Good day, and welcome to the ARMOUR Residential REIT First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that today's [ event ] is being recorded. I would now like to turn the conference over to Mr. Scott Ulm, CEO, ARMOUR Residential REIT. Please go ahead, sir.

Good morning. I'd like to welcome you to the ARMOUR Residential REIT First Quarter 2024 Conference Call. This morning, I'm pleased to welcome our new CFO, Gordon Harper; as well as our new co-CIOs, Sergey Losyev and Desmond Macauley, to the call. All are experienced members of the ARMOUR team whom we promoted to their new roles in March, and I have tremendous confidence in them all. Gordon has been with us since 2015, and Sergey and Desmond have been on our portfolio management team since 2016 and 2013, respectively. We're all excited to lead the business into this next chapter. Our priorities are unchanged and we are all united on our focus on delivering value to shareholders. I'll now turn the call over to Gordon to run through the financial results. Gordon?

Thank you, Scott. 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 Factors section of ARMOUR's periodic reports filed with the Securities and Exchange Commission describe certain factors beyond ARMOUR'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 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 1 year. Now turning to results for the quarter. ARMOUR's Q1 GAAP net income available to common shareholders was $11.5 million or $0.24 per common share. Net interest income was $5.3 million. Expenses included $9 million of nonrecurring professional fees related to the Special Committee internal investigation. Distributable earnings available to common stockholders was $40.4 million or $0.82 per common share. This non-GAAP measure is defined as net interest income plus TBA drop income adjusted for interest income or expense on our interest rate swaps minus net operating expenses. Our capital management continues to waive a portion of their management fees, waiving $1.65 million for Q1, which offsets operating expenses. The waiver continues until further notice. ARMOUR paid monthly common stock dividends of $0.24 per common share per month for a total of $0.72 for the quarter. We aim to pay an attractive dividend that is appropriate in context and stable over the medium term. Taken together with the contractual dividends on the preferred stock, ARMOUR has made cumulative distributions to stockholders of $2.3 billion over its history. Quarter end book value was $22.07 per common share. Our most recent current available estimate of book value is as of Tuesday, April 23 and was $20.48 per common share. I will now turn the call over to Scott Ulm to discuss ARMOUR's portfolio position and current strategy.

Thanks, Gordon. I know you've all seen our disclosure in the K and Q about the events of the spring, and I'd like to address this upfront with some highlights in detail. I, of course, refer you to the K and Q for the company's definitive disclosure and further detail. A variety of issues were raised just prior to our scheduled 10-K filing related to non-GAAP disclosures, the Board's internal review processes, potential conflicts of interest and the external manager. The Board followed best practices and formed a Special Committee of independent directors. The Special Committee engaged outside counsel and a national accounting firm to review all of these issues. The investigation, which was comprehensive, extended through our customary filing schedule and the 12b-25 extension but did conclude in time for the Special Committee, the broader Board and our auditors to review the results and file our 10-K by the March 15 deadline. The Special Committee found that our use of earnings available for distribution and NIM were appropriate. You'll find in our press release a revised presentation of economic interest income makes clear that includes swap payments as a non-GAAP measure. As to the other matters raised, the investigation found no substantiation of any of the matters raised and found that the independent directors of the Board complied with their fiduciary duties. There was a finding that in the course of the investigation, there was an issue with tone at the top that constituted material weakness. The tone set by certain individuals during the investigation was insufficient to create the proper environment for effective internal control over financial. As you've seen, the result of all this was streamlining our management structure to a single CEO and a number of remedial measures, including training on appropriate tone at the top,…

[Operator Instructions] Today's first question comes from Jason Weaver with Janney Montgomery Scott (sic) [ JonesTrading ].

Actually I'm with JonesTrading. I wanted to ask, Scott, regarding your prepared remarks on BUCKLER, if you were detecting any change in the availability of general repo credit out there given the volatility over the last month.

Yes. Repo's been just fine. It's -- obviously, we monitor that extremely carefully and we are active with a whole bunch of counterparties as well as being sort of on the inside with BUCKLER. But repo has been well behaved.

Okay. Fair enough. And then on the expense side, I was curious how long you plan to continue waiving the management fee as well as if there's any lingering sort of enhanced compliance costs coming from the results of the internal investigation.

So first of all, on the waiver, we expect to continue that. Obviously, it's a function of portfolio dynamics here, but we've had it since COVID and expect to continue. As to enhanced compliance, as I mentioned, the focus on tone at the top is very real and is part of our internal controls now. So that is certainly an area of focus. But other than that, it's -- and some of the other things I mentioned with regard to NIM and its new formulation and economic interest income. We remain in the same place we've always been, which is take great care with this stuff.

The next question comes from Doug Harter with UBS.

Hoping you could talk through a little bit more of the decision to reduce the portfolio size in April as you're kind of balancing kind of the near-term volatility that you might said with kind of the longer-term optimism on current spread levels.

Thanks. I'm going to turn that one over to Sergey.

Yes. Doug, thank you for your question. Yes, so we took a series of trades that we discussed in our earnings script the early Q2. We felt like mortgage markets were pricing in very well in a dovish Fed path. And the high inflation print that we saw early April really kind of triggered a wide portfolio rebalancing to reflect kind of a pushback on future path of the Fed rates. Now we are looking at this as only Q2 event, really quarter-by-quarter. We do still see easing cycle beginning sometime later this year. So we're just kind of seeing this as a grand theme of second quarter's elevated volatility. We have geopolitical risks as well as the strong economic data really kind of moving the market a little bit. So we felt it was prudent to reduce our leverage below 7, target duration of about half a year and then be able to go and deploy the dry powder when we feel the time is right.

I guess just on the leverage, how are you thinking about the right level of leverage over time? And what's kind of the ability appetite to kind of allow leverage to move higher when you have these pockets of volatility?

Yes. So it just kind of goes in line with the previous answer. We have about at least 1x of leverage to deploy currently. But we do still see some residual uncertainty in the market until we confirm with a few more data prints on inflation and labor markets to determine whether this is just a blip or change in the seas. So I think you can see us being aggressively -- buying into the market once we figure out the horizon past the second quarter.

[Operator Instructions] The next question comes from Trevor Cranston with JMP Securities.

A follow-up on a question about the expenses. Just to clarify, are there -- were there -- would you expect to see any more of the sort of onetime expenses coming through in April? Or was that exclusively in the first quarter?

I think we've accrued pretty well for it. But you know how these things go. There's always something that dribbles in. But I don't think it will have anything -- and even if there is some dribbling later on, I don't expect it to be significant.

Okay. Got it. Then given the reduction in the MBS portfolio here in April, can you also maybe comment on any changes you've made to the hedge book, either swaps or treasuries in the early part of April?

Desmond, why don't you go for that one?

That's right, Trevor. In line with some of our asset sales, we've also adjusted our hedge book as well. We've been trying to aim for a 0.5 duration, about half a duration. So our hedge book is -- we dynamically allocate treasuries and swap hedges along those lines. So yes, we've been making adjustments as we do our asset sales, adjusting our hedges as well to keep our duration within a framework that we feel comfortable with given the environment that we are in.

The next question is from Christopher Nolan with Ladenburg Thalmann.

Related to the Special Committee investigation, you mentioned that you hired an outside counsel and an accounting firm. Is this the same accounting firm that does your audit?

No. They were a national accounting firm and not Deloitte.

All right. So is that any reflection on your confidence in Deloitte?

Not at all. With these things, you always hire somebody independent to help and that's best practices. But you just wouldn't use your regular accountant for this sort of work.

Okay. And you repeatedly mentioned tone at the top and then you also mentioned conflict of interest. Is the tone of the top financial related to conflicts of interest or other?

It's other. And this is all found up at the COSO framework, which is the control framework that we used. And the way it works is that tone at the top, which is a broad measure but recognized as a critical part of effective controls, leads into the whole network of financial controls. It's part of that. So that's where that goes. It's pretty clearly laid out in the K and the Q. You see the broader COSO framework and then how this fits in as part of it. But it's unrelated to conflict of interest, on which there are no findings.

There were no findings on the conflict of interest?

Correct.

Okay. And then final question. Given that the Q mentioned you apparently gave all material clean bill of health for the financials, is it fair to say that we're not -- we should not expect a restatement of past results?

That's correct.

At this time, we are showing no further questioners in the queue and this does conclude our question-and-answer session. I would now like to turn the conference back over to Scott Ulm for any closing remarks.

Thanks all. I appreciate your participating in the call. And as always, if you -- something occurs to you later on, give us a ring. We're all here. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.