ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
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Year Ended December 31,
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2019
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2018
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|
2017
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
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|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
$
|
160,063
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|
$
|
104,374
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|
$
|
138,645
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|
Restricted cash at beginning of period
|
|
|
180,606
|
|
|
139,398
|
|
|
29,315
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
$
|
340,669
|
|
$
|
243,772
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|
$
|
167,960
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents at end of period
|
|
$
|
299,687
|
|
$
|
160,063
|
|
$
|
104,374
|
|
Restricted cash at end of period
|
|
|
210,875
|
|
|
180,606
|
|
|
139,398
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
510,562
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|
$
|
340,669
|
|
$
|
243,772
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Supplemental cash flow information:
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|
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|
|
|
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|
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Cash used to pay interest
|
|
$
|
167,581
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|
$
|
118,923
|
|
$
|
75,582
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash used to pay taxes
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|
$
|
19,611
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|
$
|
20,026
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|
$
|
20,823
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Supplemental schedule of non-cash investing and financing activities:
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|
|
|
|
|
|
|
|
|
Issuance of common stock from convertible debt
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|
$
|
69,232
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|
$
|
80,118
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|
$
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|
|
|
|
|
|
|
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|
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|
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|
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|
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|
|
|
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|
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Extinguishment of convertible senior unsecured notes
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|
$
|
(69,510
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)
|
$
|
(70,271
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)
|
$
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
|
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|
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|
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|
|
|
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Fair value of conversion feature of convertible senior unsecured notes
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|
$
|
8,453
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|
$
|
9,750
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|
$
|
4,703
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|
|
|
|
|
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|
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Special dividendcommon stock issued
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|
$
|
10,079
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|
$
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|
|
$
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|
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|
|
|
|
|
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|
|
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|
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Special dividendspecial voting preferred stock and operating partnership units issued
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|
$
|
2,478
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|
$
|
|
|
$
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|
|
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|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
Redemption of operating partnership units for common stock
|
|
$
|
2,939
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
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|
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|
|
Distributions accrued on 8.25% Series A preferred stock
|
|
$
|
267
|
|
$
|
267
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Distributions accrued on 7.75% Series B preferred stock
|
|
$
|
203
|
|
$
|
203
|
|
$
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
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|
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|
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|
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Distributions accrued on 8.50% Series C preferred stock
|
|
$
|
159
|
|
$
|
159
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|
$
|
159
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|
|
|
|
|
|
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|
|
|
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|
|
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|
|
Distributions accrued for special dividend declared
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|
$
|
|
|
$
|
15,696
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|
$
|
|
|
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|
|
|
|
|
|
|
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See Notes to Consolidated Financial Statements.
71
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Note 1Description of Business
Arbor is a Maryland corporation formed in 2003. We are a nationwide REIT and direct lender, providing loan origination and servicing for multifamily, seniors housing, healthcare and
other diverse commercial real estate assets. We operate through two business segments: our Structured Business and our Agency Business.
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 Fannie Mae and 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."
In
July 2016, we acquired the Agency platform of ACM and, in May 2017, we terminated our existing management agreement with ACM and internalized our management team. Substantially all of
our operations are conducted through our operating partnership, ARLP, for which we serve as the general partner, and ARLP's subsidiaries.
Note 2Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. In the opinion of management, 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.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. In connection with the retrospective adoption
in 2018 of Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows, we reclassified $1.1 million of net proceeds from insurance settlements from net cash provided by
operating activities to net cash used in investing activities in the 2017 consolidated cash flow statement. In addition, we adjusted the 2017 consolidated cash flow statement in connection with the
retrospective adoption in 2018 of ASU 2016-18, Statement of Cash Flows: Restricted Cash, which requires changes in the total of cash, cash equivalents, restricted cash,
72
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
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.
The
following table shows the impact of the adoption of ASU 2016-15 and ASU 2016-18:
|
|
|
|
|
(in thousands)
|
|
Year Ended
December 31, 2017
|
|
As previously reported under GAAP applicable at the time
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
$
|
138,645
|
|
Net decrease in cash and cash equivalents
|
|
|
(34,271
|
)
|
Cash and cash equivalents at end of period
|
|
|
104,374
|
|
Net cash provided by (used in) operating activities: changes in operating assets and liabilities
|
|
|
822
|
|
Net cash used in investing activities
|
|
|
(907,949
|
)
|
Net cash provided by financing activities
|
|
|
412,844
|
|
As currently reported under ASU 2016-15 and ASU 2016-18
|
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
$
|
167,960
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
75,812
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
|
243,772
|
|
Net cash provided by (used in) operating activities: changes in operating assets and liabilities
|
|
|
(308
|
)
|
Net cash used in investing activities
|
|
|
(906,845
|
)
|
Net cash provided by financing activities
|
|
|
522,953
|
|
Principles of Consolidation
The 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 16 for information about our VIEs. All significant inter-company transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that could
materially affect the amounts reported in the consolidated financial statements and accompanying notes. As future events cannot be determined with precision, actual results could differ from those
estimates.
73
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
Significant Accounting Policies
Cash and Cash Equivalents. All highly liquid investments with original maturities of three months or less are considered to be
cash equivalents. We
place our cash and cash equivalents in high quality financial institutions. The consolidated account balances at each institution periodically exceed Federal Deposit Insurance Corporation ("FDIC")
insurance coverage and we believe that this risk is not significant.
Loans, Investments and Securities. 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 invest in preferred equity
interests that, in some cases, allow us to participate in a percentage of the underlying property's cash flows from operations and proceeds from a sale or refinancing. At the inception of each such
investment, we determine whether such investment should be accounted for as a loan, equity interest or as real estate. To date, we have determined that all such investments are properly accounted for
and reported as loans.
At
the time of purchase, we designate a debt security as available-for-sale, held-to-maturity, or trading depending on our ability and intent for the security. Securities
available-for-sale, which is included as a component of other assets in the consolidated balance sheets, is reported at fair value with the fluctuations in fair value recognized through earnings.
Held-to-maturity securities are carried at cost net of any unamortized premiums or discounts, which are amortized or accreted over the life of the securities. For securities classified as
held-to-maturity, an evaluation is performed as to whether a decline in fair value below the amortized cost basis is other-than-temporary.
The
determination of other-than-temporary impairment is a subjective process requiring judgments and assumptions and is not necessarily intended to indicate a permanent decline in value.
The process includes, but is not limited to, assessment of recent market events and prospects for near-term recovery, assessment of cash flows, internal review of the underlying assets securing the
investments, credit of the issuer and the rating of the security, as well as our ability and intent to hold the investment to maturity. We closely monitor market conditions on which we base such
decisions.
Impaired Loans, Allowance for Loan Losses and Charge-offs. 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 each loan in our portfolio on a quarterly basis. Our
loans are individually specific and unique as it relates to product type, geographic location, and collateral type, as well as to the rights and remedies and the position in the capital structure our
loans have in relation to the underlying collateral. We evaluate this information at both a loan level and general market trends level when determining the appropriate assumptions such as
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
utilize internally developed valuation models and techniques primarily consisting of discounted cash flow and direct capitalization models in determining the fair value of the underlying collateral on
an individual loan. 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.
74
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
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, an allowance is created with
a corresponding charge to the provision for loan losses. The allowance for each loan is maintained at a level that we believe to be adequate to absorb probable losses.
Loan
terms may be modified if we determine that, based on the individual circumstances of a loan and the underlying collateral, a modification would more likely increase the total
recovery of the combined principal and interest from the loan. Any loan modification is predicated upon a goal of maximizing the collection of the loan. Typical triggers for a modification would
include situations where the projected cash flow is insufficient to cover required debt service, when asset performance is lagging the initial projections, where there is a requirement for
rebalancing, where there is an impending maturity of the loan, and where there is an actual loan default. Loan terms that have been modified have included, but are not limited to, maturity date,
interest rate and, in certain cases, principal amount. Length and amounts of each modification have varied based on individual circumstances and are determined on a case by case basis. 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. If we receive a benefit, either monetary or strategic, and the above criteria are not met, the
modification is not considered 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.
Charge-offs
to the allowance for loan 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 income in the period in which the loan was sold.
Loans Held-for-Sale, Net. Loans held-for-sale, net represents our Agency Business commercial real estate loans originated and
sold under the GSE and
HUD programs, which are generally transferred or sold within 60 days of loan origination, as well as our Private Label loans, which are generally sold and securitized within 180 days of
loan origination. Such loans are reported at the lower of cost or market on an aggregate basis and include the value allocated to the associated future MSRs. During the period prior to its sale,
interest income on a loan held-for-sale is calculated in accordance with the terms of the individual loan and the loan origination fees and direct loan origination costs are deferred until the loan is
sold. All of our held-for-sale loans are financed with matched borrowings from credit facilities
75
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
contracted
to finance such loans. Interest income and expense are earned or incurred after a loan is closed and before a loan is sold.
Transfers
of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when
(1) the assets have been isolated, put presumptively beyond the reach of the entity, even in bankruptcy, (2) the transferee (or if the transferee is an entity whose sole purpose is to
engage in securitization and the entity is constrained from pledging or exchanging the assets it receives, each third-party holder of its beneficial interests) has the right to pledge or exchange the
transferred financial assets, and (3) we or our agents do not maintain effective control over the transferred financial assets or third-party beneficial interest related to those transferred
assets through an agreement to repurchase them before their maturity. We have determined that all loans sold have met these specific conditions and account for all transfers of mortgage loans as
completed sales.
Allowance for Loss-Sharing Obligations. When a loan is sold under the Fannie Mae DUS program, we undertake an obligation to
partially guarantee the
performance of the loan. Generally, we are responsible for losses equal to the first 5% of the UPB and a portion of any additional losses to an overall maximum of 20% of the original principal
balance. Fannie Mae bears any remaining loss. In addition, under the terms of the master loss-sharing agreement with Fannie Mae, we are responsible for funding 100% of mortgage delinquencies
(principal and interest) and servicing advances (taxes, insurance and foreclosure costs) until the amounts advanced exceed 5% of the UPB at the date of default. Thereafter, we may request interim
loss-sharing adjustments which allow us to fund 25% of such advances until final settlement.
At
inception, a liability for the fair value of the obligation undertaken in issuing the guaranty is recognized. In determining the fair value of the guaranty obligation, we consider the
risk profile of the collateral and the historical loss experience in our portfolio. The guaranty obligation is removed only upon either the expiration or settlement of the guaranty.
We
evaluate the allowance for loss-sharing obligations by monitoring the performance of each loss-sharing loan for events or conditions that may signal a potential default. Historically,
initial loss recognition occurs at or before a loan becomes 60 days delinquent. In instances where payment under the guaranty on a loan is determined to be probable and estimable (as the loan
is probable of, or is, in foreclosure), we record a liability for the estimated allowance for loss-sharing (a "specific reserve") by transferring the guarantee obligation recorded on the loan to the
specific reserve with any adjustments to this reserve amount recorded in provision for loss sharing in the statements of income. The amount of the allowance considers our assessment of the likelihood
of repayment by the borrower or key principal(s), the risk characteristics of the loan, the loan's risk rating, historical loss experience, adverse situations affecting individual loans, the estimated
disposition value of the underlying collateral, and the level of risk sharing. We regularly monitor the specific reserves and update loss estimates as current information is received.
Capitalized Mortgage Servicing Rights. We recognize, as separate assets, rights to service mortgage loans for others, including
such rights from our
origination of mortgage loans sold with the servicing rights retained, as well as rights associated with acquired MSRs. Income from MSRs related to loans we originate are recognized when we record a
derivative asset upon the commitment to originate a
76
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
loan
with a borrower and sell the loan to an investor. This commitment asset is recognized at fair value based on the discounted expected net cash flows associated with the servicing of the loan. When
a mortgage loan we originate is sold, we retain the right to service the loan and recognize the MSR at the initial capitalized valuation. We amortize our MSRs using the amortization method, which
requires the MSRs to be amortized over the period of estimated net servicing income or loss and that the servicing assets or liabilities be assessed for impairment, or increased obligation, based on
the fair value at each reporting date. Amortization of MSRs is recorded as a reduction of servicing revenues, net in the consolidated statements of income. The following assumptions were used in
calculating the fair value of our MSRs for the periods presented:
Key rates: We used discount rates ranging from 8% to 15%, representing a weighted average discount rate of 12%, based on
our best estimate of market discount rates to determine the present value of MSRs. The inflation rate used for adequate compensation was 3%.
Servicing Cost: A market participant's estimated future cost to service the loan for the estimated life of the MSR is
subtracted from the estimated future cash flows.
Estimated Life: We estimate the life of our MSRs based upon the stated yield maintenance and/or prepayment protection
term of the underlying loan and are reduced using prepayment rates that consider the note rate of the loan and the expiration of various types of prepayment penalty and/or lockout provisions prior to
that stated maturity date.
MSRs
are initially recorded at fair value and are carried at amortized cost. The fair value of MRSs from loans we originate and sell are estimated considering market prices for similar
MSRs, when available, and by estimating the present value of the future net cash flows of the capitalized MSRs, net of adequate compensation for servicing. Adequate compensation is based on the market
rate of similar servicing contracts. The fair value of MSRs acquired approximate the purchase price paid.
We
evaluate the MSR portfolio for impairment on a quarterly basis based on the difference between the aggregate carrying amount of the MSRs and their aggregate fair value. We engage an
independent third-party valuation expert to assist in determining an estimated fair value of our MSR portfolio on a quarterly basis. For purposes of impairment evaluation, the MSRs are stratified
based on predominant risk characteristics of the underlying loans, which we have identified as loan type, note rate and yield maintenance provisions. To the extent that the carrying value of the MSRs
exceeds fair value, a valuation allowance is established.
We
record write-offs of MSRs related to loans that were repaid prior to their expected maturity and loans that have defaulted and determined to be unrecoverable. When this occurs, the
write-off is recorded as a direct write-down to the carrying value of MSRs and is included as a component of servicing revenue, net in the consolidated statements of income. This direct write-down
permanently reduces the carrying value of the MSRs, precluding recognition of subsequent recoveries. For loans that payoff prior to maturity, we may collect a prepayment fee which is included as a
component of servicing revenue, net.
Real Estate Owned and Held-For-Sale. Real estate acquired is recorded at its estimated fair value at acquisition and is shown
net of accumulated
depreciation and impairment charges. Costs incurred in connection with the acquisition of a property are expensed as incurred.
77
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
We
allocate the purchase price of our real estate acquisitions to land, building, tenant improvements, origination asset of the in-place leases, intangibles for the value of any above or
below market leases at fair value and to any other identified intangible assets or liabilities. We amortize the value allocated to in-place leases over the remaining lease term, which is reported in
depreciation and amortization expense on our consolidated statements of income. The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to
rental income.
Real
estate assets are depreciated using the straight-line method over their estimated useful lives. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed
as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful life.
Our
properties are reviewed for impairment each quarter, if events or circumstances change indicating that the carrying amount of an asset may not be recoverable. We recognize impairment
if the undiscounted estimated cash flows to be generated by an asset is less than the carrying amount of such asset. Measurement of impairment is based on the asset's estimated fair value. In
evaluating for impairment, many factors are considered, including estimated current and expected operating cash flows from the property during the projected holding period, costs necessary to extend
the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of the asset in the ordinary course of
business. Impairment charges may be necessary in the event discount rates, capitalization rates, lease-up periods, future economic conditions, and other relevant factors vary significantly from those
assumed in valuing the property.
Real
estate is classified as held-for-sale when we commit to a plan of sale, the asset is available for immediate sale, there is an active program to locate a buyer, and it is probable
the sale will be completed within one year. Real estate assets that are expected to be disposed of are valued at the lower of the asset's carrying amount or its fair value less costs to sell.
We
recognize sales of real estate properties upon closing. Payments received from purchasers prior to closing are recorded as deposits. Gain on real estate sold is recognized when the
collectability of the sale price is reasonably assured, we are not obligated to perform significant activities after the sale and when control of the asset transfers to the buyer. A gain may be
deferred in whole or in part until collectability of the sales price is reasonably assured and the earnings process is complete.
Investments in Equity Affiliates. We invest in joint ventures that are formed to invest in real estate related assets or
businesses. These joint
ventures are not majority owned or controlled by us, or are VIEs for which we are the primary beneficiary, and are not consolidated in our financial statements. These investments are recorded under
either the equity or cost method of accounting as deemed appropriate. We evaluate these investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of
such investments may not be recoverable. We recognize an impairment loss if the estimated fair value of the investment is less than its carrying amount and we determine that the impairment is
other-than-temporary. We record our share of the net income and losses from the underlying properties of our equity method investments and any other-than-temporary impairment on these investments as
income or losses from equity affiliates in the consolidated statements of income.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
Goodwill and Other Intangible Assets. Significant judgement is required to estimate the fair value of intangible assets and in
assigning their
estimated useful lives. Accordingly, we typically seek the assistance of independent third party valuation specialists for significant intangible assets. The fair value estimates are based on
available historical information and on future expectations and assumptions we deem reasonable.
We
generally use an income based valuation method to estimate the fair value of intangible assets, which discounts expected future cash flows to present value using estimates and
assumptions we deem reasonable. For intangible assets related to acquired technology, we use the replacement cost method to determine fair value.
Determining
the estimated useful lives of intangible assets also requires judgment. Certain intangible assets, such as GSE licenses, have been deemed to have indefinite lives while other
intangible assets, such as broker and borrower relationships, above/below market rent and acquired technology have been deemed to have finite lives. Our assessment as to which intangible assets are
deemed to have finite or indefinite lives is based on several factors including economic barriers of entry for the acquired product lines, scarcity of available GSE licenses, technology life cycles,
retention trends and our operating plans, among other factors.
Goodwill
and indefinite-lived intangible assets are not amortized, while finite-lived intangible assets are amortized over their estimated useful lives on a straight-line basis.
Indefinite-lived intangible assets, including goodwill, are tested for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. In
addition, with respect to goodwill, an impairment analysis is performed at least annually. We have elected to make the first day of our fiscal fourth quarter the annual impairment assessment date for
goodwill. We first assess qualitative factors to determine whether it is more likely than not that the fair value is less than the carrying value. If, based
on that assessment, we believe it is more likely than not that the fair value is less than the carrying value, then a two-step goodwill impairment test is performed. Based on the impairment analysis
performed as of October 1, 2019, there was no indication that the indefinite-lived intangible assets, including goodwill, were impaired and there were no events or changes in circumstances
indicating impairment at December 31, 2019.
Hedging Activities and Derivatives. We measure derivative instruments at fair value and record them as assets or liabilities.
Fair value adjustments
will affect either accumulated other comprehensive income until the hedged item is recognized in earnings, or net income depending on whether the derivative instrument qualifies as a hedge for
accounting purposes and, if so, the nature of the hedging activity. We use derivatives for hedging purposes rather than trading or speculation. Fair values are estimated based on current market data
from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well recognized financial principles and reasonable
estimates about relevant future market conditions.
The
accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and
apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes
in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
risk,
are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. These
derivative instruments must be effective in reducing risk exposure in order to qualify for hedge accounting. When the terms of an underlying transaction are modified, or when the underlying hedged
item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income for each period until the derivative instrument matures or is
settled. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in earnings. In cases where a derivative
instrument is terminated early, any gain or loss is generally amortized over the remaining life of the hedged item. We may also enter into derivative contracts that are intended to economically hedge
certain risks, even though hedge accounting does not apply or we elect not to apply hedge accounting. The ineffective portion of a derivative's change in fair value is recognized immediately in
earnings.
In
connection with our interest rate risk management, we may hedge a portion of our interest rate risk by entering into derivative instrument contracts to manage differences in the
amount, timing, and duration of our expected cash receipts and our expected cash payments principally related to our investments and borrowings. Our objectives in using interest rate derivatives are
to add stability to interest income and to manage our exposure to interest rate movements. To accomplish this objective, we have used, and may again in the future, use interest rate swaps as part of
our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate
payments over the life of the agreements without exchange of the underlying notional amount.
Our
rate lock and forward sales commitments associated with the Agency Business meet the definition of a derivative and are recorded at fair value. The estimated fair value of rate lock
commitments includes the effects of interest rate movements as well as 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. The estimated fair value of forward sale commitments includes the effects of interest rate movements between the trade date and balance sheet date. Adjustments
to the fair value are reflected as a component of other income, net in the consolidated statements of income.
Our
Swap Futures associated with (1) our Structured Business SFR loans, and (2) our held-for-sale Agency Business Private Label loans do not meet the criteria for hedge
accounting 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. Realized and unrealized gains and losses related to our Swap Futures are recorded through earnings.
Revenue Recognition. Interest income is recognized on the accrual basis as it is earned. In certain instances, the borrower pays
an additional amount
of interest at the time the loan is closed, an origination fee, a prepayment fee and/or deferred interest upon maturity. In some cases, interest income may also include the amortization or accretion
of premiums and discounts arising from the
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
purchase
or origination of the loan or security. This additional income, net of any direct loan origination costs incurred, is deferred and accreted into interest income on an effective yield or
"interest" method adjusted for actual prepayment activity over the life of the related loan or security as a yield adjustment. Income recognition is suspended for loans when, in our opinion, a full
recovery of all contractual principal is not probable. Income recognition is resumed when the loan becomes contractually current and performance is resumed. We record interest income on certain
impaired loans to the extent cash is received, as the borrower continues to make interest payments. We record loan
loss reserves related to these loans when it is deemed that full recovery of principal and accrued interest is not probable.
Several
of our loans provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to our
determination that accrued interest and outstanding principal are ultimately collectible, based on the underlying collateral and operations of the asset. If we cannot make this determination, interest
income above the current pay rate is recognized only upon actual receipt.
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. We will analyze these interest reserves on a periodic basis and determine if any additional interest reserves are needed. Recognition of income on loans with funded interest reserves are
accounted for in the same manner as loans without funded interest reserves. We do not recognize interest income on loans in which the borrower has failed to make the contractual interest payment due
or has not replenished the interest reserve account. Income from non-performing loans is generally recognized on a cash basis only to the extent it is received. Full income recognition will resume
when the loan becomes contractually current and performance has recommenced.
Additionally,
interest income is recorded when earned from equity participation interests, referred to as equity kickers. These equity kickers have the potential to generate additional
revenues to us as a result of excess cash flow distributions and/or as appreciated properties are sold or refinanced.
Gain on sales, including fee-based services, netGain on sales, including fee-based services, net includes commitment fees, broker fees, loan
assumption fees, loan origination fees and gains on sale of loans of our Agency Business. In some instances, the borrower pays an additional amount of interest at the time the loan is closed, an
origination fee, net of any direct loan origination costs incurred, which is recognized upon the sale of the loan. Revenue recognition occurs when the related services are performed, unless
significant contingencies exist, and for the sale of loans, when all the incidence of ownership passes to the buyer. Interest income is recognized on the accrual basis as it is earned from loans
held-for-sale.
Property operating incomeProperty operating income represents income associated with the operations of commercial real estate properties classified
as real estate owned. We recognize revenue for these activities when the fees are fixed or determinable, or are evidenced by an arrangement, collection is reasonably assured and the services under the
arrangement have been provided.
Other income, netOther income, net represents loan structuring, modification and defeasance, as well as broker fees, miscellaneous asset management
fees associated with our loan and investment
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
portfolio,
and changes in the fair value of certain derivatives. We recognize these forms of income when the fees are fixed or determinable, are evidenced by an arrangement, collection is reasonably
assured and the services under the arrangement have been provided.
Leases. We determine if an arrangement is a lease at inception. Our right to use an underlying asset for the lease term is
recorded as operating
lease right-of-use ("ROU") assets and our obligation to make lease payments arising from the lease are recorded as lease liabilities. The operating lease ROU assets and lease liabilities are included
in other assets and other liabilities, respectively, in our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of
lease payments over the lease term. Our leases do not provide an implicit rate; therefore, we use our incremental borrowing rate in determining the present value of lease payments. Our lease terms may
include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease
term. At the adoption date, we made an accounting policy election to exclude leases with an initial term of twelve months or less.
Stock-Based Compensation. We grant stock awards to certain of our employees and directors, consisting of shares of our common
stock that vest
immediately or annually over a multi-year period, subject to the recipient's continued service to us. We record stock-based compensation expense at the grant date fair value of the related stock-based
award at the grant date (for the portion that vests immediately) or ratably over the respective vesting periods. Dividends are paid on restricted stock as dividends are paid on shares of our common
stock whether or not they are vested. Stock-based compensation is disclosed in our consolidated statements of income under "employee compensation and benefits" for employees and under "selling and
administrative" expense for non-employees and the Board of Directors.
Income Taxes. We organize and conduct our operations to qualify as a REIT and to comply with the provisions of the Internal
Revenue Code with respect
thereto. A REIT is generally not subject to federal income tax on its REIT-taxable income that it distributes to its stockholders, provided that it
distributes at least 90% of its REIT-taxable income and meets certain other requirements. Certain REIT income may be subject to state and local income taxes.
The
Agency Business mainly operates through a TRS, which is a part of 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. Current and deferred taxes are recorded on the portion of earnings
(losses) recognized by us with respect to our interest in TRSs. Deferred income tax assets and liabilities are calculated based on temporary differences between our GAAP consolidated financial
statements and the federal, state, local tax basis of assets and liabilities as of the consolidated balance sheets. We evaluate the realizability of our deferred tax assets (e.g., net operating
loss and capital loss carryforwards) and recognize a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of our deferred tax assets will not be
realized. When evaluating the realizability of our deferred tax assets, we consider estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies
available and the general and industry specific economic outlook.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
We periodically evaluate tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years,
as defined by the statute of limitations, based on their technical merits. We report interest and penalties related to tax uncertainties as a component of the income tax provision.
Earnings Per Share. We present both basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is computed by
dividing net income
available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
Recently Adopted Accounting Pronouncements
|
|
|
|
|
Description
|
|
Adoption Date
|
|
Effect on Financial Statements
|
ASU 2016-02, Leases (Topic 842) requires lessees to record most leases on their balance sheet through operating and finance lease liabilities and corresponding ROU assets, as well as adding additional footnote
disclosures of key information about those arrangements. ASU 2018-11, Leases (Topic 842)Targeted Improvements provides transition relief on comparative period reporting through a cumulative-effect adjustment at the beginning of the
period of adoption ("Effective Date Method").
|
|
First quarter of 2019
|
|
We adopted this guidance using the 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. We also added the
required footnote disclosures in Note 15.
|
ASU 2018-07, CompensationStock Compensation expands the scope of ASC Topic 718, CompensationStock 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.
|
ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities better aligns risk management activities and financial reporting for hedging relationships through changes to both
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.
|
|
First quarter of 2019
|
|
The adoption of this guidance did not have a material impact on our consolidated financial statements.
|
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 2Basis of Presentation and Significant Accounting Policies (Continued)
Recently Issued Accounting Pronouncements
|
|
|
|
|
Description
|
|
Effective Date
|
|
Effect on Financial Statements
|
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses: Measurement of Credit Losses on Financial Instruments. This ASU requires the measurement 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.
|
|
First quarter of 2020 with early adoption permitted
|
|
We expect the adoption of this guidance on January 1, 2020 to increase our allowance for loan losses by $27 million to $37 million related to our Structured Business loan and investment portfolio, our
Agency Business loss-sharing obligations under the Fannie Mae DUS program and our held-to-maturity debt securities within both businesses. We will record the cumulative effect of initially applying this guidance as an adjustment to our Accumulated
Deficit using the modified retrospective method of adoption.
|
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions to the general principles in Topic 740 and also
clarifies and amends existing guidance to improve consistent application.
|
|
First quarter of 2021 with early adoption permitted
|
|
We do not expect the adoption of this guidance to have a significant impact on consolidated financial statements.
|
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 3Loans and Investments
The composition of our Structured Business loan and investment portfolio is as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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(4)
|
|
$
|
3,836,832
|
|
|
90
|
%
|
|
217
|
|
|
5.77
|
%
|
|
18.0
|
|
|
0
|
%
|
|
75
|
%
|
Mezzanine loans
|
|
|
191,575
|
|
|
4
|
%
|
|
24
|
|
|
9.70
|
%
|
|
36.7
|
|
|
22
|
%
|
|
73
|
%
|
Preferred equity investments
|
|
|
181,058
|
|
|
4
|
%
|
|
10
|
|
|
7.62
|
%
|
|
68.8
|
|
|
69
|
%
|
|
89
|
%
|
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 loan losses
|
|
|
(71,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
(18,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$
|
4,189,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge loans
|
|
$
|
2,992,814
|
|
|
91
|
%
|
|
167
|
|
|
6.84
|
%
|
|
18.5
|
|
|
0
|
%
|
|
74
|
%
|
Mezzanine loans
|
|
|
108,867
|
|
|
3
|
%
|
|
13
|
|
|
10.57
|
%
|
|
22.1
|
|
|
28
|
%
|
|
72
|
%
|
Preferred equity investments
|
|
|
181,661
|
|
|
6
|
%
|
|
10
|
|
|
7.97
|
%
|
|
78.0
|
|
|
66
|
%
|
|
89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
"Weighted
Average Pay Rate" is a weighted average, based on the UPB of each loan in our portfolio, of the interest rate 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.
86
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 3Loans and Investments (Continued)
-
(4)
-
Included
within bridge loans are 11 single-family rental loans with an aggregate UPB of $66.7 million, of which $30.0 million was funded.
-
(5)
-
Included
within other are 12 single-family rental permanent loans with an aggregate UPB of $41.6 million and 9 purchased loans with an aggregate UPB of
$28.6 million.
Concentration of Credit Risk
We are subject to concentration risk in that, at December 31, 2019, the UPB related to 24 loans with five different borrowers represented
13% of total assets. At December 31, 2018, the UPB related to 45 loans with five different borrowers represented 22% of total assets. During both 2019 and 2018, no single loan or investment
represented more than 10% of our total assets and no single investor group generated over 10% of our revenue. See Note 19 for details on our concentration of related party loans and
investments.
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. 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 December 31, 2019 and 2018, we identified eight loans and investments that we consider higher-risk loans that had a carrying value,
before loan loss reserves, of $127.6 million and $128.7 million, respectively, and a weighted average last dollar LTV ratio of 98% and 99%, respectively.
87
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 3Loans and Investments (Continued)
A
summary of the loan portfolio's weighted average internal risk ratings and LTV ratios by asset class is as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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
|
|
$
|
3,429,278
|
|
|
80
|
%
|
pass/watch
|
|
|
4
|
%
|
|
76
|
%
|
Land
|
|
|
221,489
|
|
|
5
|
%
|
special mention
|
|
|
0
|
%
|
|
87
|
%
|
Healthcare
|
|
|
203,694
|
|
|
5
|
%
|
pass/watch
|
|
|
0
|
%
|
|
76
|
%
|
Hotel
|
|
|
142,300
|
|
|
3
|
%
|
pass/watch
|
|
|
10
|
%
|
|
60
|
%
|
Office
|
|
|
134,007
|
|
|
3
|
%
|
special mention
|
|
|
3
|
%
|
|
67
|
%
|
Single-Family Rental
|
|
|
71,592
|
|
|
2
|
%
|
pass
|
|
|
0
|
%
|
|
71
|
%
|
Retail
|
|
|
49,258
|
|
|
1
|
%
|
special mention
|
|
|
6
|
%
|
|
62
|
%
|
Self Storage
|
|
|
26,293
|
|
|
1
|
%
|
pass/watch
|
|
|
24
|
%
|
|
53
|
%
|
Other
|
|
|
1,700
|
|
|
<1
|
%
|
doubtful
|
|
|
63
|
%
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,279,611
|
|
|
100
|
%
|
pass/watch
|
|
|
4
|
%
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Multifamily
|
|
$
|
2,427,920
|
|
|
74
|
%
|
pass/watch
|
|
|
5
|
%
|
|
75
|
%
|
Land
|
|
|
151,628
|
|
|
5
|
%
|
substandard
|
|
|
0
|
%
|
|
90
|
%
|
Healthcare
|
|
|
122,775
|
|
|
4
|
%
|
pass/watch
|
|
|
0
|
%
|
|
77
|
%
|
Hotel
|
|
|
100,075
|
|
|
3
|
%
|
pass/watch
|
|
|
13
|
%
|
|
66
|
%
|
Office
|
|
|
132,047
|
|
|
4
|
%
|
special mention
|
|
|
3
|
%
|
|
68
|
%
|
Retail
|
|
|
45,367
|
|
|
1
|
%
|
pass/watch
|
|
|
6
|
%
|
|
65
|
%
|
Self Storage
|
|
|
301,830
|
|
|
9
|
%
|
pass/watch
|
|
|
0
|
%
|
|
72
|
%
|
Other
|
|
|
1,700
|
|
|
<1
|
%
|
doubtful
|
|
|
63
|
%
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,283,342
|
|
|
100
|
%
|
pass/watch
|
|
|
5
|
%
|
|
75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Concentration Risk
As of December 31, 2019, 18% and 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% and 18% 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.
88
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 3Loans and Investments (Continued)
Impaired Loans and Allowance for Loan Losses
A summary of the changes in the allowance for loan losses is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Allowance at beginning of period
|
|
$
|
71,069
|
|
$
|
62,783
|
|
$
|
83,712
|
|
Provision for loan losses
|
|
|
|
|
|
13,986
|
|
|
2,000
|
|
Charge-offs
|
|
|
|
|
|
(3,173
|
)
|
|
(20,473
|
)
|
Recoveries of reserves
|
|
|
|
|
|
(2,527
|
)
|
|
(2,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period
|
|
$
|
71,069
|
|
$
|
71,069
|
|
$
|
62,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2018, we determined that the fair value of the underlying collateral (land development project) securing six loans with a carrying value of $121.4 million was less than the
net carrying value of the loans, which resulted in a provision for loan losses of $12.3 million. We also fully reserved a bridge loan and recorded a provision for loan loss of
$1.7 million.
In
addition, during 2018, we received $31.6 million to settle a non-performing preferred equity investment in a hotel property with a UPB of $34.8 million and a net
carrying value of $29.1 million, resulting in a charge-off of $3.2 million and a reserve recovery of $2.5 million. We also received payments and recorded recoveries of
$3.1 million related to previously written-off loans and investments, which are included as a component of provision for loan losses (net of recoveries) on the consolidated statements of
income.
During
2017, we incurred a $20.5 million charge-off of a fully reserved junior participation loan and we determined that the fair value of the underlying collateral securing a
preferred equity investment with an aggregate carrying value of $34.8 million was less than the net carrying value of the investment, which resulted in a $2.0 million provision for loan
losses. In addition, a fully reserved mezzanine loan with a UPB of $1.8 million paid off in full, which resulted in a $1.8 million reserve recovery, and we recorded a reserve recovery of
$0.7 million on a multifamily bridge loan.
The
ratio of net recoveries (charge-offs) to the average loans and investments outstanding was 0.1% and (0.8)% for 2018 and 2017, respectively.
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 December 31, 2019, 2018 and 2017.
We
have six loans with a carrying value totaling $120.3 million at December 31, 2019 that are collateralized by a land development project. These loans were scheduled to
mature in September 2019 and were extended to March 2020, with the expectation to further extend these loans. The loans do not carry a current pay rate of interest, however, five of the loans with a
carrying value totaling $111.0 million entitle us to a weighted average accrual rate of interest of 8.74%. 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 December 31, 2019 and 2018, we had cumulative allowances for loan losses of $61.4 million related to
these loans. The loans are subject to certain risks
89
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 3Loans and Investments (Continued)
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.
A
summary of our impaired loans by asset class is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Year Ended
December 31, 2019
|
|
Asset Class
|
|
UPB
|
|
Carrying
Value(1)
|
|
Allowance
for Loan
Losses
|
|
Average
Recorded
Investment(2)
|
|
Interest
Income
Recognized
|
|
Land
|
|
$
|
134,215
|
|
$
|
126,800
|
|
$
|
67,869
|
|
$
|
134,215
|
|
$
|
107
|
|
Office
|
|
|
2,226
|
|
|
2,226
|
|
|
1,500
|
|
|
2,246
|
|
|
132
|
|
Commercial
|
|
|
1,700
|
|
|
1,700
|
|
|
1,700
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
138,141
|
|
$
|
130,726
|
|
$
|
71,069
|
|
$
|
138,161
|
|
$
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Year Ended
December 31, 2018
|
|
Land
|
|
$
|
134,215
|
|
$
|
127,869
|
|
$
|
67,869
|
|
$
|
132,651
|
|
$
|
103
|
|
Hotel
|
|
|
|
|
|
|
|
|
|
|
|
17,375
|
|
|
|
|
Office
|
|
|
2,266
|
|
|
2,266
|
|
|
1,500
|
|
|
2,277
|
|
|
127
|
|
Commercial
|
|
|
1,700
|
|
|
1,700
|
|
|
1,700
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
138,181
|
|
$
|
131,835
|
|
$
|
71,069
|
|
$
|
154,003
|
|
$
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
the UPB of five impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at both December 31, 2019 and 2018.
-
(2)
-
Represents
an average of the beginning and ending UPB of each asset class.
At
December 31, 2019, three 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. At December 31, 2018, two loans with an aggregate net carrying value of $0.8 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.
90
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 3Loans and Investments (Continued)
A
summary of our non-performing loans by asset class is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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
|
|
Commercial
|
|
$
|
1,700
|
|
$
|
|
|
$
|
1,700
|
|
$
|
1,700
|
|
$
|
|
|
$
|
1,700
|
|
Retail
|
|
|
990
|
|
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
833
|
|
|
|
|
|
833
|
|
|
832
|
|
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,523
|
|
$
|
|
|
$
|
3,523
|
|
$
|
2,532
|
|
$
|
|
|
$
|
2,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
both December 31, 2019 and 2018, we had no loans contractually past due 90 days or more that are still accruing interest.
There
were no loan modifications, refinancing's and/or extensions during 2019 and 2018 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 December 31, 2019 and 2018, we had total interest reserves of $37.0 million and $48.9 million, respectively, on 131 loans and 110 loans, respectively, with an aggregate
UPB of $2.43 billion and $2.22 billion, respectively.
Note 4Loans Held-for-Sale, Net
Loans held-for-sale, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
December 31,
2018
|
|
Fannie Mae
|
|
$
|
408,534
|
|
$
|
358,790
|
|
Private Label
|
|
|
401,207
|
|
|
|
|
Freddie Mac
|
|
|
36,303
|
|
|
95,004
|
|
FHA
|
|
|
1,082
|
|
|
19,170
|
|
|
|
|
|
|
|
|
|
|
|
|
847,126
|
|
|
472,964
|
|
Fair value of future MSR
|
|
|
16,519
|
|
|
10,253
|
|
Unearned discount
|
|
|
(2,285
|
)
|
|
(1,553
|
)
|
|
|
|
|
|
|
|
|
Loans held-for-sale, net
|
|
$
|
861,360
|
|
$
|
481,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
GSE loans held-for-sale are typically sold within 60 days of loan origination, while our Private Label loans are expected to be sold and securitized within 180 days of
loan origination. During 2019, 2018 and 2017, we sold $4.40 billion, $4.92 billion and $4.81 billion, respectively, of loans held-for-sale and recorded gain on sales of
$61.1 million, $65.5 million and $68.3 million, respectively. At December 31, 2019 and 2018, 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.
91
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 5Capitalized Mortgage Servicing Rights
Our capitalized MSRs reflect commercial real estate MSRs derived from loans sold in our Agency Business, or MSRs acquired as part of the Acquisition or in the open market from third
parties. The weighted average estimated life remaining of our MSRs was 8.0 years and 7.6 years at December 31, 2019 and 2018, respectively.
A
summary of our capitalized MSR activity is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Year Ended December 31, 2018
|
|
|
|
Acquired
|
|
Originated
|
|
Total
|
|
Acquired
|
|
Originated
|
|
Total
|
|
Balance at beginning of period
|
|
$
|
97,084
|
|
$
|
176,686
|
|
$
|
273,770
|
|
$
|
143,270
|
|
$
|
109,338
|
|
$
|
252,608
|
|
Additions
|
|
|
|
|
|
83,756
|
|
|
83,756
|
|
|
|
|
|
94,344
|
|
|
94,344
|
|
Amortization
|
|
|
(21,042
|
)
|
|
(27,639
|
)
|
|
(48,681
|
)
|
|
(28,958
|
)
|
|
(19,166
|
)
|
|
(48,124
|
)
|
Write-downs and payoffs
|
|
|
(11,523
|
)
|
|
(10,902
|
)
|
|
(22,425
|
)
|
|
(17,228
|
)
|
|
(7,830
|
)
|
|
(25,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
64,519
|
|
$
|
221,901
|
|
$
|
286,420
|
|
$
|
97,084
|
|
$
|
176,686
|
|
$
|
273,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
collected prepayment fees totaling $18.4 million and $21.9 million during 2019 and 2018, respectively, which are included as a component of servicing revenue, net on the
consolidated statements of income. As of December 31, 2019 and 2018, we had no valuation allowance recorded on any of our MSRs.
The
expected amortization of capitalized MSRs recorded as of December 31, 2019 is as follows (in thousands):
|
|
|
|
|
Year
|
|
Amortization
|
|
2020
|
|
$
|
46,307
|
|
2021
|
|
|
42,538
|
|
2022
|
|
|
37,596
|
|
2023
|
|
|
33,203
|
|
2024
|
|
|
28,981
|
|
Thereafter
|
|
|
97,795
|
|
|
|
|
|
|
Total
|
|
$
|
286,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
amortization may vary from these estimates.
92
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 6Mortgage Servicing
Product and geographic concentrations that impact our servicing revenue are as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Product Concentrations
|
|
Geographic Concentrations
|
|
Product
|
|
UPB(1)
|
|
Percent of
Total
|
|
State
|
|
UPB Percent
of Total
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Product Concentrations
|
|
Geographic Concentrations
|
|
Product
|
|
UPB(1)
|
|
Percent of
Total
|
|
State
|
|
UPB Percent
of Total
|
|
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(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.
At
December 31, 2019 and 2018, our weighted average servicing fee was 43.8 basis points and 45.2 basis points, respectively. At December 31, 2019 and 2018, we held total
escrow balances of $947.1 million and $824.1 million, respectively, which is not reflected in our consolidated balance sheets. Of the total escrow balances, we held $562.1 million
and $521.2 million at December 31, 2019 and 2018, 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 $17.3 million, $12.8 million and
93
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 6Mortgage Servicing (Continued)
$5.2 million
during 2019, 2018 and 2017, respectively, and is a component of servicing revenue, net in the consolidated statements of income.
Note 7Securities Held-to-Maturity
Agency B Piece 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 through a bidding process the B Piece bond, that represents the bottom 10%, or highest risk, of the securitization. As of
December 31, 2019, we retained 49%, or $106.2 million initial face value, of seven 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 5.8 years. The weighted average effective interest rate
was 10.85% and 10.94% at December 31, 2019 and 2018, respectively, including the accretion of a portion of the discount deemed collectible. Approximately $14.2 million is estimated to
mature within one year, $40.8 million is estimated to mature after one year through five years, $20.6 million is estimated to mature after five years through ten years and
$15.4 million is estimated to mature after ten years.
Structured Single-Family Rental Bonds. During 2019, we purchased $20.0 million initial face value of Class A2 securitized
SFR bonds at par,
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 4.58% and have an
estimated weighted average remaining maturity of 0.5 years. Approximately $18.7 million is estimated to mature within one year and $1.3 million is estimated to mature after one
year through five years.
A
summary of our securities held-to-maturity is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Face
Value
|
|
Carrying
Value
|
|
Unrealized
Gain
|
|
Estimated
Fair Value
|
|
December 31, 2019
|
|
$
|
111,028
|
|
$
|
88,699
|
|
$
|
3,039
|
|
$
|
91,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
103,515
|
|
$
|
76,363
|
|
$
|
2,734
|
|
$
|
79,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2019, no impairment was recorded on these held-to-maturity securities. During 2019, 2018 and 2017, we recorded interest income (including the amortization of
discount) of $9.9 million, $5.8 million and $1.8 million, respectively, related to these investments.
94
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 8Investments 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
December 31,
2019
|
|
Equity Affiliates
|
|
December 31,
2019
|
|
December 31,
2018
|
|
Arbor Residential Investor LLC
|
|
$
|
26,520
|
|
$
|
19,260
|
|
$
|
|
|
AMAC Holdings III LLC
|
|
|
10,520
|
|
|
|
|
|
15,600
|
|
North Vermont Avenue
|
|
|
2,440
|
|
|
|
|
|
|
|
Lightstone Value Plus REIT L.P.
|
|
|
1,895
|
|
|
1,895
|
|
|
|
|
JT Prime
|
|
|
425
|
|
|
425
|
|
|
|
|
West Shore Café
|
|
|
|
|
|
|
|
|
1,688
|
|
Lexford Portfolio
|
|
|
|
|
|
|
|
|
30,470
|
|
East River Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,800
|
|
$
|
21,580
|
|
$
|
47,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbor Residential Investor LLC ("ARI"). In 2015, we invested $9.6 million for 50% of our Former Manager's indirect
interest in a joint
venture with a third party that was formed to invest in a residential mortgage banking business. As a result of this transaction, we had an initial indirect interest of 22.5% in the mortgage banking
business, which was subject to dilution upon attaining certain profit hurdles of the business, and at December 31, 2019, our indirect interest was 16.3%. During 2019, 2018 and 2017, we recorded
income of $7.2 million, income of $0.7 million and a loss of $7.3 million, respectively, to income (loss) from equity affiliates in the consolidated statements of income related
to this investment. The loss in 2017 included a $5.5 million charge for our proportionate share of a litigation settlement that was paid. During 2018, we made a $2.4 million payment for
our proportionate share of the litigation settlement, which was distributed back to us by our equity affiliate.
In
2015, we invested $1.7 million through ARI for a 50% noncontrolling interest in a joint venture that invests in non-qualified residential mortgages purchased from the mortgage
banking business's origination platform. During 2018 and 2017, we received cash distributions totaling $0.7 million and $3.2 million, respectively, as a result of the joint venture
selling most of its mortgage assets, which were classified as returns of capital. The income (loss) associated with this investment for all periods presented was de minimis. At December 31,
2019, our basis in this investment was zero.
AMAC Holdings III LLC ("AMAC III"). In the first quarter of 2019, we committed to a $30.0 million investment (of which
$10.9 million was funded as of December 31, 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. We received a $0.2 million cash distribution, which was classified as a return of capital, related to this investment. The loss associated with
this investment for 2019 was de minimis.
North Vermont Avenue. In the fourth quarter of 2019, we invested $2.4 million for an initial 85% noncontrolling interest in
a joint venture
that acquired three parcels of land, which currently has three
95
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 8Investments in Equity Affiliates (Continued)
residential
structures, a commercial structure and a parking lot. The joint venture intends to tear down the existing structures and construct a new 206 unit multifamily complex with ground floor
retail.
Lightstone Value Plus REIT L.P. / JT Prime. We own a $1.9 million interest in an unconsolidated joint venture that
holds common
operating partnership units of Lightstone Value Plus REIT L.P. ("Lightstone"). We also own a 50% noncontrolling interest in an unconsolidated joint venture, JT Prime, which holds common
operating partnership units of Lightstone at a carrying value of $0.4 million. The income associated with these investments for all periods presented was de minimis.
West Shore Café. We own a 50% noncontrolling interest in the West Shore Lake Café, a restaurant/inn lakefront
property
in Lake Tahoe, California. We provided a $1.7 million first mortgage loan to an affiliated entity to acquire property adjacent to the original property, which is scheduled to mature in March
2020 and bears interest at LIBOR plus 4.0%. During 2018, we determined that this investment exhibited indicators of impairment and, as a result of an impairment analysis performed; we recorded an
other-than-temporary impairment of $2.2 million for the full carrying amount of this investment, which was recorded in income (loss) from equity affiliates in the consolidated statements of
income. Also during 2018, we recorded a provision for loan loss of $1.7 million, fully reserving the first mortgage loan.
Lexford Portfolio. We own a $44,000 noncontrolling equity interest in Lexford, a portfolio of multifamily assets. In 2019, 2018
and 2017, we received
distributions from this equity investment and recognized income totaling $3.5 million, $2.5 million and $2.5 million, net of expenses, respectively.
East River Portfolio. We invested $0.1 million for a 5% interest in a joint venture that owns two multifamily properties.
The joint venture is
comprised of a consortium of investors (which includes, among other unaffiliated investors, certain of our officers, our chief executive officer and certain other related parties) who together own an
interest of 95%. We originated a $1.7 million bridge loan to the joint venture with an interest rate of 5.5% over LIBOR that was repaid in full during 2017. The losses associated with this
investment for all periods presented was de minimis.
Equity Participation Interest. During 2017, we received $1.5 million from the redemption of a 25% equity participation
interest we held in a
multifamily property, which is included in income (loss) from equity affiliates in our consolidated statements of income. Our basis in this investment was zero prior to this transaction.
See
Note 19 for details of certain investments described above.
96
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 9Real Estate Owned
Our real estate assets at both December 31, 2019 and 2018 were comprised of a hotel property and an office building.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
(in thousands)
|
|
Hotel
Property
|
|
Office
Building
|
|
Total
|
|
Hotel
Property
|
|
Office
Building
|
|
Total
|
|
Land
|
|
$
|
3,294
|
|
$
|
4,509
|
|
$
|
7,803
|
|
$
|
3,294
|
|
$
|
4,509
|
|
$
|
7,803
|
|
Building and intangible assets
|
|
|
31,541
|
|
|
2,010
|
|
|
33,551
|
|
|
31,066
|
|
|
2,010
|
|
|
33,076
|
|
Less: Impairment loss
|
|
|
(14,307
|
)
|
|
(2,500
|
)
|
|
(16,807
|
)
|
|
(13,307
|
)
|
|
(2,500
|
)
|
|
(15,807
|
)
|
Less: Accumulated depreciation and amortization
|
|
|
(10,320
|
)
|
|
(1,007
|
)
|
|
(11,327
|
)
|
|
(9,778
|
)
|
|
(848
|
)
|
|
(10,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned, net
|
|
$
|
10,208
|
|
$
|
3,012
|
|
$
|
13,220
|
|
$
|
11,275
|
|
$
|
3,171
|
|
$
|
14,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2019, 2018 and 2017, our hotel property had a weighted average occupancy rate of 51%, 49% and 52%, respectively, a weighted average daily rate of $111, $108 and $108,
respectively, and weighted average revenue per available room of $57, $53 and $56, 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.
Through
site visits and discussions with market participants, we determined that our real estate assets exhibited indicators of impairment and, based on our impairment analyses
performed, we recorded impairment losses of $1.0 million, $2.0 million and $3.2 million in 2019, 2018 and 2017, respectively.
Our
real estate assets had restricted cash balances due to escrow requirements totaling $0.5 million at both December 31, 2019 and 2018.
Note 10Goodwill and Other Intangible Assets
Goodwill. The goodwill balance at both December 31, 2019 and 2018 was $56.6 million.
97
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 10Goodwill and Other Intangible Assets (Continued)
Other Intangible Assets. The following table sets forth the other intangible assets activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Total
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Total
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker relationships
|
|
$
|
25,000
|
|
$
|
(10,807
|
)
|
$
|
14,193
|
|
$
|
25,000
|
|
$
|
(7,683
|
)
|
$
|
17,317
|
|
Borrower relationships
|
|
|
14,400
|
|
|
(4,980
|
)
|
|
9,420
|
|
|
14,400
|
|
|
(3,540
|
)
|
|
10,860
|
|
Below market leases
|
|
|
4,010
|
|
|
(2,548
|
)
|
|
1,462
|
|
|
4,010
|
|
|
(1,811
|
)
|
|
2,199
|
|
Acquired technology
|
|
|
900
|
|
|
(900
|
)
|
|
|
|
|
900
|
|
|
(737
|
)
|
|
163
|
|
Infinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae DUS license
|
|
|
17,100
|
|
|
|
|
|
17,100
|
|
|
17,100
|
|
|
|
|
|
17,100
|
|
Freddie Mac Program Plus license
|
|
|
8,700
|
|
|
|
|
|
8,700
|
|
|
8,700
|
|
|
|
|
|
8,700
|
|
FHA license
|
|
|
3,200
|
|
|
|
|
|
3,200
|
|
|
3,200
|
|
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,310
|
|
$
|
(19,235
|
)
|
$
|
54,075
|
|
$
|
73,310
|
|
$
|
(13,771
|
)
|
$
|
59,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amortization expense recorded for these intangible assets were $5.5 million, $5.6 million and $5.6 million during 2019, 2018 and 2017, respectively.
At
December 31, 2019, the weighted average remaining lives of our amortizable finite-lived intangible assets and the estimated amortization expense for each of the succeeding five
years are as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Amortization Expense for the
Years Ending December 31,
|
|
|
|
Wtd. Avg.
Remaining Life
(in years)
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker relationships
|
|
|
4.5
|
|
$
|
3,125
|
|
$
|
3,125
|
|
$
|
3,125
|
|
$
|
3,125
|
|
$
|
1,693
|
|
Borrower relationships
|
|
|
6.5
|
|
|
1,440
|
|
|
1,440
|
|
|
1,440
|
|
|
1,440
|
|
|
1,440
|
|
Below market leases
|
|
|
4.8
|
|
|
684
|
|
|
126
|
|
|
126
|
|
|
126
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.3
|
|
$
|
5,249
|
|
$
|
4,691
|
|
$
|
4,691
|
|
$
|
4,691
|
|
$
|
3,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Note 21 for details of goodwill and other intangible assets by segment.
98
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations
Credit Facilities and Repurchase Agreements
Borrowings under our credit facilities and repurchase agreements are as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
UPB
|
|
Debt
Carrying
Value(1)
|
|
Collateral
Carrying
Value
|
|
Wtd. Avg.
Note Rate
|
|
UPB
|
|
Debt
Carrying
Value(1)
|
|
Collateral
Carrying
Value
|
|
Wtd. Avg.
Note Rate
|
|
Structured Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$400 million joint repurchase facility
|
|
$
|
225,051
|
|
$
|
224,658
|
|
$
|
339,378
|
|
|
4.06
|
%
|
$
|
336,428
|
|
$
|
334,696
|
|
$
|
467,680
|
|
|
4.75
|
%
|
$300 million repurchase facility
|
|
|
218,891
|
|
|
218,418
|
|
|
291,292
|
|
|
3.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
$200 million repurchase facility
|
|
|
40,612
|
|
|
40,530
|
|
|
48,086
|
|
|
4.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
$128.7 million loan specific credit facilities
|
|
|
128,677
|
|
|
128,274
|
|
|
184,116
|
|
|
4.13
|
%
|
|
85,044
|
|
|
84,701
|
|
|
124,844
|
|
|
4.93
|
%
|
$100 million repurchase facility
|
|
|
45,962
|
|
|
45,843
|
|
|
63,800
|
|
|
3.56
|
%
|
|
71,017
|
|
|
70,837
|
|
|
98,597
|
|
|
4.31
|
%
|
$75 million credit facility
|
|
|
4,690
|
|
|
4,570
|
|
|
7,000
|
|
|
3.56
|
%
|
|
10,237
|
|
|
10,237
|
|
|
16,889
|
|
|
4.31
|
%
|
$75 million credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50 million credit facility
|
|
|
14,948
|
|
|
14,933
|
|
|
17,650
|
|
|
3.81
|
%
|
|
14,160
|
|
|
14,159
|
|
|
17,700
|
|
|
4.57
|
%
|
$50 million credit facility
|
|
|
12,349
|
|
|
12,191
|
|
|
16,499
|
|
|
4.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
$50 million credit facility
|
|
|
5,280
|
|
|
5,254
|
|
|
6,600
|
|
|
4.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
$25 million credit facility
|
|
|
19,936
|
|
|
19,651
|
|
|
28,572
|
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
$25 million working capital facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$20 million credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
19,912
|
|
|
41,650
|
|
|
5.07
|
%
|
$8 million credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
7,946
|
|
|
10,000
|
|
|
5.07
|
%
|
$3.3 million master security agreements
|
|
|
3,267
|
|
|
3,267
|
|
|
|
|
|
4.08
|
%
|
|
2,846
|
|
|
2,846
|
|
|
|
|
|
4.06
|
%
|
Repurchase facilitiessecurities(2)
|
|
|
217,105
|
|
|
217,105
|
|
|
|
|
|
3.90
|
%
|
|
118,112
|
|
|
118,112
|
|
|
|
|
|
5.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Business total
|
|
$
|
936,768
|
|
$
|
934,694
|
|
$
|
1,002,993
|
|
|
3.94
|
%
|
$
|
665,844
|
|
$
|
663,446
|
|
$
|
777,360
|
|
|
4.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$750 million ASAP agreement
|
|
$
|
148,725
|
|
$
|
148,725
|
|
$
|
148,725
|
|
|
2.81
|
%
|
$
|
104,619
|
|
$
|
104,619
|
|
$
|
104,619
|
|
|
3.55
|
%
|
$500 million repurchase facility
|
|
|
187,742
|
|
|
187,698
|
|
|
187,742
|
|
|
2.91
|
%
|
|
130,917
|
|
|
130,906
|
|
|
130,917
|
|
|
3.78
|
%
|
$300 million joint repurchase facility
|
|
|
300,446
|
|
|
299,824
|
|
|
300,446
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
$250 million credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,651
|
|
|
26,651
|
|
|
26,651
|
|
|
3.75
|
%
|
$150 million credit facility
|
|
|
89,673
|
|
|
89,657
|
|
|
89,673
|
|
|
2.91
|
%
|
|
113,685
|
|
|
113,666
|
|
|
113,685
|
|
|
3.80
|
%
|
$150 million credit facility
|
|
|
17,792
|
|
|
17,690
|
|
|
17,792
|
|
|
2.91
|
%
|
|
96,419
|
|
|
96,339
|
|
|
96,419
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Business total
|
|
$
|
744,378
|
|
$
|
743,594
|
|
$
|
744,378
|
|
|
3.03
|
%
|
$
|
472,291
|
|
$
|
472,181
|
|
$
|
472,291
|
|
|
3.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
1,681,146
|
|
$
|
1,678,288
|
|
$
|
1,747,371
|
|
|
3.54
|
%
|
$
|
1,138,135
|
|
$
|
1,135,627
|
|
$
|
1,249,651
|
|
|
4.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
debt carrying value for the Structured Business at December 31, 2019 and 2018 was net of unamortized deferred finance costs of $2.1 million and
$2.4 million, respectively. The debt carrying value for the Agency Business at December 31, 2019 and 2018 was net of unamortized deferred finance costs of $0.2 million and
$0.1 million, respectively.
-
(2)
-
As
of December 31, 2019 and 2018, these facilities were collateralized by CLO bonds retained by us with a principal balance of $234.9 million and
$114.2 million, respectively, B Piece bonds with a carrying value of $68.7 million and $76.4 million, respectively, and SFR bonds with a carrying value of $20.0 million at
December 31, 2019.
Joint Repurchase Facility. We have a $700.0 million joint repurchase facility, which is shared between the Structured
Business and the Agency
Business, used to finance structured loans as well as Private Label loans. The facility bears interest at a rate of 175 basis points over LIBOR on structured multifamily senior mortgage loans, 200 to
225 basis points over LIBOR on structured non-multifamily senior mortgage loans, 350 basis points over LIBOR on structured junior mortgage loans and 150 basis points over LIBOR on Private Label loans.
The facility matures in March 2020, with a one-year extension option, and has a maximum advance rate of 80% on all structured loans and 85% on Private Label loans. If the estimated market value of the
loans financed in this facility decrease, we may be required to pay down borrowings under this facility.
Structured Business. We utilize credit facilities and repurchase agreements with various financial institutions to finance our
Structured Business
loans and investments as described below.
99
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
At
December 31, 2019 and 2018, 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 4.39% and 5.07%, respectively. The leverage on our loan and investment portfolio financed through our credit facilities and
repurchase agreements, excluding the securities repurchase facilities, working capital facility and the master security agreements used to finance leasehold and capital expenditure improvements at our
corporate office, was 71% and 70% at December 31, 2019 and 2018, respectively.
We
have a $300.0 million repurchase facility to finance loans that bears interest at a rate of 195 basis points over LIBOR that matures in December 2020, with quarterly extension
options having an extended maturity date no later than March 2023. The facility has a maximum advance rate of 80%.
We
have a $200.0 million repurchase facility to finance single-family rental properties that bears interest at a rate of 240 basis points over LIBOR and matures in August 2020,
with six-month extension options in perpetuity.
We
have several loan specific credit facilities totaling $128.7 million used to finance individual bridge loans. The facilities bear interest at rates ranging from 210 to 250
basis points over LIBOR and mature between May 2020 and May 2022.
We
have a $100.0 million repurchase facility to finance multifamily bridge loans that bears interest at a rate ranging from 175 to 195 basis points over LIBOR (depending on the
class of loan financed) and matures in June 2020. The facility has a maximum advance rate of 80%.
We
have a $75.0 million credit facility to finance multifamily bridge loans that bears interest at 175 basis points over LIBOR and matures in May 2020, with three one-year
extension options. This facility includes a $25.0 million sublimit to finance healthcare related loans at an interest rate ranging from 212.5 to 250 basis points over LIBOR depending on the
type of healthcare facility financed and the advance rate. The facility has a maximum advance rate of 80% on multifamily bridge loans and 75% on healthcare related loans.
We
have another $75.0 million credit facility to finance bridge loans that bears interest at a rate of 175 basis points over LIBOR and matures in June 2020. The facility has a
maximum advance rate of 70% to 80%, depending on the property type.
We
have a $50.0 million credit facility to finance multifamily loans that bears interest at a rate of 200 basis points over LIBOR and matures in April 2020, with two one-year
extension options. This facility has a maximum advance rate of 80%.
We
have a $50.0 million credit facility to finance single-family rental properties that bears interest at a rate of 250 basis points over LIBOR with an interest rate floor of
4.00%. The facility matures in October 2022, with a one-year extension option, and has a maximum advance rate equal to the lesser of: (1) 75% of the UPB, (2) 50% of the appraised value
of the collateral, or (3) 55% of the projected cost of construction.
We
have another $50.0 million credit facility that bears interest at a rate ranging from 250 to 325 basis points over LIBOR, depending on the type of healthcare facility financed,
and matures in September 2020. The facility includes a one-year extension option and has a maximum advance rate of 80%.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
We have a $25.0 million credit facility used to purchase loans. The facility bears interest at a rate of 225 basis points over LIBOR and matures in June 2022, with a one-year
extension option.
We
have a $25.0 million unsecured working capital line of credit that bears interest at a rate of 225 basis points over LIBOR. This line matures in August 2020 and is renewable
annually.
We
had a $20.0 million credit facility used to finance a healthcare facility bridge loan. The facility bore interest at a rate of 250 basis points over LIBOR and, in the fourth
quarter of 2019, the facility was repaid and the loan collateralizing this facility was placed into another facility.
We
had an $8.0 million credit facility used to finance a healthcare facility bridge loan. The facility bore interest at a rate of 250 basis points over LIBOR and, in the second
quarter of 2019, the loan collateralizing this facility was placed into a CLO and we simultaneously repaid this facility.
We
have four notes payable under master security agreements that were used to finance leasehold improvements and capital expenditures for our corporate office. The notes bear interest at
a weighted average fixed rate of 4.08%, require monthly amortization payments and mature between 2020 and 2022.
We
have four uncommitted repurchase facilities that are used to finance securities we retained in connection with our CLOs and our purchases of B Piece bonds from SBL program
securitizations and SFR bonds. These facilities bear interest at rates ranging from 120 to 275 basis points over LIBOR and have no stated maturity dates.
Agency Business. We utilize credit facilities with various financial institutions to finance substantially all of our loans
held-for-sale as
described below.
We
have a $750.0 million ASAP agreement with Fannie Mae providing us with a warehousing credit facility for mortgage loans that are to be sold to Fannie Mae and serviced under the
Fannie Mae DUS program. The ASAP agreement is not a committed line, has no expiration date and bears interest at a rate of 105 basis points over LIBOR, with a LIBOR Floor of 0.35%.
We
have a $500.0 million repurchase facility that bears interest at a rate of 115 basis points over LIBOR and matures in October 2020. The financial institution that provided this
facility has a security interest in the underlying mortgage notes that serve as collateral for this facility.
We
have a $100.0 million repurchase facility that bears interest at a rate of 115 basis points over LIBOR and matures in June 2020. The committed amount under the facility was
temporarily increased $150.0 million to $250.0 million, which expired in January 2020. The financial institution that provided this facility has a security interest in the underlying
mortgage notes that serve as collateral for this facility.
We
have a $150.0 million credit facility that bears interest at a rate of 115 basis points over LIBOR and was scheduled to mature in January 2020, which was temporarily extended
to March 2020. We are currently in negotiations with the lender to further amend and extend the agreement. The financial institution that provided this facility has a security interest in the
underlying mortgage notes that serve as collateral for this facility.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
We
have another $150.0 million credit facility that bears interest at a rate of 115 basis points over LIBOR and matures in July 2020. The financial institution that provided this
facility has a security interest in the underlying mortgage notes that serve as collateral for this facility.
We
have a $50.0 million letter of credit facility with a financial institution to secure obligations under the Fannie Mae DUS program and the Freddie Mac SBL program. The facility
bears interest at a fixed rate of 2.875%, matures in September 2020 and is primarily collateralized by our servicing revenue as approved by Fannie Mae and Freddie Mac. The facility includes a
$5.0 million sublimit for an obligation
under the Freddie Mac SBL program. At December 31, 2019, the letters of credit outstanding include $45.0 million for the Fannie Mae DUS program and $5.0 million for the Freddie
Mac SBL program.
CLOs
We account for our CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary
beneficiary and are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to us.
Borrowings
and the corresponding collateral under our CLOs are as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral(3)
|
|
|
|
Debt
|
|
Loans
|
|
Cash
|
|
December 31, 2019
|
|
Face
Value
|
|
Carrying
Value(1)
|
|
Wtd. Avg.
Rate(2)
|
|
UPB
|
|
Carrying
Value
|
|
Restricted
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral(3)
|
|
|
|
Debt
|
|
Loans
|
|
Cash
|
|
December 31, 2018
|
|
Face
Value
|
|
Carrying
Value(1)
|
|
Wtd. Avg.
Rate(2)
|
|
UPB
|
|
Carrying
Value
|
|
Restricted
Cash(4)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Debt
carrying value is net of $17.3 million and $16.0 million of deferred financing fees at December 31, 2019 and 2018, respectively.
-
(2)
-
At
December 31, 2019 and 2018, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 3.63% and 4.73%, respectively.
-
(3)
-
As
of December 31, 2019 and 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 totaling $58.6 million and $25.1 million at December 31, 2019 and 2018, respectively.
CLO XII. In November 2019, we completed CLO XII, issuing eight tranches of CLO notes through two newly-formed wholly-owned
subsidiaries totaling
$585.8 million. Of the total CLO notes issued, $534.2 million were investment grade notes issued to third party investors and $51.6 million were below investment grade notes
retained by us. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $510.9 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 sale proceeds (if any) of the loan obligations to be reinvested
in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid.
Initially, the proceeds of the issuance of the securities also included $124.1 million for the purpose of acquiring additional loan obligations for a period of up to 180 days from the
CLO closing date, which we subsequently utilized, resulting in the issuer owning loan obligations with a face value of $635.0 million, representing leverage of 84%. We retained a residual
interest in the portfolio with a notional amount of $100.8 million, including the $51.6 million below investment grade notes. The notes had an initial weighted average interest rate of
1.50% plus one-month LIBOR and interest payments on the notes are payable monthly.
CLO XI. In June 2019, we completed CLO XI, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries
totaling
$602.1 million. Of the total CLO notes issued, $533.0 million were investment grade notes issued to third party investors and $69.1 million were below investment grade notes
retained by us. As of the CLO closing date, the notes were secured by a
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
portfolio
of loan obligations with a face value of $520.4 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 sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of
certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included
$129.6 million for the purpose of acquiring additional loan obligations for a period of up to 120 days from the CLO closing date, which we subsequently utilized, resulting in the issuer
owning loan obligations with a face value of $650.0 million, representing leverage of 82%. We retained a residual interest in the portfolio with a notional amount of $117.0 million,
including the $69.1 million below investment grade notes. The notes had an initial weighted average interest rate of 1.44% plus one-month LIBOR and interest payments on the notes are payable
monthly.
CLO X. In June 2018, we completed CLO X, issuing seven tranches of CLO notes through two newly-formed wholly-owned subsidiaries
totaling
$494.2 million. Of the total CLO notes issued, $441.0 million were investment grade notes issued to third party investors and $53.2 million were below investment grade notes
retained by us. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $501.9 million, consisting primarily of bridge loans that were
contributed from our existing loan portfolio. The financing has a stated maturity date in June 2028 and a four-year replacement period that allows the principal proceeds and sale proceeds (if any) of
the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance
will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $58.1 million for the purpose of acquiring additional loan obligations for a period
of up to 120 days from the CLO closing date, which were subsequently utilized, resulting in the issuer owning loan obligations with a face value of $560.0 million, representing leverage
of 79%. We retained a residual interest in the portfolio with a notional amount of $119.0 million, including the $53.2 million below investment grade notes. The notes had an initial
weighted average interest rate of 1.45% plus one-month LIBOR and interest payments on the notes are payable monthly.
CLO IX. In December 2017, we completed CLO IX, issuing five tranches of CLO notes through two
newly-formed wholly-owned subsidiaries totaling $388.2 million. Of the total CLO notes issued, $356.4 million were investment grade notes issued to third party investors and
$31.8 million were below investment grade notes retained by us. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $387.3 million,
consisting primarily of bridge loans that were contributed from our existing loan portfolio. The financing has a stated maturity date in December 2027 and a three-year replacement period that allows
the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in
the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $92.7 million for the
purpose of acquiring additional loan obligations for a period of up to 120 days from the CLO closing date, which were subsequently utilized, resulting in the issuer owning loan obligations with
a face value of $480.0 million, representing leverage of 74%. We retained a residual interest in the portfolio with a notional amount of $123.6 million, including the
$31.8 million
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
below
investment grade notes. The notes had an initial weighted average interest rate of 1.36% plus LIBOR and interest payments on the notes are payable monthly.
CLO VIII. In August 2017, we completed CLO VIII, issuing six tranches of CLO notes through two newly-formed wholly-owned
subsidiaries totaling
$312.1 million. Of the total CLO notes issued, $282.9 million were investment grade notes issued to third party investors and $29.2 million were below investment grade notes
retained by us. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $293.7 million, consisting primarily of bridge loans that were
contributed from our existing loan portfolio. The financing has a stated maturity date in August 2027 and a three-year replacement period that allows the principal proceeds and sale proceeds (if any)
of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt
balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $71.3 million for the purpose of acquiring additional loan obligations for a
period of up to 120 days from the CLO closing date, which were subsequently utilized, resulting in the issuer owning loan obligations with a face value of $365.0 million, representing
leverage of 78%. We retained a residual interest in the portfolio with a notional amount of $82.1 million, including the $29.2 million below investment grade notes. The notes had an
initial weighted average interest rate of 1.31% plus LIBOR and interest payments on the notes are payable monthly.
CLO VII. In November 2019, we unwound CLO VII redeeming $279.0 million of outstanding notes which were repaid primarily
from the refinancing
of the remaining assets within our existing financing facilities (including CLO XII), as well as with cash held by CLO VII, and expensed $1.4 million of deferred financing fees into interest
expense on the consolidated statements of income.
CLO VI. In June 2019, we unwound CLO VI redeeming $250.3 million of outstanding notes which were repaid primarily from the
refinancing of the
remaining assets within our existing financing facilities (including CLO XI), as well as with cash held by CLO VI, and expensed $1.2 million of deferred financing fees into interest expense on
the consolidated statements of income.
CLO V. In June 2018, we unwound CLO V, redeeming $267.8 million of outstanding notes which were repaid primarily from the
refinancing of the
remaining assets within our existing financing facilities (including CLO X), as well as with cash held by CLO V, and expensed $1.3 million of deferred financing fees into interest expense on
the consolidated statements of income.
CLO IV. In September 2017, we unwound CLO IV, redeeming $219.0 million of our outstanding notes which were repaid primarily
from the
refinancing of the remaining assets within our existing financing facilities (including CLO VIII), as well as with cash held by CLO IV, and expensed $1.1 million of deferred financing fees into
interest expense on the consolidated statements of income.
Luxembourg Debt Fund
In November 2017, we formed a $100.0 million Debt Fund and issued $70.0 million of floating rate notes to third party investors
which bore 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 is a VIE for which we are the
primary beneficiary and is consolidated in our financial statements. The Debt
105
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
Fund
is secured by a portfolio of loan obligations and cash with a face value of $100.0 million, which includes first mortgage bridge loans, senior participation interests in first mortgage
bridge loans, subordinate participation interest in first mortgage bridge loans and participation interests in mezzanine
loans. The Debt Fund allows, for a period of three years, principal proceeds from portfolio assets to be reinvested in qualifying replacement assets, subject to certain conditions.
Borrowings
and the corresponding collateral under our Debt Fund are as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral(3)
|
|
|
|
Debt
|
|
Loans
|
|
Cash
|
|
Period
|
|
Face
Value
|
|
Carrying
Value(1)
|
|
Wtd. Avg.
Rate(2)
|
|
UPB
|
|
Carrying
Value
|
|
Restricted
Cash(4)
|
|
December 31, 2019
|
|
$
|
70,000
|
|
$
|
68,629
|
|
|
5.99
|
%
|
$
|
70,755
|
|
$
|
68,629
|
|
$
|
29,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
70,000
|
|
$
|
68,183
|
|
|
6.75
|
%
|
$
|
69,186
|
|
$
|
68,924
|
|
$
|
30,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Debt
carrying value is net of $1.4 million and $1.8 million of deferred financing fees at December 31, 2019 and 2018, respectively.
-
(2)
-
At
December 31, 2019 and 2018, the aggregate weighted average note rate, including certain fees and costs, was 7.17% and 7.49%, respectively.
-
(3)
-
At
both December 31, 2019 and 2018, there was no collateral at risk of default or deemed to be a "credit risk."
-
(4)
-
Represents
restricted cash held for reinvestment. Excludes restricted cash related to interest payments, delayed fundings and expenses.
Senior Unsecured Notes
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 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 December 31, 2019, the debt carrying
value of the 4.75% Notes was $108.4 million, net of $1.6 million of deferred financing fees, and the weighted average note rate, including certain fees and costs, was 5.23%.
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") 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
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
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" 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. At December 31, 2019, the debt carrying value of the 5.75% Notes was $88.4 million, net of $1.6 million of deferred
financing fees, and the weighted average note rate, including certain fees and costs, was 6.18%.
In
March 2018, we issued $100.0 million aggregate principal amount of 5.625% senior unsecured notes due in May 2023 (the "Initial Notes") in a private placement, and, in May 2018,
we issued an additional $25.0 million (the "Reopened Notes" and, together with the Initial Notes, the "5.625% Notes,") which brought the aggregate outstanding principal amount to
$125.0 million. The Reopened Notes are fully fungible with, and rank equally in right of payment with the Initial Notes. We received total proceeds of $122.3 million from the issuances,
after deducting the underwriting discount and other offering expenses. We used the net proceeds from the Initial Notes to fully redeem our 7.375% Notes totaling $97.9 million and the net
proceeds from the Reopened Notes to make investments and for general corporate purposes. The 5.625% Notes are unsecured and can be redeemed by us at any time prior to April 1, 2023, at a
redemption price equal to 100% of the aggregate principal amount, plus a "make-whole" premium and accrued and unpaid interest. We have the right to redeem the 5.625% Notes on or after April 1,
2023, at a redemption price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest. The interest is paid semiannually in May and November. At December 31, 2019 and
2018, the debt carrying value of the 5.625% Notes were $123.1 million and $122.5 million, respectively, net of $1.9 million and $2.5 million, respectively, of deferred
financing fees. At both December 31, 2019 and 2018, the weighted average note rate was 6.08%, respectively, including certain fees and costs.
Convertible Senior Unsecured Notes
In November 2019, we issued $264.0 million in aggregate principal amount of 4.75% convertible notes through a private placement offering,
which includes the exercised purchaser's total over-allotment option of $34.0 million. The 4.75% convertible notes pay interest semiannually in arrears and are scheduled to mature in November
2022, unless earlier converted or repurchased by the holders pursuant to their terms. The initial conversion rate and the conversion rate at December 31, 2019 was 56.1695 shares of common stock
per $1,000 of principal representing a conversion price of $17.80 per share of common stock. We received proceeds totaling $256.5 million, 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 exchange of $228.7 million of our 5.25% convertible notes for
a combination of $233.1 million in cash (which includes accrued interest) and 4,478,315 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 million.
In
2018, we completed a similar exchange where we used the net proceeds from two separate private placements of our 5.25% convertible notes to initially exchange $127.6 million of
our 5.375% convertible notes and $99.8 million of our 6.50% convertible notes for a combination of $219.8 million
107
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
in
cash (which includes accrued interest) and 6,820,196 shares of our common stock. During 2018, we recorded a loss on extinguishment of debt of $5.0 million in connection with these exchanges,
which included an inducement charge of $1.1 million.
At
December 31, 2019, there were $11.5 million, $24.3 million and $1.1 million aggregate principal amount remaining of our 5.25% convertible notes issued on
July 3, 2018, 5.25% convertible notes issued on July 20, 2018 and 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 were 86.9943 shares, 77.8331 shares and 107.7122 shares, respectively, of common stock per
$1,000 of principal, which represented a conversion price of $11.50 per share, $12.85 per share and $9.28 per share of common stock, respectively. At December 31, 2019, the 5.25% convertible
notes issued on July 3, 2018, 5.25% convertible notes issued on July 20, 2018 and 5.375% convertible notes had conversion rates of 89.2795 shares, 79.8777 shares and 114.6568 shares,
respectively, of common stock per $1,000 of principal, which represented a conversion price of $11.20 per share, $12.52 per share and $8.72 per share of common stock, respectively. The 5.25%
convertible notes and 5.375% convertible notes pay interest semiannually in arrears and have scheduled maturity dates in July 2021 and November 2020, respectively, unless earlier converted or
repurchased by the holders pursuant to their terms.
Our
convertible senior unsecured notes are not redeemable by us prior to their maturities and are convertible into, at our election, cash, shares of our common stock or a combination of
both, subject to the satisfaction of certain conditions and during specified periods. The conversion 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. At the time of
issuance, there is 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 2.67 years and 2.49 years at December 31, 2019 and 2018, respectively, on a weighted
average basis.
108
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
The
UPB, unamortized discount and net carrying amount of the liability and equity components of our convertible notes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Component
|
|
Equity
Component
|
|
Period
|
|
UPB
|
|
Unamortized
Debt
Discount
|
|
Unamortized Deferred
Financing
Fees
|
|
Net
Carrying
Value
|
|
Net
Carrying
Value
|
|
December 31, 2019
|
|
$
|
300,914
|
|
$
|
9,235
|
|
$
|
7,527
|
|
$
|
284,152
|
|
$
|
9,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
270,057
|
|
$
|
8,229
|
|
$
|
7,060
|
|
$
|
254,768
|
|
$
|
9,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2019, we incurred total aggregate interest expense on the notes of $28.3 million, of which $13.5 million, $6.8 million and $7.9 million related to the
cash coupon, amortization of the deferred financing fees and of the debt discount, respectively. During 2018, we incurred total aggregate interest expense on the notes of $21.1 million, of
which $13.4 million, $4.8 million and $2.9 million related to the cash coupon, 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 6.80% and 7.45% at December 31, 2019 and 2018, respectively.
Junior Subordinated Notes
In 2017, we purchased, at a discount, $20.9 million of our junior subordinated notes with a carrying value of $19.8 million and
recorded a gain on extinguishment of debt of $7.1 million. The carrying value of borrowings under our junior subordinated notes were $140.9 million and $140.3 million at
December 31, 2019 and 2018, respectively, which is net of a deferred amount of $11.4 million and $12.0 million, respectively, (which is amortized into interest expense over the
life of the notes) and deferred financing fees of $2.0 million and $2.1 million, respectively. These notes have maturities ranging from March 2034 through April 2037 and pay interest
quarterly at a floating rate based on LIBOR. The weighted average note rate was 4.75% and 5.66% at December 31, 2019 and 2018, respectively. Including certain fees and costs, the weighted
average note rate was 4.83% and 5.75% at December 31, 2019 and 2018, respectively.
Debt Covenants
Credit Facilities, Repurchase Agreements and Unsecured Debt. The credit facilities, 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 December 31, 2019.
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 December 31, 2019, as well as
on the most recent determination dates in January
109
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
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.
Our
CLO compliance tests as of the most recent determination dates in January 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Triggers
|
|
CLO VIII
|
|
CLO IX
|
|
CLO X
|
|
CLO XI
|
|
CLO XII
|
|
Overcollateralization(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
129.03
|
%
|
|
134.68
|
%
|
|
126.98
|
%
|
|
121.95
|
%
|
|
118.87
|
%
|
Limit
|
|
|
128.03
|
%
|
|
133.68
|
%
|
|
125.98
|
%
|
|
120.95
|
%
|
|
117.87
|
%
|
Pass / Fail
|
|
|
Pass
|
|
|
Pass
|
|
|
Pass
|
|
|
Pass
|
|
|
Pass
|
|
Interest Coverage(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
285.83
|
%
|
|
250.76
|
%
|
|
250.52
|
%
|
|
229.31
|
%
|
|
187.58
|
%
|
Limit
|
|
|
120.00
|
%
|
|
120.00
|
%
|
|
120.00
|
%
|
|
120.00
|
%
|
|
120.00
|
%
|
Pass / Fail
|
|
|
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.
110
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 11Debt Obligations (Continued)
Our
CLO overcollateralization ratios as of the determination dates subsequent to each quarter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determination(1)
|
|
CLO VIII
|
|
CLO IX
|
|
CLO X
|
|
CLO XI
|
|
CLO XII
|
|
January 2020
|
|
|
129.03
|
%
|
|
134.68
|
%
|
|
126.98
|
%
|
|
121.95
|
%
|
|
118.87
|
%
|
October 2019
|
|
|
129.03
|
%
|
|
134.68
|
%
|
|
126.98
|
%
|
|
121.95
|
%
|
|
|
|
July 2019
|
|
|
129.03
|
%
|
|
134.68
|
%
|
|
126.98
|
%
|
|
121.95
|
%
|
|
|
|
April 2019
|
|
|
129.03
|
%
|
|
134.69
|
%
|
|
126.98
|
%
|
|
|
|
|
|
|
January 2019
|
|
|
129.03
|
%
|
|
134.68
|
%
|
|
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.
The
ratio will fluctuate based on the performance of the underlying assets, transfers of assets into the CLOs prior to the expiration of their respective replenishment dates, purchase or
disposal of other investments, and loan payoffs. No payment due under the junior subordinated indentures may be paid if there is a default under any senior debt and the senior lender has sent notice
to the trustee. The junior subordinated indentures are also cross-defaulted with each other.
Note 12Allowance for Loss-Sharing Obligations
Our allowance for loss-sharing obligations related to the Fannie Mae DUS program is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Beginning balance
|
|
$
|
34,298
|
|
$
|
30,511
|
|
Provision for loss sharing
|
|
|
4,879
|
|
|
7,126
|
|
Provision reversal for loan repayments
|
|
|
(3,732
|
)
|
|
(3,283
|
)
|
Charge-offs, net
|
|
|
(797
|
)
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
34,648
|
|
$
|
34,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2019 and 2018,
we had outstanding advances of $0.5 million and $0.1 million, respectively, which were netted against the allowance for loss-sharing obligations.
At
December 31, 2019 and 2018, our allowance for loss-sharing obligations represented 0.23% and 0.25%, respectively, of the Fannie Mae servicing portfolio.
111
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 12Allowance for Loss-Sharing Obligations (Continued)
At
December 31, 2019 and 2018, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was $2.73 billion and
$2.46 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 13Derivative Financial Instruments
We enter into derivative financial instruments to 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.
Agency 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" 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
simultaneously 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. The estimated fair value of rate lock commitments also includes the fair value of the expected net cash flows associated with the servicing of the loan
which is recorded as income from MSRs in the consolidated statements of income. During 2019, 2018 and 2017, we recorded net losses of $7.8 million, net gains of $6.0 million and net
losses of $1.4 million, respectively, from changes in the fair value of these derivatives in other income, net and $90.8 million, $98.8 million and $76.8 million,
respectively, of income from MSRs. See Note 14 for details.
Interest Rate Swap Futures. 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. 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
112
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 13Derivative Financial Instruments (Continued)
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
2019, we recorded realized losses of $0.4 million and unrealized gains of $0.2 million, respectively, to our Structured Business related to our Swap Futures. During
2019, we recorded realized gains of $4.6 million and unrealized gains of $1.5 million to our Private Label Agency Business related to our Swap Futures. The realized and unrealized gains
and losses are recorded in other income, net on our consolidated statements of income.
A
summary of our non-qualifying derivative financial instruments is as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Notional Value
|
|
|
|
Fair Value
|
|
Derivative
|
|
Count
|
|
Notional Value
|
|
Balance Sheet Location
|
|
Derivative
Assets
|
|
Derivative
Liabilities
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structures Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Futures
|
|
|
271
|
|
$
|
27,100
|
|
Other Assets/ Other Liabilities
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Agency Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 14Fair 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
Principal /
Notional
Amount
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Principal /
Notional
Amount
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$
|
4,279,611
|
|
$
|
4,189,960
|
|
$
|
4,228,071
|
|
$
|
3,283,342
|
|
$
|
3,200,145
|
|
$
|
3,249,499
|
|
Loans held-for-sale, net
|
|
|
847,126
|
|
|
861,360
|
|
|
876,975
|
|
|
472,964
|
|
|
481,664
|
|
|
489,546
|
|
Capitalized mortgage servicing rights, net
|
|
|
n/a
|
|
|
286,420
|
|
|
328,995
|
|
|
n/a
|
|
|
273,770
|
|
|
322,463
|
|
Securities held-to-maturity, net
|
|
|
111,028
|
|
|
88,699
|
|
|
91,738
|
|
|
103,515
|
|
|
76,363
|
|
|
79,097
|
|
Derivative financial instruments
|
|
|
173,532
|
|
|
1,435
|
|
|
1,435
|
|
|
400,661
|
|
|
6,113
|
|
|
6,113
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit and repurchase facilities
|
|
$
|
1,681,146
|
|
$
|
1,678,288
|
|
$
|
1,677,658
|
|
$
|
1,138,135
|
|
$
|
1,135,627
|
|
$
|
1,135,774
|
|
Collateralized loan obligations
|
|
|
2,147,467
|
|
|
2,130,121
|
|
|
2,147,944
|
|
|
1,609,524
|
|
|
1,593,548
|
|
|
1,588,989
|
|
Debt fund
|
|
|
70,000
|
|
|
68,629
|
|
|
70,138
|
|
|
70,000
|
|
|
68,183
|
|
|
70,154
|
|
Senior unsecured notes
|
|
|
325,000
|
|
|
319,799
|
|
|
331,225
|
|
|
125,000
|
|
|
122,484
|
|
|
123,750
|
|
Convertible senior unsecured notes, net
|
|
|
300,914
|
|
|
284,152
|
|
|
310,778
|
|
|
270,057
|
|
|
254,768
|
|
|
267,324
|
|
Junior subordinated notes
|
|
|
154,336
|
|
|
140,949
|
|
|
97,668
|
|
|
154,336
|
|
|
140,259
|
|
|
95,873
|
|
Derivative financial instruments
|
|
|
347,701
|
|
|
3,097
|
|
|
3,097
|
|
|
108,625
|
|
|
732
|
|
|
732
|
|
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 1Inputs
are unadjusted and quoted prices exist in active markets for identical assets or liabilities, such as government, agency and equity securities.
Level 2Inputs
(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 3Inputs
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 judgment and we evaluate our hierarchy disclosures each quarter.
The
following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
114
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 14Fair Value (Continued)
Loans and investments, net. Fair values of loans and investments that are not impaired are estimated using 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 (Level 3). Fair values of impaired loans and investments are estimated using 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 (Level 3).
Loans held-for-sale, net. Consists of originated loans that are generally 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 inputs based on discounted future net cash flow
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 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 (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
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
(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
115
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 14Fair Value (Continued)
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 based on broker quotations,
representing the
discounted expected future cash flows at a yield that reflects current market interest rates and credit spreads (Level 3).
Senior unsecured notes. Fair values are estimated at current market quotes received from active markets when available
(Level 1). If quotes
from active markets are unavailable, then the fair values are estimated utilizing current market quotes received from inactive markets (Level 2).
Convertible senior unsecured notes, net. Fair values are estimated based on current market quotes received from inactive markets
(Level 2).
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 December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
Using Fair Value Hierarchy
|
|
|
|
Carrying
Value
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
1,435
|
|
$
|
1,435
|
|
$
|
|
|
$
|
369
|
|
$
|
1,066
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
3,097
|
|
$
|
3,097
|
|
$
|
|
|
$
|
3,097
|
|
$
|
|
|
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 December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
Using Fair Value Hierarchy
|
|
|
|
Net Carrying
Value
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, net(1)
|
|
$
|
59,657
|
|
$
|
59,657
|
|
$
|
|
|
$
|
|
|
$
|
59,657
|
|
Non-financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets(2)
|
|
$
|
13,220
|
|
$
|
13,220
|
|
$
|
|
|
$
|
|
|
$
|
13,220
|
|
-
(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
$130.7 million at December 31, 2019.
-
(2)
-
We
recorded a $1.0 million impairment loss during 2019 on the hotel property we own. See Note 9 for details.
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
116
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 14Fair Value (Continued)
discounts,
and net of the allowance for loan losses, when such loan or investment is deemed to be impaired. We consider a loan impaired when, based upon current information, it is probable that we
will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement. We evaluate our loans to determine if the value of the underlying
collateral securing the impaired loan is less than the net carrying value of the loan, which may result in an allowance and corresponding charge to the provision for loan losses. These valuations
require significant judgments, which include assumptions regarding capitalization and discount rates, revenue growth rates, creditworthiness of major tenants, occupancy rates, availability of
financing, exit plan and
other factors. The table above and below includes all impaired loans, regardless of the period in which the impairment was recognized.
Long-lived assets. We review our real estate owned assets when events or circumstances change, indicating that the carrying
amount of an asset may
not be partially or fully recoverable. In the evaluation of a real estate owned asset for impairment, many factors are considered, including broker quotes, estimated current and expected operating
cash flows from the asset during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income,
selling costs, and the ability to hold and dispose of the asset in the ordinary course of business. We first compare the undiscounted cash flows to be generated by the asset to the carrying value of
such asset. If the undiscounted cash flows are less than the carrying value, we recognize an impairment loss by comparing the carrying value of the asset to its fair value.
Quantitative
information about Level 3 fair value measurements at December 31, 2019 is as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Valuation Techniques
|
|
Significant Unobservable Inputs
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
58,931
|
|
Discounted cash flows
|
|
Discount rate
|
|
|
23.00
|
%
|
|
|
|
|
|
|
|
Revenue growth rate
|
|
|
3.00
|
%
|
Office
|
|
|
726
|
|
Discounted cash flows
|
|
Discount rate
|
|
|
11.00
|
%
|
|
|
|
|
|
|
|
Capitalization rate
|
|
|
9.00
|
%
|
|
|
|
|
|
|
|
Revenue growth rate
|
|
|
2.50
|
%
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Rate lock commitments
|
|
|
1,066
|
|
Discounted cash flows
|
|
W/A discount rate
|
|
|
13.59
|
%
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
Hotel property
|
|
|
10,208
|
|
Broker quotes
|
|
N/A
|
|
|
N/A
|
|
117
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 14Fair Value (Continued)
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 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
Significant Unobservable Inputs
for the Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Derivative assets
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
324
|
|
$
|
276
|
|
$
|
2,816
|
|
Settlements
|
|
|
(83,992
|
)
|
|
(98,791
|
)
|
|
(79,360
|
)
|
Realized gains recorded in earnings
|
|
|
83,668
|
|
|
98,515
|
|
|
76,544
|
|
Unrealized gains recorded in earnings
|
|
|
1,066
|
|
|
324
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,066
|
|
$
|
324
|
|
$
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Notional/
Principal
Amount
|
|
Fair Value of
Servicing Rights
|
|
Interest Rate
Movement Effect
|
|
Total
Fair Value
Adjustment
|
|
Rate lock commitments
|
|
$
|
37,657
|
|
$
|
1,066
|
|
$
|
(202
|
)
|
$
|
864
|
|
Forward sale commitments
|
|
|
483,576
|
|
|
|
|
|
202
|
|
|
202
|
|
Loans held-for-sale, net(1)
|
|
|
847,126
|
|
|
16,519
|
|
|
|
|
|
16,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
17,585
|
|
$
|
|
|
$
|
17,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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.
118
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 14Fair Value (Continued)
We
measure certain assets and liabilities for which fair value is only disclosed. The fair values of these assets and liabilities are determined using the following input levels as of
December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
Using Fair Value Hierarchy
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$
|
4,189,960
|
|
$
|
4,228,071
|
|
$
|
|
|
$
|
|
|
$
|
4,228,071
|
|
Loans held-for-sale, net
|
|
|
861,360
|
|
|
876,975
|
|
|
|
|
|
860,456
|
|
|
16,519
|
|
Capitalized mortgage servicing rights, net
|
|
|
286,420
|
|
|
328,995
|
|
|
|
|
|
|
|
|
328,995
|
|
Securities held-to-maturity, net
|
|
|
88,699
|
|
|
91,738
|
|
|
|
|
|
|
|
|
91,738
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit and repurchase facilities
|
|
$
|
1,678,288
|
|
$
|
1,677,658
|
|
$
|
|
|
$
|
743,594
|
|
$
|
934,064
|
|
Collateralized loan obligations
|
|
|
2,130,121
|
|
|
2,147,944
|
|
|
|
|
|
|
|
|
2,147,944
|
|
Debt fund
|
|
|
68,629
|
|
|
70,138
|
|
|
|
|
|
|
|
|
70,138
|
|
Senior unsecured notes
|
|
|
319,799
|
|
|
331,225
|
|
|
331,225
|
|
|
|
|
|
|
|
Convertible senior unsecured notes, net
|
|
|
284,152
|
|
|
310,778
|
|
|
|
|
|
310,778
|
|
|
|
|
Junior subordinated notes
|
|
|
140,949
|
|
|
97,668
|
|
|
|
|
|
|
|
|
97,668
|
|
Note 15Commitments and Contingencies
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 December 31, 2019, we were required to maintain at least $14.4 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 December 31, 2019, we met the restricted liquidity requirement with a $45.0 million letter of credit and $1.9 million of cash collateral.
119
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 15Commitments and Contingencies (Continued)
As
of December 31, 2019, reserve requirements for the Fannie Mae DUS loan portfolio will require us to fund $36.3 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 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 December 31, 2019, 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 also subject
to capital requirements on an annual basis for Ginnie Mae and FHA and we believe we have met all requirements as of December 31, 2019.
As
an approved designated seller/servicer under Freddie Mac'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 13 and Note 14.
Debt Obligations and Operating Leases. As of December 31, 2019, the maturities of our debt obligations and the minimum
annual operating lease
payments under leases with a term in excess of one year are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Debt
Obligations
|
|
Minimum Annual
Operating Lease
Payments
|
|
Total
|
|
2020
|
|
$
|
1,629,115
|
|
$
|
5,301
|
|
$
|
1,634,416
|
|
2021
|
|
|
495,601
|
|
|
3,044
|
|
|
498,645
|
|
2022
|
|
|
1,479,600
|
|
|
2,775
|
|
|
1,482,375
|
|
2023
|
|
|
496,049
|
|
|
2,052
|
|
|
498,101
|
|
2024
|
|
|
215,154
|
|
|
1,459
|
|
|
216,613
|
|
Thereafter
|
|
|
363,344
|
|
|
3,304
|
|
|
366,648
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,678,863
|
|
$
|
17,935
|
|
$
|
4,696,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2019, our leases had remaining lease terms of 0.7 - 7.2 years with a weighted average remaining lease term of 5.2 years and a
weighted average discount rate of 4.7%. We recorded lease expense of $6.1 million, $5.4 million and $4.7 million during 2019, 2018 and 2017, respectively.
120
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 15Commitments and Contingencies (Continued)
Unfunded Commitments. In accordance with certain structured loans and investments, we have outstanding unfunded commitments of
$163.8 million
as of December 31, 2019 that we are obligated to fund as borrowers meet certain requirements. Specific requirements include, but are not limited to, property renovations, building construction
and conversions based on criteria met by the borrower in accordance with the loan agreements.
Litigation. We are currently neither subject to any material litigation nor, to the best of our knowledge, threatened by any
material litigation
other than the following:
In
June 2011, three related lawsuits were filed by the Extended Stay Litigation Trust (the "Trust"), a post-bankruptcy litigation trust alleged to have standing to pursue claims that
previously had been held by Extended Stay, Inc. and the Homestead Village L.L.C. family of companies (together "ESI") (formerly Chapter 11 debtors, together the "Debtors") that have
emerged from bankruptcy. Two of the lawsuits were filed in the U.S. Bankruptcy Court for the Southern District of New York, and the third in the Supreme Court of the State of New York, New York
County. There were 73 defendants in the three lawsuits, including 55 corporate and partnership entities and 18 individuals. A subsidiary of ours and certain other entities that are affiliates of ours
are included as defendants. The New York State Court action has been removed to the Bankruptcy Court. Our affiliates filed a motion to dismiss the three lawsuits.
The
lawsuits all allege, as a factual basis and background certain facts surrounding the June 2007 leveraged buyout of ESI from affiliates of Blackstone Capital. Our subsidiary, Arbor
ESH II, LLC, had a $115.0 million investment in the Series A1 Preferred Units of a holding company of Extended Stay, Inc. The New York State Court action and one of the two
federal court actions name as defendants, Arbor ESH II, LLC, Arbor Commercial Mortgage, LLC ("ACM") and ABT-ESI LLC, an entity in which we have a membership interest, among the
broad group of defendants. These two actions were commenced by substantially identical complaints. The defendants are alleged in these complaints, among other things, to have breached fiduciary and
contractual duties by causing or allowing the Debtors to pay illegal dividends or other improper distributions of value at a time when the Debtors were insolvent. These two complaints also allege that
the defendants aided and abetted, induced, or participated in breaches of fiduciary duty, waste, and unjust enrichment ("Fiduciary Duty Claims") and name a director of ours, and a former general
counsel of ACM, each of whom had served on the Board of Directors of ESI for a period of time. We are defending these two defendants and paying the costs of such defense. On the basis of the foregoing
allegations, the Trust has asserted claims under a number of common law theories, seeking the return of assets transferred by the Debtors prior to the Debtors' bankruptcy filing.
In
the third action, filed in Bankruptcy Court, the same plaintiff, the Trust, has named ACM and ABT-ESI LLC, together with a number of other defendants and asserts claims,
including constructive and fraudulent conveyance claims under state and federal statutes, as well as a claim under the Federal Debt Collection Procedure Act.
In
June 2013, the Trust filed a motion to amend the lawsuits, to, among other things, (i) consolidate the lawsuits into one lawsuit, (ii) remove 47 defendants, none of whom
are related to us, from the lawsuits so that there are 26 remaining defendants, including 16 corporate and partnership entities and 10 individuals, and (iii) reduce the counts within the
lawsuits from over 100 down to 17.
121
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 15Commitments and Contingencies (Continued)
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 is scheduled for February 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.
Litigation Settlement. In 2018, we received net proceeds of $10.2 million from the settlement of a litigation related to a
prior investment,
which was recognized as a gain.
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 16Variable Interest Entities
Our involvement with VIEs primarily affects our financial performance and cash flows through amounts recorded in interest income, interest expense, provision for loan losses and through
activity associated with our derivative instruments.
Consolidated VIEs. We have determined that our operating partnership, ARLP, and our CLO 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.
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.
122
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 16Variable Interest Entities (Continued)
The
assets and liabilities related to these consolidated CLOs and Debt Fund are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
December 31,
2018
|
|
Assets:
|
|
|
|
|
|
|
|
Restricted cash
|
|
$
|
208,467
|
|
$
|
179,855
|
|
Loans and investments, net
|
|
|
2,557,909
|
|
|
2,001,617
|
|
Other assets
|
|
|
18,380
|
|
|
16,624
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,784,756
|
|
$
|
2,198,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Collateralized loan obligations
|
|
$
|
2,130,121
|
|
$
|
1,593,548
|
|
Debt fund
|
|
|
68,629
|
|
|
68,183
|
|
Due to related party
|
|
|
6,734
|
|
|
|
|
Other liabilities
|
|
|
4,115
|
|
|
3,408
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,209,599
|
|
$
|
1,665,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 11 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 30 VIEs in which we have a variable interest as of
December 31,
2019 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 December 31, 2019 is as follows (in thousands):
|
|
|
|
|
Type
|
|
Carrying
Amount(1)
|
|
Loans
|
|
$
|
436,169
|
|
B Piece and SFR bonds
|
|
|
88,699
|
|
Equity investments
|
|
|
12,961
|
|
Agency interest only strips
|
|
|
2,735
|
|
|
|
|
|
|
Total
|
|
$
|
540,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
the carrying amount of loans and investments before reserves. At December 31, 2019, $129.0 million of loans to VIEs had corresponding loan
loss reserves of $69.4 million. See Note 3 for details. In addition, the maximum loss exposure as of December 31, 2019 would not exceed the carrying amount of our investment.
These
unconsolidated VIEs have exposure to real estate debt of approximately $4.48 billion at December 31, 2019.
123
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 17Equity
Preferred Stock. The Series A, B and C preferred stock outstanding are redeemable by us.
Common Stock. In December 2019, we completed a public offering in which we sold 7,475,000 shares of our common stock (which
includes the
underwriter's exercised over-allotment option of 975,000 shares) for $13.93 per share, and received net proceeds of $104.0 million after deducting the underwriter's discount and other offering
expenses. The proceeds were used to make investments related to our business and for general corporate purposes. We also used a portion of the net proceeds to purchase, in February 2020, 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.
In
May 2019, we completed a public offering in which we sold 9,200,000 shares of our common stock (which includes the underwriter's exercised over-allotment option of 1,200,000 shares)
for $12.58 per share, and received net proceeds of $115.6 million after deducting the underwriter's discount and other offering expenses. The proceeds were used to make investments related to
our business and for general corporate purposes. We also used a portion of the net proceeds to purchase an aggregate of 920,000 shares of our common stock from our chief executive officer and ACM at
the same price the underwriters paid to purchase the shares.
In
August 2019, we amended our "At-The-Market" equity offering sales agreement with JMP Securities LLC ("JMP"). In connection with the amendment we are entitled to issue and sell
up to 7,500,000 shares of our common stock through JMP by means of ordinary brokers' transactions or otherwise at market prices prevailing at the time of sale, or at negotiated prices. During 2019, we
sold
an aggregate of 3,162,000 shares under the JMP agreement for net proceeds of $41.0 million. As of February 7, 2020, we had approximately 3,000,000 shares available under this agreement.
During
2019, we issued approximately 4,700,000 shares of our common stock in connection with the exchanges and subsequent settlements of our 5.25% convertible notes, 5.375% convertible
notes and 6.50% convertible notes.
In
December 2018, our Board of Directors declared a special dividend of $0.15 per common share, which was paid in January 2019 with a combination of $2.5 million of cash and
901,432 common shares.
As
of December 31, 2019, we had $137.9 million available under our $500.0 million shelf registration statement that was declared effective by the SEC in June 2018.
Noncontrolling Interest. Noncontrolling interest relates to the OP Units issued to satisfy a portion of the purchase price in
connection with the
Acquisition. Each of these OP Units are paired with one share of our special voting preferred shares having a par value of $0.01 per share and is entitled to one vote each on any matter submitted for
stockholder approval. The OP Units are entitled to receive distributions if and when our Board of Directors authorizes and declares common stock distributions. The OP Units are also redeemable for
cash, or at our option, for shares of our common stock on a one-for-one basis.
In
2019, we redeemed 391,156 OP Units with a combination of cash totaling $1.7 million and 258,677 common shares. We also redeemed 577,185 OP Units in 2018 for cash totaling
$6.8 million. In addition, our Board of Directors declared a special dividend of $0.15 per common share in December
124
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 17Equity (Continued)
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
December 31, 2019, there were 20,484,094 OP Units outstanding, which represented 15.7% of the voting power of our outstanding stock.
Distributions. Dividends declared (on a per share basis) for the year ended December 31, 2019 are 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
|
|
May 1, 2019
|
|
$
|
0.28
|
|
May 1, 2019
|
|
$
|
0.515625
|
|
$
|
0.484375
|
|
$
|
0.53125
|
|
July 31, 2019
|
|
$
|
0.29
|
|
July 31, 2019
|
|
$
|
0.515625
|
|
$
|
0.484375
|
|
$
|
0.53125
|
|
October 30, 2019
|
|
$
|
0.30
|
|
October 30, 2019
|
|
$
|
0.515625
|
|
$
|
0.484375
|
|
$
|
0.53125
|
|
-
(1)
-
The
dividend declared on February 1, 2019 was for December 1, 2018 through February 28, 2019. The dividend declared on May 1, 2019 was
for March 1, 2019 through May 31, 2019. The dividend declared on July 31, 2019 was for June 1, 2019 through August 31, 2019. The dividend declared on
October 30, 2019 was for September 1, 2019 through November 30, 2019.
Common StockOn February 13, 2020, the Board of Directors declared a cash dividend of $0.30 per share of common stock. The dividend is payable
on March 17, 2020 to common stockholders of record as of the close of business on February 28, 2020.
Preferred StockOn January 31, 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 December 1, 2019 through February 29, 2020 and are payable on March 2, 2020 to preferred stockholders of record on February 15, 2020.
We
have determined that 100% of the common stock and preferred stock dividends paid during 2019, 2018 and 2017 represented ordinary income to our stockholders for income tax purposes.
Pursuant to Internal Revenue Code Section 59(d), alternative minimum tax ("AMT") could be apportioned between a REIT and its stockholders' to the extent the REIT distributes its regular taxable
income. However, among the numerous provisions included in the Tax Reform enacted in December 2017, the AMT was repealed for corporate taxpayers. Therefore, the apportionment of AMT between a REIT and
its stockholders is no longer applicable for tax years beginning after December 31, 2017.
Deferred Compensation. We have a stock incentive plan under which the Board of Directors has the authority to issue shares of
stock to certain
employees, officers, directors and, prior to May 31, 2017, employees of our Former Manager.
In
2019, 2018 and 2017, we granted 333,884 shares, 265,444 shares and 299,750 shares, respectively, of restricted common stock with a total grant date fair value of $4.2 million,
$2.3 million and
125
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 17Equity (Continued)
$2.4 million,
respectively, to certain employees of ours and our Former Manager. One third of the shares vested as of the grant date and one third will vest on each of the first and second
anniversaries of the grant date. In 2019, 2018 and 2017, we granted 55,244 shares, 67,002 shares and 74,375 shares, respectively, of fully vested common stock with a grant date fair value of
$0.7 million, $0.6 million and $0.6 million, respectively, to the independent members of our Board of Directors. In July 2019, we also issued 124,069 shares of restricted common
stock to an employee with a total grant date fair value of $1.5 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.
In
2019, 2018 and 2017, we granted our chief executive officer 58,738 shares 63,584 shares 74,830 shares, respectively, of restricted common stock with a grant date fair value of
$0.7 million, $0.6 million and $0.6 million, respectively, and up to 352,427, 381,503 and 448,980, respectively, of performance-based restricted stock units with a grant date fair
value of $1.7 million, $0.8 million and $1.0 million, respectively. One quarter of the restricted common stock vested on the grant date and one quarter will vest on each of the
first, second and third anniversaries of the grant date. The performance-based restricted stock units vest at the end of a four-year performance period based on our achievement of certain total
stockholder return objectives. To date, our chief executive officer was granted in the aggregate up to 2,050,023 performance-based restricted stock units, of which 421,348 units and 445,765 units
fully vested based on achieving the performance objectives for the four-year periods ended December 31, 2019 and 2018, respectively. The 445,765 fully vested units were net settled for 203,492
common shares in 2019.
In
2019, 2018 and 2017, we also granted our chief executive officer 246,508 shares, 294,985 shares and 357,569 shares, respectively, of performance-based restricted stock with a grant
date fair value of $3.0 million, $3.4 million and $2.7 million, respectively, as a result of achieving goals related to the integration of the Acquisition. The performance-based
restricted stock vests in full three years after the grant date.
During
2019, 2018 and 2017, we recorded total stock-based compensation expense of $8.8 million, $5.4 million and $3.2 million, respectively, to employee compensation
and benefits and $0.7 million, $0.6 million and $1.7 million, respectively, to selling and administrative expense.
During
2019, a total of 900,092 shares of restricted stock and restricted stock units with a grant date fair value of $5.9 million vested.
As
of December 31, 2019 and 2018, there were 1,379,615 shares and 1,033,616 shares, respectively, of unvested restricted common stock with a grant date fair value of
$14.8 million and $9.5 million, respectively.
At
December 31, 2019, total unrecognized compensation cost related to unvested restricted common stock was $7.0 million, which is expected to be recognized ratably over the
remaining weighted-average vesting period of 1.8 years.
Earnings Per Share. Basic EPS is calculated by dividing net income attributable to common stockholders by the weighted average
number of shares of
common stock outstanding during each period inclusive of unvested restricted stock with full dividend participation rights. Diluted EPS is calculated by dividing net income by the weighted average
number of shares of common stock
126
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 17Equity (Continued)
outstanding
plus the additional dilutive effect of common stock equivalents during each period using the treasury stock method. Our common stock equivalents include the weighted average dilutive
effect of performance-based restricted stock units granted to our chief executive officer, OP Units and convertible senior unsecured notes.
A
reconciliation of the numerator and denominator of our basic and diluted EPS computations ($ in thousands, except share and per share data) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Net income attributable to common stockholders(1)
|
|
$
|
121,074
|
|
$
|
121,074
|
|
$
|
108,312
|
|
$
|
108,312
|
|
$
|
65,835
|
|
$
|
65,835
|
|
Net income attributable to noncontrolling interest(2)
|
|
|
|
|
|
26,610
|
|
|
|
|
|
32,185
|
|
|
|
|
|
24,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders and noncontrolling interest
|
|
$
|
121,074
|
|
$
|
147,684
|
|
$
|
108,312
|
|
$
|
140,497
|
|
$
|
65,835
|
|
$
|
89,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
92,851,327
|
|
|
92,851,327
|
|
|
70,208,165
|
|
|
70,208,165
|
|
|
57,890,574
|
|
|
57,890,574
|
|
Dilutive effect of OP Units(2)
|
|
|
|
|
|
20,502,128
|
|
|
|
|
|
21,033,103
|
|
|
|
|
|
21,230,769
|
|
Dilutive effect of restricted stock units(3)
|
|
|
|
|
|
1,421,528
|
|
|
|
|
|
1,476,653
|
|
|
|
|
|
1,092,072
|
|
Dilutive effect of convertible notes(4)
|
|
|
|
|
|
1,417,968
|
|
|
|
|
|
908,861
|
|
|
|
|
|
97,837
|
|
Dilutive effect of stock dividend(5)
|
|
|
|
|
|
|
|
|
|
|
|
15,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
92,851,327
|
|
|
116,192,951
|
|
|
70,208,165
|
|
|
93,642,168
|
|
|
57,890,574
|
|
|
80,311,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share(1)
|
|
$
|
1.30
|
|
$
|
1.27
|
|
$
|
1.54
|
|
$
|
1.50
|
|
$
|
1.14
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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.
-
(5)
-
Represents
the dilutive effect of the portion of the special dividend that was paid with common shares.
Note 18Income Taxes
We are organized and conduct our operations to qualify as a REIT and to comply with the provisions of the Internal Revenue Code. A REIT is generally not subject to federal income tax on
taxable income which it distributes to its stockholders, provided that it distributes at least 90% of its REITtaxable income and meets certain other requirements. Certain REIT income may
be subject to state and local income taxes. In 2019, we elected to retain excess inclusion income rather than passing it through to our shareholders. Consequently, we had REIT-federal taxable income,
net of dividends
127
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 18Income Taxes (Continued)
paid
deduction, for 2019, and therefore, have provided for REIT federal income tax expense of $0.6 million attributable to excess inclusion income. We did not have any REITfederal
taxable income, net of dividends paid and net operating loss deductions, for 2018 and 2017, and therefore, have not provided for REIT federal income tax expense. The REIT incurred state tax
expense/(benefit) for 2019, 2018 and 2017, in the amount of $0.1 million, ($0.1) million and $1.0 million, respectively. For the 2009 and 2010 tax years, the income and the tax on
certain debt extinguishment transactions was, at our election, deferred to be recognized ratably over five years from 2014 to 2018.
Certain
of our assets and operations that would not otherwise comply with the REIT requirements, such as the Agency Business, are owned or conducted through our TRS Consolidated Group,
the majority of the income of which is subject to U.S. federal, state and local income taxes. The TRS Consolidated Group has federal net operating losses from prior years which will be used against
the income from the Agency Business. For 2019, 2018 and 2017, we recorded a provision for income taxes related to the assets held in the TRS Consolidated Group and the REIT in the amount of
$15.0 million, $9.7 million and $13.4 million, respectively. In 2019, valuation allowance previously recorded at the TRS Consolidated Group was released in the amount of
$3.3 million on the deferred tax assets subject to loss limitation rules. In 2018, valuation allowance was recorded at the TRS Consolidated Group in the amount of $0.3 million on the
deferred tax assets related to capital loss carryforwards. In 2017, valuation allowance previously recorded at the TRS Consolidated Group was released in the amount of $3.5 million.
In
January 2018, the $50.0 million preferred equity interest entered into with ACM to finance a portion of the Acquisition purchase price was paid off. When we entered into the
Acquisition, we established a deferred tax liability in connection with the $50.0 million preferred equity interest. Upon payoff in January 2018, the deferred tax liability was written off and
we recorded a deferred tax benefit in the amount of $12.5 million. See Note 19 for details.
A
summary of our pre-tax GAAP income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Pre-tax GAAP income:
|
|
|
|
|
|
|
|
|
|
|
REIT
|
|
$
|
94,076
|
|
$
|
64,260
|
|
$
|
66,988
|
|
TRS Consolidated Group
|
|
|
76,198
|
|
|
93,522
|
|
|
43,880
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax GAAP income
|
|
$
|
170,274
|
|
$
|
157,782
|
|
$
|
110,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 18Income Taxes (Continued)
Our
provision for (benefit from) income taxes is comprised as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
12,380
|
|
$
|
17,479
|
|
$
|
17,201
|
|
State
|
|
|
2,505
|
|
|
4,285
|
|
|
3,557
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,885
|
|
|
21,764
|
|
|
20,758
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit) :
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,744
|
|
$
|
(9,446
|
)
|
$
|
(2,928
|
)
|
State
|
|
|
688
|
|
|
(2,867
|
)
|
|
(929
|
)
|
Valuation allowance
|
|
|
(3,281
|
)
|
|
280
|
|
|
(3,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
151
|
|
|
(12,033
|
)
|
|
(7,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
15,036
|
|
$
|
9,731
|
|
$
|
13,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of our effective income tax rate as a percentage of pre-tax income to the U.S. federal statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
U.S. federal statutory rate
|
|
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
REIT non-taxable income
|
|
|
(11.3
|
)
|
|
(8.6
|
)
|
|
(21.2
|
)
|
State and local income taxes, net of federal tax benefit
|
|
|
1.5
|
|
|
0.6
|
|
|
1.6
|
|
Change in valuation allowance
|
|
|
(1.9
|
)
|
|
0.2
|
|
|
(1.3
|
)
|
Preferred equity interest deferred tax write-off
|
|
|
|
|
|
(6.3
|
)
|
|
|
|
Tax rate change
|
|
|
|
|
|
|
|
|
(4.8
|
)
|
Other
|
|
|
(0.5
|
)
|
|
(0.7
|
)
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
8.8
|
%
|
|
6.2
|
%
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 18Income Taxes (Continued)
The
significant components of our deferred tax assets and liabilities of our TRS Consolidated Group are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Expenses not currently deductible
|
|
$
|
14,850
|
|
$
|
11,853
|
|
Loan loss reserves
|
|
|
8,863
|
|
|
8,614
|
|
Net operating and capital loss carryforwards
|
|
|
417
|
|
|
417
|
|
Valuation allowance
|
|
|
(417
|
)
|
|
(3,698
|
)
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
23,713
|
|
$
|
17,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Interest in equity affiliatesnet
|
|
$
|
1,587
|
|
$
|
136
|
|
Intangibles
|
|
|
8,684
|
|
|
9,674
|
|
Mortgage servicing rights
|
|
|
11,476
|
|
|
5,290
|
|
Other
|
|
|
837
|
|
|
807
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net
|
|
$
|
22,584
|
|
$
|
15,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Tax Reform was signed into law on December 22, 2017. Among numerous provisions included in the new tax law was the reduction of the corporate federal income tax rate from 35%
to 21%. The provision for income taxes for 2019 and 2018 reflects the newly enacted corporate federal income tax rate of 21%. We applied the guidance in SAB 118 when accounting for the
enactment-date effects of the Tax Reform throughout 2018 and in 2017. At December 31, 2018, we completed our accounting for the enactment-date income tax effects of the Tax Reform and no
material adjustments were recorded. At December 31, 2017, the provision for income taxes for 2017 included the newly enacted corporate federal income tax rate of 21%, which resulted in a
deferred income tax benefit of approximately $5.3 million primarily from applying the new lower income tax rates to our net long term deferred tax assets and liabilities recorded on our
consolidated balance sheets.
At
December 31, 2019, our TRS Consolidated Group, had approximately $23.7 million of deferred tax assets net of a $0.4 million valuation allowance. The deferred tax
assets consist of expenses not currently deductible, loan loss reserves, net operating loss and capital loss carryforwards. Our TRS Consolidated Group's deferred tax assets are offset by approximately
$22.6 million in deferred tax liabilities consisting of timing differences from investments in equity affiliates, intangibles, and mortgage servicing rights.
At
December 31, 2018, our TRS Consolidated Group, had approximately $17.2 million of deferred tax assets net of a $3.7 million valuation allowance. The deferred tax
assets consist of expenses not currently deductible, loan loss reserves, net operating loss and capital loss carryforwards. Our TRS Consolidated Group's deferred tax assets are offset by approximately
$15.9 million in deferred tax liabilities consisting of timing differences from investments in equity affiliates, intangibles, and mortgage servicing rights.
130
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 18Income Taxes (Continued)
As
of both December 31, 2019 and 2018, the REIT (excluding the TRS Consolidated Group) had no federal net operating loss carryforwards remaining and no capital loss carryforwards.
At
both of December 31, 2019 and 2018, the TRS Consolidated Group had federal and state net operating loss carryforwards of approximately $0.5 million, which will expire
through 2031 and capital loss carryforwards of approximately $1.1 million, which will expire through 2023.
We
have assessed our tax positions for all open years, which includes 2016-2019, and have concluded that there were no material uncertainties to be recognized. We have not recognized any
interest and penalties related to tax uncertainties for the years ended 2016 through 2019.
Note 19Agreements and Transactions with Related Parties
Management Agreement. Prior to May 31, 2017, we had a management agreement with ACM, pursuant to which ACM provided us with
a variety of
professional and advisory services vital to our operations, including underwriting, accounting and treasury, compliance, marketing, information technology and human resources. Pursuant to the terms of
the management agreement, we reimbursed ACM for its actual costs incurred in connection with managing our business through a base management fee, and, under certain circumstances, an annual incentive
fee. In May 2017, we terminated the existing management agreement. We incurred base management fees of $6.7 million in 2017.
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 2019, 2018 and 2017, we incurred $2.7 million, $1.3 million and $0.7 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 $10.7 million and $1.3 million at December 31, 2019
and 2018,
respectively, which consisted primarily of amounts due from our affiliated servicing operations related to real estate transactions closing at the end of 2019 and amounts due from ACM for costs
incurred in connection with the shared services agreement described above.
Due
to related party was $13.1 million at December 31, 2019 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 a 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 2019, we reimbursed the aircraft owner $0.1 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 III, a multifamily-focused commercial real
estate investment fund sponsored and managed by our chief executive officer and one of his immediate family
131
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 19Agreements and Transactions with Related Parties (Continued)
members.
We committed to a $30.0 million investment (of which $10.9 million was funded as of December 31, 2019) for an 18% interest in AMAC III. In July 2019, AMAC III originated
a $7.0 million mezzanine loan to a borrower 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 received a $0.2 million cash distribution and recorded a $0.2 million loss in 2019 related to this investment. Interest income recorded from our
bridge and Private Label loans totaled $3.3 million for 2019.
In
November 2018, we originated a $61.2 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 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 loan commitment was reduced to $22.6 million (of which $17.4 million was funded as of December 31, 2019) and the related party
investors liquidated their equity investment. Interest income recorded from this loan totaled $1.3 million and $0.2 million for 2019 and 2018, respectively.
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 4.25% with a LIBOR floor of 2.375% and matures in October
2020. Interest income recorded from this loan totaled $2.7 million for 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 $1.3 million and $0.3 million for 2019 and 2018, respectively.
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 has a fixed interest rate of 10% and is scheduled to mature in 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 $1.8 million
and $0.8 million for 2019 and 2018, 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 $1.4 million and $0.6 million for 2019 and 2018, respectively.
132
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 19Agreements and Transactions with Related Parties (Continued)
In
April 2018, we acquired a $9.4 million bridge loan originated by ACM, of which $8.6 million was funded as of December 31, 2019. 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 $0.6 million and
$0.3 million for 2019 and 2018, respectively.
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 and $3.8 million for 2018 and 2017, respectively.
In
December 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 had an interest rate of LIBOR plus 5.0% with a
LIBOR floor of 1.13% and was scheduled to mature in June 2020. In October 2019, the borrower repaid this loan in full. Interest income recorded from this loan totaled $1.7 million,
$2.4 million and $0.1 million for 2019, 2018 and 2017, respectively.
In
the fourth quarter of 2017, we originated two bridge loans totaling $28.0 million on two multifamily properties owned in part by a consortium of investors (which includes,
among other unaffiliated investors, certain of our officers and our chief executive officer) which owns 45% of the borrowing entity. The loans had an interest rate of LIBOR plus 5.25% with LIBOR
floors ranging from 1.24% to 1.54% and was 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 $2.2 million, $2.1 million and
$0.2 million for 2019, 2018 and 2017, respectively.
In
July 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 $1.9 million and $0.9 million for 2018 and 2017, respectively.
In
May 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 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 $0.1 million, $0.1 million and less than $0.1 million for 2019, 2018 and 2017, respectively.
In
March 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
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 19Agreements and Transactions with Related Parties (Continued)
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 these loans totaled
$0.3 million and $1.0 million for 2018 and 2017, respectively.
In
January 2017, we modified a $5.0 million preferred equity investment, subsequently increasing our balance to $15.0 million, with a commitment to fund an additional
$5.0 million. This investment had a fixed interest rate of 11% that was scheduled to mature in January 2020. We also entered into an agreement with a consortium of investors (which include,
among other unaffiliated investors, certain of our officers and our chief executive officer) which admitted them as a member to fund the remaining $5.0 million preferred equity investment,
which was generally subordinate to our investment. The principal balance was repaid in full in the fourth quarter of 2017. Interest income recorded from our investment totaled $1.1 million for
2017.
In
January 2017, Ginkgo Investment Company LLC ("Ginkgo"), of which one of our directors is a 33% managing member, purchased a multifamily apartment complex which assumed an
existing $8.3 million Fannie Mae loan that we service. Ginkgo subsequently sold the majority of its interest in this property and owned a 3.6% interest at December 31, 2019. 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 $0.1 million for all periods presented.
In
2016, we originated $48.0 million of bridge loans on six 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 have 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 one property paid off in full and in 2018 four 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 converting to a mezzanine loan with a fixed
interest rate of 10.0% and a January 2024 maturity. Interest income recorded from these loans totaled $0.3 million, $1.9 million and $2.7 million for 2019, 2018 and 2017,
respectively.
In
2016, we originated a $12.7 million bridge loan and a $5.2 million preferred equity investment on two multifamily properties owned in part by a consortium of investors
(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 paid off in full in May 2019.
Interest income recorded from these loans totaled $0.6 million, $1.4 million and $1.3 million for 2019, 2018 and 2017, 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
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 19Agreements and Transactions with Related Parties (Continued)
January
2019. In January 2018, this loan paid off in full. Interest income recorded from this loan totaled $0.3 million and $1.1 million for 2018 and 2017, respectively.
In
2015, we invested $9.6 million for 50% of ACM's indirect interest in a joint venture with a third party that was formed to invest in a residential mortgage banking business. As
a result of this transaction, we had an initial indirect interest of 22.5% in this entity. Since the initial investment, we invested an additional $16.1 million through this joint venture in
non-qualified residential mortgages purchased from the mortgage banking business's origination platform 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 mortgage assets. We recorded income from these investments of $7.2 million, $0.9 million and a loss of
$7.2 million for 2019, 2018 and 2017, respectively. In connection with a litigation settlement related to this investment, we provided a guaranty of up to 50% of any amounts payable in
connection with the settlement. ACM has also provided us with a guaranty to pay up to 50% of any amounts we may pay under this guaranty. As of December 31, 2019, our maximum exposure under this
guaranty totals $0.4 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.
Interest
income recorded from loans originated in 2015 or prior years with our affiliates totaled $1.3 million and $5.8 million for 2018 and 2017, respectively.
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 twelve 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 we originated in June 2018, have interest rates of LIBOR plus 4.0% and mature in June 2021 (with 2
one-year extension options). During 2019, the borrower made payoffs and partial paydowns of principal totaling $250.0 million. Interest income recorded from these loans totaled
$9.6 million and $10.1 million during 2019 and 2018, 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 $3.5 million, $2.5 million and $2.5 million during 2019, 2018 and 2017, respectively, which were recorded as income (loss) from equity affiliates. Separate from the loans
we originated in June 2018, we provide limited ("bad boy") guarantees for certain other debt controlled by Lexford. The bad boy guarantees may become a liability for us upon standard "bad" acts such
as fraud or a material misrepresentation by Lexford or us. At December 31, 2019, this debt had an aggregate outstanding balance of $617.9 million and is scheduled to mature between 2020
and 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 31% of the
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 19Agreements and Transactions with Related Parties (Continued)
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 one share of our special voting preferred shares. At
December 31, 2019, ACM holds 4,285,694 shares of our common stock and 14,685,729 OP Units, which represents 14.6% 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.
Note 20Employee Benefits
401(k). We have a 401(k) defined contribution plan (the "401(k) Plan") which is available to all employees who have completed six
months of
continuous service. The 401(k) Plan matches 25% of the first 6% of each employee's contribution. We have the option to increase the employer match based on our operating results. In 2019, 2018 and
2017, we recorded $0.7 million, $0.6 million and $0.6 million, respectively, of expenses associated with the 401(k) Plan, which is included in employee compensation and benefits
in our consolidated statements of income.
Deferred Compensation. We have a non-qualified deferred compensation plan (the "Deferred Comp Plan") which is offered to certain
full-time employees
and is subject to the rules of section 409(a) of the Internal Revenue Code. Under the Deferred Comp Plan, which can be modified or discontinued at any time, participating employees may defer a
portion of their compensation and we are contractually obligated to match the contribution, as specified in the Deferred Comp Plan, and fund such amounts upon vesting and an election by participants
to redeem their interests. All employee deferrals vest immediately and matching contributions vest over a nine-year period beginning after year five. For 2019, 2018 and 2017, there were
$4.7 million, $3.4 million and $2.4 million, respectively, of employee deferrals. At December 31, 2019 and 2018, we had recorded liabilities totaling $13.2 million
and $8.8 million, respectively, and assets of $8.2 million and $5.9 million, respectively, related to the Deferred Comp Plan, which is included in other liabilities and other
assets, respectively, in our consolidated balance sheets.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 21Segment Information
The summarized statements of income and balance sheet data, as well as certain other data, by segment are included in the following tables ($ 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 each business segment). Such costs include, but are not limited to, compensation and employee related
costs, selling and administrative expenses, management fees (through May 31, 2017effective date of the termination of the existing management agreement with ACM) and stock-based
compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
Structured
Business
|
|
Agency
Business
|
|
Other /
Eliminations(1)
|
|
Consolidated
|
|
Interest income
|
|
$
|
289,841
|
|
$
|
26,099
|
|
$
|
|
|
$
|
315,940
|
|
Interest expense
|
|
|
169,802
|
|
|
16,597
|
|
|
|
|
|
186,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
120,039
|
|
|
9,502
|
|
|
|
|
|
129,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales, including fee-based services, net
|
|
|
|
|
|
65,652
|
|
|
|
|
|
65,652
|
|
Mortgage servicing rights
|
|
|
|
|
|
90,761
|
|
|
|
|
|
90,761
|
|
Servicing revenue
|
|
|
|
|
|
103,223
|
|
|
|
|
|
103,223
|
|
Amortization of MSRs
|
|
|
|
|
|
(48,681
|
)
|
|
|
|
|
(48,681
|
)
|
Property operating income
|
|
|
9,674
|
|
|
|
|
|
|
|
|
9,674
|
|
Other income, net
|
|
|
903
|
|
|
(1,687
|
)
|
|
|
|
|
(784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
10,577
|
|
|
209,268
|
|
|
|
|
|
219,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
31,264
|
|
|
90,838
|
|
|
|
|
|
122,102
|
|
Selling and administrative
|
|
|
18,099
|
|
|
22,230
|
|
|
|
|
|
40,329
|
|
Property operating expenses
|
|
|
10,220
|
|
|
|
|
|
|
|
|
10,220
|
|
Depreciation and amortization
|
|
|
2,046
|
|
|
5,464
|
|
|
|
|
|
7,510
|
|
Impairment loss on real estate owned
|
|
|
1,000
|
|
|
|
|
|
|
|
|
1,000
|
|
Provision for loss sharing (net of recoveries)
|
|
|
|
|
|
1,147
|
|
|
|
|
|
1,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
62,629
|
|
|
119,679
|
|
|
|
|
|
182,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extinguishment of debt, income from equity affiliates and income taxes
|
|
|
67,987
|
|
|
99,090
|
|
|
|
|
|
167,078
|
|
Loss on extinguishment of debt
|
|
|
(7,439
|
)
|
|
|
|
|
|
|
|
(7,439
|
)
|
Income from equity affiliates
|
|
|
10,635
|
|
|
|
|
|
|
|
|
10,635
|
|
Provision for income taxes
|
|
|
(668
|
)
|
|
(14,368
|
)
|
|
|
|
|
(15,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
70,515
|
|
|
84,722
|
|
|
|
|
|
155,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
7,554
|
|
|
|
|
|
|
|
|
7,554
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
26,610
|
|
|
26,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
62,961
|
|
$
|
84,722
|
|
$
|
(26,610
|
)
|
$
|
121,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 21Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
Structured
Business
|
|
Agency
Business
|
|
Other /
Eliminations(1)
|
|
Consolidated
|
|
Interest income
|
|
$
|
226,750
|
|
$
|
25,018
|
|
$
|
|
|
$
|
251,768
|
|
Interest expense
|
|
|
137,719
|
|
|
15,770
|
|
|
329
|
|
|
153,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
89,031
|
|
|
9,248
|
|
|
(329
|
)
|
|
97,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales, including fee-based services, net
|
|
|
|
|
|
70,002
|
|
|
|
|
|
70,002
|
|
Mortgage servicing rights
|
|
|
|
|
|
98,839
|
|
|
|
|
|
98,839
|
|
Servicing revenue
|
|
|
|
|
|
94,158
|
|
|
|
|
|
94,158
|
|
Amortization of MSRs
|
|
|
|
|
|
(48,124
|
)
|
|
|
|
|
(48,124
|
)
|
Property operating income
|
|
|
10,095
|
|
|
|
|
|
|
|
|
10,095
|
|
Other income, net
|
|
|
1,490
|
|
|
6,671
|
|
|
|
|
|
8,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
11,585
|
|
|
221,546
|
|
|
|
|
|
233,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
27,456
|
|
|
83,014
|
|
|
|
|
|
110,470
|
|
Selling and administrative
|
|
|
15,642
|
|
|
21,432
|
|
|
|
|
|
37,074
|
|
Property operating expenses
|
|
|
10,431
|
|
|
|
|
|
|
|
|
10,431
|
|
Depreciation and amortization
|
|
|
1,851
|
|
|
5,602
|
|
|
|
|
|
7,453
|
|
Impairment loss on real estae owned
|
|
|
2,000
|
|
|
|
|
|
|
|
|
2,000
|
|
Provision for loss sharing (net of recoveries)
|
|
|
|
|
|
3,843
|
|
|
|
|
|
3,843
|
|
Provision for loan losses (net of recoveries)
|
|
|
8,353
|
|
|
|
|
|
|
|
|
8,353
|
|
Litigation settlement gain
|
|
|
(10,170
|
)
|
|
|
|
|
|
|
|
(10,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
55,563
|
|
|
113,891
|
|
|
|
|
|
169,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extinguishment of debt, income from equity affiliates and income taxes
|
|
|
45,053
|
|
|
116,903
|
|
|
(329
|
)
|
|
161,627
|
|
Loss on extinguishment of debt
|
|
|
(5,041
|
)
|
|
|
|
|
|
|
|
(5,041
|
)
|
Income from equity affiliates
|
|
|
1,196
|
|
|
|
|
|
|
|
|
1,196
|
|
Benefit from (provision for) income taxes
|
|
|
774
|
|
|
(10,505
|
)
|
|
|
|
|
(9,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
41,982
|
|
|
106,398
|
|
|
(329
|
)
|
|
148,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
7,554
|
|
|
|
|
|
|
|
|
7,554
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
32,185
|
|
|
32,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
34,428
|
|
$
|
106,398
|
|
$
|
(32,514
|
)
|
$
|
108,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 21Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
Structured
Business
|
|
Agency
Business
|
|
Other /
Eliminations(1)
|
|
Consolidated
|
|
Interest income
|
|
$
|
136,526
|
|
$
|
19,651
|
|
$
|
|
|
$
|
156,177
|
|
Interest expense
|
|
|
74,136
|
|
|
12,089
|
|
|
3,847
|
|
|
90,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
62,390
|
|
|
7,562
|
|
|
(3,847
|
)
|
|
66,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales, including fee-based services, net
|
|
|
|
|
|
72,799
|
|
|
|
|
|
72,799
|
|
Mortgage servicing rights
|
|
|
|
|
|
76,820
|
|
|
|
|
|
76,820
|
|
Servicing revenue
|
|
|
|
|
|
76,412
|
|
|
|
|
|
76,412
|
|
Amortization of MSRs
|
|
|
|
|
|
(47,202
|
)
|
|
|
|
|
(47,202
|
)
|
Property operating income
|
|
|
10,973
|
|
|
|
|
|
|
|
|
10,973
|
|
Other income, net
|
|
|
2,083
|
|
|
(1,398
|
)
|
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
13,056
|
|
|
177,431
|
|
|
|
|
|
190,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
19,555
|
|
|
72,571
|
|
|
|
|
|
92,126
|
|
Selling and administrative
|
|
|
11,765
|
|
|
18,973
|
|
|
|
|
|
30,738
|
|
Property operating expenses
|
|
|
10,482
|
|
|
|
|
|
|
|
|
10,482
|
|
Depreciation and amortization
|
|
|
1,784
|
|
|
5,601
|
|
|
|
|
|
7,385
|
|
Impairment loss on real estate owned
|
|
|
3,200
|
|
|
|
|
|
|
|
|
3,200
|
|
Provision for loss sharing (net of recoveries)
|
|
|
|
|
|
(259
|
)
|
|
|
|
|
(259
|
)
|
Provision for loan losses (net of recoveries)
|
|
|
(456
|
)
|
|
|
|
|
|
|
|
(456
|
)
|
Management feerelated party
|
|
|
3,259
|
|
|
3,414
|
|
|
|
|
|
6,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
49,589
|
|
|
100,300
|
|
|
|
|
|
149,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extinguishment of debt, loss from equity affiliates and income taxes
|
|
|
25,857
|
|
|
84,693
|
|
|
(3,847
|
)
|
|
106,703
|
|
Gain on extinguishment of debt
|
|
|
7,116
|
|
|
|
|
|
|
|
|
7,116
|
|
Loss from equity affiliates
|
|
|
(2,951
|
)
|
|
|
|
|
|
|
|
(2,951
|
)
|
Provision for income taxes
|
|
|
(957
|
)
|
|
(12,402
|
)
|
|
|
|
|
(13,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
29,065
|
|
|
72,291
|
|
|
(3,847
|
)
|
|
97,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
7,554
|
|
|
|
|
|
|
|
|
7,554
|
|
Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
24,120
|
|
|
24,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
21,511
|
|
$
|
72,291
|
|
$
|
(27,967
|
)
|
$
|
65,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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.
139
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 21Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
Structured
Business
|
|
Agency
Business
|
|
Consolidated
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 21Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Origination Data:
|
|
|
|
|
|
|
|
|
|
|
Structured Business
|
|
|
|
|
|
|
|
|
|
|
New loan originations
|
|
$
|
2,803,251
|
|
$
|
1,656,020
|
|
$
|
1,842,974
|
|
Loan payoffs / paydowns
|
|
|
1,748,387
|
|
|
955,575
|
|
|
924,120
|
|
Agency Business
|
|
|
|
|
|
|
|
|
|
|
Origination Volumes by Investor:
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
3,346,272
|
|
$
|
3,332,100
|
|
$
|
2,929,481
|
|
Freddie Mac
|
|
|
728,317
|
|
|
1,587,958
|
|
|
1,322,498
|
|
FHA
|
|
|
123,095
|
|
|
153,523
|
|
|
189,087
|
|
CMBS/Conduit
|
|
|
211,325
|
|
|
50,908
|
|
|
21,370
|
|
Private Label
|
|
|
401,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,810,225
|
|
$
|
5,124,489
|
|
$
|
4,462,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan commitment volume
|
|
$
|
4,829,721
|
|
$
|
5,104,072
|
|
$
|
4,344,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Sales Data:
|
|
|
|
|
|
|
|
|
|
|
Agency Business
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
3,296,523
|
|
$
|
3,217,006
|
|
$
|
3,223,953
|
|
Freddie Mac
|
|
|
786,993
|
|
|
1,540,483
|
|
|
1,399,029
|
|
FHA
|
|
|
106,271
|
|
|
115,747
|
|
|
170,554
|
|
CMBS/Conduit
|
|
|
211,325
|
|
|
50,908
|
|
|
21,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,401,112
|
|
$
|
4,924,144
|
|
$
|
4,814,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales margin (fee-based services as a % of loan sales)
|
|
|
1.49
|
%
|
|
1.42
|
%
|
|
1.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR rate (MSR income as a % of loan commitments)
|
|
|
1.88
|
%
|
|
1.94
|
%
|
|
1.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Key Servicing Metrics for Agency Business:
|
|
UPB of Servicing
Portfolio
|
|
Wtd. Avg. Servicing
Fee Rate
(basis points)
|
|
Wtd. Avg. Life
of Servicing
Portfolio
(in years)
|
|
Fannie Mae
|
|
$
|
14,832,844
|
|
|
49.3
|
|
|
7.8
|
|
Freddie Mac
|
|
|
4,534,714
|
|
|
30.0
|
|
|
10.6
|
|
FHA
|
|
|
691,519
|
|
|
15.4
|
|
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,059,077
|
|
|
43.8
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 21Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Fannie Mae
|
|
$
|
13,562,667
|
|
|
51.3
|
|
|
7.4
|
|
Freddie Mac
|
|
|
4,394,287
|
|
|
30.8
|
|
|
10.8
|
|
FHA
|
|
|
644,687
|
|
|
15.5
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,601,641
|
|
|
45.2
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 22Selected Quarterly Financial DataUnaudited
Summarized quarterly financial data for 2019 and 2018 is as follows ($ in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31, 2019
|
|
September 30, 2019
|
|
June 30, 2019
|
|
March 31, 2019
|
|
Net interest income
|
|
$
|
33,797
|
|
$
|
32,445
|
|
$
|
33,887
|
|
$
|
29,412
|
|
Total other revenue
|
|
|
62,365
|
|
|
62,558
|
|
|
50,072
|
|
|
44,848
|
|
Total other expenses
|
|
|
41,670
|
|
|
48,882
|
|
|
45,471
|
|
|
46,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extinguishment of debt, income from equity affiliates and income taxes
|
|
|
54,492
|
|
|
46,121
|
|
|
38,488
|
|
|
27,973
|
|
Loss on extinguishment of debt
|
|
|
(7,311
|
)
|
|
|
|
|
|
|
|
(128
|
)
|
Income from equity affiliates
|
|
|
1,502
|
|
|
3,718
|
|
|
3,264
|
|
|
2,151
|
|
(Provision for) benefit from income taxes
|
|
|
(4,072
|
)
|
|
(6,623
|
)
|
|
(4,350
|
)
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
44,611
|
|
|
43,216
|
|
|
37,402
|
|
|
30,006
|
|
Preferred stock dividends
|
|
|
1,888
|
|
|
1,888
|
|
|
1,888
|
|
|
1,888
|
|
Net income attributable to noncontrolling interest
|
|
|
7,181
|
|
|
7,363
|
|
|
6,598
|
|
|
5,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
35,542
|
|
$
|
33,965
|
|
$
|
28,916
|
|
$
|
22,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share(1)
|
|
$
|
0.35
|
|
$
|
0.36
|
|
$
|
0.32
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share(1)
|
|
$
|
0.34
|
|
$
|
0.35
|
|
$
|
0.31
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2019
Note 22Selected Quarterly Financial DataUnaudited (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31, 2018
|
|
September 30, 2018
|
|
June 30, 2018
|
|
March 31, 2018
|
|
Net interest income
|
|
$
|
30,361
|
|
$
|
27,952
|
|
$
|
21,411
|
|
$
|
18,225
|
|
Total other revenue
|
|
|
77,464
|
|
|
55,580
|
|
|
46,923
|
|
|
53,162
|
|
Total other expenses
|
|
|
50,255
|
|
|
34,739
|
|
|
40,610
|
|
|
43,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extinguishment of debt, income from equity affiliates and income taxes
|
|
|
57,570
|
|
|
48,793
|
|
|
27,724
|
|
|
27,538
|
|
Loss on extinguishment of debt
|
|
|
(82
|
)
|
|
(4,960
|
)
|
|
|
|
|
|
|
Income (loss) from equity affiliates
|
|
|
91
|
|
|
(1,028
|
)
|
|
1,387
|
|
|
746
|
|
(Provision for) benefit from income taxes
|
|
|
(8,635
|
)
|
|
(5,381
|
)
|
|
(4,499
|
)
|
|
8,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
48,944
|
|
|
37,424
|
|
|
24,612
|
|
|
37,068
|
|
Preferred stock dividends
|
|
|
1,888
|
|
|
1,888
|
|
|
1,888
|
|
|
1,888
|
|
Net income attributable to noncontrolling interest
|
|
|
9,838
|
|
|
7,799
|
|
|
5,557
|
|
|
8,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
37,218
|
|
$
|
27,737
|
|
$
|
17,167
|
|
$
|
26,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share(1)
|
|
$
|
0.48
|
|
$
|
0.37
|
|
$
|
0.26
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share(1)
|
|
$
|
0.47
|
|
$
|
0.36
|
|
$
|
0.25
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
sum of the quarterly amounts may not equal amounts reported for year-to-date periods, due to the effects of rounding for each period.
143
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IVLOANS AND OTHER LENDING INVESTMENTS
DECEMBER 31, 2019
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Location
|
|
Periodic
Payment
Terms(1)
|
|
Maturity
Date(2)
|
|
Interest Pay
Rate
Index(3)
|
|
Prior Liens
|
|
Face
Amount(4)
|
|
Carrying
Amount(5)
|
|
Carrying
Amount
Subject to
Delinquent
Interest
|
|
Bridge Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge loans in excess of 3% of carrying amount of total loans:
|
|
|
|
|
Multifamily
|
|
Various
|
|
IO / PI
|
|
2020 - 2021
|
|
LIBOR + 2.75% - 3.60%
|
|
$
|
|
|
$
|
417,100
|
|
$
|
415,703
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Floor 1.36% - 2.38%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge loans less than 3% of carrying amount of total loans(6):
|
|
|
|
|
Multifamily
|
|
Various
|
|
IO / PI
|
|
2020 - 2024
|
|
LIBOR + 2.50% - 12.72%
|
|
|
|
|
|
2,695,857
|
|
|
2,683,189
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 0.43% - 2.75%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed 9.00% - 11.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
Various
|
|
IO
|
|
2020 - 2022
|
|
LIBOR + 4.00% - 11.60%
|
|
|
|
|
|
203,694
|
|
|
202,756
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 1.12% - 2.63%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
Various
|
|
IO / PI
|
|
2020
|
|
LIBOR + 4.00% - 4.50%
|
|
|
|
|
|
172,657
|
|
|
104,788
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 0.15% - 0.75%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed 0.00% - 11.64%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
|
|
NY
|
|
IO
|
|
2020 - 2022
|
|
LIBOR + 2.75% - 7.60%
|
|
|
60,000
|
|
|
142,300
|
|
|
141,574
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 1.50% - 2.38%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
Various
|
|
IO / PI
|
|
2020
|
|
LIBOR + 3.10% - 6.19%
|
|
|
|
|
|
122,127
|
|
|
120,437
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 1.12% - 2.13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
Various
|
|
IO
|
|
2020 - 2024
|
|
LIBOR + 4.00% - 6.00%
|
|
|
|
|
|
39,500
|
|
|
39,329
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 2.13% - 2.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-Family Rental
|
|
Various
|
|
IO
|
|
2020 - 2021
|
|
LIBOR + 4.50% - 4.85%
|
|
|
|
|
|
30,017
|
|
|
29,384
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 2.02% - 2.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self Storage
|
|
MA
|
|
PI
|
|
2020
|
|
LIBOR + 3.90%
|
|
|
|
|
|
13,580
|
|
|
13,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor 1.23%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Bridge Loans less than 3% of carrying amount of total loans
|
|
|
|
|
60,000
|
|
|
723,875
|
|
|
651,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Bridge Loans
|
|
|
|
|
|
|
60,000
|
|
|
3,836,832
|
|
|
3,750,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IVLOANS AND OTHER LENDING INVESTMENTS (Continued)
DECEMBER 31, 2019
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Location
|
|
Periodic
Payment
Terms(1)
|
|
Maturity
Date(2)
|
|
Interest Pay
Rate
Index(3)
|
|
Prior Liens
|
|
Face
Amount(4)
|
|
Carrying
Amount(5)
|
|
Carrying
Amount
Subject to
Delinquent
Interest
|
|
Mezzanine Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine loans less than 3% of carrying amount of total loans(6):
|
|
|
|
|
Multifamily
|
|
Various
|
|
IO / PI
|
|
2020 - 2029
|
|
Fixed 5.00% - 12.00%
|
|
|
337,352
|
|
|
109,272
|
|
|
108,819
|
|
|
|
|
Land
|
|
Various
|
|
IO
|
|
2020
|
|
Fixed 0.00% - 13.00%
|
|
|
|
|
|
48,832
|
|
|
48,767
|
|
|
|
|
Self Storage
|
|
CA
|
|
PI
|
|
2020
|
|
Fixed 11.00%
|
|
|
30,471
|
|
|
12,713
|
|
|
12,687
|
|
|
|
|
Office
|
|
Various
|
|
IO
|
|
2020 - 2028
|
|
LIBOR + 7.44%
Floor 2.13%
Fixed 9.00%
|
|
|
60,000
|
|
|
11,000
|
|
|
10,980
|
|
|
|
|
Retail
|
|
Various
|
|
IO / PI
|
|
2021 - 2024
|
|
Fixed 12.00%
|
|
|
30,554
|
|
|
9,758
|
|
|
9,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mezzanine Loans
|
|
|
|
|
|
|
458,377
|
|
|
191,575
|
|
|
190,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Equity Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity investments less than 3% of carrying amount of total loans(6):
|
|
|
|
|
Multifamily
|
|
Various
|
|
IO / PI
|
|
2022 - 2029
|
|
Fixed 4.00% - 14.00%
|
|
|
794,984
|
|
|
178,478
|
|
|
177,399
|
|
|
|
|
Commercial
|
|
NY
|
|
IO
|
|
2020
|
|
Fixed 6.00%
|
|
|
29,792
|
|
|
1,700
|
|
|
|
|
|
|
|
Office
|
|
SC
|
|
IO
|
|
2024
|
|
Fixed 15.00%
|
|
|
9,739
|
|
|
880
|
|
|
871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Equity Investments
|
|
|
|
|
|
|
834,515
|
|
|
181,058
|
|
|
178,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans less than 3% of carrying amount of total loans(6):
|
|
|
|
|
Single-Family Rental
|
|
Various
|
|
IO / PI
|
|
2024 - 2029
|
|
Fixed 4.40% - 5.90%
|
|
|
|
|
|
41,575
|
|
|
41,428
|
|
|
|
|
Multifamily
|
|
Various
|
|
IO
|
|
2021 - 2030
|
|
Fixed 2.83% - 5.32%
|
|
|
|
|
|
28,571
|
|
|
28,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,146
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
|
|
|
$
|
1,352,892
|
|
$
|
4,279,611
|
|
$
|
4,189,960
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
IO =
Interest Only, PI = Principal and Interest.
-
(2)
-
Maturity
date does not include possible extensions.
-
(3)
-
References
to LIBOR are to one-month LIBOR unless specifically stated otherwise.
-
(4)
-
During
2019, $808.1 million of loans were extended.
-
(5)
-
The
federal income tax basis is approximately $4.29 billion.
-
(6)
-
Individual
loans each have a carrying value less than 3% of total loans.
145
Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IVLOANS AND OTHER LENDING INVESTMENTS (Continued)
DECEMBER 31, 2019
($ in thousands)
The
following table reconciles our loans and investments carrying amounts for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Balance at beginning of year
|
|
$
|
3,200,145
|
|
$
|
2,579,127
|
|
$
|
1,695,732
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
New loan originations
|
|
|
2,831,822
|
|
|
1,658,732
|
|
|
1,842,974
|
|
Loan charge-offs
|
|
|
|
|
|
3,173
|
|
|
20,473
|
|
Funding of unfunded loan commitments(1)
|
|
|
65,531
|
|
|
21,027
|
|
|
51,689
|
|
Accretion of unearned revenue
|
|
|
12,083
|
|
|
9,278
|
|
|
6,519
|
|
Recoveries of reserves
|
|
|
|
|
|
2,527
|
|
|
2,456
|
|
Deductions during period:
|
|
|
|
|
|
|
|
|
|
|
Loan payoffs and paydowns
|
|
|
(1,753,693
|
)
|
|
(957,163
|
)
|
|
(929,796
|
)
|
Unfunded loan commitments(1)
|
|
|
(147,392
|
)
|
|
(88,617
|
)
|
|
(77,233
|
)
|
Use of loan charge-offs
|
|
|
|
|
|
(3,173
|
)
|
|
(20,473
|
)
|
Provision for loan losses
|
|
|
|
|
|
(13,986
|
)
|
|
(2,000
|
)
|
Unearned revenue and costs
|
|
|
(18,536
|
)
|
|
(10,780
|
)
|
|
(11,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
4,189,960
|
|
$
|
3,200,145
|
|
$
|
2,579,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
In
accordance with certain loans and investments, we have outstanding unfunded commitments that we are obligated to fund as the 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.
146
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