Lloyd McAdams - Chairman and Chief Executive Officer Joe McAdams - Chief Investment Officer and President Brett Roth - Senior Vice President Chuck Siegel - Chief Financial Officer.

Doug Harter - Credit Suisse.

our business and investment strategy, market trends and risks, assumptions regarding interest rates and assumptions regarding prepayment rates on the mortgage loans securing our mortgage-backed securities.

Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including, but not limited to, changes in interest rates; changes in the market value of our mortgage-backed securities; changes in the yield curve; the availability of mortgage-backed securities for purchase; increases in the prepayment rates on the mortgage loans securing our mortgage-backed securities; our ability to use borrowings to finance our assets and, if available, the terms of any financing risks associated with investing in mortgage-related assets; changes in business conditions and the general economy, including the consequences of actions by the U.S.

government and other foreign governments to address the global financial crisis; implementation of or changes in government regulations affecting our business; our ability to maintain our qualification as a real estate investment trust for federal income tax purposes; our ability to maintain an exemption from the Investment Company Act of 1940, as amended; risks associated with our home rental business; and the manager’s ability to manage our growth.

These and other risks, uncertainties and factors, including those discussed under the heading Risk Factors in our annual report on Form 10-K and other reports that we file from time to time with the Securities and Exchange Commission, could cause our actual results to differ materially and adversely from those projected in any forward-looking statements we make.

All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time, and it is not possible to predict those events or how they may affect us.

Except as required by law, we do not intend to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements that may be made today or that reflect any changes in our expectations or any change in events, conditions or circumstances based on which any such statements are made. Thank you.

I would now like to introduce Mr. Lloyd McAdams, Chairman and Chief Executive Officer of Anworth. Please go ahead, sir..

Thank you very much. I am Lloyd McAdams and I welcome you to this call today, where we will first discuss our first quarter operating results. I will turn the call over to Joe McAdams, our Chief Investment Officer and President. Also with us today is Brett Roth, Senior Vice President; and Chuck Siegel, our Chief Financial Officer.

I will participate in the call later. Thank you very much.

Joe?.

Thanks. Turning to our earnings release, our first quarter financial results, the first quarter of 2017 was a solid one for Anworth.

Quarterly core earnings increased to $13.9 million or $0.15 per common share and comprehensive income, which includes both our GAAP net income as well as all the unrealized gains and losses on all of our assets and liabilities, was $27.9 million or $0.29 per common share for the quarter.

Core earnings improved largely due to our agency MBS investments, as lower agency prepayments resulted in lower pay-down expense and increases in our repo borrowing expense after the Fed’s December and March rate hikes were largely offset by our interest rate swap hedges.

In addition, net income from our residential credit investments was higher on the quarter as well.

The increase in comprehensive income and the corresponding increase in the company’s book value was primarily driven by increases in the market value of our non-agency mortgage-backed security investments as well as increases in the value of our agency MBS, net of their corresponding interest rate hedges.

While market yield did move moderately lower during the quarter, the strong price performance of our assets resulted in the recovery of almost half of the decrease in book value we experienced during the fourth quarter of 2016, when interest rates moved sharply higher following the presidential election.

Turning to the asset portfolio, you will see that the percentage allocation to agency and assets decreased slightly to 74% of total assets, with approximately 27% of total assets in fixed rate agency MBS, including there are TBA positions.

Mortgage credit investments, which include both non-agency MBS as well as residential mortgage loans, increased to 25% of total assets on the quarter. Within the agency MBS allocation, 64% of those assets were adjustable rate mortgage-backed securities, with 38% in adjustable rate mortgages or ARMs, which are currently in the annual reset period.

With short-term interest rates rising in tandem with the Fed’s actions, the coupon on these ARMs increased 20 basis points on the quarter to 3.11% at March 31, resulting in the coupon of all agency MBS increasing to 2.84%.

Agency prepayments decreased as expected due both to mortgage rates moving higher late in 2016 as well as seasonal effects, resulting in a 19% annualized prepayment rate during the quarter versus 22% the quarter before. The unamortized purchase premium on the books relative to our agency MBS decreased to $105 million or an average cost of 102.69%.

Now I’d like to turn the call over to Brett to discuss our non-agency MBS portfolio..

Thanks, Joe. I will begin with the legacy non-agency portfolio. Over the course of the first quarter, in general, spreads in this sector continued to tighten. The bulk of that tightening occurred during the first two months of the quarter, with the last month seeing spreads basically remain flat.

The appetite for legacy CUSIPs remains robust and both fixed and floating rate assets continue to be aggressively bid. With the technical of the continuing decline in legacy CUSIPs, there continues to be and should continue to be support for tighter spreads in this sector.

To that point, since quarter end, we have continued to see an aggressive bid for these assets and continued tightening of spreads. Thus the legacy nonagency market as well as our portfolio have and continue to benefit from spread tightening.

During the quarter, we continued to selectively add positions to our legacy CUSIP portfolio, mainly within the Alt-A sector of the portfolio. Overall, the portfolio is benefiting from the credit performance of its underlying assets as well as experiencing strong voluntary prepayment activity.

During this last quarter, we were able to grow the portfolio with strategic acquisitions in several sub-sectors. Briefly touching on our loans held in securitization trust, we continue to be pleased with the credit performance of the underlying assets in our securitizations.

Focusing on the credit tranches, we continue to see spread tightening during the quarter. We believe this is a function of both the performance of our underlying assets and the general tightening experienced in the mortgage credit sector. On the funding side, we continued to add new counterparties to our mix of lenders.

We have been able to aggressively manage our financing and therefore our cost of funds. Thus, we are working to maintain at a minimum or improve our net spreads on our assets. Further, our continued active management to funding has been a part of why we have been able to lower our overall leverage.

Looking forward, we feel that we are in a good position to take advantage of investment opportunities as they arise in the current market. We continued to look to find attractive assets to add to the portfolio across all sectors that we participate in within mortgage credit. Thanks, Joe..

Good. Thanks, Brett. Turning to the overall MBS portfolio financing and leverage, you will see that our total repurchase agreement or repo borrowings were lower on the quarter, totaling approximately $3.8 billion. The average interest rate on our repos increased to 1.13%, following the increases in the fed funds rate.

But after taking into account our interest rate swaps, the hedged cost of repo borrowing only increased by 3 basis points to 1.34% at March 31. The company’s leverage was slightly lower on the quarter, standing at 5.3x total capital at March 31.

If you include the effect of synthetic financing embedded in our agency TBA positions, the effective economic leverage was 6.2x capital at quarter end. Interest rate swap hedges had a notional balance of $1.7 billion or 44% of our total repo balance at quarter end.

As discussed earlier, approximately $1.6 billion of our agency MBS are currently adjusting ARMs, which is the equivalent of an additional 43% of our total repo balance.

So you’ll see on an overall portfolio level, there is significant protection against rising short-term borrowing costs, both on the asset side through our adjustable rate MBS as well as on the liability side through our interest rate hedges.

Additionally, our interest rate hedges significantly reduced the mark-to-market book value sensitivity of the portfolio. The duration of the total portfolio assets is approximately 2.25 years, while the effective maturity of our borrowings, including interest rate hedges, is 1.3 years.

So, the net interest rate exposure of our assets and liabilities is slightly less than 1 year, similar to where that gap stood at year end.

The company’s average asset yield and effective – excuse me, effective net interest rate spread both increased on the quarter due to the increased yield of our agency MBS holdings as well as the increase in the portfolio allocation to higher yielding mortgage credit assets.

The Anworth’s quarterly dividend remained at $0.15 per share, which is equivalent to a 10.8% annualized yield at March 31.

The book value per common share increased by $0.14 to $6.09 per share, and the combination of the quarterly dividend and the book value increase produced the total return on common equity of 4.9% unannualized for the first quarter of 2017.

We issued approximately $4.9 million of our 7 and 5/8 Series C preferred during the quarter and have raised another $3.5 million in the Series C subsequent to quarter end. So with that, I will turn the call over to Lloyd for his concluding comments..

Thank you, Joe and Brett. Before we take questions, I am going to briefly take a look at the last three quarters and their effect on Anworth. First and foremost, interest rates increased during this period. And as we sought to deliver, our earnings and book value have been relatively stable.

I believe that this is the outcome and is the result – it has several factors, which include the diversification of our agency mortgage-backed security portfolio, the effectiveness of the hedges and the risk of credit losses declined as housing prices have moved higher.

And then lastly, our stock prices responded positively to these events and it is higher. In fact, it is one of the few mortgage REITs over the last 3 years that have compounded annual returns in the mid-teens. From my perspective, the efforts we have made to lessen the effects on income of rising interest rates have paid off during this period.

And I believe that they should continue to be effective even if interest rates continue to drift up over the next few years.

I also believe that our specific efforts to diversify source of income and the types of and the amounts of risk along with our use of interest rate hedges should continue to make Anworth an attractive income provider relative to the many other high-income alternatives.

With that, we’d like to turn the call over to Kate, as we take questions that you might have. Thank you very much..

[Operator Instructions] The first question comes from Doug Harter of Credit Suisse. Please go ahead..

Thanks.

I was hoping you could talk about the environment for putting new capital to work and whether you would be interested in raising capital on larger sizes than kind of what you just mentioned?.

Sure. Well, we are – spreads have tightened.

Our portfolio has performed well, but we still see, as Brett pointed out, good opportunities in the residential credit space both in terms of acquiring securities as well as looking for opportunities as we’ve done in the past to be involved in acquiring loans that are securitized or participating in credit risk transfer transactions.

So those are still positive investments for us. They are accretive to earnings. On the agency side, most of our marginal investments have been relative to TBAs, where there is still a strong financial advantage. And so those TBA investments, we also view as positive. So on the margin, we see good investment opportunities.

As Brett pointed out, we do have slightly lower leverage to allow us to be opportunistic to increase the size of the portfolio when the market presents even more attractive opportunities. As far as it pertains to capital raising we have been raising relatively small amount of money in our Series C preferred.

It is a small issue, and hopefully as time moves on and liquidity improves, we’ll see improved pricing in that Series C preferred and would certainly look to add – raise more capital there at the right price. It certainly is accretive to common stock.

Our common stock is close to but still trading at a very small discount to book value, so that wouldn’t be something we would be considering at this point in terms of capital raise..

Great.

And then looking forward, how do you think about the potential volatility in spreads and therefore kind of book values in the coming quarters?.

Well, we – I think we have seen certainly a decent amount of realized market volatility over the past two or three quarters. And as we pointed out, we have seen some movements in our book value by the – in that order of magnitude of several percent up or down on a quarterly basis.

So in terms of my outlook going forward, I don’t see a strong driver for significantly lower volatility, but I do think we have worked through a period where there was a decent amount of realized volatility in the market. And as Lloyd pointed out, I think our diversified portfolio as well as our hedging performed fairly well during that period.

I do like the fact that we have exposure both to the agency market where the risks and the volatility are largely driven by the direction and volatility of high-quality interest rates as well as having about a third of our equity allocated to residential mortgage credit, where that volatility tends to be driven more by credit spread.

The quarterly mark-to-markets volatility you are talking about is really driven more by risk and credit spreads. So I do think we’ve got some decent diversification there..

Great. Thank you..

Thanks, Doug..

[Operator Instructions] There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Lloyd McAdams for closing remarks..

Thank you very much for participating on our call. Those of you who are on the call today those of you who will be listening on the replay and those of you who will be reading the transcript. We look forward to having this call again in about 3 months. And so thank you very much and we look forward and appreciate your support. Have a good day..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..