Franklin BSP Realty Trust, Inc. (FBRT) Q3 2015 Earnings Report, Transcript and Summary

Good morning. And welcome to the Capstead Mortgage Corporation Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe. Please go ahead.

Good morning. Thanks for attending Capstead's third quarter earnings conference call. The third quarter earnings release was issued yesterday, October 28th, and is posted on our website at www.capstead.com under the IR tab. The link to this webcast is also in the Investor Relations section of our website, and an archive of the webcast will be available for 60 days. A replay of this call will be available through January 29, 2016. Details for the replay are included in yesterday's release. With me today are Andy Jacobs, President and Chief Executive Officer; Phil Reinsch, Executive Vice President and Chief Financial Officer; and Robert Spears, Executive Vice President and Chief Investment Officer. Before we get started, I want to remind you that some of today's comments could be considered forward-looking statements pursuant to Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and are based on certain assumptions and expectations of management. For a detailed list of all the risk factors associated with our business, please refer to our filings with the SEC, which are available on our website. The information contained in this call is current only as of the date of this call, October 29, 2015. The company assumes no obligation to update any statements, including any forward-looking statements made during this call. And it’s our understanding there are some problems getting on our call today due to the [best] [ph] decline, so we apologies if anyone had any issues. With that, I will turn the call over to Andy.

Well, good morning, and welcome to our third quarter earnings call. I’ll just start with a brief market overview. As everybody knows, interest rates across yield curve were volatile, very volatile in the third quarter. Although, the financial market expected interest rates to be increase short-term interest rate. In September the Federal Reserve Open Market Committee left interest rate unchanged in September, and then again, yesterday. But they are continue to say that they will take a wide range of information into account or simply said, they will be rather dependent. So far this quarter, in the fourth quarter, the 10-year rate has pretty much been trading in a range of about 23 basis points. That -- I think it had intraday low of about 190 and I think it’s had intraday high of 214, and yesterday, it close around 210, which was after the Fed most recent announcement. This rate volatility continued to be an uncertain with, quite challenging for company trying to manage their leverage portfolio of mortgage security. Our ARM securities portfolio has continued to outperform generic fixed rate mortgage security. During the quarter slots -- slots spread tightened significantly during the quarter leading to increase trade volatility, which has been a main driver for most of the reported book value declines we have seen so far this quarter -- in the third quarter. All-in, our book values declined $0.34 to $11.96. Two-third of this decline was attributable to the portfolio which related hedges, pricing and the remainder was attributable to the payment of the third quarter dividend in excess of earnings. For the last 12 months, our book value declined $0.64 and after considering the $1.22 in common dividend over the previous quarters, our economic return has been 4.6%. I think one other things you have look at is in the -- where our book value has declined the $0.34 in the current quarter and then the $0.64 over the last four quarters. The portion of that that with the payment of dividends in excess of earnings, that’s simply is putting cash in the shareholder pocket, not book value decline. But if you take that element out of it and just purely look at it as to the declining book value over the last 12 months, last four quarters, our book decline has been less than 30%, which I think is pretty good performance relative to all the volatility we have seen which reflects the benefit of our full duration ARM strategy. Now respect to the third quarter operating results, our net income was $21.1 million or $0.18 per common share. Our net interest margins related to our investment portfolio declined $3 million to $27.2 million and financing spreads declined 10 basis points. Most of this decline that we saw was attributable to mortgage prepayments, which increased to 23.2 CPR from 22 CPR in the previous quarter and as, you all know, you use to hearing right now, for each full CPR change quarter-over-quarter it’s worth upward of about $1.5 million in quarterly premium amortization, but that goes both ways. As prepayments decline we get the benefit of up to a $1.5 million for every CPR. So the 1.2% -- 1.2 CPR increase in the third quarter basically takes into account the $1.3 million premium increase that we saw during the quarter for our amortization. The other driver of lower financing spreads was higher borrowing rates, which were higher by about 7 basis points from previous quarter and this -- the increase was largely attributable to expectations during the quarter that the Fed action, they would raise interest rates in September. And then the other part was the use of to some degree the greater use of higher rate, longer maturity secured borrowings, which I will get into a little bit more in just a minute. As everybody knows to help mitigate exposure to raising rates, we will use two-year interest rate swaps, we able to do two year because of the short duration of our ARM security portfolio. At the end of the quarter we have $8.4 billion in swap-related instruments. We also had about $3.25 billion in longer maturity secured borrowings, with maturities through the first quarter 2017. But here is what -- but you have to get a little bit, it’s challenging here, it should be the longer maturity of our -- some of our repo is really not necessarily pure hedges. It’s liability management. As -- I think everybody on this call recognizes that as you move into year end for the last number of years, where there has been concerns as to how the banking system and regulations and in this case, that we asked whether the Fed moved in December. So it’s just -- this is liability managing of making sure you got sufficient repo at appropriate rates in here. So this fits less of a hedge versus liability management from that same point. And I just -- I also want to point out is that in August, we began borrowing advances from the Federal Home Loan Bank at Cincinnati. And we had $2.3 billion at the end of September. Regarding our portfolio, our portfolio declined slightly. We’re lower than $14 billion at this point in time. Our leverage in this case because of the decline that we saw in our book value, our leverage increased slightly to 8.8%. But at 8.8 to 1 with our full duration portfolio, we are very comfortable with this degree of leverage that we have in our portfolio. The duration of our investment portfolio is 11 and a quarter months. And after 8 and three quarter months duration of our borrowings, our net duration is about two and half months, which I think is going to be one of the lowest especially with the underlying assets at 11 and a quarter is going to be one of the lowest duration than anybody in this space. Just a few final remarks. As everybody knows, we reduced our third quarter dividend at $0.26. We were disappointed that we had to do that but this higher interest rate volatility and definitely high mortgage refinance rates necessitated us to move. But in spite of the dividend test that we have, we remain confident and focused on our investment strategy. And we’re just going to be managing our leverage portfolio of agency ARM securities. One of the key things here though is that future level of mortgage prepayments will be key in future portfolio yields that we have but keep in mind that seasonality as people are saying. So you’ve seen prepayment likely peak earlier in the third quarter and begin to decline, now going to the fourth quarter and into the first quarter, seasonality is going to be more reflective in there. So going back to the -- how much have CPR changed, we haven’t getting lower, translate into a $1.5 million in earnings on a quarterly basis. The seasonality of lower prepayments will come into play with that. So taking all that in consideration, I think, as you all do. So with that, I will open it up to some questions.

[Operator Instructions] The first question comes from Steve DeLaney of JMP Securities. Please go ahead.

Thanks. Good morning everyone. Appreciate you taking the question. So Andy, as you laid out, I mean, the prepay impact on our earnings is pretty obvious and moreover, it’s kind of beyond your control. So I want to focus this morning, my question is more on the changes in your liability structure where clearly you linked in your liabilities which had the impact of increasing cost of funds. And I just wanted your thought process there with the Fed coming in play. It looks to me that you guys basically decided to get ahead of the curve and invest in what I would call an insurance policy that we’ll hopefully pay off in the future but added cost to short-term earnings. So my question is this the correct interpretation of your internal thought process? And then the second part of that is, if you -- having done that intentionally changed your liability structure seeing your internal modeling probably hedge you somewhere in the $0.18 to $0.20 range as far as core. Could you help us understand why the Board -- you commented on the cut in the dividend but why did the Board elect, they said it is high as $0.26 in the third quarter? Thanks.

Hey Steve. This is Robert.

Hey Robert.

I follow the liability question.

Thanks.

Really, we did materially change what we do with our liabilities. If you look at our duration gap, we’re still at around 2.5 months which is where we were before. Now we added $1 billion in swaps with $400 million matured and we also have swaps maturing very early in the fourth quarter. And so really that wasn’t materially different than what we’ve been doing all along. At the same time, we added a little over $1.6 billion of what we classify as longer term repo. But really, this was inside of the year for the most part. And it was just taking advantage of some attractive financing vis-à-vis the repo levels we were seeing. So if not, a material change in our strategy. And it really wasn’t the big driver of why our funding cost went up. Our funding cost for the quarter, the reason that it went up, it was primarily driven by one month repo rate going up. The prior quarter with rebuying in mid 30s, generically repo rates for the quarter averaged in the low 40s and 50 basis points as we got to the term. So if we look at that, that 7 basis points and incremental funding cost, that’s not termed. A lot of that -- majority of that was just driven by higher one-month repo rate. And if you think about it, one month -- all of our swaps, we received one month LIBOR. One month LIBOR was pretty much flat but [indiscernible].

Right.

…at 19 basis points. But we -- so we don’t get any benefit on the receive side of our swap but we’re paying higher one-month repo rate against those. And so one month repo rate will settle back down into the mid 30s again. So that was the biggest driver. It wasn’t a fundamental shift in our liability structure or our thinking. We were just taking advantage of some opportunities that attracted one year and then financing it all that well.

Okay.

Steve, I think from the standpoint of others who have reported so. Other mortgage recently reported this quarter. I think that higher borrowings also is consistent with them. I think one that placed this order, I think Robert focused at very beginning is looking at what our net duration is. You have seen that materially changed which has given you the indication that nothing has necessarily changed relative to our strategies. It’s just been opportunistic we think.

Right. And I do notice, Robert. I mean, it did look like that swaps in long term. It did jump up to 11.6%, little bit over $1 billion but as you point out, you do have swaps running off in the fourth quarter.

Yeah, Steve. We really, I mean -- we didn’t really change our swap position at all. At the margin, we added once again a little over $1.6 billion and let me classify this longer term repo. But it really wasn’t like we were going out five years or anything like that. So it really wasn’t a material shift in our strategy.

Okay.

Steve, this is Phil. I don’t if you were able to read all the way through to the back of the press release on [indiscernible].

Yeah.

We kind of tried to lay out our swap book in our six month and greater longer maturity secured borrowings. And that shows a whole lot of that is just turning over into the first quarter, 1.3 billion.

I have got that right here, Phil. In fact, I was going to ask you we calculated, the prior quarter you gave us a blended cost of your swaps, I think it was 57 basis points. And we calculated the blend of both the swaps and long-term borrowings at like 61 basis points this quarter. Can you comment on the $2.3 billion? Can you make any comments as to sort of what your average pay rate is on FHLB versus the pay rate on the long-term repo? I am just trying to understand that the incremental benefit from the Home Loan Bank versus the street.

Well, it is favorable. We don’t have that disclosure in our press release, but you will be able to see that when we file our Q at the end of the next week. But it’s favorable relative to what you see in the repo market certainly. Of course, what it is -- it will be a blended rate for all these maturities we have in Federal Home Loan Bank and they are not all longer maturity.

Got it. Understood.

Another thing we did disclose what Robert referred to the basic difference between our received one month LIBOR and repo. We make that disclosure routinely on the previous page of our press release page 10 and it did increase 5 basis points to a 27 basis point differential this quarter from 20 to the prior quarter. So like Robert indicated, that was a driver of our higher borrowing rates this quarter as well.

Yeah. Understood. And Robert did I understand you to say we had heard that repo it come back a little bit from that mid 40s level and the spike over 50, but did I hear you say that you were now seeing mid 30s again?

Kind of in the 35 to 38 range, yes.

Excellent. Okay. Thanks for that color. That’s good to know. Okay. And just one final thing, thanks for the time so far. So Andy, you’re now heavily involved with Home Loan Bank of Cincinnati to the tune of a couple billion dollars. I don’t know if you noticed Mel Watt’s speech last week at the MBA, but he did comment that he expected to have a final rule on his proposed captive ban out in the next couple of months. I am just curious in terms of your discussions with Cincinnati if in fact he goes forward and pushes for this ban, obviously with it, I think not to just put it in Congress’ lap and at his lap, so that Congress will have to define what the captive is and how can be in the system. I am just curious how you feel about the possibility of that disrupting your relationship with the club of Cincinnati? Thank you.

Yeah, that’s a hard question to answer. We feel comfortable with it. We’ve got on over $2 billion in advances with those guys. We understand the proposed ruling that remains out there and I think also what Mel Watt said last week was that he was saying later in the quarter -- later in this fourth quarter or into the first quarter of next year and I think that’s in my mind it’s probably closer to will be in the first quarter of next year before something happens, but it remains to be seen. But with the -- for some reason Congress seem to be getting a long better in the last week and getting things done. So we can hope that Mel Watt goes the same way and starts getting along a little bit better in this space.

And Steve, this is Phil. I mean, you did kind of nail it in that, the color he was given with his discussion to the MBA was that he wants to give Congress a chance to weigh in which indicates to us that whatever that he does as he proposes not allowing captive insurers in the Federal Home Loan Bank system, he would give a runway there to allow Congress contact such that there wouldn’t be anything abrupt in terms of having captive access the Federal Home Loan Bank system.

Got it. That’s helpful. Well, thank you all for your comments this morning.

You are welcome.

The next question is from Joel Houck of Wells Fargo. Please go ahead.

Thanks, and good morning. I just want to follow up on Steve’s question regarding the dividend. I don’t know if it was answered in that way, you lowered it to 26, but obviously ties into where prepayments go, but clearly the run rate is lower than that. So maybe if you can address that. And then I had a follow-up.

Well, I think just simply said so in the third quarter we are $0.22, we paid the $0.31. So looking at it, with where the change over the third quarter from the second quarter is as we said driven by the $3 million decline that we have in our net interest spread. You could see that as we -- our prepayment rates seasonably declined like we anticipate they will and as Robert was alluding to is that borrowing rate settling down a little bit absent what we know the fed can do and if they are going to do anything. So it’s not unreasonable to look at this in a long -- looking at it in a long run rate from the standpoint of where we’re going with dividend. We are mindful of where we think we’re going with earnings into next year and stuff. We are cognizant of that. We don’t want to be in a position of ratably changing and by a great degree the dividend on a quarter to quarter basis. We are very aware of trying to manage the expectations to where there is more certainty as to the degree the dividend that we’re going to earn and definitely the reduction from 31 to 26 was reflective of where we thought it should be and we would hope that if seasonality we will see earnings back probably supportive of that.

Yeah, Joel, this is Phil. We average at 23.2 CPR for the quarter. We give some data points in here where CPR is peaked at 23.93 in July and slipped downward from there to average 23.2 for the quarter. And in October, the prem was for our portfolio was 21.14, which is quite a bit lower than the average in the third quarter. And as Andy alluded to earlier, that’s going to result in lower investment premium amortization. And as Robert indicated as well, we’ve seen to be getting some relief on the borrowing front. So fourth quarter is looking better than the high prepay second and third quarters.

Okay. So all the evidence points to this, rise in prepays being transitory, some seasonal, but there is nothing you guys see. There is nothing has changed from your perspective versus kind of how are you seeing the business historically. I mean, I guess I another follow-up is one of the themes that’s kind of emerging on the agency REIT is everyone’s talking about how difficult it is to manage and hedge your portfolio given the uncertainty around the fed. And I think investors and analysts are sympathetic to that. I guess the question is this -- is there a light at the end of the tunnel because whether or not the fed raises in December or March, you are going to have a constant ebb and flow of fed’s peak. And it seems like it’s having real, making it very difficult for you and others in this space to -- and I think you guys have done a relatively good job on book value. But it does seem that on balance, book value tending to drift downward again and there is not a ton of upside. And as a result, the agency space in particular has traded at very wide discounts to book value. So, I’m wondering from your perspective, is that transitory in that, or is there something more systemic structural that is not going to away and we are going to be living with the volatility because of the certain uncertainties for quite some time.

Yes. This is Robert. I will answer that. I mean, one of the reasons we’ve constructed our portfolio like we have is that we have less spread duration given the instruments that we have. And so all things being equal in these periods of spread widening, our book value should hold in better than most other asset classes out there. Having said that, at the margin, purchases look fairly attractive right now. But the spread volatilities that we are seeing, I don’t think it’s a one-time event. I think you kind of look at it like, Wall Street won’t position paper like they used to. They are not carrying nearly inventories that they have and so if there is any selling or any spread widening, it tends to exaggerate. That’s one of those reasons and people have talked about the lack of liquidity that is out there right now. But there are times when spread widening can be a good thing when you are starting to reinvest at the margins and bonds, ARMs anyway to me are at the most attractive levels that they have been at all year. And speed as Phil alluded to, seasonally are drifting down. So they are going to be bumps along the way but I think the portfolio we constructed and the types of acquisitions we are looking at making in the future, our strategy should continue to work well.

Okay. So that’s a vote of confidence in terms of strategy. I think you guys were in a little better position than most are. It’s not loss on anybody on the call and I certainly pointing at you that a lot of this is traditional agency REIT only have been moving aggressively into other types of securities business or strategy. Who knows how that turns out? But I guess the final word from you guys is you are comfortable at the strategy. We shouldn’t expect to see you guys materially deviate from your core business, is that fair, the final takeaway?

Well, I think, if you look at preserving book value, when you have this spread widening episodes right now but the credit curve steepens dramatically. And if you look at what happens to high yield and lower rated sectors and if you look at the risk of your book value declining materially and then having to shrink your portfolio, the risk reward tradeoff is not there for us. And also to add to prepayments, one of the things that was driving prepayments higher that is starting to taper off somewhat too is the FHA lowering MIP, as our Ginnie ARM portfolio saw higher seeds than we would normally expect and we are seeing some burnout there as well. So, I think the prepay story is getting better from that regard.

And that reduction was like in January, basis points and there has been talk of that happening again but FHA himself pretty much said, they are not doing it.

Right. And so the prepay story is getting better and our spread duration is the lowest in the space and so, I think that’s a good strategy and we have some favorable wins ahead of us.

Okay. Well, thank you very much for your answers, guys.

Sure.

The next question is from Mike Widner of KBW. Please go ahead.

Hey. Good morning, guys. I think I’m probably going to ask follow-ups on kind of the same general topics but maybe just so if you can give us a number here. You indicated in the tables, the overall borrowing costs before any hedging in 3Q were 45 basis points and that includes the longer term and the repo presumably. But that obviously includes the mix of repo pricing moving higher and then, more of those longer term borrowings being added. So just wondering if you could give us kind of where that stands today or if alternatively perhaps where it stood at September 30th as opposed to a -- I don’t know if the number in the tables are quarter average or exactly what it is?

Our unhedged borrowing rates for the third quarter were 45 basis points. We’ve got that on page 10 of the press release.

Yeah. And what I was asking is like relative to that, where do we stand today? Because I don’t know the funding costs were -- when the longer term funding was added like during the quarter and there is obviously moving parts with 30-day repo costs haven’t come down and so. If you can give you a spot estimate.

I’m sorry. I’m having had a hard time following what’s the question.

I think what Mike wants to know a little more color on is what the repo markets doing post quarter end.

Yeah. Sure. I missed this earlier. The biggest driver in our borrowing costs going out during the third quarter was one-month repo rates going up and they basically went up from the mid to high 30s to its highest 50. But in generally speaking, they were -- our repo rates were averaged about 5 basis points higher, 5 to 6 basis points higher for the quarter. Subsequent to the fed in quarter end, those repo rates have drifted back down again into the mid 30s. I indicated the 35 to 38 range. So, we have seen a decline in one month repo rates.

Yes. So, I appreciate that. I guess to be more clear about my question is the 45 basis points, I believe is a 3Q average that you have on the table there.

Yeah. And that’s both 30 days and the longer repo advances.

Yeah. So there is a lot of moving parts in that number and so, I guess what I was just asking and I can probably back into this, but the way you disclose kind of the longer term funding, mixed in with the swaps makes it a little tricky to kind of get a rate. But I was asking basically, if you did that number today, if you look at -- whether it's September 30th or today, I mean what would you say that the equivalent of that 45 basis points is? So you are…

So, one thing, Mike, on the swaps, as I mentioned it, I believe Steve earlier. All of our swaps, we received one-month LIBOR. And so one-month LIBOR has not moved. It’s been at 19 basis points. The pay-in on those swaps is going to be reflective of one month repo with the fixed. So the difference between one-month LIBOR and one month repo, when one-month repo move down, we get the benefit on those swapped out positions. And so if you took all those swaps and assume that repo rates on average are down 5 basis points now versus last quarter you apply that number to the swap position as well.

Yeah. I understand that. And I think maybe, I don’t know if I’m asking it clearly but -- right. So, today, I don’t want to talk about swaps at all. Forget swaps exist. I’m talking about purely the total borrowing costs, right. The combination of your longer-term funding and the repo whether it would be 30 days, 90 days, etc cetera. What’s the spot rate on that either, as of September 30th, if you want to give that number or today, if you want to give sort of it? It doesn’t have to be precise. I’m just -- again, what I'm trying to disaggregate is you added a bunch of long-term funding in the quarter. I don't know if you added that on September 28, or if you added it in the quarters. So, I don't know if the 45 basis points in your table?

Well, Mike. You also got to consider. You got some of these higher rate rolls that are just 30-day rolls, because of both consternation around September 17th, that meeting and order and tightness. And so the year end, I mean the quarter end rate was higher than the average rate that we have disclosed. Unfortunately, we did not disclosed the higher -- how much higher? But it is marginally higher and we’ll have that in our 10-Q that we file at the end of next week.

All right. Okay. In another words, I’m not going to get an answer to that question which is fine. I guess just a feedback. I appreciate the table you guys have. It breaks it all out. The only thing that -- and this little extra work because we’ve got to go back to last quarter but mixing it in here with the swaps is sort of apples to oranges. So when you list these average combined rates, I think a lot of us would like to know what are the precise rates on the longer maturity secured borrowings instead of having to sort of disaggregate that from the average combined rates that you list in the table and that’s just for -- hopefully, it is in the Q and further.

Well. Fair enough. We’ll try to improve that going forward.

So, I appreciate. And I do like the disclosure, so thank you on that. I guess related to that. My understanding from the text of the press release and sort of looking at book value is that you don't mark that longer-term stuff to market from a book value standpoint. But then I was a little perplexed because there is a table in here where you show a fair value mark on the longer-term secured borrowings. And so just want to make sure I understood like what exactly was reflected in book and what’s not?

Yeah. That’s a good question. This is Phil, again. We make that disclosure routinely in our 10-Q, but with this new presentation and with the fact that we do have a little bit more and longer maturity secured borrowings than in previous quarters, we thought it makes some sense to go ahead and give the disclosure now. So we put it in the table on page 11, $2.4 million mark on that six month and greater borrowings.

But, so just to be clear that 2.4.

That’s not in book value.

Okay.

Yeah.

Got you. All right. And then I guess this is just -- so thank you for that too. I guess more philosophical and I understand what you're doing, I think you described it reasonably well about to trying to lock in funding cost to avoid volatility across quarter end, and I’ve seen a lot of the longer duration funding. As we think about the funding cost and how you view that in 2016 and beyond, if I take that the table back there with the 11.3 billion of combined swaps and long-term funding, about a third of that runs off by four and a quarter billion of that runs off by the end of 1Q 16. And so just how do you think about that, what should we expect and what should we model in terms of you had been going along the process of sort of replacing swaps as they run off, but this adds a sort of new dimension to it with the three and a quarter billion or so of additional long-term funding. So, just wondering how we think about that overall level of locked in funding cost if you will.

I mean, I think, we look at from the standpoint of our duration gap and we may -- we will view from a liability management standpoint, we will view longer-term repo just like we would swaps. And so there maybe -- but at this point in time we’re probably going to keep our duration gap there close to where it is. So whether we put on $500 million of two-year swaps or $500 million of two-year repo or something shorter or whatever, it is in the context of our overall asset liability management and I would look for to maintain our duration gap fairly close to where it is right now.

Okay. One of the benefits of being in the longer, David, longer maturity borrowings is that you don’t have the -- as Robert was talking about early, you don’t have to pay fix, receive floating. You don’t have that differential, which has been coming into play associated with the swaps as I talked about a minute go. So just more purely given this in the fixed borrowing is just locking in the right, you don’t have that other volatility.

Yes. We’re always looking at longer-term repo versus the swap market. And obviously, the biggest benefit for longer-term repo is it committed financing. But we wanted the map behind that as well in determining which one of those options we choose.

Yeah. I mean, I guess its -- so I mean, an interesting way to look at it, it makes sense to me. I guess the question here sort of raises in my mind is that given there such a big spread between what you receive and what you pay on your swaps to 27 basis point I think you disclosed. I recognized that can come down. But I mean, through the FHLB, I mean can you -- maybe you already said this but don’t you effectively get cheaper financing through the FHLB by doing say one-year borrowing instead of one-year repo plus one year swap and I don’t know how much two year borrowing or such you could do. But I mean, the FHLB membership open you up to sort of just better economics by replacing 30 day repo plus swaps with two year financing from the curve?

Yes. To answer your question it does and we look at that and there are advantages on certain parts of the curve and there are not on others and so we take that into account. So just generically inside of the year, the answer is usually, yes. When you get outside of the year, it’s not always the case.

Got you. And then so is it safe to assume -- I’m sorry and I’ll stop after this one. Is it safe to assume that the 2.3 -- or I guess you already said that not all of the $2.3 billion of FHLB is included in that longer-term funding but just wondering if you could give us a little more color on sort of what is? I mean, how much of it just [indiscernible]

Well, we certainly added a little over $1.6 billion and what we classified as longer term repo during the quarter. So that -- at the margin we added that much and so we have $2.3 billion on with them and we only added $1.6 billion in change in longer-term repo, our longer-term advances of these.

Okay. So basically, I mean something around the order of -- is all the $1.6 billion that you added flub or is there [Indiscernible]

Well, we didn’t disclose that but …

I can infer that if I still chose.

That’s fair.

Okay, okay. Thanks, guys. I mean, it’s not that it’s of critical importance, just kind of curiosity more than anything else but thanks and appreciate all the answers as always.

You’re welcome.

The next question comes from [Jim DeLisle] [ph] of Wasatch Advisors. Please go ahead. Good morning, guys.

Good morning. Firmly, everybody knows effort to make your job easier, I’d like to suggest or ask if you ever considered. Andy, you said at the beginning that you’ve been by over paying the dividend, you’re effectively putting money in the pockets if you investors pretty much similar to your share buyback. And you guys are trading the low 80s relative to your TVV according to analysis that I’ve seen. So share buyback seems somewhat appropriate. Have you ever considered looking at your dividend, less on a quarter-to-quarter like moving it to where we’re likely to earn in the next couple of quarters. And more like saying, here is a number that given a way we see the world, when we plus or minus this number, $0.05, $0.06, $0.07 per quarter for the foreseeable future and going out with the number that you can tell investors, our dividend here is $0.25. We may earn $0.27. We may earn $0.18. But it’s going to stay at $0.25 for the foreseeable future. You’ve overpaid your dividend for long enough for the 95% payout is not going to be an issue going forward and it would remove one level of instability from the marketplace, just wondering if that has ever been in consideration.

Well, I think, Jim, its Phil. We did -- we have tried to keep our dividend relatively stable based on our runway that we see in earnings. So we set it at $0.31 for 2013, $0.34 for 2014, we set it at $0.31 for 2015, but we didn’t think it was appropriate to hold it at that level, given what prepays began to do to us. So we would like to have the dividend off, more off the table in terms of people gauging how we’re doing quarter-in quarter-out and try to have a relatively stable dividend. Can we keep it stable for a full year at a time? That’s going to depend on circumstances.

I’m just thinking there are so many moving parts and I did what is effectively a close model that just investors in all the names in the space, they came to consideration, here is a number. We don’t have to worry about companies getting dividend in middle of the quarter and things like that? Yeah, maybe they will underpay, we will require a special dividend at the end of the year, maybe they overpay at the end of return on capital, just something that as an investor kind of simplifying a little bit would be appreciated. Thanks.

[Operator Instructions] There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.

Thanks again for joining us today. If you have further questions, please feel free to give us a call. Again, we apologize of the problems getting out of the call this morning. We look forward to speaking with you next quarter.

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