Arbor(ABR) - 2024 Q3 - Quarterly Results

Third Quarter 2024 Financial Highlights The company achieved significant deleveraging and maintained strong liquidity while reporting key financial metrics for Q3 2024 Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | GAAP Net Income per Diluted Share | $0.31 | $0.41 | | Distributable Earnings per Diluted Share | $0.43 | $0.55 | | Declared Dividend per Common Share | $0.43 | $0.43 | - Successfully deleveraged the company, reducing the debt-to-equity ratio from a peak of 4:1 in 2023 to 3:1 in Q3 2024[1] - Maintained strong liquidity with approximately $600 million in cash and liquidity[1] - The fee-based servicing portfolio grew to ~$33.01 billion, up 10% year-over-year, while the structured loan portfolio stood at ~$11.57 billion[1] - In October 2024, the company issued $100.0 million of 9.00% senior notes due 2027[1] Business Segment Performance The company's performance is driven by its Agency and Structured businesses, each contributing distinct revenue streams and portfolio management activities Agency Business The Agency Business generated $77.4 million in revenue in Q3 2024, with loan originations of $1.10 billion, and its fee-based servicing portfolio continued to expand, reaching $33.01 billion, an increase of 2.3% from the previous quarter Loan Origination Platform The loan origination platform demonstrated varied performance across loan types in Q3 2024, with a slight decrease in total originations compared to Q2 2024 Agency Loan Origination Volume (in millions) | Loan Type | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Fannie Mae | $616.21 | $742.72 | | Freddie Mac | $378.81 | $346.82 | | Private Label | $74.16 | $34.71 | | FHA | $27.46 | — | | Total Originations | $1,100.00 | $1,150.00 | - Gain on sales, including fee-based services, was $18.6 million for the quarter, with a margin of 1.67%, up from $17.4 million and a 1.54% margin in Q2 2024[2] Fee-Based Servicing Portfolio The fee-based servicing portfolio continued its growth trajectory in Q3 2024, contributing significant net servicing revenue while managing loss-sharing obligations - The fee-based servicing portfolio grew to $33.01 billion at September 30, 2024, up from $32.28 billion at June 30, 2024, with net servicing revenue for the quarter at $31.1 million[4][5] - The total CECL allowance for loss-sharing obligations related to the Fannie Mae portfolio was $45.8 million, representing 0.20% of the portfolio, after a $3.2 million net provision in Q3 2024[5] Structured Business The Structured Business portfolio decreased to $11.57 billion due to loan runoff exceeding new originations, with active credit risk management through loan modifications and a $14.8 million net provision for loan losses, while non-performing loans stood at $625.4 million Portfolio and Investment Activity The Structured Business portfolio experienced a net decrease in Q3 2024 as loan runoff outpaced new originations, with bridge loans to multifamily properties remaining the largest component Structured Portfolio Activity (in millions) | Activity | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Total Originations | $258.46 | $227.18 | | Loan Runoff | $521.34 | $629.64 | - The total structured portfolio UPB was $11.57 billion at September 30, 2024, a decrease from $11.87 billion at June 30, 2024, with bridge loans to multifamily properties constituting the largest portion at 80% of the portfolio[8][9] Portfolio Health and Loan Modifications The company actively managed its structured portfolio's health in Q3 2024 through loan modifications, despite a slight increase in non-performing loans, maintaining a substantial allowance for loan losses - The company had 26 non-performing loans with a UPB of $625.4 million, compared to 24 loans with a UPB of $676.2 million in the prior quarter, with the total allowance for loan losses at $243.6 million[11] - During Q3 2024, 24 loans with a total UPB of $1.15 billion were modified, where borrowers invested additional capital in exchange for temporary rate relief, featuring a weighted average pay rate of 5.91% and an accrual rate of 2.50%[13] Financing Activity The company reduced its debt financing the loan portfolio in Q3 2024 and issued new senior unsecured notes in October 2024 to support debt repayment and general corporate purposes - The balance of debt financing the loan portfolio was reduced to $9.97 billion at a weighted average interest rate of 7.18%, down from $10.26 billion at a rate of 7.53% in Q2 2024[14] - In October 2024, the company issued $100.0 million of 9.00% senior unsecured notes due 2027, with proceeds intended for debt repayment and general corporate purposes[16] Dividend and Corporate Information This section outlines the company's dividend declaration for Q3 2024 and details regarding its earnings conference call Dividend Declaration The Board of Directors declared a quarterly cash dividend of $0.43 per share of common stock for the third quarter of 2024, consistent with the prior quarter and the same quarter in the previous year - A quarterly cash dividend of $0.43 per common share was declared, payable on November 27, 2024, to stockholders of record on November 15, 2024[17] Earnings Conference Call The company scheduled its Q3 2024 earnings conference call for 10:00 a.m. Eastern Time on November 1, 2024, providing details for live and replay access via webcast and telephone - The earnings conference call was held on November 1, 2024, at 10:00 a.m. ET, with a webcast replay available on the company's website[18] Consolidated Financial Statements This section presents the company's consolidated financial performance and position, including income statements, balance sheets, and segment-specific financial data Consolidated Statements of Income For Q3 2024, the company reported net income attributable to common stockholders of $58.2 million ($0.31 per diluted share), a decrease from $77.9 million ($0.41 per diluted share) in Q3 2023, primarily due to lower net interest income and slightly higher total other expenses Q3 2024 vs. Q3 2023 Income Statement Highlights (in millions) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Interest Income | $88.81 | $107.29 | | Total Other Revenue | $67.84 | $69.39 | | Provision for Credit Losses | $16.22 | $18.65 | | Total Other Expenses | $81.05 | $76.27 | | Net Income Attributable to Common Stockholders | $58.18 | $77.92 | | Diluted Earnings per Common Share | $0.31 | $0.41 | Consolidated Balance Sheets As of September 30, 2024, total assets were $13.88 billion and total liabilities were $10.72 billion, representing a significant reduction from year-end 2023 figures of $15.74 billion in assets and $12.48 billion in liabilities, reflecting the company's deleveraging strategy Balance Sheet Highlights (in billions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $13.88 | $15.74 | | Loans and investments, net | $11.29 | $12.38 | | Total Liabilities | $10.72 | $12.48 | | Total Equity | $3.16 | $3.25 | Segment Information The Structured Business segment is the primary driver of the company's financial results, contributing $48.3 million in net income and holding $12.37 billion in assets in Q3 2024, while the Agency Business contributed $25.3 million in net income and held $1.51 billion in assets Q3 2024 Net Income by Segment (in millions) | Segment | Net Income | Net Income Attributable to Common Stockholders | | :--- | :--- | :--- | | Structured Business | $48.27 | $37.93 | | Agency Business | $25.27 | $25.27 | Assets by Segment as of Sep 30, 2024 (in billions) | Segment | Total Assets | Debt Obligations | | :--- | :--- | :--- | | Structured Business | $12.37 | $9.97 | | Agency Business | $1.51 | $0.32 | Reconciliation of Non-GAAP Measures This section provides a reconciliation of non-GAAP financial measures, specifically distributable earnings, to their most directly comparable GAAP counterparts Reconciliation of Distributable Earnings to GAAP Net Income The company reported distributable earnings of $88.2 million, or $0.43 per diluted share, for Q3 2024, a non-GAAP measure used by management to evaluate operating performance and dividend capacity, adjusting GAAP net income for items like non-cash provisions for credit losses, amortization, and certain derivative gains/losses Q3 2024 Reconciliation of GAAP Net Income to Distributable Earnings (in millions) | Line Item | Amount | | :--- | :--- | | Net income attributable to common stockholders | $58.18 | | Adjustments: | | | Provision for credit losses, net | $17.08 | | Income from mortgage servicing rights | ($13.20) | | Amortization and write-offs of MSRs | $18.79 | | Depreciation and amortization | $2.56 | | Other Adjustments | $4.76 | | Distributable earnings | $88.18 | - Distributable earnings is a key metric for management in determining the quarterly dividend, as it is considered a useful indicator of the company's ability to generate cash for distributions over time[30]