Stephen Laws: Fantastic. Thanks for the color, Bob. I appreciate the comments this morning.
Operator: Our next question is from Sarah Barcomb with BTIG.
Sarah Barcomb: Hey, good morning, everyone.
Doug Bouquard: Hi, Sarah. How are you?
Sarah Barcomb: Hey, good morning. So, you’ve been removing the more difficult credits from the portfolio via loan sales this year, and you’ve brought in a couple of new loans with the proceeds, but repayments have been strong as well. So, the portfolio is contracting. Should we continue to assume that part of the dividend will be paid out of book value, given run rate earnings are shaking out a little bit below run rate DE, or how should we think about that?
Doug Bouquard: I’d say, consistent with prior quarters, the decision relating to the dividend is a Board level decision. And that decision, of course, will be a function of our view of the earnings power of the company as we work through credit challenged assets. And then also the available investment opportunities going forward. But, again, that’s a Board level decision.
Sarah Barcomb: Okay. So, my follow-up is with respect to the five-rated loans, the specific CECL stayed about the same at $175 million, but the total principal balance of that group came down. So, my question is, do the two loans that came into the five-rated pool carry higher loss assumptions than the existing assets? Or did your outlook for those three five-rated loans that were already in there last quarter worsen? How should we think about that dynamic across those five loans?
Robert Foley: Hi. Good morning, Sarah. It’s Bob. Happy to answer that question. You’re correct. There were two loans that moved into five, and so they effectively brought with them the allocated CECL reserve associated with each. There were a small number of loans that were already in the specifically identified pool, where we did slightly increase the reserves, primarily office, and primarily for the reasons that Doug commented on earlier. But relative to the removals, frankly, that resulted from the loan resolutions achieved during the quarter, they were relatively modest.
Sarah Barcomb: Thank you.
Doug Bouquard: Thanks, Sarah.
Operator: Our next question is from Rick Shane with JPMorgan.
Rick Shane: Hey, guys. Thanks for taking my question. I need to queue in before Sarah, because she really hit my primary topic in terms of dividend, but would love to explore this just a little bit more. Obviously, with the realized losses that creates an opportunity to really rethink the dividend. But even if we just start to normalize for recurring spread income, it’s unclear whether or not $0.24 is the right run rate. Can you talk about both the dynamic in terms of realized losses and also the ongoing spread income to support the dividend?
Doug Bouquard: Sure. And happy to provide a little more context there. So, just to reiterate some of the important components of that determination, which again is done at a Board level, but we look at current liquidity, our targeted liquidity levels, expectations on credit challenged loans. And then ultimately it comes down to a capital allocation decision. To put some numbers around it. Rick, to your question, net income before credit losses has really ranged between $0.18 to $0.25 per share, and we believe that this is an important precursor to establishing sustaining earnings power once we substantially complete our asset resolution strategy. I think Bob had mentioned within his comments at the beginning of the call that just in deploying the capital within our CRE CLO, which again has substantial amount of available reinvestment, that alone will add approximately $0.07 per share.
So, I think, that metric, I think, is important as we really think about, again, establishing the sustainable earnings power of the balance sheet as we’ve worked through some of the credit challenged assets.
Rick Shane: Got it. And, look, I understand the balancing act here, and I appreciate that you guys have been forward leaning in terms of building reserve, transparency, and resolving troubled loans. And I — we may be in an environment where first loss is best loss, and it’s a little bit painful to watch right now. But we look at the disconnect between book value per share, and the — where the stock is trading, and a dividend policy that allows you, given the losses, probably to retain more capital. Why not be a lot more aggressive on the buyback side at this point than on the dividend side?
