Ladies and gentlemen, thank you for standing by, and welcome to the ARMOUR Residential REIT, Incorporated Third Quarter 2015 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduction a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded on Monday, November 9, 2015. I would now like to turn the conference over to Mr. Jim Mountain, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator. And thank you all for joining ARMOUR's third quarter 2015 earnings call. By now, everyone has 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 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 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 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 also 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. The share and per share information discussed today reflect the effects of the previously announced one-for-eight reverse stock split of the ARR common shares, which was completed on July 31, 2015. ARMOUR'S Q3 core earnings was $52.4 million or $1.11 per diluted common share almost 12% more than…

Thanks, Jim. Good morning. In addition to the customary SEC filings, we also provide a monthly company update which is furnished to the SEC and available on our website as well as EDGAR. The company update contains a considerable amount of information about our portfolio, hedging, and financing on a timely basis. As a result, the quarterly financial report we filed on Friday should contain no surprises to any of our equity analysts or shareholders. As shown in our monthly company updates from January 2014 through the present, our net balance sheet duration has ranged from a negative 0.46 to a positive 1.15, and is currently approximately 0.6. Our rates DV01 or dollar value of a basis point shift in the entire curve is now approximately $822,000 and our spread duration of an 01 in OAS move is about $7.6 million. Now that does not incorporate the fact that swaps could widen with mortgages making the number smaller. Both of these measures are below last quarter's numbers. Book value at the end of Q3 was $29.05, as Jim said, and we have our book value as of the close of business Thursday, November 5, of approximately $28.94 to $29.26. The average of that range is up from few pennies from the end of the quarter in a period where the 10-year note is up 33 basis points as of this morning. Friday night's closing stock price of $20.15 is approximately 31% below this estimated book value. The large gap between stock price and book value has encouraged us to buy stock back in the open market. We repurchased the SEC allowed maximum number of ARR common shares or very close to it every single trading day between September 17 and October 16. Q3 repurchases totaled over $36 million for 1.755…

Thank you. [Operator Instructions]. Our first question comes from the line of Mike Widner from KBW. Please proceed.

Good morning, guys and thanks for the good disclosures as always especially in the monthly presentation. Let me just follow-up on some of your comments on the hedge book, you guys have kind of done some changes there over the course of the year. Obviously a lot of forward starting swaps becoming active kind of around the first quarter, second quarter next year, I mean how should we think about that in terms of -- if they all come on and nothing changes obviously there will be a lot more net interest expense. But I mean should we just think of them as all running through or is it going off depend on sort of how the Fed moves or again how should we think about it?

Yes, I think what we talked about last time is it's very iterative. So as we get close to having these things come on the books as a live swap, we will manage where rates are at the time, where investment opportunities are at the time, and what the whole book looks like holistically. So it's a chance that we that some just gets cancelled and never used. We may go ahead and do some other forward starting swaps. We may use options or we may put on some hard act to swap at the same time. So it is completely iterative and one of the things we do in our weekly portfolio meetings is we do forward analysis of what could happen and what it would look like based on a lot of different scenarios. So the answer is not a distinct yes or no, it's iterative.

One thing I would add to that is if you look historically or even look at our monthly updates where we've always set the metric of a 40% hedge ratio it's perfect as that may be we're running considerably higher than that and by historical numbers for us considerably higher than the historical number. So, as Jeff said, very dependent on how we are reading the future rate environment as we go through that period.

And to that end, I mean we've had over the last couple of years a lot of concerns that the long end was really going to runaway and the taper tantrums and then as we get closer to the Fed tightening the long end, it's really going to go back to a so called normal levels and obviously that hasn't happened yet. So as you guys look forward what do you sort of expect in for the long end of the curve and how does that sort of play into your likely strategies?

Our firm opinion is that by the end of this year your tenure will be somewhere near 2.50. We believe that by the end of 2016 it will be somewhere near 3.0 and it may be had to run up to 3.15 or something on its way to getting back to there. So that's our forward-looking thought process on the tenure note. What happens with the federal funds rate is we do expect the move to happen on December 16, and we wouldn't be surprised within six months to see one or two more 25 basis points moves. We do would think it would be very quiet up to that unless something -- unless the economy shows some steam that we just don't see right now.

Make sense. I would find it hard to argue with that although I suspect we might get less than one or two additional moves but we shall see. Thanks for the color.

We hope you're right?

Yes, I don't know I would like to see the economy better but I just I'm not sure we're going to get there. But anyway thanks for the comments as always and let somebody else ask questions.

Our next question comes from the line David Walrod with Ladenburg Thalmann. Please proceed.

Just couple of questions on the share buyback, you said you were executing the max or near the max allowed by the FCC. I mean you've got $5 million left on your current authorization. What is the max that you can buyback and how quickly do you think you will be able to run through that additional $5 million.

Well, David, this is Jim Mountain. The maximum that we can do at any given day is a function of prior trading volume. So every week that fluctuates in and out and it's actually something that you can pull up yourself on Bloomberg. When we were doing buybacks in September, and early October, until we get out blackout period that was ranging from the mid to the high 100,000 share per day range. So if we had a month's worth of trading activity in the last half of September, first part of October, that used up not quite $400 or 4 million shares of authorization that ought to give you some perspective on the rate at which we would run out of the remaining authorization.

Okay. Thanks. That's very helpful. And the other question is on the FHLB relationship. How much have you borrowed to-date and how much do you -- what percentage of your repo borrowings do you anticipate getting to the FHLB system?

Hey, this is Mark Gruber, David. So far we borrowed $100 million. And that will scale up as we work with FHLB to find the right assets to put over there with the right terms.

[Operator instructions]. Our next question comes from the line of Doug Harter with Credit Suisse. Please proceed.

I was hoping you could talk about leverage sort of where you're comfortable running leverage and how we should think about it in the context of risk of further book value widening and what it might cause you to sort of need to take down assets?

One of the things, Doug that happened in Q3 we got so aggressive at the end of September, and beginning of October, buying back shares, and subsequent to that we did take delivery of some dollar roll we're actually going to take delivery today is 48 hour notice of some other dollar roll stuff. We are going to go ahead and sell those. So there is no hard feeling on leverage but don't expect to see our leverage above nine and if it gets in their interim period due to some dollar roll stuff we will be widening it back down. I think ideally leverage with a high seven handle to a low eight handle is where we're very comfortable right now. You will remember on buybacks, as we've always discussed, every time I buyback $10 million worth of stock, in theory, if you're eight-to-one, you got to unload $80 million of hedges and $80 million of asset. So we were letting our stuff filtered through and we have not bought back or pay down to the last two months either. So I expect nine to be at the high-end but we are working our way back down to high sevens or eights. And depending on how the curve acts you could see it lower than that although it's not a goal right at this point. So I hope that's helpful.

Yes, I guess, yes that it is helpful. Sort of in that context I guess to talk about how you're comfort with volatility in both swap spreads and mortgage spreads in this current environment going into the Fed and your level sort of being at the higher end of that today in the light of that volatility?

OASs are still at the cheaper end of the range because I'm looking at a chart right here of the last year so I'm sure you would look at those same chart. So we're up at the upper right of the graph of OAS. So we're comfortable with mortgage spreads right there. We did see a lot of widening right at the end of September and as soon as we had the calendar change, there we had quite a bit of buying back in and we've leaked out a little bit since then. So to say we have $100 million of dry powder to buy assets that we wanted to of course we do, but I think we own the mortgages we want to own right now, we're very comfortable with it, we're comfortable with OASs right now, it may widen out a little bit but they don't appear to be on the very, very rich side at all. In terms of the swap book, I commented on that in the open comments that I just had. That whole thing was the 10-year swap rates trading through a one point trade 15 basis points through the 10-years just something we haven't seen before. We've talked all our counterparties and most people saying we don't know where it's going, we don't know where it's headed. So we're keeping our eyes on it. But at this point to do anything substantive to our swap book, we think would be off pace and so we're just going to keep the book that we have pending once gain what Michael Widner asked about our swaps that come on the forward starting swaps.

Our next question comes from the line of Trevor Cranston with JMP Securities. Please proceed.

Hi, thanks. Most of my questions has been asked and answered but I guess one more on the hedging side given the uncertainty of though where -- kind of where swap spreads are today and directionally where they may be going, can you comment on whether or not you guys have thought about using any different instruments may be in place if like the forward starting swaps using treasury futures or your dollar futures or anything like that? Thanks.

Yes, at one point as you may remember, a few years ago, we had a lot of treasury futures on. Once you get out to five years, there is really no liquidity. So there is not much to do using any LIBOR or treasury futures outside of five years at least as far as we're concerned. But once again do not expect our swap flow to get any larger than it is right now. And if we do reach a balance of the curve where rates go higher it may be a point that, as Scott indicated that we may reduce some of our swap book. But we're comfortable with what we have right now. Don't anticipate using swaps since right now, don't think we will pay the fee on those, we think that things were pointed higher and that's probably not the time to be using that instrument. And Mark do you have anything to improve on that?

No, we've looked a lot of different types of hedge products, your dollar futures, treasuries, some other types of derivative products. But right now we think interest rate swaps are the best hedge for us to use.

And if anything they may be a little risk right now being there is still 10 basis point or 10-year note that we may be dead wrong and my strayed 25 through and that's the question that we just can't answer. But if anything that are on the rich side right now, we own the smart side of that.

Our next question comes from the line of Brock Vandervliet with Nomura Securities. Please proceed.

Thanks for taking the question. What's the level of forward starting swaps that you've added, I think for the last quarter was $2.5 billion?

Yes, I got it right here. The amount we have right now is $4.375 billion of forward starting swaps and they come on the books between two and seven months. The amount of actual swaps on right now is $5.025 billion.

Okay. Great and then --

Once again, if you go into website Brock, if you go into website it's all listed right there. So you can see what the tenure of all those are well.

Okay.

If you want a time series go and look at a couple of those multi-company updates in sequence and you can pretty quickly put the time series together if you want that.

Okay. And relatively on the -- on swap spreads, what relative to year book what's the most relevant period to look at the five or the 10-year swaps spread or both as we look at the swap spread performance?

The 10-year certainly.

Okay. Okay. And I don't know if you've covered this but obviously your dollar roll performance has been higher than what we certainly we had expected. Do you anticipate continuing to add to that, you mentioned you're taking delivery on additional securities there?

Yes, it's a quite contrary actually. We took delivery last month; we're going to take delivery this month. As I said earlier, I believe today is 48 hour day, so we will be announcing that we will be taking delivery of a good portion of the book and we will be selling part of that forward as well for the next possible delivery date. At one point it was pick 90 as you may recall three or four earnings calls ago and now it's picked in the low-teens and going over year-end we don't want to have a large dollar roll position. So if you saw on the monthly company update in December and you had very little dollar roll that would probably be what I would anticipate.

Mr. Mountain, there are no further questions at this time. Please continue with your presentation or closing remarks.

Well thank you everybody, it's Jeff Zimmer. Thank you for joining us and we're actually very happy to see our stock up $0.69 this morning with the Dow down 146 some points. So obviously there had been a fairly good response to our good core earnings. We're happy to book value be relatively stable over the course of the last five to six weeks into the new quarter, we will see what develops here with mortgage spreads and with the tenure into the Fed meeting of December 16. Please feel free to call our office at any time and Mark and Scott, Jim, and I, would be happy to help anybody on the investor analyst side. Once again we say thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day everyone.