Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 001-32136

 

Arbor Realty Trust, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland

 

20-0057959

(State or other jurisdiction of
incorporation)

 

(I.R.S. Employer
Identification No.)

 

333 Earle Ovington Boulevard, Suite 900
Uniondale, NY
(Address of principal executive offices)

 

11553
(Zip Code)

 

(Registrant’s telephone number, including area code): (516) 506-4200

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbols

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

ABR

 

New York Stock Exchange

Preferred Stock, 8.25% Series A Cumulative Redeemable, par value $0.01 per share

 

ABR-PA

 

New York Stock Exchange

Preferred Stock, 7.75% Series B Cumulative Redeemable, par value $0.01 per share

 

ABR-PB

 

New York Stock Exchange

Preferred Stock, 8.50% Series C Cumulative Redeemable, par value $0.01 per share

 

ABR-PC

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x      No  o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  x     No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

 

Accelerated filer     x

Non-accelerated filer

o

 

Smaller reporting company o

 

 

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Common stock, $0.01 par value per share: 85,952,040 outstanding as of May 3, 2019.

 

 

 


Table of Contents

 

INDEX

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

2

Consolidated Balance Sheets

2

Consolidated Statements of Income

3

Consolidated Statements of Comprehensive Income

4

Consolidated Statements of Changes in Equity

5

Consolidated Statements of Cash Flows

6

Notes to Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

Item 3. Quantitative and Qualitative Disclosures about Market Risk

53

Item 4. Controls and Procedures

54

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

54

Item 1A. Risk Factors

54

Item 6. Exhibits

54

Signatures

55

 


Table of Contents

 

Forward-Looking Statements

 

The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in Arbor Realty Trust, Inc.  We urge you to carefully review and consider the various disclosures made by us in this report.

 

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs. We use words such as “anticipate,” “expect,” “believe,” “intend,” “should,” “will,” “may” and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words.  Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information.  Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results.  Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically; adverse changes in our status with government-sponsored enterprises affecting our ability to originate loans through such programs; changes in interest rates; the quality and size of the investment pipeline and the rate at which we can invest our cash; impairments in the value of the collateral underlying our loans and investments; changes in federal and state laws and regulations, including changes in tax laws; the availability and cost of capital for future investments; and competition. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this report.  The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.

 

Additional information regarding these and other risks and uncertainties we face is contained in our annual report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on February 15, 2019 and in our other reports and filings with the SEC.

 

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

 

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Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share and per share data)

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

 

 

Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

124,505

 

$

160,063

 

Restricted cash

 

291,865

 

180,606

 

Loans and investments, net

 

3,323,778

 

3,200,145

 

Loans held-for-sale, net

 

225,878

 

481,664

 

Capitalized mortgage servicing rights, net

 

277,639

 

273,770

 

Securities held-to-maturity, net

 

86,036

 

76,363

 

Investments in equity affiliates

 

28,444

 

21,580

 

Real estate owned, net

 

14,473

 

14,446

 

Due from related party

 

1,975

 

1,287

 

Goodwill and other intangible assets

 

114,764

 

116,165

 

Other assets

 

108,368

 

86,086

 

Total assets

 

$

4,597,725

 

$

4,612,175

 

 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

Credit facilities and repurchase agreements

 

$

1,032,495

 

$

1,135,627

 

Collateralized loan obligations

 

1,594,970

 

1,593,548

 

Debt fund

 

68,304

 

68,183

 

Senior unsecured notes

 

211,001

 

122,484

 

Convertible senior unsecured notes, net

 

252,229

 

254,768

 

Junior subordinated notes to subsidiary trust issuing preferred securities

 

140,434

 

140,259

 

Due to related party

 

261

 

 

Due to borrowers

 

76,396

 

78,662

 

Allowance for loss-sharing obligations

 

34,518

 

34,298

 

Other liabilities

 

109,734

 

118,780

 

Total liabilities

 

3,520,342

 

3,546,609

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Arbor Realty Trust, Inc. stockholders’ equity:

 

 

 

 

 

Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; special voting preferred shares; 20,487,544 and 20,653,584 shares issued and outstanding, respectively; 8.25% Series A, $38,788 aggregate liquidation preference; 1,551,500 shares issued and outstanding; 7.75% Series B, $31,500 aggregate liquidation preference; 1,260,000 shares issued and outstanding; 8.50% Series C, $22,500 aggregate liquidation preference; 900,000 shares issued and outstanding

 

89,501

 

89,502

 

Common stock, $0.01 par value: 500,000,000 shares authorized; 85,955,995 and 83,987,707 shares issued and outstanding, respectively

 

860

 

840

 

Additional paid-in capital

 

893,471

 

879,029

 

Accumulated deficit

 

(74,589

)

(74,133

)

Total Arbor Realty Trust, Inc. stockholders’ equity

 

909,243

 

895,238

 

Noncontrolling interest

 

168,140

 

170,328

 

Total equity

 

1,077,383

 

1,065,566

 

Total liabilities and equity

 

$

4,597,725

 

$

4,612,175

 

 

Note: Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities, or VIEs, as we are the primary beneficiary of these VIEs. As of March 31, 2019 and December 31, 2018, assets of our consolidated VIEs totaled $2,202,138 and $2,198,096, respectively, and the liabilities of our consolidated VIEs totaled $1,667,266 and $1,665,139, respectively. Refer to Note 15 — Variable Interest Entities for discussion of our VIEs.

 

See Notes to Consolidated Financial Statements.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

($ in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Interest income

 

$

71,277

 

$

51,612

 

Interest expense

 

41,865

 

33,387

 

Net interest income

 

29,412

 

18,225

 

Other revenue:

 

 

 

 

 

Gain on sales, including fee-based services, net

 

16,389

 

18,193

 

Mortgage servicing rights

 

14,232

 

19,634

 

Servicing revenue, net

 

13,552

 

9,547

 

Property operating income

 

2,803

 

2,910

 

Other income, net

 

(2,128

)

2,878

 

Total other revenue

 

44,848

 

53,162

 

Other expenses:

 

 

 

 

 

Employee compensation and benefits

 

31,764

 

29,494

 

Selling and administrative

 

9,761

 

8,915

 

Property operating expenses

 

2,396

 

2,796

 

Depreciation and amortization

 

1,912

 

1,846

 

Provision for loss sharing (net of recoveries)

 

454

 

473

 

Provision for loan losses (net of recoveries)

 

 

325

 

Total other expenses

 

46,287

 

43,849

 

Income before extinguishment of debt, income from equity affiliates and income taxes

 

27,973

 

27,538

 

Loss on extinguishment of debt

 

(128

)

 

Income from equity affiliates

 

2,151

 

746

 

Benefit from income taxes

 

10

 

8,784

 

Net income

 

30,006

 

37,068

 

Preferred stock dividends

 

1,888

 

1,888

 

Net income attributable to noncontrolling interest

 

5,468

 

8,991

 

Net income attributable to common stockholders

 

$

22,650

 

$

26,189

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.27

 

$

0.42

 

Diluted earnings per common share

 

$

0.26

 

$

0.42

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

85,151,878

 

61,842,336

 

Diluted

 

107,869,511

 

84,699,735

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.27

 

$

0.21

 

 

See Notes to Consolidated Financial Statements.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Net income

 

$

30,006

 

$

37,068

 

Reclassification of net unrealized gains on available-for-sale securities into accumulated deficit

 

 

(176

)

Comprehensive income

 

30,006

 

36,892

 

Less:

 

 

 

 

 

Comprehensive income attributable to noncontrolling interest

 

5,468

 

8,947

 

Preferred stock dividends

 

1,888

 

1,888

 

Comprehensive income attributable to common stockholders

 

$

22,650

 

$

26,057

 

 

See Notes to Consolidated Financial Statements.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

($ in thousands, except shares)

 

Three Months Ended March 31, 2019

 

 

 

Preferred
Stock Shares

 

Preferred Stock
Value

 

Common
Stock Shares

 

Common
Stock Par
Value

 

Additional Paid-
in Capital

 

Accumulated
Deficit

 

Accumulated
Other
Comprehensive
Income

 

Total Arbor
Realty Trust, Inc.
Stockholders’
Equity

 

Noncontrolling
Interest

 

Total Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — December 31, 2018

 

24,365,084

 

$

89,502

 

83,987,707

 

$

840

 

$

879,029

 

$

(74,133

)

$

 

$

895,238

 

$

170,328

 

$

1,065,566

 

Issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

203,492

 

2

 

(2,904

)

 

 

 

 

(2,902

)

 

 

(2,902

)

Net settlement on vesting of restricted stock

 

 

 

 

 

(45,953

)

 

 

(585

)

 

 

 

 

(585

)

 

 

(585

)

Issuance of common stock from convertible debt

 

 

 

 

 

210,466

 

2

 

2,505

 

 

 

 

 

2,507

 

 

 

2,507

 

Extinguishment of convertible senior unsecured notes

 

 

 

 

 

 

 

 

 

(1,331

)

 

 

 

 

(1,331

)

 

 

(1,331

)

Stock-based compensation

 

 

 

 

 

440,174

 

4

 

3,752

 

 

 

 

 

3,756

 

 

 

3,756

 

Issuance of common stock from special dividend

 

 

 

 

 

901,432

 

9

 

10,070

 

 

 

 

 

10,079

 

 

 

10,079

 

Issuance of operating partnership units and special voting preferred stock from special dividend

 

221,666

 

2

 

 

 

 

 

 

 

 

 

 

 

2

 

2,476

 

2,478

 

Distributions - common stock

 

 

 

 

 

 

 

 

 

 

 

(23,101

)

 

 

(23,101

)

 

 

(23,101

)

Distributions - preferred stock

 

 

 

 

 

 

 

 

 

 

 

(1,888

)

 

 

(1,888

)

 

 

(1,888

)

Distributions - preferred stock of private REIT

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

 

 

(5

)

Distributions - noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,566

)

(5,566

)

Redemption of operating partnership units

 

(387,706

)

(3

)

258,677

 

3

 

2,935

 

 

 

 

 

2,935

 

(4,566

)

(1,631

)

Net income

 

 

 

 

 

 

 

 

 

 

 

24,538

 

 

 

24,538

 

5,468

 

30,006

 

Balance — March 31, 2019

 

24,199,044

 

$

89,501

 

85,955,995

 

$

860

 

$

893,471

 

$

(74,589

)

$

 

$

909,243

 

$

168,140

 

$

1,077,383

 

 

Three Months Ended March 31, 2018

 

Balance — December 31, 2017

 

24,942,269

 

$

89,508

 

61,723,387

 

$

617

 

$

707,450

 

$

(101,926

)

$

176

 

$

695,825

 

$

168,731

 

$

864,556

 

Issuance of common stock, net

 

 

 

 

 

360,000

 

4

 

3,010

 

 

 

 

 

3,014

 

 

 

3,014

 

Stock-based compensation

 

 

 

 

 

387,648

 

4

 

2,541

 

 

 

 

 

2,545

 

 

 

2,545

 

Forfeiture of unvested restricted stock

 

 

 

 

 

(1,500

)

 

 

 

 

 

 

 

 

 

 

 

 

Distributions - common stock

 

 

 

 

 

 

 

 

 

 

 

(12,962

)

 

 

(12,962

)

 

 

(12,962

)

Distributions - preferred stock

 

 

 

 

 

 

 

 

 

 

 

(1,888

)

 

 

(1,888

)

 

 

(1,888

)

Distributions - preferred stock of private REIT

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

 

 

(5

)

Distributions - noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,458

)

(4,458

)

Net income

 

 

 

 

 

 

 

 

 

 

 

28,077

 

 

 

28,077

 

8,991

 

37,068

 

Reclassification of net unrealized gains on available-for-sale securities into accumulated deficit

 

 

 

 

 

 

 

 

 

 

 

176

 

(176

)

 

 

 

 

Balance — March 31, 2018

 

24,942,269

 

$

89,508

 

62,469,535

 

$

625

 

$

713,001

 

$

(88,528

)

$

 

$

714,606

 

$

173,264

 

$

887,870

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

30,006

 

$

37,068

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,912

 

1,846

 

Stock-based compensation

 

3,756

 

2,545

 

Amortization and accretion of interest and fees, net

 

653

 

3,945

 

Amortization of capitalized mortgage servicing rights

 

12,282

 

11,865

 

Originations of loans held-for-sale

 

(746,315

)

(1,035,737

)

Proceeds from sales of loans held-for-sale, net of gain on sale

 

996,341

 

1,046,204

 

Mortgage servicing rights

 

(14,232

)

(19,634

)

Write-off of capitalized mortgage servicing rights from payoffs

 

4,458

 

4,811

 

Provision for loss sharing (net of recoveries)

 

454

 

473

 

(Charge-offs) recoveries for loss-sharing obligations, net

 

(234

)

113

 

Provision for loan losses (net of recoveries)

 

 

325

 

Deferred tax benefit

 

(4,168

)

(13,320

)

Income from equity affiliates

 

(2,151

)

(746

)

Loss on extinguishment of debt

 

128

 

 

Changes in operating assets and liabilities

 

(14,501

)

(18,961

)

Net cash provided by operating activities

 

268,389

 

20,797

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

Loans and investments funded and originated, net

 

(403,756

)

(283,937

)

Payoffs and paydowns of loans and investments

 

280,819

 

192,023

 

Deferred fees

 

2,014

 

2,827

 

Investments in real estate, net

 

(202

)

(66

)

Contributions to equity affiliates

 

(6,030

)

(2,460

)

Distributions from equity affiliates

 

 

2,608

 

Purchase of securities held-to-maturity, net

 

(10,000

)

(8,445

)

Payoffs and paydowns of securities held-to-maturity

 

1,521

 

139

 

Proceeds from insurance settlements, net

 

 

2,278

 

Due to borrowers and reserves

 

(2,763

)

(63,941

)

Net cash used in investing activities

 

(138,397

)

(158,974

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from repurchase agreements and credit facilities

 

1,625,430

 

1,870,249

 

Payoffs and paydowns of repurchase agreements and credit facilities

 

(1,728,631

)

(1,771,463

)

Settlements of convertible senior unsecured notes

 

(3,019

)

 

Payoff of related party financing

 

 

(50,000

)

Proceeds from issuance of senior unsecured notes

 

90,000

 

100,000

 

Redemption of operating partnership units

 

(1,631

)

 

Payments of withholding taxes on net settlement of vested stock

 

(3,487

)

 

Distributions paid on common stock

 

(23,101

)

(12,962

)

Distributions paid on noncontrolling interest

 

(5,566

)

(4,458

)

Distributions paid on preferred stock

 

(1,888

)

(1,888

)

Distributions paid on preferred stock of private REIT

 

(5

)

(5

)

Payment of deferred financing costs

 

(2,393

)

(3,875

)

Proceeds from issuance of common stock, net

 

 

3,014

 

Net cash (used in) provided by financing activities

 

(54,291

)

128,612

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

75,701

 

(9,565

)

Cash, cash equivalents and restricted cash at beginning of period

 

340,669

 

243,772

 

Cash, cash equivalents and restricted cash at end of period

 

$

416,370

 

$

234,207

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$

160,063

 

$

104,374

 

Restricted cash at beginning of period

 

180,606

 

139,398

 

Cash, cash equivalents and restricted cash at beginning of period

 

$

340,669

 

$

243,772

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

124,505

 

$

102,548

 

Restricted cash at end of period

 

291,865

 

131,659

 

Cash, cash equivalents and restricted cash at end of period

 

$

416,370

 

$

234,207

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash used to pay interest

 

$

39,180

 

$

27,507

 

Cash used to pay taxes

 

2,008

 

3,718

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Special dividend - common stock issued

 

10,079

 

 

Special dividend - special voting preferred stock and operating partnership units issued

 

2,478

 

 

Issuance of common stock from convertible debt

 

2,507

 

 

Settlements of convertible senior unsecured notes

 

(1,331

)

 

Fair value of conversion feature of convertible senior unsecured notes

 

1,175

 

 

Distributions accrued on 8.25% Series A preferred stock

 

267

 

267

 

Distributions accrued on 7.75% Series B preferred stock

 

203

 

203

 

Distributions accrued on 8.50% Series C preferred stock

 

159

 

159

 

 

See Notes to Consolidated Financial Statements.

 

7


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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Note 1 — Description of Business

 

Arbor Realty Trust, Inc. (“we,” “us,” or “our”) is a Maryland corporation formed in 2003. We operate through two business segments: our Structured Loan Origination and Investment Business (“Structured Business”) and our Agency Loan Origination and Servicing Business (“Agency Business”). Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets, primarily consisting of bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity. We may also directly acquire real property and invest in real estate-related notes and certain mortgage-related securities. Through our Agency Business, we originate, sell and service a range of multifamily finance products through the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac,” and together with Fannie Mae, the government-sponsored enterprises, or the “GSEs”), the Government National Mortgage Association (“Ginnie Mae”), Federal Housing Authority (“FHA”) and the U.S. Department of Housing and Urban Development (together with Ginnie Mae and FHA, “HUD”) and conduit/commercial mortgage-backed securities (“CMBS”) programs. We retain the servicing rights and asset management responsibilities on substantially all loans we originate and sell under the GSE and HUD programs. We are an approved Fannie Mae Delegated Underwriting and Servicing (“DUS”) lender nationally, a Freddie Mac Multifamily Conventional Loan lender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable, manufactured housing, senior housing and small balance loan (“SBL”) lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally.

 

Substantially all of our operations are conducted through our operating partnership, Arbor Realty Limited Partnership (“ARLP”), for which we serve as the general partner, and ARLP’s subsidiaries. We are organized to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. Certain of our assets that produce non-qualifying income, primarily within the Agency Business, are operated through taxable REIT subsidiaries (“TRS”), which is part of our TRS consolidated group (the “TRS Consolidated Group”) and is subject to U.S. federal, state and local income taxes. See Note 17 — Income Taxes for details.

 

Note 2 — Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

 

Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), for interim financial statements and the instructions to Form 10-Q.  Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared under GAAP have been condensed or omitted.  In our opinion, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included and are of a normal and recurring nature.  The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with our financial statements and notes thereto included in our 2018 Annual Report.

 

Principles of Consolidation

 

These consolidated financial statements include our financial statements and the financial statements of our wholly owned subsidiaries, partnerships and other joint ventures in which we own a controlling interest, including variable interest entities (“VIEs”) of which we are the primary beneficiary.  Entities in which we have a significant influence are accounted for under the equity method. See Note 15 — Variable Interest Entities for information about our VIEs. All significant intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that could materially affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Significant Accounting Policies

 

See Item 8 — Financial Statements and Supplementary Data in our 2018 Annual Report for a description of our significant accounting policies. Upon the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) in the first quarter of 2019, we adopted the following significant accounting policy:

 

Leases. We determine if an arrangement is a lease at inception. Our right to use an underlying asset for the lease term is recorded as operating lease right-of-use (“ROU”) assets and our obligation to make lease payments arising from the lease are recorded as lease liabilities. The operating lease ROU assets and lease liabilities are included in other assets and other liabilities, respectively, in our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Our leases do not provide an implicit rate; therefore, we use our incremental borrowing rate in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. At the adoption date, we made an accounting policy election to exclude leases with an initial term of twelve months or less.

 

Recently Adopted Accounting Pronouncements

 

Description

 

Adoption Date

 

Effect on Financial Statements

 

 

 

 

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to record most leases on their balance sheet through operating and finance lease liabilities and corresponding ROU assets, as well as adding additional footnote disclosures of key information about those arrangements. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which provides transition relief on comparative period reporting through a cumulative-effect adjustment at the beginning of the period of adoption (“Effective Date Method”).

 

First quarter of 2019

 

We adopted this guidance using the optional Effective Date Method and elected the group of optional practical expedients, therefore, comparative reporting periods have not been adjusted and are reported under the previous accounting guidance. Upon adoption, we recorded an operating lease ROU asset and corresponding lease liability of $20.1 million, which are included as other assets and other liabilities in our consolidated balance sheets. In addition, we added the required footnote disclosures in Note 14 - Commitments and Contingencies.

 

 

 

 

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation to expand the scope of ASC Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees.

 

First quarter of 2019

 

The adoption of this guidance did not have a material impact on our consolidated financial statements.

 

 

 

 

 

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. This ASU better aligns risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Among other amendments, the update allows entities to designate the variability in cash flows attributable to changes in a contractually specified component stated in the contract as the hedged risk in a cash flow hedge of a forecasted purchase or sale of a nonfinancial asset.

 

First quarter of 2019

 

The adoption of this guidance did not have a material impact on our consolidated financial statements. We will apply this guidance to any future hedging activities.

 

9


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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Recently Issued Accounting Pronouncements

 

Description

 

Effective Date

 

Effect on Financial Statements

 

 

 

 

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will be required to use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses.

 

First quarter of 2020 with early adoption permitted beginning in the first quarter of 2019

 

We are evaluating the impact this guidance may have on our consolidated financial statements and we do not expect to early adopt. However, this guidance will impact our credit losses on loans and debt secutities, including loans sold to certain GSEs.

 

Note 3 — Loans and Investments

 

Our Structured Business loan and investment portfolio consists of ($ in thousands):

 

 

 

March 31, 2019

 

Percent of
Total

 

Loan
Count

 

Wtd. Avg.
Pay Rate (1)

 

Wtd. Avg.
Remaining
Months to
Maturity

 

Wtd. Avg.
First Dollar
LTV Ratio (2)

 

Wtd. Avg.
Last Dollar
LTV Ratio (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bridge loans

 

$

3,056,579

 

90

%

174

 

6.79

%

16.9

 

0

%

74

%

Preferred equity investments

 

181,619

 

5

%

10

 

7.97

%

75.2

 

67

%

90

%

Mezzanine loans

 

168,578

 

5

%

18

 

10.88

%

17.0

 

19

%

76

%

 

 

3,406,776

 

100

%

202

 

7.05

%

20.0

 

4

%

75

%

Allowance for loan losses

 

(71,069

)

 

 

 

 

 

 

 

 

 

 

 

 

Unearned revenue

 

(11,929

)

 

 

 

 

 

 

 

 

 

 

 

 

Loans and investments, net

 

$

3,323,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bridge loans

 

$

2,992,814

 

91

%

167

 

6.84

%

18.5

 

0

%

74

%

Preferred equity investments

 

181,661

 

6

%

10

 

7.97

%

78.0

 

66

%

89

%

Mezzanine loans

 

108,867

 

3

%

13

 

10.57

%

22.1

 

28

%

72

%

 

 

3,283,342

 

100

%

190

 

7.02

%

22.0

 

5

%

75

%

Allowance for loan losses

 

(71,069

)

 

 

 

 

 

 

 

 

 

 

 

 

Unearned revenue

 

(12,128

)

 

 

 

 

 

 

 

 

 

 

 

 

Loans and investments, net

 

$

3,200,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)               “Weighted Average Pay Rate” is a weighted average, based on the unpaid principal balance (“UPB”) of each loan in our portfolio, of the interest rate that is required to be paid monthly as stated in the individual loan agreements.  Certain loans and investments that require an additional rate of interest “Accrual Rate” to be paid at maturity are not included in the weighted average pay rate as shown in the table.

 

(2)               The “First Dollar Loan-to-Value (“LTV”) Ratio” is calculated by comparing the total of our senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will absorb a total loss of our position.

 

(3)               The “Last Dollar LTV Ratio” is calculated by comparing the total of the carrying value of our loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will initially absorb a loss.

 

Concentration of Credit Risk

 

We are subject to concentration risk in that, at March 31, 2019, the UPB related to 29 loans with five different borrowers represented 19% of total assets.  At December 31, 2018, the UPB related to 45 loans with five different borrowers represented 22% of total assets. During both the three months ended March 31, 2019 and the year ended December 31, 2018, no single loan or investment represented more than 10% of our total assets and no single investor group generated over 10% of our revenue. For details on our concentration of related party loans and investments, see Note 18—Agreements and Transactions with Related Parties.

 

10


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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

We assign a credit risk rating of pass, pass/watch, special mention, substandard or doubtful to each loan and investment, with a pass rating being the lowest risk and a doubtful rating being the highest risk. Each credit risk rating has benchmark guidelines that pertain to debt-service coverage ratios, LTV ratios, borrower strength, asset quality, and funded cash reserves.  Other factors such as guarantees, market strength, and remaining loan term and borrower equity are also reviewed and factored into determining the credit risk rating assigned to each loan.  This metric provides a helpful snapshot of portfolio quality and credit risk.  All portfolio assets are subject to, at a minimum, a thorough quarterly financial evaluation in which historical operating performance and forward-looking projections are reviewed, however, we maintain a higher level of scrutiny and focus on loans that we consider “high risk” and that possess deteriorating credit quality.

 

Generally speaking, given our typical loan profile, risk ratings of pass, pass/watch and special mention suggest that we expect the loan to make both principal and interest payments according to the contractual terms of the loan agreement, and is not considered impaired.  A risk rating of substandard indicates we anticipate the loan may require a modification of some kind.  A risk rating of doubtful indicates we expect the loan to underperform over its term, and there could be loss of interest and/or principal.  Further, while the above are the primary guidelines used in determining a certain risk rating, subjective items such as borrower strength, market strength or asset quality may result in a rating that is higher or lower than might be indicated by any risk rating matrix.

 

As a result of the loan review process, at March 31, 2019 and December 31, 2018, we identified eight loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of $128.3 million and $128.7 million, respectively, and a weighted average last dollar LTV ratio of 99% for both periods.

 

A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class is as follows ($ in thousands):

 

 

 

March 31, 2019

 

Asset Class

 

UPB

 

Percentage of
Portfolio

 

Wtd. Avg.
Internal Risk
Rating

 

Wtd. Avg.
First Dollar
LTV Ratio

 

Wtd. Avg.
Last Dollar
LTV Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

2,485,177

 

73

%

pass/watch

 

5

%

76

%

Self Storage

 

292,525

 

9

%

pass/watch

 

3

%

72

%

Land

 

232,228

 

7

%

substandard

 

0

%

85

%

Healthcare

 

137,525

 

4

%

pass/watch

 

0

%

79

%

Office

 

132,040

 

4

%

special mention

 

3

%

70

%

Hotel

 

80,248

 

2

%

pass/watch

 

0

%

57

%

Retail

 

45,333

 

1

%

pass/watch

 

6

%

65

%

Commercial

 

1,700

 

<1

%

doubtful

 

63

%

63

%

Total

 

$

3,406,776

 

100

%

pass/watch

 

4

%

75

%

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

2,427,920

 

74

%

pass/watch

 

5

%

75

%

Self Storage

 

301,830

 

9

%

pass/watch

 

0

%

72

%

Land

 

151,628

 

5

%

substandard

 

0

%

90

%

Healthcare

 

122,775

 

4

%

pass/watch

 

0

%

77

%

Office

 

132,047

 

4

%

special mention

 

3

%

68

%

Hotel

 

100,075

 

3

%

pass/watch

 

13

%

66

%

Retail

 

45,367

 

1

%

pass/watch

 

6

%

65

%

Commercial

 

1,700

 

<1

%

doubtful

 

63

%

63

%

Total

 

$

3,283,342

 

100

%

pass/watch

 

5

%

75

%

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Geographic Concentration Risk

 

As of March 31, 2019, 23% and 16% of the outstanding balance of our loan and investment portfolio had underlying properties in New York and Texas, respectively. As of December 31, 2018, 23% and 18% of the outstanding balance of our loan and investment portfolio had underlying properties in New York and Texas, respectively. No other states represented 10% or more of the total loan and investment portfolio.

 

Impaired Loans and Allowance for Loan Losses

 

A summary of the changes in the allowance for loan losses is as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Allowance at beginning of period

 

$

71,069

 

$

62,783

 

Provision for loan losses

 

 

325

 

Allowance at end of period

 

$

71,069

 

$

63,108

 

 

The ratio of net recoveries to the average loans and investments outstanding was de minimus for the three months ended March 31, 2018.

 

There were no loans for which the fair value of the collateral securing the loan was less than the carrying value of the loan for which we had not recorded a provision for loan loss as of March 31, 2019 and 2018.

 

We have six loans with a carrying value totaling $120.9 million at March 31, 2019 that are collateralized by a land development project that are scheduled to mature in September 2019. The loans do not carry a current pay rate of interest, but five of the loans with a carrying value totaling $111.5 million entitle us to a weighted average accrual rate of interest of 9.08%. In 2008, we suspended the recording of the accrual rate of interest on these loans, as they were impaired and we deemed the collection of this interest to be doubtful. At both March 31, 2019 and December 31, 2018, we had cumulative allowances for loan losses of $61.4 million related to these loans. The loans are subject to certain risks associated with a development project including, but not limited to, availability of construction financing, increases in projected construction costs, demand for the development’s outputs upon completion of the project, and litigation risk. Additionally, these loans were not classified as non-performing as the borrower is in compliance with all of the terms and conditions of the loans.

 

A summary of our impaired loans by asset class is as follows (in thousands):

 

 

 

March 31, 2019

 

Three Months Ended March 31, 2019

 

Asset Class

 

UPB

 

Carrying Value (1)

 

Allowance for
Loan Losses

 

Average Recorded
Investment (2)

 

Interest Income
Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

134,215

 

$

127,386

 

$

67,869

 

$

134,215

 

$

27

 

Office

 

2,259

 

2,259

 

1,500

 

2,263

 

34

 

Commercial

 

1,700

 

1,700

 

1,700

 

1,700

 

 

Total

 

$

138,174

 

$

131,345

 

$

71,069

 

$

138,178

 

$

61

 

 

 

 

December 31, 2018

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

134,215

 

$

127,869

 

$

67,869

 

$

131,249

 

$

 

Office

 

2,266

 

2,266

 

1,500

 

2,286

 

29

 

Commercial

 

1,700

 

1,700

 

1,700

 

1,700

 

 

Hotel

 

 

 

 

34,750

 

 

Total

 

$

138,181

 

$

131,835

 

$

71,069

 

$

169,985

 

$

29

 

 

12


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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 


(1)  Represents the UPB of five impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at both March 31, 2019 and December 31, 2018, respectively.

 

(2)  Represents an average of the beginning and ending UPB of each asset class.

 

At both March 31, 2019 and December 31, 2018, two loans with an aggregate net carrying value of $0.8 million, net of related loan loss reserves of $1.7 million, were classified as non-performing. Income from non-performing loans is generally recognized on a cash basis when it is received.  Full income recognition will resume when the loan becomes contractually current and performance has recommenced.

 

A summary of our non-performing loans by asset class is as follows (in thousands):

 

 

 

March 31, 2019

 

December 31, 2018

 

Asset Class

 

Carrying
Value

 

Less Than 90
Days Past Due

 

Greater Than
90 Days Past
Due

 

Carrying
Value

 

Less Than 90
Days Past Due

 

Greater Than
90 Days Past
Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,700

 

$

 

$

1,700

 

$

1,700

 

$

 

$

1,700

 

Office

 

832

 

 

832

 

832

 

 

832

 

Total

 

$

2,532

 

$

 

$

2,532

 

$

2,532

 

$

 

$

2,532

 

 

At both March 31, 2019 and December 31, 2018, there were no loans contractually past due 90 days or more that were still accruing interest.

 

There were no loan modifications, refinancing’s and/or extensions during both the three months ended March 31, 2019 and 2018 that were considered troubled debt restructurings.

 

Given the transitional nature of some of our real estate loans, we may require funds to be placed into an interest reserve, based on contractual requirements, to cover debt service costs.  At March 31, 2019 and December 31, 2018, we had total interest reserves of $50.7 million and $48.9 million, respectively, on 122 loans and 110 loans, respectively, with an aggregate UPB of $2.22 billion for both periods.

 

Note 4 — Loans Held-for-Sale, Net

 

Loans held-for-sale, net consists of the following (in thousands):

 

 

 

March 31, 2019

 

December 31, 2018

 

 

 

 

 

 

 

Fannie Mae

 

$

158,733

 

$

358,790

 

Freddie Mac

 

63,713

 

95,004

 

FHA

 

477

 

19,170

 

 

 

222,923

 

472,964

 

Fair value of future MSR

 

3,802

 

10,253

 

Unearned discount

 

(847

)

(1,553

)

Loans held-for-sale, net

 

$

225,878

 

$

481,664

 

 

Our loans held-for-sale, net are typically sold within 60 days of loan origination and the gain on sales are included in gain on sales, including fee-based services, net in the consolidated statements of income. During the three months ended March 31, 2019 and 2018, we sold $1.10 billion and $1.06 billion, respectively, of loans held-for-sale and recorded gain on sales of $15.1 million and $17.4 million, respectively. At March 31, 2019 and December 31, 2018, there were no loans held-for-sale that were 90 days or more past due, and there were no loans held-for-sale that were placed on a non-accrual status.

 

13


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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Note 5 — Capitalized Mortgage Servicing Rights

 

Our capitalized mortgage servicing rights (“MSRs”) reflect commercial real estate MSRs derived from loans sold in our Agency Business. The discount rates used to determine the present value of our MSRs throughout the periods presented for all MSRs were between 8% - 15% (representing a weighted average discount rate of 12%) based on our best estimate of market discount rates. The weighted average estimated life remaining of our MSRs was 7.6 years at both March 31, 2019 and December 31, 2018.

 

A summary of our capitalized MSR activity is as follows (in thousands):

 

 

 

Three Months Ended March 31, 2019

 

 

 

Acquired

 

Originated

 

Total

 

Balance at beginning of period

 

$

97,084

 

$

176,686

 

$

273,770

 

Additions

 

 

20,609

 

20,609

 

Amortization

 

(5,915

)

(6,367

)

(12,282

)

Write-downs and payoffs

 

(3,140

)

(1,318

)

(4,458

)

Balance at end of period

 

$

88,029

 

$

189,610

 

$

277,639

 

 

 

 

Three Months Ended March 31, 2018

 

Balance at beginning of period

 

$

143,270

 

$

109,338

 

$

252,608

 

Additions

 

 

19,800

 

19,800

 

Amortization

 

(7,995

)

(3,870

)

(11,865

)

Write-downs and payoffs

 

(3,341

)

(1,470

)

(4,811

)

Balance at end of period

 

$

131,934

 

$

123,798

 

$

255,732

 

 

We collected prepayment fees of $4.9 million and $3.7 million during the three months ended March 31, 2019 and 2018, respectively, which are included as a component of servicing revenue, net on the consolidated statements of income. As of March 31, 2019 and December 31, 2018, we had no valuation allowance recorded on any of our MSRs.

 

The expected amortization of capitalized MSRs recorded as of March 31, 2019 is as follows (in thousands):

 

Year

 

Amortization

 

2019 (nine months ending 12/31/2019)

 

$

36,578

 

2020

 

45,186

 

2021

 

39,942

 

2022

 

33,302

 

2023

 

28,506

 

2024

 

24,100

 

Thereafter

 

70,025

 

Total

 

$

277,639

 

 

Actual amortization may vary from these estimates.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Note 6 — Mortgage Servicing

 

Product and geographic concentrations that impact our servicing revenue are as follows ($ in thousands):

 

March 31, 2019

 

Product Concentrations

 

Geographic Concentrations

 

 

 

 

 

Percent of

 

 

 

UPB
Percentage

 

Product

 

UPB

 

Total

 

State

 

of Total

 

Fannie Mae

 

$

13,719,351

 

73

%

Texas

 

20

%

Freddie Mac

 

4,515,829

 

24

%

North Carolina

 

10

%

FHA

 

648,583

 

3

%

New York

 

8

%

Total

 

$

18,883,763

 

100

%

California

 

8

%

 

 

 

 

 

 

Georgia

 

6

%

 

 

 

 

 

 

Florida

 

5

%

 

 

 

 

 

 

Other (1)

 

43

%

 

 

 

 

 

 

Total

 

100

%

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

Fannie Mae

 

$

13,562,667

 

73

%

Texas

 

20

%

Freddie Mac

 

4,394,287

 

24

%

North Carolina

 

10

%

FHA

 

644,687

 

3

%

New York

 

8

%

Total

 

$

18,601,641

 

100

%

California

 

8

%

 

 

 

 

 

 

Georgia

 

6

%

 

 

 

 

 

 

Florida

 

6

%

 

 

 

 

 

 

Other (1)

 

42

%

 

 

 

 

 

 

Total

 

100

%

 


(1)         No other individual state represented 4% or more of the total.

 

At March 31, 2019 and December 31, 2018, our weighted average servicing fee was 44.6 basis points and 45.2 basis points, respectively. At March 31, 2019 and December 31, 2018, we held total escrow balances of $797.1 million and $824.1 million, respectively, which is not reflected in our consolidated balance sheets. Of the total escrow balances, we held $479.2 million and $521.2 million at March 31, 2019 and December 31, 2018, respectively, related to loans we are servicing within our Agency Business. These escrows are maintained in separate accounts at several federally insured depository institutions, which may exceed FDIC insured limits. We earn interest income on the total escrow deposits, generally based on a market rate of interest negotiated with the financial institutions that hold the escrow deposits. Interest earned on total escrows, net of interest paid to the borrower, was $4.0 million and $2.2 million during the three months ended March 31, 2019 and 2018, respectively, and is a component of servicing revenue, net in the consolidated statements of income.

 

Note 7 — Securities Held-to-Maturity

 

Agency B Piece Bonds.  Freddie Mac may choose to hold, sell or securitize loans we sell to them under the Freddie Mac SBL program. As part of the securitizations under the SBL program, we have the option to purchase through a bidding process the bottom tranche bond, generally referred to as the “B Piece,” that represents the bottom 10%, or highest risk, of the securitization. As of March 31, 2019, we retained 49%, or $106.2 million initial face value, of seven B Piece bonds, which were purchased at a discount for $74.7 million, and sold the remaining 51% to a third-party at par. These securities are collateralized by a pool of multifamily mortgage loans, bear interest at an initial weighted average variable rate of 3.74% and have an estimated weighted average maturity of 5.4 years. The weighted average effective interest rate was 10.71% and 10.94% at March 31, 2019 and December 31, 2018, respectively, including the accretion of discount. Approximately $15.6 million is estimated to mature within one year, $45.2 million is estimated to mature after one year through five years, $27.6 million is estimated to mature after five years through ten years and $13.6 million is estimated to mature after ten years.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Single Family Rental Bonds (“SFR bonds”).  In March 2019, we purchased $10.0 million initial face value of Class A2 securitized SFR bonds at par. The securities have a three-year maturity, bear interest at a fixed interest rate of 4.95% and are collateralized by a pool of single family rental properties. Approximately $9.0 million is estimated to mature within one year and $1.0 million is estimated to mature after one year through three years.

 

A summary of our securities held-to-maturity is as follows (in thousands):

 

Period

 

Face Value

 

Carrying Value

 

Unrealized
Gain

 

Estimated Fair
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

$

111,994

 

$

86,036

 

$

3,801

 

$

89,837

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

$

103,515

 

$

76,363

 

$

2,734

 

$

79,097

 

 

As of March 31, 2019, no impairment was recorded on our held-to-maturity securities. During the three months ended March 31, 2019 and 2018, we recorded interest income of $2.1 million and $1.1 million, respectively, related to these investments.

 

Note 8 — Investments in Equity Affiliates

 

We account for all investments in equity affiliates under the equity method. A summary of our investments in equity affiliates is as follows (in thousands):

 

 

 

Investments in Equity Affiliates at

 

UPB of Loans to
Equity Affiliates at

 

Equity Affiliates

 

March 31, 2019

 

December 31, 2018

 

March 31, 2019

 

 

 

 

 

 

 

 

 

Arbor Residential Investor LLC

 

$

20,124

 

$

19,260

 

$

 

AMAC Holdings III LLC

 

6,000

 

 

 

Lightstone Value Plus REIT L.P.

 

1,895

 

1,895

 

 

JT Prime

 

425

 

425

 

 

West Shore Café

 

 

 

1,688

 

Lexford Portfolio

 

 

 

225,880

 

East River Portfolio

 

 

 

 

Total

 

$

28,444

 

$

21,580

 

$

227,568

 

 

Arbor Residential Investor LLC (“ARI”).  During the three months ended March 31, 2019 and 2018, we recorded income of $0.8 million and $0.1 million, respectively, to income from equity affiliates in our consolidated statements of income. In addition, during the first quarter of 2018, we made a $2.4 million payment for our proportionate share of a litigation settlement related to this investment, which was distributed back to us by our equity affiliate.

 

AMAC Holdings III LLC (“AMAC III”).  In the three months ended March 31, 2019, we committed to a $30.0 million investment (of which $6.0 million was funded in January 2019) for an 18% interest in a multifamily-focused commercial real estate investment fund that is sponsored and managed by our chief executive officer and one of his immediate family members.

 

Lexford Portfolio. During the three months ended March 31, 2019 and 2018, we received distributions and recorded income of $1.3 million and $0.6 million, respectively, from this equity investment.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

See Note 18 — Agreements and Transactions with Related Parties for details regarding the investments described above.

 

Note 9 — Real Estate Owned

 

Real Estate Owned. Our real estate assets at both March 31, 2019 and December 31, 2018 were comprised of a hotel property and an office building.

 

 

 

March 31, 2019

 

December 31, 2018

 

(in thousands)

 

Hotel
Property

 

Office
Building

 

Total

 

Hotel
Property

 

Office
Building

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

3,294

 

$

4,509

 

$

7,803

 

$

3,294

 

$

4,509

 

$

7,803

 

Building and intangible assets

 

31,267

 

2,010

 

33,277

 

31,066

 

2,010

 

33,076

 

Less: Impairment loss

 

(13,307

)

(2,500

)

(15,807

)

(13,307

)

(2,500

)

(15,807

)

Less: Accumulated depreciation and

 

 

 

 

 

 

 

 

 

 

 

 

 

amortization

 

(9,912

)

(888

)

(10,800

)

(9,778

)

(848

)

(10,626

)

Real estate owned, net

 

$

11,342

 

$

3,131

 

$

14,473

 

$

11,275

 

$

3,171

 

$

14,446

 

 

For the three months ended March 31, 2019 and 2018, our hotel property had a weighted average occupancy rate of 53% and 58%, respectively, a weighted average daily rate of $130 and $128, respectively, and weighted average revenue per available room of $69 and $75, respectively.  The operation of a hotel property is seasonal with the majority of revenues earned in the first two quarters of the calendar year.

 

Our office building was fully occupied by a single tenant until April 2017 when the lease expired. The building is currently vacant.

 

Our real estate owned assets had restricted cash balances totaling $0.3 million and $0.5 million at March 31, 2019 and December 31, 2018, respectively, due to escrow requirements.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2019

 

Note 10 — Debt Obligations

 

Credit Facilities and Repurchase Agreements

 

Borrowings under our credit facilities and repurchase agreements are as follows ($ in thousands):

 

 

 

 

 

 

 

 

 

March 31, 2019

 

December 31, 2018

 

 

 

Current
Maturity

 

Extended
Maturity

 

Note Rate

 

Debt Carrying
Value (1)

 

Collateral
Carrying
Value

 

Wtd. Avg.
Note Rate

 

Debt
Carrying
Value (1)

 

Collateral
Carrying
Value

 

Wtd. Avg.
Note Rate

 

Structured Business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$400 million repurchase facility

 

Mar. 2020

 

Mar. 2021

 

L + 1.75% to 3.50%

 

$

366,582

 

$

526,668

 

4.68

%

$

334,696

 

$

467,680

 

4.75

%

$150 million repurchase facility

 

Mar. 2020

 

Mar. 2023

 

L + 1.95%

 

31,731

 

40,880

 

4.51

%

 

 

 

$100 million repurchase facility

 

June 2019

 

June 2020

 

L + 1.75% to 2.00%

 

94,686

 

132,517

 

4.33

%

70,837

 

98,597

 

4.31

%

$75 million credit facility

 

May 2019

 

N/A

 

L + 1.75% to 2.50%

 

13,896

 

21,789

 

4.30

%

10,237

 

16,889

 

4.31

%

$75 million credit facility

 

June 2019

 

N/A

 

L + 1.90%

 

8,372

 

10,550

 

4.46

%

 

 

 

$50 million credit facility

 

April 2020

 

April 2022

 

L + 2.00%

 

14,160

 

17,700

 

4.56

%

14,159

 

17,700

 

4.57

%

$50 million credit facility

 

Sept. 2019

 

Sept. 2021

 

L + 2.50% to 3.25%

 

11,965

 

15,000

 

5.06

%

 

 

 

$35.9 million credit facility

 

May 2020

 

Nov. 2020

 

L + 2.30%

 

30,761

 

44,248

 

4.86

%

30,512

 

44,100

 

4.87

%

$25.5 million credit facility

 

Oct. 2019

 

N/A

 

L + 2.50%

 

22,090

 

34,000

 

5.06

%

18,552

 

34,000

 

5.07

%

$25 million working capital facility

 

June 2019

 

N/A

 

L + 2.25%

 

25,000

 

 

4.81

%

 

 

 

$23.2 million credit facility

 

Feb. 2020