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 accounting policy in the first quarter for recognizing interest income on its agency MBS by amortizing net purchase premiums as an adjustment to interest income. Because the Company accounts for its investments in agency MBS at fair value with all changes in fair value reflected in net income, this change in accounting policy does not have an effect on our book value per share or net income. However, this change results in a reclassification within our income statement between interest income and net investment gains or losses. Our prior periods were revised to reflect this new accounting treatment. The second significant reporting measure change this quarter is the presentation of our non-GAAP core operating income, which is now calculated as our economic net interest income, less our core G&A expenses. Our economic net interest income includes GAAP net interest income, which is now inclusive of net premium amortization on the agency MBS, TBA dollar roll income and net interest rate swap expense. As our capital allocation to our hedged agency MBS portfolio is increased over time, our investing in agency MBS through TBA dollar rolls has also increased. Accordingly, the Company now includes TBA dollar rolls income as component of its core operating income. Lastly, as we stated during our fourth quarter earnings call, the Company began using interest rate swaps in place of Eurodollar and interest rate swap futures towards the end of 2015. Our core operating income includes net interest rate swap expense, but does not include any economic cost of exchange-traded hedging instruments such as Eurodollar and interest rate swap futures. As a result, our core operating income for the first quarter of 2016 is not comparable to prior periods with respect to our net interest rate swap expense. Turning to the actual results for the first quarter, we reported core operating income of $0.80 per diluted share, in line with our expectations and strongly supportive of our dividend rate. Our core operating income for the quarter includes $0.17 per diluted share of net swap interest expense, plus a $0.05 per diluted share increase in funding costs, following the Federal Reserve’s December rate increase. Prior-year quarterly core operating income results largely did not include swap interest expense for the reasons I stated previously. Applying comparable swap expense to prior quarters and giving effect to increased funding costs, our first quarter results are in line with recent quarterly performance and illustrate the consistency and resiliency of the Company’s strong portfolio returns in supporting its ongoing dividend capability, despite volatile market conditions. Core operating income from our agency MBS portfolio for the quarter benefited from relatively benign prepayment speeds as our agency MBS portfolio experienced an average CPR of 8.14% for the quarter. Our cost of short-term financing increased modestly as compared to prior periods as a result of the December 2015 fed funds increase. The average cost of our short-term agency financing was 63 basis points for the quarter and 18 basis point increase from the fourth quarter. For the quarter, our agency MBS portfolio had an average yield of 2.93% and average blended short-term financing and interest rate swap funding cost of 1.11% and an average return on equity of 20.75% based on average leverage. For the quarter, our private-label MBS portfolio had an average yield of 10.32% and an average return on equity of 13.4% based on modest leverage during the quarter. From a GAAP perspective, we recorded a net loss of $1.38 per diluted share for the quarter. Due to the sharp drop in long-term interest rates and wider spreads during the quarter, the Company’s net loss includes $2.16 per diluted share of net investment loss. This is comprised of net losses on its interest rate hedges equal to $4.70 per share, partially offset by net gains on its agency portfolio of $2.54 per share. As a result, the Company’s GAAP book value declined to $18.86 per share and its tangible book value to $14.45 per share. During the quarter, agency MBS underperformed swaps by several points. In short, a 1 point increase in agency MBS prices on the current portfolio would nearly erase the book value declined during the quarter and specified pool MBS, which constitute the bulk of our portfolio, have improved in performance since quarter end. The Company continues to maintain an overall hedge position that is well positioned for an increase in interest rates and well situated to protect the Company’s capital and earnings potential over the long-term. Our hedging strategy enables the Company to maintain an attractive return on its agency MBS portfolio in order to produce resilience and predictable core operating income that supports consistent dividends to our shareholders. In a falling interest rate and wider spread environment such as this past quarter, this hedging strategy will likely result in a temporary decline in book value. However, the Company would expect that this temporary decline in book value would be recovered over time, either through higher future spread earnings if interest rates remain low and spreads wide, or through a reversal of this temporary decline in book value if future interest rates rise and spreads narrow. The consistent execution of our hedging strategy may also result in a short-term increase in leverage during periods of temporary declines in book value or short-term decreases in leverage during periods of temporary increases in book value. Overall, the focus of our agency investment and hedging strategy is to maintain the approximate scale and attractive return characteristics of our portfolio in order to create the highest present value opportunity for shareholders and to deliver consistent dividends over time. During the quarter, we declared a dividend of $0.625 per share, continuing the Company’s consistent track record of delivering a robust dividend to shareholders over the last 25 quarters for a total of $19.40 per share. During the quarter, the Company modified some of the components of its hedge portfolio by reducing its 10-year Treasury note future position and incorporating put options on 10-year U.S. Treasury note futures with an equivalent notional amount of $2 billion. The put options on the 10-year U.S. Treasury note futures will continue to provide the Company with protection against a significant rise in rates while also reducing future book value volatility in a falling interest rate environment. The Company’s hedge position as of quarter-end consisted of $750 million of notional two-year interest rate swaps, $1 billion of notional – of 10-year interest rate swaps and $375 million notional of 10-year U.S. Treasury note futures. Moving to our investment portfolio, as of quarter-end, the Company’s agency investment portfolio totaled $4.1 billion, consisting of $3.4 billion of specified pool MBS and $730 million of net long TBA agency securities. The Company’s agency MBS continued to be invested entirely in 30-year fixed-rate securities of specified pools with characteristics selected for the prepayment protection and a weighted-average coupon of approximately 3.86% as of quarter end. Pay-ups on these securities increased slightly this quarter in response to the decrease in long-term interest rates and were approximately 5/8 of a point at quarter-end compared to approximately 1/2 a point at quarter-end. Subsequent to quarter-end, they have improved further. During the first quarter, we increased our allocation of our agency investment portfolio to net long TBAs from specified agency MBS, resulting in an increase in TBA dollar roll income per diluted share from $0.16 this quarter compared to $0.10 in the fourth quarter. Turning to our private-label MBS, at quarter-end, it had a fair value of 74.7% of face value, total market value of $129 million and outstanding repo of $33 million. Net unrealized gains within accumulated other comprehensive income related to the private-label securities was $8 million as of quarter-end. During the quarter, the Company reported $8 million of unrealized losses on its available-for-sale private-label MBS within other comprehensive income that contributed to a $0.35 per share decline in book value. While we believe the overall credit profile on these securities remains quite positive with potential upside in ongoing housing and employment recovery, during the first quarter, risk per spreads widened materially and we made modest adjustments in credit assumptions on a subset of the portfolio. The Company continues to utilize its tax benefits afforded to it as a C-corporation that allow it to shield substantially all of its income from taxes. As of quarter-end, the Company had estimated net operating loss carryforwards of $100 million and net capital loss carryforwards totaling $294 million. From a book accounting perspective, the Company had a deferred tax asset of $101 million or $4.41 per share. The company continues to record a substantial valuation allowance against a portion of its deferred tax asset attributable to net capital loss carryforwards for which the Company is uncertain it will be able to utilize prior to their expiration. During the first quarter, the Company recorded an increase of $12 million to its valuation allowance against its deferred tax asset attributable mostly to mark-to-market losses on certain of its interest rate hedging instruments. At quarter-end, the Company had approximately 77% of investable capital directed to its hedged agency MBS portfolio and 23% allocated to its private-label MBS portfolio, a modest change from the prior quarter. By maintaining a meaningful concentration of capital in the private-label MBS sector, the Company should benefit from a flexible pool of credit-oriented investments with acceptable returns, variable rates, low leverage and the ability to reallocate to more attractive risk-adjusted return opportunities. As previously announced, the Company currently has an authorization to repurchase up to 1.95 million shares of Class A common stock and has this flexibility to substantially increase common share repurchases and expects to be more opportunistic in doing so. At Arlington, we’re absolutely committed to driving long-term returns for our shareholders and we’ll continue to deploy capital in a way that we’ll achieve the best possible results for our shareholders. Before we conclude our prepared remarks and open the call for questions, I would like to comment briefly on our upcoming Annual Meeting of shareholders scheduled for June 9. As you may know, an IT data storage and data security company, Imation Corp., acting in concert with a hedge fund, the Clinton Group, is seeking control of Arlington by nominating five individuals for election to our Board of Directors. We will collectively refer to Clinton and Imation as the Imation Group. The Imation Group is attempting to take control of the Arlington Board, despite owning only 11,000 shares or less than 0.05% of the Company’s shares. Notably, these shares were acquired just days before the deadline to nominate directors to the Arlington Board. If you are not following this matter, you should know that Imation is currently controlled by Clinton Group nominated directors. Imation currently trades at $1.72 per share and has a market capitalization of approximately $64 million. Imation has no prior experience in our industry. Imation has never managed billions of dollars of investments, dealt with complex financial instruments, managed multi-billion dollar financing arrangements and funding arrangements required to support them or operated in a highly regulated market environment. The Clinton Group won a proxy fight at Imation last year and then took control of the Imation Board. Since then, the Clinton Group and its self-appointed Imation directors have engaged in frequent self-dealing transactions with Imation, some of which we have described in our recent public filings. These transactions involve tens of millions of dollars and include an agreement by Imation to invest in the Clinton fund on terms that are in our view are wildly off-market. We believe Clinton has a well-documented record of value destruction related to its investment in Imation and in various other investments. In fact, since Clinton won the proxy fight at Imation last year, Imation stock has lost approximately 63% of its value. Given their track record in highly questionable self-dealing transactions that Imation along with recent small investment in Arlington, we believe that Imation Group nominees, if elected, would seek to advance their own agenda at the expense of all other Arlington shareholders. We cannot think of any other reason why a group, who purchased 11,000 shares of our stock in March 2016, would nominate the controlling slate of directors. We believe that shareholders should be concerned that the Imation Group’s nominees, if elected, would put Arlington shareholders’ investment and dividend at significant risk. Based on recent statements by the Imation Group, it appears that their nominees would follow the same sham playbook that destroyed value at Imation, considering a liquidation of Arlington’s portfolio that would make permanent, what is otherwise a temporary decline in book value, reduce returns and potentially jeopardize the Company’s robust quarterly dividend. In addition, based on statements made by the Imation Group, it appears that their nominees will solicit an external manager for Arlington. If the Imation Group is successful in its proxy fight, the Imation Group would then be able to hand-pick the external manager. Given their track record and the size of their investment, we believe that Imation Group’s process will result in a self-serving arrangement, where Imation or the Clinton Group are appointed to manage Arlington’s assets, if they’re successful. Notably, external management is an expensive practice that typically results in payment of significant and unnecessary fees to external parties regardless of the Company’s performance. We regularly review our structure and our current internally-managed structure eliminates conflicts of interest inherent with externally-managed funds, avoids the payment of fees to an external advisor and aligns management compensation to Company performance. Externalization, as proposed by the Imation Group, runs directly crosscurrent to industry sentiment, favoring the alignment with shareholder interest associated with internal management such as Arlington’s. To be clear, the Arlington Board and leadership team welcome constructive dialog with shareholders. However, the Imation Group has declined to engage in any such constructive dialog with Arlington. We’re concerned that Imation Group isn’t interested in advancing their own self-interests rather than the interest of all shareholders. We believe that we have the right Board, management and appropriate strategy to continue creating value for all shareholders. We are well positioned in the current interest rate environment. While we are not satisfied with the recent performance of our stock and we believe the shares are undervalued, we are determined to create value for our shareholders. We view the first quarter results as reflective of the resiliency of our portfolio structure and our portfolio returns that strongly support the dividend rate. Before we open the call for questions, I want to note that this is all we will be saying about this matter on today’s call. The main purpose of our call is to discuss our first quarter earnings results. We would appreciate it very much if you would please keep your questions focused on the topic of the earnings report. We do not intend to make any further comments or statements during this call on the Imation matters. Thank you for your cooperation in that regard and I would be happy to open the call to questions at this point.

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 yet still capture substantial value protection from the option position in a meaningful upward rising rates. And so, we feel like the hedge construct today is much more flexible, gives us less down-rate volatility and still affords us very substantial up-rate protection from capital movements as the rates move up and the agency assets move down in value. Our broad view from an economic perspective is historically, Trevor, our view has been that we would expect that ongoing normalization – slow gentle ongoing normalization of the economy, jobs and accompanying that at some level would be some gentle recovery rates. I think as we sit here today, there are reasons to view that over the long term that will continue to be the case, but it will be more subdued and more stable and likely to be more stable in the nearer-term and yet we want to make sure that we have the protection afforded by the current construct of the hedge, including the option position to react very favorably to meaningful rising rates, in particular one, if it would happen abruptly, which we’re not predicting, but we need to be protected against that. I don’t know if that answers the question, but that’s how we think about those matters.

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.