ARBOR REALTY TRUST INC

Previous wording

Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, SFR and commercial real estate markets, primarily consisting of bridge loans, in addition to mezzanine loans, junior participating interests in first mortgages and preferred and direct equity. We also invest in real estate-related joint ventures and may directly acquire real property and invest in real estate-related notes and certain mortgage-related securities.

Current wording

Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, SFR and commercial real estate markets, primarily consisting of bridge loans, in addition to mezzanine loans, junior participating interests in first mortgages and preferred equity. We also invest in real estate-related joint ventures and may directly acquire real property and invest in real estate-related notes and certain mortgage-related securities.

Previous wording

Significant Developments During the First Quarter of 2024

Current wording

Significant Developments During the Second Quarter of 2024

Previous wording

•Our 5.75% senior unsecured notes, totaling $90.0 million, matured and were redeemed for cash; and

Current wording

•Our 5.75% senior unsecured notes, totaling $90.0 million, matured and were repaid for cash.

Previous wording

•Reduced our balance sheet portfolio by 3% to $12.25 billion, as loan runoff of $640.0 million outpaced loan originations totaling $255.9 million; and

Current wording

•We reduced our balance sheet portfolio by 3% to $11.87 billion, as loan runoff of $629.6 million outpaced loan originations totaling $227.2 million;

Previous wording

•We modified thirty-nine loans with a total UPB of $1.76 billion, all of which required the borrowers to invest additional capital to recapitalize their loans. The modifications on twenty-three of these loans with a total UPB of $1.07 billion provided the borrowers with temporary rate relief provided through a pay and accrual feature. See Note 3 for details.

Current wording

•We modified twenty-eight loans with a total UPB of $733.3 million. For fifteen of these loans with a total UPB of $398.1 million, borrowers invested additional capital to recapitalize their deals in exchange for temporary rate relief, which we provided through a pay and accrual feature. See Note 3 for details; and

Previous wording

•Loan originations totaled $846.3 million and includes $206.9 million of new agency loans that were recaptured from our Structured Business runoff; and

Current wording

•Loan originations totaled $1.15 billion and includes $489.9 million of new agency loans that were recaptured from our Structured Business runoff; and

Previous wording

•Grew our fee-based servicing portfolio approximately 1%, or $401.5 million, to $31.38 billion.

Current wording

•Grew our fee-based servicing portfolio approximately 3%, or $893.7 million, to $32.28 billion.

Previous wording

Our Structured loan and investment portfolio balance was $12.25 billion and $12.62 billion at March 31, 2024 and December 31, 2023, respectively. This decrease was primarily due to loan runoff exceeding loan originations by $384.2 million. See below for details.

Current wording

Our Structured loan and investment portfolio balance was $11.87 billion and $12.62 billion at June 30, 2024 and December 31, 2023, respectively. This decrease was primarily due to loan runoff exceeding loan originations by $786.6 million. See below for details.

Previous wording

Our portfolio had a weighted average current interest pay rate of 8.07% and 8.42% at March 31, 2024 and December 31, 2023, respectively. Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.81% and 8.98% at March 31, 2024 and December 31, 2023, respectively. Our debt that finances our loans and investment portfolio totaled $11.11 billion and $11.57 billion at March 31, 2024 and December 31, 2023, respectively, with a weighted average funding cost of 7.13% and 7.14%, respectively, which excludes financing costs. Including financing costs, the weighted average funding rate was 7.44% and 7.45% at March 31, 2024 and December 31, 2023, respectively.

Current wording

Our portfolio had a weighted average current interest pay rate of 7.79% and 8.42% at June 30, 2024 and December 31, 2023, respectively. Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.60% and 8.98% at June 30, 2024 and December 31, 2023, respectively. Our debt that finances our loans and investment portfolio totaled $10.26 billion and $11.57 billion at June 30, 2024 and December 31, 2023, respectively, with a weighted average funding cost of 7.22% and 7.14%, respectively, which excludes financing costs. Including financing costs, the weighted average funding rate was 7.53% and 7.45% at June 30, 2024 and December 31, 2023, respectively.

Previous wording

Loans held-for-sale from the Agency Business decreased $228.8 million, primarily from loan sales exceeding loan originations by $239.1 million as noted in the following table. Activity from our Agency Business portfolio is comprised of the following (in thousands):

Current wording

Loans held-for-sale from the Agency Business decreased $208.8 million, primarily from loan sales exceeding loan originations by $225.1 million as noted in the following table. Activity from our Agency Business portfolio is comprised of the following (in thousands):

Previous wording

Due from related party increased $39.9 million, due to an increase in funds from payoffs to be remitted by our affiliated servicing operations related to real estate transactions at the end of the reporting period, which were remitted to us subsequent to quarter end.

Current wording

Due from related party increased $40.7 million, due to an increase in funds from payoffs to be remitted by our affiliated servicing operations related to real estate transactions at the end of the reporting period, which were remitted to us subsequent to quarter end.

Previous wording

Credit and repurchase facilities decreased $324.3 million, primarily due to loan runoff in our Structured Business portfolio as well as loan sales exceeding originations in our Agency Business.

Current wording

Credit and repurchase facilities decreased $77.4 million, primarily due to loan runoff in our Structured Business portfolio as well as loan sales exceeding originations in our Agency Business.

Previous wording

Due to borrowers decreased $25.9 million, primarily due to the funding of previously committed originations in our Structured Business.

Current wording

Due to borrowers decreased $45.9 million, primarily due to the funding of previously committed originations in our Structured Business.

Previous wording

Other liabilities decreased $23.6 million, primarily due to payments of accrued incentive compensation and commissions during the first quarter of 2024, related to 2023 performance.

Current wording

Other liabilities decreased $39.2 million, primarily due to payments of accrued incentive compensation and commissions during the first half of 2024, related to 2023 performance and a decrease in deferred tax liabilities.

Previous wording

See Note 15 for details of our dividends declared and our deferred compensation transactions.

Current wording

See Note 15 for details of our share repurchases, dividends declared and deferred compensation transactions.

Previous wording

(2)Delinquent loans reflect loans that are contractually 60 days or more past due. At March 31, 2024 and December 31, 2023, delinquent loans totaled $399.0 million and $411.1 million, respectively. At both March 31, 2024 and December 31, 2023, there were two loans totaling $4.8 million in bankruptcy and no loans in foreclosure.

Current wording

(2)Delinquent loans reflect loans that are contractually 60 days or more past due. At June 30, 2024 and December 31, 2023, delinquent loans totaled $413.7 million and $411.1 million, respectively. At June 30, 2024, there were two loans totaling $4.8 million in bankruptcy and three loans totaling $5.4 million in foreclosure. At December 31, 2023, there were two loans totaling $4.8 million in bankruptcy and no loans in foreclosure.

Previous wording

The decrease in interest expense was mainly due to a $2.3 million decrease from our Structured Business, primarily due to a decrease in the average balance of our interest-bearing liabilities, primarily due to loan runoff and note paydowns in our securitizations, substantially offset by an increase in the average cost of interest-bearing liabilities, mainly from increases in SOFR.

Current wording

The decrease in interest expense was mainly due to a $17.9 million decrease from our Structured Business, primarily due to a decline in the average balance of our interest-bearing liabilities, primarily due to loan runoff and note paydowns in our securitizations and senior unsecured notes, substantially offset by an increase in the average cost of interest-bearing liabilities, mainly from increases in SOFR.

Previous wording

The increase in gain on sales, including fee-based services, net was primarily due to a 16% increase in loan sales volume ($152.7 million).

Current wording

The decrease in gain on sales, including fee-based services, net was primarily due to a 20% decrease in loan sales volume ($275.4 million).

Previous wording

The decrease in income from MSRs was primarily due to a 38% decrease in loan commitment volume ($565.9 million) and an 11% decrease in the MSR rate from 1.23% to 1.09%. The decrease in the MSR rate was primarily due to a higher percentage of Fannie Mae loan commitments in the prior year period, which contain higher servicing fees.

Current wording

The decrease in income from MSRs was primarily due to an 8% decrease in the MSR rate from 1.43% to 1.32% and a 3% decrease in loan commitment volume ($33.6 million). The decrease in the MSR rate was primarily due to a higher percentage of Fannie Mae loan commitments in the prior year period, which contain higher servicing fees.

Previous wording

The increase in servicing revenue, net was primarily due to an increase in earnings on escrow balances as a result of increases in SOFR, partially offset by less prepayment penalties received.

Current wording

The decrease in servicing revenue, net was primarily due to a decrease in the average escrow balances, partially offset by an increase in interest rates.

Previous wording

The loss on derivative instruments in 2024 and gain in 2023 were related to changes in the fair values of our forward sale commitments and Swaps held by our Agency Business as a result of changes in market interest rates as well as from the timing of GSE Agency loan sales.

Current wording

The losses on derivative instruments in 2024 and 2023 were related to changes in the fair values of our forward sale commitments and swaps held by our Agency Business as a result of changes in market interest rates as well as from the timing of GSE Agency loan sales.

Previous wording

The provision for credit losses (net of recoveries) in 2024 primarily reflects specifically identified CECL reserves, whereas the CECL reserves in 2023 primarily reflected a greater decline in economic and market conditions at that time, and to a lesser extent, specific reserves.

Current wording

The increase in the provision for credit losses (net of recoveries) substantially reflects greater stress in general economic and market conditions, and to a lesser extent, an increase in reserves on specifically impaired loans.

Previous wording

In the three months ended March 31, 2024, we recorded a tax provision of $3.6 million, which consisted of a current tax provision of $7.6 million and a deferred tax benefit of $4.0 million. In the three months ended March 31, 2023, we recorded a tax provision of $8.0 million, which consisted of a current and deferred tax provision of $4.8 million and $3.2 million, respectively.

Current wording

In the three months ended June 30, 2024, we recorded a tax provision of $3.9 million, which consisted of a current tax provision of $6.8 million and a deferred tax benefit of $2.9 million. In the three months ended June 30, 2023, we recorded a tax provision of $5.6 million, which consisted of a current tax provision of $13.0 million and a deferred tax benefit of $7.4 million.

Previous wording

The noncontrolling interest relates to the outstanding OP Units (see Note 15). There were 16,293,589 OP Units outstanding at both March 31, 2024 and 2023, which represented 7.9% and 8.1% of our outstanding stock at March 31, 2024 and 2023, respectively.

Current wording

The noncontrolling interest relates to the outstanding OP Units (see Note 15). There were 16,293,589 OP Units outstanding at both June 30, 2024 and 2023, which represented 8.0% and 8.2% of our outstanding stock at June 30, 2024 and 2023, respectively.

Previous wording

The decrease in interest income was mainly due to a $9.5 million decrease from our Structured Business, partially offset by a $2.8 million increase from our Agency Business. The decrease from the Structured Business was primarily due to a decrease in the average balance of our core interest-earning assets, mainly from loan runoff exceeding loan originations, partially offset by an increase in the average yield on core interest-earning assets, mainly from increases in SOFR. The increase from the Agency Business was primarily due to increases in both the average loans held-for-sale balance and SOFR.

Current wording

The decrease in interest income was mainly due to a $49.5 million decrease from our Structured Business. The Structured Business decline was primarily from a decrease in the average balance of our core interest-earning assets, as a result of loan runoff exceeding loan originations, partially offset by an increase in the average yield on core interest-earning assets from an increase in SOFR, partially offset by a rise in non-performing and other non-accrued loans.

Previous wording

Other income, net in 2024 primarily reflects loan origination and modification fees from our Structured Business, while 2023 primarily reflects a $2.9 million mark-to-market recovery on Private Label and SFR loans in our Agency Business and loan origination fees from our Structured Business.

Current wording

The decrease in other income, net was from a $2.1 million decrease from our Agency Business, partially offset by a $1.6 million increase from our Structured Business. The Agency Business decrease was primarily due to a $2.2 million mark-to-market recovery on Private Label and SFR loans in 2023. The Structured Business increase was primarily due to loan modification fees.

Previous wording

The increase in employee compensation and benefits expense was primarily due to increases in incentive compensation, including commissions, from increases in headcount, annual merit increases and higher GSE/Agency loan sales volume.

Current wording

The increase in employee compensation and benefits expense was primarily due to increases in incentive compensation, including commissions, from increases in headcount and annual merit increases.

Previous wording

Income from equity affiliates in 2024 primarily reflects $1.6 million of income from our investment in a residential mortgage banking business, while income in 2023 primarily reflects $11.0 million received from an equity participation interest on a property that was sold and a $4.7 million distribution received from our Lexford joint venture.

Current wording

Income from equity affiliates in 2024 primarily reflects a $4.2 million distribution received from our Lexford joint venture and $0.8 million in income from our investments in a residential mortgage banking business, partially offset by a $1.2 million loss from our AMAC III investment, while income in 2023 primarily reflects $11.0 million received from an equity participation interest on a property that was sold, $7.2 million in distributions received from our Lexford joint venture and $2.6 million of income from our investment in a residential mortgage banking business.

Previous wording

The ongoing adverse economic and market conditions, including inflation, rising interest rates, bank failures and geopolitical uncertainty, continues to cause significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets. These conditions have created, and may continue to create, a dislocation in capital markets and a continual reduction of available liquidity. Instability in the banking sector, such as the recent bank failures and consolidations, further contributed to the tightening liquidity conditions in the equity and capital markets and has affected the availability and increased the cost of capital. The increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms, or at all. If our financing sources, borrowers and their tenants continue to be impacted by these adverse economic and market conditions, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.

Current wording

The ongoing adverse economic and market conditions, including inflation, high interest rate environment, bank failures and geopolitical uncertainty, continues to cause significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets. These conditions have created, and may continue to create, a dislocation in capital markets and a continual reduction of available liquidity. Instability in the banking sector, such as the recent bank failures and consolidations, further contributed to the tightening liquidity conditions in the equity and capital markets and has affected the availability and increased the cost of capital. The increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms, or at all. If our financing sources, borrowers and their tenants continue to be impacted by these adverse economic and market conditions, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.

Previous wording

We had $11.11 billion in total structured debt outstanding at March 31, 2024. Of this total, $8.50 billion, or 77%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes. The remaining $2.61 billion of debt is in credit and repurchase facilities with several different banks that we have long-standing relationships with. At March 31, 2024, we had $1.56 billion of debt from credit and repurchase facilities that were subject to margin calls related to changes in interest spreads.

Current wording

We had $10.26 billion in total structured debt outstanding at June 30, 2024. Of this total, $7.43 billion, or 72%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes. The remaining $2.83 billion of debt is in credit and repurchase facilities with several different banks that we have long-standing relationships with. At June 30, 2024, we had $1.56 billion of debt from credit and repurchase facilities that were subject to margin calls related to changes in interest spreads.

Previous wording

At April 30, 2024, we had approximately $800 million in cash and approximately $600 million of cash available under our CLO vehicles, as well as other liquidity sources. In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $31.38 billion agency servicing portfolio at March 31, 2024, which is mostly prepayment protected and generates approximately $122 million per year in recurring gross cash flow.

Current wording

At August 4, 2024, we had approximately $725 million in cash and approximately $215 million of cash available under our CLO vehicles, as well as other liquidity sources. In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $32.28 billion agency servicing portfolio at June 30, 2024, which is mostly prepayment protected and generates approximately $124 million per year in recurring gross cash flow.

Previous wording

Cash Flows. Cash flows provided by operating activities totaled $260.0 million during the three months ended March 31, 2024 and consisted primarily of net cash inflows of $227.6 million from loan sales exceeding loan originations in our Agency Business and net income (adjusted for the increase in CECL reserves of $19.4 million) of $92.6 million, partially offset by a $39.9 million increase infunds from payoffs due from our affiliated servicing operations.

Current wording

Cash Flows. Cash flows provided by operating activities totaled $329.9 million during the six months ended June 30, 2024 and consisted primarily of net cash inflows of $203.5 million from loan sales exceeding loan originations in our Agency Business and net income (adjusted for the increase in CECL reserves of $53.3 million) of $188.3 million, partially offset by a $40.7 million increase in funds from payoffs due from our affiliated servicing operations.

Previous wording

Cash flows provided by investing activities totaled $331.6 million during the three months ended March 31, 2024. Loan and investment activity (originations and payoffs/paydowns) comprise the majority of our investing activities. Loan payoffs and paydowns from our Structured Business totaling $670.4 million, net of originations of $313.6 million, resulted in net cash inflows of $356.8 million.

Current wording

Cash flows provided by investing activities totaled $718.0 million during the six months ended June 30, 2024. Loan and investment activity (originations and payoffs/paydowns) comprise the majority of our investing activities. Loan payoffs and paydowns from our Structured Business totaling $1.35 billion, net of originations of $615.5 million, resulted in net cash inflows of $730.3 million.

Previous wording

Cash flows used in financing activities totaled $674.1 million during the three months ended March 31, 2024 and consisted primarily of net cash outflows of $321.8 million from debt facility activities (facility paydowns were greater than loan originations), $246.1 million of pay downs on existing securitizations and $98.7 million of distributions to our stockholders and OP Unit holders.

Current wording

Cash flows used in financing activities totaled $1.63 billion during the six months ended June 30, 2024 and consisted primarily of $1.22 billion of pay downs on existing securitizations, $197.3 million of distributions to our stockholders and OP Unit holders, $90.0 million from the repayment at maturity of our 5.75% senior unsecured notes and net cash outflows of $84.9 million from debt facility activities (facility paydowns were greater than financed loan originations).

Previous wording

Agency Business Requirements. The Agency Business is subject to supervision by certain regulatory agencies. Among other things, these agencies require us to meet certain minimum net worth, operational liquidity and restricted liquidity collateral requirements, purchase and loss obligations and compliance with reporting requirements. Our adjusted net worth and operational liquidity exceeded the agencies’ requirements at March 31, 2024. Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $69.0 million and cash. See Note 13 for details about our performance regarding these requirements.

Current wording

Agency Business Requirements. The Agency Business is subject to supervision by certain regulatory agencies. Among other things, these agencies require us to meet certain minimum net worth, operational liquidity and restricted liquidity collateral requirements, purchase and loss obligations and compliance with reporting requirements. Our adjusted net worth and operational liquidity exceeded the agencies’ requirements at June 30, 2024. Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $75.0 million and cash. See Note 13 for details about our performance regarding these requirements.

Previous wording

Contractual Obligations. During the three months ended March 31, 2024, the following significant changes were made to our contractual obligations disclosed in our 2023 Annual Report:

Current wording

Contractual Obligations. During the six months ended June 30, 2024, the following significant changes were made to our contractual obligations disclosed in our 2023 Annual Report:

Previous wording

•Modified existing debt facilities, resulting in a net $700.0 million decrease in the committed amount of these facilities;

Current wording

•Modified existing debt facilities, resulting in a net $650.0 million decrease in the committed amount of these facilities;

Previous wording

•Entered into a new $250.0 million debt facility; and

Current wording

•Entered into a new $250.0 million debt facility and terminated a $50.0 million debt facility;

Previous wording

•Paid down outstanding notes of CLOs 14 and 15 and Q Series securitization totaling $246.1 million.

Current wording

•Paid down outstanding notes on CLOs 14 and 16 and Q Series securitization totaling $550.4 million; and

Previous wording

Please refer to Note 2 of the Notes to Consolidated Financial Statements in our 2023 Annual Report for a discussion of our critical accounting policies. During the three months ended March 31, 2024, there were no material changes to these policies.

Current wording

Please refer to Note 2 of the Notes to Consolidated Financial Statements in our 2023 Annual Report for a discussion of our critical accounting policies. During the six months ended June 30, 2024, there were no material changes to these policies.