What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-07-30 · 462 added, 396 removed, 1210 unchanged (41% of the section changed)

4 unchanged sentences

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

September 30,

Cash and cash equivalents

24 unchanged sentences

Preferred stock, cumulative, redeemable, $ 0.01 par value:

100,000,000 shares authorized, special voting preferred shares - 16,352,233 and 17,560,633 shares issued and outstanding , respectively;

8.25 % Series A, $ 38,788 aggregate liquidation preference - 0 and 1,551,500 shares issued and outstanding , respectively;

7.75 % Series B, $ 31,500 aggregate liquidation preference - 0 and 1,260,000 shares issued and outstanding , respectively;

8.50 % Series C, $ 22,500 aggregate liquidation preference - 0 and 900,000 shares issued and outstanding , respectively;

6.375 % Series D, $ 230,000 aggregate liquidation preference - 9,200,000 and 0 shares issued and outstanding , respectively

100,000,000 shares authorized, shares issued and outstanding by period, respectively:

Special voting preferred shares, 16,325,095 and 17,560,633 shares

8.25 % Series A, 0 and 1,551,500 shares

7.75 % Series B, 0 and 1,260,000 shares

8.50 % Series C, 0 and 900,000 shares

6.375 % Series D, 9,200,000 and 0 shares

6.25 % Series E, 5,750,000 and 0 shares

Common stock, $ 0.01 par value:

1 unchanged sentence

Additional paid-in capital

Accumulated deficit

Retained earnings (accumulated deficit)

Total Arbor Realty Trust, Inc.

3 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 June 30, 2021 and December 31, 2020, assets of our consolidated VIEs totaled $ 4,250,848 and $ 3,134,447 , respectively, and the liabilities of our consolidated VIEs totaled $ 3,488,040 and $ 2,520,064 , respectively.

As of September 30, 2021 and December 31, 2020, assets of our consolidated VIEs totaled $ 5,706,553 and $ 3,134,447 , respectively, and the liabilities of our consolidated VIEs totaled $ 4,721,526 and $ 2,520,064 , respectively.

See Note 14 for discussion of our VIEs.

2 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Interest income

17 unchanged sentences

Total other expenses

Income (loss) before extinguishment of debt, sale of real estate,

Income before extinguishment of debt, sale of real estate,

income from equity affiliates and income taxes

Loss on extinguishment of debt

Gain on sale of real estate

(Loss) gain on sale of real estate

Income from equity affiliates

(Provision for) benefit from income taxes

Net income (loss)

Provision for income taxes

Preferred stock dividends

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

Net income attributable to noncontrolling interest

Net income attributable to common stockholders

Basic earnings per common share

Diluted earnings per common share

Weighted average shares outstanding:

5 unchanged sentences

($ in thousands, except shares)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Realty Trust, Inc.

Additional Paid-

Stockholders'

Noncontrolling

Balance – April 1, 2021

Balance – July 1, 2021

Issuance of common stock

Repurchase of common stock

( 1,399,999 )

Issuance of 6.375 % Series D preferred stock

Issuance of common stock from convertible debt

Issuance of 6.25 % Series E preferred stock

Redemption of preferred stock

( 3,711,500 )

Stock-based compensation, net

2 unchanged sentences

Distributions - noncontrolling interest

Redemption of operating partnership units

( 1,208,400 )

Balance – June 30, 2021

Six Months Ended June 30, 2021

Distributions - noncontrolling interest

Balance – September 30, 2021

Nine Months Ended September 30, 2021

Balance - January 1, 2021

2 unchanged sentences

( 1,399,999 )

Issuance of common stock from convertible debt

Issuance of 6.375 % Series D preferred stock

Issuance of 6.25 % Series E preferred stock

Redemption of preferred stock

6 unchanged sentences

( 1,235,538 )

Balance – June 30, 2021

Balance – September 30, 2021

See Notes to Consolidated Financial Statements.

3 unchanged sentences

($ in thousands, except shares)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Realty Trust, Inc.

2 unchanged sentences

Noncontrolling

Balance - April 1, 2020

Balance - July 1, 2020

Issuance of common stock

Repurchase of common stock

Issuance of common stock from convertible debt

Stock-based compensation, net

2 unchanged sentences

Distributions - noncontrolling interest

Balance – June 30, 2020

Six Months Ended June 30, 2020

Redemption of operating partnership units

( 2,736,894 )

Balance – September 30, 2020

Nine Months Ended September 30, 2020

Balance – January 1, 2020

10 unchanged sentences

Redemption of operating partnership units

Balance – June 30, 2020

( 2,851,723 )

Balance –September 30, 2020

See Notes to Consolidated Financial Statements.

3 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities:

Net income (loss)

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

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

Depreciation and amortization

6 unchanged sentences

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

Loss on sale of real estate

Mortgage servicing rights

9 unchanged sentences

Changes in operating assets and liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Investing Activities:

5 unchanged sentences

Deferred fees

Investments in real estate, net

Contributions to equity affiliates

3 unchanged sentences

Due to borrowers and reserves

Investments in real estate, net

Proceeds from sale of real estate, net

Net cash used in investing activities

1 unchanged sentence

Financing activities:

Proceeds from credit facilities and repurchase agreements

Paydowns and payoffs of credit facilities and repurchase agreements

Proceeds from credit and repurchase facilities

Paydowns and payoffs of credit and repurchase facilities

( 9,328,154 )

14 unchanged sentences

Net cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash at beginning of period

5 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Reconciliation of cash, cash equivalents and restricted cash:

10 unchanged sentences

Loans transferred from loans and investment, net to loans held-for-sale

Dividends declared on common stock and operating partnership units

Distributions accrued on preferred stock

Cummulative-effect adjustment (for adoption of credit loss standard)

Issuance of common stock from convertible debt

Distributions accrued on 8.25 % Series A preferred stock

Distributions accrued on 7.75 % Series B preferred stock

Distributions accrued on 8.50 % Series C preferred stock

Distributions accrued on 6.375 % Series D preferred stock

Settlements of convertible senior unsecured notes

Fair value of conversion feature of convertible senior unsecured notes

Issuance of common stock from convertible debt

See Notes to Consolidated Financial Statements.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Note 1 — Description of Business

33 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Use of Estimates

1 unchanged sentence

Actual results could differ from those estimates.

Beginning early 2020, there has been a global outbreak of 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.

Beginning early 2020, there has been a global outbreak of COVID-19, which had 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.

Such actions have created significant disruptions in global supply chains, and adversely impacted many industries.

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

The impact of COVID-19 on companies continues to evolve, 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, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The impact of COVID-19 on companies continues to evolve, 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 September 30, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Reclassification

4 unchanged sentences

Effect on Financial Statements

In December 2019, the Financial Accounting Standards Board issued Accounting Standard Update 2019-12, Income Taxes (Topic 740):

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

1 unchanged sentence

The adoption of this guidance did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

Effective Date

Effect on Financial Statements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

This guidance reduces the number of accounting models for convertible debt instruments.

Upon adoption of this guidance, convertible debt proceeds will no longer be allocated between debt and equity components, reducing the unamortized debt discount and lowering interest expense.

This guidance also changes the method used to calculate diluted earnings per share when an instrument may be settled in cash or shares, if the effect is dilutive.

First quarter of 2022 with early adoption permitted beginning in the first quarter of 2021

We continue to evaluate the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.

We expect to adopt this guidance on January 1, 2022.

Upon adoption, we will reclassify the remaining equity component from equity to our convertible senior unsecured notes liability and cease the amortization of the debt discount through interest expense.

The adoption of this guidance will also require us to change the method which we use to calculate diluted earnings per share to the if-converted method, potentially requiring us to add back interest expense to the numerator and make certain adjustments to the denominator.

Significant Accounting Policies

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Note 3 — Loans and Investments

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

June 30, 2021

September 30, 2021

LTV Ratio (2)

1 unchanged sentence

Bridge loans (4)

Preferred equity investments

Mezzanine loans

Preferred equity investments

Other loans (5)

4 unchanged sentences

Bridge loans (4)

Preferred equity investments

Mezzanine loans

Preferred equity investments

Other loans (5)

6 unchanged sentences

(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 June 30, 2021 and December 31, 2020, bridge loans included 77 and 38 , respectively, SFR loans with an aggregate UPB of $ 533.9 million and $ 309.2 million, respectively, of which $ 191.5 million and $ 88.1 million, respectively, was funded.

(5) As of June 30, 2021, other loans included 2 variable rate SFR permanent loans and as of December 31, 2020, other loans included 22 SFR permanent loans.

During the first quarter of 2021, the Structured Business transferred 21 fixed rate SFR permanent loans with a UPB of $ 65.2 million to the Agency Business, which represents all fixed rate SFR permanent loans originated.

(4) As of September 30, 2021 and December 31, 2020, bridge loans included 86 and 38 , respectively, SFR loans with an aggregate UPB of $ 614.3 million and $ 309.2 million, respectively, of which $ 277.3 million and $ 88.1 million, respectively, was funded.

(5) As of September 30, 2021, other loans included 2 variable rate SFR permanent loans and as of December 31, 2020, other loans included 22 SFR permanent loans.

During the first quarter of 2021, the Structured Business transferred 21 fixed rate SFR permanent loans with a UPB of $ 65.2 million to the Agency Business, which represented all fixed rate SFR permanent loans originated prior to such transfer.

Fixed rate SFR permanent loans are reported through the Agency Business beginning in 2021 and classified as held-for-sale.

1 unchanged sentence

Concentration of Credit Risk

We are subject to concentration risk in that, at June 30, 2021, the UPB related to 21 loans with five different borrowers represented 12 % of total assets.

We are subject to concentration risk in that, at September 30, 2021, the UPB related to 32 loans with five different borrowers represented 11 % of total assets.

At December 31, 2020, the UPB related to 22 loans with five different borrowers represented 12 % of total assets.

During both the six months ended June 30, 2021 and the year ended December 31, 2020, 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 nine months ended September 30, 2021 and the year ended December 31, 2020, 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 17 for details on our concentration of related party loans and investments.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

We assign a credit risk rating of pass, pass/watch, special mention, substandard or doubtful to each loan and investment, with a pass rating being the lowest risk and a doubtful rating being the highest risk.

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

A summary of the loan portfolio’s internal risk ratings and LTV ratios by asset class as of June 30, 2021 is as follows ($ in thousands):

September 30, 2021

A summary of the loan portfolio’s internal risk ratings and LTV ratios by asset class as of September 30, 2021 is as follows ($ in thousands):

UPB by Origination Year

2 unchanged sentences

Total Multifamily

Percentage of portfolio

Special Mention

Single-Family Rental:

4 unchanged sentences

Special Mention

Percentage of portfolio

Special Mention

Total Healthcare

3 unchanged sentences

Percentage of portfolio

Special Mention

Total Student Housing

6 unchanged sentences

Geographic Concentration Risk

As of June 30, 2021, 18 % and 16 % of the outstanding balance of our loan and investment portfolio had underlying properties in New York and Texas, respectively.

As of September 30, 2021, 18 % and 15 % of the outstanding balance of our loan and investment portfolio had underlying properties in Texas and New York, respectively.

As of December 31, 2020, 19 % and 11 % 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)

June 30, 2021

September 30, 2021

Allowance for Credit Losses

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

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Student Housing

3 unchanged sentences

Ending balance

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Allowance for credit losses:

2 unchanged sentences

Ending balance

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Allowance for credit losses:

2 unchanged sentences

Ending balance

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Allowance for credit losses:

6 unchanged sentences

Our current expected credit loss (“CECL”) allowance for unfunded loan commitments are adjusted quarterly and correspond with the associated outstanding loans.

As of June 30, 2021 and December 31, 2020, we had outstanding unfunded commitments of $ 524.7 million and $ 353.8 million, respectively, that we are obligated to fund as borrowers meet certain requirements.

As of June 30, 2021 and December 31, 2020, accrued interest receivable related to our loans totaling $ 52.9 million and $ 41.6 million, respectively, was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheets.

As of September 30, 2021 and December 31, 2020, we had outstanding unfunded commitments of $ 638.1 million and $ 353.8 million, respectively, that we are obligated to fund as borrowers meet certain requirements.

As of September 30, 2021 and December 31, 2020, accrued interest receivable related to our loans totaling $ 59.7 million and $ 41.6 million, respectively, was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheets.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

All of our structured loans and investments are secured by real estate assets or by interests in real estate assets, 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):

June 30, 2021

September 30, 2021

Allowance for

1 unchanged sentence

December 31, 2020

(1) Represents the UPB of nine and ten impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020.

At June 30, 2021, eight loans with an aggregate net carrying value of $ 77.5 million, net of related loan loss reserves of $ 6.5 million, were classified as non-performing and, at December 31, 2020, seven loans with an aggregate net carrying value of $ 53.8 million, net of related loan loss reserves of $ 6.5 million, were classified as non-performing.

(1) Represents the UPB of eight and ten impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, six loans with an aggregate net carrying value of $ 53.0 million, net of related loan loss reserves of $ 2.6 million, were classified as non-performing and, at December 31, 2020, seven loans with an aggregate net carrying value of $ 53.8 million, net of related loan loss reserves of $ 6.5 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):

June 30, 2021

September 30, 2021

December 31, 2020

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

In addition, we have six loans with a carrying value totaling $ 121.3 million at June 30, 2021, that are collateralized by a land development project.

September 30, 2021

In addition, we have six loans with a carrying value totaling $ 121.4 million at September 30, 2021, that are collateralized by a land development project.

The loans do not carry a current pay rate of interest, however, five of the loans with a carrying value totaling $ 112.0 million entitle us to a weighted average accrual rate of interest of 7.91 %.

In 2008, we suspended the recording of the accrual rate of interest on these loans, as they were impaired and we deemed the collection of this interest to be doubtful.

At both June 30, 2021 and December 31, 2020, we had a cumulative allowance for credit losses of $ 71.4 million related to these loans.

At both September 30, 2021 and December 31, 2020, we had a cumulative allowance for credit losses of $ 71.4 million 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 June 30, 2021 and December 31, 2020, 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, 2021 and 2020 , interest income recognized on nonaccrual loans was de minimis.

In 2019, we purchased $ 50.0 million of a $ 110.0 million bridge loan, which is collateralized by a hotel property and scheduled to mature in December 2022.

In the first quarter of 2020, we recorded a $ 7.5 million allowance for credit losses due to a reduction in the appraised value of the property.

In August 2020, we purchased the remaining $ 60.0 million bridge loan at a discount for $ 39.9 million, which we determined had experienced a more than insignificant deterioration in credit quality since origination and, therefore, deemed to be a purchased loan with credit deterioration.

The total discount received of $ 20.1 million was classified as a noncredit discount and no portion of the discount was allocated to allowance for credit losses at the date of purchase since the appraised value of the property was greater than the purchase price.

Shortly after the purchase, we entered into a forbearance agreement with the borrower to temporarily reduce the interest rate from LIBOR plus 3.00 % with a 1.50 % LIBOR floor to a pay rate of 1.00 % and to include a $ 10.0 million principal reduction if the loan is paid off by March 2, 2021.

In January 2021, we entered into a second forbearance agreement which temporarily eliminated the pay rate, extended the principal reduction payoff deadline to June 30, 2021 and increased the interest rate to an unaccrued default rate of 9.50 %, which is deferred to payoff.

In June 2021, we received $ 95.0 million for full satisfaction of these loans, reversed the $ 7.5 million allowance for credit losses and recorded interest income of $ 3.5 million.

At both September 30, 2021 and December 31, 2020, we had no loans contractually past due 90 days or more that are still accruing interest.

During both the three and nine months ended September 30, 2021 and 2020 , interest income recognized on nonaccrual loans was de minimis.

In August 2020, we entered into a loan modification agreement on a $ 26.5 million bridge loan with an interest rate of LIBOR plus 6.00 % with a 2.375 % LIBOR floor and a $ 6.1 million mezzanine loan with a fixed rate of 12 % collateralized by a retail property to:

3 unchanged sentences

The loan modification agreement also includes a $ 6.0 million required principal paydown, which occurred at the closing of the modification transaction, and an $ 8.0 million principal reduction once the borrower deposits an additional reserve deposit of approximately $ 4.6 million by December 31, 2021.

We have the ability to potentially recapture up to $ 8.0 million of the principal reduction to the extent that the property is sold or refinanced in excess of the debt.

In 2019, we purchased $ 50.0 million of a $ 110.0 million bridge loan, which was collateralized by a hotel property and scheduled to mature in December 2022.

In the first quarter of 2020, we recorded a $ 7.5 million allowance for credit losses due to a reduction in the appraised value of the property.

The $ 20.1 million discount was classified as a noncredit discount and no portion of the discount was allocated to allowance for credit losses at the date of purchase since the appraised value of the property was greater than the purchase price.

In June 2021, we received $ 95.0 million for full satisfaction of these loans, reversed the $ 7.5 million allowance for credit losses and recorded interest income of $ 3.5 million.

These two loan modifications were deemed troubled debt restructurings.

There were no other loan modifications, refinancing's and/or extensions during the six months ended June 30, 2021 and 2020 that were considered troubled debt restructurings.

There were no other loan modifications, refinancing's and/or extensions during the nine months ended September 30, 2021 and 2020 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 June 30, 2021 and December 31, 2020, we had total interest reserves of $ 84.4 million and $ 78.3 million, respectively, on 262 loans and 186 loans, respectively, with an aggregate UPB of $ 4.69 billion and $ 3.60 billion, respectively.

At September 30, 2021 and December 31, 2020, we had total interest reserves of $ 89.2 million and $ 78.3 million, respectively, on 297 loans and 186 loans, respectively, with an aggregate UPB of $ 5.27 billion and $ 3.60 billion, respectively.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Note 4 — Loans Held-for-Sale, Net

1 unchanged sentence

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

June 30, 2021

September 30, 2021

December 31, 2020

4 unchanged sentences

Loans held-for-sale, net

During the three and six months ended June 30, 2021, we sold $ 1.48 billion and $ 3.32 billion, respectively, of loans held-for-sale and recorded gain on sales, including fees, of $ 40.9 million and $ 69.8 million, 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, including fees, of $ 26.4 million and $ 40.7 million, respectively.

During the three and nine months ended September 30, 2021, we sold $ 1.01 billion and $ 4.33 billion, respectively, of loans held-for-sale and recorded gain on sales, including fees, of $ 16.3 million and $ 86.1 million, respectively.

During the three and nine months ended September 30, 2020, we sold $ 1.22 billion and $ 4.17 billion, respectively, of loans held-for-sale and recorded gain on sales, including fees, of $ 19.9 million and $ 60.6 million, respectively.

Included in the total loans sold during 2021 and 2020 were Private Label loans totaling $ 449.9 million and $ 727.2 million, respectively, which were sold to unconsolidated affiliates of ours who pooled and securitized the loans.

1 unchanged sentence

In addition, the total loans sold during 2021 included 23 fixed rate SFR permanent loans totaling $ 75.3 million which resulted in a gain on sale of $ 2.8 million.

At June 30, 2021 and December 31, 2020, 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.

At September 30, 2021 and December 31, 2020, 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.

Subsequent Event.

In October 2021, we closed a Private Label securitization totaling $ 535.0 million, of which we retained the most subordinate class of certificates totaling $ 47.5 million.

Note 5 — Capitalized Mortgage Servicing Rights

1 unchanged sentence

The discount rates used to determine the present value of our MSRs throughout the periods presented for all MSRs were between 8 % - 13 % (representing a weighted average discount rate of 12 %) based on our best estimate of market discount rates.

The weighted average estimated life remaining of our MSRs was 8.6 years at both June 30, 2021 and December 31, 2020.

The weighted average estimated life remaining of our MSRs was 8.5 years and 8.6 years at September 30, 2021 and December 31, 2020, respectively.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

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

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Beginning balance

1 unchanged sentence

Ending balance

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Beginning balance

1 unchanged sentence

Ending balance

We collected prepayment fees totaling $ 4.2 million and $ 6.9 million during the three and six months ended June 30, 2021, respectively, and $ 3.0 million and $ 8.1 million during the three and six months ended June 30, 2020, respectively.

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

As of June 30, 2021 and December 31, 2020, we had no valuation allowance recorded on any of our MSRs.

The expected amortization of capitalized MSRs recorded as of June 30, 2021 is as follows (in thousands):

2021 (six months ending 12/31/2021)

We collected prepayment fees totaling $ 11.2 million and $ 18.1 million during the three and nine months ended September 30, 2021, respectively, and $ 2.0 million and $ 10.1 million during the three and nine months ended September 30, 2020, respectively.

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

As of September 30, 2021 and December 31, 2020, we had no valuation allowance recorded on any of our MSRs.

The expected amortization of capitalized MSRs recorded as of September 30, 2021 is as follows (in thousands):

2021 (three months ending 12/31/2021)

Actual amortization may vary from these estimates.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Note 6 — Mortgage Servicing

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

June 30, 2021

September 30, 2021

Product Concentrations

7 unchanged sentences

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

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

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

At June 30, 2021 and December 31, 2020, our weighted average servicing fee was 45.9 basis points and 45.4 basis points, respectively.

At June 30, 2021 and December 31, 2020, we held total escrow balances of $ 1.53 billion and $ 1.29 billion, respectively, which is not reflected in our consolidated balance sheets.

Of the total escrow balances, we held $ 810.2 million and $ 867.6 million at June 30, 2021 and December 31, 2020, respectively, related to loans we are servicing within our Agency Business.

At September 30, 2021 and December 31, 2020, our weighted average servicing fee was 45.7 basis points and 45.4 basis points, respectively.

At September 30, 2021 and December 31, 2020, we held total escrow balances of $ 1.78 billion and $ 1.29 billion, respectively, which is not reflected in our consolidated balance sheets.

Of the total escrow balances, we held $ 767.2 million and $ 867.6 million at September 30, 2021 and December 31, 2020, 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 $ 1.1 million and $ 2.2 million during the three and six months ended June 30, 2021, respectively, and $ 1.4 million and $ 4.5 million during the three and six months ended June 30, 2020, respectively, and is a component of servicing revenue, net in the consolidated statements of operations.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Interest earned on total escrows, net of interest paid to the borrower, was $ 1.0 million and $ 3.2 million during the three and nine months ended September 30, 2021, respectively, and $ 1.3 million and $ 5.8 million during the three and nine months ended September 30, 2020, respectively, and is a component of servicing revenue, net in the consolidated statements of income.

Note 7 — Securities Held-to-Maturity

1 unchanged sentence

In connection with our Private Label securitizations, we retain the most subordinate class of the APL certificates in satisfaction of credit risk retention requirements.

As of June 30, 2021, we retained APL certificates with an initial face value of $ 101.9 million, which were purchased at a discount for $ 61.7 million.

As of September 30, 2021, we retained APL certificates with an initial face value of $ 101.9 million, which were purchased at a discount for $ 61.7 million.

These certificates are collateralized by 10-year fixed rate first mortgage loans on multifamily properties, bear interest at an initial weighted average variable rate of 4.51 % and have an estimated weighted average remaining maturity of 8.6 years.

The weighted average effective interest rate was 10.09 % and 10.15 % at June 30, 2021 and December 31, 2020, respectively, and the full $ 101.9 million is expected to mature after five years through ten years.

The weighted average effective interest rate was 9.65 % and 10.15 % at September 30, 2021 and December 31, 2020, respectively, and the full $ 101.9 million is expected to mature after five years through ten years.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

Agency B Piece Bonds.

1 unchanged sentence

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

As of June 30, 2021, 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 September 30, 2021, we retained 49 %, or $ 106.2 million initial face value, of seven B Piece bonds, which were purchased at a discount for $ 74.7 million, and sold the remaining 51 % to a third-party at par.

These securities are collateralized by a pool of multifamily mortgage loans, bear interest at an initial weighted average variable rate of 3.74 % and have an estimated weighted average remaining maturity of 5.8 years.

The weighted average effective interest rate was 11.12 % and 10.85 % at June 30, 2021 and December 31, 2020, respectively, including the accretion of a portion of the discount deemed collectible.

The weighted average effective interest rate was 11.17 % and 10.85 % at September 30, 2021 and December 31, 2020, respectively, including the accretion of a portion of the discount deemed collectible.

Approximately $ 11.3 million is estimated to mature within one year, $ 30.1 million is estimated to mature after one year through five years, $ 8.2 million is estimated to mature after five years through ten years and $ 15.5 million is estimated to mature after ten years.

2 unchanged sentences

Credit Losses

June 30, 2021

September 30, 2021

APL certificates

4 unchanged sentences

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 June 30, 2021

Three Months Ended September 30, 2021

Beginning balance

Provision for credit loss expense

Provision for credit loss expense/(reversal)

Ending balance

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Beginning balance

Provision for credit loss expense

Provision for credit loss expense/(reversal)

Ending balance

1 unchanged sentence

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

As of June 30, 2021, no other-than-temporary impairment was recorded on our held-to-maturity securities.

As of September 30, 2021, 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 $ 3.4 million and $ 9.4 million during the three and nine months ended September 30, 2021, respectively, and $ 2.9 million and $ 6.9 million during the three and nine months ended September 30, 2020, respectively.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

We recorded interest income (including the amortization of discount) related to these investments of $ 3.1 million and $ 6.0 million during the three and six months ended June 30, 2021, respectively, and $ 1.7 million and $ 4.0 million during the three and six months ended June 30, 2020, respectively.

September 30, 2021

Note 8 — Investments in Equity Affiliates

5 unchanged sentences

Equity Affiliates

June 30, 2021

September 30, 2021

December 31, 2020

June 30, 2021

September 30, 2021

Arbor Residential Investor LLC

AMAC Holdings III LLC

Tapestry on the River

Emerson at Forney

North Vermont Avenue

4 unchanged sentences

Arbor Residential Investor LLC (“ARI”).

During the three and six months ended June 30, 2021, we recorded income of $ 4.8 million and $ 27.3 million, respectively, and during the three and six months ended June 30, 2020, we recorded income of $ 20.9 million and $ 23.8 million, respectively, to income from equity affiliates in our consolidated statements of operations.

During the three and six months ended June 30, 2021, we also received cash distributions totaling $ 5.6 million and $ 18.7 million from this investment, respectively, which were classified as returns of capital.

During the three and nine months ended September 30, 2021, we recorded income of $ 5.4 million and $ 32.7 million, respectively, and during the three and nine months ended September 30, 2020, we recorded income of $ 32.3 million and $ 56.1 million, respectively, to income from equity affiliates in our consolidated statements of income.

We also received cash distributions totaling $ 4.7 million and $ 23.4 million from this investment during the three and nine months ended September 30, 2021, respectively, and $ 15.0 million during both the three and nine months ended September 30, 2020, which were classified as returns of capital.

In January 2021, an equity investor in the underlying residential mortgage banking business exercised their right to purchase an additional interest in this investment, which decreased our indirect interest to 12.3 % .

The allocation of income is based on the underlying agreements, which may be different than our indirect interest, and was 9.2 % as of June 30, 2021.

The allocation of income is based on the underlying agreements, which may be different than our indirect interest, and was 9.2 % as of September 30, 2021.

Summarized statements of income for Wakefield Investment Holdings LLC, the third-party entity formed to hold the underlying residential mortgage banking business, are as follows (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Statements of Income:

2 unchanged sentences

AMAC Holdings III LLC (“AMAC III”).

During the first quarter of 2021, we funded an additional $ 4.0 million of a total committed investment of $ 30.0 million, which brings the total funded investment to $ 15.7 million at June 30, 2021.

During the three and six months ended June 30, 2021 the loss recorded from this investment was $ 0.3 million and $ 0.5 million, respectively.

During 2021, we funded an additional $ 4.5 million of a total committed investment of $ 30.0 million, which brings the total funded investment to $ 16.3 million at September 30, 2021.

During the three and nine months ended September 30, 2021 the loss recorded from this investment was $ 0.4 million and $ 0.9 million, respectively.

We also received cash distributions totaling $ 1.7 million from this investment during the three months ended September 30, 2021, which were classified as returns of capital.

Century Summerfield Apartments.

1 unchanged sentence

During the second quarter of 2021, this joint venture was dissolved and we received distributions totaling $ 17.2 million and recorded a $ 0.2 million gain.

See Note 17 for details of certain investments described above.

ARBOR REALTY TRUST, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Tapestry on the River.

During the three months ended September 30, 2021, we invested $ 14.0 million for a 48.9 % equity interest in a joint venture with a third party that was formed to invest in an apartment community.

We received distributions totaling $ 10.6 million during the three months ended September 30, 2021, which were classified as returns of capital.

Emerson at Forney.

During the three months ended September 30, 2021, we invested $ 3.0 million for an 11.1 % equity interest in a joint venture with a third party that was formed to invest in an apartment community.

See Note 17 for details of certain investments described above.

Note 9 — Debt Obligations

1 unchanged sentence

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

June 30, 2021

September 30, 2021

December 31, 2020

3 unchanged sentences

$ 450 M repurchase facility

$ 198.7 M repurchase facility (2)

$ 187.3 M loan specific credit facilities

$ 225 M credit facility

$ 200 M credit facility

$ 100 M credit facility

$ 200 M repurchase facility

$ 198.7 M repurchase facility (2)

$ 164.4 M loan specific credit facilities

$ 100 M credit facility

$ 50 M credit facility

$ 30 M working capital facility

5 unchanged sentences

$ 750 M ASAP agreement

$ 400 M repurchase facility

$ 750 M joint repurchase facility

$ 400 M repurchase facility (4)

$ 200 M credit facility

6 unchanged sentences

F = Fixed Note Rate

(1) The debt carrying value for the Structured Business at June 30, 2021 and December 31, 2020 was net of unamortized deferred finance costs of $ 4.0 million and $ 3.3 million, respectively.

The debt carrying value for the Agency Business at June 30, 2021 and December 31, 2020 was net of unamortized deferred finance costs of $ 2.2 million and $ 0.6 million, respectively.

(1) The debt carrying value for the Structured Business at September 30, 2021 and December 31, 2020 was net of unamortized deferred finance costs of $ 3.9 million and $ 3.3 million, respectively.

The debt carrying value for the Agency Business at September 30, 2021 and December 31, 2020 was net of unamortized deferred finance costs of $ 1.6 million and $ 0.6 million, respectively.

(2) A portion of this repurchase facility was used to finance a fixed rate SFR permanent loan reported through our Agency Business.

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

As of June 30, 2021 and December 31, 2020, these facilities were collateralized by our B Piece bonds with a carrying value of $ 53.1 million and $ 58.5 million, respectively, and an SFR bond with a carrying value of $ 10.0 million at December 31, 2020.

As of September 30, 2021 and December 31, 2020, these facilities were collateralized by our B Piece bonds with a carrying value of $ 50.3 million and $ 58.5 million, respectively, and an SFR bond with a carrying value of $ 10.0 million at December 31, 2020.

(4) We are currently in negotiations with the lender to amend this facility.

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

These facilities typically renew annually and also include a “wind-down” feature.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

Joint Repurchase Facility.

4 unchanged sentences

If the estimated market value of the loans financed in this facility decrease, we may be required to pay down borrowings under this facility.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Structured Business

At June 30, 2021 and December 31, 2020, the weighted average interest rate for the credit and repurchase facilities of our Structured Business, including certain fees and costs, such as structuring, commitment, non-use and warehousing fees, was 2.73 % and 2.97 %, respectively.

The leverage on our loan and investment portfolio financed through our credit and repurchase facilities, excluding the securities repurchase facilities, working capital facility and the master security agreements, was 69 % at both June 30, 2021 and December 31, 2020.

During the second quarter of 2021, we amended our $ 400.0 million credit facility twice to increase the facility size to $ 725.0 million and extend the maturity to June 2022.

In May 2021, we amended our $ 200.0 million credit facility increasing the facility size to $ 250.0 million.

At September 30, 2021 and December 31, 2020, the weighted average interest rate for the credit and repurchase facilities of our Structured Business, including certain fees and costs, such as structuring, commitment, non-use and warehousing fees, was 2.53 % and 2.97 %, respectively.

We amended our $ 400.0 million repurchase facility four times in 2021 to increase the facility size to $ 725 million and to extend the maturity to September 2022.

The interest rate on new loans in 2021 is LIBOR plus 1.75 % with a 0.35 % LIBOR floor if utilization is above $ 250.0 million and LIBOR plus 2.00 % with up to a 0.35 % LIBOR floor if utilization is below $ 250.0 million.

For existing loans, the interest rate will remain at LIBOR plus 2.00 % to 2.20 % with a LIBOR floor reduced to 0.35 %.

In September 2021, we amended our $ 100.0 million repurchase facility to increase the facility size to $ 200.0 million and extend the maturity to October 2023.

In August 2021, we amended our $ 100.0 million credit facility to increase the facility size to $ 200.0 million, extend the maturity to July 2022 and amend the interest rates from a LIBOR-based rate to the Secured Overnight Financing Rate (“SOFR”) plus 1.50 % for multifamily, SOFR plus 2.20 % for independent living and SOFR plus 2.45 % for assisted living.

In March 2021, we entered into a $ 200.0 million repurchase facility to finance bridge loans that has interest rates of LIBOR plus 1.75 % - 2.75 % and matures in March 2023.

The facility has a maximum advance rate of 80 %.

In March 2021, we amended our $ 50.0 million credit facility increasing the facility size to $ 150.0 million and decreased the all in floor rate 0.15 %.

In May 2021, we amended this facility increasing the facility size to $ 250.0 million.

In August 2021, we amended this facility increasing the facility size to $ 450.0 million.

In March 2021, we amended our $ 50.0 million credit facility increasing the facility size to $ 150.0 million and decreased the all in floor rate by 0.15 %.

In September 2021, we amended this facility to increase the facility size to $ 225.0 million and allow for further reduction to the all in floor rate by up to 1.10 %.

In March 2021, we entered into an $ 18.2 million credit facility used to finance a hotel bridge loan.

The facility bears interest at the prime rate with a 3.25 % floor and matures in December 2022.

The facility bore interest at the prime rate with a 3.25 % floor and was scheduled to mature in December 2022.

This facility was paid off in September 2021.

In February 2021, we entered into a $ 21.6 million credit facility used to finance a multifamily bridge loan.

The facility bears interest at a 3.00 % fixed rate and matures in January 2024.

In January 2021, we amended our $ 400.0 million repurchase facility to extend the maturity to December 2021.

The interest rate on new loans in 2021 is LIBOR plus 1.75 % with a 0.35 % LIBOR floor if utilization is above $ 250.0 million and LIBOR plus 2.00 % with a 0.35 % LIBOR floor if utilization is below $ 250.0 million.

For existing loans, the interest rate will remain at LIBOR plus 2.00 % to 2.20 % with a LIBOR floor reduced to 0.35 %.

Agency Business

During the third quarter of 2021, we amended our $ 150.0 million credit facility to reduce the interest rate to LIBOR plus 1.35 % and extend the maturity to October 2021.

In August 2021, we amended our $ 100.0 million credit facility to decrease the facility size to $ 50.0 million, extend the maturity to September 2022 and increase the interest rate 0.15 % to LIBOR plus 1.30 %.

In March 2021, we amended our $ 150.0 million credit facility to increase the facility size to $ 200.0 million, extend the maturity to March 2022, increase the interest rate 0.20 % and add a 0.25 % LIBOR floor.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

Collateralized Loan Obligations (“CLOs”)

2 unchanged sentences

The investment grade tranches are treated as secured financings, and are non-recourse to us.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

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

Collateral (3)

June 30, 2021

September 30, 2021

December 31, 2020

(1) Debt carrying value is net of $ 22.0 million and $ 15.0 million of deferred financing fees at June 30, 2021 and December 31, 2020, respectively.

(2) At June 30, 2021 and December 31, 2020, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 1.80 % and 1.93 %, respectively.

(3) As of June 30, 2021 and December 31, 2020, there were no collateral deemed a “credit risk” as defined by the CLO indentures.

(1) Debt carrying value is net of $ 27.8 million and $ 15.0 million of deferred financing fees at September 30, 2021 and December 31, 2020, respectively.

(2) At September 30, 2021 and December 31, 2020, the aggregate weighted average note rate for our CLOs, including certain fees and costs, was 1.79 % and 1.93 %, respectively.

(3) As of September 30, 2021 and December 31, 2020, there were no collateral deemed a “credit risk” as defined by the CLO indentures.

(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 $ 38.1 million and $ 49.5 million at June 30, 2021 and December 31, 2020, respectively.

In June 2021, we completed CLO XV, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $ 747.8 million.

Of the total CLO notes issued, $ 674.4 million were investment grade notes issued to third party investors and $ 73.4 million were below investment grade notes retained by us.

As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $ 653.0 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio.

Does not include restricted cash related to interest payments, delayed fundings and expenses totaling $ 52.6 million and $ 49.5 million at September 30, 2021 and December 31, 2020, respectively.

In September 2021, we completed CLO 16, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $ 1.37 billion.

Of the total CLO notes issued, $ 1.24 billion were investment grade notes issued to third party investors and $ 135.0 million were below investment grade notes retained by us.

As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $ 1.19 billion, consisting primarily of bridge loans that were contributed from our existing loan portfolio.

The financing has an approximate two-and-a-half-year replacement period that allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture.

Thereafter, the outstanding debt balance will be reduced as loans are repaid.

Initially, the proceeds of the issuance of the securities also included $ 162.0 million for the purpose of acquiring additional loan obligations for a period of up to 180 days from the CLO closing date, resulting in the issuer owning loan obligations with a face value of $ 815.0 million, representing leverage of 83 %.

Initially, the proceeds of the issuance of the securities also included $ 313.0 million for the purpose of acquiring additional loan obligations for a period of up to 180 days from the CLO closing date, resulting in the issuer owning loan obligations with a face value of $ 1.50 billion, representing leverage of 83 %.

We retained a residual interest in the portfolio with a notional amount of $ 262.5 million, including the $ 135.0 million below investment grade notes.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

In March 2021, we completed CLO XIV, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $ 724.2 million.

September 30, 2021

In June 2021, we completed CLO 15, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $ 747.8 million.

Of the total CLO notes issued, $ 674.4 million were investment grade notes issued to third party investors and $ 73.4 million were below investment grade notes retained by us.

Thereafter, the outstanding debt balance will be reduced as loans are repaid.

Initially, the proceeds of the issuance of the securities also included $ 162.0 million for the purpose of acquiring additional loan obligations for a period of up to 180 days from the CLO closing date, which we subsequently utilized, resulting in the issuer owning loan obligations with a face value of $ 815.0 million, representing leverage of 83 %.

We retained a residual interest in the portfolio with a notional amount of $ 140.6 million, including the $ 73.4 million below investment grade notes.

The notes sold to third parties had an initial weighted average interest rate of 1.37 % plus one-month LIBOR and interest payments on the notes are payable monthly.

In March 2021, we completed CLO 14, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $ 724.2 million.

Of the total CLO notes issued, $ 655.5 million were investment grade notes issued to third party investors and $ 68.7 million were below investment grade notes retained by us.

As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of $ 635.2 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio.

The financing has a two-and-a-half-year replacement period that allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture.

3 unchanged sentences

The notes sold to third parties had an initial weighted average interest rate of 1.33 % plus one-month LIBOR and interest payments on the notes are payable monthly.

In March 2021, we unwound CLO IX, redeeming $ 356.2 million of outstanding notes which were repaid primarily from the refinancing of the remaining assets primarily within CLO XIV, as well as with cash held by CLO IX, and expensed $ 1.4 million of deferred financing fees into loss on extinguishment of debt on the consolidated statements of operations.

In March 2021, we unwound CLO 9, redeeming $ 356.2 million of outstanding notes which were repaid primarily from the refinancing of the remaining assets primarily within CLO 14, as well as with cash held by CLO 9, and expensed $ 1.4 million of deferred financing fees into loss on extinguishment of debt on the consolidated statements of income.

Senior Unsecured Notes

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

June 30, 2021

September 30, 2021

December 31, 2020

5 unchanged sentences

5.75 % Notes (4)

(1) At June 30, 2021 and December 31, 2020, the carrying value is net of deferred financing fees of $ 9.7 million and $ 7.9 million, respectively.

(2) At June 30, 2021 and December 31, 2020, the aggregate weighted average note rate, including certain fees and costs, was 5.56 % and 5.65 % , respectively.

5.625 % Notes (4)

(1) At September 30, 2021 and December 31, 2020, the carrying value is net of deferred financing fees of $ 13.2 million and $ 7.9 million, respectively.

(2) At September 30, 2021 and December 31, 2020, the aggregate weighted average note rate, including certain fees and costs, was 5.36 % and 5.65 % , respectively.

(3) These notes can be redeemed by us prior to three months before the maturity 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 three months prior to or after the maturity date, at a redemption price equal to 100 % of the aggregate principal amount, plus accrued and unpaid interest.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

(4) These notes can be redeemed by us at any time prior to the maturity 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 maturity date, at a redemption price equal to 100 % of the aggregate principal amount, plus accrued and unpaid interest.

In April 2021, we issued $ 175.0 million aggregate principal amount of 5.00 % senior unsecured notes due in 2026 in a private offering.

In August 2021, we issued $ 270.0 million aggregate principal amount of 4.50 % senior unsecured notes due in 2026 in a private offering.

We received net proceeds of $ 265.8 million from the issuance, after deducting the underwriting discount and other offering expenses.

We are using the net proceeds to make investments related to our business and for general corporate purposes.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

In April 2021, we issued $ 175.0 million aggregate principal amount of 5.00 % senior unsecured notes due in 2026 in a private offering.

We received net proceeds of $ 172.3 million from the issuance, after deducting the underwriting discount and other offering expenses.

We used the net proceeds to make investments related to our business and for general corporate purposes.

Convertible Senior Unsecured Notes

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The remaining net proceeds were used for general corporate purposes.

As of June 30, 2021, the 4.75 % Convertible Notes had a conversion rate of 56.5332 shares of common stock per $ 1,000 of principal, which represented a conversion price of $ 17.69 per share of common stock.

At June 30, 2021, there were $ 0.5 million and $ 13.8 million aggregate principal amount remaining of our 5.25 % Convertible Notes issued on July 3, 2018 and 5.25 % Convertible Notes issued on July 20, 2018, respectively.

At June 30, 2021, the conversion rates of the 5.25 % Convertible Notes issued on July 3, 2018 and 5.25 % Convertible Notes issued on July 20, 2018 were 91.9605 shares and 82.2763 shares, respectively, of common stock per $ 1,000 of principal, which represented a conversion price of $ 10.87 per share and $ 12.15 per share of common stock, respectively.

On July 1, 2021, the 5.25 % Convertible Notes matured and were fully settled with cash totaling $ 14.3 million and 386,459 shares of common stock.

As of September 30, 2021, the 4.75 % Convertible Notes had a conversion rate of 56.6847 shares of common stock per $ 1,000 of principal, which represented a conversion price of $ 17.64 per share of common stock.

In July 2021, the remaining $ 14.3 million principal amount of our 5.25 % Convertible Notes matured and were fully settled with $ 14.3 million of cash and 386,459 shares of common stock.

Our convertible senior unsecured notes are not redeemable by us prior to their maturities and are convertible by the holder into, at our election, cash, shares of our common stock, or a combination of both, subject to the satisfaction of certain conditions and during specified periods.

4 unchanged sentences

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 1.27 years and 1.77 years at June 30, 2021 and December 31, 2020, 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 1.09 years and 1.77 years at September 30, 2021 and December 31, 2020, respectively, on a weighted average basis.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

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

2 unchanged sentences

Financing Fees

June 30, 2021

September 30, 2021

December 31, 2020

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

During both the three months ended June 30, 2021 and 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, 2021, we incurred total interest expense on the notes of $ 9.6 million, of which $ 6.6 million, $ 1.6 million and $ 1.4 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.

Including the amortization of the deferred financing fees and debt discount, our weighted average total cost of the notes was 6.75 % at both June 30, 2021 and December 31, 2020.

During the three months ended September 30, 2021, we incurred interest expense on the notes totaling $ 4.5 million, of which $ 3.1 million, $ 0.8 million and $ 0.6 million related to the cash coupon, amortization of the debt discount and of the deferred financing fees, respectively.

During the nine months ended September 30, 2021, we incurred total interest expense on the notes of $ 14.1 million, of which $ 9.7 million, $ 2.4 million and $ 2.0 million related to the cash coupon, amortization of the debt discount and of the deferred financing fees, respectively.

During the three months ended September 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 nine months ended September 30, 2020, we incurred interest expense on the notes totaling $ 14.8 million, of which $ 10.0 million, $ 2.5 million and $ 2.3 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 6.71 % and 6.75 % at September 30, 2021 and December 31, 2020, respectively.

Junior Subordinated Notes

The carrying values of borrowings under our junior subordinated notes were $ 142.0 million and $ 141.7 million at June 30, 2021 and December 31, 2020, respectively, which is net of a deferred amount of $ 10.5 million and $ 10.8 million, respectively, (which is amortized into interest expense over the life of the notes) and deferred financing fees of $ 1.8 million for both periods.

The carrying values of borrowings under our junior subordinated notes were $ 142.2 million and $ 141.7 million at September 30, 2021 and December 31, 2020, respectively, which is net of a deferred amount of $ 10.4 million and $ 10.8 million, respectively, (which is amortized into interest expense over the life of the notes) and deferred financing fees of $ 1.8 million for both periods.

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 2.96 % and 3.06 % at June 30, 2021 and December 31, 2020, respectively.

Including certain fees and costs, the weighted average note rate was 3.04 % and 3.15 % at June 30, 2021 and December 31, 2020, respectively.

The weighted average note rate was 2.95 % and 3.06 % at September 30, 2021 and December 31, 2020, respectively.

Including certain fees and costs, the weighted average note rate was 3.03 % and 3.15 % at September 30, 2021 and December 31, 2020, respectively.

Debt Covenants

Credit Facilities, Repurchase Agreements and Unsecured Debt.

The credit facilities, repurchase agreements and unsecured debt (senior and convertible notes) contain various financial covenants, including, but not limited to, minimum liquidity requirements, minimum net worth requirements, as well as certain other debt service coverage ratios, debt to equity ratios and minimum servicing portfolio tests.

We were in compliance with all financial covenants and restrictions at June 30, 2021.

Credit and Repurchase Facilities and Unsecured Debt.

The credit and repurchase facilities and unsecured debt (senior and convertible notes) contain various financial covenants, including, but not limited to, minimum liquidity requirements, minimum net worth requirements, minimum unencumbered asset 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 September 30, 2021.

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 June 30, 2021, as well as on the most recent determination dates in July 2021.

Our CLOs were in compliance with all such covenants as of September 30, 2021, as well as on the most recent determination dates in October 2021.

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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Our CLO compliance tests as of the most recent determination dates in July 2021 are as follows:

September 30, 2021

Our CLO compliance tests as of the most recent determination dates in October 2021 are as follows:

Cash Flow Triggers

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Determination (1)

(1) The table above represents the quarterly trend of our overcollateralization ratio, however, the CLO determination dates are monthly and we were in compliance with this test for all periods presented.

(1) This table represents the quarterly trend of our overcollateralization ratio, however, the CLO determination dates are monthly and we were in compliance with this test for all periods presented.

The ratio will fluctuate based on the performance of the underlying assets, transfers of assets into the CLOs prior to the expiration of their respective replenishment dates, purchase or disposal of other investments, and loan payoffs.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Beginning balance

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

When a loan is sold under the Fannie Mae DUS program, we undertake an obligation to partially guarantee the performance of the loan.

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 June 30, 2021 and 2020, guarantee obligations of $ 34.5 million and $ 32.8 million, respectively, were included in the allowance for loss-sharing obligations.

At September 30, 2021 and 2020, guarantee obligations of $ 34.4 million and $ 33.2 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.

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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 June 30, 2021 and December 31, 2020, we had outstanding advances of $ 0.5 million and $ 0.1 million, respectively, which were netted against the allowance for loss-sharing obligations.

At June 30, 2021 and December 31, 2020, our allowance for loss-sharing obligations, associated with expected losses under CECL, was $ 31.2 million and $ 30.3 million, respectively, and represented 0.16 % and 0.17 %, respectively, of the Fannie Mae servicing portfolio.

At June 30, 2021 and December 31, 2020, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was $ 3.61 billion and $ 3.41 billion, respectively.

At September 30, 2021 and December 31, 2020, we had outstanding advances of less than $ 0.1 million and $ 0.1 million, respectively, which were netted against the allowance for loss-sharing obligations.

At September 30, 2021 and December 31, 2020, our allowance for loss-sharing obligations, associated with expected losses under CECL, was $ 28.4 million and $ 30.3 million, respectively, and represented 0.15 % and 0.17 %, respectively, of the Fannie Mae servicing portfolio.

At September 30, 2021 and December 31, 2020, the maximum quantifiable liability associated with our guarantees under the Fannie Mae DUS agreement was $ 3.62 billion and $ 3.41 billion, respectively.

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

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Note 11 — Derivative Financial Instruments

We enter into derivative financial instruments to manage exposures that arise from business activities resulting in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

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

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

Agency Rate Lock and Forward Sale Commitments.

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Sale commitments with the investors have an expiration date that is longer than our related commitments to the borrower to allow, among other things, for closing of the loan and processing of paperwork to deliver the loan into the sale commitment.

These commitments meet the definition of a derivative and are recorded at fair value, including the effects of interest rate movements which are reflected as a component of loss on derivative instruments, net in the consolidated statements of operations.

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 and six months ended June 30,2021, we recorded net gains of $ 9.9 million and $ 1.2 million, respectively, from changes in the fair value of these derivatives and $ 26.3 million and $ 63.2 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 and $ 32.4 million and $ 54.4 million, respectively, of income from MSRs.

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

During the three and nine months ended September 30, 2021, we recorded net losses of $ 8.6 million and $ 7.5 million, respectively, from changes in the fair value of these derivatives and $ 32.5 million and $ 95.7 million, respectively, of income from MSRs.

During the three and nine months ended September 30, 2020, we recorded a net loss of $ 0.9 million and a net gain of $ 3.3 million, respectively, from changes in the fair value of these derivatives and $ 42.4 million and $ 96.7 million, respectively, of income from MSRs.

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

See Note 12 for details.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Interest Rate Swap Futures.

We enter into over-the-counter interest rate swap futures (“Swap Futures”) to hedge our exposure to changes in interest rates inherent in (1) our Agency Business SFR - fixed rate loans from the time the loans are originated until the time they can be financed with match term fixed rate securitized debt, and (2) our held-for-sale Agency Business Private Label loans from the time the loans are rate locked until sale and securitization.

The Swap Futures do not meet the criteria for hedge accounting, typically have a three-month maturity and are tied to the five-year and ten-year swap rates.

Our Swap Futures are 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 June 30, 2021, we recorded realized and unrealized losses of $ 9.4 million and $ 3.0 million, respectively, to our Agency Business related to our Swap Futures.

During the six months ended June 30, 2021, we recorded realized and unrealized losses of $ 6.5 million and $ 0.4 million, respectively, to our Agency Business related to our Swap Futures.

During the three months ended June 30, 2020, we recorded realized and unrealized losses of $ 0.2 million and $ 0.1 million, respectively, 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 and unrealized losses of $ 2.8 million and $ 0.5 million, respectively, to our Structured Business and realized and unrealized losses of $ 57.3 million and $ 1.6 million, respectively, to our Agency Business related to our Swap Futures.

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

September 30, 2021

Interest Rate and Credit Default Swaps (“Swaps”).

We enter into over-the-counter swaps to hedge our interest rate and credit risk exposure inherent in (1) our held-for-sale Agency Business Private Label loans from the time the loans are rate locked until sale and securitization, and (2) our Agency Business SFR – fixed rate loans from the time the loans are originated until the time they can be financed with match term fixed rate securitized debt.

Our interest rate swaps typically have a three-month maturity and are tied to the five-year and ten-year swap rates.

Our credit default swaps typically have a five-year maturity, are tied to the credit spreads of the underlying bond issuers and we typically hold our position until we price our Private Label loan securitizations.

The Swaps do not meet the criteria for hedge accounting, 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 September 30, 2021, we recorded realized and unrealized gains of $ 5.4 million and $ 1.9 million, respectively, to our Agency Business related to our Swaps.

During the nine months ended September 30, 2021, we recorded realized losses of $ 1.1 million and unrealized gains of $ 1.5 million to our Agency Business related to Swaps.

During the three months ended September 30, 2020, we recorded realized losses of $ 0.2 million and unrealized gains of $ 0.4 million to our Structured Business and realized losses of $ 0.1 million and unrealized gains of $ 0.1 million to our Agency Business related to our Swaps.

During the nine months ended September 30, 2020, we recorded realized losses of $ 3.0 million and unrealized losses of $ 0.1 million to our Structured Business and realized losses of $ 57.3 million and unrealized losses of $ 1.5 million to our Agency Business related to our Swaps.

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

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

June 30, 2021

September 30, 2021

Balance Sheet

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Note 12 — Fair Value

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

June 30, 2021

September 30, 2021

December 31, 2020

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Loans held-for-sale, net.

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We measure certain financial assets and financial liabilities at fair value on a recurring basis.

The fair values of these financial assets and liabilities are determined using the following input levels as of June 30, 2021 (in thousands):

The fair values of these financial assets and liabilities are determined using the following input levels as of September 30, 2021 (in thousands):

Fair Value Measurements Using Fair

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

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, are determined using the following input levels as of June 30, 2021 (in thousands):

The fair values of these financial and non-financial assets, if applicable, are determined using the following input levels as of September 30, 2021 (in thousands):

Fair Value Measurements Using Fair

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Impaired loans, net (1)

(1) We had an allowance for credit losses of $ 98.7 million relating to nine impaired loans with an aggregate carrying value, before loan loss reserves, of $ 165.7 million at June 30, 2021.

(1) We had an allowance for credit losses of $ 94.9 million relating to eight impaired loans with an aggregate carrying value, before loan loss reserves, of $ 161.0 million at September 30, 2021.

Loan impairment assessments.

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The table above and below includes all impaired loans, regardless of the period in which the impairment was recognized.

Quantitative information about Level 3 fair value measurements at June 30, 2021 is as follows ($ in thousands):

Quantitative information about Level 3 fair value measurements at September 30, 2021 is as follows ($ in thousands):

Significant Unobservable Inputs

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Revenue growth rate

Discounted cash flows

Capitalization rate

Discount rate

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

The derivative financial instruments using Level 3 inputs are outstanding for short periods of time (generally less than 60 days).

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Significant Unobservable Inputs

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Derivative assets and liabilities, net

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Total Fair Value

June 30, 2021

September 30, 2021

Principal Amount

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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 June 30, 2021 (in thousands):

The fair value of these assets and liabilities are determined using the following input levels as of September 30, 2021 (in thousands):

Fair Value Measurements Using Fair Value Hierarchy

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Agency Business Commitments.

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

As of June 30, 2021, we were required to maintain at least $ 19.1 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 September 30, 2021, we were required to maintain at least $ 19.0 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.

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

As of June 30, 2021, we met the restricted liquidity requirement with a $ 45.0 million letter of credit and $ 14.6 million of cash collateral.

As of June 30, 2021, reserve requirements for the Fannie Mae DUS loan portfolio will require us to fund $ 47.7 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 September 30, 2021, we met the restricted liquidity requirement with a $ 45.0 million letter of credit and $ 17.0 million of cash collateral.

As of September 30, 2021, reserve requirements for the Fannie Mae DUS loan portfolio will require us to fund $ 46.1 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.

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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 June 30, 2021, 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 September 30, 2021, 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 and FHA, as requirements for these investors are only required on an annual basis.

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Debt Obligations and Operating Leases.

As of June 30, 2021, 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 September 30, 2021, 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

2021 (six months ending December 31, 2021)

2021 (three months ending December 31, 2021)

ARBOR REALTY TRUST, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

During the three months ended June 30, 2021 and 2020, we recorded lease expense of $ 2.4 million and $ 1.5 million, respectively, and during the six months ended June 30, 2021 and 2020, we recorded lease expense of $ 4.7 million and $ 3.1 million, respectively.

September 30, 2021

During the three months ended September 30, 2021 and 2020, we recorded lease expense of $ 2.4 million and $ 1.5 million, respectively, and during the nine months ended September 30, 2021 and 2020, we recorded lease expense of $ 7.0 million and $ 4.6 million, respectively.

Unfunded Commitments.

In accordance with certain structured loans and investments, we have outstanding unfunded commitments of $ 524.7 million as of June 30, 2021 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 $ 638.1 million as of September 30, 2021 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

After supplemental briefing and multiple adjourned conferences, in August 2020, the Court issued a decision granting our motion to dismiss in part, dismissing 9 of the 17 counts.

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

June 30, 2021

September 30, 2021

December 31, 2020

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Unconsolidated VIEs .

We determined that we are not the primary beneficiary of 31 VIEs in which we have a variable interest as of June 30, 2021 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, 2021 is as follows (in thousands):

We determined that we are not the primary beneficiary of 29 VIEs in which we have a variable interest as of September 30, 2021 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 September 30, 2021 is as follows (in thousands):

Carrying Amount (1)

B Piece bonds

APL certificates

B Piece bonds

Equity investments

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

At June 30, 2021, $ 130.0 million of loans to VIEs had corresponding specific loan loss reserves of $ 79.4 million.

The maximum loss exposure as of June 30, 2021 would not exceed the carrying amount of our investment.

These unconsolidated VIEs have exposure to real estate debt of approximately $ 4.30 billion at June 30, 2021.

At September 30, 2021, $ 130.0 million of loans to VIEs had corresponding specific loan loss reserves of $ 79.4 million.

The maximum loss exposure as of September 30, 2021 would not exceed the carrying amount of our investment.

These unconsolidated VIEs have exposure to real estate debt of approximately $ 4.01 billion at September 30, 2021.

Note 15 — Equity

Preferred Stock.

In June 2021, the Company completed a public offering of 9,200,000 shares of 6.375 % Series D cumulative redeemable preferred stock with a liquidation preference of $ 25.00 per share, generating net proceeds of approximately $ 222.6 million after deducting the underwriting discount and other offering expenses.

In August 2021, we completed a public offering of 5,750,000 shares of 6.25 % Series E cumulative redeemable preferred stock with a liquidation preference of $ 25.00 per share, generating net proceeds of approximately $ 139.1 million after deducting the underwriting discount and other offering expenses.

The proceeds were used to make investments related to our business and for general corporate purposes.

The Series E preferred stock is not redeemable by us prior to August 11, 2026 except under circumstances intended to preserve our qualification as a REIT and except upon the occurrence of a change of control.

In June 2021, we completed a public offering of 9,200,000 shares of 6.375 % Series D cumulative redeemable preferred stock with a liquidation preference of $ 25.00 per share, generating net proceeds of approximately $ 222.6 million after deducting the underwriting discount and other offering expenses.

We used $ 93.3 million of the proceeds to fully redeem our Series A, B and C preferred stock.

The 6.375 % Series D preferred stock is not redeemable by the Company prior to June 2, 2026 except under circumstances intended to preserve the Company’s qualification as a REIT and except upon the occurrence of a change of control.

The Series D preferred stock is not redeemable by us prior to June 2, 2026 except under circumstances intended to preserve our qualification as a REIT and except upon the occurrence of a change of control.

Subsequent Event.

In October 2021, we completed a public offering of 8,050,000 shares of 6.25 % Series F fixed-to-floating rate cumulative redeemable preferred stock with a liquidation preference of $ 25.00 per share, generating net proceeds of approximately $ 194.8 million after deducting the underwriting discount and other offering expenses.

Holders of the Series F preferred stock will be entitled to receive cumulative dividends at a fixed rate equal to 6.25 % from the date of issuance through October 29, 2026 and at a floating rate equal to a benchmark rate (which is expected to be the three-month SOFR) plus a spread of 5.442 % per annum beginning October 30, 2026, provided that in no event should the rate be lower than 6.125 %.

The proceeds received are being used to make investments related to our business and for general corporate purposes.

The Series F preferred stock is not redeemable by us prior to October 12, 2026 except under circumstances intended to preserve our qualification as a REIT and except upon the occurrence of a change of control.

Common Stock.

In August 2021, we amended the equity distribution agreement with JMP Securities LLC (“JMP”).

In accordance with the terms of the amendment, we may offer and sell up to 20,000,000 shares of our common stock in “At-The-Market” equity offerings 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 nine months ended September 30, 2021, we sold 7,222,879 shares of our common stock for net proceeds of $ 123.8 million.

We used $ 21.1 million of the net proceeds to redeem OP Units from two of ACM’s members for their membership interest in ACM.

As of September 30, 2021, we had 19,200,000 shares available under the amended agreement.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

In June 2021, we completed a public offering in which we sold 6,000,000 shares of our common stock for $ 18.46 per share and received net proceeds of $ 110.6 million after deducting the underwriter's discount and other offering expenses.

The proceeds were used to make investments related to our business and for general corporate purposes.

We also used $ 11.1 million of the net proceeds from this offering to purchase 600,000 shares of our common stock from ACM at the same price the underwriters paid to purchase the shares.

In March 2021, we completed a public offering in which we sold 7,000,000 shares of our common stock for $ 15.48 per share and received net proceeds of $ 108.2 million after deducting the underwriter's discount and other offering expenses.

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We also used $ 12.4 million of the net proceeds from this offering to purchase 800,000 shares of our common stock from certain executive officers of ours, ACM and an estate planning family vehicle established by our chief executive officer at the same price the underwriters paid to purchase the shares.

The proceeds are being used to make investments related to our business and for general corporate purposes.

We also used $ 11.1 million of the net proceeds from this offering to purchase 600,000 shares of our common stock from ACM at the same price the underwriters paid to purchase the shares.

During the six months ended June 30, 2021, we sold 6,422,879 shares of our common stock for net proceeds of $ 109.2 million through an “At-The-Market” equity offering sales agreement with JMP Securities LLC (“JMP”).

We used $ 21.1 million of the net proceeds to redeem OP Units from two of ACM's members for their membership interest in ACM.

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 June 30, 2021, there were 16,352,233 OP Units outstanding, which represented 10.3 % of the voting power of our outstanding stock.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

At September 30, 2021, there were 16,325,095 OP Units outstanding, which represented 10.2 % of the voting power of our outstanding stock.

Distributions.

Dividends declared (on a per share basis) during the six months ended June 30, 2021 are as follows:

Dividends declared (on a per share basis) during the nine months ended September 30, 2021 are as follows:

Preferred Stock

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April 30, 2021

(1) The dividend declared on April 30, 2021 was for March 1, 2021 through May 31, 2021 and the dividend declared on February 1, 2021 was for December 1, 2020 through February 28, 2021.

As mentioned above, we used a portion of the proceeds from our Series D preferred stock to fully redeem our Series A, B and C preferred stock in June 2021.

Common Stock – On July 28, 2021, the Board of Directors declared a cash dividend of $ 0.35 per share of common stock.

The dividend is payable on August 31, 2021 to common stockholders of record as of the close of business on August 16, 2021.

Preferred Stock – On July 2, 2021, the Board of Directors declared a cash dividend of $ 0.256771 per share of 6.375 % Series D preferred stock, which reflects dividends from June 2, 2021 through July 29, 2021 and are payable on July 30, 2021 to preferred stockholders of record on July 15, 2021.

July 28, 2021

(1) The dividend declared on July 2, 2021 was for June 2, 2021 through July 29, 2021, the dividend declared on April 30, 2021 was for March 1, 2021 through May 31, 2021 and the dividend declared on February 1, 2021 was for December 1, 2020 through February 28, 2021.

As mentioned above, we fully redeemed our Series A, B and C preferred stock in June 2021.

Common Stock – On October 27, 2021, the Board of Directors declared a cash dividend of $ 0.36 per share of common stock.

The dividend is payable on November 30, 2021 to common stockholders of record as of the close of business on November 15, 2021.

Preferred Stock – On October 1, 2021, the Board of Directors declared a cash dividend of $ 0.3984375 per share of Series D preferred stock and a cash dividend of $ 0.34288 per share of Series E preferred stock.

The Series D preferred stock dividend reflects accrued dividends from July 30, 2021 through October 29, 2021.

The Series E preferred stock dividend reflects accrued dividends from August 11, 2021 (the date of issuance) through October 29, 2021.

The dividends are payable on November 1, 2021 to preferred stockholders of record on October 15, 2021.

Deferred Compensation.

In March 2021, we issued 257,726 shares of restricted common stock to employees under the 2020 Amended Omnibus Stock Incentive Plan (the “2020 Plan”) with a total grant date fair value of $ 4.1 million.

Approximately half of the shares had one third vest as of the grant date and one third vesting on each of the first and second anniversaries of the grant date.

The majority of the remaining shares had one fifth vest as of the grant date and one fifth vesting on each of the first, second , third and fourth anniversaries of the grant date.

In March 2021, we also issued 27,864 shares of fully vested common stock to the independent members of the Board of Directors under the 2020 Plan with a grant date fair value of $ 0.4 million.

During the nine months ended September 30, 2021, we issued 351,807 shares of restricted common stock to employees under the 2020 Amended Omnibus Stock Incentive Plan (the “2020 Plan”) with a total grant date fair value of $ 5.8 million, of which:

(1) 115,047 shares with a grant date fair value of $ 1.9 million were fully vested on the grant date;

(2) 99,952 shares with a grant date fair value of $ 1.7 million will vest on the first anniversary of the grant date;

(3) 87,265 shares with a grant date fair value of $ 1.4 million will vest on the second anniversary of the grant date;

(4) 25,479 shares with a grant date fair value of $ 0.4 million will vest on the third anniversary of the grant date;

and (5) 24,064 shares with a grant date fair value of $ 0.4 million will vest on the fourth anniversary of the grant date.

We also issued 27,864 shares of fully vested common stock to the independent members of the Board of Directors under the 2020 Plan with a grant date fair value of $ 0.4 million.

During the first quarter of 2021, 448,980 shares of performance-based restricted stock units previously granted to our chief executive officer fully vested and were net settled for 229,083 common shares.

During the first quarter of 2021, we withheld 140,744 shares from the net settlement of restricted common stock by employees for payment of withholding taxes on shares that vested.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

During the nine months ended September 30, 2021, we withheld 183,144 shares from the net settlement of restricted common stock by employees for payment of withholding taxes on shares that vested.

In April 2021, we entered into a second amended and restated annual incentive agreement (the “2021 annual incentive agreement”) with our chief executive officer, effective January 1, 2021.

10 unchanged sentences

therefore, we granted our chief executive officer 184,729 shares of restricted common stock with a grant date fair value of $ 3.1 million that vest in full in April 2024.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

In July 2021, we granted our chief executive officer 165,746 shares of performance based restricted stock with a grant date fair value of $ 3.0 million in connection with the Acquisition Related Grant, which vest in full in July 2024.

In addition, 294,985 shares of performance-based restricted stock granted in 2018 vested in the third quarter of 2021, which were net settled for 150,530 common shares.

Earnings Per Share.

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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,

Three Months Ended September 30,

Net income attributable to common stockholders (1)

7 unchanged sentences

Net income per common share (1)

Six Months Ended June 30,

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

Net income (loss) attributable to noncontrolling interest (2)

Net income (loss) attributable to common stockholders and noncontrolling interest

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

Nine Months Ended September 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

3 unchanged sentences

Weighted average shares outstanding

Net income (loss) per common share (1)

Net income per common share (1)

(1) Net of preferred stock dividends.

(2) We consider OP Units to be common stock equivalents as the holders have voting rights, the right to distributions and the right to redeem the OP Units for the cash value of a corresponding number of shares of common stock or a corresponding number of shares of common stock, at our election.

(3) Our chief executive officer 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.

(3) Our chief executive officer was granted restricted stock units during 2020, 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.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Note 16 — 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 and six months ended June 30, 2021, we recorded a tax provision of $ 11.0 million and $ 23.5 million, respectively.

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.The tax provision recorded in the three months ended June 30, 2021 consisted of a current tax provision of $ 11.0 million and a deferred tax benefit of less than $ 0.1 million.

The tax provision recorded in the six months ended June 30, 2021 consisted of a current and deferred tax provision of $ 19.0 million and $ 4.5 million.

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.

In the three and nine months ended September 30, 2021, we recorded a tax provision of $ 9.9 million and $ 33.4 million, respectively.

In the three and nine months ended September 30, 2020, we recorded a tax provision of $ 17.8 million and $ 15.5 million, respectively.

The tax provision recorded in the three months ended September 30, 2021 consisted of current and deferred tax provisions of $ 3.6 million and $ 6.3 million, respectively.

The tax provision recorded in the nine months ended September 30, 2021 consisted of current and deferred tax provisions of $ 22.7 million and $ 10.7 million, respectively.

The tax provision recorded in the three months ended September 30, 2020 consisted of a current tax provision of $ 13.9 million and a deferred tax provision of $ 3.9 million.

The tax provision recorded in the nine months ended September 30, 2020 consisted of a current tax provision of $ 20.7 million and a deferred tax benefit of $ 5.2 million.

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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GAAP consolidated financial statements and the federal, state, local tax basis of assets and liabilities as of the consolidated balance sheets.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

Note 17 — Agreements and Transactions with Related Parties

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The Service Recipients reimburse us for the costs of performing such services and the cost of the seconded employees.

During the three and six months ended June 30, 2021, we incurred $ 0.8 million and $ 1.6 million, respectively, and, during the three and six months ended June 30, 2020, we incurred $ 0.7 million and $ 1.2 million, respectively, of costs for services provided and employees seconded to the Service Recipients, all of which were reimbursed to us and included in due from related party on the consolidated balance sheets.

During the three and nine months ended September 30, 2021, we incurred $ 0.8 million and $ 2.4 million, respectively, and, during the three and nine months ended September 30, 2020, we incurred $ 0.6 million and $ 1.8 million, respectively, of costs for services provided and employees seconded to the Service Recipients, all of which were reimbursed to us and included in due from related party on the consolidated balance sheets.

Other Related Party Transactions.

Due from related party was $ 11.1 million and $ 12.4 million at June 30, 2021 and December 31, 2020, 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 support and secondment agreements described above.

Due to related party was $ 6.2 million and $ 2.4 million at June 30, 2021 and December 31, 2020, 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 $ 12.7 million and $ 12.4 million at September 30, 2021 and December 31, 2020, 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 support and secondment agreements described above.

Due to related party was $ 4.4 million and $ 2.4 million at September 30, 2021 and December 31, 2020, respectively, and consisted of loan payoffs, holdbacks and escrows to be remitted to our affiliated servicing operations related to real estate transactions.

In March 2021, we originated a $ 63.4 million bridge loan to a third-party to purchase a multifamily property from a multifamily-focused commercial real estate investment fund sponsored and managed by our chief executive officer and one of his immediate family members, which fund has no continued involvement with the property following the purchase.

The loan has an interest rate of LIBOR plus 3.75 % with a LIBOR floor of 0.25 % and matures in March 2024.

Interest income recorded from this loan was $ 0.7 million for both the three and six months ended June 30, 2021.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

In December 2020, we committed to fund a $ 32.5 million bridge loan (of which $ 1.5 million was funded as of June 30, 2021) and made a $ 3.5 million preferred equity investment in a SFR build-to-rent construction project.

Interest income recorded from this loan was $ 0.7 million and $ 1.4 million for the three and nine months ended September 30, 2021, respectively.

In December 2020, we committed to fund a $ 32.5 million bridge loan (of which $ 2.3 million was funded as of September 30, 2021) and made a $ 3.5 million preferred equity investment in a SFR build-to-rent construction project.

An entity owned by an immediate family member of our chief executive officer also made an equity investment in the project and owns a 21.8 % equity interest in the borrowing entity.

The bridge loan has an interest rate of LIBOR plus 5.50 % with a LIBOR floor of 0.75 % and matures in October 2023 and the preferred equity investment has a fixed rate of 12 % and matures in October 2023.

Interest income recorded from these loans was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2021, respectively.

Interest income recorded from these loans was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2021, respectively.

In October 2020, we committed to fund a $ 30.5 million bridge loan and made a $ 4.6 million preferred equity investment in a SFR build-to-rent construction project.

ACM and an entity owned by an immediate family member of our chief executive officer also made equity investments in the project and own an 18.9 % equity interest in the borrowing entity.

The bridge loan, which was not funded as of June 30, 2021, has an interest rate of LIBOR plus 5.50 % with a LIBOR floor of 0.75 % and matures in May 2023 and the preferred equity investment has a fixed rate of 12 % and matures in April 2023.

Interest income recorded from the preferred equity investment was $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2021, respectively.

The bridge loan, which was not funded as of September 30, 2021, has an interest rate of LIBOR plus 5.50 % with a LIBOR floor of 0.75 % and matures in May 2023 and the preferred equity investment has a fixed rate of 12 % and matures in April 2023.

Interest income recorded from the preferred equity investment was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2021, respectively.

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.

Interest income recorded from these loans was $ 0.3 million and $ 0.7 million for the three and six months ended June 30, 2021, respectively, and $ 0.6 million and $ 1.4 million for the three and six months ended June 30, 2020, respectively.

The property is controlled by a third party.

The day-to-day operations were previously managed by an entity owned by an immediate family member of our chief executive officer.

On September 1, 2021, we entered into a forbearance agreement with the borrower on the outstanding bridge loan to defer all interest owed to payoff.

Interest income recorded from these loans was $ 0.3 million and $ 1.0 million for the three and nine months ended September 30, 2021, respectively, and $ 0.3 million and $ 1.7 million for the three and nine months ended September 30, 2020, respectively.

In March 2020, we originated a $ 14.8 million Private Label loan and a $ 3.4 million mezzanine loan 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 Private Label loan bears interest at a fixed rate of 3.1 % and the mezzanine loan bears interest at a fixed rate of 9.0 % and both loans mature in April 2030.

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

Interest income recorded from these loans totaled $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2021, respectively, and $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2020, respectively.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

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 six months ended June 30, 2021 and 2020, we reimbursed the aircraft owner $ 0.1 million and $ 0.3 million, respectively, for the flights chartered by our executives pursuant the agreement.

During the nine months ended September 30, 2021 and 2020, we reimbursed the aircraft owner $ 0.1 million and $ 0.4 million, respectively, for the flights chartered by our executives pursuant the agreement.

In 2019, we, along with ACM, certain executives of ours and a consortium of independent outside investors, formed AMAC III, a multifamily-focused commercial real estate investment fund sponsored and managed by our chief executive officer and one of his immediate family members.

We committed to a $ 30.0 million investment (of which $ 15.7 million was funded as of June 30, 2021) for an 18 % interest in AMAC III.

During both the three and six months ended June 30, 2021, the loss recorded from this investment was de minimis.

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

We committed to a $ 30.0 million investment (of which $ 16.2 million was funded as of September 30, 2021) for an 18 % interest in AMAC III.

During the three and nine months ended September 30, 2021 the loss recorded from this investment was $ 0.4 million and $ 0.9 million, respectively.

During the three and nine months ended September 30, 2020, the loss recorded from this investment was less than $ 0.1 million and $ 0.6 million, respectively.

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.

3 unchanged sentences

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

Interest income recorded from these loans totaled $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2021, respectively, and $ 0.7 million and $ 1.6 million for the three and six months ended June 30, 2020, respectively.

Interest income recorded from these loans totaled $ 0.3 million and $ 0.9 million for the three and nine months ended September 30, 2021, respectively, and $ 1.6 million for the nine months ended September 30, 2020.

In 2018, we originated a $ 37.5 million bridge loan, which was used to purchase several multifamily properties.

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

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

Interest income recorded from this loan was $ 1.4 million for the nine months ended September 30, 2020.

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

2 unchanged sentences

In January 2021, the borrower repaid this loan in full.

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

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Interest income recorded from this loan was $ 0.3 million and $ 0.9 million for the three and nine months ended September 30, 2020, 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 owns a 10.8 % interest in the borrowing entity.

2 unchanged sentences

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 was $ 0.1 million for the six months ended June 30, 2020.

Interest income recorded from this loan was $ 0.1 million for the nine months ended September 30, 2020.

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 was scheduled to mature in June 2021, which was extended to August 2023.

Interest income recorded from this loan was $ 0.3 million for both the three months ended June 30, 2021 and 2020, and $ 0.7 million for both the six months ended June 30, 2021 and 2020.

Interest income recorded from this loan was $ 0.3 million for both the three months ended September 30, 2021 and 2020, and $ 1.0 million for both the nine months ended September 30, 2021 and 2020.

In 2018, we acquired a $ 9.4 million bridge loan originated by ACM.

1 unchanged sentence

The loan has an interest rate of LIBOR plus 5.0 % with a LIBOR floor of 1.25 % and was scheduled to mature in January 2021.

In January 2021, the maturity date of this loan was extended to January 2022.

Interest income recorded from this loan was $ 0.1 million for both the three months ended June 30, 2021 and 2020, and $ 0.3 million for both the six months ended June 30, 2021 and 2020.

In January 2021, the maturity date of this loan was extended to January 2022 and, in September 2021, this loan paid off in full.

Interest income recorded from this loan was $ 0.3 million for the nine months ended September 30, 2021.

Interest income recorded from this loan was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2020, respectively.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

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.

1 unchanged sentence

The borrower refinanced these loans with a $ 31.1 million bridge loan we originated in 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 this loan was $ 0.5 million for both the three months ended June 30, 2021 and 2020, and $ 1.0 million for both the six months ended June 30, 2021 and 2020.

Interest income recorded from this loan was $ 0.5 million for both the three months ended September 30, 2021 and 2020, and $ 1.4 million for both the nine months ended September 30, 2021 and 2020.

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.

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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.

Ginkgo subsequently sold the majority of its interest in this property and owned a 3.6 % interest at June 30, 2021.

Ginkgo subsequently sold the majority of its interest in this property and owned a 3.6 % interest at September 30, 2021.

We carry a maximum loss-sharing obligation with Fannie Mae on this loan of up to 20 % of the original UPB.

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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 was $ 0.1 million for all periods presented.

The Private Label loan bears interest at a fixed rate of 3.1 % and the mezzanine loan bears interest at a fixed rate of 9.0 % and both loans mature in April 2030.

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

Interest income recorded from these loans totaled $ 0.1 million for both the three and six months ended June 30, 2021 and $ 0.2 million for both the three and six months ended June 30, 2020.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Interest income recorded from the remaining mezzanine loan was $ 0.1 million for both the three months ended September 30, 2021 and 2020, and $ 0.2 million for both the nine months ended September 30, 2021 and 2020.

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.

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We recorded income from equity affiliates related to this investment of $ 4.8 million and $ 27.3 million in the three and six months ended June 30, 2021, respectively, and $ 20.9 million and $ 23.8 million in the three and six months ended June 30, 2020, respectively.

We recorded income from equity affiliates related to this investment of $ 5.4 million and $ 32.7 million in the three and nine months ended September 30, 2021, respectively, and $ 32.3 million and $ 56.1 million in the three and nine months ended September 30, 2020, respectively.

During the three and nine months ended September 30, 2021, we also received cash distributions totaling $ 4.7 million and $ 23.4 million from this investment, respectively, which were classified as returns of capital.

ARBOR REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

We, along with an executive officer of ours and a consortium of independent outside investors, hold equity investments in a portfolio of multifamily properties referred to as the “Lexford” portfolio, which is managed by an entity owned primarily by a consortium of affiliated investors, including our chief executive officer and an executive officer of ours.

Based on the terms of the management contract, the management company is entitled to 4.75 % of gross revenues of the underlying properties, along with the potential to share in the proceeds of a sale or restructuring of the debt.

In June 2018, the owners of Lexford restructured part of its debt and we originated twelve bridge loans totaling $ 280.5 million, which were used to repay in full certain existing mortgage debt and to renovate 72 multifamily properties included in the portfolio.

The loans were originated in June 2018, had interest rates of LIBOR plus 4.0 % and were scheduled to mature in June 2021.

In 2018, the owners of Lexford restructured part of its debt and we originated 12 bridge loans totaling $ 280.5 million, which were used to repay in full certain existing mortgage debt and to renovate 72 multifamily properties included in the portfolio.

The loans were originated in 2018, had interest rates of LIBOR plus 4.0 % and were scheduled to mature in June 2021.

During 2019, the borrower made payoffs and partial paydowns of principal totaling $ 250.0 million and 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.

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.

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.

Interest income recorded from these loans totaled $ 0.5 million during the nine months ended September 30, 2020.

Further, as part of this 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 a distribution of $ 0.2 million during both the three and six months ended June 30, 2020, which was 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.

In addition, in connection with our equity investment, we received distributions totaling $ 1.1 million during the nine months ended September 30, 2020, which was recorded as income from equity affiliates.

Separate from the loans we originated in 2018, we provide limited (“bad boy”) guarantees for certain other debt controlled by Lexford.

The bad boy guarantees may become a liability for us upon standard “bad” acts such as fraud or a material misrepresentation by Lexford or us.

At June 30, 2021, this debt had an aggregate outstanding balance of $ 609.3 million and is scheduled to mature between 2021 and 2029.

At September 30, 2021, this debt had an aggregate outstanding balance of $ 607.4 million and is scheduled to mature through 2029.

Several of our executives, including our chief financial officer, senior 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 June 30, 2021, ACM holds 2,828,629 shares of our common stock and 10,692,668 OP Units, which in the aggregate represents 8.6 % of the voting power of our outstanding stock.

At September 30, 2021, ACM holds 2,828,629 shares of our common stock and 10,665,530 OP Units, which in the aggregate represents 8.5 % 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 (in 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Note 18 — Segment Information

The summarized statements of operations and balance sheet data, as well as certain other data, by segment are included in the following tables ($ in thousands).

The summarized statements of income and balance sheet data, as well as certain other data, by segment are included in the following tables ($ in thousands).

Specifically identifiable costs are recorded directly to each business segment.

1 unchanged sentence

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

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Eliminations (1)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Three Months Ended June 30, 2020

September 30, 2021

Three Months Ended September 30, 2020

Eliminations (1)

8 unchanged sentences

Property operating income

Loss on derivative instruments, net

Gain (loss) on derivative instruments, net

Other income, net

8 unchanged sentences

Total other expenses

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

Loss on extinguishment of debt

Income before sale of real estate, income from equity affiliates and income taxes

Loss on sale of real estate

Income from equity affiliates

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Six Months Ended June 30, 2021

September 30, 2021

Nine Months Ended September 30, 2021

Eliminations (1)

29 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Six Months Ended June 30, 2020

September 30, 2021

Nine Months Ended September 30, 2020

Eliminations (1)

19 unchanged sentences

Total other expenses

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

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

Loss on extinguishment of debt

Loss on sale of real estate

Income from equity affiliates

(Provision for) benefit from income taxes

Provision for income taxes

Preferred stock dividends

Net loss attributable to noncontrolling interest

Net loss attributable to common stockholders

Net income attributable to noncontrolling interest

Net income attributable to common stockholders

(1) Includes income allocated to the noncontrolling interest holders not allocated to the two reportable segments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

September 30, 2021

Structured Business

28 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

Three Months Ended June 30,

Six Months Ended June 30,

September 30, 2021

Three Months Ended September 30,

Nine Months Ended September 30,

Origination Data:

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Total new loan originations

(1) The three and six months ended June 30, 2021 includes 25 and 43 SFR loans with a UPB of $ 70.9 million and $ 114.2 million, respectively.

During the three and six months ended June 30, 2021, we committed to fund one and four SFR build-to-rent bridge loans totaling $ 40.0 million and $ 138.4 million, respectively.

(2) The six months ended June 30, 2021 and 2020 includes 1 and 7 SFR permanent loans with a UPB of $ 26.2 million and $ 32.3 million, respectively.

(1) The three and nine months ended September 30, 2021 includes 25 and 68 SFR loans with a UPB of $ 105.3 million and $ 219.5 million, respectively.

During the three and nine months ended September 30, 2021, we committed to fund one and five SFR build-to-rent bridge loans totaling $ 17.6 million and $ 156.0 million, respectively.

(2) The nine months ended September 30, 2021 and 2020 includes 1 and 9 SFR permanent loans with a UPB of $ 26.2 million and $ 37.2 million, respectively.

Loan payoffs / paydowns

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Agency Business

Private Label

SFR - Fixed Rate

Private Label

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

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

June 30, 2021

September 30, 2021

UPB of Servicing

7 unchanged sentences

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