Good morning. I’d like to welcome everyone to the Arlington Asset First Quarter 2016 Earnings Call. Please be aware that each of your lines is in a listen-only mode. After the Company’s remarks, we will open the floor for questions. [Operator Instructions] I would now like to turn the conference over to Rich Konzmann. Mr. Konzmann, you may begin.

Thank you very much and good morning. This is Rich Konzmann, Chief Financial Officer of Arlington Asset. Before we begin this morning’s call, I’d like to remind everyone that statements concerning future financial or business performance, market conditions, business strategies or expectations and any other guidance on present or future periods constitute forward-looking statements that are subject to a number of factors, risk and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These forward-looking statements are based on management’s beliefs, assumptions and expectations, which are subject to change risk and uncertainty as a result of possible events or factors. These and other material risks are described in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2015, and other documents filed by the Company with the SEC from time-to-time, which are available from the Company and from the SEC and you should read and understand these risks when evaluating any forward-looking statement. I would now like to turn the call over to Rock Tonkel for his comments.

Thank you, Rich. Good morning and welcome to the first quarter 2016 earnings call for Arlington Asset. Also joining me on the call today are Eric Billings, our Executive Chairman; and Brian Bowers, our Chief Investment Officer. Before discussing Arlington’s results for the quarter, I would like to begin by providing some commentary on the overall market. The year began at the heels of the Federal Reserve’s first increase in the federal funds rate in almost 10 years. This was accompanied by a statement from the Federal Reserve of the possibility of additional increases during 2016. Despite this signal, the first quarter was characterized by heightened volatility. Long-term interest rates materially fell as concerns regarding global economic weakness dampened the market’s expectations of economic growth, inflation and the pace of monetary policy. Overall market participants became increasingly skeptical of the number and amount of any increases in the federal funds rate in the foreseeable future. Against this backdrop, the 10-year U.S. Treasury rates dropped almost 50 basis points during the quarter, ending at 1.78% with substantial intra-quarter volatility, which led to a significant widening of MBS spreads. Going forward, lower interest rates and wider spreads should translate into higher spread earnings in a hedged agency MBS portfolio. During the quarter, prepayment speeds across the agency MBS sector were relatively benign and available repo funding capacity remains strong. Next, we would like to highlight two significant changes in the Company’s reported earnings measures that impact comparability to prior periods. The Company elected to make these two changes in reported earnings measures in order to give our investors greater insight into the current performance of the Company and to enhance comparability with the reporting metrics of its peers. First, as we indicated during our fourth quarter earnings call, the Company modified its…

At this time, we will open the floor for questions. [Operator Instructions] The next question will come from Trevor Cranston with JMP Securities.

Hi, thanks.

Good morning, Trevor.

Good morning, my question is related primarily to the hedge portfolio laid out on Slide 8. Obviously, the portfolio seems to be fairly concentrated in hedges at the 10-year part of the curve. Can you guys talk a little bit about why you’ve decided to concentrate hedges there as opposed to maybe taking a more laddered approach? And then, second part of the question, it seems like the overall positioning with the negative maturation gap for the 10-year concentration is biased towards protecting against the substantial move up in rates. Can you guys also just kind of comment on how you’re thinking about the kind of upside, downside risk in rate at this point? Thanks.

Sure. So the focus in the 10-year swap position is really a couple fold. It is to seek to match the capital effect on the one hand to protect against the rising rates in the asset and our view has been and continues to be that the 10-year part of the curve offers an optimal point to be protecting against rising rate risk in the agency portfolio on the one hand. We also feel that as we sit here at funding rates, short-term funding rates in the 60s to 70 range and we have a 10-year hedge cost, which is gross in the neighborhood of 1.60 in net in the neighborhood of 1.10, 1.15 neighborhood of those numbers hat looked at over the arc of time, but that’s a very attractive long-term funding opportunity to take advantage of and protects substantially for a long period of time the spread opportunity available to us from an asset that today is yielding in the high-2s, call it nearly 3%, so – before your swap costs and funding cost. So, that protects a spread that is as we’ve demonstrated in the body of the scripts is today creating a roughly 20% return on the agency portfolio and we feel like the hedge protects against the funding side of that exercise of that constructs quite well for a long period of time and at the same time offers an attractive cost set for the capital risk from rising rates on those assets. As to the duration disposition of the hedge versus the asset, in our view of rates from here, I think our view at this stage is that we’ve made the adjustments in the hedge to allow for a much more meaningful flexibility in the portfolios’ ability to adapt to lower rates and…

Yes, it does. Appreciate the comments. Thank you.

The next question comes from David Walrod with Ladenburg.

Good morning.

Good morning, Dave.

Rock, you talked about the book value and the amount that would be recoverable. Can you give us some idea of where book value stands today?

Well, I think what we’ve seen – I’ll talk about the underlying themes in the assets. I think first of all, taking the agency side, I think what we’ve seen is, as I’ve referred to in the script, an improvement in pay-ups at least 0.25 point if not more increase in pay-ups in the specs since the end of the quarter. So, we’ve seen some tightening in agency mortgage performance versus the hedges. Rates are about flat to the end of the quarter, give or take, but the mortgages have tightened in particular the spec pools. I think on the non-agency side, we did see a relevant spread widening in the first quarter and that’s reflected in the pricing adjustment on the non-agencies and I think we’ve seen a – as you have seen in high yield and other fixed-income sectors, whether it’s mortgage or non-mortgage, we’ve seen distinct recovery in those types of instruments since the end of the quarter. So, I’d say there is directionally improvement in non-agencies and there is directionally improvement in the agency side and the asset side in the agency portfolio, notwithstanding fact that rates are probably about flat to the end of the quarter.

Okay, great, that’s helpful. And then, in regards to capital allocation, there was a modest uptick and the allocation to the private label. Should we expect that to continue or is that just kind of opportunistic?

Dave, that really reflects more than anything just the mark-to-market effect on the capital from the agency side. We have found – we have identified couple interesting opportunities to extract value from the non-agency side. And so, we have added a or made a modest incremental addition to that portfolio in order to extract value and we may do more of that at the margin to extract return from our existing portfolio, maybe ahead of what otherwise would have been the scheduled return curve. And so, we may see some incremental increases, but I don’t necessarily think they’d be significant at this stage. And really, the shift in capital location is more the result of the mark-to-market of the capital on the agency side.

Okay, thank you.

[Operator Instructions] The next question comes from John Kearney with Cedar Hill.

Good morning, John.

Good morning. I had a question on the repurchase authorization. I know that during the quarter, you guys received a letter from Imation. So, that kind of blocked you out from repurchasing. I was curious, when you received that letter and why you didn’t make repurchases ahead of that lockout? And then, what your kind of prospective repurchases – what your prospective repurchase activity might be going forward now that all that information is out?

Well, I think during that short period of time, post our earnings release and prior to the point of which we came into knowledge of the Imation information, that window was pretty short on the one hand and it also accompanied certainly among, if not, the most volatile parts of the quarter. And I think it’s fair to say when we get into those types of circumstances, mission one is make sure you protect the long-term interest of the shareholders and that makes sure that it should go through those really quite substantial modes of volatility in rates and we were seeing those changes in rates and spreads occur very rapidly. You want to make sure that you are doing everything possible to be certain you are bulletproof from a portfolio structure and integrity of all elements of the business. And so, that’s the first focus in a period like that. It is opportunistic. It can be opportunistic in volatile periods to take advantage of the stock and we have done that in the past and we intend to do that going forward, but in some of those very extreme moments, at those points in time, we view it as often – in those moments of time, intelligent to housing the capital and protect the franchise for the long-term opportunity available to the shareholders.

Okay, but the window now is open for you guys to begin repurchasing if you saw that – if you view that as an opportunistic way to use your capital. Can you start buying today?

Absolutely, we have a short window following earnings in which we have to wait, but it’s short and then we would be able to be involved in the stock going forward.

Okay, thank you.

Thank you. The next question comes from Merrill Ross with Wunderlich.

So, when you look at your portfolio today, where would you consider investing pay-downs or what is the most attractive opportunity from a spread basis in the market today?

I think today – you can see that during the first quarter, we increased the TBA position and that was a consequence of what at that time was that higher net spreads, net of employed funding cost opportunity in the TBA position. Those have tightened some since that period of time. And so, I think today, we probably look at the spec pool 3.5s as probably the first priority for new investment. At this stage, the speed opportunities, the CPR opportunity there has been very attractive relative to the pay-up, provides for duration exposure in a down-rate environment and we feel like we can protect it well with the existing hedge construct. So, we feel like probably the day at the margin, that’s the better opportunity. Of course, these things change week by week, day by day, but as we sit here right now that probably would be the priority.

And what kind of ROE would you see on the margin on that?

Well. I think the ROE that we referenced in the body of the script is representative to have yields in the high-2%s, call it 2.90%, 2.95%, something like that, and net funding costs that’s given our current leverage give you ROEs that are certainly in the high-teens, if not pushing towards one end.

Mr. Tonkel, there are no more questions at this time.

Thank you very much. We appreciate everyone’s time and if you have more, we’ll be available to answer calls for the day. Thank you very much.

Thank you, ladies and gentlemen. That concludes today’s teleconference. You may now disconnect.