Q2 2020 Arbor Realty Trust Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the second quarter Arbor Realty Trust earnings Conference call. At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question. During this period you will need to press the star one on your telephone if you want to remove yourself from the Q. Please press the pound key.
Please be advised that today's conference is being recorded if you need operator assistance. Please press star zero.
I would now like to turn the call over to your speaker today, Paul Elenio Chief Financial Officer. Please begin sir.
Okay. Thank you Priscilla and good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning will discuss the results for the quarter ended June Thirtyth 2020.
With me on the call today is Ivan Kaufman, our President and Chief Executive Officer before we begin I need to inform you that statements made in this earnings call may be deemed forward looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business financial condition liquidity results of operations plans and objectives.
These statements are based on our beliefs assumptions and expectations about future performance taking into account. The information currently available to us factors that cause actual results to differ materially from all those expectations. In these forward looking statements are detailed in our FCC reports listeners are cautioned not to place undue reliance on these wells.
Looking statements, which speak only as of today Arbor undertakes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances. After today well the occurrences of unanticipated event I'll now turn the call over the Arbors, President and CEO I've encountered.
Hi, Kupol and thanks, everyone for joining us on todays call.
We hope that you and your families are safe and healthy. We appreciate your participation during these challenging times.
We will realize the difficulties and complexity so a country an entire world continues to deal with from the effects of cold.
In addition, as we all know we invented recessionary period.
After experiencing a 10 year round of tremendous economic growth, we as operators of this company well pad for the recessionary environment.
We built a viable operating platform focusing on the REIT asset class, it's very stable liability structures.
Hi, good yeah, so strong liquidity liquidity.
An active balance sheet Ngs see agency business and many diversified income streams that generate strong core earnings and dividends in every market cycle.
We also have a nominal delinquencies and forbearances and I'll portfolio.
An experienced cycle tested management team.
In a business model that provides many diversified opportunity for growth, which clearly puts us in a class by ourselves.
Our second quarter results are a clear reflection of the strategy.
The first platform. We have developed we had an outstanding second quarter with many significant achievements, including remarkable operating results, which has allowed us to increase our dividend to 31 cents a share.
This is the ninth year in a row, we had been able to increase our dividend.
Confident and our ability to continue to generate core earnings in excess of this increased dividend.
As Paul will discuss in more detail.
Earnings for the second quarter were 46 cents per share, which is remarkable accomplishment and a true testament to the value of our franchise and the many diverse income streams, we have created.
In fact, the growth we're experiments and I'll core earnings this year has already exceeded last year's pace.
We realized significant benefits from my LIBOR floors.
Efficiencies now CLL vehicles increases now servicing fees and yes, it Jesse agency volumes.
Substantial income from our residential business and reductions in <unk> overhead and general and administrative expenses.
As a result of these recurring benefits combined with a projected originations strong pipeline and the credit quality of our portfolio Weve and equally position to continue to produce significant core earnings for the balance of the year. Despite the effects of the recession.
The strong core earnings outlook has allowed us to once again increase our dividend we are confident ability to continue to produce core earnings in excess of this dividend.
Dividend reflects a 13% yield based on yesterdays closing price.
Prior to the pandemic just a few months ago in mid February we were trading at a much lower dividend yield of around 8%.
Which have applied talk current dividend.
Would result in a stock price of approximately 15 dolls and 50 cents a share.
And we believe based on our resiliency and strong performance that we should be trading above that level.
As a result, we feel this is one of the best opportunities to create shareholder value in the history of our franchise.
Through a G.S.C. agency platform, we have been very active and providing liquidity in the multifamily market.
We originated 1.35 billion Angio see agency loans into second quarter, and 2.2 billion for the her first half of the year, which is up approximately 10% more originations for the first half of 29 team.
Our pipeline is also extremely strong and as a result, we expect to produce strong origination volumes for the balance of the year.
In this unprecedented vitamin D. S. C agency platform offers a premium value as it requires limited capital and generate significant long dated <unk> predictable income streams and produces significant annual cash flow.
Additionally, our 21.6 billion GST agencies servicing portfolio, which is mostly prepayment protected.
In a raise approximately $95 million a year and growing in recurring cash flow. In addition to the strong gain on sale mortgages, we continue to generate four origination platform.
Having the ability to originate and sell loans and illiquid market.
With minimal required capital.
Produce gain on sale income.
As well as new.
Increasing servicing revenues will continue to contribute greatly to our core earnings and dividends.
From a liquidity perspective, we're very pleased to report that Weve, a current cash and liquidity position of approximately $450 million.
We believe not only provides us with adequate liquidity to navigate the current market conditions, but it also gives us offensive capital to take advantage of creating accretive lending opportunities.
We have been very successful and increasing our liquidity position going it by approximately $100 million since our last earnings call.
In the second quarter, we issued 70 million of three year unsecured debt and an extremely challenging environment, which continues to demonstrate the value of a franchise and the strength of our investor relationships.
We successfully executed a first private label securitization in the second quarter totaling 727 million of assets, which generated approximately a 115 million of cash after repaying the short term debt associated with these loans.
We have a very strong balance sheet with a high quality portfolio.
The appropriate liability structures at June Thirtyth, a balance sheet loan book grew to 5 billion I was financed with 3.4 billion of debt.
Approximately two wouldn't have billion was 75% of that debt is non recourse non mark to markets yellows at approximately 850 million is financed through a warehouse and repurchase facilities that have secured by 1.2 billion of assets with.
Different banks that we have long standing relationships with additionally, the majority of loans being financing. These bank lines are also rated as yellow eligible.
With respect to our balance sheet portfolio, it's very important to highlight that over 90% of a book a senior bridge loans and most importantly, approximately 80% of up what fall Hill is a multifamily assets, which has been the most resilient asset class and all cycles and well.
When we believe we'll continue to outperform all other asset classes in this recession as well.
Additionally, we've not provided any loan modifications with rate concessions or had any defaults to date related tell multifamily portfolio and most of the loans not portfolio contain and for servers and all replenishment obligations by all bars give us the ability to effect.
We manage our portfolio through this dislocation.
We also have very little exposure to asset classes that have been significantly affected by this recession, such as retail and hospitality.
Total exposure to these asset classes is less than $130 million will approximate 2.5% <unk> portfolio.
As a reminder, we took adequate reserves against these assets in the first quarter I do not feel at this point at any material for the impairments will be necessary, which gives us confidence that our adjusted book value of $9.40 actually reflects.
The current impact of this recession.
We continue to see positive trends related to how Geo see agency business collections.
With only approximately <unk>, 0.4% of our 16 billion Fannie Mae book, and 6% of our 5 billion Freddie Mac loan book Ranted fall down as food July.
These numbers are relatively unchanged since April and as we had very few request for their rents in the last few months, which we believe reflects the strength of our bars and the quality of audio C. agency portfolio.
With respect to servicing advances related to any potential forbearance claims as a Fannie Mae service or we were required to advance principal and interest payments for a period of up to four months.
We advance only $700000 Kimball cumulatively to date, which we all which also not materially changed since last quarter and as a reminder, we have a 50 million dollar advanced facility in place with one of our larger banks at 100% advance rate.
Therefore, any further potential advance requirements will not be an issue for us.
In summary, we have built a versatile operating business that is multifamily centric with significant diversified income streams and is capable of generating consistent core earnings and dividends and all cycles with a proven track record for growth. We also have strong liquidity position.
The appropriate liability structures and the asset management expertise and track record to continue to succeed in this environment and both on our performance speaks for itself.
We believe this puts us in a class by ourselves and others. That's been they're not company at these extremely low levels will provide a tremendous long term return.
And as the largest shareholder my primary focus will be to continue to maximize shareholder value.
I'll now turn the call over to pull that take you through the financial results.
Okay. Thank you Ivan.
Press released this morning indicated we had an exceptional quarter producing core earnings of 60.4 million or 46 cents per share excluding 15 million of additional Cecil reserve and 38 million of tax effected onetime swap losses in our private label securitization from the effects of the pandemic.
As I haven't touched on we had several key items that affected the numbers very positively for the second quarter, including significant benefits from a LIBOR floors and efficiencies in our debt structures substantial income from a residential banking joint venture and reductions in our overhead in general and administrative expenses with these expense reductions totaling approximately $8 million to $10 million and.
Really or six to seven cents a share.
And the second quarter results clearly demonstrate the value of operating platform and diversity, the diversity or income streams and more importantly gives us great confidence or no ability to continue to generate strong core earnings and dividends.
Our debt adjusted book value at June Thirtyth was approximately $9.40 a share adding back 80 million of non cash general Cecil reserves on a tax effective basis.
As I mentioned earlier, we're not expecting any material additional write downs at this point, giving us confidence in our adjusted book value.
Looking at our results from our GNC agency business in the second quarter, we generated 14 million of core earnings and approximately 1.4 billion in origination and 1.3 billion alone sales the margins on our second quarter GNC agency loan sales was 1.46%, including miscellaneous fees compared to 1.49%.
But the first quarter as Ivan mentioned, we closed our first part of a private label securitization in the second quarter. We accounted for this has a sale which resulted in the gain on sale margin of around 1% on 727 million alone. So.
We also have a robust pipeline and we expect to produce strong origination buys for the balance of the year in the second quarter. We recorded 32 million of mortgage servicing rights income related to 1.2 billion of committed long representing an average MSR rate of around 2.69%, which was up significantly from a 1.73 per se.
That rate for the first quarter, mostly due to a change in the mix of our second quarter loan production and from higher servicing fees on our Fannie Mae origination.
Our servicing portfolio grew to 21.6 billion at June Thirtyth, what a weighted average servicing fee of 44 basis points and an estimated remaining life of nine years. This portfolio will continue to generate a predictable annuity of income going forward around 95 million gross annually, which is up approximately 10 million.
Additionally, prepayment fees related to certain loans that have yield maintenance provision was $3 million for the second quarter compared to 5 million for the first quarter and.
And our balance sheet lending operation, we grew up portfolio to $5 billion in the second quarter on $300 million in new origination.
5 billion investment portfolio had an all in yield of 6.10%.
At June Thirtyth compared to 6.35% at March 31st mainly due to higher rates on run off as compared to new origination and from a reduction in library during the quarter, which was largely offset by LIBOR floors on a majority of our portfolio.
The average balance in our core investments was up to 4.8 billion. This quarter from 4.6 billion last quarter, mainly due to a fourth quarter growth.
The average yield on these investments was 6.16% for the second quarter compared to 6.77% for the first quarter, mainly due to more acceleration of fees from really run off in the first quarter, hi, higher interest rates on run off as compared to originations and from a reduction in library in the second quarter.
Total debt on our core assets was approximately 4.5 billion at June Thirtyth wouldn't all in debt costs are approximately 3.14% compared to a debt cost of around 3.68% at March 31st due to a sharp reduction in LIBOR in the second quarter.
The average balance on our debt facilities was up to approximately 4.5 billion for the second quarter from 4.25 billion for the first quarter, mostly due to see the senior secured notes we issued late in the first quarter and the average cost of funds that are definitely has decreased significantly to approximately 3.26% for the second quarter Cups.
I had to 4.11 per cent for the first quarter due to a substantial reduction in livewatch.
Overall net interest spreads on our core assets increased to 2.90% this quarter compared to 2.66% last quarter, mainly due to the positive effect of LIBOR floors on a large portion of our balance sheet profile and our overall spot net interest spread was also up significantly to 2.96% at June 30.
From 2.67% at March 31st again, mainly due to the positive effects of LIBOR for us on our portfolio.
Approximately 80% of our balance sheet portfolio have LIBOR floors between one and 2.5% when an average LIBOR floor of approximately 1.9% and if water continues to stay at its current level. These water flows will continue to have a meaningful positive impact on our net interest spreads in the future.
Average leverage ratio, our core lending assets, including the trust preferred of perpetual preferred stock as equity was up to 87% in the second quarter from 85% in the first quarter due to the timing of our new unsecured debt issuances. However, overall debt to equity ratio on a spot basis was down to 3.1 to one at June Thirtyth from 3.3.
I don't want at March 31st excluding general Cecil reserves due to the efficiencies in our COO vehicle and using the proceeds of our unsecured debt issuances to pay down unsecured debt.
Lastly income from equity affiliates increased significantly during the quarter due to as we mentioned earlier substantially more income from our residential banking joint venture as a result at historically low interest rate environment. This investment contributed approximately 10 cents a share and a tax effect the basis to our core earnings for the second quarter. We do believe this investment will continue to.
Contribute meaningfully to our core earnings going forward and again the income from this investment for the emphasizes the diversity of our income stream and acts as a natural hedge against declining interest rates specifically earnings are escrow balances that completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions. You may have this time.
Yeah.
Thank you as a reminder to ask a question. Please press star one on your telephone keypad to withdraw your question press. The pound key we do ask that you. Please pick up your handset to allow optimal sound quality.
And well take our first question today from Steve Delaney with JMP Securities. Your line is open.
Thanks, and congratulations guys on a great quarter admits decided to see you have uncertainty that we're facing I'd like to Paul you closed with the resi business and I'd like to start there obviously, a big part of the earnings speed a in the quarter I was just wondering I been you've had this business <unk> for some time and I know you've got a bad.
Crown in the residential market, but can you just talk specifically about how that operation that platform may have scaled up in the in the last year, so that their contribution for your.
I think 22% interest is is really has really increased and obviously a lot of focus on that business with the quick an IPO in the market. So if we could start there I'd appreciate it.
First full it's a it's a business as you know I have a tremendous history and that's how I started my Korea very successfully.
We invested in this business a number of years back.
With the I as a a really good hedge against some of our other aspects of our business and as you know when rates go down typically.
I'd business goes up and it's a real good offset to the interest aren't as all restful balances and that's how we viewed it and clearly with the drop in these interest rates. We've built that companies I have real great capacity and would that automated and technology that we have.
The increase in scale up without a lot of overhead and clearly with the drop in rates of volume has increased about margins increased.
We're very confident that runway is very positive for the next <unk> for the you know for <unk> for quite a bit of time given.
Given the interest rate cycle.
[noise] the name of the platform somewhere I remember that the didn't the name Seneca out there, but I didn't know whether that was that's accurate.
<unk> under the name of Cardinal.
Cardinals right, yeah, Okay, well I was wrong [laughter] okay.
Switching over to the structured business I'm, a little surprising that that's continued its strong or just looking around the you know sort of the bridge loan business. The larger bridge loan business. It seems that really shut down and I'm. Just curious if you could comment on the nature of the borrower demand X 300 million it didn't appear to be any large loans. It because it's about 20.
20 million transactions, I mean, excuse me 20 transactions or about 15 million average size, but just maybe comments on the demand where are you seeing borrower demand for that bridge product.
Our first off we will probably the only ones in the sector, providing liquidity I'm. So while there was not a lot of volume. Initially you know we were we would definitely active and taking advantage of the environment. So we want the few providers that existed in the market, we made a conscious decision to.
Keep the loan size small and not use all capital on bigger loans. So that was my choice a weird decided that we're going to lend approximately 100 250 million a month and we wanted to address a lot of clients rather than just do one or two deals so that was by choice.
Now that we have a tremendous handle on liquidity and a liability structures with what we consider to be offensive capital. We're scaling up in terms of the loan size that we do and how much volume we can handle.
So you know wouldn't be surprised if you see a you know some larger loans next quarter, because we just how the different outlook going forward based on our capital and I liability structures and where the market isn't how with Eric.
Very well thanks to the comments on again graduation.
I see.
And we will move next tier two Stephen laws with Raymond James Your line is open.
Hi, good morning.
Yeah, I echo the sentiment there congratulations on a nice quarter and you'll be in a small loves to people that increase the dividend in the second quarter.
You know to follow up on Steve's question.
On the structured business and maybe yeah, I think Paul you mentioned it in your prepared remarks, but you know seeing maybe new investments at lower returns a than food stuff. That's paying all of you know that do the LIBOR floors I'm, a little surprised that spreads on new investments haven't widen where you're not facing that reinvestment risk there but.
Yeah, maybe expand on that a little bit Oh, you know given the comment about lower you know lower returns on the new investments are those that portfolio turns over yeah. So yeah. So let me let me give a little color on that I think the yields.
Deal targets on a new investments are probably three percentage points higher there, but we're originating too.
But we definitely had the benefit now existing portfolio of a significant drop in lie bar and increasing the initial intended yields on those portfolios substantially.
But we are doing extremely well on I know originations, but were not picking up the benefit of weibo applause to some extent most of all loans have a 1% liable for though originating now so any drop in liable we won't experience much of a benefit on what were originated we're ready capturing that so there was a little bit.
The differential but deal parameters on on a new loans are very strong, but also keep in mind that our liability structures, which were in place and are in place are extremely attractive extremely efficient and we won't be able to obtain some of those efficiencies in the near term on the liability.
Structures, because that market somewhat dislocated at least the near term, but we're optimistic that as a market evens out and where have access to it soon that will recapture some of that benefit so the the financing of those as such as a little more expensive yields there.
Truong, but they don't have the benefit of the prior liability structure. So the libel flaws, but it's still very attractive environment.
Great and appreciate the color I'm, not a Paul and thinking about the MSR March I think in your prepared remarks, you highlighted the to 69, you know strength really driven by a change in mix I believe you said a higher fee on the on the Fannie volume. You know is is the those looked like it shifts that are going to be.
In place a your near term and we're looking at a margin.
You know maybe not to 70 every quarter, but north of 200 or kind of can you give us any.
Outlook, a you know and where are you see that going maybe has mix changed since quarter end or how do you. How do you see that number for the balance the Europe.
Sure. So it definitely had a lot to do with the mix, but also due to the the servicing fees were seeing on on the new Fannie business. So little color in the second quarter or the mix of committed loans, because that's how we calculate the MSR rate, 90% of the committed loans with Fannie loans in the first quarter, 50% of the commit alone so Fannie loans that you.
This was a different mix, but we think the mix will be more Fannie going forward I don't know that it'll be 90%, but it'll certainly be a higher percentage. So that'll drive a higher MSR right and then also servicing fees were seeing on new product is substantially higher and the servicing fees. We were seeing a couple of quarters ago, and we do think that outlook continues at least within.
You know several quarters itll depend on where rates go in and where spread to go but right now we're seeing really high servicing fees in that business and we're seeing more of that volume. So we do think that maybe it's not to 70 every quarter. It to 69 like you said, Steve but it shouldn't be meaningfully above last quarter's number.
[laughter] grateful that Paul I'd appreciate the comments thank you.
And we'll take our next question from Rick Shane with JP Morgan Your line is open.
Hey, guys. Thanks for taking my questions. This morning.
Little bit about the execution on the private label, a securitization ER and the implications going forward.
Obviously.
Good to get a transaction Darren in this environment, I'm curious where that execution wound up in the current he versus what might have expected when we're originating a those loans for sale and what.
Target on a go forward basis on the second question is.
It looks like you guys are.
The horizontal strength from transaction I want to make sure I understand I'm where that.
Balance sheet.
Structured products.
Balance sheet.
Exceeding when we look at east balance sheet, there was a modest increase.
And I'm definitely hell or securities held to maturity on that I, just want to make sure that that's what the different chase.
So fair. So I think you want to handle the first part yeah I'll handle the first part you know this was the first of all of a private label. It was issued in the market and it was my knowledge. The first multifamily only securitization. So it was a little bit of a new animal.
It was extremely well received a being a new issuer.
And doing a little bit differently, and we were surprised at the level of demand.
We had so I think it was pretty much in line with what we thought but the reception in the appetite for securitization like this is very very well received with respect to the financial issue pulls you want to walk through it with them.
Yeah, So Rick so you're right we did retain the along the bottom tranches is required to do so 5%. It was about a $63 million phase. It's on the balance sheet at a fair value around 37 million and that's sitting in investment in equity affiliate I'm, sorry, sitting in securities held to maturity.
And obviously as we all know that product for the next nine a half years, how along its out there to fix rate product that we will clip our servicing coupon on the full on the full staff and we will get a yield on that investment and assuming we get most of all of that principle collected backed by the end of life. The.
Build on that investment could be anywhere from 10% to 12% on an unlevered basis, but it's sitting in the securities held to maturity line on the balance sheet.
I think without okay, what I wasn't.
The.
It's kinda face value. So the way, we should think about that in terms of contributing Inc.
He is oh makes a coupon on that.
Equally importantly appreciate it.
That's correct.
Okay, Great <unk>.
Yeah, Let me just give me one more want one more aspect of color on the product because this product was developed a when there was some uncertainty as to the longevity of the agencies.
And we felt it would be a an outstanding hedge if we can create the ability to securitize multi families. In the event that there was some level of cut back with the agencies. So we accomplished our goal of being able to do a securitization and be well received and we do believe if.
It was ever a cut back in the agencies in volume or mandate.
This would be very viable product line and give us a huge strategic advantage in the marketplace.
Oh, Yeah, you're right. It's a <unk> concept I am curious in the current environment.
Do you continue to do you plan to continue to originate at the levels were a sort of in the last year anticipation you talked previously about doing two of these transactions of years that is that still part of it the plan.
I think at this juncture, we've slowed that only because our agency volume is so active and that's a less active aspect of our business and the agencies are really dominated the market.
So we don't really need to pushed out bought into the same level, but we will continue to originate just at a slower pace.
I appreciate it thank you guys right.
Thanks rare.
And we'll take our next question from Jade Rahmani with KBW. Your line is open.
Good morning, everyone. This is Ryan on for Jade just regarding the servicing portfolio Hey, Paul regarding the servicing portfolio do you have any any data on the percentage of 10.
That are benefiting from unemployment insurance just.
Just considering you know the insurance you were facing on the stimulus front I'm curious to get your thoughts on what the impact of a decline or non renewal of the extending unemployment insurance could be.
On on multifamily in general in terms of credit performance.
So I'll give you our macro outlook and how we've approached it.
Clearly cool clearly and in April and May there was an enormous level of concern and.
The <unk> that the carriers that can really mitigated a lot of that concern.
Well, we made an extremely diligent effort or to be very strong without bars, and keep a baseline low almost close to zero, it's almost unimaginable where our.
Forbearance numbers are for Fannie Mae they could be the lowest than the industry.
So we think that if the cares act is not renewed two similar levels and people don't return to work and the unemployment rate is a little bit higher there'll be some stress.
We're prepared for that stress because how baseline to zero. So it could be <unk>, you know a tough all but we believe we have a lot of room I think you'll see little bit of an increase.
But the bars that put themselves and fairly good strong positions and they realize too that as the equity owners of their properties.
That you know, they're gonna have to seek some additional capital during these times if there's a shortfall.
One of the very key advantages of our.
Our book and why bars are so response of.
Is that since agency originations is the primary source of liquidity and their livelihood of most borrowers.
They have to keep their loans car, even if there is some fall back on on on the rents side.
So I think we can manage through this managed food extremely effectively and we have such a low baseline that even if there was a little bump up it will have not a significant impact on our portfolio.
And just to clarify your earlier comments I believe you said, 24% for parents in understanding book and was at 5% and probably book, Yes say that checks.
Okay.
Great. Thanks for that color and then you know in terms of the agency origination strength you know continues to be very strong.
How how confident are you in the sustainability.
I'm not going into the second half of the year.
Do you have any data you can share on what percentage of your agency originations are driven by Wi Fi business.
So I just a comment on that a pipeline there's a historic highs. So that gives you good.
I'll look in terms of where the third quarter Oh.
Well you know is gonna be looking and it continues to build on the day by day basis.
A lot of business is refi driven and there's a lot out there and we think every five business will continue to purchase activity has been stole to some degree I was just some readjustment between sellers and buyers and a lot or people who are really wouldn't you say sitting on the sidelines sitting at home.
And not active so I think that as that disconnect between buyers and sellers starts to level out and they see ITI, you'll see that activity pick up to some degree.
But with rates, where they are a we're very optimistic that the refi business should continue and if there's an augmentation by the purchase business because we believe wells beginning to occur.
We're feeling very comfortable with the bills here.
And there I intend to give you some numbers I haven't yet gave you all the commentary we did 85% of the business and the second quarter was revised 75 in the first quarter. So those are the numbers on the refinancing.
Great. Thanks, Paul It makes Ivan and just one last question on the balance sheet portfolio.
It looks like you had an additional NPL in the hotel side as laws and in a retail alone any color there on on those particular assets and then with the provisions taken in the quarter both on the balance sheet broken structured book.
Where those.
Driven by general reserves are <unk> any of those asset specific banks there.
So so the two npls we had during the quarter you mentioned one was a a new York City Hotel that we took a substantial reserve against in the first quarter or the other was a very small retail a product that we also took a reserve against so were adequate more than adequately reserved we feel on those assets and it was kind of expected that that that's where we end.
Be with those loans as far as the reserves for the quarter. We did I think 15 million in total was about 2 million on the agency book about you know to 12 and a half 13 million on the balance sheet book and the majority of all that was just general Cecil Reserve.
Taking we took our share of what we call specific reserves back in the first quarter on the asset we thought was significantly affected by the pandemic as I haven't had in his commentary and we've not seen any material change in a in reserves on those assets at all.
Great. Thanks, guys.
Well take our next question from George by Monday, This with Deutsche Bank. Your line is open.
Hi, good morning, everyone and thanks for taking my question you know.
Washington to some of the ones that Mitch I pass and you know since you've addressed those it was wondering you know underwriting how how has that changed you know in this environment versus what it looked like before and just given your maybe.
Maybe tenants, who are or taking government assistance today.
And just kind of any thoughts on I'm, just kind of how underwriting has changed as we yeah, maybe look to some.
Dislocation as a as the impact of government assistance wears off a multi family assets.
So.
I believe the loans, we've put we're putting on now could be the best loans, we have put on in the history of the for.
I think there's a lot of structure into loans off the agencies they've implemented a interest reserves.
Anywhere from six months to 18 months for principal and interest and often taxes. So you have an enormous cushion, but you never had before.
In the past and a up market to Europe market, you had rent growth of.
3% to 5% annually, you had to underwrite that and keep expecting that was going to occur.
And I think if you go back to my transcripts over the last 18 months, we had a tremendous amount of caution in that period and believe those last loans in.
Expecting a you know rent growth will probably you know ones that you needed to have a lot of caution.
We're underwriting loans today I.
Not only do we have those reserves.
But your underwriting to a flat a flat rent growth and a different environment and you could proceed with a lot of caution. So I think the environments very strong, but you go market to market and you. You know you proceed but a lot a disciplined but I do believe that for them.
Time for the time being we can proceed very conservative way, probably lower loan to values with interest reserves and conservative underwriting.
Great. That's helpful. Thank you I've been and that's it for me today.
Thanks George.
And we will take our next question from Lee Cooperman, which I'll make a family office. Your line is open <unk>. Thank you. Congratulations you guys have done a terrific job at a very very difficult environment.
I want to focus a little bit an earning power explain to me.
The significances of the for 50 million of a liquidity position you focus on it seems to me that were in environment, you should get larger spreads. We just reported core earnings of 46 cents and we'd have plenty of liquidity.
Additional earning power do you think you could generate if you put that liquidity to work in this environment.
Hi, there, where you want to talk mobile both type one are you starting then I'll go.
Sure. So so Lee.
Yeah. So we have put up a a tremendous number in the second quarter or 46 cents, we talked about the earnings power from the the residential business. We have in how we think that will continue over the next several quarters. We do a 450 million of liquidity as as you cited we do think some of that is offensive capital and 11 returns we've been.
Generating is I haven't said the the yields are down a little bit because of where LIBOR is in the LIBOR floors, but we're getting big benefits on the debt side and in the second quarter 300 million or loans. We originated we generate a 15% levered return on those assets. So we've not seen those kinda levered returns in several several quarters. So.
I do think a with the equity we had that we wanted to play into those those structured loans. We can generate you know a low to mid teens return all day long on those assets Ivan would you agree with that.
Yeah, I think you know mid teens return on Oh, my balance sheet portfolio is definitely something that Oh, we can originate to.
And as you know, it's not just the yield on those loans, we put on our books. It's eventually creating an agency loans, which makes those yields exponential. So we'll be <unk> very prudent with how we use that mostly on multifamily bridge loans and most of them multifamily bridge loans that convert into.
Agency business. So we think we continue to grow a core earnings and you know there's a lot of strengthen our earnings and dividend, we feel very good with where we out right now.
Congratulations you've done a great job and positioning the company like complementary.
Julie Thank you Lee Thank you for your support.
And I am showing that we have no further questions at this time I'll turn the call back to Ivan Kaufman for closing remarks.
Okay, well that concludes our remarks, and we're truly pleased to be able to have this kinda performance in this environment in support of all our shareholders and it is remarkable at a this is a ninth year in a row is I've mentioned in my script of a dividend increase and and just kind of environment to be able to re.
Raise your dividend and raise your earnings is an amazing feat I want to complement my management team.
My board of directors for their support.
And I look forward to conclude and I think is gonna be an outstanding Twentytwenty have a great day, everybody and stay healthy take care.
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