Good morning. I'd like to welcome everyone to the Arlington Asset Third Quarter 2014 Earnings Call. [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 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, 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 for the year ended December 31, 2013 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 J. Rock Tonkel: Yesterday, we reported core operating income per share diluted of $1.36 for the quarter; a sequential annualized 23% return on book value available for investment. As has been the case through the year results for the quarter benefited from the redeployment of appreciated private-label capital to higher return opportunities, continued favorable performance from the company’s private-label and agency MBS portfolios and reduced cash expense to capital ratios. These results reflect the partial benefit of the company’s September offering. While asset balances in the third quarter results reflect the principal benefit effect of the September offering earnings from deployment of the proceeds will largely be recognized following settlement of the MBS purchased by mid-October. At quarter end, the company had approximately 38% of investable capital directed to private-label MBS portfolio and 62% allocated to its hedge, agency MBS portfolio. We continue to execute sales of private-label MBS as they reach our appreciation targets. For the year-to-date through the third quarter, the company realized $62 million of proceeds from sales of private-label MBS with a current cash yield of approximately 4.2%, those proceeds were redeployed and they hedged agency MBS, with expected current cash yields on mid-teens. Proceeds from private-label MBS in the third quarter were $25 million. The private-label MBS portfolio at September 30th had a fair value of 75.2% of face value total market value of $293 million and retail of $59 million. OCI related for the private-label securities was $55 million as of September 30th, and the assumption used to value the portfolio at that time included on a weighted average basis, a constant default rate of 3.1%, loss severity on liquidated loans of 42%, a constant prepayment rate of 11.2% and a discount rate of 6.5%. Looking forward to a point one year from today, we expect approximately 80% of our re-REMIC portfolio to be variable rate in nature. In the Agency MBS portfolio we continue to maintain an overall hedge position approximately equal to the market value of the agency MBS position with a goal of neutral to negative duration. Our Eurodollar futures run consecutively on a quarterly basis, until September of 2019, with a contractual rate on a mark-to-market basis of 217 basis points. At September 30, and an equivalent funding cost over the next 5 years of approximately 205 basis points. Complimenting this hedge, the 10-year interest rate swap futures had a mark-to-market average cost of 265 basis points with an asset yield of approximately 3.4% we continue to believe that this portfolio structure will allow us to earn an attractive spread and protect the value of the portfolio as the economy, monetary policy and markets normalize. Our agency MBS portfolio demonstrated a three month CPR of 7% in the quarter versus CPRs of 12% on the Fannier Mae 4% [coupon] universe approximately 50% of our agency portfolio are low loan balanced loans and 40% were originated under HARP programs with the remainder primarily high [LTV] loans. Arlington’s internal management structure has allowed us to drive the ratio of cash G&A to capital, down by 73 basis points or 22% this year, a direct contribution to the company’s return on investable capital. That ratio places Arlington among the industry leaders in efficiency and further expense leverage is available to us. With nearly 40% of our capital allocated to private-label MBS with conservative leverage and a balance sheet that’s comprised of highly tradeable securities, we maintained substantial capital and balance sheet flexibility. Additionally, as prices on our private-label MBS rise, we redeployed appreciated capital for higher returns, the combination of that reallocation process increased cost efficiency, and extension in capital as a result of the in growth in the company’s annualized core operating income run rate from $75 million in the fourth quarter of 2013 to $115 million this quarter, that dynamic has driven a 23% increase in annualized core operating earnings per share this year and delivered substantial tax benefits to shareholders. At the same time, Arlington’s hedge structure and variable rate MBS portfolio excuse me private-label MBS portfolio have protected capital and helped delivered consistent returns. As QE3 concludes, and markets concentrate on global risks U.S. web policy and the likely [capital] forward interest rates were cognizant of the potential for increased volatility as we continue to expect normalization of account, we also expect to maintain a hedged MBS portfolio structure and a liquid balance sheet with a modest leverage while at the same time we seek to maximize the benefit of Arlington’s differentiating characteristics, C-Corp structure, its tax benefits, complementary hybrid MBS portfolio, substantial hedge position, liquid balance sheet and declining expense ratio. And operator, we'd be pleased to take questions now.

[Operator Instructions] Our first question comes from Trevor Cranston from JMP Securities.

Hi, thanks and congratulations on a nice quarter. I guess, first given the substantial volatility and rates since September 30th can you guys just kind of comment on how you are seeing things today and if you you’ve made any meaningful changes to the portfolio since the end of the quarter, I believe towards the asset side or the hedge side? J. Rock Tonkel: No I don’t think we have made any substantial changes Trevor, I think we were opportunistic at a couple of points. And that hard rally as it relates to tailoring the hedge and fine tuning a couple of things in the asset side to take advantage of it, but other than that we – I wouldn’t say there’s anything substantially different.

Okay, that’s helpful. And on the non-agency book, just looking through the stats for this quarter, I noticed that there’s a little bit of a jump in the three month severity, sounds like it’s still within kind of your purchasing expectations, but can you guys talk about was there anything significant driving that in terms of like a change in the for the geography of liquidated properties or is it kind of just a maybe a quarterly anomaly? J. Rock Tonkel: Yes, I think it’s -- I don’t -- we don’t see anything that suggest the trend has really changed I think it’s really the -- individual months and quarters. I think they are sometimes tough to make judgments from and I don’t think there is anything in particular about this that delta that gives us concern about the overall trend in improvement in credit in that portfolio and improvement in volume.

Great. And then last thing you guys talked about the kind of trajectory the earnings improving and as you guys admit that transition of allocating capital more into the agency space, can you talk about how you are thinking about the dividends in light of the fact that earnings has gone up by a pretty meaningful amount over the last few quarters and the dividend has stayed steady? J. Rock Tonkel: Well I think the company by virtue of its structure has a great deal of flexibility. So we evaluate the dividend, we evaluate the dividend every quarter based on the earnings capability of the company and we’ve got a lot of flexibility there, but on the other hand we think the company has a very appealing structure in the way it’s set up today and it’s driving significant value to shareholders from that and so we think either way shareholders have the – the ability to benefit from a flexibility on the dividend but also on the ability to accrete capital overtime as the earnings power of the company is down.

Okay. Great. Thanks a lot.

Our next question comes from Doug Harder from Credit Suisse.

Thanks. Just hoping you could just expand on the comment you talked about a bunch of some of the loans or MBS settling in October, if you could talk about kind of when that growth happened, sort of what the average balances did in the quarter and just a suggestion given the growth you guys are having if you could include the average balances in the press release that would be very helpful. J. Rock Tonkel: Sure, sure. Most of the balances – so just real quickly as you know Doug, the – for those bonds that settled in 30 days or less they are accounted for in the balance sheet even if they haven’t settled yet, so what you see at the end of the quarter is balances for those bonds that have been purchased but if not yet settled. Most of the settlements of those bonds associated with the proceeds on the offering will occur in mid-September or I should say occurred – I missed out mid-October. Most of those settlements were mid-October settlements.

Okay. So I mean I guess if you will look at it, I guess you did capital raise with about a quarter, with a quarter-over-quarter a little over less than a month or the quarter end, how much of that contributed to this quarter or is that sort of all on income? J. Rock Tonkel: I’d say most of it would be – a good portion of it will become – let’s just say approximately two thirds of the balances will have settled in October and maybe one third in September in mid-September so there would have been a benefit in the third quarter of two weeks on a third of the balances and the rest of it will be from the middle of October onwards, so I think there is a – that is to say most of the benefit, shared benefit that more of it will be in the fourth quarter than the third quarter there was a probably a slight tiny little dilutive effect in the third quarter from the offering and there was a slight delay in the investment of those proceeds. So there is some pick up from that in the fourth quarter.

Great. Thank you.

Our next question comes from David Walrod from Ladenburg. David M. Walrod: Hi, good morning guys. I was just wondering if you could briefly comment – your comp and benefit expense was up third quarter up to the second quarter is there anything specific there and is that kind of the run rate going forward? J. Rock Tonkel: No, David currently there is no there is no -- we were heavily performance based in our compensation so there will be some fluctuations periodically, but it’s not a built in run rate increase. David M. Walrod: Okay. Great. And then if you could just discuss you talk about to take the pre-payment protection that you like to purchase on your [third year] fixed, can you talk about I guess the pricing on those pay-offs has gone over the last [indiscernible] or have you been trying to put these proceeds to work from your last offer? J. Rock Tonkel: Or they have increased? I’d say those significant portion of those are now trending towards three quarters of a point, which is probably a fairly meaningful pickup from the prior market environment we’re in. So there’s some benefit there that we have captured in the investment of the proceeds from the offering. David M. Walrod: Okay. Thank you.

Our next question comes from Jason Stewart from Compass Point

Good morning. Thank you for taking the question. I wanted to talk about prepay just for a second, because you’ve got – prepay have been so well contain for a long period of time, a lot of that due to the structure of what you bought, but rates are moving well. And just maybe get your thoughts where rates would have to go assuming meaningful uptick in that CPR and agency portfolio?

That’s a question we think a lot of Jason here. Our experience has been that with these types of assets and these types of specific pools and their prepay protections that we’ve seen I think maybe two months from the last three years or so of CPRs and that have sort of reach to a double-digit level. Now over that period of time there has been fair amount of HPA, and so, that raises the question as to whether they might be higher than they had been in those prior lower rate environments. And I think we – in our analysis or assumptions we make room for some increase in speeds above the prior levels, we’ve experienced on these – on assets especially the same of very similar characteristics. I don’t think we get terribly concern about spikes, significant spikes in those levels based on the portfolio fine tuning and observation that we’re doing of individual pools and individual loans in those pools on a constant basis. So I don’t feel like we’re terribly concern about a spike. But it wouldn’t surprise us to see maybe some speeds that are little bit higher than they were in the last low rate move that we experienced in 2011 and 2012 and the beginning of 2013 I suspect.

Okay. That’s helpful. And is it fair then to draw the conclusion that as you grow that portfolio and still buy prepay protected securities that incrementally you’re lowering that threshold where rate have to go to given that these are new loans that need to be in the money for by X basis points and seasoned by X month. Is that a fair conclusion to draw? J. Rock Tonkel: Well, I guess maybe set of different way. We feel like there is an attractive risk return relationship in those pay-ups on those spec tools. And so I don’t see anything right now that tells us we should – that we should alter our portfolio approach and so unless something else happens, I think you’d expect us to see – continue to see us investing in that type of assets with those characteristics. And I’m not sure if that answers the question, but we still see an attractive value, risk award trade-off there.

Without a meaningful change in what exist over the last couple of years? J. Rock Tonkel: Yes.

Okay. It’s helpful. And then one last one on the non-agency portfolio, maybe just on the market I guess in general. The things like we’re seeing a little bit more activity, I notice I think in the last week there was a pretty sizeable portfolio out for sell. Has that change which you’re seeing in the market for appetite for those securities or is it still a pretty strong bid?

So, the general matter those assets have been very stable, and have performed very well through this little cycle we’ve seen over the last month or so, higher volatility and a little bit higher risk, that asset platform particularly has done very well. So those values have held up nicely. I think there is a large portfolio out there and that sort of barometer for how high these prices want to trade in the short term and so I think we’ll all see how that clears. And that will tell us something about what appetites are. But we haven’t seen anything that suggests that the buyer appetite, the investor appetite there has diminish. I mean, the insurance companies have come in scale to this space and that for good reason. And so that’s a big buying appetite in addition to a number of other sources. The performance continues to be consistent. The returns on a risk adjusted basis continue to be very attractive and so we’re not seeing any meaningful changes there. Just the opposite, we sort of suspect that by definition if we got our capital there invested in this magnitude, we believe that as the volatility – we’d see that the environment continues to play out at more normalized fashion that those assets will continue to improve in price performance and hit our appreciation targets and therefore our total return targets for those assets.

Great. Thanks for the color.

(Operator Instructions) Our next question comes from Richard Eckert from MLV & Company.

Thank you for taking my call. Couple of quick questions. Did I understand you to say that you’ve sold $62 million in non-agency security year to-date in $25 million in the third quarter?

Correct.

Can you tell me approximately what the [indiscernible] was on having in the third quarter?

I believe the gain on the non-agencies in the third quarter was little under $4 million. So you’re going have $3.5 million.

Okay. And I know there’s no schedule. You’re been patient, waiting for these securities you have targeted terminal value range. But are you selling these at approximately the pace that you’re expecting?

Completely opportunistic based on where markets are, but there’s nothing surprising about the pace to us.

Okay. And did I understand that the proceeds from the capital raise have been completely deployed by the middle of October?

Substantially, yes.

Okay. And then one final question for Kurt. The income tax provision was well below the statutory tax rate. I believe you guided to something like 38% in the past. Is there some kind of recovery from the valuation allowance on the deferred tax assets?

No. The true up in the third quarter, the tax returns for the previous years are filed in the and there were some true ups which created a benefit. So that the rate is 30% as stated without that benefit it would have been 38% which is what we expect.

Okay. Thank you very much.

Our next question comes from Mark [De-Villers] from Barclays.

Yes. Thanks. Rock Tonkel, I know you don't intend to trade under portfolio a lot, but if rates rally here and you see pay-ups rich in more on from your prepay protected securities. Would you look to take profits there? J. Rock Tonkel: It’s hard to predict Mark, it’s hard to look into the crystal ball and say okay, so if we see a treasury – a treasury rally here what happens to those pay-ups exactly and have they correlate. I suppose that the margin is possible. I wouldn’t say it’s a major strategy approach of ours to sort of try to capture that short term benefit of the expense of a longer term return. If we saw something really opportunistic as we did to some degree in that rally, in the spike rally we were able to capture the benefit of locking in some really attracting hedging opportunities and taken in a little bit a gain from that hard rally in treasuries. So, on the asset side I mean. So there is fine tuning in that sort of thing, but I don’t know that I’d say it’s a shift and strategy to really capture game of the expenses what we think is longer term return. If we think the trade-off –if the risk -- award proposition for the pay-ups is there, we’ll sell them and thus far that’s not been the case.

Okay. Got it. And then just a follow-up on another comment you made in response to question around not really I guess repositioning the hedge much given the volatility we’ve seen, has the particularly the downward volatility we’ve seen in rates. Did you think more about potentially adding some more cancelable hedges so you kind of limit the book value impact that you see further rally in rates here?

We look at various adoptions strategies from time to time as it relates to protecting the portfolio, particularly it relates to sort of the wings of risk. And particularly, more extreme moves. So those are things we evaluate frequently. We use some of those fairly effectively in the off rate move year ago in that summer 2013, the spring and summer 2013, that works pretty effectively for us. So from time to time we’re looking at those. But I don’t know that I’d say as expected to be a substantial amount of the proportion of the hedging structure.

Okay. Got it. Thanks.

And Mr. Tonkey, at this time there are no more questions. J. Rock Tonkel: Okay. Thanks everybody. We appreciate your time and if you have further questions please don’t hesitate to call us.