Arbor Realty Trust Inc Q2 FY2022 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Second Quarter 2022 Arbor Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead.

Okay. Thank you, Chelsea, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended June 30, 2022. 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.

Thank you, Paul, and thanks to everyone for joining us on today's call. As you can see from this morning's press release, we had another tremendous quarter, including producing earnings that were once again well in excess of our dividend. As a result, we're able to increase our dividend to $0.39 a share, and this is our ninth consecutive quarterly dividend increase, representing 30% growth over that time period, all while maintaining the lowest dividend payout ratio in the industry. As we have mentioned many times, our diverse business model offers several strategic advantages, which is something that needs to be emphasized, especially given the recessionary environment. We have built a premium operating platform that is focused on the right asset classes with very stable liability structures, including over $8 billion in nonrecourse non-mark-to-market CLO debt, which requires approximately 70% of our outstanding secured indebtedness with pricing that is well below the current market. We also have a thriving balance sheet GSE/Agency and single-family rental business that produces many diverse income streams, which has allowed us to consistently grow our earnings and dividends in all cycles. We remain keenly focused on maintaining a strong liquidity position, with currently around $500 million in cash and liquidity on hand, in addition to roughly $450 million of deployable cash in our CLO vehicles. This liquidity will provide us with the unique ability to remain offensive and take advantage of the many opportunities that will exist during this economic downturn to generate superior returns on our capital. Additionally, we have successfully operated our business through multiple cycles and have a very seasonal and experienced asset management team that positions us exceptionally well to succeed in this cycle as well. These are significant differentiating factors from the rest of our peer group, most of which have monoline businesses that struggle to maintain their dividend and lack the experience and expertise to manage through this downturn. This is why we believe we are superiorly positioned on the graphs by ourselves and should trade at a substantial premium at a much lower dividend yield than anyone in our peer group. Turning now to our second quarter, as Paul will discuss in more detail, our quarterly financial results were once again remarkable. We produced distributable earnings of $0.52 per share, which is well in excess of our current dividend, representing a payout ratio of around 75%. Our financial results will also benefit greatly from rising interest rates, which will significantly increase the net interest income on our floating rate loan book as well as earnings on our escrow balances. Clearly, with this extremely low payout ratio and our strong earnings outlook, we are uniquely positioned as one of the only companies in our space that can potentially continue to raise our dividend. In our balance sheet lending business, we had another strong quarter. As one of the top multifamily lenders in the industry, we are able to grow our balance sheet loan book another 6% in the second quarter to $15 billion on $2 billion of new originations. We also continue to maintain a strong pipeline, and we'll be very selective with our originations for the second half of the year given the anticipated market slowdown. This will result in us producing more normalized volumes for the balance of the year with superior quality and higher spreads. In fact, as I mentioned earlier, we are heavily focused on maintaining a strong liquidity position to be able to take advantage of the many accretive opportunities we think will exist to garner premium yields on our capital. As a result, we recently decided to sell $300 million of multifamily bridge loans, which generated $90 million of fresh capital. We also retained a portion of the upfront origination fees and all of the potential exit fees as well as a 12.5 basis point servicing fee and control over the takeout of each loan, which is vital to our business strategy as these balance sheet loans provide us with a pipeline for two to three years of new GSE/Agency loans and produce additional long-dated income streams. We've consistently been a leader in the CLO securitization market. The utilization of these vehicles has contributed greatly to our success by allowing us to appropriately match-fund our assets with nonrecourse non-mark-to-market long-term debt and generate attractive levels of returns on our capital. In the second quarter, we closed another $1 billion CLO with superior execution in a very challenging market, which clearly demonstrates our strong track record, brand recognition, portfolio quality and securitization expertise. With approximately 70% of our total debt outstanding in CLOs, we're extremely well positioned and have no need to further access the CLO market in this dislocated environment. We also have replenishment features and pricing that are well below the current market in these vehicles that will allow us to recycle capital from our runoff into higher-yielding assets in today's environment and meaningfully increase unlevered returns. In our GSE/Agency and Private Label programs, we originated $1.2 billion of loans in the second quarter. We also have a robust pipeline that will give us confidence in our ability to produce consistent volumes for the rest of the year. Our GSE/Agency platform continues to offer a premium value as it requires limited capital, generates significant long-dated predictable income streams and produces significant annual cash flow. Additionally, our $27 billion GSE/Agency servicing portfolio is mostly prepayment-protected and generates approximately $117 million a year in recurring cash flow. This is in addition to the strong gain on sale margins we generate from our origination platform and a significant increase in earnings on our escrow balances that we are experiencing as interest rates continue to rise, which is unique to our platform and will continue to greatly enhance our earnings and dividends. In summary, we had another tremendous quarter, allowing us to once again increase our dividend. We strategically built our platform to operate successfully in all cycles with multiple products that produce many diverse income streams, providing us with a future annuity of high-quality, long-dated recurring earnings. We are also the premium multifamily originator in this space and are invested in the right asset classes with very stable liability structures and are well capitalized, which positions us extremely well to succeed in this environment and to continue to significantly outperform our peers. I will now turn the call over to Paul to take you through our financial results.

Okay. Thank you, Ivan. As Ivan mentioned, we had another exceptional quarter, producing distributable earnings of $94 million or $0.52 per share. These results translated into industry high ROEs again of approximately 17%, allowing us to once again increase our dividend for the ninth consecutive quarter to an annual run rate of $1.56 a share. As Ivan mentioned earlier, we made a strategic decision to sell some of our loans in order to bolster our liquidity and lending capacity. In the second quarter, we liquidated a $110 million position we had in the construction project, generating $65 million of fresh capital and recording a GAAP loss of approximately $9.2 million. We did retain the ability to recover up to $2.8 million in our loss in the future based on certain performance metrics. This loss was largely offset by two loans that paid off in full in the second quarter, which we previously had $2.7 million of loan loss reserves on that we ended up recovering and from the disposition of an asset in the second quarter related to one of our unconsolidated equity investments that have resulted in a $6 million income pickup to us. Additionally, we closed on the sale of approximately $300 million of multifamily bridge loans yesterday at par, generating an additional $90 million of cash. We recorded a small GAAP loss in the second quarter on the sale of approximately $2 million as a portion of the origination fees we collected that were passed along to the buyer has been accreted into income in the past and needed to be reversed. As part of the sale, we did retain a 12.5 basis point annual servicing fee, which will increase our servicing annuity going forward by roughly $400,000 a year in addition to any exit fee income we may receive when these loans pay off. In our GSE/Agency Business, we originated $1.2 billion of GSE loans and recorded $1 billion in GSE loan sales in the second quarter. We generated margins on our GSE loan sales of 1.59% in the second quarter, which was up from 1.39% in the first quarter, mainly due to a greater percentage of FHA loan sales, which have a much higher margin. We also recorded $17.6 million of mortgage servicing rights income related to $1.2 billion of committed loans in the second quarter, representing an average MSR rate of around 1.48% compared to 1.57% last quarter, mostly due to a greater mix of larger loans in the second quarter that contain lower servicing fees. Our servicing portfolio was approximately $27 billion on June 30, with a weighted average servicing fee of 44 basis points and has an estimated remaining life of nine years. This portfolio will continue to generate a predictable annuity of income going forward of around $117 million gross annually, which is down slightly from last quarter due to increased runoff in our portfolio from extensive sale activity as a result of the current market conditions. As a result of this runoff, prepayment fees related to certain loans in our prepayment protection provisions continue to be elevated with $15 million of prepayment fees received in the second quarter compared to $16 million in the first quarter. In our balance sheet lending operation, we grew our portfolio another 6% to $15 billion in the second quarter on $2 billion of new originations. Our $15 billion investment portfolio had an all-in yield of 5.82% at June 30 compared to 4.74% at March 31, mainly due to significant increases in LIBOR and SOFR rates, which was partially offset by higher rates on runoff as compared to new originations during the quarter. The average balance in our core investments increased to $14.6 billion this quarter from $13 billion last quarter, mainly due to the significant growth we experienced in both the first and second quarters. The average yield on these investments was 5.26% for the second quarter compared to 4.86% for the first quarter due to increases in SOFR and LIBOR rates, which was partially offset by higher interest rates on runoff as compared to originations in the first and second quarters. Total debt on our core assets was approximately $13.8 billion at June 30, with an all-in debt cost of approximately 4%, which was up from a debt cost of around 2.81% at March 31, again, mainly due to increased LIBOR and SOFR rates. The average balance on our debt facilities was up to approximately $13.4 billion for the second quarter from $12 billion for the first quarter, mostly due to financing the growth in our portfolio. The average cost of funds in our debt facilities was 3.10% for the second quarter compared to 2.65% for the first quarter, primarily due to increases in the benchmark index rates in the second quarter. Our overall net interest spreads in our core assets decreased slightly to 2.16% this quarter compared to 2.21% last quarter, and our overall spot net interest spreads were down slightly as well to 1.82% at June 30 from 1.93% at March 31, mostly due to yield compression on new originations as compared to runoff. Net interest income, on the other hand, on our balance sheet loan book increased $10.8 million this quarter from portfolio growth and significant increases in LIBOR and SOFR rates during the quarter. It's important to note that any further increases in these rates will continue to increase the net interest income spreads in our floating rate loan book. In fact, all things remaining equal, a 1% increase in rates would produce approximately $0.10 a share annually in additional earnings. Additionally, as we mentioned earlier, we have $8 billion of CLO debt outstanding, with average pricing of 1.63 over, which is well below the current market and will allow us to meaningfully increase the levered returns on our balance sheet loan originations. As rates rise, we will also continue to earn significantly more income from the large amount of escrow balances we have from our Agency Business and balance sheet loan book. These earnings will grow substantially as we have approximately $2 billion in escrow balances that are now earning in excess of 1% or around $25 million annually effective mid-July, which is up significantly from a run rate of approximately $10 million annually as of March 31, 2022. These features are unique to our business model, giving us confidence in our ability to continue to generate high-quality, long-dated recurring earnings in the future. That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions you may have at this time.

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

Good morning, Ivan and Paul. Another excellent quarter. I noticed the cautious measures you've implemented and your comments about not needing to push forward considering the strength of the current portfolio. Ivan, you mentioned that you aren't planning any new CLOs right now because of the expanded spreads. Additionally, we observed the $300 million bridge loan sale, which is unusual since I haven't seen you sell structured loans that you previously originated. I would like to clarify if these actions were necessary or if they are simply decisions made because your portfolio is already strong, making it unwise to reach for more at this time. Can you elaborate on that?

Yes. Let me address them separately. The CLO market requires a tremendous amount of expertise, which we have. In running the type of business that we have, and I've said it on many calls, we manage our CLO debt relative to outstanding debt in certain percentages. Our lowest 50 or high 75 in terms of percentage of CLO debt to total debt, we're at 70% roughly right there. If you're watching the market, you have many of our competitors trying to access CLO debt because they're out of balance relative to their bank lines to the CLO debt and are executing at horrendous levels of profitability. My comment is basically that we don't need to access CLO debt. We have the right proportions. We have these embedded low-cost structures in place that give us a huge competitive advantage. So we're sitting back and saying, we're the last one to get the best execution in the market on a $1 billion CLO debt, and we're not in a position where we're forced to reaccess that. So we're in one of the best positions in the market. So that's kind of where that comment or narrative was based towards. Yes, if you follow the people who have had to execute, they've had to lock in returns that are just unacceptable. That's the way it is. So we're in a great position, and we're very proud of that.

To your point there, your May CLO, you were able to execute at 2.36 over SOFR. And we just noticed earlier this week a June CLO, multifamily CLO that was priced at 2.80, so 40 basis points to 50 basis points above. So obviously, that is the case. And I can understand why you pushing up towards 300 over, it's not economic to consider that at this time?

It's not only noneconomic, but you're locking in other liability structures and you're stuck with them for a while. So we don't have to do it, don't do it.

Of your $8 billion in CLO debt currently, how much of that on a percentage basis is still in the reinvestment period?

All of it is.

All of it has an open reinvestment, wow.

Yes.

Obviously, there will run off over the next year or two or run down?

Yes, it will begin soon. I believe our first one starts in November, which will be fully allocated with loans to take advantage of that, and they commence over time. We are managing them and optimizing their performance. Please remember that the average liability costs in that are in the low 1.60s.

For that particular CLO or in total?

In total.

In total, yes. As I said in my commentary, we're at 1.63 over blended, and that's even with the 2.36 CLO we just did in May, Steve. So we've got really low cost liabilities locked in. As Ivan said, every one of them has replenishment ability still one of them that's a small CLO burns off in November, and the rest are late '23, '24. We've got a lot of runway here to utilize those low-cost locked-in vehicles to really enhance or meaningfully enhance our returns.

That makes perfect sense. Go ahead. I'm sorry.

Jumping to the next comment about selling some of our loans, we always like to test the market and see what the different flexibility levels are and have the right levers to generate liquidity when we want to generate it. Doing this loan sale was a great opportunity for us because we tested the market on selling our collateral. We retained servicing, retained the majority of our fees. We're able to recycle close to $100 million. I think it was $90 million of capital. I know that that's another way to generate liquidity when we want to and still maintain a significant part of our economics. Most importantly, for a firm like us, retaining the servicing and getting a servicing fee and staying connected with our clients and then potentially creating an agency loan on the back end. It fits our model very, very well. Now we've been preparing for this recession for the last year, and we've done many, many things, including this to make sure that we're adequately positioned given where we are today. Even if there's going to be another drop, whether it does or not, we've made sure that the firm has adequate liquidity to be offensive, not defensive. These are all the moves that we've taken and put in place to ensure our position.

Fantastic. I guess that could have also been structured as a senior participation, depending on who the buyer is and...

Yes. There's only a different way to do it. So we're just testing the waters. We've grown our balance sheet so well. We've done a great job. We've used a lot of capital, and it was just another way for us to figure out if we want more capital at any point in time out of access liquidity and our structures.

Our next question will come from Rick Shane with JPMorgan.

I'm just curious in the current environment with the movement in collateral values with potential delays related to supply chain and labor shortages in terms of timelines on construction. And finally, any sort of vacancy absorption, is it realistic that we will see paper or loans stay on the balance sheet longer before they are migrated for Agency sales?

There are two perspectives to consider. We believe that our balance sheet may facilitate Agency execution due to the current yield curve. If borrowers are facing rates of around 6%, there is potential to execute on Agency at approximately 1.50% to 1.75% over the 10-year, indicating an inverted yield curve. We are having discussions with many clients about moving them from a pay rate of 5.5% to 6% to potentially higher SOFR and increased cap costs into a 10-year fixed rate of 4.25% to 4.5%. Products established a year to a year and a half ago are likely to see significant movement, which will support our Agency volumes. Surprisingly, the 10-year rate is at 2.75%, which is quite low, and we expect changes to happen sooner than anticipated. On the new construction front, we have been advising our clients for the past year because their costs increased by 30%. Although rents have surged beyond historical averages—previously around 3% to 5% and now between 10% to 20%—some cost hikes have been mitigated by these rent increases. We've recommended that many clients pause their construction projects, which they have done, and now they are starting to see costs stabilize. Consequently, there may be delays in construction timelines as clients awaited alignment in costs, so I anticipate that construction schedules will be pushed back by six to nine months. While interest costs may rise slightly, overall expenses should settle back down, leading to a slower pace.

That's great. It's actually very helpful, both parts of that answer. And I apologize I think we've asked this before. But given the floating rate nature of the loans, do you require borrowers to take any interest rate protection in the form of caps?

Yes, our loans require caps. Some of them have spring caps, and most of the loans have various caps in place. As rates have been increasing, these caps are essential. If they weren't already implemented, they would be added through a specific process. The majority of our loans have these caps in place.

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

I wanted to follow up on Steve Delaney's questions around CLO. But as older loans pay off and you're able to replenish these vehicles with newer production, how much incremental spread pickup is there on the new loans you're putting into those facilities?

Let me provide an outlook that I believe will be beneficial. We have implemented eight price increases in the past nine months on our bridge pricing. This has accumulated over time. Our bridge pricing, which was previously in the range of 300 to 350, is now between 400 and 450, or nearly a full point. As loans in those vehicles are paid off, we are replacing them with higher coupon rates. Paul, you can elaborate on the calculations at this time.

Yes, I think that's a great insight. Over the past year, we have been aiming for levered returns in the range of 10% to 12% due to competitive conditions. In the second quarter, we originated $2 billion and achieved a 12% levered return, while in the first quarter, it was just under 11%. The math is straightforward: with our 1.63 overspread CLOs, we're pricing deals between 4% and 4.50% over, compared to loans paying off at 3% to 3.50% over. As we originate new loans in the 4% to 4.50% range and place them into those low-cost vehicles, we could see returns increase from 11% to possibly 14% or 15%. We are beginning to witness that shift with the new product. In our discussion, we emphasized the importance of being selective with loans moving forward and maintaining normalized volumes in our balance sheet business. For July, we are closing in on $230 million of new production in bridge financing, with around $120 million in runoff. However, the key takeaway is that the new production will feature higher credit quality and wider spreads, which will significantly enhance our returns.

I think with that in mind, our outlook for the balance of the year is to try and manage our production to match our runoff. We want to take advantage of these low-cost vehicles and not have to access the CLO market in a dislocated environment while maintaining our balance sheet at the current level.

I appreciate the color. The math there is certainly powerful as things turn over. Paul, I wanted to follow up on the repayment fees. I think you said $15 million this quarter, that was roughly flat from $16 million. What are your expectations around that going forward, just kind of given the moves and everything we saw in the second quarter, kind of how should we think about what that will be on a go-forward basis?

Sure. A couple of things, and we've talked about this for several quarters, Steve, and it's been surprising, Ivan and I. You have two factors, right? We saw about $1.2 billion in runoff in our servicing book in the second quarter. That was up from about $1.1 billion in the first quarter. Fees were somewhat flat, $16 million to $15 million. We've been talking internally sales will certainly start to slow. The market is changing. In fact, for July, I can give you some color. We collected $1.5 million in prepayment fees in July on $250 million of runoff. So that's any indication of what's to come, the numbers will be significantly down. And there will be significantly down for two reasons. Sales volume is going to slow and already has started to in July. As rates rise with SOFR sitting at 2.30 and LIBOR sitting at 2.37, your maintenance is a product of rates, right? As rates rise, you're maintenance turns to go down and sometimes even go away. Good news is we'll be able to retain that in our portfolio and clip that servicing coupon, which is a long-term annuity that we love. I do expect sales to decline significantly, and I do expect prepayment fees to come down significantly. Having said that, because of the size of our book, we're still going to have some of those fees. 1.5 in July, if you annualize that, maybe it's 4.5, 4, I don't know what the number is, but it's not $15 million going forward.

Our next question will come from Jade Rahmani with KBW.

Considering the growth in the balance sheet portfolio, you all achieved the bridge loan portfolio over the last several quarters and the current change in valuations in real estate. How are you feeling about the credit quality of the existing portfolio and the outlook there?

I think when I mentioned earlier, Jade, that we had eight price increases over the last nine months, commensurate with that, we've also adjusted our underwriting standards step by step by step. We've adjusted them by having lower LTVs, I think our LTVs from nine months ago until now on the originations basis, probably 7% lower. We've adjusted our exit test because as we've talked on this call when we do a bridge loan, every bridge loan is underwritten to Agency execution and final takeout. We kept adjusting those underwriting standards. We feel very comfortable with the book that we put on over the last nine months. In addition, many of our loans have good structural enhancements. We've begun to go through our portfolio. We've worked with our borrowers to ensure that they have adequate interest reserves and replenishments to consider rises in interest rates. We're comfortable with the way we're running our outlook.

Thanks very much for that. And on the multifamily rent growth side, it seems that rents are continuing to be very robust in the market. Across the servicing portfolio and the bridge loan portfolio in your surveillance, are you seeing continued strong rent growth? And are you seeing the transitional loans, those projects hit their business plans?

I think that the rent growths have far exceeded all of our underwriting and all our expectations. I mean you're seeing 10% to 20% rent growth. You're seeing people not having to use their renovation dollars to get their rent growth. So the rent growth story is still strong. I would put a caution on that, a little different than the rest of the marketplace having been through a lot of cycles. I think if you're looking at a recession, we're going to see lower rent growth going forward. We're also going to see a little bit higher economic vacancy. We're still optimistic about what's in the portfolio and the rent rolls, but we are proceeding with some level of caution for 2023 with probably flat to 3% rent growth and 1 to 2 points higher in economic vacancy. That's how we're looking at 2022.

And under that scenario, what kind of delinquency rates or default rates does that imply? Anything material?

Nominal. Not anything that's significant, not anything that we can't handle and not anything that's not within our capital projections.

So for the color that we've gotten from other mortgage REITs as well as diversified REITs we cover, is a decline in values somewhere in the 5% to 10% range and increase in cap rates somewhere in perhaps the 30 basis point to 60 basis point range. Do you concur with that? Or do you think that's maybe overly optimistic?

I think that's overly optimistic. I think that values are all 5% to 20% on the marketplace. It all varies on the market and the type of collateral. I think cap rates are up 50 basis points is probably the right level and in a slow market, it's probably 75. We're a lot more conservative, and we've been anticipating the slowdown in the market beginning nine to 12 months ago. We've been through special sales and we'll see how the sales behave.

Lastly, when you look at the bond market, the treasury market is beavering interestingly, and I think people are surprised by how low yields are, particularly just say, the 10-year treasury. Are there rates that you look at that are more indicative, maybe a proxy versus the high-yield bond market or where CMBS is trading or CLOs? What do you think we should be focused on to gauge the health of the commercial real estate finance markets?

Right now, if you're looking at the liquidity in the CMBS market and the CLO market, it's taken a significant change. As we said, we wouldn't want to execute into the CLO market today. I'm not sure whether it gets worse before it gets better. We're not thinking the CLO market is something we would execute into at least for another six to nine months. We would have to see AAA on the CLO market get down to below 2 for us to feel attractive, and that would be a return to some normalcy. The CMBS market, as you know, is not something that one would want to execute into in the near term. We'll see over the next three to six months if they return to a normalized level; these are not normalized levels.

And do you think acquiring securities is interesting, acquiring AAAs or other pieces of the capital stack in some of these CLO deals?

Yes, we are interested in exploring the possibility of raising funds to begin acquiring subordinate classes in the CLO market. We have a strong understanding of the fundamentals and structures involved, which gives us an advantage. We believe some of these subordinate classes are currently trading around $400 with a yield of 3.50, and we could potentially buy them for $800, which we see as a favorable opportunity. This is something we would be eager to pursue as a firm.

Well, certainly in the past, Arbor has been creative at putting together opportunistic strategies. So look forward to seeing that.

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

Congrats on a great quarter here. First one is on just core expenses. Core expenses look to be very well contained during the quarter. So I'm curious if there's anything that you did proactively here to keep them under control, especially on the compensation side or if there's any other areas to call out?

Sure. Let me just do it at a high level and then maybe if Ivan wants to chime in, he can. You have to look at the numbers comparatively, Crispin. Yes, last quarter, I think we put up about $57 million in comp and G&A combined. This quarter it’s $52 million, but there's some variable items in there that you've got to strip out and kind of compare. So commissions were about $6.5 million last quarter. They were about $5 million this quarter. That’s a $1.5 million change. That's variable based on where volumes are. Obviously, we had a more sale volume last quarter on the Agency side because of an APL trade that we were able to get off. And then stock comp, stock comp was $6 million last quarter. It was only $3 million this quarter because there are a lot of one-time grants that we give to our employees in March of the year as part of their comp plan. When you strip all that out, comp and G&A came in about $44 million this quarter, and it came in about $46 million last quarter without those variable items. It is down $2 million. Most of that is because of the FICO reset. The first quarter is always a little bit elevated because you have the FICO cap that you need to hit on the bonuses for the executives. That comes down. We've done a good job of maintaining our staff, maintaining our cost. We've been preparing for this cycle for some time. Although I guided probably having comp and G&A up 15% on last quarter's call year-over-year, I think it's more like 10% now, and maybe we'll even do better than that. We've done a good job of making sure that we're only growing our staff in the areas that we think are meaningful, the asset management side, the servicing side, and that's the reason the numbers are where they are.

Just to comment on that, we're in a very different environment than we were two years ago, where this industry was inundated with massive volumes and everybody had to do what they can to retain their staff as well as attract staff and costs were getting out of control. Clearly, there were outsized things that were not in a normal course of business, but our volumes were big enough to offset that. I think we're going to a more normalized environment. You'll see us being in a very good position to do a better job at managing our costs and our productivity. We look forward to getting back to normal in that sense.

Great. That's all helpful. I appreciate your commentary earlier on originations in the Structured business, but I'm just curious if you can get a little bit of a finer point on it. If I kind of start with the second quarter, that $2.05 billion kind of divide that by 3 is about 680 per month, which was a little bit below your 800 that you talked about last quarter. So first, I'm just curious on how originations trended through the quarter? Is that $230 million that you talked about for July kind of a good jumping off point to the next few quarters?

Yes. I want to give a little color, and maybe this will help on the credit conversation as well. The comments were geared towards us. We had a very, very large pipeline going into the last three to four months. We were scheduled to probably close $750 million to $1 billion a month. Our pipeline was at one of the larger points, and we took an extraordinarily active approach with our borrowers, letting them know that the loans had to be resized because rates have gone up and values have adjusted. We’re a lender, we're not a broker, and we own the risk on all loans. We work very hard with the borrowers to get a price reduction or equitize their loans with anywhere between 5% and 10% more. As a result of that, we had massive fallout in our pipeline because they understood with our guidance that their values were different than what they went to contract under. We were able to shrink the number of loans that we needed to close to a very considerable pace, 50% even more. My comments in terms of my outlook going forward is that we're expecting anywhere between on the low side, $100 million runoff per month to $400 million on the high side in our current portfolio. More normalized is $200 million to $300 million of runoff a month. That's probably the level we will look to originate for the balance of the year. We think it's a healthy level. We think it's appropriate for our capital and still maintain a leading position as a balance sheet originator. That's how I would look at the outlook at the present time given the environment. That, of course, could change. That's on the current scenario. Paul, do you want to give any color on that?

That's exactly what we're doing, Crispin. We came in at $230 million for July, with $120 million of runoff and a little light runoff in July. Ivan is correct. We're estimating bridge production to be between $200 million to $300 million a month, but we will manage that against our runoff to keep our portfolio constant or perhaps grow a little. Things can change, but that's our current run rate.

Great. That's all really helpful. So kind of the idea is you're looking more at maintaining the portfolio here just in the environment rather than kind of increasing like you have been?

And recycle it into higher rate loans as well.

That's very important. While the portfolio may not grow substantially for the balance of the year, the levered returns will grow because we're putting our capital out at higher returns and financing them in these low-cost vehicles we have that will really drive up the returns.

I'd now like to hand the call back over to Mr. Ivan Kaufman for any closing or additional remarks.

Well, that concludes our call today. Appreciate everybody's participation. Clearly, these are adjusting times and changing times, which we feel we are extremely well positioned. We're pleased to have once again increased our dividend, which is a remarkable effort and result. We look forward to next quarter's call. Have a great rest of the summer, everybody. Take care.

Thank you, ladies and gentlemen. This concludes today's conference call, and we appreciate your participation. You may disconnect at any time.