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DATE
Friday, Oct. 23, 2026
CALL PARTICIPANTS
- Chairman and Chief Executive Officer - Robert Cauley
- Controller - Jerry Sintes
- George Haas
- Melissa Alfonso
TAKEAWAYS
- Net Loss -- $0.90 per share for the quarter, primarily driven by $231.7 million in net realized and unrealized losses on Agency RMBS and derivative instruments during a period of rising global interest rates.
- Book Value -- $6.02 per share as of Sept. 30, representing a decline from $7.22 at the end of the second quarter due to wider mortgage spreads and market volatility.
- Total Return -- Negative 12.5% for the quarter, reflecting the significant impact of the rates market sell-off compared to a positive 6.2% return in the second quarter.
- Economic Leverage Ratio -- 8.6x at quarter end, an increase from 7.3x as of June 30 resulting from the reduction in stockholders' equity.
- Liquidity -- $515.7 million in cash and unpledged securities, representing 44% of stockholders' equity, which management prioritized maintaining during turbulent market conditions.
- 3-Month CPR -- 8.4% for the quarter, down from 10.9% in the second quarter as higher mortgage rates limited refinancing activity and slowed prepayment speeds.
- Hedge Coverage -- 99% of funding levels at the end of the quarter, an increase from 91% at the start of the period to protect the portfolio against convexity-related duration extension.
- Month-to-Date Performance -- 4.5% increase in book value through Oct. 22, driven by stabilized interest rates and tightening mortgage spreads in early October.
- Share Repurchases -- 6.62 million shares since the end of the second quarter, executed at a discount to book value to enhance shareholder value.
- Average Agency RMBS Yield -- 5.91% for the quarter, increasing from 5.74% in the second quarter as the company benefited from higher yields on new investments and discount accretion.
- Repurchase Agreement Costs -- 3.92% for the quarter, up from 3.80% in the second quarter reflecting higher short-term borrowing costs.
- Portfolio Effective Duration -- 4.33 at Sept. 30, up from 2.513 at the end of 2025 as higher interest rates extended the expected cash flows of the mortgage assets.
- Net Interest Income -- $59.1 million, or $0.30 per share, which was consistent with the quarterly dividend declared and paid by the company.
- October Leverage -- 8.12x as of the call date, reflecting a reduction from end-of-quarter levels as the portfolio was repositioned and market conditions improved.
- Treasury Futures Hedge -- Replaced $1.6 billion of short-dated swaps with 10-year treasury futures to adjust the duration and composition of the company's hedge book.
- October Share Buybacks -- 1.67 million shares at a weighted average price of $5.05 per share, representing a continuation of the repurchase program following the quarter's end.
- Average Portfolio Size -- $11.1 billion, representing a 6.7% reduction in size as the company opted not to fully reinvest all monthly paydowns to limit leverage expansion.
- Total Mortgage Assets -- $10.67 billion in fair value at quarter end, comprised of 99.9% fixed-rate RMBS and 0.1% other mortgage assets.
- TBA Position -- $315 million net notional short position, utilized as a tactical hedge against mortgage basis widening during the quarter.
- Interest Rate Swaps -- $7.86 billion in total notional amount at quarter end, with a weighted average maturity of 4.7 years to manage funding cost risk.
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RISKS
- George Haas stated, "The sell-off remained relatively orderly through the first 10 days of September. That changed with a sharp increase in rates and volatility, combined with significant widening in the mortgage basis, triggered some convexity related hedging... and forced selling by some of the more highly levered investors," highlighting the impact of extreme market stress on portfolio stability.
- Robert Cauley noted, "As we enter into the typical seasonal slowdown with very high mortgage rates, very low affordability, it's a challenging market for that sector, for the originators," indicating continued pressure on the broader housing and mortgage markets.
- George Haas warned that higher rates and selling pressure in the CMO floater market caused a meaningful decline in pay-ups for higher pay-up specified pools, particularly low loan balance and New York geographic collateral, relative to TBA securities.
SUMMARY
Orchid Island Capital, Inc. (NYSE:ORC) faced significant market volatility during the third quarter of 2026 as a global rates sell-off and widening mortgage spreads led to a decline in book value. Management responded by increasing hedge coverage to near-total levels and shifting the hedge mix toward treasury futures to mitigate leverage expansion while limiting asset sales. The company maintained its quarterly dividend and strategic focus on liquidity, reporting that market conditions had stabilized and book value had begun to recover by late October. Management also continued to prioritize share repurchases, citing the stock's significant discount to estimated book value as a compelling use of capital relative to new asset acquisitions.
- Robert Cauley noted a break in traditional market correlations in October, stating, "We've seen this very high correlation between oil prices and rates where oil -- higher oil prices lead to higher rates. That broke this week and particularly yesterday, where oil was up quite a bit and rates rallied quite strongly."
- The company observed a return of safe-haven demand for U.S. Treasuries due to international turmoil, which Robert Cauley noted contributed to a strong rally and short covering in the rates market during October.
- George Haas reported that the company realized a 200% return on the premium paid for a three-month into five-year payer spread swaption trade that was unwound near its maximum value during the quarter.
- Management indicated plans to start reinvesting portfolio paydowns and potentially adding mortgage assets as market conditions normalize and leverage remains at comfortable levels.
- Robert Cauley highlighted external factors impacting the housing market, noting that a recent executive order aimed at reinvigorating the sector could address ongoing challenges related to high home prices and limited affordability.
- The company reported that its economic returns for the year have remained competitive within its peer group without the issuance of dilutive equity during the third quarter's market stress.
INDUSTRY GLOSSARY
- Agency RMBS: Residential mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises such as Fannie Mae or Freddie Mac.
- CMO (Collateralized Mortgage Obligation): A complex mortgage-backed security that redistributes cash flows from a pool of mortgages into different tranches with varying risk profiles.
- Convexity: A measure of the sensitivity of a bond's duration to changes in interest rates; mortgage assets typically exhibit negative convexity as rates rise.
- CPR (Constant Prepayment Rate): A lead indicator for the annual percentage of a mortgage pool's principal that is expected to be prepaid.
- CTA (Commodity Trading Adviser): An individual or firm that trades in futures contracts and is often characterized as fast money in the rates market.
- DV01 (Dollar Value of 01): The change in the value of a fixed-income instrument for every one-basis-point change in interest rates.
- IOs and IIOs: Interest Only and Inverse Interest Only securities, which are structured RMBS tranches that receive interest payments but no principal from a mortgage pool.
- SOFR (Secured Overnight Financing Rate): A benchmark interest rate based on transactions in the treasury repurchase market.
- Specified Pools: RMBS backed by loans with specific attributes, such as low loan balances, designed to offer more predictable prepayment behavior than standard TBA securities.
- TBA (To-Be-Announced): A forward contract for the purchase or sale of Agency RMBS where the specific mortgage pools are not identified until just before settlement.
- TBA Rolls: A strategy involving the sale of a TBA position for the current month and a simultaneous purchase of a TBA for the following month.
Full Conference Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the Orchid Island Capital Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Melissa Alfonso. Please go ahead.
Melissa Alfonso: Thank you, [ Didi ]. Good morning, and welcome to the Third Quarter 2026 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, October 23, 2026. 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.
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. Now I'd like to turn the conference over to the company's Chairman and Chief Executive Officer, Mr.
Robert Cauley. Please go ahead, sir.
Robert Cauley: Thanks, Melissa, and good morning, everyone. As usual, we've posted our deck that we will use for the call on our website. I hope you've all had a chance to download it and look it over before we begin. As again, as I've said, we will be using this for the call. We will not necessarily cover every slide in the deck, but we do try to provide as much information as we can, and we will highlight the slides that we think are the most pertinent for purposes of Q3 earnings and our outlook for the markets going forward. Starting on Slide 3. This is just a table of comments and overview.
The first thing we will do is just go over our financial results. Jerry Sintes, our Controller, will handle that. I'll then talk about market developments kind of split evenly between a quick summary of what we saw in Q3 and then an equal amount of time looking at what's happened since quarter end and kind of our outlook for the markets going forward. And then Hunter will talk about our portfolio characteristics and hedge positions, discuss some of our trade highlights that we did for the quarter and maybe since quarter end and our outlook, and then we will have our usual Q&A session. So with that, I will turn it over to Jerry Sintes on Slide 5.
Jerry Sintes: Thank you, Bob. I'll start with the financial highlights for the third quarter. Net income, we posted a net loss of $0.90 per share in Q3 compared to net income of $0.44 in Q2. Book value at September 30 decreased to $6.02 per share compared to $7.22 at the end of Q2. Total return for the quarter, inclusive of dividends declared, was negative 12.5% for Q3 compared to a positive 6.2% during Q2. And we declared a dividend of $0.30 per share during the quarter, which was consistent with Q2. Turning to Page 6, the portfolio highlights. During Q3, we had an average portfolio size of $11.1 billion compared to $11.4 billion in Q2.
Our leverage ratio at September 30 was 8.6x compared to 7.3x at June 30. 3-month CPR during the quarter was 8.4% compared to 10.9% during Q2. And our liquidity during -- at the end of Q3 was 44% compared to 54% at the end of Q2. With that, I'll give it back to Bob.
Robert Cauley: Thanks, Jerry. I'll start on Slide 9. And as I said, just give you a quick overview. I'm sure since we're kind of the last of the peer group to report this week, you've heard quite a bit of this already. And obviously, the big story in Q3 was this material sell-off in the rates market that occurred right at the end of the quarter, driven by many, many factors: inflation, capital, with AI and sovereign debt issuance driving up borrowing costs and risk premium and several other factors. I don't need to dwell on that too much, but we did see a very substantial sell-off late in the quarter. And since quarter end, we have actually changed.
First off, I think we stabilized. We saw evidence of that last week. Probably driven by the fact that the market positioning had gotten extremely short. A lot of the selling we saw in the market was driven by mortgage investors such as ourselves, hedging convexity related extension of the assets that we own. I think that all kind of ran its course, and the market just seemed to stabilize. I think we just basically were collectively so short, really good. It was hard to have an impetus to drive further selling.
In fact, last week, we had very strong CPI and PPI data that came out, which would -- 3 weeks ago would have caused another leg lower in the market, but we did not have that at all. This week, we've kind of had a pretty meaningful change. Not only has the market stabilized, but 2 things stick out. One, we've seen this very high correlation between oil prices and rates where oil -- higher oil prices lead to higher rates. That broke this week and particularly yesterday, where oil was up quite a bit and rates rallied quite strongly.
The other thing that we've seen this week, which is a change from what we've seen really for the last 2 quarters is kind of the safe haven status of the U.S. Treasury market, where a lot of the turmoil that's taking place in the Middle East, in Europe and so forth has led to people buying treasuries. So like I said, yesterday, there was a lot of AI-related issues in the equity markets and credit markets. We had oil higher. We had political unrest in areas in Europe and then developments in the Middle East, and treasuries rallied very strongly. No doubt, a lot of that was short covering.
In fact, color today from the market would imply that CTAs are a lot less offsides, if you will, no longer have the extreme positioning they had. CTAs are commodity trading advisers that trade in futures very actively. They tend to be kind of a form of fast money, if you will. And they were very active in the market yesterday in all likelihood, covering short. So we had a very significant rally. It since petered out today. Don't know what will happen in the next few days. But we've definitely seen a change in the rates market from what we saw at the end of Q3. So that's a very significant development.
Slide 4 -- or Slide 10, rather, I don't need to spend a lot of time on this. Just looking at the mortgage market, I'll just make one observation. This is just a proxy for the attractiveness of the asset class, the current coupon mortgage spread to the 10-year treasury. And obviously, in the period after COVID, we had this several year period where the mortgage market performance was driven by the Fed, either it was QE or QT, and that's ended now. And so I think it kind of -- we have enough data points, if you will, since that ended where we can look at mortgages relative to the period prior to that.
And if you look at this chart, you can see the period up to COVID where we traded in a relatively stable range for a large number of years, and we're now north of that. So I think the asset class does look attractive. We'll talk more about that later in the call. We have had some tightening this week, but they still look attractive, and returns in the market are still quite attractive. Moving on to Slide 11. As you can see, we've had another spike in vol associated with the sell-off late in the quarter and the meaningful mortgage underperformance.
And if you look down below that, you can see we tend to have a lot of these episodes. They are obviously very detrimental for mortgage performance. The current one seems to be abating, but it seems that we're only a few months away from the next one. The next slide, I think, is pertinent for us because when we get into a discussion of what we did with respect to the portfolio, we, like our peers, opted to not do a lot of widespread selling. Instead, we had modest selling and let the prepayments run off and instead address the sell-off by adjusting our hedges, both the notional amount of the hedges and the duration of those hedges.
Obviously, we all know, as rates sell off, mortgage cash flows extend, the duration of the asset extends. So when we added to our hedge position, we did so with longer duration assets. But also, if you look to the left, it's not as evident here how much has happened in the swap spread market. We saw swap spreads widening. But if you look back a little further, they're kind of at the wider end of the range that they've been in. And as a result, we wanted to do our hedging in the futures market more so than swaps just because swap spreads have widened so much.
So if you look at the right side, you can see that the mix, the orange piece of the pie, if you will, which represents futures, has grown quite a bit. So we opted to change the mix in the hedges somewhat. We also took the hedge coverage from a pretty high 91% going into the quarter to 99%. But as I mentioned, most of the change was in the futures market, less so in swaps. One -- next slide, 13. Just one quick point. If you look at the top right, the primary, secondary spread, we see a pretty significant tightening trend there.
And I think what's driving that, if you look at the left side chart, you can see, one, the red line, that just is mortgage rates. As we all know, they're up in the mid-7% range. And not surprisingly, the refinancing activity associated with such a high mortgage rate is quite low. So it seems to be that mortgage originators may be giving up some profitability in order to maintain origination levels. As we enter into the typical seasonal slowdown with very high mortgage rates, very low affordability, it's a challenging market for that sector, for the originators.
We did see last night, for instance, President Trump signed an executive order, another step taken to try to reinvigorate the housing market, which has been struggling so much in the current rate environment and also not to downplay at all, but affordability, housing prices are quite high. So the combination, money is expensive, homes are expensive, and that makes for a very challenging market. That's pretty much it. For the macro outlook, I'm going to turn it over to Hunter, and he can go through the portfolio developments, and then we will go to our Q&A. Thank you.
George Haas: Thanks, Bob, and hello, everyone. I'd like to add a little more context to Bob's comments regarding the performance of our portfolio and the hedge book during the third quarter and October month-to-date. Following a strong second quarter when we generated 6.2% total return, performance in July as the 10-year rose about 20 basis points, and our book value declined roughly 5%.
We continue to see a familiar pattern in that month in which higher rates, wider spread environment and type of environment we've experienced over the last several quarters, during those types of moves, we tend to see belly and lower coupon mortgages underperform and premium coupons outperform on a relative basis, although in July, both sectors widened relative to our hedges. Performance improved in August as interest rates were largely unchanged. Mortgage spreads recovered a little bit, and we regained approximately half of July's book value decline. As we moved through August into early September, the 10-year treasury yield broke above its recent trading range, climbing into the 4.70s and approaching 5%.
Throughout this period, we steadily extended the duration of our hedges, particularly through longer-dated treasury futures, as Bob alluded to, as the duration of our mortgage portfolio increased. This allowed us to maintain a relatively flat interest rate risk profile despite substantial extension in our underlying mortgage assets. The sell-off remained relatively orderly through the first 10 days of September. That changed with a sharp increase in rates and volatility, combined with significant widening in the mortgage basis, triggered some convexity related selling -- or convexity related hedging, I should say, and forced selling by some of the more highly levered investors.
Specified pools had held in relatively well until that point, supported by strong demand from dealers creating new CMOs in the preceding months when rates were lower. However, as rates moved higher and selling pressure increased in the CMO floater market, that source of demand slowly -- slowed considerably. This put additional pressure on higher pay-up specified pools, particularly low loan balance and New York geographic collateral, where we saw a meaningful decline in pay-ups relative to TBA. During this period, we made some moves. We executed a 15-year, 30-year coupon swap.
We unwound our 3-month into 5-year payer spread swaption trade that we put on in the prior quarter, near max value, realized approximately 200% return on the premium paid. And we added short positions in 7-year, 10-year and even 30-year treasury futures. Market conditions remain stressed into the second week of October but have since begun to improve. This improvement has been reflected in our performance, with book value increasing approximately 4.5% month-to-date through yesterday, October 22. Since quarter end, we've made several adjustments to the portfolio and hedge book. We've replaced $1.6 billion of short-dated swaps with an equivalent amount of DV01 in the 10-year treasury futures.
We've sold some low pay-up 30-year 5s specified pools against a TBA short position that we had established at the end of the second quarter when implied funding levels on the rolls were quite higher. And we bought back our 1,500 contract ultra 30-year treasury future position that we had sold in September -- or that had matured in September. Throughout the third quarter and October month-to-date, our primary focus has been on maintaining liquidity and a relatively flat interest rate profile. At the same time, we repurchased 6.62 million shares since the end of the second quarter, taking advantage of the substantial discount to book in the stock while maintaining a competitive expense ratio and avoiding dilutive equity issuance.
Looking ahead to the fourth quarter and next year, we'll continue this disciplined approach: We expect to reduce hedges as rates rally, add mortgage assets as market conditions and leverage normalize and look for opportunities to improve portfolio carry as relative value opportunities emerge. Our taxable income estimates remain in line with the dividends paid year-to-date. More recently, a modest increase in asset yields has contributed to some improvement in our taxable net interest margin. While the recent repricing of mortgage assets negatively affected book value during the quarter, it has also improved the prospective returns available in the market.
At current leverage levels, we believe the portfolio is capable of generating returns on equity in the high teens with somewhat higher prospective returns available through new investments or selective portfolio rotation. Our economic returns on shareholders' equity for both the quarter and the year have rivaled those at the top of the pure agency peer group without the benefit of any accretive equity issuance. With our shares trading at a discount of more than 20% to estimated current book value as of October 22, we continue to view share repurchases as an attractive use of capital alongside opportunities to invest in additional mortgage assets. And with that, I'll turn it back over to Bob.
Robert Cauley: Thanks, Hunter. Very good summary. I think, with that, we can turn the call over to questions. Operator, Didi, you can field the first question.
Operator: [Operator Instructions] And our first question comes from Doug Harter of BTIG.
Douglas Harter: I just wanted to clarify the book value update that you gave and how that factors in kind of accrued earnings or the accrued dividend.
Robert Cauley: 4.5% through yesterday, and it does include or exclude the dividend, if you will. So it reflects the dividend -- I'm sorry. It reflects the accrual of the earnings, the dividend.
Douglas Harter: So that's like an economic return number?
Robert Cauley: Yes, yes.
Douglas Harter: Okay. Appreciate it. And then can you just talk about your thought process and kind of how you weigh the decision to buy back your stock at a discount, which you guys clearly did last quarter? And how that compares to the attractiveness of kind of buying additional assets?
Robert Cauley: Well, we always -- it's just a number, right? You're looking at returns on marginal investments versus returns on buying back the shares. We're at such an extreme discount now. As Hunter mentioned, we're comfortably below 80% of book. So it's a pretty attractive return. I mean, that being said, we did 6.6 million shares. That's not a huge number, and it was something we will continue to do. But I think, as Hunter alluded to, I would think, going forward, given what happened late in the quarter -- and by the way, the number we quote, a lot of that share repurchase activity had occurred before the last, whatever, 5 or 6 days of September.
So we have done some in the fourth quarter. I think it's about 1.7 million. That's just when the stock was extremely cheap in the midst of all the turmoil. But the sector is attractive, and we'll probably -- as I think we mentioned, we had not reinvested paydowns during Q3. We will cease. We will start reinvesting paydowns. And we may actually add some assets just to kind of take advantage of the additional -- the changes to the hedge book, I think we can accommodate that. So I would probably -- it's going to be a mix of asset acquisition and share buybacks just depending on what more -- looks more attractive at the time.
George Haas: I would just chime in that...
Douglas Harter: Sorry, go ahead.
George Haas: Sorry. No, I was just going to chime in that there's certainly some assets in the portfolio that look more attractive than others, and there's still a few things that are on the tighter side. And so we have a little bit of room to -- we have room to shed some of the tighter things and either reinvest the proceeds from that in stock buybacks or reallocate or rotate into asset classes that are -- or coupons, really, that are more attractive. And I just wanted to clarify on the book value question, the dividend has been removed from shareholders' equity. I got a little confused in that one.
Operator: And our next question comes from Jason Weaver of JonesTrading.
Jason Weaver: I'm just trying to ballpark dividend coverage going forward. Can you walk me through like how comfortable you are with the $0.30 level? I know there's some expanded ROEs available in the marketplace, but we have some swaps rolling off that are giving you some positive carry at the same time.
Robert Cauley: I think we're quite content. I think the earnings level of the portfolio is pretty much in line with the dividend. As Hunter mentioned, tax-wise, it's right on top of it. We expect at the end of the year that the taxable earnings versus the dividend is going to be very close. But the earnings rate, and we just updated this for October, is very much in line with the dividend. We don't know what the future holds, but if we maintain the current level in terms of market conditions and portfolio composition, we are very comfortable with the current pay rate.
Jason Weaver: All right. And then I think during Hunter's comments, you mentioned you had a 30, 15 coupon swap that you had put on. Talk a little bit about how you're viewing that trade. And also, is part of that trade a pure spread hedge? I noticed that the 30-year leg is quite a bit larger.
George Haas: It was -- I'm sorry, the trade was actually a 15, 30. We were long 15-year 5.5s versus a lower amount of 30-year 6s. And it was just really a relative value proposition. We put the trade on at sort of historic wides between 15s and 30s. And I think the trade gapped tighter about 10 ticks and then we unwound the position. I think what you may be referring to is we were also short some 30-year 5s going into -- that had been a TBA short that we put on as the basis really tightened in the second quarter, and we've kind of been riding that short as an alternative hedge.
And then in October, our leverage had increased a little bit with the losses from the third quarter. Cash was down a little. We just decided to go ahead and sell some pools and cover that TBA short. So the pools that we sold, we really didn't kind of truly experience a realized loss on if you will -- I mean, we lost a few ticks on pay-up for some specified pool features, but we were selling pools and buying back TBA. So it has helped us bolster our cash and get the leverage down a little bit, and we can wait and reposition if we want to.
Operator: [Operator Instructions] And our next question comes from Mikhail Goberman of Citizens JMP.
Mikhail Goberman: Most of my questions have kind of been touched on. So maybe if I could ask if you could expound a bit generally on your thoughts on the leverage ratio and where it kind of goes going forward as we move into the end of the year.
Robert Cauley: Yes, it was quite high at the end of the quarter. It has since come down. It is still north of 8x. I don't have today's number, but the last one I saw was 8.26x. Hunter, if you can update that, please do. But -- so it's down. But as we kind of alluded to earlier, with the changes in the composition of the hedge book, both in terms of the size and the duration, and the fact that the market appears to have stabilized and mortgages have started to recover somewhat, I think we're comfortable maintaining that level. Changing market conditions obviously can change that.
But for now, I think the approach that we took of just addressing the sell-off from the hedge side has worked, and it allows us to retain as much earnings power -- both as much earnings power as possible, but also as much potential book value recuperation through tightening of mortgages. So our intention now is to retain the portfolio at this size. And as I said, we'll probably reinvest paydowns, may actually add some. So we're comfortable. Long-winded answer, but the answer is we're comfortable at this level.
George Haas: Yes. Leverage is at 8.12x. And all through the third quarter, our duration gap was very, very tight. So I think like in the deck, maybe it's 0.17. We maintain -- we try to maintain a very tight -- we kind of look at DV01 and we look at the DV01 of all of our partials, make sure we don't have any curve exposure. And we're very well hedged from an interest rate standpoint. We certainly have exposure to volatility and mortgage basis, but we've been able to manage -- stay on top of delta hedging as rates move around.
We'll continue -- as I mentioned in my comments, we'll continue to do that to the extent that rates pull back, which I don't necessarily think they are, but we're clearly sitting at a relatively high level of rates and come in every morning and look at our risk. So we're comfortable with the leverage from that perspective. And mortgages aren't at the far extreme of their wides, but they've certainly given up some ground and have shown signs of support.
And I think there were some things going on in the third quarter related to some hedge fund stop-outs and some liquidations, and there was a lot of kind of a flurry of BWIC activity that occurred in a very short period of time. And once that kind of passed through the pipeline, things definitely felt a lot firmer. Who's to say, I mean, it could change again tomorrow, but that little episode where things got the most extreme in the last month or so was fairly short-lived.
Mikhail Goberman: I appreciate that. And so as you guys -- it sounds like you guys still have a pretty good appetite for buying back your stock. As you think about continuing to do that, so I guess the question is, do you just kind of try to manage the leverage ratio at, let me guess, like an 8x, 8.5x kind of range as you go forward?
Robert Cauley: Yes, that makes sense. And I mean, I think the share buybacks, if we continue to trade meaningfully below 80% of book, that looks pretty compelling. I would hope that would change given the relative performance of the stock, but we'll see. And then on the asset side, we have seen some decent recoveries reflected in the book value. If that were to change dramatically, if we were to tighten in significantly in the near term, that will change the calculus in terms of which option looks more attractive. But for now, it's -- they're pretty close to equilibrium, in other words, about even.
George Haas: Yes. There's just -- we can go through and we surveil the portfolio and things that look tight and don't have to stay. And if the better use of capital is to buy stock back, then that's what we can do and to the extent that things look wide and maybe it's less clear that's the right move. And also, we can -- as I mentioned, there are opportunities in the portfolio at these rate levels to do some rotation and get a little bit better carry out of certain assets as well.
Robert Cauley: The big takeaway though is with the stock trading where it is, it's really an albatross around our neck. Most of our -- not most, but some of our peers trade at premiums and obviously being able to raise stock accretively and buy assets at these cheap levels is an extremely attractive option to have at your disposal. We're at the other end of that spectrum where we trade at a meaningful discount. And so that's off the table. We're not willing to sell shares at anywhere close to this level of a discount.
So we manage as best we can given the price of the stock relative to book and try to generate the returns that we do and see how we stack up. And hopefully, at some point, the stock reflects the relative performance. But to date, it certainly has not.
Operator: Thank you. I show no further questions at this time. I'd like to turn it back to Robert Cauley for closing remarks.
Robert Cauley: Thanks, [ Didi ]. Again, thanks, everybody, for dialing in and listening to our call. To the extent you have further questions and want to elaborate further, we will be glad to do so. Or if you just happen to catch the replay and have a question, feel free to call us at the office. The number is (772) 231-1400. We're always welcome to take any questions. And otherwise, we will speak to you at the end of the fourth quarter and calendar year 2026. Thank you.
Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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