Good afternoon, and welcome to the Anworth Mortgage Third Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Before we begin, I will make a brief introductory statements. Statements made on this earnings call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we hereby claim the protection of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to any such forward-looking statements. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words may, will, believe, expect, anticipate, intend, estimate, assume, continue or other similar terms or variations on those terms or the negative of those terms. You should not rely on our forward-looking statements because the matters they describe are subject to assumptions, known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Statements regarding the following subjects are forward-looking by their nature: our business and investment strategy, marketing trends and risks, assumptions regarding interest rates and assumptions regarding the prepayment rates on the mortgage loans securing our mortgage-backed securities. These forward-looking statements are subject to various risks and uncertainties, including those relating 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 borrowing to finance our assets and, if available, the terms of…

Thank you very much. Good morning or good afternoon, ladies and gentlemen. I'm Lloyd McAdams, and I welcome you to this conference call, which we will summarize the company's recent activities, and answer your questions about past activities and our views of the future during our question-and-answer session. But first, I will briefly describe recent events, and then I will comment on our current plans. During the third quarter of 2012, Anworth's net income to common stockholders was $20.5 million, which is $0.15 per diluted common share. Also during this period, our net interest rate spread declined from 127 basis points, 1.27%, or from 109 basis points or 1.09%. Stockholders' equity available to our common stockholders at quarter end was approximately $1.056 billion, which equates to a book value of $7.45 per share. That is based on 141.7 million shares of common stock outstanding at September 30. This represents an increase from our book value of $7.19 per share at June 30. The unrealized gain component of our book value is $0.88 per share, which means that the balance of our book value is $6.57, and some people refer to this number as our historical book value. The fair value of Anworth's portfolio of Agency mortgage-backed securities at quarter end was approximately $9.26 billion, which, as you know, can be assigned to 3 major categories of Agency MBS. The first category that we invest in is adjustable rate mortgages, whose interest rates reset within 1 year; number 2, hybrid ARMs, whose interest rates reset after 1 year; and lastly, a 15- and 30-year fixed-rate mortgage-backed securities, whose interest rates never reset. The purchase agreement financing of our Agency mortgage-backed security assets, which was approximately $7.96 billion at September 30, 6.82x our total equity, which consists of common stockholders' equity with…

[Operator Instructions] Our first question comes from Bose George of KBW. Bose George - Keefe, Bruyette, & Woods, Inc., Research Division: The prepayment number that you reported this quarter, was that fully driven by prepayments, or just curious how much of that is driven by sort of your future expectations of prepayments?

This is Joe. The amortization of premium that we reported is driven by our expectation of future prepayments, and that doesn't increase quarter-over-quarter based on the increase in some of our forward assumptions. But I would think the effect was fairly similar to the sort of proportional effect of the average CPR in the portfolio increasing from 24% to 26% quarter-over-quarter. And I don't think there was a big difference between more of -- if sort of a proportional method of amortization versus our method of using longer-term prepayment assumptions for the quarter. Bose George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, that's great. Yes, just wanted to clarify that. And then just on spreads on new investments, can you just give us a little color there?

Sure. The securities we purchased during the third quarter included a mix of hybrids, as Lloyd mentioned. Probably the predominant class of hybrids we have been purchasing recently have been 7 1 hybrids, with some 5 1 and some 10 1 hybrids as well; secondarily, the purchase of some 15-year fixed-rate mortgages. The average purchase price was a little north of 1 04 during the quarter, and the yield after our expected premium amortization would be approximately 1.65 for the quarter. If you take into account repo rates and swaps, our feeling was the spread on new investments made during the third quarter was expected to be about 110 basis points, which was very similar to the average interest rate spread on the portfolio as a whole. Now into October, we have had a bit of -- a small bit of a reversal in the appreciation of some of the Agency MBS we buy from September 30. So -- but at the same time, at levels that are lower yielding and higher price than where they were during the third quarter on average. So we would see yields on assets about 10 basis points lower and only a relatively small decrease in financing cost, because the decrease in swap rates we've seen has been largely offset by about a 4 or 5 basis point increase in where repo rates are today versus the third quarter on average. So I would see right to mid-October snapshot at spreads, it's closer to 100 basis points versus 110.

Our next question comes from Jason Stewart at Compass Point. Jason Stewart - Compass Point Research & Trading, LLC, Research Division: Could you give us a little bit more color on your thoughts behind repurchasing shares, and maybe some color as to how you're thinking about the economics of that transaction versus making an incremental MBS investment?

Sure, this is Lloyd. Our basic approach is that we are interested in being a long-term participant in the mortgage-backed security industry and providing a very attractive return to our investors. The returns from Anworth over the last 14 years, even at the current relatively low stock price, is about 9% a year compounded, which is a rate of return that most hedge funds were unable to achieve during that 14-year period. So we believe that we have a management process that works well for us. One of the keys to that management process is to have the discipline to become defensive and intentionally cut your dividend yield when you think the risk is great before other people see it or it is obvious to most people. We wait until most people think that interest rates might go up for whatever reason. The opportunities to become defensive are great, and the potential for large capital losses are very, very large. That said, we would like to be taking our interest rate exposure down, taking our leverage will come down because we think that interest rate risk are increasing rather rapidly in spite of the fact that no one wants to talk about it. That said, shrinking the capital base of our equity portfolio, or the equity capital of the company, will clearly cause us a problem by having to liquidate even more mortgage-backed securities to bring the leverage down to the level we want it to be. We have -- as you know, whenever I have seen mortgage-backed security investment opportunities at levels that I didn't think were particularly attractive over the next 6 to 12 or 24 months, we have repurchased shares in lieu of making those investments. That's always been our approach, and that will be the approach…

I think it's fair. I will -- you said, to put capital out at 18% internal rate of return, but Joe just mentioned what we think the proper spread is with the proper degree of hedging, and it's -- he said something like 100 basis points. So with 6 or 7x leverage, 100 basis points adding in the equity, that's nowhere near 18%, but I don't know. And all I -- my other observation will be is mortgage REITs, even back in 1998 when we started, have historically seem to trade off of dividend yield not return, and not even something as rather complicated as risk-adjusted dividend yield. Now that has never really seemed to be part of the equation. So a very conservatively managed mortgage REIT, meaning almost fully hedged, no more risk than a mutual fund will probably trade at a discount to book, whereas the mutual fund would trade at book value. Bose George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, and one last procedural question. You had 2 million that you authorized to repurchase back in October of last year, and I think you bought back around 835,000. Is that remaining authorization still active or do you need the board?

Yes, it is. I'm sorry to interrupt you, but yes, it is. And we also have -- we have various -- we have a fairly large number of investors who reinvest their dividend in the company and receive a very slight discount to the market price because we always encourage investors if they don't need the money to live on to redeploy the dividends into the company. And we don't shut it off just because the stock went down. We consider it a right that a shareholder has, it's not, we let people buy shares only when the stock is high. We let them buy shares when the stock is high, low and in the middle, and the board has also authorized us to repurchase all of those shares in the open market anytime we want to. Hopefully, we'll get to buy them back at lower price than the company sold them.

Our next question comes from Stephen Joswick [ph], private investor.

Can you tell me, are there restrictions or blackout periods on the share repurchases, such as previous to a dividend or earnings announcement?

Thank you very much. There are daily blackout periods. The New York Stock Exchange and the SEC have their own blackout periods. As I mentioned, it's the first 30 minutes of the day and the last 10 minutes of the day. And although I've never read it, I've always assumed that the after-hours trading was also a blackout period, but I don't know if they've ever officially commented on it. So I hope that answers the first half of the question. The second half of the question is actually relatively vague. I don't know a black-and-white rule as to -- was I allowed to buy back shares of the company stock just before this earnings call started? Am I allowed to buy back shares of the stock just after this earnings call ends? Clearly, material information is being disclosed that was nonpublic information prior to our saying it. And I've always used the judgment that in spite of whatever the rule is, if the company has any type of significant material nonpublic information, we do not repurchase the shares. And that has meant that some periods of time, because I don't want to have anyone ever say that we bought some shares and the next day, we said something that caused the stock to go up 10%. I don't think that's appropriate for the people who unwittingly sold us the shares not knowing something that we knew. So I don't know if that's a very specific rule or not because clearly, repurchasing the shares is for the benefit of all the company's shareholders. But I always take the rather conservative approach to that type of item. So that is the policy that we have, whether it's the written policy and some regulation, I'm not sure.

Okay. And would your repo lenders be indifferent to you repurchasing common shares versus redeeming an equal dollar amount of the Series A Preferred. And I realize right now, you're still got a little bit of positive leverage on that Series A. You're real close to being break even on it.

Thank you very much. For those people on the call who are not familiar with the Series A Preferred, we issued it about 8 years ago, I believe. The coupon rate is 8 5/8%. It is -- we can call it any day we want to, which is, I think, the basis of the question. It's trading at a price above the call price. We can also, through our direct stock purchase plan, could actually issue more shares because we have a shelf registration to issue more shares of that preferred. So -- but the question is, what do our repo lenders, would they consider it to be any different between the Series A Preferred -- perpetual preferred stock and the common? I believe the answer, and I'll have Joe speak to this also, is no. They don't like us shrinking our capital base. They consider our capital base as their additional collateral that they need to consider us a worthy borrower and worth the lowest interest rate available. So they would certainly not encourage us that to do that at all. Joe, do you have any additional comment?

No, I don't. I think given the size of the preferred as well as the fact that it is a perpetual preferred, there would be no adverse view from the counterparty standpoint of whether our capital base got smaller because of stock being repurchased or preferred. But as Lloyd pointed out, if there was a significant reduction in our capital base, that could have an adverse reaction from our counterparties and the credit lines we have extended.

Okay. And then you mentioned about selling off some securities at gains. Would you be required by the REIT rules to distribute those gains, or do you have the tax losses to offset these and then you wouldn't have to do so?

We're not required to distribute them. But it's our belief that, that income that we would have earned from the capital gain is income that has been earned by the company and the shareholders would have received in due course. The principal reason we made reference to, in fact, telling you that this might occur because for those who followed Anworth for low these many years, know that we do not have a sort of a standing program of selling securities at a gain because here, we think that the Federal Reserve has entered into activities. I don't know what everybody thinks about the Federal Reserve, but they've entered into activities, which clearly have caused the values of mortgage-backed securities to increase, that the overall economic environment, you would say, doesn't justify. And certain types of mortgage-backed securities, in our mind, many of which we own, have increased significantly over and above where we think they should be trading even relative to maybe some other securities. So that's our purpose, and we would intend to pay the dividend.

Okay. But now if you had some tax loss carryforwards to offset those gains, then -- and you chose to distribute those anyway even though you didn't have to, then that part of a dividend would be a return of capital, wouldn't it?

I think that is correct. Actually, it would be treated as return of capital, and you would not be paying taxes on it in the near term.

As long as -- but you folks do have some tax loss carryforwards to offset those, right?

We have some. I don't -- since I don't know the amount that's involved, there may be some left. I can't -- actually, I'm not really prepared to answer that question without looking at the income tax return.

Sure, sure. Okay.

At this time, we have no further questions. I would like to turn the conference back over to Mr. McAdams for any closing remarks.

Thank you very much. We have appreciated the opportunity to share our thoughts about the past and our plans for the future. So all of our investors, either who are on the call or who read the transcript later, will have an opportunity to see what we're thinking. With that said, we welcome you to join us again next quarter at about this time where we will discuss our operational activities for the final quarter of the calendar year. Thank you very much.

The conference is now concluded. Thank you for attending today's event. You may now disconnect.