Q4 2021 Ellington Residential Mortgage REIT Earnings Call

March 8, 2022

[music].

Please standby your program is about to begin.

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Good morning, ladies and gentlemen, thank you for standing by welcome to the Ellington residential mortgage REIT 2021 up fourth quarter financial results Conference call. Today's call is being recorded at this time all participants have been placed in a listen only mode and the floor will be open for your questions. Following the presentation.

If he would like to ask a question at that time. Please press the star one on your telephone keypad.

Time, if your question has been answered you may remove yourself by pressing the pound key.

Lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn the floor over to Jason Frank Deputy General and Jeopardy.

General Counsel and Secretary, Sir you may begin.

Thank you and welcome to Ellington residential fourth quarter 2021 earnings conference call before we begin I would like to remind everyone that certain statements made during this conference call may constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

We're looking statements are not historical in nature.

As described under item <unk> of our annual report on Form 10-K forward looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs expectations estimates and projections. Consequently, you should not rely on these forward looking statements as predictions of future events.

Statements made during this conference call are made as of the date of this call and the company undertakes no obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise joining me on the call today are Larry Penn Chief Executive Officer of Ellington residential Mark to copy our co Chief investment Officer, and Chris Martin off our Chief Financial Officer.

As described in our earnings press release, our fourth quarter earnings Conference call presentation is available on our web site <unk> Dot com. Our comments. This morning will track. The presentation. Please note that any references to figures in this presentation are qualified in their entirety by the endnotes at the back of the presentation with that I will now turn the call over to Larry.

Thanks, Jay and good morning, everyone. We appreciate your time and interest in Ellington residential.

To begin please turn to slide three.

The fourth quarter was a challenging one for agency MBS as an increasingly hawkish federal reserve.

Lightning yield curve and elevated volatility weighed on the sector.

Prior to the fourth quarter. The first physician on inflation was at high inflation would be transitory, but that view was challenged by consistently high inflation reports.

As the bond market has struggled with this inconsistency.

Actual and implied volatility rose and the fed finally acknowledged that higher inflation would likely not be transitory.

The fed began tapering its asset purchases in November , but then accelerated the pace of that tapering schedule in December after revising its inflation outlook.

Rising inflation also increased expectations of earlier and more frequent fed rate hikes in 2022, as well as an acceleration of certain balance sheet runoff and perhaps even outright asset sales from the SEC.

These shifts drove not only an increase in volatility, but also a sharp flattening of the yield curve as you can see on slide three.

The yield on the two year Treasury increased by 46 basis points to 0.73%, which was its highest level since the beginning of the COVID-19 pandemic, while the yield on the 10 year Treasury was essentially unchanged.

As a result mortgage yield spreads widened and most agency MBS underperformed treasuries and interest rate swaps.

Coupons specified pools and other shorter duration RMB has underperformed in particular in light of the flattening of the yield curve.

Please turn to slide four.

For the fourth quarter Ellington residential generated an economic loss, but as with other periods of market volatility our dynamic interest rate hedging and lower net leverage helped limit that fourth quarter loss to a moderate <unk> 21 per share.

We had net gains on our interest rate hedges, which included gains in our high coupon TBA short positions as well as on our treasury hedges and interest rate swaps, but these offset and these offset most of the net losses on our portfolio.

We finished the year with a debt to equity ratio below 7% still well below our pre COVID-19 levels.

We generated core earnings of 28 per share for the fourth quarter and we finished the year with a net interest margin of 181%.

<unk> core earnings did decline quarter over quarter that was mainly because our average holdings were smaller and we think that the prospects to expand our net interest margin and grow core earnings per share are currently quite strong with a significantly higher reinvestment yields today.

Turning now to 2022.

We've seen the markets intense reaction the hawkish pivot from the fed intensifying so far this year.

Justice other evolving macro and geopolitical factors have driven a general risk off sentiment in the market.

Volatility has continued to surge interest rates have continued to increase especially at the front end of the yield curve and the agency mortgage basis has widened substantially.

Agency MBS current coupon spreads are 30% to 40 basis points wide our year to date.

And perhaps for prepayment protected specified pools have declined meaningfully.

This weakness has not been limited to the agency markets either.

Fixed income yield spreads have widened across the board, including investment grade corporates high yield bonds, and non agency or non QM cmo's and of course, the major equity indices are also down considerably so far this year.

We've definitely been taking advantage of opportunities by actively trading in repositioning our portfolio, but we are also laser focused on risk management. So that we can maintain appropriate liquidity and leverage levels to guard against further volatility ad yield spread widening and so that we can be in a position to play offense offense. When the time is right.

These risk management measures have served us very well during previous times of stress. Most recently during the COVID-19 related market volatility in 2020.

In his remarks, Mark will elaborate further on how earnest position going forward, but first I'll pass it over to Chris to review our financial results for the fourth quarter in more detail, Chris. Thank you, Larry and good morning, everyone.

Please turn to slide five where you can see a summary of <unk> fourth quarter financial results.

For the quarter ended December 31, we reported a net loss of $2 8 million or 21 per share and core earnings of $3 $7 million or 28 per share.

These results compared to net income of $860000 or <unk> <unk> per share and core earnings of $4 million or <unk> 31 per share in the third quarter.

Core earnings exclude the.

Catch up premium amortization adjustment, which was positive 169000 in the fourth quarter compared to negative $1 2 million in the prior quarter.

During the fourth quarter as Larry noted most agency MBS underperformed U S treasuries and interest rate swaps with higher coupons specified pools and other shorter duration, our MBS, particularly underperforming in light of the flattening of the yield curve.

Ellington residential had a net loss for the quarter as net realized and unrealized losses on our agency MBS exceeded net interest income and net gains on our interest rate hedges due to higher interest rates.

Our net interest margin decreased quarter over quarter to 181% from 188% as you can see on slide five driven by higher cost of funds.

We also had a smaller average portfolio quarter over quarter, which combined with the decrease in NIM attributed to the decrease in core earnings.

Pay ups on our existing specified pools declined modestly during the quarter as well, while new purchases during the quarter consisted of pools with lower pay ups.

As a result, the average pay ups on our specified pools declined 210, 7% from 144% sequentially.

Please turn please turn next to our balance sheet on slide six.

Value per share was $11 76.

<unk> <unk> 31, compared to $12 28 at September 30.

Including the 34th quarter dividends, our economic return was a negative one 8% for the quarter.

As I mentioned, our average portfolio size over the entire quarter was smaller but our portfolio was actually larger on December 31, compared to September 30, and thus our debt to equity ratio increased to six nine times.

As of year end as compared to six seven times as of September 30.

Our net mortgage assets to equity ratio also increased to seven one times from six four times over the same period.

Despite this modest increase in leverage we continue to maintain higher liquidity and lower leverage at year end compared to periods prior to the COVID-19 pandemic.

Next please turn to slide seven which shows a summary of our portfolio holdings.

In the fourth quarter, our agency MBS holdings increased by 8% to $1 9 billion.

As of December 31, while our non agency MBS holdings were roughly unchanged.

In light of the higher volatility we traded actively during the fourth quarter as our agency MBS turnover was 49% as compared to 23% in the prior quarter.

Please turn now to slide eight for details on our interest rate hedging portfolio.

During the quarter, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBA is U S Treasury Securities and futures.

Similar to recent quarters, we ended the fourth quarter with a net short overall TBA position on a notional basis, but a net long overall TBA position as measured by 10 year equivalents.

We continue to concentrate our long TBA as held for investment and lower coupons and our short TBA positions in higher coupons I will now turn the presentation over tomorrow.

Thank you Chris today's market environment is very different than what prevailed over much of the fourth quarter of last year and it's also very different in how things looked at the end of the year. So in addition to reviewing our activity and performance in Q4.

I want to also give an update on 2022 performance our outlook going forward and our positioning.

The fourth quarter was pivotal because the feds thinking and messaging about inflation underwent to dramatic pivot and once the fed changed its view of inflation by extension that has implications for the pace of tapering both the start and magnitude of the hiking cycle and the timing and pace of balance sheet reduction phase.

Faced with higher and more persistent inflation numbers during the fourth quarter, the fed guided towards a faster taper and earlier and more aggressive heightened cycle and opened the door for significantly sooner and faster balance sheet runoff. These were all red flags for agency MBS.

The yield curve flattened and the March fed hike became the market expectation over the last year and a half we've been terming out our repo with some six month and 12 month repo and now that is starting to pay off given the sharp rise in short term rates.

Pivot was obviously bad for agency MBS and as a result, MBS not only declined in price, but also underperformed hedging instruments. This led to Ellington residential is modest loss for the quarter. We also transitioned to an environment of lower prepayment expectations and the recent prepayment reports have been significantly slower than the <unk>.

Speeds of last summer.

As a result pool pay ups came down, but because we had maintained a preference for lower pool pay ups coming into the quarter earn was able to avoid further book value declines.

The spread widening of mortgages in the fourth quarter was orderly and the interest rate moves are quite manageable. So thats the kind of MBS underperformance that caused the book value decline, but results from wider spreads going forward. So the book value decline can be earned back over time from the wider spreads the big Spike in realized vol presents a different challenge however.

Because delta hedging costs generate realized losses that can't be earned back over time.

For the quarter, we didn't make any big changes in portfolio construction, but we did actively turn pools over to both capture opportunities and take advantage of rapidly changing relative value between specified pool sectors.

We maintained our short positions in higher coupon TBA.

Now with much of the mortgage market and the discount part of our research and trading focus is on positioning the discount portions of the portfolio to capture higher turnover speeds and to mitigate extension risk.

As I mentioned before we had a relatively low payout portfolio coming into the quarter and now with the sharp decline in pay ups during the fourth quarter and so far in 2022 certain loan balance Subsectors, which we thought were too expensive price for most of 2021 and that is starting to make sense for the portfolio.

For the fourth quarter and continuing into this year, we'll wait on mortgages wasn't just the change in the fed guidance on its balance sheet, but it was also a big change in the shape of the yield curve the.

The fourth quarter move in interest rates was a bare flattening as the market reacted to the fed's, new more hawkish stance towards inflation.

Curious swap rates were up more than 50 basis points over the quarter, while 10 year swap rates were up less than 10 basis points.

This change in the slope of the curve has some relative value implications for 15 year MBS versus 30 year, MBS and higher coupons versus lower coupon that are informing portfolio construction.

So far in 2020 to agency MBS underperformance has worsened, but the recent underperformance is not mortgage specific nor the result, the fed comments, specifically directed to the pace of tapering.

Geopolitical uncertainty has pushed spreads wider everywhere you look in fixed income, including investment grade corporates high yield bonds.

<unk> and CLO nothing has been spared.

One issue that has affected mortgages more specifically is the dramatic increase we've seen in both actual and realized volatility.

That has meant widening nominal spreads have not been matched one for one with wider OAS.

So I'll have MBS held up so far this year and what are the opportunities and risks that lie ahead now.

Nominal yield spreads to treasuries for current coupon MBS are now 30% to 40 basis points wider than they were coming into the year.

That's over a point of price underperformance versus hedges and now that rates are higher prepayment risk is lower.

Supply for mortgage bankers should be lower in fact prepayments have already slowed down that said there are a few big questions hanging over the agency MBS market first once the fed stops growing their portfolio, how long will it be before runoff starts what will be the pace of that run off.

And will the exacerbate run off without <unk> sales. Another big question is whether higher mortgage rates will reduce mortgage supply and thereby mitigate the negative effects of fed balance sheet reduction.

That happened in 2013 after the taper tantrum and many people forget that after their initial swoon that summer agency MBS actually came roaring back later in the year. However, in this environment, where home prices have went up so much the possibility of reduced supply is still very much an open question because many homeowners may continue to do.

Cash out refinancing.

Mortgage bankers like rocket and are focusing their efforts on the estimated 20 trillion dollars of home equity that's still untapped.

Nevertheless, even with all the uncertainty about the fed agency MBS are a lot more attractive attractively priced now than they were at the start of the year spreads are wider prepayments speeds are way down and pool pay ups are much lower.

We have a much bigger range of coupons and prepay stories, we can buy without exposing the portfolio to very high dollar prices and very high pool pay ups, we've been actively replacing some of our lower coupon long TBA positions with some seasoned pools with attractive turnover characteristics.

And now that the price of higher coupons has come down we've been adding to that segment of our portfolio as well.

That said, we have not yet increase the overall size of our portfolio. So far this year as we expect short term performance will be dominated by unpredictable exogenous factors.

Thinking ahead to the opportunity set for the remainder of 2022 with reduced fed support for MBS private capital will be able to demand a higher return on capital.

Since March of 2020, when the Feds QE program started and until just recently private capital returns were held down by the Fed's purchase program, which ignored relative value.

Even though yield spreads were tighter there were plenty of silver linings for generating returns, including strong production coupon rolls and low spread volatility. However in Q4 and so far in 2022 that has ended up roughly the taper obviously started sooner and has proceeded faster than previously forecast and the timing and pace of Q.

<unk> is still an open question.

So we're currently in the market with much wider spreads.

And cheaper prepayment protection, but interest rate volatility right now is extremely elevated and it's elevated because of factors no model can predict.

Our portfolio is a higher nominal net interest margin given the current yield spreads, but we have to deal with higher delta hedging costs due to lower quality net interest margin.

With both lower pool pay ups and lower prices, we have a much bigger range of coupons and prepayment stories that we can buy which we find interesting.

Once we get some interest rate stability will then expect our core earnings increased pretty significantly not only our absolute yields much higher than they were at any point last year, but spreads to hedging instruments are also much higher.

But until we actually see that stability, we intend to manage the portfolio with conservative leverage now back to Larry.

Thanks Mark.

After two years of double digit returns in 2019 and 2020, we generated a loss in 2021, but I was pleased that earn was able to protect book value by limiting that loss.

Fast forward to today, and we're clearly in an even more challenging market environment.

First it has become evident that the pandemic driven easy monetary policies will be in a faster and more abruptly than previously expected.

So the market is finally being forced to reckon with the impact of quantitative tightening in the underperforming of agency mortgages, just like any yield product is a very logical reaction.

And on top of that the geopolitical uncertainty of recent weeks has caused extreme interest rate volatility, which is further widening yield spreads and made it even more expensive to hedge MBS portfolio.

Hi, and good markets.

Relying on our interest rate hedging and disciplined risk management to protect book value and put us in a position to play offense as compelling opportunities arise.

Finally, our smaller size continue to give us an advantage moving in and out of positions in response to rapidly changing market conditions.

With that we'll now open the call to questions.

Greater.

At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue.

Pressing the pound key.

Once again that a start you Glenn if you would like to ask a question and we will take our first question from Eric Hagen with <unk>. Your line is now open.

Thanks, Good morning, guys Hope all is well maybe a few maybe a few from me can you say how much you currently have authorized to repurchase stock.

The second question is what would you say is sort of the bulk case or the upside case for specified pools at this point.

And then the third one is.

If we look out a little bit.

And mortgage spreads at the long end of the curve are admittedly wider but.

That is aggressively hiking rates in.

Funding costs are.

Significantly higher how do you feel like you'd be hedging the portfolio and that sort of scenario.

Okay. So we've got yes sure. So this is Chris.

Meaning.

Remaining authorization is currently centered on roughly 766000 shares.

As of.

Yes.

Thanks.

Okay and then your next question Wise, you wanted us to kind of.

Speech.

Perfect.

Yes, just trying to figure out what the upside is for an investor in.

Our levered investor in specified pools.

I mean so.

Hey, Mark so pay ups have come down lots there are lots of specified pools, you can buy that are within.

A quarter point to TBA right, so theres not a lot of pay.

You have to pay to get pools that have <unk>.

Cereal.

<unk> better.

Convexity.

Then TBA.

So youre looking at a market that has very wide spreads over hedging instruments.

So the leverage yields on mortgages, if they're 40 basis points wider and someone seven times Levered you almost 300 basis points wider Levered return. So Larry mentioned I think I mentioned it too that you have.

Had this extreme volatility <unk> had higher delta hedging costs, which comes at the expense of some of that spread but.

I think the Bull cases, if you get some geopolitical stability you have much wider spreads and hedging instruments.

And you don't need to take prepayment risk to get there.

Panel, two and ask Fannie threes, Fannie three five none of those coupons are that far away from par. So you do it.

Youre not so reliant on your prepayment model getting everything exactly right. So I think to me. That's the that's the case, Mike when you look at the widening we've seen in corporates and high yield in CLO and CRT. Those are all sectors that have credit component. The agency MBS is still the sector.

That doesn't have credit risk to it it has challenges evolve.

But.

It doesn't have a credit component to it.

Yes, so the 30 to 40 basis points.

Widening that's just in the current coupon right when Youre looking at specified pools now with favorable turnover characteristics. So youre not going to see as much extension should rates continue to rise.

Prepayment protection pools that are going to.

Volatility where it is.

That means that there's a significant risk of rates going down too so.

Specified pools story.

Is much more attractive now than it was previously.

Great.

Yes stacked on all my questions I apologize for that but if we look out a little bit mortgage spreads are a little wider at the long end of the curve with the fed is raising rates how do you feel like the hedging in the portfolio evolves.

Thanks, Chris.

I think.

The suite of hedging instruments, we have treasuries treasury futures swaps TBA.

We can target.

At different points on the yield curve that match, where our partial duration exposure is in.

If you go back to we started earlier in 2013, we went through taper tantrum when through the end of 2018, which is very volatile he went through COVID-19 right.

Our fed hiking cycle is something that the hedging instruments can insulate book value from and so what Youre seeing now is just under performance primarily underperformance in mortgages relative to hedging instruments and that's so it's not about so.

If you look at book value declines Youll see this so far this year.

It's not so much.

<unk> instrument.

Sure.

Don't give you enough.

Flexibility, it's just that the asset classes underperformed hedging instruments.

Yes.

Alright. Thank you. Thank you sure.

And we will take our next question from Macau Guberman.

With JMP Securities. Your line is now open.

Hi, good morning, guys.

I'm assuming that you.

You said book value is about $2 45 to $10 50 at the end of February I'm, assuming there's been a bit more pressure in the week or so in March.

Yes.

Been volatile but.

And that book value to that takes into account.

The dividends that have been paid as well.

So it's been.

Every day is all that <unk> had some days.

At the end of February where mortgages did extremely well and you'll have certain days, where there is some underperformance. So it's like I think youre kind of seeing that pattern across a lot of fixed income.

Liquidity.

Liquidity isn't very good right now so it tends to exacerbate daily moves.

Got you thank you for that.

And just wanted to get your sense of how youre thinking about the dividend right now I know you switched to a monthly dividend recently reiterated that Tencent yesterday.

Given I guess core earnings dipped a little bit below the monthly run rate how are you sort of thinking about the dividend going forward.

Core earnings per share.

As you know.

At this point I think it's clear that if we once we sort of stabilize.

And.

Given where current yield spreads are not worried about.

<unk> per share per month.

So.

And plus this portfolio as we've always said is about as liquid as you can get.

Looking at the mortgage REIT peer group for example, let's say.

Almost.

Predominantly by any measure agency mortgage portfolio. So.

Not worried about core earnings per share not worried about it.

Liquidity.

So.

So, yes, I think Thats I.

I think that's the best way to address that I think that.

This was a temporary dip in.

Core earnings per share.

And we want to be conservative here in terms of getting through this difficult volatile period.

But on the other end youll have a combination of wider yield spreads and don't underestimate also the support from just higher absolute yields right. So once you have got short rates and if you look at the forward curve and Youll see that short rates are projected to go up.

Probably I haven't looked.

Today, but close to 2%.

A year out.

That's a huge tailwind.

Two.

Core earnings per share huge.

And if I can squeeze in one more you guys have done really good work.

Getting your operating expenses down last fall since I guess, the height of the Covid panic.

I guess my calculation about 335 basis points operating expenses.

Theyre more good work that can be squeezed out here or are we kind of kind of the level Brad.

No I think.

Mid threes is sort of the the level.

Where we're at.

Okay. Thanks, a lot guys and best of luck.

Huff environment. Thank you. Thank you.

That was our final question for today, Thank you for participating and Ellington residential fourth quarter and full year 2021 earnings conference call.

May disconnect your lines at this time and have a wonderful day.

Okay.

[music].

I would like to ask a question at that time. Please press the star one on your telephone keypad at any time. If your question has been answered you may remove yourself by pressing the pound key lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn the floor over to Jason Frank Deputy General and.

[noise] Jeopardy, Deputy General Counsel and Secretary, Sir you may begin.

Sure.

As described in our earnings press release, our fourth quarter earnings Conference call presentation is available on our web site <unk> Dot com. Our comments. This morning will track. The presentation. Please note that any references to figures in this presentation are qualified in their entirety by the end notes at the back of the presentation with that I will now turn the call over to Larry.

Thanks, Jay and good morning, everyone. We appreciate your time and interest in Ellington residential.

To begin please turn to slide three.

The fourth quarter was a challenging one for agency MBS as an increasingly hawkish federal reserve a flattening yield curve.

Elevated volatility weighed on the sector.

Prior to the fourth quarter, the fed's position on inflation was at high inflation would be transitory, but that view was challenged by consistently high inflation reports.

As the bond market has struggled with this inconsistency.

<unk> and implied volatility rose and the fed finally acknowledged that higher inflation would likely not be transitory.

The fed began tapering its asset purchases in November , but then accelerated the pace of that tapering schedule in December after revising its inflation outlook.

Rising inflation also increased expectations of earlier and more frequent fed rate hikes in 2022, as well as an acceleration of fed balance sheet runoff and perhaps even outright asset sales from the fed.

These shifts drove not only an increase in volatility, but also a sharp flattening of the yield curve as you can see on slide three.

As a result mortgage yield spreads widened and most agency MBS underperformed treasuries and interest rate swaps.

Higher coupon specified pools and other shorter duration RMB has underperformed in particular in light of the flattening of the yield curve.

Please turn to slide four.

We finished the year with a debt to equity ratio below 7% to one still well below our pre COVID-19 levels.

We generated core earnings of <unk> 28 per share for the fourth quarter and we finished the year with a net interest margin of 181%.

While core earnings did decline quarter over quarter that was mainly because our average holdings were smaller and we think that the prospects to expand our net interest margin and grow core earnings per share are currently quite strong with a significantly higher reinvestment yields to that.

Turning now to 2022.

We've seen the markets intense reaction the hawkish pivot from the fed intensifying so far this year.

Just as other evolving macro and geopolitical factors have driven a general risk off sentiment in the market.

Volatility has continued to surge interest rates have continued to increase especially at the front end of the yield curve and the agency mortgage basis has widened substantially.

Agency MBS current coupon spreads are 30% to 40 basis points wide our year to date.

Perhaps for prepayment protected specified pools have declined meaningfully.

This weakness has not been limited to the agency markets either fixed income yield spreads have widened across the board, including investment grade corporates high yield bonds, and non agency or non QM Cmos and of course, the major equity indices are also down considerably so far this year.

We've definitely been taking advantage of opportunities by actively trading in repositioning our portfolio.

We are also laser focused on risk management, so that we can maintain appropriate liquidity and leverage levels to guard against further volatility and yield spread widening and so that we can be in a position.

<unk> play office offense, when the time is right.

These risk management measures have served us very well during previous times of stress. Most recently during the COVID-19 related market volatility in 2020.

In his remarks.

Mark will elaborate further on how earnest position going forward, but first I'll pass it over to Chris to review our financial results for the fourth quarter in more detail, Chris. Thank you, Larry and good morning, everyone.

Please turn to slide five where you can see a summary of <unk> fourth quarter financial results.

For the quarter ended December 31, we reported a net loss of $2 8 million or 21 per share and core earnings of $3 $7 million or 28 per share.

These results compared to net income of $860000 or <unk> <unk> per share and core earnings of $4 million or <unk> 31 per share in the third quarter.

Core earnings exclude the.

The catch up premium amortization adjustment, which was positive 169000 in the fourth quarter compared to negative $1 2 million in the prior quarter.

Our net interest margin decreased quarter over quarter to 181% from 188% as you can see on slide five driven by higher cost of funds.

We also had a smaller average portfolio quarter over quarter, which combined with the decrease in NIM attributed to the decrease in core earnings.

Pay ups on our existing specified pools declined modestly during the quarter as well, while new purchases during the quarter consisted of pools with lower pay ups.

As a result, the average pay ups on our specified pools declined 210, 7% from 144% sequentially.

Please turn please turn next to our balance sheet on slide six.

Book value per share was $11 76.

December 31, compared to $12 28 at September 30.

Including the 34th quarter dividends, our economic return was a negative one 8% for the quarter.

As of year end as compared to six seven times as of September 30.

Our net mortgage assets to equity ratio also increased to seven one times from six four times over the same period.

Despite this modest increase in leverage we continued to maintain higher liquidity and lower leverage at year end compared to periods prior to the COVID-19 pandemic.