Arbor(US:ABR)2026-02-27 16:00Financial Data and Key Metrics Changes - The company reported distributable earnings of $46.3 million or $0.22 per share for Q4 2025, excluding one-time realized losses of $12.4 million and $7.3 million from reduced tax expenses [23][24] - Total non-performing assets were approximately $1.1 billion, down by over $130 million from the last quarter, representing an 11% reduction [5][25] - The company estimates that non-performing assets are creating a temporary drag of $80 million-$100 million annually, translating to $0.40-$0.48 per share [26] Business Line Data and Key Metrics Changes - The agency platform had a strong fourth quarter with $1.6 billion in origination volume, totaling $5 billion for the year, a 13.5% increase from 2024 [13] - The servicing portfolio grew by 8% in 2025 to over $36 billion, generating predictable annual income of over $128 million [14][30] - The balance sheet lending operation originated $340 million in Q4, closing 2025 at $1.2 billion in production [14] Market Data and Key Metrics Changes - The company is optimistic about reducing REO assets to $250 million-$300 million by the end of 2026, despite adding $100 million-$200 million of REO assets along the way [7][28] - The average yield on the investment portfolio was 7.08% at December 31, 2025, compared to 7.27% at September 30, 2025 [31] - The all-in cost of debt decreased to approximately 6.45% at December 31, 2025, from 6.72% at September 30, 2025 [32] Company Strategy and Development Direction - The company aims to resolve non-performing loans to improve income, estimating an addition of $100 million to annual run rate upon resolution [4][5] - The focus is on legacy assets, with a strategy to reset interest rates on current loans to market spreads to enhance performance [9][10] - The company plans to continue its buyback strategy, having purchased approximately $20 million of stock at an average price of $7.40, or 64% of book value [12] Management's Comments on Operating Environment and Future Outlook - Management believes the company is at the bottom of the cycle and is optimistic about resolving delinquencies and improving income streams [4][21] - The outlook for the interest rate environment has improved, which is expected to support growth in origination volume and returns on capital [21] - Management acknowledges potential headwinds but sees signs of stabilization in property performance and liquidity returning to the market [51] Other Important Information - The company has a large pipeline for 2026, with expectations to produce similar origination volumes as in 2025 [20] - The agency business generates approximately 50% of net revenues, with most income occurring before daily operations begin [14] - The company is closely monitoring the performance of its assets and is prepared to address any new delinquencies as they arise [9][51] Q&A Session Summary Question: How are you thinking about 2026 GSE originations relative to the $5 billion number? - Management indicated that 2026 GSE originations will depend on interest rates and the GSE's cap increase, feeling comfortable targeting similar levels as 2025 [35] Question: Do you expect servicing fee compression to continue into 2026? - Management explained that servicing fee compression is driven by changes in loan products and expects this dynamic to level off towards the end of the year [36][37] Question: Have you seen any credit issues in your build-to-rent borrowers? - Management reported that the SFR book is performing exceptionally well, with no delinquent loans in this category [42][43] Question: Can you provide geographic color on delinquent/REO book weaknesses? - Management noted softness in markets like Houston and Atlanta, primarily due to economic factors and immigration issues [45][46] Question: What are your thoughts on maintaining the dividend in 2026? - Management emphasized the importance of resolving delinquencies quickly to restore earnings and maintain the dividend, with a focus on long-term perspectives [53][55]