Core Viewpoint - Arbor Realty Trust (NYSE: ABR) shares have rebounded over 40% from their lows in May, indicating a potential bottoming out of the stock [1]. Company Summary - Arbor Realty Trust has been a controversial stock, with short interest remaining above 26% [1]. - The focus on growth and dividend income is emphasized, with a strategy aimed at creating a portfolio that supports an easy retirement through compounding dividend income and growth [1]. Investment Strategy - The investment strategy involves structuring a portfolio to achieve monthly dividend income that grows through reinvestment and annual increases [1].

Core Viewpoint - Annaly Capital Management (NLY) is positioned as a more favorable investment compared to Arbor Realty Trust (ABR) due to its robust liquidity, sustainable dividend, and improving financial outlook, while ABR faces challenges with weak liquidity and a recent dividend cut [1][21]. Group 1: Annaly Capital Management (NLY) - NLY focuses on enhancing liquidity and reducing leverage, with total assets available for financing amounting to $7.4 billion, including $4.7 billion in unencumbered Agency mortgage-backed securities (MBS) [2][10]. - The company has a monthly dividend yield of 13.3% and a payout ratio of 99%, having increased its dividend only once in the past five years [3][10]. - NLY's investment strategy includes traditional Agency MBSs for downside protection and investments in non-agency and credit-focused asset classes to enhance returns [4]. - As of March 31, 2025, NLY's investment portfolio totaled $89.5 billion, and the company is acquiring newly originated mortgage servicing rights (MSRs) to strengthen its position [5]. - With declining mortgage rates, NLY is expected to see improvements in book value and net interest spread, positively impacting its financials [6]. - NLY shares have appreciated by 23.4% this year, while trading at a forward P/E of 7.14X, lower than its five-year median of 7.22X, indicating it is trading at a discount compared to the industry average [9][13][15]. Group 2: Arbor Realty Trust (ABR) - ABR primarily focuses on originating and servicing loans for multi-family, single-family, and commercial real estate assets, benefiting from improved housing affordability due to lower mortgage rates [7]. - The current dividend yield for ABR is 10.15%, with a payout ratio of 92%, but the company reduced its dividend by 30.3% to 30 cents per share in May 2025 due to weak liquidity [8][10]. - As of June 30, 2025, ABR had cash and cash equivalents of $504 million against long-term debt of $5.1 billion, raising concerns about its liquidity and capital distribution sustainability [8]. - ABR shares have declined by 6.6% this year, and it is trading at a forward P/E of 9.78X, which is higher than its five-year median of 8.76X, indicating a premium valuation [9][13][15]. - The Zacks Consensus Estimate for ABR indicates year-over-year sales declines of 17.6% for 2025 and a drop of 36.8% in earnings for the same year, with EPS estimates moving downward over the past 60 days [16][20].

Core Viewpoint - Arbor Realty Trust, Inc. has successfully closed a $1.05 billion commercial real estate mortgage loan securitization, issuing approximately $933 million in investment grade-rated notes and retaining subordinate interests of about $117 million [1][4]. Group 1: Securitization Details - The securitization includes collateral of $1.05 billion, which consists of approximately $123 million in capacity to acquire additional loans within 180 days from the closing date [1]. - The investment grade-rated notes have an initial weighted average spread of 1.82% over Term SOFR, excluding fees and transaction costs [2]. - The facility allows for a replenishment period of approximately two years and six months, enabling reinvestment of principal proceeds from repayments into qualifying replacement assets [2]. Group 2: Financial Strategy - Arbor intends to maintain ownership of the portfolio of real estate-related assets through the securitization vehicle until maturity and plans to account for it as a financing on its balance sheet [4]. - Proceeds from the securitization will be utilized to repay existing borrowings, cover transaction expenses, and fund future loans and investments [4]. Group 3: Company Overview - Arbor Realty Trust, Inc. is a nationwide real estate investment trust and direct lender, specializing in loan origination and servicing for various commercial real estate assets [6]. - The company manages a multibillion-dollar servicing portfolio and is recognized as a leading lender for government-sponsored enterprise products [6].

Core Viewpoint - Arbor Realty's (ABR) dividend stability and growth have historically made it a strong performer in the mortgage REIT sector, but recent dividend cuts and declining coverage have led to a neutral stance on the stock [1]. Company Summary - Arbor Realty has been recognized for its consistent dividend payments and growth, positioning it as one of the top tickers in the mortgage REIT space [1]. - The recent decision to cut dividends has raised concerns about the company's financial health and its ability to maintain coverage [1]. Industry Summary - The equity market is characterized by daily price fluctuations that can lead to significant wealth creation or destruction over time [1]. - Pacifica Yield is focused on long-term wealth creation by investing in undervalued high-growth companies, high-dividend stocks, REITs, and green energy firms [1].

Group 1 - David A. Johnson is the founder and principal of Endurance Capital Management, a New Jersey Limited Liability Company, with over 30 years of investment experience [1] - Johnson's investment strategy includes a diverse range of assets such as stocks, bonds, options, ETFs, REITs, real estate, closed-end funds, hedge funds, and private credit [1] - He holds a Master of Science (MS) Degree in Finance with a concentration in Investment Analysis from Boston University, a Certificate in Financial Planning, and an MBA from Fordham University [1]

Core Viewpoint - Arbor Realty Trust reported mixed quarterly results for Q2 2025, with Non-GAAP distributable earnings per share exceeding analyst expectations, but significant declines in revenue and GAAP earnings per share [1][5][11] Financial Performance - Non-GAAP distributable earnings per share were $0.25, surpassing the estimate of $0.23, but down 44.4% from $0.45 in Q2 2024 [2] - GAAP diluted earnings per share fell to $0.12, a decrease of 52.0% from $0.25 in Q2 2024 [2] - Revenue (GAAP) was reported at $64.5 million, a substantial drop from $297.2 million in Q2 2024 [1][2] - The quarterly dividend was reset to $0.30 per share, down from $0.43 in Q2 2024, reflecting reduced earnings [1][12] Business Model and Focus Areas - Arbor Realty Trust operates a dual-segment business model, focusing on Structured Loan Origination and Investment, and Agency Loan Origination and Servicing [3] - The structured segment targets bridge loans, mezzanine lending, and preferred equity for various real estate types, while the agency segment partners with GSEs for agency-backed financing [3] Operational Highlights - Loan originations in the agency business rebounded to $857.1 million, with Fannie Mae originations nearly doubling from the previous quarter [6] - The structured lending platform originated $716.5 million, a slight decline from the previous quarter [7] - Non-performing loans (NPLs) decreased to $471.8 million, but asset quality metrics remain under pressure [7][8] Credit and Risk Management - The company booked an allowance for loan losses of $243.3 million and a provision for credit losses of $19.0 million [8] - Management modified eight loans totaling $251.9 million, with most now marked as current after borrower recapitalizations [8] Product and Segment Trends - Agency servicing revenue reached $27.4 million, with mortgage servicing rights income at $10.9 million [9] - The structured portfolio had a weighted average yield of 7.95%, though yields declined slightly due to stress from legacy non-performers [9] Liquidity and Financing - The company ended the quarter with $255.7 million in cash, down from $503.8 million at year-end 2024 [10] - New financing activities included an $801.9 million securitization deal and a $500.0 million issuance of senior unsecured notes, adding about $200 million of liquidity [10] Forward-Looking Statements - Management views 2025 as a transitional year with heightened credit costs and ongoing resolution of problem loans [11] - Distributable earnings are expected to remain at the lower end of the $0.30-$0.35 per share range for 2025 [11]

Financial Data and Key Metrics Changes - The company reported distributable earnings of $52.1 million or $0.25 per share, and $62.5 million or $0.30 per share excluding one-time realized losses of $10.5 million from the sale of two REO assets in the second quarter [17] - The total delinquencies decreased to $529 million as of June 30 from $654 million at March 31, with non-performing loans (NPLs) at approximately $472 million compared to $511 million last quarter [19][20] - The average yield on core investments decreased to 7.95% from 8.15% last quarter, primarily due to less back interest collected and additional delinquencies [24] Business Line Data and Key Metrics Changes - In the agency business, the company originated $850 million in loans during the second quarter and $1.5 billion for the first six months, with a strong July resulting in $1 billion in agency loans [11][12] - The single-family rental business generated approximately $230 million in new business in the second quarter, with a strong pipeline and successful conversion of construction loans into bridge loans [13] - The construction lending business closed $265 million in deals in the first six months and an additional $144 million in July, with a strong pipeline of applications [14] Market Data and Key Metrics Changes - The prolonged elevated rate environment has created challenges in the agency originations business, affecting borrowers' ability to transition to fixed-rate loans [7] - The company anticipates that the current year will be challenging due to the significant drag on earnings from REO assets and delinquencies, with expectations for a transitional year [9][15] - The competitive landscape in balance sheet lending remains strong, with a significant appetite for deals and a large amount of capital chasing transactions [10] Company Strategy and Development Direction - The company views 2025 as a transitional year focused on resolving REO assets and delinquencies to build a strong earnings foundation for 2026 [16] - The company aims to leverage its securitization platform to scale up its single-family rental business and gain market share, enhancing competitive advantages [6] - The strategy includes being selective in closing deals, with a focus on maintaining credit quality and structure despite competitive pressures [10] Management's Comments on Operating Environment and Future Outlook - Management noted that the current elevated rate environment has created volatility and uncertainty, making it difficult to predict interest rate movements for the remainder of the year [7] - The company is optimistic about future earnings growth and dividend increases in 2026 if there is a sustained reduction in interest rates [9] - Management emphasized the importance of managing through the loan book effectively despite the challenges posed by the current economic environment [7] Other Important Information - The company successfully completed a high-yield unsecured debt offering, raising $500 million to pay off convertible debt and enhance liquidity [4][5] - The investment portfolio grew to $11.6 billion at June 30, with originations outpacing runoff for the second consecutive quarter [23] - The company recorded an additional $16 million in loan loss reserves in the second quarter, reflecting changes in the outlook on real estate values [22] Q&A Session Summary Question: Drop in net interest income from $75 million to $69 million - Management explained that the drop was due to increased delinquencies and less back interest collected on delinquent loans, with reversals impacting the figures [28][29] Question: Future REO levels and potential peak - Management indicated that they are aggressively managing non-performing loans and expect to see a peak in REO levels, with a focus on transitioning assets quickly [31][32] Question: Increased lending spreads and capital markets activity - Management noted that lower interest rates create opportunities for distressed deals, leading to increased interest in their REO and sub-performing loan books [37][38] Question: Losses related to REO this quarter - Management confirmed that losses were primarily from one property that was foreclosed and sold quickly, with another asset marked close to its value [50][51] Question: PIK interest on the balance sheet - Management confirmed that PIK interest is being capitalized in loan balances, with $95 million of PIK on the balance sheet as of June 30 [56][58] Question: Absorption of vacancy and property strategy - Management discussed that their portfolio is primarily in workforce housing, which is seeing steady growth in occupancy, and they are focused on repositioning underperforming assets [62][63] Question: Capital expenditures for portfolio repositioning - Management estimated that capital expenditures for repositioning assets would be in the range of $25 million to $50 million over time [70]

Financial Data and Key Metrics Changes - The company reported distributable earnings of $52.1 million or $0.25 per share, and $62.5 million or $0.30 per share excluding one-time realized losses of $10.5 million from the sale of two REO assets in the second quarter [18] - The total delinquencies decreased to $529 million as of June 30 from $654 million at March 31, with non-performing loans (NPLs) at approximately $472 million compared to $511 million last quarter [20][21] - The average yield on core investments decreased to 7.95% from 8.15% last quarter, primarily due to less back interest collected and additional delinquencies [25] Business Line Data and Key Metrics Changes - In the agency business, the company originated $850 million in loans during the second quarter and $1.5 billion for the first six months, with a strong July resulting in $1 billion in agency loans [12][24] - The single-family rental business saw approximately $230 million in new business during the second quarter, with a strong pipeline for future growth [13][14] - The construction lending business closed $265 million in the first six months and an additional $144 million in July, with a strong pipeline of applications [15] Market Data and Key Metrics Changes - The prolonged elevated rate environment has created challenges in the agency originations business, affecting borrowers' ability to transition to fixed-rate loans [8] - The company anticipates that if there is a sustained reduction in interest rates, it will positively impact origination volumes and earnings [10] Company Strategy and Development Direction - The company views 2025 as a transitional year focused on resolving REO assets and delinquencies, aiming to build a strong earnings foundation for 2026 [16][17] - The company is committed to being selective in its lending practices, closing $100 million in the second quarter and $215 million in July, with a target of $1.5 billion to $2 billion in bridge loan production for 2025 [11] - The company is expanding its securitization platform to increase leverage and efficiency in the single-family rental business, enhancing competitive advantage [6][14] Management's Comments on Operating Environment and Future Outlook - Management noted that the current market environment is characterized by volatility and uncertainty, particularly regarding interest rates, which complicates predictions for the remainder of the year [8] - The company is optimistic about future growth, especially if interest rates decrease, which would facilitate increased origination volumes and improved earnings [10][81] Other Important Information - The company successfully completed a high-yield unsecured debt offering, raising $500 million to pay off convertible debt and enhance liquidity [4][5] - The investment portfolio grew to $11.6 billion at June 30, with an all-in yield of 7.86% [24] Q&A Session Summary Question: Drop in net interest income from $75 million to $69 million - Management explained that the drop was due to increased delinquencies and less back interest collected on delinquent loans, along with reversals on certain loans [30][31] Question: Future peak of REO assets - Management indicated that they expect REO assets to peak around $400 million to $600 million, with a focus on accelerating the resolution of non-performing loans [33][34] Question: Interest from outside parties in REO and sub-performing loan books - Management confirmed that there is significant interest in distressed deals, with multiple bidders for such assets, particularly as interest rates decline [40][41] Question: Capital expenditures for repositioning assets - Management estimated that capital expenditures for repositioning assets would be between $25 million to $50 million over the next six to twelve months [70][72] Question: Agency originations dynamics between Fannie and Freddie - Management noted that both agencies have competitive advantages, with Fannie Mae traditionally being more active, but Freddie Mac has been stepping up recently [75][76]

Core Viewpoint - Arbor Realty Trust (ABR) reported quarterly earnings of $0.25 per share, missing the Zacks Consensus Estimate of $0.29 per share, and down from $0.45 per share a year ago, indicating an earnings surprise of -13.79% [1] Financial Performance - The company posted revenues of $240.3 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.29%, but down from $297.19 million year-over-year [2] - Over the last four quarters, Arbor Realty Trust has surpassed consensus EPS estimates only once [2] - The current consensus EPS estimate for the upcoming quarter is $0.31 on revenues of $249.35 million, and for the current fiscal year, it is $1.18 on revenues of $976.07 million [7] Stock Performance - Arbor Realty Trust shares have declined approximately 19.4% since the beginning of the year, contrasting with the S&P 500's gain of 7.8% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating expectations of underperformance in the near future [6] Industry Outlook - The REIT and Equity Trust industry is currently ranked in the top 22% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements for Arbor Realty Trust, Inc. as of June 30, 2025, show a slight increase in total assets to **$13.56 billion** from **$13.49 billion** at year-end 2024, with net income for Q2 2025 at **$36.3 million**, a significant decrease from **$61.8 million** in Q2 2024 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets slightly increased to **$13.56 billion** from **$13.49 billion** at year-end 2024, driven by growth in loans and real estate owned, while total liabilities rose to **$10.47 billion** and total equity saw a minor decline to **$3.09 billion** Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$13,563,039** | **$13,490,981** | | Cash and cash equivalents | $255,742 | $503,803 | | Loans and investments, net | $11,333,023 | $11,033,997 | | Real estate owned, net | $365,186 | $176,543 | | **Total Liabilities** | **$10,469,176** | **$10,339,011** | | Credit and repurchase facilities | $4,721,622 | $3,559,490 | | Securitized debt | $3,510,865 | $4,622,489 | | **Total Equity** | **$3,093,863** | **$3,151,970** | - Assets of consolidated Variable Interest Entities (VIEs) totaled **$4.85 billion** at June 30, 2025, down from **$6.12 billion** at December 31, 2024[14](index=14&type=chunk) [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) For Q2 2025, net income was **$36.3 million**, a **41% decrease** from **$61.8 million** in Q2 2024, with diluted EPS at **$0.12**, primarily due to a **22% drop** in net interest income and lower other revenue Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $68,725 | $87,961 | $144,168 | $191,577 | | Total Other Revenue | $61,685 | $65,142 | $120,405 | $122,178 | | Provision for credit losses | $19,004 | $29,564 | $28,079 | $48,682 | | **Net Income** | **$36,309** | **$61,833** | **$79,690** | **$135,044** | | Net Income Attributable to Common Stockholders | $23,952 | $47,397 | $54,389 | $105,270 | | **Diluted EPS** | **$0.12** | **$0.25** | **$0.28** | **$0.56** | | Dividends declared per common share | $0.30 | $0.43 | $0.73 | $0.86 | [Consolidated Statements of Changes in Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity decreased from **$3.15 billion** at the start of 2025 to **$3.09 billion** at June 30, 2025, primarily due to **$160.6 million** in distributions to stockholders exceeding **$79.7 million** in net income - For the six months ended June 30, 2025, total distributions to common and preferred stockholders amounted to **$139.9 million** and **$20.7 million**, respectively[19](index=19&type=chunk) - The company issued **2,508,750 shares** of common stock during the first six months of 2025, generating proceeds of **$30.8 million**[19](index=19&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, a net decrease in cash of **$313.5 million** resulted from **$210.6 million** in operating cash flow being offset by **$522.1 million** used in investing activities and **$2.0 million** in financing outflows Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $210,597 | $329,888 | | Net cash (used in) provided by investing activities | ($522,125) | $717,993 | | Net cash used in financing activities | ($1,965) | ($1,629,375) | | **Net decrease in cash, cash equivalents and restricted cash** | **($313,493)** | **($581,494)** | - The company acquired **$356.0 million** of real estate in settlement of loans during the first six months of 2025, a significant non-cash investing activity[27](index=27&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's business segments, accounting policies, and financial statement line items, including the **$11.6 billion** loan portfolio, increased non-performing loans, **$10.1 billion** in debt obligations, and various commitments and contingencies [Note 1 — Description of Business](index=11&type=section&id=Note%201%20%E2%80%94%20Description%20of%20Business) Arbor Realty Trust operates as a REIT through its Structured Business, investing in diversified structured finance assets, and its Agency Business, originating and servicing multifamily finance products through GSEs and HUD - The Structured Business focuses on investing in bridge loans, mezzanine loans, and preferred equity in the multifamily, single-family rental (SFR), and commercial real estate markets[30](index=30&type=chunk) - The Agency Business originates, sells, and services multifamily loans through government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, as well as HUD programs, retaining servicing rights on nearly all originated and sold loans[31](index=31&type=chunk) [Note 3 — Loans and Investments](index=13&type=section&id=Note%203%20%E2%80%94%20Loans%20and%20Investments) The loan and investment portfolio grew to **$11.61 billion** as of June 30, 2025, with bridge loans comprising **96%**, while the allowance for credit losses increased to **$243.3 million** and non-performing loans decreased to **$424.7 million** Loan & Investment Portfolio Composition (in thousands) | Loan Type | UPB at June 30, 2025 | Percent of Total | | :--- | :--- | :--- | | Bridge loans | $11,105,463 | 96% | | Mezzanine loans | $250,858 | 2% | | Preferred equity investments | $149,776 | 1% | | Other | $103,138 | <1% | | **Total UPB** | **$11,609,235** | **100%** | - The allowance for credit losses increased to **$243.3 million** at June 30, 2025, from **$239.0 million** at December 31, 2024, with a provision of **$23.5 million** and charge-offs of **$19.1 million** for the first six months of 2025[54](index=54&type=chunk)[56](index=56&type=chunk) - Non-performing loans (over 60 days past due) decreased to **19 loans** with a carrying value of **$424.7 million** at June 30, 2025, down from **26 loans** with a carrying value of **$598.9 million** at year-end 2024[62](index=62&type=chunk) - During the six months ended June 30, 2025, the company modified loans with a total UPB of **$1.20 billion** for borrowers experiencing financial difficulty, representing **10.6%** of the total Structured Business portfolio[75](index=75&type=chunk)[77](index=77&type=chunk) [Note 6 — Mortgage Servicing](index=26&type=section&id=Note%206%20%E2%80%94%20Mortgage%20Servicing) The total mortgage servicing portfolio slightly increased to **$33.76 billion** at June 30, 2025, primarily composed of Fannie Mae loans, while net servicing revenue for Q2 2025 decreased to **$27.4 million** due to lower interest earned on escrow balances Servicing Portfolio by Product (UPB in thousands) | Product | June 30, 2025 | % of Total | | :--- | :--- | :--- | | Fannie Mae | $22,999,772 | 68% | | Freddie Mac | $6,100,091 | 18% | | Private Label | $2,599,971 | 8% | | FHA | $1,497,551 | 4% | | Other | $565,181 | 2% | | **Total** | **$33,762,566** | **100%** | - The weighted average servicing fee for the portfolio was **37.4 basis points** at June 30, 2025[108](index=108&type=chunk) [Note 9 — Real Estate Owned](index=31&type=section&id=Note%209%20%E2%80%94%20Real%20Estate%20Owned) Real Estate Owned (REO) assets significantly increased to **$365.2 million** as of June 30, 2025, from **$176.5 million** at year-end 2024, primarily due to the foreclosure of ten multifamily bridge loans - During the first six months of 2025, the company foreclosed on **ten multifamily bridge loans** with an aggregate net carrying value of **$260.3 million**, receiving the underlying collateral as REO assets[126](index=126&type=chunk) - The company sold **three multifamily REO assets** for **$84.0 million** during the first half of 2025, recognizing a net loss of **$1.0 million** on the sales[127](index=127&type=chunk) [Note 10 — Debt Obligations](index=32&type=section&id=Note%2010%20%E2%80%94%20Debt%20Obligations) Total debt obligations were **$10.13 billion** at June 30, 2025, with credit and repurchase facilities increasing to **$4.72 billion** and securitized debt decreasing to **$3.51 billion** following CLO unwinds and a new BTR CLO issuance, while all CLOs remained covenant compliant Debt Obligations Summary (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Credit and repurchase facilities | $4,721,622 | $3,559,490 | | Securitized debt | $3,510,865 | $4,622,489 | | Senior unsecured notes | $1,238,174 | $1,236,147 | | Convertible senior unsecured notes | $287,258 | $285,853 | | Other Debt | $329,703 | $219,583 | | **Total** | **$10,087,622** | **$9,923,562** | - In May 2025, the company completed its first Build-to-Rent (BTR) CLO, issuing notes totaling **$801.9 million**[146](index=146&type=chunk) - In March 2025, the company unwound CLO 14 and 19, redeeming outstanding notes totaling **$1.08 billion**, which were repaid from a new **$1.15 billion** repurchase facility[150](index=150&type=chunk) - All CLO vehicles were in compliance with interest coverage and overcollateralization covenants as of the most recent determination dates in July 2025[163](index=163&type=chunk)[164](index=164&type=chunk) [Note 14 — Commitments and Contingencies](index=45&type=section&id=Note%2014%20%E2%80%94%20Commitments%20and%20Contingencies) The company faces significant commitments, including **$4.36 billion** in Fannie Mae DUS risk-sharing obligations and **$2.22 billion** in unfunded loan commitments, alongside ongoing securities class action and shareholder derivative lawsuits which the company believes are without merit - The company has unfunded commitments of **$2.22 billion** at June 30, 2025, that it is obligated to fund as borrowers meet certain requirements[217](index=217&type=chunk) - A securities class action lawsuit was filed against the company and certain officers in July 2024, alleging false and misleading statements regarding internal controls and lending practices, with the company's motion to dismiss pending[219](index=219&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - Several shareholder derivative lawsuits have been filed, asserting claims for breach of fiduciary duties and other violations, arising from substantially the same facts as the securities class action, and these cases are currently stayed[224](index=224&type=chunk)[225](index=225&type=chunk) [Note 16 — Equity](index=48&type=section&id=Note%2016%20%E2%80%94%20Equity) During the first six months of 2025, the company sold **2.5 million shares** of common stock for **$30.9 million** in net proceeds, declared common stock dividends of **$0.73 per share**, and has **$138.6 million** available under its share repurchase program - Sold **2,508,750 shares** of common stock at an average price of **$12.31 per share** for net proceeds of **$30.9 million** during the first six months of 2025[237](index=237&type=chunk) Dividends Declared per Common Share | Period | 2025 | 2024 | | :--- | :--- | :--- | | Q1 | $0.43 | - | | Q2 | $0.30 | $0.43 | | **YTD** | **$0.73** | **$0.86** | - The share repurchase program had **$138.6 million** available for repurchase as of June 30, 2025[238](index=238&type=chunk) [Note 19 — Segment Information](index=56&type=section&id=Note%2019%20%E2%80%94%20Segment%20Information) For Q2 2025, the Structured Business generated **$19.6 million** in net income and holds the majority of assets and liabilities, while the Agency Business generated **$16.7 million** in net income, with its originations decreasing to **$857.1 million** Net Income by Segment - Q2 2025 (in thousands) | Segment | Net Income | | :--- | :--- | | Structured Business | $19,630 | | Agency Business | $16,679 | | Other (Noncontrolling Interest) | ($2,015) | | **Consolidated Net Income** | **$36,309** | Total Assets by Segment (in thousands) | Segment | June 30, 2025 | | :--- | :--- | | Structured Business | $12,323,428 | | Agency Business | $1,239,611 | | **Consolidated Total Assets** | **$13,563,039** | - Agency Business new loan originations decreased to **$857.1 million** in Q2 2025 from **$1.15 billion** in Q2 2024[296](index=296&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=64&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant decline in net income for Q2 and H1 2025 due to a challenging high-interest rate environment, which increased delinquencies and reduced origination volumes, while highlighting a new build-to-rent CLO issuance and the unpredictable impact of new legislation [Current Market Conditions, Risks and Recent Trends](index=65&type=section&id=Current%20Market%20Conditions%2C%20Risks%20and%20Recent%20Trends) Management highlights challenging market conditions with high interest rates leading to increased delinquencies, loan modifications, and declining real estate values, while the recently enacted One Big Beautiful Bill Act (OBBBA) introduces further uncertainty regarding tax policy and market dynamics - The high-interest rate environment has resulted in increased payment delinquencies, defaults, loan modifications, and foreclosures, which may continue to impact results[313](index=313&type=chunk) - Decreased origination volumes, especially in the GSE/Agency business, have negatively impacted the ability for borrowers to refinance balance sheet loans with fixed-rate agency products[313](index=313&type=chunk) - The enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, introduces wide-ranging changes to federal tax policy and fiscal priorities, the effects of which on the business and real estate markets are difficult to predict[320](index=320&type=chunk) [Comparison of Results of Operations](index=69&type=section&id=Comparison%20of%20Results%20of%20Operations) Net income attributable to common stockholders for Q2 2025 decreased by **49%** to **$24.0 million** from **$47.4 million** in Q2 2024, primarily due to a **$19.2 million** drop in net interest income and lower gains on sales, partially offset by a decrease in provision for credit losses Comparison of Results for Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $68,725 | $87,961 | (22)% | | Total Other Revenue | $61,685 | $65,142 | (5)% | | Provision for credit losses | $19,004 | $29,564 | (36)% | | **Net Income** | **$36,309** | **$61,833** | **(41)%** | - The decrease in net interest income was driven by a lower average yield on assets due to falling SOFR rates and an increase in loan delinquencies, as well as lower interest earned on reduced cash balances[338](index=338&type=chunk) - Agency Business revenue declined due to a **29% decrease** in loan sales volume and lower earnings on escrow balances[340](index=340&type=chunk)[341](index=341&type=chunk) [Liquidity and Capital Resources](index=75&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources include equity and debt offerings, CLOs, and debt facilities, with approximately **$600 million** in cash and liquidity as of July 29, 2025, and **54%** of its **$9.61 billion** structured debt being non-mark-to-market - As of July 29, 2025, the company had approximately **$600 million** in cash and liquidity[372](index=372&type=chunk) - Of the **$9.61 billion** in total structured debt, **$5.21 billion (54%)** does not contain mark-to-market provisions[371](index=371&type=chunk) - The company has a **$33.76 billion** agency servicing portfolio that generates approximately **$126 million** per year in recurring gross cash flow[372](index=372&type=chunk) [Non-GAAP Financial Measures](index=79&type=section&id=Non-GAAP%20Financial%20Measures) The company uses Distributable Earnings as a non-GAAP measure, which for Q2 2025 was **$52.1 million**, or **$0.25 per diluted share**, a significant decrease from **$91.6 million**, or **$0.45 per diluted share**, in Q2 2024, after adjusting GAAP net income for non-cash items Distributable Earnings Reconciliation (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $23,952 | $47,397 | | Adjustments (Net) | $28,117 | $44,168 | | **Distributable earnings** | **$52,069** | **$91,565** | | **Diluted distributable earnings per share** | **$0.25** | **$0.45** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=80&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate risk, where a hypothetical **50 basis point** increase would raise net interest income by **$7.6 million** over 12 months, and a **100 basis point** increase in discount rates would decrease MSR fair value by **$13.7 million** Hypothetical 12-Month Impact of Interest Rate Changes on Net Interest Income (in thousands) | Rate Change | Impact on Net Interest Income | | :--- | :--- | | +50 Basis Points | $7,606 | | -50 Basis Points | ($5,731) | | -100 Basis Points | ($8,213) | - A **100 basis point** increase in the weighted average discount rate would decrease the fair value of MSRs by **$13.7 million**, while a **100 basis point** decrease would increase the fair value by **$14.4 million**[404](index=404&type=chunk) [Item 4. Controls and Procedures](index=81&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[405](index=405&type=chunk) [PART II. OTHER INFORMATION](index=81&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=81&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a securities class action lawsuit and several shareholder derivative actions, as detailed in Note 14 of the financial statements, which the company believes are without merit and intends to vigorously defend against - The company is currently defending against a securities class action lawsuit and multiple shareholder derivative suits, with further details provided in Note 14[407](index=407&type=chunk)[218](index=218&type=chunk) [Item 1A. Risk Factors](index=81&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors from the 2024 Annual Report were reported[408](index=408&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=82&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a share repurchase program with **$138.6 million** remaining available as of June 30, 2025, though affiliated purchasers, not the company, bought **233,821 shares** during Q2 2025 - As of June 30, 2025, **$138.6 million** remained available under the company's share repurchase program[410](index=410&type=chunk) - Affiliated purchasers, not the company itself, bought **233,821 shares** during the three months ended June 30, 2025[411](index=411&type=chunk) [Item 5. Other Information](index=82&type=section&id=Item%205.%20Other%20Information) During the reporting period, no director or officer of Arbor adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the quarter[412](index=412&type=chunk) [Item 6. Exhibits](index=83&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, debt indentures, and officer certifications