Chimera Investment Corp (CIM) 2009 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Second Quarter Earnings Call for Chimera Investment Corporation. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers after the presentation.

This earnings call may contain certain forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions, some of which are beyond our control, may be identified by reference to a future period or periods, or by the use of forward-looking terminology such as may, will, believe, expect, anticipate, continue or similar terms or variations on those terms or the negative of those terms.

Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including but not limited to our business and investment strategy; our projected financial and operating results; our ability to maintain existing financing arrangements; obtain future financing arrangements in the terms of such arrangements; general volatility of the securities market in which we invest; the implementation, timing and impact of and changes to various government programs including the US Department of Treasury's plan to buy agency RNBS; the term asset-backed security loan facility and the public; private investment program; our expected investments; changes in the value of our investments; interest rate mismatches between our mortgaged-backed securities and our borrowings used to fund such purchases; changes in interest rates in mortgage prepayment rate; effects of interest rate caps on our adjustable rate mortgage-backed securities; risk of default or decreased recovery rate on our investments; prepayments of the mortgage in other loans underlying our mortgage-backed or other asset-backed securities; degree to which our hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations; tax law and rates, accounting guidance and similar matters; availability of investment opportunities in real estate-related and other securities; availability of qualified personnel; estimates related to our ability to make distributions to our stockholders in the future; our understanding of our competition and market trends in our industry; the debt securities markets or the general economy.

For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see Risk Factors in our most recent Annual Report or Form 10-K and all subsequent quarterly reports on Form 10-Q. We do not undertake and specifically disclaim any obligation to publicly release the result of any revisions which may be made to any forward-looking statement to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statement. I would now like to turn the conference over to Mr. Matthew Lambiase, Chief Executive Officer of Chimera Investment Corporation. Please go ahead, sir.

Thanks, Tatiana. Good morning and welcome to the second quarter earnings call for Chimera Investment Corporation. I'm Matt Lambiase, the CEO and President of Chimera. Joining on the call today are members of the senior management team -- our CFO, Alex Denahan; our Head of Investments, Chris Woschenko; our Head of Underwriting, Bill Dyer; and also joining on the call, Wellington Denahan-Norris, the Chief Investment Officer for FIDAC; and Jay Diamond, Managing Director at FIDAC and a Director of Chimera.

We're all here today to review the results of the second quarter of 2009 and answer any questions that you may have. But before we take your questions, I'd like to make a few general comments and then have Alex review the quarter.

The second quarter of 2009 was a period of unprecedented growth for Chimera. We started the quarter with a market cap of roughly $500 million, and after the Company successfully launched and priced two secondary equity offerings, we ended the period with a market capitalization of greater than $2 billion.

We explained to investors in April that there were significant opportunities for the Company to raise new capital to acquire non-agency, residential mortgage-backed securities at deeply distressed prices and that the previously announced government plans to increase liquidity in the mortgage market could potentially have a very positive impact on pricing in the future. Many investors agreed with us that the timing was right, and on April 21st we completed the first secondary of the quarter, raising $850 million.

The Company went to work with the intent to prudently and carefully invest the new capital before the government's efforts became more clearly defined and allow the market for residential mortgage-backed securities remained illiquid. Fortunately, after raising the capital, we were able to take advantage of a wave of selling of RMBS from overseas banks, and in short order, we were able to invest the capital into a higher yielding portfolio. The income from this new portfolio allowed us to declare a higher dividend for the quarter, an impressive fact when you consider that we more than doubled the share count and started investing later in the quarter.

In May the government delayed their announcement of the Public-Private Investment Partnership for Legacy Securities. We were still finding very attractive investment opportunities, and being fully invested, we took to the road to raise more capital in order to continue to develop our portfolio. On June 2nd we completed a $612 million capital raise, and I think it's important here to note that both secondary offerings that we priced in the quarter were beneficial to existing shareholders. They were accretive to the book value and to earnings, they expanded our shareholder base, and increased liquidity for the shares.

With the new capital we continued to be successful finding deeply discounted non-agency bonds and I'm happy to report that all of the capital for our latest secondary offering is now fully invested. Being fully invested, the Company is now executing on its plans to add structural leverage to its new portfolio utilizing re-REMIC re-securitizations. These transactions do take a significant amount of time and effort to structure and to market with a goal to increase the return potential of the portfolio going forward.

We have been fortunate again that the government has announced the details on the PPIP for Legacy Securities just after the close of the quarter. This announcement, as expected, had a materially positive impact on the prices of non-agency mortgaged-backed securities and has helped us in marketing our re-REMIC transaction. The early results look promising and should be more evident in robust earning profile of the Company in the quarters ahead. And with that, I'll turn it over to Alex.

Chimera reported core earnings for the quarter ended June 30th of $48.9 million or $0.10 per share. Core earnings is a close approximation for taxable earnings out of which we pay our dividend. We declared a dividend for the period of $0.08 per share producing an annualized dividend yield of 9.17% based on the June 30th closing price of $3.49. Our book value at June 30th was $2.90. As opposed to core earnings, we reported GAAP net income for the quarter of $51.6 million or $0.10 per share. At June 30th Chimera's levered one to one.

Our portfolio at June 30th is comprised of $4.1 billion and is weighted to be approximately 55% non-agency RMBS, 34% agency RMBS, and the remaining in secured residential mortgage loans of high credit quality. During the quarter we purchased $2.7 billion of new investments with the proceeds from our secondary offering completed in May and June. We also sold $84.6 million of our investments and realized a gain of a little over $9 million. At quarter-end we recorded an other than temporary impairment of our assets in the amount of $6.5 million on assets currently cash flowing as expected.

Our annualized yield on the portfolio for the quarter was 6.83% and the annualized cost of funds was 2.4%, providing an interest rate spread of 443 basis points. As of quarter end, 1.05% of the balance in the securitized loan portfolio is greater than 60 days delinquent and 0.49% of the $531 million in secured loans is in some stage of foreclosure. We have recorded a provision for loan losses of approximately $3 million and have not recorded any charge-offs against our reserve balances.

At quarter end Chimera had financed $1.5 billion in repurchase agreements of which $123 million is with Annaly and is collateralized by non-agency RMBS. The remaining $1.4 billion of repo agreements is with other counterparties and is collateralized by agency. At this time, I will turn the call back over to the moderator, and we'll answer any questions regarding this release.

Thank you. The question-and-answer session will begin at this time.

(Operator Instructions)

And we have a question from the line of Douglas Harter, Credit Suisse. Please proceed.

Thanks. I was wondering if you could talk about -- you say you're fully deployed but it looks like the leverage on your agency book is very low, so the ability to add leverage there and redeploy that capital.

Yes, I think that you're exactly right. The leverage on our agency book of business is low and it's purposely that we're employing not leverage to satisfy our whole pool test, and it's really not the prime driver of earnings in the strategy. We think that the purchase of the mortgage credit is where we're going to look to have our earnings come from.

Is that something you would think about taking up to the -- I remember last quarter you had said you would think to be in sort of the four to five times range which would still be low relative to sort of Annaly --

It does move around and that's just a snapshot in time, and I think it could be slightly higher next quarter or slightly lower. It's what we need to meet our whole pool test.

Great. Thank you.

And you have a question from the line of Steve Delaney, JMP Securities. Please proceed.

Good morning, Matt.

Hey, Steve, how are you?

Fine. I'd like to start by thanking you guys, I guess Alex particularly, for the new details on the portfolio that you put in the press release. That's very helpful to us. Thank you for that. We noticed that the Annaly repo dropped pretty significantly, and I guess my question is simple. Did you decide to move collateral to the Street or did you simply use cash reserves to pay that down?

Steve, that's a good catch. The Annaly repo did go down in the quarter. We raised the $612 million on June 2nd and the first thing we did was pay down our funding and then we're putting it, bringing it back up over time.

Got you.

And what happened today, move any of the funding around although things have been offered, we just don't feel that there are enough good counterparties out there right now, but things are starting to percolate even in the net lending market.

Sure. And keep in mind that agency cost of funding is cheaper than non-agency cost of funding.

Yes, sure.

So my repo out with the Street, my agency's out with the Street, it reduces my cost of funding. And also keep in mind that my assets are not fully settled at quarter end.

Right. Got it. You definitely have a -- we noticed you had a payable or what, $200-some million per bond purchase. And as Douglas pointed out, you've got a lot of liquidity flexibility in your agency book. Matt, you alluded to repo -- excuse me, not repo, we're done with that. You alluded to re-REMIC conceptually. There was nothing in the press release. It sounds like you're working on some things, but did you complete any transactions in the second quarter and can you confirm that? I think it was in one of your prospectus supplements. I can't recall whether that was the first deal or the second deal. You gave us some disclosure. I think that was the first quarter transaction now.

Yes, that was a first quarter transaction. We did no re-REMIC securitizations in the second quarter, and obviously, these securities do take -- they are complicated, they take time to market and they are in gestation right now with us. So you'll have -- we'll obviously have disclosure when the come around in the future.

Great. And when you do because that is an evolving source of leverage. I guess you'll decide at that time based on materiality whether you want to inform us per an 8-K or whether you just want to wait for the 10-Q.

Yes.

Yes.

Okay. And then I guess in line with that, I just said thank you for the day and now I'm just ask one other thing because re-REMICs are, you know, we're newbies for a lot of us out here, we learn about them though pretty quick. The A2 bonds, obviously they have an entirely different yield profile and cost basis, so I just would suggest as that becomes a more material element, maybe we need a fourth, another column of that asset class so that we don't have the A2 yield, you know, just mix them with the super seniors.

Absolutely. We're looking at that.

Great. Okay, thanks, folks, I appreciate it.

Right. Thanks, Steve.

You have a question from the line of [Stephen Laws], Deutsche Bank. Please proceed.

Great. Hi, good morning. Thanks for hosting the conference call. A number of my questions were, you know, by the first couple of callers, but could you talk about any scenario where you would look at recourse leverage on the non-agency assets or is that simply not something that you're looking at doing anytime in the near future?

I think that those markets, the borrowing markets for non-agency mortgage-backed securities are coming back. You're starting to see more interest from people whether they want to sell securities and offer financing or offer financing at relatively high rates, you're definitely seeing interest now. For us I think that we're comfortable where we are with our leverage, and until we see a much more robust market for lending, I don't think we're going to change our leverage stance on the non-agency assets anytime in the near future unless we see a lot of people come in.

I think the TALP announcement would be beneficial to having more players come into the market and have more fungible funding. One of the things when you borrow money against non-agency assets and they're rolling over is the ability to move them to another dealer which you don't like the rates and the terms that you're being quoted. And right now, there's just, you know, you have one or two or three people looking to put their assets on. You don't have a very robust market and we need to have more people involved in the market before we're going to feel comfortable moving our stuff out of where we have it financed right now.

Right. I guess in the marketplace for valuations and liquidity, can you talk about what the market's like today versus what it was like, you know, that led to the decisions to raise capital? I believe it was in May and early June or April and June, but can you talk about the changes in the market environment you've seen in the last three months?

I mean it's generally improved. Different sectors have improved by varying amounts. But in the areas we're focusing is probably a couple of hundred basis points centered.

Okay. Great. Thanks a lot.

You have a question from the line of [Joe Stephen], [Stephen Capital]. Please proceed.

Good morning. First, a good quarter.

Thank you.

I don't know if I heard you correctly enough but I think you said you are now fully invested and I didn't know if you meant that came after the quarter or at the end of the June quarter. So that was question number one. Question number two is if there is a difference between being fully invested and what you were in June, could you sort of tell us what sort of where at on the balance sheet there are changes?

Well, I think we were very close to being fully invested by the end of the quarter and there's nothing significant -- I don't think there is anything materially significant.

Now the unsettled trades will not change the asset mix. And so, what you're seeing on the balance sheet is substantially where we are today.

Okay. When I heard you I just didn't know if you were trying to imply there were some changes. Okay. Okay, thank you.

Sure.

You have a question from the line of Henry Coffey, Sterne Agee. Please proceed.

Yes, good morning. The questions get more interesting as I get down the load. I do appreciate the disclosure as well. But the secured -- your whole loan business was an important part of where you started a while ago, and obviously it's a better yielding asset that helps you with your whole pool test. Are you looking at the whole loan market as you look at agency opportunities or is that just off the table for now?

Yes, we're looking at it all the time. It's obviously upside down right now.

Meaning?

You can't buy loads of securitized profit.

What about just buying and holding the assets?

There's really not much paper available. Well, I mean if you look at loans right now, at least loans that we've been purchasing in the past have been high credit quality, recently originated jumbo prime mortgages, and those mortgages are being originated by the major banks and they have them in portfolio. They generally have coupons between 5.75% and 6.25%.

They would happily sell me those loans at par, I think, right around now. I cannot securitize them in this marketplace. If I would buy a package of them, I would have to pay on the triple-A bonds probably 8.5% or 9% yield, so I would lose money on the transaction. And to hold them for cash doesn't make any sense when I have securities I can buy in the teens.

But what about stepping into the distress side of the whole loan business?

I think right now the opportunity for our Company lies buying the securities that we've been doing. Right now the best opportunities in the mortgage market are buying these easily discounted priced, once triple-A RMBS bonds. They have I think a tremendous return profile when you hold them for cash, and I think if you can add leverage to them through re-REMIC transaction, we have a tremendous amount of potential that far outweighs any other investment in the mortgage market.

We've sort of [bringing] under the assumption that eventually, of if it isn't eventually, hopefully it's happening as we speak, banks are going to have to start getting rid of these once triple-A rated assets but we haven't seen a big flood of that yet. You're closer to it than we are obviously.

I think over time we are definitely going to see that market come back and we will definitely be in a position, you know, we have Bill Dyer and his team of people here to evaluate and underwrite residential mortgages, and I think that the mortgages being underwritten today are probably the best quality mortgages seen in a -- certainly, a generation.

People who are getting mortgages today are being asked to get two appraisals on a house, document three years of their income, and put down quite a bit of money as a down payment. And you put that together, nobody wants to make a bad loan during a credit crunch, and I think would we have the chance to securitize them and do it profitably for the company, we would certainly buy the credit that's being originated today.

What about banks being forced to get rid of their formerly triple-A rated stuff? Is that --

That's part of the business that we're involved in today.

I mean has that started to accelerate or is that still --

No, I think it's been a constant drip into the market. As these bonds, the residential mortgage-backed securities, get downgraded, banks have to move them from their held-to-maturity to probably a held-for-sale account and they have to hold a lot more capital against the bonds, and they are choosing to sell them. And they have been the net sellers, I think, in the market from which we've been buying although we're not doing it directly. We're doing it through a brokerage.

But it's more of a drip than a flood, kind of sort of --

Yes, I think so.

Thank you.

If we had that, obviously, no problem of finding securities and putting them into the portfolio over the last quarter.

Well, thank you very much.

Thank you.

You have a question from the line of Bose George, KBW. Please proceed.

Hey, good afternoon. I had a question on -- you gave your portfolio yield at 14.85 at quarter end. I was just wondering how that's calculated, like can you just aggregate that between the cash return and then the accretion that goes into it?

We don't just aggregate it. The yield is a snapshot at the end of the quarter. It is on -- you're looking at the non-agency book. That is the weighted average yield on the non-agency book at June 30.

So I mean is that calculated just say the coupon is x and based on the fair value of the security?

That is a lot suggested yield based on your purchase price and your expectation of future cash flows on that bond; it's a lot suggested yield. So if I'm buying at a discount and taking into account any principal losses I'm expecting on that bond, as well as my coupon income I expect to receive back.

So there is the coupon plus some other --

The accretion of -- in the case of my non-agency portfolio plus accretion of discount.

Okay. So I'm just trying to see if I could -- there's no way to really separate those two numbers.

That's right. The yield from the coup?

Yes, the coupon from the discount that would be returned.

No.

Okay. I just want to follow up on the Annaly repo line. I just wanted to clarify, some of that's going to be funded against through that line. I wasn't clear the way you responded to Steve's question.

The repo line with Annaly is the same line we've had in place, same after repurchase agreement that's been in place since September of '08, and we can take the balance up or down at the discretion of Annaly whether, you know, it's a credit choice for Annaly. And right at this time, Annaly's comfortable with the asset that it's financing.

Now typically when you raise capital, the first thing you do is you pay down your repo to avoid that cost. And so, we do pay down that repo right away, and especially if it's non-agency, it's a higher cost of funding than my agency book. So typically Annaly is the first counterparty I pay off when I have extra cash.

But it's fair to assume for us, for just like modeling purposes, that those assets can be funded going forward.

Clear. Absolutely.

Thanks.

You have a question from the line of Andrew Wessel, J.P. Morgan. Please proceed.

Hi, good afternoon. Just a question on this opportunity, what you're buying in the market right now. It seems like your yield's probably the loss adjustment yield you stated is kind of in the middle to lower end of the range that people are expecting in the market. So in any case, this bought a lot of prime, senior level prime jumbo securities.

Is there kind of a need at this point to start looking lower on the credit sector for the securities you're going to purchase to find same kind of deeply discounted valuations, or is there still do you think a lot of opportunities in the prime kind of credit quality area where the risk to debt return is still attractive kind of mid-teens level?

We didn't buy really any [broad] paper, and most of what we bought was all day type, more sort of all day type paper.

And today, are you still seeing the same kind of 14%, 15%-plus yields there?

Yes, maybe it's now lower but that's in the ballpark.

Okay. Thanks.

We have a question from the line of [Neil Shire], Private Investor. Please proceed.

Thank you so much for taking my call. My question is essentially a follow-on to what has already been asked, so please bear with me. Is there any thought about how long this current spread can be sustained? It's really eye-popping when I saw it.

I'm sorry, Neil, could you repeat that question, difficulty hearing it.

The problem's probably on my end. Can you hear me now?

Yes, we can.

How long can the current spread be sustained? It was really astonishing when I saw it.

Well, the securities that we're buying, the deeply discounted securities that we're buying have a fairly -- Chris, what do you think the average life?

Four or five-year average life.

Four, five-year average life on the securities, and I would say that we added the securities over the period of the quarter and you're going to see that spread I think remain wide for a very long period as the securities stay outstanding.

Great. And then my second question, again, it's also sort of a follow-up to what's already been asked, and that is the current leverage ratio is also remarkable, one-to-one. There is no thought towards that going down, am I correct?

It does -- like the spread and the leverage, those are all kind of the moving parts of the strategy, and if we find good leverage, if it's TALP leverage from the government, we'll certainly utilize it and take advantage of it. If we find a great investment opportunity that might be slightly lower yielding and we think it's the right choice to make, we'll take advantage of that as well. So those are the kind of the moving aspects of the strategy.

Okay. Once again, thank you so much for taking my call.

Thank you.

You have a question from the line of Jonathan Vyorst, Paradigm Capital Management. Please proceed.

Yes, hi, I just want to ask you a quick question about your average cost versus fair value at the end of the quarter. Where is that coming from? And that's on the non-agency side.

You're asking how I'm calculating weighted average --

No, no. I'm just -- is this due to securities that you purchased after your two offerings? Or are these Legacy securities? Because basically you're under water on these securities.

Right.

So why is that?

There's a portion of the portfolio that was purchased in 2007 and the cost of the non-agency portfolio was significantly higher. And so, what you're seeing is a blending of the Legacy portfolio with assets that we purchased in May and June at very different costings.

Great. So in the purchases that you did in May and June, what do you think your cost versus fair value is?

We wouldn't disclose that at this point in time, but you should assume that, as Matt said earlier, the market's moved a little since May and June but not anything significant. So you should assume that the securities that we purchased recently shouldn't have very much of a movement between their mark and their cost.

Okay. And is there a difference between the two, you know, basically was the first offering and the securities that you purchased after the first offering? More favorable than the second or vice versa?

Very similar.

Okay. Great. Thank you.

Thank you.

You have a question from the line of [Costa Papa], Locust Wood Capital. Please proceed.

Our questions were asked. Thank you.

Thank you.

You have a question from the line of [Jordan Hymowitz], Chimera. Please proceed.

Thank you very much. Two questions. First, going back to Bose's question, you guys must know what the yield on cost is. I mean if there's no accretion of discount, what is the current yield of what you're buying on the cost basis?

Excuse me? Are you asking me to provide the yield on a cost basis?

Yes, I mean it must be available. I mean did you understand Bo's question but on what you're buying today, what is the yield on cost of what you bought in the quarter?

The loss suggested yield is what --

No, not loss suggested because you could say the loss has been anything from zero to everything but on a cost basis of what you bought in the quarter, what is the yield on what you're buying?

What I'm saying is we do not disclose that information. I am disclosing a loss suggested yield on the portfolio.

But the loss suggested yield is very subjective -- it's too wide. You think losses are going today, I mean you could just -- the variance could be enormous depending on your assumptions for losses, but we know what the actual cash yield is. On that basis, can you disclose that?

Not at this time. Jordan, losses have to be taken into account. This is Wellington here.

Yes, the --

And again, everything shouldn't all the yield be presented based on what we paid for them?

Yes.

Not based on where they're marked?

Yes.

That's what I'm saying, the yield based on what you paid for that.

I think what you're asking is how much of the yield is coming from coupon and how much is coming from discount accretion?

Correct.

You have to figure in a loss adjusted accretion because part of that coming back to you contains losses. You can't ignore it. And yes, you have to make assumptions and you could assume that there's nothing which I think would be very foolish or you can assume a reasonable loss-adjusted return.

But it's a baseline, you need -- you get what the return is on a cost basis and then we don't make our own --

You have to figure -- on your baseline you have to figure that you have a certain amount of losses based into that. You can't ignore it.

Okay. My second question is you made a very interesting comment that buying loans at this point is not nearly as advantageous as buying securities given that there's no market to resell those loans in the secondary market if things improve. That just -- is that a temporary thing in your mind because obviously there's many dealers in the market. They're saying just the opposite, so I'm interested hearing your viewpoint there.

Well, there are IPOs in the market for prime jumbo paper.

I'd love to know what they're buying without mentioning names.

I would think that the prime jumbo paper, at least the paper, the mortgages that we purchased in the past, there is no efficient way for us to securitize them or for anyone for that matter, to buy them from the banks that are originating them today at par and then try to sell them as securities, at least the senior part of the securities, you'd have to do that at a much higher interest rate than the coupon in the underlying mortgages which means you're going to take a loss doing it.

I think it's temporary. I think it's one of the issues that the government is trying to address with all these liquidity programs. They want to get this back into kilter, and one of the reasons why this primary securitization of mortgages is not working right now is because there is this giant overhang in the secondary market, the one that we're buying all these deeply discounted mortgage-backed securities. Once that is cleared up and secondary mortgage-backed securities start trading at more normalized levels, you will see the primary market come back on line and it will be profitable for us, I think in the future to do that. But right now it isn't.

Okay. Very interesting. Let me just go back -- if I asked it this way, could you give the cash or cash return of what you're purchasing? You should be able to figure out from the cash flow statement.

I think what you're trying to back into, you can derive a close number from the information that I disclosed in the press release. I think if you use the weighted average cost basis and the coupon that I've disclosed, you should be able to get a feel for what the cash or cash yield is on that security. And then you should be able to see the difference between the loss suggested yield and the cash on cash yield should give you your accretion of discount. And I think you should be able to back into an idea of what you're looking for.

We have a question from the line of Patrick Donnelly, Blackrock. Please proceed.

Hey, guys, this is more of a statement than a question -- I know it's a question, I guess. In terms of capital, what are your thoughts now that you're fully deployed? What are your thoughts in terms of capital and where you're going to procure that capital, either through additional equity raises or through levering up?

And to give you my two cents, we're of the mind that we'd much rather see you guys lever up and procure capital that way because it's more cost efficient if you will. And quite honestly, investors like ourselves get a sense as to a clean quarter in Q3 and see how well the earnings accretion play out from your previous raises.

Yes, thank you, Patrick. I think we're in the process right now of trying to optimize the portfolio and that's the center on our plate, and I appreciate your comments.

Okay, good. And then just another statement, it's kind of more technical; it's not exactly fundamental, but I think we've talked about this in the past and that's in regards to getting that stock price up via a reverse split. It's kind of a silly thing but from my perspective what it does is relieve the connotation of risk that I have sub-$5 stock conveys to the investor base.

And quite honestly I think it keeps away some retail investors that look at sub-$5 stock with a big dividend yield and say yuck, do you get that stock price where -- I don't know, again, a reverse split gets it up $10 or whatever. It just gets more attraction from a wider base of investors in my opinion.

Well, I appreciate that. It is something that we do consider and we'll look at it going forward.

All right, appreciate it.

You certainly helped the fundamental lead earnings power of the company, we'll do it without [dementry].

Where are you going to get the $10 in the next 12 months? All right. Thanks, guys.

Thank you.

And we have a question from the line of [Peter Holman], [Parkman]. Please proceed.

Hi, thank you very much for a terrific quarter, and I for one appreciate your conservatism in the way you work on loss-adjusted yield, et cetera, et cetera. Thank you very much for this quarter. I only have one question and that is the $8.5 million non-temporary impairment charge. I read through the release and I didn't think I saw a description of what that was. I assume it's non-cash but can you describe to me what it is?

Absolutely. Under FAS 157 there is a new guideline for how you calculate and record other than temporary impairments. So during the quarter, I had some securities largely related to one deal through a securitization that Chimera affected that although the deal itself did not have a single delinquency since its inception, we have to model what we think the potential losses will be over the life of those securities. And so, I cannot reasonably say I don't expect any losses to come through on the securitization, but I do expect that at some point down the road, there is going to be a loan that goes bad (inaudible).

Yes.

So because when I model going forward that there is going to be some potential losses, and that losses in excess of where I'm holding my sub Ps, I have to recognize a loss in my income statement and take it out of unrealized losses. Now that does not mean that I have experienced a single loss on those [Q slips], I have not, so it's moved from other comprehensive income which is an unrealized loss to a realized loss. So the actual impairments that are recorded is a $6 million that you see. This is between the six and the eight. The two million is the remaining unrealized loss position that is still on those securities in my portfolio.

Just the impairments, the estimation of the impairments is your best estimate.

Sure.

If market conditions change, you could decide or it could become clear to you that the charge you took in this quarter was in excess of what is likely to happen and --

Right.

There couldn't in some future quarter be a non-temporary reverse of impairment.

Well, actually, no. You can take the unrealized gain, your other comprehensive income but you don't recognize the gain in your income statement.

Okay.

It only goes one direction.

But it is non-cash.

It is non-cash and it doesn't affect your dividends because it is a non-cash GAAP adjustment.

Okay. That's great. I appreciate it.

Sure.

Thank you.

And we have a question from the line of John Sites, Sterne Agee. Please proceed.

Hi, good morning, everyone. I have a quick question, Chris, with you regarding the structural leverage you're able to obtain right now. I know given the difference in collateral in a lot of the deals if you are just to assume just kind of average (inaudible) in your portfolio. What kind of leverage do you think you'll be able to obtain, do a re-REMIC?

I mean you're probably somewhere between 60, 40.

Okay.

60% super senior; that a guess.

Okay. Understood. Thank you.

Thank you, John.

Since there are no further questions at this time, I will turn the call back to Mr. Lambiase.

Thank you, operator. Thank you, all, for participating in the call today and we look forward to speaking with you in the fall. Thank you.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-2868010 with an ID of 49820576. This concludes our conference for today. Thank you for participating and have a nice day. All parties may now disconnect.