What changed in this filing

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Item 1. Financial Statements

2020-07-31 compared with 2020-05-08 · 549 added, 403 removed, 1127 unchanged (46% of the section changed)

48 unchanged sentences

Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities, or VIEs, as we are the primary beneficiary of these VIEs.

As of March 31, 2020 and December 31, 2019, assets of our consolidated VIEs totaled $ 3,233,013 and $ 2,784,756 , respectively, and the liabilities of our consolidated VIEs totaled $ 2,585,588 and $ 2,209,599 , respectively.

As of June 30, 2020 and December 31, 2019, assets of our consolidated VIEs totaled $ 3,127,169 and $ 2,784,756 , respectively, and the liabilities of our consolidated VIEs totaled $ 2,517,315 and $ 2,209,599 , respectively.

See Note 15 for discussion of our VIEs.

4 unchanged sentences

($ in thousands, except share and per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Interest income

6 unchanged sentences

Property operating income

Loss on derivative instruments, net

(Loss) gain on derivative instruments, net

Other income, net

5 unchanged sentences

Depreciation and amortization

Impairment loss on real estate owned

Provision for loss sharing (net of recoveries)

1 unchanged sentence

Total other expenses

(Loss) income before extinguishment of debt, income from equity affiliates and income taxes

Income (loss) before extinguishment of debt, income from equity affiliates and income taxes

Loss on extinguishment of debt

Income from equity affiliates

Benefit from income taxes

Net (loss) income

(Provision for) benefit from income taxes

Net income (loss)

Preferred stock dividends

Net (loss) income attributable to noncontrolling interest

Net (loss) income attributable to common stockholders

Basic (loss) earnings per common share

Diluted (loss) earnings per common share

Net income (loss) attributable to noncontrolling interest

Net income (loss) attributable to common stockholders

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

Weighted average shares outstanding:

5 unchanged sentences

($ in thousands, except shares)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Realty Trust, Inc.

2 unchanged sentences

Noncontrolling

Balance - April 1, 2020

Issuance of common stock

Repurchase of common stock

Issuance of common stock from convertible debt

Stock-based compensation, net

Distributions - common stock

Distributions - preferred stock

Distributions - noncontrolling interest

Balance – June 30, 2020

Six Months Ended June 30, 2020

Realty Trust, Inc.

Additional Paid-

Stockholders'

Noncontrolling

Balance - January 1, 2020

4 unchanged sentences

( 1,625,777 )

Net settlement on vesting of restricted stock

Issuance of common stock from convertible debt

Stock-based compensation

Forfeiture of unvested restricted stock

Stock-based compensation, net

Distributions - common stock

Distributions - preferred stock

Distributions - preferred stock of private REIT

Distributions - noncontrolling interest

Redemption of operating partnership units

Balance – March 31, 2020

Three Months Ended March 31, 2019

Balance – June 30, 2020

See Notes to Consolidated Financial Statements.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Continued)

($ in thousands, except shares)

Three Months Ended June 30, 2019

Realty Trust, Inc.

2 unchanged sentences

Noncontrolling

Balance - April 1, 2019

Issuance of common stock

Repurchase of common stock

Extinguishment of convertible senior unsecured notes

Stock-based compensation, net

Distributions - common stock

Distributions - preferred stock

Distributions - noncontrolling interest

Redemption of operating partnership units

Balance – June 30, 2019

Six Months Ended June 30, 2019

Realty Trust, Inc.

Additional Paid-

Stockholders'

Noncontrolling

Balance – January 1, 2019

Issuance of common stock

Repurchase of common stock

Issuance of common stock upon vesting of restricted stock units

Net settlement on vesting of restricted stock

Issuance of common stock from convertible debt

Extinguishment of convertible senior unsecured notes

Stock-based compensation

Stock-based compensation, net

Issuance of common stock from special dividend

2 unchanged sentences

Distributions - preferred stock

Distributions - preferred stock of private REIT

Distributions - noncontrolling interest

Redemption of operating partnership units

Balance – March 31, 2019

Balance – June 30, 2019

See Notes to Consolidated Financial Statements.

3 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization

4 unchanged sentences

( 2,452,745 )

( 1,971,876 )

Proceeds from sales of loans held-for-sale, net of gain on sale

Payoffs and paydowns of loans held-for-sale

Mortgage servicing rights

Write-off of capitalized mortgage servicing rights from payoffs

Impairment loss on real estate owned

Provision for loss sharing (net of recoveries)

1 unchanged sentence

Net recoveries (charge-offs) for loss sharing obligations

Deferred taxbenefit

Deferred tax benefit

Income from equity affiliates

1 unchanged sentence

Changes in operating assets and liabilities

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Investing Activities:

Loans and investments funded, originated and purchased, net

( 1,117,004 )

( 1,398,834 )

Payoffs and paydowns of loans and investments

2 unchanged sentences

Contributions to equity affiliates

Distributions from equity affiliates

Purchase of securities held-to-maturity, net

9 unchanged sentences

Payoffs and paydowns of collateralized loan obligations

Payoffs and paydowns of debt fund

Proceeds from issuance of common stock

7 unchanged sentences

Distributions paid on preferred stock

Distributions paid on preferred stock of private REIT

Payment of deferred financing costs

Net cash provided by (used in) financing activities

Net increase in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

5 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Reconciliation of cash, cash equivalents and restricted cash:

9 unchanged sentences

Supplemental schedule of non-cash investing and financing activities:

Dividends declared on common stock and operating partnership units

Cummulative-effect adjustment (Note 2)

Issuance of common stock from convertible debt

Distributions accrued on 8.25 % Series A preferred stock

1 unchanged sentence

Distributions accrued on 8.50 % Series C preferred stock

Issuance of common stock from convertible debt

Settlements of convertible senior unsecured notes

Fair value of conversion feature of convertible senior unsecured notes

Special dividend - common stock issued

Special dividend - special voting preferred stock and operating partnership units issued

Fair value of conversion feature of convertible senior unsecured notes

Settlements of convertible senior unsecured notes

See Notes to Consolidated Financial Statements.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Note 1 — Description of Business

12 unchanged sentences

We also originate and sell finance products through conduit/commercial mortgage-backed securities ("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"

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."

We 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 certificate.

Substantially all of our operations are conducted through our operating partnership, Arbor Realty Limited Partnership ("ARLP"), for which we serve as the general partner, and ARLP's subsidiaries.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Principles of Consolidation

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The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that could materially affect the amounts reported in the consolidated financial statements and accompanying notes.

During the first quarter of 2020, there was a global outbreak of a novel coronavirus ("COVID-19"), which has forced many countries, including the United States, to declare national emergencies, to institute "stay-at-home"

During the first half of 2020, there has been a global outbreak of a novel coronavirus ("COVID-19"), which has forced many countries, including the United States, to declare national emergencies, to institute "stay-at-home"

orders, to close financial markets and to restrict operations of non-essential businesses.

1 unchanged sentence

COVID-19 could have a continued and prolonged adverse impact on economic and market conditions and could trigger a period of global economic slowdown.

The impact of COVID-19 on companies is evolving rapidly, and the extent and duration of the economic fallout from this pandemic, both globally and to our business, remain unclear, making any estimate or assumption as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The impact of COVID-19 on companies is evolving rapidly, and the extent and duration of the economic fallout from this pandemic, both globally and to our business, remain unclear, making any estimate or assumption as of June 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Actual results could differ from those estimates.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

The net gain/loss from changes in fair value of derivative instruments previously recorded to other income, net is now recorded to (loss) gain on derivative instruments, net.

These reclassifications had no effect on the previously reported net income.

Recently Adopted Accounting Pronouncements

6 unchanged sentences

In connection with the adoption of ASU 2016-13, we recorded a $ 28.6 million increase to accumulated deficit, which is net of a deferred tax asset of $ 3.6 million as of January 1, 2020.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

The following table illustrates the impact of adopting ASU 2016-13 (in thousands):

3 unchanged sentences

Held-to-maturity debt securities

Deferred taxassets

Deferred tax assets

Allowance for loss-sharing obligations

(1) See Note 3 for details by asset class.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Other Accounting Pronouncements Adopted

3 unchanged sentences

Targeted Improvements to Related Party Guidance for Variable Interest Entities.

This ASU amends the guidance for determining whether a decision-making fee is a variable interest and requires companies to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP).

First quarter of 2020

14 unchanged sentences

This ASU is effective as of March 12, 2020 through December 31, 2022

We have not adopted any of the optional expedients or exceptions through March 31, 2020, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

We have not adopted any of the optional expedients or exceptions through June 30, 2020 , but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Significant Accounting Policies

6 unchanged sentences

We have licensed a third party model to assist with the measurement of expected credit losses, which utilizes incurred losses inherent in the portfolio.

The loss factors are determined through the generation of probability of defaults (PD) and loss

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

given defaults (LGD) for similar loans with similar credit.

The loss factors are determined through the generation of probability of defaults (PD) and loss given defaults (LGD) for similar loans with similar credit.

These results require a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses.

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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, we record a specific allowance for credit losses with a corresponding charge to the provision for credit losses, and remove the impaired loan from the CECL analysis described above.

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.

We record interest on modified loans on an accrual basis to the extent the modified loan is contractually current.

The allowance for credit losses on a troubled debt restructuring is measured using the same method as all other loans held for investment.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

We record interest on modified loans on an accrual basis to the extent the modified loan is contractually current.

The allowance for credit losses on a troubled debt restructuring is measured using the same method as all other loans held for investment.

Charge-offs to the allowance for credit losses occur when losses are confirmed through the receipt of cash or other consideration from the completion of a sale;

8 unchanged sentences

Our Structured Business loan and investment portfolio consists of ($ in thousands):

March 31, 2020

June 30, 2020

LTV Ratio (2)

6 unchanged sentences

Loans and investments, net

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

December 31, 2019

9 unchanged sentences

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.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

(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.

(4) As of March 31, 2020 and December 31, 2019, bridge loans included 10 and 11 , respectively, single-family rental loans with an aggregate UPB of $ 54.4 million and $ 66.7 million, respectively, of which $ 24.0 million and $ 30.0 million, respectively, was funded.

(5) As of March 31, 2020 and December 31, 2019, other included 19 and 12 , respectively, single-family rental permanent loans with an aggregate UPB of $ 74.9 million and $ 41.6 million, respectively, and 1 and 9 , respectively, purchased loans with an aggregate UPB of $ 6.4 million and $ 28.6 million, respectively.

(4) As of June 30, 2020 and December 31, 2019, bridge loans included 5 and 11 , respectively, single-family rental loans with an aggregate UPB of $ 53.4 million and $ 66.7 million, respectively, of which $ 28.3 million and $ 30.0 million, respectively, was funded.

(5) As of June 30, 2020 and December 31, 2019, other included 19 and 12 , respectively, single-family rental permanent loans with an aggregate UPB of $ 73.7 million and $ 41.6 million, respectively, and 1 and 9 , respectively, purchased loans with an aggregate UPB of $ 6.4 million and $ 28.6 million, respectively.

Concentration of Credit Risk

We are subject to concentration risk in that, at March 31, 2020, the UPB related to 25 loans with five different borrowers represented 13 % of total assets.

We are subject to concentration risk in that, at June 30, 2020, the UPB related to 23 loans with five different borrowers represented 13 % of total assets.

At December 31, 2019, the UPB related to 24 loans with five different borrowers represented 13 % of total assets.

During both the three months ended March 31, 2020 and the year ended December 31, 2019, no single loan or investment represented more than 10% of our total assets and no single investor group generated over 10% of our revenue.

During both the six months ended June 30, 2020 and the year ended December 31, 2019, 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 18 for details on our concentration of related party loans and investments.

4 unchanged sentences

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.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

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.

2 unchanged sentences

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.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

A summary of the loan portfolio’s internal risk ratings and LTV ratios by asset class is as follows ($ in thousands):

A summary of the loan portfolio’s internal risk ratings and LTV ratios by asset class as of June 30, 2020 is as follows ($ in thousands):

UPB by Origination Year

March 31,2020

Asset Class / Risk Rating

Special Mention

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Total Healthcare

Student Housing:

Percentage of portfolio

Special Mention

Total Student Housing

Percentage of portfolio

Special Mention

Single-Family Rental:

3 unchanged sentences

Percentage of portfolio

Special Mention

Percentage of portfolio

Special Mention

Percentage of portfolio

Geographic Concentration Risk

As of March 31, 2020, 16 % and 12 % of the outstanding balance of our loan and investment portfolio had underlying properties in New York and Texas, respectively.

As of June 30, 2020, 16 % 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, 2019, 18 % and 12 % of the outstanding balance of our loan and investment portfolio had underlying properties in New York and Texas, respectively.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Allowance for Credit Losses

A summary of the changes in the allowance for credit losses is as follows (in thousands):

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Student Housing

Allowance for credit losses:

Beginning balance

Provision for credit losses (net of recoveries)

Recoveries of reserves

Ending balance

Three Months Ended June 30, 2019

Allowance for credit losses

Six Months Ended June 30, 2020

Allowance for credit losses:

Beginning balance, prior to adoption of CECL

1 unchanged sentence

Provision for credit losses (net of recoveries)

Recoveries of reserves

Ending balance

Three Months Ended March 31, 2019

Six Months Ended June 30, 2019

Allowance for credit losses

The increase in the provision for credit losses during the three months ended March 31, 2020 of $ 53.9 million, compared to the January 1, 2020 cumulative-effect adjustment upon adoption of CECL of $ 17.3 million, is primarily attributed to the significant adverse change in the economic outlook due to the COVID-19 pandemic.

Our estimate of allowance for credit losses on our structured loans and investments including related unfunded loan commitments during the first quarter of 2020 was based on a reasonable and supportable forecast period that was adjusted for the expectations that the markets in which we operate will experience a decline in economic conditions, increases in unemployment rates and other market driven factors largely the result of the COVID-19 pandemic that will likely impact loan delinquencies, modifications and potential risk of loss.

The increase in the provision for credit losses during the three and six months ended June 30, 2020 of $ 10.6 million and $ 64.4 million, respectively, compared to the January 1, 2020 cumulative-effect adjustment upon adoption of CECL of $ 17.3 million, is primarily attributed to the significant adverse change in the economic outlook due to the COVID-19 pandemic.

Our estimate of allowance for credit losses on our structured loans and investments, including related unfunded loan commitments, during 2020 was based on a reasonable and supportable forecast period that was adjusted for the expectations that the markets in which we operate will experience a decline in economic conditions, increases in unemployment rates and other market driven factors largely the result of the COVID-19 pandemic that will likely impact loan delinquencies, modifications and potential risk of loss.

For the periods beyond the reasonable and supportable forecast, we reverted to our historical loss rate, which was adjusted to address for factors that are not present in our existing portfolio.

During the quarter, we also made adjustments for loans that were anticipated to extend based on available extension options and timing of their maturities in relation to the current economic conditions.

We also made adjustments for loans that are expected to extend based on available extension options and the timing of their maturities in relation to the current economic conditions.

The expected credit losses over the contractual period of our loans also include the obligation to extend credit through our unfunded loan commitments.

Our CECL allowance for unfunded loan commitments are adjusted quarterly and correspond with the associated outstanding loans.

As of March 31, 2020, we had outstanding unfunded commitments of $ 183.8 million that we are obligated to fund as borrowers meet certain requirements.

As of March 31, 2020, accrued interest receivable related to our loans totaling $ 37.7 million was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheet.

All of our structured loans and investments are collateral dependent, and as such, the measurement of credit losses may be based on the difference between the fair value of the underlying collateral and the carrying value of the assets as of the period end.

A summary of our specific loans considered impaired by asset class is as follows (in thousands):

As of June 30, 2020, we had outstanding unfunded commitments of $ 150.9 million that we are obligated to fund as borrowers meet certain requirements.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

As of June 30, 2020, accrued interest receivable related to our loans totaling $ 36.2 million was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheet.

A summary of our specific loans considered impaired by asset class is as follows (in thousands):

June 30, 2020

Allowance for

1 unchanged sentence

December 31, 2019

Allowance for

Credit Losses

(1) Represents the UPB of nine and five impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at March 31, 2020 and December 31, 2019, 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 credit loss as of March 31, 2020 and December 31, 2019.

At March 31, 2020, four loans with an aggregate net carrying value of $ 1.8 million, net of related loan loss reserves of $ 6.5 million, were classified as non-performing and, 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.

(1) Represents the UPB of ten and five impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at June 30, 2020 and December 31, 2019, respectively.

At June 30, 2020, six loans with an aggregate net carrying value of $ 43.9 million, net of related loan loss reserves of $ 16.6 million, were classified as non-performing and, 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.

Income from non-performing loans is generally recognized on a cash basis when it is received.

1 unchanged sentence

A summary of our non-performing loans by asset class is as follows (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

In addition, we have six loans with a carrying value totaling $ 120.3 million at March 31, 2020, that are collateralized by a land development project.

These loans were scheduled to mature in March 2020 and were extended to September 2020.

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 8.38 %.

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 March 31, 2020 and December 31, 2019, we had a cumulative allowance for credit losses of $ 71.4 million and $ 61.4 million, respectively, related to these loans.

The loans are subject to certain risks associated with a development project including, but not limited to, availability of construction financing, increases in projected

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

construction costs, demand for the development's outputs upon completion of the project, and litigation risk.

June 30, 2020

In addition, we have six loans with a carrying value totaling $ 120.7 million at June 30, 2020, that are collateralized by a land development project.

These loans were scheduled to mature in March 2020 and were extended to September 2020.

The loans do not carry a current pay rate of interest, however, five of the loans with a carrying value totaling $ 111.3 million entitle us to a weighted average accrual rate of interest of 7.98 %.

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 June 30, 2020 and December 31, 2019, we had a cumulative allowance for credit losses of $ 71.4 million and $ 61.4 million, respectively, related to these loans.

The loans are subject to certain risks associated with a development project including, but not limited to, availability of construction financing, increases in projected construction costs, demand for the 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.

At both March 31, 2020 and December 31, 2019, we had no loans contractually past due 90 days or more that are still accruing interest.

During both the three months ended March 31, 2020 and 2019, interest income recognized on nonaccrual loans was de minimis.

There were no loan modifications, refinancing's and/or extensions during both the three months ended March 31, 2020 and 2019 that were considered troubled debt restructurings.

At both June 30, 2020 and December 31, 2019, we had no loans contractually past due 90 days or more that are still accruing interest.

During both the three and six months ended June 30, 2020 and 2019, interest income recognized on nonaccrual loans was de minimis.

There were no loan modifications, refinancing's and/or extensions during both the six months ended June 30, 2020 and 2019 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 March 31, 2020 and December 31, 2019, we had total interest reserves of $ 51.1 million and $ 37.0 million, respectively, on 141 loans and 131 loans, respectively, with an aggregate UPB of $ 2.64 billion and $ 2.43 billion, respectively.

At June 30, 2020 and December 31, 2019, we had total interest reserves of $ 54.4 million and $ 37.0 million, respectively, on 151 loans and 131 loans, respectively, with an aggregate UPB of $ 2.85 billion and $ 2.43 billion, respectively.

Note 4 — Loans Held-for-Sale, Net

Our GSE loans held-for-sale are typically sold within 60 days of loan origination, while our Private Label loans are generally expected to be sold and securitized within 180 days of loan origination.

Loans held-for-sale, net consists of the following (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Loans held-for-sale, net

Our GSE loans held-for-sale are typically sold within 60 days of loan origination, while our Private Label loans are generally expected to be sold and securitized within 180 days of loan origination.

During the three months ended March 31, 2020 and 2019, we sold $ 957.1 million and $ 1.10 billion, respectively, of loans held-for-sale and recorded gain on sales of $ 13.2 million and $ 15.1 million, respectively.

At March 31, 2020 and December 31, 2019, there were no loans held-for-sale that were 90 days or more past due, and there were no loans held-for-sale that were placed on a non-accrual status.

Note 5 — Capitalized Mortgage Servicing Rights

Our capitalized mortgage servicing rights (“MSRs”) reflect commercial real estate MSRs derived from loans sold in our Agency Business or acquired MSRs.

The discount rates used to determine the present value of our MSRs throughout the periods presented for all MSRs were between 8 % - 15 % (representing a weighted average discount rate of 13 %) based on our best estimate of market discount rates.

The weighted average estimated life remaining of our MSRs was 8.1 years and 8.0 years at March 31, 2020 and December 31, 2019, respectively.

During the three and six months ended June 30, 2020, we sold $ 1.99 billion and $ 2.95 billion, respectively, of loans held-for-sale and recorded gain on sales of $ 24.9 million and $ 38.2 million, respectively.

Included in the total loans sold in the second quarter of 2020 were Private Label loans totaling $ 727.2 million, which were sold to an unconsolidated affiliate of ours who pooled and securitized the loans in May 2020.

We retained the most subordinate class of certificates in the securitization totaling $ 63.6 million in satisfaction of credit risk retention requirements (see Note 7 for details), and are the primary servicer of the mortgage loans.

During the three and six months ended June 30, 2019, we sold $ 923.0 million and $ 2.02 billion, respectively, of loans held-for-sale and recorded gain on sales of $ 12.9 million and $ 28.0 million, respectively.

At June 30, 2020 and December 31, 2019, 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.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Note 5 — Capitalized Mortgage Servicing Rights

Our capitalized mortgage servicing rights (“MSRs”) reflect commercial real estate MSRs derived from loans sold in our Agency Business or acquired MSRs.

The weighted average estimated life remaining of our MSRs was 8.2 years and 8.0 years at June 30, 2020 and December 31, 2019, respectively.

A summary of our capitalized MSR activity is as follows (in thousands):

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Balance at beginning of period

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Balance at end of period

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

Balance at beginning of period

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Balance at end of period

We collected prepayment fees totaling $ 5.1 million and $ 4.9 million during the three months ended March 31, 2020 and 2019, respectively.

We collected prepayment fees totaling $ 3.0 million and $ 8.1 million during the three and six months ended June 30, 2020, respectively, and $ 3.5 million and $ 8.5 million during the three and six months ended June 30, 2019, respectively.

Prepayment fees are included as a component of servicing revenue, net on the consolidated statements of operations.

As of March 31, 2020 and December 31, 2019, we had no valuation allowance recorded on any of our MSRs.

The expected amortization of capitalized MSRs recorded as of March 31, 2020 is as follows (in thousands):

2020 (nine months ending 12/31/2020)

As of June 30, 2020 and December 31, 2019, we had no valuation allowance recorded on any of our MSRs.

The expected amortization of capitalized MSRs recorded as of June 30, 2020 is as follows (in thousands):

2020 (six months ending 12/31/2020)

Actual amortization may vary from these estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Note 6 — Mortgage Servicing

Product and geographic concentrations that impact our servicing revenue are as follows ($ in thousands):

March 31, 2020

June 30, 2020

Product Concentrations

Geographic Concentrations

Private Label (2)

North Carolina

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(1) Excludes loans which we are not collecting a servicing fee.

(2) Represents loans we service in connection with our Private Label securitization in May 2020 (see Note 4 for details).

(3) No other individual state represented 4% or more of the total.

At March 31, 2020 and December 31, 2019, our weighted average servicing fee was 43.6 basis points and 43.8 basis points, respectively.

At March 31, 2020 and December 31, 2019, we held total escrow balances of $ 957.1 million and $ 947.1 million, respectively, which is not reflected in our consolidated balance sheets.

Of the total escrow balances, we held $ 545.6 million and $ 562.1 million at March 31, 2020 and December 31, 2019, respectively, related to loans we are servicing within our Agency Business.

At June 30, 2020 and December 31, 2019, our weighted average servicing fee was 44.1 basis points and 43.8 basis points, respectively.

At June 30, 2020 and December 31, 2019, we held total escrow balances of $ 1.02 billion and $ 947.1 million, respectively, which is not reflected in our consolidated balance sheets.

Of the total escrow balances, we held $ 635.4 million and $ 562.1 million at June 30, 2020 and December 31, 2019, 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 $ 3.1 million and $ 4.0 million during the three months ended March 31, 2020 and 2019, respectively, and is a component of servicing revenue, net in the consolidated statements of operations.

Interest earned on total escrows, net of interest paid to the borrower, was $ 1.4 million and $ 4.5 million during the three and six months ended June 30, 2020, respectively, and $ 4.1 million and $ 8.1 million during the three and six months ended June 30, 2019, respectively, and is a component of servicing revenue, net in the consolidated statements of operations.

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Note 7 — Securities Held-to-Maturity

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As part of the securitizations under the SBL program, we have the option to purchase the B Piece bond through a bidding process, which represents the bottom 10%, or highest risk, of the securitization.

As of March 31, 2020, 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.

As of June 30, 2020, 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 5.9 years.

The weighted average effective interest rate was 10.91 % and 10.85 % at March 31, 2020 and December 31, 2019, respectively, including the accretion of a portion of the discount deemed collectible.

The weighted average effective interest rate was 10.66 % and 10.85 % at June 30, 2020 and December 31, 2019, respectively, including the accretion of a portion of the discount deemed collectible.

Approximately $ 13.4 million is estimated to mature within one year, $ 39.6 million is estimated to mature after one year through five years, $ 15.2 million is estimated to mature after five years through ten years and $ 16.6 million is estimated to mature after ten years.

Agency Private Label Certificates.

In connection with our $ 727.2 million Private Label securitization in May 2020, we retained the most subordinate class of certificates with an initial face value of $ 63.6 million (the “APL certificates”).

We purchased the APL certificates at a discount for $ 37.9 million, which are collateralized by a pool of 40 fixed rate 10-year mortgage loans secured by first mortgage leans on 49 multifamily properties, bear interest at an initial weighted average variable rate of 4.95 % and have an estimated weighted average remaining maturity of 9.5 years.

The weighted average effective interest rate was 11.50 % at June 30, 2020 and the full $ 63.6 million is expected to mature after five years through ten years.

Structured Single-Family Rental Bonds (“SFR bonds”).

As of March 31, 2020, we held $ 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.

As of June 30, 2020, we held $ 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 0.4 years.

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Credit Losses

March 31, 2020

June 30, 2020

B Piece bonds

APL certificates

December 31, 2019

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A summary of the changes in the allowance for credit losses for our securities held-to-maturity is as follows (in thousands):

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Beginning balance

Provision for credit loss expense

Ending balance

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Six Months Ended June 30, 2020

APL Certificates

B Piece Bonds

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The allowance for credit losses on our held-to-maturity securities was estimated on a collective basis by major security type and was based on a reasonable and supportable forecast period and a historical loss reversion for similar securities.

The issuers continue to make timely principal and interest payments and we continue to accrue interest on all our bonds.

As of March 31, 2020, no other-than-temporary impairment was recorded on our held-to-maturity securities.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

During the three months ended March 31, 2020 and 2019, we recorded interest income (including the amortization of discount) of $ 2.3 million and $ 2.1 million, respectively, related to these investments.

As of March 31, 2020, accrued interest receivable related to these bonds totaling $ 0.1 million was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheet.

The issuers continue to make timely principal and interest payments and we continue to accrue interest on all our securities.

As of June 30, 2020, no other-than-temporary impairment was recorded on our held-to-maturity securities.

We recorded interest income (including the amortization of discount) related to these investments of $ 1.7 million and $ 4.0 million during the three and six months ended June 30, 2020, respectively, and $ 2.3 million and $ 4.4 million during the three and six months ended June 30, 2019, respectively.

As of June 30, 2020, accrued interest receivable related to these bonds totaling $ 0.6 million was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheet.

Note 8 — Investments in Equity Affiliates

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Equity Affiliates

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

Arbor Residential Investor LLC

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Arbor Residential Investor LLC (“ARI”).

During the three months ended March 31, 2020 and 2019, we recorded income of $ 2.9 million and $ 0.8 million, respectively, to income from equity affiliates in our consolidated statements of operations.

During the three and six months ended June 30, 2020, we recorded income of $ 20.9 million and $ 23.8 million, respectively, and during the three and six months ended June 30, 2019, we recorded income of $ 2.7 million and $ 3.5 million, respectively, to income from equity affiliates in our consolidated statements of operations.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Summarized statements of income for our investment in ARI are as follows (in thousands):

Six Months Ended June 30,

Statements of Operations:

Total revenues

Total expenses

Lexford Portfolio.

During the three months ended March 31, 2020 and 2019, we received distributions of $ 1.1 million and $ 1.3 million, respectively, from this equity investment, which was recognized as income.

During the first quarter of 2020, we received distributions of $ 1.1 million and during the three and six months ended June 30, 2019, we received distributions of $ 0.6 million and $ 1.9 million, respectively, from this equity investment, which was recognized as income.

As a result of COVID-19, Lexford has temporarily suspended paying distributions to its equity holders.

See Note 18 for details of certain investments described above.

Note 9 — Real Estate Owned

Our real estate assets at both March 31, 2020 and December 31, 2019 were comprised of a hotel property and an office building.

March 31, 2020

Our real estate assets at both June 30, 2020 and December 31, 2019 were comprised of a hotel property and an office building.

June 30, 2020

December 31, 2019

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Real estate owned, net

During the three months ended March 31, 2020 and 2019, our hotel property had a weighted average occupancy rate of 41 % and 53 %, respectively, a weighted average daily rate of $ 154 and $ 130 , respectively, and weighted average revenue per available room of $ 64 and $ 69 , respectively.

The operation of a hotel property is seasonal with the majority of

During the six months ended June 30, 2020 and 2019, our hotel property had a weighted average occupancy rate of 20 % and 62 %, respectively, a weighted average daily rate of $ 134 and $ 111 , respectively, and weighted average revenue per available room of $ 27 and $ 69 , respectively.

The operation of a hotel property is seasonal with the majority of revenues earned in the first two quarters of the calendar year.

As a result of the COVID-19 pandemic, our hotel property temporarily ceased operations during April and May 2020 and has since resumed operations.

During the second quarter of 2019, based on discussions with market participants, we determined that the hotel property exhibited indicators of impairment and performed an impairment analysis.

As a result of this analysis, we recorded an impairment loss of $ 1.0 million.

Our office building was fully occupied by a single tenant until April 2017 when the lease expired.

The building is currently vacant.

Our real estate owned assets had restricted cash balances due to escrow requirements totaling $ 0.4 million and $ 0.5 million at June 30, 2020 and December 31, 2019, respectively.

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

revenues earned in the first two quarters of the calendar year.

As a result of the COVID-19 pandemic, our hotel property has temporarily ceased operations beginning in April 2020.

Our office building was fully occupied by a single tenant until April 2017 when the lease expired.

The building is currently vacant.

Our real estate owned assets had restricted cash balances due to escrow requirements totaling $ 0.4 million and $ 0.5 million at March 31, 2020 and December 31, 2019, respectively.

June 30, 2020

Note 10 — Debt Obligations

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Borrowings under our credit facilities and repurchase agreements are as follows ($ in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

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$ 200 million repurchase facility

$ 150 million credit facility (3)

$ 144.3 million loan specific credit facilities

May 2020 to May 2022

2020 to May 2022

June 2021 to Dec.

$ 100 million repurchase facility

$ 125 million credit facility

$ 100 million repurchase facility (2)

$ 50 million credit facility

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Consolidated total

(1) The debt carrying value for the Structured Business at March 31, 2020 and December 31, 2019 was net of unamortized deferred finance costs of $ 3.9 million and $ 2.1 million, respectively.

The debt carrying value for the Agency Business at March 31, 2020 and December 31, 2019 was net of unamortized deferred finance costs of $ 1.4 million and $ 0.2 million, respectively.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

(2) This repurchase facility includes six-month extension options into perpetuity.

(3) In February 2020, the committed amount under the facility was temporarily increased $ 75.0 million to $ 150.0 million, which expires on May 29, 2020.

(1) The debt carrying value for the Structured Business at June 30, 2020 and December 31, 2019 was net of unamortized deferred finance costs of $ 4.0 million and $ 2.1 million, respectively.

The debt carrying value for the Agency Business at June 30, 2020 and December 31, 2019 was net of unamortized deferred finance costs of $ 1.2 million and $ 0.2 million, respectively.

(2) This facility was scheduled to mature in July 2020, which was extended to August 2020, and we are currently in negotiations with this lender to renew this facility, which could reflect changes in facility size, pricing and advance rates.

(3) These repurchase facilities are subject to margin call provisions associated with changes in interest spreads.

As of March 31, 2020 and December 31, 2019, these facilities were collateralized by our CLO bonds retained and consolidated by us with a principal balance of $ 275.7 million and $ 234.9 million, respectively, B Piece bonds held-to-maturity with a carrying value of $ 64.4 million and $ 68.7 million, respectively, and SFR bonds with a carrying value of $ 20.0 million at both March 31, 2020 and December 31, 2019.

At March 31, 2020, we had posted $ 54.7 million of cash collateral related to margin calls, which was used to reduce the UPB of the facilities in April 2020.

We further reduced this debt in April 2020 to approximately $ 40.0 million through a debt restructuring and the use of proceeds from our senior notes issued in April 2020.

(5) The note rate under this agreement is subject to a LIBOR Floor of 35 basis points.

As of June 30, 2020 and December 31, 2019, these facilities were collateralized by our CLO bonds retained and consolidated by us with a principal balance of $ 275.7 million and $ 234.9 million, respectively, B Piece bonds held-to-maturity with a carrying value of $ 63.2 million and $ 68.7 million, respectively, and SFR bonds with a carrying value of $ 20.0 million at both June 30, 2020 and December 31, 2019.

During the six months ended June 30, 2020, we significantly reduced the UPB of these facilities by $ 160.1 million through a debt restructuring and the use of proceeds from our senior notes issued in the second quarter of 2020 and have further reduced this debt to approximately $ 42.0 million in July 2020.

Generally, our credit facilities and repurchase agreements have extension options that are at the discretion of the banking institutions in which we have long standing relationships with.

1 unchanged sentence

Joint Repurchase Facility.

During the three months ended March 31, 2020, we amended our joint repurchase facility shared between the Structured Business and the Agency Business to increase the total committed amount by $ 400.0 million to $ 1.10 billion, of which $ 600.0 million matures in March 2021 and $ 500.0 million matures in March 2022, with each maturity eligible for a one-year extension option.

During the first quarter of 2020, we amended our joint repurchase facility shared between the Structured Business and the Agency Business to increase the total committed amount by $ 400.0 million to $ 1.10 billion, of which $ 600.0 million matures in March 2021 and $ 500.0 million matures in March 2022, with each maturity eligible for a one-year extension option.

The amended facility includes an $ 800.0 million sublimit for Private Label loans, which reduces to $ 500.0 million in March 2021 unless that portion of the facility is extended through March 2022.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Structured Business

At March 31, 2020 and December 31, 2019, 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 3.55 % and 4.39 %, 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 69 % and 71 % at March 31, 2020 and December 31, 2019, respectively.

At June 30, 2020 and December 31, 2019, 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 3.33 % and 4.39 %, respectively.

In June 2020, we entered into a $ 23.0 million credit facility used to finance a multifamily bridge loan.

The facility bears interest at a fixed rate of 3.50 % and matures in September 2021.

In March 2020, we amended a $ 300.0 million repurchase agreement, increasing the committed amount to $ 400.0 million.

In June 2020, we further amended this repurchase agreement extending the maturity date to June 2021 and increasing the interest rate by 25 basis points with a LIBOR floor of 75 basis points.

In February 2020, we amended one of our $ 75.0 million credit facilities to temporarily increase the committed amount under the facility by $ 75.0 million to $ 150.0 million, which was scheduled to expire in May 2020.

In May 2020, we further amended this facility which now has a total permanent committed amount of $ 125.0 million, an interest rate range of 230 basis points to 300 basis points over LIBOR, with a LIBOR floor of 50 basis points.

This facility was scheduled to mature in July 2020, which was extended to August 2020, and we are currently in negotiations with this lender to renew this facility, which could reflect changes in facility size, pricing and advance rates.

Agency Business

In July 2020, we amended one of our $ 150.0 million credit facilities to include a $ 50.0 million sublimit for principal and interest advances we make as the primary servicer to Fannie Mae in connection with potential delinquent loans under the Fannie Mae forbearance program.

The sublimit bears interest at a rate of 200 basis points over LIBOR, with a LIBOR floor of 25 basis points.

In March 2020, we amended our $ 500.0 million repurchase facility reducing the committed amount to $ 300.0 million.

3 unchanged sentences

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)

June 30, 2020

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Borrowings and the corresponding collateral under our CLOs are as follows ($ in thousands):

Collateral (3)

March 31, 2020

June 30, 2020

Collateral (3)

December 31, 2019

(1) Debt carrying value is net of $ 19.5 million and $ 17.3 million of deferred financing fees at March 31, 2020 and December 31, 2019, respectively.

(2) At March 31, 2020 and December 31, 2019, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 2.87 % and 3.63 %, respectively.

(3) As of March 31, 2020 and December 31, 2019, there was no collateral at risk of default or deemed to be a “credit risk” as defined by the CLO indenture.

(1) Debt carrying value is net of $ 18.1 million and $ 17.3 million of deferred financing fees at June 30, 2020 and December 31, 2019, respectively.

(2) At June 30, 2020 and December 31, 2019, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 1.97 % and 3.63 %, respectively.

(3) As of June 30, 2020, there was one loan with a UPB of $ 46.5 million deemed at risk of default or a “credit risk” as defined by the CLO indenture, which we repurchased from the respective CLOs in July 2020.

As of December 31, 2019, there was no collateral deemed a credit risk.

(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 $ 89.1 million and $ 58.6 million at March 31, 2020 and December 31, 2019, respectively.

Does not include restricted cash related to interest payments, delayed fundings and expenses totaling $ 71.1 million and $ 58.6 million at June 30, 2020 and December 31, 2019, respectively.

In March 2020, we completed CLO XIII, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $ 738.0 million.

6 unchanged sentences

The notes sold to third parties had an initial weighted average interest rate of 1.41 % plus one-month LIBOR and interest payments on the notes are payable monthly.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

by CLO VIII, and expensed $ 1.5 million of deferred financing fees into loss on extinguishment of debt on the consolidated statements of operations.

In March 2020, we completed the unwind of CLO VIII, redeeming $ 282.9 million of outstanding notes, which were repaid primarily from the refinancing of the remaining assets primarily within CLO XIII, as well as with cash held by CLO VIII, and expensed $ 1.5 million of deferred financing fees into loss on extinguishment of debt on the consolidated statements of operations.

Luxembourg Debt Fund

Our Luxembourg commercial real estate debt fund (“Debt Fund”) was a VIE for which we were the primary beneficiary and was consolidated in our financial statements.

As previously planned, in April 2020 we completed the unwind of the Debt Fund and redeemed all the outstanding notes with a portion of the proceeds from our senior unsecured notes issued in March 2020 described below.

Borrowings and the corresponding collateral under our Debt Fund were as follows ($ in thousands):

Collateral (3)

March 31, 2020

December 31, 2019

(1) Debt carrying value is net of $ 1.3 million and $ 1.4 million of deferred financing fees at March 31, 2020 and December 31, 2019, respectively.

(2) At March 31, 2020 and December 31, 2019, the aggregate weighted average note rate, including certain fees and costs, was 6.52 % and 7.17 % , respectively.

(3) At both March 31, 2020 and December 31, 2019, 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 March 2020, we issued $ 275.0 million aggregate principal amount of 4.50 % senior unsecured notes due in March 2027 (the "4.50% Notes") in a private placement.

We received proceeds of $ 271.8 million from the issuance, after deducting the underwriting discount and other offering expenses.

We used a significant portion of the net proceeds to repay secured indebtedness.

The 4.50 % Notes are unsecured and can be redeemed by us at any time prior to December 15, 2026, 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 4.50 % Notes on or after December 15, 2026, at a redemption price equal to 100 % of the aggregate principal amount, plus accrued and unpaid interest.

The interest is paid semiannually in March and September starting in September 2020.

At March 31, 2020, the debt carrying value of the 4.50 % Notes was $ 271.8 million, net of $ 3.2 million of deferred financing fees, and the weighted average note rate, including certain fees and costs, was 4.69 %.

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 both March 31, 2020 and December 31, 2019, the debt carrying value of the

In April 2020, we completed the unwind of the Debt Fund and redeemed all the outstanding notes with a portion of the proceeds from our senior unsecured notes issued in March 2020 described below and recorded a loss on extinguishment of debt of $ 1.6 million, which was primarily comprised of deferred financing fees.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

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 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 March 31, 2020 and December 31, 2019, the debt carrying value of the 5.75 % Notes were $ 88.5 million and $ 88.4 million, respectively, net of $ 1.5 million and $ 1.6 million, respectively, of deferred financing fees, and the weighted average note rate, including certain fees and costs, was 6.18 % at both March 31, 2020 and December 31, 2019.

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.

June 30, 2020

Senior Unsecured Notes

A summary of our senior unsecured notes is as follows (in thousands):

June 30, 2020

December 31, 2019

5.625 % Notes

(1) At June 30, 2020 and December 31, 2019, the carrying value is net of deferred financing fees of $ 9.0 million and $ 5.2 million, respectively.

(2) At June 30, 2020 and December 31, 2019, the aggregate weighted average note rate, including certain fees and costs, was 5.65 % and 5.82 % , respectively.

In April 2020, we issued $ 40.5 million aggregate principal amount of 8.00 % senior unsecured notes due in April 2023 (the "Initial Notes") in a private placement, and, in June 2020, we issued an additional $ 30.3 million (the "Reopened Notes"

and, together with the Initial Notes, the "

8.00 % Notes,") which brought the aggregate outstanding principal amount to $ 70.8 million.

The Reopened Notes are fully fungible with, and rank equally in right of payment with the Initial Notes.

We have the right to redeem the 8.00 % Notes on or after January 15, 2023.

We received total proceeds of $ 69.6 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 March 31, 2020 and December 31, 2019, the debt carrying value of the 5.625 % Notes were $ 123.2 million and $ 123.1 million, respectively, net of $ 1.8 million and $ 1.9 million, respectively, of deferred financing fees, and the weighted average note rate, including certain fees and costs, was 6.08 % at both March 31, 2020 and December 31, 2019.

Subsequent Event

In April 2020, we issued $ 40.5 million aggregate principal amount of 8.00 % senior unsecured notes due in 2023 in a private offering, generating net proceeds of $ 39.8 million.

A significant portion of the net proceeds were used to repay secured indebtedness that financed our securities with margin call exposure.

We used the net proceeds from the issuances to repay secured indebtedness, make investments relating to our business and for general corporate purposes.

Our senior unsecured notes can be redeemed by us at any time prior to the redemption date, 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 notes on or after the redemption date, at a redemption price equal to 100 % of the aggregate principal amount, plus accrued and unpaid interest.

Convertible Senior Unsecured Notes

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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

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.

As of June 30, 2020, the 4.75 % Convertible Notes had conversion rates of 56.1695 shares, common stock per $ 1,000 of principal, which represented a conversion price of $ 17.80 per share of common stock.

In 2018, we completed a similar exchange where we used the net proceeds from two separate private placements of our 5.25 % convertible senior notes (the "

5.25 % Convertible Notes") to initially exchange portions of our 5.375 % convertible senior notes (the "

5.375 % Convertible Notes") and 6.50 % convertible senior notes (the "

6.50 % Convertible Notes").

At June 30, 2020, there were $ 0.5 million, $ 13.8 million and $ 0.2 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,

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

As of March 31, 2020, the 4.75 % Convertible Notes had conversion rates of 56.1695 shares, common stock per $ 1,000 of principal, which represented a conversion price of $ 17.80 per share of common stock.

In 2018, we completed a similar exchange where we used the net proceeds from two separate private placements of our 5.25 % convertible senior notes (the "5.25% Convertible Notes") to initially exchange portions of our 5.375 % convertible senior notes (the "5.375% Convertible Notes") and 6.50 % convertible senior notes (the "6.50% Convertible Notes").

At March 31, 2020, there were $ 0.5 million, $ 14.7 million and $ 0.2 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.

June 30, 2020

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 March 31, 2020, 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 89.6066 shares, 80.1703 shares and 115.5849 shares, respectively, of common stock per $ 1,000 of principal, which represented a conversion price of $ 11.16 per share, $ 12.47 per share and $ 8.65 per share of common stock, respectively.

At June 30, 2020, 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 90.093 shares, 80.6055 shares and 116.9744 shares, respectively, of common stock per $ 1,000 of principal, which represented a conversion price of $ 11.10 per share, $ 12.41 per share and $ 8.55 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.

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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 2.51 years and 2.67 years at March 31, 2020 and December 31, 2019, respectively, on a weighted average basis.

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 2.27 years and 2.67 years at June 30, 2020 and December 31, 2019, respectively, on a weighted average basis.

The UPB, unamortized discount and net carrying amount of the liability and equity components of our convertible notes were as follows (in thousands):

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Financing Fees

March 31, 2020

June 30, 2020

December 31, 2019

During the three months ended March 31, 2020, we incurred interest expense on the notes totaling $ 5.2 million, of which $ 3.4 million, $ 0.9 million and $ 0.9 million related to the cash coupon, the debt discount and amortization of the deferred

During the three months ended June 30, 2020, we incurred interest expense on the notes totaling $ 4.8 million, of which $ 3.3 million, $ 0.8 million and $ 0.7 million related to the cash coupon, amortization of the debt discount and of the deferred financing fees, respectively.

During the six months ended June 30, 2020, we incurred interest expense on the notes totaling $ 10.0 million, of which $ 6.7 million, $ 1.7 million and $ 1.6 million related to the cash coupon, amortization of the debt discount and of the deferred financing fees, respectively.

During the three months ended June 30, 2019, we incurred total interest expense on the notes of $ 4.9 million, of which $ 3.4 million, $ 0.8 million and $ 0.7 million related to the cash coupon, amortization of the debt discount and of the deferred financing fees, respectively.

During the six months ended June 30, 2019, we incurred total interest expense on the notes of $ 10.2 million, of which $ 6.9 million, $ 1.7 million and $ 1.5 million related to the cash coupon, amortization of the debt discount and of the deferred financing fees, respectively.

Including the amortization of the deferred financing fees and debt discount, our weighted average total cost of the notes was 6.75 % and 6.80 % at June 30, 2020 and December 31, 2019, respectively.

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

financing fees, respectively.

During the three months ended March 31, 2019, we incurred total interest expense on the notes of $ 5.2 million, of which $ 3.5 million, $ 0.9 million and $ 0.8 million related to the cash coupon, the debt discount and amortization of the deferred financing fees, respectively.

Including the amortization of the deferred financing fees and debt discount, our weighted average total cost of the notes was 6.75 % and 6.80 % at March 31, 2020 and December 31, 2019, respectively.

June 30, 2020

Junior Subordinated Notes

The carrying values of borrowings under our junior subordinated notes were $ 141.1 million and $ 140.9 million at March 31, 2020 and December 31, 2019, respectively, which is net of a deferred amount of $ 11.3 million and $ 11.4 million, respectively, (which is amortized into interest expense over the life of the notes) and deferred financing fees of $ 1.9 million and $ 2.0 million, respectively.

The carrying values of borrowings under our junior subordinated notes were $ 141.3 million and $ 140.9 million at June 30, 2020 and December 31, 2019, respectively, which is net of a deferred amount of $ 11.1 million and $ 11.4 million, respectively, (which is amortized into interest expense over the life of the notes) and deferred financing fees of $ 1.9 million and $ 2.0 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 4.28 % and 4.75 % at March 31, 2020 and December 31, 2019, respectively.

Including certain fees and costs, the weighted average note rate was 4.37 % and 4.83 % at March 31, 2020 and December 31, 2019, respectively.

The weighted average note rate was 3.12 % and 4.75 % at June 30, 2020 and December 31, 2019, respectively.

Including certain fees and costs, the weighted average note rate was 3.21 % and 4.83 % at June 30, 2020 and December 31, 2019, respectively.

Debt Covenants

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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 March 31, 2020.

We were in compliance with all financial covenants and restrictions at June 30, 2020.

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 March 31, 2020, as well as on the most recent determination dates in April 2020.

Our CLOs were in compliance with all such covenants as of June 30, 2020, as well as on the most recent determination dates in July 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.

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However, we may not have sufficient liquidity available to do so at such time.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Our CLO compliance tests as of the most recent determination dates in April 2020 are as follows:

Our CLO compliance tests as of the most recent determination dates in July 2020 are as follows:

Cash Flow Triggers

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(2) The interest coverage ratio divides interest income by interest expense for the classes senior to those retained by us.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Our CLO overcollateralization ratios as of the determination dates subsequent to each quarter are as follows:

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The junior subordinated indentures are also cross-defaulted with each other.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Note 11 — Allowance for Loss-Sharing Obligations

Our allowance for loss-sharing obligations related to the Fannie Mae DUS program is as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Beginning balance

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A liability is recognized for the fair value of the guarantee obligation undertaken for the non-contingent aspect of the guarantee and is removed only upon either the expiration or settlement of the guarantee.

At March 31, 2020 and 2019, guarantee obligations of $ 32.4 million and $ 31.5 million, respectively, were included in the allowance for loss-sharing obligations.

At June 30, 2020 and 2019, guarantee obligations of $ 32.8 million and $ 31.6 million, respectively, were included in the allowance for loss-sharing obligations.

In addition to and separately from the fair value of the guarantee, we estimate our allowance for loss-sharing under CECL over the contractual period in which we are exposed to credit risk.

The current expected loss related to loss-sharing was based on a collective pooling basis with similar risk characteristics, a reasonable and supportable forecast and a reversion period based on our average historical losses through the remaining contractual term of the portfolio.

The increase in the provision for credit losses during the three months ended March 31, 2020 of $ 21.9 million, compared to the January 1, 2020 cumulative-effect adjustment upon adoption of CECL of $ 14.4 million, is primarily attributed to the significant adverse change in the economic outlook due to the COVID-19 pandemic.

The increase in the provision for credit losses during the six months ended June 30, 2020 of $ 24.6 million, compared to the January 1, 2020 cumulative-effect adjustment upon adoption of CECL of $ 14.4 million, is primarily attributed to the significant adverse change in the economic outlook due to the COVID-19 pandemic.

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 March 31, 2020 and December 31, 2019, we had outstanding advances of $ 0.4 million and $ 0.5 million, respectively, which were netted against the allowance for loss-sharing obligations.

At March 31, 2020, our allowance for loss-sharing obligations, associated with expected losses under CECL was $ 38.4 million and represented 0.26 % of the Fannie Mae servicing portfolio.

At March 31, 2020 and December 31, 2019, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was $ 2.76 billion and $ 2.73 billion, respectively.

At June 30, 2020 and December 31, 2019, we had outstanding advances of $ 0.3 million and $ 0.5 million, respectively, which were netted against the allowance for loss-sharing obligations.

At June 30, 2020, our allowance for loss-sharing obligations, associated with expected losses under CECL was $ 40.4 million and represented 0.26 % of the Fannie Mae servicing portfolio.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

At June 30, 2020 and December 31, 2019, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was $ 2.91 billion and $ 2.73 billion, respectively.

The maximum quantifiable liability is not representative of the actual loss we would incur.

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We do not use these derivatives for speculative purposes, but are instead using them to manage our exposure to interest rate risk.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Agency Rate Lock and Forward Sale Commitments.

10 unchanged sentences

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 operations.

During the three months ended March 31, 2020 and 2019, we recorded a net gain of $ 8.2 million and a net loss of $ 2.5 million, respectively, from changes in the fair value of these derivatives in loss on derivative instruments, net and $ 21.9 million and $ 14.2 million, respectively, of income from MSRs.

During the three and six months ended June 30, 2020, we recorded a net loss of $ 4.1 million and a net gain of $ 4.2 million, respectively, from changes in the fair value of these derivatives in (loss) gain on derivative instruments, net and $ 32.4 million and $ 54.4 million, respectively, of income from MSRs.

During the three and six months ended June 30, 2019, we recorded a net gain of $ 1.1 million and a net loss of $ 1.4 million, respectively, from changes in the fair value of these derivatives in (loss) gain on derivative instruments, net and $ 18.7 million and $ 32.9 million, respectively, of income from MSRs.

See Note 13 for details.

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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.

During the three months ended March 31, 2020, we recorded realized losses of $ 2.6 million and unrealized losses of $ 0.4 million to our Structured Business and realized losses of $ 46.0 million and unrealized losses of $ 9.8 million to our Agency Business related to our Swap Futures.

During the three months ended June 30, 2020, we recorded realized losses of $ 0.2 million and unrealized losses of $ 0.1 million to our Structured Business and realized losses of $ 11.2 million and unrealized gains of $ 8.2 million to our Agency Business related to our Swap Futures.

During the six months ended June 30, 2020, we recorded realized losses of $ 2.8 million and unrealized losses of $ 0.5 million to our Structured Business and realized losses of $ 57.3 million and unrealized losses of $ 1.6 million to our Agency Business related to our Swap Futures.

During both the three and six months ended June 30, 2019, we recorded realized losses of $ 0.3 million and unrealized losses of $ 0.1 million to our Structured Business from our Swap Futures.

The realized and unrealized gains and losses are recorded in loss on derivative instruments, net on our consolidated statements of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

A summary of our non-qualifying derivative financial instruments is as follows ($ in thousands):

March 31, 2020

June 30, 2020

Balance Sheet

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Note 13 — Fair Value

1 unchanged sentence

The following table summarizes the principal amounts, carrying values and the estimated fair values of our financial instruments (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

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Determining which category an asset or liability falls within the hierarchy requires judgment and we evaluate our hierarchy disclosures each quarter.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

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.

2 unchanged sentences

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).

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Loans held-for-sale, net.

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For these facilities, the fair values approximate their carrying values.

Collateralized loan obligations, Debt Fund and junior subordinated notes.

Collateralized loan obligations, junior subordinated notes and Debt Fund.

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).

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Senior unsecured notes.

3 unchanged sentences

Fair values are estimated based on current market quotes received from inactive markets (Level 2).

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

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 March 31, 2020 (in thousands):

The fair values of these financial assets and liabilities were determined using the following input levels as of June 30, 2020 (in thousands):

Fair Value Measurements Using Fair

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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 March 31, 2020 (in thousands):

The fair values of these financial and non-financial assets, if applicable, were determined using the following input levels as of June 30, 2020 (in thousands):

Fair Value Measurements Using Fair

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Impaired loans, net (1)

(1) We had an allowance for loan losses of $ 103.7 million relating to nine impaired loans with an aggregate carrying value, before loan loss reserves, of $ 217.1 million at March 31, 2020.

(1) We had an allowance for loan losses of $ 106.3 million relating to ten impaired loans with an aggregate carrying value, before loan loss reserves, of $ 220.7 million at June 30, 2020.

Loan impairment assessments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Quantitative information about Level 3 fair value measurements at March 31, 2020 were as follows ($ in thousands):

June 30, 2020

Quantitative information about Level 3 fair value measurements at June 30, 2020 were as follows ($ in thousands):

Significant Unobservable Inputs

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A roll-forward of Level 3 derivative instruments were as follows (in thousands):

Fair Value Measurements Using Significant Unobservable Inputs

Three Months Ended March 31,

Fair Value Measurements Using

Significant Unobservable Inputs

Three Months Ended June 30,

Six Months Ended June 30,

Derivative assets and liabilities, net

7 unchanged sentences

Total Fair Value

March 31, 2020

June 30, 2020

Principal Amount

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

We measure certain assets and liabilities for which fair value is only disclosed.

The fair value of these assets and liabilities are determined using the following input levels as of March 31, 2020 (in thousands):

The fair value of these assets and liabilities are determined using the following input levels as of June 30, 2020 (in thousands):

Fair Value Measurements Using Fair Value Hierarchy

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Our adjusted net worth and liquidity required by the agencies for all periods presented exceeded these requirements.

As of March 31, 2020, we were required to maintain at least $ 14.8 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.

As of June 30, 2020, we were required to maintain at least $ 15.4 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.

2 unchanged sentences

A significant portion of our Fannie Mae DUS serviced loans for which we have risk sharing are Tier 2 loans.

As of March 31, 2020, we met the restricted liquidity requirement with a $ 45.0 million letter of credit and $ 2.6 million of cash collateral.

As of March 31, 2020, reserve requirements for the Fannie Mae DUS loan portfolio will require us to fund $ 37.1 million in additional restricted liquidity over the next 48 months , assuming no further principal paydowns, prepayments, or defaults within our at-risk portfolio.

As of June 30, 2020, we met the restricted liquidity requirement with a $ 45.0 million letter of credit and $ 4.4 million of cash collateral.

As of June 30, 2020, reserve requirements for the Fannie Mae DUS loan portfolio will require us to fund $ 37.7 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

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.

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

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.

June 30, 2020

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 March 31, 2020, 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.

As of June 30, 2020, 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 not subject to capital requirements on a quarterly basis for Ginnie Mae or FHA, as such requirements for these investors are only required on an annual basis.

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Debt Obligations and Operating Leases.

As of March 31, 2020, 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):

As of June 30, 2020, 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):

Minimum Annual

Operating Lease

2020 (nine months ending December 31, 2020)

During the three months ended March 31, 2020 and 2019, we recorded lease expense of $ 1.6 million and $ 1.5 million, respectively.

2020 (six months ending December 31, 2020)

During the both the three months ended June 30, 2020 and 2019, we recorded lease expense of $ 1.5 million, and during the six months ended June 30, 2020 and 2019, we recorded lease expense of $ 3.1 million and $ 2.9 million, respectively.

Unfunded Commitments.

In accordance with certain structured loans and investments, we have outstanding unfunded commitments of $ 183.8 million as of March 31, 2020 that we are obligated to fund as borrowers meet certain requirements.

In accordance with certain structured loans and investments, we have outstanding unfunded commitments of $ 150.9 million as of June 30, 2020 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.

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There were 73 defendants in the three lawsuits, including 55 corporate and partnership entities and 18 individuals.

A subsidiary of ours

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.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

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.

June 30, 2020

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.

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The Court reserved decision at that hearing.

The next hearing on the case has been adjourned to May 19, 2020.

The next hearing on the case has been adjourned to August 11, 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.

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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 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.

As described in Note 10, we completed the unwind of the Debt Fund in April 2020 and redeemed all the outstanding notes.

Prior to the unwind, the Debt Fund entity was consolidated and considered a VIE.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

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.

June 30, 2020

Our CLO 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.

As a result of consolidation, equity interests have been eliminated, and the consolidated balance sheets reflect both the assets held and debt issued to third parties by the CLOs and Debt Fund, prior to the unwind.

Our operating results and cash flows include the gross asset and liability amounts related to the CLOs and Debt Fund, prior to the unwind, as opposed to our net economic interests in those entities.

The assets and liabilities related to these consolidated CLOs and Debt Fund are as follows (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

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Total liabilities

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.

Assets held by the CLOs are restricted and can only be used to settle obligations of the CLOs.

The liabilities of the CLOs are non-recourse to us and can only be satisfied from each respective asset pool.

See Note 10 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.

We are not obligated to provide, have not provided, and do not intend to provide financial support to any of the consolidated CLOs.

Unconsolidated VIEs .

We determined that we are not the primary beneficiary of 28 VIEs in which we have a variable interest as of March 31, 2020 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 March 31, 2020 is as follows (in thousands):

We determined that we are not the primary beneficiary of 31 VIEs in which we have a variable interest as of June 30, 2020 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 June 30, 2020 is as follows (in thousands):

Carrying Amount (1)

B Piece and SFR bonds

APL certificates

Equity investments

Agency interest only strips

(1) Represents the carrying amount of loans and investments before reserves.

At June 30, 2020, $ 129.4 million of loans to VIEs had corresponding specific loan loss reserves of $ 79.4 million.

The maximum loss exposure as of June 30, 2020 would not exceed the carrying amount of our investment.

These unconsolidated VIEs have exposure to real estate debt of approximately $ 4.86 billion at June 30, 2020.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

(1) Represents the carrying amount of loans and investments before reserves.

At March 31, 2020, $ 129.0 million of loans to VIEs had corresponding loan loss reserves of $ 79.4 million.

The maximum loss exposure as of March 31, 2020 would not exceed the carrying amount of our investment.

These unconsolidated VIEs have exposure to real estate debt of approximately $ 4.21 billion at March 31, 2020.

June 30, 2020

Note 16 — Equity

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We have an “At-The-Market” equity offering sales agreement with JMP Securities LLC (“JMP”) which entitles us 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 the three months ended March 31, 2020, we sold 1,350,000 shares for net proceeds of $ 19.4 million.

As of March 31, 2020, we had approximately 3,000,000 shares available under this agreement.

During the six months ended June 30, 2020, we sold 3,308,008 shares for net proceeds of $ 38.0 million.

As of June 30, 2020, we had approximately 1,000,000 shares available under this agreement.

In March 2020, the Board of Directors authorized a share repurchase program providing for the repurchase of up to $ 100.0 million of our outstanding common stock.

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The program may be discontinued or modified at any time.

As of April 30, 2020, we repurchased 993,106 shares of our common stock under this program at a total cost of $ 3.9 million and an average cost of $ 3.98 per share.

During the three months ended March 31, 2020, we issued 319,259 and 41,601 shares in connection with the settlements of our 5.25 % and 5.375 % Convertible Notes, respectively.

As of June 30, 2020, we repurchased 993,106 shares of our common stock under this program at a total cost of $ 3.9 million and an average cost of $ 3.98 per share.

During the six months ended June 30, 2020, we issued 363,013 and 41,601 shares in connection with the settlements of our 5.25 % and 5.375 % Convertible Notes, respectively.

In February 2020, we also used a portion of the net proceeds from our public offering in December 2019 to purchase 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.

As of March 31, 2020, we had $ 118.2 million available under our $ 500.0 million shelf registration statement that was declared effective by the SEC in June 2018.

As of June 30, 2020, we had $ 99.4 million available under our $ 500.0 million shelf registration statement that was declared effective by the SEC in June 2018.

Noncontrolling Interest.

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The OP Units are also redeemable for cash, or at our option, for shares of our common stock on a one -for-one basis.

At March 31, 2020, there were 20,369,265 OP Units outstanding, which represented 15.6 % of the voting power of our outstanding stock.

At June 30, 2020, there were 20,369,265 OP Units outstanding, which represented 15.4 % of the voting power of our outstanding stock.

Distributions.

Dividends declared (on a per share basis) during the three months ended March 31, 2020 were as follows:

Dividends declared (on a per share basis) during the six months ended June 30, 2020 were as follows:

Preferred Stock

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January 31, 2020

(1) The dividend declared on May 1, 2020 was for March 1, 2020 through May 31, 2020 and the dividend declared on January 31, 2020 was for December 1, 2019 through February 29, 2020.

Common Stock – On July 29, 2020, the Board of Directors declared a cash dividend of $ 0.31 per share of common stock.

The dividend is payable on August 31, 2020 to common stockholders of record as of the close of business on August 17, 2020.

Preferred Stock – On July 29, 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 June 1, 2020 through August 31, 2020 and are payable on August 31, 2020 to preferred stockholders of record on August 15, 2020.

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

(1) The dividend declared on January 31, 2020 was for December 1, 2019 through February 29, 2020.

Common Stock – On May 6, 2020, the Board of Directors declared a cash dividend of $ 0.30 per share of common stock.

The dividend is payable on July 15, 2020 to common stockholders of record as of the close of business on June 30, 2020.

Preferred Stock – On May 1, 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 March 1, 2020 through May 31, 2020 and are payable on June 1, 2020 to preferred stockholders of record on May 15, 2020.

June 30, 2020

Deferred Compensation.

In March 2020, we issued 298,991 shares of restricted common stock to employees under the 2017 Amended Omnibus Stock Incentive Plan (the “2017 Plan”) with a total grant date fair value of $ 3.2 million.

In the first quarter of 2020, we issued 298,991 shares of restricted common stock to employees under the 2017 Amended Omnibus Stock Incentive Plan (the “2017 Plan”) with a total grant date fair value of $ 3.2 million.

Substantially all of these shares have one third vest as of the grant date and one third vesting on each of the first and second anniversaries of the grant date.

In March 2020, we issued 36,396 shares of fully vested common stock to the independent members of the Board of Directors under the 2017 Plan with a grant date fair value of $ 0.4 million.

In March 2020, we issued 45,928 shares of restricted common stock to our chief executive officer under his 2017 annual incentive agreement with a grant date fair value of $ 0.5 million.

In the first quarter of 2020, we issued 45,928 shares of restricted common stock to our chief executive officer under his 2017 annual incentive agreement with a grant date fair value of $ 0.5 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.

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During the first quarter of 2020, 421,348 shares of previously granted performance-based restricted stock units fully vested, which were net settled for 215,014 common shares.

During the first quarter of 2020, 143,096 shares were withheld by us from the net settlement of restricted common stock by employees for payment of withholding taxes.

During the first quarter of 2020, we withheld 149,595 shares from the net settlement of restricted common stock by employees for payment of withholding taxes.

Earnings Per Share.

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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:

Three Months Ended June 30,

Net income attributable to common stockholders (1)

Net income attributable to noncontrolling interest (2)

Net income attributable to common stockholders and noncontrolling interest

Weighted average shares outstanding

Dilutive effect of OP Units (2)

Dilutive effect of restricted stock units (3)

Dilutive effect of convertible notes (4)

Weighted average shares outstanding

Net income per common share (1)

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

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:

Three Months Ended March 31,

June 30, 2020

Six Months Ended June 30,

Net (loss) income attributable to common stockholders (1)

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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, of which was antidilutive for March 31, 2020.

Note 17 — Income Taxes

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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.

In the three months ended March 31, 2020 and 2019, we recorded a tax benefit of $ 14.4 million and less than $ 0.1 million, respectively.

The tax benefit recorded in the three months ended March 31, 2020 consisted of a deferred tax benefit of $ 19.9 million and a current tax provision of $ 5.5 million.

The tax benefit recorded in the three months ended March 31, 2019 consisted of a deferred tax benefit of $ 4.2 million and a current tax provision of $ 4.2 million.

In the three and six months ended June 30, 2020, we recorded a tax provision of $ 12.1 million and a tax benefit of $ 2.3 million, respectively.

In the three and six months ended June 30, 2019, we recorded a tax provision of $ 4.4 million and $ 4.3 million, respectively.

The tax provision recorded in the three months ended June 30, 2020 consisted of a deferred tax provision of $ 10.9 million and a current tax provision of $ 1.2 million.

The tax benefit recorded in the six months ended June 30, 2020 consisted of a deferred tax benefit of $ 9.0 million and a current tax provision of $ 6.7 million.

The tax provision recorded in the three months ended June 30, 2019 consisted of a current tax provision of $ 3.5 million and a deferred tax provision of $ 0.9 million.

The tax provision recorded in the six months ended June 30, 2019 consisted of a current tax provision of $ 7.6 million and a deferred tax benefit of $ 3.3 million.

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Current and deferred taxes are primarily recorded on the portion of earnings (losses) recognized by us with respect to our interest in the TRS’s.

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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 the three months ended March 31, 2020 and 2019, we incurred $ 0.7 million and $ 0.9 million, respectively, of costs for services provided to ACM, which are included in due from related party on the consolidated balance sheets.

During the three and six months ended June 30, 2020, we incurred $ 0.7 million and $ 1.2 million, respectively, and, during the three and six months ended June 30, 2019, we incurred $ 0.5 million and $ 1.5 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 $ 13.8 million and $ 10.7 million at March 31, 2020 and December 31, 2019, respectively, which consisted primarily of amounts due from our affiliated servicing operations related to real estate transactions closing at the end of the quarter and amounts due from ACM for costs incurred in connection with the shared services agreement described above.

Due to related party was $ 3.1 million and $ 13.1 million at March 31, 2020 and December 31, 2019, respectively, and consisted of loan payoffs, holdbacks and escrows to be remitted to our affiliated servicing operations related to real estate transactions.

Due from related party was $ 8.4 million and $ 10.7 million at June 30, 2020 and December 31, 2019, respectively, which consisted primarily of amounts due from our affiliated servicing operations related to real estate transactions closing at the end of the quarter and amounts due from ACM for costs incurred in connection with the shared services agreement described above.

Due to related party was $ 0.6 million and $ 13.1 million at June 30, 2020 and December 31, 2019, respectively, and consisted of loan payoffs, holdbacks and escrows to be remitted to our affiliated servicing operations related to real estate transactions.

We have a $ 35.0 million bridge loan and a $ 7.8 million preferred equity interest on an office building in New York City.

The property is controlled by a third party and, beginning in June 2020, its day-to-day operations are managed by an entity owned by an immediate family member of our chief executive officer, which is entitled to an annual fee of $ 0.3 million and a 33 % equity participation interest.

In certain instances, our business requires our executives to charter privately owned aircraft in furtherance of our business.

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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 the three months ended March 31, 2020, we reimbursed the aircraft owner $ 0.3 million for the flights chartered by our executives pursuant the agreement.

During the six months ended June 30, 2020, we reimbursed the aircraft owner $ 0.3 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 Holdings III LLC ("AMAC III"), a multifamily-focused commercial real estate investment fund sponsored and managed by our chief executive officer and one of his immediate family members.

We committed to a $ 30.0 million investment (of which $ 10.9 million was funded as of March 31, 2020) for an 18 % interest in AMAC III.

We committed to a $ 30.0 million investment (of which $ 10.9 million was funded as of June 30, 2020) for an 18 % interest in AMAC III.

We recorded a loss of $ 0.5 million and $ 0.6 million in the three and six months ended June 30, 2020, respectively, related to this investment.

In July 2019, AMAC III originated a $ 7.0 million mezzanine loan to a borrower with which we have an outstanding $ 34.0 million bridge loan.

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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 recorded income of less than $ 0.1 million in the three months ended March 31, 2020 related to this investment.

Interest income recorded from our bridge and Private Label loans totaled $ 0.9 million for the three months ended March 31, 2020.

In May 2020, we sold the Private Label loan to an unconsolidated affiliate of ours.

Interest income recorded from our bridge and Private Label loans totaled $ 0.7 million and $ 1.6 million for the three and six months ended June 30, 2020, respectively.

In 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.

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In the fourth quarter of 2019, the related party investors liquidated their equity investment.

Interest income recorded from this loan totaled $ 0.3 million for the three months ended March 31, 2019.

Interest income recorded from this loan totaled $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2019, respectively.

In 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

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

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

2.375 % and matures in October 2020.

Interest income recorded from this loan totaled $ 0.6 million and $ 0.7 million for the three months ended March 31, 2020 and 2019, respectively.

June 30, 2020

The loan had an interest rate of LIBOR plus 4.25 % with a LIBOR floor of 2.375 % and was scheduled to mature in October 2020.

In May 2020, the borrower repaid this loan in full.

Interest income recorded from this loan totaled $ 0.8 million and $ 1.4 million for the three and six months ended June 30, 2020 , respectively, and $ 0.7 million and $ 1.4 million for the three and six months ended June 30, 2019, respectively.

In 2018, we acquired a $ 19.5 million bridge loan originated by ACM.

1 unchanged sentence

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 $ 0.3 million for both the three months ended March 31, 2020 and 2019.

In 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.

Interest income recorded from this loan totaled $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2020, respectively, and $ 0.3 million and $ 0.7 million for the three and six months ended June 30, 2019, respectively.

In 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 owned a 10.8 % interest in the borrowing entity.

The loan was used to purchase several undeveloped parcels of land.

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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 $ 0.1 million and $ 0.5 million for the three months ended March 31, 2020 and 2019, respectively.

Interest income recorded from this loan totaled $ 0.1 million for the six months ended June 30, 2020 and $ 0.5 million and $ 1.1 million for the three and six months ended June 30, 2019, respectively.

In 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 $ 0.4 million and $ 0.3 million for the three months ended March 31, 2020 and 2019, respectively.

In 2018, we acquired a $ 9.4 million bridge loan originated by ACM, of which $ 8.9 million was funded as of March 31, 2020.

Interest income recorded from this loan totaled $ 0.3 million and $ 0.7 million for the three and six months ended June 30, 2020, respectively, and $ 0.3 million and $ 0.6 million for the three and six months ended June 30,2019, respectively.

In 2018, we acquired a $ 9.4 million bridge loan originated by ACM, of which $ 9.1 million was funded as of June 30, 2020.

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 $ 0.1 million for both the three months ended March 31, 2020 and 2019.

Interest income recorded from this loan totaled $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2020, respectively, and $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2019, respectively.

In 2017, we acquired a $ 32.8 million bridge loan originated by ACM.

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 $ 0.6 million for the three months ended March 31, 2019.

Interest income recorded from this loan totaled $ 0.6 million and $ 1.2 million for the three and six months ended June 30, 2019, respectively.

In 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.

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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 $ 0.5 million and $ 0.6 million for the three months ended March 31, 2020 and 2019, respectively.

Interest income recorded from these loans totaled $ 0.5 million and $ 1.0 million for the three and six months ended June 30, 2020, respectively, and $ 0.6 million and $ 1.1 million for the three and six months ended June 30, 2019, respectively.

In 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 less than $ 0.1 million for both the three months ended March 31, 2020 and 2019.

In 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.

Servicing revenue recorded from this loan was less than $ 0.1 million for all periods presented.

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Ginkgo subsequently sold the majority of its interest in this property and owned a 3.6 % interest at March 31, 2020.

June 30, 2020

Ginkgo subsequently sold the majority of its interest in this property and owned a 3.6 % interest at June 30, 2020.

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 less than $ 0.1 million for both the three months ended March 31, 2020 and 2019.

Servicing revenue recorded from this loan was less than $ 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.

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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 the remaining mezzanine loan totaled $ 0.1 million for both the three months ended March 31, 2020 and 2019.

Interest income recorded from the remaining mezzanine loan was $ 0.1 million for both the three and six months ended June 30, 2020 and $ 0.1 million and $ 0.2 million for the three and six months ended June 30,2019, 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 had an interest rate of LIBOR plus 4.5 % with a LIBOR floor of 0.25 % and the preferred equity investment had a fixed interest rate of 10 %.

The bridge loan and the preferred equity investment paid off in full in May 2019.

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The Private Label loan bears interest at a fixed rate of 3.10 % and the mezzanine loan bears interest at a fixed rate of 9.00 % and both loans mature in April 2030.

Interest income recorded from these loans totaled less than $ 0.1 million and $ 0.4 million for the three months ended March 31, 2020 and 2019, respectively.

In May 2020, we sold the Private Label loan to an unconsolidated affiliate of ours.

Interest income recorded from these loans totaled $ 0.2 million for both the three and six months ended June 30, 2020 and $ 0.2 million and $ 0.6 million for the three and six months ended June 30, 2019, 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.

We recorded income from these investments of $ 2.9 million and $ 0.8 million in the three months ended March 31, 2020 and 2019, respectively .

We recorded income from these investments of $ 20.9 million and $ 23.8 million in the three and six months ended June 30, 2020, respectively, and $ 2.7 million and $ 3.5 million in the three and six months ended June 30, 2019, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

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.

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In March 2020, the remaining balance of the loans were refinanced with a $ 34.6 million Private Label loan, which bears interest at a fixed rate of 3.30 % and matures in March 2030.

Interest income recorded from these loans totaled $ 0.2 million and $ 4.5 million during the three months ended March 31, 2020 and 2019, respectively.

In May 2020, we sold the Private Label loan to an unconsolidated affiliate of ours.

Interest income recorded from these loans totaled $ 0.2 million during both the three and six months ended June 30, 2020 and $ 3.5 million and $ 8.0 million for the three and six months ended June 30, 2019, 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 $ 1.1 million and $ 1.3 million during the three months ended March 31, 2020 and 2019, respectively, which were recorded as income from equity affiliates.

In addition, in connection with our equity investment, we received distributions totaling $ 1.1 million during the six months ended June 30, 2020 and $ 0.6 million and $ 1.9 million during the three and six months ended June 30, 2019, respectively, which were recorded as income 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.

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acts such as fraud or a material misrepresentation by Lexford or us.

At March 31, 2020, this debt had an aggregate outstanding balance of $ 616.5 million and is scheduled to mature between 2020 and 2029.

At June 30, 2020, this debt had an aggregate outstanding balance of $ 615.2 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.

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Upon the closing of the Acquisition in 2016, we issued OP Units, each paired with one share of our special voting preferred shares.

At March 31, 2020, ACM holds 3,898,554 shares of our common stock and 14,669,101 OP Units, which represents 14.2 % of the voting power of our outstanding stock.

At June 30, 2020, ACM holds 3,898,554 shares of our common stock and 14,669,101 OP Units, which represents 14.0 % 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.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Note 19 — Segment Information

3 unchanged sentences

Such costs include, but are not limited to, compensation and employee related costs, selling and administrative expenses and stock-based compensation.

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Eliminations (1)

19 unchanged sentences

Total other expenses

Income before extinguishment of debt, income from equity affiliates and income taxes

Loss on extinguishment of debt

Income from equity affiliates

Provision for income taxes

Preferred stock dividends

Net income attributable to noncontrolling interest

Net income attributable to common stockholders

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Three Months Ended June 30, 2019

Eliminations (1)

Interest income

Interest expense

Net interest income

Other revenue:

Gain on sales, including fee-based services, net

Mortgage servicing rights

Servicing revenue

Amortization of MSRs

Property operating income

(Loss) gain on derivative instruments, net

Other income, net

Total other revenue

Other expenses:

Employee compensation and benefits

Selling and administrative

Property operating expenses

Depreciation and amortization

Impairment loss on real estate owned

Provision for loss sharing (net of recoveries)

Total other expenses

Income before extinguishment of debt, income from equity affiliates and income taxes

Income from equity affiliates

Provision for income taxes

Preferred stock dividends

Net income attributable to noncontrolling interest

Net income attributable to common stockholders

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2020

Six Months Ended June 30, 2020

Eliminations (1)

Interest income

Interest expense

Net interest income

Other revenue:

Gain on sales, including fee-based services, net

Mortgage servicing rights

Servicing revenue

Amortization of MSRs

Property operating income

Loss on derivative instruments, net

Other income, net

Total other revenue

Other expenses:

Employee compensation and benefits

Selling and administrative

Property operating expenses

Depreciation and amortization

Provision for loss sharing (net of recoveries)

Provision for credit losses (net of recoveries)

Total other expenses

Loss before extinguishment of debt, income from equity affiliates and income taxes

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Three Months Ended March 31, 2019

June 30, 2020

Six Months Ended June 30, 2019

Eliminations (1)

16 unchanged sentences

Depreciation and amortization

Impairment loss on real estate owned

Provision for loss sharing (net of recoveries)

Total other expenses

Income before extinguishment of debt, income from equity affiliates and income taxes

Income before extinguishment of debt, income from equity

affiliates and income taxes

Loss on extinguishment of debt

Income from equity affiliates

Benefit from income taxes

Provision for income taxes

Preferred stock dividends

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

June 30, 2020

Structured Business

28 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2020

Three Months Ended March 31,

June 30, 2020

Three Months Ended June 30,

Six Months Ended June 30,

Origination Data:

8 unchanged sentences

Agency Business

Private Label

Sales margin (fee-based services as a % of loan sales)

MSR rate (MSR income as a % of loan commitments)

March 31, 2020

June 30, 2020

UPB of Servicing

2 unchanged sentences

(basis points)

Private Label

December 31, 2019

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements