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Arbor(ABR) - 2025 Q2 - Quarterly Report
ArborArbor(US:ABR)2025-08-01 12:46

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for Arbor Realty Trust, Inc. as of June 30, 2025, show a slight increase in total assets to $13.56 billion from $13.49 billion at year-end 2024, with net income for Q2 2025 at $36.3 million, a significant decrease from $61.8 million in Q2 2024 Consolidated Balance Sheets As of June 30, 2025, total assets slightly increased to $13.56 billion from $13.49 billion at year-end 2024, driven by growth in loans and real estate owned, while total liabilities rose to $10.47 billion and total equity saw a minor decline to $3.09 billion Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $13,563,039 | $13,490,981 | | Cash and cash equivalents | $255,742 | $503,803 | | Loans and investments, net | $11,333,023 | $11,033,997 | | Real estate owned, net | $365,186 | $176,543 | | Total Liabilities | $10,469,176 | $10,339,011 | | Credit and repurchase facilities | $4,721,622 | $3,559,490 | | Securitized debt | $3,510,865 | $4,622,489 | | Total Equity | $3,093,863 | $3,151,970 | - Assets of consolidated Variable Interest Entities (VIEs) totaled $4.85 billion at June 30, 2025, down from $6.12 billion at December 31, 202414 Consolidated Statements of Income For Q2 2025, net income was $36.3 million, a 41% decrease from $61.8 million in Q2 2024, with diluted EPS at $0.12, primarily due to a 22% drop in net interest income and lower other revenue Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $68,725 | $87,961 | $144,168 | $191,577 | | Total Other Revenue | $61,685 | $65,142 | $120,405 | $122,178 | | Provision for credit losses | $19,004 | $29,564 | $28,079 | $48,682 | | Net Income | $36,309 | $61,833 | $79,690 | $135,044 | | Net Income Attributable to Common Stockholders | $23,952 | $47,397 | $54,389 | $105,270 | | Diluted EPS | $0.12 | $0.25 | $0.28 | $0.56 | | Dividends declared per common share | $0.30 | $0.43 | $0.73 | $0.86 | Consolidated Statements of Changes in Equity Total equity decreased from $3.15 billion at the start of 2025 to $3.09 billion at June 30, 2025, primarily due to $160.6 million in distributions to stockholders exceeding $79.7 million in net income - For the six months ended June 30, 2025, total distributions to common and preferred stockholders amounted to $139.9 million and $20.7 million, respectively19 - The company issued 2,508,750 shares of common stock during the first six months of 2025, generating proceeds of $30.8 million19 Consolidated Statements of Cash Flows For the six months ended June 30, 2025, a net decrease in cash of $313.5 million resulted from $210.6 million in operating cash flow being offset by $522.1 million used in investing activities and $2.0 million in financing outflows Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $210,597 | $329,888 | | Net cash (used in) provided by investing activities | ($522,125) | $717,993 | | Net cash used in financing activities | ($1,965) | ($1,629,375) | | Net decrease in cash, cash equivalents and restricted cash | ($313,493) | ($581,494) | - The company acquired $356.0 million of real estate in settlement of loans during the first six months of 2025, a significant non-cash investing activity27 Notes to Consolidated Financial Statements The notes provide detailed information on the company's business segments, accounting policies, and financial statement line items, including the $11.6 billion loan portfolio, increased non-performing loans, $10.1 billion in debt obligations, and various commitments and contingencies Note 1 — Description of Business Arbor Realty Trust operates as a REIT through its Structured Business, investing in diversified structured finance assets, and its Agency Business, originating and servicing multifamily finance products through GSEs and HUD - The Structured Business focuses on investing in bridge loans, mezzanine loans, and preferred equity in the multifamily, single-family rental (SFR), and commercial real estate markets30 - The Agency Business originates, sells, and services multifamily loans through government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, as well as HUD programs, retaining servicing rights on nearly all originated and sold loans31 Note 3 — Loans and Investments The loan and investment portfolio grew to $11.61 billion as of June 30, 2025, with bridge loans comprising 96%, while the allowance for credit losses increased to $243.3 million and non-performing loans decreased to $424.7 million Loan & Investment Portfolio Composition (in thousands) | Loan Type | UPB at June 30, 2025 | Percent of Total | | :--- | :--- | :--- | | Bridge loans | $11,105,463 | 96% | | Mezzanine loans | $250,858 | 2% | | Preferred equity investments | $149,776 | 1% | | Other | $103,138 | <1% | | Total UPB | $11,609,235 | 100% | - The allowance for credit losses increased to $243.3 million at June 30, 2025, from $239.0 million at December 31, 2024, with a provision of $23.5 million and charge-offs of $19.1 million for the first six months of 20255456 - Non-performing loans (over 60 days past due) decreased to 19 loans with a carrying value of $424.7 million at June 30, 2025, down from 26 loans with a carrying value of $598.9 million at year-end 202462 - During the six months ended June 30, 2025, the company modified loans with a total UPB of $1.20 billion for borrowers experiencing financial difficulty, representing 10.6% of the total Structured Business portfolio7577 Note 6 — Mortgage Servicing The total mortgage servicing portfolio slightly increased to $33.76 billion at June 30, 2025, primarily composed of Fannie Mae loans, while net servicing revenue for Q2 2025 decreased to $27.4 million due to lower interest earned on escrow balances Servicing Portfolio by Product (UPB in thousands) | Product | June 30, 2025 | % of Total | | :--- | :--- | :--- | | Fannie Mae | $22,999,772 | 68% | | Freddie Mac | $6,100,091 | 18% | | Private Label | $2,599,971 | 8% | | FHA | $1,497,551 | 4% | | Other | $565,181 | 2% | | Total | $33,762,566 | 100% | - The weighted average servicing fee for the portfolio was 37.4 basis points at June 30, 2025108 Note 9 — Real Estate Owned Real Estate Owned (REO) assets significantly increased to $365.2 million as of June 30, 2025, from $176.5 million at year-end 2024, primarily due to the foreclosure of ten multifamily bridge loans - During the first six months of 2025, the company foreclosed on ten multifamily bridge loans with an aggregate net carrying value of $260.3 million, receiving the underlying collateral as REO assets126 - The company sold three multifamily REO assets for $84.0 million during the first half of 2025, recognizing a net loss of $1.0 million on the sales127 Note 10 — Debt Obligations Total debt obligations were $10.13 billion at June 30, 2025, with credit and repurchase facilities increasing to $4.72 billion and securitized debt decreasing to $3.51 billion following CLO unwinds and a new BTR CLO issuance, while all CLOs remained covenant compliant Debt Obligations Summary (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Credit and repurchase facilities | $4,721,622 | $3,559,490 | | Securitized debt | $3,510,865 | $4,622,489 | | Senior unsecured notes | $1,238,174 | $1,236,147 | | Convertible senior unsecured notes | $287,258 | $285,853 | | Other Debt | $329,703 | $219,583 | | Total | $10,087,622 | $9,923,562 | - In May 2025, the company completed its first Build-to-Rent (BTR) CLO, issuing notes totaling $801.9 million146 - In March 2025, the company unwound CLO 14 and 19, redeeming outstanding notes totaling $1.08 billion, which were repaid from a new $1.15 billion repurchase facility150 - All CLO vehicles were in compliance with interest coverage and overcollateralization covenants as of the most recent determination dates in July 2025163164 Note 14 — Commitments and Contingencies The company faces significant commitments, including $4.36 billion in Fannie Mae DUS risk-sharing obligations and $2.22 billion in unfunded loan commitments, alongside ongoing securities class action and shareholder derivative lawsuits which the company believes are without merit - The company has unfunded commitments of $2.22 billion at June 30, 2025, that it is obligated to fund as borrowers meet certain requirements217 - A securities class action lawsuit was filed against the company and certain officers in July 2024, alleging false and misleading statements regarding internal controls and lending practices, with the company's motion to dismiss pending219221222 - Several shareholder derivative lawsuits have been filed, asserting claims for breach of fiduciary duties and other violations, arising from substantially the same facts as the securities class action, and these cases are currently stayed224225 Note 16 — Equity During the first six months of 2025, the company sold 2.5 million shares of common stock for $30.9 million in net proceeds, declared common stock dividends of $0.73 per share, and has $138.6 million available under its share repurchase program - Sold 2,508,750 shares of common stock at an average price of $12.31 per share for net proceeds of $30.9 million during the first six months of 2025237 Dividends Declared per Common Share | Period | 2025 | 2024 | | :--- | :--- | :--- | | Q1 | $0.43 | - | | Q2 | $0.30 | $0.43 | | YTD | $0.73 | $0.86 | - The share repurchase program had $138.6 million available for repurchase as of June 30, 2025238 Note 19 — Segment Information For Q2 2025, the Structured Business generated $19.6 million in net income and holds the majority of assets and liabilities, while the Agency Business generated $16.7 million in net income, with its originations decreasing to $857.1 million Net Income by Segment - Q2 2025 (in thousands) | Segment | Net Income | | :--- | :--- | | Structured Business | $19,630 | | Agency Business | $16,679 | | Other (Noncontrolling Interest) | ($2,015) | | Consolidated Net Income | $36,309 | Total Assets by Segment (in thousands) | Segment | June 30, 2025 | | :--- | :--- | | Structured Business | $12,323,428 | | Agency Business | $1,239,611 | | Consolidated Total Assets | $13,563,039 | - Agency Business new loan originations decreased to $857.1 million in Q2 2025 from $1.15 billion in Q2 2024296 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant decline in net income for Q2 and H1 2025 due to a challenging high-interest rate environment, which increased delinquencies and reduced origination volumes, while highlighting a new build-to-rent CLO issuance and the unpredictable impact of new legislation Current Market Conditions, Risks and Recent Trends Management highlights challenging market conditions with high interest rates leading to increased delinquencies, loan modifications, and declining real estate values, while the recently enacted One Big Beautiful Bill Act (OBBBA) introduces further uncertainty regarding tax policy and market dynamics - The high-interest rate environment has resulted in increased payment delinquencies, defaults, loan modifications, and foreclosures, which may continue to impact results313 - Decreased origination volumes, especially in the GSE/Agency business, have negatively impacted the ability for borrowers to refinance balance sheet loans with fixed-rate agency products313 - The enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, introduces wide-ranging changes to federal tax policy and fiscal priorities, the effects of which on the business and real estate markets are difficult to predict320 Comparison of Results of Operations Net income attributable to common stockholders for Q2 2025 decreased by 49% to $24.0 million from $47.4 million in Q2 2024, primarily due to a $19.2 million drop in net interest income and lower gains on sales, partially offset by a decrease in provision for credit losses Comparison of Results for Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $68,725 | $87,961 | (22)% | | Total Other Revenue | $61,685 | $65,142 | (5)% | | Provision for credit losses | $19,004 | $29,564 | (36)% | | Net Income | $36,309 | $61,833 | (41)% | - The decrease in net interest income was driven by a lower average yield on assets due to falling SOFR rates and an increase in loan delinquencies, as well as lower interest earned on reduced cash balances338 - Agency Business revenue declined due to a 29% decrease in loan sales volume and lower earnings on escrow balances340341 Liquidity and Capital Resources The company's primary liquidity sources include equity and debt offerings, CLOs, and debt facilities, with approximately $600 million in cash and liquidity as of July 29, 2025, and 54% of its $9.61 billion structured debt being non-mark-to-market - As of July 29, 2025, the company had approximately $600 million in cash and liquidity372 - Of the $9.61 billion in total structured debt, $5.21 billion (54%) does not contain mark-to-market provisions371 - The company has a $33.76 billion agency servicing portfolio that generates approximately $126 million per year in recurring gross cash flow372 Non-GAAP Financial Measures The company uses Distributable Earnings as a non-GAAP measure, which for Q2 2025 was $52.1 million, or $0.25 per diluted share, a significant decrease from $91.6 million, or $0.45 per diluted share, in Q2 2024, after adjusting GAAP net income for non-cash items Distributable Earnings Reconciliation (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $23,952 | $47,397 | | Adjustments (Net) | $28,117 | $44,168 | | Distributable earnings | $52,069 | $91,565 | | Diluted distributable earnings per share | $0.25 | $0.45 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, where a hypothetical 50 basis point increase would raise net interest income by $7.6 million over 12 months, and a 100 basis point increase in discount rates would decrease MSR fair value by $13.7 million Hypothetical 12-Month Impact of Interest Rate Changes on Net Interest Income (in thousands) | Rate Change | Impact on Net Interest Income | | :--- | :--- | | +50 Basis Points | $7,606 | | -50 Basis Points | ($5,731) | | -100 Basis Points | ($8,213) | - A 100 basis point increase in the weighted average discount rate would decrease the fair value of MSRs by $13.7 million, while a 100 basis point decrease would increase the fair value by $14.4 million404 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025405 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in a securities class action lawsuit and several shareholder derivative actions, as detailed in Note 14 of the financial statements, which the company believes are without merit and intends to vigorously defend against - The company is currently defending against a securities class action lawsuit and multiple shareholder derivative suits, with further details provided in Note 14407218 Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors from the 2024 Annual Report were reported408 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a share repurchase program with $138.6 million remaining available as of June 30, 2025, though affiliated purchasers, not the company, bought 233,821 shares during Q2 2025 - As of June 30, 2025, $138.6 million remained available under the company's share repurchase program410 - Affiliated purchasers, not the company itself, bought 233,821 shares during the three months ended June 30, 2025411 Item 5. Other Information During the reporting period, no director or officer of Arbor adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the quarter412 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, debt indentures, and officer certifications