Arbor Realty Trust Inc

NYSE:ABR

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the First Quarter 2024 Arbor Realty Trust Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

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

[Paul Elenio, executive]

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 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 may be deemed forward-looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions and expectations 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 reports. 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 occurrences of unanticipated events.

I'll now turn the call over to Arbor's President and CEO, Ivan Kaufman.

[Ivan Kaufman, executive]

Thank you, Paul, and thanks to everyone for joining us on today's call. As you can see from this morning's press release, we had another very strong quarter, despite an extremely challenging environment through a diversified business model with many countra 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. 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 dividend substantially. And just as importantly, in the 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 which have experienced significant book value erosion in this environment.

On the last call, we gave guidance that the first 2 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. 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 is reflected in the way we are currently operating our business. As a result, we have been extremely active over the last 4 months and working through our balance sheet loan book.

we have demonstrated tremendous patience and poise in 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, 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 the transaction.

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 totaled $1.9 billion, with fresh capital being brought to the table in every 1 of these deals. 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 from many quality sponsors to step in to take over assets that are underperforming and assume our debt. This is a difficult and complicated work in an extremely challenging environment. And I can't tell you enough about the efforts put forth by our entire organization and 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 now 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 between $800 million of corporate cash and $600 million of cash on CLOs 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 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. In April, we repurchased approximately $11.4 million of stock at an average price of $1.19 on with a 4% discount to our book value and generating a current dividend yield of 14% and a yield of approximately 16% and on distributable earnings. 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 in deleveraging our balance sheet and reducing our exposure to short-term debt. We're 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 and non-mark-to-market nonrecourse, low-core CLO vehicles. Our 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 non-mark-to-market nonrecourse elements. In addition, they contributed 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 are low-cost CLO vehicles as well as the fixed rate debt and equity increments 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 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. And clearly, having the wherewithal to create a large cushion between our earnings and dividends over the last several years, 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 GSE agency business, we had a relatively strong first quarter despite interest rates remaining steadily 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 this trend. 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 in converting our balance sheet loans into agency product, which has always been 1 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 is in the workforce housing part of the market. As you know, Fannie and Freddie have a very specific mandate to address the workforce/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. And again, the agency business offers a premium value that requires limited capital and generate significant long-dated income streams that produces significant annual cash flow. To this point, our $31 billion fee-based servicing portfolio, which grew 9% and year-over-year generates approximately $122 million a year in recurring cash flow.

We also generated significant earnings on our escrow and cash balances, which acts as a natural heads against interest rates. In fact, we are now earning 5% on around $2.8 billion of balances of roughly $140 million annually, which combined with our servicing income and annuity total total is approximately $260 million of annual gross cash earnings or $1.25 a share. This is in addition to the strong gain on sale margins we generate from our originations platform and extremely important to emphasize that our agency business generates 40% of our net revenues. The vast majority which occurs before we even turn on the lights each day. This is completely unique platform is 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 on multifamily bridge loans into agency product, allowing 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 or roughly 40% of which we recaptured into new agency loan originations. 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 0.25 point drop in interest rates. From there will accelerate this conversion process significantly. As we touched on the last quarter, we are well positioned to step back into the lending market and garner accretive opportunities continue to grow our platform.

We believe 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 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 premium markets we traffic in. We had a very strong first quarter with $172 million of fundings and another $40 million to $12 million of commitments signed up.

We also have a large pipeline and remain committed to this business, and it offers us 3 turns on our capital through construction bridge and permanent lending opportunities and generate strong level 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're starting to see in our newly added construction lending business. This is a business we believe we can produce very accretive returns on our capital by generating 10% to 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 net number of additional deals we are currently screening. We believe this product is very appropriate for our platform as it offers us 3 turns on our capital through construction, bridge and permanent agency lending opportunities.

In summary, we had a very productive first quarter, and we are working exceptionally hard to manage through the balance of this dislocation. We understand very well the challenges that lie ahead and 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 nonrecourse on mark-to-market CLO debt with pricing that is well below the current market.

We are 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 the cycle and continue to be the top performer company in our space.

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

[Paul Elenio, executive]

Okay. Thank you, Ivan. As Ivan mentioned, we had another very strong quarter, producing distributable earnings of $97 million or $0.40 -- $0.47 per share and $0.48 per share, excluding a $1.6 million realized loss on a previously reserved for nonperforming loan that 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 positive modification terms. On $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 to a paying a poll feature.

The pay rates were modified on average to approximately 7% and with only around 2% of the residual interest being deferred. A subset of these loans totaling $713 million made up the vast majority of our less than 60-day delinquencies at December 31, which we received all past due interest owned on these loans in accordance with the modified terms. Last quarter, we disclosed 2 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 reporting interest income on to the extent cash was received. The 60-plus day delinquent loans are our nonperforming loans or approximately $275 million last quarter, and the less than 60-day past due loans were $957 million.

Our 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 and roughly $15 million of net new additions for the quarter. The less than 60 days past due loans or our nonaccrual 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. So in summary, our total delinquencies are down 23% from $1.23 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 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. 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 was in our balance sheet business, we still grew our book value per share and to $12.64 a share at 3/31 2024 from $12.53 a share at 12/31/2020. And 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 are one of the only companies in our space that have seen significant book value appreciation over the last 5 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 carry lower margins. 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 at March 31, with a weighted average servicing fee of 39 basis points and an estimated remaining life of around 8 years. 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 represent 40% of our net revenues. In our balance sheet lending operation, our $12.25 billion investment portfolio had an all-in yield of 8.81% at March 31 compared to 8.98% at December 31, and due to a combination of an increase in nonperforming loans and some new loans that we did not make their full payment as of March 31 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 past due loans from last quarter. The average balance in our core investments was $12.5 billion this quarter compared to $13 billion last quarter due to runoff exceeding originations in the fourth and first quarters. 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 pass-through 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 nonperforming loans and some new nonaccrual loans in the first quarter.

Total debt on our core assets decreased to approximately $11.1 billion at March 31 from $11.6 billion at December 31. And -- the oil and 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 million for the first quarter compared to $11.8 billion last quarter. The average cost of funds in our debt facilities was basically flat at 7.5% for the first quarter compared to 7.48% for the fourth quarter. Our overall net interest spreads in our core assets increased 1.94% to 1.94% this quarter compared to 1.83% 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 1.37% at March 31, and from 1.53% at December 31, mostly due to an increase in nonperforming 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 3.2:1 from a peak of around 4.0:1. Equally as important, our leverage consists of around 72% nonrecourse, non-mark-to-market CLO debt with pricing that is below the current market, providing strong levered returns on our capital. 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]

[Operator Instructions]

And we'll take our first question today from Steve Delaney with Citizens JMP.

[Steven Delaney, analyst]

Great effort on the modifications in the first quarter. I just want to be clear, and Paul, appreciate that paragraph, I believe that, that is new. But loans, $108 billion in UPB. Do we understand that in each of those cases, the borrowers put additional capital into the transactions?

[Paul Elenio, executive]

That's correct. The fact we disclosed in the prepared remarks and I am in section that of the $1.9 billion that we modified every single one of those deals require borrowers to bring capital to the table and the capital that was injected in those deals was $45 million.

[Ivan Kaufman, executive]

Steve, I want to give -- I want to shed a little light on that because you back to my earn script, I think, about 3 or 4 quarters ago when people were talking about how complex and difficult the market was. And I think I gave a perspective that, in general, 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, and that's the differential to where rates 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-size assets. So that's the approximate level on an annual basis of the recapitalization that's needed in this currently elevated interest rate environment.

[Steven Delaney, analyst]

Appreciate that, Ivan. And further, 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 Elenio, executive]

That is correct. And as I said in my commentary, Steve, those loans were floating rate loans from anywhere from 3.25% over to 4.25% over -- so those guys were paying 8.5% to 9.5%. And when we modified the deals, we modified it to a pay of about 7% with less than 2% being deferred. So we're getting a really strong pay rate on those deals.

[Steven Delaney, analyst]

That's good color. 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. But we hear banks are really pulling back broadly on commercial real estate. I worked for a bank these days. Is that opportunity largely been created by the board that with banks pulling back and companies like Arbor are going to have to step in and provide capital for CRE and multifamily construction loans.

[Ivan Kaufman, executive]

Without a doubt, I mean the landscape for regional banks is not good. I mean you saw another regional failed in Philly last week. There's been a series of failures the commercial real estate book that exists in the banks are significantly troubled. And I don't think there is much activity going on. So we've created that program to step in and fill that void. Our single-family build-to-rent business is exploding to alter regionals. We're doing that. and the dual construction lending activity is an okay business. It's a decent business. It's a lot of work. It's a lot of labor. What makes it most attractive for us, as we said in my comments, is the 3 turns on that capital, the construction lending, which is a decent levered business, but when you talked 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 can do a stabilized pretend then ultimately do an agency loan that's an extraordinarily exciting business for our platform.

[Steven Delaney, analyst]

Great progress at the start of the year, and thank you both for your comments.

[Paul Elenio, executive]

Thank you, Steve.

[Operator]

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

[Stephen Laws, analyst]

Appreciate the comments and the details you've already provided. Paul, I wanted to touch base on net interest income -- or sorry, interest income 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 line loans from Q4. But help us to that is is PIK income and how much of that is possibly fees on modifications? How do we think about the mix of interest income?

[Paul Elenio, executive]

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 nonaccrual 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 not did not accrue all the interest to the extent that they made some payments, but not the full payment, we elected to be conservative and not book that interest income. That interest income that we did not book on those loans was $12 million. During the quarter, we modified $712 million 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 nonaccrual loans and some more nonperforming loans that net of the payments they made this quarter was around another $8 million or $9 million we didn't accrue.

So the way I look at net interest income for the quarter is is we had a list of around $10 million, $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 shrunk 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. And I think the way I look at it going forward is that we just keep rolling 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 will take us some time, but we're optimistic we'll be able to get through a bulk 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. So we did have a lot of success this quarter in getting defaulted loans or delinquent loans from the prior quarter to be completely paid back when we modified it. It was a condition of our mod, you got to bring your own current. And so they brought all their loans current.

[Stephen Laws, analyst]

Great. Really that's helpful color. And you guys mentioned a couple of times in the prepared remarks about the dividend and earnings covering the did. Can you talk about cash earnings, maybe now that you've got some deferred interest and PIK 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, we still have a little bit of work to do over the next couple of quarters.

[Paul Elenio, executive]

Yes. So let me give you some color on a couple of things you pointed on and then Ivan can probably give more global color is you asked the question, we did modify $1.9 billion of loans during the quarter, $1.1 billion 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 I can get in more detail, is we spend a lot of time going through each individual asset and each individual mod in 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 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 $1.5 million. So that's the that's what hit the first quarter on those PIK assets. But I'll say, listen, it's -- there's a myriad of different things that go into distributable going to GAAP, going to 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. 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. 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 Laws, analyst]

Yes, that's great. And one final one, if I can sneak it in. Can you talk about the CLO, how many loans did you buy out during the quarter? And then the $600 million of sale how do you intend to use that? And can you put modified loans into the CLOs or how we use that flexibility.

[Paul Elenio, executive]

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 of loans out of our CLOs in February. So that's part of the first quarter numbers. Those loans where we worked and rebanked elsewhere. We bought another $15 million on 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 out of total purchases through April from January to April were $223 million, but only $20 million of those loans haven't been reworked and rebanked in April, the $120 million we bought out, $100 million was 1 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. our loan was recut and paid down to $95 million.

So we have $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 recap that deal. So the $223 million we repurchased out since January to today, only $20 million of those loans haven't been reworked and relevered and we're working on those now.

I'll let Ivan give the color on the strategy in the vehicles.

[Ivan Kaufman, executive]

Listen, we're very sensitive to the cash we have in our CLOs and utilizing those vehicles because they're low-cost vehicles, and we work extremely hard in producing new loans fill up mandate or taking loans that are currently on our balance sheet that 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 the vehicle. But make no mistake about it, it's a business object of ours, and that really adds to our income straight by leveraging of of the low-cost vehicles that are in place.

[Operator]

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

[Brian Violino, analyst]

It sounds like you anticipate that the loan loss allowance is going to continue to increase in some form in the near term. Just wondering if you could give some thoughts on expectations for where the reserve might go from here? And any dynamics of how modifications could impact your CECL reserve going forward?

[Ivan Kaufman, executive]

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 a consistency in the next few quarters as we've seen in the first quarter. We've talked historically over the last several earnings calls that the first and second quarter would be the toughest Clearly, the first quarter showed a little greater stress than the fourth quarter, and we expect the consistency flowing into the second and if rates stay elevated. I mean clearly, the news that came out and a drop in the 10-year. And the change today, there's a lot of optimism already. And any drop, as I mentioned on my comments, we'll have a significant impact, and it just doesn't impact the ability to convert off of balance sheet, it's an optimism in the market and return to liquidity and the ability of people to recap their deals. So everything will have to do with interest rates. But if they stay 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.

[Paul Elenio, executive]

I'd agree with that, Brian. 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 will all be based on what we see over the next couple of quarters.

[Operator]

Our next question will come from Jade Rahmani with KBW.

[Jade Rahmani, analyst]

Just taking a step back for a moment. Would you say -- and I would say you've been ahead of the curve in expecting 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 actual wherewithal, liquidity in the multifamily space, which is very strong. underlying property level cash flow and finally, valuations cap rates. How would you think about where things are tracking?

[Ivan Kaufman, executive]

Yes. 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 Colin had a huge impact on the market that 1 couldn't anticipate. And the impacts really were the tendency that was able to be subsidized rent payments and not pay rents for many years and then all of a sudden started the path to pay rent. So I think there was a higher level of delinquencies that were anticipated. 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 the combination in some of the jurisdictions of the court systems, not evicting people and then having a lot of economic vacancy, which we've really historically haven't had -- those have been on anticipated issues, and those have created elevated delinquencies. And if you combine that with elevated short-term interest rates, those are complexities that occurred.

In addition, you've had a lot of elevated insurance costs in a lot of areas in the Southeast areas like that, nobody anticipated insurance costs going up to those degrees. So the those were unanticipated issues that occurred I think the other thing that we've experienced, and I think we've covered a little bit on the call. I think there was a lot of elevated fraud in the industry through the brokerage industry, which is now being dealt with through the agencies. So there are a lot of elevated purchase prices and things of that nature. So those are the kind of the unanticipated things that 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 that we're dealing with that created additional stress.

[Jade Rahmani, analyst]

And in terms of the future outlook, you say you would expect this quarter, next quarter to be peak stress and with elevated interest rates, it's possible that extends into the third quarter and forth. But in terms of the actual credit outcomes, losses that you're taking CECL reserves. What do you think can make that worse? Or would you say you're expecting it to be the next few quarters to be pretty similar to what happened this quarter? .

[Ivan Kaufman, executive]

I can only tell you how we feel based on our current book and how we're working through loans and borrower problems in this interest rate environment, the interest rate environment, has a lot to do with the ability for people to recap their loans. Clearly, off short-term rates go down by 1 point, 1.5 points, the 3 points I mentioned earlier becomes 1 point, 1.5 points and a level of optimism to resolve people's loans and the ability to attract capital becomes very simple. If short-term rates were 3%, now 5.25, people wouldn't happen to be recapping their loans. They have the cash flow from their loans or it would be marginal. At this level, people have to bring 3 points that's able to buy interest rate caps to bring them to a neutral cash level. So that's why we're talking about as things exist today.

[Jade Rahmani, analyst]

And just lastly, on the cash flow 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 cost about $400 million per quarter. Do you expect cash flow from operations to match the dividend on a full year basis? .

[Paul Elenio, executive]

We do. I mean I think when you look at the cash flow, you got to back out certain items like changes in 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 stressed and there's more cool features than there are now, then that could change. But right now, we don't see a runway for that to be lower than our dividend.

[Operator]

Our next question will come from Lee Cooperman with Omega Family Office.

[Leon Cooperman, analyst]

Yes Ivan, you and your team have been really brilliant in conducting the affairs of the company. And I'm just curious things evolving in a manner that you expected which you were very negative a year ago and you were very correct. I see that you have $138 million left on your repurchase program and you bought stock at $121 as things evolve in a manner where you would want to continue to buy back stock if it got back down there? Or do you think things have changed differently than you had anticipated?

[Ivan Kaufman, executive]

I think buying back stock below book is extremely attractive to us, as I mentioned in my comments, it becomes very complicated because when we buy back stock in a blackout period, it's done on a program basis. very, very often. And this is a very sensitive subject. Very, very often, most of the attacks that come on the company or in a blackout period, it's amazing, 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 all wakes up one day and say, "I want to buy this much back that day. We have a computer-driven program. To answer your comment very specifically, we have $138 million that we will buy back. It's set to buy back generally, when we're in a blackout period below book. If the stock gets hit, anything substantially. I would go for Board as to buy back more. I think it's a great return on our investment.

[Leon Cooperman, analyst]

Perfect. Well, basically, that judgment means you have confidence in the realistic value of your book. Do you think the 1,264 is a real number accounting for the weakness in the environment, which you've been very right on. And I congratulate you. You've been a great steward of the shareholders' money.

[Operator]

Our next question will come from Rick Shane with JPMorgan.

[Richard Shane, analyst]

Of the $1.9 billion in mods during the quarter. I'm curious how much were loans that were less than 60 days delinked when and how much were on loans more than 60 days delinquent. And what -- of the $1.9 billion, how much were in the CLOs?

[Paul Elenio, executive]

Yes. So let me give some numbers, Rick. Appreciate the question. So as I said in my prepared remarks, out of the $1.9 billion we made $1.1 billion of them, we monitored with some form of rate relief -- but out of the $19 million, $713 million of those loans were less than 60 days delinquent and warrant accruing from the prior quarter. Another I think, $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 modifications. As far as how many were in the COO, 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 nonperforming that are greater than 60 and 49 that are less than 60, which is all inclusive. -- of loans, whether they're in the CLOs on our balance sheet and use lines. 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 the CLOs.

[Richard Shane, analyst]

Got it. Yes, that makes sense. And again, I do -- I would agree with you that the commentary last quarter was confusing, and 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. I would -- it's interesting is you've been providing this in some of the detail. I've been trying to tie it out to what's stated either in the press release or the 10-Q. And some of it's there, some of it's 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 if we can see it and print and understand what's going on there.

[Paul Elenio, executive]

Rick, to that comment in the press release, it's a little bit less disclosure. But 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 made, we have 3 buckets in the queue. And in there, you'll see a subset of the loans is the $713 million that were less than 6 million. So I tried to roll it forward to you guys basically saying, "Hey, we had $957 million of loans that were less than 60 days. That's our nonaccrual bucket that's in the queue. That's now at 49 and how you get there is $175 million loans moved up, 713 loans were made 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 again, you don't think that's correct. Happy to take any suggestions on how to improve the disclosure, but we tried real hard to be very transparent certainly could follow the numbers.

[Richard Shane, analyst]

Got it. Yes. I just wasn't able to find the $489 , I think, and -- but I'll go back on that.

[Paul Elenio, executive]

Yes. It's definitely in a paragraph there, you'll see.

[Richard Shane, analyst]

Strange question. was the repurchase that you guys have cited in the first quarter or second quarter to date?

[Paul Elenio, executive]

I'm sorry, what was that question again? Rick, I'm sorry.

[Richard Shane, analyst]

The share repurchases, the $12 million of share repurchases. Does that Q1 or Q2?.

[Paul Elenio, executive]

It was Q2, it was in April.

[Richard Shane, analyst]

Okay. Yes, it's funny because I couldn't find it in the cash flow 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.

[Paul Elenio, executive]

The press release, should say, in April, yes?

[Richard Shane, analyst]

Okay. Again, we're moving pretty fast in press release is for -- last question, Ivan, you talked a little bit about some of the competitive -- some of the peer performance, et cetera up. 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 pure disclosure on that. the only 1 -- 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, $125 million of capital infusion. So almost 10x 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 or equity investments bond paydowns as well.

[Ivan Kaufman, executive]

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 feeding their assets substantially. I can't speak for the other peers, and I can't speak for the assets you're referring to. I can only speak to our book. and the fact that we continue to improve our book and our -- and we look at each loan individually and trying to improve the position on each individual loan. So we're satisfied with the work we've done -- and you have to look at 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 with it.

[Richard Shane, analyst]

Got it. And I apologize, but the nice thing about getting to go last is that I might get to ask one extra question. Look, you guys have been very clear about the opportunity associated with rates coming down. Presumably, you have a lot of borrowers who are bulls on -- have been bullish on rates. And I do wonder with the change in tone over the last 2 or 3 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? .

[Ivan Kaufman, executive]

This has been going on for 2 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, were as high as 5%. It went down to 3.5%. And volatility is good. It gets people to move off the dime. The biggest and hardest thing right now is extraordinarily inverted yield curve. You said it a 5.25% sulfur. And if you had 4% or 3.5% and you're paying 8.5% on as opposed to a fixed rate loan, which maybe you're paying the high 5s. It's a lot to carry people have been carrying for a long period of time. It's my earlier remarks, if you combine the economic occupancy that people have been fighting in some of the rising expenses. It's been a lot of load to carry in. People have been carrying it with a lot of stress. I do think we're seeing move with that economic occupancy. And I think the trend is clearly our friend. I think insurance costs finally has stopped rising. And more significantly, I think people are focusing on improving their assets rather assets. I think there was a period of time where people are 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 and improving operations. So a lot has to do with the yield curve is, but volatility is volatility. People feel lousy 1 day, then the next day, they feel better. And right now. I will tell you that you're seeing a 20 basis point drop in the 10-year in the last or 7 days. I can guarantee if people are going to lock in some loans and convert and bring capital to the table and have a nice fixed rate loan. 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 drop in the short-term rates. CapeCat 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 to cost another $500,000. I think when the trend changes in terms of what GAAP costs are it's going to be a lot easy for borrowers. So -- it's not an answer on the vacuum.

[Richard Shane, analyst]

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

[Ivan Kaufman, executive]

Yes, I can tell you 1 thing. The borrowers who didn't take a 4% tenure and lock in rates 60 days ago. when it hits 4%, they're jumping. Also keep one thing in mind. A 4% tenure, spreads are about 20 basis points tighter. So 4% is almost equivalent to a 3.75 380 spreads were about 20 basis points tighter right now. So the 4% is a lot more attractive than it was 6 to 9 months ago.

[Paul Elenio, executive]

Rick, I appreciate the questions we got to get to another one. But I did want to mention, 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 significant amount of office exposure, that capital injection is going to be at a different ratio than for multi, but that's just something to think about.

[Richard Shane, analyst]

It is and it is.

[Operator]

Our final question will come from Crispin Love with Piper Sandler.

[Crispin Love, analyst]

Following up on, I believe, Stephen's question earlier, in the 10-Q, it looks like you're deferring interest and so maturity on about $1 billion 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 picked on a dollar basis and how you would affect PIK to trend over the remainder of the year?

[Paul Elenio, executive]

Yes. And that's what I tried to do earlier, Crispin. So on that $1.1 billion that we had about 1.86% deferral that number for the quarter because it wasn't a full quarter when you did the mods was like $4 million, but only 2.5 million we actually take through income. We deferred the $1.5 million. So you've probably got to just annualize that. And 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 collecting nonaccrual loans in the subsequent quarter. So if we have some success, in the second quarter on the nonaccrual loans of $489 million that we're not accruing interest on and that will help that number. So it's very hard to 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 $1.1 billion at $186 million. And on 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.

[Crispin Love, analyst]

Okay. Great. So just to be clear, are you saying that $4 million of the $320 million was pick? I just want to make sure I have that number correctly.

[Paul Elenio, executive]

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

[Crispin Love, analyst]

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 levels?

[Paul Elenio, executive]

Well, I tried to give that data the best I could. So these were 325 to 425 floating deals. And so that's anywhere with SOFR 533, that's anywhere from call it, 8.5% to 9.5%, and now they're paying $695 million, and we're deferring $186 million. So it's the same number. It's just split between a pay and our accrual, right?

[Crispin Love, analyst]

Okay. That makes sense. And that in that kind of cost of borrowing in the 7.5% rights so right?

[Paul Elenio, executive]

Of course, the total borrowings, but again, a lot of these loans are in the vehicles, which borrowings are at 170 over, which is a lot less than that number. But give or take.

[Operator]

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 Kaufman, executive]

Okay. Thank you, everybody, for your time, and I wish everybody a good weekend. Take care.

[Operator]

This does conclude today's conference call. Thank you for your participation.