Q1 2024 Arbor Realty Trust Inc Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to the first quarter 2024 Arbor Realty Trust earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this period, you will need to press star 1 on your telephone. If you want to remove yourself from the queue, please press star 2. Please be advised that today's conference is being recorded. If you should 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 go ahead.

Speaker Change: Good morning, ladies and gentlemen, and welcome to the first quarter 2020 for Arbor Realty Trust earnings Conference call. At this time, all participants are in a listen only mode.

Speaker Change: The speaker's presentation there'll be a question and answer session.

Speaker Change: To ask a question. During this period you will need to press star one on your telephone you went to remove yourself from the queue. Please press star two.

Speaker Change: Please be advised that today's conference is being recorded if you should need topic of assistance. Please press star zero.

I would now like to turn the call over to your speaker today, Paul Lineal Chief Financial Officer. Please go ahead.

Okay. Thank you James and good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we will discuss the results for the quarter ended March 31, 2024 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.

Paul Anthony Elenio: Okay, thank you, James, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended March 31st, 2024. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer.

Paul Anthony Elenio: 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 risk 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. Factors that could cause actual results to differ materially from Arbor's expectations in these forward-looking statements are detailed in our SEC report.

Things 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.

Speaker Change: Factors that could cause actual results to differ materially commodities 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 <unk> undertakes no obligation to publicly update or revise these forward looking <unk>.

Paul Anthony Elenio: Listeners are cautioned not to place undue reliance on these forward-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 or the occurrence of unanticipated events. I'll now turn the call over to Arbor's President and CEO, Ivan Kaufman.

Speaker Change: Statements to reflect events or circumstances after today or the occurrences of unanticipated events I'll now turn the call over to Arbor's, President and CEO Ivan Kaufman.

Ivan Paul 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 have another very strong quarter despite an extremely challenging environment. Through our diversified business model, with many counter-signal income streams, we once again generated distributable earnings in excess of our dividend, with a payout ratio of around 90% for the first quarter. This is clearly well above the performance of our peers, most of which are paying their dividends out of capital or have been forced to cut their dividends substantially.

Ivan Paul Kaufman: Thank you Paul and thanks to everyone for joining us on today's call.

Ivan Paul Kaufman: As you can see from this morning's press release, we had another very strong quarter.

Ivan Paul Kaufman: Despite an extremely challenging environment.

Ivan Paul Kaufman: Through our diversified business model with many counter cyclical income streams. We once again generated distributable earnings in excess of our dividend with a payout ratio of around 90% for the first quarter.

Ivan Paul Kaufman: This is clearly well above the performance of our peers, most of which are paying dividends out of capital or have been forced to cut their dividend substantially.

Ivan Paul Kaufman: And just as importantly, in a time of tremendous stress, we've managed to maintain our book value over the last 15 months while recording reserves for potential future losses, which clearly differentiates us from everyone else in our peer group, the vast majority of whom have experienced significant book value erosion in this environment. On the last call, we gave guidance that the first two quarters of this year would be the most challenging part of the cycle. And we are in a period of peak stress. We also mentioned that if rates stay higher for longer, that dislocation could potentially leak into the third and possibly even the fourth quarter as well.

Ivan Paul Kaufman: And just as importantly in a time of tremendous stress, we've managed to maintain our book value over the last 15 months.

Ivan Paul Kaufman: While recording reserves for potential future losses, which clearly differentiate us differentiate us from everyone else in our peer group the vast majority.

Ivan Paul Kaufman: All of which have experienced significant book value erosion in this environment.

Ivan Paul Kaufman: On the last call we gave guidance that the first two quarters of this year would be the most challenging part of the cycle.

Ivan Paul Kaufman: And we are in a period of peak stress. We also mentioned that if rates stay higher for longer that dislocation could potentially leak into the third and possibly even the fourth quarter as well and.

Ivan Paul Kaufman: And given the recent backup in rates, combined with the Fed's somewhat more hawkish view on the timing of potential rate cuts in 2024, we believe this is a distinct possibility, and it's something we have been preparing for, and it's reflected in the way we are currently operating our business. As a result, we have been extremely active over the last four months in working through our balance sheet loan book. We have demonstrated tremendous patience and poise in dealing with the most recent wave of delinquencies.

And given the recent backup in rates combined with the fed somewhat more hawkish view on the timing of potential rate cuts in 2024. We believe this is a distinct possibility and it's something we have been preparing for and it reflected in the way. We are currently operating our business.

As a result, we have been extremely active over the last four months and walking through our balance sheet loan book, we have demonstrate demonstrated tremendous patience and poise and dealing with the most recent wave of delinquencies again, our goal is to maximize shareholder value and very often it's not just the value of the collateral.

Ivan Paul Kaufman: Again, our goal is to maximize shareholder value, and very often it's not just the value of the collateral but the recourse provisions that we evaluate in determining how to approach each individual circumstance. The short-term nature of having a delinquent loan will not impact our decision-making process to achieve the correct economic result on a transaction.

Ivan Paul Kaufman: But the recourse provisions that we evaluate in determining how to approach each individual circumstance.

Ivan Paul Kaufman: Short term nature of having a delinquent loan will not impact our decision making process to achieve the correct economic result on a transaction.

Ivan Paul Kaufman: With this philosophy in mind, we had a tremendous amount of success in the first quarter working through a substantial amount of our delinquencies and modifying these loans by getting borrowers to bring a significant amount of fresh equity to the table and recapitalizing their deals. As a result, in the first quarter, we successfully modified 40 loans for a total of $1.9 billion, with fresh capital being brought to the table in every one of these deals.

Ivan Paul Kaufman: With this philosophy in mind, we had a tremendous amount of success in the first quarter working through a substantial amount of delinquencies and modifying these loans by getting bars to bring a significant amount of fresh equity to the table and recapitalizing their deals as a result in the first quarter we success.

Ivan Paul Kaufman: Fully modified 40 loans totaling $1.9 billion wished fresh capital are being brought to the table and every one of these deals. This includes cash to purchase new interest rate caps fund interest rate and renovation reserves bring any past due loans carne and pay down balances where appropriate.

Ivan Paul Kaufman: This includes cash to purchase new interest rate caps, fund interest rate and renovation reserves, bring any past due loans current, and pay down balances where appropriate. In fact, BARS injected approximately 45 million of new capital into these deals, with $1.65 billion of these loans purchasing new interest rate caps. We have also been highly effective in refinancing deals through our agency business, as well as leveraging our long-term standing relationships with many quality sponsors to step in and take over assets that are underperforming and assume our debt. This is difficult and complicated work in an extremely challenging environment.

Ivan Paul Kaufman: In fact bars injected approximately $45 million of new capital into these deals with 1.65 billion of these loans purchasing new interest rate caps. We have also been highly effective in refinancing deals through our agency business as well as leveraging our long term standing relationships for many <unk>.

Ivan Paul Kaufman: Quality sponsors to step in and take over assets that are underperforming and assume our debt.

Ivan Paul Kaufman: This is a difficult and complicated work and an extremely challenging environment.

Ivan Paul Kaufman: I can't say enough about the efforts put forth by our entire organization in successfully managing through the teeth of this dislocation. We're very pleased with the success we have had to date and expect to remain extremely busy over the next few months and steadfast in our approach as we continue to manage through the balance of this downturn. Clearly, in this environment, having adequate liquidity is paramount to our success. As a result, we have focused heavily on maintaining a very strong liquidity position. Currently, we have approximately $1 billion of cash, between $800 million of corporate cash and $600 million of cash in our CLOs, which results in an additional cash equivalent of approximately $150 million.

Ivan Paul Kaufman: Can't say enough about the efforts put forth by our entire organization is successfully managing through the teeth of this dislocation. We're very pleased with the success we have had to date.

Ivan Paul Kaufman: How do you expect to remain extremely busy over the next few months and steadfast in our approach as we continue to manage through the balance of this downturn.

Ivan Paul Kaufman: Clearly in this environment, having adequate liquidity is paramount tower's success as a result, we have focused heavily on maintaining a very strong liquidity position. Currently we have approximately 1 billion of cash between.

Ivan Paul Kaufman: Between $800 million of corporate cash and 600 million of cash not clo's that result in additional cash equivalent of approximately $150 million and having this level of liquidity is crucial in this environment as it provides us with the flexibility needed to manage through this downturn and take advantage of op.

Ivan Paul Kaufman: And having this level of liquidity is crucial in this environment as it provides us with the flexibility needed to manage through this downturn and take advantage of opportunities that will exist in this market to generate superior returns on our capital. As you may recall, a few months back, we allocated $150 million of our capital stock to buy back stock. Knowing full well there would be volatility in the market, allowing us to potentially repurchase our stock at discounts to book value and generate high double-digit returns on our capital.

Ivan Paul Kaufman: Attunity will exist in this market to generate superior returns on our capital.

Ivan Paul Kaufman: As you May recall, a few months back we allocated $150 million of our capital stock buyback.

Ivan Paul Kaufman: To us to buy back stock.

Ivan Paul Kaufman: Knowing full well that would be volatile it in a market, allowing us to potentially repurchase our stock at discounts to book value and generate high double digit returns on our capital and.

Ivan Paul Kaufman: In April, we repurchased approximately $11.4 million of stock at an average price of $12.19, with a 4% discount to our book value and generating a current dividend yield of 14% and a yield of approximately 16% on distributable earnings.

In April we repurchased approximately 11 4 million of stock at an average price of $12, one nine with a 4% discount how book value and generating a current dividend yield of 14% and a yield of approximately 16% on distributable earnings.

Ivan Paul Kaufman: This is a tremendous return on capital, and with around $138 million of remaining capital available for this strategy, we will continue to be opportunistic in our approach to buying back stock if the volatility persists. We also continue to do an excellent job of deleveraging our balance sheet and reducing our exposure to short-term debt. We are down to approximately $2.6 billion in outstandings with our commercial banks from a peak of around $4.2 billion, and we have 72% of our secured indebtedness in non-mark-to-market, non-recourse, low-cost CLO vehicles.

Ivan Paul Kaufman: This is a tremendous return on capital and with around 138 million of remaining capital available for the strategy. We will continue to be opportunistic in our approach to buying back stock if the volatility persists.

We also continue to do an excellent job on deleveraging our balance sheet and reduce our exposure to short term debt. We are down to approximately $2 6 billion in outstandings without commercial where without commercial banks from a peak of around $4 2 billion and we have 72% of our secured indebtedness and non mark to market nonrecourse.

Ivan Paul Kaufman: Our CLO vehicles are a major part of our business strategy, as they provide us with a tremendous strategic advantage in times of distress and dislocation due to the nature of their non-mark-to-market, non-recourse elements. In addition, they contribute significantly to providing a low-cost alternative to warehouse banks, which in times like this have fluctuating pricing, leverage points, and parameters. In fact, one of the significant drivers of our income streams is low-cost CLO vehicles, as well as the fixed rate debt and equity instruments that make up a big part of our capital structure.

Ivan Paul Kaufman: <unk> low cost CLO vehicles.

Ivan Paul Kaufman: CLO vehicles are a major part of our business strategy as they provide us with tremendous strategic advantage in times of distress and dislocation due to the nature of their non mark to market nonrecourse elements. In addition, they contribute significantly to providing a low cost alternative to warehouse banks, which in times in times like.

This have fluctuating pricing leverage points and parameters.

Ivan Paul Kaufman: In fact, one of the significant drivers of our income streams are low cost CLO vehicles, as well as our fixed rate debt and equity instruments, we have that make up a big part of our capital structure. We are very strategic in our approach to capitalizing our business with a substantial amount of low cost long dated long day.

Ivan Paul Kaufman: We are very strategic in our approach to capitalizing our business with a substantial amount of our low-cost, long-dated funding sources, which has allowed us to continue to generate outsized returns on our capital. Turning now to our first quarter performance, as Paul will discuss in more detail, we had a very strong first quarter, producing distributable earnings of $0.48 a share, representing a payout ratio of around $0.90.

Ivan Paul Kaufman: Funding sources, which has allowed us to continue to generate outsized returns on our capital.

Ivan Paul Kaufman: Turning now to our first quarter performance as Paul will discuss in more detail. We had a very strong first quarter producing distributable earnings of 48 cents a share rep.

Ivan Paul Kaufman: Representing a payout ratio of around 90 cents clearly, having the wherewithal to create a large cushion between our earnings and dividends over the last several years is serving us very well in this dislocation.

Ivan Paul Kaufman: Clearly, having the wherewithal to create a large cushion between our earnings and dividends over the last several years is serving us very well in this dislocation. I believe that this cushion, combined with our diversified business model, uniquely positions us as one of the only companies in this space with the ability to continue to provide a sustainable dividend. In our GOC agency business, we had a relatively strong first quarter despite interest rates remaining stubbornly high.

Believe that this cushion combined with our diversified business model uniquely positions us as one of the only companies in this space with the ability to continue to provide a sustainable dividend.

Ivan Paul Kaufman: And GSE agency business, we had a relatively strong first quarter. Despite interest rates remaining stubbornly high we originated $850 million in the first quarter and our pipeline remains elevated traditionally first quarter production numbers are normally lower than the rest of the year and certainly the backup in rates has not helped us.

Ivan Paul Kaufman: We originated $850 million in the first quarter, and our pipeline remains elevated. Additionally, first quarter production numbers are normally lower than the rest of the year, and certainly the backup in rates has not helped this trend.

Ivan Paul Kaufman: Trend. Despite the current rate environment, we continue to remain a long maintained a large pipeline and we are not seeing significant fallout in this market rather deals are just being pushed out further.

Ivan Paul Kaufman: Despite the current rate environment, we continue to maintain a large pipeline, and we are not seeing significant fallout in this market, rather deals are just being pushed out further. We have also done a great job of converting our balance sheet loans into agency products, which has always been one of our key strategies and a significant differentiator for our peers. It's also very important to emphasize that a significant portion of our business is in the workforce housing part of the market.

Ivan Paul Kaufman: We have also done a great job in converting our balance sheet loans into agency product, which has always been one of our key strategies and a significant differentiator from our peers.

It's also very important to emphasize that a significant portion of our business. There's no work force housing part of the market.

Ivan Paul Kaufman: As you know, Fannie and Freddie have a very specific mandate to address the workforce shortage affordable housing needs, which is a major issue in the United States, making Arbor a great partner that continues to fulfill a very important mandate for the federal agencies as well as the social needs of society.

Ivan Paul Kaufman: As you know Fannie and Freddie are very specific mandate to address a workforce slash affordable housing needs, which is a major issue in the United States, making offer a great partner that continues to fulfill a very important mandate for the federal agencies as well as a social needs of society.

Ivan Paul Kaufman: And again, the agency business offers a premium value that requires limited capital and generates significant, long-dated, predictable income streams and produces significant annual cash flow. To this point, our $31 billion fee-based servicing portfolio, which grew 9% year-over-year, generates approximately $122 million a year in recurring cash flow. We also generate significant earnings on our escrow and cash balances, which acts as a natural hedge against interest rates. In fact, we are now earning 5% on around $2.8 billion of balances, or roughly $140 million annually, which, combined with our servicing income and annuity, totals approximately $260 million of annual gross cash earnings, or $1.25 a share.

Ivan Paul Kaufman: And again the agency business offers a premium values. It requires limited capital and generate significant long dated predictable income streams and produces significant annual cash flow to this point, our 31 billion fee based servicing portfolio, which grew 9% year over year.

Ivan Paul Kaufman: Generates approximately $122 million a year reoccurring cash flow. We also generate significant earnings on our escrow and cash balances, which acts as a natural hedge against interest rates. In fact, we are in our earning 5% on around $2 8 billion of balances of roughly $140 million annually, which can.

Ivan Paul Kaufman: Buying with us servicing income and annuity totaled totals approximately $260 million of annual gross cash earnings or $1 25 a share.

Ivan Paul Kaufman: This is in addition to the strong gain on sale margins we generate from our Originations platform. It is also extremely important to emphasize that our agency business generates 40% of our net revenues, the vast majority of which occurs before we even turn on the lights each day. This is completely unique to our platform.

Ivan Paul Kaufman: This is in addition to the strong gain on sale margins, we generate from our originations platform.

Ivan Paul Kaufman: And extremely important to emphasize that our agency business generates 40% of our net revenues the mass the vast majority of.

Ivan Paul Kaufman: Which of course before we even turn on the lights each day.

Ivan Paul Kaufman: This is completely in the cloud platform is something we feel is not being fully reflected in our valuation.

Ivan Paul Kaufman: It's something we feel is not being fully reflected in our valuation. In our balance sheet business, we continue to focus on working through our loan book and converting our multi-family bridge loans into agency products, allowing us to de-lever our balance sheet and produce significant long-dated income streams. In the first quarter, we produced another $540 million of balance sheet runoff, $210 million, or roughly 40%, of which was recaptured into new agency loan originations.

Ivan Paul Kaufman: And our balance sheet business, we continue to focus on working through our loan book and converting our multifamily bridge loans into agency product allow us to delever, our balance sheet and produce significant long dated income streams.

In the first quarter, we produced another $540 million of balance sheet runoff $210 million of roughly 40% of which was recaptured into new agency loan originations.

Ivan Paul Kaufman: With today's high interest rates, we are chipping away at converting loans to agencies, but if the 10-year gets back to 4% again, it will become far more meaningful, and every quarter point drop in interest rates from there will accelerate this conversion process significantly.

Ivan Paul Kaufman: With today's high interest rates, we're chipping away at converting loans to agencies, but if the 10 year gets back to 4% again it.

Ivan Paul Kaufman: It will become far more meaningful than every quarter point drop in interest rates from their will accelerate this conversion process significantly.

Ivan Paul Kaufman: As we touched on in the last quarter, we are well positioned to step back into the lending market and garner accretive opportunities to continue to grow our platform. We believe that in these types of markets, you can originate some of the highest quality loans with attractive returns, which will allow us to grow our balance sheet and build up our pipeline of future agency deals. In our single-family rental business, we're off to a great start this year as we continue to be the leader and the lender of choice in the premier markets we operate in.

Ivan Paul Kaufman: It was touched as we touched on in the last quarter, we are well positioned to step back into the lending market and garner accretive opportunities continue to grow our platform.

Ivan Paul Kaufman: Leave that in these type of markets you can originate some of the highest quality loans with attractive returns, which will allow us to grow our balance sheet and build up a pipeline of future agency deals.

Ivan Paul Kaufman: And our single family rental business, we're off to a great start this year as we continue to be the leader and the lender of choice and the premium markets, we traffic and we had a very strong first quarter with 172 million of fundings and a lot of 420 12 million of commitments signed up we also have a large.

Ivan Paul Kaufman: We had a very strong first quarter with $172 million of funding and another $412 million of commitments signed up. We also have a large pipeline and remain committed to this business as it offers us three turns on our capital through construction, bridge, and permanent lending opportunities and generates strong levels of returns in the short term while providing significant long-term benefits by further diversifying our income streams. We are also very excited about the opportunities we are starting to see in our newly added construction lending business.

Pipeline remain committed to this business at it offers us returns on our capital through construction bridge and permanent lending opportunities and generate strong levered returns in the short term, while providing significant long term benefits by further diversifying our income streams.

Ivan Paul Kaufman: Also very excited about the opportunities we're starting to see in a newly added construction lending business. This is a business. We believe we can produce very accretive returns on our capital by.

Ivan Paul Kaufman: This is a business we believe we can produce very accretive returns on our capital by generating 10-12% unlevered returns initially and eventually mid to high returns on our capital once we leverage this business. We have started to see a nice increase in our pipeline of potential deals with roughly $200 million under application, another $300 million in LOIs, and a significant number of additional deals we are currently screening. We believe this product is very appropriate for our platform.

Ivan Paul Kaufman: Getting 10% to 12% Unlevered returns initially and eventually mid to high returns on that capital. Once we leverage this business. We have started to see a nice increase in our pipeline of potential deals for us roughly 200 million under application. Another 300 million in L. O I's and a significant number of additional deals we are currently.

Ivan Paul Kaufman: Screening.

Ivan Paul Kaufman: We believe this product is very appropriate for our platform.

Ivan Paul Kaufman: It offers us returns on our capital through construction, bridge, and permanent agency lending opportunities. In summary, we had a very productive first quarter, and we were working exceptionally hard to manage through the balance of this dislocation. We understand very well the challenges that lie ahead, and I feel we are very well positioned. Our earnings exceeded our dividend run rate; we are invested in the right asset class with very stable liability structures, highlighted by a significant amount of non-recourse, non-mark-the-market CLO debt.

As it offers us returns on that capital through construction bridge and permanent agency lending opportunities.

Ivan Paul Kaufman: In summary, we had a very productive first quarter.

We are working exceptionally hard to manage through the balance of this dislocation.

Ivan Paul Kaufman: We understand very well the challenges that lie ahead and.

Ivan Paul Kaufman: Phil we're very well positioned our earnings exceeded our dividend run rate run rate. We are invested in the REIT asset class with very stable liability structures highlighted by a significant amount of nonrecourse non mark to market CLO debt with pricing that is well below the car market.

Ivan Paul Kaufman: Pricing that is well below the car market. We're also well capitalized with significant liquidity and have the best-in-class asset management function and seasoned executive team giving us confidence in our ability to manage through this cycle. We continue to be the top performing company in our space. I will now turn the call over to Paul who will take you through the financial results.

Ivan Paul Kaufman: We also we're also well capitalized with significant liquidity and out of the best in class asset management function and seasoned executive team.

Ivan Paul Kaufman: Giving us confidence in our ability to manage through this cycle and continue to be the top performing company in our space.

Ivan Paul Kaufman: I will now turn the call over to Paul and take you through the financial results.

Paul: Okay. Thank you Ivan as Ivan mentioned, we had another very strong quarter, producing distributable earnings of $97 million or 40, <unk> 47 per share and 48 per share excluding a $1.6 million realized loss on a previously reserved for a nonperforming loan that paid off at a slight discount in the first.

Paul Anthony Elenio: Okay, thank you, Ivan. As Ivan mentioned, we had another very strong quarter producing distributable earnings of $97 million, or $0.47 per share and $0.48 per share, excluding a $1.6 million realized loss on a previously reserved for non-performing loan that was paid off at a slight discount in the first quarter. These results translated into ROEs of approximately 15% for the first quarter and resulted in a dividend payout ratio of around 90%. As Ivan mentioned, we successfully modified 40 loans in the first quarter totaling $1.9 billion, all of which had borrowers invest additional capital as part of the modification term.

Paul: Quarter. These results translated into Roe's of approximately 15% for the first quarter and resulted in a dividend payout ratio of around 90%.

Paul: As Ivan mentioned, we successfully modified 40 loans in the first quarter totaling 1.9 billion all of which had borrowers invest additional capital as part of the modification terms.

Paul Anthony Elenio: On $1.1 billion of these loans, we required borrowers to invest additional capital to recapitalize their deals, with us providing some form of temporary rate relief through a pay and accrual feature. The pay rates were modified on average to approximately 7%, with only around 2% of the residual interest being deferred.

Paul: $1 1 billion of these loans, we required borrowers to invest additional capital to recap their deals with us providing some form of temporary rate relief through a pay an accrual feature the pay rates were modified on average to approximately 7% with only around 2% of the original at the residual interest being deferred.

Paul Anthony Elenio: A subset of these loans, totaling $713 million, made up the vast majority of our less-than-60-day delinquencies at December 31st, and we received all past-due interest owned on these loans in accordance with the modified terms. Last quarter, we disclosed two pools of loans that were relevant to the total delinquencies in our balance sheet loan book, our 60-plus day delinquencies and loans that were less than 60 days past due that we were only recording interest income on to the extent cash was received.

Paul: Subset of these loans totaling 713 million made up the vast majority of our less than 60 day delinquencies at December 31st, which we received all past due interest on these loans in accordance with the modified terms.

Paul: Last quarter, we disclosed two pools of loans that were relevant to the total delinquencies in our balance sheet loan book, our 60, plus day delinquencies and loans that were less than 60 days past due that we were only recording interest income on to the extent cash was received the 60 plus day delinquent loans, our nonperforming loans were approximately two.

Paul Anthony Elenio: The 60-plus day delinquent loans, or our non-performing loans, were approximately $275 million last quarter, and the less than 60-day past due loans were $957 million. Our non-performing loan numbers are now $465 million this quarter due to approximately $175 million of loans progressing from less than 60 days delinquent to greater than 60 days past due, and roughly $15 million of net new additions for the quarter. The less than 60 days past due loans, or our non-accrual loans, came down to $489 million this quarter, mostly due to $713 million of loans being successfully modified, as I mentioned earlier, combined with $175 million of loans moving to 60-plus days delinquent, which was partially offset by approximately $420 million of new loans this quarter that we did not accrue interest on.

Paul: <unk> hundred $75 million last quarter, and the less than 60 day past due loans were $957 million a nonperforming loan numbers are now $465 million this quarter due to approximately $175 million of loans progressing from less than 60 days delinquent to greater than 60 days past due.

Paul: And roughly 15 $15 million of net new additions for the quarter.

The less than 60 days past due loans or non accrual loans came down to $489 million this quarter, mostly due to $713 million of loans being successfully modified as I mentioned earlier combined with $175 million of loans moving to 60, plus days delinquent, which was partially offset by approximately four.

Paul: $20 million of new loans this quarter that we did not accrue interest on so.

Paul Anthony Elenio: So, in summary, our total delinquencies are down 23% from 1.23 billion last quarter to 954 million this quarter, which is significant progress due to the tremendous success we have had in modifying and resolving loans and our continued strong collection efforts. And while we expect to continue to make considerable progress in resolving these delinquencies, at the same time, we do anticipate that there will be new delinquencies in this challenging environment.

Paul: So in summary, our total delinquencies are down 23% from 123 billion last quarter to $954 million this quarter, which is significant progress again due to the tremendous success, we had in modifying and resolving loans.

Paul: Continued strong collection efforts and while we expect to continue to make considerable progress in resolving these delinquencies at the same time, we do anticipate that there will be new delinquencies in this challenging environment.

Paul Anthony Elenio: We also continue to build our CECL reserves, recording an additional $18 million on our balance sheet loan book in the first quarter. We feel it's very important to emphasize that despite booking approximately 108 million CECL reserves across our platform in the last 15 months, 88 million of which were in our balance sheet business, we still grew our book value per share by 1% to $12.64 a share at 3-31-2024 from $12.53 a share at 12-31-2022, which is well above the performance of our peers, the vast majority of whom have experienced significant book value erosion in

Paul: We also continue to build our seasonal reserves recording an additional $18 million on our balance sheet loan book in the first quarter. We feel it's very important to emphasize that despite booking approximately 108 million seasonal reserves across our platform in the last 15 months 88 million of which was in our balance sheet business. We still grew our book value.

Paul: Yeah, 1% to $12.64 a share at 331 2024 from $12.53 a share at 12, 31, 2022, which is well above the performance of our peers. The vast majority of which have experienced significant book value erosion in this market. Additionally, we own <unk>.

Paul Anthony Elenio: Additionally, we are one of the only companies in our space that has seen significant book value appreciation over the last five years, with 36% growth during that time period versus our peers whose book values have declined an average of approximately 18%. In our agency business, we had a solid first quarter with $850 million in originations and $1.1 billion in loan sales. The margin on these loan sales came in at 1.54% this quarter compared to 1.32% last quarter, mainly due to some larger deals in the fourth quarter that carried lower margins.

Paul: One of the only companies in our space that has seen significant book value appreciation over the last five years with 36% growth during that time period versus our peers, whose book values have declined an average of approximately 18%.

Paul Anthony Elenio: We also recorded $10.2 million of mortgage servicing rights income related to $775 million of committed loans in the first quarter, representing an average MSR rate of around 1.31% compared to 1.55% last quarter, mainly due to a higher percentage of Fannie Mae loan commitments in the fourth quarter, which contain higher servicing fees. Our fee-based servicing portfolio also grew to approximately $31.4 billion on March 31st, with a weighted average servicing fee of 39 basis points and an estimated remaining life of around 8 years.

In our agency business, we had a solid first quarter with $850 million in originations and $1 1 billion in loan sales. The margin on these loan sales came in at 1.54% this quarter compared to 1.32% last quarter, mainly due to some larger deals in the fourth quarter that carry lower margins. We also recorded.

Paul: At $10 2 million of mortgage servicing rights income related to $775 million of committed loans in the first quarter, representing an average MSR rate of around 1.31% compared to $1 five 5% last quarter, mainly due to a higher percentage of Fannie Mae loan commitments in the fourth quarter, which contain higher.

Paul: Servicing fees.

Paul: Based servicing portfolio also grew to approximately $31 4 billion at March 31, with a weighted average servicing fee of 39 basis points and an estimated remaining life of around eight years. This portfolio will continue to generate a predictable annuity of income going forward of around $122 million gross annually.

Paul Anthony Elenio: This portfolio will continue to generate a predictable annuity of income going forward of around $122 million gross annually, and this income stream, combined with our earnings on our escrows and gain on sale margins, represents 40% of our net revenue.

Paul: And this income stream combined with our earnings on our S grows and gain on sale margins represent 40% of our net revenues.

Paul Anthony Elenio: In our balance sheet lending operation, our $12.25 billion investment portfolio had an all-in yield of 8.81% at March 31st compared to 8.98% at December 31st due to a combination of an increase in non-performing loans and some new loans that did not make their full payment as of March 31st that we decided not to accrue for, which was partially offset by modifications in the first quarter on the vast majority of our less than 60-day The average yield on these assets increased to 9.44% from 9.31% last quarter due to the successful modification of the bulk of our past due loans, allowing us to collect a majority of the back interest owned on our fourth quarter delinquencies, which was partially offset by an increase in non-performing loans and some new non-accrual loans in the first quarter.

Paul: And our balance sheet lending operation are $12, two 5 billion investment portfolio had an all in yield of 881% at March 31, compared to $8 nine 8% at December 31, due to a combination of an increase in nonperforming loans and some new loans that we did not that did not make their full payment as of March 31 that we decided.

Paul: Not to accrue for which was partially offset by modifications in the first quarter on the vast majority of our less than 60 day past due loans from last quarter.

Paul: The average balance in our core investments was $12 5 billion this quarter compared to 13 billion last quarter to a runoff exceeding originations in the fourth and first quarters. The average yield on these assets increased to $9 four 4% from 9.31% last quarter due to the successful modification of the bulk of our <unk>.

Paul: Has new laws, allowing us to collect a majority of the back interest owned on a fourth quarter delinquencies, which was partially offset by an increase in nonperforming loans and some new non accrual loans in the first quarter.

Paul Anthony Elenio: Total debt on our core assets decreased to approximately $11.1 billion at March 31, from $11.6 billion at December 31. The all-in cost of debt was flat at approximately 7.45% at both $12.31 and $3.31. The average balance on our debt facilities was approximately $11.4 billion for the first quarter compared to $11.8 billion for the previous quarter. The average cost of funds on our debt facilities was basically flat at 7.5% for the first quarter compared to 7.48% for the fourth quarter.

Paul: Total debt on our core assets decreased to approximately $11 1 billion at March 31 from $11 6 billion at December 31st the all in cost of debt was flat at approximately 7.45% at both 12 31 and 331.

Paul: The average balance in our debt facilities was approximately $11 4 billion for the first quarter compared to $11 8 billion last quarter. The average cost of funds in our debt facilities was basically flat at seven 5% for the first quarter compared to 7.48% for the fourth quarter.

Paul Anthony Elenio: Our overall net interest spreads in our core assets increased 1.94% to 1.94% this quarter compared to 1.83% last quarter, again due to the successful modification of the majority of our past two loans from last quarter. And our overall spot net interest spreads were down to 1.37% at March 31st from 1.53% at December 31st, mostly due to an increase in non-performing loans during the quarter. Lastly, as we continue to shrink our balance sheet loan book by moving loans to our agency business, we have delevered our business 20% over the last 15 months to a leverage ratio of 3.2 to 1 from a peak of around 4.0 to 1.

Paul: Our overall net interest spreads on our core assets increased 194% to 194% this quarter compared to 183% last quarter again from the successful modification of the majority of our past due loans from last quarter and our overall spot net interest spreads were down to 137% at March 31 from 1.53.

Paul: <unk> percent at December 31st mostly doing due to an increase in nonperforming loans during the quarter.

Paul: Lastly, as we continue to shrink our balance sheet loan book by moving loans to our agency business, we have de Levered, our business, 20% over the last 15 months to a leverage ratio of three two to one from a peak of around four point older. One equally as important our leverage consists of around 72% nonrecourse non mark to market.

Paul Anthony Elenio: Equally as important, our leverage consists of around 72% non-recourse, non-mark-to-market CLO debt with pricing that is below the current market, providing strong levied returns on our capital. That completes our prepared remarks for this morning. I'll now turn it back to the operator to take any questions you may have at this time. James?

Paul: Oh that with pricing that is below the current market, providing strong levered returns on our capital.

Speaker Change: 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 James.

Operator: Thank you. As a reminder, to ask a question, please press Star 1 on your telephone. To withdraw your question, press Star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. And we'll take our first question today from Steve DeLaney with Citizens GMP.

James: Thank you as a reminder to ask a question. Please press star one on your telephone to withdraw your question Press Star two so others can hear your questions clearly we ask that you pick up your handset for best sound quality.

Operator: And we'll take our first question of day from Steve Delaney with citizens G. M P.

Steven Cole DeLaney: Good morning, everyone and thank you.

Steven Cole DeLaney: Good morning, everyone. Thanks. Great effort on the modifications in the first quarter. I just want to be clear, and Paul, I appreciate that paragraph. I believe that that is new, but 39 loans, $108 billion in UPB. Do we understand that in each of those cases, the borrowers put additional capital into the transactions?

Steven Cole DeLaney: Great effort on the modifications in the first quarter I just want to be clear.

Steven Cole DeLaney: And Paul I appreciate that paragraph I believe.

Steven Cole DeLaney: But 39 loans of 108 billion in U P D do.

Steven Cole DeLaney: We understand that in each of those cases, the borrowers put additional capital into the transaction.

Paul: That's correct.

Paul: Well in fact, we just.

Paul Anthony Elenio: The fact we We disclosed in the Prepare to Marks and Ivan section that of the $1.9 billion that we modified, every single one of those deals required borrowers to bring capital to the table, and the capital that was injected into those deals was $45 million.

Paul: We did we disclosed in the prepared remarks, an island section that in the 1 billion nine that we modified every single one of those deals requiring borrowers to bring capital to the table and the capital that was injected into those deals was $45 million.

Ivan Paul Kaufman: I want to shed a little light on that because you can go back to my earnings script, I think about three or four quarters ago, when people were talking about how... complex and difficult the market was. And I think I gave a perspective that, in general, you know...

Paul: Let's see if I wanted to give you a I wanted to give you a I want to shed a little light on our progress you can go back in my earnings script, I think about three or four quarters ago.

Paul: When people were talking about how.

Complex and difficult to market was.

Paul: And I think I gave a perspective that in general.

Paul: No.

Paul: Borrowers are going to have to contribute about 3% of capital to the table and that capital is generally going to be used by interest rate caps and that's the differential to where rates are rates are to do that.

Ivan Paul Kaufman: Borrowers are going to have to contribute about 3% of capital to the table, and that capital is generally going to be used to buy interest rate caps, which is the differential between where rates are in this elevated environment and where a normal pay rate would be in the high 4s and low 5s. So that's kind of reflective of the capital that's needed to buy caps or right-sized assets. So that's the approximate level on an annual basis of the recapitalization that's needed in this currently elevated interest rate environment.

Paul: Elevated environment.

Paul: And we're in normal pay rate would be and you know in the in the high fours low fives.

Paul: So that's kind of reflective of the capital that's needed to buy caps or rightsize assets. So that's the approximate level on an annual basis of the recapitalization that's needed in this current.

Paul: Elevated interest rate environment.

I appreciate that Amit and further.

Ivan Paul Kaufman: I appreciate that, Ivan. And furthermore

Paul Anthony Elenio: We understand that 23 of the 39 are now on pay and accrue. Is that, well, they will pay some, and then you agree to just accrue some portion of the cash payment required? Is that correct?

Paul: We understand that 23 of the 39 are now on Hey, you're an accrued is that well be able to pay some of that you agreed to just accrued some portion of that cash payment required is that correct.

Amit: That is correct.

Paul Anthony Elenio: And as I said in my commentary, Steve, those loans were floating rate loans from anywhere from three and a quarter over to four and a quarter over. So those guys were paying eight and a half to nine and a half percent. And when we modified the deals, we modified it to a pay of about seven percent with less than two percent being deferred. So we're getting a really strong pay rate on those deals.

Amit: And as I said in my commentary, Steve those loans were floating rate loans from anywhere from three and a quarter over to four and a quarter over so those guys were paying eight five to nine 5% and when we modified the deals with.

Amit: We modified it to a pay of about 7% with less than 2% being deferred.

Amit: So we've got we're getting a really strong pay rate on those deals.

Speaker Change: That's good color. Thank you Paul and just a quick follow up for my second question I have in the new construction loan product.

Ivan Paul Kaufman: That's a good color. Thank you, Paul. And just a quick follow-up for my second question. Ivan, the new construction loan product strategically. Obviously, credit is tighter, and given the CRE market uncertainties that are out there. We hear banks are really pulling back broadly on commercial real estate. I work for a bank these days. Is that opportunity largely created by the void that banks are pulling back and companies like Arbor are going to have to step in and provide capital for CRE and multi-family construction loans?

Speaker Change: Strategically.

Speaker Change: Obviously.

Speaker Change: Credit is tighter and given the.

Sorry market uncertainties that are out there but.

Speaker Change: We hear banks are really pulling back broadly on commercial real estate.

Speaker Change: I work for a bank these days.

Speaker Change: Is that opportunity.

Largely been created by the Boyd with banks pulling back in companies like Barbara are going to have to step in and provide capital for growth.

Speaker Change: CRE and multifamily construction loans.

Speaker Change: Without a doubt I mean, the landscape for regional banks is not good.

Ivan Paul Kaufman: Without a doubt, I mean, the landscape for regional banks is not good. I mean, you saw another regional bank fail in Philly last week. There's been a series of failures. The commercial real estate book that exists in the banks is significantly troubled, and I don't think there's much activity going on. So we've created that program to step in and fill that void. Our single-family built-to-rent business is exploding. A lot of regionals were doing that.

Sure another regional failed in Philly last week.

There's been a series of failures.

Speaker Change: The commercial real estate book that exist in the banks.

Are.

Speaker Change: Significantly troubled.

Speaker Change: I don't think there's much activity going on so we've.

Speaker Change: We've created a program to step in and fill levels Lloyd.

Speaker Change: Our single family build to rent business has exploded into so lot of regionals, we're doing that.

Ivan Paul Kaufman: And, you know, doing a construction lending activity is an okay business. It's a decent business. It's a lot of work. It's a lot of work. What makes it most attractive for us, as we said in my comments, is the three turns on our capital. The construction lending business, which is, you know, a decent leveraged business, but when you talk about the labor and everything else that goes along with it, I'm not sure I would love that business. Agency Loan. It's an extraordinarily exciting business for our platform. Great progress.

Speaker Change: And to do a construction lending.

Speaker Change: <unk> is an okay business at all it's a decent business. There's a lot of work, it's a lot of labor what.

Speaker Change: It makes it most attractive for us as we said in my comments is the returns on that capital to construction lending.

Speaker Change: Which as you know a decent levered business, but when you talk about the labor and everything else that goes along with it I'm not sure I would love that business, but when you add the fact that you could do a stabilized British law and then ultimately do.

Speaker Change: And agency loan, it's an extraordinarily exciting business for our platform.

Speaker Change: Great progress to start the year.

Steven Cole DeLaney: Great progress to start the year, and thank you both for your comments.

Speaker Change: Yes.

Speaker Change: Thank you Steve.

Speaker Change: Our next question will come from Stephen laws with Raymond James.

Operator: Our next question will come from Stephen Laws, with Raymond James.

Speaker Change: Good morning.

Stephen Albert Laws: Good morning. I appreciate the comments and the details you've already provided. You know, Paul, I wanted to touch base on that interest income, or sorry, interest income, a pretty big lift. Can you talk about the mix there as far as, I think you mentioned in your prepared remarks, some of it was a recovery of some interest on the Lincoln Loans from Q4, but how much of that is PIC income and how much of that is possibly fees on modifications? How should we think about the mix of interest income?

Stephen Albert Laws: Appreciate the comments and the details you've already provided.

Stephen Albert Laws: Paul I wanted to touch base on net interest income or sorry interest income.

Stephen Albert Laws: You know a pretty big lift can you talk about the mix there as far as I think you mentioned in your prepared remarks, some of it was the recovery of some.

Interest on delinquent out through Q4, but how much of that is as pik income and how much of that is possibly fees on modifications. How do we think about the mix of interest income.

Paul Anthony Elenio: Sure. So it is a mix, as you laid out, Steve, and I think that it's really important to talk about the success we had in the first quarter on a substantial amount of what I'll call the non-accrual loans we disclosed last quarter. So just to give you some color, we had $957 million of loans that were less than 60 days past due last quarter that we did not accrue all the interest. To the extent that they made some payment but not the full payment, we elected to be conservative and not book that interest income. The interest income that we did not book on those loans was $12 million.

Speaker Change: Sure. So so so it is a mix as you as you laid out Steve and I think that it's really important to talk about the success. We had in the first quarter on a substantial amount of what I'll call. The non accrual loans, we disclosed last quarter. So just to give you. Some color we had $957 million of loans that were less than 60.

Paul Anthony Elenio: During the quarter, we modified $712 million of those $957 million in loans, and we got $10 million in back interest. So the first quarter was lifted by $10 million of back interest that was collected on loans that we did not previously accrue, and then that was offset by the fact that we have a new bulk of loans, $489 million of non-accrual loans and some more non-performing loans, that net of the payments they made this quarter was around another $8 or $9 million we didn't accrue.

Speaker Change: Days past due last quarter that we have not did not accrue all the interest to the extent that they made some payment, but not the full payment we elected to be conservative and not not booked that interest income that that interest income that we did not book on those loans was $12 million during the quarter, we modified 712 million.

Speaker Change: Of those 957 million of loans, and we got $10 million in back interest. So the first quarter was lifted by $10 million of back interest that was collected on loans that we did not previously accrue and then that was offset by the fact that we have a new bulk of loans 489 million of non accruals.

Speaker Change: Loans and some more nonperforming loans that net of the payments. They made this quarter was was around another another eight or $9 million, we didn't accrue so the way the the way I look at net interest income for the quarter is is we had a lift of around $10 million to $11 million from payments of back we had a little bit of a drag.

Paul Anthony Elenio: So the way I look at net interest income for the quarter is we had a lift of around $10, $11 million from payments of back. We had a little bit of a drag of about $8 million on new loans, and then that was offset by the fact that the portfolio shrank a little bit, and acceleration of fees was a little bit lighter this quarter, by I think by $1 million. That's how you get to a flat number.

Speaker Change: AG of about $8 million on new loans, and then that was offset by the fact that the portfolio shrank a little bit and acceleration of fees was a little bit lighter this quarter, but I think by $1 million. That's how you get to a flat number and I think the way I look at it going forward is that we just keep rolling.

Paul Anthony Elenio: And I think the way I look at it going forward is that we just keep rolling these loans out, and we keep working through them. So now we have a new list of loans that we're working through now, and it'll take us some time, but we're optimistic we'll be able to get through a bulk of these loans and get a successful outcome on those. So it's a little bit choppy, I understand, but that's what happened.

Speaker Change: We keep rolling these loans and we keep working through them. So now we have a new list of loans that we're working through now and it'll take us some time, but we're optimistic we'll be able to get through a bulk bulk of these loans in and get a successful outcome on those so it's a little bit choppy I understand.

Paul Anthony Elenio: So we did have a lot of success this quarter in getting defaulted loans or delinquent loans from the prior quarter completely paid back when we modified them. It was a condition of our mod that you gotta bring your loan current, and so they brought all their loans current.

Speaker Change: But that's that's what happened. So we did have a lot of success this quarter in <unk>.

Speaker Change: Adding.

Speaker Change: Defaulted loans are delinquent loans from the prior quarter to be completely paid back when we modified it it was a condition of our mod you'd had a bring your own car and so they brought their all their loans car.

Paul Anthony Elenio: Great, a really helpful color and you guys mentioned a couple of times in the prepared remarks about the dividend and earnings covering the div, you know, can you talk about cash earnings maybe now that you've got some, you know, deferred interest and PIC income, how do you think about cash earnings versus distributable versus the dividend level as we kind of move over the balance of the year, which Ivan, I know you mentioned, given this rate environment, you know, we're, you know, still have a little bit of work to do over the next couple quarters.

Speaker Change: Great. That's helpful color and you guys mentioned a couple of times in the prepared remarks about the dividend and earnings covering the Doug can you talk about your cash earnings maybe now that you've got some.

Speaker Change: Deferred interest and Pik income how do you think about cash earnings versus distributable versus the dividend level as we kind of move over to the balance of the year, which I then I know you mentioned.

Speaker Change: Given this rate environment.

We'll have a little bit of work to do over the next couple of quarters.

Speaker Change: Yeah. So let me give you some color on a couple of things you pointed out and then I can probably give more global color is you asked the question. We did modify 1 billion nine loans during the quarter of 1 billion. One of them. We gave some form of rate relief that rate relief for the quarter would have accrued to about $4 million, but what we do.

Paul Anthony Elenio: Yeah, so let me give you some color on a couple of things you pointed out, and then Ivan can probably give more global color. As you asked the question, we did modify billion nine loans during the quarter; billion one of them, we gave some form of rate relief. That rate relief for the quarter would have accrued to about $4 million. But what we do here at Arbor, and Ivan can get into more detail, is we spend a lot of time going through each individual asset and each individual mod and determining whether we think that deferred interest is going to be collectible. And it's done on a case by case basis.

Speaker Change: Do here at Arbor, and I didn't get into more detail as we spent a lot of time going through each individual asset each individual mod and determining whether we think that deferred interest is going to be collectible and it's done on a case by case basis, sometimes we're more conservative on deals.

Paul Anthony Elenio: Sometimes we're more conservative on deals than maybe others would be. So that $4 million of accrued interest, we only accrued $2.5 million for the quarter. So we did not accrue a million and a half. So that's what hit the first quarter on those PIC assets.

Speaker Change: And then then maybe others would be so that $4 million of accrued interest, we only accrued two and a half million dollars for the quarter. So we did not accrue a million and a half. So that's the that's the that's what hit the first quarter on those pick assets, but I'll say listen it's there's a myriad of different things that go into distributable.

Paul Anthony Elenio: But I'll say, listen, there's a myriad of different things that go into distributable, go into GAAP, go into cash, for instance. So there's $2.5 million in earnings that is being accrued, but there was $10 million or $11 million that came in from last quarter that we weren't accruing. In addition to that, we booked specific reserves on our agency book of another $2.9 million. If you look at our definition of distributable, because those loans are normally going through the foreclosure process with the agencies, we take that as a distributable loss, even though the cash hasn't been sent out.

Speaker Change: Go into GAAP go into cash for instance, so there's there's $2 5 million in earnings that is being accrued, but there was $10 million or 11 million that came in from last quarter that we werent accruing. In addition to that we booked specific reserves on our agency book of another $2 9 million. If you look at our desk.

Speaker Change: Initiative distributable because those loans are normally going through the foreclosure process with the agencies, we take that as a distributable loss, even though the cash has been sent out. So we feel good about our cash position. If you look at our cash flow from operations you see it's very strong.

Paul Anthony Elenio: So we feel good about our cash position. If you look at our cash flow from operations, you see it's very strong. We certainly feel we have plenty of cash to cover our dividend.

Speaker Change: We certainly feel we have plenty of cash to cover our dividend and so theres a mix of different things that go in and out of the numbers, but that's kind of a flavor Steve if that helps you.

Paul Anthony Elenio: And so there's a mix of different things that go in and out of the numbers, but that's kind of a flavor, Steve, if that helps you.

Stephen Albert Laws: Yeah, that's great. And one final question, if I can sneak it in, you know, can you talk about the CLO? How many loans did you buy out during the quarter? And then the $600 million of CLO liquidity, how do you intend to use that? And can you put modified loans into the CLOs? Or how will you use that flexibility? Thank you.

Steven Cole DeLaney: Yeah, that's great and one final one if I can sneak it Ed can you talk about the CLO. How many loans have you did you buy out during the quarter and then the $600 million of CLO liquidity, how do you intend to use that and can you put modified loans into the CLO or how we use that that flexibility. Thank you.

Paul Anthony Elenio: So I'll give you the buyout numbers and then I'll let Ivan talk about the strategy and the CLO vehicles. So in the buyout numbers for the quarter, as you may remember from our last quarter disclosure, we told you we bought 90 million loans out of our CLOs in February. So that's part of the first quarter numbers.

Ed: So I'll give you the buyout numbers and then I'll, let Ivan talk about the strategy in our CLO vehicles. So in the buyout numbers for the quarter as you may or May remember from our last quarter disclosure. We told you we bought $90 million of loans out of our CLO is in February. So that's part of the first quarter numbers, those those loans, well reworked and re banked elsewhere.

Paul Anthony Elenio: Those loans were reworked and re-banked elsewhere. We bought another $15 million, one loan out in March, and that loan has been repaid at one of our warehouse facilities. And then in April, we bought another 120 million out. So total purchases through April, from January to April, were 223 million. But only 20 million of those loans haven't been reworked and re-banked. In April, the 120 million we bought out, 100 million was one deal. And that deal in early April was recapped with a significant amount of capital brought to the table. I think it was 10 to 15 million.

Ed: Yeah.

Ivan Paul Kaufman: We bought another $15 million one loan out in March and that loan has been banked at one of our warehouse facilities and then in April we bought another 120 million ounce. So total purchases through April from January to April with $223 million, but but only $20 million of those loans havent been reworked.

Ivan Paul Kaufman: And re banked.

Ivan Paul Kaufman: In April of $120 million, we bought out 100 million was one deal and that deal in early April was recapped with a significant amount of capital brought to the table I think it was $10 million to $15 million a loan was re cut in pay down to $95 million. So a $100 million alone. It's now at $95 million alone performing at sofa.

Paul Anthony Elenio: Our loan was recut and paid down to 95 million. So we had a $100 million loan. It's now a $95 million loan performing at SOFR plus 300, and we have a whole host of new equity in there with new sponsors that recapitalize that deal. So of the $223 million we repurchased out of the CLOs since January to today, only 20 million of those loans haven't been reworked and re-levered, and we're working on those now. I'll let Ivan give the color on the strategy and the vehicles.

Ivan Paul Kaufman: 300, and we have a whole host of new equity in there with new sponsors that recap that deal. So the $223 million, we repurchased out of the CLO.

Ivan Paul Kaufman: Since January to today, only $20 million of those loans havent been reworked and re Levered and were working on those now I'll, let I think give the color on the strategy and vehicles.

Ivan Paul Kaufman: Yeah, listen, we're very sensitive to the cash we have in our CLOs and, you know, utilizing those vehicles because they're low-cost vehicles. And we work extremely hard to produce new loans, our income stream by leveraging off of the low-cost vehicles that are in place.

Speaker Change: Hey, listen we're very sensitive to the cash we have in Austria lows.

Speaker Change: Utilizing those vehicles because they are low cost vehicles.

Speaker Change: And we worked extremely hard and producing new loans.

Speaker Change: Phil that mandate or taking loans that are currently on our balance sheet.

Speaker Change: Fit those parameters so it's our job to maximize the value of those we've done a pretty good job, we feel relatively comfortable that based on our pipeline of new opportunities and existing opportunities that we'll be able to effectively utilize that cash in a vehicle, but make no mistake about it.

Speaker Change: It's a business objective of ours.

Speaker Change: It really adds to our income stream by leveraging off of the low cost vehicles that are in place.

Speaker Change: Great I appreciate the comments this morning. Thank you.

Speaker Change: Thanks, Steve.

Speaker Change: Our next question will come from Brian <unk> with Wedbush Securities.

Operator: Our next question will come from Brian Violino with Wedbush Securities.

Operator: Great. I appreciate the comments. Thanks, Steve. Our next question will come from Brian Violino with Wedbush Securities. OK. Good morning. Thanks for taking my question.

Brian: Great. Good morning, Thanks for taking my question.

Brian: It sounds like you anticipate that the loan loss allowance is going to continue to increase in some form in the near term I'm. Just wondering if you could give some.

Brian: Thoughts on expectations for where the reserve might go from here and any dynamics of how modifications could impact your seasonal reserving going forward. Thanks.

Ivan Paul Kaufman: So let me just give a little overview, and I covered it in my comments, in this elevated interest rate environment. We expect if it stays this way that you'll see consistency in the next few quarters as we saw in the first quarter. We've talked historically over the last several earnings calls that the first and second quarters would be the toughest. Clearly, the first quarter showed a little greater stress than the fourth quarter.

So let me just give a little overview and I covered it in my comments.

Brian: And this elevated interest rate environment.

Brian: Expect if it stays this way that you'll see a consistency in the next few quarters as we've seen in the first quarter.

Brian: We've talked a historically over the last several earnings calls the first and second quarter would be the toughest clearly the first quarter showed.

Brian: Little greater stress than the fourth quarter.

Ivan Paul Kaufman: We expect consistency flowing into the second and if rates stay elevated. I mean, clearly, the news that came out and the drop in the 10-year, and it changed today. There's a lot of optimism already, and any drop, as I mentioned in my comments, will have a significant impact, and it just doesn't impact. You know, the ability to convert off a balance sheet, it's optimism in the market and the return to liquidity and the ability of people to recapitalize their deals.

Brian: Back to consistency flowing into the.

Brian: Second and if rates stay elevated I mean clearly.

Brian: The news that came out and the drop in the 10 year.

Brian: And the change today, there's a lot of optimism already and any drop as I mentioned on my comments will have a significant impact and it just doesn't impact.

Brian: You know the ability to convert off of balance sheet, it's an optimism in the market and the return with the liquidity and the ability for people to recap their deals.

Ivan Paul Kaufman: So everything will have to do with interest rates, but if they stay, you know, in the range that we've seen in the first quarter, we expect the next few quarters to be pretty consistent with the first quarter.

Brian: So everything we will have to do with interest rates, but if they stay.

Brian: And the range that we've seen in the first quarter. We expect the next few quarters to be pretty consistent with the first quarter.

Speaker Change: Yeah, I'd agree with that Brian that's that's how we're looking at it so reserves will be obviously based on where the macro environment goes and if interest rates stay elevated we could see some additional reserves kind of in the line of what we've seen but it'll all be based on what we see over the next couple of quarters.

Paul Anthony Elenio: I'd agree with that, Brian; that's how we're looking at it. So reserves will obviously be based on where the macro environment goes. And if interest rates stay elevated, we could see some additional reserves kind of in the line of what we've seen. But it'll all be based on what we see over the next couple of quarters.

Speaker Change: Great. Thanks for taking my question.

Speaker Change: Our next question will come from Jade Rahmani with K B W.

Operator: Our next question will come from Jade Rahmani with KBW.

Speaker Change: Okay.

Jade Joseph Rahmani: Thank you very much. Just taking a step back for a moment, would you say, and I would say you've been ahead of the curve in expecting, you know, credit issues, would you say credit performance to date is in line, better or worse than what you'd have expected compared to, say, what you thought in the fall? And maybe if you could think about certain aspects, such as the borrower's actual wherewithal, of America. How would you think about where things are tracking?

Jade Joseph Rahmani: Thank you very much.

Jade Joseph Rahmani: Taking a step back for a moment would you say.

Jade Joseph Rahmani: I'd say you've been ahead of the curve in expecting you know credit issues would you say credit performance to date is in line better or worse than what you would have expected a.

Jade Joseph Rahmani: Compared to say, what you thought in the fall and maybe if you could think about certain aspects such as the borrower actual wherewithal.

Jade Joseph Rahmani: Liquidity in the multifamily space, which is very strong.

Underlying property level cash flow and finally valuations cap rates.

Jade Joseph Rahmani: Or would you think about.

Jade Joseph Rahmani: Things are tracking.

Ivan Paul Kaufman: Yeah, sounds like you want me to be a college professor. I'm not quite equipped for that, but I'll give you a little bit of a view in terms of the things that impacted us that we couldn't anticipate. I think COVID had a huge impact on the market that one couldn't anticipate. And the impact really was the tendency for people to be able to be subsidized in their rent payments and not pay rents for many years, and then all of a sudden, they started the path to pay rents.

Speaker Change: Yes, it sounds like you won't maybe a college professor.

Speaker Change: Not quite equipped for that but I'll give you a little bit of a view in terms of.

The things that <unk>.

Speaker Change: Impacted us that we couldn't anticipate.

Speaker Change: Hum.

Speaker Change: Think COVID-19.

Speaker Change: <unk> a huge impact on the market one couldn't anticipate.

Speaker Change: Any impacts really were the tendency that was able to be subsidized and their rent payments and not pay rent for many years and older.

Or a sudden started to path to pay rent. So I think there was a higher level of.

Ivan Paul Kaufman: So I think there was a higher level of... delinquencies than anticipated, and nobody quite understood that some of the elevated occupancies and rent increases were a result of government subsidies and people artificially being able to stay in units but really not have the income streams. And then, in some jurisdictions of the court systems, not evicting people and then having a lot of economic vacancy, which we really historically haven't had.

Speaker Change: Delinquencies that were anticipated and nobody quite understood.

Speaker Change: That somebody elevated.

Speaker Change: Occupancy and rent increases.

Speaker Change: <unk> of Goldman subsidies.

Speaker Change: People artificially being able to stay in units, but really not have to income streams.

And then the combination and some of the jurisdictions of the court systems not evicting people and then having a lot of economic vacancy, which we really historically havent had.

Ivan Paul Kaufman: Those have been unanticipated issues, and those have created elevated delinquencies. And if you combine that with elevated short-term interest rates, those are complexities that have emerged. In addition, you've had a lot of elevated insurance costs in a lot of areas, and you know, in the Southeast, areas like that, nobody anticipated insurance costs going up to those degrees. Those were unanticipated issues that came up. I think the other thing that, you know, we've experienced, and I think we covered a little bit on the call, I think there's a lot of elevated fraud in the industry through the brokerage industry, which is now being dealt with through the agencies.

Speaker Change: Those have been on an anticipated issues and those have created.

Speaker Change: Elevated delinquencies.

Speaker Change: And if you combine that with.

Speaker Change: Elevated short term interest rates those.

Speaker Change: Those complexities that occurred.

Speaker Change: In addition, you've had a lot of elevated insurance costs and a lot of areas.

Speaker Change: And you know in the South east areas.

Speaker Change: Areas like that nobody anticipated.

Speaker Change: Insurance costs going up to those degrees. So those were.

Speaker Change: Those ROM anticipated issues that occurred.

Speaker Change: I think the other thing that we've.

Speaker Change: We've experienced and I think we've covered a little bit on the call I think theirs.

Speaker Change: A lot of elevated fraud in the industry through the brokerage industry, which has now been dealt with for the agencies. So there was a lot of you know elevated.

Ivan Paul Kaufman: So there are a lot of, you know, elevated purchase prices. So those are kind of the unanticipated things that have occurred in the market that have created additional stress beyond what we anticipated, and that's kind of my overall comment on some of the things that we didn't anticipate and that we're dealing with that have created additional stress.

Purchase prices.

Things of that nature.

Speaker Change: So those are kind of the.

Speaker Change: Unanticipated things that occurred in the market that have created additional stress beyond what we anticipated and that's kind of my overall comment to some of the things that we didn't anticipate and that were dealing with that created additional stress.

Speaker Change: And in terms of the future outlook. You say you know you would expect this quarter next quarter to be peak stress and with elevated interest rate, it's possible that extend into the third quarter and fourth but in terms of the actual credit outcomes.

Ivan Paul Kaufman: And in terms of the future outlook, you say, you would expect this quarter and next quarter to be peak stress, and with elevated interest rates, it's possible that extends into the third quarter and fourth. But in terms of the actual credit outcome, you know, losses that you're taking, and Cecil reserves, what do you think could make that worse? Or would you say you're expecting the next few quarters to be pretty similar to what happened this quarter?

Speaker Change: Losses that you're taking seats of reserves.

Speaker Change: What do you think could make that worse, what would you say you're expecting it to be you know the next few quarters to be pretty similar to what happened this quarter.

Ivan Paul Kaufman: I can only tell you how we feel based on our current book and how we're working through loans and borrow problems. And in this interest rate environment, you know, the interest rate environment has a lot to do with the ability of people to recapitalize their loans clearly. You know, if short-term rates go down, you know, by a point, a point and a half, the three points I mentioned earlier become a point, a point and a half, and the level of optimism to resolve people's loans and the ability to attract capital becomes very simple.

Speaker Change: I can only tell you how we feel based on our current book and how we're working through loans or bar problems and in this interest rate environment.

Speaker Change: The interest rate environment has a lot to do with the ability for people to recap their loans clearly.

Speaker Change: You know if short term rates go down by a point or point and a half to three points I mentioned earlier, it becomes a point point and a half and a level of optimism to resolve people's loans and the ability to attract capital that becomes very simple.

Ivan Paul Kaufman: If, you know, short-term rates were at 3%, not 5.25%, people wouldn't have to be recapping their loans. They'd have to cash flow from their loans, or it would be marginal. At this level, people have to bring three points to the table to buy interest rate caps to bring them to a neutral cash level. So, that's why we're talking about things as they exist today.

Speaker Change: If you know short term rates were at 3% and a five and a quarter people wouldn't having to be recapping their loans.

Speaker Change: Cash flow from the loans would be marginal.

Speaker Change: At this level people have to bring three points to the table to buy interest rate caps to bring them to a neutral cash level. So that's why we're talking about as states as things exist today.

Yeah.

Ivan Paul Kaufman: Thank you, and just lastly, Castle from Operations. Something I look at closely, and clearly, the servicing portfolio as well as the GSE business overall helps support the cash flow. It did dip in the first quarter, and I think usually there's a use of working capital. Dividend costs about $400 million per quarter. Do you expect cash flow from operations to match the dividend on a full-year basis? Yeah, we do. I mean, I think

Speaker Change: And just lastly on the cash flow from operations.

Speaker Change: Something I look at closely and clearly the servicing portfolio as well as the GSE business overall helps support the cash flow. It did dip in the in the first quarter and I think usually there's a use of working capital dividends cost about $400 million per quarter do you expect cash flow from.

Speaker Change: <unk> to match the dividend on a full year basis.

Speaker Change: Yes, we do I mean, I think when you look at the cash flow you've got a back out certain items like changes in and you know.

Paul Anthony Elenio: We do. I mean, I think when you look at the cash flow, you got to back out certain items like changes and, and, and, you know, at www.richardshane.com.

Speaker Change: Other assets and liabilities and I think if you do that we're still above the dividend. So we do expect it to continue that way, obviously, if the market gets significantly more stress than theres more.

Speaker Change: <unk> features than there are then there are now then that could that could change, but right now we don't see a runway for that to be lower than our dividend.

Speaker Change: Thanks very much.

Speaker Change: Yeah.

Speaker Change: Our next question will come from Lee Cooperman with Omega family Office.

Operator: Our next question will come from Lee Cooperman with...

Leon G. Cooperman: Yeah, Let me just get off the speaker.

Leon G. Cooperman: Yeah, uh, hi, let me just get a You know, Ivan, you and your team have been really brilliant in conducting the affairs of the company, and I'm just curious, are things evolving in a manner that you expected, because you were very negative a year ago, and you were very correct. I see that you have $138 million left in your repurchase program, and you bought stock at 1219. Have things evolved in a manner where you would want to continue to buy back stock if it gets back down there, or do you think things have changed differently than you anticipated?

Leon G. Cooperman: You know Ivan you you you and your team have been really brilliant and conducting the affairs of the company.

Leon G. Cooperman: And I'm just curious.

How are things evolving in a manner that.

Leon G. Cooperman: You expected.

Speaker Change: We wish you a very negative a year ago and you were very correct.

Speaker Change: I see that you have $138 million lift in your repurchase program.

Speaker Change: And you bought stock at $12 19, if things evolve in a manner, where you would want to continue to buy back stock. If we got back down there. What do you think things have changed differently than you had anticipated.

I think you know.

Ivan Paul Kaufman: I think, you know, buying back stock, you know, below book is extremely attractive to us, as I mentioned in my comments, but it becomes very complicated because, you know, when we buy back stock in a blackout period, it's done on a program basis and, you know, very, very often, and, you know, this is a very sensitive subject; very, very often, most of the attacks that come on the company are during a It's amazing.

Speaker Change: Buying back stock.

Speaker Change: Below book is extremely attractive to us as I mentioned in my comments it becomes very complicated because.

Speaker Change: You know when we buy back stock.

Speaker Change: Uh huh.

Speaker Change: And in a blackout period, it's done on a program basis, you know very very often.

Speaker Change: This is this is a very sensitive subject very very often most of the attacks that come on the company are in a blackout period.

Ivan Paul Kaufman: Most of the publications come out a week before earnings when we're not allowed to comment, or a week or a month, and they know we can't comment, so we're kind of defenseless. The only defense we have is a buyback program, but we can't be in a position where Paul wakes up one day and says, hey, I want to buy this much back that day. We have, you know, a computer-driven program, but to answer your comment very specifically, we have $138 million that we will buy back.

Speaker Change: <unk>.

Speaker Change: Most of the publications come out a week before earnings while we're not allowed to comment or a week or month and you know we can't comment so what kind of defense lists the only defense we have a buyback program.

Speaker Change: But we can't be in a position, where Paul wakes up one day and say I want to buy this much back that day, we have.

Speaker Change: Purely driven program.

Speaker Change: To answer your call your comment very specifically, we have a $138 million.

Speaker Change:

Speaker Change: We will buyback it's set to buyback generally when we're in a blackout period below book.

Ivan Paul Kaufman: It's set to buy back generally when we're in a blackout period below book. If the stock gets hit by anything substantially, I would go to the board and ask to buy back more. I think it's a great return on our investment. (inaudible)

Speaker Change: If the stock gets hit.

Speaker Change: Anything substantially I would go to the board and ask to buy back more I think it's a great return on our investment.

Speaker Change: Mhm, who basically their judgment means you have confidence in the realistic.

Leon G. Cooperman: Well, basically, that judgment means you have confidence in the realistic value of your book. You think that 1264 is a real number, accounting for the weakness in the environment. Which you've been very right about, and I congratulate you. You've been a great steward of the shareholders' money.

Speaker Change: Value of your book.

Speaker Change: The 264 is a real number.

Speaker Change: <unk> for the weakness in the environment.

Speaker Change: She'd been very right on and I congratulate you you've been a great stewards of the shareholders' money.

Speaker Change: Thank you. Thank you. Thank you thank.

Speaker Change: Thank you Lee.

Speaker Change: Our next question will come from Rick Shane with J P. Morgan.

Operator: Our next question will come from Rick Shane with J.P. Morgan.

Richard Barry Shane: Hey guys, thanks for taking my questions this afternoon or this morning. Of the $1.9 billion in mods during the quarter, I'm curious how much were loans that were less than 60 days delinquent, and how much were on loans more than 60 days delinquent? Of the $1.9 billion, how much was in the CLOs?

Richard Barry Shane: Hey, guys. Thanks for taking my questions. This afternoon or this morning.

Richard Barry Shane: After one point.

Richard Barry Shane: Nine billing it in modest during the quarter I'm curious how much were loans that were less than 60 days delinquent and how much were on loans more than 60 days delinquent and what.

Richard Barry Shane: Of the $1 9 billion, how much were in the Clo's.

Speaker Change: Yes, So let me give some numbers Rick I. Appreciate the question. So as I said in my prepared remarks, but out of the $1 9 billion we model it.

Paul Anthony Elenio: Yeah, so let me give you some numbers, Rick. I appreciate the question.

Paul Anthony Elenio: So, as I said in my prepared remarks, out of the $1.9 billion we modded, $1.1 billion of them we modded with some form of rate relief. But out of the $1.9 billion, $713 million of those loans were less than 60 days delinquent, and we weren't accruing from the prior quarter. Another $40 million of loans were loans that were non-performing that we were able to modify, take out of our non-performing bucket, although new loans came in. So that's the way we look at the modifications.

One 1 billion of them, we modeled with some form of rate relief, but out of the 197 hundred $13 million of those loans were less than 60 days delinquent and we werent accruing from the prior quarter another.

Speaker Change: $40 million of loans were loans that were nonperforming that we were able to modify take out of our nonperforming bucket, although new loans came in.

So that's the bucket of how we look at the at the modifications as far as how many were in the CLO I don't have that here because I tried to give you guys numbers I think we got a little bit off track last quarter talking about cielo delinquencies and I think what people care about is total delinquencies, whether theyre in the CLO or not and that's what we're giving you which is.

Paul Anthony Elenio: As far as how many were in the CLO, I don't have that here because I tried to give you guys numbers. I think we got a little bit off track last quarter talking about CLO delinquencies, and I think what people care about is total delinquencies, whether they're in the CLO or not, and that's what we're giving you, which is that $954 million I disclosed today, $464 in non-performing loans that are greater than 60 and $489 that are less than 60, which is all inclusive of loans, whether they' I can't tell you exactly, but I would say the majority of those loans were probably in the CLOs because the bulk of our loans are financed in CLOs.

Speaker Change: $954 million I disclosed today.

Speaker Change: 464 in nonperforming that are greater than 60, and 49 that are less than 60, which is all inclusive of loans, whether they are in the CLO is on our balance sheet Nols lines I can't tell you exactly but I would say the majority of those loans were probably in the CLO because the bulk of our loans are financed in the CLO.

Richard Barry Shane: Got it. Yeah, that makes sense. And again, I would agree with you that the commentary last quarter was difficult to parse, so I appreciate you trying to put it in sort of a clearer context this quarter. It's interesting, as you've been providing this in some detail, I've been trying to tie it out on see that because it's just a lot easier to sort of match up if we can see it in print and understand what's going on.

Speaker Change: Got it yeah that makes sense.

Again.

Speaker Change: I do I would agree with you that the commentary last quarter was.

Speaker Change: Infusing and I I think everybody spent a lot of time trying to parse it out. So I. Appreciate you trying to put it in sort of a clearer context this quarter.

Speaker Change: I would.

Speaker Change: It's interesting as you have been providing this and some of the detail I've been trying to tie it out too.

Speaker Change: What state it either in the press release or the 10-Q and some of it is there some of it is not it would be great. If on a go forward basis.

We could see that because it's just a lot easier to sort of match up.

Speaker Change: If we can see it in print and understand what's going on there.

Richard Barry Shane: Rick, to that comment, in the press release, there's a little bit less disclosure, but in the queue, it's very robust, and I think, tell me if I'm wrong when you re-read it, that when we do talk about the buckets of loans we've modded, we have three buckets in the queue, and in there, you'll see a subset of the loans is the $713 million that were So, I tried to roll it forward for you guys, basically saying, hey, we had $957 million of loans that were less than 60 days, that's our non-accrual bucket that's in the queue, that's now at $489, and how you get there is $175 million of loans moved up, $713 million of loans were modified, and $420 million of loans were added. And I did the same for the non-performing bucket.

Speaker Change: Yes.

Speaker Change: That comment Rick to that comment in the press release, it's a little bit less disclosure, but in in the Q, It's very robust and I think tell me if I'm wrong. When you reread it that when we do talk about the buckets of loans, we bought it we have three buckets in the Q and in there you'll see a subset of the loans is the <unk>.

Speaker Change: 713 million that were less than six so I tried to roll. It forward for you guys basically, saying, Hey, we had $957 million of loans that were less than 60 days, that's our non accrual bucket. That's in the Q that's now at <unk>.

Speaker Change: 489, and how you get there is $175 million loans moved up 713 loans were modest and $420 million loans were added and I did the same for the nonperforming bucket. So I do think it's all there we can have a discussion offline. After you read it again, you don't think Thats correct happy to take any suggestions and how to prove this.

Richard Barry Shane: So, I do think it's all there. We can have a discussion offline if, after you read it again, you don't think that's correct. I am happy to take any suggestions on how to improve the disclosure, but we tried real hard to be very transparent so everybody could follow the numbers. Yeah, I just wasn't able to find the 489, I think, but I'll go back. Yeah, it's definitely in a paragraph there, you'll see. A strange question, was the repurchase that you guys have cited in the first quarter or second quarter today?

Speaker Change: Improving disclosure, but we tried real hard to be very transparent so everybody can follow the numbers.

Speaker Change: Got it yeah, I just wasn't able to find the poor 89, I think in that and but I'll go back on that.

Speaker Change: It's definitely in a paragraph there youll see.

Speaker Change: It's a strange question was the repurchase that you guys had cited in the first quarter or second quarter to date.

Speaker Change: I'm sorry, what was that question again, Rick I'm, sorry couldn't hear the share repurchases the $12 million of up share repurchases was that Q1 or Q2.

Richard Barry Shane: I'm sorry, what was that question again, Rick? I'm sorry, I couldn't hear you. The share repurchases, the $12 million in share repurchases, was that Q1 or Q2? It was Q2, didn't it?

Speaker Change: Q2 was in April.

Richard Barry Shane: Okay, yeah, it's funny because I couldn't find it in the cash flow statement. The way I read it, I thought it was in Q1 and then didn't see it in the cash flow statement, and that makes sense.

Speaker Change: Okay, Yeah, it's funny, because I couldn't find it in the cashless statement I the way I read it I thought it was in Q1, and then didn't see in the cash flow statement and that makes sense.

Richard Barry Shane: Yeah, the press release bullet should say in April. Okay. Okay. Again, we're moving pretty fast, and the press release hits for me. Yeah, yeah.

Speaker Change: The press release bullet you'd say in April okay. Okay.

Speaker Change: Again, we're moving pretty fast in press release it for me.

Speaker Change: Yes.

Richard Barry Shane: Last question, Ivan, you talked a little bit about some of the competition, some of the peer performance, et cetera. One thing I would note is that you guys in the quarter modified $1.9 billion of loans and received $45 million of infusion, primarily in the form of caps. There's not a lot of peer disclosure on that. The only one, and that equates to about a 2.4% consistent with your sort of 3% replacement of expiring caps. The only other peer that we can find had $525 million of mods in the quarter, and $125 million of capital infusion, so almost 10 times the amount on a percentage basis. I'm just curious if you clearly are getting additional interest rate caps, but given that, does it make sense to be more aggressive in terms of getting additional equity paydowns or equity investments, and bond paydowns as well?

Speaker Change: Last question, I think you'd talked a little bit about some of the key.

Speaker Change: Competitive some some of the peer performance et cetera.

Speaker Change: One thing I would note is that you guys in the quarter modified $1 9 billion of loans and received $45 million of infusion.

Speaker Change: Infusion primarily in the form of caps.

Theres not a lot of pure disclosure on that the only one inadequate to about a two 4% consistent with your sort of 3% a replacement of expiring caps only other peer that we can find had 525 million of.

Speaker Change: Mods in the quarter of $125 million of capital infusion. So almost 10 times the amount on a percentage basis I'm. Just curious if you clearly are getting additional interest rate caps, but given the movement in cap rates.

Does it make sense to be more aggressive in terms of getting additional equity paydowns in our equity investments a bond pay downs as well.

Speaker Change: Oh, I would love to get as much as we can so you have to be very pragmatic about how to improve your position on each loan.

Ivan Paul Kaufman: Well, I would love to get as much as we can, so you have to be very pragmatic about how to improve your position on each loan. And you have to keep in mind that we have a lot of good borrowers who have been increasing their assets substantially. I can't speak for the other peers, and I can't speak for the assets you're referring to.

Speaker Change: And you have to keep in mind that we have a lot of good borrowers who have been feeding their rise substantially.

Speaker Change: Speak for the other peers.

Speaker Change: Can't speak for the assets, you're referring to I can only speak tower book.

Ivan Paul Kaufman: I can only speak to our book and the fact that we continue to improve our book and we look at each loan individually and try and improve the position on each individual loan. So we're satisfied with the work we've done. And you have to look at it in the context of what we're doing in each particular circumstance and how we're trying to improve our position on that loan. And we've done a good job.

Speaker Change: That we continue to improve our book and our.

Speaker Change: And we look at each loan individually and try and improve the position of each individual alone. So we're satisfied with the work we've done.

Speaker Change: And you have to look at in the context of you know.

Speaker Change: What we're doing in each particular circumstance.

We're trying to improve our position on that loan and we've done a good job with it.

Speaker Change: Got it and I apologize, but the nice thing about getting to go last is that Ah I might get to ask one extra question.

Richard Barry Shane: Got it. And I apologize, but the nice thing about getting to go last is that I might get to ask one extra question.

Ivan Paul Kaufman: Look, you guys have been very clear about the opportunity associated with rates coming down. Presumably, you have a lot of borrowers who are bullish on rates. And I do wonder, with the change in tone over the last two or three months, are you finding that you have borrowers who were sort of hanging on, waiting for an inflection in rates, and are now sort of throwing their hands up and saying, "wait a second, we've been paying out of pocket for a while, and this no longer makes sense?" Is that a conversation that's picking up?

Speaker Change: Look you guys have been very clear about the opportunity associated with rates coming down presumably you have a lot of borrowers who are bolt on it had been bullish on rates.

Speaker Change: And I do wonder with the change in tone over the last two or three months are you finding that you have borrowers who were sort of hanging on waiting for an inflection in rates and are now sort of throwing their hands up and saying wait a second we.

Speaker Change: We've been paying out of pocket for a while and there is no longer makes sense is that a conversation that's picking up.

Ivan Paul Kaufman: This has been going on for two years, and it's been extraordinarily volatile, and clearly, we've had a recent move up in rates, and rates are volatile. They go up, they go down. We were as high as five. We went down to three and a half.

Speaker Change: This has been going on for two years and it's been extraordinarily volatile and clearly we've had a recent move up in rates and rates are volatile. They go up they go down whereas highest five we went down to three and a half.

Ivan Paul Kaufman: And volatility is good. It gets people to move off the dime. The biggest and hardest thing right now is the extraordinarily inverted yield curve. You're sitting at a five and a quarter SOFR. And if you add, you know, 4% or 3.5%, you're paying 8.5%.

Volatility is good it gets people to move off the dime.

Speaker Change: And hardest thing right now.

Speaker Change: Not really.

Speaker Change: Inverted yield curve, you're sitting at a five and a quarter sulfur.

Speaker Change: And if you add 4% or 3.5% you're paying eight 5%.

Ivan Paul Kaufman: As opposed to a fixed rate loan, which maybe you're paying the high fives, it's a lot to carry. People have been carrying for a long period of time. In my early remarks, if you combine the economic occupancy that people have been fighting and some of the rising expenses, it's been a lot of load to carry, and people have been carrying it. It's a lot of stress.

Speaker Change: As opposed to a fixed rate loan, which maybe you're paying the high fives. It's it's a lot to carry people have been carrying for a long period of time.

Speaker Change: In my early remarks, if you combine the economic occupancy type people had been fighting and some of the rising expenses.

Speaker Change: It's been a lot of load to Caribbean peoples and carry it that's a lot of stress.

Ivan Paul Kaufman: I do think we're seeing movement on economic occupancy. I think the trend is, you know, clearly our friend. I think insurance costs finally have stopped rising. And more significantly, I think people are focusing on improving their assets and the performance of their assets. I think there was a period of time where People are putting a lot of time and effort into buying assets but not running their assets. I think the attention has changed a bit now. They're really running their assets and improving operations.

Speaker Change: I do think we're seeing movement on economic occupancy and I think the trend is clearly a friend I think insurance costs finally stop rising.

Speaker Change: And more significantly I think people are focusing on improving their assets and the performance of their assets I think there was a period of time, where.

Speaker Change: You know people were putting a lot of time and effort to buying assets, but not running their assets I think the attention has changed a bit now they're really running their assets improving operations.

Ivan Paul Kaufman: So a lot has to do with where the yield curve is, but volatility is volatility. People feel lousy one day, and then the next day, they feel better. And right now, I will tell you that you've seen a 20 basis point drop in the 10-year in the last five or seven days. I can guarantee you that people are going to lock in some loans and convert and bring capital to the table and have a nice fixed-rate loan.

Speaker Change: So a lot has to do with you know where the yield curve is but you know volatility has volatility people feel lousy. One day then the next day, they feel better and you know right now.

Speaker Change: All you that you know you've seen a 20 basis point drop in the 10 year and the last you know.

Speaker Change: Oh, five or seven days I can guarantee that people are going to lock in some loans and convert and bring capital to the table.

Speaker Change: And you know I have a nice fixed rate loan if you see further drop in the 10 year I think you'll see a lot more optimism there.

Ivan Paul Kaufman: If you see a further drop in the 10-year, I think you'll see a lot more optimism. The best thing that we can see is a... A drop in short-term rates, cap rates, and cap costs went up significantly when the mood changed. I mean, we had a borrower who was ready to buy a cap and bring money to the table. He was waiting. He waited. It cost him another $500,000. I think when the trend changes in terms of what cap costs are going to be, it's going to be a lot easier for borrowers. That's not an answer in a vacuum.

Speaker Change: First thing that we can see is.

Speaker Change: A drop in the short term rates, you know cap rates cap cap.

Cap costs went up significantly when the mood changed I mean, we had a borrower who is ready to buy a cap and bring money to the table. He was waiting a weighted cost of another $500000.

Speaker Change: When the trend changes in terms of what cap costs okay.

Speaker Change: Bay, it's gonna be a lot easier for borrowers so.

Speaker Change: It's not an answer in a vacuum.

Richard Barry Shane: No, I appreciate that. It's funny. As equity investors, I suppose, we look at optimism as a good thing, and I understand what you're saying from a rate perspective: perhaps it's pessimism as a lender that gets your borrowers to start to move.

Speaker Change: No I appreciate it's funny as it is equity investors I suppose we look at optimism is a good thing and I understand what you're saying from a rate perspective is perhaps a pessimism as a lender that get your borrowers to start to move.

Ivan Paul Kaufman: I can tell you one thing, the borrowers who didn't take a 4% tenure and lock in their rates 60 days ago, when it hits 4%, they're jumping. Also, keep one thing in mind; a 4% tenure means spreads are about 20 basis points tighter. So a 4% is almost equivalent to a 375 or 380. Spreads are about 20 basis points tighter right now, so a 4% is a lot more attractive than it was 6 or 9.

Speaker Change: And I can tell you one thing the borrowers who.

Speaker Change: Who didn't take a 4% you know tenure and lock in their rates you know 60 days ago, when it hits, 4%. They're jumping also keep one thing in mind, 4% 10 year spreads are about 20 basis points tighter. So 4% is almost equivalent to a 375 380 spreads.

Speaker Change: We're about 20 basis points tighter right now so a 4% to a lot more attractive than it was six to nine months ago.

Speaker Change: Sure enough.

Operator: Hey Rick, I appreciate the questions; we've got to get to another one, but I did want to mention, and I don't know if it's apples to apples, I don't think it is, I don't know what peer you're referring to that disclosed more capital injected, but if that peer has a significant amount of office exposure, that capital injection is going to be at a different ratio than for multi, but that Uh, it is.

Speaker Change: Hey, Rick I appreciate the questions, we got to get to another one but I did want to mention and I don't know if it's apples to apples I don't think it is I don't know what peer you're referring to that disclosed more capital injected, but if that Pierre has significant amount of office exposure that capital injection is going to be at a different ratio then for multi but that's just something to think about.

Operator: It is, and it is.

Speaker Change: It is and it is.

Speaker Change: Thank you our final question will come from Crispin Love with Piper Sandler.

Operator: Thank you. Our final question will come from Crispin Love with Piper Sandler.

Crispin Elliot Love: Thanks, Good morning, everyone and appreciate you taking my questions. Following up on I believe Stephen's question earlier in the 10-Q, it looks like Youre deferring interest until maturity on about a $1 billion at the modified loans and so just looking at the first quarter you had $320 million of total interest income can you just break out how much of that.

Crispin Elliot Love: Thanks. Good morning, everyone. I appreciate you taking the time to answer my questions.

Crispin Elliot Love: Following up on Stephen's question earlier, in the 10-2, it looks like you're deferring interest until maturity on about a billion dollars of the modified loans. So just looking at the first quarter, you had $320 million of total interest income. Can you just break out how much of that was PIC on a dollar basis and how you would expect PIC to trend over the remainder of the year?

Crispin Elliot Love: Pick on a dollar basis, and how you would expect it to trend over the remainder of the year.

Paul Anthony Elenio: Yeah, that's what I tried to do earlier, Crispin. So, on that billion one that we had about 1.86% deferral, that number for the quarter, because it wasn't a full quarter, we needed the mods, was like, you know, $4 million, but only $2.5 million did we actually take through as income; we deferred $1.5 million. So, you probably just annualize that. And, you know, it's hard for me to give you a number because new loans will come in, and other loans will get resolved.

Speaker Change: Yeah, that's what I tried to do earlier Kristen so on that 1 billion. One that we had about 186% deferral that number for the quarter because it wasn't a full quarter. When you did the mods was like.

Speaker Change: $4 million, but only only two and a half that we actually take through income we deferred the million and a half. So you probably got to just annualize that and you know it's hard for me to give you a number because new loans will come on other loans will get resolved and then and in addition to that we've done a nice job of with strong collection efforts of collect.

Paul Anthony Elenio: And then, and in addition to that, we've done a nice job of, with strong collection efforts, collecting, you know, non-accrual loans in the subsequent quarter. So, if we have some success in the second quarter on the non-accrual loans of $489 million that we're not accruing interest on, then that'll help that number. So, it's very hard to predict what that's going to look like. We're going to keep an eye on it, but that's kind of how I would run it out. Take your billion at $1.86 and run it out on a run rate. And then there's some portion of that that we're not accruing, as I mentioned, because we look at it on an individual basis.

Speaker Change: <unk>.

Speaker Change: Non accrual loans in the subsequent quarter. So if we have some success in the second quarter on the non accrual loans of 489 million that were not accruing interest on and that'll help that number so it's very hard.

Speaker Change: To predict what that's going to look like we're going to keep an eye on it but that's kind of how I would run it out take your $1 billion, one at 186 and running that on a run rate and then there's some portion of that that we're not accruing as I mentioned, because we look at it on an individual basis.

Speaker Change: Okay, great. So just to be clear are you, saying that 4 million or 320, but I just wanted to.

Crispin Elliot Love: Okay, great. So just to be clear, are you saying that 4 million of the 320 was PIC? I just want to make sure I have that number correctly. Give or take. Yeah, I'd have to look at the numbers, but that's about right. Okay, perfect. And then, can you just disclose what your average net interest margins are on the modified loans just before and after the modifications on an approximate level?

Speaker Change: Make sure I have that number correctly.

Speaker Change: Give or take I'd have to look at the numbers, but that's about right.

Speaker Change: Okay Perfect and then can you just disclose what your average net interest margins are on the modified loans, just before and after the modifications on approximate level.

Paul Anthony Elenio: Well, I tried to give that data the best I could. So these were 325 to 425 floating deals. And so that's anywhere from, call it, you know, eight and a half to nine and a half. And now they're paying 695 and we're deferring 186. So it's the same number. It's just split between a pay and a recall, right?

Speaker Change: Well I'll try I tried to give that data the best they could so these were $3 25 to $4 25.

Speaker Change: Floating deals and so that's anywhere it would so far at $5 33, that's anywhere from call. It eight five to nine and a half and now they're paying $6 95, and we are deferring 186. So it's it's the same number it's just split between a painter accrual right.

Speaker Change: Okay that makes sense and that's against kind of cost of borrowings in the seven 5% range is that correct.

Crispin Elliot Love: Okay, that makes sense. And that's, again, to kind of cost a bar in the 7.5% range or so, right?

Our cost of total borrowings, but again a lot of these loans are in the vehicles, which borrowings are at.

Paul Anthony Elenio: Cost of total borrowings, but again, a lot of these loans are for vehicles, whose borrowings are at 170 million, which is a lot less than that number, but give or take. All right, perfect.

Speaker Change: 170 over which is a lot lot less than that number.

Speaker Change: Give or take.

Crispin Elliot Love: All right. Perfect. Thank you. I appreciate you taking the time to answer my questions.

Alright, perfect. Thank you I appreciate you taking my questions.

Speaker Change: No problem.

Speaker Change: That will conclude the question and answer session I will now turn the call over to Ivan Kaufman CEO for any additional or closing remarks.

Ivan Paul Kaufman: That will conclude the question and answer session. I will now turn the call over to Ivan Kaufman, CEO, for any additional or closing remarks.

Operator: Okay, thank you everybody for your time, and I wish everybody a good weekend. Take care The Ultimate Parody Site!!

Ivan Paul Kaufman: Great. Thank you everybody for your time and I wish everybody a good weekend take care bye.

Operator: This does conclude today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This does conclude today's conference call. Thank you for your participation you may now disconnect.

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