ARBOR REALTY TRUST INC 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk We disclosed a quantitative and qualitative analysis regarding market risk in Item 7A of our 2025 Annual Report. That information is supplemented by the information included above in Item 2 of this report. Other than the developments described thereunder, there have been no material changes in our exposure to market risk since December 31, 2025. Our operating results are sensitive to fluctuations in interest rates, particularly in our Structured Business. Our structured loan portfolio and investments are primarily floating rate based on SOFR and a meaningful portion of our debt is fixed rate. Additionally, interest rate floors on certain loans, where applicable, may cause changes in interest income and interest expense to occur at different times or by different amounts. Therefore, while increases in interest rates generally benefit our net interest income because our structured loan portfolio and investments exceed our corresponding debt balances, fluctuations in interest rates do not necessarily correlate directly with the impact on our net interest income, particularly depending on the magnitude of such fluctuations and the effect of applicable interest rate floors. The following table projects the potential impact on interest ($ in thousands) for a 12-month period, assuming a hypothetical instantaneous increase or decrease of 50 basis points and a decrease of 100 basis points in corresponding interest rates. Since it is unlikely that interest rates will significantly increase in the near future as a result of the current high interest rate environment, we have excluded the impact of a 100 basis point increase in corresponding interest rates. 58 Table of Contents Assets (Liabilities) Subject to Interest Rate Sensitivity (1) 50 Basis Point Increase 50 Basis Point Decrease 100 Basis Point Decrease Interest income from loans and investments $ 11,997,293 $ 46,532 $ (39,149) $ (66,973) Interest expense from debt obligations (10,963,434) 44,050 (42,631) (84,352) Impact to net interest income from loans and investments 2,482 3,482 17,379 Interest income from cash, restricted cash and escrow balances (2) 2,007,509 10,038 (10,038) (20,075) Total impact from hypothetical changes in interest rates $ 12,520 $ (6,556) $ (2,696) ________________________ (1) Represents the UPB of our structured loan portfolio, the principal balance of our debt and the account balances of our cash, restricted cash and escrows at March 31, 2026. (2) Our cash, restricted cash and escrows are currently earning interest at a weighted average blended rate of approximately 3.3%, or approximately $66 million annually. Interest income earned on our cash and restricted cash is included as a component of interest income and interest income earned on escrows is included as a component of servicing revenue, net in the consolidated statements of income. The interest earned on our cash, restricted cash and escrows is based on an average daily balance and may be different from the end of period balance. Our Agency Business originates, sells and services a range of multifamily finance products with Fannie Mae, Freddie Mac and HUD. Our loans held-for-sale to these agencies are not currently exposed to interest rate risk during the loan commitment, closing and delivery process. The sale or placement of each loan to an investor is negotiated prior to closing on the loan with the borrower, and the sale or placement is generally effectuated within 60 days of closing. The coupon rate for the loan is set after we establish the interest rate with the investor. In addition, the fair value of our MSRs is subject to market risk since a significant driver of the fair value of these assets is the discount rates. A 100 basis point increase in the weighted average discount rate would decrease the fair value of our MSRs by $12.4 million at March 31, 2026, while a 100 basis point decrease would increase the fair value by $13.0 million.