EARN - NYSE

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Residential Mortgage REIT 2023 First Quarter Financial Results Conference Call. Today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, Associate General Counsel. Sir, you may begin.

Thank you. 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. Forward-looking statements are not historical in nature and 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. We strongly encourage you to review all the information that we have filed with the SEC, including the earnings release and the Form 10-K for more information regarding these forward-looking statements and any related risks and uncertainties. Unless otherwise noted, 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, our Chief Executive Officer; Mark Tecotzky, our Co-Chief Investment Officer; and Chris Moreno, our Chief Financial Officer. As described in our earnings press release, our first quarter earnings conference call presentation is available on our website, artonreid.com. Our comments this morning will track to the presentation. Please note that any references to figures in the presentation are qualified in their entirety by notes at the back of the presentation. With that, I will now turn the call over to Larry.

Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Residential. Last year was just about the worst year on record for Agency RMBS but the year actually ended on a constructive note, and that positive momentum continued into January. In anticipation of a slow pace of interest rate hikes by the Federal Reserve, interest rates and interest rate volatility continued to decline precipitously in January, and yield spreads tightened further. Capital flowed into Agency MBS, while new mortgage supply remained low. And for the month, Agency MBS significantly outperformed treasuries. Ellington Residential itself has had a positive economic return of over 6% in January. Markets reversed course in mid-February, however, triggered by renewed concerns over inflation and what the Fed's response would be. volatility and spreads increased, while interest rates, especially short-term interest rates surged. By early March, the 2-year treasury yield rose 97 basis points in less than 1 month and surpassed 5% for the first time since 2007. Then turmoil in the regional banking system roiled markets, causing volatility to spike and pressuring spreads further. Treasury yields plummeted, and many fixed income sectors sharply underperformed in March, including agency MBS. Overall, the negative MBS performance in February and March exceeded the positive returns in January. And for the full first quarter, agency MBS ended up with a negative 50 basis point return versus treasuries. Despite these challenges, however, Ellington Residential generated positive net income of $0.17 per share and adjusted distributable earnings of $0.21 per share for the quarter. The first key to our outperformance was our portfolio construction. Over the past several quarters, we have been opportunistically but steadily rotating out of our lowest coupon MBS. We entered the year with only about 15% of our long Agency portfolio in coupons under 3%. We also carried a meaningful TBA net short position in those coupons. It was sub-3% coupon MBS that were hardest hit in March because they comprise a significant portion of the portfolios of those troubled regional banks and the ever-increasing prospects of asset sales hitting the market weighed heavily on those low coupons. So we were awarded for both paring down our long exposure and maintaining a net short position in this low coupon cohort. We also limited our investments in the highest coupon MBS, namely coupons above 5.5%. This had 2 benefits. First, it shielded us from some of the technical pressures on new production, especially with the Fed no longer a buyer. Second, it had the benefit of reducing our negative convexity and thus reducing our delta hedging costs, especially during that extreme bond market volatility in the last half of the quarter. In mid-March, implied short-term volatility on treasuries was the highest seen since the global financial crisis. So the second benefit was actually quite significant during the quarter. As you might infer, we found the best relative value during the quarter and the intermediate coupons of the stack. And in specified pools, we continue to focus on lower pay-up stories where we saw better risk-reward trade-offs. During the first quarter, we made positive carry on our long specified pools versus short TBA and especially versus SOFR hedges with the floating rate we receive much higher than the fixed rate that we pay. And as Mark will discuss, with all the volatility during the quarter, we took advantage of tactical trading opportunities to add excess returns, and our agency portfolio turnover rate was 23%. Finally, our larger non-Agency and IO portfolios also contributed nicely to our first quarter results, driven by strong net interest income in the portfolio. We expect to continue to add to these portfolios in the coming months. As we discussed on last quarter's earnings call, our pivot away from low coupon pools also enabled us to enter the first quarter with reduced leverage and excess liquidity. Given the prospect of continued bank portfolio asset sales and continued volatility, we have been judicious about adding back leverage, and we closed the first quarter with only slightly larger agency and non-agency MBS portfolios. Our leverage ratios ticked up just slightly quarter-over-quarter, but we are still far from the high end of where we're comfortable adding leverage, and we're also far from the high end of where you could see our net mortgage assets equity ratio going. Spreads are wide, but there's the potential for them to go wider, and we have room to lean into wider spreads. Finally, we continue to methodically turn over our portfolio to improve our net interest margin and adjusted distributable earnings. And as you can tell, we still have plenty of dry powder to take advantage of investment opportunities as the year unfolds. I'll now pass it over to Chris to review our financial results for the quarter in more detail. Chris?

Thank you, Larry, and good morning, everyone. Please turn to Slide 5 for a summary of Ellington Residential's first quarter financial results. For the quarter ended March 31, we are reporting net income of $0.17 per share and adjusted distributable earnings of $0.21 per share. These results compare to net income of $0.88 per share and ADE of $0.25 per share in the fourth quarter. ADE excludes the catch-up premium amortization adjustment, which was negative $299,000 in the first quarter as compared to positive $658,000 in the prior quarter. We had a net gain on our Agency RMBS portfolio for the quarter as net realized and unrealized gains on our specified pools exceeded net losses on our interest rate hedges and slightly negative net interest income. The quarter-over-quarter decline in our net interest income was a result of sharply higher financing costs, which were driven by increasing short-term interest rates as certain older and low-rate repos matured and were replaced with repos reflective of the current higher rate environment. Our asset yields also increased during the quarter, but by a lesser extent. As a result, our net interest margin decreased to 1.16% from 1.37%. Additionally, we continue to benefit from positive carry on our interest rate swap hedges, where we receive a higher floating rate and pay a lower fixed rate during the quarter. Our lower NIM drove the sequential decrease in ADE. Meanwhile, pay-ups on our specified pools decreased to 1.09% as of March 31 from 1.26% at year-end, first, because the average pay-ups on our existing specified pools decreased quarter-over-quarter and second, because new purchases during the quarter consisted of pools with lower pay-ups. Please turn now to our balance sheet on Slide 6. Book value was $8.31 per share as of March 31 as compared to $8.40 per share at year-end. Including $0.24 per share of dividends in the quarter, our economic return was a positive 1.8%. We ended the quarter with cash and cash equivalents of $36.7 million, which increased quarter-over-quarter. Next, please turn to Slide 7, which shows a summary of our portfolio holdings. Our MBS holdings increased by 3% to $891 million as of March 31 as compared to year-end as net purchases and net gains exceeded principal paydowns. As Larry mentioned, our Agency RMBS portfolio turnover was 23% for the quarter, which was an increase over the prior quarter. Over the same period, our holdings of interest-only securities and non-Agency RMBS increased by $4.6 million in total. Our debt-to-equity ratio adjusted for unsettled purchases and sales decreased slightly to 7.5x as of March 31 from 7.6x at year-end. The decrease was primarily due to a larger shareholders' equity quarter-over-quarter, partially offset by an increase in borrowings on our larger Agency RMBS portfolio. On the other hand, our net short TBA position declined during the quarter, which, combined with our larger agency -- our larger MBS portfolio more than offset the impact of the increase in shareholders' equity. As a result, our net mortgage assets to equity ratio increased to 6.9x from 6.6x at year-end. Finally, on Slide 8, you can see details of 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 TBAs, U.S. Treasury securities and futures. We again ended the quarter with a net short TBA position. I will now turn the presentation over to Mark.

Thanks, Chris. I'm pleased with earned results for the quarter. We had a total return of 1.8%. That was in the face of some pretty extraordinary interest rate volatility and a banking crisis resulting in a sizable supply shock for Agency MBS. I'm very excited about the opportunity set going forward. Today, Agency MBS yield spreads are historically very wide relative to hedging instruments, prepayment risk is limited, and we see little or no competition for assets from what have historically been the 2 largest pools of low-cost capital for the Agency MBS, the Fed and U.S. banks. Meanwhile, organic supply from new origination is down hundreds of billions of dollars from years past. The FDIC has seized a significant amount of Agency MBS recently from failed regional banks, and they've been in the process of divesting those assets. So we've seen a significant supply of Agency MBS hit the market in recent weeks. Over 7 billion current piece [ph] have already been sold at that pace and assuming no more asset seizures occur, we should see the sales finished by October. So far, the lists have been trading at or above primary dealer talk. So while MBS spreads are wide, they have not widened further since the sales have started. Our conclusion is that widespread levels have attracted new capital to the sector, and so there may be significant support at these wider levels. Don't get me wrong, agency spreads should stay high. There's not going to be any bank buying in the short term only bank selling, and the Fed isn't fine. They're just letting their portfolio run off. The only significant positive technical is smaller new issue supply. So we think these wider spread levels may be with us for a while. The Fed's balance sheet has been contracting and banks have bought almost no security since the run-up in rates last year. We expect looming future regulation and balance sheet pressures will mean that banks with under $250 billion in assets won't buy much this year either. Putting it all together, we think it's a great time to be an agency mortgage investor. None of the other regional banks recently in the news have sizable Agency MBS holdings. So it may be that the worst is behind us. And the recent capital flows into diversified fixed income bond funds and ETFs and into mortgage focused funds have been significant stabilizing force for spreads. Meanwhile, repo financing continues to be plentiful and stable. Yield spreads are so wide that you don't need spread tightening to drive returns; just the capture of net interest margin alone can do the job. With the banks and the Fed shrinking in CMBS, market requires much higher expected returns on capital. And in today's prepayment environment, NIM capture is much more certain. This is a very different dynamic from 2022 because now the Fed has signaled that they are nearing the end of their hiking cycle, and the yield curve has started to reverse a lot of the inversion we had seen. That guidance has led to a much more positive investor view of fixed income in recent weeks. Going back to our portfolio activity for the quarter, we leaned into the wider yield spreads by growing our portfolio slightly during the quarter. We think the widespreads today adequately compensate us for the supply shock from the FDIC sales. We added 30-year MBS, shrunk 15 year and went up in coupon a little bit. We have generally favored intermediate coupons, specifically 3 through 4 in half, which we are calling the Goldilocks coupons. They're high enough in coupons that banks and the FDIC don't own much because they weren't being produced in significant size in 2020 and 2021, but they are low enough in coupon that they don't require a lot of delta hedging and there is limited current production. In addition, Ginnie Mae’s have gotten cheaper relative to UMBS. So we have been adding exposure there as well. We believe future banking regulations will favor Ginnie's over conventionals because of their lower capital charge. All this volatility has created some good relative value opportunities to add incremental returns to the portfolio as well. For example, on January 5, we bought a bunch of Fannie 4.5 hedged with Fannie 4s in a duration-weighted basis. The next -- the very next day, the market rallied around 20 basis points and the 4.5% basically kept pace with the forset huge move. So we were able to reverse our trade 1 day at a significant profit. If you believe the forward curve, which is calling for lower rates a year from now based on the expectation of a recession that may be a very good backdrop for AD&C MBS. Agency MBS tend to do quite well in recessions when fears of rating downgrades on corporates attract capital away from corporate bonds and towards Agency MBS, which are not exposed to credit risk. Despite a Fed that seems likely to be on the sidelines in the coming months, we remain diligent about our interest rate hedges, and we remain focused on harvesting the many opportunities this market has created to help drive incremental returns. Now, back to Larry.

Thanks, Mark. I'm pleased with Ellington Residential's performance to start the year. In a quarter of extreme interest rate volatility and widening agency spreads, earner is able to generate an annualized economic return of 7.3%, while keeping leverage low and liquidity high. So far in the second quarter, volatility has eased from its mid-March highs, and the FDIC sales have been orderly and their impact on the market less than feared. Overall, the mortgage basis and option-adjusted spreads widened in April, but May has been quite stable. Looking ahead, continued volatility in forced selling, especially from banks, could generate some exciting investment opportunities for us as they have in the past. Agency spreads are currently very wide and pay up on specified pools in many sectors low, and much of our portfolio requires little delta hedging. And despite the volatility, funding markets remain healthy. In addition, relative value opportunities in the non-agency sector are plentiful. It's a great time to have dry powder, and we look forward to deploying it as we see opportunities. We will continue to pursue ERM's dual mandate to preserve book value when markets are volatile, as we did this past quarter when we were solidly profitable, no less and to capture the upside when markets recover. With that, we'll now open the call to questions. Operator?

Thank you. [Operator Instructions] And our first question will come from Douglas Harter with Credit Suisse.

You mentioned you would have the ability to take up leverage and net mortgage exposure. Can you just talk about, one, how you see the capacity to do that? And two, what might the conditions be that would lead you to take that leverage up?

Sure. Okay, go ahead, Mark.

Yes, I was going to say in terms of capacity, repo financing has been very stable. The haircuts are relatively low. So in terms of cash on hand being able to add more exposure, that's not an issue at all. I think the conditions are that you still are having a lot of daily volatility and some of the other bank stocks. And even though we mentioned that the ones that have been in the news most recently, PacWest and Western Alliance don't have significant mortgage holdings, they do still - news about them and concerns about how banks are going to compete with money market funds, what you're doing to bank net interest margins with higher deposit costs, still is causing a fair bit of volatility. So I think until that subsides, I think we have a decent amount of exposure. The spreads are so wide now that exposure can drive a very healthy dividend. And like I said, there's also a lot of sort of daily and weekly sort of dislocations that are going on. So I think a little bit more clarity on the Fed being further along with the bank liquidation process, some sense of if you do see more banks -- look, I mean we've been having bank consolidation for the last decade, right? They'll still probably continues. It's just a question of the consolidation of core sort of occur in an orderly way where banks merge to achieve cost efficiencies or you're getting fewer banks from FDICCs here, right. So I think just having a longer period of time where you see less volatility and it seems like deposit bases are more stable. To me, that's an important marker of going forward spread stability.

And just to add to that, Mark, in terms of where we could go if we really do think that the time is right. I mean we've gone over 9 to 1 leverage before, and we're comfortable in that range. Remember, we've got an interest rate hedge portfolio. So compare that to where we are now in the mid-7s, right, as of quarter end. So we definitely have room to add leverage as we said. And then in terms of our net mortgage assets to equity ratio, a related concept, we've -- I don't know if we've ever gone about 8 to 1, but we certainly could if we thought that the opportunity was compelling. So, I think in terms of just putting obviously the conditions for us to go there depend on exactly what Mark just talked about, but we could even get there.

Our next question will come from Eric Hagen with BTIG.

Maybe a couple of questions about your perspectives on mortgage spreads, starting with whether you think spreads are maybe more likely to widen or tighten in response to a rally in interest rates. And then I think you just mentioned haircuts for Agency MBS have been low and stable, which is good to see. If spreads are already at these levels and haircuts remain stable. Is there anything else like anything related to bank liquidity or any other extraneous factors, which would lead to advance rates really changing at this point?

In regards to repo, I don't think so. We -- the market has been through more stressful periods than that this the last few years with COVID and all the price volatility last year and repo financing spreads and initial -- and haircuts have been pretty constant. 1 year. I mean, 1 month repo spreads have been somewhere 5 to 10 basis points over 1-month SOFR and it's sort of been holding there. So I don't -- I can't think of what's going to change that. And I'm sorry, Eric, what was the first question?

Yes. Yes, whether spreads are more likely to widen or tighten in response to rally in rates.

Yes. So I think it depends on the magnitude. So I think a rally on rates where you get maybe the 5-year note down to 3.10% or 3%, which would be like 30-odd basis points from here. I think they're more likely to tighten, assuming you're using sort of appropriate hedge ratios, right? And so some of the higher coupons, say, 5.5% and above, those hedge ratios would certainly adjust lower as they kind of get materially enough above par to cause prepayment risk. But yes, I think they're more likely to tighten the reason I think that is, I think that kind of move is going to be probably accompanied by some weakness in equities and sort of an embrace of fixed income. If you've been looking at some of the fixed income fund flows, it's been significantly positive this year. And I think that a slight rally like that is more of a tailwind to those flows. And I think that is really -- that's important for mortgages this year that it flows into sort of investment-grade fixed income funds or if you look at like some of the ETFs like MBB, that's now $26 billion. Those flows are significant, and those flows in my opinion, are what's stabilized spreads, and it's caused the FDIC liquidations you've seen since the middle of April, we met with fairly robust demand because if you're a person who's taking in fixed income flows and you want to buy Fannie 2s and 20-year 2s and 15-year 1.5 you welcome this FDIC supply because without it, it's hard to get exposure to those coupons because a lot of it is sort of locked away in trading. So I think a mild recession, I think I mentioned it in the prepared comments, we think that's a good scenario for mortgages. I would say like a really sharp rally like 100 basis point rally over like 3 weeks with that kind of volatility and that kind of negative convexity that kind of move, I think you'd see spreads widen, but sort of yields kind of grinding down sort of like what you've seen this month. I think that's generally supportive of mortgage spreads.

Yes. I think when you've seen sorry, when you've seen stuff widen in a rally, it's generally been tied to in recent years, right, to some shock to the health of the financial system. We saw that with the banking, regional banks, right? So it's some liquidity crisis, then you're going to have all sectors widen, right? And agencies will be no exception. But just sort of recessionary fears without kind of a threat to the health of the financial system, we see spreads doing well.

Always appreciate your perspective, guys. Thank you very much.

Our next question will come from Crispin Love with Piper Sandler.

I just have a question on views on the net interest margin trajectory. So you got higher reinvestment yields but higher cost of funds, which you definitely saw in the first quarter. So I'm just curious what your confidence is in expanding NIMs over the next several quarters.

It's -- a lot of it is depending upon our portfolio turnover, which I mentioned, we sort of been methodically turning over the portfolio to sort of recharge the NIM, if you will. So you've got that. And then you saw obviously a lot of the NIM went down because of just the fact that our repo kind of older repo rolling off and being replaced with newer repo. So you got sort of those things counteracting each other in a way. I think where the NIM is right now, I think it's not a bad indication of where it could be going forward. And we -- so if you sort of leverage that up, which obviously we do, and you add all of the income that we, for example, generated in the first quarter, and we think we can continue to generate through active trading. And obviously, just looking at the fact that the curve is inverted is not per se a problem for us because we've got all that swap income coming from receiving floating and paying fix. So, I think I don't see huge expansion from here in the NIM but I also don't see -- if we can continue to sort of do the portfolio rotation, we still do own some pools that we're hanging on to for more total return reasons as opposed to NIM reasons. But as we see opportunities to sell those, we want to respect book value as well and try to time things properly, that should continue to improve. But some of those, we do still have some low-yielding assets on the agency side in the deep discounts.

Great. And then just one on coupons. You talked about how you've been rotating out of some of the lower coupons. But over the near term, do you expect to kind of stay in the intermediate coupon range, call it, like 3.5% to 4.5% rather than adding much exposure in the 5 and 6 is just where rates could go in the back half of the year in prepay risk. I'm just curious on your views on coupons.

Yes. So we've added some exposure to 5s as they looked attractive to us. One thing that's sort of one dynamic we think a lot about is that when the Fed was buying, they were buying -- they weren't buying specified -- they weren't buying specified pools. They weren't going in and saying, "I want to buy LLB Fannie 2s, they were just buying TBA. And so they were getting what the market thought was sort of the worst pools at that time. And so for the coupons where they have sizable holdings, they've locked up a lot of the worse bonds, right? But now that they're not buying and they're not reinvesting, right? They're not net buying or they reinvest they're just letting the portfolio run off. For the coupons, like 5.5% and 6% is you creating some pools, which we think can have very unfavorable prepayment patterns in a rally. And if you look at the forward curve, you look sort of like where the 1-year rate is expected to be 1 year forward, it's a lot lower, right? So things like 5.5 and 6 is they're getting the money, and there are a lot of pools there where the average loan size is 450,000. So those coupons, we think, to have significant holdings there. You need to have some form of prepayment protection. And in those coupons, those payups are still pretty significant. So I kind of feel like this sort of 3.5, 4, 4.5 coupons, you get wide enough spreads and it's sort of insulated from 2 things. I sort of saying a little bit differently than what I said in the prepared remarks, right? The banks don't hold them. So, either if a bank is seized by the FDIC and the FDIC is liquidating that's one thing, but you may just see banks choosing to sell some securities holdings at a loss and buy other things. So I think they're immune from sort of these higher coupons say 3.5 and above 4.5; banks don't hold that much of them. So you're not going to have bank selling, but they're not high enough in coupon that you're getting new production there. So you don't -- you're not creating these sort of pools with these really bad negative convexity. And so those coupons have served us well. They served us well in this quarter, they've outperformed. So from a relative value basis, they're not as cheap relative to other options as they were before, but we still like them. We've been adding some 5. So we tend to be fairly dynamic. You've seen a big move in rates, right? You've seen the 5-benote rally over 100 basis points from where it was, I guess, beginning of March. So we're dynamic on the hedges, the relative value changes, so we change what we like. But we are concerned that in 5.5 and above, you can get significant prepayment activity if rates drop any more from here. And I think -- so those coupons, we wouldn't want to have material exposure without having sort of what I would consider like pretty robust prepayment protection.

I guess that I'll make -- I just want to add also, just to add one thing. I mean, we have an $0.08 dividend, right? So it's $0.96 a year. I mean, it's mid 11% dividend yield on book value. I think we feel like we're in a good place there. Like I said, if you look at the leverage NIM, if you will, and now short rates are much higher. I mean we feel good about our ADE relative to our dividend in terms of how that looks going forward. And so we want to focus on when we sort of decide whether we're going to be in current coupons or discounts or whatever it moves around a lot, as Mark mentioned in his prepared remarks, we had some 1-day trades, for example, where we can make a lot of money just being nimble. So we really want to focus to some extent on supplementing through total return and dialing up and down our mortgage basis. I mean, all those things that wouldn't necessarily -- if we just wanted to maximize NIM, we would -- right, we would buy current coupon, right? That's what we would always do. But that's not necessarily our focus right now.

Makes sense. And then, just -- I don't know if I missed this during the prepared remarks, but did you offer any update on book value through the end of April or early May?

We did not. But I would say like that we're -- I did just mention that sort of what spreads. Spreads widened a bit in April, and they've stabilized in May, just in general in the mortgage market.

Our next question will come from Mikhail Goberman with JMP Securities.

Thank you for the commentary as always, and I hope you're all well. Most of my questions have been answered. Just wanted to get your thoughts on -- you mentioned some opportunities in the non-agency space. So maybe a little more color on that?

Mark?

Yes. So the second half of 2022, you saw a lot of redemptions from mutual funds and also just private accounts and some of the big money managers. So we saw significant supply of non-Agency mortgages and significant supply from the GSEs, the creditors transfer bonds. They started looking really attractive to us. We think housing is starting to stabilize. The last 2 CoreLogic Prints, HPX went up a little bit, which is sort of consistent with sort of our in-house team had been modeling it. So we think sort of housing, while still expensive is in pretty good shape, especially given the LTVs on some of these bonds. So we've added a little bit both opportunities look good. The credit opportunity looks good to us, and the agency opportunity looks good to us. Historically, we have done really well when we've added credit exposure to EARN, we did some in 2020, and that worked out really well. I think Larry meant. I think -- I'm not sure if we mentioned it, yes, I think Larry mentioned in his prepared remarks, how the credit side of the portfolio did well for us this quarter. Those bonds have repriced a little bit higher in price. So spreads aren't still quite as wide, but it's the kind of thing where, for the size we're buying, there's enough sort of volatility one bond to the next. I think we're going to continue to add exposure there.

I appreciate it.

Our next question will come from Matthew Erdner with JonesTrading.

I am on for Jason this morning. The other analysts touched on most everything that I had, but could you give your thoughts on a buyback and just kind of your thinking around that versus new investments?

Sure. Yes, I think -- if you sort of look at where our stock price is now, we're still into the 80s percent of book, which is obviously not where anybody wants to be. But just given our small size, and we do have a lot of fixed costs, we obviously have shares authorized to buy back, but we're not sort of in that -- in the mid-80s, not -- probably not buying back stock here. Mostly for the reasons of just what that would do to some of our expense ratios. And just want to focus on making money and finding good investments, adding to the non-agency portfolio, all the things that we sort of mentioned earlier. Should we get down into the 70s, then I think that's where historically things have gotten a little more interesting. But we have to be mindful of the fact that it's a small company and we just have to be mindful of our keeping our capital base at a reasonable level.

Thank you.