| | | | Description | | Adoption Date | | Effect on Financial Statements | | | | | | In February 2016,November 2018, the Financial Accounting Standards Board (“FASB”("FASB") issued ASU 2016-02, Leases2018-17, Consolidation (Topic 842).810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This ASU amends the guidance for determining whether a decision-making fee is a variable interest and requires lesseescompanies to record most leasesconsider indirect interests held through related parties under common control on their balance sheet through operating and finance lease liabilities and corresponding ROU assets,a proportional basis rather than as well as adding additional footnote disclosuresthe equivalent of key information about those arrangements. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which provides transition relief on comparative period reporting through a cumulative-effect adjustment at the beginning of the period of adoption (“Effective Date Method”)direct interest in its entirety (as currently required in GAAP). | | First quarter of 20192020 | | We adopted this guidance using the optional Effective Date Method and elected the group of optional practical expedients, therefore, comparative reporting periods have not been adjusted and are reported under the previous accounting guidance. Upon adoption, we recorded an operating lease ROU asset and corresponding lease liability of $20.1 million, which are included as other assets and other liabilities in our consolidated balance sheets. In addition, we added the required footnote disclosures in Note 14 - Commitments and Contingencies.
| | | | | | In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation to expand the scope of ASC Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees.
| | First quarter of 2019
| | The adoption of this guidance did not have a material impact on our consolidated financial statements. | | | | | | In August 2017,2018, the FASB issued ASU 2017-12, Derivatives2018-13, Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with changes between hierarchy associated with Level 1, Level 2 and Hedging: Targeted Improvements to Accounting for Hedging Activities. This ASU better aligns risk management activities and financial reporting for hedging relationships through changes to bothLevel 3 fair value measurements. Early adoption is permitted upon issuance of the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Among other amendments, the update allows entities to designate the variability in cash flows attributable to changes in a contractually specified component stated in the contract as the hedged risk in a cash flow hedge of a forecasted purchase or sale of a nonfinancial asset.update. | | First quarter of 20192020 | | The adoption of this guidance did not have a material impact on our consolidated financial statements. We will apply | 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 | | The adoption of this guidance to any future hedging activities.did not have a material impact on our consolidated financial statements. |
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Recently Issued Accounting Pronouncements Description | | Effective Date | | Effect on Financial Statements | | | | | | In June 2016,On March 12, 2020, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement2020-04, Reference Rate Reform (Topic 848)—Facilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments. Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform.
| | This ASU requires the measurementis effective as of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will be required to use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses.March 12, 2020 through December 31, 2022. | | First quarter of 2020 with early adoption permitted beginning in the first quarter of 2019
| | We are evaluatinghave not adopted any of the impact this guidance may have on our consolidated financial statements and we do not expectoptional expedients or exceptions through March 31, 2020, but will continue to early adopt. However, this guidance will impact our credit losses on loans and debt secutities, including loans sold to certain GSEs.evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve. |
Significant Accounting Policies See Item 8 – Financial Statements and Supplementary Data in our 2019 Annual Report for a description of our significant accounting policies. Upon the adoption of ASU 2016-13 on January 1, 2020, we adjusted certain significant accounting policies, as follows: Allowance for Credit Losses. We estimate allowances for credit losses on our structured loans and investments (including unfunded loan commitments), loss-sharing obligations related to the Fannie Mae DUS program and our held-to-maturity debt securities under CECL. This method is based on expected credit losses for the life of the investment as of each balance sheet date. Our estimation of credit losses utilizes information obtained from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts about the future. We have licensed a third party model to assist with the measurement of expected credit losses, which utilizes incurred losses inherent in the portfolio. The loss factors are determined through the generation of probability of defaults (PD) and loss Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 given defaults (LGD) for similar loans with similar credit. These results require a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses. Changes in such estimates can significantly affect our expected credit losses. Our method for calculating the estimate of expected credit loss takes into account historical experience and current conditions for similar loans and reasonable and supportable forecasts about the future. The reasonable and supportable forecast period is determined based on our assessment of the most likely scenario of assumptions and plausible outcomes for the US economy, level of historical loss forecast estimates, material changes in growth and credit strategy and other factors that may affect our loss experience. We regularly evaluate the reasonable and supportable forecast period to determine if a change is needed. Beyond our reasonable and supportable forecast period, we generally revert to historical loss information over the remaining loan/asset period, taken from a period that most accurately reflects the expectation of conditions expected to exist during the period of reversion. We may make adjustments to historical loss information for differences in risk that may not reflect the characteristics of our current portfolio, including but not limited to, loan-to-value and debt service coverage ratios, among other relevant factors. The method of reversion selected represents the best estimate of the collectability of the investments and is reevaluated each reporting period. We generally expect to use an average historical loss for reversion, utilizing an immediate or straight line method for the remaining life of the investments. We also perform a qualitative assessment beyond model estimates, and apply qualitative adjustments as necessary. Our qualitative analysis includes a review of data that may directly impact our estimates including internal and external information about the loan or property including current market conditions, asset specific conditions, property operations or borrower/sponsor details (i.e. refinance, sale, bankruptcy) which allows us to more accurately and reasonably determine the amount of the expected loss for these investments. We also evaluate the contractual life of our assets to determine if changes are needed for contractual extension options, renewals, modifications and prepayments. To the extent possible, we estimate our allowance for credit losses using a pooling approach for homogeneous assets with similar risk characteristics with the goal of enhancing the precision of their estimate. If particular assets no longer display risk characteristics that are similar to those of the pool, we may decide to revise our pools or perform an individual assessment of expected credit losses. If it is determined that a foreclosure is probable, or we expect repayment through the operation or sale of the collateral and the borrower is experiencing financial difficulty, we calculate expected credit losses based on the fair value of the collateral as of the reporting date. During the loan review process, if we determine that it is probable that we will be unable to collect all amounts due for both principal and interest according to the contractual terms of a loan, we consider that loan impaired. We evaluate the capitalization and market discount rates, as well as the borrower's operating income and cash flows, in estimating the value of the underlying collateral when determining if a loan is impaired. We may also obtain a third party appraisal, which may value the collateral through an "as-is" or "stabilized value" methodology. Such appraisals may be used as an additional source of valuation information only and no adjustments are made to appraisals. If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, we record a specific allowance for credit losses with a corresponding charge to the provision for credit losses, and remove the impaired loan from the CECL analysis described above. If the loan modification constitutes a concession whereas we do not receive ample consideration in return for the modification, and the borrower is experiencing financial difficulties and cannot repay the loan under the current terms, then the modification is considered by us to be a troubled debt restructuring. We record interest on modified loans on an accrual basis to the extent the modified loan is contractually current. The allowance for credit losses on a troubled debt restructuring is measured using the same method as all other loans held for investment. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Charge-offs to the allowance for credit losses occur when losses are confirmed through the receipt of cash or other consideration from the completion of a sale; when a modification or restructuring takes place in which we grant a concession to a borrower or agree to a discount in full or partial satisfaction of the loan; when we take ownership and control of the underlying collateral in full satisfaction of the loan; when loans are reclassified as other investments; or when significant collection efforts have ceased and it is highly likely that a loss has been realized. Loss on restructured loans is recorded when we have granted a concession to the borrower in the form of principal forgiveness related to the payoff or the substitution or addition of a new debtor for the original borrower or when we incur costs on behalf of the borrower related to the modification, payoff or the substitution or addition of a new debtor for the original borrower. When a loan is restructured, we record our investment at net realizable value, taking into account the cost of all concessions at the date of restructuring. In addition, a gain or loss may be recorded upon the sale of a loan to a third party in the consolidated statements of operations in the period in which the loan was sold. Note 3 — Loans and Investments Our Structured Business loan and investment portfolio consists of ($ in thousands): | | March 31, 2019 | | Percent of Total | | Loan Count | | Wtd. Avg. Pay Rate (1) | | Wtd. Avg. Remaining Months to Maturity | | Wtd. Avg. First Dollar LTV Ratio (2) | | Wtd. Avg. Last Dollar LTV Ratio (3) | | | | | | | | | | | | | | | | | | | | Bridge loans | | $ | 3,056,579 | | 90 | % | 174 | | 6.79 | % | 16.9 | | 0 | % | 74 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wtd. Avg. | | | | | | | | | | | | | | | | | | Remaining | | Wtd. Avg. | | Wtd. Avg. | | | | | | | Percent of | | Loan | | Wtd. Avg. | | Months to | | First Dollar | | Last Dollar | | | | | March 31, 2020 | | Total | | Count | | Pay Rate (1) | | Maturity | | LTV Ratio (2) | | LTV Ratio (3) | | Bridge loans (4) | | | $ | 4,342,335 | | 90 | % | 234 | | 5.50 | % | 18.4 | | 1 | % | 77 | % | Preferred equity investments | | 181,619 | | 5 | % | 10 | | 7.97 | % | 75.2 | | 67 | % | 90 | % | | | 201,509 | | 4 | % | 11 | | 8.30 | % | 59.2 | | 70 | % | 88 | % | Mezzanine loans | | 168,578 | | 5 | % | 18 | | 10.88 | % | 17.0 | | 19 | % | 76 | % | | | 175,389 | | 4 | % | 27 | | 7.85 | % | 48.4 | | 24 | % | 75 | % | | | 3,406,776 | | 100 | % | 202 | | 7.05 | % | 20.0 | | 4 | % | 75 | % | | Allowance for loan losses | | (71,069 | ) | | | | | | | | | | | | | | Other (5) | | | | 81,311 | | 2 | % | 20 | | 5.14 | % | 76.1 | | 0 | % | 69 | % | | | | | 4,800,544 | | 100 | % | 292 | | 5.70 | % | 22.2 | | 4 | % | 77 | % | Allowance for credit losses | | | | (142,252) | | | | | | | | | | | | | | Unearned revenue | | (11,929 | ) | | | | | | | | | | | | | | | (20,288) | | | | | | | | | | | | | | Loans and investments, net | | $ | 3,323,778 | | | | | | | | | | | | | | | $ | 4,638,004 | | | | | | | | | | | | | |
| | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bridge loans | | $ | 2,992,814 | | 91 | % | 167 | | 6.84 | % | 18.5 | | 0 | % | 74 | % | Preferred equity investments | | 181,661 | | 6 | % | 10 | | 7.97 | % | 78.0 | | 66 | % | 89 | % | Mezzanine loans | | 108,867 | | 3 | % | 13 | | 10.57 | % | 22.1 | | 28 | % | 72 | % | | | 3,283,342 | | 100 | % | 190 | | 7.02 | % | 22.0 | | 5 | % | 75 | % | Allowance for loan losses | | (71,069 | ) | | | | | | | | | | | | | Unearned revenue | | (12,128 | ) | | | | | | | | | | | | | Loans and investments, net | | $ | 3,200,145 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Wtd. Avg. | | | | | | | | | | | | | | | | | Remaining | | Wtd. Avg. | | Wtd. Avg. | | | | | | | Percent of | | Loan | | Wtd. Avg. | | Months to | | First Dollar | | Last Dollar | | | | December 31, 2019 | | Total | | Count | | Pay Rate (1) | | Maturity | | LTV Ratio (2) | | LTV Ratio (3) | | Bridge loans (4) | | $ | 3,836,832 | | 90 | % | 217 | | 5.77 | % | 18.0 | | 0 | % | 75 | % | Preferred equity investments | | | 181,058 | | 4 | % | 10 | | 7.62 | % | 68.8 | | 69 | % | 89 | % | Mezzanine loans | | | 191,575 | | 4 | % | 24 | | 9.70 | % | 36.7 | | 22 | % | 73 | % | Other (5) | | | 70,146 | | 2 | % | 21 | | 2.88 | % | 84.8 | | 0 | % | 70 | % | | | | 4,279,611 | | 100 | % | 272 | | 5.98 | % | 22.1 | | 4 | % | 76 | % | Allowance for credit losses | | | (71,069) | | | | | | | | | | | | | | Unearned revenue | | | (18,582) | | | | | | | | | | | | | | Loans and investments, net | | $ | 4,189,960 | | | | | | | | | | | | | |
(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) | As of March 31, 2020 and December 31, 2019, bridge loans included 10 and 11, respectively, single-family rental loans with an aggregate UPB of $54.4 million and $66.7 million, respectively, of which $24.0 million and $30.0 million, respectively, was funded. |
(5) | As of March 31, 2020 and December 31, 2019, other included 19 and 12, respectively, single-family rental permanent loans with an aggregate UPB of $74.9 million and $41.6 million, respectively, and 1 and 9, respectively, purchased loans with an aggregate UPB of $6.4 million and $28.6 million, respectively. |
Concentration of Credit Risk We are subject to concentration risk in that, at March 31, 2019,2020, the UPB related to 2925 loans with five5 different borrowers represented 19%13% of total assets. At December 31, 2018,2019, the UPB related to 4524 loans with five5 different borrowers represented 22%13% of total assets. During both the three months ended March 31, 20192020 and the year ended December 31, 2018,2019, no single loan or investment represented more than 10% of our total assets and no single investor group generated over 10% of our revenue. ForSee Note 18 for details on our concentration of related party loans and investments, see Note 18—Agreements and Transactions with Related Parties. investments. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
We assign a credit risk rating of pass, pass/watch, special mention, substandard or doubtful to each loan and investment, with a pass rating being the lowest risk and a doubtful rating being the highest risk. Each credit risk rating has benchmark guidelines that pertain to debt-service coverage ratios, LTV ratios, borrower strength, asset quality, and funded cash reserves. Other factors such as guarantees, market strength, and remaining loan term and borrower equity are also reviewed and factored into determining the credit risk rating assigned to each loan. This metric provides a helpful snapshot of portfolio quality and credit risk. All portfolio assets are subject to, at a minimum, a thorough quarterly financial evaluation in which historical operating performance and forward-looking projections are reviewed, however, we maintain a higher level of scrutiny and focus on loans that we consider “high risk” and that possess deteriorating credit quality. Generally speaking, given our typical loan profile, risk ratings of pass, pass/watch and special mention suggest that we expect the loan to make both principal and interest payments according to the contractual terms of the loan agreement, and is not considered impaired.agreement. 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. Table of Contents As a result of the loan review process, at ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2019 and December 31, 2018, we identified eight loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of $128.3 million and $128.7 million, respectively, and a weighted average last dollar LTV ratio of 99% for both periods.2020 A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class is as follows ($ in thousands): | | March 31, 2019 | | Asset Class | | UPB | | Percentage of Portfolio | | Wtd. Avg. Internal Risk Rating | | Wtd. Avg. First Dollar LTV Ratio | | Wtd. Avg. Last Dollar LTV Ratio | | | | | | | | | | | | | | Multifamily | | $ | 2,485,177 | | 73 | % | pass/watch | | 5 | % | 76 | % | Self Storage | | 292,525 | | 9 | % | pass/watch | | 3 | % | 72 | % | Land | | 232,228 | | 7 | % | substandard | | 0 | % | 85 | % | Healthcare | | 137,525 | | 4 | % | pass/watch | | 0 | % | 79 | % | Office | | 132,040 | | 4 | % | special mention | | 3 | % | 70 | % | Hotel | | 80,248 | | 2 | % | pass/watch | | 0 | % | 57 | % | Retail | | 45,333 | | 1 | % | pass/watch | | 6 | % | 65 | % | Commercial | | 1,700 | | <1 | % | doubtful | | 63 | % | 63 | % | Total | | $ | 3,406,776 | | 100 | % | pass/watch | | 4 | % | 75 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wtd. Avg. | | Wtd. Avg. | | | | UPB by Origination Year | | | | | First Dollar | | Last Dollar | | March 31,2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | | LTV Ratio | | LTV Ratio | | Multifamily: | | | | | | | | | | | | | | | | | | | | | | | | | | | Risk Rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 425,994 | | $ | 758,705 | | $ | 75,000 | | $ | 32,500 | | $ | — | | $ | 350 | | $ | 1,292,549 | | | | | | Pass/Watch | | | 195,114 | | | 903,609 | | | 188,500 | | | 22,100 | | | — | | | 17,685 | | | 1,327,008 | | | | | | Special Mention | | | 49,173 | | | 616,097 | | | 150,459 | | | 288,800 | | | — | | | — | | | 1,104,529 | | | | | | Substandard | | | 23,500 | | | 10,594 | | | 41,494 | | | 86,020 | | | 8,250 | | | 28,800 | | | 198,658 | | | | | | Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Total Multifamily | | $ | 693,781 | | $ | 2,289,005 | | $ | 455,453 | | $ | 429,420 | | $ | 8,250 | | $ | 46,835 | | $ | 3,922,744 | | 4 | % | 76 | % | Land: | | | | | | | | | | | | | | | | | | Percentage of portfolio | | | 82 | % | | | | | Risk Rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | Pass/Watch | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Special Mention | | | 71,019 | | | 19,523 | | | — | | | 19,975 | | | — | | | — | | | 110,517 | | | | | | Substandard | | | — | | | — | | | — | | | — | | | — | | | 127,928 | | | 127,928 | | | | | | Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Total Land | | $ | 71,019 | | $ | 19,523 | | $ | — | | $ | 19,975 | | $ | — | | $ | 127,928 | | $ | 238,445 | | 0 | % | 90 | % | Healthcare: | | | | | | | | | | | | | | | | | | Percentage of portfolio | | | 5 | % | | | | | Risk Rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | — | | $ | 21,350 | | $ | 10,000 | | $ | — | | $ | — | | $ | — | | $ | 31,350 | | | | | | Pass/Watch | | | — | | | 51,069 | | | 66,500 | | | 41,650 | | | — | | | — | | | 159,219 | | | | | | Special Mention | | | — | | | 8,500 | | | — | | | — | | | — | | | — | | | 8,500 | | | | | | Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Doubtful | | | — | | | — | | | — | | | 4,625 | | | — | | | — | | | 4,625 | | | | | | Total Healthcare | | $ | — | | $ | 80,919 | | $ | 76,500 | | $ | 46,275 | | $ | — | | $ | — | | $ | 203,694 | | 0 | % | 78 | % | Office: | | | | | | | | | | | | | | | | | | Percentage of portfolio | | | 4 | % | | | | | Risk Rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | — | | $ | — | | $ | 5,000 | | $ | — | | $ | — | | $ | — | | $ | 5,000 | | | | | | Pass/Watch | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Special Mention | | | — | | | — | | | — | | | 43,151 | | | — | | | 9,961 | | | 53,112 | | | | | | Substandard | | | — | | | — | | | 41,000 | | | 34,000 | | | — | | | — | | | 75,000 | | | | | | Doubtful | | | — | | | — | | | — | | | — | | | — | | | 880 | | | 880 | | | | | | Total Office | | $ | — | | $ | — | | $ | 46,000 | | $ | 77,151 | | $ | — | | $ | 10,841 | | $ | 133,992 | | 3 | % | 69 | % | Single Family Rental: | | | | | | | | | | | | | | | | | | Percentage of portfolio | | | 3 | % | | | | | Risk Rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 8,575 | | $ | 34,490 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 43,065 | | | | | | Pass/Watch | | | 17,570 | | | 30,853 | | | — | | | — | | | — | | | — | | | 48,423 | | | | | | Special Mention | | | 7,287 | | | 161 | | | — | | | — | | | — | | | — | | | 7,448 | | | | | | Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Total Single Family Rental | | $ | 33,432 | | $ | 65,504 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 98,936 | | 0 | % | 70 | % | Hotel: | | | | | | | | | | | | | | | | | | Percentage of portfolio | | | 2 | % | | | | | Risk Rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | Pass/Watch | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Substandard | | | — | | | 91,000 | | | — | | | — | | | — | | | — | | | 91,000 | | | | | | Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | Total Hotel | | $ | — | | $ | 91,000 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 91,000 | | 32 | % | 100 | % | Other: | | | | | | | | | | | | | | | | | | Percentage of portfolio | | | 2 | % | | | | | Risk Rating: | | | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | Pass/Watch | | | — | | | — | | | — | | | 3,574 | | | — | | | — | | | 3,574 | | | | | | Special Mention | | | — | | | — | | | 51,300 | | | 10,006 | | | — | | | — | | | 61,306 | | | | | | Substandard | | | — | | | — | | | 41,600 | | | — | | | — | | | 3,553 | | | 45,153 | | | | | | Doubtful | | | — | | | — | | | — | | | — | | | — | | | 1,700 | | | 1,700 | | | | | | Total Other | | $ | — | | $ | — | | $ | 92,900 | | $ | 13,580 | | $ | — | | $ | 5,253 | | $ | 111,733 | | 4 | % | 77 | % | | | | | | | | | | | | | | | | | | | Percentage of portfolio | | | 2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grand Total | | $ | 798,232 | | $ | 2,545,951 | | $ | 670,853 | | $ | 586,401 | | $ | 8,250 | | $ | 190,857 | | $ | 4,800,544 | | 4 | % | 77 | % |
| | December 31, 2018 | | | | | | | | | | | | | | Multifamily | | $ | 2,427,920 | | 74 | % | pass/watch | | 5 | % | 75 | % | Self Storage | | 301,830 | | 9 | % | pass/watch | | 0 | % | 72 | % | Land | | 151,628 | | 5 | % | substandard | | 0 | % | 90 | % | Healthcare | | 122,775 | | 4 | % | pass/watch | | 0 | % | 77 | % | Office | | 132,047 | | 4 | % | special mention | | 3 | % | 68 | % | Hotel | | 100,075 | | 3 | % | pass/watch | | 13 | % | 66 | % | Retail | | 45,367 | | 1 | % | pass/watch | | 6 | % | 65 | % | Commercial | | 1,700 | | <1 | % | doubtful | | 63 | % | 63 | % | Total | | $ | 3,283,342 | | 100 | % | pass/watch | | 5 | % | 75 | % |
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Geographic Concentration Risk As of March 31, 2019, 23%2020, 16% and 16%12% of the outstanding balance of our loan and investment portfolio had underlying properties in New York and Texas, respectively. As of December 31, 2018, 23%2019, 18% and 18%12% of the outstanding balance of our loan and investment portfolio had underlying properties in New York and Texas, respectively. No other states represented 10% or more of the total loan and investment portfolio. Table of Contents Impaired Loans and ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Allowance for LoanCredit Losses A summary of the changes in the allowance for loancredit losses is as follows (in thousands): | | Three Months Ended March 31, | | | | 2019 | | 2018 | | | | | | | | Allowance at beginning of period | | $ | 71,069 | | $ | 62,783 | | Provision for loan losses | | — | | 325 | | Allowance at end of period | | $ | 71,069 | | $ | 63,108 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2020 | | | Land | | Multifamily | | Retail | | Hotel | | Office | | Healthcare | | Other | | Total | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance, prior to adoption of CECL | | $ | 67,869 | | $ | — | | $ | — | | $ | — | | $ | 1,500 | | $ | — | | $ | 1,700 | | $ | 71,069 | Impact of adopting CECL - January 1, 2020 | | | 77 | | | 15,688 | | | 333 | | | 29 | | | 287 | | | 64 | | | 816 | | | 17,294 | Provision for credit losses (net of recoveries) | | | 10,473 | | | 16,585 | | | 10,983 | | | 7,500 | | | 4,310 | | | 3,870 | | | 168 | | | 53,889 | Ending balance | | $ | 78,419 | | $ | 32,273 | | $ | 11,316 | | $ | 7,529 | | $ | 6,097 | | $ | 3,934 | | $ | 2,684 | | $ | 142,252 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses | | $ | 67,869 | | $ | — | | $ | — | | $ | — | | $ | 1,500 | | $ | — | | $ | 1,700 | | $ | 71,069 |
The ratio of net recoveries toincrease in the average loans and investments outstanding was de minimusprovision for credit losses during the three months ended March 31, 2018.2020 of $53.9 million, compared to the January 1, 2020 cumulative-effect adjustment upon adoption of CECL of $17.3 million, is primarily attributed to the significant adverse change in the economic outlook due to the COVID-19 pandemic. Our estimate of allowance for credit losses on our structured loans and investments including related unfunded loan commitments during the first quarter of 2020 was based on a reasonable and supportable forecast period that was adjusted for the expectations that the markets in which we operate will experience a decline in economic conditions, increases in unemployment rates and other market driven factors largely the result of the COVID-19 pandemic that will likely impact loan delinquencies, modifications and potential risk of loss. For the periods beyond the reasonable and supportable forecast, we reverted to our historical loss rate, which was adjusted to address for factors that are not present in our existing portfolio. During the quarter, we also made adjustments for loans that were anticipated to extend based on available extension options and timing of their maturities in relation to the current economic conditions. The expected credit losses over the contractual period of our loans also include the obligation to extend credit through our unfunded loan commitments. Our CECL allowance for unfunded loan commitments are adjusted quarterly and correspond with the associated outstanding loans. As of March 31, 2020, we had outstanding unfunded commitments of $183.8 million that we are obligated to fund as borrowers meet certain requirements. As of March 31, 2020, accrued interest receivable related to our loans totaling $37.7 million was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheet. All of our structured loans and investments are collateral dependent, and as such, the measurement of credit losses may be based on the difference between the fair value of the underlying collateral and the carrying value of the assets as of the period end. A summary of our specific loans considered impaired by asset class is as follows (in thousands): Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 | | | | | | | | | | | | | | | | | | | March 31, 2020 | | | | | | | | | | | | | Wtd. Avg. First | | Wtd. Avg. Last | | | | | | Carrying | | Allowance for | | Dollar LTV | | Dollar LTV | | Asset Class | | UPB (1) | | Value | | Credit Losses | | Ratio | | Ratio | | Land | | $ | 134,215 | | $ | 126,800 | | $ | 77,869 | | | 0 | % | | 97 | % | Hotel | | | 50,000 | | | 49,663 | | | 7,500 | | | 59 | % | | 100 | % | Retail | | | 33,520 | | | 31,921 | | | 11,292 | | | 3 | % | | 100 | % | Healthcare | | | 4,625 | | | 4,845 | | | 3,845 | | | 0 | % | | 100 | % | Office | | | 2,211 | | | 2,211 | | | 1,500 | | | 0 | % | | 76 | % | Commercial | | | 1,700 | | | 1,700 | | | 1,700 | | | 63 | % | | 63 | % | Total | | $ | 226,271 | | $ | 217,140 | | $ | 103,706 | | | 14 | % | | 98 | % |
| | | | | | | | | | | | | | | | | | | December 31, 2019 | | | | | | | | | | | | | Wtd. Avg. First | | Wtd. Avg. Last | | | | | | Carrying | | Allowance for | | Dollar LTV | | Dollar LTV | | Asset Class | | UPB (1) | | Value | | Credit Losses | | Ratio | | Ratio | | Land | | $ | 134,215 | | $ | 126,800 | | $ | 67,869 | | | 0 | % | | 97 | % | Office | | | 2,226 | | | 2,226 | | | 1,500 | | | 0 | % | | 78 | % | Commercial | | | 1,700 | | | 1,700 | | | 1,700 | | | 63 | % | | 63 | % | Total | | $ | 138,141 | | $ | 130,726 | | $ | 71,069 | | | 1 | % | | 96 | % |
(1) | Represents the UPB of nine and five impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at March 31, 2020 and December 31, 2019, respectively. |
There were no0 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 loancredit loss as of March 31, 2019 and 2018. We have six loans with a carrying value totaling $120.9 million at March 31, 2019 that are collateralized by a land development project that are scheduled to mature in September 2019. The loans do not carry a current pay rate of interest, but five of the loans with a carrying value totaling $111.5 million entitle us to a weighted average accrual rate of interest of 9.08%. In 2008, we suspended the recording of the accrual rate of interest on these loans, as they were impaired and we deemed the collection of this interest to be doubtful. At both March 31, 20192020 and December 31, 2018, we had cumulative allowances for loan losses of $61.4 million related to these loans. The loans are subject to certain risks associated with a development project including, but not limited to, availability of construction financing, increases in projected construction costs, demand for the development’s outputs upon completion of the project, and litigation risk. Additionally, these loans were not classified as non-performing as the borrower is in compliance with all of the terms and conditions of the loans.2019.
A summary of our impaired loans by asset class is as follows (in thousands):
| | March 31, 2019 | | Three Months Ended March 31, 2019 | | Asset Class | | UPB | | Carrying Value (1) | | Allowance for Loan Losses | | Average Recorded Investment (2) | | Interest Income Recognized | | | | | | | | | | | | | | Land | | $ | 134,215 | | $ | 127,386 | | $ | 67,869 | | $ | 134,215 | | $ | 27 | | Office | | 2,259 | | 2,259 | | 1,500 | | 2,263 | | 34 | | Commercial | | 1,700 | | 1,700 | | 1,700 | | 1,700 | | — | | Total | | $ | 138,174 | | $ | 131,345 | | $ | 71,069 | | $ | 138,178 | | $ | 61 | |
| | December 31, 2018 | | Three Months Ended March 31, 2018 | | | | | | | | | | | | | | Land | | $ | 134,215 | | $ | 127,869 | | $ | 67,869 | | $ | 131,249 | | $ | — | | Office | | 2,266 | | 2,266 | | 1,500 | | 2,286 | | 29 | | Commercial | | 1,700 | | 1,700 | | 1,700 | | 1,700 | | — | | Hotel | | — | | — | | — | | 34,750 | | — | | Total | | $ | 138,181 | | $ | 131,835 | | $ | 71,069 | | $ | 169,985 | | $ | 29 | |
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
At March 31, 2019
(1) Represents the UPB of five impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at both March 31, 2019 and December 31, 2018, respectively.
(2) Represents an average of the beginning and ending UPB of each asset class.
At both March 31, 2019 and December 31, 2018, two2020, 4 loans with an aggregate net carrying value of $0.8$1.8 million, net of related loan loss reserves of $6.5 million, were classified as non-performing and, at December 31, 2019, 3 loans with an aggregate net carrying value of $1.8 million, net of related loan loss reserves of $1.7 million, were classified as non-performing. Income from non-performing loans is generally recognized on a cash basis when it is received. Full income recognition will resume when the loan becomes contractually current and performance has recommenced.
A summary of our non-performing loans by asset class is as follows (in thousands): | | March 31, 2019 | | December 31, 2018 | | | Asset Class | | Carrying Value | | Less Than 90 Days Past Due | | Greater Than 90 Days Past Due | | Carrying Value | | Less Than 90 Days Past Due | | Greater Than 90 Days Past Due | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | | | | | | | Less Than | | Greater Than | | | | | Less Than | | Greater Than | | | | | | 90 Days | | 90 Days | | | | 90 Days | | 90 Days | | | | UPB | | Past Due | | Past Due | | UPB | | Past Due | | Past Due | Healthcare | | | $ | 4,625 | | $ | — | | $ | 4,625 | | $ | — | | $ | — | | $ | — | Commercial | | $ | 1,700 | | $ | — | | $ | 1,700 | | $ | 1,700 | | $ | — | | $ | 1,700 | | | | 1,700 | | | — | | | 1,700 | | | 1,700 | | | — | | | 1,700 | Retail | | | | 920 | | | — | | | 920 | | | 1,000 | | | — | | | 1,000 | Office | | 832 | | — | | 832 | | 832 | | — | | 832 | | | | 880 | | | — | | | 880 | | | 880 | | | — | | | 880 | Total | | $ | 2,532 | | $ | — | | $ | 2,532 | | $ | 2,532 | | $ | — | | $ | 2,532 | | | $ | 8,125 | | $ | — | | $ | 8,125 | | $ | 3,580 | | $ | — | | $ | 3,580 |
In addition, we have 6 loans with a carrying value totaling $120.3 million at March 31, 2020, that are collateralized by a land development project. These loans were scheduled to mature in March 2020 and were extended to September 2020. The loans do not carry a current pay rate of interest, however, 5 of the loans with a carrying value totaling $111.0 million entitle us to a weighted average accrual rate of interest of 8.38%. In 2008, we suspended the recording of the accrual rate of interest on these loans, as they were impaired and we deemed the collection of this interest to be doubtful. At March 31, 2020 and December 31, 2019, we had a cumulative allowance for credit losses of $71.4 million and $61.4 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 Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 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. At both March 31, 20192020 and December 31, 2018, there were no 2019, we had 0 loans contractually past due 90 days or more that wereare still accruing interest. During both the three months ended March 31, 2020 and 2019, interest income recognized on nonaccrual loans was de minimis. There were no0 loan modifications, refinancing’srefinancing's and/or extensions during both the three months ended March 31, 20192020 and 20182019 that were considered troubled debt restructurings. Given the transitional nature of some of our real estate loans, we may require funds to be placed into an interest reserve, based on contractual requirements, to cover debt service costs. At March 31, 20192020 and December 31, 2018,2019, we had total interest reserves of $50.7$51.1 million and $48.9$37.0 million, respectively, on 122141 loans and 110131 loans, respectively, with an aggregate UPB of $2.22$2.64 billion for both periods.and $2.43 billion, respectively. Note 4 — Loans Held-for-Sale, Net Loans held-for-sale, net consists of the following (in thousands): | | March 31, 2019 | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | Private Label | | | $ | 683,526 | | $ | 401,207 | Fannie Mae | | $ | 158,733 | | $ | 358,790 | | | | 236,459 | | | 408,534 | Freddie Mac | | 63,713 | | 95,004 | | | | 56,311 | | | 36,303 | FHA | | 477 | | 19,170 | | | | 2,440 | | | 1,082 | | | 222,923 | | 472,964 | | | | | | | 978,736 | | | 847,126 | Fair value of future MSR | | 3,802 | | 10,253 | | | | 15,254 | | | 16,519 | Unearned discount | | (847 | ) | (1,553 | ) | | | (2,294) | | | (2,285) | Loans held-for-sale, net | | $ | 225,878 | | $ | 481,664 | | | $ | 991,696 | | $ | 861,360 |
Our GSE loans held-for-sale net are typically sold within 60 days of loan origination, while our Private Label loans are generally expected to be sold and the gain on sales are included in gain on sales, including fee-based services, net in the consolidated statementssecuritized within 180 days of income.loan origination. During the three months ended March 31, 20192020 and 2018,2019, we sold $1.10 billion$957.1 million and $1.06$1.10 billion, respectively, of loans held-for-sale and recorded gain on sales of $15.1$13.2 million and $17.4$15.1 million, respectively. At March 31, 20192020 and December 31, 2018,2019, there were no0 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)
March 31, 2019
Note 5 — Capitalized Mortgage Servicing Rights Our capitalized mortgage servicing rights (“MSRs”) reflect commercial real estate MSRs derived from loans sold in our Agency Business.Business or acquired MSRs. The discount rates used to determine the present value of our MSRs throughout the periods presented for all MSRs were between 8% - 15% (representing a weighted average discount rate of 12%13%) based on our best estimate of market discount rates. The weighted average estimated life remaining of our MSRs was 7.68.1 years and 8.0 years at both March 31, 20192020 and December 31, 2018.2019, respectively. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 A summary of our capitalized MSR activity is as follows (in thousands): | | Three Months Ended March 31, 2019 | | | | | Acquired | | Originated | | Total | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2020 | | | | Acquired | | Originated | | Total | Balance at beginning of period | | $ | 97,084 | | $ | 176,686 | | $ | 273,770 | | | $ | 64,519 | | $ | 221,901 | | $ | 286,420 | Additions | | — | | 20,609 | | 20,609 | | | | — | | | 20,275 | | | 20,275 | Amortization | | (5,915 | ) | (6,367 | ) | (12,282 | ) | | | (4,206) | | | (7,615) | | | (11,821) | Write-downs and payoffs | | (3,140 | ) | (1,318 | ) | (4,458 | ) | | | (1,736) | | | (4,184) | | | (5,920) | Balance at end of period | | $ | 88,029 | | $ | 189,610 | | $ | 277,639 | | | $ | 58,577 | | $ | 230,377 | | $ | 288,954 |
| | Three Months Ended March 31, 2018 | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2019 | Balance at beginning of period | | $ | 143,270 | | $ | 109,338 | | $ | 252,608 | | | $ | 97,084 | | $ | 176,686 | | $ | 273,770 | Additions | | — | | 19,800 | | 19,800 | | | | — | | | 20,609 | | | 20,609 | Amortization | | (7,995 | ) | (3,870 | ) | (11,865 | ) | | | (5,915) | | | (6,367) | | | (12,282) | Write-downs and payoffs | | (3,341 | ) | (1,470 | ) | (4,811 | ) | | | (3,140) | | | (1,318) | | | (4,458) | Balance at end of period | | $ | 131,934 | | $ | 123,798 | | $ | 255,732 | | | $ | 88,029 | | $ | 189,610 | | $ | 277,639 |
We collected prepayment fees of $4.9totaling $5.1 million and $3.7$4.9 million during the three months ended March 31, 2020 and 2019, and 2018, respectively, whichrespectively. Prepayment fees are included as a component of servicing revenue, net on the consolidated statements of income. operations. As of March 31, 20192020 and December 31, 2018,2019, we had no0 valuation allowance recorded on any of our MSRs. The expected amortization of capitalized MSRs recorded as of March 31, 20192020 is as follows (in thousands): | | | | | Year | | Amortization | | | Amortization | 2019 (nine months ending 12/31/2019) | | $ | 36,578 | | | 2020 | | 45,186 | | | 2020 (nine months ending 12/31/2020) | | | $ | 34,716 | 2021 | | 39,942 | | | | 43,228 | 2022 | | 33,302 | | | | 38,728 | 2023 | | 28,506 | | | | 34,495 | 2024 | | 24,100 | | | | 30,481 | 2025 | | | | 27,573 | Thereafter | | 70,025 | | | | 79,733 | Total | | $ | 277,639 | | | $ | 288,954 |
Actual amortization may vary from these estimates. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 20192020 Note 6 — Mortgage Servicing Product and geographic concentrations that impact our servicing revenue are as follows ($ in thousands): March 31, 2019 | | | | | | | | | | | | | | | March 31, 2020 | | March 31, 2020 | | Product Concentrations | Product Concentrations | | Geographic Concentrations | | Product Concentrations | | Geographic Concentrations | | | | | | Percent of | | | | UPB Percentage | | | | | | | | | | | | | UPB | | | | | | | | Percent of | | | | Percentage | | Product | | UPB | | Total | | State | | of Total | | | UPB (1) | | Total | | State | | of Total | | Fannie Mae | | $ | 13,719,351 | | 73 | % | Texas | | 20 | % | | $ | 14,946,922 | | 74 | % | Texas | | 18 | % | Freddie Mac | | 4,515,829 | | 24 | % | North Carolina | | 10 | % | | | 4,570,521 | | 23 | % | North Carolina | | 9 | % | FHA | | 648,583 | | 3 | % | New York | | 8 | % | | | 679,685 | | 3 | % | New York | | 9 | % | Total | | $ | 18,883,763 | | 100 | % | California | | 8 | % | | $ | 20,197,128 | | 100 | % | California | | 8 | % | | | | | | | Georgia | | 6 | % | | | | | | | | Florida | | 5 | % | | | | | | | | Other (1) | | 43 | % | | | | | | | | Total | | 100 | % | | | | | | | | | | | | | December 31, 2018 | | | Fannie Mae | | $ | 13,562,667 | | 73 | % | Texas | | 20 | % | | Freddie Mac | | 4,394,287 | | 24 | % | North Carolina | | 10 | % | | FHA | | 644,687 | | 3 | % | New York | | 8 | % | | Total | | $ | 18,601,641 | | 100 | % | California | | 8 | % | | | | | | | | Georgia | | 6 | % | | | | | | | | Florida | | 6 | % | | | | | | | | Other (1) | | 42 | % | | | | | | | | Total | | 100 | % | | | | | | | | | | Georgia | | 6 | % | | | | | | | | | Florida | | 6 | % | | | | | | | | | Other (2) | | 44 | % | | | | | | | | | Total | | 100 | % |
| | | | | | | | | | | December 31, 2019 | | Fannie Mae | | $ | 14,832,844 | | 74 | % | Texas | | 19 | % | Freddie Mac | | | 4,534,714 | | 23 | % | North Carolina | | 9 | % | FHA | | | 691,519 | | 3 | % | New York | | 9 | % | Total | | $ | 20,059,077 | | 100 | % | California | | 9 | % | | | | | | | | Florida | | 6 | % | | | | | | | | Georgia | | 6 | % | | | | | | | | Other (2) | | 42 | % | | | | | | | | Total | | 100 | % |
(1) | Excludes loans which we are not collecting a servicing fee. |
(2) | No other individual state represented 4% or more of the total. |
(1) No other individual state represented 4% or more of the total.
At March 31, 20192020 and December 31, 2018,2019, our weighted average servicing fee was 44.643.6 basis points and 45.243.8 basis points, respectively. At March 31, 20192020 and December 31, 2018,2019, we held total escrow balances of $797.1$957.1 million and $824.1$947.1 million, respectively, which is not reflected in our consolidated balance sheets. Of the total escrow balances, we held $479.2$545.6 million and $521.2$562.1 million at March 31, 20192020 and December 31, 2018,2019, respectively, related to loans we are servicing within our Agency Business. These escrows are maintained in separate accounts at several federally insured depository institutions, which may exceed FDIC insured limits. We earn interest income on the total escrow deposits, generally based on a market rate of interest negotiated with the financial institutions that hold the escrow deposits. Interest earned on total escrows, net of interest paid to the borrower, was $4.0$3.1 million and $2.2$4.0 million during the three months ended March 31, 20192020 and 2018,2019, respectively, and is a component of servicing revenue, net in the consolidated statements of income.operations. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Note 7 — Securities Held-to-Maturity Agency B Piece Bonds. Bonds . Freddie Mac may choose to hold, sell or securitize loans we sell to them under the Freddie Mac SBL program. As part of the securitizations under the SBL program, we have the option to purchase the B Piece bond through a bidding process, the bottom tranche bond, generally referred to as the “B Piece,” thatwhich represents the bottom 10%, or highest risk, of the securitization. As of March 31, 2019,2020, we retained 49%, or $106.2 million initial face value, of seven7 B Piece bonds, which were purchased at a discount for $74.7 million, and sold the remaining 51% to a third-party at par. These securities are collateralized by a pool of multifamily mortgage loans, bear interest at an initial weighted average variable rate of 3.74% and have an estimated weighted average remaining maturity of 5.45.6 years. The weighted average effective interest rate was 10.71%10.91% and 10.94%10.85% at March 31, 20192020 and December 31, 2018,2019, respectively, including the accretion of discount.a portion of the discount deemed collectible. Approximately $15.6$13.5 million is estimated to mature within one year, $45.2$38.7 million is estimated to mature after one year through five years, $27.6$19.6 million is estimated to mature after five years through ten years and $13.6$14.7 million is estimated to mature after ten years. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Structured Single Family-Family Rental Bonds (“SFR bonds”). InAs of March 2019,31, 2020, we purchased $10.0held $20.0 million initial face value of Class A2 securitized SFR bonds at par. Thepar, which are collateralized by a pool of single-family rental properties. These securities have a three-year maturity, bear interest at a weighted average fixed interest rate of 4.95%4.58% and are collateralized by a poolhave an estimated weighted average remaining maturity of single family rental properties.0.5 years. Approximately $9.0$18.2 million is estimated to mature within one year and $1.0$1.8 million is estimated to mature after one year through threefive years. A summary of our securities held-to-maturity is as follows (in thousands): Period | | Face Value | | Carrying Value | | Unrealized Gain | | Estimated Fair Value | | | | | | | | | | | | | | | | March 31, 2019 | | $ | 111,994 | | $ | 86,036 | | $ | 3,801 | | $ | 89,837 | | | | | | | | | | | | December 31, 2018 | | $ | 103,515 | | $ | 76,363 | | $ | 2,734 | | $ | 79,097 | |
| | | | | | | | | | | | | | | | | | | | Net Carrying | | Unrealized | | Estimated | | Allowance for | | | Face Value | | Value | | (Loss)/Gain | | Fair Value | | Credit Losses | March 31, 2020 | | | | | | | | | | | | | | | | B Piece bonds | | $ | 86,484 | | $ | 64,406 | | $ | (2,143) | | $ | 62,263 | | $ | 992 | SFR bonds | | | 20,000 | | | 20,000 | | | (376) | | | 19,624 | | | — | Total | | $ | 106,484 | | $ | 84,406 | | $ | (2,519) | | $ | 81,887 | | $ | 992 | December 31, 2019 | | | | | | | | | | | | | | | | B Piece bonds | | $ | 91,028 | | $ | 68,699 | | $ | 2,965 | | $ | 71,664 | | $ | — | SFR bonds | | | 20,000 | | | 20,000 | | | 74 | | | 20,074 | | | — | Total | | $ | 111,028 | | $ | 88,699 | | $ | 3,039 | | $ | 91,738 | | $ | — |
A summary of the changes in the allowance for credit losses for our securities held-to-maturity is as follows (in thousands): | | | | | | | | | | | | Three Months Ended March 31, 2020 | | | B Piece Bonds | | SFR Bonds | | Total | | | | | | | | | | | Beginning balance, prior to adoption of CECL | | $ | — | | $ | — | | $ | — | Impact of adopting CECL - January 1, 2020 | | | 501 | | | — | | | 501 | Provision for credit loss expense | | | 491 | | | — | | | 491 | Ending balance | | $ | 992 | | $ | — | | $ | 992 |
The allowance for credit losses on our held-to-maturity securities was estimated on a collective basis by major security type and was based on a reasonable and supportable forecast period and a historical loss reversion for similar securities. The issuers continue to make timely principal and interest payments and we continue to accrue interest on all our bonds. As of March 31, 2019,2020, no other-than-temporary impairment was recorded on our held-to-maturity securities. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 During the three months ended March 31, 20192020 and 2018,2019, we recorded interest income (including the amortization of $2.1discount) of $2.3 million and $1.1$2.1 million, respectively, related to these investments. As of March 31, 2020, accrued interest receivable related to these bonds totaling $0.1 million was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheet. Note 8 — Investments in Equity Affiliates We account for all investments in equity affiliates under the equity method. A summary of our investments in equity affiliates is as follows (in thousands): | | Investments in Equity Affiliates at | | UPB of Loans to Equity Affiliates at | | | | | | | | | | | | | | | | | | | | | | | UPB of Loans to | | | | Investments in Equity Affiliates at | | Equity Affiliates at | Equity Affiliates | | March 31, 2019 | | December 31, 2018 | | March 31, 2019 | | | March 31, 2020 | | December 31, 2019 | | March 31, 2020 | | | | | | | | | | Arbor Residential Investor LLC | | $ | 20,124 | | $ | 19,260 | | $ | — | | | $ | 29,452 | | $ | 26,520 | | $ | — | AMAC Holdings III LLC | | 6,000 | | — | | — | | | | 10,471 | | | 10,520 | | | 15,600 | Lightstone Value Plus REIT L.P. | | 1,895 | | 1,895 | | — | | | North Vermont Avenue | | | | 2,458 | | | 2,440 | | | — | Lightstone Value Plus REIT L.P | | | | 1,895 | | | 1,895 | | | — | JT Prime | | 425 | | 425 | | — | | | | 425 | | | 425 | | | — | West Shore Café | | — | | — | | 1,688 | | | | — | | | — | | | 1,688 | Lexford Portfolio | | — | | — | | 225,880 | | | | — | | | — | | | 1,390 | East River Portfolio | | — | | — | | — | | | | — | | | — | | | — | Total | | $ | 28,444 | | $ | 21,580 | | $ | 227,568 | | | $ | 44,701 | | $ | 41,800 | | $ | 18,678 |
Arbor Residential Investor LLC (“ARI”). During the three months ended March 31, 20192020 and 2018,2019, we recorded income of $0.8$2.9 million and $0.1$0.8 million, respectively, to income from equity affiliates in our consolidated statements of income. In addition, during the first quarter of 2018, we made a $2.4 million payment for our proportionate share of a litigation settlement related to this investment, which was distributed back to us by our equity affiliate.operations. AMAC Holdings III LLC (“AMAC III”). In the three months ended March 31, 2019, we committed to a $30.0 million investment (of which $6.0 million was funded in January 2019) for an 18% interest in a multifamily-focused commercial real estate investment fund that is sponsored and managed by our chief executive officer and one of his immediate family members.
Lexford Portfolio.During the three months ended March 31, 20192020 and 2018,2019, we received distributions and recorded income of $1.3$1.1 million and $0.6$1.3 million, respectively, from this equity investment. ARBOR REALTY TRUST, INC. AND SUBSIDIARIESinvestment, which was recognized as income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
See Note 18 — Agreements and Transactions with Related Parties for details regarding theof certain investments described above. Note 9 — Real Estate Owned Real Estate Owned.Our real estate assets at both March 31, 20192020 and December 31, 20182019 were comprised of a hotel property and an office building.
| | March 31, 2019 | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | | | | Hotel | | Office | | | | | Hotel | | Office | | | | (in thousands) | | Hotel Property | | Office Building | | Total | | Hotel Property | | Office Building | | Total | | | Property | | Building | | Total | | Property | | Building | | Total | | | | | | | | | | | | | | | | Land | | $ | 3,294 | | $ | 4,509 | | $ | 7,803 | | $ | 3,294 | | $ | 4,509 | | $ | 7,803 | | | $ | 3,294 | | $ | 4,509 | | $ | 7,803 | | $ | 3,294 | | $ | 4,509 | | $ | 7,803 | Building and intangible assets | | 31,267 | | 2,010 | | 33,277 | | 31,066 | | 2,010 | | 33,076 | | | | 31,771 | | | 2,010 | | | 33,781 | | | 31,541 | | | 2,010 | | | 33,551 | Less: Impairment loss | | (13,307 | ) | (2,500 | ) | (15,807 | ) | (13,307 | ) | (2,500 | ) | (15,807 | ) | | | (14,307) | | | (2,500) | | | (16,807) | | | (14,307) | | | (2,500) | | | (16,807) | Less: Accumulated depreciation and | | | | | | | | | | | | | | | amortization | | (9,912 | ) | (888 | ) | (10,800 | ) | (9,778 | ) | (848 | ) | (10,626 | ) | | Less: Accumulated depreciation and amortization | | | | (10,460) | | | (1,047) | | | (11,507) | | | (10,320) | | | (1,007) | | | (11,327) | Real estate owned, net | | $ | 11,342 | | $ | 3,131 | | $ | 14,473 | | $ | 11,275 | | $ | 3,171 | | $ | 14,446 | | | $ | 10,298 | | $ | 2,972 | | $ | 13,270 | | $ | 10,208 | | $ | 3,012 | | $ | 13,220 |
ForDuring the three months ended March 31, 20192020 and 2018,2019, our hotel property had a weighted average occupancy rate of 53%41% and 58%53%, respectively, a weighted average daily rate of $130$154 and $128,$130, respectively, and weighted average revenue per available room of $69$64 and $75,$69, respectively. The operation of a hotel property is seasonal with the majority of
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 revenues earned in the first two quarters of the calendar year. As a result of the COVID-19 pandemic, our hotel property has temporarily ceased operations beginning in April 2020. Our office building was fully occupied by a single tenant until April 2017 when the lease expired. The building is currently vacant. Our real estate owned assets had restricted cash balances due to escrow requirements totaling $0.3$0.4 million and $0.5 million at March 31, 20192020 and December 31, 2018, respectively, due to escrow requirements.2019, respectively. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Note 10 — Debt Obligations Credit Facilities and Repurchase Agreements Borrowings under our credit facilities and repurchase agreements are as follows ($ in thousands): | | | | | | | | March 31, 2019 | | December 31, 2018 | | | | Current Maturity | | Extended Maturity | | Note Rate | | Debt Carrying Value (1) | | Collateral Carrying Value | | Wtd. Avg. Note Rate | | Debt Carrying Value (1) | | Collateral Carrying Value | | Wtd. Avg. Note Rate | | Structured Business | | | | | | | | | | | | | | | | | | | | $400 million repurchase facility | | Mar. 2020 | | Mar. 2021 | | L + 1.75% to 3.50% | | $ | 366,582 | | $ | 526,668 | | 4.68 | % | $ | 334,696 | | $ | 467,680 | | 4.75 | % | $150 million repurchase facility | | Mar. 2020 | | Mar. 2023 | | L + 1.95% | | 31,731 | | 40,880 | | 4.51 | % | — | | — | | — | | $100 million repurchase facility | | June 2019 | | June 2020 | | L + 1.75% to 2.00% | | 94,686 | | 132,517 | | 4.33 | % | 70,837 | | 98,597 | | 4.31 | % | $75 million credit facility | | May 2019 | | N/A | | L + 1.75% to 2.50% | | 13,896 | | 21,789 | | 4.30 | % | 10,237 | | 16,889 | | 4.31 | % | $75 million credit facility | | June 2019 | | N/A | | L + 1.90% | | 8,372 | | 10,550 | | 4.46 | % | — | | — | | — | | $50 million credit facility | | April 2020 | | April 2022 | | L + 2.00% | | 14,160 | | 17,700 | | 4.56 | % | 14,159 | | 17,700 | | 4.57 | % | $50 million credit facility | | Sept. 2019 | | Sept. 2021 | | L + 2.50% to 3.25% | | 11,965 | | 15,000 | | 5.06 | % | — | | — | | — | | $35.9 million credit facility | | May 2020 | | Nov. 2020 | | L + 2.30% | | 30,761 | | 44,248 | | 4.86 | % | 30,512 | | 44,100 | | 4.87 | % | $25.5 million credit facility | | Oct. 2019 | | N/A | | L + 2.50% | | 22,090 | | 34,000 | | 5.06 | % | 18,552 | | 34,000 | | 5.07 | % | $25 million working capital facility | | June 2019 | | N/A | | L + 2.25% | | 25,000 | | — | | 4.81 | % | — | | — | | — | | $23.2 million credit facility | | Feb. 2020 | | Feb. 2021 | | L + 2.30% | | 23,105 | | 30,900 | | 4.86 | % | 23,175 | | 30,900 | | 4.87 | % | $20 million credit facility | | Mar. 2020 | | Mar. 2021 | | L + 2.50% | | 19,945 | | 41,650 | | 5.06 | % | 19,912 | | 41,650 | | 5.07 | % | $17.4 million credit facility | | June 2020 | | June 2021 | | L + 2.40% | | 13,023 | | 16,595 | | 4.96 | % | 12,462 | | 15,844 | | 4.97 | % | $8 million credit facility | | Aug. 2021 | | N/A | | L + 2.50% | | 7,951 | | 10,000 | | 5.06 | % | 7,946 | | 10,000 | | 5.07 | % | $3.3 million master security agreement | | Oct. 2020 | | N/A | | 2.96% to 3.42% | | 998 | | — | | 3.19 | % | 1,168 | | — | | 3.19 | % | $2.2 million master security agreement | | Mar. 2021 | | N/A | | 4.60% | | 1,500 | | — | | 4.66 | % | 1,678 | | — | | 4.66 | % | Repurchase facilities - securities (2) | | N/A | | N/A | | L + 1.75% to 3.15% | | 124,013 | | — | | 4.60 | % | 118,112 | | — | | 5.07 | % | Structured Business total | | | | | | | | 809,778 | | 942,497 | | 4.66 | % | 663,446 | | 777,360 | | 4.78 | % | Agency Business | | | | | | | | | | | | | | | | | | | | $750 million ASAP agreement (3) | | N/A | | N/A | | L + 1.05% | | 44,093 | | 44,093 | | 3.54 | % | 104,619 | | 104,619 | | 3.55 | % | $500 million repurchase facility (4) | | Aug. 2019 | | N/A | | L + 1.275% | | 17,455 | | 17,462 | | 3.77 | % | 130,906 | | 130,917 | | 3.78 | % | $150 million credit facility | | Jan. 2020 | | N/A | | L + 1.20% | | 66,743 | | 66,899 | | 3.69 | % | 113,666 | | 113,685 | | 3.80 | % | $150 million credit facility | | July 2019 | | N/A | | L + 1.30% | | 83,837 | | 83,880 | | 3.79 | % | 96,339 | | 96,419 | | 3.80 | % | $100 million credit facility (5) | | June 2019 | | N/A | | L + 1.25% | | 10,589 | | 10,589 | | 3.74 | % | 26,651 | | 26,651 | | 3.75 | % | Agency Business total | | | | | | | | 222,717 | | 222,923 | | 3.71 | % | 472,181 | | 472,291 | | 3.74 | % | Consolidated total | | | | | | | | $ | 1,032,495 | | $ | 1,165,420 | | 4.45 | % | $ | 1,135,627 | | $ | 1,249,651 | | 4.35 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | | | | | | | | | | | | | | Debt | | Collateral | | | | Debt | | Collateral | | | | | | Current | | Extended | | | | | | | | Carrying | | Carrying | | Wtd. Avg. | | Carrying | | Carrying | | Wtd. Avg. | | | | Maturity | | Maturity | | Note Rate | | Value (1) | | Value | | Note Rate | | Value (1) | | Value | | Note Rate | | Structured Business | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $500 million joint repurchase facility | | Mar. 2022 | | N/A | | L + | 1.75 | % | to | 3.50 | % | $ | 300,476 | | $ | 481,126 | | | 3.22 | % | $ | 224,658 | | $ | 339,378 | | 4.06 | % | $400 million repurchase facility | | Dec. 2020 | | Mar. 2023 | | L + | 1.95 | % | | | | | 214,647 | | | 289,961 | | | 2.98 | % | | 218,418 | | | 291,292 | | 3.76 | % | $200 million repurchase facility | | Feb. 2021 | | (2) | | L + | 2.40 | % | | | | | 48,893 | | | 55,682 | | | 3.44 | % | | 40,530 | | | 48,086 | | 4.22 | % | $150 million credit facility (3) | | May 2020 | | May 2023 | | L + | 1.75 | % | to | 2.50 | % | | 25,560 | | | 31,790 | | | 2.78 | % | | 4,570 | | | 7,000 | | 3.56 | % | $128.7 million loan specific credit facilities | | May 2020 to May 2022 | | June 2021 to Dec. 2021 | | L + | 2.10 | % | to | 2.50 | % | | 128,370 | | | 184,212 | | | 3.35 | % | | 128,274 | | | 184,116 | | 4.13 | % | $100 million repurchase facility | | June 2020 | | June 2021 | | L + | 1.75 | % | to | 1.95 | % | | 50,247 | | | 66,486 | | | 2.78 | % | | 45,843 | | | 63,800 | | 3.56 | % | $75 million credit facility | | June 2020 | | June 2023 | | L + | 1.75 | % | | | | | — | | | — | | | — | | | — | | | — | | — | | $50 million credit facility | | April 2020 | | April 2022 | | L + | 2.00 | % | | | | | — | | | — | | | — | | | 14,933 | | | 17,650 | | 3.81 | % | $50 million credit facility | | Oct. 2022 | | Oct. 2023 | | L + | 2.50 | % | | | | | 15,202 | | | 22,817 | | | 3.54 | % | | 12,191 | | | 16,499 | | 4.32 | % | $50 million credit facility | | Sept. 2020 | | Sept. 2021 | | L + | 2.50 | % | to | 3.25 | % | | 5,264 | | | 6,600 | | | 3.54 | % | | 5,254 | | | 6,600 | | 4.32 | % | $25 million credit facility | | June 2022 | | June 2023 | | L + | 2.25 | % | | | | | 19,659 | | | 30,900 | | | 3.29 | % | | 19,651 | | | 28,572 | | 4.07 | % | $25 million working capital facility | | Aug. 2020 | | N/A | | L + | 2.25 | % | | | | | 25,000 | | | — | | | 3.29 | % | | — | | | — | | — | | $2.8 million master security agreements | | Dec. 2022 | | N/A | | | 2.97 | % | to | 4.60 | % | | 2,761 | | | — | | | 4.10 | % | | 3,267 | | | — | | 4.08 | % | Repurchase facilities - securities (4) | | N/A | | N/A | | L + | 1.20 | % | to | 2.75 | % | | 219,655 | | | — | | | 3.10 | % | | 217,105 | | | — | | 3.90 | % | Structured Business total | | | | | | | | | | | | $ | 1,055,734 | | $ | 1,169,574 | | | 3.15 | % | $ | 934,694 | | $ | 1,002,993 | | 3.94 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Agency Business | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $750 million ASAP agreement (5) | | N/A | | N/A | | L + | 1.05 | % | | | | $ | 81,451 | | $ | 81,451 | | | 2.04 | % | $ | 148,725 | | $ | 148,725 | | 2.81 | % | $600 million joint repurchase facility | | Mar. 2021 | | Mar. 2022 | | L + | 1.50 | % | to | 2.00 | % | | 497,692 | | | 655,716 | | | 2.56 | % | | 299,824 | | | 300,446 | | 3.26 | % | $300 million repurchase facility | | Oct. 2020 | | N/A | | L + | 1.15 | % | | | | | 104,261 | | | 104,291 | | | 2.14 | % | | 187,698 | | | 187,742 | | 2.91 | % | $150 million credit facility | | Mar. 2021 | | N/A | | L + | 1.15 | % | | | | | 71,474 | | | 71,667 | | | 2.14 | % | | 89,657 | | | 89,673 | | 2.91 | % | $150 million credit facility | | July 2020 | | N/A | | L + | 1.15 | % | | | | | 35,861 | | | 35,912 | | | 2.14 | % | | 17,690 | | | 17,792 | | 2.91 | % | $100 million credit facility | | June 2020 | | N/A | | L + | 1.15 | % | | | | | — | | | — | | | — | | | — | | | — | | — | | Agency Business total | | | | | | | | | | | | $ | 790,739 | | $ | 949,037 | | | 2.39 | % | $ | 743,594 | | $ | 744,378 | | 3.03 | % | Consolidated total | | | | | | | | | | | | $ | 1,846,473 | | $ | 2,118,611 | | | 2.83 | % | $ | 1,678,288 | | $ | 1,747,371 | | 3.54 | % |
(1) | The debt carrying value for the Structured Business at March 31, 2020 and December 31, 2019 was net of unamortized deferred finance costs of $3.9 million and $2.1 million, respectively. The debt carrying value for the Agency Business at March 31, 2020 and December 31, 2019 was net of unamortized deferred finance costs of $1.4 million and $0.2 million, respectively. |
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 (2) | This repurchase facility includes six-month extension options into perpetuity. |
(3) | In February 2020, the committed amount under the facility was temporarily increased $75.0 million to $150.0 million, which expires on May 29, 2020. |
(4) | These repurchase facilities are subject to margin call provisions associated with changes in interest spreads. As of March 31, 2020 and December 31, 2019, these facilities were collateralized by our CLO bonds retained and consolidated by us with a principal balance of $275.7 million and $234.9 million, respectively, B Piece bonds held-to-maturity with a carrying value of $64.4 million and $68.7 million, respectively, and SFR bonds with a carrying value of $20.0 million at both March 31, 2020 and December 31, 2019. At March 31, 2020, we had posted $54.7 million of cash collateral related to margin calls, which was used to reduce the UPB of the facilities in April 2020. We further reduced this debt in April 2020 to approximately $40.0 million through a debt restructuring and the use of proceeds from our senior notes issued in April 2020. |
(5) | The note rate under this agreement is subject to a LIBOR Floor of 35 basis points. |
Generally, our credit facilities and repurchase agreements have extension options that are at the discretion of the banking institutions in which we have long standing relationships with. These facilities typically renew annually and also include a "wind-down" feature. Joint Repurchase Facility. During the three months ended March 31, 2020, we amended our joint repurchase facility shared between the Structured Business at March 31, 2019 and December 31, 2018 was net of unamortized deferred finance costs of $2.2 million and $2.4 million, respectively. The debt carrying value for the Agency Business atto increase the total committed amount by $400.0 million to $1.10 billion, of which $600.0 million matures in March 31, 20192021 and December 31, 2018 was net of unamortized deferred finance costs of $0.2$500.0 million and $0.1 million, respectively. (2) As ofmatures in March 31, 2019 and December 31, 2018, this facility was collateralized by CLO bonds retained by us2022, with each maturity eligible for a principal balance for both periods of $114.2 million, B Piece bonds with a carrying value of $76.0 million and $76.4 million, respectively, and SFR bonds with a carrying value of $10.0 million at March 31, 2019.
(3)one-year extension option. The note rate under this agreement is subject to a LIBOR Floor of 35 basis points.
(4) Thisamended facility includes an accordion feature$800.0 million sublimit for Private Label loans, which reduces to increase the committed amount to $750.0$500.0 million which is available through the maturity date.
(5) The committed amount underin March 2021 unless that portion of the facility was temporarily increased $150.0 million to $250.0 million, which expired in January 2019.is extended through March 2022.
Structured Business At March 31, 20192020 and December 31, 2018,2019, the weighted average interest rate for the credit facilities and repurchase agreements of our Structured Business, including certain fees and costs, such as structuring, commitment, non-use and warehousing fees, was 4.95%3.55% and 5.07%4.39%, respectively. The leverage on our loan and investment portfolio financed through our credit facilities and repurchase agreements, excluding the securities repurchase facilities,
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
working capital facility and the master security agreements used to finance leasehold and capital expenditure improvements at our corporate office, was 70%69% and 71% at both March 31, 20192020 and December 31, 2018.2019, respectively. In March 2019,2020, we amended oura $300.0 million repurchase agreement, permanently increasing the committed amount by $100.0 million to $400.0 million. Agency Business In March 2019, we entered into a $150.0 million repurchase agreement that bears interest at a rate of 195 basis points over LIBOR and matures in March 2020, with three one-year extension options, which is used to finance loans. In April 2019, we amended our $50.0$500.0 million credit facility extending the maturity date to April 2020, with two one-year extensions, subject to certain conditions.
Agency Business
In January 2019, we amended our $150.0 million creditrepurchase facility reducing the interest rate 10 basis pointscommitted amount to 120 basis points over LIBOR and extending the maturity to January 2020.$300.0 million.
Collateralized Loan Obligations (“CLOs”) We account for CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary beneficiary and are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to us. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Borrowings and the corresponding collateral under our CLOs are as follows ($ in thousands): | | | | Collateral (3) | | | | Debt | | Loans | | Cash | | March 31, 2019 | | Face Value | | Carrying Value (1) | | Wtd. Avg. Rate (2) | | UPB | | Carrying Value | | Restricted Cash (4) | | | | | | | | | | | | | | | | CLO X | | $ | 441,000 | | $ | 436,631 | | 4.00 | % | $ | 472,235 | | $ | 470,506 | | $ | 81,825 | | CLO IX | | 356,400 | | 352,551 | | 3.91 | % | 456,385 | | 455,209 | | 3,186 | | CLO VIII | | 282,874 | | 280,161 | | 3.86 | % | 324,434 | | 323,360 | | 40,566 | | CLO VII | | 279,000 | | 276,822 | | 4.55 | % | 304,071 | | 303,334 | | 53,448 | | CLO VI | | 250,250 | | 248,805 | | 5.04 | % | 265,603 | | 264,747 | | 54,940 | | Total CLOs | | $ | 1,609,524 | | $ | 1,594,970 | | 4.21 | % | $ | 1,822,728 | | $ | 1,817,156 | | $ | 233,965 | | | | | | | | | | | | | | | | December 31, 2018 | | | | | | | | | | | | | | CLO X | | $ | 441,000 | | $ | 436,384 | | 4.01 | % | $ | 539,007 | | $ | 536,869 | | $ | 20,993 | | CLO IX | | 356,400 | | 352,244 | | 3.92 | % | 440,906 | | 439,691 | | 20,094 | | CLO VIII | | 282,874 | | 279,857 | | 3.87 | % | 354,713 | | 353,574 | | 10,287 | | CLO VII | | 279,000 | | 276,527 | | 4.56 | % | 325,057 | | 324,195 | | 30,725 | | CLO VI | | 250,250 | | 248,536 | | 5.05 | % | 279,348 | | 278,364 | | 41,404 | | Total CLOs | | $ | 1,609,524 | | $ | 1,593,548 | | 4.22 | % | $ | 1,939,031 | | $ | 1,932,693 | | $ | 123,503 | |
| | | | | | | | | | | | | | | | | | | | | | Collateral (3) | | | Debt | | Loans | | Cash | | | | | Carrying | | Wtd. Avg. | | | | Carrying | | Restricted | March 31, 2020 | | Face Value | | Value (1) | | Rate (2) | | UPB | | Value | | Cash (4) | CLO XIII | | $ | 668,000 | | $ | 662,918 | | 2.44 | % | $ | 665,381 | | $ | 662,287 | | $ | 100,777 | CLO XII | | | 534,193 | | | 529,748 | | 2.52 | % | | 613,317 | | | 610,760 | | | — | CLO XI | | | 533,000 | | | 528,981 | | 2.47 | % | | 640,272 | | | 637,633 | | | 2,208 | CLO X | | | 441,000 | | | 437,652 | | 2.48 | % | | 535,613 | | | 533,588 | | | 3,656 | CLO IX | | | 356,400 | | | 353,797 | | 2.39 | % | | 410,558 | | | 409,403 | | | 60,854 | Total CLOs | | $ | 2,532,593 | | $ | 2,513,096 | | 2.46 | % | $ | 2,865,141 | | $ | 2,853,671 | | $ | 167,495 |
| | | | | | | | | | | | | | | | | | | | | | Collateral (3) | | | Debt | | Loans | | Cash | | | | | Carrying | | Wtd. Avg. | | | | Carrying | | Restricted | December 31, 2019 | | Face Value | | Value (1) | | Rate (2) | | UPB | | Value | | Cash (4) | CLO XII | | $ | 534,193 | | $ | 529,448 | | 3.30 | % | $ | 596,366 | | $ | 593,652 | | $ | 17,800 | CLO XI | | | 533,000 | | | 528,690 | | 3.25 | % | | 624,443 | | | 621,508 | | | 15,550 | CLO X | | | 441,000 | | | 437,391 | | 3.26 | % | | 509,887 | | | 507,854 | | | 37,287 | CLO IX | | | 356,400 | | | 353,473 | | 3.17 | % | | 407,696 | | | 406,463 | | | 47,230 | CLO VIII | | | 282,874 | | | 281,119 | | 3.12 | % | | 359,186 | | | 357,914 | | | 544 | Total CLOs | | $ | 2,147,467 | | $ | 2,130,121 | | 3.23 | % | $ | 2,497,578 | | $ | 2,487,391 | | $ | 118,411 |
(1) | Debt carrying value is net of $19.5 million and $17.3 million of deferred financing fees at March 31, 2020 and December 31, 2019, respectively. |
(2) | At March 31, 2020 and December 31, 2019, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 2.87% and 3.63%, respectively. |
(3) | As of March 31, 2020 and December 31, 2019, there was 0 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 totaling $89.1 million and $58.6 million at March 31, 2020 and December 31, 2019, respectively. |
CLO XIII. In March 2020, we completed CLO XIII, issuing 8 tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $738.0 million. Of the total CLO notes issued, $668.0 million were investment grade notes issued to third party investors and $70.0 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 is net of $14.6$640.5 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio. The financing has a three-year replacement period that allows the principal proceeds and $16.0sale 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 $159.5 million for the purpose of acquiring additional loan obligations for a period of up to 180 days from the CLO closing date (a majority of which was subsequently utilized ) which will result in the issuer owning loan obligations with a face value of $800.0 million, representing leverage of 84%. We retained a residual interest in the portfolio with a notional amount of $132.0 million, including the $70.0 million below investment grade notes. The notes sold to third parties had an initial weighted average interest rate of 1.41% plus one-month LIBOR and interest payments on the notes are payable monthly. CLO VIII. In March 2020, we completed the unwind of CLO VIII, redeeming $282.9 million of outstanding notes, which were repaid primarily from the refinancing of the remaining assets primarily within CLO XIII, as well as with cash held Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 by CLO VIII, and expensed $1.5 million of deferred financing fees at March 31, 2019 and December 31, 2018, respectively.into loss on extinguishment of debt on the consolidated statements of operations. (2) At both March 31, 2019 and December 31, 2018, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 4.73%.
(3) As of March 31, 2019 and December 31, 2018, 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.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Luxembourg Debt Fund In 2017, we formed a $100.0 millionOur Luxembourg commercial real estate debt fund (“Debt Fund”) and issued $70.0 million of floating rate notes to third-party investors which bear an initial interest rate of 4.15% over LIBOR. The notes mature in 2025 and we retained a $30.0 million equity interest in the Debt Fund. The Debt Fund iswas a VIE for which we arewere the primary beneficiary and iswas consolidated in our financial statements. TheAs previously planned, in April 2020 we completed the unwind of the Debt Fund is secured by a portfolio of loan obligations and cashredeemed all the outstanding notes with a face valueportion of $100.0 million, which includes first mortgage bridge loans, senior and subordinate participation interests in first mortgage bridge loans and participation interests in mezzanine loans. The Debt Fund allows, for a period of three years, principalthe proceeds from portfolio assets to be reinvestedour senior unsecured notes issued in qualifying replacement assets, subject to certain conditions.March 2020 described below.
Borrowings and the corresponding collateral under our Debt Fund arewere as follows ($ in thousands): | | Debt | | Collateral (3) | | | | | | | | | | Loans | | Cash | | Period | | Face Value | | Carrying Value (1) | | Wtd. Avg. Rate (2) | | UPB | | Carrying Value | | Restricted Cash (4) | | | | | | | | | | | | | | | | March 31, 2019 | | $ | 70,000 | | $ | 68,304 | | 6.74 | % | $ | 76,681 | | $ | 76,429 | | $ | 23,319 | | | | | | | | | | | | | | | | December 31, 2018 | | $ | 70,000 | | $ | 68,183 | | 6.75 | % | $ | 69,186 | | $ | 68,924 | | $ | 30,814 | |
| | | | | | | | | | | | | | | | | | | | | | | Collateral (3) | | | Debt | | Loans | | Cash | | | Face | | Carrying | | Wtd. Avg. | | | | Carrying | | Restricted | Period | | Value | | Value (1) | | Rate (2) | | UPB | | Value | | Cash (4) | March 31, 2020 | | $ | 70,000 | | $ | 68,717 | | | 5.21 | % | $ | 57,795 | | $ | 57,586 | | $ | 42,205 |
| | | | | | | | | | | | | | | | | | | December 31, 2019 | | $ | 70,000 | | $ | 68,629 | | | 5.99 | % | $ | 70,755 | | $ | 68,629 | | $ | 29,245 |
(1) | Debt carrying value is net of $1.3 million and $1.4 million of deferred financing fees at March 31, 2020 and December 31, 2019, respectively. |
(2) | At March 31, 2020 and December 31, 2019, the aggregate weighted average note rate, including certain fees and costs, was 6.52% and 7.17%, respectively. |
(3) | At both March 31, 2020 and December 31, 2019, there was 0 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 payments, delayed fundings and expenses. |
(1) Debt
Senior Unsecured Notes In March 2020, we issued $275.0 million aggregate principal amount of 4.50% senior unsecured notes due in March 2027 (the "4.50% Notes") in a private placement. We received proceeds of $271.8 million from the issuance, after deducting the underwriting discount and other offering expenses. We used a significant portion of the net proceeds to repay secured indebtedness. The 4.50% Notes are unsecured and can be redeemed by us at any time prior to December 15, 2026, 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 4.50% Notes on or after December 15, 2026, at a redemption price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest. The interest is paid semiannually in March and September starting in September 2020. At March 31, 2020, the debt carrying value isof the 4.50% Notes was $271.8 million, net of $1.7 million and $1.8$3.2 million of deferred financing fees, at March 31, 2019 and December 31, 2018, respectively. (2) At March 31, 2019 and December 31, 2018, the aggregate weighted average note rate, including certain fees and costs, was 7.54%4.69%.
In October 2019, we issued $110.0 million aggregate principal amount of 4.75% senior unsecured notes due in October 2024 (the "4.75% Notes") in a private placement. We received proceeds of $108.2 million from the issuances, after deducting the underwriting discount and 7.49%, respectively. (3)other offering expenses. We used the net proceeds to make investments and for general corporate purposes. The 4.75% Notes are unsecured and can be redeemed by us at any time prior to October 15, 2024, 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 4.75% Notes on or after October 15, 2024, at a redemption price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest. The interest is paid semiannually in April and October starting in April 2020. At both March 31, 20192020 and December 31, 2018, there2019, the debt carrying value of the
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 4.75% Notes was no collateral at risk$108.4 million, net of default or deemed to be a “credit risk.”$1.6 million of deferred financing fees, and the weighted average note rate, including certain fees and costs, was 5.23%. (4) Represents restricted cash held for reinvestment. Excludes restricted cash related to interest payments, delayed fundings and expenses.
Senior Unsecured Notes
In March 2019, we issued $90.0 million aggregate principal amount of 5.75% senior unsecured notes due in April 2024 (the “5.75% Notes”"5.75% Notes") in a private placement. We received proceeds of $88.2 million from the issuances, after deducting the underwriting discount and other offering expenses. We used the net proceeds to make investments and for general corporate purposes. The 5.75% Notes are unsecured and can be redeemed by us at any time prior to April 1, 2024, at a redemption price equal to 100% of the aggregate principal amount, plus a “make-whole”"make-whole" premium and accrued and unpaid interest. We have the right to redeem the 5.75% Notes on or after April 1, 2024, at a redemption price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest. The interest is paid semiannually in April and October starting in October 2019.October. At March 31, 2020 and December 31, 2019, the debt carrying value of the 5.75% Notes waswere $88.5 million and $88.4 million, which wasrespectively, net of $1.5 million and $1.6 million, respectively, of deferred financing fees. At March 31, 2019,fees, and the weighted average note rate, was 6.11%, including certain fees and costs.costs, was 6.18% at both March 31, 2020 and December 31, 2019. In March 2018, we issued $100.0 million aggregate principal amount of 5.625% senior unsecured notes due in May 2023 (the “Initial Notes”"Initial Notes") in a private placement, and, in May 2018, we issued an additional $25.0 million (the “Reopened Notes”"Reopened Notes" and, together with the Initial Notes, the “5.625%"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”)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”"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. At March 31, 20192020 and December 31, 2018,2019, the debt carrying value of the 5.625% Notes was $122.6were $123.2 million and $122.5$123.1 million, respectively, which was net of $2.4$1.8 million and $2.5$1.9 million, respectively, of deferred financing fees. At both March 31, 2019fees, and December 31, 2018, the weighted average note rate, was 6.08%, including certain fees and costs.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
costs, was 6.08% at both March 31, 20192020 and December 31, 2019. Subsequent Event In April 2020, we issued $40.5 million aggregate principal amount of 8.00% senior unsecured notes due in 2023 in a private offering, generating net proceeds of $39.8 million. A significant portion of the net proceeds were used to repay secured indebtedness that financed our securities with margin call exposure. Convertible Senior Unsecured Notes In July 2018,2019, we issued $264.5$264.0 million in aggregate principal amount of 5.25%4.75% convertible senior notes (the “5.25%“4.75% Convertible Notes”) through two separatea private placement offerings,offering, which includedincludes the exercised purchaser’s total over-allotment option of $34.5$34.0 million. The 5.25%4.75% Convertible Notes pay interest semiannually in arrears and are scheduled to mature in July 2021,November 2022, unless earlier converted or repurchased by the holders pursuant to their terms. The initial conversion rates ofrate and the two offerings ($115.0 million issued on July 3, 2018 and $149.5 million issued on July 20, 2018) were 86.9943 shares and 77.8331conversion rate at December 31, 2019 was 56.1695 shares of common stock per $1,000 of principal respectively, representing a conversion price of $11.50 per share and $12.85$17.80 per share of common stock, respectively. At March 31, 2019, the conversion rates of the two offerings ($115.0 million and $149.5 million) were 88.5037 shares and 79.1835 shares of common stock per $1,000 of principal, respectively, representing a conversion price of $11.30 per share and $12.63 per share of common stock, respectively. stock. We received proceeds totaling $256.1$256.5 million, from the offerings of our 5.25% Convertible Notes, net of the underwriter’s discount and fees, which is being amortized through interest expense over the life of such notes. We used the net proceeds from the issuance primarily for the initial exchange of $127.6$228.7 million of our 5.375%5.25% convertible senior unsecured notes (the “5.375% Convertible Notes”) and $99.8 million of our 6.50% convertible senior unsecured notes (the “6.50% Convertible Notes”) for a combination of $219.8$233.1 million in cash (which includes accrued interest) and 6,820,1964,478,315 shares of our common stock. The remaining net proceeds were used for general corporate purposes. During 2019, we recorded a loss on extinguishment of debt of $7.3 million in connection with this exchange, which included an inducement charge of $1.1 Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 million. As of March 31, 2020, the 4.75% Convertible Notes had conversion rates of 56.1695 shares, common stock per $1,000 of principal, which represented a conversion price of $17.80 per share of common stock. In 2018, we completed a similar exchange where we used the net proceeds from two separate private placements of our 5.25% convertible senior notes (the "5.25% Convertible Notes") to initially exchange portions of our 5.375% convertible senior notes (the "5.375% Convertible Notes") and 6.50% convertible senior notes (the "6.50% Convertible Notes"). At March 31, 2019,2020, there were $1.2$0.5 million, $14.7 million and $0.1$0.2 million aggregate principal amountsamount remaining of our 5.375%5.25% Convertible Notes issued on July 3, 2018, 5.25% Convertible Notes issued on July 20, 2018 and 6.50%5.375% Convertible Notes, respectively. The initial conversion rates of the 5.25% Convertible Notes issued on July 3, 2018, 5.25% Convertible Notes issued on July 20, 2018 and 5.375% Convertible Notes and 6.50% Convertible Notes were 107.712286.9943 shares, 77.8331 shares and 119.3033107.7122 shares, respectively, of common stock per $1,000 of principal, which represented a conversion price of $9.28$11.50 per share, $12.85 per share and $8.38$9.28 per share of common stock, respectively. At March 31, 2019,2020, the 5.375%5.25% Convertible Notes issued on July 3, 2018, 5.25% Convertible Notes issued on July 20, 2018 and 6.50%5.375% Convertible Notes had conversion rates of 112.162189.6066 shares, 80.1703 shares and 127.2095115.5849 shares, respectively, of common stock per $1,000 of principal, which represented a conversion price of $8.92$11.16 per share, $12.47 per share and $7.86$8.65 per share of common stock, respectively. The 5.375%5.25% Convertible Notes and 6.50%5.375% Convertible Notes pay interest semiannually in arrears and have scheduled maturity dates in July 2021 and November 2020, and October 2019, respectively, unless earlier converted or repurchased by the holders pursuant to their terms. Since the closing stock price of our common stock on March 31, 2019 exceeded the conversion prices of our convertible notes, the if-converted value of the convertible notes exceeded their principal amounts by $21.7 million at March 31, 2019.
Our convertible senior unsecured notes are not redeemable by us prior to their maturities and are convertible by the holder 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 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, plus accrued and unpaid interest, if we undergo a fundamental change specified in the agreements. We intend to settle the principal balance of our convertible debt in cash and have not assumed share settlement of the principal balance for purposes of computing EPS.earnings per share (“EPS”). At the time of issuance, there was no precedent or policy that would indicate that we would settle the principal in shares or the conversion spread in cash. 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 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 accreted back to the notes principal amount through interest expense over the term of the notes, which was 2.252.51 years and 2.492.67 years at March 31, 20192020 and December 31, 2018,2019, respectively, on a weighted average basis.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
The UPB, unamortized discount and net carrying amount of the liability and equity components of our convertible notes were as follows (in thousands): | | Liability | | Equity | | | | Component | | Component | | Period | | UPB | | Unamortized Debt Discount | | Unamortized Deferred Financing Fees | | Net Carrying Value | | Net Carrying Value | | March 31, 2019 | | $ | 265,829 | | $ | 7,328 | | $ | 6,272 | | $ | 252,229 | | $ | 9,436 | | | | | | | | | | | | | | December 31, 2018 | | $ | 270,057 | | $ | 8,229 | | $ | 7,060 | | $ | 254,768 | | $ | 9,436 | |
| | | | | | | | | | | | | | | | | | Liability | | Equity | | | Component | | Component | | | | | Unamortized Debt | | Unamortized Deferred | | Net Carrying | | Net Carrying | Period | | UPB | | Discount | | Financing Fees | | Value | | Value | March 31, 2020 | | $ | 279,398 | | $ | 8,045 | | $ | 6,664 | | $ | 264,689 | | $ | 9,962 | | | | | | | | | | | | | | | | | December 31, 2019 | | $ | 300,914 | | $ | 9,235 | | $ | 7,527 | | $ | 284,152 | | $ | 9,962 |
During the three months ended March 31, 2019,2020, we incurred interest expense on the notes totaling $5.2 million, of which $3.5$3.4 million, $0.8$0.9 million and $0.9 million related to the cash coupon, the debt discount and amortization of the deferred Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 financing fees, and of the debt discount, respectively. During the three months ended March 31, 2018,2019, we incurred total interest expense on the notes of $4.9$5.2 million, of which $3.6$3.5 million, $0.7$0.9 million and $0.6$0.8 million related to the cash coupon, the debt discount and 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 was 7.45% per annum6.75% and 6.80% at both March 31, 20192020 and December 31, 2018.2019, respectively. Junior Subordinated Notes The carrying valuevalues of borrowings under our junior subordinated notes were $140.4$141.1 million and $140.3$140.9 million at March 31, 20192020 and December 31, 2018,2019, respectively, which is net of a deferred amount of $11.9$11.3 million and $12.0$11.4 million, respectively, (which is amortized into interest expense over the life of the notes) and deferred financing fees of $2.0$1.9 million and $2.1$2.0 million, respectively. 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 LIBOR. The current weighted average note rate was 5.45%4.28% and 5.66%4.75% at March 31, 20192020 and December 31, 2018,2019, respectively. Including certain fees and costs, the weighted average note rate was 5.54%4.37% and 5.75%4.83% at March 31, 20192020 and December 31, 2018,2019, respectively. Debt Covenants Credit Facilities, Repurchase Agreements and Repurchase Agreements. Unsecured Debt.The credit facilities, and repurchase agreements and unsecured debt (senior and convertible notes) contain various financial covenants, including, but not limited to, minimum liquidity requirements, minimum net worth 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 March 31, 2019.2020. 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 of our CLOs, all cash flows from 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 March 31, 2019,2020, as well as on the most recent determination dates in April 2019.2020. 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. Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 20192020 A summary of ourOur CLO compliance tests as of the most recent determination dates in April 2019 is2020 are as follows:
| | | | | | | | | | | | | Cash Flow Triggers | | CLO VI | | CLO VII | | CLO VIII | | CLO IX | | CLO X | | | CLO IX | | CLO X | | CLO XI | | CLO XII | | CLO XIII | | Overcollateralization (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current | | 129.87 | % | 129.03 | % | 129.03 | % | 134.68 | % | 126.98 | % | | 134.68 | % | 126.98 | % | 121.95 | % | 118.87 | % | 119.76 | % | Limit | | 128.87 | % | 128.03 | % | 128.03 | % | 133.68 | % | 125.98 | % | | 133.68 | % | 125.98 | % | 120.95 | % | 117.87 | % | 118.76 | % | Pass / Fail | | Pass | | Pass | | Pass | | Pass | | Pass | | | Pass | | Pass | | Pass | | Pass | | Pass | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest Coverage (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current | | 169.56 | % | 197.42 | % | 246.73 | % | 243.99 | % | 196.57 | % | | 361.00 | % | 372.24 | % | 338.30 | % | 289.89 | % | 228.91 | % | Limit | | 120.00 | % | 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 | | 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. |
(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.
Our CLO overcollateralization ratios as of the determination dates subsequent to each quarter are as follows: Determination (1) | | CLO VI | | CLO VII | | CLO VIII | | CLO IX | | CLO X | | April 2019 | | 129.87 | % | 129.03 | % | 129.03 | % | 134.68 | % | 126.98 | % | January 2019 | | 129.87 | % | 129.03 | % | 129.03 | % | 134.68 | % | 126.98 | % | October 2018 | | 129.87 | % | 129.03 | % | 129.03 | % | 134.68 | % | 126.98 | % | July 2018 | | 129.87 | % | 129.03 | % | 129.03 | % | 134.68 | % | 126.98 | % | April 2018 | | 129.87 | % | 129.03 | % | 129.03 | % | 134.69 | % | — | |
| | | | | | | | | | | | Determination (1) | | CLO IX | | CLO X | | CLO XI | | CLO XII | | CLO XIII | | April 2020 | | 134.68 | % | 126.98 | % | 121.95 | % | 118.87 | % | 119.76 | % | January 2020 | | 134.68 | % | 126.98 | % | 121.95 | % | 118.87 | % | — | | October 2019 | | 134.68 | % | 126.98 | % | 121.95 | % | — | | — | | July 2019 | | 134.68 | % | 126.98 | % | 121.95 | % | — | | — | | April 2019 | | 134.69 | % | 126.98 | % | — | | — | | — | |
(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. |
(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.
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. NoNaN 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. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Note 11 — Allowance for Loss-Sharing Obligations Our allowance for loss-sharing obligations related to the Fannie Mae DUS program is as follows (in thousands): | | Three Months Ended March 31, | | | | 2019 | | 2018 | | Beginning balance | | $ | 34,298 | | $ | 30,511 | | Provisions for loss sharing | | 879 | | 1,205 | | Provisions reversal for loan repayments | | (425 | ) | (732 | ) | (Charge-offs) recoveries, net | | (234 | ) | 113 | | Ending balance | | $ | 34,518 | | $ | 31,097 | |
| | | | | | | | | | Three Months Ended March 31, | | | | 2020 | | 2019 | | Beginning balance | | $ | 34,648 | | $ | 34,298 | | Impact of adopting CECL - January 1, 2020 | | | 14,406 | | | — | | Provisions for loss sharing | | | 21,896 | | | 879 | | Provisions reversal for loan repayments | | | (358) | | | (425) | | Recoveries (charge-offs), net | | | 160 | | | (234) | | Ending balance | | $ | 70,752 | | $ | 34,518 | |
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
When a loan is sold under the Fannie Mae DUS program, we undertake an obligation to partially guarantee the performance of the loan. A liability is recognized for the fair value of the guarantee obligation undertaken for the non-contingent aspect of the guarantee and is removed only upon either the expiration or settlement of the guarantee. At March 31, 2020 and 2019, guarantee obligations of $32.4 million and $31.5 million, respectively, were included in the allowance for loss-sharing obligations. In addition to and separately from the fair value of the guarantee, we estimate our allowance for loss-sharing under CECL over the contractual period in which we are exposed to credit risk. The current expected loss related to loss-sharing was based on a collective pooling basis with similar risk characteristics, a reasonable and supportable forecast and a reversion period based on our average historical losses through the remaining contractual term of the portfolio. The increase in the provision for credit losses during the three months ended March 31, 2020 of $21.9 million, compared to the January 1, 2020 cumulative-effect adjustment upon adoption of CECL of $14.4 million, is primarily attributed to the significant adverse change in the economic outlook due to the COVID-19 pandemic. 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 March 31, 20192020 and December 31, 2018,2019, we had outstanding advances of $0.1$0.4 million and $0.5 million, respectively, which were netted against the allowance for loss-sharing obligations. At both March 31, 2019 and December 31, 2018,2020, our allowance for loss-sharing obligations, associated with expected losses under CECL was $38.4 million and represented 0.25%0.26% of the Fannie Mae servicing portfolio. At March 31, 20192020 and December 31, 2018,2019, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was $2.49$2.76 billion and $2.46$2.73 billion, respectively. The maximum quantifiable liability is not representative of the actual loss we would incur. We would be liable for this amount only if all of the loans we service for Fannie Mae, for which we retain some risk of loss, were to default and all of the collateral underlying these loans was determined to be without value at the time of settlement. Note 12 — Derivative Financial Instruments A summary of our non-qualifyingWe enter into derivative financial instruments heldto manage exposures that arise from business activities resulting in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. We do not use these derivatives for speculative purposes, but are instead using them to manage our exposure to interest rate risk.
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Agency Business is as follows ($ in thousands): | | March 31, 2019 | | | | | | | | | | Fair Value | | Derivative | | Count | | Notional Value | | Balance Sheet Location | | Derivative Assets | | Derivative Liabilities | | | | | | | | | | | | | | Rate Lock Commitments | | 4 | | $ | 19,211 | | Other Assets/ Other Liabilities | | $ | 400 | | $ | (6 | ) | Forward Sale Commitments | | 50 | | 242,134 | | Other Assets/ Other Liabilities | | 2,668 | | (70 | ) | | | | | $ | 261,345 | | | | $ | 3,068 | | $ | (76 | ) |
| | December 31, 2018 | | Rate Lock Commitments | | 4 | | $ | 18,161 | | Other Assets/ Other Liabilities | | $ | 324 | | $ | (95 | ) | Forward Sale Commitments | | 90 | | 491,125 | | Other Assets/ Other Liabilities | | 5,789 | | (637 | ) | | | | | $ | 509,286 | | | | $ | 6,113 | | $ | (732 | ) |
Rate Lock and Forward Sale Commitments.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”"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 under the GSE programs, we enter into a forward sale commitment with the investor simultaneoussimultaneously 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 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.operations. 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.operations. During the three months ended March 31, 20192020 and 2018,2019, we recorded a net gain of $8.2 million and a net loss of $2.5 million and net gains of $2.6 million, respectively, from changes in the fair value of these derivatives in other income,loss on derivative instruments, net and $14.2$21.9 million and $19.6$14.2 million, respectively, of income from MSRs. See Note 13 for details. Interest Rate Swap Futures. We enter into over-the-counter interest rate swap futures (“Swap Futures”) to hedge our exposure to changes in interest rates inherent in (1) our Structured Business SFR loans from the time the loans are originated until the time they can be financed with match term fixed rate securitized debt, and (2) our held-for-sale Agency Business Private Label loans from the time the loans are rate locked until sale and securitization. The Swap Futures do not meet the criteria for hedge accounting, typically have a three-month maturity and are tied to the five-year and ten-year swap rates. Our Swap Futures are cleared by a central clearing house and variation margin payments, made in cash, are treated as a legal settlement of the derivative itself as opposed to a pledge of collateral. During the three months ended March 31, 2020, we recorded realized losses of $2.6 million and unrealized losses of $0.4 million to our Structured Business and realized losses of $46.0 million and unrealized losses of $9.8 million to our Agency Business related to our Swap Futures. The realized and unrealized gains and losses are recorded in loss on derivative instruments, net on our consolidated statements of operations. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 20192020 A summary of our non-qualifying derivative financial instruments is as follows ($ in thousands): | | | | | | | | | | | | | | | | | March 31, 2020 | | | | | | | | | | | Fair Value | | | | | | Notional | | Balance Sheet | | Derivative | | Derivative | | Derivative | | Count | | Value | | Location | | Assets | | Liabilities | | Agency Business | | | | | | | | | | | | | | | Rate Lock Commitments | | 10 | | $ | 99,893 | | Other Assets/Other Liabilities | | $ | 2,069 | | $ | (4,808) | | Forward Sale Commitments | | 59 | | | 395,103 | | Other Assets/Other Liabilities | | | 10,614 | | | (305) | | Swap Futures | | 6,307 | | | 630,700 | | | | | — | | | — | | | | | | $ | 1,125,696 | | | | $ | 12,683 | | $ | (5,113) | | | | | | | | | | | | | | | | | Structured Business | | | | | | | | | | | | | | | Swap Futures | | 345 | | $ | 34,500 | | | | | — | | | — | |
| | | | | | | | | | | | | | | | December 31, 2019 | Agency Business | | | | | | | | | | | | | | Rate Lock Commitments | | 5 | | $ | 37,657 | | Other Assets/Other Liabilities | | $ | 1,066 | | $ | (202) | Forward Sale Commitments | | 79 | | | 483,576 | | Other Assets/Other Liabilities | | | 369 | | | (2,895) | Swap Futures | | 3,274 | | | 327,400 | | | | | — | | | — | | | | | $ | 848,633 | | | | $ | 1,435 | | $ | (3,097) | | | | | | | | | | | | | | | Structured Business | | | | | | | | | | | | | | Swap Futures | | 271 | | $ | 27,100 | | | | | — | | | — |
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Note 13 — 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 (in thousands): | | March 31, 2019 | | December 31, 2018 | | | | | Principal / Notional Amount | | Carrying Value | | Estimated Fair Value | | Principal / Notional Amount | | Carrying Value | | Estimated Fair Value | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | | | | Principal / | | Carrying | | Estimated | | Principal / | | Carrying | | Estimated | | | | Notional Amount | | Value | | Fair Value | | Notional Amount | | Value | | Fair Value | Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans and investments, net | | $ | 3,406,776 | | $ | 3,323,778 | | $ | 3,356,603 | | $ | 3,283,342 | | $ | 3,200,145 | | $ | 3,249,499 | | | $ | 4,800,544 | | $ | 4,638,004 | | $ | 4,679,039 | | $ | 4,279,611 | | $ | 4,189,960 | | $ | 4,228,071 | Loans held-for-sale, net | | 222,923 | | 225,878 | | 229,947 | | 472,964 | | 481,664 | | 489,546 | | | | 978,736 | | | 991,696 | | | 1,001,224 | | | 847,126 | | | 861,360 | | | 876,975 | Capitalized mortgage servicing rights, net | | n/a | | 277,639 | | 327,793 | | n/a | | 273,770 | | 322,463 | | | | n/a | | | 288,954 | | | 320,052 | | | n/a | | | 286,420 | | | 328,995 | Securities held-to-maturity, net | | 111,994 | | 86,036 | | 89,837 | | 103,515 | | 76,363 | | 79,097 | | | | 106,484 | | | 84,406 | | | 81,887 | | | 111,028 | | | 88,699 | | | 91,738 | Derivative financial instruments | | 205,495 | | 3,068 | | 3,068 | | 400,661 | | 6,113 | | 6,113 | | | | 341,180 | | | 12,683 | | | 12,683 | | | 173,532 | | | 1,435 | | | 1,435 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit and repurchase facilities | | $ | 1,034,934 | | $ | 1,032,495 | | $ | 1,032,111 | | $ | 1,138,135 | | $ | 1,135,627 | | $ | 1,135,774 | | | $ | 1,851,758 | | $ | 1,846,473 | | $ | 1,848,149 | | $ | 1,681,146 | | $ | 1,678,288 | | $ | 1,677,658 | Collateralized loan obligations | | 1,609,524 | | 1,594,970 | | 1,607,481 | | 1,609,524 | | 1,593,548 | | 1,588,989 | | | | 2,532,593 | | | 2,513,096 | | | 2,260,964 | | | 2,147,467 | | | 2,130,121 | | | 2,147,944 | Debt fund | | 70,000 | | 68,304 | | 70,155 | | 70,000 | | 68,183 | | 70,154 | | | | 70,000 | | | 68,717 | | | 70,115 | | | 70,000 | | | 68,629 | | | 70,138 | Senior unsecured notes | | 215,000 | | 211,001 | | 214,438 | | 125,000 | | 122,484 | | 123,750 | | | | 600,000 | | | 591,854 | | | 514,100 | | | 325,000 | | | 319,799 | | | 331,225 | Convertible senior unsecured notes, net | | 265,829 | | 252,229 | | 289,382 | | 270,057 | | 254,768 | | 267,324 | | | | 279,398 | | | 264,689 | | | 246,200 | | | 300,914 | | | 284,152 | | | 310,778 | Junior subordinated notes | | 154,336 | | 140,434 | | 96,328 | | 154,336 | | 140,259 | | 95,873 | | | | 154,336 | | | 141,128 | | | 98,143 | | | 154,336 | | | 140,949 | | | 97,668 | Derivative financial instruments | | 55,850 | | 76 | | 76 | | 108,625 | | 732 | | 732 | | | | 153,816 | | | 5,113 | | | 5,113 | | | 347,701 | | | 3,097 | | | 3,097 |
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—Inputs are unadjusted and quoted prices exist in active markets for identical assets or liabilities, such as government, agency and equity securities. Level 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—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. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 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. 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.quality (Level 3). 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 plans and other factors. ARBOR REALTY TRUST, INC. AND SUBSIDIARIESfactors (Level 3).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Loans held-for-sale, net. Consists of originated loans that are generally expected to be transferred or sold within 60 days to 180 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). Capitalized mortgage servicing rights, net. Fair values are estimated using Level 3 inputs based on discounted future net cash flow methodology.methodology (Level 3). 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. 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.conditions (Level 3). 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.quality (Level 3). 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 and junior subordinated notes. 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.spreads (Level 3). Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Senior unsecured notes. Fair values are estimated at Level 1 when current market quotes received from active markets are available.when available (Level 1). If quotes from active markets are unavailable, then the fair values are estimated at Level 2 utilizing current market quotes received from inactive markets.markets (Level 2). 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 SUBSIDIARIESmarkets (Level 2).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
We measure certain financial assets and financial liabilities at fair value on a recurring basis. The fair values of these financial assets and liabilities were determined using the following input levels as of March 31, 20192020 (in thousands): | | | | | | Fair Value Measurements Using Fair Value Hierarchy | | | | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using Fair | | | | Carrying | | | | | Value Hierarchy | | | | Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 3,068 | | $ | 3,068 | | $ | — | | $ | 2,668 | | $ | 400 | | | $ | 12,683 | | $ | 12,683 | | $ | — | | $ | 10,614 | | $ | 2,069 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 76 | | $ | 76 | | $ | — | | $ | 76 | | $ | — | | | $ | 5,113 | | $ | 5,113 | | $ | — | | $ | 5,113 | | $ | — |
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, if applicable, were determined using the following input levels as of March 31, 20192020 (in thousands): | | | | | | Fair Value Measurements Using Fair Value Hierarchy | | | | | Net Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using Fair | | | | Net Carrying | | | | Value Hierarchy | | | | Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans, net (1) | | $ | 60,275 | | $ | 60,275 | | $ | — | | $ | — | | $ | 60,275 | | | $ | 113,434 | | $ | 113,434 | | $ | — | | $ | — | | $ | 113,434 | |
(1) | We had an allowance for loan losses of $103.7 million relating to 9 impaired loans with an aggregate carrying value, before loan loss reserves, of $217.1 million at March 31, 2020. |
(1) We had an allowance for loan losses of $71.1 million relating to five loans with an aggregate carrying value, before loan loss reserves, of $131.3 million at March 31, 2019.
Loan impairment assessments. Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and net of the allowance for loan losses, when such loan or investment is deemed to be impaired. We consider a loan impaired when, based upon current information, it is probable that we will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement. We evaluate our loans to determine if the value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, which may result in an allowance and corresponding charge to the provision for loan losses. These valuations require significant judgments, which include assumptions regarding capitalization and discount rates, revenue growth rates, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan and other factors. The table above and below includes all impaired loans, regardless of the period in which the impairment was recognized. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 20192020 Quantitative information about Level 3 fair value measurements at March 31, 20192020 were as follows ($ in thousands): | | | | Valuation | | | | | | | | | Fair Value | | Techniques | | Significant Unobservable Inputs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Valuation | | | | | | | | | Fair Value | | Techniques | | Significant Unobservable Inputs | | Financial assets: | | | | | | | | | | | | | | | | | | | | Impaired loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land | | $ | 59,517 | | Discounted cash flows | | Discount rate | | 23.00 | % | | $ | 48,931 | | Discounted cash flows | | Discount rate | | 21.50 | % | | | | | | | Revenue growth rate | | 3.00 | % | | | | | | | | | | | | | | | | | | | | | Revenue growth rate | | 3.00 | % | | | | | | | | | | | | | Hotel | | | | 42,163 | | Discounted cash flows / | | Discount rate | | 11.50 | % | | | | | | | direct capitalization | | Capitalization rate | | 3.10 | % | | | | | | | | | Revenue growth rate | | 25.00 | % | | | | | | | | | | | | | Retail | | | | 20,629 | | Discounted cash flows | | Discount rate | | 10.04 | % | | | | | | | | | Capitalization rate | | 9.25 | % | | | | | | | | | Revenue growth rate | | 1.55 | % | | | | | | | | | | | | | Healthcare | | | | 1,000 | | Discounted cash flows | | Capitalization rate | | 14.30 | % | | | | | | | | | | | | | Office | | 758 | | Discounted cash flows | | Discount rate | | 11.00 | % | | | 711 | | Discounted cash flows | | Discount rate | | 11.00 | % | | | | | | | Capitalization rate | | 9.00 | % | | | | | | | | Revenue growth rate | | 2.50 | % | | | | | | | | | | | | | | | | | | | | | Capitalization rate | | 9.00 | % | | | | | | | | | Revenue growth rate | | 2.50 | % | Derivative financial instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rate lock commitments | | 400 | | Discounted cash flows | | W/A discount rate | | 12.48 | % | | | 2,069 | | Discounted cash flows | | W/A discount rate | | 9.62 | % | |
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 (in thousands): | | Fair Value Measurements Using Significant Unobservable Inputs | | | | | Three Months Ended March 31, | | | | | 2019 | | 2018 | | | | | | | | | | | | | | Fair Value Measurements Using Significant Unobservable Inputs | | | | Three Months Ended March 31, | | | | 2020 | | 2019 | Derivative assets and liabilities, net | | | | | | | | | | | | Balance at beginning of period | | $ | 324 | | $ | 276 | | | $ | 1,066 | | $ | 324 | Settlements | | (14,157 | ) | (19,193 | ) | | | (11,717) | | | (14,157) | Realized gains recorded in earnings | | 13,833 | | 18,917 | | | | 10,651 | | | 13,833 | Unrealized gains recorded in earnings | | 400 | | 717 | | | | 2,069 | | | 400 | Balance at end of period | | $ | 400 | | $ | 717 | | | $ | 2,069 | | $ | 400 |
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 were as follows (in thousands): | | Notional/ Principal Amount | | Fair Value of Servicing Rights | | Interest Rate Movement Effect | | Total Fair Value Adjustment | | March 31, 2019 | | | | | | | | | | Rate lock commitments | | $ | 19,211 | | $ | 400 | | $ | (6 | ) | $ | 394 | | Forward sale commitments | | 242,134 | | — | | 6 | | 6 | | Loans held-for-sale, net (1) | | 222,923 | | 3,802 | | — | | 3,802 | | Total | | | | $ | 4,202 | | $ | — | | $ | 4,202 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Notional/ | | Fair Value of | | Interest Rate | | Total Fair Value | March 31, 2020 | | Principal Amount | | Servicing Rights | | Movement Effect | | Adjustment | Rate lock commitments | | $ | 99,893 | | $ | 3,987 | | $ | (4,808) | | $ | (821) | Forward sale commitments | | | 395,103 | | | — | | | 4,808 | | | 4,808 | Loans held-for-sale, net (1) | | | 978,735 | | | 15,254 | | | — | | | 15,254 | Total | | | | | $ | 19,241 | | $ | — | | $ | 19,241 |
(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 MSRs. |
We measure certain assets and liabilities for which fair value is only disclosed. The fair value of these assets and liabilities wasare determined using the following input levels as of March 31, 20192020 (in thousands): | | | | | | Fair Value Measurements Using Fair Value Hierarchy | | | | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using Fair Value Hierarchy | | | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans and investments, net | | $ | 3,323,778 | | $ | 3,356,603 | | $ | — | | $ | — | | $ | 3,356,603 | | | $ | 4,638,004 | | $ | 4,679,039 | | $ | — | | $ | — | | $ | 4,679,039 | Loans held-for-sale, net | | 225,878 | | 229,947 | | — | | 226,145 | | 3,802 | | | | 991,696 | | | 1,001,224 | | | — | | | 985,970 | | | 15,254 | Capitalized mortgage servicing rights, net | | 277,639 | | 327,793 | | — | | — | | 327,793 | | | | 288,954 | | | 320,052 | | | — | | | — | | | 320,052 | Securities held-to-maturity, net | | 86,036 | | 89,837 | | — | | — | | 89,837 | | | | 84,406 | | | 81,887 | | | — | | | — | | | 81,887 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit and repurchase facilities | | $ | 1,032,495 | | $ | 1,032,111 | | $ | — | | $ | 222,717 | | $ | 809,394 | | | $ | 1,846,473 | | $ | 1,848,149 | | $ | — | | $ | 790,739 | | $ | 1,057,410 | Collateralized loan obligations | | 1,594,970 | | 1,607,481 | | — | | — | | 1,607,481 | | | | 2,513,096 | | | 2,260,964 | | | — | | | — | | | 2,260,964 | Debt fund | | 68,304 | | 70,155 | | — | | — | | 70,155 | �� | | | 68,717 | | | 70,115 | | | — | | | — | | | 70,115 | Senior unsecured notes | | 211,001 | | 214,438 | | 214,438 | | — | | — | | | | 591,854 | | | 514,100 | | | 514,100 | | | — | | | — | Convertible senior unsecured notes, net | | 252,229 | | 289,382 | | — | | 289,382 | | — | | | | 264,689 | | | 246,200 | | | — | | | 246,200 | | | — | Junior subordinated notes | | 140,434 | | 96,328 | | — | | — | | 96,328 | | | | 141,128 | | | 98,143 | | | — | | | — | | | 98,143 |
Note 14 — Commitments and Contingencies Debt Obligations. Our debt obligationsImpact of COVID-19. The magnitude and duration of COVID-19 and its impact on our business and on our borrowers is uncertain and will mostly depend on future events, which cannot be predicted. As this pandemic continues and if economic conditions worsen, it may have maturitieslong-term impacts on our financial position, results of $608.0 millionoperations and cash flows. See Note 2 and Item 1A. Risk Factors for the remainderfurther discussion of 2019, $1.12 billion in 2020, $861.9 million in 2021, $259.0 million in 2022, $135.7 million in 2023, $90.0 million in 2024 and $278.3 million thereafter.COVID-19.
Agency Business Commitments.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 March 31, 2019,2020, we were required to maintain at least $13.6$14.8 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 March 31, 2019,2020, we met the restricted liquidity requirement with a $44.0$45.0 million letter of credit.credit and $2.6 million of cash collateral. As of March 31, 2019,2020, reserve requirements for the Fannie Mae DUS loan portfolio will require us to fund $33.2$37.1 million in additional restricted liquidity over the next 48 months, assuming no further principal paydowns, 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 Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 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. 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 March 31, 2019,2020, 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. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
As an approved designated seller/servicer under Freddie Mac’sMac's SBL program, we are required to post collateral to ensure that we are able to meet certain purchase and loss obligations required by this program. Under the SBL program, we are required to post collateral equal to $5.0 million, which is satisfied with a $5.0 million letter of 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 more detail in Note 12 — Derivative Financial Instruments.and Note 13. Debt Obligations and Operating Leases. We have operating leases for office space and certain office equipment. Some of our leases include payment escalations throughout their lease terms. As of March 31, 2019,2020, the maturities of our leases had remainingdebt obligations and the minimum annual operating lease terms of 0.3 — 7.9 yearspayments under leases with a weighted average remaining lease term in excess of 5.5 years and a weighted average discount rate of 5.0%. We recorded lease expense of $1.5 million duringone year are as follows (in thousands): | | | | | | | | | | | | | | | Minimum Annual | | | | | | Debt | | Operating Lease | | | | Year | | Obligations | | Payments | | Total | 2020 (nine months ending December 31, 2020) | | $ | 820,368 | | $ | 3,984 | | $ | 824,352 | 2021 | | | 409,457 | | | 3,124 | | | 412,581 | 2022 | | | 2,366,841 | | | 2,775 | | | 2,369,616 | 2023 | | | 781,235 | | | 2,052 | | | 783,287 | 2024 | | | 378,013 | | | 1,459 | | | 379,472 | 2025 | | | — | | | 1,503 | | | 1,503 | Thereafter | | | 732,171 | | | 1,802 | | | 733,973 | Total | | $ | 5,488,085 | | $ | 16,699 | | $ | 5,504,784 |
During the three months ended March 31, 2019.2020 and 2019, we recorded lease expense of $1.6 million and $1.5 million, respectively. The maturities of our operating lease liabilities at March 31, 2019 are as follows (in thousands):
Year | | | | 2019 (nine months ending December 31, 2019) | | $ | 4,122 | | 2020 | | 5,210 | | 2021 | | 2,953 | | 2022 | | 2,703 | | 2023 | | 2,051 | | 2024 | | 1,459 | | Thereafter | | 3,304 | | Total | | $ | 21,802 | |
Unfunded Commitments.In accordance with certain structured loans and investments, we have outstanding unfunded commitments of $143.0$183.8 million as of March 31, 20192020 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, three3 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”"Debtors") that have emerged from bankruptcy. TwoNaN 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 Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 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 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
defendants, Arbor ESH II, LLC, Arbor Commercial Mortgage, LLC (“ACM”)("ACM ") and ABT-ESI LLC, an entity in which we have a membership interest, among the broad group of defendants. These two2 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 served on the Board of Directors of ESI for a period of time. We are defending these two2 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’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. In June 2013, the Trust filed a motion to amend the lawsuits, to, among other things, (i) consolidate the lawsuits into one1 lawsuit, (ii) remove 47 defendants, noneNaN 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. The next hearing on the case has been adjourned to May 19, 2020. 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. Note 15 — 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. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Consolidated VIEs. We have determined that our operating partnership, ARLP, and our CLO and Debt Fund entities, which 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. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Our CLO and Debt Fund consolidated entities invest in real estate and real estate-related securities and are financed by the issuance of debt securities. We, or one of our affiliates, are named collateral manager, servicer, and special servicer for all collateral assets held in CLOs, which we believe gives us the power to direct the most significant economic activities of those entities. We also have exposure to losses to the extent of our equity interests and also have rights to waterfall payments in excess of required payments to bond investors. As a result of consolidation, equity interests 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 flows include the gross amounts related to CLO and Debt Fund assets and liabilities as opposed to our net economic interests in those entities. The assets and liabilities related to these consolidated CLOs and Debt Fund are as follows (in thousands): | | March 31, 2019 | | December 31, 2018 | | | | | | | | | | | | | | March 31, 2020 | | December 31, 2019 | Assets: | | | | | | | | | | | | Restricted cash | | $ | 291,574 | | $ | 179,855 | | | $ | 301,045 | | $ | 208,467 | Loans and investments, net | | 1,893,585 | | 2,001,617 | | | | 2,911,257 | | | 2,557,909 | Other assets | | 16,979 | | 16,624 | | | | 20,711 | | | 18,380 | Total assets | | $ | 2,202,138 | | $ | 2,198,096 | | | $ | 3,233,013 | | $ | 2,784,756 | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | Collateralized loan obligations | | $ | 1,594,970 | | $ | 1,593,548 | | | $ | 2,513,096 | | $ | 2,130,121 | Debt fund | | 68,304 | | 68,183 | | | | 68,717 | | | 68,629 | Due to related party | | | | 231 | | | 6,734 | Other liabilities | | 3,992 | | 3,408 | | | | 3,544 | | | 4,115 | Total liabilities | | $ | 1,667,266 | | $ | 1,665,139 | | | $ | 2,585,588 | | $ | 2,209,599 |
Assets held by the CLOs and Debt Fund are restricted and can only be used to settle obligations of the 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 respective asset pool. See Note 10—Debt Obligations10 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 or Debt Fund. Unconsolidated VIEs.. We determined that we are not the primary beneficiary of 2928 VIEs in which we have a variable interest as of March 31, 20192020 because we do not have the ability to direct the activities of the VIEs that most significantly impact each entity’s economic performance. A summary of our variable interests in identified VIEs, of which we are not the primary beneficiary, as of March 31, 20192020 is as follows (in thousands): | | | | | Type | | Carrying Amount (1) | | | Carrying Amount (1) | Loans | | $ | 444,831 | | | $ | 341,010 | B Piece and SFR bonds | | 86,036 | | | | 85,398 | Equity investments | | 6,000 | | | | 12,930 | Agency interest only strips | | 3,145 | | | | 2,424 | Total | | $ | 540,012 | | | $ | 441,762 |
(1) Represents the carrying amountTable of loans and investments before reserves. AtContents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2019, $129.6 million of loans to VIEs had corresponding loan loss reserves of $69.4 million. See Note 3 — Loans and Investments for details. In addition, the maximum loss exposure as of March 31, 2019 would not exceed the carrying amount of our investment.2020 (1) | Represents the carrying amount of loans and investments before reserves. At March 31, 2020, $129.0 million of loans to VIEs had corresponding loan loss reserves of $79.4 million. The maximum loss exposure as of March 31, 2020 would not exceed the carrying amount of our investment. |
These unconsolidated VIEs have exposure to real estate debt of approximately $4.30$4.21 billion at March 31, 2019.2020. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Note 16 — Equity Preferred Stock. As of March 31, 2019, the The Series A, B and C preferred stock outstanding are redeemable by us. Common Stock.In December 2018, our Board of Directors declared a special dividend of $0.15 per common share, which was paid in a combination of $2.5 million of cash and 901,432 common shares in January 2019. During the three months ended March 31, 2019, we issued 210,466 shares in connection with the settlements of our 5.375% Convertible Notes.
We have an “At-The-Market”“At-The-Market” equity offering sales agreement with JMP Securities LLC (“JMP,”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 madeJMP by means of ordinary brokers’brokers' transactions or otherwise at market prices prevailing at the time of sale, or at negotiated prices. During the first quarter of 2018,three months ended March 31, 2020, we sold 360,0001,350,000 shares for net proceeds of $3.0$19.4 million. As of March 31, 2019,2020, we had approximately 6,500,0003,000,000 shares available under this agreement. In March 2020, the Board of Directors authorized a share repurchase program providing for the repurchase of up to $100.0 million of our outstanding common stock. The repurchase of our common stock may be made from time to time in the open market, in privately negotiated transactions or in compliance with a Rule 10b5-1 plan based on our stock price, general market conditions, applicable legal requirements and other factors. The program may be discontinued or modified at any time. As of April 30, 2020, we repurchased 993,106 shares of our common stock under this program at a total cost of $3.9 million and an average cost of $3.98 per share. During the three months ended March 31, 2020, we issued 319,259 and 41,601 shares in connection with the settlements of our 5.25% and 5.375% Convertible Notes, respectively. In February 2020, we also used a portion of the net proceeds from our public offering in December 2019 to purchase an aggregate of 747,500 shares of our common stock and OP Units from our chief executive officer and ACM at the same price the underwriters paid to purchase the shares. As of March 31, 2019,2020, we had $399.3$118.2 million available under our $500.0 million shelf registration statement that was declared effective by the SEC in June 2018. NoncontrollingNoncontrolling Interest.Noncontrolling interest relates to the operating partnership units (“OP Units”) issued to satisfy a portion of the purchase price in connection with the acquisition of the agency platform of ACM in the third quarter of 2016 (the “Acquisition”"Acquisition"). Each of these OP Units are paired with one1 share of our special voting preferred shares having a par value of $0.01 per share and is entitled to one1 vote each on any matter submitted for stockholder approval. 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-one1-for-one basis.
In the three months ended March 31, 2019, we redeemed 387,706 OP Units with a combination of cash totaling $1.6 million and 258,677 common shares. In addition, our Board of Directors declared a special dividend of $0.15 per common share in December 2018, which was paid to the OP Unit holders in a combination of $0.6 million of cash and 221,666 OP Units in January 2019.
At March 31, 2019,2020, there were 20,487,54420,369,265 OP Units outstanding, which represented 19.2%15.6% of the voting power of our outstanding stock. Distributions. Dividends declared (on a per share basis) during the three months ended March 31, 20192020 were as follows: | | | | | | | | | | | | | | | | Common Stock | Common Stock | | Preferred Stock | | Common Stock | | Preferred Stock | | | | | | | Dividend (1) | | | | | | | | | | | Dividend (1) | Declaration Date | | Dividend | | Declaration Date | | Series A | | Series B | | Series C | | | Dividend | | Declaration Date | | Series A | | Series B | | Series C | February 13, 2019 | | $ | 0.27 | | February 1, 2019 | | $ | 0.515625 | | $ | 0.484375 | | $ | 0.53125 | | | | February 13, 2020 | | | $ | 0.30 | | January 31, 2020 | | $ | 0.515625 | | $ | 0.484375 | | $ | 0.53125 |
(1) The dividend declared on February 1, 2019 was for December 1, 2018 through February 28, 2019.Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 (1) | The dividend declared on January 31, 2020 was for December 1, 2019 through February 29, 2020. |
Common Stock —– On May 1, 20196, 2020, the Board of Directors declared a cash dividend of $0.28$0.30 per share of common stock. The dividend is payable on May 31, 2019July 15, 2020 to common stockholders of record as of the close of business on May 23, 2019.June 30, 2020. Preferred Stock —– On May 1, 2019,2020, 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 March 1, 20192020 through May 31, 20192020 and are payable on May 31, 2019June 1, 2020 to preferred stockholders of record on May 15, 2019. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Deferred Compensation.In March 2019,2020, we issued 326,192298,991 shares of restricted common stock to employees under the 2017 Amended Omnibus Stock Incentive Plan (the “2017 Plan”) to employees with a total grant date fair value of $4.1 million and recorded $1.4 million to employee compensation and benefits in our consolidated statements$3.2 million. Substantially all of income. Onethese shares have one third of the shares vested vest as of the grant date and one third will vest investing on each of the first and second anniversaries of the grant date. In March 2020, and the remaining third will vest in March 2021. In March 2019, we also issued 55,24436,396 shares of fully vested common stock to the independent members of the Board of Directors under the 2017 Plan and recorded $0.7 million to selling and administrative expense in our consolidated statementswith a grant date fair value of income.$0.4 million. During the first quarter of 2019,In March 2020, we issued 58,73845,928 shares of restricted common stock to our chief executive officer under his 2017 annual incentive agreement with a grant date fair value of $0.7 million and recorded $0.2 million to employee compensation and benefits in our consolidated statements of income. $0.5 million. One quarter of the shares vested as of the grant date and one quarter will vest on each of the first, second and third anniversaries of the grant date. Our chief executive officer was also granted up to 352,427275,569 performance-based restricted stock units with a grant date fair value of $0.1 million 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 $1.7 million and we recorded less than $0.1 million to employee compensation and benefits in our consolidated statements of income. During the three months ended March 31, 2019, 445,765first quarter of 2020, 421,348 shares of previously granted performance-based restricted stock units fully vested, which were net settled for 203,492215,014 common shares.
During the first quarter of 2020, 143,096 shares were withheld by us from the net settlement of restricted common stock by employees for payment of withholding taxes. Earnings Per Share (“EPS”). Share. Basic EPS is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period inclusive of unvested restricted stock with full dividend participation rights. Diluted EPS is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding, plus the additional dilutive effect of common stock equivalents during each period using the treasury stock method. Our common stock equivalents include the weighted average dilutive effect of performance-based restricted stock units granted to our chief executive officer, OP Units and convertible senior unsecured notes. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 A reconciliation of the numerator and denominator of our basic and diluted EPS computations ($ in thousands, except share and per share data) is as follows: | | Three Months Ended March 31, | | | | 2019 | | 2018 | | | | Basic | | Diluted | | Basic | | Diluted | | | | | | | | | | | | Net income attributable to common stockholders (1) | | $ | 22,650 | | $ | 22,650 | | $ | 26,189 | | $ | 26,189 | | Net income attributable to noncontrolling interest (2) | | — | | 5,468 | | — | | 8,991 | | Net income attributable to common stockholders and noncontrolling interest | | $ | 22,650 | | $ | 28,118 | | $ | 26,189 | | $ | 35,180 | | | | | | | | | | | | Weighted average shares outstanding | | 85,151,878 | | 85,151,878 | | 61,842,336 | | 61,842,336 | | Dilutive effect of OP Units (2) | | — | | 20,554,434 | | — | | 21,230,769 | | Dilutive effect of restricted stock units (3) | | — | | 1,376,514 | | — | | 1,261,382 | | Dilutive effect of convertible notes (4) | | — | | 786,685 | | — | | 365,248 | | Weighted average shares outstanding | | 85,151,878 | | 107,869,511 | | 61,842,336 | | 84,699,735 | | | | | | | | | | | | Net income per common share (1) | | $ | 0.27 | | $ | 0.26 | | $ | 0.42 | | $ | 0.42 | |
| | | | | | | | | | | | | | | Three Months Ended March 31, | | | 2020 | | 2019 | | | Basic | | Diluted | | Basic | | Diluted | Net (loss) income attributable to common stockholders (1) | | $ | (59,310) | | $ | (59,310) | | $ | 22,650 | | $ | 22,650 | Net (loss) income attributable to noncontrolling interest (2) | | | — | | | (10,934) | | | — | | | 5,468 | Net (loss) income attributable to common stockholders and noncontrolling interest | | $ | (59,310) | | $ | (70,244) | | $ | 22,650 | | $ | 28,118 | | | | | | | | | | | | | | Weighted average shares outstanding | | | 110,792,412 | | | 110,792,412 | | | 85,151,878 | | | 85,151,878 | Dilutive effect of OP Units (2) | | | — | | | 20,424,787 | | | — | | | 20,554,434 | Dilutive effect of restricted stock units (3) | | | — | | | — | | | — | | | 1,376,514 | Dilutive effect of convertible notes (4) | | | — | | | — | | | — | | | 786,685 | Weighted average shares outstanding | | | 110,792,412 | | | 131,217,199 | | | 85,151,878 | | | 107,869,511 | Net (loss) income per common share (1) | | $ | (0.54) | | $ | (0.54) | | $ | 0.27 | | $ | 0.26 |
(1) | Net of preferred stock dividends. |
(2) | We consider OP Units to be common stock equivalents as the 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. |
(3) | Mr. Kaufman is granted restricted stock units 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, of which was antidilutive for March 31, 2020. |
(2) We consider OP Units to be common stock equivalents as the 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.
(3) Mr. Kaufman is granted restricted stock units 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.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
Note 17 — 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 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. In the three months ended March 31, 20192020 and 2018,2019, we recorded a tax benefit of $14.4 million and less than $0.1 million and $8.8 million, respectively. The tax benefit recorded in the three months ended March 31, 2020 consisted of a deferred tax benefit of $19.9 million and a current tax provision for income taxesof $5.5 million. The tax benefit recorded in the three months ended March 31, 2019 consisted of a deferred tax benefit of $4.2 million and a current tax provision of $4.2 million. The benefit from income taxes recorded in the three months ended Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2018 consisted of a deferred tax benefit of $13.3 million and a current tax provision of $4.5 million. The deferred tax benefit in the three months ended March 31, 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.2020 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 18 — Agreements and Transactions with Related Parties Shared Services Agreement.We have a shared services agreement with ACM where we provide limited support services to ACM and they reimburse us for the costs of performing such services. During the three months ended March 31, 20192020 and 2018,2019, we incurred $0.9$0.7 million and $0.3$0.9 million, respectively, of costs for services provided to ACM, which are included in due from related party on the consolidated balance sheets. Other Related Party Transactions.Due from related party was $2.0$13.8 million and $1.3$10.7 million at March 31, 20192020 and December 31, 2018,2019, respectively, which consisted primarily of amounts due from our affiliated servicing operations related to real estate transactions closing at the end of the quarter and amounts due from ACM for costs incurred in connection with the shared services agreement described aboveabove. Due to related party was $3.1 million and amounts due from$13.1 million at March 31, 2020 and December 31, 2019, respectively, and consisted of loan payoffs, holdbacks and escrows to be remitted to our affiliated servicing operations related to real estate transactions. In certain instances our business requires our executives to charter privately-owned aircraft in furtherance of our business. In October 2019, we entered into an aircraft time sharing agreement with an entity controlled by our chief executive officer that owns private aircraft. Pursuant to the agreement, we reimburse the aircraft owner for the required costs under Federal Aviation Administration regulations for the flights our executives' charter. During the three months ended March 31, 2020, we reimbursed the aircraft owner $0.3 million for the flights chartered by our executives pursuant the agreement. In the first quarter of 2019, we, along with ACM, certain executives of ours and a consortium of independent outside investors, formed AMAC Holdings III LLC ("AMAC III"), a multifamily-focused commercial real estate investment fund referred to as AMAC III, which is sponsored and managed by our chief executive officer and one of his immediate family members. We committed to a $30.0 million investment (of which $6.0$10.9 million was funded in January 2019)as of March 31, 2020) for an 18% interest in AMAC III. In NovemberJuly 2019, AMAC III originated a $7.0 million mezzanine loan to a borrower with which we have an outstanding $34.0 million bridge loan. In connection with the AMAC III mezzanine loan, we entered into an inter-creditor agreement with AMAC III. In addition, we originated a $15.6 million Private Label loan in December 2019 to a borrower which is 100% owned by AMAC III, which bears interest at a fixed rate of 3.735% and matures in January 2030. We recorded income of less than $0.1 million in the three months ended March 31, 2020 related to this investment. Interest income recorded from our bridge and Private Label loans totaled $0.9 million for the three months ended March 31, 2020. In 2018, we originated a $61.2 million bridge loan (which $16.4 million was funded as of March 31, 2019) on a multifamily property 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 10% of the borrowing entity. The loan has an interest rate of LIBOR plus 4.50% with a LIBOR floor of 2.00% and matures in October 2021. In the fourth quarter of 2019, the related party investors liquidated their equity investment. Interest income recorded from this loan totaled $0.3 million for the three months ended March 31, 2019. In October 2018, we originated a $37.5 million bridge loan, which was used to purchase several multifamily properties. In January 2019, an entity owned, in part, by an immediate family member of our chief executive officer, purchased a 23.9% interest in the borrowing entity. The loan has an interest rate of LIBOR plus 4.15%4.25% with a LIBOR floor of Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 2.375% and matures in October 2020. Interest income recorded from this loan totaled $0.6 million and $0.7 million for the three months ended March 31, 2019. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES2020 and 2019, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
In October 2018, we acquired a $19.5 million bridge loan 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 85% of the borrowing entity. The loan has an interest rate of LIBOR plus 4.0% with a LIBOR floor of 2.125% and matures in July 2021. Interest income recorded from this loan totaled $0.3 million for both the three months ended March 31, 2020 and 2019. In August 2018, we originated a $17.7 million bridge loan to an entity owned, in part, by an immediate family member of our chief executive officer, who owns a 10.8% interest in the borrowing entity. The loan was used to purchase several undeveloped parcels of land. The loan hashad a fixed interest rate of 10% and matureswas scheduled to mature in May 2019.February 2020. In September 2019, the borrower made a partial paydown of principal totaling $4.7 million and the remaining balance was paid off in January 2020. Interest income recorded from this loan totaled $0.1 million and $0.5 million for the three months ended March 31, 2019.2020 and 2019, respectively. In June 2018, we originated a $21.7 million 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 our chief executive officer) which owns 75% in the 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 $0.4 million and $0.3 million for the three months ended March 31, 2019.2020 and 2019, respectively. In April 2018, we acquired a $9.4 million bridge loan originated by ACM, of which $6.9$8.9 million was funded as of March 31, 2019.2020. 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 months ended March 31, 2020 and 2019. In January 2018, we paid $50.0 million in full satisfaction of the related party financing 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 three months ended March 31, 2018.
In 2017, we acquired a $32.8 million bridge loan 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 hashad an interest rate of LIBOR plus 5.0% with a LIBOR floor of 1.13% and matureswas scheduled to mature in June 2020. In October 2019, the borrower repaid this loan in full. Interest income recorded from this loan totaled $0.6 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively.2019. In 2017, we originated two2 bridge loans totaling $28.0 million on two2 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% of the borrowing entity. The loans havehad an interest rate of LIBOR plus 5.25% with LIBOR floors ranging from 1.24% to 1.54% and were scheduled to mature in the fourth quarter of 2020. The borrower refinanced these loans with a $31.1 million bridge loan we originated in November 2019 with an interest rate of LIBOR plus 4.0%, a LIBOR floor of 1.80% and a maturity date in October 2021. Interest income recorded from these loans totaled $0.6$0.5 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively. In 2017, we originated a $36.0 million 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 our chief executive officer) which owns a 95% interest in the borrowing entity. The loan had an interest rate of LIBOR plus 4.5% with a LIBOR floor of 1% and was scheduled to mature in July 2020. This loan was repaid in full in August 2018. Interest income recorded from this loan totaled $0.6 million for the three months ended March 31, 2018.2020 and 2019, respectively.
In 2017, we originated a $46.9 million Fannie Mae loan on a multifamily property owned in part by a consortium of investors (which includes, among other unaffiliated investors, certain of our officers) which owns a 21.4%17.6% interest in the borrowing entity. We carry a maximum loss-sharing obligation with Fannie Mae on this loan of up to 5% of the original UPB. Servicing revenue recorded from this loan was less than $0.1 million for both the three months ended March 31, 20192020 and 2018. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES2019.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
In 2017, a consortium of investors (which includes, among other unaffiliated investors, our chief executive officer and 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 2016. The loans had an interest rate of LIBOR plus 5.25% with a LIBOR floor of 0.5% and were scheduled to 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 the remaining loan totaled $0.2 million for the three months ended March 31, 2018.
In 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. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Ginkgo subsequently sold the majority of its interest in this property and owned a 3.6% interest at March 31, 2019.2020. 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 both the three months ended March 31, 20192020 and 2018.2019. In 2016, we originated $48.0 million of bridge loans on six6 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 interests ranging from 10.5% to 12.0% in the borrowing entities. The loans havehad an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25% and were scheduled to mature in September 2019. In 2017, a $6.8 million loan on one1 property paid off in full and in 2018 four4 additional loans totaling $28.3 million paid off in full. In January 2019, $10.9 million of the $12.9 million remaining bridge loan paid off, with the $2.0 million remaining UPB convertedconverting to a mezzanine loan with a fixed interest rate of 10.0% and a January 2024 maturity. Interest income recorded from these loansthe remaining mezzanine loan totaled $0.1 million and $0.6 million for both the three months ended March 31, 20192020 and 2018, respectively.2019. In 2016, we originated a $12.7 million bridge loan and a $5.2 million preferred equity investment on two2 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 a 50% interest in the borrowing entity. The bridge loan has an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25% and the preferred equity investment has a fixed interest rate of 10%. The bridge loan and the preferred equity investment arepaid off in full in May 2019. In March 2020, we originated a $14.8 million Private Label loan and a $3.4 million mezzanine loan to the properties. The Private Label loan bears interest at a fixed rate of 3.10% and the mezzanine loan bears interest at a fixed rate of 9.00% and both scheduled toloans mature in May 2019.April 2030. Interest income recorded from these loans totaled $0.4less than $0.1 million and $0.3$0.4 million for the three months ended March 31, 20192020 and 2018,2019, respectively. In 2016, we originated a $19.0 million 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 our chief executive officer) which owns a 7.5% interest in the borrowing entity. The loan had an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25% and 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 three months ended March 31, 2018.
In 2015, we originated two bridge loans totaling $16.7 million secured by multifamily properties acquired by a third-party investor. The properties were owned and were sold in part by a consortium of investors (which includes, among other unaffiliated investors, certain of our officers, our chief executive officer and certain other related parties). The loans have an interest rate of LIBOR plus 5% with a LIBOR floor of 0.25% and were scheduled to mature in October 2018. These loans both paid off in full during the third and four quarters of 2018. Interest income recorded from these loans totaled $0.3 million for the three months ended March 31, 2018.
In 2015, we originated a $3.0 million mezzanine loan on a multifamily property that had a $47.0 million first mortgage initially originated by ACM. The loan bore interest at a fixed rate of 12.5% and 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 the three months ended March 31, 2018.
In 2015, we invested $9.6 million for 50% of ACM’sACM's indirect interest in a joint venture with a third-partythird 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 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
platform and we received cash distributions totaling $16.9 million (that were classified as returns of capital) as a result of the joint venture selling most of its non-qualified mortgage assets. We recorded income from these investments of $0.8$2.9 million and $0.1$0.8 million in the three months ended March 31, 2020 and 2019, and 2018, respectively.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. AsThe final payment was made under this settlement in January 2020 and we have no additional exposure.
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2019, our maximum exposure under this guaranty totaled $1.6 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.2020 In 2014, 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 LIBOR plus 4.8%. In 2016, the $5.1 million second mortgage was repaid in full and the $14.6 million first mortgage was extended to April 2018 and paid off at maturity. Interest income recorded from the first mortgage totaled $0.2 million for the three months ended March 31, 2018.
We, along with an executive officer of ours and a consortium of independent outside investors, hold equity investments in a portfolio of multifamily properties referred to as the “Lexford” portfolio, which is managed by an entity owned primarily by a consortium of affiliated investors, including our chief executive officer and an executive officer of ours. Based on the terms of the management contract, the 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 restructuring of the debt. In June 2018, the owners of Lexford restructured part of its debt and we originated twelve12 bridge loans totaling $280.5 million, which were used to repay in full certain existing mortgage debt and to renovate 72 multifamily properties included in the portfolio. The loans which wewere originated in June 2018, havehad interest rates of LIBOR plus 4.0% and were scheduled to mature in June 2021 (with 2 one-year extension options).2021. During the first quarter of 2019, the borrower made payoffs and partial paydowns of principal totaling $54.6$250.0 million. In March 2020, the remaining balance of the loans were refinanced with a $34.6 million Private Label loan, which bears interest at a fixed rate of 3.30% and matures in March 2030. Interest income recorded from these loans totaled $0.2 million and $4.5 million forduring the three months ended March 31, 2019.2020 and 2019, respectively. 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 property owners. ACM owns slightly less than half of the unsecured lender entity and, therefore, provided slightly less than half of the unsecured lender financing. In addition, in connection with our equity investment, we received distributions totaling $1.3$1.1 million and $0.6$1.3 million during the three months ended March 31, 20192020 and 2018,2019, respectively, which were recorded as income from equity affiliates. Separate from the loans we originated in June 2018, we provide limited (“("bad boy”boy") guarantees for certain other debt controlled by Lexford. The bad boy guarantees may become a liability for us upon standard “bad”"bad" acts such as fraud or a material misrepresentation by Lexford or us. At March 31, 2019,2020, this debt had an aggregate outstanding balance of $379.8$616.5 million and is scheduled to mature between 20192020 and 2025.2029. Several of our executives, including our chief financial officer, general counsel and our chairman, chief executive officer and president, hold similar positions for ACM. Our chief executive officer and his affiliated entities (“the Kaufman Entities”) together beneficially own approximately 33%31% of the outstanding membership interests of ACM and certain of our employees and directors also hold an ownership interest in ACM. Furthermore, one of our directors serves as the trustee and co-trustee of two of the Kaufman Entities that hold membership interests in ACM. Upon the closing of the Acquisition in 2016, we issued OP Units, each paired with one1 share of our special voting preferred shares. At March 31, 2019,2020, ACM holds 4,994,7363,898,554 shares of our common stock and 14,772,91814,669,101 OP Units, which represents 18.6%14.2% of the voting power of our outstanding stock. Our Board of Directors approved a resolution under our charter allowing our chief executive officer and ACM, (which our chief executive officer has a controlling equity interest in), to own more than the 5% ownership interest limit of our common stock as stated in our amended charter. Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2020 Note 19 — Segment Information The summarized statements of incomeoperations and balance sheet data, as well as certain other data, by segment are included in the following tables ($ 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 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2019
each business segment). Such costs include, but are not limited to, compensation and employee related costs, selling and administrative expenses and stock-based compensation. | | Three Months Ended March 31, 2019 | | | | | Structured Business | | Agency Business | | Other / Eliminations (1) | | Consolidated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2020 | | | | Structured | | Agency | | Other / | | | | | | | Business | | Business | | Eliminations (1) | | Consolidated | Interest income | | $ | 65,809 | | $ | 5,468 | | $ | — | | $ | 71,277 | | | $ | 78,477 | | $ | 10,049 | | $ | — | | $ | 88,526 | Interest expense | | 38,257 | | 3,608 | | — | | 41,865 | | | | 43,399 | | | 6,583 | | | — | | | 49,982 | Net interest income | | 27,552 | | 1,860 | | — | | 29,412 | | | | 35,078 | | | 3,466 | | | — | | | 38,544 | Other revenue: | | | | | | | | | | | | | | | | | | | | | | Gain on sales, including fee-based services, net | | — | | 16,389 | | — | | 16,389 | | | | — | | | 14,305 | | | — | | | 14,305 | Mortgage servicing rights | | — | | 14,232 | | — | | 14,232 | | | | — | | | 21,934 | | | — | | | 21,934 | Servicing revenue | | — | | 25,834 | | — | | 25,834 | | | | — | | | 25,124 | | | — | | | 25,124 | Amortization of MSRs | | — | | (12,282 | ) | — | | (12,282 | ) | | | — | | | (11,822) | | | — | | | (11,822) | Property operating income | | 2,803 | | — | | — | | 2,803 | | | | 2,192 | | | — | | | — | | | 2,192 | Loss on derivative instruments, net | | | | (3,000) | | | (47,731) | | | — | | | (50,731) | Other income, net | | 337 | | (2,465 | ) | — | | (2,128 | ) | | | 1,303 | | | — | | | — | | | 1,303 | Total other revenue | | 3,140 | | 41,708 | | — | | 44,848 | | | | 495 | | | 1,810 | | | — | | | 2,305 | Other expenses: | | | | | | | | | | | | | | | | | | | | | | Employee compensation and benefits | | 8,464 | | 23,300 | | — | | 31,764 | | | | 10,846 | | | 23,406 | | | — | | | 34,252 | Selling and administrative | | 4,421 | | 5,340 | | — | | 9,761 | | | | 4,450 | | | 6,602 | | | — | | | 11,052 | Property operating expenses | | 2,396 | | — | | — | | 2,396 | | | | 2,443 | | | — | | | — | | | 2,443 | Depreciation and amortization | | 512 | | 1,400 | | — | | 1,912 | | | | 620 | | | 1,327 | | | — | | | 1,947 | Provision for loss sharing (net of recoveries) | | — | | 454 | | — | | 454 | | | | — | | | 21,537 | | | — | | | 21,537 | Provision for credit losses (net of recoveries) | | | | 53,890 | | | 492 | | | — | | | 54,382 | Total other expenses | | 15,793 | | 30,494 | | — | | 46,287 | | | | 72,249 | | | 53,364 | | | — | | | 125,613 | Income before extinguishment of debt, income from equity affiliates and income taxes | | 14,899 | | 13,074 | | — | | 27,973 | | | Loss before extinguishment of debt, income from equity affiliates and income taxes | | | | (36,676) | | | (48,088) | | | — | | | (84,764) | Loss on extinguishment of debt | | (128 | ) | — | | — | | (128 | ) | | | (1,954) | | | — | | | — | | | (1,954) | Income from equity affiliates | | 2,151 | | — | | — | | 2,151 | | | | 3,992 | | | — | | | — | | | 3,992 | Benefit from income taxes | | — | | 10 | | — | | 10 | | | Net income | | 16,922 | | 13,084 | | — | | 30,006 | | | (Provision for) benefit from income taxes | | | | (83) | | | 14,453 | | | — | | | 14,370 | Net loss | | | | (34,721) | | | (33,635) | | | — | | | (68,356) | Preferred stock dividends | | 1,888 | | — | | — | | 1,888 | | | | 1,888 | | | — | | | — | | | 1,888 | Net income attributable to noncontrolling interest | | — | | — | | 5,468 | | 5,468 | | | Net income attributable to common stockholders | | $ | 15,034 | | $ | 13,084 | | $ | (5,468 | ) | $ | 22,650 | | | Net loss attributable to noncontrolling interest | | | | — | | | — | | | (10,934) | | | (10,934) | Net loss attributable to common stockholders | | | $ | (36,609) | | $ | (33,635) | | $ | 10,934 | | $ | (59,310) |
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 20192020 | | Three Months Ended March 31, 2018 | | | | Structured Business | | Agency Business | | Other / Eliminations (1) | | Consolidated | | | | | | | | | | | | Interest income | | $ | 47,236 | | $ | 4,376 | | $ | — | | $ | 51,612 | | Interest expense | | 30,205 | | 2,853 | | 329 | | 33,387 | | Net interest income | | 17,031 | | 1,523 | | (329 | ) | 18,225 | | Other revenue: | | | | | | | | | | Gain on sales, including fee-based services, net | | — | | 18,193 | | — | | 18,193 | | Mortgage servicing rights | | — | | 19,634 | | — | | 19,634 | | Servicing revenue | | — | | 21,412 | | — | | 21,412 | | Amortization of MSRs | | — | | (11,865 | ) | — | | (11,865 | ) | Property operating income | | 2,910 | | — | | — | | 2,910 | | Other income, net | | 233 | | 2,645 | | — | | 2,878 | | Total other revenue | | 3,143 | | 50,019 | | — | | 53,162 | | Other expenses: | | | | | | | | | | Employee compensation and benefits | | 7,586 | | 21,908 | | — | | 29,494 | | Selling and administrative | | 3,538 | | 5,377 | | — | | 8,915 | | Property operating expenses | | 2,796 | | — | | — | | 2,796 | | Depreciation and amortization | | 446 | | 1,400 | | — | | 1,846 | | Provision for loss sharing (net of recoveries) | | — | | 473 | | — | | 473 | | Provision for loan losses (net of recoveries) | | 325 | | — | | — | | 325 | | Total other expenses | | 14,691 | | 29,158 | | — | | 43,849 | | Income before income from equity affiliates and income taxes | | 5,483 | | 22,384 | | (329 | ) | 27,538 | | Income from equity affiliates | | 746 | | — | | — | | 746 | | Benefit from income taxes | | — | | 8,784 | | — | | 8,784 | | Net income | | 6,229 | | 31,168 | | (329 | ) | 37,068 | | Preferred stock dividends | | 1,888 | | — | | — | | 1,888 | | Net income attributable to noncontrolling interest | | — | | — | | 8,991 | | 8,991 | | Net income attributable to common stockholders | | $ | 4,341 | | $ | 31,168 | | $ | (9,320 | ) | $ | 26,189 | |
(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 holders.
| | | | | | | | | | | | | | | Three Months Ended March 31, 2019 | | | | Structured | | | Agency | | | Other / | | | | | | | Business | | | Business | | | Eliminations (1) | | | Consolidated | Interest income | | $ | 65,809 | | $ | 5,468 | | $ | — | | $ | 71,277 | Interest expense | | | 38,257 | | | 3,608 | | | — | | | 41,865 | Net interest income | | | 27,552 | | | 1,860 | | | — | | | 29,412 | Other revenue: | | | | | | | | | | | | | Gain on sales, including fee-based services, net | | | — | | | 16,389 | | | — | | | 16,389 | Mortgage servicing rights | | | — | | | 14,232 | | | — | | | 14,232 | Servicing revenue | | | — | | | 25,834 | | | — | | | 25,834 | Amortization of MSRs | | | — | | | (12,282) | | | — | | | (12,282) | Property operating income | | | 2,803 | | | — | | | — | | | 2,803 | Loss on derivative instruments, net | | | — | | | (2,465) | | | — | | | (2,465) | Other income, net | | | 337 | | | — | | | — | | | 337 | Total other revenue | | | 3,140 | | | 41,708 | | | — | | | 44,848 | Other expenses: | | | | | | | | | | | | | Employee compensation and benefits | | | 8,464 | | | 23,300 | | | — | | | 31,764 | Selling and administrative | | | 4,421 | | | 5,340 | | | — | | | 9,761 | Property operating expenses | | | 2,396 | | | — | | | — | | | 2,396 | Depreciation and amortization | | | 512 | | | 1,400 | | | — | | | 1,912 | Provision for loss sharing (net of recoveries) | | | — | | | 454 | | | — | | | 454 | Total other expenses | | | 15,793 | | | 30,494 | | | — | | | 46,287 | Income before extinguishment of debt, income from equity affiliates and income taxes | | | 14,899 | | | 13,074 | | | — | | | 27,973 | Loss on extinguishment of debt | | | (128) | | | — | | | — | | | (128) | Income from equity affiliates | | | 2,151 | | | — | | | — | | | 2,151 | Benefit from income taxes | | | — | | | 10 | | | — | | | 10 | Net income | | | 16,922 | | | 13,084 | | | — | | | 30,006 | Preferred stock dividends | | | 1,888 | | | — | | | — | | | 1,888 | Net income attributable to noncontrolling interest | | | — | | | — | | | 5,468 | | | 5,468 | Net income attributable to common stockholders | | $ | 15,034 | | $ | 13,084 | | $ | (5,468) | | $ | 22,650 |
(1) | Includes income allocated to the noncontrolling interest holders not allocated to the two reportable segments. |
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 20192020 | | March 31, 2019 | | | | Structured Business | | Agency Business | | Consolidated | | Assets: | | | | | | | | Cash and cash equivalents | | $ | 53,006 | | $ | 71,499 | | $ | 124,505 | | Restricted cash | | 291,865 | | — | | 291,865 | | Loans and investments, net | | 3,323,778 | | — | | 3,323,778 | | Loans held-for-sale, net | | — | | 225,878 | | 225,878 | | Capitalized mortgage servicing rights, net | | — | | 277,639 | | 277,639 | | Securities held to maturity | | 10,000 | | 76,036 | | 86,036 | | Investments in equity affiliates | | 28,444 | | — | | 28,444 | | Goodwill and other intangible assets | | 12,500 | | 102,264 | | 114,764 | | Other assets | | 96,436 | | 28,380 | | 124,816 | | Total assets | | $ | 3,816,029 | | $ | 781,696 | | $ | 4,597,725 | | | | | | | | | | Liabilities: | | | | | | | | Debt obligations | | $ | 3,076,716 | | $ | 222,717 | | $ | 3,299,433 | | Allowance for loss-sharing obligations | | — | | 34,518 | | 34,518 | | Other liabilities | | 143,022 | | 43,369 | | 186,391 | | Total liabilities | | $ | 3,219,738 | | $ | 300,604 | | $ | 3,520,342 | |
| | December 31, 2018 | | | | Structured Business | | Agency Business | | Consolidated | | Assets: | | | | | | | | Cash and cash equivalents | | $ | 89,457 | | $ | 70,606 | | $ | 160,063 | | Restricted cash | | 180,606 | | — | | 180,606 | | Loans and investments, net | | 3,200,145 | | — | | 3,200,145 | | Loans held-for-sale, net | | — | | 481,664 | | 481,664 | | Capitalized mortgage servicing rights, net | | — | | 273,770 | | 273,770 | | Securities held-to-maturity, net | | — | | 76,363 | | 76,363 | | Investments in equity affiliates | | 21,580 | | — | | 21,580 | | Goodwill and other intangible assets | | 12,500 | | 103,665 | | 116,165 | | Other assets | | 81,494 | | 20,325 | | 101,819 | | Total assets | | $ | 3,585,782 | | $ | 1,026,393 | | $ | 4,612,175 | | | | | | | | | | Liabilities: | | | | | | | | Debt obligations | | $ | 2,842,688 | | $ | 472,181 | | $ | 3,314,869 | | Allowance for loss-sharing obligations | | — | | 34,298 | | 34,298 | | Other liabilities | | 159,413 | | 38,029 | | 197,442 | | Total liabilities | | $ | 3,002,101 | | $ | 544,508 | | $ | 3,546,609 | |
| | | | | | | | | | | | March 31, 2020 | | | Structured Business | | Agency Business | | Consolidated | Assets: | | | | | | | | | | Cash and cash equivalents | | $ | 106,879 | | $ | 115,451 | | $ | 222,330 | Restricted cash | | | 301,468 | | | 2,599 | | | 304,067 | Loans and investments, net | | | 4,638,004 | | | — | | | 4,638,004 | Loans held-for-sale, net | | | — | | | 991,696 | | | 991,696 | Capitalized mortgage servicing rights, net | | | — | | | 288,954 | | | 288,954 | Securities held-to-maturity, net | | | 20,000 | | | 64,406 | | | 84,406 | Investments in equity affiliates | | | 44,701 | | | — | | | 44,701 | Goodwill and other intangible assets | | | 12,500 | | | 96,871 | | | 109,371 | Other assets | | | 174,409 | | | 76,712 | | | 251,121 | Total assets | | $ | 5,297,961 | | $ | 1,636,689 | | $ | 6,934,650 | | | | | | | | | | | Liabilities: | | | | | | | | | | Debt obligations | | $ | 4,635,218 | | $ | 790,739 | | $ | 5,425,957 | Allowance for loss-sharing obligations | | | — | | | 70,752 | | | 70,752 | Other liabilities | | | 155,383 | | | 56,508 | | | 211,891 | Total liabilities | | $ | 4,790,601 | | $ | 917,999 | | $ | 5,708,600 |
| | | | | | | | | | | | December 31, 2019 | Assets: | | | | | | | | | | Cash and cash equivalents | | $ | 264,468 | | $ | 35,219 | | $ | 299,687 | Restricted cash | | | 208,926 | | | 1,949 | | | 210,875 | Loans and investments, net | | | 4,189,960 | | | — | | | 4,189,960 | Loans held-for-sale, net | | | — | | | 861,360 | | | 861,360 | Capitalized mortgage servicing rights, net | | | — | | | 286,420 | | | 286,420 | Securities held-to-maturity, net | | | 20,000 | | | 68,699 | | | 88,699 | Investments in equity affiliates | | | 41,800 | | | — | | | 41,800 | Goodwill and other intangible assets | | | 12,500 | | | 98,200 | | | 110,700 | Other assets | | | 118,175 | | | 31,484 | | | 149,659 | Total assets | | $ | 4,855,829 | | $ | 1,383,331 | | $ | 6,239,160 | | | | | | | | | | | Liabilities: | | | | | | | | | | Debt obligations | | $ | 3,878,343 | | $ | 743,595 | | $ | 4,621,938 | Allowance for loss-sharing obligations | | | — | | | 34,648 | | | 34,648 | Other liabilities | | | 171,004 | | | 55,543 | | | 226,547 | Total liabilities | | $ | 4,049,347 | | $ | 833,786 | | $ | 4,883,133 |
Table of Contents ARBOR REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 20192020 | | Three Months Ended March 31, | | | | 2019 | | 2018 | | Origination Data: | | | | | | Structured Business | | | | | | New loan originations | | $ | 416,295 | | $ | 314,215 | | Loan payoffs / paydowns | | 279,471 | | 190,615 | | | | | | | | Agency Business | | | | | | Origination Volumes by Investor: | | | | | | Fannie Mae | | $ | 546,886 | | $ | 662,921 | | Freddie Mac | | 192,492 | | 308,151 | | FHA | | 1,110 | | 60,738 | | CMBS/Conduit | | 105,425 | | 16,233 | | Total | | $ | 845,913 | | $ | 1,048,043 | | Total loan commitment volume | | $ | 846,963 | | $ | 1,043,715 | | | | | | | | Loan Sales Data: | | | | | | Agency Business | | | | | | Fannie Mae | | $ | 746,937 | | $ | 728,395 | | Freddie Mac | | 223,773 | | 278,516 | | FHA | | 25,631 | | 39,293 | | CMBS/Conduit | | 105,425 | | 16,233 | | Total | | $ | 1,101,766 | | $ | 1,062,437 | | Sales margin (fee-based services as a % of loan sales) | | 1.49 | % | 1.71 | % | MSR rate (MSR income as a % of loan commitments) | | 1.68 | % | 1.88 | % |
| | | | | | | | | Three Months Ended March 31, | | | 2020 | | 2019 | Origination Data: | | | | | | | Structured Business | | | | | | | New loan originations | | $ | 856,229 | | $ | 416,295 | Loan payoffs / paydowns | | | 275,292 | | | 279,471 | | | | | | | | Agency Business | | | | | | | Origination Volumes by Investor: | | | | | | | Fannie Mae | | $ | 581,973 | | $ | 546,886 | Private Label | | | 282,345 | | | — | Freddie Mac | | | 199,711 | | | 192,492 | FHA | | | 17,944 | | | 1,110 | CMBS/Conduit | | | — | | | 105,425 | Total | | $ | 1,081,973 | | $ | 845,913 | Total loan commitment volume | | $ | 1,267,219 | | $ | 846,963 | | | | | | | | Loan Sales Data: | | | | | | | Agency Business | | | | | | | Fannie Mae | | $ | 754,044 | | $ | 746,937 | Freddie Mac | | | 179,703 | | | 223,773 | FHA | | | 23,313 | | | 25,631 | CMBS/Conduit | | | — | | | 105,425 | Total | | $ | 957,060 | | $ | 1,101,766 | Sales margin (fee-based services as a % of loan sales) | | | 1.49 | % | | 1.49% | MSR rate (MSR income as a % of loan commitments) | | | 1.73 | % | | 1.68% |
| | March 31, 2019 | | | | | UPB of Servicing Portfolio | | Wtd. Avg. Servicing Fee Rate (basis points) | | Wtd. Avg. Life of Servicing Portfolio (in years) | | | | | | | | | | | | | | | March 31, 2020 | | | | | | | Wtd. Avg. Servicing | | Wtd. Avg. Life of | | | | UPB of Servicing | | Fee Rate | | Servicing Portfolio | Key Servicing Metrics for Agency Business: | | | | | | | | | Portfolio | | (basis points) | | (in years) | Fannie Mae | | $ | 13,719,351 | | 50.7 | | 7.6 | | | $ | 14,946,922 | | 49.3 | | 8.0 | Freddie Mac | | 4,515,829 | | 30.3 | | 10.8 | | | | 4,570,521 | | 29.4 | | 10.6 | FHA | | 648,583 | | 15.5 | | 19.6 | | | | 679,685 | | 15.2 | | 19.1 | Total | | $ | 18,883,763 | | 44.6 | | 8.7 | | | $ | 20,197,128 | | 43.6 | | 8.9 |
| | December 31, 2018 | | | | | | | | | | | | | | | December 31, 2019 | Fannie Mae | | $ | 13,562,667 | | 51.3 | | 7.4 | | | $ | 14,832,844 | | 49.3 | | 7.8 | Freddie Mac | | 4,394,287 | | 30.8 | | 10.8 | | | | 4,534,714 | | 30.0 | | 10.6 | FHA | | 644,687 | | 15.5 | | 19.6 | | | | 691,519 | | 15.4 | | 18.7 | Total | | $ | 18,601,641 | | 45.2 | | 8.6 | | | $ | 20,059,077 | | 43.8 | | 8.8 |
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, single-family rental 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, HUDFannie Mae and CMBS programs.Freddie Mac, Ginnie Mae, FHA and HUD. 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 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 SBL lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally. We also originate and sell finance products through CMBS programs and during the second half of 2019, we began to originate and service permanent financing loans underwritten using the guidelines of our existing agency loans sold to the GSEs, which we refer to as "Private Label" loans. We intend to pool and securitize the Private Label loans and sell certain securities in the securitizations to third-party investors, while retaining the highest risk bottom tranche bond referred to as the "B Piece." 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 investmentsinvestments.. 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 revenues recognized from originating, selling and servicing mortgage loans through the GSE and HUD programs.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 originations, selling and servicing fees and other 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 transactionstransactions.. 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. Operating results from our unconsolidated equitythese investments can be difficult to predict and can vary significantly period-to-period. If interest rates were to rise, it is likely that income from these investments would be significantly impacted, particularly from our investment in a residential mortgage banking business, since rising interest rates generally decrease the demand for residential real estate loans and the number of loan originations. 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 portfolioportfolio.. 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. COVID-19 Impact. During the first quarter of 2020, the global outbreak of COVID-19 has forced many countries, including the United States, to declare national emergencies, to institute "stay-at-home" orders, to close financial markets and to restrict operations of non-essential businesses. Such actions are creating significant disruptions in global supply chains, and adversely impacting many industries. COVID-19 could have a continued and prolonged adverse impact on economic and market conditions and could trigger a period of global economic slowdown. The impact of COVID-19 on companies is evolving rapidly, and the extent and duration of the economic fallout from this pandemic, both globally and to our business, remain unclear and present risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions. We expect the effects of the COVID-19 pandemic to negatively impact our financial performance and operating results for the remainder of 2020. Significant Developments During the First Quarter of 20192020 Capital Markets Activity.We raised approximately $295.0 million of capital through the issuance of 4.50% senior unsecured debt and sales of our common stock through an “At-The-Market” equity offering sales agreement. We used a significant portion of the net proceeds from these capital raises to redeem secured indebtedness, make investments related to our business and for general corporate purposes. Financing Activity. | ● | We closed our thirteenth collateralized securitization vehicle (CLO XIII) totaling $800.0 million of real estate related assets and cash, of which $668.0 million of investment grade notes were issued to third party investors and $70.0 million of below investment-grade notes and a $62.0 million equity interest in the portfolio were retained by us; |
| ● | We completed the unwind of CLO VIII, redeeming $282.9 million of outstanding notes which were repaid primarily from refinancing the remaining assets within our existing financing facilities (including CLO XIII), as well as with cash held by CLO VIII; |
| ● | We were required to post $54.7 million of cash collateral in connection with margin calls on our securities repurchase facilities, which were used to reduce the UPB of those facilities in April 2020; and |
| ● | We increased the capacity of the credit facilities and repurchase agreements in our Structured Business by more than $375.0 million by increasing the capacity of existing facilities. |
Share Repurchases. In March 2020, we implemented a share repurchase program authorizing the repurchase of up to $100.0 million of our outstanding common stock. As of April 30, 2020, we repurchased 993,106 shares of our common stock under this program at a total cost of $3.9 million and an average cost of $3.98 per share. Adoption of CECL. We recorded a $75.9 million credit loss provision in connection with the adoption of CECL. See Note 2 for details. Agency Business Activity. | ● | Loan originations and sales totaled $1.08 billion and $957.1 million, respectively; |
| ● | Our fee-based servicing portfolio grew 1% to $20.20 billion; and |
| ● | We recorded losses on derivative instruments totaling $47.7 million, primarily related to our Swap Futures held to hedge interest rate exposure on our Private Label loans until they are securitized. |
Structured Business Activity. Our Structured loan and investment portfolio grew 12% to $4.80 billion on loan originations totaling $856.2 million, partially offset by loan runoff of $275.3 million. Dividend. We declared a cash dividend on common stock of $0.30 per share, which is payable on July 15, 2020 to common stockholders of record on June 30, 2020. Subsequent Events. In April 2020, we issued $90.0$40.5 million aggregate principal amount of 5.75%8.00% senior unsecured notes due in 20242023 in a private offering, generating net proceeds of $88.2$39.8 million. TheA significant portion of the net proceeds from this offering were used to make investmentsrepay secured indebtedness that financed our securities with margin call exposure. In addition, as previously planned, we also completed the unwind of the $70.0 million Debt Fund and for general corporate purposes.redeemed all the outstanding notes with a portion of the proceeds from our senior unsecured notes issued in March 2020. Financing Activity. We increased the capacity of our Structured financing facilities by $250.0 million, which includes a new $150.0 million facility and a $100.0 million increase to an existing facility.
Agency Business Activity.
· Loan originations and sales totaled $845.9 million and $1.10 billion, respectively; and
· Our fee-based servicing portfolio grew 2% to $18.88 billion from $18.60 billion at December 31, 2018.
Structured Business Activity. Our Structured loan and investment portfolio grew to $3.41 billion on loan originations totaling $416.3 million, partially offset by loan runoff totaling $279.5 million.
Dividend. We raised our quarterly dividend to $0.28 per share, which represents a 4% increase from the dividend declared in the first quarter of 2019.
Current Market Conditions, Risks and Recent Trends As discussed throughout this quarterly report on Form 10-Q, the COVID-19 pandemic has impacted the global economy in an unprecedented way, swiftly halting activity across many industries, and causing significant disruption and liquidity constraints in many market segments, including the financial services, real estate and credit markets. The impact of COVID-19 on companies is evolving rapidly, and the extent and duration of the economic fallout from this pandemic remain unclear. COVID-19 could have a continued and prolonged adverse impact on economic and market conditions and could trigger a period of global economic slowdown. Adverse economic conditions could result in declining real estate values, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which could significantly impact our results of operations, financial condition, business prospects and our ability to make distributions to our stockholders. Prior to the current market dislocation, we were very active in the capital markets during the first quarter of 2020, closing a new $800.0 million CLO and issuing $275.0 million of senior notes. As a result of the market dislocation, our Board of Directors authorized a $100.0 million stock repurchase program. In addition, many commercial mortgage REITs have suffered from reduced available liquidity and, despite a reduction in available liquidity, we closed a $40.5 million private placement debt offering in April 2020. Our Agency Business requires limited capital to grow, as originations are financed through warehouse facilities for generally up to 60 days before the loans are sold, therefore this lack of liquidity has not and should not, impact our ability to execute our business strategy, particularlygrow this business. On the growth ofother side, our Structured Business portfolio of loans and investments, depends 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 relyis more reliant on the capital markets to generate capital for financing thegrow, and therefore, we expect growth in this business to be limited until liquidity is more readily available.
In our Structured Business, 82% of our business. Whileportfolio is in multifamily assets with most of these loans containing interest reserves and/or replenishment obligations by our borrowers. In our Agency Business, we have received requests for forbearances related to April 2020 payments totaling approximately 0.5% of our $14.95 billion Fannie Mae DUS portfolio and 4.0% of our $4.57 billion Freddie Mac portfolio. With respect to our outlook for May and June 2020 payments, we think there will be additional economic stress, which we will closely monitor and manage. The federal government, Fannie Mae and Freddie Mac have made certain forbearance and non-eviction programs available to borrowers and tenants should they need to counteract any short-term pressure on their properties from COVID-19 and its impact on the economy. For borrowers, in order to qualify for a forbearance, they need to demonstrate they have been successfuladversely affected by the pandemic and their ability to make their loan payments has been impacted. All loan and rent payments that are suspended remain the obligations of the borrowers and tenants and we are offering tenants of our borrowers impacted by the COVID-19 pandemic financial assistance through a $2.0 million rental assistance program that we launched in generating capital through the debt and equity marketsApril 2020. Interest rates have trended downward over the past several quarters there can be no assurance that we will continue to have access to 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 increased its targeted federal rate 175 basis points over the past few years. 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 remainare currently at relatively low levels. However, we cannot be certain that such a trend will continue as the number, timing, and magnitude of additional increases by the Federal Reserve, combined with other macroeconomic and market factors, mayWhile lower interest rates generally have a different effectpositive impact on the commercial real estate marketorigination volume as borrowers look to refinance loans to take advantage of lower rates, our net interest income may be negatively impacted as higher yielding loans are paid off and on us.
The Trump administration continues to focus on several issues that could impactreplaced with lower yielding loans. We are somewhat insulated from decreasing interest rates, andsince a large portion of our structured loan portfolio has LIBOR floors, which could increase our net interest income in the U.S. economy. While there is uncertainty regarding the specifics and timing of any future policy changes, any such actions could impact our business.if rates continue to decline.
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. In November 2018,September 2019, the Federal Housing Finance Agency (“FHFA”Agency's ("FHFA") announced a revised cap structure to its previously released the GSE 2019 Scorecard (“2019 Scorecard”), which established Fannie Mae’s and Freddie Mac’sScorecard. The loan origination caps (“2019 Caps”for both Fannie Mae and Freddie Mac were adjusted to $100 billion for each enterprise for a combined total of $200 billion ("2019/2020 Caps") at $35.0 billion eachand will run for a five-quarter period through the end of 2020. The new caps also mandate that 37.5% be directed towards mission driven business or affordable housing. The 2019/2020 Caps apply to all multifamily finance market, mirroring the 2018 loan origination caps. Affordable housing loans, loans to small multifamily properties,business and manufactured housing rental community loans continue to be excluded from the 2019 Caps. The 2019 Scorecard continues to provide FHFA the flexibility to review the estimated size of the multifamily loan origination market quarterly and proactively adjust the 2019 Caps accordingly, however, the FHFA will not reduce the 2019 Caps in the event that the multifamily market is smaller than anticipated. The 2019 Scorecard also continues to provide exclusions for loans to properties in underserved markets and for loans to finance certain energy or water efficiency improvements, however, to qualify for this exclusion, multifamily loans that finance energy or water efficiency improvements must now project a minimum 30% reduction in whole property energy and water consumption and a minimum of 15% of the reduction must be in energy consumption. FHFA is also adding a data collection requirement for all excluded Green Rewards and Green Up/Green Up Plus loans, which requires engagement of a third-party data collection firm prior to closing.has no exclusions. 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 wouldcould negatively impact our financial results. We are unsure whether the FHFA will impose stricter limitations on GSE multifamily production volume in the future.
The commercial real estate markets remain strong, 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, over the past several years, the levels of modifications and delinquencies have generally declined as property values 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 March 31, 20192020 to December 31, 2018:2019: Restricted cash increased $111.3 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.
Our Structured loan and investment portfolio balance was $3.41$4.80 billion and $3.28$4.29 billion at March 31, 20192020 and December 31, 2018,2019, respectively. This increase was primarily due to loan originations exceeding loan payoffs and other reductionspaydowns by $136.8$580.9 million. See below for details. Our portfolio had a weighted average current interest pay rate of 7.05%5.70% and 7.02%5.98% at March 31, 20192020 and December 31, 2018,2019, respectively. Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 7.71%6.35% and 7.66%6.68% at March 31, 20192020 and December 31, 2018,2019, respectively. Advances on our financing facilities totaled $3.13$4.70 billion and $2.89$3.93 billion at March 31, 20192020 and December 31, 2018,2019, respectively, with a weighted average funding cost of 4.65%3.19% and 4.66%3.82%, respectively, which excludes financing costs. Including financing costs, the weighted average funding rate was 5.22%3.68% and 5.24%4.35% at March 31, 20192020 and December 31, 2018,2019, respectively. Activity from our Structured Business portfolio was comprised of the following ($ in thousands): | | Three Months Ended March 31, 2019 | | Loans originated | | $ | 416,295 | | Number of loans | | 28 | | Weighted average interest rate | | 7.84 | % | | | | | Loan paid-off / paid-down | | $ | 279,471 | | Number of loans | | 26 | | Weighted average interest rate | | 7.31 | % | | | | | Loans extended | | $ | 115,595 | | Number of loans | | 11 | |
| | | | | | | Three Months Ended | | | | March 31, 2020 | | Loans originated | | $ | 856,229 | | Number of loans | | | 47 | | Weighted average interest rate | | | 5.67 | % | | | | | | Loan paid-off / paid-down | | $ | 275,292 | | Number of loans | | | 21 | | Weighted average interest rate | | | 7.18 | % | | | | | | Loans extended(1) | | $ | 373,214 | | Number of loans | | | 18 | |
(1) | The majority of our loan extensions did not include rate concessions and were completed under the normal course of business prior to the COVID-19 pandemic. |
Loans held-for-sale from the Agency Business decreased $255.8increased $130.3 million, primarily related to $282.3 million of Private Label loan originations, partially offset by Fannie Mae loan sales exceeding loan originations during the three months ended March 31, 2019by $172.1 million as noted in the following table (in thousands). TheseOur GSE loans are generally sold within 60 days, while our Private Label loans are generally expected to be sold and securitized within 180 days from the loan origination date. | | Three Months Ended March 31, 2019 | | | | Loan Originations | | Loan Sales | | Fannie Mae | | $ | 546,886 | | $ | 746,937 | | Freddie Mac | | 192,492 | | 223,773 | | FHA | | 1,110 | | 25,631 | | CMBS/Conduit | | 105,425 | | 105,425 | | Total | | $ | 845,913 | | $ | 1,101,766 | |
| | | | | | | | | Three Months Ended | | | March 31, 2020 | | | Loan | | | | | | Originations | | Loan Sales | Fannie Mae | | $ | 581,973 | | $ | 754,044 | Private Label | | | 282,345 | | | — | Freddie Mac | | | 199,711 | | | 179,703 | FHA | | | 17,944 | | | 23,313 | Total | | $ | 1,081,973 | | $ | 957,060 |
Securities held-to-maturityOther assets increased $9.7$98.2 million, primarily due to the purchase$54.7 million of SFR bondscash collateral we posted related to margin calls on our secured debt, a $23.5 million increase to deferred tax assets and a $22.2 million increase in derivative assets associated with the changes in fair value of our forward sales commitments and cash posted in connection with our Swap Futures.
Liabilities – Comparison of balances at par for $10.0 million.March 31, 2020 to December 31, 2019: Investments in equity affiliatesCredit facilities and repurchase agreements increased $6.9$168.2 million, primarily due to funding of new structured loan activity and the financing of CLO bonds in connection with the completion of CLO XIII.
Collateralized loan obligations increased $383.0 million, primarily due to the issuance of a $6.0new CLO, where we issued $668.0 million investment in AMAC III,of notes to third party investors, partially offset by the unwind of a multifamily-focused commercial real estate investment fund. See Note 8 — Investments in Equity AffiliatesCLO totaling $282.9 million. Senior unsecured notes increased $272.1 million due to our issuance of $275.0 million of our 4.50% Notes. Allowance for details. Other assetsloss-sharing obligations increased $22.3$36.1 million, primarily due to the adoption of ASU 2016-02,2016-13, which required us to record an operating lease ROU asset.credit losses based on the CECL methodology. See Note 2 — Basis of Presentation and Significant Accounting Policies for details.
Liabilities — Comparison of balances atEquity
During the three months ended March 31, 2020, we sold 1,350,000 shares of our common stock through our “At-The-Market” agreement, raising net proceeds of $19.4 million. We also issued 360,860 million shares of our common stock in connection with settlements of our convertible notes. In February 2020, we used a portion of the net proceeds from our public offering in December 2019 to December 31, 2018: Credit facilities and repurchase agreements decreased $103.1 million, primarily due to a $249.5 million reduction in financings on our loans held-for-sale as a resultpurchase an aggregate of loan sales exceeding loan originations in the first quarter of 2019. This reduction was partially offset by funding of new structured loan activity.
Senior unsecured notes increased $88.5 million, due to our issuance of $90.0 million747,500 shares of our 5.75% Notes.common stock and OP Units from our chief executive officer and ACM. In addition, through April 30, 2020, we repurchased 993,106 shares of our common stock under our share repurchase program.
Other liabilities decreased $9.0 million, primarily due to the payment of the special dividend declared in 2018 and incentive compensation related to 2018 performance during the first quarter of 2019, partially offset by the adoption of ASU 2016-02, which required us to record an operating lease liability.
Equity
Distributions — –Dividends declared (on a per share basis) for the three months ended March 31, 20192020 were as follows: Common Stock | | Preferred Stock | | | | | | | | Dividend (1) | | Declaration Date | | Dividend | | Declaration Date | | Series A | | Series B | | Series C | | February 13, 2019 | | $ | 0.27 | | February 1, 2019 | | $ | 0.515625 | | $ | 0.484375 | | $ | 0.53125 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Common Stock | | Preferred Stock | | | | | | | | | Dividend (1) | Declaration Date | | Dividend | | Declaration Date | | Series A | | Series B | | Series C | February 13, 2020 | | $ | 0.30 | | | January 31, 2020 | | $ | 0.515625 | | $ | 0.484375 | | $ | 0.53125 |
(1) | The dividend declared on January 31, 2020 was for December 1, 2019 through February 29, 2020. |
(1) The dividend declared on February 1, 2019 was for December 1, 2018 through February 28, 2019.
Common Stock — On May 1, 2019,6, 2020, the Board of Directors declared a cash dividend of $0.28$0.30 per share of common stock. The dividend is payable on May 31, 2019July 15, 2020 to common stockholders of record as of the close of business on May 23, 2019.June 30, 2020. Preferred Stock — On May 1, 2019,2020, 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 $0.53125 per share of 8.50% Series C preferred stock. These amounts reflect dividends from March 1, 20192020 through May 31, 20192020 and are payable on May 31, 2019June 1, 2020 to preferred stockholders of record on May 15, 2019.2020. Deferred Compensation We issued 384,930344,919 shares of restricted stock to our employees, including our chief executive officer, 55,24436,396 shares to the independent members of the Board of Directors and up to 352,427275,569 shares of performance-based restricted common stock units to our chief executive officer induring the first quarter of 2019.three months ended March 31, 2020. See Note 16 — Equity for details. In addition, we also withheld 143,096 shares of restricted common stock from employees to net settle and pay their respective withholding taxes in connection with awards that vested. Agency Servicing Portfolio The following table sets forth the characteristics of our loan servicing portfolio collateralizing our mortgage servicing rights and servicing revenue ($ in thousands): | | March 31, 2019 | | | | | | | | Wtd. Avg. | | Wtd. Avg. | | | | | | | | Annualized | | | | | | Servicing | | | | Age of | | Portfolio | | | | | | | | Prepayments | | Delinquencies | | | | Portfolio | | Loan | | Portfolio | | Maturity | | Interest Rate Type | | Wtd. Avg. | | as a Percentage | | as a Percentage | | Product | | UPB | | Count | | (in years) | | (in years) | | Fixed | | Adjustable | | Note Rate | | of Portfolio(1) | | of Portfolio(2) | | Fannie Mae | | $ | 13,719,351 | | 2,245 | | 3.1 | | 8.2 | | 91 | % | 9 | % | 4.71 | % | 9.26 | % | 0.31 | % | Freddie Mac | | 4,515,829 | | 1,449 | | 1.7 | | 12.7 | | 96 | % | 4 | % | 4.28 | % | 5.38 | % | 0.35 | % | FHA | | 648,583 | | 92 | | 3.3 | | 32.1 | | 100 | % | 0 | % | 3.69 | % | 0.00 | % | 0.00 | % | Total | | $ | 18,883,763 | | 3,786 | | 2.8 | | 10.1 | | 93 | % | 7 | % | 4.57 | % | 8.02 | % | 0.31 | % |
| | December 31, 2018 | | Fannie Mae | | $ | 13,562,667 | | 2,232 | | 3.1 | | 8.2 | | 91 | % | 9 | % | 4.70 | % | 13.33 | % | 0.26 | % | Freddie Mac | | 4,394,287 | | 1,415 | | 1.6 | | 12.8 | | 96 | % | 4 | % | 4.24 | % | 7.54 | % | 0.00 | % | FHA | | 644,687 | | 91 | | 3.1 | | 32.3 | | 100 | % | 0 | % | 3.68 | % | 1.15 | % | 0.00 | % | Total | | $ | 18,601,641 | | 3,738 | | 2.7 | | 10.1 | | 92 | % | 8 | % | 4.56 | % | 11.54 | % | 0.19 | % |
(1)Prepayments reflect loans repaid prior to six months from the loan’s maturity. The majority of our loan servicing portfolio has a prepayment protection term and therefore, we may collect a prepayment fee which is included as a component of servicing revenue, net.
(2)Delinquent loans reflect loans that are contractually 60 days or more past due. As of March 31, 2019 and December 31, 2018, delinquent loans totaled $58.9 million and $35.6 million, respectively, of which $43.1 million and $35.6 million, respectively, were in the foreclosure process. For the periods presented, no loans collateralizing our servicing portfolio are currently in bankruptcy.
| | | | | | | | | | | | | | | | | | | | | | | March 31, 2020 | | | | | | | | | Wtd. Avg. | | Wtd. Avg. | | | | | | | | Annualized | | | | | | Servicing | | | | Age of | | Portfolio | | | | | | | | Prepayments | | Delinquencies | | | | Portfolio | | Loan | | Portfolio | | Maturity | | Interest Rate Type | | Wtd. Avg. | | as a Percentage | | as a Percentage | | Product | | UPB | | Count | | (in years) | | (in years) | | Fixed | | Adjustable | | Note Rate | | of Portfolio (1) | | of Portfolio (2) | | Fannie Mae | | $ | 14,946,922 | | 2,376 | | 3.1 | | 8.6 | | 96 | % | 4 | % | 4.49 | % | 10.24 | % | 0.22 | % | Freddie Mac | | | 4,570,521 | | 1,443 | | 2.3 | | 12.4 | | 97 | % | 3 | % | 4.20 | % | 11.26 | % | 0.58 | % | FHA | | | 679,685 | | 89 | | 3.7 | | 32.0 | | 100 | % | 0 | % | 3.74 | % | 20.15 | % | 0.00 | % | Total | | $ | 20,197,128 | | 3,908 | | 2.9 | | 10.3 | | 96 | % | 4 | % | 4.40 | % | 10.81 | % | 0.30 | % |
| | | | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | Fannie Mae | | $ | 14,832,844 | | 2,349 | | 3.0 | | 8.6 | | 95 | % | 5 | % | 4.52 | % | 11.37 | % | 0.23 | % | Freddie Mac | | | 4,534,714 | | 1,475 | | 2.2 | | 12.6 | | 96 | % | 4 | % | 4.23 | % | 11.37 | % | 0.57 | % | FHA | | | 691,519 | | 92 | | 3.6 | | 32.1 | | 100 | % | 0 | % | 3.71 | % | 3.98 | % | 0.00 | % | Total | | $ | 20,059,077 | | 3,916 | | 2.9 | | 10.3 | | 95 | % | 5 | % | 4.43 | % | 11.12 | % | 0.30 | % |
(1) | Prepayments reflect loans repaid prior to nine months from the loan’s maturity. The majority of our loan servicing portfolio has a prepayment protection term and therefore, we may collect a prepayment fee which is included as a component of servicing revenue, net. |
(2) | Delinquent loans reflect loans that are contractually 60 days or more past due. As of March 31, 2020 and December 31, 2019, delinquent loans totaled $60.0 million and $59.2 million, respectively, of which $33.3 million and $33.5 million, respectively, were in the foreclosure process. In addition, at December 31, 2019, loans collateralizing our servicing portfolio totaling $3.2 million were in bankruptcy. |
Our servicing portfolio represents commercial real estate loans originated in our Agency Business, which are generally transferred or sold within 60 days from the date the loan is funded. Primarily all of the loans in our servicing portfolio are collateralized by multifamily properties. In addition, we are generally required to share in the risk of any losses associated with loans sold under the Fannie Mae DUS program, see Note 11 — Allowance for Loss-Sharing Obligations.11. Comparison of Results of Operations for the Three Months Ended March 31, 20192020 and 20182019 The following table provides our consolidated operating results ($ in thousands): | | Three Months Ended March 31, | | Increase / (Decrease) | | | | 2019 | | 2018 | | Amount | | Percent | | | | | | | | | | | | Interest income | | $ | 71,277 | | $ | 51,612 | | $ | 19,665 | | 38 | % | Interest expense | | 41,865 | | 33,387 | | 8,478 | | 25 | % | Net interest income | | 29,412 | | 18,225 | | 11,187 | | 61 | % | Other revenue: | | | | | | | | | | Gain on sales, including fee-based services, net | | 16,389 | | 18,193 | | (1,804 | ) | (10 | )% | Mortgage servicing rights | | 14,232 | | 19,634 | | (5,402 | ) | (28 | )% | Servicing revenue, net | | 13,552 | | 9,547 | | 4,005 | | 42 | % | Property operating income | | 2,803 | | 2,910 | | (107 | ) | (4 | )% | Other income, net | | (2,128 | ) | 2,878 | | (5,006 | ) | nm | | Total other revenue | | 44,848 | | 53,162 | | (8,314 | ) | (16 | )% | Other expenses: | | | | | | | | | | Employee compensation and benefits | | 31,764 | | 29,494 | | 2,270 | | 8 | % | Selling and administrative | | 9,761 | | 8,915 | | 846 | | 9 | % | Property operating expenses | | 2,396 | | 2,796 | | (400 | ) | (14 | )% | Depreciation and amortization | | 1,912 | | 1,846 | | 66 | | 4 | % | Provision for loss sharing (net of recoveries) | | 454 | | 473 | | (19 | ) | (4 | )% | Provision for loan losses (net of recoveries) | | — | | 325 | | (325 | ) | nm | | Total other expenses | | 46,287 | | 43,849 | | 2,438 | | 6 | % | Income before extinguishment of debt, income from equity affiliates and income taxes | | 27,973 | | 27,538 | | 435 | | 2 | % | Loss on extinguishment of debt | | (128 | ) | — | | (128 | ) | nm | | Income from equity affiliates | | 2,151 | | 746 | | 1,405 | | 188 | % | Benefit from income taxes | | 10 | | 8,784 | | (8,774 | ) | (100 | )% | Net income | | 30,006 | | 37,068 | | (7,062 | ) | (19 | )% | Preferred stock dividends | | 1,888 | | 1,888 | | — | | — | | Net income attributable to noncontrolling interest | | 5,468 | | 8,991 | | (3,523 | ) | (39 | )% | Net income attributable to common stockholders | | $ | 22,650 | | $ | 26,189 | | $ | (3,539 | ) | (14 | )% |
| | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase / (Decrease) | | | | 2020 | | 2019 | | Amount | | Percent | | | | | | | | | | | | | | | Interest income | | $ | 88,526 | | $ | 71,277 | | $ | 17,249 | | 24 | % | Interest expense | | | 49,982 | | | 41,865 | | | 8,117 | | 19 | % | Net interest income | | | 38,544 | | | 29,412 | | | 9,132 | | 31 | % | Other revenue: | | | | | | | | | | | | | Gain on sales, including fee-based services, net | | | 14,305 | | | 16,389 | | | (2,084) | | (13) | % | Mortgage servicing rights | | | 21,934 | | | 14,232 | | | 7,702 | | 54 | % | Servicing revenue, net | | | 13,302 | | | 13,552 | | | (250) | | (2) | % | Property operating income | | | 2,192 | | | 2,803 | | | (611) | | (22) | % | Loss on derivative instruments, net | | | (50,731) | | | (2,465) | | | (48,266) | | nm | | Other income, net | | | 1,303 | | | 337 | | | 966 | | nm | | Total other revenue | | | 2,305 | | | 44,848 | | | (42,543) | | (95) | % | Other expenses: | | | | | | | | | | | | | Employee compensation and benefits | | | 34,252 | | | 31,764 | | | 2,488 | | 8 | % | Selling and administrative | | | 11,052 | | | 9,761 | | | 1,291 | | 13 | % | Property operating expenses | | | 2,443 | | | 2,396 | | | 47 | | 2 | % | Depreciation and amortization | | | 1,947 | | | 1,912 | | | 35 | | 2 | % | Provision for loss sharing (net of recoveries) | | | 21,537 | | | 454 | | | 21,083 | | nm | | Provision for credit losses (net of recoveries) | | | 54,382 | | | — | | | 54,382 | | nm | | Total other expenses | | | 125,613 | | | 46,287 | | | 79,326 | | 171 | % | (Loss) income before extinguishment of debt, income from equity affiliates and income taxes | | | (84,764) | | | 27,973 | | | (112,737) | | nm | | Loss on extinguishment of debt | | | (1,954) | | | (128) | | | (1,826) | | nm | | Income from equity affiliates | | | 3,992 | | | 2,151 | | | 1,841 | | 86 | % | Benefit from income taxes | | | 14,370 | | | 10 | | | 14,360 | | nm | | Net (loss) income | | | (68,356) | | | 30,006 | | | (98,362) | | nm | | Preferred stock dividends | | | 1,888 | | | 1,888 | | | — | | — | | Net (loss) income attributable to noncontrolling interest | | | (10,934) | | | 5,468 | | | (16,402) | | nm | | Net (loss) income attributable to common stockholders | | $ | (59,310) | | $ | 22,650 | | $ | (81,960) | | nm | |
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 ($ in thousands): | | Three Months Ended March 31, | | | | 2019 | | 2018 | | | | 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 | | $ | 3,027,916 | | $ | 55,747 | | 7.47 | % | $ | 2,446,633 | | $ | 40,985 | | 6.79 | % | Preferred equity investments | | 181,639 | | 5,048 | | 11.27 | % | 149,715 | | 3,299 | | 8.94 | % | Mezzanine / junior participation loans | | 131,536 | | 3,830 | | 11.81 | % | 85,829 | | 2,564 | | 12.12 | % | Core interest-earning assets | | 3,341,091 | | 64,625 | | 7.84 | % | 2,682,177 | | 46,848 | | 7.08 | % | Cash equivalents | | 273,923 | | 1,184 | | 1.75 | % | 200,487 | | 388 | | 0.78 | % | Total interest-earning assets | | $ | 3,615,014 | | $ | 65,809 | | 7.38 | % | $ | 2,882,664 | | $ | 47,236 | | 6.65 | % | | | | | | | | | | | | | | | Structured Business interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | CLO | | $ | 1,609,524 | | $ | 18,471 | | 4.65 | % | $ | 1,423,567 | | $ | 14,212 | | 4.05 | % | Warehouse lines | | 722,893 | | 9,179 | | 5.15 | % | 297,165 | | 3,654 | | 4.99 | % | Unsecured debt | | 402,199 | | 7,117 | | 7.18 | % | 355,971 | | 9,499 | | 10.82 | % | Trust preferred | | 154,336 | | 2,143 | | 5.63 | % | 154,379 | | 1,750 | | 4.60 | % | Debt fund | | 70,000 | | 1,347 | | 7.80 | % | 68,115 | | 1,090 | | 6.50 | % | Total interest-bearing liabilities | | $ | 2,958,952 | | 38,257 | | 5.24 | % | $ | 2,299,197 | | 30,205 | | 5.33 | % | Net interest income | | | | $ | 27,552 | | | | | | $ | 17,031 | | | |
| | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | | 2020 | | 2019 | | | | Average | | Interest | | W/A Yield / | | Average | | Interest | | W/A Yield / | | | | Carrying | | Income / | | Financing | | Carrying | | Income / | | Financing | | | | Value (1) | | Expense | | Cost (2) | | Value (1) | | Expense | | Cost (2) | | Structured Business interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bridge loans | | $ | 4,114,038 | | $ | 64,462 | | 6.30 | % | $ | 3,027,916 | | $ | 55,747 | | 7.47 | % | Preferred equity investments | | | 201,974 | | | 5,876 | | 11.70 | % | | 131,536 | | | 3,830 | | 11.81 | % | Mezzanine / junior participation loans | | | 176,528 | | | 4,849 | | 11.05 | % | | 181,639 | | | 5,048 | | 11.27 | % | Other | | | 86,173 | | | 1,866 | | 11.32 | % | | — | | | — | | — | | Core interest-earning assets | | | 4,578,713 | | | 77,053 | | 6.77 | % | | 3,341,091 | | | 64,625 | | 7.37 | % | Cash equivalents | | | 443,026 | | | 1,424 | | 1.29 | % | | 273,923 | | | 1,184 | | 1.75 | % | Total interest-earning assets | | $ | 5,021,739 | | $ | 78,477 | | 6.29 | % | $ | 3,615,014 | | $ | 65,809 | | 6.99 | % | | | | | | | | | | | | | | | | | | | Structured Business interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CLO | | $ | 2,251,885 | | $ | 18,497 | | 3.30 | % | $ | 1,609,524 | | $ | 18,471 | | 4.65 | % | Warehouse lines | | | 1,074,622 | | | 11,102 | | 4.16 | % | | 722,893 | | | 9,179 | | 5.15 | % | Unsecured debt | | | 697,605 | | | 10,687 | | 6.16 | % | | 402,199 | | | 7,117 | | 7.18 | % | Trust preferred | | | 154,336 | | | 1,834 | | 4.78 | % | | 154,336 | | | 2,143 | | 5.63 | % | Debt fund | | | 70,000 | | | 1,279 | | 7.35 | % | | 70,000 | | | 1,347 | | 7.80 | % | Total interest-bearing liabilities | | $ | 4,248,448 | | | 43,399 | | 4.11 | % | $ | 2,958,952 | | | 38,257 | | 4.93 | % | Net interest income | | | | | $ | 35,078 | | | | | | | $ | 27,552 | | | |
(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. |
(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 primarily due to an increaseincreases of $18.6$12.7 million, or 39%19%, from our Structured Business and $4.6 million, or 84%, from our Agency Business. The increase from our Structured Business was primarily due to a 25%37% increase in our average core interest-earning assets, as a result of loan originations exceeding loan runoff, andpartially offset by an 11% increase8% decrease in the average yield on core interest-earning assets,assets. The decrease in the average yield was largely due to increaseslower rates on originations, as compared to loan runoff, and a decrease in the average LIBOR rate. The increase from our Agency Business was primarily due to an increase in the average loans held-for-sale, which is primarily due to Private Label loan originations that have not yet been securitized. The increase in interest expense is primarilywas due to an increaseincreases of $8.1$5.1 million, or 27%13%, from our Structured Business and $3.0 million, or 82%, from our Agency Business. The increase from our Structured Business was primarily due to a 29%44% increase in the average balance of our interest-bearing liabilities, due to growth in our loan portfolio and the issuance of an additional CLO and unsecured debt.debt, partially offset by a 17% decrease in the average cost of our interest-bearing liabilities. The period-over-perioddecrease in the average cost was primarily due to lower rates on recently issued debt and a decrease in the average LIBOR rate. The increase from our Agency Business was primarily due to an increase in the average LIBOR rate was substantially offset by accelerated deferred financing costs recordeddebt balance used to finance the increase in the first quarterloans held-for-sale. Agency Business Revenue The decrease in gain on sales, including fee-based services, net was primarily due to a 13% decrease ($144.7 million) in sales margin (gain on sales, including fee-based services, net as a percentage of loan sales volume) from 1.71% to 1.49% in the first quarter of 2019, partially offset by a $39.3 million increase in loan sales.volume. The decreaseincrease in income from MSRs was primarily due to a $196.8 million, or 19%, decrease50% increase ($420.3 million) in loan commitment volume, as a result of a decrease in Agency loan originations, and an 11% decrease in the MSR rate (income from MSRs as a percentage of loan commitment volume) from 1.88% to 1.68%, primarily due to an increase in CMBS volume which we do not service.volume. Loss on Derivative Instruments, Net The increase in servicing revenue, netloss on derivative instruments was primarily due to an increase inincreases of $45.3 million from our servicing portfolioAgency Business and an increase in earnings on escrows$3.0 million from our Structured Business, which were primarily due to increaseslosses recognized on our Swap Futures held in average escrow balancesconnection with our Private Label and the average LIBOR rate. Our servicing portfolio increased 13% from $16.69 billion at March 31, 2018 to $18.88 billion at March 31, 2019. Our servicing revenue, net in both the first quarter of 2019 and 2018, included $12.3 million and $11.9 million, respectively, of amortization expense.
Other Income, Net
The decrease in other income, net was due to changes in the fair value of rate lock commitments in our Agency Business. SFR loans, respectively. See Note 13 — Fair Value12 for details.
Other Expenses The increase in employee compensation and benefits expense is comprisedwas primarily due to an increase of $1.4$2.4 million, from our Agency Business and $0.9 millionor 28%, from our Structured Business. TheBusiness, which was mainly due to an increase in both businesses is primarily due to increases in accrued compensation and headcount associated with each business’s portfolio growth. The increase in selling and administrative expensesexpense was primarily due to an increase of $0.9$1.3 million, or 25%24%, from our Agency Business, which was mainly due to increases in professional fees and technology costs. The increases in our Structured Business, mainly from higher professional fees.provision for loss sharing and provision for credit losses were primarily due to additional reserves of $75.9 million recorded in connection with the adoption of ASU 2016-13. See Note 2 for details. Loss on Extinguishment of Debt The increase in loss on extinguishment of debt was primarily due to $1.5 million of deferred financing fees recognized in connection with the unwind of CLO VIII. Income from Equity Affiliates Income from equity affiliates in the first quarter of 2019 and 2018 was comprised2020 primarily of distributions from an equity investment totaling $1.3 million and $0.6 million, respectively, andreflects income from our investment in a residential mortgage banking business of $2.9 million and distributions from an equity investment totaling $1.1 million. Income from equity affiliates in the first quarter of 2019 primarily reflects distributions from an equity investment totaling $1.3 million and $0.8 million and $0.1 million, respectively. See Note 8—Investmentsof income from our investment in Equity Affiliates for details.a residential mortgage banking business. Provision forBenefit from Income Taxes
In the three months ended March 31, 20192020 and 2018,2019, we recorded a tax benefit of $14.4 million and less than $0.1 million, and $8.8 million, respectively. The tax benefit from income taxesrecorded in the three months ended March 31, 2020 consisted of a deferred tax benefit of $19.9 million and a current tax provision of $5.5 million. The tax benefit recorded in the three months ended March 31, 2019 consisted of a deferred tax benefit of $4.2 million and a current tax provision of $4.2 million. The benefit from income taxes recorded in the three months ended March 31, 2018 consisted of a deferred tax benefit of $13.3 million and a current tax provision of $4.5 million. The deferred tax benefit in the three months ended March 31, 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. Net Income Attributable to Noncontrolling Interest The noncontrolling interest relates to the outstanding OP Units issued as part of the Acquisition. There were 20,487,54420,369,265 OP Units and 21,230,76920,487,544 OP Units outstanding as of March 31, 20192020 and 2018,2019, respectively, which represented 19.2%15.6% and 25.4%19.2% of our outstanding stock at March 31, 20192020 and 2018,2019, 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’sMac's SBL 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, proceeds from CLOs and securitizations, 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. We are monitoring the COVID-19 pandemic and its impact on our financing sources, borrowers and their tenants, and the economy as a whole. The magnitude and duration of the pandemic, and its impact on our operations and liquidity, are uncertain and continue to evolve. To the extent that our financing sources, borrower’s and their tenants continue to be impacted by the pandemic, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources. We have approximately $4.70 billion in total structured debt outstanding at March 31, 2020. Of this total, approximately $3.57 billion, or 76%, does not contain mark-to-market provisions and is comprised of non-recourse CLO vehicles, senior unsecured debt and junior subordinated notes, the majority of which have maturity dates in 2022, or later. The remaining $1.06 billion of debt is in warehouse and repurchase facilities with several different banks that we have long-standing relationships with and substantially all of which have maturity extension options. While we expect to extend or renew all of our facilities as they mature, given the current market environment, we believe that the extension terms may be less favorable than the terms of our current facilities. In addition to our ability to extend our warehouse and repurchase facilities, we have been successfulapproximately $350.0 million in obtaining proceeds fromcash and available liquidity as well as other liquidity sources, including our $20.20 billion agency servicing portfolio, which is mostly prepayment protected and generates approximately $90.0 million a year in recurring cash flow. During the first quarter of 2020, we had $350.0 million of securities financed with $235.0 million of debt that was subject to margin calls related to changes in interest spreads. We have significantly reduced this exposure to currently about $40.0 million through margin call payments, restructuring a portion of the debt and equity offerings, CLOs and certain financing facilities, current conditionspaying down a portion of the debt with the majority of our senior notes issued 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.April 2020. 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 byused in operating activities totaled $268.4$233.2 million during the three months ended March 31, 20192020 and consisted primarily of net cash inflowsoutflows of $250.0$131.6 million as a result of loan salesoriginations exceeding loan originationssales in our Agency Business.Business, a net loss of $68.4 million and $54.7 million of cash collateral posted in connection with margin calls on our secured debt. Cash flows used in investing activities totaled $138.4$510.8 million during the three months ended March 31, 2019.2020. Loan and investment activity (originations and payoffs/paydowns) comprise the bulk of our investing activities. Loan originations from our Structured Business totaling $403.8$815.5 million, net of payoffs and paydowns of $280.8$298.7 million, resulted in net cash outflows of $122.9$516.8 million. Cash outflows also included $10.0 million to purchase SFR bonds at par and a $6.0 million investment in a new equity investment. Cash flows used inprovided by financing activities totaled $54.3$759.8 million during the three months ended March 31, 2019,2020, and consisted primarily of net cash outflowsproceeds of $103.2$385.1 million from debt facility activities (facility paydowns were greater than funded loan originations) and $30.6CLO activity, $275.0 million distributed to our stockholders and OP Unit holders, partially offset by $90.0 million of proceeds received from the issuance of senior unsecured notes.notes and net cash inflows of $170.6 million from debt facility activities (funded loan originations were greater than facility paydowns). These cash inflows were partially offset by $41.3 million of distributions to our stockholders and OP Unit 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 March 31, 2019.2020. Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $49.0 million.$50.0 million and $2.6 million of cash collateral. See Note 14 — Commitments and Contingencies for details about our performance regarding these requirements. We also enter into contractual commitments with borrowers providing rate lock commitments while simultaneously entering into forward sale commitments with investors. These commitments are outstanding for short periods of time (generally less than 60 days) and are described in Note 12 — Derivative Financial Instruments.12. Debt Instruments. We maintain various forms of short-term and long-term financing arrangements. Borrowings underlying these arrangements are primarily secured by a significant amount of our loans and investments and substantially all of our loans held-for-sale. The following is a summary of our debt facilities ($ in thousands): | | March 31, 2019 | | Debt Instruments | | Commitment | | UPB (1) | | Available | | Maturity Dates | | | | | | | | | | | | Structured Business | | | | | | | | | | Credit facilities and repurchase agreements | | $ | 1,181,456 | | $ | 812,011 | | $ | 369,445 | | 2019 - 2021 | | Collateralized loan obligations (2) | | 1,609,524 | | 1,609,524 | | — | | 2019 - 2023 | | Debt Fund (2) | | 70,000 | | 70,000 | | — | | 2020 - 2023 | | Senior unsecured notes | | 215,000 | | 215,000 | | — | | 2023 - 2024 | | Convertible senior unsecured notes | | 265,829 | | 265,829 | | — | | 2019 - 2021 | | Junior subordinated notes | | 154,336 | | 154,336 | | — | | 2034 - 2037 | | Structured Business total | | 3,496,145 | | 3,126,700 | | 369,445 | | | | | | | | | | | | | | Agency Business | | | | | | | | | | Credit facilities (3) | | 1,650,000 | | 222,923 | | 1,427,077 | | 2019 | | | | | | | | | | | | Consolidated total | | $ | 5,146,145 | | $ | 3,349,623 | | $ | 1,796,522 | | | |
(1) Excludes the impact of deferred financing costs.
(2) Maturity dates represent the weighted average remaining maturity based on the underlying collateral as of March 31, 2019.
(3) | | | | | | | | | | | | | | March 31, 2020 | | | | | | | | | | | | Maturity | Debt Instruments | | Commitment (1) | | UPB (2) | | | Available | | Dates(3) | Structured Business | | | | | | | | | | | | Credit facilities and repurchase agreements | | $ | 1,976,093 | | $ | 1,059,651 | | $ | 916,442 | | 2020 - 2022 | Collateralized loan obligations (4) | | | 2,532,593 | | | 2,532,593 | | | — | | 2020 - 2025 | Debt fund (4) | | | 70,000 | | | 70,000 | | | — | | 2020 - 2023 | Senior unsecured notes | | | 600,000 | | | 600,000 | | | — | | 2023 - 2027 | Convertible senior unsecured notes | | | 279,398 | | | 279,398 | | | — | | 2020 - 2022 | Junior subordinated notes | | | 154,336 | | | 154,336 | | | — | | 2034 - 2037 | Structured Business total | | | 5,612,420 | | | 4,695,978 | | | 916,442 | | | | | | | | | | | | | | | Agency Business | | | | | | | | | | | | Credit facilities (5) | | | 2,050,000 | | | 792,107 | | | 1,257,893 | | 2020 - 2021 | Consolidated total | | $ | 7,662,420 | | $ | 5,488,085 | | $ | 2,174,335 | | |
(1) | Includes temporary increases to committed amounts which have not expired as of March 31, 2020. |
(2) | Excludes the impact of deferred financing costs. |
(3) | See Note 14 for a breakdown of debt maturities by year. |
(4) | Maturity dates represent the weighted average remaining maturity based on the underlying collateral as of March 31, 2020. |
(5) | The ASAP agreement we have with Fannie Mae has no expiration date. |
The debt facilities, including their restrictive covenants, are described in Note 10 — Debt Obligations.10. Contractual Obligations. During the three months ended March 31, 2019,2020, the following significant changes were made to our contractual obligations disclosed in our 20182019 Annual Report; (1) closed CLO XIII issuing $668.0 million of investment grade notes to third party investors; (2) unwound CLO VIII redeeming $282.9 million of outstanding notes; (3) issued $90.0$275.0 million of our 5.75%4.50% Notes; and (2) closed new and(4) modified existing credit facilities. In addition, as previously planned, in April 2020 we completed the unwind of the Debt Fund and redeemed all the outstanding notes with a portion of the proceeds from our senior unsecured notes issued in March 2020. See Note 10 — Debt Obligations for details and refer to Note 14 — Commitments and Contingencies for a description of our debt maturities by year and unfunded commitments as of March 31, 2019.2020. Off-Balance Sheet Arrangements. At March 31, 2019,2020, we had no off-balance sheet arrangements. Derivative Financial Instruments We enter into derivative financial instruments in the normal course of business throughto manage the origination and sale of mortgage loans and the management of potential loss exposure caused by fluctuations of interest rates. See Note 12 — Derivative Financial Instrumentsfor details. Critical Accounting Policies Please refer to Note 2 — Basis of Presentation and Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 20182019 Annual Report for a discussion of our critical accounting policies. During the three months ended March 31, 2019,2020, there were no material changes to these policies, except for the leasecredit loss policy established in connection with the adoption of ASU 2016-02, Leases (Topic 842),2016-13. See Note 2 — Basis of Presentation and Significant Accounting Policies for details. Non-GAAP Financial Measures Funds from Operations and Adjusted Funds from Operations. We present funds from operations (“FFO”) andCore Earnings. Beginning in the first quarter of 2020, we are presenting core earnings as our non-GAAP financial measure in replacement of adjusted funds from operations (“AFFO”). Core earnings is comparable to our previous AFFO metric, revised to exclude provisions for credit losses (including CECL) related to our structured loan portfolio, securities held-to-maturity and loss-sharing obligations related to the Fannie Mae program. We are presenting core earnings because we believe they areit is an important supplemental measuresmeasure of our operating performance in that they areand is frequently used by peers, analysts, investors and other parties in the evaluation of REITs. The National Association of Real Estate Investment Trusts, or NAREIT, defines FFOPrior period amounts presented below have been conformed to reflect this change.
We define core earnings 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 depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from MSRs, amortization and write-offs of MSRs, gains and losses on derivative instruments primarily associated with Private Label loans that have not yet been sold and securitized, the cumulative gains or losses on derivative instruments associated with Private Label loans that were sold during the periods presented, changes in fair value of certainGSE-related derivatives that temporarily flow through earnings, amortization and write-offs of MSRs, deferred tax benefit(benefit) provision, provisions for credit losses (including CECL) and the amortization of the convertible senior notes conversion options.option. We also add back one-time charges such as acquisition costs and impairmentone-time gains or losses on real estate and gains on salesthe early extinguishment 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 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.debt.
FFO and AFFO areCore earnings is not intended to be an indication of our cash flowflows 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 AFFOcore earnings may be different from the calculations used by other companies and, therefore, comparability may be limited.
FFO and AFFO areCore earnings is as follows ($ in thousands, except share and per share data):
| | Three Months Ended March 31, | | | | 2019 | | 2018 | | | | | | | | Net income attributable to common stockholders | | $ | 22,650 | | $ | 26,189 | | Adjustments: | | | | | | Net income attributable to noncontrolling interest | | 5,468 | | 8,991 | | Depreciation - real estate owned | | 175 | | 178 | | Depreciation - investments in equity affiliates | | 126 | | 125 | | Funds from operations (1) | | $ | 28,419 | | $ | 35,483 | | Adjustments: | | | | | | Income from mortgage servicing rights | | (14,232 | ) | (19,634 | ) | Deferred tax benefit | | (4,168 | ) | (13,320 | ) | Amortization and write-offs of MSRs | | 16,739 | | 16,676 | | Depreciation and amortization | | 2,564 | | 2,255 | | Net loss (gain) on changes in fair value of derivatives | | 2,465 | | (2,645 | ) | Stock-based compensation | | 3,756 | | 2,545 | | Adjusted funds from operations (1) | | $ | 35,543 | | $ | 21,360 | | | | | | | | Diluted FFO per share (1) | | $ | 0.26 | | $ | 0.42 | | Diluted AFFO per share (1) | | $ | 0.33 | | $ | 0.25 | | Diluted weighted average shares outstanding (1) | | 107,869,511 | | 84,699,735 | |
| | | | | | | | | Three Months Ended March 31, | | | 2020 | | 2019 | | | | | | | | Net (loss) income attributable to common stockholders | | $ | (59,310) | | $ | 22,650 | Adjustments: | | | | | | | Net (loss) income attributable to noncontrolling interest | | | (10,934) | | | 5,468 | Income from mortgage servicing rights | | | (21,934) | | | (14,232) | Deferred taxbenefit | | | (19,904) | | | (4,168) | Amortization and write-offs of MSRs | | | 17,741 | | | 16,739 | Depreciation and amortization | | | 2,958 | | | 2,865 | Loss on extinguishment of debt | | | 1,954 | | | 128 | Provision for credit losses | | | 75,919 | | | 454 | Loss on derivative instruments, net | | | 50,731 | | | 2,465 | Stock-based compensation | | | 3,517 | | | 3,756 | Core earnings (1) | | $ | 40,738 | | $ | 36,125 | Diluted core earnings per share (1) | | $ | 0.31 | | $ | 0.33 | Diluted weighted average shares outstanding (1) | | | 131,217,199 | | | 107,869,511 |
(1) | Amounts are attributable to common stockholders and OP Unit holders. The OP Units are redeemable for cash, or at our option for shares of our common stock on a one-for-one basis. |
(1) Amounts are attributable to common stockholders and OP Unit 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 20182019 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, 2018. 2019. The following table projects the potential impact on interest income and interest expense for a 12-month period, assuming an instantaneous increase or decrease of both 25 and 50 basis points in LIBOR (in thousands): | | Assets (Liabilities) Subject to Interest Rate Sensitivity (1) | | 25 Basis Point Increase | | 25 Basis Point Decrease | | 50 Basis Point Increase | | 50 Basis Point Decrease | | | | | | | | | | | | | | Interest income from loans and investments | | $ | 3,406,776 | | $ | 7,308 | | $ | (6,181 | ) | $ | 14,731 | | $ | (11,615 | ) | Interest expense from debt obligations | | (3,126,700 | ) | 6,608 | | (6,608 | ) | 13,217 | | (13,217 | ) | Total net interest income | | | | $ | 700 | | $ | 427 | | $ | 1,514 | | $ | 1,602 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Assets (Liabilities) | | 25 Basis | | 25 Basis | | 50 Basis | | 50 Basis | | | Subject to Interest | | Point | | Point | | Point | | Point | | | Rate Sensitivity (1) | | Increase | | Decrease | | Increase | | Decrease | | | | | | | | | | | | | | | | | Interest income from loans and investments | | $ | 4,800,544 | | $ | 699 | | $ | (512) | | $ | 2,443 | | $ | (954) | Interest expense from debt obligations | | | (4,695,978) | | | 9,535 | | | (9,535) | | | 19,069 | | | (19,069) | Total net interest income | | | | | $ | (8,836) | | $ | 9,023 | | $ | (16,626) | | $ | 18,115 |
(1) | Represents the UPB of our loan portfolio and the principal balance of our debt. |
Based on our structured loans and investments and corresponding debt as of March 31, 2020, increases in LIBOR of 0.25% and 0.50% would decrease our annual net interest income as a result of LIBOR floors on a portion of our loan portfolio that are above LIBOR as of March 31, 2020, which would limit the effect of an increase on interest income. Conversely, these LIBOR floors would reduce the impact on interest income from decreases in LIBOR, which would result in increases to net interest income. We also receive interest on cash, restricted cash and escrow balances. While the principal balanceinterest rates on these balances are not indexed to LIBOR, they are negotiated periodically with each corresponding bank based on certain benchmark rates. Based on our balances as of March 31, 2020, a 25 basis point and a 50 basis point increase in rates would result in an increase in our annual interest received of $3.7 million and $7.4 million, respectively. Conversely, a 25 basis point and a 50 basis point decrease in rate would result in a decrease of our debt.annual interest received by the same amounts. We enter into Swap Futures to hedge our exposure to changes in interest rates inherent in (1) our Structured Business SFR loans from the time the loans are originated until the time they can be financed with match term fixed rate securitized debt, and (2) our held-for-sale Agency Business Private Label loans from the time the loans are rate locked until sale and securitization. Our Swap Futures are tied to the five-year and ten-year swap rates and hedge our exposure to changes in the fair value of our Structured Business SFR loans and held-for-sale Agency Business Private Label loans until the time they are securitized. A 25 basis point and a 50 basis point increase to the five-year and ten-year swap rates would have resulted in a gain of $17.0 million and $33.5 million, respectively, in the three months ended March 31, 2020, while a 25 basis point and a 50 basis point decrease in the rates would have resulted in a loss of $17.4 million and $35.3 million, respectively. 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 HUDthese agencies 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 establishedestablish 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 $10.7$10.4 million as of March 31, 2019,2020, while a 100 basis point decrease would increase the fair value by $11.3$11.0 million. The COVID-19 pandemic has impacted the global economy in an unprecedented way, swiftly halting activity across many industries, and causing significant disruption and liquidity constraints in many market segments, including the commercial real estate markets, causing requests from tenants for rent deferral or abatement and delays in construction and development projects currently planned or underway. These negative conditions may persist into the future and impair our borrowers' ability to pay principal and interest due to us under our loan agreements. We maintain a robust asset management relationship with our borrowers and are utilizing these relationships to address any potential impacts of the COVID-19 pandemic on our loans. To date, we have not closed any significant loan modifications that have resulted in interest rate concessions and are encouraged by conversations with our borrowers and their initial response to the pandemic's impacts on their properties. Our senior management team has over 30 years of industry experience with a track record of navigating and operating through all market cycles. 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 March 31, 2019.2020. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2019.2020. There were no changes in our internal control over financial reporting during the quarter ended March 31, 20192020 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 14 — Commitments and Contingencies. 14. 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 20182019 Annual Report.Report, except as follows: The novel coronavirus pandemic, the measures intended to prevent its spread and those government actions intended to mitigate its economic impact have had, and may continue to have, adverse effects, some of which may be material, on our business, results of operations and financial condition. The COVID-19 pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in equity, credit and mortgage markets. The outbreak has led the federal and state governments to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The impact of the pandemic and measures to prevent its spread and limit the economic impact of the pandemic have negatively impacted us and could further negatively impact our business, perhaps in a material manner. More particularly, among the consequences of the COVID-19 pandemic that have had, and may continue to have in the future, adverse impacts on our business are: -We may experience declines in the value of our assets, including our loan and securities portfolios -Declines in the value of our assets may result in margin calls and other mandatory prepayments under the credit facilities we use to finance those assets -In the current environment, forced sales of the securities and other assets that secure our repurchase and other financing arrangements may be on terms less favorable to us than might otherwise be available under more normal conditions, which could result in losses -Disruption in the financial markets may have an adverse effect on our ability to obtain financing on terms and conditions that are favorable to us, or our ability to obtain financing at all -Continued disruptions in the credit markets may negatively impact our ability to execute on securitizations, which may have an adverse effect on our liquidity and results of operations -To the extent current conditions persist or worsen, there may be a materially negative effect on our results of operations, and, in turn, on cash available for distribution to our stockholders, on the value of our assets and on the market price of our common stock. In response to the pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will provide billions of dollars of relief to individuals, businesses of all sizes, state and local governments, and other public facilities suffering the impact of the pandemic. The Cares Act includes mortgage loan forbearance and modification programs to qualifying borrowers who have difficulty making their loan payments. In addition, the Federal Reserve has announced its commitment to purchase U.S. Treasury securities, asset backed securities, municipal bonds and other assets, in addition to making loans to and purchasing bonds from private companies. Among the possible impacts of this legislation and regulatory action are: -Over the near and intermediate term, the economic impacts of the pandemic may negatively impact the financial stability of our mortgage loan borrowers and the properties underlying the loans, due in part to the effects of mortgage loan forbearance and modification programs and suspensions of landlords' ability to enforce evictions -Weakness in the economy may result in us receiving fewer requests for new loans, which may adversely affect our results of operations -Under applicable Fannie Mae policies and guidelines, we are required to make principal and interest advances on the loans we service for Fannie Mae and are responsible for bearing the burden of funding these advances for extended periods of time before receiving reimbursement from Fannie Mae, which may adversely affect our liquidity and financial condition -If we are unable to find a financing source for these servicing advance obligations, or if we can obtain financing, but the cost and terms of any such financing are less advantageous that we have received in the past, that could have material adverse consequences on our liquidity and financial condition -There can be no assurance as to how, in the long term, these actions and other actions by the U.S. government will affect the efficiency, liquidity and stability of the financial and mortgage markets. To the extent the financial or mortgage markets do not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations, financial condition and cash flows may continue to be adversely affected, perhaps materially. The COVID-19 pandemic may impact the health of our employee base, and in order to operate during the pandemic, we have implemented a work-from-home policy to protect our employees and have transitioned our employees to work remotely. The possible adverse effects of the pandemic on our workforce are: -The COVID-19 pandemic may also adversely impact the continued availability of our personnel, including our executive officers, and our ability to recruit, attract and retain skilled personnel -Operationally, although we have initiated a work-from-home policy, if significant portions of our workforce, including key personnel, are unable to work effectively because of illness, government actions or other restrictions implemented in connection with COVID-19, the adverse impact on our business could be material. To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also have the effect of heightening many of the other risks described in the ''Risk Factors'' section of our 2019 Annual Report. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and as a result, the ultimate impact of the outbreak on our operations and financial results is highly uncertain and subject to change. 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. ** | | | | | | 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. | | | | | | 101.1 | | Financial statements from the Quarterly Report on Form 10-Q of Arbor Realty Trust, Inc. for the quarter ended March 31, 2019,2020, filed on May 10, 2019,8, 2020, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income,Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v)(iv) the Consolidated Statements of Cash Flows and (vi)(v) the Notes to Consolidated Financial Statements. | |
* Incorporated by reference to Registration Statement on Form S-11 (No. 333-110472), as amended, filed November 13, 2003. ** Incorporated by reference to Exhibit 99.2 of Form 8-K filed December 11, 2007. 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: May 10, 20198, 2020 | By: | /s/ Ivan Kaufman | | | Ivan Kaufman | | | Chief Executive Officer | | | | | | | Date: May 10, 20198, 2020 | By: | /s/ Paul Elenio | | | Paul Elenio | | | Chief Financial Officer |
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