I think the other dynamic that you brought up and it’s really important, and I mentioned in my script is that, the impact of higher rates, it creates pressure on assets that were already more susceptible. But for the lion’s share of our portfolio, it creates very substantial excess earnings and that creates insulation in our business in terms of our ability to retain those excess earnings in book value, our ability to cover our dividend and our ability to work with borrowers. If they have a viable business plan and it’s really just the significant increased interest costs that’s causing the pressure we have some flexibility there to put the asset on a better path, allow it to manage carry costs a little bit more reasonably and get to the other side here.
And the fact that having much higher rates and the result of that on earnings in our portfolio gives us substantial margin to be able to have those conversations and a lot of optionality in terms of putting these assets on the right foot to manage through this period.
Don Fandetti: Perfect. Thanks.
Operator: And our next question is coming from Steve DeLaney with JMP Securities. Please go ahead.
Steve DeLaney: Good morning. Thank you. Good morning, everyone. Congrats on a strong report in, obviously, a difficult environment. I am curious on the $0.80 of distributable EPS, excluding the $0.07 in prepays. I mean it was very strong, $0.08 to $0.10 above consensus and your own third quarter number of $0.71. Was there anything other than the obviously higher average LIBOR, was there anything unique or one-time in that number, such as maybe recognition of some interest — accrued interest that had been deferred. Just help us if there is, if you really, I guess, my question is to Tony and to you, Katie, is the $0.80 a reasonable run rate for distributable EPS in the near-term? Thanks.
Tony Marone: Sure, Steve. The short answer is, as you highlighted, the $0.07 is really unique and just sort of one-time item.
Steve DeLaney: Sure.
Tony Marone: The $0.80 that is the earnings power of the business, it’s the impact of rising rates on the portfolio and the full performance of the portfolio. When me talk about run rate, I’d say, the two things to bear in mind, which I highlighted on the call. On the one hand, we have some of the loan is going to cost recovery that cut against that. On the other hand, we have the benefit of further rising rates that will be a tailwind. Those happen to roughly offset. But if you are thinking about the go forward, those are the three things that I would think about, is the 80% baseline and then those two variables going forward.
Steve DeLaney: Great. Thank you, Tony. And on the $1.10 boost to the CECL reserve, $1.10 per share, about $180 million. Can you clarify how much of that and I think there was certainly the specific, you mentioned, the loans that had been four, five loans that have been put on the cost recovery, but is there a material increase in the general reserve include embedded in that $1.10?
Tony Marone: Sure. So the general reserve went from 35 basis points of our loans to 55 basis points, which is about like $0.13. So it’s majority is that change in the impaired loans.
Steve DeLaney: Got it.
Tony Marone: But excuse me, it’s about $0.30, I misspoke.
Steve DeLaney: Okay.
Tony Marone: So the majority is the move five-rated loans, but you do have the general reserve growing as well.
Steve DeLaney: Yeah. No. I think that’s important, because we at least have some hope or expectation down the road and improving market that some of that may revert to book value. Thank you very much for the comments.
Katie Keenan: Thank you.
Tony Marone: Thank you.
Operator: The next question is coming from Jade Rahmani with KBW. Please go ahead.
