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Edited Transcript of ARR earnings conference call or presentation 15-Feb-18 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2017 ARMOUR Residential REIT Inc Earnings Call

VERO BEACH Feb 16, 2018 (Thomson StreetEvents) -- Edited Transcript of ARMOUR Residential REIT Inc earnings conference call or presentation Thursday, February 15, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James R. Mountain

ARMOUR Residential REIT, Inc. - Secretary, Treasurer & CFO

* Jeffrey J. Zimmer

ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President

* Scott J. Ulm

ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO, CIO and Head of Risk Management

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Conference Call Participants

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* Christopher Whitbread Patrick Nolan

Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst

* Douglas Michael Harter

Crédit Suisse AG, Research Division - Director

* Trevor John Cranston

JMP Securities LLC, Research Division - Director and Senior Research Analyst

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Presentation

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Operator [1]

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(technical difficulty)

(Operator Instructions) As a reminder, this conference is being recorded Thursday, February 15, 2018.

I would just now like to turn the conference over to Jim Mountain, Chief Financial Officer. Please go ahead, sir.

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James R. Mountain, ARMOUR Residential REIT, Inc. - Secretary, Treasurer & CFO [2]

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Thank you, Julie, and thank you all for joining us for our call to discuss ARMOUR's Fourth Quarter and Annual 2017 Results. This morning, I'm joined by ARMOUR's Co-CEOs, Scott Ulm and Jeff Zimmer; and our Chief Operating Officer, Mark Gruber.

By now, everyone has access to ARMOUR's earnings release, Form 10-K and January 2018 company update, all of which can be found on ARMOUR's website, www.armourreit.com.

This conference call may contain statements that are not recitations of historical facts 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 that 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 Factor sections 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 we are required to do so by law.

Also, our discussions today may include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measures are -- is included in our earnings release, which can be found on ARMOUR's website. An online replay of this conference call will be available on ARMOUR's website shortly and will continue to be available for 1 year.

ARMOUR's Q4 GAAP net income was $71 million or $1.60 per common share. Core earnings were $32.5 million or $0.68 per common share. For the full year, GAAP net income was $181.2 million or $4.22 per common share and core earnings were $123.6 million or $2.75 per share, which represents a 2017 return on equity of 11.3% based on stockholders' equity at the beginning of the year.

Differences between GAAP and core income are mostly due to the treatment of TBA Drop Income and unrealized gains on our interest rate contracts. ARMOUR does not use hedge accounting for GAAP reporting, and fluctuations in the fair value of our open interest rate swaps is a dominant factor in GAAP income, while the inversely related mark-to-market on our Agency Securities flows directly into shareholders' equity.

We paid dividends of $0.19 per common share throughout 2017 and continue to -- continue that dividend rate for January and February of 2018. Primarily due to a $60 million tax shield from previously closed hedges, in 2017 approximately 11% of the ARMOUR common dividends represented ordinary taxable income, while the remaining 89% were nondividend distributions. We expect the 2018 common dividends to continue to enjoy a substantial tax shield in addition to benefiting from the favorable tax rate treatment for all REIT dividends as a result of the recent tax reform.

In 2017, we raised a total of $148.2 million of common and preferred equity. And as of yesterday's close, ARMOUR had combined market capitalization of about $1.3 billion. Year-end book value was $26.62 per common share, up 9% over the year. As a reminder, we include updated estimates of book value per share in our company updates available on our website. The most recent company update as of January 31, 2018 estimated book value at $25.84 per share. And book value as of February 13 was estimated at $24.72 per common share outstanding.

ARMOUR's portfolio continues to emphasize agency pass-through securities and credit risk transfer securities. But in many ways, the most interesting part of our portfolio management effort since we last spoke has been on the financing side of our balance sheet. We've brought our brokerage affiliate, BUCKLER Securities, fully online in the fourth quarter and ramped up repo borrowings through that channel to over $2.9 billion at year-end. We've seen those borrowings grow another $500 million so far in 2018. ARMOUR's borrowings through BUCKLER are likely approaching a plateau level for the foreseeable future. With BUCKLER and other recent entrants into the repo market, we've been able to fund our portfolio at highly competitive rates.

Now let me turn the call over to our Co-Chief Executive Officers, Scott Ulm and Jeff Zimmer. Gentlemen?

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Scott J. Ulm, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO, CIO and Head of Risk Management [3]

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Thanks, Jim. Good morning. Let me begin by pointing out something new in our most recent monthly company update, which we posted last night on our website and furnished to the SEC on its EDGAR system. We have added a statement of our strategy for long-term value creation and ARMOUR's contribution to society. ARMOUR management and the Board of Directors are using this statement to guide our daily operation and oversight of ARMOUR. The statement reads ARMOUR seeks to create shareholder value through thoughtful investment and risk management that produce current yield and superior risk-adjusted returns over the long term. Our focus on residential real estate finance supports homeownership for a broad and diverse spectrum of Americans by bringing private capital into the mortgage markets.

Now let's turn to fourth quarter results and recent developments. ARMOUR in the fourth quarter realized total economic return $0.57 of dividends plus change in book value of negative $0.06 of $0.51 net for a fourth quarter return of 1.9%, not annualized. The decline in our share price from $26.90 to $25.72 reduced total shareholder return based on market price and dividends to negative 2.3% for the quarter.

Core income of $0.68 exceeded dividends declared and paid of $0.57. Our 0.2% book value decline during the fourth quarter was driven by rate and spread increases. As of February 13, our book value was $24.72, down 7.1% since December 31, caused by the significant increases in rates and MBS spreads over the last few weeks.

2017 was a successful year for ARMOUR REIT shareholders. Our book value increased by $2.23 or 9.1%. Our stock price increased $4.03 per share or 18.6%. Our total economic return in 2017 was 18.5%. Our total shareholder return was 30.1%. And ARR paid a $0.19 dividend every month in 2017.

2017 was a year of low volatility and strong returns across fixed income products. Each of our target asset classes produced strong returns in 2017, with Agency MBS in 30-year 3s, 3.5s and 4s producing 3.6%, 3.5% and 2.5% unlevered total returns, respectively.

Our second largest portfolio segment, the Fannie and Freddie credit risk transfer, or CRT securities, delivered double-digit total returns between 12% and 14% last year as well as a continuing unlevered floating book yield of 6.65%. We remain highly encouraged by the CRT floating rate segment of our portfolio given strong U.S. housing fundamentals. These securities have growing credit enhancement and upgrade potential that builds as our bonds continue to season and insulate our securities from potentially more difficult housing markets in the future.

Our relatively small legacy nonagency portfolio also contributed to results with an average of 9.25% in total return.

As of February 13, our funded leverage ratio was 5.8x. This relatively conservative ratio provides us with dry powder to take advantage of further compelling investment opportunities as they appear. Adding in the implied leverage of unfunded TBA dollar roll positions results in implied leverage of 7.4x as of February 13. While TBA dollar rolls do not have the extreme levels of specialness they oftentimes have exhibited over the last few years, they still can represent great value compared to the specified pool market. It is also worth noting that the implied funding advantage of TBA dollars rolls has made this strategy attractive for years predating theory and we expect opportunities in TBA dollar rolls to persist.

As the Fed's MBS footprint shrinks in 2018, we expect the exemplary performance of Agency MBS to be more muted than 2017. We also expect the Federal Reserve to announce 3 more federal funds rate hikes in 2018 and we have taken steps to limit our sensitivity to these hikes.

We increased our hedge position in both quantum and duration to its highest level in recent years. Our notional swap position increased from $5.1 billion at the end of the third quarter to $6.8 billion currently. Our agency fixed rate asset repo is 105.1% hedged. Our duration is 0.80, which does not include a negative duration from our repurchase liabilities. Even with expense associated with this level of rate protection, we currently anticipate that core earnings will cover our dividends during the first quarter of 2018.

The prepayment rate on our agency assets decreased during the fourth quarter of 2017 to 7.0 CPR from 7.1 CPR in the third quarter of 2017. Our portfolio paid 7.0 CPR in January and 6.6 CPR in February 2018. Prepayment risk has clearly faded with the recent backup in treasury yields. It is important to note that a good portion of our agency portfolio, excluding TBAs, is composed of assets with prepayment protection through lower loan balances or contractual prepayment lockouts in our DUS paper.

Repo financing remains consistent and reasonably priced for our business plan. ARMOUR maintains MRAs with 46 counterparties and is currently active with 31 of those for total financing of $7.6 billion at the end of the fourth quarter. Most importantly, our affiliate, BUCKLER Securities, became operational during the early part of the fourth quarter and has financed approximately $3 billion of our portfolio at attractive terms across a variety of tenures. Financing through BUCKLER provides us with greater security of financing as well as contributes to a lower cost of funds and attractive terms. Lower haircuts from financing with BUCKLER also reduce our potential liquidity requirements.

Our portfolio activity in the fourth quarter consisted of a shift to higher coupon Agency Securities. We see coupon swaps and security selection as important parts of returns in 2018. TBAs will remain a core part of our investments supplemented by specified pools that feature superior liquidity, attractive carry and rapid payoff at breakevens.

Our current investments in credit-related assets, particularly CRTs, will provide attractive and stable returns going forward, enable us to operate at a lower leverage multiple and reduce the risks associated with swaps.

Our equity allocation in credit assets at the end of the fourth quarter is approximately 41% of the total amount of our equity tied up in haircuts for repo. While gross portfolio allocations will show a much larger quantum of agencies on our balance sheet, we think the purest way to think about capital allocation is equity committed to financing haircuts in each sector. Equity that's not tied up in financing haircuts is our liquidity, and that liquidity is available to support any part of the portfolio.

Our investment in credit risk transfer securities were valued at $870.5 million at the end of the fourth quarter and represented 89.2% of our nonagency portfolio. The performance of this sector has been exceptional since ARMOUR began investing in the first quarter of 2016. We have been rewarded both by the spread tightening that has occurred in this sector and by the attractive carry. Our weighted average CRT coupon as of the end of the fourth quarter was 6.05% with a weighted average margin of 4.5%.

In the CRT transactions, we take the credit risk of recent Fannie and Freddie underwriting in return for an uncapped floating rate coupon. The combination of strong mortgage underwriting standards at the GSEs and increasing housing prices have provided a robust underpinning to the credit quality of the CRT bonds. In addition, these securities benefit from increasing credit enhancement over time that can lead to credit rating upgrades. 5 of our securities have been upgraded to investment grade and we feel several other securities in portfolio will be candidates for future upgrades, which results in price appreciation and better financing.

While our value and gains above par will amortize over time, the effect's relatively modest, less than 1% of our CRT book value over the next 2 years. And that is likely to be further reduced by lower prepayments in a higher rate environment.

At the end of the fourth quarter, ARMOUR owned $86.6 million of nonagency legacy MBS. At the moment, we see very few opportunities for investment in the 2008 and prior nonagency MBS asset class. All of our existing assets from that period continue to perform well as they run off. And like many market participants, we continue to hope for revival in the jumbo securitization market.

Our principal concern for the new year is the rate and spread environment. The recent treasury bond sell-off has negatively affected book value, yet it has improved reinvestment opportunities. We were untroubled by and actually welcome a measured path of rate increases across the curve. On balance, they make our fundamental investment thesis better. We remain mindful, though, that strong volatility can appear even when it is not obviously warranted by market fundamentals. And consequently, we keep close control of our risk metrics of duration, spread DV01 and leverage.

The U.S. economy appears to be exceptionally strong. And although inflation appears to remain constrained, we don't expect it to stay that way. We've positioned the portfolio and our hedging to reflect this assessment of heightened risks, while still allowing us to earn our dividend.

Operator, that concludes our prepared remarks. We'll now take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Douglas Harter with Crédit Suisse.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [2]

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First question is, wondering if you could talk about any portfolio action you might have taken in the first quarter as rates have been rising to try to help mitigate further book value -- protect against further book value declines if we are to see rates continue to rise from here.

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [3]

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Sure. The monthly company update, which is as of January 31, does not encompass trades that may have been done in the first week of February. So if you look at Page 6 of the monthly company update, the TBA portfolio has changed dramatically. We now have $1.1 billion of 30-year 4.5s on the roll and $850 million of 15-year 3.5s on the roll. And we do not have any of the 3.5s anymore. So that's one of the things we've done. We've also added $300 million of swaps. I think the tenure was in the low 170s and -- of that $300 million, approximately 60% of those are 10 years and the other 40% is 7-year swaps. And we maintained the lower leverage during this period of time. As we all know, leverage is a trade-off between earnings power and a variety of other risks. And Doug, our perspective right now is that we're comfortable with our leverage ratio as an appropriate balance between producing returns and containing risks. It also gives us the ability to take advantage of some opportunities that may appear in this volatile market. So for us, the risk of implementing a general increase in leverage are certainly today outweighed by the exposure to volatility and giving up on the margin the ability to participate in maybe some future opportunities. For example, if we get another big backup here, perhaps we sell some 15 years and buy 30 years, which can produce mid-double-digit returns right now on dollar rolls.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [4]

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And, I guess, just on leverage, when you're talking about not increasing it -- or I guess, are you able to hold asset size constant given the 7% decline in book value you've seen through February 13?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [5]

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Well, what's happened is some of the dollar roll opportunities have increased such that even with the lower amount of assets, we're still going to -- as Scott said in his comments, we still believe the first quarter alone is going to be return earnings that are equal to or exceed the dividend we're paying. Now as we look toward April and having a Fed's fund increase in March, that may be reduced slightly and may mean that we have to adjust that a little bit. However, I would note that, you look at last year, book value was up 9% year-over-year. The 7% change in book value, vast majority of that has come over the last 3 weeks, particularly with the 7.5 OAS widening. And I noted in the report -- I appreciate you writing a report on us last night. You had noted that our book value change was a little different than what you had done. And I don't know when you last updated OASs, but I did read some other firms' research that had some of our peers down double-digit book values this year. And particularly, as I said, at least 50% of that is OAS.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [6]

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All right. And then, I guess, shifting to the broker-dealer. Can you just talk about the thoughts of having as high a percentage you do, kind of with -- kind of in your internal broker-dealer, just help us understand if there are any risks in having kind of a high percent of your repo there?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [7]

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So we feel quite a bit safer controlling our own destiny and dealing with the FICC through our own broker-dealer at the end of the day than we do with any other counterparty, quite frankly. So that's where we are right now. I wouldn't expect, under anything we can see in the future, to be exceeding a percentage of total repo more than we have today with the broker-dealer. I would also note that they are funded, as I said, through the FICC, but extremely diversified as well. And we can do things with our own broker-dealers that aren't normal course of business with other firms. For example, we might be able to do overnights, which can save a considerable amount of money on financing. But yes, we'll do overnights on a term basis.

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Scott J. Ulm, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO, CIO and Head of Risk Management [8]

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Yes. Doug, probably the target has been kind of half of our outstandings. I guess the flip side of that is, it's reduced our footprint by about half elsewhere. So if anything, overall -- we've increased overall capacity, we feel. And as Jeff says, being master of your destiny is an important part for a big chunk of our portfolio as well as the sort of information advantages and term advantages that come from it.

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [9]

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I can remember when we started ARMOUR, and I'm talking to all the broker-dealers, including yours, of course, and they go, "Where you're going to get financing?" Nobody want to provide financing. Well, now there's a lot of financing available. And during this period of time where there's a lot of financing available is a perfect time for us to say, "Hey, let's control a little bit of our destiny in case the world doesn't look as pretty as it does today, more like 2009."

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Operator [10]

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

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Trevor John Cranston, JMP Securities LLC, Research Division - Director and Senior Research Analyst [11]

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Couple of follow-ups to some of Doug's questions. First one, Jeff, I think you mentioned that the book value change, a lot of which has occurred in February, was largely driven by OAS widening. I was wondering if you could sort of break out the components and specifically also talk about what you're seeing with CRT spreads so far this year, and particularly in February.

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [12]

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So the last CRT deal, I'll go to first, priced a little weak, and that's now trading 20% to 25% inside where -- at that price. So I don't have the head of my CRT trading in the room with me, Trevor. But you can look at where price has traded strong, the next day it is in 25%. So year-end marks on CRTs are at that level or slightly in. That's CRTs. The OAS widening, predominantly on 30-year 3s, which we did not own any of; and 30-year 3.5s, which we did mostly in the dollar roll, the other 3.5s that we own would be more seasoned or like low loan balance stuff. So as rates went up, the models have those extending. And as a result, implied that you needed more hedging on it. So our book value decline this year, as of Tuesday night, we're almost exactly 50% OAS widening and 50% rates included. And the OAS widening includes the effective model, if that's helpful to you.

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Trevor John Cranston, JMP Securities LLC, Research Division - Director and Senior Research Analyst [13]

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Got it. Yes. That's very helpful. And then the second question, you commented a little bit on the shifts you've made to the portfolio so far in February. Just curious, the duration gap, I guess, was around 0.8 years at the end of January. Would you guys estimate that it's kind of roughly the same after you've made the moves up in coupon and added a little bit of hedges? Or has that changed much where we're seeing it today?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [14]

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I think Scott said, it's actually 0.8 as of Tuesday night. So, right, you would think it might be a little higher, but -- with some of the changes. So what happens when the markets move very quickly, you make subtle changes to maintain your duration, because you don't want that to extend too much, okay? And then at some point, as I said to Doug, there may be a case, where okay, the world feels a little better, would sell some 15 years and extend back into 30 years. I mean, the yield pickup on 30 years is a considerable amount different than it would have been 6 weeks ago. You can buy outright stuff like a $175k max in double digits. That was like a 9% levered yield a while ago. So the backup has provided opportunities. Now what we're not going to do though is sell $2 billion worth of assets just to buy higher assets and maybe book some losses. So things will be done through prepayment, reinvestment or maybe some subtle changes in the portfolio.

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Operator [15]

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(Operator Instructions) Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann & Co.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [16]

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Could you quantify the savings you get financing with BUCKLER?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [17]

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So as I said in the last earnings call, we estimated it would be 5 to 7 basis points because there was a backup in FICC approvals and FINRA approvals post the subprime credit thing. 5 to 7 firms came online over the last 2 quarters. And ARMOUR savings exceeded those estimates thus far. I expect that to normalize as these new firms have already put collateral on and they're going to have to -- they're going to have to make money in the future instead of losing money. So I expect that to be closer back to the 5 to 7 basis points.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [18]

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Got you. And what is the upper limit -- I'm sorry. Please.

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Scott J. Ulm, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO, CIO and Head of Risk Management [19]

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Yes. You just also have to add in, we achieved a little better haircut, which also puts a little less potential liquidity demand on us as well. Liquidity is notoriously hard to value, but we definitely know it has value.

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [20]

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Yes. So we've increased our liquidity because our haircuts are lower with BUCKLER than they are with any of our other counterparties.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [21]

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Great. And then what is the upper limit for your leverage ratios?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [22]

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We don't have a stated limit. I did -- when Doug Harter had mentioned leverage on there, we're comfortable with the leverage that we have right now. I would not anticipate in the near future us exceeding any of the numbers you're seeing out by more than one turn. And there could be a cause to make it lower. But we have no stated leverage range.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [23]

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And then given where the stock price is, any anticipation on buybacks or selling positions and actually buying into higher yielding new issues -- I mean, how should we look at capital management at this point?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [24]

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So let me talk about also selling positions. I also said to Trevor, we might sell, as I said, some 3.5s of 15 years, our lower yielding assets or maybe some stuff on dollar roll to buy some longer assets, if we feel the market stabilized a little bit. But we'd rather watch for a while and see what happens. So yes, the capacity and the ability to do that particularly with our lower leverage numbers is definitely there. And we got to look forward to the opportunity, because it'd be great to surprise on the earnings side down the road. Now in the stewardship of capital or buybacks, let me address that. And I'll use stewardship again. The stewardship of ARMOUR's equity is the primary responsibility of both our management team, and of course, the Board of Directors, Christopher. This group assesses regularly the benefits or detriments of issuing equity or repurchasing equity in the secondary marketplace, okay? So typically, and as I've said on earnings calls before, I remember early -- late '15 and '16, we're trading well under book value. 3 things generally have to fall into place to issue equity. So I want to talk about both sides of it, so we're very clear. And if you end up writing up this stuff, I could -- please feel free to call me back and I can give you a little more detail or try to repeat what we talked about. To issue equity, there must be beneficial use of proceeds, meaning the investment of ARMOUR was promise the opportunity to improve the company's portfolio, let's say. Accretive offerings are always preferred, but current shareholders should not be diluted to the extent that the other benefits of issuance clearly outweigh the dilution, let's say. The secondary market is also expected to absorb any newly issued shares without disturbance, okay? So you get a short-term disturbance and you've been involved in our secondaries before [your permit]. But you wanted to stabilize after a week or so. So that's the issue. So let's get to your point. Some of the considerations that the board studies for repurchases of equity are typically -- there's 4 or 5 things. Let's see, is the current liquidity of the company such that a repurchase would not negatively affect continuing operations? So that's number one. Is it a good moment in time in the bond and swap markets to be a seller rather than a buyer? Because remember, if you reduce your equity, your leverage goes up or you have to sell bonds and you have to unwind swaps. Well, contrary to that, we're probably the better buyers on bonds if we back up a little more. So we don't think it's a good time to do that right now. Are shareholders better off with the accretive amount that makes the company permanently smaller and less operationally efficient? Something that we talk about. What investment alternatives are available that could potentially be better use of funds than buying ARMOUR stock? And will buybacks have a permanent better effect on our stock prices? And let me just get to 1 or 2 things. If we were to repurchase -- and this is the work we did for the board meeting the other day. If we repurchased $50 million of stock today, we'd get about a $0.14 accretion to book value. It would increase our annualized expenses by 3.9% or $0.04 a share. Our average daily book value change in 2017 was $0.09 a day. So for us with the liquidity as it is right now, we don't really see it at a good -- and our board completely agrees of reinvesting in ARMOUR stock. But the record shows that we are willing and able -- really able to repurchase significant amount of stock in the right circumstances. In 2013 to '15, we repurchased $250 million worth of stock. And it is something that we look at regularly, but not planning to do it this week. And we'd like to get through this volatile period of time and we'll reassess. So I know that's a long answer, but I hope that addresses the question appropriately for you.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [25]

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Yes. No. I appreciate the detail. Final question, the strategic statement, is that just a response to things brought up by the BlackRock CEO?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [26]

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That is a really good question.

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Scott J. Ulm, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO, CIO and Head of Risk Management [27]

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Yes. That clearly is part of it. I guess, we -- that was certainly a bit of a nudge that we should do little thinking about the overall perspective here. And I think it was an appropriate nudge. Nothing -- we already had a statement that was a little bit longer. I guess, our sense is this is just much more succinct.

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [28]

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Right. They happen to own 14.8% of our stock, so we really care about them. And we continue to hope to have them as a long-term shareholder.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - Research Analyst [29]

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Okay. Is -- I mean, I was reading the article about when they wanted that. And it sounded like your strategic statement was pretty much -- it sounded somewhat boilerplate. I mean, is there a certain standard that BlackRock expects you to meet in terms of your strategic statement? Or just anything will do?

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Jeffrey J. Zimmer, ARMOUR Residential REIT, Inc. - Co-Vice Chairman, Co-CEO and President [30]

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We did not talk to BlackRock at all in putting our strategic statement. If you look at like a 1-year-old 10-K of ours, there's somewhat of a strategic statement in there. And when they released that, and I received the note or letter on that, we said let's sit down and make sure that with the board that we understood what we're trying to do with the company and if we are a positive impact on society. So we addressed that directly and the result is our strategic statement, which we think encompasses everything we do as a company and what we do, too, for society. And it is private capital put into public markets to help people finance homes. I mean, that's exactly what this business does.

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Operator [31]

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Mr. Mountain, there are no further questions at this time. I will now turn the call back to you.

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James R. Mountain, ARMOUR Residential REIT, Inc. - Secretary, Treasurer & CFO [32]

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Well, thank you, operator. And thank you, all, for joining us. As we say regularly in these calls, we're always open and available for conversations with our investors and our shareholders. So if you need anything more, call us at the office. We'll either pick up or try and get back to you in short order. Thanks much, and we'll talk to you next quarter.

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Operator [33]

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Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.