesterday.

Thank you and we have another question coming from line of Brock Vandervliet with Nomura Securities. Please go ahead.

Thanks. Could you just touch on CPR rates throughout the quarter and any look ahead you may be able to offer? Thanks.

We expect CPRs, if you get our monthly company update you can see that CPRs have been up a little bit but I mean the relative CPR rates range from the last four months from 8.7 to 6.5. Our amortization expense as you can see in our queue is pretty low, for example, if you have 1.4 billion of our asset which is a DUS, which has just a straight line amortization rate because they can't repay, based on analysts’ expectations from Wall Street firms such as yourself, we expect prepayment to be down slightly for the next month or two and that's based on applications and REPO. So if you think about what I talked about in my comments so much of our portfolio has convexity in it you know just to repeat those numbers our 15 year pass-throughs 80.6% of them had loan balances of under 175,000, of our 20 year pass-throughs, weighted average maturity is 50 month. So when you get really big seasoning like that your housing turns over you know the seasonal pay roll pays slow. On the DUS bonds of course have no turnover and of our 30 year our 10%, 88.7% have loan balances of 175,000 or less. So unlike you know 2006, '07 and '08 we had all these high prepayment circumstances that appear we have a portfolio that we think is prepayments are at least of our concern right now. And so we're focusing our concern on how do we balance our key rates and our hedges to make sure that if we get some extreme volatility in rates that we don’t have any book value dilution. Is that helpful for you?

Thank you.

Brock? Thank you very much.

Thank you. And at this time there are no further questions. I will now turn the call back over to you Mr. Zimmer, please go ahead.

Thank you everybody for listening in today. We will speak to you at the end of the second quarter. Once again we encourage any analyst that has any questions Mark, Jim Mountain, Scott Ulm or myself are here to answer questions. There are various number of firms doing some things in New York over the next few months and we will attending a number of those and doing some one-on-ones and making some presentations. So thank you once again and have a good day.

Thank you ladies and gentlemen. That does conclude today's conference call. We thank you for your participation and I ask that you please disconnect. Have a great day.