Orchid Island Capital, Inc. (NYSE:ORC) Q4 2023 Earnings Call Transcript

Orchid Island Capital, Inc. (NYSE:ORC) Q4 2023 Earnings Call Transcript February 2, 2024

Orchid Island Capital, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to the Fourth Quarter 2023 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, February 2, 2024. At this time, the Company would like to remind the listeners that statements made during today’s conference call relating to matters that are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The listeners are cautioned that such forward-looking statements are based on information currently available on the management’s good faith, belief with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in such forward-looking statements.

Important factors that could cause such differences are described in the Company’s filings with the Securities and Exchange Commission including the Company’s most recent Annual Report on Form 10-K. The Company assumes no obligation to update such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. And now I would like to turn the conference call over to the company’s chairman and chief executive officer, Mr. Robert Calley. Please go ahead, sir.

Robert Cauley: Thank you, operator, and good morning. I hope everybody’s had a chance to download our slide deck. As usual, I’ll be going through the deck over the course of the next 30 minutes or so. Give everybody a moment to pull up the deck. I will, as usual, start on slide three, just kind of give you an outline of what we’ll discuss. The first thing we’ll do is go over our financial results, briefly hint on the market developments that would occur during the quarter, which obviously shaped our results, and then talk about our portfolio and hedging positions, and then give you an outlook of how we’re positioned and how we see things going forward. So with that, I’ll turn to slide five. These are the high-level critical metrics for the company for the quarter, or if it reported a net income of $0.52 per share for the fourth quarter of 2023.

Our book value increased approximately 2% from $892 at the end of the third quarter to $9.10. The total return for the quarter was 6.05%, and we declared and paid $0.36 in dividend. As you recall, the dividend was reduced late last year from $0.16 to $0.12. Now I’ll turn to slide six, kind of the second-level metrics. And these are, to a large extent, reflect steps taken during the quarter. I won’t spend too much time going through the details of what happened in the quarter, but as we all know, in October, when rates were selling off very violently, and the outlook for rates going forward was a lot different than it was the last two months of the quarter. The market pivoted severely, turned around and rallied November and December, but nonetheless, during October, with the market selling off the way it was, in order to maintain our leverage and liquidity, we had to reduce the portfolio.

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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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Mikhail Goberman from Citizens JMP Group. Your line is open.

Mikhail Goberman: Hi, good morning, guys. Just a couple questions here. Could you give an update on what your economic leverage stands currently? Sort of piggybacking on that, assuming we don’t get any rate cuts until the second half of the year and we kind of stay at this sort of level of primary, secondary spreads, what is your appetite for that leverage kind of going forward? I know obviously leverage went down meaningfully in the fourth quarter. And also, if you could, a book value update as we stand now. Thanks.

Robert Cauley: Sure. I’ll do a quick one and then I’ll turn it over to Hunter. The leverage is, if anything, slightly lower. Probably just pay downs for the month, not being reinvested. Our book value is more or less unchanged as of yesterday, up or down a few pennies from where it was at year end. And with respect to primary, secondary spreads, that’s a tougher one to call. I’m not sure how that’s going to evolve today, kind of through a monkey wrench into the outlook because I think where we were to close the business yesterday, probably still thinking the Fed would ease at some point, maybe not March, but as long as inflation kept trending down, that even if nothing other than to keep real rates from getting too high, that they would slowly ease.

But if we do see an acceleration from here in, for instance, wage growth, and then there’s the risk that you would have a wage price spiral that could start to change things. So our view was to probably take leverage back up a little bit. But I think now we may have to just wait a minute just to see kind of how things shake out here from here.

Hunter Haas: Yes, I think we’ll look to leg in a little bit in the leverage, try to do so in sort of a measured pace as we see how the data develops. We came into the tightening in the fourth quarter that occurred from kind of the wides, at the beginning of the quarter into the third, pretty defensive. And so we took the economic leverage down. We sold a few bonds at the sort of height of the peak of the widening that occurred in the second half of the year, which was unfortunate. But we’ve been looking for opportunities to increase basis, our basis exposure a little bit, take off some of the TBA shorts as well as just potentially adding some pools to the mix. So I think that we’ll kind of be measured about that. Opportunities like yesterday and today, mortgages are definitely cheaper.

And so we’ve had our eye on a few things, and we can leg in slowly, I guess. And I think we’re, in general, I think we’re neutralish on the basis in general. Obviously, opportunities present themselves to incrementally add in. We’ve been more focused on sort of great hedges than anything else year to date. So through the end of December and really since the December Fed meeting, the market got what we felt like way ahead of itself in terms of pricing in some eases in a very quick pace through 2024. We took some steps to sort of lock that in, if you will, through funding hedges and have been waiting for a better opportunity to explicitly add on the asset side. So that’s how we’ll continue to look at things, I think.

Mikhail Goberman: Got you. Obviously, we’re going to get a portfolio update in a week or so. But I guess we can expect you guys to keep adding the same sort of coupons at the margin that you’ve been adding the last couple of months?

Hunter Haas: Yes, I think, like we said, the belly coupons have been kind of the most favored location because they’re kind of right below par. They’re fairly far away. We’re fairly far away from rates from them extending significantly. But they’re not affected by prepayments too much. So they’ve been very popular destinations, but they’re pretty rich, pretty full. So it’s kind of hard to add there. Like I said, we added shorts there. So we would probably look to add maybe, I would have said this close of business yesterday with some higher coupons simply because of the magnitude of the rally. And they’ve gotten cheap today. I’d have to kind of reassess based on how things shake out the balance of the day. But it’s basically away from probably on the other side of the stack.

So the higher coupons would be looking to add because that barbell has been working for us lately. Yes. As you know, we came in to last year, we had a big bias towards lower coupons. Some of the legacy portfolio items into some of the more pronounced widening points throughout 2023, we were really shedding things that had been acquired in a much lower rate environment, but that were more or less TBA-ish. So we don’t really feel like from a relative value perspective, we were really giving up too much there. If we want to put, we sold a number of threes. If we want to reestablish some of those, we can do that pretty easily in TBA form. The pools that we sold over the course of last year were not really meaningfully adding to the income. They were more of a trade that we put on in the event that we saw a tightening in the basis.

We felt like those basis expressions are best made in lower coupon space, but it started getting a little bit noisy because money managers are in and out of the index. So we’ll continue to monitor how the index performs, whether money managers are generally underweight or overweight. I think that’s going to be the theme for this year with respect to those lower coupons. It’s going to be student body left, student body right as money managers come in and out of that space. So to get away from that and to also stay away from our peer group, I think it’s been really heavily focused on the belly coupons. They’ve sort of been driving performance there lately. They look a little on the tight side. So we’ve opted to continue to hold some of those lower coupons, which are right now relatively wide, in addition to some higher coupons and like Bob said, take that sort of barbelled approach as opposed to chasing after the really lower risk from a premium perspective, belly coupon type trades that are in and around par.

Operator: Your next question comes from the line of Christopher Nolan from Ladenburg Thalman. Your line is open.

Christopher Nolan: Good. How are you? Bob, the comments that you made on your cost of funding were interesting. Should we imply from this that you’re negative spreads are a thing of the past going forward?

Robert Cauley: On a hedge basis, they are. Yes. We’re pretty fully hedged. Like I mentioned, I said a couple of times, with all the swaps we have in place in particular, that on an absolute gap basis, Yes, it looks negative because we don’t use hedge accounting and we don’t advertise premium and discount. So on the face of the income statement, it will still appear negative. But as we disclose, particularly in the deck, when you take into account the effect of the hedges, it is far from negative and it’s actually north of 200 basis points. So the only thing that could change that, I mean, really, is naming. I mean, if we were to say it started growing the portfolio substantially and had to add new hedges, even at that, you still can get attractive funding.

Just looking at the screens yesterday, with the rally, 10-year swap spreads were around 350 basis points. So if you were to, for instance, add any coupon north of 3%, 3.5%, you can get positive spreads. So it’s not really hard to maintain that NIM. Expand it might be hard, but I would say, Yes, I think you’re right. We’re in pretty good shape and we’ve got locked in funding hedges that should keep our spread at a fairly attractive level going forward.

Christopher Nolan: Okay. So that’s positive for the dividend in terms of incremental decreases, right?

Robert Cauley: Yes. And then, like I said, if we did get any eases, it’s pretty much all upside from there, right? Because you’re just taking the absolute repo interest expense down and that’s almost at the bottom line.

Christopher Nolan: Great. Final question. The comments you made on the banks were interesting. Given that we’re facing potential carnage in commercial real estate, in your experience, what has been the performance of mortgage backs when the banks are going through a commercial real estate correction?

Robert Cauley: I don’t know if I have any specific answers in mind. Typically, the lack of credit exposure in the sector tends to bode well for the sector in those types of environments. When you have a credit event, whether it’s commercial real estate or corporates, high-yield investment grade, the asset sector, especially from the perspective of a multi-sector asset manager, usually does well. In fact, Hunter and I were just at a conference last week, and there were numerous investors of different types. One of the panels they had were people who managed either endowments or pension funds. They were quite bullish on mortgages. Asset managers are fairly overweight mortgages. This group, we still found them quite attractive.

Any type of credit evolution, a negative one, just makes them look all the more appealing because they are attractive from a historical perspective, and they have no credit risk. I would think that would bode well for us. The negative with the banks, though, is that a large number of banks acquired a lot of mortgages, especially lower coupon mortgages. You found out last year, to the extent they were very far underwater, and they were forced to sell them, there’s a source of potential selling pressure. That’s why lower coupons had a rough day the last two days, just because of this New York Community Bank issue. If they were forced to liquidate, they might be selling some mortgages. That is a bit of an overhang to the mortgage market. If they were forced to liquidate, that’s a problem.

Just having losses from the perspective of asset managers who are not banks, it’s a positive for the mortgage sector.

Hunter Haas: I’d just add that our last three really pronounced episodes, if you will, for agency REITs, we came out of the global financial crisis and the early days of the pandemic. We certainly had funding pressures, spread widening, liquidations occurring, and taper tantrum as well was a point. Agency mortgages always performed relatively well, even if there were some very dire days during the pinch of the liquidity moments where people were getting stopped out. What we find is that, to your point about the commercial real estate market, a lot of times people are selling the most liquid things because they’re the most liquid. Sometimes that creates a lot of pressure for agency mortgages. That was as pronounced as we’ve ever seen it in the last year or so.

People were selling what they could, not what they should, to a certain extent. If you’re all along some commercial real estate and you’re losing money because of that, your leverage is obviously increasing, whether it’s deposit leverage or repo leverage, whatever kind of leverage you employ. In the last year or so, agency mortgages have been the relief valve for people to go ahead and bolster their liquidity positions. That’s been tough for us. It could certainly happen again, but I think we’re at levels that are relatively wide enough that money starts coming in pretty quickly to the extent that we retrace the wide. I think those levels in particular, in and around 200 basis points over funding, we’ve taken a couple of runs at those levels and things have at least so far firmed up pretty quickly when we get to those extremes.

Operator: Your next question comes from the line of Jim Fowler from Kingsbarn Capital Management. Your line is open.

Jim Fowler: Good morning, Bob and Hunter. Thank you for taking the question. Also, as always, I really appreciate the work you do on the market development section, a great recap. The question I have pertains to page 31. I think that tells the story behind my question. With the economic exit now for the quarter approaching where you were in early 2022, I’m wondering, since we went through the period where you were most supposed to lower coupons in having more economic basis that sensibly resulted in the dividend reduction [indiscernible]. I’m wondering, how many quarters 230 basis points, 240 plus basis points of economic basis, you will let tick by until you address the dividend again?

Robert Cauley: Good question. Good to talk to you, Jim. Definitely a good question. We’re very much aware of that management and the board. It is January, so we do need to see how things evolve. I would say that there was definitely room for expansion to the dividend. I still lean that way, but today was a bit of a shock. I didn’t really expect to see non-fund perils per 353,000. Who knows what this might mean for the Fed? I do want to be somewhat guarded in getting ahead of myself. If we were to see a wage price spiral emerge and the Fed starts talking about hiking again, that obviously could change things. Absent that, I don’t like to say on a recorded phone that we’re going to do something to the dividend that gets myself in trouble, but I think we kind of painted a picture that would lead you to believe that there is room for expansion.

Jim Fowler: Yes, great. The second question, if I might, more just going on your experience, then Hunter’s as well, a lot of commentary from peers over the past earnings period that this trading basis of 140 bps to 190 basis points has been resilient. You alluded to being at a conference recently and you’re certainly in the market on an active basis. What do you think would give rise to maybe that band of spreads reducing to maybe 120 bps to 150 bps or a level where the lower end and the upper end ratchet down a bit? Do you see that happening? Your comments on banks being in the market are interesting. It just seems like people talk about it programmatically. Buy at 190 basis points, sell at 140 basis points, rinse and repeat. I’m wondering if you’re saying there’s a reason for belief that either where that band ratchets down a bit? Thank you for taking the questions.

Robert Cauley: I would say — I’ll let Hunter answer. I would say the re-emergence of the banks. It’s possible if the REIT sector went on a significant capital raising period and became large buyers that they could drive them down and they probably would on how far. The bigger gorilla would be the banks coming back because they’ve been downsizing their holdings. As the feds drain reserves, not dollar for dollar necessarily, but they’ve been reducing exposure. That has changed slightly. If they were to come back into the market more meaningfully, that would get us back down. In order for that to happen, I really think you need to see the curve, more spread in the curve. You need to see it moving towards a normalization of the curve and dis-inversion. If that were to happen, then you would expect that to happen fairly quickly.

Hunter Haas: At first, we were all very thankful for the money manager’s community stepping in. As you alluded to in the prior call, I was referring to the 200 bps over market, 190 bps, 200 bps, whatever the top of that range is. Now we all are starting to get a little seasick from the overweight underweight as we bounce around that range you alluded to. I think the banks are certainly key. Today, it took a little bit of the wind out of the sails of that happening sooner than later. I don’t know if we’re going to get our Fed eases quite as quickly as the market was anticipating. Maybe 2024 is a market where we’re waiting for the Fed to come back and see when and if the Fed goes. I think the very fact that the curve is so inverted, people are starting to pull some of that forward.

We look at funding levels that have been prior to today, you can lock up 350 bps pretty quickly. You don’t have to go out 10 years to get 350 basis points of hedged funding by paying fixed on swap. The front end of the curve is very inverted. I suspect that while that’s not a standard bank play, to the extent that they can help alleviate their NIMS by pulling some of that forward, they’ve got to be looking at it. I know we are. I think a little bit of that baked in easing is going to be helpful to the extent that people can pull it forward and that’s going to be supportive of increased yields and increased demand for redeployment of income.

Operator: [Operator Instructions] With no further questions, I’ll turn the call back over to Mr. Calley.

Robert Cauley: Thank you, operator. Thank you, everybody, for tuning in. To the extent anybody has any questions that come up after the call, please feel free to call us. Or if you have a question that comes up after you listen to the replay because you couldn’t make it this morning, again, feel free to call. The office number is 772-231-1400. Otherwise, we look forward to speaking to you again at the end of the first quarter. Thank you.

Operator: Thank you. And this does conclude today’s conference call. You may now disconnect.