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)

September 30,

December 31,

2017

2016

(Unaudited)

Assets:

Cash and cash equivalents

$
84,751,397

$
138,645,430

Restricted cash

137,138,389

29,314,929

Loans and investments, net

1,997,555,985

1,695,732,351

Loans held-for-sale, net

333,267,976

673,367,304

Capitalized mortgage servicing rights, net

247,875,659

227,742,986

Available-for-sale securities, at fair value

4,707,085

5,403,463

Securities held-to-maturity, net

18,851,089

—

Investments in equity affiliates

31,330,740

33,948,853

Real estate owned, net

17,354,720

19,491,805

Due from related party

12,613,313

1,464,732

Goodwill and other intangible assets

123,166,816

97,489,884

Other assets

49,564,693

48,184,509

Total assets

$
3,058,177,862

$
2,970,786,246

Liabilities and Equity:

Credit facilities and repurchase agreements

$
562,326,537

$
906,636,790

Collateralized loan obligations

1,066,230,488

728,441,109

Senior unsecured notes

95,088,379

94,521,566

Convertible senior unsecured notes, net

95,381,121

80,660,038

Junior subordinated notes to subsidiary trust issuing preferred securities

139,418,416

157,858,555

Related party financing

50,000,000

50,000,000

Due to related party

—

6,038,707

Due to borrowers

69,357,152

81,019,386

Allowance for loss-sharing obligations

30,158,464

32,407,554

Other liabilities

104,474,096

86,164,613

Total liabilities

2,212,434,653

2,223,748,318

Commitments and contingencies (Note 15)

Equity:

Arbor Realty Trust, Inc. stockholders’ equity:

Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; special voting preferred shares; 21,230,769 shares issued and outstanding; 8.25% Series A, $38,787,500 aggregate liquidation preference; 1,551,500 shares issued and outstanding; 7.75% Series B, $31,500,000 aggregate liquidation preference; 1,260,000 shares issued and outstanding; 8.50% Series C, $22,500,000 aggregate liquidation preference; 900,000 shares issued and outstanding

89,508,213

89,508,213

Common stock, $0.01 par value: 500,000,000 shares authorized; 61,702,628 and 51,401,295 shares issued and outstanding, respectively

617,026

514,013

Additional paid-in capital

702,240,622

621,931,995

Accumulated deficit

(112,069,714
)
(125,134,403
)
Accumulated other comprehensive income

205,761

320,917

Total Arbor Realty Trust, Inc. stockholders’ equity

680,501,908

587,140,735

Noncontrolling interest

165,241,301

159,897,193

Total equity

845,743,209

747,037,928

Total liabilities and equity

$
3,058,177,862

$
2,970,786,246

	June 30,			December 31,
	2018			2017
	(Unaudited)
Assets:
Cash and cash equivalents	$	106,968		$	104,374
Restricted cash	173,686			139,398
Loans and investments, net	3,064,798			2,579,127
Loans held-for-sale, net	311,487			297,443
Capitalized mortgage servicing rights, net	257,021			252,608
Securities held-to-maturity, net	50,342			27,837
Investments in equity affiliates	24,144			23,653
Real estate owned, net	14,650			16,787
Due from related party	10,162			688
Goodwill and other intangible assets	118,965			121,766
Other assets	72,097			62,264
Total assets	$	4,204,320		$	3,625,945

Liabilities and Equity:
Credit facilities and repurchase agreements	$	910,504		$	528,573
Collateralized loan obligations	1,590,644			1,418,422
Debt fund	68,270			68,084
Senior unsecured notes	122,343			95,280
Convertible senior unsecured notes, net	235,431			231,287
Junior subordinated notes to subsidiary trust issuing preferred securities	139,909			139,590
Related party financing	—			50,000
Due to related party	335			—
Due to borrowers	78,159			99,829
Allowance for loss-sharing obligations	31,402			30,511
Other liabilities	83,811			99,813
Total liabilities	3,260,808			2,761,389

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; 21,230,769 shares issued and outstanding; 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	89,508			89,508
Common stock, $0.01 par value: 500,000,000 shares authorized; 68,570,617 and 61,723,387 shares issued and outstanding, respectively	686			617
Additional paid-in capital	766,933			707,450
Accumulated deficit	(87,128		)	(101,926		)
Accumulated other comprehensive income	—			176
Total Arbor Realty Trust, Inc. stockholders’ equity	769,999			695,825
Noncontrolling interest	173,513			168,731
Total equity	943,512			864,556
Total liabilities and equity	$	4,204,320		$	3,625,945

See Notes to Consolidated Financial Statements.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

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

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Interest income

$
42,139,576

$
29,636,227

$
110,132,866

$
83,424,190

Other interest income, net

—

—

—

2,539,274

Interest expense

23,849,417

16,966,228

63,697,641

42,958,329

Net interest income

18,290,159

12,669,999

46,435,225

43,005,135

Other revenue:

Gain on sales, including fee-based services, net

17,126,106

9,693,822

55,127,004

9,693,822

Mortgage servicing rights

18,897,239

15,968,067

56,181,638

15,968,067

Servicing revenue, net

8,520,111

5,885,884

19,922,901

5,885,884

Property operating income

2,668,055

2,960,940

8,754,518

12,719,027

Other income, net

777,656

359,546

(929,893
)
663,977

Total other revenue

47,989,167

34,868,259

139,056,168

44,930,777

Other expenses:

Employee compensation and benefits

25,194,433

14,216,679

66,860,581

22,856,433

Selling and administrative

7,606,936

5,903,031

23,135,750

10,277,844

Acquisition costs

—

6,406,258

—

10,261,902

Property operating expenses

2,582,745

2,819,004

7,842,571

10,991,823

Depreciation and amortization

1,829,016

1,808,765

5,541,991

3,129,410

Impairment loss on real estate owned

—

—

2,700,000

11,200,000

Provision for loss sharing (net of recoveries)

(2,617,064
)
1,316,862

(405,494
)
1,316,862

Provision for loan losses (net of recoveries)

2,000,000

(54,000
)
(455,653
)
(24,995
)
Management fee - related party

—

3,325,000

6,673,260

8,875,000

Total other expenses

36,596,066

35,741,599

111,893,006

78,884,279

Income before gain on extinguishment of debt, gain on sale of real estate, income from equity affiliates and provision for income taxes

29,683,260

11,796,659

73,598,387

9,051,633

Gain on extinguishment of debt

—

—

7,116,243

—

Gain on sale of real estate

—

—

—

11,630,687

Income from equity affiliates

995,312

4,929,375

1,755,145

11,193,918

Provision for income taxes

(6,708,000
)
(300,000
)
(16,244,000
)
(300,000
)
Net income

23,970,572

16,426,034

66,225,775

31,576,238

Preferred stock dividends

1,888,430

1,888,430

5,665,290

5,665,290

Net income attributable to noncontrolling interest

5,661,184

3,649,432

16,596,415

3,649,432

Net income attributable to common stockholders

$
16,420,958

$
10,888,172

$
43,964,070

$
22,261,516

Basic earnings per common share

$
0.27

$
0.21

$
0.78

$
0.43

Diluted earnings per common share

$
0.26

$
0.21

$
0.77

$
0.43

Weighted average shares outstanding:

Basic

61,582,796

51,390,467

56,602,504

51,272,795

Diluted

83,918,117

70,271,796

78,942,919

51,627,550

Dividends declared per common share

$
0.18

$
0.16

$
0.53

$
0.46

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Interest income	$	59,295		$	34,468		$	110,908		$	67,993
Interest expense	37,884			20,411			71,271			39,848
Net interest income	21,411			14,057			39,637			28,145
Other revenue:
Gain on sales, including fee-based services, net	15,622			18,830			33,815			38,001
Mortgage servicing rights	17,936			17,254			37,571			37,284
Servicing revenue, net	10,871			6,609			20,418			11,403
Property operating income	2,964			2,863			5,874			6,086
Other income, net	(470		)	(821		)	2,408			(1,707		)
Total other revenue	46,923			44,735			100,086			91,067
Other expenses:
Employee compensation and benefits	26,815			21,825			56,309			41,666
Selling and administrative	8,873			7,835			17,789			15,529
Property operating expenses	2,856			2,622			5,652			5,260
Depreciation and amortization	1,845			1,816			3,691			3,713
Impairment loss on real estate owned	2,000			1,500			2,000			2,700
Provision for loss sharing (net of recoveries)	348			532			821			2,212
Provision for loan losses (net of recoveries)	(2,127		)	(1,760		)	(1,802		)	(2,456		)
Management fee - related party	—			2,673			—			6,673
Total other expenses	40,610			37,043			84,460			75,297
Income before gain on extinguishment of debt, income (loss) from equity affiliates and income taxes	27,724			21,749			55,263			43,915
Gain on extinguishment of debt	—			—			—			7,116
Income (loss) from equity affiliates	1,387			(3		)	2,132			760
(Provision for) benefit from income taxes	(4,499		)	(3,435		)	4,285			(9,536		)
Net income	24,612			18,311			61,680			42,255
Preferred stock dividends	1,888			1,888			3,777			3,777
Net income attributable to noncontrolling interest	5,557			4,494			14,547			10,935
Net income attributable to common stockholders	$	17,167		$	11,929		$	43,356		$	27,543

Basic earnings per common share	$	0.26		$	0.21		$	0.68		$	0.51
Diluted earnings per common share	$	0.25		$	0.21		$	0.66		$	0.50

Weighted average shares outstanding:
Basic	65,683,057			56,652,334			63,773,306			54,071,085
Diluted	90,055,170			79,064,503			87,420,543			76,365,118

Dividends declared per common share	$	0.25		$	0.18		$	0.46		$	0.35

See Notes to Consolidated Financial Statements.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net income

$
23,970,572

$
16,426,034

$
66,225,775

$
31,576,238

Unrealized loss on securities available-for-sale, at fair value

(235,158
)
(88,184
)
(352,735
)
(117,579
)
Unrealized gain (loss) on derivative financial instruments, net

—

66,254

202

(195,981
)
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings

—

1,316,157

237,377

4,012,457

Comprehensive income

23,735,414

17,720,261

66,110,619

35,275,135

Less:

Comprehensive income attributable to noncontrolling interest

5,601,567

3,974,327

16,574,284

3,974,327

Preferred stock dividends

1,888,430

1,888,430

5,665,290

5,665,290

Comprehensive income attributable to common stockholders

$
16,245,417

$
11,857,504

$
43,871,045

$
25,635,518

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
Net income	$	24,612	$	18,311		$	61,680		$	42,255
Unrealized loss on securities available-for-sale, at fair value	—		(147		)	—			(118		)
Reclassification of net unrealized gains on available-for-sale securities into accumulated deficit (Note 2)	—		—			(176		)	—
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings	—		—			—			238
Comprehensive income	24,612		18,164			61,504			42,375
Less:
Comprehensive income attributable to noncontrolling interest	5,557		4,453			14,504			10,972
Preferred stock dividends	1,888		1,888			3,777			3,777
Comprehensive income attributable to common stockholders	$	17,167	$	11,823		$	43,223		$	27,626

See Notes to Consolidated Financial Statements.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)

~~Nine Months Ended September 30, 2017~~($ in thousands, except shares)

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, 2016

24,942,269

$
89,508,213

51,401,295

$
514,013

$
621,931,995

$
(125,134,403
)
$
320,917

$
587,140,735

$
159,897,193

$
747,037,928

Issuance of common stock

9,500,000

95,000

76,130,000

76,225,000

76,225,000

Stock-based compensation

806,524

8,065

3,825,296

3,833,361

3,833,361

Forfeiture of unvested restricted stock

(5,191
)
(52
)
52

—

—

Issuance of convertible senior unsecured notes, net

353,279

353,279

353,279

Distributions - common stock

(30,888,612
)

(30,888,612
)

(30,888,612
)
Distributions - preferred stock

(5,665,290
)

(5,665,290
)

(5,665,290
)
Distributions - preferred stock of private REIT

(10,769
)

(10,769
)

(10,769
)
Distributions - noncontrolling interest

(11,252,307
)
(11,252,307
)
Net income

49,629,360

49,629,360

16,596,415

66,225,775

Unrealized loss on securities available-for-sale

(352,735
)
(352,735
)

(352,735
)
Unrealized gain on derivative financial instruments, net

202

202

202

Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings

237,377

237,377

237,377

Balance — September 30, 2017

24,942,269

$
89,508,213

61,702,628

$
617,026

$
702,240,622

$
(112,069,714
)
$
205,761

$
680,501,908

$
165,241,301

$
845,743,209

Six Months Ended June 30, 2018

	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, 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				6,452,700		65		55,842								55,907						55,907
Stock-based compensation				396,030		4		3,641								3,645						3,645
Forfeiture of unvested restricted stock				(1,500	)											—						—
Distributions - common stock										(28,727		)				(28,727		)				(28,727		)
Distributions - preferred stock										(3,777		)				(3,777		)				(3,777		)
Distributions - preferred stock of private REIT										(7		)				(7		)				(7		)
Distributions - noncontrolling interest																			(9,765		)	(9,765		)
Net income										47,133						47,133			14,547			61,680
Reclassification of net unrealized gains on available-for-sale securities into accumulated deficit										176			(176		)	—						—
Balance — June 30, 2018	24,942,269	$	89,508	68,570,617		$	686	$	766,933	$	(87,128	)	$	—		$	769,999		$	173,513		$	943,512

See Notes to Consolidated Financial Statements.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

Nine Months Ended September 30,

2017

2016

Operating activities:

Net income

$
66,225,775

$
31,576,238

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

5,541,991

3,129,410

Stock-based compensation

3,833,361

2,940,174

Amortization and accretion of interest and fees, net

3,296,464

2,539,980

Amortization of capitalized mortgage servicing rights

35,427,217

7,586,524

Originations of loans held-for-sale

(3,287,578,091
)
(853,935,531
)
Proceeds from sales of loans held-for-sale, net of gain on sale

3,621,276,437

975,969,372

Payoffs and paydowns of loans held-for-sale

116,174

—

Mortgage servicing rights

(56,181,638
)
(15,968,067
)
Write-off of capitalized mortgage servicing rights from payoffs

10,713,274

1,669,081

Impairment loss on real estate owned

2,700,000

11,200,000

Provision for loan losses (net of recoveries)

(455,653
)
(24,995
)
Provision for loss sharing (net of recoveries)

(405,494
)
1,316,862

Net charge-offs for loss sharing obligations

(1,843,596
)
(2,131,178
)
Gain on extinguishment of debt

(7,116,243
)
—

Gain on sale of real estate

—

(11,630,687
)
Gain on sale of securities

—

(15,491
)
Deferred tax provision

15,000

—

Income from equity affiliates

(1,755,145
)
(11,193,918
)
Change in fair value of available-for-sale securities

343,642

46,021

Changes in operating assets and liabilities

(6,252,023
)
5,894,972

Net cash provided by operating activities

387,901,452

148,968,767

Investing Activities:

Loans and investments funded and originated, net

(1,051,445,805
)
(725,025,857
)
Payoffs and paydowns of loans and investments

758,138,665

531,874,076

Internalization of management team

(25,000,000
)
—

Deferred fees

7,213,824

7,412,018

Investments in real estate, net

(562,025
)
(611,497
)
Contributions to equity affiliates

(692,536
)
(4,641,973
)
Distributions from equity affiliates

2,340,710

731,942

Acquisition of the Agency Business, net of cash acquired

—

(68,356,323
)
Proceeds from sale of real estate, net

—

49,029,780

Proceeds from sale of available-for-sale securities

—

1,567,207

Purchase of securities held-to-maturity, net

(18,339,271
)
—

Payoffs and paydowns of securities held-to-maturity

76,300

—

Due to borrowers and reserves

(22,571,250
)
128,492

Net cash used in investing activities

(350,841,388
)
(207,892,135
)

Financing activities:

Proceeds from repurchase agreements, loan participations, credit facilities and notes payable

6,073,385,393

1,681,492,236

Payoffs and paydowns of repurchase agreements, loan participations and credit facilities

(6,417,833,725
)
(1,807,884,108
)
Payoffs of junior subordinated notes to subsidiary trust issuing preferred securities

(12,691,086
)
—

Paydowns and payoffs of mortgage note payable - real estate owned

—

(27,155,000
)
Proceeds from collateralized loan obligations

561,874,000

250,250,000

Payoffs and paydowns of collateralized loan obligations

(219,000,000
)
—

Proceeds from convertible senior unsecured notes

13,750,000

—

Change in restricted cash

(107,793,983
)
(123,982,753
)
Receipts on swaps and returns of margin calls from counterparties

429,539

3,440,049

Distributions paid on common stock

(30,888,612
)
(23,573,786
)
Distributions paid on noncontrolling interest

(11,252,307
)
—

Distributions paid on preferred stock

(5,665,290
)
(5,665,290
)
Distributions paid on preferred stock of private REIT

(10,769
)
(10,849
)
Payment of deferred financing costs

(11,482,257
)
(5,081,844
)
Proceeds from issuance of common stock

76,225,000

—

Net cash used in financing activities

(90,954,097
)
(58,171,345
)

Net decrease in cash and cash equivalents

(53,894,033
)
(117,094,713
)
Cash and cash equivalents at beginning of period

138,645,430

188,708,687

Cash and cash equivalents at end of period

$
84,751,397

$
71,613,974

	Six Months Ended June 30,
	2018			2017

Operating activities:
Net income	$	61,680		$	42,255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,691			3,713
Stock-based compensation	3,645			2,986
Amortization and accretion of interest and fees, net	7,658			1,842
Amortization of capitalized mortgage servicing rights	23,802			23,716
Originations of loans held-for-sale	(2,080,393		)	(2,288,694		)
Proceeds from sales of loans held-for-sale, net of gain on sale	2,064,486			2,569,203
Payoffs and paydowns of loans held-for-sale	22			73
Mortgage servicing rights	(37,571		)	(37,284		)
Write-off of capitalized mortgage servicing rights from payoffs	10,078			6,497
Impairment loss on real estate owned	2,000			2,700
Provision for loan losses (net of recoveries)	(1,802		)	(2,456		)
Provision for loss sharing (net of recoveries)	821			2,212
Net charge-offs for loss sharing obligations	70			(1,822		)
Deferred tax (benefit) provision	(13,135		)	937
Income from equity affiliates	(2,132		)	(760		)
Gain on extinguishment of debt	—			(7,116		)
Changes in operating assets and liabilities	(24,307		)	(11,240		)
Net cash provided by operating activities	18,613			306,762

Investing Activities:
Loans and investments funded and originated, net	(875,212		)	(551,468		)
Payoffs and paydowns of loans and investments	429,133			456,251
Internalization of management team	—			(25,000		)
Deferred fees	6,309			3,015
Investments in real estate, net	(220		)	(433		)
Contributions to equity affiliates	(2,460		)	(650		)
Distributions from equity affiliates	2,807			374
Purchase of securities held-to-maturity, net	(21,637		)	(7,838		)
Payoffs and paydowns of securities held-to-maturity	519			8
Proceeds from insurance settlements, net	1,294			1,014
Due to borrowers and reserves	(58,585		)	(753		)
Net cash used in investing activities	(518,052		)	(125,480		)

Financing activities:
Proceeds from repurchase agreements, loan participations and credit facilities	3,971,279			4,343,816
Payoffs and paydowns of repurchase agreements, loan participations and credit facilities	(3,588,443		)	(4,744,921		)
Payoffs and paydowns of collateralized loan obligations	(267,750		)	—
Payoffs of senior unsecured notes	(97,860		)	—
Payoff of related party financing	(50,000		)	—
Payoffs of junior subordinated notes to subsidiary trust issuing preferred securities	—			(12,691		)
Proceeds from issuance of collateralized loan obligations	441,000			279,000
Proceeds from issuance of senior unsecured notes	125,000			—
Proceeds from issuance of convertible senior unsecured notes	—			13,750
Proceeds from issuance of common stock, net	55,907			76,225
Receipts on swaps and returns of margin calls from counterparties	—			431
Distributions paid on common stock	(28,727		)	(19,781		)
Distributions paid on noncontrolling interest	(9,765		)	(7,431		)
Distributions paid on preferred stock	(3,777		)	(3,777		)
Distributions paid on preferred stock of private REIT	(7		)	(7		)
Payment of deferred financing costs	(10,536		)	(5,857		)
Net cash provided by (used in) financing activities	536,321			(81,243		)
Net increase in cash, cash equivalents and restricted cash	36,882			100,039
Cash, cash equivalents and restricted cash at beginning of period	243,772			167,960
Cash, cash equivalents and restricted cash at end of period	$	280,654		$	267,999

See Notes to Consolidated Financial Statements.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

(in thousands)

	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2018		2017

Supplemental cash flow information:
Cash used to pay interest	$	53,150,362	$	36,287,261	$	58,675	$	35,142	��
Cash used to pay taxes	$	14,653,499	$	298,654	$	10,698	$	13,452

Supplemental schedule of non-cash investing and financing activities:
Distributions accrued on 8.25% Series A preferred stock	$	266,664	$	266,664	$	267	$	267
Distributions accrued on 7.75% Series B preferred stock	$	203,438	$	203,438	$	203	$	203
Distributions accrued on 8.50% Series C preferred stock	$	159,375	$	159,375	$	159	$	159
Distributions accrued on special voting preferred shares	$	—	$	3,396,923
Related party financing	$	—	$	50,000,000
Payment due on the acquisition of the Agency Business	$	—	$	11,416,610
Working capital adjustment on the acquisition of the Agency Business	$	—	$	7,982,584
Issuance of special voting preferred shares and operating partnership units in connection with the Acquisition	$	—	$	154,772,306

See Notes to Consolidated Financial Statements.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

Note 1 — Description of Business

Arbor Realty Trust, Inc. ~~(the “Company,” “we,~~(“we,” “us,” or “our”) is a Maryland corporation formed in 2003. ~~Through~~We operate through two business segments: our Structured Loan Origination and Investment Business ~~or “Structured~~(“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 ~~Loan Origination and Servicing~~ Business, or “Agency Business,” which was formed as a result of the acquisition of the agency platform of Arbor Commercial Mortgage, LLC (“ACM” or our “Former Manager”) in the third quarter of 2016 (the “Acquisition”), 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 ~~the~~ 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.

~~Prior to May 31, 2017,~~We have operated the Agency Business since July 2016 when we acquired it from Arbor Commercial Mortgage, LLC (“ACM” or our “Former Manager”). We were externally managed and advised by ~~ACM. Effective~~ACM and, effective May 31, 2017, ~~we exercised our option~~terminated the existing management agreement with ACM to fully internalize our management ~~team~~team. Refer to our 2017 Annual Report for details of our acquisition of the Agency Business (the “Acquisition”) and ~~terminate~~termination of the ~~existing~~ management agreement.~~See Note 3 — Acquisition of Our Former Manager’s Agency Platform for details.~~

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 1817 — Income Taxes for details.

Note 2 — Basis of Presentation and Significant Accounting Policies

Basis of Presentation

~~The accompanying unaudited~~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 and Rule 10-01 of Regulation S-X.~~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 ~~2016~~2017 Annual Report.

~~During the third quarter of 2017, we determined that the purchase price allocation related~~Reclassification

Certain prior period amounts have been reclassified to conform to the ~~Acquisition in 2016 incorrectly omitted a deferred tax liability related to~~current period presentation. See the ~~book-to-tax difference in~~following “Recently Adopted Accounting Pronouncements” section for the ~~value assigned to certain assets acquired. The~~cash flows impact of ~~this omission to our 2016 consolidated financial statements was a $4.9 million understatement~~the retrospective adoption of ~~goodwill~~Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash and ~~a corresponding understatement~~ASU 2016-15, Statement of other liabilities in our consolidated balance sheets. This omission had no impact on our results of operations and was corrected in the third quarter of 2017, resulting in a $4.9 million increase to goodwill and a corresponding increase in other liabilities.Cash Flows.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

Principles of Consolidation

~~The accompanying unaudited~~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

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

have a significant influence are accounted for under the equity method. See Note 1615 — Variable Interest Entities for information about our VIEs. All significant intercompany transactions and balances have been ~~eliminated.~~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.

Significant Accounting Policies

We describe our significant accounting policies in our ~~2016~~2017 Annual Report. There have been no significant changes in our significant accounting policies since December 31, ~~2016.~~2017.

Recently Adopted Accounting Pronouncements

Description	Adoption Date	Effect on Financial Statements

~~In October 2016,~~Since 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-17, Consolidation: Interests Held through Related Parties That Are under Common Control. This ASU alters how a decision maker needs to consider indirect interests in a VIE held through an entity under common control and requires consideration of only an entity’s proportionate indirect interest in a VIE held through a common control party.	~~First quarter of 2017.~~	~~The adoption of this guidance did not have a material impact on our consolidated financial statements.~~

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This ASU is intended to simplify several aspects of the accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.	~~First quarter of 2017.~~	~~The adoption of this guidance did not have a material impact on our consolidated financial statements.~~

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. This ASU, among other things, eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods the investment was held.	~~First quarter of 2017.~~	~~The adoption of this guidance did not have a material impact on our consolidated financial statements.~~

~~Recently Issued Accounting Pronouncements~~

The following table is not intended to represent all recently issued accounting pronouncements that are not yet effective and which have not yet been adopted by us. This table should be read in conjunction with the recently issued accounting pronouncements section included in our 2016 Annual Report.

~~Description~~	~~Effective Date~~	~~Effect on Financial Statements~~

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. This ASU eliminates step two from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value with the carrying amount of goodwill.	~~First quarter of 2020 with early adoption permitted beginning in the first quarter of 2017.~~	~~We are evaluating the timing of our adoption and the impact this guidance may have on our consolidated financial statements.~~

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

~~Description~~	~~Effective Date~~	~~Effect on Financial Statements~~

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business. This ASU provides a more robust framework to use in determining when a set of assets and activities constitutes a business. It also provides more consistency in applying the guidance, reduces the costs of application and makes the definition of a business more operable.	~~First quarter of 2018.~~	~~The potential impact of this new guidance will be assessed for future acquisitions, but it is not expected to have a material impact on our consolidated financial statements.~~

~~Since 2014, the FASB~~ has issued several amendments to its guidance on revenue recognition. The amended guidance, among other things, introduces a new framework for a single comprehensive model that can be used when accounting for revenue and supersedes most current revenue recognition guidance, including that which pertains to specific industries. The core principle states that an entity should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods and services. It also requires expanded quantitative and qualitative disclosures that will enable financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Most revenue associated with financial instruments, including interest and loan origination fees, along with gains and losses on investment securities, derivatives and sales of financial instruments are excluded from the scope of the guidance.	First quarter of ~~2018 and permits the use of either the full retrospective or modified retrospective method.~~2018.	WeThe adoption of this guidance did not have ~~evaluated the new standard and determined that substantially all of~~a material impact on our ~~revenue, including interest income, loan origination fees, servicing income and gains on sales of loans and investment securities, are not impacted.~~consolidated financial statements. This standard may impact the timing of gains on certain future sales of real ~~estate, however, we have determined that this standard will not materially impact our total revenues or footnote disclosures. We will adopt this standard~~estate.

In November 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash. This ASU requires changes in the ~~first~~total of cash, cash equivalents, restricted cash, and restricted cash equivalents to be shown in the statement of cash flows. Previous guidance required the change in cash and cash equivalents be shown on the statement of cash flows, with cash used to fund restricted cash and restricted cash equivalents shown as a component of operating, investing, or financing activities. Entities are now also required to reconcile the total of cash, cash equivalents, restricted cash, and restricted cash equivalents as presented in the statement of cash flows to the related captions in the balance sheet when these balances are presented separately in the balance sheet.	First quarter of ~~2018 using~~2018.	This guidance required retrospective adoption, therefore, we adjusted the ~~modified retrospective method~~cash flow statement for ~~any contracts that are not complete as~~the comparable prior period. The following table shows the impact of the adoption ~~date.~~of this guidance, as well as the adoption of ASU 2016-15 described below.

~~Note 3 —~~ ~~Acquisition of Our Former Manager’s Agency Platform~~

On July 14, 2016, we completed the previously announced Acquisition of the agency platform of our Former Manager pursuant to an asset purchase agreement dated February 25, 2016 (“Purchase Agreement”). The aggregate purchase price was $275.8 million, which was paid with $138.0 million in stock, $87.8 million in cash and with the issuance of a $50.0 million seller financing instrument. The equity component of the purchase price was paid with 21,230,769 operating partnership units (“OP Units”), which was based on a stock price of $6.50 per share. The closing price of our common stock on the Acquisition date was $7.29 per share; therefore, the estimated fair value of the total consideration was $292.5 million. ~~See Note 11 — Debt Obligations for details about the seller financing and Note 17 — Equity for details about the OP Units.~~

We finalized the purchase price allocation during the first quarter of 2017 based on the estimated fair values of the assets acquired and liabilities assumed as of the Acquisition date. See Note 2 — Basis of Presentation and Significant Accounting Policies for details of an adjustment made to the purchase price allocation in the third quarter of 2017.

~~Internalization of Management Team~~

In connection with the Acquisition, we had the option to fully internalize our management team and terminate the existing management agreement with our Former Manager for $25.0 million. On May 31, 2017, we exercised that option and fully internalized our management team, which included approximately 100 employees. We incurred expenses of less than $0.1 million in connection with this transaction. We accounted for this transaction as a business combination with the settlement of a preexisting relationship. The total purchase price of $25.0 million was assigned to goodwill since the asset transferred represented an assembled workforce. Goodwill was allocated $12.5 million each to our two reporting segments and is expected to be deductible for tax purposes.

Accounting guidance requires the settlement of preexisting relationships to be accounted for separately from the business combination, with the recognition of any corresponding gain or loss through the statement of income upon settlement. Any potential gain or loss is measured based on the favorable or unfavorable terms of the management agreement from the prospective of the acquirer, when compared to current market rates for similar services. Based on this guidance, we performed an analysis and determined that the terminated management agreement contained terms similar to those of arrangements with comparable companies, and therefore no such gain or loss was recorded.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

Description		Adoption Date		Effect on Financial Statements
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This ASU provides eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows.		First quarter of 2018.		This guidance required retrospective adoption, therefore, we reclassified $1.0 million of proceeds from insurance settlements from net cash provided by operating activities to net cash used in investing activities for the six months ended June 30, 2017. In addition, we chose the cummulative earnings approach for distributions received from equity method investees, which did not result in any changes in the way we account for such distributions. The following table shows the impact of the adoption of this guidance, as well as the adoption of ASU 2016-18 described above.

(in thousands)	Six Months Ended June 30, 2017
As previously reported under GAAP applicable at the time
Cash and cash equivalents at beginning of period	$	138,645
Net decrease in cash and cash equivalents	(57,886		)
Cash and cash equivalents at end of period	80,759
Net cash provided by operating activities: changes in operating assets and liabilities	(10,270		)
Net cash used in investing activities	(126,494		)
Net cash used in financing activities	(239,307		)

As currently reported under ASU 2016-18 and ASU 2016-15
Cash, cash equivalents and restricted cash at beginning of period	$	167,960
Net increase in cash, cash equivalents and restricted cash	100,039
Cash, cash equivalents and restricted cash at end of period	267,999
Net cash provided by operating activities: changes in operating assets and liabilities	(11,240		)
Net cash used in investing activities	(125,480		)
Net cash provided by (used in) financing activities	(81,243		)

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Consensuses of the FASB Emerging Issues Task Force. This ASU requires that unconsolidated equity investments not accounted for under the equity method be recorded at fair value, with changes in fair value recorded through net income. The accounting principles that permitted available-for-sale classification with unrealized holding gains and losses recorded in other comprehensive income for equity securities will no longer be applicable. In addition, financial liabilities measured using the fair value option will need to present any change in fair value caused by a change in instrument-specific credit risk separately in other comprehensive income.

First quarter of 2018.

The adoption of this guidance did not have a material impact on our consolidated financial statements. In connection with the adoption of this ASU, we reclassified $0.2 million of unrealized gains on available-for-sale securities from accumulated other comprehensive income to accumulated deficit.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

Recently Issued Accounting Pronouncements

Description		Effective Date		Effect on Financial Statements
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.		We have evaluated ASU 2018-07 and determined the adoption of this standard will not have a significant impact on our consolidated financial statements.

Note 43 — Loans and Investments

~~The following tables set forth the composition of our structured~~Our Structured Business loan and investment ~~portfolio:~~portfolio consists of ($ in thousands):

	September 30, 2017			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)		June 30, 2018			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	$	1,841,484,888		88	%	129	5.89	%	19.0	0	%	72	%	$	2,891,974		92	%	167	6.58	%	20.3	0	%	73	%
Preferred equity investments	155,306,620			7	%	11	6.92	%	68.3	62	%	88	%	151,604			5	%	10	8.18	%	73.7	60	%	85	%
Mezzanine loans	72,328,033			4	%	8	10.24	%	26.9	29	%	69	%	91,301			3	%	10	10.28	%	19.8	21	%	68	%
Junior participation loan (4)	25,256,582			1	%	1	—		—	100	%	100	%
	2,094,376,123			100	%	149	6.04	%	22.7	7	%	74	%	3,134,879			100	%	187	6.76	%	22.8	4	%	74	%
Allowance for loan losses	(83,255,922		)											(58,733		)
Unearned revenue	(13,564,216		)											(11,348		)
Loans and investments, net	$	1,997,555,985												$	3,064,798

	December 31, 2016													December 31, 2017

Bridge loans	$	1,602,658,179		90	%	120	5.59	%	16.4	0	%	73	%	$	2,422,105		91	%	150	6.10	%	20.9	0	%	72	%
Preferred equity investments	68,120,639			4	%	10	6.83	%	23.8	42	%	91	%	142,892			6	%	12	6.47	%	68.7	64	%	90	%
Mezzanine loans	57,124,566			3	%	12	9.09	%	17.9	36	%	75	%	87,541			3	%	8	10.78	%	24.8	20	%	63	%
Junior participation loans	62,256,582			3	%	2	4.50	%	4.0	83	%	84	%
	1,790,159,966			100	%	144	5.71	%	16.3	6	%	75	%	2,652,538			100	%	170	6.28	%	23.6	4	%	73	%
Allowance for loan losses	(83,711,575		)											(62,783		)
Unearned revenue	(10,716,040		)											(10,628		)
Loans and investments, net	$	1,695,732,351												$	2,579,127

(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.

~~(4)~~ ~~This loan is currently past its maturity and is fully reserved.~~

Concentration of Credit Risk

We are subject to concentration risk in that, at ~~September~~June 30, ~~2017,~~2018, the UPB related to 3249 loans with five different borrowers represented ~~15%~~25% of total assets. At December 31, ~~2016,~~2017, the UPB related to 3542 loans with five different borrowers represented ~~16%~~24% of total assets. During both the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and the year ended December 31, ~~2016,~~2017, no single loan or investment represented more than 10% of our total assets and no single investor group generated over 10% of our revenue.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

~~Effective January 1, 2017, we revised our methodology used to~~We assign a credit risk rating ~~to each loan and investment to be consistent with the method used by our Agency Business. We now assign ratings~~ of pass, pass/watch, special mention, substandard or doubtful to each loan and investment, instead of a one to five rating. Similar to our previous methodology, there are five ratings, each generally consistent with our prior ratings (i.e., pass is equivalent to a one rating, pass/watch is equivalent to a two rating, etc.), with a pass rating being the lowest risk and a doubtful rating being the ~~highest.~~

~~The benchmark guidelines and other factors used in our revised methodology are substantially the same as our previous methodology.~~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. ~~Given our asset management approach, however, the risk rating process does not result in differing levels of diligence~~

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

~~contingent upon credit rating. That is because all~~All portfolio assets are subject to, ~~the level of scrutiny and ongoing analysis consistent with that of~~at a ~~“high-risk” loan. Assets are subject to, at~~ minimum, a thorough quarterly financial evaluation in which historical operating performance and forward-looking projections are ~~reviewed.~~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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we identified eight loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of ~~$147.5~~$128.2 million and ~~$150.5~~$126.5 million, respectively, and a weighted average last dollar LTV ratio of ~~94%~~92% and ~~95%~~93%, respectively.

A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class is ~~presented below. The internal risk ratings~~ as ~~of December 31, 2016 have been converted to reflect the revised methodology described above.~~follows ($ in thousands):

	September 30, 2017									June 30, 2018
Asset Class	Unpaid Principal Balance		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	Wtd. Avg. First Dollar LTV Ratio		Wtd. Avg. Last Dollar LTV Ratio		UPB		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	Wtd. Avg. First Dollar LTV Ratio		Wtd. Avg. Last Dollar LTV Ratio

Multifamily	$	1,556,114,399	75	%	pass/watch	5	%	73	%	$	2,389,630	76	%	pass/watch	4	%	73	%
Self Storage										301,830		10	%	pass/watch	0	%	72	%
Land	140,054,798		7	%	substandard	0	%	88	%	133,811		4	%	substandard	0	%	90	%
Commercial	133,230,000		6	%	pass	1	%	71	%
Office	133,143,446		6	%	pass/watch	19	%	71	%	123,060		4	%	special mention	0	%	64	%
Healthcare										92,465		3	%	pass	0	%	81	%
Hotel	90,725,147		4	%	special mention	39	%	83	%	55,975		2	%	pass/watch	23	%	74	%
Retail	36,483,333		2	%	pass/watch	8	%	66	%	36,408		1	%	pass/watch	8	%	76	%
Healthcare	4,625,000		<1	%	special mention	0	%	73	%
Commercial										1,700		<1	%	doubtful	63	%	63	%
Total	$	2,094,376,123	100	%	pass/watch	7	%	74	%	$	3,134,879	100	%	pass/watch	4	%	74	%

	December 31, 2016									December 31, 2017

Multifamily	$	1,421,731,108	79	%	special mention	1	%	73	%	$	1,925,529	73	%	pass/watch	4	%	72	%
Self Storage										301,830		11	%	pass	0	%	71	%
Land	137,255,369		8	%	substandard	2	%	92	%	132,828		5	%	substandard	0	%	90	%
Commercial	9,205,000		<1	%	special mention	12	%	69	%
Office	141,710,156		8	%	pass/watch	43	%	73	%	107,853		4	%	pass/watch	1	%	64	%
Healthcare										55,615		2	%	pass/watch	0	%	74	%
Hotel	70,750,000		4	%	special mention	30	%	74	%	90,725		3	%	special mention	37	%	81	%
Retail	3,958,333		<1	%	special mention	81	%	91	%	36,458		1	%	pass/watch	8	%	66	%
Healthcare	5,550,000		<1	%	special mention	0	%	63	%
Commercial										1,700		<1	%	doubtful	63	%	63	%
Total	$	1,790,159,966	100	%	special mention	6	%	75	%	$	2,652,538	100	%	pass/watch	4	%	73	%

Geographic Concentration Risk

As of ~~September~~June 30, ~~2017,~~2018, 20%, ~~16%, 11%~~19% and 8%10% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Texas ~~California~~ and ~~Georgia,~~California, respectively. As of December 31, ~~2016, 25%~~2017, 23%, ~~15%, 14%~~21% and ~~13%~~11% of the outstanding balance of our loan and investment portfolio had underlying properties in Texas, New York ~~California, Florida~~ and ~~Texas,~~California, respectively.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

Impaired Loans and Allowance for Loan Losses

We evaluate each loan in our portfolio quarterly to assess the performance of our loans and whether a reserve for impairment should be recorded. We measure our relative loss position for our mezzanine loans, junior participation loans and preferred equity investments by determining the point where we will be exposed to losses based on our position in the capital stack as compared to the fair value of the underlying collateral. We determine our loss position on both a first dollar LTV and a last dollar LTV basis, as defined above.A summary of the changes in the allowance for loan losses is as ~~follows:~~follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017		2016			2017			2016			2018			2017			2018			2017

Allowance at beginning of period	$	81,255,922	$	83,831,575		$	83,711,575		$	86,761,575		$	63,108		$	83,016		$	62,783		$	83,712
Provision for loan losses	2,000,000		—			2,000,000			59,005			1,325			—			1,650			—
Charge-offs	—		—			—			(2,959,005		)	(3,173		)	—			(3,173		)	—
Recoveries of reserves	—		(15,000		)	(2,455,653		)	(45,000		)	(2,527		)	(1,760		)	(2,527		)	(2,456		)
Allowance at end of period	$	83,255,922	$	83,816,575		$	83,255,922		$	83,816,575		$	58,733		$	81,256		$	58,733		$	81,256

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we determined that the fair value of the underlying collateral (land development project) securing ~~a preferred equity investment~~six loans with ~~an aggregate~~a carrying value of ~~$34.8~~$120.9 million was less than the net carrying value of the loans, which resulted in a provision for loan losses of $1.3 million and $1.7 million, respectively.

During the three and six months ended June 30, 2018, we settled, for $31.6 million, a non-performing preferred equity investment in a hotel property with a net carrying value of $29.1 million, resulting in a ~~$2.0~~reserve recovery of $2.5 million ~~provision for loan losses.~~and a charge-off of $3.2 million. In addition, ~~during~~we received a payment and recorded a recovery of $0.9 million related to a written-off junior participation interest in an office building.

During the ~~nine~~three and six months ended ~~September~~June 30, 2017, a fully reserved multifamily mezzanine loan with a UPB of $1.8 million paid off in full, ~~which resulted~~resulting in a $1.8 million reserve ~~recovery, and~~recovery. In addition, during the first quarter of 2017, we recorded a reserve recovery of $0.7 million on a multifamily bridge loan.

During the nine months ended September 30, 2016, we received a $1.8 million discounted payoff on an impaired bridge loan with an aggregate carrying value before reserves of $4.8 million, resulting in the recognition of an additional provision for loan losses of $0.1 million and a charge-off of $3.0 million.

The ~~recoveries of reserves for all periods presented were related to multifamily loans and the~~ ratio of net recoveries to the average loans and investments outstanding ~~during the nine months ended September 30, 2017 was 0.1%. The ratio of net charge-offs to the average loans and investments outstanding during the three and nine months ended September 30, 2016~~ were de ~~minimis and (0.2)%, respectively.~~minimus for all periods presented.

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 ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017.

We have six loans with a carrying value totaling ~~$120.5~~$120.9 million at June 30, 2018, which mature in September ~~30, 2017~~2018, that are collateralized by a land development project. ~~These loans were scheduled to mature in September 2017 and were extended to September 2018.~~ The loans do not carry a current pay rate of interest, but five of the loans with a carrying value totaling ~~$111.2~~$111.5 million entitle us to a weighted average accrual rate of interest of ~~8.50%~~8.89%. 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. ~~As of September~~At June 30, 2018 and December 31, 2017, we ~~have~~had cumulative allowances for loan losses of $50.7 million and $49.1 million, respectively, 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.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

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

	September 30, 2017						Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017				June 30, 2018						Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
Asset Class	Unpaid Principal Balance		Carrying Value (1)		Allowance for Loan Losses		Average Recorded Investment (2)		Interest Income Recognized		Average Recorded Investment (2)		Interest Income Recognized		UPB		Carrying Value (1)		Allowance for Loan Losses		Average Recorded Investment (2)		Interest Income Recognized		Average Recorded Investment (2)		Interest Income Recognized

Land	$	131,085,948	$	125,325,106	$	53,883,478	$	131,085,948	$	—	$	131,085,948	$	—	$	132,559	$	125,693	$	55,533	$	131,985	$	—	$	131,823	$	—
Hotel	34,750,000		34,750,000		5,700,000		34,750,000		—		34,750,000		370,877		—		—		—		17,375		—		17,375		—
Office	27,549,082		22,764,944		21,972,444		27,551,332		27,728		27,555,832		79,065		2,279		2,279		1,500		2,281		31		2,284		60
Commercial	1,700,000		1,700,000		1,700,000		1,700,000		—		1,700,000		—		1,700		1,700		1,700		1,700		—		1,700		—
Multifamily	—		—		—		—		—		1,271,058		22,063
Total	$	195,085,030	$	184,540,050	$	83,255,922	$	195,087,280	$	27,728	$	196,362,838	$	472,005	$	136,538	$	129,672	$	58,733	$	153,341	$	31	$	153,181	$	60

	December 31, 2016						Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016				December 31, 2017						Three Months Ended June 30, 2017				Six Months Ended June 30, 2017

Land	$	131,085,948	$	125,925,677	$	53,883,478	$	130,012,569	$	—	$	128,740,618	$	—	$	131,086	$	124,812	$	53,883	$	131,086	$	—	$	131,086	$	—
Hotel	34,750,000		34,496,296		3,700,000		34,750,000		291,542		34,750,000		857,459		34,750		34,750		5,700		34,750		60		34,750		371
Office	27,562,582		22,778,444		21,972,444		27,569,332		23,601		27,573,832		69,763		2,288		2,288		1,500		27,556		27		27,558		51
Commercial	1,700,000		1,700,000		1,700,000		1,700,000		—		1,700,000		—		1,700		1,700		1,700		1,700		—		1,700		—
Multifamily	2,542,115		2,450,618		2,455,653		2,654,615		22,937		5,004,615		134,142		—		—		—		880		—		1,271		22
Total	$	197,640,645	$	187,351,035	$	83,711,575	$	196,686,516	$	338,080	$	197,769,065	$	1,061,364	$	169,824	$	163,550	$	62,783	$	195,972	$	87	$	196,365	$	444

(1) Represents the UPB of ~~six and eight~~four impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at ~~September~~both June 30, ~~2017~~2018 and December 31, ~~2016, respectively.~~2017.

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

At ~~September~~June 30, ~~2017, five~~2018, two loans with an aggregate net carrying value of ~~$32.6~~$0.8 million, net of related loan loss reserves of ~~$27.9~~$1.7 million, were classified as non-performing. At December 31, ~~2016, three fully reserved~~2017, two loans with an aggregate net carrying value of ~~$22.9~~$29.1 million, net of related loan loss reserves of $7.4 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:~~follows (in thousands):

	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
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		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
Hotel	$	34,750,000	$	—	$	34,750,000	$	—	$	—	$	—	—		—		—		34,750		—		34,750
Office	20,472,444		—		20,472,444		20,472,444		—		20,472,444		831		—		831		—		—		—
Multifamily	2,601,528		—		2,601,528		680,653		—		680,653
Commercial	1,700,000		—		1,700,000		1,700,000		—		1,700,000
Retail	990,667		—		990,667		—		—		—
Total	$	60,514,639	$	—	$	60,514,639	$	22,853,097	$	—	$	22,853,097	$	2,531	$	—	$	2,531	$	36,450	$	—	$	36,450

At ~~September~~both June 30, ~~2017~~2018 and December 31, ~~2016, we did not have any~~ 2017, there were noloans contractually past due 90 days or more that were still accruing interest.

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

~~A summary of~~There were no loan modifications, refinancings and/or extensions ~~by asset class~~during the six months ended June 30, 2018 that wewere considered ~~to be~~ troubled debt ~~restructurings were as follows:~~

Three Months Ended September 30, 2017

Nine Months Ended September 30, 2017

Asset Class

Number
of Loans

Original
Unpaid
Principal
Balance

Original
Wtd. Avg.
Rate of
Interest

Modified
Unpaid
Principal
Balance

Modified
Wtd. Avg.
Rate of
Interest

Number
of Loans

Original
Unpaid
Principal
Balance

Original
Wtd. Avg.
Rate of
Interest

Modified
Unpaid
Principal
Balance

Modified
Wtd. Avg.
Rate of
Interest

Hotel

—

$
—

—

$
—

—

1

$
34,750,000

4.01
%
$
34,750,000

4.01
%

Three Months Ended September 30, 2016

Nine Months Ended September 30, 2016

Multifamily

1

$
14,646,456

5.33
%
$
14,646,456

5.33
%
1

$
14,646,456

5.33
%
$
14,646,456

5.33
%
Office

1

2,315,000

4.03
%
2,315,000

4.03
%
1

2,315,000

4.03
%
2,315,000

4.03
%

2

$
16,961,456

5.15
%
$
16,961,456

5.15
%
2

$
16,961,456

5.15
%
$
16,961,456

5.15
%

~~The~~restructurings. During the six months ended June 30, 2017, there was a $34.8 million loan ~~which~~to a hotel property that was modified ~~during the nine months ended September 30, 2017 was~~and considered a troubled debt restructuring as a result of a forbearance agreement entered into with the borrower in the second quarter of ~~2017 and~~2017. This loan was subsequently classified as ~~non-performing as~~non-performing. This loan was modified to increase the total recovery of ~~September 30, 2017.~~the combined principal and interest. There were no other loans in which we considered the modifications to be troubled debt restructurings ~~that were subsequently considered non-performing as of September 30, 2017 and 2016~~ and no additional loans ~~were~~ considered to be impaired ~~due to~~as a result of our troubled debt restructuring analysis ~~for~~performed during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016. These loans were modified to increase the total recovery of the combined principal and interest from the loan.~~2017.

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. AsAt June 30, 2018, we had total interest reserves of ~~September 30,~~$47.6 million on 92 loans with an aggregate UPB of $1.89 billion. At December 31, 2017, we had total interest reserves of ~~$30.1~~$52.5 million on 7081 loans with an aggregate UPB of ~~$1.09~~$1.57 billion. ~~As of December 31, 2016, we had total interest reserves of $20.4 million on 75 loans with an aggregate UPB of $1.01 billion.~~

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

Note 54 — Loans Held-for-Sale, Net

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

	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017

Fannie Mae	$	185,188,000		$	538,189,475		$	204,658		$	243,717
Freddie Mac	142,312,000			124,102,000			102,357			47,545
FHA	1,033,203			56,247			1,119			987
	328,533,203			662,347,722			308,134			292,249
Fair value of future MSR	5,450,662			13,145,814			4,754			5,806
Unearned discount	(715,889		)	(2,126,232		)	(1,401		)	(612		)
Loans held-for-sale, net	$	333,267,976		$	673,367,304		$	311,487		$	297,443

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 and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we sold ~~$1.05~~$1.02 billion and ~~$3.62~~$2.08 billion, respectively, of loans held-for-sale and recorded gain on sales of ~~$16.3~~$14.8 million and ~~$52.1~~$32.2 million, respectively. During ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, we sold ~~$551.8 million~~$1.20 billion and $2.57 billion, respectively, of loans held-for-sale ~~excluding $418.2 million of sales related to loans that were acquired on July 14, 2016 as part of the Acquisition,~~ and recorded ~~gain~~gains on sales of ~~$9.0 million.~~$17.6 million and $35.7 million, respectively. At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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.

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

Note 65 — 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%~~8% - 15% (representing a weighted average discount rate of ~~13%~~12%) based on our best estimate of market discount rates. The weighted average estimated life remaining of our MSRs was ~~7.1~~7.3 years and ~~6.9~~7.2 years at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

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

	Three Months Ended September 30, 2017									Nine Months Ended September 30, 2017									Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	Acquired			Originated			Total			Acquired			Originated			Total			Acquired			Originated			Total			Acquired			Originated			Total
Balance at beginning of period	$	168,189,300		$	74,894,159		$	243,083,459		$	194,800,754		$	32,942,232		$	227,742,986		$	131,934		$	123,798		$	255,732		$	143,270		$	109,338		$	252,608
Additions	—			20,719,529			20,719,529			—			66,273,164			66,273,164			—			18,493			18,493			—			38,293			38,293
Amortization	(8,952,573		)	(2,758,805		)	(11,711,378		)	(29,074,057		)	(6,353,160		)	(35,427,217		)	(7,517		)	(4,420		)	(11,937		)	(15,512		)	(8,290		)	(23,802		)
Write-offs	(4,193,665		)	(22,286		)	(4,215,951		)	(10,683,635		)	(29,639		)	(10,713,274		)
Write-downs and payoffs																			(4,400		)	(867		)	(5,267		)	(7,741		)	(2,337		)	(10,078		)
Balance at end of period	$	155,043,062		$	92,832,597		$	247,875,659		$	155,043,062		$	92,832,597		$	247,875,659		$	120,017		$	137,004		$	257,021		$	120,017		$	137,004		$	257,021

	Three and Nine Months Ended September 30, 2016									Three Months Ended June 30, 2017									Six Months Ended June 30, 2017
Balance at beginning of period	$	—		$	—		$	—		$	180,945		$	57,986		$	238,931		$	194,801		$	32,942		$	227,743
Additions	221,647,421			11,905,394			233,552,815			—			19,083			19,083			—			45,553			45,553
Amortization	(7,358,639		)	(227,885		)	(7,586,524		)	(9,660		)	(2,168		)	(11,828		)	(20,122		)	(3,594		)	(23,716		)
Write-offs	(1,669,081		)	—			(1,669,081		)
Write-downs and payoffs										(3,096		)	(7		)	(3,103		)	(6,490		)	(7		)	(6,497		)
Balance at end of period	$	212,619,701		$	11,677,509		$	224,297,210		$	168,189		$	74,894		$	243,083		$	168,189		$	74,894		$	243,083

We ~~recorded write-offs relating to specific MSRs, primarily due to prepayments~~collected prepayment fees of ~~certain loans, of $4.2~~$4.9 million and ~~$10.7~~$8.7 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and $1.7 million during both the three and nine months ended September 30, 2016. We collected prepayment fees of $3.8 million and $7.9 million during the three and nine months ended September 30, 2017, respectively, and $1.5 million during both the three and nine months ended September 30, 2016, which are included as a component of servicing revenue, net on the consolidated statements of income. During the three and six months ended June 30, 2017, we collected prepayment fees totaling $2.1 million and $4.1 million, respectively. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we had no valuation allowance recorded on any of our MSRs.

~~The expected amortization of capitalized MSRs recorded as of September 30, 2017 is shown in the table below. Actual amortization may vary from these estimates.~~

Year

Amortization

2017 (three months ended 12/31/2017)

$
11,925,780

2018

45,577,306

2019

41,680,988

2020

35,461,494

2021

28,170,144

2022

22,176,139

Thereafter

62,883,808

Total

$
247,875,659

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

The expected amortization of capitalized MSRs recorded as of June 30, 2018 is shown in the table below. Actual amortization may vary from these estimates (in thousands).

Year	Amortization
2018 (six months ending 12/31/2018)	$	23,934
2019	45,327
2020	40,340
2021	33,259
2022	26,708
2023	22,303
Thereafter	65,150
Total	$	257,021

Note 76 — Mortgage Servicing

~~An analysis of the product~~Product and geographic concentrations that impact our servicing revenue ~~is shown~~are as follows ($ in ~~the following tables:~~thousands):

September 30, 2017
June 30, 2018									June 30, 2018
Product Concentrations	Product Concentrations					Geographic Concentrations			Product Concentrations					Geographic Concentrations
				Percent of			Percent of					Percent of			UPB Percentage
Product		UPB		Total		State	Total			UPB		Total		State	of Total
Fannie Mae		$	12,331,135,405	79	%	Texas	23	%		$	12,794,277	75	%	Texas	21	%
Freddie Mac		2,732,536,579		18	%	North Carolina	10	%		3,730,980		22	%	North Carolina	10	%
FHA		537,553,532		3	%	California	8	%		585,017		3	%	California	8	%
Total		$	15,601,225,516	100	%	New York	8	%		$	17,110,274	100	%	New York	8	%
						Georgia	6	%						Georgia	6	%
						Florida	5	%						Florida	6	%
						Other (1)	40	%						Other (1)	41	%
						Total	100	%						Total	100	%

December 31, 2016
December 31, 2017									December 31, 2017
Product Concentrations	Product Concentrations					Geographic Concentrations			Product Concentrations					Geographic Concentrations
				Percent of			Percent of					Percent of			UPB Percentage
Product		UPB		Total		State	Total			UPB		Total		State	of Total
Fannie Mae		$	11,181,152,400	83	%	Texas	24	%		$	12,502,699	77	%	Texas	22	%
Freddie Mac		1,953,244,541		14	%	North Carolina	9	%		3,166,134		20	%	North Carolina	10	%
FHA		420,688,577		3	%	California	8	%		537,482		3	%	California	8	%
Total		$	13,555,085,518	100	%	New York	8	%		$	16,206,315	100	%	New York	8	%
						Georgia	5	%						Georgia	6	%
						Other (1)	46	%						Florida	6	%
						Total	100	%						Other (1)	40	%
														Total	100	%

(1) No other individual state represented 5%4% or more of the total.

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, our weighted average servicing fee was ~~48.0~~46.9 basis points and ~~47.8~~47.7 basis points, respectively. We held cash in escrow for these loans totaling ~~$506.6~~$482.8 million and ~~$401.7~~$477.9 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, which is not reflected in our consolidated balance sheets. These escrows are maintained in separate accounts at ~~two~~several federally insured depository institutions, which may exceed FDIC insured limits.

~~Note 8 — Securities~~

~~Available-for-Sale~~

~~Our available-for-sale securities consist~~ We earn interest income on these escrow deposits, generally based on a market rate of ~~equity securities~~interest negotiated with the financial institutions that hold the escrow deposits. Interest earned on escrows, net of interest paid to the borrower, was $2.7 million and A~~gency Business commercial mortgage interest-only securities (“Agency IOs”) from loans sold~~$4.9 million during the three and ~~securitized under~~six months ended June 30, 2018, respectively, and $1.1 million and $1.8 million during the ~~Freddie Mac Small Balance Loan Program (“SBL Program”).~~

~~Equity Securities.~~ ~~We own common stock of CV Holdings, Inc., formerly Realty Finance Corporation, which~~three and six months ended June 30, 2017, respectively, and is a ~~commercial real estate specialty finance company. These securities are carried at their estimated fair value with unrealized gains (losses) reported~~component of servicing revenue, net in ~~accumulated other comprehensive~~the consolidated statements of income.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

~~The following is a summary of the equity securities classified as available-for-sale:~~Note 7 — Securities Held-to-Maturity

September 30, 2017

Amortized
Cost

Cummulative
Unrealized Gain

Carrying Value /
Estimated Fair
Value

2,939,465 common shares of CV Holdings, Inc.

$
58,789

$
205,764

$
264,553

December 31, 2016

2,939,465 common shares of CV Holdings, Inc.

$
58,789

$
558,499

$
617,288

~~Agency IOs.~~ ~~Through our Agency Business, we originate and sell loans to~~ Freddie Mac ~~under the SBL Program, which are then pooled and securitized. Prior~~may choose to ~~the Acquisition and upon securitization of SBL Program~~hold, sell or securitize loans ~~our Former Manager received Agency IOs~~we sell to them under the SBL Program, which we acquired in the Acquisition. We elected the fair value option for the Agency IOs, which requires changes in fair value to be recognized through earnings. We record such gains and losses to gain on sales, including fee-based services, net in the consolidated statements of income. As a result of changes in the Freddie Mac SBL ~~Program in 2016, we do not expect to receive Agency IOs from future securitizations.~~

~~A summary of our Agency IOs activity is as follows:~~

Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2017

Balance at beginning of period

$
4,602,722

$
4,786,175

Changes in fair value

(160,190
)
(343,643
)
Balance at end of period

$
4,442,532

$
4,442,532

Three and Nine Months
Ended September 30, 2016

Balance at beginning of period

$
—

Additions from the Acquisition

4,908,283

Changes in fair value

(46,021
)
Balance at end of period

$
4,862,262

The UPB of loans associated with our Agency IOs was $839.2 million and $904.4 million at September 30, 2017 and December 31, 2016, respectively, which mature between 2035 and 2036. During the three and nine months ended September 30, 2017, we recognized interest income related to these Agency IOs of $0.3 million and $0.9 million, respectively, and $0.3 million during both the three and nine months ended September 30, 2016.

~~Held-to-Maturity~~

program. As part of the securitizations under the SBL ~~Program securitizations described above,~~program, we ~~are required~~have the option to purchase the bottom tranche bond, generally referred to as the “B Piece,” that represents the bottom 10%, or highest risk, of the securitization. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we purchased two B Piece bonds with an initial face value of $31.2 million, at a discount, for $21.6 million. As of June 30, 2018, we retained 49%, or ~~$28.1~~$72.2 million initial face value, of ~~two~~five B Piece bonds, which were purchased at a discount for ~~$18.3~~$48.8 million, and sold the remaining 51% to ~~the third party at par. Prior to 2017,~~ a third party ~~investor agreed to purchase the entire B Piece of each SBL Program securitization~~ at par. These held-to-maturity securities are carried at cost, net of unamortized discounts, and are collateralized by a pool of multifamily mortgage loans, bear interest at an initial weighted average variable rate of ~~3.55%~~3.63% and have an estimated weighted average maturity of ~~6.1~~5.7 years. The weighted average effective interest rate was ~~13.38%~~11.42% and 12.97% at ~~September~~June 30, 2018 and December 31, 2017,

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

respectively, including the accretion of discount. Approximately ~~$3.4~~$10.8 million is estimated to mature within one year, ~~$11.3~~$31.0 million is estimated to mature after one year through five years, ~~$8.1~~$20.4 million is estimated to mature after five years through ten years and ~~$5.2~~$9.2 million is estimated to mature after ten years.

The following is a summary of the held-to-maturity securities we held ~~at September 30, 2017:~~(in thousands):

Face Value

Carrying Value

Unrealized
Gain

Estimated Fair
Value

B Piece bonds

$
28,035,293

$
18,851,089

$
31,908

$
18,882,997

June 30, 2018
	Face Value		Carrying Value		Unrealized (Loss) Gain			Estimated Fair Value
B Piece bonds	$	71,222	$	50,342	$	(189	)	$	50,153

December 31, 2017
B Piece bonds	$	40,566	$	27,837	$	602	$	28,439

We do not intend to sell these investments and it is not more-likely-than-not that we will be required to sell these investments before recovering the cost basis, which may be at maturity. These securities are evaluated periodically to determine whether a decline in their value is other-than-temporary, though such a determination is not intended to indicate a permanent decline in value. As of ~~September~~June 30, ~~2017,~~2018, no impairment was recorded on these held-to-maturity securities. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recorded interest income of $0.5 million and ~~$0.9~~$1.1 million, respectively, and, during the three and six months ended June 30, 2017, we recorded interest income of $0.3 million and $0.4 million, respectively, related to these investments.

Note 98 — Investments in Equity Affiliates

We account for all investments in equity affiliates under the equity method. The following is a summary of our investments in equity ~~affiliates:~~affiliates (in thousands):

Investments in Equity Affiliates at

UPB of Loans to
Equity Affiliates at

Equity Affiliates

September 30, 2017

December 31, 2016

September 30, 2017

Arbor Residential Investor LLC

$
26,821,643

$
28,917,457

$
—

West Shore Café

2,120,347

2,050,347

1,687,500

Lightstone Value Plus REIT L.P.

1,894,727

1,894,727

—

JT Prime

425,000

425,000

—

East River Portfolio

68,923

83,222

1,705,938

Lexford Portfolio

100

100

—

Issuers of Junior Subordinated Notes

—

578,000

—

Total

$
31,330,740

$
33,948,853

$
3,393,438

~~Arbor Residential Investor LLC (“ARI”)~~. During the three and nine months ended September 30, 2017, we recorded a loss of $1.3 million and $1.9 million, respectively, and during the three and nine months ended September 30, 2016, we recorded income of $3.9 million and $8.5 million, respectively, to income from equity affiliates in our consolidated statements of income related to our investment in this residential mortgage banking business.

During the nine months ended September 30, 2017, we funded $0.6 million of additional mortgage purchases in connection with a joint venture that invests in non-qualified residential mortgages purchased from ARI’s origination platform. During the nine months ended September 30, 2017, we received cash distributions from this joint venture totaling $0.9 million (which were classified as a return of capital). During the three and nine months ended September 30, 2017 we recorded income of less than $0.1 million and $0.1 million, respectively, and during the three and nine months ended September 30, 2016, we recorded income of $0.3 million and $0.4 million, respectively, to income from equity affiliates in our consolidated statements of income related to this investment.

	Investments in Equity Affiliates at				UPB of Loans to Equity Affiliates at
Equity Affiliates	June 30, 2018		December 31, 2017		June 30, 2018

Arbor Residential Investor LLC	$	19,631	$	19,193	$	—
West Shore Café	2,193		2,140		1,688
Lightstone Value Plus REIT L.P	1,895		1,895		—
JT Prime	425		425		—
East River Portfolio	—		—		—
Lexford Portfolio	—		—		280,500
Total	$	24,144	$	23,653	$	282,188

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

~~The summarized~~Arbor Residential Investor LLC (“ARI”). During the three and six months ended June 30, 2018, we recorded income of $0.7 million and $0.8 million, respectively, and, during both the three and six months ended June 30, 2017, we recorded a loss of $0.7 million to income (loss) from equity affiliates in our consolidated statements of ~~operations for~~income related to our investment in ~~ARI are as follows:~~this residential mortgage banking business. 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.

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Statements of Operations:

Total revenues

$
32,429,382

$
71,040,665

$
108,195,846

$
172,929,878

Total expenses

40,214,486

47,256,537

120,232,132

128,120,821

Net (loss) income

$
(7,785,104
)
$
23,784,128

$
(12,036,286
)
$
44,809,057

Arbor’s share of (loss) income

$
(1,230,905
)
$
4,167,233

$
(1,844,144
)
$
8,885,528

During both the six months ended June 30, 2018 and 2017, we received cash distributions totaling $0.4 million (which were classified as returns of capital) in connection with a joint venture that invests in non-qualified residential mortgages purchased from ARI’s origination platform. During all periods presented, we recorded income of less than $0.1 million to income (loss) from equity affiliates in our consolidated statements of income related to this investment.

Lexford Portfolio. InDuring the three and ~~nine~~six months ended ~~September~~June 30, 2018, we received distributions of $0.6 million and $1.2 million, respectively, and, during the three and six months ended June 30, 2017, we received distributions of ~~$0.7~~$0.6 million and ~~$2.0 million, respectively, and in the three and nine months ended September 30, 2016, we received distributions of $0.7 million and $2.1~~$1.3 million, respectively, from this equity investment, which was recognized as income. See Note 1918 — Agreements and Transactions with Related Parties for details.

~~Issuers of Junior Subordinated Notes.~~ In the first quarter of 2017, we purchased, at a discount, a portion of our junior subordinated notes. In connection with this extinguishment of debt, we settled our investment in these affiliated entities. See Note 11 — Debt Obligations for details.

~~Equity Participation Interest.~~ In the third quarter of 2017, we received $1.5 million from the redemption of a 25% equity participation interest we held in a multifamily property, which is included in income from equity affiliates on the consolidated statements of income. Prior to this transaction, our basis in this investment was zero.

Note 109 — Real Estate Owned ~~and Held-For-Sale~~

Our real estate assets at both ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were comprised of a hotel property and an office building.

Real Estate Owned

	September 30, 2017									December 31, 2016									June 30, 2018									December 31, 2017
	Hotel Property			Office Building			Total			Hotel Property			Office Building			Total
(in thousands)																			Hotel Property			Office Building			Total			Hotel Property			Office Building			Total

Land	$	3,293,651		$	4,509,000		$	7,802,651		$	3,293,651		$	4,509,000		$	7,802,651		$	3,294		$	4,509		$	7,803		$	3,294		$	4,509		$	7,803
Building and intangible assets	30,643,722			1,955,454			32,599,176			30,473,898			1,563,254			32,037,152			30,918			2,010			32,928			30,699			2,010			32,709
Less: Impairment loss	(13,307,354		)	—			(13,307,354		)	(11,200,000		)	—			(11,200,000		)	(13,307		)	(2,500		)	(15,807		)	(13,307		)	(500		)	(13,807		)
Less: Accumulated depreciation and amortization	(9,089,355		)	(650,398		)	(9,739,753		)	(8,658,737		)	(489,261		)	(9,147,998		)	(9,505		)	(769		)	(10,274		)	(9,228		)	(690		)	(9,918		)
Real estate owned, net	$	11,540,664		$	5,814,056		$	17,354,720		$	13,908,812		$	5,582,993		$	19,491,805		$	11,400		$	3,250		$	14,650		$	11,458		$	5,329		$	16,787

For the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ our ~~remaining~~ hotel property had a weighted average occupancy rate of ~~55%~~58% and ~~58%~~57%, respectively, a weighted average daily rate of ~~$113~~$116 and ~~$108,~~$117, respectively, and weighted average revenue per available room of ~~$62 and $63, respectively.~~$67 for both periods. The operation of a hotel property is seasonal with the majority of revenues earned in the first two quarters of the calendar year. ~~During~~ Of the ~~second quarter of 2016, through site visits and discussion with market participants, we determined that the~~total impairment losses recorded on our hotel property ~~exhibited indicators~~ of ~~impairment~~$13.3 million, $1.5 million and ~~performed an impairment analysis. As a result of this impairment analysis, we~~$2.7 million were recorded ~~an impairment loss of $11.2 million. During~~during the ~~first half of~~three and six months ended June 30, 2017, ~~we received additional market analyses, including discussions with market participants, which resulted in further impairments totaling $2.7 million.~~respectively.

Our office building was fully occupied by a single tenant until April 2017 when the lease expired. The building is currently vacant. During the three months ended June 30, 2018, based on discussions with market participants, we determined that the office building exhibited indicators of impairment and performed an impairment analysis. As a result of this impairment analysis, we recorded an impairment loss of $2.0 million.

Our real estate owned assets had restricted cash balances totaling $0.8 million and $0.7 million at June 30, 2018 and December 31, 2017, respectively, due to escrow requirements.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

~~Our real estate assets had restricted cash balances due to escrow requirements totaling~~ ~~$0.7 million at both September 30, 2017 and December 31, 2016.~~

~~Real Estate Held-For-Sale~~

In 2016, we sold our three remaining multifamily properties and a hotel property for a total of $50.7 million and recognized a gain of $11.6 million. A portion of the sales proceeds were used to payoff the outstanding debt on the multifamily properties of $27.1 million.

~~The results of operations for properties classified as held-for-sale are summarized as follows:~~

Nine Months Ended
September 30, 2016

Revenue:

Property operating income

$
2,845,231

Expenses:

Property operating expenses

1,994,346

Depreciation

334,631

Net income

$
516,254

~~There were no properties classified as held-for-sale during the nine months ended September 30, 2017.~~

Note 1110 — Debt Obligations

Credit Facilities and Repurchase Agreements

The following table outlines borrowings under our credit facilities and repurchase ~~agreements:~~agreements ($ in thousands):

				September 30, 2017						December 31, 2016
	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					June 30, 2018						December 31, 2017
																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
$150 million repurchase facility	Oct. 2018	Oct. 2019	L + 2.25% to 3.50%	$	149,157,816	$	253,150,000	3.63	%	$	106,051,080	$	183,827,574	3.12	%

$375 million repurchase facility																Mar. 2020	Mar. 2021	L + 1.75% to 3.50%	$	258,712	$	354,500	4.39	%	$	102,350	$	145,850	3.90	%

$100 million repurchase facility	June 2019	N/A	L + 2.00%	2,407,564		6,600,000		3.28	%	21,598,322		34,850,000		2.96	%	June 2019	June 2020	L + 1.75% to 2.00%	79,764		111,317		3.92	%	2,445		6,600		3.61	%

$75 million credit facility	Dec. 2017	N/A	L + 2.125% to 2.50%	12,096,267		28,088,500		3.40	%	38,703,886		63,158,500		2.94	%	Dec. 2018	N/A	L + 1.75% to 2.50%	24,901		36,799		3.89	%	—		—		—

$75 million credit facility	June 2018	N/A	L + 2.00%	16,206,619		42,300,000		3.28	%	23,276,773		31,725,000		2.81	%	June 2019	N/A	L + 2.00%	2,894		4,700		4.15	%	8,999		16,000		3.61	%

$50 million credit facility	Feb. 2018	Feb. 2019	L + 2.00%	25,000,000		31,250,000		3.28	%	46,373,641		58,000,000		2.81	%	Feb. 2019	N/A	L + 2.00%	28,555		35,700		4.15	%	32,538		40,700		3.61	%

$50 million credit facility	Sept. 2019	Sept. 2021	L + 2.50% to 3.25%	3,563,565		4,625,000		4.54	%	7,956,000		9,885,000		4.08	%	Sept. 2019	Sept. 2021	L + 2.50% to 3.25%	—		—		—		3,581		4,625		4.88	%

$25.5 million credit facility	Oct. 2019	N/A	L + 2.50%	13,909,625		18,753,364		3.78	%	—		—		—		Oct. 2019	N/A	L + 2.50%	15,742		34,000		4.65	%	13,920		18,753		4.12	%

$10 million credit facility	Mar. 2018	N/A	L + 2.50%	10,000,000		—		3.78	%	—		—		—
$25 million working capital facility																June 2019	N/A	L + 2.25%	25,000		—		4.40	%	10,000		—		4.12	%

$23.2 million credit facility																Feb. 2020	Feb. 2021	L + 2.30%	23,085		30,900		4.45	%	—		—		—

$20 million credit facility																Mar. 2020	Mar. 2021	L + 2.50%	19,900		41,650		4.65	%	—		—		—

$17.4 million credit facility																June 2020	June 2021	L + 2.40%	12,374		15,844		4.55	%	—		—		—

$7.5 million credit facility																Aug. 2018	N/A	L + 2.75%	7,461		9,340		4.91	%	7,432		9,340		4.37	%

Repurchase facility - securities (2)																N/A	N/A	L + 2.50% to 3.50%	101,327		—		4.80	%	53,938		—		4.45	%

$3 million master security agreement	Oct. 2020	N/A	2.96% to 3.42%	1,997,894		—		3.21	%	2,532,966		—		3.21	%	Oct. 2020	N/A	2.96% to 3.42%	1,504		—		3.20	%	1,834		—		3.21	%

Total				$	234,339,350	$	384,766,864	3.58	%	$	246,492,668	$	381,446,074	3.02	%
$2.2 million master security agreement																Mar. 2021	N/A	4.60%	1,629		—		4.66	%	—		—		—
Structured Business total																			$	602,848	$	674,750	4.30	%	$	237,037	$	241,868	4.02	%

Agency Business

$500 million ASAP agreement	N/A	N/A	L + 1.05%	$	49,508,743	$	49,508,743	2.28	%	$	142,556,962	$	142,556,962	1.65	%
$500 million ASAP agreement (3)																N/A	N/A	L + 1.05%	$	47,593	$	47,593	3.14	%	$	121,880	$	121,880	2.61	%

$150 million credit facility (2)	Jan. 2018	N/A	L + 1.40%	80,709,289		80,786,203		2.63	%	268,530,211		268,571,797		2.05	%
$150 million credit facility																Jan. 2019	N/A	L + 1.30%	126,965		127,100		3.39	%	21,802		21,821		2.96	%

$150 million credit facility (3)	July 2018	N/A	L + 1.35%	131,409,000		131,559,000		2.64	%	210,009,449		210,138,900		2.05	%
$150 million credit facility																Aug. 2018	N/A	L + 1.30%	111,669		111,678		3.39	%	99,242		99,357		2.91	%

$100 million credit facility (4)	June 2018	N/A	L + 1.30%	64,881,000		64,881,000		2.53	%	39,047,500		39,047,500		1.95	%	June 2019	N/A	L + 1.25%	9,190		9,190		3.39	%	23,785		23,785		2.86	%

$100 million repurchase facility	Aug. 2018	N/A	L + 1.35%	1,479,155		1,542,000		2.58	%	—		—		—		Aug. 2018	N/A	L + 1.35%	12,239		12,250		3.44	%	24,827		24,873		2.91	%

Total				$	327,987,187	$	328,276,946	2.56	%	$	660,144,122	$	660,315,159	1.96	%
Agency Business total																			$	307,656	$	307,811	3.35	%	$	291,536	$	291,716	2.78	%

Consolidated total				$	562,326,537	$	713,043,810	2.99	%	$	906,636,790	$	1,041,761,233	2.25	%				$	910,504	$	982,561	3.98	%	$	528,573	$	533,584	3.34	%

(1) The debt carrying value for the Structured Business at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 was net of unamortized deferred finance costs of ~~$1.6~~$3.1 million and ~~$1.9~~$2.2 million, respectively. The debt carrying value for the Agency Business at both ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 was net of unamortized deferred finance costs of ~~$0.3~~$0.2 million.

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

(2) ~~The committed amount under the~~As of June 30, 2018 and December 31, 2017, this facility was ~~temporarily increased to $200.0~~collateralized by CLO bonds retained by us with a principal balance of $114.2 million ~~which expired in April 2017,~~ and ~~again to $225.0~~$61.0 million, ~~which expired in August 2017.~~respectively, and B Piece bonds with a carrying value of $50.3 million and $27.8 million, respectively.

(3) The ~~committed amount~~note rate under ~~the facility was temporarily increased~~this agreement is subject to ~~$350.0 million, which expired in February 2017.~~a LIBOR Floor of 35 basis points.

(4) The committed amount under the facility was temporarily increased to $250.0 million, which ~~expires~~expired in January 2018.

Structured Business

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the weighted average interest rate for the credit facilities and repurchase agreements of our Structured Business, ~~noted in the above table, was 3.58% and 3.02%, respectively. Including~~including certain fees and costs, such as structuring, commitment, non-use and warehousing fees, ~~the weighted average interest rate~~ was ~~4.06%~~4.72% and ~~3.42% at September 30, 2017 and December 31, 2016,~~4.51%, respectively. The leverage on our loans and investment portfolio financed through our credit facilities and repurchase agreements, excluding the ~~$10.0 million~~securities repurchase facility, working capital line of credit and the ~~$3.0 million master~~ security ~~agreement~~agreements used to finance leasehold and capital expenditure improvements at our corporate office, was ~~58%~~71% and ~~64%~~72% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

In ~~October 2017,~~June 2018, we entered into a $17.4 million credit facility to finance a multifamily bridge loan. The facility bears interest at a rate of 240 basis points over LIBOR and matures in June 2020, with a one-year extension option.

In June 2018, we amended our ~~$150.0~~$10.0 million working capital facility to increase the committed amount by $15.0 million to $25.0 million, reduce the interest rate by 25 basis points and extend the maturity date to June 2019.

In April 2018, we amended our $100.0 million repurchase facility ~~increasing~~adjusting the interest rate from 200 basis points over LIBOR to an interest rate range of 175 basis points to 200 basis points over LIBOR, depending on the class of loan financed.

In April 2018, we amended our $75.0 million credit facility adjusting the interest rate from 200 basis points to 250 basis points over LIBOR to an interest rate range of 175 basis points to 250 basis points over LIBOR, depending on the type of loan financed.

In March 2018, we amended our $225.0 million repurchase facility to increase the committed amount by $75.0 million to ~~$225.0 million.~~$300.0 million, reduce the interest rates by 50 basis points and extend the maturity date to March 2020 with a one-year extension option. In June 2018, we also temporarily increased the committed amount by $75.0 million to $375.0 million, which expires in December 2018.

In ~~September 2017,~~March 2018, we entered into a ~~$25.5~~$20.0 million credit facility to finance a ~~multifamily~~healthcare facility bridge loan. The facility bears interest at a rate of 250 basis points over LIBOR and matures in ~~October 2019.~~March 2020, with a one-year extension option.

In ~~June 2017,~~March 2018, we ~~replaced~~entered into a ~~$100.0~~master security agreement that was used to finance certain capital expenditures. We have a $2.2 million note payable under this agreement which bears interest at a fixed rate of 4.60%, requires monthly amortization payments and matures in 2021.

In February 2018, we entered into a $23.2 million credit facility ~~with~~to finance a ~~$100.0 million repurchase facility with the same financial institution which matures in June 2019 and bears interest at 200 basis points over LIBOR, representing a 15 basis point rate decrease.~~self storage bridge loan. The facility ~~has a maximum advance rate of 75%.~~

~~In June 2017, we extended the maturity date of our $75.0 million credit facility that~~ bears interest at a rate of ~~200 basis points over LIBOR to June 2018.~~

In March 2017, we entered into a $10.0 million unsecured working capital line of credit that bears interest at a rate of 250 basis points over LIBOR. This line of credit is scheduled to mature in March 2018 and is renewable annually.

~~Agency Business~~

In July 2017, we amended one of our $150.0 million credit facilities to provide a short term extension to the maturity date and reduce the interest rate 5 basis points to 135 basis points over LIBOR. In September 2017, we extended the maturity date to July 2018.

~~In August 2017, we entered into a $100.0 million repurchase facility that bears interest at a rate of 135~~230 basis points over LIBOR and matures in ~~August 2018. The financial institution that provided this facility has~~February 2020, with a ~~security interest in the underlying mortgage notes that serve as collateral for this facility.~~one-year extension option.

Agency Business

In ~~June 2017,~~April 2018, we amended our ~~$100.0~~$150.0 million credit facility ~~to extend the maturity date to June 2018 and reduced~~reducing the interest rate 5 basis points to 130 basis points over LIBOR. ~~The amended agreement also provided us with the option of temporarily increasing the committed amount to $250.0 million subject to prior written notice.~~ In July ~~2017,~~2018, we ~~exercised our option~~temporarily extended the maturity date to August 2018 and ~~increased~~are currently in negotiations to amend the ~~committed amount to $250.0 million, which expires in January 2018.~~agreement and extend its maturity.

~~We have a $500.0~~In January 2018, we amended our $150.0 million Multifamily As Soon as Pooled ® Plus (“ASAP”) agreement with Fannie Mae, which, in March 2017, was increased from $400.0 million. The ASAP agreement is not a committed line, has no expiration date and bearswarehouse facility reducing the interest ~~at a~~ rate ~~of 105~~10 basis points to 130 basis points over LIBOR ~~(with a LIBOR Floor of 0.35%~~and extending the maturity date one year to January 2019.

Collateralized Loan Obligations (“CLOs”)~~. ASAP provides us with a warehousing credit facility~~

We account for ~~mortgage loans that~~our CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary beneficiary and are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to ~~be sold to Fannie Mae and serviced under the Fannie Mae DUS program.~~us.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

In September 2017, we simultaneously terminated our then existing $30.0 million letter of credit facility and entered into a new $50.0 million letter of credit facility with a different financial institution. The new facility bears interest at a fixed rate of 2.875%, representing a 12.5 basis point decrease from the prior facility, matures in September 2020 and is primarily collateralized by our servicing revenue as approved by Fannie Mae and Freddie Mac. The letter of credit facility includes a $5.0 million sublimit for an obligation under the Freddie Mac SBL Program. At September 30, 2017, the letters of credit outstanding include $42.0 million for the Fannie Mae DUS program and $5.0 million for the Freddie Mac SBL Program.

~~Collateralized Loan Obligations (“CLOs”)~~

The following table outlines borrowings and the corresponding collateral under our ~~CLOs:~~CLOs ($ in thousands):

							Collateral (3)						Debt						Collateral (3)
	Debt						Loans				Cash								Loans				Cash
September 30, 2017	Face Value		Carrying Value (1)		Wtd. Avg. Rate (2)		Unpaid Principal		Carrying Value		Restricted Cash (4)
June 30, 2018													Face Value		Carrying Value (1)		Wtd. Avg. Rate (2)		UPB		Carrying Value		Restricted Cash (4)

CLO X													$	441,000	$	435,885	3.59	%	$	502,781	$	500,646	$	49,554
CLO IX													356,400		351,625		3.50	%	460,925		459,562		75
CLO VIII	$	282,874,000	$	278,296,193	2.58	%	$	324,190,963	$	322,527,190	$	40,809,037	282,874		279,221		3.45	%	330,112		329,213		26,288
CLO VII	279,000,000		275,035,774		3.27	%	313,857,643		312,693,431		35,142,358		279,000		275,919		4.14	%	318,684		317,773		36,134
CLO VI	250,250,000		247,207,545		3.76	%	303,821,532		302,750,497		21,178,468		250,250		247,994		4.63	%	297,133		296,065		25,491
CLO V	267,750,000		265,690,976		3.72	%	312,933,082		311,904,481		37,066,918
Total CLOs	$	1,079,874,000	$	1,066,230,488	3.32	%	$	1,254,803,220	$	1,249,875,599	$	134,196,781	$	1,609,524	$	1,590,644	3.80	%	$	1,909,635	$	1,903,259	$	137,542

December 31, 2016	Face Value		Carrying Value (1)		Wtd. Avg. Rate		Unpaid Principal		Carrying Value		Restricted Cash (3)
December 31, 2017

CLO IX													$	356,400	$	351,042	2.97	%	$	372,350	$	371,236	$	88,650
CLO VIII													282,874		278,606		2.92	%	364,838		363,339		162
CLO VII													279,000		275,331		3.61	%	346,524		345,220		13,476
CLO VI	$	250,250,000	$	246,442,883	3.30	%	$	324,569,105	$	323,350,928	$	430,895	250,250		247,470		4.10	%	314,382		313,582		10,618
CLO V	267,750,000		264,864,114		3.26	%	344,679,286		343,747,570		5,320,715		267,750		265,973		4.06	%	347,797		346,803		2,203
CLO IV	219,000,000		217,134,112		3.06	%	291,319,123		290,429,019		8,680,878
Total CLOs	$	737,000,000	$	728,441,109	3.21	%	$	960,567,514	$	957,527,517	$	14,432,488	$	1,436,274	$	1,418,422	3.48	%	$	1,745,891	$	1,740,180	$	115,109

(1) Debt carrying value is net of ~~$13.6~~$18.9 million and ~~$8.6~~$17.9 million of deferred financing fees at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

(2) At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was ~~3.88%~~4.34% and ~~3.71%~~4.08%, respectively.

(3) As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, there was no collateral at risk of default or deemed to be a “credit risk” as defined by the CLO indenture.

(4) Represents restricted cash held for principal repayments as well as for reinvestment in the CLOs. Does not include restricted cash related to interest payments, delayed fundings and expenses.

CLO ~~VIII~~X — In ~~August 2017,~~June 2018, we completed a collateralized securitization vehicle (“CLO ~~VIII”~~X”), issuing ~~six~~seven tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling ~~$312.1~~$494.2 million. Of the total CLO notes issued, ~~$282.9~~$441.0 million were investment grade notes issued to third party investors and ~~$29.2~~$53.2 million were below investment grade notes retained by us. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of ~~$293.7~~$501.9 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio. The financing has a ~~three-year~~four-year replacement period that allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included ~~$71.3~~$58.1 million for the purpose of acquiring additional loan obligations for a period of up to 120 days from the CLO closing date. Subsequently, the issuer will own loan obligations with a face value of ~~$365.0 million.~~$560.0 million, representing leverage of 79%. We retained a residual interest in the portfolio with a notional amount of ~~$82.1~~$119.0 million, including the ~~$29.2~~$53.2 million below investment grade notes. The notes had an initial weighted average interest rate of ~~1.31%~~1.45% plus one-month LIBOR and interest payments on the notes are payable monthly.

CLO ~~VII~~V — In ~~April~~June 2018, we completed the unwind of CLO V, redeeming $267.8 million of outstanding notes which were repaid primarily from the refinancing of the remaining assets within our existing financing facilities (including CLO X), as well as with cash held by CLO V, and expensed $1.3 million of deferred financing fees into interest expense on the consolidated statements of income.

Luxembourg Debt Fund

In November 2017, we ~~completed CLO VII, issuing~~formed a $100.0 million Luxembourg commercial real estate debt fund (“Debt Fund”) and issued $70.0 million of floating rate notes to third party investors ~~three tranches~~which bear an initial interest rate of ~~investment grade CLOs through two newly-formed wholly-owned subsidiaries totaling $279.0 million. As of~~4.15% over LIBOR. The notes mature in 2025 and we retained a $30.0 million equity interest in the ~~CLO closing date,~~Debt Fund. The Debt Fund is a VIE for which we are the ~~notes were~~primary beneficiary and is consolidated in our financial statements. The Debt Fund is secured by a portfolio of loan obligations with a face value of ~~$296.2~~$100.0 million, ~~consisting primarily of~~which includes first mortgage bridge loans, ~~that were contributed~~senior participation interests in first mortgage bridge loans, subordinate participation interest in first mortgage bridge loans and participation interests in mezzanine loans. The Debt Fund allows, for a period of three years, principal proceeds from ~~our existing loan portfolio. The financing has a three-year~~portfolio assets to be reinvested in qualifying replacement assets, subject to certain conditions.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

~~period that allows~~Borrowings and the ~~principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested~~corresponding collateral under our Debt Fund are as follows ($ in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $63.8 million for the purpose of acquiring additional loan obligations for a period of up to 120 days from the CLO closing date, which were subsequently utilized prior to the end of the second quarter of 2017 resulting in the issuer owning loan obligations with a face value of $360.0 million. We retained a residual interest in the portfolio with a notional amount of $81.0 million. The notes had an initial weighted average interest rate of 1.99% plus one-month LIBOR and interest payments on the notes are payable monthly.thousands):

June 30, 2018
Debt						Collateral (3)
						Loans				Cash
Face Value		Carrying Value (1)		Wtd. Avg. Rate (2)		UPB		Carrying Value		Restricted Cash (4)
$	70,000	$	68,270	6.33	%	$	97,700	$	97,323	$	—

~~CLO IV — In September 2017, we completed the unwind~~

December 31, 2017
$	70,000	$	68,084	5.79	%	$	96,995	$	96,564	$	3,005

(1) Debt carrying value is net of ~~CLO IV, redeeming $219.0~~$1.7 million ~~of our outstanding notes which were repaid primarily from the refinancing of the remaining assets within our existing financing facilities (including CLO VIII), as well as with cash held by CLO IV,~~ and ~~expensed $1.1~~$1.9 million of deferred financing fees ~~into~~at June 30, 2018 and December 31, 2017, respectively.

(2) At June 30, 2018 and December 31, 2017, the aggregate weighted average note rate, including certain fees and costs, was 6.84% and 6.05%, respectively.

(3) At both June 30, 2018 and December 31, 2017, there was no collateral at risk of default or deemed to be a “credit risk.”

(4) Represents restricted cash held for reinvestment. Excludes restricted cash related to interest ~~expense on the consolidated statements of income.~~

~~We account for our CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary beneficiary~~payments, delayed fundings and ~~are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to us.~~expenses.

Senior Unsecured Notes

In March 2018, we issued $100.0 million aggregate principal amount of 5.625% senior unsecured notes due in May 2023 (the “Initial Notes”) in a private placement, and, in May 2018, we issued an additional $25.0 million (the “Reopened Notes” and, together with the Initial Notes, the “5.625% Notes,”) which brought the aggregate outstanding principal amount to $125.0 million. The Reopened Notes are fully fungible with, and rank equally in right of payment with the Initial Notes. We received total proceeds of $122.3 million from the issuances, after deducting the underwriting discount and other offering expenses. We used the net proceeds from the Initial Notes to fully redeem our 7.375% senior unsecured notes due in 2021 (the “7.375% Notes”) totaling $97.9 million and the net proceeds from the Reopened Notes to make investments and for general corporate purposes. The 5.625% Notes are unsecured and can be redeemed by us at any time prior to April 1, 2023, at a redemption price equal to 100% of the aggregate principal amount, plus a “make-whole” premium and accrued and unpaid interest. We have the right to redeem the 5.625% Notes on or after April 1, 2023, at a redemption price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest. The interest is paid semiannually in May and November starting in November 2018. At June 30, 2018, the debt carrying value of ~~our senior unsecured notes at September~~ 30~~, 2017 and December 31, 2016 were $95.1~~the 5.625% Notes was $122.3 million, ~~and $94.5 million, respectively, which were~~ net of ~~$2.8~~$2.7 million ~~and $3.3 million, respectively,~~ of deferred financing ~~fees. The notes are due in 2021; however, they became eligible for redemption by us on May 16, 2017. Including certain~~ fees, and ~~costs,~~ the weighted average note rate was ~~8.16%~~6.08%, including certain fees and ~~8.15% at September 30, 2017 and~~costs.

At December 31, ~~2016, respectively.~~2017, the debt carrying value of our 7.375% Notes was $95.3 million, which was net of $2.6 million of deferred financing fees, and the weighted average note rate was 8.16%.

Convertible Senior Unsecured Notes

In ~~October~~November 2017, we issued $143.8 million aggregate principal amount of 5.375% convertible senior unsecured notes (the “5.375% Convertible Notes). We received total proceeds of $139.2 million from the offering, net of deferred financing fees, which is amortized through interest expense over the life of the 5.375% Convertible Notes. The initial conversion rate was 107.7122 shares of common stock per $1,000 principal amount of 5.375% Convertible Notes and represents a conversion price of $9.28 per share of common stock. At June 30, 2018, the 5.375% Convertible Notes had a conversion rate of 108.6502 shares of common stock per $1,000 principal amount of 5.375% Convertible Notes, which represented a conversion price of $9.20 per share of common stock. The 5.375% Convertible Notes pay interest semiannually in arrears. The 5.375% Convertible Notes have a scheduled maturity in November 2020. See Subsequent Events section below for details of our repurchase of substantially all of the 5.375% Convertible Notes.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

In 2016, we issued $86.3 million aggregate principal amount of 6.50% convertible senior unsecured notes ~~including the underwriter’s over-allotment option of $11.3 million,~~(the “6.50% Convertible Notes”) and, in January 2017, we issued an additional $13.8 million ~~which brought the aggregate outstanding principal amount~~ of the notes to $100.0 million. The additional issuance in January 2017 is fully fungible with, and ranks equally in right of payment with, the initial issuance. The notes pay interest semiannually in arrears.6.50% Convertible Notes. We received total proceeds of $95.8 million from the offerings, net of deferred financing fees, which are ~~being~~ amortized through interest expense over the life of the ~~notes.~~6.50% Convertible Notes. The initial conversion rate was 119.3033 shares of common stock per $1,000 principal amount of 6.50% Convertible Notes and represented a conversion price of $8.38 per share of common stock. At June 30, 2018, the 6.50% Convertible Notes had a conversion rate of 122.3263 shares of common stock per $1,000 principal amount of notes, ~~mature on~~which represented a conversion price of $8.17 per share of common stock. The 6.50% Convertible Notes pay interest semiannually in arrears. The 6.50% Convertible Notes have a scheduled maturity in October ~~1, 2019, unless earlier converted or repurchased by~~2019. See Subsequent Events section below for details of our repurchase of substantially all of the ~~holders pursuant to their terms, and~~6.50% Convertible Notes.

Our convertible senior unsecured notes are not redeemable by us prior to ~~maturity.~~

~~The notes~~their maturities and are convertible into, at our election, cash, shares of our common stock or a combination of both, subject to the satisfaction of certain conditions and during specified periods. The conversion ~~rate is~~rates are subject to adjustment upon the occurrence of certain specified events and the holders may require us to repurchase all or any portion of their notes for cash equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if we undergo a fundamental change as specified in the agreement. The initial conversion rate was 119.3033 shares of common stock per $1,000 principal amount of notes and represented a conversion price of $8.38 per share of common stock. At September 30, 3017, the notes had a conversion rate of 120.0428 shares of common stock per $1,000 principal amount of notes, which represented a conversion price of $8.33 per share of common stock.agreements.

Accounting guidance requires that convertible debt instruments with cash settlement features, including partial cash settlement, account for the liability component and equity component (conversion feature) of the instrument separately. The initial value of the liability component reflects the present value of the discounted cash flows using the nonconvertible debt borrowing rate ~~of 7.50%~~ at the time of the issuance. The debt discount represents the difference between the proceeds received from the issuance and the initial carrying value of the liability component, which is ~~being~~ accreted back to the notes principal amount through interest expense over the term of the notes, which was ~~2.00~~1.92 years and ~~2.75~~2.41 years at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, respectively.~~

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30,~~ 2017, respectively, on a weighted average basis.

The ~~principal balance,~~UPB, unamortized discount and net carrying ~~value~~amount of the liability and equity components of the convertible notes were as ~~follows:~~follows (in thousands):

Liability

Equity

Component

Component

Period

Principal
Balance

Unamortized Debt
Discount

Unamortized Deferred
Financing Fees

Net Carrying
Value

Net Carrying
Value

September 30, 2017

$
100,000,000

$
1,809,470

$
2,809,409

$
95,381,121

$
2,531,926

December 31, 2016

$
86,250,000

$
2,119,436

$
3,470,526

$
80,660,038

$
2,178,647

	Liability								Equity
	Component								Component
Period	UPB		Unamortized Debt Discount		Unamortized Deferred Financing Fees		Net Carrying Value		Net Carrying Value
June 30, 2018	$	243,750	$	4,568	$	3,751	$	235,431	$	6,733

December 31, 2017	$	243,750	$	5,742	$	6,721	$	231,287	$	6,733

During the three months ended ~~September~~June 30, 2018, we incurred total interest expense on the notes of $6.1 million, of which $3.2 million, $2.3 million and $0.6 million related to the cash coupon, amortization of the deferred financing fees and of the debt discount, respectively. During the six months ended June 30, 2018, we incurred total interest expense on the notes of $11.0 million, of which $6.8 million, $3.0 million and $1.2 million related to the cash coupon, amortization of the deferred financing fees and of the debt discount, respectively. During the three months ended June 30, 2017, we incurred total interest expense on the notes of $2.2 million, of which $1.6 million, $0.4 million and $0.2 million related to the ~~6.50%~~ cash coupon, ~~accretion~~amortization of the deferred financing fees and of the debt discount, respectively. During the ~~nine~~six months ended ~~September~~June 30, 2017, we incurred total interest expense on the notes of ~~$6.6~~$4.3 million, of which ~~$4.8~~$3.2 million, ~~$1.1~~$0.7 million and ~~$0.7~~$0.4 million related to the ~~6.50%~~ cash coupon, ~~accretion~~amortization of the deferred financing fees and of the debt discount, respectively. Including the amortization of the deferred financing fees and debt discount, our weighted average total cost of the notes is ~~8.68%~~7.96% per annum.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

Subsequent Events

In July 2018, we completed the issuance and sale of $245.0 million in aggregate principal amount of 5.25% convertible senior notes (the “5.25% Convertible Notes”) through two private placements, including $15.0 million of the initial purchaser’s over-allotment option. The ~~average price~~initial purchasers of the 5.25% Convertible Notes have the option to purchase up to an additional $19.5 million of these notes solely to cover over-allotments. The 5.25% Convertible Notes mature in July 2021, unless earlier converted or repurchased by the holders pursuant to their terms, and pay interest semiannually in arrears. We received proceeds totaling $237.2 million, net of the underwriter’s discount and fees from these offerings. We used the net proceeds to exchange $99.8 million of our 6.50% Convertible Notes and $127.6 million of our 5.375% Convertible Notes for a combination of $219.8 million in cash (which includes accrued interest) and 6.8 million shares of our common stock ~~during the second quarter of 2017 exceeded the conversion price, as calculated in accordance with the terms of the indenture. Therefore, the notes impacted our diluted earnings per share~~to settle such exchanges. The remaining net proceeds were used for ~~the nine months ended September 30, 2017. Diluted earnings per share was not impacted for any other period presented. See~~ ~~Note 18 — Equity for details.~~general corporate purposes.

Junior Subordinated Notes

In the first quarter of 2017, we purchased, at a discount, $20.9 million of our junior subordinated notes with a carrying value of $19.8 million and recorded a gain on extinguishment of debt of $7.1 million. As a result, we settled our related equity investment and extinguished $21.5 million of notes. The carrying value of borrowings under our junior subordinated notes was ~~$139.4~~$139.9 million and ~~$157.9~~$139.6 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, which is net of a deferred amount of ~~$12.7~~$12.3 million and ~~$14.9~~$12.5 million, respectively, (which is ~~being~~ amortized into interest expense over the life of the notes) and deferred financing fees of $2.2 million ~~and $3.1 million, respectively, of deferred financing fees.~~in both periods. These notes have maturities ranging from March 2034 through April 2037 and pay interest quarterly at a fixed or floating rate of interest based on ~~three-month~~ LIBOR. The current weighted average note rate was ~~4.17%~~5.18% and ~~3.82%~~4.53% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Including certain fees and costs, the weighted average note rate was ~~4.27%~~5.28% and ~~3.94%~~4.63% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Related Party Financing

In connection with the Acquisition, we entered into a five year $50.0 million preferred equity interest financing agreement with ACM to finance a portion of the aggregate purchase price. ~~The debt has a five year term with a preferred return of 7% through~~At December 31, 2016, increasing by 1% per annum thereafter, with a maximum rate of 12%. In addition, after eighteen months, the principal balance due is scheduled to increase over time with $62.5 million due if the debt remained outstanding until the end of the five-year term. Interest expense associated with this financing is recorded using the effective yield method. At both September 30, 2017, ~~and December 31, 2016,~~ the outstanding principal balance was $50.0 million. In January 2018, we paid $50.0 million in full satisfaction of this debt. During the six months ended June 30, 2018, we recorded interest expense of $0.3 million and, during the three and ~~nine~~six months ended ~~September~~June 30, 2017, we recorded interest expense ~~related to this financing~~ of $1.0 million and ~~$2.9~~$1.9 million, ~~respectively, and $0.8 million during both the three and nine months ended September 30, 2016.~~respectively.

Debt Covenants

Credit Facilities and Repurchase Agreements. The credit facilities and repurchase agreements contain various financial covenants, including, but not limited to, minimum liquidity requirements, minimum net worth

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

requirements, as well as certain other debt service coverage ratios, debt to equity ratios and minimum servicing portfolio tests. We were in compliance with all financial covenants and restrictions at ~~September~~June 30, ~~2017.~~2018.

CLOs. Our CLO vehicles contain interest coverage and asset overcollateralization covenants that must be met as of the waterfall distribution date in order for us to receive such payments. If we fail these covenants in any ~~CLO,~~of our CLOs, all cash flows from ~~such~~the applicable CLO would be diverted to repay principal and interest on the outstanding CLO bonds and we would not receive any residual payments until that CLO regained compliance with such tests. Our CLOs were in compliance with all such covenants as of ~~September~~June 30, ~~2017,~~2018, as well as on the most recent determination dates in ~~October 2017.~~July 2018. In the event of a breach of the CLO covenants that could not be cured in the near-term, we would be required to fund our non-CLO expenses, including employee costs, distributions required to maintain our REIT status, debt costs, and other expenses with (i) cash on hand, (ii) income from any CLO not in breach of a covenant test, (iii) income from real property and loan assets, (iv) sale of assets, or (v) accessing the equity or debt capital markets, if available. We have the right to cure covenant breaches which would resume normal residual payments to us by purchasing non-performing loans out of the CLOs. However, we may not have sufficient liquidity available to do so at such time.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

A summary of our CLO compliance tests as of the most recent determination dates in ~~October 2017~~July 2018 is as follows:

Cash Flow Triggers	CLO V	CLO VI	CLO VII	CLO VIII	CLO VI		CLO VII		CLO VIII		CLO IX		CLO X

Overcollateralization (1)

Current	130.72%	129.87%	129.03%	129.03%	129.87	%	129.03	%	129.03	%	134.68	%	126.98	%

Limit	129.72%	128.87%	128.03%	128.03%	128.87	%	128.03	%	128.03	%	133.68	%	125.98	%

Pass / Fail	Pass	Pass	Pass	Pass	Pass		Pass		Pass		Pass		Pass

Interest Coverage (2)

Current	211.97%	240.15%	287.79%	360.90%	191.10	%	216.08	%	252.91	%	255.51	%	201.62	%

Limit	120.00%	120.00%	120.00%	120.00%	120.00	%	120.00	%	120.00	%	120.00	%	120.00	%

Pass / Fail	Pass	Pass	Pass	Pass	Pass		Pass		Pass		Pass		Pass

(1) The overcollateralization ratio divides the total principal balance of all collateral in the CLO by the total principal balance of the bonds associated with the applicable ratio. To the extent an asset is considered a defaulted security, the asset’s principal balance for purposes of the overcollateralization test is the lesser of the asset’s market value or the principal balance of the defaulted asset multiplied by the asset’s recovery rate which is determined by the rating agencies. Rating downgrades of CLO collateral will generally not have a direct impact on the principal balance of a CLO asset for purposes of calculating the CLO overcollateralization test unless the rating downgrade is below a significantly low threshold (e.g. CCC-) as defined in each CLO vehicle.

(2) The interest coverage ratio divides interest income by interest expense for the classes senior to those retained by us.

~~A summary of our~~Our CLO overcollateralization ratios as of the determination dates subsequent to each quarter isare as follows:

Determination (1)	CLO V		CLO VI		CLO VII		CLO VIII		CLO VI		CLO VII		CLO VIII		CLO IX		CLO X
July 2018									129.87	%	129.03	%	129.03	%	134.68	%	126.98	%
April 2018									129.87	%	129.03	%	129.03	%	134.69	%	—
January 2018									129.87	%	129.03	%	129.03	%	134.68	%	—
October 2017	130.72	%	129.87	%	129.03	%	129.03	%	129.87	%	129.03	%	129.03	%	—		—
July 2017	130.72	%	129.87	%	129.03	%	—		129.87	%	129.03	%	—		—		—
April 2017	130.72	%	129.87	%	—		—
January 2017	130.72	%	129.87	%	—		—
October 2016	130.72	%	129.87	%	—		—

(1) The table above represents the quarterly trend of our overcollateralization ratio, however, the CLO determination dates are monthly and we were in compliance with this test for all periods presented.

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

The ratio will fluctuate based on the performance of the underlying assets, transfers of assets into the CLOs prior to the expiration of their respective replenishment dates, purchase or disposal of other investments, and loan payoffs. No payment due under the junior subordinated indentures may be paid if there is a default under any senior debt and the senior lender has sent notice to the trustee. The junior subordinated indentures are also cross-defaulted with each other.

Note 1211 — Allowance for Loss-Sharing Obligations

~~A summary of our~~Our allowance for loss-sharing obligations related to the Fannie Mae DUS program is as ~~follows:~~follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Beginning balance	$	32,797,406		$	—		$	32,407,554		$	—		$	31,097		$	32,219		$	30,511		$	32,407
Allowance for loss-sharing obligations assumed in the Acquisition	—			32,616,821			—			32,616,821
Provisions for loss sharing (net of recoveries)	(2,617,064		)	1,316,862			(405,494		)	1,316,862
Provisions for loss sharing													1,134			1,890			2,339			4,145
Provisions reversal for loan repayments													(785		)	(1,358		)	(1,518		)	(1,933		)
Charge-offs, net	(21,878		)	(2,820,270		)	(1,843,596		)	(2,820,270		)	(44		)	46			70			(1,822		)
Ending balance	$	30,158,464		$	31,113,413		$	30,158,464		$	31,113,413		$	31,402		$	32,797		$	31,402		$	32,797

When we settle a loss under the DUS loss-sharing model, the net loss is charged-off against the previously recorded loss-sharing obligation. The settled loss is often net of any previously advanced principal and interest payments in accordance with the DUS program, which are reflected as reductions to the proceeds needed to settle losses. At ~~both September 30, 2017 and~~ December 31, ~~2016,~~2017, we had outstanding advances of ~~$0.3~~$0.1 million, which were netted against the allowance for loss-sharing obligations.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was ~~$2.23~~$2.30 billion and ~~$2.04~~$2.24 billion, respectively. The maximum quantifiable liability is not representative of the actual loss we would incur. We would be liable for this amount only if all of the loans we service for Fannie Mae, for which we retain some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement.

Note 1312 — Derivative Financial Instruments

~~Structured Business.~~ During the first quarter of 2017, our remaining two qualifying LIBOR cap hedges, with a notional value of $55.6 million, and our remaining two qualifying interest rate swap cash flow hedges, with a notional value of $41.5 million, matured. We entered into the LIBOR cap hedges due to certain CLO agreements requiring a LIBOR cap of 2% and 3% and we entered into the interest rate swaps to hedge the variable cash flows associated with existing variable-rate debt. As of September 30, 2017, the Structured Business did not have any derivative financial instruments. At December 31, 2016, the fair value of our LIBOR cap hedges and interest rate swaps was less than $0.1 million and $(0.2) million, respectively.

~~The following table presents the effect of our qualifying derivative financial instruments on the statements of~~ ~~income~~ ~~(dollars in thousands):~~

Loss Recognized In Other
Comprehensive Income (Effective
Portion) For the Nine Months Ended
September 30,

Loss Reclassified from Accumulated
Other Comprehensive Income into
Interest Expense (Effective Portion)
For the Nine Months Ended
September 30,

Derivative

2017

2016

2017

2016

Interest Rate Swaps/Cap

$
—

$
196

$
(237
)
$
(4,012
)

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~September 30, 2017~~

~~As of December 31, 2016, the cumulative amount of other comprehensive income (loss) related to net unrealized losses on derivatives designated as qualifying hedges were de minimis.~~

~~Agency Business.~~ The following is a summary of our non-qualifying derivative financial ~~instruments:~~instruments held by our Agency Business ($ in thousands):

	September 30, 2017									June 30, 2018
					Fair Value									Fair Value
Derivative	Count	Notional Value		Balance Sheet Location	Derivative Assets		Derivative Liabilities			Count	Notional Value		Balance Sheet Location	Derivative Assets		Derivative Liabilities

Rate Lock Commitments	7	$	30,179,000	Other Assets/ Other Liabilities	$	419,758	$	(64,378	)	10	$	72,653	Other Assets/ Other Liabilities	$	606	$	(295	)
Forward Sale Commitments	81	358,712,203		Other Assets/ Other Liabilities	68,989		(1,817,072		)	63	380,786		Other Assets/ Other Liabilities	1,515		(61		)
		$	388,891,203		$	488,747	$	(1,881,450	)		$	453,439		$	2,121	$	(356	)

	December 31, 2016									December 31, 2017
Rate Lock Commitments	12	$	156,685,400	Other Assets/ Other Liabilities	$	2,816,132	$	(764,429	)	3	$	38,578	Other Assets/ Other Liabilities	$	276	$	(278	)
Forward Sale Commitments	105	819,033,129		Other Assets/ Other Liabilities	2,798,858		(1,535,150		)	75	330,827		Other Assets/ Other Liabilities	408		(1,028		)
		$	975,718,529		$	5,614,990	$	(2,299,579	)		$	369,405		$	684	$	(1,306	)

We enter into contractual commitments to originate and sell mortgage loans at fixed prices with fixed expiration dates. The commitments become effective when the borrower “rate locks” a specified interest rate within time frames established by us. All potential borrowers are evaluated for creditworthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the rate lock by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, we enter into a forward sale commitment with the investor simultaneous with the rate lock commitment with the borrower. The forward sale contract locks in an interest rate and price for the sale of the loan. The terms of the contract with the investor and the rate lock with the borrower are matched in substantially all respects, with the objective of eliminating interest rate risk to the extent practical. Sale commitments with the investors have an expiration date that is longer than our related commitments to the borrower to allow, among other things, for the closing of the loan and processing of paperwork to deliver the loan into the sale commitment.

These commitments meet the definition of a derivative and are recorded at fair value, including the effects of interest rate movements which are reflected as a component of other income, net in the consolidated statements of income. The estimated fair value of rate lock commitments also includes the fair value of the expected net cash flows associated with the servicing of the loan which is recorded as income from MSRs in the consolidated statements of income. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recorded a net ~~gains~~loss of ~~$0.2~~$0.6 million and a net ~~losses~~ gain

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

of ~~$2.3~~$2.1 million, respectively, from changes in the fair value of these derivatives in other income, net and ~~$18.9~~$17.9 million and ~~$56.2~~$37.6 million, respectively, of income from MSRs. During ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, we recorded ~~$0.2~~$1.6 million and $2.5 million, respectively, of net ~~gains~~losses from changes in the fair value of these derivatives in other income, net and ~~$16.0~~$17.3 million and $37.3 million, respectively, of income from MSRs. See Note 1413 — Fair Value for details.

Note 1413 — Fair Value

Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. The following table summarizes the principal amounts, carrying values and the estimated fair values of our financial ~~instruments:~~

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~instruments (in thousands):

	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
	Principal / Notional Amount		Carrying Value		Estimated Fair Value		Principal / Notional Amount		Carrying Value		Estimated Fair Value		Principal / Notional Amount		Carrying Value		Estimated Fair Value		Principal / Notional Amount		Carrying Value		Estimated Fair Value
Financial assets:
Loans and investments, net	$	2,094,376,123	$	1,997,555,985	$	2,056,020,469	$	1,790,159,966	$	1,695,732,351	$	1,749,130,232	$	3,134,879	$	3,064,798	$	3,149,044	$	2,652,538	$	2,579,127	$	2,652,520
Loans held-for-sale, net	333,983,865		333,267,976		338,766,761		675,493,536		673,367,304		683,833,449		308,134		311,487		316,815		292,249		297,443		302,883
Capitalized mortgage servicing rights, net	n/a		247,875,659		293,807,076		n/a		227,742,986		245,455,881		n/a		257,021		302,698		n/a		252,608		286,073
Available-for-sale securities	58,789		4,707,085		4,707,085		58,789		5,403,463		5,403,463
Securities held-to-maturity, net	28,035,293		18,851,089		18,882,997		—		—		—		71,222		50,342		50,153		40,566		27,837		28,439
Derivative financial instuments	100,898,203		488,747		488,747		550,117,700		5,614,990		5,614,990		372,967		2,121		2,121		77,984		684		684

Financial liabilities:
Credit and repurchase facilities	$	564,231,866	$	562,326,537	$	563,366,477	$	908,680,198	$	906,636,790	$	907,882,886	$	913,774	$	910,504	$	911,893	$	530,938	$	528,573	$	529,992
Collateralized loan obligations	1,079,874,000		1,066,230,488		1,080,228,695		737,000,000		728,441,109		728,642,500		1,609,524		1,590,644		1,613,801		1,436,274		1,418,422		1,436,871
Debt fund													70,000		68,270		70,133		70,000		68,084		70,000
Senior unsecured notes	97,860,025		95,088,379		99,817,226		97,860,025		94,521,566		99,034,345		125,000		122,343		124,813		97,860		95,280		99,582
Convertible senior unsecured notes, net	100,000,000		95,381,121		105,438,000		86,250,000		80,660,038		86,586,375		243,750		235,431		275,595		243,750		231,287		254,335
Junior subordinated notes	154,336,000		139,418,416		93,833,687		175,858,000		157,858,555		105,649,537		154,336		139,909		95,052		154,336		139,590		94,215
Related party financing	50,000,000		50,000,000		53,270,857		50,000,000		50,000,000		55,119,744		—		—		—		50,000		50,000		49,682
Derivative financial instruments	287,993,000		1,881,450		1,881,450		522,650,829		2,451,422		2,451,422		80,472		356		356		291,421		1,306		1,306

Assets and liabilities disclosed at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities are as follows:

Level ~~1 —~~ 1—Inputs are unadjusted and quoted prices exist in active markets for identical assets or liabilities, such as government, agency and equity securities.

Level ~~2 —~~ 2—Inputs (other than quoted prices included in Level 1) are observable for the asset or liability through correlation with market data. Level 2 inputs may include quoted market prices for a similar asset or liability, interest rates and credit risk. Examples include non-government securities, certain mortgage and asset-backed securities, certain corporate debt and certain derivative instruments.

Level ~~3 —~~ 3—Inputs reflect our best estimate of what market participants would use in pricing the asset or liability and are based on significant unobservable inputs that require a considerable amount of judgment and assumptions. Examples include certain mortgage and asset-backed securities, certain corporate debt and certain derivative instruments.

Determining which category an asset or liability falls within the hierarchy requires significant judgment and we evaluate our hierarchy disclosures each quarter.

The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

Loans and investments, net. Fair values of loans and investments that are not impaired are estimated using Level 3 inputs based on direct capitalization rate and discounted cash flow methodologies using discount rates, which, in our opinion, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Fair values of impaired loans and investments are estimated using Level 3 inputs that require significant judgments, which include assumptions regarding discount rates, capitalization rates, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan and other factors.

Loans held-for-sale, net. Consists of originated loans that are generally transferred or sold within 60 days of loan funding, and are valued using pricing models that incorporate observable inputs from current market assumptions or a hypothetical securitization model utilizing observable market data from recent securitization spreads and observable pricing of loans with similar characteristics (Level 2). Fair value includes the fair value allocated to the associated future MSRs and is calculated pursuant to the valuation techniques described below for capitalized mortgage servicing rights, net (Level 3).

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

Capitalized mortgage servicing rights, ~~net~~net.. Fair values are estimated using Level 3 inputs based on discounted future net cash flow methodology. The fair value of MSRs carried at amortized cost are estimated using a process that involves the use of independent third-party valuation experts, supported by commercially available discounted cash flow models and analysis of current market data. The key inputs used in estimating fair value include the contractually specified servicing fees, prepayment speed of the underlying loans, discount rate, annual per loan cost to service loans, delinquency rates, late charges and other economic factors.

~~Available-for-sale securities.~~ Fair values are estimated based on current market quotes received from active markets or financial sources that trade such securities. The fair values of available-for-sale equity securities traded in active markets are estimated using Level 1 inputs. The fair values of available-for-sale debt securities are estimated using the recent purchase price and subsequent sales price of the securities, which are deemed Level 2 inputs. The fair value of our Agency IOs were estimated using Level 3 inputs and are derived from third party proprietary models using discounted cash flows based on the underlying contractual cash flows and require significant judgements, including assumptions on discount rates and constant prepayment rates.

Securities held-to-maturity, net. Fair values are approximated using Level 3 inputs based on current market quotes received from financial sources that trade such securities and are based on prevailing market data and, in some cases, are derived from third party proprietary models based on well recognized financial principles and reasonable estimates about relevant future market conditions.

Derivative financial instruments. The fair values of rate lock and forward sale commitments are estimated using valuation techniques, which include internally-developed models developed based on changes in the U.S. Treasury rate and other observable market data (Level 2). The fair value of rate lock commitments includes the fair value of the expected net cash flows associated with the servicing of the loans, see capitalized mortgage servicing rights, net above for details on the applicable valuation technique (Level 3). We also consider the impact of counterparty non-performance risk when measuring the fair value of these derivatives. Given the credit quality of our counterparties, the short duration of interest rate lock commitments and forward sale contracts, and our historical experience, the risk of nonperformance by our counterparties is not significant.

Credit facilities and repurchase agreements. Fair values for credit facilities and repurchase agreements of the Structured Business are estimated at Level 3 using discounted cash flow methodology, using discount rates, which, in our opinion, best reflect current market interest rates for financing with similar characteristics and credit quality. The majority of our credit facilities and repurchase agreement for the Agency Business bear interest at rates that are similar to those available in the market currently and the fair values are estimated using Level 2 inputs. For these facilities, the fair values approximate their carrying values.

Collateralized loan obligations, Debt Fund, junior subordinated notes and related party financing. Fair values are estimated at Level 3 based on broker quotations, representing the discounted expected future cash flows at a yield that reflects current market interest rates and credit spreads.

Senior unsecured notes. Fair values are estimated at Level 1 ~~based on~~when current market quotes received from active markets are available. If quotes from active markets are unavailable, then the fair values are estimated at Level 2 utilizing current market quotes received from inactive markets.

Convertible senior unsecured notes, net.Fair values are estimated at Level 2 based on current market quotes received from inactive markets.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO ~~consolidated~~CONSOLIDATED FINANCIAL ~~statements~~ STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

We measure certain financial assets and financial liabilities at fair value on a recurring basis. The fair ~~value~~values of these financial assets and liabilities ~~was~~were determined using the following input levels as of ~~September~~June 30, ~~2017:~~2018 (in thousands):

	Carrying				Fair Value Measurements Using Fair Value Hierarchy						Carrying				Fair Value Measurements Using Fair Value Hierarchy
	Value		Fair Value		Level 1		Level 2		Level 3		Value		Fair Value		Level 1		Level 2		Level 3

Financial assets:
Available-for-sale securities	$	4,707,085	$	4,707,085	$	264,553	$	—	$	4,442,532
Derivative financial instruments	488,747		488,747		—		68,989		419,758		$	2,121	$	2,121	$	—	$	1,515	$	606

Financial liabilities:
Derivative financial instruments	$	1,881,450	$	1,881,450	$	—	$	1,881,450	$	—	$	356	$	356	$	—	$	356	$	—

~~See Note 8 — Securities for a roll-forward of our available-for-sale securities fair valued using Level 3 inputs.~~

We measure certain financial and non-financial assets at fair value on a nonrecurring basis. The fair values of these financial and non-financial assets were determined using the following input levels as of ~~September~~June 30, ~~2017:~~2018 (in thousands):

Net Carrying

Fair Value Measurements Using Fair
Value Hierarchy

Value

Fair Value

Level 1

Level 2

Level 3

Financial assets:

Impaired loans, net (1)

$
101,284,128

$
101,284,128

$
—

$
—

$
101,284,128

Non-financial assets:

Long-lived assets (2)

$
11,540,664

$
11,540,664

$
—

$
—

$
11,540,664

	Net Carrying				Fair Value Measurements Using Fair Value Hierarchy
	Value		Fair Value		Level 1		Level 2		Level 3

Financial assets:
Impaired loans, net (1)	$	70,939	$	70,939	$	—	$	—	$	70,939

Non-financial assets:
Long-lived assets (2)	$	14,650	$	14,650	$	—	$	—	$	14,650

(1) We had an allowance for loan losses of ~~$83.3~~$58.7 million relating to ~~six~~four loans with an aggregate carrying value, before loan loss reserves, of ~~$184.5~~$129.7 million at ~~September~~June 30, ~~2017.~~2018.

(2) ~~During the second quarter of 2016, we determined that~~We recorded a ~~real estate owned hotel property exhibited indicators of impairment and an impairment analysis was performed, which resulted in an~~$2.0 million impairment loss ~~of $11.2 million. During~~during the ~~first half of 2017,~~three months ended June 30, 2018 on the office building we ~~received additional market analyses which resulted in a further impairment loss of $2.7 million.~~own. See Note 9 — Real Estate Owned for details.

Loan impairment ~~assessments~~assessments.. Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and net of the allowance for loan losses, when such loan or investment is deemed to be impaired. We consider a loan impaired when, based upon current information, it is probable that we will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement. We evaluate our loans to determine if the value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, which may result in an allowance and corresponding charge to the provision for loan losses. These valuations require significant judgments, which include assumptions regarding capitalization and discount rates, revenue growth rates, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan and other factors. The table above and below includes all impaired loans, regardless of the period in which the impairment was recognized.

Long-lived ~~assets:~~assets. We review our real estate owned assets when events or circumstances change, indicating that the carrying amount of an asset may not be partially or fully recoverable. In the evaluation of a real estate owned asset for impairment, many factors are considered, including broker quotes, estimated current and expected operating cash flows from the asset during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of the asset in the ordinary course of business. We first compare the undiscounted cash flows to be generated by the asset and broker quotes, if any, to the carrying value of such asset. If the undiscounted cash flows and/or broker quotes are less than the carrying value, we recognize an impairment ~~based on discounted cash flows.~~loss by comparing the carrying value of the asset to its fair value.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO ~~consolidated~~CONSOLIDATED FINANCIAL ~~statements~~ STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

Quantitative information about Level 3 fair value measurements at ~~September~~June 30, ~~2017~~2018 were as ~~follows:~~follows ($ in thousands):

Valuation

Fair Value

Techniques

Significant Unobservable Inputs

Financial assets:

Impaired loans (1):

Discount rate

11.00%

Office

$
792,500

Discounted cash flows

Capitalization rate

8.10%

Revenue growth rate

2.50%

Discount rate

15.00%

Land

71,441,628

Discounted cash flows

Capitalization rate

7.25%

Revenue growth rate

3.00%

Discount rate

9.00%

Hotel

29,050,000

Discounted cash flows

Capitalization rate

7.00%

Revenue growth rate

3.30%

Derivative financial instruments:

Rate lock commitments

419,758

Discounted cash flows

W/A discount rate

10.22%

Non-financial assets:

Long-lived assets:

Discount rate

11.75%

Hotel

11,540,664

Discounted cash flows

Capitalization rate

9.75%

Revenue growth rate

3.50%

Hold period

3 years

~~(1)~~ ~~Includes all impaired loans regardless of the period in which a loan loss provision was recorded.~~

	Fair Value		Valuation Techniques	Significant Unobservable Inputs

Financial assets:
Impaired loans:

Land	$	70,160	Discounted cash flows	Discount rate	15.00	%
				Capitalization rate	7.25	%
				Revenue growth rate	3.00	%

Office	779		Discounted cash flows	Discount rate	10.53	%
				Capitalization rate	8.53	%
				Revenue growth rate	2.63	%

Derivative financial instruments:
Rate lock commitments	606		Discounted cash flows	W/A discount rate	8.77	%

Non-financial assets:
Long-lived assets:

Office Building	$	3,250	Broker quotes	N/A	N/A

The derivative financial instruments using Level 3 inputs are outstanding for short periods of time (generally less than 60 days). A roll-forward of Level 3 derivative instruments were as ~~follows:~~follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs												Fair Value Measurements Using Significant Unobservable Inputs
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Derivative assets and liabilities, net
Balance at beginning of period	$	1,419,530		$	—		$	2,816,132		$	—		$	717		$	381		$	276		$	2,816
Additions from the Acquisition	—			4,528,640			—			4,528,640
Settlements	(18,897,011		)	(15,286,185		)	(57,578,012		)	(15,286,185		)	(18,047		)	(16,216		)	(37,240		)	(35,865		)
Realized gains recorded in earnings	17,477,481			10,757,545			54,761,880			10,757,545			17,330			15,835			36,964			33,049
Unrealized gains recorded in earnings	419,758			681,882			419,758			681,882			606			1,420			606			1,420
Balance at end of period	$	419,758		$	681,882		$	419,758		$	681,882		$	606		$	1,420		$	606		$	1,420

The ~~following table presents the~~ components of fair value and other relevant information associated with our rate lock commitments, forward sales commitments and the estimated fair value of cash flows from servicing on loans ~~held-for-sale.~~

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~held-for-sale were as follows (in thousands):

	Notional/ Principal Amount		Fair Value of Servicing Rights		Interest Rate Movement Effect			Total Fair Value Adjustment
September 30, 2017
June 30, 2018										Notional/ Principal Amount		Fair Value of Servicing Rights		Interest Rate Movement Effect			Total Fair Value Adjustment
Rate lock commitments	$	30,179,000	$	419,758	$	(64,378	)	$	355,380	$	72,653	$	606	$	(295	)	$	311
Forward sale commitments	358,712,203		—		64,378			64,378		380,786		—		295			295
Loans held-for-sale, net (1)	328,533,203		5,450,662		—			5,450,662		308,134		4,754		—			4,754
Total			$	5,870,420	$	—		$	5,870,420			$	5,360	$	—		$	5,360

(1) Loans held-for-sale, net are recorded at the lower of cost or market on an aggregate basis and includes fair value adjustments related to estimated cash flows from ~~mortgage servicing rights.~~MSRs.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

We measure certain assets and liabilities for which fair value is only disclosed. The fair value of these assets and liabilities was determined using the following input levels as of ~~September~~June 30, ~~2017:~~2018 (in thousands):

					Fair Value Measurements Using Fair Value Hierarchy										Fair Value Measurements Using Fair Value Hierarchy
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3

Financial assets:
Loans and investments, net	$	1,997,555,985	$	2,056,020,469	$	—	$	—	$	2,056,020,469	$	3,064,798	$	3,149,044	$	—	$	—	$	3,149,044
Loans held-for-sale, net	333,267,976		338,766,761		—		333,316,099		5,450,662		311,487		316,815		—		312,061		4,754
Capitalized mortgage servicing rights, net	247,875,659		293,807,076		—		—		293,807,076		257,021		302,698		—		—		302,698
Securities held-to-maturity, net	18,851,089		18,882,997		—		—		18,882,997		50,342		50,153		—		—		50,153

Financial liabilities:
Credit and repurchase facilities	$	562,326,537	$	563,366,477	$	—	$	327,987,187	$	235,379,290	$	910,504	$	911,893	$	—	$	307,656	$	604,237
Collateralized loan obligations	1,066,230,488		1,080,228,695		—		—		1,080,228,695		1,590,644		1,613,801		—		—		1,613,801
Debt fund											68,270		70,133		—		—		70,133
Senior unsecured notes	95,088,379		99,817,226		99,817,226		—		—		122,343		124,813		124,813		—		—
Convertible senior unsecured notes, net	95,381,121		105,438,000		—		105,438,000		—		235,431		275,595		—		275,595		—
Junior subordinated notes	139,418,416		93,833,687		—		—		93,833,687		139,909		95,052		—		—		95,052
Related party financing	50,000,000		53,270,857		—		—		53,270,857

Note 1514 — Commitments and Contingencies

Debt Obligations. Our debt obligations have maturities of ~~$400.9~~$441.6 million for the remainder of ~~2017, $484.5 million in~~ 2018, ~~$355.5~~$572.7 million in 2019, ~~$427.1 million~~$1.08 billion in 2020, ~~$236.4~~$457.4 million in 2021, $179.4 million in 2022 and ~~$154.3~~$380.7 million thereafter.

Agency Business Commitments. ~~The~~Our 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, and compliance with reporting requirements. Our adjusted net worth and liquidity required by the agencies for all periods presented exceeded these requirements.

As of ~~September~~June 30, ~~2017,~~2018, we were required to maintain at least ~~$12.1~~$12.6 million of liquid assets in one of our subsidiaries to meet our operational liquidity requirements for Fannie Mae and we had operational liquidity in excess of this requirement.

We are generally required to share the risk of any losses associated with loans sold under the Fannie Mae DUS program and are required to secure this obligation by assigning restricted cash balances and/or a letter of credit to Fannie Mae. The amount of collateral required by Fannie Mae is a formulaic calculation at the loan level by a Fannie Mae assigned tier which considers the loan balance, risk level of the loan, age of the loan and level of risk-sharing. Fannie Mae requires restricted liquidity for Tier 2 loans of 75 basis points, 15 basis points for Tier 3 loans and 5 basis points for Tier 4 loans, which is funded over a 48-month period that begins upon delivery of the loan to Fannie Mae. A significant portion of our Fannie Mae DUS serviced loans for which we have risk sharing are Tier 2 loans. As of ~~September~~June 30, ~~2017,~~2018, we met the restricted liquidity requirement with a $42.0 million letter of ~~credit.~~credit and $0.7 million of cash collateral.

As of ~~September~~June 30, ~~2017,~~2018, reserve requirements for the Fannie Mae DUS loan portfolio will require us to fund ~~$27.4~~$28.4 million in additional restricted liquidity over the next 48 months, assuming no further principal paydowns,

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

prepayments, or defaults within our at-risk portfolio. Fannie Mae periodically reassesses these collateral requirements and may make changes to these requirements in the future. We generate sufficient cash flow from our operations to meet these capital standards and do not expect any changes to have a material impact on our future operations; however, future changes to collateral requirements may adversely impact our available cash.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

We are subject to various capital requirements in connection with seller/servicer agreements that we have entered into with secondary market investors. Failure to maintain minimum capital requirements could result in our inability to originate and service loans for the respective investor and, therefore, could have a direct material effect on our consolidated financial statements. As of ~~September~~June 30, ~~2017,~~2018, we met all of Fannie Mae’s quarterly capital requirements and our Fannie Mae adjusted net worth was in excess of the required net worth. We are not subject to capital requirements on a quarterly basis for Ginnie Mae or FHA, as such requirements for these investors are only required on an annual basis.

As an approved designated seller/servicer under Freddie Mac’s SBL ~~Program,~~program, we are required to post collateral ~~equal to $5.0 million~~ to ensure that we are able to meet certain purchase and loss obligations required by this program. ~~At September 30, 2017,~~Under the SBL program, we ~~had an outstanding letter of credit of~~are required to post collateral equal to $5.0 million, ~~in satisfaction of our requirements under this program.~~

~~See Note 11 — Debt Obligations for details about the $50.0~~which is satisfied with a $5.0 million letter of ~~credit agreement we entered into for our restricted cash requirements for the Fannie Mae DUS and Freddie Mac SBL Programs.~~credit.

We enter into contractual commitments with borrowers providing rate lock commitments while simultaneously entering into forward sale commitments with investors. These commitments are outstanding for short periods of time (generally less than 60 days) and are described in Note ~~13 —~~ 12—Derivative Financial Instruments and Note ~~14 —~~ 13—Fair Value.

Unfunded Commitments. In accordance with certain structured loans and investments, we have outstanding unfunded commitments of ~~$68.1~~$73.3 million as of ~~September~~June 30, ~~2017~~2018 that we are obligated to fund as borrowers meet certain requirements. Specific requirements include, but are not limited to, property renovations, building construction and conversions based on criteria met by the borrower in accordance with the loan agreements.

Litigation. We are currently neither subject to any material litigation nor, to the best of our knowledge, threatened by any material litigation other than the following:

In June 2011, three related lawsuits were filed by the Extended Stay Litigation Trust (the “Trust”), a post-bankruptcy litigation trust alleged to have standing to pursue claims that previously had been held by Extended Stay, Inc. and the Homestead Village L.L.C. family of companies (together “ESI”) (formerly Chapter 11 debtors, together the “Debtors”) that have emerged from bankruptcy. Two of the lawsuits were filed in the U.S. Bankruptcy Court for the Southern District of New York, and the third in the Supreme Court of the State of New York, New York County. There were 73 defendants in the three lawsuits, including 55 corporate and partnership entities and 18 individuals. A subsidiary of ours and certain other entities that are affiliates of ours are included as defendants. The New York State Court action has been removed to the Bankruptcy Court. Our affiliates filed a motion to dismiss the three lawsuits.

The lawsuits all allege, as a factual basis and background certain facts surrounding the June 2007 leveraged buyout of ESI from affiliates of Blackstone Capital. Our subsidiary, Arbor ESH II, LLC, had a $115.0 million investment in the Series A1 Preferred Units of a holding company of Extended Stay, Inc. The New York State Court action and one of the two federal court actions name as defendants, Arbor ESH II, LLC, ACM and ABT-ESI LLC, an entity in which we have a membership interest, among the broad group of defendants. These two actions were commenced by substantially identical complaints. The defendants are alleged in these complaints, among other things, to have breached fiduciary and contractual duties by causing or allowing the Debtors to pay illegal dividends or other improper distributions of value at a time when the Debtors were insolvent. These two complaints also allege that the defendants aided and abetted, induced, or participated in breaches of fiduciary duty, waste, and unjust enrichment (“(“Fiduciary Duty Claims”) and name a director of ours, and a former general counsel of ACM, each of whom had

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

served on the Board of Directors of ESI for a period of time. We are defending these two defendants and paying the costs of such defense. On the basis of the foregoing allegations, the Trust has asserted claims under a number of common law theories, seeking the return of assets transferred by the Debtors prior to the Debtors’ bankruptcy filing.

In the third action, filed in Bankruptcy Court, the same plaintiff, the Trust, has named ACM and ABT-ESI LLC, together with a number of other defendants and asserts claims, including constructive and fraudulent conveyance claims under state and federal statutes, as well as a claim under the Federal Debt Collection Procedure Act.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

In June 2013, the Trust filed a motion to amend the lawsuits, to, among other things, (i) consolidate the lawsuits into one lawsuit, (ii) remove 47 defendants, none of whom are related to us, from the lawsuits so that there are 26 remaining defendants, including 16 corporate and partnership entities and 10 individuals, and (iii) reduce the counts within the lawsuits from over 100 down to 17. The remaining counts in the amended complaint against our affiliates are principally state law claims for breach of fiduciary duties, waste, unlawful dividends and unjust enrichment, and claims under the Bankruptcy Code for avoidance and recovery actions, among others. The bankruptcy court granted the motion and the amended complaint has been filed. The amended complaint seeks approximately $139.0 million in the aggregate, plus interest from the date of the alleged unlawful transfers, from director designees, portions of which are also sought from our affiliates as well as from unaffiliated defendants. We have moved to dismiss the referenced actions and intend to vigorously defend against the claims asserted therein. During a status conference held in March 2014, the Court heard oral argument on the motion to dismiss and adjourned the case pending a ruling. Subsequent to that hearing, a new judge was assigned to the case and, in November 2016, the new judge entered an order directing the parties to file supplemental briefs addressing new cases decided since the last round of briefing. Oral arguments regarding the motion to dismiss were heard at a hearing held in January 2017. The Court reserved decision at that hearing.

We have not made a loss accrual for this litigation because we believe that it is not probable that a loss has been incurred and an amount cannot be reasonably estimated.

Due to Borrowers. Due to borrowers represents borrowers’ funds held by us to fund certain expenditures or to be released at our discretion upon the occurrence of certain pre-specified events, and to serve as additional collateral for borrowers’ loans. While retained, these balances earn interest in accordance with the specific loan terms they are associated with.

Subsequent Event. In July 2018, we received approximately $11 million from the settlement of a litigation related to a prior investment. We will record a gain of approximately $11 million in the third quarter of 2018 related to this settlement.

Note 1615 — Variable Interest Entities

Our involvement with VIEs primarily affects our financial performance and cash flows through amounts recorded in interest income, interest expense, provision for loan losses and through activity associated with our derivative instruments.

Consolidated VIEs. We have determined that our operating partnership, ARLP, and our CLO ~~subsidiaries,~~and Debt Fund entities, which ~~are owned by ARLP,~~we consolidate, are VIEs. ARLP is already consolidated in our financial statements, therefore, the identification of this entity as a VIE had no impact on our consolidated financial statements.

Our CLO ~~subsidiaries~~and Debt Fund consolidated entities invest in real estate and real estate-related securities and are financed by the issuance of ~~CLO~~ debt securities. We, or one of our affiliates, are named collateral manager, servicer, and special servicer for all ~~CLO~~ collateral assets held in CLOs, which we believe gives us the power to direct the most significant economic activities of ~~the entity.~~those entities. We also have exposure to ~~CLO~~ losses to the extent of our equity interests and also have rights to waterfall payments in excess of required payments to ~~CLO~~ bond investors. As a result of consolidation, equity interests ~~in these CLOs~~ have been eliminated, and the consolidated balance sheets reflect both the assets held and debt issued by the CLOs and Debt Fund to third parties. Our operating results and cash ~~flo~~wsflows include the gross amounts related to CLO and Debt Fund assets and liabilities as opposed to our net economic interests in ~~the CLO~~those entities.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO ~~consolidated~~CONSOLIDATED FINANCIAL ~~statements~~ STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

The assets and liabilities related to these consolidated CLOs and Debt Fund are as ~~follows:~~follows (in thousands):

	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Assets:
Restricted cash	$	136,408,829	$	15,542,304	$	172,169	$	138,736
Loans and investments, net	1,249,875,600		957,527,492		2,000,582		1,836,744
Due from related party	11,397,903		—
Other assets	9,441,853		6,982,452		15,711		14,011
Total assets	$	1,407,124,185	$	980,052,248	$	2,188,462	$	1,989,491

Liabilities:
Collateralized loan obligations	$	1,066,230,488	$	728,441,109	$	1,590,644	$	1,418,422
Debt fund					68,270		68,084
Other liabilities	2,185,528		1,645,426		3,408		2,046
Total liabilities	$	1,068,416,016	$	730,086,535	$	1,662,322	$	1,488,552

Assets held by the CLOs and Debt Fund are restricted and can only be used ~~only~~ to settle obligations of the ~~CLOs.~~CLOs and Debt Fund, respectively. The liabilities of the CLOs and Debt Fund are non-recourse to us and can only be satisfied from each ~~CLOs~~ respective asset pool. See Note ~~11 —~~ 10—Debt Obligations for details.

We are not obligated to provide, have not provided, and do not intend to provide financial support to any of the consolidated ~~CLOs.~~CLOs or Debt Fund.

Unconsolidated VIEs. We determined that we are not the primary beneficiary of 2024 VIEs in which we have a variable interest as of ~~September~~June 30, ~~2017~~2018 because we do not have the ability to direct the activities of the VIEs that most significantly impact each entity’s economic performance.

The following is a summary of our variable interests in identified VIEs, of which we are not the primary beneficiary, as of ~~September~~June 30, ~~2017:~~2018 (in thousands):

Type	Carrying Amount (1)		Carrying Amount (1)
Loans	$	281,608,227	$	345,288
B Piece bonds	18,851,089		50,342
Agency IOs	4,442,532
Agency interest only strips			3,617
Equity investments	2,120,447		2,193
Total	$	307,022,295	$	401,440

(1) Represents the carrying amount of loans and investments before reserves. At ~~September~~June 30, ~~2017, $182.8~~2018, $128.0 million of loans to VIEs had corresponding loan loss reserves of ~~$81.6~~$57.0 million. See Note 43 — Loans and Investments for details. In addition, the maximum loss exposure as of ~~September~~June 30, ~~2017~~2018 would not exceed the carrying amount of our investment.

These unconsolidated VIEs have exposure to real estate debt of approximately ~~$2.07~~$3.09 billion at ~~September~~June 30, 202018~~17.~~.

Note 1716 — Equity

Preferred Stock.The Series A and B preferred stock became redeemable by us in February 2018 and May 2018, respectively. The Series C preferred stock may not be redeemed by us before February ~~2018, May 2018 and February 2019, respectively.~~2019.

Common Stock. In May ~~2017,~~2018, we completed a public offering in which we sold ~~9,500,000~~5,500,000 shares of our common stock for ~~$8.05~~$8.72 per share, and received net proceeds of ~~$76.2~~$47.8 million after deducting the ~~underwriting~~underwriter’s discount and other offering expenses. ~~We used $25.0 million of the~~The proceeds ~~to exercise our option to fully internalize our management team and terminate the existing management agreement with our Former Manager and the remaining amount was~~were used to make investments and for general corporate purposes.

We have an “At-The-Market” equity offering sales agreement with JMP Securities LLC (“JMP,”) which entitles us to issue and sell up to 7,500,000 shares of our common stock through JMP. Sales of the shares are made by means of ordinary brokers’ transactions or otherwise at market prices prevailing at the time of sale, or at negotiated prices.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO ~~consolidated~~CONSOLIDATED FINANCIAL ~~statements~~ STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

During the six months ended June 30, 2018, we sold 952,700 shares for net proceeds of $8.1 million. As of ~~September~~June 30, ~~2017, there were 7,500,000 common~~2018, we had approximately 6,500,000 shares available under an ~~“At-The-Market” equity offering with JMP Securities LLC.~~this agreement.

~~As of September 30, 2017,~~In June 2018, we ~~had $323.5 million available under our $500.0 million~~filed, and the SEC declared effective, a new shelf registration statement ~~that was declared effective by the SEC in July 2016.~~

~~Accumulated Other Comprehensive Income.~~ At September 30, 2017, accumulated other comprehensive income was $0.2 million and represents an unrealized gain related to available-for-sale securities. At December 31, 2016, accumulated other comprehensive income was $0.3 million and consisted of a $0.6 million unrealized gain related to available-for-sale securities, partially offset by $0.2for $500.0 million of ~~net unrealized losses on derivatives designated as cash flow hedges~~debt securities, common stock, preferred stock, depositary shares and less than $0.1 million of net deferred losses on terminated interest swaps. See Note 13 — Derivative Financial Instruments for the reclassifications out of accumulated other comprehensive income and into earnings.warrants.

Noncontrolling Interest. Noncontrolling interest relates to the 21,230,769 operating partnership units (“OP ~~Units~~Units”) issued ~~to ACM~~ to satisfy a portion of the Acquisition purchase price. The value of these OP ~~units~~Units at the Acquisition date was $154.8 million. Each of these OP Units are paired with one share of our ~~Special Voting Preferred Shares~~special voting preferred shares having a par value of $0.01 per share and is entitled to one vote each on any matter submitted for stockholder approval, which represents approximately ~~25.6%~~23.6% of the voting power of our outstanding stock at ~~September~~June 30, ~~2017.~~2018. The OP Units are entitled to receive distributions if and when our Board of Directors authorizes and declares common stock distributions. The OP Units are also redeemable for cash, or at our option, for shares of our common stock on a one-for-one basis.

Distributions. ~~The following table presents dividends~~Dividends declared (on a per share basis) during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018 were as follows:

Common Stock

Preferred Stock

Dividend (1)

Declaration Date

Dividend

Declaration Date

Series A

Series B

Series C

August 2, 2017

$
0.18

August 2, 2017

$
0.515625

$
0.484375

$
0.53125

May 3, 2017

$
0.18

May 3, 2017

$
0.515625

$
0.484375

$
0.53125

March 1, 2017

$
0.17

February 3, 2017

$
0.515625

$
0.484375

$
0.53125

Common Stock			Preferred Stock
				Dividend (1)
Declaration Date	Dividend		Declaration Date	Series A		Series B		Series C
February 21, 2018	$	0.21	February 2, 2018	$	0.515625	$	0.484375	$	0.53125
May 2, 2018	$	0.25	May 2, 2018	$	0.515625	$	0.484375	$	0.53125

(1) The dividend declared on ~~August~~May 2, ~~2017 was for June 1, 2017 through August 31, 2017, the dividend declared on May 3, 2017~~2018 was for March 1, ~~2017~~2018 through May 31, ~~2017~~2018 and the dividend declared on February ~~3, 2017~~2, 2018 was for December 1, ~~2016~~2017 through February 28, ~~2017.~~2018.

Common Stock — On ~~November~~August 1, ~~2017,~~2018, the Board of Directors declared a cash dividend of ~~$0.19~~$0.25 per share of common stock. The dividend is payable on ~~November 30, 2017~~August 31, 2018 to common stockholders of record as of the close of business on ~~November~~August 15, ~~2017.~~2018.

Preferred Stock — On ~~November~~August 1, ~~2017,~~2018, the Board of Directors declared a cash dividend of $0.515625 per share of 8.25% Series A preferred stock; a cash dividend of $0.484375 per share of 7.75% Series B preferred stock; and a cash dividend of $0.53125 per share of 8.50% Series C preferred stock. These amounts reflect dividends from ~~September~~June 1, ~~2017~~2018 through ~~November 30, 2017~~August 31, 2018 and are payable on ~~November 30, 2017~~August 31, 2018 to preferred stockholders of record on ~~November~~August 15, ~~2017.~~2018.

Deferred Compensation. In March ~~2017,~~2018, we issued ~~299,750~~265,444 shares of restricted common stock under the ~~2014~~2017 Amended Omnibus Stock Incentive Plan (the ~~“2014~~“2017 Plan”) to certain employees of ours ~~and our Former Manager~~ with a total grant date fair value of ~~$2.4~~$2.3 million and recorded ~~$0.4~~$0.8 million to employee compensation and benefits ~~and $0.5 million to selling and administrative expense~~ in our consolidated statements of income. One third of the shares vested as of the grant date, ~~of grant,~~ one third will vest in March ~~2018,~~2019, and the remaining third will vest in March 2019. In connection with the full integration of our management team and termination of the existing management contract, effective May 31, 2017, all stock compensation previously granted to employees that transferred from our Former Manager (non-employees prior to May 31, 2017) will be recorded to employee compensation and benefits based on

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

~~the remeasured fair value on May 31, 2017 over the remaining requisite service period.~~2020. In March ~~2017,~~2018, we also issued ~~74,375~~58,620 shares of fully vested common stock to the independent members of the Board of Directors under the ~~2014~~2017 Plan and recorded ~~$0.6~~$0.5 million to selling and administrative expense in our consolidated statements of income.

We entered into an amended and restated annual incentive agreement (the “2017 annual incentive agreement”) with our chief executive officer, effective January 1, 2017. The chief executive officer’s annual cash bonus and value of his annual long-term equity awards under the 2017 annual incentive agreement each increased 10% as a result of the Company meeting the equity capitalization growth goals in his previous incentive agreement. In addition, the chief executive officer is also eligible to receive a $3.0 million performance-based award of restricted stock annually for five years subject to meeting certain goals related to the integration of the Acquisition. Each $3.0 million award vests in full three years after the grant date and are subject to the chief executive officer’s continued employment. In August 2017, we granted our chief executive officer 357,569 shares of performance-based restricted stock as a result of the Company meeting the goals related to the integration of the Acquisition. The awards had a grant date fair value of $2.7 million and we recorded $0.1 million to ~~employee compensation and benefits in our consolidated statements of income.~~ ~~All other terms of the 2017 incentive agreement are consistent with the chief executive officer’s previous incentive agreement.~~

During the first quarter of ~~2017,~~2018, we issued ~~74,830~~63,584 shares of restricted common stock to our chief executive officer under his 2017 annual incentive agreement with a grant date fair value of $0.6 million and recorded $0.1 million to employee compensation and benefits in our consolidated statements of income. One quarter of the shares vested as of the grant date ~~of grant~~ and one quarter will vest on each of the first, second and third anniversaries of the ~~date of grant.~~grant date. Our chief executive officer was also granted up to ~~448,980~~381,503 performance-based restricted stock units that vest at the end of a four-year performance period based on our achievement of certain total stockholder return objectives. The restricted stock units had a grant date fair value of ~~$1.0~~$0.8 million and we recorded less than $0.1 million to employee compensation and benefits in our consolidated statements of income.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

Earnings Per Share (“EPS”). Basic EPS is calculated by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period inclusive of unvested restricted stock with full dividend participation rights. Diluted EPS is calculated by dividing net income by the weighted average number of shares of common stock outstanding plus the additional dilutive effect of common stock equivalents during each period using the treasury stock method. Our common stock equivalents include the weighted average dilutive effect of performance-based restricted stock units granted to our chief executive officer, OP Units ~~issued in connection with the Acquisition~~ and convertible senior unsecured notes.

The following tables reconcile the numerator and denominator of our basic and diluted EPS ~~computations:~~computations ($ in thousands, except share and per share data):

Three Months Ended September 30, 2017

Three Months Ended September 30, 2016

Basic

Diluted

Basic

Diluted

Net income attributable to common stockholders (1)

$
16,420,958

$
16,420,958

$
10,888,172

$
10,888,172

Net income attributable to noncontrolling interest (2)

—

5,661,184

—

3,649,432

Net income attributable to common stockholders and nocontrolling interest

$
16,420,958

$
22,082,142

$
10,888,172

$
14,537,604

Weighted average shares outstanding

61,582,796

61,582,796

51,390,467

51,390,467

Dilutive effect of OP Units (2)

—

21,230,769

—

18,230,769

Dilutive effect of restricted stock units (3)

—

1,104,552

—

650,560

Weighted average shares outstanding

61,582,796

83,918,117

51,390,467

70,271,796

Net income per common share (1)

$
0.27

$
0.26

$
0.21

$
0.21

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

	Three Months Ended June 30,
	2018				2017
	Basic		Diluted		Basic		Diluted

Net income attributable to common stockholders (1)	$	17,167	$	17,167	$	11,929	$	11,929
Net income attributable to noncontrolling interest (2)	—		5,557		—		4,494
Net income attributable to common stockholders and nocontrolling interest	$	17,167	$	22,724	$	11,929	$	16,423

Weighted average shares outstanding	65,683,057		65,683,057		56,652,334		56,652,334
Dilutive effect of OP Units (2)	—		21,230,769		—		21,230,769
Dilutive effect of restricted stock units (3)	—		1,499,921		—		1,088,108
Dilutive effect of convertible notes (4)	—		1,641,423		—		93,292
Weighted average shares outstanding	65,683,057		90,055,170		56,652,334		79,064,503

Net income per common share (1)	$	0.26	$	0.25	$	0.21	$	0.21

									Six Months Ended June 30,
	Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016				2018				2017
	Basic		Diluted		Basic		Diluted		Basic		Diluted		Basic		Diluted

Net income attributable to common stockholders (1)	$	43,964,070	$	43,964,070	$	22,261,516	$	22,261,516	$	43,356	$	43,356	$	27,543	$	27,543
Net income attributable to noncontrolling interest (2)	—		16,596,415		—		—		—		14,547		—		10,935
Net income attributable to common stockholders and nocontrolling interest	$	43,964,070	$	60,560,485	$	22,261,516	$	22,261,516	$	43,356	$	57,903	$	27,543	$	38,478

Weighted average shares outstanding	56,602,504		56,602,504		51,272,795		51,272,795		63,773,306		63,773,306		54,071,085		54,071,085
Dilutive effect of OP Units (2)	—		21,230,769		—		—		—		21,230,769		—		21,230,769
Dilutive effect of restricted stock units (3)	—		1,077,178		—		354,755		—		1,381,310		—		1,063,264
Dilutive effect of convertible senior unsecurred notes (4)	—		32,468		—		—
Dilutive effect of convertible notes (4)									—		1,035,158		—		—
Weighted average shares outstanding	56,602,504		78,942,919		51,272,795		51,627,550		63,773,306		87,420,543		54,071,085		76,365,118

Net income per common share (1)	$	0.78	$	0.77	$	0.43	$	0.43	$	0.68	$	0.66	$	0.51	$	0.50

(1) Net of preferred stock dividends.

(2) We consider OP Units to be common stock equivalents as the ~~holder has~~holders have voting rights, the right to distributions and the right to redeem the OP Units for the cash value of a corresponding number of shares of common stock or a corresponding number of shares of common stock, at our election. ~~For the nine months ended September 30, 2016, the OP Units were considered anti-dilutive and excluded from diluted EPS.~~

(3) Mr. Kaufman ~~was~~is granted restricted stock units ~~in 2017, 2016 and 2015~~annually, which vest at the end of a four-year performance period based upon our achievement of total stockholder return objectives.

(4) The convertible senior unsecured notes impact diluted earnings per share if the average price of our common stock exceeds the conversion price, as calculated in accordance with the terms of the indenture.

Note 1817 — Income Taxes

As a REIT, we are generally not subject to U.S. federal income tax to the extent of our distributions to stockholders and as long as certain asset, income, distribution, ownership and administrative tests are met. To maintain our qualification as a REIT, we must annually distribute at least 90% of our REIT-taxable income to our stockholders

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

and meet certain other requirements. We may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on our undistributed taxable income. If we were to fail to meet these requirements, we would be subject to U.S. federal income tax, which could have a material adverse impact on our results of operations and amounts available for distributions to our stockholders. We believe that all of the criteria to maintain our REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.

The Agency Business is operated through our TRS Consolidated Group and is subject to U.S. federal, state and local income taxes. In general, our TRS entities may hold assets that the REIT cannot hold directly and may engage in real estate or non-real estate-related business.

The Tax Reform was signed into law on December 22, 2017. Among numerous provisions included in the new tax law was the reduction of the corporate federal income tax rate from 35% to 21%. Our provision for income taxes in the six months ended June 30, 2018 reflects the newly enacted corporate federal income tax rate of 21%. The final impact of the Tax Reform may differ due to, and among other things, changes in interpretations, assumptions made by us, the issuance of additional guidance and actions we may take as a result of the Tax Reform.

In the three and ~~nine~~six months ended ~~September~~June 30, 2018, we recorded a tax provision of $4.5 million and a tax benefit of $4.3 million, respectively. In the three and six months ended June 30, 2017, we recorded a tax provision of ~~$6.7~~$3.4 million and ~~$16.2~~$9.5 million, respectively. The provision for income taxes recorded in the three months ended ~~September~~June 30, 2018 consisted of a current tax provision of $4.3 million and a deferred tax provision of $0.2 million. The benefit from income taxes recorded in the six months ended June 30, 2018 consisted of a current tax provision of $8.8 million and a deferred tax benefit of $13.1 million. The deferred tax benefit recorded in the six months ended June 30, 2018 was due primarily to our payoff in January 2018 of the $50.0 million preferred equity interest entered into with ACM to finance a portion of the Acquisition purchase price. See Note 10 — Debt Obligations for details. The provision for income taxes recorded in the three months ended June 30, 2017 consisted of a current tax provision of ~~$7.6~~$4.3 million ~~partially offset by~~and a deferred tax benefit of $0.9 ~~million, and the~~million. The provision for income taxes recorded in the ~~nine~~six months ended ~~September~~June 30, 2017 consisted of a current ~~provision of $16.2 million. In both the three and nine months ended September 30, 2016, we recorded a~~ tax provision of ~~$0.3~~$8.6 million ~~related to state income tax liability. The significant increase in the~~and a deferred tax provision ~~in the 2017 periods compared to the same periods in 2016 is due to the utilization~~ of ~~available net operating loss carryforwards during 2016 as well as the growth of our Agency Business during 2017.~~$0.9 million.

Current and deferred taxes are primarily recorded on the portion of earnings (losses) recognized by us with respect to our interest in the TRS’s. Deferred income tax assets and liabilities are calculated based on temporary differences between our U.S. GAAP consolidated financial statements and the federal, state, local tax basis of assets and liabilities as of the consolidated balance sheets.

Note 1918 — Agreements and Transactions with Related Parties

Management Agreement. Prior to May 31, 2017, we ~~ARLP and Arbor Realty SR, Inc.~~ had a management agreement with ACM, pursuant to which ACM provided us with a variety of professional and advisory services vital to our operations, including underwriting, accounting and treasury, compliance, marketing, information technology

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

and human resources. Pursuant to the terms of the management agreement, we reimbursed ACM for its actual costs incurred in connection with managing our business through a base management fee, and, under certain circumstances, an annual incentive fee. In May 2017, we ~~exercised our option to fully internalize our management team and terminate~~terminated the existing management agreement. ~~See Note 3 — Acquisition of Our Former Manager’s Agency Platform for details.~~

~~The following table sets forth our~~We incurred base management fees of $2.7 million and ~~incentive fees incurred prior to~~$6.7 million in the ~~full internalization of our management team~~three and ~~termination of the existing management agreement:~~six months ended June 30, 2017, respectively.

Three Months Ended

Nine Months Ended

September 30,

September 30,

Management Fees:

2017

2016

2017

2016

Base

$
—

$
3,325,000

$
6,673,260

$
8,875,000

Incentive

—

—

—

—

Total management fee

$
—

$
3,325,000

$
6,673,260

$
8,875,000

We have ~~entered into~~ a shared services agreement with ~~our Former Manager~~ACM where we ~~will~~ provide limited support services to ~~our Former Manager~~ACM and ~~our Former Manager will~~they reimburse us for the costs of performing such services. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we ~~have~~ incurred $0.3 million and ~~$0.4~~$0.6 million, respectively, and, during both the three and six months ended June 30, 2017, we incurred $0.1 million of costs for services provided to ~~our Former Manager~~ACM, which are included in due from related party on the consolidated balance ~~sheet.~~sheets.

Other Related Party Transactions. Due from related party was ~~$12.6~~$10.2 million and ~~$1.5~~$0.7 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, respectively, and consisted~~2017, respectively. The increase was primarily ofdue to payoffs to be remitted by our affiliated servicing operations related to real estate transactions.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

Due to related party was $0.3 million at June 30, 2018 and consisted of loan payoffs, holdbacks and escrows ~~held by~~to be remitted to our affiliated servicing operations related to real estate transactions.

~~Due to related party was $6.0~~In June 2018, we originated a $21.7 million ~~at December 31, 2016~~bridge loan on a multifamily property owned in part by a consortium of investors (which includes, among other unaffiliated investors, certain of our officers and ~~consisted primarily of base management fees due to~~ our ~~Former Manager that we remitted~~chief executive officer) which owns 75% in the ~~following quarter.~~borrowing entity. The loan has an interest rate of LIBOR plus 4.75%, with a LIBOR floor of 1.25%, and matures in June 2021. Interest income recorded from this loan totaled $0.1 million for both the three and six months ended June 30, 2018.

~~Related~~In April 2018, we acquired a $9.4 million bridge loan which was originated by ACM. The loan was used to purchase several multifamily properties by a consortium of investors (which includes, among other unaffiliated investors, certain of our officers and our chief executive officer) which owns 75% of the borrowing entity. The loan has an interest rate of LIBOR plus 5.0% with a LIBOR floor of 1.25% and matures in January 2021. Interest income recorded from this loan totaled $0.1 million for both the three and six months ended June 30, 2018.

In January 2018, we paid $50.0 million in full satisfaction of the related party financing ~~was $50.0 million at both September 30, 2017 and December 31, 2016 and represents a preferred equity interest financing agreement~~ we entered into with ACM to finance a portion of the Acquisition purchase price. We incurred interest expense related to this financing of $0.3 million for the six months ended June 30, 2018 and $1.0 million and ~~$2.9 million in the three and nine months ended September 30, 2017, respectively, and~~ ~~$0.8 million during both the three and nine months ended September 30, 2016. See Note 11 — Debt Obligations for details.~~

In January 2017, we modified a $5.0 million preferred equity investment, increasing our balance to $15.0 million, with a commitment to fund an additional $5.0 million. This investment has a fixed interest rate of ~~11% and matures in January 2020~~. In July 2017, we entered into an agreement with a consortium of investors consisting of certain of our officers, including Mr. Kaufman, which admitted them as a member to fund the remaining $5.0 million preferred equity investment, which is generally subordinate to our investment. Interest income recorded from our investment totaled $0.2 million and $0.5$1.9 million for the three and ~~nine~~six months ended ~~September~~June 30, 2017, respectively.

In December 2017, we acquired a $32.8 million bridge loan which was originated by ACM. The loan was used to purchase several multifamily properties by a consortium of investors (which includes, among other unaffiliated investors, certain of our officers and our chief executive officer) which owns 90% of the borrowing entity. The loan has an interest rate of LIBOR plus 5.0%, with a LIBOR floor of 1.13%, and matures in June 2020. Interest income recorded from this loan totaled $0.6 million and $1.1 million for the three and six months ended June 30, 2018.

In the fourth quarter of 2017, we originated two bridge loans totaling $28.0 million on two multifamily properties owned in part by a consortium of investors (which includes, among other unaffiliated investors, certain of our officers and our chief executive officer) which owns 45% in the borrowing entity. The loans have an interest rate of LIBOR plus 5.25% with LIBOR floors ranging from 1.24% to 1.54% and mature in the fourth quarter of 2020. Interest income recorded from these loans totaled $0.5 million and $1.0 million for the three and six months ended June 30, 2018.

In July 2017, we originated a $36.0 million bridge loan on a multifamily property owned in part by a consortium of investors. The consortium of investors (which includes, among other unaffiliated investors, certain of our officers ~~including Mr. Kaufman, who own~~and our chief executive officer) owns an interest of ~~approximately 41%~~95% in the borrowing entity. The loan has an interest rate of ~~one-month~~ LIBOR plus 4.5% with a LIBOR floor of 1% and matures in July 2020. Interest income recorded from this loan totaled ~~$0.4~~$0.6 million and $1.2 million for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

In May 2017, we originated a $46.9 million Fannie Mae loan on a multifamily property owned in part by a consortium of investors ~~including an immediate family member~~(which includes, among other unaffiliated investors, certain of ~~Mr. Kaufman, who~~our officers) which owns ana 21.4% interest ~~of approximately 17.2%~~ in the borrowing entity. We carry a maximum loss-sharing obligation with Fannie Mae on this loan of up to ~~40%~~5% of the original UPB.

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~ Servicing revenue recorded from this loan was less than $0.1 million for all periods presented.

In March 2017, a consortium of investors ~~including Mr. Kaufman~~(which includes, among other unaffiliated investors, our chief executive officer and ~~our Former Manager,~~ACM) invested $2.0 million for a 26.1% ownership interest in two portfolios of multifamily properties which has two bridge loans totaling $14.8 million originated by us in ~~November~~ 2016. The ~~outstanding~~ loans have an interest rate of LIBOR plus 5.25% with a LIBOR floor of 0.5% and mature in November 2018. One of the loans was repaid in full in the fourth quarter of 2017 and the remaining loan paid off in June 2018. Interest income recorded from these loans totaled ~~$0.3~~$0.2 million and ~~$0.8~~$0.3 million for the three and ~~nine~~six months ended ~~September~~June 30, 2018, respectively, and $0.3 million and $0.5 million for the three and six months ended June 30, 2017, respectively.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

In January 2017, we modified a $5.0 million preferred equity investment, subsequently increasing our balance to $15.0 million, with a commitment to fund an additional $5.0 million. This investment had a fixed interest rate of 11% that was scheduled to mature in January 2020, however, the principal was repaid in full in the fourth quarter of 2017. We also entered into an agreement with a consortium of investors (which includes, among other unaffiliated investors, certain of our officers and our chief executive officer) which admitted them as a member to fund the remaining $5.0 million preferred equity investment, which was generally subordinate to our investment. Interest income recorded from our investment totaled $0.2 million and $0.3 million in the three and six months ended June 30, 2017.

In January 2017, Ginkgo Investment Company LLC (“Ginkgo”), of which one of our directors is a 33% managing member, purchased a multifamily apartment complex which assumed an existing $8.3 million Fannie Mae loan that we service. Ginkgo subsequently sold the majority of its interest in this property and owned a 3.6% interest at ~~September~~June 30, ~~2017.~~2018. We carry a maximum loss-sharing obligation with Fannie Mae on this loan of up to 20% of the original UPB. Upon the sale, we received a 1% loan assumption fee which was governed by existing loan agreements that were in place when the loan was originated in 2015, prior to such purchase. Servicing revenue recorded from this loan was less than $0.1 million for all periods presented.

In ~~September~~ 2016, we originated $48.0 million of bridge loans on six multifamily properties owned in part by a consortium of investors ~~consisting of~~(which includes, among other unaffiliated investors, certain of our officers ~~including Mr. Kaufman~~ and our ~~Former Manager, who together own~~chief executive officer) which owns interests ranging from ~~approximately 7.8%~~10.5% to 9%12.0% in the borrowing entities. The loans have an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25% and mature in September 2019. In ~~addition, in~~ August 2017, a $6.8 million loan on one of the properties paid off in full and in May 2018 three additional loans totaling $23.2 million paid off in full. Interest income recorded from these loans totaled ~~$0.7~~$0.6 million and ~~$2.1~~$1.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and ~~$0.1~~$0.7 million and $1.3 million for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017, respectively.

In ~~January~~ 2016, we originated a $12.7 million bridge loan and a $5.2 million preferred equity investment on two multifamily properties owned in part by a consortium of investors ~~consisting of~~(which includes, among other unaffiliated investors, certain of our officers ~~including Mr. Kaufman, who together own~~and our chief executive officer) which owns an interest of ~~approximately~~ 50% in the borrowing entity. The loan has an interest rate of ~~one-month~~ LIBOR plus 4.5% with a LIBOR floor of 0.25% and matures in January 2019. The preferred equity investment has a fixed interest rate of 10% and ~~matures in~~a maturity date extended to November ~~2017.~~2018. Interest income recorded from these loans totaled $0.3 million and $0.7 million for ~~both~~ the three and six months ended ~~September~~June 30, 2018, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2017, ~~and 2016 and $0.9 million for both the nine months ended September 30, 2017 and 2016.~~respectively.

In ~~January~~ 2016, we originated a $19.0 million bridge loan on a multifamily property owned in part by a consortium of investors ~~consisting of~~(which includes, among other unaffiliated investors, certain of our officers ~~including Mr. Kaufman, who together own~~and our chief executive officer) which owns an interest of ~~approximately~~ 7.5% in the borrowing entity. The loan ~~has~~had an interest rate of ~~one-month~~ LIBOR plus 4.5% with a LIBOR floor of 0.25% and ~~matures~~was scheduled to mature in January 2019. In January 2018, this loan paid off in full. Interest income recorded from this loan totaled $0.3 million for the six months ended June 30, 2018 and ~~$0.8~~$0.3 million and $0.6 million for the three and ~~nine~~six months ended ~~September~~June 30, 2017, ~~respectively, and $0.3 million and $0.7 million for the three and nine months ended September 30, 2016,~~ respectively.

In 2015, we originated a $7.1 million bridge loan on a multifamily property owned in part by a consortium of investors ~~consisting of~~(which includes, among other unaffiliated investors, certain of our officers ~~including Mr. Kaufman, who together own~~and our chief executive officer) which owns an interest of ~~approximately~~ 7.5% in the borrowing entity. In August 2017, this loan paid off in full. The loan had an interest rate of LIBOR plus 4.5%, with a LIBOR floor of 0.25%. Interest income recorded from this loan totaled $0.1 million and $0.2 million for ~~both~~ the three and six months ended ~~September~~June 30, 2017, ~~and 2016 and $0.3 million for both the nine months ended September 30, 2017 and 2016.~~respectively.

In 2015, we originated two bridge loans totaling $16.7 million secured by multifamily properties acquired by a third party investor. The properties ~~had been~~were owned and were sold in part by a consortium of investors ~~consisting of~~ (which includes, among other unaffiliated investors, certain of our officers, ~~including Mr. Kaufman,~~our chief executive officer and certain other related ~~parties and certain unaffiliated persons.~~parties). The loans have an interest rate of LIBOR plus 5% with a LIBOR floor of 0.25% and were extended as of right to October 2018. Interest income recorded from these loans totaled $0.3 million and $0.7 million for ~~both~~ the three and six months ended ~~September~~June 30, 2018, respectively, and $0.3 million and $0.5 million for the three and six months ended June 30, 2017, ~~and 2016 and $0.8 million for both the nine months ended September~~respectively.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, ~~2017 and 2016.~~2018

In 2015, we originated a $3.0 million mezzanine loan on a multifamily property that has a $47.0 million first mortgage initially originated by ~~our Former Manager.~~ACM. The loan ~~bears~~bore interest at a fixed rate of 12.5% and ~~matures~~was scheduled to mature in April 2025. In January 2018, this loan paid off in full. Interest income recorded from this loan totaled $0.1 million for ~~both~~ the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016 and $0.3 million for both the nine months ended September 30, 2017 and 2016.~~

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

In 2015, we originated a $6.3 million bridge loan on a multifamily property owned by a consortium of investors consisting of certain of our officers, including Mr. Kaufman and our Former Manager, who together own an interest of approximately 90% in the borrowing entity. The loan had an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25% and was to mature in April 2018. ~~The loan was repaid in full in the fourth quarter of 2016.~~ ~~Interest income recorded from this loan totaled~~ $0.1 million and $0.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively.

~~In 2015, we modified an $18.0 million preferred equity investment, increasing our balance to $23.0 million~~ ~~with a fixed interest rate of 10% and a maturity date in February 2018~~. To accomplish the modification, we formed a joint venture with a consortium of investors consisting of certain of our officers, including Mr. Kaufman, and other related parties, to invest an additional $2.0 million preferred equity investment that is generally subordinate to ours. During the second quarter of 2016, the preferred equity investment was repaid in full and we received proceeds of $1.0 million, which was allocated to the consortium of investors. Interest income recorded from this investment totaled $1.0 million for the nine months ended September 30, 2016.

In 2015, we invested $9.6 million for 50% of ~~our Former Manager’s~~ACM’s indirect interest in a joint venture with a third party that was formed to invest in a residential mortgage banking business. As a result of this transaction, we had an initial indirect interest of 22.5% in this entity. Since the initial investment, we invested an additional $16.1 million through this joint venture in non-qualified residential mortgages purchased from the mortgage banking business’s origination platform ~~(which $0.6 million was funded in the nine months ended September 30, 2017)~~ and we received cash distributions totaling ~~$14.0~~$16.6 million (that were classified as returns of capital) as a result of the joint venture selling most of its mortgage assets (which ~~$0.9~~$0.4 million was received in the ~~nine~~six months ended ~~September~~June 30, ~~2017)~~2018). We recorded ~~a loss~~income from these investments of ~~$1.2~~$0.7 million and ~~$1.8~~$0.8 million ~~during~~in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and ~~income~~a loss of ~~$4.2~~$0.7 million and ~~$8.9~~$0.6 million ~~during~~in the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively. In connection with a litigation settlement related to this investment, we provided a guaranty of up to 50% of any amounts payable in connection with the settlement. ACM has also provided us with a guaranty to pay up to 50% of any amounts we may pay under this guaranty. As of June 30, 2018, our maximum exposure under this guaranty totals $2.7 million. We have not accrued this amount as we do not believe that we will be required to make any nonrefundable payments under this guaranty. See Note 8—Investments in Equity Affiliates for details.

In 2014, we invested $0.1 million for a 5% interest in a joint venture that owns two multifamily properties. The joint venture is comprised of a consortium of investors ~~consisting of~~(which includes, among other unaffiliated investors, certain of our officers, ~~including Mr. Kaufman,~~our chief executive officer and certain other related ~~parties, who together own~~parties) which owns an interest of 95%. ~~In 2014, we originated two~~We had a $1.7 million bridge ~~loans totaling $5.0 million~~loan to the joint venture with an interest rate of 5.5% over ~~one-month LIBOR and a maturity date extended as of right to September 2016. During the third quarter of 2016, one of the loans~~LIBOR. The loan was repaid in full ~~and we received proceeds~~in the fourth quarter of ~~$3.3 million, which was allocated to the consortium of investors. The remaining loan was extended to~~ ~~December~~ 2017. Interest income recorded from ~~these loans~~this loan was less than $0.1 million and $0.1 million for the three and ~~nine~~six months ended ~~September~~June 30, 2017, ~~respectively, and $0.1 million and $0.2 million for the three and nine months ended September 30, 2016,~~ respectively.

In 2014, we originated a $30.4 million bridge loan for an office property owned in part by a consortium of investors ~~including Mr. Kaufman~~(which includes, among other unaffiliated investors, our chief executive officer and his ~~affiliates, who together own~~affiliates) which owns an interest of ~~approximately~~ 24% in the borrowing entity. The loan matured in August 2017 and was refinanced with a $43.2 million bridge loan that has an interest rate of 4% over ~~one-month~~ LIBOR with a LIBOR floor of 1.23% and an August 2020 maturity date. We also originated a $4.6 million mezzanine loan in ~~January~~ 2016 to this entity that had a fixed interest rate of 12% ~~and paid off~~, which was repaid in full at maturity in August 2017. In the fourth quarter of 2017, the consortium of investors sold their ownership interest in the borrowing entity. Interest income recorded from these loans totaled $0.8 million and ~~$2.4~~$1.6 million for the three and ~~nine~~six months ended ~~September~~June 30, 2017, ~~respectively, and $0.9 million and $2.6 million for the three and nine months ended September 30, 2016,~~ respectively.

In 2014, ~~our Former Manager~~ACM purchased a property subject to two loans originated by us, a first mortgage of $14.6 million and a second mortgage of $5.1 million, both with maturity dates of April 2016 and an interest rate of 4.8% over LIBOR. In ~~the first quarter of~~ 2016, the $5.1 million second mortgage was repaid in full ~~by our Former Manager~~ and the $14.6 million first mortgage was extended to ~~March 2018.~~April 2018 and paid off at maturity. Interest income recorded from these loans totaled ~~$0.2~~less than $0.1 million and ~~$0.7~~$0.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, and $0.2 million and ~~$0.7~~$0.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively.

~~In 2011, we restructured a preferred equity investment on the Lexford Portfolio (“Lexford”), which is a portfolio of multifamily assets. In connection with this restructuring, we,~~We, along with an executive officer of ours and a consortium of independent outside investors, ~~made an additional preferred and direct equity investment. Both of our~~

~~ARBOR REALTY TRUST, INC. AND SUBSIDIARIES~~

~~NOTES TO consolidated FINANCIAL statements~~ ~~(Unaudited)~~

~~September 30, 2017~~

~~preferred~~hold equity investments ~~and our direct equity investment were repaid~~ in ~~full in~~a portfolio of multifamily properties referred to as the third quarter of 2015. As a result of the direct equity investment, we received distributions totaling $0.7 million and $2.0 million during the three and nine months ended September 30, 2017, respectively, and $0.7 million and $2.1 million during the three and nine months ended September 30, 2016, respectively,Lexford Portfolio (“Lexford”), which ~~were recorded as~~ income from equity affiliates. In addition, under the terms of the restructuring, Lexford’s first mortgage lender required a change of property manager for the underlying assets. The new management company is managed by an entity owned primarily by a consortium of affiliated investors, including ~~Mr. Kaufman~~our chief executive officer and an executive officer of ~~ours, and has a~~ours. Based on the terms of the management contract, ~~with~~ the ~~new entity for 7.5 years and~~management company is entitled to 4.75% of gross revenues of the underlying properties, along with the potential to share in the proceeds of a sale or ~~refinancing~~restructuring of the debt. In June 2018, the owners of Lexford restructured part of its debt ~~should~~and we originated twelve bridge loans totaling $280.5 million, which were used to repay in full certain existing mortgage debt and to

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2018

renovate 72 multifamily properties included in the ~~management company remain engaged~~portfolio. The loans which we originated in June 2018 have interest rates of 400 basis points over LIBOR and mature in June 2021 (with 2 one-year extension options). Interest income recorded from these loans totaled $1.1 million in June 2018. Further, as part of this June 2018 restructuring, $50.0 million in unsecured financing was provided by an unsecured lender to certain parent entities of the ~~new~~property owners. ACM owns slightly less than half of the unsecured lender entity atand, therefore, provided slightly less than half of the ~~time of such capital event. We have provided~~unsecured lender financing. In addition, in connection with our equity investment, we received distributions totaling $0.6 million during both the three months ended June 30, 2018 and 2017 and $1.2 million and $1.3 million during the six months ended June 30, 2018 and 2017, respectively, which were recorded as income from equity affiliates. Separate from loans which we originated in June 2018, we provide limited (“bad boy”) guarantees for certain other debt controlled by Lexford. The bad boy guarantees may become a liability for us upon standard “bad” acts such as fraud or a material misrepresentation by Lexford or us. At ~~September~~June 30, ~~2017,~~2018, this debt had an aggregate outstanding balance of ~~$845.8~~$309.1 million and is scheduled to mature between ~~2017~~2019 and 2025.

Several of our executives, including our chief financial officer, general counsel and ~~Mr. Kaufman,~~ our chairman, chief executive officer and president, hold similar positions for ~~our Former Manager. Mr. Kaufman~~ACM. Our chief executive officer and his affiliated entities (“the Kaufman Entities”) together beneficially own approximately ~~70%~~75% of the outstanding membership interests of ~~our Former Manager~~ACM and certain of our employees and directors also hold an ownership interest in ~~our Former Manager.~~ACM. Furthermore, one of our directors serves as the trustee and co-trustee of ~~one~~two of the Kaufman Entities that ~~holds a majority of the outstanding~~hold membership interests in ~~our Former Manager and co-trustee of another Kaufman Entity that owns an equity interest in our Former Manager. Our Former Manager holds 5,349,053 shares of our common stock, and upon~~ACM. Upon the closing of the Acquisition in ~~July~~ 2016, ~~was~~we issued 21,230,769 OP Units, each paired with one share of our Special Voting Preferred ~~Shares,~~Shares. In December 2017, ACM distributed 5,780,348 OP Units to its members, which ~~in total,~~includes the Kaufman Entities and certain of our officers and employees. At June 30, 2018, ACM holds 5,349,053 shares of our common stock and 15,450,421 OP Units, which represents ~~approximately 32%~~23.2% of the voting power of our outstanding stock. Our Board of Directors approved a resolution under our charter allowing ~~Mr. Kaufman~~our chief executive officer and ACM, (which our ~~Former Manager, (which Mr. Kaufman~~chief executive officer has a controlling equity interest in), to own more than the 5% ownership interest limit of our common stock as stated in our amended charter.

Note 2019 — Segment Information

As a result of the Acquisition, we evaluate our results from operations from two business segments — our Structured Business and our Agency Business. See Note 1 — Description of Business for a description of each segment.

The summarized statements of income and balance sheet data, as well as certain other data, by segment are included in the following ~~tables.~~tables ($ in thousands). Specifically identifiable costs are recorded directly to each business segment. For items not specifically identifiable, costs have been allocated between the business segments using the most meaningful allocation methodologies, which was predominately direct labor costs (i.e., time spent working on each business segment). Such costs include, but are not limited to, compensation and employee related costs, selling and administrative expenses, management fees (through May 31, 2017 — effective date of the full internalization of our management team and termination of the existing management agreement with ~~our Former Manager)~~ACM) and stock-based compensation.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

The Agency Business information for the three and nine months ended September 30, 2016 in the following tables includes only the operating results of the Acquisition from July 14, 2016 (Acquisition closing date) to September 30, 2016.

	Three Months Ended September 30, 2017											Three Months Ended June 30, 2018
	Structured Business		Agency Business			Other / Eliminations (1)			Consolidated			Structured Business			Agency Business			Other / Eliminations (1)			Consolidated

Interest income	$	37,258,633	$	4,880,943		$	—		$	42,139,576		$	54,177		$	5,118		$	—		$	59,295
Interest expense	19,912,991		2,974,603			961,823			23,849,417			34,612			3,272			—			37,884
Net interest income	17,345,642		1,906,340			(961,823		)	18,290,159			19,565			1,846			—			21,411
Other revenue:
Gain on sales, including fee-based services, net	—		17,126,106			—			17,126,106			—			15,622			—			15,622
Mortgage servicing rights	—		18,897,239			—			18,897,239			—			17,936			—			17,936
Servicing revenue	—		20,231,489			—			20,231,489			—			22,808			—			22,808
Amortization of MSRs	—		(11,711,378		)	—			(11,711,378		)	—			(11,937		)	—			(11,937		)
Property operating income	2,668,055		—			—			2,668,055			2,964			—			—			2,964
Other income, net	540,241		237,415			—			777,656			117			(587		)	—			(470		)
Total other revenue	3,208,296		44,780,871			—			47,989,167			3,081			43,842			—			46,923
Other expenses:
Employee compensation and benefits	5,670,249		19,524,184			—			25,194,433			6,749			20,066			—			26,815
Selling and administrative	3,014,038		4,592,898			—			7,606,936			3,497			5,376			—			8,873
Property operating expenses	2,582,745		—			—			2,582,745			2,856			—			—			2,856
Depreciation and amortization	428,562		1,400,454			—			1,829,016			444			1,401			—			1,845
Impairment loss on real estate owned												2,000			—			—			2,000
Provision for loss sharing (net of recoveries)	—		(2,617,064		)	—			(2,617,064		)	—			348			—			348
Provision for loan losses (net of recoveries)	2,000,000		—			—			2,000,000			(2,127		)	—			—			(2,127		)
Total other expenses	13,695,594		22,900,472			—			36,596,066			13,419			27,191			—			40,610
Income before income from equity affiliates and provision for income taxes	6,858,344		23,786,739			(961,823		)	29,683,260
Income before income from equity affiliates and income taxes												9,227			18,497			—			27,724
Income from equity affiliates	995,312		—			—			995,312			1,387			—			—			1,387
Provision for income taxes	—		(6,708,000		)	—			(6,708,000		)
Benefit from (provision for) income taxes												500			(4,999		)	—			(4,499		)
Net income	7,853,656		17,078,739			(961,823		)	23,970,572			11,114			13,498			—			24,612
Preferred stock dividends	1,888,430		—			—			1,888,430			1,888			—			—			1,888
Net income attributable to noncontrolling interest	—		—			5,661,184			5,661,184			—			—			5,557			5,557
Net income attributable to common stockholders	$	5,965,226	$	17,078,739		$	(6,623,007	)	$	16,420,958		$	9,226		$	13,498		$	(5,557	)	$	17,167

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

	Three Months Ended September 30, 2016												Three Months Ended June 30, 2017
	Structured Business			Agency Business			Other / Eliminations (1)			Consolidated			Structured Business			Agency Business			Other / Eliminations (1)			Consolidated

Interest income	$	26,893,151		$	2,743,076		$	—		$	29,636,227		$	29,917		$	4,551		$	—		$	34,468
Interest expense	14,455,058			1,680,561			830,609			16,966,228			16,712			2,737			962			20,411
Net interest income	12,438,093			1,062,515			(830,609		)	12,669,999			13,205			1,814			(962		)	14,057
Other revenue:
Gain on sales, including fee-based services, net	—			9,693,822			—			9,693,822			—			18,830			—			18,830
Mortgage servicing rights	—			15,968,067			—			15,968,067			—			17,254			—			17,254
Servicing revenue	—			13,472,408			—			13,472,408			—			18,437			—			18,437
Amortization of MSRs	—			(7,586,524		)	—			(7,586,524		)	—			(11,828		)	—			(11,828		)
Property operating income	2,960,940			—			—			2,960,940			2,863			—			—			2,863
Other income, net	111,036			248,510			—			359,546			731			(1,552		)	—			(821		)
Total other revenue	3,071,976			31,796,283			—			34,868,259			3,594			41,141			—			44,735
Other expenses:
Employee compensation and benefits	3,460,745			10,755,934			—			14,216,679			4,067			17,758			—			21,825
Selling and administrative	2,182,406			3,720,625			—			5,903,031			2,898			4,937			—			7,835
Acquisition costs	—			—			6,406,258			6,406,258
Property operating expenses	2,819,004			—			—			2,819,004			2,622			—			—			2,622
Depreciation and amortization	641,721			1,167,044			—			1,808,765			415			1,401			—			1,816
Provision for loss sharing	—			1,316,862			—			1,316,862
Impairment loss on real estate owned													1,500			—						1,500
Provision for loss sharing (net of recoveries)													—			532			—			532
Provision for loan losses (net of recoveries)	(54,000		)	—			—			(54,000		)	(1,760		)	—			—			(1,760		)
Management fee - related party	1,712,307			1,612,693			—			3,325,000			1,284			1,389			—			2,673
Total other expenses	10,762,183			18,573,158			6,406,258			35,741,599			11,026			26,017			—			37,043
Income before income from equity affiliates and provision for income taxes	4,747,886			14,285,640			(7,236,867		)	11,796,659
Income from equity affiliates	4,929,375			—			—			4,929,375
Income before loss from equity affiliates and income taxes													5,773			16,938			(962		)	21,749
Loss from equity affiliates													(3		)	—			—			(3		)
Provision for income taxes	—			(300,000		)	—			(300,000		)	—			(3,435		)	—			(3,435		)
Net income	9,677,261			13,985,640			(7,236,867		)	16,426,034			5,770			13,503			(962		)	18,311
Preferred stock dividends	1,888,430			—			—			1,888,430			1,888			—			—			1,888
Net income attributable to noncontrolling interest	—			—			3,649,432			3,649,432			—			—			4,494			4,494
Net income attributable to common stockholders	$	7,788,831		$	13,985,640		$	(10,886,299	)	$	10,888,172		$	3,882		$	13,503		$	(5,456	)	$	11,929

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

	Nine Months Ended September 30, 2017												Six Months Ended June 30, 2018
	Structured Business			Agency Business			Other / Eliminations (1)			Consolidated			Structured Business			Agency Business			Other / Eliminations (1)			Consolidated

Interest income	$	95,684,909		$	14,447,957		$	—		$	110,132,866		$	101,413		$	9,495		$	—		$	110,908
Interest expense	51,866,274			8,945,898			2,885,469			63,697,641			64,817			6,125			329			71,271
Net interest income	43,818,635			5,502,059			(2,885,469		)	46,435,225			36,596			3,370			(329		)	39,637
Other revenue:
Gain on sales, including fee-based services, net	—			55,127,004			—			55,127,004			—			33,815			—			33,815
Mortgage servicing rights	—			56,181,638			—			56,181,638			—			37,571			—			37,571
Servicing revenue	—			55,350,118			—			55,350,118			—			44,220			—			44,220
Amortization of MSRs	—			(35,427,217		)	—			(35,427,217		)	—			(23,802		)	—			(23,802		)
Property operating income	8,754,518			—			—			8,754,518			5,874			—			—			5,874
Other income, net	1,381,847			(2,311,740		)	—			(929,893		)	351			2,057			—			2,408
Total other revenue	10,136,365			128,919,803			—			139,056,168			6,225			93,861			—			100,086
Other expenses:
Employee compensation and benefits	13,569,621			53,290,960			—			66,860,581			14,336			41,973			—			56,309
Selling and administrative	8,993,239			14,142,511			—			23,135,750			7,034			10,755			—			17,789
Property operating expenses	7,842,571			—			—			7,842,571			5,652			—			—			5,652
Depreciation and amortization	1,340,629			4,201,362			—			5,541,991			890			2,801			—			3,691
Impairment loss on real estate owned	2,700,000			—			—			2,700,000
Impairment loss on real estae owned													2,000			—			—			2,000
Provision for loss sharing (net of recoveries)	—			(405,494		)	—			(405,494		)	—			821			—			821
Provision for loan losses (net of recoveries)	(455,653		)	—			—			(455,653		)	(1,802		)	—			—			(1,802		)
Management fee - related party	3,258,772			3,414,488			—			6,673,260
Total other expenses	37,249,179			74,643,827			—			111,893,006			28,110			56,350			—			84,460
Income before gain on extinguishment of debt, income from equity affiliates and provision for income taxes	16,705,821			59,778,035			(2,885,469		)	73,598,387
Gain on extinguishment of debt	7,116,243			—			—			7,116,243
Income before income from equity affiliates and income taxes													14,711			40,881			(329		)	55,263
Income from equity affiliates	1,755,145			—			—			1,755,145			2,132			—			—			2,132
Provision for income taxes	—			(16,244,000		)	—			(16,244,000		)
Benefit from income taxes													500			3,785			—			4,285
Net income	25,577,209			43,534,035			(2,885,469		)	66,225,775			17,343			44,666			(329		)	61,680
Preferred stock dividends	5,665,290			—			—			5,665,290			3,777			—			—			3,777
Net income attributable to noncontrolling interest	—			—			16,596,415			16,596,415			—			—			14,547			14,547
Net income attributable to common stockholders	$	19,911,919		$	43,534,035		$	(19,481,884	)	$	43,964,070		$	13,566		$	44,666		$	(14,876	)	$	43,356

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

	Nine Months Ended September 30, 2016												Six Months Ended June 30, 2017
	Structured Business			Agency Business			Other / Eliminations (1)			Consolidated			Structured Business			Agency Business			Other / Eliminations (1)			Consolidated

Interest income	$	80,681,114		$	2,743,076		$	—		$	83,424,190		$	58,426		$	9,567		$	—		$	67,993
Other interest income, net	2,539,274			—			—			2,539,274
Interest expense	40,447,159			1,680,561			830,609			42,958,329			31,953			5,971			1,924			39,848
Net interest income	42,773,229			1,062,515			(830,609		)	43,005,135			26,473			3,596			(1,924		)	28,145
Other revenue:
Gain on sales, including fee-based services, net	—			9,693,822			—			9,693,822			—			38,001			—			38,001
Mortgage servicing rights	—			15,968,067			—			15,968,067			—			37,284			—			37,284
Servicing revenue	—			13,472,408			—			13,472,408			—			35,119			—			35,119
Amortization of MSRs	—			(7,586,524		)	—			(7,586,524		)	—			(23,716		)	—			(23,716		)
Property operating income	12,719,027			—			—			12,719,027			6,086			—			—			6,086
Other income, net	415,467			248,510			—			663,977			842			(2,549		)	—			(1,707		)
Total other revenue	13,134,494			31,796,283			—			44,930,777			6,928			84,139			—			91,067
Other expenses:
Employee compensation and benefits	12,100,499			10,755,934			—			22,856,433			7,899			33,767			—			41,666
Selling and administrative	6,557,219			3,720,625			—			10,277,844			5,979			9,550			—			15,529
Acquisition costs	—			—			10,261,902			10,261,902
Property operating expenses	10,991,823			—			—			10,991,823			5,260			—			—			5,260
Depreciation and amortization	1,962,366			1,167,044			—			3,129,410			912			2,801			—			3,713
Impairment loss on real estate owned	11,200,000			—			—			11,200,000			2,700			—			—			2,700
Provision for loss sharing	—			1,316,862			—			1,316,862
Provision for loss sharing (net of recoveries)													—			2,212			—			2,212
Provision for loan losses (net of recoveries)	(24,995		)	—			—			(24,995		)	(2,456		)	—			—			(2,456		)
Management fee - related party	7,262,307			1,612,693			—			8,875,000			3,259			3,414			—			6,673
Total other expenses	50,049,219			18,573,158			10,261,902			78,884,279			23,553			51,744			—			75,297
Income before gain on sale of real estate, income from equity affiliates and provision for income taxes	5,858,504			14,285,640			(11,092,511		)	9,051,633
Gain on sale of real estate	11,630,687			—			—			11,630,687
Income before gain on extinguishment of debt, income from equity affiliates and income taxes													9,848			35,991			(1,924		)	43,915
Gain on extinguishment of debt													7,116			—			—			7,116
Income from equity affiliates	11,193,918			—			—			11,193,918			760			—			—			760
Provision for income taxes	—			(300,000		)	—			(300,000		)	—			(9,536		)	—			(9,536		)
Net income	28,683,109			13,985,640			(11,092,511		)	31,576,238			17,724			26,455			(1,924		)	42,255
Preferred stock dividends	5,665,290			—			—			5,665,290			3,777			—			—			3,777
Net income attributable to noncontrolling interest	—			—			3,649,432			3,649,432			—			—			10,935			10,935
Net income attributable to common stockholders	$	23,017,819		$	13,985,640		$	(14,741,943	)	$	22,261,516		$	13,947		$	26,455		$	(12,859	)	$	27,543

(1) Includes certain corporate expenses not allocated to the two reportable segments, such as financing costs associated with the Acquisition, as well as income allocated to the noncontrolling interest ~~holder.~~holders.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

	September 30, 2017								June 30, 2018
	Structured Business		Agency Business		Other / Eliminations		Consolidated		Structured Business		Agency Business		Other / Eliminations		Consolidated
Assets:
Cash and cash equivalents	$	28,874,347	$	55,877,050	$	—	$	84,751,397	$	78,997	$	27,971	$	—	$	106,968
Restricted cash	137,126,053		12,336		—		137,138,389		172,954		732		—		173,686
Loans and investments, net	1,997,555,985		—		—		1,997,555,985		3,064,798		—		—		3,064,798
Loans held-for-sale, net	—		333,267,976		—		333,267,976		—		311,487		—		311,487
Capitalized mortgage servicing rights, net	—		247,875,659		—		247,875,659		—		257,021		—		257,021
Securities held to maturity	—		18,851,089		—		18,851,089		—		50,342		—		50,342
Investments in equity affiliates	31,330,740		—		—		31,330,740		24,144		—		—		24,144
Goodwill and other intangible assets	12,500,000		110,666,816		—		123,166,816		12,500		106,465		—		118,965
Other assets	71,864,641		12,375,170		—		84,239,811		79,751		17,158		—		96,909
Total assets	$	2,279,251,766	$	778,926,096	$	—	$	3,058,177,862	$	3,433,144	$	771,176	$	—	$	4,204,320

Liabilities:
Debt obligations	$	1,630,457,754	$	327,987,187	$	50,000,000	$	2,008,444,941	$	2,759,445	$	307,656	$	—	$	3,067,101
Allowance for loss-sharing obligations	—		30,158,464		—		30,158,464		—		31,402		—		31,402
Other liabilities	122,924,302		49,852,331		1,054,615		173,831,248		135,944		26,361		—		162,305
Total liabilities	$	1,753,382,056	$	407,997,982	$	51,054,615	$	2,212,434,653	$	2,895,389	$	365,419	$	—	$	3,260,808

	December 31, 2016								December 31, 2017
	Structured Business		Agency Business		Other / Eliminations		Consolidated		Structured Business		Agency Business		Other / Eliminations		Consolidated
Assets:
Cash and cash equivalents	$	103,156,034	$	35,489,396	$	—	$	138,645,430	$	37,056	$	67,318	$	—	$	104,374
Restricted cash	16,230,051		13,084,878		—		29,314,929		139,398		—		—		139,398
Loans and investments, net	1,695,732,351		—		—		1,695,732,351		2,579,127		—		—		2,579,127
Loans held-for-sale, net	—		673,367,304		—		673,367,304		—		297,443		—		297,443
Capitalized mortgage servicing rights, net	—		227,742,986		—		227,742,986		—		252,608		—		252,608
Securities held-to-maturity, net									—		27,837		—		27,837
Investments in equity affiliates	33,948,853		—		—		33,948,853		23,653		—		—		23,653
Goodwill and other intangible assets	—		97,489,884		—		97,489,884		12,500		109,266		—		121,766
Other assets	63,350,947		11,193,562		—		74,544,509		66,227		13,512		—		79,739
Total assets	$	1,912,418,236	$	1,058,368,010	$	—	$	2,970,786,246	$	2,857,961	$	767,984	$	—	$	3,625,945

Liabilities:
Debt obligations	$	1,307,973,936	$	660,144,122	$	50,000,000	$	2,018,118,058	$	2,189,700	$	291,536	$	50,000	$	2,531,236
Allowance for loss-sharing obligations	—		32,407,554		—		32,407,554		—		30,511		—		30,511
Other liabilities	133,788,359		38,216,483		1,217,864		173,222,706		155,814		42,819		1,009		199,642
Total liabilities	$	1,441,762,295	$	730,768,159	$	51,217,864	$	2,223,748,318	$	2,345,514	$	364,866	$	51,009	$	2,761,389

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Origination Data:

Structured Business

New loan originations

$
473,171,000

$
266,599,500

$
1,057,003,885

$
654,967,500

Loan payoffs / paydowns

270,010,000

118,346,618

723,976,741

418,433,132

Agency Business

Origination Volumes by Investor:

Fannie Mae

$
650,373,500

$
668,644,832

$
2,216,819,525

$
668,644,832

Freddie Mac

328,075,000

157,145,000

880,597,200

157,145,000

FHA

18,273,300

24,629,823

189,086,997

24,629,823

CMBS/Conduit

—

—

21,370,000

—

Total

$
996,721,800

$
850,419,655

$
3,307,873,722

$
850,419,655

Total loan commitment volume

$
928,180,800

$
714,820,818

$
3,181,367,322

$
714,820,818

Loan Sales Data:

Agency Business

Fannie Mae

$
665,959,500

$
430,371,100

$
2,569,821,000

$
430,371,100

Freddie Mac

342,629,800

104,448,000

862,376,636

104,448,000

FHA

43,484,109

17,015,115

167,708,801

17,015,115

CMBS/Conduit

—

—

21,370,000

—

Total

$
1,052,073,409

$
551,834,215
*
$
3,621,276,437

$
551,834,215
*
Sales margin (fee-based services as a % of loan sales)

1.63
%
1.76
%
1.52
%
1.76
%
MSR rate (MSR income as a % of loan commitments)

2.04
%
2.23
%
1.77
%
2.23
%

* Loan sales were $970.0 million for the three and nine months ended September 30, 2016, including loans that were acquired as part of the Acquisition.

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Origination Data:
Structured Business
New loan originations	$	606,855		$	437,915		$	921,070		$	583,933
Loan payoffs / paydowns	238,026			263,558			428,641			453,967

Agency Business
Origination Volumes by Investor:
Fannie Mae	$	606,287		$	669,897		$	1,269,208		$	1,566,446
Freddie Mac	434,789			317,490			742,940			552,522
FHA	—			32,878			60,738			170,814
CMBS/Conduit	—			—			16,233			21,370
Total	$	1,041,076		$	1,020,265		$	2,089,119		$	2,311,152
Total loan commitment volume	$	1,079,478		$	1,101,243		$	2,123,193		$	2,253,187

Loan Sales Data:
Agency Business
Fannie Mae	$	579,851		$	830,515		$	1,308,246		$	1,903,861
Freddie Mac	409,612			309,508			688,128			519,747
FHA	28,820			64,330			68,113			124,225
CMBS/Conduit	—			—			16,233			21,370
Total	$	1,018,283		$	1,204,353		$	2,080,720		$	2,569,203
Sales margin (fee-based services as a % of loan sales)	1.53		%	1.56		%	1.63		%	1.48		%
MSR rate (MSR income as a % of loan commitments)	1.66		%	1.57		%	1.77		%	1.65		%

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2017~~2018

	September 30, 2017				June 30, 2018
Key Servicing Metrics for Agency Business:	UPB of Servicing Portfolio		Wtd. Avg. Servicing Fee Rate (basis points)	Wtd. Avg. Life of Servicing Portfolio (in years)	UPB of Servicing Portfolio		Wtd. Avg. Servicing Fee Rate (basis points)	Wtd. Avg. Life of Servicing Portfolio (in years)
Fannie Mae	$	12,331,135,405	53.7	7.2	$	12,794,277	53.0	7.3
Freddie Mac	2,732,536,579		28.6	10.9	3,730,980		30.8	11.0
FHA	537,553,532		16.5	20.0	585,017		15.9	20.1
Total	$	15,601,225,516	48.0	8.3	$	17,110,274	46.9	8.6

	December 31, 2016				December 31, 2017
Fannie Mae	$	11,181,152,400	53.4	6.6	$	12,502,699	53.6	6.9
Freddie Mac	1,953,244,541		22.3	10.5	3,166,134		29.5	10.5
FHA	420,688,577		14.4	19.2	537,482		16.5	19.6
Total	$	13,555,085,518	47.8	7.6	$	16,206,315	47.7	8.1

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

You should read the following discussion in conjunction with the unaudited consolidated interim financial statements, and related notes and the section entitled “Forward-Looking Statements” included herein.

Overview

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 GSE, HUD and 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. W

Through May 2017, we were ~~previously~~ externally managed and advised by ~~ACM and, on~~ACM. Effective May 31, 2017, we ~~exercised our option to fully internalize our management team and terminate~~terminated the existing management ~~agreement.~~ ~~See Note 1 — Description of Business for details about~~agreement with ACM and fully internalized our ~~business segments and Note 3 — Acquisition of Our Former Manager’s Agency Platform for details about the Acquisition and termination of the~~ management ~~agreement.~~ team.

We conduct our operations to qualify as a REIT. A REIT is generally not subject to federal income tax on its REIT—taxable income that is distributed to its stockholders, provided that at least 90% of its REIT—taxable income is distributed and provided that certain other requirements are met.

Our operating performance is primarily driven by the following factors:

Net interest income earned on our investments. Net interest income represents the amount by which the interest income earned on our assets exceeds the interest expense incurred on our borrowings. If the yield on our assets increases or the cost or borrowings decreases, this will have a positive impact on earnings. However, if the yield earned on our assets decreases, or the cost of borrowings increases, this will have a negative impact on earnings. Net interest income is also directly impacted by the size and performance of our asset portfolio. We recognize the bulk of our net interest income from our Structured Business. Additionally, we recognize net interest income from loans originated through our Agency Business, which are generally sold within 60 days of origination.

Fees and other ~~revenue~~revenues recognized from originating, selling and servicing mortgage loans through the GSE and HUD programs. Revenue recognized from the origination and sale of mortgage loans consists of gains on sale of loans (net of any direct loan origination costs incurred), commitment fees, broker fees, loan assumption fees and loan origination fees. These gains and fees are collectively referred to as gain on sales, including fee-based services, net. We record income from MSRs at the time of commitment to the borrower, which represents the fair value of the expected net future cash flows associated with the rights to service mortgage loans that we originate, with the recognition of a corresponding asset upon sale. We also record servicing revenue which consists of fees received for servicing mortgage loans and earnings on escrows, net of amortization on the MSR assets recorded. These ~~origination,~~originations, selling and servicing fees and other ~~revenue began in the third quarter of 2016 as a result of the Acquisition and~~revenues are included in our Agency Business results. Although we have long-established relationships with the GSE and HUD agencies, our operating performance would be negatively impacted if our business relationships with these agencies deteriorate.

Income earned from our structured transactions. Our structured transactions are primarily comprised of investments in equity affiliates, which represent unconsolidated joint venture investments formed to acquire, develop and/or sell real estate-related assets. ~~Income~~Operating results from ~~these~~our unconsolidated equity investments ~~principally an equity investment in a residential mortgage banking business, had comprised a significant portion of our operating results during 2016. If interest rates continue~~can be difficult to ~~rise, it is likely that income from this investment will continue to be~~predict and can vary significantly ~~impacted.~~period-to-period. In addition, we periodically receive distributions from our equity investments. It is difficult to forecast the timing of such payments, which can be substantial in any given quarter. We account for structured transactions within our Structured Business.

Credit quality of our loans and investments, including our servicing portfolio. Effective portfolio management is essential to maximize the performance and value of our loan, ~~and~~ investment and servicing portfolios. Maintaining the credit quality of the loans in our portfolios is of critical importance. Loans that do not perform in accordance with their terms may have a negative impact on earnings and liquidity.

Significant Developments During the ~~Third~~Second Quarter of ~~2017~~2018

Capital Markets Activity.

· In May 2018, we completed a public offering and sold 5,500,000 shares of our common stock for $8.72 per share, receiving net proceeds of $47.8 million; and

· In May 2018, we issued an additional $25.0 million of our 5.625% Notes and received net proceeds of $24.4 million.

Financing Activity.

· In ~~August 2017,~~June 2018, we closed our ~~eighth~~tenth collateralized securitization vehicle ~~(“CLO VIII”)~~(CLO X) totaling ~~$365.0~~$560.0 million of real estate related assets and cash, of which ~~$282.9~~$441.0 million of investment grade notes were issued to third party investors and ~~$29.2~~$53.2 million of below investment-grade notes and a ~~$52.9~~$65.8 million equity interest in the portfolio were retained by ~~us. The notes have an initial weighted average interest rate of 1.31% over LIBOR, 68 basis points lower than our last CLO, which closed in April 2017;~~us; and

· In ~~September 2017,~~June 2018, we completed the ~~unwinding~~unwind of CLO ~~IV,~~V, redeeming ~~$219.0~~$267.8 million of outstanding notes which were repaid primarily from refinancing of the remaining assets within our existing financing facilities ~~and other CLOs,~~(including CLO X), as well as with cash held by CLO ~~IV,~~V, and expensed ~~$1.1~~$1.3 million of deferred financing fees into interest expense.

~~Dividend.~~ ~~We raised our quarterly dividend to $0.19 per share in the fourth quarter of 2017, which represents a 19% increase in our dividend from a year ago and a 6% increase from last quarter.~~

Agency Business Activity.

· Loan originations and sales totaled ~~$996.7 million~~$1.04 billion and ~~$1.05~~$1.02 billion, respectively; and

· Our fee-based servicing portfolio grew ~~3.9%~~3% to ~~$15.60~~$17.11 billion from ~~$15.02~~$16.69 billion at ~~June 30, 2017 and 15.1% from $13.56 billion at December~~March 31, ~~2016; and~~

· We entered into a new one-year $100.0 million repurchase agreement that bears interest at a rate of 135 basis points over LIBOR and replaced our existing $30.0 million letter of credit facility with a new three-year $50.0 million letter of credit facility that bears interest at a fixed rate of 2.875%.2018.

Structured Business Activity.

· ~~Loan~~Our Structured loan and investment portfolio grew 13% this quarter to $3.13 billion on loan originations ~~totaled $473.2~~totaling $606.9 million, ~~with a weighted average interest rate of 7.43%;~~partially offset by loan runoff totaling $238.0 million; and

· ~~Loan payoffs were $270.0~~We recorded an impairment loss of $2.0 million ~~with~~on an office building we own (see Note 9 — Real Estate Owned for details) and recorded a ~~weighted average interest rate~~net loan loss recovery of ~~7.50%~~$2.1 million, primarily related to the settlement of a non-performing preferred equity investment (see Note 3 — Loans and Investments for details).

Subsequent Events.

· In July 2018, we completed the issuance and sale of $245.0 million of our 5.25% Convertible Notes through two private placements. We received proceeds totaling $237.2 million, net of the underwriter’s discount and fees from these offerings. We used the net proceeds to exchange $99.8 million of our 6.50% Convertible Notes and $127.6 million of our 5.375% Convertible Notes for a combination of $219.8 million in cash (which includes accrued interest) and 6.8 million shares of our common stock to settle such exchanges (see Note 10 — Debt Obligations for details); and

· ~~Through our equity investments,~~In July 2018, we ~~recorded income of $1.5~~received approximately $11 million from the ~~redemption of an equity participation interest we held and $0.7 million from a cash distribution from another of our equity investments. This income was partially offset by the recognition~~settlement of a ~~$1.2 million loss from~~litigation related to a prior investment, which will be reflected in our ~~investment~~consolidated financial statements in ~~a residential mortgage banking business.~~the third quarter of 2018.

Current Market Conditions, Risks and Recent Trends

Our ability to execute our business strategy, particularly the growth of our Structured Business portfolio of loans and investments, is dependent on many factors, including our ability to access capital and financing on favorable terms. The past economic downturn had a significant negative impact on both us and our borrowers and limited our ability for growth. If similar economic conditions recur in the future, it may limit our options for raising capital and obtaining financing on favorable terms and may also adversely impact the creditworthiness of our borrowers which could result in their inability to repay their loans.

We rely on the capital markets to generate capital for financing the growth of our business. While we have been successful in generating capital through the debt and equity markets over the past several quarters, there can be no assurance that we will continue to have access to ~~the equity and debt~~such markets. If we were to experience a prolonged downturn in the stock or credit markets, it could cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly.

The Federal Reserve ~~has~~ increased its targeted Federal Rate ~~twice so far in~~75 basis points during 2017 ~~for a total increase of~~and by another 50 basis ~~points. The Trump administration continues to focus on several issues that could impact interest rates and~~points during the ~~U.S. economy, including tax reform and deregulation. While there is uncertainty regarding the specifics and timing~~first six months of ~~any policy changes, any such actions could impact our business.~~2018. To date, we have not been significantly impacted by these increases and do not anticipate a significant decline in origination volume or profitability as interest rates

remain at historically low levels. ~~We expect~~However, we cannot be certain that such a trend will continue as the ~~current interest rate environment to continue for the near term as~~number, timing, and magnitude of additional increases by the Federal Reserve, ~~has stated~~combined with other macroeconomic factors, may have a different effect on the commercial real estate market.

The Trump administration continues to focus on several issues that ~~it will take~~could impact interest rates and the U.S. economy, including the recently enacted Tax Reform. As a ~~measured~~result of the Tax Reform, we expect to realize a benefit from the reduction of the corporate federal income tax rate from 35% to 21%, as our Agency Business operates in a TRS. While there is uncertainty regarding the specifics and ~~conservative approach to~~timing of any future ~~interest rate decisions.~~policy changes, any such actions could impact our business.

We are a national originator with Fannie Mae and Freddie Mac, and the GSEs remain the most significant providers of capital to the multifamily market. The Federal Housing Finance Agency (“FHFA”) released the GSE ~~2017~~2018 Scorecard (“~~2017~~2018 Scorecard,”) which established Fannie Mae’s and Freddie Mac’s loan origination caps at ~~$36.5~~$35.00 billion (“~~2017~~2018 Caps”) each for the multifamily finance market, ~~no change~~a $1.50 billion decrease from the ~~2016~~2017 loan origination caps. Affordable housing loans, loans to small multifamily properties, and manufactured housing rental community loans continue to be excluded from the ~~2017~~2018 Caps. ~~Additionally,~~In addition, the definition of the affordable loan ~~exclusion~~exclusions has added an extremely-high cost market category, continues to encompass affordable housing in high- and very-high cost markets and allows for an exclusion from the ~~2017~~2018 Caps for the pro-rata portion of any loan on a multifamily property that includes affordable units. The ~~2017~~2018 Scorecard ~~provides~~continues to provide FHFA the flexibility to review the estimated size of the multifamily loan origination market quarterly and proactively adjust the ~~2017~~2018 Caps ~~upward should the market be larger than expected.~~accordingly. The ~~2017~~2018 Scorecard also ~~provides~~continues to provide exclusions for loans to properties in underserved ~~markets.~~markets and for loans to finance certain energy or water efficiency improvements, however, to qualify for this exclusion, the projected annual energy or water savings must be at least 25%. Our originations with the GSEs are highly profitable executions as they provide significant gains from the sale of our loans, non-cash gains related to MSRs and servicing revenues, therefore, a decline in our GSE originations would negatively impact our financial results. We ~~do not know~~are unsure whether the FHFA will impose stricter limitations on GSE multifamily production volume in the future.

The commercial real estate markets continue to improve, but uncertainty remains as a result of global market instability, the current political climate and other matters and their potential impact on the U.S. economy and commercial real estate markets. In addition, the growth in multifamily rental rates seen over the past few years are showing signs of stabilizing. If real estate values decline and/or rent growth subsides, it may limit our new mortgage loan originations since borrowers often use increases in the value of, and revenues produced from, their existing properties to support the purchase or investment in additional properties. Declining real estate values may also significantly increase the likelihood that we will incur losses on our loans in the event of default because the value of our collateral may be insufficient to cover our cost on the loan. Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our net interest income from loans as well as our ability to originate, sell and securitize loans, which would significantly impact our results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.

The economic environment over the past few years has seen continued improvement in commercial real estate values, which has generally increased payoffs and reduced the credit exposure in our loan and investment portfolio. We have made, and continue to make, modifications and extensions to loans when it is economically feasible to do so. In some cases, a modification is a more viable alternative to foreclosure proceedings when a borrower cannot comply with loan terms. In doing so, lower borrower interest rates, combined with non-performing loans, would lower our net interest margins when comparing interest income to our costs of financing. However, since 2013, the levels of modifications and delinquencies have generally declined as property values ~~increase~~have increased and borrowers’ access to financing has improved. If the markets were to deteriorate and the U.S. experienced a prolonged economic downturn, we believe there could be additional loan modifications and delinquencies, which may result in reduced net interest margins and additional losses throughout our sector.

Changes in Financial Condition

Assets — Comparison of balances at ~~September~~June 30, ~~2017~~2018 to December 31, ~~2016:~~2017:

Cash and cash equivalents decreased $53.9 million, primarily due to funding new loan originations and investments, distributions from unwinding CLO IV, the payment made to fully internalize our management team and terminate the existing management agreement with our Former Manager and the payment of distributions to our stockholders, partially offset by proceeds received from loan sales and payoffs, proceeds from the public offering of our common stock and issuance of convertible notes, transferring loans into our CLO vehicles and interest and fees from our investments.

Restricted cash increased $107.8 million, primarily due to payoffs on our CLO loans in excess of loans transferred into our CLO vehicles. Restricted cash is kept on deposit with the trustees for our CLOs and primarily represents proceeds received from loan payoffs and paydowns that have not yet been disbursed to bondholders or redeployed

into new assets, as well as unfunded loan commitments and interest payments received from loans. Restricted cash for the Agency Business represents cash collateral for possible losses resulting from loans originated under the Fannie Mae DUS program in accordance with the terms of the loss-sharing agreements.

Our Structured loan and investment portfolio balance was ~~$2.10~~$3.13 billion and ~~$1.80~~$2.65 billion at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. This increase was primarily due to loan originations exceeding payoffs and other reductions by ~~$333.0~~$492.4 million. See below for details.

Our portfolio had a weighted average current interest pay rate of ~~6.04%~~6.76% and ~~5.71%~~6.28% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Including certain fees earned and costs associated with the ~~Structured~~structured portfolio, the weighted average current interest rate was ~~6.84%~~7.40% and ~~6.39%~~6.99% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Advances on our financing facilities totaled ~~$1.67~~$2.81 billion and ~~$1.35~~$2.24 billion at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, with a weighted average funding cost of ~~3.87%~~4.34% and ~~3.91%~~4.12%, respectively, which excludes ~~changes in the market value of certain interest rate swaps and~~ financing costs. Including ~~the~~ financing costs, the weighted average funding rate was ~~4.48%~~4.93% and ~~4.45%~~4.83% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Activity from our Structured Business portfolio was comprised of the ~~following:~~following ($ in thousands):

	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017			Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Loans originated	$	473,171,000		$	1,057,003,885		$	606,855		$	921,070
Number of loans	23			59			32			51
Weighted average interest rate	7.43		%	7.47		%	6.95		%	7.16		%

Loans paid-off	$	270,010,000		$	723,976,741
Loan payoffs / paydowns							$	238,026		$	428,641
Number of loans	22			52			22			42
Weighted average interest rate	7.50		%	6.92		%	6.70		%	6.89		%

Loans extended	$	156,156,830		$	311,356,206		$	130,978		$	189,378
Number of loans	12			32			9			13

~~Our loans~~Loans held-for-sale ~~net~~ from the Agency Business ~~was $333.3~~increased $14.0 million, ~~and $673.4 million at September~~primarily related to loan originations exceeding loan sales during the six months ended June 30, ~~2017 and December 31, 2016, respectively.~~2018 as noted in the following table (in thousands). These loans are generally sold within 60 days from the loan origination date. ~~The decrease was primarily related to loan sales exceeding loan originations by $313.4 million during the nine months ended September 30, 2017, as noted in the following table.~~

Three Months Ended September 30, 2017

Nine Months Ended September 30, 2017

Loan Originations

Loan Sales

Loan Originations

Loan Sales

Fannie Mae

$
650,373,500

$
665,959,500

$
2,216,819,525

$
2,569,821,000

Freddie Mac

328,075,000

342,629,800

880,597,200

862,376,636

FHA

18,273,300

43,484,109

189,086,997

167,708,801

CMBS/Conduit

—

—

21,370,000

21,370,000

Total

$
996,721,800

$
1,052,073,409

$
3,307,873,722

$
3,621,276,437

Our capitalized mortgage servicing rights, net increased $20.1 million at September 30, 2017, primarily due to MSRs recorded on new loan originations. Our capitalized mortgage servicing rights represent the estimated value of our rights to service mortgage loans for others. At September 30, 2017, the weighted average estimated life remaining of our MSRs was 7.1 years.

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
	Loan Originations		Loan Sales		Loan Originations		Loan Sales
Fannie Mae	$	606,287	$	579,851	$	1,269,208	$	1,308,246
Freddie Mac	434,789		409,612		742,940		688,128
FHA	—		28,820		60,738		68,113
CMBS/Conduit	—		—		16,233		16,233
Total	$	1,041,076	$	1,018,283	$	2,089,119	$	2,080,720

Securities held-to-maturity ~~net totaling $18.9~~increased $22.5 million ~~represents the retained portions~~as a result of ~~the bottom tranche~~two additional purchases of B Piece bonds ~~or “B Piece” of~~from Freddie Mac SBL ~~Program~~program securitizations. See Note ~~8 —~~ 7—Securities Held-to-Maturity for details.

~~Goodwill and other intangible assets~~

Due from related party increased ~~$25.7~~$9.5 million, primarily due to ~~$25.0 million of goodwill recorded in connection with the internalization of~~payoffs to be remitted by our ~~management team and termination of our existing management agreement with our Former Manager and a $4.9 million adjustment made~~affiliated servicing operations related to ~~the Acquisition purchase price allocation, which was offset by the amortization of intangible assets. See Note 2 — Basis of Presentation and Significant Accounting Policies and Note 3 —~~ ~~Acquisition of Our Former Manager’s Agency Platform~~ ~~for details.~~real estate transactions.

Other assets increased $9.8 million, primarily due to an increase in interest and other receivables from new loan originations, as well as an increase in deferred tax assets.

Liabilities — Comparison of balances at ~~September~~June 30, ~~2017~~2018 to December 31, ~~2016:~~2017:

Credit facilities and repurchase agreements ~~decreased $344.3~~increased $381.9 million, primarily due to ~~a $332.2 million decrease in financings on our loans held-for-sale, as a result~~funding of new structured loan ~~sales exceeding loan originations during the nine months ended September 30, 2017.~~activity.

Collateralized loan obligations increased ~~$337.8~~$172.2 million primarily, due to the ~~issuances~~issuance of a new CLO, ~~VII and CLO VIII,~~ where we issued ~~a total of $561.9~~$441.0 million of ~~CLO~~ notes to third party investors, partially offset by the unwind of a CLO IV totaling ~~$219.0~~$267.8 million.

~~Convertible senior~~Senior unsecured notes ~~net~~ increased ~~$14.7~~$27.1 million, due to the issuance of $125.0 million aggregate principal amount of our 5.625% Notes, partially offset by the full redemption of our 7.375% Notes totaling $97.9 million.

In January 2018, we paid $50.0 million in full satisfaction of the related party financing entered into with ACM to finance a portion of the aggregate purchase price of the Acquisition.

Due to borrowers decreased $21.7 million, primarily due to a decrease in funds held on loan originations.

Other liabilities decreased $16.0 million, primarily due to the ~~issuance~~payment of ~~an additional $13.8 million of the 6.50% convertible senior unsecured notes. See Note 11 — Debt Obligations for details.~~

Junior subordinated notes decreased $18.4 million, primarily due to the repurchase of certain of our junior subordinated notes with a carrying value of $19.8 million. We recorded a gain of $7.1 million upon extinguishment of this debt inincentive compensation during the first quarter of ~~2017.~~2018, related to 2017 performance, and a decrease in current and deferred tax liabilities.

Equity

In May 2017, we completed a public offering where we sold 9,500,000 shares of our common stock for $8.05 per share, and received net proceeds of $76.2 million. We used $25.0 million of the proceeds to exercise our option to fully internalize our management team and ~~terminate the existing management agreement with our Former Manager. The remaining amount was used to make investments and for general corporate purposes.~~ ~~We currently have $323.5 million available under our $500.0 million shelf registration statement.~~

Distributions —

~~The following table presents dividends~~Dividends declared (on a per share basis) for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018 were as follows:

Common Stock			Preferred Stock
				Dividend (1)
Declaration Date	Dividend		Declaration Date	Series A		Series B		Series C
February 21, 2018	$	0.21	February 2, 2018	$	0.515625	$	0.484375	$	0.53125
May 2, 2018	$	0.25	May 2, 2018	$	0.515625	$	0.484375	$	0.53125

Deferred Compensation

We issued ~~374,580~~329,028 shares of restricted stock to employees of ours, ~~and our Former Manager,~~ including our chief executive officer, ~~74,375~~58,620 shares to the independent members of the Board of Directors and up to ~~448,980~~381,503 performance-based restricted common stock units to our chief executive officer in the first quarter of 2017. In August 2017, we also granted our chief executive officer 357,569 shares of performance-based restricted stock as a result of the Company meeting the goals related to the integration of the Acquisition.2018. See Note 1716 — Equity for details.

Comparison of Results of Operations for the Three Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017

The following table provides our consolidated operating ~~results:~~results ($ in thousands):

	Three Months Ended September 30,						Increase / (Decrease)					Three Months Ended June 30,						Increase / (Decrease)
	2017			2016			Amount			Percent		2018			2017			Amount			Percent

Interest income	$	42,139,576		$	29,636,227		$	12,503,349		42	%	$	59,295		34,468			$	24,827		72	%
Interest expense	23,849,417			16,966,228			6,883,189			41	%	37,884			20,411			17,473			86	%
Net interest income	18,290,159			12,669,999			5,620,160			44	%	21,411			14,057			7,354			52	%
Other revenue:
Gain on sales, including fee-based services, net	17,126,106			9,693,822			7,432,284			77	%	15,622			18,830			(3,208		)	(17	)%
Mortgage servicing rights	18,897,239			15,968,067			2,929,172			18	%	17,936			17,254			682			4	%
Servicing revenue, net	8,520,111			5,885,884			2,634,227			45	%	10,871			6,609			4,262			64	%
Property operating income	2,668,055			2,960,940			(292,885		)	(10	)%	2,964			2,863			101			4	%
Other income, net	777,656			359,546			418,110			116	%	(470		)	(821		)	351			(43	)%
Total other revenue	47,989,167			34,868,259			13,120,908			38	%	46,923			44,735			2,188			5	%
Other expenses:
Employee compensation and benefits	25,194,433			14,216,679			10,977,754			77	%	26,815			21,825			4,990			23	%
Selling and administrative	7,606,936			5,903,031			1,703,905			29	%	8,873			7,835			1,038			13	%
Acquisition costs	—			6,406,258			(6,406,258		)	nm
Property operating expenses	2,582,745			2,819,004			(236,259		)	(8	)%	2,856			2,622			234			9	%
Depreciation and amortization	1,829,016			1,808,765			20,251			1	%	1,845			1,816			29			2	%
Impairment loss on real estate owned												2,000			1,500			500			33	%
Provision for loss sharing (net of recoveries)	(2,617,064		)	1,316,862			(3,933,926		)	nm		348			532			(184		)	(35	)%
Provision for loan losses (net of recoveries)	2,000,000			(54,000		)	2,054,000			nm		(2,127		)	(1,760		)	(367		)	21	%
Management fee - related party	—			3,325,000			(3,325,000		)	nm		—			2,673			(2,673		)	nm
Total other expenses	36,596,066			35,741,599			854,467					40,610			37,043			3,567			10	%
Income before income from equity affiliates and provision for income taxes	29,683,260			11,796,659			17,886,601			152	%
Income from equity affiliates	995,312			4,929,375			(3,934,063		)	(80	)%
Income before income (loss) from equity affiliates and income taxes												27,724			21,749			5,975			27	%
Income (loss) from equity affiliates												1,387			(3		)	1,390			nm
Provision for income taxes	(6,708,000		)	(300,000		)	(6,408,000		)	nm		(4,499		)	(3,435		)	(1,064		)	nm
Net income	23,970,572			16,426,034			7,544,538			46	%	24,612			18,311			6,301			34	%
Preferred stock dividends	1,888,430			1,888,430			—			—		1,888			1,888			—			—
Net income attributable to noncontrolling interest	5,661,184			3,649,432			2,011,752			55	%	5,557			4,494			1,063			24	%
Net income attributable to common stockholders	$	16,420,958		$	10,888,172		$	5,532,786		51	%	$	17,167		$	11,929		$	5,238		44	%

nm — not meaningful

The following table presents the average balance of our Structured Business interest-earning assets and interest-bearing liabilities, associated interest income (expense) and the corresponding weighted average yields ~~(dollars~~($ in thousands):

	Three Months Ended September 30,												Three Months Ended June 30,
	2017						2016						2018						2017
	Average Carrying Value (1)		Interest Income / Expense		W/A Yield / Financing Cost (2)		Average Carrying Value (1)		Interest Income / Expense		W/A Yield / Financing Cost (2)		Average Carrying Value (1)		Interest Income / Expense		W/A Yield / Financing Cost (2)		Average Carrying Value (1)		Interest Income / Expense		W/A Yield / Financing Cost (2)
Structured Business interest-earning assets:

Bridge loans	$	1,769,722	$	31,232	7.00	%	$	1,540,872	$	23,597	6.08	%	$	2,641,796	$	46,754	7.10	%	$	1,648,821	$	27,414	6.67	%
Preferred equity investments													190,228		2,592		9.12	%	71,759		1,051		5.88	%
Mezzanine / junior participation loans	96,471		2,232		9.18	%	114,318		2,041		7.08	%	79,093		4,326		13.15	%	80,717		1,161		5.77	%
Preferred equity investments	130,409		3,489		10.62	%	71,616		1,113		6.17	%
Core interest-earning assets	1,996,602		36,953		7.34	%	1,726,806		26,751		6.15	%	2,911,117		53,672		7.40	%	1,801,297		29,626		6.60	%
Cash equivalents	235,669		306		0.51	%	204,441		142		0.28	%	220,153		505		0.92	%	223,053		291		0.53	%
Total interest-earning assets	$	2,232,271	$	37,259	6.62	%	$	1,931,247	$	26,893	5.52	%	$	3,131,270	$	54,177	6.94	%	$	2,024,350	$	29,917	5.93	%

Structured Business interest-bearing liabilities:

CLO													$	1,458,875	$	17,307	4.76	%	$	982,499	$	9,517	3.89	%
Warehouse lines	$	173,285	$	1,975	4.52	%	$	209,098	$	1,787	3.39	%	481,010		5,485		4.57	%	123,215		1,446		4.71	%
CLO	1,090,568		12,104		4.40	%	885,914		7,746		3.47	%
Unsecured debt													378,950		8,637		9.14	%	198,050		4,179		8.46	%
Trust preferred	154,336		1,636		4.21	%	175,858		1,612		3.64	%	154,379		1,978		5.14	%	154,336		1,570		4.08	%
Unsecured debt	198,462		4,198		8.39	%	97,860		1,995		8.09	%
Interest rate swaps	—		—		—		—		1,315		—
Debt fund													68,208		1,205		7.09	%	—		—		—
Total interest-bearing liabilities	$	1,616,651	19,913		4.89	%	$	1,368,730	14,455		4.19	%	$	2,541,422	34,612		5.46	%	$	1,458,100	16,712		4.60	%
Net interest income			$	17,346					$	12,438					$	19,565					$	13,205

(1) Based on UPB for loans, amortized cost for securities and principal amount of debt.

(2) Weighted average yield calculated based on annualized interest income or expense divided by average carrying value.

Net Interest Income

The increase in interest income is primarily due to an increase of $24.3 million, or 81%, from our Structured Business, which was primarily the result of a 62% increase in our average core interest-earning assets, due to loan originations exceeding loan runoff, and a 12% increase in the average yield on core interest-earning assets, largely due to increases in the average LIBOR rate.

The increase in interest expense is primarily due to an increase of $17.9 million, or 107%, from our Structured Business, partially offset by a decrease of $1.0 million from the pay off in January 2018 of the seller financing entered into in connection with the Acquisition. The increase from our Structured Business was primarily due to a 74% increase in the average balance of our interest-bearing liabilities and a 19% increase in the average cost of our interest-bearing liabilities. The increase in the average debt balance was due to growth in our loan portfolio and the issuance of additional unsecured debt. The increase in the average cost of our interest-bearing liabilities was primarily due to $2.9 million of accelerated deferred financing costs recorded in the second quarter of 2018 related to the unwind of a CLO in June and the redemption of unsecured debt, along with an increase in the average LIBOR rate.

Agency Business Revenue

The decrease in gain on sales, including fee-based services, net was primarily due to a $186.1 million decrease in loan sales. Sales margin (gain on sales, including fee-based services, net as a percentage of loan sales volume) was flat at 1.53% this quarter compared to 1.56% in the second quarter of 2017.

The increase in servicing revenue, net was primarily due to an increase in our servicing portfolio and an increase in earnings on escrows. Our servicing portfolio increased 14% from $15.02 billion at June 30, 2017 to $17.11 billion at June 30, 2018. Our servicing revenue, net in the second quarter of 2018 and 2017 included $11.9 million and $11.8 million, respectively, of amortization expense.

Other Expenses

The increase in employee compensation and benefits expense is comprised of $2.7 million from our Structured Business and $2.3 million from our Agency Business. The increase in both businesses is primarily due to compensation expense recorded directly by each business associated with the employees that transferred to us as a result of the internalization of our management team in 2017. Such costs were previously charged through the management fee prior to the termination of our management agreement with ACM in May 2017. In addition, increases in headcount associated with each business’s portfolio growth also contributed to the increase.

The increase in selling and administrative expenses is comprised of $0.6 million from our Structured Business and $0.4 million from our Agency Business. The increase from our Structured Business was primarily due to an increase in professional fees. The increase in our Agency Business was primarily due to increases in professional fees and rent expense.

Impairment losses on real estate owned were $2.0 million and $1.5 million for the three months ended June 30, 2018 and 2017, respectively. During these periods, we received market analysis which resulted in impairment losses on our real estate properties owned. See Note 9 — Real Estate Owned for details.

The recovery for loan losses in the second quarter of 2018 was due to a $31.6 million settlement of a preferred equity investment with a carrying value of $29.1 million resulting in a $2.5 million recovery and a $0.9 million payment received on a written-off junior participation interest in an office building. These recoveries were partially offset by a $1.3 million provision recorded on a bridge loan. The recovery of loan losses for the three months ended June 30, 2017 was the result of a $1.8 million pay-off of a fully reserved mezzanine loan.

The decrease in management fee — related party was due to the internalization of our management team and termination of the existing management agreement with ACM effective May 31, 2017.

Income (Loss) from Equity Investments

The increase in income (loss) from equity affiliates was primarily due to an increase in income from our investment in a residential mortgage banking business. In the three months ended June 30, 2018 we recorded income of $0.7 million from this investment, compared to a $0.7 million loss in the 2017 comparable period.

Provision for Income Taxes

In the three months ended June 30, 2018 and 2017, we recorded a tax provision of $4.5 million and $3.4 million, respectively. The provision for income taxes in the three months ended June 30, 2018 consisted of a current tax provision of $4.3 million and a deferred tax provision of $0.2 million and the provision for income taxes in the three months ended June 30, 2017 consisted of a current tax provision of $4.3 million and a deferred tax benefit of $0.9 million, respectively.

Net Income Attributable to Noncontrolling Interest

The noncontrolling interest relates to the 21,230,769 OP Units issued as part of the Acquisition, which represented 23.6% and 25.7% of our outstanding stock at June 30, 2018 and 2017, respectively.

Comparison of Results of Operations for the Six Months Ended June 30, 2018 and 2017

The following table provides our consolidated operating results ($ in thousands):

	Six Months Ended June 30,						Increase / (Decrease)
	2018			2017			Amount			Percent

Interest income	$	110,908		67,993			$	42,915		63	%
Interest expense	71,271			39,848			31,423			79	%
Net interest income	39,637			28,145			11,492			41	%
Other revenue:
Gain on sales, including fee-based services, net	33,815			38,001			(4,186		)	(11	)%
Mortgage servicing rights	37,571			37,284			287			1	%
Servicing revenue, net	20,418			11,403			9,015			79	%
Property operating income	5,874			6,086			(212		)	(3	)%
Other income, net	2,408			(1,707		)	4,115			nm
Total other revenue	100,086			91,067			9,019			10	%
Other expenses:
Employee compensation and benefits	56,309			41,666			14,643			35	%
Selling and administrative	17,789			15,529			2,260			15	%
Property operating expenses	5,652			5,260			392			7	%
Depreciation and amortization	3,691			3,713			(22		)	(1	)%
Impairment loss on real estate owned	2,000			2,700			(700		)	(26	)%
Provision for loss sharing (net of recoveries)	821			2,212			(1,391		)	(63	)%
Provision for loan losses (net of recoveries)	(1,802		)	(2,456		)	654			(27	)%
Management fee - related party	—			6,673			(6,673		)	nm
Total other expenses	84,460			75,297			9,163			12	%
Income before gain on extinguishment of debt, income from equity affiliates and income taxes	55,263			43,915			11,348			26	%
Gain on extinguishment of debt	—			7,116			(7,116		)	nm
Income from equity affiliates	2,132			760			1,372			181	%
Benefit from (provision for) income taxes	4,285			(9,536		)	13,821			nm
Net income	61,680			42,255			19,425			46	%
Preferred stock dividends	3,777			3,777			—			—
Net income attributable to noncontrolling interest	14,547			10,935			3,612			33	%
Net income attributable to common stockholders	$	43,356		$	27,543		$	15,813		57	%

nm — not meaningful

	Six Months Ended June 30,
	2018						2017
	Average Carrying Value (1)		Interest Income / Expense		W/A Yield / Financing Cost (2)		Average Carrying Value (1)		Interest Income / Expense		W/A Yield / Financing Cost (2)
Structured Business interest-earning assets:

Bridge loans	$	2,544,754	$	87,739	6.95	%	$	1,635,394	$	52,805	6.51	%
Preferred equity investments	170,083		7,625		9.04	%	68,069		2,151		6.37	%
Mezzanine / junior participation loans	82,442		5,156		12.61	%	96,567		3,006		6.28	%
Core interest-earning assets	2,797,279		100,520		7.25	%	1,800,030		57,962		6.49	%
Cash equivalents	210,374		893		0.86	%	179,977		464		0.52	%
Total interest-earning assets	$	3,007,653	$	101,413	6.80	%	$	1,980,007	$	58,426	5.95	%

Structured Business interest-bearing liabilities:

CLO	$	1,441,318	$	31,518	4.41	%	$	860,565	$	16,385	3.84	%
Warehouse lines	389,595		9,139		4.73	%	200,395		3,957		3.98	%
Unsecured debt	367,524		18,135		9.95	%	195,984		8,301		8.54	%
Trust preferred	154,379		3,728		4.87	%	157,071		3,115		4.00	%
Debt fund	68,162		2,297		6.80	%	—		—		—
Interest rate swaps	—		—		—		—		195		—
Total interest-bearing liabilities	$	2,420,978	64,817		5.40	%	$	1,414,015	31,953		4.56	%
Net interest income			$	36,596					$	26,473

(1) Based on UPB for loans, amortized cost for securities and principal amount of debt.

(2) Weighted average yield calculated based on annualized interest income or expense divided by average carrying value.

Net Interest Income

The increase in interest income ~~was~~is primarily due to ~~a $10.4~~an increase of $43.0 million, or ~~39%~~74%, ~~increase~~ from our Structured ~~Business. The Structured~~ Business, ~~increase~~which was ~~largely due to~~primarily the result of a 16%55% increase in our average core interest-earning assets, ~~as a result of~~due to loan ~~loan~~ originations exceeding loan ~~payoffs,~~runoff, and a ~~19%~~12% increase in the average yield on core interest-earning assets, ~~primarily~~largely due to ~~a $2.1 million increase in fee income from accelerated runoff and an increase~~increases in the average LIBOR rate. The increase from our Agency Business of $2.1 million, or 78%, was primarily due to a period-over-period increase in average loans held-for-sale, along with the impact of thirteen additional operating days in the third quarter of 2017 from the Acquisition completed on July 14, 2016.

The increase in interest expense is primarily due to an increase of $32.9 million, or 103%, from our Structured Business, partially offset by a decrease of $1.6 million from the pay off in January 2018 of the seller financing entered into in connection with the Acquisition. The increase from our Structured Business was primarily due to a ~~$5.5 million, or 38%, increase from our Structured Business. The Structured Business increase was largely due to an 18% and 17%~~71% increase in the average ~~debt~~ balance of our interest-bearing liabilities and an 18% increase in the average cost of our interest-bearing ~~liabilities, respectively.~~liabilities. The increase in the average debt balance was ~~primarily~~ due to ~~the~~ growth in our loan portfolio ~~as well as~~and the issuance of ~~our convertible senior~~additional CLOs, unsecured ~~notes.~~debt and the Debt Fund. The increase in the average cost of our interest-bearing liabilities was primarily due to ~~$1.1~~$5.3 million of accelerated ~~fees~~deferred financing costs recorded in 2018 related to the redemption of unsecured debt and the unwind of a CLO, ~~IV, a higher rate on the convertible senior unsecured notes, as compared to our overall portfolio, and~~along with an increase in the average LIBOR rate, partially offset by a lower rate on CLO VIII, as compared to our overall portfolio, and the runoff of swaps in the first quarter of 2017. The increase from our Agency Business of $1.3 million, of 77%, was primarily due to an increase in our average debt balance, as a result of an increase in the average loans held-for-sale, along with the impact of thirteen additional operating days in the third quarter of 2017 from the Acquisition, partially offset by improved rates in certain credit facilities.rate.

Agency Business Revenue

The ~~increase~~decrease in gain on sales, including fee-based services, net was primarily due to a ~~$500.2~~$488.5 million ~~or 91%, increase~~decrease in loan sales, ~~due in part to thirteen additional operating days in the third quarter of 2017 from the Acquisition,~~ partially offset by a 1315 basis point ~~decrease~~increase in the sales margin ~~(gain on sales, including fee-based services, net as a percentage of loan sales volume)~~ from ~~1.76%~~1.48% to 1.63% in ~~the third quarter of 2017. Agency loan sales for this period were $1.05 billion, compared to $551.8 million in the 2016 comparable period.~~

2018. The increase in ~~income from MSRs~~the sales margin was primarily due to ~~a $213.4 million, or 30%, increase in loan commitment volume, as a result of~~ an increase in Freddie Mac SBL originations, and thirteen additional operating days in the third quarter of 2017 from the Acquisition. This increase was partially offset by a 30 basis point decrease in the MSR rate (income from MSRs as a percentage of loan commitment volume) from 2.23% to 2.04% in the third quarter of 2017, which was due to Freddie Mac SBL loans carrying a lower rate than our overall portfolio.Fannie Mae margins.

The increase in servicing revenue, net was primarily due to an increase in our servicing portfolio and ~~thirteen additional operating days~~an increase in earnings on escrows due to increases in the ~~third quarter of 2017 from the Acquisition.~~average LIBOR rate. Our servicing portfolio increased ~~24%~~14% from ~~$12.60~~$15.02 billion at ~~September~~June 30, ~~2016~~2017 to ~~$15.60~~$17.11 billion at ~~September~~June 30, ~~2017.~~2018. Our servicing revenue, net in the ~~third quarter of~~six months ended June 30, 2018 and 2017 ~~and 2016 includes $11.7~~included $23.8 million and ~~$7.6~~$23.7 million, respectively, of amortization ~~respectively.~~expense.

Other Income, Net

The increase in other income, net was comprised primarily of a $4.6 million increase from our Agency Business, which was due to changes in the fair value of our rate lock commitments. See Note 13 — Fair Value for details.

Other Expenses

The increase in employee compensation and benefits expense ~~was~~is comprised of $8.2 million from our Agency Business and $6.4 million from our Structured Business. The increase in both businesses is primarily due to ~~several factors, including~~compensation expense recorded directly by each business associated with the employees that transferred to us as a result of the internalization of our management team ~~and~~in 2017. Such costs were previously charged through the management fee prior to the termination of ~~the existing~~our management agreement with ~~our Former Manager effective~~ACM in May ~~31, 2017, thirteen additional operating days in the third quarter of 2017 from the Acquisition and~~2017. In addition, increases in ~~commissions and~~ headcount ~~as a result of increases in our both our Structured and Agency portfolios during 2017.~~associated with each business’s portfolio growth also contributed to the increase.

The increase in selling and administrative expenses is comprised of $1.2 million from our Agency Business and $1.1 million from our Structured Business. The increase in our Agency Business was primarily due to increases in professional fees and rent expense. The increase from our Structured Business was primarily due to an increase in ~~legal and consulting~~professional fees, ~~and rent, along with the impact of an additional thirteen days of expenses~~partially offset by a decrease in ~~the third quarter of 2017 from the Acquisition.~~stock-based compensation expense.

~~Acquisition costs~~Impairment losses on real estate owned were $2.0 million and $2.7 million for the ~~three~~six months ended ~~September~~June 30, ~~2016 represent costs incurred related to the Acquisition,~~2018 and 2017, respectively. During these periods, we received market analysis which ~~was completed~~resulted in ~~July 2016.~~impairment losses on our real estate properties owned. See Note 39 — ~~Acquisition of Our Former Manager’s Agency Platform~~Real Estate Owned for details.

The decrease in our provision for loss sharing was primarily related to ~~a $3.3 million reversal of a specific reserve related to a~~runoff and higher Fannie Mae ~~DUS~~ loan ~~that settled with no loss share~~sales in ~~our Agency Business.~~the six months ended June 30, 2017.

The ~~increase in the provision~~recovery for loan losses for the six months ended June 30, 2018 was due to a $31.6 million settlement of a preferred equity investment with a carrying value of $29.1 million resulting in a $2.5 million recovery and a $0.9 million payment received on a written-off junior participation interest in an ~~additional $2.0~~office building. These recoveries were partially offset by a $1.7 million provision recorded inon a bridge loan. The recovery of loan losses of $2.5 million for the ~~third quarter~~six months ended June 30, 2017 was primarily due to the pay-off of ~~2017 related to~~ a ~~preferred equity investment.~~fully reserved mezzanine loan with a UPB of $1.8 million.

The decrease in management fee — related party was due to the internalization of our management team and termination of the existing management agreement with ~~our Former Manager~~ACM effective May 31, 2017.

~~Income from Equity Affiliates~~

The decrease in income from equity affiliates was primarily related to a $1.2 million loss incurred in connection with our investment in a residential mortgage banking business during the third quarter of 2017, as compared to $4.2 million of income in the third quarter of 2016, partially offset by income of $1.5 million in the third quarter of 2017 from the redemption of an equity participation interest we held.

~~Provision for Income Taxes~~

~~The provision for income taxes of $6.7 million for the three months ended September 30, 2017 was related to the income from our~~ ~~Agency Business, which is operated through our TRS Consolidated Group.~~

~~Net Income Attributable to Noncontrolling Interest~~

The noncontrolling interest relates to the 21,230,769 OP Units issued to our Former Manager to satisfy a portion of the aggregate purchase price of the Acquisition, which represents approximately 25.6% of our outstanding stock at September 30, 2017.

~~Comparison of Results of Operations for the Nine Months Ended September 30, 2017 and 2016~~

~~The following table provides our consolidated operating results:~~

2017

2016

Amount

Percent

Interest income

$
110,132,866

$
83,424,190

$
26,708,676

32
%
Other interest income, net

—

2,539,274

(2,539,274
)
nm

Interest expense

63,697,641

42,958,329

20,739,312

48
%
Net interest income

46,435,225

43,005,135

3,430,090

8
%
Other revenue:

Gain on sales, including fee-based services, net

55,127,004

9,693,822

45,433,182

nm

Mortgage servicing rights

56,181,638

15,968,067

40,213,571

nm

Servicing revenue, net

19,922,901

5,885,884

14,037,017

nm

Property operating income

8,754,518

12,719,027

(3,964,509
)
(31
)%
Other income, net

(929,893
)
663,977

(1,593,870
)
nm

Total other revenue

139,056,168

44,930,777

94,125,391

nm

Other expenses:

Employee compensation and benefits

66,860,581

22,856,433

44,004,148

nm

Selling and administrative

23,135,750

10,277,844

12,857,906

nm

Acquisition costs

—

10,261,902

(10,261,902
)
nm

Property operating expenses

7,842,571

10,991,823

(3,149,252
)
(29
)%
Depreciation and amortization

5,541,991

3,129,410

2,412,581

77
%
Impairment loss on real estate owned

2,700,000

11,200,000

(8,500,000
)
(76
)%
Provision for loss sharing (net of recoveries)

(405,494
)
1,316,862

(1,722,356
)
nm

Provision for loan losses (net of recoveries)

(455,653
)
(24,995
)
(430,658
)
nm

Management fee - related party

6,673,260

8,875,000

(2,201,740
)
(25
)%
Total other expenses

111,893,006

78,884,279

33,008,727

42
%
Income before gain on extinguishment of debt, gain on sale of real estate, income from equity affiliates and provision for income taxes

73,598,387

9,051,633

64,546,754

nm

Gain on extinguishment of debt

7,116,243

—

7,116,243

nm

Gain on sale of real estate

—

11,630,687

(11,630,687
)
nm

Income from equity affiliates

1,755,145

11,193,918

(9,438,773
)
(84
)%
Provision for income taxes

(16,244,000
)
(300,000
)
(15,944,000
)
nm

Net income

66,225,775

31,576,238

34,649,537

110
%
Preferred stock dividends

5,665,290

5,665,290

—

—

Net income attributable to noncontrolling interest

16,596,415

3,649,432

12,946,983

nm

Net income attributable to common stockholders

$
43,964,070

$
22,261,516

$
21,702,554

97
%

~~nm — not meaningful~~

The following table presents the average balance of our Structured Business interest-earning assets and interest-bearing liabilities, associated interest income (expense) and corresponding weighted average yields (dollars in thousands):

Nine Months Ended September 30,

2017

2016

Average
Carrying
Value (1)

Interest
Income /
Expense

W/A Yield /
Financing
Cost (2)

Average
Carrying
Value (1)

Interest
Income /
Expense

W/A Yield /
Financing
Cost (2)

Structured Business interest-earning assets:

Bridge loans

$
1,680,662

$
84,039

6.69
%
$
1,479,995

$
70,023

6.30
%
Mezzanine / junior participation loans

96,534

5,238

7.25
%
109,750

5,690

6.91
%
Preferred equity investments

89,078

5,640

8.47
%
81,413

4,331

7.09
%
Core interest-earning assets

1,866,274

94,917

6.80
%
1,671,158

80,044

6.38
%
Cash equivalents

198,745

768

0.52
%
208,985

637

0.41
%
Total interest-earning assets

$
2,065,019

$
95,685

6.20
%
$
1,880,143

$
80,681

5.72
%

Structured Business interest-bearing liabilities:

Warehouse lines

$
191,259

$
5,931

4.15
%
$
200,006

$
5,149

3.43
%
CLO

938,075

28,489

4.06
%
807,516

20,621

3.40
%
Trust preferred

156,149

4,752

4.07
%
175,858

4,685

3.55
%
Unsecured debt

196,819

12,499

8.49
%
97,860

5,985

8.15
%
Interest rate swaps

—

195

—

—

4,007

—

Total interest-bearing liabilities

$
1,482,302

51,866

4.68
%
$
1,281,240

40,447

4.21
%
Net interest income

$
43,819

$
40,234

~~(1)~~ ~~Based on UPB for loans, amortized cost for securities and principal amount of debt.~~

~~(2)~~ ~~Weighted average yield calculated based on annualized interest income or expense divided by average carrying value.~~

~~Net Interest Income~~

The increase in interest income is comprised of $15.0 million from our Structured Business and $11.7 million from our Agency Business. The $15.0 million, or 19%, increase from our Structured Business was primarily due to a 12% increase in our average core interest-earning assets, as a result of loan originations exceeding loan payoffs, and a 7% increase in the average yield on core interest-earning assets, largely due to an increase in the average LIBOR rate and higher rates on originations compared to payoffs. The increase in our Agency Business is due to the full period impact in 2017 of the Acquisition completed in the third quarter of 2016.

Other interest income, net was $2.5 million for the nine months ended September 30, 2016. During 2015, we acquired a $116.0 million defaulted first mortgage at par, which paid off during 2015. In April 2016, additional funds held in escrow from the note payoff were released following an arbitration proceeding and we recognized net other interest income totaling $2.5 million.

The increase in interest expense is comprised of $11.4 million from our Structured Business, $7.3 million from our Agency Business and $2.1 million from the seller financing entered into in connection with the Acquisition. The $11.4 million, or 28%, increase from our Structured Business was primarily due to a 16% increase in the average balance of our interest-bearing liabilities and an 11% increase in the average cost of our interest-bearing liabilities. The increase in the average debt balance was due to an increase in our loan portfolio, as well as from the issuance of our convertible senior unsecured notes and CLOs. The increase in the average cost of our interest-bearing liabilities was due to $1.1 million of accelerated fees related to the unwind of CLO IV, a higher rate on the convertible senior unsecured notes, as compared to our overall portfolio, and an increase in the average LIBOR rate, partially offset by a lower rate on CLO VIII, as compared to our overall portfolio, and the runoff of swaps in the first quarter of 2017. The increase in our Agency Business is due to the full period impact in 2017 of the Acquisition.

~~Other Revenue~~

Within our Agency Business, our primary revenue sources which include gain on sales, including fee-based services, net; mortgage servicing rights; and servicing revenue, net each increased substantially during the nine

months ended September 30, 2017, as compared to the same period in 2016, primarily due to the Acquisition completed in the third quarter of 2016. Our 2017 results reflect the full period impact of the Acquisition, compared to less than three months impact in 2016.

~~The decrease in property operating results (income less expenses) was primarily due to~~ ~~the sale of several properties during 2016 and the vacancy of our real estate owned office building in April 2017.~~

~~The decrease in other income, net was primarily due to a decline in the fair value of our forward sale commitments held by our Agency Business at September 30, 2017.~~

~~Other Expenses~~

The increase in employee compensation and benefits expense is comprised of $42.5 million from our Agency Business and $1.5 million from our Structured Business. The increase in our Agency Business is due to the full period impact in 2017 of the Acquisition. The $1.5 million, or 12%, increase from our Structured Business was primarily associated with the employees that transferred to us as a result of the internalization of our management team and termination of the existing management agreement with our Former Manager effective May 31, 2017.

The increase in selling and administrative expenses is comprised of $10.4 million from our Agency Business and $2.4 million from our Structured Business. The increase in our Agency Business is due to the full period impact in 2017 of the Acquisition. The $2.4 million, or 37%, increase from our Structured Business was primarily due to an increase in professional fees and rent expense that was recorded directly by the Structured Business, which was previously charged through the management fee prior to the Acquisition, as the lease contracts were assumed in connection with the Acquisition.

Acquisition costs for the nine months ended September 30, 2016 represent costs incurred related to the Acquisition, which was completed in July 2016. See Note 3 — Acquisition of Our Former Manager’s Agency Platform for details.

The increase in depreciation and amortization is comprised of $3.0 million from our Agency Business partially offset by a $0.6 million decrease from our Structured Business. The increase in our Agency Business is due to the full period impact in 2017 of the amortization of intangibles related to the Acquisition. The $0.6 million, or 32%, decrease in our Structured Business was primarily due to the sale of several real estate owned properties during 2016.

Impairment loss on real estate owned was $2.7 million and $11.2 million for the nine months ended September 30, 2017 and 2016, respectively. During the second quarter of 2016, we determined that our hotel property exhibited indicators of impairment and, as a result, we recorded an impairment loss. During the first half of 2017, we received additional market analyses which resulted in a further impairment loss on this property.

The decrease in our provision for loss sharing was primarily related to a $3.3 million reversal of a specific reserve related to a Fannie Mae DUS loan that settled with no loss share in our Agency Business, partially offset by the full period impact in 2017 of reserves related to the Acquisition.

The recovery of loan losses for the nine months ended September 30, 2017 was due to the pay-off of a fully reserved mezzanine loan with a UPB of $1.8 million and a $0.7 million reserve recovery on a multifamily bridge loan, partially offset by a $2.0 million provision on a preferred equity investment.

The decrease in management fee — related party was due to the internalization of our management team and termination of the existing management agreement with our Former Manager effective May 31, 2017.

Gain on Extinguishment of Debt

During the ~~nine~~six months ended ~~September~~June 30, 2017, we purchased, at a discount, ~~certain~~$20.9 million of our junior subordinated notes with a carrying value of $19.8 million and recorded a gain on extinguishment of debt of $7.1 million.

~~Gain on Sale of Real Estate~~

~~During the nine months ended September 30, 2016, we sold three multifamily properties and a hotel property for $50.7 million and recognized a gain of $11.6 million.~~

Income from Equity ~~Affiliates~~Investments

The ~~decrease~~increase in income from equity affiliates was primarily ~~related~~due to ~~a $1.8 million loss incurred~~an increase in income from our investment in a residential mortgage banking ~~business during~~business. In the ~~nine~~six months ended ~~September~~June 30, ~~2017, as~~2018 we recorded income of $0.8 million from this investment, compared to ~~$8.9~~a $0.6 million ~~of income~~loss in the ~~2016~~2017 comparable ~~period, partially offset by income of $1.5 million in the nine months ended September 31, 2017 from the redemption of an equity participation interest we held.~~period.

~~Provision for~~Benefit from (Provision for) Income Taxes

In the six months ended June 30, 2018 and 2017, we recorded a tax benefit of $4.3 million and a tax provision of $9.5 million, respectively. The benefit from income taxes in the six months ended June 30, 2018 consisted of a current tax provision of $8.8 million and a deferred tax benefit of $13.1 million, and the provision for income taxes in the six months ended June 30, 2017 consisted of a current tax provision of $8.6 million and a deferred tax provision of $0.9 million, respectively. The deferred tax benefit recorded in the six months ended June 30, 2018

was due primarily to our payoff in January 2018 of the $50.0 million preferred equity interest entered into with ACM to finance a portion of the Acquisition purchase price.

The provision for income taxes ~~of $16.2 million and $0.3 million for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 includes the effect of the newly enacted corporate federal income tax rate of 21% on our Agency Business as a result of the Tax Reform. The provision for income taxes primarily represents federal and ~~2016, respectively, was~~state taxes related to the ~~income from our~~ Agency Business, which ~~is operated through our~~was acquired by the TRS Consolidated ~~Group.~~Group in July 2016.

Net Income Attributable to Noncontrolling Interest

The noncontrolling interest relates to the 21,230,769 OP Units issued ~~to our Former Manager to satisfy a portion of the aggregate purchase price~~as part of the Acquisition, which ~~represents approximately 25.6%~~represented 23.6% and 25.7% of our outstanding stock at ~~September~~June 30, ~~2017.~~2018 and 2017, respectively.

Liquidity and Capital Resources

Sources of Liquidity. Liquidity is a measure of our ability to meet our potential cash requirements, including ongoing commitments to repay borrowings, satisfaction of collateral requirements under the Fannie Mae DUS risk-sharing agreement and, as an approved designated seller/servicer of Freddie Mac’s SBL ~~Program,~~program, operational liquidity requirements of the GSE agencies, fund new loans and investments, fund operating costs and distributions to our stockholders, as well as other general business needs. Our primary sources of funds for liquidity consist of proceeds from equity and debt offerings, debt facilities and cash flows from our operations. We closely monitor our liquidity position and believe our existing sources of funds and access to additional liquidity will be adequate to meet our liquidity needs.

While we have been successful in obtaining proceeds from debt and equity offerings, CLOs and certain financing facilities, current conditions in the capital and credit markets have and may continue to make certain forms of financing less attractive and, in certain cases, less available. Therefore we will continue to rely, in part, on cash flows provided by operating and investing activities for working capital.

To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT—taxable income. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. However, we believe that our capital resources and access to financing will provide us with financial flexibility and market responsiveness at levels sufficient to meet current and anticipated capital requirements.

Cash Flows. Cash flows provided by operating activities totaled ~~$387.9~~$18.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and consisted primarily of ~~net cash inflows of $333.7 million, as a result of loan sales exceeding loan originations in our Agency Business, and~~ net income, adjusted for noncash items, of ~~$60.5~~$62.7 million, partially offset by net cash outflows of $15.9 million as a result of loan originations exceeding loan sales in our Agency Business and a period-over-period increases in other assets of $9.8 million and due from related party of $9.5 million. We had net cash ~~inflows~~outflows from loans-held-for-sale during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 due to the timing of agency loan sales, as agency loans are generally sold within 60 days of origination. ~~At September 30, 2017, we had loans held-for-sale, net totaling $333.3 million that are expected to be sold in the fourth quarter of 2017.~~

Cash flows used in investing activities totaled ~~$350.8~~$518.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Loan and investment activity (originations and payoffs/paydowns) comprise the bulk of our investing activities. Loan originations from our Structured Business totaling ~~$1.05 billion,~~$875.2 million, net of payoffs and paydowns of ~~$758.1~~

$429.1 million, resulted in net cash outflows of ~~$293.3~~$446.1 million. Cash used in investing activities also includes ~~a $25.0 million cash payment to fully internalize our management team and terminate the existing management agreement with our Former Manager, $22.6~~$58.6 million of cash used to fund holdbacks and reserves on our loans and investments and ~~an $18.3~~$21.6 million in cash ~~payment~~payments to purchase ~~the~~ B Piece ~~of the~~bonds from SBL Program securitizations.

Cash flows ~~used in~~provided by financing activities totaled ~~$91.0~~$536.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and consisted primarily of $566.0 million of net proceeds from the issuances of a CLO and additional unsecured notes, net cash ~~outflows~~inflows of ~~$344.4~~$382.8 million from debt facility activities ~~(facility paydowns~~(funded loan originations were greater than ~~funded loan originations),~~facility paydowns) and $55.9 million of net proceeds from a public offering of our common stock. These cash inflows were partially offset by outflows of ~~$219.0~~$267.8 million for the redemption of CLO ~~IV, a $107.8~~V, $97.9 million ~~increase in restricted cash, primarily from~~for the ~~payoff~~redemption of ~~loans in~~ our ~~CLO vehicles, $47.8~~6.50% Convertible Notes, $50.0 million ~~in distributions~~for full satisfaction of the seller financing related to the Acquisition of the Agency Business and $42.3 million distributed to our stockholders and OP Unit holder, a $12.7 million partial payoff of our junior subordinated notes and $11.5 million payment for deferred financing costs. These cash outflows were primarily offset by $561.9 million of proceeds from the issuances of CLO VII and VIII, $76.2 million of net proceeds from a ~~public offering of our common stock and $13.8 million of net proceeds from the issuance of convertible senior unsecured notes.~~holders.

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 as of ~~September~~June 30, ~~2017.~~2018. Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $47.0 million and $0.7 million of cash collateral. See Note 1514 — Commitments and Contingencies for details about our performance regarding these requirements.

We also enter into contractual commitments with borrowers providing rate lock commitments while simultaneously entering into forward sale commitments with investors. These commitments are outstanding for short periods of time (generally less than 60 days) and are described in Note 1312 — Derivative Financial Instruments and Note 1413 — Fair Value.

Debt Instruments. We maintain various forms of short-term and long-term financing arrangements. Borrowings underlying these arrangements are primarily secured by a significant amount of our loans and ~~investments.~~

investments and substantially all of our loans held-for-sale. The following is a summary of our debt ~~instruments:~~facilities ($ in thousands):

	September 30, 2017							June 30, 2018
Debt Instruments	Commitment		Principal Balance (1)		Available		Maturity Dates	Commitment		UPB (1)		Available		Maturity Dates

Structured Business
Credit facilities and repurchase agreements	$	537,497,894	$	235,954,920	$	301,542,974	2017 - 2020	$	947,968	$	605,963	$	342,005	2018 - 2021
Collateralized loan obligations (2)	1,079,874,000		1,079,874,000		—		2017 - 2021	1,609,524		1,609,524		—		2018 - 2023
Debt Fund (2)								70,000		70,000		—		2019 - 2022
Senior unsecured notes	97,860,025		97,860,025		—		2021	125,000		125,000		—		2023
Convertible unsecured senior notes	100,000,000		100,000,000		—		2019	243,750		243,750		—		2019 - 2020
Junior subordinated notes	154,336,000		154,336,000		—		2034 - 2037	154,336		154,336		—		2034 - 2037
Structured Business total	1,969,567,919		1,668,024,945		301,542,974
Structured transaction business total								3,150,578		2,808,573		342,005

Agency Business
Credit facilities (3)	1,150,000,000		328,276,946		821,723,054		2018	1,000,000		307,811		692,189		2018

Other
Related party financing	50,000,000		50,000,000		—		2021

Consolidated total	$	3,169,567,919	$	2,046,301,891	$	1,123,266,028		$	4,150,578	$	3,116,384	$	1,034,194

(1) ~~Principal balance excludes~~Excludes the impact of deferred financing costs.

(2) Maturity dates represent the weighted average remaining maturity based on the underlying collateral as of ~~September~~June 30, ~~2017.~~

2018.

(3) The ASAP agreement we have with Fannie Mae has no expiration date.

The debt ~~instruments in the table above,~~facilities, including their restrictive covenants, ~~as well as our $50.0 million letter of credit facility,~~ are described in Note 1110 — Debt Obligations.

Contractual Obligations. ~~Other than~~During the changes made to our debt obligations described in Note 11 — Debt Obligations, including, but not limited to, entering into and unwinding CLOs and closing new or modifying existing credit facilities, there has been nosix months ended June 30, 2018, the following significant changes were made to our contractual obligations disclosed in our ~~2016~~2017 Annual ~~Report during~~Report:

· Closed CLO X issuing $441.0 million of investment grade notes to third party investors;

· Unwound CLO V redeeming $267.8 million of outstanding notes;

· Subsequently issued $245.0 million of 5.25% Convertible Notes (which were used to repurchase substantially all of our 6.50% Convertible Notes and 5.375% Convertible Notes totaling $227.4 million);

· Issued $125.0 million of our 5.625% Notes (which were substantially used to redeem all of our 7.375% Notes totaling $97.9 million);

· Repaid the ~~nine months ended September 30, 2017. Refer~~$50.0 million related party financing; and

· Closed new and modified existing credit facilities.

See Note 10 — Debt Obligations for details and refer to Note 1514 — Commitments and Contingencies for a description of our debt maturities by year and ~~our~~ unfunded commitments as of ~~September~~June 30, ~~2017.~~2018.

Off-Balance Sheet Arrangements. At June 30, 2018, we had no off-balance sheet arrangements.

~~Agreements and Transactions with Related Parties.~~ On May 31, 2017, we exercised our option to fully internalize our management team and terminated the existing management agreement with our Former Manager for $25.0 million. See Note 19 —Agreements and Transactions with Related Parties for details of our related party transactions.

Derivative Financial Instruments

We enter into derivative financial instruments in the normal course of business through the origination and sale of mortgage loans and the management of potential loss exposure caused by fluctuations of interest rates. See Note ~~13—~~12— Derivative Financial Instruments for details about our derivative financial instruments.

Critical Accounting Policies

Please refer to Note 2 — Basis of Presentation and Significant Accounting Policies of the Notes to Consolidated Financial Statements in our ~~2016~~2017 Annual Report for a discussion of our critical accounting policies. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, there were no material changes to these policies.

Non-GAAP Financial Measures

Funds from Operations and Adjusted Funds from ~~Operations~~Operations.

We present funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) because we believe they are important supplemental measures of our operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs. The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated real properties, plus impairments of depreciated real properties and real estate related depreciation and amortization, and after adjustments for unconsolidated ventures.

We define AFFO as funds from operations adjusted for accounting items such as non-cash stock-based compensation expense, income from MSRs, changes in fair value of certain derivatives that temporarily flow through earnings, amortization and write-offs of MSRs, deferred tax ~~(benefit) provision~~benefit and ~~the~~ amortization of ~~the~~ convertible senior notes conversion ~~option.~~options. We also add back one-time charges such as acquisition costs and impairment losses on real estate and gains ~~(losses)~~ on sales of real estate. We are generally not in the business of operating real estate property and had obtained real estate by foreclosure or through partial or full settlement of mortgage debt related to our loans to maximize the value of the collateral and minimize our exposure. Therefore, we deem such impairment and gains ~~(losses)~~ on real estate as an extension of the asset management of our loans, thus a recovery of principal or additional loss on our initial investment.

FFO and AFFO are not intended to be an indication of our cash flow from operating activities (determined in accordance with GAAP) or a measure of our liquidity, nor is it entirely indicative of funding our cash needs, including our ability to make cash distributions. Our calculation of FFO and AFFO may be different from the calculations used by other companies and, therefore, comparability may be limited.

FFO and AFFO are as ~~follows:~~follows ($ in thousands, except share and per share data):

													Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,						2018			2017			2018			2017
	2017			2016			2017			2016
Net income attributable to common stockholders	$	16,420,958		$	10,888,172		$	43,964,070		$	22,261,516		$	17,167		$	11,929		$	43,356		$	27,543
Adjustments:
Gain on sale of real estate	—			—			—			(11,630,687		)
Net income attributable to noncontrolling interest	5,661,184			3,649,432			16,596,415			3,649,432			5,557			4,494			14,547			10,935
Impairment loss on real estate owned	—			—			2,700,000			11,200,000			2,000			1,500			2,000			2,700
Depreciation - real estate owned	172,657			443,684			591,755			1,764,329			178			169			356			419
Depreciation - investments in equity affiliates	101,447			93,588			304,341			280,764			125			101			250			203
Funds from operations (1)	$	22,356,246		$	15,074,876		$	64,156,581		$	27,525,354		$	25,027		$	18,193		$	60,509		$	41,800
Adjustments:
Income from mortgage servicing rights	(18,897,239		)	(15,968,067		)	(56,181,638		)	(15,968,067		)	(17,936		)	(17,254		)	(37,571		)	(37,284		)
Impairment loss on real estate owned	—			—			(2,700,000		)	(11,200,000		)	(2,000		)	(1,500		)	(2,000		)	(2,700		)
Deferred tax (benefit) provision	(922,000		)	—			15,000			—
Deferred tax provision (benefit)													185			(890		)	(13,135		)	937
Amortization and write-offs of MSRs	15,927,329			7,586,524			46,140,491			7,586,524			17,203			14,932			33,879			30,213
Depreciation and amortization	1,882,543			1,365,081			5,623,203			1,365,081			2,255			1,873			4,511			3,741
Net (gain) loss on changes in fair value of derivatives	(237,415		)	(248,510		)	2,311,740			(248,510		)
Gain on sale of real estate	—			—			—			11,630,687
Net loss (gain) on changes in fair value of derivatives													587			1,552			(2,057		)	2,549
Stock-based compensation	847,128			777,080			3,833,361			2,940,174			1,100			682			3,645			2,986
Acquisition costs	—			6,406,258			—			10,261,902
Adjusted funds from operations (1)	$	20,956,592		$	14,993,242		$	63,198,738		$	33,893,145		$	26,421		$	17,588		$	47,781		$	42,242

Diluted FFO per share (1)	$	0.27		$	0.21		$	0.81		$	0.48		$	0.28		$	0.23		$	0.69		$	0.55
Diluted AFFO per share (1)	$	0.25		$	0.21		$	0.80		$	0.59		$	0.29		$	0.22		$	0.55		$	0.55
Diluted weighted average shares outstanding (1)	83,918,117			70,271,796			78,942,919			57,748,830			90,055,170			79,064,503			87,420,543			76,365,118

(1) Amounts are attributable to common stockholders and OP Units ~~holder.~~holders. The OP Units are redeemable for cash, or at our option for shares of our common stock on a one-for-one basis.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We disclosed a quantitative and qualitative analysis regarding market risk in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2016~~2017 Annual Report. That information is supplemented by the information included above in Item 2 of this report. Other than the developments described thereunder, there have been no material changes in our quantitative and qualitative exposure to market risk since December 31, ~~2016.~~2017.

The following table projects the potential impact on interest income and interest expense for a 12-month period, ~~and the potential change in fair value of our derivative financial instruments as of September 30, 2017,~~ assuming an instantaneous increase or decrease of both 25 and 50 basis points in LIBOR ~~and forward interest rate curves, adjusted for the effects of our interest rate hedging activities.~~(in thousands).

	Assets (Liabilities) Subject to Interest Rate Sensitivity (1)			25 Basis Point Increase		25 Basis Point Decrease (2)			50 Basis Point Increase		50 Basis Point Decrease (2)			Assets (Liabilities) Subject to Interest Rate Sensitivity (1)			25 Basis Point Increase		25 Basis Point Decrease (2)			50 Basis Point Increase		50 Basis Point Decrease (2)

Interest income from loans and investments	$	2,094,376,123		$	4,314,668	$	(3,000,994	)	$	8,640,845	$	(5,429,989	)	$	3,134,879		$	6,970	$	(6,494	)	$	13,967	$	(12,623	)
Interest expense from debt obligations	$	(1,718,024,946	)	3,670,418		(3,670,418		)	7,340,835		(7,340,835		)	(2,808,573		)	6,092		(6,092		)	12,183		(12,183		)
Total net interest income				$	644,250	$	669,424		$	1,300,010	$	1,910,846					$	878	$	(402	)	$	1,784	$	(440	)

(1) Represents the UPB of our loan portfolio and the principal balance of our debt.

(2) The quoted one-month LIBOR rate was ~~1.23%~~2.09% as of ~~September~~June 30, ~~2017.~~2018.

Our Agency Business originates, sells and services a range of multifamily finance products with Fannie Mae, Freddie Mac and HUD. Our loans held-for-sale to Fannie Mae, Freddie Mac and HUD are not currently exposed to interest rate risk during the loan commitment, closing and delivery process. The sale or placement of each loan to an

investor is negotiated prior to closing on the loan with the borrower, and the sale or placement is generally effectuated within 60 days of closing. The coupon rate for the loan is set after we established the interest rate with the investor.

In addition, the fair value of our MSRs is subject to market risk since a significant driver of the fair value of these assets is the discount rates. A 100 basis point increase in the weighted average discount rate would decrease the fair value of our MSRs by approximately ~~$9.3~~$9.7 million as of ~~September~~June 30, ~~2017,~~2018, while a 100 basis point decrease would increase the fair value by approximately ~~$9.9~~$10.3 million.

Item 4. Controls and Procedures

Management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures at ~~September~~June 30, ~~2017.~~2018. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2018.

There were no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any material litigation nor, to our knowledge, is any material litigation threatened against us other than the litigation described in Note 1514 — Commitments and Contingencies. We have not made a loss accrual for any litigation because we believe that it is not probable that a loss has been incurred and an amount cannot be reasonably estimated.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Item 1A of our ~~2016~~2017 Annual Report.

Item 6. Exhibits

Exhibit #		Description
3.1		Articles of Incorporation of Arbor Realty Trust, Inc. *

3.2		Amended and Restated Bylaws of Arbor Realty Trust, Inc. **

4.1		Indenture, dated as of March 13, 2018, between Arbor Realty Trust, Inc. and U.S. Bank National Association, as trustee. ***

10.1		Indenture, dated ~~August 24, 2017,~~June 14, 2018, by and between Arbor Realty Commercial Real Estate Notes ~~2017-FL2,~~2018-FL1, LTD., Arbor Realty Commercial Real Estate Notes ~~2017-FL2~~2018-FL1 LLC, Arbor Realty SR, Inc. and U.S. Bank National Association.

10.2		~~Loan Obligation Management~~Mortgage Asset Purchase Agreement, dated ~~August 24, 2017,~~June 14, 2018, by and between Arbor Realty ~~Collateral Management, LLC~~SR, Inc. and Arbor Realty Commercial Real Estate Notes ~~2017-FL1,~~2018-FL1, LTD.

10.3		Placement Agreement, dated ~~August 7, 2017,~~May 23, 2018, by and between Arbor Realty Commercial Real Estate Notes ~~2017-FL2,~~2018-FL1, LTD., Arbor Realty Commercial Real Estate Notes ~~2017-FL2~~2018-FL1 LLC and J.P. Morgan Securities LLC.

31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14.

31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14.

32		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit #		Description
101.1		Financial statements from the Quarterly Report on Form 10-Q of Arbor Realty Trust, Inc. for the quarter ended ~~September~~June 30, ~~2017,~~2018, filed on ~~November~~August 3, ~~2017,~~2018, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

* Incorporated by reference to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-110472), as amended, filed November 13, 2003.

** Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (No. 001-32136) filed August 4, 2017.

*** Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (No. 001-32136) filed March 13, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ARBOR REALTY TRUST, INC.


Date: ~~November~~August 3, ~~2017~~2018	By:	/s/ Ivan Kaufman
		Ivan Kaufman
		Chief Executive Officer


Date: ~~November~~August 3, ~~2017~~2018	By:	/s/ Paul Elenio
		Paul Elenio
		Chief Financial Officer

6765

Maryland		20-0057959
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

333 Earle Ovington Boulevard, Suite 900 Uniondale, NY		~~11553~~
(Address of principal executive offices)		11553 (Zip Code)

Large accelerated filer	o	Accelerated filer x		Smaller reporting companyo
	o
Non-accelerated filer	o		~~(Do~~ (Do not check if a smaller reporting company)		Emerging growth company	o

PART I. FINANCIAL INFORMATION	2
	Item 1. Financial Statements (Unaudited)		2
		Consolidated Balance Sheets	2
		Consolidated Statements of Income	3
		Consolidated Statements of Comprehensive Income	4
		Consolidated Statement 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	5048
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	6462
	Item 4. Controls and Procedures	6563
PART II. OTHER INFORMATION	6563
	Item 1. Legal Proceedings	6563
	Item 1A. Risk Factors	6563
	Item 6. Exhibits	6663
Signatures	6765

	September 30,			December 31,
	2017			2016
	(Unaudited)
Assets:
Cash and cash equivalents	$	84,751,397		$	138,645,430
Restricted cash	137,138,389			29,314,929
Loans and investments, net	1,997,555,985			1,695,732,351
Loans held-for-sale, net	333,267,976			673,367,304
Capitalized mortgage servicing rights, net	247,875,659			227,742,986
Available-for-sale securities, at fair value	4,707,085			5,403,463
Securities held-to-maturity, net	18,851,089			—
Investments in equity affiliates	31,330,740			33,948,853
Real estate owned, net	17,354,720			19,491,805
Due from related party	12,613,313			1,464,732
Goodwill and other intangible assets	123,166,816			97,489,884
Other assets	49,564,693			48,184,509
Total assets	$	3,058,177,862		$	2,970,786,246

Liabilities and Equity:
Credit facilities and repurchase agreements	$	562,326,537		$	906,636,790
Collateralized loan obligations	1,066,230,488			728,441,109
Senior unsecured notes	95,088,379			94,521,566
Convertible senior unsecured notes, net	95,381,121			80,660,038
Junior subordinated notes to subsidiary trust issuing preferred securities	139,418,416			157,858,555
Related party financing	50,000,000			50,000,000
Due to related party	—			6,038,707
Due to borrowers	69,357,152			81,019,386
Allowance for loss-sharing obligations	30,158,464			32,407,554
Other liabilities	104,474,096			86,164,613
Total liabilities	2,212,434,653			2,223,748,318

Commitments and contingencies (Note 15)

Equity:
Arbor Realty Trust, Inc. stockholders’ equity:
Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; special voting preferred shares; 21,230,769 shares issued and outstanding; 8.25% Series A, $38,787,500 aggregate liquidation preference; 1,551,500 shares issued and outstanding; 7.75% Series B, $31,500,000 aggregate liquidation preference; 1,260,000 shares issued and outstanding; 8.50% Series C, $22,500,000 aggregate liquidation preference; 900,000 shares issued and outstanding	89,508,213			89,508,213
Common stock, $0.01 par value: 500,000,000 shares authorized; 61,702,628 and 51,401,295 shares issued and outstanding, respectively	617,026			514,013
Additional paid-in capital	702,240,622			621,931,995
Accumulated deficit	(112,069,714		)	(125,134,403		)
Accumulated other comprehensive income	205,761			320,917
Total Arbor Realty Trust, Inc. stockholders’ equity	680,501,908			587,140,735
Noncontrolling interest	165,241,301			159,897,193
Total equity	845,743,209			747,037,928
Total liabilities and equity	$	3,058,177,862		$	2,970,786,246

	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, 2016	24,942,269	$	89,508,213	51,401,295		$	514,013		$	621,931,995	$	(125,134,403	)	$	320,917		$	587,140,735		$	159,897,193		$	747,037,928
Issuance of common stock				9,500,000		95,000			76,130,000								76,225,000						76,225,000
Stock-based compensation				806,524		8,065			3,825,296								3,833,361						3,833,361
Forfeiture of unvested restricted stock				(5,191	)	(52		)	52								—						—
Issuance of convertible senior unsecured notes, net									353,279								353,279						353,279
Distributions - common stock											(30,888,612		)				(30,888,612		)				(30,888,612		)
Distributions - preferred stock											(5,665,290		)				(5,665,290		)				(5,665,290		)
Distributions - preferred stock of private REIT											(10,769		)				(10,769		)				(10,769		)
Distributions - noncontrolling interest																				(11,252,307		)	(11,252,307		)
Net income											49,629,360						49,629,360			16,596,415			66,225,775
Unrealized loss on securities available-for-sale														(352,735		)	(352,735		)				(352,735		)
Unrealized gain on derivative financial instruments, net														202			202						202
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings														237,377			237,377						237,377
Balance — September 30, 2017	24,942,269	$	89,508,213	61,702,628		$	617,026		$	702,240,622	$	(112,069,714	)	$	205,761		$	680,501,908		$	165,241,301		$	845,743,209

Year	Amortization
2017 (three months ended 12/31/2017)	$	11,925,780
2018	45,577,306
2019	41,680,988
2020	35,461,494
2021	28,170,144
2022	22,176,139
Thereafter	62,883,808
Total	$	247,875,659

	September 30, 2017
	Amortized Cost		Cummulative Unrealized Gain		Carrying Value / Estimated Fair Value

2,939,465 common shares of CV Holdings, Inc.	$	58,789	$	205,764	$	264,553

	Face Value		Carrying Value		Unrealized Gain		Estimated Fair Value
B Piece bonds	$	28,035,293	$	18,851,089	$	31,908	$	18,882,997

	Nine Months Ended September 30, 2016

Revenue:
Property operating income	$	2,845,231
Expenses:
Property operating expenses	1,994,346
Depreciation	334,631
Net income	$	516,254

	Loss Recognized In Other Comprehensive Income (Effective Portion) For the Nine Months Ended September 30,				Loss Reclassified from Accumulated Other Comprehensive Income into Interest Expense (Effective Portion) For the Nine Months Ended September 30,
Derivative	2017		2016		2017			2016
Interest Rate Swaps/Cap	$	—	$	196	$	(237	)	$	(4,012	)

			Valuation
	Fair Value		Techniques	Significant Unobservable Inputs

Financial assets:
Impaired loans (1):


				Discount rate	11.00%
Office	$	792,500	Discounted cash flows	Capitalization rate	8.10%
				Revenue growth rate	2.50%

				Discount rate	15.00%
Land	71,441,628		Discounted cash flows	Capitalization rate	7.25%
				Revenue growth rate	3.00%

				Discount rate	9.00%
Hotel	29,050,000		Discounted cash flows	Capitalization rate	7.00%
				Revenue growth rate	3.30%

Derivative financial instruments:


Rate lock commitments	419,758		Discounted cash flows	W/A discount rate	10.22%

Non-financial assets:
Long-lived assets:
				Discount rate	11.75%
Hotel	11,540,664		Discounted cash flows	Capitalization rate	9.75%
				Revenue growth rate	3.50%
				Hold period	3 years

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Management Fees:	2017		2016		2017		2016
Base	$	—	$	3,325,000	$	6,673,260	$	8,875,000
Incentive	—		—		—		—
Total management fee	$	—	$	3,325,000	$	6,673,260	$	8,875,000