Good morning. I would like to welcome everyone to the Arlington Asset First Quarter 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 Kurt Harrington. Mr. Harrington, you may begin.

Thank you very much. Good morning. This is Kurt Harrington, Chief Financial Officer of Arlington Asset. Before we begin this morning’s call, I would like to remind everyone that statements concerning future performance, the completion of senior notes offering, market conditions, cash returns and earnings, investment opportunities, core cash operating expenses, portfolio allocation, plans and steps to position the company to realize value, statements on tax benefits including net loss carry-forwards 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 factors include, but are not limited to, changes in interest rates, increased cost of borrowing; decreased interest spreads, changes in default rates, changes in the constant prepayment rate for the company’s MBS, changes in our operating tax benefits, maintenance of the company’s low leverage posture, changes in agency-backed MBS yields, changes in the company’s monetization of net operating loss carry-forwards, changes in the company’s ability to generate consistent cash earnings and dividends, preservation and utilization of our net operating loss and net capital loss carry-forwards, impacts of changes to Fannie Mae and Freddie Mac, actions taken by the U.S. Federal Reserve and the U.S. Treasury, the availability of opportunities that meet or exceed our risk-adjusted return to expectations, the ability and willingness to make future dividends, the ability to generate sufficient cash to retained earnings to satisfy capital needs, changes in the value growth through reflation of private-label MBS, and general economic, political, regulatory and market conditions. These and other material risks are described in the company’s annual report on Form 10-K for the year ended December 31, 2012, which is available from the company and from the SEC. You should read and understand these risks when evaluating any forward-looking statement. I would now like to turn the call over to Eric Billings for his remarks. Eric.

Thank you, Kurt. Good morning, and welcome to the first quarter earnings call for Arlington Asset. I’m Eric Billings, Chief Executive Officer of Arlington Asset. And joining me on the call today are Rock Tonkel, President and Chief Operating Officer; and Brian Bowers, our Chief Investment Officer. Thank you for joining us today. Yesterday, we reported core operating income per share of $1.04 for the first quarter which equates to an 18% return on book value available for investment. During the early part of the year, we have reallocated capital to the company’s non-agency mortgage-backed portfolios such that after giving effect to the $87 million March equity offering, Arlington currently has approximately 60% of investable capital direct into that portfolio and approximately 40% allocated to agency mortgage-backed securities. Naturally, as we increased capital allocated to the non-agency MBS opportunities, we executed few sales of the non-agency MBS which in turn limited the contribution to core earnings, operating income from cash gains during the quarter. Also, we expect the March offering to be accretive going forward following full deployment of the capital. As such core operating EPS for the first quarter would have been $0.05 higher absent the offering. Other key effects to the capital raise in the portfolio reallocation include the following. Increased exposure to the U.S. housing industry recovery with approximately $450 million of face value and approximately $250 million of capital allocated to the non-agency mortgage-backed securities. Increased potential for appreciation and book value as the non-agency MBS portfolio appreciates from the quarter end mark of 61.9% to higher terminal value. Increased use of tax benefits on spread income and realized gains as they occur. Reduced leverage as capital allocated to low leverage and non-agency MBS now meaningfully exceeds capital allocated to more leveraged agency MBS. Increased hedge…

At this time, we’ll open the floor for questions. (Operator Instructions). Our first question will come from Jason Stewart.

Could you remind us on the HARP portfolio -- I’m sorry, on agency portfolio, what percentage of loans were originated under HARP 1.0, and then perhaps expand on any thoughts of rotating out of that given the high dollar price and some of the conjecture out of Washington that they may change the eligibility of that program?

Well that’s about 60% today, Jason, originated under the HARP programs. Well, that's been a fairly constant number for us as a proposition of the overall agency portfolio. As you know, from our prior conversations, we sort of remind very carefully the HARP, the different HAPR origination opportunities to identify where we think the best sort of value for pay up is and that’s work pretty successfully for us. I think, we’re watching that very, very closely. We’ve seen some compression in payups in those assets over time and we’ve been evolving the portfolio. We’ll continue to watch that very closely and as we fee like the policy environment is -- has a real potential shift. Well we made all that down some. To-date, we haven’t done that but we look at it daily.

Okay. And so just to clarify because I don’t know, if you ever broken it out before I understand 60% was under all HARP programs, have you broken that out by date?

We haven’t Jason and I don’t have it off the top of my head but we can look at that offline.

Okay. Thanks. And I would just one quick follow-up, the euro dollar just 10,000 foot question the increase in euro dollar hedge one clarification, the 899 does not include the 225 that you added under 10-year forward, is that correct?

Correct.

Okay. And so the portfolio increased by on a non-agency – on agency side a $100 million or so and you increased the hedges on that for the core basis by $70 million or so and then you added this 10-year to it. Was there any particular timing that led you to want to do it? Would you mind telling us where because it seems like it might have been a really nice trade, and then maybe some 10,000 foot comments about how you view that in the total portfolio context?

Well, I think what we’re trying to achieve there is additional protection from potential expansion risk if we see a shift in the environment over time as we – as we’re managing this capital transition reallocation with a greater emphasis on the non-agency side of the business which has some obvious benefits that we referred to. We’re also trying to very carefully manage the residual capital on the agency side and so we’re simply seeking to be a bit more protective as we observe we lowered the overall leverage of the company with the shift in capital to the non-agency side. And in addition to that on the agency side we’re sort of dialing up the protection against expansion risk in that portfolio.

I mean Jason I think it’s the Board understanding that well because we are investing new capital on the agency portfolio fairly consistently and by definition therefore since we want to have a substantially matched or hedged portfolio we will be adding a hedge on fairly constantly. It’s not really our intent and we don’t look at it as whether we are putting them on in a particularly opportunistic way. I mean, we’re not naïve but we’re really just looking at this on a portfolio basis and they are going to be times we put out this on particularly opportunistically or hedge on particularly opportunistically and they’re going to be times when we don't, but the key factor for us by far and away just that we have a – but we believe in this weak environment for the past many decades that we can have a high spread and we can establish that with a portfolio that is very substantially hedged giving us great protection is what we’re trying to accomplish. So, in that context, I think we’re very pleased with the portfolio but that’s really how we look at it obviously we’re not – we’re really not trying to momentarily time activities.

Thank you for your question. Our next question will come from David Walrod of Ladenburg. Please go ahead.

Good morning guys. Before I move to my question I just want to see if I misunderstand something Eric said. Did you say the agency portfolio was now from $1.6 billion at the end of the quarter to $1.1 I misunderstand that?

They’re hedged.

They’re hedged, okay.

They’re hedged, they’re hedged based on what’s increased in stands at about $1.1 versus a total fair value the agency portfolio today of about $1.6 billion.

Okay, good. Alright I thought that seems like a pretty large drop.

It’s an increase in the hedge proportionality versus on a notional basis versus the assets.

Okay, good. As far as the capital rays obviously there was a little dried on earnings for the quarter how quickly did you get that deployed into the second quarter or what kind of a drag can we expect on second quarter earnings?

I’d say we would expect that to be put to work really by the end of April. They’re basically essentially put to work by the end of April and that we would expect we might put a little bit of a leverage on it going forward. As you know, we’ve talked about keeping the leverage very low in the portfolio, we’ve talked about potentially as much as 0.2 times and as you – in the non-agency side and as you guys know that’s those assets are leverageable far, far, far above that, but the leverage element probably takes through -- it make take through May but I think that sort of around the end of April we’d be expect to be fully deployed on the capital from the equity offerings.

But David as you see as we said in the script the – we would expect to recapture some percentage of that $0.05 from the first quarter. So, we would be should all things being equal to where we precise we. We would be some – we would recapture some and substantially most of that $0.05, and then of course we did add the $25 million of sub debt or straight debt, which is a 10-year debt instrument that cost us about 6-5/8 and obviously given our current returns in the mid high-teens we have about a 1,000 basis points excess spread on that which means for every $25 million all things being equal we would earn excess spread of about $2.5 million or $0.15 of share for every $25 million we put on. So, it’s quite accretive and quite beneficial to us. And as Rock mentioned we’re in the midst of a program that we get that 25 on and we’re going to be hopefully accessing an ATM process that can continue to grow that in an ideal sense we would give some proportionality thoughts to the common equity for sure but I think we would probably get comfortable as high as $100 million so you can see that the accretion potential there in the environment we exist in today particularly the dynamic character non-agency is quite powerful. So, those are the things that I think as we go forward you can continue to look to hopefully have a fairly constant incremental benefits to the company.

Okay, good. That was essentially a good segue to my next question which was about the sub debt, I was just curious how that compare to potential opportunities in the preferred market and how you weight the sub debt versus the preferred opportunity.

It’s a pretty straight forward Dave I think from a cost of capital perspective there is a pretty meaningful pickup to us by doing the debt and having versus the tradeoff of an instrument that has maturity on it right so one is primitive one is got maturity on it but the economic pick up in terms of cost of capital is pretty meaningful from what we’ve seen I mean probably well over a 100 basis points potentially a 150 basis points but whatever somewhere in that neighborhood so we felt like that was a worthwhile tradeoff for unsecured no covenant instrument.

Thank you for your question. (Operator Instructions). Mr. Harrington, there are no more questions at this time I’ll turn it back to you.

Thanks very much everybody. I appreciate you joining us. We look forward to speaking with you next quarter.

Thank you ladies and gentlemen. This concludes today’s call. You may now disconnect your line.