UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-32136
Arbor Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland |
|
20-0057959 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
333 Earle Ovington Boulevard, Suite 900 |
|
11553 |
(Registrants telephone number, including area code): (516) 506-4200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
o |
Accelerated filer x |
|
Smaller reporting company |
o |
Non-accelerated filer |
o |
(Do not check if a smaller reporting company) |
|
Emerging growth company |
o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. Common stock, $0.01 par value per share: 63,062,235 outstanding as of April 27, 2018.
2 | |||
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2 | ||
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2 | ||
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3 | ||
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4 | ||
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5 | ||
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6 | ||
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8 | ||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
44 | |
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
55 | |
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55 | ||
55 | |||
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55 | ||
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55 | ||
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56 | ||
57 | |||
Forward-Looking Statements
The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in Arbor Realty Trust, Inc. We urge you to carefully review and consider the various disclosures made by us in this report.
This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs. We use words such as anticipate, expect, believe, intend, should, will, may and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically; adverse changes in our status with government-sponsored enterprises affecting our ability to originate loans through such programs; changes in interest rates; the quality and size of the investment pipeline and the rate at which we can invest our cash; impairments in the value of the collateral underlying our loans and investments; changes in federal and state laws and regulations, including changes in tax laws; the availability and cost of capital for future investments; and competition. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect managements views as of the date of this report. The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.
Additional information regarding these and other risks and uncertainties we face is contained in our annual report on Form 10-K for the year ended December 31, 2017 (the 2017 Annual Report) filed with the Securities and Exchange Commission (SEC) on February 23, 2018 and in our other reports and filings with the SEC.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
($ in thousands, except share and per share data)
|
|
March 31, |
|
December 31, |
| ||
|
|
2018 |
|
2017 |
| ||
|
|
(Unaudited) |
|
|
| ||
Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
102,548 |
|
$ |
104,374 |
|
Restricted cash |
|
131,659 |
|
139,398 |
| ||
Loans and investments, net |
|
2,702,097 |
|
2,579,127 |
| ||
Loans held-for-sale, net |
|
286,325 |
|
297,443 |
| ||
Capitalized mortgage servicing rights, net |
|
255,732 |
|
252,608 |
| ||
Securities held-to-maturity, net |
|
36,764 |
|
27,837 |
| ||
Investments in equity affiliates |
|
23,625 |
|
23,653 |
| ||
Real estate owned, net |
|
16,675 |
|
16,787 |
| ||
Due from related party |
|
3,719 |
|
688 |
| ||
Goodwill and other intangible assets |
|
120,366 |
|
121,766 |
| ||
Other assets |
|
69,258 |
|
62,264 |
| ||
Total assets |
|
$ |
3,748,768 |
|
$ |
3,625,945 |
|
|
|
|
|
|
| ||
Liabilities and Equity: |
|
|
|
|
| ||
Credit facilities and repurchase agreements |
|
$ |
626,063 |
|
$ |
528,573 |
|
Collateralized loan obligations |
|
1,419,838 |
|
1,418,422 |
| ||
Debt fund |
|
68,176 |
|
68,084 |
| ||
Senior unsecured notes |
|
196,090 |
|
95,280 |
| ||
Convertible senior unsecured notes, net |
|
232,577 |
|
231,287 |
| ||
Junior subordinated notes to subsidiary trust issuing preferred securities |
|
139,760 |
|
139,590 |
| ||
Related party financing |
|
|
|
50,000 |
| ||
Due to related party |
|
1,558 |
|
|
| ||
Due to borrowers |
|
67,858 |
|
99,829 |
| ||
Allowance for loss-sharing obligations |
|
31,097 |
|
30,511 |
| ||
Other liabilities |
|
77,881 |
|
99,813 |
| ||
Total liabilities |
|
2,860,898 |
|
2,761,389 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies (Note 14) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
Arbor Realty Trust, Inc. stockholders equity: |
|
|
|
|
| ||
Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; special voting preferred shares; 21,230,769 shares issued and outstanding; 8.25% Series A, $38,788 aggregate liquidation preference; 1,551,500 shares issued and outstanding; 7.75% Series B, $31,500 aggregate liquidation preference; 1,260,000 shares issued and outstanding; 8.50% Series C, $22,500 aggregate liquidation preference; 900,000 shares issued and outstanding |
|
89,508 |
|
89,508 |
| ||
Common stock, $0.01 par value: 500,000,000 shares authorized; 62,469,535 and 61,723,387 shares issued and outstanding, respectively |
|
625 |
|
617 |
| ||
Additional paid-in capital |
|
713,001 |
|
707,450 |
| ||
Accumulated deficit |
|
(88,528 |
) |
(101,926 |
) | ||
Accumulated other comprehensive income |
|
|
|
176 |
| ||
Total Arbor Realty Trust, Inc. stockholders equity |
|
714,606 |
|
695,825 |
| ||
Noncontrolling interest |
|
173,264 |
|
168,731 |
| ||
Total equity |
|
887,870 |
|
864,556 |
| ||
Total liabilities and equity |
|
$ |
3,748,768 |
|
$ |
3,625,945 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($ in thousands, except share and per share data)
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
|
|
|
|
|
| ||
Interest income |
|
$ |
51,612 |
|
$ |
33,525 |
|
Interest expense |
|
33,387 |
|
19,437 |
| ||
Net interest income |
|
18,225 |
|
14,088 |
| ||
Other revenue: |
|
|
|
|
| ||
Gain on sales, including fee-based services, net |
|
18,193 |
|
19,171 |
| ||
Mortgage servicing rights |
|
19,634 |
|
20,030 |
| ||
Servicing revenue, net |
|
9,547 |
|
4,794 |
| ||
Property operating income |
|
2,910 |
|
3,223 |
| ||
Other income, net |
|
2,878 |
|
(886 |
) | ||
Total other revenue |
|
53,162 |
|
46,332 |
| ||
Other expenses: |
|
|
|
|
| ||
Employee compensation and benefits |
|
29,494 |
|
19,841 |
| ||
Selling and administrative |
|
8,915 |
|
7,695 |
| ||
Property operating expenses |
|
2,796 |
|
2,638 |
| ||
Depreciation and amortization |
|
1,846 |
|
1,897 |
| ||
Impairment loss on real estate owned |
|
|
|
1,200 |
| ||
Provision for loss sharing (net of recoveries) |
|
473 |
|
1,679 |
| ||
Provision for loan losses (net of recoveries) |
|
325 |
|
(696 |
) | ||
Management fee - related party |
|
|
|
4,000 |
| ||
Total other expenses |
|
43,849 |
|
38,254 |
| ||
Income before gain on extinguishment of debt, income from equity affiliates and income taxes |
|
27,538 |
|
22,166 |
| ||
Gain on extinguishment of debt |
|
|
|
7,116 |
| ||
Income from equity affiliates |
|
746 |
|
763 |
| ||
Benefit from (provision for) income taxes |
|
8,784 |
|
(6,101 |
) | ||
Net income |
|
37,068 |
|
23,944 |
| ||
Preferred stock dividends |
|
1,888 |
|
1,888 |
| ||
Net income attributable to noncontrolling interest |
|
8,991 |
|
6,442 |
| ||
Net income attributable to common stockholders |
|
$ |
26,189 |
|
$ |
15,614 |
|
|
|
|
|
|
| ||
Basic earnings per common share |
|
$ |
0.42 |
|
$ |
0.30 |
|
Diluted earnings per common share |
|
$ |
0.42 |
|
$ |
0.30 |
|
|
|
|
|
|
| ||
Weighted average shares outstanding: |
|
|
|
|
| ||
Basic |
|
61,842,336 |
|
51,461,156 |
| ||
Diluted |
|
84,699,735 |
|
73,730,068 |
| ||
|
|
|
|
|
| ||
Dividends declared per common share |
|
$ |
0.21 |
|
$ |
0.17 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
|
|
|
|
|
| ||
Net income |
|
$ |
37,068 |
|
$ |
23,944 |
|
Unrealized gain on securities available-for-sale, at fair value |
|
|
|
29 |
| ||
Reclassification of net unrealized gains on available-for-sale securities into accumulated deficit (Note 2) |
|
(176 |
) |
|
| ||
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings |
|
|
|
238 |
| ||
Comprehensive income |
|
36,892 |
|
24,211 |
| ||
Less: |
|
|
|
|
| ||
Comprehensive income attributable to noncontrolling interest |
|
8,947 |
|
6,520 |
| ||
Preferred stock dividends |
|
1,888 |
|
1,888 |
| ||
Comprehensive income attributable to common stockholders |
|
$ |
26,057 |
|
$ |
15,803 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
($ in thousands, except shares)
Three Months Ended March 31, 2018
|
|
Preferred |
|
Preferred Stock |
|
Common |
|
Common |
|
Additional Paid- |
|
Accumulated |
|
Accumulated |
|
Total Arbor |
|
Noncontrolling |
|
Total Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance December 31, 2017 |
|
24,942,269 |
|
$ |
89,508 |
|
61,723,387 |
|
$ |
617 |
|
$ |
707,450 |
|
$ |
(101,926 |
) |
$ |
176 |
|
$ |
695,825 |
|
$ |
168,731 |
|
$ |
864,556 |
|
Issuance of common stock, net |
|
|
|
|
|
360,000 |
|
4 |
|
3,010 |
|
|
|
|
|
3,014 |
|
|
|
3,014 |
| ||||||||
Stock-based compensation |
|
|
|
|
|
387,648 |
|
4 |
|
2,541 |
|
|
|
|
|
2,545 |
|
|
|
2,545 |
| ||||||||
Forfeiture of unvested restricted stock |
|
|
|
|
|
(1,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Distributions - common stock |
|
|
|
|
|
|
|
|
|
|
|
(12,962 |
) |
|
|
(12,962 |
) |
|
|
(12,962 |
) | ||||||||
Distributions - preferred stock |
|
|
|
|
|
|
|
|
|
|
|
(1,888 |
) |
|
|
(1,888 |
) |
|
|
(1,888 |
) | ||||||||
Distributions - preferred stock of private REIT |
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) | ||||||||
Distributions - noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,458 |
) |
(4,458 |
) | ||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
28,077 |
|
|
|
28,077 |
|
8,991 |
|
37,068 |
| ||||||||
Reclassification of net unrealized gains on available-for-sale securities into accumulated deficit |
|
|
|
|
|
|
|
|
|
|
|
176 |
|
(176 |
) |
|
|
|
|
|
| ||||||||
Balance March 31, 2018 |
|
24,942,269 |
|
$ |
89,508 |
|
62,469,535 |
|
$ |
625 |
|
$ |
713,001 |
|
$ |
(88,528 |
) |
$ |
|
|
$ |
714,606 |
|
$ |
173,264 |
|
$ |
887,870 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
|
|
|
|
|
| ||
Operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
37,068 |
|
$ |
23,944 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
1,846 |
|
1,897 |
| ||
Stock-based compensation |
|
2,545 |
|
2,305 |
| ||
Amortization and accretion of interest and fees, net |
|
3,945 |
|
742 |
| ||
Amortization of capitalized mortgage servicing rights |
|
11,865 |
|
11,888 |
| ||
Originations of loans held-for-sale |
|
(1,035,737 |
) |
(1,267,713 |
) | ||
Proceeds from sales of loans held-for-sale, net of gain on sale |
|
1,046,204 |
|
1,364,850 |
| ||
Mortgage servicing rights |
|
(19,634 |
) |
(20,030 |
) | ||
Write-off of capitalized mortgage servicing rights from payoffs |
|
4,811 |
|
3,393 |
| ||
Impairment loss on real estate owned |
|
|
|
1,200 |
| ||
Provision for loan losses (net of recoveries) |
|
325 |
|
(696 |
) | ||
Provision for loss sharing (net of recoveries) |
|
473 |
|
1,679 |
| ||
Net charge-offs for loss sharing obligations |
|
113 |
|
(1,867 |
) | ||
Gain on extinguishment of debt |
|
|
|
(7,116 |
) | ||
Deferred tax (benefit) provision |
|
(13,320 |
) |
1,827 |
| ||
Income from equity affiliates |
|
(746 |
) |
(763 |
) | ||
Changes in operating assets and liabilities |
|
(18,961 |
) |
(42,967 |
) | ||
Net cash provided by operating activities |
|
20,797 |
|
72,573 |
| ||
|
|
|
|
|
| ||
Investing Activities: |
|
|
|
|
| ||
Loans and investments funded and originated, net |
|
(283,937 |
) |
(138,952 |
) | ||
Payoffs and paydowns of loans and investments |
|
192,023 |
|
191,752 |
| ||
Deferred fees |
|
2,827 |
|
227 |
| ||
Investments in real estate, net |
|
(66 |
) |
(119 |
) | ||
Contributions to equity affiliates |
|
(2,460 |
) |
(348 |
) | ||
Distributions from equity affiliates |
|
2,608 |
|
385 |
| ||
Purchase of securities held-to-maturity, net |
|
(8,445 |
) |
(7,838 |
) | ||
Payoffs and paydowns of securities held-to-maturity |
|
139 |
|
2 |
| ||
Proceeds from insurance settlements |
|
2,278 |
|
647 |
| ||
Due to borrowers and reserves |
|
(63,941 |
) |
(753 |
) | ||
Net cash (used in) provided by investing activities |
|
(158,974 |
) |
45,003 |
| ||
|
|
|
|
|
| ||
Financing activities: |
|
|
|
|
| ||
Proceeds from repurchase agreements, loan participations, credit facilities and notes payable |
|
1,870,249 |
|
2,439,585 |
| ||
Payoffs and paydowns of repurchase agreements, loan participations and credit facilities |
|
(1,771,463 |
) |
(2,491,430 |
) | ||
Payoffs of junior subordinated notes to subsidiary trust issuing preferred securities |
|
|
|
(12,691 |
) | ||
Payoff of related party financing |
|
(50,000 |
) |
|
| ||
Proceeds from convertible senior unsecured notes |
|
|
|
13,750 |
| ||
Proceeds from senior unsecured notes |
|
100,000 |
|
|
| ||
Receipts on swaps and returns of margin calls from counterparties |
|
|
|
430 |
| ||
Distributions paid on common stock |
|
(12,962 |
) |
(8,738 |
) | ||
Distributions paid on noncontrolling interest |
|
(4,458 |
) |
(3,609 |
) | ||
Distributions paid on preferred stock |
|
(1,888 |
) |
(1,888 |
) | ||
Distributions paid on preferred stock of private REIT |
|
(5 |
) |
(5 |
) | ||
Payment of deferred financing costs |
|
(3,875 |
) |
(834 |
) | ||
Proceeds from issuance of common stock, net |
|
3,014 |
|
|
| ||
Net cash provided by (used in) financing activities |
|
128,612 |
|
(65,430 |
) | ||
|
|
|
|
|
| ||
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
(9,565 |
) |
52,146 |
| ||
Cash, cash equivalents and restricted cash at beginning of period |
|
243,772 |
|
167,960 |
| ||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
234,207 |
|
$ |
220,106 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
(in thousands)
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
|
|
|
|
|
| ||
Supplemental cash flow information: |
|
|
|
|
| ||
Cash used to pay interest |
|
$ |
27,507 |
|
$ |
15,014 |
|
Cash used to pay taxes |
|
$ |
3,718 |
|
$ |
750 |
|
|
|
|
|
|
| ||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
| ||
Distributions accrued on 8.25% Series A preferred stock |
|
$ |
267 |
|
$ |
267 |
|
Distributions accrued on 7.75% Series B preferred stock |
|
$ |
203 |
|
$ |
203 |
|
Distributions accrued on 8.50% Series C preferred stock |
|
$ |
159 |
|
$ |
159 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Note 1 Description of Business
Arbor Realty Trust, Inc. (the Company, we, us, or our) is a Maryland corporation formed in 2003. We operate through two business segments: our Structured Loan Origination and Investment Business (Structured Business) and our Agency Loan Origination and Servicing Business (Agency Business). Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets, primarily consisting of bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity. We may also directly acquire real property and invest in real estate-related notes and certain mortgage-related securities. Through our Agency Business, we originate, sell and service a range of multifamily finance products through the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac, and together with Fannie Mae, the government-sponsored enterprises, or the GSEs), the Government National Mortgage Association (Ginnie Mae), Federal Housing Authority (FHA) and the U.S. Department of Housing and Urban Development (together with Ginnie Mae and FHA, HUD) and conduit/commercial mortgage-backed securities (CMBS) programs. We retain the servicing rights and asset management responsibilities on substantially all loans we originate and sell under the GSE and HUD programs. We are an approved Fannie Mae Delegated Underwriting and Servicing (DUS) lender nationally, a Freddie Mac Multifamily Conventional Loan lender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable, manufactured housing, senior housing and small balance loan (SBL) lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally.
We have operated the Agency Business since July 2016 when we acquired it from Arbor Commercial Mortgage, LLC (ACM or our Former Manager). We were externally managed and advised by ACM and, effective May 31, 2017, terminated the existing management agreement with ACM to fully internalize our management team. Please refer to our 2017 Annual Report for details of our acquisition of the Agency Business (the Acquisition) and termination of the management agreement.
Substantially all of our operations are conducted through our operating partnership, Arbor Realty Limited Partnership (ARLP), for which we serve as the general partner, and ARLPs subsidiaries. We are organized to qualify as a real estate investment trust (REIT) for U.S. federal income tax purposes. Certain of our assets that produce non-qualifying income, primarily within the Agency Business, are operated through taxable REIT subsidiaries (TRS), which is part of our TRS consolidated group (the TRS Consolidated Group) and is subject to U.S. federal, state and local income taxes. See Note 17 Income Taxes for details.
Note 2 Basis of Presentation and Significant Accounting Policies
Basis of Presentation
Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP), for interim financial statements and the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared under GAAP have been condensed or omitted. In our opinion, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with our financial statements and notes thereto included in our 2017 Annual Report.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. See the following Recently Adopted Accounting Pronouncements section for the cash flows impact of the retrospective adoption of Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows: Restricted Cash and ASU 2016-15, Statement of Cash Flows.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Principles of Consolidation
These consolidated financial statements include our financial statements and the financial statements of our wholly owned subsidiaries, partnerships and other joint ventures in which we own a controlling interest, including variable interest entities (VIEs) of which we are the primary beneficiary. Entities in which we have a significant influence are accounted for under the equity method. See Note 15 Variable Interest Entities for information about our VIEs. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that could materially affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies
We describe our significant accounting policies in our 2017 Annual Report. There have been no significant changes in our significant accounting policies since December 31, 2017.
Recently Adopted Accounting Pronouncements
Description |
|
Adoption Date |
|
Effect on Financial Statements |
Since 2014, the Financial Accounting Standards Board (FASB) has issued several amendments to its guidance on revenue recognition. The amended guidance, among other things, introduces a new framework for a single comprehensive model that can be used when accounting for revenue and supersedes most current revenue recognition guidance, including that which pertains to specific industries. The core principle states that an entity should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods and services. It also requires expanded quantitative and qualitative disclosures that will enable financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Most revenue associated with financial instruments, including interest and loan origination fees, along with gains and losses on investment securities, derivatives and sales of financial instruments are excluded from the scope of the guidance. |
|
First quarter of 2018. |
|
The adoption of this guidance did not have a material impact on our consolidated financial statements. This standard may impact the timing of gains on certain future sales of real estate. |
|
|
|
|
|
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting. This ASU clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Many entities today apply the modification accounting guidance when any of the terms or conditions of an award are changed, even if the changes are not substantive. Under the new guidance, modification accounting will not apply to a share-based payment award if all of the following are the same immediately before and after the change; (1) the awards fair value; (2) the awards vesting conditions; and (3) the awards classification as an equity or liability instrument. |
|
First quarter of 2018. |
|
This ASU required prospective adoption, therefore, any future award changes will be evaluated under the amended guidance. |
|
|
|
|
|
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business. This ASU changes the definition of a business to assist with evaluating when a set of transferred assets and activities constitutes a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. |
|
First quarter of 2018. |
|
This ASU required prospective adoption, therefore, any future acquisitions will be evaluated under the amended guidance. |
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Description |
|
Adoption Date |
|
Effect on Financial Statements |
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. This ASU requires changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents to be shown in the statement of cash flows. Previous guidance required the change in cash and cash equivalents be shown on the statement of cash flows, with cash used to fund restricted cash and restricted cash equivalents shown as a component of operating, investing, or financing activities. Entities are now also required to reconcile the total of cash, cash equivalents, restricted cash, and restricted cash equivalents as presented in the statement of cash flows to the related captions in the balance sheet when these balances are presented separately in the balance sheet. |
|
First quarter of 2018. |
|
This guidance required retrospective adoption, therefore, we adjusted the cash flow statement for the comparable prior period. The following table shows the impact of the adoption of this gyuidance, as well as the adoption of ASU 2016-15 described below. |
|
|
|
|
|
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This ASU provides eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. |
|
First quarter of 2018. |
|
This guidance required retrospective adoption, therefore, we reclassified $0.6 million of proceeds from insurance settlements from net cash provided by operating activities to net cash (used in) provided by investing activities for the three months ended March 31, 2017. In addition, we chose the cummulative earnings approach for distributions received from equity method investees, which did not result in any changes in the way we account for such distributions. The following table shows the impact of the adoption of this guidance, as well as the adoption of ASU 2016-18 described above. |
(in thousands) |
|
Three Months Ended |
| |
As previously reported under GAAP applicable at the time |
|
|
| |
Cash and cash equivalents at beginning of period |
|
$ |
138,645 |
|
Net decrease in cash and cash equivalents |
|
(33,802 |
) | |
Cash and cash equivalents at end of period |
|
104,843 |
| |
Net cash provided by operating activities: changes in operating assets and liabilities |
|
(42,461 |
) | |
Net cash (used in) provided by investing activities |
|
44,356 |
| |
Net cash provided by (used in) financing activities |
|
(151,398 |
) | |
|
|
|
| |
As currently reported under ASU 2016-18 and ASU 2016-15 |
|
|
| |
Cash, cash equivalents and restricted cash at beginning of period |
|
$ |
167,960 |
|
Net increase in cash, cash equivalents and restricted cash |
|
52,146 |
| |
Cash, cash equivalents and restricted cash at end of period |
|
220,106 |
| |
Net cash provided by operating activities: changes in operating assets and liabilities |
|
(42,967 |
) | |
Net cash (used in) provided by investing activities |
|
45,003 |
| |
Net cash provided by (used in) financing activities |
|
(65,430 |
) |
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Consensuses of the FASB Emerging Issues Task Force. This ASU requires that unconsolidated equity investments not accounted for under the equity method be recorded at fair value, with changes in fair value recorded through net income. The accounting principles that permitted available-for-sale classification with unrealized holding gains and losses recorded in other comprehensive income for equity securities will no longer be applicable. In addition, financial liabilities measured using the fair value option will need to present any change in fair value caused by a change in instrument-specific credit risk separately in other comprehensive income. |
|
First quarter of 2018. |
|
The adoption of this guidance did not have a material impact on our consolidated financial statements. In connection with the adoption of this ASU, we reclassified $0.2 million of unrealized gains on available-for-sale securities from accumulated other comprehensive income to accumulated deficit. |
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Recently Issued Accounting Pronouncements
The following table is not intended to represent all recently issued accounting pronouncements that are not yet effective and which have not yet been adopted by us. This table should be read in conjunction with the recently issued accounting pronouncements section included in our 2017 Annual Report.
Description |
|
Effective Date |
|
Effect on Financial Statements |
|
In March 2018, the FASB issued ASU 2018-05, Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 which allowed SEC registrants to record provisional amounts in earnings for the year ended December 31, 2017 due to complexities involved in accounting for the enacted Tax Cuts and Jobs Act (Tax Reform). |
|
N/A |
|
We recognized the estimated impact of the Tax Reform in our consolidated financial statements for the year ended December 31, 2017. |
|
Note 3 Loans and Investments
The following tables set forth the composition of our Structured Business loan and investment portfolio ($ in thousands):
|
|
March 31, 2018 |
|
Percent of |
|
Loan |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Bridge loans |
|
$ |
2,502,574 |
|
90 |
% |
153 |
|
6.41 |
% |
19.6 |
|
0 |
% |
72 |
% |
Preferred equity investments |
|
188,872 |
|
7 |
% |
13 |
|
6.77 |
% |
63.5 |
|
58 |
% |
88 |
% | |
Mezzanine loans |
|
84,976 |
|
3 |
% |
7 |
|
10.81 |
% |
19.9 |
|
20 |
% |
66 |
% | |
|
|
2,776,422 |
|
100 |
% |
173 |
|
6.57 |
% |
22.6 |
|
5 |
% |
73 |
% | |
Allowance for loan losses |
|
(63,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Unearned revenue |
|
(11,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and investments, net |
|
$ |
2,702,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Bridge loans |
|
$ |
2,422,105 |
|
91 |
% |
150 |
|
6.10 |
% |
20.9 |
|
0 |
% |
72 |
% |
Preferred equity investments |
|
142,892 |
|
6 |
% |
12 |
|
6.47 |
% |
68.7 |
|
64 |
% |
90 |
% | |
Mezzanine loans |
|
87,541 |
|
3 |
% |
8 |
|
10.78 |
% |
24.8 |
|
20 |
% |
63 |
% | |
|
|
2,652,538 |
|
100 |
% |
170 |
|
6.28 |
% |
23.6 |
|
4 |
% |
73 |
% | |
Allowance for loan losses |
|
(62,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Unearned revenue |
|
(10,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and investments, net |
|
$ |
2,579,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Weighted Average Pay Rate is a weighted average, based on the unpaid principal balance (UPB) of each loan in our portfolio, of the interest rate that is required to be paid monthly as stated in the individual loan agreements. Certain loans and investments that require an additional rate of interest Accrual Rate to be paid at maturity are not included in the weighted average pay rate as shown in the table.
(2) The First Dollar Loan-to-Value (LTV) Ratio is calculated by comparing the total of our senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will absorb a total loss of our position.
(3) The Last Dollar LTV Ratio is calculated by comparing the total of the carrying value of our loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will initially absorb a loss.
Concentration of Credit Risk
We are subject to concentration risk in that, at March 31, 2018, the UPB related to 41 loans with five different borrowers represented 23% of total assets. At December 31, 2017, the UPB related to 42 loans with five different borrowers represented 24% of total assets. During both the three months ended March 31, 2018 and the year ended December 31, 2017, no single loan or investment represented more than 10% of our total assets and no single investor group generated over 10% of our revenue.
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
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
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. A risk rating of substandard indicates we anticipate the loan may require a modification of some kind. A risk rating of doubtful indicates we expect the loan to underperform over its term, and there could be loss of interest and/or principal. Further, while the above are the primary guidelines used in determining a certain risk rating, subjective items such as borrower strength, market strength or asset quality may result in a rating that is higher or lower than might be indicated by any risk rating matrix.
As a result of the loan review process, at March 31, 2018 and December 31, 2017, we identified eight loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of $126.9 million and $126.5 million, respectively, and a weighted average last dollar LTV ratio of 93% for both periods.
A summary of the loan portfolios weighted average internal risk ratings and LTV ratios by asset class is as follows ($ in thousands):
|
|
March 31, 2018 |
| |||||||||
Asset Class |
|
UPB |
|
Percentage of |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Multifamily |
|
$ |
2,049,398 |
|
74 |
% |
pass/watch |
|
4 |
% |
72 |
% |
Self Storage |
|
301,830 |
|
11 |
% |
pass/watch |
|
0 |
% |
71 |
% | |
Land |
|
132,903 |
|
5 |
% |
substandard |
|
0 |
% |
91 |
% | |
Office |
|
107,818 |
|
4 |
% |
special mention |
|
1 |
% |
65 |
% | |
Hotel |
|
90,725 |
|
3 |
% |
pass/watch |
|
35 |
% |
79 |
% | |
Healthcare |
|
55,615 |
|
2 |
% |
pass/watch |
|
0 |
% |
77 |
% | |
Retail |
|
36,433 |
|
1 |
% |
pass/watch |
|
8 |
% |
66 |
% | |
Commercial |
|
1,700 |
|
<1 |
% |
doubtful |
|
63 |
% |
63 |
% | |
Total |
|
$ |
2,776,422 |
|
100 |
% |
pass/watch |
|
5 |
% |
73 |
% |
|
|
December 31, 2017 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |
Multifamily |
|
$ |
1,925,529 |
|
73 |
% |
pass/watch |
|
4 |
% |
72 |
% |
Self Storage |
|
301,830 |
|
11 |
% |
pass |
|
0 |
% |
71 |
% | |
Land |
|
132,828 |
|
5 |
% |
substandard |
|
0 |
% |
90 |
% | |
Office |
|
107,853 |
|
4 |
% |
pass/watch |
|
1 |
% |
64 |
% | |
Hotel |
|
90,725 |
|
3 |
% |
special mention |
|
37 |
% |
81 |
% | |
Healthcare |
|
55,615 |
|
2 |
% |
pass/watch |
|
0 |
% |
74 |
% | |
Retail |
|
36,458 |
|
1 |
% |
pass/watch |
|
8 |
% |
66 |
% | |
Commercial |
|
1,700 |
|
<1 |
% |
doubtful |
|
63 |
% |
63 |
% | |
Total |
|
$ |
2,652,538 |
|
100 |
% |
pass/watch |
|
4 |
% |
73 |
% |
Geographic Concentration Risk
As of March 31, 2018, 21%, 21% and 11% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Texas and California, respectively. As of December 31, 2017, 23%, 21% and 11% of the outstanding balance of our loan and investment portfolio had underlying properties in Texas, New York and California, respectively.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Impaired Loans and Allowance for Loan Losses
A summary of the changes in the allowance for loan losses is as follows (in thousands):
|
|
Three Months Ended March 31, |
| ||||
|
|
2018 |
|
2017 |
| ||
|
|
|
|
|
| ||
Allowance at beginning of period |
|
$ |
62,783 |
|
$ |
83,712 |
|
Provision for loan losses |
|
325 |
|
|
| ||
Recoveries of reserves |
|
|
|
(696 |
) | ||
Allowance at end of period |
|
$ |
63,108 |
|
$ |
83,016 |
|
The recoveries of reserves recorded in the first quarter of 2017 related to multifamily loans and the ratio of net recoveries to the average loans and investments outstanding was de minimus.
There were no loans for which the fair value of the collateral securing the loan was less than the carrying value of the loan for which we had not recorded a provision for loan loss as of March 31, 2018 and 2017.
We have six loans with a carrying value totaling $120.4 million at March 31, 2018, which mature in September 2018, that are collateralized by a land development project. The loans do not carry a current pay rate of interest, but five of the loans with a carrying value totaling $111.0 million entitle us to a weighted average accrual rate of interest of 8.80%. 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, 2018 and December 31, 2017, we had cumulative allowances for loan losses of $49.4 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 developments 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.
A summary of our impaired loans by asset class is as follows (in thousands):
|
|
March 31, 2018 |
|
Three Months Ended March 31, 2018 |
| |||||||||||
Asset Class |
|
UPB |
|
Carrying Value (1) |
|
Allowance for |
|
Average Recorded |
|
Interest Income |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Land |
|
$ |
131,411 |
|
$ |
125,174 |
|
$ |
54,208 |
|
$ |
131,249 |
|
$ |
|
|
Hotel |
|
34,750 |
|
34,750 |
|
5,700 |
|
34,750 |
|
|
| |||||
Office |
|
2,283 |
|
2,283 |
|
1,500 |
|
2,286 |
|
29 |
| |||||
Commercial |
|
1,700 |
|
1,700 |
|
1,700 |
|
1,700 |
|
|
| |||||
Total |
|
$ |
170,144 |
|
$ |
163,907 |
|
$ |
63,108 |
|
$ |
169,985 |
|
$ |
29 |
|
|
|
December 31, 2017 |
|
Three Months Ended March 31, 2017 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Land |
|
$ |
131,086 |
|
$ |
124,812 |
|
$ |
53,883 |
|
$ |
131,086 |
|
$ |
|
|
Hotel |
|
34,750 |
|
34,750 |
|
5,700 |
|
34,750 |
|
310 |
| |||||
Office |
|
2,288 |
|
2,288 |
|
1,500 |
|
27,560 |
|
25 |
| |||||
Commercial |
|
1,700 |
|
1,700 |
|
1,700 |
|
1,700 |
|
|
| |||||
Multifamily |
|
|
|
|
|
|
|
2,151 |
|
22 |
| |||||
Total |
|
$ |
169,824 |
|
$ |
163,550 |
|
$ |
62,783 |
|
$ |
197,247 |
|
$ |
357 |
|
(1) Represents the UPB of five impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at both March 31, 2018 and December 31, 2017.
(2) Represents an average of the beginning and ending UPB of each asset class.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
At both March 31, 2018 and December 31, 2017, two loans with an aggregate net carrying value of $29.1 million, net of related loan loss reserves of $7.4 million, were classified as non-performing. Income from non-performing loans is generally recognized on a cash basis when it is received. Full income recognition will resume when the loan becomes contractually current and performance has recommenced.
A summary of our non-performing loans by asset class is as follows (in thousands):
|
|
March 31, 2018 |
|
December 31, 2017 |
| ||||||||||||||
Asset Class |
|
Carrying Value |
|
Less Than 90 |
|
Greater Than |
|
Carrying |
|
Less Than 90 |
|
Greater Than |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Hotel |
|
$ |
34,750 |
|
$ |
|
|
$ |
34,750 |
|
$ |
34,750 |
|
$ |
|
|
$ |
34,750 |
|
Commercial |
|
1,700 |
|
|
|
1,700 |
|
1,700 |
|
|
|
1,700 |
| ||||||
Total |
|
$ |
36,450 |
|
$ |
|
|
$ |
36,450 |
|
$ |
36,450 |
|
$ |
|
|
$ |
36,450 |
|
At March 31, 2018 and December 31, 2017, we did not have any loans contractually past due 90 days or more that were still accruing interest.
There were no loan modifications, refinancings and/or extensions during the three months ended March 31, 2018 and 2017 that we 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. As of March 31, 2018, we had total interest reserves of $46.3 million on 84 loans with an aggregate UPB of $1.66 billion. As of December 31, 2017, we had total interest reserves of $52.5 million on 81 loans with an aggregate UPB of $1.57 billion.
Note 4 Loans Held-for-Sale, Net
Loans held-for-sale, net consists of the following (in thousands):
|
|
March 31, 2018 |
|
December 31, 2017 |
| ||
|
|
|
|
|
| ||
Fannie Mae |
|
$ |
178,222 |
|
$ |
243,717 |
|
Freddie Mac |
|
77,180 |
|
47,545 |
| ||
FHA |
|
26,359 |
|
987 |
| ||
|
|
281,761 |
|
292,249 |
| ||
Fair value of future MSR |
|
5,200 |
|
5,806 |
| ||
Unearned discount |
|
(636 |
) |
(612 |
) | ||
Loans held-for-sale, net |
|
$ |
286,325 |
|
$ |
297,443 |
|
Our loans held-for-sale, net are typically sold within 60 days of loan origination and the gain on sales are included in gain on sales, including fee-based services, net in the consolidated statements of income. During the three months ended March 31, 2018 and 2017, we sold $1.06 billion and $1.36 billion, respectively, of loans held-for-sale and recorded gain on sales of $17.4 million and $18.1 million, respectively. At March 31, 2018 and December 31, 2017, there were no loans held-for-sale that were 90 days or more past due, and there were no loans held-for-sale that were placed on a non-accrual status.
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. 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%) based on our best estimate of market discount rates. The weighted average estimated life remaining of our MSRs was 7.2 years at both March 31, 2018 and December 31, 2017.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
A summary of our capitalized MSR activity is as follows (in thousands):
|
|
Three Months Ended March 31, 2018 |
| |||||||
|
|
Acquired |
|
Originated |
|
Total |
| |||
Balance at beginning of period |
|
$ |
143,270 |
|
$ |
109,338 |
|
$ |
252,608 |
|
Additions |
|
|
|
19,800 |
|
19,800 |
| |||
Amortization |
|
(7,995 |
) |
(3,870 |
) |
(11,865 |
) | |||
Write-downs and payoffs |
|
(3,341 |
) |
(1,470 |
) |
(4,811 |
) | |||
Balance at end of period |
|
$ |
131,934 |
|
$ |
123,798 |
|
$ |
255,732 |
|
|
|
Three Months Ended March 31, 2017 |
| |||||||
Balance at beginning of period |
|
$ |
194,801 |
|
$ |
32,942 |
|
$ |
227,743 |
|
Additions |
|
|
|
26,469 |
|
26,469 |
| |||
Amortization |
|
(10,462 |
) |
(1,426 |
) |
(11,888 |
) | |||
Write-downs and payoffs |
|
(3,393 |
) |
|
|
(3,393 |
) | |||
Balance at end of period |
|
$ |
180,946 |
|
$ |
57,985 |
|
$ |
238,931 |
|
We collected prepayment fees of $3.7 million and $2.0 million during the three months ended March 31, 2018 and 2017, respectively, which are included as a component of servicing revenue, net on the consolidated statements of income. As of March 31, 2018 and December 31, 2017, we had no valuation allowance recorded on any of our MSRs.
The expected amortization of capitalized MSRs recorded as of March 31, 2018 is shown in the table below. Actual amortization may vary from these estimates (in thousands).
Year |
|
Amortization |
| |
2018 (nine months ending 12/31/2018) |
|
$ |
35,767 |
|
2019 |
|
44,539 |
| |
2020 |
|
39,231 |
| |
2021 |
|
31,900 |
| |
2022 |
|
25,314 |
| |
2023 |
|
20,802 |
| |
Thereafter |
|
58,179 |
| |
Total |
|
$ |
255,732 |
|
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Note 6 Mortgage Servicing
An analysis of the product and geographic concentrations that impact our servicing revenue is as follows ($ in thousands):
March 31, 2018 |
| |||||||||
Product Concentrations |
|
Geographic Concentrations |
| |||||||
|
|
|
|
Percent of |
|
|
|
UPB |
| |
Product |
|
UPB |
|
Total |
|
State |
|
of Total |
| |
Fannie Mae |
|
$ |
12,700,635 |
|
76 |
% |
Texas |
|
22 |
% |
Freddie Mac |
|
3,397,535 |
|
20 |
% |
North Carolina |
|
10 |
% | |
FHA |
|
591,836 |
|
4 |
% |
California |
|
8 |
% | |
Total |
|
$ |
16,690,006 |
|
100 |
% |
New York |
|
8 |
% |
|
|
|
|
|
|
Georgia |
|
6 |
% | |
|
|
|
|
|
|
Florida |
|
6 |
% | |
|
|
|
|
|
|
Other (1) |
|
40 |
% | |
|
|
|
|
|
|
Total |
|
100 |
% |
December 31, 2017 |
| |||||||||
Product Concentrations |
|
Geographic Concentrations |
| |||||||
|
|
|
|
Percent of |
|
|
|
UPB |
| |
Product |
|
UPB |
|
Total |
|
State |
|
of Total |
| |
Fannie Mae |
|
$ |
12,502,699 |
|
77 |
% |
Texas |
|
22 |
% |
Freddie Mac |
|
3,166,134 |
|
20 |
% |
North Carolina |
|
10 |
% | |
FHA |
|
537,482 |
|
3 |
% |
California |
|
8 |
% | |
Total |
|
$ |
16,206,315 |
|
100 |
% |
New York |
|
8 |
% |
|
|
|
|
|
|
Georgia |
|
6 |
% | |
|
|
|
|
|
|
Florida |
|
6 |
% | |
|
|
|
|
|
|
Other (1) |
|
40 |
% | |
|
|
|
|
|
|
Total |
|
100 |
% |
(1) No other individual state represented 4% or more of the total.
At March 31, 2018 and December 31, 2017, our weighted average servicing fee was 47.5 basis points and 47.7 basis points, respectively. We held cash in escrow for these loans totaling $443.2 million and $477.9 million at March 31, 2018 and December 31, 2017, respectively, which is not reflected in our consolidated balance sheets. These escrows are maintained in separate accounts at several federally insured depository institutions, which may exceed FDIC insured limits. We earn interest income on these escrow deposits, generally based on a market rate of interest negotiated with the financial institutions that hold the escrow deposits. Interest earned on escrows, net of interest paid to the borrower, was $2.2 million and $0.7 million during the three months ended March 31, 2018 and 2017, respectively, and is a component of servicing revenue, net in the consolidated statements of income.
Note 7 Securities Held-to-Maturity
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 are required to purchase the bottom tranche bond, generally referred to as the B Piece, that represents the bottom 10%, or highest risk, of the securitization. During the three months ended March 31, 2018, we purchased a B Piece bond with an initial face value of $12.3 million, at a discount, for $8.4 million. As of March 31, 2018, we retained 49%, or $53.3 million initial face value, of four B Piece bonds, at a discount, for $35.6 million and sold the remaining 51% to a third party at par. These held-to-maturity securities are carried at cost, net of unamortized discounts, and are collateralized by a pool of multifamily
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
mortgage loans, bear interest at an initial weighted average variable rate of 3.64% and have an estimated weighted average maturity of 5.7 years. The weighted average effective interest rate was 11.43% and 12.97% at March 31, 2018 and December 31, 2017, respectively, including the accretion of discount. Approximately $8.0 million is estimated to mature within one year, $25.4 million is estimated to mature after one year through five years, $12.3 million is estimated to mature after five years through ten years and $7.0 million is estimated to mature after ten years.
The following is a summary of the held-to-maturity securities we held (in thousands):
March 31, 2018 |
| ||||||||||||
|
|
Face Value |
|
Carrying Value |
|
Unrealized |
|
Estimated Fair |
| ||||
B Piece bonds |
|
$ |
52,673 |
|
$ |
36,764 |
|
$ |
509 |
|
$ |
37,273 |
|
December 31, 2017 |
| ||||||||||||
B Piece bonds |
|
$ |
40,566 |
|
$ |
27,837 |
|
$ |
602 |
|
$ |
28,439 |
|
As of March 31, 2018, no impairment was recorded on these held-to-maturity securities. During the three months ended March 31, 2018 and 2017, we recorded interest income of $0.6 million and less than $0.1 million, respectively, related to these investments.
Note 8 Investments in Equity Affiliates
We account for all investments in equity affiliates under the equity method. The following is a summary of our investments in equity affiliates (in thousands):
|
|
Investments in Equity Affiliates at |
|
UPB of Loans to |
| |||||
Equity Affiliates |
|
March 31, 2018 |
|
December 31, 2017 |
|
March 31, 2018 |
| |||
|
|
|
|
|
|
|
| |||
Arbor Residential Investor LLC |
|
$ |
19,137 |
|
$ |
19,193 |
|
$ |
|
|
West Shore Café |
|
2,168 |
|
2,140 |
|
1,688 |
| |||
Lightstone Value Plus REIT L.P. |
|
1,895 |
|
1,895 |
|
|
| |||
JT Prime |
|
425 |
|
425 |
|
|
| |||
East River Portfolio |
|
|
|
|
|
|
| |||
Lexford Portfolio |
|
|
|
|
|
|
| |||
Total |
|
$ |
23,625 |
|
$ |
23,653 |
|
$ |
1,688 |
|
Arbor Residential Investor LLC (ARI). During both the three months ended March 31, 2018 and 2017, we recorded income of $0.1 million to income from equity affiliates in our consolidated statements of income related to our investment in this residential mortgage banking business. In addition, during the three months ended March 31, 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.
During the three months ended March 31, 2018, we received a $0.2 million cash distribution, which was classified as a return of capital, in connection with a joint venture that invests in non-qualified residential mortgages purchased from ARIs origination platform. During both the three months ended March 31, 2018 and 2017, we recorded income of less than $0.1 million to income from equity affiliates in our consolidated statements of income related to this investment.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Lexford Portfolio. In the three months ended March 31, 2018 and 2017, we received distributions of $0.6 million and $0.7 million, respectively, from this equity investment which was recognized as income. See Note 18 Agreements and Transactions with Related Parties for details.
Note 9 Real Estate Owned
Our real estate assets at both March 31, 2018 and December 31, 2017 were comprised of a hotel property and an office building.
Real Estate Owned
|
|
March 31, 2018 |
|
December 31, 2017 |
| ||||||||||||||
(in thousands) |
|
Hotel |
|
Office |
|
Total |
|
Hotel |
|
Office |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Land |
|
$ |
3,294 |
|
$ |
4,509 |
|
$ |
7,803 |
|
$ |
3,294 |
|
$ |
4,509 |
|
$ |
7,803 |
|
Building and intangible assets |
|
30,765 |
|
2,010 |
|
32,775 |
|
30,699 |
|
2,010 |
|
32,709 |
| ||||||
Less: Impairment loss |
|
(13,307 |
) |
(500 |
) |
(13,807 |
) |
(13,307 |
) |
(500 |
) |
(13,807 |
) | ||||||
Less: Accumulated depreciation and amortization |
|
(9,367 |
) |
(729 |
) |
(10,096 |
) |
(9,228 |
) |
(690 |
) |
(9,918 |
) | ||||||
Real estate owned, net |
|
$ |
11,385 |
|
$ |
5,290 |
|
$ |
16,675 |
|
$ |
11,458 |
|
$ |
5,329 |
|
$ |
16,787 |
|
For the three months ended March 31, 2018 and 2017, our hotel property had a weighted average occupancy rate of 58% and 55%, respectively, a weighted average daily rate of $128 and $134, respectively, and weighted average revenue per available room of $75 and $73, respectively. The operation of a hotel property is seasonal with the majority of revenues earned in the first two quarters of the calendar year.
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 totaling $0.6 million and $0.7 million at March 31, 2018 and December 31, 2017, respectively, due to escrow requirements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2018
Note 10 Debt Obligations
Credit Facilities and Repurchase Agreements
The following table outlines borrowings under our credit facilities and repurchase agreements ($ in thousands):
|
|
|
|
|
|
|
|
March 31, 2018 |
|
December 31, 2017 |
| ||||||||||||
|
|
Current |
|
Extended |
|
Note Rate |
|
Debt Carrying |
|
Collateral |
|
Wtd. |
|
Debt Carrying |
|
Collateral |
|
Wtd. Avg. |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Structured Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$300 million repurchase facility |
|
Mar. 2020 |
|
Mar. 2021 |
|
L + 1.75% |
|
$ |
115,226 |
|
$ |
163,000 |
|
3.96 |
% |
$ |
102,350 |
|
$ |
145,850 |
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$100 million repurchase facility |
|
June 2019 |
|
N/A |
|
L + 2.00% |
|
37,871 |
|
50,827 |
|
3.94 |
% |
2,445 |
|
6,600 |
|
3.61 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$75 million credit facility |
|
Dec. 2018 |
|
N/A |
|
L + 2.00% |
|
13,212 |
|
18,500 |
|
4.06 |
% |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$75 million credit facility |
|
June 2018 |
|
N/A |
|
L + 2.00% |
|
9,000 |
|
16,000 |
|
3.94 |
% |
8,999 |
|
16,000 |
|
3.61 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$50 million credit facility |
|
Feb. 2019 |
|
N/A |
|
L + 2.00% |
|
38,027 |
|
48,800 |
|
3.94 |
% |
32,538 |
|
40,700 |
|
3.61 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$50 million credit facility |
|
Sept. 2019 |
|
Sept. 2021 |
|
L + 2.50% to 3.25% |
|
3,599 |
|
4,625 |
|
5.20 |
% |
3,581 |
|
4,625 |
|
4.88 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$25.5 million credit facility |
|
Oct. 2019 |
|
N/A |
|
L + 2.50% |
|
13,940 |
|
18,753 |
|
4.44 |
% |
13,920 |
|
18,753 |
|
4.12 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$23.2 million credit facility |
|
Feb. 2020 |
|
Feb. 2021 |
|
L + 2.30% |
|
23,072 |
|
30,900 |
|
4.24 |
% |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$20 million credit facility |
|
Mar. 2020 |
|
Mar. 2021 |
|
L + 2.50% |
|
19,884 |
|
41,650 |
|
4.44 |
% |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$10 million working capital facility |
|
June 2018 |
|
N/A |
|
L + 2.50% |
|
|
|
|
|
|
|
10,000 |
|
|
|
4.12 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$7.5 million credit facility |
|
Aug. 2018 |
|
N/A |
|
L + 2.75% |
|
7,444 |
|
9,340 |
|
4.70 |
% |
7,432 |
|
9,340 |
|
4.37 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Repurchase facility - securities |
|
N/A |
|
N/A |
|
L + 2.50% |
|
60,390 |
|
|
|
4.84 |
% |
53,938 |
|
|
|
4.45 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$3 million master security agreement |
|
Oct. 2020 |
|
N/A |
|
2.96% to 3.42% |
|
1,670 |
|
|
|
3.20 |
% |
1,834 |
|
|
|
3.21 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$2.2 million master security agreement |
|
Mar. 2021 |
|
N/A |
|
4.60% |
|
1,390 |
|
|
|
4.66 |
% |
|
|
|
|
|
| ||||
Structured Business total |
|
|
|
|
|
|
|
$ |
344,725 |
|
$ |
402,395 |
|
4.21 |
% |
$ |
237,037 |
|
$ |
241,868 |
|
4.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Agency Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$500 million ASAP agreement (2) |
|
N/A |
|
N/A |
|
L + 1.05% |
|