So if you look at the top left, you can see that the average balance is down. That's slightly misleading, because we did reduce the portfolio by almost 16%, and I'll get into the details of how we did so, but fairly decent-sized reduction. And we also brought the leverage down from 8.5% to 1% to 6.7%. In our liquidity, we took steps to raise our liquidity. And over the course of the balance of the quarter, we did not change a lot with respect to the hedges, and I'll get into that in greater detail in a few moments. But in any event, those are the big picture view of what happened. Our speeds declined slightly. That just reflects seasonal declines, nothing of note with respect to that. Slide seven just shows our financial statements. We have not yet filed our case, so these are still somewhat preliminary, although we do not anticipate changes.

I will leave those to you for your review. And I will then move on to slide eight. We've been incorporating this slide of late. This kind of shows you our net income focus. We're looking at the NIM here. We're trying to take into account the effect of our hedges and discount accretion or premium amortization. The idea here is to make this data look a little much more like our peers who also report either core income or earnings available for distribution. And as you can see in the top right, these are dollar amounts. The bottom are just presented in percent or per share amounts. The headline number was relatively flat, but if you look at the interest expense on repo, you can see a decline. That reflects the decline in the size of the portfolio.

But what's noteworthy is that the income number did not change very much. And the reason the income did not change particularly much, couple reasons. Even though we did reduce the portfolio, we did so kind of mid-quarter. And also the third quarter is somewhat misleading. Because we added a lot of assets late in the quarter, so we did not have a full quarter's worth of income. But nonetheless, the combination of the two leaves us with relatively attractive NIM. As you can see, discount accretion was actually larger. That simply reflects the fact that as we calculated accretion based on the market value at the end of the previous period, and with the third quarter sell-off, values of assets were down, discounts are larger. So even though prepayment speeds were slightly low, we had larger accretion.

And then the effect of the hedges continued to move in our favor. Bottom line is there was a fairly substantial increase. And adjusted net income, again, this is non-GAAP. We're presenting this just for comparison purposes to our peers, and we're trying to, as I said, take into account the effect of hedges and discount accretion, which under our method of accounting we did not use in the fair value option. So on a peer-shared basis, you can see income was up fairly substantially, even with a slight reduction in the portfolio. And just want to say a word or two about the numbers on the bottom. As you can see, we had been paying a $0.48 dividend, earning less, and now that's kind of flipped. Just to go back to where we were in 2023, we were at the time willing to accept slightly lower current income because we wanted to own securities that we had.

We thought we had much better total rate of return potential with mainly lower coupons, especially if the economy was going to pivot and turn around and we were going to end the tightening cycle and potentially go into an easing cycle. So we were willing to make that sacrifice. The events in this last quarter, we had a decision to make in terms of reducing the size of the portfolio. It was easy. We could shed basically TBA-like 3% coupon securities that had a negative NIM and in fact, increase the income of the portfolio and still leave us with a decent overweight to that sector. So to the extent that we do get a move in the other direction rate-wise, we stand to do quite well. We're very happy with this positioning. We have very comfortable level of income and we still have the potential to do well in the event of a rally, although today's numbers may call into question how soon that's going to happen, but I'll say more about that later.

So anyway, moving on, just to discuss market developments, the top left is interesting because this shows you the curve over the course of the last few months. As you can see, the red line there is September 30. The green line is the end of the quarter and the blue line is actually where we were last Friday. If we had done this at the end of close of business yesterday that blue line would have been pretty much on top of the green line and we did it at close of business today. It might be right back where it is. So the long and short of it is that the market still remains quite volatile. The outlook continues to change. The data this week obviously is very significant, but we also had developments away from that with respect to regional banks.

And we had a Fed meeting and so we've been very, very choppy and the volatility that we've been experiencing for a couple of years continues. If you look at the bottom right, you can just see the kind of a proxy for the shape of the curve. And I just point to the bottom right, you can kind of see late in the year, we had a fairly significant move from where we had been at the end of October and then it just kind of reversed and now we're going the other way. So even the shape of the curve continues to gyrate as data comes in and factors outside the market continue to impact the shape of the curve and rates and so forth. Turning now to slide 11, the top line is one of our favorites. It kind of just shows you the proxy for the attractiveness of the mortgage sector, the basis, if you will.

As you can see, we've been at very wide levels. If you look at the right side of that chart, you can see it's November and December. We tightened in quite a bit. Just want to make two points on this. On one is that quarter-to-date, we've kind of traded sideways. We really haven't tightened much or widened much. But that being said, we're still at very attractive levels and so the mortgage space is still as attractive, still very anxious to be able to put money to work in this environment because we are very excited about the retain opportunities that are out there. With respect to just the metrics on how mortgages performed on the bottom of the page, as I said in the past, we normalized prices just to give you a feel for how they changed over the course of the last quarter.

Obviously a very strong performance into the end of the quarter, and to a large extent has been maintained into the first quarter of 2024. Roles on the bottom right, these are all conventional roles. These are very, very weak. There are certain roles that are attractive. They're Gini roles, Gini May securities. We typically don't traffic in that space, but the roles in that space are attractive and they really would present a slightly different picture than what you see here. Moving on, just some more market color, volatility on the top, this is kind of a more recent look back. It's only going back one year. And three points I want to make here. One, at the time of this was presented as of last Friday; we were kind of at the local lows with respect to the last year.

We have certainly bounced this week. Every day this week has been choppy with respect to either incoming data, the Fed meeting or the regional banking news. So it's definitely bounced off of that. And if you look at the bottom chart, which is a much longer look back period, you can see that volatility still is fairly highly, relatively high levels on a historical basis and even more so this week versus what's depicted here. A few more slides and then we'll get into the portfolio. Top of slide 13, you see the red line, you can see that the mortgage rates kind of rallied into the end of the year, but still at extremely high levels, still around 7% and probably, if anything, going up from there. One thing that is worth noting, if you look at the top right, primary secondary spreads are still on a historical basis fairly elevated.

The takeaway from that is that in the event of a more welcoming market, mortgage originators, if they were to tighten those spreads in, could definitely enhance refinance ability. Right now, that doesn't look like it's going to become an issue, but the potential for that to happen in the future is definitely there. Now, just moving through the deck, slide 15 just gives me a chance to go into a little more detail of what we did during the quarter. Obviously, I mentioned just high-level, we had a very severe turnaround in the market from October into November and December. At the time in October, when it looks like rates were going to be sustainably above 5%, the Fed was going to keep rates relatively high through the balance of 2024 and then that violently reversed in November and December.

In our view, the market got quite far ahead of itself and we took steps to address that. Nonetheless, just to go through some details, on the left side, we mentioned that we did reduce our allocation to the 30% or 3%, coupon by 38%. We did add some higher coupons. In doing so, in conjunction with what we've done in prior quarters, we continue to raise the weighted average coupon. It's up to 4.33% and the realized yield is up to 4.71%. Also, note, and I'll get into this more in a moment, if you look at the bottom left, this point we make here, our economic net interest spread increased quite a bit. The reason that that happened is because we reduced the portfolio during the quarter in October precisely, but we did not reduce the hedges nearly as much.

We got to a position where we're more fully hedged, but we also did it in such a way that our swaps, which are really our most effective funding hedge, became a higher percentage of the composition of our hedges. As a result, we had a meaningful pickup that in conjunction with the higher coupons on the portfolio, a much wider economic net interest margin. That explains why in the prior slide, when you saw the $0.54 versus $0.36 and $0.38. That's where we sit going forward. Slide 16 just shows what we've been doing to the portfolio in pictures. As you can see, we've been adding to the higher coupons and reducing our exposure to threes, all the while keeping a fairly decent overweight, which means that in the event of a rally, we have a chance to do quite well.

At the same time, maintaining very good hedge coverage and very solid levels of income. On slide 17, this is where we talk about our funding in general. As I just mentioned, if you look on the right side, that blue line, the reason that that ticked down is because, as I said, the hedge portion of our, or the swap portion of our hedges has become larger because we reduced all of the hedges, but the swaps less. The swaps remain a larger percentage of the total. Those are very effective hedges from a funding perspective and our average pay fixed rate is quite low. As a result of that, in conjunction with the higher coupons, our net economic interest income is higher and our funding costs are lower. Just a few points on the left side, our funding level is obviously relatively stable with the Fed pretty much done, hopefully.

Then with respect to the average days of maturity, relatively stable. The big change there is the economic cost of funding, which has improved. Slide 18 goes into the details of the hedging positions. I just wanted to; again, reiterate those points that we're now more fully hedged, reason being we thought that the market had got ahead of itself into the end of the year. Looking back, we feel pretty comfortable with that decision. That's proved to be very fortuitous. The portfolio is pretty much rate neutral. In fact, most of the, both the value increase during the quarter was more a function of mortgage basis tightening than just being naked long. We left ourselves in a very good position where our income is quite attractive and we have upside going forward.

We're quite comfortable with that. Just some details on slide 19, one thing we did do late in December, we added some SOFR futures trying to lock in at what were at the time extremely aggressive market pricing for Fed easing. That should bode us well for Fed easing. That should bode us well going forward. Then since quarter end with respect to the TBA hedges, we have moved those around slightly. The belly coupons of the mortgage stack have become quite rich generally in January. We moved some of those hedges into the 4.5% coupons. Some small position in threes, the balance are in what we call the belly coupons. It would be 4.5%, 5%, 5.5%. They've done very well. We view them as having more room to fall. Finally, just like I mentioned with respect to the swaps, we did not reduce those very much.

The fixed rate is actually even better now than it was at the end of last quarter. That's also contributed to the improvement in the economic cost of funds and the economic interest margin. Slide 20 just shows you some shocks with respect to the various coupons. We tend to look at these on a relatively frequent basis. It gives us a feel for how these different coupons would do in different scenarios and helps us in our decision making process with respect to how we construct the portfolio. As you can see, it would expect the lower coupons do the best in a Rally or a Bull Steepener and the worst at a Bear Flatener or a sell off. This is just nice little information that we use, but this is not really relevant for the purposes of the balance of the discussion.

I'll just move on. Slide 21, again, I mentioned that we think we have a portfolio at a fairly rate neutral position. Our hedge level is quite high. It's reflected in the bottom right. You can see the numbers. Those are changes in the value of our equity with a plus or minus 50 basis point rate shock. As you can see, it's a relatively benign reaction to those moves. We put that in place more or less in December because we thought we had more move higher in rates than further down. It turns out for the most part, that's been the case, although it's been choppy. Slide 22 just goes to our prepayment speeds by coupon. We're just trying to give you the more granular data with respect to the portfolio versus just reporting a portfolio wide level. I'll leave that for you to review.

We'll go through that in detail. Then moving on, a wrap, if you will, on slide 23; I just want to make three points. Obviously, probably a very pivotal quarter in a fourth quarter with the change in direction from October into November and December. We thought the market got ahead of itself. In retrospect, it looks like that may have been the case. The positioning of the portfolio from a current income perspective is quite attractive. We think that we have potential upside in the event the Fed does ease. Not sure when and if that's going to occur now given the events of the last few hours. That being said, inflation still does appear to be moderating. As long as we don't have a reacceleration in inflation, it's probably likely that the Fed will slowly remove the tightening bias.

If they were to do so, that gives us opportunity for our net interest margin to expand even further. To the extent we did have a recession, obviously, we could do even better because given the positioning of the portfolio, we would do very well in a bull steepening. Even if we stay put, say as we are, we're in a very good position from an income perspective. We think the very severe book value pressure that we felt for the last two years is probably over. We're very comfortable with how we are situated going forward. Just one final point before I turn it over to questions on slide 25. This is just some anecdotal information we provide every quarter, if you look at that blue line, that represents bank holdings of mortgages. That is a welcome development we have seen of late.

That is that banks have started to come back into the mortgage market a little bit. They can play a significant role. The Fed is continuing to wind down their portfolio and banks have been doing the same. That has changed a little bit of late. Notwithstanding the events of this week with respect to any regional banks. Prior to that, we had started to see banks re-emerge. That would be a very welcome development for the sector because they can play a very strong role in supporting the mortgage market. I always welcome that. With that, operator, I will turn the call over to questions.

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