Arbor Realty Trust Reports Third Quarter 2020 Results and Increases Quarterly Dividend to $0.32 per Share

Friday, 30. October 2020 13:15

Company Highlights:

  • Diversified operating platform with a multifamily focus that continues to produce strong core earnings and dividends in all cycles

    • GAAP net income of $0.72 and core earnings of $0.50 per diluted common share1
    • Raised cash dividend on common stock to $0.32 per share, our second consecutive increase, representing a 6.7% increase year-to-date
    • Continued strong performance from our residential mortgage banking joint venture generating pretax income of $32.3 million

Agency Business

  • Grew our servicing portfolio to $22.56 billion, a 4.5% increase from 2Q20, and 12.5% year-to-date
  • GSE loan originations of $1.47 billion, a 10.1% increase from 3Q19
  • Segment income of $40.7 million

Structured Business

  • Loan portfolio surpasses $5.00 billion on $291.8 million of loan originations
  • Segment income of $55.2 million

UNIONDALE, N.Y., Oct. 30, 2020 (GLOBE NEWSWIRE) -- Arbor Realty Trust, Inc. (NYSE:ABR), today announced financial results for the third quarter ended September 30, 2020. Arbor reported net income for the quarter of $82.0 million, or $0.72 per diluted common share, compared to net income of $34.0 million, or $0.35 per diluted common share for the quarter ended September 30, 2019. Core earnings for the quarter was $67.1 million, or $0.50 per diluted common share, compared to $43.1 million, or $0.37 per diluted common share for the quarter ended September 30, 2019.1

“These outstanding third quarter results reflect the successful execution of our business strategy and the versatile operating platform we have developed. Arbor continues to be very well positioned to succeed in the current economic climate. Our business model gives us diversified opportunities for growth and has allowed us to outperform in the commercial mortgage REIT space,” said Ivan Kaufman, founder, chairman and CEO of Arbor Realty Trust.

“Our continued momentum and excellent results have once again allowed us to increase our dividend to 32 cents a share – our second consecutive quarterly dividend increase. It is a true testament to the value of our franchise and the many diverse income streams we have created that we are able to succeed in any market cycle.”

Agency Business

Loan Origination Platform

Agency Loan Volume (in thousands)
  Quarter Ended
  September 30,
2020
 June 30,
2020
Originations:   
Fannie Mae$1,117,679  $1,140,181 
Freddie Mac 252,014   135,720 
FHA  100,345   75,533 
Private Label 5,840   49,122 
Total Originations$1,475,878  $1,400,556 
     
Total Loan Sales$1,219,462  $1,992,889 
     
Total Loan Commitments $1,528,551  $1,206,723 

For the quarter ended September 30, 2020, the Agency Business generated revenues (excluding gains and losses on derivative instruments) of $81.8 million, compared to $81.1 million for the second quarter of 2020. Gain on sales, including fee-based services, net was $19.9 million for the quarter, reflecting a margin of 1.63% on loan sales, compared to $26.4 million and 1.32% for the second quarter of 2020. Income from mortgage servicing rights was $42.4 million for the quarter, reflecting a rate of 2.77% as a percentage of loan commitments, compared to $32.4 million and 2.69% for the second quarter of 2020.   

At September 30, 2020, loans held-for-sale was $631.1 million which was primarily comprised of unpaid principal balances totaling $617.9 million, with financing associated with these loans totaling $567.6 million.

Fee-Based Servicing Portfolio

Our fee-based servicing portfolio totaled $22.56 billion at September 30, 2020, an increase of 4.5% from June 30, 2020, primarily the result of $1.48 billion of new agency loan originations, net of $490.4 million in portfolio runoff during the quarter. Servicing revenue, net was $13.3 million for the quarter and consisted of servicing revenue of $25.7 million, net of amortization of mortgage servicing rights totaling $12.4 million.

  Fee-Based Servicing Portfolio ($ in thousands)
  As of September 30, 2020 As of June 30, 2020
  UPBWtd. Avg.
Fee
Wtd. Avg. Life
(in years)
 UPBWtd. Avg.
Fee
Wtd. Avg. Life
(in years)
Fannie Mae $16,462,041 0.516%8.4 $15,672,931 0.505%8.2
Freddie Mac  4,687,197 0.288%10.4  4,560,382 0.295%10.6
FHA  685,263 0.171%20.4  621,487 0.154%19.6
Private Label  727,063 0.200%9.4  727,132 0.200%9.5
Total $22,561,564 0.448%9.2 $21,581,932 0.441%9.1

Loans sold under the Fannie Mae program contain an obligation to partially guarantee the performance of the loan (“loss-sharing obligations”), and includes $33.2 million for the fair value of the guarantee obligation undertaken at September 30, 2020. The Company recorded a $2.5 million reversal of provision for loss sharing associated with current expected credit losses, or “CECL,” for the third quarter of 2020. At September 30, 2020, the Company’s total CECL allowance for loss-sharing obligations was $38.0 million, representing 0.23% of the Fannie Mae servicing portfolio.

Structured Business

Portfolio and Investment Activity

  • Significant income generated by our residential mortgage banking joint venture
  • Originated 13 loans totaling $291.8 million, and consisted primarily of multifamily bridge loans totaling $235.1 million
  • Payoffs and pay downs on 15 loans totaling $206.0 million
  • Portfolio growth of $124.7 million, or 2.5%

The Company recorded pretax income of $32.3 million from its significant joint venture investment in a residential mortgage banking business as a result of the continued historically low interest rate environment. Pretax income from this investment for the nine months ended September 30, 2020 totaled $56.1 million.

At September 30, 2020, the loan and investment portfolio’s unpaid principal balance, excluding loan loss reserves, was $5.10 billion, with a weighted average current interest pay rate of 5.39%, compared to $4.97 billion and 5.57% at June 30, 2020. Including certain fees earned and costs associated with the loan and investment portfolio, the weighted average current interest pay rate was 5.93% at September 30, 2020, compared to 6.10% at June 30, 2020.

The average balance of the Company’s loan and investment portfolio during the third quarter of 2020, excluding loan loss reserves, was $4.98 billion with a weighted average yield of 5.98%, compared to $4.81 billion and 6.16% for the second quarter of 2020. The decrease in average yield was primarily due to several factors including an increase in non-performing and modified loans, lower accelerated fees on loan payoffs and lower rates on originations when compared to runoff in the third quarter as compared to the second quarter.

During the third quarter of 2020, the Company recorded a reversal of its provision for loan losses of $6.1 million as a result of its loan review process associated with CECL. At September 30, 2020, the Company’s total allowance for loan losses was $146.7 million. The Company had eight non-performing loans with a carrying value of $62.9 million, before related loan loss reserves of $9.1 million, compared to six loans with a carrying value of $60.5 million, before related loan loss reserves of $16.6 million as of June 30, 2020.

Financing Activity

The balance of debt that finances the Company’s loan and investment portfolio at September 30, 2020 was $4.52 billion with a weighted average interest rate including fees of 3.09% as compared to $4.54 billion and a rate of 3.14% at June 30, 2020. The average balance of debt that finances the Company’s loan and investment portfolio for the third quarter of 2020 was $4.59 billion, as compared to $4.53 billion for the second quarter of 2020. The average cost of borrowings for the third quarter of 2020 was 3.06%, compared to 3.26% for the second quarter of 2020. The decrease in average costs was primarily due to a decrease in LIBOR.

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

Dividends

The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.32 per share of common stock for the quarter ended September 30, 2020, representing an increase of 6.7% year-to-date. The dividend is payable on November 30, 2020 to common stockholders of record on November 16, 2020. The ex-dividend date is November 13, 2020.

The Company also announced today that its Board of Directors has declared cash dividends on the Company's Series A, Series B and Series C cumulative redeemable preferred stock reflecting accrued dividends from September 1, 2020 through November 30, 2020. The dividends are payable on November 30, 2020 to preferred stockholders of record on November 15, 2020. The Company will pay total dividends of $0.515625, $0.484375 and $0.53125 per share on the Series A, Series B and Series C preferred stock, respectively.

Earnings Conference Call

The Company will host a conference call today at 10:00 a.m. Eastern Time. A live webcast and replay of the conference call will be available at http://www.arbor.com in the investor relations section of the Company’s website. Those without web access should access the call telephonically at least ten minutes prior to the conference call. The dial-in numbers are (877) 876-9176 for domestic callers and (785) 424-1670 for international callers. Please use participant passcode ABRQ320 when prompted by the operator.

A telephonic replay of the call will be available until November 6, 2020. The replay dial-in numbers are (800) 839-5679 for domestic callers and (402) 220-2566 for international callers.

About Arbor Realty Trust, Inc.

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

Safe Harbor Statement

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

1. Non-GAAP Financial Measures

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

Contacts:
Arbor Realty Trust, Inc.
Paul Elenio, Chief Financial Officer
516-506-4422 
pelenio@arbor.com
Investors:
The Ruth Group
Daniel Kontoh-Boateng/James Salierno
646-536-7019/7028
dboateng@theruthgroup.com 
jsalierno@theruthgroup.com
Media:
Bonnie Habyan
Chief Marketing Officer
516-506-4615
bhabyan@arbor.com



 
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
          
Consolidated Statements of Income - (Unaudited)
($ in thousands—except share and per share data)
          
   Quarter Ended
September 30,
 Nine Months Ended
September 30,
    2020   2019   2020   2019 
          
Interest income $81,701  $80,509  $253,307  $233,957 
Interest expense  37,888   48,064   129,172   138,213 
 Net interest income  43,813   32,445   124,135   95,744 
          
Other revenue:        
Gain on sales, including fee-based services, net  19,895   21,298   60,566   51,897 
Mortgage servicing rights  42,357   29,911   96,708   62,852 
Servicing revenue, net  13,348   13,790   40,156   39,954 
Property operating income  1,033   2,237   3,976   8,187 
Loss on derivative instruments, net  (753)  (5,003)  (58,852)  (6,726)
Other income, net  1,050   325   3,404   1,314 
 Total other revenue  76,930   62,558   145,958   157,478 
          
Other expenses:        
Employee compensation and benefits  32,962   32,861   101,652   93,647 
Selling and administrative  9,356   10,882   29,013   31,122 
Property operating expenses  1,300   2,563   4,778   7,649 
Depreciation and amortization  1,922   1,841   5,830   5,663 
Impairment loss on real estate owned  -   -   -   1,000 
Provision for loss sharing (net of recoveries)  (2,227)  735   21,706   1,557 
Provision for credit losses (net of recoveries)  (7,586)  -   59,510   - 
 Total other expenses  35,727   48,882   222,489   140,638 
          
Income before extinguishment of debt, sale of real estate, equity affiliates, and income taxes        
  85,016   46,121   47,604   112,584 
          
Loss on extinguishment of debt  -   -   (3,546)  (128)
Loss on sale of real estate  (1,868)  -   (1,868)  - 
Income from equity affiliates  32,358   3,718   56,758   9,133 
Provision for income taxes  (17,785)  (6,623)  (15,493)  (10,963)
          
Net income  97,721   43,216   83,455   110,626 
          
Preferred stock dividends  1,888   1,888   5,665   5,665 
Net income attributable to noncontrolling interest  13,836   7,363   11,012   19,429 
Net income attributable to common stockholders $81,997  $33,965  $66,778  $85,532 
          
Basic earnings per common share $0.72  $0.36  $0.60  $0.95 
Diluted earnings per common share $0.72  $0.35  $0.59  $0.93 
          
Weighted average shares outstanding:        
 Basic  113,766,446   94,486,839   111,775,436   89,899,074 
 Diluted  133,997,087   117,468,044   132,401,315   113,033,968 
          
Dividends declared per common share $0.31  $0.29  $0.91  $0.84 
          



 
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
     
Consolidated Balance Sheets
($ in thousands—except share and per share data)
     
  September 30, December 31,
   2020   2019 
  (Unaudited)  
Assets:    
Cash and cash equivalents $192,204  $299,687 
Restricted cash  110,263   210,875 
Loans and investments, net (allowance for credit losses: $146,745 and $71,069, respectively)  4,910,872   4,189,960 
Loans held-for-sale, net  631,138   861,360 
Capitalized mortgage servicing rights, net  335,235   286,420 
Securities held-to-maturity, net (allowance for credit losses: $1,628 and $0, respectively)  118,260   88,699 
Investments in equity affiliates  82,322   41,800 
Real estate owned, net  2,894   13,220 
Due from related party  23,814   10,651 
Goodwill and other intangible assets  106,716   110,700 
Other assets  175,500   125,788 
Total assets $6,689,218  $6,239,160 
     
Liabilities and Equity:    
Credit facilities and repurchase agreements $1,449,940  $1,678,288 
Collateralized loan obligations  2,516,032   2,130,121 
Debt fund  -   68,629 
Senior unsecured notes  662,289   319,799 
Convertible senior unsecured notes, net  266,706   284,152 
Junior subordinated notes to subsidiary trust issuing preferred securities  141,470   140,949 
Due to related party  802   13,100 
Due to borrowers  76,304   79,148 
Allowance for loss-sharing obligations  71,160   34,648 
Other liabilities  181,279   134,299 
Total liabilities  5,365,982   4,883,133 
     
Equity:    
Arbor Realty Trust, Inc. stockholders' equity:    
Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; special voting preferred shares; 17,632,371 and 20,369,265 shares issued and outstanding, respectively; 8.25% Series A, $38,788 aggregate liquidation preference; 1,551,500 shares issued and outstanding; 7.75% Series B, $31,500 aggregate liquidation preference; 1,260,000 shares issued and outstanding; 8.50% Series C, $22,500 aggregate liquidation preference; 900,000 shares issued and outstanding  89,472   89,501 
Common stock, $0.01 par value: 500,000,000 shares authorized; 115,930,351 and 109,706,214 shares issued and outstanding, respectively  1,159   1,097 
Additional paid-in capital  1,222,945   1,154,932 
Accumulated deficit  (120,539)  (60,920)
Total Arbor Realty Trust, Inc. stockholders’ equity  1,193,037   1,184,610 
     
Noncontrolling interest  130,199   171,417 
Total equity  1,323,236   1,356,027 
     
Total liabilities and equity $6,689,218  $6,239,160 
     



 
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
        
Statement of Income Segment Information - (Unaudited)
(in thousands)
          
   Quarter Ended September 30, 2020
          
   Structured
Business
 Agency
Business
 Other /
Eliminations (1)
 Consolidated
          
Interest income $75,471  $6,230  $-  $81,701 
Interest expense  35,252   2,636   -   37,888 
 Net interest income  40,219   3,594   -   43,813 
          
Other revenue:        
Gain on sales, including fee-based services, net  -   19,895   -   19,895 
Mortgage servicing rights  -   42,357   -   42,357 
Servicing revenue  -   25,764   -   25,764 
Amortization of MSRs  -   (12,416)  -   (12,416)
Servicing revenue, net  -   13,348   -   13,348 
Property operating income  1,033   -   -   1,033 
Gain (loss) on derivative instruments, net  118   (871)  -   (753)
Other income, net  1,052   -   -   1,052 
 Total other revenue  2,203   74,729   -   76,932 
          
Other expenses:        
Employee compensation and benefits  8,874   24,089   -   32,963 
Selling and administrative  4,665   4,691   -   9,356 
Property operating expenses  1,300   -   -   1,300 
Depreciation and amortization  598   1,324   -   1,922 
Provision for loss sharing (net of recoveries)  -   (2,227)  -   (2,227)
Provision for credit losses (net of recoveries)  (6,065)  (1,521)  -   (7,586)
 Total other expenses  9,372   26,356   -   35,728 
          
Income before sale of real estate, equity affiliates, and income taxes  33,050   51,967   -   85,017 
          
Loss on sale of real estate  (1,868)  -   -   (1,868)
Income from equity affiliates  32,358   -   -   32,358 
Provision for income taxes  (6,494)  (11,292)  -   (17,786)
          
Net income  57,046   40,675   -   97,721 
          
Preferred stock dividends  1,888   -   -   1,888 
Net income attributable to noncontrolling interest  -   -   13,836   13,836 
Net income (loss) attributable to common stockholders $55,158  $40,675  $(13,836) $81,997 
          
(1) Includes certain income or expenses not allocated to the two reportable segments. Amount reflects income attributable to the noncontrolling interest holders.
          



 
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
      
Balance Sheet Segment Information - (Unaudited)
(in thousands)
       
  September 30, 2020
  Structured
Business
 Agency
Business
 Consolidated
Assets:      
Cash and cash equivalents $103,655  $88,549  $192,204 
Restricted cash  103,412   6,851   110,263 
Loans and investments, net  4,910,872   -   4,910,872 
Loans held-for-sale, net  -   631,138   631,138 
Capitalized mortgage servicing rights, net  -   335,235   335,235 
Securities held-to-maturity, net  20,000   98,260   118,260 
Investments in equity affiliates  82,322   -   82,322 
Goodwill and other intangible assets  12,500   94,216   106,716 
Other assets  154,509   47,699   202,208 
Total assets $5,387,270  $1,301,948  $6,689,218 
       
Liabilities:      
Debt obligations $4,468,886  $567,551  $5,036,437 
Allowance for loss-sharing obligations -   71,160   71,160 
Other liabilities  194,289   64,096   258,385 
Total liabilities $4,663,175  $702,807  $5,365,982 
       



        
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
        
Supplemental Schedule of Non-GAAP Financial Measures - (Unaudited)
Reconciliation of Core Earnings to GAAP Net Income (Loss)
($ in thousands—except share and per share data)
 
        
 Quarter Ended
September 30,
 Nine Months Ended
September 30,
  2020   2019   2020   2019 
                
Net income attributable to common stockholders$81,997  $33,965  $66,778  $85,532 
        
Adjustments:       
Net income attributable to noncontrolling interest 13,836   7,363   11,012   19,429 
Income from mortgage servicing rights (42,357)  (29,911)  (96,708)  (62,852)
Deferred tax provision (benefit) 3,853   2,223   (5,172)  (1,026)
Amortization and write-offs of MSRs 15,456   18,904   48,739   52,558 
Depreciation and amortization 2,867   2,789   8,731   8,504 
Loss on extinguishment of debt -   -   3,546   128 
Provision for credit losses, net (11,137)  431   79,144   1,021 
Loss on derivative instruments, net 753   5,003   44,113   6,726 
Stock-based compensation 1,854   2,316   7,286   7,574 
        
Core earnings (1)$67,122  $43,083  $167,469  $117,594 
        
Diluted core earnings per share (1)$0.50  $0.37  $1.26  $1.04 
        
Diluted weighted average shares outstanding (1) 133,997,087   117,468,044   132,401,315   113,033,968 
        
(1) Amounts are attributable to common stockholders and OP Unit holders. The OP Units are redeemable for cash, or at the Company's option for shares of the Company's common stock on a one-for-one basis.
 
Beginning in the first quarter of 2020, the Company is presenting core earnings as its non-GAAP financial measure in replacement of adjusted funds from operations ("AFFO"). Core earnings is comparable to our previous AFFO metric, revised to exclude provisions for credit losses (including CECL) related to our structured loan portfolio, securities held-to-maturity and loss-sharing obligations related to the Fannie Mae program. The Company is presenting core earnings because management believes it is important supplemental measure of the Company’s operating performance and is frequently used by peers, analysts, investors and other parties in the evaluation of REITs. Prior period amounts presented above have been conformed to reflect this change.
 
The Company defines core earnings as net income (loss) attributable to common stockholders (computed in accordance with GAAP) adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from mortgage servicing rights ("MSRs"), amortization and write-offs of MSRs, gains and losses on derivative instruments primarily associated with private label loans that have not yet been sold and securitized, the tax impact on cumulative gains or losses on derivative instruments associated with private label loans that were sold during the periods presented, changes in fair value of GSE-related derivatives that temporarily flow through earnings, deferred tax (benefit) provision, CECL provisions for credit losses (excluding specifically reserved provisions for loss-sharing) and the amortization of the convertible senior notes conversion option. The Company also adds back one-time charges such as acquisition costs and one-time gains or losses on the early extinguishment of debt.
 
Core earnings is not intended to be an indication of the Company's cash flow from operating activities (determined in accordance with GAAP) or a measure of its liquidity, nor is it entirely indicative of funding the Company's cash needs, including its ability to make cash distributions. The Company’s calculation of core earnings may be different from the calculations used by other companies and, therefore, comparability may be limited.


 

 

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