Good morning. I’d like to welcome everyone to the Arlington Asset third quarter 2018 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. If you would like to ask a question, please press the star key followed by the one key on your touchtone phone. If you would like to remove yourself from the questioning queue, please press star, two. 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 would like to remind everyone that statements concerning future financial or business performance, market conditions, and any other guidance on present or future periods constitute forward-looking statements that are subject to a number of factors, risks 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 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 remarks.

Thank you, Rich. Good morning and welcome to the third quarter 2018 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 the specifics of Arlington’s results for the quarter, I would like to begin by providing some overall market commentary. The Federal Reserve raised the target federal funds rate by 25 basis points in September, its third rate hike this year, while also affirming its commitment to its balance sheet normalization policy and further gradual increases in the target federal funds rate. The 10-year U.S. Treasury rate rose 20 basis points to end the quarter at 3.06% while the Treasury rate curve continued to flatten as the spread between two-year and 10-year U.S. Treasury rate narrowed nine basis points to 24 basis points, with the short end outpacing the long end of the curve. During the third quarter, continued reduced Federal Reserve support for agency MBS and rate volatility led to agency MBS spread widening, resulting in the pricing of agency MBS modestly underperforming interest rate hedges. In general, lower coupon fixed rate agency MBS and related hedges outperformed higher coupon hedged fixed rate MBS during the quarter, and to start the fourth quarter we have seen ongoing rate volatility with the 10-year U.S. Treasury rate rising 11 basis points. While widening agency MBS spreads may impact book values, levered returns should increase going forward, leading to higher spread earnings on new and reinvested capital. Turning to the actual results for the quarter, we reported a GAAP net loss of $0.19 per share, which includes a $0.33 per share deferred tax provision resulting in pre-tax income of $0.14 per share. Non-GAAP core operating income was in line with our expectations at $0.47…

[Operator instructions] The first question will come from Doug Harter with Credit Suisse. Please go ahead with your question.

Thanks. Rock, if you could just talk about the magnitude of spread widening you’ve seen so far in October, how that would translate into a book value move and your ability to purchase--take up leverage to participate in that spread widening.

I think we would characterize the widening so far this quarter, Doug, to be maybe a little more than 5 and less than 10 basis points. My guess--you know, it’s early in the quarter so it’s hard to say exactly where that shakes out over time, but as we sit here today, it might be in the neighborhood of equivalent to the mark in the third quarter, something in that neighborhood. It might be a little less, a little more, but maybe that’s a benchmark for five to 10 basis points widener across the stack, and it’s pretty evenly displaced across the stack.

Great, and then your appetite and willingness to kind of add assets into that widening that we’ve seen so far?

Well, you saw that we were lighter in balance going into the end of the quarter, and that leaves us some room to take advantage of those wider spreads with new investments at those better spread opportunities and higher ROEs.

Great, thank you, Rock.

Thank you for the question. Again, if you would like to ask a question, please dial star, one to enter the queue. The next question will come from Trevor Cranston with JMP Securities. Please go ahead.

Hi, thanks. A question on the potential conversion to a REIT structure. I understand that it won’t necessarily have any meaningful impact on the composition of the portfolio, but I guess looking at the current dividend level, it was only about 80% of your core earnings rate. I was wondering if you could comment on whether or not you believe a potential change in structure would have any impact on how you guys think about the dividend relative to your core earnings level, if you can comment on that, thanks.

As you’ve heard us describe in prior conversations, Trevor, we think about the dividend level in relation to the underlying economic earnings of the company, and we’ve talked in the past about the reasons why that is somewhat different from core, a bit lower than core but also undisclosable because of GAAP. But essentially, there’s really nothing about a potential REIT conversion that would impact economic earnings of the business, so we don’t think of that as material at all in our assessment of the future economic earnings capability of the business nor dividend levels.

Yes Trevor, this is Rich, just to add onto that. As you know, REIT requirements require you to distribute out your taxable income, your ordinary taxable income, and based upon our current dividend levels and what we’re generating in that taxable income category for ordinary income, we don’t foresee any kind of change in our dividend as a result of the required minimum distribution requirements as a REIT.

Got it. Okay, that’s helpful.

I’d also add, Trevor, that to some extent--to the extent that we carry NOLs into that initial period as a REIT, it does allow us to potentially retail capital even as a REIT.

Got it, okay. Thank you for that. Second question on leverage, in the past you guys have talked a little bit about your plan to reduce leverage a bit over time in sort of a measured way, but leverage didn’t really change much in the third quarter, and in response to Doug’s question it sort of sounded like you guys felt like there could be an opportunity to add to the portfolio here. Can you just give us an update on your thoughts around leverage in sort of the near to intermediate term? Thanks.

Sure. Well, the way we look at the leverage calculation, which is based on investable capital of the firm, we assess that as something more like at least half a turn of reduction in leverage. You also are familiar with the things we’ve said in the past about folks shouldn’t be surprise if they see that occur through sort of tranquil, relatively tranquil periods in the market because we’d want to invest in periods when you get volatility and widening, and that’s part of what I was trying to communicate in response to Doug’s question, which is to the extent we’ve now had a little bit of widening in the third quarter but also a little bit here in the beginning of the fourth quarter, then that’s the period in time when we’d expect to reinvest. So as I said earlier, we came into the end of the quarter down about a little over half a turn on leverage the way we look at it, and that gives us some room to add new assets at higher spreads today.

Got it, okay.

And we have been in the process of undertaking that, as you might imagine.

Right, got it. You mentioned, I think, that you continue to reduce the relative size of the TBA position a bit in the fourth quarter. Can you comment on any other portfolio changes or changes to the hedge book you might have made in October? Thanks.

I don’t think there’s anything material, other than we’ve tried to take advantage of a bit of this widening from the asset side, and obviously if we’re investing on the asset side then we may be making modest adjustments attached to that on the hedge side, but I wouldn’t describe it as anything material thus far.

Thank you.

Thank you for the question. Again, if you have a question, please dial star, one at this time. The next question will come from David Walrod with JonesTrading.

Good morning everyone. A couple of questions. It’s been pretty thorough so far, but in your slide deck, you talk about the opportunity to invest in other assets classes. Is that something you guys are actively pursuing, or are you just throwing it out there that you always have that opportunity?

Well, we always have that flexibility. We are looking from time to time more seriously at certain things, and right now we’re actually looking more closely at a potential opportunity, but there’s nothing there that’s advanced to the stage yet where we are in a position to talk about it. But we do evaluate potentially accretive opportunities and we’re looking at some right now that might run a little bit complementary to the agency opportunity. Having said that, particularly with a bit wider spreads here, we find the investment opportunity in the agency side right here to be even more compelling than it was a couple months ago.

Okay. Given what you just commented about current opportunities being compelling, have you--what are your thoughts on a share buyback given where the stock is trading?

Well, when we see the stock at these levels, obviously it’s among the first things that we’re thinking about. We’ve got an authorization that’s almost 2 million shares. Obviously we think the stock is attractive because you saw that some of the executives purchased stock recently, so I would say that, and every day it’s a question of analyzing the opportunities and the ROEs associated with not shrinking the capital and adding wider spread assets against the permanent effect of the buyback of the capital. We evaluate that every day, it’s one of the first things we’re looking at when the stock is down here, and we have the firepower to take advantage of it if we decide to act on it.

Okay, thank you very much.

Thank you. The next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Hey guys, I apologize - I joined the call late. In case you did not ask it, was the equity raise in the quarter neutral to book value per share?

I’d say, Chris, it was probably in the immediate short term slightly dilutive, but accretive, materially accretive certainly over time. Remember to the extent we’re adding that capital, we’re leveraging the G&A structure, and that’s unique because we’re internal and we have the ability to do that. If we were external, it would not be the same, but because we’re internal and we get to leverage the structure, that allows us to be accretive on an earnings perspective, and obviously when we’re doing that, we’re layering in long term assets with long term hedges, so we’re creating a stream of net spread income that is pure accretion and lasts for many, many years. It’s a long term accretion from an earnings perspective, although it may in the very short term be modestly dilutive to the book value.

Got it, okay. Thanks Rock.

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

Great, well thank you very much. If you have further questions, we’re happy to answer them offline, and thank you for your time, everyone.

Thank you. Ladies and gentlemen, this concludes today’s event. You may now disconnect your lines. Have a great day.