Good morning, ladies and gentlemen and welcome to the First Quarter 2024 Arbor Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the 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, 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 contain 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 beliefs, assumptions and expectations of future performance taking into account 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 very strong quarter despite an extremely challenging environment. Through our diversified business model with many countercyclical income streams, we once again generated distributable earnings in excess of our dividend with a payout ratio of around 90% from the first quarter. This is clearly well above the performance from our peers, most of which are paying dividends out of capital or being forced to cut their dividend substantially. And just as importantly, in a time of tremendous stress, we've managed to maintain our book value over the last 15 months while recording reserves for potential future losses, which clearly differentiates us from everyone else in our peer group, the vast majority of which have experienced significant book value erosion in this environment. On the last call, we gave guidance that the first two quarters of this year would be the most challenging part of the cycle, and we are in a period of peak stress. We also mentioned that if rates stay higher for longer, that dislocation could potentially leak into the third and possibly even the fourth quarter as well. Given the recent backup in rates combined with the Fed's somewhat more hawkish tone on the timing of potential rate cuts in 2024, we believe this is a distinct possibility and something we have been preparing for, which is reflected in the way we’re currently operating our business. As a result, we have been extremely active over the last four months in working through our balance sheet. We’ve 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 and determine how to approach each individual circumstance. The short-term nature of having a delinquent loan will not impact our decision-making process to achieve the correct economic result on a transaction. With this philosophy in mind, we had tremendous 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 totaling $1.9 billion, with fresh capital being brought to the table in every one of these deals. This includes cash to purchase the low interest rate caps, fund interest rate renovation reserves, bring any past due loans current, and pay down balances where appropriate. In fact, borrowers 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 for our agency business as well as leveraging our long-standing relationships with numerous quality sponsors to step in and take over assets that are underperforming while assuming debt. This is difficult and complicated work in an extremely challenging environment, and I can't say enough about the efforts put forth by our entire organization successfully managing through 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 with a steadfast approach as we continue to manage through the back balance of this downturn. Clearly, in this environment, having adequate liquidity is paramount to our success. As a result, we have focused heavily on maintaining a very strong liquidity position. Currently, we have approximately $1 billion of cash between $800 million of corporate cash and $600 million of cash in our CLOs, resulting in additional cash equivalent of approximately $150 million. Having this level of liquidity is crucial in this environment as it provides us with the flexibility needed to manage through this downturn and take advantage of opportunities that will exist in this market to generate superior returns on our capital. As you may recall a few months back, we allocated $150 million of our capital stock buyback strategy, knowing full well that there would be volatility in the market that would allow us to potentially repurchase our stock at discounts to book value, generating high double-digit returns on capital. In April, we repurchased approximately $11.4 million of stock at an average price of $12.19, with a 4% discount on book value, generating a current dividend yield of 14% and yielding approximately 16% 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 during volatile periods. We also continue to do an excellent job of deleveraging our balance sheet and reducing our exposure to term debt. We're down to approximately $2.6 billion in outstanding debt with our commercial banks from a peak of around $4.2 billion, and we have 72% of our secured indebtedness in non-mark-to-market, non-recourse, low-cost CLO vehicles. Our CLO vehicles are a major part of our business strategy as they provide us with tremendous strategic advantages in terms of dislocation due to the nature of the non-mark-to-market, non-recourse elements. In addition, they contribute significantly to providing a low-cost alternative to warehouse banks, which in times like this have fluctuating pricing, leverage points, and parameters. In fact, one of the significant drivers of our income streams are low-cost CLO vehicles as well as fixed rate debt and equity instruments that make up a big part of our capital structure. We have a very strategic approach to capitalizing on 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 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 per share, representing a payout ratio of around 90%. We clearly have the wherewithal to create a large cushion between our earnings and dividends over the last several years, serving us very well during this dislocation, and we 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 the GSE Agency business, we had a relatively strong first quarter, despite interest rates remaining stubbornly high. We reached $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 while deals are just being pushed out further. We have also done a great job in converting our balance sheet loans to agency products, which has always been one of our key strategies and a significant differentiator from our peers. It's also very important to emphasize that a significant portion of our business is in the workforce housing sector. As you know, Fannie and Freddie have a very specific mandate to address our 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. Again, the agency business of the premium values requires limited capital and generates significant long-dated predictable income streams, producing significant annual cash flow. To this point, our $31 billion fee-based services portfolio, which grew 9% year-over-year, generates approximately $122 million a year in recurring cash flow. We also generate significant earnings on our escrow and cash balances, which acts as a natural hedge against interest rates. In fact, we are now earning 5% on around $2.8 billion of balances, so roughly $140 million annually, which combined with our service fee income and annuity totals 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 it's extremely important to emphasize that our agency business generates 40% of our net revenues, the vast majority of which occurs before we even turn on the lights each day. This is completely in line with our platform and something we feel is not being fully reflected in our valuation. In our balance sheet business, we continue to focus on working through our loan book and converting our multifamily bridge loans into agency products, allowing us to deleverage our balance sheet and produce significant long-dated income streams. In the first quarter, we produced another $540 million of balance sheet run-off, $210 million or roughly 40% of which was recaptured into new agency loan originations. With today's high interest rates, we are chipping away at converting loans to agencies, but if the tenure gets back to 4%, it will become significantly more meaningful. Every quarter-point drop in interest rates from there will accelerate this conversion process significantly. As we touched on in the last quarter, we believe we are well-positioned to step back into the lending market and garner accretive opportunities to continue to grow our platform. We believe that in these market conditions, we 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 lender of choice in the premium markets we engage in. We had a very strong first quarter with $172 million of fundings and a lot of $412 million of commitments signed up. We also have a large pipeline of committed projects in this business that offers us returns on our capital through construction, bridge, and permanent lending opportunities, generating strong 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 and another $300 million annualized, with a significant number of additional deals we are currently screening. We believe this product is very appropriate for our platform as it offers us returns on our capital through construction, bridge, and permanent agency lending opportunities. In summary, we had a very productive first quarter, and we are working exceptionally hard to manage through the balance of this dislocation. We understand very well the challenges that lie ahead. I feel we are very well-positioned. Our earnings exceeded our dividend run rate. We are invested in the right asset class with very stable liability structures highlighted by a significant amount of non-recourse, non-mark-to-market CLO debt with pricing that is well below the current market. We're also well-capitalized with significant liquidity and have a 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-performing company in our space. I'll now turn the call over to Paul and take you through the financial results.

Okay. Thank you, Ivan. As Ivan mentioned, we had another very strong quarter producing distributable earnings of $97 million or $0.47 per share and $0.48 per share excluding a $1.6 million realized loss on a previously reserved for non-performing loan that paid off with a slight discount in the first quarter. These results translated into our leads 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 have borrowers invested additional capital as part of the modification terms. On $1.1 billion of these loans, we required borrowers to invest additional capital to recapitalize their deals, with us providing some form of temporary rate relief to obtain full feature. The pay rates were modified at an average of approximately 7%, with only around 2% of the residual interest being confirmed. A subset of these loans, totaling $713 million, made up the vast majority of our less than 60-day delinquencies at December 31, for which we received all past due interest owned on these loans. The importance of the modified terms cannot be overstated. Last quarter, we disclosed two pools of loans that were relevant in terms of total delinquencies in our balance sheet loan book. Our 60-plus day delinquencies in loans that were less than 60 days past due were only reporting interest income to the extent cash was received. The 60-plus day delinquent loans are non-performing loans, approximately $275 million last quarter, and the less than 60 days past due loans were $957 million. Our non-performing loan numbers are now $465 million this quarter due to approximately $175 million of loans progressing from less than 60 days delinquent to greater than 60 days past due, and roughly $50 million of net new additions for the quarter. The less than 60 days past due loans or our non-accrual loans came down to $489 million this quarter, mostly due to $713 million of loans being successfully modified as I mentioned earlier, inline with $175 million of loans moving to 60-plus days delinquent, which was partially offset by approximately $420 million of new loans that 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 delivering tremendous success we had in modifying and resolving loans and continued strong collection efforts. 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 1% to $12.64 a share at March 31, 2024, from $12.53 a share at December 31, 2022, which is well above the performance of our peers, the vast majority of whom have experienced significant book value erosion in this market. Additionally, we are one of the only companies in our space that has seen significant book value appreciation over the last five years, with 36% growth during that time period versus our peers, whose book values have declined an average of approximately 18%. In our agency business, we had a solid first quarter with $850 million in originations and $1.1 billion in loan sales. The margin on these loan sales came in at 1.54% this quarter compared to 1.32% last quarter, mainly due to some larger deals in the fourth quarter that carried lower margins. 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 contained higher servicing fees. Our fee-based servicing portfolio also grew to approximately $31.1 billion as of March 31, with a weighted average servicing fee of 39 basis points and estimated remaining life of around eight years. This portfolio will continue to generate a predictable annuity of income going forward, totaling around $122 million gross annually. This income stream combined with earnings on our escrow and gain on sale margins represents 40% of our net revenues. In our balance sheet, our lending operation stands at a $12.25 billion investment portfolio with an all-in yield of 8.81% as of March 31, compared to 8.9% at December 31, due to a combination of an increase in non-performing loans and some new loans that did not make their full payment as of March 31, which we decided not to accrue for, partially offset by modifications in the first quarter on the vast majority of our less than 60-day past due loans. The average balance in our core investments was $12.5 billion this quarter compared to $13 billion last quarter due to run-off 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 most of our pass-through loans, allowing us to collect a majority of the back interest owed on our fourth-quarter delinquencies, which was partially offset by an increase in non-performing loans and some new non-accrual loans in the first quarter. Total debt on our core assets decreased to approximately $11.1 billion as of March 31 from $11.6 billion at December 31. The all-in cost of debt was flat at approximately 7.45% at both December 31 and March 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 remained 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 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. Overall, spot net interest spreads decreased to 1.37% at March 31 from 1.53% at December 31, mostly due to an increase in non-performing loans during the quarter. Lastly, as we continue to shrink our balance sheet loan book by moving loans to our agency business, we have deleveraged our business by 20% over the last 15 months to a leverage ratio of 3.2:1 from a peak of around 4.0:1. Equally important, our leverage consists of around 72% non-recourse, non-mark-to-market CLO debt with pricing that is below the current market, providing strong 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.

Thank you. And we will take our first question today from Steve DeLaney with Citizens JMP.

Good morning and thank you. 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 39 loans, $108 billion in UPB. Do we understand that in each of those cases, the borrowers put additional capital into the transactions?

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

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

Appreciate that, Ivan. And further, we understand that 23 of the 39 are now on pay and accrue, is that correct? They will pay some and then you agree to just accrue some portion of the cash payment required?

That is correct. As I said in my commentary, Steve, those loans were floating rate loans from anywhere from 3.25 over the 4.25, so those borrowers are paying 8.5% after 9.5%, and when modified, the deals were modified to a pay of about 7%, with less than 2% being deferred. So we’re getting a really strong period on those deals.

That's great color. Thank you, Paul. And just a quick follow-up for my second question, Ivan, the new construction loan product. Strategically, obviously, credit is higher and given the commercial real estate market uncertainties that are out there. But we hear banks are really pulling back broadly on commercial real estate. I work for a bank in each state. Is that opportunity largely being created by the void left by banks pulling back and companies like Arbor have to step in and provide capital for commercial real estate and multifamily construction loans?

Yes. Without a doubt, I mean, the landscape for regional banks is not good. I mean, we saw another regional failure last week. Failures on the commercial real estate book that exists in the banks are significantly troubled, and I don't think there's much activity going on. So we've created a program to step in and fill that void. Our single-family rental business is exploring opportunities in some other regions, and the construction lending activity is okay. It’s a decent business. There’s a lot of work and a lot of labor involved. What makes it more attractive for us is, as I said in my comments, is that free charge on capital. The construction lending life is a decent level business, but when you talk about the labor and everything else that goes along with that, I'm not sure I would love that business. But when you add the fact that you could do a stabilized bridge loan and then ultimately do an agency loan, that's an extraordinarily exciting business for our platform.

Great progress throughout the year. And thank you both for your comments.

Thank you, Steve.

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

Good morning. I appreciate the comments and details you've already provided. Paul, I wanted to touch base on net interest income, sorry, interest income, which had a pretty big lift. Can you talk about the mix there as far as, I think you mentioned in your prepared remarks, some of that was the recovery and some was interest from delinquent loans from Q4. So how much of that is taken calm and how much might the fees on modifications be? How do we think about the mix of interest income?

Yes, so there's a mix as you laid out, Stephen, and I think that it's really important to talk about the success we had in the first quarter, on a substantial amount of what I'll call the non-accrual loans we disclosed last quarter. To give you some color, we had $957 million of loans that were less than 60 days past due from the last quarter that 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 put that interest income. That interest income that did not accrue on those loans was $12 million. During the quarter, we modified and got $712 million of those 977 million of loans and we've seen $10 million in back interest. So the first quarter was listed by $10 million of back interest that was collected on loans that we did not previously accrue. That was offset by the fact that we had a new backlog of loans totaling $489 million of non-accrual loans and some more new non-performing loans that, net of the payments they made this quarter, was around another $8 or $9 million we didn't accrue. So the way I look at net interest income for the quarter is we had a lift of around $10 to $11 million from payments back. We had a little bit of the drag of about $8 million on new loans, and that was offset by the fact that the portfolio shrank a little bit and acceleration fees were a little bit lighter this quarter, by I think, around $5 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 these loans and we keep working through them, so now we have a new batch of loans that we're working through now, and it will take some time but we're optimistic we'll be able to get through the 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.

Great. Really, that's helpful color. And you guys mentioned a couple of times in the prepared remarks about the dividend and earnings covering. 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.

Yeah. So let me give you some color on a couple of things you pointed on and then Ivan can probably provide more global insights. We did modify $1.9 billion of loans during the quarter, and $1.1 billion of them received some form of rate relief. That rate relief for the quarter would have accrued to about $4 million. What we do here at Arbor, and I can get into more detail, is we spend a lot of time going through each individual asset and each individual modification to determine whether we think that deferred interest is going to be collectible. It's done on a case-by-case basis, and sometimes we are more conservative on deals than others. So that $4 million of accrued interest, we only accrued $2.5 million for the quarter. We did not accrue $1.5 million. That's what hit the first quarter on those PIK assets. There are myriad things that go into distributable income versus GAAP versus cash. For instance, there was $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. We feel good about our cash position. Looking at our cash flow from operations, you see it's very strong. We certainly feel we have plenty of cash to cover our dividend. 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.

Yeah, 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 of liquidity, how do you intend to use that? And can you put modified loans into the CLOs or how we use that flexibility? Thank you.

So I'll give you the buyout numbers, and then I'll let Ivan talk about the strategy and the CLO vehicles. 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 were worked and re-banked elsewhere. We bought another $15 million on loans out in March, and that loan has been banked at one of our warehouse facilities. In April, we bought another $120 million, bringing total purchases through April from January to April to $223 million. But only $20 million of those loans haven't been reworked and re-banked in April. The $120 million we bought out, $100 million was one deal, and that deal was recapped with a significant amount of capital brought to the table. I think it was $10 million to $15 million. Our loan was re-cut and paid down to $95 million, so we have a $100 million loan. It's now a $95 million loan performing at SOFR plus 300, and we have a whole host of new equity in there with new sponsors that recap that deal. So the $223 million we repurchased out of CLOs from 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 around the vehicles.

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 to produce new loans to fill our mandate or take 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 objective of ours, and that really adds to our income stream by leveraging off the low-cost vehicles that are in place.

I appreciate the comments this morning. Thank you.

Thanks, Steve.

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

Great. Good morning. Thanks for taking my question. 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 can you give some thoughts on expectations for where the reserve might go from here and any dynamics of our modifications could impact your CECL reserve going forward? Thanks.

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. Now we expect the consistency flowing into the second quarter. If rates stay elevated, I mean, clearly the news that came out and the drop in the 10-year, and any change today, there's a lot of optimism already, and any drop, as I mentioned, will have the significant impact. It just doesn't impact the ability to convert off our balance sheet. It's an optimism in the market and returning to liquidity and the ability of people to recapitalize their deals. Everything will depend on 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.

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. If interest rates remain elevated, we could see some additional reserves in line with what we've observed. But it'll all be based on what we see over the next couple of quarters.

Great. Thanks for taking my question.

Our next question will come from Jade Rahmani with KBW.

Thank you very much. Taking a step back for a moment, would you say, and I would say, you've been ahead of the curve in expecting no credit issues. Would you say credit performance to date is in line better or worse than what you'd have expected, compared to say, what you thought in the fall? And maybe if you could think about certain aspects such as the borrower’s liquidity in the multifamily space, which is very strong underlying property level cash flow, and finally, evaluations cap rates. How would you think about where things are tracking?

It seems that many factors have influenced us that we didn't anticipate. COVID significantly affected the market in ways we couldn't foresee. One major issue was the ability for tenants to defer rent payments for extended periods, leading to higher delinquencies than expected. This situation was compounded by an elevated occupancy rate and rent increases that stemmed from government subsidies, which allowed people to remain in their housing without corresponding income. Additionally, some legal jurisdictions have not aggressively pursued delinquent payments, resulting in economic vacancy that we typically don't face. We've also seen unusually high levels in the brokerage industry, which have been addressed through agencies. Elevated purchase prices were another unforeseen aspect of the market that has added stress beyond what we expected. These are my overall thoughts on the unanticipated challenges we're currently navigating.

And in terms of the future outlook, would you say you expect this quarter, next quarter to be peak stress, and less elevated interest rates if possible? What would make credit outcomes or losses worse? Or would you say you're expecting the next few quarters to be pretty similar to what happened this quarter?

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 how people recapitalize their loans. Clearly, if short-term rates go down by one or 1.5 points, it will allow people the ability to attract capital more easily. If short-term rates were 3% and 5.25%, people wouldn’t be able to recapitalize their loans. They have to cash flow from their loans or the marginal. At this level, people have to bring 3 points to the table to buy interest rate caps to bring up to a neutral cash level. So that’s why we’re talking about as things exist today.

Thank you. And just lastly on 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. I did that then in the first quarter and I think usually there’s a use of working capital dividends costing about $400 million per quarter. Do you expect cash flow from operations to match the dividend on a full-year basis?

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

Thanks very much.

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

Yes. Hi. Ivan, you and your team have been really brilliant in conducting your affairs in the company, and I'm just curious how things are evolving in a manner that you expected? And if you were very negative a year ago and you were very correct. I know you have $138 million left of the repurchase program, and you bought stock at $12.19. If things evolve in a manner where you would want to continue to buy back stock if we got back down here, or do you think things should be differently than you anticipated?

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 and anything in a blackout period, it's done on a program basis. They are very, very often. Most of the publications come out a week before earnings, and we’re not allowed to comment for a week or a month. They know we can’t comment. So we kind of defend. The only defense we have is a buyback program, but we can't be in a position where we wake up one day and say, I want to buy this much back that day. We have a computer-driven program. Regarding your comment, we have $138 million that we will buy back, set to buy back generally when we're in a blackout period below book. If the stock gets hit substantially, I would go to the Board and ask to buy back more. I think it's a great investment.

Basically, your judgment means you have confidence in the realistic value of your book. You think $64 is a real number currently for the weakness in the environment, which has been very great. I congratulate you; you've been a good steward of the shareholders' money. Thank you.

Thank you, Lee.

Our next question will come from Rick Shane with JPMorgan.

Hey guys, thanks for taking my questions this afternoon or this morning. After $1.9 billion in modifications during the quarter, I'm curious how many of the loans were less than 60 days delinquent, and how many were more than 60 days delinquent? Additionally, of the $1.9 billion, how much was in the CLOs?

Yes. Let me give some numbers, Rick. Appreciate the question. As I said in my prepared remarks, at the end of the $1.9 billion we modified, $1.1 billion of those received some form of rate relief. Out of the $1.9 billion, $713 million of those loans were less than 60 days delinquent, and we weren't accruing from the prior quarter. Another $40 million of loans were non-core performing that we were able to modify and take out of our nonperforming bucket, although new loans came in. That’s the market and how we look at the modifications. As for how many were in the CLOs, I don't have that here because I tried to give you the overall numbers. The $954 million in delinquencies I disclosed today includes $464 million in non-performing loans, and $490 million that are less than 60 days delinquent, all inclusive of loans, whether they're in the CLOs or on our balance sheet. I can't tell you exactly, but I would say the majority of those loans are probably in the CLOs because the bulk of our loans are financed in the CLOs.

Got it. Yes, that makes sense. And again, I would agree with you that the commentary last quarter was confusing. Everyone spent a lot of time trying to parse it out. I appreciate you trying to put it in sort of a clearer context this quarter. It's interesting as you've been providing that on some of the detail I've been trying to tie it out on what's stated either in the press release or the 10-Q and some of it's there and some of it's not. It would be great if on a go-forward basis we can see that because it's just a lot easier to sort of match up if we can see it in print and understand what's going on there.

Hey Rick, thanks for that comment. In the press release, there's a little bit less disclosure, but in the 10-Q, it's very robust. And I think you reiterated that we do talk about the buckets of loans we modified. We have three buckets in the queue. You'll see a subset of the loans that are the $713 million that were less than 60 days past due. So I tried to roll it forward for you guys by saying we had $937 million of loans that were less than 60 days past due in the last quarter, and those are now at $490 million. How you get there is $175 million of loans moved up, $713 million were modified, and $420 million of new loans were added to the same. I can't remember the exact figure you referred to, but we’ve made a concerted effort to be transparent and we really can follow the numbers.

Got it. I just wasn't able to find the $489 million in that, but I'll go back on that.

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

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

I'm sorry, what was that question again?

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

It was Q2; it was in April.

Okay. Yes, it's funny. I couldn't find it in the cash-flow statement. The way I read it, I thought it was in Q1 and then didn't see it in the cash-flow statement, and that makes sense.

In the press release, you should see it in April.

Okay. Again, we're moving pretty fast in the press releases for me. Last question, I think you talked a little bit about some of the competitors, some of the peer performance, etc. One thing I would note is that you guys in the quarter modified $1.9 billion of loans and retained the $45 million of infusion primarily in the form of caps. There's not a lot of clear disclosure on that, but given the movement in cap rates, does it make sense to be more aggressive in terms of gaining additional equity paydowns and equity investments on paydowns as well?

I would love to get as much as we can. You have to be very pragmatic about how to improve your position on each loan. You have to keep in mind that we have a lot of good borrowers who are facing substantial challenges. I can't speak for the other peers. 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 we look at each one individually and try to enhance the position of each individual loan. We’re satisfied with the work we've done, and you need to look at the context of what we’re doing in each particular circumstance and we're trying to improve our position on that loan. We've done a good job with it.

Got it. 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 had been bullish on rates. I do wonder, with the change in tone over the last two or three months, are you finding that you have borrowers who are hanging on, waiting for an inflection in rates, and are now 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?

This has been going on for two years, and it has been extraordinarily volatile. Clearly, we've had a recent move up in rates, and rates are volatile. They go up; they go down. It was as high as 5% went down to 3.5%. Volatility gets people to act. The biggest challenge right now is the extraordinarily inverted yield curve with a net of 5.25% SOFR. If you had 4% or 3.5%, you'd pay 8.5% as opposed to a fixed rate loan, which might be high-fives. It’s a lot to carry. People have been carrying it for a long period. As I mentioned earlier, if you combine the economic occupancy, which people have struggled with, and rising expenses, it’s been a lot of debt to carry, and people have been bearing the burden. I do believe we’re seeing movement on economic occupancy. The trend is clearly our friend as insurance costs finally stabilize. More significantly, people are focusing on improving their assets and their overall asset performance. I think there was a time when many were investing in assets but not running their operations efficiently. The focus has shifted somewhat now; they’re paying more attention to asset management.

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

I can tell you one thing. The borrowers who didn't take a 4% tenure and lock in their rates 60 days ago; when it hits 4%, they're jumping. Also, keep one thing in mind. A 4% tenure spreads for about 20 basis points tighter. So a 4% is almost equivalent to a 3.75% to a 3.80% spread for about 20 basis points tighter right now. So a 4% is much more attractive than it was six to nine months ago.

Hey, Rick, I appreciate the questions. We've got to move on to another one. But I do want to mention, and I don't know if it's apples to apples. I don't think it is. I don't know what peer you're referring to that disclosed more capital injected, but if that peer has a significant amount of office exposure, that capital injection might be at a different ratio than for multi. But that's just something to think about.

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

Thanks. Good morning, everyone. I appreciate you taking my questions. Following up on, I believe, Stephen's question earlier, in the 10-2, it looks like you're deferring interest until 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 PIK on a dollar basis and how you'd expect PIK to trend over the remainder of the year?

Yeah. That's what I tried to do earlier, Crispin. On that $1.1 billion in modified loans, that number for the quarter, because it wasn't a full quarter, the mods were approximately $4 million, but only $2.5 million did we actually take through income. We deferred $1.5 million. So you could annualize that. It's hard for me to give you a number because new loans will come on and other loans will get resolved. In addition, we've done a nice job with strong collection efforts of collecting non-equal loans in the subsequent quarter, so it's very hard to predict what that's going to look like. But we will keep an eye on it. That's kind of how I would run it out: take your $1.1 billion at 1.86% and run it out on a run rate. There’s some portion of that that we're not accruing, as I mentioned, because we look at it on an individual basis.

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

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

Okay, perfect. And then can you just disclose what your average net interest margins are on the modified loans just before and after the modifications on approximate levels?

Well, I tried to get that data. So these were 3.25% to 4.25% floating deals. So that’s anywhere with SOFR 5.33, that's anywhere from, call it, you know, 8.5% to 9.5%. Now they're paying 6.95%, and we're deferring 1.86%. So it's the same number; it's just split between a pay and a recall.

All right, perfect. Thank you. I appreciate you taking my questions.

No problem.

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

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

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