Arbor Realty Trust Reports Second Quarter 2020 Results and Increases Quarterly Dividend to $0.31 per Share

Company Highlights:

-   GAAP net income of $0.40 and core earnings of $0.46 per diluted common share1
-   Raised cash dividend on common stock to $0.31 per share, a 7% increase from 2Q19
-   Generated pretax income of $20.9 million from our residential mortgage banking joint venture
-   Strong liquidity position currently at approximately $450 million

Agency Business

-   Servicing portfolio of $21.58 billion, a 7% increase from 1Q20 and 11% from 2Q19
-   Strong loan origination volume of $1.40 billion, a 9% increase from 2Q19
-   Closed $727.2 million private label multifamily mortgage loan securitization generating cash of over $115 million
-   Segment income of $21.4 million 

Structured Business

-   $300.5 million of loan originations and portfolio growth of 4%
-   Segment income of $30.9 million

UNIONDALE, N.Y., July 31, 2020 (GLOBE NEWSWIRE) -- Arbor Realty Trust, Inc. (NYSE:ABR), today announced financial results for the second quarter ended June 30, 2020.  Arbor reported net income for the quarter of $44.1 million, or $0.40 per diluted common share, compared to net income of $28.9 million, or $0.31 per diluted common share for the quarter ended June 30, 2019.  Core earnings for the quarter was $60.4 million, or $0.46 per diluted common share, compared to $38.6 million, or $0.34 per diluted common share for the quarter ended June 30, 2019.1

Agency Business

Loan Origination Platform

Agency Loan Volume (in thousands)
 Quarter Ended
 June 30, 2020 March 31, 2020
Originations:   
Fannie Mae$1,140,181 $581,973
Freddie Mac 135,720  199,711
FHA 75,533  17,944
Private Label 49,122  282,345
Total Originations$1,400,556 $1,081,973
    
Total Loan Sales$1,992,889 $957,060
    
Total Loan Commitments$1,206,723 $1,267,219
    

For the quarter ended June 30, 2020, the Agency Business generated revenues (excluding gains and losses on derivative instruments) of $81.1 million, compared to $59.6 million for the first quarter of 2020. Gain on sales, including fee-based services, net was $26.4 million for the quarter, reflecting a margin of 1.32% on loan sales, compared to $14.3 million and 1.49% for the first quarter of 2020. Income from mortgage servicing rights was $32.4 million for the quarter, reflecting a rate of 2.69% as a percentage of loan commitments, compared to $21.9 million and 1.73% for the first quarter of 2020.   

At June 30, 2020, loans held-for-sale was $360.4 million which was primarily comprised of unpaid principal balances totaling $349.9 million, with financing associated with these loans totaling $333.5 million.

The Company completed its first private label multifamily securitization totaling $727.2 million comprised of fixed rate, 10-year first lien mortgage loans. The Company originated and sold the mortgage loans to the securitization and will be the primary servicer. The Company retained subordinate certificate interests in the securitization of $63.6 million, in satisfaction of credit risk retention requirements.

Fee-Based Servicing Portfolio

Our fee-based servicing portfolio totaled $21.58 billion at June 30, 2020, an increase of 6.9% from March 31, 2020, primarily the result of servicing rights retained on $727.2 million of private label loans, as well as $1.40 billion of new agency loan originations, net of $693.8 million in portfolio runoff during the quarter. Servicing revenue, net was $13.5 million for the quarter and consisted of servicing revenue of $25.4 million, net of amortization of mortgage servicing rights totaling $11.9 million.

  Fee-Based Servicing Portfolio ($ in thousands)
  As of June 30, 2020 As of March 31, 2020
  UPBWtd. Avg. FeeWtd. Avg. Life (in years) UPBWtd. Avg. FeeWtd. Avg. Life (in years)
Fannie Mae $15,672,931 0.505%8.2 $14,946,9220.493%8.0
Freddie Mac  4,560,382 0.295%10.6  4,570,5210.294%10.6
FHA  621,487 0.154%19.6  679,6850.152%19.1
Private Label  727,132 0.200%9.5  -- -
Total $21,581,932 0.441%9.1 $20,197,1280.436%8.9

Loans sold under the Fannie Mae program contain an obligation to partially guarantee the performance of the loan (“loss-sharing obligations”), and includes $32.8 million for the fair value of the guarantee obligation undertaken at June 30, 2020. The Company’s provision for loss sharing associated with current expected credit losses, or “CECL,” was $2.0 million for the second quarter of 2020.  At June 30, 2020, the Company’s total CECL allowance for loss-sharing obligations was $40.4 million, representing 0.26% of the Fannie Mae servicing portfolio.

Structured Business

  Portfolio and Investment Activity

  • Originated 20 loans totaling $300.5 million, of which $296.0 million was funded at June 30, 2020, and consisted primarily of 17 multifamily bridge loans totaling $298.8 million
  • Payoffs and pay downs on 20 loans totaling $159.2 million
  • Portfolio growth of $171.6 million, or 3.6%

At June 30, 2020, the loan and investment portfolio’s unpaid principal balance, excluding loan loss reserves, was $4.97 billion, with a weighted average current interest pay rate of 5.57%, compared to $4.80 billion and 5.70% at March 31, 2020.  Including certain fees earned and costs associated with the loan and investment portfolio, the weighted average current interest pay rate was 6.10% at June 30, 2020, compared to 6.35% at March 31, 2020.

The average balance of the Company’s loan and investment portfolio during the second quarter of 2020, excluding loan loss reserves, was $4.81 billion with a weighted average yield of 6.16%, compared to $4.58 billion and 6.77% for the first quarter of 2020. The decrease in average yield was primarily due to lower fees on loan payoffs, a decrease in LIBOR and lower rates on originations when compared to runoff in the second quarter as compared to the first quarter.

During the second quarter of 2020, the Company recorded provision for loan losses of $10.6 million as a result of its loan review process associated with CECL. At June 30, 2020, the Company’s total allowance for loan losses was $152.8 million.  The Company had six non-performing loans with a carrying value of $60.5 million, before related loan loss reserves of $16.6 million, compared to four loans with a carrying value of $8.3 million, before related loan loss reserves of $6.5 million as of March 31, 2020.

The Company recorded pretax income of $20.9 million from its joint venture investment in a residential mortgage banking business due to the historically low interest rate environment.

Financing Activity

The balance of debt that finances the Company’s loan and investment portfolio at June 30, 2020 was $4.54 billion with a weighted average interest rate including fees of 3.14% as compared to $4.70 billion and a rate of 3.68% at March 31, 2020. The average balance of debt that finances the Company’s loan and investment portfolio for the second quarter of 2020 was $4.53 billion, as compared to $4.25 billion for the first quarter of 2020. The average cost of borrowings for the second quarter of 2020 was 3.26%, compared to 4.11% for the first quarter of 2020. The decrease in average costs was primarily due to a decrease in LIBOR.

The Company is subject to various financial covenants and restrictions under the terms of its collateralized securitization vehicles, financing facilities and unsecured debt. The Company believes it was in compliance with all financial covenants and restrictions as of June 30, 2020 and as of the most recent collateralized securitization vehicle determination dates in July 2020.

Capital Markets

The Company issued $70.8 million in aggregate principal amount of 8.00% senior unsecured notes in two private placements, generating net proceeds of $69.6 million after deducting offering expenses. The notes are due in 2023 and the proceeds were used to repay secured indebtedness, make investments relating to its business and for general corporate purposes.

Dividends

The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.31 per share of common stock for the quarter ended June 30, 2020. The dividend is payable on August 31, 2020 to common stockholders of record on August 17, 2020. The ex-dividend date is August 14, 2020.

The Company also announced today that its Board of Directors has declared cash dividends on the Company's Series A, Series B and Series C cumulative redeemable preferred stock reflecting accrued dividends from June 1, 2020 through August 31, 2020. The dividends are payable on August 31, 2020 to preferred stockholders of record on August 15, 2020. The Company will pay total dividends of $0.515625, $0.484375 and $0.53125 per share on the Series A, Series B and Series C preferred stock, respectively.

Earnings Conference Call

The Company will host a conference call today at 9:00 a.m. Eastern Time.  A live webcast and replay of the conference call will be available at http://www.arbor.com in the investor relations section of the Company’s website. Those without web access should access the call telephonically at least ten minutes prior to the conference call. The dial-in numbers are (877) 876-9173 for domestic callers and (785) 424-1667 for international callers. Please use participant passcode ABRQ220 when prompted by the operator.

A telephonic replay of the call will be available until August 7, 2020. The replay dial-in numbers are (800) 839-5492 for domestic callers and (402) 220-2551 for international callers.

About Arbor Realty Trust, Inc.

Arbor Realty Trust, Inc. (NYSE:ABR) is a nationwide real estate investment trust and direct lender, providing loan origination and servicing for multifamily, seniors housing, healthcare and other diverse commercial real estate assets. Headquartered in New York, Arbor manages a multibillion-dollar servicing portfolio, specializing in government-sponsored enterprise products. Arbor is a Fannie Mae DUS® lender and Freddie Mac Optigo Seller/Servicer. Arbor’s product platform also includes CMBS, bridge, mezzanine and preferred equity lending. Rated by Standard and Poor’s and Fitch Ratings, Arbor is committed to building on its reputation for service, quality and customized solutions with an unparalleled dedication to providing our clients excellence over the entire life of a loan.

Safe Harbor Statement

Certain items in this press release may constitute forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Arbor can give no assurance that its expectations will be attained.  Factors that could cause actual results to differ materially from Arbor’s expectations include, but are not limited to, changes in economic conditions generally, and the real estate markets specifically, in particular, due to the uncertainties created by the COVID-19 pandemic, continued ability to source new investments, changes in interest rates and/or credit spreads, and other risks detailed in Arbor’s Annual Report on Form 10-K for the year ended December 31, 2019 and its other reports filed with the SEC. Such forward-looking statements speak only as of the date of this press release. Arbor expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Arbor’s expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.

1. Non-GAAP Financial Measures

During the quarterly earnings conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. In addition, the Company has used non-GAAP financial measures in this press release. A supplemental schedule of non-GAAP financial measures and the comparable GAAP financial measure can be found on page 11 of this release.

Contacts:
Arbor Realty Trust, Inc.
Paul Elenio, Chief Financial Officer
516-506-4422  
pelenio@arbor.com
Investors:
The Ruth Group
Alexander Lobo
646-536-7037
alobo@theruthgroup.com
Media:
Bonnie Habyan
Chief Marketing Officer
516-506-4615
bhabyan@arbor.com


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
Consolidated Statements of Operations - (Unaudited) 
($ in thousands—except share and per share data) 
           
   Quarter Ended June 30, Six Months Ended June 30, 
    2020   2019   2020   2019  
           
Interest income $83,080  $82,171  $171,606  $153,448  
Interest expense  41,302   48,284   91,284   90,149  
 Net interest income  41,778   33,887   80,322   63,299  
           
Other revenue:         
Gain on sales, including fee-based services, net  26,366   14,211   40,671   30,600  
Mortgage servicing rights  32,417   18,709   54,351   32,941  
Servicing revenue, net  13,506   12,612   26,809   26,164  
Property operating income  751   3,147   2,943   5,950  
(Loss) gain on derivative instruments, net  (7,368)  742   (58,099)  (1,723) 
Other income, net  1,049   651   2,351   989  
 Total other revenue  66,721   50,072   69,026   94,921  
           
Other expenses:         
Employee compensation and benefits  34,438   29,022   68,690   60,786  
Selling and administrative  8,606   10,481   19,658   20,242  
Property operating expenses  1,035   2,691   3,478   5,086  
Depreciation and amortization  1,961   1,909   3,908   3,821  
Impairment loss on real estate owned  -   1,000   -   1,000  
Provision for loss sharing (net of recoveries)  2,395   368   23,932   822  
Provision for credit losses (net of recoveries)  12,714   -   67,096   -  
 Total other expenses  61,149   45,471   186,762   91,757  
           
Income (loss) before extinguishment of debt, income from       
 equity affiliates and income taxes  47,350   38,488   (37,414)  66,463  
Loss on extinguishment of debt  (1,592)  -   (3,546)  (128) 
Income from equity affiliates  20,408   3,264   24,401   5,415  
(Provision for) benefit from income taxes  (12,077)  (4,350)  2,293   (4,341) 
           
Net income (loss)  54,089   37,402   (14,266)  67,409  
           
Preferred stock dividends  1,888   1,888   3,777   3,777  
Net income (loss) attributable to noncontrolling interest 8,110   6,598   (2,824)  12,066  
Net income (loss) attributable to common stockholders $44,091  $28,916  $(15,219) $51,566  
           
Basic earnings (loss) per common share $0.40  $0.32  $(0.14) $0.59  
Diluted earnings (loss) per common share $0.40  $0.31  $(0.14) $0.57  
           
Weighted average shares outstanding:         
 Basic  110,745,572   89,955,923   110,768,992   87,567,171  
 Diluted  131,882,398   113,624,384   131,166,018   110,779,680  
           
Dividends declared per common share $0.30  $0.28  $0.60  $0.55  
           

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
Consolidated Balance Sheets 
($ in thousands—except share and per share data) 
         
     June 30, December 31, 
      2020   2019  
     (Unaudited)   
Assets:     
Cash and cash equivalents $384,182  $299,687  
Restricted cash  94,847   210,875  
Loans and investments, net (allowance for credit losses of $152,811 and $71,069, respectively)   4,800,176   4,189,960  
Loans held-for-sale, net  360,372   861,360  
Capitalized mortgage servicing rights, net  313,288   286,420  
Securities held-to-maturity, net (allowance for credit losses of $3,148 and $0, respectively)   119,019   88,699  
Investments in equity affiliates  64,991   41,800  
Real estate owned, net  12,990   13,220  
Due from related party  8,416   10,651  
Goodwill and other intangible assets  108,040   110,700  
Other assets  123,803   125,788  
Total assets $6,390,124  $6,239,160  
         
Liabilities and Equity:     
Credit facilities and repurchase agreements $1,235,613  $1,678,288  
Collateralized loan obligations  2,514,524   2,130,121  
Debt fund  -   68,629  
Senior unsecured notes  661,757   319,799  
Convertible senior unsecured notes, net  265,244   284,152  
Junior subordinated notes to subsidiary trust issuing preferred securities  141,295   140,949  
Due to related party  584   13,100  
Due to borrowers  70,132   79,148  
Allowance for loss-sharing obligations  73,220   34,648  
Other liabilities  169,979   134,299  
Total liabilities  5,132,348   4,883,133  
         
Equity:     
Arbor Realty Trust, Inc. stockholders' equity:     
Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized;   
special voting preferred shares; 20,369,265 and 20,484,094 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 89,500   89,501  
Common stock, $0.01 par value: 500,000,000 shares authorized; 112,211,461     
and 109,706,214 shares issued and outstanding, respectively  1,122   1,097  
Additional paid-in capital  1,182,449   1,154,932  
Accumulated deficit  (167,165)  (60,920) 
Total Arbor Realty Trust, Inc. stockholders’ equity  1,105,906   1,184,610  
         
Noncontrolling interest  151,870   171,417  
Total equity  1,257,776   1,356,027  
         
Total liabilities and equity $6,390,124  $6,239,160  
         


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
Statement of Operations Segment Information - (Unaudited) 
(in thousands) 
          
          
  Quarter Ended June 30, 2020 
          
  Structured Business Agency Business Other / Eliminations (1) Consolidated 
          
Interest income $74,295  $8,785  $-  $83,080  
Interest expense  36,739   4,563   -   41,302  
Net interest income  37,556   4,222   -   41,778  
          
Other revenue:         
Gain on sales, including fee-based services, net  -   26,366   -   26,366  
Mortgage servicing rights  -   32,417   -   32,417  
Servicing revenue  -   25,397   -   25,397  
Amortization of MSRs  -   (11,891)  -   (11,891) 
Property operating income  751   -   -   751  
Loss on derivative instruments, net  (294)  (7,074)  -   (7,368) 
Other income, net  990   59   -   1,049  
Total other revenue  1,447   65,274   -   66,721  
          
Other expenses:         
Employee compensation and benefits  9,161   25,277   -   34,438  
Selling and administrative  3,533   5,073   -   8,606  
Property operating expenses  1,035   -   -   1,035  
Depreciation and amortization  629   1,332   -   1,961  
Provision for loss sharing (net of recoveries)  -   2,395   -   2,395  
Provision for credit losses (net of recoveries)  10,558   2,156   -   12,714  
Total other expenses  24,916   36,233   -   61,149  
          
Income before extinguishment of debt, income from        
equity affiliates and income taxes  14,087   33,263   -   47,350  
Loss on extinguishment of debt  (1,592)  -   -   (1,592) 
Income from equity affiliates  20,408   -   -   20,408  
Provision for income taxes  (164)  (11,913)  -   (12,077) 
          
Net income  32,739   21,350   -   54,089  
          
Preferred stock dividends  1,888   -   -   1,888  
Net income attributable to noncontrolling interest  -   -   8,110   8,110  
Net income (loss) attributable to common stockholders $30,851  $21,350  $(8,110) $44,091  
          
(1) Includes certain income or expenses not allocated to the two reportable segments. Amount reflects income attributable 
to the noncontrolling interest holders.         
          


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
Balance Sheet Segment Information - (Unaudited) 
(in thousands) 
        
        
  June 30, 2020 
  Structured Business Agency Business Consolidated 
Assets:       
Cash and cash equivalents $268,467 $115,715 $384,182 
Restricted cash  90,457  4,390  94,847 
Loans and investments, net  4,800,176  -  4,800,176 
Loans held-for-sale, net  -  360,372  360,372 
Capitalized mortgage servicing rights, net  -  313,288  313,288 
Securities held-to-maturity, net  20,000  99,019  119,019 
Investments in equity affiliates  64,991  -  64,991 
Goodwill and other intangible assets  12,500  95,540  108,040 
Other assets  107,134  38,075  145,209 
Total assets $5,363,725 $1,026,399 $6,390,124 
        
Liabilities:       
Debt obligations $4,484,961 $333,472 $4,818,433 
Allowance for loss-sharing obligations -  73,220  73,220 
Other liabilities  185,378  55,317  240,695 
Total liabilities $4,670,339 $462,009 $5,132,348 
        


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
Supplemental Schedule of Non-GAAP Financial Measures - (Unaudited) 
Reconciliation of Core Earnings to GAAP Net Income (Loss) 
($ in thousands—except share and per share data) 
  
         
 Quarter Ended June 30, Six Months Ended June 30, 
  2020   2019   2020   2019  
Net income (loss) attributable to common stockholders$44,091  $28,916  $(15,219) $51,566  
         
Adjustments:        
Net income (loss) attributable to noncontrolling interest 8,110   6,598   (2,824)  12,066  
Income from mortgage servicing rights (32,417)  (18,709)  (54,351)  (32,941) 
Deferred tax provision (benefit) 10,879   918   (9,025)  (3,250) 
Amortization and write-offs of MSRs 15,542   16,914   33,283   33,654  
Depreciation and amortization 2,906   2,853   5,863   5,717  
Loss on extinguishment of debt 1,592   -   3,546   128  
Provision for credit losses 15,109   368   91,028   822  
(Gain) loss on derivative instruments, net (7,371)  (742)  43,360   1,723  
Stock-based compensation 1,915   1,502   5,432   5,258  
         
Core earnings (1)$60,356  $38,618  $101,093  $74,743  
         
Diluted core earnings per share (1)$0.46  $0.34  $0.77  $0.67  
         
Diluted weighted average shares outstanding (1) 131,882,398   113,624,384   131,166,018   110,779,680  
         
(1) Amounts are attributable to common stockholders and OP Unit holders. The OP Units are redeemable for cash, or at the Company's option for shares of the Company's common stock on a one-for-one basis. 
  
Beginning in the first quarter of 2020, the Company is presenting core earnings as its non-GAAP financial measure in replacement of adjusted funds from operations ("AFFO"). Core earnings is comparable to our previous AFFO metric, revised to exclude provisions for credit losses (including CECL) related to our structured loan portfolio, securities held-to-maturity and loss-sharing obligations related to the Fannie Mae program. The Company is presenting core earnings because management believes it is important supplemental measure of the Company’s operating performance and is frequently used by peers, analysts, investors and other parties in the evaluation of REITs. Prior period amounts presented above have been conformed to reflect this change. 
  
The Company defines core earnings as net income (loss) attributable to common stockholders (computed in accordance with GAAP) adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from mortgage servicing rights ("MSRs"), amortization and write-offs of MSRs, gains and losses on derivative instruments primarily associated with private label loans that have not yet been sold and securitized, the tax impact on cumulative gains or losses on derivative instruments associated with private label loans that were sold during the periods presented, changes in fair value of GSE-related derivatives that temporarily flow through earnings, deferred tax (benefit) provision, provisions for credit losses (including CECL) and the amortization of the convertible senior notes conversion option. The Company also adds back one-time charges such as acquisition costs and one-time gains or losses on the early extinguishment of debt. 
  
Core earnings is not intended to be an indication of the Company's cash flow from operating activities (determined in accordance with GAAP) or a measure of its liquidity, nor is it entirely indicative of funding the Company's cash needs, including its ability to make cash distributions. The Company’s calculation of core earnings may be different from the calculations used by other companies and, therefore, comparability may be limited. 

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