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Andrew Ahlborn

Thanks, Tom. First quarter GAAP earnings per common share were $0.47, while distributable earnings were a loss of $0.09 per common share and $0.00 excluding realized losses on asset sales. The following factors impacted our quarter earnings.
First, as expected, net interest income declined to $14.6 million in the quarter. The reduction was primarily due to the movement of non-core assets to not accrual status, which generated a cash yield of 1.3%. In the core portfolio, the interest yield was 8.4% and the cash yield was 6.7%. In the quarter, $7.5 million of interest income recorded was non-cash and primarily relates to loans acquired in the UDF merger and certain modified loans.
Second, gain on sale income net of variable cost decreased $835,000 to $20.1 million. This income was driven by the sale of $254 million of guaranteed SBA-7A loans at an average premium of 10.1%, and the sale of $43.3 million of Freddie Mac loans at premiums of 1.1%. Realized gains from normal operations were offset by $20.1 million of realized losses from the sale of assets, all of which were adequately reserved for in previous quarters.
Third, operating costs from normal operations were $55.4 million, a 7.5% improvement from the previous quarter. Employee costs, professional fees, and other operating expenses improved $8 million. These savings were partially offset by incremental servicing advances of $3.4 million.
Fourth, the combined provision for loan loss and valuation allowance declined $9.9 million. The recovery was primarily due to a $16.8 million release of reserves on liquidations offset by the addition of $6.9 million of reserves and loans held as of March 31.
And last, we booked a bargain purchase gain of $102.5 million related to the closing of the UDF IV merger. The bargain purchase gain represents the difference between the fair value of the assets acquired and the market value of the stock consideration issued at closing.
Overall, the transaction added a $167.1 million of equity to the balance sheet, and it was 1.3% accretive to book value per share.
The portfolio was booked at a weighted average price of 55.9% and included $97 million of performing assets and $61 million of credited impaired assets. The transaction has generated $96 million of liquidity via payoffs and financing since closing. It is important to note that the earnings profile for UDF will include both pick interest as contractually defined in the loan terms and the accretion of discount given our basis in the asset.
On the balance sheet, book value per share was unchanged at $10.61 per share at quarter end, and total leverage declined to 3.5x. Key balance sheet items included: first, the transfer of $722.8 million of loans to help for sale. These loans are slated for sale in the second quarter and our 75.7% non-core. There were no additional allowances taken on these loans.
Second, we collapsed three CRE CLOs totaling $1.2 billion of low collateral. The collapse resulted in a reduction in securitized debt of $756 million and an increase in warehouse debt of $834 million for net liquidity of $78 million. We expect to collapse two additional deals either at the end of the second quarter or beginning of the third quarter.
Performance in the remaining CLOs remained under pressure with the three deals currently failing interest coverage test, but we expect improvements as the asset repositioning is executed.
And last, we continue to reduce our short to medium term debt maturities. In the quarter, we closed the $220 million senior secured offering and subsequent to quarter end, increased the offering by $50 million. Proceeds were used to pay off for $120 million April 2025 maturity and retire a $111 million of 2026 maturities.
As of today, we have a total of $650 million of corporate debt maturing through 2026, including current maturities of $131 million. We are focused on extending that maturity over the upcoming quarters. Liquidity remains healthy with unrestricted cash at over $200 million and $1 billion of total uncovered assets.
With that we'll open the line for questions.

Question and Answer Session

Operator

Thank you, we'll now be conducting a question-and-answer session.
(Operator Instructions)
Doug Harter, UBS.

Douglas Harter

Thanks. You highlighted that you're expecting a large portion of kind of the non-core book to kind of pay off in the second quarter. Can you talk about any impact to those expectations on April's volatility and kind of how those conversations are going?

Thomas Capasse

Andrew or Adam, you want to comment on that?

Adam Zausmer

Yeah, so the loan sales. We're talking to various parties on one liquidations, but then also just the normal course of certain loans paying off from the borrowers, whether it's selling an asset or getting a refinanc. In terms of the volatility in April, I don't expect that it's going to have much impact on our exits that are in progress.
The parties that we're dealing with have been through due diligence periods, and are working on various strategies. We're in purchase and sale agreement with various parties. So I think things are certainly moving in the right direction, and you know we don't expect any material diversion from where those exits are strike from a price perspective or from a timing perspective.

Thomas Capasse

Yeah, Doug, just to add to that. The highlight in terms of the macro volatility as we come in the earnings called script, but basically the multi-family sector is a relative outperformer, just given the fundamentals with peak deliveries having been reached in 2024 and the rents actually because of excess demand increased 1% in the first quarter.
And on the heels of that, if you look at the inflows of opportunistic capital into the dislocation real estate, CRE real estate equity trade, you're definitely seeing a lot of excess capital flowing into that sector and we see that in terms of inbound inquiries and trades that are occurring with distressed breach loan portfolios from private debt lenders in the secondary market.
So there's a very active trading market, which is a little bit divorced from the overall tariffs and macro factors.

Operator

Crispin Love, Piper Sandler.

Crispin Love

Thank you. Good morning. You took a lot of decisive actions in the fourth quarter, but you did see delinquencies increase in the first, in both at the core and the non-core portfolios, but you did call out the macro putting some pressure out there broadly.
But can you share your near-term expectations for the distributable earnings trajectory and when you believe that you could begin covering the 12.5% dividend and get back to your target ROE?

Andrew Ahlborn

Hey, good morning, Chris. So the real catalyst for a change in direction of where we're at in the first quarter really relates to the repositioning of the assets we outlined in the prepared remarks. When you look at the financial effects of those -- currently, they're fairly pronounced. The interest expense of carrying those on the balance sheet today is roughly $0.16, $0.17. The equity, reinvested market yields is roughly $0.07.
So I think post the exit of the majority of that in the second quarter and the reinvestment which may take a handful of months then you'll start to see material movement the other way. Now there are several other items that are currently impacting or putting pressure on earnings.
For example, in a lot of the operating companies we own, the operational expense that we're carrying today supports origination volumes substantially above where we're at. And so, as those operating companies rebound, whether it be the USDA business or affordable business, you'll start to see the right sizing of the revenue to the OpEx play out.
I'd say some of that, the headwinds we face are potential declines in SBA volume, at least in the short term as we navigate some of the policy changes that Tom mentioned, as well as just the cost of potentially the refinance of our corporate debt. So I'd say the second quarter earnings profile is going to be similar to what we experienced in the first quarter and that the upward trend really will start upon reinvestment of that equity I just described.

Crispin Love

Great, thank you. I appreciate all that color. And then, second for me, you did repurchase shares in the quarter, but can you just discuss your current views and philosophy on repurchasing shares versus preserving liquidity in this type of environment and how you've thought about that decision and expect to over the next few quarters or at least over the near term?

Andrew Ahlborn

Yeah, we certainly on a consistent basis are weighing the financial benefits and long-term benefits of repurchasing shares with the outstanding maturity ladder we have today, which is roughly $650 million as we described.
Now, I think we have demonstrated, continue to demonstrate that we have the ability to access the capital markets. So we feel confident in our ability to refy out a lot of that upcoming debt, half of which is unsecured, but we have a lot of unencumbered assets and collateral available to do secured deals if necessary.
And then, no, the other item that is obviously important in the current balance sheet earnings profile is reestablishing the net interest income. And so we'll continue to balance the benefits of share repurchases with those other two items.

Crispin Love

Great, thank you, Andrew. I appreciate you taking my questions.

Operator

Christopher Nolan, Ladenburg Thalmann.

Christopher Nolan

Hey, guys. First of all, I want to congratulate you. You took some hard actions in the last quarter. And you know it's not easy, but you know definitely reset the table and I think the first quarter results are still a little bumpy showed much improvement so kudos to you guys.
I'm following the last question. Are you guys continuing to do repurchases in this quarter?

Andrew Ahlborn

Good morning. Yeah, we'll re-evaluate where we're at post earnings here and go from there. With that being said, liquidity remains extremely healthy, and there's several liquidity initiatives that will generate additional cash coming into the business, whether that be the upcoming collapses of two additional CLOs or the continued financing of the UDF portfolio. So we certainly think there's a liquidity to balance, the three items I talked about previously.

Christopher Nolan

And then on the collapse CLO, two things. One is you mentioned they weren't doing the interest coverage. What's the catalyst for that? Are rents coming in lighter than they expected? And two, will there be any impact from these collapses on your leverage ratios? That's it for me.

Andrew Ahlborn

We'll take the second one and let Adam talk about the first one. So in terms of the leverage ratios, they tend to have slight upticks in leverage as we take the advanced rates from the CLOs to warehouse advance rates.
So just as an example, the Q1 classes went from a low 60s advance rates to a low 70s advance rate. So you see that movement and you also see the movement to some degree from non-recourse to recourse. So that'll be the effects on leverage. Now the benefit is that they obviously generate a significant amount of liquidity, and the yield profile on that pool of assets improves on the clops. I'll let Adam talk about the personal.

Adam Zausmer

Yeah, good morning, Christopher. Yeah, I mean, listen, NOIs are certainly continuing to be impacted by the current environment. Rates remaining elevated and we're certainly seeing a higher degree of modifications in our portfolio, which is coupled with pressure on business plans as well, which is why you're kind of seeing that increased stress within the CLOs.

Christopher Nolan

Okay, thank you.

Operator

Jade Rahmani, KBW.

Jade Rahmani

Thank you very much. On the Portland assets, will the position be held unlevered? And is there any contemplation of exiting the position? What's the decision behind holding it? Seems like it's going to be a big earnings track.

Adam Zausmer

Hey, good morning, Jade, this is Adam. So, the position is levered today, and it will remain levered once we obtain title to the project. And then secondly, our decision to obviously pursue title here is that from -- it's really the best economic outcome for the firm for a public read, to get the keys to this asset will give confidence to perspective condo buyers, perspective office tenants where there's tenant improvement dollars that are needed at the project.
And the plan is to, as we work to stabilize the three components of the assets would be to sequentially exit those three components. So specifically as you know the hospitality stabilizes, the office stabilizes, we'll look to the market to see really have like a pricing discovery and see where we can exit those assets.
But it certainly going to require some time for us to hold it, operate it. We are certainly committed from a capital perspective and from an operational perspective to see this asset through. It's a trophy asset in the Portland market, certainly very important for the city and members of the community, and the plan is really for Ready Cap take title and see this asset through and get this thing to a much better position than it's in today.

Jade Rahmani

Okay. And I guess how much dollars are needed and over what time period are we looking? I mean there were two condo sales in the quarter. I'm assuming this is all going to take years, we're talking.

Adam Zausmer

Yeah, it'll take -- to re-stabilization. Certainly, the office and the hospitality will re-stabilization first with the condos taking I think to fully sell those condo units where we're pegging anywhere from two to three years. Clearly, the interest rate environment is causing stress on that sector. But the city of Portland has certainly shown tremendous signs of improvement, so we feel good there.

Thomas Capasse

I think, Adam, it's important to point out the basis in the most liquid components, the Ritz Hotel and the office is what as a percentage of the total.

Adam Zausmer

Yeah, Tom, it's around 70%.

Thomas Capasse

Yeah, so Jade, the two largest slugs will have a shorter fuse in terms of stabilization, and obviously they're relatively liquid markets for that scaled Ritz and as well as most of the office tenants in that, it's really A+ office in that sector, so we got some law firms, etc. for tenants. Ao we expect a front loaded exit of the those two components with a linear sale of the condos, which tends to pick up once the hotel is stabilized as well if you're familiar with the Ritz residences concept.

Jade Rahmani

I am. Well thanks a lot.
On the SBA business, considerable uncertainty in that space. And you all have invested heavily, building up the origination capabilities. Could you talk about what level of moderation and volumes you expect? I think you said below the $1.5 billion, but if you could provide any additional color.
And then, gain on sale margins also which was 10.1% in the first quarter. What do you expect there going forward?

Thomas Capasse

Yeah. Just a broader comment. With the SBA, like a number of government agencies, has had a significant reduction in staff. I think they publicly stated around a little over 40%. And so that has, in terms of normal administrative process has extended timelines, etc. But from a policy perspective, there has been a reassessment of, in particular, small loans and some of the credit guidelines of which we are fully supportive and have active dialogue with the SBA. We're the fourth largest SBA lender in the -- by far the largest non-bank.
And so again we're very constructive on it and supportive of the SBA changes. So we currently are working with the SBA to modify our origination guidelines, and I'll point out that we did preemptively reduce our credit standards for small loans, well in excess. I think it was -- Andrew was the third quarter of last year?
And so and our relative credit metrics compare favorably with the peer group. So I think Jade, there's a transition period for the industry, not just Ready Cap, but a number of other lenders to recalibrate with the policy changes that are currently underway with some administrative delays due to the staffing issues.
But -- so putting all that down, I think we would be in -- Andrew feel free to chime in. We'd be at the low end of our platform as the capacity of a $1.5 billion to $2 billion, I would say, it'd be at the, below that $1.5 billion range for at least a couple of quarters. Andrew, if you want to add to that.

Andrew Ahlborn

No, I think that's right. I think Jade, when we look about at the outlook, at least in the short term, I don't think it would be unreasonable for the company to run in that $1 billion to $1.2 billion range in terms of total small business lending.
And then on the premium side, they historically averaged even previous to the Biden era sort of similar items right around in that 10% range. You may see some movement as the mix in our originations change. So for example, the threshold for small loans was reduced. Those loans typically are priced out and have higher premiums.
So you may see some movement just based on the portfolio mix. But the historical average has always been right around that 10% mark.

Jade Rahmani

Thanks, that's helpful. Freddie Mac has been -- that's a real asset for the company. The volume was pretty muted in the first quarter. A lot of noise out of the FHFA. So just wanted to check in on what you expect for that business.

Adam Zausmer

Yeah. Hey, Jade. It's Adam again. Yeah, certainly our Freddie Mac volume was down in Q1. I think really, I think the key piece of that is, Ready Capital, our Freddie business, the majority of our loans are sourced through mortgage bankers and so the Freddie Mac has given fraud that that was in the market specifically from Meridian, as you probably recall.
They have tightened up the process that mortgage brokers and the lenders go through. And so what's happened is a lot of the brokers and the clients look to other sources of capital for these small balance loans and specifically banks and credit unions that have similar rate and term and it just makes for an easier process.
And also many of these borrowers, brokers are also tapping into to the Fannie's platform, where they control the process. And then Freddie rates are really just okay, which is why I think folks are kind of pivoting to banks and credit unions and Fannie. So we're certainly seeing a decrease in Freddie Mac SBL volume in our Q2 pipeline, certainly more robust, somewhere around $40 million, $45 million today.
And then on the affordable side, volume also down there, but pretty healthy pipeline of about, a little bit north of $200 million, as we go into the second half of the year. So strong pipeline there, although down versus historical numbers, there's been some equity raise for capital into that business which should help improve the pipeline as we enter the second half.

Jade Rahmani

Okay, thanks. I just have a couple others and, these are investor questions. But is the full performer share count for UDF IV 172.5%? I just want to make sure we're not ignoring any eminent -- transaction related additional shares or timing effects.

Andrew Ahlborn

That's right, Jade. The only item that may influence future shares would be the CVR, which converts into shares if it is earned at book value, but that's a couple of years out, but your pro forma today [express].

Jade Rahmani

And how many shares would that be?

Andrew Ahlborn

Well, it's hard to put a number on it today because it's dependent upon the actual execution of the CVR. So it really depends on performance going forward, so it's not a defined number.

Jade Rahmani

And lastly, do you have operating cash flow for the quarter, if possible, excluding loan sales?

Andrew Ahlborn

Yeah, so the total operating cash flow for the quarter was 89, included, sorry, $80 million included in that was $99 million related to loan sales. Some of that is realized gains. So it's closer to break even than it has been running to.

Jade Rahmani

Okay, great. Thanks for taking all the questions. Oh, sorry, I should ask one last one, which is, receptivity of the debt capital markets today. I think there's probably been improvement the last couple of days, but, definitely been choppy, so what are your thoughts around that?

Andrew Ahlborn

Yeah, so certainly we were in the markets over the last couple weeks and months, where we had a successful execution on the secured side. Based on the conversations we've been having in the markets, we feel pretty comfortable about the ability to refinance out the outstanding debt we have.
Now, the one thing I'll point out is, with the exception of the $350 million at the end of next year, a lot of that is unsecured debt. And so, we certainly think in the absence of being able to refinance all of that in the unsecured debt markets that the collateral, the unencumbered asset pool we have plus the excess collateral on existing secure deals provides a significant amount of room to refy some of that out into secure debt and so we are going to continue to prioritize extending those maturities and feel good about our ability to do so.

Thomas Capasse

Thank you so much.

Operator

Thank you. At this time, we've reached the end of the question-answer session. I'll turn the call over to Mr. Capasse for closing remarks.

Thomas Capasse

Again, I appreciate everybody sign-in this Capital's quarterly call and look forward to the second quarter call.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.