ARBOR REALTY TRUST INC
For the period ended Dec 31, 2024. Filed Feb 21, 2025.
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FY2024 · Filed Feb 21, 2025
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Report of Independent Registered Public Accounting Firm (PCAOB ID
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Arbor Realty Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Arbor Realty Trust, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, changes in equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 21, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Allowance for Credit Losses | |
| Description of the Matter | The Company’s allowance for credit losses (“ACL”) for the structured loan portfolio was $239.0 million as of December 31, 2024. As discussed in Note 2 to the consolidated financial statements, for structured loans with similar risk characteristics, management estimated the ACL using a third-party probability of default and loss-given default model (the “general reserve”). The model used loss factors that were developed from the historical loss experience of loans with similar credit and default history, individual characteristics of loans currently in the portfolio, and a reasonable and supportable economic forecast to estimate expected losses over the life of the loans. For structured loans that were considered collateral-dependent or where it was determined that foreclosure was probable, management estimated the ACL on an individual basis by comparing the estimated fair value of the collateral as of the reporting date to the net carrying value of the loan (the “specific reserve”). The fair value of the collateral was estimated using internally-developed cash flow models or third-party appraisals. |
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| Auditing management’s allowance for credit losses for the structured loan portfolio involved a high degree of subjectivity and was especially challenging due to the complexity of the statistical methods used to estimate the general reserve and the significant judgments required to estimate the fair value of collateral for loans that were individually evaluated for a specific reserve, which were sensitive to the use of certain market-based assumptions, including capitalization rates. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to measure the allowance for credit losses for the structured loan portfolio. For example, we tested controls over the inputs into and operation and monitoring of the ACL model, the methodology and assumptions used to update collateral values and measure expected credit losses on individually evaluated loans, and management review controls over key judgments used in the evaluation of ACL model results and the estimate of collateral values for individually evaluated loans. Our test of controls included observation of and inspection of the related documentation for certain key meetings of the Company’s CECL working group, where key judgments on current and forward-looking macroeconomic conditions, internal and external factors, and uncertainty as it relates to economic, model, or credit risks, were discussed and effectively challenged. |
| Our procedures over the general reserve included, among others, the involvement of EY specialists to assist us with evaluating the ACL model’s methodology, conceptual soundness, and model performance. We performed procedures to test the completeness and accuracy of data used in the model, evaluating the economic forecast selected by management, and evaluating the reasonableness of model results. Our procedures over the specific reserve included, among others, the testing of the completeness and accuracy of data inputs, the clerical accuracy of cash-flow models, and the involvement of EY valuation specialists to assist us with auditing management’s estimate of the fair value of collateral for a sample of loans, including testing certain key assumptions such as capitalization rates. As part of our overall evaluation of the Company’s determination of the ACL and our search for contrary evidence, we compared the current ACL to historical loss levels and evaluated subsequent events. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2003.
New York, New York
February 21, 2025
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