Q2 2022 Arbor Realty Trust Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the second quarter 2022 Arbor Realty Trust earnings Conference call.
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I'd now like to turn the call over to your Speaker today, Paul O'neill Chief Financial Officer. Please go ahead.
Okay. Thank you Chelsea and good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust.
We will discuss the results for the quarter ended June 32022 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 maybe 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 of our future performance taking into account the information currently available to us.
Is that could cause actual results to differ materially from all those expectations. In these forward looking statements are detailed in our SEC reports listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today, although undertakes no obligation to publicly update or revise these forward looking statements to reflect events or.
After today or the occurrences of unanticipated events.
I'll now turn the call over to <unk>, President and CEO Ivan Kaufman.
Thank you Paul and thanks to everyone for joining us on today's call.
As you can see from this morning's press release, we had another tremendous quarter.
Including producing earnings that will once again, well in excess of our dividend.
As a result, we're able to increase our dividend to <unk> 39, a share.
And this is our ninth consecutive quarterly dividend increase representing 30% growth.
Over that time period, all wait while maintaining the lowest dividend payout ratio in the industry.
As we have mentioned many times our diverse business model offers several strategic advantages, which is something that needs to be emphasized, especially given the recessionary environment.
We have built a premium operating platform that is focused on the right asset classes.
Very stable liability structures, including over $8 billion and nonrecourse.
Non mark to market CLO debt.
Which requires approximately 70% of our outstanding secured indebtedness.
With pricing that is well below the current market.
We also have a thriving balance sheet GSA agency and single family rental business.
That produces many diverse income streams.
It has allowed us to consistently grow our.
Earnings and dividends in all cycles.
We remain continually keenly focused on maintaining a strong liquidity position.
With currently around $500 million in cash and liquidity on hand and.
In addition to roughly $450 million of deployable cash in our CLO vehicles.
This liquidity will provide us with the unique ability.
Retain remain offensive and take advantage of the many opportunities that will exist.
This economic downturn to generate superior returns on our capital.
Additionally, we have successfully operated our business through multiple cycles.
And have a very seasoned and experienced asset management team.
That positions us exceptionally well to succeed in this cycle as well.
These are significant differentiating factors from the rest of our peer group.
Most of which have mono line businesses.
<unk> to maintain that dividend.
The experience and expertise in.
Manage through this downturn.
And this is why we believe we're superiorly position or in a class by ourselves and should trade at a substantial premium at a much lower dividend yield.
And anyone in our peer group.
Turning now to our second quarter as Paul will discuss in more detail.
Quarterly financial results were once again remarkable.
We produced distributable earnings of 52 per cent per share, which is well in excess of our current dividend representing a payout ratio of around 75%.
Our financial results will also benefit greatly from rising interest rates, which will significantly increase the net interest income on our floating rate loan book as.
As well as earnings on our escrow balances.
Clearly.
With this extremely low payout ratio.
And our strong earnings outlook.
Uniquely positioned as one of the only companies in our space that can potentially continue.
To raise our dividend.
And our balance sheet lending business, we had another strong quarter as one of the top multifamily lenders in the industry.
To grow our balance sheet loan book, another 6% in the second quarter to $15 billion 2 billion of new originations.
We also continue to maintain a strong pipeline.
It will be very selective with our originations for the second half of the year given the anticipated market slowdown.
This will result in us producing more normalized volumes for the balance of the year.
With superior quite a quality and highest spreads.
In fact as I mentioned earlier, we are heavily focused on maintaining a strong liquidity position to be able to take advantage of the many accretive opportunities.
We think will exist to garner premium yields on our capital.
As a result, we recently decided to sell $300 million of multifamily bridge loans, which generated $90 million of fresh capital.
We also retained a portion of the upfront origination fees and all of the potential exit fees as well as a 12 five basis point servicing fee and control of the take out of each loan which is vital to our business strategy as these balance sheet loans provide us with a pipeline.
Two to three years of new GSE agency loans and produce additional long dated income streams.
We have consistently been a leader in the CLO market CLO securitization market.
Utilization of these vehicles has has contributed greatly to our success.
Allowing us to appropriately match fund our assets with nonrecourse non mark to market.
Long term debt and generate attractive levered returns on our capital.
In the second quarter, we closed another $1 billion CLO with superior execution in a very challenging market, which clearly demonstrates our strong track record brand recognition portfolio quality.
<unk> expertise.
With approximately 70% of our total debt outstanding in shallows were extremely well positioned.
No need to further access the CLO market dislocated.
Dislocated environment.
We also have replenishment features and pricing.
Well below the car market and these vehicles that will allow us to recycle capital from our run off into higher yielding assets in today's environment and meaningfully increase our levered returns.
And our GSE agency and private label programs, we originated $1 2 billion of loans in the second quarter.
We also have a robust pipeline will give us confidence in our ability to produce consistent volumes for the rest of the year.
Our GSE agency platform continues to offer a premium value as it requires limited capital and generates significant long dated predictable income streams and produces significant annual cash flow.
Additionally, our 27 billion GSE agency servicing portfolio is mostly prepayment protected.
And generates approximately $117 million a year in reoccurring cash flow.
This is in addition to the strong gain on sale margins, we generate from our originations platform and.
And a significant increase in earnings on our escrow balances that were experiencing as interest rates continue to rise, which is unique to our platform and will continue to greatly.
To enhance our earnings and dividends.
In summary, we had another tremendous quarter allow us to once again increase our dividend.
Strategically built out platform to operate successfully in all cycles with multiple products that produce many diverse income streams, providing us with the future in annuity of high quality long dated reoccurring earnings.
We are also the premium multifamily originated in this space.
And our invested in the right asset classes with very stable liability structures, and a well capitalized which positions us extremely well to succeed in this environment.
Continue to significantly outperform our peers.
I will now turn the call over to Paul to take you through our financial results.
Okay. Thank you Ivan.
As Ivan mentioned, we had another exceptional quarter, producing distributable earnings of $94 million or <unk> 52 per share.
These results translated into industry high ROE again of approximately 17%, allowing us to once again increase our dividend for the ninth consecutive quarter to an annual run rate of $1 56 a share.
As I mentioned earlier, we made a strategic decision to sell some of our loans in order to bolster our liquidity and lending capacity in the second quarter, we liquidated $110 million position, we have in the construction project generating $65 million of fresh capital and recorded a GAAP loss of approximately $9 2 million.
We did retain the ability to recover up to $2 8 million in net loss in the future based on certain performance metrics.
This loss was largely offset by two loans that paid off in full in the second quarter, which we previously had $2 7 million of loan loss reserves on debt. We ended up recovering from the disposition of an asset in the second quarter related to one of our unconsolidated equity investments that resulted in a $6 million income pick up to us.
Additionally, we closed on the sale of approximately $300 million in multifamily bridge loans yesterday at par generating an additional $90 million of cash recorded small GAAP loss in the second quarter on the sale of approximately $2 million as a portion of the origination fees. We collected that would pass along to the buyer had been accreted into income in the past and needed to.
Be reversed.
As part of the sale, we did retain a 12 five basis point annual servicing fee, which will increase our servicing annuity going forward by roughly $400000. A year. In addition to any exit fee income we may receive when these loans pay off.
And our GSE agency business, we originated $1 2 billion of GSE loans and recorded $1 billion in GSE loan sales in the second quarter, we generated margins on our GSE loan sales of $1 five 9% in the second quarter, which was up from 139% in the first quarter, mainly due to a greater percentage of FHA loan sales.
Which have a much higher margin.
We also recorded $17 6 million of mortgage servicing rights income related to $1 2 billion of committed loans in the second quarter, representing an average MSR rate of around 148% compared to $1 five 7% last quarter, mostly due to a greater mix of larger loans in the second quarter that contained lower servicing fees.
Our servicing portfolio was approximately 27 billion on June 30, with a weighted average servicing fee of 44 basis points and has an estimated remaining life of nine years. This portfolio will continue to generate a predictable annuity of income going forward of around $117 million gross annually, which is down slightly.
From last quarter due to increased runoff in our portfolio from extensive sale activity as a result of the current market conditions. As a result of this runoff prepayment fees related to certain loans that have prepayment protection provisions continued to be elevated with $15 million of prepayment fees received in the second quarter compared to $16 million in the first quarter.
And our balance sheet lending operation, we grew our portfolio another 6% to $15 billion in the second quarter on $2 billion of new originations.
15 billion investment portfolio had an all in yield of 582% at June 30, compared to 474% at March 31, mainly due to significant increases in LIBOR and social rates, which was partially offset by higher rates on runoff as compared to new originations during the quarter.
The average balance in our core investments increased to $14 6 billion this quarter from $13 billion last quarter, mainly due to the significant growth we experienced in both the first and second quarters. The average yield on these investments was $5 two 6% for the second quarter compared to $4 eight 6% for the first quarter due to increases in sales.
For our LIBOR rates, which was partially offset by higher interest rates on runoff as compared to originations in the first and second quarters.
Total debt on our core assets was approximately $13 8 billion at June 30.
All in debt cost of approximately 4%, which was up from a debt cost of around $2, 81% at March 31, again, mainly due to increased LIBOR and social right.
The average balance in our debt facilities was up to approximately $13 4 billion for the second quarter from $12 billion for the first quarter, mostly due to financing the growth in our portfolio and the average cost of funds in our debt facilities was three 1% for the second quarter compared to $2 six 5% for the first quarter, primarily due to increases in.
The benchmark index rates in the second quarter.
Our overall net interest spreads on our core assets decreased slightly to two 6% this quarter compared to $2, two 1% last quarter and our overall spot net interest spreads were down slightly as well to one 2% at June 30 from 193% at March 31, mostly due to yield compression on newer originations as compared to <unk>.
Run off.
Net interest income on the other hand on our balance sheet loan book increased $10 8 million this quarter from portfolio growth and significant increases in LIBOR and sofa rates during the quarter.
And as the current LIBOR and sulfur curves are predicted to continue to increase it's very important to note that any further increases in these rates will continue to increase the net interest income spreads on our floating rate loan book in fact, all things remaining equal a 1% increase in rates would produce approximately 10 cents a share annually and additional earnings.
Additionally, as we mentioned earlier, we had $8 billion of CLO debt outstanding with average pricing of 163 over which is well below the current market and will allow us to meaningfully increase the levered returns on our balance sheet loan originations and lastly, as rates rise. We will also continue to earn significantly more income from the large amount of risk.
Balanced as we have from our agency business and balance sheet loan book. These earnings will grow substantially as we have approximately $2 billion in escrow balances that are now, earning in excess of 1% or around $25 million annually effective mid July which is up significantly from a run rate of approximately $10 million annually at $3 31.
2022.
And as Ivan mentioned earlier. These features are unique to our business model, giving us confidence in our ability to continue to generate high quality long dated recurring earnings in the future.
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 at this time Chelsea.
Thank you Sir.
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And we will take our first question from Steve Delaney with JMP Securities. Your line is open.
Good morning, Ivan and Paul good to be with you.
Okay.
Another excellent quarter I did note.
Okay.
I did note the cautionary actions that you've taken in some of the remarks about not needing to push the envelope here given the strength of the existing portfolio.
I'm, referring to your comment about no new Clo's at this point in time since they're so expand it in terms of spread.
And then we of course noted 300 million bridge loan sale, which is somewhat I haven't noticed you guys selling.
Structured loans that you've originated and.
In previous times.
So I guess first I'd like to know if I am I correct in reading that those were not necessarily not necessary.
But you are taken but just things youre doing because you're you've already got a strong portfolio and has no sense to reach it at this point in time can.
Can you comment on that yes, let me address.
Separately.
The CLO market requires a tremendous amount of expertise, which we have.
And running the type of business.
And I've said it on many calls.
Manage our CLO debt relative.
Outstanding debt and certain percentages.
And in.
Our lowest 50 or high 75 in terms of percentage of CLO debt to total debt.
We're at 70% or roughly right now.
If you're watching the market.
Many of our competitors.
Access CLO debt because they were out of balance.
<unk> to their bank lines in CLO debt.
And are executing to horrendous levels unprofitable levels.
My comment is basically.
We don't.
Don't need to access CLO debt.
Right proportions.
These.
Low cost structures in place that gives us a huge competitive advantage.
So, we're sitting back and saying where the last one.
To get the best execution in the market on a $1 billion CLO debt.
In a position where we are.
<unk>.
Re access that so we're.
And one of the best positions in the market. So that's kind of where that comment or narrative was space towards.
Yes. That's helpful. Yes, if you follow that people have had to execute.
If I had to lock in.
Returns out of just unacceptable.
That's the way to.
In a great position and we're very proud of that.
To your point there.
Your may see.
You were able to execute it to $2 36 over sofa and we just noticed earlier this week a June CLO multifamily CLO that was priced at $2 80, So 40 to 50 basis points above so.
Obviously.
That is the case and I can understand why you.
Pushing up towards 300 over.
Not economic to consider.
Consider that at this time.
It's not only not economic but you're locking in those liabilities cautiousness stuck with them for a while.
Sure I will have to deal with volatility.
Of your of your $8 billion.
And CLO debt currently how much of that on a percentage basis, it's still in the reinvestment period.
All of it is.
All of it has an open reinvestment wow.
Obviously that will run off over the next year or two or run down yes.
I will tip off I think our first one tips often.
In November and.
Which will be fully allocated with loans.
And you get the benefit of that in a tip off over a period of time so.
We're managing them by optimizing them.
And keep in mind.
I think the average liability costs and that's what Paul in the $1 <unk>.
For that particular CLO or in total in total.
Total, yes, as I said in my commentary, where $1 63 over blended and Thats, even with the $2 36, CLO. We just did and May see so we've got really low cost liabilities locked in as Ivan said every one of them has replenishment ability is still one of them. That's a small CLO burns off.
In November and the rest are late 'twenty three 'twenty four so we've got a lot of runway here to utilize that low cost of those low cost locked in vehicles to really enhance our meaningfully enhance our returns.
Yes.
That makes perfect sense go ahead, I'm, sorry jumping to the next comment about selling some of our loans.
Yes, we always like to test the market.
See what the different flexibility levels are and have the right levers to generate liquidity when we want to generate it.
<unk> doing this loan sale was a great opportunity for us because we tested the market and selling our collateral.
We retained servicing retained the majority of our fees.
And we're able to recycle close to $100 million I think it was $90 million of capital.
And now I'll know that that's another way to generate liquidity when we want to install maintain cigna.
A significant part of our economics, most importantly for a firm like us.
Retaining the servicing getting a servicing fee and staying face and with our clients and then potentially creating an agency loan on the backend. So it fits our model very very well.
Caring for this recession.
For the last year and we've done many many things including this.
To make sure that we're adequately positioned.
Given where we are today and even if there's going to be another.
Sure the trial, whether it does or not.
Sure the firm <expletive>.
Adequate liquidity to be offensive not defensive.
And these are all the moves that we've taken.
But the place to get ourselves into position, where we are.
Fantastic I guess that could have also been structured as a senior participation.
Depending on who the buyer is yes, Chris how many different ways to do it. So yes testing the waters, we have grown our balance sheet.
So well we've done a great job, we've used a lot of capital and it was just.
Another way for us to figure out.
We want more capital at any point in time.
Just out of access that.
The DNS structures.
Thank you both for the comments.
Thank you.
Our next question will come from Rick Shane with Jpmorgan. Your line is open.
Hey, guys. Thanks for taking my question this morning.
I'm just curious in the current environment.
With the movement in.
Collateral values with potential.
Potential delays related to supply chain and labor shortages in terms of timelines on construction.
Finally any.
Sort of vacancy absorption is it realistic that we will see.
Paper loans stay in the on the balance sheet longer before they are.
<unk> four.
<unk> <unk> agency sale.
So.
There's two ways to look at that.
Sure.
We actually think an off balance.
Once sheet.
There could be a facilitation.
Nancy.
Execution.
So the way the yield curve is people are borrowing at $3 50 over 400 over.
Sofas driven.
Level of with our borrowing costs were 6%.
You can execute on to agency.
Maybe $1 50 to 175 over the 10 year kind of.
Verde yield curve so.
We're seeing a lot of people were talking to them to convert them off the balance sheet from a 6% five 6%.
<unk> with potentially a move up in sulfur and more risks and cap costs into a 10 year fixed rate of four in a quarter four and a half.
So for those products that will put on a year ago year and a half ago I think we're going to see some real movement, which.
To help maintain our agency volumes, that's on that side of the coin.
<unk>.
Our surprise.
A 10 year $2 75.
Pretty low.
So I think.
We'll see that happen, maybe a little quicker than we thought.
On the new construction side, we've been talking to our clients over the last 12 months because that our costs were up 30%.
Even though rents have risen.
Well above historical levels.
Historical 3% to 5%.
Now, you're saying 10% to 20%.
So some of those cost increases were offset by rent increases.
Actually advise a lot of our clients slow their construction.
Hold off and they've done that and now theyre, saying costs come back into line.
I think there'll be a little bit of a delay with people on their construction timelines because they were waiting for cost to come into line, but that's on the new construction side.
I think people's construction is going to be six to nine months behind schedule. Their interest costs are going to be up a little bit of that.
Costs are going to be back in line for that will be a little slower.
That's great actually very helpful. Both parts of that answer.
And I apologize I think we've asked this before but given the floating rate nature of the loans.
Do you require borrowers.
To take any interest rate protection in the form of capture.
Yes, our loans required caps some of them have springing catch most of the loans have a lot of caps and of course as rates were moving up.
All of these cat four.
If they werent in place that will being put in place and that was a whole process.
A majority of our loans are significant super majority of all loans have those caps.
Okay. Thank you so much guys.
Thanks, Rick.
Thank you.
Our next question will come from Stephen laws with Raymond James Your line is open.
Hi, Good morning, I wanted to follow up on Steve <unk> question is from the CLO, but as holder.
Loans pay off we were able to replenish the vehicles with with newer production.
Much incremental spread pickup is there on the new loans, you are putting into those facilities.
So.
Let me, let me give a little bit of an outlook and I think this will be helpful.
<unk> had.
I think eight price increases in the last nine months on a bridge pricing.
That has been over a period of time.
So we think that our bridge pricing, which was a one point in time 300 to 350 over a range is now 400 to 450, almost a full point.
So as loans pay off and those vehicles, we replace them with higher <unk>.
Our coupons and.
Paul you can really talk more about the math at this point.
Yeah, So I think thats excellent color and Steve what we're seeing.
We've been targeting over the last year things were quite competitive somewhere 10%, 11% Levered returns maybe to 12 in the second quarter of the $2 billion. We originate we actually got a 12% Levered return on I think we got just under 11 in the first quarter and what either and I were talking about the other day was the math is simple.
When we got these 163 overspread CLO and we're now pricing deals at $4 to $4 50 over when loans are paying off that with $33 50 over and when we're originating new loans at 450 over and putting them in those low cost vehicles. Those returns can meaningfully move you could you could end up from an 11% to 12.
Two.
2014 to 15, and we're starting to see that migration now in the new product and Thats why in <unk> commentary, we talked about being very selective in our loans going forward and really having more normalized volumes.
Going forward in our balance sheet business for instance, we think we originated were about the closeout July we've got about $230 million of new production in July Bridge Wise, we are about $120 million of runoff, but more meaningfully than the size of the number is that two <unk> is going to be higher credit quality and wider spreads and we're going to replace that.
Of the vehicles and really drive up the returns pretty meaningfully.
And I think with that in mind our.
Our outlook for the balance of the year.
Brian managing our production.
To match, our run off and.
We're going to try and take advantage of the low cost vehicles and not have to access the CLO market in a dislocated environment.
Try and maintain our balance sheet at the level of its own at this point in time.
I appreciate the color map, there's certainly powerful.
Thanks turnover.
Paul I wanted to follow up on the repayment fees I think you said $15 million this quarter that was roughly flat from $60 million.
What are your expectations around that going forward, just kind of given the moves in everything we saw in the second quarter kind of how should we think about what that will be up.
Go forward basis.
Sure. So a couple of things and we've talked about this for several quarters, Steve and it's been surprising I haven't and I.
You have two fat you have two factors right.
We saw about $1 two and runoff in our servicing book in the second quarter that was up from about 1 billion won in the first quarter fees were somewhat flat, 16% to $15 million, but we've been talking internally sales will certainly start to slow the market is changing in fact, the July I can give you some color we collected one.
$5 million in prepayment fees in July on $250 million of one off so if that's any indication of what's to come the numbers will be significantly down and there'll be significantly down for two reasons. One sales volume is going to slow and already has started to in July and two as rates rise with sulfur sitting at 230 and LIBOR sitting at $2 37.
Youll maintenance is a product of rates rates, so as rates rise youll maintenance turns to.
Go down and sometimes even go away.
But the good news is we'll be able to retain that in our portfolio when clip that servicing coupon, which is a long term annuity that we love.
I do expect sales to decline significantly and I do expect prepayment fees to come down significantly having said that because of the size of our book, we're still going to have some of those fees and again one five in July if you annualize that maybe it's $4 five for I don't know what the number is but its not 15 million going forward.
That's helpful. Paul Thanks for the color and quantifying that of course I. Appreciate your time this morning.
Bob.
Our next question will come from Jade Rahmani with <unk>. Your line is open.
Thank you very much considering the growth in the balance sheet portfolio you all achieved the bridge loan portfolio over the last several quarters and the current change in valuations and real estate. How are you feeling about the credit quality of the existing portfolio and the outlook there.
So I think when I.
Mentioned earlier, Jay that we had a price increases over the last nine months commensurate with that we also adjusted our underwriting standards step by step by step.
We've adjusted them by having lower Ltvs I think are our.
Ltvs.
Nine months ago until now on the origination space probably.
Seven percentage points less.
We've adjusted our exit tests, because as we've talked on this call when we do a bridge loan.
Every bridge loans underwritten to agency execution on takeout.
So we kept adjusting those underwriting standards, so we feel very comfortable.
With the book that we put on over the last nine months.
In addition, a lot of our loans have.
Lot of different <unk>.
The balance.
Has that have good structural enhancements.
We're real comfortable with what we have in place.
And the way, we manage our book and the features on them and our asset management capability.
<unk>.
We've begun to go through our portfolio, we will come to work with our borrowers and making sure that they have.
No.
Interest reserves and replenishment to take into consideration the rise in interest rates.
<unk>.
We're comfortable with the way we're running our outlook.
Thanks, Tim.
Thanks, very much for that and on the multifamily rent growth side. It seems that rents are continuing to be very robust in the market across the servicing portfolio and the bridge loan portfolio and your surveillance are you seeing.
Continued strong rent growth and are you seeing the.
Transitional loans those projects hit their business plans.
I think that the rank growth far exceeded.
All of our underwriting.
Expectations, I mean, youre seeing 10 to 12, 8% rent growth.
We're seeing people not having to use their renovation dollars per ton eight units and still get the rent growth.
Rent growth story is still strong.
We put a caution on that.
A little different than the rest of the marketplace haven't been through a lot of cycles.
I think.
I think if you're looking at a recession.
Where we're going to have lower rent growth.
Going forward and we're also going to a little bit higher of an economic.
Vacancy.
So we're still optimistic about what's in the portfolio and the rent rolls, but where.
Our proceeding with some level of caution.
<unk> thousand 23, with probably flat to 3% rent growth in one to two points higher in economic vacancy that's how we're looking at.
2023.
And under that scenario, what kind of delinquency rates or default rates does that imply anything.
Material.
Nominal.
Yes.
Not anything that significant not anything that we can handle and not anything that is not within our capital projections.
So far the color that we've gotten from other mortgage Reits as well as.
Diversified Reits recover is a decline in values somewhere in the 5% to 10% range and increase in cap rates somewhere and perhaps the 30 to 60 basis point range do you concur with that or think Thats, maybe overly optimistic.
I think thats hopefully optimistic I think that values are all five to Tony.
On the marketplace.
And what areas on the market and the type of collateral.
And I think cap rates are up 50 basis points is probably.
The right level in slow markets, probably 75 or so.
A lot more on it on the slide.
The other market beginning right.
This week cycle.
Thanks, very much lastly, when you look at the bond market the treasury market is behaving.
Interestingly and I think people are surprised by how low.
Yields are.
Particularly just say the 10 year treasury.
Are the rates that you look at that are more indicative of maybe.
Maybe a proxy versus the high yield bond market or where CBS .
The commercial real estate finance markets.
Right now.
If you're looking at.
Hello market, it's taken.
It has taken a significant.
Change.
As we said we wouldn't want.
We're not thinking the CLO market.
At least for another six to nine.
Nine months.
Got to see all we'd have to see triple plays on the CLO market get down to below two for us to feel attractive and that would be.
So the <unk> market as you know is not something that one would want to execute it to be over the next three to six months if they would.
All of these levels.
And do you think acquiring securities plays or other pieces.
The capital stack and some of the CLO deals.
Listen, we'd love to be in a position and something we'll look.
Funds to start to acquire subordinate classes in this <unk> market.
Ability to understand the underlying assets better than most as well as the structures.
We think some reason.
400 over 350 over.
800, and we think that.
That's a good trade.
It's something that we'd love to do as a firm.
Thanks, very much for certainly in the past Arb has been.
Opportunistic strategy, so look forward to seeing that thanks a lot.
Thanks Jay.
Thank you.
Our next question will come from Crispin Love with Piper Sandler Your line is open.
Thank you good morning, congrats on a great quarter here.
First one on just core expenses core expenses.
Okay quarter, so im curious.
Curious.
If there is anything that you did proactively here to keep them under control, especially on the compensation.
You shouldn't side or if there's any other areas to call out.
Sure.
Let me just do it at a high level and then maybe if I ever want to chime in and Ken So.
You put up about $57 million in comp and G&A combined this quarter versus <unk> 52, but there is some some variable items in there that you've got to strip out and kind of compare.
So commissions.
We're about six 5 million last quarter. They were about $5 million. This quarter is that the $1 million have changed and that's variable based on where volumes are obviously, we had more sales volume last quarter on the agency side because of APL trade that we were able to get off.
And then stock comp stock comp was $6 million last quarter. It was only $3 million this quarter because there are a lot of.
Onetime grants that we give to our employees in March.
Year as part of their comp plans. So when you strip all that out.
And G&A came in about $44 million this quarter and it came in about $46 million last quarter without those variable item. So it is down $2 million. Most of that is because of the FICO reset rate. The first quarter is always a little bit elevated because.
<unk> you have the FICA cap that you've got a hit on the bonuses for the executives and then that comes down but having said all that I think we've done a really good job of maintaining our staff maintaining our cost.
We've been preparing for this cycle for some time and although I guided.
You, probably havent comp in G&A up 15% on last quarter's call year over year, I think it's more like 10% now and maybe we'll even do better than that but yes. We've done a good job of making sure that we're only growing our staff in the areas that we think are meaningful the asset management side the servicing side.
And that's the reason the numbers are where they are.
Okay, great. Thanks, Paul just to comment on that we're in a very different environment than we were.
Two years ago.
This industry.
Was inundated with massive volumes.
Everybody have to do what they can to retain their staff as well as attract staff.
<unk> costs were getting out of control.
So clearly there were outsized things that were not in a normal course of business, but volumes.
Volumes were big enough to offset that I think we're going to a more normalized environment.
Okay.
I think youll see us being.
And a very good position.
They do a better job at.
Managing our costs and our productivity so.
We look forward to getting back to normal in that sense.
Great. Thank you Ivan that's that's all helpful.
And then I appreciate your commentary earlier on origination infrastructure, but I'm just curious if you can get a little bit of a finer point on it. So if I kind of start with the second quarter 2.5 billion kind of divide that by three is about 680 per month, which was a little bit below your.
800 that you talked about last quarter. So first I'm just curious on how originated origination has trended through the quarter and then is that $230 million that you talked about for July kind of a good jumping off point for the next few quarters, yes.
I wanted to give a little color on maybe this will help on the credit conversation as well as some of the comments were geared towards us.
We had a very very large pipeline.
Going in at a loss.
Three to four months.
We were scheduled to probably close.
750 to a $1 billion a month.
Our pipeline was.
Probably one of the larger points, we took are extraordinarily active approach.
With borrowers letting them know that the loans had to be resized.
Because rates have gone up.
Adjusted.
Yeah.
Where we are a lender we're not a broker.
One the risk on our loans.
We worked very hard with the borrowers to either go back and get a price reduction or re appetizer loans with.
Anywhere between five and 10% or more.
As a result of that we had.
A massive fallout in the pipeline because they understood with our guidance.
Values with different than what they went to contract on that.
So we were able to really shrink the number of loans that we needed to close too.
Very very.
Suitable pays 50% even more.
My comment in terms of my outlook going forward.
Is that we're expecting anywhere between.
On the low side of $100 million of runoff per month to $400 million on the high side.
And.
Current portfolio so.
Normalized $2 million to $300 million of runoff.
Months.
That's probably the level.
We will look to originate for the balance of the year, we think a healthy level.
And we think.
That's a level that's appropriate.
Our capital and still maintain a leading position as a balance sheet originated.
So that's how I would look at the outlook at the present time, given the environment that of course could change that.
On the current scenario, Paul you want to give any color on that <unk>.
That's exactly it.
It's exactly what we're what we're doing Chris where we came in $2 30 for July $120 million of runoff was a little light runoff in July , but Ivan is right where we.
We are estimating anywhere $2 million to $300 million, a month and bridge production, but we're going to be managing that against our run off to keep our portfolio kind of constant to maybe growing a little bit.
And things can change, but that's our run rate right now.
Great. Thank you that's all really helpful kind of the idea that you are looking more at maintaining the portfolio or just given the environment rather than increasing it <unk> happen.
And recycle into higher rate loans as well.
Yes, it's very important.
So while the portfolio may not grow substantially for the balance of the year. The Levered returns will grow because were putting our capital out of higher returns and financing them in the slow of course vehicles, we have that will really drive up the return.
Great. Thank you I appreciate the color there.
Thank you.
Yes.
I would now like to hand, the call back over to Mr. Ivan Kaufman for any closing or additional remarks.
Okay, well that concludes our call today appreciate everybody's participation clearly these are adjusting times and changing times.
Yeah.
We are extremely well positioned.
We're pleased to have once again increased our dividend which switches.
A remarkable.
Yeah.
And results.
Next quarter's call have a great have a great rest of the summer everybody take care.
Thank you ladies and gentlemen, this concludes today's conference call and we appreciate your participation you may disconnect at any time.
Okay.
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