Good morning. I’d like to welcome everyone to the Arlington Asset Third 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 remarks.

Morning everyone. Welcome to the third quarter 2016 earnings call for Arlington Asset. Also joining me today are Eric Billings, our Executive Chairman; and Brian Bowers, our Chief Investment Officer. Before discussing Arlington’s results for the quarter, I’d like to begin by providing some commentary on the overall market. The third quarter began with uncertainty surrounding the global economic impact of the United Kingdom’s referendum vote supporting its exit from the European Union in late June that created pressure and risk asset prices and a flight to the safety of US treasuries, driving the 10 year US treasury rate to historic low of 136 basis points in the first week of July. However, as concerns regarding breaks have begun to subside and confidence in domestic economic conditions improved, investor appetite for risk assets increased during the quarter. These factors contributed to an 11 basis point net increase in the 10 year US treasury rate to 160 basis points as of quarter end, lower volatility and narrowing of fixed income investments spreads. In general, this resulted in interest rate hedges outperforming agency MBS during the quarter. Although the Federal Reserve kept its target federal funds rate unchanged in its most recent announcement, the Federal Reserve acknowledged that the case for an increase has strengthened, but that it will wait for further market data before making changes to its target federal funds rate. Market participants currently expect that it’s more likely than not that the Federal Reserve will raise its target federal fund rate 25 basis points at the end of the year. Repo funding capacity remained strong during the quarter with financing rates on agency MBS continuing to be competitive. The recent money market reform that went effective earlier in October drove withdrawals out of prime funds and into government funds,…

[Operator Instructions]. We now have our first question coming from Trevor Cranston from JMP securities.

Good morning. First question on the dollar roll positions that you guys added. Can you just give some color on the market in terms of how specially you were seeing the rolls when you were out of the positions, where you're seeing them today, if they continue to make sense to add to the portfolio? And maybe also what you think was driving the specialness in the third quarter. Thanks.

I think there's a variety of factors driving that, but the net effect was about -- depending on the point during the quarter, it was probably 20 to 40 basis point pickup in net yield during the quarter. I think we probably picked up in the end about -- near the higher end of that range versus cash back bonds, which is a good reason -- which is a substantial part of the reason why we made the transition of part of the portfolio out of some of the cash bonds and into the TBA. I think in addition, given the trend we've seen a little bit on the speed side, and the sense that maybe there are some structural things going on there that have shifted a little bit, I think we wanted to ease up a little bit on the cash bond side and reduce exposure at the margin to higher speeds, and take advantage of that through the roll at least on an interim basis. We look at it constantly. Today the roll is a little lower than it was at the point at which we entered into it. That's not unusual. You would typically expect to see it maybe widen out a little bit closer to when you get to the factors and settlement dates. We’ll see where it evolves over the next couple of weeks. If we view it as continuing to be a superior opportunity, we may maintain it around the same size. We may increase it and if it looks as if it's going to stay a little lower than it has, to the extent that it doesn't provide us with a substantial enough advantage in net yield over the comparable cash bond, then we may move some balance back to the cash bonds. That’s a investment decisioning process we're looking at every day and certainly every month when we refresh our looks at the role. And if there's a question as to whether why one wouldn't have more of a concentration at that point in time in the TBAs, the answer is sort of what I've just provided, which is that that can be a more opportunistic circumstance, and so you need to have a level of flexibility. Whereas the cash bonds can provide a more durable long term source of value creation. So you want to maintain your appropriate balance in that regard. So again we'll look at it over the coming weeks and make our adjustments based on where the roll is at that time.

Thanks. And a question on the options hedging portfolio. The put option, the 10 year is obviously trading, --10 year yield is trading higher than where the strike was on the put options today. Can you say if you’ve rolled all those positions and also just generally, is it a good idea for us to think about the strategy now being kind of a strike price maybe 10 to 15 bits over where the market is or how do you think about that?

Yeah, I think that's a fair assessment, Trevor. I think that’s exactly what we’ve sought do is bring the strikes closer to the money to give it more responsiveness. And I think the zone, the range of basis point cushion or strike above the current rates is a fair assessment from what had been historically a little bit more out of the money options to be more in that 10, 15 basis point range we feel like is a good place to be and I think the structure we're in gives us the ability to execute that, maintain and improve responsiveness to an up rate scenario, meaningfully improve flexibility in a down rate scenario and reduce the overall cost of the options structure.

Got it. Okay, appreciate the comments. Thank you.

Thank you. Our next question comes from Jessica Ribner from FBR & Co.

Hey, good morning. Thanks so much for taking my question. Just looking at your leverage on the agency portfolio this quarter, it ticked down about, from 10.1% to 9.5%. How do we think about that going forward and how do you think about it overall with CPRs where they are and the rate outlook kind of uncertain?

Well, I think a couple of things. During the quarter, what we observed, what we saw, what we did was we redeployed an additional amount of the non-agency private label book over to the agency side at higher relative returns. That implicitly has an effect on growing the portfolio because the agency investments are levered and the non-agency investments were largely unlevered. And so that has the effect of growing the portfolio at the margin and that has one effect on leverage. At the same time, we shifted as I said some of the balance from cash bonds to the TBA portfolio. Overall I think portfolio size was up a little bit as a consequence of those shifting factors. And I think from here, with the increase in speeds we've seen over the course of the year, we continue to be sanguine about the speed scenario, but it appears that there are a couple of structural factors that are at work here from an HPA perspective and incomes and job employment. There’s a boost in people's ability to qualify and capacity in the industry may have increased for refinancing. So we may just sort of see a little bit of a structural uptick. Typically we'd find ourselves here in the part of the season where you'd expect the speeds to be moving down. We would expect that to occur in the normal course. May or may not move down to the levels that they did last year into the high 7s and 8% range from what this past quarter was about 12.5%. But none of that really dissuades us from the larger conclusions, that while the net yield on the asset may move around at the margin from month to month based on changes in speeds, a little lower a…

All right, fair enough. Thanks so much.

Thank you. [Operator Instructions]. Our next question will come from Douglas Harter from Credit Suisse.

Thanks. Rock, with you guys being almost completely sort of migrated to agency at this point, are there any other assets that you're looking for that are attractive in the current environment?

Doug, it's a great question. It’s hard to say -- it feels like it's hard to say that things are cheap. I think we find relative value where we are. Again as you've heard us say before, we don't find any particular flaw at all in the non-agency opportunity, particularly the ones that we've owned and been a seller of. That’s just a -- as you know, a leverage question for us, a willingness to lever that sufficiently to generate enough return to come close to matching the agency side. And since we can't do it, since we're not comfortable leveraging it to that level, we're redeploying the capital to an opportunity where we are and we don't -- right now, we haven’t right now seen an alternative compelling circumstance. There are certain -- there are servicing strips and some of those types of assets have cheapened up some, and have improved in relative value, but right here right now, probably still don't quite achieve the standard to redeploy away from the agency side, given the hedge structure and the net economics that we can drive out of the agency side.

I guess along those -- How do you balance the trade-off between sort of the current return advantage that agency can offer versus having a diversification benefit from having a different asset class.

Well, keep in mind, as I think you may recall, at one point we were nearly 100% non-agency. So we're not at all unwilling to move capital in significant amounts and even sometimes quickly if warranted, to meaningfully higher risk adjusted opportunities, but the price, the cost of that allocation purely for the purpose of diversity today is very, very high. The assets that we're selling are wonderful assets in many risk adjusted return perspectives. Let's call it a high single digits, maybe a 10, but let's call it high single digits risk adjusted return unlevered and that asset is by any stretch a pretty attractive return opportunity on 175 basis point 10 year environment. But to give up something like 600, 700 hundred basis points of return to own that asset in the way that we predominately would want to own it, which is without much leverage if any, that penalty just feels like to too high a penalty to pay for the shareholders to pay. And if you do the risk adjusted return analysis, I think it justifies -- well justifies the allocation to the significantly higher return asset, given the way we can hedge it, and the cost at which we can hedge it, for the duration of time at which we can hedge it.

Makes sense. Thank you.

Thank you. Is there anything -- that’s it? Okay, thank you everyone. We appreciate it. Have a nice day and if you have further questions, please don't hesitate to call us.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.