Arbor Realty Trust Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Steve DeLaney - JMP Securities - Analyst : Thank you. Good morning Ivan and Paul. Congratulations on a solid performance in this difficult market. One of the things we noticed, obviously, you're very active on modifying loans of the 60-day or less bucket. We did notice that, number of loans and the dollar amount declined. The figures, but in the quarter, 2Q, fewer loans to modify than in the 1Q. Looking at the modifications, which I guess so far this year, 67 modifications, $2.5 billion of loans. Looking at taking that data and then looking at the NPLs, which increased slightly in the second quarter to 24 loans and $676 million. The question is just in terms of your process. Is it still -- once you classify an loan as an NPL, are you still actively working to -- could you modify that loan and get it back in a current state or once they go to NPL, is there a much higher probability that it might end up in REO? Thanks.

Question: Steve DeLaney - JMP Securities - Analyst : Got it. Well, what I heard you say there, Ivan, is that because something is currently classified as an NPL, there is still a possibility that those loans could be modified. Did I hear you correctly? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2024 / 2:00PM, ABR.N - Q2 2024 Arbor Realty Trust Inc Earnings Call

Question: Steve DeLaney - JMP Securities - Analyst : Great. And the 30% to REO, Paul, I look on the balance sheet, can you tell us what's in REO currently? And I assume you have that in other assets? We couldn't find...

Question: Steve DeLaney - JMP Securities - Analyst : Thank you both for your comments.

Question: Stephen Laws - Raymond James Financial, Inc. - Analyst : Hi. Good morning. Just a follow-up, a minor point on the REO, about how many assets is that? What is the average loan size consistent with kind of the $20 million for the portfolio? Or how do you see that, I guess, $300 million of potential REOs from a property count standpoint?

Question: Stephen Laws - Raymond James Financial, Inc. - Analyst : Great. And then, Ivan, I want to go back to something you commented on around interest rates. And you said we go below 4%, certainly beneficial. And I think since the last time we spoke at the long end of the curve is down almost 100 basis points or fairly close. Can you talk about maybe how -- and I know that most recently, it's only been a couple of weeks, but can you talk about how that maybe has changed behavior from sponsors? Do you think, they're more likely to protect assets, cheaper to buy new caps? And then how do you think it impacts agency volumes as you move forward?

Question: Stephen Laws - Raymond James Financial, Inc. - Analyst : Great. Appreciate those comments, Ivan. And one last one, if I may. On portfolio seasoning. Origination volume was very strong in 2021, in the first half of 2022, really lightened up a lot in the second half of 2022. As you think about the seasoning of those loans, is it fair to say that you've covered the $1 billion of NPLs. But should we continue to see kind of the new 60-day delinquency start to decline. I know there'll be more and then some will move. But are we past the peak of kind of identifying the problem loans as you think about your portfolio?

Question: Stephen Laws - Raymond James Financial, Inc. - Analyst : Well, that's great to hear. And nice job managing our assets in a difficult market and look forward to next quarter. Thank you.

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Hey, guys. Thanks for taking my questions this morning. A couple of different things, just from a bookkeeping perspective, cash balances within the structured business declined by about 50%. I assume some of the decline in the restricted cash is from calling the CLO. But can you just help us understand what's going on there?

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Okay. Thank you. Second topic, you talked about modifying $730 million of loans in the second quarter. We've gone through the disclosure in the last Q related to mods. And I'm going to be honest, I don't fully understand all of the implications. Can we just walk through clearly the implications of the mods in this quarter in terms of what it means for the difference in cash that you will receive and the difference in interest accrual? So if you do modify the loans, what would you have expected to receive? How much are you giving up in cash over the next year or two? And what is the difference in the accrual rate so we understand the implications from an income perspective? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2024 / 2:00PM, ABR.N - Q2 2024 Arbor Realty Trust Inc Earnings Call

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Well no, it's a very thoughtful question to -- response to a question. I wasn't sure objectively that you would be able to answer. And so I was a little bit circumspect about asking that. So, thank you. It's very helpful. Last question, implicitly, the mods, $23 million of additional capital on $730 million of mods, that's about a 315 basis point contribution of capital. I'd love to understand that in the context of your comment and answer or two ago about caps running 6% to 8% for your borrowers. I'm just curious how we sort of square those two numbers?

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : It does. Very thoughtful answers. I appreciate the time. I would, throw in one last request. There are a lot of numbers that get thrown around on these calls. You guys are unique amongst the companies that we follow and not providing a slide deck on the calls. And I think given the complexity REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2024 / 2:00PM, ABR.N - Q2 2024 Arbor Realty Trust Inc Earnings Call of what Paul, you've described, it would be really helpful if people could see the numbers and you could be walking through slides on the call. So I'm just going to throw that out there, but I appreciate the time guys.

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Great. Thanks, guys.

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : Thank you very much. Can you please give the second quarter or six-month year-to-date cash flow from operations number?

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : Okay. That's great. The NPLs of around $1 billion. Do you have any numbers in mind as to where that total balance peaks?

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : And when you look at the NPL and taking learning what's been going on in this cycle, do they have anything in common in terms of maybe one issue that's been driving it? Do you think the main issue is really the borrowers basis than having paid too much to lower cap rate for the assets or to think of and perhaps it's sponsorship, maybe leverage ratio or the third category (multiple speakers) underperformance.

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : That's excellent. Thank you. My last question would just be on the GSEs. We've seen a lot of stories around the being pretty cautious right now, not just the Meridian issue, which started back in maybe in the third quarter of last year. But there have been others appraisers, local small regional title companies -- what exactly do you think is going on with the GSEs? Are they tracking down? Are they tightening their underwriting standards? Or are those just sort of a select few cases?

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : Thank you very much.

Question: Jay McCanless - Wedbush Securities - Analyst : Hey. Good morning. Thanks for taking my question. Congrats again on [EAD] covering the dividend, but that spread continues to narrow. Could you maybe talk to us about how comfortable you are with the current dividend level and especially if economic conditions worsen from here?

Question: Jay McCanless - Wedbush Securities - Analyst : Okay. Great. Thanks for taking my question.

Question: Crispin Love - Piper Sandler Companies - Analyst : Thanks. Good morning. Appreciate, taking my question. Just asking the GSE question from earlier, just a little bit differently. Can you discuss recent activity with Freddie and Fannie because we did see Fannie originations come down meaningfully in the first quarter. But they bounced back nicely in the second quarter? So curious if there were any changes there on tightening standards in the first quarter versus the second quarter? And then just what you expect going forward from the agencies?

Question: Crispin Love - Piper Sandler Companies - Analyst : Great. Thank you. I appreciate the July number there as well. And then just one more for me. Can you just talk a little bit how you expect the first couple of rate cuts at the end of the year, assuming they do happen at the end of the year and into 2025 could impact you? And could it be a net negative to your net interest income over the near term in the structured business, but of course, benefit originations and agency, as you mentioned. Just curious on how you think about the impact there, especially in NII are doing lower yields, lower cost of funds, but I'm sure how much it would improve the borrower profile just with a couple of rate cuts? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2024 / 2:00PM, ABR.N - Q2 2024 Arbor Realty Trust Inc Earnings Call

Question: Crispin Love - Piper Sandler Companies - Analyst : Great. Thank you. Appreciate, taking my questions.

Question: Lee Cooperman - Omega Family Office - Analyst : I'm not a pint for you guys, but I just want to say I congratulate you on your performance. 1.5 years ago, you told me how negative you were about the environment, and you couldn't have been more right. I detect a real frustration on your part in the beginning part of this call and dealing with the shorts. These are unmerciful and in this case, uninformed people, basically. And I just would tell you, [last, last best] and so you're performing. They don't understand the uniqueness of the company and how you position the company. And let me tell you, you've been very right, and I congratulate you and I thank you as a lot shareholder. Let me ask your questions in have been more right to me about the environment. Do you think we're heading into a recession, number one? Number two, in terms of the book value, I mean I'm not on vacation, so I'm dialing in on a cell phone. What is our book value at the end of the quarter? And are you a buyer of your stock in the low -- in the [10, 11, 12] area? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2024 / 2:00PM, ABR.N - Q2 2024 Arbor Realty Trust Inc Earnings Call

Question: Lee Cooperman - Omega Family Office - Analyst : I know it's been very frustrating to you. The short guys are unmerciful. They come out with inaccurate accusations on a Friday afternoon when you're in your quiet period and you can't respond. And it's just terrible with the damage they're doing to the public shareholders. But we're all lucky to have you guys in our corner because you've done a terrific job, and I appreciate it. Thank you.

Question: Lee Cooperman - Omega Family Office - Analyst : It's my pleasure they're well deserved. Congratulations. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2024 / 2:00PM, ABR.N - Q2 2024 Arbor Realty Trust Inc Earnings Call