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 speaker's presentation, there will be a question-and-answer session. To ask a question during this period, you will need to press star one on your telephone. If you want to remove yourself from the queue, please press the pound key. Please be advised that today's conference is being recorded. If you should need operator assistance, please press star zero. I would now like to turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead.
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 non-recourse, 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 seasoned and experienced asset management team that positions us exceptionally well to succeed in this cycle as well. These are significant differentiating factors from the rest of our peer group, most of which have monoline businesses who struggle to maintain their dividend and lack the experience and expertise to manage through this downturn. This is why we believe we're superiorly positioned, are in a class by ourselves, and should trade 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're 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. 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 credit 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 go on a premium yield 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 non-recourse, non-mark-to-market, long-term debt, and generate attractive levered returns on our capital. In the second quarter, we closed another $1 billion CLO with superior execution in a very challenging market, which clearly demonstrates our strong track record, brand recognition, portfolio quality, 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 our levered 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 will give us confidence in our ability to produce consistent volumes for the rest of the year. Our GSE agency platform continues to offer premium value as it requires limited capital and generates significant long-dated, predictable income streams and produces significant annual cash flow.
Additionally, our $27 billion GSE agency servicing portfolio is mostly prepayment protected and generates approximately $117 million a year in 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're 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 of approximately 17%, allowing us to once again increase our dividend for the ninth consecutive quarter to an annual run rate of $1.56 per 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 a 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 that 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 in 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 resulted in a $6 million income pickup to us. Additionally, we closed on the sale of approximately $300 million in multifamily bridge loans yesterday at par, generating an additional $90 million of cash. 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 had been accreted into income in the past and needed to be reversed.
As part of the sale, we did retain a 12.5 basis points 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 in 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 that have prepayment protection provisions continued to be elevated, with $15 million in 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 30th compared to 4.74% at March 31st, 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 in 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 13th, with an all-in debt cost of approximately 4%, which was up from a debt cost of around 2.81% at March 31st, 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 on 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 on 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. As the current LIBOR and SOFR curves are predicted to continue to increase, it's very important to note that any further increases in these rates will continue to increase the net interest income spreads on our floating rate loan book. In fact, all things remaining equal, a 1% increase in rates would produce approximately $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 163 over, which is well below the current market and will allow us to meaningfully increase the levered returns on our balance sheet loan originations.
Lastly, 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 at 3/31/2022. As Ivan mentioned earlier, these features are unique to our business model, giving us confidence in our ability to continue to generate high quality, long-dated recurring earnings in the future. That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions you may have at this time. Chelsea?
Thank you, sir. As a reminder, to ask a question, please press star one on your telephone. To withdraw your question, press the pound key. We do ask that you pick up your handset to allow optimal sound quality. We'll take our first question from Steve DeLaney with JMP Securities. Your line is open.
Good morning, Ivan and Paul. Good to be with you.
Hey, Steve.
Another excellent quarter. I did note the cautionary actions that you've taken and some of the remarks about not needing to push the envelope here given the strength of the existing portfolio. I'm referring to, Ivan, your comment about no new CLOs at this point in time since they're so expanded in terms of spread. Then we of course noted the $300 million bridge loan sale, which is somewhat unusual. I haven't noticed you guys selling structured loans that you've originated in previous times.
I guess first I'd like to know, am I correct in reading that those were not necessary steps that you're taking, but just things you're doing because you've already got a strong portfolio, and it's no sense to reach it at this point in time. Can you comment on that?
Yeah. Let me address them separately.
Okay.
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. In, you know, our lowest 50, our highest 75 in terms of percentage of CLO debt to total debt, we're at 70% or 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 their CLO debt, and they're executing to horrendous levels, non-profitable levels. 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.
We're sitting back and saying we're the last one to get the best execution in the market on a billion-dollar CLO debt. We're not in a position where we're forced to, you know, reaccess that. We're in one of the best positions in the market. That's kind of where that comment or narrative was based towards. If you follow-
Yeah. That's helpful.
Yeah. 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. 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 it 236 over SOFR. We just noticed earlier this week a June CLO, multifamily CLO that was priced at 280, so 40-50 basis points above. Obviously, that is the case. I can understand why you pushing up towards 300 over, it's not economic to consider that at this time.
It's not only not economic, but you're locking in those liability structures, and you're stuck with them for a while.
Sure.
If you don't have to do it, don't do it.
There you go. 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.
Yeah.
Okay. Obviously, they will run off over the next year or two, or run down.
Yeah. It'll tip off. I think our first one tips off in November and-
That's right.
-which will be fully allocated with loans, and get the benefit of that, and they taper off over a period of time. We're managing them, maximizing them. Keep in mind, those, I think the average liability costs in that are what, Paul, in the 160s.
For that particular CLO or in total?
In total.
In total, yeah. As I said in my commentary, we're at 163 over blended, and that's even with the 236 CLO we just did.
Wow.
In May, Steve. 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, you know, late 2023, 2024. We've got a lot of runway here to utilize that low cost with those low cost locked in vehicles to really enhance or meaningfully enhance our returns.
Yep.
Yep. That makes perfect sense. Go ahead. I'm sorry.
Jumping to the next comment about selling some of our loans.
Oh, yes.
We always like to test the market and, you know, 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, and we're able to recycle close to $100 million, I think it was $90 million in capital. We now 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, getting a servicing fee, and staying facing with our client, and then potentially creating an agency loan on the back end. It fit 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 gonna be another shoe to drop, whether it does or not, to make sure that the firm has, you know, adequate liquidity to be offensive, not defensive. These are all the moves that we've taken and put in place to get ourselves in the position we are.
Fantastic. I guess that could have also been structured as a senior participation, couldn't it? Depending on who the buyer is and-
Yeah, it could. There's so many different ways to do it.
Yeah.
We're just testing the waters. You know, 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 to have access to that, you know, liquidity in our structures.
Thank you both for the comments.
Thank you. Our next question will come from Rich Shane with JPMorgan. Your line is open.
Hey, guys. Thanks for taking my question this morning. I'm just curious, in the current environment, with the movement in collateral values with potential 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 sale?
There's two ways to look at that. We actually think on our balance sheet there could be a facilitation to agency execution because of the way the yield curve is. If people were borrowing at 350 over or 400 over, and SOFR is driven to a level of where the borrowing costs are 6%. You can execute onto agency at you know maybe 150 to 175 over the 10-year. You have kind of a you know an inverted yield curve. We're seeing a lot of people, and we're talking to them to convert them off the balance sheet from a 6%, or 5.5%-6% pay rate, would potentially move up in SOFR and more risks and cap costs into a 10-year fixed rate of 4.25-4.5.
For those products that were put on a year ago, a year and a half ago, I think we're gonna see some real movement which, you know, is gonna help maintain our agency volumes. That's on that side of the coin. You know, to our surprise, you know, you have a 10-year at 2.75, that's pretty low. I think, you know, we'll see that happen maybe a little quicker than we thought. On the new construction side, we've been talking to our clients over the last 12 months because their costs were up 30%. Now even though rents have risen well above historical levels, you know, historical is 3%-5%. Now you're seeing 10%-20%. Some of those cost increases were offset by rent increases.
We've actually advised a lot of our clients to slow their construction, hold off, and they've done that, and now they're seeing costs come back into line. I think there'll be a little bit of a delay with people on their construction timelines because they were waiting for costs to come into line, but that's on the new construction side. I think people's construction is gonna be six to nine months behind schedule. Their interest costs are gonna be up a little bit, but their costs are gonna be back in line, so that'll be a little slower.
That's great. It's actually very helpful, both parts of that answer. 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 or?
Yes, our loans require caps. Some of them have springing caps. Most of the loans have a lot of caps. Of course, as rates were moving up, all these caps were, you know, if they weren't in place, they were being put in place, and that was a whole process. A majority of our loans, a significant super majority of our loans have those caps.
Okay. Thank you so much, guys.
Thanks, Rick.
Thank you. Our next question will come from Stephen Laws with Raymond James. Your line is open.
Hi. Good morning.
Good morning.
Wanted to follow up on Steve DeLaney's questions around the CLO. As older loans pay off and you're able to replenish the vehicles with newer production, you know, how much incremental spread pickup is there on the new loans you're putting into those facilities?
Let me give a little bit of an outlook, and I think this will be helpful. We have had, I think, 8 price increases in the last nine months on our bridge pricing. You know, that is eked in over a period of time. We think that our bridge pricing, which was at one point in time 300-350 over as a range, is now 400-450, or almost a full point. As loans pay off in those vehicles, we replace them with, you know, higher coupons. You know, Paul, you can really talk more about the math at this point.
I think that's excellent color. Steve, what we're seeing is we've been targeting over the last year as things were quite competitive, somewhere 10%-11% levered returns, maybe to 12%. In the second quarter, the $2 billion we originate, we actually got a 12% levered return on. I think we got just under an 11% in the first quarter. What Ivan and I were talking about the other day was the math is simple. When we got these 163 over spread CLOs, and we're now pricing deals at 4-4.50 over, when loans are paying off that were 3-3.50 over, and when we're originating new loans at 4-4.50 over and putting them in those low cost vehicles, those returns can meaningfully move.
You could end up from an 11% to a 12% to a, you know, a 14% to a 15%. We're starting to see that migration now in the new product. That's why in Ivan's commentary, we talked about being very selective in our loans going forward and really having more normalized volumes, going forward in our balance sheet business, for instance, we're about to close out July. We did about $230 million of new production in July bridge-wise. We had about $120 million in runoff. But more meaningfully than the size of the number is that 230 is gonna be higher credit quality and wider spreads, and we're gonna replace that into vehicles and really drive up the returns pretty meaningfully.
Yeah. 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. You know, we're gonna try and take advantage of these low cost vehicles, not have to access the CLO market in a dislocated environment and try and maintain our balance sheet at the level that it's on at this point in time.
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, you know, roughly flat from $16 million. Kinda what are your expectations around that going forward, just kinda given the moves and everything we saw in the second quarter? Kinda how should we think about what that is? It'll be on a go-forward basis?
Sure. So a couple 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-$15 million. What we've been talking internally, sales will certainly start to slow, right? 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 in runoff. If that's any indication of what's to come, the numbers will be significantly down. They'll be significantly down for two reasons.
One, sales volume is going to slow and already has started to in July. Two, as rates rise with SOFR sitting at 2.30 and LIBOR sitting at 2.37, yield maintenance is a product of rates, right? As rates rise, yield maintenance tends to go down and sometimes even go away. The 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 gonna have some of those fees. Again, 1.5 in July. If you annualize that, you know, maybe it's 4.5, 4.
I don't know what the number is, but it's not $15 million going forward.
That's helpful, Paul. Thanks for the color, in quantifying that for us. Appreciate your time this morning.
No problem.
Our next question will come from Jade Rahmani with KBW. Your line is open.
Thank you very much. Considering the growth in the balance sheet portfolio you all achieved, the bridge loan portfolio over the last several quarters and the current change in valuations in real estate, how are you feeling about the credit quality of the existing portfolio and the outlook there?
I think, you know, when I mentioned earlier, Jade, that we had 8 price increases over the last nine months. Commensurate with that, we also adjusted our underwriting standards step by step. We've adjusted them by having lower LTVs. I think our LTVs from nine months ago till now on the originations base is probably, you know, 7 percentage points less. We've adjusted our exit tests because as we've talked on this call, when we do a bridge loan, every bridge 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, a lot of our loans have a lot of different rebalance and tests that have good structural enhancements.
We're real comfortable with what we have in place and the way we manage, you know, our book and the features on them and our asset management capability. We've begun to go through our portfolio. We've begun to work with our borrowers and making sure that they have, you know, adequate interest reserves and replenishments to take into consideration the rise in interest rates. We're comfortable with the way we're running our book.
Thanks very much for that. 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? Are you seeing the, you know, the transitional loans, those projects hit their business plans?
I think that the rent growths have far exceeded, all of our underwriting and all of our expectations. I mean, you're seeing 10%-20% rent growth. You're seeing people not having to use their renovation dollars to turn their units and still get their rent growth. 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 a lower rent growth, going forward, and we're also going to a little bit higher of an economic vacancy. So we're still optimistic about what's in the portfolio and the rent rolls, but we are proceeding with some level of caution for 2023 with, you know, probably flat 3% rent growth and, you know, 1-2 points higher in economic vacancy. That's how we're looking at 2023.
Under that scenario, what kind of delinquency rates or default rates does that imply? Anything, you know, 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 far, 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%-10% range and increase in cap rates somewhere in perhaps the 30-60 basis points range. Do you concur with that or think that's maybe overly optimistic?
I think that's overly optimistic. I think that values are all 5%-20%, depending 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, you know, the right level, and in slow markets, probably 75. We're a lot more conservative. You know, we've been a lot more conservative, a lot more in anticipation of the slowdown in the market beginning 9-12 months ago. We've been through the cycle, so we've seen how this now behaves.
Thanks very much. Lastly, when you look at the bond market, you know, the Treasury market is behaving, you know, interestingly, and I think people are surprised by how low, you know, yields are, particularly to, 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? Where do you think we should be focused on to gauge the health of the commercial real estate finance markets?
Well, you know, right now, you know, if you're looking at the liquidity in the CMBS market and the CLO market, it's taken a significant, you know, 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'd have to see. You know, we'd have to see Triple-A's on the CLO market get down to below 2 for us to feel attractive, and that would be kind of 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.
Do you think acquiring securities is interesting, acquiring Triple-A or other pieces of the capital stack in some of these CLO deals?
Yeah. Listen, we'd love to be in a position, and it's something we'll explore as to whether we can put together some funds to start to acquire subordinate classes in the CLO market. We have the ability to understand the underlying assets better than most as well as the structures. So we think some of these subordinate classes are trading, you know, they went off at 400 over 350 over. You can probably buy them at, you know, 800, and we think that's a good trade. It's something that we'd love to do as a firm.
Thanks very much. Well, certainly in the past, Arbor's been creative at putting together, you know, opportunistic strategies, so look forward to seeing that. Thanks a lot.
Thanks, Jade.
Thank you. Our next question will come from Crispin Love with Piper Sandler. Your line is open.
Thank you. Good morning. Congrats on a great quarter here. First one's on just core expenses. Core expenses look to be very well contained during the quarter. 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. Last quarter, I think we put up about $57 million in comp and G&A combined. This quarter it's at $52 million. But there's some variable items in there that you've got to strip out and kind of compare. Commissions were, you know, about $6.5 million last quarter. They were about $5 million this quarter. That's a $1.5 million change. And that's variable based on where volumes are. Obviously, we had more sales volume last quarter on the agency side because of an APL trade that we were able to get off. Then stock comp.
Stock comp was $6 million last quarter, and it's 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 plans. 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 FICA reset, right? The first quarter's always a little bit elevated because FICA, you have the FICA cap that you've got to hit on the bonuses for the executives, and then that comes down. Having said all that, I think we've done a really good job of maintaining our staff, maintaining our costs. We've been preparing for this cycle for some time.
Although I guided to 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. Yeah, we've done a good job of making sure that we're only growing our staff in the areas that we think are meaningful, the asset management side, the servicing side, and that's the reason the numbers are where they are.
Okay, great. Thanks, Paul. Go ahead.
Yeah. Just to comment on that. We're in a very different environment than we were a year and 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 the normal course of business. You know, our volumes were big enough to offset that. I think we're going into a more normalized environment. I think you'll see us be in a very good position to do a better job at, you know, managing our costs and our productivity. We look forward to, you know, getting back to normal in that sense.
Great. Thank you, Ivan. That's all helpful. I appreciate your commentary earlier on originations in the structured business. I'm just curious if we can get a little bit of a finer point on it. If I kinda start with the second quarter, that $2.05 billion, kind of divide that by three, is about $680 million per month, which was a little bit below your 800 that you talked about last quarter. First, I'm just curious on how originations trended through the quarter. Then is that $230 million, that you talked about for July kind of a good, kind of jumping off point for the next few quarters?
Yeah. I wanna give a little color, and maybe this will help on the credit conversation as well, as some of the comments were geared towards us. We had a very, very large pipeline, you know, going into the last, you know, 3-4 months. We were scheduled to probably close, you know, $750 million-$1 billion a month. Our pipeline was, you know, probably at one of the larger points. We took a extraordinarily active approach with our borrowers, letting them know that their loans had to be resized because, you know, rates had gone up, values had adjusted. You know, we're a lender, we're not a broker, and we own the risk on our loans.
We worked very hard with the borrowers to either go back and get a price reduction or re-equitize their loans with, you know, anywhere between 5%-10% more. As a result of that, we had, you know, a 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 really shrink the number of loans that we needed to close to a very considerable pace, 50%, even more. My comment in terms of my outlook going forward is that we're expecting anywhere between, you know, on the low side, $100 million of runoff per month, to $400 million on the high side in our current portfolio.
You know, more normalized, $200 million-$300 million of runoff a month. That's probably the level in which we will look to originate for the balance of the year. We think it's a healthy level. We think that's a level that's appropriate for our capital and still maintain a leading position as a balance sheet originator in the market. That's how I would look at the outlook at the present time, given the environment. Now, that of course could change. That's under the current scenario. Paul, you wanna give any color on that?
That's exactly, Ivan, that's exactly what we're doing, Crispin, and where we came in 230 for July, $120 million of runoff with a little light runoff in July. Ivan's right. We're estimating, you know, anywhere $200 million-$300 million a month in bridge production. We're gonna be managing that against our runoff to keep our portfolio kind of constant and maybe growing a little bit. Things can change, but that's our run rate right now.
Great. Thank you. That's all really helpful. It's kind of the idea is you're looking more at maintaining the portfolio here, just given the environment rather than kind of increasing it like you have been.
Yeah. Recycle it into higher rate loans as well.
Yeah. 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. It'll really drive up our returns.
Great. Thank you. I appreciate the color there.
Thank you. I'd now like to hand the call back over to Mr. Ivan Kaufman for any closing or additional remarks.
Okay. Well, that concludes our call today. Appreciate everybody's participation. Clearly, these are adjusting times and changing times 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. 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.